1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended: DECEMBER 31, 1998.1999.
Commission file number: 000-14282.
Exact name of registrant as specified in its charter:
T. ROWE PRICE ASSOCIATES, INC.
State of incorporation: MARYLAND.
I.R.S. Employer Identification No.: 52-0556948.
Address and Zip Code of principal executive offices: 100 EAST PRATT STREET,
BALTIMORE, MARYLAND 21202.
Registrant's telephone number, including area code: (410) 345-2000.
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.20 PAR VALUE.
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. Yes [X]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the common stock (based on the last
reported NNM price)price from The Nasdaq Stock Market) held by non-affiliates of the registrant
(excludes executive officers and directors). $3,315,800,000 of the registrant. $3.6 BILLION
AT FEBRUARY 16, 1999.14, 2000.
Indicate the number of shares outstanding of the registrant's common stock,
as of the latest practicable date. 120,630,067120,677,784 SHARES AT MARCH 5, 1999.27, 2000.
Documents incorporated by reference: IN PART III OF THIS FORM 10-K, THE
DEFINITIVE PROXY STATEMENT FOR THE 19992000 ANNUAL MEETING OF STOCKHOLDERS (FORM
DEF 14A; ACCESSION NO. 0000080255-99-000454)0000080255-00-000375).
Exhibit index is at Item 14(a)3 on pages 37 - 39.
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PART I.
ITEM 1. BUSINESS.
OVERVIEW. T. Rowe Price Associates, Inc. (Price Associates) and its consolidated
subsidiaries (collectively, the Company) serve asis an investment adviser to
individual and institutional investors in the sponsored T. Rowe Price Mutual
Funds (the Price Funds) and private accountother investment portfolios, including those of defined benefit
and defined contribution retirement plans, endowments, foundations, trusts, and other mutual funds,
including those thatsome of which hold the assets of variable annuity insurance contracts. The
investors that we serve are primarily domiciled in the United States. Total
assets under our management increased $23.5$32.1 billion during 19981999 to $147.8$179.9
billion at year-end, including $86.2$104.4 billion that is designated by
investors for retirement. Investments in equity securities were $139.1
billion at the end of retirement1999. The three largest Price funds - International
Stock, Equity Income, and Science & Technology - account for 20% of assets
under management at the end of 1999 and $107.9 billion24% of equity
investments. The Companyinvestment advisory revenues
for the year.
We also providesprovide 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 Company's clients are primarily domiciled inOur
business is the
United States of America. The Company was incorporated in Maryland in 1947
as successor to the investment counseling business formedbegun by the
late Mr. T.Thomas Rowe Price in 1937. The Company offersWe operate primarily through T. Rowe Price
Associates and its consolidated subsidiaries, including Rowe Price-Fleming
International, Inc., a 50%-owned company. We manage $42.7 billion of
international assets through Rowe Price-Fleming, including $22.4 billion in
the Price Funds' shareholders and private account advisory
clientsfunds.
We offer a broad range of investment portfolios designed to attract and
retain investors with varying investment objectives. Shareholders are allowed toPrice fund
shareholders can exchange balances among mutual funds as economic and market
conditions and investortheir investment needs change. The Company frequently introducesFrom time-to-time, we
introduce new mutual funds and other investment portfolios designed to complement and
expand itsour investment offerings, respond to competitive developments in the
financial marketplace, and meet the changing needs of itsour investment
advisory clients. New mutual
funds and other investment portfolios are introduced when the Company
believesWe will open a new Price fund only if we believe that it
has personnel with sufficient investment expertise to manage
the portfolio successfullycan play a useful role for a substantial group of investors over a long period of time.
The Company's base of assets under management consists ofWe manage a broad range of domestic and international stock, bond, and money
market mutual funds and other investment portfolios which meet the varied
needs and objectives of its individual and institutional investment advisory clients.investors. Investment
advisory revenues aredepend largely dependent on the total value and composition of
assets under management; accordingly,management. Accordingly, fluctuations in financial markets and
in the composition of assets under management impact our revenues and
results of operations. AdministrativeWe provide administrative services are provided as an ancillary
service to investment advisory clients; the majorityclients. About 75% of our administrative
revenues resultsin 1999 were from services rendered under annual contracts to the Price Funds. Thesefunds. Fees earned for
administrative services to the funds are generally based on the recovery of
expenditures incurred and they, therefore, do not significantly impact the Company'saffect our
net income.
In the performance of its investment advisory function, the Company usesWe employ fundamental, technical and cyclical security analyses. The Company maintains
aanalyses in the
3
performance of the investment advisory function. We maintain substantial
internal equity and fixed income investment research effort,
which includescapabilities, including
original industry and company research using such sources as inspection of
corporate activities, management interviews, company-published financial and
3
other information, published by companies including that filed with the U.S.
Securities and Exchange Commission (SEC), financial newspapers and magazines, corporate rating
services, and field checks with participants such as
suppliers orand competitors in the same
industry orand particular business sector. In addition,
the Company utilizesWe also use research provided by
brokerage firms in a supportive capacity;capacity and information is received from
private economists, political observers, foreign commentators, government
experts, and market and security analysts. In certain instances,Our stock selection process for
some investment portfolios is based on quantitative analyses using
computerized data analyses are the bases of
the stock selection process.modeling.
Investment objectives for theour managed investment portfolios, including the
Price Funds,funds, accommodate a variety of strategies. Investors in the Price
Funds select funds
for investment based on the unique approachesobjectives that are detailed in each
fund's prospectus. Investment managementManagement of private accountother stock portfolios includefor non-mutual fund
clients includes active approaches similar to those employed in several of
the Price Funds, including ones emphasizingfunds. Investment strategies for these clients may emphasize
large-cap, blue chipmid-cap or small-cap investing; growth large-capor value mid-cap growth, mid-cap value, small-cap, small-cap
growth, small-cap value,investing; and
international or U.S. investing. We also offer systematic, tax-efficient,
and natural resourcesblended equity investment strategies as well as systematic and balanced portfolio strategies. Approaches for private account
investing in fixed income securities includeseveral active and
systematic management strategies. The Company has also developed severalstrategies for fixed income investments. Our
specialized investment advisory services includinginclude investing in privateemerging companies with
prospects of becominggoing public, companies, investing in securities and creditor claims and securities of
financially-troubled companies, and stable value contracts. We also provide
an advisory service for the efficient disposition of equity distributions
from venture capital investments, and stable value investment
contract management.investments.
Information concerning our revenues, results of operations and assets under
management during the past three years is contained in theour consolidated
statements of income and in note 56 to theour consolidated financial statements
included in Item 8 of this Form 10-K.
RECENT DEVELOPMENTS. During 1999, we achieved several significant
milestones: revenues surpassed $1 billion for the first time; stockholders'
equity crossed $750 million; assets under management reached nearly $180
billion; and Standard & Poor's added our common shares to its benchmark S&P
500 Index of leading large-cap U.S. companies in leading industries.
Two new mutual funds were offered to the public in 1999: International
Growth & Income at the beginning of the year and Tax-Efficient Growth in the
third quarter. More significantly, the Science & Technology Fund combined
large net cash inflows and outstanding performance to increase from $4.7
billion at the end of 1998 to $12.3 billion at December 31, 1999. The
largest fund entering 1999, Equity Income, operated in the out-of-favor
large-cap value market and was down about $1.2 billion during the year,
closing 1999 at $12.3 billion in net assets. The International Stock Fund
achieved better results, though cash flows were negative much of the year.
Market performance late in the year pushed this fund to about $12.7 billion
at year end, up from $10.1 billion at the end of 1998.
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Other investment portfolios also contributed to our growth in 1999. The
sponsored Threshold III partnership entered its disposition stage and
contributed substantial performance-related advisory fees. The same
favorable markets for IPOs and technology stocks which drove Threshold's
investment results and produced these fees also provided more assets to our
specialized service for the disposition of venture capital distributions.
Combined, these services contributed approximately $9 million of additional
revenues in 1999. While revenues from these sources are of a recurring
nature, their significance will vary as market conditions change and the
Threshold partnership completes it liquidation.
The composition of the other portfolios and advisory revenues earned thereon
continue to evolve. Assets subadvised for third parties such as variable
annuity funds offered by insurers grew in importance again this past year.
At year-end, the subadvised portfolios accounted for almost $19 billion of
assets managed and contributed nearly a third of our advisory revenues from
managing other investment portfolios.
In late December, we completed our first offering of collateralized bond
obligations which added about $300 million to bond assets under management.
Performance-related fees that we can earn for managing the CBO will likely
vary over time.
We continue our tradition of focusing on meeting the needs of our investors.
During the fourth quarter, we launched the T. Rowe Price Retirement Income
Manager advisory service. This service offers retirees a plan for
withdrawing income from their investment accounts, as well as a range of
investment portfolios that are appropriate to that plan. Whereas most tools
for this purpose use simplistic estimates, our service uses a detailed
analytical process, including Monte Carlo-style market simulations. Our
service also incorporates an expert computational system that selects
best-fit solutions for each individual, based on personal requirements and
potential market activity. Personal consultation in developing and
implementing the plan is an important aspect of our service. A patent is
pending for the analytical method that we use.
We also enhanced the services provided through our investor web site
(www.troweprice.com) and added more features in 1999 - from information
dissemination and decision-making tools to transaction processing services.
In the second quarter, we acquired a 10% interest in Daiwa SB Investments,
an asset management venture with Daiwa Securities and Sumitomo Bank for
Japanese investors. We subadvise assets for this venture totaling almost
$300 million at the end of 1999.
In the third quarter, we received regulatory approval to organize a savings
bank and plan to commence operations in mid-2000. Through the savings bank,
we will issue federally insured certificates of deposit. The assets of
the savings bank will consist primarily of investments in mortgage-backed
securities.
5
We made the crossover of operations into 2000 successfully as our
comprehensive Y2K program of remediation, testing, and monitoring was
completed timely and within planned budget.
In February 2000, we began the process of registering a new class of shares
with a 12b-1 fee for ten of the Price funds. We expect that these shares
will be available through full-service financial intermediaries beginning in
the second quarter, subject to approval by the SEC and each fund's directors.
PRICE FUNDS. The Company providesWe provide investment advisory, distribution and other
administrative services to the Price Fundsfunds under investment management,
underwriting, transfer agency and servicevarious agreements.
PursuantInvestment advisory services are provided to each fund under individual
investment management agreements with each of the Price Funds, the Company provides
investment advisory services to each fund, subject to the authority of each
fund's board and to each fund'swhich specify fundamental investment
objective.objectives and grant the fund the right to use the T. Rowe Price name. The
investment management agreements with the Price Funds are approved annually
by the
boards of the respective funds, including a majority of directors who are
not "interested persons" of the funds or the Company as(as defined underin the Investment Company Act of 1940,
as amended (the Investment Company Act).amended) of the funds or of us, must approve the investment management
agreements annually. Amendments to suchmanagement agreements must be approved
by the Price Funds'fund shareholders. Each agreement automatically terminates in the event
of its assignment (as defined in the Investment Company Act) and generally
either party may terminate the agreement without penalty after notice (generally 60 days).
Each fund has the right to use the "T. Rowe Price" name for so long as its
investment management agreement with the Company remains in effect.a 60-day
notice. The Company is paid an investmenttermination of one or more of these agreements could have a
material adverse effect on our results of operations.
Advisory Services. Investment advisory feefees are based upon the average
daily net assets ofmanaged in each fund. Additionally, distinctother fees are earned
for other
4
investment-advisory relatedadvisory-related administrative services. Management of the
Company and the independentIndependent directors and
trustees of the Price Fundsfunds regularly review the fund fee structures.
The advisory fee paid by each of the Price Funds (excluding the Spectrum and Summit Funds, the Equity Market
Index Funds, and the Foreign Equity and Mid-Cap Equity Growth Funds)funds generally is computed by
multiplying the individual fund's average daily net assets by a fee. The
applicable fee rateis equal to the sum of a group charge that is set based on
the combined net assets of the Price Fundsfunds and the applicablean individual fund charge.charge
that is set based on each fund's unique investment objective. As the
combined net assets of the Price Fundsfunds increase, the group charge component of the
fee rates decreases. Details of fundeach fund's fee arrangementsarrangement are available to
all fund investors in theits
offering prospectus for eachprospectus.
Each of the Price Funds.
Exceptfunds has a distinct investment objective that has been
developed as notedpart of our strategy to provide a broad, comprehensive
selection of investment portfolios. All Price funds are sold exclusively on
a no-load basis, without a sales commission. No-load mutual funds offer
investors a low-cost and relatively easy method of investing in a variety of
stock and bond portfolios. We believe that our historical distribution
methods and fund shareholder and administrative services have promoted
stability of assets in the following paragraph, eachPrice funds through market cycles in addition to
reducing costs to fund (excludingshareholders. The new class of shares to be offered
later in 2000 will expand our distribution of the Price Spectrum and Summit Funds)funds.
Each fund typically bears all expenses associated with theits operation
of the fund and the
issuance and redemption of its securities. In particular, each fund pays 6
investment advisory fees; shareholder servicing fees and expenses; fund
accounting fees and expenses; transfer agent fees; custodian fees and
expenses; legal and auditing fees; expenses of preparing, printing and
mailing prospectuses and shareholder reports to existing shareholders;
registration fees and expenses; proxy and annual meeting expenses; and
independent trustees' or directors' fees and expenses. All
advertising, promotionThe new class of
fund shares to be offered in 2000 will also incur a 12b-1 fee for
distribution and sellingrecordkeeping.
Several of the Price funds have different fee arrangements. The Equity
Market Index and Summit funds have single, all-inclusive fees covering all
investment management and operating expenses. The Spectrum Growth, Income
and International Funds invest in a broadly diversified portfolio of other
Price funds and have no fees or direct expenses. However, they indirectly
bear the expenses are borne byof the Company.funds in which they invest. The Company generally guaranteesForeign Equity and
Mid-Cap Equity Growth Funds for institutional investors each have distinct
advisory fee arrangements.
We usually guarantee that a newly-organized fund's expenses will not exceed
a specified percentage of the fund'sits net assets during itsan initial operations. Advisoryoperating period.
We absorb all advisory fees and other mutual fund expenses in excess of
these self-imposed limits are absorbed by the Companylimits.
We bear all advertising and have not been material to
the Company's revenues and results of operations.
Pursuant to underwriting agreements with each fund, T. Rowe Price Investment
Services, Inc. (TRP Investment Services) is the exclusive distributor ofpromotion expenses for the Price Funds. TRP Investment Services does not receive a separate fee for its
services to the Price Funds.
The Company expends substantial resources infunds. Our
costs include advertising and direct mail communications to existing and
potential Price Funds'fund shareholders and in
providing theas well as a substantial staff and
communications capabilitiescapability to respond to investor inquiries. The Company's marketing effort hasMarketing
efforts have traditionally been focused in the print media, but in recent
years, the Company has expanded its promotional activities tohave expanded into television and the
television market including cable channels. Advertising
and promotion expenditures will vary over time as market conditions and cash
flows to the Price Funds warrant.Internet. In addition, we target considerable marketing efforts are targeted at
participant-directed defined contribution plans that invest in whole or in part, in mutual funds.
PursuantAdvertising and promotion expenditures vary over time based on investor
interest, market conditions, new investment offerings, and enhancements of
our Internet site.
Administrative Services. Our service company subsidiaries also provide
advisory-related administrative services to agreements with the Price Funds, T. Rowe Price Services, Inc.
(TRP Services) providesfunds. Through them,
we provide mutual fund transfer agency and shareholder services, including
maintenance of staff and technology and other equipment to respond to
all inquiries from shareholders. In addition, Price Associates provideswe provide mutual fund accounting
services, including maintenance of financial records, 5 preparation of
financial statements and reports, daily valuation of portfolio securities
and computation of daily net asset values per share. T. Rowe Price Retirement Plan Services, Inc. (TRP Retirement Plan Services)
providesWe also provide
participant accounting, plan administration and transfer agent services for
defined contribution retirement plans that invest in the Price Funds.funds. Plan
sponsors compensate TRP Retirement Plan Servicesus for certainsome services while the Price Fundsfunds compensate itus
for maintaining and administering the individual participant accounts for
those plans that invest in the Price Funds.
The Company provides certainfunds.
We provide trust services through itsour Maryland-chartered limited-service
trust company. Through the trust company, T. Rowe Price Trust Company, Inc. (TRP Trust
Company). TRP Trust Company serves as custodian or trustee for the Price
Funds' prototype retirement plans, IRAs, and certain other retirement plans.
TRP Trust Company also sponsorswe offer common trust funds principally for
investment by qualified retirement plans. Under its charter, TRP Trust Companyplans and serve as custodian or trustee
7
for retirement plans and IRAs. The trust company may not be in the business of acceptingaccept deposits
and cannot make personal or commercial loans.
Each of the Price Funds has a distinct investment objective that has been
developed as part of the Company's strategy to provide a broad and balanced
selection of investment portfolios. All Funds are sold exclusively by the
Company on a no-load basis (without a sales commission). No-load mutual
funds offer investors a low-cost and relatively easy method of investing in a
variety of stock and bond portfolios. The Company believes that its
distribution methods and fund shareholder and administrative services promote
stability of assets in the Price Funds through market cycles in addition to
reducing costs to fund shareholders.Fund Assets. At December 31, 1998,1999, assets under our management in the Price
Fundsfunds aggregated $94.4$114.5 billion, an increase of $13.3$20.1 billion during 1998. Price Associates is
the investment adviser to the domestic funds. Advisory services to
international funds, which had total assets under management of $17.5 billion
at December 31, 1998, are provided by Rowe Price-Fleming International, Inc.
(RPFI).1999.
The following information sets forthtable presents the year each Price fund was started as well as
the net assets (in millions) of each fund at December 31, 1998 of eachand 1999.
The Spectrum funds are not listed in the table because their assets are
included in the amounts shown for their underlying fund available to the investing publicinvestments.
1998 1999
________ _________
Domestic stock and includes
the year the fund was added to the Price family of funds.
STOCK AND BALANCED FUNDS:
DOMESTIC:blended funds:
Growth Stock (1950) $ 5,041 $ 5,672
New Horizons (1960) 5,229 6,022
New Era (1969) 999 1,082
Growth & Income (1982) 3,563 3,440
Equity Income (1985) 13,494 12,321
New America Growth (1985) 2,064 2,064
Capital Appreciation (1986) 1,004 856
Science & Technology (1987) 4,696 12,271
Small-Cap Value (1988) 1,632 1,262
Equity Index 500 (1990) 3,348 65,049
Balanced (1991) $ 1,650 2,091
Dividend Growth (1992) 1,338 1,028
Mid-Cap Growth (1992) 3,310 5,243
Small-Cap Stock (1992) 1,153 1,740
Blue Chip Growth (1993) 4,330 6,709
Media & Telecommunications (1993) 246 930
Capital Opportunity (1994) 125 109
Personal Strategy - Balanced (1994) 421 619
Personal Strategy - Growth (1994) 194 262
Personal Strategy - Income (1994) 213 206
Value (1994) 775 851
Health Sciences (1995) 317 303
Financial Services (1996) 224 159
Mid-Cap Equity Growth (1996) 132 266
Mid-Cap Value (1996) 221 212
Diversified Small-Cap Growth (1997) 70 75
Real Estate (1997) 28 25
Tax-Efficient Balanced (1997) 32 43
Extended Equity Market Index (1998) 21 54
Total Equity Market Index (1998) 61 INTERNATIONAL:199
Tax-Efficient Growth (1999) -- 70
________ ________
55,931 71,233
________ ________
International stock funds:
International Stock (1980) 10,142 12,674
International Discovery (1988) 193 687
Foreign Equity (1989) 3,415 3,923
European Stock (1990) 1,549 1,588
New Asia (1990) 622 1,375
Japan (1991) 181 596
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Latin America (1993) 182 268
Emerging Markets Stock (1995) 72 162
Global Stock (1995) 49 90
International Growth & Income (1998) 2 BOND AND MONEY MARKET FUNDS:11
________ ________
16,407 21,374
________ ________
Bond and money market funds:
New Income (1973) 2,103 1,795
Prime Reserve (1976) 5,100 5,431
Tax-Free Income (1976) 1,481 1,328
Tax-Exempt Money (1981) 764 684
U.S. Treasury Money (1982) 927 966
Tax-Free Short-Intermediate (1983) 458 417
High Yield (1984) 1,704 1,682
Short-Term Bond (1984) 347 305
GNMA (1985) 1,146 1,089
Tax-Free High Yield (1985) 1,344 1,132
California Tax-Free Bond (1986) 220 214
California Tax-Free Money (1986) 102 102
International Bond (1986) 926 779
New York Tax-Free Bond (1986) 210 188
New York Tax-Free Money (1986) 104 112
Maryland Tax-Free Bond (1987) 1,039 990
U.S. Treasury Intermediate (1989) 263 244
U.S. Treasury Long-Term (1989) 310 324
Global Government Bond (1990) 42 32
New Jersey Tax-Free Bond (1991) 118 108
Short-Term U.S. Government (1991) 136 7132
Virginia Tax-Free Bond (1991) $ 270 265
Tax-Free Intermediate Bond (1992) 119 116
Florida Intermediate Tax-Free Bond (1993) 116 99
Georgia Tax-Free Bond (1993) 59 58
Maryland Short-Term Tax-Free Bond (1993) 119 129
Summit Cash Reserves (1993) 1,867 2,430
Summit GNMA (1993) 50 62
Summit Limited-Term Bond (1993) 50 49
Summit Municipal Income (1993) 72 70
Summit Municipal Intermediate (1993) 81 79
Summit Municipal Money Market (1993) 173 191
Emerging Markets Bond (1994) 148 173
Virginia Short-Term Tax-Free Bond (1994) 27 28
Corporate Income (1995) 55 The Company also sponsors two other stock funds for institutional investors:
the Mid-Cap Equity Growth Fund, a domestic fund begun in 1996, and the
Foreign Equity Fund,51
________ _________
22,050 21,854
________ _________
$ 94,388 $114,461
________ _________
________ _________
OTHER INVESTMENT PORTFOLIOS. We managed an international fund begun in 1989. Assets under
management in these two funds were $132 million and $3.415 billion,
respectively, at December 31, 1998. In addition, the Company also sponsors
the Spectrum seriesaggregate of funds (Growth, Income and International), three mutual
funds that invest in a broadly diversified portfolio of other T. Rowe Price
funds. Assets under management in these funds, which aggregated $5.397$65.4 billion at
December 31, 1998, are included1999 in portfolios other than the amounts presented above for
each underlying fund.
OTHER INVESTMENT PORTFOLIOS. The Company serves as investment adviser to
other private account investors. Total assets inPrice funds. None of these
portfolios aggregate
$53.4 billion at December 31, 1998. No private account clientadvisory services clients accounted for more than 1.5%1% of the Company's 1998our investment
advisory revenues.
Investmentrevenues in 1999. We provide investment management services are provided to
client accounts on an individual, separately-managed, or subadvised basis
and through sponsored investment portfolios generally organized generally as
partnerships 9
and common trust funds. Sponsored investment portfolios have generally been issued through private
placements. VariousSeveral of our special-purpose subsidiaries generally serve
as the general partnerpartners of theour sponsored investment partnerships.
Feespartnerships which we
have formed through private placements.
We usually compute fees for separately managedseparately-managed private account clients are generally computedaccounts based onupon
the value of assets under management. Theour management and we bill them in advance. Our
standard form of investment advisory agreement withfor private account clientsaccounts provides
that the agreement may be terminated at any time and that any unearned fees
paid in advance will be refunded. FeesWe charge fees for sponsored portfolioinvestment management
are based on, individual advisory agreements that consider, among other things, the unique investment management services to be provided. Many specializedA few of
our advisory relationships include fees that are determined based on the
investment advisory services are provided toperformance of the portfolios that we manage.
Our investment adviser subsidiaries also provide private accounts by Price Associates and itswith
specialized advisory services. Stable value investment adviser subsidiaries.
International equity and fixed income securities management, which totalled
$15.4contracts, totaling
$8 billion at December 31, 1998, is provided by RPFI. Management of
stable value investment contracts, totalling $7.7 billion at December 31,
8
1998, is provided1999, are managed by T. Rowe Price Stable Asset
Management, Inc. (TRP Stable
Asset Management).
RPFI.International equity and fixed income securities are
managed by Rowe Price-Fleming. We consolidate Rowe Price-Fleming into our
financial statements and disclosures because of our 50% controlling
interest. The Company's investment holding company subsidiary, TRP Finance,
Inc., ownsremaining 50% of the common stock of RPFI which, by virtue of the Company's
controlling interestis consolidated into the Company's financial statements.
The balance of the common stock of RPFI is owned equally by a United Kingdom
subsidiary of the London-based merchantasset
management and investment banking group Robert Fleming Holdings Limited and by a Cayman Islands subsidiary of the Jardine Fleming Group
Limited, an investment bank in the Asia-Pacific Region. (Robert Fleming
Holdings Limited has entered into an agreement to acquire the 50% interest in
the Jardine Fleming Group which it does not presently hold. Closing is
anticipated late in the first quarter of 1999.)Limited.
During 1998,1999, international assets under management by RPFI increased $2.9$9.8 billion to
$32.9$42.7 billion.
RPFI's financial information and assets under management are included in the
Company's consolidated financial data and statistical information presented
elsewhere in this Form 10-K. International investment research is provided to RPFIRowe
Price-Fleming by affiliates of its
minority stockholders.Robert Fleming Holdings. Fees paid for these
services are based on RPFI's
assets under Rowe Price-Fleming's management.
REGULATION. Price Associates, RPFI, TRPRowe Price-Fleming and Stable Asset
Management and T. Rowe
Price (Canada), Inc. (TRP Canada) are registered with the SEC under the Investment Advisers Act of
1940 and all applicable state securities agencies. TRP ServicesOur transfer agent
services subsidiary is registered under the Securities Exchange Act of 1934,
(Exchange Act) as a transfer agent, and TRP Trust Companyour trust company is regulated by the State of Maryland Commissioner of
Financial Regulation.
TRP Canada is also
registered as an investment adviser with the Ontario Securities Commission,
though it has not conducted operations since mid-1996.
TRPThe Price funds are distributed by our subsidiary, T. Rowe Price Investment
Services, is registered as a broker-dealer under the Exchange
Act and all applicable state securities laws andInc., which is a registered broker-dealer and member of the
National Association of Securities Dealers and the Securities Investor
Protection Corporation. TRP Investment Services providesWe provide discount brokerage services through this
subsidiary primarily to complement the other investment services offeredprovided to
shareholders of the Price Funds.funds. All discount brokerage transactions are
cleared through and accounts maintained by BHCFiserv Securities, Inc., an independent
clearing broker.
All aspects of the Company'sour business are subject to extensive federal and state laws
and regulations. These laws and regulations are primarily intended to
benefit or protect the Company'sour clients and the Price Funds'
shareholders andfunds' shareholders. They
generally grant supervisory agencies and bodies broad administrative powers,
including the power to limit or restrict the Company
from carrying on itsconduct of business in the event
that it failswe fail to comply with suchthese laws and regulations. In such event, the possiblePossible sanctions
that may be imposed on us in the event we fail to comply include the
suspension of individual employees, limitations on engaging in certain lines
of business for specified periods of time, revocation of our investment 10
adviser and other registrations, censures, and fines.
9
The Company and certain of its subsidiariesWe are subject to net capital requirements including those of various
federal and state regulatory agencies. The Company'sOur net capital, as defined, has
consistently met or exceeded all minimum requirements.
COMPETITION. As a member of the financial services industry, the Company iswe are subject
to substantial competition in all aspects of itsour business. A significant
number of mutual funds are sold to the public by investment management
firms, broker-dealers, other mutual fund companies, banks and insurance
companies and in
recent years, brokerageinclude the distribution of both proprietary and other mutual fund companies have extended their
offerings to include other
sponsors' mutual funds. The Company competesWe compete with brokerage and investment banking
firms, insurance companies, banks, and other financial institutions in all
aspects of itsour business. Many of these financial institutions have
substantially greater resources than the Company.
The Company competeswe do. We compete with other providers
of investment management services primarily on the basis of the availability
and objectives of investment portfolios offered, investment performance, and
the scope and quality of the
services provided.
The Company believesour services.
We believe that competition within the investment management industry will
increase as a result of consolidation and acquisition activity. In order to
maintain and enhance itsour competitive position, as an independent,
no-load, direct marketer of mutual funds, the Companywe may review acquisition
prospects and, if appropriate opportunities arise, engage in discussions or
negotiations that could lead to acquisitions byacquisitions. Additionally, we continue to
review our distribution strategies and have expanded our business to include
being both a leading, low cost, direct marketer of mutual funds and a
subadviser to other sponsors' mutual funds. Distribution of the Company. The Company is
not currently party to any agreements or understandings regarding any
acquisitions or ventures, except as set forthnew class
of shares in the capital resources and
liquidity discussionPrice funds through financial intermediaries is expected to
begin later in Item 7 of this Form 10-K.2000.
EMPLOYEES. At December 31, 1998, the Company and its subsidiaries had almost
3,5001999, we employed more than 3,700 active,
full-time employees. The Company also employsWe add additional temporary and part-time personnel to
our staff to meet periodic orand special project demands of its technology-based supportfor technology
functions and for its mutual fund administrative services.
ITEM 2. PROPERTIES.
We continued to expand our operating facilities in 1999. During the fourth
quarter, we completed the third and fourth buildings at our Owings Mills,
Maryland campus and began moving in. The Company'sbuildings are on 70 acres of land
that we own and they total about 567,000 square feet of space. This acreage
also accommodates additional future development. We will continue the
realignment of our operations in the Baltimore area through the first half
of 2000.
We opened investor centers for walk-in traffic and investor meetings in the
Boston, Colorado Springs, and Los Angeles areas in 1999. Other investor
centers are located in the Washington, Baltimore, and Tampa areas.
We closed a small telephone servicing facility in downtown Los Angeles in the
second quarter and transferred its operations to a new temporary facility in
11
Colorado Springs. We acquired land there for the development of a regional
campus and construction is underway on the first building.
Our primary corporate offices consist of approximately 270,000 square feet
of space leased space locatedthrough late 2006 at 100 East Pratt Street in Baltimore,
Maryland.
The Company ownsBaltimore. We
lease other significant servicing facilities in the Tampa and Richmond areas.
We own an operations center in Owings Mills, Maryland consisting of
approximately 110,000 square feet. The facility houses a portion of the
Company's administrative services operations. The underlying land has been
leased until 2089.
TRP Suburban Second, Inc. owns 70 acres of land in Owings Mills, Maryland on
which the Company constructed two buildings totalling 207,000 square feet of
space for operating facilities. Construction of two additional buildings
totalling approximately 360,000 square feet is expected to be completed late
in 1999. The acreage will also accommodate additional development. TRP
10
Suburban Second also owns aexpandable 46,000 square foot technology center on a separate
parcel of land in Owings Mills, Maryland.Mills. This facility is in close proximity to a
110,000 square foot facility that is presently being renovated to
accommodate the majority of our technology support staff. The land under
the larger facility is leased until 2089.
Information concerning our anticipated 1999 capital expenditures in 2000 is set
forth in the capital resources and liquidity discussion in Item 7 of this
Form 10-K. The Company also leases other operating facilities in Baltimore and Owings
Mills, Maryland; Colorado Springs, Colorado; Tampa, Florida; Glen Allen,
Virginia; Washington, D.C.; and San Francisco, California. FutureOur future minimum rental payments under noncancelable operating
leases at December 31, 19981999 are set forth in note 78 to theour consolidated
financial statements included in Item 8 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS.
On July 6, 1998, RPFI,Rowe Price-Fleming, the T. Rowe Price International Stock
Fund (the
International Stock Fund) and itsthe fund's five directors were named as defendants in
an action, Migdal v. Rowe
Price-Fleming International, Inc., et al., filed in the United States
District Court for the District of Maryland. The Complaint sought to
invalidate the advisory agreement between RPFIRowe Price-Fleming and the
International Stock Fund, and sought recovery of an unspecified amount of
advisory fees paid by the International Stock Fund to RPFI. This action was
based on an allegationRowe Price-Fleming.
Plaintiffs alleged that the International Stock Fund does not have a
sufficient number of independent directors, as required by the Investment
Company Act of 1940, as amended, because its independent directors serve on
multiple boards of directors within the T. Rowe Price mutual fund complex and
receive substantial compensation in the form of director fees. On October
12, 1998, the plaintiffs filed an Amended Complaint adding as a plaintiff
Linda B. Rohrbaugh, a shareholder in the T. Rowe Price Growth Stock Fund.
The Amended Complaint also added as defendants the T. Rowe Price Growth Stock
Fund, T. Rowe Price Associates and threecertain of the Company's wholly-ownedits subsidiaries (T. Rowe Price Investment Services, T. Rowe Price Services and
T. Rowe Price Retirement Plan Services) which provide
services to the Funds,funds, as well as five directors of the T. Rowe Price Growth
Stock Fund. On January 21, 1999, the Amended Complaint was dismissed with
leave for plaintiffs to re-file. On February 16, 1999, the plaintiffs filed
a Second Amended Complaint, thoughbut the fund directors were excluded.excluded as
defendants. The Second Amended Complaint alleged a claim under Section 36(b)
of the Investment Company believesAct of 1940. The Complaint sought to invalidate
the advisory and service agreements negotiated between the corporate
defendants and certain T. Rowe Price funds based on a claim that (i) the factualfees
paid to the corporate defendants were excessive and legal basis on which(ii) the complaintadvisory
agreements were not negotiated at arm's length because each of the boards of
directors of the Price funds is based is wholly unfounded, andnot independent as required under the
Investment Company Act of 1940. On March 19, 1999, we and the other
defendants intendfiled a Motion to defendDismiss the Second Amended Complaint. In an
order dated March 20, 2000, our motion was granted and the case vigorously. Accordingly,dismissed
12
with prejudice. The plaintiffs have 30 days from the Company does not believe
that the ultimate resolution of this matter will have a material adverse
effect on the financial condition or results of operationsdate of the Company.order to
file an appeal.
From time to time, the Company is a party to various claims arisingarise in the ordinary course of our business,
including employment-related claims. In the
opinion of management, after consultationAfter consulting with counsel, we
believe it is unlikely that any adverse determination in one or more pending
claims would have a material adverse effect on the Company'sour financial positioncondition or
results of operations. 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company'sour stockholders during the fourth
quarter of 1998.1999.
ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following information includes the names, ages, and positions of theour
executive officers of the Company.officers. There are no arrangements or understandings pursuant to
which any person serves the Company.as an officer.
George A. Roche (57)(58), Chairman (1997), President (1997), Managing Director
(1989), and Chief Financial Officer (1984-1997)
James S. Riepe (55)(56), Vice Chairman (1997) and Managing Director (1989)
M. David Testa (54)(55), Vice Chairman (1997) and Managing Director (1989)
Alvin M. Younger, Jr. (49), Chief Financial Officer (1997), Managing Director
(1990), Treasurer (1985) and Secretary (1987)
Edward C. Bernard (43)(44), Managing Director (1995)
and Vice President
(1989-1995)
Michael A. Goff (39)(40), Managing Director (1997) and Vice President (1994-1997)
Henry H. Hopkins (56)(57), Managing Director (1989)
James A.C. Kennedy (45)(46), Managing Director (1990)
Wayne D. O'Melia (46)(47), Managing Director (1998) and Vice President
(1991-1998)
William T. Reynolds (50)(51), Managing Director (1990)
Charles E. Vieth (42)(43), Managing Director (1993)
Joseph P. Croteau (45), Vice President (1987), Controller (1994), and
Treasurer (2000)
Similar information for certainother significant employees who are the Company's
other managing
directors follows.
John H. Laporte (53)(54), Managing Director (1989)
Brian C. Rogers (43)(44), Managing Director (1991)
Preston G. Athey (49)(50), Managing Director (1997) and Vice President
(1991-1997)
Brian W.H. Berghuis (40)(41), Managing Director (1997) and Vice President
(1991-1997)
Stephen W. Boesel (54)(55), Managing Director (1993)
Gregory A. McCrickard (40)(41), Managing Director (1998) and Vice President
(1991-1998)
Mary J. Miller (43)(44), Managing Director (1993)
Charles A. Morris (36)(37), Managing Director (1995)
and Vice President
(1990-1995)
George A. Murnaghan (42)(43), Managing Director (1997) and Vice President
(1986-1997)
13
Edmund M. Notzon (53)(54), Managing Director (1997) and Vice President
(1991-1997)
Larry J. Puglia (38)(39), Managing Director (1998) and Vice President (1993-1998)
John R. Rockwell (56)(57), Managing Director (1998) and Vice President
(1991-1998)
R. Todd Ruppert (42)(43), Managing Director (1997) and Vice President (1988-1997)
Robert W. Smith (37)(38), Managing Director (1998) and Vice President (1993-1998)
12
William J. Stromberg (38)(39), Managing Director (1998) and Vice President
(1990-1998)
Richard T. Whitney (40)(41), Managing Director (1995) and Vice President
(1988-1995)
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company'sOur common stock ($.20 par value) trades on The Nasdaq National Market under
the symbol "TROW". The high and low trade price information and dividends
per share during the past two years, adjusted to give effect to the 2-for-1
stock split in April 1998, were:
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
________ ________ ________ ________
19971998 - High price $ 27.12537.438 $ 26.00039.625 $ 33.93842.875 $ 36.875
Low price 18.563 18.250 25.000 28.938
Cash dividends declared .065 .065 .065 .085
1998 - High price 37.438 39.625 42.875 38.375
Low price 25.125 32.500 26.625 22.75025.875 20.875
Cash dividends declared .085 .085 .085 .10
At1999 - High price 39.875 43.250 40.000 40.250
Low price 29.250 30.625 27.438 25.875
Cash dividends declared .10 .10 .10 .13
On February 16, 1999,14, 2000, there were approximately 3,600 registered holders of record of
the Company'sour outstanding common stock.
The Company currently expects thatWe expect to pay cash dividends comparable to that paid forat the fourth quarter of 1998 will be continued$.13 per-share quarterly rate for the
first three quarters of 1999.2000. The increase made to our quarterly dividend
rate in December 1999 was the fourteenth consecutive annual increase since
we became a public company in April 1986.
1314
ITEM 6. SELECTED FINANCIAL DATA.
Year ended December 31,
____________________________________________________
1994 1995 1996 1997 1998 1999
________ ________ ________ ________ ________
(in millions, except per-share amounts)data)
Revenues $ 382.4 $ 439.3 $ 586.1 $ 755.0 $ 886.1 $1,036.4
Net income $ 61.2 $ 75.4 $ 98.5 $ 144.4 $ 174.1 $ 239.4
Basic earnings
per share (1) $ .53 $ .66 $ .86 $ 1.24 $ 1.46 $ 1.99
Diluted earnings
per share (1) $ .50 $ .62 $ .79 $ 1.13 $ 1.34 $ 1.85
Cash dividends
declared per share (1) $ .1375 $ .1725 $ .2225 $ .28 $ .355 $ .43
Weighted average
shares outstanding (1) 115.5 114.2 114.5 116.3 119.1 120.6
Weighted average
shares outstanding -
assuming dilution (1) 122.3 122.1 123.9 128.1 130.0 129.2
December 31,
________________________________________________
1994
1995 1996 1997 1998 1999
________ ________ ________ ________ ________
(in millions, except as noted)
Balance sheet data
Total assets $ 297.3 $ 365.3 $ 478.8 $ 646.1 $ 796.8 Debt $ 12.6998.0
Debt $ -- $ -- $ -- -- $ 17.7
Stockholders'
equity $ 216.2 $ 274.2 $ 345.7 $ 486.7 $ 614.3 $ 770.2
Common shares
outstanding (1) 114.3 114.7 115.1 118.2 120.2 120.1
Assets under manage-
ment (in billions) $ 57.8 $ 75.4 $ 99.4 $ 124.3 $ 147.8 (1) Retroactively$ 179.9
All share and per-share data has been retroactively adjusted to give effect
to the 2-for-1 stock splits in April 1996 and April 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
The Company derives its revenueRevenues and net income are derived primarily from investment advisory
services provided to U.S. individual and institutional investors in
the
Company's sponsored mutual funds and private accountother investment portfolios. The Company also providesRelated
administrative services provided to investment advisory clients with related
administrative services, includinginclude
mutual fund transfer agent, defined contribution retirement plan
recordkeeping, discount brokerage, and trust services.
The Company's clients are primarily domiciled in the United
States.
14
The Company's base of assetsAssets under management consistsconsist of a broad range of domestic and
international stock, bond, and money market mutual funds and other investment
15
portfolios which meet the varied needs and objectives of its individual and
institutional investment advisory clients. Investment advisory revenues are
largely dependent on the total value and composition of assets under
management; accordingly, fluctuations in financial markets and in the
composition of assets under management impact revenues and results of
operations. At December 31, 1998,1999, assets under management totalled $147.8totaled $179.9
billion, including $94.4$114.5 billion in thesponsored mutual funds. Equity
investments comprise 73%more than 75% of all assets under management at the end of
1998.1999.
RESULTS OF OPERATIONS.
1999 versus 1998. Net income increased $65 million or 37% to $239 million,
or diluted earnings per share of $1.85, from $174 million or diluted
earnings per share of $1.34. Total revenues increased 17% from $886 million
to a record $1.04 billion, led by an increase of $117 million in investment
advisory fees.
Investment advisory revenues earned from sponsored mutual fund investment
portfolios increased $73 million as average fund assets under management
were $100.8 billion, $12.9 billion more than in 1998. Fund assets increased
$20.1 billion during the year and totaled $114.5 billion at December 31,
1999, including $92.6 billion in stock and blended assets funds. The most
significant increase in fund assets during 1999 was attributable to market
appreciation of and income reinvested in the stock and blended funds totaling
$19 billion. Net cash inflows to the funds during the year totaled $1.1
billion, including inflows of more than $2.3 billion into domestic stock and
blended funds, offset in part by $1.0 billion of outflows from international
stock funds and $.2 billion from bond and money market funds. Domestic
growth stock funds accounted for the largest net inflows with the Science &
Technology and Blue Chip Growth funds each drawing more than $1 billion.
Greater assets in other investment portfolios, including variable annuity
and other subadvised funds, and an increase of $9 million in
performance-based fees contributed the balance of advisory revenue gains
totaling $44 million. Assets under management in other investment
portfolios were $65.4 billion at December 31, 1999, up $12 billion during 1999.
Administrative fees from advisory-related services to the funds and their
shareholders rose $24 million from 1998 to $197 million. This increase was
primarily attributable to defined contribution retirement plan recordkeeping
services; however, increased operating expenses offset these gains.
Commissions earned on greater discount brokerage trading volume contributed
nearly $5 million of the revenue increase.
Investment and other income rose $9 million from 1998, including $6 million
from larger money market fund balances and nearly $6 million from venture
capital investments offset by almost $3 million of foreign currency exchange
rate loss on the yen-denominated debt.
Operating expenses increased 8% to nearly $622 million. Greater compensation
16
and related costs, which were up $25 million or 8%, were attributable to
increases in rates of compensation, including performance-related bonuses,
and an increase in staff size of 6% primarily to support the growing
investment-related administrative services and technology-based operations.
These increases in compensation costs were partially offset by reduced use
of temporary staff and the capitalization of almost $5 million for the
development of internal-use software. At year-end 1999, more than 3,700
associates were employed. Advertising and promotion expenditures increased
2% to $74 million in 1999. The increase in 2000 is anticipated to be
greater as new investment offerings, further enhancement of the Internet
site, and investor interest will drive promotional spending up as long as
market conditions warrant. Occupancy and equipment expense was nearly $11
million higher in 1999 due to the expansion of operating facilities and
related equipment acquisitions, primarily leases of technology assets.
International investment research fees were up nearly $6 million as
international assets under management increased during 1999 from $32.9
billion to $42.7 billion, including $22.4 billion in the mutual funds.
International assets are managed by a 50% owned consolidated subsidiary,
Rowe Price-Fleming International, and are included in the consolidated
assets under management. Other operating expenses increased $6 million to
support growing operations.
The crossover of operations into 2000 was made successfully. Expenditures
for the comprehensive efforts involved totaled $37 million through year-end,
including more than $18 million in 1999, an increase of about $1 million
from 1998. Comparable resources in 2000 will be used to fund other
technology projects.
The 1999 provision for income taxes as a percentage of pretax income is
lower than that of 1998 due to changes in income apportionment for purposes
of state taxation.
1998 versus 1997. Net income increased $29.7 million or 21% to $174.1
million, or diluted earnings per share of $1.34, from $144.4 million or
diluted earnings per share of $1.13. Total revenues increased 17% from $755
million to a record $886 million, led by an increase of $96 million in
investment advisory fees.
Investment advisory revenues earned from the mutual fund investment
portfolios increased $68.7 million as average mutual fund assets under
management rose $13.7 billion during 1998 to $88.0 billion. Fund assets
totalledtotaled $94.4 billion at December 31, 1998, up $13.3 billion during the
year, including more than $72.3 billion in stock funds. Net cash inflows to
the funds during 1998 totalledtotaled $3.7 billion, including inflows of $3.0
billion into domestic stock funds and $1.9 billion into the bond and money
market funds, offset in part by $1.2 billion of outflows from international
stock funds. The balance of the increase in mutual fund assets was due to
appreciation and income during the year. Fees earned from other investment
portfolios contributed the balance of the advisory revenue gains. These
assets under management rose to $53.4 billion at December 31, 1998, up $10.3
billion during 1998. Total assets under management closed 1998 at $147.8
billion, up from $124.3 billion at the end of 1997. 17
Administrative fees from advisory-related services to the funds and their
shareholders grew $28.4 million during 1998 to $173.3 million. These
increases were primarily attributable to defined contribution retirement
plan recordkeeping and mutual fund transfer agent services; however,
increased operating expenses offset these gains. Commissions earned on
greater trading volume in discount brokerage contributed $2.1 million of the
revenue increase.
Investment and other income rose $6.5 million from 1997, including $4.8
million of income from the higher money market and other mutual fund
investments. The balance of the increase was attributable to gains
recognized on the investment portfolios.
Operating expenses increased 17% to $573.3 million. Greater compensation
and related costs, which were up $50.7 million, were attributable to
increases in rates of compensation, including performance-related bonuses,
and a nearly 12% increase in staff size in addition to greater use of
temporary employees 15
primarily to support the Company's growing investment-related
administrative services and technology support operations. At year-end
1998, the Company
employed almost 3,500 associates.associates were employed. Advertising and promotion
expenditures increased 9% to $73.0 million. These expenditures will vary over time as
market conditions and cash flows to the funds warrant. Occupancy and equipment expense
was up due to the expansion of operating facilities and equipment
acquisitions, primarily investments in technology. Other operating expenses
increased $10.0 million primarily as a result of increased technology
spending including preparations for Year 2000 processing and the growth of
operations.
The provision for income taxes as a percentage of pretax income is lower in
1998 due to changes in state income taxation apportionment rules.
International assets under management by the Company's 50% owned subsidiary,
Rowe Price-Fleming International (RPFI), ended 1998 at $32.9 billion, up $2.9
billion over the year. Average international assets managed were $31.9
billion during 1998, up less than 2% from 1997. International investment
research fees expense and minority interests in RPFI'sRowe Price-Fleming's net
income were up only modestly, in line with average assets under management.
Assets managed
by RPFI are included in the Company's reported assets under management.
1997 versus 1996. Net income increased $45.9 million or 47% to $144.4
million or diluted earnings per share of $1.13 from nearly $98.5 million or
diluted earnings per share of $0.79. Total revenues increased 29% from $586
million to a record of nearly $755 million, led by an increase of almost $137
million in investment advisory fees. (Earnings per-share have been restated
for the 2-for-1 common stock split in April 1998.)
Investment advisory revenues from the funds increased $100.0 million as the
funds' average assets under management rose more than $17.2 billion to $74.2
billion. Fund assets totalled $81.1 billion at December 31, 1997, up $16.7
billion during the year, with $61.8 billion in stock funds which also account
for most of the increase during the year. Net cash inflows to the funds
during 1997 totalled $8.5 billion while appreciation in U.S. stocks drove the
remaining increase of $8.2 billion. Advisory fees from other private account
investment portfolios contributed the balance of the investment advisory
revenue gains. These assets under management rose to $43.2 billion at
December 31, 1997, up $8.2 billion for 1997. Total assets under management
closed 1997 at $124.3 billion, up from $99.4 billion at the end of 1996.
Administrative fees from services to the funds and their shareholders grew
$27.1 million during 1997 to $144.9 million. Revenue gains were primarily
attributable to the Company's defined contribution retirement plan
recordkeeping services and mutual fund transfer agent; however, increases in
related operating expenses more than offset these gains. Commissions from
increased trading volume in discount brokerage contributed $3.7 million of
the revenue increase.
16
Investment and other income rose $5.1 million primarily due to greater income
from the Company's larger mutual fund investments, including its money market
fund holdings.
Operating expenses increased 23% to $490.2 million. Greater compensation and
related costs, which were up $56.8 million, were attributable to increases in
performance-related rates of compensation and a 20% increase in the number of
employees during the year primarily to support the Company's growing
administrative services and technology support operations. At year-end 1997,
the Company employed 3,100 associates. Advertising and promotion
expenditures increased 15% to $67.0 million as the Company endeavored to take
advantage of the generally favorable stock market environment and, late in
the year, retirement investing opportunities created by the Taxpayer Relief
Act of 1997. Occupancy and equipment expense was up due to the expansion of
operating facilities and equipment acquisitions, primarily investments in
technology. International investment research fees increased 20% or $7.8
million as international assets under management rose to $30.0 billion,
including $16.7 billion in the funds. Other operating expenses increased
$2.2 million due to greater costs associated with the Company's business
growth.
Higher net income reported on a separate company basis by RPFI resulted in
the increase in income attributable to the minority interests in the
Company's consolidated subsidiaries.
CHANGE IN ACCOUNTING PRINCIPLE.
On January 1, 1999, the Company prospectively adopted a new accounting
principle requiring the capitalization and subsequent amortization of certain
costs of computer software developed or obtained for internal use. This
change is not expected to be material to results of operations, though it
will be positive in 1999.
CAPITAL RESOURCES AND LIQUIDITY.
During the three years ended December 31, 1998,1999, stockholders' equity
increased 124%123% from $274$346 million to $614$770 million. Stockholders' equity at
December 31, 19981999 includes $49.1$49 million of unrealized security holding gains
(before(after provision for income taxes) on the Company's investments in sponsored mutual funds
and $31.9$42 million which is restricted as to use under various regulations and
agreements to which the Company and its subsidiaries are subjectarising in the ordinary course of business. At December 31, 1998, the Company held netNet liquid assets of
almost $400about $450 million were available at the beginning of 2000 to meet business
demands and opportunities.
Operating activities provided net cash inflows of $232.0$297 million in 19981999 as net
income increased $29.7$65 million from the prior year. Comparatively, 19971998
provided net operating cash inflows of $197.8$232 million. Net cash expended in
investing activities during 1998 totalled $67.61999 totaled $118 million, a $12.1$51 million decreaseincrease
from 1997.1998. Property and equipment expenditures decreased $13.5increased $21 million to $56.6more
18
than $77 million in 1998, due1999, relating primarily to lower expendituresthe completion and
outfitting of two new buildings at the Owings Mills Campus. Net investments
of nearly $41 million were made in 1999 including $15 million for furniture
17
whicha 10%
interest in 1997 was acquired to outfit completed buildings and for computer
equipment whichDaiwa SB Investments, an asset management company in 1998 was acquired under operating leases. Financing
activities consumed $81.0Japan, $12
million in 1998, up $48.7the income notes of a sponsored collateralized bond obligations
portfolio, and about $15 million from 1997. This
increase includes $26.8in sponsored mutual funds. Cash used in
financing activities increased $23 million attributablein 1999 to the repurchase$104 million.
Repurchases of Companycommon stock $10.3increased $31 million to $67 million in 1999 and
dividends paid to common stockholders and $9.5were $48 million, $8 million higher
than 1998 as the per-share dividend was again increased. Borrowings
provided cash of $15 million in distributions to RPFI's minority interests.
The Company anticipates 19991999.
Anticipated property and equipment acquisitions ofin 2000 are more than $80$72
million, including approximately $41 million for the completioncosts of two
office buildings and parking garages in Owings Mills, Maryland.constructing the initial phase of the new
Colorado Springs regional campus. These capital expenditures are expected
to be funded from liquid assets currently available and from operating cash
inflows.
Commitments for additional investments in partnerships and other ventures
aggregate $4.7 million at December 31, 1998. On January 25, 1999, the
Company entered into a letter of intent with The Sumitomo Bank and Daiwa
Securities Co. to jointly establish an asset management company based in
Japan to serve Japanese investors. The Company plans to acquire a 10%
interest in the venture for approximately $16 million. The Company does not
expect this long-term investment to have a material near-term impact on its
revenues and net income.
YEAR 2000 PROCESSING ISSUE.
Many existing computer programs employed throughout the world use two digits
rather than four to identify the year. These programs, if not adapted, will
not correctly handle the change from "99" to "00" on January 1, 2000, and
will no longer be able to perform necessary functions. The Year 2000 issue
affects all companies and organizations.
The Company has implemented steps intended to assure that its systems and
processes are capable of Year 2000 processing. Year 2000 readiness
assessments have been made throughout the Company. Remediation efforts have
been completed for mission critical systems and testing efforts are well
underway. Because the Company's operations include daily exchanges of data
electronically with customers and vendors, the Company is working with these
third parties to assess the adequacy of their compliance efforts, and is
developing contingency plans intended to assure that their noncompliance will
not materially affect the Company's operations. Additionally, consultants
are reviewing the Company's Year 2000 efforts at various times during 1998
and 1999.
The Company is dependent on several mission critical systems, including those
maintained by third-party service providers, to perform its core business
activities. Mission critical investment management systems have been
remediated and testing is on schedule. The mutual fund transfer agency
system is maintained by a third-party service provider and interfaces with
other Company systems. Remediation by the transfer agency service provider
and testing of the system and its interfaces by the Company is complete. The
defined contribution recordkeeping system has also been remediated and
testing is on schedule.
18
Preliminary activities and tests necessary for participation in the
Securities Industry Association (SIA) street-wide testing scheduled for March
and April 1999 are also complete. The Company is actively involved in
working with the SIA and other securities industry firms to establish the
processes, criteria and environment for this testing.
The following chart summarizes the Company's estimated timetable and current
state of completion for its mission critical systems efforts.
Stages Target Date Current state of Completion
_____________________________ ___________ ___________________________
Identification and assessment Complete Complete
Remediation Complete Complete
Internal testing 03/31/99 More than 75%
Point-to-point testing 06/30/99 26 - 50%
Implementation 06/30/99 26 - 50%
The target dates for non-mission critical systems are somewhat later than
those shown above, but in any event, are in advance of December 31, 1999.
The Company, with the assistance of a consulting firm, is developing a
contingency plan for its mission critical systems and external dependencies.
However, in an operation as complex as providing global investment advisory
services, there are limited alternatives to certain mission critical systems
and third-party providers, including electrical power and communications
services. If these services or mission critical systems such as the mutual
fund transfer agent system fail for an extended period of time, there would
likely be a material adverse effect on the Company's business, results of
operations and financial condition. Although the Company is investigating
alternative solutions, it is unlikely that any adequate contingency plan can
be developed for any prolonged failure of these mission critical services and
systems.
Additionally, the investment portfolios from which the Company derives the
majority of its revenues could be subject to increased credit, market and
liquidity risk arising from the impact of Year 2000 issues on the issuers of
individual securities. The Company's investment staff are assessing the Year
2000 risks in the investment portfolios with particular attention to the more
significant holdings. Their findings are included in the information used in
making investment decisions. This process applies to actively managed
portfolios, but not to the index-based investment portfolios where
investments are generally determined by the composition of a third-party
index. Additionally, governments and financial markets around the world
could be affected by Year 2000 issues. To the extent that the market prices
of securities are negatively impacted by these or other Year 2000 issues, the
Company's investment advisory revenues, results of operations and financial
condition could be materially adversely affected.
The Company presently estimates that it will incur expenses of more than $44
million on the Year 2000 processing issue during the period 1997 - 2000.
Almost $26 million of these expenditures are anticipated after 1998 when the
bulk of external testing and implementation of remediated systems is to be
19
done. The Company cannot assure that the costs of its Year 2000 compliance
efforts will not be significantly more in the event that presently
unidentified complications arise; however, the Company believes that it will
be able to fund any additional costs from available resources without
materially affecting liquidity, financial condition, or future prospects.
FORWARD-LOOKING INFORMATION.
InformationFrom time-to-time, information or statements provided by or on behalf of the Company from time
to time,T.
Rowe Price, including those within this 1998 Form 10-K Annual Report, may contain
certain "forward-looking information," including information relating to
anticipated growth in revenues or earnings, per share, anticipated changes in the
amount and composition of assets under management, anticipated expense
levels, and expectations regarding financial market conditions. The Company
cautions readersReaders are
cautioned that any forward-looking information provided by or on behalf of
the CompanyT. Rowe Price is not a guarantee of future performance. Actual results may
differ materially from those in forward-looking information as a result of
various factors, including but not limited to those discussed below.
Further, such forward-looking statements speak only as of the date on which
such statements are made, and the CompanyT. Rowe Price undertakes no obligation to
update any forward-looking statement to reflect events or circumstances
after the date on which such statement is made or to reflect the occurrence
of unanticipated events.
In addition to those factors discussed above with respect to the Year 2000
processing issue, the Company's futureFuture revenues maywill fluctuate due to othermany factors, such as:as the total value
and composition of assets under management and related cash inflows or
outflows in mutual funds and private accountother investment portfolios; fluctuations in the
worldwide financial markets, including those in emerging countries, resulting
in appreciation or depreciation of assets under management; the relative
investment performance of the Company's sponsored mutual funds and other investment
portfolios as compared to competing offerings and market indices; the extent
to which performance-based investment advisory fees are earned from private account
investment portfolios;earned; the expense
ratios of the Company's sponsored mutual funds; investor sentiment and investor
confidence; the ability of the Company to maintain investment management and administrative
fees at appropriate levels; competitive conditions in the mutual funds industry;and
broader financial services sectors; the introduction of new mutual funds and
investment portfolios; the ability of the Company to contract with the mutual funds for
payment for investment advisory-related administrative services provided to
the funds and their shareholders; the continuation of trends in the
retirement plan marketplace favoring defined contribution plans and
19
participant-directed investments; and the amount and timing of income
recognized on the Company's investment portfolio. The
Company's revenuesinvestments. Revenues are substantially dependent on fees
earned under contracts with the funds and could be adversely affected if the
independent directors of one or more of the funds determined to terminate or
significantly alter the terms of one or morethe investment management and/or related
administrative services agreements.
The Company's futureFuture operating results are also dependent upon the level of 20 operating
expenses, which are subject to fluctuation for the following or other
reasons: changes in the level of advertising expenses in response to market
conditions or other factors; variations in the level of compensation expense
incurred by the Company, includingdue to, among other things, performance-based compensation
based on the Company's financial results, as well asbonuses, changes in response to
the
size of the total employee population,count and mix, and competitive factors, or other
reasons;factors; changes in the manner in
which the Company provides international investment services;advisory services are provided; expenses and
capital costs, includingsuch as technology assets, depreciation, amortization,
research and other non-cash charges,development, and interest, incurred by the Company to maintain itsand enhance the
administrative and operating services infrastructure including costs incurred with
respect to readiness for Year 2000 processing;Internet
capabilities; unanticipated costs that may be incurred by the Company from time to time to protect investor
accounts and client goodwill; and third-party noncompliance in Year 2000 processing.
The Company'sdisruptions of services, including those
provided by third parties such as communications, power, and the mutual fund
transfer agent system.
T. Rowe Price's business is also subject to substantial governmental
regulation, and changes in legal, regulatory, accounting, tax, and
compliance requirements may have a substantial effect on the Company's businessoperations and
results, of operations, including but not limited to effects on the level of
costs incurred by the Company and effects
on investor interest in mutual funds and investing in general or in
particular classes of mutual funds or other investments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The CompanyT. Rowe Price invests in its sponsored mutual funds, which are market risk
sensitive financial instruments held for purposes other than trading; it
does not invest in derivative financial or commodity instruments. Mutual
fund investments expose the Company tohave inherent market risk in the form of equity price risk;
that is, the potential future loss of value that would result from a decline
in the fair values of the mutual fund shares. Each fund and its underlying
net assets are also subject to market risk which may arise from changes in
equity prices, credit ratings, foreign currency exchange rates, and interest
rates.
The following table (in thousands of dollars) presents the Company s equity price risk
from its investments in sponsored mutual funds by assuming a hypothetical
decline in the fair values of mutual fund shares. This potential future
loss of value reflects the valuation of the Company s
December 31, 1998 mutual fund investments at year end
using each fund sfund's lowest fair value per share during 1998.the prior twelve
months. With respect to this presentation, it is important to note that: 1)
all funds did not experience their lowest fair value per share on the same
day and, moreover, it is unlikely that this would occur; 2)day; it is likely that the Company would modify the composition of itsthe mutual fund investment
portfoliosportfolio would be changed if adverse market conditions persisted; and 3) the
CompanyT.
Rowe Price could experience future losses in excess of those presented below.
2120
Fair value at Potential
December 31, % of lower % of Potential loss
19981999 Portfolio value Portfolio of value
_____________ _________ _________ _________ _______________
Stock funds
Domestic $107,364 56 $ 84,162 52 $23,202 22%$133,941 57 $111,463 58 $22,478 17%
International 25,976 13 21,448 14 4,528 1741,036 18 24,515 12 16,521 40
________ ___ ________ ___ _______
Total 133,340 69 105,610 66 27,730 21
Balanced174,977 75 135,978 70 38,999 22
Blended funds 18,83820,388 9 19,217 10 16,594 10 2,244 121,171 6
Bond funds 40,736 21 39,212 24 1,524 438,559 16 37,989 20 570 1
________ ___ ________ ___ _______
$192,914$233,924 100 $161,416$193,183 100 31,498 1640,740 17
________ ___ ________ ___
________ ___ ________ ___
Less potential loss attributable to minority interests 5341,488
_______
Potential loss before income taxes attributable to
accumulated comprehensive income $30,964$39,252
_______
_______
The comparable potential loss shown in last year's annual report was $31
million on sponsored mutual fund investments of $193 million.
Investments in mutual funds generally moderate market risk because funds, by
their nature, invest in a number of different financial instruments. The
CompanyT.
Rowe Price further manages its exposure to market risk by diversifying its
investments into numerous stock balanced, and bond funds, as well as bothblended funds, and among
domestic and international funds. In addition, the Company will alter its
investment holdings may be
altered from time-to-time, in response to changes in market risks and other
factors, as deemed appropriate by management.
As noted in Item 7,In evaluating market risk, it is also important to consider the Company'srisk that
the value of managed investment portfolios will decline. Because revenues
and net income are based primarily on the value of the investment portfolios managed. Accordingly, financial
market declines will negatively impact the Company's assets under management,
and, in turn, itsdeclines of financial market values will negatively impact revenues and net
income.
ForeignThe Japanese yen strengthened against the U.S. dollar in 1999, reaching
levels not experienced since 1995, and an exchange rate loss was recognized
on the yen borrowing made in April. In evaluating exchange rate
sensitivity, a loss of nearly $2 million would be recognized if the yen
further strengthened 10% from December 31, 1999. Other foreign currency
denominated assets and liabilities are not material.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Page
Index to Financial Statements:
Report of Independent Accountants 22
Consolidated Balance Sheets at December 31, 19971998 and 19981999 23
Consolidated Statements of Income for each of the
three years in the period ended December 31, 19981999 24
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 19981999 25
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended December 31, 19981999 26
Summary of Significant Accounting Policies 28
Notes to Consolidated Financial Statements
including Supplementary Quarterly Financial Data 30
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of T. Rowe Price Associates, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of T. Rowe Price Associates, Inc. and its subsidiaries at December
31, 19971998 and 1998,1999, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998,1999, in
conformity with accounting principles generally accepted accounting principles.in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements
in accordance with auditing standards generally accepted auditing standardsin the United
States which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
January 26, 199925, 2000
23
T. ROWE PRICE ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
__________________
1997 1998 1999
________ ________
(in thousands)
ASSETS
Cash and cash equivalents (Note 1) $200,409 $283,838 $358,472
Accounts receivable (Note 5) 86,7956) 100,702 121,637
Investments in sponsored mutual funds (Note 1) 173,729 192,914 Partnership233,924
Other investments (Notes 2 and other investments (Note 7) 19,0308) 26,597 44,986
Property and equipment (Note 2) 142,4973) 166,612 210,302
Other assets (Note 6) 23,6077) 26,121 28,718
________ ________
$646,067 $796,784 $998,039
________ ________
________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 30,72245,737 $ 45,73737,712
Accrued compensation and retirementrelated costs 49,694 56,757 64,774
Income taxes payable (Note 3) 19,1024) 15,308 31,819
Dividends payable 10,039 12,012 15,614
Debt (Note 7) -- 17,716
Minority interests in consolidated subsidiaries 49,837 52,666 60,220
________ ________
Total liabilities 159,394 182,480 227,855
________ ________
Commitments and contingent liabilities (Notes 2, 6 and 7)(Note 8)
Stockholders' equity (Notes 1, 45 and 7)8)
Preferred stock, undesignated, $.20 par value -
authorized and unissued 20,000,000 shares -- --
Common stock, $.20 par value - authorized
200,000,000 shares in 1997 and 500,000,000 shares in 1998;shares; issued 59,097,705 shares
in 1997 and 120,183,266 shares
in 1998 11,819and 120,107,818 shares in 1999 24,037 24,022
Capital in excess of par value 30,707 41,073 48,057
Retained earnings 415,279 517,631 649,378
Accumulated other comprehensive income 28,868 31,563 48,727
________ ________
Total stockholders' equity 486,673 614,304 770,184
________ ________
$646,067 $796,784 $998,039
________ ________
________ ________
The accompanying notes are an integral part of the consolidated financial
statements.
24
T. ROWE PRICE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
__________________________
1996____________________________
1997 1998 1999
________ ________ __________________
(in thousands, except
per-share amounts)
Revenues (Notes 1, 6 and 5)7)
Investment advisory fees $451,307 $588,014 $684,296 $ 801,579
Administrative fees 117,803 144,906 173,321 197,297
Investment and other income 16,960 22,037 28,525 37,503
________ ________ ________
586,070__________
754,957 886,142 1,036,379
________ ________ __________________
Expenses
Compensation and related
costs (Notes 43, 5 and 6) 196,9257) 253,676 304,376 329,385
Advertising and promotion 58,291 66,954 73,044 74,140
Occupancy and equipment (Note 7) 51,8508) 68,018 83,374 94,008
International investment research fees 39,328 47,105 48,066 53,734
Other operating expenses (Note 7) 52,2058) 54,445 64,468 70,342
________ ________ ________
398,599__________
490,198 573,328 621,609
________ ________ __________________
Income before income taxes and
minority interests 187,471 264,759 312,814 414,770
Provision for income taxes (Note 3) 72,6084) 101,208 118,676 155,166
________ ________ __________________
Income from consolidated companies 114,863 163,551 194,138 259,604
Minority interests in consolidated subsidiaries 16,410 19,154 19,998 20,200
________ ________ __________________
Net income $ 98,453 $144,397 $174,140 $ 239,404
________ ________ __________
________ ________ ________ __________________
Earnings per share
Basic $ .86 $ 1.24 $ 1.46 $ 1.99
________ ________ __________
________ ________ ________ __________________
Diluted $ .79 $ 1.13 $ 1.34 $ 1.85
________ ________ __________
________ ________ ________ __________________
The accompanying notes are an integral part of the consolidated financial
statements.
25
T. ROWE PRICE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
______________________________
1996 1997 1998 1999
________ ________ ________
(in thousands)
Cash flows from operating activities
Net income $ 98,453 $144,397 $174,140 $239,404
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization of
property and equipment 18,062 29,034 32,615 32,628
Minority interests in consolidated
subsidiaries 16,410 19,154 19,998 20,200
Increase in accounts receivable (17,398) (13,556) (13,865) (20,860)
Increase in accounts payable and accrued
liabilities 27,421 19,016 26,236 26,701
Other changes in assets and liabilities (1,792) (237) (7,149) (1,136)
________ ________ ________
Net cash provided by operating activities 141,156 197,808 231,975 296,937
________ ________ ________
Cash flows from investing activities
Investments in sponsored mutual funds (14,151) (28,675) (32,538) Proceeds from dispositions(16,059)
Dispositions of sponsored mutual funds 3,580 14,172 21,708 Partnership and1,287
Other investments (2,146) (3,119) (35,888)
Distributions from other investments (7,186) (2,146) (3,119)
Distributions from partnership investments 7,201 7,062 2,934 9,926
Additions to property and equipment (58,771) (70,081) (56,558) (77,417)
________ ________ ________
Net cash used in investing activities (69,327) (79,668) (67,573) (118,151)
________ ________ ________
Cash flows from financing activities
Purchases of stock (19,667) (9,655) (36,424) (67,418)
Receipts relating to stock issuances 5,061 15,066 12,901 9,967
Proceeds of bank borrowing -- -- 15,019
Dividends paid to stockholders (24,058) (30,132) (40,406) (48,241)
Distributions to minority interests (45) (7,561) (17,044) (13,479)
________ ________ ________
Net cash used in financing activities (38,709) (32,282) (80,973) (104,152)
________ ________ ________
Cash and cash equivalents
Net increase during year 33,120 85,858 83,429 74,634
At beginning of year 81,431 114,551 200,409 283,838
________ ________ ________
At end of year $114,551 $200,409 $283,838 $358,472
________ ________ ________
________ ________ ________
The accompanying notes are an integral part of the consolidated financial
statements.
26
T. ROWE PRICE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumu-
Capital lated
Common in other Total
stock excess compre- stock-
- par of par Retained hensive holders'
value value earnings income equity
_______ _______ ________ ________ ________
(in thousands)
Balance at December 31, 1995,
28,665,472 common shares $ 5,733 $ 2,912 $252,934 $12,653 $274,232
Comprehensive income
Net income 98,453
Unrealized security
holding gains 7,110
Total comprehensive income 105,563
782,307 common shares
issued under stock-based
compensation plans 156 6,979 (1) 7,134
28,570,012 common shares
issued in 2-for-1 split 5,714 (547) (5,167) --
445,000 common shares
purchased (89) (1,521) (14,147) (15,757)
Dividends declared (25,506) (25,506)
_______ _______ ________ _______ ________
Balance at December 31, 1996,
57,572,791 common shares 11,514$11,514 $ 7,823 306,566 19,763 345,666$306,566 $19,763 $345,666
Comprehensive income
Net income 144,397
Unrealized security
holding gains (Note 1) 9,105
Total comprehensive income 153,502
1,754,914 common shares
issued under stock-based
compensation plans 351 29,496 29,847
230,000 common shares
purchased (46) (6,612) (2,997) (9,655)
Dividends declared (32,687) (32,687)
_______ _______ ________ _______ ________
Balance at December 31, 1997,
59,097,705 common shares $11,819 $30,707 $415,279 $28,868 $486,67311,819 30,707 415,279 28,868 486,673
Comprehensive income
Net income 174,140
Unrealized security
holding gains (Note 1) 2,695
Total comprehensive income 176,835
2,711,273 common shares
issued under stock-based
compensation plans 543 29,056 29,599
59,594,288 common shares
issued in 2-for-1 split 11,919 (11,919) --
1,220,000 common shares
purchased (244) (6,771) (29,409) (36,424)
Dividends declared (42,379) (42,379)
_______ _______ ________ _______ ________
Balance at December 31, 1998,
120,183,266 common shares $24,037 $41,073 $517,631 $31,563 $614,304
_______ _______ ________ _______ ________
_______ _______ ________ _______ ________
Continued on next page.
The accompanying notes are an integral part of the consolidated financial
statements.
27
T. ROWE PRICE ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumu-
Capital lated
Common in other Total
stock excess compre- stock-
- par of par Retained hensive holders'
value value earnings income equity
_______ _______ ________ ________ ________
(in thousands)
Continued from prior page.
Balance at December 31, 1997,
59,097,7051998,
120,183,266 common shares $11,819 $30,707 $415,279 $28,868 $486,673$24,037 $41,073 $517,631 $31,563 $614,304
Comprehensive income
Net income 174,140239,404
Unrealized security
holding gains 2,695(Note 1) 17,164
Total comprehensive income 176,835
2,711,273256,568
2,141,042 common shares
issued under stock-based
compensation plans 543 29,056 29,599
59,594,288 common shares
issued in 2-for-1 split 11,919 (11,919) --
1,220,000428 18,145 18,573
2,216,490 common shares
purchased (244) (6,771) (29,409) (36,424)(443) (11,161) (55,814) (67,418)
Dividends declared (42,379) (42,379)(51,843) (51,843)
_______ _______ ________ _______ ________
Balance at December 31, 1998,
120,183,2661999,
120,107,818 common shares $24,037 $41,073 $517,631 $31,563 $614,304$24,022 $48,057 $649,378 $48,727 $770,184
_______ _______ ________ _______ ________
_______ _______ ________ _______ ________
The accompanying notes are an integral part of the consolidated financial
statements.
28
T. ROWE PRICE ASSOCIATES, INC.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the
Company) derives itsderive
their revenue and net income primarily from investment advisory services
provided to individual and institutional investors in the
Company's sponsored mutual funds
and private accountother investment portfolios. The CompanyT. Rowe Price also provides investment
advisory clients with related administrative services, including mutual fund
transfer agent, defined contribution retirement plan recordkeeping, discount
brokerage, and trust services. The Company's clients are primarily domiciled in the United States
of America.
Investment advisory revenues are largely dependent on the total value and
composition of assets under management; accordingly, fluctuations in
financial markets and in the composition of assets under management impact
revenues and results of operations.
BASIS OF PREPARATION.
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted accounting principlesin the United States which requiresrequire
the use of estimates made by the Company's management.
PRINCIPLES OF CONSOLIDATION.
The consolidated financial statements include the accounts of all majority
owned subsidiaries and, by virtue of the Company'sa controlling interest, its
50%-owned subsidiary, Rowe
Price-Fleming International, Inc. (RPFI).a 50%-owned subsidiary. All material
intercompany accounts and transactions are eliminated in consolidation.
CASH EQUIVALENTS.
Cash equivalents consist of all short-term, highly liquid investments includingin
sponsored money market mutual funds and overnight commercial paper
investments.paper. The
cost of these investments is equivalent to fair value.
CONCENTRATION OF CREDIT RISK.
Concentration of credit risk in the Company's accounts receivable is believed
to be minimal in that the Company's clients have substantial assets including
those in the managed investment portfolios.
INVESTMENTS IN SPONSORED MUTUAL FUNDS.
The Company classifies its investmentsInvestments in sponsored stock and bond mutual funds are classified as available-for-sale
securities and reports themare reported at fair value. Unrealized security holding gains are
recognized in comprehensive income.
CONCENTRATIONS OF RISK.
Concentration of credit risk in accounts receivable is believed to be
minimal in that clients have substantial assets including those in the
managed investment portfolios.
Mutual fund investments expose the CompanyT. Rowe Price to market risk in the form of
equity price risk; that is, the potential future loss of value that would
result from a decline in the fair values of the mutual funds. Each fund and
its underlying net assets are also subject to market risk which may arise
29
from changes in equity prices, credit ratings, foreign currency exchange
rates, and interest rates.
PARTNERSHIP AND OTHER INVESTMENTS.
The Company's investments in partnerships and other ventures, including those
sponsored by the Company, do not have a readily determinable fair value.
These entities, which hold venture capital, debt, and other equity
securities, are generally accounted for using the equity method which adjusts
the Company's cost for its share of subsequent earnings or losses. Minor
limited partnership investments are accounted for using the cost method. 29
PROPERTY AND EQUIPMENT.
Property and equipment is stated at cost net of accumulated depreciation and
amortization computed using the straight-line method. Provisions for
depreciation and amortization are based on the following weighted average
estimated average useful lives: computer and communications software and equipment,
3 to 4 years; furniture and other equipment, 5 years; buildings, 33 years;
leasehold improvements, 109 years; and leased land, 99 years.
REVENUE RECOGNITION.
Fees for investment advisory services and related administrative services
provided to investment advisory clients are recognized when earned.
ADVERTISING.
Costs of advertising are expensed the first time that the advertising takes
place.
INTERNATIONAL INVESTMENT RESEARCH FEES.
International investment research is provided by affiliates of the minority
stockholders of RPFI.Rowe Price-Fleming International. Fees paid for these services
are based on international assets under management by RPFI.management.
EARNINGS PER SHARE.
Basic earnings per share excludes the dilutive effect of outstanding stock
options and is computed by dividing net income by the weighted average
common shares outstanding of 114,454,000 in 1996, 116,258,000 in 1997, and
119,134,000 in 1998.1998, and
120,599,000 in 1999. Diluted earnings per share reflects the potential
dilution that could occur if outstanding stock options were exercised. It
is computed by increasing the denominator of the basic calculation by
potential dilutive common shares, determined using the treasury stock
method, of 9,430,000 shares in 1996, 11,815,000 shares in 1997, and 10,818,000 shares in 1998.1998, and
8,564,000 shares in 1999.
COMPREHENSIVE INCOME.
Total comprehensive income is reported in the consolidated statements of
stockholders' equity and includes net income and unrealized security holding
gains, net of income taxes and minority interests.
30
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INVESTMENTS IN SPONSORED MUTUAL FUNDS.
Cash equivalents comprising investments in sponsored money market mutual
funds aggregate $196,513,000 at December 31, 1997 and $280,679,000 at December 31, 1998. The Company's investments1998 and $354,418,000 at
December 31, 1999. Investments in other sponsored mutual funds (in
thousands) at December 31 include:
Aggregate
Aggregate Unrealized fair
cost holding gains value
_________ ______________ _________
1997
___________
Stock funds
Domestic $ 60,102 $34,160 $ 94,262
International 21,767 5,130 26,897
________ _______ ________
Total 81,869 39,290 121,159
Balanced funds 15,837 4,017 19,854
Bond funds 30,476 2,240 32,716
________ _______ ________
$128,182 $45,547 $173,729
________ _______ ________
________ _______ ________
1998
___________
Stock funds
Domestic $ 69,031 $38,333 $107,364
International 21,191 4,785 25,976
________ _______ ________
Total 90,222 43,118 133,340
BalancedBlended funds 14,082 4,756 18,838
Bond funds 39,548 1,188 40,736
________ _______ ________
$143,852 $49,062 $192,914
________ _______ ________
________ _______ ________
1999
___________
Stock funds
Domestic $ 82,214 $51,727 $133,941
International 21,685 19,351 41,036
________ _______ ________
Total 103,899 71,078 174,977
Blended funds 14,994 5,394 20,388
Bond funds 38,165 394 38,559
________ _______ ________
$157,058 $76,866 $233,924
________ _______ ________
________ _______ ________
The following table reconciles unrealized holding gains on investments (in
thousands) in
sponsored mutual funds (in thousands) to that recognized in comprehensive
income.
1996 1997 1998 1999
_______ _______ _______
Unrealized holding gains
during the year $11,233 $15,817 $ 8,355 $26,237
Less gains (losses)
realized in net income (146) 1,527 4,840 (1,567)
_______ _______ _______
11,379 14,290 3,515 27,804
Deferred taxes (4,074) (5,108) (946) (9,808)
_______ _______ _______
7,305 9,182 2,569 17,996
Minority interests (195) (77) 126 (832)
_______ _______ _______
Unrealized holding gains
recognized in compre-
hensive income $ 7,110 $ 9,105 $ 2,695 $17,164
_______ _______ _______
_______ _______ _______
31
Dividends earned on the Company's investments in sponsored mutual funds, including money
market mutual funds, aggregate $12,293,000 in 1996,
$16,372,000 in 1997, and $20,878,000 in 1998.1998, and
$32,941,000 in 1999.
NOTE 2 - OTHER INVESTMENTS.
Other investments (in thousands) at December 31 consists of:
1998 1999
________ ________
Cost method investments, including 10% interest
in Daiwa SB Investments (Japan) in 1999 $ 3,488 $ 18,153
Equity method investments, primarily sponsored
partnerships 23,109 14,554
Fair value investments
$12,221,000 income notes and accrued interest
of sponsored collateralized bond obligation,
due 2012, held as available for sale -- 12,248
Common stocks held for trading -- 31
________ ________
$ 26,597 $ 44,986
________ ________
________ ________
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment (in thousands) at December 31 consists of:
1997 1998 1999
________ ________
Computer and communications software and equipment $ 92,154 $ 92,138 $107,442
Buildings and leasehold improvements 80,463 112,997 133,842
Furniture and other equipment 26,616 28,943 44,189
Land owned and leased 16,552 16,553 21,503
________ ________
215,785 250,631 306,976
Accumulated depreciation and amortization (73,288) (84,019) (96,674)
________ ________
$142,497 $166,612 $210,302
________ ________
________ ________
The Company is constructing two office buildingsOn January 1, 1999, T. Rowe Price prospectively adopted a new accounting
principle requiring the capitalization and parking garages on land
owned in Owings Mills, Maryland,subsequent amortization of
certain costs of computer software developed for an aggregate price not to exceed
$70,840,000. Buildingsinternal use. Accordingly,
compensation and leasehold improvements at December 31, 1998
include in-progress construction of $40,397,000 for these facilities which
are expected to be completed in laterelated costs totaling $4,555,000 were capitalized during
1999.
NOTE 34 - INCOME TAXES.
The provision for income taxes (in thousands) consists of:
1996 32
1997 1998 1999
________ ________ ________
Current income taxes
Federal and foreign $ 63,399 $ 88,061 $104,376 $144,754
State and local 9,531 15,624 13,562 16,046
Deferred income taxes (tax benefits) (322) (2,477) 738 (5,634)
________ ________ ________
$ 72,608 $101,208 $118,676 $155,166
________ ________ ________
________ ________ ________
Deferred income taxes arise from temporary differences between taxable
income for financial statement and income tax return purposes. Significant
temporary differences resulted in deferred income taxes of $1,139,000 in 1996
related to RPFI's undistributed earnings and $1,728,000 in
1998 related to investment income. Deferred tax benefits arising from
significant temporary differences include $1,614,000 in 1996, $1,161,000 in 1997, and $1,417,000 in
1998, and $1,953,000 in 1999 related to accrued compensation, $3,122,000 in
1999 related to investment income and $1,619,000 in 1997 related to
depreciation expense.
The net deferred tax liability of $11,572,000 included in income taxes
payable at December 31, 1997 consists of total deferred tax liabilities of
$19,700,000 and total deferred tax assets of $8,128,000. Deferred tax
liabilities include $3,438,000 arising from RPFI's undistributed earnings and
$16,262,000 arising from unrealized holding gains on available-for-sale
securities. Deferred tax assets include $5,477,000 arising from accrued
32
compensation and $1,167,000 arising from
depreciation expense.
The net deferred tax liability of $13,256,000 included in income taxes
payable at December 31, 1998 consists of total deferred tax liabilities of
$21,920,000 and total deferred tax assets of $8,664,000. Deferred tax
liabilities include $3,649,000 arising from RPFI'sRowe Price-Fleming's
undistributed earnings and $17,206,000 arising from unrealized holding gains
on available-for-sale securities. Deferred tax assets include $6,894,000
arising from accrued compensation.
The net deferred tax liability of $17,430,000 included in income taxes
payable at December 31, 1999 consists of total deferred tax liabilities of
$31,271,000 and total deferred tax assets of $13,841,000. Deferred tax
liabilities include $4,079,000 arising from Rowe Price Fleming's
undistributed earnings and $27,013,000 arising from unrealized holding gains
on available-for-sale securities. Deferred tax assets include $8,848,000
arising from accrued compensation.
Cash outflows from operating activities include income taxes paid of
$64,975,000 in 1996, $86,897,000 in 1997, and $114,322,000 in 1998.1998, and $132,253,000 in 1999.
The following table reconciles the statutory federal income tax rate to the
Company's effective income tax rate.
1996 1997 1998 1999
______ ______ ______
Statutory federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of federal tax benefits 3.4 3.7 2.9 2.6
Other items .3 (.5) - (.2)
______ ______ ______
Effective income tax rate 38.7% 38.2% 37.9% 37.4%
______ ______ ______
______ ______ ______
NOTE 45 - COMMON STOCK AND STOCK-BASED COMPENSATION PLANS.
SHARES AUTHORIZED AND ISSUED.
Two-for-one splitsA two-for-one split of the Company's common stock werewas effected at the close of business on
33
April 30, 1996 and 1998. Earnings per-share data in the accompanying consolidated
financial statements and all per-share and share data in these notes have
been adjusted to give retroactive effect to thesethe stock splits.split.
At December 31, 1998, the Company had reserved 36,425,3041999, 34,217,868 shares of its unissued common stock were
reserved for issuance upon the exercise of stock options andoptions. Additionally, 1,680,000 shares
are reserved for issuance under a plan whereby substantially all employees
may acquire shares of Companycommon stock through payroll deductions at prevailing market
prices.
The Company's board of directors has authorized the future repurchase of up to
3,720,0005,503,510 common shares at December 31, 1998.1999.
DIVIDENDS.
The CompanyCash dividends declared cash dividends per share of $.2225 in 1996,were $.28 in 1997, and $.355 in 1998.
331998, and $.43
in 1999.
FIXED STOCK OPTION PLANS.
The Company hasThere are six stock-based compensation plans (the 1986, 1990, 1993 and 1996
Stock Incentive Plans and the 1995 and 1998 Director Stock Option Plans)
under which it has granted fixed stock options with a maximum term of ten years have been
granted to its employees and directors. Vesting of employee options is based
solely on the individual continuing to render service to the Company and generally occurs
over a 5-year graded schedule. The exercise price of each option granted is
equivalent to the market price of the Company'scommon stock at the date of grant.
The Company appliesBecause the intrinsic value based method of accounting for itsis applied to stock
option awards. Accordingly, the Company has not
recognized anyawards, no related compensation expense has been recognized in itsthe
consolidated statements of income.
The following table summarizes the status of and changes in the Company's stock option
plans during the past three years.
Weighted- Weighted-
average average
exercise Options exercise
Options price exercisable price
__________ __________ ___________ _________
Outstanding at
beginning of 1996 23,301,1681997 24,722,118 $ 7.12
Granted 3,826,000 17.94
Exercised (1,879,850) 3.64
Forfeited (525,200) 9.02
__________
Outstanding at
end of 1996 24,722,118 9.02 11,497,718 $5.46
Granted 2,600,796 31.16
Exercised (3,653,090) 5.23
Forfeited (551,400) 12.78
__________
Outstanding at
end of 1997 23,118,424 12.02 11,808,624 7.18
Granted 3,528,883 35.68
Exercised (3,491,738) 6.51
Forfeited (515,000) 18.30
__________
34
Outstanding at
end of 1998 22,640,569 16.41 12,479,069 9.91
Granted 3,470,325 31.02
Exercised (2,294,013) 6.73
Forfeited (159,400) 23.80
__________
Outstanding at
end of 1999 23,657,481 19.45 14,014,481 13.04
__________
__________
Additional information regarding stock options outstanding at December 31,
19981999 follows. 34
Weighted-
average
Weighted- remaining Weighted-
average contractual average
Range of exercise life (in exercise
exercise prices Outstanding price years) Exercisable price
_________________________________________________ ___________ __________ ___________ ___________ _________
$ 1.80 to 2.13 459,11019.88 14,368,782 $ 1.83 1.8 459,11010.77 5.0 12,101,982 $ 1.83
2.849.80
$26.44 to 4.25 1,343,764 3.94 2.4 1,343,764 3.94
4.69 to 7.03 4,161,402 6.13 4.5 4,161,402 6.13
8.06 to 11.88 3,601,570 8.10 5.9 2,591,570 8.10
13.06 to 19.88 7,140,244 15.33 7.4 3,215,844 14.99
27.13 to 39.09 5,934,479 33.94 9.4 707,379 32.3040.25 9,288,699 32.86 8.8 1,912,499 33.55
__________ __________
1.80 to 39.09 22,640,569 16.41 8.1 12,479,069 9.9123,657,481 19.45 6.5 14,014,481 13.04
__________ __________
__________ __________
Accounting principles require the Company to make the following disclosures as if the fair value
based method of accounting had been applied to the
Company'sall stock option grants made
subsequent toafter 1994. Accordingly, the
Company estimated theThe weighted-average grant-date fair value of each option
awarded of $5.33
in 1996,is estimated to be $9.40 in 1997, and $9.88 in 1998, and $9.86 in 1999
using the Black-Scholes option-
pricingoption-pricing model withand the following weighted-average assumptions:
dividend yieldyields of 1.6% in 1996, 1.5% in 1997, and 1.4% in 1998;1998, and 1.3% in 1999; expected
volatility of 27% in 1996, 29% in 1997, and 30% in 1998;1998, and 31% in 1999; risk-free interest
rates of 5.8%
in 1996, 5.9% in 1997, and 4.5% in 1998;1998, and 5.9% in 1999; and expected lives of
5.1 years in
1996, 4.7 years in 1997 and 1999, and 4.4 years in 1998. Had compensation costs
been determined including the weighted-average estimatethese estimates of the fair value of each option
granted, pro forma net income would be $92,825,000 in 1996,
$134,871,000 in 1997, and $161,723,000 in
1998.1998, and $219,185,000 in 1999. Pro forma basic earnings per share would be
$.81 in 1996, $1.16 in 1997, and $1.36 in 1998.1998, and $1.82 in 1999. Pro forma diluted earnings
per share would be $.75 in 1996, $1.06 in 1997, and $1.25 in 1998.1998, and $1.70 in 1999. These
pro forma disclosures are not representative of the effects on reported net
income and earnings per share for future years because option grants were
primarily made in the fourth quarter of each year, most options vest over
several years, and additional awards are generally made each year.
NOTE 56 - INFORMATION ABOUT REVENUES AND SERVICES.
The Company's revenuesRevenues (in thousands) from advisory services provided under agreements
with its sponsored mutual funds and other investment clients, which are
primarily domiciled in the United States, include:
1996 35
1997 1998 1999
_________ _________ _________
Sponsored mutual funds
Stock and balancedblended
Domestic $159,281 $232,928 $296,389 $358,226
International 101,526 121,266 115,914 121,294
Bond and money market 75,181 81,771 92,360 97,931
________ ________ ________
335,988 435,965 504,663 577,451
Other portfolios 115,319 152,049 179,633 224,128
________ ________ ________
Total investment advisory fees $451,307 $588,014 $684,296 $801,579
________ ________ ________
________ ________ ________ 35
The following table summarizes the various investment portfolios and assets
under management (in billions) on which the Company earns its advisory fees.fees are earned.
Average during December 31,
________________________ _______________
1996 1997 1998 19971999 1998 1999
______ ______ ______ ______ ______
Sponsored mutual funds
Stock and balancedblended
Domestic $ 26.4 $ 39.3 $ 50.9 $ 46.261.6 $ 55.9 $ 71.2
International 13.9 16.7 16.3 15.717.0 16.4 21.4
Bond and money market 16.7 18.3 20.8 19.222.2 22.1 21.9
______ ______ ______ ______ ______
57.0 74.3 88.0 81.1100.8 94.4 114.5
Other portfolios 30.5 40.0 48.6 43.256.7 53.4 65.4
______ ______ _____ ______ ______
______
$ 87.5 $114.3 $136.6 $124.3$157.5 $147.8 $179.9
______ ______ ______ ______ ______
______ ______ ______ ______ ______
Fees for advisory-related administrative services provided to the funds were
$87,031,000 in 1996, $105,042,000 in 1997, and $127,243,000 in 1998.1998, and $147,224,000 in 1999.
Accounts receivable from the funds aggregate $48,952,000$56,345,000 and $56,345,000$68,390,000 at
December 31, 19971998 and 1998,1999, respectively. All services to the sponsored
mutual funds are provided under contracts which are subject to periodic
review and approval by each of the funds' boards and, with respect to
investment advisory contracts, also by the funds' shareholders.
NOTE 67 - OTHER DISCLOSURES.
Goodwill of $7,937,000 arising from a 1992 acquisition is included in other
assets and is being amortized over eleven years using the straight-line
method. Accumulated amortization aggregates $3,973,000 at December 31, 1997
and $4,718,000 at December 31, 1998.
A maximum of $20,000,000 is available to the Company under unused bank lines
of credit1998
and $5,463,000 at December 31, 1998.
Employee retirement plan expense1999.
In April 1999, T. Rowe Price borrowed 1,809,500,000 yen ($15,019,000) from a
bank under a promissory note due in installments of 180,950,000 yen in 2002
and 2003 and 1,447,600,000 yen in 2004. Interest is due quarterly at LIBOR
for yen borrowings plus .95% and is fixed for the Company'sfirst two years at 1.42%.
Foreign currency transaction losses arising from this borrowing are included
in investment and other income and totaled $2,706,000 in 1999.
Expense for two defined contribution retirement plans was $10,048,000 in 1996, $13,912,000 in
1997, and $17,852,000 in 1998.1998, and $20,835,000 in 1999.
36
NOTE 78 - COMMITMENTS AND CONTINGENT LIABILITIES.
The CompanyT. Rowe Price occupies certain office facilities and rents computer and
other equipment under noncancelable operating leases. Related rental
expense was $20,050,000 in 1996, $21,319,000 in 1997, and $25,953,000 in 1998.1998, and $31,888,000 in
1999. Future minimum rental payments under these leases aggregate
$15,201,000 in 1999,
$17,184,000$21,609,000 in 2000, $9,594,000$11,145,000 in 2001, $8,400,000$9,397,000 in 2002, $7,214,000$7,706,000 in
2003, $7,530,000 in 2004, and $24,306,000$17,260,000 in later years.
At December 31, 1998, the Company had1999, there were outstanding commitments to invest anfund additional
$4,728,000 in various investment partnerships and ventures.investments totaling $2,409,000.
Consolidated stockholders' equity at December 31, 19981999 includes $35,153,000$41,522,000
which is restricted as to use underby various regulations and agreements to
which the Company and its subsidiaries are subjectarising
in the ordinary course of 36
business.
From time to time, the Company is a party to various claims arisingarise in the ordinary course of business,
including employment-related claims. In the opinion of management, after
consultation with counsel, it is unlikely that any adverse determination in
one or more pending claims would have a material adverse effect on the Company's financial
position or results of operations.
NOTE 89 - SUPPLEMENTARY QUARTERLY FINANCIAL DATA (Unaudited).
Basic Diluted
earnings earnings
Net per per
Revenues income share share
_________ _______ _________ _________
(in thousands)
1997
___________
1st quarter $167,959 $28,547 $.25 $.22
2nd quarter 180,088 33,782 .29 .27
3rd quarter 199,769 41,337 .36 .32
4th quarter 207,141 40,731 .35 .31
1998
___________
1st quarter 210,434 41,290 .35 .32$210,434 $41,290 $.35 $.32
2nd quarter 222,309 44,869 .38 .34
3rd quarter 218,559 42,974 .36 .33
4th quarter 234,840 45,007 .38 .35
1999
___________
1st quarter 245,826 53,413 .44 .41
2nd quarter 245,771 53,690 .44 .41
3rd quarter 259,929 62,221 .51 .48
4th quarter 284,853 70,080 .59 .55
37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item as toregarding the identification of the Company's executive
officers and certain significant employees is contained as a separate item
at the end of Part I of this Form 10-K. The balance of the information
required by this item as to the Company'sregarding our directors and executive officers appears
in the definitive proxy statement filed pursuant to Regulation 14A for the
Company's 19992000 Annual Meeting of Stockholdersour stockholders and is incorporated by reference in this Form
10-K.reference.
ITEM 11. EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by these Itemsitems appears in the definitive proxy
statement filed pursuant to Regulation 14A for the Company's 19992000 Annual Meeting of
Stockholdersour stockholders and is incorporated by reference in this Form 10-K.reference.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report.
1. Financial Statements: See index at Item 8 of Part II.
2. Financial Statement Schedules: None applicable.
3. The following exhibits required by Item 601 of Regulation S-K are
filed as part of this Form 10-K. Exhibits 10.07 through 10.13 are
compensatory plans orand arrangements.
3.(i) Composite Restated Charter of T. Rowe Price Associates, Inc.
as of April 16, 1998. (Incorporated by reference from Form
10-Q Report for the quarterly period ended March 31, 1998;
Accession No. 0000080255-98-000361.)
3.(ii) Amended and Restated By-Laws of T. Rowe Price Associates,
Inc. as of April 17, 1997. (Incorporated by reference from
Form 10-Q Report for the quarterly period ended June 30,
1997; Accession No. 0000080255-97-000369.)
10.01 Form ofRepresentative Investment Management Agreement with each of
the T. Rowe Price Funds.mutual funds. (Incorporated by reference
from Form N-1A;N-1A/A; Accession No. 0000775688-99-000003.0001046404-97-000008.)
38
10.02 Transfer Agency and Service Agreement dated as of January
1,
19991,1999 between each of the T. Rowe Price Funds andmutual funds T. Rowe
Price Services, Inc. (Incorporated by reference from Form
N-
1A;485APOS; Accession No. 0000775688-99-000003.0001038490-99-000010.)
10.03 Agreement dated January 1, 1999 between T. Rowe Price
Retirement Plan Services, Inc. and each of the T. Rowe Price
Taxable Funds.taxable mutual funds. (Incorporated by reference from Form
N-1A;485APOS; Accession No. 0000775688-99-000003.0001038490-99-000010.)
10.04 Form ofRepresentative Underwriting Agreement between each of the T.
Rowe Price Fundsmutual funds and T. Rowe Price Investment
Services, Inc. (Incorporated by reference from Form N-1A;N-1A/A;
Accession No. 0000775688-99-000003.0001046404-97-000008.)
10.05 Agreement dated February 11, 1998 between TRP Suburban
Second, Inc. and Riparius Construction, Inc. as Construction
Manager and ConstructorConstructor. (Incorporated by reference from the
paper filing of March 26, 1998, pursuant to a continuing
hardship exemption, on Form SE to the 1997 Form 10-K
[Accession No. 0000080255-98-00358].)
10.06 Amended, Restated, and Consolidated Office Lease dated as of
May 22, 1997 between 100 East Pratt Street Limited
Partnership and T. Rowe Price Associates, Inc. (Incorporated
by reference from Form 10-K for 1997; Accession No.
0000080255-98-000358.)
10.07 1986 Employee Stock Purchase Plan of T. Rowe Price
Associates, Inc. as Amended to April 5, 1990. (Incorporated
by reference from Exhibit A to the Definitive Proxy Statement
for the 1990 Annual Meeting of Stockholders which is included
in the 1989 Annual Report on Form 10-K [File No. 0-14282].)
10.08 T. Rowe Price Associates, Inc. 1986 Stock Incentive Plan.
(Incorporated by reference from Form S-1 Registration
Statement [File No. 33-3398].)
10.0910.08 T. Rowe Price Associates, Inc. 1990 Stock Incentive Plan.
(Incorporated by reference from Form S-8 Registration
Statement [File No. 33-37573].)
10.1010.09 T. Rowe Price Associates, Inc. 1993 Stock Incentive Plan.
(Incorporated by reference from Form S-8 Registration
Statement [File No. 33-72568].)
10.1110.10 T. Rowe Price Associates, Inc. 1995 Director Stock Option
Plan. (Incorporated by reference from Form DEF 14A;
Accession No. 000933259-95-000009; CIK 0000080255.)
39
10.1210.11 T. Rowe Price Associates, Inc. 1996 Stock Incentive PlanPlan.
(Incorporated by reference from Form DEF 14A; Accession No.
0001006199-96-000031; CIK 0000080255.)
10.1310.12 T. Rowe Price Associates, Inc. 1998 Director Stock Option
Plan. (Incorporated by reference from Form DEF 14A;
Accession No. 00080255-98-000355.)
39
10.13 Executive Incentive Compensation Plan. (Incorporated by
reference from Form DEF 14A; Accession No. 933259-95-000009;
CIK 0000080255.)
21 Subsidiaries of T. Rowe Price Associates, Inc.
23 Consent of Independent Accountants,
PricewaterhouseCoopers LLP.
27 Financial Data Schedule.
(b) Reports on Form 8-K: None were filed during the last quarter of 1998.1999.
SIGNATURES.
Pursuant to the requirements of Section 13 or 15(d) 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 March
5,
1999.24, 2000.
T. Rowe Price Associates, Inc.
By: /s/ George A. Roche, Chairman and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 5, 1999.24, 2000.
/s/ George A. Roche, Chairman and Director, President, and
DirectorPrincipal Financial Officer
/s/ James S. Riepe, Vice Chairman and Director
/s/ M. David Testa, Vice Chairman and Director
/s/ Edward C. Bernard, Director
/s/ James E. Halbkat, Jr., Director
/s/ Donald B. Hebb, Jr., Director
/s/ Henry H. Hopkins, Director
/s/ James A.C. Kennedy, Director
/s/ John H. Laporte, Director
/s/ Richard L. Menschel, Director
/s/ William T. Reynolds, Director
/s/ Brian C. Rogers, Director
/s/ Robert L. Strickland, Director
/s/ Philip C. Walsh, Director
/s/ Anne Marie Whittemore, Director
/s/ Alvin M. Younger, Jr., Chief FinancialJoseph P. Croteau, Treasurer and Principal Accounting Officer