What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-29 compared with 2021-04-29 · 272 added, 184 removed, 479 unchanged (49% of the section changed)

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MARKET TRENDS.

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 advanced but underperformed U.S.

a stronger U.S.

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

Led by large-caps, U.S.

stocks produced solid gains in the second quarter of 2021, with many major indexes reaching all-time highs at some point during the last three months.

Investors were encouraged by favorable economic data and the broadening distribution of coronavirus vaccines, which enabled state and local governments to roll back more of their pandemic restrictions on business operations and gatherings.

The market was also buoyed by strong earnings and revenue growth reported by many companies in recent months.

Inflation concerns remained prevalent, but investors largely seemed to accept the Federal Reserve’s determination that rising price pressures were due to “transitory” factors—a viewpoint supported late in the quarter by sharp declines in some commodity prices from recent peaks.

Stocks in many developed non-U.S.

equity markets advanced in U.S.

dollar terms, though major non-U.S.

currencies were mixed versus the dollar.

UK stocks rose about 6%, and other European stock markets were mostly positive.

Developed Asian and Far East markets were generally positive, although Japanese shares edged lower.

Equities in emerging markets generally rose in U.S.

dollar terms.

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.

Shares in most major emerging European markets produced strong returns, though Turkish shares fell slightly.

Latin American markets were mixed, though Brazil led the region with a 23% gain.

Asian emerging markets were also mixed, though several markets rose at least 7%.

Returns of several major equity market indexes were as follows:

Three months ended

Three months ended Six months ended

Index 6/30/2021 6/30/2021

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(1) Returns exclude dividends

Global bond returns were mostly negative in U.S.

Global bond returns were mostly positive 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%.

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.

In the U.S., bond prices rose as long-term Treasury yields decreased from their first-quarter highs—the 10-year Treasury yield dropped from 1.74% to 1.45%—even though inflation remained a concern among some investors.

Shorter-term Treasury yields increased amid expectations that the Federal Reserve could reduce its monthly asset purchases and raise the overnight federal funds target rate sooner than anticipated.

In the investment-grade universe, corporate bonds, long-term Treasuries, and commercial mortgage-backed securities performed well.

Asset- and mortgage-backed securities advanced modestly.

Tax-free municipal securities trailed the taxable investment-grade market, whereas high yield bonds outperformed, helped by investors’ search for attractive yields.

Bonds in developed non-U.S.

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.

markets gained in U.S.

dollar terms, though major non-U.S.

currencies were mixed versus the U.S.

The dollar rose slightly against the yen, fell almost 1% against the euro, and was little changed against the British pound.

Emerging markets bonds easily outperformed bonds in developed countries.

Local currency issues modestly lagged bonds denominated in U.S.

Many emerging markets currencies rose versus the dollar, with the Brazilian real posting a particularly notable gain.

However, the Turkish lira fell materially.

Returns for several major bond market indexes were as follows:

Three months ended

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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.

Assets under management ended the second quarter of 2021 at $1,623.1 billion, an increase of $105.1 billion from March 31, 2021, and $152.6 billion from the end of 2020.

For the three months ended June 30, 2021, the increase in assets under management was driven by market appreciation, net of distributions not reinvested, of $105.7 billion, partially offset by net cash outflows of $0.6 billion.

Clients transferred $9.2 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.

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

mutual funds primarily to collective investment trusts and other investment products, of which $5.9 billion transferred into the retirement date trusts.

For the six months ended June 30, 2021, the increase in assets under management was driven by market appreciation, net of distributions not reinvested, of $152.0 billion and net cash inflows of $0.6 billion.

Clients transferred $14.8 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts and other investment products, of which $10.8 billion transferred into the retirement date trusts.

The following tables detail changes in our assets under management, by vehicle and asset class, during the three- and six-month periods ended June 30, 2021:

Three months ended 6/30/2021 Six months ended 6/30/2021

(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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Change during the period 49.4 23.1 32.6 105.1 71.2 26.8 54.6 152.6

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

Three months ended 3/31/2021

Assets under management at June 30, 2021 $ 865.8 $ 426.9 $ 330.4 $ 1,623.1 $ 865.8 $ 426.9 $ 330.4 $ 1,623.1

Three months ended 6/30/2021 Six months ended 6/30/2021

(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 $ 917.2 $ 172.8 $ 428.0 $ 1,518.0 $ 895.8 $ 168.7 $ 406.0 $ 1,470.5

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Change during the period 67.9 5.9 31.3 105.1 89.3 10.0 53.3 152.6

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

Assets under management at June 30, 2021 $ 985.1 $ 178.7 $ 459.3 $ 1,623.1 $ 985.1 $ 178.7 $ 459.3 $ 1,623.1

(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 United States account for about 8.8% of our assets under management at March 31, 2021 and 9.3% at December 31, 2020.

