FRANKLIN RESOURCES INC

Previous wording

During our second fiscal quarter, global equity markets provided positive returns, reflecting strong corporate earnings in certain sectors and continued expectations of interest rate reductions, although likely slower and later in the calendar year than initially anticipated due to strong economic data. The S&P 500 Index and MSCI World Index increased 10.6% and 9.0% for the quarter and 23.5% and 21.6% for the fiscal year to date. The Bloomberg Global Aggregate Index decreased 2.1% during the quarter, reflecting the shift in interest rate expectations, but increased 5.9% for the fiscal year to date, reflecting strong positive returns in our first fiscal quarter.

Current wording

During our third fiscal quarter, global equity markets provided positive returns, reflecting strong corporate earnings in certain sectors due to ongoing enthusiasm around artificial intelligence and expectations of an economic soft landing, although inflation remained a concern and expectations of interest rate reductions eased. The S&P 500 Index and MSCI World Index increased 4.3% and 2.8% for the quarter and 28.8% and 25.0% for the fiscal year to date. The Bloomberg Global Aggregate Index decreased 1.1% during the quarter, reflecting the shift in interest rate expectations, but increased 4.7% for the fiscal year to date, reflecting strong positive returns, in our first fiscal quarter.

Previous wording

Our total AUM at March 31, 2024 was $1,644.7 billion, 20% higher than at September 30, 2023 and 16% higher than at March 31, 2023. Monthly average AUM (“average AUM”) for the three and six months ended March 31, 2024 increased 11% and 8% from the same periods in the prior fiscal year.

Current wording

Our total AUM at June 30, 2024 was $1,646.6 billion, 20% higher than at September 30, 2023 and 15% higher than at June 30, 2023. Monthly average AUM (“average AUM”) for the three and nine months ended June 30, 2024 increased 15% and 10% from the same periods in the prior fiscal year.

Previous wording

AUM increased $189.2 billion, or 13%, during the three months ended March 31, 2024 due to $148.3 billion from the acquisition of Putnam, the positive impact of $38.8 billion of net market change, distributions and other and $6.9 billion of long-term net inflows, which include $3.1 billion of long-term reinvested distributions, partially offset by $4.8 billion of cash management net outflows. Fixed income net inflows include the funding of $13.7 billion related to the strategic partnership with Great-West, partially offset by an institutional client redemption of $2.0 billion. Net market change, distributions and other primarily consists of $51.9 billion of market appreciation, partially offset by $7.9 billion of long-term distributions and a $5.2 billion decrease from foreign exchange revaluation. The market appreciation occurred substantially in all asset classes, most significantly in the equity asset class and reflected positive returns in the global equity markets. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a stronger U.S. dollar compared to the Japanese Yen, Australian dollar, Euro and Canadian dollar.

Current wording

AUM increased $1.9 billion during the three months ended June 30, 2024 due to $3.0 billion of cash management net inflows and the positive impact of $2.1 billion of net market change, distributions and other, partially offset by $3.2 billion of long-term net outflows, which include $3.6 billion of long-term reinvested distributions. Net market change, distributions and other primarily consists of $14.5 billion of market appreciation, partially offset by $9.7 billion of long-term distributions and a $2.7 billion decrease from foreign exchange revaluation. The market appreciation occurred in all asset classes, most significantly in the multi-asset and equity asset classes and reflected positive returns in the global equity markets. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a stronger U.S. dollar compared to the Japanese Yen, Brazilian Real, Euro and Canadian dollar, partially offset by a weaker U.S. dollar compared to the Australian dollar.

Previous wording

AUM increased $222.6 billion or 16%, as compared to the prior year period. Long-term inflows increased 37% to $84.9 billion, driven by higher inflows in fixed income and equity fund vehicles. Long-term outflows increased 19% to $78.0 billion driven by higher redemptions in equity fund vehicles and fixed income funds and retail separate accounts, partially offset by lower redemptions in alternative open end and private open end funds.

