What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-29 · 209 added, 304 removed, 454 unchanged (53% of the section changed)

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Rowe Price products.

Rowe Price products include:

open-ended investment products offered to investors outside the U.S., and products offered through variable annuity life insurance plans in the U.S.

Rowe Price products include open-ended investment products offered to investors outside the U.S., and products offered through variable annuity life insurance plans in the U.S.

We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services;

participant recordkeeping and transfer agent services for defined contribution retirement plans;

and trust services.

trust services;

and non-discretionary advisory services through model delivery.

We manage a broad range of U.S., international and global stock, bond, and money market mutual funds and collective investment trusts and other investment products, which meet the varied needs and objectives of individual and institutional investors.

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Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations.

Additionally, approximately one-third of our operating expenses are impacted by fluctuations in our assets under management.

Additionally, approximately 30% of our operating expenses are impacted by fluctuations in our assets under management.

We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients.

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In this regard, we remain debt-free with ample liquidity and resources that allow us to take advantage of attractive growth opportunities.

We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings;

and, most importantly, we provide our clients with strong investment management expertise and service both now and in the future.

We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings in order to provide our clients with strong investment management expertise and service.

MARKET TRENDS.

Led by large-cap growth stocks, U.S.

equities generated strong returns in the third quarter.

Stocks rose for much of the summer, helped by better-than-expected second-quarter corporate earnings reports amid very low earnings expectations, as well as largely positive news flow about potential vaccines and treatments for the coronavirus.

In fact, the S&P 500 Index hit an all-time high during the quarter, surpassing its previous peak in February 2020.

Stocks retreated a bit in September amid concerns about valuations in some sectors due to significant gains since late March.

Some investors were also concerned about the durability of the economic recovery and disappointed that Congress failed to agree on new fiscal stimulus legislation.

equities generated strong returns in the first quarter of 2021, a continuation of a remarkably robust stock market given the pandemic and related economic dislocations.

Most major U.S.

equity indexes hit all-time highs during the quarter, although the market was led by shares of smaller companies as well as value stocks and cyclical businesses that are closely tied to the health of the economy.

Technology and other growth stocks trailed.

In general, equities were lifted by the accelerating rollout of coronavirus vaccines, favorable economic data and corporate earnings reports, and expectations for new federal fiscal stimulus measures.

Although Congress passed a $1.9 trillion coronavirus relief bill in March and the Biden administration prepared to pursue a significant increase in infrastructure spending, some investors were concerned about a sharp increase in longer-term U.S.

Treasury yields during the quarter and possibly higher inflation later in 2021.

Stocks in developed non-U.S.

equity markets also advanced in U.S.

equity markets advanced but underperformed U.S.

a stronger U.S.

dollar versus several key currencies weighed on local returns in U.S.

dollar terms.

European stock markets were mostly positive, led by Denmark, Ireland, and Sweden—in all three countries, equities returned about 15%.

Developed Asian and Far East markets were mixed, but Japanese shares led the way, returning more than 7%.

Emerging markets stocks outperformed developed non-U.S.

equity markets.

Asian emerging markets were mostly positive;

Taiwanese shares led the region with a 17% gain.

Latin American shares were mixed, as Argentine shares rose about 7% while Chilean shares fell 4%.

Most emerging European markets declined.

Turkey experienced one of the steepest drops, with stocks falling more than 15% in U.S.

dollar terms amid an 11% decline in the lira versus the U.S.

Returns of several major equity market indexes for the three- and nine-month periods ended September 30, 2020, were as follows:

Three months ended Nine months ended

European stock markets were mostly positive despite the reinstatement of lockdown measures in some countries.

Most developed Asian and Far East markets posted gains;

Japanese shares rose less than 2%.

Emerging markets stocks also advanced but underperformed developed markets, hurt in part by rising U.S.

Treasury yields and a stronger U.S.

dollar against many currencies.

Latin American markets were mostly negative in dollar terms.

Asian market returns varied widely.

In emerging Europe, Turkish shares and the lira tumbled as the Turkish president unexpectedly replaced the head of the central bank shortly after an interest rate increase in March.

Returns of several major equity market indexes were as follows:

Three months ended

Index 3/31/2021

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(1) Returns exclude dividends

Global bonds produced mostly positive returns.

investment-grade market, corporate bonds were among the best performers, as credit spreads remained relatively narrow and, in some cases, tightened amid healthy demand for securities with a yield advantage.

Treasuries and mortgage-backed securities lagged with close to flat returns.

The Federal Reserve kept short-term interest rates near 0%;

the 10-year U.S.

Global bond returns were mostly negative in U.S.

dollar terms.

In the U.S., high yield securities benefited from favorable corporate earnings and expectations of a stronger economy to post gains.

Higher-quality securities with greater interest rate sensitivity were hurt by a sharp increase in intermediate- and long-term U.S.

Treasury yields.

The Federal Reserve kept short-term interest rates near 0%, but the 10-year U.S.

Treasury note yield increased from 0.93% to 1.74%.

Tax-free municipal bonds produced positive returns and outperformed the broad taxable bond market.

High yield corporate bonds easily outperformed the investment-grade market.

Longer-term corporate and U.S.

Treasury bonds were among the worst performers.

Mortgage- and asset-backed securities fell to a lesser extent.

Tax-free municipal bonds held up relatively well, helped by the prospect of more federal aid to shore up state and local finances.

Bonds in developed non-U.S.

markets produced strong gains in U.S.

dollar terms.

Dollar weakness against the euro, the pound, and the yen boosted European and Japanese bond returns in dollar terms.

Emerging markets bonds generally rose, but weakness in certain currencies weighed on the performance of some local bond markets in U.S.

dollar terms.

Returns for several major bond market indexes for the three- and nine-month periods ended September 30, 2020, were as follows:

Three months ended Nine months ended

markets declined in U.S.

dollar terms, hurt by rising longer-term interest rates in local markets and weaker currencies versus the U.S.

The British pound, however, appreciated about 1% versus the dollar.

Emerging markets bonds also produced negative returns as longer-term interest rates generally increased and a few countries also raised short-term rates.

Local currency issues underperformed bonds denominated in dollars as many currencies, especially the Turkish lira and the Brazilian real, weakened versus the dollar.

Returns for several major bond market indexes were as follows:

Three months ended

Index 3/31/2021

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ASSETS UNDER MANAGEMENT.

Assets under management ended the third quarter of 2020 at $1,310.4 billion, an increase of $90.4 billion from June 30, 2020.

This increase was driven by market appreciation, partially offset by net cash outflows of $5.3 billion.

In addition, we acquired client contracts from PNC Bank in September 2020 that added $1.2 billion of stable value assets under management.

Clients transferred $2.4 billion in net assets from the U.S.

mutual funds to collective investment trusts and other investment products, of which $1.6 billion transferred into the retirement date trusts.

Market appreciation and income, net of dividends not reinvested, increased our assets under management by $94.5 billion in the third quarter of 2020.

For the nine months ended September 30, 2020,assets under management increased $103.6 billion from the end of 2019.

This increase was driven by market appreciation, partially offset by net cash inflows of $3.4 billion.

In addition, we acquired client contracts from PNC Bank in September 2020 that added $1.2 billion of stable value assets under management.

Assets under management ended the first quarter of 2021 at $1,518.0 billion, an increase of $47.5 billion from December 31, 2020.

