Item 1. Financial Statements.

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Item 1. Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF INCOME

Unaudited


	Three Months Ended December 31,
(in millions, except per share data)		2022		2021
Operating Revenues
Investment management fees		$	1,631.8	$	1,760.5
Sales and distribution fees		291.9		398.2
Shareholder servicing fees		33.4		47.7
Other		10.0		17.6
Total operating revenues		1,967.1		2,224.0
Operating Expenses
Compensation and benefits		979.2		802.6
Sales, distribution and marketing		388.6		510.1
Information systems and technology		121.4		123.8
Occupancy		54.5		56.3
Amortization of intangible assets		83.2		58.3
General, administrative and other		146.2		115.2
Total operating expenses		1,773.1		1,666.3
Operating Income		194.0		557.7
Other Income (Expenses)
Investment and other income, net		91.1		57.0
Interest expense		(30.9)		(19.3)
Investment and other income (losses) of consolidated investment products, net		(13.6)		104.7
Expenses of consolidated investment products		(11.5)		(4.2)
Other income, net		35.1		138.2
Income before taxes		229.1		695.9
Taxes on income		60.3		151.1
Net income		168.8		544.8
Less: net income (loss) attributable to
Redeemable noncontrolling interests		(1.5)		7.5
Nonredeemable noncontrolling interests		4.7		84.1
Net Income Attributable to Franklin Resources, Inc.		$	165.6	$	453.2

Earnings per Share
Basic		$	0.32	$	0.89
Diluted		0.32		0.88

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Unaudited


(in millions)	Three Months Ended December 31,
		2022			2021
Net Income			$	168.8		$	544.8
Other Comprehensive Income (Loss)
Currency translation adjustments, net of tax			127.3			(6.9)
Net unrealized losses on defined benefit plans, net of tax			(2.6)			(5.1)
Total other comprehensive income (loss)			124.7			(12.0)
Total comprehensive income			293.5			532.8
Less: comprehensive income (loss) attributable to
Redeemable noncontrolling interests			(1.5)			7.5
Nonredeemable noncontrolling interests			4.7			84.1
Comprehensive Income Attributable to Franklin Resources, Inc.			$	290.3		$	441.2

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED BALANCE SHEETS

Unaudited


(in millions, except share and per share data)	December 31, 2022		September 30, 2022
Assets
Cash and cash equivalents	$	3,547.8	$	4,134.9
Receivables	1,291.8		1,264.8
Investments (including $969.6 and $613.5 at fair value at December 31, 2022 and September 30, 2022)	2,045.8		1,651.3
Assets of consolidated investment products
Cash and cash equivalents	954.4		647.6
Investments, at fair value	8,735.6		7,898.1
Property and equipment, net	759.9		743.3
Goodwill	5,942.8		5,778.6
Intangible assets, net	5,154.7		5,082.1
Operating lease right-of-use assets	475.7		464.5
Other	426.6		395.4
Total Assets	$	29,335.1	$	28,060.6

Liabilities
Compensation and benefits	$	1,057.7	$	1,464.4
Accounts payable and accrued expenses	604.9		466.2

Income taxes	665.6		523.1
Debt	3,370.5		3,376.4
Liabilities of consolidated investment products
Accounts payable and accrued expenses	594.3		646.9
Debt	6,164.5		5,457.7
Deferred tax liabilities	258.2		347.8
Operating lease liabilities	539.0		528.4
Other	1,545.7		1,425.0
Total liabilities	14,800.4		14,235.9
Commitments and Contingencies (Note 10)
Redeemable Noncontrolling Interests	1,979.2		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; 500,265,643 and 499,575,175 shares issued and outstanding at December 31, 2022 and September 30, 2022	50.0		50.0
Retained earnings	12,112.6		12,045.6
Accumulated other comprehensive loss	(496.3)		(621.0)
Total Franklin Resources, Inc. stockholders’ equity	11,666.3		11,474.6
Nonredeemable noncontrolling interests	889.2		824.3
Total stockholders’ equity	12,555.5		12,298.9
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	29,335.1	$	28,060.6