Current wording

AUM increased $215.1 billion or 15%, as compared to the prior year period, primarily due to the acquisition of Putnam. Long-term inflows increased 23% to $82.7 billion, driven by higher inflows in fixed income institutional separate accounts and equity fund vehicles and institutional and retail separate accounts, partially offset by lower inflows in alternative private fund vehicles. Long-term outflows increased 28% to $85.9 billion driven by higher redemptions in fixed income and equity open end funds and institutional and retail separate accounts.

Previous wording

AUM decreased $55.4 billion or 4%, as compared to the fiscal year 2022 period. Long-term inflows decreased 19% to $61.8 billion, driven by lower inflows in equity and fixed income open end funds, equity separately managed accounts, and fixed income institutional separate accounts. Long-term outflows decreased 25% to $65.5 billion driven by lower redemptions in fixed income and equity open end funds, equity separately managed accounts and fixed income institutional separate accounts.

Current wording

AUM increased $51.7 billion or 4%, as compared to the fiscal year 2022 period. Long-term inflows decreased 13% to $67.4 billion, driven by lower inflows in fixed income, equity, and multi-asset open end funds, fixed income institutional separate accounts, multi-asset sub-advised mutual funds, and equity retail separate accounts, partially offset by higher inflows for multi-asset institutional separate accounts, alternative private funds, and equity sub-advised mutual funds. Long-term outflows decreased 31% to $67.2 billion driven by lower redemptions in fixed income and equity open end funds, fixed income and equity institutional separate accounts, multi-asset sub-advised mutual funds, and equity and fixed income retail separate accounts, partially offset by higher redemptions for multi-asset institutional separate accounts.

Previous wording

AUM increased $270.5 billion, or 20%, during the six months ended March 31, 2024 due to $148.3 billion from the acquisition of Putnam, the positive impact of $120.4 billion of net market change, distributions and other and $1.9 billion of long-term net inflows, which include $13.9 billion of long-term reinvested distributions, partially offset by $0.1 billion of cash management net outflows. Net market change, distributions and other primarily consists of $146.2 billion of market appreciation and a $1.4 billion increase from foreign exchange revaluation, partially offset by $27.2 billion of long-term distributions. The market appreciation occurred in all asset classes, most significantly in the equity and fixed income asset classes and reflected positive returns in the global equity and fixed income markets.

Current wording

AUM increased $272.4 billion, or 20%, during the nine months ended June 30, 2024 due to $148.3 billion from the acquisition of Putnam, the positive impact of $122.5 billion of net market change, distributions and other and $2.9 billion of cash management net inflows, partially offset by $1.3 billion of long-term net outflows, which include $17.5 billion of long-term reinvested distributions. Net market change, distributions and other primarily consists of $160.7 billion of market appreciation, partially offset by $36.9 billion of long-term distributions and a $1.3 billion decrease from foreign exchange revaluation. The market appreciation occurred in all asset classes, most significantly in the equity and fixed income asset classes and reflected positive returns in the global equity and fixed income markets.

Previous wording

Long-term inflows increased 16% to $153.8 billion, as compared to the prior year period, driven by higher inflows in equity and fixed income fund vehicles, partially offset by lower inflows in multi-asset open end funds and alternative institutional separate accounts. Long-term outflows increased 3% to $151.9 billion due to higher outflows in equity open end funds, partially offset by lower outflows in alternative private funds, open end funds, and institutional separate accounts.

Current wording

Long-term inflows increased 18% to $236.5 billion, as compared to the prior year period, driven by higher inflows in equity and multi-asset open end funds and separately managed accounts, fixed income institutional separate accounts, investment trusts, and subadvised mutual funds, partially offset by lower inflows in alternative private fund vehicles. Long-term outflows increased 11% to $237.8 billion due to higher outflows in equity open end funds and fixed income institutional separate accounts and investment trusts.

Previous wording

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 the equity and fixed income asset classes and reflected positive returns in the global equity and fixed income markets. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a weaker U.S. dollar compared to the Euro, Pound Sterling, Japanese Yen and Australian dollar.

