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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________
FORM 10-Q
______________________________________

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to
Commission File Number: 000-32191
______________________________________
T. ROWE PRICE GROUP, INC.
(Exact name of registrant as specified in its charter)

Maryland |  | 52-2264646
(State of incorporation) |  | (I.R.S. Employer Identification No.)

100 East Pratt Street, Baltimore, Maryland 21202
(Address, including Zip Code, of principal executive offices)
(410) 345-2000
(Registrant’s telephone number, including area code)
________________

Common stock, $.20 par value per share | TROW | The NASDAQ Stock Market LLC
(title of security) | (ticker symbol) | (Name of exchange on which registered)

______________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. ☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☒ | Accelerated filer | ☐
Non-accelerated filer (do not check if smaller reporting company) | ☐ | Smaller reporting company | ☐
| Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
The number of shares outstanding of the issuer’s common stock ($.20 par value), as of the latest practicable date, July 22, 2019, is 235,565,029.
The exhibit index is at Item 6 on page 40.

PART I – FINANCIAL INFORMATION

Item 1. | Financial Statements.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except share data)

|  | 6/30/2019 |  | 12/31/2018
ASSETS |  |  |  |
Cash and cash equivalents |  | $ | 1,802.4 |  |  | $ | 1,425.2 |
Accounts receivable and accrued revenue |  | 619.8 |  |  | 549.6 |
Investments |  | 2,575.2 |  |  | 2,453.4 |
Assets of consolidated T. Rowe Price investment products ($1,875.1 million at June 30, 2019 and $1,392.6 million at December 31, 2018, related to variable interest entities) |  | 2,203.4 |  |  | 1,680.4 |
Operating lease assets |  | 120.1 |  |  | — |
Property and equipment, net |  | 672.0 |  |  | 661.3 |
Goodwill |  | 665.7 |  |  | 665.7 |
Other assets |  | 253.7 |  |  | 253.7 |
Total assets |  | $ | 8,912.3 |  |  | $ | 7,689.3 |
LIABILITIES |  |  |  |
Accounts payable and accrued expenses |  | $ | 193.0 |  |  | $ | 228.5 |
Liabilities of consolidated T. Rowe Price investment products ($75.8 million at June 30, 2019 and $22.7 million at December 31, 2018, related to variable interest entities) |  | 102.5 |  |  | 38.7 |
Operating lease liabilities |  | 154.9 |  |  | — |
Accrued compensation and related costs |  | 374.1 |  |  | 123.3 |
Supplemental savings plan liability |  | 444.0 |  |  | 380.0 |
Income taxes payable |  | 52.4 |  |  | 54.2 |
Total liabilities |  | 1,320.9 |  |  | 824.7 |
Commitments and contingent liabilities |  |  |  |  |  |
Redeemable non-controlling interests |  | 1,012.3 |  |  | 740.3 |
STOCKHOLDERS’ EQUITY |  |  |  |
Preferred stock, undesignated, $.20 par value – authorized and unissued 20,000,000 shares |  | — |  |  | — |
Common stock, $.20 par value—authorized 750,000,000; issued 235,518,000 shares at June 30, 2019 and 238,069,000 at December 31, 2018 |  | 47.1 |  |  | 47.6 |
Additional capital in excess of par value |  | 654.6 |  |  | 654.6 |
Retained earnings |  | 5,915.9 |  |  | 5,464.1 |
Accumulated other comprehensive loss |  | (38.5 | ) |  | (42.0 | )
Total permanent stockholders’ equity |  | 6,579.1 |  |  | 6,124.3 |
Total liabilities, redeemable non-controlling interests, and permanent stockholders’ equity |  | $ | 8,912.3 |  |  | $ | 7,689.3 |

The accompanying notes are an integral part of these statements.
Page 2

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions, except per-share amounts)

| Three months ended |  | Six months ended
| 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 6/30/2018
Revenues |  |  |  |  |  |  |
Investment advisory fees | $ | 1,270.2 |  |  | $ | 1,214.4 |  |  | $ | 2,464.4 |  |  | $ | 2,403.6 |
Administrative, distribution, and servicing fees | 125.0 |  |  | 130.6 |  |  | 258.1 |  |  | 269.4 |
Net revenues | 1,395.2 |  |  | 1,345.0 |  |  | 2,722.5 |  |  | 2,673.0 |
Operating expenses |  |  |  |  |  |  |
Compensation and related costs | 483.2 |  |  | 456.0 |  |  | 974.7 |  |  | 897.4 |
Distribution and servicing | 64.4 |  |  | 71.6 |  |  | 130.8 |  |  | 141.9 |
Advertising and promotion | 19.8 |  |  | 19.0 |  |  | 41.4 |  |  | 43.6 |
Product-related costs | 33.4 |  |  | 37.1 |  |  | 77.6 |  |  | 79.2 |
Technology, occupancy, and facility costs | 104.9 |  |  | 93.2 |  |  | 203.0 |  |  | 187.3 |
General, administrative, and other | 74.4 |  |  | 73.4 |  |  | 147.4 |  |  | 145.1 |
Total operating expenses | 780.1 |  |  | 750.3 |  |  | 1,574.9 |  |  | 1,494.5 |
Net operating income | 615.1 |  |  | 594.7 |  |  | 1,147.6 |  |  | 1,178.5 |
Non-operating income |  |  |  |  |  |  |
Net gains on investments | 61.8 |  |  | 17.4 |  |  | 161.9 |  |  | 31.8 |
Net gains on consolidated investment products | 62.8 |  |  | 19.1 |  |  | 164.7 |  |  | 19.9 |
Other income (loss) | (.1 | ) |  | (2.4 | ) |  | .7 |  |  | (1.5 | )
Total non-operating income | 124.5 |  |  | 34.1 |  |  | 327.3 |  |  | 50.2 |
Income before income taxes | 739.6 |  |  | 628.8 |  |  | 1,474.9 |  |  | 1,228.7 |
Provision for income taxes | 183.7 |  |  | 169.2 |  |  | 365.0 |  |  | 313.6 |
Net income | 555.9 |  |  | 459.6 |  |  | 1,109.9 |  |  | 915.1 |
Less: net income attributable to redeemable non-controlling interests | 28.4 |  |  | 10.7 |  |  | 69.8 |  |  | 12.5 |
Net income attributable to T. Rowe Price Group | $ | 527.5 |  |  | $ | 448.9 |  |  | $ | 1,040.1 |  |  | $ | 902.6 |
Earnings per share on common stock of T. Rowe Price Group |  |  |  |  |  |
Basic | $ | 2.18 |  |  | $ | 1.81 |  |  | $ | 4.29 |  |  | $ | 3.62 |
Diluted | $ | 2.15 |  |  | $ | 1.77 |  |  | $ | 4.23 |  |  | $ | 3.55 |

The accompanying notes are an integral part of these statements.
Page 3

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)

| Three months ended |  | Six months ended
| 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 6/30/2018
Net income | $ | 555.9 |  |  | $ | 459.6 |  |  | $ | 1,109.9 |  |  | $ | 915.1 |
Other comprehensive income (loss) |  |  |  |  |  |  |
Currency translation adjustments |  |  |  |  |  |  |
Consolidated T. Rowe Price investment products - variable interest entities | 3.7 |  |  | (40.0 | ) |  | (2.1 | ) |  | (23.8 | )
Reclassification gains recognized in non-operating income upon deconsolidation of certain T. Rowe Price investment products | (.1 | ) |  | (.5 | ) |  | (.2 | ) |  | (3.6 | )
Total currency translation adjustments of consolidated T. Rowe Price investment products - variable interest entities | 3.6 |  |  | (40.5 | ) |  | (2.3 | ) |  | (27.4 | )
Equity method investments | 1.5 |  |  | (3.3 | ) |  | 6.4 |  |  | .5 |
Other comprehensive income (loss) before income taxes | 5.1 |  |  | (43.8 | ) |  | 4.1 |  |  | (26.9 | )
Net deferred tax benefits (income taxes) | (1.0 | ) |  | 6.0 |  |  | (.9 | ) |  | 3.5 |
Total other comprehensive income (loss) | 4.1 |  |  | (37.8 | ) |  | 3.2 |  |  | (23.4 | )
Total comprehensive income | 560.0 |  |  | 421.8 |  |  | 1,113.1 |  |  | 891.7 |
Less: comprehensive income (loss) attributable to redeemable non-controlling interests | 29.4 |  |  | (9.8 | ) |  | 69.5 |  |  | (1.0 | )
Total comprehensive income attributable to T. Rowe Price Group | $ | 530.6 |  |  | $ | 431.6 |  |  | $ | 1,043.6 |  |  | $ | 892.7 |

The accompanying notes are an integral part of these statements.
Page 4

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)

| Six months ended
| 6/30/2019 |  | 6/30/2018
Cash flows from operating activities |  |  |
Net income | $ | 1,109.9 |  |  | $ | 915.1 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities |  |  |
Depreciation and amortization of property and equipment | 86.0 |  |  | 74.7 |
Stock-based compensation expense | 90.7 |  |  | 90.8 |
Net gains recognized on investments | (124.4 | ) |  | (5.4 | )
Net investments in T. Rowe Price investment products used to economically hedge supplemental savings plan liability | (19.3 | ) |  | (13.7 | )
Net change in securities held by consolidated T. Rowe Price investment products | (444.0 | ) |  | (407.1 | )
Other changes in assets and liabilities | 249.9 |  |  | 274.9 |
Net cash provided by operating activities | 948.8 |  |  | 929.3 |
Cash flows from investing activities |  |  |
Purchases of T. Rowe Price investment products | (34.9 | ) |  | (1,110.2 | )
Dispositions of T. Rowe Price investment products | 103.8 |  |  | 259.3 |
Net cash of T. Rowe Price investment products on consolidation (deconsolidation) | (5.1 | ) |  | (21.7 | )
Additions to property and equipment | (94.5 | ) |  | (78.6 | )
Other investing activity | 1.6 |  |  | 7.2 |
Net cash used in investing activities | (29.1 | ) |  | (944.0 | )
Cash flows from financing activities |  |  |
Repurchases of common stock | (402.8 | ) |  | (450.3 | )
Common share issuances under stock-based compensation plans | 78.8 |  |  | 92.8 |
Dividends paid to common stockholders of T. Rowe Price Group | (367.8 | ) |  | (348.7 | )
Net subscriptions received from redeemable non-controlling interest holders | 190.3 |  |  | 318.0 |
Net cash used in financing activities | (501.5 | ) |  | (388.2 | )
Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products | (.4 | ) |  | (6.6 | )
Net change in cash and cash equivalents during period | 417.8 |  |  | (409.5 | )
Cash and cash equivalents at beginning of period, including $70.1 million at December 31, 2018, and $103.1 million at December 31, 2017, held by consolidated T. Rowe Price investment products | 1,495.3 |  |  | 2,005.8 |
Cash and cash equivalents at end of period, including $110.7 million at June 30, 2019, and $111.9 million at June 30, 2018, held by consolidated T. Rowe Price investment products | $ | 1,913.1 |  |  | $ | 1,596.3 |

The accompanying notes are an integral part of these statements.
Page 5

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(shares in thousands; dollars in millions)

| Three months ended 6/30/2019
| Common shares outstanding |  | Common stock |  | Additional capital in excess of par value |  | Retained earnings |  | AOCI(1) |  | Total stockholders’ equity |  | Redeemable non-controlling interests
Balances at March 31, 2019 | 236,432 |  |  | $ | 47.3 |  |  | $ | 654.5 |  |  | $ | 5,650.8 |  |  | $ | (41.6 | ) |  | $ | 6,311.0 |  |  | $ | 886.7 |
Net income | — |  |  | — |  |  | — |  |  | 527.5 |  |  | — |  |  | 527.5 |  |  | 28.4 |
Other comprehensive income (loss), net of tax | — |  |  | — |  |  | — |  |  | — |  |  | 3.1 |  |  | 3.1 |  |  | 1.0 |
Dividends declared ($0.76 per share) | — |  |  | — |  |  | — |  |  | (183.4 | ) |  | — |  |  | (183.4 | ) |  | — |
Shares issued upon option exercises | 665 |  |  | .1 |  |  | 37.7 |  |  | — |  |  | — |  |  | 37.8 |  |  | — |
Restricted shares issued, net of shares withheld for taxes | 7 |  |  | — |  |  | (.1 | ) |  | — |  |  | — |  |  | (.1 | ) |  | — |
Net shares issued upon vesting of restricted stock units | 19 |  |  | — |  |  | (.2 | ) |  | — |  |  | — |  |  | (.2 | ) |  | — |
Forfeiture of restricted awards | (2 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation expense | — |  |  | — |  |  | 47.2 |  |  | — |  |  | — |  |  | 47.2 |  |  | — |
Restricted stock units issued as dividend equivalents | — |  |  | — |  |  | .1 |  |  | (.1 | ) |  | — |  |  | — |  |  | — |
Common shares repurchased | (1,603 | ) |  | (.3 | ) |  | (84.6 | ) |  | (78.9 | ) |  | — |  |  | (163.8 | ) |  | — |
Net subscriptions into T. Rowe Price investment products | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 125.7 |
Net deconsolidations of T. Rowe Price investment products | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (29.5 | )
Balances at June 30, 2019 | 235,518 |  |  | $ | 47.1 |  |  | $ | 654.6 |  |  | $ | 5,915.9 |  |  | $ | (38.5 | ) |  | $ | 6,579.1 |  |  | $ | 1,012.3 |
| Three months ended 6/30/2018
| Common shares outstanding |  | Common stock |  | Additional capital in excess of par value |  | Retained earnings |  | AOCI(1) |  | Total stockholders’ equity |  | Redeemable non-controlling interests
Balances at March 31, 2018 | 243,282 |  |  | $ | 48.7 |  |  | $ | 654.6 |  |  | $ | 5,205.0 |  |  | $ | (6.4 | ) |  | $ | 5,901.9 |  |  | $ | 546.5 |
Net income | — |  |  | — |  |  | — |  |  | 448.9 |  |  | — |  |  | 448.9 |  |  | 10.7 |
Other comprehensive income (loss), net of tax | — |  |  | — |  |  | — |  |  | — |  |  | (17.3 | ) |  | (17.3 | ) |  | (20.5 | )
Dividends declared ($0.70 per share) | — |  |  | — |  |  | — |  |  | (173.9 | ) |  | — |  |  | (173.9 | ) |  | — |
Shares issued upon option exercises | 1,138 |  |  | .2 |  |  | 46.8 |  |  | — |  |  | — |  |  | 47.0 |  |  | — |
Restricted shares issued, net of shares withheld for taxes | 8 |  |  | — |  |  | (.1 | ) |  | — |  |  | — |  |  | (.1 | ) |  | — |
Net shares issued upon vesting of restricted stock units | 50 |  |  | — |  |  | (.3 | ) |  | — |  |  | — |  |  | (.3 | ) |  | — |
Forfeiture of restricted awards | (2 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation expense | — |  |  | — |  |  | 45.2 |  |  | — |  |  | — |  |  | 45.2 |  |  | — |
Common shares repurchased | (1,296 | ) |  | (.3 | ) |  | (91.6 | ) |  | (44.9 | ) |  | — |  |  | (136.8 | ) |  | — |
Net subscriptions into T. Rowe Price investment products | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 144.8 |
Net reconsolidations of T. Rowe Price investment products | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 57.7 |
Balances at June 30, 2018 | 243,180 |  |  | $ | 48.6 |  |  | $ | 654.6 |  |  | $ | 5,435.1 |  |  | $ | (23.7 | ) |  | $ | 6,114.6 |  |  | $ | 739.2 |

