What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-10-28 compared with 2021-07-29 · 228 added, 203 removed, 548 unchanged (44% of the section changed)

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MARKET TRENDS.

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.

stock market indexes were mixed in the third quarter.

Large-cap shares outperformed.

Stocks generally rose through early September, supported by favorable second-quarter corporate earnings reports.

However, the spread of the delta variant of the coronavirus weighed on the economic recovery.

Toward the end of the quarter, investors turned cautious as longer-term U.S.

Treasury yields climbed amid growing expectations that the Federal Reserve could soon begin to taper its monthly asset purchases.

Investors were also concerned that Congress had not yet passed legislation that raises or eliminates the debt ceiling, which is the statutory limit on the federal government’s borrowing ability.

European stock markets were widely mixed in U.S.

dollar terms;

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%.

UK shares fell marginally.

Developed Asian and Far East markets were also mixed.

Japanese shares rose close to 5%, whereas Hong Kong stocks slumped more than 9% due in part to Chinese regulatory developments.

Emerging markets equities generally declined.

In Latin America, Brazilian shares tumbled more than 20% in U.S.

dollar terms;

in Asia, South Korean shares slumped 13%.

Emerging European markets rose broadly, though Turkish stocks trailed the region with a 2% gain.

Returns of several major equity market indexes were as follows:

Three months ended Six months ended

Three months ended Nine months ended

Index 9/30/2021 9/30/2021

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(1) Returns exclude dividends

Global bond returns were mostly positive in U.S.

Global bond returns produced mostly flat or negative returns in U.S.

dollar terms.

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.

In the U.S., long-term Treasury yields initially declined, but they rose in late September after the Federal Reserve signaled that it could soon moderate the pace of its monthly asset purchases.

The 10-year U.S.

Treasury yield increased from 1.45% to 1.52% during the quarter.

In the taxable investment-grade bond universe, all major segments—including Treasuries, corporate bonds, and mortgage- and asset-backed securities—were essentially flat.

Tax-free municipal securities fell slightly and trailed the taxable investment-grade bond market.

High yield bonds produced slight positive returns and outperformed high-quality issues.

Bonds in developed non-U.S.

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.

markets declined as longer-term interest rates in various countries rose and a stronger U.S.

dollar reduced local returns to U.S investors.

The Japanese yen fell about .5% versus the greenback, while the euro and British pound dropped more than 2%.

Emerging markets bonds also declined.

Local currency issues fared worse than dollar-denominated debt, as the South African rand, the South Korean won, and several Latin American currencies fell materially against the U.S.

Returns for several major bond market indexes were as follows:

Three months ended Six months ended

Three months ended Nine months ended

Index 9/30/2021 9/30/2021

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ASSETS UNDER MANAGEMENT.

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.

Assets under management ended the third quarter of 2021 at $1,612.3 billion, a decrease of $10.8 billion from June 30, 2021, and an increase of $141.8 billion from the end of 2020.

For the three months ended September 30, 2021, the decrease in assets under management was driven by net cash outflows of $6.4 billion and market depreciation, including distributions not reinvested, of $4.4 billion.

Clients transferred $3.6 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts and other investment products, of which $1.9 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.

For the nine months ended September 30, 2021, the increase in assets under management was driven by market appreciation, net of distributions not reinvested, of $147.6 billion, partially offset by net cash outflows of $5.8 billion.

Clients transferred $18.4 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts and other investment products, of which $12.7 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

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, 2021:

Three months ended 9/30/2021 Nine months ended 9/30/2021

(in billions) U.S.

