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Item 7. Management’s Discussion and Analysis

2021-02-11 compared with 2020-02-13 · 417 added, 335 removed, 515 unchanged (59% of the section changed)

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Our 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, and other T.

mutual funds, subadvised funds, separately managed accounts, collective investment trusts, and other T.

Rowe Price products.

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.

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;

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 one-third of our operating expenses are impacted by financial markets.

Additionally, approximately 30% of our operating expenses 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.

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

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

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

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

and, most importantly, we provide our clients with strong investment management expertise and service.

MARKET TRENDS.

stocks surged in 2019, as equities bounced back strongly from deep losses in the fourth quarter of 2018.

A major driver of market performance was the Federal Reserve’s decision to keep short-term interest rates steady in the first half of the year, then reduce rates three times starting in late July as a “midcycle adjustment” of its monetary policy.

Many other central banks around the world also reduced rates in response to slowing economic growth.

The trade conflict between the U.S.

and China was another major driver of market sentiment.

Markets wavered at times through much of the year as both sides announced new tariffs on the other’s goods.

Speculation then arose in the fall that the U.S.

and China were close to reaching an agreement, but a preliminary “phase one” trade deal was not reached until December.

stocks produced strong returns in 2020.

Shares fell sharply during the first quarter in response to the global spreading of the coronavirus and severe economic weakness following lockdown measures.

Starting in late March, equities rose sharply—and continued climbing throughout the year—in response to massive fiscal and monetary stimulus measures by governments and central banks around the world, as well as some economic re-opening efforts.

Toward the end of the year, investor sentiment was lifted further by reduced political uncertainty following former Vice President Joe Biden’s victory over incumbent President Donald Trump in the November election.

Also, investors were encouraged by the beginning of the distribution of some coronavirus vaccines that demonstrated very high efficacy rates in drug trials.

Stocks in developed non-U.S.

equity markets rose strongly but underperformed U.S.

European stocks were widely positive.

UK shares advanced more than 21% but lagged the region as Brexit-related uncertainty persisted for most of the year.

Boris Johnson succeeded Theresa May as Prime Minister during the summer, but the House of Commons did not vote in favor of the United Kingdom’s Withdrawal Agreement with the European Union until December, shortly after the Conservative Party decisively won a general election.

Returns in developed Asian markets were broadly positive in U.S.

dollar terms.

Hong Kong underperformed the region with a 10% gain.

Hong Kong’s economy and stock market have been hurt by ongoing protests that were triggered by a controversial extradition bill.

Emerging markets stocks underperformed shares in developed markets.

Asian equities were mostly positive in U.S.

dollar terms, but most markets significantly lagged strong returns in China and Taiwan.

In emerging Europe, Russian stocks surged about 53%;

Turkish stocks lagged with a 12% gain.

In Latin America, stocks in Colombia and Brazil posted very strong returns, but shares in Argentina and Chile fell sharply.

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Results of several major equity market indexes for 2019 are as follows:

equity markets produced positive returns in U.S.

dollar terms but generally lagged U.S.

Local returns to U.S.

investors were lifted by a weaker dollar against major non-U.S.

In Asia, most major markets rose;

Japanese shares advanced about 15%.

In Europe, most markets also rose, but shares in the UK declined more than 10% due to uncertainty for most of the year about the UK’s post-Brexit trade relationship with the European Union.

Emerging markets stocks outperformed developed non-U.S.

Asia outperformed other emerging regions, thanks to market strength in South Korea, Taiwan, and China.

In emerging Europe, Turkish and Russian shares declined moderately in U.S.

dollar terms amid weak currencies versus the greenback.

Latin American shares were mostly weaker, with regional heavyweight Brazil falling 19% in U.S.

dollar terms as the real plunged more than 22% over the last year.

Returns of several major equity market indexes for 2020 are as follows:

S&P 500 Index 18.4%

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(1) Returns exclude dividends

Global bond returns were broadly positive, as longer-term government bond yields in developed markets declined and various central banks enacted new stimulus measures.

In the U.S., the Federal Reserve reduced the federal funds target rate to a range of 1.50%-1.75% by the end of the year.

The 10-year Treasury note yield decreased from 2.69% to 1.92% at year-end, though above its late-summer lows, which were around 1.50%.

In the U.S., the investment-grade bond market, long-term Treasuries and corporate bonds fared best.

Mortgage-backed securities advanced to a lesser extent, hindered by an increase in mortgage prepayments and refinancing activity.

Municipal bonds did well amid solid demand but slightly underperformed taxable securities.

High yield bonds advanced strongly for the year as investors embraced riskier assets and searched for higher yields because of falling interest rates.

Global bonds produced mostly positive returns, as central banks slashed short-term interest rates and sovereign bond yields in many countries fell sharply.

investment-grade market, corporate bonds did best, as investors sought attractive yields in a low interest rate environment.

Treasury securities also did well as yields dropped across the yield curve.

The 10-year U.S.

Treasury note yield decreased from 1.92% to 0.93% over the last year.

Asset- and mortgage-backed securities produced relatively mild gains.

High yield corporate bonds and tax-free municipal bonds rose but trailed the broad taxable investment-grade bond market.

Bonds in developed non-U.S.

markets produced positive returns in U.S.

dollar terms, as the dollar weakened against most major currencies and government bond yields generally declined.

In the eurozone, the European Central Bank decided to cut its short-term benchmark rate deeper into negative territory in September.

On November 1, the European Central Bank resumed its quantitative easing program and began purchasing €20 billion of securities every month.

Emerging markets debt appreciated strongly in dollar terms.

Bonds denominated in U.S.

dollars outperformed local currency debt, as a few key emerging markets currencies declined against the dollar.

Results of several major bond market indexes for 2019 are as follows:

markets produced strong gains in U.S.

dollar terms, helped by dollar weakness against the euro and, to a lesser extent, the Japanese yen and the British pound.

Bonds in developing markets generally appreciated in U.S.

dollar terms, though local currency weakness in some countries, especially Brazil, Turkey, and Russia, reduced local returns to U.S.

Returns of several major bond market indexes for 2020 are as follows:

Bloomberg Barclays U.S.

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JPMorgan Emerging Markets Bond Index Plus 7.1%

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ASSETS UNDER MANAGEMENT.

Assets under management ended 2020 at $1,470.5 billion, an increase of $263.7 billion from the end of 2019.

Net cash inflows of $13.2 billion for 2019 , combined with market appreciation and income, net of distributions not reinvested, increased our assets under management by $231.3 billion .

This increase was driven by market appreciation and income, net of distributions not reinvested, of $256.9 billion and net cash inflows of $5.6 billion for 2020.

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

Clients transferred $13.7 billion in net assets from the U.S.

mutual funds to primarily collective investment trusts and other investment products, of which $8.6 billion transferred into the retirement date trusts.

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

(in billions)

Subadvised and separate accounts

Other investment products

(in billions) U.S.

