UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 20172020
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to      
Commission file number: 001-09318
FRANKLIN RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-2670991
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
One Franklin Parkway, San Mateo, California94403
(Address of principal executive offices)(Zip Code)
RegistrantsOne Franklin Parkway, San Mateo, CA 94403
(Address of principal executive offices) (Zip code)

(650) 312-2000
(Registrant’s telephone number, including area code: (650) 312-2000code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
Common Stock, par value $.10$0.10 per shareBENNew York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x  YES    o  NO  Yes      No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o  YES   x  NO  Yes     No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   x  YES    o  NO  Yes      No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x  YES    o  NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x  Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer     x
Accelerated filer     o
Large Accelerated Filer
Accelerated Filer
Non-accelerated filer     o (Do not check if a smaller reporting company)Filer
Smaller reporting company    oReporting Company
 
Emerging growth company    oGrowth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o  YES   x  NO  Yes     No
The aggregate market value of the voting common equity (“common stock”) held by non-affiliates of the registrant, as of March 31, 20172020 (the last business day of registrant’s second quarter of fiscal year 2017)2020), was $14.2$4.6 billion based upon the last sale price reported for such date on the New York Stock Exchange.
Number of shares of the registrant’s common stock outstanding at October 31, 2017: 553,908,023.2020: 504,591,594.
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the registrant’s definitive proxy statement for its annual meeting of stockholders, to be filed with the Securities and Exchange Commission within 120 days after September 30, 2017,2020, are incorporated by reference into Part III of this report.




INDEX TO ANNUAL REPORT ON FORM 10-K
FORM 10-K
ITEM
 
PAGE
NUMBER
  
 ITEM 1.3
 ITEM 1A.1918
 ITEM 1B.2729
 ITEM 2.2730
 ITEM 3.2830
 ITEM 4.2830
 2831
  
 ITEM 5.3033
 ITEM 6.3134
 ITEM 7.3235
 ITEM 7A.5563
 ITEM 8.5765
 ITEM 9.94107
 ITEM 9A.94107
 ITEM 9B.94107
  
 ITEM 10.94108
 ITEM 11.94108
 ITEM 12.95108
 ITEM 13.95108
 ITEM 14.95108
  
 ITEM 15.96109
 ITEM 16.96109
96109
98112




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PART I
Forward-looking Statements
FORWARD-LOOKING STATEMENTS. In addition to historical information, this
This Annual Report on Form 10-K contains10‑K (“Annual Report”) and the documents incorporated by reference herein may include forward-looking statements that reflect our current views with respect to future events and financial performance. Such statements are provided under the “safe harbor” protection of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts and generally can be identified by words or phrases written in the future tense and/or preceded by words such as “anticipate,” “believe,” “could,” “depends,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “potential,” “seek,” “should,” “will,” “would,” or other similar words or variations thereof, or the negative thereof, but these terms are not the exclusive means of identifying such statements.
Forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors including the risks and other factors discussed in Item 1A (“Risk Factors”), that couldmay cause actual results and outcomes to differ materially from any future results or outcomes expressed or implied by such forward-looking statements. When usedThe forward-looking statements contained in this report, wordsAnnual Report or phrases generally writtenthat are incorporated by reference herein are qualified in their entirety by reference to the future tense and/or preceded by words such as “will,risks and uncertainties disclosed in this Annual Report, including those discussed under the headings “Risk Factors,“may,” “could,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “seek,” “estimate” or other similar words are “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Moreover, statements in Risk Factors, “Managements Discussion and Analysis of Financial Condition and Results of Operations”Operations,” and elsewhere in this report that speculate about future events are forward-looking statements.“Quantitative and Qualitative Disclosures About Market Risk.”
While forward-looking statements are our best prediction at the time that they are made, you should not rely on them and are cautioned against doing so. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other possible future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. They are neither statements of historical fact nor guarantees or assurances of future performance. 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.
If a circumstance occurs after the date of this Annual Report on Form 10-K that causes any of our forward-looking statements to be inaccurate, whether as a result of new information, future developments or otherwise, we do not have an obligation, and we undertake no obligation to announce publicly the change to our expectations, or to make any revision to our forward-looking statements, to reflect any change in assumptions, beliefs or expectations, or any change in events, conditions or circumstances upon which any forward-looking statement is based, unless required by law.
Item 1.Business.
OVERVIEWGENERAL
Franklin Resources, Inc. (“Franklin”) is a holding company that, together with its various subsidiaries (collectively, the “Company”), operates asoperating under our Franklin Templeton Investments® and/or subsidiary brand names. Franklin’s common stock is traded on the New York Stock Exchange (the “NYSE”) under the ticker symbol “BEN” and is included in the Standard & Poors 500 Index. In this Annual Report, Franklin and its subsidiaries are collectively referred to as the “Company,” and words such as “we,” “us,” “our” and similar terms refer to the Company.
We offer our services and products under our various distinct brand names, including, but not limited to, Franklin®, Templeton®, Legg Mason®, Balanced Equity Management®, Benefit Street Partners®, Darby®, Edinburgh Partners™, Fiduciary Trust™, Franklin Bissett®, Franklin Mutual Series®, K2® and LibertyShares®. In addition, pursuant to our acquisition of Legg Mason, Inc. (“Legg Mason”) on July 31, 2020, as described further below, we acquired certain additional brand names including Brandywine Global Investment Management®, Clarion Partners®, ClearBridge Investments®, Martin Currie®, QS Investors®, Royce® Investment Partners and Western Asset Management Company®. Unless otherwise indicated, our “funds” means the funds offered under our various brand names.
We are a global investment management organization that provideswith $1,418.9 billion in assets under management (“AUM”) as of September 30, 2020. Our mission is to help clients achieve better outcomes through investment management expertise, wealth management and technology solutions. Through our investment adviser subsidiaries (“specialist investment managers”), including those acquired through our Legg Mason acquisition, we bring extensive capabilities in fixed income, equity, custom multi-asset solutions and alternatives. With more than 70 years of investment experience, we are committed to providing clients with exceptional investment management services and have developed a globally diversified business, including through strategic acquisitions. Our specialist investment managers offer diverse perspectives and specialized expertise across asset classes and strategies, distributed to both institutional and retail clients.


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Through our investment products, we provide investment management and related services to retail, institutional and high net-worth clientshigh-net-worth investors in jurisdictions worldwide. We are dedicateddeliver our investment capabilities through a variety of products and vehicles and via multiple points of access, including directly to providing better outcomesinvestors and through financial intermediaries. Our investment products include our sponsored funds, as well as institutional and high-net-worth separate accounts, retail separately managed account programs, sub-advised products, and other investment vehicles. Our sponsored funds include registered funds (including exchange-traded funds, or “ETFs”) and unregistered funds. We offer a broad product mix of fixed income, equity, multi-asset, alternative and cash management asset classes and solutions that meet a variety of investment goals and needs for investors. In addition to investment management, our services include fund administration, sales and distribution, and shareholder servicing. We may perform services directly or through third parties. We also provide sub-advisory services to certain investment products sponsored by other companies that may be sold to investors under the brand names of those other companies or on a co-branded basis.
We offer our clients the combined experience of our investment professionals with expertise across asset classes and a sharp focus on managing risk. This approach has helped investors navigate global markets for over 70 years. We believe in the value of active investment management, as well as in building on our strengthsaim to pursue alternative strategies to meet the evolving needs of our clients. We are committed to deliveringdeliver strong investment performance for our clients by offering a broad range of strategies and drawing on the extensive experience and perspective gained through our long history in the investment management business. The common stock of Franklin is traded
We know that success demands smart and effective business innovation, solutions and technologies, and we remain focused on investment excellence, innovating to meet evolving client goals, and building strong partnerships by delivering superior client service. We continue to focus on the New York Stock Exchange (the “NYSE”) under the ticker symbol “BEN,” and is included in the Standard & Poors 500 Index. In this report, words such as “we,” “us,” “our” and similar terms refer to the Company.
We offerlong-term investment performance of our investment products and services underon providing high quality customer service to our Franklin®, Templeton®, Franklin Mutual Series®, Franklin Bissett®, Fiduciary Trust™, Darby®, Balanced Equity Management®, K2®and LibertyShares®brand names. Unless otherwise indicated, our “funds” means the investment funds offered under our brand names.
As of September 30, 2017, we had $753.2 billion in assets under management (“AUM”). Our products include investment funds and institutional, high net-worth and separately-managed accounts (collectively, our “sponsored investment products” or “SIPs”). Our investment funds include U.S.-registered funds (“U.S. Funds”), non-U.S.-registered funds (“Non-U.S. Funds”), and unregistered funds. In addition to investment management, our product services include fund administration, sales, distribution, marketing, shareholder servicing, and other services. We offer a broad product mix under our equity, multi-asset/balanced, fixed income and cash management investment objectives and solutions that meet a variety of investment goals and needs for different investors. We also provide sub-advisory services to certain investment products sponsored by other companies which may be sold to investors under the brand names of those other companies or on a co-branded basis.
In 2016, we introduced our Franklin LibertyShares platform of strategic beta and actively managed exchange-traded funds (“ETFs”), which we further expanded in 2017, including the recent addition of lower fee passive ETFs. Our ETF platform generally seeks to provide investors with additional investment options.


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Most of the investment funds we manage are registered open-end mutual funds that continuously offer their shares to investors. We also offer registered closed-end funds that issue a set number of shares to investors in a public offering and the shares are then traded on a public stock exchange. The registered funds are independent companies under the supervision and oversight of the funds own boards of directors or trustees. Since the funds themselves do not have direct employees to support their operations, the funds contract with separate entities, such as our subsidiaries, to provide the investment management and related services they require. An investment advisory entity manages a funds portfolio of securities in accordance with the funds stated objectives. Investors may purchase shares of an open-end fund through a broker-dealer, financial adviser, bank or other similar financial intermediary that may provide investment advice to the investor, while investors may purchase shares of a closed-end fund on the stock exchange where the fund is traded. Financial intermediaries may earn fees and commissions and receive other compensation with respect to the fund shares managed or sold to investors.clients.
The business and regulatory environments in which we operate globally remain complex, uncertain and subject to change. We are subject to various laws, rules and regulations globally that impose restrictions, limitations, and registration, reporting and disclosure requirements on our business, and add complexity to our global compliance operations.
We continueAcquisition of Legg Mason
On July 31, 2020, we completed our acquisition of Legg Mason pursuant to focus on the long-termterms and conditions of the Agreement and Plan of Merger, dated as of February 17, 2020, by and among Franklin, Legg Mason and Alpha Sub, Inc., a wholly-owned subsidiary of Franklin (the “Merger Agreement”), pursuant to which Legg Mason became a wholly-owned subsidiary of Franklin. Under the Merger Agreement, at the effective time of the acquisition, we acquired all of the outstanding common stock of Legg Mason for a purchase consideration of $4.5 billion in cash and $0.2 billion related to the settlement of historical compensation arrangements. Legg Mason has outstanding debt with an aggregate maturity value of $2.0 billion. The transaction increased our assets under management by $797.4 billion as of the date of the acquisition. The acquisition significantly deepens our presence in key geographies and creates an expansive investment performanceplatform that is well balanced between institutional and retail client AUM.
Other Recent Development
Effective October 1, 2020, the capabilities of QS Investors, which became one of our SIPs and on providing high quality customer servicespecialist investment managers through the Legg Mason acquisition, were combined with our Franklin Templeton Multi-Asset Solutions group to ourform Franklin Templeton Investment Solutions, a solutions platform designed to deliver an expanded range of investment capabilities to clients. The successOur combined teams of these and otherinvestment professionals oversee various multi-asset strategies, may be affected by the Risk Factors discussed below in Item 1Aleveraging a broad spectrum of Part I of this Annual Report, and other factors as discussed in this section.investment capabilities from fundamental to quantitative.
COMPANY HISTORY AND ACQUISITIONSCompany History
TheSince 1947, the Company and its predecessors have been engaged in the investment management and related services business since 1947.business. Franklin was incorporated in the State of Delaware in November 1969, and originated our mutual fund business with the initial Franklin family of funds. The Franklin funds, are known for U.S. taxable and tax-freeits fixed income funds multi-asset/balanced funds, and growth-growth and value-oriented equity funds. WeOver the years, we have expanded and developed our business to meet evolving investor needs, in part, by acquiring companies engaged in the investment management and/or related services business.
In October 1992, we acquired substantially all of the assets and liabilities of the investment management and related services business of Templeton, Galbraith & Hansberger Ltd. This acquisitionservices. We have added, among others: (i) the Templeton family of funds, to our organization. The Templeton funds are known for theirits global investmentinvesting strategies and value style of investing.
In November 1996, we acquired certain assets and liabilities of Heine Securities Corporation, including Mutual Series Fund Inc., which now operates underinvesting, in 1992, (ii) the name Franklin Mutual Series. Franklin Mutual Series provides investment management services to various accounts and investment companies and isfamily of funds, known for its value-oriented equity funds.
In July 2000, we expanded our businessfunds, in South Korea when we acquired all of1996, (iii) the remaining outstanding shares of a South Korean investment management company, Templeton Investment Trust Management Co., Ltd., in which we previously held a partial interest, making us one of the largest independent foreign asset managers in South Korea at that time. The company has been renamed Franklin Templeton Investment Trust Management Co., Ltd.
In October 2000, we expanded our business in Canada when we acquired all of the outstanding shares of Bissett & Associates Investment Management Ltd., which now operates under the name Franklin Bissett Investment Management as partfamily of our Canadian subsidiary, Franklin Templeton Investments Corp. With this acquisition, we added Bissett’s family offunds, known for its Canadian taxable fixed income funds and growth-oriented equity investment funds, to our Canadian-based funds.
In April 2001, we acquired all ofin 2000, (iv) the outstanding shares of Fiduciary Trust Company International (“Fiduciary Trust”). Fiduciary Trust is currently a New York state-chartered limited purpose trust company that performsinvestment management, trust and fiduciary activities. Fiduciary Trust, together withservices firm, in 2001, (v) the Darby family of funds, known for its subsidiaries, also provides investment management and related services to, among others, high net-worth individuals and families, foundations and institutional clients.
In July 2002, we expanded our business in India when we acquired all of the outstanding shares of an Indian investment management company, Pioneer ITI AMC Limited, through our majority-owned subsidiary Franklin Templeton Asset Management (India) Private Limited (“FTAM India”). In April 2007, we completed the purchase of the remaining 25% interest in each of FTAM India, which provides asset management and investment advisory services, and Franklin Templeton Trustee Services Private Limited, a regulated trust company, each located in India.


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In October 2003, we expanded our private equity investment management services in emerging markets when we acquired all ofinvesting strategies, in 2003, (vi) the remaining outstanding shares of Darby Overseas Investments, Ltd. and all of the remaining outstanding limited partnership interests of Darby Overseas Partners, L.P. (collectively, “Darby”), in which we previously held a partial interest. Darby, based in Washington, D.C., sponsors and manages funds for institutional investors and high net-worth individuals that invest primarily in emerging markets through private equity, private debt and infrastructure investment transactions, including regional and specialized sector funds.
In July 2006, we expanded our business in Brazil when we completed the purchase of all of the remaining interests in a Brazilian investment management company, Bradesco Templeton Asset Management Ltda., in which we previously held a partial interest. The company has been renamed Franklin Templeton Investimentos (Brasil) Ltda. and provides investment management services.
In January 2011, we acquired all of the outstanding shares of a specialty United Kingdom (“U.K.”) equity manager, Rensburg Fund Management Limited (“Rensburg”). Rensburg has been renamed Franklin Templeton Fund Management Limited and serves as a U.K.-based equity manager.
In July 2011, we expanded our business in Australia when we acquired all of the outstanding shares of a specialty Australian equity manager, Balanced Equity Management Pty. Limited which provides investment management services.
In November 2012, we acquired approximately 69% ofspecialty Australian equity manager, in 2011, (vii) the equity of K2 Advisors Holdings LLC (“K2”), a hedge funds solutions provider, in 2012, (viii) the Edinburgh Partners global value investment manager based in the United Kingdom (the “U.K.”), in 2018, (ix) the Benefit Street Partners U.S. alternative credit manager, in 2019, (x) the Athena Capital Advisors investment and agreed to acquire K2’s remaining equity interests over a multi-year period beginningwealth management firm, in 2017. AsMarch 2020, (xi) The Pennsylvania Trust Company investment management,


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trust and fiduciary services firm, in May 2020, and (xii) the Legg Mason global investment management organization, including certain specialist investment managers, on July 31, 2020.
OUR INVESTMENT MANAGEMENT BUSINESSSTRUCTURE
We believe in the value of active investment management. Through our subsidiaries, we are committed to providing active investment managementhelping investors navigate global markets, as well as continuing to evolve and strategic advice.build on our strengths to meet the needs of our clients. Through our SIPs,investment products, including our expanded products acquired through the Legg Mason transaction, we serve a variety of clients including retail, institutional and high net-worth clientshigh-net-worth investors in regions and jurisdictions worldwide. We generally derive our revenues and net income from providing investment management and related services to our SIPsproducts and the sub-advised products that we service.products. Our investment management fees, which represent the majority of our revenues, depend to a large extent on the level and relative mix of our AUM and the types of services provided. SalesThese fees and distribution fees, also a significant source of our revenues, consist of sales charges and commissions derivedarrangements change from sales and distribution of our SIPs.time to time.
Our business is conducted through our subsidiaries, including those specialist investment managers registered with the U.S. Securities and Exchange Commission (the “SEC”) as investment advisers under the Investment Advisers Act of 1940 (the “Advisers Act”), subsidiariesthose registered as investment adviser equivalents in jurisdictions including Australia, Brazil, Canada, China, Hong Kong, Ireland, India, Japan, Luxembourg, Malaysia, Mexico, Singapore, Switzerland, South Korea, Commonwealth of The Bahamas, the United Arab Emirates, the U.K., and certain other subsidiaries.
Our U.S.-registered funds and most of our non-U.S.-registered funds operate as independent companies subject to the supervision and oversight of the funds’ own boards of directors or trustees. Most of our funds are registered open-end funds that continuously offer their shares to investors. We also offer registered closed-end funds that issue a set number of shares to investors in a public offering which shares are then traded on a public stock exchange. Our specialist investment managers manage a fund’s portfolio of securities in accordance with the fund’s stated objectives. The funds themselves do not have employees. To support the funds’ operations, our subsidiaries either provide or arrange for the investment and other management, shareholder servicing and administrative services required by the funds. We have outsourced certain administration services for our funds to third-party providers. An investor may purchase shares of an open-end fund through a broker-dealer, financial adviser, bank or other similar financial intermediary that provides investment advice to the investor, or an investor may purchase shares of a closed-end fund on the stock exchange where the fund is traded. Financial intermediaries may earn fees and commissions and receive other compensation with respect to fund shares sold to investors.
Our AUM by Investment ObjectiveAsset Class
We offer a broad product mix under our equity, multi-asset/balanced, fixed income, equity, multi-asset, alternative and cash management asset classes and solutions to meet a variety of investment objectives and solutions.goals. Our fees for providing investment management services are generally based on a percentage of the market value of AUM in the accounts that we advise, the investment objectivesasset classes of the accounts, and the types of services that we provide for the accounts. As of September 30, 20172020, our total AUM by investment objectiveasset class on a worldwide basis was as follows:
Investment Objective Value in Billions Percentage of Total AUM
Equity    
Growth potential, income potential, value or various combinations thereof $317.0
 42%
Multi-Asset/Balanced    
Asset allocation, balanced, flexible, alternative and income-mixed funds 143.3
 19%
Fixed Income    
Global/international, U.S. tax-free and U.S. taxable 286.6
 38%
Cash Management    
Short-term liquid assets 6.3
 1%
Total $753.2
 100%
Asset Class 
Value in
Billions
 
Percentage
of Total
AUM
Fixed Income $656.7
 46%
Equity 432.0
 31%
Multi-Asset 133.8
 9%
Alternative 124.0
 9%
Cash Management 72.4
 5%
Total $1,418.9
 100%

See “Assets under Management” under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report for additional information.



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Broadly speaking, other than changes in net assets due to acquisitions or dispositions by us (such as our acquisition of Legg Mason), the change in the net assets of our SIPsproducts depends primarily upon two factors: (1)(i) the increase or decrease in the market value of the securities and instruments held in the portfolio of investments;investments, and (2)(ii) the level of salesinflows as compared to the level of redemptions.outflows. We are subject to the risk of asset volatility resulting from changes in the global capital markets. In addition, changing market conditions and the evolving needs of our clients may cause a shift in our asset mix, potentially resulting in an increase or decrease in our revenues and income depending upon the nature of our AUM and the level of management fees we earn based on our AUM. Despite such
Our AUM by Product Type
We believe, despite market risks, we believe that we have a competitive advantage as a result of the economic and geographic diversity of our SIPsproducts available to our clients. As of September 30, 2020, our total AUM by product type was as follows:
Summary
(in billions)
Asset Class
 U.S. Funds Non-U.S. Funds Institutional Separate Accounts Retail Separately Managed Accounts 
Other Accounts,
Alternative Investment
Products and Trusts
 Total
Fixed Income $199.1
 $69.0
 $342.8
 $30.1
 $15.7
 $656.7
Equity 215.4
 71.2
 57.2
 65.4
 22.8
 432.0
Multi-Asset 81.9
 8.0
 6.4
 7.8
 29.7
 133.8
Alternative 6.0
 9.0
 33.1
 
 75.9
 124.0
Cash Management 36.4
 35.0
 1.0
 
 
 72.4
Total $538.8
 $192.2
 $440.5
 $103.3
 $144.1
 $1,418.9
U.S. Funds.Our U.S. funds include U.S.-registered open-end and closed-end funds, ETFs and other products. As of September 30, 2020, our five largest U.S. funds represented, in the aggregate, 11% of total AUM.
Non-U.S. Funds. Our non-U.S. funds include a variety of funds principally domiciled in Luxembourg or Ireland, registered for sale to non-U.S. investors in certain other countries, and products for the particular local market.
Institutional Separate Accounts. Our institutional separate accounts are for various institutions for which we serve as an investment adviser.
Retail Separately Managed Accounts. Our retail separately managed accounts, commonly known as managed accounts or wrap programs, are sponsored by various financial institutions.
Other Accounts, Alternative Investment Products and Trusts. We also offer and serve as investment adviser to other accounts, alternative investment products and trusts.
Certain Specialist Investment Managers Acquired Through the Legg Mason Transaction
We acquired certain specialist investment managers through the Legg Mason transaction. Our specialist investment managers generally focus on a portion of the asset management industry in terms of the types of assets managed (primarily fixed income, equity or alternatives) and each differs in the types of products and services offered, the investment styles utilized, the distribution channels used, and the types and geographic locations of its clients. Each typically markets its products and services under its own brand name, with certain distribution functions provided by our corporate distribution subsidiaries. We have in place revenue sharing arrangements with certain of our specialist investment managers acquired through the Legg Mason transaction. Below is a brief overview of our specialist investment managers acquired through the Legg Mason transaction.
Brandywine Global Investment Management is a global asset manager based in Philadelphia, with additional offices in the U.K., Canada and Singapore. It provides investment advisory services primarily to separately managed accounts for institutional clients in a range of fixed income, including global and international fixed income, and equity investment strategies. It also provides investment advisory services to U.S. mutual funds, international locally domiciled funds, cross-border funds, privately offered funds, and separately managed account programs sponsored by third parties.


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Clarion Partners is a manager of real estate investment funds based in New York, with additional offices in Dallas, Los Angeles, Boston, Washington, DC, the U.K. and Germany. It provides a broad range of equity and debt real estate strategies across the risk/return spectrum through separate accounts as well as private funds primarily aimed at institutional investors and acts as sub-adviser to a publicly offered Franklin Templeton real estate income fund aimed at retail investors.
ClearBridge Investments is an equity asset manager based in New York, with additional offices in Baltimore, Wilmington and Australia. It provides asset management services to certain equity funds (including balanced funds and closed-end funds), retail separately managed account programs, and to institutional clients primarily through separate accounts. In addition, the capabilities of RARE® Infrastructure, a specialist investment manager acquired through the Legg Mason transaction based in Australia, have been integrated into ClearBridge.
Martin Currie is an international equity specialist based in Scotland, with additional offices in other locations in the U.K., Australia and Singapore. It manages U.S. and international equity portfolios for a global client base of financial institutions, foundations, endowments, pension funds, family offices, government agencies and investment funds.
QS Investors is a customized solutions and global quantitative equities investment manager based in New York, with an additional office in Boston. It provides asset management and advisory services to a diverse array of institutional clients. Effective October 1, 2020, the capabilities of QS Investors were combined with our multi-asset solutions group to form our Franklin Templeton Investment Solutions platform. QS Investors remains an indirect subsidiary of Franklin.
Royce Investment Partners is the investment adviser to The Royce Funds, a proprietary range of equity U.S. mutual funds, and to certain of our international funds. In addition, it manages other pooled and separately managed accounts, primarily for institutional clients. Based in New York, Royce generally invests in smaller company stocks using a value approach.
Western Asset Management Company is a fixed income asset manager based in Pasadena with additional offices and operations around the globe. Its focus is on long-term value investing across a range of fixed income sectors. Western Asset offers fixed income strategies across the liquidity, maturity and risk spectrums.
Our Range of Services and Capabilities
1.    Investment Management Services
We are committed to providing active investment management and strategic advice for our clients. Our specialist investment managers offer fixed income, equity, multi-asset and alternative strategies through various investment products. Through our investment products, we provide a broad array of investment management services to retail, institutional and high-net-worth clients. Our investment products include registered open-end and closed-end funds, private funds, institutional separate accounts, retail separately managed accounts, and other accounts, alternative investment products and trusts. Our clients include institutions, corporations, endowments, charitable foundations, pension and defined contribution plans, and individuals.
We distribute and market globally our different capabilities under our brand names through various subsidiaries. We primarily attract new institutional business through our relationships with pension, defined contribution and management consultants, direct sales efforts and additional mandates from our existing client relationships, as well as from our responses to requests for proposals. We also market and distribute our products through various subsidiaries to institutional investors with separate accounts. A few of our subsidiaries also serve as direct marketing broker-dealers for institutional investors for certain of our private funds, and some of our private funds may utilize third-party placement agents.
Our services also include management of our ETF platforms. Our ETF platforms include smart beta and actively managed ETFs, as well as additional lower fee passive ETF products. ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF’s net asset value.
Our specialist investment managers provide investment management services pursuant to agreements in effect with each of our SIPsinvestment products and the products for which we provide sub-advisory services. Investment management fees are generally determined as a percentage of AUM pursuant to such contractual arrangements. Our investment management services include services to managed accounts for which we have full investment discretion and to advisory accounts for which we have no investment discretion. Advisory accounts for which we have no investment discretion may or may not include the authority to trade for the account. Our services include fundamental investment research and valuation analyses, including original economic, political, industry and company research, and analyses of suppliers, customers and competitors. Our company research utilizes such sources as company public records and other publicly available information, management interviews, company prepared information, and company visits and inspections. Research services provided by brokerage firms are also used to support our findings. Our management fee on an account varies with the types of services that we provide for the account, among other things.


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Our subsidiaries that provide discretionary investment management services for our SIPsproducts and sub-advised products either perform or obtain investment research, and determine which securities the SIPs or sub-advised products will purchase, hold or sell under the supervision and oversight of the funds’ boards of directors or trustees, as applicable. In addition, these subsidiaries may take all appropriate steps to implement such decisions, including arranging for the selection of broker-dealers and the execution and settlement of trades in accordance with applicable criteria set forth in the management agreements, for the SIPs, internal policies, and applicable law and practice. Our subsidiaries that provide non-discretionary investment management services perform investment research for our clients and make recommendations as to which securities the clients purchase, hold or sell, and may or may not perform trading activities for the products.
ThroughFor our subsidiaries, we compensateU.S.-registered funds, the personnel who serve as officers of our funds or of the funds’ management companies, in addition to the personnel necessary to conduct the funds’ day-to-day business operations. The funds themselves do not have direct employees. Our subsidiaries either provide or arrange for the provision of: office space, telephone, office equipment and supplies; trading desk facilities; authorization of expenditures and approval of bills for payment; preparation of registration statements, proxy statements and annual and semi-annual reports to fund shareholders, notices of dividends, capital gains distributions and tax credits, and other regulatory reports; the daily pricing of fund investment portfolios, including collecting quotations from pricing services; accounting services, including preparing and supervising publication of daily net asset value quotations, periodic earnings reports and other financial data; services to ensure compliance with securities regulations, including recordkeeping requirements; preparation and filing of tax reports; the maintenance of accounting systems and controls; and other administrative services. The funds generally pay their own expenses, such as external legal, custody and independent audit fees, regulatory registration fees, and other related expenses. The funds also share in board and shareholder meeting and reporting costs.
The board of directors or trustees of each fund and our management personnel for our U.S. Funds regularly review the investment management fee structures for the funds in light of fund performance, the level and range of services provided, industry conditions and other relevant factors. Most of our investment management agreements between our subsidiaries and our U.S. Fundsfunds must be renewed each year (after an initial two-year term), and must be specifically approved at least annually by a vote of each fund’s board of directors or trustees as a whole and separately by a majority of its directors or trustees who are not interested persons of the fund under the Investment Company Act of 1940 (the “Investment Company Act”), or by a vote of the holders of a majority of the fund’s outstanding voting securities. Our U.S. agreements automatically terminate in the event of their “assignment,” as defined in the Investment Company Act. In addition, either party may terminate such an agreement without penalty after prior written notice. If agreements representing a significant portion of our AUM were terminated, it would have a material adverse impact on us.


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Under the majority of our investment management agreements globally, thewith our funds pay us aand accounts, our monthly fee in arrears based upon the fund’s average daily net assets. Annualand annual fee rates under our various agreements are often reduced as net assets exceed various threshold levels. Annual rates alsomay vary by investment objectiveasset class and type of services provided. Our agreements generally permit us to provide services to more than one fund or account and to other clients so long as our ability to render services to each of the fundsfund/account is not impaired, and so long as purchases and sales of portfolio securities for various advised fundsfunds/accounts are made on an equitable basis.
We use a “master/feeder” fund structure in certain situations. This structure allows an investment adviser to manage a single portfolio of securities at the “master fund” level and have multiple “feeder funds” that invest substantially all of their respective assets into the master fund. Individual and institutional shareholders generally invest in the “feeder funds,” which can offer a variety of tax, service and distribution options. A management fee may be charged either at the master fund level or the feeder fund level depending on the specific requirements of the fund, although funds also involving performance fees or carried interest will typically charge these together with management fees at the master fund level. Administrative, shareholder servicing and custodian fees are often waived at the feeder fund level and only charged at the master fund level, although the feeder funds will indirectly bear their pro-rata share of the expenses of the master fund as an investor in the master fund. Fees and expenses specific to a feeder fund may be charged at the level of that feeder fund.
Our services also include management of our ETFs in the U.S., Canada and the European Union (“EU”). ETFs trade like stocks, fluctuate in market value and may trade at prices above or below the ETF’s net asset value.
Our Non-U.S. Funds, unregisterednon-U.S.-registered funds, private funds, institutional high net-worth and separately-managedhigh-net-worth separate accounts, and the products for which we provide sub-advisory services are typically subject to various termination rights and review andand/or renewal provisions. Investment management fees are generallyat times waived or voluntarily reduced when a new fund or fund/account is established, and then increased to contractual levels within an established timeline or as net asset values reach certain levels.
2.    Retail Separately Managed Account Programs
Certain of our specialist investment managers provide asset management services to certain retail separately managed account programs sponsored by various financial institutions. These programs typically allow securities brokers or other financial intermediaries to offer their clients the opportunity to choose from a number of asset management services pursuing different investment strategies provided by one or more asset managers, and generally charge an all-inclusive fee that covers asset management, trade execution, asset allocation and custodial and administrative services.
3.    Alternative Strategies Investment Management
We offer and supportCertain of our specialist investment managers manage alternative investment strategies. These strategies products and solutions through various subsidiaries asprovide our clients with alternatives to our traditional equity and fixed income products and related management services for our clients.services. Our alternative investment products include among other capabilities,private credit funds and structured products, business development companies, hedge funds (funds of funds and custom advisory solutions), private equity funds, venture capital funds and real estate fundsfunds. These products employ various investment strategies and commodities funds. Examples of some of these offerings are listed below.
K2, a hedge funds solutions provider, offers and supports alternative investments and multi-asset solutions platforms for institutional and other qualified investors. K2 provides risk management, manager selection and asset allocation capabilities in various global jurisdictions. Products offered include discretionary and non-discretionary custom-tailored investment programs, commingled funds of hedge funds andapproaches, including loan origination, collateralized loan obligations, high-yield credit, hedge fund investment advisory, services. By active allocation to selected third-party sub-advisers, K2 also provides access to multiple non-traditional and alternative strategies as an adviser to a number of our funds.
Darby is primarily engaged in sponsoring and managing funds that invest in private equity private debt and infrastructure investment transactions in emerging markets, in Asia, Latin America and Central/Eastern Europe. Investment in these funds is limited to institutional and high net-worth individual investors through private placements.
Templeton Asset Management Ltd. sponsors and manages a limited number of investment funds that also invest primarily in emerging markets in Asia, Latin America and Central/Eastern Europe.
Franklin Templeton Institutional, LLC manages investment partnerships that invest in funds with exposure to global macro, financial technology, consumer loans, direct real estate opportunities.investments, and custom-tailored investment programs.
Franklin Advisers, Inc. manages various privately offered funds with strategies that include the use of fixed income and other financial instruments as well as derivatives across the global interest rate, currency and credit markets.




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3.    Institutional Investment Management
We provide a broad array of investment management services to institutional clients, which include corporations, endowments, charitable foundations, and pension and defined contribution plans. Our subsidiaries offer a wide range of equity, fixed income and alternative strategies through a variety of investment vehicles, including separate accounts, registered open-end and closed-end funds, and unregistered funds. We distribute and market globally our different capabilities under our brand names through various subsidiaries. In the U.S., we generally operate our institutional business under the trade name “Franklin Templeton Institutional.”
We primarily attract new institutional business through our relationships with pension, defined contribution and management consultants, direct sales efforts and additional mandates from our existing client relationships, as well as from our responses to requests for proposals. We also market and distribute our SIPs to institutional investors with separately-managed accounts through various subsidiaries. A few of our subsidiaries also serve as direct marketing broker-dealers for institutional investors for certain of our institutional investment funds and private funds.
4.    High Net-WorthHigh-Net-Worth Investment Management, Trust and Custody
Through our subsidiary Fiduciary Trust (includingCompany International (“Fiduciary Trust”), including its trust company and investment adviser subsidiaries),subsidiaries, and through certain other of our subsidiaries, we provide investment management and related services to, among others, high net-worthhigh-net-worth individuals and families, family offices, foundations and institutional clients. Similarly, through Fiduciary Trust Company of Canada (“FTCC”), we provide services and offer SIPs to high net-worth individuals and families and institutional clients in Canada. Fiduciary Trust offers investment management and advisory services across different investment styles and asset classes. The majority of Fiduciary Trust’sthese client assets are actively managed by individual portfolio managers, while a significant number of clients also seek multi-manager, multi-asset class solutions. Through our various trust company subsidiaries, including Fiduciary Trust, we also may also provide separately managed accounts, private funds, and trust, custody and related services, including administration, performance measurement, estate planning and tax planning. In addition, through our subsidiary Fiduciary Trust Company of Canada (“FTCC”), we provide investment management, wealth planning, and trust and estate services, and offer products to high-net-worth individuals and families and institutional clients in Canada.
5.    Sales Distribution and MarketingDistribution
A significant portion of our revenues are generated from providingOur sales and distribution services. Our registered open-end mutual fundscapabilities and certain other products generally pay us distribution fees in return for sales, distribution and marketingrelated efforts on their behalf. Fund shares are sold primarily through a large network of independent financial intermediaries, including broker-dealers, financial advisers, banks and other third parties. We pay substantially allcritical components of our salesbusiness and may be impacted by global distribution fees totrends and changes within the financial intermediaries who sellservices industry. In the U.S., our SIPs to the public on our behalf.
Our subsidiary Franklin/Templeton Distributors, Inc. (“FTDI”) actscorporate distribution subsidiaries generally serve as the principal underwriterunderwriters and distributordistributors of shares of most of our sponsored U.S.-registered open-end funds, or U.S. Funds. Certainmutual funds. Outside the U.S., certain of our non-U.S. subsidiaries provide sales, distribution and marketing services to our Non-U.S. Funds distributed outside the U.S.non-U.S.-registered funds. Some of our Non-U.S. Funds,non-U.S.-registered funds, particularly the Luxembourg-domiciled Franklin Templeton Investment Funds Société d’Investissement à Capital Variable (“SICAV”),our Luxembourg and Irish domiciled fund ranges, are distributed globally on a cross-border basis, while others are distributed exclusively in local markets.
We earn sales and distribution fees primarily by distributing our funds pursuant to distribution agreements between FTDI or our non-U.S. subsidiaries andwith the funds. Our U.S. mutual funds generally pay us distribution fees in return for sales, marketing and distribution efforts on their behalf. Under eachour distribution agreement,agreements with our U.S. mutual funds, we offer and sell the fund’sfund shares on a continuous basis and pay certain costs associated with selling, marketing and distributing and marketing the fund’sfund shares, including the costs of developing and producing sales literature, shareholder reports and prospectuses.
Our U.S. retirement business is conducted through divisions Sales and distribution fees primarily consist of FTDI that work closely with sponsors, consultants, record keepersupfront sales commissions and financial advisers of defined contribution plans, including 401(k) plans, variable annuity products and individual retirement accounts (“IRAs”). We offer our capabilities to the U.S. retirement industry through a number of investment options, including sub-advised portfolios, funds, education savings plans and variable insurance funds.
In the U.S., most of our retail fundsongoing distribution fees. Sales commissions are distributed with a multi-class share structure. We adopted this share structure to provide investors with more sales charge alternatives for their investments. Class A shares are sold with a front-end sales charge to investors, except for when certain investment criteria are met. Class C shares have no front-end sales charges, although our distribution subsidiaries pay an up-front commission to financial intermediaries on these sales. Class C shares have a contingent deferred sales charge for redemptions within 12 monthsearned from the datesale of purchase. Although Class C shares are generally more costly to us incertain classes of sponsored funds at the yeartime of sale, they allow us topurchase, and may be more competitive by providing a fixed percentage annual charge option. Class R and Class R6 shares, available in the U.S. as retirement share classes, also have no front-end sales charges. Class R shares are available to certain retirement and health savings plan accounts, and Class R6 shares are available


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to employer sponsored retirement plans where plan levelreduced or omnibus accounts are heldeliminated depending on the books of our transfer agent. We no longer offer Class B shares to clients in the U.S.
In the U.S., we also offer Advisor Class shares in many of our Franklin and Templeton funds, and we offer Class Z shares in the Franklin Mutual Series funds, both of which have no sales charges. Advisor and Class Z shares are offered to certain qualified financial intermediaries, institutions and high net-worth clients (both affiliated and unaffiliated) who have assets held in accounts managed by a subsidiary of Franklin and are also available to our full-time employees, current and former officers, trustees and directors, and certain of their family members. We also offer money market funds to investors in the U.S. without a sales charge. Under the terms and conditions described in the prospectuses or the statements of additional information for some funds, certain investors can purchase shares at net asset value or at reduced sales charges. Our insurance product funds sold in the U.S. offer a multi-class share structure, and are offered at net asset value without a sales charge directly to insurance company separate accounts, certain qualified plans and other investment funds (funds of funds).
Outside the U.S., we offer share classes similar to the Advisor Class shares to certain types of investors, although depending upon the fundamount invested and the country in whichtype of investor. Therefore, sales fees generally will change with the fund is domiciled,overall level of gross sales, the equivalent share class may be offered on a more restrictive or less restrictive basis thansize of individual transactions, and the similar U.S. Advisor Class shares. We also offer additional typesrelative mix of sales between different share classes and unit series outside the U.S.types of investors. Our sales and marketing teams generally are housed in response to local demand based on the needs of investors in particular markets, subject to applicable regulations which may change over time. In theseparate subsidiaries from our asset manager subsidiaries.
The majority of cases, investors in any class of shares may exchange their shares for a like class of shares in another one of our funds, subject to certain fees that may apply. Our Non-U.S. Funds have sales charges and fee structures that vary by region.
The distribution agreements with our open-end U.S. Funds generally provide for FTDI to pay commission expenses for sales of our fund shares to qualifying broker-dealers and other independent financial intermediaries. These financial intermediaries receive various sales commissions and other fees from FTDI for services in matching investors withmutual funds, whose investment objectives match such investors’ goals and risk profiles. Such intermediaries may also receive fees for their assistance in explaining the operations of the funds and in servicing and maintaining investors’ accounts, and for reporting and various other distribution services. We are heavily dependent upon these third-party distribution and sales channels and business relationships. FTDI may also make payments to certain broker-dealers who provide marketing support services, as described further below. There is increasing competition for access to these channels, which has caused our distribution costs to rise and could cause further increases in the future as competition continues and service expectations increase. As of September 30, 2017, approximately 1,200 local, regional and national banks, securities firms and financial adviser firms offered shares of our open-end U.S. Funds for sale to the U.S. investing public, and approximately 2,900 banks, securities firms and financial adviser firms offered shares of our cross-border Non-U.S. Funds for sale outside of the U.S.
Most of our open-end U.S. Funds, with the exception of certain money market funds and certain other funds specifically designed for purchase through separately managed account programs, have adopted distribution plans under Rule 12b-1 (the “Rule 12b-1 Plans”) promulgated under the Investment Company Act (“Rule 12b-1”). Under theAct. The Rule 12b-1 Plans permit the funds to pay FTDIus for marketing, marketing support, advertising, printing and sales promotion services relating to the distribution of their shares, subject to the Rule 12b-1 Plans’ limitations on amounts based on daily average daily net AUM. In 2010, the SEC proposed changes to Rule 12b-1 which, if adopted, could limit our ability to recover expenses relating toSimilar arrangements exist for the distribution of ournon-U.S.-registered funds.
The Rule 12b-1 Plans are established for one-year terms and must be approved annually by a vote of each fund’s board of directors or trustees as a whole and separately by a majority of its directors or trustees who are not interested persons of the fund under the Investment Company Act. All of theseThe Rule 12b-1 Plans are subject to termination at any time by a majority vote of the disinterested fund directors or trustees or by the particular fundfund’s shareholders. Fees from
We pay substantially all of our sales and distribution fees earned as revenues, including fees earned under the Rule 12b-1 Plans, that FTDI receives as revenues are paid primarily to third-party broker-dealers whothe financial advisers and other intermediaries that sell our funds to the public on our behalf. The distribution agreements with our U.S. mutual funds generally provide for us to pay commission expenses for sales of fund shares to qualifying broker-dealers and other independent financial intermediaries. These financial intermediaries receive various sales commissions and other fees for services in matching investors with funds whose asset classes match such investors’ goals and risk profiles. Such intermediaries also may receive fees for their assistance in explaining the operations of the funds and in servicing and maintaining investors’ accounts, and for reporting and various other distribution services. We are heavily dependent upon these third-party distribution and sales channels and business relationships. There is increasing competition for access to these channels, which has caused our distribution costs to rise and could cause further increases in the future as competition continues and service expectations increase.


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Similar arrangements exist with the distribution of our Non-U.S. Fundsnon-U.S.-registered funds where, generally, our subsidiary that distributes the funds receives maintenance fees from the funds and pays commissions and certain other fees to financial advisers, banks and other intermediaries.
FTDI and/or its affiliatesIn addition, our distribution subsidiaries may make the following additional payments to broker-dealers or other intermediaries that sell or arrange for the sale of shares of our funds:
Marketing support payments. FTDIU.S. mutual funds, including for marketing support. We also may make payments to certain broker-dealers who are holders or dealers of record for accounts in one or more of our open-end U.S. Funds. A broker-dealer’s marketing support services may include business planning assistance, advertising, educating broker-dealer personnel about the funds and shareholder financial planning needs, placement on the broker-dealer’s list of offered funds, and access to sales meetings, sales representatives and management representatives of the broker-dealer. FTDI compensates broker-dealers differently depending upon, among other factors, sales and asset levels, and the level and/or type of marketing and educational activities provided by the broker-dealer. Such


9


compensation may include financial assistance to broker-dealers that enables FTDI to participate in and/or present at conferences or seminars, sales or training programs for invited registered representatives and other employees, client and investor events and other broker-dealer-sponsored events. These payments may vary depending upon the nature of the event. FTDI periodically reviews its marketing support arrangements to determine whether to continue such payments. The statement of additional information for each retail U.S. Fund, provided to investors in such funds upon request, provides a list of broker-dealers that receive such marketing support payments and the maximum payments received. FTDI may also make marketing support payments to financial intermediaries that serve as plan service providers to certain employer sponsored retirement plans in connection with activities intended to assist in the sale of our open-end U.S. Funds to such plans. Certain of our non-U.S. subsidiaries may also make marketing support or similar payments to intermediaries located outside the U.S. with respect to investments in Non-U.S. Funds.
Transaction support and other payments. FTDI may pay ticket charges per purchase or exchange order placed by a broker-dealer or one-time payments for ancillary services, such as setting up funds on a broker-dealer’s fund trading system. From time to time, FTDI, at its expense,Our non-U.S. subsidiaries may make additionalsimilar marketing support and other payments to broker-dealers that sellthird-party intermediaries located outside the U.S. with respect to investments in, or arrange for the sale of sharesdistribution of, our U.S. Funds. FTDI routinely sponsors due diligence meetings for registered representatives during which they receive updates on various funds and are afforded the opportunity to speak with portfolio managers. Invitation to these meetings is not conditioned on selling a specific number of shares. Those who have shown an interest in our funds, however, are more likely to be considered. To the extent permitted by their firm’s policies and procedures, registered representatives’ expenses in attending these meetings may be covered by FTDI. Similar payments may be made by our non-U.S. subsidiaries that distribute our Non-U.S. Funds to third-party distributors of suchnon-U.S.-registered funds.
Other compensation may be offered to the extent not prohibited by federal or state laws or any self-regulatory agency, such as the Financial Industry Regulatory Authority (“FINRA”). FTDI makes payments for events it deems appropriate, subject to FTDI’s guidelines and applicable law.
6.    Shareholder Servicing
We receiveperform our shareholder servicing services directly or through third parties. Substantially all shareholder servicing fees as compensationare earned from our sponsored funds for providing transfer agency services, which include providing customershareholder statements, transaction processing, customer service and tax reporting. Fees for U.S. funds are based on the level of AUM and the number of transactions in shareholder accounts, while outside of the U.S., the fees are based on the level of AUM and/or the number of shareholder accounts.
Our subsidiary Franklin Templeton Investor Services, LLC (“FTIS”) serves as our primary shareholder servicing and dividend-paying agent for certain of our U.S.-registered open-end U.S. Funds.funds. FTIS is registered with the SEC as a transfer agent under the U.S. Securities Exchange Act of 1934 (the “Exchange Act”). FTIS is compensated pursuant to transfer agency service agreements with the funds. These fees are generally fixed annual charges per shareholder account that vary with the particular type of fund and the services being rendered. FTIS also is reimbursed for out-of-pocket expenses. Other non-U.S. subsidiaries provide similar services to our Non-U.S. Funds, and may be compensated based on a combination of similar per account fees and fees based on the level of AUM in the accounts that we serve.
FTIS may also pay servicing fees to third-party intermediaries primarily to help offset costs associated with client account maintenance support, statement preparation and transaction processing. Such third parties: (i)parties maintain omnibus accounts with the fundfunds in the institution’s name on behalf of numerous beneficial owners of fund shares;shares, or (ii) provide support for fund shareholder accounts by sharing account data with FTIS through the Depository Trust & Clearing Corporation systems.accounts. The funds reimburse FTIS for these third-party payments.
Summary of SIPs
1.    Investment Objectives Overviewpayments, subject to certain limitations, as well as other out-of-pocket expenses.
Our SIPsRange of Investment Products
Through our specialist investment managers, we offer active, passive and smart beta strategies and a broad range of products under our fixed income, equity, multi-asset, alternative and cash management asset classes and solutions. Our investment products are offered globally to retail, institutional and high net-worth clients,high-net-worth investors, which include individual investors, qualified groups, trustees, tax-deferred plans (such as individual retirement accounts, or IRAs, in the U.S. and registered retirement saving plans, or RSPs,RRSPs, in Canada) or money purchase plans, employee benefit and profit sharing plans, trust companies, bank trust departments and institutional investors. Our SIPsproducts include portfolios managed for some of the world’s largest corporations, endowments, charitable foundations, pension funds and pensionsovereign wealth funds, as well as wealthy individuals and other institutions. We use various investment techniques to focus on specific client objectives for these specialized portfolios.
The SIPsproducts and capabilities that we offer accommodate a variety of investment goals, spanning the spectrum of our clients’ risk tolerance - from capital appreciation (with our more growth-oriented products) to capital preservation (with our fixed income offerings). In seeking to achieve such objectives, each portfolio emphasizes different strategies and invests in different types of instruments.


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Our equity investment products include some that are considered value-oriented, others that are considered growth-oriented, and some that use a combination of growth and value characteristics, generally identified as blend or core products. Value investing focuses on identifying companies that our research analysts and portfolio managers believe are undervalued based on a number of different factors, usually put in the context of historical ratios such as price-to-earnings or price-to-book value; however, we also consider the future earnings potential of each individual company on a multi-year basis. Growth investing focuses on identifying companies that our research analysts and portfolio managers believe have sustainable growth characteristics, meeting our criteria for sustainable growth potential, quality and valuation. In this effort, the key variables we examine include: (i) market opportunity (overall size and growth);, (ii) competitive positioning of the company;company, (iii) assessment of management (strength, breadth, depth, and integrity) and execution of plans;plans, and (iv) the general financial strength and profitability of the enterprise, to determine whether the growth and quality aspects are properly reflected in the current share price. Paramount to all of our different equity products is the incorporation of independent, fundamental research through our own collaborative in-house group of investment professionals. Our approach across the variety of equity products we manage


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emphasizes bottom-up stock selection within a disciplined portfolio construction process, and is complemented by our ongoing assessment of risk at both the security and portfolio levels.
Portfolios seeking income generally focus on one or more of the following securities: (i) taxable and tax-exempt money market instruments;instruments, (ii) tax-exempt municipal bonds;bonds, (iii) global or regional fixed income securities;securities, and (iv) fixed income debt securities of corporations, of the U.S. government and its sponsored agencies and instrumentalities, (such as the Government National Mortgage Association, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation) or of the various states in the U.S. Others focus on investments in particular countries and regions.
2.    TypesIn addition, our alternative investment strategies provide our clients with alternatives to traditional equity and fixed income products and services.
COMPETITION
The financial services industry is a highly competitive global industry. Competition is based on various factors, including, among others, business reputation, investment performance, product mix and offerings, service quality and innovation, distribution relationships, and fees charged. We face strong competition from numerous investment management companies, securities brokerage and investment banking firms, insurance companies, banks and other financial institutions, which offer a wide range of SIPs
As of September 30, 2017, our total AUM was $753.2 billionfinancial and investment management services and products to the types of SIPssame retail, institutional and high-net-worth investors and accounts that we offered were as follows:
U.S. Funds - Our U.S. Funds (including open-end and closed-end funds and our insurance products trust) accounted for $421.4 billion of AUM. Our five largest U.S. Funds and their AUM were: FCF-Franklin Income Fund ($83.4 billion), TIT-Templeton Global Bond Fund ($39.9 billion), FMSF-Franklin Mutual Global Discovery Fund ($22.3 billion), FMT-Franklin Rising Dividends Fund ($18.6 billion) and Franklin California Tax-Free Fixed Income Fund ($15.8 billion). These five funds represented, in the aggregate, 24% of total AUM.
Cross-Border Funds - Our cross-border products, which are comprised ofseeking to attract. We offer a broad product mix that meets a variety of investment funds principally domiciledgoals and needs for different investors, and we may periodically introduce new products to provide investors with additional investment options.
Due to our international presence and varied product mix, it is difficult to assess our market position relative to other investment managers on a worldwide basis, but we believe that we are one of the more widely diversified asset managers based in Luxembourgthe U.S. We believe that our fixed income and registered for saleequity asset mix, coupled with our global presence, will serve our competitive needs well over the long term. We continue to non-U.S. investors in 41 countries, accounted for $118.7 billionfocus on the long-term performance of AUM. Our five largest cross-border fundsour investment products, service to clients and extensive marketing activities through our strong broker-dealer and other financial institution distribution network as well as with high-net-worth and institutional clients.
The establishment of new investment management firms and continuous development of investment products increases the competition that we face. Many of our competitors have long-standing and established relationships with broker-dealers, investment advisers and their AUM were: FTIF-Templeton Global Total Return Fund ($21.1 billion), FTIF-Templeton Global Bond Fund ($18.2 billion), FTIF-Templeton Growth (Euro) Fund ($8.9 billion), FTIF-Templeton Emerging Markets Bond Fund ($8.2 billion)clients, and FTIF-Templeton Asian Growth Fund ($5.0 billion). These five funds represented,some have affiliated brokerage businesses. Others have focused on, offer and market specific product lines that provide strong competition to certain of our asset classes. In addition, consolidation in the aggregate, 8% of total AUM.
Local/Regional Funds - In addition tofinancial services industry has created stronger competitors, some with greater financial resources and broader distribution channels than our cross-border products, in some countries we offer products for the particular local market. These local/regional funds accounted for $47.6 billion of AUM.own.
Other Managed Accounts, Alternative Investment Products and Trusts - Our other managed accounts, alternative investment products and trusts accounted for $165.5 billion of AUM.


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3.    AUM by Investment Objective and Types of SIPs
The following table shows our AUM by investment objective and types of SIPs as of September 30, 2017:
(in billions)

Investment Objective
 
U.S.
Funds
 
Cross-Border
Funds
 
Local/Regional
Funds
 
Other Managed Accounts,
Alternative Investment
Products and Trusts
 Total
Equity          
Asia-Pacific $1.0
 $11.9
 $8.0
 $17.0
 $37.9
Canada 
 
 4.4
 6.1
 10.5
Europe, the Middle East and Africa 2.6
 4.5
 6.1
 0.2
 13.4
U.S. 93.0
 8.6
 1.6
 4.0
 107.2
Emerging markets 1
 3.7
 5.4
 3.6
 4.6
 17.3
Global/international 2
 64.7
 13.5
 4.5
 48.0
 130.7
Total equity 165.0
 43.9
 28.2
 79.9
 317.0
Multi-Asset/Balanced          
Asia-Pacific 
 
 0.6
 3.9
 4.5
Canada 
 
 0.7
 0.8
 1.5
Europe, the Middle East and Africa 
 2.8
 
 0.3
 3.1
U.S. 98.9
 2.2
 0.2
 22.2
 123.5
Global/international 2
 3.1
 4.5
 1.2
 1.9
 10.7
Total multi-asset/balanced 102.0
 9.5
 2.7
 29.1
 143.3
Fixed Income          
Asia-Pacific 
 0.7
 6.2
 0.4
 7.3
Canada 
 
 2.9
 2.2
 5.1
Europe, the Middle East and Africa 
 2.0
 0.2
 1.1
 3.3
U.S. tax-free 66.6
 
 0.1
 4.3
 71.0
U.S. taxable 31.0
 9.9
 3.2
 6.5
 50.6
Emerging markets 1
 1.2
 9.6
 0.2
 11.8
 22.8
Global/international 2
 50.3
 42.7
 3.3
 30.2
 126.5
Total fixed income 149.1
 64.9
 16.1
 56.5
 286.6
Cash Management 5.3
 0.4
 0.6
 
 6.3
Total $421.4
 $118.7
 $47.6
 $165.5
 $753.2
__________________
1
Emerging markets include developing countries worldwide.
2
Global/international includes entities doing business either worldwide or only outside of the U.S.
FINANCIAL INFORMATION ABOUT SEGMENT AND GEOGRAPHIC AREAS
CertainIncorporated herein by reference is certain financial information about the Companysour business segment and geographic areas is contained in Note 1519 – Segment and Geographic Information in the notes to consolidated financial statements in Item 8 of Part II of this Form 10‑K, which is incorporated herein by reference.Annual Report.
REGULATORY CONSIDERATIONSREGULATION
General
We are subject to extensive regulation. Virtually all aspects of our business are subject to various U.S. federal and state, andand/or international regulation and supervision thatsupervision. Our regulators have broad authority with respect to the regulation of investment management and other financial services, including among other things, the authority to grant or cancel required licenses or registrations, impose net capital and other financial or operational requirements on us, and other enforcement powers described below. The regulations to which we are subject continue to change and evolve over time. Consequently, there is uncertainty associated with the regulatory environments in which we operate. The rules and regulations applicable to investment management organizations are very detailed and technical. Accordingly, the discussion below is general in nature, does not purport to be complete and is current only as of the date of this Annual Report.