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Net cash flows after client transfers (3.5) (5.3) 2.4 (6.4) (15.2) (19.9) 29.3 (5.8)

Net market appreciation and gains 57.7 29.5 18.7 105.9 83.2 41.4 27.7 152.3

Net market (depreciation)/appreciation and (losses)/gains (1.1) (.8) (2.3) (4.2) 82.1 40.6 25.4 148.1

Net distributions not reinvested (.2) — — (.2) (.5) — — (.5)

Change during the period (4.8) (6.1) .1 (10.8) 66.4 20.7 54.7 141.8

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

Assets under management at September 30, 2021 $ 861.0 $ 420.8 $ 330.5 $ 1,612.3 $ 861.0 $ 420.8 $ 330.5 $ 1,612.3

Three months ended 9/30/2021 Nine months ended 9/30/2021

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

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Net cash flows (8.4) 2.1 (.1) (6.4) (28.8) 11.2 11.8 (5.8)

Net market appreciation and gains (2)

Net market (depreciation)/appreciation and (losses)/gains (2)

(2.0) (.1) (2.3) (4.4) 107.7 .8 39.1 147.6

Change during the period (10.4) 2.0 (2.4) (10.8) 78.9 12.0 50.9 141.8

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

Assets under management at September 30, 2021 $ 974.7 $ 180.7 $ 456.9 $ 1,612.3 $ 974.7 $ 180.7 $ 456.9 $ 1,612.3

(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 9.0% of our assets under management at June 30, 2021, 8.8% at March, 31, 2021, and 9.3% at December 31, 2020.

Investment advisory clients outside the United States account for 8.8% of our assets under management at September 30, 2021, 9.0% at June 30, 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.

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Net cash inflows (outflows)

Assets under management Three months ended Six months ended

Assets under management Three months ended Nine months ended

(in billions) 9/30/2021 6/30/2021 12/31/2020 9/30/2021 9/30/2020 9/30/2021 9/30/2020

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Collective investment trusts 182.2 182.0 145.4 1.4 (2.8) 21.7 4.1

Separately managed accounts 12.2 11.4 10.7 .2 .2 .4 .3

Subadvised and separately managed accounts 12.1 12.2 10.7 — .2 .4 .5

$ 377.7 $ 379.2 $ 332.2 $ .7 $ (5.5) $ 12.7 $ (5.0)

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

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

As of September 30, 2021, our assets under administration were $260 billion, of which nearly $173 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, were $8 billion at June 30, 2021.

The assets under advisement in these portfolios, predominantly in the United States, were $8 billion at September 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 tables present investment performance for the one-, three-, five-, and 10-years ended June 30, 2021.

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

Past performance is no guarantee of future results.

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All Composites 44% 68% 72% 72%

As of June 30, 2021, 77 of 123 (62.6%) of the firm's rated U.S.

As of September 30, 2021, 73 of 123 (59.3%) of the firm's rated U.S.

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

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In addition, 86% (5) of AUM in the firm's rated U.S.

mutual funds (across primary share classes) ended June 30, 2021 with an overall rating of 4 or 5 stars.

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

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

GAAP basis as well as a non-GAAP basis.

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Three months ended Q3 2021 vs.

Q2 2020 Six months ended YTD 2021 vs.

Q3 2020 Nine months ended YTD 2021 vs.

(in millions, except per-share data) 9/30/2021 9/30/2020 $ change % change 9/30/2021 9/30/2020 $ change % change

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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 June 30, 2021

Results Overview - Quarter ended September 30, 2021

Investment advisory revenues.

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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 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.

Investment advisory revenues earned in the third quarter of 2021 increased over the comparable 2020 quarter as average assets under our management increased $355.8 billion, or 27.5%, to $1,648.7 billion.

In the third quarter of 2021, we voluntarily waived $13.7 million, or less than 1%, of our investment advisory fees in order to continue to maintain a positive yield for investors.

At September 30, 2021, combined net assets of the investment portfolios in which we waived fees in the third quarter of 2021 were $23.7 billion.

We anticipate that the waivers in the fourth quarter of 2021 will be at a similar level to the third quarter of 2021 and expect to continue to waive fees into 2022.

The average annualized effective fee rate earned during the third quarter of 2021 was 43.6 basis points, compared with 45.2 basis points earned during both the third quarter of 2020 and the second quarter of 2021.

