PRICE T ROWE GROUP INC (TROW) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW.

Our 2021 revenues and net income are derived primarily from investment advisory services provided to individual and institutional investors in U.S. mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other T. Rowe Price products. The other T. Rowe Price products include: open-ended investment products offered to investors outside the U.S. and products offered through variable annuity life insurance plans in the U.S. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; trust services; and non-discretionary advisory services through model delivery.

We manage a broad range of U.S., international and global stock, bond, and money market mutual funds and collective investment trusts and other investment products, which meet the varied needs and objectives of individual and institutional investors. 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. Additionally, approximately 30% of our operating expenses for the years ended December 31, 2021, 2020 and 2019 are impacted by changes in assets under management.

We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new investment advisory clients and additional investments from our existing clients. 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 have ample liquidity and resources that allow us to take advantage of attractive growth opportunities. We are investing in key capabilities, including investment professionals, distribution professionals, technologies, and new product offerings; and, most importantly, we provide our clients with strong investment management expertise and service.

On December 29, 2021, we completed our acquisition of Oak Hill Advisors, L.P., a leading alternative credit manager, and other entities that had common ownership (collectively, OHA). We acquired 100% of the equity interests of Oak Hill Advisors, L.P., 100% of the equity interests in entities that make co-investments in certain affiliated private investment funds (the "co-investment entities") and a majority of the equity interests in entities that have interests in general partners of affiliated private investment funds and are entitled to a disproportionate allocation of income (the "carried interest entities"). The acquisition of OHA included $57 billion of capital under management, of which $47 billion of fee-basis assets under management was added to our assets under management as of the date of the acquisition. The acquisition accelerates our expansion into alternatives

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investment markets and complements our existing global platform and ongoing strategic initiatives in our core investments and distribution capabilities. Alternative credit strategies continue to be in demand from investors across the globe seeking attractive yields and risk-adjusted returns.

MARKET TRENDS.

Even though the coronavirus pandemic continued, major U.S. stock indexes climbed in 2021, extending the brisk rebound that started in late-March 2020. Equities advanced as the economy reopened and recovered—facilitated by the rollout of coronavirus vaccines and some federal fiscal relief—and as corporations reported robust earnings growth. Elevated inflation stemming in part from shortages of some goods and materials amid global supply chain disruptions, the emergence of variants of the coronavirus, and the Federal Reserve’s decision to taper its monthly asset purchases starting in November were among the factors that have weighed on the financial markets.

Stocks in developed non-U.S. equity markets rose but lagged U.S. shares. European stock markets were broadly positive in U.S. dollar terms. Several markets produced gains exceeding 20%. Shares in Spain and Portugal trailed with gains of less than 2%. Developed Asian markets were mixed in dollar terms. Hong Kong stocks fell about 4% due in part to the Chinese government’s regulatory crackdown in certain sectors, as well as concerns about some highly indebted firms in the Chinese property market. Japanese shares gained about 2%.

Stocks in emerging markets generally declined in U.S. dollar terms, as currency weakness versus the dollar reduced local returns to U.S. investors. In Asia, stocks in Taiwan and India surged almost 27%, but Chinese shares fell nearly 22% amid the government’s regulatory crackdown and concerns about the property market. Latin American markets were also mixed, as several countries struggled with political uncertainty, currency weakness, and elevated inflation that prompted central banks to raise short-term interest rates. Stocks in most emerging European markets appreciated, but Turkish shares and the lira plunged as the central bank reduced short-term interest rates in the final months of the year despite elevated inflation.

Returns of several major equity market indexes for 2021 are as follows:

(1) Returns exclude dividends

Global bond returns were mostly negative amid rising bond market interest rates and, as the year progressed, growing expectations for major central banks to curtail their stimulus efforts. In the U.S., yields rose across the Treasury yield curve—especially in the intermediate-term portion of the curve—amid expectations that the Federal Reserve’s tapering of monthly asset purchases, which began in November, will be a prelude to tighter monetary policy sometime in 2022. The 10-year U.S. Treasury note yield increased from 0.93% to 1.52% in 2021.

In the U.S. taxable investment-grade universe, Treasury securities performed worst, while corporate, mortgage-backed, and commercial mortgage-backed securities fell to a lesser extent. Asset-backed securities held up best, albeit with slight losses. Tax-free municipal securities produced positive returns, as municipal yields rose less than comparable Treasury yields. High yield bonds strongly outperformed for the year.

Bonds in developed non-U.S. markets declined in U.S. dollar terms, as a stronger U.S. dollar versus the yen, the euro, and other currencies reduced local returns to U.S. investors. Emerging markets bonds also declined, as bond yields increased and many emerging countries raised short-term interest rates in an attempt to stem inflation. Local currency issues fared worse than dollar-denominated debt, as most emerging markets currencies declined against the dollar.

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Returns of several major bond market indexes for 2021 are as follows:

ASSETS UNDER MANAGEMENT.

Assets under management ended 2021 at $1,687.8 billion, an increase of $217.3 billion from the end of 2020. This increase was primarily driven by market appreciation and income, net of distributions not reinvested, of $198.9 billion. The acquisition of OHA completed on December 29, 2021 included $57 billion of capital under management (which includes net assets value, portfolio value and/or unfunded capital), of which $46.9 million of fee-basis assets under management are included in the assets under management in the tables below. These increases were partially offset by net cash outflows of $28.5 billion for 2021. Clients transferred $23.8 billion in net assets from the U.S. mutual funds primarily to collective investment trusts, of which $16.2 billion transferred into the retirement date trusts.

The following table details changes in our assets under management by vehicle during the last three years:

(1) In all three years, the majority of the client transfers were from the T. Rowe Price U.S. mutual funds to the T. Rowe Price collective investment trusts, which are included in collective investment trusts and other investment products.

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The following table details changes in our assets under management by asset class during the last three years:

(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) The alternatives asset class includes strategies authorized to invest more than 50% of its holdings in private credit, leveraged loans,     mezzanine, real assets/CRE, structured products, stressed / distressed, non-investment grade CLOs, special situations, or have absolute return as its investment objective. Generally, only those strategies with longer than daily liquidity are included.

(2) Reported net of distributions not reinvested.

Investment advisory clients outside the U.S. account for 9.9% of our assets under management at December 31, 2021 and 9.3% at December 31, 2020. The percentage at December 31, 2021 reflects the assets under management from OHA's clients outside the United States.

Our net cash flows in 2021 reflect net outflows from domestic equity as well as domestic fixed income. These outflows also reflect the redemption of about $2.5 billion from our U.S. mutual fund investments to fund the cash portion of the OHA acquisition. These outflows were partially offset by cash inflows in our multi-asset franchise and international fixed income. From a geography perspective, the Americas and EMEA regions experienced net outflows predominantly in equity in both regions, while APAC had positive net flows. Net cash flows for 2020 reflect positive flows into fixed income and international equity, while experiencing net outflows in domestic equity and our multi-asset franchise resulting from macroeconomic headwinds and ongoing pressure from passive investments. Net cash flows for 2019 were driven by diversified inflows across distribution channels and geographies, the strength of our multi-asset franchise, and positive flows into fixed income and international equity.

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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. Assets under management in our target date retirement products as well as net cash inflows/(outflows), by vehicle, are as follows:

The firm also provides strategic investment advice solutions for certain portfolios. These advice solutions, which the vast majority is overseen by our multi-asset division, may include strategic asset allocation, and in certain portfolios, asset selection and/or tactical asset allocation overlays. The firm also offers advice solutions through retail separately managed accounts and separately managed accounts model delivery. As of December 31, 2021, total assets in these solutions were $488 billion, of which $480 billion are included in our reported assets under management in the tables above.

We provide participant accounting and plan administration for defined contribution retirement plans that invest in the firm's U.S. mutual funds, collective investment trusts and funds managed outside of the firm's complex. As of December 31, 2021, our assets under administration were $270 billion, of which nearly $163 billion are assets we manage.

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 following table presents investment performance for the one-, three-, five-, and 10-years ended December 31, 2021. Past performance is no guarantee of future results.

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As of December 31, 2021, 72 of 123 (58.5%) of our rated U.S. mutual funds (across primary share classes) received an overall rating of 4 or 5 stars. By comparison, 32.5% of Morningstar's fund population is given a rate of 4 or 5 stars(6). In addition, 71%(6) of AUM in our rated U.S. mutual funds (across primary share classes) ended 2021 with an overall rating of 4 or 5 stars.

(1) The investment performance reflects that of T. Rowe Price sponsored mutual funds and composites AUM and not of OHA's products.

(2) Source: © 2021 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.

(3) Source: Morningstar. Primary share class only. Excludes money market mutual funds, funds with an operating history of less than one year, T. Rowe Price passive funds, and T. Rowe Price funds that are clones of other funds. The top chart reflects the percentage of T. Rowe Price funds with 1 year, 3 year, 5 year, and 10 year track record that are outperforming the Morningstar category median. The bottom chart reflects the percentage of T. Rowe Price funds AUM that has outperformed for the time periods indicated. Total Fund AUM included for this analysis includes $521B for 1 year, $521B for 3 years, $520B for 5 years, and $511B for 10 years.

(4) Passive Peer Median was created by T. Rowe Price using data from Morningstar. Primary share class only. Excludes money market mutual funds, funds with an operating history of less than one year, funds with fewer than three peers, T. Rowe Price passive funds, and T. Rowe Price funds that are clones of other funds. This analysis compares T. Rowe Price active funds to the applicable universe of passive/index open-end funds and ETFs of peer firms. The top chart reflects the percentage of T. Rowe Price funds with 1 year, 3 year, 5 year, and 10 year track record that are outperforming the passive peer universe. The bottom chart reflects the percentage of T. Rowe Price funds AUM that has outperformed for the time periods indicated. Total AUM included for this analysis includes $499B for 1 year, $491B for 3 years, $489B for 5 years, and $424B for 10 years.

(5)Composite net returns are calculated using the highest applicable separate account fee schedule. Excludes money market composites. All composites compared to official GIPS composite primary benchmark. The top chart reflects the percentage of T. Rowe Price composites with 1 year, 3 year, 5 year, and 10 year track record that are outperforming their benchmarks. The bottom chart reflects the percentage of T. Rowe Price composite AUM that has outperformed for the time periods indicated. Total AUM included for this analysis includes $1,506B for 1 year, $1,504B for 3 years, $1,499B for 5 years, and $1,461B for 10 years.

(6) The Morningstar Rating™ for funds is calculated for funds with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. Morningstar gives its best ratings of 5 or 4 stars to the top 32.5% of all funds (of the 32.5%,10% get 5 stars and 22.5% get 4 stars). The Overall Morningstar Rating™ is derived from a weighted average of the performance figures associated with a fund’s 3, 5, and 10 year (if applicable) Morningstar Rating™ metrics.

RESULTS OF OPERATIONS.

The following table and discussion set forth information regarding our consolidated financial results for 2021, 2020 and 2019 on a U.S. GAAP basis and 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, including in 2021, transaction costs associated with the acquisition of OHA.

We completed our acquisition of OHA on December 29, 2021; however, our results of operations do not include any financial results of OHA for 2021 as the OHA activity between the closing date and December 31, 2021 was deemed to be immaterial. We currently expect acquisition-related intangibles amortization, fair value adjustments of contingent consideration, acquisition-related retention compensation expense, and other acquisition-related expenses to impact our operating results beginning in 2022.

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(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.

(3) Average assets under management for 2021 does not include the impact of the acquired fee-basis assets under management related to the OHA acquisition.

Results Overview - 2021 as compared to 2020

Investment advisory revenues. Investment advisory fees are earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows. As our average assets under management increase or decrease in a given period, the level of our investment advisory fee revenue for that same period generally fluctuates in a similar manner. Our annualized effective fee rates can be impacted by market or cash flow related shifts among asset and share classes, price changes in existing products, and asset level changes in products with tiered-fee structures.

Investment advisory revenues earned in 2021 increased 24.7% over the comparable 2020 period as average assets under our management increased $351.4 billion, or 28.2%, to $1,599.3 billion. In 2021, we voluntarily waived $57.9 million, or less than 1%, of our investment advisory fees from certain of our money market mutual funds, trusts, and other investment portfolios in order to maintain a positive yield for investors. At December 31, 2021, combined net assets of the investment portfolios in which we waived fees in 2021 were $22.0 billion. We anticipate that the waivers in Q1 2022 will be at a slightly lower level than Q4 2021, and we expect to continue to waive fees through at least the first half of 2022.

The average annualized fee rate earned on our assets under management was 44.4 basis points in 2021, compared with 45.6 basis points earned in 2020. Our effective fee rate has declined largely due to the July 2021 fee reductions in our target date products, client transfers within the complex to lower fee vehicles or share classes over

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the last year, higher money market fee waivers, and lower performance-based fees. These were partially offset as higher market valuations led to an asset class shift towards equity strategies.

Operating expenses. Operating expenses were $3,961.9 million in 2021, an increase of 14.5% over the comparable 2020 period. On a non-GAAP basis, operating expenses were $3,840.3 million, a 14.9% increase over the comparable 2020 period.

The increase in both GAAP and non-GAAP operating expenses was primarily due to higher compensation expenses, including higher annual bonuses, salaries and benefits, and stock-based compensation expenses as a result of continued investment in hiring for our business as well as higher distribution and servicing costs due to higher average assets under management. The 2021 period also reflects costs incurred from an expanded relationship with FIS Capital Markets US LLC ("FIS"), which began providing technology development and core operations for our full-service recordkeeping offering in August 2021. These costs incurred from the FIS arrangement were partially offset by a reduction in compensation expenses as a result of the approximately 800 associates who transitioned to FIS in August 2021.

The firm currently estimates its 2022 non-GAAP operating expenses, including a full-year of OHA's operating expenses, will grow in the range of 12% to 16%. Without consideration of OHA's operating expenses, the firm's 2022 non-GAAP operating expenses are expected to grow in the range of 4% to 8%. The firm could elect to adjust its expense growth should unforeseen circumstances arise, including significant market movements.

Operating margin. Our operating margin in 2021 was 48.4%, compared with 44.2% in 2020. The increase in our operating margin in 2021 compared with 2020 is primarily driven by revenue growth outpacing the increase in operating expenses.

Diluted earnings per share. Diluted earnings per share was $13.12 in 2021 as compared to $9.98 in 2020. On a non-GAAP basis, diluted earnings per share was $12.75 in 2021 as compared to $9.58 for 2020. The increase in both GAAP and non-GAAP diluted earnings per share in 2021 compared to 2020 was primarily driven by higher operating income, lower weighted average outstanding shares, and a lower effective tax rate. These drivers of the increase were partially offset by lower net investment gains recognized in 2021 than in 2020. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

Future Operating Results Impact of OHA acquisition

As part of the OHA acquisition, certain assets and liabilities resulting from the purchase price allocation, along with certain retention-related arrangements, will impact our operating results in future periods. These include the amortization of certain intangibles, fair value adjustments of contingent consideration, amortization of any fair market value basis differences, and compensation expense of retention-related arrangements. The table below highlights the maximum future impact of these items on our consolidated income statement and expected future recognition period. See Note 2 to our consolidated financial statements for more information about these acquisition-related items.

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(1) Related operating results impact is anticipated to be a non-GAAP adjustment beginning in 2022.

Results Overview - 2020 as compared to 2019

Investment advisory revenues. In 2020, investment advisory revenues increased 11.4% over the comparable 2019 period as average assets under our management increased $138.6 billion, or 12.5%, to $1,247.9 billion.

The average annualized fee rate earned on our assets under management was 45.6 basis points in 2020, compared with 46.1 basis points earned in 2019. Our effective fee rate declined largely due to client transfers within the complex to lower fee vehicles or share classes and the money market fee waivers. These declines were partially offset by performance-based fees earned in 2020.

Operating expenses. For 2020, operating expenses were $3,461.0 million as compared with $3,230.9 million in the 2019 period. The increase in operating expenses was primarily due to a $38.6 million increase in expense related to the supplemental savings plan from higher market returns, higher compensation expenses and our continued strategic investments.

In 2020, our non-GAAP operating expenses increased 6.1% to $3,342.7 million compared with 2019. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

Operating margin. Our operating margin in 2020 was 44.2%, compared with 42.5% in 2019. The increase in our operating margin in 2020 compared to 2019 was primarily driven by the higher net revenues, partially offset by higher compensation-related expenses.

Diluted earnings per share. Diluted earnings per share was $9.98 in 2020 as compared with $8.70 in 2019. The 14.7% increase in diluted earnings per share in 2020 compared to 2019 as primarily driven by higher operating income, lower weighted average outstanding shares, and a lower effective tax rate. These drivers of the increase were partially offset by lower net investment gains recognized in 2020 than in 2019.

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On a non-GAAP basis, diluted earnings per share were $9.58 in 2020 as compared with $8.07 in 2019. The increase in non-GAAP diluted earnings per share was primarily due to higher operating income, lower weighted average outstanding shares, and a lower effective tax rate. The impact of these drivers were partially offset by lower net investment gains recognized in 2020 than in 2019. See our non-GAAP reconciliations later in this Management's Discussion and Analysis section.

Net revenues

Investment advisory fees. The relationship between the change in average assets under management and the change in investment advisory fee revenue for 2021, 2020 and 2019 are presented below.

In general, strong market returns in 2021 shifted the asset and share class mix among different fee rates and products including those with tiered-fee structures. Additionally, we have reduced the management fees of certain products over the last few years, including fee reductions in our target date products in July 2021.

In 2021, the relationship between U.S. mutual funds' average assets under management and investment advisory fee growth was impacted by the July 2021 fee reductions in our target date products and increased money market fees waivers.

For the subadvised funds, separate accounts, collective investment trusts, and other investment products, the July 2021 target date products fee reductions and lower performance fees reduced our effective fee rate, but was partially offset by a mix shift towards equities and inflows into our international products. These investment advisory revenues include fees earned for distribution-related services that we contract third-party intermediaries to provide. The costs we incur to pay the third-party intermediaries are recorded as part of distribution and servicing expenses.

In 2020, in general, strong market returns shifted the asset and share class mix among different fee rates and products including those with tiered-fee structures. Additionally, we have reduced the management fees of certain products over the last few years. The relationship between average assets under management and investment

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advisory fee growth was also impacted by the money market fees waivers and client transfers within the complex to lower fee vehicles or share classes.

Administrative, distribution, and servicing fees. Administrative, distribution, and servicing fees in 2021 were $573.8 million, an increase of $60.2 million from 2020. The higher fees were primarily due to increased transfer agent servicing activities provided to our U.S. mutual funds, higher model delivery revenue, as well as higher 12b-1 revenue earned on the Advisor and R share classes of the U.S. mutual funds as a result of increased assets under management in these share classes. The increase in 12b-1 revenue is offset entirely by costs paid to third-party intermediaries that source these assets and is reported in distribution and servicing expense.

For 2020, administrative, distribution, and servicing fees were $513.6 million, an increase of $8.2 million from 2019. The higher fees were primarily due to increased transfer agent servicing activities provided to our U.S. mutual funds. This increase was partially offset by lower 12b-1 revenue earned on the Advisor and R classes of the U.S. mutual funds as well as client transfers to lower fee vehicles and share classes have reduced assets under management in these share classes.

Net revenues are presented after the elimination of $5.5 million for 2021, $9.9 million for 2020, and $6.8 million for 2019, earned from our consolidated T. Rowe Price investment products. The corresponding expenses recognized by these consolidated products were also eliminated from operating expenses.

Operating expenses

Compensation and related costs, excluding supplemental savings plan. Compensation and related costs, excluding the supplemental savings plan, increased $229.4 million, or 11.1%, for 2021 as compared with 2020. This increase was primarily due to our strong operating results which led to an $107.6 million increase in our annual bonus compensation and $28.4 million in higher stock-based compensation expense. Also contributing to the increase in costs was a $88.5 million increase in salaries, benefits and related employee costs due to modest increases in base salaries at the beginning of the year as well as an increase in our average headcount, excluding the transition of 800 T. Rowe Price operations and technology associates to FIS on August 1, 2021 and the addition of OHA associate at the end of the year. These increases in compensation and related costs were offset in part by $11.7 million in higher labor capitalization related to internally developed software in 2021.

For 2020, compensation and related costs, excluding the supplemental savings plan, increased $174.6 million, or 9.2%, as compared with 2019. This increase was primarily due to an $83.0 million increase in salaries, benefits and related employee costs, as our average staff size increased 5.8% from prior year and we made modest increases to base salaries at the beginning of the year. Strong 2020 operating results led to a $65.5 million increase in our annual variable compensation, primarily bonus compensation, and higher stock-based compensation expense. These increases in compensation and related costs were partially offset by $30.4 million in higher labor capitalization related to internally developed software in 2020.

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Distribution and servicing costs. Distribution and servicing costs were $373.9 million for 2021, an increase of $95.4 million, or 34.3%, compared to 2020. The increase was primarily driven by higher AUM-based distribution costs as a result of continued market appreciation and inflows into our international products, including our Japanese ITMs and SICAVs. Higher costs incurred to distribute certain other products through U.S. financial intermediaries also contributed to the increase.

Distribution and servicing costs were $278.5 million for 2020, an increase of $16.0 million, or 6.1%, compared with 2019. The increase was primarily driven by higher distribution costs as a result of continued inflows into our international products, including our Japanese ITMs and SICAVs. These higher distribution costs were partially offset by client transfers, largely from Advisor and R classes, to vehicles that don't pay distribution and servicing costs.

Distribution and servicing costs paid to third-party intermediaries that source the assets of certain share classes of our U.S. mutual funds and our international products, such as our Japanese ITMs and SICAVs, are recognized in this expense. Both of these costs are offset entirely by the revenue we earn and report in net revenues: 12B-1 revenue recognized in administrative, distribution, and servicing fees for the U.S. mutual funds and investment advisory fee revenue for our international products.

Advertising and promotion. Advertising and promotion costs were $100.2 million for 2021, an increase of $16.5 million, or 19.7%, compared with 2020. The increase was primarily driven by increased media spend during 2021.

For 2020, advertising and promotion costs were $83.7 million, a decrease of $13.1 million, or 13.5%, compared with 2019. The decrease was primarily driven by lower media costs and fewer conference and promotional events in 2020 as a result of cancellations arising from the coronavirus pandemic in 2020.

Product and recordkeeping related costs. Product and recordkeeping related costs were $236.3 million for 2021, an increase of $80.8 million, or 52.0%, compared with 2020. More than 85% of the increase in 2021 was driven by the recordkeeping costs incurred as part of our expanded FIS relationship, including certain transition expenses that will not recur in 2022. While these transition expenses will not recur, we do expect to incur certain technology-related costs as part of this expanded relationship with FIS over the next few years. These will be reported as technology, occupancy, and facility costs.

Product and recordkeeping related costs were $155.5 million for 2020, an increase of $2.3 million, or 1.5%, compared with 2019. The increase is primarily due to higher expenses related to servicing retirement plan products, partially offset by lower costs incurred to provide administrative services to the U.S. mutual funds.

Technology, occupancy, and facility costs. Technology, occupancy, and facility costs were $484.9 million for 2021, $444.8 million for 2020, and $427.3 million for 2019. The increases over the last two years were due primarily to ongoing investment in our technology capabilities, including hosting solution licenses and related depreciation. The 2019 year included certain non-recurring office facility costs.

General, administrative, and other costs. General, administrative, and other costs were $383.6 million for 2021, $316.1 million for 2020, and $321.9 million for 2019. Nearly 50% of the increase in 2021 was related to the transaction costs incurred to complete the acquisition of OHA. Higher information services, legal, and third-party research costs contributed to the remaining increase in 2021 compared with 2020. Travel-related expenses in 2021 were lower than 2020, and both 2021 and 2020 expenses were lower than travel-related expenses in 2019 due to the impact of the coronavirus pandemic.

For 2020, higher third-party investment research costs, professional fees, and other administrative related costs in 2020 were more than offset by lower travel-related expenses.

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Non-operating income

Net non-operating investment income decreased $211.9 million in 2021 compared with 2020 and decreased $43.8 million in 2020 compared with 2019. Net non-operating investment activity for the years ended December 31, 2021, 2020 and 2019 comprised the following:

Our investment portfolio for 2021 generated lower market gains than our investment portfolio in 2020. Our consolidated investment products and supplemental savings plan hedge portfolio comprised approximately 55% of the net gains recognized in 2021. Our cash and discretionary investments generated income of $28.7 million in 2021 as compared to $92.7 million in 2020.

During the first quarter of 2020, the coronavirus pandemic caused global economies and market disruptions, but strong markets for the remainder of 2020 reversed net investment losses experienced in the first quarter and generated significant gains by the end of 2020. Our consolidated investment products and supplemental savings plan hedge portfolio comprised almost 70% of the net gains recognized in 2020. Our cash and discretionary investments generated income of $92.7 million in 2020 as compared to $126.0 million in 2019 as the very low interest environment reduced the dividends earned from our money market fund investments.

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The impact of consolidating certain T. Rowe Price investment products on the individual lines of our consolidated statements of income for 2021, 2020, and 2019 is as follows:

Provision for income taxes

The following table reconciles the statutory federal income tax rate to our effective tax rate for the years ended December 31, 2021, 2020, and 2019:

(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.

(2)    Net income attributable to redeemable non-controlling interests represents the portion of earnings held in the firm's consolidated investment products, which are not taxable to the firm despite being included in pre-tax income.

Our effective tax rate for 2021 was 22.4%, compared with 22.2% for 2020 and 23.2% for 2019. The increase in our effective tax rate in 2021 from 2020 was primarily due to a lower net gains attributable to non-controlling interests. We continue to see benefit from the phased-in implementation of the 2018 Maryland state tax legislation and higher discrete tax benefits associated with the settlement of stock-based awards given the rise in our stock price in 2021.

For 2020, the decrease in our effective tax rate from 2019 was primarily due to the phased-in benefit of the 2018 Maryland state tax legislation has had on our effective state tax rate and higher discrete tax benefits associated with the settlement of stock-based awards given the rise in our stock price in 2020.

We have realized a net benefit from the Maryland legislation, which adopted a five-year phase-in of the single sales factor method of apportionment for calculating income tax for multi-state companies doing business in Maryland, and, in the final year of the phase in, we expect our 2022 effective state tax rate will be reduced to less than 3%.

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 changes in the proportion of net income that is attributable to our redeemable non-controlling interests and non-controlling interests reflected in permanent equity.

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The non-GAAP tax rate primarily adjusts for the impact of the consolidated investment products, including the net income attributable to the redeemable non-controlling interests. Our non-GAAP effective tax rates for 2021, 2020 and 2019 were 22.5%, 23.3%, 24.0%, respectively.

We currently estimate our GAAP effective tax rate for the full-year 2022 will be in the range of 22% to 25% and our non-GAAP effective tax rate for the full-year 2022 will be in the range of 23% to 25%.

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.

The following schedules reconcile certain U.S. GAAP financial measures for each of the last five years.

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(1)    These non-GAAP adjustments remove the impact that 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 interests. We remove the impact of the consolidated T. Rowe Price investment products as we believe they impact the reader’s ability to understand our core operating results.

(2)    These non-GAAP adjustments remove the compensation expense resulting from market valuation changes in the supplemental savings plan liability 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 participants. 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 removes the transaction costs incurred related to the acquisition of OHA. Management believes adjusting for these charges helps the reader's ability to understand the firm's core operating results and to increase comparability period to period.

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

(5)    The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 22.5% for 2021, 23.3% for 2020 and 24.0% for 2019. We estimate that our effective tax rate for the full-year 2022 on a non-GAAP basis will be in the range of 23% to 25%.

(6)    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. The calculation of net income allocated to common stockholders is as follows:

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CAPITAL RESOURCES AND LIQUIDITY.

During 2021, stockholders’ equity attributable to T. Rowe Price Group, Inc. increased from $7.7 billion to $9.0 billion. Tangible book value decreased to $5.7 billion at December 31, 2021.

Sources of Liquidity

We have ample liquidity, including cash and investments in T. Rowe Price products as follows:

Our discretionary investment portfolio is comprised primarily of short duration bond funds, which typically yield higher than money market rates, and asset allocation products. Of these cash and discretionary investments, $764.2 million at December 31, 2021, and $675.8 million at December 31, 2020 were held by our subsidiaries located outside the U.S. Cash and discretionary investment portfolio returned gains of $28.7 million in 2021 as compared to $92.7 million in 2020. Given the availability of our financial resources and cash expected to be generated through future operations, we do not maintain an available external source of additional liquidity.

Our seed capital investments are redeemable, although we generally expect to be invested for several years for the products to build an investment performance history and until unrelated third-party investors substantially reduce our relative ownership percentage.

The cash and investment presentation on the consolidated balance sheet is based on how we account for the cash or investment. The following table details how our investments, including those acquired as part of the OHA acquisition, relate to where they are presented in the consolidated balance sheet as of December 31, 2021.

(1) The consolidated T. Rowe Price investment products are generally those products we provided seed capital at the time of their formation and we have a controlling interest. These products generally represent U.S. mutual funds as well as those funds regulated outside the U.S. The $35.5 million and the $893.5 million represent the total value at December 31, 2021 of our interest in the consolidated T. Rowe Price investment products. The total net assets of consolidated T. Rowe Price investment products at December 31, 2021 of $1,911.3 million includes assets of $1,962.8 million less liabilities of $51.4 million as reflected in the consolidated balance sheet in Item 8. Financial Statements of this Form 10-K.

(2) Amounts relate to investments acquired as part of the OHA acquisition. See Note 5 to the consolidated financial statements for more information.

Our 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

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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 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.

In October 2020, UTI Asset Management Company Limited (India), one of our equity method investments, held an initial public offering in India. As part of the offering, we sold a portion of our 26% interest and received net proceeds of approximately $28.0 million and recorded a net gain on the sale of approximately $2.8 million in the fourth quarter of 2020. Subsequent to the sale, we have an ownership interest of 23% of UTI Asset Management Company (India).

Uses of Liquidity

On December 29, 2021, we paid approximately $2.5 billion in cash and issued $881.5 million of T. Rowe Price Group, Inc. common shares, approximately 4.4 million shares, to complete the acquisition of OHA.

We paid $4.32 per share in regular dividends in 2021, an increase of 20.0% over the $3.60 per share paid in 2020. Additionally, our Board of Directors declared a special cash dividend of $3.00 per share, or $699.8 million, on June 14, 2021, that was paid on July 7, 2021. Further, we expended $1,136.0 million in 2021 to repurchase 5.9 million shares, or 2.6%, of our outstanding common stock at an average price of $191.20 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 2018, we have returned $6.3 billion to stockholders through stock repurchases, our regular quarterly dividends, and a special dividend of $3.00 per share in 2021, as follows:

We anticipate property and equipment expenditures for the full-year 2022 to be about $295 million, of which more than three-quarters is planned for technology initiatives. We expect to fund our anticipated capital expenditures with operating cash flows and other available resources.

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The following tables summarize the cash flows for 2021, 2020 and 2019, that are attributable to T. Rowe Price Group, our consolidated T. Rowe Price investment products, and the related eliminations required in preparing the statement.

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Operating activities

Operating activities attributable to T. Rowe Price Group during 2021 provided cash flows of $3,428.3 million as compared to $2,479.0 million during 2020. Operating cash flows attributable to T. Rowe Price Group increased $949.3 million, including a $710.2 million increase in net income, timing differences on the cash settlement of our assets and liabilities of $33.4 million, and $148.5 million of higher non-cash adjustments, including unrealized investment gains/losses, depreciation, and stock-based compensation expense. The non-cash adjustments were primarily driven by a $104.9 million decrease in net investment gains in 2021 compared to 2020. Additionally, in 2021, we had net investments of $85.7 million from certain investment products that economically hedge our supplemental savings plan liability, while we had net investments of $142.9 million in 2020. 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.

Operating activities attributable to T. Rowe Price Group during 2020 provided cash flows of $2,479.0 million as compared to $2,202.3 million during 2019. Operating cash flows attributable to T. Rowe Price Group increased $276.7 million, including a $241.4 million in increased net income and a $81.0 million incremental add-back from higher non-cash adjustments, including unrealized investment gains/losses, depreciation, and stock-based compensation expense. Additionally, in 2020, we invested $142.9 million in certain investment products to economically hedge our supplemental savings plan liability. This level of investment is slightly higher than the $126.0 million invested in 2019. These increases were partially offset by the timing differences on the cash settlement of our assets and liabilities which lowered operating cash flows by $28.8 million. The change in the non-cash adjustments from 2019 were driven primarily by a $42.6 million decrease in net investment gains and a $39.6 million increase in stock-based compensation expense. 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 $1,134.9 million in 2021 compared with $65.3 million of cash used in investing activities in 2020. During 2021, we used $2,450.8 million

as part of the consideration paid to complete the acquisition of OHA. In addition, we increased our property and equipment expenditures by $24.5 million and increased the level of seed capital provided by $29.3 million. We eliminate our seed capital in those T. Rowe Price investment products we consolidate in preparing our consolidated statements of cash flows. Decreasing the cash used in investing activities were higher net proceeds from the sale of

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certain discretionary investments of $1,578.3 million during 2021 compared to net proceeds of $181.7 million during 2020. The remaining change in reported cash flows from investing activities of $37.0 million is primarily related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

Net cash used in investing activities that are attributable to T. Rowe Price Group totaled $65.3 million in 2020, a decrease of $424.0 million compared to 2019. During 2020, we received net proceeds from the sale of certain discretionary investments of $181.7 million compared to net dispositions of $108.3 million during 2019. In addition, we increased our property and equipment expenditures by $10.0 million and increased the level of seed capital provided by $100.3 million. We eliminate our seed capital in those T. Rowe Price investment products we consolidate in preparing our consolidated statements of cash flows. The $35.5 million change in reported cash flows from investing activities is related to the net cash removed from our balance sheet from consolidating and deconsolidating investment products.

Financing Activities

Net cash used in financing activities attributable to T. Rowe Price Group were $2,922.0 million in 2021 compared with $2,043.8 million in 2020. During 2021, there was a $856.1 million increase in dividends paid in 2021 as a result of an 20.0% increase in our quarterly dividend per share and a special cash dividend paid in July 2021. During 2021 we used $1.1 billion to repurchase 5.9 million shares compared to $1.2 billion to repurchase 10.9 million shares in 2020. The remaining change in reported cash flows from financing activities is primarily attributable to a $624.3 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products and a $85.5 million decrease in cash flow related to common stock issued under stock compensation plans during 2021 compared to 2020.

Net cash used in financing activities attributable to T. Rowe Price Group totaled $2,043.8 million in 2020, an increase of $687.4 million compared with $1,356.4 million in 2019. During 2020, there was a $496.1 million increase in cash paid for common stock repurchases as we repurchased 3.9 million more shares of common stock in 2020 than in 2019. Additionally, there was a $111.9 million increase in dividends paid in 2020 as a result of an 18.4% increase in our quarterly dividend per share. The remaining change in reported cash flows from financing activities is primarily attributable to a $79.4 million decrease in cash flow related to common stock issued under stock compensation plans and a $33.8 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during 2020 compared to 2019.

MATERIAL CASH COMMITMENTS.

Our material cash commitments primarily include our obligations under the supplemental savings plan, our lease obligations, and other contractual amounts that will be due for the purchase of goods or services to be used in our operations. Some of these contractual amounts may be cancelable under certain conditions and may involve termination fees. We expect to fund these cash commitments from future cash flows from operations.

Our obligations under the supplemental savings plan are disclosed on our consolidated balance sheet with more information included in Note 17 to the consolidated financial statements. Our lease obligations are disclosed in Note 8 to the consolidated financial statements. Additionally, there are unrecognized tax benefits discussed in Note 11 to our consolidated financial statements.

While most of our other material cash commitments consist of goods and services used in our operations, these commitments primarily consist of obligations related to long-term software licensing and maintenance contracts.

We also have outstanding commitments to fund additional contributions to investment partnerships totaling $8.0 million. The vast majority of these additional contributions will be made to 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.

As part of the OHA acquisition, T. Rowe Price has committed $500 million to fund OHA products over the next five years and entered into certain earnout and other arrangements that we discuss in more detail in Note 2 to our consolidated financial statements.

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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 consolidated balance sheets, the revenues and expenses in our consolidated statements of income, and the information that is contained in our significant accounting policies and notes to the 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 consolidated financial statements, significant accounting policies, and notes.

We present those significant accounting policies used in the preparation of our consolidated financial statements as an integral part of those statements within this 2021 Annual Report on Form 10-K. In the following discussion, we highlight and explain further certain of those policies that are most critical to the preparation and understanding of our financial statements.

Consolidation

We consolidate all subsidiaries and sponsored investment products in which we have a controlling interest. We are deemed to have a controlling interest when we own the majority of the voting interest of an entity or are deemed to be the primary beneficiary of a variable interest entity ("VIE"). VIEs are entities that lack sufficient equity to finance its activities or the equity holders do not have defined power to direct the activities of the entity normally associated with an equity investment. Our analysis to determine whether an entity is a VIE or a voting interest entity ("VOE") involves judgment and considers several factors, including an entity’s legal organization, capital structure, the rights of the equity investment holders, our ownership interest in the entity, and our contractual involvement with the entity. We continually review and reconsider our VIE or VOE conclusions upon the occurrence of certain events, such as changes to our ownership interest, changes to an entity’s legal structure, or amendments to governing documents. Our VIEs are primarily sponsored investment products and our variable interest consists of our equity ownership in and investment management fees earned from these entities.

We are the primary beneficiary if we have the power to direct the activities of the VIE that most significantly impact its economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the VIE that could potentially be significant. Our SICAV funds and other T. Rowe Price investment products regulated outside the U.S. are determined to be VIEs. In addition, in connection with the OHA acquisition, we acquired certain carried interest entities, which are considered VIEs. These carried interest entities hold interests in general partners of affiliated private investment funds that are also VIEs; however, the carried interest entities are not the primary beneficiaries to these investment funds. At December 31, 2021, we consolidated VIEs with net assets of $2.1 billion.

Other-than-temporary impairments of equity method investments

We evaluate our equity method investments, including our investment in UTI and certain investments in T. Rowe Price investment products, for impairment when events or changes in circumstances indicate that the carrying value of the investment exceeds its fair value, and the decline in fair value is other than temporary.

Business Combinations

We account for business combinations under the acquisition method of accounting, whereby we recognize assets acquired and liabilities assumed, including separately identified intangible assets, contingent liabilities, and non-controlling interests, based on the fair value estimates as of the date of the acquisition. Any excess purchase consideration over the fair value of the identified net assets acquired is recognized as goodwill. The accounting for business combinations requires us to make significant estimates and assumptions, especially with respect to intangible assets and the fair value of contingent payment obligations. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded in earnings. As a result, if the subsequent actual results and updated projections of the underlying business activity change compared with the assumptions and projections used to develop these values, we could experience impairment charges which could be material.

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Intangible assets acquired in business combinations consist primarily of investment advisory agreements and trade names. We also acquired certain carried interest entities that primarily hold interests in general partners of affiliated private investment funds with capital allocation-based income arrangements. The fair values of the acquired advisory agreements and the investments with the capital allocation-based income arrangements are based on the net present value of estimated future cash flows attributable to the agreements, which include significant assumptions about revenue growth rate, discount rate and effective tax rate. Our estimates are based on assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, may differ from actual results. In addition, we have estimated the economic lives of certain acquired assets and these lives are used to calculate amortization expense. If our estimates of the economic lives change, amortization expense could be accelerated or decelerated.

We record contingent consideration resulting from a business combination at its fair value on the acquisition date. We generally determine the fair value of the contingent consideration using the Monte Carlo simulation methodology of valuation. Each reporting period thereafter, we revalue these obligations and record increases or decreases in their fair value as an adjustment to operating expenses within the consolidated statements of income. Changes in the fair value of the contingent consideration can result from changes in assumed discount periods and rates, and from changes pertaining to the achievement of the defined financial targets. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, future business and economic conditions, as well as changes in any of the assumptions described above, can materially impact the amount of contingent consideration expense we record in any given period.

Goodwill

We internally conduct, manage, and report our operations as one reportable business segment - investment advisory business. We do not have distinct operating segments or components that separately constitute a business. Accordingly, we attribute goodwill to a single reportable business segment and reporting unit - our investment advisory business. With the completion of the acquisition of OHA in December 2021, we are currently evaluating the impact that OHA will have on our business reporting and goodwill impairment analysis.

We evaluate the carrying amount of goodwill in our consolidated balance sheets for possible impairment on an annual basis in the third quarter of each year using a fair value approach. Goodwill would be considered impaired whenever our historical carrying amount exceeds the fair value of our investment advisory business. Our annual testing has demonstrated that the fair value of our investment advisory business (our market capitalization) exceeds our carrying amount (our stockholders’ equity) and, therefore, no impairment exists. Should we reach a different conclusion in the future, additional work would be performed to ascertain the amount of the noncash impairment charge to be recognized. We must also perform impairment testing at other times if an event or circumstance occurs indicating that it is more likely than not that an impairment has been incurred. The maximum future impairment of goodwill that we could incur is the amount recognized in our consolidated balance sheets, $2,693.2 million as of December 31, 2021, including $2,027.5 million of goodwill generated from the OHA acquisition. Given that the OHA acquisition closed on December 29, 2021, no impairment testing was performed on the related goodwill.

Provision for income taxes

After compensation and related costs, our provision for income taxes on our earnings is our largest annual expense. We operate in numerous states and countries through our various subsidiaries and must allocate our income, expenses, and earnings under the various laws and regulations of each of these taxing jurisdictions. Accordingly, our provision for income taxes represents our total estimate of the liability that we have incurred in doing business each year in all of our locations. Annually, we file tax returns that represent our filing positions with each jurisdiction and settle our return liabilities. Each jurisdiction has the right to audit those returns and may take different positions with respect to income and expense allocations and taxable earnings determinations. From time to time, we may also provide for estimated liabilities associated with uncertain tax return filing positions that are subject to, or in the process of, being audited by various tax authorities. Because the determination of our annual provision is subject to judgments and estimates, it is likely that actual results will vary from those recognized in our financial statements. As a result, we recognize additions to, or reductions of, income tax expense during a reporting period that pertain to prior period provisions as our estimated liabilities are revised and actual tax returns and tax audits are settled. We recognize any such prior period adjustment in the discrete quarterly period in which it is determined.

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NEWLY ISSUED BUT NOT YET ADOPTED ACCOUNTING GUIDANCE.

See Note 1 - Basis of Preparation and Summary of Significant Accounting Policies within Item 8, Financial Statements for a discussion of newly issued but not yet adopted accounting guidance.

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; the timing and expense related to the integration of OHA with and into our business,; and our expectations regarding financial markets, future transactions, dividends, stock repurchases, investments, new products and services, capital expenditures, changes in our effective fee rate, the impact of the coronavirus pandemic, other market conditions and the acquisition of OHA. 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 this Form 10-K Annual Report. 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, subadvised funds, separately managed accounts, collective investment trusts, and other investment products, performance fees, capital allocation-based income, fluctuations in global financial markets that result in appreciation or depreciation of the assets under our management, our introduction of new mutual funds and investment products, changes in retirement savings trends relative to participant-directed investments and defined contribution plans, and the impact of the coronavirus outbreak. The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence; the relative investment performance of the T. Rowe Price 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; our level of success in implementing our strategy to expand our business, including our announced plan to establish T. Rowe Price Investment Management as a separate registered investment adviser; and our ability to attract and retain key personnel. Our revenues are substantially dependent on fees earned under contracts with the T. Rowe Price funds and could be adversely affected if the independent directors of one or more of the T. Rowe 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, including the integration of OHA with and into our business; variations in the level of total compensation expense due to, among other things, bonuses, restricted stock units and other equity grants, other incentive awards, our supplemental savings plan, 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

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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.