Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
x☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended DecemberMarch 31, 20172023
or
o☐TRANSITION 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)
Delaware13-2670991
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
One Franklin Parkway, San Mateo, CA94403
(Address of principal executive offices)(Zip Code)
(650)
One Franklin Parkway, San Mateo, CA 94403
(Address of principal executive offices) (Zip code)

(650) 312-2000
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, par value $0.10 per shareBENNew York Stock Exchange
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☒  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☒Accelerated Filer☐
Large accelerated filer     x
Accelerated filer     o
Non-accelerated Filer		☐Smaller Reporting Company☐
Non-accelerated filer  o  (Do not check if a smaller reporting company)
Smaller reporting company    o
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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). o  YES    x  NO☐  Yes    ☒  No
Indicate the numberNumber of shares outstanding of each of the issuer’s classes ofregistrant’s common stock as of the latest practicable date.outstanding at April 24, 2023: 500,863,407.
Outstanding: 551,703,549 shares of common stock, par value $0.10 per share, of Franklin Resources, Inc. as of January 23, 2018.


Table of Contents



INDEX TO FORM 10-Q
Page
PART I
Financial Information
Item 1.Financial Statements (unaudited)
Consolidated Statements of Income
3
Consolidated Statements of Comprehensive Income
4
Consolidated Balance Sheets
5
Consolidated Statements of Stockholders’ Equity
6
Consolidated Statements of Cash Flows
6
8
Notes to Consolidated Financial Statements
8
10
Item 2.20
23
Item 3.
42
Item 4.
42
PART II
Other Information
Item 1.
Legal Proceedings
43
Item 1A.
43
Item 2.43
44
Item 6.43
44
Exhibit Index
44
45
SignatureSignatures
45
46



2
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
  Three Months Ended
December 31,
(in millions, except per share data) 2017 2016
Operating Revenues    
Investment management fees $1,113.6
 $1,063.2
Sales and distribution fees 417.8
 419.3
Shareholder servicing fees 54.9
 56.6
Other 29.2
 21.7
Total operating revenues 1,615.5
 1,560.8
Operating Expenses    
Sales, distribution and marketing 528.7
 520.0
Compensation and benefits 332.5
 311.5
Information systems and technology 55.0
 51.7
Occupancy 29.4
 29.1
General, administrative and other 88.8
 61.6
Total operating expenses 1,034.4
 973.9
Operating Income 581.1
 586.9
Other Income (Expenses)    
Investment and other income, net 81.3
 46.1
Interest expense (10.8) (13.3)
Other income, net 70.5
 32.8
Income before taxes 651.6
 619.7
Taxes on income 1,223.5
 200.9
Net income (loss) (571.9) 418.8
Less: net income (loss) attributable to    
Nonredeemable noncontrolling interests (0.1) 2.1
Redeemable noncontrolling interests 11.5
 (23.5)
Net Income (Loss) Attributable to Franklin Resources, Inc. $(583.3) $440.2
     
Earnings (Loss) per Share    
Basic $(1.06) $0.77
Diluted (1.06) 0.77
Dividends Declared per Share $0.23
 $0.20
FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited

 Three Months Ended
March 31,		Six Months Ended
March 31,
(in millions, except per share data)2023202220232022
Operating Revenues
Investment management fees$1,573.3 $1,649.2 $3,205.1 $3,409.7 
Sales and distribution fees301.4 370.2 593.3 768.4 
Shareholder servicing fees43.3 52.2 76.7 99.9 
Other9.2 9.4 19.2 27.0 
Total operating revenues1,927.2 2,081.0 3,894.3 4,305.0 
Operating Expenses
Compensation and benefits847.3 752.5 1,826.5 1,555.1 
Sales, distribution and marketing406.6 482.4 795.2 992.5 
Information systems and technology128.0 126.9 249.4 250.7 
Occupancy59.7 53.0 114.2 109.3 
Amortization of intangible assets86.0 60.4 169.2 118.7 
General, administrative and other144.5 142.8 290.7 258.0 
Total operating expenses1,672.1 1,618.0 3,445.2 3,284.3 
Operating Income255.1 463.0 449.1 1,020.7 
Other Income (Expenses)
Investment and other income, net125.6 27.7 216.7 84.7 
Interest expense(33.5)(22.9)(64.4)(42.2)
Investment and other income of consolidated investment products, net87.2 3.0 73.6 107.7 
Expenses of consolidated investment products(3.4)(4.6)(14.9)(8.8)
Other income, net175.9 3.2 211.0 141.4 
Income before taxes431.0 466.2 660.1 1,162.1 
Taxes on income92.9 107.1 153.2 258.2 
Net income338.1 359.1 506.9 903.9 
Less: net income (loss) attributable to
Redeemable noncontrolling interests83.2 (57.2)81.7 (49.7)
Nonredeemable noncontrolling interests60.7 66.7 65.4 150.8 
Net Income Attributable to Franklin Resources, Inc.$194.2 $349.6 $359.8 $802.8 
Earnings per Share
Basic$0.38 $0.68 $0.70 $1.57 
Diluted0.38 0.68 0.70 1.57 


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
Unaudited

(in millions) Three Months Ended
December 31,
 2017 2016
Net Income (Loss) $(571.9) $418.8
Other Comprehensive Income (Loss)    
Net unrealized gains (losses) on investments, net of tax 3.5
 (2.4)
Currency translation adjustments, net of tax 15.8
 (60.9)
Net unrealized losses on defined benefit plans, net of tax (1.1) —
Total other comprehensive income (loss) 18.2
 (63.3)
Total comprehensive income (loss) (553.7) 355.5
Less: comprehensive income (loss) attributable to    
Nonredeemable noncontrolling interests (0.1) 2.1
Redeemable noncontrolling interests 11.5
 (23.5)
Comprehensive Income (Loss) Attributable to Franklin Resources, Inc. $(565.1) $376.9
Unaudited

(in millions)Three Months Ended
March 31,		Six Months Ended
March 31,
2023202220232022
Net Income$338.1 $359.1 $506.9 $903.9 
Other Comprehensive Income (Loss)
Currency translation adjustments, net of tax15.9 (16.3)143.2 (23.2)
Net unrealized gains (losses) on defined benefit plans, net of tax1.8 5.3 (0.8)0.2 
Net unrealized gains on investments, net of tax0.2 — 0.2 — 
Total other comprehensive income (loss)17.9 (11.0)142.6 (23.0)
Total comprehensive income356.0 348.1 649.5 880.9 
Less: comprehensive income (loss) attributable to
Redeemable noncontrolling interests83.2 (57.2)81.7 (49.7)
Nonredeemable noncontrolling interests60.7 66.7 65.4 150.8 
Comprehensive Income Attributable to Franklin Resources, Inc.$212.1 $338.6 $502.4 $779.8 


See Notes to Consolidated Financial Statements.


4
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FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
FRANKLIN RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
Unaudited
(in millions, except share and per share data) December 31,
2017		 September 30,
2017
Assets    
Cash and cash equivalents $8,707.5
 $8,523.3
Receivables 769.7
 767.8
Investments (including $426.9 and $440.0 at fair value at December 31, 2017 and September 30, 2017) 1,413.5
 1,393.6
Assets of consolidated investment products    
Cash and cash equivalents 262.9
 226.4
Receivables 328.8
 234.1
Investments, at fair value 3,649.2
 3,467.4
Property and equipment, net 516.6
 517.2
Goodwill and other intangible assets, net 2,235.1
 2,227.7
Other 191.1
 176.5
Total Assets $18,074.4
 $17,534.0
     
Liabilities    
Compensation and benefits $211.1
 $396.6
Accounts payable and accrued expenses 165.3
 167.4
Dividends 129.0
 113.3
Commissions 322.4
 313.3
Income taxes 1,306.7
 74.7
Debt 1,044.5
 1,044.2
Liabilities of consolidated investment products    
Accounts payable and accrued expenses 215.6
 124.1
Debt 51.0

53.4
Deferred taxes 125.3
 170.6
Other 214.9
 198.7
Total liabilities 3,785.8
 2,656.3
Commitments and Contingencies (Note 10) 
 
Redeemable Noncontrolling Interests 2,208.1
 1,941.9
Stockholders’ Equity    
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued —
 —
Common stock, $0.10 par value, 1,000,000,000 shares authorized; 552,406,256 and 554,865,343 shares issued and outstanding at December 31, 2017 and September 30, 2017 55.2
 55.5
Retained earnings 11,969.5
 12,849.3
Accumulated other comprehensive loss (266.6) (284.8)
Total Franklin Resources, Inc. stockholders’ equity 11,758.1
 12,620.0
Nonredeemable noncontrolling interests 322.4
 315.8
Total stockholders’ equity 12,080.5
 12,935.8
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity $18,074.4
 $17,534.0
Unaudited

(in millions, except share and per share data)March 31,
2023		September 30,
2022
Assets
Cash and cash equivalents$3,471.3 $4,134.9 
Receivables1,300.8 1,264.8 
Investments (including $987.1 and $613.5 at fair value at March 31, 2023 and September 30, 2022)2,378.0 1,651.3 
Assets of consolidated investment products
Cash and cash equivalents807.3 647.6 
Investments, at fair value8,421.3 7,898.1 
Property and equipment, net749.8 743.3 
Goodwill6,007.2 5,778.6 
Intangible assets, net5,070.4 5,082.1 
Operating lease right-of-use assets454.1 464.5 
Other425.5 395.4 
Total Assets$29,085.7 $28,060.6 
Liabilities
Compensation and benefits$1,206.3 $1,464.4 
Accounts payable and accrued expenses501.2 466.2 
Income taxes486.9 523.1 
Debt3,364.6 3,376.4 
Liabilities of consolidated investment products
Accounts payable and accrued expenses478.0 646.9 
Debt7,153.1 5,457.7 
Deferred tax liabilities339.6 347.8 
Operating lease liabilities522.6 528.4 
Other1,630.3 1,425.0 
Total liabilities15,682.6 14,235.9 
Commitments and Contingencies (Note 10)
Redeemable Noncontrolling Interests960.5 1,525.8 
Stockholders’ Equity
Preferred stock, $1.00 par value, 1,000,000 shares authorized; none issued— — 
Common stock, $0.10 par value, 1,000,000,000 shares authorized; 500,912,066 and 499,575,175 shares issued and outstanding at March 31, 2023 and September 30, 202250.1 50.0 
Retained earnings12,260.1 12,045.6 
Accumulated other comprehensive loss(478.4)(621.0)
Total Franklin Resources, Inc. stockholders’ equity11,831.8 11,474.6 
Nonredeemable noncontrolling interests610.8 824.3 
Total stockholders’ equity12,442.6 12,298.9 
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity$29,085.7 $28,060.6 



See Notes to Consolidated Financial Statements.


5
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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Unaudited
Franklin Resources, Inc.Non-
redeemable
Non-
controlling
Interests		Total
Stockholders’
Equity
Common StockCapital
in
Excess
of Par
Value		Retained
Earnings		Accum-
ulated
Other
Compre-
hensive
Loss		Stockholders’
Equity
(in millions)
for the six months ended
March 31, 2023		SharesAmount
Balance at October 1, 2022499.6 $50.0 $— $12,045.6 $(621.0)$11,474.6 $824.3 $12,298.9 
Net income165.6 165.6 4.7 170.3 
Other comprehensive income124.7 124.7 124.7 
Dividends declared on common stock ($0.30 per share)(153.6)(153.6)(153.6)
Repurchase of common stock(0.5)(0.1)(69.1)55.0 (14.2)(14.2)
Issuance of common stock1.2 0.1 33.5 33.6 33.6 
Stock-based compensation35.6 35.6 35.6 
Net subscriptions and other95.9 95.9 
Net deconsolidation of investment products(35.7)(35.7)
Balance at December 31, 2022500.3 $50.0 $— $12,112.6 $(496.3)$11,666.3 $889.2 $12,555.5 
Net income194.2 194.2 60.7 254.9 
Other comprehensive income17.9 17.9 17.9 
Dividends declared on common stock ($0.30 per share)(153.8)(153.8)(153.8)
Repurchase of common stock(0.1)— (66.0)62.4 (3.6)(3.6)
Issuance of common stock0.7 0.1 25.2 25.3 25.3 
Stock-based compensation40.8 40.8 40.8 
Net distributions and other(14.9)(14.9)
Net deconsolidation of investment products(324.2)(324.2)
Adjustment to fair value of redeemable noncontrolling interests44.7 44.7 44.7 
Balance at March 31, 2023500.9 $50.1 $— $12,260.1 $(478.4)$11,831.8 $610.8 $12,442.6 
See Notes to Consolidated Financial Statements.

6
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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
  Three Months Ended
December 31,
(in millions) 2017 2016
Net Income (Loss) $(571.9) $418.8
Adjustments to reconcile net income to net cash provided by operating activities:    
Amortization of deferred sales commissions 19.1
 17.1
Depreciation and other amortization 20.9
 19.9
Stock-based compensation 30.3
 30.4
Income from investments in equity method investees (35.2) (34.2)
Net gains on investments of consolidated investment products (4.7) (2.0)
Deferred income taxes (49.9) (6.9)
Other 5.3
 (12.9)
Changes in operating assets and liabilities:    
Increase in receivables and other assets (33.8) (11.8)
Increase in receivables of consolidated investment products (94.8) (7.5)
Decrease in trading securities, net 18.6
 27.9
Decrease (increase) in trading securities of consolidated investment products, net (187.1) 43.9
Decrease in accrued compensation and benefits (186.1) (161.9)
Increase (decrease) in commissions payable 9.1
 (9.6)
Increase in income taxes payable 1,232.0
 167.1
Increase (decrease) in accounts payable, accrued expenses and other liabilities 1.5
 (25.9)
Increase (decrease) in accounts payable and accrued expenses of consolidated investment products 147.1
 (6.2)
Net cash provided by operating activities 320.4
 446.2
Purchase of investments (39.7) (28.8)
Liquidation of investments 33.9
 35.2
Purchase of investments by consolidated investment products (11.0) (69.4)
Liquidation of investments by consolidated investment products 22.5
 72.7
Additions of property and equipment, net (19.2) (12.8)
Adoption of new accounting guidance —
 (49.2)
Net deconsolidation of investment products (45.1) (6.1)
Net cash used in investing activities (58.6) (58.4)
Dividends paid on common stock (111.7) (103.4)
Repurchase of common stock (198.7) (256.2)
Proceeds from debt of consolidated investment products —
 0.4
Payments on debt by consolidated investment products (2.4) (3.2)
Payments on contingent consideration liability —
 (2.2)
Noncontrolling interests 261.7
 (1.3)
Net cash used in financing activities (51.1) (365.9)
Effect of exchange rate changes on cash and cash equivalents 10.0
 (50.4)
Increase (decrease) in cash and cash equivalents 220.7
 (28.5)
Cash and cash equivalents, beginning of period 8,749.7
 8,483.3
Cash and Cash Equivalents, End of Period $8,970.4
 $8,454.8
     


Franklin Resources, Inc.Non-
redeemable
Non-
controlling
Interests		Total
Stockholders’
Equity
Common StockCapital
in
Excess
of Par
Value		Retained
Earnings		Accum-
ulated
Other
Compre-
hensive
Loss		Stockholders’
Equity
(in millions)
for the six months ended
March 31, 2022		SharesAmount
Balance at October 1, 2021501.8 $50.2 $— $11,550.8 $(377.6)$11,223.4 $587.2 $11,810.6 
Net income453.2 453.2 84.1 537.3 
Other comprehensive loss(12.0)(12.0)(12.0)
Dividends declared on common stock ($0.29 per share)(148.9)(148.9)(148.9)
Repurchase of common stock(0.7)— (58.8)37.1 (21.7)(21.7)
Issuance of common stock1.4 0.1 47.6 47.7 47.7 
Stock-based compensation11.2 11.2 11.2 
Net distributions and other(27.8)(27.8)
Balance at December 31, 2021502.5 $50.3 $— $11,892.2 $(389.6)$11,552.9 $643.5 $12,196.4 
Net income349.6 349.6 66.7 416.3 
Other comprehensive loss(11.0)(11.0)(11.0)
Dividends declared on common stock ($0.29 per share)(148.3)(148.3)(148.3)
Repurchase of common stock(2.7)(0.4)(66.7)(13.7)(80.8)(80.8)
Issuance of common stock0.6 0.1 18.5 18.6 18.6 
Stock-based compensation48.2 48.2 48.2 
Net distributions and other(21.7)(21.7)
Net deconsolidation of investment products(39.6)(39.6)
Adjustment to fair value of redeemable noncontrolling interests(188.5)(188.5)(188.5)
Balance at March 31, 2022500.4 $50.0 $— $11,891.3 $(400.6)$11,540.7 $648.9 $12,189.6 
See Notes to Consolidated Financial Statements.

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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
 Six Months Ended
March 31,
(in millions)20232022
Net Income$506.9 $903.9 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Stock-based compensation122.0 112.5 
Amortization of deferred sales commissions25.0 35.0 
Depreciation and other amortization52.9 42.7 
Amortization of intangible assets169.2 118.7 
Net gains on investments(48.5)(2.7)
Income from investments in equity method investees(118.8)(51.7)
Net losses (gains) on investments of consolidated investment products57.5 (62.6)
Net purchase of investments by consolidated investment products(613.0)(321.8)
Deferred income taxes(55.7)3.3 
Other68.7 10.0 
Changes in operating assets and liabilities:
Increase in receivables and other assets(144.4)(121.6)
Increase in investments, net(36.0)(21.3)
Decrease in accrued compensation and benefits(336.1)(162.2)
Decrease in income taxes payable(28.5)(104.9)
Increase (decrease) in accounts payable, accrued expenses and other liabilities85.4 (90.0)
Increase (decrease) in accounts payable and accrued expenses of consolidated investment products3.7 (16.8)
Net cash (used in) provided by operating activities(289.7)270.5 
Purchase of investments(504.7)(375.9)
Liquidation of investments411.7 726.0 
Purchase of investments by consolidated collateralized loan obligations(2,097.6)(2,170.2)
Liquidation of investments by consolidated collateralized loan obligations618.8 1,058.8 
Additions of property and equipment, net(42.8)(42.5)
Acquisitions, net of cash acquired(500.5)(372.3)
Payments of contingent consideration asset5.5 12.6 
Net (deconsolidation) consolidation of investment products(85.4)12.2 
Net cash used in investing activities(2,195.0)(1,151.3)
[Table continued on next page]


See Notes to Consolidated Financial Statements.


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FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
[Table continued from previous page]

 Six Months Ended
March 31,
(in millions)20232022
Issuance of common stock$13.4 $13.6 
Dividends paid on common stock(301.8)(290.5)
Repurchase of common stock(17.8)(104.3)
Proceeds from repurchase agreement174.8 — 
Proceeds from debt of consolidated investment products2,258.7 3,016.9 
Payments on debt of consolidated investment products(688.3)(1,609.9)
Payments on contingent consideration liabilities(4.2)(4.1)
Noncontrolling interests485.8 254.2 
Net cash provided by financing activities1,920.6 1,275.9 
Effect of exchange rate changes on cash and cash equivalents60.2 (27.6)
Increase (decrease) in cash and cash equivalents(503.9)367.5 
Cash and cash equivalents, beginning of period4,782.5 4,647.2 
Cash and Cash Equivalents, End of Period$4,278.6 $5,014.7 
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes$204.6 $350.1 
Cash paid for interest47.1 54.7 
Cash paid for interest by consolidated investment products128.6 65.7 

FRANKLIN RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited

[Table continued from previous page]
  Three Months Ended
December 31,
(in millions) 2017 2016
Supplemental Disclosure of Cash Flow Information    
Cash paid for income taxes $38.8
 $33.1
Cash paid for interest 14.1
 10.1
Cash paid for interest by consolidated investment products 0.7
 3.3



See Notes to Consolidated Financial Statements.


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FRANKLIN RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DecemberMarch 31, 20172023
(Unaudited)
Note 1 – Basis of Presentation
The unaudited interim financial statements of Franklin Resources, Inc. (“Franklin”) and its consolidated subsidiaries (collectively, the “Company”) included herein have been prepared by the Company in accordance with the instructions to Form 10-Q and the rules and regulations of the U.S. Securities and Exchange Commission. Under these rules and regulations, some information and footnote disclosures normally included in financial statements prepared under accounting principles generally accepted in the United States of America have been shortened or omitted. Management believes that all adjustments necessary for a fair statement of the financial position and the results of operations for the periods shown have been made. All adjustments are normal and recurring. Management also 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. These financial statements should be read together with the Company’s audited financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 20172022 (“fiscal year 2017”2022”). Certain comparative
Note 2 – Acquisition
BNY Alcentra Group Holdings, Inc.

On November 1, 2022, the Company acquired all of the outstanding ownership interests in BNY Alcentra Group Holdings, Inc. (together with its subsidiaries “Alcentra”) from The Bank of New York Mellon Corporation. Total purchase price consisted of cash consideration of $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations (“CLOs”); deferred consideration of $62.0 million due November 1, 2023; and contingent consideration to be paid upon the achievement of certain performance thresholds over the next four years of up to $350.0 million that has an acquisition-date fair value of $24.6 million. The consideration paid was funded from existing cash. During the quarter ended March 31, 2023, cash consideration increased by $6.8 million due to a net working capital adjustment and deferred consideration increased by $1.6 million.

The following table summarizes the initial and revised estimated fair value amounts recognized for the prior fiscal year period have been reclassified to conformassets acquired and liabilities assumed and resulting goodwill as of the acquisition date:

(in millions)Initial Estimated Fair ValueAdjustmentsRevised Estimated Fair Value
as of November 1, 2022
Cash and cash equivalents$93.6 $— $93.6 
Receivables57.2 (8.8)48.4 
Investments285.3 1.6 286.9 
Goodwill152.6 52.7 205.3 
Indefinite-lived intangible assets89.9 — 89.9 
Definite-lived intangible assets55.7 — 55.7 
Other assets9.0 3.1 12.1 
Deferred tax liabilities— (36.7)(36.7)
Compensation and benefits and other liabilities(71.0)(3.5)(74.5)
Total Identifiable Net Assets$672.3 $8.4 $680.7 

The adjustments to the financial statement presentationinitial estimated fair values are a result of new information obtained about the facts that existed as of the acquisition date. 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.
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The goodwill is primarily attributable to expected growth opportunities from the combined operations and is not deductible for tax purposes. The definite-lived intangible assets relate to acquired investment management contracts and trade names, which are amortized over their estimated useful lives ranging from 3.0 years to 10.0 years. Amortization expense related to the definite-lived intangible assets was $3.5 million and $5.8 million for the periodthree and six months ended DecemberMarch 31, 2017.2023. These assets had a weighted-average remaining useful life of 4.9 years at March 31, 2023, with estimated remaining amortization expense as follows:

Note 2 – New Accounting Guidance
(in millions)
for the fiscal years ending September 30,Amount
2023 (remainder of year)$7.0 
202414.0 
202514.0 
20263.9 
20272.9 
Thereafter8.1 
Total$49.9 
Recently Adopted Accounting Guidance
On October 1, 2017,Costs incurred in connection with the Company adopted an amendment toacquisition were $14.1 million for the existing stock-based compensation guidance issued by the Financial Accounting Standards Board (“FASB”). The amendment requires all income tax effectssix months ended March 31, 2023.

Alcentra contributed $71.4 million 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 made using the modified retrospective approach which did not require the restatement of prior-year periodsrevenue and did not result inhave a material impact on retained earnings. Theto net income tax effect and statement of cash flow changes were adopted on a prospective basis. The adoption of the amendment will increase the volatility of income tax expense as a result of fluctuations in the Company’s stock price.
Accounting Guidance Not Yet Adopted
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 servicesattributable to customers in an amount that reflects the expected consideration to be receivedFranklin Resources, Inc. for the goods or services. The guidance also changessix months ended March 31, 2023. Consequently, the accountingCompany has not presented pro forma combined results of operations for certain contract costs and revisesthis acquisition.

In connection with the criteria for determining if an entity is acting as a principal or agent in certain arrangements. The guidance is effective foracquisition, the Company on October 1, 2018December 15, 2022 entered into repurchase agreements with a third-party financing company for certain securities held by the Company in Alcentra’s CLOs. As of March 31, 2023, other liabilities includes repurchase agreements of €125.5 million (equivalent to $136.1 million at March 31, 2023) 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$40.8 million with maturity values of the guidance to have a significant impact on the timing of recognition for substantially all of its operating revenue or the accounting for its contract costs. The Company continues to assess certain arrangements to determine whether it continues to act as a principal€132.3 million and present the related revenue gross of associated expenses. The overall impact upon adoption may differ based on further evaluation of the Company’s arrangements and other facts and circumstances identified during implementation.$42.4 million, respectively. The Company has not yet determined its transition approach.pledged Alcentra investments with a carrying value of $201.4 million as collateral as of March 31, 2023. The repurchase agreements have contractual maturity dates ranging between 2029 to 2034.
There were no other significant updates to the new accounting guidance not yet adopted by the Company as disclosed in its Form 10-K for fiscal year 2017.

Note 3 – Stockholders’ Equity
Changes in total stockholders’ equity were as follows:
(in millions) 
Franklin
Resources, Inc.
Stockholders’
Equity
 
Nonredeemable
Noncontrolling
Interests
 
Total
Stockholders’
Equity
for the three months ended December 31, 2017   
Balance at October 1, 2017 $12,620.0
 $315.8
 $12,935.8
Adoption of new accounting guidance 0.4
 —
 0.4
Net loss (583.3) (0.1) (583.4)
Other comprehensive income 18.2
   18.2
Cash dividends declared on common stock (127.4)   (127.4)
Repurchase of common stock (200.0)   (200.0)
Stock-based compensation 30.2
   30.2
Net subscriptions and other   7.0
 7.0
Deconsolidation of investment product   (0.3) (0.3)
Balance at December 31, 2017 $11,758.1
 $322.4
 $12,080.5
(in millions) 
Franklin
Resources, Inc.
Stockholders’
Equity
 
Nonredeemable
Noncontrolling
Interests
 
Total
Stockholders’
Equity
for the three months ended December 31, 2016   
Balance at October 1, 2016 $11,935.8
 $592.4
 $12,528.2
Adoption of new accounting guidance (1.3) (324.6) (325.9)
Net income 440.2
 2.1
 442.3
Other comprehensive loss (63.3)   (63.3)
Cash dividends declared on common stock (113.4)   (113.4)
Repurchase of common stock (261.7)   (261.7)
Stock-based compensation 28.5
   28.5
Net subscriptions and other   12.3
 12.3
Balance at December 31, 2016 $11,964.8
 $282.2
 $12,247.0
During the three months ended December 31, 2017 and 2016, the Company repurchased 4.6 million and 7.1 million shares of its common stock at a cost of $200.0 million and $261.7 million under its stock repurchase program. At December 31, 2017, 27.0 million shares remained available for repurchase under the program, which is not subject to an expiration date.
Note 4 – Earnings (Loss) per Share
The components of basic and diluted earnings (loss) per share were as follows:
(in millions, except per share data) Three Months Ended
December 31,		(in millions, except per share data)Three Months Ended
March 31,		Six Months Ended
March 31,
2017 20162023202220232022
Net income (loss) attributable to Franklin Resources, Inc. $(583.3) $440.2
Net income attributable to Franklin Resources, Inc.Net income attributable to Franklin Resources, Inc.$194.2 $349.6 $359.8 $802.8 
Less: allocation of earnings to participating nonvested stock and stock unit awards 1.0
 3.0
Less: allocation of earnings to participating nonvested stock and stock unit awards9.0 15.1 16.7 34.3 
Net Income (Loss) Available to Common Stockholders $(584.3) $437.2
Net Income Available to Common StockholdersNet Income Available to Common Stockholders$185.2 $334.5 $343.1 $768.5 
    
Weighted-average shares outstanding – basic 550.7
 565.1
Weighted-average shares outstanding – basic490.7 490.0 490.1 489.9 
Dilutive effect of nonparticipating nonvested stock unit awards —
 0.1
Dilutive effect of nonparticipating nonvested stock unit awards0.7 0.5 0.7 0.6 
Weighted-Average Shares Outstanding – Diluted 550.7
 565.2
Weighted-Average Shares Outstanding – Diluted491.4 490.5 490.8 490.5 
    
Earnings (Loss) per Share    
Earnings per ShareEarnings per Share
Basic $(1.06) $0.77
Basic$0.38 $0.68 $0.70 $1.57 
Diluted (1.06) 0.77
Diluted0.38 0.68 0.70 1.57 
Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings (loss) per share because their effect would have been antidilutive were 1.9 million and 0.7 millioninsignificant for the three and six months ended DecemberMarch 31, 20172023 and 2016.2022.
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Note 4 – Revenues
Operating revenues by geographic area were as follows:
(in millions)United StatesLuxembourgAsia-PacificAmericas
Excluding
United
States		Europe,
Middle East
and Africa,
Excluding
Luxembourg		Total
for the three months ended March 31, 2023
Investment management fees$1,165.8 $196.6 $82.5 $56.3 $72.1 $1,573.3 
Sales and distribution fees212.4 73.6 5.0 10.4 — 301.4 
Shareholder servicing fees34.6 7.8 0.7 0.2 — 43.3 
Other8.5 0.3 0.1 — 0.3 9.2 
Total$1,421.3 $278.3 $88.3 $66.9 $72.4 $1,927.2 
(in millions)United StatesLuxembourgAsia-PacificAmericas
Excluding
United
States		Europe,
Middle East
and Africa,
Excluding
Luxembourg		Total
for the six months ended March 31, 2023
Investment management fees$2,440.6 $378.4 $150.1 $108.1 $127.9 $3,205.1 
Sales and distribution fees420.6 142.0 10.0 20.7 — 593.3 
Shareholder servicing fees59.9 15.5 1.1 0.2 — 76.7 
Other18.2 0.3 0.4 — 0.3 19.2 
Total$2,939.3 $536.2 $161.6 $129.0 $128.2 $3,894.3 

(in millions)United StatesLuxembourgAsia-PacificAmericas
Excluding
United
States		Europe,
Middle East
and Africa,
Excluding
Luxembourg		Total
for the three months ended March 31, 2022
Investment management fees$1,202.1 $237.2 $89.5 $64.6 $55.8 $1,649.2 
Sales and distribution fees261.6 89.3 6.6 12.7 — 370.2 
Shareholder servicing fees42.1 9.3 0.3 — 0.5 52.2 
Other9.1 0.2 0.1 — — 9.4 
Total$1,514.9 $336.0 $96.5 $77.3 $56.3 $2,081.0 
(in millions)United StatesLuxembourgAsia-PacificAmericas
Excluding
United
States		Europe,
Middle East
and Africa,
Excluding
Luxembourg		Total
for the six months ended March 31, 2022
Investment management fees$2,486.1 $495.6 $171.3 $134.9 $121.8 $3,409.7 
Sales and distribution fees540.0 188.1 14.2 26.1 — 768.4 
Shareholder servicing fees78.9 19.4 0.7 0.1 0.8 99.9 
Other26.2 0.5 0.3 — — 27.0 
Total$3,131.2 $703.6 $186.5 $161.1 $122.6 $4,305.0 
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.
Revenues earned from sponsored funds were 83% of the Company’s total operating revenues for the three and six months ended March 31, 2023 and 79% and 80% for the three and six months ended March 31, 2022.
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Note 5 – Investments
The disclosures below include details of the Company’s investments, excluding those of consolidated investment products.products (“CIPs”). See Note 7–Consolidated Investment Products for information related to the investments held by these entities.
Investments consisted of the following:
(in millions)March 31,
2023		September 30,
2022
Investments, at fair value
Sponsored funds and separate accounts$721.5 $413.0 
Investments related to long-term incentive plans214.9 143.3 
Other equity and debt investments50.7 57.2 
Total investments, at fair value987.1 613.5 
Investments in equity method investees1,138.1 771.5 
Other investments252.8 266.3 
Total$2,378.0 $1,651.3 
(in millions) December 31,
2017		 September 30,
2017
Investment securities, trading    
Sponsored funds $17.7
 $31.1
Debt and other equity securities 281.9
 283.4
Total investment securities, trading 299.6
 314.5
Investment securities, available-for-sale    
Sponsored funds 112.5
 110.8
Debt and other equity securities 1.8
 1.9
Total investment securities, available-for-sale 114.3
 112.7
Investments in equity method investees 922.0
 893.5
Other investments 77.6
 72.9
Total $1,413.5
 $1,393.6
Debt and other equity trading securities consist primarily of corporate debt.
Investment securities with aggregate carrying amounts of $1.3 million and $0.8 million were pledged as collateral at December 31, 2017 and September 30, 2017.
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 December 31, 2017        
Sponsored funds $106.6
 $12.0
 $(6.1) $112.5
Debt and other equity securities 1.7
 0.1
 —
 1.8
Total $108.3
 $12.1
 $(6.1) $114.3
         
as of September 30, 2017        
Sponsored funds $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
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 December 31, 2017            
Sponsored funds $31.2
 $(5.9) $2.4
 $(0.2) $33.6
 $(6.1)
             
as of September 30, 2017            
Sponsored funds $28.4
 $(6.3) $2.4
 $(0.2) $30.8
 $(6.5)

The Company recognized $0.5 million and $0.3 million of other-than-temporary impairment during the three months ended December 31, 2017 and 2016.
Note 6 – Fair Value Measurements
The disclosures below include details of the Company’s fair value measurements, excluding those of consolidated investment products.CIPs. See Note 7 – Consolidated Investment Products for information related to fair value measurements of the assets and liabilities of these entities.
The assets and liabilityliabilities measured at fair value on a recurring basis were as follows:
(in millions)Level 1Level 2Level 3NAV as a
Practical
Expedient		Total
as of March 31, 2023
Assets
Investments, at fair value
Sponsored funds and separate accounts$466.1 $192.6 $19.1 $43.7 $721.5 
Investments related to long-term incentive plans190.1 — — 24.8 214.9 
Other equity and debt investments3.1 13.7 — 33.9 50.7 
Contingent consideration asset— — 4.4 — 4.4 
Total Assets Measured at Fair Value$659.3 $206.3 $23.5 $102.4 $991.5 
Liabilities
Securities sold short$211.2 $— $— $— $211.2 
Contingent consideration liabilities— — 51.7 — 51.7 
Total Liabilities Measured at Fair Value$211.2 $— $51.7 $— $262.9 
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(in millions) Level 1 Level 2 Level 3 Total
as of December 31, 2017    
Assets        
Investment securities, trading        
Sponsored funds $17.7
 $—
 $—
 $17.7
Debt and other equity securities 20.0
 65.1
 196.8
 281.9
Investment securities, available-for-sale        
Sponsored funds 112.5
 —
 —
 112.5
Debt and other equity securities 0.9
 0.6
 0.3
 1.8
Life settlement contracts —
 —
 13.0
 13.0
Total Assets Measured at Fair Value $151.1
 $65.7
 $210.1
 $426.9
         
Liability        
Contingent consideration liability $—
 $—
 $62.0
 $62.0
(in millions)Level 1Level 2Level 3NAV as a
Practical
Expedient		Total
as of September 30, 2022
Assets
Investments, at fair value
Sponsored funds and separate accounts$289.5 $55.4 $14.1 $54.0 $413.0 
Investments related to long-term incentive plans143.3 — — — 143.3 
Other equity and debt investments3.1 19.4 2.7 32.0 57.2 
Contingent consideration asset— — 9.8 — 9.8 
Total Assets Measured at Fair Value$435.9 $74.8 $26.6 $86.0 $623.3 
Liabilities
Contingent consideration liabilities$— $— $31.6 $— $31.6 
(in millions) Level 1 Level 2 Level 3 Total
as of September 30, 2017    
Assets        
Investment securities, trading        
Sponsored funds $31.1
 $—
 $—
 $31.1
Debt and other equity securities 18.2
 78.4
 186.8
 283.4
Investment securities, available-for-sale        
Sponsored funds 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
Level 1 assetsInvestments for which fair value was estimated using reported NAV as a practical expedient primarily consist primarily of sponsorednonredeemable private debt, equity and infrastructure funds, and otherredeemable global equity securities for which the fair values are based on published net asset values or quoted market prices. Level 2 assets consist of debt and equity securities for which the fair values are determined using independent third-party broker or dealer price quotes. Level 3 assets consist of corporate debt securities for which the fair value is determined using market pricing, and other debt securities and life settlement contracts for which the fair values are based on discounted cash flows using significant unobservable inputs.
The fair value of the contingent consideration liability is determined using an income-based method which considers the net present value of anticipated future cash flows.
There were no transfers between Level 1 and Level 2, or into or out of Level 3, during the three months ended December 31, 2017 and 2016.

Changes in the Level 3 assets and liability were as follows:
  2017 2016
(in millions) Investments Contingent
Consideration
Liability		 Investments Contingent
Consideration
Liability
for the three months ended December 31,    
Balance at beginning of period $199.9
 $(51.0) $205.1
 $(98.1)
Total realized and unrealized gains (losses)        
Included in investment and other income, net 1.2
 —
 0.6
 —
Included in general, administrative and other expense —
 (4.0) —
 12.2
Purchases 5.3
 —
 0.5
 —
Sales —
 —
 (2.4) —
Settlements —
 —
 (1.7) 2.2
Foreign exchange revaluation and other 3.7
 (7.0) (3.4) —
Balance at End of Period $210.1
 $(62.0) $198.7
 $(83.7)
Change in unrealized gains (losses) included in net income relating to assets and liability held at end of period $1.2
 $(4.0) $(0.1) $12.2
Valuation techniques and significant unobservable inputs used in the Level 3 fair value measurementsprivate real estate funds. These investments were as follows:
(in millions)March 31,
2023		September 30,
2022
Nonredeemable investments1
Investments with known liquidation periods$33.0 $32.8 
Investments with unknown liquidation periods17.4 29.4 
Redeemable investments2
52.0 23.8 
Unfunded commitments45.6 51.4 
(in millions)        
as of December 31, 2017 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average)
Investment securities, trading – debt and other equity securities $180.3
 Market pricing Redemption price $73 per $100 of par
Discount rate 18.6%
 16.5
 Discounted cash flow Discount rate 4.3%–6.7% (5.8%)
Risk premium 2.0%–4.7% (3.1%)
         
Life settlement contracts 13.0
 Discounted cash flow Life expectancy 19–121 months (61)
Discount rate 8.0%–20.0% (13.2%)
         
Contingent consideration liability 62.0
 Discounted cash flow AUM growth rate 2.1%
Discount rate 14.8%
_______________
(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%)
Discount rate 14.6%
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 or risk premium in isolation would result in a significantly lower (higher) fair value measurement.
For life settlement contracts, a significant increase (decrease) in1The investments are expected to be returned through distributions over the life expectancy orof the discount rate in isolation wouldfunds as a result inof liquidations of the funds’ underlying assets. Investments with known liquidation periods have an expected weighted-average life of 3.3 years and 3.4 years at March 31, 2023 and September 30, 2022.
2Investments are redeemable on a significantly lower (higher) fair value measurement.

For the contingent consideration liability, a significant increase (decrease) in the assets under management (“AUM”) growth rate, or decrease (increase) in the discount rate, in isolation would result in a significantly higher (lower) fair value measurement.semi-monthly, monthly and quarterly basis.
Financial instruments that were not measured at fair value were as follows:
(in millions)Fair Value
Level		March 31, 2023September 30, 2022
Carrying ValueEstimated Fair ValueCarrying ValueEstimated Fair Value
Financial Assets
Cash and cash equivalents1$3,471.3 $3,471.3 $4,134.9 $4,134.9 
Other investments
Time deposits210.6 10.6 9.4 9.4 
Equity securities3242.2 242.2 256.9 256.9 
Financial Liability
Debt2$3,364.6 $2,834.8 $3,376.4 $2,750.1 
14
(in millions)   December 31, 2017 September 30, 2017
 
Fair Value
Level
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial Assets          
Cash and cash equivalents 1 $8,707.5
 $8,707.5
 $8,523.3
 $8,523.3
Other investments          
Time deposits 2 10.6
 10.6
 13.4
 13.4
Cost method investments 3 54.0
 74.6
 46.7
 67.7
           
Financial Liability          
Debt 2 $1,044.5
 $1,068.7
 $1,044.2
 $1,073.5
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Note 7 – Consolidated Investment Products
Consolidated investment products (“CIPs”)CIPs consist of mutual and other investment funds, limited partnerships and similar structures substantiallyand CLOs, all of which are sponsored by the Company, and include both voting interest entities and variable interest entities.entities (“VIEs”). The Company had 52 and 5864 CIPs, including 18 CLOs, as of DecemberMarch 31, 20172023 and 59 CIPs, including 15 CLOs, as of September 30, 2017.2022.
The balances related to CIPs included in the Company’s consolidated balance sheets were as follows:
(in millions)March 31,
2023		September 30,
2022
Assets
Cash and cash equivalents$807.3 $647.6 
Receivables71.4 134.0 
Investments, at fair value8,421.3 7,898.1 
Total Assets$9,300.0 $8,679.7 
Liabilities
Accounts payable and accrued expenses$478.0 $646.9 
Debt7,153.1 5,457.7 
Other liabilities26.6 175.0 
Total liabilities7,657.7 6,279.6 
Redeemable Noncontrolling Interests445.6 942.2 
Stockholders’ Equity
Franklin Resources, Inc.’s interests909.5 960.8 
Nonredeemable noncontrolling interests287.2 497.1 
Total stockholders’ equity1,196.7 1,457.9 
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity
$9,300.0 $8,679.7 
(in millions) December 31,
2017		 September 30,
2017
Assets    
Cash and cash equivalents $262.9
 $226.4
Receivables 328.8
 234.1
Investments, at fair value 3,649.2
 3,467.4
Other assets 1.0
 0.9
Total Assets $4,241.9
 $3,928.8
     
Liabilities    
Accounts payable and accrued expenses $215.6
 $124.1
Debt 51.0
 53.4
Other liabilities 10.5
 8.7
Total liabilities 277.1
 186.2
Redeemable Noncontrolling Interests 2,208.1
 1,941.9
Stockholders’ Equity
    
Franklin Resources, Inc.’s interests 1,460.9
 1,511.8
Nonredeemable noncontrolling interests 295.8
 288.9
Total stockholders’ equity 1,756.7
 1,800.7
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity
 $4,241.9
 $3,928.8
The CIPs did not have a significant impact on net income (loss) attributable to the Company during the three and six months ended DecemberMarch 31, 20172023 and 2016.2022.
The Company has no right to the CIPs’ assets, other than its direct equity investments in them and investment management and other fees earned from them. The debt holders of the CIPs 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 CIPs’ liabilities.

Investment products are typically consolidated when the Company makes an initial investment in 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 these products subsequent to deconsolidation are accounted for as trading or available-for-sale investment securities, or equity method or cost method investments depending on the structure of the product and the Company’s role and level of ownership.
Investments
Investments of CIPs consisted of the following:
(in millions) December 31,
2017		 September 30,
2017
Investment securities, trading $3,204.3
 $3,017.2
Other equity securities 308.9
 306.9
Other debt securities 136.0
 143.3
Total $3,649.2
 $3,467.4
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.
Fair Value Measurements
Assets and liabilities of CIPs measured at fair value on a recurring basis were as follows:
(in millions)Level 1Level 2Level 3NAV as a
Practical
Expedient		Total
as of March 31, 2023
Assets
Cash and cash equivalents of CLOs$507.6 $— $— $— $507.6 
Receivables of CLOs— 29.6 — — 29.6 
Investments
Equity and debt securities63.2 551.2 539.0 146.4 1,299.8 
Loans— 7,118.4 3.1 — 7,121.5 
Total Assets Measured at Fair Value$570.8 $7,699.2 $542.1 $146.4 $8,958.5 
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(in millions) Level 1 Level 2 Level 3 NAV as a Practical Expedient Total
as of December 31, 2017     
Assets          
Investments          
Equity securities $313.0
 $249.4
 $159.6
 $150.7
 $872.7
Debt securities 2.6
 2,637.7
 136.2
 —
 2,776.5
Total Assets Measured at Fair Value $315.6
 $2,887.1
 $295.8
 $150.7
 $3,649.2
           
Liabilities          
Other liabilities $0.6
 $9.9
 $—
 $—
 $10.5
(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
Level 1 assets consist of equity and debt securities for which the fair values are based on quoted market prices. Level 2 assets consist of debt and equity securities for which the fair values are determined using independent third-party broker or dealer price quotes. Level 3 assets consist of equity and debt securities of entities in emerging markets for which the fair values are determined using significant unobservable inputs in either a market-based or income-based approach.
The fair value of other liabilities, which consist of short positions in debt and equity securities, 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 are not available.

There were no transfers between Level 1 and Level 2, or into or out of Level 3, during the three months ended December 31, 2017 and 2016.
(in millions)Level 1Level 2Level 3NAV as a
Practical
Expedient		Total
as of September 30, 2022
Assets
Cash and cash equivalents of CLOs$269.1 $— $— $— $269.1 
Receivables of CLOs— 67.4 — — 67.4 
Investments
Equity and debt securities75.4 881.0 555.8 173.5 1,685.7 
Loans— 5,704.4 239.4 — 5,943.8 
Real estate— — 268.6 — 268.6 
Total Assets Measured at Fair Value$344.5 $6,652.8 $1,063.8 $173.5 $8,234.6 
Investments for which fair value was estimated using reported net asset value (“NAV”)NAV as a practical expedient consistedconsist of a redeemable global hedge fund, a redeemable U.S. equity fund and nonredeemable real estate and private equity funds. These investments were as follows:
(in millions)March 31,
2023		September 30,
2022
Nonredeemable investments1
Investments with known liquidation periods$— $19.5 
Investments with unknown liquidation periods19.9 12.0 
Redeemable investments2
126.5 142.0 
Unfunded commitments3
— 0.2 
_______________
1The 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 aassets. As of March 31, 2023, there were no investments with known liquidation periods. Investments with known liquidation periods have an expected weighted-average periodlife of 4.2 years and 4.40.3 years at December 31, 2017 and September 30, 2017. The CIPs’2022.
2Investments are redeemable on a monthly basis and liquidation periods are unknown.
3As of March 31, 2023, there were no investments with unfunded commitments. Of the total unfunded commitments, to these funds totaled $1.9 million, of which the Company was contractually obligated to fund $0.4$0.1 million based on its ownership percentage in the CIPs, at both December 31, 2017 and September 30, 2017.2022.

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Changes in Level 3 assets were as follows:
(in millions)Equity and Debt
Securities		Real EstateLoansTotal 
Level 3
Assets
for the three months ended March 31, 2023
Balance at January 1, 2023$555.8 $358.0 $64.7 $978.5 
Losses included in investment and other income of consolidated investment products, net(18.4)(12.7)— (31.1)
Purchases13.5 0.4 31.1 45.0 
Sales and settlements(19.4)— — (19.4)
Net (deconsolidations) consolidations7.5 (345.7)(90.5)(428.7)
Transfers into Level 3— — 3.1 3.1 
Transfers out of Level 3— — (5.3)(5.3)
Balance at March 31, 2023$539.0 $— $3.1 $542.1 
Change in unrealized losses included in net income relating to assets held at March 31, 2023$(25.0)$— $— $(25.0)
(in millions)Equity and Debt
Securities		Real EstateLoansTotal 
Level 3
Assets
for the six months ended March 31, 2023
Balance at October 1, 2022$555.8 $268.6 $239.4 $1,063.8 
Gains (losses) included in investment and other income of consolidated investment products, net(24.7)(9.0)0.1 (33.6)
Purchases22.5 86.1 58.6 167.2 
Sales and settlements(25.0)— (0.2)(25.2)
Net (deconsolidations) consolidations10.4 (345.7)(292.6)(627.9)
Transfers into Level 3— — 3.1 3.1 
Transfers out of Level 3— — (5.3)(5.3)
Balance at March 31, 2023$539.0 $— $3.1 $542.1 
Change in unrealized losses included in net income relating to assets held at March 31, 2023$(22.3)$— $— $(22.3)
(in millions)Equity and Debt
Securities		Real EstateLoansTotal 
Level 3
Assets
for the three months ended March 31, 2022
Balance at January 1, 2022$539.0 $98.9 $34.2 $672.1 
Gains (losses) included in investment and other income of consolidated investment products, net78.0 5.7 (0.3)83.4 
Purchases115.3 70.8 0.1 186.2 
Sales and settlements(81.9)— (0.4)(82.3)
Net deconsolidations(55.0)— — (55.0)
Balance at March 31, 2022$595.4 $175.4 $33.6 $804.4 
Change in unrealized gains (losses) included in net income relating to assets held at March 31, 2022$73.6 $5.7 $(0.3)$79.0 
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  2017 2016
(in millions) Equity
Securities		 Debt
Securities		 Total 
Level 3
Assets		 Equity
Securities		 Debt
Securities		 Total 
Level 3
Assets
for the three months ended December 31,     
Balance at beginning of period $160.7
 $135.4
 $296.1
 $160.3
 $132.3
 $292.6
Adoption of new accounting guidance—
 —
 —
 (45.4) (0.5) (45.9)
Realized and unrealized gains (losses) included in investment and other income, net 1.9
 0.1
 2.0
 (3.3) (0.3) (3.6)
Purchases 11.1
 —
 11.1
 21.0
 2.2
 23.2
Sales (14.9) —
 (14.9) (0.1) (6.4) (6.5)
Foreign exchange revaluation 0.8
 0.7
 1.5
 (0.9) (2.9) (3.8)
Balance at End of Period $159.6
 $136.2
 $295.8
 $131.6
 $124.4
 $256.0
Change in unrealized gains (losses) included in net income relating to assets held at end of period $1.0
 $0.1
 $1.1
 $(3.4) $(0.2) $(3.6)
(in millions)Equity and Debt
Securities		Real EstateLoansTotal 
Level 3
Assets
for the six months ended March 31, 2022
Balance at October 1, 2021$453.3 $89.4 $20.5 $563.2 
Gains included in investment and other income of consolidated investment products, net170.3 14.3 — 184.6 
Purchases133.5 71.7 14.1 219.3 
Sales and settlements(105.8)— (1.0)(106.8)
Net deconsolidations(55.0)— — (55.0)
Transfers into Level 30.1 — — 0.1 
Transfers out of Level 3(1.0)— — (1.0)
Balance at March 31, 2022$595.4 $175.4 $33.6 $804.4 
Change in unrealized gains included in net income relating to assets held at March 31, 2022$166.1 $14.3 $— $180.4 
Valuation techniques and significant unobservable inputs used in Level 3 fair value measurements were as follows:
(in millions)
as of March 31, 2023Fair ValueValuation TechniqueSignificant Unobservable Inputs
Range (Weighted Average1)
Equity and debt securities$539.0 Market pricingPrivate sale pricing$0.01–$1,000.00 ($45.98) per share
Discount for lack of liquidity13.0%–25.1% (23.2%)
(in millions)        
as of December 31, 2017 Fair Value Valuation Technique Significant Unobservable Inputs Range (Weighted Average)
Equity securities $133.3
 Market comparable companies EBITDA multiple 5.5–12.3 (8.9)
26.3
Discounted cash flowDiscount rate5.7%–17.9% (14.3%)
         
Debt securities 114.1
 Discounted cash flow Discount rate 5.0%–33.0% (9.4%)
Risk premium0.0%–25.0% (8.4%)
 22.1
 Market pricing Private sale pricing $33–$57 ($53) per $100 of par
(in millions)
as of September 30, 2022Fair ValueValuation TechniqueSignificant Unobservable Inputs
Range (Weighted Average1)
Equity and debt securities$555.8 Market pricingPrivate sale pricing$0.01-$558.45 ($33.31) per share
Discount for lack of liquidity23.5%–25.1% (24.9%)
Real estate268.6 Discounted cash flowDiscount rate4.5%–6.3% (5.1%)
Exit capitalization rate5.5%–6.8% (6.0%)
Loans147.2 Market pricingPrice$0.97–$0.98 ($0.98)
60.4 Discounted cash flowDiscount rate9.9%
31.9 Yield capitalizationCredit spread6.3%
Loan-to-value ratio79.1%–88.1% (83.1%)
__________________
(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 flowDiscount rate5.7%–17.9% (14.3%)
14.4
Market pricingPrice to earnings ratio10.0
         
Debt securities 112.7
 Discounted cash flow Discount rate 5.0%–33.0% (9.5%)
Risk premium0.0%–25.0% (8.4%)
22.7
Market pricingPrivate sale pricing$33–$57 ($52) per $100 of par
1Based on the relative fair value of the instruments.
For securities usingIf the market comparable companies valuation technique, arelevant significant increase (decrease)inputs used in the EBITDA multiple in isolation would result in a significantlymarket-based valuations, other than discount for lack of liquidity, were independently higher (lower) as of March 31, 2023, the resulting fair value measurement.

For securities usingof the assets would be higher (lower). If the relevant significant inputs used in the discounted cash flow valuation technique, a significant increase (decrease)valuations, as well as the discount for lack of liquidity used in the discount rate or risk premium in isolation would result in a significantly lower (higher)market-based valuations, were independently higher (lower) as of March 31, 2023, the resulting fair value measurement.of the assets would be lower (higher).
For securities using the market pricing valuation technique, a significant increase (decrease) in the private sale pricing or price to earnings ratio would result in a significantly higher (lower) fair value measurement.
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Table of Contents
Financial instruments of CIPs that were not measured at fair value were as follows:
(in millions)Fair Value
Level		March 31, 2023September 30, 2022
Carrying
Value		Estimated
Fair Value		Carrying
Value		Estimated
Fair Value
Financial Asset
Cash and cash equivalents1$299.7 $299.7 $378.5 $378.5 
Financial Liabilities
Debt of CLOs1
2 or 3$7,131.4 $7,402.0 $5,408.0 $5,548.8 
Other debt321.7 11.1 49.7 42.4 
__________________
(in millions) 
Fair Value
Level
 December 31, 2017 September 30, 2017
  
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial Asset          
Cash and cash equivalents 1 $262.9
 $262.9
 $226.4
 $226.4
Financial Liability          
Debt 3 $51.0
 $50.7
 $53.4
 $53.1
1Substantially all was Level 2.
Debt
Debt of CIPs totaled $51.0 million and $53.4 million at December 31, 2017 and September 30, 2017. consisted of the following:
March 31, 2023September 30, 2022
(in millions)AmountWeighted-
Average
Effective
Interest Rate		AmountWeighted-
Average
Effective
Interest Rate
Debt of CLOs$7,131.4 6.01%$5,408.0 2.78%
Other debt21.7 6.00%49.7 5.19%
Total$7,153.1 $5,457.7 
The debt of CIPs had fixed and floating interest rates ranging from 2.84%2.39% to 6.88% with a weighted-average effective interest rate of 5.19%13.73% at DecemberMarch 31, 2017,2023, and from 2.84%1.42% to 6.75% with a weighted-average effective interest rate of 5.15%8.51% at September 30, 2017.2022. The floating rates were based on the London Interbank Offered Rate and Secured Overnight Financing Rate.
At December 31, 2017,The contractual maturities for the debt of CIPs at March 31, 2023 were as follows:
(in millions)
for the fiscal years ending September 30,Amount
2023 (remainder of year)$25.0 
2024— 
2025— 
2026— 
2027— 
Thereafter7,128.1 
Total$7,153.1
Collateralized Loan Obligations
The unpaid principal balance and fair value of the investments of CLOs were as follows:
(in millions)March 31,
2023		September 30,
2022
Unpaid principal balance$7,487.5 $6,118.4 
Difference between unpaid principal balance and fair value(282.2)(356.1)
Fair Value$7,205.3 $5,762.3 
Investments 90 days or more past due were immaterial at March 31, 2023 and September 30, 2022.
19
Table of Contents
(in millions) Carrying Amount
for the fiscal years ending September 30,
2018 $4.1
2019 46.9
Total $51.0
The Company recognized $4.8 million and $2.5 million of net gains during the three and six months ended March 31, 2023 and $7.6 million and $12.9 million of net gains during the three and six months ended March 31, 2022, related to its own economic interests in the CLOs. The aggregate principal amount due of the debt of CLOs was $7,401.4 million and $5,781.3 million at March 31, 2023 and September 30, 2022.
Note 8 –Redeemable Noncontrolling Interests
Changes in redeemable noncontrolling interests of CIPs were as follows:
(in millions)20232022
CIPsMinority InterestsTotalCIPsMinority InterestsTotal
for the three months ended March 31,
Balance at beginning of period$1,379.7 $599.5 $1,979.2 $662.5 $320.9 $983.4 
Net income (loss)70.2 13.0 83.2 (69.6)12.4 (57.2)
Net subscriptions (distributions) and other289.6 (52.9)236.7 148.3 (9.0)139.3 
Net deconsolidations(1,293.9)— (1,293.9)(115.9)— (115.9)
Adjustment to fair value— (44.7)(44.7)— 188.5 188.5 
Balance at End of Period$445.6 $514.9 $960.5 $625.3 $512.8 $1,138.1 
(in millions)20232022
CIPsMinority InterestsTotalCIPsMinority InterestsTotal
for the six months ended March 31,
Balance at beginning of period$942.2 $583.6 $1,525.8 $622.5 $310.5 $933.0 
Net income (loss)58.0 23.7 81.7 (74.4)24.7 (49.7)
Net subscriptions (distributions) and other468.0 (47.7)420.3 314.6 (10.9)303.7 
Net deconsolidations(1,022.6)— (1,022.6)(237.4)— (237.4)
Adjustment to fair value— (44.7)(44.7)— 188.5 188.5 
Balance at End of Period$445.6 $514.9 $960.5 $625.3 $512.8 $1,138.1 

(in millions)    
for the three months ended December 31, 2017 2016
Balance at beginning of period $1,941.9
 $61.1
Adoption of new accounting guidance —
 824.7
Net income (loss) 11.5
 (23.5)
Net subscriptions (distributions) and other 254.7
 (13.6)
Net deconsolidations —
 (7.5)
Balance at End of Period $2,208.1
 $841.2
Note 8 9 – Nonconsolidated Variable Interest Entities
Variable interest entities (“VIEs”)VIEs for which the Company is not the primary beneficiary consist of sponsored 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, investment management and other fee receivables and equity investments as follows:
(in millions) December 31,
2017		 September 30,
2017		(in millions)March 31,
2023		September 30,
2022
InvestmentsInvestments$1,105.3 $718.0 
Receivables $161.6
 $155.6
Receivables230.1 165.4 
Investments 97.7
 129.3
Total $259.3
 $284.9
Total$1,335.4 $883.4 
While the Company has no legal or contractual obligation to do so, it routinely makes cash investments in the course of launching sponsored funds. TheAs it has done in the past, the Company also may voluntarily elect to provide its sponsored funds with additional direct or indirect financial support based on its business objectives. The Company did not provide financial or other support to its sponsored funds assessed as VIEs during the threesix months ended DecemberMarch 31, 20172023 or fiscal year 2017.2022.
Note 9 – Taxes on Income
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law in the U.S. on December 22, 2017. The Tax Act includes various changes to the tax law, including a permanent reduction in the corporate income tax rate. The Company recognized the effects of the changes in the tax rate and laws resulting from the Tax Act during the quarter ended December 31, 2017.
The Tax Act imposes a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings. Based on the information available as of December 31, 2017, the Company estimated its transition tax expense to be $1,120.7 million. The expense may be adjusted in future quarters upon issuance of additional technical guidance from the Department of Treasury and the completion of the Company’s tax return filings. The federal portion of the transition tax liability, estimated to be $1,101.5 million, will be paid over eight years beginning in January 2019, with 8% of the liability payable in each of the first five years, 15% in year six, 20% in year seven and 25% in year eight.
The Tax Act reduces the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The Company’s federal statutory rate for the fiscal year ending September 30, 2018 is a blended rate of 24.5%, based on the pre- and post-Tax Act rates, and will be 21% for future fiscal years. The Company estimated the related changes in its deferred tax assets and deferred tax liabilities, which resulted in a $35.7 million decrease in deferred tax assets, an $88.8 million decrease in deferred tax liabilities and a $53.1 million net tax benefit. The net tax benefit may be revised in future quarters as the related temporary differences are realized or settled.
Deferred tax assets and deferred tax liabilities were as follows:
(in millions) December 31,
2017		 September 30,
2017
Deferred tax assets, net of valuation allowance $99.9
 $141.3
Deferred tax liabilities 204.3
 296.1
Net Deferred Tax Liability $104.4
 $154.8
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) December 31,
2017		 September 30,
2017
Other assets $20.9
 $15.8
Deferred tax liabilities 125.3
 170.6
Net Deferred Tax Liability $104.4
 $154.8
Prior to the Tax Act, the Company indefinitely reinvested the undistributed earnings of all its foreign subsidiaries, except for income previously taxed in the U.S. or subject to regulatory or legal repatriation restrictions or requirements. The Company is currently reconsidering its repatriation policy in light of the changes contained in the Tax Act.
The Company’s effective income tax rate was 187.8% for the three months ended December 31, 2017, and is expected to be approximately 70% for the full fiscal year 2018.
Taxes on income and the related impact on the effective income tax rate for the three months ended December 31, 2017 were as follows:
(in millions) Amount Percentage of Income Before Taxes
Tax expense before one-time charges $154.6
 23.7%
Transition tax on deemed repatriation of undistributed foreign earnings 1,120.7
 172.0%
Revaluation of net deferred tax liabilities (53.1) (8.1%)
Other Tax Act impacts 1.3
 0.2%
Total $1,223.5
 187.8%

Note 10 – Commitments and Contingencies
Legal Proceedings
On July 28, 2016, a former employee filed a class action lawsuit captioned Cryer v. Franklin Resources, Inc., et al.India Credit Fund Closure Matters. During the six months ended March 31, 2023, there were no significant changes from the disclosure in the United States District CourtForm 10‑K for the Northern Districtfiscal year ended September 30, 2022. As of California against Franklin,March 31, 2023, the Franklin Templeton 401(k) Retirement Plan (“Plan”) Investment Committee (“Investment Committee”), and unnamed Investment Committee members. The plaintiff asserts a claim for breach of fiduciary duty under the Employee Retirement Income Security Act (“ERISA”), alleging that the defendants selected mutual funds sponsored and managed by the Company (the “Funds”)amount reported 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, rescission of the Plan’s investmentsdistributed to fund unitholders in the Funds, attorneys’ fees and costs, and pre- and post-judgment interest.aggregate is INR 26,931.3 crore (approximately $3.3 billion).
On November 2, 2017, a second former employee, represented by the same law firm, filed another putative class action lawsuit relating to the Plan in the same court, captioned Fernandez v. Franklin Resources Inc., et al. This second action names the same defendants as those named in the Cryer action, but also includes as defendants the Franklin Board
20
Table 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, as well as claims for alleged prohibited transactions by virtue of the Plan's investments in the Funds and for an alleged failure to monitor the performance of the Investment Committee. The plaintiff alleges that Plan losses exceed $60.0 million and seeks the same relief sought in the Cryer action.Contents
Management strongly believes that the claims made in these lawsuits are without merit. Discovery is continuing in the Cryer action and the Fernandez action is at the pleadings stage. Franklin will defend against both actions vigorously. Franklin cannot at this time predict the eventual outcome of the lawsuits or whether they will have a material negative impact on the Company, or reasonably estimate the possible loss or range of loss that may arise from any negative outcome.
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 Company’s business, financial position, results of operations or liquidity. In management’s opinion, an adequate accrual has been made as of DecemberMarch 31, 20172023 to provide for any probable losses that may arise from such matters for which the Company could reasonably estimate an amount.
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. 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 March 31, 2023.
Other Commitments and Contingencies
At DecemberMarch 31, 2017,2023, there were no material changes in the other commitments and contingencies as reported in the Company’s Annual Report on Form 10-K for fiscal year 2017.2022.
Note 11 – Stock-Based Compensation
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 six months ended March 31, 2023
Nonvested balance at October 1, 202213,492 3,401 16,893 $24.04 
Granted6,907 271 7,178 22.66 
Vested(1,628)(138)(1,766)24.40 
Forfeited/canceled(284)(90)(374)25.66 
Nonvested Balance at March 31, 202318,487 3,444 21,931 $23.53 
(shares in thousands) 
Time-Based
Shares
 
Performance-
Based Shares
 Total Shares 
Weighted-Average
Grant-Date
Fair Value
for the three months ended December 31, 2017    
Nonvested balance at October 1, 2017 2,783
 1,761
 4,544
 $37.23
Granted 2,144
 708
 2,852
 42.90
Vested (125) (512) (637) 39.19
Forfeited/canceled (46) (120) (166) 50.86
Nonvested Balance at December 31, 2017 4,756
 1,837
 6,593
 $39.15
Total unrecognized compensation expense related to nonvested stock and stock unit awards was $203.1$281.9 million at DecemberMarch 31, 2017.2023. This expense is expected to be recognized over a remaining weighted-average vesting period of 2.0 years.1.8 years.

21
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Note 12 – Investment and Other Income, (Expenses)Net
OtherInvestment and other income, (expenses)net consisted of the following:
 Three Months Ended
March 31,		Six Months Ended
March 31,
(in millions)2023202220232022
Dividend and interest income$32.3 $5.1 $68.8 $11.2 
Gains (losses) on investments, net3.0 (23.1)48.5 2.7 
Income from investments in equity method investees85.6 27.0 118.8 51.7 
Rental income13.4 8.6 24.0 18.3 
Foreign currency exchange (losses) gains, net(6.5)5.8 (33.6)9.7 
Other, net(2.2)4.3 (9.8)(8.9)
Investment and other income, net$125.6 $27.7 $216.7 $84.7 
  Three Months Ended
December 31,
(in millions) 2017 2016
Investment and Other Income, Net    
Interest income $23.8
 $13.6
Dividend income 4.7
 2.4
Gains on trading investment securities, net 0.7
 2.0
Realized gains on sale of investment securities, available-for-sale —
 0.6
Realized losses on sale of investment securities, available-for-sale —
 (0.7)
Income from investments in equity method investees 35.2
 34.2
Other-than-temporary impairment of investments (0.5) (0.3)
Gains (losses) on investments of CIPs, net 16.0
 (29.9)
Foreign currency exchange gains (losses), net (2.9) 19.8
Other, net 4.3
 4.4
Total 81.3
 46.1
Interest Expense (10.8) (13.3)
Other Income, Net $70.5
 $32.8
Interest income was primarily generated by cash equivalents and trading investment securities. Substantially all of the dividend income was generated by investments in nonconsolidated funds. Proceeds from the sale of available-for-sale securities were $16.0 million and $8.6 million for the three months ended December 31, 2017 and 2016.
Net gains recognized on the Company’s trading investment securities that were held at December 31, 2017 and 2016 were $1.3 million and $0.2 million. Net gains (losses) recognized on equity securities measured at fair value and trading investmentdebt securities of CIPs that were held at December 31, 2017 and 2016by the Company were $20.0$13.1 million and $(18.5) million.
Note 13 – Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) by component were as follows:
(in millions) Unrealized
Gains on
Investments		 
Currency
Translation
Adjustments
 
Unrealized
Losses on
Defined Benefit
Plans
 Total
for the three months ended December 31, 2017    
Balance at October 1, 2017 $2.2
 $(281.0) $(6.0) $(284.8)
Other comprehensive income (loss) 3.5
 15.8
 (1.1) 18.2
Balance at December 31, 2017 $5.7

$(265.2)
$(7.1)
$(266.6)
(in millions) Unrealized
Gains (Losses) on
Investments		 
Currency
Translation
Adjustments
 
Unrealized
Losses on
Defined Benefit
Plans
 Total
for the three months ended December 31, 2016    
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 loss        
Other comprehensive loss before reclassifications, net of tax (2.6) (60.9) —
 (63.5)
Reclassifications to net investment and other income, net of tax 0.2
 —
 —
 0.2
Total other comprehensive loss (2.4)
(60.9)
—

(63.3)
Balance at December 31, 2016 $(2.4)
$(407.3)
$(8.1)
$(417.8)

There were no reclassifications from accumulated other comprehensive income (loss)$78.2 million for the three and six months ended DecemberMarch 31, 2017.2023 and $(29.2) million and $(34.5) million for the three and six months ended March 31, 2022.
22
Note 14 – Subsequent Event
On January 17, 2018, the Company entered into an agreement to acquire all
Table of the outstanding shares of Edinburgh Partners Limited, a global value investment manager based in the United Kingdom.Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
FORWARD-LOOKING STATEMENTS
In this section, we discussThis Form 10-Q and analyze the results of operationsdocuments incorporated by reference herein may include forward-looking statements that reflect our current views with respect to future events, financial performance and financial condition of Franklin Resources, Inc. (“Franklin”) and its subsidiaries (collectively, the “Company”). In addition to historical information, we also makemarket conditions. Such statements relating to the future, called “forward-looking” statements, which are provided under the “safe harbor” protection of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements areinclude 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 are preceded by words such as “will,“anticipate,” “believe,” “could,” “depends,” “estimate,” “expect,” “intend,” “likely,” “may,” “could,“plan,” “expect,” “believe,” “anticipate,” “intend,” “plan,“potential,” “seek,” “estimate”“should,” “will,” “would,” or other similar words. Moreover, statements that speculate about future eventswords or variations thereof, or the negative thereof, but these terms are forward-lookingnot the exclusive means of identifying such statements. These forward-looking
Forward-looking statements involve a number of known and unknown risks, uncertainties and other important 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. You should carefully reviewstatements, including pandemic-related risks, market and volatility risks, investment performance and reputational risks, global operational risks, competition and distribution risks, third-party risks, technology and security risks, human capital risks, cash management risks, and legal and regulatory risks. The forward-looking statements contained in this Form 10-Q or that are incorporated by reference herein are qualified in their entirety by reference to the risks and uncertainties disclosed in this Form 10-Q and/or discussed under the headings “Risk Factors” section set forth below, which describes these risks, uncertainties and other important factors“Quantitative and Qualitative Disclosures About Market Risk” in more detail.our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (“fiscal year 2022”).
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 Form 10-Q 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.
In this section, we discuss and analyze the results of operations and financial condition of Franklin Resources, Inc. (“Franklin”) and its subsidiaries (collectively, the “Company”). The following discussion should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended September 30, 2017 (“fiscal year 2017”)2022 filed with the U.S. Securities and Exchange Commission, and the consolidated financial statements and notes thereto included elsewhere in this Form 10-Q.
OVERVIEW
Franklin is a holding company with subsidiaries operating under our Franklin Templeton® and/or subsidiary brand names. We are a global investment management organization and derive ourthat derives operating revenues and net income from providing investment management and related services to investors in jurisdictions worldwide throughworldwide. We deliver our investment capabilities through a variety of investment products, thatwhich include our sponsored funds, as well as institutional and high net-worthhigh-net-worth separate accounts. In addition toaccounts, retail separately managed account programs, sub-advised products, and other investment management, ourvehicles. Related 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 products and investment management and related services are distributed or marketed to investors globally under nineour various distinct brand names:names, including, but not limited to, Franklin®, Templeton®, Legg Mason®, Alcentra®, Benefit Street Partners®, Brandywine Global Investment Management®, Clarion Partners®, ClearBridge Investments®, Fiduciary Trust International™, Franklin Bissett®, Franklin Mutual Series®, Franklin Bissett®, Fiduciary Trust™, Darby®, Balanced Equity Management®, K2®, Lexington Partners®, Martin Currie®, O’Shaughnessy® Asset Management, Royce® Investment Partners and LibertySharesWestern Asset Management Company®. We offer a broad rangeproduct mix of products underfixed income, equity, multi-asset/balanced, fixed incomealternative, multi-asset 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.
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Table of Contents
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 below,of our Annual Report on Form 10-K for the fiscal year 2022, the amount and mix of our AUM are subject to significant fluctuations andthat can negatively impact our revenues and income. The level of our revenues also depends on mutual fund sales, the number of shareholder transactions and accounts, and the fees charged for our services, which are based on contracts with our funds or our clients.and customers, fund sales, and the number of shareholder transactions and accounts. These arrangements could change in the future.

During our firstsecond fiscal quarter, the global equity markets continued to provideprovided positive returns reflecting, among other things, generally positive global economic dataas indications that interest rate increases by central banks may soon end, declines in inflation and U.S. tax reform, asreceding concerns about a recession outweighed the impact of regional bank failures and concerns about a potential banking crisis. The S&P 500 Index and MSCI World Index increased 6.6%7.5% and 5.6%.7.9% for the quarter and 15.6% and 18.5% for the fiscal year to date. The global bond markets were alsoremained positive as the Bloomberg Barclays Global Aggregate Index increased 1.1%3.0% during the quarter.quarter and 7.7% for the fiscal year to date, reflecting declines in inflation and expectations of easing monetary policy.
Our total AUM at DecemberMarch 31, 20172023 was $753.8$1,422.1 billion,, comparable to September 30, 2017 and 5% 10% higher than at DecemberSeptember 30, 2022 and 4% lower than at March 31, 2016. Simple monthly2022. Monthly average AUM (“average AUM”) for the three and six months ended DecemberMarch 31, 2017 increased 4%2023 decreased 6% and 9% from the same periodperiods in the prior fiscal year.
On November 1, 2022, we acquired BNY Alcentra Group Holdings, Inc. (together with its subsidiaries, “Alcentra”), one of the largest European credit and private debt managers, with global expertise in senior secured loans, high yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies. Total purchase price included cash consideration of $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations; deferred consideration of $62.0 million due November 1, 2023; and contingent consideration to be paid upon the achievement of certain performance thresholds over the next four years of up to $350.0 million that had an acquisition-date fair value of $24.6 million.
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, registration, reporting and disclosure requirements on our business, and add complexity to our global compliance operations.
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 products 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 set forth below.of our Annual Report on Form 10-K for the fiscal year 2022.
24
Table of Contents
RESULTS OF OPERATIONS
Three Months Ended
March 31,		Percent
Change		Six Months Ended
March 31,		Percent
Change
(in millions, except per share data)2023202220232022
Operating revenues$1,927.2$2,081.0(7 %)$3,894.3$4,305.0(10 %)
Operating income255.1463.0(45 %)449.11,020.7(56 %)
Operating margin1
13.2 %22.2 %11.5 %23.7 %
Net income attributable to Franklin Resources, Inc.$194.2$349.6(44 %)$359.8$802.8(55 %)
Diluted earnings per share0.380.68(44 %)0.701.57(55 %)
As adjusted (non-GAAP):2
Adjusted operating income$440.2$576.6(24 %)$835.3$1,262.5(34 %)
Adjusted operating margin28.9 %35.7 %28.2 %37.8 %
Adjusted net income$316.7$491.6(36 %)$579.1$1,045.2(45 %)
Adjusted diluted earnings per share0.610.96(36 %)1.132.04(45 %)
  Three Months Ended
December 31,		 
Percent
Change
(in millions, except per share data) 2017 2016 
Operating revenues $1,615.5
 $1,560.8
 4%
Operating income 581.1
 586.9
 (1%)
Net income (loss) attributable to Franklin Resources, Inc. (583.3) 440.2
 NM
Diluted earnings (loss) per share $(1.06) $0.77
 NM
Operating margin 1
 36.0% 37.6%  
_________________
___________________
1
1Defined as operating income divided by total operating revenues.
Operating income decreased $5.8 million for the three months ended December 31, 2017, as compared to the same period in the prior fiscal year, as operating revenues increased 4%income divided by operating revenues.
2“Adjusted operating income,” “adjusted operating margin,” “adjusted net income” and operating expenses increased 6%. The net loss attributable to Franklin Resources, Inc.“adjusted diluted earnings per share” are based on methodologies other than generally accepted accounting principles. See “Supplemental Non-GAAP Financial Measures” for the three months ended December 31, 2017 includes the impactdefinitions and reconciliations of an estimated income tax charge of $1.1 billion resulting from enactment of the Tax Cuts and Jobs Act of 2017.these measures.
The diluted loss per share for the three months ended December 31, 2017 reflects the $1.94 per share impact of the estimated income tax charge and also includes the impact of a 3% decrease in diluted average common shares outstanding primarily resulting from repurchases of shares of our common stock during the twelve-month period ended December 31, 2017.

ASSETS UNDER MANAGEMENT
AUM by investment objectiveasset class was as follows:
(in billions)March 31,
2023		March 31,
2022		Percent
Change
Fixed Income$510.1 $595.0 (14 %)
Equity437.1 515.4 (15 %)
Alternative258.2 157.9 64 %
Multi-Asset146.1 151.9 (4 %)
Cash Management70.6 57.3 23 %
Total$1,422.1 $1,477.5 (4 %)
25
(in billions) December 31,
2017		 December 31,
2016		 
Percent
Change
Equity      
Global/international $212.0
 $196.7
 8%
United States 109.4
 101.6
 8%
Total equity 321.4
 298.3
 8%
Multi-Asset/Balanced 142.7
 138.3
 3%
Fixed Income      
Tax-free 69.4
 71.7
 (3%)
Taxable      
Global/international 163.7
 153.6
 7%
United States 50.0
 51.9
 (4%)
Total fixed income 283.1
 277.2
 2%
Cash Management 6.6
 6.2
 6%
Total $753.8
 $720.0
 5%
AUM at December 31, 2017 increased 5% from December 31, 2016 as $60.3 billionTable of net market change and other, which consists of $85.4 billion of market appreciation and other, net of $25.1 billion of long-term distributions, was partially offset by $26.5 billion of net outflows.Contents
Average AUM and the mix of average AUM by investment objectiveasset class are shown below.
(in billions)Average AUMPercent
Change		Mix of Average AUM
for the three months ended March 31,2023202220232022
Fixed Income$504.9 $619.0 (18 %)36 %41 %
Equity433.4 528.7 (18 %)31 %35 %
Alternative257.5 155.5 66 %18 %10 %
Multi-Asset144.7 151.5 (4 %)10 %10 %
Cash Management79.0 61.4 29 %5 %4 %
Total$1,419.5 $1,516.1 (6 %)100 %100 %
(in billions) Average AUM 
Percent
Change
 Mix of Average AUM
for the three months ended December 31, 2017 2016  2017 2016
Equity          
Global/international $210.0
 $197.0
 7% 28% 27%
United States 108.7
 101.3
 7% 14% 14%
Total equity 318.7
 298.3
 7% 42% 41%
Multi-Asset/Balanced 143.0
 136.7
 5% 19% 19%
Fixed Income     

    
Tax-free 70.1
 74.1
 (5%) 9% 10%
Taxable     

    
Global/international 164.1
 155.0
 6% 22% 22%
United States 50.3
 52.4
 (4%) 7% 7%
Total fixed income 284.5
 281.5
 1% 38% 39%
Cash Management 6.5
 6.2
 5% 1% 1%
Total $752.7
 $722.7
 4% 100% 100%

(in billions)Average AUMPercent
Change		Mix of Average AUM
for the six months ended March 31,2023202220232022
Fixed Income$498.0 $629.0 (21 %)36 %41 %
Equity426.3 535.5 (20 %)31 %35 %
Alternative247.7 152.2 63 %18 %10 %
Multi-Asset141.7 151.3 (6 %)10 %10 %
Cash Management72.7 61.0 19 %5 %4 %
Total$1,386.4 $1,529.0 (9 %)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)Three Months Ended
March 31,		Percent
Change		Six Months Ended
March 31,		Percent
Change
2023202220232022
Beginning AUM$1,387.7 $1,578.1 (12 %)$1,297.4 $1,530.1 (15 %)
Long-term inflows61.8 76.1 (19 %)132.3 183.1 (28 %)
Long-term outflows(65.5)(87.8)(25 %)(146.9)(170.7)(14 %)
Long-term net flows(3.7)(11.7)(68 %)(14.6)12.4 NM
Cash management net flows(4.3)(7.1)(39 %)13.2 (1.3)NM
Total net flows(8.0)(18.8)(57 %)(1.4)11.1 NM
Acquisitions— — NM34.9 7.7 353%
Net market change, distributions and other42.4 (81.8)NM91.2 (71.4)NM
Ending AUM$1,422.1 $1,477.5 (4 %)$1,422.1 $1,477.5 (4 %)
26
(in billions) Three Months Ended
December 31,		 
Percent
Change
 2017 2016 
Beginning AUM $753.2
 $733.3
 3%
Long-term sales 28.1
 24.5
 15%
Long-term redemptions (39.4) (46.7) (16%)
Long-term net exchanges (0.1) (0.4) (75%)
Long-term reinvested distributions 9.1
 8.2
 11%
Net flows (2.3) (14.4) (84%)
Net market change and other 2.9
 1.1
 164%
Ending AUM $753.8
 $720.0
 5%
Table of Contents
Components of the change in AUM by investment objectiveasset class were as follows:
(in billions)Fixed IncomeEquityAlternativeMulti-AssetCash
Management		Total
for the three months ended
March 31, 2023
AUM at January 1, 2023$494.8 $419.1 $257.4 $141.4 $75.0 $1,387.7 
Long-term inflows31.5 17.1 4.9 8.3 — 61.8 
Long-term outflows(29.7)(25.4)(3.6)(6.8)— (65.5)
Long-term net flows1.8 (8.3)1.3 1.5 — (3.7)
Cash management net flows— — — — (4.3)(4.3)
Total net flows1.8 (8.3)1.3 1.5 (4.3)(8.0)
Net market change, distributions and other13.5 26.3 (0.5)3.2 (0.1)42.4 
AUM at March 31, 2023$510.1 $437.1 $258.2 $146.1 $70.6 $1,422.1 
(in billions) Equity Multi-Asset/Balanced Fixed Income Cash Management Total
for the three months ended December 31, 2017 
Global/
International
 
United
States
  Tax-Free 
Taxable
Global/
International
 
Taxable
United
States
  
AUM at October 1, 2017 $209.8
 $107.2
 $143.3
 $71.0
 $165.0
 $50.6
 $6.3
 $753.2
Long-term sales 5.9
 3.6
 3.5
 1.5
 11.1
 2.5
 —
 28.1
Long-term redemptions (11.6) (5.5) (5.8) (3.2) (10.2) (3.1) —
 (39.4)
Long-term net exchanges 0.1
 —
 0.1
 (0.2) (0.3) 0.2
 —
 (0.1)
Long-term reinvested distributions 2.0
 3.4
 1.7
 0.5
 1.2
 0.3
 —
 9.1
Net flows (3.6) 1.5
 (0.5) (1.4) 1.8
 (0.1) —
 (2.3)
Net market change and other 5.8
 0.7
 (0.1) (0.2) (3.1) (0.5) 0.3
 2.9
AUM at December 31, 2017 $212.0

$109.4

$142.7

$69.4

$163.7

$50.0

$6.6
 $753.8

(in billions) Equity Multi-Asset/Balanced Fixed Income Cash Management Total
for the three months ended December 31, 2016 
Global/
International
 
United
States
  Tax-Free 
Taxable
Global/
International
 
Taxable
United
States
  
AUM at October 1, 2016 $200.4
 $103.3
 $137.4
 $76.5
 $156.2
 $53.4
 $6.1
 $733.3
Long-term sales 5.9
 3.7
 4.0
 2.2
 6.1
 2.6
 —
 24.5
Long-term redemptions (10.7) (7.5) (6.7) (3.7) (14.2) (3.9) —
 (46.7)
Long-term net exchanges (0.2) 0.2
 0.1
 (0.5) (0.2) 0.2
 —
 (0.4)
Long-term reinvested distributions 2.1
 3.1
 1.4
 0.5
 0.8
 0.3
 —
 8.2
Net flows (2.9) (0.5) (1.2) (1.5) (7.5) (0.8) —
 (14.4)
Net market change and other (0.8) (1.2) 2.1
 (3.3) 4.9
 (0.7) 0.1
 1.1
AUM at December 31, 2016 $196.7
 $101.6
 $138.3
 $71.7
 $153.6
 $51.9
 $6.2
 $720.0
AUM increased $0.6$34.4 billion or 2% during the three months ended DecemberMarch 31, 20172023 due to $2.9the positive impact of $42.4 billion of net market change, distributions and other, substantiallypartially offset by $2.3$4.3 billion of cash management net outflows and $3.7 billion of long-term net outflows. Fixed income net inflows included the funding of a $7.5 billion institutional mandate invested across fixed income strategies. Net market change, distributions and other primarily consists of $13.4$48.1 billion of market appreciation net of $11.5and a $0.9 billion increase from foreign exchange revaluation, partially offset by $6.6 billion of long-term distributions. The market appreciation occurred primarily in all asset classes, most significantly in the equity productsand fixed income asset classes and reflected positive returns in the global equity marketsand fixed income markets.
AUM decreased $55.4 billion or 4%, as evidencedcompared to the prior year period. Long-term inflows decreased 19% to $61.8 billion, driven by increaseslower inflows in equity and fixed income open end funds, equity separately managed accounts, and fixed income institutional separate accounts. Long-term outflows decreased 25% to $65.5 billion driven by lower redemptions in fixed income and equity open end funds, equity separately managed accounts and fixed income institutional separate accounts.
(in billions)Fixed IncomeEquityAlternativeMulti-AssetCash
Management		Total
for the three months ended
March 31, 2022
AUM at January 1, 2022$642.1 $563.4 $154.3 $154.0 $64.3 $1,578.1 
Long-term inflows33.3 29.8 4.6 8.4 — 76.1 
Long-term outflows(41.2)(35.9)(4.6)(6.1)— (87.8)
Long-term net flows(7.9)(6.1)— 2.3 — (11.7)
Cash management net flows— — — — (7.1)(7.1)
Total net flows(7.9)(6.1)— 2.3 (7.1)(18.8)
Net market change, distributions and other(39.2)(41.9)3.6 (4.4)0.1 (81.8)
AUM at March 31, 2022$595.0 $515.4 $157.9 $151.9 $57.3 $1,477.5 
AUM decreased $100.6 billion or 6% during the three months ended March 31, 2022 due to the negative impact of 6.6%$81.8 billion of net market change, distributions and 5.6%other, $11.7 billion of long-term net outflows and $7.1 billion of cash management net outflows. Net market change, distributions and other primarily consists of $77.0 billion of market depreciation and $4.6 billion of long-term distributions. The market depreciation occurred primarily in the S&P 500 Indexequity and MSCI World Index. Thefixed income asset classes.
AUM decreased $21.4 billion or 1%, as compared to the prior year period. Long-term inflows decreased 25% to $76.1 billion, driven by lower inflows in fixed income institutional separate accounts and equity and fixed income open end funds. Long-term outflows decreased 17% to $87.8 billion driven by lower redemptions in fixed income institutional separate accounts related to a single fixed income institutional redemption of nearly $6 billion and $1.3 billion of outflows from our India credit funds that did not earn management fees and are in the process of winding up.
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(in billions)Fixed IncomeEquityAlternativeMulti-AssetCash
Management		Total
for the six months ended
March 31, 2023
AUM at October 1, 2022$490.9 $392.3 $225.1 $131.5 $57.6 $1,297.4 
Long-term inflows60.0 44.3 11.4 16.6 — 132.3 
Long-term outflows(71.5)(52.3)(10.4)(12.7)— (146.9)
Long-term net flows(11.5)(8.0)1.0 3.9 — (14.6)
Cash management net flows— — — — 13.2 13.2 
Total net flows(11.5)(8.0)1.0 3.9 13.2 (1.4)
Acquisition— — 34.9 — — 34.9 
Net market change, distributions and other30.7 52.8 (2.8)10.7 (0.2)91.2 
AUM at March 31, 2023$510.1 $437.1 $258.2 $146.1 $70.6 $1,422.1 

AUM increased $124.7 billion, or 10%, during the six months ended March 31, 2023 due to the positive impact of $91.2 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $13.2 billion of cash management net inflows, partially offset by $14.6 billion of long-term net outflows. Long-term net outflows included a $2.1 billion fixed income institutional redemption that had minimal impact on revenue. Net market change, distributions and other primarily consists of $106.6 billion of market appreciation, a $9.7 billion increase from foreign exchange revaluation, partially offset by $25.1 billion of long-term distributions. The market appreciation occurred in all asset classes, most significantly in global/internationalthe equity products. Includedand fixed income asset classes and reflected positive returns in the net outflows were outflows of $0.9 billion from two global/internationalglobal equity and fixed income funds with global macro strategiesmarkets. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a weaker U.S. dollar compared to the Euro, Pound Sterling, Japanese Yen and $0.7 billion from an institutional separate account, andAustralian dollar.

Long-term inflows of $1.3 billion in a global/international fixed income fund that introduced a new share class structure during fiscal year 2017 and $1.1 billion in an institutional separate account. Long-term sales increased 15%decreased 28% to $28.1$132.3 billion, as compared to the prior-yearprior year period, primarilydriven by lower inflows in equity, fixed income, and multi-asset open end funds, fixed income institutional separate accounts and sub-advised CITs, and equity retail separate accounts. Decreased inflows for open end mutual funds include the impact of lower reinvested distributions, which were $14.4 billion in the current year period, as compared to $32.0 billion in the prior year period. Long-term outflows decreased 14% to $146.9 billion due to higher saleslower outflows in global/internationalequity and fixed income products,open end funds, multi-asset sub-advised mutual funds and equity separately managed accounts, partially offset by lower saleshigher outflows in tax-freefixed income institutional separate accounts.
(in billions)Fixed IncomeEquityAlternativeMulti-AssetCash
Management		Total
for the six months ended
March 31, 2022
AUM at October 1, 2021$650.3 $523.6 $145.2 $152.4 $58.6 $1,530.1 
Long-term inflows77.0 75.9 10.7 19.5 — 183.1 
Long-term outflows(76.8)(69.3)(7.7)(16.9)— (170.7)
Long-term net flows0.2 6.6 3.0 2.6 — 12.4 
Cash management net flows— — — — (1.3)(1.3)
Total net flows0.2 6.6 3.0 2.6 (1.3)11.1 
Acquisitions— 4.6 0.8 2.3 — 7.7 
Net market change, distributions and other(55.5)(19.4)8.9 (5.4)— (71.4)
AUM at March 31, 2022$595.0 $515.4 $157.9 $151.9 $57.3 $1,477.5 
AUM decreased $52.6 billion or 3% during the six months ended March 31, 2022 due to the negative impact of $71.4 billion of net market change, distributions and other and $1.3 billion of cash management net outflows, partially offset by $12.4 billion of long-term net inflows and $7.7 billion from acquisitions. Net market change, distributions and other primarily consists of $35.2 billion of market depreciation, $34.7 billion of long-term distributions. The market depreciation occurred primarily in the fixed income and multi-asset/balanced products. equity asset classes, partially offset by appreciation in the alternative asset class.
Long-term redemptionsinflows decreased 16%7% to $39.4$183.1 billion, primarilyas compared to the prior year period, driven by lower inflows in the equity and fixed income asset classes related to decreased sales in institutional separate accounts and open end funds, partially offset by higher reinvested distributions in equity and multi-asset open end funds. Long-term outflows decreased 17% to $170.7 billion due to lower redemptions of global/internationaloutflows in fixed income and U.S. equity products.institutional separate accounts.

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AUM decreased $13.3 billion or 2% during the three months ended December 31, 2016, primarily due to $14.4 billion of net outflows which occurred in all long-term investment objectives and most significantly in global/international products. The net outflows included $6.8 billion from three global/international fixed income funds with global macro strategies and $2.4 billion redeemed by two sub-advised variable annuity clients due to shifts in their investment strategies. Net market change and other was $1.1 billion, which primarily consists of $15.2 billion of market appreciation net of $9.4 billion of long-term distributions and a $4.8 billion decrease from foreign exchange revaluation. The market appreciation occurred primarily in global/international and multi-asset/balanced products and reflected strong performance of our global/international fixed income products despite a 7.1% decrease in the Bloomberg Barclays Global Aggregate Index, and positive returns in global equity markets as evidenced by increases of 3.8% and 2.0% in the S&P 500 Index and MSCI World Index. The foreign exchange revaluation was primarily due to strengthening of the U.S. dollar against the Euro, Japanese yen, Australian dollar and Canadian dollar.
Average AUM by sales region was as follows:
  Three Months Ended
December 31,		 Percent
Change
(in billions) 2017 2016 
United States $499.0
 $492.1
 1%
International      
Europe, the Middle East and Africa 109.0
 101.1
 8%
Asia-Pacific 94.9
 82.3
 15%
Canada 31.8
 30.4
 5%
Latin America1
 18.0
 16.8
 7%
Total international 253.7
 230.6
 10%
Total $752.7
 $722.7
 4%
__________________
1
Latin America sales region includes North America-based advisers serving non-resident clients.
The percentage of average AUM in the United States sales region was 66% and 68% for the three months ended December 31, 2017 and 2016.
Due to the global nature of our business operations, investment management and related services may be performed in locations unrelated to the sales region.
(in billions)March 31,
2023		March 31,
2022		Percent
Change
United States$1,017.1 $1,107.2 (8 %)
International
Europe, Middle East and Africa159.9 143.4 12 %
Asia-Pacific127.7 148.3 (14 %)
Americas, excl. U.S.117.4 78.6 49 %
Total international405.0 370.3 9 %
Total$1,422.1 $1,477.5 (4 %)
Investment Performance Overview
A key driver of our overall success is the long-term investment performance of our investment products. A standard measure of the performance of these products is the percentage of AUM exceeding benchmarks and peer group medians. Our global/international fixed income products generated notable results with at least 80%medians and benchmarks. We compare the relative performance of AUM exceeding the benchmarkour mutual funds against peers, and peer group median comparisons for the five- and ten-year periods. Lower performance by these products during the three months ended December 31, 2017 resulted in significant reductions from September 30, 2017 to the benchmark and peer group median comparisons for the one-year and three-year periods. of our strategy composites against benchmarks.
The performance of our multi-asset/balancedmutual fund products significantly exceeded the peer group median for the ten-year period, but has lagged in the other period comparisons and against the benchmarks for all periods presented, 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 as of our equity products, has mostly lagged the benchmarks and peer group medians during the periods presented.

The performanceand of our productsstrategy composites against benchmarks and peer group medians is presented in the table below.
Peer Group Comparison1
Benchmark Comparison2
% of Mutual Fund AUM
 in Top Two Peer Group Quartiles		% of Strategy Composite AUM
 Exceeding Benchmark
as of March 31, 20231-Year3-Year5-Year10-Year1-Year3-Year5-Year10-Year
Fixed Income46 %39 %39 %69 %24 %90 %61 %89 %
Equity69 %46 %68 %63 %76 %39 %47 %40 %
Total AUM3
67 %53 %63 %56 %64 %63 %61 %66 %
  
Benchmark Comparison 1,2
 
Peer Group Comparison 1,3
  % of AUM Exceeding Benchmark % of AUM in Top Two Peer Group Quartiles
as of December 31, 2017 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year
Equity                
Global/international 21% 16% 17% 27% 26% 30% 40% 44%
United States 42% 41% 20% 29% 31% 58% 38% 73%
Total equity 28% 25% 18% 28% 28% 40% 39% 56%
Multi-Asset/Balanced 11% 11% 9% 10% 8% 7% 9% 96%
Fixed Income                
Tax-free 28% 29% 29% 39% 37% 40% 42% 85%
Taxable                
Global/international 18% 11% 80% 81% 4% 25% 85% 88%
United States 32% 28% 45% 57% 11% 12% 17% 37%
Total fixed income 23% 19% 60% 63% 15% 27% 59% 78%
__________________
__________________
1
1Mutual 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 in the benchmark and peer group rankings represents 88% and 82% of our total AUM as of December 31, 2017.
2
The benchmark comparisons are based on each fund’s return as compared to a market index that has been selected to be generally consistent with the investment objectives of the fund.
3
The peer group rankings are sourced from either Lipper, a Thomson Reuters Company, Morningstar or eVestment in each fund’s market and were based on an absolute ranking of returns. © 2018 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.
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 are1-, 3-, 5- and 10-year periods represents 36%, 36%, 35% and 33% of our total AUM as of March 31, 2023.
2Strategy composite performance measures the prior quarter-end duepercent of composite AUM beating its benchmark. The benchmark comparisons are based on each account’s/composite’s (strategy composites may include retail separately managed accounts and mutual fund assets managed as part of the same strategy) return as compared to timinga market index that has been selected to be generally consistent with the asset class of availabilitythe account/composite. Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 51%, 51%, 50% and 47% of information. Private equityour total AUM as of March 31, 2023.
3Total mutual fund AUM includes performance of our alternative and multi-asset funds, certain privately-offered emerging market and real estatetotal strategy composite AUM includes performance of our alternative composites. Alternative and multi-asset AUM represent 18% and 10% of our total AUM at March 31, 2023.
Mutual fund performance data includes U.S. and cross-border domiciled mutual funds and exchange-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 January 18, 2018 and are subject to revision. While we remain focused
Past performance is not indicative of future results. For strategy composite AUM included in institutional and retail separately managed accounts and investment funds managed in the same strategy as separate accounts, performance comparisons are based on achieving strong long-termgross-of-fee performance. For investment funds which are not managed in a separate account format, performance our future benchmarkcomparisons are based on net-of-fee performance. These performance comparisons do not reflect the actual performance of any specific separate account or investment fund; individual separate account and peer group rankingsinvestment fund performance may vary from our past performance.differ. The information in this presentation is provided solely for use in connection with this document, and is not directed toward existing or potential clients of Franklin.
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OPERATING REVENUES
The table below presents the percentage change in each operating revenue category.
(in millions)Three Months Ended
March 31,		Percent
Change		Six Months Ended
March 31,		Percent
Change
2023202220232022
Investment management fees$1,573.3 $1,649.2 (5 %)$3,205.1 $3,409.7 (6 %)
Sales and distribution fees301.4 370.2 (19 %)593.3 768.4 (23 %)
Shareholder servicing fees43.3 52.2 (17 %)76.7 99.9 (23 %)
Other9.2 9.4 (2 %)19.2 27.0 (29 %)
Total Operating Revenues$1,927.2 $2,081.0 (7 %)$3,894.3 $4,305.0 (10 %)
(in millions) Three Months Ended
December 31,		 Percent
Change
 2017 2016 
Investment management fees $1,113.6
 $1,063.2
 5%
Sales and distribution fees 417.8
 419.3
 0%
Shareholder servicing fees 54.9
 56.6
 (3%)
Other 29.2
 21.7
 35%
Total Operating Revenues $1,615.5
 $1,560.8
 4%
Investment Management Fees

Investment management fees are generally calculated under contractual arrangements with our investment productsdecreased $75.9 million and the products for which we provide sub-advisory services as a percentage of the market value of AUM. Annual rates vary by investment objective and type of services provided. 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.
Investment management fees increased $50.4$204.6 million for the three and six months ended DecemberMarch 31, 20172023 primarily due to a 4% increase6% and 9% decrease in average AUM, whichpartially offset by higher performance fees. The decrease in average AUM occurred most significantlyprimarily in the equity and global/international fixed income investment objectives, and across all sales regions. A higher effective fee rate also contributed to theequity asset classes, partially offset by an increase in fees.the alternative asset class that includes the acquisition of Lexington Partners L.P. (“Lexington”) and Alcentra.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) increased to 59.241.8 and 41.7 basis points for the three and six months ended DecemberMarch 31, 2017,2023, from 58.841.3 and 41.5 basis points for the same period in the prior fiscal year, primarily due to a higher weighting of AUM in international products.year.
Performance-based investment managementPerformance fees were $1.8$111.2 million and $1.6$320.2 million for the three and six months ended DecemberMarch 31, 20172023, and 2016.
Our product offerings$105.1 million and global operations are diverse. As such,$245.0 million for the impact of future changessame periods in the market valueprior fiscal year. The increase for both periods was primarily due to $8.0 million and $152.5 million of AUM on investment managementperformance fees will be affectedearned by Lexington, which were passed through as compensation expense per the relative mix of investment objective, geographic region, distribution channel and investment vehicleterms of the assets.acquisition agreement, partially offset by lower performance fees earned by our other alternative specialist investment managers for the six months ended March 31, 2023.
Sales and Distribution Fees
We earn fees from the sale of certain classes of sponsored funds on which investors pay a commission at the time of purchase (“commissionable sales”). Sales commissions are reduced or eliminated on some share classes and for some sale transactions depending upon the amount invested and the type of investor. Therefore, sales fees 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, our mutual funds and certain other products generally pay us distribution fees in return for sales, marketing and distribution efforts on their behalf. Specifically, the majority of U.S.-registered mutual funds, with the exception of certain of our money market mutual funds, 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 average daily net AUM. Similar arrangements exist for the distribution of our non-U.S. funds.
We pay substantially all of our sales and distribution fees to the financial advisers and other intermediaries who sell our funds to investors on our behalf. See the description of sales, distribution and marketing expenses below.
Sales and distribution fees by revenue driver are presented below.
(in millions)Three Months Ended
March 31,		Percent
Change		Six Months Ended
March 31,		Percent
Change
2023202220232022
Asset-based fees$247.7 $296.1 (16 %)$492.7 $618.0 (20 %)
Sales-based fees53.7 74.1 (28 %)100.6 150.4 (33 %)
Sales and Distribution Fees$301.4 $370.2 (19 %)$593.3 $768.4 (23 %)
(in millions) Three Months Ended
December 31,		 Percent
Change
 2017 2016 
Asset-based fees $340.8
 $338.3
 1%
Sales-based fees 74.3
 78.8
 (6%)
Contingent sales charges 2.7
 2.2
 23%
Sales and Distribution Fees $417.8
 $419.3
 0%

Asset-based distribution fees increased $2.5decreased $48.4 million and $125.3 million for the three and six months ended DecemberMarch 31, 2017 as fees related to non-U.S. products increased $12.0 million2023 primarily due to an 11% increasedecreases of 15% and 18% in the related average international AUM whileand a higher mix of lower-fee assets.
Sales-based fees relateddecreased $20.4 million and $49.8 million for the three and six months ended March 31, 2023 primarily due to U.S. productsdecreases of 24% and 32% in commissionable sales.
Shareholder Servicing Fees

Shareholder servicing fees decreased $9.5$8.9 million and $23.2 million for the three and six months ended March 31, 2023 primarily due to a 3% decreasereduction in fee rates charged for transfer agency services in the U.S., lower levels of related average U.S. AUM.AUM, and fewer transactions.
Sales-based fees
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Other
Other revenue decreased $4.5$0.2 million and $7.8 million for the three and six months ended DecemberMarch 31, 2017 as fees related to U.S. products decreased $10.6 million2023 primarily due to a 14% decrease in U.S. commissionable sales, whilelower real estate transaction fees related to non-U.S. products increased $6.1 million primarily due to a 111% increase in international commissionable sales. Total commissionable sales increased 3%.earned by certain of our alternative asset managers.
Commissionable sales represented 9% and 10% of total sales, and U.S. product commissionable sales were 71% and 86% of total commissionable sales, for the three months ended December 31, 2017 and 2016.
Contingent sales charges are earned from investor redemptions within a contracted period of time. 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.
Shareholder Servicing Fees
We earn shareholder servicing fees from our sponsored funds for providing transfer agency services, which include providing shareholder statements, transaction processing, customer service and tax reporting. Effective November 1, 2017, the fees for U.S. funds changed to be based on the level of AUM and number of transactions in shareholder accounts from the prior structure of a fixed charge per shareholder account that varied by fund type and service provided. We do not expect this change to have a significant impact on total annual shareholder servicing fees. Outside of the U.S., the fees are based on the level of AUM and/or the number of shareholder accounts.

We also provide other services to individual and trust clients, including trust services, for which fees are based on the level of AUM, and estate planning and tax planning and preparation, for which fees are primarily account based.
Shareholder servicing fees decreased $1.7 million for the three months ended December 31, 2017 primarily due to a $3.0 million decrease from investment products in the U.S. resulting from lower levels of accounts and transactions, partially offset by a $0.9 million increase from investment products in Europe and Asia resulting from higher levels of related AUM.
Other
Other revenue increased $7.5 million for the three months ended December 31, 2017 primarily due to higher interest and dividend income from consolidated investment products.
OPERATING EXPENSES
The table below presents the percentage change in each operating expense category.
 Three Months Ended
March 31,		Percent
Change		Six Months Ended
March 31,		Percent
Change
(in millions)2023202220232022
Compensation and benefits$847.3 $752.5 13 %$1,826.5 $1,555.1 17 %
Sales, distribution and marketing406.6 482.4 (16 %)795.2 992.5 (20 %)
Information systems and technology128.0 126.9 1 %249.4 250.7 (1 %)
Occupancy59.7 53.0 13 %114.2 109.3 4 %
Amortization of intangible assets86.0 60.4 42 %169.2 118.7 43 %
General, administrative and other144.5 142.8 1 %290.7 258.0 13 %
Total Operating Expenses$1,672.1 $1,618.0 3 %$3,445.2 $3,284.3 5 %
Compensation and Benefits
The components of compensation and benefits expenses are presented below.
Three Months Ended
March 31,		Percent
Change		Six Months Ended
March 31,		Percent
Change
(in millions)2023202220232022
Salaries, wages and benefits$397.1 $362.6 10 %$757.7 $712.4 6 %
Incentive compensation366.2 366.6 0 %750.1 772.1 (3 %)
Acquisition-related retention23.2 34.2 (32 %)86.8 74.2 17 %
Acquisition-related performance fee pass through8.0 — NM152.5 0.4 NM
Other1
52.8 (10.9)NM79.4 (4.0)NM
Compensation and Benefits Expenses$847.3 $752.5 13 %$1,826.5 $1,555.1 17 %
_______________
1Includes impact of gains and losses on investments related to deferred compensation plans, which is offset in investment and other income (losses), net; minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests; and special termination benefits.
Salaries, wages and benefits increased $34.5 million and $45.3 million for the three and six months ended March 31, 2023, primarily due to the recent acquisitions and annual salary increases, partially offset by the impact of headcount reductions.
Incentive compensation remained flat for the three months ended March 31, 2023 and decreased $22.0 million for the six months ended March 31, 2023 primarily due to lower incentive compensation at specialist investment managers and lower expectations of our annual performance. These decreases were partially offset by the recent acquisitions, and an increase in expense for deferred compensation awards, due, in part, to an increase in annual acceleration for retirement-eligible employees in the six-month period.
Acquisition-related retention expenses decreased $11.0 million for the three months ended March 31, 2023 primarily due to lower costs from the acquisition of Lexington, partially offset by an increase due to the acquisition of Alcentra. Acquisition-related retention expenses increased $12.6 million for the six months ended March 31, 2023, primarily due to the acquisition of Alcentra.
Acquisition-related performance fee pass through increased $8.0 million and $152.1 million for the three and six months ended March 31, 2023, due to higher performance fees earned by Lexington.
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  Three Months Ended
December 31,		 
Percent
Change
(in millions) 2017 2016 
Sales, distribution and marketing $528.7
 $520.0
 2%
Compensation and benefits 332.5
 311.5
 7%
Information systems and technology 55.0
 51.7
 6%
Occupancy 29.4
 29.1
 1%
General, administrative and other 88.8
 61.6
 44%
Total Operating Expenses $1,034.4
 $973.9
 6%
Other compensation and benefits were $52.8 million and $(10.9) million for the three months ended March 31, 2023 and 2022 and $79.4 million and $(4.0) million for the six months ended March 31, 2023 and 2022. Special termination benefits increased $27.4 million and $35.6 million for the three and six months ended March 31, 2023 primarily due to workforce optimization initiatives and the acquisition of Alcentra. The three and six months ended March 31, 2023 include the impact of $10.6 million and $16.2 million of market gains on investments related to our deferred compensation plans and $10.4 million and $20.5 million of compensation related to minority interests, while the three and six months ended March 31, 2022 include the impact of $15.3 million and $11.1 million of losses on investments related to our deferred compensation plans.
We expect to incur additional acquisition-related retention expenses of approximately $130 million during the remainder of the current fiscal year, and annual amounts beginning at approximately $230 million in the fiscal year ending September 30, 2024 and decreasing over the following two fiscal years by approximately $80 million and $20 million. At March 31, 2023, our global workforce had decreased to approximately 9,200 employees from approximately 9,500 at March 31, 2022.
Sales, Distribution and Marketing
Sales, distribution and marketing expenses primarily consist of payments to financial advisers, broker-dealers and other third parties for providing services to investors in our sponsored funds, including marketing support services. Sales expenses are determined as percentages of sales and are incurred from the same commissionable sales transactions that generate sales fee revenues. Distribution expenses are determined as percentages of AUM and are incurred from assets that generate either distribution fees or higher levels of investment management fees. Marketing support expenses are based on AUM, sales or a combination thereof. Also included is the amortization of deferred sales commissions related to up-front commissions on shares sold without a front-end sales charge to investors. 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.
 Three Months Ended
March 31,		Percent
Change		Six Months Ended
March 31,		Percent
Change
(in millions)2023202220232022
Asset-based expenses$343.0 $396.2 (13 %)$674.9 $815.8 (17 %)
Sales-based expenses51.0 69.6 (27 %)95.3 141.7 (33 %)
Amortization of deferred sales commissions12.6 16.6 (24 %)25.0 35.0 (29 %)
Sales, Distribution and Marketing$406.6 $482.4 (16 %)$795.2 $992.5 (20 %)
  Three Months Ended
December 31,		 Percent
Change
(in millions) 2017 2016 
Asset-based expenses $440.6
 $431.8
 2%
Sales-based expenses 69.0
 71.1
 (3%)
Amortization of deferred sales commissions 19.1
 17.1
 12%
Sales, Distribution and Marketing $528.7
 $520.0
 2%
Asset-based expenses increased $8.8decreased $53.2 million and $140.9 million for the three and six months ended DecemberMarch 31, 2017 as distribution expenses related to non-U.S. products increased $20.2 million2023 primarily due to a 9% increasedecreases of 12% and 16% in the related average international AUM while expenses related to U.S. products decreased $11.4 million primarily due toand a 3% decrease in the related average U.S. AUM.higher mix of lower-fee assets. Distribution expenses which are typically higher for non-U.S. products, are generally not directly correlated with distribution fee revenues due to internationalcertain fee structures whichthat do not provide forfull recovery of certain distribution costs through investment management fees.costs.
Sales-based expenses decreased $2.1$18.6 million and $46.4 million for the three and six months ended March 31, 2023 due to lower commissionable sales.
Amortization of deferred sales commissions decreased $4.0 million and $10.0 million for the three and six months ended March 31, 2023, primarily due to lower sales of shares sold without a front-end sales charge.
Occupancy
Occupancy expenses increased $6.7 million and $4.9 million for the three and six months ended March 31, 2023, primarily due to lease charges for vacated office space for the three months ended March 31, 2023 and higher utility costs and leasehold depreciation for both the three and six months ended March 31, 2023.
Information Systems and Technology
Information systems and technology expenses increased $1.1 million for the three months ended DecemberMarch 31, 2017 as expenses related to U.S. products decreased $9.5 million2023 primarily due to a 14% decrease in U.S. commissionable sales, while expenses from non-U.S. products increased $7.4higher consulting and software costs and decreased $1.3 million for the six months ended March 31, 2023 primarily due to a 111% increase in international commissionable sales.lower outsourced data services.

Amortization of deferred sales commissionsintangible assets

Amortization of intangible assets increased $2.0$25.6 million and $50.5 million for the three and six months ended DecemberMarch 31, 20172023, primarily due to higher salesintangible assets recognized as part of non-U.S. shares sold without a front-end sales charge to investors, partially offset by lower such salesthe acquisition of U.S. shares.
CompensationLexington and Benefits
Compensation and benefit expenses increased $21.0 million for the three months ended December 31, 2017 due to increases of $15.9 million in salaries, wages and benefits and $5.1 million in variable compensation. Salaries, wages and benefits increased primarily due to increases of $7.3 million from higher average staffing levels and $5.0 million for annual merit salary adjustments that were effective December 1, 2017 and 2016. Variable compensation increased primarily due to a $6.1 million increase in bonus expense due to lower expectations of our annual performance during the prior-year period.
Variable compensation as a percentage of compensation and benefits was 33% and 34% for the three months ended December 31, 2017 and 2016. At December 31, 2017, our global workforce had increased to approximately 9,500 employees from approximately 9,100 at December 31, 2016.
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 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.
Information Systems and Technology
Information systems and technology expenses increased $3.3 million for the three months ended December 31, 2017 primarily due to higher software and technology consulting costs.
Details of capitalized information systems and technology costs are shown below.Alcentra.
32
  Three Months Ended
December 31,
(in millions) 2017 2016
Net carrying value at beginning of period $102.1
 $88.1
Additions, net of disposals 16.0
 20.5
Amortization (12.2) (12.5)
Net Carrying Value at End of Period $105.9
 $96.1
Occupancy
We conduct our worldwide operations using a combinationTable of leased and owned facilities. Occupancy expenses include rent and other facilities-related costs including depreciation and utilities.Contents
Occupancy expenses increased $0.3 million for the three months ended December 31, 2017.
General, Administrative and Other
General, administrative and other operating expenses primarily consist of fund-related service fees payable to external parties, advertising and promotion, professional fees, travel and entertainment, and other miscellaneous expenses.
General, administrative and other operating expenses increased $27.2$1.7 million and $32.7 million for the three and six months ended DecemberMarch 31, 20172023, primarily due to $12.1 million and $21.0 million increases in travel and entertainment and conference costs as activity has resumed post-pandemic, and a $16.2$10.3 million credit adjustment to increase in contingent consideration expense related to the liability for the K2 Advisors Holdings, LLC (“K2”) acquisition. The fair value of the K2 liability increased by $4.0 million as compared to a decrease of $12.2 millioncontingent consideration asset in the prior-year period. Additionally,prior year quarter. The increases in the three months ended March 31, 2023 were substantially offset by a $13.1 million decrease in acquisition-related costs, primarily due to costs associated with our global brand campaign in the prior year quarter, and a $6.2 million decrease in professional fees increased $3.4 million related to various corporate activities, advertising and promotion expenses increased $2.3 million and corporate travel expenses increased $1.7 million.fees.
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.

OTHER INCOME (EXPENSES)
Other income (expenses) consisted of the following:
 Three Months Ended
December 31,		 Percent
Change		Three Months Ended
March 31,		Percent
Change		Six Months Ended
March 31,		Percent
Change
(in millions) 2017 2016 (in millions)2023202220232022
Investment and other income, net $81.3
 $46.1
 76%Investment and other income, net$125.6 $27.7 353 %$216.7 $84.7 156 %
Interest expense (10.8) (13.3) (19%)Interest expense(33.5)(22.9)46 %(64.4)(42.2)53 %
Investment and other income of consolidated investment products, netInvestment and other income of consolidated investment products, net87.2 3.0 NM73.6 107.7 (32 %)
Expenses of consolidated investment productsExpenses of consolidated investment products(3.4)(4.6)(26 %)(14.9)(8.8)69 %
Other Income, Net $70.5
 $32.8
 115%Other Income, Net$175.9 $3.2 NM$211.0 $141.4 49 %
Investment and other income, net consistsincreased $97.9 million and $132.0 million for the three and six months ended March 31, 2023 primarily ofdue to an increase in dividend and interest income from equity method investees, interest and dividend income,higher gains (losses) on investments, of consolidated investment products (“CIPs”), andpartially offset by foreign currency exchange losses in each current year period.
Investments held by the Company generated net gains (losses).
Other income,of $3.0 million and net increased $37.7losses of $23.1 million for the three months ended DecemberMarch 31, 2017,2023 and 2022. The net gains in the current year period were primarily due to gains on investments held by CIPs and higher interest income,from assets invested for deferred compensation plans, partially offset by unfavorable impactsnet losses on investments in nonconsolidated funds and separate accounts and net losses from foreign currency exchange.investments measured at cost adjusted for observable price changes. The net losses in the prior year period were primarily from net losses on assets invested for deferred compensation plans and investments in nonconsolidated funds and separate accounts. Investments held by CIPsthe Company generated net gains of $16.0$48.5 million and $2.7 million for the six months ended March 31, 2023 and 2022. The net gains in the current year were primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans, partially offset by net losses from investments measured at cost adjusted for observable price changes and in the prior year were primarily from net gains on investments measured at cost adjusted for observable price changes, partially offset by net losses on assets invested for deferred compensation plans and investments in nonconsolidated funds and separate accounts.
Equity method investees generated income of $85.6 million and $118.8 million for the three and six months ended March 31, 2023, $65.8 million of which was fully offset in noncontrolling interest, primarily related to various alternative and global equity funds, as compared to net lossesincome of $29.9$27.0 million and $51.7 million in the prior year.year, primarily related to a $52.6 million gain recognized on the sale of our investment in Embark. The gains were primarily from higher market valuations of holdings by various global/international fixed income funds. Interest income increased $10.2 million primarily due to higher levels of interest rates. The increases weregain on sale in the prior year was partially offset by $2.9 million of netlosses from various global equity and alternative funds.
Net foreign currency exchange losses were $6.5 million and $33.6 million for the three and six months ended March 31, 2023, as compared to net gains of $19.8$5.8 million inand $9.7 million for the prior year,three and six months ended March 31, 2022. The decrease was primarily fromdue to the impact of the weakening of the U.S. dollar against the Euro and British Pound on cash and cash equivalents denominated in U.S. dollars held by our European subsidiaries.
Dividend and interest income increased $27.2 million and $57.6 million for the three and six months ended March 31, 2023, as compared to the prior year periods, primarily due to higher yields.
Interest expense increased $10.6 million and $22.2 million for the three and six months ended March 31, 2023 primarily due to accretion on Lexington deferred consideration and, for the six-month period, an increase in Europe.interest recognized on tax reserves.
Significant portions
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Investments held by consolidated investment products (“CIPs”) generated investment gains and other income of $87.2 million and $73.6 million in the three and six months ended March 31, 2023, largely related to gains on holdings of various equity and fixed income funds. Investments held by CIPs generated investment gains and other income of $3.0 million and $107.7 million during the three and six months ended March 31, 2022, largely related to gains on holdings of various alternative funds, partially offset by losses on holdings of various equity funds and fixed income funds.
Expenses of consolidated investments products decreased $1.2 million and increased $6.1 million for the three and six months ended March 31, 2023, due to activity of the net gains (losses) of CIPs are offset in noncontrolling interests in our consolidated statements of income.
Our investments in sponsored funds include initial cash investments made in the course of launching mutual fund and other investment product offerings, as well as investments for other business reasons. The market conditions that impact our AUM similarly affect the investment income earned or losses incurred on our investments in sponsored funds.

Our cash, cash equivalents and investments portfolio by investment objectiveasset class and accounting classification at DecemberMarch 31, 2017,2023, excluding third-party assets of 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
CIPs
 
Cash and Cash Equivalents $8,707.5
 $—
 $—
 $—
 $8,707.5
Investments          
Equity          
Global/international 73.2
 14.4
 744.0
 222.7
 1,054.3
United States 7.1
 5.4
 10.8
 3.5
 26.8
Total equity 80.3
 19.8
 754.8
 226.2
 1,081.1
Multi-Asset/Balanced 18.8
 5.5
 18.8
 191.0
 234.1
Fixed Income          
Tax-free 0.2
 —
 —
 —
 0.2
Taxable          
Global/international 55.2
 274.3
 148.1
 654.0
 1,131.6
United States 37.4
 —
 0.3
 394.0
 431.7
Total fixed income 92.8
 274.3
 148.4
 1,048.0
 1,563.5
Total investments 191.9
 299.6
 922.0
 1,465.2
 2,878.7
Total Cash and Cash Equivalents and Investments $8,899.4
 $299.6
 $922.0
 $1,465.2
 $11,586.2
Accounting Classification1
Total
(in millions)Cash and
Cash
Equivalents		Investments
at
Fair Value		Equity
Method
Investments		Other InvestmentsDirect
Investments
in CIPs
Cash and Cash Equivalents$3,471.3 $— $— $— $— $3,471.3 
Investments
Alternative— 350.5 872.1 62.7 471.9 1,757.2 
Equity— 379.3 206.8 152.9 85.1 824.1 
Fixed Income— 205.1 48.0 37.2 293.2 583.5 
Multi-Asset— 52.2 11.2 — 59.3 122.7 
Total investments— 987.1 1,138.1 252.8 909.5 3,287.5 
Total Cash and Cash Equivalents and Investments2, 3
$3,471.3 $987.1 $1,138.1 $252.8 $909.5 $6,758.8 
______________
1
1See Note 1 – Significant Accounting Policies in the notes to consolidated financial statements in Item 8 of Part II of our Form 10-K for fiscal year 2017 for information on investment accounting classifications.
2
Other consists of $114.3 million of available-for-sale investments and $13.0 million of investments in life settlement contracts, both of which are measured at fair value, and $64.6 million of investments carried at cost.
The percentages of directPart II of our Annual Report on Form 10-K for fiscal year 2022 for information on investment accounting classifications.
2Total cash and cash equivalents and investments held by our U.S.includes $4,133.9 million used for operational activities, including investments in sponsored funds and non-U.S. operations were 20%other products, and 80% at December 31, 2017.$333.3 million necessary to comply with regulatory requirements.
3Total cash and cash equivalents and investments includes $293.4 million attributable to employee-owned and other third-party investments made through partnerships which are offset in nonredeemable noncontrolling interests.
TAXES ON INCOME
As a multi-national corporation, we provide many of our services from locations outside the U.S. Some of these jurisdictions have lower 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 originating in the U.S., produces a lower overall effective income tax rate than existing U.S. federal and state income tax rates.
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law in the U.S. on December 22, 2017. The Tax Act includes various changes to the tax law, including a permanent reduction in the corporate income tax rate from 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. The effects of the changes in the tax rate and laws resulting from the Tax Act were recognized during the quarter ended December 31, 2017.
The transition tax expense was estimated to be $1,120.7 million based on information available as of December 31, 2017 and may be adjusted in future quarters upon issuance of additional technical guidance from the Department of Treasury and the completion of our tax return filings. The revaluation of our net deferred tax liabilities at the lower corporate income tax rate resulted in an estimated net tax benefit of $53.1 million, which may be revised in future quarters as the related temporary differences are realized or settled.
The federal statutory rate for our fiscal year ending September 30, 2018 is a blended rate of 24.5% based on the pre- and post-Tax Act rates, and will be 21.0% for future fiscal years.

Our effective income tax rate was 187.8%21.6% and 32.4%23.2% for the three and six months ended DecemberMarch 31, 20172023, as compared to 23.0% and 2016.22.2% for the three and six months ended March 31, 2022. The rate increasedecrease for three-month period was primarily due to theactivity of CIPs for which there is no related tax impact, of the transition tax, partially offset by an increase in tax audit settlements. The rate increase for the netsix-month period was primarily due to tax benefit from the revaluationaudit settlements, state tax provision to return adjustments, and tax expenses related to stock-based compensation, offset by activity of net deferredCIPs for which there is no related tax liabilities and the lower statutory rate. impact.

Our effective income tax rate is expected to be approximately 70% for the full fiscal year 2018, and approximately 24% to 25% excluding the one-time impacts of the Tax Act.
The effective income tax rate for future reporting periods will continue to reflectreflects 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 or tax legislation in thesesuch jurisdictions and in our estimated impacts from the Tax Act 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.
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“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 items:
◦Acquisition-related retention compensation.
◦Other acquisition-related expenses including professional fees, technology costs and fair value adjustments related to contingent consideration assets and liabilities.
◦Amortization of intangible assets.
◦Impairment of intangible assets and goodwill, if any.
•Special termination benefits related to workforce optimization initiatives related to past acquisitions and certain initiatives undertaken by the Company.
•Impact on compensation and benefits expense from gains and losses on investments related to deferred compensation plans, which is offset in investment and other income (losses), net.
•Impact on compensation and benefits expense related to minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests.
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:
•Elimination of operating revenues upon consolidation of investment products.
•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.

Adjusted Net Income and Adjusted Diluted Earnings Per Share
We define adjusted net income as net income attributable to Franklin Resources, Inc. adjusted to exclude the following:
•Activities of CIPs.
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•Acquisition-related items:
◦Acquisition-related retention compensation.
◦Other acquisition-related expenses including professional fees, technology costs and fair value adjustments related to contingent consideration assets and liabilities.
◦Amortization of intangible assets.
◦Impairment of intangible assets and goodwill, if any.
◦Write off of noncontrolling interests related to the wind down of an acquired business.
◦Interest expense for amortization of Legg Mason debt premium from acquisition-date fair value adjustment.
•Special termination benefits related to workforce optimization initiatives related to past acquisitions and certain initiatives undertaken by the Company.
•Net gains or losses on investments related to deferred compensation plans which are not offset by compensation and benefits expense.
•Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests.
•Unrealized investment gains and losses.
•Net income tax expense of the above adjustments based on the respective blended rates applicable to the adjustments.
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 our non-GAAP measures, we adjust for the impact of CIPs because it is not considered reflective of our underlying results of operations. Acquisition-related items and special termination benefits are excluded to facilitate comparability to other asset management firms. We adjust for compensation and benefits expense related to funded deferred compensation plans because it is partially offset in other income (expense), net. We adjust for compensation and benefits expense and net income (loss) attributable to redeemable noncontrolling interests to reflect the economics of certain profits interest arrangements. Sales and distribution fees and a portion of investment management fees generally cover sales, distribution and marketing expenses and, therefore, are excluded from adjusted operating revenues. In addition, when calculating adjusted net income and adjusted diluted earnings per share we exclude unrealized investment gains and losses included in investment and other income (losses) because the related investments 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)Three Months Ended
March 31,		Six Months Ended
March 31,
2023202220232022
Operating income$255.1 $463.0$449.1$1,020.7
Add (subtract):
Elimination of operating revenues upon consolidation of investment products1
9.117.214.225.5
Acquisition-related retention23.234.286.874.2
Compensation and benefits expense from gains (losses) on deferred compensation, net10.6(15.3)16.2(11.1)
Other acquisition-related expenses14.012.736.627.4
Amortization of intangible assets86.060.4169.2118.7
Special termination benefits31.84.442.77.1
Compensation and benefits expense related to minority interests in certain subsidiaries10.4— 20.5— 
Adjusted operating income$440.2$576.6$835.3$1,262.5
Total operating revenues$1,927.2$2,081.0$3,894.3$4,305.0
Add (subtract):
Acquisition-related pass through performance fees(8.0)—(152.5)(0.4)
Sales and distribution fees(301.4)(370.2)(593.3)(768.4)
Allocation of investment management fees for sales, distribution and marketing expenses(105.2)(112.2)(201.9)(224.1)
Elimination of operating revenues upon consolidation of investment products1
9.117.214.225.5
Adjusted operating revenues$1,521.7$1,615.8$2,960.8$3,337.6
Operating margin13.2%22.2%11.5%23.7%
Adjusted operating margin28.9%35.7%28.2%37.8%
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(in millions, except per share data)Three Months Ended
March 31,		Six Months Ended
March 31,
2023202220232022
Net income attributable to Franklin Resources, Inc.$194.2 $349.6 $359.8 $802.8 
Add (subtract):
Net loss of consolidated investment products1
8.5 0.1 4.9 10.1 
Acquisition-related retention23.2 34.2 86.8 74.2 
Other acquisition-related expenses20.1 12.7 48.8 27.8 
Amortization of intangible assets86.0 60.4 169.2 118.7 
Special termination benefits31.8 4.4 42.7 7.1 
Net (gains) losses on deferred compensation plan investments not offset by compensation and benefits expense(6.0)2.8 (13.6)2.5 
Unrealized investment (gains) losses(1.9)70.3 (32.6)72.1 
Interest expense for amortization of debt premium(6.4)(6.3)(12.7)(12.6)
Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests(0.3)— 0.1 — 
Net income tax expense of adjustments(32.5)(36.6)(74.3)(57.5)
Adjusted net income$316.7 $491.6 $579.1 $1,045.2 
Diluted earnings per share$0.38 $0.68 $0.70 $1.57 
Adjusted diluted earnings per share0.61 0.96 1.13 2.04 
__________________
1The impact of CIPs is summarized as follows:
(in millions)Three Months Ended
March 31,		Six Months Ended
March 31,
2023202220232022
Elimination of operating revenues upon consolidation$(9.1)$(17.2)$(14.2)$(25.5)
Other income, net62.9 9.9 60.1 82.4 
Less: income (loss) attributable to noncontrolling interests62.3 (7.2)50.8 67.0 
Net loss$(8.5)$(0.1)$(4.9)$(10.1)
LIQUIDITY AND CAPITAL RESOURCES
Cash flows were as follows:
Six Months Ended
March 31,
(in millions)20232022
Operating cash flows$(289.7)$270.5 
Investing cash flows(2,195.0)(1,151.3)
Financing cash flows1,920.6 1,275.9 
  Three Months Ended
December 31,
(in millions) 2017 2016
Cash Flow Data    
Operating cash flows $320.4
 $446.2
Investing cash flows (58.6) (58.4)
Financing cash flows (51.1) (365.9)
Net cash providedused by operating activities decreased during the threesix months ended DecemberMarch 31, 20172023 as compared to net cash provided in the prior year was primarily due to activities of CIPs, which had increases in trading securities and receivables that were partially offset by an increase in accounts payable and accrued expenses. Net cash used in investing activities increased slightly aslower net income, higher net deconsolidations of CIPs and net purchases of investments were substantiallyby CIPs, and higher payments of accrued compensation and benefits, partially offset by the adoptionincreases of new accounting guidanceaccounts payable, accrued expenses and other liabilities and adjustments for losses of CIPs as compared to gains in the prior year. Net cash used in financinginvesting activities decreasedincreased primarily due to net purchases of investments as compared to net liquidations in the prior year, higher net purchases of investments by CLOs, and cash paid for acquisitions in the current year. Net cash provided by financing activities increased primarily due to higher net subscriptions in CIPs by noncontrolling interests, as compared toproceeds from repurchase agreements, and higher net redemptions in the prior year, and lower repurchasesproceeds on debt of common stock.consolidated investment products.
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The assets and liabilities of CIPs attributable to third-party investors do not impact our liquidity and capital resources. We have no right to the CIPs’ assets, other than our direct equity investment in them and investment management and other fees earned from them. The debt holders of the CIPs have no recourse to our assets beyond the level of our direct investment, therefore we bear no other risks associated with the CIPs’ liabilities. Accordingly, the assets and liabilities of 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) December 31,
2017		 September 30,
2017		(in millions)March 31,
2023		September 30,
2022
Assets    Assets
Cash and cash equivalents $8,707.5
 $8,523.3
Cash and cash equivalents$3,369.9 $4,086.8 
Receivables 769.7
 767.8
Receivables1,229.4 1,130.8 
Investments 1,909.9
 1,995.2
Investments1,003.2 830.0 
Total Liquid Assets $11,387.1
 $11,286.3
Total Liquid Assets$5,602.5 $6,047.6 
    
Liability    Liability
Debt $1,044.5
 $1,044.2
Debt$3,364.6 $3,376.4 
Liquidity
Liquid assets consist of cash and cash equivalents, receivables and certain investments. Cash and cash equivalents at March 31, 2023 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 sponsored mutualand other funds, direct investments in redeemable CIPs, other equity and debt securities, and time deposits with maturities greater than three months.
Cash and cash equivalents at December 31, 2017 increased from September 30, 2017 primarily due to net cash provided by operating activities, partially offset by net cash used in investing and financing activities.

We utilize a significant portion of our liquid assets to satisfy operational and regulatory requirements and fund capital contributions relating to oursponsored 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 subject to 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, we could elect to repatriate future earnings from non-U.S. jurisdictions or raise capital through debt or equity issuance. Certain of theseissuances, or utilize existing or new credit facilities. These alternatives could result in higher effective tax rates, increased interest expense, decreased dividend or interest income, or other dilution to our earnings. We are currently reassessing our repatriation policy in light of the changes contained in the Tax Act. At December 31, 2017, our U.S. and non-U.S. subsidiaries held $869.3 million and $2,633.2 million of liquid assets to satisfy operational and regulatory requirements and capital contributions to our products, as compared to $861.8 million and $2,620.1 million held at September 30, 2017. Included in these amounts were U.S. and non-U.S. liquid assets that were restricted from transfer to Franklin and other subsidiaries of $4.2 million and $161.1 million at December 31, 2017 and $4.1 million and $163.3 million at September 30, 2017.
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, amounts available under the credit facility discussed below, the ability to issue debt or equity securities and borrowing capacity under our uncommitted commercial paper private placement program.
In prior fiscal years, we issued senior unsecured unsubordinated notes for general corporate purposes and to redeem outstanding notes. At March 31, 2023, Franklin’s outstanding senior notes and to finance an acquisition. At December 31, 2017, $1,049.0 million of the notes were outstanding withhad an aggregate face valueprincipal amount due of $1,050.0$1,600.0 million. The notes were issued athave fixed interest rates from 1.600% to 2.950% with interest paid semi-annually and consisthave an aggregate carrying value, inclusive of $350.0unamortized discounts and debt issuance costs, of $1,594.7 million. At March 31, 2023, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,250.0 million. The notes have fixed interest rates from 3.950% to 5.625% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized premium, of $1,480.5 million at 4.625% per annum which mature in 2020, $300.0 million at 2.800% per annum which mature in 2022,March 31, 2023. Effective August 2, 2021, Franklin agreed to unconditionally and $400.0 million at 2.850% per annum which mature in 2025.irrevocably guarantee all of the outstanding notes issued by Legg Mason.
Interest on the notes is payable semi-annually. The senior notes contain an optional redemption feature that allows us to redeem each series of notes prior to maturity in whole or in part at any time, at a make-whole redemption price. The indentures governing the senior notes contain limitations on our ability and the ability of our subsidiaries to pledge voting stock or profit participating equity interests in our subsidiaries to secure other debt without similarly securing the notes equally and ratably. 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.
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We maintain a 364-day revolving credit facility with an aggregate commitment of $500.0 million that matures September 2023. As of the time of this filing, there are no amounts outstanding with respect to the 364-day revolving credit facility. We have a 3-year term loan with an aggregate commitment of $300.0 million. The 364-day revolving credit facility and term loan credit agreement contain a financial performance covenant requiring that the Company maintains a consolidated net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 3.00 to 1.00. We were in compliance with all debt covenants at DecemberMarch 31, 2017.2023.
At DecemberMarch 31, 2017,2023, we had $500.0$500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program which has been inactive since 2012.2012 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 repurchase shares of our common stock,including through acquisitions, pay stockholder dividends, invest in our products, fund propertypay income taxes and equipment purchases, pay operating expenses of the business, enhance technology infrastructure and business processes, pay stockholder dividends and income taxes,repurchase shares of our common stock, and repay and service debt. While we expect to continue to repurchase shares to offset dilution from share-based compensation, and expect to continue to repurchase shares opportunistically from time to time, we will likely spend more of our post-dividend free cash flow investing in our business, including seed capital and acquiring resources to help grow our investment teams and operations.
We are currently reassessing our capital management policy in light of the changes contained in the Tax Act.
Wetypically declare cash dividends on a quarterly basis.basis, subject to approval by our Board of Directors. We declared regular cash dividends of $0.23 and $0.20$0.60 per share during the threesix months ended DecemberMarch 31, 20172023 and 2016.$0.58 per share during the six months ended March 31, 2022. 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 the three and six months ended DecemberMarch 31, 2017 and 2016,2023, we repurchased 4.60.1 million and 7.10.6 million shares of our common stock at a cost of $200.0$3.6 million and $261.7$17.8 million. At DecemberMarch 31, 2017, 27.02023, 23.7 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. During the three and six months ended March 31, 2022, we repurchased 2.7 million and 3.4 million shares of our common stock at a cost of $80.8 million and $102.5 million.

We redeemed $91.3invested $242.0 million, net of investments, fromredemptions, into our sponsored products during the threesix months ended DecemberMarch 31, 2017,2023 and invested $36.6redeemed $122.6 million, net of redemptions,investments, in the prior-yearprior year period.
On September 27, 2022 we entered into a lease agreement for office space in New York City located at One Madison Avenue with occupancy expected to begin in early fiscal year 2024 with an aggregate expected commitment of $766.7 million over 16 years. This is part of an initiative to consolidate our existing office space in New York City.
On November 1, 2022, we acquired all of the outstanding ownership interests in BNY Alcentra Group Holdings, Inc. from The Bank of New York Mellon Corporation. Total purchase consideration consisted of cash consideration of approximately $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations (“CLOs”); deferred consideration of $62.0 million; and contingent consideration of up to $350.0 million to be paid upon the achievement of certain performance thresholds over the next four years that has an acquisition-date fair value of $24.6 million. We paid the purchase price from our existing cash.
On December 15, 2022, we entered into repurchase agreements with a third-party financing company for certain securities held in Alcentra’s CLOs. Under the terms of the repurchase agreements, we received cash proceeds of approximately $175.0 million with pledged collateral consisting of Alcentra investments with a carrying value of $201.4 million at March 31, 2023. The repurchase agreements have contractual maturity dates ranging between 2029 to 2034.
On April 1, 2022, we acquired all of the outstanding ownership interests in Lexington for cash consideration of approximately $1.0 billion and additional payments of $750 million to be paid in cash over the next three years. The first additional payment of $250 million was made during the third quarter of fiscal year 2023 from our existing cash.
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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. Increased liquidity risks and redemptions 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. We did not provide financial or other support to our sponsored funds during the six months ended March 31, 2023.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENT LIABILITY
Our contractual obligations, commitments and contingent liability are summarized in our Form 10-K for the fiscal year ended September 30, 2017.
The Tax Act imposes a one-time transition tax on the deemed repatriation of post-1986 undistributed foreign subsidiaries’ earnings. We estimated our federal transition tax liability to be $1,101.5 million. This liability is payable over eight years beginning in January 2019, with 8% of the liability payable in each of the first five years, 15% in year six, 20% in year seven and 25% in year eight.
At December 31, 2017, there were no other material changes in our other contractual obligations, commitments and contingent liability from September 30, 2017.
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, concerns about the global economic outlook have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations including the estimates and assumptions made by management. Actual results maycould differ from those estimates under different assumptions. The followingthe estimates. Described below are the updates to our critical accounting policies disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for fiscal year 2017.2022.
Consolidation
We consolidate our subsidiaries and investment 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”). Our VIEs are allprimarily investment entitiesproducts and our variable interests consist of our equity ownership interestinterests in and certain investment management fees earned from these entities.products. As of DecemberMarch 31, 2017,2023, we were the primary beneficiary of 3259 investment product VIEs.
Business Combinations
Business combinations are accounted for by recognizing the acquired assets, including separately identifiable intangible assets, and assumed liabilities at their acquisition-date estimated fair values. Any excess of the purchase consideration over the acquisition-date fair values of these identifiable assets and liabilities is recognized as goodwill. 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. Definite-lived intangible assets are tested for impairment quarterly.
Subsequent to the annual impairment tests performed as of August 1, 2022, we monitored both macroeconomic and entity-specific factors, including changes in our AUM to determine whether circumstances have changed that would more likely than not reduce the fair value of the reporting unit below its carrying value or indicate that the other indefinite-lived intangible assets might be impaired. We also monitored fluctuations of our common stock per share price to evaluate our market capitalization relative to the reporting unit as a whole. During the six months ended March 31, 2023, there were no events or circumstances which would indicate that goodwill, indefinite-lived intangible assets or definite-lived intangible assets might be impaired.
While we believe that the assumptions used to estimate fair value in our impairment tests are reasonable and appropriate, future changes in the assumptions could result in recognition of impairment.
Fair Value Measurements
We record a substantial amount of ourOur investments are primarily 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.
As of DecemberMarch 31, 2017,2023, Level 3 assets represented 12%6% of total assets measured at fair value, substantially all of which primarily related to CIPs’ 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 86% of total liabilities measured at fair value.securities. There were noinsignificant transfers into orand out of Level 3 during the threesix months ended DecemberMarch 31, 2017.2023.
Goodwill and Other Intangible Assets
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Subsequent to our annual impairment tests as
Table of August 1, 2017, there were no impairments to goodwill or indefinite-lived intangible assets. We monitored 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 our reporting unit below its carrying value, or indicate that our 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 as of August 1, 2017. We also monitored fluctuations of our common stock per share price to evaluate our market capitalization relative to the reporting unit as a whole.Contents

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.
Revenues
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 average daily AUM. Performance-based investment management fees are based on performance targets established in the related investment management contracts. AUM is generally based on the fair value of the underlying securities held by our investment 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 internally valued using various methodologies which incorporate unobservable inputs as appropriate for each security type. As of December 31, 2017, our total AUM by fair value hierarchy level was 54% Level 1, 45% Level 2 and 1% Level 3.
Income Taxes
As a multinational corporation, we operate in various locations outside the U.S. and generate earnings from our foreign subsidiaries. Prior to enactment of the Tax Act, we indefinitely reinvested the undistributed earnings of all our foreign subsidiaries, except for income previously taxed in the U.S. or subject to regulatory or legal repatriation restrictions or requirements. We are currently reconsidering our repatriation policy in light of the changes contained in the Tax Act.
NEW ACCOUNTING GUIDANCE
See Note 2 – New Accounting Guidance in the notes to consolidated financial statements in Item 1 of Part I of this Form 10-Q.
RISK FACTORS
Volatility and disruption of 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 capital and credit markets may from time to time 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”), revenues and income, and future declines may further negatively impact our financial results. Such declines have had and may in the future have an 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 in jurisdictions worldwide through our investment products that include our sponsored funds, as well as institutional and high net-worth separate accounts. In addition to investment management, our services include fund administration, sales, distribution, marketing, shareholder servicing, and other services. The level of our revenues depends largely on the level and mix of AUM. Our investment management fee revenues are primarily based on a percentage of the value of AUM and vary with the nature and strategies of our products. Any decrease in the value or amount of our AUM because of market volatility or other factors, such as 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, insurrection or other business, social or political crises. Global economic conditions, exacerbated by war, terrorism, natural disasters 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 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. Our funds may be subject to liquidity risks or an unanticipated large number of redemptions as a result of the events or conditions described above, causing the funds to sell securities 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. We have in the past, and may in the future, at our discretion, provide financial support to our funds to enable them to maintain sufficient liquidity in any such event. Changes in investor preferences regarding our more popular products have in the past 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, changing market conditions 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 international 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 towards fixed income products and away from equity and multi-asset/balanced products, and a related decline in our revenues and income, as we generally derive higher fee revenues and income from our equity and certain multi-asset/balanced products than from our fixed income products. Further, changing market conditions and investor preferences also may cause a shift in our asset mix towards lower fee exchange traded funds. Increases in interest rates, in particular 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 decrease in the level of our AUM resulting from market declines, interest rate volatility or uncertainty, increased redemptions or other factors could negatively impact our revenues and income.
We are subject to extensive, complex, overlapping 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 interpretations in the countries 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 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, certain of our subsidiaries are also subject 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 products and services 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 registered with 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 place to address them, are often comprehensive and complex. 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. 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, 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.
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 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 our funds are designated as a SIFI or G-SIFI, such 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, could impact our business. The Dodd-Frank Act, as well as other legislative and regulatory changes, impose other restrictions and limitations on us, resulting in increased scrutiny and oversight of our products and services. We continue to analyze the impact of the Dodd-Frank Act as implementing rules are adopted and become effective. Under the Dodd-Frank Act, which imposes a number of regulations governing derivative transactions, certain categories of swaps are currently required, 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 EU and other countries are in the process of implementing similar requirements, and there is some risk that full mutual recognition may not be achieved between the various regimes, and duplication of regulation and transaction costs 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. 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 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 requirements and developments applicable to us will cause us to incur additional administrative and compliance costs.
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. 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 inability to meet these 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 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 to Brexit 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 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 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. 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. 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 which 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 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 may at times materially impact our effective tax rate, such as pursuant to the Tax Cuts and Jobs Act enacted into law in the U.S. on December 22, 2017.
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, 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 our clients. 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 repair 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 or the misrepresentation of our products and services, or the termination of investment management agreements representing a significant portion of our AUM, could have an adverse effect on our revenues and income. Through our subsidiaries, we provide investment management and related services to investors globally through our products. 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 of 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 who 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, or otherwise damage our reputation. In addition, any misrepresentation of our products and services 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 products. Our revenues could be adversely affected if such agreements representing a significant portion of our AUM are terminated or significantly altered. 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, our business could suffer and our revenues and income could be adversely affected.
We face risks, and corresponding potential costs and expenses, associated with conducting operations and growing our business in numerous countries. We sell our products 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 consistently and effectively operate our business. 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, or 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, growth of our international operations may involve near-term increases in expenses as well as additional capital costs, such as information systems and technology costs and costs related to compliance with particular regulatory or other local requirements or needs. Local requirements or needs 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 challenge 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 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. 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 that business decisions or other actions or omissions of the controlling stakeholder, our joint venture partner or the entity itself may result in liability for us or harm to our reputation or adversely affect the value of our investment in the entity.
We depend on key personnel and our financial performance could be negatively affected by the loss of their services. The success of our business will continue to depend upon our key personnel, 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 contributions of these people. Laws and regulations, including those contained in or relating to the EU’s 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. There is no assurance that we will be successful in finding, attracting and retaining qualified individuals, and the departure of key investment personnel, in particular, if not replaced, could cause us to lose clients, which could have a material adverse effect on our financial condition, results of operations and business prospects.
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 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, to the extent that there is a trend among existing or potential clients in favor of lower fee index and other exchange-traded funds, 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, whom we rely upon to distribute and sell certain of our funds and other products, may also sell their own proprietary funds and 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 products, offering a mix of products and strategies that meets investor demands, and our ability to maintain our investment management fees and pricing structure at competitive levels.
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. Increasing competition for these distribution channels and regulatory initiatives have caused our distribution costs to rise and could cause further 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 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; consolidations in the broker-dealer industry could also adversely impact our income. Moreover, if several of the major financial advisers who 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, the DOL issued anew 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 clients and may negatively impact our business. Certain aspects of the rule became applicable in June 2017, while other aspects of the rule are not expected to become applicable until July 1, 2019, subject to any further regulatory update. In addition, the U.K., the Netherlands and the EU in MiFID II have adopted regimes which 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 finance investment research with many firms, including ours, 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 of our existing products through them. A failure to maintain strong business 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 channels 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 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 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 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, the situation may change in the future as 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 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 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 trust and confidence. If our reputation is harmed, existing clients may reduce amounts held in, or withdraw entirely from, our products or our 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. 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 products. Poor investment performance as compared to third-party benchmarks or competitive products has in the past and could in the future lead to a decrease in sales of our products 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 our products will be indicative of future performance. Any poor investment performance may negatively impact our revenues and income. Reputational harm or poor investment performance may cause 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 our 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.
Our ability to successfully manage and grow our business 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 the varied accounting, financial, information, and operational systems on a global basis. 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, including our data processing, financial, accounting, shareholder servicing and trading systems. Further, we also must be proactive and prepared to implement 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 also 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.
Our inability to successfully recover should we experience a disaster or other business continuity problem could cause material financial loss, loss of human capital, regulatory actions, reputational harm, or legal liability. Should we experience a local or regional disaster or other business continuity problem, such as an earthquake, tsunami, terrorist attack, 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. 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 a local or regional event may affect our human capital across our operations or with regard to particular aspects of our operations, such as key executive officers or personnel in our technology group. Moreover, as we grow our operations in new geographic regions, the potential for particular types of natural or man-made disasters; political, economic or infrastructure instabilities; information, technology or security limitations or 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. However, a disaster on a significant scale or affecting certain of our key operating areas within or across regions, or our inability to successfully recover should we experience 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 costs and negatively impact our profitability and/or our future financial results. From time to time we may receive requests for documents or other information from governmental authorities or regulatory bodies. We may also become the subject of governmental or regulatory investigations and/or examinations, or governmental or regulatory investigations and/or examinations that have been inactive could become active. In addition, we may be named as a party in litigation. We may be obligated, 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 costs of doing business and/or negatively impact our revenues, any of which could have a material negative impact on our financial results.
Our ability to meet cash needs depends upon certain factors, including the market value of our assets, 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 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.
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 which may limit their ability to transfer assets to their parent companies and/or our ability to repatriate assets to the U.S. Our financial condition could be adversely affected if certain of our subsidiaries are unable to distribute assets to us.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
During the threesix months ended DecemberMarch 31, 2017,2023, there were no material changes from the market risk disclosures in our Form 10-K10‑K for the fiscal year ended September 30, 2017.2022.
Item 4. 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of DecemberMarch 31, 2017.2023. Based on their evaluation, the Company’s principal executive and principal financial officers concluded that the Company’s disclosure controls and procedures as of DecemberMarch 31, 20172023 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 SEC’s 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.
ThereIn October 2022, the Company deployed a new financial reporting system which was designed, in part, to enhance the overall system of internal control over financial reporting through further automation and improved business processes. This system implementation was significant in scale and complexity and resulted in modification to certain internal controls.
Other than the system implementation, 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 DecemberMarch 31, 2017,2023, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
For a description of our legal proceedings, please see the description set forth in the “Legal Proceedings” section in Note 10 – Commitments and Contingencies in the notes to the consolidated financial statements in Item 1 of Part I of this Form 10-Q,10‑Q, which is incorporated herein by reference.
Item 1A. Risk Factors.
Our Form 10-K forThe following Risk Factor disclosure supplements the fiscal year ended September 30, 2017 filed with the SEC includes a discussion of the risk factors identified by us, which are also set forth under the heading “Risk Factors” in Item 2 of Part I of this Form 10-Q. There were no material changes from theour Risk Factors as previously disclosed in our last Annual Report on Form 10-K for the fiscal year ended September 30, 2017.2022. The Risk Factors disclosed in our last Annual Report on Form 10-K and the Risk Factors below could materially and adversely affect our business, financial condition and results of operations, and our business also could be impacted by other risk factors that are not presently known to us or that we currently consider to be immaterial. Further, our disclosure of a risk should not be interpreted to imply that the risk has not already developed or materialized.
Volatility and disruption of our business and financial markets and adverse changes in the global economy may significantly affect our results of operations and put pressure on our financial results.
We derive substantially all of our operating revenues and income from providing investment management and related services to investors in jurisdictions worldwide through our investment products, which include our funds, as well as institutional and high-net-worth separate accounts, retail separately managed account programs, sub-advised products, and other investment vehicles. Related services include fund administration, sales and distribution, and shareholder servicing. We may perform services directly or through third parties. The asset management industry continues to experience disruption and challenges, including 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, banking and financial markets have currently and in the past experienced and may continue, from time to time, to experience volatility and disruption worldwide. For example, the recent closures in March 2023 of Silicon Valley Bank and Signature Bank in the United States and the announced acquisition of Credit Suisse Group AG have resulted in market disruption and volatility and could lead to greater instability and a deterioration of confidence in the credit and financial markets. Declines in global economic conditions have resulted, and may continue to result, in significant decreases in our AUM, revenues and income, and future declines may further negatively impact our financial results. Such declines have had, and may in the future have, a material adverse impact on our business. 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.
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. For example, the Russian invasion of Ukraine, and the threat that Russia’s military aggression may expand beyond Ukraine, has significantly impacted the global economy and financial markets, which has had, and may continue to have, an adverse effect on our investment performance and flows in certain products. 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. Changing market conditions could also cause an impairment to the value of our goodwill and other intangible assets.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table provides information with respect to the shares of our common stock that we repurchased during the three months ended DecemberMarch 31, 2017.2023.
MonthTotal 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
January 202372,679 $28.36 72,679 23,789,148 
February 202346,439 31.57 46,439 23,742,709 
March 20231,537 24.28 1,537 23,741,172 
Total120,655 120,655 
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
October 2017 1,160,539
 $44.18
 1,160,539
 30,462,942
November 2017 1,667,902
 41.72
 1,667,902
 28,795,040
December 2017 1,810,947
 43.71
 1,810,947
 26,984,093
Total 4,639,388
   4,639,388
  
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 December 31, 2017, 27.0 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 the period covered by this report.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index to this Form 10-Q are incorporated herein by reference.

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EXHIBIT INDEX
Exhibit No.Description
3(i)(a)3.1
Registrant’s Certificate of Incorporation of Registrant, as filed November 28, 1969, incorporated by reference to Exhibit (3)(i) to the Registrant’sour Annual Report on Form 10-K for the fiscal year ended September 30, 1994 (File No. 001-09318) (the “1994 Annual Report”)
3(i)(b)3.2
Registrant’s Certificate of Amendment of Certificate of Incorporation of Registrant, as filed March 1, 1985, incorporated by reference to Exhibit 3(ii) to the 1994 Annual Report
3(i)(c)3.3
Registrant’s Certificate of Amendment of Certificate of Incorporation of Registrant, as filed April 1, 1987, incorporated by reference to Exhibit 3(iii) to the 1994 Annual Report
3(i)(d)3.4
Registrant’s Certificate of Amendment of Certificate of Incorporation of Registrant, as filed February 2, 1994, incorporated by reference to Exhibit 3(iv) to the 1994 Annual Report
3(i)(e)3.5
Registrant’s Certificate of Amendment of Certificate of Incorporation of Registrant, as filed on February 4, 2005, incorporated by reference to Exhibit (3)(i)(e) to the Registrant’sour Quarterly Report on Form 10-Q for the period ended December 31, 2004 (File No. 001-09318)
3(ii)3.6
Registrant’s Amended and Restated Bylaws of Registrant (as adopted and effective October 23, 2017)June 29, 2021), incorporated by reference to Exhibit 3.1 to the Registrant’sour Current Report on Form 8-K filed with the SEC on October 23, 2017July 1, 2021 (File No. 001-09318)
10.131.1
International Assignment Agreement between Franklin Templeton Companies, LLC and Alok Sethi, dated May 11, 2017 (filed herewith)*
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101
The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended DecemberMarch 31, 2017,2023, 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 (v)(vi) related notes (filed herewith)
104Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)
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*        Management Contract or Compensatory Plan or Arrangement
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SIGNATURESIGNATURES
Pursuant to the requirements 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:May 1, 2023By:FRANKLIN RESOURCES, INC./s/ Matthew Nicholls
(Registrant)Matthew Nicholls
Date:January 30, 2018By:
/S/ KENNETH A. LEWIS
Kenneth A. Lewis
Executive Vice President, Chief Financial Officer and Executive Vice PresidentChief Operating Officer
(Duly Authorized
Date:May 1, 2023By:/s/ Gwen L. Shaneyfelt
Gwen L. Shaneyfelt
Chief Accounting Officer and Principal Financial Officer)

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