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Unaudited


		Franklin Resources, Inc.																Non- redeemable Non- controlling Interests		Total Stockholders’ Equity
	Common Stock					Capital in Excess of Par Value			Retained Earnings			Accum- ulated Other Compre- hensive Loss			Stockholders’ Equity
(in millions)
for the three months ended December 31, 2022	Shares		Amount
Balance at October 1, 2022		499.6		$	50.0		$	—		$	12,045.6		$	(621.0)		$	11,474.6	$	824.3	$	12,298.9
Net income										165.6						165.6		4.7		170.3
Other comprehensive income													124.7			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 stock		1.2		0.1			33.5									33.6				33.6
Stock-based compensation							35.6									35.6				35.6
Net subscriptions and other																		95.9		95.9
Net deconsolidation of investment products																		(35.7)		(35.7)
Balance at December 31, 2022		500.3		$	50.0		$	—		$	12,112.6		$	(496.3)		$	11,666.3	$	889.2	$	12,555.5


		Franklin Resources, Inc.																Non- redeemable Non- controlling Interests		Total Stockholders’ Equity
	Common Stock					Capital in Excess of Par Value			Retained Earnings			Accum- ulated Other Compre- hensive Loss			Stockholders’ Equity
(in millions)
for the three months ended December 31, 2021	Shares		Amount
Balance at October 1, 2021		501.8		$	50.2		$	—		$	11,550.8		$	(377.6)		$	11,223.4	$	587.2	$	11,810.6

Net income										453.2						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 stock		1.4		0.1			47.6									47.7				47.7
Stock-based compensation							11.2									11.2				11.2
Net distributions and other																		(27.8)		(27.8)
Balance at December 31, 2021		502.5		$	50.3		$	—		$	11,892.2		$	(389.6)		$	11,552.9	$	643.5	$	12,196.4

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited


	Three Months Ended December 31,
(in millions)	2022		2021

Net Income	$	168.8	$	544.8
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Stock-based compensation	69.5		59.4
Amortization of deferred sales commissions	12.4		18.4
Depreciation and other amortization	25.1		22.4
Amortization of intangible assets	83.2		58.3
Net gains on investments	(45.5)		(25.8)
Income from investments in equity method investees	(33.2)		(24.7)
Net losses (gains) on investments of consolidated investment products	72.3		(88.0)
Net purchase of investments by consolidated investment products	(259.2)		(67.9)
Deferred income taxes	(122.5)		(34.8)
Other	17.8		8.3
Changes in operating assets and liabilities:
Decrease (increase) in receivables and other assets	14.6		(140.6)
Increase in investments, net	(13.6)		(44.6)
Decrease in accrued compensation and benefits	(481.6)		(273.1)
Increase in income taxes payable	158.8		174.5
Increase (decrease) in accounts payable, accrued expenses and other liabilities	59.8		(6.3)
Increase (decrease) in accounts payable and accrued expenses of consolidated investment products	17.0		(13.9)
Net cash (used in) provided by operating activities	(256.3)		166.4
Purchase of investments	(234.4)		(321.7)
Liquidation of investments	217.6		388.8
Purchase of investments by consolidated collateralized loan obligations	(822.5)		(839.2)
Liquidation of investments by consolidated collateralized loan obligations	328.7		435.2
Additions of property and equipment, net	(27.4)		(16.7)
Acquisitions, net of cash acquired	(493.7)		(372.3)
Payments of contingent consideration asset	2.9		3.9
Net deconsolidation of investment products	(13.8)		(6.6)
Net cash used in investing activities	(1,042.6)		(728.6)

[Table continued on next page]

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

[Table continued from previous page]


	Three Months Ended December 31,
(in millions)	2022		2021

Dividends paid on common stock	$	(148.4)	$	(143.1)
Repurchase of common stock	(14.2)		(21.7)