In comparison to the third quarter of 2020, our annualized effective fee rate declined primarily due to the July 2021 fee reductions in our target-date products, client transfers within the complex to lower fee vehicles or share classes over the last twelve months and the money market fee waivers.

These fee pressures were partially offset as higher market valuations led to an asset class shift towards equity strategies.

Operating expenses.

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.

Operating expenses were $957.9 million in the third quarter of 2021 compared with $866.9 million in the third quarter of 2020.

The increase in our operating expenses was primarily due to higher compensation costs and higher distribution and servicing costs as average assets under management increased over prior year.

Also contributing to the increase in operating expenses during the quarter were costs incurred as a

result of our previously announced expanded relationship with FIS, a global technology leader, in which FIS assumed responsibility for managing retirement technology development and core operations for our full-service recordkeeping offering on August 1, 2021.

During the quarter, the firm incurred recordkeeping costs, which were partially offset by a reduction in the compensation expenses related to the approximately 800 associates who transitioned to FIS, as well as transition costs associated with the expanded relationship.

These increases were partially offset by lower compensation expenses related to the supplemental savings plan.

For the third quarter of 2021, the decrease in the supplemental savings plan expense was entirely offset by a corresponding decrease in the non-operating gains earned on the investments used to economically hedge the related liability.

The firm employed 7,124 associates at September 30, 2021, a decrease of 7.2% from the end of 2020 and 6.7% from September 30, 2020.

Excluding the approximate 800 associates that became employees of FIS on August 1, 2021, headcount would have increased approximately 3% from both the end of 2020 and from September 30, 2020.

On a non-GAAP basis, our operating expenses in the third quarter of 2021 increased 15.3% to $957.2 million compared to the third quarter of 2020.

Our non-GAAP operating expenses exclude 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.

Our operating margin in the third quarter of 2021 was 51.0%, compared to 45.7% earned in the 2020 quarter.

The increase in our operating margin for the third 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 product and recordkeeping expenses as well as 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

Diluted earnings per share was $3.31 for the third quarter of 2021 as compared to $2.73 for the third quarter of 2020.

The 21.2% increase was primarily driven by higher operating income, as strong markets since the end of the third quarter of 2020 have increased average assets under management resulting in higher investment advisory fee revenue, and a lower effective tax rate.

This increase was partially offset by net investment losses recognized in the third quarter of 2021 as compared to significant net investment gains in the third quarter of 2020, as the sharp market returns in 2020 quarterly outpaced the market performance in the third quarter of 2021.

On a non-GAAP basis, diluted earnings per share was $3.27 for the third quarter of 2021 as compared to $2.55 for the third quarter of 2020.

Similar to our GAAP diluted earnings, the increase is largely attributable to higher operating income compared to 2021 period.

Results Overview - Year-to-Date ended September 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.

Investment advisory revenues earned in the nine months ended September 30, 2021 increased over the comparable 2020 period as average assets under our management increased $382.4 billion, or 31.9%, to $1,581.3 billion.

We waived $43.0 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, 2021.

The average annualized effective fee rate earned on our assets under management during the nine months ended September 30, 2021 was 44.7 basis points compared with 45.6 basis points earned during the same period of 2020.

Our annualized effective fee rate declined primarily due to the July 2021 fee reductions in our target-date products, client transfers within the complex to lower fee vehicles or share classes over the last twelve months and the money market fee waivers.

These fee pressures were partially offset as higher market valuations led to an asset class shift towards equity strategies.

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.

Operating expenses were $2,862.7 million in the nine months ended September 30, 2021 compared with $2,484.0 million in the 2020 period.

More than half of the increase in operating expenses was due to higher compensation expenses, including higher interim bonus accrual, increased salaries and benefits, and a $14.2 million increase in operating expenses related to the supplemental savings plan due to higher market returns in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, the increase in the supplemental savings plan expense was entirely offset by a corresponding increase in 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 and higher product and recordkeeping costs due to the expanded FIS arrangement.