Current wording

AUM increased $134.1 billion, or 10%, during the nine months ended June 30, 2023 due to the positive impact of $107.7 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $5.9 billion of cash management net inflows, partially offset by $14.4 billion of long-term net outflows. Net market change, distributions and other primarily consists of $131.0 billion of market appreciation, a $9.8 billion increase from foreign exchange revaluation, partially offset by $33.1 billion of long-term distributions. The market appreciation occurred in all asset classes with the exception of the alternative asset class, most significantly in the equity and fixed income asset classes and reflected positive returns in the global equity and fixed income markets. Foreign exchange revaluation from AUM in products that are not U.S. dollar denominated was primarily due to a weaker U.S. dollar compared to the Euro, Pound Sterling, Brazilian Real and Australian dollar.

Previous wording

Long-term inflows decreased 28% to $132.3 billion, as compared to the fiscal year 2022 period, driven by lower inflows in equity, fixed income, and multi-asset open end funds, fixed income institutional separate accounts and sub-advised collective investment trusts, and equity retail separate accounts. Decreased inflows for open end mutual funds include the impact of lower reinvested distributions, which were $14.4 billion in the current year period, as compared to $32.0 billion in the prior year period. Long-term outflows decreased 14% to $146.9 billion due to lower outflows in equity and fixed income open end funds, multi-asset sub-advised mutual funds and equity separately managed accounts, partially offset by higher outflows in fixed income institutional separate accounts.

Current wording

Long-term inflows decreased 23% to $199.7 billion, as compared to the fiscal year 2022 period, driven by lower inflows in equity and fixed income open end funds, fixed income institutional separate accounts, and equity retail separate accounts. Decreased inflows for open end mutual funds include the impact of lower reinvested distributions, which were $18.0 billion in the current year period, as compared to $29.5 billion in the prior year period. Long-term outflows decreased 20% to $214.1 billion due to lower outflows in fixed income and equity open end funds, multi-asset sub-advised mutual funds, fixed income and equity institutional separate accounts, and equity retail separate accounts.

Previous wording

2 Strategy composite performance measures the percent of composite AUM beating its benchmark. The benchmark comparisons are based on each account’s/composite’s (strategy composites may include retail separately managed accounts and mutual fund assets managed as part of the same strategy) return as compared to a market index that has been selected to be generally consistent with the asset class of the account/composite. Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 54%, 53%, 53% and 49% of our total AUM as of March 31, 2024.

Current wording

2 Strategy composite performance measures the percent of composite AUM beating its benchmark. The benchmark comparisons are based on each account’s/composite’s (strategy composites may include retail separately managed accounts and mutual fund assets managed as part of the same strategy) return as compared to a market index that has been selected to be generally consistent with the asset class of the account/composite. Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 54%, 54%, 53% and 49% of our total AUM as of June 30, 2024.

Previous wording

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

Current wording

Investment management fees increased $76.5 million and $237.5 million for the three and nine months ended June 30, 2024 primarily due to a 15% and 10% increase in average AUM, partially offset by a decrease in performance fees and lower catch-up fees recognized at the closing of fundraising rounds in a secondary private equity fund, which ended in January 2024. The increases in average AUM primarily occurred in the equity, fixed income and multi-asset asset classes, driven by the acquisition of Putnam.

Previous wording

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

Current wording

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) was 40.2 and 41.4 basis points for the three and nine months ended June 30, 2024, as compared to 42.0 and 41.9 basis points for the same periods in the prior fiscal year. The rate decreases were primarily due to lower catch-up fees recognized at the closing of fundraising rounds in a secondary private equity fund, which ended in January 2024, and increased AUM in lower fee products, including those from the acquisition of Putnam.

Previous wording

Performance fees were $85.2 million and $251.6 million for the three and six months ended March 31, 2024, and $111.2 million and $320.2 million for the same periods in the prior fiscal year. The decrease for the three months ended March 31, 2024 was primarily due to lower performance fees earned by certain of our alternative specialist investment managers, and for the six months ended March 31, 2024 was primarily due to a $65.5 million decrease in performance fees earned by Lexington Partners L.P. (“Lexington”), which were passed through as compensation expense per the terms of the acquisition agreement.

Current wording

Performance fees were $56.6 million and $308.2 million for the three and nine months ended June 30, 2024, and $125.9 million and $446.1 million for the same periods in the prior fiscal year. The decrease for both periods was primarily due to lower performance fees earned by certain of our alternative specialist investment managers, and decreases of $11.6 million and $77.1 million in performance fees earned by Lexington Partners L.P. (“Lexington”), which were passed through as compensation expense per the terms of the acquisition agreement.

Previous wording

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

Current wording

Asset-based distribution fees increased $43.6 million and $88.4 million for the three and nine months ended June 30, 2024 primarily due to revenue earned by Putnam subsequent to the acquisition and increases of 4% and 3% in the related average AUM, excluding the impact of Putnam.

Previous wording

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

Current wording

Sales-based fees increased $10.7 million and $27.3 million for the three and nine months ended June 30, 2024 primarily due to increases of 6% and 10% in commissionable sales and sales-based revenue earned by Putnam subsequent to the acquisition.

Previous wording

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

Current wording

Shareholder servicing fees increased $23.0 million and $46.8 million for the three and nine months ended June 30, 2024 primarily due to fees earned by Putnam subsequent to the acquisition, partially offset by the impact of a change in fee structure for certain U.S. sponsored funds.

Previous wording

The Putnam acquisition had a significant impact on operating expenses in the three and six months ended March 31, 2024; however, due to the ongoing integration of the combined businesses, it is not practicable to separately quantify the impact of the legacy Putnam business.

Current wording

The Putnam acquisition had a significant impact on operating expenses in the three and nine months ended June 30, 2024; however, due to the ongoing integration of the combined businesses, it is not practicable to separately quantify the impact of the legacy Putnam business.

Previous wording

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

Current wording

Salaries, wages and benefits increased $51.1 million and $118.1 million for the three and nine months ended June 30, 2024, primarily due to higher headcount as a result of the acquisition of Putnam and annual salary increases, partially offset by the impact of other headcount reductions.

Previous wording

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

Current wording

Incentive compensation remained flat for the three months ended June 30, 2024 and increased $55.0 million for the nine months ended June 30, 2024 primarily due to the acquisition of Putnam, an increase in expense for deferred compensation awards, and higher bonus expense based on expectations of our annual performance, partially offset by lower incentive compensation at specialist investment managers.

Previous wording

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

Current wording

Acquisition-related retention expenses increased $22.4 million and $109.2 million for the three and nine months ended June 30, 2024 primarily due to higher costs associated with recent acquisitions.

Previous wording

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

Current wording

Acquisition-related performance fee pass through expenses decreased $11.6 million and $77.1 million for the three and nine months ended June 30, 2024, due to lower performance fees earned by Lexington.

Previous wording

Other compensation and benefits increased $12.2 million and $23.0 million for the three and six months ended March 31, 2024, primarily due to an increase in special termination benefits and higher net market gains on investments related to our deferred compensation plans. Special termination benefits increased $8.6 million and $4.4 million for the three and six months ended March 31, 2024 primarily due to the acquisition of Putnam, partially offset by costs associated with workforce optimization initiatives in the prior year. Compensation expense related to minority interests increased $0.2 million and $1.8 million for the three and six months ended March 31, 2024.

Current wording

Other compensation and benefits decreased $5.6 million for the three months ended June 30, 2024, primarily due to lower net market gains of deferred compensation plans, partially offset by an increase in special termination benefits; and increased $17.4 million for the nine months ended June 30, 2024, primarily due to an increase in special termination benefits and higher net market gains on investments related to our deferred compensation plans. Special termination benefits increased $4.5 million and $8.9 million for the three and nine months ended June 30, 2024 primarily due to the acquisition of Putnam, partially offset by costs associated with workforce optimization initiatives in the prior year. Compensation expense related to minority interests decreased $1.8 million for the three months ended June 30, 2024 and remained flat for the nine months ended June 30, 2024.

Previous wording

We expect to incur additional acquisition-related retention expenses of approximately $130 million during the remainder of the current fiscal year, and annual amounts beginning at approximately $190 million in the fiscal year ending September 30, 2025 and decreasing over the following two fiscal years by approximately $20 million and $80 million. At March 31, 2024, our global workforce increased to approximately 10,100 employees from approximately 9,200 at March 31, 2023, primarily due to the acquisition of Putnam.