Proceeds from repurchase agreement	174.8		—
Proceeds from debt of consolidated investment products	955.3		1,727.6
Payments on debt of consolidated investment products	(277.9)		(1,228.1)
Payments on contingent consideration liabilities	(2.0)		(4.0)
Noncontrolling interests	271.3		136.6
Net cash provided by financing activities	958.9		467.3
Effect of exchange rate changes on cash and cash equivalents	59.7		(8.0)
Decrease in cash and cash equivalents	(280.3)		(102.9)
Cash and cash equivalents, beginning of period	4,782.5		4,647.2
Cash and Cash Equivalents, End of Period	$	4,502.2	$	4,544.3

Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes	$	13.2	$	17.6
Cash paid for interest	4.3		8.5
Cash paid for interest by consolidated investment products	50.5		37.4

See Notes to Consolidated Financial Statements.

FRANKLIN RESOURCES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2022

(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 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, 2022 (“fiscal year 2022”).

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, for cash consideration of $587.3 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations (“CLOs”); deferred consideration of $60.4 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 at close was funded from existing cash.

The following table summarizes the estimated fair value amounts recognized for the assets acquired and liabilities assumed and resulting goodwill as of the acquisition date:


(in millions)	Estimated Fair Value
as of November 1, 2022
Cash and cash equivalents	$	93.6
Receivables	57.2
Investments	285.3
Goodwill	152.6
Indefinite-lived intangible assets	89.9
Definite-lived intangible assets	55.7
Other assets	9.0
Compensation and benefits and other liabilities	(71.0)
Total Identifiable Net Assets	$	672.3

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; however, deferred tax assets and liabilities could materially change due to the use of preliminary valuation assumptions.

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 $2.3 million for the period ended December 31, 2022. These assets had a weighted-average remaining useful life of 5.1 years at December 31, 2022, with estimated remaining amortization expense as follows:


(in millions)
for the fiscal years ending September 30,	Amount
2023 (remainder of year)		$	10.5
2024		14.0
2025		14.0
2026		3.9
2027		2.9
Thereafter		8.1
Total		$	53.4

Costs incurred in connection with the acquisition were $14.1 million for the three months ended December 31, 2022.

Alcentra contributed $27.7 million of revenue and did not have a material impact to net income attributable to Franklin Resources, Inc. for the period ended December 31, 2022. Consequently, the Company has not presented pro forma combined results of operations for this acquisition.

In connection with the acquisition, the Company on December 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 December 31, 2022, other liabilities includes repurchase agreements of €125.2 million (equivalent to $134.0 million at December 31, 2022) and $40.8 million with maturity values of €132.3 million and $42.4 million. The Company has pledged Alcentra investments with a carrying value of $198.9 million as collateral as of December 31, 2022. The repurchase agreements have contractual maturity dates ranging between 2029 to 2034.

Note 3 – Earnings per Share

The components of basic and diluted earnings per share were as follows:


(in millions, except per share data)	Three Months Ended December 31,
		2022			2021
Net income attributable to Franklin Resources, Inc.			$	165.6		$	453.2
Less: allocation of earnings to participating nonvested stock and stock unit awards			7.7			19.3
Net Income Available to Common Stockholders			$	157.9		$	433.9

Weighted-average shares outstanding – basic			489.6			489.8
Dilutive effect of nonparticipating nonvested stock unit awards			0.6			0.8
Weighted-Average Shares Outstanding – Diluted			490.2			490.6

Earnings per Share
Basic			$	0.32		$	0.89
Diluted			0.32			0.88

Nonparticipating nonvested stock unit awards excluded from the calculation of diluted earnings per share because their effect would have been antidilutive were insignificant for the three months ended December 31, 2022 and 2021.

Note 4 – Revenues

Operating revenues by geographic area were as follows:


(in millions)	United States		Luxembourg		Asia-Pacific		Americas Excluding United States		Europe, Middle East and Africa, Excluding Luxembourg		Total
for the three months ended December 31, 2022
Investment management fees	$	1,274.8	$	181.8	$	67.6	$	51.8	$	55.8	$	1,631.8
Sales and distribution fees	208.2		68.4		5.0		10.3		—		291.9
Shareholder servicing fees	25.3		7.7		0.4		—		—		33.4
Other	9.7		—		0.3		—		—		10.0
Total	$	1,518.0	$	257.9	$	73.3	$	62.1	$	55.8	$	1,967.1


(in millions)	United States		Luxembourg		Asia-Pacific		Americas Excluding United States		Europe, Middle East and Africa, Excluding Luxembourg		Total
for the three months ended December 31, 2021
Investment management fees	$	1,284.0	$	258.4	$	81.8	$	70.3	$	66.0	$	1,760.5
Sales and distribution fees	278.4		98.8		7.6		13.4		—		398.2
Shareholder servicing fees	36.8		10.1		0.4		0.1		0.3		47.7
Other	17.1		0.3		0.2		—		—		17.6
Total	$	1,616.3	$	367.6	$	90.0	$	83.8	$	66.3	$	2,224.0

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% and 81% of the Company’s total operating revenues for the three months ended December 31, 2022 and 2021.

Note 5 – Investments

The disclosures below include details of the Company’s investments, excluding those of consolidated investment 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)	December 31, 2022		September 30, 2022
Investments, at fair value
Sponsored funds and separate accounts	$	708.9	$	413.0
Investments related to long-term incentive plans	213.9		143.3
Other equity and debt investments	46.8		57.2
Total investments, at fair value	969.6		613.5
Investments in equity method investees	830.7		771.5
Other investments	245.5		266.3
Total	$	2,045.8	$	1,651.3

Note 6 – Fair Value Measurements

The disclosures below include details of the Company’s fair value measurements, excluding those of 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 liabilities measured at fair value on a recurring basis were as follows:


(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total
as of December 31, 2022
Assets
Investments, at fair value
Sponsored funds and separate accounts	$	366.8	$	275.7	$	18.7	$	47.7	$	708.9
Investments related to long-term incentive plans	192.2		—		—		21.7		213.9
Other equity and debt investments	3.0		11.3		—		32.5		46.8
Contingent consideration asset	—		—		6.9		—		6.9
Total Assets Measured at Fair Value	$	562.0	$	287.0	$	25.6	$	101.9	$	976.5

Liabilities
Contingent consideration liabilities	$	—	$	—	$	53.8	$	—	$	53.8


(in millions)	Level 1		Level 2		Level 3		NAV 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 plans	143.3		—		—		—		143.3
Other equity and debt investments	3.1		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

Investments for which fair value was estimated using reported NAV as a practical expedient primarily consist of nonredeemable private debt, equity and infrastructure funds, and redeemable global equity and private real estate funds. These investments were as follows:


(in millions)	December 31, 2022		September 30, 2022
Nonredeemable investments1
Investments with known liquidation periods	$	31.7	$	32.8
Investments with unknown liquidation periods	21.9		29.4

Redeemable investments2	48.3		23.8

Unfunded commitments	51.4		51.4

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. Investments with known liquidation periods have an expected weighted-average life of 3.5 years and 3.4 years at December 31, 2022 and September 30, 2022.

2Investments are redeemable on a semi-monthly, monthly and quarterly basis.

Financial instruments that were not measured at fair value were as follows:


(in millions)	Fair Value Level	December 31, 2022				September 30, 2022
	Carrying Value	Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Assets
Cash and cash equivalents	1	$	3,547.8	$	3,547.8	$	4,134.9	$	4,134.9
Other investments
Time deposits	2	10.7		10.7		9.4		9.4
Equity securities	3	234.8		234.8		256.9		256.9

Financial Liability
Debt	2	$	3,370.5	$	2,792.4	$	3,376.4	$	2,750.1

Note 7 – Consolidated Investment Products

CIPs consist of mutual and other investment funds, limited partnerships and similar structures and CLOs, all of which are sponsored by the Company, and include both voting interest entities and variable interest entities (“VIEs”). The Company had 62 CIPs, including 16 CLOs, as of December 31, 2022 and 59 CIPs, including 15 CLOs, as of September 30, 2022.

The balances related to CIPs included in the Company’s consolidated balance sheets were as follows:


(in millions)	December 31, 2022		September 30, 2022
Assets
Cash and cash equivalents	$	954.4	$	647.6
Receivables	91.6		134.0
Investments, at fair value	8,735.6		7,898.1
Total Assets	$	9,781.6	$	8,679.7

Liabilities
Accounts payable and accrued expenses	$	594.3	$	646.9
Debt	6,164.5		5,457.7
Other liabilities	21.1		175.0
Total liabilities	6,779.9		6,279.6
Redeemable Noncontrolling Interests	1,379.7		942.2
Stockholders’ Equity
Franklin Resources, Inc.’s interests	1,052.5		960.8
Nonredeemable noncontrolling interests	569.5		497.1
Total stockholders’ equity	1,622.0		1,457.9
Total Liabilities, Redeemable Noncontrolling Interests and Stockholders’ Equity	$	9,781.6	$	8,679.7

The CIPs did not have a significant impact on net income attributable to the Company during the three months ended December 31, 2022 and 2021.

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.

Fair Value Measurements

Assets of CIPs measured at fair value on a recurring basis were as follows:


(in millions)	Level 1		Level 2		Level 3		NAV as a Practical Expedient		Total
as of December 31, 2022
Assets
Cash and cash equivalents of CLOs	$	494.3	$	—	$	—	$	—	$	494.3
Receivables of CLOs	—		18.8		—		—		18.8
Investments
Equity and debt securities	360.7		1,068.3		555.8		147.6		2,132.4
Loans	—		6,180.5		64.7		—		6,245.2
Real estate	—		—		358.0		—		358.0
Total Assets Measured at Fair Value	$	855.0	$	7,267.6	$	978.5	$	147.6	$	9,248.7


(in millions)	Level 1		Level 2		Level 3		NAV 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 securities	75.4		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 NAV as a practical expedient consist of a redeemable global hedge fund, a redeemable U.S. equity fund and nonredeemable private equity funds. These investments were as follows:


(in millions)	December 31, 2022		September 30, 2022
Nonredeemable investments1
Investments with known liquidation periods	$	3.1	$	19.5
Investments with unknown liquidation periods	20.0		12.0

Redeemable investments2	124.5		142.0

Unfunded commitments3	0.2		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. Investments with known liquidation periods have an expected weighted-average life of 0.3 years at December 31, 2022 and September 30, 2022.

2Investments are redeemable on a monthly basis and liquidation periods are unknown.

3Of the total unfunded commitments, the Company was contractually obligated to fund $0.1 million based on its ownership percentage in the CIPs, at December 31, 2022 and September 30, 2022.

Changes in Level 3 assets were as follows:


(in millions)	Equity and Debt Securities		Real Estate		Loans		Total Level 3 Assets
for the three months ended December 31, 2022
Balance at October 1, 2022	$	555.8	$	268.6	$	239.4	$	1,063.8
Realized and unrealized gains (losses) included in investment and other income (losses) of consolidated investment products, net	(6.3)		3.7		0.1		(2.5)
Purchases	9.0		85.7		27.5		122.2
Sales and settlements	(5.6)		—		(0.2)		(5.8)
Deconsolidations	2.9		—		(202.1)		(199.2)
Balance at December 31, 2022	$	555.8	$	358.0	$	64.7	$	978.5
Change in unrealized gains included in net income relating to assets held at December 31, 2022	$	2.0	$	3.7	$	0.1	$	5.8