This increase was driven by market appreciation, net of distributions not reinvested, of $46.3 billion and net cash inflows of $1.2 billion.

Clients transferred $5.6 billion in net assets from the U.S.

mutual funds to collective investment trusts and other investment products, of which $4.9 billion transferred into the retirement date trusts.

Market appreciation and income, net of dividends not reinvested, increased our assets under management by $99.0 billion in the nine months ended September 30, 2020.

The following tables detail changes in our assets under management, by vehicle and asset class during the three- and nine-month periods ended September 30, 2020:

Three months ended 9/30/2020 Nine months ended 9/30/2020

The following tables detail changes in our assets under management, by vehicle and asset class, during the first quarter of 2021:

Three months ended 3/31/2021

(in billions) U.S.

mutual funds Subadvised funds and separate accounts Collective investment trusts and other investment products Total U.S.

mutual funds Subadvised funds and separate accounts Collective investment trusts and other investment products Total

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Client transfers (5.6) — 5.6 —

(2.4) — 2.4 — (11.2) 1.5 9.7 —

Net cash flows after client transfers (3.6) (8.2) 13.0 1.2

Net market appreciation and income 51.8 26.9 15.9 94.6 53.1 32.0 14.3 99.4

Net market appreciation and gains 25.5 11.9 9.0 46.4

Net distributions not reinvested (.1) — — (.1)

Acquired AUM — — 1.2 1.2 — — 1.2 1.2

Change during the period 21.8 3.7 22.0 47.5

Assets under management at September 30, 2020 $ 716.2 $ 354.3 $ 239.9 $ 1,310.4 $ 716.2 $ 354.3 $ 239.9 $ 1,310.4

Three months ended 9/30/2020 Nine months ended 9/30/2020

Assets under management at March 31, 2021 $ 816.4 $ 403.8 $ 297.8 $ 1,518.0

Three months ended 3/31/2021

(in billions) Equity Fixed income, including money market Multi-asset (1)

Total Equity Fixed income, including money market Multi-asset (2)

Assets under management at beginning of period $ 895.8 $ 168.7 $ 406.0 $ 1,470.5

Net cash flows (8.9) 5.4 4.7 1.2

Net market appreciation and income (3)

Net market appreciation and gains (2)

30.3 (1.3) 17.3 46.3

Acquired AUM — 1.2 — 1.2 — 1.2 — 1.2

Change during the period 21.4 4.1 22.0 47.5

Assets under management at September 30, 2020 $ 785.8 $ 161.1 $ 363.5 $ 1,310.4 $ 785.8 $ 161.1 $ 363.5 $ 1,310.4

(1) Client transfers for subadvised funds and separate accounts as well as collective investment trusts and other investment products in the nine months ended September 30, 2020 have been updated to reflect an adjustment from the second quarter of 2020.

Assets under management at March 31, 2021 $ 917.2 $ 172.8 $ 428.0 $ 1,518.0

(1) The underlying assets under management of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns.

(2) Includes distributions reinvested and not reinvested.

Investment advisory clients outside the U.S.

account for about 8.7% of our assets under management at September 30, 2020 and 6.9% at December 31, 2019.

Investment advisory clients outside the United States account for about 8.8% of our assets under management at March 31, 2021 and 9.3% at December 31, 2020.

Our target date retirement products, which are included in the multi-asset totals shown above, continue to be a significant part of our assets under management.

Assets under management in these portfolios were as follows:

Assets under management in these portfolios, as well as net cash inflows (outflows), by vehicle, were as follows:

Assets under management Net cash inflows (outflows) for three months ended

(in billions) 3/31/2021 12/31/2020 3/31/2021 3/31/2020

Target date retirement U.S.

mutual funds $ 179.9 $ 176.1 $ (3.8) $ (5.0)

Target date separate accounts 9.2 8.5 8.4

Target date retirement trusts 127.8 122.7 119.2

Collective investment trusts 160.3 145.4 8.1 5.6

Separately managed accounts 11.4 10.7 .2 .1

$ 351.6 $ 332.2 $ 4.5 $ .7

Our target date retirement products experienced net cash outflows of $5.5 billion in the third quarter of 2020 and net cash outflows of $5.0 billion in the first nine months of 2020.

We provide participant accounting and plan administration for defined contribution retirement plans that invest in the firm's U.S.

mutual funds, collective investment trusts and funds outside of the firm's complex.

As of March 31, 2021, our assets under administration were $248 billion, of which nearly $153 billion are assets we manage.

In recent years, we began offering non-discretionary advisory services through model delivery, which are managed accounts where portfolio holdings and trades in the portfolio are provided to sponsor platforms to implement for their clients.

We record the revenue earned on these services in administrative fees.

The assets under advisement in these portfolios, predominantly in the United States, is $3 billion at March 31, 2021.

INVESTMENT PERFORMANCE.

S trong investment performance is a key driver to attracting and retaining assets—and to our long-term success.

We have expanded our performance disclosures to include specific asset classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against benchmarks.

The following table presents investment performance for the one-, three-, five-, and 10-years ended September 30, 2020.

S trong investment performance and brand awareness is a key driver to attracting and retaining assets—and to our long-term success.

Our performance disclosures include specific asset classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against benchmarks.

The following table presents investment performance for the one-, three-, five-, and 10-years ended March 31, 2021.

Past performance is no guarantee of future results.

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All Composites 57% 64% 73% 79%

As of September 30, 2020, 74 of 124 (60%) of our rated U.S.

As of March 31, 2021, 80 of 123 (65.0%) of the firm's rated U.S.

mutual funds (across primary share classes) received an overall rating of 4 or 5 stars.

By comparison, 32.5% of Morningstar's fund population is given a rate of four or five stars (5) .

In addition, 85% (5) of AUM in our rated U.S.

mutual funds (across primary share classes) ended the third quarter of 2020 with an overall rating of four or five stars.

By comparison, 32.5% of Morningstar's fund population is given a rate of 4 or 5 stars (5) .

In addition, 88% (5) of AUM in the firm's rated U.S.

mutual funds (across primary share classes) ended March 31, 2021 with an overall rating of 4 or 5 stars.

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RESULTS OF OPERATIONS.

The following table and discussion sets forth information regarding our consolidated financial results for the three and nine months ended September 30, 2020 and 2019 on a U.S.

The following table and discussion sets forth information regarding our consolidated financial results for the three months ended March 31, 2021 and 2020 on a U.S.

GAAP basis as well as a non-GAAP basis.

The non-GAAP basis adjusts for the impact of our consolidated T.

Rowe Price investment products, the impact of market appreciation/depreciation on the supplemental savings plan liability and related economic hedges, investment gains/losses related to certain other investments, and certain nonrecurring charges and gains.

Rowe Price investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, and certain nonrecurring charges and gains, if any.

Three months ended Q1 2021 vs.

Q3 2019 Nine months ended YTD 2020 vs.

(in millions, except per-share data) 9/30/2020 9/30/2019 $ change % change 9/30/2020 9/30/2019 $ change % change

(in millions, except per-share data) 3/31/2021 3/31/2020 $ change % change

Investment advisory fees

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$ 893.2 $ 707.2 $ 186.0 26.3 %

Non-operating income (1)

$ 191.6 $ 43.0 $ 148.6 n/m $ 106.4 $ 370.3 $ (263.9) n/m

Non-operating income (loss) (1)

$ 102.1 $ (500.3) $ 602.4 n/m

Net income attributable to T.

