NOTE 1 - THE COMPANY AND BASIS OF PREPARATION.

T. Rowe Price Group derives its consolidated revenues and net income primarily from investment advisory services that its subsidiaries provide to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios.  We also provide our investment advisory clients with related administrative services, including mutual fund transfer agent, accounting and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; discount brokerage; and trust services.  

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

These unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, which require the use of estimates and reflect all adjustments that are, in the opinion of management, necessary to a fair statement of our results for the interim periods presented.  All such adjustments are of a normal recurring nature.  Actual results may vary from our estimates.

The unaudited interim financial information contained in these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in our 2009 Annual Report.

NOTE 2 - INFORMATION ABOUT RECEIVABLES, REVENUES, AND SERVICES.

Accounts receivable from our sponsored mutual funds for advisory fees and advisory-related administrative services aggregate $130.1 million at December 31, 2009, and $136.9 million at March 31, 2010.

Revenues (in millions) from advisory services provided under agreements with our sponsored mutual funds and other investment clients include:

The following table summarizes the various investment portfolios and assets under management (in billions) on which we earn advisory fees.

Investors that we serve are primarily domiciled in the United States of America; investment advisory clients outside the United States account for 12% of our assets under management at March 31, 2010.  

Fees for advisory-related administrative services provided to our sponsored mutual funds during the first three months of the year were $61.7 million in 2009 and $65.6 million in 2010.

NOTE 3 – INVESTMENTS IN SPONSORED MUTUAL FUNDS.

These investments (in millions) include:

NOTE 4 – DEBT SECURITIES HELD BY AND CUSTOMER DEPOSITS AT SAVINGS BANK SUBSIDIARY.

Our savings bank subsidiary holds investments in marketable debt securities, including mortgage- and other asset-backed securities, which are accounted for as available-for-sale.  The following table (in millions) details the components of these investments.

The unrealized losses in these investments were generally caused by changes in interest rates and market liquidity, and not by changes in credit quality.  We intend to hold these securities to their maturities, which generally correlate to the maturities of our customer deposits, and believe it is more-likely-than not that we will not be required to sell any of these securities before recovery of their amortized cost.  Accordingly, impairment of these investments is considered temporary.  

The estimated fair value of our customer deposit liability, based on discounting expected cash outflows at maturity dates that range up to five years, using current interest rates offered for deposits with the same dates of maturity, was $164.9 million at December 31, 2009, and $163.8 million at March 31, 2010.

NOTE 5 – OTHER INVESTMENTS.

These investments (in millions) include:

On January 20, 2010, we purchased a 26% equity interest in UTI Asset Management Company and an affiliate from existing stockholders for 6.5 billion Indian rupees (INR) or $142.4 million, plus transaction costs of $3.2 million of which $2.0 million were paid in 2009.

In conjunction with our signing of the definitive UTI purchase agreements in November 2009, we entered into a series of rolling non-deliverable forward contracts to economically hedge the foreign currency exchange rate exposure relating to the UTI acquisition price.  We recognized non-operating investment income of $2.2 million in January 2010 in the valuation and settlement of these contracts.

NOTE 6 – FAIR VALUE MEASUREMENTS.

We determine the fair value of our investments using broad levels of inputs as defined by related accounting standards:

      Level 1 – quoted prices in active markets for identical securities.

      Level 2 – observable inputs other than level 1 quoted prices including, but not limited to, quoted prices for similar securities, interest rates, prepayment speeds, and credit risk.  These inputs are based on market data obtained from independent sources.

      Level 3 – unobservable inputs reflecting our own assumptions based on the best information available.  We do not value any investments using level 3 inputs.

These levels are not necessarily an indication of the risk or liquidity associated with the investments.  There were no transfers in or out of the levels. The following table summarizes our investments (in millions) that are recognized in our balance sheet using fair value measurements determined based on the differing levels of inputs.

NOTE 7 – STOCK-BASED COMPENSATION.

Stock-based grants.

The following table summarizes the status of and changes in our stock option grants during the first three months of 2010.

The following table summarizes the status of and changes in our nonvested restricted shares and restricted stock units during the first three months of 2010.

Future stock-based compensation expense.

The following table presents the compensation expense (in millions) to be recognized over the remaining vesting periods of the stock-based awards outstanding at March 31, 2010.  Estimated future compensation expense will change to reflect future option grants, including reloads; future awards of unrestricted shares, restricted shares, and restricted stock units; changes in estimated forfeitures; and adjustments for actual forfeitures.

NOTE 8 – EARNINGS PER SHARE CALCULATIONS.

The reconciliation (in millions) of our net income to net income allocated to our common stockholders and the weighted average shares (in millions) that are used in calculating the basic and the diluted earnings per share on our common stock follow.

Weighted average common shares outstanding assuming dilution reflects the potential additional dilution, determined using the treasury stock method that could occur if outstanding stock options were exercised.  The weighted average common shares outstanding assuming dilution for the first quarter of 2010 excludes the effect of 11.4 million outstanding stock options with an average exercise price of $52.73 that, when taken together with related unrecognized compensation expense, are out-of-the-money.

NOTE 9 – INVESTMENT GAINS AND OTHER COMPREHENSIVE INCOME.

The following table reconciles our net unrealized holding gains (in millions) for the first three months of 2010 to that recognized in other comprehensive income.

The components of accumulated other comprehensive income (in millions) at March 31, 2010, are presented below.