On a non-GAAP basis, our operating expenses for the nine months ended September 30, 2021 increased 15.0% to $2,798.2 million compared to the 2020 period.

Our non-GAAP operating expenses exclude 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.

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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 10% - 14% to a range of 12% - 15% to reflect an increase in our expectations for expenses.

We narrowed our 2021 non-GAAP operating expense growth guidance from a range of 12% - 15% to a range of 13% - 15% to reflect results year-to-date and expectations for the fourth quarter of 2021.

This expense excludes any acquisition costs expected to be incurred in relation to the announced agreement to acquire OHA.

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.

As discussed in July 2021, the impact of our expanded partnership with FIS is reflected in the expense growth guidance above.

Operating margin.

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.

Our operating margin in the nine months ended September 30, 2021 was 49.9%, compared to 44.5% earned in the 2020 period.

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

Diluted earnings per share.

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.

Diluted earnings per share was $9.94 for the nine months ended September 30, 2021 as compared to $6.66 for the nine months ended September 30, 2020.

The 49.2% increase was primarily driven by higher net income, lower weighted average outstanding shares, and a lower effective tax rate.

On a non-GAAP basis, diluted earnings per share was $9.59 for the nine months ended September 30, 2021 as compared to $6.69 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.

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Three months ended Q3 2021 vs.

Q2 2020 Six months ended YTD 2021 vs.

Q3 2020 Nine months ended YTD 2021 vs.

(in millions) 9/30/2021 9/30/2020 $ change % change 9/30/2021 9/30/2020 $ change % change

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Net revenues $ 1,954.1 $ 1,595.8 $ 358.3 22.5 % $ 5,710.2 $ 4,473.8 $ 1,236.4 27.6 %

Average assets under management (in billions)

mutual funds $ 881.0 $ 708.8 $ 172.2 24.3 % $ 848.1 $ 664.0 $ 184.1 27.7 %

Subadvised funds, separate accounts, collective investment trusts, and other investment products 767.7 584.1 183.6 31.4 % 733.2 534.9 198.3 37.1 %

$ 1,648.7 $ 1,292.9 355.8 27.5 % $ 1,581.3 $ 1,198.9 382.4 31.9 %

Investment advisory fees.

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

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

mutual funds were $1,125.5 million, an increase of 19.8% from the comparable 2020 quarter.

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.

Average assets under management in these funds for the third quarter of 2021 increased 24.3% from the 2020 quarter to $881 billion.

The annualized effective fee rate of 50.7 basis points for the third quarter of 2021 decreased from 52.7 basis points in the third quarter of 2020.

In comparison to the third quarter of 2020, our annualized effective fee rate for U.S.

mutual funds decreased primarily due to the July 2021 fee reductions in our target date products and increased money market fee waivers.

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

mutual funds were $3,273.2 million, an increase of 24.0% 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.

Average assets under management in these funds for the nine months ended September 30, 2021 increased 27.7% from the 2020 period to $848.0 billion.

The annualized effective fee rate of 51.6 basis points for the nine months ended September 30, 2021 decreased from 53.1 basis points for the nine months ended September 30, 2020.

Our annualized effective fee rate for our U.S.

mutual funds decreased primarily due to the July 2021 fee reductions in our target date products and increased money market fee waivers.

In addition, strong market returns contributed 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 second quarter of 2021 from these other portfolios were $689.7 million, an increase of 46.5% from the comparable 2020 quarter.

Investment advisory revenues earned in the third quarter of 2021 from these other portfolios were $687.9 million, an increase of 29.8% from the comparable 2020 quarter.

Average assets under management for these products increased 31.4% from the 2020 quarter to $767.7 billion.

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.

The annualized effective fee rate of 35.5 basis points for the third quarter of 2021 decreased from 36.1 basis points in the third quarter of 2020.

In comparison to the third quarter of 2020, our annualized effective fee rate for our other portfolios was primarily due to the July 2021 fee reductions in our target date products.

For the nine months ended September 30, 2021, investment advisory revenues earned from subadvised and separate accounts as well as collective investment trusts and other investment products were $2,015.2 million, an increase of 38.8% from the 2020 period.

Average assets under management for these products increased 37.1% from the 2020 period to $733.3 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.

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

The annualized effective fee rate of 36.7 basis points for the nine months ended September 30, 2021 increased from 36.3 basis points for the nine months ended September 30, 2020.

annualized effective fee rate for our other portfolios increased primarily due to the mix shift towards equities and flows into our international products offset slightly by the July 2021 fee reductions in our target date products.

Administrative, distribution, and servicing fees.

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.

Administrative, distribution, and servicing fees in the third quarter of 2021 were $140.7 million, an increase of $14.2 million, or 11.2%, from the comparable 2020 quarter.

For the nine months ended September 30, 2021, these fees were $421.8 million, an increase of $38.9 million, or 10.2%, from the 2020 period.

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

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

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

For the third quarter, we eliminated net revenue of $1.6 million in 2021 and $2.7 million in 2020.

For the nine months ended September 30, we eliminated net revenue of $4.0 million in 2021 and $7.3 million in 2020

Operating expenses

Three months ended Q3 2021 vs.

Q2 2020 Six months ended YTD 2021 vs.

Q3 2020 Nine months ended YTD 2021 vs.

(in millions) 9/30/2021 9/30/2020 $ change % change 9/30/2021 9/30/2020 $ change % change

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Compensation and related costs, excluding supplemental savings plan.

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.

Compensation and related costs, excluding supplemental savings plan, were $564.9 million in the third quarter of 2021, an increase of $47.3 million, or 9.1%, compared to the 2020 quarter.

The increase from the 2020 quarter was primarily due to a $32.5 million increase in our interim bonus accrual.

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.

Also contributing to the increase in 2021 costs compared to the third quarter of 2020 was a $16.1 million increase in salaries and benefits due to modest increases in base salaries at the beginning of the year and an increase in our average staff size before the transition of approximately 800 T.

Rowe Price operations and technology associates to FIS on August 1, 2021.

For the nine months ended September 30, 2021, compensation and related costs, excluding supplemental savings plan, were $1,692.3 million, an increase of $195.7 million, or 13.1%, compared to the 2020 period.

The increase in compensation and related costs from the 2020 period was primarily due to a $121.7 million increase in our interim bonus accrual.

Also contributing to the increase in costs compared to 2020 was a $78.1 million increase in salaries and benefits due to modest increases in base salaries at the beginning of the year and an increase in our average staff size before the transition of approximately 800 operations and technology associates to FIS on August 1, 2021.

These increases in compensation and related costs were offset in part by $11.7 million in higher labor capitalization related to internally developed software in 2021 period.

Distribution and servicing.

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.

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

Distribution and servicing costs were $96.0 million for the third quarter of 2021, an increase of 30.6% from the $73.5 million recognized in the 2020 quarter.

For the nine months ended September 30, 2021, these costs were $274.3 million, an increase of 36.3% over the $201.2 million recognized in the comparable 2020 period.

The increase is primarily driven by higher AUM-based distribution costs as a result of continued market

appreciation and inflows in our international products, including our Japanese Investment Trusts (ITMs), and SICAVs.

Also contributing to the increase are higher costs incurred to distribute certain other products through U.S.

financial intermediaries, as assets under management in these products have increased from prior year.

The amounts paid to third-party intermediaries that source the assets of the Advisor and R 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.

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Advertising and promotion.

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.

Advertising and promotion costs were $22.1 million in the third quarter of 2021, an increase of $7.9 million, or 55.6%, compared to the $14.2 million recognized in the 2020 quarter.

For the nine months ended September 30, 2021, these costs were $61.4 million, an increase of $8.9 million, or 17.0%, compared to the 2020 period.

