What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 325 added, 217 removed, 475 unchanged (53% of the section changed)

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and non-discretionary advisory services through model delivery.

Additionally, we also derive revenue from our interests in general partners of certain affiliated private investment funds that are entitled to a disproportionate allocation of income through capital allocation-based arrangements.

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.

We manage a broad range of U.S., international and global stock, bond, money market mutual funds, collective investment trusts and other investment products as well as affiliated private investment funds or private accounts, and collateralized loan obligations, 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.

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We acquired 100% of the equity interests of Oak Hill Advisors, L.P., 100% of the equity interests in entities that make co-investments in certain affiliated private investment funds (the "co-investment entities") and a majority of the equity interests in entities that have interests in general partners of affiliated private investment funds and are entitled to a disproportionate allocation of income (the "carried interest entities").

As of March 31, 2022, OHA had $57 billion of capital under management (which includes net assets value, portfolio value and/or unfunded capital).

As of June 30, 2022, OHA had $57 billion of capital under management (which includes net asset value, portfolio value and/or unfunded capital).

MARKET TRENDS.

Many global equity markets declined in the first quarter of 2022.

In fact, the U.S.

stock market experienced its worst quarter since the pandemic began about two years ago.

Stocks fell as Russia invaded Ukraine in late February, prompting the U.S.

and many other nations, especially in Europe, to respond with broad and damaging economic sanctions targeting a number of key Russian individuals and institutions.

Equities were also hurt by elevated inflation—exacerbated by a sharp increase in commodity prices—as well as the onset of Federal Reserve interest rate increases and expectations for the Federal Reserve to pursue an aggressive pace of monetary tightening.

Developed Asian and Far East markets were mostly lower in U.S.

dollar terms, but Australian stocks bucked the negative trend with a 7% gain, helped by local currency strength versus the U.S.

In Europe, most markets declined in dollar terms, as local losses were exacerbated by a weak euro and British pound.

Equities in energy producer Norway, however, rose more than 10%.

Stocks in Portugal and the UK rose about 2%.

In emerging Asia, markets were mixed in U.S.

dollar terms, but Chinese shares skidded 14%.

Emerging European markets were widely mixed, but Latin American markets produced excellent returns in dollar terms, as the resource-rich region benefited from higher commodity prices.

Gulf Cooperation Council markets in the Middle East were buoyed by higher global oil prices.

stock indexes declined considerably in the second quarter of 2022, adding to first-quarter losses and capping the S&P 500 Index’s worst first half of a calendar year in decades.

As measured by various Russell indexes, growth stocks fared worse than value stocks across all market capitalizations.

Investors continued to shun riskier assets in response to Russia’s invasion of Ukraine, elevated inflation exacerbated by rising commodity prices, and a more aggressive pace of Federal Reserve interest rate increases following its raising of the fed funds target rate in mid-March.

Investors were also concerned about inflation’s impact on consumer spending and corporate profits, particularly as some high-profile companies and major retailers disappointed with their financial results or projections.

Developed European markets fell broadly in U.S.

dollar terms, as the European Central Bank prepared to begin raising short-term interest rates in July.

Stocks in Sweden fared worst, dropping 21%, while shares in the Netherlands and Ireland fell about 19%.

Shares in the UK held up relatively well, falling about 10%, as currency weakness helped support multinational companies with overseas earnings.

Most developed markets in Asia fell sharply, but shares in Hong Kong held up very well, falling only about 1%.

In emerging Asia, several markets fell sharply in dollar terms.

Chinese shares rose, however, helped by an easing of coronavirus lockdown measures in parts of the country.

In emerging Europe, shares in Poland and Hungary plunged 27% and 26%, respectively, hurt by their close proximity to the Russian-Ukrainian conflict.

In Latin America, markets in Chile and Mexico fell about 15%, while stocks in Peru plunged 30%.

Returns of several major equity market indexes were as follows:

Three months ended

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NASDAQ Composite Index (1)

(22.4)% (29.5)%

Russell 2000 Index (17.2)% (23.4)%

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(1) Returns exclude dividends

Global bonds produced mostly negative returns in U.S.

dollar terms, as the U.S.

Federal Reserve began to raise short-term interest rates and Treasury yields—especially short- and intermediate-term yields—rose in anticipation of tighter monetary policy in response to elevated inflation.

Global bond prices declined in the second quarter of 2022, extending first-quarter losses, as interest rates rose in many countries due to elevated inflation.

In the U.S., Treasury yields rose and the Federal Reserve increased official short-term interest rates twice.

The fed funds target rate range at the end of June was 1.50% to 1.75%.

The 10-year U.S.

Treasury note yield rose from 1.52% to 2.32%.

In the taxable investment-grade universe, long-term Treasury and corporate bonds fared worst.

Mortgage-backed and commercial mortgage-backed securities also declined materially.

Asset-backed securities held up best.

Tax-free municipal bonds fared slightly worse than the taxable bond market.

High yield corporate bonds declined due to risk aversion.

Treasury note yield increased from 2.32% to 2.98% during the quarter.

In the taxable investment-grade universe, corporate bonds fared worst as interest rates rose and credit spreads widened amid concerns about the economy and corporate earnings.

Treasury and mortgage-backed securities also declined materially.

Tax-free municipal bonds declined but outperformed the taxable bond market.

High yield bonds performed poorly as credit spreads widened and investors were concerned about weaker corporate earnings and a possible recession.

Bonds in developed non-U.S.

markets produced negative returns in U.S.

dollar terms, as government bond yields in various markets rose amid concerns about inflation and the potential for tighter central bank monetary policies this year.

A stronger U.S.

dollar reduced overseas bond returns in dollar terms.

Emerging markets bonds slumped as investors shunned riskier investments, but local currency issues held up better than dollar-denominated emerging markets debt.

Currencies in several Latin American countries appreciated strongly versus the U.S.

dollar, but many other currencies depreciated.

markets tumbled, as interest rates in many developed countries increased, and losses to U.S.

investors were exacerbated by a stronger U.S.

The British pound and the euro declined approximately 8% and 6%, respectively, versus the dollar.

The Japanese yen fell more than 10%—to levels not seen in more than two decades—as Japanese monetary policy remained stimulative and diverged from the tightening stances adopted by many other central banks.

Emerging markets bonds declined as investors were risk averse and as central banks in emerging countries raised interest rates to fight inflation and defend weakening currencies.

Most emerging markets currencies depreciated versus the dollar.

Returns for several major bond market indexes were as follows:

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ASSETS UNDER MANAGEMENT.

Assets under management ended the first quarter of 2022 at $1,551.8 billion, a decrease of $136.0 billion from December 31, 2021.

The decrease in assets under management was driven by net cash outflows of $5.3 billion and market depreciation, including distributions not reinvested, of $130.7 billion.

Assets under management ended the second quarter of 2022 at $1,309.7 billion, a decrease of $242.1 billion from March 31, 2022 and $378.1 billion from the end of 2021.

The Q2 decrease in assets under management was driven by market depreciation, including net distributions not reinvested, of $227.4 billion and net cash outflows of $14.7 billion.

Clients transferred $2.9 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts and other investment products, of which $1.6 billion transferred into the retirement date trusts.

The following tables detail changes in our assets under management, by vehicle and asset class, during the first quarter of 2022:

Three months ended 3/31/2022

For the six months ended June 30, 2022, the decrease in assets under management was driven by market depreciation, including net distributions not reinvested, of $358.1 billion and net cash outflows of $20.0 billion.

Clients transferred $7.0 billion in net assets from the U.S.

mutual funds primarily to collective investment trusts and other investment products, of which $4.9 billion transferred into the retirement date trusts.

The following tables detail changes in our assets under management, by vehicle and asset class, during the three- and six-month periods ended June 30, 2022:

Three months ended 6/30/2022 Six months ended 6/30/2022

(in billions) U.S.

