We believe skilled active management, underpinned by in-depth research, can create value for clients over the longer term.

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Darrell Lawson
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1 Consistency and discipline create opportunities. THE T. ROWE PRICE APPROACH TO ACTIVE MANAGEMENT. We believe skilled active management, underpinned by in-depth research, can create value for clients over the longer term. T. Rowe Price reviewed its 18 diversified active U.S. equity mutual funds over 20 years or since inception for newer funds. A majority of funds generated positive excess returns, net of fees, over their benchmarks across multiple time periods. Both the frequency of outperformance and the margin of excess return generally increased over longer time periods. T. Rowe Price has a disciplined investment process, collaborative culture, and track record of success in active management. Investors experienced periods of high volatility during the past 20 years, with two strong U.S. bull markets giving way to two of the most brutal bear markets in recent memory: the collapse of the dot com bubble in 2000 and the global financial crisis that began in At a time when active management performance and returns are being scrutinized like never before, T. Rowe Price remains committed to our disciplined approach. Our research shows that long-term U.S. equity clients have been rewarded. 16 of 18 funds had positive hit rates over rolling five-year periods 89% of funds generated positive excess returns over both rolling 5- and 10-year periods 1 of 7

2 T. Rowe Price success rates over 20 years Analysis of 18 T. Rowe Price diversified active U.S. equity mutual funds over 20 years or their lifetime Rolling periods 12/31/1996 through 12/31/2016 Percentage of funds with positive hit rates 3 years (205 rolling time periods) 5 years (181 rolling time periods) 10 years (121 rolling time periods) 83% 89% 89% Annualized, time-weighted excess returns, net of fees 3 years 5 years 10 years Large-cap (11 funds) 1.06% 1.32% 1.25% Mid-cap (3 funds) 1.33% 1.66% 1.75% Small-cap (4 funds) 2.30% 2.37% 2.08% Box 1 Sources: T. Rowe Price, Russell, and Standard & Poor s; data analysis by T. Rowe Price. For more information on the T. Rowe Price funds used in this study, including fund performance, please visit troweprice.com/approachstudy and troweprice.com. Note that past performance data throughout this material are not reliable indicators of future performance. Hit rates The hit rate records the percentage of times a fund beat its designated benchmark, net of fees and trading costs, over a specified time period (say, 10 years). Think of this as a measure of how often a client might look at his or her monthly statement and find that a fund has outperformed for that time period. We ve defined a positive hit rate as a fund beating the performance of its designated benchmark in more than half of the periods measured. See details on the specific hit rates for each fund over the 3-, 5-, and 10-year rolling time periods on page Majority of funds beat benchmark over multiple time periods An extensive study 1 by T. Rowe Price shows that we excelled over the many market environments of the past two decades. A majority of the 18 diversified active U.S. equity mutual funds studied beat their benchmark across multiple 2 time periods over 20 years or their lifetime. The study measured the performance of 18 diversified active U.S. equity mutual funds, net of fees and trading costs, against their designated benchmarks over 1-, 3-, 5-, and 10-year rolling time periods. It looked at both the frequency of outperformance by counting hit rates the percentage of periods in which a fund beat its benchmark (see Box 1 and page 7) as well as the margin of outperformance by calculating the funds excess returns. U.S. Equities: Long-Term Benefits of the T. Rowe Price Approach to Active Management, February The study spanned the 20 years up to the end of December 2016 for older funds or since inception for newer ones. It covers 18 of the diversified active U.S. equity funds advised by T. Rowe Price, omitting 2 institutional funds that are clones of other funds to avoid double counting. Benchmarks included the S&P 500, Russell 1000 Growth, Russell 2000 Growth, Russell 1000 Value, Russell 2000 Value, Russell 2000, Russell Midcap Growth, and Russell Midcap Value Indexes. Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell indexes. Russell is a trademark of Russell Investment Group. 2 of 7