The increase in both the third quarter and nine months ended September 30, 2021 was driven primarily by the media spend related to the launch of a new brand marketing campaign and the promotion of the firm's target date solutions, along with lower spending in 2020 due to the impact of the coronavirus pandemic.

Product and recordkeeping related costs.

Product and recordkeeping costs were $70.3 million in the third quarter of 2021, an increase of $33.5 million, or 91%, compared to the $36.8 million in the 2020 quarter.

For the nine months ended September 30, 2021, these costs were $154.6 million, an increase of $36.6 million, or 31%, compared to the 2020 period.

More than 85% of the increase in the third quarter and more than 80% of the increase in the nine months ended September 30, 2021 was driven primarily by the recordkeeping costs incurred as part of our expanded FIS relationship, including certain transition expenses that will extend into the fourth quarter of 2021 but not recur in 2022.

While these transition expenses will not recur, we do expect to incur certain technology-related costs as part of this expanded relationship with FIS over the next few years.

These will be reported as technology, occupancy, and facility costs.

Technology, occupancy, and facility 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.

Technology, occupancy, and facility costs were $123.1 million in the third quarter of 2021, an increase of $7.5 million, or 6.5%, compared to the $115.6 million recognized in the 2020 quarter.

For the nine months ended September 30, 2021, these costs were $359.7 million, an increase of $27.4 million, or 8.2%, compared to the 2020 period.

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

Increased facility-related costs also contributed to the increase for the nine months ended September 30, 2021.

General, administrative, and other.

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.

General, administrative, and other expenses were $81.8 million in the third quarter of 2021, an increase of $7.3 million, or 6.1%, compared to the $74.5 million recognized in the 2020 quarter.

Higher research costs primarily due to additional investment professional headcount, higher information services and travel-related costs were the primary contributors to the higher costs in the third quarter of 2021 compared to 2020.

For the nine months ended September 30, 2021, general, administrative, and other expenses were $260.8 million, an increase of $22.8 million, or 9.6%, compared to the 2020 period.

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

Travel-related expenses were lower compared to the nine months ended September 30, 2020, due to the impact of the coronavirus pandemic.

Non-operating income (loss)

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

Non-operating loss for the third quarter of 2021 was $11.5 million, a decrease of $203.1 million from non-operating income of $191.6 million in the 2020 quarter.

For the nine months ended September 30, 2021, non-operating income was $234.5 million, an increase of $128.1 million from non-operating income of $106.4 million in the comparable 2020 period.

The following table details the components of non-operating income for both the third quarter and nine months ended September 30, 2021 and 2020.

Three months ended Nine months ended

(in millions) 9/30/2021 9/30/2020 9/30/2021 9/30/2020

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Dividend income $ 4.0 $ 4.3 $ 14.0 $ 19.7

Market related gains and equity in earnings 12.9 80.8 21.5 9.2

Market related gains (losses) and equity in earnings (losses) (7.0) 21.3 14.5 30.5

Total cash and discretionary investments (3.0) 25.6 28.5 50.2

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Investments used to hedge the supplemental savings plan liability .1 33.3 59.3 29.2

Total net gains from non-consolidated T.

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

Rowe Price investment products (5.3) 73.4 117.5 89.2

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

Other investment income 14.0 11.2 47.5 11.4

Net gains on investments 8.7 84.6 165.0 100.6

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Non-operating income (loss) $ (11.5) $ 191.6 $ 234.5 $ 106.4

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 significant investment portfolio gains in the third quarter of 2020 outperformed the slight investment portfolio losses in the third quarter of 2021 as the spread of the delta variant of the coronavirus weighed on the global economy and markets resulting in lower valuations at the end of the third quarter.

The cash and discretionary investment portfolio also experienced net investment losses of $3.0 million during the third quarter of 2021.

