UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

Commission File Number: 000-32191

T. ROWE PRICE GROUP, INC.

100 East Pratt Street, Baltimore, Maryland 21202
(Address including Zip Code of principal executive offices)

(410) 345-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [  ] No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

[X] Yes [  ] No

The number of shares outstanding of the issuer’s common stock ($.20 par value), as of the latest practicable date, April 20, 2005, is 130,211,774.

Exhibit index is at Item 6 on page 14.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)

See the accompanying notes to the condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)

See the accompanying notes to the condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

See the accompanying notes to the condensed consolidated financial statements.

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(dollars in thousands)

See the accompanying notes to the condensed consolidated financial statements.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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. The investors that we serve are primarily domiciled in the United States of America.

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 and reflect all adjustments which 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.

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 2004 Annual Report.

NOTE 2 — STOCK OPTION-BASED COMPENSATION.

Our stock-based compensation plans are accounted for using the intrinsic value based method. The exercise price of each option granted is equivalent to the market price of our common stock at the date of grant. Accordingly, no compensation expense related to stock option grants has been recognized in the condensed consolidated statements of income.

The following table illustrates the pro forma effect on net income (in thousands) and earnings per share if we had applied the fair value based method to recognize expense associated with our outstanding and not yet vested stock options. Forfeitures of options are recognized as they occur.

The following table summarizes the changes in our stock option grants during the first quarter of 2005.

At March 31, 2005, we had 9,774,950 options outstanding that will vest over the period through February 2010. Compensation expense attributable to future periods when these options vest, and the related tax benefits, will be:

These amounts will change to reflect future option grants, estimated and actual forfeitures, and tax benefits that arise upon the future disqualification of incentive stock option grants.

It is important to note that the use of the fair value method to record compensation expense for stock-based plans does not diminish total stockholders’ equity.

NOTE 3 — INFORMATION ABOUT REVENUES AND SERVICES.

Revenues (in thousands) from advisory services provided under agreements with sponsored mutual funds and other investment clients for the interim periods ended March 31 include:

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

Fees for advisory-related administrative services provided to our sponsored mutual funds were $44,632,000 and $51,048,000 in the first quarters of 2004 and 2005, respectively. Accounts receivable from the mutual funds aggregate $88,659,000 at December 31, 2004 and $90,550,000 at March 31, 2005. We provide all services to the sponsored U.S. mutual funds under contracts that are subject to periodic review and approval by each of the funds’ boards. Investment advisory contracts are also subject to approval by the funds’ shareholders.

REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of
T. Rowe Price Group, Inc.:

We have reviewed the accompanying condensed consolidated balance sheet of T. Rowe Price Group, Inc. and subsidiaries as of March 31, 2005, the related condensed consolidated statements of income and cash flows for the three-month periods ended March 31, 2005 and 2004, and the related condensed consolidated statement of stockholders’ equity for the three-month period ended March 31, 2005. These condensed consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards established by the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of T. Rowe Price Group, Inc. and subsidiaries as of December 31, 2004, and the related consolidated statements of income, cash flows, and stockholders’ equity for the year then ended (not presented herein); and in our report dated February 4, 2005, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2004, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ KPMG LLP

Baltimore, Maryland
April 25, 2005

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

GENERAL.

Our revenues and net income are derived primarily from investment advisory services provided to U.S. individual and institutional investors in our sponsored mutual funds and other managed investment portfolios. Our investment advisory clients outside the United States have grown since we broadly expanded the availability of our services to them in 2001 and now account for more than 5% of our assets under management at March 31, 2005.

We manage a broad range of U.S. and international stock, bond, and money market mutual funds and other investment portfolios which meet the varied needs and objectives of individual and institutional investors. Investment advisory revenues depend largely on the total value and composition of assets under our management. Accordingly, fluctuations in financial markets and in the composition of assets under management impact our revenues and results of operations.

Financial market results during the first quarter of 2005 were poor and reversed the positive trends that were present in late 2004. Early gains in 2005 were more than wiped out by the end of the quarter with the three major stock indexes all closing down from the beginning of the year. Investor concerns about the strength of the economy, inflation, rising interest rates, and record high oil prices all weighed heavily on the markets. The broad S&P 500 index and the Dow Industrials each fell 2.6% during the quarter. The NASDAQ index, which is heavily weighted with technology companies, finished even lower, down 8.1%. As for fixed income securities, the Federal Reserve increased the federal funds rate twice during the quarter, pushing the target short-term rate to 2.75%. Yields for 10-year U.S. Treasuries rose 6.5% during the quarter to end March 2005 at nearly 4.5%. Bond prices fell.

In this financial environment, total assets under our management ended the first quarter of 2005 at a record $235.9 billion, up $670 million during the quarter. Strong relative investment performance and brand awareness contributed significantly to investors entrusting $5.2 billion of net cash inflows to our management during the first quarter of 2005. This strong growth was significantly impacted by the lower financial market valuations that decreased assets under management by more than $4.5 billion during the quarter.

Assets under management at March 31, 2005 include $176.6 billion in equity securities and $59.3 billion in bond and money market holdings. The related investment portfolios consist of $148.3 billion in the T. Rowe Price mutual funds distributed in the United States and $87.6 billion in other investment portfolios that we manage, including separately managed accounts, sub-advised funds, and other sponsored investment funds offered to investors outside the United States and through variable annuity life insurance plans.

RESULTS OF OPERATIONS — Three months ended March 31, 2005 versus 2004.

Net revenues increased more than $51 million to $357 million. Net operating income increased nearly 20% to more than $147 million from nearly $123 million. Net income increased $17 million to $94.3 million, up 22% from $77.3 million. Diluted earnings per share increased 19% from $.58 to $.69.

Investment advisory revenues were up 18%, or $44 million, due to increased assets under management. Average mutual fund assets were $146.7 billion, almost $24 billion higher than the $122.8 billion average of the prior year’s first quarter. Average assets in other managed portfolios were $88 billion, up more than $13 billion versus the average of $74.7 billion in the 2004 period. Total average assets under management increased $37.2 billion from the 2004 quarter to $234.7 billion for the first quarter of 2005.

Investment advisory revenues earned from the T. Rowe Price mutual funds distributed in the United States increased $32.7 million. Mutual fund assets ended March 2005 at $148.3 billion, up $2.8 billion from the beginning of the year. Net investor inflows added another $5.5 billion to mutual fund assets during the quarter, more than offsetting the effect of market value declines, net of income and dividends reinvested, that reduced mutual fund assets $2.7 billion from the end of 2004. Net cash flows were concentrated in U.S. stock funds, but were also positive in the international stock, bond, and money market funds. The Growth Stock, Capital Appreciation, Equity Income, and Mid-Cap Value funds each added more than $500 million of net investor inflows and, together, accounted for nearly $3.1 billion of the funds’ net inflows.

Investment advisory revenues earned on the other investment portfolios that we manage increased $11.3 million to $80.8 million. Ending assets in these portfolios were $87.6 billion, down $2.1 billion from the beginning of 2005. Market value declines, net of income, lowered these assets under management $1.8 billion and investors made net withdrawals of $.3 billion from their portfolios.

Administrative fees and other income increased $7.5 million to nearly $68 million. The change in these revenues includes $6.2 million from our transfer agent and defined contribution plan recordkeeping services to mutual funds and their investors. Additionally, revenues increased $1.3 million from 12b-1 distribution fees received on greater assets under management in the Advisor and R classes of our sponsored mutual fund shares. These changes in administrative fees are generally offset by similar changes in related operating expenses that we incur to provide these services and distribute the Advisor and R classes of mutual fund shares through third party financial intermediaries.

Operating expenses in the 2005 quarter were $27 million more than in the 2004 quarter. Our largest expense, compensation and related costs, increased $17.4 million from the first quarter of 2004. The number of our associates, their total compensation, and the costs of their employee benefits have all increased. Our bonus compensation is being accrued based on improved operating results anticipated for 2005 and the strong relative investment performance that our investment managers are achieving. Base salaries for our associates were increased modestly on January 1, 2005, and we have added about 400 associates since the beginning of 2004, primarily to handle increased volume-related activities and growth. At March 31, 2005, we employed 4,185 associates.

Advertising and promotion expenditures were up $2.4 million versus the 2004 period. We expect our advertising and promotion expenditures in the second quarter of 2005 will decline about 15% to 20% from the first quarter this year while our expenditures for the full year 2005 will be 10% to 15% higher than 2004. We vary the level of our spending based on market conditions and investor demand as well as our efforts to expand our investor base in the United States and abroad.

Occupancy and facility costs together with depreciation expense increased $2.3 million. Costs of rented facilities, including additional leased space, and related maintenance and operating costs associated with deploying our larger staff size are higher than in the 2004 period.

Other operating expenses increased $4.9 million, including $1.3 million of distribution expenses recognized on greater assets under management sourced from financial intermediaries who distribute our Advisor and R classes of mutual fund shares. These costs are funded from an equal increase in our administrative revenues recognized from 12b-1 fees as discussed above. Additional costs of more than $1 million were incurred as a result of our decision in late 2004 to pay for all third party investment research and related services directly. Other operating expenses in 2005 have also risen to meet increased business demands.

Overall, net operating income for the first quarter of 2005 increased 20% or $24.4 million.

Our net non-operating income, which includes the recognition of investment gains and losses as well as interest income and credit facility expenses, increased more than $1.1 million to almost $2 million. Greater cash and investment balances along with higher interest rates added $.9 million to our investment income. Credit facility costs were down $.2 million as we reduced the size and ongoing cost of our credit facility in June 2004.

The 2005 provision for income taxes as a percentage of pretax income was 36.8% for the first quarter of 2005. Tax-exempt interest income and adjustments to our prior year tax liabilities reduced the effective rate less than 1% from the previously disclosed 37.1% rate that we had expected for 2005.

CAPITAL RESOURCES AND LIQUIDITY.

Available net liquid assets, including our mutual fund investments in which there are no unrealized losses, were $650 million at March 31, 2005. A $300 million undrawn, committed credit facility expiring in June 2007 is also available to the company.

Operating activities provided cash flows of more than $149 million in the first quarter of 2005, up nearly $59 million versus the 2004 period. Timing differences in the cash settlements of our assets and liabilities, including first quarter income tax liabilities that were not payable until April 15, accounted for $42 million of the increase while increased net income added $17 million. Net cash used in investing activities totaled nearly $21 million, up $14 million from the first quarter of 2004. Net cash used in financing activities totaled $46 million in the first quarter of 2005, up nearly $33 million from the 2004 period. We expended nearly $37 million to repurchase 600,000 shares of our common stock in March 2005. We did not repurchase any shares in the first quarter of 2004.

NEW ACCOUNTING PRONOUNCEMENT ON STOCK OPTION-BASED COMPENSATION.

As of April 21, 2005, the Securities and Exchange Commission delayed the required implementation date of Statement of Financial Accounting Standards No. 123R, Share-Based Payment, which will require us to recognize stock option-based compensation expense in our income statement. Accordingly, we intend to implement Statement 123R on January 1, 2006, the date required for registrants with a calendar year end.

The calculation of compensation expense that will be recognized in our 2006 income statements is similar to that which we will continue using this year to make the pro forma disclosures in the notes to our financial statements, except that we will also include a reduction for estimated future forfeitures that will be adjusted over time to reflect actual forfeitures. See Note 2 beginning on page 6 of this Form 10-Q report.

FORWARD-LOOKING INFORMATION.

From time to time, information or statements provided by or on behalf of T. Rowe Price, including those within this quarterly report, may contain certain forward-looking information, including information or anticipated information relating to changes in our revenues and net income, changes in the amount and composition of our assets under management, our expense levels, and our expectations regarding financial markets and other conditions. Readers are cautioned that any forward-looking information provided by or on behalf of T. Rowe Price is not a guarantee of future performance. Actual results may differ materially from those in forward-looking information because of various factors including, but not limited to, those discussed below. Further, forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of unanticipated events.

Our future revenues and results of operations will fluctuate primarily due to changes in the total value and composition of assets under our management. Such changes result from many factors including, among other things: cash inflows and outflows in the T. Rowe Price mutual funds and other managed investment portfolios; fluctuations in the financial markets around the world that result in appreciation or depreciation of the assets under our management; our introduction of new mutual funds and investment portfolios; and changes in retirement savings trends favoring participant-directed investments and defined contribution plans. The ability to attract and retain investors’ assets under our management is dependent on investor sentiment and confidence; the relative investment performance of the Price mutual funds and other managed investment portfolios as compared to competing offerings and market indexes; the ability to maintain our investment management and administrative fees at appropriate levels; competitive conditions in the mutual fund, asset management, and broader financial services sectors; and our level of success in implementing our strategy to expand our business. Our revenues are substantially dependent on fees earned under contracts with the Price funds and could be adversely affected if the independent directors of one or more of the Price funds terminated or significantly altered the terms of the investment management or related administrative services agreements.

Our future results are also dependent upon the level of our expenses, which are subject to fluctuation for the following or other reasons: changes in the level of our advertising expenses in response to market conditions, including our efforts to expand our investment advisory business to investors outside the United States and to further penetrate our distribution channels within the United States; variations in the level of total compensation expense due to, among other things, bonuses, changes in our employee count and mix, and competitive factors; any goodwill impairment that may arise; fluctuation in foreign currency exchange rates applicable to the costs of our international operations; expenses and capital costs, such as technology assets, depreciation, amortization, and research and development, incurred to maintain and enhance our administrative and operating services infrastructure; unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients; and disruptions

of services, including those provided by third parties, such as facilities, communications, power, and the mutual fund transfer agent and accounting systems.

Our business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on our operations and results, including but not limited to effects on costs that we incur and effects on investor interest in mutual funds and investing in general, or in particular classes of mutual funds or other investments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There has been no material change in the information provided in Item 7A of the 2004 Form 10-K Annual Report.

Item 4. Controls and Procedures.

Our management, including our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2005. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, including this Form 10-Q quarterly report, is appropriately recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Based on that evaluation, our principal executive and principal financial officers have concluded that our disclosure controls and procedures as of March 31, 2005 are effective at the reasonable assurance level.

Our management, including our principal executive and principal financial officers, has evaluated any change in our internal control over financial reporting that occurred during the first quarter of 2005, and has concluded that there was no change during the first quarter of 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

On September 16, 2003, a purported class action (T.K. Parthasarathy, et al., including Woodbury, v. T. Rowe Price International Funds, Inc., et al.) was filed in the Circuit Court, Third Judicial Circuit, Madison County, Illinois, against T. Rowe Price International and the T. Rowe Price International Funds with respect to the T. Rowe Price International Stock Fund. The basic allegations in the case are that the T. Rowe Price defendants did not make appropriate value adjustments to the foreign securities of the T. Rowe Price International Stock Fund prior to calculating the Fund’s daily share prices, thereby allegedly enabling market timing traders to trade the Fund’s shares at the expense of the long-term mutual fund shareholders. The plaintiffs seek monetary damages.

From time to time, various claims against us arise in the ordinary course of business, including employment-related claims.

In the opinion of management, after consultation with counsel, it is unlikely that there will be any adverse determination in one or more pending claims that would have a material adverse effect on our financial position or results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(c)

The following table summarizes activity under our repurchase programs during the quarter ended March 31, 2005. Our repurchases in March 2005 completed the repurchase program authorized under a 1999 Board of Directors’ resolution. Our remaining authorized repurchase program totals 4,846,010 shares under a 2003 Board resolution.

Item 6. Exhibits.

The following exhibits required by Item 601 of Regulation S-K are furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on April 26, 2005.

T. Rowe Price Group, Inc.

/s/ Kenneth V. Moreland
     Vice President and Chief Financial Officer