Current wording

We expect to incur additional acquisition-related retention expenses of approximately $60 million during the remainder of the current fiscal year, and annual amounts beginning at approximately $190 million in the fiscal year ending September 30, 2025 and decreasing over the following two fiscal years by approximately $20 million and $80 million. At June 30, 2024, our global workforce increased to approximately 10,300 employees from approximately 9,300 at June 30, 2023, primarily due to the acquisition of Putnam.

Previous wording

Asset-based expenses increased $62.7 million and $71.3 million for the three and six months ended March 31, 2024 primarily due to expenses incurred by Putnam subsequent to the acquisition, increases of 3% and 2% in the related average AUM and higher marketing support fees. Distribution expenses are generally not directly correlated with distribution fee revenues due to certain fee structures that do not provide full recovery of distribution costs.

Current wording

Asset-based expenses increased $61.9 million and $133.2 million for the three and nine months ended June 30, 2024 primarily due to expenses incurred by Putnam subsequent to the acquisition, increases of 4% and 3% in the related average AUM, excluding the impact of Putnam, and higher marketing support fees. Distribution expenses are generally not directly correlated with distribution fee revenues due to certain fee structures that do not provide full recovery of distribution costs.

Previous wording

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

Current wording

Sales-based expenses increased $9.6 million and $24.9 million for the three and nine months ended June 30, 2024 primarily due to increases of 6% and 10% in commissionable sales and sales-based expenses incurred by Putnam subsequent to the acquisition.

Previous wording

Occupancy expenses increased $16.5 million and $28.7 million for the three and six months ended March 31, 2024, primarily due to new leased office space located at One Madison Avenue, associated with an initiative to consolidate our office space in New York City and expenses incurred by Putnam subsequent to the acquisition.

Current wording

Occupancy expenses increased $47.9 million and $76.6 million for the three and nine months ended June 30, 2024, driven by impairment of the right of use asset related to vacated office space and new leased office space located at One Madison Avenue, primarily associated with an initiative to consolidate our office space in New York City, and expenses incurred by Putnam subsequent to the acquisition.

Previous wording

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

Current wording

Information systems and technology expenses increased $29.3 million and $66.0 million for the three and nine months ended June 30, 2024, primarily due to expenses incurred by Putnam subsequent to the acquisition, higher outsourced data services and software costs.

Previous wording

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

Current wording

Amortization of intangible assets decreased $1.4 million and $0.2 million for the three and nine months ended June 30, 2024, primarily due to the net effect of intangible assets which became fully amortized during the period, partially offset by the amortization of intangible assets recognized as part of the acquisition of Putnam and, for the nine month period, Alcentra.

Previous wording

General, administrative and other operating expenses increased $50.6 million and $36.4 million for the three and six months ended March 31, 2024, primarily due to the acquisition of Putnam, increases of $15.8 million and $16.5 million in professional fees, and increases of $3.9 million and $9.3 million in travel and entertainment expenses due to higher activity levels. These increases were partially offset by decreases of $10.5 million and $9.7 million in fund-related expenses.

Current wording

General, administrative and other operating expenses increased $43.6 million and $80.0 million for the three and nine months ended June 30, 2024, primarily due to the acquisition of Putnam, increases of $14.6 million and $31.3 million in professional fees, and increases of $5.7 million and $15.0 million in travel and entertainment expenses due to higher activity levels. These increases were partially offset by decreases of $4.4 million and $14.1 million in fund-related expenses.

Previous wording

Investment and other income, net decreased $8.1 million for the three months ended March 31, 2024, primarily due to losses on investments, as compared to gains in the prior year quarter, partially offset by higher dividend and interest income, lower net foreign currency exchange losses, and higher net income from equity method investees. Investment and other income, net increased $75.2 million for the six months ended March 31, 2024, primarily due to higher net income from equity method investees, lower net foreign currency exchange losses, and higher dividend and interest income.

Current wording

Investment and other income, net increased $24.7 million for the three months ended June 30, 2024, primarily due to income from equity method investees and net foreign currency gains as compared to losses in the prior year quarter, partially offset by losses on investments, as compared to gains in the prior year quarter. Investment and other income, net increased $99.9 million for the nine months ended June 30, 2024, primarily due to higher net income from equity method investees, lower net foreign currency exchange losses, and higher dividend and interest income, partially offset by lower gains on investments.

Previous wording

Investments held by the Company generated net losses of $18.5 million and net gains of $41.6 million in the three and six months ended March 31, 2024, as compared to net gains of $3.0 million and $48.5 million for the three and six months ended March 31, 2023. The net losses for the three months ended March 31, 2024 were primarily from investments in nonconsolidated funds and separate accounts, partially offset by net gains on assets invested for deferred compensation plans. The net gains for the three months ended March 31, 2023 were primarily from assets invested for deferred compensation plans, partially offset by losses on investments in nonconsolidated funds and separate accounts. The net gains in both the current and prior year six-month periods were primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans, partially offset by net losses from investments measured at cost adjusted for observable price changes.

Current wording

Investments held by the Company generated net losses of $24.3 million and net gains of $17.3 million in the three and nine months ended June 30, 2024, as compared to net gains of $13.8 million and $62.3 million for the three and nine months ended June 30, 2023. The net losses in the three months ended June 30, 2024 were primarily from investments in nonconsolidated funds and separate accounts, and investments measured at cost adjusted for observable price changes, while the net gains in the prior year period were primarily from investments in nonconsolidated funds and separate accounts, and assets invested for deferred compensation plans. The net gains in the nine months ended June 30, 2024 were primarily from assets invested for deferred compensation plans, partially offset by losses on investments measured at cost adjusted for observable price changes, while the net gains in the prior year were primarily from investments in nonconsolidated funds and separate accounts, and assets invested for deferred compensation plans.

Previous wording

Net foreign currency exchange losses were $1.3 million and $8.7 million for the three and six months ended March 31, 2024. as compared to net losses of $6.5 million and $33.6 million for the three and six months ended March 31, 2023. The U.S. dollar strengthened in the three-month period and weakened less in the six-month period against the Euro and British Pound, which resulted in lower foreign exchange losses on cash and cash equivalents denominated in U.S. dollars held by our European subsidiaries.

Current wording

Net foreign currency exchange gains (losses), net were gains of $1.2 million for the three months ended June 30, 2024 and losses of $7.5 million for the nine months ended June 30, 2024, as compared to net losses of $6.6 million and $40.2 million for the three and nine months ended June 30, 2023. The U.S. dollar strengthened against the Euro and weakened less against the British Pound in the three months ended June 30, 2024, which resulted in net foreign exchange gains on cash and cash equivalents denominated in U.S. dollars held by our European subsidiaries, as compared to losses in the prior year period. The U.S. dollar weakened less in the nine month period against the Euro and British Pound, which resulted in lower foreign exchange losses on cash and cash equivalents denominated in U.S. dollars held by our European subsidiaries.

Previous wording

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

Current wording

Interest expense decreased $9.2 million and $27.1 million for the three and nine months ended June 30, 2024 primarily due to interest expense recognized in the prior year periods on our term loan that was terminated on July 25, 2023 and a decrease in interest recognized on tax reserves.

Previous wording

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

Current wording

Investments held by consolidated investment products (“CIPs”) generated investment gains and other income of $37.6 million and $103.7 million in the three and nine months ended June 30, 2024, largely related to gains on holdings of various funds. Investments held by CIPs generated investment gains and other income of $1.7 million and $75.3 million in the three and nine months ended June 30, 2023, largely related to gains on holdings of various equity and fixed income funds, substantially offset by losses on holdings of various alternative funds.

Previous wording

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

Current wording

Expenses of CIPs increased $8.0 million and $4.9 million for the three and nine months ended June 30, 2024, due to activity of the funds.

Previous wording

2 Total cash and cash equivalents and investments includes $4,435.5 million used for operational activities, including investments in sponsored funds and other products, and $324.5 million necessary to comply with regulatory requirements.

Current wording

2 Total cash and cash equivalents and investments includes $4,188.8 million maintained for operational activities, including investments in sponsored funds and other products, and $458.7 million necessary to comply with regulatory requirements.