Our investment portfolio for the nine months ended September 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 approximately 60% of the net gains recognized during the nine months ended September 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 Six months ended

Three months ended Nine months ended

(in millions) 9/30/2021 9/30/2020 9/30/2021 9/30/2020

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Provision for income taxes

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

Our GAAP effective tax rate for the third quarter of 2021 was 23.1%, compared with 24.1% in the 2020 quarter.

For the nine months ended September 30, 2021, our GAAP effective tax rate was 23.3%, compared with 24.0% in the 2020 period.

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, 2021 and 2020:

Three months ended Nine months ended

9/30/2021 9/30/2020 9/30/2021 9/30/2020

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(1) State income tax benefits are reflected in the total benefits for net income attributable to redeemable non-controlling interests and stock-based compensation plans activity.

Our effective tax rate will continue to experience volatility in future periods as the discrete tax benefits recognized from option exercises are impacted by market fluctuations in our stock price and timing of option exercises.

The rate will also be impacted by net investment income recognized on our consolidated investment products that are driven by market fluctuations and changes in the proportion of their net income that is attributable to non-controlling interests.

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 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.

Our non-GAAP effective tax rate was 23.1% in the third quarter of 2021 compared with 24.1% in third quarter of 2020, and was 23.4% for the nine months ended September 30, 2021 compared with 23.9% for the nine months ended September 30, 2020.

The non-GAAP effective tax rate for the third quarter of 2021 was favorably impacted by higher discrete discrete tax benefits associated with the settlement of stock-based awards.

The non-GAAP effective tax rate for the nine months ended September 30, 2021 was favorably impacted by a lower state effective 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.

Our GAAP rate will also be impacted by net investment income recognized on our consolidated investment products that are driven by market fluctuations and changes in the proportion of their net income that is attributable to non-controlling interests.

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 22.0% to 24.0%.

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GAAP financial measures for the three months ended

June 30, 2021 and 2020.

September 30, 2021 and 2020.

Three months ended 9/30/2021

Operating expenses

Net operating income

Non-operating income (loss)

Net operating income Non-operating income (loss)

Provision (benefit) for income taxes (4)

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Operating expenses

Net operating income

Non-operating income (loss)

Net operating income Non-operating income (loss)

Provision (benefit) for income taxes (4)

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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.

GAAP financial measures for the nine months ended September 30, 2021 and 2020.

Nine months ended 9/30/2021

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)

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$ 2,798.2 $ 2,916.2 $ 28.5 $ 686.1 $ 2,258.6 $ 9.59

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.

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 Diluted earnings per share (5)

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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 23.5% 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%.

(4) The income tax impacts were calculated in order to achieve an overall year-to-date non-GAAP effective tax rate of 23.4% for the first nine months of 2021 and 23.9% for the first nine months of 2020.

As such, the non-GAAP effective tax rate for three months ended September 30, 2021 and 2020 was 23.1% and 24.1%, re spectively.

The firm estimates that its effective tax rate for the full-year 2021 on a non-GAAP basis will be in the range of 22.0% to 24.0%.

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

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

Three months ended Six months ended

Three months ended Nine months ended

9/30/2021 9/30/2020 9/30/2021 9/30/2020

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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 $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 experienced $3.0 million in market losses and $28.5 million in market gains in the three- and nine-months ended September 30, 2021, respectively, as compared to investment gains of $25.6 million and $50.2 million in the three- and nine-months ended September 30, 2020.

Cash and discretionary investments in T.

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.

Rowe Price products held by our subsidiaries outside the United States were $927.1 million at September 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’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of June 30, 2021.

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

(in millions)

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Redeemable non-controlling interests — — 1,086.6 1,086.6

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

As reported on unaudited condensed consolidated balance sheet at September 30, 2021 $ 3,418.5 $ 3,330.3 $ 1,934.6 $ 8,683.4

(1) The consolidated T.

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

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

The $60.8 million and the $787.2 million represent the total value at September 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 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.

Rowe Price investment products at September 30, 2021 of $1,934.6 million includes assets of $2,026.7 million, less liabilities of $92.1 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.