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

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

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Change during the period (132.3) (65.2) (44.6) (242.1) (214.3) (104.3) (59.5) (378.1)

Assets under management at March 31, 2022 $ 789.4 $ 398.0 $ 364.4 $ 1,551.8

Three months ended 3/31/2022

Assets under management at June 30, 2022 $ 657.1 $ 332.8 $ 319.8 $ 1,309.7 $ 657.1 $ 332.8 $ 319.8 $ 1,309.7

Three months ended 6/30/2022 Six months ended 6/30/2022

(in billions) Equity Fixed income, including money market Multi-asset (2)

Alternatives (3)

Total Equity Fixed income, including money market Multi-asset (2)

Alternatives (3)

Assets under management at beginning of period $ 878.0 $ 175.2 $ 456.4 $ 42.2 $ 1,551.8 $ 992.7 $ 175.7 $ 477.7 $ 41.7 $ 1,687.8

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Change during the period (178.4) (4.1) (60.5) .9 (242.1) (293.1) (4.6) (81.8) 1.4 (378.1)

Assets under management at March 31, 2022 $ 878.0 $ 175.2 $ 456.4 $ 42.2 $ 1,551.8

Assets under management at June 30, 2022 $ 699.6 $ 171.1 $ 395.9 $ 43.1 $ 1,309.7 $ 699.6 $ 171.1 $ 395.9 $ 43.1 $ 1,309.7

(1) Includes fee basis assets under management.

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(4) Includes distributions reinvested and not reinvested.

Investment advisory clients outside the United States account for 9.7% of our assets under management at March 31, 2022 and 9.9% at December 31, 2021.

Investment advisory clients outside the United States account for 9.4% of our assets under management at June 30, 2022, 9.7% at March 31, 2022, and 9.9% at December 31, 2021.

Our target date retirement products, which are included in the multi-asset totals shown above, continue to be a significant part of our assets under management.

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Net cash inflows (outflows)

Assets under management Three months ended

Assets under management Three months ended Six months ended

(in billions) 6/30/2022 3/31/2022 12/31/2021 6/30/2022 6/30/2021 6/30/2022 6/30/2021

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We also offer advice solutions through retail separately managed accounts and separately managed accounts model delivery.

As of March 31, 2022, total assets in these solutions were $466 billion, of which $459 billion are included in our reported assets under management in the tables above.

As of June 30, 2022, total assets in these solutions were $405 billion, of which $398 billion are included in our reported assets under management in the tables above.

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

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

As of March 31, 2022, our assets under administration were $256 billion, of which nearly $153 billion are assets we manage.

As of June 30, 2022, our assets under administration were $216 billion, of which nearly $133 billion are assets we manage.

INVESTMENT PERFORMANCE.

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Our performance disclosures include specific asset classes, assets under management weighted performance, mutual fund performance against passive peers and composite performance against benchmarks.

The following tables present investment performance for the one-, three-, five-, and 10-years ended March 31, 2022.

The following tables present investment performance for the one-, three-, five-, and 10-years ended June 30, 2022.

Past performance is no guarantee of future results.

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All Composites 36% 44% 42% 71%

As of March 31, 2022, 69 of 124 (55.6%) of the firm's rated U.S.

As of June 30, 2022, 69 of 124 (55.6%) of the firm's rated U.S.

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

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In addition, 72% (5) of AUM in the firm's rated U.S.

mutual funds (across primary share classes) ended March 31, 2022 with an overall rating of 4 or 5 stars.

mutual funds (across primary share classes) ended June 30, 2022 with an overall rating of 4 or 5 stars.

(1) The investment performance reflects that of T.

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RESULTS OF OPERATIONS.

The following table and discussion sets forth information regarding our consolidated financial results for the three months ended March 31, 2022 and 2021 on a U.S.

The following table and discussion sets forth information regarding our consolidated financial results for the three and six months ended June 30, 2022 and 2021 on a U.S.

GAAP basis as well as a non-GAAP basis.

The first quarter of 2022 reflects the operating results of OHA which was acquired at the end of 2021.

The 2022 periods reflect the operating results of OHA, which was acquired at the end of 2021.

The non-GAAP basis adjusts for the impact of our consolidated T.

Rowe Price investment products, the impact of market movements on the supplemental savings plan liability and related economic hedges, investment income related to certain other investments, and certain nonrecurring charges and gains, including acquisition-related amortization and costs.

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, acquisition-related amortization and costs, and certain nonrecurring charges and gains.

Three months ended Q2 2022 vs.

(in millions, except per-share data) 3/31/2022 3/31/2021 $ change % change

Q2 2021 Six months ended YTD 2022 vs.

(in millions, except per-share data) 6/30/2022 6/30/2021 $ change % change 6/30/2022 6/30/2021 $ change % change

Investment advisory fees $ 1,496.7 $ 1,787.2 $ (290.5) (16.3) % $ 3,158.8 $ 3,475.0 $ (316.2) (9.1) %

Capital allocation-based income (1)

$ (126.3) $ — $ (126.3) n/m $ (81.9) $ — $ (81.9) n/m

Net revenues $ 1,513.0 $ 1,929.3 $ (416.3) (21.6) % $ 3,376.0 $ 3,756.1 $ (380.1) (10.1) %

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Non-operating income (loss) (1)

$ (198.5) $ 102.1 $ (300.6) n/m

$ (279.9) $ 143.9 $ (423.8) n/m $ (478.4) $ 246.0 $ (724.4) n/m

Net income attributable to

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Non-operating income (loss) (1)

$ (23.8) $ 13.7 $ (37.5) n/m

Net income attributable to T.

$ (30.6) $ 17.8 $ (48.4) n/m $ (54.4) $ 31.5 $ (85.9) n/m

Net income attributable to

Rowe Price $ 417.7 $ 779.0 $ (361.3) (46.4) % $ 1,034.6 $ 1,491.0 $ (456.4) (30.6) %

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Ending assets under management $ 1,309.7 $ 1,623.1 $ (313.4) (19.3) % $ 1,309.7 $ 1,623.1 $ (313.4) (19.3) %

(1) The percentage change in non-operating income (loss) is not meaningful (n/m).

(1) The percentage change is not meaningful (n/m).

(2) See the reconciliation to the comparable U.S.

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

Results Overview - Quarter ended March 31, 2022

Net revenues.

Total net revenues consist of investment advisory revenues;

administrative, distribution, and servicing fees, and capital allocation-based income.

Total net revenues were $1,863.0 million in the first quarter of 2022 compared with $1,826.8 million in the first quarter of 2021.

Approximately 90% of our total net revenues are earned from investment advisory revenues.

Results Overview - Quarter ended June 30, 2022

Net revenues consist of investment advisory revenues;

administrative, distribution, and servicing fees;

and capital allocation-based income.

Total net revenues were $1,513.0 million in the second quarter of 2022 compared with $1,929.3 million in the second quarter of 2021.

Investment advisory fees are generally earned based on the value and composition of our assets under management, which change based on fluctuations in financial markets and net cash flows.

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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.

Operating expenses.

Operating expenses on a GAAP basis were $985.6 million in the first quarter of 2022 compared with $933.6 million in the first quarter of 2021.

Capital allocation income will fluctuate quarter-to-quarter to reflect the adjustment made to accrued carried interest for the change in value of the affiliated funds as if the funds’ underlying investments were realized as of June 30, 2022, regardless of whether the funds’ underlying investments have been realized.

Operating expenses on a U.S.

GAAP basis were $844.4 million in the second quarter of 2022 compared with $971.2 million in the second quarter of 2021.

On a non-GAAP basis, operating expenses were $947.3 million, a 1.7% increase over the comparable 2021 period.

About half of the increase in our non-GAAP operating expenses from the first quarter of 2021 is due to the inclusion of OHA’s operating expenses in the first quarter of 2022 following the acquisition at the end of 2021.