With our global operations, certain of our subsidiaries are registered with or licensed by various U.S. and/or non-U.S. regulators, and our funds are subject to various U.S. and/or non-U.S. laws. In particular, we are subject to various securities, compliance, corporate governance, disclosure, privacy, anti-bribery and anti-corruption, anti-money laundering, anti-terrorist financing, and economic, trade and sanctions laws and regulations, both domestically and internationally, as well as to various cross-border rules and regulations, such as the data protection rules under the General Data Protection Regulation (“GDPR”)



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U.S. Regulation
of the European Union (“EU”). We are subject to federalsanctions programs administered by the Office of Foreign Assets Control of the U.S. Department of Treasury (“USDT”), as well as sanctions programs adopted and stateadministered by non-U.S. jurisdictions where our services and products are offered. Our subsidiaries with custody of client assets or accounts are also subject to the applicable laws that includeand regulations of U.S. states and other non-U.S. jurisdictions regarding the reporting and escheatment of unclaimed or abandoned property. We must also comply with complex tax regimes in the jurisdictions where we operate our business.
Failure to comply with applicable U.S. and non-U.S. laws, regulations, rules, codes, notices, directives, guidelines, orders, circulars and/or conditions in the various jurisdictions where we operate could result in a wide range of disciplinary actions against us, our subsidiaries and/or our business. Breaches of applicable laws and rules could result in the imposition of various sanctions and penalties, including, among other things, fines, disgorgements, cease and desist orders, censures, reprimands and the revocation, cancellation, suspension or restriction of licenses, registration status or approvals held by us or our business.
See Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report, for financial information about our business, including certain regulatory financial impacts disclosed therein.
U.S. Regulation
U.S. Regulatory Framework. As a U.S. reporting company, we are subject to U.S. federal securities laws, state securities and corporate laws, state escheatment laws and regulations, and the rules and regulations promulgated byof certain U.S. regulatory and self-regulatory organizations, such as the SEC and the NYSE. As a U.S. reporting company,In particular, we are subject to various securities, compliance, corporate governance and disclosure rules adopted by the SEC. We are also subject to various other U.S. federal and state laws, including those affecting corporate governance and disclosure, such as the U.S Securities Act of 1933, the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”(“Dodd-Frank”), the Sarbanes-Oxley Act of 2002 and the USA PatriotPATRIOT Act of 2001. As a NYSE-listed company, we are also subject to the NYSE listing standards.and disclosure requirements.
As a global investment management organization, certain of our subsidiaries are also subject to the rules and regulations promulgated byof various U.S. regulatory and self-regulatory organizations, including the SEC, FINRA, the U.S. Commodity Futures Trading Commission (“CFTC”), the National Futures Association, the U.S. Department of Justice (“DOJ”), the U.S. Department of Labor, (“DOL”) and the U.S. Department of Treasury, and to various securities, compliance, corporate governance, disclosure, privacy, anti-money laundering, anti-terrorist financing, and economic, trade and sanctions laws and regulations, both domestically and internationally. Given our global operations, we are also subject to securities laws and other laws of various non-U.S. jurisdictions and to regulation by non-U.S. regulators. In some cases, ourUSDT. Our non-U.S. operations also may also be subject to regulation by U.S. regulators, such asincluding the SEC, the CFTC and the DOJ (for example with respect to the Foreign Corrupt Practices Act of 1977). We are also subject not only to the sanctions programs administered by the U.S. Department of Treasury’s Office of Foreign Assets Control, but also to sanctions programs adopted and administered by non-U.S. jurisdictions where our investment management services and products are offered. We are also subject to the laws and regulations of states and other jurisdictions regarding the reporting and escheatment of unclaimed or abandoned property.
Certain of our subsidiaries are registered with the SEC under the Advisers Act and/or the CFTC, and/or licensed by various non-U.S. regulators. In addition,and many of our funds are registered with the SEC under the Investment Company Act or other non-U.S. laws.Act. These registrations, licenses and authorizations impose numerous obligations, as well as detailed operational requirements, on such subsidiaries and such funds. The Advisers Act imposes numerous obligations on our registered investment adviser subsidiaries, including record keeping, operating and marketing requirements, disclosure obligations and prohibitions onagainst fraudulent activities. The Investment Company Act imposes similar obligations on the registered investment companies advised by our subsidiaries. The SEC is authorized
U.S. Regulatory Reforms. Over the years, the U.S. federal corporate governance and securities laws have been augmented substantially and made significantly more complex by various legislation. As we continue to institute proceedingsaddress our legal and impose sanctions for violations of the Advisers Act and the Investment Company Act, ranging from fines and censureregulatory requirements or focus on meeting new or expanded requirements, we may need to termination of an investment adviser’s registration. Our subsidiaries must also comply with complex tax regimes.
FINRA Conduct Rules limit theexpend a substantial amount of aggregate sales charges thatadditional time, costs and resources.Regulatory reforms may be paid in connection with the purchaseadd further complexity to our business and holding ofoperations and could require us to alter our investment company shares sold through broker-dealers. The effect of the rule is to limit the amount of fees thatmanagement services and related activities, which could be paid pursuant to a fund’s Rule 12b-1 Plan to FTDI,costly, impede our principal salesgrowth and distribution subsidiary in the U.S., which earns distribution fees on the distribution of fund sharesadversely impact our AUM, revenues and income.Certain key regulatory reforms in the U.S. In 2010, the SEC proposed changesthat impact or relate to Rule 12b-1 which, if adopted, could limit our ability to recover expenses relating to the distribution of our funds.
In April 2016, the DOL issued a new fiduciary rule that will subject financial professionals who provide investment advice to certain U.S. retirement clients to a new fiduciary duty intended to address conflicts of interests. We believe that the rule could significantly impact the ability of financial professionals to provide investment advice and recommendations for retirement accounts about funds for which they receive a fee from the fund or its affiliates. This rule may impact the compensation paid to the financial intermediaries who sell our funds to their retirement clientsbusiness, and may negatively impact our business. Certain aspectscause, or continue to cause, us to incur additional obligations, include:
Dodd-Frank. In July 2010, Dodd-Frank was adopted in the U.S. Dodd-Frank is expansive in scope and has required the adoption of extensive regulations and the rule became applicable in June 2017, while other aspectsissuance of the rule are not expected to become applicable until January 1, 2018, subject to any furthernumerous regulatory update.decisions.
TheSystemically Important Financial Institutions. Dodd-Frank Act authorized the establishment of the Financial Stability Oversight Council (“FSOC”), the mandate of which is to identify and respond to threats to U.S. financial stability. Similarly, the U.S. and other members of the G-20 group of nations have empowered the Financial Stability Board (“FSB”) to identify and respond, in a coordinated manner, to threats to global financial stability. The FSOC may designate certain non-bank financial companies as systemically important financial institutions (“SIFIs”), which are subject to supervision and regulation by the Board of Governors of the Federal Reserve System. The FSB may designate certain non-bank financial companies as


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global systemically important financial institutions (“G-SIFIs”); the additional regulatory requirements triggered by any such designation are not yet established. The FSOC and the FSB, as well as other global regulators, are considering what threats to U.S. and global financial stability, if any, arise from asset management companies and/or the funds that they sponsor or manage, and whether such threats can be mitigated by treating such entities as SIFIs or G-SIFIs and/or subjecting them to additional regulation. To the extent that we or any of


13


our funds are designated as a SIFI or G-SIFI, such designations add additional supervision and/or regulation, which could include requirements related to risk-based capital, leverage, liquidity, credit exposure, stress testing, resolution plans, early remediation, and certain risk management requirements, that could impact our business.
The Derivatives and Other Financial Products. Dodd-Frank, Act, as well as other legislativelegislation and regulatory changes,regulations, impose other restrictions and limitations on us related to our financial services and products, resulting in increased scrutiny and oversight of our financial services and products. We continue to analyze the impact of the Dodd-Frank Act as further implementing rules are adopted and become effective.oversight. Under the Dodd-Frank Act, which imposes a number ofsuch regulations governing derivative transactions, certain categories of swaps are currently required, and further categoriessubject to the exchange of swapsmargin, while others are likely to be required to be submitted for clearing by a regulated clearing organization andorganization. In both cases, swaps must be reported on a swap execution facility. TheseThe EU and other requirements, such as the posting of collateral for uncleared swaps,countries have implemented, or are likely to impact how we manage our investment strategies because of, among other things, an increase in the costsprocess of implementing, similar requirements. There is some risk that full mutual recognition may not be achieved between the various regulators, which may cause us to incur duplicate regulation and expenses of utilizing swaps and other derivatives. In addition to the rulemaking mandated by the Dodd-Frank Act, rules adopted by the CFTC haveremoved or limited previously available exemptions and exclusions from registration and regulation as a commodity pool operator and commodity trading advisor on which we had relied, resulting in the imposition of either additional registration, disclosure, reporting and recordkeeping requirements or more stringent requirements to comply with the remaining exemptions or exclusions for operators of certain of our registered investment funds and other pooled vehicles that use or trade in futures, swaps and other derivatives considered commodity interests and subject to regulation by the CFTC. In addition, the SEC has adopted rules that have changed the structure and operation for certain types of money market funds, and that will require certain U.S. Funds to adopt liquidity management programs. (Full compliance with the latter is required by December 1, 2018.)transaction costs. The SEC has also proposed a rule that would impose restrictions on the use of derivatives by registered funds. We
In addition, SEC rules have changed the structure and operation for certain types of money market funds, and certain U.S.-registered funds are required to adopt liquidity management programs.
Privacy and Data Protection. There also has been increased regulation with respect to the protection of customer privacy and data, and the need to secure sensitive customer, personnel and others’ information. A majority of the jurisdictions where we operate are covered, or we expect will be soon covered, by privacy and data protection laws and regulations. As the regulatory focus on privacy continues to intensify and laws and regulations concerning the management of personal data continue to expand, risks related to privacy and data collection within our business will increase. In addition to the EU’s GDPR data protection rules (discussed below), we also are or may become subject to or affected by additional country, federal and state laws, regulations and guidance impacting consumer privacy, such as the California Consumer Privacy Act (“CCPA”) that took effect in January 2020, and provides for enhanced consumer protections for California residents, enforcement authority by the complexCalifornia Attorney General for CCPA violations, and the potential for private litigation, including statutory damages for data security breaches. There are also new laws that have been adopted this year, including, for example, Brazil’s Lei Geral de Proteção de Dados with regulatory requirementsenforcement commencing in August 2021, and developments applicablethe California Privacy Rights Act with an effective date of January 1, 2023. Noncompliance with our legal obligations relating to usprivacy and data protection could result in fines, penalties, legal proceedings by governmental entities or affected individuals, prohibitions on our use of personal data in one or more countries, and other significant legal and financial exposure.
SEC Regulation Best Interest. In June 2019, the SEC adopted a package of new rules, amendments and interpretations, including Regulation Best Interest and a new form of relationship summary, designed to enhance investor protections for all retail customers. Effective June 30, 2020, such rules, among other things: (i) require broker-dealers to act in the best interest of their retail customers when recommending securities and account types, (ii) raise the broker-dealer standard of conduct beyond existing suitability obligations, and (iii) require broker-dealers and registered investment advisers to provide their retail clients with a new relationship summary disclosure document to inform such clients of the nature of their relationships with the clients’ investment professionals, including a description of services offered, the legal standards of conduct that apply to such services, the fees a client might pay, and conflicts of interest that may exist.
U.S. and Global Tax Compliance. The U.S. Tax Cuts and Jobs Act includes various changes to the tax law, including a permanent reduction in the corporate income tax rate and one-time transition tax on certain non-U.S. earnings. See Note 14 – Taxes on Income in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for more information. Further, pursuant to ongoing efforts to encourage global tax compliance, the Organization for Economic Co-operation and Development (“OECD”) has adopted a global common reporting standard for the automatic exchange of financial information among participating countries (“CRS”), aimed at ensuring that persons with financial assets located outside of their tax residence country pay required taxes. In many cases, intergovernmental agreements between the participating countries will causegovern implementation of the new CRS rules. CRS is being implemented over a multi-year period and we will continue to monitor the implementing regulations and corresponding intergovernmental agreements to determine our requirements. CRS may subject us to incur additional reporting, compliance and administrative costs, and compliance costs.burdens in jurisdictions where we operate as a qualifying financial institution.


13


The OECD has also undertaken a new project focused on “Addressing the Tax Challenges of the Digitalization of the Economy.” This project may impact all multinational businesses by allocating a greater share of taxing rights to countries where consumers are located regardless of the current physical presence of a business, and by implementing a global minimum tax. There is significant uncertainty regarding such proposal and any unfavorable resolution could have an adverse effect on our effective tax rate.
Non-U.S. Regulation
Our operations outside the U.S. are subject to the laws and regulations of various non-U.S. jurisdictions and non-U.S. regulatory agencies and bodies. As we continue to expand our international presence, a number of our subsidiaries andOur international operations have becomeare subject to regulatory systems in various jurisdictions, comparable to those covering our operations in the U.S. Regulators in these non-U.S. jurisdictions may have broad authority with respect to the regulation of financial services including, among other things, the authority to grant or cancel required licenses or registrations. In addition, these regulators may subject certain of our subsidiaries to net capital
European Markets and other financial or operational requirements.
In the U.K., the Financial Conduct Authority (the “FCA”) and the Prudential Regulation Authorities (the “PRA”) currently regulate certain of our subsidiaries. Authorization by the FCA and the PRA is required to conduct any financial services related business in the U.K. pursuant to the Financial Services and Markets Act 2000. The FCA’s and PRAs rules under that act govern a firm’s capital resources requirements, senior management arrangements, conduct of business, interaction with clients, and systems and controls. Breaches of these rules could result in a wide range of disciplinary actions against our U.K.-regulated subsidiaries.
Regulation. In Luxembourg, the Commission de Surveillance du Secteur Financier (“CSSF”) currently regulates our substantial activities in Luxembourg, including our subsidiary Franklin Templeton International Services S.à r.l. (“FTIS Lux”). FTIS Lux is licensed as a management company for both the Undertakings for Collective Investment in Transferable Securities Directive (“UCITS”) and alternative investment funds (“AIFs”) and, as such, it manages our Luxembourg-domiciled UCITS and our EU-domiciled AIFs. In July 2017, FTIS Lux upgraded itsLux’s license to coveralso covers certain MiFID (as defined below) investment services, such as discretionary portfolio management, investment advice and reception and transmission of orders in relation to financial instruments. The CSSF’s rules include capital resource, governance and risk management requirements, business conduct of business rules, remuneration rules and oversight of systems and controls. Breaches
In Ireland, the Central Bank of theseIreland (“CBI”) currently regulates our Irish business activities, including our Irish- licensed UCITS and AIF management company and our Irish-domiciled UCITS range. The CBI’s rules could resultinclude capital resource, governance and risk management requirements, business conduct rules, remuneration rules and oversight of systems and controls.
Our international funds include two broad ranges of cross-border UCITS that are domiciled in Luxembourg and Ireland, respectively, and thereby subject to regulation by the CSSF and CBI. Both UCITS are also registered for public sale in many countries around the world, both in the EU and beyond, and thus are also subject to the laws of, and certain supervision by, the governmental authorities of those countries.
In the U.K., the Financial Conduct Authority (the “FCA”) and the Prudential Regulation Authority (the “PRA”) currently regulate certain of our subsidiaries. Authorization by the FCA and the PRA is required to conduct any financial services-related business in the U.K. pursuant to the Financial Services and Markets Act 2000. The FCA’s and PRAs rules under that act govern a wide range of disciplinary actions against FTIS Lux.firm’s capital resources requirements, senior management arrangements, business conduct, interaction with clients, and systems and controls.
In addition to the above, certain of our U.K.-regulated subsidiaries and certain other European subsidiaries and branches, must comply with the pan-European regime established by the EU Markets in Financial Instruments Directive (“MiFID”), which regulates the provision of investment services and conduct of investment activities throughout the European Economic Area (“EEA”). MiFID sets out detailed requirements governing the organization and business conduct of business of investment firms and regulated markets. It also includes pre- and post-trade transparency requirements for equity markets and extensive transaction reporting requirements. TheLuxembourg and the U.K. hashave adopted the MiFID rules into national legislation, via the FCA rules, as have those other EU member states in which we have a presence.


14


A review of MiFID by the European Commission has led to the creation of a replacement directive and a new regulation (together “MiFID II”) to become effective in January 2018 and which extendsthat extend the scope of the original MiFID in response to issues raised by the financial crisis. Changes will be madeapply to pre- and post-trade reporting obligations and there will beis an expansion of the types of instruments subject to these requirements, such as bonds, structured products and derivatives. A new concept of trading venue has been created and algorithmic trading will beis subject to specific regulations. There willare also be changes to business conduct of business requirements, including selling practices, intermediary inducements and client categorization, as well as the provision of investment advice and management within the EU by non-EU advisers, including ours. Powers willhave also bebeen given to EU national regulators to ban certain productsservices and servicesproducts and to the European Securities and Markets Authority to restrict temporarily restrict certain financial activities within the EU.


14


One of the most significant developments in MiFID II is the ban on commission and other payments (“inducements”) to independent advisers and discretionary managers, which will result in a major change inhas changed the commercial relationships between fund providers and distributors. Arrangements with non-independent advisers willhave also bebeen affected, as narrower rules around the requirement that any commission reflectsreflect an enhancement of the service to customers come into effect, along with a prescriptive list of permissible non-monetary benefits. The interpretation of the inducements rules has also resulted in major changes to how fund managers finance investment research with many firms, including ours, opting to pay for third-party investment research for client accounts covered by MiFID II.
The European Market Infrastructure Regulation which sets out the rules in relation to the central clearing of specified derivatives came into effect in 2016 for large derivatives users (including some of our clients). For the smallest counterparties, implementation has been delayed until June 2019.derivatives. Mutual recognition of central counterparties has been achieved between the EU regulatory authorities and other important jurisdictions including the U.S. In addition, there are rules relating to margin requirements for uncleared over-the-counter derivatives were due to come into effect in March 2017 but, after considering feedback on market readiness, regulators generally delayed their effectiveness until September 2017 in most cases.derivatives. Future regulatory policy reviews will decide whether these rules are extended to other types of derivative instruments, which could increase operational costs for our business and transactional costs for our clients.
The EU’s Alternative Investment Fund Managers Directive (“AIFMD”) came into effect in July 2014 and regulates managers of, and service providers to, AIFs that are domiciled and offered in the EU and that are not authorized as retail funds under UCITS. The AIFMD also regulates the marketing within the EU of all AIFs, including those domiciled outside the EU. The introduction of a third-country passport to non-EU AIFs/AIF managers was due to be implemented in 2018 but has been delayed until further positive advice is delivered to the European Commission onregarding a sufficient number of non-EU countries to better evaluate the impact, including with respect to the proposed withdrawal of the U.K. from the EU (“Brexit”) on the U.K.EU. Compliance with the AIFMD’s requirements may restrict AIF marketing and imposes compliance obligations in the form of remuneration policies, capital requirements, reporting requirements, leverage oversight, valuation, stakes in EU companies, the domicile, duties and liability of custodians and liquidity management.
The EU’s Market Abuse RegulationRegulation’s (“MAR”) came into effect in July 2016 with a primary aim is to increase market integrity and investor protection, enhancing the attractiveness of securities markets for raising capital. Under MAR, EU market abuse rules become extra-territorial as long as the instrument has a listing on an EEA regulated market.
Effective January 1, 2018, theThe EU regulation on packaged retail investment and insurance products (“PRIIPs”) imposesimposed new pre-contractual disclosure requirements under the form of a Key Information Document (“KID”) for the benefit of retail investors when they are considering the purchase of packaged retail investment products or insurance basedinsurance-based products. It requires PRIIP manufacturers to draw up a KID whichthat can be no longer than three pages in length and must be written in simple language. The regulation allows UCITS providers, who are already required to produce the UCITS Key Investor Information Document, a transitional period of five years from enactmentuntil December 2021, during which they will be exempt from its terms.
Effective May 2018, theThe EU’s General Data Protection Regulation (“GDPR”) will strengthenGDPR strengthened and unifyunified data protection rules for individuals within the EU. GDPR also addresses export of personal data outside the EU. The primary objectives of GDPR are to give citizens control of their personal data and to simplify the regulatory environment for international business by unifying data protection regulation within the EU. Compliance with the stringent data protection rules under GDPR will requirerequires an extensive review of all of our global data processing systems.
Further, pursuant The failure to comply properly with GDPR rules on a timely basis and to maintain ongoing efforts to encourage global tax compliance the Organization for Economic Co-operation and Development has adopted a global common reporting standard for the automatic exchange of financial information among participating countries (“CRS”), aimed at ensuring that persons with financial assets located outside of their tax residence


15


country pay required taxes. In many cases, intergovernmental agreements between the participating countries will govern implementation of the new CRS rules. CRS will be implemented over a multi-year period and we will continue to monitor the implementing regulations and corresponding intergovernmental agreements to determine our requirements. CRSsuch rules may subject us to additional reporting, complianceenforcement proceedings and administrative costssignificant fines and burdenscosts. For example, a failure to comply with GDPR could result in jurisdictions where we operate asfines of up to 20 million Euros or 4% of our annual global revenues, whichever is higher.
British Exit from the EU (“Brexit”). The U.K. withdrew from the EU on January 31, 2020. The timeline to conclude a qualifying financial institution.
Although Brexit negotiations betweennew U.K./EU trade agreement by December 31, 2020 has been challenged in recent months by the U.K.global economic and EU began in June 2017, it is still unclear what terms may be agreed to forhealth crisis caused by the coronavirus disease 2019 (“COVID-19”), and the final outcometerms and for any transitional period.implementation date of a new trade agreement remain uncertain. While we are monitoring the consequences very closely for our clients from an investment perspective, we believe that Brexit will not have a majormaterial impact on the way our firm operates in the U.K. or within the EU. Our long-standing U.K. businesses are expected to continue to provide their services to U.K. and certain non-EU customers. Furthermore, we have other regulated subsidiaries and branch offices across continental Europe such that, in the event of a future restriction on cross-border trade in financial productsservices and servicesproducts between the U.K. and the new EU, itBrexit would be likely to have a limited effect on our EU business. Moreover, our primary cross-border UCITS, the Franklin Templeton Investment Funds Société d’Investissement à Capital Variable, or SICAV, investment fund range, which is the most widely-distributed such range in the world, is based in Luxembourg.Luxembourg, and a smaller cross-border UCITS, also distributed throughout the EU and beyond, is based in Ireland. We have a separate, U.K.-domiciled fund rangeranges that is,are, and will continue to be, distributed onlymainly in the U.K.


15


Australia. In Australia, our subsidiaries are subject to various Australian federal and state laws and are regulated by the Australian Securities and Investments Commission (“ASIC”). ASIC regulates companies, financial markets and financial services in Australia. ASIC imposes certain conditions on licensed financial services organizations that apply to our subsidiaries, including requirements relating to capital resources, operational capability and controls.
Canada. In Canada, our subsidiaries are subject to provincial and territorial laws and are registered with and regulated by provincial and territorial securities regulatory authorities. The mandate of Canadian securities regulatory authorities is generally to protect investors and to foster fair and efficient capital markets. Securities regulatory authorities impose certain requirements on registrants, including a standard of conduct, capital and insurance, record keeping, regulatory financial reporting, conflict of interest management, compliance systems and security holder reporting. Failure to comply with applicable securities laws, regulations and rules could result in, among other things, reprimands, suspension of or restrictions on an individuals or firms registration, prohibitions from becoming or acting as a registrant, administrative penalties or disgorgement. In addition, as a federally licensed trust company, FTCC is subject to regulation and supervision by the Office of the Superintendent of Financial Institutions Canada and another subsidiary, FTC Investor Services Inc., is a member of and regulated by the Mutual Fund Dealers Association of Canada. These regulatory bodies have similar requirements to those of the securities regulatory authorities with a view to ensuring the capital adequacy and sound business practices of the subsidiaries and the appropriate treatment of their clients.
In March 2013,December 2019, rule amendments to implement the client focused reforms initiative of the Canadian Securities Administrators (“CSA”), the umbrella organization of provincial and territorial securities regulatory authorities, releasedbecame effective and will be phased in during a two-year transition period. These rule amendments, among other things, enhance current registrant requirements in the areas of know your client, know your product, suitability, conflicts of interest and relationship disclosure information. The purposes of such amendments are to better align the interests of Canadian registrants with the interests of their clients, to improve outcomes for clients and to make clearer to clients the nature and the terms of their relationship with registrants. In addition, in 2020, the CSA published final rule amendments regarding certain of its previously proposed policy changes from June 2018 in connection with its mutual fund fee reform project. The final amendments prohibit: (i) all forms of deferred sales charges (“DSC”) in connection with the purchase of mutual fund securities (except in Ontario which is proposing restrictions on the use of DSC), and (ii) the payment of trailing commissions to its rules regarding registrant obligations that require additional disclosure by registrants to their clients, including enhanced disclosure at account opening of all operating charges and fees a client may be required to pay, pre-trade disclosure of any charges a client may be required to pay, enhanced reporting on client statements that includes charges paid by the client and all compensation received by registrantsdiscount brokers in respect of a clients accounttheir distribution of mutual fund securities. These rule amendments will become effective in June 2022.
Cayman Islands. In the Cayman Islands, the Cayman Islands Monetary Authority (“CIMA”) is responsible for the regulation and new reporting regardingsupervision of financial services, the performancemonitoring of investments held in the account. These new rules, which were phased in over a three-year period, have required us to make changes to our systems to complycompliance with these new disclosure and reporting standards.
In Singapore, our subsidiaries are subject to, among others, the Securities and Futures Act (“SFA”), the Financial Advisers Act (“FAA”)anti-money laundering regulations, and the subsidiary legislation promulgated pursuantissuance of statements of principle and guidance. In February 2020, the Cayman Islands enacted the Private Funds Law 2020 (the “Private Funds Law”), which requires private funds that engage in business in or from the Cayman Islands to these Acts, which are administered by the Monetary Authority of Singapore (“MAS”). Our asset management subsidiary and its employees conducting regulated activities specified in the SFA and/or the FAA are requiredregister with CIMA, unless an exemption applies. The Private Funds Law applies to be licensed with the MAS. Failureany Cayman Islands closed-end fund. Open-end funds such as hedge funds continue to comply with applicable laws, regulations, codes, directives, notices and guidelines issued by the MAS may result in penalties including fines, censures and the suspension or revocation of licenses granted by the MAS.
In Australia, our subsidiaries are subject to various Australian federal and state laws and arebe regulated by the Australian Securities and Investments Commission (“ASIC”). ASIC regulates companies, financial markets and financial servicesMutual Funds Law in Australia. ASIC imposes certain conditions on licensed financial services organizations that applythe Cayman Islands. The new registration requirements applicable to our subsidiaries, including requirements relatingprivate funds domiciled in the Cayman Islands have posed, and may continue to capital resources, operational capabilitypose, additional compliance costs and controls. Failure to comply with applicable law, regulations or conditions could result in various sanctions being imposed including cancellation, suspension or variation of the licenses held byburdens on our Australian subsidiaries.business.
Hong Kong. In Hong Kong, our subsidiary is subject to the Securities and Futures Ordinance (the “SFO”(“SFO”) and its subsidiary legislation, which governs the securities and futures markets and regulates, among others, offers of investments to the public and provides for the licensing of dealing in securities and asset management activities and intermediaries. This legislation is administered by the Securities and Futures Commission (the “SFC”(“SFC”). The SFC is also empowered under the SFO to establish standards for compliance as well as codes and guidelines. Our subsidiary and its employees conducting any of the regulated activities specified in the SFO are required to be licensed with the SFC, and are subject to the rules, codes and guidelines issued by the


16


SFC from time to time. Failure to comply with the applicable laws, regulations, codes and guidelines could result in various sanctions being imposed, including fines, reprimands and the suspension or revocation of the licenses granted by the SFC.
In India, certain of our subsidiaries are primarily subject to relevant regulations promulgated by theIndia. The Securities and Exchange Board of India, (“SEBI”). The Reserve Bank of India, (“RBI”), the Ministry of Corporate Affairs (“MCA”) and the Foreign InvestmentDepartment of Industrial Policy and Promotion Board (“FIPB”) are the other major regulatory authorities that are capable of issuing directions of a binding nature to our subsidiaries. A failure to comply with the applicable laws, regulations, codes, notices, directives, guidelines, orders, circulars and schemes issued by SEBI, RBI, MCA or FIPB may resultsubsidiaries in penalties including fines, censures and/or suspension or revocation of licenses, approvals or registration status.India.
Japan. In Japan, our subsidiaries are subject to the Financial Instruments and Exchange Act (the “FIEL”) and the Act on Investment Trusts and Investment Corporations. These laws are administered and enforced by the Japanese Financial Services Agency, (the “JFSA”), which establishes standards for compliance, including capital adequacy and financial soundness requirements, customer protection requirements, and business conduct rules.
Singapore. In Singapore, our subsidiaries are subject to, among others, the Securities and Futures Act (“SFA”), the Financial Advisers Act (“FAA”) and the subsidiary legislation promulgated pursuant to these Acts, which are administered by the Monetary Authority of business rules. The JFSA is empowered to conduct administrative proceedings that can resultSingapore (“MAS”). Our asset management subsidiaries and their employees conducting regulated activities specified in censure, fine, the issuance of cease and desist orders SFA and/or the suspension or revocationFAA are required to be licensed with the MAS.


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Other Non-U.S. Jurisdictions. There are similar legal and regulatory arrangements in effect in many other non-U.S. jurisdictions where our subsidiaries, branches and representative offices, as well as certain joint ventures or companies in which we own minority stakes, are authorized to conduct business. We are also subject to regulation and supervision by, among others, the Securities Commission of The Bahamas;Bahamas, the Central Bank of Brazil and the Comissão de Valores Mobiliários in Brazil; the Cayman Islands Monetary Authority;Brazil, the China Securities Regulatory Commission in the People’s Republic of China; the Autorité des Marchés Financiers in France; the Federal Financial Supervisory Authority in Germany; the Central Bank of Ireland; the Commissione Nazionale per le Società e la Borsa in Italy;China, the Financial Services Commission and the Financial Supervisory Service in South Korea;Korea, the Securities Commission in Malaysia;Malaysia, the Comision Nacional Bancaria y de Valores in Mexico; the Autoriteit Financiële Markten in the Netherlands;Mexico, the Polish Securities and Exchange Commission;Commission, the Romanian Financial Services Authority; the Comisión Nacional del Mercado de Valores in Spain; the Finansinspektionen in Sweden;Authority, the Swiss Federal Banking Commission;Commission, the Financial Supervisory Commission in the Republic of China;China, the Dubai Financial Services Authority in the United Arab Emirates;Emirates, and the State Securities Commission of Vietnam.
COMPETITION
The financial services industry is a highly competitive global industry. According to data sourced from the Investment Company Institute as of June 30, 2017, there were approximately 11,300 registered open-end funds whose shares were offered to the public in the U.S. and approximately 111,700 registered open-end funds whose shares were offered to the public outside the U.S., in each case including mutual funds, ETFs and funds of funds.
We face strong competition from numerous investment management companies, securities brokerage and investment banking firms, insurance companies, banks and other financial institutions, which offer a wide range of financial and investment management products and services to the same institutional accounts, separate accounts, retail investors and high net-worth clients that we are seeking to attract. Competition is based on various factors, including, among others, business reputation, investment performance, product mix and offerings, service quality and innovation, distribution relationships, and fees charged.
We offer a broad product mix that meets a variety of investment goals and needs for different investors, and we may periodically introduce new products to provide investors with additional investment options. Due to our international presence and varied product mix, it is difficult to assess our market position relative to other investment managers on a worldwide basis, but we believe that we are one of the more widely diversified asset managers based in the U.S. We believe that our equity and fixed income asset mix coupled with our global presence will serve our competitive needs well over the long term. We continue to focus on the long-term performance of our investment products, service to clients and extensive marketing activities through our strong broker-dealer and other financial institution distribution network as well as with high net-worth and institutional clients. We believe that performance, diversity of products and customer service, along with fees and costs, are the primary drivers of competition in the financial services industry.
The periodic establishment of new investment management firms and investment products increases the competition that we face. Many of our competitors have long-standing and established relationships with broker-dealers, investment advisers and their clients. Others have focused on, offer and market specific product lines, which provide strong competition to certain of our asset classes. In addition, consolidation in the financial services industry has created stronger competitors, some with greater financial resources and broader distribution channels than our own.


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We rely largely on third-party broker-dealers and other similar independent financial intermediaries to distribute and sell our fund shares. We have pursued and continue to pursue sales relationships with all types of financial intermediaries to broaden our distribution network. We have experienced increased costs related to maintaining our distribution channels and we anticipate that this trend will continue. A failure to maintain strong business relationships with the major intermediaries who currently distribute our products may also impair our distribution and sales operations. Additionally, competing broker-dealers whom we rely upon to distribute and sell our SIPs may also sell their own proprietary funds and investment products, which could further limit the distribution of our investment products. Any inability to access and successfully sell our SIPs to clients through third-party distribution channels could have a negative effect on our level of AUM, related revenues and overall business and financial condition.
We maintain a technology platform to compete with the rapidly developing and evolving marketplace. However, technology is subject to rapid change and we cannot guarantee that our competitors may not implement more advanced platforms for their products, which could affect our business.
We believe that we are well positioned to deal with changes in marketing trends as a result of our advertising activities and broad based marketplace recognition. In conjunction with our subsidiaries, we conduct advertising and promotional campaigns through various media sources to promote brand recognition, and advertise in major financial publications, as well as on television and the Internet, to promote brand name recognition and to assist our distribution network. Such activities include purchasing network and cable programming, sponsorship of sporting events, newspaper and magazine advertising, online and paid search advertising and social media marketing.
INTELLECTUAL PROPERTY
We have used, registered, and/or applied to register certain trademarks, service marks and trade names to distinguish our sponsored investment products and services from those of our competitors in the U.S. and in other countries and jurisdictions, including, but not limited to, Franklin®, Templeton®, Legg Mason®, Balanced Equity Management®, Benefit Street Partners®, Darby®, Edinburgh Partners™, Fiduciary Trust™, Franklin Bissett®, Franklin Mutual Series®, Franklin BissettK2®, Fiduciary Trust™, Darby and LibertyShares®, Balanced Equity. In addition, pursuant to our Legg Mason acquisition, our additional brand names include Brandywine Global Investment Management®, K2Clarion Partners®, ClearBridge Investments®, Martin Currie®, QS Investors®, Royce® Investment Partners and LibertySharesWestern Asset Management Company®. Our trademarks, service marks and trade names are important to us and, accordingly, we enforce our trademark, service mark and trade name rights. The Franklin Templeton Investments® brand has been, and continues to be, extremely well received both in our industry and with our clients, reflecting the fact that our brand, like our business, is based in part on trust and confidence. If our brand is harmed, our future business prospects may be adversely affected.
EMPLOYEESHUMAN CAPITAL RESOURCES
As of September 30, 20172020, we employed approximately 9,40011,800 employees and operated offices in over 30 countries. We considerdepend upon our relations withkey personnel to manage our employeesbusiness, including our portfolio managers, investment analysts, investment advisers, sales and management personnel and other professionals as well as our executive officers and business unit heads. The retention of our key investment personnel is material to be satisfactory.the management of our business. The departure of our key investment personnel could cause us to lose clients, which could adversely affect our business.
AVAILABLE INFORMATION
Franklin files reports with theThe SEC includingmaintains a website that contains current and periodic reports, proxy statements and other information filed with or furnished to the SEC from time to time. The public may read and copy any of these filings at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including Franklin, that file electronically with the SEC, at www.sec.gov. Additional information about the Company’sFranklin’s filings can also be obtained atthrough our website at www.franklinresources.com under “Investor Relations.” We make available free of charge on our website ourFranklin’s Annual Report on Form 10-K,10‑K, Quarterly Reports on Form 10-Q,10‑Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Franklin periodically provides other information for investors on its website, such as press releases, presentations and other information about financial performance. The information on our website is not incorporated by reference into, and is not a part of, this Annual Report.
Corporate Governance Guidelines. The Company has adopted Corporate Governance Guidelines. The Corporate Governance Guidelines are posted on the Company’s website under “Corporate Governance” and are available in print to any stockholder who requests a copy.
Committee Charters. The Company’s Board of Directors has an Audit Committee, Compensation Committee and Corporate Governance Committee. The Board of Directors has adopted written charters for each such committee, which are posted on the Company’s website under “Corporate Governance” and are available in print to any stockholder who requests a copy.




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Item 1A.Risk Factors.
PANDEMIC-RELATED RISKS
Our business and operations are subject to adverse effects from the outbreak and spread of contagious diseases such as COVID-19, and we expect such adverse effects to continue.
The outbreak and spread of contagious diseases such as COVID-19, a highly transmissible and pathogenic disease, has adversely affected, and we expect will continue to adversely affect, our business, financial condition and results of operations. The COVID-19 pandemic has resulted and will likely continue to result in a widespread national and global public health crisis. Such infectious illness outbreaks or other adverse public health developments in countries where we operate, as well as local, state and/or national government restrictive measures implemented to control such outbreaks, could adversely affect the economies of many nations or the entire global economy, the financial condition of individual issuers or companies and capital markets, in ways that cannot necessarily be foreseen, and such impacts could be significant and long term. Such extraordinary events and their aftermaths can cause investor fear and panic, which can further adversely affect the operations and performance of companies, sectors, nations, regions and financial markets in general and in ways that cannot necessarily be foreseen. The COVID-19 pandemic has already adversely affected and will likely continue to adversely affect global economies and markets, and has resulted in a global economic downturn and disruptions in commerce that will continue to evolve, including with respect to financial and other economic activities, services, travel and supply chains. Global and national health concerns, and uncertainty regarding the impact of COVID-19, could lead to further and/or increased volatility in global capital and credit markets, adversely affect our key executives and other personnel, clients, investors, providers, suppliers, lessees, and other third parties, and negatively impact our AUM, revenues, income, business and operations.
Our business has been and will likely continue to be negatively impacted by the current COVID-19 pandemic, including by the potential reoccurrence of periods of increased spread of COVID-19, and ensuing economic downturn in global financial markets. The global spread of COVID-19, and the various governmental actions and economic effects related to the pandemic, have had, and are expected to continue to have, negative impacts on our business and operations, including volatility in asset values, reduced demand for our products and services, concerns for and restrictions on our personnel (including health concerns, quarantines, shelter-in-place orders and restrictions on travel), and increased privacy and cybersecurity risks. Past economic downturns have caused, and the current economic downturn is causing and is expected to continue to cause, periods of significant volatility in our stock price, decreases and fluctuations in our AUM, revenues and income, increased liquidity risks and redemptions from our funds and other products, resulting in difficulties obtaining cash to settle redemptions, fund closures, poor investment performance of our products and corporate investments, increased focus on expense management, capital resources and related planning, and could cause reputational harm, legal claims, and other factors that may arise or develop. Current increased liquidity risks and redemptions in our funds and other products have required, and may continue to require, increased cash in the form of loans or other lines of credit for them to draw on to help settle redemptions and for other related purposes. We have in some cases voluntarily determined to, and without obligation could in the future, extend such loans. In addition, such increased liquidity risks and redemptions have caused, and could continue to cause, fund closures and related regulatory and governmental reviews or investigations and legal claims or actions, subjecting us to legal and regulatory risks and potential financial exposure.
Our business operations are complex and conducted in numerous countries around the globe, and in order to remain competitive, we must continue to perform our asset management and related business responsibilities for our clients and investors properly and effectively throughout the course of the COVID-19 pandemic, which, among other matters, is dependent on the health and safety of our personnel, the ability of our personnel to work remotely successfully, and our ability to have our personnel return to work at our offices safely and effectively in compliance with applicable requirements. We have implemented our business continuity plans globally to manage our business during this pandemic, including broad and extended work-from-home capabilities for our personnel where feasible and, as governmental shelter-in-place restrictions have been lifted in various jurisdictions, we have implemented measures for the return of a portion of our personnel to certain of our offices. We can provide no assurance that our efforts and planning for either environment will be sufficient to protect the health and safety of our personnel and maintain the success of our business. Further, we depend on a number of third-party providers to support our operations, and any failure of our providers to fulfill their obligations could adversely impact our business. Moreover, we now have an increased dependency on remote equipment and connectivity infrastructure to access critical business systems that may be subject to failure, disruption or unavailability that could negatively impact our business operations. Additionally, multiple regions in which we operate have shelter-in-place movement restrictions on our personnel and third-party vendors and service providers that may impact our ability to satisfy or respond timely to potential technology issues or needs impacting our business and operations. Further, we, like many others during this time, have been subject to


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an increase in phishing and other social engineering attempts by malicious actors to manipulate individuals into divulging confidential or personal information. If our cybersecurity diligence and efforts to offset the increased risks associated with greater reliance on mobile, collaborative and remote technologies during this pandemic are not effective or successful, we will be at increased risk for cybersecurity or data privacy incidents.
Any inability to recover successfully following the COVID-19 pandemic with respect to the economic, investment or operational impacts to our company or industry could further negatively impact our business and operations. As of the time of this filing, as the COVID-19 pandemic continues to evolve, it is not possible to predict the full extent to which the coronavirus will adversely impact our business, liquidity, capital resources, financial results and operations, which impacts will depend on numerous developing factors that are highly uncertain and rapidly changing. The impacts and risks described herein relating to COVID-19 augment the discussion of overlapping risks in our risk factors below, which may be heightened by COVID-19.
MARKET AND VOLATILITY RISKS
Volatility and disruption of our business and the capital and credit markets and adverse changes in the global economy may significantly affect our results of operations and may put pressure on our financial results.
The asset management industry continues to experience disruption and challenges, including a shift to lower-fee passively managed products, increased fee pressure, regulatory changes, an increasing and changing role of technology in asset management services, the continuous introduction of new products and services and the consolidation of financial services firms through mergers and acquisitions. Further, the capital and credit markets have and may continue, from time to time, to experience volatility and disruption worldwide. Declines in global financial market conditions have in the past resulted in significant decreases in our assets under management (“AUM”),AUM, revenues and income, and future declines may further negatively impact our financial results. Such declines have had, and may in the future have, ana material adverse impact on our results of operations. We may need to modify our business, strategies or operations and we may be subject to additional constraints or costs in order to compete in a changing global economy and business environment.
The amount and mix of our AUM are subject to significant fluctuations.
Fluctuations in the amount and mix of our AUM may be attributable in part to market conditions outside of our control that have had, and in the future could have, a negative impact on our revenues and income. We derive substantially all of our operating revenues and net income from providing investment management and related services to investors globallyin jurisdictions worldwide through our investment products, thatwhich include our sponsored funds, as well as institutional and high-net-worth separate accounts, retail separately managed account programs, sub-advised products, and other investment fundsvehicles. In addition to investment management, our services include fund administration, sales and institutional, high net-worthdistribution, and separately-managed accounts (collectively, our “sponsored investment products”shareholder servicing. We may perform services directly or “SIPs”).through third parties. The level of our revenues depends largely on the level and relative mix of AUM. Our investment management fee revenues are based primarily based on a percentage of the value of AUM and vary with the nature and strategies of the SIPs managed.our products. Any decrease in the value or amount of our AUM because of market volatility or other factors, such as asset outflows or a decline in the price of stocks, in particular market segments or in the securities market generally, negatively impacts our revenues and income.
We are subject to significant risk of asset volatility from changes in the global financial, equity, debt and commodity markets.
Individual financial, equity, debt and commodity markets may be adversely affected by financial, economic, political, electoral, diplomatic or other instabilities that are particular to the country or region in which a market is located, including without limitation local acts of terrorism, economic crises, political protests, war, insurrection or other business, social or political crises. Global economic conditions, exacerbated by war, terrorism, social, civil or political unrest, natural disasters, public health crises, such as epidemics or pandemics, or financial crises, changes in the equity, debt or commodity marketplaces, changes in currency exchange rates, interest rates, inflation rates, the yield curve, defaults by trading counterparties, bond defaults, revaluation and bond market liquidity risks, geopolitical risks, the imposition of economic sanctions and other factors that are difficult to predict, affect the mix, market values and levels of our AUM. For example, changes in financial market prices, currency exchange rates and/or interest rates have in the past caused, and could in the future cause, the value of our AUM to decline, which would result in lower investment management fee revenues. Changing market conditions could also cause an impairment to the value of our goodwill and other intangible assets. The


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Our funds we manage may be subject to liquidity risks or an unanticipated large number of redemptions as a result of theand fund closures.
Due to market volatility or other events or conditions described above, causing theour funds may need to sell securities or instruments that they hold, possibly at a loss, or draw on any available lines of credit, to obtain cash to maintain sufficient liquidity or settle these redemptions, or settle in-kind with securities held in the applicable fund. WeWhile we have no legal or contractual obligation to do so, we have in the past provided, and may in the future at our discretion provide, financial support to our funds we manage to enable them to maintain sufficient liquidity in any such event. Changes in investor preferences regarding our more popular investment products have in the past caused, and could in the future cause, sizable redemptions and lower the value of our AUM, which would result in lower revenue and operating results. Moreover, changingIncreased market volatility and changes in investor preferences also increase the risk of fund closures. Any decrease in the level of our AUM resulting from market declines, credit or interest rate volatility or uncertainty, increased redemptions or other factors could negatively impact our revenues and income.
A shift in our asset mix toward lower fee products may negatively impact our revenues.
Changing market conditions and investor preferences may cause a shift in our asset mix between international and U.S. assets, potentially resulting in a decline in our revenues and income depending upon the nature of our AUM and the level of management fees we earn based on our AUM. We generally derive higher investment management and distribution fees from our internationaltoward certain lower fee products, than from our U.S. products, and higher sales fees from our U.S. products than from our international products. Additionally, changing market conditions may cause a shift in our asset mix towardssuch as fixed income products, and away from equity and multi-asset/balanced products, andmulti-asset products. This may cause a related decline in our revenues and income, as we generally derive higher fee revenues and income from our equity and certain multi-asset/balancedmulti-asset products than from our fixed income products we manage. Further, changing market conditions and investor preferences also may cause a shift in our asset mix towards lower fee exchange traded funds.products. Increases in interest rates, in particularparticularly if rapid, as well as any uncertainty in the future direction of interest rates, may have a negative impact on our fixed income products. Although the shorter duration of the bond investments in many of these products may help mitigate the interest rate risk, rising interest rates or interest rate uncertainty typically decrease the total return on many bond investments due to lower market valuations of existing bonds. Any decreaseFurther, changing market conditions and investor preferences also may cause a shift in our asset mix toward lower fee ETFs. Moreover, we generally derive higher investment management and distribution fees from our international products than from our U.S. products, and higher sales fees from our U.S. products than from our international products. Changing market conditions may cause a shift in our asset mix between international and U.S. products, potentially resulting in a decline in our revenues and income depending upon the nature of our AUM and the level of fees we earn on that AUM.
We may not effectively manage risks associated with the replacement of benchmark indices.
The withdrawal and replacement of widely used benchmark indices such as the London Interbank Offered Rate (“LIBOR”) with alternative benchmark rates may introduce a number of risks for our business, our clients and the financial services industry more widely. These include financial risks arising from potential changes in the valuation of financial instruments linked to benchmark indices, pricing and operational risks, and legal implementation and revised documentation risks. The FCA in the U.K., which regulates LIBOR, has announced that it will no longer compel panel banks to submit rates for LIBOR after 2021. The publication of LIBOR is therefore not guaranteed beyond 2021, and it appears highly likely that LIBOR will be discontinued or modified by the end of 2021. At this time, no consensus exists as to which reference rate or rates or benchmarks may become acceptable alternatives to LIBOR, although the Alternative Reference Rates Committee, a group of market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommend alternative to LIBOR. The selection of SOFR as the alternative reference rate, however, currently presents certain market concerns because a term structure for SOFR has not yet developed, and there is not yet a generally accepted methodology for adjusting SOFR. Accordingly, the withdrawal and replacement of LIBOR may pose financial risks and uncertainties to our business. We also may face operational challenges adopting successor benchmarks.
INVESTMENT AND PERFORMANCE RISKS
Poor investment performance of our products could reduce the level of our AUM resulting from market declines, interest rate volatility or uncertainty, increased redemptions or other factors couldaffect our sales, and negatively impact our revenues and income.
We are subjectOur investment performance, along with achieving and maintaining superior distribution and client service, is critical to extensive, complex, overlappingthe success of our business. Strong investment performance often stimulates sales of our products. Poor investment performance as compared to third-party benchmarks or competitive products has led, and frequently changing rules, regulations, policies, and legal interpretations. There is uncertainty associated with the regulatory environments in which we operate. As described below, our business is subject to extensive and complex, overlapping and/or conflicting, and frequently changing and increasing rules, regulations, policies and legal interpretationscould in the countriesfuture lead, to a decrease in which we operate. Our regulatory and compliance obligations impose significant operational and cost burdens on us and cover a broad range of requirements related to securities


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and other financial instruments, investment and advisory matters, accounting, tax, compensation, ethics, data protection, privacy, sanctions programs, and escheatment laws and regulations.
As a U.S. reporting company, we are subject to U.S. federal securities laws, state laws regarding securities fraud, other federal and state laws and rules and regulations of certain regulatory and self-regulatory organizations, including those rules and regulations promulgated by, among others, the U.S. Securities and Exchange Commission (“SEC”) and the New York Stock Exchange. As a global investment management organization, certainsales of our subsidiaries are also subjectproducts and stimulate redemptions from existing products, generally lowering the overall level of AUM and reducing the management fees we earn. We can provide no assurance that past or present investment performance in our products will be indicative of future performance. If we fail, or appear to the rules and regulations promulgated by the SEC, the Financial Industry Regulatory Authority, the U.S. Commodity Futures Trading Commission (“CFTC”), the National Futures Association, the U.S. Department of Justice (“DOJ”), the U.S. Department of Labor (“DOL”) and the U.S. Department of Treasury. Given our global operations, we are also subject to securities laws and other laws of various non-U.S. jurisdictions and to regulation by non-U.S. regulators including, among others, the United Kingdom (“U.K.”) Financial Conduct Authority, the Luxembourg Commission de Surveillance du Secteur Financier, the Canadian provincial and territorial securities regulatory authorities, the Monetary Authority of Singapore, the Australian Securities and Investments Commission, the Hong Kong Securities and Futures Commission, the Securities and Exchange Board of India, the Japanese Financial Services Agency and various international stock exchanges. In some cases, our non-U.S. operations may also be subject to regulation by U.S. regulators, such as the SEC, the CFTC and the DOJ (for example, with respect to the Foreign Corrupt Practices Act of 1977). We are also subject not only to the sanctions programs administered by the U.S. Department of Treasury’s Office of Foreign Assets Control, but also to sanctions programs adopted and administered by non-U.S. jurisdictions, including the European Union (“EU”), where our investment management services and products are offered. We are also subject to the laws and regulations of states and other jurisdictions regarding the reporting and escheatment of unclaimed or abandoned property. Further, certain federal and state anti-takeover or business combination laws may impose various disclosure and procedural requirements on the ability of a person to acquire control of us, which may discourage potential merger and acquisition proposals and may delay, deter or prevent a change of control, including through transactions that some stockholders may consider desirable.
Certain of our subsidiaries are registered with the SEC under the Investment Advisers Act of 1940, the CFTC and/or licensed by various non-U.S. regulators. In addition, many of our funds are registered with the SEC under the Investment Company Act of 1940 (the “Investment Company Act”) or authorized by various European and other non-U.S. regulators pursuant to the EU's Undertakings for Collective Investment in Transferable Securities (“UCITS”) Directive or under other non-U.S. laws in Europe, the Middle East and Africa, Asia-Pacific, Canada and Latin America. These registrations, licenses and authorizations impose numerous obligations, as well as detailed operational requirements, on such subsidiaries and such funds. Our subsidiaries must also comply with complex tax regimes.
Financial reporting requirements, and the processes, controls and procedures that have been put in placefail, to address them, are often comprehensivesuccessfully and complex. Wepromptly the underlying causes of poor investment performance, we may be adversely affected as a result of newunsuccessful in repairing any existing or revised legislation or regulations or by changes in the interpretation of existing lawscontinuing harm to our performance and regulations. Political and electoral changes, developments and conflicts may also introduce additional uncertainty. While management has focused attention and resources on our compliance policies, procedures and practices, non-compliance with applicable laws, rules, regulations, conflicts of interest requirements or fiduciary principles, or our inability to keep up with, or adapt to, an ever changing, complex regulatory environment, could result in civil liability, criminal liability and/or sanctions against us, including fines and censures, injunctive relief, suspension or expulsion from a particular jurisdiction or market or the revocation of licenses or charters, any of which could adversely affect our reputation,future business prospects revenues and income. Moreover, any potential accounting or reporting error, whether financial or otherwise, if material, could damage our reputation and adversely affect our business.would likely be negatively affected.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) authorized the establishment of the Financial Stability Oversight Council (“FSOC”), the mandate of which is to identify and respond to threats to U.S. financial stability. Similarly, the U.S. and other members of the G-20 group of nations have empowered the Financial Stability Board (“FSB”) to identify and respond, in a coordinated manner, to threats to global financial stability. The FSOC may designate certain non-bank financial companies as systemically important financial institutions (“SIFIs”), which are subject to supervision and regulation by the Board of Governors of the Federal Reserve System. The FSB may designate certain non-bank financial companies as global systemically important financial institutions (“G-SIFIs”); the additional regulatory requirements triggered by any such designation are not yet established. The FSOC and the FSB, as well as other global regulators including the European Commission, are considering what threats to U.S., EU and global financial stability, if any, arise from asset management companies and/or the funds that they manage, and whether such threats can be mitigated by treating such entities as SIFIs or G-SIFIs and/or subjecting them to additional regulation. To the extent that we or any of our funds are designated as a SIFI or G-SIFI, such regulation, which could include requirements related to risk-




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based capital, leverage, liquidity, credit exposure, stress testing, resolution plans, early remediation, and certain risk management requirements, couldHarm to our reputation may negatively impact our business. The Dodd-Frank Act, as well as other legislativerevenues and regulatory changes, impose other restrictions and limitations on us, resulting in increased scrutiny and oversightincome.
Our reputation is critical to the success of our financial servicesbusiness. We believe that our brand names have been, and products. We continue to analyzebe, well received both in our industry and with our clients, reflecting the impactfact that our brands, like our business, are based in part on trust and confidence. If our brands or reputation are harmed, existing clients may reduce amounts held in, or withdraw entirely from, our products, or our clients and products may terminate their management agreements with us, which could reduce the amount of our AUM and cause us to suffer a corresponding loss in our revenues and income. In addition, reputational harm may prevent us from attracting new clients or developing new business.
GLOBAL OPERATIONAL RISKS
Our completed acquisition of Legg Mason, Inc. remains subject to integration risks.
On July 31, 2020, we completed our acquisition of Legg Mason, Inc. pursuant to the terms and conditions of the Dodd-Frank Act as implementing rules are adoptedMerger Agreement, and become effective. UnderLegg Mason became a wholly-owned subsidiary of Franklin. Important ongoing integration-related risks related to our completed acquisition of Legg Mason include the Dodd-Frank Act, which imposes a numberrisks that the anticipated benefits of regulations governing derivative transactions, certain categoriesthe transaction, including the realization of swaps are currently required,revenue, tax benefits, financial benefits or returns and further categories of swaps are likely to be required, to be submitted for clearing by a regulated clearing organization and reported on a swap execution facility. The EUexpense and other countries are in the process of implementing similar requirements, and there is some risk that full mutual recognitionsynergies, may not be achieved betweenfully realized, or may take longer to realize than expected, and that the various regimes, and duplication of regulation and transaction costsintegration may result. These and other requirements are likely to impact how we manage our investment strategies because of, among other things, an increase in the costs and expenses of utilizing swaps and other derivatives.cost more than expected. In addition, the SEC has adopted rulesCOVID-19 pandemic-related risks may result in unanticipated regulatory, planning and/or operational delays that have changedmay adversely impact the structureanticipated timeline and operation for certain typesachievement of money market funds,our ongoing integration goals. The ongoing integration of Legg Mason is a time-consuming and expensive process that, will require certain registered funds to adopt liquidity management programs. (Full compliance with the latter is required by December 1, 2018.) The SEC has also proposed a rule that would impose restrictions on the use of derivatives by registered funds. We expect that the complex regulatory requirementswithout adequate planning and developments applicable to us will cause us to incur additional administrativeeffective and compliance costs.
The laws and regulations applicable totimely implementation, could significantly disrupt our business generally involve restrictions and requirements in connection with a variety of technical, specialized, and expanding matters and concerns. For example, compliance with the Bank Secrecy Act of 1970, anti-money laundering and Know Your Customer requirements, and economic, trade and other sanctions, both domestically and internationally, has taken on heightened importance as a result of efforts to, among other things, limit terrorism and actions that undermine the stability, sovereignty and territorial integrity of countries. At the same time, there has been increased regulation with respect to the protection of customer privacy and the need to secure sensitive customer information. As we continue to address these requirements or focus on meeting new or expanded ones, we may expend a substantial amount of time and resources. Any inabilitybusiness. Our failure to meet these requirements within the required timeframes may subject uschallenges involved in successfully integrating the operations of Legg Mason or to sanctions or other restrictions by governments and/or regulators that could adversely impact our broader business objectives.
Global regulatory and legislative actions and reforms have made the regulatory environment in which we operate more costly and future actions and reforms could adversely impact our financial condition and results of operations. The U.S. federal securities laws have been augmented substantially and made significantly more complex by, among other measures, the Dodd-Frank Act, the Sarbanes-Oxley Act of 2002 and the USA Patriot Act of 2001. Similarly, the securities and related laws outside the U.S. have been augmented substantially and made more complex by measures such as the EU’s Alternative Investment Fund Managers Directive (“AIFMD”) and Markets in Financial Instruments Directive II (“MiFID II”). Although negotiations between the U.K. and EU regarding the U.K.’s proposed withdrawal from the EU (“Brexit”) began in June 2017, it is still unclear what terms may be agreed to in the final outcome and for any transitional period. Ongoing changes in the EU’s regulatory framework applicable to our business, including changes related toBrexit and any other changes in the composition of the EU’s member states, may add further complexity to our global risks and operations. Moreover, the adoption of new laws, regulations or standards and changes in the interpretation or enforcement of existing laws, regulations or standards have directly affected, and will continue to affect, our business. With new laws and changes in interpretation of existing requirements, the associated time we must dedicate to and related costs we must incur in meeting the regulatory complexities of our business have increased. In particular, certain provisions of the Dodd-Frank Act and MiFID II still require the adoption of implementing rules. We may be required to invest significant additional management time and resources to address the new regulations being adopted pursuant to the Dodd-Frank Act, MiFID II and other laws. For example, MiFID II requires the “unbundling” of research and execution charges for trading. The final rules in this area, and the industry’s response to them, are still evolving and could lead to increased research costs. Outlays associated with meeting regulatory complexities have also increased as we expand our business into new jurisdictions.
Effective May 2018, the EU’s General Data Protection Regulation (“GDPR”) will strengthen and unify data protection rules for individuals within the EU. GDPR also addresses export of personal data outside the EU. The primary objectives of GDPR are to give citizens control of their personal data and to simplify the regulatory environment for international business by unifying data protection regulation within the EU. Compliance with the stringent rules under GDPR will require an extensive review of all of our global data processing systems. A failure to comply with GDPR could result in fines up to 20 million Euros or 4% of annual global revenues, whichever is higher.
Further, pursuant to ongoing efforts to encourage global tax compliance, the Organization for Economic Co-operation and Development has adopted a global common reporting standard for the automatic exchange of financial information among participating countries (“CRS”), aimed at ensuring that persons with financial assets located outside of their tax residence


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country pay required taxes. In many cases, intergovernmental agreements between the participating countries will govern implementation of the new CRS rules. CRS will be implemented over a multi-year period and we will continue to monitor the implementing regulations and corresponding intergovernmental agreements to determine our requirements. CRS may subject us to additional reporting, compliance and administrative costs and burdens in jurisdictions where we operate as a qualifying financial institution.
Compliance activities to address these and other new legal requirements have required, and will continue to require, us to expend additional time and resources, and, consequently, we are incurring increased costs of doing business, which potentially negatively impacts our profitability and future financial results. Finally, any further regulatory and legislative actions and reforms affecting the investment management industry, including compliance initiatives, may negatively impact revenues by increasing our costs of accessing or operating in the financial markets or by making certain investment offerings less favorable to our clients.

Failure to comply with the laws, rules or regulations inotherwise realize any of the jurisdictions in which we operate could result in substantial harm to our reputation and results of operations. As with all investment management companies, our activities are highly regulated in almost all countries in which we conduct business. The regulatory environmentsanticipated benefits of the jurisdictions where we conduct our business or where our SIPs are organized or sold are complex, uncertain and subject to change. Local regulatory environments may vary widely and place additional demands on our sales, investment, legal and compliance personnel. Failure to comply with the applicable laws, rules, regulations, codes, directives, notices or guidelines in any of our jurisdictions could result in a wide range of penalties and disciplinary actions, including fines, censures and the suspension or expulsion from a particular jurisdiction or market or the revocation of licenses, any of whichacquisition could adversely affect our reputation and operations. In recent years, the regulatory environments in which we operate have seen significant increased and evolving regulations, which have imposed and may continue to impose additional compliance and operational requirements and costs on us in the applicable jurisdictions. Regulators could also change their policies or laws in a manner that might restrict or otherwise impede our ability to offer our investment products and services in their respective markets, or we may be unable to keep up with, or adapt to, the ever changing, complex regulatory requirements in such jurisdictions or markets, which could further negatively impact our business.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition, results of operations and liquidity. We are subject to income taxes as well as non-income based taxes, and are subject to ongoing tax audits, in various jurisdictions in which we operate. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits, and the actual outcomes could have a material impact on our net income or financial condition. Changes in tax laws or tax rulings could materially impact our effective tax rate. For example, proposals for fundamental U.S. corporate tax reform, if enacted, could change the amount of taxes we are required to pay and could have a significant impact on our future results of operations, profitability and financial condition.
Any significant limitation, failure or security breach of our information and cyber security infrastructure, software applications, technology or other systems that are critical to our operations could disruptimpair our business and harm our operations and reputation. We are highly dependent upon the use of various proprietary and third-party information and security technology, software applications and other technology systems to operate our business. We are also dependent on the continuity and effectiveness of our information and cyber security infrastructure, policies, procedures and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through them and contracted third-party systems. We use technology to, among other things, support our business continuity and operations, store and maintain data, obtain securities pricing information, process client transactions, and provide reports and other customer services to the clients of the products we manage. Any disruptions, inaccuracies, delays, systems failures, data or privacy breaches, or other security breaches (including any cyber security breaches) in these and other processes could subject us to client dissatisfaction and losses and damage our reputation. Although we take protective measures, including measures to effectively secure information through system security technology, the technology systems we use are vulnerable to unauthorized access, computer viruses or other events that have a security impact, such as an external hacker attack by one or more cyber criminals (including phishing attacks attempting to obtain confidential information) or an authorized employee or vendor inadvertently causing us to release confidential information, which could materially harm our operations and reputation. Potential system disruptions, failures or breaches of the technology systems we use, and the costs necessary to address them, could result in: material financial loss or costs; the unauthorized disclosure or modification of sensitive or confidential information; loss of valuable information; breach of client contracts; liability for stolen assets, information or identity; remediation costs to repairnoted above.


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damage caused by the failure or breach; additional security costs to mitigate against future incidents; reputational harm; regulatory actions; and/or legal claims, liability and litigation costs resulting from the incident. Moreover, loss or unauthorized disclosure or transfer of confidential customer identification information could harm our reputation and subject us to liability under laws that protect confidential personal data, resulting in increased costs or a decline in our revenues or common stock price. Further, although we take precautions to password protect and encrypt our laptops and sensitive information on our other mobile electronic devices, if such devices are stolen, misplaced or left unattended, they may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by us.
Most of the software applications that we use in our business are licensed from, and supported, upgraded and maintained by, third-party vendors. Our third-party applications include enterprise cloud storage and cloud computing application services provided and maintained by third-party vendors. A suspension or termination of certain of these licenses or the related support, upgrades and maintenance could cause temporary system delays or interruption that could adversely impact our business. Also, our third-party applications may include confidential and proprietary data provided by vendors and by us. We may be subject to indemnification costs and liability to third parties if we breach any confidentiality obligations regarding vendor data, for losses related to the data, or if data we provide is deemed to infringe upon the rights of others. In addition, the failure to properly manage and operate the data centers we use could have an adverse impact on our business. Although we have in place certain disaster recovery plans, we may experience system delays and interruptions as a result of natural disasters, power failures, acts of war, and third-party failures. Technology is subject to rapid advancements and changes and our competitors may from time to time implement more advanced technology platforms for their products and services, including digital advisors and other advanced electronic systems, which could adversely affect our business if we are unable to remain competitive.
Our business operations are complex and a failure to properly perform operational tasks properly or the misrepresentation of our products and services, or the termination of investment management agreements representing a significant portion of our AUM,comply with applicable regulatory requirements could have an adverse effect on our revenues and income.
Through our subsidiaries, we provide investment management and related services to our SIPs. In addition to investment management, our services include fund administration, sales, distribution, marketing, shareholder servicing, and other services.investors globally. In order to be competitive and comply with our agreements, we must properly perform our fund and portfolio administration and related responsibilities, including portfolio recordkeeping and accounting, security pricing, corporate actions, investment restrictions compliance, daily net asset value computations, account reconciliations, and required distributions to fund shareholders. Many of our operations are complex and dependent on our ability to effectively process and monitor a large number of transactions many ofeffectively, which may occur across numerous markets and currencies at high volumes and frequencies. Although we expend considerable resources on internal controls, supervision, technology and training in an effort to ensure that such transactions do not violate applicable guidelines, rules and regulations or adversely affect our clients, counterparties or us, our operations are ultimately dependent on our employees whopersonnel, as well as others involved in our business, such as third-party vendors, providers and other intermediaries, and subject to potential human errors. Our personnel and others involved in our business may, from time to time, make mistakes that are not always immediately detected, which may disrupt our operations, cause losses, lead to regulatory fines or sanctions, litigation, or otherwise damage our reputation. In addition, any misrepresentation of our productsservices and servicesproducts in advertising materials, public relations information, social media or other external communications could also adversely affect our reputation and business prospects. Our investment management fees, which represent the majority of our revenues, are dependent on fees earned under investment management agreements that we have with our SIPs.products and clients. Our revenues could be adversely affected if such agreements representing a significant portion of our AUM are terminated or significantly altered.terminated. Further, certain of our subsidiaries may act as general partner for various investment partnerships, which may subject them to liability for the partnerships liabilities. If we fail to properly perform and monitor our operations properly, our business could suffer and our revenues and income could be adversely affected.
Failure to establish adequate controls and risk management policies, or the circumvention of controls and policies, could have an adverse effect on our global operations, reputation and financial position.
Although we have adopted risk management, operational and financial controls and compliance policies, procedures and programs that are subject to regular review and update, we cannot ensure that these measures will enable us effectively to identify and manage internal and external risks including those related to fraudulent activity and dishonesty. We are subject to the risk that our personnel, contractors, vendors and other third parties may deliberately or recklessly circumvent or violate our controls to commit fraud against our business, products and/or client accounts, pay or solicit bribes, or otherwise act in ways inconsistent with our controls, policies, workplace culture and business principles. Continued attempts to circumvent our policies and controls or repeated incidents involving violation of controls and policies, fraud or conflicts of interests could


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negatively impact our business and reputation and result in adverse publicity, regulatory investigations and actions, legal proceedings and losses and adversely affect our operations, reputation, AUM and financial results.
We face risks, and corresponding potential costs and expenses, associated with conducting operations and growing our business in numerous countries.
We sell our SIPsproducts, such as our funds and strategies, and offer our investment management and related services, in many different regulatory jurisdictions around the world, and intend to continue to expand our operations internationally. As we do so, we will continue to face challenges to the adequacy of our resources, procedures and controls to operate our business consistently and effectively operate our business.effectively. In order to remain competitive, we must be proactive and prepared to implement necessary resources when growth opportunities present themselves, whether as a result of a business acquisition or rapidly increasing business activities in particular markets or regions. Local regulatory environments may vary widely in terms of scope, adequacy and sophistication. Similarly, local distributors, and their policies and practices as well as financial viability, may also vary widely orand they may be inconsistent or less developed or mature than other more internationally focused distributors. Notwithstanding potential long-term cost savings by increasing certain operations, such as transfer agent and other back-office operations, in countries or regions of the world with lower operating costs, growthGrowth of our international operations has involved and may continue to involve near-term increases in expenses, as well as additional capital costs, such as information systems and technology costs, and costs related to compliance


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with particular regulatory or other local requirements or needs. Local requirements or needs also may also place additional demands on sales and compliance personnel and resources, such as meeting local language requirements, while also integrating personnel into an organization with a single operating language. Finding, hiring and retaining additional, well-qualified personnel and crafting and adopting policies, procedures and controls to address local or regional requirements remain a challengechallenges as we expand our operations internationally.
Moreover, regulators in non-U.S. jurisdictions could also change their policies or laws in a manner that might restrict or otherwise impede our ability to distribute or authorize investment products or maintain their authorizations in their respective markets. Any of these local requirements, activities or needs could increase the costs and expenses we incur in a specific jurisdiction without any corresponding increase in revenues and income from operating in the jurisdiction. Certain laws and regulations both inside and outside the U.S. have included extraterritorial application. This may lead to duplicative or conflicting legal or regulatory burdens and additional costs and risks. For example, with respect to Brexit, although the U.K. has now formally left the EU as of January 31, 2020, it is still unclear what final terms may be agreed to among the parties through the December 31, 2020 implementation period, and the ultimate impact on us.
In addition, from time to time, we enter into international joint ventures or take minority stakes in companies in which we typically do not have control. These investments may involve risks, including the risk that the controlling stakeholder or our joint venture partner may have business interests, strategies or goals that are inconsistent with ours, and the risk thatours. The business decisions or other actions or omissions of the controlling stakeholder, our joint venture partner or the entity itself may result in liability forto us or harm to our reputation, or adversely affect the value of our investment in the entity.
We dependOur focus on keyinternational markets as a source of investments and sales of our products subjects us to increased exchange rate and market-specific political, economic or other risks that may adversely impact our revenues and income generated overseas.
While we maintain a significant portion of our operations in the U.S., we also provide services and earn revenues in Asia-Pacific, Europe, Middle East and Africa, Latin America and Canada. As a result, we are subject to foreign currency exchange risk through our non-U.S. operations. Fluctuations in the exchange rates to the U.S. dollar have affected, and may in the future affect, our financial results from one period to the next. While we have taken steps to reduce our exposure to foreign exchange risk, for example, by denominating a significant amount of our transactions in U.S. dollars, our situation may change in the future. Appreciation of the U.S. dollar could in the future moderate revenues from managing our products internationally, or could affect relative investment performance of certain of our products invested in non-U.S. securities. In addition, we have risk associated with the foreign exchange revaluation of U.S. dollar balances held by certain non-U.S. subsidiaries for which the local currency is the functional currency. Separately, management fees that we earn tend to be higher in connection with non-U.S. AUM than with U.S. AUM. Consequently, downturns in international markets have in the past had, and could in the future have, a significant effect on our revenues and income. Moreover, our emerging market portfolios and revenues derived from managing these portfolios are subject to significant risks of loss from financial, economic, political and diplomatic developments, currency fluctuations, social instability, changes in governmental policies, expropriation, nationalization, asset confiscation and changes in legislation related to non-U.S. ownership. International trading markets, particularly in some emerging market countries, are often smaller, less liquid, less regulated and significantly more volatile than those in the U.S. Any ongoing and future business, economic, political or social unrest affecting these markets, in addition to any direct consequences such unrest may have on our personnel and facilities located in the affected area, also may have


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a lasting impact on the long-term investment climate in these and other areas and, as a result, our financial performance couldAUM and the corresponding revenues and income that we generate from them may be negatively affected by the loss of their services. The successaffected.
COMPETITION AND DISTRIBUTION RISKS
We may review and pursue strategic transactions that could pose risks to our business.
As part of our business will continuestrategy, we regularly consider, and have discussions with respect to, depend upon our key personnel,potential strategic transactions, including our portfolio and fund managers, investment analysts, investment advisers, sales and management personnel and other professionals as well as our executive officers and business unit heads. Competition for qualified, motivated, and highly skilled executives, professionals and other key personnel in the investment management industry remains significant. Our success depends to a substantial degree upon our ability to find, attract, retain and motivate qualified individuals, including through competitive compensation packages, and upon the continued contributionsacquisitions, dispositions, consolidations, joint ventures or similar transactions, some of these people. Laws and regulations, including those contained in or relating to the EUs Capital Requirements Directive, those adopted under AIFMD and UCITS and those required to be adopted under the Dodd-Frank Act, could impose restrictions on compensation paid by financial institutions, which could restrict our ability to compete effectively for qualified professionals. As our business grows, we are likely to need to increase correspondingly the overall number of individuals that we employ. Moreover, in order to retain certain key personnel, we may be required to increase compensation to such individuals, resulting in additional expense without a corresponding increase in potential revenues.deemed material. There iscan be no assurance that we will find suitable candidates for strategic transactions at acceptable prices, have sufficient capital resources to accomplish our strategy, or be successful in finding, attractingentering into agreements for desired transactions. In addition, such transactions typically involve a number of risks and retaining qualified individuals,present financial, managerial and operational challenges. Acquisitions, including our recent acquisition of Legg Mason, and related transactions pose the departurerisk that any business we acquire may lose customers or personnel or could underperform relative to expectations. We also may not realize the anticipated benefits of an acquisition, including with respect to revenue, tax benefits, financial benefits or returns, and expense and other synergies. We could also experience financial or other setbacks if transactions encounter unanticipated problems, including problems related to execution or integration. Entries into material transactions typically are announced publicly even though they may remain subject to numerous closing conditions, contingencies and approvals, and there is no assurance that any announced transaction will actually be consummated. Future transactions also may further increase our leverage or, if we issue equity securities to pay for acquisitions, dilute the holdings of our existing stockholders.
Failure to properly address the increased transformative pressures affecting the asset management industry could negatively impact our business.
The asset management industry is facing transformative pressures and trends from a variety of different sources includingincreased fee pressure; a continued shift away from actively managed core equities and fixed income strategies towards alternative, passive and smart beta strategies; increased demands from clients and distributors for client engagement and services; a trend towards institutions developing fewer relationships and partners and reducing the number of investment managers they work with;increased regulatory activity and scrutiny of many aspects of the asset management industry, including transparency/unbundling of fees, inducements, conflicts of interest, capital, liquidity, solvency, leverage, operational risk management, controls and compensation;addressing the key emerging markets in the world, such as China and India, which often have populations with different needs, preferences and horizons than the more developed U.S. and European markets; andadvances in technology and increasing client interest in interacting digitally with their investment personnel, in particular, if not replaced, could cause usportfolios.As a result of the trends and pressures discussed above, the asset management industry is facing an increased level of disruption. If we are unable to lose clients, which could have a material adverse effect onadapt our financial condition, results of operationsstrategy and business prospects.to address adequately these trends and pressures, we may be unable to meet client needs satisfactorily, our competitive position may weaken, and our business results and operations may be adversely affected.
Strong competition from numerous and sometimes larger companies with competing offerings and products could limit or reduce sales of our products, potentially resulting in a decline in our market share, revenues and income.
We compete with numerous investment management companies, securities brokerage and investment banking firms, insurance companies, banks and other financial institutions. Our investment products also compete with products offered by these competitors, as well as with real estate investment trusts, hedge funds and other products. The periodic establishment of new investment management companies and other competitors increases the competition that we face. At the same time, consolidation in the financial services industry has created stronger competitors with greater financial resources and broader distribution channels than our own. Competition is based on various factors, including, among others, business reputation, investment performance, product mix and offerings, service quality and innovation, distribution relationships, and fees charged. Further, although we may offer certain types of exchange-traded funds,ETFs, to the extent that there is a trend among existing or potential clients in favor of lower fee index and other exchange-traded funds,ETFs, it may favor our competitors who may offer such products that are more established or on a larger scale than we do. Additionally, competing securities broker-dealers whomand banks, upon which we rely upon to distribute and sell certain of our funds and other investment products, also may also sell their own proprietary funds and investment products, which could limit the distribution of our products. To the extent that existing or potential clients, including securities broker-dealers, decide to invest in or distribute the products of our competitors, the sales of our products as well as our market share, revenues and income could decline. Our ability to attract and retain AUM is also dependent on the relative investment performance of our SIPs,products, offering a mix of SIPsproducts and strategies that meets investor demanddemands, and our ability to maintain our investment management fees and pricing structure at competitive levels.
Changes

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Increasing competition and other changes in the third-party distribution and sales channels on which we depend could reduce our income and hinder our growth.
We derive nearly all of our fund sales through third-party broker-dealers, banks, investment advisers and other financial intermediaries. Because we rely on third-party distribution and sales channels to sell our products, we do not control the ultimate investment recommendations given by them to clients. Increasing competition for these distribution and sales channels, and regulatory changes and initiatives, have caused our distribution costs to rise and could cause further cost increases in the future, or could otherwise negatively impact the distribution of our products. Pursuant to the Dodd-Frank Act, the SEC may establish different standards for broker-dealers in their interaction


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with retail customers, which could have an impact on sales and/or distribution costs. In addition, the SEC has proposed changes to Rule 12b-1 promulgated under the Investment Company Act which, if adopted, could limit our ability to recover expenses relating to the distribution of our U.S.-registered funds. Higher distribution costs lower our income;income, and consolidations in the broker-dealer industryor banking industries could also adversely impact our income. A failure to maintain our third-party distribution and sales channels, or a failure to maintain strong business relationships with our distributors and other intermediaries, may impair our distribution and sales operations.Any inability to access and successfully sell our products to clients through such third-party channels could have a negative effect on our level of AUM and adversely impact our business.
Moreover, ifwe can provide no assurance that we will continue to have access to the third-party financial intermediaries that currently distribute our products, or that we will continue to have the opportunity to offer all or some of our existing products through them. If several of the major financial advisers whothat distribute our products were to cease operations or limit or otherwise end the distribution of our products, it could have a significant adverse impact on our income. In April 2016,
Further, the DOL issued a new fiduciary rule that will subject financial professionals who provide investment advicestandards of conduct and disclosure and reporting requirements, with respect to certain U.S. retirement clients to a new fiduciary duty intended to addressfees, products, services and possible conflicts of interests. We believe that the rule could significantly impact the ability of financial professionalsinterest, applicable to provide investment advicebroker-dealers and recommendations for retirement accounts about funds for which they receive a fee from the fund or its affiliates. This rule may impact the compensation paid to theother financial intermediaries who sell our funds to their retirement clients and may negatively impact our business. Certain aspects ofin the rule became applicable in June 2017, while other aspects of the rule are not expected to become applicable until January 1, 2018,U.S., remain subject to any furtherchange and enhancement pursuant to business and regulatory update. developments and requirements, including with respect to investor suitability obligations, enhanced investor protections for retail customers, and increased compliance requirements.
In addition, the U.K., the Netherlands and the EU, inthrough MiFID II, have adopted regimes whichthat ban, or may limit, the payment of commissions and other inducements to intermediaries in relation to certain sales to retail customers in those jurisdictions, and similar regimes are under consideration in several other jurisdictions. Depending on their exact terms, such regimes may result in existing flows of business moving to less profitable channels or even to competitors providing substitutable products outside the regime. Arrangements with non-independent advisers will also be affected as narrower rules related to the requirement that commissions reflect an enhancement of the service to customers come into effect, along with a prescriptive list of permissible non-monetary benefits. The interpretation of the inducements rules has also resulted in major changes to how fund managers, including us, finance investment research with many firms, including ours,by opting to pay for third-party investment research for client accounts covered by MiFID II. There is no assurance we will continue to have access to the third-party broker-dealers, banks, investment advisers and other financial intermediaries that currently distribute our products, or continue to have the opportunity to offer all or some
THIRD-PARTY RISKS
Any failure of our existing products through them. Athird-party providers to fulfill their obligations, or our failure to maintain strong businessgood relationships with such distributors may also impair our distribution and sales operations. Because we use broker-dealers, banks, investment advisers and other financial intermediaries to sell our products, we do not control the ultimate investment recommendations given to clients. Any inability to access and successfully sell our products to clients through third-party distribution channelsproviders, could have a negative effect on our level of AUM, income and overall business and financial condition.
Our increasing focus on international markets as a source of investments and sales of investment products subjects us to increased exchange rate and market-specific political, economic or other risks that may adversely impact our revenues and income generated overseas. While we maintain a significant portion of our operations in the U.S., we also provide services and earn revenues in Europe, the Middle East and Africa, Asia-Pacific, Canada, The Bahamas and Latin America. As a result, we are subject to foreign currency exchange risk through our non-U.S. operations. Fluctuations in the exchange rates to the U.S. dollar have affectedbusiness.
We currently, and may in the future, affectdepend on a number of third-party providers to support various operational, administrative, market data, distribution, and other business needs of our financial resultscompany. In addition, we may, from time to time, transfer vendor contracts and services from one periodprovider to the next. Whileanother. If our third-party providers fail to deliver required services on a timely basis, or if we have taken stepsexperience other negative service quality or relationship issues with our providers, we may be exposed to reducesignificant costs and/or operational difficulties, and our exposureability to foreign exchange risk, for example, by denominating a significant amount of our transactions in U.S. dollars, the situation may change in the future asconduct and grow our business continues to grow outside the U.S. Appreciation of the U.S. dollar has and could in the future moderate revenues from managing investment products internationally, or could affect relative investment performance of certain of our SIPs invested in non-U.S. securities.may be impaired. In addition, we have risk associatedoutsourced certain administration services for our funds to third-party providers. Such administrative and functional changes are costly and complex, and may expose us to heightened operational risks. Any failure to mitigate such risks could result in reputational harm to us, as well as financial losses to us and our clients. The failure of any key provider or vendor to fulfill its obligations to us could result in outcomes inconsistent with our or our clients’ objectives and requirements, result in legal liability and regulatory issues for us, and otherwise adversely impact us.
We may be adversely affected if any of our third-party providers is subject to a successful cyber or security attack.
Due to our interconnectivity with third-party vendors, advisors, central agents, exchanges, clearing organizations and other financial institutions, we may be adversely affected if any of them is subject to a successful cyber attack or other privacy or information security event, including those arising due to the foreign exchange revaluationuse of U.S. dollar balances held by certain non-U.S. subsidiaries for whichmobile technology or a third-party cloud environment. Most of the local currency is the functional currency. Separately, management feessoftware applications that we earn tend to be higheruse in connection with non-U.S. AUM than with U.S. AUM. Consequently, downturns in international markets have in the past and could in the future have a significant effect on our revenues and income. Moreover, our emerging market portfolios and revenues derived from managing these portfolios are subject to significant risks of loss from financial, economic, political and diplomatic developments, currency fluctuations, social instability, changes in governmental policies, expropriation, nationalization, asset confiscation and changes in legislation related to non-U.S. ownership. International trading markets, particularly in some emerging market countries, are often smaller, less liquid, less regulated and significantly more volatile than those in the U.S. As our business continues to grow in non-U.S. markets, any ongoing and future business, economic, political or social unrest affecting these markets, in addition to any direct consequences such unrest may have on our personnel and facilities located in the affected area, may also have a more lasting impact on the long-term investment climate in these and other areas and, as a result, our AUM and the corresponding revenues and income that we generate from them may be negatively affected.
Harm to our reputation or poor investment performance of our products could reduce the level of our AUM or affect our sales, and negatively impact our revenues and income. Our reputation is critical to the success of our business. We believe that our brand names have been, and continue to be, well received both in our industry and with our clients, reflecting the fact that our brands, like our business are based in part on trustlicensed from, and confidence. If our reputation is harmed, existing clients may reduce amounts held in,supported, upgraded and maintained by, third-party vendors. Our third-party applications include enterprise cloud storage and cloud computing application services provided and maintained by third-party vendors. Any breach, suspension or withdraw entirely from, our SIPstermination of certain of these licenses or our SIPs may terminate their management agreements withthe related support, upgrades and maintenance could cause temporary system delays or interruption that could adversely impact




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us, which could reduce the amount of our AUM and cause us to suffer a corresponding loss in our revenues and income. Our investment performance, along with achieving and maintaining superior distribution and client service, is also critical to the success of our business. Strong investment performance often stimulates sales of our investment products. Poor investment performance as compared toOur third-party benchmarks or competitive products has in the pastapplications may include confidential and could in the future lead to a decrease in sales of investment products we manageproprietary data provided by vendors and stimulate redemptions from existing products, generally lowering the overall level of AUM and reducing the management fees we earn. There is no assurance that past or present investment performance in the investment products we manage will be indicative of future performance. Any poor investment performance may negatively impact our revenues and income. Reputational harm or poor investment performance may causeby us, to lose current clients and we may be unable to continue to attract new clients or develop new business. If we fail to address, or appear to fail to address, successfully and promptly the underlying causes of any reputational harm or poor investment performance, we may be unsuccessful in repairing any existing harm to our reputation or performance and our future business prospects would likely be affected.
Our future results are dependent upon maintaining an appropriate level of expenses, which is subject to fluctuation. The level of our expenses is subject to fluctuation and may increase for the following or other reasons: changes in the level and scope of our operating expenses in response to market conditions or regulations; variations in the level of total compensation expense due to, among other things, bonuses, merit increases and severance costs, changes in ourincluding personal employee count and mix, and competitive factors; and/or changes in expenses and capital costs, including costs incurred to maintain and enhance our administrative and operating services infrastructure or to cover uninsured losses, and an increase in insurance expenses including through the assumption of higher deductibles and/or co-insurance liability.client data.
TECHNOLOGY AND SECURITY RISKS
Our ability to successfully manage and grow our business successfully can be impeded by systems and other technological limitations.
Our continued success in effectively managing and growing our business depends on our ability to integrate theour varied accounting, financial, information, and operational systems on a global basis.basis, including in connection with our recent Legg Mason acquisition. Moreover, adapting or developing the existing technology systems we use to meet our internal needs, as well as client needs, industry demands and new regulatory requirements, is also critical for our business. The introduction of new technologies presents new challenges to us. We have an ongoing need to continually upgrade and improve our various technology systems,continually, including our data processing, financial, accounting, shareholder servicing and trading systems. Further, we also must be proactive and prepared to implement new technology systems when growth opportunities present themselves, whether as a result of a business acquisition or rapidly increasing business activities in particular markets or regions. These needs could present operational issues or require from time to time, significant capital spending. It alsospending, and may require us to reevaluate the current value and/or expected useful lives of the technology systems we use, which could negatively impact our results of operations. In addition, technology is subject to rapid advancements and changes and our competitors may, from time to time, implement newer technologies or more advanced platforms for their services and products, including digital advisers and other advanced electronic systems, which could adversely affect our business if we are unable to remain competitive.
Any significant limitation, failure or security breach of our information and cyber security infrastructure, software applications, technology or other systems that are critical to our operations could disrupt our business and harm our operations and reputation.
We are highly dependent upon the use of various proprietary and third-party information and security technology, software applications and other technology systems to operate our business. We are also dependent on the continuity and effectiveness of our information and cyber security infrastructure, management oversight and reporting framework, policies, procedures and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through them and contracted third-party systems. We use technology on a daily basis in our business to, among other things, support our business continuity and operations, process and transmit confidential communications, store and maintain data, obtain securities pricing information, process client transactions, and provide reports and other customer services to our clients. Any disruptions, inaccuracies, delays, theft, systems failures, data security or privacy breaches, or cyber or other security breaches in these and other processes could subject us to significant client dissatisfaction and losses and damage our reputation. We have been, and expect to continue to be, the subject of these types of risks, breaches and/or attacks, as well as attempts to co-opt our brand. Although we take protective measures, including measures to secure and protect information through system security technology and our internal security procedures, we can provide no assurance that any of these measures will prove effective. The technology systems we use remain vulnerable to denial of service attacks, unauthorized access, computer viruses, potential human errors and other events and circumstances that may have a security impact, such as an external or internal hacker attack by one or more cyber criminals (including through the use of phishing attacks, malware, ransomware and other methods and activities maliciously designed to obtain and exploit confidential information and to cause system and service disruption and other damage) or our personnel or vendors inadvertently or recklessly causing us to release confidential information, which could materially harm our operations and reputation.
Potential system disruptions, failures or breaches of the technology we use or the security infrastructure we rely upon could result in: (i) material financial loss or costs, (ii) delays in clients’ ability to access account information or in our ability to process transactions, (iii) the unauthorized disclosure or modification of sensitive or confidential client and business information, (iv) loss of valuable information, (v) breach of client and vendor contracts, (vi) liability for stolen assets, information or identity, (vii) remediation costs to repair damage caused by the failure or breach, (viii) additional security and organizational costs to mitigate against future incidents, (ix) reputational harm, (x) loss of confidence in our business and products, (xi) liability for failure to review and disclose applicable incidents or provide relevant updated disclosure properly and timely, (xii) regulatory investigations or actions, and/or (xiii) legal claims, litigation, and liability costs, any one or more of which may be material. Moreover, loss or unauthorized disclosure or transfer of confidential and proprietary data or confidential customer identification information could further harm our reputation and subject us to liability under laws that protect confidential data and personal information, resulting in increased costs or a decline in our revenues or common stock price. Further, although we take precautions to password protect and encrypt our laptops and sensitive information on our other mobile electronic devices, if such devices are stolen, misplaced or left unattended, they may become vulnerable to hacking or other unauthorized use, creating a possible security risk, which may require us to incur additional administrative


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costs and/or take remedial actions. In addition, the failure to manage and operate properly the data centers we use could have an adverse impact on our business. Although we have in place certain disaster recovery plans, we may experience system delays and interruptions as a result of natural disasters, power failures, acts of war, and third-party failures.
Our inability to recover successfully, recover should we experience a disaster or other business continuity problem, could cause material financial loss, loss of human capital, regulatory actions, legal liability, and/or reputational harm, or legal liability.harm.
Should we experience a local or regional disaster or other business continuity problem, such as an earthquake, hurricane, tsunami, terrorist attack, public health crisis, pandemic or other natural or man-made disaster, our continued success will depend, in part, on the safety and availability of our personnel, our office facilities and infrastructure, and the proper functioning of our technology, computer, telecommunication and other systems and operations that are critical to our business. See “Pandemic-Related Risks” above for risks relating to COVID-19. While our operational size, the diversity of locations from which we operate, and our various back-up systems provide us with an advantage, should we experience a local or regional disaster or other business continuity event, we could still experience operational challenges, in particular depending upon how such a local or regional event may affect our human capitalpersonnel across our operations or with regard to particular aspects of our operations, such as key executive officersexecutives or personnel in our technology group.groups. Moreover, as we grow our operations in new geographic regions, the potential for particular types of natural or man-made disasters;disasters, political, economic or infrastructure instabilities;instabilities, information, technology or security limitations or breaches;breaches, or other country- or region-specific business continuity risks increases. Past disaster recovery efforts have demonstrated that even seemingly localized events may require broader disaster recovery efforts throughout our operations and, consequently, we regularly assess and take steps to improve upon our existing business continuity plans and key management succession.plans. However, a disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to recover successfully recover should we experiencefollowing a disaster or other business continuity problem, could materially interrupt our business operations and cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability.
Regulatory and governmental examinations and/or investigations, litigation and the legal risks associated with our business, could adversely impact our AUM, increase costsbusiness and operations.
HUMAN CAPITAL RISKS
We depend on key personnel and our financial performance could be negatively impactaffected by the loss of their services.
The success of our profitabilitybusiness will continue to depend upon our key personnel, including our portfolio managers, investment analysts, investment advisers, sales and management personnel and other professionals as well as our executive officers and business unit heads. Competition for qualified, motivated, and highly-skilled executives, professionals and other key personnel in the investment management industry remains significant. Our success depends to a substantial degree upon our ability to find, attract, retain and motivate qualified individuals, including through competitive compensation packages, and upon the continued contributions of these people. Global and/or local laws and regulationscould impose restrictions on compensation paid by financial institutions, which could restrict our future financial results. From timeability to timecompete effectively for qualified professionals. As our business develops, we may receive requests for documents or other information from governmental authorities or regulatory bodies. We may also becomeneed to increase the subjectnumber of governmental or regulatory investigations and/or examinations, or


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governmental or regulatory investigations and/or examinationsindividuals that have been inactive could become active. In addition,we employ. Moreover, in order to retain certain key personnel, we may be named as a party in litigation. We may be obligated,required to increase compensation to such individuals and under our certificate of incorporation, by-laws and standard form of director indemnification agreement we are obligated under certain conditions, or we may choose, to indemnify directors, officers or employees against liabilities and expenses they may incur in connection with such matters to the extent permitted under applicable law. Even if claims made against us are without merit, litigation typically is an expensive process. Risks associated with legal liability often are difficult to assess or quantify and their existence and magnitude can remain unknown for significant periods of time. Eventual exposures from and expenses incurred relating to any litigation, investigations, examinations and settlements could adversely impact our AUM, increase costs and/or negatively impact our profitability and financial results. Judgments, findings or allegations of wrongdoing by regulatory or governmental authorities, or in litigation against us or settlements with respect thereto, could affect our reputation, increase our costskey management succession planning, resulting in additional expense without a corresponding increase in potential revenues. There is no assurance that we will be successful in finding, attracting and retaining qualified individuals, and the departure of doing business and/or negatively impact our revenues, any ofkey investment personnel, in particular, could cause us to lose clients, which could have a material negative impactadverse effect on our financial results.condition, results of operations and business prospects. In addition, due to the global nature of our business, our key personnel may, from time to time, have reasons to travel to regions susceptible to higher risk of civil unrest, organized crime or terrorism, and we may be unable to ensure the safety of our personnel traveling to such regions.
CASH MANAGEMENT RISKS
Our ability to meet cash needs depends upon certain factors, including the market value of our assets, our operating cash flows and our perceived creditworthiness.Our ability to meet anticipated cash needs depends upon factors such as the market value of our assets, our operating cash flows and our creditworthiness as perceived by lenders.
If we are unable to obtain cash, financing or access to the capital markets in a timely manner, we may be forced to incur unanticipated costs or revise our business plans, and our business could be adversely impacted. Further, our access to the capital markets depends significantly on our credit ratings. A reduction in our long- or short-term credit ratings could increase our borrowing costs and limit our access to the capital markets. Volatility in the global financing markets also may also impact our ability to access the capital markets should we seek to do so, and may have an adverse effect on investors willingness to purchase our securities, interest rates, credit spreads and/or the valuation levels of equity markets.


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We are dependent on the earnings of our subsidiaries.
Substantially all of our operations are conducted through our subsidiaries. As a result, our cash flow and our ability to fund operations are dependent upon the earnings of our subsidiaries and the distribution of earnings, loans or other payments by our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to fund our payment obligations, whether by dividends, distributions, loans or other payments. Any payments to us by our subsidiaries could be subject to statutory or contractual restrictions and are contingent upon our subsidiaries earnings and business considerations. Certain of our subsidiaries are subject to regulatory restrictions whichthat may limit their ability to transfer assets to their parent companies and/or our ability to repatriate assets to the U.S.companies. Our financial condition could be adversely affected if certain of our subsidiaries are unable to distribute assets to us.
LEGAL AND REGULATORY RISKS
We are subject to extensive, complex, overlapping and frequently changing rules, regulations, policies, and legal interpretations.
There is uncertainty associated with the regulatory and compliance environments in which we operate. Our business is subject to extensive and complex, overlapping and/or conflicting, and frequently changing and increasing rules, regulations, policies and legal interpretations, around the world. Political and electoral changes, developments and conflicts have in the past introduced, and may in the future introduce, additional uncertainty. Our regulatory and compliance obligations impose significant operational and cost burdens on us and cover a broad range of requirements related to financial reporting and other disclosure matters, securities and other financial instruments, investment and advisory matters, accounting, tax, compensation, ethics, intellectual property, data protection, privacy, sanctions programs, and escheatment requirements. We may be adversely affected by a failure to comply with applicable laws, regulations and changes in the countries in which we operate. For a more extensive discussion of certain laws, regulations (including certain pending regulatory reforms) and regulators to which we are subject, see “Item 1 – Business – Regulation” in Part I of this Annual Report.
We may be adversely affected as a result of new or revised legislation or regulations or by changes in the interpretation of existing laws and regulations, in the U.S. and other jurisdictions.
The laws and regulations applicable to our business generally involve restrictions and requirements in connection with a variety of technical, specialized, and expanding matters and concerns. Over the years, the U.S. federal corporate governance and securities laws, and laws in other jurisdictions, have been augmented substantially and made significantly more complex by various legislation. As we continue to address our legal and regulatory requirements or focus on meeting new or expanded requirements, we may need to expend a substantial amount of additional time, costs and resources.Regulatory reforms may add further complexity to our business and operations and could require us to alter our investment management services and related activities, which could be costly, impede our growth and adversely impact our AUM, revenues and income. Regulatory reforms also may impact our clients, which could cause them to change their investment strategies or allocations in a manner adverse to our business. Certain key regulatory reforms in the U.S. and other jurisdictions that may impact or relate to our business, and may cause us to incur additional obligations, include regulatory matters related to systemically important financial institutions, derivatives and other financial products, privacy and data protection, retail and other investor protections, and other asset management disclosure and compliance requirements. The impacts of these and other regulatory reforms on us, now and in the future, could be significant. We expect that the regulatory requirements and developments applicable to us will cause us to continue to incur additional compliance and administrative burdens and costs. Any inability to meet applicable requirements within the required timeframes may subject us to sanctions or other restrictions by governments and/or regulators that could adversely impact our broader business objectives.
Global regulatory and legislative actions and reforms have made compliance in the regulatory environment in which we operate more costly and future actions and reforms could adversely impact our financial condition and results of operations.
As in the U.S., regulatory and legislative actions outside the U.S. have been augmented substantially and made more complex by measures such as the EU’s Alternative Investment Fund Managers Directive and MiFID II. Further, ongoing changes in the EU’s regulatory framework applicable to our business, including changes related toBrexit and any other changes in the composition of the EU’s member states, may add further complexity to our global risks and operations. Moreover, the adoption of new laws, regulations or standards and changes in the interpretation or enforcement of existing laws, regulations or standards have directly affected, and will continue to affect, our business. With new laws and changes in interpretation of existing requirements, the associated time we must dedicate to and related costs we must incur in meeting the regulatory complexities of our business have increased. We may be required to continue to invest significant additional management


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time and resources to address new regulations being adopted pursuant to MiFID II and other laws. For example, MiFID II requires the unbundling of research and execution charges for trading. The industry’s response to the unbundling rules is still evolving and could lead to increased research costs. Outlays associated with meeting regulatory complexities have also increased as we expand our business into new jurisdictions.
The EU’s GDPR strengthened and unified data protection rules for individuals within the EU. GDPR also addresses export of personal data outside the EU. The primary objectives of GDPR are to give citizens control of their personal data and to simplify the regulatory environment for international business by unifying data protection regulation within the EU. Compliance with the stringent data protection rules under GDPR requires an extensive review of all of our global data processing systems. The failure to comply properly with GDPR rules on a timely basis and to maintain ongoing compliance with such rules may subject us to enforcement proceedings and significant fines and costs. For example, a failure to comply with GDPR could result in fines up to 20 million Euros or 4% of our annual global revenues, whichever is higher.
Compliance activities to address these and other new legal requirements have required, and will continue to require, us to expend additional time and resources, and, consequently, we are incurring increased costs of doing business, which potentially negatively impacts our profitability and future financial results. Finally, any further regulatory and legislative actions and reforms affecting the investment management industry, including compliance initiatives, may negatively impact revenues by increasing our costs of accessing or operating in financial markets or by making certain investment offerings less favorable to our clients.
Failure to comply with the laws, rules or regulations in any of the jurisdictions in which we operate could result in substantial harm to our reputation and results of operations.
As with all investment management companies, our activities are highly regulated in almost all countries in which we conduct business. Failure to comply with the applicable laws, rules, regulations, codes, directives, notices or guidelines in any of our jurisdictions could result in civil liability, criminal liability and/or sanctions against us, including fines, censures, injunctive relief, the suspension or expulsion from a particular jurisdiction or market, or the revocation of licenses or charters, any of which could adversely affect our reputation and operations. Moreover, any potential accounting or reporting error, whether financial or otherwise, if material, could damage our reputation and adversely affect our business. While management has focused attention and resources on our compliance policies, procedures and practices, the regulatory environments of the jurisdictions where we conduct our business, or where our products are organized or sold, are complex, uncertain and subject to change. Local regulatory environments may vary widely and place additional demands on our sales, investment, legal and compliance personnel. In recent years, the regulatory environments in which we operate have seen significant increased and evolving regulations, which have imposed and may continue to impose additional compliance and operational requirements and costs on us in the applicable jurisdictions. Regulators could also change their policies or laws in a manner that might restrict or otherwise impede our ability to offer our services and products in their respective markets, or we may be unable to keep up with, or adapt to, the ever changing, complex regulatory requirements in such jurisdictions or markets, which could further negatively impact our business.
Changes in tax laws or exposure to additional income tax liabilities could have a material impact on our financial condition, results of operations and liquidity.
We are subject to income taxes as well as non-income-based taxes, and are subject to ongoing tax audits, in various jurisdictions in which we operate. Tax authorities may disagree with certain positions we have taken and assess additional taxes. We regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, there can be no assurance that we will accurately predict the outcomes of these audits and the actual outcomes could have a material impact on our net income or financial condition. Changes in tax laws or tax rulings may at times materially impact our effective tax rate.
Further, pursuant to ongoing efforts to encourage global tax compliance, the OECD has adopted certain common reporting standards aimed at ensuring that persons with financial assets located outside of their tax residence country pay required taxes. Such standards may subject us to additional reporting, compliance and administrative costs, and burdens in jurisdictions where we operate as a qualifying financial institution.


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Regulatory and governmental examinations and/or investigations, litigation and the legal risks associated with our business, could adversely impact our AUM, increase costs and negatively impact our profitability and/or our future financial results.
We operate in a highly regulated industry and routinely receive and respond to regulatory and governmental requests for documents or other information, subpoenas, examinations and investigations in connection with our business activities. Further, regulatory or governmental examinations or investigations that have been inactive could become active. In addition, from time to time, we are named as a party in litigation. We may be obligated, and under our certificate of incorporation, bylaws and standard form of director indemnification agreement are obligated under certain conditions, or may choose, to indemnify directors, officers or personnel against liabilities and expenses they may incur in connection with such matters to the extent permitted under applicable law. Even if claims made against us are without merit, litigation typically is an expensive process. Risks associated with legal liability often are difficult to assess or quantify and their existence and magnitude can remain unknown for significant periods of time. Eventual financial exposures from and expenses incurred relating to any examinations, investigations, litigation, and/or settlements could adversely impact our AUM, increase costs and/or negatively impact our profitability and financial results. Examinations, investigations, allegations, findings or judgments of wrongdoing by regulatory or governmental authorities or in litigation against us, or settlements with respect thereto, could affect our regulatory licenses, reputation, increase our costs of doing business and/or negatively impact our revenues, any of which could have a material negative impact on our financial results. For a discussion of certain legal proceedings and regulatory matters in which we are involved, see the “Legal Proceedings” section in Note 16 – Commitments and Contingencies in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report.
Our contractual obligations may subject us to indemnification costs and liability to third parties.
In the ordinary course of business, we enter into contracts with third parties, including, without limitation, clients, vendors, and other service providers, that contain a variety of representations and warranties and that provide for indemnifications by us in certain circumstances. Pursuant to such contractual arrangements, we may be subject to indemnification costs and liability to third parties if, for example, we breach any material obligations under the agreements or agreed standards of care, or in the event such third parties have certain legal claims asserted against them. The terms of these indemnities vary from contract to contract, and future indemnification claims against us could negatively impact our financial condition.
Failure to protect our intellectual property may negatively impact our business.
Although we take steps to safeguard and protect our intellectual property, including but not limited to our trademarks, patents, copyrights and trade secrets, there can be no assurance that we will be able effectively to protect our rights. If our intellectual property rights were violated, we could be subject to economic and reputational harm that could negatively impact our business and competitiveness in the marketplace. Conversely, while we take efforts to avoid infringement of the intellectual property of third parties, if we are deemed to infringe on a third party’s intellectual property rights it could expose us to litigation risks, license fees and reputational harm.
Item 1B.Unresolved Staff Comments.
None.


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Item 2.Properties.
We conduct our worldwide operations using a combination of leasedowned and ownedleased facilities. While we believe we have sufficientour facilities are suitable and adequate to conduct our business at present, we will continue to acquire, lease acquire and dispose of facilities throughout the world as necessary.
We own our San Mateo, California corporate headquarters and various other office buildings in the U.S. and internationally. We lease excess owned space to third parties under leases with terms through 2030. Our owned properties consist of the following:
Location 
Owned Square
Footage
 
Owned Square
Footage Leased
to Third Parties
San Mateo, California 743,793
 357,383
St. Petersburg, Florida 560,948
 314,685
Rancho Cordova, California 445,023
 62,660
Hyderabad, India 379,052
 
Poznan, Poland 284,436
 
Ft. Lauderdale, Florida 102,246
 20,264
Edinburgh, Scotland 87,016
 26,210
Other 90,891
 12,091
Total 2,693,405
 793,293

We lease office space in various16 states in the U.S., including California, Connecticut, Delaware, Florida, Massachusetts, New Jersey, New York, Utah and Washington, D.C., and internationally, including, for example, in various non-U.S. locations, including Australia, Austria, Belgium, Brazil, Canada, the PeoplesPeople’s Republic of China (including Hong Kong), Colombia, France, Germany, Hungary, India, Isle of Man, Italy, Japan, Luxembourg, Malaysia, Mexico, the Netherlands, Poland, Romania, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Thailand, Turkey, United Arab Emirates and the U.K. (including England and Scotland) and Vietnam. As of September 30, 20172020, we leased and occupied approximately 1,128,0002,175,000 square feet of space. We have also leasedoffice space worldwide, and subsequently subleased to third parties approximately 22,000417,000 square feet of excess leased space.
In addition, we own buildings in San Mateo, Rancho Cordova and Stockton, California; St. Petersburg and Ft. Lauderdale, Florida; Hyderabad, India; and Nassau, The Bahamas, as well as space in office buildings in Argentina, India and Singapore. The buildings we own consist of approximately 2,118,000 square feet of space. We have leased to third parties approximately 488,000 square feet of excess owned space.


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Item 3.Legal Proceedings.
TheIncorporated herein by reference is information regarding certain legal proceedings and regulatory matters in which we are involved as set forth in response to this Item 3 of Regulation S-K under “Legal Proceedings” is incorporated by reference from the “Legal Proceedings” sectioncontained in Note 1216 – Commitments and Contingencies in the notes to consolidated financial statements in Item 8 of Part II of this Form 10-K, which is incorporated herein by reference.Annual Report.
Item 4.Mine Safety Disclosures.
Not applicable.


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INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) to Form 10-K, theThe following description of our executive officers is included as an unnumbered item in this Part I of this reportAnnual Report in lieu of being included in our definitive proxy statement for our annual meeting of stockholders. Set forth below are the name, age, present title, and certain other information for each of our executive officers as of November 13, 2017.the filing date of this Annual Report. Each executive officer is appointed by Franklin’s Boardour board of Directorsdirectors and holds his/his or her office until the earlier of his/his or her death, resignation, retirement, disqualification or removal.
Gregory E. Johnson
Age 56
Chairman of the Board of Franklin since June 2013 and Chief Executive Officer of Franklin since January 2004; formerly, President of Franklin from December 1999 to September 2015; officer and/or director of certain subsidiaries of Franklin; director or trustee of 44 registered investment companies managed or advised by subsidiaries of Franklin.
Jennifer M. Johnson
Age 5356
President of Franklin since December 2016, and Chief Executive Officer and director of Franklin since February 2020; formerly, Chief Operating Officer sinceof Franklin from February 2017; formerly,2017 to February 2020, Co-President of Franklin from October 2015 to December 2016, Executive Vice President and Chief Operating Officer of Franklin from March 2010 to September 2015, Executive Vice President–Operations and Technology of Franklin from December 2005 to March 2010, and Senior Vice President and Chief Information Officer of Franklin from May 2003 to December 2005; officer and/or director of certain subsidiaries of Franklin, including certain of the specialist investment managers acquired through the Legg Mason transaction; director or trustee of certain funds registered as investment companies managed or advised by subsidiaries of Franklin.
Gregory E. Johnson
Age 59
Executive Chairman of Franklin since February 2020, Chairman of the Board of Franklin since June 2013 and director of Franklin since January 2007; Chairman of the San Francisco Giants, a professional baseball organization, since November 2019; formerly, Chief Executive Officer of Franklin from July 2005 to February 2020, Co-Chief Executive Officer of Franklin from January 2004 to July 2005, and President of Franklin from December 1999 to September 2015; officer and/or director of certain subsidiaries of Franklin; director or trustee of certain funds registered as investment companies managed or advised by subsidiaries of Franklin.
Rupert H. Johnson, Jr.
Age 7780
Vice Chairman of Franklin since December 1999 and director of Franklin since 1969;1971; officer and/or director of certain subsidiaries of Franklin; director or trustee of 40certain funds registered as investment companies managed or advised by subsidiaries of Franklin.
Kenneth A. LewisMatthew Nicholls
Age 5648
Executive Vice President of Franklin since October 2007 and Chief Financial Officer of Franklin since October 2006; formerly, Senior Vice President and Treasurer of Franklin from October 2006 to October 2007, Vice President–Enterprise Risk Management of Franklin from April 2006 to October 2006 and Vice President and Treasurer of Franklin from June 2002 to April 2006;May 2019; officer and/or director of certain subsidiaries of Franklin, including certain of the specialist investment managers acquired through the Legg Mason transaction since August 2020. Formerly, with Citigroup, Inc. (a financial services firm) from 1995 to May 2019, as Managing Director, Global Head of Financial Institutions, Corporate Banking, and Global Head of Asset Management, Corporate and Investment Banking, from 2017 to May 2019, as Managing Director, Co-Head, Financial Institutions Corporate and Investment Banking, North America, and Global Head of Asset Management, Corporate and Investment Banking, from 2014 to 2017, as Managing Director, Co-Head, North America, Financial Institutions Corporate and Investment Banking from 2011 to 2014, as Managing Director and Co-Head, North America, Financial Institutions Corporate Banking from 2007 to 2011, and as Managing Director and Co-Head of Asset Management Banking from 2006 to 2007.
Jed A. Plafker
Age 49
Executive Vice President of Franklin since April 2019, formerly, Senior Vice President from June 2018 to April 2019; officer and/or director of certain subsidiaries of Franklin, including certain of the specialist investment managers acquired through the Legg Mason transaction, for example, as Manager of Brandywine Global Investment Management, LLC and Clarion Partners Holdings LLC since August 2020, and Director of ClearBridge Investments, LLC and Western Asset Management Company, LLC since August 2020; as well as Executive Vice President of Franklin Templeton Institutional, LLC since April 2009, President and director of Templeton Institutional, Inc. since September 2009, and President since February 2017 and director since December 2016 of Templeton Worldwide, Inc.


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Alok Sethi
Age 59
Officer and/or director of various investment adviser, operations, and technology related subsidiaries of Franklin for more than the past five years, including, for example, as Senior Vice President of Franklin Advisers, Inc., Franklin Templeton Institutional, LLC and Templeton Investment Counsel, LLC since July 2014, Vice President of FASA, LLC since June 2014, and Vice President of Franklin Templeton Companies, LLC since June 2010.
Gwen L. Shaneyfelt
Age 58
Chief Accounting Officer of Franklin since April 2019; officer and/or director of certain subsidiaries of Franklin, including certain of the specialist investment managers acquired through the Legg Mason transaction, including, for example, as Vice President and Chief Financial Officer of Legg Mason, Inc., Director of ClearBridge Investments, LLC and Manager of Royce & Associates GP, LLC since August 2020; as well as Director of Franklin Templeton Fund Management Limited since May 2019, Manager of Franklin Templeton International Services S.à r.l. since November 2013, and Senior Vice President of Franklin Templeton Companies, LLC since March 2011.
Adam B. Spector
Age 52
Executive Vice President, Global Advisory Services, of Franklin since October 1, 2020, responsible for global retail and institutional distribution, including marketing and product strategy, and Managing Partner of Brandywine Global Investment Management, LLC, a specialist investment manager acquired through the Legg Mason transaction, since November 2014, responsible for the overall management of Brandywine including infrastructure, legal and compliance, business strategy, and sales and client service; formerly, Managing Director of Brandywine from 2012 to 2014, Head of Marketing, Sales and Client Service of Brandywine from 2003 to 2014, and Senior Vice President of Client Service of Brandywine from 1997 to 2003; officer and/or director of certain other subsidiaries of Franklin.
Craig S. Tyle
Age 5760
Executive Vice President and General Counsel of Franklin since August 2005; formerly, a partner at Shearman & Sterling LLP (a law firm) from March 2004 to July 2005 and General Counsel for the Investment Company Institute (a trade group for the U.S. fund industry) from September 1997 through March 2004; officer and/or director of certain subsidiaries of Franklin; officer of certain funds registered as investment companies managed or advised by subsidiaries of Franklin.


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Alok Sethi
Age 56
Officer of various operations and technology subsidiaries of Franklin for more than the past five years, including as Senior Vice President of subsidiaries Franklin Advisers, Inc., Franklin Institutional, LLC and Templeton Investment Counsel, LLC since July 2014, and as Vice President of subsidiary Franklin Templeton Companies, LLC since June 2010.
Family Relationships
Jennifer M. Johnson and Gregory E. Johnson are siblings, and their uncle is the nephew of Rupert H. Johnson, Jr. Each serves as both a director and the brotheran executive officer of Charles E. Johnson (a director of Franklin) and Jennifer M. Johnson. Charles E. Johnson is the nephew of Rupert H. Johnson, Jr. and the brother of Gregory E. Johnson and Jennifer M. Johnson. Jennifer M. Johnson is the niece of Rupert H. Johnson, Jr. and the sister of Gregory E. Johnson and Charles E. Johnson.Franklin.




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PART II
Item 5.
Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is traded on the NYSE under the ticker symbol “BEN.” On September 29, 2017 (the last trading day of our fiscal year), the closing price of our common stock on the NYSE was $44.51 per share. At October 31, 2017,2020, there were 3,0682,731 stockholders of record of our common stock.
The following table sets forth the high and low sales prices for our common stock on the NYSE for each quarterly period of the two most recently completed fiscal years:
Quarter Fiscal Year 2017 Fiscal Year 2016
 High Low High Low
October-December $42.18
 $33.02
 $42.23
 $34.62
January-March $44.35
 $39.38
 $39.94
 $31.00
April-June $45.60
 $40.48
 $41.24
 $30.56
July-September $47.65
 $40.95
 $36.99
 $31.59
We declared regular cash dividends of $0.80 per share ($0.20 per share per quarter) during the fiscal year ended September 30, 2017 (“fiscal year 2017”) and $0.72 per share ($0.18 per share per quarter) during the fiscal year ended September 30, 2016 (“fiscal year 2016”). We currently expect to continue paying comparable regular cash dividends on a quarterly basis to holders of our common stock depending upon earnings and other relevant factors.
The equity compensation plan information called for by Item 201(d) of Regulation S-K is set forth in Item 12 of Part III of this Form 10-K under the heading “Equity Compensation Plan Information.”
The following table provides information with respect to the shares of our common stock that we repurchased during the three months ended September 30, 20172020.
Month Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 2017 510,690
 $45.75
 510,690
 34,999,604
August 2017 1,970,328
 $43.15
 1,970,328
 33,029,276
September 2017 1,405,795
 $42.67
 1,405,795
 31,623,481
Total 3,886,813
   3,886,813
  
Month 
Total Number of
Shares Purchased
 
Average Price
Paid per Share
 
Total Number of
Shares Purchased
As Part of Publicly
Announced Plans
or Programs
 
Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs
July 2020 
 $
 
 39,722,462
August 2020 669,887
 21.06
 669,887
 39,052,575
September 2020 838,451
 20.26
 838,451
 38,214,124
Total 1,508,338
   1,508,338
  


Under our stock repurchase program, which is not subject to an expiration date, we can repurchase shares of our common stock from time to time in the open market and in private transactions in accordance with applicable laws and regulations, including without limitation applicable federal securities laws. In order to pay taxes due in connection with the vesting of employee and executive officer stock and stock unit awards, we may repurchase shares under our program using a net stock issuance method. In June 2016,April 2018, we announced that our Board of Directors authorized the repurchase of up to 50.080.0 million additional shares of our common stock under the stock repurchase program. At September 30, 2017, 31.6 million shares remained available for repurchase under the program, which is not subject to an expiration date. There were no unregistered sales of equity securities during fiscal years 2017 and 2016.




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Item 6.Selected Financial Data.
FINANCIAL HIGHLIGHTS
as of and for the fiscal years ended September 30,
 2017 2016 2015 2014 2013 
20201
 2019 2018 2017 2016
Summary of Operations (in millions)
          
Summary of Operations2 (in millions)
          
Operating revenues $6,392.2
 $6,618.0
 $7,948.7
 $8,491.4
 $7,985.0
 $5,566.5
 $5,669.4
 $6,204.5
 $6,305.0
 $6,534.6
Operating income 2,264.3
 2,365.7
 3,027.6
 3,221.2
 2,921.3
 1,048.9
 1,466.9
 2,028.2
 2,199.6
 2,295.1
Operating margin 35.4% 35.7% 38.1% 37.9% 36.6% 18.8% 25.9% 32.7% 34.9% 35.1%
Net income attributable to Franklin Resources, Inc. 1,696.7
 1,726.7
 2,035.3
 2,384.3
 2,150.2
 798.9
3 
1,195.7
4 
764.4
5 
1,696.7
 1,726.7
Financial Data (in millions)
                    
Total assets $17,534.0
 $16,098.8
 $16,335.7
 $16,357.1
 $15,390.3
 $20,220.9
 $14,532.2
 $14,383.5
 $17,534.0
 $16,098.8
Debt 1,044.2
 1,401.2
 1,348.0
 1,198.2
 1,197.7
 3,017.1
 696.9
 695.9
 1,044.2
 1,401.2
Debt of consolidated sponsored investment products 53.4
 682.2
 807.3
 950.8
 1,097.4
Debt of consolidated investment products 1,333.4
 50.8
 32.6
 53.4
 682.2
Franklin Resources, Inc. stockholders’ equity 12,620.0
 11,935.8
 11,841.0
 11,584.1
 10,073.1
 10,114.5
 9,906.5
 9,899.2
 12,620.0
 11,935.8
Operating cash flows 1,135.4
 1,727.7
 2,252.0
 2,138.0
 2,035.7
 1,021.4
 201.6
 2,229.7
 1,135.4
 1,727.7
Investing cash flows 52.0
 192.2
 248.9
 390.6
 232.9
 (3,243.1) (1,077.1) (290.4) 52.0
 192.2
Financing cash flows (956.0) (1,800.7) (1,612.2) (1,195.3) (2,018.1) 194.2
 (40.5) (3,761.7) (956.0) (1,800.7)
Assets Under Management (in billions)
                    
Ending $753.2
 $733.3
 $770.9
 $898.0
 $844.7
 $1,418.9
 $692.6
 $717.1
 $753.2
 $733.3
Average 1
 736.9
 749.3
 869.5
 887.9
 808.2
Average6
 832.9
 697.0
 740.5
 736.9
 749.3
Per Common Share                    
Earnings                    
Basic $3.01
 $2.94
 $3.29
 $3.79
 $3.37
 $1.59
 $2.35
 $1.39
 $3.01
 $2.94
Diluted 3.01
 2.94
 3.29
 3.79
 3.37
 1.59
 2.35
 1.39
 3.01
 2.94
Cash dividends declared 0.80
 0.72
 1.10
 0.48
 1.39
 1.08
 1.04
 3.92
 0.80
 0.72
Book value 22.74
 20.93
 19.62
 18.60
 15.97
 20.43
 19.84
 19.07
 22.74
 20.93
Employee Headcount 9,386
 9,059
 9,489
 9,266
 9,002
________________________________ 
1 
Includes the impact of the Company’s acquisition of Legg Mason, Inc. which was effective July 31, 2020. See Note 3 – Acquisitions in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report on Form 10‑K for more information.
2
In fiscal year 2020, the Company changed the presentation of its consolidated statements of income to include dividend and interest income and other expenses from consolidated investment products in non-operating income. Amounts for the comparative prior fiscal years have been reclassified to conform to the current presentation. These reclassifications had no impact on previously reported net income attributable to Franklin Resources, Inc.
3
Includes an income tax benefit of $27.0 million, net of valuation allowance, from capital losses subsequent to the change in corporate tax structure of a foreign holding company to a U.S. branch.
4
Includes an income tax charge of $86.0 million due to a revision to the estimated income tax charge that was recognized in fiscal year 2018 resulting from enactment of the Tax Cuts and Jobs Act of 2017 (“the Tax Act”).
5
Includes an estimated income tax charge of $968.8 million resulting from enactment of the Tax Act.
6
Represents simple monthly average AUM.






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Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
The following discussion and analysis of the results of operations and financial condition of Franklin Resources, Inc. (“Franklin”) and its subsidiaries (collectively, the “Company”) should be read in conjunction with the “Forward-looking Statements” sectiondisclosure set forth in Part I and the “Risk Factors” section set forth in Item 1A of Part I of this Annual Report on Form 10-K10‑K (this “Annual Report”) and in any more recent filings with the U.S. Securities and Exchange Commission (the “SEC”), each of which describe theseour risks, uncertainties and other important factors in more detail.
OVERVIEW
We are a global investment management organization and derive our operating revenues and net income from providing investment management and related services to investors in jurisdictions worldwide throughfor investors in our investment products, thatwhich include our sponsored funds, as well as institutional and high-net-worth separate accounts, retail separately managed account programs, sub-advised products, and other investment funds and institutional, high net-worth and separately-managed accounts (collectively, our “sponsored investment products” or “SIPs”).vehicles. In addition to investment management, our services include fund administration, sales and distribution, marketing,and shareholder servicing,servicing. We may perform services directly or through third parties. We offer our services and other services. Our SIPs and investment management and related services are distributed or marketed to investors globallyproducts under nineour various distinct brand names:names, including, but not limited to, Franklin®, Templeton®, Legg Mason®, Balanced Equity Management®, Benefit Street Partners®, Darby®, Edinburgh Partners™, Fiduciary Trust™, Franklin Bissett®, Franklin Mutual Series®, Franklin BissettK2®, Fiduciary Trust™, Darby and LibertyShares®, Balanced Equity. In addition, pursuant to our acquisition of Legg Mason, Inc. (“Legg Mason”) on July 31, 2020, we acquired certain additional brand names including Brandywine Global Investment Management®, K2® and LibertySharesClarion Partners®, ClearBridge Investments®, Martin Currie®, QS Investors®, Royce® Investment Partners and Western Asset Management Company®. We offer a broad rangeproduct mix of SIPs underfixed income, equity, multi-asset/balanced, fixed incomemulti-asset, alternative and cash management fundsasset classes and accounts, including alternative investment products,solutions that meet a wide variety of specific investment goals and needs offor individual and institutional investors. We also provide sub-advisory services to certain investment products sponsored by other companies which may be sold to investors under the brand names of those other companies or on a co-branded basis.
The level of our revenues depends largely on the level and relative mix of assets under management (“AUM”). As noted in the “Risk Factors” section set forth above in Item 1A of Part I of this Annual Report, on Form 10-K, the amount and mix of our AUM are subject to significant fluctuations and can negatively impact our revenues and income. The level of our revenues also depends on mutual fund sales, the number of mutual fund shareholder transactions and accounts, and the fee ratesfees charged for our services, which are based on contracts with our SIPs orfunds and our clients. These arrangements could change in the future.
As further noted in the “Risk Factors” section, the outbreak and spread of contagious diseases such as the coronavirus disease 2019 (“COVID-19”), a highly transmissible and pathogenic disease, has adversely affected, and we expect will continue to adversely affect, our business, financial condition and results of operations. Global health concerns, and uncertainty regarding the impact of COVID-19, could lead to further and/or increased volatility in global capital and credit markets, adversely affect our key executives and other personnel, clients, investors, providers, suppliers, lessees, and other third parties, and negatively impact our AUM, revenues, income, business and operations. As of the time of this filing, as the COVID-19 pandemic continues to evolve, it is not possible to predict the full extent to which COVID-19 will adversely impact our business, liquidity, capital resources, financial results and operations due to numerous developing factors that are highly uncertain and rapidly changing.
During the fiscal year ended September 30, 20172020 (“fiscal year 20172020”), the global equity financial markets provided positive returns,experienced volatility reflecting, among other things, generallyongoing global concerns about the COVID-19 pandemic, but provided overall strong positive globalreturns. Despite easing of shutdown measures and some signs of economic data temperedrecovery following significant accommodative economic efforts by political uncertainty, asgovernments and central banks, concerns about the severe economic impact of the ongoing COVID-19 pandemic persist. The S&P 500 Index and the MSCI World Index increased 18.6%15.2% and 18.8%. The global bond markets were negatively impacted by rising interest rates and concerns of higher inflation but showed signs of stabilization over the second half of the fiscal year, and the Bloomberg Barclays Global Aggregate Index decreased 1.3%11.0% for the fiscal year.
Our total AUM was $753.21,418.9 billion at September 30, 2017, 3%2020, which was 105% higher than at September 30, 2016 due to $58.52019 reflecting an increase of $806.5 billion from acquisitions, partially offset by $61.6 billion of long-term net outflows, $9.9 billion of cash management net outflows and $8.7 billion from net market change, distributions and other, partially offset by $38.6 billion of net outflows.other. Simple monthly average AUM (“average AUM”) decreased 2%increased 19% during fiscal year 20172020. The decline in average AUM negatively affected our fee revenues and operating income for the fiscal year.
The business and regulatory environments in which we operate globally remain complex, uncertain and subject to change. We are subject to various laws, rules and regulations globally that impose restrictions, limitations, and registration, reporting and disclosure requirements on our business, and add complexity to our global compliance operations.


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Uncertainties regarding the global economy remain for the foreseeable future. As we continue to confront the challenges of the current economic and regulatory environments, we remain focused on the investment performance of our SIPsproducts and on providing high quality customer service to our clients. We continuously perform reviews of our business model. While we remain focused on expense management, we will also seek to attract, retain and develop employeespersonnel and invest strategically in systems and technology that will provide a secure and stable environment. We will continue to seek to protect and further our brand recognition while developing and maintaining broker-dealer and client relationships. The success of these and other strategies may be influenced by the factors discussed in the “Risk Factors” section in Part I of this Annual Report.


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section.
RESULTS OF OPERATIONS
(in millions, except per share data)       2017
vs. 2016
 2016
vs. 2015
       2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30, 2017 2016 2015  
20201
 2019 2018 
Operating revenues $6,392.2
 $6,618.0
 $7,948.7
 (3%) (17%)
Operating income 2,264.3
 2,365.7
 3,027.6
 (4%) (22%)
Operating revenues2
 $5,566.5
 $5,669.4
 $6,204.5
 (2%) (9%)
Operating income2
 1,048.9
 1,466.9
 2,028.2
 (28%) (28%)
Operating margin3
 18.8% 25.9% 32.7%    
          
Net income attributable to Franklin Resources, Inc. 1,696.7
 1,726.7
 2,035.3
 (2%) (15%) $798.9
 $1,195.7
 $764.4
 (33%) 56%
Diluted earnings per share $3.01
 $2.94
 $3.29
 2% (11%) $1.59
 $2.35
 $1.39
 (32%) 69%
Operating margin 1
 35.4% 35.7% 38.1%    
          
As adjusted (non-GAAP):4
          
Adjusted operating income $1,491.1
 $1,654.2
 $2,093.5
 (10%) (21%)
Adjusted operating margin 38.5% 42.6% 49.8% 

 

       

 

Adjusted net income $1,311.0
 $1,331.3
 $798.1
 (2%) 67%
Adjusted diluted earnings per share $2.61
 $2.62
 $1.45
 0% 81%
___________________ 
1
Includes the impact of the Company’s acquisition of Legg Mason, Inc. which was effective July 31, 2020. See Note 3 – Acquisitions in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for information.
2
In fiscal year 2020, the Company changed the presentation of its consolidated statements of income to include dividend and interest income and other expenses from consolidated investment products in non-operating income (expense). Amounts for the comparative prior fiscal years have been reclassified to conform to the current presentation. These reclassifications had no impact on previously reported net income attributable to Franklin Resources, Inc.
3
Defined as operating income divided by total operating revenues.
4
“Adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share” are based on methodologies other than generally accepted accounting principles. See “Supplemental Non-GAAP Financial Measures” for definitions and reconciliations of these measures.
1    Defined as operating income divided by total operating revenues.
The Company acquired Legg Mason effective July 31, 2020, and the results of operations for fiscal year 2020 include two months of Legg Mason’s results. Operating income decreased $101.4$418.0 million in fiscal year 2017 as2020 due to a 3%2% decrease in operating revenues and a 7% increase in operating expenses which reflected higher levels of compensation and benefits expense, including acquisition-related retention costs, other acquisition-related expenses, and amortization and impairments of intangible assets and goodwill. Net income attributable to Franklin Resources, Inc. decreased $396.8 million primarily due to the decrease in operating income, as the impact of declines in market valuations amid global concerns about the COVID-19 pandemic resulted in net investment and other losses of $38.4 million, as compared to net gains of $141.4 million in the prior year, less the portion attributable to noncontrolling interests, was partiallylargely offset by lower taxes on income.
Operating income decreased $561.3 million in the fiscal year ended September 30, 2019 (“fiscal year 2019”) due to a 3%9% decrease in operating revenues and a 1% increase in operating expenses. Net income attributable to Franklin Resources, Inc. decreased $30.0increased $431.3 million asprimarily due to a prior year estimated income tax charge of $968.8 millionresulting from enactment of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”), partially offset by the decrease in operating income was significantly offset by a $152.3 million increase in investment and other income, net, less the portion attributable to noncontrolling interests.income.
Operating income decreased $661.9 million in the fiscal year ended September 30, 2016 (“fiscal year 2016”) as a 17% decrease in operating revenues was partially offset by a 14% decrease in operating expenses. Net income attributable to Franklin Resources, Inc. decreased $308.6 million primarily due to the decrease in operating income, partially offset by a $143.6 million increase in investment and other income, net.
Diluted earnings per share decreased in fiscal year 2020 and increased in fiscal year 2017 despite2019, consistent with the decreasechanges in net income and decreased in fiscal year 2016 consistent with net income,the impacts of 2% and were impacted by 4% and 5%6% decreases in diluted average common shares outstanding primarily resulting from the repurchaserepurchases of shares of our common stock.


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Adjusted operating income decreased $163.1 millionin fiscal year 2020 primarily due to a 10% increase in compensation and benefits expense, excluding non-GAAP adjustments. Adjusted net income decreased $20.3 million primarily due to the decrease in adjusted operating income substantially offset by lower taxes on income, excluding the net income tax expense of non-GAAP adjustments.
Adjusted operating income decreased $439.3 million in fiscal year 2019 primarily due to an 8% decrease in adjusted operating revenues and a 6% increase in compensation and benefits expense, excluding non-GAAP adjustments. Adjusted net income attributable to Franklin Resources, Inc. increased $533.2 million primarily due to a prior-year estimated income tax charge of $968.8 millionresulting from enactment of the Tax Act, partially offset by the decrease in adjusted operating income.
Adjusted diluted earnings per share decreased in fiscal year 2020 and increased in fiscal year 2019, consistent with the changes in adjusted net income and the impacts of the decreases in diluted average common shares outstanding.
ASSETS UNDER MANAGEMENT
In the fourth quarter of fiscal year 2020, we revised our presentation of AUM to disclose AUM by asset class and introduced a simplified presentation of long-term net flows to incorporate all client-driven flow activity, which is defined as long-term inflows net of long-term outflows. Additionally, we report cash management net flows as a separate component of total net flows. These changes reflect the new breadth of our business and the expansion of our client base and investment objectivevehicle offerings, both of which expanded significantly beyond retail mutual funds following the acquisition of Legg Mason.
AUM by asset class was as follows:
(in billions)       2017
vs. 2016
 2016
vs. 2015
as of September 30, 2017 2016 2015  
Equity          
Global/international $209.8
 $200.4
 $212.1
 5% (6%)
United States 107.2
 103.3
 100.8
 4% 2%
Total equity 317.0
 303.7
 312.9
 4% (3%)
Multi-Asset/Balanced 143.3
 137.4
 138.3
 4% (1%)
Fixed Income       
 
Tax-free 71.0
 76.5
 71.7
 (7%) 7%
Taxable       
 
Global/international 165.0
 156.2
 182.7
 6% (15%)
United States 50.6
 53.4
 58.5
 (5%) (9%)
Total fixed income 286.6
 286.1
 312.9
 0% (9%)
Cash Management 6.3
 6.1
 6.8
 3% (10%)
Total $753.2
 $733.3
 $770.9
 3% (5%)
Average for the Year $736.9
 $749.3
 $869.5
 (2%) (14%)
(in billions)       2020 vs. 2019 2019 vs. 2018
as of September 30, 2020 2019 2018  
Fixed Income $656.7
 $250.6
 $258.5
 162% (3%)
Equity 432.0
 263.9
 304.6
 64% (13%)
Multi-Asset 133.8
 123.6
 126.7
 8% (2%)
Alternative 124.0
 45.0
 18.0
 176% 150%
Cash Management 72.4
 9.5
 9.3
 662% 2%
Total $1,418.9
 $692.6
 $717.1
 105% (3%)
Average for the Year $832.9
 $697.0
 $740.5
 19% (6%)
AUM at September 30, 20172020 increased 105% from September 30, 2019 driven by $806.5 billion from acquisitions, partially offset by $61.6 billion of long-term net outflows, $9.9 billion of cash management net outflows and $8.7 billion from net market change, distributions and other.
AUM at September 30, 2019 decreased 3% from September 30, 20162018 as $58.5$31.8 billion of long-term net outflows and $20.0 billion of net market change, distributions and other, which consists of $81.5 billion of market appreciation and other, net of $23.0 billion of long-term distributions, waswere partially offset by $38.6$26.4 billion from an acquisition and $0.9 billion of cash management net outflows. Averageinflows.
Changes in average AUM decreased 2% during fiscal year 2017.


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AUM at September 30, 2016 decreased 5% from September 30, 2015 as $62.4 billion of net outflows was partially offset by $24.8 billion of net market change and other, which consists of $52.6 billion of market appreciation and other, net of $27.8 billion of long-term distributions. Average AUM decreased 14% during fiscal year 2016.
Average AUM isare generally more indicative of trends in revenue for providing investment management services than the year-over-year change in ending AUM.


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Average AUM and the mix of average AUM by investment objectiveasset class are shown below.
(in billions) Average AUM 2017
vs. 2016
 2016
vs. 2015
for the fiscal years ended September 30, 2017 2016 2015  
Equity       

 

Global/international $203.7
 $205.1
 $247.5
 (1%) (17%)
United States 104.4
 101.1
 112.4
 3% (10%)
Total equity 308.1
 306.2
 359.9
 1% (15%)
Multi-Asset/Balanced 140.2
 135.5
 155.3
 3% (13%)
Fixed Income       

 

Tax-free 72.3
 74.0
 73.1
 (2%) 1%
Taxable       

 

Global/international 157.8
 172.6
 211.7
 (9%) (18%)
United States 52.3
 54.5
 62.4
 (4%) (13%)
Total fixed income 282.4
 301.1
 347.2
 (6%) (13%)
Cash Management 6.2
 6.5
 7.1
 (5%) (8%)
Total $736.9
 $749.3
 $869.5
 (2%) (14%)
(in billions) Average AUM 2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30, 2020 2019 2018  
Fixed Income $330.5
 $256.1
 $275.2
 29% (7%)
Equity 290.3
 275.5
 310.8
 5% (11%)
Multi-Asset 123.0
 122.2
 129.3
 1% (5%)
Alternative 63.8
 33.7
 17.2
 89% 96%
Cash Management 25.3
 9.5
 8.0
 166% 19%
Total $832.9
 $697.0
 $740.5
 19% (6%)
  Mix of Average AUM
for the fiscal years ended September 30, 2017 2016 2015
Equity      
Global/international 28% 27% 28%
United States 14% 14% 13%
Total equity 42% 41% 41%
Multi-Asset/Balanced 19% 18% 18%
Fixed Income      
Tax-free 10% 10% 9%
Taxable      
Global/international 21% 23% 24%
United States 7% 7% 7%
Total fixed income 38% 40% 40%
Cash Management 1% 1% 1%
Total 100% 100% 100%


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  Mix of Average AUM
for the fiscal years ended September 30, 2020 2019 2018
Fixed Income 39% 37% 37%
Equity 35% 40% 42%
Multi-Asset 15% 17% 18%
Alternative 8% 5% 2%
Cash Management 3% 1% 1%
Total 100% 100% 100%
Components of the change in AUM are shown below. Net market change, distributions and other includes long-term distributions, appreciation (depreciation), distributions to investors that represent return on investments and return of capital, and foreign exchange revaluation and net cash management.revaluation.
(in billions)       2017
vs. 2016
 2016
vs. 2015
for the fiscal years ended September 30, 2017 2016 2015  
Beginning AUM $733.3
 $770.9
 $898.0
 (5%) (14%)
Long-term sales 112.3
 101.7
 161.4
 10% (37%)
Long-term redemptions (169.7) (186.9) (209.0) (9%) (11%)
Long-term net exchanges (0.1) (0.5) (0.9) (80%) (44%)
Long-term reinvested distributions 18.9
 23.3
 28.5
 (19%) (18%)
Net flows (38.6) (62.4) (20.0) (38%) 212%
Net market change and other 58.5
 24.8
 (107.1) 136% NM
Ending AUM $753.2
 $733.3
 $770.9
 3% (5%)
(in billions)       2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30, 2020 2019 2018  
Beginning AUM $692.6
 $717.1
 $753.2
 (3%) (5%)
Long-term inflows 182.4
 175.0
 165.5
 4% 6%
Long-term outflows (244.0) (206.8) (203.5) 18% 2%
Long-term net flows (61.6) (31.8) (38.0) 94% (16%)
Cash management net flows (9.9) 0.9
 3.5
 NM
 (74%)
Total net flows (71.5) (30.9) (34.5) 131% (10%)
Acquisitions 806.5
 26.4
 9.8
 NM
 169%
Net market change, distributions and other (8.7) (20.0) (11.4) (57%) 75%
Ending AUM $1,418.9
 $692.6
 $717.1
 105% (3%)
 


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Components of the change in AUM by investment objectiveasset class were as follows:
(in billions)            
for the fiscal year ended
September 30, 2020
 
Fixed
Income
 Equity Multi-Asset Alternative 
Cash
Management
 Total
AUM at October 1, 2019 $250.6
 $263.9
 $123.6
 $45.0
 $9.5
 $692.6
Long-term inflows 79.7
 64.3
 27.8
 10.6
 
 182.4
Long-term outflows (112.9) (90.2) (33.6) (7.3) 
 (244.0)
Long-term net flows (33.2)
(25.9)
(5.8)
3.3



(61.6)
Cash management net flows 
 
 
 
 (9.9) (9.9)
Total net flows (33.2) (25.9) (5.8) 3.3
 (9.9) (71.5)
Acquisitions 449.4
 183.2
 22.5
 75.8
 75.6
 806.5
Net market change, distributions and other (10.1) 10.8
 (6.5) (0.1) (2.8) (8.7)
AUM at September 30, 2020 $656.7
 $432.0
 $133.8
 $124.0
 $72.4
 $1,418.9

(in billions) Equity   Fixed Income    
for the fiscal year ended
September 30, 2017
 Global/International United States Multi-Asset/Balanced Tax-Free 
Taxable
Global/International
 
Taxable
United States
 
Cash
Management
 Total
AUM at October 1, 2016 $200.4
 $103.3
 $137.4
 $76.5
 $156.2
 $53.4
 $6.1
 $733.3
Long-term sales 24.7
 14.7
 16.8
 7.4
 38.2
 10.5
 
 112.3
Long-term redemptions (48.4) (25.4) (25.7) (11.6) (44.3) (14.3) 
 (169.7)
Long-term net exchanges (0.1) 0.3
 0.4
 (0.5) (0.4) 0.2
 
 (0.1)
Long-term reinvested distributions 3.0
 4.3
 5.1
 2.0
 3.4
 1.1
 
 18.9
Net flows (20.8) (6.1) (3.4) (2.7) (3.1) (2.5) 
 (38.6)
Net market change and other 30.2
 10.0
 9.3
 (2.8) 11.9
 (0.3) 0.2
 58.5
AUM at September 30, 2017 $209.8
 $107.2
 $143.3
 $71.0
 $165.0
 $50.6
 $6.3
 $753.2
(in billions)            
for the fiscal year ended
September 30, 2019
 
Fixed
Income
 Equity Multi-Asset Alternative 
Cash
Management
 Total
AUM at October 1, 2018 $258.5
 $304.6
 $126.7
 $18.0
 $9.3
 $717.1
Long-term inflows 75.6
 58.5
 34.8
 6.1
 
 175.0
Long-term outflows (81.9) (83.5) (35.9) (5.5) 
 (206.8)
Long-term net flows (6.3)
(25.0)
(1.1)
0.6



(31.8)
Cash management net flows 
 
 
 
 0.9
 0.9
Total net flows (6.3) (25.0) (1.1) 0.6
 0.9
 (30.9)
Acquisition 
 
 
 26.4
 
 26.4
Net market change, distributions and other (1.6) (15.7) (2.0) 
 (0.7) (20.0)
AUM at September 30, 2019 $250.6
 $263.9
 $123.6
 $45.0
 $9.5
 $692.6


(in billions) Equity   Fixed Income    
for the fiscal year ended
September 30, 2016
 Global/International United States Multi-Asset/Balanced Tax-Free 
Taxable
Global/International
 
Taxable
United States
 
Cash
Management
 Total
AUM at October 1, 2015 $212.1
 $100.8
 $138.3
 $71.7
 $182.7
 $58.5
 $6.8
 $770.9
Long-term sales 21.9
 13.7
 14.3
 8.9
 34.2
 8.7
 
 101.7
Long-term redemptions (48.9) (24.1) (26.8) (8.8) (62.5) (15.8) 
 (186.9)
Long-term net exchanges (1.1) 0.6
 (0.4) 0.8
 (0.5) 0.1
 
 (0.5)
Long-term reinvested distributions 4.3
 5.8
 5.8
 2.0
 4.2
 1.2
 
 23.3
Net flows (23.8) (4.0) (7.1) 2.9
 (24.6) (5.8) 
 (62.4)
Net market change and other 12.1
 6.5
 6.2
 1.9
 (1.9) 0.7
 (0.7) 24.8
AUM at September 30, 2016 $200.4
 $103.3
 $137.4
 $76.5
 $156.2
 $53.4
 $6.1
 $733.3
(in billions)            
for the fiscal year ended
September 30, 2018
 
Fixed
Income
 Equity Multi-Asset Alternative 
Cash
Management
 Total
AUM at October 1, 2017 $286.0
 $311.7
 $132.5
 $16.7
 $6.3
 $753.2
Long-term inflows 71.2
 63.9
 25.6
 4.8
 
 165.5
Long-term outflows (82.4) (88.5) (29.0) (3.6) 
 (203.5)
Long-term net flows (11.2)
(24.6)
(3.4)
1.2


 (38.0)
Cash management net flows 
 
 
 
 3.5
 3.5
Total net flows (11.2) (24.6) (3.4) 1.2
 3.5
 (34.5)
Acquisition 
 9.8
 
 
 
 9.8
Net market change, distributions and other (16.3) 7.7
 (2.4) 0.1
 (0.5) (11.4)
AUM at September 30, 2018 $258.5
 $304.6
 $126.7
 $18.0
 $9.3
 $717.1
AUM increased $726.3 billion or 105% during fiscal year 2020 as $806.5 billion from acquisitions was partially offset by $61.6 billion of long-term net outflows, $9.9 billion of cash management net outflows and $8.7 billion of net market change, distributions and other. Acquisitions included $797.4 billion from the acquisition of Legg Mason and $9.1 billion from other acquisitions. Long-term inflows increased 4% to $182.4 billion, as compared to the prior year, due to higher inflows in all long-term asset classes except multi-asset. Long-term outflows increased 18% to $244.0 billion due to higher outflows in all long-term asset classes except multi-asset, most significantly in fixed income products. Long-term net outflows included outflows of $27.6 billion from six fixed income funds, $7.3 billion from seven institutional products, $6.2 billion from three equity funds and $3.6 billion from a multi-asset fund, partially offset by inflows of $6.0 billion in two equity funds, $4.0 billion in three fixed income funds, $2.0 billion in two institutional products and $1.3 billion in a private open-end product. Net




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market change, distributions and other primarily consists of $24.8 billion of long-term distributions, partially offset by $15.8 billion of market appreciation. The market appreciation occurred primarily in the equity asset class, and reflected positive returns in global equity markets as evidenced by increases of 15.2% and 11.0% in the S&P 500 Index and MSCI World Index.
(in billions) Equity   Fixed Income    
for the fiscal year ended
September 30, 2015
 Global/International United States Multi-Asset/Balanced Tax-Free 
Taxable
Global/International
 
Taxable
United States
 
Cash
Management
 Total
AUM at October 1, 2014 $261.5
 $109.5
 $159.0
 $72.1
 $225.1
 $63.8
 $7.0
 $898.0
Long-term sales 40.3
 19.2
 24.1
 8.2
 56.1
 13.5
 
 161.4
Long-term redemptions (55.3) (26.3) (28.4) (10.3) (72.8) (15.9) 
 (209.0)
Long-term net exchanges 0.2
 1.1
 (0.5) 
 (1.6) (0.1) 
 (0.9)
Long-term reinvested distributions 5.6
 5.7
 6.0
 2.0
 7.5
 1.7
 
 28.5
Net flows (9.2) (0.3) 1.2
 (0.1) (10.8) (0.8) 
 (20.0)
Net market change and other (40.2) (8.4) (21.9) (0.3) (31.6) (4.5) (0.2) (107.1)
AUM at September 30, 2015 $212.1
 $100.8
 $138.3
 $71.7
 $182.7
 $58.5
 $6.8
 $770.9
AUM increased $19.9decreased $24.5 billion or 3% during fiscal year 20172019 due to $58.5$31.8 billion of long-term net outflows and $20.0 billion of net market change, distributions and other, partially offset by $38.6$26.4 billion from an acquisition. Long-term inflows increased 6% to $175.0 billion due to higher inflows in all the long-term asset classes except the equity asset class, and long-term outflows increased 2% to $206.8 billion due to higher outflows in the multi-asset and alternative asset classes, partially offset by lower outflows in the equity asset class. Long-term net outflows included outflows of net outflows.$7.0 billion from six institutional clients, of which $2.9 billion was from Canadian mandates and $2.1 billion was due to two clients’ mandatory redemption policies following portfolio manager departures; $4.3 billion from two equity funds; $2.7 billion from a fixed income fund; $1.4 billion from an institutional fixed income product; $1.3 billion from a multi-asset fund; $1.2 billion from two sub-advised institutional products and $1.0 billion from a sub-advised variable annuity client. The outflows were partially offset by inflows of $1.9 billion in a fixed income fund and $1.8 billion in an equity fund. Net market change, distributions and other primarily consists of $78.0$31.5 billion of market appreciationlong-term distributions and a $2.9 billion increasedecrease from foreign exchange revaluation, net of $23.0partially offset by $14.4 billion of long-term distributions. The market appreciation occurred primarily in equity, global/international fixed income and multi-asset/balanced products, and reflected positive returns in global markets, as evidenced by increases of 18.8% and 18.6% in the MSCI World Index and S&P 500 Index, and strong performance of our global/international fixed income products despite a 1.3% decrease in the Bloomberg Barclays Global Aggregate Index.appreciation. The foreign exchange revaluation resulted from AUM in products that are not U.S. dollar denominated, which represented approximately 14% of total AUM as of September 30, 2017. The net outflows, which occurred in all long-term investment objectives2019, and most significantly in equity and multi-asset/balanced products, included $8.1 billion from two global/international fixed income funds with global macro strategies that had underperformed against their peer groups during fiscal year 2016, $3.9 billion from three institutional separate accounts, $3.0 billion from two sub-advised variable annuity clients due to shifts in their investment strategies and $2.6 billion from two global/international equity funds. The outflows also included $1.2 billion from a multi-asset/balanced fund and $1.0 billion from a U.S. equity fund, both of which had underperformed against their peer groups during most of fiscal year 2016, and were partially offset by inflows of $4.0 billion in a global/international fixed income fund that outperformed its peer group during fiscal year 2017. Long-term sales increased 10% to $112.3 billion from the prior year due to higher sales in all long-term investment objectives with the exception of tax-free fixed income. Long-term redemptions decreased 9% to $169.7 billionwas primarily due to lower redemptionsstrengthening of global/international fixed income products.
AUM decreased $37.6 billion or 5% during fiscal year 2016 due to $62.4 billion of net outflows partially offset by $24.8 billion of net market changethe U.S. dollar against the Euro, Canadian dollar, Australian dollar and other. The net outflows, which occurred primarily in global/international products, included $28.1 billion from four global/international fixed income funds with global macro strategies that had underperformed against their peer groups during fiscal year 2016, $4.7 billion redeemed by a sub-advised variable annuity client, $4.2 billion from three institutional products, and $3.6 billion from two global/international equity funds. The outflows also included $4.3 billion from a multi-asset/balanced fund and $1.1 billion from a U.S. equity fund, both of which had underperformed against their peer groups during most of fiscal year 2016, and were partially offset by a $5.5 billion inflow for an institutional global macro mandate. Long-term sales decreased 37% to $101.7 billion from the prior year, and long-term redemptions decreased 11% to $186.9 billion. Both declines occurred in all long-term investment objectives, primarily in global/international products, with the exception of tax-free fixed income sales. Net market change and other primarily consists of $50.9 billion of market appreciation and a $2.4 billion increase from foreign exchange revaluation, net of $27.8 billion of long-term distributions.Pound Sterling. The market appreciation occurred in all investment objectiveslong-term asset classes except equity, and reflected positive returns in global fixed income markets as evidenced by increasesa 7.6% increase in the MSCI World Index of 12.0%, the S&P 500 Index of 15.4% and the Bloomberg Barclays Global Aggregate Index of 8.8%. The foreign exchange revaluation resulted from Index.
AUM in products that are not U.S. dollar denominated, which represented approximately 14% of total AUMby sales region was as of September 30, 2016.

follows:

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Table of Contents

(in billions)       2020 vs. 2019 2019 vs. 2018
as of September 30, 2020 2019 2018  
United States $1,024.0
 $477.9
 $482.0
 114% (1%)
International          
Asia-Pacific 168.6
 89.0
 91.4
 89% (3%)
Europe, Middle East and Africa 141.8
 87.9
 98.3
 61% (11%)
Latin America1
 59.4
 13.5
 15.6
 340% (13%)
Canada 25.1
 24.3
 29.8
 3% (18%)
Total international $394.9
 $214.7
 $235.1
 84% (9%)
Total $1,418.9
 $692.6
 $717.1
 105% (3%)
______________
1
Includes North America-based advisers serving non-resident clients.
Average AUM by sales region was as follows:
(in billions)       2017
vs. 2016
 2016
vs. 2015
       2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30, 2017 2016 2015  2020 2019 2018 
United States $497.1
 $507.4
 $577.9
 (2%) (12%) $587.2
 $473.3
 $491.1
 24% (4%)
International       

 

       

 

Europe, the Middle East and Africa 104.1
 108.9
 137.9
 (4%) (21%)
Asia-Pacific 87.0
 82.7
 90.0
 5% (8%) 102.4
 90.4
 95.2
 13% (5%)
Europe, Middle East and Africa 97.8
 91.5
 105.8
 7% (14%)
Latin America1
 23.1
 14.6
 17.3
 58% (16%)
Canada 31.1
 31.3
 36.2
 (1%) (14%) 22.4
 27.2
 31.1
 (18%) (13%)
Latin America1
 17.6
 19.0
 27.5
 (7%) (31%)
Total international $239.8
 $241.9
 $291.6
 (1%) (17%) $245.7
 $223.7
 $249.4
 10% (10%)
Total $736.9
 $749.3
 $869.5
 (2%) (14%) $832.9
 $697.0
 $740.5
 19% (6%)
______________ 
1    Latin America sales region includes North America-based advisers serving non-resident clients.
1
Includes North America-based advisers serving non-resident clients.
The percentage of average AUM in the United States sales region was 67%70%, 68% and 66% for fiscal years 2017, 20162020, 2019 and 2015.2018.
Due to

40


The region in which investment products are sold may differ from the global nature of our business operations,geographic area in which we provide investment management and related services may be performed in locations unrelated to the sales region.products.
Investment Performance Overview
A key driver of our overall success is the long-term investment performance of our SIPs.investment products. A standard measure of the performance of these investment products is the percentage of AUM exceeding benchmarks and peer group medians.medians and benchmarks. We compare the relative performance of our mutual funds against peers, and our institutional products against benchmarks. Approximately half of our mutual fund AUM exceeded the peer group median comparisons for all periods presented. Our global/international fixed incomeinstitutional products generated notablestrong long-term results with at least 82%63% of AUM exceeding the benchmarks and peer group medians for the one-, five- and ten-year periods ended September 30, 2017. Strong performance for these products during fiscal year 2017 resulted in significant improvements from September 30, 2016 to the benchmark and peer group median comparisons for all periods presented, primarily driven by the one- and three-year periods. The performance of our multi-asset/balanced products significantly exceeded the benchmarks and peer group medians for the one-year period and the peer group medians for the ten-year period, but has lagged in the other comparisons, reflecting the performance of a fund that represents approximately 70% of this category. The performance of our tax-free and U.S. taxable fixed income as well asproducts which had at least 73% of our equity products, has mostly laggedAUM exceeding the benchmarks and peer group medians during the periods presented.


37


benchmark comparisons.
The performance of our mutual fund products against peer group medians and of our institutional products against benchmarks and peer group medians is presented in the table below.
  
Benchmark Comparison 1, 2
 
Peer Group Comparison 1, 3
  % of AUM Exceeding Benchmark % of AUM in Top Two Peer Group Quartiles
as of September 30, 2017 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year
Equity                
Global/international 50% 16% 23% 48% 67% 33% 55% 50%
United States 38% 37% 21% 32% 24% 56% 42% 67%
Total equity 45% 24% 22% 42% 50% 42% 50% 57%
Multi-Asset/Balanced 85% 11% 9% 8% 93% 7% 14% 96%
Fixed Income                
Tax-free 0% 42% 40% 28% 5% 41% 40% 87%
Taxable                
Global/international 93% 44% 82% 82% 99% 67% 88% 97%
United States 72% 10% 31% 53% 64% 9% 30% 36%
Total fixed income 63% 37% 61% 60% 63% 48% 62% 82%
  
Peer Group Comparison1
 
Benchmark Comparison2
  
% of Mutual Fund AUM
in Top Two Peer Group Quartiles
 
% of Institutional AUM
Exceeding Benchmark
as of September 30, 2020 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year
Fixed Income 58% 53% 51% 56% 73% 80% 92% 97%
Equity 48% 56% 56% 47% 28% 33% 27% 50%
Total AUM3
 47% 48% 47% 58% 63% 69% 73% 84%
_______________ 
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 infor the benchmark1-, 3-, 5- and peer group rankings10-year periods represents 89%39%, 38%, 38% and 80%36% of our total AUM as of September 30, 2017.2020.
2 
Institutional performance measures the percent of institutional AUM beating its benchmark. The benchmark comparisons are based on each fund’saccount’s/composite’s (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 investment objectivesasset class of the fund.
account/composite. Total institutional AUM measured for the 1-, 3-, 5- and 10-year periods represents 55%, 54%, 52% and 48% of our total AUM as of September 30, 2020.
3 
The peer group rankings are sourced from either Lipper, a Thomson Reuters Company, Morningstar or eVestment inTotal AUM includes performance of our multi-asset and alternative AUM, which each fund’s market and were based on an absolute rankingrepresent 9% of returns. © 2017 Morningstar, Inc. All rights reserved. The information herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.our total AUM at September 30, 2020.
For products with multiple share classes, rankings for the primary share class are applied to the entire product. Rankings for most institutional separately-managed accounts are as of the prior quarter-end due to timing of availability of information. Private equityMutual fund performance data includes U.S. and cross-border domiciled mutual funds certain privately-offered emerging market and real estateexchange-traded funds, and excludes cash management funds and certain hedge and other funds are not included. Certain other funds and products were also excluded becausefund of limited benchmark or peer group data. Had this data been available, the results may have been different.funds. These results assume the reinvestment of dividends, are based on data available as of October 17, 201712, 2020 and are subject to revision. While we remain focused on achieving strong long-term performance, our future benchmarkpeer group and peer groupbenchmark rankings may vary from our past performance.


41


OPERATING REVENUES
The table below presents the percentage change in each operating revenue category.
(in millions)       2017
vs. 2016
 2016
vs. 2015
       2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30, 2017 2016 2015  2020 2019 2018 
Investment management fees $4,359.2
 $4,471.7
 $5,327.8
 (3%) (16%) $3,981.7
 $3,985.2
 $4,367.5
 0% (9%)
Sales and distribution fees 1,705.6
 1,806.4
 2,252.4
 (6%) (20%) 1,362.0
 1,444.6
 1,599.8
 (6%) (10%)
Shareholder servicing fees 225.7
 243.6
 262.8
 (7%) (7%) 195.1
 216.3
 221.9
 (10%) (3%)
Other 101.7
 96.3
 105.7
 6% (9%) 27.7
 23.3
 15.3
 19% 52%
Total Operating Revenues $6,392.2
 $6,618.0
 $7,948.7
 (3%) (17%) $5,566.5
 $5,669.4
 $6,204.5
 (2%) (9%)


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Table of Contents

Investment Management Fees
Investment management fees are generally calculated under contractual arrangements with our SIPsinvestment products and the products for which we provide sub-advisory services as a percentage of the market value of AUM. Annual fee rates vary by investment objectiveasset class and type of services provided. RatesFee rates for products sold outside of the U.S. are generally higher than for U.S. products because they are structured to compensate for certain distribution costs.products.
Investment management fees decreased $112.5$3.5 million in fiscal year 20172020 primarily due to a 2%7% decrease in average AUM, lower effective investment management fee rate and lower performance fees of the impactlegacy Franklin business, largely offset by $427.6 million of revenue earned by Legg Mason subsequent to the acquisition. The decrease in average AUM of the legacy Franklin business occurred primarily in the fixed income and equity asset classes, partially offset by an increase in the alternative asset class, and across all sales regions except Europe, Middle East and Africa.
Investment management fees decreased $382.3 million in fiscal year 2019 primarily due to a 6% decrease in average AUM, a $59.6 million decrease from a change in presentation of certain fees from investment management fees to distribution fees upon adoption of new revenue recognition accounting guidance on October 1, 2018, and a lower effective investment management fee rate, partially offset by higher performance fees. Investment management fees decreased $856.1 million in fiscal year 2016 primarily due to a 14% decrease in average AUM and the impact of a lower effective fee rate. The decrease in average AUM in fiscal year 2017 occurred primarily in the global/internationalequity, fixed income investment objective,and multi-asset asset classes, partially offset by an increase in the alternative asset class, and across all sales regions, except Asia-Pacific. The decrease in average AUM in fiscal year 2016 occurred in all sales regions and primarilymost significantly in the global/internationalU.S. and multi-asset/balanced investment objectives.Europe, Middle East and Africa.
Our effective investment management fee rate excluding performance fees (investment management fees excluding performance fees divided by average AUM) was 59.2, 59.747.3, 56.4 and 61.358.7 basis points for fiscal years 20172020, 20162019 and 20152018. The rate decrease in fiscal year 20172020 was primarily due to the Legg Mason acquisition, as Legg Mason generally has a lower overall effective fee rate due to a higher weightingsmix of institutional and fixed income AUM. The fee rate decrease is also due to higher weighting of AUM in lower feelower-fee products, a shift from higher-fee products in the global/international fixed income investment objectiveU.S. sales region to lower-fee products in the Europe, Middle East and Africa and Asia-Pacific sales regions partially offset by higher performance fees. The rate decreasefor the fixed income asset class, and certain sponsored funds in fiscal year 2016 was primarily dueIndia with total AUM of $3.4 billion at September 30, 2020, which are subject to higher weightingsthe decision of AUM in U.S. productsthe funds’ trustees to wind up the funds (see Note 16 – Commitments and in lower fee products in global/international investment objectivesContingencies in the Europe, Middle Eastnotes to consolidated financial statements in Item 8 of Part II of this Annual Report for further information), and Africa and Asia-Pacific sales regions, partially offset by higher performancefor which the Company no longer earns investment management fees.
Performance-based investment management fees were $35.5$44.0 million, $26.5$52.9 million and $19.8$21.2 million for fiscal years 20172020, 20162019 and 20152018. The increasesdecrease in fiscal years 2017 and 2016 wereyear 2020 was primarily due to lower performance fees earned from separately-managed accounts.a private debt fund, separate accounts, and a real estate fund, while the increase in fiscal year 2019 was primarily due to the higher fees earned from the same funds. The decrease in fiscal year 2020 was partially offset by $15.0 million of performance fees earned by Legg Mason subsequent to the acquisition.


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U.S. industry asset-weighted average management fee rates were as follows:
(in basis points) 
Industry Average 1
for the fiscal years ended September 30, 2017 2016 2015
Equity      
Global/international 2
 50 53 55
United States 35 37 39
Multi-Asset/Balanced 49 50 52
Fixed Income      
Tax-free 33 35 35
Taxable      
Global/international 3
 39 43 46
United States 31 33 35
Cash Management 15 10 9
(in basis points) 
Industry Average1
for the fiscal years ended September 30, 2020 2019 2018
Fixed Income2
 27 29 30
Equity3
 32 33 36
Multi-Asset 37 38 40
Alternative4
 62 72 77
Cash Management 16 16 16
 ________________
1 
U.S. industry asset-weighted average management fee rates were calculated using information available from Lipper, a Thomson ReutersRefinitiv Company, as of September 30, 20172020, 20162019 and 20152018 and include all U.S.-registered open-end funds that reported expense data to Lipper as of the funds’ most recent annual report date, and for which expenses were equal to or greater than zero. As defined by Lipper, management fees include fees from providing advisory and fund administration services. The averages combine retail and institutional funds data and include all share classes and distribution channels, without exception. Variable annuity and fund of fund products are not included.
2 
The decreases in the average rate in fiscal years 20172020 and 20162019 reflect higher weightings of two large low feelow-fee passive funds and lower weightings of two large higher-fee actively managed funds.
3 
The decreases in the average rate in fiscal years 20172020 and 20162019 reflect higher weightings of atwo large low fee fundlow-fee passive funds.
4
The decreases in the average rate in fiscal years 2020 and lower2019 reflect higher weightings of twoone large higher fee funds.low-fee passive fund.
The declines in U.S. industry average management fee rates for long-term asset classes generally reflect increased investor demand for lower-fee passive funds. Our actual effective investment management fee rates are generally higher than the U.S. industry average rates as we actively manage substantially all of our products and have a higher level of international AUM, both of which generate higher fees. Our fiscal year 2020 effective investment management fee rates in the U.S. generally decreased during fiscal years 2017 and 2016, but to a lessergreater extent than the average industry rates.


39

Tablerates following the acquisition of Contents

Legg Mason on July 31, 2020 and are expected to decrease further in the fiscal year ending September 30, 2021 which will include a full year of Legg Mason results.
Our product offerings and global operations are diverse. As such, the impact of future changes in the market value of AUM on investment management fees will be affected by the relative mix of investment objective,asset class, geographic region, distribution channel and investment vehicle of the assets.
Sales and Distribution Fees
We earnSales and distribution fees primarily consist of upfront sales commissions and ongoing distribution fees. Sales commissions are earned from the sale of certain classes of SIPs on which investors pay a commissionsponsored funds at the time of purchase (“commissionable sales”). Sales commissions are and may be reduced or eliminated on some share classes and for some sale transactions depending uponon the amount invested and the type of investor. Therefore, sales fees generally will change with the overall level of gross sales, the size of individual transactions, and the relative mix of sales between different share classes and types of investors.
Globally, ourOur sponsored mutual funds and certain other products generally pay us distribution fees in return for sales, marketing and distribution efforts on their behalf. Specifically, theThe majority of U.S.-registeredour U.S. mutual funds, with the exception of certain of our money market mutual funds and certain other funds specifically designed for purchase through separately managed account programs, have adopted distribution plans under Rule 12b-1 (the “Rule 12b-1 Plans”) promulgated under the Investment Company Act of 1940. The Rule 12b-1 Plans permit the mutual funds to pay us for marketing, marketing support, advertising, printing and sales promotion services relating to the distribution of their shares, subject to the Rule 12b-1 Plans’ limitations on amounts based on daily average daily net AUM. Similar arrangements exist for theWe earn distribution offees from our non-U.S. funds.funds based on daily average AUM.
We pay substantially all of our sales and distribution fees to the financial advisers, broker-dealers and other intermediaries whothat sell our SIPs to investorsfunds on our behalf. See the description of sales, distribution and marketing expenses below.


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Sales and distribution fees by revenue driver are presented below.
(in millions)       2017
vs. 2016
 2016
vs. 2015
       2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30, 2017 2016 2015  2020 2019 2018 
Asset-based fees $1,345.1
 $1,410.6
 $1,698.9
 (5%) (17%) $1,096.3
 $1,188.2
 $1,314.3
 (8%) (10%)
Sales-based fees 350.8
 386.4
 542.8
 (9%) (29%) 245.9
 244.0
 270.3
 1% (10%)
Contingent sales charges 9.7
 9.4
 10.7
 3% (12%) 19.8
 12.4
 15.2
 60% (18%)
Sales and Distribution Fees $1,705.6
 $1,806.4
 $2,252.4
 (6%) (20%) $1,362.0
 $1,444.6
 $1,599.8
 (6%) (10%)
Asset-based distribution fees decreased $65.5 million and $288.3$91.9 million in fiscal years 2017 and 2016year 2020 primarily due to decreases of $55.2 million and $273.1$79.2 million from 4% and 14% decreasesa 7% decrease in the related average AUM. The decrease in fiscal year 2016 also includes $11.3AUM and $38.6 million from a higher mix of lower-fee U.S. assets, partially offset by a $35.3 million increase from fees earned by Legg Mason subsequent to the implementation of lower Rule 12b-1 Plan fee rates for certain funds effective August 1, 2015.
Sales-basedacquisition. Asset-based distribution fees decreased $35.6$126.1 million in fiscal year 20172019 primarily due to decreases of $18.8$120.5 million from a 9% decrease in the related average AUM and $67.6 million from a lower mix of U.S. Class C assets which have higher fee rates than other share classes, partially offset by a $59.6 million increase from a change in presentation of certain fees to distribution fees from investment management fees upon adoption of new revenue recognition accounting guidance on October 1, 2018.
Sales-based fees increased $1.9 million in fiscal year 2020 primarily due to increases of $9.8 million from fees earned by Legg Mason subsequent to the acquisition, $7.2 million from higher U.S. product commissionable sales and, $2.9 million from a higher mix of equity sales, which typically generate higher sales fees than fixed income products. The increases were substantially offset by a decrease of $18.7 million from lower effective fee ratesnon-U.S. product commissionable sales. Sales-based fees decreased $26.3 million in fiscal year 2019 primarily due to decreases of $18.2 million from lower total commissionable sales and $18.5$5.3 million from a lower mix of U.S. product commissionable sales. The lower effective fee rates primarily resulted from a higher mix of non-U.S. product fixed income sales and tiered pricing on larger trades. Non-U.S. products typically generate lower sales fees than U.S. products, and fixed income products typically generate lower sales fees than equity products. Total commissionable sales increased 4%, however the increase resulted from significantly higher sales of non-U.S. products that were largely offset by lower sales of U.S. products; the lower mix of U.S. product commissionable sales resulted in a net decrease in sales-based fees.
Sales-based fees decreased $156.4 million in fiscal year 2016 primarily due to a $158.5 million decrease from a 29% decrease in total commissionable sales.
Commissionable sales represented 11% of total sales for fiscal year 2017, 12% for fiscal year 2016, and 10% for fiscal year 2015. U.S. product commissionable sales were 72%, 92% and 88% of total commissionable sales for fiscal years 2017, 2016 and 2015.
Contingent sales charges are earned from investor redemptions within a contracted period of time. TheseSubstantially all of these charges are levied only on certain shares sold without a front-end sales charge, and vary with the mix of redemptions of these shares. Contingent sales charges increased $7.4 million in fiscal year 2020 and decreased $2.8 million in fiscal year 2019 primarily due to changes in redemptions.


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Shareholder Servicing Fees
We receiveSubstantially all shareholder servicing fees as compensationare earned from our sponsored funds for providing transfer agency services, which include providing customershareholder statements, transaction processing, customer service and tax reporting. These fees are generally fixed charges per shareholder account that vary with the particular type of fund and the service being rendered. In some instances, we charge SIPs these feesprimarily determined based on the level of AUM. In the U.S., transfer agency service agreements provide that accounts closed in a calendar year generally remain billable at a reduced rate through the second quarter of the following calendar year. Accordingly, the level of fees varies with the change in open accounts and the level of closed accounts that remain billable. Approximately 0.6 million and 1.2 million accounts closed in the U.S. during calendar years 2016 and 2015.
We also provide other services to individual and trust clients, including trust services, for which fees are based on the levelpercentage of AUM and estate planning and tax planning and preparation, for whicheither the number of transactions in shareholder accounts or the number of shareholder accounts, while fees from certain funds are primarily account based.based only on AUM. In addition, fund reimbursements of expenses incurred while providing transfer agency services are recognized as revenue effective October 1, 2018 under new revenue recognition guidance.
Shareholder servicing fees decreased $17.9 million and $19.2$21.2 million in fiscal years 2017 and 2016year 2020 primarily due to decreases of $14.8 million and $9.4 million from SIPs in the U.S. resulting from decreases in active accounts, and $3.6 million and $9.5 million from SIPs in Europe resulting from lower levels of related AUM and decreases in active accounts.
Other
Other revenue increased $5.4transactions. Shareholder servicing fees decreased $5.6 million in fiscal year 20172019 primarily due to lower levels of related AUM and decreased $9.4transactions, partially offset by $8.6 million of fund expense reimbursement revenue.
Other
Other revenue increased $4.4 million and $8.0 million in fiscal year 2016years 2020 and 2019 primarily due to changes in interest and dividend income from consolidated SIPs.higher miscellaneous fee revenues.


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OPERATING EXPENSES
The table below presents the percentage change in each operating expense category.
(in millions) 2017 2016 2015 2017
vs. 2016
 2016
vs. 2015
 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30,  
Compensation and benefits $1,873.9
 $1,584.7
 $1,390.6
 18% 14%
Sales, distribution and marketing $2,130.9
 $2,209.9
 $2,762.3
 (4%) (20%) 1,703.1
 1,819.6
 2,039.7
 (6%) (11%)
Compensation and benefits 1,333.7
 1,360.9
 1,453.3
 (2%) (6%)
Information systems and technology 219.8
 207.3
 224.3
 6% (8%) 288.4
 258.5
 243.9
 12% 6%
Occupancy 121.3
 134.1
 132.7
 (10%) 1% 147.9
 133.6
 128.6
 11% 4%
Amortization of intangible assets 54.0
 14.7
 1.8
 267% 717%
General, administrative and other 322.2
 340.1
 348.5
 (5%) (2%) 450.3
 391.4
 371.7
 15% 5%
Total Operating Expenses $4,127.9
 $4,252.3
 $4,921.1
 (3%) (14%) $4,517.6
 $4,202.5
 $4,176.3
 7% 1%
Compensation and Benefits
The components of compensation and benefits expenses are presented below.
(in millions)       2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30, 2020 2019 2018  
Salaries, wages and benefits $1,072.1
 $974.9
 $928.4
 10% 5%
Variable compensation 551.2
 490.6
 454.3
 12% 8%
Acquisition-related retention 195.8
 63.7
 7.9
 207% 706%
Special termination benefits 54.8
 55.5
 
 (1%) NM
Compensation and Benefits Expenses $1,873.9
 $1,584.7
 $1,390.6
 18% 14%
Salaries, wages and benefits increased $97.2 million and $46.5 million in fiscal year 2020 and 2019, primarily due to increases of $56.9 million and $23.8 million from higher average staffing levels primarily resulting from acquisitions, and $19.3 million and $24.5 million for annual salary increases that were effective December 1 of each fiscal year, partially offset by decreases of $5.9 million and $12.5 million from favorable foreign currency impacts. The increase in fiscal year 2020 also included a $16.2 million increase in other termination benefits.
Variable compensation increased $60.6 million and $36.3 million in fiscal year 2020 and 2019, primarily due to increases of $67.7 million and $52.4 million related to acquired firms’ bonus plans and $10.0 million and $2.2 million related to private equity and other product performance fees, partially offset by decreases of $9.6 million and $18.0 million in bonus expense primarily due to lower expectations of our annual performance. Variable compensation related to unvested mutual fund awards decreased $11.3 million in fiscal year 2020 and increased $3.8 million in fiscal year 2019. The increases in fiscal year 2019 were also partially offset by a $7.9 million decrease in stock and stock unit award amortization.
Acquisition-related retention expenses increased $132.1 million in fiscal year 2020 primarily related to the acquisition of Legg Mason, and increased $55.8 million in fiscal year 2019 primarily related to the acquisition of Benefit Street Partners, L.L.C. (“BSP”).
Special termination benefits relate to workforce optimization initiatives related to the acquisition of Legg Mason in fiscal year 2020, and voluntary separation and workforce reduction initiatives of 4.5% of our global workforce in fiscal year 2019.
We expect to incur acquisition-related retention expenses of approximately $150 million during the fiscal year ending September 30, 2021 (“fiscal year 2021”), and amounts that decrease by approximately $20 million per year in the following three fiscal years. At September 30, 2020, our global workforce had increased to approximately 11,800 employees from approximately 9,600 at September 30, 2019.
We continue to place a high emphasis on our pay for performance philosophy. As such, any changes in the underlying performance of our investment products or changes in the composition of our incentive compensation offerings could have an impact on compensation and benefits expenses going forward. However, in order to attract and retain talented individuals, our level of compensation and benefit expenses may increase more quickly or decrease more slowly than our revenue.


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Sales, Distribution and Marketing
Sales, distribution and marketing expenses primarily consist of paymentsrelate to services provided by financial advisers, broker-dealers and other third parties for providing servicesintermediaries to investors in our SIPs,sponsored funds, including marketing support services. SalesSubstantially all sales expenses are determined as percentages of sales and are incurred from the same commissionable sales transactions that generate sales fee revenues. Distribution expensesrevenues and are determined as percentagesa percentage of AUM andsales. Substantially all distribution expenses are incurred from assets that generate either distribution fees or higher levelsand are determined as a percentage of investment management fees.AUM. Marketing support expenses are based on AUM, sales or a combination thereof. Also included is the amortization of deferred sales commissions related to up-frontupfront commissions on shares sold without a front-end sales charge to investors.charge. The deferred sales commissions are amortized over the periods in which commissions are generally recovered from related revenues.
Sales, distribution and marketing expenses by cost driver are presented below.
(in millions) 2017 2016 2015 2017
vs. 2016
 2016
vs. 2015
 2020 2019 2018 2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30,  
Asset-based expenses $1,735.8
 $1,792.7
 $2,161.0
 (3%)
(17%) $1,369.0
 $1,476.0
 $1,703.9
 (7%) (13%)
Sales-based expenses 323.1
 342.0
 488.5
 (6%)
(30%) 253.8
 257.8
 255.1
 (2%) 1%
Amortization of deferred sales commissions 72.0
 75.2
 112.8
 (4%)
(33%) 80.3
 85.8
 80.7
 (6%) 6%
Sales, Distribution and Marketing $2,130.9
 $2,209.9
 $2,762.3
 (4%)
(20%) $1,703.1
 $1,819.6
 $2,039.7
 (6%) (11%)


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Asset-based expenses decreased $56.9 million and $368.3$107.0 million in fiscal years 2017 and 2016year 2020 primarily due to decreases of $62.4 million and $352.4$107.4 million from 3% and 14% decreasesan 8% decrease in the related average AUM.AUM and $53.4 million from a higher mix of lower-fee U.S. assets, partially offset by a $58.6 million increase in expenses incurred by Legg Mason subsequent to the acquisition. Asset-based expenses decreased $227.9 million in fiscal year 2019 primarily due to decreases of $161.4 million from a 10% decrease in the related average AUM, and $64.3 million from a lower mix of U.S. Class C assets which have higher expense rates than other share classes. Distribution expenses which are typically higher for non-U.S. products, are generally not directly correlated with distribution fee revenues due to certain international fee structures whichthat do not provide forfull recovery of certain distribution costs through investment management fees.costs.
Sales-based expenses decreased $18.9$4.0 million in fiscal year 20172020 primarily due to decreases of $12.4a $20.3 million decrease from lower average commission ratesnon-U.S. product commissionable sales, largely offset by an $8.6 million increase in expenses incurred by Legg Mason subsequent to the acquisition and $9.0a $7.5 million increase from a lower mix ofhigher U.S. product commissionable sales. The lower average commission rates primarily resulted from a higher mix of non-U.S. product fixed income sales and tiered pricing on larger trades. Non-U.S.U.S. products typically generate lowerhigher sales commissions than U.S. products, and fixed income products typically generate lower sales commissions than equitynon-U.S. products. Total commissionable sales increased 4%, however the increase resulted from significantly higher sales of non-U.S. products that were largely offset by lower sales of U.S. products; the lower mix of U.S. product commissionable sales resulted in a net decrease in sales-based expenses.
Sales-based expenses decreased $146.5increased $2.7 million in fiscal year 20162019 primarily due to $133.7increases of $22.6 million from a 29% decrease inthe recognition of sales commissions on U.S. Class C shares as expense at the time of sale and $10.0 million from revised U.S. dealer commission pricing effective September 2018, partially offset by decreases of $14.2 million from lower total commissionable sales. The decrease also included $6.7sales and $12.6 million in India primarily related to lower sales and regulatory-driven changes in fee structure, and $6.6 million from lower marketing support expense primarily resulting from the change in fee structure for certain service providers and lower related sales.
Amortizationstructure. The recognition of deferred sales commissions decreased $3.2 million and $37.6 million in fiscal years 2017 and 2016 primarily dueon U.S. Class C shares as expense at the time of sale is consistent with the treatment of contract costs with a useful life of one year or less under new revenue recognition accounting guidance adopted on October 1, 2018. The commissions relate to $18.5 million and $25.8 million related to lower sales of U.S. shares sold without a front-end sales charge to investors. The decreaseand were deferred and amortized over one year in prior years.
Amortization of deferred sales commissions decreased $5.5 million in fiscal year 2017 was substantially2020, primarily due to a $15.0 million decrease from lower sales of non-U.S. shares sold without front-end sales charge, partially offset by $12.7an $8.6 million of adjustments recognized in fiscal year 2016 related to prior-year amortization expense and $4.3 millionincrease from higher sales of non-U.S.U.S. shares. Amortization of deferred sales commissions increased $5.1 million in fiscal year 2019, as the impact of higher sales of shares sold without a front-end sales charge to investors.
Compensation and Benefits
Compensation and benefit expenses decreased $27.2 million in fiscal year 2017 due to a $55.7 million decrease in salaries, wages and benefits, partially offset by a $28.5 million increase in variable compensation. The decrease in salaries, wages and benefits was primarily due to decreases of $51.4 million in termination benefits and $19.9 million from a higher weighting of employees in lower cost regions outside the U.S., partially offset by an $18.3 million increase for annual merit salary adjustments that were effective December 1, 2016 and 2015. The increase in variable compensation was primarily due to increases of $13.1 million from higher market valuations of mutual fund awards, $13.1 million in bonus expense based on our overall performance and $6.5 million from higher sales-related commissions, partially offset by an $8.3 million decrease in amortization of stock and stock unit awards.
Compensation and benefit expenses decreased $92.4 million in fiscal year 2016 due to a $108.4 million decrease in variable compensation, partially offset by a $16.0 million increase in salaries, wages and benefits. The variable compensation decrease was primarily due to $81.2 million related to our lower performance, as well as $8.9 million related to private equity and other product performance fees. The increase in salaries, wages and benefits was primarily due to increases of $55.7 million in termination benefits and $18.0 million for annual merit salary adjustments that were effective December 1, 2015 and 2014, largely offset by decreasesthe change in accounting for U.S. Class C shares discussed above, which resulted in no further deferral and amortization. The unamortized deferred Class C commission balance of $35.0$9.1 million from lower staffing levels and $16.2 million from favorable currency impacts. The increase in termination benefits was primarily due to special benefits related to the voluntary separation of approximately 300 employees.
Variable compensation as a percentage of compensation and benefits was 36%, 33% and 38% for fiscal years 2017, 2016 and 2015. At at September 30, 2017, our global workforce had increased to approximately 9,400 employees from approximately 9,100 at September 30, 2016.2018 was reversed against retained earnings upon adoption of the new accounting guidance.
We continue to place a high emphasis on our pay for performance philosophy. As such, any changes in the underlying performance of our SIPs or changes in the composition of our incentive compensation offerings could have an impact on compensation and benefit expenses going forward. However, in order to attract and retain talented individuals, our level of compensation and benefit expenses may increase more quickly or decrease more slowly than our revenue.


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Information Systems and Technology
Information systems and technology expenses increased $12.5$29.9 million in fiscal year 20172020 primarily due to expenses of Legg Mason subsequent to closing of the acquisition. Information systems and technology expenses increased $14.6 million in fiscal year 2019 primarily due to higher external data service and software costs, and decreased $17.0 million in fiscal year 2016 primarily due to lower technology consulting costs.
Details of capitalized information systems and technology costs are shown below.

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(in millions)      
for the fiscal years ended September 30, 2017 2016 2015
Net carrying value at beginning of year $88.1
 $89.8
 $85.5
Additions, net of disposals 63.1
 46.2
 50.8
Amortization (49.1) (47.9) (46.5)
Net Carrying Value at End of Year $102.1
 $88.1
 $89.8

Occupancy
We conduct our worldwide operations using a combination of leased and owned facilities. Occupancy expenses include rent and other facilities-related costs including depreciation and utilities.
Occupancy expenses decreased $12.8increased $14.3 million in fiscal year 20172020 primarily due to expenses of Legg Mason subsequent to closing of the acquisition, and higher depreciation expense related to our buildings in San Mateo, California and Poznan, Poland which we occupied beginning in the second half of fiscal year 2019, partially offset by lower levels of rent expense.expense and building maintenance costs. Occupancy expenses increased $1.4$5.0 million in fiscal year 20162019 primarily due to higher levels of rent expense substantiallyand building depreciation and maintenance costs, partially offset by lower building maintenance costsa $6.3 million decrease in equipment impairment.
Amortization of intangible assets
Amortization of intangible assets increased $39.3 million in fiscal year 2020 primarily related to the acquisition of Legg Mason, and depreciation.increased $12.9 million in fiscal year 2019 primarily related to the acquisition of BSP. See Note 9 – Goodwill and Other Intangible Assets in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for information on definite-lived intangible assets.
General, Administrative and Other
General, administrative and other operating expenses primarily consist of professional fees, fund-related service fees payable to external parties, impairments of intangible assets and goodwill, advertising and promotion, professional fees, travel and entertainment, and other miscellaneous expenses.
General, administrative and other operating expenses decreased $17.9increased $58.9 million in fiscal year 20172020, primarily due to increases of $48.0 million in acquisition-related professional fees and $19.3 million of post-acquisition general and administrative expenses, both related to Legg Mason. Additionally, impairments of intangible assets and goodwill increased $42.1 million primarily related to assets recognized from the acquisitions of BSP and Onsa, Inc., (formally known as TokenVault, Inc.). The increases were partially offset by decreases of $24.6 million in travel and entertainment expenses and $13.8 million in advertising and promotion expenses, both primarily due to lower activity levels, and by a prior year litigation settlement.
General, administrative and other operating expenses increased $19.7 million in fiscal year 2019 primarily due to a $13.9 million litigation settlement and higher third-party service fees and professional fees. Third-party fees primarily for sub-advisory and fund administration services increased $13.7 million, including $8.6 million from the recognition of certain payments reimbursed by funds as expense upon adoption of new revenue recognition accounting guidance on October 1, 2018. Professional fees increased $10.6 million primarily related to intangible assets and contingent consideration,the acquisition of BSP. The increases were partially offset by higher consolidated SIPs, advertising and promotion, and travel and entertainment expenses. Definite-lived intangible asset impairment decreased $18.6decreases of $11.1 million and amortizationin contingent consideration expense decreased $6.5 million, both primarily resulting from a prior-year impairment related tofor the K2 Advisors Holdings, LLC (“K2”) acquisition. Contingent consideration expense decreased $12.8 million due to revised estimates of K2s future revenuesacquisition and profits and a decline in other acquisition-related AUM. The decreases were partially offset by increases of $9.8 million in consolidated SIPs expenses, $6.7$8.6 million in advertising and promotion expenses and $4.5 million in travel and entertainment expenses.promotion.
General, administrative and other operating expenses decreased $8.4 million in fiscal year 2016 primarily due to lower levels of travel and entertainment, contingent consideration expense, and advertising and promotion, partially offset by higher levels of net intangible asset expenses, consolidated SIPs expenses, professional fees and third-party servicing fees. Corporate cost reduction initiatives resulted in decreases of $14.7 million in travel and entertainment expenses and $10.6 million in advertising and promotion expenses. Contingent consideration expense decreased $14.5 million primarily due to revised estimates of K2s future revenues and profits. Net expenses from definite-lived intangible assets, primarily related to the K2 acquisition, increased $10.3 million as $20.0 million of increased impairment due to higher investor redemptions, lower estimates of future sales and renegotiations of certain investment management fees was offset by a related $9.7 million decrease in amortization. Consolidated SIPs expenses increased $9.0 million, professional fees increased $6.2 million related to various corporate activities, and third-party service fees increased $5.5 million primarily due to higher sub-advisory expenses.
We are committed to investing in advertising and promotion in response to changing business conditions, and to advance our products where we see continued or potential new growth opportunities. As a result of potential changes in our strategic marketing campaigns, the level of advertising and promotion expenses may increase more rapidly, or decrease more slowly, than our revenues.




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OTHER INCOME (EXPENSES)
Other income (expenses) consisted of the following:
(in millions)       2017
vs. 2016
 2016
vs. 2015
       2020 vs. 2019 2019 vs. 2018
for the fiscal years ended September 30, 2017 2016 2015  2020 2019 2018 
Investment and other income, net $336.3
 $184.0
 $40.4
 83%
355%
Investment and other income (losses), net $(38.4) $141.4
 $200.3
 NM
 (29%)
Interest expense (51.5) (49.9) (39.6) 3% 26% (33.4) (22.4) (46.3) 49% (52%)
Other Income, Net $284.8
 $134.1
 $0.8
 112% NM
Investment and other income of consolidated investment products, net 70.2
 78.8
 59.6
 (11%) 32%
Expenses of consolidated investment products (29.4) (16.9) (26.6) 74% (36%)
Other Income (Expenses), Net $(31.0) $180.9
 $187.0
 NM
 (3%)
In fiscal year 2020, the Company changed the presentation of its consolidated statements of income to include dividend and interest income and other expenses from consolidated investment products (“CIPs”) in non-operating income (expense). Amounts for the comparative prior fiscal years have been reclassified to conform to the current presentation. See Note 1 - Significant Accounting Policies in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for more information.
Investment and other income (losses), net consists primarily of gains (losses) on investments of consolidated SIPs and trading investment securities, income (losses) from equity method investees, dividend and interest income, rental income from excess owned space in our San Mateo, California corporate headquarters and dividend income, realized gains (losses) on sale of available-for-sale investment securities, andother office buildings which we lease to third parties, foreign currency exchange gains (losses)., and gains (losses) on investments held by the Company.
OtherInvestment and other income (losses), net increased $150.7decreased $179.8 million in fiscal year 20172020 primarily due to gainsthe impact of steep declines in market valuations on investments heldinvestment income, lower dividend and interest income, and foreign exchange losses, partially offset by consolidated SIPs and higher incomean increase in rental income. Losses from equity method investees and interestincreased $87.7 million, primarily related to investments in two global equity funds. Dividend income partially offset bydecreased $48.1 million primarily due to lower net gainsyields on trading investment securities and net realized gains on sale of available-for-sale securities. Investments held by consolidated SIPs generated net gains of $118.2money market funds. Net foreign currency exchange losses were $22.3 million in fiscal year 2020 as compared to net lossesgains of $13.5$13.1 million in the prior year. The gains weredecrease was primarily from higher market valuations of holdings by various global/international private equity funds and from a net increase of 20 consolidated SIPs due to adoptionthe impact of new accounting guidancethe weakening of the U.S. dollar against the Euro on October 1, 2016. Income from equity method investees increased $51.2cash and cash equivalents denominated in U.S. dollars held in Europe.
Interest income decreased $16.7 million primarily due to gains on investments held by a global macro hedge fund SIP and a global equity fund. Interest income increased $38.4 million primarily due to higherlower levels of interest ratescash equivalents and debt securities.securities and lower interest rates. The increasesdecreases were partially offset by a $37.9$10.2 million decreaseincrease in rental income due to additional leases which took effect in fiscal year 2020.
Investment and other income (losses), net gains on trading investment securitiesdecreased $58.9 million in fiscal year 2019 primarily due to lower gainslosses from fixed income SIPs held for investment purposes, partially offset by gains on corporate debt securities,equity method investees, as compared to lossesincome in the prior year, lower interest income and a $24.9 million decrease in net realizedlosses on investments held by the Company, as compared to gains on sale of available-for-sale securities. The investments in SIPs that were classified as trading securities and available-for-sale securities in the prior yearyear. These decreases were significantly reduced on October 1, 2016 as a substantial amount of the investments were in SIPs that were consolidated as a result of the new accounting guidance.
Other income, net increased $133.3 million in fiscal year 2016 primarily due tolargely offset by higher market valuations, which resulted in net investmentdividend income and gains, and higher interest income, partially offset by unfavorable impacts from foreign currency exchange and investments of consolidated SIPs.gains. Equity method investees generated incomelosses of $56.7$10.4 million as compared to lossesincome of $63.2$44.4 million in the prior year primarily due to gains onchanges in market valuations of investments held by two global equity funds and lower losses on investments held by a global macro hedge fund SIP. Trading investment securities generated net gains of $50.1 million as compared to net losses of $22.3 million in the prior year, primarily related to gains from fixed income SIPs held for investment purposes.funds. Interest income increased $25.7decreased $45.5 million primarily due to higherlower levels of cash equivalents and debt securities, and cash equivalents. These increases were partially offset by $2.9higher interest rates. Investments held by the Company generated net losses of $9.7 million primarily due to $9.0 million of foreign currency exchange net lossesother-than-temporary impairment of an available-for-sale debt security, as compared to net gains of $57.0$6.0 million in the prior yearyear. The decreases were partially offset by a $45.9 million increase in dividend income primarily due to higher yields on, and investments in, money market funds. Net foreign currency exchange gains increased $12.5 million primarily from the impact of strengthening of the U.S. dollar against the Euro on cash and cash equivalents denominated in U.S. dollars held in Europe, and $13.5Europe.
Interest expense increased $11.0 million in fiscal year 2020 primarily due to interest expense recognized on debt of Legg Mason subsequent to the acquisition. Interest expense decreased $23.9 million in fiscal year 2019 primarily due to $12.5 million of prior year costs related to early redemption of senior notes and lower debt balances.
Investment and other income of consolidated investment products, net lossesconsists of dividend and interest income and investment gains (losses) on investments held by CIPs. Expenses of consolidated SIPs as compared to net gainsinvestment products primarily consists of $18.0 million in the prior year.
fund-related expenses, including professional fees and other administrative expenses, and interest expense. Significant portions of the net gains (losses)investment and other income of consolidated SIPsinvestment products, net and expenses of consolidated investment products are offset in noncontrolling interests in our consolidated statements of income.


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Investment and other income of consolidated investment products, net decreased $8.6 million in fiscal year 2020. Net losses on investments held by CIPs increased $12.6 million primarily from holdings of various alternative funds partially offset by gains from holdings of various equity funds and a U.S. fixed income fund. This decrease was partially offset by a $4.0 million increase in dividend and interest income of CIPs.
Investment and other income of consolidated investment products, net increased $19.2 million in fiscal year 2019. Net losses on investments held by CIPs decreased $28.7 million primarily from holdings of various global/international funds and a U.S. fixed income fund. This increase was partially offset by a $9.5 million decrease in investment income of CIPs.
Expenses of consolidated investment products increased $12.5 million in fiscal year 2020, primarily due to higher expenses incurred by two alternative funds. Expenses of consolidated investment products decreased $9.7 million in fiscal year 2019, primarily due to lower expenses incurred by an equity fund and a fixed income fund.
Our investments in SIPssponsored funds include initial cash investments made in the course of launching mutual fund and other investment product offerings, as well as investments for other business reasons. The market conditions that impact our AUM similarly affect the investment income earned or losses incurred on our SIPs investments.investments in sponsored funds.


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Our cash, cash equivalents and investments portfolio by investment objectiveasset class and accounting classification at September 30, 2017,2020, excluding third-party assets of consolidated SIPs,CIPs, was as follows:
  
Accounting Classification 1
 Total Direct Portfolio
(in millions) 
Cash and Cash Equivalents and Other 2
 Trading Investments Equity Method Investments 
Direct Investments in
Consolidated SIPs
 
Cash and Cash Equivalents $8,523.3
 $
 $
 $
 $8,523.3
Investments          
Equity          
Global/international 64.4
 14.5
 707.1
 226.9
 1,012.9
United States 3.2
 0.4
 3.4
 3.3
 10.3
Total equity 67.6
 14.9
 710.5
 230.2
 1,023.2
Multi-Asset/Balanced 15.7
 5.4
 20.3
 216.5
 257.9
Fixed Income          
Tax-free 0.2
 
 
 
 0.2
Taxable          
Global/international 65.2
 271.4
 162.4
 668.7
 1,167.7
United States 36.9
 22.8
 0.3
 399.4
 459.4
Total fixed income 102.3
 294.2
 162.7
 1,068.1
 1,627.3
Total investments 185.6
 314.5
 893.5
 1,514.8
 2,908.4
Total Cash and Cash Equivalents and Investments $8,708.9
 $314.5
 $893.5
 $1,514.8
 $11,431.7
  
Accounting Classification 1
   Total Direct Portfolio
(in millions) Cash and Cash Equivalents Investments,
at
Fair Value
 Equity Method Investments 
Other
Investments
 
Direct Investments
in CIPs
 
Cash and Cash Equivalents $3,026.8
 $
 $
 $
 $
 $3,026.8
Investments            
Fixed Income 
 198.7
 139.7
 40.8
 242.9
 622.1
Equity 
 209.4
 308.9
 22.8
 67.9
 609.0
Multi-Asset 
 64.4
 50.2
 
 64.3
 178.9
Alternative 
 32.3
 183.4
 19.9
 410.2
 645.8
Total investments 
 504.8
 682.2
 83.5
 785.3
 2,055.8
Total Cash and Cash Equivalents and Investments $3,026.8
 $504.8
 $682.2
 $83.5
 $785.3
 $5,082.6
______________ 
1 
See Note 1 – Significant Accounting Policies and Note 6 – Investments in the notes to consolidated financial statements in Item 8 of Part II of this Form 10-KAnnual Report for information on investment accounting classifications.
2
Other consists of $112.7 million of available-for-sale investments and $12.8 million of investments in life settlement contracts, both of which are measured at fair value, and $60.1 million of investments carried at cost.

The percentages of direct cash, cash equivalents and investments held by our U.S. and non-U.S. operations were 20% and 80% at September 30, 2017.
Investments of consolidated SIPs are generally assigned a classification in the table above based on the investment objective of the SIP holding the securities.
TAXES ON INCOME
As a multi-national corporation, we provide many of our services from locations outsideThe Tax Act, which was enacted into law in the U.S. Some of these jurisdictions have lowerin December 2017, includes various changes to the tax rates than the U.S. Additionally, in certain countries our income is subject to reduced tax rates due to tax rulings. The mix of pre-tax income subject to these lower rates, when aggregated with income originatinglaw, including a permanent reduction in the U.S., produces a lower overall effectivecorporate income tax rate than existingfrom 35% to 21% effective January 1, 2018 and assessment of a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings. We completed our analysis of the Tax Act impact during the quarter ended December 31, 2018 with no significant adjustment to the provisional amounts previously recorded. The transition tax expense recognized in fiscal year 2018 was net of an $87.6 million tax benefit related to U.S. federal and state income tax rates.taxation of deemed foreign dividends. This benefit was reversed in fiscal year 2019 upon issuance of final regulations by the U.S. Department of Treasury.
Our effective income tax rate for fiscal year 20172020 was 29.8%22.7% as compared to 29.7%26.8% in fiscal year 20162019 and 30.5%66.5% in fiscal year 2015. The rate increase in fiscal year 2017 was primarily due to foreign earnings subject to U.S. taxes and the prior-year recognition of tax benefits in U.S. and non-U.S. jurisdictions as a result of various adjustments to unrecognized tax benefits including the expiration of statutes of limitations, substantially offset by higher net income attributable to noncontrolling interests.
2018. The rate decrease in fiscal year 20162020 was primarily due to the prior-year reversal of the tax benefit included in the transition tax related to U.S. taxation of deemed foreign dividends upon issuance of final regulations by the U.S. Department of Treasury for the Tax Act, tax benefits from capital losses subsequent to the change in corporate tax structure of a higherforeign holding company to a U.S. branch, and a statutory rate reduction enacted in India in December 2019. These decreases were partially offset by an increase in the tax rate due to a lower mix of earnings in lower tax jurisdictionsjurisdictions. The Coronavirus Aid, Relief, and Economic Security Act, which includes several corporate tax provisions and was signed into law on March 27, 2020, did not have a material impact on our income taxes. The rate decrease in fiscal year 2019 was primarily


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due to the prior year impact of the transition tax, net of the tax benefit from the revaluation of net deferred tax liabilities at the lower statutory rate, and the current year impact of the lower 21% statutory rate as compared to the prior-year blended statutory rate of 24.5%, partially offset by lower net income attributablethe reversal of the tax benefit related to noncontrolling interests.


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Thedeemed foreign dividends. Our effective income tax rate excluding the one-time impacts of the Tax Act was 21.6% and 22.7% for future reporting periods will continue to reflectfiscal years 2019 and 2018.
Our effective income tax rate reflects the relative contributions of non-U.S. earnings that are subject to reducedin the jurisdictions in which we operate, which have varying tax rates. Changes in our pre-tax income mix, tax rates and that are not currently includedor tax legislation in U.S. taxable income. Changes in tax rates in thesesuch jurisdictions may affect our effective income tax rate and net income.
SUPPLEMENTAL NON-GAAP FINANCIAL MEASURES
As supplemental information, we are providing performance measures for “adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share,” each of which is based on methodologies other than generally accepted accounting principles (“non-GAAP measures”). Management believes these non-GAAP measures are useful indicators of our financial performance and may be helpful to investors in evaluating our relative performance against industry peers as these measures exclude the impact of CIPs and mitigate the margin variability related to sales and distribution revenues and expenses across multiple distribution channels globally. These measures also exclude performance-based investment management fees which are fully passed through as compensation and benefits expense per the terms of a previous acquisition by Legg Mason and have no impact on net income. These non-GAAP measures also exclude acquisition-related expenses, certain items which management considers to be nonrecurring, unrealized investment gains and losses included in investment and other income (losses), net, and the related income tax effect of these adjustments, as applicable. These non-GAAP measures also exclude the impact on compensation and benefits expense which is offset by gains and losses in investment and other income (losses), net on investments made to fund deferred compensation plans and on seed investments under certain historical revenue sharing arrangements.
“Adjusted operating income,” “adjusted operating margin,” “adjusted net income” and “adjusted diluted earnings per share” are defined below, followed by reconciliations of operating income, operating margin, net income attributable to Franklin Resources, Inc. and diluted earnings per share on a U.S. GAAP basis to these non-GAAP measures. Non-GAAP measures should not be considered in isolation from, or as substitutes for, any financial information prepared in accordance with U.S. GAAP, and may not be comparable to other similarly titled measures of other companies. Additional reconciling items may be added in the future to these non-GAAP measures if deemed appropriate.
Adjusted Operating Income
We define adjusted operating income as operating income adjusted to exclude the following:
Elimination of operating revenues upon consolidation of investment products.
Acquisition-related retention compensation.
Impact on compensation and benefits expense from gains and losses on investments related to Legg Mason deferred compensation plans and seed investments, which is offset in investment and other income (expense), net.
Other acquisition-related expenses including professional fees and fair value adjustments related to contingent consideration liabilities.
Amortization and impairment of intangible assets and goodwill.
Special termination benefits related to workforce optimization initiatives related to the acquisition of Legg Mason in fiscal year 2020, and voluntary separation and workforce reduction initiatives of 4.5% of our global workforce in fiscal year 2019.


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Adjusted Operating Margin
We calculate adjusted operating margin as adjusted operating income divided by adjusted operating revenues. We define adjusted operating revenues as operating revenues adjusted to exclude the following:
Acquisition-related performance-based investment management fees which are passed through as compensation and benefits expense.
Sales and distribution fees and a portion of investment management fees allocated to cover sales, distribution and marketing expenses paid to the financial advisers and other intermediaries who sell our funds on our behalf.
Elimination of operating revenues upon consolidation of investment products.
Adjusted Net Income
We define adjusted net income as net income attributable to Franklin Resources, Inc. adjusted to exclude the following:
Activities of CIPs, including investment and other income (losses), net, other expenses and income (loss) attributable to noncontrolling interests, net of revenues eliminated upon consolidation of investment products.
Acquisition-related retention compensation.
Other acquisition-related expenses including professional fees and fair value adjustments related to contingent consideration liabilities and the market-based component of retention awards.
Amortization and impairment of intangible assets.
Impairment of goodwill and write off of noncontrolling interests related to the wind down of a recently acquired business.
Special termination benefits related to workforce optimization initiatives related to the acquisition of Legg Mason in fiscal year 2020, and voluntary separation and workforce reduction initiatives of 4.5% of our global workforce in fiscal year 2019.
Net gains or losses on investments related to Legg Mason deferred compensation plans which are not offset by compensation and benefits expense.
Unrealized investment gains and losses included in investment and other income (losses), net, other than those that are offset by compensation and benefits expense.
Interest expense for amortization of Legg Mason debt premium from acquisition-date fair value adjustment.
Net income tax expense of the above adjustments based on the respective blended rates applicable to the adjustments.
Adjusted Diluted Earnings Per Share
We define adjusted diluted earnings per share as diluted earnings per share adjusted to exclude the per share impacts of the adjustments applied to net income in calculating adjusted net income.
In calculating adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share, we adjust for activities of CIPs because the impact of consolidated products are not considered reflective of the underlying results of our operations. We adjust for acquisition-related retention compensation, other acquisition-related expenses, amortization and impairment of intangible assets and goodwill, the write-off of noncontrolling interests, and interest expense for amortization of the Legg Mason debt premium to facilitate comparability of our operating results with the results of other asset management firms. We adjust for special termination benefits related to workforce optimization initiatives related to the acquisition of Legg Mason in fiscal year 2020 and certain voluntary separation and workforce reduction initiatives because these items are deemed nonrecurring. In calculating adjusted net income and adjusted diluted earnings per share, we adjust for unrealized investment gains and losses included in investment and other income (losses), net and net gains or losses on investments related to Legg Mason deferred compensation plans which are not offset by compensation and benefits expense because these items primarily relate to seed and strategic investments which have been and are generally expected to be held long term.


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The calculations of adjusted operating income, adjusted operating margin, adjusted net income and adjusted diluted earnings per share are as follows:
(in millions) 2020 2019 2018
for the fiscal years ended September 30,  
Operating income $1,048.9
 $1,466.9
 $2,028.2
Add (subtract):      
Elimination of operating revenues upon consolidation of investment products¹ 23.6
 30.7
 35.2
Acquisition-related retention 195.8
 63.7
 7.9
Compensation and benefits expense from gain on deferred compensation and seed investments, net 1.2
 
 
Other acquisition-related expenses 57.4
 9.4
 14.7
Amortization of intangible assets 54.0
 14.7
 1.8
Impairment of goodwill and intangible assets 55.4
 13.3
 5.7
Special termination benefits 54.8
 55.5
 
Adjusted operating income $1,491.1
 $1,654.2
 $2,093.5
       
Total operating revenues $5,566.5
 $5,669.4
 $6,204.5
Add (subtract):      
Acquisition-related pass through performance fees (9.4) 
 
Sales and distribution fees (1,362.0) (1,444.6) (1,599.8)
Allocation of investment management fees for sales, distribution and marketing expenses (341.1) (375.0) (439.9)
Elimination of operating revenues upon consolidation of investment products¹ 23.6
 30.7
 35.2
Adjusted operating revenues $3,877.6
 $3,880.5
 $4,200.0
       
Operating margin 18.8% 25.9% 32.7%
Adjusted operating margin 38.5% 42.6% 49.8%


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(in millions, except per share data) 2020 2019 2018
for the fiscal years ended September 30,  
Net income attributable to Franklin Resources, Inc. $798.9
 $1,195.7
 $764.4
Add (subtract):      
Net income of consolidated investment products¹ (4.6) (3.7) (5.8)
Acquisition-related retention 195.8
 63.7
 7.9
Other acquisition-related expenses 58.6
 9.4
 14.5
Amortization of intangible assets 54.0
 14.7
 1.8
Impairment of goodwill and intangible assets 55.4
 13.3
 5.7
Special termination benefits 54.8
 55.5
 
Net gains on deferred compensation plan investments not offset by compensation and benefits expense (0.1) 
 
Unrealized investment losses included in investment and other income (losses), net 221.0
 20.0
 15.3
Interest expense for amortization of debt premium (4.7) 
 
Write off of noncontrolling interests (16.7) 
 
Net income tax expense of adjustments (101.4) (37.3) (5.7)
Adjusted net income $1,311.0
 $1,331.3
 $798.1
       
Diluted earnings per share $1.59
 $2.35
 $1.39
Adjusted diluted earnings per share 2.61
 2.62
 1.45
__________________
1
The impact of consolidated investment products is summarized as follows:
(in millions) 2020 2019 2018
for the fiscal years ended September 30,  
Elimination of operating revenues upon consolidation $(23.6) $(30.7) $(35.2)
Other income, net 33.6
 39.8
 18.6
Less: income (loss) attributable to noncontrolling interests 5.4
 5.4
 (22.4)
Net income $4.6
 $3.7
 $5.8
LIQUIDITY AND CAPITAL RESOURCES
Cash flows were as follows:
(in millions)            
for the fiscal years ended September 30, 2017 2016 2015 2020 2019 2018
Cash Flow Data      
Operating cash flows $1,135.4
 $1,727.7
 $2,252.0
 $1,021.4
 $201.6
 $2,229.7
Investing cash flows 52.0
 192.2
 248.9
 (3,243.1) (1,077.1) (290.4)
Financing cash flows (956.0) (1,800.7) (1,612.2) 194.2
 (40.5) (3,761.7)
Net cash provided by operating activities increased in fiscal year 2020 primarily due to lower net purchases of investments by CIPs, decreases in investments, net, decreases in receivables and other assets, and a smaller decline in taxes payable, partially offset by decreases in accounts payable and accrued expenses, and decreases in net income. Net cash used in investing activities increased as compared to the prior year, primarily due to higher cash paid for acquisitions, and net purchases of investments by CLOs, partially offset by net consolidation of CIPs as compared to net deconsolidation in the prior year, higher net liquidation of our investments as compared to the prior year, and lower net additions of property, plant and equipment. Net cash provided by financing activities, as compared to net cash used in the prior year, primarily resulted from proceeds from debt of CIPs and lower repurchases of stock, partially offset by lower net subscriptions in CIPs by noncontrolling interests and payments on debt by CIPs.


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Net cash provided by operating activities decreased in fiscal year 20172019 primarily due to a larger net increase in trading securitiesactivities of consolidated SIPs. Net cash provided by investing activities decreased mainly due toCIPs which had net purchases of the Companys investments as compared to net liquidations in the prior year,year. Net cash used in investing activities increased primarily due to cash paid for BSP and the adoptionhigher net additions of property and equipment primarily related to construction of two new accounting guidance.buildings at our corporate headquarters campus in San Mateo, California and a purchased office building in Poznan, Poland. Net cash used in financing activities decreased primarily due to net subscriptions in consolidated SIPs by noncontrolling interests, as compared to net distributions in the prior year,lower dividends paid on, and lower repurchases of, common stock, partially offset by payments on the Companys debt, higher payments on debt by consolidated SIPs and prior-year proceeds from a loan.
Net cash provided by operating activities decreased in fiscal year 2016 primarily due to a decrease in net income and losses from investments in equity method investees as compared to income in the prior year. Net cash provided by investing activities decreased mainly due to lower liquidations, net of purchases, of the Companys investments and investments of consolidated SIPs, and higher net additions of property and equipment, partially offset by higher net liquidations of other investments by consolidated SIPs. Net cash usedsubscriptions in financing activities increased primarily due to higher repurchases of common stock, prior-year proceeds from issuance of debt, net of repayments, and net distributions from consolidated SIPsCIPs by noncontrolling interests, as compared to net subscriptions in the prior year, partially offset by lower dividends paid on common stock.and a prior-year debt payment.
The assets and liabilities of our consolidated SIPsCIPs attributable to third-party investors do not impact our liquidity and capital resources. We have no right to the SIPs'CIPs’ assets, other than our direct equity investment in them and investment management and other fees earned from them. The debt holders of the consolidated SIPsCIPs have no recourse to our assets beyond the level of our direct investment, therefore we bear no other risks associated with the SIPs'CIPs’ liabilities. Accordingly, the assets and liabilities of our consolidated SIPs,CIPs, other than our direct investments in them, are excluded from the amounts and discussion below.
Our liquid assets and debt consisted of the following:
(in millions)      
as of September 30, 2017 2016 2015
Assets      
Cash and cash equivalents $8,523.3
 $8,247.1
 $8,184.9
Receivables 767.8
 746.4
 816.5
Investments 1,995.2
 1,896.7
 2,105.8
Total Liquid Assets $11,286.3
 $10,890.2
 $11,107.2
       
Liability      
Debt $1,044.2
 $1,401.2
 $1,348.0


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(in millions)      
as of September 30, 2020 2019 2018
Assets      
Cash and cash equivalents $3,026.8
 $5,803.4
 $6,610.8
Receivables 1,114.8
 740.0
 733.7
Investments 982.2
 2,029.4
 2,130.6
Total Liquid Assets $5,123.8
 $8,572.8
 $9,475.1
       
Liability      
Debt $3,017.1
 $696.9
 $695.9
Liquidity
Liquid assets consist of cash and cash equivalents, receivables and certain investments. Cash and cash equivalents at September 30, 2020 primarily consist of debt instruments with original maturities of three months or less at the purchase date, money market funds time deposits with maturities of three months or less, and deposits with financial institutions. Liquid investments consist of trading and available-for-sale securities, investments in equity method investees consisting of mutual fund SIPs,sponsored and other funds, direct investments in redeemable consolidated SIPs,CIPs, other equity and debt securities, and time deposits with maturities greater than three months.
Cash and cash equivalents at September 30, 2017 increased primarily due to net cash provided by operating and investing activities, partially offset by net cash used in financing activities.
We utilize a significant portion of our liquid assets to satisfy operational and regulatory requirements and fund capital contributions relating to our SIPs.sponsored and other products. Certain of our subsidiaries are required by our internal policy or regulation to maintain minimum levels of cash and/or capital, which are partially maintained by retaining cash and cash equivalents. As a result, such subsidiaries may be restricted in their ability to transfer cash to their parent companies. Also, as a multi-national corporation, we operate in various locations outside of the U.S. Certain of our non-U.S. subsidiaries are subjectLiquid assets used to satisfy these purposes were $3,290.9 million at September 30, 2020 and $3,429.0 million at September 30, 2019, including $316.6 million and $263.3 million that was restricted by regulatory or contractual repatriation restrictions or requirements. Such restrictions and requirements limit our ability to transfer cash between various international jurisdictions, including repatriation to the U.S. Should we require more capital in the U.S. than is generated domestically,available for use, we could elect to reduce the level of discretionary activities, such as share repurchases or investments in sponsored and other products, or we could elect to repatriate future earnings from non-U.S. jurisdictions or raise capital through debt or equity issuance. Certain of theseThese alternatives could result in higher effective tax rates, increased interest expense, decreased dividend or interest income, or other dilution to our earnings. At September 30, 2017, our U.S. and non-U.S. entities held $861.8 million and $2,620.1 million of liquid assets to satisfy operational and regulatory requirements and fund capital contributions to our SIPs, as compared to $874.6 million and $2,220.8 million held at September 30, 2016. Included in these amounts were U.S. and non-U.S. liquid assets that were restricted from transfer to Franklin and other subsidiaries of $4.1 million and $163.3 million at September 30, 2017 and $4.7 million and $345.7 million at September 30, 2016.
Capital Resources
We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from operations, the ability to issue debt or equity securities and borrowing capacity under our uncommitted private placement program.
In prior fiscal years, we issued senior unsecured unsubordinated notes for general corporate purposes, to redeem outstanding notes and to finance an acquisition. We repaid $300.0 million of these notes upon maturity in September 2017. At September 30, 20172020, $1,049.0$699.5 million of the notes were outstanding with an aggregate face valueprincipal amount due of $1,050.0 million.$700.0 million. The notes were issued at fixed interest rates and consist of $350.0300.0 million at 4.625%2.800% per annum which mature in 2020, $300.0 million at 2.800% per annum which mature in 2022, and $400.0 million at 2.850% per annum which mature in 2025.
Interest on the

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Additionally, Legg Mason has outstanding senior and junior unsecured unsubordinated notes iswith an aggregate principal amount due of $2,000.0 million at September 30, 2020. The notes have fixed interest rates from 3.950% to 6.375% with interest payable semi-annually. semi-annually for senior notes and quarterly for junior notes, and have an aggregate carrying value, inclusive of unamortized premium, of $2,319.7 million at September 30, 2020.
The senior notes contain an optional redemption feature that allows us to redeem each series of notes prior to maturity in whole or in part at any time, at a make-whole redemption price. The junior notes due March 2056 and September 2056 may only be redeemed in whole prior to March 2021 and September 2021, respectively. The indentures governing the senior notes contain limitations on our ability and the ability of our subsidiaries to pledge voting stock or profit participating equity interests in our subsidiaries to secure other debt without similarly securing the notes equally and ratably. TheIn addition, the indentures also include requirements that must be met if we consolidate or merge with, or sell all of our assets to, another entity.
In March 2016, we borrowed 6.3 billion Indian Rupees ($93.4 million) at a fixed interest rate of 9.89% with a one-year term to purchase certain securities from SIPs domiciled in India. The loan was secured by a standby letter of credit for 6.5 billion Indian Rupees ($96.6 million) collateralized by a $116.0 million time deposit. The loan agreement was amended in February 2017 with a revised maturity of March 2018, and the loan was fully paid in September 2017.
We were in compliance with all debt covenants at September 30, 2017.2020.
On October 19, 2020, the Company completed its offering and sale of the 1.600% Notes due 2030 with a principal amount of $750.0 million. The notes contain an optional redemption feature that allows the Company to redeem each series of notes prior to maturity in whole or in part at any time, at a make-whole redemption price.
At September 30, 2017,2020, 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.


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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. If we are unable to access capital markets in a timely manner, our business could be adversely impacted.
Uses of Capital
We expect that our main uses of cash will be to invest in and grow our business, acquire shares of our common stock,pay stockholder dividends, invest in our SIPs, fund propertyproducts, pay income taxes and equipment purchases, pay operating expenses of the business, enhance technology infrastructure and business processes, pay stockholder dividendsrepurchase shares of our common stock, fund property and equipment purchases, and service and repay debt. While we expect to continue to repurchase shares to offset dilution from share-based compensation, and service debt.expect to continue to repurchase shares opportunistically from time to time, we will likely spend more of our post-dividend free cash flow investing in our business, including seed capital and acquiring resources to help grow our investment teams, affiliates and operations.
We repatriate the earnings in excess of regulatory, capital or operational requirements for all non-U.S. subsidiaries.
We declare dividends on a quarterly basis. We declared regular cash dividends of $0.80$1.08 per share ($0.200.27 per share per quarter) in fiscal year 20172020, and $0.72of $1.04 per share ($0.180.26 per share per quarter) in fiscal year 20162019. We currently expect to continue paying comparable regular cash dividends on a quarterly basis to holders of our common stock depending upon earnings and other relevant factors.
We maintain a stock repurchase program to manage our equity capital with the objective of maximizing shareholder value. Our stock repurchase program is effected through regular open-market purchases and private transactions in accordance with applicable laws and regulations.regulations, and is not subject to an expiration date. The size and timing of these purchases will depend on business conditions, price, market and other factors. During fiscal years 20172020 and 2016,2019, we repurchased 19.19.0 million and 36.624.6 million shares of our common stock at a cost of $771.5219.4 million and $1,324.3756.3 million. At September 30, 2017, 31.62020, 38.2 million shares remained available for repurchase under the program, which is not subject to an expiration date.authorization of 80.0 million shares approved by our Board of Directors in April 2018.
We redeemed $636.6 million, net of investments, in our sponsored products during fiscal year 2020, and invested $4.2$128.0 million, net of redemptions, in our SIPs during fiscal year 2017,2019.
On July 31, 2020, we acquired all of the outstanding common stock of Legg Mason for a purchase consideration of $4.5 billion in cash and redeemed $514.2 million, net$0.2 billion related to the settlement of investments, from our SIPs duringhistorical compensation arrangements. During the fiscal year 2016.2020, we completed additional acquisitions with a total purchase consideration of $94.8 million in cash, including the acquisitions of Pennsylvania Trust Company, AdvisorEngine Inc., Athena Capital Advisors, LLC and Onsa, Inc. On February 1, 2019, we acquired all of the outstanding ownership interests in BSP for a purchase consideration of $720.1 million in cash.


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In February 2020, we purchased an office building in Edinburgh, Scotland with a total cost of approximately $40 million. During fiscal year 2019, we completed construction of two new buildings at our corporate headquarters campus in San Mateo, California with a total cost of approximately $130 million and purchased an office building in Poznan, Poland with a total cost of approximately $86 million. The buildings are used in our business operations, and portions of the Edinburgh building and California campus are leased to third parties.
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. Current increased liquidity risks and redemptions in these funds have required, and may continue to require, increased cash in the form of loans or other lines of credit to help settle redemptions and for other related purposes. While we have no legal or contractual obligation to do so, we mayhave in certain instances voluntarily electelected to provide the funds with direct or indirect financial support based on our business objectives. In April 2020, we authorized loans aggregating up to 5.0 billion Indian Rupees (approximately $66.2 million) to certain sponsored funds in India that had experienced increased liquidity risks and redemptions and that are subject to the decision of the fund’s trustee to wind up the funds. See Note 16 – Commitments and Contingencies in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for further information. The loans have a fixed interest rate of 8.0% per annum, are secured by the funds’ assets and are due upon demand. At September 30, 2020, the loans have an aggregate outstanding balance of $42.4 million, and the remaining authorization available is approximately $4.9 million. We did not provide financial or other support to our SIPssponsored funds during fiscal year 20172019. During fiscal year 2016, we purchased $182.7 million of certain debt securities from six SIPs domiciled in India in order to provide additional liquidity to the SIPs.




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CONTRACTUAL OBLIGATIONS AND COMMITMENTS AND CONTINGENT LIABILITYLIABILITIES
The following table summarizes our contractual obligations commitments and contingent liability.commitments.
(in millions) Payments Due by Fiscal Year
as of September 30, 2017 2018 2019 2020 2021 2022 There-after Total
Debt              
Principal 1
 $
 $
 $350.0
 $
 $300.0
 $400.0
 $1,050.0
Interest 36.0
 36.0
 36.0
 19.8
 19.8
 28.5
 176.1
Operating leases 44.7
 41.1
 35.6
 31.4
 28.4
 185.8
 367.0
Purchase obligations 2
 161.4
 191.6
 24.6
 9.1
 4.7
 5.9
 397.3
Total Contractual Obligations 242.1
 268.7
 446.2
 60.3
 352.9
 620.2
 1,990.4
Committed capital contributions 3
 73.5
 
 
 
 
 
 73.5
Contingent consideration liability 4
 28.0
 30.2
 
 
 
 
 58.2
Total Contractual Obligations, Commitments and Contingent Liability $343.6
 $298.9
 $446.2
 $60.3
 $352.9
 $620.2
 $2,122.1
(in millions) Payments Due by Fiscal Year
as of September 30, 2020 2021 2022 2023 2024 2025 There-
after
 Total
Debt1
              
Principal $
 $300.0
 $
 $250.0
 $400.0
 $1,750.0
 $2,700.0
Interest 125.2
 125.2
 116.8
 116.8
 101.2
 1,913.9
 2,499.1
Operating leases 134.8
 131.5
 125.4
 89.0
 50.2
 153.5
 684.4
Purchase obligations2
 186.7
 112.4
 60.9
 46.2
 28.7
 8.2
 443.1
Purchase consideration obligation3
 47.9
 31.9
 
 
 
 
 79.8
Total Contractual Obligations 494.6
 701.0
 303.1
 502.0
 580.1
 3,825.6
 6,406.4
Committed capital contributions4
 335.6
 
 
 
 
 
 335.6
Contingent consideration liabilities5
 1.7
 10.2
 8.1
 7.1
 
 
 27.1
Federal transition tax liability6
 53.3
 74.1
 74.1
 138.9
 185.2
 231.6
 757.2
Total Contractual Obligations, Commitments, and Contingent Liabilities $885.2
 $785.3
 $385.3
 $648.0
 $765.3
 $4,057.2
 $7,526.3
__________________ 
1 
Debt principal represents maturity amount.amounts due on maturity. Excludes 1.600% notes with a principal amount of $750.0 million due 2030 which were issued on October 19, 2020. See Note 22 – Subsequent Event in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report.
2 
Purchase obligations include contractual amounts that will be due to purchase goods and services to be used in our operations and may be canceled at earlier times than those indicated under certain conditions that may include termination fees.
3 
Represents purchase consideration payments to be made in connection with the acquisition of Legg Mason.
4
Committed capital contributions relate to discretionary commitments to invest in SIPssponsored funds and other investment products.products and entities, including CIPs. Generally, the timing of the funding of these commitments is unknown as they are callable on demand at any time prior to the expiration of the commitment periods.
45 
ContingentThe amount of contingent consideration liabilities reflected for any year represents the expected settlement amounts as of September 30, 2020. The fair value of the aggregate contingent consideration liability relates toat September 30, 2020 totaled $25.3 million and is included in other liabilities in the Company’s commitment to acquireconsolidated balance sheet.
6
Transition tax on the remaining interests in K2.deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings under the Tax Act.
The debt holders of consolidated SIPsCIPs have no recourse to our assets beyond the level of our direct investments, therefore we bear no risks associated with these entities liabilities and have not included them in the table above. See Note 911 – Consolidated Sponsored Investment Products in the notes to consolidated financial statements in Item 8 of Part II of this Form 10-K.Annual Report.
At September 30, 20172020, our consolidated balance sheet included liabilities for unrecognized tax benefits of $81.1$262.9 million and related accrued interest of $10.4$24.6 million (see Note 1114 – Taxes on Income in the notes to consolidated financial statements in Item 8 of Part II of this Form 10-K)Annual Report). Because of the high degree of uncertainty regarding the timing and amounts of future cash outflows, unrecognized tax benefits and related accrued interest haveare not been included in the table above.
CRITICAL ACCOUNTING POLICIES
Our consolidated financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These estimates, judgments and assumptions are affected by our application of accounting policies. Further, global concerns about the COVID-19 pandemic have adversely affected, and we expect will continue to adversely affect, our business, financial condition and results of operations including the estimates and assumptions made by management. Actual results maycould differ from those estimates under different assumptions.the estimates. Described below are the accounting policies that we believe are most critical to understanding our financial position and results of operations. For additional information about our accounting policies, see Note 1 – Significant Accounting Policies in the notes to consolidated financial statements in Item 8 of Part II of this Form 10-K.Annual Report.


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Consolidation
We consolidate our subsidiaries and SIPsinvestment products in which we have a controlling financial interest. We have a controlling financial interest when we own a majority of the voting interest in a voting interest entity (“VOE”) or are the primary beneficiary of a variable interest entity (“VIE”).


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A VIE is an entity in which the equity investment holders have not contributed sufficient capital to finance its activities or do not have defined rights and obligations normally associated with an equity investment. The assessment of whether an entity is a VIE or VOE involves judgment and analysis on a structure-by-structure basis. When performing the assessment we consider factors such as the entitys legal organization and capital structure, the rights of the equity investment holders and our contractual involvement with and ownership interest in the entity. OurSubstantially all of our VIEs are all investment entitiesproducts and our variable interests consist of our equity ownership interests in and certain investment management fees earned from these entities.products.
We are the primary beneficiary of a VIE if we have the power to direct the activities that most significantly impact the VIEs economic performance and the obligation to absorb losses of or right to receive benefits from the VIE that could potentially be significant to the VIE. Investment management fees earned from VIEs are excluded from the primary beneficiary determination if they are deemed to be at market and commensurate with service. The key estimates and assumptions used in the analyses include the amount of AUM and the life of the investment product. These estimates and assumptions are subject to variability. For example, AUM is impacted by market volatility and the level of sales, redemptions, contributions, withdrawalsdistributions to investors and dividend reinvestments of mutual fund shares that occur daily. In addition, third-party purchases and redemptions, which are outside of our control, can impact our evaluation.reinvested distributions. There is judgment involved in assessing whether we have the power to direct the activities that most significantly impact VIEs’ economic performance and the obligation to absorb losses of or right to receive benefits from VIEs that could potentially be significant to the VIEs. As of September 30, 20172020, we were the primary beneficiary of 37 SIP43 investment product VIEs.
Fair Value MeasurementsBusiness Combinations
We use a three-levelBusiness combinations are accounted for by recognizing the acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition-date estimated 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. The three levels of fair value hierarchy are set forth below. Our assessmentvalues. Any excess of the hierarchy levelpurchase consideration over the acquisition-date fair values of thethese identifiable assets orand liabilities measured at fair value is determined based on the lowest level input that is significant torecognized as goodwill. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions. During the measurement in its entirety.
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities, which may include published net asset values (“NAV”) for fund products.
Level 2Observable inputs other than Level 1 quoted prices, such as non-binding quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or corroborated by observable market data. Level 2 quoted prices are generally obtained from two independent third-party brokers or dealers, including prices derived from model-based valuation techniques for which the significant assumptions are observable in the market or corroborated by observable market data. Quoted prices are validated through price variance analysis,period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of third-party vendors.
Level 3Unobservable inputs that are supported by little or no market activity. These inputs require significant management judgment and reflect our estimation of assumptions that market participants would use in pricing the asset or liability.
Quoted market prices may be adjusted if events occur, such as significant price changes in U.S.-traded market proxies after the close of corresponding foreign markets, trade halts or suspensions, or unscheduled market closures. The market proxies consist of correlated country-specific exchange-traded securities, such as futures, American Depositary Receipts indices or exchange-traded funds. The price adjustments are recorded in earnings.
Intangible assets acquired in business combinations consist primarily determined based on third-party factors derived from model-based valuation techniques for which the significant assumptions are observable in the market.


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investment management contracts and trade names. The fair values for Level 3 assets and liabilities are determined using various methodologies in accordance with our global valuation and pricing policy which defines valuation and pricing conventions for each security type. We may employ a market-based method, using purchase multiples observed for comparable third-party transactions, valuations of comparable entities, projected operating results of the investee entity or subsequent financing transactions entered into by the investee entity. If the inputs for a market-based methodacquired management contracts are not available, we utilize an income-based method, which considersbased on the net present value of anticipatedestimated future cash flows attributable to the contracts, which include significant assumptions about forecasts of the investment. AAUM growth rate, pre-tax profit margin, discount may be applied due to the nature or duration of any restrictions on the disposition of the investment. We reviewrate, average effective fee rate and approve the market-based and income-based methods on a periodic basis for changes that would impact the unobservable inputs incorporated into the valuation process. The fair value measurements from these methods are further validated through price variance analysis, subsequent sales testing and market comparable sales.
We record a substantial amount of our investments at fair value or amounts that approximate fair value on a recurring basis. Investments in fund products for which fair value is estimated using NAV as a practical expedient (when the NAV is available to us as an investor but is not publicly available) are not classified in the fair value hierarchy. Fair values are estimated for disclosure purposes for financial instruments that are not measured at fair value.
As of September 30, 2017, Level 3 assets represented 13% of total assets measured at fair value, substantially all of which related to consolidated SIPs investments in equity and debt securities and our direct investments in debt securities that are not traded in active markets. There was one Level 3 liability, a contingent consideration liability which represented 85% of total liabilities measured at fair value. There were insignificant transfers out of Level 3 and no transfers into Level 3 during fiscal year 2017.
Following are descriptions of the significant assets and liability measured at fair value and their fair value methodologies.
Investment Securities, Trading consist of corporate debt securities, nonconsolidated SIPs and other debt and equity securities.effective tax rate. The fair value of the corporate debt securitiestrade names is determined using market pricing. The fair values of all SIPs and certain other equity securities are determinedthe relief from royalty method based on their published NAV. The fair values of certain other debt and equity securities are determined using independent third-party broker or dealer price quotes. The fair value of certain other debt securities is determined based on discounted cash flows using significant unobservable inputs.
Investment Securities, Available-for-Sale consist primarily of nonconsolidated SIPs and to a lesser extent, debt and other equity securities. The fair value of the SIPs is determined based on their published NAV. The fair value of the debt securities is primarily determined using independent third-party broker or dealer price quotes. The fair value of other equity securities is determined using quoted market prices.
Investment securities, available-for-sale are evaluated for other-than-temporary impairment on a quarterly basis when the cost of an investment exceeds its fair value. We consider many factors, including the severity and duration of the decline in fair value below cost, our intent and ability to hold the security for a period of time sufficient for an anticipated recovery in fair value, and the financial condition and specific events related to the issuer.
Investments of Consolidated SIPs consist of trading securities and other investments that are not generally traded in active markets. The fair value of the trading securities is determined using quoted market prices, or independent third-party broker or dealer price quotes if quoted market prices are not available.
The investments that are not generally traded in active markets consist of debt and equity securities of entities in emerging markets and fund products. The fair values of the debt and equity securities are determined using significant unobservable inputs in either a market-based or income-based approach. The fair value of the fund products is determined using NAV as a practical expedient.
Contingent Consideration Liability consists of the expected future payments related to our commitment to acquire the remaining interests in K2 and is included in other liabilities in the consolidated balance sheet. The liability is determined using an income-based method which considers the net present value of anticipatedestimated future cash flows, which include significant assumptions about royalty rate, revenue growth rate, discount rate and effective tax rate. Our estimates are based on estimated future revenueassumptions believed to be reasonable, but are inherently uncertain and profitsunpredictable and, timing of payments.as a result, may differ from actual results.


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Goodwill and Other Intangible Assets
Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. OtherThe Company’s management contract intangible assets consist of investment management contracts resulting from business acquisitions. We amortize these intangible assetsare amortized over their estimated useful lives, which range from fivethree to 15fifteen years, using the straight-line method, unless the asset is determined to have an indefinite useful life. Indefinite-lived intangible assets represent contracts to manage investment assets for which there is no foreseeable limit on the contract period. Trade names are amortized over their estimated useful lives which range from five to twenty years using the straight-line method.
We make significant estimatesOn July 31, 2020, the Company acquired all outstanding shares of Legg Mason common stock for purchase consideration of $4.5 billion in cash and assumptions when valuing$0.2 billion related to the settlement of historical compensation arrangements, and recognized $2.3 billion of goodwill, and other$2.7 billion of indefinite-lived intangible assets in connection with the initial purchase price allocationrelated to investment management contracts and $1.4 billion of an acquired entity, as well as when evaluating goodwill and otherdefinite-lived intangible assets for impairment on an ongoing basis.primarily related to investment management contracts and trade names.
Goodwill and indefinite-lived intangible assets are tested for impairment annually and when an event occurs or circumstances change that more likely than not reduce the fair value of the related reporting unit or indefinite-lived intangible asset below its carrying value. We have one reporting unit, investment management and related services, consistent with our single operating segment, to which all goodwill has been assigned. We make significant estimates and assumptions when evaluating goodwill and other intangible assets for impairment.


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We may first assess goodwill and indefinite-lived intangible assets for qualitative factors to determine whether it is necessary to perform a quantitative impairment test. The qualitative analysis considers entity-specific and macroeconomic factors and their potential impact on the key assumptions used in the determination of the fair value of the reporting unit or indefinite-lived intangible asset. A quantitative impairment test is performed if the results of the qualitative assessment indicate that it is more likely than not that the fair value of the related reporting unit is less than its carrying value or an indefinite-lived intangible asset is impaired, or if a qualitative assessment is not performed.
The quantitative goodwill impairment test involves a two-step process. The first step compares the fair value of the reporting unit to its carrying value. If the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step is performed to compute the amount of the impairment. In the second step, impairment is computed by comparing the implied fair value of the reporting unit goodwill with the carrying value of the goodwill.
The quantitative indefinite-lived intangible assets impairment test compares Quantitative tests compare the fair value of the asset to its carrying value. If the carrying value is higher than the
The fair value, impairment is recognized in the amount of the difference in values.
In estimating the fair valuevalues of the reporting unit and indefinite-lived intangible assets we use an income approach under whichare based on the net present value of estimated future cash flows, are discounted. Our future cash flow estimateswhich include significant assumptions about the AUM growth rate, pre-tax profit margin, discount rate, average effective fee rate and effective tax rate, and discount rate, which is based on our weighted average cost of capital.rate. The most relevant of these assumptions to the determination of estimated fair value are the AUM growth rate, pre-tax profit margin and the discount rate.
We performed our annual impairment tests for goodwill and indefinite-lived intangible assets as of August 1, 20172020. We elected to performperformed a qualitative assessmenttest for goodwill and a substantial portion of the valuation of goodwill and 88% of our indefinite-lived intangible assets and concluded it is more likely than not that the fair valuesvalue of our reporting unit and the specific intangible assets exceedexceeds their carrying values.value. We performed a quantitative test for the remainingapproximately 21% of indefinite-lived intangible assets, and didrecognized $30.0 million of impairments of indefinite-lived intangible assets. The Company recognized $23.7 million of impairment of goodwill directly attributable to the Company’s decision to wind-down Onsa, Inc. which was acquired on October 24, 2019 and had not recognize any impairment because ourbeen integrated into the Company. The impairments of indefinite-lived intangible assets were primarily due to a reduction in the revenue growth rate assumption for a Benefit Street Partners’ private debt fund resulting from declines in interest rates and continued market volatility. The estimated fair values of substantially all of the other indefinite-lived intangible assets exceeded their carrying values by more than 20%47%. We estimated the discounted future cash flows for indefinite-lived intangible assets using compounded annual AUM growth rates ranging from (10.0%) to 11.6%, which were developed taking into account ongoing volatility in the capital markets, and a discount rate of 8.1%, which is based on our weighted average cost of capital. A hypothetical 200 basis point decline in the AUM growth rates or a 200 basis point increase in the discount rate would not reduce the estimated fair values of the other indefinite-lived intangible assets below their carrying values.
We subsequently monitormonitored market conditions and their potential impact on the assumptions used in the annual calculations of fair value to determine whether circumstances have changed that would more likely than not reduce the fair value of ourthe reporting unit below its carrying value, or indicate that ourthe other indefinite-lived intangible assets might be impaired. We considered, among other things, changes in our AUM and weighted-average cost of capital by assessing whether these changes would impact the reasonableness of the assumptions used in ourthe impairment tests as of August 1, 20172020. We also monitored fluctuations of our common stock per share price to evaluate our market capitalization relative to the reporting unit as a whole. Subsequent to August 1, 20172020, there were no impairments toof goodwill or indefinite-lived intangible assets as no events occurred or circumstances changed that would indicate these assets might be impaired.
We test definite-lived intangible assets for impairment quarterly. Impairment is indicated when the carrying value of an asset is not recoverable and exceeds its fair value. Recoverability is evaluated based on estimated undiscounted future cash flows using assumptions about the AUM growth rate, pre-tax profit margin, average effective fee rate and expected useful life as well as royalty rate for trade name intangible assets. The most relevant of these assumptions to determine future cash flows is the AUM growth rate. If the carrying value of an asset is not recoverable through undiscounted cash flows, impairment is recognized in the amount by which the carrying value exceeds the asset’s fair value, as determined by discounted cash flows or other methods as appropriate for the asset type. We recognized $1.7 million of impairment of definite-lived intangible assets during fiscal year 2020 related to Edinburgh Partners management contracts due to the loss of a significant mandate.
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.

Fair Value Measurements
A substantial amount of our investments is recorded at fair value or amounts that approximate fair value on a recurring basis. 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. The assessment of the hierarchy level of the assets or liabilities measured at fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety. See Note 1 – Significant Accounting Policies in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for more information on the fair value hierarchy.