Rowe Price investment products we consolidate, as well as redeemable non-controlling interests for the portion of these T.

Rowe Price investment products we consolidate, as well as redeemable non-

controlling interests for the portion of these T.

Rowe Price investment products that are held by unrelated third-party investors.

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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.

Further, we expended $526.6 million in the first nine months of 2021 to repurchase 2.9 million shares, or 1.3% of our outstanding common stock, at an average price of $182.27 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

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

Nine months ended 9/30/2021 755.0 699.8 526.6 1,981.4

Total $ 2,334.6 $ 699.8 $ 2,427.6 $ 5,462.0

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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 six months ended June 30, 2021 and 2020, that are attributable to T.

On October 28, 2021, we entered into an agreement to acquire 100% of the equity of OHA, and certain other entities that have common ownership.

We will acquire OHA for a purchase price of up to $4.2 billion, with $3.3 billion payable at closing, approximately 74% in cash and 26% in T.

Rowe Price Group, Inc.

common stock, and up to an additional $900 million in cash upon the achievement of defined business milestones starting in 2025.

We expect that the acquisition will close in the fourth quarter of 2021.

The following table summarizes the cash flows for the nine months ended September 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.

Six months ended

Nine months ended

9/30/2021 9/30/2020

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Operating activities attributable to T.

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.

Rowe Price during the first nine months of 2021 provided cash flows of $3,072.6 million as compared to $2,265.0 million during the first nine months of 2020.

Operating cash flows attributable to T.

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.

Rowe Price increased $807.6 million, including a $753.0 million increase in net income from the first nine months of 2020 and timing differences on the cash settlement of our assets and liabilities of $114.3 million.

This increase was partially offset by $106.9 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 $115.8 million increase in net investment gains in the first nine months of 2021 compared with the first nine months of 2020.

Additionally, in 2021, we had net proceeds of $28.1 million from certain investment products that economically hedge our supplemental savings plan liability, while we had net investments of $19.1 million in the same period of 2020.

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

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.

Rowe Price totaled $108.0 million in the first nine months of 2021 compared with $100.6 million of cash used by investing activities in the 2020 period.

During 2021, we decreased the level of seed capital provided by $131.4 million.

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Net cash used in financing activities attributable to T.

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.

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.

Rowe Price were $1,913.8 million in the first nine months of 2021 compared with $1,718.0 million in the 2020 period.

During the first nine months of 2021, we used $526.6 million to repurchase 2.9 million shares compared to $1.2 billion to repurchase 10.8 million shares in the first nine months of 2020.

Partially offsetting this decrease in cash used for stock repurchases was a $818.3 million increase in dividends paid in 2021 as a result of the special cash dividend paid in July 2021 and the 20.0% increase in our quarterly dividend per share.

The remaining change in reported cash flows from financing activities is primarily attributable to a $276.0 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first nine months of 2021 compared to the 2020 period.

CRITICAL ACCOUNTING POLICIES.

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our tax rate;

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

Our acquisition of OHA is subject to various risks and uncertainties, which could impact the completion of the transaction and effect our results of operations, including:

(i) the occurrence of any event, change, or other circumstances that could give rise to the termination of the purchase agreement;

(ii) closing conditions may not be satisfied in a timely manner or at all, including due to the failure to obtain regulatory and client approvals;

(iii) the announcement and pendency of the acquisition may disrupt our business operations (including the threatened or

actual loss of employees, clients, or suppliers);

(iv) we could experience financial or other setbacks if the transaction encounters unanticipated problems;

(v) anticipated benefits of the transaction, including the realization of revenue, accretion, financial benefits or returns, and expense and other synergies, may not be fully realized or may take longer to realize than expected;

(vi) client and investor interest in T.

Rowe Price or the combined business’s products may be less than anticipated;

and (vii) we may be unable to successfully integrate OHA’s businesses or to integrate the businesses within the anticipated time frame.

Quantitative and Qualitative Disclosures About Market Risk.

1 unchanged sentence

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