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

Assets under management at December 31, 2017 $ 606.3 $ 255.2 $ 129.6 $ 991.1

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Client transfers (1)

(20.5) 2.8 17.7 —

Net cash flows after client transfers (16.1) 2.6 26.7 13.2

Net market appreciation and income

Net market depreciation, net of income (22.7) (7.8) (8.4) (38.9)

Distributions not reinvested (3.0) — (.1) (3.1)

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Client transfers (1)

(23.2) 1.1 22.1 —

Net cash flows after client transfers (15.6) .8 28.0 13.2

Net market depreciation, net of income

Net market appreciation and income 135.6 63.0 34.5 233.1

Distributions not reinvested (1.8) — — (1.8)

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Client transfers (1)

(13.7) 2.0 11.7 —

Net cash flows after client transfers (25.2) 10.0 20.8 5.6

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Distributions not reinvested (2.9) — (.2) (3.1)

Acquired AUM — — 1.2 1.2

Change during the period 111.9 86.3 65.5 263.7

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mutual funds to the T.

Rowe Price collective investment trusts, which are included in other investment products.

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Rowe Price collective investment trusts, which are included in collective investment trusts and other investment products.

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

(in billions)

Fixed income, including money market

Multi-asset (1)

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

Assets under management at December 31, 2017 $ 564.1 $ 134.4 $ 292.6 $ 991.1

Net cash flows (1.4) 2.9 11.7 13.2

Net market appreciation and income (2)

Net market depreciation, net of income (2)

(22.8) (1.2) (18.0) (42.0)

Change during the period (24.2) 1.7 (6.3) (28.8)

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Net cash flows (.2) 3.5 9.9 13.2

Net market depreciation, net of income (2)

Net market appreciation and income (2)

159.2 8.3 63.8 231.3

Change during the period 159.0 11.8 73.7 244.5

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Net market appreciation and income (2)

196.9 5.5 54.5 256.9

Acquired AUM — 1.2 — 1.2

Change during the period 196.9 20.8 46.0 263.7

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account for 9.3% of our assets under management at December 31, 2020 and 6.9% at December 31, 2019.

Our net cash flows in 2019 , 2018 , and 2017 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.

Our net cash flows in 2020 reflect net positive flows due to inflows into fixed income and international equity.

These inflows were partially offset by cash outflows in domestic equity and our multi-asset franchise resulting from macro-economic headwinds, including the CARES Act, and ongoing pressure from passive.

In terms of equity products, the cash inflows from international equity offset the cash outflows from domestic equity products.

From a geography perspective, EMEA and APAC regions performed well with positive net flows predominantly in equity in both regions.

Net cash flows for 2019, and 2018 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.

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 flows after client transfers shown above include $9.8 billion in 2019 , $12.0 billion in 2018 , and $7.1 billion in 2017 from the target date retirement products .

Assets under management in our target date retirement products, by vehicle, are as follows:

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

Assets under management Net cash inflows/(outflows) for year ended

(in billions) 12/31/20 12/31/19 12/31/18 12/31/20 12/31/19 12/31/18

Separately managed accounts

mutual funds $ 176.1 $ 164.8 $ 144.8 $ (12.7) $ (10.8) $ (14.1)

Collective investment trusts 145.4 119.2 79.7 5.4 19.5 21.4

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Separately managed accounts 10.7 8.4 5.9 .8 1.1 4.7

$ 332.2 $ 292.4 $ 230.4 $ (6.5) $ 9.8 $ 12.0

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

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

As of December 31, 2020, our assets under administration were $239 billion, of which nearly $148 billion are assets we manage.

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

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

The assets under advisement in

these portfolios, predominantly in the United States, is $2.8 billion at December 31, 2020.

INVESTMENT PERFORMANCE.

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 1 (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 December 31, 2019 , were:

Outperformed Morningstar median (2)

Multi-asset funds

Top Morningstar quartile (2)

Multi-asset funds

(1) Excludes passive and fund categories not ranked by Morningstar.

Beginning in the third quarter of 2020, we expanded our performance disclosures to include specific assets classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against benchmarks.

The following table presents investment performance for the one-, three-, five-, and 10-years ended December 31, 2020.

Past performance is no guarantee of future results.

mutual funds that outperformed Morningstar median 1,2

1 year 3 years 5 years 10 years

Equity 65% 71% 66% 85%

Fixed Income 54% 55% 58% 57%

Multi-Asset 94% 94% 85% 90%

All Funds 70% 72% 69% 77%

mutual funds that outperformed passive peer median 1,3

1 year 3 years 5 years 10 years

Equity 52% 67% 64% 68%

Fixed Income 72% 59% 54% 47%

Multi-Asset 91% 82% 70% 86%

All Funds 69% 69% 63% 67%

% of composites that outperformed benchmarks 4

1 year 3 years 5 years 10 years

Equity 60% 65% 70% 77%

Fixed Income 66% 56% 67% 68%

All Composites 62% 62% 68% 74%

AUM Weighted Performance

mutual funds AUM that outperformed Morningstar median 1,2

1 year 3 years 5 years 10 years

Equity 76% 79% 84% 92%

Fixed Income 43% 51% 57% 59%

Multi-Asset 100% 97% 96% 97%

All Funds 79% 81% 85% 90%

mutual funds AUM that outperformed passive peer median 1,3

1 year 3 years 5 years 10 years

Equity 39% 81% 77% 73%

Fixed Income 58% 50% 37% 43%

Multi-Asset 95% 96% 95% 96%

All Funds 54% 83% 79% 77%

% of composites AUM that outperformed benchmarks 4

1 year 3 years 5 years 10 years

Equity 70% 71% 73% 73%

Fixed Income 53% 47% 49% 72%

All Composites 67% 67% 69% 73%

As of December 31, 2020, 73 of 123 (59.3%) 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 (5) .

In addition, 84% (5) of AUM in our rated U.S.

mutual funds (across primary share classes) ended 2020 with an overall rating of 4 or 5 stars.

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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.

Historically, the firm has disclosed the percentage of U.S.

mutual funds (across all share classes) that outperformed their comparable Lipper averages on a total return basis and that are in the top Lipper quartile for the same periods.

Investment performance results using the new measures are similar to the Lipper results.

In addition, 84% 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.

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 $493B for 1 year, $493B for 3 years, $493B for 5 years, and $484B for 10 years.

(3) 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 $475B for 1 year, $473B for 3 years, $432B for 5 years, and $411B for 10 years.

(4) 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 $1,355B for 1 year, $1,353B for 3 years, $1,328B for 5 years, and $1,290B for 10 years

(5) 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.

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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.

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2019 compared with 2018

2018 compared with 2017

(in millions, except per-share data)

2020 compared with 2019 2019 compared with 2018

(in millions, except per-share data) 2020 2019 2018 $ Change % Change $ Change % Change

Investment advisory fees $ 5,693.1 $ 5,112.5 $ 4,850.6 $ 580.6 11.4 % $ 261.9 5.4 %

Net revenues $ 6,206.7 $ 5,617.9 $ 5,372.6 $ 588.8 10.5 % $ 245.3 4.6 %

Operating expenses $ 3,461.0 $ 3,230.9 $ 3,011.2 $ 230.1 7.1 % $ 219.7 7.3 %

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Non-operating income (1)

$ 496.5 $ 540.3 $ 23.2 $ (43.8) n/m $ 517.1 n/m

Net income attributable to

Rowe Price Group $ 2,372.7 $ 2,131.3 $ 1,837.5 $ 241.4 11.3 % $ 293.8 16.0 %

Diluted earnings per share on common share

Diluted earnings per common share $ 9.98 $ 8.70 $ 7.27 $ 1.28 14.7 % $ 1.43 19.7 %

Weighted average common shares outstanding assuming dilution 231.2 238.6 246.9 (7.4) (3.1) % (8.3) (3.4) %

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Rowe Price Group $ 2,276.8 $ 1,975.6 $ 1,807.4 $ 301.2 15.2 % $ 168.2 9.3 %

Diluted earnings per share on common share

Diluted earnings per common share $ 9.58 $ 8.07 $ 7.15 $ 1.51 18.7 % $ .92 12.9 %

Assets under management (in billions)

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

Results Overview

Results Overview - 2020 as compared to 2019

Investment advisory revenues.

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

Investment advisory revenues earned in 2019 increased 5.4% over the comparable 2018 period as average assets under our management increase d $72.8 billion , or 7.0% , to $1,109.3 billion .

Investment advisory revenues earned in 2020 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.

In 2020, we voluntarily waived $20.4 million, or less than 1%, of our investment advisory fees from certain of our money market mutual funds, trusts, and other investment portfolios in order to maintain a positive yield for investors.

At December 31, 2020, combined net assets of the investment portfolios in which we waived fees in 2020 were $23.9 billion.

We expect to continue to waive fees in 2021, and we currently anticipate that the waivers for the first quarter of 2021 will be at or slightly

above the level of waivers experienced in the fourth quarter of 2020.

We also expect that the fee waivers for the first quarter of 2021 will represent a high-water mark for fee waivers issued.

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 has declined largely due to client transfers within the complex to lower fee vehicles or share classes over the last year and, to a lesser extent, fee reductions we made to certain mutual funds and other products since 2018 .

We regularly assess the competitiveness of our investment advisory fees and will continue to make adjustments as deemed appropriate.

Our effective fee rate has declined largely due to client transfers within the complex to lower fee vehicles or share classes over the last year and the money market fee waivers.

These declines were partially offset by performance-based fees earned in 2020.

Operating expenses.

Operating expenses were $3,461.0 million in 2020, an increase of 7.1% over the comparable 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.

On a non-GAAP basis, our operating expenses in 2020 increased 6.1% to $3,342.7 million compared with 2019.

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

Rowe Price investment products.

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

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

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

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

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

We have increased our 2021 non-GAAP operating expense growth range to 8%-12%, from the 6%-9% provided in October 2020, as sharp market returns in the fourth quarter of 2020 and current AUM levels increased our expectations for AUM-driven expenses.

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

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 with 2019 is primarily driven by 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 to $8.70 in 2019.

The 14.7% increase in diluted earnings per share in 2020 compared to 2019 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 2020 than in 2019.

On a non-GAAP basis, diluted earnings per share was $9.58 in 2020 as compared to $8.07 for 2019.

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

The impact of these drivers were partially offset by lower net investment gains recognized in 2020 than in 2019.

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

Results Overview - 2019 as compared to 2018

Investment advisory revenues.

In 2019, investment advisory revenues increased 5.4% over the comparable 2018 period as average assets under our management increased $72.8 billion, or 7.0%, to $1,109.3 billion.

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Our effective fee rate declined in part due to client transfers within the complex to lower fee vehicles or share classes and, to a lesser extent, fee reductions we made to certain mutual funds and other products since 2018.

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contributing to our lower effective fee rate in 2018 was a greater percentage of our assets under management in lower fee products due to lower equity valuations in the fourth quarter of 2018 .

Further contributing to our lower effective fee rate in 2019 was a greater percentage of our assets under management in lower fee products due to lower equity valuations in the fourth quarter of 2019.

Operating expenses.

Operating expenses were $3,230.9 million in 2019 , an increase of 7.3% over the comparable 2018 period .

The increase in operating expenses was primarily due to greater market-related compensation expense related to the supplemental savings plan liability, higher salaries and benefits, higher bonus and stock-based compensation expense and the cost of our continued strategic investments.

The 2018 period also includes the non-recurring $15.2 million reduction in operating expenses related to the conclusion of the Dell appraisal rights matter.

The higher expense related to the supplemental savings plan in 2019 is partially offset by non-operating gains earned on the investments used to hedge the related liability.

For 2019, operating expenses were $3,230.9 million as compared with $3,011.2 million in the 2018 period.

The increase in operating expenses was primarily due to our continued strategic investments and higher bonus and stock-based compensation, which were driven by our 2019 operating results.

On a non-GAAP basis, our operating expenses in 2019 increased 4.1% to $3,149.8 million compared with 2018 .

The 2018 period also includes the non-recurring $15.2 million reduction in operating expenses related to the conclusion of the Dell appraisal rights matter.

In 2019, our non-GAAP operating expenses increased 4.1% to $3,149.8 million compared with 2018.

Our non-GAAP operating expenses exclude the impacts of our supplemental savings plan, investment income related to certain other investments, our consolidated T.

Rowe Price investment products, and certain non-recurring items.

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

Our 2017 and 2018 operating expenses include certain financial impacts related to the Dell appraisal rights matter as further discussed in Note 14 to our consolidated financial statements.

A summary of the financial impact of the Dell appraisal rights matter on our annual pre-tax operating expenses and pre-tax operating cash flows since the matter arose in 2016 is as follows:

(in millions)

Pre-tax operating expense (income)

Pre-tax operating cash inflows (outflows)

Total impact from Dell appraisal rights matter

There was no operating expense or cash flows impact related to the Dell appraisal rights matter in 2019.

In 2020 , we expect 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 2020 non-GAAP operating expenses to grow in the range of 6% to 9%.

This expense growth guidance includes continued investments in the business and technology capabilities, our cost optimization efforts, and the final part of the phased implementation of paying for all third-party investment research.

As such, 2020 operating expenses will reflect a full year of all third-party investment research costs globally.

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

Operating margin.

Our operating margin in 2019 was 42.5% , compared with 44.0% in 2018 and 43.4% in 2017 .

The decrease in our operating margin in 2019 compared with 2018 is primarily driven by the higher compensation expense growth related to our supplemental savings plan as compared with the percentage growth in net revenues during 2019 .

The increase in our operating margin in 2018 compared to 2017 was driven by the higher percentage growth in net revenue attributable primarily to increases in our average assets under management compared with the percentage growth in operating expenses.

Diluted earnings per share was $8.70 in 2019 , $7.27 in 2018 , and $5.97 in 2017 .

Our operating margin in 2019 was 42.5%, compared with 44.0% in 2018.

The decrease in our operating margin in 2019 compared to 2018 was driven by the higher percentage growth in operating expenses related to our supplemental savings plan as compared with the percentage growth in net revenues during 2019.

Diluted earnings per share.

Diluted earnings per share was $8.70 in 2019 as compared with $7.27 in 2018.

The 19.7% increase in diluted earnings per share in 2019 compared to 2018 was primarily driven by higher non-operating income, the benefit realized from increased share buybacks, which lowered the weighted-average shares outstanding, and a lower effective tax rate.