(in millions)	Equity and Debt Securities		Real Estate		Loans		Total Level 3 Assets
for the three months ended December 31, 2021
Balance at October 1, 2021	$	453.3	$	89.4	$	20.5	$	563.2
Realized and unrealized gains included in investment and other income (losses) of consolidated investment products, net	92.3		8.6		0.3		101.2
Purchases	18.2		0.9		14.0		33.1
Sales and settlements	(23.9)		—		(0.6)		(24.5)

Transfers into Level 3	0.1		—		—		0.1
Transfers out of Level 3	(1.0)		—		—		(1.0)

Balance at December 31, 2021	$	539.0	$	98.9	$	34.2	$	672.1
Change in unrealized gains included in net income relating to assets held at December 31, 2021	$	92.5	$	8.6	$	0.3	$	101.4

Valuation techniques and significant unobservable inputs used in Level 3 fair value measurements were as follows:


(in millions)
as of December 31, 2022		Fair Value			Valuation Technique		Significant Unobservable Inputs		Range (Weighted Average1)
Equity and debt securities		$	555.8		Market pricing		Private sale pricing		$0.01–$1,000.00 ($39.93) per share
		Discount for lack of liquidity			23.5%–25.1% (24.9%)

Real estate	358.0			Discounted cash flow		Discount rate		5.5%–6.8% (6.2%)
		Exit capitalization rate			4.5%–6.3% (5.2%)

Loans	64.7			Yield capitalization		Credit Spread		6.0%–7.3% (6.5%)
		Loan to value ratio			64.6%–77.2% (70.2%)


(in millions)
as of September 30, 2022		Fair Value			Valuation Technique		Significant Unobservable Inputs		Range (Weighted Average1)
Equity and debt securities		$	555.8		Market pricing		Private sale pricing		$0.01-$558.45 ($33.31) per share
				Discount for lack of liquidity		23.5%–25.1% (24.9%)








Real estate		268.6			Discounted cash flow		Discount rate		4.5%–6.3% (5.1%)
	Exit capitalization rate			5.5%–6.8% (6.0%)

Loans		147.2			Market pricing		Price		$0.97–$0.98 ($0.98)
	60.4			Discounted cash flow		Discount rate		9.9%
	31.9			Yield capitalization		Credit spread		6.3%
				Loan-to-value ratio		79.1%–88.1% (83.1%)

1Based on the relative fair value of the instruments.

If the relevant significant inputs used in the market-based valuations, other than discount for lack of marketability, were independently higher (lower) as of December 31, 2022, the resulting fair value of the assets would be higher (lower). If the relevant significant inputs used in the discounted cash flow valuations, as well as the discount for lack of marketability used in the market-based valuations, were independently higher (lower) as of December 31, 2022, the resulting fair value of the assets would be lower (higher).

Financial instruments of CIPs that were not measured at fair value were as follows:


(in millions)	Fair Value Level	December 31, 2022				September 30, 2022
	Carrying Value	Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Asset
Cash and cash equivalents	1	$	460.1	$	460.1	$	378.5	$	378.5

Financial Liabilities
Debt of CLOs1	2 or 3	$	6,102.3	$	6,208.1	$	5,408.0	$	5,548.8
Other debt	3	62.2		52.3		49.7		42.4

1Substantially all was Level 2.

Debt

Debt of CIPs consisted of the following:


	December 31, 2022			September 30, 2022
(in millions)	Amount		Weighted- Average Effective Interest Rate	Amount		Weighted- Average Effective Interest Rate
Debt of CLOs	$	6,102.3	4.42%	$	5,408.0	2.78%
Other debt	62.2		5.18%	49.7		5.19%
Total	$	6,164.5		$	5,457.7

The debt of CIPs had fixed and floating interest rates ranging from 2.17% to 13.73% at December 31, 2022, and from 1.42% to 8.51% at September 30, 2022. The floating rates were based on Bloomberg Short-Term Bank Yield Index.

