PRICE T ROWE GROUP INC (TROW)

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

OVERVIEW.

Our revenues and net income are derived primarily from investment advisory services provided globally to individual and institutional investors in a broad range of investment solutions across equity, fixed income, multi-asset, and alternatives capabilities. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; trust services; and other advisory services.

Investment advisory fees depend largely on the total value and composition of our assets under management. Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations.

We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new clients and additional investments from our existing clients. These efforts often involve costs that precede any future revenues we may recognize from an increase to our assets under management.

The investment management industry is evolving, facing challenging trends such as passive strategies taking market share from traditional active strategies; continued downward fee pressure; demand for new investment vehicles to meet client needs; and an ever-changing regulatory landscape. In this regard, we have ample liquidity and resources that allow us to take advantage of attractive growth opportunities. Furthermore, we developed a broad and ongoing plan to align our expense growth with anticipated revenue growth. As a result, we have taken actions to reduce expense growth, realign resources, and invest in existing and future capabilities, while also helping to offset ongoing inflationary pressures on compensation and contractual spending. These investments include hiring investment and distribution professionals, adopting new technologies, and offering new products to provide our clients with strong investment management expertise and services.

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MARKET TRENDS.

Global equity markets generated strong gains during the second quarter of 2026, recovering sharply from first-quarter volatility as geopolitical tensions eased, corporate earnings remained resilient, and investor enthusiasm surrounding AI and semiconductor-related companies continued to support risk assets. The quarter began with a broad rally after a series of Middle East ceasefire agreements reduced concerns about global energy and shipping disruptions, and oil prices declined from earlier highs as diplomatic progress continued through June.

U.S. equities advanced broadly, although market leadership varied by capitalization, investment style, and sector. Small-cap shares outperformed mid- and large-cap shares, and growth stocks outperformed value stocks across market capitalizations. Within the S&P 500 Index, information technology led sector gains, while industrials and business services, consumer discretionary, financials, health care, real estate, and communication services advanced but generally lagged the broader index. Energy declined sharply, and utilities recorded a slight loss.

International equity markets produced strong gains during the second quarter of 2026 despite periods of volatility related to geopolitical developments, trade negotiations, and evolving monetary policy expectations. Developed markets benefited from improving Middle East conditions, declining energy prices, stronger investor risk appetite, and continued enthusiasm surrounding AI and semiconductor-related companies. Emerging market equities also generated robust returns, supported by renewed capital flows into higher-risk markets and lower oil prices, which particularly benefited many energy-importing economies. Performance varied across regions, with Taiwan benefiting from continued semiconductor demand, Chinese equities supported by stronger-than-expected economic growth, targeted policy measures, and investor sentiment improving following the summit in Beijing despite the absence of a comprehensive trade agreement.

Returns of several major equity market indexes were as follows:

(1) Returns exclude dividends

Global fixed income markets generated positive returns during the second quarter of 2026, although performance was volatile as investors weighed improving geopolitical conditions against persistent inflation pressures and a shifting monetary policy outlook. Easing tensions in the Middle East, lower oil prices, and several cooler-than-expected inflation readings supported bond prices early in the quarter, while subsequent moves in oil prices, stronger economic data, and evolving Federal Reserve communication periodically reshaped expectations for monetary policy.

The Federal Reserve maintained the federal funds target range at 3.50% to 3.75% at both its April and June meetings. Policy messaging evolved during the quarter including eliminating forward guidance language and announcing a review of the Federal Reserve’s policy framework and communications practices.

In the U.S. investment-grade bond universe, sector performance was positive in absolute terms. Corporate bonds performed best, followed by asset-backed securities, with non-agency commercial mortgage-backed securities, mortgage-backed securities, and U.S. Treasuries also recording gains. The U.S. dollar ultimately strengthened after a weak April as persistent inflation, more hawkish Federal Reserve communications, and residual geopolitical uncertainty supported renewed demand for the dollar.

International and emerging market bonds also produced positive second-quarter returns. Developed market sovereign yields moved unevenly as initial optimism surrounding the Middle East ceasefire later gave way to renewed inflation and monetary policy concerns before stabilizing as energy prices declined. Emerging market bonds advanced across both hard currency and local currency sectors, supported by improving geopolitical conditions, tighter sovereign credit spreads, and resilient demand for risk assets, though local currency gains moderated late in the quarter as the U.S. dollar strengthened.

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Returns of several major bond market indexes were as follows:

ASSETS UNDER MANAGEMENT.(1)

Assets under management ended the second quarter of 2026 at $1,893.4 billion, an increase of $183.7 billion from March 31, 2026. The increase was driven by market appreciation, net of distributions not reinvested, of $190.2 billion, offset by net cash outflows of $6.5 billion.