OHA's operating expenses primarily impact compensation expense;

Our non-GAAP operating expenses exclude the impact of the supplemental savings plan, consolidated sponsored products, the remeasurement of the contingent consideration liability, amortization of certain acquisition-related assets, and other acquisition-related costs.

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

Our operating expenses in the second quarter of 2022 include OHA's operating expenses as a result of the acquisition at the end of 2021.

OHA's operating

expenses primarily impact compensation expense;

technology, occupancy, and facility costs;

and general, administrative and other costs.

The remaining increase is primarily attributable to higher costs for technology development and core operations provided by FIS since August 2021 for the firm's full-service recordkeeping offering and higher costs related to the ongoing investment in the firm's technology capabilities.

The costs incurred from the FIS arrangement were partially offset by a reduction in compensation expenses as a result of the approximately 800 associates who transitioned to FIS in August 2021.

The increase in our non-GAAP operating expenses was primarily attributable to higher salaries and benefits, the addition of OHA operating expenses, and higher costs related to the ongoing investment in the firm's technology capabilities.

These increases were mostly offset by lower distribution and servicing costs due to lower average assets under management.

The second quarter of 2022 non-GAAP operating expenses includes compensation-related expenses associated with capital allocation-based income.

Operating margin in the second quarter of 2022 was 44.2%, compared to 49.7% earned in the 2021 quarter.

The decrease in our operating margin for the second quarter of 2022 compared to the 2021 period was primarily driven by larger decreases in net revenues, primarily investment advisory fee revenue, as compared to the decreases in operating expenses, primarily due to the decrease in the supplemental savings plan liability, in the second quarter of 2022.

Further, the impacts of capital allocation-based income and carried interest-related compensation are reflected in the operating margin for the second quarter of 2022.

Diluted earnings per share was $1.46 for the second quarter of 2022 as compared to $3.46 for the second quarter of 2021.

The decrease was primarily driven by lower operating income and by net investment losses recognized in the second quarter of 2022 as compared to net investment gains in the second quarter of 2021, as market performance in the second quarter of 2022 was outpaced by the strong market returns in 2021.

On a non-GAAP basis, diluted earnings per share was $1.79 for the second quarter of 2022 as compared to $3.31 for the second quarter of 2021.

Similar to our U.S.

GAAP diluted earnings, the decrease is largely attributable to lower operating income compared to the 2021 period and net investment losses on our cash investment strategy recognized in the second quarter of 2022 as compared to net investment gains in the second quarter of 2021.

Results Overview - Year-to-Date ended June 30, 2022

Net revenues consist of investment advisory revenues;

administrative, distribution, and servicing fees;

and capital allocation-based income.

Total net revenues were $3,376.0 million in the six months ended June 30, 2022 compared with $3,756.1 million in the six months ended June 30, 2021.

Operating expenses were $1,830.0 million in the six months ended June 30, 2022 compared with $1,904.8 million in the 2021 period.

On a non-GAAP basis, our operating expenses for the six months ended June 30, 2022 increased 7.9% to $1,986.4 million compared to the 2021 period.

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

We updated our forecasted 2022 non-GAAP operating expenses, including a full-year of OHA’s operating expenses, from a range of 12% to 16% to a range of 10% to 14% to reflect lower market-related expenses and a slower pace of net hiring experienced in the quarter.

Our operating expenses for the six months ended June 30, 2022 include OHA's operating expenses as a result of the acquisition at the end of 2021.

OHA's operating expenses primarily impact compensation expense;

technology, occupancy, and facility costs;

and general, administrative and other costs.

The increase in our non-GAAP operating expenses for the six months ended June 30, 2022 compared with the 2021 period was primarily due to higher compensation expenses, including increased salaries and benefits.

The addition of OHA operating expenses and higher technology and facility costs also contributed to the increase.

These increases were partially offset by lower distribution and servicing costs due to lower average assets under management.

We updated our forecasted 2022 non-GAAP operating expenses from a range of 10% to 14% to a range of 4% to 7% to reflect lower market-related expenses and a slower pace of hiring.

The addition of a full-year of OHA's operating expenses, since the acquisition at end of 2021, is driving most of the 2022 forecasted expense growth.

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

Operating margin.

Our operating margin in the first quarter of 2022 was 47.1%, compared to 48.9% earned in the 2021 quarter.

The decrease in our operating margin for the first quarter of 2022 compared to the 2021 period was primarily driven by expense growth outpacing the increase in net revenues in the first quarter of 2022.

Diluted earnings per share.

Our 2022 diluted earnings per share reflects the net income of OHA that was acquired at the end of 2021.

Diluted earnings per share was $2.41 for the first quarter of 2022 as compared to $3.17 for the first quarter of 2021.

The 24.0% decrease was primarily driven by lower operating income and net investment losses recognized in the first quarter of 2022 as compared to net investment gains in the first quarter of 2021, as the strong market returns in 2021 outpaced the market performance in the first quarter of 2022.

On a non-GAAP basis, diluted earnings per share was $2.62 for the first quarter of 2022 as compared to $3.01 for the first quarter of 2021.

Similar to our GAAP diluted earnings, the decrease is largely attributable to lower operating income compared to 2021 period and net investment losses on our seed and discretionary portfolio recognized in the first quarter of 2022 as compared to net investment gains in the first quarter of 2021.

Operating margin in the six months ended June 30, 2022 was 45.8%, compared to 49.3% earned in the 2021 period.

The decrease in our operating margin for the six months ended June 30, 2022 compared to the 2021 period was primarily driven by larger decreases in net revenues, primarily investment advisory fee revenue, as compared to the decreases in operating expenses, primarily the decrease in the supplemental savings plan liability, for the six

months ended June 30, 2022.

Further, the impacts of capital allocation-based income and carried interest-related compensation are reflected in the operating margin for the six months ended June 30, 2022.

Diluted earnings per share was $3.88 for the six months ended June 30, 2022 as compared to $6.63 for the six months ended June 30, 2021.

The 41.5% decrease was primarily driven by net investment losses recognized in the six months ended June 30, 2022 as compared to net investment gains in the six months ended June 30, 2021, as the market performance in the second quarter of 2022 was outpaced by the strong market returns in 2021, and by lower operating income.

On a non-GAAP basis, diluted earnings per share was $4.42 for the six months ended June 30, 2022 as compared to $6.32 for the 2021 period.

The decrease in adjusted diluted earnings per share was primarily due to lower operating income compared to 2021 period and net investment losses on our cash investment strategy recognized in the six months ended June 30, 2022 as compared to net investment gains in the six months ended June 30, 2021.

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

Three months ended Q2 2022 vs.

(in millions) 3/31/2022 3/31/2021 $ change % change

Q2 2021 Six months ended YTD 2022 vs.

(in millions) 6/30/2022 6/30/2021 $ change % change 6/30/2022 6/30/2021 $ change % change

Investment advisory fees

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Capital allocation-based income (1)

44.4 — 44.4 n/m

(126.3) — (126.3) n/m (81.9) — (81.9) n/m

Net revenues $ 1,513.0 $ 1,929.3 $ (416.3) (21.6) % $ 3,376.0 $ 3,756.1 $ (380.1) (10.1) %

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Investment advisory fees.

Investment advisory revenues earned in the first quarter of 2022 decreased over the comparable 2021 quarter despite an increase in average assets under our management of $51.1 billion, or 3.4%, to $1,559.9 billion.

In the first quarter of 2022, we voluntarily waived $9.2 million, or less than 1%, of our investment advisory fees in order to continue to maintain a positive yield for investors.

At March 31, 2022, combined net assets of the investment portfolios in which we waived fees in the first quarter of 2022 were $22.8 billion.

We anticipate that the waivers will decline in the second quarter of 2022 and are expected to cease by the end of the second quarter of 2022.