The contractual maturities for the debt of CIPs at December 31, 2022 were as follows:


(in millions)
for the fiscal years ending September 30,	Amount
2023 (remainder of year)		$	7.2
2024		42.0
2025		—
2026		—
2027		—
Thereafter		6,115.3
Total		$	6,164.5

Collateralized Loan Obligations

The unpaid principal balance and fair value of the investments of CLOs were as follows:


(in millions)	December 31, 2022		September 30, 2022
Unpaid principal balance	$	6,613.4	$	6,118.4
Difference between unpaid principal balance and fair value	(354.1)		(356.1)
Fair Value	$	6,259.3	$	5,762.3

Investments 90 days or more past due were immaterial at December 31, 2022 and September 30, 2022.

The Company recognized $2.3 million of net losses and $5.3 million of net gains during the three months ended December 31, 2022 and 2021, related to its own economic interests in the CLOs. The aggregate principal amount due of the debt of CLOs was $6,466.2 million and $5,781.3 million at December 31, 2022 and September 30, 2022.

Note 8 – Redeemable Noncontrolling Interests

Changes in redeemable noncontrolling interests were as follows:


(in millions)		2022									2021
	CIPs			Minority Interests			Total			CIPs			Minority Interests			Total
for the three months ended December 31,
Balance at beginning of period		$	942.2		$	583.6		$	1,525.8		$	622.5		$	310.5		$	933.0
Net income (loss)		(12.2)			10.7			(1.5)			(4.8)			12.3			7.5
Net subscriptions (distributions) and other		178.4			5.2			183.6			166.3			(1.9)			164.4
Net consolidations (deconsolidations)		271.3			—			271.3			(121.5)			—			(121.5)

Balance at End of Period		$	1,379.7		$	599.5		$	1,979.2		$	662.5		$	320.9		$	983.4

Note 9 – Nonconsolidated Variable Interest Entities

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 as follows:


(in millions)	December 31, 2022		September 30, 2022
Investments	$	1,029.5	$	718.0
Receivables	193.0		165.4
Total	$	1,222.5	$	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. As 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 three months ended December 31, 2022 or fiscal year 2022.

Note 10 – Commitments and Contingencies

Legal Proceedings

India Credit Fund Closure Matters. During the three months ended December 31, 2022, there were no significant changes from the disclosure in the Form 10‑K for the fiscal year ended September 30, 2022. As of December 31, 2022, the amount reported as distributed to fund unitholders in the aggregate is INR 26,843.0 crore (approximately $3.2 billion).

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 December 31, 2022 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 December 31, 2022.

Other Commitments and Contingencies

At December 31, 2022, 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 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 three months ended December 31, 2022
Nonvested balance at October 1, 2022	13,492	3,401	16,893	$	24.04
Granted	6,848	191	7,039	22.51
Vested	(1,277)	(138)	(1,415)	23.85
Forfeited/canceled	(219)	(30)	(249)	26.79
Nonvested Balance at December 31, 2022	18,844	3,424	22,268	$	23.54

Total unrecognized compensation expense related to nonvested stock and stock unit awards was $330.8 million at December 31, 2022. This expense is expected to be recognized over a remaining weighted-average vesting period of 2.0 years.

Note 12 – Investment and Other Income, Net

Investment and other income, net consisted of the following:


	Three Months Ended December 31,
(in millions)		2022		2021
Dividend and interest income		$	36.5	$	6.1
Gains on investments, net		45.5		25.8
Income from investments in equity method investees		33.2		24.7
Rental income		10.6		9.7
Foreign currency exchange (losses) gains, net		(27.1)		3.9
Other, net		(7.6)		(13.2)
Investment and other income, net		$	91.1	$	57.0

Net losses recognized on equity securities measured at fair value and trading debt securities that were held by the Company were $68.3 million for the three months ended December 31, 2022, and $4.4 million for the three months ended December 31, 2021.

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