(1) Accumulated other comprehensive income.
The accompanying notes are an integral part of these statements.
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(shares in thousands; dollars in millions)

| Six months ended 6/30/2019
| Common shares outstanding |  | Common stock |  | Additional capital in excess of par value |  | Retained earnings |  | AOCI(1) |  | Total stockholders’ equity |  | Redeemable non-controlling interests
Balances at December 31, 2018 | 238,069 |  |  | $ | 47.6 |  |  | $ | 654.6 |  |  | $ | 5,464.1 |  |  | $ | (42.0 | ) |  | $ | 6,124.3 |  |  | $ | 740.3 |
Net income | — |  |  | — |  |  | — |  |  | 1,040.1 |  |  | — |  |  | 1,040.1 |  |  | 69.8 |
Other comprehensive income (loss), net of tax | — |  |  | — |  |  | — |  |  | — |  |  | 3.5 |  |  | 3.5 |  |  | (.3 | )
Dividends declared ($1.52 per share) | — |  |  | — |  |  | — |  |  | (367.2 | ) |  | — |  |  | (367.2 | ) |  | — |
Shares issued upon option exercises | 1,495 |  |  | .3 |  |  | 82.5 |  |  | — |  |  | — |  |  | 82.8 |  |  | — |
Restricted shares issued, net of shares withheld for taxes | 7 |  |  | — |  |  | (.1 | ) |  | — |  |  | — |  |  | (.1 | ) |  | — |
Shares issued upon vesting of restricted stock units, net of shares withheld for taxes | 33 |  |  | — |  |  | (1.4 | ) |  | — |  |  | — |  |  | (1.4 | ) |  | — |
Forfeiture of restricted awards | (7 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation expense | — |  |  | — |  |  | 90.7 |  |  | — |  |  | — |  |  | 90.7 |  |  | — |
Restricted stock units issued as dividend equivalents | — |  |  | — |  |  | .1 |  |  | (.1 | ) |  | — |  |  | — |  |  | — |
Common shares repurchased | (4,079 | ) |  | (.8 | ) |  | (171.8 | ) |  | (221.0 | ) |  | — |  |  | (393.6 | ) |  | — |
Net subscriptions into T. Rowe Price investment products | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 211.6 |
Net deconsolidations of T. Rowe Price investment products | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (9.1 | )
Balances at June 30, 2019 | 235,518 |  |  | $ | 47.1 |  |  | $ | 654.6 |  |  | $ | 5,915.9 |  |  | $ | (38.5 | ) |  | $ | 6,579.1 |  |  | $ | 1,012.3 |
| Six months ended 6/30/2018
| Common shares outstanding |  | Common stock |  | Additional capital in excess of par value |  | Retained earnings |  | AOCI(1) |  | Total stockholders’ equity |  | Redeemable non-controlling interests
Balances at December 31, 2017 | 245,111 |  |  | $ | 49.0 |  |  | $ | 846.1 |  |  | $ | 4,932.9 |  |  | $ | (3.6 | ) |  | $ | 5,824.4 |  |  | $ | 992.8 |
Cumulative effect adjustment upon adoption of financial instruments and AOCI guidance(2) | — |  |  | — |  |  | — |  |  | 22.4 |  |  | (7.9 | ) |  | 14.5 |  |  | — |
Reclassification adjustment of stranded tax benefits on currency translation adjustments upon adoption of AOCI guidance | — |  |  | — |  |  | — |  |  | 2.3 |  |  | (2.3 | ) |  | — |  |  | — |
Balances at January 1, 2018 | 245,111 |  |  | 49.0 |  |  | 846.1 |  |  | 4,957.6 |  |  | (13.8 | ) |  | 5,838.9 |  |  | 992.8 |
Net income | — |  |  | — |  |  | — |  |  | 902.6 |  |  | — |  |  | 902.6 |  |  | 12.5 |
Other comprehensive income (loss), net of tax | — |  |  | — |  |  | — |  |  | — |  |  | (9.9 | ) |  | (9.9 | ) |  | (13.5 | )
Dividends declared ($1.40 per share) | — |  |  | — |  |  | — |  |  | (348.8 | ) |  | — |  |  | (348.8 | ) |  | — |
Shares issued upon option exercises | 2,241 |  |  | .4 |  |  | 91.7 |  |  | — |  |  | — |  |  | 92.1 |  |  | — |
Restricted shares issued, net of shares withheld for taxes | 8 |  |  | — |  |  | (.1 | ) |  | — |  |  | — |  |  | (.1 | ) |  | — |
Shares issued upon vesting of restricted stock units, net of shares withheld for taxes | 56 |  |  | — |  |  | (.7 | ) |  | — |  |  | — |  |  | (.7 | ) |  | — |
Forfeiture of restricted awards | (6 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Stock-based compensation expense | — |  |  | — |  |  | 90.8 |  |  | — |  |  | — |  |  | 90.8 |  |  | — |
Restricted stock units issued as dividend equivalents | — |  |  | — |  |  | .1 |  |  | (.1 | ) |  | — |  |  | — |  |  | — |
Common shares repurchased | (4,230 | ) |  | (.8 | ) |  | (373.3 | ) |  | (76.2 | ) |  | — |  |  | (450.3 | ) |  | — |
Net subscriptions into T. Rowe Price investment products | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 322.6 |
Net deconsolidations of T. Rowe Price investment products | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (575.2 | )
Balances at June 30, 2018 | 243,180 |  |  | $ | 48.6 |  |  | $ | 654.6 |  |  | $ | 5,435.1 |  |  | $ | (23.7 | ) |  | $ | 6,114.6 |  |  | $ | 739.2 |

(1) Accumulated other comprehensive income.
(2) Includes the reclassification of $1.7 million of stranded income taxes on available-for-sale investments resulting from U.S. tax law changes enacted on December 22, 2017, from accumulated other comprehensive income to retained earnings.
The accompanying notes are an integral part of these statements.
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE COMPANY AND BASIS OF PREPARATION.
T. Rowe Price Group Inc. derives its consolidated revenues and net income primarily from investment advisory services that its subsidiaries provide to individual and institutional investors in the T. Rowe Price U.S. mutual funds (“U.S. mutual funds”), separately managed accounts, subadvised funds, and other T. Rowe Price products. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; and trust services.
Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management impact our revenues and results of operations.
BASIS OF PRESENTATION.
These unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. These principles require the use of estimates and reflect all adjustments that are, in the opinion of management, necessary for a fair statement of our results for the interim periods presented. All such adjustments are of a normal recurring nature. Actual results may vary from our estimates. Certain prior year amounts have been reclassified to conform to the 2019 presentation.
The unaudited interim financial information contained in these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in our 2018 Annual Report.
NEW ACCOUNTING GUIDANCE.
We adopted Accounting Standards Update No. 2016-02 — Leases (Topic 842) on January 1, 2019. The update required the recognition of right-of-use lease assets and liabilities on the balance sheet and the disclosure of qualitative and quantitative information about leasing arrangements. We adopted this standard using a modified retrospective approach without restating prior comparative periods. We also elected to use certain practical expedients that allowed us to not perform the following: (1) reassess whether expired or existing non-lease contracts that commenced before January 1, 2019 contained an embedded lease, (2) reevaluate the accounting classification of our existing operating leases, and (3) determine whether initial direct costs related to existing leases should be capitalized under this guidance. On January 1, 2019, we recognized operating lease assets totaling $168.7 million and corresponding operating lease liabilities of $168.7 million related primarily to our real estate leases. At implementation, we also reclassified $27.7 million in deferred rent liabilities related to these leases, reducing the recognized operating lease assets to $141.0 million. The adoption did not have a material impact on our results of operations; however, the initial recognition of our operating lease assets and operating lease liabilities on January 1, 2019, represented a non-cash investing activity that affected the amount reported in other changes in assets and liabilities in our unaudited condensed consolidated statements of cash flows. Our leases accounting policy is included in the Summary of Significant Accounting Policies section below. Additional information on our operating leases is included in Note 6 - Leases.
NEWLY ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15 — Intangibles—Goodwill and Other— Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The amendments in this update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Though early adoption is permitted, we expect to adopt this update on January 1, 2020. We are currently evaluating the impact this standard will have on our financial position and results of operations.
We have considered all other newly issued accounting guidance that is applicable to our operations and the preparation of our unaudited condensed consolidated statements, including those we have not yet adopted. We do
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not believe that any such guidance has or will have a material effect on our financial position or results of operations.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Leases
We review new arrangements at inception to evaluate whether we substantially obtain all the economic benefits of and have the right to control the use of an asset. If we determine that an arrangement qualifies as a lease, we recognize a lease liability and a corresponding asset on the lease’s commencement date. The lease liability is initially measured at the present value of the future minimum lease payments over the lease term using the rate implicit in the arrangement or, if not available, our incremental borrowing rate. An operating lease asset is measured initially at the value of the lease liability less any lease incentives and initial direct costs incurred.
Our leases qualify as operating leases and consist primarily of real estate leases for corporate offices, data centers, and other facilities. We measure our operating lease liabilities using an estimated incremental borrowing rate as there is no rate implicit in any of our operating lease arrangements. Since we do not have any outstanding borrowings, we estimate our incremental borrowing rate using an estimated credit rating and available market information. Additionally, certain of our leases contain options to extend or terminate the lease term that, if exercised, would result in the remeasurement of the operating lease liability.
Our operating leases contain both lease and non-lease components. Non-lease components are distinct elements of a contract that are not related to securing the use of the lease assets, such as common area maintenance and other management costs. We elected to measure the lease liability of our real estate operating leases by combining the lease and non-lease components into one single lease component. As such, we included the fixed payments and any payments that depend on a rate or index related to our lease and non-lease components in measuring the operating lease liability.
We recognize lease expense on a straight-line basis over the lease term. Operating lease expense is recognized as part of technology, occupancy, and facility costs in our unaudited condensed consolidated statements of income.
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NOTE 2 – INFORMATION ABOUT RECEIVABLES, REVENUES, AND SERVICES.
Revenues earned during the three- and six-month periods ended June 30, 2019 and 2018 under agreements with clients include:

| Three months ended 6/30/2019 |  | Three months ended 6/30/2018
|  |  | Administrative, distribution, and servicing fees |  |  |  |  |  | Administrative, distribution, and servicing fees |  |
(in millions) | Investment advisory fees |  | Administrative fees |  | Distribution and servicing fees |  | Net revenues |  | Investment advisory fees |  | Administrative fees |  | Distribution and servicing fees |  | Net revenues
U.S. mutual funds | $ | 860.7 |  |  | $ | 69.7 |  |  | $ | 30.1 |  |  | $ | 960.5 |  |  | $ | 846.9 |  |  | $ | 74.4 |  |  | $ | 35.5 |  |  | $ | 956.8 |
Subadvised and separate accounts and other investment products | 409.5 |  |  | — |  |  | — |  |  | 409.5 |  |  | 367.5 |  |  | — |  |  | — |  |  | 367.5 |
Other clients | — |  |  | 25.2 |  |  | — |  |  | 25.2 |  |  | — |  |  | 20.7 |  |  | — |  |  | 20.7 |
| $ | 1,270.2 |  |  | $ | 94.9 |  |  | $ | 30.1 |  |  | $ | 1,395.2 |  |  | $ | 1,214.4 |  |  | $ | 95.1 |  |  | $ | 35.5 |  |  | $ | 1,345.0 |
| Six months ended 6/30/2019 |  | Six months ended 6/30/2018
|  |  | Administrative, distribution, and servicing fees |  |  |  |  |  | Administrative, distribution, and servicing fees |  |
(in millions) | Investment advisory fees |  | Administrative fees |  | Distribution and servicing fees |  | Net revenues |  | Investment advisory fees |  | Administrative fees |  | Distribution and servicing fees |  | Net revenues
U.S. mutual funds | $ | 1,676.6 |  |  | $ | 146.3 |  |  | $ | 60.3 |  |  | $ | 1,883.2 |  |  | $ | 1,679.8 |  |  | $ | 156.2 |  |  | $ | 72.1 |  |  | $ | 1,908.1 |
Subadvised and separate accounts and other investment products | 787.8 |  |  | — |  |  | — |  |  | 787.8 |  |  | 723.8 |  |  | — |  |  | — |  |  | 723.8 |
Other clients | — |  |  | 51.5 |  |  | — |  |  | 51.5 |  |  | — |  |  | 41.1 |  |  | — |  |  | 41.1 |
| $ | 2,464.4 |  |  | $ | 197.8 |  |  | $ | 60.3 |  |  | $ | 2,722.5 |  |  | $ | 2,403.6 |  |  | $ | 197.3 |  |  | $ | 72.1 |  |  | $ | 2,673.0 |

Total net revenues earned from our related parties, specifically T. Rowe Price investment products, aggregate $1,147.6 and $1,114.8 million for the three months ended June 30, 2019 and 2018, respectively. Total net revenues earned during the six months ended June 30, 2019 and 2018 aggregate $2,241.0 million and $2,215.4 million, respectively. Accounts receivable from these products aggregate to $400.9 million at June 30, 2019, and $354.8 million at December 31, 2018.
The following table details the investment advisory fees earned from clients by their underlying asset class.

| Three months ended |  | Six months ended
(in millions) | 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 6/30/2018
U.S. mutual funds |  |  |  |  |  |  |
Equity and blended assets | $ | 736.8 |  |  | $ | 718.0 |  |  | $ | 1,431.3 |  |  | $ | 1,423.5 |
Fixed income, including money market | 123.9 |  |  | 128.9 |  |  | 245.3 |  |  | 256.3 |
| 860.7 |  |  | 846.9 |  |  | 1,676.6 |  |  | 1,679.8 |
Subadvised and separate accounts and other investment products |  |  |  |  |  |  |
Equity and blended assets | 346.1 |  |  | 308.0 |  |  | 664.9 |  |  | 605.0 |
Fixed income, including money market | 63.4 |  |  | 59.5 |  |  | 122.9 |  |  | 118.8 |
| 409.5 |  |  | 367.5 |  |  | 787.8 |  |  | 723.8 |
Total | $ | 1,270.2 |  |  | $ | 1,214.4 |  |  | $ | 2,464.4 |  |  | $ | 2,403.6 |

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The following table summarizes the assets under management on which we earn investment advisory fees.

| Average during |  | Average during |  |
| Three months ended |  | Six months ended |  | As of
(in billions) | 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 12/31/2018
U.S. mutual funds |  |  |  |  |  |  |  |  |  |  |
Equity and blended assets | $ | 513.1 |  |  | $ | 496.1 |  |  | $ | 500.4 |  |  | $ | 495.4 |  |  | $ | 521.5 |  |  | $ | 441.1 |
Fixed income, including money market | 125.4 |  |  | 128.5 |  |  | 124.0 |  |  | 127.9 |  |  | 126.8 |  |  | 123.4 |
| 638.5 |  |  | 624.6 |  |  | 624.4 |  |  | 623.3 |  |  | 648.3 |  |  | 564.5 |
Subadvised and separate accounts and other investment products |  |  |  |  |  |  |  |  |  |  |
Equity and blended assets | 356.3 |  |  | 314.9 |  |  | 344.6 |  |  | 311.6 |  |  | 368.8 |  |  | 299.2 |
Fixed income, including money market | 105.0 |  |  | 97.0 |  |  | 102.8 |  |  | 96.1 |  |  | 107.9 |  |  | 98.6 |
| 461.3 |  |  | 411.9 |  |  | 447.4 |  |  | 407.7 |  |  | 476.7 |  |  | 397.8 |
Total | $ | 1,099.8 |  |  | $ | 1,036.5 |  |  | $ | 1,071.8 |  |  | $ | 1,031.0 |  |  | $ | 1,125.0 |  |  | $ | 962.3 |

Investors that we serve are primarily domiciled in the U.S.; investment advisory clients outside the U.S. account for 6.4% and 6.2% of our assets under management at June 30, 2019, and December 31, 2018, respectively.
NOTE 3 – INVESTMENTS.
The carrying values of our investments that are not part of the consolidated T. Rowe Price investment products are as follows:

(in millions) | 6/30/2019 |  | 12/31/2018
Investments held at fair value |  |  |
T. Rowe Price investment products | $ | 1,546.2 |  |  | $ | 1,538.4 |
T. Rowe Price investment products designated as an economic hedge of supplemental savings plan liability | 441.3 |  |  | 381.3 |
Investment partnerships and other investments | 100.4 |  |  | 99.6 |
Equity method investments |  |  |
T. Rowe Price investment products | 317.3 |  |  | 276.2 |
26% interest in UTI Asset Management Company Limited (India) | 164.1 |  |  | 152.4 |
Investment partnerships and other investments | 4.9 |  |  | 4.5 |
U.S. Treasury note | 1.0 |  |  | 1.0 |
Total | $ | 2,575.2 |  |  | $ | 2,453.4 |

The investment partnerships are carried at fair value using net asset value (“NAV”) per share as a practical expedient. Our interests in these partnerships are generally not redeemable and are subject to significant restrictions on transferability. The underlying investments of these partnerships have contractual terms through 2029, though we may receive distributions of liquidating assets over a longer term. The investment strategies of these partnerships include growth equity, buyout, venture capital, and real estate.
During the three- and six- months ended June 30, 2019, net gains on investments included $28.7 million and $79.3 million of net unrealized gains related to investments held at fair value that were still held at June 30, 2019. For the three- and six- months ended June 30, 2018, the net gains on investments included $8.0 million and $6.1 million, respectively, of net unrealized gains on investments held at fair value that were still held at June 30, 2018.
During the six months ended June 30, 2019 and 2018, certain T. Rowe Price investment products in which we provided initial seed capital at the time of formation were deconsolidated, as we no longer had a controlling interest. Depending on our ownership interest, we are now reporting our residual interests in these T. Rowe Price investment products as either an equity method investment or an investment held at fair value. Additionally, during the six months ended June 30, 2019 and 2018, certain T. Rowe Price investment products that were being accounted for as equity method investments were consolidated, as we regained a controlling interest. The net impact of these
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changes on our unaudited condensed consolidated balance sheets and statements of income as of the dates the portfolios were deconsolidated or reconsolidated is detailed below.

| Three months ended |  | Six months ended
(in millions) | 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 6/30/2018
Net increase (decrease) in assets of consolidated T. Rowe Price investment products | $ | (68.4 | ) |  | $ | 97.1 |  |  | $ | (56.1 | ) |  | $ | (660.4 | )
Net increase (decrease) in liabilities of consolidated T. Rowe Price investment products | $ | (.3 | ) |  | $ | 23.7 |  |  | $ | (1.2 | ) |  | $ | 18.5 |
Net increase (decrease) in redeemable non-controlling interests | $ | (29.5 | ) |  | $ | 57.7 |  |  | $ | (9.1 | ) |  | $ | (575.2 | )
Gains (losses) recognized upon deconsolidation | $ | .1 |  |  | $ | .5 |  |  | $ | .2 |  |  | $ | 3.6 |

The gains or losses recognized upon deconsolidation were the result of reclassifying currency translation adjustments accumulated on certain T. Rowe Price investment products with non-USD functional currencies from accumulated other comprehensive income to non-operating income.
VARIABLE INTEREST ENTITIES.
Our investments at June 30, 2019 and December 31, 2018, include interests in variable interest entities that we do not consolidate as we are not deemed the primary beneficiary. Our maximum risk of loss related to our involvement with these entities is as follows:

(in millions) | 6/30/2019 |  | 12/31/2018
Investment carrying values | $ | 134.5 |  |  | $ | 143.3 |
Unfunded capital commitments | 22.4 |  |  | 27.3 |
Uncollected investment advisory and administrative fees | 17.0 |  |  | 5.2 |
| $ | 173.9 |  |  | $ | 175.8 |

The unfunded capital commitments totaling $22.4 million and $27.3 million at June 30, 2019 and December 31, 2018, respectively, relate primarily to the investment partnerships in which we have an existing investment. In addition to such amounts, a percentage of prior distributions may be called under certain circumstances.
NOTE 4 – FAIR VALUE MEASUREMENTS.
We determine the fair value of our cash equivalents and certain investments using the following broad levels of inputs as defined by related accounting standards:
Level 1 – quoted prices in active markets for identical securities.
Level 2 – observable inputs other than Level 1 quoted prices including, but not limited to, quoted prices for similar

| securities, interest rates, prepayment speeds, and credit risk. These inputs are based on market data

obtained from independent sources.
Level 3 – unobservable inputs reflecting our own assumptions based on the best information available. We do not
value any investments using Level 3 inputs.
These levels are not necessarily an indication of the risk or liquidity associated with our investments. The following table summarizes our investments that are recognized in our unaudited condensed consolidated balance sheets using fair value measurements determined based on the differing levels of inputs. This table excludes investments held by the consolidated T. Rowe Price investment products which are presented separately on our unaudited condensed consolidated balance sheets and are detailed in Note 5.
Page 12

| 6/30/2019 |  | 12/31/2018
(in millions) | Level 1 |  | Level 2 |  | Level 1 |  | Level 2
Cash equivalents held in T. Rowe Price money market funds | $ | 1,542.7 |  |  | $ | — |  |  | $ | 1,196.0 |  |  | $ | — |
T. Rowe Price investment products | 1,538.7 |  |  | 7.5 |  |  | 1,519.2 |  |  | 19.2 |
T. Rowe Price investment products designated as economic hedge of supplemental savings plan liability | 441.3 |  |  | — |  |  | 381.3 |  |  | — |
Total | $ | 3,522.7 |  |  | $ | 7.5 |  |  | $ | 3,096.5 |  |  | $ | 19.2 |

As required by the accounting guidance, the fair value hierarchy levels table above does not include the investment partnerships and other investments that are held at fair value using their NAV per share as a practical expedient. The carrying value of these investments as disclosed in Note 3 were $100.4 million at June 30, 2019 and $99.6 million at December 31, 2018.
NOTE 5 – CONSOLIDATED T. ROWE PRICE INVESTMENT PRODUCTS.
The T. Rowe Price investment products that we consolidate in our unaudited condensed consolidated financial statements are generally those products we provided initial seed capital at the time of their formation and have a controlling interest. Our U.S. mutual funds are considered voting interest entities, while those regulated outside the U.S. are considered variable interest entities.
The following table details the net assets of the consolidated T. Rowe Price investment products:

| 6/30/2019 |  | 12/31/2018
(in millions) | Voting interest entities |  | Variable interest entities |  | Total |  | Voting interest entities |  | Variable interest entities |  | Total
Cash and cash equivalents(1) | $ | 15.2 |  |  | $ | 95.5 |  |  | $ | 110.7 |  |  | $ | 18.5 |  |  | $ | 51.6 |  |  | $ | 70.1 |
Investments(2) | 301.9 |  |  | 1,721.1 |  |  | 2,023.0 |  |  | 261.3 |  |  | 1,322.7 |  |  | 1,584.0 |
Other assets | 11.2 |  |  | 58.5 |  |  | 69.7 |  |  | 8.0 |  |  | 18.3 |  |  | 26.3 |
Total assets | 328.3 |  |  | 1,875.1 |  |  | 2,203.4 |  |  | 287.8 |  |  | 1,392.6 |  |  | 1,680.4 |
Liabilities | 26.7 |  |  | 75.8 |  |  | 102.5 |  |  | 16.0 |  |  | 22.7 |  |  | 38.7 |
Net assets | $ | 301.6 |  |  | $ | 1,799.3 |  |  | $ | 2,100.9 |  |  | $ | 271.8 |  |  | $ | 1,369.9 |  |  | $ | 1,641.7 |
Attributable to T. Rowe Price Group | $ | 203.8 |  |  | $ | 884.8 |  |  | $ | 1,088.6 |  |  | $ | 175.3 |  |  | $ | 726.1 |  |  | $ | 901.4 |
Attributable to redeemable non-controlling interests | 97.8 |  |  | 914.5 |  |  | 1,012.3 |  |  | 96.5 |  |  | 643.8 |  |  | 740.3 |
| $ | 301.6 |  |  | $ | 1,799.3 |  |  | $ | 2,100.9 |  |  | $ | 271.8 |  |  | $ | 1,369.9 |  |  | $ | 1,641.7 |

(1) Cash and cash equivalents includes $14.2 million and $18.5 million at June 30, 2019 and December 31, 2018, respectively, of T. Rowe Price money market mutual funds.
(2) Investments includes $41.1 million and $43.8 million at June 30, 2019 and December 31, 2018, respectively, of T. Rowe Price investment products.
Although we can redeem our net interest in these consolidated T. Rowe Price investment products at any time, we cannot directly access or sell the assets held by these products to obtain cash for general operations. Additionally, the assets of these investment products are not available to our general creditors.
Since third party investors in these investment products have no recourse to our credit, our overall risk related to the net assets of consolidated T. Rowe Price investment products is limited to valuation changes associated with our net interest. We, however, are required to recognize the valuation changes associated with all underlying investments held by these products in our unaudited condensed consolidated statements of income and disclose the portion attributable to third party investors as net income attributable to redeemable non-controlling interests.
Page 13

The operating results of the consolidated T. Rowe Price investment products for the three- and six- months ended June 30, 2019 and 2018 are reflected in our unaudited condensed consolidated statements of income as follows:

| Three months ended
| 6/30/2019 |  | 6/30/2018
(in millions) | Voting interest entities |  | Variable interest entities |  | Total |  | Voting interest entities |  | Variable interest entities |  | Total
Operating expenses reflected in net operating income | $ | (.7 | ) |  | $ | (3.1 | ) |  | $ | (3.8 | ) |  | $ | (.4 | ) |  | $ | (2.7 | ) |  | $ | (3.1 | )
Net investment income (loss) reflected in non-operating income | 11.4 |  |  | 51.4 |  |  | 62.8 |  |  | .2 |  |  | 18.9 |  |  | 19.1 |
Impact on income before taxes | $ | 10.7 |  |  | $ | 48.3 |  |  | $ | 59.0 |  |  | $ | (.2 | ) |  | $ | 16.2 |  |  | $ | 16.0 |
Net income (loss) attributable to T. Rowe Price Group | $ | 5.2 |  |  | $ | 25.4 |  |  | $ | 30.6 |  |  | $ | (.6 | ) |  | $ | 5.9 |  |  | $ | 5.3 |
Net income (loss) attributable to redeemable non-controlling interests | 5.5 |  |  | 22.9 |  |  | 28.4 |  |  | .4 |  |  | 10.3 |  |  | 10.7 |
| $ | 10.7 |  |  | $ | 48.3 |  |  | $ | 59.0 |  |  | $ | (.2 | ) |  | $ | 16.2 |  |  | $ | 16.0 |

| Six months ended
| 6/30/2019 |  | 6/30/2018
(in millions) | Voting interest entities |  | Variable interest entities |  | Total |  | Voting interest entities |  | Variable interest entities |  | Total
Operating expenses reflected in net operating income | $ | (1.0 | ) |  | $ | (5.9 | ) |  | $ | (6.9 | ) |  | $ | (.7 | ) |  | $ | (4.9 | ) |  | $ | (5.6 | )
Net investment income reflected in non-operating income | 19.4 |  |  | 145.3 |  |  | 164.7 |  |  | (.6 | ) |  | 20.5 |  |  | 19.9 |
Impact on income before taxes | $ | 18.4 |  |  | $ | 139.4 |  |  | $ | 157.8 |  |  | $ | (1.3 | ) |  | $ | 15.6 |  |  | $ | 14.3 |
Net income attributable to T. Rowe Price Group | $ | 13.9 |  |  | $ | 74.1 |  |  | $ | 88.0 |  |  | $ | (1.3 | ) |  | $ | 3.1 |  |  | $ | 1.8 |
Net income attributable to redeemable non-controlling interests | 4.5 |  |  | 65.3 |  |  | 69.8 |  |  | — |  |  | 12.5 |  |  | 12.5 |
| $ | 18.4 |  |  | $ | 139.4 |  |  | $ | 157.8 |  |  | $ | (1.3 | ) |  | $ | 15.6 |  |  | $ | 14.3 |

The operating expenses of the consolidated investment products are reflected in other operating expenses. In preparing our unaudited condensed consolidated financial statements, we eliminated operating expenses of $2.2 million and $1.4 million for the three months ended June 30, 2019 and 2018, respectively, against the investment advisory and administrative fees earned from these products. Operating expenses eliminated for the six months ended June 30, 2019 and 2018, were $3.7 million and $3.1 million, respectively. The net investment income reflected in non-operating income includes dividend and interest income and realized and unrealized gains and losses on the underlying securities held by the consolidated T. Rowe Price investment products.
Page 14

The table below details the impact of these consolidated investment products on the individual lines of our unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018.

| Six months ended
| 6/30/2019 |  | 6/30/2018
(in millions) | Voting interest entities |  | Variable interest entities |  | Total |  | Voting interest entities |  | Variable interest entities |  | Total
Net cash provided by operating activities | $ | (32.7 | ) |  | $ | (258.4 | ) |  | $ | (291.1 | ) |  | $ | (38.1 | ) |  | $ | (358.4 | ) |  | $ | (396.5 | )
Net cash used in investing activities | (5.1 | ) |  | — |  |  | (5.1 | ) |  | — |  |  | (21.7 | ) |  | (21.7 | )
Net cash used in financing activities | 34.5 |  |  | 302.7 |  |  | 337.2 |  |  | 57.1 |  |  | 376.5 |  |  | 433.6 |
Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products | — |  |  | (.4 | ) |  | (.4 | ) |  | — |  |  | (6.6 | ) |  | (6.6 | )
Net change in cash and cash equivalents during period | (3.3 | ) |  | 43.9 |  |  | 40.6 |  |  | 19.0 |  |  | (10.2 | ) |  | 8.8 |
Cash and cash equivalents at beginning of year | 18.5 |  |  | 51.6 |  |  | 70.1 |  |  | 7.1 |  |  | 96.0 |  |  | 103.1 |
Cash and cash equivalents at end of period | $ | 15.2 |  |  | $ | 95.5 |  |  | $ | 110.7 |  |  | $ | 26.1 |  |  | $ | 85.8 |  |  | $ | 111.9 |

The net cash provided by financing activities during the six months ended June 30, 2019 and 2018 includes $146.9 million and $115.6 million, respectively, of net subscriptions we made into the consolidated T. Rowe Price investment products, net of dividends received. These cash flows were eliminated in consolidation.
FAIR VALUE MEASUREMENTS.
We determine the fair value of investments held by consolidated T. Rowe Price investment products using the following broad levels of inputs as defined by related accounting standards:
Level 1 – quoted prices in active markets for identical securities.
Level 2 – observable inputs other than Level 1 quoted prices including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, and credit risk. These inputs are based on market data obtained from independent sources.
Level 3 – unobservable inputs reflecting our own assumptions based on the best information available. The value of investments using Level 3 inputs is insignificant.
These levels are not necessarily an indication of the risk or liquidity associated with these investment holdings. The following table summarizes the investment holdings held by our consolidated T. Rowe Price investment products using fair value measurements determined based on the differing levels of inputs.

| 6/30/2019 |  | 12/31/2018
(in millions) | Level 1 |  | Level 2 |  | Level 1 |  | Level 2
Assets |  |  |  |  |  |  |
Cash equivalents | $ | 14.2 |  |  | $ | — |  |  | $ | 19.3 |  |  | $ | — |
Equity securities | 209.7 |  |  | 633.1 |  |  | 189.6 |  |  | 483.5 |
Fixed income securities | — |  |  | 1,160.8 |  |  | — |  |  | 890.2 |
Other investments | 2.0 |  |  | 17.4 |  |  | 1.7 |  |  | 19.0 |
| $ | 225.9 |  |  | $ | 1,811.3 |  |  | $ | 210.6 |  |  | $ | 1,392.7 |
Liabilities | $ | (1.2 | ) |  | $ | (14.3 | ) |  | $ | (.8 | ) |  | $ | (12.8 | )

Page 15

NOTE 6 – LEASES.
All of our leases are operating leases and primarily consist of real estate leases for corporate offices, data centers, and other facilities. As of June 30, 2019, the weighted-average remaining lease term on our leases is approximately 7.0 years and the weighted-average discount rate used to measure the lease liabilities is 3.5%.
Operating lease expense for the three months ended June 30, 2019 and 2018, was $8.5 million and $6.5 million, respectively. Operating lease expense for the six months ended June 30, 2019 and 2018, was $15.8 million and $14.7 million, respectively. Charges related to our operating leases that are variable, including variable common area maintenance charges and other management-related costs, and not included in the measurement of the lease liabilities, were $2.4 million for the three months ended June 30, 2019 and $5.1 million for the six months ended June 30, 2019.
We made lease payments of $16.9 million during the six months ended June 30, 2019. Our future undiscounted cash flows related to our operating leases and the reconciliation to the operating lease liability as of June 30, 2019, are as follows:

(in millions) | 6/30/2019
2019 (excluding the six months ended June 30, 2019) | $ | 13.4 |
2020 | 29.6 |
2021 | 26.6 |
2022 | 22.5 |
2023 | 19.9 |
Thereafter | 62.9 |
Total future undiscounted cash flows | 174.9 |
Less: imputed interest to be recognized in lease expense | (20.0 | )
Operating lease liabilities, as reported | $ | 154.9 |

NOTE 7 – STOCKHOLDERS’ EQUITY.
Accounts payable and accrued expenses includes liabilities of $9.2 million at December 31, 2018, for common stock repurchases that settled during the first week of January 2019.
NOTE 8 – STOCK-BASED COMPENSATION.
STOCK OPTIONS.
The following table summarizes the status of, and changes in, our stock options during the six months ended June 30, 2019.

| Options |  | Weighted- average exercise price
Outstanding at December 31, 2018 | 11,300,393 |  |  | $ | 69.05 |
Exercised | (1,765,404 | ) |  | $ | 62.39 |
Forfeited | (86,456 | ) |  | $ | 76.68 |
Expired | (7,809 | ) |  | $ | 59.07 |
Outstanding at June 30, 2019 | 9,440,724 |  |  | $ | 70.23 |
Exercisable at June 30, 2019 | 7,485,674 |  |  | $ | 68.59 |

Page 16

RESTRICTED SHARES AND STOCK UNITS.
The following table summarizes the status of, and changes in, our nonvested restricted shares and restricted stock units during the six months ended June 30, 2019.

| Restricted shares |  | Restricted stock units |  | Weighted-average fair value
Nonvested at December 31, 2018 | 136,964 |  |  | 6,603,920 |  |  | $ | 87.07 |
Time-based grants | 7,404 |  |  | 34,221 |  |  | $ | 100.03 |
Vested | (8,710 | ) |  | (55,360 | ) |  | $ | 97.65 |
Forfeited | (7,119 | ) |  | (269,073 | ) |  | $ | 87.81 |
Nonvested at June 30, 2019 | 128,539 |  |  | 6,313,708 |  |  | $ | 87.02 |

Nonvested at June 30, 2019, includes 2,400 performance-based restricted shares and 450,727 performance-based restricted stock units. These nonvested performance-based restricted shares and units include 2,400 restricted shares and 289,906 restricted stock units for which the performance period has lapsed, and the performance threshold has been met.
FUTURE STOCK-BASED COMPENSATION EXPENSE.
The following table presents the compensation expense to be recognized over the remaining vesting periods of the stock-based awards outstanding at June 30, 2019. Estimated future compensation expense will change to reflect future grants of restricted stock awards and units, future option grants, changes in the probability of performance thresholds being met, and adjustments for actual forfeitures.

(in millions) |
Third quarter 2019 | $ | 48.9 |
Fourth quarter 2019 | 43.9 |
2020 | 100.7 |
2021 through 2024 | 80.3 |
Total | $ | 273.8 |

NOTE 9 – EARNINGS PER SHARE CALCULATIONS.
The following table presents the reconciliation of net income attributable to T. Rowe Price Group to net income allocated to our common stockholders and the weighted-average shares that are used in calculating the basic and diluted earnings per share on our common stock. Weighted-average common shares outstanding assuming dilution reflects the potential dilution, determined using the treasury stock method, that could occur if outstanding stock options were exercised and non-participating stock awards vested. No stock options had an anti-dilutive impact on the diluted earnings per common share calculation in the periods presented.

| Three months ended |  | Six months ended
(in millions) | 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 6/30/2018
Net income attributable to T. Rowe Price Group | $ | 527.5 |  |  | $ | 448.9 |  |  | $ | 1,040.1 |  |  | $ | 902.6 |
Less: net income allocated to outstanding restricted stock and stock unit holders | 13.8 |  |  | 10.5 |  |  | 26.8 |  |  | 21.1 |
Net income allocated to common stockholders | $ | 513.7 |  |  | $ | 438.4 |  |  | $ | 1,013.3 |  |  | $ | 881.5 |
Weighted-average common shares |  |  |  |  |  |  |
Outstanding | 235.9 |  |  | 242.2 |  |  | 236.2 |  |  | 243.2 |
Outstanding assuming dilution | 239.2 |  |  | 247.4 |  |  | 239.4 |  |  | 248.6 |

Page 17

NOTE 10 – OTHER COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME.
The following table presents the impact of the components of other comprehensive income or loss on deferred tax benefits (income taxes).

| Three months ended |  | Six months ended
(in millions) | 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 6/30/2018
Net deferred tax benefits (income taxes) on: |  |  |  |  |  |  |
Currency translation adjustments | $ | (1.0 | ) |  | $ | 5.9 |  |  | (.9 | ) |  | 2.6 |
Reclassification adjustment recognized in the provision for income taxes upon deconsolidation of a T. Rowe Price investment product | — |  |  | .1 |  |  | — |  |  | .9 |
Total deferred tax benefits (income taxes) on currency translation adjustments | (1.0 | ) |  | 6.0 |  |  | (.9 | ) |  | 3.5 |

The changes in each component of accumulated other comprehensive income (loss), including reclassification adjustments for the three months ended June 30, 2019 and 2018 are presented in the table below.

|  | Three months ended 6/30/2019 |  | Three months ended 6/30/2018
|  | Currency translation adjustments |  | Currency translation adjustments
(in millions) |  | Equity method investments |  | Consolidated T. Rowe Price investment products - variable interest entities |  | Total currency translation adjustments |  | Equity method investments |  | Consolidated T. Rowe Price investment products - variable interest entities |  | Total currency translation adjustments
Balances at beginning of period |  | $ | (45.0 | ) |  | $ | 3.4 |  |  | $ | (41.6 | ) |  | $ | (34.0 | ) |  | $ | 27.6 |  |  | $ | (6.4 | )
Other comprehensive income (loss) before reclassifications and income taxes |  | 1.5 |  |  | 2.7 |  |  | 4.2 |  |  | (3.3 | ) |  | (19.5 | ) |  | (22.8 | )
Reclassification adjustments recognized in non-operating income |  | — |  |  | (.1 | ) |  | (.1 | ) |  | — |  |  | (.5 | ) |  | (.5 | )
|  | 1.5 |  |  | 2.6 |  |  | 4.1 |  |  | (3.3 | ) |  | (20.0 | ) |  | (23.3 | )
Net deferred tax benefits (income taxes) |  | (.3 | ) |  | (.7 | ) |  | (1.0 | ) |  | .7 |  |  | 5.3 |  |  | 6.0 |
Other comprehensive income (loss) |  | 1.2 |  |  | 1.9 |  |  | 3.1 |  |  | (2.6 | ) |  | (14.7 | ) |  | (17.3 | )
Balances at end of period |  | $ | (43.8 | ) |  | $ | 5.3 |  |  | $ | (38.5 | ) |  | $ | (36.6 | ) |  | $ | 12.9 |  |  | $ | (23.7 | )

Page 18

The changes in the currency translation adjustment component of accumulated other comprehensive income (loss)(1), including reclassification adjustments for six months ended June 30, 2019 and 2018 are presented in the table below.

|  | Six months ended 6/30/2019 |  | Six months ended 6/30/2018
(in millions) |  | Equity method investments |  | Consolidated T. Rowe Price investment products - variable interest entities |  | Total currency translation adjustments |  | Equity method investments |  | Consolidated T. Rowe Price investment products - variable interest entities |  | Total currency translation adjustments
Balances at beginning of period |  | $ | (48.8 | ) |  | $ | 6.8 |  |  | $ | (42.0 | ) |  | (37.0 | ) |  | 23.2 |  |  | (13.8 | )
Other comprehensive income (loss) before reclassifications and income taxes |  | 6.4 |  |  | (1.8 | ) |  | 4.6 |  |  | .5 |  |  | (10.3 | ) |  | (9.8 | )
Reclassification adjustments recognized in non-operating income |  | — |  |  | (.2 | ) |  | (.2 | ) |  | — |  |  | (3.6 | ) |  | (3.6 | )
|  | 6.4 |  |  | (2.0 | ) |  | 4.4 |  |  | .5 |  |  | (13.9 | ) |  | (13.4 | )
Net deferred tax income taxes |  | (1.4 | ) |  | .5 |  |  | (.9 | ) |  | (.1 | ) |  | 3.6 |  |  | 3.5 |
Other comprehensive income (loss) |  | 5.0 |  |  | (1.5 | ) |  | 3.5 |  |  | .4 |  |  | (10.3 | ) |  | (9.9 | )
Balances at end of period |  | $ | (43.8 | ) |  | $ | 5.3 |  |  | $ | (38.5 | ) |  | $ | (36.6 | ) |  | $ | 12.9 |  |  | $ | (23.7 | )

(1) Accumulated other comprehensive income as of December 31, 2017, also included $7.9 million of net unrealized holding gains that were reclassified to retained earnings upon adoption of the financial instruments accounting guidance on January 1, 2018. This reclassification also includes the reclassification of $1.7 million of stranded income taxes on available-for-sale investments resulting from U.S. tax law changes enacted on December 22, 2017.
NOTE 11 – COMMITMENTS AND CONTINGENCIES.
On February 14, 2017, T. Rowe Price Group, Inc., T. Rowe Price Associates, Inc., T. Rowe Price Trust Company, current and former members of the management committee, and trustees of the T. Rowe Price U.S. Retirement Program were named as defendants in a lawsuit filed in the United States District Court for the District of Maryland. The lawsuit alleges breaches of ERISA’s fiduciary duty and prohibited transaction provisions on behalf of a class of all participants and beneficiaries of the T. Rowe Price 401(k) Plan from February 14, 2011, to the time of judgment. The plaintiffs are seeking certification of the complaint as a class action. T. Rowe Price believes the claims are without merit and is vigorously defending the action. This matter is in the discovery phase of litigation and we cannot predict the eventual outcome, or whether it will have a material negative impact on our financial results, or estimate the possible loss or range of loss that may arise from any negative outcome.
On April 27, 2016, certain shareholders in the T. Rowe Price Blue Chip Growth Fund, T. Rowe Price Capital Appreciation Fund, T. Rowe Price Equity Income Fund, T. Rowe Price Growth Stock Fund, T. Rowe Price International Stock Fund, T. Rowe Price High Yield Fund, T. Rowe Price New Income Fund and T. Rowe Price Small Cap Stock Fund (the “Funds”) filed a Section 36(b) complaint under the caption Zoidis v. T. Rowe Price Assoc., Inc., against T. Rowe Price Associates, Inc. (“T. Rowe Price”) in the United States District Court for the Northern District of California. The complaint alleges that the management fees for the identified funds are excessive because
T. Rowe Price charges lower advisory fees to subadvised clients with funds in the same strategy. The complaint seeks to recover the allegedly excessive advisory fees received by T. Rowe Price in the year preceding the start of the lawsuit, along with investments’ returns and profits. In the alternative, the complaint seeks the rescission of each fund’s investment management agreement and restitution of any allegedly excessive management fees.
T. Rowe Price believes the claims are without merit and is vigorously defending the action. This matter is in the discovery phase of litigation and we cannot predict the eventual outcome, or whether it will have a material negative impact on our financial results, or estimate the possible loss or range of loss that may arise from any negative outcome.
In addition to the matters discussed above, various claims against us arise in the ordinary course of business, including employment-related claims. In the opinion of management, after consultation with counsel, the likelihood of an adverse determination in one or more of these pending ordinary course of business claims that would have a material adverse effect on our financial position or results of operations is remote.
Page 19

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
T. Rowe Price Group, Inc.:
Results of Review of Interim Financial Information
We have reviewed the condensed consolidated balance sheet of T. Rowe Price Group, Inc. and subsidiaries ("the Company") as of June 30, 2019, the related condensed consolidated statements of income, comprehensive income, and stockholders’ equity for the three- and six- month periods ended June 30, 2019 and 2018, the related condensed consolidated statements of cash flows for the six-month periods ended June 30, 2019 and 2018, and the related notes (collectively, the consolidated interim financial information). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 31, 2018, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 13, 2019, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
/s/ KPMG LLP
Baltimore, Maryland
July 24, 2019
Page 20

Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW.
Our revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in U.S. mutual funds, separately managed accounts, subadvised funds, and other T. Rowe Price products. The other T. Rowe Price products include: collective investment trusts, open-ended investment products offered to investors outside the U.S., and products offered through variable annuity life insurance plans in the U.S.
We manage a broad range of U.S., international and global stock, bond, and money market mutual funds and other investment products, which meet the varied needs and objectives of individual and institutional investors. Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations. We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients. These efforts often involve costs that precede any future revenues that we may recognize from an increase to our assets under management.
The general trend to passive investing has been persistent and accelerated in recent years, which has negatively impacted our new client inflows. However, over the long term we expect well-executed active management to play an important role for investors. In this regard, we remain debt-free with ample liquidity and resources that allow us to take advantage of attractive growth opportunities. We are investing to advance our strategic priorities to sustain and deepen our investment talent, add investment capabilities both in terms of new strategies and new investment vehicles, expand capabilities through enhanced technology, and broaden our distribution reach globally.
We currently expect our 2019 non-GAAP operating expenses to grow in the range of 4% to 7%. This expense growth range factors in continued investments in the business, our cost optimization efforts, and the phased implementation of paying for all third-party investment research. We currently expect that our 2020 operating expenses will reflect a full year of all third-party investment research costs. We could elect to adjust our expense growth should unforeseen circumstances arise, including significant market movements.
MARKET TRENDS.
U.S. stocks rose in the second quarter, despite a sharp pullback in May stemming from increased trade tensions between the U.S. and some of its key trading partners. Equities advanced amid decreasing longer-term interest rates and growing expectations that the Federal Reserve would reduce short-term rates in response to slowing economic growth. Toward the end of the quarter, U.S. stocks were lifted by the European Central Bank’s willingness to implement more stimulus measures if weakening eurozone growth weighs on already-low regional inflation. Hopes that the U.S. and China would draw closer to negotiating a trade deal at the G-20 summit at the end of June also buoyed equities. While a trade agreement was not reached, both parties agreed to resume negotiations and not implement new tariffs.
Stocks in developed non-U.S. equity markets also climbed. Developed European stock markets rose broadly, but UK shares lagged with a roughly 1% gain in U.S. dollar terms due to political and Brexit uncertainty. Stocks in developed Asian countries trailed European markets. Australia and Singapore led the region with returns of around 7%, while shares in Hong Kong and Japan only rose about 1%.
Stocks in emerging markets underperformed equities in developed markets. Chinese shares declined more than 3% amid trade tensions with the U.S. In emerging Europe, Russian shares soared more than 17%, helped by a mid-June central bank interest rate cut. Turkish shares lagged the broad region with a 3% gain, hindered in part by concerns that the government’s purchase of Russian military hardware could lead to U.S. sanctions. Latin American markets were mixed. Shares in Argentina rallied nearly 32%, as several Argentine companies were added to the MSCI Emerging Markets Index at the end of May. Brazilian shares advanced 7%, but markets in Chile, Colombia, and Peru declined. Mexican shares rose slightly more than 1%.
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Returns of several major equity market indexes for the three- and six-month periods ended June 30, 2019, are as follows:

|  | Three months ended |  | Six months ended
Index |  | 6/30/2019 |  | 6/30/2019
S&P 500 Index |  | 4.3% |  | 18.5%
NASDAQ Composite Index(1) |  | 3.6% |  | 20.7%
Russell 2000 Index |  | 2.1% |  | 17.0%
MSCI EAFE (Europe, Australasia, and Far East) Index |  | 4.0% |  | 14.5%
MSCI Emerging Markets Index |  | .7% |  | 10.8%