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As of September 30, 2020, Level 3 assets represented 24% of total assets measured at fair value, substantially all of which related to CIPs investments in equity and debt securities, and real estate. There were $2.3 million of transfers into and $1.1 million of transfers out of Level 3 during fiscal year 2020.
The following are descriptions of the significant assets measured at fair value and their fair value methodologies.
Sponsored funds and separate accounts consist primarily of investments in nonconsolidated sponsored funds and to a lesser extent, separate accounts. Changes in the fair value of the investments are recognized as gains and losses in earnings. The fair values of funds are determined based on their published NAV or estimated using NAV as a practical expedient. The fair values of separate accounts are determined using quoted market prices, or independent third-party broker or dealer price quotes if quoted market prices are not available.
Investments related to long-term incentive plans consist primarily of investments in sponsored funds related to certain compensation plans that have certain vesting provisions. Changes in fair value are recognized as gains and losses in earnings. The fair values of the investments are determined based on the funds’ published NAV or estimated using NAV as a practical expedient.
Other equity and debt securities consist of other equity investment securities and debt securities classified as trading or available-for-sale. Changes in the fair value of other equity and trading debt securities are recognized as gains and losses in earnings. Unrealized gains and losses on available-for-sale securities are recorded net of tax as part of accumulated other comprehensive income (loss) until realized, at which time they are recognized in earnings using the average cost method. The fair values of equity securities other than funds are determined using independent third-party broker or dealer price quotes or based on discounted cash flows using significant unobservable inputs. The fair values of debt securities are determined using independent third-party broker or dealer price quotes or based on discounted cash flows using significant unobservable inputs.
Investments of CIPs consist of marketable debt and equity securities and other investments that are not generally traded in active markets. Changes in the fair value of the investments are recognized as gains and losses in earnings. The fair values of marketable securities are determined using quoted market prices, or independent third-party broker or dealer price quotes if quoted market prices are not available. The investments that are not generally traded in active markets consist of equity and debt securities of entities in emerging markets, fund products, other equity and debt instruments, real estate and loans. The fair values are determined using significant unobservable inputs in either a market-based or income-based approach, except for fund products, for which fair values are estimated using NAV as a practical expedient.
Noncontrolling interests consist of third-party equity interests in CIPs and minority interests in certain subsidiaries. Noncontrolling interests that are redeemable or convertible for cash or other assets at the option of the noncontrolling interest holders and are classified as temporary equity at fair value, except when the fair value is less than the issuance date fair value, the reported amount is the issuance date fair value. Changes in fair value of redeemable noncontrolling interest is recognized as an adjustment to retained earnings. Nonredeemable noncontrolling interests do not permit the noncontrolling interest holders to request settlement, are reported at their issuance value and undistributed net income (loss) attributable to noncontrolling interests.
The fair value of third-party equity interests in CIPs are determined based on the published NAV or estimated using NAV a practical expedient. The fair value of redeemable noncontrolling interests related to minority interest in certain subsidiaries are derived using discounted cash flows and guideline public company methodology, which include significant assumptions about forecasts of the AUM growth rate, pre-tax profit margin, discount rate and operating income multiples.
Revenues
InvestmentWe earn revenue primarily from providing investment management and related services to our customers. In addition to investment management, services include fund administration, sales and distribution, and shareholder servicing feesservicing. Revenues are recognized when our obligations related to the services are satisfied and it is probable that a significant reversal of the revenue amount would not occur in future periods. The obligations are satisfied over time as earned over the period in which services are rendered, except for performance-based investment management fees, which are recognized when earned. Sales commissions related tothe sales and distribution obligations for the sale of shares of SIPssponsored funds, which are recognizedsatisfied on trade date. InvestmentMultiple services included in customer contracts are accounted for separately when the obligations are determined to be distinct. Management judgement is involved in assessing the probability of significant revenue reversal and in the identification of distinct services.


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Fees from providing investment management fees,and fund administration services (“investment management fees”), other than performance-based fees, and distributioninvestment management fees, are determined based on a percentage of AUM, primarily on a monthly basis using daily average daily AUM.AUM, and are recognized as the services are performed over time. Performance-based investment management fees are based ongenerated when investment products’ performance exceeds targets established in customer contracts. These fees are recognized when the relatedamount is no longer probable of significant reversal and may relate to investment management contracts. Shareholder servicingservices that were provided in prior periods.
Sales and distribution fees primarily consist of upfront sales commissions and ongoing distribution fees. Sales commissions are based on contractual rates for sales of certain classes of sponsored funds and are recognized on trade date. Distribution service fees are generally calculateddetermined based on a percentage of AUM, primarily on a monthly basis using daily average AUM. As the numberfee amounts are uncertain on trade date, they are recognized over time as the amounts become known and type of accounts serviced.may relate to sales and distribution services provided in prior periods.
AUM is generally based on the fair value of the underlying securities held by SIPsinvestment products and is calculated using fair value methods derived primarily from unadjusted quoted market prices, unadjusted independent third-party broker or dealer price quotes in active markets, or market prices or price quotes adjusted for observable price movements after the close of the primary market. The fair values of the underlying securities for which market prices are not readily available are valued internally valued using various methodologies which incorporate significant unobservable inputs as appropriate for each security type.
Pricing of the securities held by SIPs is governed by our global valuation and pricing policy, which defines valuation and pricing conventions for each security type, including practices for responding to unexpected or unusual market events. As of September 30, 2017, our total AUM by fair value hierarchy level was 54% Level 1, 45% Level 2 and 1% Level 3.
As substantially all of our AUM is valued based on observable market prices or inputs, market risk is the most significant risk underlying the valuation of our AUM.
Income Taxes
Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts in the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is expected to be recovered or settled, respectively. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying values of deferred tax assets to the amount that is more likely than not to be realized. For each tax position taken or expected to be taken in a tax return, we determine whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. We recognize the accrual of interest on uncertain tax positions in interest expense and penalties in other operating expenses.
As a multinational corporation, we operate in various locations outside the U.S. and generate earnings fromworldwide. We repatriate the foreign earnings that are in excess of regulatory, capital or operational requirements of all of our non-U.S. subsidiaries. We indefinitely reinvest the undistributed earnings of all our non-U.S. subsidiaries, except for income previously taxed in the U.S. or subject to regulatory or legal repatriation restrictions or requirements. As a result, we have not recognized a provision for U.S. income taxes and a deferred income tax liability on $9.0 billion of cumulative undistributed non-U.S. earnings that are indefinitely reinvested at September 30, 2017. Changes to our policy of reinvestment or repatriation of non-U.S. earnings may have a significant effect on our financial condition and results of operations.
Loss Contingencies
We are involved in various lawsuits and claims encountered in the normal course of business. When such a matter arises and periodically thereafter, we consult with our legal counsel and evaluate the merits of the claims based on the facts available at that time. In management’s opinion, an adequate accrual has been made as of September 30, 20172020 to provide for any probable losses that may arise from such matters for which we could reasonably estimate an amount. See also Note 1216 – Commitments and Contingencies in the notes to consolidated financial statements in Item 8 of Part II of this Form 10-K.Annual Report.
NEW ACCOUNTING GUIDANCE
See Note 2 – New Accounting Guidance in the notes to consolidated financial statements in Item 8 of Part II of this Form 10-K.Annual Report.




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Selected Quarterly Financial Data (Unaudited)
(in millions, except per share data)                
Quarter ended December 31 March 31 June 30 September 30 December 31 March 31 June 30 September 30
Fiscal year 2017        
Fiscal year 20201
        
Operating revenues $1,560.8
 $1,600.6
 $1,613.9
 $1,616.9
 $1,389.2
 $1,311.2
 $1,161.1
 $1,705.0
Operating income 586.9
 555.5
 564.2
 557.7
 372.9
 339.9
 232.5
 103.6
Net income attributable to Franklin Resources, Inc. 440.2
 420.7
 410.6
 425.2
Net income attributable to Franklin Resources, Inc.2
 350.5
 79.1
 290.4
 78.9
Earnings per share                
Basic $0.77
 $0.74
 $0.73
 $0.76
 $0.70
 $0.16
 $0.58
 $0.15
Diluted 0.77
 0.74
 0.73
 0.76
 0.70
 0.16
 0.58
 0.15
Dividends declared per share $0.20
 $0.20
 $0.20
 $0.20
 $0.27
 $0.27
 $0.27
 $0.27
Common stock price per share        
High $42.18
 $44.35
 $45.60
 $47.65
Low 33.02
 39.38
 40.48
 40.95
AUM (in billions)
                
Ending $720.0
 $740.0
 $742.8
 $753.2
 $698.3
 $580.3
 $622.8
 $1,418.9
Average 722.7
 731.7
 742.1
 749.0
 693.8
 655.8
 605.0
 1,227.8
                
Fiscal year 2016        
Fiscal year 20191
        
Operating revenues $1,758.0
 $1,613.9
 $1,634.3
 $1,611.8
 $1,385.4
 $1,412.8
 $1,448.4
 $1,422.8
Operating income 653.6
 537.3
 595.4
 579.4
 385.3
 367.3
 349.2
 365.1
Net income attributable to Franklin Resources, Inc. 447.8
 360.4
 446.4
 472.1
Net income attributable to Franklin Resources, Inc.3
 275.9
 367.5
 245.9
 306.4
Earnings per share                
Basic $0.74
 $0.61
 $0.77
 $0.82
 $0.54
 $0.72
 $0.48
 $0.61
Diluted 0.74
 0.61
 0.77
 0.82
 0.54
 0.72
 0.48
 0.61
Dividends declared per share $0.18
 $0.18
 $0.18
 $0.18
 $0.26
 $0.26
 $0.26
 $0.26
Common stock price per share        
High $42.23
 $39.94
 $41.24
 $36.99
Low 34.62
 31.00
 30.56
 31.59
AUM (in billions)
                
Ending $763.9
 $742.6
 $732.1
 $733.3
 $649.9
 $712.3
 $715.2
 $692.6
Average 781.5
 737.1
 739.8
 736.4
 683.2
 688.6
 710.8
 702.0
__________________
1
In the quarter ended September 30, 2020, the Company changed the presentation of its consolidated statements of income to include dividend and interest income and other expenses from consolidated investment products in non-operating income. Amounts for the comparative prior fiscal quarters have been reclassified to conform to the current presentation. These reclassifications had no impact on previously reported net income attributable to Franklin Resources, Inc.
2
Information presented for the quarter ended September 30, 2020 includes the impact of the Legg Mason, Inc. acquisition effective July 31, 2020. See Note 3 – Acquisitions in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for more information.
3
The quarter ended June 30, 2019 includes an income tax charge of $86.4 million due to the reversal of a tax benefit recognized in fiscal year 2018 upon issuance of final regulations by the U.S. Department of Treasury.
Risk Factors
For a description of certain risk factors and other important factors that may affect us, our subsidiaries and our business, please see the description of the risk factors set forth under Item 1A of Part I of this Form 10-K,Annual Report, which is incorporated herein by reference.




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Item 7A.Quantitative and Qualitative Disclosures About Market Risk.
In the normal course of business, our financial position is subject to market risk, including, but not limited to, potential loss due to changes in the value of financial instruments including those resulting from adverse changes in interest rates, foreign currency exchange rates and market valuation. Financial instruments include, but are not limited to, investment securities and debt obligations. Management is responsible for managing market risk. Our Enterprise Risk Management Committee is responsible for providing a framework to assist management to identify, assess and manage market and other risks.
Our market risk from assets and liabilities of consolidated SIPsCIPs is limited to that of our direct equity investments in the SIPsthem and investment management fees earned from them. Accordingly, the assets and liabilities of our consolidated SIPsCIPs are excluded from the discussion below.
AUM Market Price Risk
We are exposed to market risk through our investment management and distribution fees, which are generally calculated as a percentage of the market value of AUM. Changes in equity market prices, interest rates, credit spreads, foreign exchange rates, or a combination of these factors could cause the value of AUM to decline, which would result in lower investment management and distribution fees. Our exposure to these risks is minimized as we sponsor a broad range of investment products in various global jurisdictions, which serves to mitigate the impact of changes in any particular market or region.
Assuming the respective effective fee rates remain unchanged, a proportional 10% change in the value of our average AUM would result in corresponding 10% changes in our investment management fees and asset-based distribution fee revenues and expenses, excluding performance-based investment management fees. Such a change for the fiscal year ended September 30, 20172020 would have resulted in an increase or decrease in pre-tax earnings of $393.3366.5 million.
Interest Rate Risk
We are exposed to changes in interest rates primarily through our investments in SIPssponsored funds that invest in debt securities, which were $1,539.5$1,338.4 million at September 30, 20172020. Our exposure to interest rate risks from these investments is minimized by the low average duration exposure mandate of a substantial majority of the SIPs.funds. The investment mandates of the remaining SIPsfunds consist of a broad range of products in various global jurisdictions, mitigating the impact of changes in any particular market or region. We had no exposure to changes in interest rates from debt obligations at September 30, 20172020 as all of our outstanding debt was issued at fixed rates.
As of September 30, 20172020, we have considered the potential impact of a 100 basis point movement in market interest rates on our portfolio of SIPssponsored funds that invest in debt securities. Based on our analysis, we do not expect that such a change would have a material impact on our earnings in the next twelve12 months.
Foreign Currency Exchange Risk
We are subject to foreign currency exchange risk through our international operations. While the majority of our revenues are earned in the U.S., we also provide services and earn revenues in Europe, the Middle East and Africa, Asia-Pacific Canada, The Bahamas and Latin America.Americas excluding U.S. Our exposure to foreign currency exchange risk is minimized in relation to our results of operations since a significant portion of these revenues is denominated in U.S. dollars. This situation may change in the future as our business continues to grow outside the U.S. and expenses incurred denominated in foreign currencies increase.
The exposure to foreign currency exchange risk in our consolidated balance sheet mostly relates to cash and cash equivalents and investments that are denominated in foreign currencies, primarily in the Euro, Pound Sterling, Indian Rupee Pound Sterling and Canadian dollar. These assets accounted for 9%19% of the total cash and cash equivalents and investments at September 30, 20172020. Changes in the values of these assets resulting from changes in U.S. dollar exchange rates are recorded in accumulated other comprehensive income (loss), except for cash and cash equivalents held by subsidiaries for which the U.S. dollar is the functional currency, for which the changes are recorded in earnings. We also have exposure to foreign exchange revaluation of cash and cash equivalents and investments that are denominated in U.S. dollars and held by non-U.S. subsidiaries for which their local currency is the functional currency. These assets accounted for 5%6% of the total cash and cash equivalents and investments at September 30, 20172020. Changes in the values of these assets resulting from changes in U.S. dollar exchange rates are recorded in earnings.




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A 10% weakening of the U.S. dollar against the various foreign currencies to which we had exposure as described above would result in corresponding 10% increases in the U.S. dollar values of the foreign currency assets and 10% decreases in the foreign currency values of the U.S. dollar assets. Such a weakening as of September 30, 20172020 would result in a $77.5$76.7 million increase in accumulated other comprehensive income (loss) and a $40.2$23.0 million decrease in pre-tax earnings. We generally do not use derivative financial instruments to manage foreign currency exchange risk exposure. As a result, both positive and negative currency fluctuations against the U.S. dollar may affect our results of operations and accumulated other comprehensive income (loss).
Market Valuation Risk
We are exposed to market valuation risks related to securities we hold that are carried at fair value. To mitigate the risks we maintain a diversified investment portfolio and, from time to time, we may enter into derivative agreements.
The following is a summary of the effect of a 10% increase or decrease in the carrying values of our financial instruments subject to market valuation risks at September 30, 20172020. If such a 10% increase or decrease in carrying values were to occur, the changes from trading investment securitiesinvestments measured at fair value and direct investments in consolidated SIPsCIPs would result in a $183.0129.0 million increase or decrease in our pre-tax earnings. The changes from available-for-sale investment securities would not result in a change to other-than-temporary impairment charges that would be material to our pre-tax earnings.
(in millions) Carrying Value 
Carrying Value
Assuming a 10% Increase
 
Carrying Value
Assuming a 10% Decrease
Investment securities, trading $314.5
 $346.0
 $283.1
Investment securities, available-for-sale 112.7
 124.0
 101.4
Direct investments in consolidated SIPs 1,514.8
 1,666.3
 1,363.3
Total $1,942.0
 $2,136.3
 $1,747.8
(in millions) Carrying Value 
Carrying Value
Assuming a 10% Increase
 
Carrying Value
Assuming a 10% Decrease
Investments, at fair value $504.8
 $555.3
 $454.3
Direct investments in CIPs 785.3
 863.8
 706.8
Total $1,290.1
 $1,419.1
 $1,161.1





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Item 8.Financial Statements and Supplementary Data.
Index of Consolidated Financial Statements for the fiscal years ended September 30, 20172020, 20162019 and 20152018.
CONTENTS Page
 5866
 5967
Consolidated Financial Statements of Franklin Resources, Inc. and its consolidated subsidiaries:  
 6070
 6171
 6272
 6373
 6574
 6776
All schedules have been omitted as the information is provided in the financial statements or in related notes thereto or is not required to be filed, as the information is not applicable.
Certain required quarterly information is included in Item 7 of Part II of this Form 10-K reportAnnual Report under the heading “Selected Quarterly Financial Data (Unaudited)” and incorporated herein by reference.




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MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of Franklin Resources, Inc. and its consolidated subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
The Company’s internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
On July 31, 2020, Franklin Resources, Inc. completed its acquisition of Legg Mason, Inc. (“Legg Mason”). Consistent with guidance issued by the Securities and Exchange Commission that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the effectiveness of the Company’s internal control over financial reporting related to Legg Mason. Total assets and operating revenues of Legg Mason that were excluded from management’s assessment constitute 12% of the Company’s consolidated total assets as of September 30, 2020 and 9% of consolidated total operating revenues for the fiscal year ended September 30, 2020. Management’s basis for exclusion included the size and complexity of the acquired business, the timing between acquisition and fiscal year end, and expected integration plans during the fiscal year ending September 30, 2021.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2017,2020, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework (2013). Based on that assessment, management concluded that, as of September 30, 2017,2020, the Company’s internal control over financial reporting was effective.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 20172020 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm that audits the Company’s consolidated financial statements, as stated in their report immediately following this report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of September 30, 20172020.




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of Franklin Resources, Inc.
In our opinion,
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows present fairly, in all material respects, the financial position of Franklin Resources, Inc. and its subsidiaries (the “Company”) atas of September 30, 20172020 and 20162019, and the resultsrelated consolidated statements of their operationsincome, of comprehensive income, of stockholders’ equity and theirof cash flows for each of the three years in the period ended September 30, 20172020, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 20172020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded Legg Mason, Inc. from its assessment of internal control over financial reporting as of September 30, 2020 because Legg Mason, Inc. was acquired by the Company in a purchase business combination during 2020. We have also excluded Legg Mason, Inc. from our audit of internal control over financial reporting. Legg Mason, Inc. is a wholly-owned subsidiary whose total assets and total operating revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 12% and 9%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2020.


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Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Acquisition of Legg Mason, Inc. - Fair Value of Indefinite-lived and Definite-lived Investment Management Contract Intangible Assets and One Redeemable Noncontrolling Interest
As described in Notes 1 and 3 to the consolidated financial statements, in July 2020, the Company completed its acquisition of Legg Mason, Inc. for a purchase consideration of $4.7 billion, which resulted in management recording $2.7 billion of indefinite-lived investment management contract intangible assets, $1.1 billion of definite-lived investment management contract intangible assets, and $186.4 million of redeemable noncontrolling interests. Fair values of acquired indefinite-lived and definite-lived investment management contract intangible assets are based on the net present value of estimated future cash flows attributable to the contracts, which include significant assumptions about forecasts of the assets under management (“AUM”) growth rate, pre-tax profit margin, discount rate, average effective fee rate and effective tax rate. Fair values of redeemable noncontrolling interests are determined using discounted cash flows and guideline public company methods, which include significant assumptions about forecasts of the AUM growth rate, pre-tax profit margin, discount rate and public company earnings multiples.
The principal considerations for our determination that performing procedures relating to the fair value of indefinite-lived and definite-lived investment management contract intangible assets and redeemable noncontrolling interest from the acquisition of Legg Mason, Inc. is a critical audit matter are the significant judgment by management when developing the estimated fair value of indefinite-lived and definite-lived investment management contract intangible assets and redeemable noncontrolling interest; this in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to (i) the AUM growth rate and discount rate assumptions utilized within the net present value of estimated future cash flows for the valuation of the investment management contract intangible assets and redeemable noncontrolling interest and (ii) the public company earnings multiples utilized within the guideline public company method for the valuation of the redeemable noncontrolling interest. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the fair value of indefinite-lived and definite-lived investment management contract intangible assets and redeemable noncontrolling interest in the acquisition of Legg Mason, Inc., including controls over development of (i) the AUM growth rate and discount rate assumptions utilized within the net present value of estimated future cash flows and (ii) the public company earnings multiples utilized within the guideline public company method. These procedures also included, among others, identifying the acquired contracts by reading the purchase agreement and testing management’s process for estimating the fair value of the acquired indefinite-lived and definite-lived investment management contract intangible assets and


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redeemable noncontrolling interest. Testing management’s process included (i) evaluating the appropriateness of the methods, (ii) testing the completeness, accuracy, and relevance of underlying data used in the methods, and (iii) evaluating management’s significant assumptions related to the AUM growth rate and discount rate for the valuation of the investment management contract intangible assets and redeemable noncontrolling interest, and the public company earnings multiples for the valuation of the redeemable noncontrolling interest. Evaluating the reasonableness of the AUM growth rate and public company earnings multiples involved considering the past performance of the acquired business, the consistency with external market and industry data and whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the Company’s discounted cash flow method and guideline public company method and the reasonableness of the discount rate.

/s/ PricewaterhouseCoopers LLP
San Francisco, California
November 13, 201720, 2020

We have served as the Company’s auditor since 1974.
 






5969

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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per share data)            
for the fiscal years ended September 30, 2017 2016 2015 2020 2019 2018
Operating Revenues            
Investment management fees $4,359.2
 $4,471.7
 $5,327.8
 $3,981.7
 $3,985.2
 $4,367.5
Sales and distribution fees 1,705.6
 1,806.4
 2,252.4
 1,362.0
 1,444.6
 1,599.8
Shareholder servicing fees 225.7
 243.6
 262.8
 195.1
 216.3
 221.9
Other 101.7
 96.3
 105.7
 27.7
 23.3
 15.3
Total operating revenues 6,392.2
 6,618.0
 7,948.7
 5,566.5
 5,669.4
 6,204.5
Operating Expenses            
Compensation and benefits 1,873.9
 1,584.7
 1,390.6
Sales, distribution and marketing 2,130.9
 2,209.9
 2,762.3
 1,703.1
 1,819.6
 2,039.7
Compensation and benefits 1,333.7
 1,360.9
 1,453.3
Information systems and technology 219.8
 207.3
 224.3
 288.4
 258.5
 243.9
Occupancy 121.3
 134.1
 132.7
 147.9
 133.6
 128.6
Amortization of intangible assets 54.0
 14.7
 1.8
General, administrative and other 322.2
 340.1
 348.5
 450.3
 391.4
 371.7
Total operating expenses 4,127.9
 4,252.3
 4,921.1
 4,517.6
 4,202.5
 4,176.3
Operating Income 2,264.3
 2,365.7
 3,027.6
 1,048.9
 1,466.9
 2,028.2
Other Income (Expenses)            
Investment and other income, net 336.3
 184.0
 40.4
Investment and other income (losses), net (38.4) 141.4
 200.3
Interest expense (51.5) (49.9) (39.6) (33.4) (22.4) (46.3)
Other income, net 284.8
 134.1
 0.8
Investment and other income of consolidated investment products, net 70.2
 78.8
 59.6
Expenses of consolidated investment products (29.4) (16.9) (26.6)
Other income (expenses), net (31.0) 180.9
 187.0
Income before taxes 2,549.1
 2,499.8
 3,028.4
 1,017.9
 1,647.8
 2,215.2
Taxes on income 759.4
 742.1
 923.7
 230.8
 442.3
 1,472.5
Net income 1,789.7
 1,757.7
 2,104.7
 787.1
 1,205.5
 742.7
Less: net income (loss) attributable to            
Redeemable noncontrolling interests 48.6
 6.2
 (12.8)
Nonredeemable noncontrolling interests 40.0
 29.4
 75.5
 (60.4) 3.6
 (8.9)
Redeemable noncontrolling interests 53.0
 1.6
 (6.1)
Net Income Attributable to Franklin Resources, Inc. $1,696.7
 $1,726.7
 $2,035.3
 $798.9
 $1,195.7
 $764.4
            
Earnings per Share            
Basic $3.01
 $2.94
 $3.29
 $1.59
 $2.35
 $1.39
Diluted 3.01
 2.94
 3.29
 1.59
 2.35
 1.39
Dividends Declared per Share $0.80
 $0.72
 $1.10




See Notes to Consolidated Financial Statements.


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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)            
for the fiscal years ended September 30, 2017 2016 2015 2020 2019 2018
Net Income $1,789.7
 $1,757.7
 $2,104.7
 $787.1
 $1,205.5
 $742.7
Other Comprehensive Income (Loss)            
Net unrealized gains (losses) on investments, net of tax 2.2
 (12.5) (11.7)
Currency translation adjustments, net of tax 65.4
 (18.3) (184.2) 25.8
 (52.5) (91.9)
Net unrealized gains (losses) on defined benefit plans, net of tax 2.1
 (2.4) (0.6) (1.8) (2.0) 1.9
Net unrealized gains on investments, net of tax 0
 1.5
 4.3
Total other comprehensive income (loss) 69.7
 (33.2) (196.5) 24.0
 (53.0) (85.7)
Total comprehensive income 1,859.4
 1,724.5
 1,908.2
 811.1
 1,152.5
 657.0
Less: comprehensive income (loss) attributable to            
Redeemable noncontrolling interests 48.6
 6.2
 (12.8)
Nonredeemable noncontrolling interests 40.0
 29.4
 75.5
 (60.4) 3.6
 (8.9)
Redeemable noncontrolling interests 53.0
 1.6
 (6.1)
Comprehensive Income Attributable to Franklin Resources, Inc. $1,766.4
 $1,693.5
 $1,838.8
 $822.9
 $1,142.7
 $678.7




See Notes to Consolidated Financial Statements.


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FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS

FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS

FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share data)        
as of September 30, 2017 2016 2020 2019
Assets        
Cash and cash equivalents $8,523.3
 $8,247.1
 $3,026.8
 $5,803.4
Receivables 767.8
 746.4
 1,114.8
 740.0
Investments (including $440.0 and $1,437.6 at fair value at September 30, 2017 and 2016) 1,393.6
 2,416.6
Assets of consolidated sponsored investment products    
Investments (including $504.8 and $589.7 at fair value at September 30, 2020 and 2019) 1,270.5
 1,555.8
Assets of consolidated investment products    
Cash and cash equivalents 226.4
 236.2
 930.7
 154.2
Receivables 234.1
 47.9
 85.8
 99.0
Investments, at fair value 3,467.4
 1,513.4
 2,709.2
 2,303.9
Property and equipment, net 517.2
 523.2
 813.8
 683.7
Goodwill and other intangible assets, net 2,227.7
 2,211.3
Goodwill 4,500.8
 2,130.3
Intangible assets, net 4,914.2
 864.2
Operating lease right-of-use assets 534.8
 0
Other 176.5
 156.7
 319.5
 197.7
Total Assets $17,534.0
 $16,098.8
 $20,220.9
 $14,532.2
        
Liabilities        
Compensation and benefits $396.6
 $357.4
 $1,064.0
 $502.4
Accounts payable and accrued expenses 291.5
 233.3
 283.7
 222.9
Dividends 113.3
 104.6
 143.2
 137.4
Commissions 313.3
 302.0
 268.0
 254.0
Income taxes 703.3
 824.7
Debt 1,044.2
 1,401.2
 3,017.1
 696.9
Debt of consolidated sponsored investment products 53.4
 682.2
Deferred taxes 170.6
 161.5
Liabilities of consolidated investment products    
Accounts payable and accrued expenses 510.1
 81.5
Debt 1,333.4
 50.8
Deferred tax liabilities 305.3
 120.1
Operating lease liabilities 621.0
 0
Other 273.4
 267.3
 456.1
 270.6
Total liabilities 2,656.3
 3,509.5
 8,705.2
 3,161.3
Commitments and Contingencies (Note 12) 
 
Commitments and Contingencies (Note 16) 

 

Redeemable Noncontrolling Interests 1,941.9
 61.1
 541.9
 746.7
Stockholders’ Equity        
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued 
 
 0
 0
Common stock, $0.10 par value, 1,000,000,000 shares authorized; 554,865,343 and 570,345,156 shares issued and outstanding at September 30, 2017 and 2016 55.5
 57.0
Common stock, $0.10 par value, 1,000,000,000 shares authorized; 495,116,677 and 499,303,269 shares issued and outstanding at September 30, 2020 and 2019 49.5
 49.9
Retained earnings 12,849.3
 12,226.2
 10,472.6
 10,288.2
Accumulated other comprehensive loss (284.8) (347.4) (407.6) (431.6)
Total Franklin Resources, Inc. stockholders’ equity 12,620.0
 11,935.8
 10,114.5
 9,906.5
Nonredeemable noncontrolling interests 315.8
 592.4
 859.3
 717.7
Total stockholders’ equity 12,935.8
 12,528.2
 10,973.8
 10,624.2
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity $17,534.0
 $16,098.8
 $20,220.9
 $14,532.2




See Notes to Consolidated Financial Statements.


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Table of Contents

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 Franklin Resources, Inc. 
Non-
redeemable
Non-
controlling
Interests
 
Total
Stockholders’
Equity
 Franklin Resources, Inc. 
Nonredeemable
Noncontrolling
Interests
 
Total
Stockholders’
Equity
Common Stock 
Capital
in Excess
of Par
Value
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Stockholders’
Equity
(in millions)Common Stock 
Capital
in Excess
of Par
Value
 
Retained
Earnings
 
Appropriated
Retained
Earnings of
Consolidated
Variable
Interest Entities
 
Accumulated
Other
Compre-
hensive
Loss
 
Stockholders’
Equity
as of and for the fiscal years ended
September 30, 2017, 2016 and 2015
Shares Amount
Balance at October 1, 2014 622.9
 $62.3
 $
 $11,625.6
 $13.9
 $(117.7) $11,584.1
 $628.3
 $12,212.4
as of and for the fiscal years ended
September 30, 2020, 2019 and 2018
 Shares Amount 
Capital
in Excess
of Par
Value
 
Retained
Earnings
 
Accum-
ulated
Other
Compre-
hensive
Loss
 
Stockholders’
Equity
 
Non-
redeemable
Non-
controlling
Interests
 
Total
Stockholders’
Equity
Balance at October 1, 2017554.9
 $55.5
Adoption of new accounting guidance   
Net income (loss) 
  
  
 764.4
  
 764.4
Other comprehensive loss  
  
  
  
 (85.7) (85.7)  
 (85.7)
Dividends declared on common stock ($3.92 per share)       (2,131.3)  
 (2,131.3)  
 (2,131.3)
Repurchase of common stock (39.9) (4.0) (170.4) (1,252.3)  
 (1,426.7)  
 (1,426.7)
Issuance of common stock 3.3
 0.3
 130.8
  
  
 131.1
  
 131.1
Stock-based compensation  
  
 10.6
  
  
 10.6
  
 10.6
Acquisition 0.8
 0.1
 26.9
     27.0
   27.0
Net distributions and other  
  
  
  
  
  
 (6.0) (6.0)
Net consolidation of investment product             2.4
 2.4
Purchase of noncontrolling interest       (10.6)   (10.6) 5.4
 (5.2)
Balance at September 30, 2018 519.1
 $51.9
 $0
 $10,217.9
 $(370.6) $9,899.2
 $308.7
 $10,207.9
Adoption of new accounting guidance       (0.3) (13.9)   (14.2)   (14.2)     

 22.9
 (8.0) 14.9
   14.9
Net income  
  
  
 2,035.3
    
 2,035.3
 75.5
 2,110.8
       1,195.7
   1,195.7
 3.6
 1,199.3
Other comprehensive loss  
  
  
  
   (196.5) (196.5)  
 (196.5)         (53.0) (53.0)   (53.0)
Cash dividends declared on common stock       (682.1)    
 (682.1)  
 (682.1)
Dividends declared on common stock ($1.04 per share)       (528.3)   (528.3)   (528.3)
Repurchase of common stock (22.5) (2.2) (173.9) (883.7)    
 (1,059.8)  
 (1,059.8) (24.6) (2.5) (133.8) (620.0)   (756.3)   (756.3)
Issuance of common stock 3.1
 0.3
 154.5
  
    
 154.8
  
 154.8
 4.8
 0.5
 129.8
     130.3
   130.3
Tax benefit from stock-based compensation  
  
 10.9
  
    
 10.9
  
 10.9
Stock-based compensation  
  
 8.5
  
    
 8.5
  
 8.5
     4.0
     4.0
   4.0
Net distributions and other  
  
  
  
    
  
 (49.0) (49.0)
Balance at September 30, 2015 603.5
 $60.4
 $
 $12,094.8
 $
 $(314.2) $11,841.0
 $654.8
 $12,495.8
Net income       1,726.7
     1,726.7
 29.4
 1,756.1
Other comprehensive loss           (33.2) (33.2)   (33.2)
Cash dividends declared on common stock       (420.7)     (420.7)   (420.7)
Net subscriptions and other             165.0
 165.0
Net consolidation of investment product             24.3
 24.3
Acquisition             216.1
 216.1
Balance at September 30, 2019 499.3
 $49.9
 $0
 $10,288.2
 $(431.6) $9,906.5
 $717.7
 $10,624.2
Net income (loss)       798.9
   798.9
 (60.4) 738.5
Other comprehensive income         24.0
 24.0
   24.0
Dividends declared on common stock ($1.08 per share)       (539.0)   (539.0)   (539.0)
Repurchase of common stock (36.6) (3.7) (146.0) (1,174.6)     (1,324.3)   (1,324.3) (9.0) (0.9) (143.0) (75.5)   (219.4)   (219.4)
Issuance of common stock 3.4
 0.3
 149.8
       150.1
   150.1
 4.8
 0.5
 126.7
     127.2
   127.2
Tax shortfall from stock-based compensation     (5.9)       (5.9)   (5.9)
Stock-based compensation     2.1
       2.1
   2.1
     16.3
     16.3
   16.3
Net distributions and other               (91.8) (91.8)
Balance at September 30, 2016 570.3
 $57.0
 $
 $12,226.2
 $
 $(347.4) $11,935.8
 $592.4
 $12,528.2
Net subscriptions and other             186.4
 186.4
Deconsolidation of investment products             (6.8) (6.8)
Acquisitions             39.1
 39.1
Wind-down of a subsidiary             (16.7) (16.7)
Balance at September 30, 2020 495.1
 $49.5
 $0
 $10,472.6
 $(407.6) $10,114.5
 $859.3
 $10,973.8
[Table continued on next page]


See Notes to Consolidated Financial Statements.


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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
[Table continued from previous page]
  Franklin Resources, Inc. 
Nonredeemable
Noncontrolling
Interests
 
Total
Stockholders’
Equity
(in millions) Common Stock 
Capital
in Excess
of Par
Value
 
Retained
Earnings
 
Appropriated
Retained
Earnings of
Consolidated
Variable
Interest Entities
 
Accumulated
Other
Compre-
hensive
Loss
 
Stockholders’
Equity
as of and for the fiscal years ended
September 30, 2017, 2016 and 2015
 Shares Amount
Balance at September 30, 2016 570.3
 $57.0
 $
 $12,226.2
 $
 $(347.4) $11,935.8
 $592.4
 $12,528.2
Adoption of new accounting guidance       5.8
   (7.1) (1.3) (324.6) (325.9)
Net income       1,696.7
     1,696.7
 40.0
 1,736.7
Other comprehensive income           69.7
 69.7
   69.7
Cash dividends declared on common stock       (449.9)     (449.9)   (449.9)
Repurchase of common stock (19.1) (1.9) (140.1) (629.5)     (771.5)   (771.5)
Issuance of common stock 3.7
 0.4
 134.2
       134.6
   134.6
Tax shortfall from stock-based compensation     (8.7)       (8.7)   (8.7)
Stock-based compensation     14.6
       14.6
   14.6
Net subscriptions and other               17.3
 17.3
Deconsolidation of sponsored investment product               (9.3) (9.3)
Balance at September 30, 2017 554.9
 $55.5
 $
 $12,849.3
 $
 $(284.8) $12,620.0
 $315.8
 $12,935.8



See Notes to Consolidated Financial Statements.

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Table of Contents


FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)      
for the fiscal years ended September 30, 2017 2016 2015
Net Income $1,789.7
 $1,757.7
 $2,104.7
Adjustments to reconcile net income to net cash provided by operating activities:      
Amortization of deferred sales commissions 72.0
 75.2
 112.8
Depreciation and other amortization 80.3
 87.1
 97.4
Impairment of intangible assets 9.6
 28.2
 8.2
Stock-based compensation 123.4
 131.5
 140.0
Excess tax benefit from stock-based compensation (0.9) (0.8) (11.0)
Gains on sale of assets (6.8) (29.7) (31.6)
Losses (income) from investments in equity method investees (107.9) (56.7) 63.2
Net losses (gains) on other investments of consolidated sponsored investment products (55.4) 19.7
 (28.9)
Other (8.0) 15.1
 3.1
Changes in operating assets and liabilities:      
Decrease (increase) in receivables, prepaid expenses and other (161.0) (10.8) 45.2
Decrease in trading securities, net 130.2
 120.4
 23.3
Increase in trading securities of consolidated sponsored investment products, net (875.0) (242.3) (181.1)
Increase (decrease) in accrued compensation and benefits 37.2
 (76.7) (16.7)
Increase (decrease) in commissions payable 11.3
 (57.9) (80.4)
Increase (decrease) in income taxes payable 44.5
 (14.0) 20.0
Increase (decrease) in other liabilities 52.2
 (18.3) (16.2)
Net cash provided by operating activities 1,135.4
 1,727.7
 2,252.0
Purchase of investments (372.5) (367.8) (297.2)
Liquidation of investments 344.9
 405.2
 405.5
Purchase of other investments by consolidated sponsored investment products (114.7) (333.3) (438.9)
Liquidation of other investments by consolidated sponsored investment products 368.1
 597.3
 643.9
Additions of property and equipment, net (74.9) (97.6) (68.8)
Adoption of new accounting guidance (49.2) 
 
Acquisition of business (14.0) 
 
Net (deconsolidation) consolidation of sponsored investment products (35.7) (11.6) 4.4
Net cash provided by investing activities 52.0
 192.2
 248.9
Decrease in deposits 
 
 (0.3)
Issuance of common stock 24.9
 24.1
 25.5
Dividends paid on common stock (441.2) (408.7) (666.4)
Repurchase of common stock (765.3) (1,308.0) (1,059.8)
Excess tax benefit from stock-based compensation 0.9
 0.8
 11.0
FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)      
for the fiscal years ended September 30, 2020 2019 2018
Net Income $787.1
 $1,205.5
 $742.7
Adjustments to reconcile net income to net cash provided by operating activities:      
Stock-based compensation 122.3
 111.5
 117.8
Amortization of deferred sales commissions 80.3
 85.8
 80.7
Depreciation and other amortization 74.5
 78.7
 74.6
Amortization of intangible assets 54.0
 14.7
 1.8
Impairments of intangible assets and goodwill 55.4
 13.3
 5.7
Losses (income) from investments in equity method investees 98.1
 10.4
 (44.4)
Net losses on investments of consolidated investment products 36.8
 26.3
 55.0
Net (purchase) liquidation of investments by consolidated investment products (746.9) (1,497.6) 365.7
Deferred income taxes (7.1) (1.3) (50.6)
Other (26.1) 11.8
 28.0
Changes in operating assets and liabilities:      
Decrease (increase) in receivables and other assets 135.7
 (34.2) (90.1)
Decrease (increase) in receivables of consolidated investment products (4.2) (34.3) 68.5
Decrease (increase) in investments, net 554.7
 142.5
 (39.2)
Decrease in operating lease right-of-use assets 38.2
 0
 0
Increase (decrease) in accrued compensation and benefits (10.5) 89.4
 (19.1)
Decrease in commissions payable (33.8) (43.9) (15.4)
Increase (decrease) in income taxes payable (123.0) (210.1) 965.2
Increase (decrease) in accounts payable, accrued expenses and other liabilities (97.4) 126.0
 (23.0)
Increase in accounts payable and accrued expenses of consolidated investment products 70.6
 107.1
 5.8
Decrease in operating lease liabilities (37.3) 0
 0
Net cash provided by operating activities 1,021.4
 201.6
 2,229.7
Purchase of investments (467.4) (393.9) (358.2)
Liquidation of investments 880.0
 343.2
 286.2
Purchase of investments by consolidated collateralized loan obligations (369.2) 0
 0
Liquidation of investments by consolidated collateralized loan obligations 92.0
 0
 0
Purchase of investments by consolidated investment products 0
 0
 (73.8)
Liquidation of investments by consolidated investment products 0
 0
 73.3
Issuance of loans receivable, net (40.6) 0
 0
Additions of property and equipment, net (103.7) (233.7) (106.5)
Acquisitions, net of cash acquired (3,821.4) (684.2) (86.8)
Net consolidation (deconsolidation) of investment products 587.2
 (108.5) (24.6)
Net cash used in investing activities (3,243.1) (1,077.1) (290.4)


[Table continued on next page]


See Notes to Consolidated Financial Statements.


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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Table continued from previous page]
(in millions)            
for the fiscal years ended September 30, 2017 2016 2015 2020 2019 2018
Issuance of common stock $20.6
 $23.3
 $24.8
Dividends paid on common stock (533.2) (518.6) (2,116.9)
Repurchase of common stock (218.2) (754.5) (1,424.8)
Payments on debt 0
 0
 (361.9)
Proceeds from loan $
 $93.4
 $
 0.2
 1.7
 0
Payments on loan (53.7) (41.2) 
 (0.4) (1.5) 0
Proceeds from issuance of debt 
 
 395.7
Payments on debt (300.0) 
 (250.0)
Proceeds from debt of consolidated sponsored investment products 20.6
 33.8
 571.8
Payments on debt by consolidated sponsored investment products (308.5) (179.8) (732.2)
Proceeds from debt of consolidated investment products 635.2
 19.9
 0
Payments on debt by consolidated investment products (140.9) (2.0) (21.0)
Payments on contingent consideration liabilities (35.3) (3.2) (7.9) (0.6) (20.4) (21.6)
Noncontrolling interests 901.6
 (11.9) 100.4
 431.5
 1,211.6
 159.7
Net cash used in financing activities (956.0) (1,800.7) (1,612.2)
Net cash provided by (used in) financing activities 194.2
 (40.5) (3,761.7)
Effect of exchange rate changes on cash and cash equivalents 35.0
 (4.0) (116.6) 27.4
 (37.0) (16.7)
Increase in cash and cash equivalents 266.4
 115.2
 772.1
Decrease in cash and cash equivalents (2,000.1) (953.0) (1,839.1)
Cash and cash equivalents, beginning of year 8,483.3
 8,368.1
 7,596.0
 5,957.6
 6,910.6
 8,749.7
Cash and Cash Equivalents, End of Year $8,749.7
 $8,483.3
 $8,368.1
 $3,957.5
 $5,957.6
 $6,910.6
            
Supplemental Disclosure of Cash Flow Information            
Cash paid for income taxes $712.2
 $758.6
 $925.0
 $359.4
 $520.8
 $523.5
Cash paid for interest 42.3
 47.4
 44.6
 18.9
 27.4
 38.6
Cash paid for interest by consolidated sponsored investment products 11.2
 28.3
 33.0
Cash paid for interest by consolidated investment products 9.9
 2.3
 2.6








See Notes to Consolidated Financial Statements.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Significant Accounting Policies
Business. Franklin Resources, Inc. (“Franklin”) is a holding company that, together with its various subsidiaries (collectively, the “Company”) is referred to asoperating under its Franklin Templeton Investments.and/or subsidiary brand names. The Company provides investment management and related services toin jurisdictions worldwide for investors globally throughin investment products thatwhich include sponsored funds, as well as institutional and high-net-worth separate accounts, retail separately managed account programs, sub-advised products, and other investment funds and institutional, high net-worth and separately-managed accounts (collectively, the “sponsored investment products” or “SIPs”).vehicles. In addition to investment management, the CompanysCompany’s services include fund administration, sales and distribution, marketing,and shareholder servicing, and trust, custody and other services.servicing.
Basis of Presentation. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Management believes that the accounting estimates are appropriate, and the resulting balances are reasonable; however, due to the inherent uncertainties in making estimates, actual amounts may differ from these estimates. Certain comparative amounts for prior fiscal years have been reclassified to conform to the financial statement presentation as of and for the fiscal year ended September 30, 20172020 (“fiscal year 2017��2020).
In the quarter ended September 30, 2020, the Company changed the presentation of its consolidated statements of income to include dividend and investment income and expenses of consolidated investment products in other income, net. Amounts for the comparative prior fiscal year periods have been reclassified to conform to the current year presentation. These reclassifications had no impact on previously reported net income or financial position. Management believes the revised presentation is more useful to readers of its financial statements and more accurately portrays the nature of the consolidated investment products (“CIP”) revenue and expenses as the operations of CIPs are not related to the Company’s core business.
The following table presents the effects of the change in the presentation of operating revenues, operating expenses and other income, net to the Company’s previously reported consolidated statements of income:
  2019 2018
(in millions)
for the fiscal years ended September
 
As
Reported
 Adjustments 
As
Amended
 As
Reported
 Adjustments As
Amended
Operating Revenues            
Other $128.4
 $(105.1) $23.3
 $129.9
 $(114.6) $15.3
             
Operating Expenses            
General, administrative and other1
 420.7
 (14.6) 406.1
 397.7
 (24.2) 373.5
             
Other Income (Expenses)            
Investment and other income (losses), net 115.1
 26.3
 141.4
 145.3
 55.0
 200.3
Interest expense (24.7) 2.3
 (22.4) (48.7) 2.4
 (46.3)
Investment and other income of consolidated investment products, net 0
 78.8
 78.8
 0
 59.6
 59.6
Expenses of consolidated investment products 0
 (16.9) (16.9) 0
 (26.6) (26.6)
Other income (expenses), net $90.4

$90.5

$180.9

$96.6

$90.4

$187.0
______________
1
General, administrative and other includes amortization of intangible assets.


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Consolidation. The consolidated financial statements include the accounts of Franklin and its subsidiaries and SIPsCIPs in which it has a controlling financial interest. The Company has a controlling financial interest when it owns a majority of the voting interest in a voting interest entity (“VOE”) or is the primary beneficiary of a variable interest entity (“VIE”). All material intercompanyIntercompany accounts and transactions have been eliminated.
A VIE is an entity in which the equity investment holders have not contributed sufficient capital to finance its activities or do not have defined rights and obligations normally associated with an equity investment. TheSubstantially all of the Companys VIEs are all investment entities,products, and its variable interests consist of its equity ownership interests in and certain investment management fees earned from these entities.products.
The Company is the primary beneficiary of a VIE if it has the power to direct the activities that most significantly impact the VIEs economic performance and the obligation to absorb losses of or right to receive benefits from the VIE that could potentially be significant to the VIE. Investment management fees earned from VIEs are excluded from the primary beneficiary determination if they are deemed to be at market and commensurate with service. The key estimates and assumptions used in the analyses include the amount of assets under management (“AUM”) and the life of the investment product.
Related Parties include the investmentsponsored funds sponsored by the Company as a result of the Companys advisory relationship and equity method investees. A substantial amount of the Companys operating revenues and receivables are from related parties.
Earnings per Share. Basic and diluted earnings per share are computed using the two-class method, which considers participating securities as a separate class of shares. The Companys participating securities consist of its nonvested stock and stock unit awards that contain nonforfeitable rights to dividends or dividend equivalents. Basic earnings per share is computed by dividing net income available to the Companys common shareholders,stockholders, adjusted to exclude earnings allocated to participating securities, by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed on the basis of the weighted-average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period.


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Fair Value Measurements. The Company uses a three-levelBusiness combinations are accounted for by recognizing the acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition-date estimated 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. The three levels of fair value hierarchy are set forth below. The Companys assessmentvalues. Any excess of the hierarchy levelpurchase consideration over the acquisition-date fair values of these identifiable assets and liabilities is recognized as goodwill. During the measurement period, which is not to exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed due to new information about facts that existed as of the assets or liabilities measured at fair value is determined based onacquisition date, with the lowest level input that is significantcorresponding offset to goodwill. Upon the fair valueconclusion of the measurement in its entirety. Transfers between levels are recognized at the end of each quarter.
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities, which may include published net asset values (“NAV”) for fund products.
Level 2Observable inputs other than Level 1 quoted prices, such as non-binding quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable or corroborated by observable market data. Level 2 quoted prices are generally obtained from two independent third-party brokers or dealers, including prices derived from model-based valuation techniques for which the significant assumptions are observable in the market or corroborated by observable market data. Quoted prices are validated through price variance analysis,period, any subsequent sales testing, stale price review, price comparison across pricing vendors and due diligence reviews of third-party vendors.
Level 3Unobservable inputs that are supported by little or no market activity. These inputs require significant management judgment and reflect the Company's estimation of assumptions that market participants would use in pricing the asset or liability.
Quoted market prices may be adjusted if events occur, such as significant price changes in U.S.-traded market proxies after the close of corresponding foreign markets, trade halts or suspensions, or unscheduled market closures. The market proxies consist of correlated country-specific exchange-traded securities, such as futures, American Depositary Receipts indices or exchange-traded funds. The price adjustments are recorded in earnings.
Intangible assets acquired in business combinations consist primarily determined based on third-party factors derived from model-based valuation techniques for which the significant assumptions are observable in the market.
of investment management contracts and trade names. The fair values for Level 3 assets and liabilities are determined using various methodologies in accordance with the Companys global valuation and pricing policy which defines valuation and pricing conventions for each security type. The Company may employ a market-based method, using purchase multiples observed for comparable third-party transactions, valuations of comparable entities, projected operating results of the investee entity or subsequent financing transactions entered into by the investee entity. If the inputs for a market-based methodacquired management contracts are not available, the Company utilizes an income-based method, which considersbased on the net present value of anticipatedestimated future cash flows attributable to the contracts, which include significant assumptions about forecasts of the investment. AAUM growth rate, pre-tax profit margin, discount may be applied due to the nature or duration of any restrictions on the disposition of the investment. The Company reviewsrate, average effective fee rate and approves the market-based and income-based methods on a periodic basis for changes that would impact the unobservable inputs incorporated into the valuation process. The fair value measurements from these methods are further validated through price variance analysis, subsequent sales testing and market comparable sales.
The Company records a substantial amount of its investments at fair value or amounts that approximate fair value on a recurring basis. Investments in fund products for which fair value is estimated using NAV as a practical expedient (when the NAV is available to the Company as an investor but is not publicly available) are not classified in the fair value hierarchy. The financial assets and financial liabilities of consolidated collateralized loan obligations (“CLOs”) at September 30, 2016 were measured using the more observable fair value of either the financial assets or financial liabilities. Fair values are estimated for disclosure purposes for financial instruments that are not measured at fair value.
Cash and Cash Equivalents primarily consist of debt instruments with original maturities of three months or less at the purchase date, nonconsolidated SIP money market funds, time deposits with maturities of three months or less, and deposits with financial institutions. Cash and cash equivalents are carried at cost, except for debt instruments which are carried at amortized cost. Due to the short-term nature and liquidity of these financial instruments, the carrying values of these assets approximate fair value.
The Company maintains cash and cash equivalents with financial institutions in various countries, limits the amount of credit exposure with any given financial institution and conducts ongoing evaluations of the creditworthiness of the financial institutions with which it does business.


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Receivables consist primarily of fees receivable from SIPs and are carried at invoiced amounts. Due to the short-term nature and liquidity of the receivables, the carrying values of these assets approximate fair value.
Investments consist of investment securities, trading and available-for-sale, investments in equity method investees and other investments.
Investment Securities, Trading consist of corporate debt securities, nonconsolidated SIPs and other debt and equity securities, and are carried at fair value. Changes in the fair value of trading securities are recognized as gains and losses in earnings.effective tax rate. The fair value of the corporate debt securitiestrade names is determined using market pricing. The fair values of all SIPs and certain other equity securities are determinedthe relief from royalty method based on their published NAV. The fair values of certain other debt and equity securities are determined using independent third-party broker or dealer price quotes. The fairnet present value of certain other debt securities is determined based on discounted cash flows using significant unobservable inputs.
Investment Securities, Available-for-Sale consist primarily of nonconsolidated SIPs and to a lesser extent, debt and other equity securities, and are carried at fair value. Realized gains and losses are included in investment income using the average cost method. Unrealized gains and losses are recorded net of tax as part of accumulated other comprehensive income (loss) until realized. The fair value of the SIPs is determined based on their published NAV. The fair value of the debt securities is primarily determined using independent third-party broker or dealer price quotes. The fair value of other equity securities is determined using quoted market prices.
Investments in Equity Method Investees consist of equity investments in entities, including SIPs, over which the Company is able to exercise significant influence, but not control. Significant influence is generally considered to exist when the Companys ownership interest in the investee is between 20% and 50%, although other factors, such as representation on the investees board of directors and the impact of commercial arrangements, also are considered in determining whether the equity method of accounting is appropriate. Investments in limited partnerships and limited liability companies are accounted for using the equity method when the Companys investment is more than minor or when the Company is the general partner. Under the equity method of accounting, the investments are initially carried at cost and subsequently adjusted by the Companys proportionate share of the entities net income, which is recognized in earnings.
Other Investments consist of equity investments in entities over which the Company is unable to exercise significant influence and are not marketable, time deposits with maturities greater than three months from the date of purchase, and life settlement contracts. The equity investments are accounted for under the cost method and their fair value is generally estimated using NAV as a practical expedient. The time deposits are carried at cost, which approximates fair value due to their short-term nature and liquidity. Life settlement contracts are carried at fair value, which is determined based on discounted cash flows using significant unobservable inputs.
Impairment of Investments. Investments other than trading securities are evaluated for other-than-temporary impairment on a quarterly basis when the cost of an investment exceeds its fair value. The evaluation of equity securities includes the severity and duration of the decline in the fair value below cost, the Companys intent and ability to hold the security for a period of time sufficient for an anticipated recovery in fair value, and the financial condition and specific events related to the issuer. When an impairment of an equity security is determined to be other-than-temporary, the impairment is recognized in earnings.
Cash and Cash Equivalents of Consolidated SIPs consist of deposits with financial institutions and highly liquid investments, including money market funds, which are readily convertible into cash, and are carried at cost. Due to the short-term nature and liquidity of these financial instruments, their carrying values approximate fair value. At September 30, 2016, cash and cash equivalents of consolidated SIPs also included investments in a money market fund held by consolidated CLOs which were carried at fair value based on the funds published NAV.
Receivablesof Consolidated SIPs consist of trades pending settlement and other investment and share transaction related receivables and are carried at transacted amounts. Due to the short-term nature and liquidity of the receivables, the carrying values of these assets approximate fair value.
Investments of Consolidated SIPs consist of trading securities and other investments that are not generally traded in active markets, and are carried at fair value. Changes in the fair value of the investments are recognized as gains and losses in earnings. The fair value of the trading securities is determined using quoted market prices, or independent third-party broker or dealer price quotes if quoted market prices are not available.


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The investments that are not generally traded in active markets consist of debt and equity securities of entities in emerging markets and fund products. The fair values of the debt and equity securities are determined using significant unobservable inputs in either a market-based or income-based approach. The fair value of the fund products is determined using NAV as a practical expedient. At September 30, 2016, investments of consolidated SIPs also included corporate debt securities held by consolidated CLOs for which the fair value was primarily obtained from independent third-party broker or dealer price quotes.
Property and Equipment, net are recorded at cost and depreciated using the straight-line method over their estimated useful lives which range from three to 35 years. Expenditures for repairs and maintenance are charged to expense when incurred. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the lease term, whichever is shorter.
Internal and external costs incurred in connection with developing or obtaining software for internal use are capitalized and amortized over the shorter of the estimated useful lives of the software or the license terms, beginning when the software project is complete and the application is put into production.
Property and equipment is tested for impairment when there is an indication that the carrying value of an asset may not be recoverable. Carrying values are not recoverable when the undiscounted cash flows estimated to be generated by the assets are less than their carrying values. When an asset is determined to not be recoverable, the impairment is measured based on the excess, if any, of the carrying value of the asset over its respective fair value. Fair value is determined by discounted future cash flows, models, appraisals or other applicable methods.
Goodwillwhich include significant assumptions about royalty rate, revenue growth rate, discount rate and Other Intangible Assets, net. Goodwill represents the excess cost of a business acquisition over the fair value of the net assets acquired. Other intangible assets consist of investmenteffective tax rate. The management contracts resulting from business acquisitions. Thesecontract intangible assets are amortized over their estimated useful lives, which range from fivethree to 15 years, using the straight-line method, unless the asset is determined to have an indefinite useful life. Indefinite-lived intangible assets represent contracts to manage investment assets for which there is no foreseeable limit on the contract period. Trade names intangible assets are amortized over their estimated useful lives which range from five to twenty years using the straight-line method.
Goodwill and indefinite-lived intangible assets are tested for impairment annually as of August 1 and when an event occurs or circumstances change that more likely than not reduce the fair value of the related reporting unit or indefinite-lived intangible asset below its carrying value. The Company has one reporting unit, investment management and related services, consistent with its single operating segment, to which all goodwill has been assigned. Amortization and impairment are recognized in general, administrative and other expense.
Goodwill and indefinite-lived intangible assets may first be assessed for qualitative factors to determine whether it is necessary to perform a quantitative impairment test. The qualitative analysis considers entity-specific and macroeconomic factors and their potential impact on the key assumptions used in the determination of the fair value of the reporting unit or indefinite-lived intangible asset. A quantitative impairment test is performed if the results of the qualitative assessment indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying value or an indefinite-lived intangible asset is impaired, or if a qualitative assessment is not performed.
The

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If a quantitative goodwill impairment test involves a two-step process. The first step comparesindicates that the carrying value of the goodwill exceeds the fair value of the reporting unit, to its carrying value. Ifimpairment is recognized in the amount of the excess of the carrying value is less than the fair value, no impairment exists and the second step is not performed. If the carrying value is higher than the fair value, there is an indication that impairment may exist and the second step is performed to compute the amount of any impairment. In the second step, impairment is computed by comparingover the implied fair value of the reporting unit goodwill, withwhich considers the carryingfair value assigned to all other assets and liabilities of the goodwill.reporting unit.
TheIf a quantitative indefinite-lived intangible assets impairment test comparesindicates that the faircarrying value of the asset to its carrying value. If the carrying value is higher thanexceeds the fair value, impairment is recognized in the amount of the difference in values.
In estimating theThe fair valuevalues of the reporting unit and indefinite-lived intangible assets are based on the Company uses an income approach under whichnet present value of estimated future cash flows, are discounted. The future cash flow estimateswhich include assumptions about the AUM growth rate, pre-tax profit margin, discount rate, average effective fee rate and effective tax rate and discount rate, which is based on the Companys weighted average cost of capital.rate.
Definite-lived intangible assets are tested for impairment quarterly. Impairment is indicated when the carrying value of thean asset is not recoverable and exceeds its fair value. In evaluating the recoverability of definite-lived intangible assets, the Company estimates theRecoverability is evaluated based on estimated undiscounted future cash flows to be derived from these assets. The future undiscounted cash flow projections includeusing assumptions about the AUM growth and effective fee rates, investor redemptions, therate, pre-tax profit margin, average effective fee rate and expected useful lives.lives as well as royalty rate for trade name intangible assets. If the carrying value of an asset is not recoverable through the related undiscounted cash flows, the


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impairment is measured based onrecognized in the amount by which the carrying value ofexceeds the asset exceeds itsasset’s fair value, as determined by discounted cash flows or other methods as appropriate for the asset type.
ImpairmentFair Value Measurements. The Company uses 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. The three levels of fair value hierarchy are set forth below. The assessment of the hierarchy level of the assets or liabilities measured at fair value is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities, which may include published net asset values (“NAV”) for fund products.
Level 2Observable inputs other than Level 1 quoted prices, such as non-binding quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in inactive markets, or model-based valuation methodologies that utilize significant assumptions that are observable or corroborated by observable market data.
Level 3Unobservable inputs that are supported by little or no market activity. These inputs require significant management judgment and reflect the Company’s estimation of assumptions that market participants would use in pricing the asset or liability.