The 21.8% increase in diluted earnings per share in 2018 compared with 2017 was driven by higher operating income and the benefit realized from a lower corporate tax rate under U.S.

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On a non-GAAP basis, diluted earnings per share were $8.07 in 2019 , $7.15 in 2018, and $5.43 in 2017.

On a non-GAAP basis, diluted earnings per share were $8.07 in 2019 as compared with $7.15 in 2018.

The 12.9% increase in non-GAAP diluted earnings per share in 2019 compared to 2018 was primarily driven by higher operating income, higher investment income earned on our cash and discretionary investment portfolio, and lower weighted-average shares outstanding.

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

2019 compared with 2018

2018 compared with 2017

(in millions)

2020 compared with 2019 2019 compared with 2018

(in millions) 2020 2019 2018 $ Change % Change $ Change % Change

Investment advisory fees

Subadvised and separate accounts and other investment products

mutual funds $ 3,639.9 $ 3,452.5 $ 3,375.0 $ 187.4 5.4 % $ 77.5 2.3 %

Subadvised funds, separate accounts, collective investment trusts, and other investment products 2,053.2 1,660.0 1,475.6 393.2 23.7 % 184.4 12.5 %

5,693.1 5,112.5 4,850.6 580.6 11.4 % 261.9 5.4 %

Administrative, distribution, and servicing fees

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Distribution and servicing fees 111.3 120.0 138.0 (8.7) (7.3) % (18.0) (13.0) %

513.6 505.4 522.0 8.2 1.6 % (16.6) (3.2) %

Net revenues $ 6,206.7 $ 5,617.9 $ 5,372.6 $ 588.8 10.5 % $ 245.3 4.6 %

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.

The relationship between the change in average assets under management and the change in investment advisory fee revenue for 2020, 2019 and 2018 are presented below.

2019 compared with 2018

2018 compared with 2017

Increase in average assets under management

Increase in investment advisory fees

Increase in average assets under management

Increase in investment advisory fees

Subadvised and separate accounts and other investment products

2020 compared with 2019 2019 compared with 2018

Increase in average assets under management Increase in investment advisory fees Increase in average assets under management Increase in investment advisory fees

mutual funds 7.4 % 5.4 % 3.0 % 2.3 %

Subadvised funds, separate accounts, collective investment trusts, and other investment products 19.5 % 23.7 % 13.1 % 12.5 %

Total investment advisory fees 12.5 % 11.4 % 7.0 % 5.4 %

Market fluctuations and net cash flows can shift the asset and share class mix among different fee rates and products including those with tiered-fee structures.

Over the last few years, we have also reduced the management fees of certain products.

While equity markets outperformed fixed income markets in 2019 and resulted in a shift of the U.S.

mutual fund average asset mix to higher fee equity products over 2018, lower incremental fee tiered rates and certain fund price reductions created lower incremental revenues.

In general, strong market returns in 2020 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.

In 2020, the relationship between U.S.

mutual funds' average assets under management and investment advisory fee growth was impacted by the money market fees waivers and client transfers within the complex to lower fee vehicles or share classes.

For the subadvised funds, separate accounts, collective investment trusts, and other investment products, 2020 inflows into our international products, which have a higher fee rate relative to other products, and performance-based fees earned on certain separate accounts drove investment advisory revenues to outpace the increase in average assets under management.

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

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

In 2019, equity markets outperformed fixed income markets resulting in a shift of the U.S.

mutual fund average asset mix to higher fee equity products over 2018.

Strong market returns in 2019 and U.S.

mutual fund to trust transfers have primarily increased average assets under management for our subadvised and separate accounts and other products.

mutual fund to trust transfers have primarily increased average assets under management for our subadvised funds, separate accounts, collective investment trusts, and other products.

However, lower incremental fee rates on higher average assets and growth in lower fee share classes resulted in slower revenue growth in 2019 over 2018.

In 2018, investment advisory fees earned on our subadvised and separate accounts and other investment products grew slower relative to average assets under management as a result of the significant client transfers from mutual funds to lower fee vehicles.

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Administrative, distribution, and servicing fees.

Administrative, distribution, and servicing fees represent fees earned from providing administrative and distribution services to our investment advisory clients, primarily U.S.

mutual funds and their investors.

For 2019 , these fees were $505.4 million , a decrease of $16.6 million from the comparable 2018 period .

The decrease 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.

Administrative, distribution, and servicing fees in 2020 were $513.6 million, an increase of $8.2 million from 2019.

The higher expense was 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 certain share classes, including the Advisor and R classes, of the U.S.

mutual funds, as compared to 2019, as well as client transfers to lower fee vehicles and share classes have reduced assets under management in these share classes.

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

In addition, higher recordkeeping fees and transaction fees were partially offset by lower mutual fund service revenues.

For 2019, administrative, distribution, and servicing fees were $505.4 million, a decrease of $16.6 million from the comparable 2018 period.

The decrease was primarily attributable to lower assets under management in the U.S.

mutual funds resulting from client transfers among vehicles and share classes and the sharp market decline at the end of 2018.

Net revenues include the elimination of $6.8 million for 2019 , $6.2 million for 2018 , and $5.6 million for 2017 , earned from our consolidated T.

The decrease 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 have reduced assets under management in these share classes.

Net revenues are presented after the elimination of $9.9 million for 2020, $6.8 million for 2019, and $6.2 million for 2018, earned from our consolidated T.

Rowe Price investment products.

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Operating expenses

2019 compared with 2018

2018 compared with 2017

(in millions)

2020 compared with 2019 2019 compared with 2018

(in millions) 2020 2019 2018 $ Change % Change $ Change % Change

Compensation and related costs $ 2,182.4 $ 1,969.2 $ 1,808.6 $ 213.2 10.8 % $ 160.6 8.9 %

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Nonrecurring net recoveries related to Dell appraisal rights matter (1)

— — (15.2) — n/m 15.2 n/m

Total operating expenses $ 3,461.0 $ 3,230.9 $ 3,011.2 $ 230.1 7.1 % $ 219.7 7.3 %

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Compensation and related costs increased $213.2 million, or 10.8%, for 2020 as compared with 2019.

The increase in compensation and related costs 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.

The $38.6 million in higher expense related to our supplemental savings plan from strong market returns is partially offset by the non-operating gains on the investments used to economically hedge the related liability.

For 2019, compensation and related costs increased $160.6 million, or 8.9%, as compared with 2018.

Nearly half of the increase in compensation and related costs is attributable to $78.8 million in higher expense related to our supplemental savings plan given the strong equity market returns experienced in 2019 compared with the sharp equity market declines in late 2018.

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These increases in compensation and related costs were offset in part by the absence of the one-time $9.0 million bonus paid to certain associates in the second quarter of 2018 and $10.0 million in higher labor capitalization related to internally developed software in 2019.

For 2018 , compensation and related costs increased $143.7 million , or 8.6% , as compared with 2017 .

The largest part of the increase was an increase base salaries, benefits and related employee costs of $77.1 million, resulting from an increase of 6.2% in average headcount, combined with a modest increase in salaries at the beginning of 2018.

Our operating results led to a $68.0 million increase in variable compensation and contributed to the $45.0 million increase in non-cash stock-based compensation expense as the annual grant value was higher in 2018 .

Additionally, our 2018 equity grant reflected the adoption of more favorable post-retirement vesting provisions, which shifted a greater percentage of the expense related to the annual grant to be recognized for 2018 .

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period also included $9.0 million in one-time bonuses paid to certain associates from U.S.

tax reform benefits.

These increases were partially offset by lower market-related expense of $30.3 million from our supplemental savings plan and higher labor capitalization related to internally developed software.

Distribution and servicing costs.

Distribution and servicing costs includes those costs incurred to distribute the T.

Rowe Price products as well as client and shareholder servicing, recordkeeping, and administrative services.

Distribution and servicing costs were $262.5 million for 2019 , a decrease of $18.7 million , or 6.7% , compared to 2018 .

The decrease for 2019 from 2018 was primarily driven by client transfers, largely from Advisor and R classes, to lower fee vehicles or share classes during 2019 , which resulted in lower assets under management in those mutual funds on which we pay distribution and servicing costs.

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.

Distribution and servicing costs were $281.2 million for 2018 , an increase of $18.6 million , or 7.1% , compared with 2017 .

The increase was primarily driven by overall strong markets and net cash flows from the end of 2017 through the third quarter of 2018, which grew the assets in those share classes and products for which we pay a related distribution and servicing fee.

Distribution and servicing costs were $278.5 million for 2020, an increase of $16.0 million, or 6.1%, compared to 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 were $262.5 million for 2019, a decrease of $18.7 million, or 6.7%, compared with 2018.

The decrease was primarily driven 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 $83.7 million for 2020, a decrease of $13.1 million, or 13.5%, compared with 2019.

The decrease for 2019 from 2018 was primarily driven by the absence in 2019 of the creation and launch of a media advertising campaign in 2018.

Advertising and promotion costs were $99.6 million for 2018 , an increase of $7.2 million , or 7.8% , compared with 2017 .

The increase in advertising and promotion costs for 2018 from 2017 is primarily driven by the creation and launch of a media advertising campaign in 2018.

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.

For 2019, advertising and promotion costs were $96.8 million, a decrease of $2.8 million, or 2.8%, compared with 2018.

The decrease in advertising and promotion costs for 2019 from 2018 is primarily driven by the absence in 2019 of the creation and launch of a media advertising campaign in 2018.

Product-related costs.

Product-related costs consists of non-advisory related costs that we incur to service certain T.

Rowe Price products.

Product-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.

Product-related costs were $153.2 million for 2019, a decrease of $3.9 million, or 2.5%, compared with 2018.

1 unchanged sentence

mutual funds, partially offset by higher operating costs of our collective investment trusts as client transfers have increased the number of trusts and their average net assets over the last year.

Product-related costs were $157.1 million for 2018 , an increase of $11.1 million , or 7.6% , compared with 2017 .

The increase is primarily due to higher operating costs of our collective investment trusts as client transfers have increased the number of trusts and their average net assets over the last year.

Also contributing to the increase were higher costs incurred to provide administrative services to the U.S.

mutual funds.

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 $427.3 million for 2019 , $383.9 million for 2018 , and $350.5 million for 2017 .

The increases over the last two years were due primarily to additional incremental investment in our technology capabilities, including related depreciation and hosted solution licenses, as well as office expansion costs.

The 2019 year also included certain non-recurring office facility costs that were recognized in the fourth quarter.

Technology, occupancy, and facility costs were $444.8 million for 2020, $427.3 million for 2019, and $383.9 million for 2018.

The increases over the last two years were due primarily to ongoing investment in our technology capabilities, including related depreciation and hosted solution licenses, as well as office expansion costs.

The 2019 year included certain non-recurring office facility costs.

General, administrative, and other costs.

General, administrative, and other costs consist of costs associated with the overall management of the firm, including information services, professional services, travel and entertainment, research costs, and other general operating expenses.

These costs were $321.9 million for 2019 , $296.0 million for 2018 , and $279.7 million for 2017 .

The increases for 2019 from 2018 and for 2018 from 2017 were a result of our continued investment in our strategic initiatives, higher third-party investment research costs, and other growing operational and regulatory demands on the business.

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General, administrative, and other costs were $316.1 million for 2020, $321.9 million for 2019, and $296.0 million for 2018.

Higher third-party investment research costs, professional fees,

and other administrative related costs in 2020 were more than offset by lower travel-related expenses.

For 2019, the increase in general, administrative, and other costs from 2018 was a result of continued investment in our strategic initiatives, higher third-party investment research costs, and other growing operational and regulatory demands on the business.

Non-operating income

Net non-operating investment income increased $517.1 million for the year ended December 31, 2019 compared with 2018 and decreased $373.1 million for the year ended December 31, 2018 compared with 2017 .

Net non-operating investment income decreased $43.8 million in 2020 compared with 2019 and increased $517.1 million in 2019 compared with 2018.

Net non-operating investment activity for the years ended December 31, 2020, 2019 and 2018 comprised the following:

2019 compared with 2018

2018 compared with 2017

(in millions)

2020 compared with 2019 2019 compared with 2018

(in millions) 2020 2019 2018 $ Change $ Change

Net gains (losses) from non-consolidated T.

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Dividend income $ 25.2 $ 67.6 $ 48.8 $ (42.4) $ 18.8

Market related gains (losses) and equity in earnings

Market related gains (losses) and equity in earnings (losses) 67.5 58.4 (16.0) 9.1 74.4

Total cash and discretionary investments 92.7 126.0 32.8 (33.3) 93.2

Seed capital investments

Dividend income 2.2 2.3 3.9 (.1) (1.6)

Market related gains (losses) and equity in earnings

Net realized gains on dispositions of available-for-sale investments

Net gain (loss) recognized upon deconsolidation

Market related gains (losses) and equity in earnings (losses) 32.2 42.7 (22.5) (10.5) 65.2

Net gain recognized upon deconsolidation .7 .1 3.6 .6 (3.5)

Investments used to hedge the supplemental savings plan liability 91.1 67.9 (6.1) 23.2 74.0

3 unchanged sentences

Net gains on investments 246.8 260.4 119.2 (13.6) 141.2

Net gains on consolidated sponsored investment portfolios

Net gains (losses) on consolidated sponsored investment portfolios 251.7 272.9 (92.9) (21.2) 365.8

Other income (loss), including foreign currency gains and losses (2.0) 7.0 (3.1) (9) 10.1

Non-operating income $ 496.5 $ 540.3 $ 23.2 $ (43.8) $ 517.1

Despite the global economies and market disruptions caused by the coronavirus pandemic in the first quarter of 2020, 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.

During 2019, non-operating income reflected the sharp market returns which resulted in significant unrealized gains on our investment portfolio, including our consolidated investment portfolios, compared with losses in 2018.

2 unchanged sentences

Our cash and discretionary investments generated income of $126.0 million in 2019 as compared to $32.8 million in 2018.

During 2018 , non-operating income included the impact of sharp market declines in the later part of 2018, which resulted in unrealized losses on our investment portfolio, including our consolidated products, compared with unrealized gains recognized during 2017.

Partially offsetting these losses was the recognition during 2018 of a realized gain in other investment income associated with the sale of our 10% holding in Daiwa SB Investments Ltd.

Additionally, on January 1, 2018, we implemented new accounting guidance that eliminated the available-for-sale investment category for equity securities.

As a result of this change, realized gains of $83.1 million from the sale of certain available-for-sale investments recognized in 2017 did not reoccur in 2018.

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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 2020, 2019, and 2018 is as follows:

2019 compared with 2018

2018 compared with 2017

(in millions)

2020 compared with 2019 2019 compared with 2018

(in millions) 2020 2019 2018 $ Change $ Change

Operating expenses reflected in net operating income $ (16.4) $ (14.7) $ (12.7) $ (1.7) $ (2.0)

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Our effective tax rate for 2020 was 22.2%, compared with 23.2% for 2019 and 25.8% for 2018.

The decrease in our effective tax rate in 2019 from 2018 was primarily due to higher net income attributable to redeemable non-controlling interests related to our consolidated T.

The decrease in our effective tax rate in 2020 from 2019 was primarily due to a lower effective state tax rate as we continue to see phased-in benefit 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 2020.

For 2019, the decrease in the effective tax rate from 2018 was primarily due to higher net income attributable to redeemable non-controlling interests related to our consolidated T.

Rowe Price investment products, as these earnings are not taxable to us, as well as a lower state tax rate from the Maryland state legislation in 2018, and the absence in 2019 of the 2018 nonrecurring charges related to the enactment of U.S.

The decrease in our effective tax rate in 2018 from 2017 was primarily due to the reduction in the U.S.

federal corporate tax rate from 35% to 21% on January 1, 2018 following the enactment on December 22, 2017, of a comprehensive U.S.

tax reform bill known as the Tax Cuts and Jobs Act ("Tax Reform").

For 2018 and 2017, the income tax provision includes nonrecurring charges of $20.8 million and $71.1 million , respectively, related to the enactment of U.S.

tax reform as we adjusted our deferred tax asset and liability estimates.

On April 24, 2018, the state of Maryland enacted new state tax legislation.

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Based on information currently available, we expect that the Maryland state tax legislation will reduce our effective state tax rate over the five-year phase-in period to less than 3%.

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The following table reconciles the statutory federal income tax rate to our effective tax rate for the years ended December 31, 2020, 2019, and 2018:

2020 2019 2018

Statutory U.S.

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Impact of nonrecurring charge relating to U.S.

tax reform — — .8

Impact of nonrecurring charge related to Maryland state tax legislation — — .3

2 unchanged sentences

Net excess tax benefits from stock-based compensation plans activity (1.9) (1.5) (1.7)

Other items .5 .4 .1

Effective income tax rate 22.2 % 23.2 % 25.8 %

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

Our effective tax rate will continue to experience volatility in future periods as the 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 our consolidated investment products that are driven by market fluctuations and changes in the proportion of their net income that is attributable to non-controlling interests.

We currently estimate our effective tax rate for the full-year 2020 will be in the range of 23% to 26% .

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 2020, 2019, and 2018 were 23.3% for 2020, 24.0% for 2019, 24.1% for 2018.

Similar to our GAAP rate, the decrease in our 2020 non-GAAP effective tax rate from 2019 is due primarily to a lower effective state tax rate and higher discrete tax benefits associated with option exercises.

We currently estimate our GAAP effective tax rate for the full-year 2021 will be in the range of 22% to 25% and our non-GAAP effective tax rate for the full-year 2021 will be in the range of 23% to 25%.

NON-GAAP INFORMATION AND RECONCILIATION.

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GAAP financial measures for each of the last five years.

(in millions)

Operating expenses

Net operating income

Non-operating income

Provision (benefit) for income taxes (7)

(in millions) Operating expenses Net operating income Non-operating income Provision (benefit) for income taxes (7)

Net income attributable to T.

Rowe Price Group

Diluted earnings per share (8)

Rowe Price Group Diluted earnings per share (8)

GAAP Basis $ 3,461.0 $ 2,745.7 $ 496.5 $ 718.9 $ 2,372.7 $ 9.98

Non-GAAP adjustments:

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investment products (1)

(6.5) 16.4 (251.7) (19.5) (65.1) (.27)

Supplemental savings plan liability (2)

(111.8) 111.8 (91.1) 7.2 13.5 .06

Other non-operating income (3)

— — (61.0) (16.8) (44.3) (.19)

Adjusted Non-GAAP Basis $ 3,342.7 $ 2,873.9 $ 92.7 $ 689.8 $ 2,276.8 $ 9.58

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(in millions)

Operating expenses

Net operating income

Non-operating income

Provision (benefit) for income taxes (7)

(in millions) Operating expenses Net operating income Non-operating income Provision (benefit) for income taxes (7)

Net income attributable to T.

Rowe Price Group

Diluted earnings per share (8)

Rowe Price Group Diluted earnings per share (8)

GAAP Basis $ 3,230.9 $ 2,387.0 $ 540.3 $ 678.4 $ 2,131.3 $ 8.70

Non-GAAP adjustments:

1 unchanged sentence

investment products (1)

(7.9) 14.7 (272.9) (35.7) (104.9) (.42)

Supplemental savings plan liability (2)

(73.2) 73.2 (67.9) 1.3 4.0 .02

Other non-operating income (3)

Nonrecurring charge related to

enactment of U.S.

tax reform (4)

Nonrecurring charge related to

enactment of Maryland state tax

legislation (5)

Nonrecurring net charge (recoveries)

related to Dell appraisal rights matter (6)

— — (73.5) (18.7) (54.8) (.23)

Adjusted Non-GAAP Basis $ 3,149.8 $ 2,474.9 $ 126.0 $ 625.3 $ 1,975.6 $ 8.07

(in millions)

Operating expenses

Net operating income

Non-operating income

Provision (benefit) for income taxes (7)

(in millions) Operating expenses Net operating income Non-operating income Provision (benefit) for income taxes (7)

Net income attributable to T.

Rowe Price Group

Diluted earnings per share (8)

Rowe Price Group Diluted earnings per share (8)

GAAP Basis $ 3,011.2 $ 2,361.4 $ 23.2 $ 615.9 $ 1,837.5 $ 7.27

Non-GAAP adjustments:

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investment products (1)

(6.5) 12.7 92.9 6.5 30.3 .12

Supplemental savings plan liability (2)

5.6 (5.6) 6.1 .1 .4 —

Other non-operating income (3)

— — (93.7) (16.7) (77.0) (.30)

Nonrecurring charge related to

1 unchanged sentence

tax reform (4)

— — — (20.8) 20.8 .08

Nonrecurring charge related to

enactment of Maryland state tax legislation (5)

— — — (7.9) 7.9 .03

Nonrecurring net charge (recoveries)

related to Dell appraisal rights matter (6)

15.2 (15.2) — (2.7) (12.5) (.05)

Adjusted Non-GAAP Basis $ 3,025.5 $ 2,353.3 $ 28.5 $ 574.4 $ 1,807.4 $ 7.15

(in millions)

Operating expenses

Net operating income

Non-operating income

Provision (benefit) for income taxes (7)

(in millions) Operating expenses Net operating income Non-operating income Provision (benefit) for income taxes (7)

Net income attributable to T.

Rowe Price Group

Diluted earnings per share (8)

Rowe Price Group Diluted earnings per share (8)

GAAP Basis $ 2,746.1 $ 2,108.8 $ 396.3 $ 923.9 $ 1,497.8 $ 5.97

Non-GAAP adjustments:

1 unchanged sentence

investment products (1)

(6.7) 12.3 (193.9) (37.8) (60.3) (.24)

Supplemental savings plan liability (2)

(11.7) 11.7 (12.3) (.3) (.4) —

Other non-operating income (3)

— — (190.1) (73.4) (116.7) (.46)

Nonrecurring charge related to

enactment of U.S.

tax reform (4)

— — — (71.1) 71.1 .28

Nonrecurring net charge (recoveries)

related to Dell appraisal rights matter (6)

50.0 (50.0) — (19.6) (30.4) (.12)

Adjusted Non-GAAP Basis $ 2,777.7 $ 2,082.8 $ — $ 721.7 $ 1,361.1 $ 5.43

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(in millions)

Operating expenses

Net operating income

Non-operating income

Provision (benefit) for income taxes (7)

(in millions) Operating expenses Net operating income Non-operating income Provision (benefit) for income taxes (7)

Net income attributable to T.

Rowe Price Group

Diluted earnings per share (8)

Rowe Price Group Diluted earnings per share (8)

GAAP Basis $ 2,551.4 $ 1,733.4 $ 227.1 $ 706.5 $ 1,215.0 $ 4.75

Non-GAAP adjustments:

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investment products (1)

(6.5) 13.0 (121.1) (27.1) (42.0) (.16)

Other non-operating income (3)

— — (106.0) (41.7) (64.3) (.25)

Nonrecurring net charge (recoveries) related to Dell appraisal rights matter (6)

(66.2) 66.2 — 26.0 40.2 .15

Adjusted Non-GAAP Basis $ 2,478.7 $ 1,812.6 $ — $ 663.7 $ 1,148.9 $ 4.49

These non-GAAP adjustments remove the impact the consolidated T.

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

Rowe Price investment products have on our U.S.

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

We remove the impact of the consolidated

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.

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Rowe Price Group and diluted earnings per share.

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(7) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate of 23.3% for 2020, 24.0% for 2019, 24.1% for 2018, 34.7% for 2017, and 36.6% for 2016.

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CAPITAL RESOURCES AND LIQUIDITY.

During 2019 , stockholders’ equity increase d from $6.1 billion to $7.1 billion .

During 2020, stockholders’ equity increased from $7.1 billion to $7.7 billion.

Tangible book value increased to $7.0 billion at December 31, 2020.

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

Cash and discretionary investments generated income of $126.0 million in 2019 as compared to $32.8 million in 2018 .

Cash and discretionary investments in T.

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

were $665.8 million at December 31, 2019 , and $634.5 million at December 31, 2018 .

Of these cash and discretionary investments, $675.8 million at December 31, 2020, and $665.8 million at December 31, 2019 were held by our subsidiaries located outside the U.S.

Cash and discretionary investment portfolio returned gains of $92.8 million in 2020 as compared to $126.0 million in 2019 as the very low interest rate environment reduced the dividend income earned on our money market investments.

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.

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The cash and investment presentation on the consolidated balance sheet is based on how we account for the cash or investment.

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As reported on unaudited condensed consolidated balance sheet at December 31, 2020 $ 2,151.7 $ 3,250.8 $ 2,637.8 $ 8,040.3

* Net assets of consolidated T.

Rowe Price investment products of $2,237.7 million at December 31, 2019 , include assets of $2,276.9 million less liabilities of

$39.2 million as reflected in the consolidated balance sheet in Item 8.

(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 $205.1 million and the $871.0 million represent the total value at December 31, 2020 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, 2020 of $2,637.8 million includes assets of $2,695.5 million less liabilities of $57.7 million as reflected in the consolidated balance sheet in Item 8.

Financial Statements and Supplementary Data of this Form 10-K.

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 portion of these T.

Rowe Price investment products we consolidate, as well as redeemable non-controlling interests for the

portion of these T.

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

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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.

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

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

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Since the end of 2017, we have returned $5.3 billion to stockholders through stock repurchases and our regular quarterly dividends, as follows:

(in millions)

Recurring dividend

Stock repurchases

Total cash returned to stockholders

We anticipate property and equipment expenditures for the full-year 2020 to be up to $210 million , of which about three-quarters is planned for technology initiatives.

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

2018 $ 694.7 $ 1,099.6 $ 1,794.3

2019 733.6 708.8 1,442.4

2020 846.0 1,192.2 2,038.2

Total $ 2,274.3 $ 3,000.6 $ 5,274.9

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

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

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The following tables summarize the cash flows for 2020, 2019 and 2018, that are attributable to T.

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Cash flow attributable to:

(in millions)

Rowe Price Group

Consolidated T.

Rowe Price investment products

(in millions) T.

Rowe Price Group Consolidated T.

Rowe Price investment products Elims As reported

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Net income $ 2,372.7 $ 235.3 $ (84.7) $ 2,523.3

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation, amortization and impairments of property and equipment 189.6 — — 189.6

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Rowe Price investment products used to economically hedge supplemental savings plan liability

(142.9) — — (142.9)

Net change in trading securities held by consolidated T.

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Cash flow attributable to:

(in millions)

Rowe Price Group

Consolidated T.

Rowe Price investment products

(in millions) T.

Rowe Price Group Consolidated T.

Rowe Price investment products Elims As reported

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Net income $ 2,131.3 $ 258.2 $ (140.6) $ 2,248.9

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation, amortization and impairments of property and equipment 190.8 — — 190.8

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Rowe Price investment products used to economically hedge supplemental savings plan liability

(126.0) — — (126.0)

Net change in trading securities held by consolidated T.

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Cash and cash equivalents at end of period $ 1,781.8 $ 76.5 $ — $ 1,858.3

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Cash flow attributable to:

(in millions)

Rowe Price Group

Consolidated T.

Rowe Price investment products

(in millions) T.

Rowe Price Group Consolidated T.

Rowe Price investment products Elims As reported

Cash flows from operating activities

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Net income $ 1,837.5 $ (105.6) $ 36.8 $ 1,768.7

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation, amortization and impairments of property and equipment 159.5 — — 159.5

Stock-based compensation expense 197.1 — — 197.1

Realized gains on dispositions of available-for-sale T.

Rowe Price investment products

Gains recognized upon transfer of an investment in a T.

Rowe Price mutual fund from available-for-sale to held as trading

Net gains recognized on investments (13.7) — (36.8) (50.5)

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Rowe Price investment products used to economically hedge supplemental savings plan liability

(129.5) (129.5)

Net change in trading securities held by consolidated T.

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Operating activities attributable to T.

Rowe Price Group during 2019 provided cash flows of $2,202.3 million , an increase of $24.2 million from the 2018 period.

Operating cash flows increased by $334.6 million on higher net income after adjusting for significant non-cash activity including depreciation expense and stock-based compensation expense.

This increase was offset in part by higher market gains on investments of $303.2 million due to stronger equity market returns compared to 2018.

During 2019, we invested an additional $126.0 million in certain investment products that act as an economic hedge of our supplemental savings plan liability.

This level of investment is comparable to the amount invested in 2018.

Timing differences on the cash settlement of our assets and liabilities also increased operating cash flows by $10.7 million .

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.

Operating activities attributable to T.

Rowe Price Group during 2018 provided cash flows of $2,178.1 million, an increase of $626.3 million from the 2017 period.

The increase in these operating cash flows was driven by $641.6 million of higher net income after adjusting for significant non-cash activity including depreciation expense, stock-based compensation expense and market gains on investments.

Adjustments for market gains on investments decreased during 2018 in part due to a change in accounting guidance that we adopted on January 1, 2018.

The remaining decrease in investment gain activity is due to lower gains as a result of weaker equity markets in 2018 compared with 2017 .

Additionally, during 2017 , we invested $218.6 million into certain investment products to establish an economic hedge of our supplemental savings plan liability and invested an additional $129.5 million in 2018 in order to maintain it.

The remaining $104.4 million decrease in operating cash flows attributable to T.

Rowe Price Group relates to timing differences on the cash settlement of our assets and liabilities, including the settlement of insurance receivables during 2017 related to the Dell appraisal rights matter.

Rowe Price Group during 2019 provided cash flows of $2,202.3 million as compared to $2,178.1 million during 2018.

Operating cash flows attributable to T.

Rowe Price Group increased $24.2 million, including the $293.8 million increase in net income from 2018, and partially offset by lower non-cash adjustments, which include unrealized investment gains/losses, depreciation, and stock-based compensation expense of $258.9 million and timing differences on the cash settlement of our assets and liabilities of $10.7 million.

The non-cash adjustments were driven by a $303.2 million increase in net investment gains in 2019 compared with 2018.

During 2019, we invested an additional $126.0 million in certain investment products that act as an economic hedge of our supplemental savings plan liability.

This level of investment is comparable to the amount invested in 2018.

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.

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Investing activities

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Rowe Price Group totaled $65.3 million in 2020, a decrease of $424.0 million compared with 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.

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

Rowe Price Group totaled $489.3 million in 2019, an increase of $456.4 million compared to 2018.

During 2018, we rebalanced our cash and discretionary investments portfolio resulting in the reallocation of cash and cash equivalents of $1.0 billion to certain T.

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Rowe Price investment products, our seed capital was eliminated in preparing our consolidated statement of cash flows.

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

Rowe Price Group totaled $945.7 million in 2018 , an increase of $911.8 million from the comparable 2017 period.

During 2018 , we rebalanced our cash and discretionary investments portfolio resulting in the reallocation of cash and cash equivalents of $1.0 billion to certain T.

Rowe Price funds.

Excluding these reallocations, net purchases of other discretionary investment products decreased $65.3 million during 2018 compared with 2017 .

These changes in investing cash flows during 2018 compared with 2017 were offset by a $43.1 million decrease in seed capital provided, a $17.6 million decrease in property and equipment expenditures, and a $95.8 million change in other investing activity, primarily relating to the sale of our 10% interest in Daiwa SB Investments Ltd.

during the third quarter of 2018 .

Since we consolidate the seed capital in T.

Rowe Price investment products, our seed capital was eliminated in preparing our consolidated statement of cash flows.

The remaining change in reported cash flows from investing activities was attributable to a $40.4 million decrease in net cash removed from our balance sheet from consolidating and deconsolidating investment products during 2018 compared with the 2017 period.

Financing activities

Net cash used in financing activities attributable to T.

Rowe Price Group were $1,356.4 million in 2019 , a decrease of $353.5 million compared with $1,709.9 million in 2018 .

The decrease in cash used in financing activities was primarily driven by a $384.6 million decrease in the number of common stock repurchases we made in 2019 due to the stronger equity markets.

This decrease was partially offset by a $39.6 million increase in dividends paid in 2019 as a result of an 8.6% increase in our quarterly dividend per share from 2018.

The remaining change in reported cash flows from financing activities is primarily attributable to a $53.3 million increase in net subscriptions received from redeemable noncontrolling interest holders of our consolidated investment products during 2019 compared to 2018 .

Rowe Price Group were $2,043.8 million in 2020 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.

Net cash used in financing activities attributable to T.

Rowe Price Group totaled $1,709.9 million in 2018 compared with $820.1 million in 2017 .

The increase was primarily driven by spending $632.2 million more in common stock repurchases in 2018 as market volatility provided an opportunity to buy back more shares.

Additionally, a nearly 23% increase in our quarterly dividend per share resulted in paying $131.2 million more in dividends in 2018 .

The decline in our stock price in 2018 led to fewer stock options being exercised and a $126.3 million decrease in related cash proceeds compared with the 2017 .

The remaining change in reported cash flows from financing activities was primarily attributable to a $811.2 million decrease in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during 2018 compared with the 2017 period.

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Rowe Price Group totaled $1,356.4 million in 2019, a decrease of $353.3 million compared with $1,709.9 million in 2018.

The decrease in cash used in financing activities was primarily driven by a $384.6 million decrease in the number of common stock repurchases we made in 2019 due to the stronger equity markets.

The decrease was partially offset by a $39.6 million increase in dividends paid in 2019 as a result of an 8.6% increase in our quarterly dividend per share from 2018.

The remaining change in reported cash flows from financing activities was primarily attributable to a $53.3 million increase in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during 2019 compared to 2018.

CONTRACTUAL OBLIGATIONS.

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The information also excludes the $26.7 million of unrecognized tax benefits discussed in Note 9 to our consolidated financial statements because it is not possible to estimate the time period in which a payment might be made to the tax authorities.

Total 2021 2022-2023 2024-2025 Thereafter

(in millions)

Supplemental savings plan liability (1)

$ 772 $ 29 $ 103 $ 151 $ 489

Noncancelable operating leases 168 35 63 58 12

Other purchase commitments (2)

316 223 72 21 —

Total $ 1,256 $ 287 $ 238 $ 230 $ 501

(1) These obligations represent the amount of future expected funding requirements related to our supplemental savings plan.

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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 2019 Annual Report.

We present those significant accounting policies used in the preparation of our consolidated financial statements as an integral part of those statements within this 2020 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.

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Consolidation

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Rowe Price investment products in which we have a controlling interest.

We are generally 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").

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.

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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.

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.

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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.

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our tax rate;

and our expectations regarding financial markets, future transactions, dividends, stock repurchases, investments, capital expenditures, and other conditions.

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

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

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cash inflows and outflows in the U.S.

mutual funds and subadvised and separately managed accounts 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.

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

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

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

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

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

Rowe Price Investment Management as a separate registered investment adviser.

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

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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.

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:

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

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

What changed 10-K

Item 7. Management’s Discussion and Analysis