(1) Returns exclude dividends
Global bond returns were broadly strong. The Fed kept short-term interest rates unchanged, as expected. However, after the Fed’s June 2019 meeting, policymakers indicated a willingness to cut rates if needed. The Fed’s dovish tone contributed to a rally in Treasury securities. The 10-year Treasury note yield decreased to 2.00% from 2.41%. In the U.S. investment-grade universe, longer-term Treasuries and corporate bonds fared best. Mortgage-backed securities lagged with smaller gains, as falling long-term rates led to increasing mortgage prepayments and refinancing activity. Municipal bonds produced positive returns but underperformed taxable bonds. High yield bonds slightly underperformed investment-grade issues.
Bonds in developed non-U.S. countries generated strong returns in local currency terms, as weakening economic growth and dovish signals from some central banks sent longer-term interest rates in several countries notably lower. A weaker U.S. dollar versus various currencies enhanced returns in U.S. dollar terms. In the eurozone, the benchmark 10-year German sovereign note yield fell deeper into negative territory to hit a series of fresh record lows. In Japan, the 10-year government bond yield also slipped deeper into negative territory despite the central bank continuing to target a 0% yield. In the UK, the 10-year gilt yield decreased to 0.83% from 1.00%.
Bonds in emerging markets fared better than bonds issued in developed countries, as dovish signals from major central banks bolstered risk appetite. Local currency bonds outperformed dollar-denominated issues, thanks to strength in several key emerging markets currencies versus the U.S. dollar.
Returns for several major bond market indexes for the three- and six-month periods ended June 30, 2019, are as follows:

|  | Three months ended |  | Six months ended
Index |  | 6/30/2019 |  | 6/30/2019
Bloomberg Barclays U.S. Aggregate Bond Index |  | 3.1% |  | 6.1%
JPMorgan Global High Yield Index |  | 2.8% |  | 10.1%
Bloomberg Barclays Municipal Bond Index |  | 2.1% |  | 5.1%
Bloomberg Barclays Global Aggregate Ex-U.S. Dollar Bond Index |  | 3.4% |  | 5.0%
JPMorgan Emerging Markets Bond Index Plus |  | 4.4% |  | 10.8%

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ASSETS UNDER MANAGEMENT.
Assets under management ended the second quarter of 2019 at $1,125.0 billion, an increase of $43.3 billion from March 31, 2019 and $162.7 billion from the end of 2018. We had net cash inflows of $2.5 billion in the second quarter of 2019 and $7.9 billion for the first half of 2019. The following table details changes in our assets under management, by vehicle and asset class during the three- and six-month periods ended June 30, 2019:

| Three months ended 6/30/2019 |  | Six months ended 6/30/2019
(in billions) | U.S. mutual funds |  | Subadvised and separate accounts |  | Other investment products |  | Total |  | U.S. mutual funds |  | Subadvised and separate accounts |  | Other investment products |  | Total
Assets under management at beginning of period | $ | 630.7 |  |  | $ | 280.6 |  |  | $ | 170.4 |  |  | $ | 1,081.7 |  |  | 564.5 |  |  | 250.0 |  |  | 147.8 |  |  | 962.3 |
Net cash flows before client transfers | (.5 | ) |  | .6 |  |  | 2.4 |  |  | 2.5 |  |  | 4.1 |  |  | 1.4 |  |  | 2.4 |  |  | 7.9 |
Client transfers | (5.9 | ) |  | .4 |  |  | 5.5 |  |  | — |  |  | (12.0 | ) |  | (.5 | ) |  | 12.5 |  |  | — |
Net cash flows after client transfers | (6.4 | ) |  | 1.0 |  |  | 7.9 |  |  | 2.5 |  |  | (7.9 | ) |  | .9 |  |  | 14.9 |  |  | 7.9 |
Net market appreciation and income | 24.2 |  |  | 11.0 |  |  | 5.8 |  |  | 41.0 |  |  | 91.6 |  |  | 41.7 |  |  | 21.4 |  |  | 154.7 |
Net distributions reinvested (not reinvested) | (.2 | ) |  | — |  |  | — |  |  | (.2 | ) |  | .1 |  |  | — |  |  | — |  |  | .1 |
Change during the period | 17.6 |  |  | 12.0 |  |  | 13.7 |  |  | 43.3 |  |  | 83.8 |  |  | 42.6 |  |  | 36.3 |  |  | 162.7 |
Assets under management at June 30, 2019 | $ | 648.3 |  |  | $ | 292.6 |  |  | $ | 184.1 |  |  | $ | 1,125.0 |  |  | $ | 648.3 |  |  | $ | 292.6 |  |  | $ | 184.1 |  |  | $ | 1,125.0 |

| Three months ended 6/30/2019 |  | Six months ended 6/30/2019
(in billions) | Equity |  | Fixed income, including money market |  | Multi-asset(1) |  | Total |  | Equity |  | Fixed income, including money market |  | Multi-asset(1) |  | Total
Assets under management at beginning of period | $ | 621.6 |  |  | $ | 140.9 |  |  | $ | 319.2 |  |  | $ | 1,081.7 |  |  | $ | 539.9 |  |  | $ | 136.1 |  |  | $ | 286.3 |  |  | $ | 962.3 |
Net cash flows | (.3 | ) |  | .8 |  |  | 2.0 |  |  | 2.5 |  |  | .4 |  |  | 2.3 |  |  | 5.2 |  |  | 7.9 |
Net market appreciation and income(2) | 27.1 |  |  | 2.4 |  |  | 11.3 |  |  | 40.8 |  |  | 108.1 |  |  | 5.7 |  |  | 41.0 |  |  | 154.8 |
Change during the period | 26.8 |  |  | 3.2 |  |  | 13.3 |  |  | 43.3 |  |  | 108.5 |  |  | 8.0 |  |  | 46.2 |  |  | 162.7 |
Assets under management at June 30, 2019 | $ | 648.4 |  |  | $ | 144.1 |  |  | $ | 332.5 |  |  | $ | 1,125.0 |  |  | $ | 648.4 |  |  | $ | 144.1 |  |  | $ | 332.5 |  |  | $ | 1,125.0 |

(1) The underlying assets under management of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns.
(2) Includes distributions reinvested and not reinvested.
Investment advisory clients outside the U.S. account for about 6.4% of our assets under management at June 30, 2019 and 6.2% at December 31, 2018.
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 are as follows:

| As of
(in billions) | 6/30/2019 |  | 3/31/2019 |  | 12/31/2018
Target date retirement U.S. mutual funds | $ | 157.5 |  |  | $ | 156.6 |  |  | $ | 144.8 |
Target date separately managed retirement accounts | 7.4 |  |  | 6.8 |  |  | 5.9 |
Target date retirement trusts | 103.8 |  |  | 94.4 |  |  | 79.7 |
| $ | 268.7 |  |  | $ | 257.8 |  |  | $ | 230.4 |

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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. Net cash inflows into our target date retirement products were $1.6 billion in the second quarter of 2019 and $4.6 billion in the first six months of 2019.
INVESTMENT PERFORMANCE.(1)
Strong investment performance and brand awareness is a key driver to attracting and retaining assets—and to our long-term success. The percentage of our U.S. mutual funds(2) (across primary share classes) that outperformed their comparable Morningstar median on a total return basis and that are in the top Morningstar quartile for the one-, three-, five-, and 10-years ended June 30, 2019, were:

|  | 1 year |  | 3 years |  | 5 years |  | 10 years
Outperformed Morningstar median |  |  |  |  |  |  |  |
All funds |  | 72% |  | 69% |  | 80% |  | 78%
Multi-asset funds |  | 89% |  | 82% |  | 91% |  | 84%
Top Morningstar quartile |  |  |  |  |  |  |  |
All funds |  | 29% |  | 40% |  | 50% |  | 51%
Multi-asset funds |  | 28% |  | 56% |  | 62% |  | 79%

(1) Source: © 2019 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
(2) Excludes passive and fund categories not ranked by Morningstar.
In addition, 86.2% of our rated U.S. mutual funds' assets under management ended the quarter with an overall rating of four or five stars from Morningstar. The performance of our institutional strategies against their benchmarks remains competitive, especially over longer time periods.
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, 2019 and 2018 on a U.S. GAAP basis as well as a non-GAAP basis. The non-GAAP basis adjusts for the impact of our consolidated T. Rowe Price investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, and certain nonrecurring charges and gains. Beginning in the second quarter of 2018, our non-GAAP adjustments no longer include non-operating income related to our cash and discretionary investments not consolidated. We believe the non-GAAP financial measures below provide relevant and meaningful information to investors about our core operating results.
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| Three months ended |  | Q2 2019 vs. Q2 2018 |  |  | Six months ended |  | YTD 2019 vs. YTD 2018
(in millions, except per-share data) | 6/30/2019 |  | 6/30/2018 |  | $ change |  | % change |  |  | 6/30/2019 |  | 6/30/2018 |  | $ change |  | % change
U.S. GAAP basis |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment advisory fees | $ | 1,270.2 |  |  | $ | 1,214.4 |  |  | $ | 55.8 |  |  | 4.6 | % |  |  | $ | 2,464.4 |  |  | $ | 2,403.6 |  |  | $ | 60.8 |  |  | 2.5 | %
Net revenues | $ | 1,395.2 |  |  | $ | 1,345.0 |  |  | $ | 50.2 |  |  | 3.7 | % |  |  | $ | 2,722.5 |  |  | $ | 2,673.0 |  |  | $ | 49.5 |  |  | 1.9 | %
Operating expenses | $ | 780.1 |  |  | $ | 750.3 |  |  | $ | 29.8 |  |  | 4.0 | % |  |  | $ | 1,574.9 |  |  | $ | 1,494.5 |  |  | $ | 80.4 |  |  | 5.4 | %
Net operating income | $ | 615.1 |  |  | $ | 594.7 |  |  | $ | 20.4 |  |  | 3.4 | % |  |  | $ | 1,147.6 |  |  | $ | 1,178.5 |  |  | $ | (30.9 | ) |  | (2.6 | )%
Non-operating income(1) | $ | 124.5 |  |  | $ | 34.1 |  |  | $ | 90.4 |  |  | n/m |  |  |  | $ | 327.3 |  |  | $ | 50.2 |  |  | $ | 277.1 |  |  | n/m |
Net income attributable to T. Rowe Price Group | $ | 527.5 |  |  | $ | 448.9 |  |  | $ | 78.6 |  |  | 17.5 | % |  |  | $ | 1,040.1 |  |  | $ | 902.6 |  |  | $ | 137.5 |  |  | 15.2 | %
Diluted earnings per common share | $ | 2.15 |  |  | $ | 1.77 |  |  | $ | .38 |  |  | 21.5 | % |  |  | $ | 4.23 |  |  | $ | 3.55 |  |  | $ | .68 |  |  | 19.2 | %
Weighted average common shares outstanding assuming dilution | 239.2 |  |  | 247.4 |  |  | (8.2 | ) |  | (3.3 | )% |  |  | 239.4 |  |  | $ | 248.6 |  |  | $ | (9.2 | ) |  | (3.7 | )%
Adjusted non-GAAP basis(2) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating expenses | $ | 764.6 |  |  | $ | 745.3 |  |  | $ | 19.3 |  |  | 2.6 | % |  |  | $ | 1,521.2 |  |  | $ | 1,486.3 |  |  | $ | 34.9 |  |  | 2.3 | %
Net operating income | $ | 632.8 |  |  | $ | 601.1 |  |  | $ | 31.7 |  |  | 5.3 | % |  |  | $ | 1,205.0 |  |  | $ | 1,189.8 |  |  | $ | 15.2 |  |  | 1.3 | %
Non-operating income | $ | 35.8 |  |  | $ | 8.0 |  |  | $ | 27.8 |  |  | n/m |  |  |  | $ | 80.0 |  |  | $ | 8.0 |  |  | $ | 72.0 |  |  | n/m |
Net income attributable to T. Rowe Price Group | $ | 498.1 |  |  | $ | 472.8 |  |  | $ | 25.3 |  |  | 5.4 | % |  |  | $ | 958.7 |  |  | $ | 918.4 |  |  | $ | 40.3 |  |  | 4.4 | %
Diluted earnings per common share | $ | 2.03 |  |  | $ | 1.87 |  |  | $ | .16 |  |  | 8.6 | % |  |  | $ | 3.90 |  |  | $ | 3.61 |  |  | $ | .29 |  |  | 8.0 | %
Assets under management (in billions) |  |  |  |  |  |  |  |  |  |  |  |  |
Average assets under management | $ | 1,099.8 |  |  | $ | 1,036.5 |  |  | $ | 63.3 |  |  | 6.1 | % |  |  | $ | 1,071.8 |  |  | $ | 1,031.0 |  |  | $ | 40.8 |  |  | 4.0 | %
Ending assets under management | $ | 1,125.0 |  |  | $ | 1,044.1 |  |  | $ | 80.9 |  |  | 7.7 | % |  |  | $ | 1,125.0 |  |  | $ | 1,044.1 |  |  | $ | 80.9 |  |  | 7.7 | %

(1) The percentage change in non-operating income is not meaningful (n/m).
(2) See the reconciliation to the comparable U.S. GAAP measures at the end of the Results of Operations section of this Management’s Discussion and Analysis.
Results Overview
Investment advisory revenues. Investment advisory revenues earned in the second quarter of 2019 increased over the comparable 2018 quarter as average assets under our management increase d $63.3 billion, or 6.1%, to $1,099.8 billion. The average annualized effective fee rate earned during the second quarter of 2019 was 46.3 basis points, compared with 47.0 basis points earned during the second quarter of 2018.
Investment advisory revenues earned in the six months ended June 30, 2019 increased over the comparable 2018 period as average assets under our management increased $40.8 billion, or 4.0%, to $1,071.8 billion. The average annualized effective fee rate earned on our assets under management during the six months ended June 30, 2019 was 46.4 basis points, compared with 47.0 basis points earned during the same period 2018.
Our effective fee rate for both periods has declined due to client transfers within the complex to lower fee vehicles or share classes over the last twelve months and, to a lesser extent, fee reductions we made to certain mutual funds and other products during 2018. We regularly assess the competitiveness of our investment advisory fees and will continue to make adjustments as deemed appropriate. Our effective rate has been stable with an effective fee rate of 46.4 basis points earned in the first quarter of 2019 compared to the 46.3 basis points earned in the second quarter of 2019. Over time, our effective fee rate 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.
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Operating expenses. Operating expenses were $780.1 million in the second quarter of 2019 compared with $750.3 million in the second quarter of 2018. Operating expenses were $1,574.9 million in the six months ended June 30, 2019 compared with $1,494.5 million in the six months ended June 30, 2018. The increase in operating expenses for both the second quarter of 2019 and for the six months ended June 30, 2019 was primarily due to higher salary, annual bonus accrual, and benefits expense, higher compensation expense related to the supplemental savings plan as markets were strong in the first half 2019, and our continued strategic investments. The higher expense related to the supplemental savings plan is partially offset by the non-operating gains earned on the investments used to hedge the related liability.
On a non-GAAP basis, our operating expenses in the second quarter of 2019 increased 2.6% to $764.6 million compared to the 2018 quarter. For the six months ended June 30, 2019, our operating expenses on a non-GAAP basis increased 2.3% to $1,521.2 million compared to the six months ended June 30, 2018. Our non-GAAP operating expenses excludes the impacts of our supplemental savings plan as well as our consolidated T. Rowe Price 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 2019 was 44.1%, compared to 44.2% earned in the 2018 quarter. Our operating margin in the six months ended June 30, 2019 was 42.2%, compared to 44.1% earned in the six months ended June 30, 2018. The decrease in our operating margin for both periods is primarily due to the higher compensation expense related to our supplemental savings plan as markets in the first and second quarters of 2019 outperformed the same periods in 2018.
Net revenues

| Three months ended |  | Q2 2019 vs. Q2 2018 |  |  | Six months ended |  | YTD 2019 vs. YTD 2018
(in millions) | 6/30/2019 |  | 6/30/2018 |  | $ change |  | % change |  |  | 6/30/2019 |  | 6/30/2018 |  | $ change |  | % change
Investment advisory fees |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. mutual funds | $ | 860.7 |  |  | $ | 846.9 |  |  | $ | 13.8 |  |  | 1.6 | % |  |  | $ | 1,676.6 |  |  | $ | 1,679.8 |  |  | $ | (3.2 | ) |  | (.2 | )%
Subadvised and separate accounts and other investment products | 409.5 |  |  | 367.5 |  |  | 42.0 |  |  | 11.4 | % |  |  | 787.8 |  |  | 723.8 |  |  | 64.0 |  |  | 8.8 | %
| 1,270.2 |  |  | 1,214.4 |  |  | 55.8 |  |  | 4.6 | % |  |  | 2,464.4 |  |  | 2,403.6 |  |  | 60.8 |  |  | 2.5 | %
Administrative, distribution, and servicing fees |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Administrative fees | 94.9 |  |  | 95.1 |  |  | (.2 | ) |  | (.2 | )% |  |  | 197.8 |  |  | 197.3 |  |  | .5 |  |  | .3 | %
Distribution and servicing fees | 30.1 |  |  | 35.5 |  |  | (5.4 | ) |  | (15.2 | )% |  |  | 60.3 |  |  | 72.1 |  |  | (11.8 | ) |  | (16.4 | )%
| 125.0 |  |  | 130.6 |  |  | (5.6 | ) |  | (4.3 | )% |  |  | 258.1 |  |  | 269.4 |  |  | (11.3 | ) |  | (4.2 | )%
Net revenues | $ | 1,395.2 |  |  | $ | 1,345.0 |  |  | $ | 50.2 |  |  | 3.7 | % |  |  | $ | 2,722.5 |  |  | $ | 2,673.0 |  |  | $ | 49.5 |  |  | 1.9 | %

Investment advisory fees. 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.
U.S. mutual funds
Investment advisory revenues earned in the second quarter of 2019 from our U.S. mutual funds were $860.7 million, an increase of 1.6% from the comparable 2018 quarter. Average assets under management in these funds for the second quarter of 2019 increased 2.2% to $638.5 billion. The increase in average assets under management exceeded the increase in investment advisory revenues in the second quarter of 2019 as compared to the same quarter in 2018, primarily due to higher U.S. equity valuations, which resulted in a larger proportion of assets under management in U.S. equities as compared to international equities.
Investment advisory revenues earned in the six months ended June 30, 2019 from the firm's U.S. mutual funds were $1,676.6 million, a decrease of .2% from the 2018 period. Average assets under management in these funds for the six months ended June 30, 2019 decreased .2% to $624.4 billion.
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Subadvised and separate accounts and other investment products
Investment advisory revenues earned in the second quarter of 2019 from subadvised and separate accounts as well as other investment products were $409.5 million, an increase of 11.4% from the comparable 2018 quarter. Average assets under management for these products increase d 12.0% to $461.3 billion. The increase in average assets under management exceeded the increase in investment advisory fees in the second quarter of 2019 as compared to the same quarter in 2018, primarily due to a larger proportion of the assets under management in investment products that have a lower effective fee.
Investment advisory revenues earned in the six months ended June 30, 2019 from subadvised and separate accounts as well as other investment products were $787.8 million, an increase of 8.8% from the 2018 period. Average assets under management for these products increased 9.7% to $447.4 billion. The increase in average assets under management exceeded the increase in investment advisory fees in the first half of 2019 as compared to the same period in 2018, primarily due to a larger proportion of the assets under management in investment products that have a lower effective fee.
Administrative, distribution, and servicing fees. Administrative, distribution, and servicing fees in the second quarter of 2019 were $125.0 million, a decrease of $5.6 million, or 4.3%, from the comparable 2018 quarter. For the six months ended June 30, 2019, these fees were $258.1 million, a decrease of $11.3 million, or 4.2% from the 2018 period. In this line, we recognize fees earned from providing administrative and distribution services to our investment advisory clients, primarily our U.S. mutual funds and their investors. The decrease for both periods was primarily attributable to lower 12b-1 revenue earned on certain share classes, including the Advisor and R classes, of the U.S. mutual funds as client transfers to lower fee vehicles and share classes has reduced assets under management in these share classes. This decline is offset entirely by a reduction in the costs paid to third-party intermediaries that source these assets and reported in distribution and servicing expense.
Our second quarter net revenues reflect the elimination of $2.2 million in 2019 and $1.4 million in 2018, earned from our consolidated T. Rowe Price investment products. For the six months ended June 30, 2019 and 2018 net revenues reflect an elimination of $3.7 million in 2019 and $3.1 million in 2018. The corresponding expenses recognized by these products, and consolidated in our financial statements, were eliminated from operating expenses.
Operating expenses

| Three months ended |  | Q2 2019 vs. Q2 2018 |  |  | Six months ended |  | YTD 2019 vs. YTD 2018
(in millions) | 6/30/2019 |  | 6/30/2018 |  | $ change |  | % change |  |  | 6/30/2019 |  | 6/30/2018 |  | $ change |  | % change
Compensation and related costs | $ | 483.2 |  |  | $ | 456.0 |  |  | $ | 27.2 |  |  | 6.0 | % |  |  | $ | 974.7 |  |  | $ | 897.4 |  |  | $ | 77.3 |  |  | 8.6 | %
Distribution and servicing | 64.4 |  |  | 71.6 |  |  | (7.2 | ) |  | (10.1 | )% |  |  | 130.8 |  |  | 141.9 |  |  | (11.1 | ) |  | (7.8 | )%
Advertising and promotion | 19.8 |  |  | 19.0 |  |  | .8 |  |  | 4.2 | % |  |  | 41.4 |  |  | 43.6 |  |  | (2.2 | ) |  | (5.0 | )%
Product-related costs | 33.4 |  |  | 37.1 |  |  | (3.7 | ) |  | (10.0 | )% |  |  | 77.6 |  |  | 79.2 |  |  | (1.6 | ) |  | (2.0 | )%
Technology, occupancy, and facility costs | 104.9 |  |  | 93.2 |  |  | 11.7 |  |  | 12.6 | % |  |  | 203.0 |  |  | 187.3 |  |  | 15.7 |  |  | 8.4 | %
General, administrative, and other | 74.4 |  |  | 73.4 |  |  | 1.0 |  |  | 1.4 | % |  |  | 147.4 |  |  | 145.1 |  |  | 2.3 |  |  | 1.6 | %
Total operating expenses | $ | 780.1 |  |  | $ | 750.3 |  |  | $ | 29.8 |  |  | 4.0 | % |  |  | $ | 1,574.9 |  |  | $ | 1,494.5 |  |  | $ | 80.4 |  |  | 5.4 | %

Compensation and related costs. Compensation and related costs were $483.2 million in the second quarter of 2019, an increase of $27.2 million, or 6.0%, compared to the 2018 quarter. The increase in compensation and related costs was primarily due to higher salaries, benefits and related employee costs of $14.7 million, primarily as a result of a 3.5% increase in our average staff size and modest increases in base salaries at the beginning of 2019, higher market-related expense related to our supplemental savings plan of $10.6 million, and an increase in non-cash stock-based compensation expense of $2.0 million. Our interim accrual for annual variable compensation also increased $12.4 million from the 2018 quarter. We recognize the interim accrual ratably over the year using the ratio of recognized quarterly net revenues to forecasted annual net revenues. These increases in compensation and related costs were offset in part by the absence in 2019 of the $9.0 million one-time bonus funded by U.S. tax reform benefits that was paid to certain associates in the second quarter of 2018 and $1.5 million of higher labor capitalization related to internally developed software compared to the 2018 quarter.
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Compensation and related costs were $974.7 million in the six months ended June 30, 2019, an increase of $77.3 million, or 8.6%, compared to the 2018 period. The increase in compensation and related costs was primarily due to higher market-related expense related to our supplemental savings plan of $44.8 million along with an increase in salaries, benefits and related employee costs, which have increased $32.8 million from the 2018 period. An increase of 2.8% in our average staff size and modest increases in base salaries at the beginning of 2019 have contributed to higher associate-related costs. Our interim accrual for annual variable compensation also increased $17.0 million in 2019 from the 2018 period. Similar to the quarterly period, these increases in compensation and related costs were offset in part by the absence in 2019 of the one-time bonus paid to certain associates in the second quarter of 2018 and higher labor capitalization related to internally developed software in 2019 of $5.9 million.
Distribution and servicing. Distribution and servicing includes those costs incurred to distribute T. Rowe Price products as well as client and shareholder servicing, recordkeeping, and administrative services. These costs were $64.4 million for the second quarter of 2019, a decrease of 10.1% from the $71.6 million recognized in the second quarter of 2018. For the six months ended June 30, 2019, these costs were $130.8 million, a decrease of 7.8% over the $141.9 million recognized in the comparable 2018 period. The decrease for both periods is primarily driven by client transfers to lower fee vehicles or share classes over the last twelve months, which resulted in lower assets under management in those mutual funds that are distributed by third-party intermediaries. These costs include those distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our U.S. mutual funds and is offset entirely by the 12b-1 revenue we earn and report in administrative, distribution, and servicing fees.
Technology, occupancy, and facility costs. Technology, occupancy, and facility costs consists of depreciation expense, technology equipment and maintenance, software, and costs related to our facilities. These costs were $104.9 million in the second quarter of 2019, an increase of $11.7 million, or 12.6%, compared to the $93.2 million recognized in the 2018 quarter. For the six months ended June 30, 2019, these costs were $203.0 million, an increase of $15.7 million, or 8.4%, compared to the 2018 period. The increase for both periods is due primarily to incremental investment in our technology capabilities, including related depreciation, hosted solution licenses, and maintenance programs.
General, administrative, and other. General, administrative, and other expenses were $74.4 million in the second quarter of 2019, an increase of $1.0 million, or 1.4%, compared to the $73.4 million recognized in the 2018 quarter. For the six months ended June 30, 2019, these costs were $147.4 million, an increase of $2.3 million, or 1.6%, compared to the 2018 period. The increase for both periods is primarily a result of higher third-party investment research costs that were partially offset by lower professional fees in 2019 as compared to the 2018 periods.
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Non-operating income
Non-operating income in the second quarter of 2019 was $124.5 million, an increase of $90.4 million from the 2018 quarter. For the six months ended June 30, 2019, non-operating income increased $277.1 million from the 2018 period to $327.3 million. The following table details the components of non-operating income during both the second quarter and six months ended June 30, 2019 and 2018.

| Three months ended |  | Six months ended
(in millions) | 6/30/2019 |  |  | 6/30/2018 |  |  | 6/30/2019 |  |  | 6/30/2018 |
Net gains (losses) from non-consolidated T. Rowe Price investment products |  |  |  |  |  |  |
Cash and discretionary investments |  |  |  |  |  |  |
Dividend income | $ | 17.9 |  |  | $ | 10.4 |  |  | $ | 34.1 |  |  | $ | 17.2 |
Market related gains (losses) and equity in earnings | 17.9 |  |  | (2.4 | ) |  | 45.9 |  |  | (4.9 | )
Seed capital investments |  |  |  |  |  |  |
Dividend income | .3 |  |  | 1.0 |  |  | .8 |  |  | 2.1 |
Market related gains (losses) and equity in earnings | 8.7 |  |  | (8.3 | ) |  | 28.3 |  |  | (8.7 | )
Net gain recognized upon deconsolidation | .1 |  |  | .5 |  |  | .2 |  |  | 3.6 |
Investments used to hedge the supplemental savings plan liability | 12.1 |  |  | 5.0 |  |  | 43.1 |  |  | 7.9 |
Total net gains from non-consolidated T. Rowe Price investment products | 57.0 |  |  | 6.2 |  |  | 152.4 |  |  | 17.2 |
Other investment income | 4.8 |  |  | 11.2 |  |  | 9.5 |  |  | 14.6 |
Net gains on investments | 61.8 |  |  | 17.4 |  |  | 161.9 |  |  | 31.8 |
Net gains on consolidated sponsored investment portfolios | 62.8 |  |  | 19.1 |  |  | 164.7 |  |  | 19.9 |
Other income (loss), including foreign currency gains and losses | (.1 | ) |  | (2.4 | ) |  | .7 |  |  | (1.5 | )
Non-operating income | $ | 124.5 |  |  | $ | 34.1 |  |  | $ | 327.3 |  |  | $ | 50.2 |

During the second quarter of 2019 as well as the six months ended June 30, 2019, non-operating income included the impact of sharp market increases, which resulted in significant unrealized gains on our investment portfolio compared with modest gains recognized during 2018.
The table above includes the net investment income of the underlying portfolios included in the consolidated T. Rowe Price investment products and not just the net investment income related to our interest. The table below shows the impact that the consolidated T. Rowe Price investment products have 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
(in millions) | 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 6/30/2018
Operating expenses reflected in net operating income | $ | (3.8 | ) |  | $ | (3.1 | ) |  | $ | (6.9 | ) |  | $ | (5.6 | )
Net investment income reflected in non-operating income | 62.8 |  |  | 19.1 |  |  | 164.7 |  |  | 19.9 |
Impact on income before taxes | $ | 59.0 |  |  | $ | 16.0 |  |  | $ | 157.8 |  |  | $ | 14.3 |
Net income attributable to our interest in the consolidated T. Rowe Price investment products | $ | 30.6 |  |  | $ | 5.3 |  |  | $ | 88.0 |  |  | $ | 1.8 |
Net income attributable to redeemable non-controlling interests (unrelated third-party investors) | 28.4 |  |  | 10.7 |  |  | 69.8 |  |  | 12.5 |
| $ | 59.0 |  |  | $ | 16.0 |  |  | $ | 157.8 |  |  | $ | 14.3 |

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Provision for income taxes
Our effective tax rate for the second quarter of 2019 was 24.8%, compared with 26.9% in the 2018 quarter. Our effective tax rate for the six months ended June 30, 2019 was 24.7%, compared with 25.5% in the 2018 period. The income tax provision for both the 2018 quarter and year-to-date period include nonrecurring charges totaling $28.7 million related to the enactment of U.S. tax reform and new Maryland state tax legislation. The following table reconciles the statutory federal income tax rate to our effective tax rate for both the quarter and six months ended June 30, 2019 and 2018:

| Three months ended |  | Six months ended
| 6/30/2019 |  | 6/30/2018 |  | 6/30/2019 |  | 6/30/2018
Statutory U.S. federal income tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Impact of nonrecurring charge related to U.S. tax reform | — |  |  | 3.3 |  |  | — |  |  | 1.7 |
Impact of nonrecurring charge related to new Maryland state tax legislation | — |  |  | 1.3 |  |  | — |  |  | .7 |
State income taxes for current year, net of federal income tax benefits(1) | 4.6 |  |  | 3.9 |  |  | 4.4 |  |  | 4.4 |
Net income attributable to redeemable non-controlling interests | (.7 | ) |  | (.2 | ) |  | (.7 | ) |  | (.2 | )
Net excess tax benefits from stock-based compensation plans activity | (.7 | ) |  | (2.7 | ) |  | (.7 | ) |  | (2.4 | )
Other items | .6 |  |  | .3 |  |  | .7 |  |  | .3 |
Effective income tax rate | 24.8 | % |  | 26.9 | % |  | 24.7 | % |  | 25.5 | %

(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.
We currently estimate our effective tax rate for the full-year 2019 will be in the range of 23.5% to 25.5%. Our effective tax rate will continue to experience volatility in future periods as the tax benefits recognized from stock-based compensation 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.
Our non-GAAP effective tax rate for the second quarter of 2019 and 2018 was 25.5% and 22.4%, respectively. Our non-GAAP effective tax rate for the six months ended June 30, 2019 and 2018 was 25.4% and 23.3%, respectively. We currently estimate our non-GAAP effective tax rate for the full-year 2019 will be in the range of 24% to 26%.
NON-GAAP INFORMATION AND RECONCILIATION.
We believe the non-GAAP financial measures below provide relevant and meaningful information to investors about our core operating results. These measures have been established in order to increase transparency for the purpose of evaluating our core business, for comparing current results with prior period results, and to enable more appropriate comparison with industry peers. However, non-GAAP financial measures should not be considered a substitute for financial measures calculated in accordance with U.S. GAAP and may be calculated differently by other companies.
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The following schedules reconcile certain U.S. GAAP financial measures for the three months ended June 30, 2019 and 2018.

| Three months ended 6/30/2019
| Operating expenses |  | Net operating income |  | Non-operating income |  | Provision (benefit) for income taxes(6) |  | Net income attributable to T. Rowe Price Group |  | Diluted earnings per share(7)
U.S. GAAP Basis | $ | 780.1 |  |  | $ | 615.1 |  |  | $ | 124.5 |  |  | $ | 183.7 |  |  | $ | 527.5 |  |  | $ | 2.15 |
Non-GAAP adjustments: |  |  |  |  |  |  |  |  |  |  |
Consolidated T. Rowe Price investment products(1) | (1.6 | ) |  | 3.8 |  |  | (62.8 | ) |  | (9.5 | ) |  | (21.1 | ) |  | (.09 | )
Supplemental savings plan liability(2) | (13.9 | ) |  | 13.9 |  |  | (12.1 | ) |  | .5 |  |  | 1.3 |  |  | .01 |
Other non-operating income(3) | — |  |  | — |  |  | (13.8 | ) |  | (4.2 | ) |  | (9.6 | ) |  | (.04 | )
Adjusted Non-GAAP Basis | $ | 764.6 |  |  | $ | 632.8 |  |  | $ | 35.8 |  |  | $ | 170.5 |  |  | $ | 498.1 |  |  | $ | 2.03 |

| Three months ended 6/30/2018
| Operating expenses |  | Net operating income |  | Non-operating income |  | Provision (benefit) for income taxes(6) |  | Net income attributable to T. Rowe Price Group |  | Diluted earnings per share(7)
U.S. GAAP Basis | $ | 750.3 |  |  | $ | 594.7 |  |  | $ | 34.1 |  |  | $ | 169.2 |  |  | $ | 448.9 |  |  | $ | 1.77 |
Non-GAAP adjustments: |  |  |  |  |  |  |  |  |  |  |
Consolidated T. Rowe Price investment products(1) | (1.7 | ) |  | 3.1 |  |  | (19.1 | ) |  | (1.0 | ) |  | (4.3 | ) |  | (.01 | )
Supplemental savings plan liability(2) | (3.3 | ) |  | 3.3 |  |  | (5.0 | ) |  | (.5 | ) |  | (1.2 | ) |  | — |
Other non-operating income(3) | — |  |  | — |  |  | (2.0 | ) |  | (2.7 | ) |  | .7 |  |  | — |
Nonrecurring charge related to enactment of U.S. tax reform(4) | — |  |  | — |  |  | — |  |  | (20.8 | ) |  | 20.8 |  |  | .08 |
Nonrecurring charge related to enactment of Maryland state tax legislation(5) | — |  |  | — |  |  | — |  |  | (7.9 | ) |  | 7.9 |  |  | .03 |
Adjusted Non-GAAP Basis | $ | 745.3 |  |  | $ | 601.1 |  |  | $ | 8.0 |  |  | $ | 136.3 |  |  | $ | 472.8 |  |  | $ | 1.87 |

The following schedules reconcile certain U.S. GAAP financial measures for the six months ended June 30, 2019 and 2018.

| Six months ended 6/30/2019
| Operating expenses |  | Net operating income |  | Non-operating income |  | Provision (benefit) for income taxes(6) |  | Net income attributable to T. Rowe Price Group |  | Diluted earnings per share(7)
U.S. GAAP Basis | $ | 1,574.9 |  |  | $ | 1,147.6 |  |  | $ | 327.3 |  |  | $ | 365.0 |  |  | $ | 1,040.1 |  |  | $ | 4.23 |
Non-GAAP adjustments: |  |  |  |  |  |  |  |  |  |  |
Consolidated T. Rowe Price investment products(1) | (3.2 | ) |  | 6.9 |  |  | (164.7 | ) |  | (28.4 | ) |  | (59.6 | ) |  | (.24 | )
Supplemental savings plan liability(2) | (50.5 | ) |  | 50.5 |  |  | (43.1 | ) |  | 2.4 |  |  | 5.0 |  |  | .02 |
Other non-operating income(3) | — |  |  | — |  |  | (39.5 | ) |  | (12.7 | ) |  | (26.8 | ) |  | (.11 | )
Adjusted Non-GAAP Basis | $ | 1,521.2 |  |  | $ | 1,205.0 |  |  | $ | 80.0 |  |  | $ | 326.3 |  |  | $ | 958.7 |  |  | $ | 3.90 |

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| Six months ended 6/30/2018
| Operating expenses |  | Net operating income |  | Non-operating income |  | Provision (benefit) for income taxes(6) |  | Net income attributable to T. Rowe Price Group |  | Diluted earnings per share(7)
U.S. GAAP Basis | $ | 1,494.5 |  |  | $ | 1,178.5 |  |  | $ | 50.2 |  |  | $ | 313.6 |  |  | $ | 902.6 |  |  | $ | 3.55 |
Non-GAAP adjustments: |  |  |  |  |  |  |  |  |  |  |
Consolidated T. Rowe Price investment products(1) | (2.5 | ) |  | 5.6 |  |  | (19.9 | ) |  | (.5 | ) |  | (1.3 | ) |  | — |
Supplemental savings plan liability(2) | (5.7 | ) |  | 5.7 |  |  | (7.9 | ) |  | (.7 | ) |  | (1.5 | ) |  | (.01 | )
Other non-operating income(3) | — |  |  | — |  |  | (14.4 | ) |  | (4.3 | ) |  | (10.1 | ) |  | (.04 | )
Nonrecurring charge related to enactment of U.S. tax reform(4) | — |  |  | — |  |  | — |  |  | (20.8 | ) |  | 20.8 |  |  | .08 |
Nonrecurring charge related to enactment of Maryland state tax legislation(5) | — |  |  | — |  |  | — |  |  | (7.9 | ) |  | 7.9 |  |  | .03 |
Adjusted Non-GAAP Basis | $ | 1,486.3 |  |  | $ | 1,189.8 |  |  | $ | 8.0 |  |  | $ | 279.4 |  |  | $ | 918.4 |  |  | $ | 3.61 |

(1) | These non-GAAP adjustments remove the impact the consolidated T. Rowe Price investment products have on our U.S. GAAP consolidated statements of income. Specifically, we add back the operating expenses and subtract the investment income of the consolidated T. Rowe Price investment products. The adjustment to our operating expenses represents the operating expenses of the consolidated products, net of the elimination of related management and administrative fees. 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. We believe the consolidated T. Rowe Price investment products may impact the reader’s ability to understand our core operating results.

(2) | This non-GAAP adjustment removes the compensation expense from market valuation changes in the supplemental savings plan and the related net gains (losses) on investments designated as an economic hedge against the related liability. Amounts deferred under the supplemental savings plan are adjusted for appreciation (depreciation) of hypothetical investments chosen by employees. We use T. Rowe Price investment products to economically hedge the exposure to these market movements. We believe it is useful to offset the non-operating investment income (loss) realized on the hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

(3) | This non-GAAP adjustment represents the other non-operating income (loss) and the net gains (losses) earned on our non-consolidated investment portfolio that are not designated as economic hedges of the supplemental savings plan liability, and, beginning in the second quarter of 2018, non-consolidated seed investments and other investments that are not part of the cash and discretionary investment portfolio. We decided to retain the investment gains recognized on our non-consolidated cash and discretionary investments as these assets and related income (loss) are considered part of our core operations. The impact on previously reported non-GAAP measures is immaterial. We believe adjusting for these non-operating income (loss) items helps the reader’s ability to understand our core operating results and increases comparability to prior years. Additionally, we do not emphasize the impact of the portion of non-operating income (loss) removed when managing and evaluating performance.

(4) | During the second quarter of 2018, we recognized a nonrecurring charge of $20.8 million for an adjustment made to the charge taken in 2017 related to the enactment of U.S. tax reform. We believe it is useful to readers of our consolidated statements of income to adjust for this nonrecurring charge in arriving at net income attributable to T. Rowe Price Group and diluted earnings per share.

(5) | During the second quarter of 2018, we recognized a nonrecurring charge of $7.9 million for the remeasurement of our deferred tax assets and liabilities to reflect the effect of Maryland state tax legislation enacted on April 24, 2018. We believe it is useful to readers of our consolidated statements of income to adjust for this nonrecurring charge in arriving at net income attributable to T. Rowe Price Group and diluted earnings per share.

(6) | The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 25.4% for the first half of 2019 and 23.3% for the 2018 period. As such, the non-GAAP effective tax rate for the second quarter was 25.5% in 2019 and 22.4% in 2018. We estimate that our effective tax rate for the full-year 2019 on a non-GAAP basis will be in the range of 24% to 26%.

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(7) | 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.

CAPITAL RESOURCES AND LIQUIDITY.
Sources of Liquidity
We remain debt-free with ample liquidity, including cash and investments in T. Rowe Price products, as follows:

(in millions) |  | 6/30/2019 |  | 12/31/2018
Cash and cash equivalents |  | $ | 1,802.4 |  |  | $ | 1,425.2 |
Discretionary investments |  | 1,692.5 |  |  | 1,597.1 |
Total cash and discretionary investments |  | 3,494.9 |  |  | 3,022.3 |
Redeemable seed capital investments |  | 1,259.6 |  |  | 1,118.9 |
Investments used to hedge the supplemental savings plan liability |  | 441.3 |  |  | 381.3 |
Total cash and investments in T. Rowe Price products |  | $ | 5,195.8 |  |  | $ | 4,522.5 |

Cash and discretionary investments in T. Rowe Price products held by our subsidiaries outside the U.S. were $500.7 million at June 30, 2019 and $425.3 million at December 31, 2018.
The cash and investment presentation on the unaudited condensed consolidated balance sheet is based on the accounting treatment for the cash equivalent or investment item. 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 June 30, 2019.

(in millions) |  | Cash and cash equivalents |  | Investments |  | Net assets of consolidated T. Rowe Price investment products(1) |  | 6/30/2019
Cash and discretionary investments |  | $ | 1,802.4 |  |  | $ | 1,627.3 |  |  | $ | 65.2 |  |  | $ | 3,494.9 |
Seed capital investments |  | — |  |  | 236.2 |  |  | 1,023.4 |  |  | 1,259.6 |
Investments used to hedge the supplemental savings plan liability |  | — |  |  | 441.3 |  |  | — |  |  | 441.3 |
Total cash and investments in T. Rowe Price products attributable to T. Rowe Price Group |  | 1,802.4 |  |  | 2,304.8 |  |  | 1,088.6 |  |  | 5,195.8 |
Investment in UTI and other investments |  | — |  |  | 270.4 |  |  | — |  |  | 270.4 |
Total cash and investments attributable to T. Rowe Price Group |  | 1,802.4 |  |  | 2,575.2 |  |  | 1,088.6 |  |  | 5,466.2 |
Redeemable non-controlling interests |  | — |  |  | — |  |  | 1,012.3 |  |  | 1,012.3 |
As reported on unaudited condensed consolidated balance sheet at June 30, 2019 |  | $ | 1,802.4 |  |  | $ | 2,575.2 |  |  | $ | 2,100.9 |  |  | $ | 6,478.5 |

(1) | The T. Rowe Price investment products that we consolidate are generally those products we provided seed capital at the time of their formation and have a controlling interest. These products generally represent U.S. mutual funds as well as those regulated outside the U.S. The net assets of the T. Rowe Price investment products at June 30, 2019 consist of the assets of these products that we consolidate on our unaudited condensed consolidated balance sheets of $2,203.4 million, less the liabilities of these products of $102.5 million.

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 that are held by unrelated third-party investors. 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. Additionally, the assets of these T. Rowe Price investment products are not available to our general creditors. Our interest in these
T. Rowe Price investment products was used as initial seed capital and is recategorized as discretionary when it is determined by management that the seed capital is no longer needed. We assess the discretionary investment products and when we decide to liquidate our interest, we seek to do so in a way as to not impact the product and ultimately, the unrelated third-party investors.
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Uses of Liquidity
We increased our quarterly recurring dividend per common share in February 2019 by 8.6% to $.76 per common share from $.70 per common share. Additionally, we expended $393.6 million in the first half of 2019 to repurchase 4.1 million shares, or 1.7%, of our outstanding common stock at an average price of $96.50 per share. These dividends and repurchases were expended using existing cash balances and cash generated from operations. We will generally repurchase our common stock over time to offset the dilution created by our equity-based compensation plans.
Since the end of 2016, we have returned $3.6 billion to stockholders through stock repurchases and our regular quarterly dividends, as follows:

(in millions) | Recurring dividend |  | Stock repurchases |  | Total cash returned to stockholders
2017 | $ | 562.6 |  |  | $ | 458.1 |  |  | $ | 1,020.7 |
2018 | 694.7 |  |  | 1,099.6 |  |  | 1,794.3 |
Six months ended 6/30/2019 | 367.2 |  |  | 393.6 |  |  | 760.8 |
Total | $ | 1,624.5 |  |  | $ | 1,951.3 |  |  | $ | 3,575.8 |

We anticipate property and equipment expenditures for the full-year 2019 to be about $200 million, of which about two-thirds is planned for technology initiatives. We expect to fund our anticipated capital expenditures with operating cash flows and other available resources.
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Cash Flows
The following table summarizes the cash flows for the six months ended June 30, 2019 and 2018, that are attributable to T. Rowe Price Group, our consolidated T. Rowe Price investment products, and the related eliminations required in preparing the statement.

| Six months ended
| 6/30/2019 |  | 6/30/2018
(in millions) | Cash flow attributable to T. Rowe Price Group |  | Cash flow attributable to consolidated T. Rowe Price investment products |  | Elims |  | As reported |  | Cash flow attributable to T. Rowe Price Group |  | Cash flow attributable to consolidated T. Rowe Price investment products |  | Elims |  | As reported
Cash flows from operating activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income | $ | 1,040.1 |  |  | $ | 157.8 |  |  | $ | (88.0 | ) |  | $ | 1,109.9 |  |  | $ | 902.6 |  |  | $ | 14.3 |  |  | $ | (1.8 | ) |  | $ | 915.1 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Depreciation and amortization of property and equipment | 86.0 |  |  | — |  |  |  |  | 86.0 |  |  | 74.7 |  |  | — |  |  | — |  |  | 74.7 |
Stock-based compensation expense | 90.7 |  |  | — |  |  |  |  | 90.7 |  |  | 90.8 |  |  | — |  |  | — |  |  | 90.8 |
Net gains recognized on investments | (212.4 | ) |  | — |  |  | 88.0 |  |  | (124.4 | ) |  | (7.2 | ) |  | — |  |  | 1.8 |  |  | (5.4 | )
Net investments in T. Rowe Price investment products used to economically hedge supplemental savings plan liability | (19.3 | ) |  | — |  |  |  |  | (19.3 | ) |  | (13.7 | ) |  | — |  |  | — |  |  | (13.7 | )
Net change in trading securities held by consolidated T. Rowe Price investment products | — |  |  | (444.0 | ) |  |  |  | (444.0 | ) |  | — |  |  | (407.1 | ) |  | — |  |  | (407.1 | )
Other changes in assets and liabilities | 257.9 |  |  | (4.9 | ) |  | (3.1 | ) |  | 249.9 |  |  | 281.4 |  |  | (3.7 | ) |  | (2.8 | ) |  | 274.9 |
Net cash provided by (used in) operating activities | 1,243.0 |  |  | (291.1 | ) |  | (3.1 | ) |  | 948.8 |  |  | 1,328.6 |  |  | (396.5 | ) |  | (2.8 | ) |  | 929.3 |
Net cash provided by (used in) investing activities | (174.0 | ) |  | (5.1 | ) |  | 150.0 |  |  | (29.1 | ) |  | (1,040.7 | ) |  | (21.7 | ) |  | 118.4 |  |  | (944.0 | )
Net cash provided by (used in) financing activities | (691.8 | ) |  | 337.2 |  |  | (146.9 | ) |  | (501.5 | ) |  | (706.2 | ) |  | 433.6 |  |  | (115.6 | ) |  | (388.2 | )
Effect of exchange rate changes on cash and cash equivalents of consolidated T. Rowe Price investment products | — |  |  | (.4 | ) |  | — |  |  | (.4 | ) |  | — |  |  | (6.6 | ) |  | — |  |  | (6.6 | )
Net change in cash and cash equivalents during period | 377.2 |  |  | 40.6 |  |  | — |  |  | 417.8 |  |  | (418.3 | ) |  | 8.8 |  |  | — |  |  | (409.5 | )
Cash and cash equivalents at beginning of year | 1,425.2 |  |  | 70.1 |  |  | — |  |  | 1,495.3 |  |  | 1,902.7 |  |  | 103.1 |  |  | — |  |  | 2,005.8 |
Cash and cash equivalents at end of period | $ | 1,802.4 |  |  | $ | 110.7 |  |  | $ | — |  |  | $ | 1,913.1 |  |  | $ | 1,484.4 |  |  | $ | 111.9 |  |  | $ | — |  |  | $ | 1,596.3 |

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Operating Activities
Operating activities attributable to T. Rowe Price Group during the first half of 2019 provided cash flows of $1,243.0 million, a decrease of $85.6 million from the 2018 period. Higher adjustments made to 2019 net income to arrive at cash flows from operating activities more than offset the $137.5 million increase in 2019 net income. The most significant adjustment related to a $205.2 million change in net investment gains, which was driven by stronger equity markets in 2019 compared with the 2018 period. The majority of the remaining adjustments related to timing differences on the cash settlement of our assets and liabilities, which decreased cash flows by $23.5 million. Our interim operating cash flows do not include the cash impact of variable compensation that is accrued throughout the year before being substantially paid out in December. The remaining change in reported cash flows from operating activities was attributable to the net change in trading securities held in our consolidated investment products’ underlying portfolios.
Investing Activities
Net cash used in investing activities that are attributable to T. Rowe Price Group totaled $174.0 million in the first half of 2019 compared with $1,040.7 million in the 2018 period. During the first half of 2018, we rebalanced our cash and discretionary investments portfolio resulting in the reallocation of cash and cash equivalents of $945.0 million to certain T. Rowe Price fixed income funds. During 2019, we increased our property and equipment expenditures by $15.9 million and the level of seed capital provided by $31.6 million. Since we consolidate the seed capital in T. Rowe Price investment products, our seed capital was eliminated in preparing our unaudited condensed consolidated statement of cash flows. The remaining $30.8 million change in cash used in investing activities attributable to T. Rowe Price Group primarily stems from a decrease in net proceeds received in 2019 as compared to 2018 related to the purchases and sales of other T. Rowe Price products. The net cash removed from our balance sheet from consolidating and deconsolidating investment products during the first half of 2019 compared with the 2018 period accounts for the remaining $16.6 million change in reported cash flows from investing activities.
Financing Activities
Net cash used in financing activities attributable to T. Rowe Price Group were $691.8 million in the first half of 2019 compared with $706.2 million in the 2018 period. During 2019, we repurchased only slightly fewer shares of our common stock; however, this expended $47.5 million less cash as the average price paid to repurchase shares in the first half of 2019 was $96.50 as compared to $106.48 in 2018 period. This decrease in cash used was offset by an 8.6% increase in our quarterly dividend per share, which resulted in paying $19.1 million more in dividends in 2019. The remaining change in reported cash flows from financing activities is primarily attributable to a $127.7 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first half of 2019 compared to the 2018 period.
CRITICAL ACCOUNTING POLICIES.
The preparation of financial statements often requires the selection of specific accounting methods and policies from among several acceptable alternatives. Further, significant estimates and judgments may be required in selecting and applying those methods and policies in the recognition of the assets and liabilities in our unaudited condensed consolidated balance sheets, the revenues and expenses in our unaudited condensed consolidated statements of income, and the information that is contained in our significant accounting policies and notes to unaudited condensed consolidated financial statements. Making these estimates and judgments requires the analysis of information concerning events that may not yet be complete and of facts and circumstances that may change over time. Accordingly, actual amounts or future results can differ materially from those estimates that we include currently in our unaudited condensed consolidated financial statements, significant accounting policies, and notes.
There have been no material changes in the critical accounting policies previously identified in our 2018 Annual Report on Form 10-K.
NEWLY-ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE.
See Note 1 - The Company and Basis of Preparation note within Item 1. Financial Statements for a discussion of newly issued but not yet adopted accounting guidance.
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FORWARD-LOOKING INFORMATION.
From time to time, information or statements provided by or on behalf of T. Rowe Price, including those within this report, may contain certain forward-looking information, including information or anticipated information relating to: our revenues, net income, and earnings per share on common stock; changes in the amount and composition of our assets under management; our expense levels; our tax rate; and our expectations regarding financial markets, future transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, the timing of the assumption of all third party research payments, changes in our effective fee rate, and other market conditions. Readers are cautioned that any forward-looking information provided by or on behalf of T. Rowe Price is not a guarantee of future performance. Actual results may differ materially from those in forward-looking information because of various factors including, but not limited to, those discussed below and in Item 1A, Risk Factors, of our Form 10-K Annual Report for 2018. Further, forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.
Our future revenues and results of operations will fluctuate primarily due to changes in the total value and composition of assets under our management. Such changes result from many factors, including, among other things: cash inflows and outflows in the U.S. mutual funds and other investment products, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new mutual funds and investment products, and changes in retirement savings trends relative to participant-directed investments and defined contribution plans. The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence; the relative investment performance of the U.S. mutual funds and other managed investment products as compared with competing offerings and market indexes; the ability to maintain our investment management and administrative fees at appropriate levels; competitive conditions in the mutual fund, asset management, and broader financial services sectors; and our level of success in implementing our strategy to expand our business. Our revenues are substantially dependent on fees earned under contracts with the Price funds and could be adversely affected if the independent directors of one or more of the Price funds terminated or significantly altered the terms of the investment management or related administrative services agreements. Non-operating investment income will also fluctuate primarily due to the size of our investments, changes in their market valuations, and any other-than-temporary impairments that may arise or, in the case of our equity method investments, our proportionate share of the investees' net income.
Our future results are also dependent upon the level of our expenses, which are subject to fluctuation for the following or other reasons: changes in the level of our advertising and promotion expenses in response to market conditions, including our efforts to expand our investment advisory business to investors outside the U.S. and to further penetrate our distribution channels within the U.S.; the pace and level of spending to support key strategic priorities; variations in the level of total compensation expense due to, among other things, bonuses, restricted stock units and other equity grants, other incentive awards, changes in our employee count and mix, and competitive factors; any goodwill or other asset impairment that may arise; fluctuation in foreign currency exchange rates applicable to the costs of our international operations; expenses and capital costs, such as technology assets, depreciation, amortization, and research and development, incurred to maintain and enhance our administrative and operating services infrastructure; the timing of the assumption of all third party research payments, unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients; and disruptions of services, including those provided by third parties, such as fund and product recordkeeping, facilities, communications, power, and the mutual fund transfer agent and accounting systems.
Our business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on our operations and results, including, but not limited to, effects on costs that we incur and effects on investor interest in T. Rowe Price investment products and investing in general or in particular classes of mutual funds or other investments.

Item 3. | Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in the total potential loss information provided in Item 7A of the Form 10-K Annual Report for 2018.
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Item 4. | Controls and Procedures.

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures as of June 30, 2019, are effective at the reasonable assurance level to ensure that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, including this Form 10-Q quarterly report, is recorded, processed, summarized, and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our management, including our principal executive and principal financial officers, has evaluated any change in our internal control over financial reporting that occurred during the second quarter of 2019, and has concluded that there was no change during the second quarter of 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
On February 14, 2017, T. Rowe Price Group, Inc., T. Rowe Price Associates, Inc., T. Rowe Price Trust Company, current and former members of the management committee, and trustees of the T. Rowe Price U.S. Retirement Program were named as defendants in a lawsuit filed in the United States District Court for the District of Maryland. The lawsuit alleges breaches of ERISA’s fiduciary duty and prohibited transaction provisions on behalf of a class of all participants and beneficiaries of the T. Rowe Price 401(k) Plan from February 14, 2011, to the time of judgment. The plaintiffs are seeking certification of the complaint as a class action. T. Rowe Price believes the claims are without merit and is vigorously defending the action. This matter is in the discovery phase of litigation and we cannot predict the eventual outcome, or whether it will have a material negative impact on our financial results, or estimate the possible loss or range of loss that may arise from any negative outcome.
On April 27, 2016, certain shareholders in the T. Rowe Price Blue Chip Growth Fund, T. Rowe Price Capital Appreciation Fund, T. Rowe Price Equity Income Fund, T. Rowe Price Growth Stock Fund, T. Rowe Price International Stock Fund, T. Rowe Price High Yield Fund, T. Rowe Price New Income Fund and T. Rowe Price Small Cap Stock Fund (the “Funds”) filed a Section 36(b) complaint under the caption Zoidis v. T. Rowe Price Assoc., Inc., against T. Rowe Price Associates, Inc. (“T. Rowe Price”) in the United States District Court for the Northern District of California. The complaint alleges that the management fees for the identified funds are excessive because
T. Rowe Price charges lower advisory fees to subadvised clients with funds in the same strategy. The complaint seeks to recover the allegedly excessive advisory fees received by T. Rowe Price in the year preceding the start of the lawsuit, along with investments’ returns and profits. In the alternative, the complaint seeks the rescission of each fund’s investment management agreement and restitution of any allegedly excessive management fees.
T. Rowe Price believes the claims are without merit and is vigorously defending the action. This matter is in the discovery phase of litigation and we cannot predict the eventual outcome, or whether it will have a material negative impact on our financial results, or estimate the possible loss or range of loss that may arise from any negative outcome.
In addition to the matters discussed above, various claims against us arise in the ordinary course of business, including employment-related claims. In the opinion of management, after consultation with counsel, the likelihood of an adverse determination in one or more of these pending ordinary course of business claims that would have a material adverse effect on our financial position or results of operations is remote.
Item 1A. Risk Factors.
There have been no material changes in the information provided in Item 1A of our Form 10-K Annual Report for 2018.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
(c) Repurchase activity during the second quarter of 2019 is as follows:

Month |  | Total Number of Shares Purchased |  | Average Price Paid per Share |  | Total Number of Shares Purchased as Part of Publicly Announced Program |  | Maximum Number of Shares that May Yet Be Purchased Under the Program
April |  | 51,541 |  |  | $ | 106.78 |  |  | — |  |  | 21,871,898 |
May |  | 1,272,951 |  |  | $ | 102.62 |  |  | 1,261,919 |  |  | 20,609,979 |
June |  | 380,397 |  |  | $ | 101.37 |  |  | 341,143 |  |  | 20,268,836 |
Total |  | 1,704,889 |  |  | $ | 102.47 |  |  | 1,603,062 |  |  |

Shares repurchased by us in a quarter may include repurchases conducted pursuant to publicly announced board authorization, outstanding shares surrendered to the company to pay the exercise price in connection with swap exercises of employee stock options, and shares withheld to cover the minimum tax withholding obligation associated with the vesting of restricted stock awards. Of the total number of shares purchased during the second quarter of 2019, 101,442 were related to shares surrendered in connection with employee stock option exercises and 385 were related to shares withheld to cover tax withholdings associated with the vesting of restricted stock awards.
The following table details the changes in and status of the Board of Directors’ outstanding publicly announced board authorizations.

Authorization dates |  | 4/1/2019 |  | Total Number of Shares Purchased |  | Maximum Number of Shares that May Yet Be Purchased at 6/30/2019
December 2016 |  | 1,871,898 |  |  | (1,603,062 | ) |  | 268,836 |
April 2018 |  | 10,000,000 |  |  | — |  |  | 10,000,000 |
February 2019 |  | 10,000,000 |  |  | — |  |  | 10,000,000 |
|  | 21,871,898 |  |  | (1,603,062 | ) |  | 20,268,836 |

Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On July 24, 2019, we issued an earnings release reporting our results of operations for the second quarter of 2019 and the first six months of 2019. A copy of that earnings release is furnished herewith as Exhibit 99.1 This information shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933.
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Item 6. Exhibits.
The following exhibits required by Item 601 of Regulation S-K are furnished herewith.

3(i) |  | Charter of T. Rowe Price Group, Inc., as reflected by Articles of Restatement dated June 20, 2018. (Incorporated by reference from Form 10-Q Quarterly Report filed on July 25, 2018.)
3(ii) |  | Amended and Restated By-Laws of T. Rowe Price Group, Inc. as of February 12, 2019. (Incorporated by reference from Form 8-K Current Report filed on February 13, 2019.)
15 |  | Letter from KPMG LLP, independent registered public accounting firm, re unaudited interim financial information.
31(i).1 |  | Rule 13a-14(a) Certification of Principal Executive Officer.
31(i).2 |  | Rule 13a-14(a) Certification of Principal Financial Officer.
32 |  | Section 1350 Certifications.
99.1 |  | Earnings release issued July 24, 2019, reporting our results of operations for the second quarter of 2019.
101 |  | The following series of unaudited XBRL-formatted documents are collectively included herewith as Exhibit 101. The financial information is extracted from T. Rowe Price Group’s unaudited condensed consolidated interim financial statements and notes that are included in this Form 10-Q Report.
101.INS |  | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH |  | XBRL Taxonomy Extension Schema Document
101.CAL |  | XBRL Taxonomy Calculation Linkbase Document
101.LAB |  | XBRL Taxonomy Label Linkbase Document
101.PRE |  | XBRL Taxonomy Presentation Linkbase Document
101.DEF |  | XBRL Taxonomy Definition Linkbase Document

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on July 24, 2019.
T. Rowe Price Group, Inc.
By: /s/ Céline S. Dufétel
Vice President, Chief Financial Officer and Treasurer
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