The total average annualized effective fee rate earned during the first quarter of 2022 was 43.2 basis points, compared with 45.4 basis points earned during the first quarter of 2021 and 43.4 basis points earned during the fourth quarter of 2021.

In comparison to the first quarter of 2021, our annualized effective fee rate declined primarily due to the July 2021 fee reductions in our target-date products and an asset mix shift to lower fee vehicles and asset classes within the complex over the last twelve months.

These fee pressures were partially offset by the higher than average fee rate earned on our alternative asset class.

Investment advisory revenues earned in the first quarter of 2022 from our U.S.

Investment advisory revenues earned in the second quarter of 2022 decreased over the comparable 2021 quarter as average assets under management decreased $178.2 billion, or 11.2%, to $1,407.1 billion.

For the six months ended June 30, 2022, investment advisory revenues decreased over the comparable 2021 period as average assets under management decreased $64.1 billion, or 4.1%, to $1,483.0 billion.

In the second quarter of 2022, we did not waive a significant level of money market investment advisory fees.

For the six months ended June 30, 2022, we voluntarily waived $9.3 million, or less than 1%, of our investment advisory fees.

At June 30, 2022, combined net assets of the investment portfolios in which we waived fees for the six months ended June 30, 2022 were $23.6 billion.

For the six months ended June 30, 2021, we waived money market investment advisory fees of $29.3 million.

The total average annualized effective fee rate earned during the second quarter of 2022 was 42.7 basis points, compared with 45.2 basis points earned during the second quarter of 2021 and 43.2 basis points earned during the first quarter of 2022.

The total average annualized effective fee rate earned during the six months ended June 30, 2022 was 43.0 basis points, compared with 45.3 basis points during the six months ended June 30, 2021.

The total average annualized effective fee rate has declined in comparison to the first quarter of 2022 and the second quarter and year-to-date periods of 2021 due to transfers to lower fee vehicles and an asset class mix shift to lower fee strategies due to market volatility, offset slightly by a reduction in money market fee waivers.

Further, in comparison to second quarter and year-to-date period of 2021, the annualized effective fee rate was also impacted by the July 2021 target date fee reductions, partially offset by a higher-than-average effective fee rate earned on the firm's alternative asset class.

Investment advisory revenues earned in the second quarter of 2022 from our U.S.

mutual funds were $876.2 million, a decrease of 20.2% from the comparable 2021 quarter.

Average assets under management in these funds for the first

quarter of 2022 decreased 2.0% from the 2021 quarter to $798.0 billion.

The annualized effective fee rate of 49.6 basis points for the first quarter of 2022 decreased from 52.3 basis points in the first quarter of 2021 primarily due to the July 2021 fee reductions in our target-date products and an asset mix shift to lower fee vehicles and asset classes within the complex over the last twelve months.

Average assets under management in these funds for the second quarter of 2022 decreased 16.2% from the 2021 quarter to $711.1 billion.

The annualized effective fee rate of 49.4 basis points for the second quarter of 2022 decreased from 51.9 basis points in the second quarter 2021 primarily due to the July 2021 fee reductions in our target-date products and a shift in assets to lower fee asset classes within the complex over the last twelve months.

For the six months ended June 30, 2022, investment advisory revenues earned from the firm's U.S.

mutual funds were $1,852.7 million, a decrease of 13.7% from the 2021 period.

Average assets under management in these funds for the six months ended June 30, 2022 decreased 9.3% from the 2021 period to $754.3 billion.

The annualized effective fee rate of 49.5 basis points for the six months ended June 30, 2022 decreased from 52.1 basis points in the six months ended June 30, 2021, primarily due to the July 2021 fee reductions in our target-date products and a shift in assets to lower fee asset classes within the complex over the last twelve months.

Subadvised funds, separate accounts, collective investment trusts and other investment products (other portfolios)

Investment advisory revenues earned in the first quarter of 2022 from these other portfolios were $685.6 million, an increase of 7.5% from the comparable 2021 quarter.

Average assets under management for these products increased 9.7% from the 2021 quarter to $761.9 billion.

A portion of the increase in these advisory revenues and related average assets under management is due to the acquisition of OHA at the end of 2021.

The annualized effective fee rate of 36.5 basis points for the first quarter of 2022 decreased from 37.2 basis points in the first quarter of 2021.

The decrease is primarily due to the July 2021 fee reductions in our target-date products and an asset mix shift to lower fee vehicles and asset classes within the complex over the last twelve months.

Investment advisory revenues earned in the second quarter of 2022 from these other portfolios were $620.5 million, a decrease of 10.0% from the comparable 2021 quarter.

Average assets under management for these products decreased 5.6% from the 2021 quarter to $696.0 billion.

Investment advisory revenues and average assets under management in Q2 2022 reflect OHA's revenue and related average assets under management.

The annualized effective fee rate of 35.8 basis points for the second quarter of 2022 decreased from 37.5 basis points in the second quarter of 2021.

The decrease was primarily due to the July 2021 fee reductions in our target-date products and a shift in assets to lower fee vehicles and asset classes within the complex over the last twelve months.

These fee pressures were partially offset by the higher-than-average fee rate earned on our alternative asset class.

Administrative, distribution, and servicing fees.

Administrative, distribution, and servicing fees in the first quarter of 2022 were $156.5 million, an increase of $17.5 million, or 12.6%, from the comparable 2021 quarter.

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

Rowe Price mutual funds, higher model delivery revenue, and higher trustee services revenue.

These increases were partially offset by lower 12b-1 revenue earned on the Advisor and R share classes of the U.S.

For the six months ended June 30, 2022, investment advisory revenues earned from subadvised and separate accounts, as well as collective investment trusts and other investment products, were $1,306.1 million, a decrease of 1.6% from the 2021 period.

Average assets under management for these products increased 1.8% from the 2021 period to $728.7 billion.

The annualized effective fee rate of 36.1 basis points for the six months ended June 30, 2022 decreased from 37.4 basis points for the six months ended June 30, 2021.

Our annualized effective fee rate for our other portfolios decreased primarily due to the July 2021 fee reductions in our target-date products and a shift in assets to lower fee vehicles and asset classes within the complex over the last twelve months.

These fee pressures were partially offset by the higher-than-average fee rate earned on our alternative asset class.

Administrative, distribution, and servicing fees in the second quarter of 2022 were $142.6 million, an increase of $.5 million, or .4%, from the comparable 2021 quarter.

For the six months ended June 30, 2022, these fees were $299.1 million, an increase of $18.0 million, or 6.4%, from the 2021 period.

The increase in both periods was primarily due to higher transfer agent servicing activities provided to the T.

Rowe Price mutual funds for retail shareholders and higher trustee services revenue.

These increases were partially offset by lower 12b-1 revenue earned primarily on the Advisor and R share classes of the U.S.

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

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

Capital allocation-based income.

Capital allocation-based income in the first quarter of 2022 was $44.4 million.

This represents $57.6 million of the carried interest we earn from investments in affiliated private investment funds, partially offset by $13.2 million in non-cash amortization associated with the difference in the closing date fair value and carrying value of investments acquired as part of the OHA acquisition.

Capital allocation-based income in the second quarter of 2022 reduced net revenues by $126.3 million.

The second quarter of 2022 amount represents $113.0 million in market-related reductions of accrued carried interest from investments in affiliated private investment funds and $13.3 million in non-cash amortization associated with the difference in the closing date fair value and carrying value of investments acquired as part of the OHA acquisition.

For the six months ended June 30, 2022, capital allocation-based income reduced net revenues by $81.9 million.

The six months ended June 30, 2022 amount represents $55.4 million in market-related reductions of accrued carried interest from investments in affiliated private investment funds and $26.5 million in non-cash amortization associated with the difference in the closing date fair value and carrying value of investments acquired as part of the OHA acquisition.

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

1 unchanged sentence

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

For the first quarter, we eliminated net revenue of $.9 million in 2022 and $1.3 million in 2021.

For the second quarter, we eliminated

net revenue of $.6 million in 2022 and $1.1 million in 2021.

For the six months ended June 30, we eliminated net revenue of $1.5 million in 2022 and $2.4 million in 2021.

Operating expenses

Three months ended Q2 2022 vs.

(in millions) 3/31/2022 3/31/2021 $ change % change

Compensation and related costs, excluding supplemental savings plan $ 632.6 $ 561.3 $ 71.3 12.7 %

Q2 2021 Six months ended YTD 2022 vs.

(in millions) 6/30/2022 6/30/2021 $ change % change 6/30/2022 6/30/2021 $ change % change

Compensation and related costs, excluding acquisition-related retention agreements and supplemental savings plan $ 544.6 $ 566.1 $ (21.5) (3.8) % $ 1,163.6 $ 1,127.4 $ 36.2 3.2 %

Acquisition-related retention agreements 12.3 — 12.3 n/m 25.9 — 25.9 n/m

Supplemental savings plan (1)

(51.0) 22.2 (73.2) n/m

(93.5) 37.7 (131.2) n/m (144.5) 59.9 $ (204.4) n/m

Total compensation and related costs 463.4 603.8 (140.4) (23.3) % 1,045.0 1,187.3 (142.3) (12.0) %

6 unchanged sentences

(1) The impact of the market on the supplemental savings plan liability drives the expense recognized each period.

Compensation and related costs, excluding supplemental savings plan.

Compensation and related costs, excluding supplemental savings plan, were $632.6 million in the first quarter of 2022, an increase of $71.3 million, or 12.7%, compared to the 2021 quarter.

The first quarter of 2022 includes OHA’s compensation and related costs, carried interest-related compensation, and $13.7 million in non-cash amortization of certain acquisition-related retention arrangements.

The firm employed 7,573 associates at March 31, 2022, an increase of .6% from the end of 2021.

Distribution and servicing.

Distribution and servicing costs were $85.9 million for the first quarter of 2022, an increase of .4% from the $85.6 million recognized in the 2021 quarter.

The slight increase was primarily driven by

higher costs incurred to distribute certain products through U.S.

financial intermediaries, as assets under management in these products have increased from prior year, and by higher AUM-based distribution costs in our international products, including our Japanese Investment Trusts (ITMs), and certain SICAV share classes.

These increases were partially offset by lower 12b-1 fees due to lower average assets under management in the U.S.

mutual funds.

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

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

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.

Compensation and related costs, excluding non-cash amortization of certain acquisition-related retention arrangements and supplemental savings plan were $544.6 million in the second quarter of 2022, a decrease of $21.5 million, or 3.8%, compared to the 2021 quarter.

For the six months ended June 30, 2022, these costs were $1,163.6 million, an increase of $36.2 million, or 3.2%, compared to the 2021 period.

Both the second quarter and six months ended June 30, 2022 periods include OHA’s compensation and related costs and carried interest-related compensation.

Further, both the second quarter and six months ended June 30, 2022 periods were impacted by a lower interim bonus accrual and an increase in salaries and benefits.

The firm employed 7,771 associates at June 30, 2022, an increase of 3.2% from the end of 2021.

Distribution and servicing costs were $75.7 million for the second quarter of 2022, a decrease of 18.3% from the $92.7 million recognized in the 2021 quarter.

For the six months ended June 30, 2022, these costs were $161.6 million, a decrease of 9.4% over the $178.3 million recognized in the comparable 2021 period.

The decrease in both periods was primarily driven by lower average assets under management in certain share classes of the U.S.

mutual funds that earn 12(b)-1 fees.

Additionally, lower AUM in our international products, including our Japanese Investment Trusts (ITMs), and certain SICAV share classes contributed to lower distribution costs.

The costs in this expense category primarily include amounts paid to third-party intermediaries that source the assets of certain share classes of our U.S.

mutual funds and our international products, such as our Japanese ITMs and SICAVs.

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 Advisor and R share classes of the U.S.

mutual funds and investment advisory fee revenue for our international products.

Advertising and promotion.

Advertising and promotion costs were $23.4 million in the first quarter of 2022, an increase of $4.5 million, or 23.8%, compared to the $18.9 million recognized in the 2021 quarter.

The increase was driven primarily by increased media spend as well as advertising development costs during the quarter, along with lower spending in 2021 due to the impact of the coronavirus pandemic.

Product and recordkeeping related costs.

Product and recordkeeping costs were $80.4 million in the first quarter of 2022, an increase of $39.4 million, or 96%, compared to the $41.0 million in the 2021 quarter.

Approximately 80% of the increase in the first quarter of 2022 was driven by the recordkeeping costs incurred as part of our expanded FIS relationship that began in August 2021.

Technology, occupancy, and facility costs.

Technology, occupancy, and facility costs were $133.9 million in the first quarter of 2022, an increase of $16.6 million, or 14.2%, compared to the $117.3 million recognized in the 2021 quarter.

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

General, administrative, and other.

General, administrative, and other expenses were $80.4 million in the first quarter of 2022, a decrease of $6.9 million, or 7.9%, compared to the $87.3 million recognized in the 2021 quarter.

Advertising and promotion costs were $21.4 million in the second quarter of 2022, an increase of $1.0 million, or 4.9%, compared to the $20.4 million recognized in the 2021 quarter.

For the six months ended June 30, 2022, these costs were $44.8 million, an increase of $5.5 million, or 14.0%, compared to the 2021 period.

The increase in both periods was driven primarily by an increase in sponsorships and promotion-related costs.

Increased media spend also contributed to the higher advertising and promotion costs for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

Product and recordkeeping related costs were $76.3 million in the second quarter of 2022, an increase of $33.0 million, or 76.2%, compared to the $43.3 million in the 2021 quarter.

For the six months ended June 30, 2022, these costs were $156.7 million, an increase of $72.4 million, or 85.9%, compared to the 2021 period.

Substantially all of

the increase in both the second quarter and year to date 2022 was driven by the recordkeeping costs incurred as part of our expanded relationship with Fidelity National Information Services, Inc.

(“FIS”) that began in August 2021.

The costs incurred from the FIS arrangement were partially offset by a reduction in compensation expenses as a result of the approximately 800 associates who transitioned to FIS in August 2021.

Technology, occupancy, and facility costs were $134.3 million in the second quarter of 2022, an increase of $15.0 million, or 12.6%, compared to the $119.3 million recognized in the 2021 quarter.

For the six months ended June 30, 2022, these costs were $268.2 million, an increase of $31.6 million, or 13.4%, compared to the 2021 period.

The increase in both periods was primarily due to the ongoing investment in our technology capabilities, including hosted solution licenses, depreciation, and increased office facility costs.

General, administrative, and other expenses were $73.3 million in the second quarter of 2022, a decrease of $18.4 million, or 20.1%, compared to the $91.7 million recognized in the 2021 quarter.

The decrease was primarily related to the favorable impact of the change in fair value of the contingent consideration liability of $50.3 million, partially offset by $27.2 million in acquisition-related amortization and other acquisition-related costs.

Higher information services, external research, travel and other nonrecurring administrative costs further offset the decrease in general, administrative and other expenses in the first quarter of 2022 compared to 2021.

Higher travel, information services and other nonrecurring administrative costs further offset the decrease in general, administrative and other expenses in the second quarter of 2022 compared to 2021.

For the six months ended June 30, 2022, these costs were $153.7 million, a decrease of $25.3 million, or 14.1%, compared to the 2021 period.

The decrease was primarily related to the favorable impact of the change in fair value of the contingent consideration liability of $95.8 million and lower legal fees.

This decrease was partially offset by $54.3 million in acquisition-related amortization and other acquisition-related costs as well as higher travel, information services and other nonrecurring administrative costs.