3 15 years average time our portfolio managers have spent at T. Rowe Price 20years average time they have been in the investment industry Outperformance improved over time One of the study s most notable findings was that our funds performance tended to strengthen over time, a trend of particular relevance to those saving for retirement or with other long-term financial goals. This highlights that the most successful strategies often take time to bear fruit. Making long-term judgments about active managers based on short-term factors can be a critical mistake and can lead to disappointing long-term results. Focusing solely on short-term relative performance could be a critical mistake, as active portfolio strategies may take time to come to fruition. Fifteen of 18 funds had positive hit rates over rolling three-year periods, 16 over five-year periods, and 16 over 10-year intervals. Half of the funds (9 of 18) outperformed their benchmark in every rolling 10-year period, while two other funds outperformed in 98% and 99% of their rolling 10-year periods. When measuring the level of outperformance, 89% generated positive annualized excess returns over both rolling 5- and 10-year periods, and 5- and 10-year performances were both better than oneyear performance for 13 of 18 funds. Actively managed U.S. large-cap funds prove worth Significantly, the study shows that our active investment style yielded positive results for large-cap funds, not just small- and mid-cap funds, challenging the commonly held belief that it is not possible for active managers to add value in what is widely regarded as the world s most efficient capital market. As a group, smaller companies tend to be less followed than large-caps, providing opportunities for active managers with an intensive research approach such as those at T. Rowe Price. As might be expected, results for our small-cap managers were, on average, stronger than those for our large-cap managers. Yet a majority of our U.S. large-cap funds also beat their benchmarks, generating positive excess returns, over all relevant time periods. Once again, the value of a long-term mind-set was demonstrated: The difference between small and larger 3 fund performance narrowed in the long run. Long-tenured team with collaborative culture We attribute our success over the long term primarily to our active, researchintensive approach; to our highly experienced and long-tenured team; and to our collaborative culture. We believe we uncover the best opportunities for clients and gain a competitive edge by following companies over their life cycles from their debuts through market leadership. At T. Rowe Price, we employ 154 equity research professionals who cover almost 2,500 public companies, equivalent to 63% of global public equity markets, as measured by market capitalization. We have a history of developing and retaining talent. On average, portfolio managers have spent 15 years at the company and 20 years in the investment industry, giving them extensive experience in a wide range of market environments. Our emphasis on career development means that many analysts become investment managers. Our compensation practices are linked to long-term results and are designed to encourage collaboration. 3 Funds were divided into 3 categories: large-, mid-, and small-capitalization. Return averages were weighted to reflect the amount of time in each category provided by each fund. 3 of 7

4 Box 2 We re competitive on cost Containing costs is critical if investors are to be rewarded. Active outperformance can disappear after trading expenses and fees are subtracted. T. Rowe Price is highly disciplined about keeping down costs: All of the 18 funds in the study have expense ratios below their peer category averages. On average, our funds expense ratios were 36% lower than their peers. 9 T. Rowe Price strongly believes that skilled, risk-aware active management has the potential to add value over longer-term time horizons. Our approach to active management Our investment process is based on bottom-up, fundamental analysis; careful stock selection; risk awareness; a well-resourced global research platform; and teamwork. We believe there is, and always will be, an important role for wellexecuted active investment management in diversified portfolios that seek superior long-term performance. Independent academic research affirms our approach, indicating that there are some common characteristics of active manager outperformance. Active equity managers, as a group, have been shown to have the skill to select stocks that 4 outperform the broader market on a before-cost basis, while stable, longstanding active teams appear more likely to excel. 5 Teams, such as ours, that have clear lines of authority appear to do better than 6 those that are less structured. Holding down costs is also important (see Box 2). Otherwise, active outperformance can disappear after trading expenses and fees are subtracted. 7 We believe that skilled active management can help navigate challenging market conditions. Studies have shown that in bear markets, careful security selection can mitigate risk and dampen the impact of a broad market downturn. 8 Similarly, when there is a wide gap between a market s best and worst performers, active managers may have more opportunities to add value through stock selection or sector rotation. Fundamental analysis, backed by a well-resourced global research platform, is the core of our approach, providing a strong foundation for bottom-up stock picking. While we recognize there are merits in passive investment strategies and offer several index products to clients, we believe that skilled active management can add value for clients over longer-term time horizons. Look to the long term We believe T. Rowe Price has an attractive value proposition for our clients: strong longterm performance anchored by fundamental research, risk awareness, and reasonable costs. Skilled active management will remain at the core of our approach. 154 equity research professionals Including research by Professor Mark Grinblatt of UCLA and Professor Sheridan Titman of the University of Texas. According to research by Professor Joseph Golec of the University of Connecticut. According to research by Professor Jiang Luo and Dr. Zheng Qiao of Nanyang Technological University, Singapore. Including research by Professor Eugene Fama of the University of Chicago and Professor Kenneth French of Dartmouth College. According to research by Professor Robert Kosowski of Imperial College London. According to Lipper Inc. Detailed information on our funds fees and expenses can be found in their prospectuses. 4 of 7

5 Our track record and the strength of our investment process give us confidence that T. Rowe Price can continue to create value for clients over longer time horizons. A little outperformance goes a long way Whether a fund has beaten its benchmark in a given period is often the first thing investors look at. But in the long run, what is more important is the level of outperformance and how this accumulates. $600, , , , ,000 Hypothetical results of a $100,000 investment vs. S&P one percentage point over 20 years 12/31/1996 through 12/31/2016 Hypothetical portfolio (8.68%: S&P one percentage point) S&P 500 Index (7.68%) $89, % more than the S&P 500 Index after 20 years 100,000 12/ / /2016 2,500 public companies are covered by our research analysts Over rolling 10-year periods, average annualized excess returns were 1.25 percentage points for the T. Rowe Price U.S. large-cap funds included in our study, 1.75 percentage points for the U.S. mid-cap funds, and 2.08 percentage points for the U.S. small-cap funds, time-weighted for the length of the funds performance histories. This may seem modest; however, even a small improvement in annualized returns can make a significant difference over time. Take a hypothetical equity portfolio with a starting value of $100,000. Over the 20 years ended December 31, 2016, a hypothetical portfolio that beat the 7.68% annualized total return for the S&P 500 Index by one percentage point a year could have increased its ending value by $89,197, or more than 20%. In other words, the initial investment could have grown to $528,436 against $439,239 if it had tracked the S&P 500. The results shown above are hypothetical and are for illustrative purposes only. The results do not reflect the impact of taxes and investment fees, which, if included, would have reduced the results shown. The results do not represent the performance of any T. Rowe Price mutual fund. It is not possible to invest directly in an index. 5 of 7

6 Important Information STANDARDIZED PERFORMANCE Annualized total returns for periods ended September 30, 2017 Fund Inception Date Gross Expense Ratio 1-Year 3-Year 5-Year 10-Year 20-Year or Since Inception TRP Growth Stock Fund (NAV) (4/11/1950) 0.68% 26.10% 13.90% 16.26% 9.16% 8.69% Russell 1000 Growth Index TRP New Horizons Fund (NAV) (6/03/1960) Russell 2000 Growth Index TRP Growth & Income Fund (NAV) (12/21/1982) TRP Equity Income Fund (NAV) (10/31/1985) Russell 1000 Value Index TRP Capital Appreciation Fund (NAV) (6/30/1986) TRP Small-Cap Value Fund (NAV) (6/30/1988) Russell 2000 Value Index TRP Mid-Cap Growth Fund (NAV) (6/30/1992) Russell Midcap Growth Index TRP Small-Cap Stock Fund (NAV) (6/01/1956)* Russell 2000 Index TRP Dividend Growth Fund (NAV) (12/30/1992) TRP Blue Chip Growth Fund (NAV) (6/30/1993) Russell 1000 Growth Index TRP Value Fund (NAV) (9/30/1994) Russell 1000 Value Index TRP Capital Opportunity Fund (NAV) (11/30/1994) TRP Mid-Cap Value Fund (NAV) (6/28/1996) Russell Midcap Index TRP QM U.S. Small-Cap Growth Equity Fund (NAV) (6/30/1997) Russell 2000 Growth Index TRP Institutional Large-Cap Value Fund (NAV) (3/31/2000) ** Russell 1000 Value Index *** TRP New America Growth Fund (NAV) (9/30/1985) Russell 1000 Growth Index TRP Institutional Large-Cap Growth Fund (NAV) (10/31/2001) ** Russell 1000 Growth Index *** TRP Diversified Mid-Cap Growth Fund (NAV) (12/31/2003) ** Russell Midcap Growth Index TRP = T. Rowe Price. As of fiscal year-end 12/31/2016. *Managed by T. Rowe Price effective 8/30/1992. **Since inception. ***Since fund inception. Past performance cannot guarantee future results. Investment return and principal value will fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original value. Current performance may be higher or lower than the performance data quoted. To obtain the most recent month-end performance, visit troweprice.com. 6 of 7

7 Positive results for most T. Rowe Price U.S. diversified active equity funds over longer time horizons Hit rate: percentage of rolling periods with returns higher Average annualized excess returns over benchmarks than benchmark Rolling periods 12/31/1996 through 12/31/2016 Rolling periods 12/31/1996 through 12/31/2016 Rolling Periods Fund 3-Year 5-Year 10-Year Growth Stock 70% 81% 91% New Horizons Growth & Income Equity Income Capital Appreciation Small-Cap Value Mid-Cap Growth Small-Cap Stock Dividend Growth Blue Chip Growth Value Capital Opportunity Mid-Cap Value QM U.S. Small-Cap Growth Equity Institutional Large-Cap Value New America Growth Institutional Large-Cap Growth Diversified Mid-Cap Growth Rolling Periods Fund 3-Year 5-Year 10-Year Growth Stock 2.25% 2.50% 2.14% New Horizons Growth & Income Equity Income Capital Appreciation Small-Cap Value Mid-Cap Growth Small-Cap Stock Dividend Growth Blue Chip Growth Value Capital Opportunity Mid-Cap Value QM U.S. Small-Cap Growth Equity Institutional Large-Cap Value New America Growth Institutional Large-Cap Growth Diversified Mid-Cap Growth Sources: T. Rowe Price, Morningstar, Russell, and Standard & Poor s; data analysis by T. Rowe Price. Important Information Past performance cannot guarantee future results. All funds are subject to market risk, including possible loss of principal. There is no guarantee T. Rowe Price funds will outperform their benchmarks. Call to request a prospectus, which includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. T. Rowe Price Investment Services, Inc., Distributor. For additional information on the complete analysis, visit troweprice.com/approachstudy. C1S6X61TF 7 of US MF FIG 10/17

U.S. Equities LONG-TERM BENEFITS OF THE T. ROWE PRICE APPROACH TO ACTIVE MANAGEMENT

PRICE PERSPECTIVE February 2017 In-depth analysis and insights to inform your decision-making. U.S. Equities LONG-TERM BENEFITS OF THE T. ROWE PRICE APPROACH TO ACTIVE MANAGEMENT T. Rowe Price has demonstrated