Quoted market prices may be adjusted if events occur, such as significant price changes in proxies traded in relevant markets after the close of corresponding markets, trade halts or suspensions, or unscheduled market closures. These proxies consist of correlated country-specific exchange-traded securities, such as futures, American Depositary Receipts indices or exchange-traded funds. The price adjustments are primarily determined based on third-party factors derived from model-based valuation techniques for which the significant assumptions are observable in the market.
A substantial amount of the Company’s investments is recorded at fair value or amounts that approximate fair value on a recurring basis. Investments in fund products for which fair value is estimated using NAV as a practical expedient (when the NAV is available to the Company as an investor but is not publicly available) are not classified in the fair value hierarchy. Fair values are estimated for disclosure purposes for financial instruments that are not measured at fair value.
Cash and Cash Equivalents primarily consist of nonconsolidated sponsored money market funds and deposits with financial institutions and are carried at cost. Due to the short-term nature and liquidity of these financial instruments, their carrying values approximate fair value.
The Company maintains cash and cash equivalents with financial institutions in various countries, limits the amount of credit exposure with any given financial institution and conducts ongoing evaluations of the creditworthiness of the financial institutions with which it does business.
Receivables consist primarily of fees receivable from investment products and are carried at invoiced amounts. Due to the short-term nature and liquidity of the receivables, their carrying values approximate fair value.


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Investments consist of investments in sponsored funds and separate accounts, investments related to long-term incentive plans, other equity and debt securities, investments in equity method investees and other investments.
Sponsored funds and separate accounts consist primarily of nonconsolidated sponsored funds and to a lesser extent, separate accounts. Sponsored funds and separate accounts are carried at fair value with changes in the fair value recognized as gains and losses in earnings. The fair values of funds are determined based on their published NAV or estimated using NAV as a practical expedient. The fair values of separate accounts are determined using quoted market prices, or independent third-party broker or dealer price quotes if quoted market prices are not available.
Investments related to long-term incentive plans consist primarily of investments in sponsored funds related to certain compensation plans that have vesting provision and are carried at fair value. Changes in fair value are recognized as gains and losses in earnings. The fair values of the investments are determined based on the funds’ published NAV or estimated using NAV as a practical expedient.
Other equity and debt securities consist of equity investment securities and debt securities classified as trading or available-for-sale and are carried at fair value. Changes in the fair value of trading securities are recognized as gains and losses in earnings. Unrealized gains and losses on available-for-sale securities are recorded net of tax as part of accumulated other comprehensive income (loss) until realized, at which time they are recognized in earnings using the average cost method. The fair values of equity securities are determined using independent third-party broker or dealer price quotes or based on discounted cash flows using significant unobservable inputs. The fair values of debt securities are determined using independent third-party broker or dealer price quotes or based on discounted cash flows using significant unobservable inputs.
Investments in Equity Method Investees consist of equity investments in entities, including sponsored funds, over which the Company is able to exercise significant influence, but not control. Significant influence is generally considered to exist when the Companys ownership interest in the investee is between 20% and 50%, although other factors, such as representation on the investees board of directors and the impact of commercial arrangements, also are considered in determining whether the equity method of accounting is appropriate. Investments in limited partnerships and limited liability companies are accounted for using the equity method when the Companys investment is more than minor or when the Company is the general partner. Under the equity method of accounting, the investments are initially carried at cost and subsequently adjusted by the Companys proportionate share of the entities net income, which is recognized in general, administrativeearnings.
Other Investments consist of equity investments in entities over which the Company is unable to exercise significant influence and do not have a readily determinable fair value, and time deposits with maturities greater than three months from the date of purchase. The equity investments are measured at cost adjusted for observable price changes and impairment, if any, which are recognized in earnings. The fair value of the entities is generally estimated using significant unobservable inputs in either a market-based or income-based approach. The time deposits are carried at cost, which approximates fair value due to their short-term nature and liquidity. Life settlement contracts, which were disposed during fiscal year 2020, were carried at fair value, determined based on discounted cash flows using significant unobservable inputs.
Impairment of Investments. Investments in available-for-sale securities, equity method investees and equity investments that do not have a readily determinable fair value are evaluated for impairment on a quarterly basis. The evaluation of equity investments considers qualitative factors, including the financial condition and specific events related to an investee, that may indicate the fair value of the investment is less than its carrying value. Impairment of equity securities is recognized in earnings.
Cash and Cash Equivalents of CIPs consist of highly liquid investments, including money market funds, which are readily convertible into cash, and deposits with financial institutions, and are carried at cost. Due to the short-term nature and liquidity of these financial instruments, their carrying values approximate fair value.
Receivablesof CIPs consist of investment and share transaction related receivables and are carried at transacted amounts. Due to the short-term nature and liquidity of the receivables, their carrying values approximate fair value.
Investments of CIPs consist of marketable debt and equity securities and other expense.investments that are not generally traded in active markets and are carried at fair value. Changes in the fair value of the investments are recognized as gains and losses in earnings. The fair values of marketable securities are determined using quoted market prices, or independent third-party broker or dealer price quotes if quoted market prices are not available.


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The investments that are not generally traded in active markets consist of equity and debt securities of entities in emerging markets, fund products, other equity and debt instruments, real estate and loans. The fair values are determined using significant unobservable inputs in either a market-based or income-based approach, except for fund products, for which fair values are estimated using NAV as a practical expedient.
Property and Equipment, net are recorded at cost and depreciated using the straight-line method over their estimated useful lives which range from three to 35 years. Expenditures for repairs and maintenance are charged to expense when incurred. Leasehold improvements are amortized using the straight-line method over their estimated useful lives or the lease term, whichever is shorter.
Internal and external costs incurred in connection with developing or obtaining software for internal use are capitalized and amortized over the shorter of the estimated useful lives of the software or the license terms, beginning when the software project is complete and the application is put into production.
Property and equipment are tested for impairment when there is an indication that the carrying value of an asset may not be recoverable. Carrying values are not recoverable when the undiscounted cash flows estimated to be generated by the assets are less than their carrying values. When an asset is determined to not be recoverable, the impairment is measured based on the excess, if any, of the carrying value of the asset over its respective fair value. Fair value is determined by discounted future cash flows models, appraisals or other applicable methods.
Leases consist primarily of operating leases relating to real estate. At the inception of a contract, the Company determines whether it is or contains a lease, which includes consideration of whether there are identified assets in the contract and if the Company has control over such assets. Right-of-use (“ROU”) assets and lease liabilities are recognized for all arrangements that qualify as a lease, except for those with original lease terms of twelve months or less.
ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the future lease payments using an incremental borrowing rate estimated on a collateralized basis with similar terms for the specific interest rate environment. Leases with fixed payments are expensed on a straight-line basis over the lease term. Variable lease payments based on usage, changes in an index or market rate are expensed as incurred. The lease terms include options to extend or terminate the lease when it is reasonably certain they will be exercised.
Lease and nonlease payment components are accounted for separately. ROU assets are tested for impairment when there is an indication that the carrying value of an asset may not be recoverable.
Deferred Sales Commissions consist of up-frontupfront commissions paid to financial advisers and broker-dealers on shares of sponsored funds sold without a front-end sales charge, to investors, and are amortized over the periods in which they are generally recovered from related revenues, which range from one18 months to seven years. Deferred sales commissions are included in other assets in the consolidated balance sheet.
Debt consists of senior notes and junior notes which are carried at amortized cost. At September 30, 2016, debt also included a loan. The fair values arevalue is estimated using quoted market prices, independent third-party broker or dealer price quotes, or prices of publicly traded debt with similar maturities, credit risk and interest rates. Amortization of debt premium and discount are recognized in interest expense.
Debt of Consolidated SIPs CIPs is carried at amortized cost. The fair value is estimated using a discounted cash flow model that considers current interest rate levels, the quality of the underlying collateral and current economic conditions. At September 30, 2016,2020, debt of consolidated SIPsCIPs also included debt of consolidated CLOscollateralized loan obligations (“CLOs”) which was measured primarily based on the fair value of the assets of the CLOs less the fair value of the Company’s own economic interests in the CLOs.
Contingent Consideration Liability consistsNoncontrolling Interests consist of the expected future payments related to the Company’s commitment to acquire the remainingthird-party equity interests in K2 Advisors Holdings, LLC (“K2”)CIPs and is includedminority interests in other liabilities in the consolidated balance sheet. The liability is carried at fair value, determined using an income-based method which considers the net present value of anticipated future cash flows based on estimated future revenue and profits and timing of payments.
Noncontrolling Interests relate almost entirely to consolidated SIPs.certain subsidiaries. Noncontrolling intereststhat are currently redeemable or convertible for cash or other assets at the option of the holder are classified as temporary equity.equity at the higher of fair value on reporting date or issuance-date fair value. Changes in fair value of redeemable noncontrolling interest is recognized as an adjustment to retained earnings. Nonredeemable noncontrolling interests are classified as a component of equity. Net income (loss) attributable to third-party investors is reflected as net income (loss) attributable to nonredeemable and redeemable noncontrolling interests in the consolidated statements of income. Sales and redemptions of shares of consolidated SIPsCIPs by third-party investors are a component of the change in noncontrolling interests included in financing activities in the consolidated statements of cash flows.


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The fair values of third-party equity interests in CIPs are determined based on the published NAV or estimated using NAV a practical expedient. The fair values of redeemable noncontrolling interests related to minority interest in certain subsidiaries are determined using discounted cash flows and guideline public company methods, which include significant assumptions about forecasts of the AUM growth rate, pre-tax profit margin, discount rate and public company earnings multiples.
Revenues. The Company earns revenue primarily from providing investment management and related services to its customers, which are generally investment products or investors in separate accounts. Related services include fund administration, sales and distribution, and shareholder servicing. Revenues are recognized when the Company’s obligations related to the services are satisfied and it is probable that a significant reversal of the revenue amount would not occur in future periods. The obligations are satisfied over time as the services are rendered, except for the sales and distribution obligations for the sale of shares of sponsored funds which are satisfied on trade date. Multiple services included in customer contracts are accounted for separately when the obligations are determined to be distinct.
Fees from providing investment management and fund administration services (“investment management fees”), distribution fees and shareholder servicing fees are recognized as earned, over the period in which services are rendered, except forother than performance-based investment management fees, which are recognized when earned. Sales commissions related to the sale of shares of SIPs are recognized on trade date. Investment management fees, other than performance-based fees, and distribution fees, are determined based on a percentage of AUM, primarily on a monthly basis using daily average daily AUM.AUM, and are recognized as the services are performed over time. Performance-based investment management fees are based ongenerated when investment products’ performance exceeds targets established in customer contracts. These fees are recognized when the relatedamount is no longer probable of significant reversal and may relate to investment management contracts. services that were provided in prior periods.
Sales and distribution fees primarily consist of upfront sales commissions and ongoing distribution fees. Sales commissions are based on contractual rates for sales of certain classes of sponsored funds and are recognized on trade date. Distribution service fees are determined based on a percentage of AUM, primarily on a monthly basis using daily average AUM. As the fee amounts are uncertain on trade date, they are recognized over time as the amounts become known and may relate to sales and distribution services provided in prior periods.
Shareholder servicing fees are generally calculatedprimarily determined based on a percentage of AUM on a monthly basis using daily average AUM and either the number and type of transactions in shareholder accounts serviced.or the number of shareholder accounts, while fees from certain investment products are based only on AUM. The fees are recognized as the services are performed over time.
AUM is generally based on the fair value of the underlying securities held by SIPsinvestment products and is calculated using fair value methods derived primarily from unadjusted quoted market prices, unadjusted independent third-party broker or dealer price quotes in active markets, or market prices or price quotes adjusted for observable price movements after the close of the primary market.market in accordance with the Company’s global valuation and pricing policy. The fair values of the underlying securities for which market prices are not readily available are valued internally valued using various methodologies which incorporate significant unobservable inputs as appropriate for each security type and represent an insignificant percentage of total AUM. Pricing of the securities held by SIPs
Revenue is governed by the Companys global valuation and pricing policy, which defines valuation and pricing conventions for each security type, including practices for responding to unexpected or unusual market events.
Sales commissions and distribution fees are recorded gross of sales and distribution expenses paidpayments made to financial advisers and other intermediaries asthird-party service providers in the Company acts as the principal in itsCompany’s role as primary obligorprincipal as it controls the delegated services provided to customers.
Costs of obtaining a contract with a customer include internal and external sales commissions paid upon inception of a contract. The cost to obtain a contract is capitalized if it is incremental and would not have been incurred if the sales and distribution agreements.contract had not been obtained. Capitalized contract costs are amortized based on average investor tenure, which range from five to 10 years.
Stock-Based Compensation. The fair value of share-basedstock-based payment awards is estimated on the date of grant based on the market price of the underlying shares of the Companys common stock and is amortized to compensation expense on a straight-line basis over the related vesting period, which is generally three years. Expense relating to awards subject to performance conditions is recognized if it is probable that the performance goalsconditions will be achieved. The probability of achievement is assessed on a quarterly basis. The total number of awards expected to vest is adjustedForfeitures are accounted for estimated forfeitures.as they occur.


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Postretirement Benefits. Defined contribution plan costs are expensed as incurred.


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Income Taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts in the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is expected to be recovered or settled, respectively. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying values of deferred tax assets to the amount that is more likely than not to be realized. For each tax position taken or expected to be taken in a tax return, the Company determines whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is measured to determine the amount of benefit to recognize. The tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon settlement. The Company recognizes the accrual of interestInterest on uncertain tax positionsmatters is recognized in interest expense and penalties in other operating expenses.
As a multinational corporation, the Company operates in various locations outside the United StatesU.S. and generates earnings fromworldwide. The Company repatriates its foreign earnings that are in excess of regulatory, capital or operational requirements of all of its non-U.S. subsidiaries. The Company indefinitely reinvests the undistributed earnings of all its non-U.S. subsidiaries, except for income previously taxed in the U.S. or subject to regulatory or legal repatriation restrictions or requirements.
Foreign Currency Translation and Transactions. Assets and liabilities of non-U.S. subsidiaries for which the local currency is the functional currency are translated at current exchange rates as of the end of the accounting period. The related revenues and expenses are translated at average exchange rates in effect during the period. Net exchange gains and losses resulting from translation are excluded from income and are recorded as part of accumulated other comprehensive income (loss). Transactions denominated in a foreign currency are revalued at the current exchange rate at the transaction date and any related gains and losses are recognized in earnings.
Note 2 – New Accounting Guidance
Recently Adopted Accounting Guidance
On October 1, 2016,2019, the Company adopted an amendment to the consolidationnew guidance issued by the Financial Accounting Standards Board (“FASB”) using the modified retrospective approach which did not require the restatement of prior-year periods. The amendment modifies the consolidation framework for certain investment entities and all limited partnerships. It also eliminates certain criteria used to determine whether fees paid to a decision maker are a variable interest and results in a lower consolidation threshold for VIEs. The adoption caused the consolidation of 24 SIPs that changed from VOEs to VIEs and three other SIPs that are VIEs. In addition, two CLOs for which the Company was previously the primary beneficiary and five limited partnerships were deconsolidated. The adoption resulted in net increases in total assets, redeemable noncontrolling interests and retained earnings of $180.9 million, $824.7 million and $5.8 million, and net decreases in total liabilities, nonredeemable noncontrolling interests and other equity of $317.9 million, $324.6 million and $7.1 million as of October 1, 2016.
Accounting Guidance Not Yet Adopted
The FASB issued an amendment to the existing stock-based compensation guidance in March 2016. The amendment requires all income tax effects of stock-based awards to be recognized as income tax expense when the awards vest or settle and clarifies the classification of these transactions within the statement of cash flows. The amendment also provides an election to account for forfeitures as they occur, which the Company will make. The Company will adopt the amendment on October 1, 2017. The income tax effect and statement of cash flow changes will be adopted on a prospective basis, and the forfeitures change will be adopted using a modified retrospective basis which will not have a material impact on retained earnings. The Company expects the adoption to increase the volatility of income tax expense as a result of fluctuations in its stock price.
The FASB issued new guidance in May 2014 that requires use of a single principles-based model for recognition of revenue from contracts with customers. The core principle of the model is that revenue is recognized upon the transfer of promised goods or services to customers in an amount that reflects the expected consideration to be received for the goods or services. The guidance also changes the accounting for certain contract costs and revises the criteria for determining if an entity is acting as a principal or agent in certain arrangements. The guidance is effective for the Company on October 1, 2018


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and allows for either a full retrospective or modified approach at adoption. While the Company’s implementation efforts are ongoing, it does not expect adoption of the guidance to have a significant impact on the timing of recognition for the majority of its operating revenue. The Company is evaluating certain costs to determine if they should be capitalized or expensed based on the criteria in the guidance for costs to obtain or fulfill a contract. Additionally, it is assessing certain arrangements to determine whether it continues to act as a principal and present the related revenue gross of associated expenses. The overall impact upon adoption may differ based on further evaluation, issuance of additional interpretive guidance and other facts and circumstances identified during implementation. The Company has not yet determined its transition approach.
The FASB issued an amendment to the existing financial instruments guidance in January 2016. The amendment requires substantially all equity investments in nonconsolidated entities to be measured at fair value with changes recognized in earnings, except for those accounted for using the equity method of accounting, which will impact all equity securities currently classified as available-for-sale. The amendment also provides an election to measure equity investments that do not have a readily determinable fair value at cost less impairment, if any, which the Company expects to take. The amendment is effective for the Company on October 1, 2018 and requires a cumulative effect adjustment to retained earnings at adoption. The Company does not expect the adoption to have a material impact on its consolidated financial statements; however, this could be affected by market volatility as well as additional facts and circumstances identified during implementation.
The FASB issued new guidance for the accounting for leases in February 2016.leases. The new guidance requires lessees to recognize assets and liabilities arising from substantially all leases. The guidance also requires an evaluation at the inception of a contract to determine whether the contract is or contains a lease. The Company adopted the new guidance is effective forusing the Company onmodified retrospective approach and recognized right-of-use assets of $274.5 million and lease liabilities of $315.2 million, substantially all of which relate to real estate leases. The right-of-use assets recognized as of October 1, 2019 and requires a modified retrospective approach at adoption. The Company is currently evaluatingwere net of $40.7 million of deferred rent previously included in other liabilities on the impact of adopting the guidance.consolidated balance sheet. See Note 15 – Leases for additional disclosures.
Accounting Guidance Not Yet Adopted
The FASB issued new guidance for the accounting for credit losses in June 2016. The new guidance requires the application of a current expected credit loss model for financial assets measured at amortized cost, including receivables, and an allowance for credit loss model for available-for-sale debt securities. The guidance is effective forCompany will adopt the Companyguidance on October 1, 2020 and requiresexpects to recognize a cumulative effect adjustment to retained earnings of approximately $6 million.
Note 3 Acquisitions
Legg Mason, Inc.
On July 31, 2020, the Company acquired all outstanding shares of Legg Mason, Inc. (“Legg Mason”) common stock for a purchase consideration of $4.5 billion in cash and $0.2 billion related to the settlement of historical compensation arrangements. Legg Mason has outstanding debt with an aggregate principal amount due of $2.0 billion. The acquisition of Legg Mason, a global investment management organization, establishes the Company as of one of the world’s largest independent, specialized global investment managers, significantly deepens the Company’s presence in key geographies and creates an expansive investment platform that is well balanced between institutional and retail client AUM. The EnTrust business was acquired by its management concurrent with the closing of the acquisition.
The purchase price allocation is preliminary and subject to change during the measurement period, which is not to exceed one year from the acquisition date. At this time, the Company does not expect material changes to the assets acquired or liabilities assumed with the exception of deferred tax assets and liabilities which were valued using preliminary assumptions.


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The initial estimated fair values of the assets acquired and liabilities and noncontrolling interests assumed were as follows:
(in millions) 
Estimated
Fair Value
as of July 31, 2020 
Cash and cash equivalents $681.1
Cash and cash equivalents of consolidated investment products 253.4
Investments 471.8
Investments of consolidated investment products 402.9
Receivables 525.7
Indefinite-lived intangible assets 2,727.8
Definite-lived intangible assets1
 1,353.8
Goodwill 2,325.0
Deferred tax assets 148.4
Other assets 530.7
Debt (2,324.4)
Debt of consolidated investment products (330.8)
Compensation and benefits (579.9)
Deferred tax liabilities (315.4)
Other liabilities (926.4)
Redeemable noncontrolling interests (186.4)
Nonredeemable noncontrolling interests (20.1)
Total Identifiable Net Assets $4,737.2

______________
1
Includes $1,123.2 million related to management contracts and $230.6 million related to trade names.
The goodwill is primarily attributable to expected growth opportunities and synergies from the combined operations and is not deductible for tax purposes.
The intangible assets relate to acquired investment management contracts and trade names. Indefinite-lived intangible assets represent contracts for which there is no foreseeable limit on the contract period. Definite-lived intangible assets are amortized over their estimated useful lives, which range from 5.0 years to 7.0 years for those related to the contracts and 5.0 years to 20.0 years for those related to trade names. The definite-lived intangible assets related to the contracts and trade names have estimated weighted-average useful lives of 5.9 years and 14.5 years, respectively.
The Legg Mason debt is recorded at adoption.fair value on acquisition-date and includes a premium of $324.4 million.
Transaction costs incurred in connection with the acquisition were $57.4 million in fiscal year 2020. These costs were primarily comprised of professional fees, recorded in general, administrative and other expenses. The Company also incurred $119.6 million of acquisition-related compensation and benefits expense in fiscal year 2020, primarily related to the acceleration of expense for historical Legg Mason compensation arrangements and retention bonuses.
Revenue and net loss of Legg Mason included in total operating revenues and net income attributable to Franklin Resources, Inc. in the accompanying consolidated statements of income from the acquisition date through September 30, 2020 were $475.7 million and $28.7 million, respectively.


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The following unaudited pro forma summary presents combined results of operations of the Company as if the Legg Mason acquisition and concurrent divestiture of EnTrust business had occurred on October 1, 2018. The pro forma adjustments include acquisition-related costs, adjustments to intangible amortization expense, and interest expense related to debt assumed. These pro forma results are not indicative of future results of operations that would have been achieved nor are they indicative of future results of operations of the combined entity.
(in millions)    
for the fiscal year ended September 30, 2020 2019
Revenues $7,862.0
 $8,436.0
Net Income Attributable to Franklin Resources, Inc. 967.5
 886.6

Benefit Street Partners L.L.C.
On February 1, 2019, the Company acquired all of the outstanding ownership interests in Benefit Street Partners L.L.C. (“BSP”), a U.S. alternative credit manager, for a purchase consideration of $720.1 million in cash, of which $135.0 million was used to retire debt. The acquisition provides the Company private credit capabilities that complement its alternative and fixed income strategies available to clients.
The estimated fair values of the assets acquired and liabilities and noncontrolling interests assumed were as follows:
(in millions) 

Estimated
Fair Value
as of February 1, 2019 
Cash $33.2
Investments 138.8
Investments of consolidated investment products 84.9
Indefinite-lived intangible assets 280.1
Definite-lived intangible assets 75.8
Goodwill 345.7
Other assets 35.2
Other liabilities (57.5)
Nonredeemable noncontrolling interests (216.1)
Total Identifiable Net Assets $720.1

The goodwill is currently evaluatingprimarily attributable to expected growth from the impactprivate credit asset class. The amount of adoptinggoodwill expected to be deductible for tax purposes is $453.2 million, which includes deferred payments that are recognized as compensation expense for accounting purposes.
Costs incurred in connection with the guidance.acquisition were $6.8 million in the fiscal year ended September 30, 2019 (“fiscal year 2019”).
The Company has not presented pro forma combined results of operations for the acquisition of BSP, because the results of operations as reported in the accompanying consolidated statements of income would not have been materially different.


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Note 3 4 Earnings per Share
The components of basic and diluted earnings per share were as follows:
(in millions, except per share data)      
for the fiscal years ended September 30, 2020 2019 2018
Net income attributable to Franklin Resources, Inc. $798.9
 $1,195.7
 $764.4
Less: allocation of earnings to participating nonvested stock and stock unit awards 15.3
 10.9
 17.6
Net Income Available to Common Stockholders $783.6
 $1,184.8
 $746.8
       
Weighted-average shares outstanding – basic 491.9
 503.6
 537.4
Dilutive effect of nonparticipating nonvested stock unit awards 0.5
 0.7
 0.6
Weighted-Average Shares Outstanding – Diluted 492.4
 504.3
 538.0
       
Earnings per Share      
Basic $1.59
 $2.35
 $1.39
Diluted 1.59
 2.35
 1.39

(in millions, except per share data)      
for the fiscal years ended September 30, 2017 2016 2015
Net income attributable to Franklin Resources, Inc. $1,696.7
 $1,726.7
 $2,035.3
Less: allocation of earnings to participating nonvested stock and stock unit awards 12.4
 10.9
 12.0
Net Income Available to Common Stockholders $1,684.3
 $1,715.8
 $2,023.3
       
Weighted-average shares outstanding – basic 558.8
 583.8
 614.8
Dilutive effect of nonparticipating nonvested stock unit awards 0.3
 
 0.1
Weighted-Average Shares Outstanding – Diluted 559.1
 583.8
 614.9
       
Earnings per Share      
Basic $3.01
 $2.94
 $3.29
Diluted 3.01
 2.94
 3.29
Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings per share because their effect would have been antidilutive were 0.70.5 million for fiscal year 20172020, 1.30.2 million for fiscal year 2019, and 0.3 million for the fiscal year ended September 30, 20162018 (“fiscal year 2016”), and 0.9 million for the fiscal year ended September 30, 2015 (“fiscal year 2015”2018”).


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Note 5 Revenues
Operating revenues by geographic area were as follows:
(in millions) 
United
States
 Luxembourg 
Americas
Excluding
United
States
 
Asia-
Pacific
 
Europe,
Middle East
and Africa,
Excluding
Luxembourg
 Total
for the fiscal year ended
September 30, 2020
Investment management fees $2,482.5
 $910.1
 $269.2
 $217.6
 $102.3
 $3,981.7
Sales and distribution fees 928.8
 366.1
 51.9
 13.6
 1.6
 1,362.0
Shareholder servicing fees 158.6
 25.5
 0.3
 8.4
 2.3
 195.1
Other 24.9
 1.2
 0
 0.6
 1.0
 27.7
Total $3,594.8
 $1,302.9
 $321.4
 $240.2
 $107.2
 $5,566.5
(in millions) 
United
States
 Luxembourg 
Americas
Excluding
United
States
 
Asia-
Pacific
 
Europe,
Middle East
and Africa,
Excluding
Luxembourg
 Total
for the fiscal year ended
September 30, 2019
Investment management fees $2,260.6
 $1,064.7
 $325.4
 $241.8
 $92.7
 $3,985.2
Sales and distribution fees 941.3
 437.2
 63.3
 1.3
 1.5
 1,444.6
Shareholder servicing fees 175.7
 30.1
 0.1
 10.4
 0
 216.3
Other 18.6
 1.5
 0
 1.0
 2.2
 23.3
Total $3,396.2

$1,533.5

$388.8

$254.5

$96.4

$5,669.4



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(in millions) 
United
States
 Luxembourg 
Americas
Excluding
United
States
 
Asia-
Pacific
 
Europe,
Middle East
and Africa,
Excluding
Luxembourg
 Total
for the fiscal year ended
September 30, 2018
Investment management fees $2,309.5
 1,213.5
 $463.8
 $283.3
 $97.4
 $4,367.5
Sales and distribution fees 1,108.2
 482.2
 6.4
 2.9
 0.1
 1,599.8
Shareholder servicing fees 177.2
 33.7
 0.2
 10.8
 0
 221.9
Other 12.6
 2.3
 0
 0.4
 0
 15.3
Total $3,607.5
 $1,731.7
 $470.4
 $297.4
 $97.5
 $6,204.5

Operating revenues are attributed to geographic areas based on the locations of the subsidiaries that provide the services, which may differ from the regions in which the related investment products are sold.
Note 46 – Investments
The disclosures below include details of the Company’s investments, excluding those of consolidated SIPs.CIPs. See Note 911 – Consolidated Sponsored Investment Products for information related to the investments held by these entities.
Investments consisted of the following:
(in millions)    
as of September 30, 2020 2019
Investments, at fair value    
Sponsored funds and separate accounts $303.4
 $533.6
Investments related to long-term incentive plans 146.6
 0
Other equity and debt investments 54.8
 44.6
Life settlement contracts 0
 11.5
Total investments, at fair value 504.8
 589.7
Investments in equity method investees 682.2
 933.4
Other investments 83.5
 32.7
Total $1,270.5
 $1,555.8

(in millions)    
as of September 30, 2017 2016
Investment securities, trading    
SIPs $31.1
 $844.4
Debt and other equity securities 283.4
 277.5
Total investment securities, trading 314.5
 1,121.9
Investment securities, available-for-sale    
SIPs 110.8
 297.7
Debt and other equity securities 1.9
 3.7
Total investment securities, available-for-sale 112.7
 301.4
Investments in equity method investees 893.5
 797.4
Other investments 72.9
 195.9
Total $1,393.6
 $2,416.6
Debt and other equity trading securities consist primarily of corporate debt.
Investment securities with aggregate carrying amounts of $0.8 million and $117.3 million were pledged as collateral at September 30, 2017 and 2016.
Gross unrealized gains and losses relating to investment securities, available-for-sale were as follows:
    Gross Unrealized  
(in millions)Cost Basis Gains Losses Fair Value
as of September 30, 2017        
SIPs $107.9
 $9.4
 $(6.5) $110.8
Debt and other equity securities 1.9
 
 
 1.9
Total $109.8
 $9.4
 $(6.5) $112.7
         
as of September 30, 2016        
SIPs $289.6
 $13.7
 $(5.6) $297.7
Debt and other equity securities 3.6
 0.1
 
 3.7
Total $293.2
 $13.8
 $(5.6) $301.4


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Gross unrealized losses relating to investment securities, available-for-sale aggregated by length of time that individual securities have been in a continuous unrealized loss position were as follows:
  Less Than 12 Months 12 Months or Greater Total
 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses
(in millions)     
as of September 30, 2017            
SIPs $28.4
 $(6.3) $2.4
 $(0.2) $30.8
 $(6.5)
             
as of September 30, 2016            
SIPs $75.8
 $(4.3) $18.0
 $(1.3) $93.8
 $(5.6)
The Company recognized $0.8other-than-temporary impairment of $9.7 million $11.1during fiscal year 2020, and $10.5 million and $10.0$1.7 million of other-than-temporary impairment during fiscal years 2017, 20162019 and 2015, of which $5.8 million and $8.2 million in fiscal years 2016 and 2015 related to available-for-sale SIPs.2018.


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Note 57 – Fair Value Measurements
The disclosures below include details of the Company’s fair value measurements, excluding those of consolidated SIPs.CIPs. See Note 911 – Consolidated Sponsored Investment Products for information related to fair value measurements of the assets and liabilities of these entities.
The assets and liability measured at fair value on a recurring basis were as follows:
(in millions) Level 1 Level 2 Level 3 Total
as of September 30, 2017    
Assets        
Investment securities, trading        
SIPs $31.1
 $
 $
 $31.1
Debt and other equity securities 18.2
 78.4
 186.8
 283.4
Investment securities, available-for-sale        
SIPs 110.8
 
 
 110.8
Debt and other equity securities 1.0
 0.6
 0.3
 1.9
Life settlement contracts 
 
 12.8
 12.8
Total Assets Measured at Fair Value $161.1
 $79.0
 $199.9
 $440.0
         
Liability        
Contingent consideration liability $
 $
 $51.0
 $51.0



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(in millions) Level 1 Level 2 Level 3 Total
as of September 30, 2016    
Assets        
Investment securities, trading        
SIPs $844.4
 $
 $
 $844.4
Debt and other equity securities 2.6
 84.1
 190.8
 277.5
Investment securities, available-for-sale        
SIPs 297.7
 
 
 297.7
Debt and other equity securities 1.6
 2.1
 
 3.7
Life settlement contracts 
 
 14.3
 14.3
Total Assets Measured at Fair Value $1,146.3
 $86.2
 $205.1
 $1,437.6
         
Liability        
Contingent consideration liability $
 $
 $98.1
 $98.1
There were no transfers between Level 1 and Level 2, or into Level 3, during fiscal years 2017 and 2016.
Changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:
(in millions) Level 1 Level 2 Level 3 NAV as a
Practical
Expedient
 Total
as of September 30, 2020     
Assets          
Investments, at fair value          
Sponsored funds and separate accounts $176.3
 $40.9
 $17.4
 $68.8
 $303.4
Investments related to long-term incentive plans 145.5
 0
 0
 1.1
 146.6
Other equity and debt investments 2.1
 1.5
 0
 51.2
 54.8
Contingent consideration asset 0
 0
 39.7
 
 39.7
Total Assets Measured at Fair Value $323.9
 $42.4
 $57.1
 $121.1
 $544.5
           
Liabilities          
Contingent consideration liabilities $0
 $0
 $25.3
 $
 $25.3


 2017 2016
(in millions) Investments 
Contingent Consideration
Liabilities
 Investments 
Contingent Consideration
Liability
for the fiscal years ended September 30,  
Balance at beginning of year $205.1
 $(98.1) $20.7
 $(102.9)
Acquisition 
 (5.7) 
 
Total realized and unrealized gains (losses)        
Included in investment and other income, net 8.5
 
 (2.4) 
Included in general, administrative and other expense 
 13.8
 
 1.0
Purchases 5.4
 
 190.4
 
Sales (17.7) 
 (4.0) 
Settlements (4.8) 39.0
 (2.8) 3.8
Transfers out of Level 3 (0.4) 
 
 
Foreign exchange revaluation 3.8
 
 3.2
 
Balance at End of Year $199.9
 $(51.0) $205.1
 $(98.1)
Change in unrealized gains (losses) included in net income relating to assets and liability held at end of year $6.0
 $8.1
 $(4.0) $1.0



(in millions) Level 1 Level 2 Level 3 NAV as a
Practical
Expedient
 Total
as of September 30, 2019     
Assets          
Investments, at fair value          
Sponsored funds and separate accounts $417.4
 $26.2
 $20.6
 $69.4
 $533.6
Other equity and debt investments 2.2
 5.4
 0
 37.0
 44.6
Life settlement contracts 0
 0
 11.5
 
 11.5
Total Assets Measured at Fair Value $419.6
 $31.6
 $32.1

$106.4
 $589.7

76Investments for which fair value was estimated using reported NAV as a practical expedient primarily consist of nonredeemable private debt, equity and infrastructure funds, and redeemable global equity funds and investments related to long-term incentive plans. The investments in nonredeemable funds are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets. Investments with known liquidation periods were $51.2 million with an expected weighted-average life of 1.9 years at September 30, 2020, and $46.9 million with an expected weighted-average life of 1.3 years at September 30, 2019. The liquidation period for an investment in a private debt fund of $40.2 million and $48.6 million at September 30, 2020 and 2019 is unknown. The Company’s unfunded commitments to the funds totaled $9.5 million and $4.7 million at September 30, 2020 and 2019. The redeemable global equity funds investment of $25.3 million and $10.1 million at September 30, 2020 and 2019 can be redeemed monthly, and investments related to long-term incentive plans of $1.1 million at September 30, 2020 can be redeemed semi-monthly.


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Valuation techniques and significant unobservable inputs usedChanges in recurringthe Level 3 fair value measurementsassets and liabilities were as follows:

 2020 2019
(in millions) Investments 
Contingent
Consideration
Asset
 
Contingent
Consideration
Liabilities
Investments 
Contingent
Consideration
Liability
for the fiscal years ended September 30, 
Balance at beginning of year $32.1
 $0
 $0
 $32.6
 $(38.7)
Acquisitions 
 39.7
 (27.9) 
 0
Total realized and unrealized gains (losses)          
Included in investment and other income (losses), net 0
 0
 0
 7.0
 0
Included in general, administrative and other expense 0
 0
 2.0
 0
 (2.0)
Purchases 22.6
 0
 0
 10.7
 0
Sales (19.0) 0
 0
 (6.5) 0
Settlements (8.4) 0
 0.6
 (4.6) 40.7
Consolidation of investment product (10.0) 
 
 0
 
Transfers into Level 3 0.1
 0
 0
 0
 0
Transfers out of Level 3 0
 0
 0
 (7.1) 0
Balance at End of Year $17.4
 $39.7
 $(25.3) $32.1
 $0
Change in unrealized gains (losses) included in net income relating to assets and liabilities held at end of year $(1.4) $0
 $0
 $3.4
 $0
(in millions)        
as of September 30, 2017 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average)
Investment securities, trading – debt and other equity securities $175.7
 Market pricing Redemption price $73 per $100 of par
   Discount rate 18.6%
 11.1
 Discounted cash flow Discount rate 4.1%–6.7% (5.7%)
   Risk premium 2.0%–4.1% (2.9%)
         
Life settlement contracts 12.8
 Discounted cash flow Life expectancy 20–123 months (62)
Discount rate 8.0%–20.0% (13.2%)
         
Contingent consideration liability 51.0
 Discounted cash flow AUM growth rate 1.3%–9.4% (5.3%)
EBITDA margin 8.5%–8.9% (8.7%)
Discount rate 14.6%
(in millions)        
as of September 30, 2016 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average)
Investment securities, trading - debt and other equity securities $190.8
 Discounted cash flow Discount rate 3.6%–6.9% (6.7%)
   Risk premium 2.0%–17.9% (16.5%)
   Liquidity discount 0.0%–10.0% (9.6%)
         
Life settlement contracts 14.3
 Discounted cash flow Life expectancy 20–132 months (65)
Discount rate 3.3%–18.0% (11.5%)
         
Contingent consideration liability 98.1
 Discounted cash flow AUM growth rate 2.4%–11.5% (5.9%)
EBITDA margin 14.3%
Discount rate 13.2%
For investment securities, trading - debt and other equity securities using the market pricing technique, a significant increase (decrease) in the redemption price in isolation would result in a significantly higher (lower) fair value measurement, while a significant increase (decrease) in the discount rate in isolation would result in a significantly lower (higher) fair value measurement.
For investment securities, trading - debt and other equity securities using the discounted cash flow technique, a significant increase (decrease) in the discount rate, risk premium or liquidity discount in isolation would result in a significantly lower (higher) fair value measurement.
For life settlement contracts, a significant increase (decrease) in the life expectancy or the discount rate in isolation would result in a significantly lower (higher) fair value measurement.
For the contingent consideration liability, a significant increase (decrease) in the AUM growth rate or EBITDA margin, or decrease (increase) in the discount rate, in isolation would result in a significantly higher (lower) fair value measurement.


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Financial instruments that were not measured at fair value were as follows:
  
Fair
Value
Level
 2020 2019
(in millions)
Carrying
Value
 
Estimated
Fair Value
Carrying
Value
 
Estimated
Fair Value
as of September 30,
Financial Assets          
Cash and cash equivalents 1 $3,026.8
 $3,026.8
 $5,803.4
 $5,803.4
Other investments          
Time deposits 2 19.2
 19.2
 15.4
 15.4
Equity securities 3 64.3
 67.3
 17.3
 19.2
Loans receivable 3 42.4
 42.4
 0
 0
           
Financial Liability          
Debt 2 $3,017.1
 $3,086.5
 $696.9
 $718.7



88
(in millions)   2017 2016
as of September 30, Fair Value Level Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
Financial Assets          
Cash and cash equivalents 1 $8,523.3
 $8,523.3
 $8,247.1
 $8,247.1
Other investments          
Time deposits 2 13.4
 13.4
 131.6
 131.6
Cost method investments 3 46.7
 67.7
 50.0
 61.3
           
Financial Liabilities          
Debt 
        
Senior notes 2 $1,044.2
 $1,073.5
 $1,348.5
 $1,412.5
Loan 2 
 
 52.7
 52.7


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Note 68 – Property and Equipment
Property and equipment, net consisted of the following:
(in millions)     
Useful Lives
In Years
as of September 30, 2020 2019 
Buildings and leasehold improvements $877.4
 $789.2
 5 – 35
Software 576.2
 522.4
 3 - 10
Equipment and furniture 374.0
 324.3
 3 - 10
Land 83.0
 80.1
 N/A
Total cost 1,910.6
 1,716.0
  
Less: accumulated depreciation and amortization (1,096.8) (1,032.3)  
Property and Equipment, Net $813.8
 $683.7
  

(in millions)     
Useful Lives
In Years
as of September 30, 2017 2016 
Furniture, software and equipment $804.7
 $756.4
 3 – 10
Premises and leasehold improvements 580.9
 563.5
 5 – 35
Land 74.2
 74.1
 N/A
Total cost 1,459.8
 1,394.0
  
Less: accumulated depreciation and amortization (942.6) (870.8)  
Property and Equipment, Net $517.2
 $523.2
  
Depreciation and amortization expense related to property and equipment was $81.5$95.2 million, $81.0$83.2 million and $81.6$78.9 million in fiscal years 20172020, 20162019 and 20152018. The Company recognized $6.6 million of equipment impairment during fiscal year 2018, and insignificant impairment amounts during fiscal year 2019. No impairment of equipment during each year.was recorded in fiscal year 2020.


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Note 79 – Goodwill and Other Intangible Assets
Goodwill and other intangible assets, net consisted of the following:
(in millions)    
as of September 30, 2020 2019
Goodwill $4,500.8
 $2,130.3
Indefinite-lived intangible assets 3,500.8
 799.4
Definite-lived intangible assets, net 1,413.4
 64.8
Goodwill and Other Intangible Assets, Net $9,415.0
 $2,994.5
(in millions)    
as of September 30, 2017 2016
Goodwill $1,687.2
 $1,661.2
Indefinite-lived intangible assets 534.0
 530.9
Definite-lived intangible assets, net 6.5
 19.2
Goodwill and Other Intangible Assets, Net $2,227.7
 $2,211.3

Changes in the carrying value of goodwill were as follows:
(in millions)    
for the fiscal years ended September 30, 2020 2019
Balance at beginning of year $2,130.3
 $1,794.8
Acquisitions 2,389.1
 345.7
Impairment (23.7) 0
Foreign exchange revaluation 5.1
 (10.2)
Balance at End of Year $4,500.8
 $2,130.3

(in millions)    
for the fiscal years ended September 30, 2017 2016
Balance at beginning of year $1,661.2
 $1,661.2
Acquisition 18.8
 
Foreign exchange revaluation 7.2
 
Balance at End of Year $1,687.2
 $1,661.2
Indefinite-lived intangible assets consist of management contracts. NoDuring the fiscal year 2020, a $23.7 million impairment of goodwill orwas recognized due to the decision to wind-down operations of Onsa Inc. (formally known as TokenVault, Inc.) which was acquired in fiscal year 2020. During fiscal years 2019 and 2018, no impairment of goodwill was recognized.
The Company recognized impairments of indefinite-lived intangible assets of $30.0 million and $9.3 million during fiscal years 2020 and 2019. The impairment in fiscal year 2020 was primarily attributable to a BSP related management contract due to declines in revenue growth rates. The impairment in fiscal year 2019 was related to Canadian management contracts due to revised estimates of future pre-tax profit margins and AUM growth rates for the associated fund products. No impairment of indefinite-lived intangible assets was recognized during fiscal years 2017, 2016 and 2015year 2018.


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Definite-lived intangible assets were as follows:
  2020 2019
(in millions) 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
as of September 30,      
Management contracts $1,283.2
 $(109.6) $1,173.6
 $125.4
 $(60.6) $64.8
Trade names 230.6
 (4.0) 226.6
 0
 0
 0
Developed software 14.4
 (1.2) 13.2
 0
 0
 0
Total $1,528.2
 $(114.8) $1,413.4
 $125.4
 $(60.6) $64.8

  2017 2016
(in millions) Gross Carrying Value Accumulated Amortization Net Carrying Value Gross Carrying Value Accumulated Amortization Net Carrying Value
as of September 30,      
Management contracts $52.4
 $(45.9) $6.5
 $60.1
 $(40.9) $19.2
Amortization expense related to definite-lived intangible assets was $3.9 million, $10.4 million and $20.1 million for fiscal years 2017, 2016 and 2015.
The Company recognized impairment of management contract definite-lived intangible assets of $9.6$1.7 million, $28.2$4.0 million and $8.2$5.7 million during fiscal years 20172020, 20162019 and 2015. The impairments were2018, primarily relateddue to the K2 acquisition and resulted from increased investor redemptions, as well as lower estimates of future sales and renegotiations of certain investment management fees in fiscal year 2016.redemptions.
Definite-lived intangible assets had a weighted-average remaining useful life of 8.87.5 years at September 30, 20172020, with estimated remaining amortization expense as follows:
(in millions)  
for the fiscal years ending September 30, Amount
2021 $231.4
2022 231.4
2023 231.4
2024 224.5
2025 212.4
Thereafter 282.3
Total $1,413.4

(in millions)  
for the fiscal years ending September 30, Amount
2018 $1.0
2019 0.8
2020 0.8
2021 0.7
2022 0.5
Thereafter 2.7
Total $6.5


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Note 810 – Debt
The disclosures below include details of the Company’s debt, excluding that of consolidated SIPs.CIPs. See Note 911 – Consolidated Sponsored Investment Products for information related to the debt of these entities.
Debt consisted of the following:
(in millions) 2020 
Effective
Interest Rate
 2019 
Effective
Interest Rate
as of September 30,
Notes issued by Franklin Resources, Inc.        
$300 million 2.800% senior notes due September 2022 $299.8
 2.93% $299.8
 2.93%
$400 million 2.850% senior notes due March 2025 399.7
 2.97% 399.6
 2.97%
Total notes issued by Franklin Resources, Inc. 699.5
   699.4
  
Notes issued by Legg Mason (a subsidiary of Franklin)        
$250 million 3.950% senior notes due July 2024 272.4
 1.53% 0
 N/A
$450 million 4.750% senior notes due March 2026 523.0
 1.80% 0
 N/A
$550 million 5.625% senior notes due January 2044 747.5
 3.38% 0
 N/A
$250 million 6.375% junior notes due March 2056 260.7
 6.08% 0
 N/A
$500 million 5.450% junior notes due September 2056 516.1
 5.25% 0
 N/A
Total notes issued by Legg Mason 2,319.7
   0
  
Other 
      
Loan due December 2019 0
 N/A
 0.2
 9.30%
Debt issuance costs (2.1)   (2.7)  
Total $3,017.1
   $696.9
  



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(in millions) 2017 
Effective
Interest Rate
 2016 
Effective
Interest Rate
as of September 30,
Senior Notes        
$300 million 1.375% notes due September 2017 $
 N/A
 $299.7
 1.66%
$350 million 4.625% notes due May 2020 349.9
 4.74% 349.9
 4.74%
$300 million 2.800% notes due September 2022 299.6
 2.93% 299.5
 2.93%
$400 million 2.850% notes due March 2025 399.5
 2.97% 399.4
 2.97%
Total senior notes 1,049.0
   1,348.5
  
Other        
Loan due March 2017 
 N/A
 52.7
 9.89%
Debt issuance costs (4.8)   
  
Total $1,044.2
   $1,401.2
  

At September 30, 20172020, the Company’sFranklin’s outstanding senior unsecured unsubordinated notes had an aggregate face valueprincipal amount due of $1.1 billion.$700.0 million. The notes have fixed interest rates with interest payable semi-annually.
At September 30, 2020, Legg Mason’s outstanding senior and junior unsecured unsubordinated notes had an aggregate principal amount due of $2,000.0 million. The notes have fixed interest rates with interest payable semi-annually for senior notes and quarterly for junior notes.
The senior notes contain an optional redemption feature that allows the Company to redeem each series of notes prior to maturity in whole or in part at any time, at a make-whole redemption price. The junior notes due March 2056 and September 2056 may only be redeemed in whole prior to March 2021 and September 2021, respectively. The indentures governing the senior notes contain limitations on the Company’s ability and the ability of its subsidiaries to pledge voting stock or profit participating equity interests in its subsidiaries to secure other debt without similarly securing the notes equally and ratably. TheIn addition, the indentures also include requirements that must be met if the Company consolidates or merges with, or sells all or substantially all of its assets to, another entity.
At September 30, 2016, other debt consisted of the outstanding balance of a loan originated in March 2016 for 6.3 billion Indian Rupees ($93.4 million) at a fixed interest rate of 9.89% to purchase certain securities from SIPs domiciled in India. The loan was secured by a standby letter of credit for 6.5 billion Indian Rupees ($96.6 million) collateralized by a $116.0 million time deposit. The loan agreement was amended in February 2017 with a revised maturity of March 2018, and the loan was fully paid in September 2017.
The Company was in compliance with all debt covenants at September 30, 2017.2020.
At September 30, 2017,2020, the Company had $500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program which has been inactive since 2012.

On October 19, 2020, the Company completed its offering and sale of the 1.600% Notes due 2030 with a principal amount of $750.0 million. See Note 22 – Subsequent Event for additional information.

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Note 9 11 Consolidated Sponsored Investment Products
The Company consolidates SIPs, which consist of both VOEs and VIEs, when it has a controlling financial interest. New accounting guidance adopted on October 1, 2016 modified the consolidation framework for certain investment entities and all limited partnerships. See Note 2 - New Accounting Guidance in these notes to consolidated financial statements.
Consolidated SIPsCIPs consist of mutual and other investment funds, limited partnerships and similar structures, and CLOs, all of which are sponsored by the Company, and include both VOEs and VIEs. CLOs are asset-backed financing entities collateralized by a pool of corporate debt securities.loans. The Company consolidated 58 SIPs, none of which arehad 72 CIPs, including 4 CLOs, as of September 30, 20172020 and 40 SIPs, including three60 CIPs, none of which were CLOs, as of September 30, 2016. Amounts for prior periods have been reclassified to combine amounts previously presented separately as consolidated SIPs and consolidated VIEs.2019.
The balances of consolidated SIPsrelated to CIPs included in the Company’s consolidated balance sheets were as follows:
(in millions)    
as of September 30, 2020 2019
Assets    
Cash and cash equivalents $930.7
 $154.2
Receivables 85.8
 99.0
Investments, at fair value 2,709.2
 2,303.9
Total Assets $3,725.7
 $2,557.1
     
Liabilities    
Accounts payable and accrued expenses $510.1
 $81.5
Debt 1,333.4
 50.8
Other liabilities 12.1
 0
Total liabilities 1,855.6
 132.3
Redeemable Noncontrolling Interests 397.3
 746.7
Stockholders Equity
    
Franklin Resources, Inc.’s interests 788.4
 1,129.6
Nonredeemable noncontrolling interests 684.4
 548.5
Total stockholders’ equity 1,472.8
 1,678.1
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders Equity
 $3,725.7
 $2,557.1

(in millions)    
as of September 30, 2017 2016
Assets    
Cash and cash equivalents $226.4
 $236.2
Receivables 234.1
 47.9
Investments, at fair value 3,467.4
 1,513.4
Other assets 0.9
 1.4
Total Assets $3,928.8
 $1,798.9
     
Liabilities    
Accounts payable and accrued expenses $124.1
 $65.2
Debt 53.4
 682.2
Other liabilities 8.7
 8.5
Total liabilities 186.2
 755.9
Redeemable Noncontrolling Interests 1,941.9
 61.1
Stockholders Equity
    
Franklin Resources, Inc.’s interests 1,511.8
 414.1
Nonredeemable noncontrolling interests 288.9
 567.8
Total stockholders’ equity 1,800.7
 981.9
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders Equity
 $3,928.8
 $1,798.9
The consolidated SIPsCIPs did not have a significant impact on net income attributable to the Company in fiscal years 20172020, 20162019 and 20152018.


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The Company has no right to the consolidated SIPs’CIPs’ assets, other than its direct equity investments in them and investment management and other fees earned from them. The debt holders of the consolidated SIPsCIPs have no recourse to the Company’s assets beyond the level of its direct investment, therefore the Company bears no other risks associated with the SIPs’CIPs’ liabilities.
SIPs are typically consolidated when the Company makes an initial investment inFair Value Measurements
Assets and liabilities of CIPs measured at fair value on a newly launched investment entity. They are typically deconsolidated when the Company no longer has a controlling financial interest due to redemptions of its investment or increases in third-party investments. The Company’s investments in SIPs subsequent to deconsolidation are accounted forrecurring basis were as trading or available-for-sale investment securities, or equity method or cost method investments depending on the structure of the SIP and the Company’s role and level of ownership.


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Investments
Investments of consolidated SIPs consisted of the following:follows: 
(in millions)    
as of September 30, 2017 2016
Investment securities, trading $3,017.2
 $287.8
Other equity securities 306.9
 607.3
Other debt securities 143.3
 618.3
Total $3,467.4
 $1,513.4
(in millions) Level 1 Level 2 Level 3 
NAV as a
Practical
Expedient
 Total
as of September 30, 2020
Assets          
Cash and cash equivalents of CLOs $488.8
 $0
 $0
 $
 $488.8
Receivables of CLOs 0
 21.2
 0
 
 21.2
Investments         

Equity and debt securities 177.6
 285.7
 469.7
 261.1
 1,194.1
Loans 0
 1,151.0
 24.9
 
 1,175.9
Real Estate 0
 0
 339.2
 
 339.2
Total Assets Measured at Fair Value $666.4
 $1,457.9
 $833.8

$261.1
 $3,219.2
Investment securities, trading consist of debt and equity securities that are traded in active markets. Other equity securities consist of equity securities of entities in emerging markets and fund products. Other debt securities consist of debt securities of entities in emerging markets and also included corporate debt securities held by CLOs at September 30, 2016.
(in millions) Level 1 Level 2 Level 3 
NAV as a
Practical
Expedient
 Total
as of September 30, 2019
Assets          
Investments          
Equity and debt securities $195.2
 $1,307.5
 $427.8
 $204.1
 $2,134.6
Real estate 0
 0
 152.7
 
 152.7
Loans 0
 0
 16.6
 
 16.6
Total Assets Measured at Fair Value $195.2
 $1,307.5
 $597.1
 $204.1
 $2,303.9

Investments in fund products for which fair value was estimated using reported NAV as a practical expedient were as follows:
(in millions)      
as of September 30, Redemption Frequency 2017 2016
Real estate and private equity funds Nonredeemable $155.2
 $444.2
Hedge funds Monthly, quarterly or triennially 
 1.8
Total   $155.2
 $446.0
The investments inconsist of nonredeemable real estate and private equity fundsfunds. These investments are expected to be returned through distributions over the life of the funds as a result of liquidations of the funds’ underlying assets over a weighted-average period of 4.44.2 years and 3.24.4 years at September 30, 20172020 and 2016.2019. The consolidated SIPs’CIPs’ unfunded commitments to these funds totaled $1.9$94.0 million and $74.4$168.7 million, at September 30, 2017 and 2016, of which the Company was contractually obligated to fund $0.4$11.4 million and $2.2$20.6 million based on its ownership percentage in the SIPs.CIPs, at September 30, 2020 and 2019.

Fair Value Measurements
Assets and liabilities of consolidated SIPs measured at fair value on a recurring basis were as follows: 

(in millions) Level 1 Level 2 Level 3 NAV as a Practical Expedient Total
as of September 30, 2017     
Assets          
Investments          
Equity securities $331.4
 $128.1
 $160.7
 $155.2
 $775.4
Debt securities 1.4
 2,555.2
 135.4
 
 2,692.0
Total Assets Measured at Fair Value $332.8
 $2,683.3
 $296.1

$155.2
 $3,467.4
           
Liabilities          
Other liabilities $0.4
 $8.3
 $
 $
 $8.7


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(in millions) Level 1 Level 2 Level 3 NAV as a Practical Expedient Total
as of September 30, 2016     
Assets          
Cash and cash equivalents of CLOs $146.4
 $
 $
 $
 $146.4
Receivables of CLOs 
 23.6
 
 
 23.6
Investments          
Equity securities 155.4
 0.5
 160.3
 446.0
 762.2
Debt securities 
 618.9
 132.3
 
 751.2
Total Assets Measured at Fair Value $301.8
 $643.0
 $292.6
 $446.0
 $1,683.4
           
Liabilities          
Other liabilities $0.1
 $8.4
 $
 $
 $8.5
Receivables of CLOs consisted primarily of investment trades pending settlement. The fair value of the assets was obtained from independent third-party broker or dealer quotes.
Other liabilities consist of short positions in debt and equity securities. The fair value of the liabilities is determined based on the fair value of the underlying securities using quoted market prices, or independent third-party broker or dealer price quotes if quoted market prices securities are not available.
There were no transfers between Level 1 and Level 2, or into or out of Level 3, during fiscal years 2017 and 2016.
Changes in Level 3 assets measured at fair value on a recurring basis were as follows:
(in millions) 
Equity and Debt
Securities
 Real Estate Loans 
Total
Level 3
Assets
for the fiscal year ended September 30, 2020
Balance at beginning of year $427.8
 $152.7
 $16.6
 $597.1
Acquisition 0
 20.3
 17.6
 37.9
Realized and unrealized losses included in investment and other income of consolidated investment products, net (57.9) (5.2) (1.8) (64.9)
Purchases 200.5
 154.9
 0
 355.4
Sales and settlements (57.4) 0
 (7.5) (64.9)
Deconsolidations (47.8) 0
 0
 (47.8)
Transfers into Level 3 2.2
 0
 0
 2.2
Transfers out of Level 3 (1.1) 0
 0
 (1.1)
Foreign exchange revaluation 3.4
 16.5
 0
 19.9
Balance at End of Year $469.7
 $339.2
 $24.9
 833.8
Change in unrealized losses included in net income relating to assets held at end of year $(57.9) $(5.2) $(0.7) $(63.8)
  2017 2016
(in millions) Equity Securities Debt Securities Total Level 3 Assets Equity Securities Debt Securities Total Level 3 Assets
for the fiscal years ended September 30,    
Balance at beginning of year $160.3
 $132.3
 $292.6
 $191.6
 $130.2
 $321.8
Adoption of new accounting guidance (45.4) (0.5) (45.9) 
 
 
Realized and unrealized gains (losses) included in investment and other income, net 19.2
 (0.3) 18.9
 1.2
 (10.5) (9.3)
Purchases 30.4
 24.7
 55.1
 1.6
 26.8
 28.4
Sales (6.7) (22.3) (29.0) (34.0) (15.4) (49.4)
Settlements 
 (0.6) (0.6) 
 
 
Foreign exchange revaluation 2.9
 2.1
 5.0
 (0.1) 1.2
 1.1
Balance at End of Year $160.7
 $135.4
 $296.1
 $160.3
 $132.3
 $292.6
Change in unrealized gains (losses) included in net income relating to assets held at end of year $29.4
 $(0.9) $28.5
 $(1.1) $(10.9) $(12.0)


(in millions) Equity and Debt Securities Real Estate Loans 
Total
Level 3
Assets
for the fiscal year ended September 30, 2019
Balance at beginning of year $317.7
 $0
 $32.3
 $350.0
Acquisition 84.9
 0
 0
 84.9
Realized and unrealized gains (losses) included in investment and other income of consolidated investment products, net (5.9) 5.0
 (3.3) (4.2)
Purchases 167.5
 147.0
 9.2
 323.7
Sales and settlements (101.6) 0
 (21.6) (123.2)
Transfers into Level 3 0.5
 0
 0
 0.5
Transfers out of Level 3 (29.0) 0
 0
 (29.0)
Foreign exchange revaluation (6.3) 0.7
 0
 (5.6)
Balance at End of Year $427.8
 $152.7

$16.6
 $597.1
Change in unrealized gains (losses) included in net income relating to assets held at end of year $(12.0) $5.0
 $(0.6) $(7.6)

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Valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements were as follows:
(in millions)        
as of September 30, 2020Fair ValueValuation TechniqueSignificant Unobservable Inputs
Range (Weighted Average1)
Equity and debt securities $244.9
 Discounted cash flow Discount rate 4.0%–23.0% (11.5%)
Discount for lack of marketability 17.0%
Risk premium 9.7%–19.3% (16.7%)
116.3
 Market pricing Private sale pricing $0.02–$100.00 ($13.01) per share
108.5
 Market comparable companies Enterprise value/
EBITDA multiple
 7.0–19.1 (10.8)
Discount for lack of marketability 20.0%–25.2% (21.9%)
Risk premium 55.0%
Enterprise value/
Revenue multiple
 7.5
Price-to-earnings ratio 9.4–10.0 (9.7)
         
Real estate 231.8
 Discounted cash flow Discount rate 4.5%–6.5% (5.2%)
Exit capitalization rate 6.0%
107.4
Yield capitalization Equivalent yield 4.3%–6.1% (5.2%)
(in millions)        
as of September 30, 2017 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average)
Equity securities $101.9
 Market comparable companies EBITDA multiple 5.5–12.3 (9.0)
44.4
 Discounted cash flow Discount rate 5.7%–17.9% (14.3%)
 14.4
 Market pricing Price to earnings ratio 10.0
         
Debt securities 112.7
 Discounted cash flow Discount rate 5.0%–33.0% (9.5%)
   Risk premium 0.0%–25.0% (8.4%)
 22.7
 Market pricing Private sale pricing $33–$57 ($52) per $100 of par

(in millions)        
as of September 30, 2019Fair ValueValuation TechniqueSignificant Unobservable Inputs
Range (Weighted Average1)
Equity and debt securities $212.7
 Discounted cash flow Discount rate 4.8%–17.4% (10.0%)
Discount for lack of marketability 17.0%–24.7% (20.0%)
192.8
 Market comparable companies Enterprise value/
EBITDA multiple
 4.5–21.9 (10.8)
Discount for lack of marketability 15.0%–30.0% (23.1%)
Risk premium 18.9%
Enterprise value/
Revenue multiple
 3.7
 22.3
 Market pricing Private sale pricing $0.25–$20.13 ($2.06) per share
         
Real estate 84.7
 Discounted cash flow Discount rate 6.4%–7.4% (7.1%)
  68.0
 Yield capitalization Equivalent yield 4.3%–6.1% (5.4%)
__________________
1
Based on the relative fair value of the instruments.
(in millions)        
as of September 30, 2016 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average)
Equity securities $113.1
 
Market comparable companies

 EBITDA multiple 5.0–14.2 (10.3)
Discount for lack of marketability 25.0%–50.0% (36.6%)
24.3
 Discounted cash flow Discount rate 5.0%–19.0% (13.7%)
22.9
 Market pricing Price to book value ratio 1.8–2.3 (2.0)
         
Debt securities 119.7
 Discounted cash flow Discount rate 6.0%–15.0% (10.4%)
   Risk premium 0.0%–28.0% (9.7%)
   EBITDA multiple 5.5
 12.6
 Market pricing Private sale pricing $57 per $100 of par
Following are descriptions ofIf the sensitivity of the Level 3 recurring fair value measurements to changesrelevant significant inputs used in the significant unobservable inputs presented in the above tables.
For securities using the market comparable companies valuation technique, a significant increase (decrease) in the EBITDA multiple in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) inmarket-based valuations, other than the discount for lack of marketability in isolation would result in a significantly lower (higher)and risk premium, were independently higher (lower), the resulting fair value measurement. Theof the assets would be higher (lower). If the relevant significant inputs used in the discounted cash flow or yield capitalization valuations, as well as the discount for lack of marketability used to determine fair value may include other factors such as liquidity or credit risk.
For securities using the discounted cash flow valuation technique, a significant increase (decrease) in the discount rate orand risk premium in isolation would result in a significantly lower (higher)the market-based valuations, were independently higher (lower) as of September 30, 2020, the resulting fair value measurement. A significant increase (decrease) inof the EBITDA multiple in isolationassets would result in a significantly higher (lower) fair value measurement.be lower (higher).
For securities using a market pricing valuation technique, a significant increase (decrease) in the price to earnings ratio, private sale pricing or price to book value ratio would result in a significantly higher (lower) fair value measurement.




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Financial instruments of consolidated SIPsCIPs that were not measured at fair value were as follows:
(in millions) 
Fair Value
Level
 2020 2019
Carrying
Value
 
Estimated
Fair Value
Carrying
Value
 
Estimated
Fair Value
as of September 30,
Financial Asset          
Cash and cash equivalents 1 $441.9
 $441.9
 $154.2
 $154.2
Financial Liabilities          
Debt of CLOs 2 1,179.7
 1,225.0
 0
 0
Other debt 3 153.7
 155.2
 50.8
 51.0
(in millions)   2017 2016
as of September 30, Fair Value Level Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
Financial Assets          
Cash and cash equivalents 1 $226.4
 $226.4
 $89.8
 $89.8
           
Financial Liabilities          
Debt, excluding CLOs 3 $53.4
 $53.1
 $75.0
 $74.6
Debt of CLOs1
 2 or 3 
 
 607.2
 594.5
_________________
1    Substantially all was Level 2.
Debt
Debt of consolidated SIPsCIPs consisted of the following:
(in millions) 2020 2019
as of September 30, Amount 
Weighted-
Average
Effective
Interest
Rate
 Amount Weighted-
Average
Effective
Interest Rate
Debt of CLOs $1,179.7
 2.85% $0
 N/A
Other debt 153.7
 2.97% 50.8
 5.09%
Total $1,333.4
   $50.8
  

  2017 2016
(in millions) Amount 
Weighted-Average
Effective Interest Rate
 Amount 
Weighted-Average
Effective Interest Rate
as of September 30,    
Debt, excluding CLOs $53.4
 5.15% $75.0
 4.79%
Debt of CLOs 
 N/A 607.2
 2.24%
Total $53.4
   $682.2
  
Debt, excludingThe debt of CLOs had floating interest rates based on LIBOR ranging from 1.48% to 8.19% at September 30, 2020. The other debt had fixed and floating interest rates primarily based on LIBOR ranging from 2.84%1.00% to 6.75%5.81% at September 30, 2017,2020, and from 2.36%2.08% to 6.19%7.94% at September 30, 2016.2019.
At September 30, 2017,The contractual maturities for debt of consolidated SIPsCIPs at September 30, 2020 were as follows:
(in millions)  
for the fiscal years ending September 30,Amount
2021 $76.4
2022 0
2023 0
2024 35.1
2025 39.3
Thereafter 1,182.6
Total $1,333.4

(in millions) Carrying Amount
for the fiscal years ending September 30,
2018 $5.8
2019 47.6
Total $53.4
Collateralized Loan Obligations
Redeemable Noncontrolling Interests
Changes in redeemable noncontrolling interestsThe unpaid principal balance and fair value of consolidated SIPsthe investments of CLOs were as follows:
(in millions)  
as of September 30, 2020
Unpaid principal balance $1,196.5
Difference between unpaid principal balance and fair value (45.5)
Fair Value $1,151.0

(in millions)      
for the fiscal years ended September 30, 2017 2016 2015
Balance at beginning of year $61.1
 $59.6
 $234.8
Adoption of new accounting guidance 824.7
 
 
Net income (loss) 53.0
 1.6
 (6.1)
Net subscriptions and other 884.3
 79.9
 149.4
Net consolidations (deconsolidations) 118.8
 (80.0) (318.5)
Balance at End of Year $1,941.9
 $61.1
 $59.6
Investments 90 days or more past due were $3.9 million at September 30, 2020.




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Collateralized Loan Obligations
During fiscal years 2017 and 2016, theThe Company recognized $4.8 million and $6.2$1.3 million of net gainslosses during fiscal year 2020 related to its own economic interests in consolidatedthe CLOs.
The aggregate principal amount due of the debt of CLOs was $1,235.8 million at September 30, 2020.
Note 12 Redeemable Noncontrolling Interests
Changes in redeemable noncontrolling interests were as follows:
(in millions)
for the fiscal years ended September 30,
 2020 
20191
 
20181
 CIPs Minority Interests Total  
Balance at beginning of year $746.7
 $0
 $746.7
 $1,043.6
 $1,941.9
Acquisition 22.1
 164.3
 186.4
 0
 0
Business divestiture 0
 (21.3) (21.3) 0
 0
Net income (loss) 45.0
 3.6
 48.6
 6.2
 (12.8)
Net subscriptions (distributions) and other 247.1
 (2.0) 245.1
 1,046.6
 170.9
Net deconsolidations (663.6) 0
 (663.6) (1,349.7) (1,056.4)
Balance at End of Year $397.3

$144.6

$541.9
 $746.7
 $1,043.6

______________
1
Represents redeemable noncontrolling interests of CIPs.
Note 10 13 Nonconsolidated Variable Interest Entities
VIEs for which the Company is not the primary beneficiary consist of SIPssponsored funds and other investment products in which the Company has an equity ownership interest. The Company’s maximum exposure to loss from these VIEs consists of equity investments, and investment management and other fee receivables, and loans and related interest receivable as follows:
(in millions)    
as of September 30, 2020 2019
Investments $439.2
 $458.1
Receivables 168.0
 149.5
Loans receivable 42.4
 0
Total $649.6
 $607.6

(in millions)    
as of September 30, 2017 2016
Receivables $155.6
 $21.4
Investments 129.3
 77.3
Total $284.9
 $98.7


While the Company has no legal or contractual obligation to do so, it routinely makes cash investments in the course of launching SIPs. Thesponsored funds. As it has done in the past, the Company also may voluntarily elect to provide its SIPssponsored funds with additional direct or indirect financial support based on its business objectives. In April 2020, the Company authorized loans aggregating up to 5.0 billion Indian Rupees (approximately $66.2 million) to certain sponsored funds in India that had experienced increased liquidity risks and redemptions. The funds are subject to the decision of the funds’ trustee to wind up the funds. See Note 16 – Commitments and Contingencies for further information. The loans have a fixed interest rate of 8.0% per annum, are secured by the funds’ assets and are due upon demand. At September 30, 2020, the loans have an aggregate outstanding balance of $42.4 million, and the remaining authorization available is approximately $4.9 million. The Company did not provide financial or other support to its SIPssponsored funds during fiscal year 2017. During fiscal year 2016, the Company purchased $182.7 million of certain debt securities from six SIPs domiciled in India in order to provide additional liquidity to the SIPs.2019.
Note 1114 – Taxes on Income
The Tax Cuts and Jobs Act (“the Tax Act”), which was enacted into law in the U.S. in December 2017, includes various changes to the tax law, including a permanent reduction in the corporate income tax rate and assessment of a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings. The estimated related changes in the Company’s deferred tax assets and deferred tax liabilities resulted in a $35.6 million decrease in deferred tax assets, an $88.9 million decrease in deferred tax liabilities and a $53.3 million net tax benefit in fiscal year 2018. The Company also reclassified $0.1 million from accumulated other comprehensive loss to retained earnings related to stranded tax effects resulting from the change in tax rate during fiscal year 2018.


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The Company completed its analysis of the Tax Act impact during the first quarter of fiscal year 2019 with no significant adjustment to the provisional amounts previously recorded. The estimated transition tax expense recognized in fiscal year 2018 of $983.2 million was net of an $87.6 million tax benefit related to U.S. taxation of deemed foreign dividends. This benefit was reversed during fiscal year 2019 upon issuance of final regulations by the U.S. Department of Treasury, resulting in increased income tax expense and gross unrecognized tax benefits.
The remaining federal portion of the transition tax liability was $757.2 million at September 30, 2020, and will be paid over the next six years, with 8% of the original liability payable in each of the next three years, 15% in year four, 20% in year five and 25% in year six.
The Tax Act reduced the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Company’s federal statutory rate for fiscal year 2018 was a blended rate of 24.5%, based on the pre- and post-Tax Act rates.
Prior to the Tax Act, the Company had not provided for U.S. income taxes on undistributed earnings and other outside basis differences of its non-U.S. subsidiaries as it was the Company’s intention for these tax basis differences to remain indefinitely reinvested. Following the Company’s change in policy effective April 1, 2020 to repatriate earnings of all non-U.S. subsidiaries, other outside basis differences, which arose primarily from purchase accounting adjustments, undistributed earnings that are considered indefinitely reinvested and foreign earnings that are restricted by operational and regulatory requirements, remain indefinitely reinvested. These basis differences could reverse through sales of the subsidiaries or the receipt of dividends from the subsidiaries, as well as various other events, none of which are considered probable as of September 30, 2020. The Company has made no provision for U.S. income taxes on these outside basis differences, and determination of the amount of unrecognized deferred tax liability related to such basis differences is not practicable.
The Coronavirus Aid, Relief, and Economic Security Act, which includes several corporate tax provisions and was signed into law on March 27, 2020, did not have a material impact on the Company’s income taxes.
Taxes on income were as follows:
(in millions)      
for the fiscal years ended September 30, 2020 2019 2018
Current expense      
Federal $154.9
 $343.4
 $1,343.7
State 28.8
 37.0
 38.0
Non-U.S. 54.2
 66.8
 141.1
Deferred benefit (7.1) (4.9) (50.3)
Total $230.8
 $442.3
 $1,472.5
(in millions)      
for the fiscal years ended September 30, 2017 2016 2015
Current expense      
Federal $585.0
 $582.8
 $733.9
State 65.3
 47.5
 83.1
Non-U.S. 100.2
 102.8
 121.1
Deferred expense (benefit) 8.9
 9.0
 (14.4)
Total $759.4
 $742.1
 $923.7
The tax benefit from the utilization of net operating loss carry-forwards was insignificant in fiscal years 2017, 2016 and 2015. The Company had tax shortfalls of $8.7 million and $5.9 million in fiscal years 2017 and 2016 associated with stock-based compensation plans, which increased the amount of income taxes that would have otherwise been payable, and a tax benefit of $10.9 million in fiscal year 2015 which reduced the amount of income taxes that would have otherwise been payable. The tax shortfalls and benefit are reflected as components of stockholders equity.
Income before taxes consisted of the following:
(in millions)      
for the fiscal years ended September 30, 2020 2019 2018
U.S. $771.7
 $1,151.1
 $1,458.1
Non-U.S. 246.2
 496.7
 757.1
Total $1,017.9
 $1,647.8
 $2,215.2

(in millions)      
for the fiscal years ended September 30, 2017 2016 2015
U.S. $1,594.5
 $1,641.7
 $2,026.4
Non-U.S. 954.6
 858.1
 1,002.0
Total $2,549.1
 $2,499.8
 $3,028.4


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The Company’s income in certain countries is subject to reduced tax rates due to tax rulings.rulings and incentives. The impact of the reduced rates on income tax expense was $28.82.7 million or $0.050.01 per diluted share for fiscal year 20172020, $34.24.1 million or $0.060.01 per diluted share for fiscal year 20162019, and $68.331.3 million or $0.110.06 per diluted share for fiscal year 20152018. TheOne tax rulingsincentive remained in effect at September 30, 2020 which will expire in fiscal years 2019 and 2022.December 2023.


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The significant components of deferred tax assets and deferred tax liabilities were as follows:
(in millions)    
as of September 30, 2020 2019
Deferred Tax Assets    
Capitalized mixed service costs $326.1
 $0
Net operating loss and state credit carry-forwards 317.0
 31.9
Deferred compensation and benefits 160.6
 39.7
Foreign tax credit carry-forwards 103.0
 0
Debt premium 81.9
 0
Stock-based compensation 26.6
 19.6
Unrealized foreign exchange losses 1.2
 11.0
Other 120.9
 30.4
Total deferred tax assets 1,137.3
 132.6
Valuation allowance (320.6) (26.9)
Deferred tax assets, net of valuation allowance 816.7
 105.7
Deferred Tax Liabilities    
Goodwill and other purchased intangibles 1,009.4
 159.5
Depreciation on property and equipment 23.6
 22.5
Other 44.9
 23.0
Total deferred tax liabilities 1,077.9
 205.0
Net Deferred Tax Liability $261.2
 $99.3
(in millions)    
as of September 30, 2017 2016
Deferred Tax Assets    
Deferred compensation and employee benefits $60.2
 $52.9
Stock-based compensation 36.1
 36.6
Net operating loss carry-forwards 28.4
 32.5
Tax benefit for uncertain tax positions 17.9
 19.8
Other 23.9
 12.5
Total deferred tax assets 166.5
 154.3
Valuation allowance for net operating loss carry-forwards (25.2) (24.6)
Deferred tax assets, net of valuation allowance 141.3
 129.7
Deferred Tax Liabilities    
Goodwill and other purchased intangibles 205.2
 202.8
Depreciation on fixed assets 35.3
 18.0
Investments in partnerships 26.0
 17.9
Deferred commissions 15.0
 18.3
Other 14.6
 16.5
Total deferred tax liabilities 296.1
 273.5
Net Deferred Tax Liability $154.8
 $143.8

Deferred income tax assets and liabilities that relate to the same tax jurisdiction are presented net on the consolidated balance sheets. The components of the net deferred tax liability were classified in the consolidated balance sheets as follows:
(in millions)        
as of September 30, 2017 2016 2020 2019
Other assets $15.8
 $17.7
 $44.1
 $20.8
Deferred tax liabilities 170.6
 161.5
 305.3
 120.1
Net Deferred Tax Liability $154.8
 $143.8
 $261.2
 $99.3
The Company recorded on a preliminary basis the deferred tax effects associated with the fair value of assets acquired and liabilities assumed from the acquisition of Legg Mason and acquired attributes that carry over to post-acquisition tax periods, including U.S. state and foreign net operating losses and foreign tax credits. Utilization of the U.S. state net operating losses and federal credit carry-forwards may be subject to annual limitations due to ownership change provisions under Section 382 of the Internal Revenue Code. Foreign tax credits can only be used to offset tax attributable to foreign source income.
At September 30, 20172020, there were $131.4107.3 million of non-U.S. tax effected net operating loss carry-forwards$62.4 million of which expire between fiscal years 20192021 and 2038 with the remaining carry-forwards having an indefinite life.2040. In addition, there were $32.2199.4 million in tax effected state net operating loss carry-forwards that expire between fiscal years 20202021 and 2037. A partial2041, with some having an indefinite carry-forward period. The Company also has federal net operating losses of $9.3 million, the majority of which will carry-forward indefinitely and $103.0 million of foreign tax credit carry-forwards that expire between fiscal years 2021 and 2028.
The Company recognizes a valuation allowance has been provided to offsetif, based on the relatedweight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized based on timing of expiration, nature, projected sources of income and limitations on utilization under the statute. The valuation allowance increased $293.7 million in fiscal year 2020 primarily related to carry-forward assets recognized in connection with the acquisition of Legg Mason, and decreased $0.6 million in fiscal year 2019. At September 30, 2020, a valuation allowance of $320.6 million was recorded for the following items: $202.2 million for federal, state, and foreign net operating loss carry-forwards, $45.0 million due to the uncertainty of realizing the benefit of the net operating loss carry-forwards. The valuation allowance increased $0.6 million in fiscal year 2017 and decreased $9.4 million in fiscal year 2016.
The Company has made no provision for U.S. income taxes on $9.0 billion of cumulative undistributed non-U.S. earnings that are indefinitely reinvested at September 30, 2017. Determination of the potential amount of unrecognized deferred U.S. income tax liability related to such reinvested non-U.S. earnings is not practicable because of the numerous assumptions associated with this hypothetical calculation. However, foreign tax credits, would be available to reduce some portion of this amount. Changes to the Company’s policy of reinvestment or repatriation of non-U.S. earnings may have a significant effect on its financial condition$38.4 million for other foreign deferred taxes including carried forward U.K. interest deductions, and results of operations.$35.0 million for capital losses.




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A reconciliation of the amount of tax expense at the federal statutory rate and taxes on income as reflected in the consolidated statements of income is as follows:
(in millions)            
for the fiscal years ended September 30, 2020 2019 2018
Federal taxes at statutory rate $213.8
 21.0% $346.0
 21.0% $542.7
 24.5%
Transition tax on deemed repatriation of undistributed foreign earnings 0
 0
 86.0
 5.2% 983.2
 44.4%
Revaluation of net deferred tax liabilities 0
 0
 0
 0
 (53.3) (2.4%)
Other Tax Act impacts 0
 0
 0.4
 0
 38.9
 1.8%
State taxes, net of federal tax effect 28.2
 2.8% 29.7
 1.8% 16.6
 0.7%
Capital loss on investments, net of valuation allowance (27.0) (2.7%) 0
 0
 0
 0
Effect of non-U.S. operations 6.9
 0.7% (21.3) (1.3%) (61.9) (2.8%)
Effect of net loss (income) attributable to noncontrolling interests 2.5
 0.2% (2.1) (0.1%) 5.3
 0.2%
Other 6.4
 0.7% 3.6
 0.2% 1.0
 0.1%
Tax Provision $230.8
 22.7% $442.3
 26.8% $1,472.5
 66.5%

(in millions)            
for the fiscal years ended September 30, 2017 2016 2015
Federal taxes at statutory rate $892.2
 35.0% $874.9
 35.0% $1,059.9
 35.0%
State taxes, net of federal tax effect 41.4
 1.6% 42.7
 1.7% 51.6
 1.7%
Effect of non-U.S. operations (146.2) (5.7%) (153.0) (6.1%) (148.5) (4.9%)
Effect of net income attributable to noncontrolling interests (32.6) (1.3%) (10.9) (0.4%) (24.3) (0.8%)
Other 4.6
 0.2% (11.6) (0.5%) (15.0) (0.5%)
Tax Provision $759.4
 29.8% $742.1
 29.7% $923.7
 30.5%
Other Tax Act impacts consist primarily of foreign dividend distribution taxes and tax withholdings.
The Company recognized a tax benefit in fiscal year 2020 for capital losses that were realized from sales of investments subsequent to the change in corporate tax structure of a foreign holding company to a U.S. branch. The benefit reflects the Company’s ability to carryback losses for the last three tax years at historical Federal statutory tax rates. The remaining capital losses can be carried forward, which the Company assessed for realizability.
A reconciliation of the beginning and ending balances of gross unrecognized tax benefits is as follows:
(in millions)      
for the fiscal years ended September 30, 2020 2019 2018
Balance at beginning of year $202.6
 $77.5
 $81.1
Additions from business combinations 141.8
 0
 0
Additions for tax positions of prior years 0.9
 131.8
 3.6
Reductions for tax positions of prior years (0.6) (2.9) (6.6)
Tax positions related to the current year 12.2
 10.7
 11.6
Settlements with taxing authorities (0.3) (2.2) 0
Expirations of statute of limitations (13.7) (12.3) (12.2)
Balance at End of Year $342.9
 $202.6
 $77.5

(in millions)      
for the fiscal years ended September 30, 2017 2016 2015
Balance at beginning of year $82.1
 $105.2
 $118.2
Additions for tax positions of prior years 6.6
 0.6
 12.6
Reductions for tax positions of prior years (1.3) (9.0) (3.4)
Tax positions related to the current year 11.6
 12.9
 16.2
Settlements with taxing authorities (5.2) (5.4) (0.1)
Expirations of statute of limitations (12.7) (22.2) (38.3)
Balance at End of Year $81.1
 $82.1
 $105.2
If recognized, substantially all of$303.1 million for 2020 and the balance for 2019 and 2018, net of any deferred tax benefits, would favorably affect the Company’s effective income tax rate in future periods.
The Company accrues interest and penalties related to unrecognized tax benefits in general, administrative and other expenses. Accrued interest on uncertain tax positions at September 30, 20172020 and 20162019 was $10.421.7 million and $9.611.9 million, and is not presented in the unrecognized tax benefits table above. Interest expense (benefit) of $1.6 million, $(1.3) million and $(6.6) million was recognized during fiscal years 2017, 2016 and 2015. Accrued penalties at September 30, 20172020 was $2.9 million and 2016 were insignificant.insignificant in 2019.
The Company files a consolidated U.S. federal income tax return, multiple U.S. state and local income tax returns, and income tax returns in multiple non-U.S. jurisdictions. The Company is subject to examination by the taxing authorities in these jurisdictions. The Company’s major tax jurisdictions and the tax years for which the statutes of limitations have not expired are as follows: India 2003 to 2017;2020; Brazil 2008 to 2020, Canada 20102011 to 2017;2020; Hong Kong 20112014 to 2017;2020; Singapore 2015 to 2020; Luxembourg and the U.K. 2019 to 2020; U.S. federal 2017 to 2020; the City of New York 2012 to 2017; Luxembourg 2014 to 2017; the U.K. 2015 to 2017; U.S. federal 2014 to 2017;2020; and the States of California, and Florida 2013Minnesota 2016 to 2017;2020; and the States of Florida, Maryland, Massachusetts, and New York, and CityPennsylvania 2017 to 2020.


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The Company has on-goingongoing examinations in various stages of completion in the StatesState of California, Missouri andIllinois, City of New York, and in Canada, Hong Kong, IndiaFrance, Germany and Switzerland.India. Examination outcomes and the timing of settlements are subject to significant uncertainty. Such settlements may involve some or all of the following: the payment of additional taxes, the adjustment of deferred taxes and/or the recognition of unrecognized tax benefits. The Company has recognized a tax benefit only for those positions that meet the more-likely-than-not recognition threshold. It is reasonably possible that the total unrecognized tax benefit as of September 30, 20172020 could decrease by an estimated $12.635.4 million within the next twelve months as a result of the expiration of statutes of limitations in the U.S. federal and certain U.S. state and local and non-U.S. tax jurisdictions, and potential settlements with U.S. states and non-U.S. taxing authorities.


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Note 15 – Leases
Lessee Arrangements
The leases had a weighted-average remaining lease term of 6.5 years as of September 30, 2020, and generally include one or more options to renew.
Lease expense was as follows:
(in millions)  
for the fiscal year ended September 30, 2020 Amount
Operating lease cost1
 $72.5
Finance lease cost 0.5
Variable lease cost 6.0
Less: sublease income (4.2)
Total lease expense $74.8
__________________
1
Substantially all is included in occupancy expense.

Supplemental cash flow information related to leases was as follows:
(in millions) Amount
for the fiscal year ended September 30, 2020
Operating cash flows from operating leases included in the measurement of operating lease liabilities $65.1
ROU assets obtained in exchange for new/modified operating lease liabilities 13.7


The weighted-average discount rate for the operating lease liabilities as of September 30, 2020 was 3.5%. The maturities of the liabilities were as follows:
(in millions) Amount
for the fiscal years ending September 30, 
2021 $134.8
2022 131.5
2023 125.4
2024 89.0
2025 50.2
Thereafter 153.5
Total lease payments 684.4
Less: interest (63.4)
Operating lease liabilities $621.0



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As of September 30, 2019, future minimum lease payments under long-term non-cancelable operating leases were as follows:
(in millions)  
for the fiscal years ending September 30, Amount
2020 $49.5
2021 45.3
2022 40.9
2023 39.1
2024 36.7
Thereafter 149.1
Total Minimum Lease Payments $360.6

Lessor Arrangements
The Company leases excess owned space in its San Mateo, California corporate headquarters and other office buildings, primarily in the U.S., to third parties, and generally include one or more options to renew. The Company subleases excess leased office spaces to various firms, primarily in the U.S., and generally include options to renew or terminate within a specified period.

The maturities of lease payments due to the Company and weighted-average remaining lease term as of September 30, 2020 were as follows:
(in millions) Subleases Leases
for the fiscal years ending September 30,  
2021 $19.0
 $31.2
2022 19.2
 28.0
2023 18.7
 28.8
2024 8.5
 29.8
2025 0.2
 29.9
Thereafter 0.1
 70.7
Total $65.7
 $218.4
Weighted-average remaining lease term 3.4 years
 7.2 years

Note 1216 – Commitments and Contingencies
Legal Proceedings
On July 28, 2016,India Credit Fund Closure Matters. Effective April 24, 2020, a former employee filed a class action lawsuit captioned Cryer v.subsidiary of Franklin, Resources, Inc.Franklin Templeton Trustee Services Private Limited (“FTTS”), et al. in the United States District Court for the Northern Districtannounced its decision to wind-up six fixed income mutual fund schemes of California against Franklin, the Franklin Templeton 401(k) Retirement Plan (“Plan”) Investment Committee (“Investment Committee”Mutual Fund in India (referred to herein as the “Funds” or the “India Fixed Income Funds”), which at the time had collective assets under management of approximately USD $3.4 billion. FTTS took action to convene unitholder meetings for the Funds to approve the appointment of liquidators, and unnamed Investment Committee members. The plaintiff asserts a claim for breachthe asset management company to the Funds, Franklin Templeton Asset Management (India) Private Limited (“FTAMI”), ceased earning investment management fees on the Funds. Certain Fund unitholders and others subsequently commenced multiple writ petition actions in India (some of fiduciary duty underwhich were promptly voluntarily dismissed), challenging the Employee Retirement Income Security Act (“ERISA”),decision to wind up the Funds and alleging that the defendants selected mutual funds sponsored and managed by the Company (the “Funds”) as investment options for the Plan when allegedly lower-cost and better performing non-proprietary investment vehicles were available. The plaintiff also claims that the total Plan costs, inclusive of investment management and administrative fees, are excessive. The plaintiff alleges that Plan losses exceed $79.0 million and seeks, among other things, damages, disgorgement, rescissionRespondents (as defined below) violated various regulations of the Plan’s investments inSecurities and Exchange Board of India (“SEBI”), mismanaged the Funds, attorneys’ fees and costs, and pre- and post-judgment interest.
On November 2, 2017, a second former employee, represented by the same law firm, filed another putative class action lawsuitmisrepresented or omitted certain information relating to the PlanFunds, and/or engaged in other alleged misconduct. The petitions were filed in May 2020 and June 2020 in the same court, captioned Fernandez v.High Court of Gujarat, the High Court of Madras, and the High Court of Delhi, and named as respondents one or more of Franklin, Resources,its subsidiaries Templeton International, Inc., et al. This second action namesFTTS, FTAMI, and certain individual directors, officers, and employees of FTAMI (collectively, the same defendants as those named in the Cryer action, but also includes as defendants the Franklin Board of Directors, individual current and former Franklin directors, and individual current and former Investment Committee members. The plaintiff in this second lawsuit seeks to assert the same ERISA breach of fiduciary duty claim asserted in the Cryer action,“Company Respondents”), as well as claims for alleged prohibited transactions by virtueSEBI and other governmental authorities. The petitioners sought a wide range of relief, including, among other items, an order quashing the


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wind-up notice and blocking the unitholder vote, initiating various investigations into the Company Respondents, and allowing the unitholder petitioners to redeem their investments with interest.
On June 3, 2020, the High Court of Gujarat granted an ex parte interim injunction order, staying the operation and implementation of the Plans investmentsunitholder voting process. On June 19, 2020, the petitions were transferred to the High Court of Karnataka for hearing and resolution. In the course of the hearings, on September 24, 2020, the Company learned that a “first information report” or “FIR” had been registered by the Economic Offenses Wing of the Chennai police department against certain of the Company Respondents in connection with a complaint made by one of the petitioners. In light of the registration of the FIR, which is the preliminary step in an investigation, the court disposed of the petition that had sought an order for such an investigation.
On October 24, 2020, the High Court of Karnataka issued its judgment, in which it upheld the decision taken by FTTS to wind up the Funds and for an alleged failure to monitorheld that there was “nothing wrong with the performancedecision making process,” but determined that consent of the Investment Committee.unitholders is required to implement the decision. The plaintiff alleges that Plan losses exceed $60.0 million and seekscourt did not grant the sameother relief sought by the petitioners. The court stayed the operation of its judgment for a period of six weeks, during which time the court held that there will not be any redemptions from the Funds. The deadline for any party to file an appeal is 90 days from the date of the judgment. Certain Company Respondents intend to appeal parts of the judgment.
Separately, on May 27, 2020, SEBI initiated a forensic audit/inspection of Franklin Templeton Mutual Fund, FTAMI, and FTTS and appointed an outside auditor to conduct the review. The auditor submitted a confidential report to SEBI containing certain preliminary observations, to which SEBI sought responses from FTAMI and FTTS, and such responses were provided in September 2020. The matter is currently under review by SEBI. As part of the Cryer action.judgment issued by the High Court of Karnataka, the court directed SEBI to decide whether or not to take action within six weeks from the date it receives a final report by the forensic auditor.
ManagementThe Company strongly believes that the claims made in these lawsuits are without merit. Discovery is continuingdecision by FTTS to wind up the India Fixed Income Funds was taken in the Cryer actionbest interests of investors and fully pursuant to applicable SEBI regulations.Nonetheless, to implement the Fernandez action hasdecision, FTTS ultimately may be required, or may determine, to obtain unitholder consent. If that effort is unsuccessful and/or if unitholder redemptions from the Funds are not yet been served.suspended until the process for seeking such consent is complete, the Funds could experience significant redemption pressures. In the event that the Funds are unable to meet investor redemption requests in an orderly fashion, including if redemptions require the Funds to undertake distressed sales of assets resulting in the reduction of the net asset values of the Funds, additional litigation and/or regulatory or governmental investigations and proceedings could be initiated. In addition, if SEBI were to commence a regulatory proceeding in connection with the forensic audit, and ultimately conclude that the respondents violated applicable regulations, it is possible that certain Franklin will defend against bothsubsidiaries and related individuals could be subject to the imposition of regulatory sanctions. While the Company believes that it would have meritorious defenses to any such actions, vigorously. Franklinsuch matters could involve the risk of significant financial penalties and other liabilities, reputational harm, and restrictions on the Company’s asset management activities in India, all of which could adversely impact the Company’s financial results. The Company cannot at this time predict the eventual outcome of the lawsuits or whether they will have a material negative impact on the Company,matters described above or reasonably estimate the possible loss or range of loss that may arise from any negative outcome.outcome of such matters, including due to the current stage of these matters.
Other Litigation Matters. The Company is from time to time involved in other litigation relating to claims arising in the normal course of business. Management is of the opinion that the ultimate resolution of such claims will not materially affect the Companys business, financial position, results of operations or liquidity. In managements opinion, an adequate accrual has been made as of September 30, 20172020 to provide for any probable losses that may arise from such matters for which the Company could reasonably estimate an amount.


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Indemnifications and Guarantees
In the ordinary course of business or in connection with certain acquisition agreements, the Company enters into contracts that provide for indemnifications by the Company in certain circumstances. In addition, certain Company entities guarantee certain financial and performance-related obligations of various Franklin subsidiaries. The Company is also subject to certain legal requirements and agreements providing for indemnifications of directors, officers and personnel against liabilities and expenses they may incur under certain circumstances in connection with their service in those positions. The terms of these indemnities and guarantees vary pursuant to applicable facts and circumstances, and from agreement to agreement. Future payments for claims against the Company under these indemnities or guarantees could negatively impact the Company’s financial condition. In management’s opinion, no material loss was deemed probable or reasonably possible pursuant to such indemnification agreements and/or guarantees as of September 30, 2020.
Other Commitments and Contingencies
The Company leases office space and equipment under operating leases expiring at various dates through fiscal year 2032. Lease expense was $56.3 million, $69.3 million and $58.0 million in fiscal years 2017, 2016 and 2015. Sublease income totaled $0.4 million, $1.6 million and $1.7 million in fiscal years 2017, 2016 and 2015.
Future minimum lease payments under long-term non-cancelable operating leases were as follows as of September 30, 2017:
(in millions)  
for the fiscal years ending September 30, Amount
2018 $44.7
2019 41.1
2020 35.6
2021 31.4
2022 28.4
Thereafter 185.8
Total Minimum Lease Payments $367.0
Future minimum rentals to be received under non-cancelable subleases totaled $0.5 million at September 30, 2017.


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While the Company has no legal or contractual obligation to do so, it routinely makes cash investments in the course of launching SIPs.sponsored funds. At September 30, 20172020, the Company had $73.5$335.6 million of committed capital contributions which relate to discretionary commitments to invest in SIPssponsored funds and other investment products.products and entities, including CIPs. These unfunded commitments are not recorded in the Companys consolidated balance sheet.
Note 1317 – Stock-Based Compensation
The Company’s stock-based compensation plans consist of the Amended and Restated Annual Incentive Compensation Plan (the “AIP”), the 2002 Universal Stock Incentive Plan, as amended and restated (the “USIP”) and the amended and restated Franklin Resources, Inc. 1998 Employee Stock Investment Plan (the “ESIP”). In connection with the acquisition of Legg Mason, the Company assumed the Legg Mason 2017 Equity Incentive Plan, which was amended and restated as the Amended and Restated Franklin Resources, Inc. 2017 Equity Incentive Plan (the “EIP”). The Compensation Committee of the Board of Directors determines the terms and conditions of awards under the AIP, the USIP, the ESIP and the ESIP.EIP.
Stock-based compensation expenses were as follows:
(in millions)      
for the fiscal years ended September 30, 2020 2019 2018
Stock and stock unit awards $117.1
 $105.7
 $111.6
Employee stock investment plan 5.2
 5.8
 6.2
Total $122.3
 $111.5
 $117.8
(in millions)      
for the fiscal years ended September 30, 2017 2016 2015
Stock and stock unit awards $117.0
 $125.3
 $133.6
Employee stock investment plan 6.4
 6.2
 6.4
Total $123.4
 $131.5
 $140.0

Stock and Stock Unit Awards
Under the terms of the AIP, eligible employees may receive cash, equity awards and/or mutual fund unit awards generally based on the performance of the Company and/or its funds, and the individual employee. The USIP providesand EIP provide for the issuance of the Company’s common stock for various stock-related awards to officers, directors and employees. There are 120.0 million shares authorized under the USIP and 23.0 million shares authorized under the EIP, of which 21.04.5 million shares and 18.3 million shares were available for grant at September 30, 2017.2020.
Stock awards generally entitle holders to the right to sell the underlying shares of the Company’s common stock once the awards vest. Stock unit awards generally entitle holders to receive the underlying shares of common stock once the awards vest. Awards generally vest based on the passage of time or the achievement of predetermined Company financial performance goals. In the event a performance measure is not achieved at or above a specified threshold level, the portion


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Table of the award tied to such performance measure is forfeited.Contents

Stock and stock unit award activity was as follows:
(shares in thousands) 
Time-Based
Shares
 
Performance-
Based Shares
 
Total
Shares
 
Weighted-Average
Grant-Date
Fair Value
for the fiscal year ended September 30, 2020    
Nonvested balance at September 30, 2019 3,778
 1,854
 5,632
 $34.06
Granted 11,540
 3,891
 15,431
 23.05
Vested (2,798) (374) (3,172) 32.89
Forfeited/canceled (379) (563) (942) 33.26
Nonvested balance at September 30, 2020 12,141
 4,808
 16,949
 $24.30

(shares in thousands) Time-Based Shares Performance-Based Shares Total Shares 
Weighted-Average
Grant-Date Fair Value
for the fiscal year ended September 30, 2017    
Nonvested balance at September 30, 2016 2,369
 1,288
 3,657
 $45.67
Granted 2,739
 1,124
 3,863
 34.23
Vested (2,082) (355) (2,437) 43.90
Forfeited/canceled (243) (296) (539) 42.86
Nonvested Balance at September 30, 2017 2,783
 1,761
 4,544
 $37.23
Total unrecognized compensation expense related to nonvested stock and stock unit awards net of estimated forfeitures, was $118.9338.2 million at September 30, 20172020. This expense is expected to be recognized over a remaining weighted-average vesting period of 1.63.1 years. The weighted-average grant-date fair values of stock awards and stock unit awards granted during fiscal years 20172020, 20162019 and 20152018 were $34.2323.05, $40.8830.75 and $55.6542.63 per share. The total fair value of stock and stock unit awards vested during the same periods was $104.072.2 million, $92.884.2 million and $115.291.5 million.
The Company generally does not repurchase shares upon vesting of stock and stock unit awards. However, in order to pay taxes due in connection with the vesting of employee and executive officer stock and stock unit awards, shares are repurchased using a net stock issuance method.


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Employee Stock Investment Plan
The ESIP allows eligible participants to buy shares of the Company’s common stock at a discount of its market value on defined dates. A total of 0.81.0 million shares were issued under the ESIP during fiscal year 20172020, and 3.65.9 million shares were reserved for future issuance at September 30, 20172020.
Note 1418 – Defined Contribution Plans
The Company sponsors a 401(k) plan thatwhich covers substantially all U.S. employees who meetmeeting certain employment requirements. Participants may contribute up to 50% of pretax annual compensationtheir eligible salary and up to 100% of the cash portion of the participantstheir year-end bonus, as defined by the plan and subject to Internal Revenue Code limitations, each year to the plan. In addition, certainThe Company increased its matching contribution rate from 75% to 85% for a period of three years beginning January 1, 2020. Certain of the Companys non-U.S. subsidiaries also sponsor defined contribution plans primarily for the purpose of providing deferred compensation incentives for employees and to comply with local regulatory requirements. The total expenses recognized for defined contribution plans were $45.559.2 million, $46.852.2 million and $46.449.8 million for fiscal years 20172020, 20162019 and 20152018.
Note 1519 – Segment and Geographic Information
The Company has one1 operating segment, investment management and related services.
Geographic information was as follows: See Note 5 – Revenues for total operating revenues disaggregated by geographic location.
(in millions)    
as of September 30, 2020 2019
Property and Equipment, Net    
United States $634.4
 $542.8
Europe, Middle East and Africa 133.0
 90.0
Asia-Pacific 37.7
 40.7
Americas excluding United States 8.7
 10.2
Total $813.8
 $683.7

(in millions)      
for the fiscal years ended September 30, 2017 2016 2015
Operating Revenues      
United States $3,898.4
 $4,063.6
 $4,634.2
Luxembourg 1,652.8
 1,707.9
 2,278.6
Asia-Pacific 281.0
 267.9
 311.8
Canada 260.8
 273.8
 339.0
The Bahamas 205.9
 204.6
 250.2
Europe, the Middle East and Africa, excluding Luxembourg 83.2
 94.0
 126.8
Latin America 10.1
 6.2
 8.1
Total $6,392.2
 $6,618.0
 $7,948.7


(in millions)      
as of September 30, 2017 2016 2015
Property and Equipment, Net      
United States $426.1
 $428.0
 $406.9
Asia-Pacific 60.2
 62.9
 68.9
The Bahamas 13.4
 14.3
 14.6
Europe, the Middle East and Africa 12.2
 14.9
 14.8
Canada 5.3
 3.1
 4.5
Latin America 
 
 0.4
Total $517.2
 $523.2
 $510.1
Operating revenues are generally allocated to geographic areas based on the location of the subsidiary providing services.


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Note 1620 Investment and Other Income (Expenses)(Losses), Net
OtherInvestment and other income (expenses)(losses), net consisted of the following:
(in millions)      
for the fiscal years ended September 30, 2020 2019 2018
Dividend income $48.9
 $97.0
 $51.1
Interest income 14.3
 31.0
 76.5
Gains (losses) on investments, net (16.8) (9.7) 6.0
Income (losses) from investments in equity method investees (98.1) (10.4) 44.4
Rental income 30.0
 19.8
 15.9
Foreign currency exchange (losses) gains, net (22.3) 13.1
 0.6
Other, net 5.6
 0.6
 5.8
Investment and Other Income (Losses), Net $(38.4) $141.4
 $200.3

(in millions)      
for the fiscal years ended September 30, 2017 2016 2015
Investment and Other Income, Net      
Dividend income $13.9
 $20.6
 $10.3
Interest income 74.9
 36.5
 10.8
Gains (losses) on trading investment securities, net 12.2
 50.1
 (22.3)
Realized gains on sale of investment securities, available-for-sale 5.6
 32.1
 28.1
Realized losses on sale of investment securities, available-for-sale (1.6) (3.2) (4.0)
Income (losses) from investments in equity method investees 107.9
 56.7
 (63.2)
Other-than-temporary impairment of investments (0.8) (11.1) (10.0)
Gains (losses) on investments of consolidated SIPs, net 118.2
 (13.5) 18.0
Foreign currency exchange gains (losses), net (16.0) (2.9) 57.0
Other, net 22.0
 18.7
 15.7
Total 336.3

184.0

40.4
Interest Expense (51.5) (49.9) (39.6)
Other Income, Net $284.8
 $134.1
 $0.8
Substantially all of the Company’s dividend income and realized gains and losses on sale of available-for-sale securities werewas generated by investments in its nonconsolidated SIPs.sponsored funds. Interest income was primarily generated by cash equivalents, debt securities of U.S. states and trading investment securities. political subdivisions. Gains (losses) on investments, net consists primarily of realized and unrealized gains (losses) on equity securities measured at fair value and other-than-temporary impairment of investments.
Proceeds from the sale of available-for-sale securities were $51.6$1.6 million, $269.4 million and $221.385.5 million for in fiscal years 2017, 20162020 and 20152018. There were no sales of available-for-sale securities in fiscal year 2019.
Net gains (losses)losses recognized on equity securities measured at fair value and trading debt securities that were held by the Companys at September 30, 2020 and 2019 were $2.6 million and $0.1 million, and the net loss recognized on trading investment securities that were held by the Company at September 30, 2017, 2016 and 2015 were 2018 was $5.01.7 million, $27.9 million and $(20.3) million. Net gains (losses) recognized on trading investment securities of consolidated SIPs that were held at September 30, 2017, 2016 and 2015 were $21.9 million, $9.4 million and $(17.7) million.




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Note 1721 – Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component were as follows:
(in millions) 
Currency
Translation
Adjustments
 Unrealized
Losses on
Defined Benefit
Plans
 Unrealized
Gains on
Investments
 Total
as of and for the fiscal years ended
September 30, 2020, 2019 and 2018
   
Balance at October 1, 2017 $(281.0) $(6.0) $2.2
 $(284.8)
Adoption of new accounting guidance 0
 (0.1) 0
 (0.1)
Other comprehensive income (loss)       

Other comprehensive income (loss) before reclassifications, net of tax (85.5) 1.5
 7.3
 (76.7)
Reclassifications to compensation and benefits expense, net of tax 0
 0.4
 0
 0.4
Reclassifications to net investment and other income (losses), net of tax (6.4) 0
 (3.0) (9.4)
Total other comprehensive income (loss) (91.9) 1.9
 4.3
 (85.7)
Balance at September 30, 2018 $(372.9) $(4.2) $6.5
 $(370.6)
Adoption of new accounting guidance 
 
 (8.0) (8.0)
Other comprehensive income (loss)        
Other comprehensive loss before reclassifications, net of tax (53.9) (2.4) (5.4) (61.7)
Reclassifications to compensation and benefits expense, net of tax 0
 0.4
 0
 0.4
Reclassifications to net investment and other income (losses), net of tax 1.4
 0
 6.9
 8.3
Total other comprehensive income (loss) (52.5) (2.0) 1.5
 (53.0)
Balance at September 30, 2019 $(425.4) $(6.2) $0
 $(431.6)
Other comprehensive income (loss)        
Other comprehensive income (loss) before reclassifications, net of tax 23.8
 (2.1) (1.3) 20.4
Reclassifications to compensation and benefits expense, net of tax 0
 0.3
 0
 0.3
Reclassifications to net investment and other income (losses), net of tax 2.0
 0
 1.3
 3.3
Total other comprehensive income (loss) 25.8
 (1.8) 0
 24.0
Balance at September 30, 2020 $(399.6) $(8.0) $0
 $(407.6)

(in millions) Unrealized Gains on Investments Currency Translation Adjustments Unrealized Losses on
Defined Benefit Plans
 Total
for the fiscal year ended September 30, 2017    
Balance at October 1, 2016 $6.8
 $(346.1) $(8.1) $(347.4)
Adoption of new accounting guidance (6.8) (0.3) 
 (7.1)
Other comprehensive income        
Other comprehensive income before reclassifications, net of tax 6.5
 65.4
 2.1
 74.0
Reclassifications to net investment and other income, net of tax (4.3) 
 
 (4.3)
Total other comprehensive income 2.2
 65.4
 2.1
 69.7
Balance at September 30, 2017 $2.2
 $(281.0) $(6.0) $(284.8)
Note 22 – Subsequent Event
On October 19, 2020, the Company completed its offering and sale of the 1.600% Notes due 2030 with a principal amount of $750.0 million. Interest on the notes will be payable semi-annually on April 30 and October 30 of each year, beginning on April 30, 2021. The notes contain an optional redemption feature that allows the Company to redeem each series of notes prior to maturity in whole or in part at any time, at a make-whole redemption price.


(in millions) Unrealized Gains on Investments Currency Translation Adjustments 
Unrealized Losses on
Defined Benefit Plans
 Total
for the fiscal year ended September 30, 2016    
Balance at October 1, 2015 $19.3
 $(327.8) $(5.7) $(314.2)
Other comprehensive loss        
Other comprehensive income (loss) before reclassifications, net of tax 2.7
 (18.3) (2.4) (18.0)
Reclassifications to net investment and other income, net of tax (15.2) 
 
 (15.2)
Total other comprehensive loss (12.5) (18.3) (2.4) (33.2)
Balance at September 30, 2016 $6.8
 $(346.1) $(8.1) $(347.4)



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Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A.Controls and Procedures.
The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officers, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 20172020. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Companys disclosure controls and procedures as of September 30, 20172020 were designed and are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SECsSecurities and Exchange Commission’s (“SEC”) rules and forms, and (ii) accumulated and communicated to management, including the principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended September 30, 2017,2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
On July 31, 2020, Franklin Resources, Inc. completed its acquisition of Legg Mason, Inc. (“Legg Mason”). Consistent with guidance issued by the SEC that an assessment of a recently acquired business may be omitted from management’s report on internal control over financial reporting in the year of acquisition, management excluded an assessment of the effectiveness of the Company’s internal control over financial reporting related to Legg Mason. Total assets and operating revenues of Legg Mason that were excluded from management’s assessment constitute 12% of the Company’s consolidated total assets as of September 30, 2020 and 9% of consolidated total operating revenues for the fiscal year ended September 30, 2020. Management’s basis for exclusion included the size and complexity of the acquired business, the timing between acquisition and fiscal year end, and expected integration plans during the fiscal year ending September 30, 2021.
Management’s Report on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm are set forth in Item 8 of Part II of this Annual Report on Form 10-K are10‑K, which is incorporated herein by reference.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2020 has been audited by PricewaterhouseCoopers LLP, the independent registered public accounting firm that audits the Company’s consolidated financial statements, as stated in their report which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of September 30, 2020.

Item 9B.Other Information.
None.


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PART III
Item 10.Directors, Executive Officers and Corporate Governance.
The information required by this Item 10 with respect to executive officers of the CompanyFranklin is contained at the end of Part I of this Form 10-KAnnual Report under the heading “Executive Officers of the Registrant.“Information About Our Executive Officers.
Code of Ethics. The Company Franklin has adopted a Code of Ethics and Business Conduct (the “Code of Ethics”) that applies to the CompanyFranklins principal executive officer, principal financial officer, principal accounting officer, controller, and any persons performing similar functions, as well as all directors, officers and employees of the CompanyFranklin and its subsidiaries and affiliates. The Code of Ethics is posted on the Company’sour website at www.franklinresources.com under “Corporate Governance.” A copy of the Code of Ethics is available in print free of charge to any stockholder who requests a copy. Interested parties may address a written request for a printed copy of the Code of Ethics to: Secretary, Franklin Resources, Inc., One Franklin Parkway, San Mateo, California 94403-1906. The Company intendsWe intend to satisfy the disclosure requirement regarding any amendment to, or a waiver from, a provision of the Code of Ethics for the Company’sFranklin’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, by posting such information on itsour website.
The other information required by this Item 10 is incorporated by reference from the information to be provided under the sections entitledtitled “Proposal No. 1 Election of Directors–Nominees,”Nominees” and “Information about the Board and its Committees–The Audit Committee” and “Section 16(a) Beneficial Ownership Reporting Compliance” from the Company’sFranklin’s definitive proxy statement for its annual meeting of stockholders (“2018 Proxy Statement”) to be filed with the SEC within 120 days after September 30, 20172020 (“2021 Proxy Statement”).
Item 11.Executive Compensation.
The information required by this Item 11 is incorporated by reference from the information to be provided under the sections entitledof our 2021 Proxy Statement titled “Director Fees,” “Compensation Discussion and Analysis” and “Executive Compensation” of the Company’s 2018 Proxy Statement.Compensation.”


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Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item 12 with respect to security ownership of certain beneficial owners and management is incorporated by reference from the information to be provided under the sections entitledof our 2021 Proxy Statement titled “Stock Ownership of Certain Beneficial Owners” andOwners,” “Stock Ownership and Stock-Based Holdings of Directors and Executive Officers” of the Company’s 2018 Proxy Statement.
and “Executive Compensation–Equity Compensation Plan Information.
The following table sets forth certain information as of September 30, 2017 with respect to the shares of the Company’s common stock that may be issued under the Company’s existing compensation plans that have been approved by stockholders and plans that have not been approved by stockholders.
Plan Category 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
 Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
 
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
 
Equity compensation plans approved by stockholders 1
 2,397,393
2 
N/A
3 
24,546,139
4 
Equity compensation plans not approved by stockholders 
 
 
 
Total 2,397,393
 N/A
 24,546,139
 
________________
1
Consists of the 2002 Universal Stock Incentive Plan, as amended and restated (the “USIP”) and the amended and restated Franklin Resources, Inc. 1998 Employee Stock Investment Plan (the “ESIP”). Equity securities granted under the USIP may include awards in connection with the Amended and Restated Annual Incentive Compensation Plan and the 2014 Key Executive Incentive Compensation Plan.
2
Represents restricted stock unit awards under the USIP that may be settled in shares of the Company’s common stock. Excludes options to purchase shares of the Company’s common stock accruing under the Company’s ESIP. Under the ESIP, each eligible employee is granted a separate option to purchase up to 6,000 shares of common stock each semi-annual accrual period on January 31 and July 31 at a purchase price per share equal to 85% of the fair market value of the common stock on the enrollment date or the exercise date, whichever is lower.
3
Does not take into account restricted stock unit awards under the USIP.
4
As of September 30, 2017, 3.6 million shares of common stock were available for future issuance under the ESIP and 21.0 million shares of common stock were available for future issuance under the USIP.
Item 13.Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item 13 is incorporated by reference from the information to be provided under the sections entitledof our 2021 Proxy Statement titled “Proposal No. 1 Election of Directors-General,Directors–General,” “Corporate Governance–Director Independence Standards” and “Certain Relationships and Related Transactions” of the Company’s 2018 Proxy Statement.Transactions.”
Item 14.Principal Accountant Fees and Services.
The information required by this Item 14 is incorporated by reference from the information to be provided under the section entitledof our 2021 Proxy Statement titled “Fees Paid to Independent Registered Public Accounting Firm” of the Company’s 2018 Proxy Statement.Firm.”




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PART IV
Item 15.Exhibits and Financial Statement Schedules.
(a)(1)The financial statements filed as part of this report are listed in Item 8 of this Form 10-K.Annual Report.
(a)(2)No financial statement schedules are required to be filed as part of this report because all such schedules have been omitted. Such omission has been made on the basis that information is provided in the financial statements, or in the related notes thereto, in Item 8 of this Form 10-KAnnual Report or is not required to be filed as the information is not applicable.
(a)(3)The exhibits listed on the Exhibit Index to this Form 10-KAnnual Report are incorporated herein by reference.
Item 16.Form 10-K10‑K Summary.
None.
EXHIBIT INDEX
Exhibit No.
 Description
3(i)(a)2.1

 
3.1
3(i)(b)3.2

 
3(i)(c)3.3

 
3(i)(d)3.4

 
3(i)(e)3.5

 
3(ii)3.6

 
4.1

 
4.2

 
4.3

 
4.4

 
4.5

 
4.6
4.7


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Exhibit No.
Description
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
10.1

 


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Table of Contents

Exhibit No.Description
10.2

 
10.3

 
10.4

 
10.5

 
10.6

 
10.7

 
10.8

 
10.9

 
10.10


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10.10

Exhibit No.
Description
10.11
 
1210.12

 
21

 
23

 
31.1

 
31.2

 
32.1

 
32.2

 
101

 The following materials from the Registrant’s Annual Report on Form 10-K10‑K for the fiscal year ended September 30, 2017,2020, formatted in Inline Extensible Business Reporting Language (XBRL)(iXBRL), include: (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) related notes (filed herewith)
104
Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)
__________________ 
*        Management Contract or Compensatory Plan or Arrangement


97
*Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
**Management contract or compensatory plan or arrangement


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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
  FRANKLIN RESOURCES, INC.
    
Date:November 13, 201720, 2020By:/s/ Kenneth A. Lewis        Matthew Nicholls
   Kenneth A. Lewis,Matthew Nicholls, Executive Vice President and Chief Financial Officer and Executive Vice President
Date:November 20, 2020By:/s/ Gwen L. Shaneyfelt
Gwen L. Shaneyfelt, Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
 
Date:November 13, 201720, 2020By:/s/ Jennifer M. Johnson        
Jennifer M. Johnson, President, Chief Executive Officer and Director
(Principal Executive Officer)
Date:November 20, 2020By:/s/ Matthew Nicholls        
Matthew Nicholls, Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Date:November 20, 2020By:/s/ Gwen L. Shaneyfelt
Gwen L. Shaneyfelt, Chief Accounting Officer
(Principal Accounting Officer)
Date:November 20, 2020By:/s/ Peter K. Barker       
   Peter K. Barker, Director
    
Date:November 13, 201720, 2020By:/s/ Mariann Byerwalter   
   Mariann Byerwalter, Director
    
Date:November 13, 2017By:/s/ Charles E. Johnson        
Charles E. Johnson, Director
Date:November 13, 201720, 2020By:/s/ Gregory E. Johnson        
   
Gregory E. Johnson, Executive Chairman, Director Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)Director
    
Date:November 13, 201720, 2020By:/s/ Rupert H. Johnson, Jr.        
   Rupert H. Johnson, Jr., Vice Chairman and Director
    
Date:November 13, 201720, 2020By:/s/ Kenneth A. LewisAnthony J. Noto        
   
Kenneth A. Lewis, Chief Financial Officer and Executive Vice President
(Principal Financial and Accounting Officer)
Anthony J. Noto, Director
    
Date:November 13, 201720, 2020By:/s/ Mark C. Pigott
   Mark C. Pigott, Director
    
Date:November 13, 2017By:/s/ Chutta Ratnathicam        
Chutta Ratnathicam, Director
Date:November 13, 201720, 2020By:/s/ Laura Stein        
   Laura Stein, Director
    
Date:November 13, 201720, 2020By:/s/ Seth H. Waugh   
   Seth H. Waugh, Director
    
Date:November 13, 201720, 2020By:/s/ Geoffrey Y. Yang        
   Geoffrey Y. Yang, Director




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