For the six months ended June 30, 2026, the increase in assets under management was primarily driven by market appreciation, net of distributions not reinvested, of $138.0 billion, offset by net cash outflows of $20.2 billion.

The following table details changes in our assets under management, by asset class, during the three- and six-month periods ended June 30, 2026:

(1) Includes fee earning assets in which T. Rowe Price and its affiliates have full discretionary authority along with managed account - model delivery assets.

(2)    The underlying assets under management of the multi-asset portfolios have been aggregated and presented in this category and not reported in the equity and fixed income columns.

(3) The alternatives asset class includes strategies authorized to invest more than 50% of its holdings in private credit, leveraged loans, mezzanine, real assets/CRE, structured products, stressed / distressed, non-investment grade CLOs, special situations, private equity, or have absolute return as its investment objective. Generally, only those strategies with longer than daily liquidity are included. Unfunded capital commitments were $21.0 billion at June 30, 2026, $20.9 billion at March 31, 2026, and $21.6 billion at December 31, 2025, and are not reflected in fee basis AUM above.

(4) Includes net distributions not reinvested for the three- and six-month periods ended June 30, 2026 of $0.6 billion and $1.2 billion, respectively.

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Investors domiciled outside the United States account for 9.1% of our assets under management at June 30, 2026, 8.6% at March 31, 2026, and 8.8% at December 31, 2025.

Assets under management in our target date retirement products, which are included in the multi-asset totals shown above, were $622.0 billion at June 30, 2026, $561.3 billion at March 31, 2026, and $561.4 billion at December 31, 2025. Net flows into these portfolios were $1.7 billion and $6.6 billion in the three- and six-month periods ended June 30, 2026, respectively.

Our multi-asset investment division provides advisory solutions that include investment insights, strategic asset allocation design, tactical asset allocation recommendations, and portfolio rebalancing services. The assets in these solutions, predominantly in the United States, were $31.1 billion at June 30, 2026 and $27.8 billion at March 31, 2026.

We provide participant accounting and plan administration for defined contribution retirement plans that primarily invest in our U.S. mutual funds, collective investment trusts and funds managed outside of our co

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

OVERVIEW.

Our revenues and net income are derived primarily from investment advisory services provided globally to individual and institutional investors in a broad range of investment solutions across equity, fixed income, multi-asset, and alternatives capabilities. We also provide certain investment advisory clients with related administrative services, including distribution, mutual fund transfer agent, accounting, and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; brokerage; trust services; and other advisory services.

Investment advisory fees depend largely on the total value and composition of our assets under management. Accordingly, fluctuations in financial markets and in the composition of assets under management affect our revenues and results of operations.

We incur significant expenditures to develop new products and services and improve and expand our capabilities and distribution channels in order to attract new clients and additional investments from our existing clients. These efforts often involve costs that precede any future revenues we may recognize from an increase to our assets under management.

The investment management industry continues to evolve and face challenging trends, including the shift in market share from traditional active strategies to passive products, persistent downward fee pressure, demand for lower cost investment vehicles, and an ever-changing regulatory landscape. In this environment, we maintain ample liquidity and resources that allow us to take advantage of attractive growth opportunities and deliver new capabilities that meet the evolving needs of our clients globally. At the same time, we have developed a broad and ongoing plan to further align our expense growth with our anticipated revenue growth, which will allow us to realign resources and continue investing in existing and future capabilities.

In 2025, we took several steps to execute on this plan, including targeted role eliminations, outsourcing and expanding some of our technology capabilities through trusted vendor partnerships, and the decision to exit certain owned buildings with plans to dispose of the properties in 2026.

The impact of these actions has been recorded as a restructuring charge in the consolidated statements of income and is discussed later in Item 7. and Item 8. These measures also help offset ongoing inflationary pressures on compensation and contractual spending. Our strategic investments include hiring investment and distribution professionals, adopting new technologies, offering new products, and growing and diversifying our business through innovative global partnerships.

MARKET TRENDS.

Major U.S. stock market indices rose in 2025. After a challenging start to 2025 stemming from new U.S. tariff and trade policies, equities advanced starting in April, as the U.S. and China made efforts to improve their trade relationship, economic growth and corporate earnings remained favorable, investors favored artificial intelligence-related businesses and other high-growth companies, and Congress passed tax legislation that should provide some fiscal stimulus to the economy. In addition, signs of a weakening labor market in the latter part of the year prompted the Federal Reserve to reduce short-term interest rates, despite continued elevated inflation. The central bank lowered rates in September, October, and December.