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Net operating income $ 918.9 $ 647.2 $ 271.7 42.0 %

Non-operating income (1)

$ 25.6 $ 18.8 $ 6.8 n/m $ 50.2 $ 98.8 $ (48.6) n/m

Non-operating income (loss) (1)

$ 13.7 $ (61.2) $ 74.9 n/m

Net income attributable to T.

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GAAP measures at the end of the Results of Operations section of this Management’s Discussion and Analysis.

Results Overview - Quarter ended September 30, 2020

Results Overview - Quarter ended March 31, 2021

Investment advisory revenues.

Investment advisory fees are earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows.

As our average assets under management increase or decrease in a given period, the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner.

As our average assets under management increase or decrease in a given period, the level of our investment advisory fee

revenue for that same period generally fluctuates in a similar manner.

Our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes, price changes in existing products, and asset level changes in products with tiered-fee structures.

Investment advisory revenues earned in the third quarter of 2020 increased over the comparable 2019 quarter as average assets under our management increased $162.7 billion, or 14.4%, to $1,292.9 billion.

In the third quarter of 2020, we voluntarily waived $6.4 million, or less than 1% of our investment advisory fees from certain of our money market mutual funds, trusts and other investment portfolios in order to maintain a positive yield for investors.

At September 30, 2020, combined net assets of the investment portfolios in which we waived fees in the third quarter of 2020 were $23.2 billion.

We expect to continue to waive fees for at least the remainder of 2020.

The average annualized effective fee rate earned during the third quarter of 2020 was 45.2 basis points, compared with 45.8 basis points earned during the third quarter of 2019.

Our annualized effective fee rate declined primarily due to client transfers within the complex to lower fee vehicles or share classes over the last twelve months and the money market fee waivers.

Operating expenses.

Operating expenses were $866.9 million in the third quarter of 2020 compared with $767.6 million in the third quarter of 2019.

The increase in operating expenses for the third quarter of 2020 compared to the third quarter of 2019 was primarily due to a $33.3 million increase in operating expenses related to the supplemental savings plan from higher market returns, higher salaries and annual bonus accrual, and the firm’s

continued strategic investments.

For the third quarter of 2020, the higher expense related to the supplemental savings plan was largely offset by the non-operating gains earned on the investments used to economically hedge the related liability.

On a non-GAAP basis, our operating expenses in the third quarter of 2020 increased 8.5% to $830.5 million compared to the third quarter of 2019.

Our non-GAAP operating expenses do not include the impact of our supplemental savings plan and consolidated sponsored investment products.

See our non-GAAP reconciliations later in this Management’s Discussion and Analysis section.

Operating margin.

Our operating margin in the third quarter of 2020 was 45.7%, compared to 46.2% earned in the 2019 quarter.

The decrease in our operating margin for the third quarter of 2020 compared to the 2019 period was primarily driven by the higher expense related to our supplemental savings plan as market returns in the third quarter of 2020 outperformed the same period in 2019, partially offset by higher investment advisory fee revenue.

Diluted earnings per share.

Diluted earnings per share was $2.73 for the third quarter of 2020 as compared to $2.23 for the third quarter of 2019.

The 22.4% increase was primarily driven by higher operating income and net investment gains recognized in the third quarter of 2020 as compared to the third quarter of 2019 as well as a 3.7% decline in weighted average shares outstanding.

The primary drivers for the increase were partially offset by a higher effective income tax rate in 2020 quarter as compared to the 2019 quarter.

On a non-GAAP basis, diluted earnings per share was $2.55 for the third quarter of 2020 as compared to $2.13 for the third quarter of 2019.

The increase in diluted earnings per share was primarily due to higher operating income and lower weighted average shares outstanding.

Results Overview - Year-to-Date ended September 30, 2020

Investment advisory revenues.

Investment advisory revenues earned in the nine months ended September 30, 2020 increased over the comparable 2019 period as average assets under our management increased $107.4 billion, or 9.8%, to $1,198.9 billion.

In the second quarter of 2020, we began voluntarily waiving a portion of our money market advisory fees and fund expenses in order to maintain a positive yield for investors.

We waived $9.1 million, or less than 1% of total investment advisory fees from certain of our money market mutual funds, trusts and other investment portfolios during the nine months ended September 30, 2020.

The average annualized effective fee rate earned on our assets under management during the nine months ended September 30, 2020 was 45.6 basis points compared with 46.2 basis points earned during the same period of 2019.

Our annualized effective fee rate declined primarily due to client transfers within the complex to lower fee vehicles or share classes over the last twelve months and the money market fee waivers.

Investment advisory revenues earned in the first quarter of 2021 increased over the comparable 2020 quarter as average assets under our management increased $346.1 billion, or 29.8%, to $1,508.8 billion.

In the first quarter of 2021, we voluntarily waived $15.0 million, or less than 1%, of our investment advisory fees in order to continue to maintain a positive yield for investors.

At March 31, 2021, combined net assets of the investment portfolios in which we waived fees in the first quarter of 2021 were $29.5 billion.

We expect to continue to waive fees for all of 2021 and anticipate that the waivers in each of the next three quarters of 2021 will be at similar levels.

The average annualized effective fee rate earned during the first quarter of 2021 was 45.4 basis points, compared with 45.9 basis points earned during the first quarter of 2020 and 45.7 basis points during the fourth quarter of 2020.

In comparison to the first quarter of 2020, our annualized effective fee rate declined primarily due to client transfers within the complex to lower fee vehicles or share classes over the last twelve months and the money market fee waivers.

In comparison to the fourth quarter of 2020, our average annualized effective fee rate declined primarily due to lower performance fees earned in 2021.

Operating expenses.

Operating expenses were $2,484.0 million in the nine months ended September 30, 2020 compared with $2,342.5 million in the 2019 period.

The increase in operating expenses was primarily due to higher salary and benefits expense, annual bonus accrual, stock-based compensation expense and our continued strategic investments.

These increases were partially offset by a $6.5 million decrease in operating expenses related to the supplemental savings plan due to lower market returns in the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

On a non-GAAP basis, our operating expenses for the nine months ended September 30, 2020 increased 6.5% to $2,434.2 million compared to the 2019 period.

Operating expenses were $933.6 million in the first quarter of 2021 compared with $755.4 million in the first quarter of 2020.

Nearly half of the increase in operating expenses for the first quarter of 2021 compared to the first quarter of 2020 was due to an $85.9 million increase in expense related to the supplemental savings plan from higher market returns.

The remaining increase was due primarily to higher compensation expenses as well as distribution and servicing costs.

For the first quarter of 2021, the higher expense related to the supplemental savings plan was almost entirely offset by the non-operating gains earned on the investments used to economically hedge the related liability.

On a non-GAAP basis, our operating expenses in the first quarter of 2021 increased 11.2% to $909.2 million compared to the first quarter of 2020.

Our non-GAAP operating expenses do not include the impact of our supplemental savings plan and consolidated sponsored investment products.

See our non-GAAP reconciliations later in this Management’s Discussion and Analysis section.

We are narrowing our full-year 2020 non-GAAP operating expense growth guidance from a range of 3%-6% to a range of 4%-6%.

The non-GAAP operating expense growth in the fourth quarter of 2020 compared to the same period in 2019 is expected to be lower than the 6.5% growth experienced year-to-date.

For 2021, we currently estimate that our non-GAAP operating expenses will grow in the range of 6%-9%.

These ranges include investments in our critical strategic initiatives to promote long-term growth of the business.

We could elect to further adjust our expense growth should unforeseen circumstances arise, including significant market movements.

In 2021 and beyond, we expect to advance our strategic priorities to maintain our position as a global and diversified asset manager, a global partner for retirement investors and a provider of integrated investment solutions;

to embed environmental, social and governance principles across the firm;

to maintain effective processes and controls while becoming a more adaptive and agile firm;

and to become a destination of choice for top talent with a diverse workforce and inclusive culture.

We updated our 2021 non-GAAP operating expense growth guidance from a range of 8% - 12% to a range of 10% - 14% to reflect an increase in our expectations for AUM-related expenses.

We can elect to adjust our expense growth in the future should unforeseen circumstances arise, including significant market movements.

Operating margin.

Our operating margin in the nine months ended September 30, 2020 was 44.5%, compared to 43.5% earned in the 2019 period.

The increase in our operating margin for the nine months ended September 30, 2020 compared to the 2019 period was primarily driven by higher net revenues and lower expense related to our supplemental savings plan.

Our operating margin in the first quarter of 2021 was 48.9%, compared to 48.4% earned in the 2020 quarter.

The increase in our operating margin for the first quarter of 2021 compared to the 2020 period was primarily driven by higher investment advisory fee revenue, partially offset by the higher expense related to our supplemental savings plan, as market returns in the first quarter of 2021 outperformed the same period in 2020.

Diluted earnings per share.

Diluted earnings per share was $6.66 for the nine months ended September 30, 2020 as compared to $6.47 for the nine months ended September 30, 2019.

The 2.9% increase was primarily driven by higher operating income and lower weighted average outstanding shares.

These drivers of the increase were partially offset by lower net investment gains recognized in the nine months ended September 30, 2020 as compared to the 2019 period.

On a non-GAAP basis, diluted earnings per share was $6.69 for the nine months ended September 30, 2020 as compared to $6.04 for the 2019 period.

The increase in adjusted diluted earnings per share was primarily due to higher operating income, lower weighted average outstanding shares, and a lower effective tax rate.

The impact of these drivers were partially offset by lower net investment gains recognized in the 2020 period.

See our non-GAAP reconciliations later in this Management’s Discussion and Analysis section.

Diluted earnings per share was $3.17 for the first quarter of 2021 as compared to $1.41 for the first quarter of 2020.

The 124.8% increase was primarily driven by the net investment gains recognized in the first quarter of 2021 as compared to significant investment losses recognized in the first quarter of 2020 following sharp market declines at the end of March 2020.

On a non-GAAP basis, diluted earnings per share was $3.01 for the first quarter of 2021 as compared to $1.87 for the first quarter of 2020.

The increase in diluted earnings per share was primarily due to higher operating income as well as net gains earned on our cash and discretionary investments in the 2021 quarter compared with investment losses in the 2020 period.

Three months ended Q1 2021 vs.

Q3 2019 Nine months ended YTD 2020 vs.

(in millions) 9/30/2020 9/30/2019 $ change % change 9/30/2020 9/30/2019 $ change % change

(in millions) 3/31/2021 3/31/2020 $ change % change

Investment advisory fees

8 unchanged sentences

Investment advisory fees.

Investment advisory revenues earned in the third quarter of 2020 from our U.S.

Investment advisory revenues earned in the first quarter of 2021 from our U.S.

mutual funds were $1,050.2 million, an increase of 19.9% from the comparable 2020 quarter.

Average assets under management in these funds for the third quarter of 2020 increased 9.0% from the 2019 quarter to $708.8 billion.

Investment advisory revenues earned in the nine months ended September 30, 2020 from the firm's U.S.

mutual funds were $2,638.8 million, an increase of 3.2% from the comparable 2019 period.

Average assets under management in these funds for the nine months ended September 30, 2020 increased 4.9% from the 2019 period to $664.0 billion.

The difference in the percentage of change in revenue compared with assets under management for both the 2020 quarter and year-to-date periods from the comparable 2019 periods is primarily due to client transfers within the complex to lower fee vehicles or shares classes during the last twelve months and the money market fee waivers.

Average assets under management in these funds for the first quarter of 2021 increased 24.5% from the 2020 quarter to $814.5 billion.

For the first quarter of 2021, the relationship between U.S.

mutual funds’ average assets under management and investment advisory fee growth was impacted primarily by the money market fee waivers.

In addition, strong market returns led to a decrease in the fee earned as the asset levels of certain tiered-fee funds crossed a new tier.

Subadvised funds, separate accounts, collective investment trusts and other investment products (other portfolios)

Investment advisory revenues earned in the third quarter of 2020 from these other portfolios were $529.8 million, an increase of 25.4% from the comparable 2019 quarter.

Investment advisory revenues earned in the first quarter of 2021 from these other portfolios were $637.6 million, an increase of 41.2% from the comparable 2020 quarter.

Average assets under management for these products increased 36.6% from the 2020 quarter to $694.3 billion.

Investment advisory revenues earned in the nine months ended September 30, 2020 from these other portfolios were $1,452.1 million, an increase of 20.0% from the 2019 period.

Average assets under management for these products increased 16.7% from the 2019 period to $534.9 billion.

Inflows into the Japanese ITMs, which have a higher fee rate relative to other products, have caused total investment advisory fees earned from other portfolios to outpace the increase in average assets under management.

These investment advisory revenues include distribution-related services we provide to the Japanese ITMs and then contract with third-party intermediaries to distribute these products.

For the other portfolios, inflows into our international products, which have a higher fee rate relative to other products, and performance-based fees earned on certain separate accounts drove investment advisory revenues to outpace the increase in average assets under management.

These investment advisory revenues include distribution-related services we provide to the international products and then contract with third-party intermediaries to distribute these products.

The costs we incur to pay the third-party intermediaries are recorded as part of distribution and servicing expenses.

Administrative, distribution, and servicing fees.

Administrative, distribution, and servicing fees in the third quarter of 2020 were $126.5 million, an increase of $3.2 million, or 2.6%, from the comparable 2019 quarter.

For the nine months ended September 30, 2020, these fees were $382.9 million, an increase of $1.5 million, or .4%, from the 2019 period.

The increase for both periods was primarily due to increased retail transfer agent servicing activities.

These increases were partially offset by lower 12b-1 revenue earned on certain share classes, including the Advisor and R classes, of the U.S.

mutual funds as lower markets in 2020 as well as client transfers to lower fee vehicles and share classes over the last twelve months have reduced assets under management in these share classes.

The decline in 12b-1 revenue is offset entirely by a reduction in the costs paid to third-party intermediaries that source these assets and reported in distribution and servicing expense.

Our net revenues reflect the elimination of advisory and administrative fee revenue earned from our consolidated T.

Administrative, distribution, and servicing fees in the first quarter of 2021 were $139.0 million, an increase of $4.2 million, or 3.1%, from the comparable 2020 quarter.

The increase was primarily due to higher transfer agent servicing activities provided to the U.S.

mutual funds, higher model delivery revenue, as well as higher 12b-1 revenue earned on the R share class of the U.S.

mutual funds as a result of increased assets under management in this share class.

The increase in 12b-1 revenue is offset entirely by an increase in the costs paid to third-party intermediaries that source these assets and reported in distribution and servicing expense.

Our net revenues reflect the elimination of advisory and administrative fee revenue earned from our consolidated

Rowe Price investment products.

The corresponding expenses recognized by these products, and consolidated in our financial statements, were also eliminated from operating expenses.

For the third quarter, we eliminated net revenue of $2.7 million in 2020 and $2.6 million in 2019.

For the nine months ended September 30, we eliminated net revenue of $7.3 million in 2020 and $6.3 million in 2019.

For the first quarter, we eliminated net revenue of $1.3 million in 2021 and $2.5 million in 2020.

Operating expenses

Three months ended Q1 2021 vs.

Q3 2019 Nine months ended YTD 2020 vs.

(in millions) 9/30/2020 9/30/2019 $ change % change 9/30/2020 9/30/2019 $ change % change

Compensation and related costs $ 552.3 $ 466.3 $ 86.0 18.4 % $ 1,542.0 $ 1,441.0 $ 101.0 7.0 %

(in millions) 3/31/2021 3/31/2020 $ change % change

Compensation and related costs, excluding supplemental savings plan $ 561.3 $ 504.4 $ 56.9 11.3 %

Supplemental savings plan (1)

22.2 (63.7) 85.9 n/m

Total compensation and related costs 583.5 440.7 142.8 32.4 %

Distribution and servicing 85.6 65.7 19.9 30.3 %

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Total operating expenses $ 933.6 $ 755.4 $ 178.2 23.6 %

Compensation and related costs.

Compensation and related costs were $552.3 million in the third quarter of 2020, an increase of $86.0 million, or 18.4%, compared to the 2019 quarter.

The increase from the 2019 quarter was primarily due to $33.3 million in higher expense for our supplemental savings plan as strong market returns in the third quarter of 2020 increased the liability compared with a minor increase from market returns in the 2019 quarter.

Additionally, increases in salaries, benefits, and related employee costs, which increased $25.7 million from the 2019 period, as well as higher non-cash stock-based compensation expense contributed to the increase in compensation and related costs in the 2020 period.

An increase of 5.6% in our average staff size and, to a lesser extent, the modest increases in base salaries at the beginning of 2020, have contributed to higher associate-related costs.

Our interim accrual for annual variable compensation, primarily bonus compensation, also increased $22.6 million in the third quarter of 2020 compared to the 2019 quarter.

We recognize the interim bonus accrual ratably over the year using the ratio of recognized quarterly net revenues to currently forecasted annual net revenues.

The interim bonus accrual each quarter will reflect changes in the annual bonus pool from fluctuations in annual net

(1) The impact of the market on the supplemental savings plan liability drives the expense recognized each period.

Compensation and related costs, excluding supplemental savings plan.

Compensation and related costs, excluding supplemental savings plan, were $561.3 million in the first quarter of 2021, an increase of $56.9 million, or 11.3%, compared to the 2020 quarter.

The increase from the 2020 quarter was primarily due to strong operating results in the first quarter of 2021 that led to a $36.3 million increase in our interim accrual for annual variable compensation, primarily bonus compensation.

Also contributing to the increase in 2021 costs compared to the first quarter of 2020 was a $22.6 million increase in salaries and benefits due to a 3.4% increase in our average staff size and modest increases in base salaries at the beginning of the year.

These increases in compensation and related costs were offset in part by higher labor capitalization related to internally developed software.

Compensation and related costs were $1,542.0 million in the nine months ended September 30, 2020, an increase of $101.0 million, or 7.0%, compared to the 2019 period.

The increase in compensation and related costs from the 2019 period was primarily due to an increase in salaries, benefits and related employee costs, which have increased $57.8 million from the 2019 period.

An increase of 5.6% in our average staff size and modest increases in base salaries at the beginning of 2020, and higher non-cash stock-based compensation expense have contributed to higher associate-related costs.

Our interim accrual for annual variable compensation, primarily bonus compensation, also increased $33.4 million in 2020 from the 2019 period.

These increases in compensation and related costs were offset in part by $6.5 million in lower expense for our supplemental savings plan and $21.7 million in higher labor capitalization related to internally developed software in 2020 period.

Distribution and servicing.

Distribution and servicing costs were $73.5 million for the third quarter of 2020, an increase of 14.0% from the $64.5 million recognized in the 2019 quarter.

For the nine months ended September 30, 2020, these costs were $201.2 million, an increase of 3.0% over the $195.3 million recognized in the comparable 2019 period.

The increase for both periods is primarily driven by higher distribution costs as a result of continued inflows into our Japanese ITMs.

These increases were partially offset by client transfers to lower fee vehicles or share classes over the last twelve months that reduced assets under management for those mutual funds for which we pay distribution and servicing costs.

Distribution and servicing costs were $85.6 million for the first quarter of 2021, an increase of 30.3% from the $65.7 million recognized in the 2020 quarter.

The increase is primarily driven by higher distribution costs as a result of continued inflows and market appreciation in our international products, including our Japanese Investment Trusts (ITMs) and SICAVs.

Distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our U.S.

mutual funds are recognized in this expense line and are offset entirely by the 12b-1 revenue we earn and report in administrative, distribution, and servicing fees.

mutual funds and our international products, such as our Japanese ITMs and SICAVs, are recognized in this expense.

Both of these costs are offset entirely by the revenue we earn and report in net revenues:

12b-1 revenue recognized in administrative, distribution, and servicing fees for the U.S.

mutual funds and investment advisory fee revenue for our international products.

Advertising and promotion.

Advertising and promotion costs were 14.2 in the third quarter of 2020, a decrease of $2.9 million, or 17.0%, compared to the $19.8 million recognized in the 2019 quarter.

For the nine months ended September 30, 2020, these costs were $52.5 million, a decrease of $6.0 million, or 10.3%, compared to the 2019 period.

The decrease for both periods is due primarily to fewer conference and promotional events in 2020 as compared to 2019.

Advertising and promotion costs were $18.9 million in the first quarter of 2021, a decrease of $6.0 million, or 24.1%, compared to the $24.9 million recognized in the 2020 quarter.

The decrease is driven primarily by the timing of media-related spend as well as fewer conference and promotional events since the later part of the first quarter of 2020 due to the coronavirus pandemic.

Technology, occupancy, and facility costs.

Technology, occupancy, and facility costs were $115.6 million in the third quarter of 2020, an increase of $9.1 million, or 8.5%, compared to the $106.5 million recognized in the 2019 quarter.

For the nine months ended September 30, 2020, these costs were $332.3 million, an increase of $22.8 million, or 7.4%, compared to the 2019 period.

The increase for both periods is due primarily to the ongoing investment in our technology capabilities, including related depreciation and hosted solution licenses.

Technology, occupancy, and facility costs were $117.3 million in the first quarter of 2021, an increase of $11.9 million, or 11.3%, compared to the $105.4 million recognized in the 2020 quarter.

The increase is due primarily to the ongoing investment in our technology capabilities, including hosted solution licenses and depreciation, and higher office lease costs.

General, administrative, and other.

General, administrative, and other expenses were $74.5 million in the third quarter of 2020, a decrease of $.7 million, or 1%, compared to the $75.2 million recognized in the 2019 quarter.

The decrease in the third quarter of 2020 as compared to the 2019 period is due primarily to lower travel-related expenses that were largely offset by higher professional fees and third-party investment research costs.

For the nine months ended September 30, 2020, general, administrative, and other expenses were $238.0 million, an increase of $15.4 million, or 6.9%, compared to the 2019 period.

The increase in the nine months ended September 30, 2020 as compared to the 2019 period is due to certain nonrecurring administrative expenses, along with higher third-party investment research costs and higher professional fees.

These increases were partially offset by lower travel-related expenses.

Non-operating income

Non-operating income for the third quarter of 2020 was $191.6 million, an increase of $148.6 million from non-operating income of $43.0 million in the 2019 quarter.

For the nine months ended September 30, 2020, non-operating income was $106.4 million, a decrease of $263.9 million from non-operating income in the comparable 2019 period of $370.3 million.

The following table details the components of non-operating income for the quarter and year-to-date periods.

Three months ended Nine months ended

General, administrative, and other expenses were $87.3 million in the first quarter of 2021, a decrease of $10.2 million, or 13.2%, compared to the $77.1 million recognized in the 2020 quarter.

The timing of when certain general and administrative costs were incurred in the first quarter of 2021 compared to the 2020 period contributed to the higher costs.

Lower travel-related expenses nearly offset increases in other general and administrative costs.

Non-operating income (loss)

Non-operating income for the first quarter of 2021 was $102.1 million, an increase of $602.4 million from non-operating loss of $500.3 million in the 2020 quarter.

The following table details the components of non-operating income (loss) for both the first quarter of March 31, 2021 and 2020.

Three months ended

(in millions) 3/31/2021 3/31/2020

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Dividend income $ 5.1 $ 10.4

Market related gains and equity in earnings 21.3 .7 30.5 46.6

Market related gains (losses) and equity in earnings (losses) 8.6 (71.6)

Total cash and discretionary investments 13.7 (61.2)

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Dividend income .1 .7

Market related gains and equity in earnings 14.3 2.6 8.3 30.9

Net gain (loss) recognized upon deconsolidation — (.1) .1 .1

Market related gains (losses) and equity in earnings (losses) 11.9 (34.1)

Net gain recognized upon deconsolidation 2.6 .1

Investments used to hedge the supplemental savings plan liability 22.1 (68.5)

Total net gains from non-consolidated T.

Total net gains (losses) from non-consolidated T.

Rowe Price investment products 50.4 (163.0)

Other investment income 18.2 8.4

Net gains on investments 84.6 32.1 100.6 194.0

Net gains on consolidated sponsored investment portfolios 101.2 11.6 13.3 176.3

Net gains (losses) on investments 68.6 (154.6)

Net gains (losses) on consolidated sponsored investment portfolios 37.2 (330.3)

Other income (loss), including foreign currency gains and losses (3.7) (15.4)

Non-operating income $ 191.6 $ 43.0 $ 106.4 $ 370.3

Our investment portfolio recognized significant gains in the third quarter of 2020 as strong markets continued into the third quarter of 2020.

Our consolidated investment products and supplemental savings plan hedge portfolio comprised about 70% of the net gains recognized during the third quarter of 2020.

Our cash and discretionary investment portfolio also experienced net investment gains of $25.6 million in the third quarter of 2020.

Despite the global economies and markets disruption caused by the coronavirus pandemic in the first quarter of 2020, strong markets in the second quarter and third quarter of 2020 reversed net investment losses experienced in the first quarter of 2020.

Our cash and discretionary investments and supplemental savings plan hedge portfolio comprised approximately 75% of the net gains recognized during the nine months ended September 30, 2020.

The net investment gains returned by cash and discretionary investment portfolio was $50.2 million in the nine months ended September 30, 2020.

Non-operating income (loss) $ 102.1 $ (500.3)

The impact of strong market returns on our investment portfolio in the first quarter of 2021 compared with significant market losses in the first quarter of 2020 drove the increase in non-operating income.

Our consolidated investment products and supplemental savings plan hedge portfolio comprised more than half of the net gains recognized during the first quarter of 2021.

Our cash and discretionary investment portfolio also experienced net investment gains of $13.7 million in the first quarter of 2021.

The table above includes the net investment income of the underlying portfolios included in the consolidated T.

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Rowe Price investment products had on the individual lines of our unaudited condensed consolidated statements of income and the portion attributable to our interest:

Three months ended Nine months ended

Three months ended

(in millions) 3/31/2021 3/31/2020

Operating expenses reflected in net operating income $ (3.5) $ (3.7)

Net investment income reflected in non-operating income 101.2 11.6 13.3 176.3

Net investment income (loss) reflected in non-operating income 37.2 (330.3)

Impact on income before taxes $ 33.7 $ (334.0)

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Provision for income taxes

Our effective tax rate for the third quarter of 2020 was 24.1%, compared with 22.4% in the 2019 quarter.

The effective tax rate for the third quarter of 2020 increased as compared to the third quarter of 2019 primarily due to lower estimated annual net income attributable to redeemable non-controlling interests held in the firm's consolidated investment products, which are not taxable to the firm despite being included in pre-tax income, and lower discrete tax benefits associated with option exercises.

These impacts were partially offset by a lower state effective tax rate, resulting primarily from the remeasurement of deferred tax liabilities related to the firm's investment portfolio.

Our effective tax rate for both the nine months ended September 30, 2020 and 2019 was 24.0%.

The year-to-date 2020 effective tax rate reflects a lower state effective tax rate and higher discrete tax benefits associated with option exercises in the 2020 period, offset by lower estimated annual net income attributable to redeemable non-controlling interests held by the firm’s consolidated investment products.

The following table reconciles the statutory federal income tax rate to our effective tax rate for both the three- and nine-months ended September 30, 2020 and 2019:

Three months ended Nine months ended

Our effective tax rate for the first quarter of 2021 was 23.2%, compared with 19.5% in the 2020 quarter.

The increase in our effective tax rate for the first quarter of 2021 as compared to the first quarter of 2020 is primarily due to lower discrete tax benefits associated with option exercises as well as the impact of these benefits relative to the higher pre-tax income in the first quarter of 2021 as compared to the comparable 2020 quarter.

These benefits were partially offset by higher net gains attributable to redeemable non-controlling interests held in the firm's consolidated investment products, which are not taxable to the firm despite being included in pre-tax income, and a lower state effective tax rate.

The state effective rate in the first quarter of 2020 was unfavorably impacted by the remeasurement of deferred state tax assets and liabilities related to our investment portfolio.

The following table reconciles the statutory federal income tax rate to our effective tax rate for both the three months ended March 31, 2021 and 2020:

Three months ended

3/31/2021 3/31/2020

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State income taxes for current year, net of federal income tax benefits (1)

3.9 4.4 4.1 4.4

Net income attributable to redeemable non-controlling interests (.3) (.8) — (.8)

Net (income) losses attributable to redeemable non-controlling interests (.6) 3.1

Net excess tax benefits from stock-based compensation plans activity

(.8) (1.2) (1.3) (.9)

.3 (1.0) .2 .3

Effective income tax rate

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The non-GAAP tax rate primarily adjusts for the impact of the consolidated investment products, including the net income attributable to the redeemable non-controlling interests.

Our non-GAAP effective tax rate increased to 24.1% in the third quarter of 2020 compared with 23.6% in third quarter of 2019, primarily due to lower discrete tax benefits associated with option exercises in the third quarter of 2020.

For the nine months ended September 30, 2020, our non-GAAP effective tax rate was 23.9%, down from the 24.8% for the comparable 2019 period.

The decrease in the non-GAAP effective tax rate for the nine months ended September 30, 2020 as compared to the 2019 period is primarily due to the lower effective state tax rate and higher discrete tax benefits associated with option exercises.

We currently estimate that our GAAP and non-GAAP effective tax rate for the full-year 2020 will be in the range of 23% to 25%.

Our non-GAAP effective tax rate increased to 23.7% in the first quarter of 2021 compared with 22.5% in first quarter of 2020, primarily due to lower discrete tax benefits associated with option exercises in the first quarter of 2021 as well as the impact of these benefits relative to the higher pre-tax income in the first quarter of 2021 as compared to the comparable 2020 quarter and a lower effective state tax rate.

The firm continues to see the phased-in benefit of the 2018 Maryland state tax legislation in which we expect to reduce our effective state rate over the five-year phase-in period to less than 3% by the end of 2022.

We currently estimate that our effective tax rate for the full year 2021, on a GAAP basis, will be in the range of 22% to 25%.

On a non-GAAP basis, the range is 23% to 25%.

NON-GAAP INFORMATION AND RECONCILIATION.

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GAAP financial measures for the three months ended

September 30, 2020 and 2019.

March 31, 2021 and 2020.

Three months ended 3/31/2021

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Adjusted Non-GAAP Basis $ 817.9 $ 647.2 $ (61.2) $ 131.7 $ 454.3 $ 1.87

The following schedules reconcile certain U.S.

GAAP financial measures for the nine months ended September 30, 2020 and 2019.

Nine months ended 9/30/2020

Operating expenses

Net operating income

Non-operating income (loss)

Provision (benefit) for income taxes (4)

Net income attributable to T.

Rowe Price Group

Diluted earnings per share (5)

$ 2,484.0 $ 1,989.8 $ 106.4 $ 502.5 $ 1,589.3 $ 6.66

Non-GAAP adjustments:

Consolidated T.

investment products (1)

(4.4) 11.7 (13.3) (1.3) 4.1 .02

Supplemental savings plan liability (2)

(45.4) 45.4 (29.2) 6.2 10.0 .04

Other non-operating income (3)

— — (13.7) (6.9) (6.8) (.03)

Adjusted Non-GAAP Basis

$ 2,434.2 $ 2,046.9 $ 50.2 $ 500.5 $ 1,596.6 $ 6.69

Nine months ended 9/30/2019

Operating expenses

Net operating income

Non-operating income (loss)

Provision (benefit) for income taxes (4)

Net income attributable to T.

Rowe Price Group

Diluted earnings per share (5)

$ 2,342.5 $ 1,806.7 $ 370.3 $ 522.0 $ 1,586.0 $ 6.47

Non-GAAP adjustments:

Consolidated T.

investment products (1)

(4.3) 10.6 (176.3) (23.7) (73.0) (.30)

Supplemental savings plan liability (2)

(51.9) 51.9 (44.8) 1.7 5.4 .03

Other non-operating income (3)

— — (50.4) (12.4) (38.0) (.16)

Adjusted Non-GAAP Basis

$ 2,286.3 $ 1,869.2 $ 98.8 $ 487.6 $ 1,480.4 $ 6.04

(1) These non-GAAP adjustments remove the impact that the consolidated T.

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Rowe Price investment products to economically hedge the exposure to these market movements.

We believe it is useful to offset the non-operating investment income (loss) realized on the hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

We believe it is useful to offset the non-operating investment income (loss) realized on the economic hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

(3) This non-GAAP adjustment represents the other non-operating income (loss) and the net gains (losses) earned on our non-consolidated investment portfolio that are not designated as economic hedges of the supplemental savings plan liability, and non-consolidated seed investments and other investments that are not part of the cash and discretionary investment portfolio.

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Additionally, we do not emphasize the impact of the portion of non-operating income (loss) removed when managing and evaluating our core performance.

(4) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 23.9% for the first nine months of 2020 and 24.8% for the first nine months of 2019.

As such, the non-GAAP effective tax rate for the third quarter was 24.1% in 2020 and 23.6% in 2019.

(4) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 23.7% for 2021 and 22.5% for 2020.

We estimate that our effective tax rate for the full-year 2021 on a non-GAAP basis will be in the range of 23% to 25%.

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The calculation of adjusted net income allocated to common stockholders is as follows:

Three months ended Nine months ended

Three months ended

3/31/2021 3/31/2020

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Our discretionary investment portfolio is comprised primarily of short duration bond funds, which typically yield higher than money market rates, and asset allocation products.

Cash and discretionary investments returned gains

of $25.6 million and $50.2 million in the three- and nine-months ended September 30, 2020, respectively, as compared to investment gains of $18.8 million and $98.8 million in the three- and nine-months ended September 30, 2019, respectively.

Cash and discretionary investments returned gains of $13.7 million in the three months ended March 31, 2021, as compared to investment losses of $61.2 million in the three months ended March 31, 2020.

Cash and discretionary investments in T.

Rowe Price products held by our subsidiaries outside the U.S.

were $778.7 million at September 30, 2020 and $665.8 million at December 31, 2019.

Rowe Price products held by our subsidiaries outside the United States were $754.4 million at March 31, 2021 and $675.8 million at December 31, 2020.

Given the availability of our financial resources and cash expected to be generated through future operations, we do not maintain an available external source of additional liquidity.

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The following table details how T.

Rowe Price Group’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of September 30, 2020.

Rowe Price Group’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of March 31, 2021.

(in millions)

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Redeemable non-controlling interests — — 1,012.9 1,012.9

As reported on unaudited condensed consolidated balance sheet at September 30, 2020 $ 2,228.2 $ 3,030.8 $ 2,395.8 $ 7,654.8

As reported on unaudited condensed consolidated balance sheet at March 31, 2021 $ 2,830.1 $ 3,403.6 $ 1,893.1 $ 8,126.8

(1) The consolidated T.

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mutual funds as well as those funds regulated outside the U.S.

The $284.4 million and the $771.2 million represent the total value at September 30, 2020 of our interest in the consolidated T.

The $109.1 million and the $771.1 million represent the total value at March 31, 2021 of our interest in the consolidated T.

Rowe Price investment products.

The total net assets of the T.

Rowe Price investment products at September 30, 2020 of $2,395.8 million includes assets of $2,442.3 million, less the liabilities of $46.5 million as reflected in our unaudited condensed consolidated balance sheets.

Rowe Price investment products at March 31, 2021 of $1,893.1 million includes assets of $1,946.8 million, less liabilities of $53.7 million as reflected in our unaudited condensed consolidated balance sheets.

Our unaudited condensed consolidated balance sheet reflects the cash and cash equivalents, investments, other assets and liabilities of those T.

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Although we can redeem our net interest in these T.

Rowe Price investment products at any time, we cannot directly access or sell the assets held by the products to obtain cash for general operations.

Rowe Price investment products at any time, we

cannot directly access or sell the assets held by the products to obtain cash for general operations.

Additionally, the assets of these T.

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We assess the discretionary investment products and, when we decide to liquidate our interest, we seek to do so in a way as to not impact the product and, ultimately, the unrelated third-party investors.

Additionally, in October 2020, UTI Asset Management Company Limited (India), one of our equity method investments, held an initial public offering in India.

As part of the offering, we sold a portion of our 26% interest and received net proceeds of approximately $28.0 million and recorded a net gain on the sale of approximately $3.5 million in the fourth quarter of 2020.

Subsequent to the sale, we have an ownership interest of 23% of UTI Asset Management Company Limited (India).

Uses of Liquidity

We increased our quarterly recurring dividend per common share in February 2021 by 20.0% to $1.08 per common share from $.90 per common share.

Additionally, we expended $1.2 billion in the first nine months of 2020 to repurchase 10.8 million shares, or 4.6%, of our outstanding common stock at an average price of $108.77 per share.

Additionally, we expended $.3 billion in the first quarter of 2021 to repurchase 1.6 million shares, or 0.7%, of our outstanding common stock at an average price of $164.22 per share.

These dividends and repurchases were expended using existing cash balances and cash generated from operations.

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2020 846.0 1,192.2 2,038.2

Nine months ended 9/30/2020 635.3 1,170.7 1,806.0

Three months ended 3/31/2021 252.3 267.6 519.9

Total $ 1,831.9 $ 2,168.6 $ 4,000.5

We anticipate property and equipment expenditures for the full-year 2020 to be about $230 million, of which more than three-quarters is planned for technology initiatives.

We anticipate property, equipment and other capital expenditures, including internal labor capitalization, for the full-year 2021 to be about $265 million, of which more than three-quarters is planned for technology initiatives.

We expect to fund our anticipated capital expenditures with operating cash flows and other available resources.

The following table summarizes the cash flows for the nine months ended September 30, 2020 and 2019, that are attributable to T.

The following table summarizes the cash flows for the three months ended March 31, 2021 and 2020, that are attributable to T.

Rowe Price Group, our consolidated T.

Rowe Price investment products, and the related eliminations required in preparing the statement.

Nine months ended

Three months ended

3/31/2021 3/31/2020

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Net (gains) losses recognized on investments (77.8) — 18.3 (59.5) 324.8 — (157.5) 167.3

Net investments in T.

Net change in T.

Rowe Price investment products used to economically hedge supplemental savings plan liability 22.0 — — 22.0 (8.9) — — (8.9)

(19.1) — — (19.1) (20.5) — — (20.5)

Net change in trading securities held by consolidated T.

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Operating activities attributable to T.

Rowe Price Group during the first nine months of 2020 provided cash flows of $2,265.0 million as compared to $2,028.1 million during the first nine months of 2019.

Rowe Price Group during the first quarter of 2021 provided cash flows of $1,138.6 million as compared to $864.0 million during the first quarter of 2020.

Operating cash flows attributable to T.

Rowe Price Group increased $236.9 million, including $203.6 million in higher non-cash adjustments, including unrealized investment gains/losses, depreciation, and stock-based compensation expense;

timing differences on the cash settlement of our assets and liabilities of $30.0 million;

and the $3.3 million increase in net income from the first nine months of 2019.

The non-cash adjustments were driven by a $161.5 million decrease in net investment gains in the first nine months of 2020 compared with the first nine months of 2019.

Rowe Price Group increased $274.6 million, including a $406.3 million increase in net income from the first quarter of 2020 and timing differences on the cash settlement of our assets and liabilities of $237.9 million.

These increases were partially offset by $400.5 million in lower non-cash adjustments, including unrealized investment gains/losses, depreciation, and stock-based compensation expense.

The non-cash adjustments were primarily driven by a $402.6 million increase in net investment gains in the first quarter of 2021 compared with net investment losses in the first quarter of 2020.

Additionally, in 2021, we had net proceeds of $22.0 million from certain investment products that economically hedge our supplemental savings plan liability, while we had net investments of $8.9 million in the same period of 2020.

Our interim operating cash flows do not include the cash impact of variable compensation that is accrued throughout the year before being substantially paid out in December.

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Investing Activities

Net cash used in investing activities that are attributable to T.

Rowe Price Group totaled $100.6 million in the first nine months of 2020 compared with $230.0 million in the 2019 period.

During 2020, we received net proceeds from the sale of certain of our discretionary investments of $141.6 million compared to net proceeds of $77.0 million during 2019.

In addition, while we increased our property and equipment expenditures by $6.5 million, we decreased the level of seed capital provided by $65.0 million.

Net cash provided by investing activities that are attributable to T.

Rowe Price Group totaled $30.4 million in the first quarter of 2021 compared with $15.0 million of cash used by investing activities in the 2020 period.

During 2021, we decreased the level of seed capital provided by $77.3 million.

We eliminate our seed capital in those T.

Rowe Price investment products we consolidate in preparing our unaudited condensed consolidated statement of cash flows.

Partially offsetting this increase to cash provided by investing activities were lower net proceeds from the sale of certain of our discretionary investments of $47.8 million compared to net proceeds of $74.0 million during 2020.

In addition, we increased our property and equipment expenditures by $12.8 million.

The remaining $26.5 million change in reported cash flows from investing activities is related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

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Net cash used in financing activities attributable to T.

Rowe Price Group were $1,718.0 million in the first nine months of 2020 compared with $1,010.1 million in the 2019 period.

During 2020, there was a $582.5 million increase in cash paid for common stock repurchases as we repurchased 5.1 million more shares of common stock in the first nine months of 2020 as compared to the first nine months of 2019.

Additionally, there was a $85.3 million increase in dividends paid in 2020 as a result of an 18.4% increase in our quarterly dividend per share.

The remaining change in reported cash flows from financing activities is primarily attributable to a $88.4 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first nine months of 2020 compared to the 2019 period.

Rowe Price Group were $490.6 million in the first quarter of 2021 compared with $1,068.4 million in the 2020 period.

During 2021, there was a $632.1 million decrease in cash paid for common stock repurchases as we repurchased 6.7 million less shares of common stock in the first quarter of 2021 as compared to the first quarter of 2020.

Partially offsetting this decrease in cash used for financing activities was a $37.1 million increase in dividends paid in 2021 as a result of an 20.0% increase in our quarterly dividend per share.

The remaining change in reported cash flows from financing activities is primarily attributable to a $107.0 million increase in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first quarter of 2021 compared to the 2020 period.

CRITICAL ACCOUNTING POLICIES.

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Rowe Price is not a guarantee of future performance.

Actual results may differ materially from those in forward-looking information because of various factors including, but not limited to, those discussed below and in Item 1A, Risk Factors, of this Form 10-Q and our Form 10-K Annual Report for 2019.

Further, forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.

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cash inflows and outflows in the U.S.

mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other investment products, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new mutual funds and investment products, changes in retirement savings trends relative to participant-directed investments and defined contribution plans, and the impact of the recent coronavirus outbreak.

The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence;

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competitive conditions in the mutual fund, asset management, and broader financial services sectors;

and our level of success in implementing our strategy to expand our business.

and our level of success in implementing our strategy to expand our business, including our announced plan to establish T.

Rowe Price Investment Management as a separate registered investment adviser.

Our revenues are substantially dependent on fees earned under contracts with the T.

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expenses and capital costs, such as technology assets, depreciation, amortization, and research and development, incurred to maintain and enhance our administrative and operating services infrastructure;

the timing of the assumption of all third party research payments, unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients;

the level of third party research costs, unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients;

and disruptions of services, including those provided by third parties, such as fund and product recordkeeping, facilities, communications, power, and the mutual fund transfer agent and accounting systems.

1 unchanged sentence

Rowe Price investment products and investing in general or in particular classes of mutual funds or other investments.

Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in the total potential loss information provided in Item 7A of the Form 10-K Annual Report for 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis