T. Rowe Price, Invest With Confidence and the Bighorn Sheep logo is a registered trademark of T. Rowe Price Group, Inc. Financial Markets Review: First Quarter 2009 May 19, 2009 Presented by: Tim Noel, Ph.D., CFA

1 Brief, incomplete history of how we got here Credit standards are weakened More leverage, risk taking, and housing bubble Fed lowers interest rates Technology bubble bursts Increased asset securitization Mortgage security prices fall Housing bubble bursts Liquidity dries up Consumers are forced to de-lever Companies (particularly financials) are forced to de-lever Widespread asset write-downs increase fear and uncertainty

2 What happened this quarter Sources: Credit Suisse; Barclays Capital; Standard & Poor’s; MSCI; Russell Investors are exhibiting some risk appetite Capital Market Returns by Asset Class Ended March 31, 2009 Growth

3 What happened this quarter 2 January ISM Manufacturing index plunges to a 28-year low of 32.4% S&P 500 Index Closing Price (YTD) 10 February Uncertainty over stimulus bill passing the House of Representatives 23 February Report that AIG may post massive losses. Citigroup talks with government about increasing stake. 9 January Unemployment tops 7%, highest in 16 years. 20 January Obama inauguration 10 March Citigroup indicates it was profitable in January and February. Barney Frank makes hopeful comments on reinstating the uptick rule 18 March Fed announces expanded asset purchase programs 26 February Health care stocks fall after House calls for cuts on payments to private insurance plans 23 March Treasury unveils toxic asset plan details 30 March U.S. government officially rejects viability plans from GM and Chrysler Jan: -8.43% Feb:-10.65% Mar: +8.76% 1Q09: % Source: Factset

4 Investor Fear Fears of economic and earnings weakness Severe Sell Off Severe high velocity sell off in risky assets Forced Liquidations Indiscriminate selling and forced liquidations Fundamental Disconnect Prices become disconnected from fundamentals Investment Opportunities Fundamental analysis identifies opportunities Chain Reaction What happened this quarter CBOE Market Volatility Index (VIX) Jul-08Aug-08Sep-08Nov-08Oct-08Dec-08Jan-09Feb-09Mar-09 Panic eases: Fundamentals are important again. Quality rewarded. Fear and panic: Investors shoot first, ask questions later. Opportunities arise. Source: Factset

5 Restructuring in the financial sector will slow down the recovery in late 2009 and into 2010 −Accumulated imbalances need to be corrected before growth returns −Housing supply overhang will have a long tail −Correction of business inventories are starting to take hold Expecting declining Real GDP until Q309 −Government spending to provide the only positive contribution until 4Q09 when the consumer and business begin slight growth in spending Unemployment and savings rate −Expecting unemployment rate to hit 9.2% by the end of 2009 −Secular rebound in the personal savings rate after 25-year decline (peaked in 1981 at 12.5%) – expecting it to hit 6.3% by 2010 Economics summary Base case: visibility to gradual recovery by year-end (55%)

6 Signs of stabilization? Sources: Bureau of Labor Statistics; Haver Analytics First signs of stabilization bring visibility to gradual recovery by year-end Real Gross Domestic Product (SAAR, Bil.Chn.2000$) Q – Q1 2009

7 Signs of stabilization? Sources: Bureau of Labor Statistics; Haver Analytics All Employees: Total Nonfarm (SA) Difference – Period to Period January 31, 1985 – March 31, 2009 Pressures on labor markets appear to be stabilizing after intensifying in December and January

8 Signs of stabilization? Sources: Bureau of Labor Statistics; Haver Analytics Real Personal Consumption Expenditures January 31, 1990 – February 28, 2009 Consumers felt the pressure of the labor market decline; economic fears led to less consumption and more saving

9 Signs of stabilization? Source: Bloomberg 30-year Mortgage Rates March 31, 2000 – March 31, 2009 Mortgage rates hit historic lows with the Fed buying Agency MBS

10 The IMF now forecasts total global write-downs to reach $4.1 trillion The new normal – continued deleveraging and loss recognition Source: Bloomberg; IMF Global Financial Stability Report - April 2009 Global Financial Services Quarterly Write-downs and Recapitalization Through March 31, 2009

11 Source: Federal Reserve Board, Haver Analytics The new normal – massive government intervention to provide liquidity U.S. government intervention will remain elevated with new programs The Federal Reserve Balance Sheet Composition December 31, 2007 – March 31, 2009

12 What’s next? Credit conditions must continue to improve. Companies must be able to finance their activity. Watch credit spread trends. The pace of deleveraging must slow. Indiscriminate, forced selling of equity and fixed-income securities must continue to diminish. Fiscal and monetary stimulus measures must bite. This will give businesses and investors confidence to spend and invest. A deflationary mindset must be averted. The velocity of spending will grind to a halt if consumers and businesses believe prices will get continually cheaper.

13 What’s next? Old Norm New Norm Global Real GDP> 5%0% to negative2 to 3% InflationModest 3%, but risingSpike then collapseDeflation/Inflation? Price powerStrongDisappearedReturn slowly Profit marginsContinuously improvingFree fallImproving Real interest 0%RisingResetting higher ROESAll-time highsCollapsingNormalizing ConsumerExcess consumptionDeleveragingModerate consumption Fixed-asset investmentExcessiveFalling sharplyRecovering slowly Source of global GDP growth< 50% Emerging mkt> 100% Emerging mkt~ 66% Emerging mkt ValuationsModest expansionRock bottomNormalizing Risk premiumsHistoric lowsHistoric highsDeclining Transition Period