Previous wording

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

Current wording

3 Total cash and cash equivalents and investments includes approximately $370 million attributable to employee-owned and other third-party investments made through partnerships which are offset in nonredeemable noncontrolling interests, $286.1 million of investments that are subject to long-term repurchase agreements and other net financing arrangements, and $440.3 million of cash and investments related to deferred compensation plans.

Previous wording

Our effective income tax rate was 26.4% and 24.2% for the three and six months ended March 31, 2024, as compared to 25.4% and 25.8% for the three and six months ended March 31, 2023. The rate increase for the three-month period was primarily due to tax audit settlements and state tax provision to return adjustments. The rate decrease for the six-month period was primarily due to tax benefits from stock-based compensation and the release of tax reserves due to statute of limitation expiration.

Current wording

Our effective income tax rate was 22.7% and 23.7% for the three and nine months ended June 30, 2024, as compared to 25.4% and 25.7% for the three and nine months ended June 30, 2023. The rate decrease for the three month period was primarily due to state tax provision to return adjustments in the prior year period and activity of CIPs for which there is no related tax impact, partially offset by benefits in the prior year from the release of valuation allowances for capital losses. The rate decrease for the nine month period was primarily due to state tax provision to return adjustments and tax benefits from stock-based compensation.

Previous wording

Net cash used in operating activities decreased during the six months ended March 31, 2024 primarily due to lower net purchases of investments by CIPs and decreases in receivables, partially offset by lower income taxes payable, decreases in accounts payable and accrued expenses as compared to increases in the prior year, and lower net income adjusted for non-cash items. Net cash used in investing activities decreased primarily due to lower net purchases of investments by collateralized loan obligations (“CLOs”), lower cash paid for acquisitions in the current year as compared to the prior year, net consolidations of CIPs as compared to net deconsolidations of CIPs in the prior year period and net liquidations of investments as compared to purchases in the prior year. Net cash provided by financing activities decreased primarily due to lower net proceeds on debt of CIPs, lower net subscriptions in CIPs by noncontrolling interests, and proceeds from repurchase agreements in the prior year.

Current wording

Net cash provided by operating activities increased during the nine months ended June 30, 2024 primarily due to lower net purchases of investments by CIPs, partially offset by decreases in accounts payable and accrued expenses and income taxes payable. Net cash used in investing activities decreased primarily due to lower net purchases of investments by collateralized loan obligations (“CLOs”), lower cash paid for acquisitions in the current year as compared to the prior year and net liquidations of investments as compared to purchases in the prior year. Net cash provided by financing activities decreased primarily due to lower net proceeds on debt of CIPs, lower net subscriptions in CIPs by noncontrolling interests, and proceeds from repurchase agreements in the prior year.

Previous wording

In prior fiscal years, we issued senior unsecured unsubordinated notes for general corporate purposes and to redeem outstanding notes. At March 31, 2024, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,600.0 million. The notes have fixed interest rates from 1.600% to 2.950% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized discounts and debt issuance costs, of $1,586.0 million. At March 31, 2024, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,250.0 million. The notes have fixed interest rates from 3.950% to 5.625% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized premium, of $1,455.0 million at March 31, 2024. Franklin unconditionally and irrevocably guarantees all of the outstanding notes issued by Legg Mason. We intend to repay the $250 million 3.950% senior notes due July 2024 from existing cash or other sources of liquidity.

Current wording

In prior fiscal years, we issued senior unsecured unsubordinated notes for general corporate purposes and to redeem outstanding notes. At June 30, 2024, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,600.0 million. The notes have fixed interest rates from 1.600% to 2.950% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized discounts and debt issuance costs, of $1,586.5 million. At June 30, 2024, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,250.0 million. The notes have fixed interest rates from 3.950% to 5.625% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized premium, of $1,448.5 million at June 30, 2024. Franklin unconditionally and irrevocably guarantees all of the outstanding notes issued by Legg Mason. On July 15, 2024, we repaid all of the outstanding $250.0 million 3.950% senior notes due July 2024 issued by Legg Mason at the principal amount plus accrued and unpaid interest of $4.9 million.