Developed non-U.S. equity markets outperformed U.S. stocks in U.S. dollar terms, helped by a weaker dollar versus major non-U.S. currencies. In Europe, equity markets were mostly positive in dollar terms. Stocks in Spain and Austria fared best, surging 80%, while equities in Finland, Ireland, and Italy advanced close to 60%. UK stocks rose 35%. Developed Asian markets were also mostly positive with stocks in Hong Kong climbing 35% and Japanese stocks rising 25%.

Stocks in emerging markets outperformed equities in developed markets in U.S. dollar terms. In the emerging Asian, Latin American, and the emerging Europe, Middle East, and Africa (EMEA) regions, markets were mostly positive.

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Returns of several major equity market indexes for 2025 are as follows:

(1) Returns exclude dividends

Global bond returns were positive in 2025. In the U.S., Treasury bill yields, which tend to track the federal funds target rate, declined about 70 basis points (0.70%) for the year, as the Federal Reserve reduced the federal funds target rate by 25 basis points (0.25%) three times in the final months of the year. At the end of the year, the federal funds target rate was in the 3.50% to 3.75% range. Short- and intermediate-term U.S. Treasury yields had a comparable decline, but the 10-year U.S. Treasury note yield fell 40 basis points (0.40%), from 4.58% to 4.18%. The 30-year U.S. Treasury bond yield rose modestly for the year.

In the U.S. investment-grade bond universe, mortgage-backed securities performed best, but corporate bonds and non-agency commercial mortgage-backed securities also did well. Treasuries and asset-backed securities slightly lagged. Tax-free municipal bonds underperformed taxable bonds, but high yield corporates outperformed the investment-grade bond market.

Bonds in developed non-U.S. markets produced positive returns in U.S. dollar terms, helped by a weaker dollar versus major non-U.S. currencies. In the eurozone, longer-term bond yields increased in many countries, though policymakers for the European Central Bank reduced short-term interest rates four times in the first half of 2025. In the UK, longer-term bond yields fell slightly for the year, as the Bank of England reduced the Bank Rate by 25 basis points (0.25%) four times in 2025. The euro strengthened more than 13% versus the U.S. dollar, while the British pound rose more than 7%. In Japan, long-term government bond yields climbed as the Bank of Japan raised its benchmark interest rate to 0.50% in January and to 0.75% in December. Bond yields were also pressured higher by late-year concerns that new Prime Minister Sanae Takaichi will pursue aggressive fiscal stimulus funded by debt issuance. The yen rose marginally versus the dollar.

Emerging markets bonds produced strong positive returns in U.S. dollar terms. Bonds denominated in local currencies generally outperformed dollar-denominated bonds, as many emerging markets currencies appreciated versus the dollar, boosting returns to U.S. investors.

Returns of several major bond market indexes for 2025 are as follows:

ASSETS UNDER MANAGEMENT.(1)

Assets under management ended 2025 at $1,775.6 billion, an increase of $169.0 billion from the end of 2024. This increase was driven by net market appreciation and income, net of distributions not reinvested, of $216.7 billion, offset by net cash outflows of $56.9 billion. Beginning on July 1, 2025, assets under management include managed account - model delivery portfolios assets, which had $9.2 billion in assets as of that date, and are reflected in the increase from December 31, 2024.

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

(1) Includes assets in which T. Rowe Price and its affiliates have full discretionary authority and, beginning in 2025, managed account - model delivery assets.

(2) The underlying assets under management of the multi-asset products have been aggregated and presented in this category and not reported in the equity and fixed income columns.

(3) The alternatives asset class includes strategies authorized to invest more than 50% of its holdings in private credit, leveraged loans, mezzanine, real assets/CRE, structured products, stressed/distressed, non-investment grade CLOs, special situations, business development companies, or that have absolute return as its investment objective. Generally, only those strategies with longer than daily liquidity are included. Unfunded capital commitments were $21.6 billion at December 31, 2025, $16.2 billion at December 31, 2024, and $11.6 billion at December 31, 2023, and are not reflected in fee basis AUM above.

(4) Includes net distributions not reinvested of $6.8 billion in 2025, $5.9 billion in 2024, and $2.9 billion in 2023.

(5) Amount represents the net assets as of July 1, 2025 and all activity for the second half of 2025 is presented in the lines that follow.

Investment advisory clients outside the United States account for 8.8% of our assets under management at December 31, 2025 and December 31, 2024 and 8.6% at December 31, 2023.

The following table details our assets under management and net flows in our target date retirement products, which are included in the multi-a

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