Investment advisory clients outside the United States account for 9.0% of our assets under management at June 30, 2021, 8.8% 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, as well as net cash inflows (outflows), by vehicle, were as follows:

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

Net cash inflows (outflows)

Assets under management Three months ended Six months ended

(in billions) 6/30/2021 3/31/2021 12/31/2020 6/30/2021 6/30/2020 6/30/2021 6/30/2020

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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.

As of June 30, 2021, our assets under administration were $263 billion, of which nearly $162 billion are assets we manage.

In recent years, the firm began offering non-discretionary advisory services through model delivery and multi-asset solutions for providers to implement.

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.

The assets under advisement in these portfolios, predominantly in the United States, were $8 billion at June 30, 2021.

INVESTMENT PERFORMANCE.

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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.

The following tables present investment performance for the one-, three-, five-, and 10-years ended June 30, 2021.

Past performance is no guarantee of future results.

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All Composites 53% 60% 73% 72%

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

As of June 30, 2021, 77 of 123 (62.6%) 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 4 or 5 stars (5) .

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

In addition, 86% (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.

mutual funds (across primary share classes) ended June 30, 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 months ended March 31, 2021 and 2020 on a U.S.

The following table and discussion sets forth information regarding our consolidated financial results for the three and six months ended June 30, 2021 and 2020 on a U.S.

GAAP basis as well as a non-GAAP basis.

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Three months ended Q2 2021 vs.

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

Q2 2020 Six months ended YTD 2021 vs.

(in millions, except per-share data) 6/30/2021 6/30/2020 $ change % change 6/30/2021 6/30/2020 $ change % change

Investment advisory fees $ 1,787.2 $ 1,293.8 $ 493.4 38.1 % $ 3,475.0 $ 2,621.6 $ 853.4 32.6 %

$ 1,687.8 $ 1,327.8 $ 360.0 27.1 %

$ 1,826.8 $ 1,462.6 $ 364.2 24.9 %

Net revenues $ 1,929.3 $ 1,415.4 $ 513.9 36.3 % $ 3,756.1 $ 2,878.0 $ 878.1 30.5 %

Operating expenses $ 971.2 $ 861.7 $ 109.5 12.7 % $ 1,904.8 $ 1,617.1 $ 287.7 17.8 %

$ 933.6 $ 755.4 $ 178.2 23.6 %

Net operating income $ 958.1 $ 553.7 $ 404.4 73.0 % $ 1,851.3 $ 1,260.9 $ 590.4 46.8 %

$ 893.2 $ 707.2 $ 186.0 26.3 %

Non-operating income (loss) (1)

$ 102.1 $ (500.3) $ 602.4 n/m

Net income attributable to T.

Rowe Price Group

$ 749.4 $ 343.1 $ 406.3 118.4 %

$ 143.9 $ 415.1 $ (271.2) n/m $ 246.0 $ (85.2) $ 331.2 n/m

Net income attributable to

Rowe Price $ 815.7 $ 603.0 $ 212.7 35.3 % $ 1,565.1 $ 946.1 $ 619.0 65.4 %

Diluted earnings per common share $ 3.46 $ 2.55 $ .91 35.7 % $ 6.63 $ 3.95 $ 2.68 67.8 %

$ 3.17 $ 1.41 $ 1.76 124.8 %

Weighted average common shares outstanding assuming dilution 229.2 229.5 (.3) (.1) % 229.6 233.1 (3.5) (1.5) %

230.0 236.8 (6.8) (2.9) %

Adjusted non-GAAP basis (2)

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Non-operating income (loss) (1)

$ 13.7 $ (61.2) $ 74.9 n/m

$ 17.8 $ 85.8 $ (68.0) n/m $ 31.5 $ 24.6 $ 6.9 n/m

Net income attributable to T.

Rowe Price Group $ 712.0 $ 454.3 $ 257.7 56.7 %

Rowe Price $ 779.0 $ 539.6 $ 239.4 44.4 % $ 1,491.0 $ 993.9 $ 497.1 50.0 %

Diluted earnings per common share $ 3.31 $ 2.29 $ 1.02 44.5 % $ 6.32 $ 4.15 $ 2.17 52.3 %

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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 March 31, 2021

Results Overview - Quarter ended June 30, 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 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.

Investment advisory revenues earned in the second quarter of 2021 increased over the comparable 2020 quarter as average assets under our management increased $445.1 billion, or 39.0%, to $1,585.3 billion.

In the second quarter of 2021, we voluntarily waived $14.3 million, or less than 1%, of our investment advisory fees in order to continue to maintain a positive yield for investors.

At June 30, 2021, combined net assets of the investment portfolios in which we waived fees in the second quarter of 2021 were $23.4 billion.

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

The average annualized effective fee rate earned during the second quarter of 2021 was 45.2 basis points, compared with 45.6 basis points earned during the second quarter of 2020 and 45.4 basis points during the first quarter of 2021.

In comparison to the second 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.

Operating expenses.

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.

Operating expenses were $971.2 million in the second quarter of 2021 compared with $861.7 million in the second quarter of 2020.

Approximately 50% of the increase in our operating expenses for the second quarter of 2021 compared to the second quarter of 2020 was due to higher compensation expenses.

The largest drivers of the increased compensation expenses was the higher interim bonus accrual and increased salaries and benefits, partially offset by lower compensation expenses related to the supplemental savings plan.

For the second

quarter of 2021, the 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.

Also contributing to the increase in operating expenses were higher distribution and servicing costs due to higher average assets under management.

The firm employed 7,804 associates at June 30, 2021, an increase of 1.6% from the end of 2020 and 3.7% from June 30, 2020.

In the second quarter of 2021, we announced a transformation of our retirement recordkeeping business with the expansion of our partnership with FIS, a global technology leader.

FIS will assume responsibility for managing retirement technology development and core operations for our full-service recordkeeping offering.

This relationship will allow us to quickly add new features to our clients’ plans while driving long term efficiencies that we expect to reinvest into strategic growth areas across the firm.

As part of this expanded relationship, approximately 800 T.

Rowe Price operations and technology associates will become employees of FIS as of August 1, 2021.

The transfer of these employees will result in a decrease in compensation and related expenses offset by the cost of this relationship, which will be reflected in product and recordkeeping related costs along with the technology, occupancy, and facilities cost lines of the income statement.

We expect the primary driver of these costs in the future to be the number of plan participants.

Additionally, while we will incur some costs to transition to FIS’ platform, savings will ramp up from 2022 onwards, allowing us to reinvest across the firm broadly.

On a non-GAAP basis, our operating expenses in the second quarter of 2021 increased 18.6% to $931.8 million compared to the second 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.

Operating margin.

Our operating margin in the second quarter of 2021 was 49.7%, compared to 39.1% earned in the 2020 quarter.

The increase in our operating margin for the second quarter of 2021 compared to the 2020 period was primarily driven by higher investment advisory fee revenue and lower expense related to our supplemental savings plan, partially offset by higher distribution and servicing costs.

Diluted earnings per share.

Diluted earnings per share was $3.46 for the second quarter of 2021 as compared to $2.55 for the second quarter of 2020.

The 35.7% increase was primarily driven by higher operating income, as strong markets since the end of the first quarter of 2020 have increased average assets under management resulting in higher investment advisory fee revenue.

This increase was partially offset by lower net investment gains recognized in the second quarter of 2021 as the sharp market recovery following the significant losses experienced in the first quarter of 2020 outpaced the market performance in the second quarter of 2021.

On a non-GAAP basis, diluted earnings per share was $3.31 for the second quarter of 2021 as compared to $2.29 for the second quarter of 2020.

Similar to our GAAP diluted earnings, strong markets since the end of the second quarter of 2020 led to higher operating income in the comparable 2021 period.

Our cash and discretionary investments experienced lower net gains in the 2021 quarter compared with 2020 quarter.

The significant gains earned on our cash and discretionary investments in the second quarter of 2020 as the sharp market recovery following the significant losses experienced in the first quarter of 2020 outpaced the market performance in the second quarter of 2021.

Results Overview - Year-to-Date ended June 30, 2021

Investment advisory revenues.

Investment advisory revenues earned in the six months ended June 30, 2021 increased over the comparable 2020 period as average assets under our management increased $395.7 billion, or 34.4%, to $1,547.1 billion.

We waived $29.3 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 six months ended June 30, 2021.

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

The average annualized effective fee rate earned on our assets under management during the six months ended June 30, 2021 was 45.3 basis points compared with 45.8 basis points earned during the same period 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.

Operating expenses.

Operating expenses were $1,904.8 million in the six months ended June 30, 2021 compared with $1,617.1 million in the 2020 period.

About two-thirds of the increase in operating expenses was due to higher

compensation expenses, including a $49.2 million increase in operating expenses related to the supplemental savings plan due to higher market returns in the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, higher interim bonus accrual, and increased salaries and benefits.

Also contributing to the increase in operating expenses were higher distribution and servicing costs due to higher average assets under management.

On a non-GAAP basis, our operating expenses for the six months ended June 30, 2021 increased 14.8% to $1,841.0 million compared to the 2020 period.

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.

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 embed environmental, social and governance and sustainability 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 updated our 2021 non-GAAP operating expense growth guidance from a range of 10% - 14% to a range of 12% - 15% to reflect an increase in our expectations for expenses.

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

As discussed in May 2021, the impact of the firm's expanded partnership with FIS remains reflected in the expense growth guidance above.

Operating margin.

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.

Our operating margin in the six months ended June 30, 2021 was 49.3%, compared to 43.8% earned in the 2020 period.

The increase in our operating margin for the six months ended June 30, 2021 compared to the 2020 period was primarily driven by higher net revenues, partially offset by higher compensation costs and distribution and servicing costs.

Diluted earnings per share.

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.

Diluted earnings per share was $6.63 for the six months ended June 30, 2021 as compared to $3.95 for the six months ended June 30, 2020.

The 67.8% increase was primarily driven by higher operating income, higher net investment gains, and lower weighted average outstanding shares.

On a non-GAAP basis, diluted earnings per share was $6.32 for the six months ended June 30, 2021 as compared to $4.15 for the 2020 period.

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

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

Three months ended Q2 2021 vs.

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

Q2 2020 Six months ended YTD 2021 vs.

(in millions) 6/30/2021 6/30/2020 $ change % change 6/30/2021 6/30/2020 $ change % change

Investment advisory fees

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Investment advisory fees.

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

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

mutual funds were $1,097.5 million, an increase of 33.3% from the comparable 2020 quarter.

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.

Average assets under management in these funds for the second quarter of 2021 increased 34.9% from the 2020 quarter to $848.2 billion.

For the six months ended June 30, 2021, investment advisory revenues earned from the firm's U.S.

mutual funds were $2,147.7 million, an increase of 26.4% from the comparable 2020 period.

Average assets under management in these funds for the six months ended June 30, 2021 increased 29.6% from the 2020 period to $831.3 billion.

For the second quarter and six months ended June 30, 2021, the relationship between U.S.

mutual funds’ average assets under management and investment advisory fee growth was impacted primarily by client transfers within the complex to lower fee vehicles or share classes during the last twelve months and the money market fee waivers.

In addition, strong market returns led to a relative decrease in the percentage 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 first quarter of 2021 from these other portfolios were $637.6 million, an increase of 41.2% from the comparable 2020 quarter.

Investment advisory revenues earned in the second quarter of 2021 from these other portfolios were $689.7 million, an increase of 46.5% from the comparable 2020 quarter.

Average assets under management for these products increased 44.1% from the 2020 quarter to $737.1 billion.

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.

For the six months ended June 30, 2021, investment advisory revenues earned from subadvised and separate accounts as well as collective investment trusts and other investment products were $1,327.3 million, an increase of 43.9% from the 2020 period.

Average assets under management for these products increased 40.4% from the 2020 period to $715.8 billion.

For the other portfolios, inflows into our international products, which have a higher fee rate relative to other products, 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.

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Administrative, distribution, and servicing fees.

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.

Administrative, distribution, and servicing fees in the second quarter of 2021 were $142.1 million, an increase of $20.5 million, or 16.9%, from the comparable 2020 quarter.

For the six months ended June 30, 2021, these fees were $281.1 million, an increase of $24.7 million, or 9.6%, from the 2020 period.

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.

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

mutual funds as a result of increased assets under management in these share classes.

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 are reported in distribution and servicing expense.

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

1 unchanged sentence

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

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

For the second quarter, we eliminated net revenue of $1.1 million in 2021 and $2.1 million in 2020.

Operating expenses

Three months ended Q2 2021 vs.

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

Q2 2020 Six months ended YTD 2021 vs.

(in millions) 6/30/2021 6/30/2020 $ change % change 6/30/2021 6/30/2020 $ change % change

Compensation and related costs, excluding supplemental savings plan $ 566.1 $ 474.6 $ 91.5 19.3 % $ 1,127.4 $ 979.0 $ 148.4 15.2 %

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Advertising and promotion 20.4 13.4 7.0 52.2 % 39.3 38.3 1.0 2.6 %

Product-related costs 41.0 41.6 (.6) (1.4) %

Product and recordkeeping related costs 43.3 39.6 3.7 9.3 % 84.3 81.2 3.1 3.8 %

Technology, occupancy, and facility costs 119.3 111.3 8.0 7.2 % 236.6 216.7 19.9 9.2 %

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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, excluding supplemental savings plan, were $566.1 million in the second quarter of 2021, an increase of $91.5 million, or 19.3%, compared to the 2020 quarter.

The increase from the 2020 quarter was primarily due to a $54.3 million increase in our interim accrual for annual variable compensation, primarily bonus compensation.

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

Also contributing to the increase in 2021 costs compared to the second quarter of 2020 was a $35.9 million increase in salaries and benefits due to a 3.3% increase in our average staff size and modest increases in base salaries at the beginning of the year.

For the six months ended June 30, 2021, compensation and related costs, excluding supplemental savings plan, were $1,127.4 million , an increase of $148.4 million, or 15.2%, compared to the 2020 period.

The increase in compensation and related costs from the 2020 period was primarily due to a $90.6 million increase in our interim bonus accrual for annual variable compensation, primarily bonus compensation.

Also contributing to the increase in costs compared to 2020 was a $58.6 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 2021.

These increases in compensation and related costs were offset in part by $11.8 million in higher labor capitalization related to internally developed software in 2021 period.

Distribution and servicing.

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.

Distribution and servicing costs were $92.7 million for the second quarter of 2021, an increase of 49.5% from the $62.0 million recognized in the 2020 quarter.

For the six months ended June 30, 2021, these costs were $178.3 million, an increase of 39.6% over the $127.7 million recognized in the comparable 2020 period.

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

The amounts paid to third-party intermediaries that source the assets of certain share classes of our U.S.

mutual funds and our international products, such as our Japanese ITMs and SICAVs, are recognized in the distribution and servicing expense category.

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

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Advertising and promotion.

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.

Advertising and promotion costs were $20.4 million in the second quarter of 2021, an increase of $7.0 million, or 52.2%, compared to the $13.4 million recognized in the 2020 quarter.

For the six months ended June 30, 2021, these costs were $39.3 million, an increase of $1.0 million, or 2.6%, compared to the 2020 period.

The increase in both the second quarter and six months ended June 30, 2021 was driven primarily by the timing of media-related spend related to the launch of our new marketing campaign to promote the firm's target date solutions, along with lower spending in 2020 due to the impact of the coronavirus pandemic.

Technology, occupancy, and facility costs.

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.

Technology, occupancy, and facility costs were $119.3 million in the second quarter of 2021, an increase of $8.0 million, or 7.2%, compared to the $111.3 million recognized in the 2020 quarter.

For the six months ended June 30, 2021, these costs were $236.6 million, an increase of $19.9 million, or

9.2%, compared to the 2020 period.

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

General, administrative, and other.

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.

General, administrative, and other expenses were $91.7 million in the second quarter of 2021, an increase of $5.3 million, or 6.1%, compared to the $86.4 million recognized in the 2020 quarter.

For the six months ended June 30, 2021, general, administrative, and other expenses were $179.0 million, an increase of $15.5 million, or 9.5%, compared to the 2020 period.

Higher information services, professional fees and research costs were primary contributors to the higher costs in 2021 as compared to 2020.

Additionally, travel-related expenses were nearly flat in the second quarter of 2021 compared to the second quarter of 2020 and were lower compared to the six months ended June 30, 2020, due to the impact of the coronavirus pandemic.

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

Non-operating income for the second quarter of 2021 was $143.9 million, a decrease of $271.2 million from non-operating income of $415.1 million in the 2020 quarter.

For the six months ended June 30, 2021, non-operating income was $246.0 million, an increase of $331.2 million from a non-operating loss of $85.2 million in the comparable 2020 period.

The following table details the components of non-operating income (loss) for both the second quarter and six months ended June 30, 2021 and 2020.

Three months ended Six months ended

(in millions) 6/30/2021 6/30/2020 6/30/2021 6/30/2020

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Dividend income $ 4.9 $ 5.0 $ 10.0 $ 15.4

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

Market related gains and equity in earnings 12.9 80.8 21.5 9.2

Total cash and discretionary investments 17.8 85.8 31.5 24.6

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Market related gains (losses) and equity in earnings (losses) 17.5 28.1 29.4 (6.0)

Net gain recognized upon deconsolidation 2.6 .1

Net gains recognized upon deconsolidation — — 2.6 .1

Investments used to hedge the supplemental savings plan liability 37.1 64.4 59.2 (4.1)

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

Total net gains from non-consolidated T.

Rowe Price investment products 72.4 178.8 122.8 15.8

Other investment income 18.2 8.4

Net gains (losses) on investments 68.6 (154.6)

Other investment income (loss) 15.3 (8.2) 33.5 .2

Net gains on investments 87.7 170.6 156.3 16.0

Net gains (losses) on consolidated sponsored investment portfolios 55.5 242.4 92.7 (87.9)

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Non-operating income (loss) $ 143.9 $ 415.1 $ 246.0 $ (85.2)

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 significant investment portfolio gains in the second quarter of 2020, which reflected the sharp market recovery following the significant losses experienced in the first quarter of 2020, outperformed the investment gains in the second quarter of 2021 and drove the decrease in non-operating income.

Our consolidated investment products and supplemental savings plan hedge portfolio comprised nearly two-thirds of the net gains recognized during the second quarter of 2021.

Despite the sharp market recovery in the second quarter of 2020, our investment portfolio for the six months ended June 30, 2021 outperformed the same period in 2020 as a result of the significant market losses experienced in the first quarter of 2020.

Our consolidated investment products and supplemental savings plan hedge portfolio comprised just over 60% of the net gains recognized during the six months ended June 30, 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

Three months ended Six months ended

(in millions) 6/30/2021 6/30/2020 6/30/2021 6/30/2020

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Provision for income taxes

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

Our effective tax rate for the second quarter of 2021 was 23.5%, compared with 24.8% in the 2020 quarter.

The effective tax rate for the second quarter of 2021 as compared to the second quarter of 2020 was favorably impacted by a discrete remeasurement of deferred tax assets as a result of an increase in the corporate income tax rate in the United Kingdom.

Our effective tax rate for the six months ended June 30, 2021 was 23.4%, compared with 23.9% in the 2020 period.

The year-to-date 2021 effective tax rate was lower than the 2020 period primarily due to a lower state effective tax rate and higher net gains attributable to redeemable non-controlling interests held in our consolidated investment products.

These benefits were partially offset by lower discrete tax benefits associated with the settlement of stock-based awards.

The following table reconciles the statutory federal income tax rate to our effective tax rate for both the three- and six- months ended June 30, 2021 and 2020:

Three months ended Six months ended

6/30/2021 6/30/2020 6/30/2021 6/30/2020

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

3.7 3.7 3.7 4.2

Net (income) losses attributable to redeemable non-controlling interests (.1) (.3) (.3) .3

Net excess tax benefits from stock-based compensation plans activity

(.6) (.4) (.9) (1.7)

(.5) .8 (.1) .1

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 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.

Our non-GAAP effective tax rate was 23.4% in the second quarter of 2021 compared with 24.8% in second quarter of 2020, and was 23.5% for the six months ended June 30, 2021 compared with 23.8% for the six months ended June 30, 2020.

The non-GAAP effective tax rate for

the second quarter of 2021 was favorably impacted by a discrete remeasurement of deferred tax assets as a result of an increase in the corporate income tax rate in the United Kingdom.

The non-GAAP effective tax rate for the six months ended June 30, 2021 was favorably impacted by a lower state effective tax rate, partially offset by lower discrete tax benefits associated with the settlement of stock-based awards in the second quarter of 2021.

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%.

We currently estimate that our effective tax rate for the full year 2021, on a GAAP and non-GAAP basis, will be in the range of 22.5% to 24.5%.

NON-GAAP INFORMATION AND RECONCILIATION.

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GAAP financial measures for the three months ended

March 31, 2021 and 2020.

June 30, 2021 and 2020.

Three months ended 6/30/2021

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Net income attributable to T.

Rowe Price Group

Diluted earnings per share (5)

Rowe Price Diluted earnings per share (5)

$ 971.2 $ 958.1 $ 143.9 $ 259.3 $ 815.7 $ 3.46

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Net income attributable to T.

Rowe Price Group

Diluted earnings per share (5)

Rowe Price Diluted earnings per share (5)

GAAP Basis $ 861.7 $ 553.7 $ 415.1 $ 240.3 $ 603.0 $ 2.55

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Adjusted Non-GAAP Basis $ 785.8 $ 631.7 $ 85.8 $ 177.9 $ 539.6 $ 2.29

The following schedules reconcile certain U.S.

GAAP financial measures for the six months ended June 30, 2021 and 2020.

Six months ended 6/30/2021

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes(4) Net income attributable to T.

Rowe Price Diluted earnings per share(5)

$ 1,904.8 $ 1,851.3 $ 246.0 $ 489.8 $ 1,565.1 $ 6.63

Non-GAAP adjustments:

Consolidated T.

investment products (1)

(3.9) 6.3 (92.7) (13.4) (30.6) (.14)

Supplemental savings plan liability (2)

(59.9) 59.9 (59.2) .2 .5 —

Other non-operating income (3)

— — (62.6) (18.6) (44.0) (.17)

Adjusted Non-GAAP Basis

$ 1,841.0 $ 1,917.5 $ 31.5 $ 458.0 $ 1,491.0 $ 6.32

Six months ended 6/30/2020

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes(4) Net income attributable to T.

Rowe Price Diluted earnings per share(5)

$ 1,617.1 $ 1,260.9 $ (85.2) $ 280.6 $ 946.1 $ 3.95

Non-GAAP adjustments:

Consolidated T.

investment products (1)

(2.7) 7.3 87.9 16.7 27.5 .11

Supplemental savings plan liability (2)

(10.7) 10.7 4.1 5.6 9.2 .04

Other non-operating income (3)

— — 17.8 6.7 11.1 .05

Adjusted Non-GAAP Basis

$ 1,603.7 $ 1,278.9 $ 24.6 $ 309.6 $ 993.9 $ 4.15

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

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The adjustment to net income attributable to T.

Rowe Price Group represents the net income of the consolidated products, net of redeemable non-controlling interest.

Rowe Price represents the net income of the consolidated products, net of redeemable non-controlling interest.

We remove the impact of the consolidated T.

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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 23.7% for 2021 and 22.5% for 2020.

(4) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 23.5% for the first half of 2021 and 23.8% for the first half of 2020.

As such, the non-GAAP effective tax rate for the second quarter

was 23.4% for 2021 and 24.8% 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 22.5% to 24.5%.

(5) This non-GAAP measure was calculated by applying the two-class method to adjusted net income attributable to T.

Rowe Price Group divided by the weighted-average common shares outstanding assuming dilution.

Rowe Price divided by the weighted-average common shares outstanding assuming dilution.

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

Three months ended

Three months ended Six months ended

6/30/2021 6/30/2020 6/30/2021 6/30/2020

Adjusted net income attributable to T.

Rowe Price Group $ 712.0 $ 454.3

Rowe Price $ 779.0 $ 539.6 $ 1,491.0 $ 993.9

adjusted net income allocated to outstanding restricted stock and stock unit holders 21.3 15.0 40.1 27.4

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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 $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 returned gains of $17.8 million and $31.5 million in the three- and six- months ended June 30, 2021, respectively, as compared to investment gains of $85.8 million and $24.6 million in the three- and six- months ended June 30, 2020.

Cash and discretionary investments in T.

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.

Rowe Price products held by our subsidiaries outside the United States were $871.1 million at June 30, 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 March 31, 2021.

Rowe Price’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of June 30, 2021.

(in millions)

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Rowe Price products attributable to T.

Rowe Price Group 2,830.1 3,150.2 880.2 6,860.5

Rowe Price 3,514.9 3,210.8 756.5 7,482.2

Investment in UTI and other investments — 263.1 — 263.1

Total cash and investments attributable to T.

Rowe Price Group 2,830.1 3,403.6 880.2 7,113.9

Rowe Price 3,514.9 3,473.9 756.5 7,745.3

Redeemable non-controlling interests — — 880.4 880.4

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

As reported on unaudited condensed consolidated balance sheet at June 30, 2021 $ 3,514.9 $ 3,473.9 $ 1,636.9 $ 8,625.7

(1) The consolidated T.

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

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

The $55.0 million and the $701.5 million represent the total value at June 30, 2021 of our interest in the consolidated T.

Rowe Price investment products.

The total net assets of the T.

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.

Rowe Price investment products at June 30, 2021 of $1,636.9 million includes assets of $1,667.9 million, less liabilities of $31.0 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 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 $.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.

Additionally, our Board of Directors declared a special cash dividend of $3.00 per common share, or $699.8 million, on June 14, 2021, that was paid on July 7, 2021.

Further, we expended $.3 billion in the first half of 2021 to repurchase 1.9 million shares, or 0.8%, of our outstanding common stock at an average price of $166.57 per share.

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

While opportunistic in our approach to stock buybacks, we will generally repurchase our common stock over time to offset the dilution created by our equity-based compensation plans.

Since the end of 2018, we have returned $4.0 billion to stockholders through stock repurchases and our regular quarterly dividends, as follows:

(in millions) Recurring dividend Stock repurchases Total cash returned to stockholders

Since the end of 2018, we have returned $5.0 billion to stockholders through stock repurchases, regular quarterly dividends, and special dividends, as follows:

(in millions) Recurring dividend Special dividend (1)

Stock repurchases Total cash returned to stockholders

2019 $ 733.6 $ — $ 708.8 $ 1,442.4

2020 846.0 — 1,192.2 2,038.2

Three months ended 3/31/2021 252.3 267.6 519.9

Six months ended 6/30/2021 504.3 699.8 308.9 1,513.0

Total $ 2,083.9 $ 699.8 $ 2,209.9 $ 4,993.6

(1) Special cash dividend declared in June 2021 was paid in July 2021.

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 three months ended March 31, 2021 and 2020, that are attributable to T.

Rowe Price Group, our consolidated T.

The following table summarizes the cash flows for the six months ended June 30, 2021 and 2020, that are attributable to T.

Rowe Price, our consolidated T.

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

Three months ended

Six months ended

6/30/2021 6/30/2020

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Cash flow attributable to T.

Rowe Price Group

Cash flow attributable to consolidated T.

Rowe Price Cash flow attributable to consolidated T.

Rowe Price investment products

Cash flow attributable to T.

Rowe Price Group

Cash flow attributable to consolidated T.

Rowe Price Cash flow attributable to consolidated T.

Rowe Price investment products

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Net (gains) losses recognized on investments (184.9) — 44.0 (140.9) 47.6 — (44.2) 3.4

Net change in T.

Net (investments) redemptions in T.

Rowe Price investment products used to economically hedge supplemental savings plan liability 21.9 — — 21.9 (10.0) — — (10.0)

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Operating activities attributable to T.

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.

Rowe Price during the first half of 2021 provided cash flows of $2,025.2 million as compared to $1,690.7 million during the first half of 2020.

Operating cash flows attributable to T.

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.

Rowe Price increased $334.5 million, including a $619.0 million increase in net income from the first half of 2020.

This increase was partially offset by timing differences on the cash settlement of our assets and liabilities of $91.3 million and $225.1 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 $232.5 million increase in net investment gains in the first half of 2021 compared with net investment losses in the first half of 2020.

Additionally, in 2021, we had net proceeds of $21.9 million from certain investment products that economically hedge our supplemental savings plan liability, while we had net investments of $10.0 million in the same period of 2020.

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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.

Rowe Price totaled $129.8 million in the first half of 2021 compared with $15.6 million of cash used by investing activities in the 2020 period.

During 2021, we decreased the level of seed capital provided by $107.1 million.

1 unchanged sentence

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.

Further increasing the cash provided by investing activities were higher net proceeds from the sale of certain of our discretionary investments of $160.1 million compared to net proceeds of $110.8 million during 2020.

Partially offsetting these increases were increased property and equipment expenditures of $16.5 million.

The remaining $35.0 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.

1 unchanged sentence

Net cash used in financing activities attributable to T.

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.

Rowe Price were $791.8 million in the first half of 2021 compared with $1,398.8 million in the 2020 period.

During the first half of 2021, we used $308.9 million to repurchase 1.9 million shares compared to $1.0 billion to repurchase 9.6 million shares in the first half of 2020.

Partially offsetting this decrease in cash used for financing activities was a $79.4 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.

Our 2021 net cash used in financing activities does not reflect the $3 per share special cash dividend declared by our Board of Directors in June 2021 as it was not paid until early July 2021.

The remaining change in reported cash flows from financing activities is primarily attributable to a $211.4 million increase in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first half of 2021 compared to the 2020 period.

CRITICAL ACCOUNTING POLICIES.

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our tax rate;

and our expectations regarding financial markets, future transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, the impact of the coronavirus pandemic, and other market conditions.

and our expectations regarding financial markets, strategic transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, the impact of the coronavirus pandemic, and other market conditions.

Readers are cautioned that any forward-looking information provided by or on behalf of T.

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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