Non-operating income (loss)

Non-operating loss for the first quarter of 2022 was $198.5 million as compared to non-operating income of $102.1 million in the 2021 quarter.

The following table details the components of non-operating income (loss) for both the first quarter ended March 31, 2022 and 2021.

Three months ended

Non-operating loss for the second quarter of 2022 was $279.9 million as compared to non-operating income of $143.9 million in the 2021 quarter.

For the six months ended June 30, 2022, non-operating loss was $478.4 million, a decrease of $724.4 million from non-operating income of $246.0 million in the comparable 2021 period.

The following table details the components of non-operating income (loss) for both the second quarter and six months ended June 30, 2022 and 2021.

Three months ended Six months ended

(in millions) 6/30/2022 6/30/2021 6/30/2022 6/30/2021

17 unchanged sentences

Non-operating income (loss) $ (279.9) $ 143.9 $ (478.4) $ 246.0

The significant investment portfolio gains in the first quarter of 2021 outperformed the investment portfolio losses in the first quarter of 2022 as the Russian invasion of Ukraine, inflation fears and the Federal Reserve interest rate increases weighed on the global economy and markets resulting in lower valuations at the end of the first quarter 2022.

The cash and discretionary investment portfolio also experienced net investment losses of $23.8 million during the first quarter of 2022.

The significant investment portfolio gains in both the second quarter and six months ended June 30, 2021 outperformed the investment portfolio losses in both the second quarter and six months ended June 30, 2022 as the

continued Russian invasion of Ukraine, elevated inflation and a more aggressive pace of the Federal Reserve interest rate increases heavily influenced the global economy and markets resulting in further lower valuations at the end of the second quarter 2022.

The cash and discretionary investment portfolio also experienced net investment losses of $30.6 million during the second quarter of 2022 and $54.4 million during the six months ended June 30, 2022.

The table above includes the net investment income of the underlying portfolios included in the consolidated

2 unchanged sentences

Rowe Price investment products had on the individual lines of our unaudited condensed consolidated statements of income and the portion attributable to our interest:

Three months ended

Three months ended Six months ended

(in millions) 6/30/2022 6/30/2021 6/30/2022 6/30/2021

7 unchanged sentences

Provision for income taxes

The following table reconciles the statutory federal income tax rate to our effective tax rate on a GAAP basis for both the three months ended March 31, 2022 and 2021:

Three months ended

The following table reconciles the statutory federal income tax rate to our effective tax rate on a U.S.

GAAP basis for both the three- and six- months ended June 30, 2022 and 2021:

Three months ended Six months ended

6/30/2022 6/30/2021 6/30/2022 6/30/2021

3 unchanged sentences

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

3.9 3.7 3.5 3.7

Net (income) losses attributable to redeemable non-controlling interests 2.7 (.1) 1.1 (.3)

Net excess tax benefits from stock-based compensation plans activity

(.5) (.6) (.5) (.9)

(1.1) (.5) (.2) (.1)

Effective income tax rate

1 unchanged sentence

(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 GAAP effective tax rate for the first quarter of 2022 was 24.2%, compared with 23.2% in the 2021 quarter.

The increase in the GAAP effective tax rate in 2022 from 2021 was primarily due to net losses attributable to redeemable non-controlling interests held in our consolidated investment products and lower discrete tax benefits associated with the settlement of stock-based awards.

These increases were partially offset by the favorable impacts of the reduction in the effective state tax rate due to the full phase-in of the 2018 Maryland state tax legislation and the remeasurement of the contingent consideration liability with respect to the earnout arrangement with OHA.

GAAP effective tax rate for the second quarter of 2022 was 26.0%, compared with 23.5% in the 2021 quarter.

For the six months ended June 30, 2022, our U.S.

GAAP effective tax rate was 24.9%, compared with 23.4% in the 2021 period.

The increase in the U.S.

GAAP effective tax rate in 2022 from 2021 was primarily due to net losses attributable to redeemable non-controlling interests held in our consolidated investment products and lower discrete tax benefits associated with the settlement of stock-based awards.

The non-GAAP tax rate primarily adjusts for the impact of the consolidated investment products, including the net income attributable to the redeemable non-controlling interests.

Our non-GAAP effective tax rate was 24.2% in the first quarter of 2022 compared with 23.7% in first quarter of 2021.

The increase in the non-GAAP effective tax rate was primarily attributable to lower discrete tax benefits associated with the settlement of stock-based awards compared to the first quarter of 2021.

The non-GAAP effective tax rate for the three months ended March 31, 2022 continues to be favorably impacted by the complete phase-in benefit of the 2018 Maryland state tax legislation.

Our non-GAAP effective tax rate was 23.9% in the second quarter of 2022 compared with 23.4% in second quarter of 2021 and 24.1% for the six months ended June 30, 2022 compared to 23.5% in the 2021 period.

The increase in the non-GAAP effective tax rate was primarily attributable to lower discrete tax benefits associated with the settlement of stock-based awards compared to the

second quarter of 2021.

The non-GAAP effective tax rate for the six months ended June 30, 2022 continues to be favorably impacted by the complete phase-in benefit of the 2018 Maryland state tax legislation.

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 as well as the remeasurement of the contingent consideration liability.

Our GAAP rate will also be impacted by changes in the proportion of net income that is attributable to our redeemable non-controlling interests and non-controlling interests reflected in permanent equity.

We currently estimate that our effective tax rate for the full year 2022, on a GAAP basis, will be in the range of 22.0% to 25.0%.

GAAP rate will also be impacted by changes in the proportion of net income that is attributable to our redeemable non-controlling interests and non-controlling interests reflected in permanent equity.

We currently estimate that our effective tax rate for the full year 2022, on a U.S.

GAAP basis, will be in the range of 23% to 26%.

On a non-GAAP basis, the range is 23% to 25%.

6 unchanged sentences

GAAP financial measures for the three months ended

March 31, 2022 and 2021.

June 30, 2022 and 2021.

Three months ended 6/30/2022

Operating expenses

Net operating income Non-operating income (loss)

Provision (benefit) for income taxes (6)

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (6)

Net income attributable to T.

Rowe Price Diluted earnings per share (7)

GAAP Basis (FS line item) $ 844.4 $ 668.6 $ (279.9) $ 100.9 $ 339.6 $ 1.46

Non-GAAP adjustments:

Acquisition-related non-GAAP adjustments:

Investment amortization (1) (Net Revenues)

— 13.3 — 3.5 9.8 .04

Compensation arrangements amortization (1) (Compensation and related costs)

(12.3) 12.3 — 3.2 9.1 .04

Contingent consideration (1) (General, admin and other)

50.3 (50.3) — (13.7) (36.6) (.16)

Intangible assets amortization (1) (General, admin and other)

(27.2) 27.2 — 7.2 20.0 .09

Transaction costs (2) (general, admin and other)

(.1) .1 — — .1 —

Total acquisition-related non-GAAP adjustments 10.7 2.6 — .2 2.4 .01

Supplemental savings plan liability (3) (Compensation and related costs)

93.5 (93.5) 96.4 0.6 2.3 .01

Consolidated T.

investment products (4)

(1.3) 2.0 104.6 14.8 40.0 .17

Other non-operating income (5)

— — 48.3 14.9 33.4 .14

Adjusted Non-GAAP Basis $ 947.3 $ 579.7 $ (30.6) $ 131.4 $ 417.7 $ 1.79

Three months ended 6/30/2021

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (6)

Net income attributable to T.

Rowe Price Diluted earnings per share (7)

GAAP Basis (FS line item) $ 971.2 $ 958.1 $ 143.9 $ 259.3 $ 815.7 $ 3.46

Non-GAAP adjustments:

Supplemental savings plan liability (3) (Compensation and related costs)

(37.7) 37.7 (37.1) .2 .4 —

Consolidated T.

1 unchanged sentence

(1.7) 2.8 (55.5) (9.6) (16.1) (.09)

Supplemental savings plan liability (2)

Other non-operating income (5)

— — (33.5) (12.5) (21.0) (.06)

Acquisition-related transaction costs (3)

Adjusted Non-GAAP Basis $ 931.8 $ 998.6 $ 17.8 $ 237.4 $ 779.0 $ 3.31

The following schedules reconcile certain U.S.

GAAP financial measures for the six months ended June 30, 2022 and 2021.

Six months ended 6/30/2022

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (6)

Net income attributable to T.

Rowe Price Diluted earnings per share (7)

GAAP Basis $ 1,830.0 $ 1,546.0 $ (478.4) $ 265.4 $ 907.5 $ 3.88

Non-GAAP adjustments:

Acquisition-related non-GAAP adjustments:

Investment amortization (1) (Net Revenues)

— 26.5 — 8.8 17.7 .08

Acquisition-related contingent consideration (4)

Compensation arrangements amortization (1) (Compensation and related costs)

(25.9) 25.9 — 8.6 17.3 .08

Acquisition-related compensation arrangements (4)

Contingent consideration (1) (General, admin and other)

95.8 (95.8) — (31.9) (63.9) (.28)

Acquisition-related amortization - investments and intangible assets (4)

Intangible assets amortization (1) (General, admin and other)

(54.3) 54.3 — 18.0 36.3 .16

Transaction costs (2) (general, admin and other)

(.8) .8 — .3 .5 —

Total acquisition-related non-GAAP adjustments 14.8 11.7 — 3.8 7.9 .04

Supplemental savings plan liability (3) (Compensation and related costs)

144.5 (144.5) 151.7 2.4 4.8 .02

Consolidated T.

investment products (4)

(2.9) 4.5 206.0 35.0 70.2 .30

Other non-operating income (5)

1 unchanged sentence

Adjusted Non-GAAP Basis $ 1,986.4 $ 1,417.7 $ (54.4) $ 328.7 $ 1,034.6 $ 4.42

$ 1,039.1 $ 838.0 $ (23.8) $ 197.3 $ 616.9 $ 2.62

Three months ended 3/31/2021

Operating expenses

Net operating income Non-operating income (loss)

Provision (benefit) for income taxes (6)

Six months ended 6/30/2021

Operating expenses Net operating income Non-operating income (loss) Provision (benefit) for income taxes (6)

Net income attributable to T.

2 unchanged sentences

Non-GAAP adjustments:

Supplemental savings plan liability (3) (Compensation and related costs)

(59.9) 59.9 (59.2) .2 .5 —

Consolidated T.

1 unchanged sentence

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

Supplemental savings plan liability (2)

(22.2) 22.2 (22.1) — .1 —

Other non-operating income (5)

1 unchanged sentence

Adjusted Non-GAAP Basis $ 1,841.0 $ 1,917.5 $ 31.5 $ 458.0 $ 1,491.0 $ 6.32

(1) These non-GAAP adjustments remove the impact of acquisition-related amortization and costs including amortization of intangible assets, the recurring fair value remeasurements of the contingent consideration liability, amortization of acquired investment and non-controlling interest basis differences and amortization of compensation-related arrangements.

Management believes adjusting for these charges helps the reader's ability to understand our core operating results and to increase comparability period to period.

(2) This non-GAAP adjustment removes the transactions costs incurred related to the acquisition of OHA.

Management believes adjusting for these charges helps the reader's ability to understand our core operating results and to increase comparability period to period.

(3) This non-GAAP adjustment removes the compensation expense impact from market valuation changes in the supplemental savings plan liability and the related net gains (losses) on investments designated as an economic hedge against the related liability.

Amounts deferred under the supplemental savings plan are adjusted for appreciation (depreciation) of hypothetical investments chosen by participants.

Rowe Price investment products to economically hedge the exposure to these market movements.

Management believes it is useful to offset the non-operating investment income (loss) realized on the economic hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

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

1 unchanged sentence

GAAP consolidated statements of income.

Specifically, we add back the operating expenses and subtract the investment income of the consolidated T.

Specifically, we add back the operating expenses and subtracts the investment income of the consolidated T.

Rowe Price investment products.

The adjustment to our operating expenses represents the operating expenses of the consolidated products, net of the elimination of related management and administrative fees.

The adjustment to operating expenses represents the operating expenses of the consolidated products, net of the elimination of related management and administrative fees.

The adjustment to net income attributable to T.

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

We remove the impact of the consolidated T.

Rowe Price investment products as we believe they impact the reader’s ability to understand our core operating results.

(2) These non-GAAP adjustments remove the compensation expense impact from market valuation changes in the supplemental savings plan liability and the related net gains (losses) on investments designated as an economic hedge against the related liability.

Amounts deferred under the supplemental savings plan are adjusted for appreciation (depreciation) of hypothetical investments chosen by participants.

Rowe Price investment products to economically hedge the exposure to these market movements.

We believe it is useful to offset the non-operating investment income (loss) realized on the economic hedges against the related compensation expense and remove the net impact to help the reader's ability to understand our core operating results and to increase comparability period to period.

(3) This non-GAAP adjustment removes the transactions costs incurred related to the acquisition of OHA.

Management believes adjusting for these charges help the reader's ability to understand the firm's core operating results and to increase comparability period to period.

(4) These non-GAAP adjustments remove the impact of acquisition-related amortization and costs including amortization of intangible assets, the recurring fair value remeasurements of the contingent consideration liability, amortization of acquired investment and non-controlling interest basis differences and amortization of compensation-related arrangements.

Management believes adjusting for these charges helps the reader's ability to understand the firm's core operating results and to increase comparability period to period.

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

We retain the investment gains recognized on our non-consolidated cash and discretionary investments as these assets and related income (loss) are considered part of our core operations.

We believe adjusting for these non-operating income (loss) items helps the reader’s ability to understand our core operating results and increases comparability to prior years.

Additionally, we do not emphasize the impact of the portion of non-operating income (loss) removed when managing and evaluating our core performance.

(6) The income tax impacts were calculated in order to achieve an overall non-GAAP effective tax rate for the three months ended March 31, 2022 and 2021 of 24.2% and 23.7%, re spectively.

The firm estimates that its effective tax rate for the full-year 2022 on a non-GAAP basis will be in the range of 23.0% to 25.0%.

Management believes the consolidated T.

Rowe Price investment products may impact the reader’s ability to understand our core operating results.

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

Management retains the investment gains recognized on the non-consolidated cash and discretionary investments as these assets and related income (loss) are considered part of our core operations.

Management believes adjusting for these non-operating income (loss) items helps the reader’s ability to understand our core operating results and increases comparability to prior years.

Additionally, management does not emphasize the impact of the portion of non-operating income (loss) removed when managing and evaluating our performance.

(6) The income tax impacts were calculated in order to achieve an overall year-to-date non-GAAP effective tax rate of 24.1% for 2022 and 23.5% for 2021.

As such, the non-GAAP effective tax rate for three months ended June 30, 2022 and 2021 was 23.9% and 23.4%, respectively.

We estimate that our effective tax rate for the full-year 2022 on a non-GAAP basis will be in the range of 23% to 25%.

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

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

Three months ended

Three months ended Six months ended

6/30/2022 6/30/2021 6/30/2022 6/30/2021

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

Cash and discretionary investments experienced market losses of $23.8 million in the three months ended March 31, 2022 compared to investment gains of $13.7 million in the 2021 quarter.

Our subsidiaries outside the United States hold cash and discretionary investments of $869.1 million at March 31, 2022 and $764.2 million at December 31, 2021.

Cash and discretionary investments experienced market losses of $30.6 million and $54.4 million in the three- and six- months ended June 30, 2022 compared to investment gains of $17.8 million and $31.5 million in the three- and six- months ended June 30, 2021.

Our subsidiaries outside the United States hold cash and discretionary investments of $923.8 million at June 30, 2022 and $764.2 million at December 31, 2021.

Given the availability of our financial resources and cash expected to be generated through future operations, we do not maintain an available external source of additional liquidity.

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The following table details how T.

interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of March 31, 2022.

(in millions)

Cash and cash equivalents

Net assets of consolidated T.

Rowe Price’s interests in cash and investments relate to where they are presented on the unaudited condensed consolidated balance sheet as of June 30, 2022.

(in millions) Cash and cash equivalents Investments Net assets of consolidated T.

Rowe Price investment products (1)

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Redeemable non-controlling interests — — 564.6 564.6

As reported on unaudited condensed consolidated balance sheet at March 31, 2022 $ 1,997.5 $ 2,879.3 $ 1,602.3 $ 6,479.1

As reported on unaudited condensed consolidated balance sheet at June 30, 2022 $ 2,116.0 $ 2,563.7 $ 1,264.1 $ 5,943.8

(1) The consolidated T.

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

The $73.9 million and the $738.0 million represent the total value at March 31, 2022 of our interest in the consolidated T.

The $34.1 million and the $665.4 million represent the total value at June 30, 2022 of our interest in the consolidated T.

Rowe Price investment products.

The total net assets of the T.

Rowe Price investment products at March 31, 2022 of $1,602.3 million includes assets of $1,658.2 million, less liabilities of $55.9 million as reflected in our unaudited condensed consolidated balance sheets.

Rowe Price investment products at June 30, 2022 of $1,264.1 million includes assets of $1,307.2 million, less liabilities of $43.1 million as reflected in our unaudited condensed consolidated balance sheets.

(2) Includes $208.8 million of non-controlling interests in consolidated entities and represents the portion of these investments, held by third parties, that we cannot sell in order to obtain cash for general operations.

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We increased our quarterly recurring dividend per common share in February 2022 by 11.1% to $1.20 per common share from $1.08 per common share.

Further, we expended $320.1 million in the first quarter of 2022 to repurchase 2.1 million shares, or .9% of our outstanding common stock, at an average price of $151.97 per share.

Further, we expended $519.6 million in the first half of 2022 to repurchase 3.8 million shares, or 1.6% of our outstanding common stock, at an average price of $137.92 per share.

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

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

Since the end of 2019, we have returned $5.5 billion to stockholders through stock repurchases, regular quarterly dividends, and a special dividend, as follows:

Since the end of 2019, we have returned nearly $6.0 billion to stockholders through stock repurchases, regular quarterly dividends, and a special dividend, as follows:

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

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2021 1,003.7 699.8 1,136.0 2,839.5

Three months ended 3/31/2022 279.2 — 320.1 599.3

Six months ended 6/30/2022 556.4 — 519.5 1,075.9

Total $ 2,406.1 $ 699.8 $ 2,847.7 $ 5,953.6

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

The following table summarizes the cash flows for the three months ended March 31, 2022 and 2021, that are attributable to T.

The following table summarizes the cash flows for the six months ended June 30, 2022 and 2021, that are attributable to T.

Rowe Price, our consolidated T.

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

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Operating activities attributable to T.

Rowe Price during the first quarter of 2022 provided cash flows of $1,018.2 million as compared to $1,138.6 million during the first quarter of 2021.

Rowe Price during the first half of 2022 provided cash flows of $1,659.8 million as compared to $2,025.2 million during the first half of 2021.

Operating cash flows attributable to T.

Rowe Price decreased $120.4 million, including a $181.5 million decrease in net income from the first quarter of 2021 and timing differences primarily on the cash settlement of our assets and liabilities of $109.5 million.

These decreases were partially offset by $186.5 million in lower non-cash adjustments, including unrealized investment gains/losses, depreciation, amortization of acquisition-related assets and retention arrangements, the fair value remeasurement of the contingent consideration liability, stock-based compensation expense, and other noncash items.

The non-cash adjustments were primarily driven by $88.7 million in net investment losses in the first quarter of 2022 compared with $77.8 million in net investment gains in the first quarter of 2021.

Rowe Price decreased $365.4 million, including a $657.6 million decrease in net income from the first half of 2021 and a decrease in timing differences primarily on the cash settlement of our assets and liabilities of $348.3 million.

These decreases were partially offset by $658.5 million in higher non-cash adjustments, including unrealized investment gains/losses, depreciation, amortization of acquisition-related assets and retention arrangements, the fair value remeasurement of the contingent consideration liability, stock-based compensation expense, and other noncash items.

The non-cash adjustments were primarily driven by $443.9 million in net investment losses in the first half of 2022 compared with $184.9 million in net investment gains in the first half of 2021.

Additionally, in 2022, we had net proceeds of $3.9 million from certain investment products that economically hedge our supplemental savings plan liability compared to net proceeds of $21.9 million in the same period of 2021.

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Investing Activities

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

Rowe Price totaled $44.4 million in the first quarter of 2022 compared with $30.4 million of cash provided by investing activities in the 2021 period.

we increased the cash provided by investing activities with higher net proceeds from the sale of certain of our discretionary investments of $58.9 million compared to net proceeds of $47.8 million during 2021.

Partially offsetting these increases were decreased property, equipment and software expenditures of $3.9 million.

We also decreased the level of seed capital provided by $.8 million.

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

Rowe Price totaled $1.6 million in the first half of 2022 compared with $129.8 million of cash provided by investing activities in the 2021 period.

During 2022, net proceeds from the sale of certain of our discretionary investments of $110.2 million were lower compared to $160.1 million during 2021.

We also increased the level of seed capital provided to the T.

Rowe Price consolidated investment products by $69.3 million.

We eliminate our seed capital in those T.

Rowe Price investment products we consolidate in preparing our unaudited condensed consolidated statement of cash flows.

Partially offsetting these decreases were increased property, equipment and software expenditures of $1.0 million.

The remaining $30.7 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.

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Net cash used in financing activities attributable to T.

Rowe Price were $588.2 million in the first quarter of 2022 compared with $490.6 million in the 2021 period.

During the first quarter of 2022, we used $320.1 million to repurchase 2.1 million shares compared to $259.2 million to repurchase 1.6 million shares in the first quarter of 2021.

During the first quarter of 2022, there was a $26.9 million increase in dividends paid in 2022 as a result of the 11.1% increase in our quarterly dividend per share.

Partially offsetting these increases in net cash used in financing activities were $6.0 million in net contributions from non-controlling interests in consolidated entities.

The remaining change in reported cash flows from financing activities is primarily attributable to $55.9 million in net redemptions from redeemable non-controlling interest holders of our consolidated investment products during the first quarter of 2022 as compared to $183.1 million in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first quarter of 2021.

Rowe Price were $1,065.3 million in the first half of 2022 compared with $791.8 million in the 2021 period.

During the first half of 2022, we used $519.6 million to repurchase 3.8 million shares compared to $308.9 million to repurchase 1.9 million shares in the first half of 2021.

During the first half of 2022, there was a $51.1 million increase in dividends paid in 2022 as a result of the 11.1% increase in our quarterly dividend per share.

In addition, $6.5 million in net distributions to non-controlling interests in consolidated entities increased net cash used in financing activities.

The remaining change in reported cash flows from financing activities is primarily attributable to $65.7 million in net redemptions from redeemable non-controlling interest holders of our consolidated investment products during the first half of 2022 as compared to $299.1 million in net subscriptions received from redeemable non-controlling interest holders of our consolidated investment products during the first half of 2021.

CRITICAL ACCOUNTING POLICIES.

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the ability to maintain our investment management and administrative fees at appropriate levels;

the impact of changes in interest rates and inflation;

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

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Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in the total potential loss information provided in Item 7A of the Form 10-K Annual Report for 2021.

There has been no material change in our market risks from those provided in Item 7A of the Form 10-K Annual Report for 2021.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis