1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.DC 20549
FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended: JUNE 30, 1997.1998.
Commission file number: 0-14282.000-14282.
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.
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 the number of shares outstanding of the issuer's common stock ($.20
par value), as of the latest practicable date. 58,059,369119,535,933 SHARES AT
JULY 23,
1997.21, 1998.
Exhibit index is at Item 6(a) on page 11.12.
2
PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
12/31/9697 06/30/9798
________ ________
ASSETS
Cash and cash equivalents $114,551 $134,286$200,409 $248,731
Accounts receivable 73,239 83,42186,795 96,404
Investments in sponsored mutual funds held as
available-for-sale securities 143,410 166,634173,729 197,473
Partnership and other investments 25,161 23,57319,030 15,836
Property and equipment 101,207 122,495
Goodwill and other(Note 2) 142,497 149,685
Other assets 21,266 15,26023,607 16,540
________ ________
$478,834 $545,669$646,067 $724,669
________ ________
________ ________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 31,52930,722 $ 36,37630,421
Accrued compensation and retirement costs 41,523 46,32449,694 52,078
Income taxes payable 14,464 14,21219,102 14,096
Dividends payable 7,484 7,53710,039 10,157
Minority interests in consolidated subsidiaries 38,168 40,87049,837 43,432
________ ________
Total liabilities 133,168 145,319159,394 150,184
________ ________
Commitments and contingent liabilities (Note 2)
Stockholders' equity
Preferred stock, undesignated, $.20 par value -
authorized and unissued 20,000,000 shares -- --
Common stock, $.20 par value - authorized
200,000,000 shares; issued 57,572,791 shares
in 1996 and 57,978,854 shares in 1997 11,514 11,596and 500,000,000 shares
in 1998; issued 59,097,705 shares in
1997 and 119,504,242 shares in 1998 (Note 3) 11,819 23,901
Capital in excess of par value 7,823 9,92230,707 31,269
Retained earnings 306,566 350,837
Unrealized security holding gains 19,763 27,995415,279 481,192
Accumulated other comprehensive income 28,868 38,123
________ ________
Total stockholders' equity 345,666 400,350486,673 574,485
________ ________
$478,834 $545,669$646,067 $724,669
________ ________
________ ________
See the accompanying notes to the condensed consolidated financial
statements.
3
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
Three months Six months
ended ended
June 30, June 30,
__________________________________
1996 1997 19961998 1997 1998
________ ________________ ________
Revenues
Investment advisory fees $109,702 $141,549 $209,708$176,750 $270,846 $340,467
Administrative fees 29,968 34,694 58,09443,361 69,829 85,525
Investment and other income 4,018 3,845 8,2982,198 7,372 6,751
________ ________ ________ ________
143,688 180,088 276,100222,309 348,047 432,743
________ ________ ________ ________
Expenses
Compensation and related costs 43,165 55,788 85,151 109,86662,257 75,906 121,439 146,306
Advertising and promotion 14,353 13,742 30,42316,983 31,199 Depreciation, amortization and
operating rentals of property37,055
Occupancy and equipment 9,036 11,149 17,128 21,24814,989 20,071 28,745 38,956
International investment
research fees 9,680 11,782 18,71412,553 22,739 Administrative and general 20,222 24,545 38,514 45,57225,113
Other operating expenses 14,236 15,042 26,502 27,963
________ ________ ________ ________
96,456 117,006 189,930140,555 230,624 275,393
________ ________ ________ ________
Income before income taxes and
minority interests 47,232 63,082 86,17081,754 117,423 157,350
Provision for income taxes 18,416 24,162 33,57331,602 45,286 60,529
________ ________ ________ ________
Income from consolidated companies 28,816 38,920 52,59750,152 72,137 96,821
Minority interests in consolidated
subsidiaries 4,366 5,138 7,7285,283 9,808 10,662
________ ________ ________ ________
Net income $ 24,450 $ 33,782 $ 44,869 $ 62,329 $ 86,159
________ ________ ________ ________
________ ________ ________ ________
EarningsBasic earnings per share $ .40.29 $ .53.38 $ .73.54 $ .98.72
________ ________ ________ ________
________ ________ ________ ________
Diluted earnings per share $ .27 $ .34 $ .49 $ .66
________ ________ ________ ________
________ ________ ________ ________
Dividends declared per share $ .105.065 $ .085 $ .13 $ .21 $ .26.17
________ ________ ________ ________
________ ________ ________ ________
Weighted average shares outstanding including share equivalents arising
from unexercised stock options 61,774 63,514 61,633 63,527115,818 119,209 115,687 118,854
________ ________ ________ ________
________ ________ ________ ________
Weighted average shares outstanding-
assuming dilution 127,028 130,598 127,055 130,267
________ ________ ________ ________
________ ________ ________ ________
See the accompanying notes to the condensed consolidated financial
statements.
4
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six months ended
__________________
06/30/9697 06/30/9798
________ ________
Cash flows from operating activities
Net income $ 44,86962,329 $ 62,32986,159
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 7,575 11,102 15,900
Minority interests in consolidated subsidiaries 7,728 9,808 10,662
Increase in accounts receivable (9,424) (10,182) Increase(9,609)
Change in accounts payable and accrued liabilities 19,396 10,514 7,759
Other changes in assets and liabilities (1,526) 669 2,463
_________ ________
Net cash provided by operating activities 68,618 84,240 113,334
________ ________
Cash flows from investing activities
Investments in sponsored mutual funds (4,520) (10,026) (13,330)
Proceeds from disposition of sponsored mutual funds -- 3,957
Partnership and other investments (2,808) (3,432) Distributions from(579)
Liquidation of partnership and other investments 1,141 5,696 2,116
Additions to property and equipment (20,770) (29,827) (24,874)
________ ________
Net cash used in investing activities (26,957) (37,589) (32,710)
________ ________
Cash flows from financing activities
Purchases of stock (17,774) (9,655) --
Receipts relating to stock issuances 1,703 5,117 4,855
Dividends paid to stockholders (12,031) (15,008) (20,127)
Distributions to minority interests (45) (7,370) (17,030)
________ ________
Net cash used in financing activities (28,147) (26,916) (32,302)
________ ________
Cash and cash equivalents
Net increase during period 13,514 19,735 48,322
At beginning of year 81,431 114,551 200,409
________ ________
At end of period $ 94,945 $134,286 $248,731
________ ________
________ ________
See the accompanying notes to the condensed consolidated financial
statements.
5
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(dollars in thousands)
Accumu-
Capital lated
Common in other Total
stock excess compre- stock-
- par of par Retained hensive holders'
value value earnings income equity
_______ _______ ________ ________ ________
Balance at December 31, 1997,
59,097,705 common shares $11,819 $30,707 $415,279 $28,868 $486,673
Comprehensive income
Net income 86,159
Unrealized security
holding gains 9,255
Total comprehensive income 95,414
812,249 common shares
issued under stock-based
compensation plans 163 12,481 12,644
Dividends declared (20,246) (20,246)
59,594,288 shares issued in
2-for-1 split of common
stock at April 30, 1998 11,919 (11,919) --
_______ _______ ________ _______ ________
Balance at June 30, 1998,
119,504,242 common shares $23,901 $31,269 $481,192 $38,123 $574,485
_______ _______ ________ _______ ________
_______ _______ ________ _______ ________
See the accompanying notes to the condensed consolidated financial
statements.
6
T. ROWE PRICE ASSOCIATES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND BASIS OF PREPARATION.
T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the
Company) derives its revenue primarily from investment advisory and
administrative services provided to sponsored mutual funds and investment
productsportfolios and to private accounts of other institutional and individual
investors.investors, primarily domiciled in the United States of America. Company
revenues are largely dependent on the total value and composition of assets
under management, which include domestic and international equity and debt
securities; accordingly, fluctuations in financial markets and in the
composition of assets under management impact revenues and results of
operations. AtAssets under management at June 30, 1997, the Company's assets
under management totaled $116.91998 total $141.9 billion,
including $75.3$91.4 billion in the sponsored T. Rowe Price mutual funds.
The unaudited condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such
adjustments are of a normal recurring nature.
The unaudited interim financial information contained in the condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements contained in the 19961997 Annual Report to
Stockholders.
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NOTE 2 - STOCKHOLDERS' EQUITY.COMMITMENTS AND CONTINGENT LIABILITIES.
On February 11, 1998, the Company entered into an agreement to construct two
office buildings having a combined 360,000 square feet of floor space and two
parking garages. On June 17, 1998, the agreement was amended to include an
aggregate guaranteed maximum price of $70,840,000. The following table detailsfacilities will be
erected on land owned in Owings Mills, Maryland.
NOTE 3 - COMMON STOCK SPLIT.
On April 30, 1998, the changesCompany's outstanding common shares split two-for-one.
All per share and share data in stockholders' equity (dollars in
thousands) during the first six monthsaccompanying unaudited condensed
consolidated statements of 1997.
Capital Unreal-
Common in ized Total
Commonincome have been adjusted to give retroactive
effect to the stock excess security stock-
stock - par of par Retained holding holders'
- shares value value earnings gains equity
__________ _______ _______ ________ ________ ________
Balance at
December 31,
1996 57,572,791 $11,514 $ 7,823 $306,566 $19,763 $345,666
Common stock
issued under
stock-based
compensation
plans 636,063 128 8,711 8,839
Purchases of
common stock (230,000) (46) (6,612) (2,997) (9,655)
Net income 62,329 62,329
Dividends
declared (15,061) (15,061)
Increase in
unrealized
security
holding gains 8,232 8,232
__________ _______ _______ ________ _______ ________
Balance at
June 30,
1997 57,978,854 $11,596 $ 9,922 $350,837 $27,995 $400,350
__________ _______ _______ ________ _______ ________
__________ _______ _______ ________ _______ ________split.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
T. Rowe Price Associates, Inc.
We have reviewed the condensed consolidated balance sheetfinancial statements of T. Rowe
Price Associates, Inc. and its subsidiaries as of June 30, 1997,1998, and the related
condensed consolidated statements of income and of cash flows for the
three- and six-month periods ended June 30, 19961997 and 1997.1998, appearing on pages
two through six of this Form 10-Q Quarterly Report. These financial
statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996,1997, and the
related consolidated statements of income, of cash flows, and of stockholders'stock-
holders' equity for the year then ended (not presented herein), and in our
report dated January 24, 199726, 1998 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth
in the accompanying condensed consolidated balance sheet as of December 31,
1996,1997, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
/s/ PRICE WATERHOUSEPricewaterhouseCoopers LLP
Baltimore, Maryland
July 23, 199721, 1998
THE ABOVE REPORT IS NOT A "REPORT" WITHIN THE MEANING OF SECTIONS 7 AND 11 OF
THE SECURITIES ACT OF 1933 AND THE INDEPENDENT ACCOUNTANTS' LIABILITY
PROVISIONS OF SECTION 11 OF THE ACT DO NOT APPLY.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
T. Rowe Price Associates, Inc. and its consolidated subsidiaries (the
Company) derives its revenue primarily from investment advisory and
administrative services provided to the sponsored Price Mutual Funds (the
Funds), other sponsored investment products,portfolios, and private accounts of other
institutional and individual investors. Investment advisory fees are
generally based on the net assets of the portfolios managed. The majority of
administrative revenues are derived from services provided to the Funds.
The Company's base of assets under management consists of a broad range of
domestic and international stock, bond, and money market mutual funds and
other investment productsportfolios which meet the varied needs and objectives of its
individual and institutional investors. During 1996 and 1997, there have
been significant net cash inflows to the stock mutual funds, particularly the
domestic funds.investment advisory clients. At June 30, 1997,1998,
total assets under management were $116.9are $141.9 billion, including $75.3$91.4 billion in
the Funds. Equity investments comprise
approximately 70%compose nearly 74% of total assets under
management.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 19971998 VERSUS 1996.1997.
Net income increased $9.3$11.1 million or 38%33% to $44.9 million or diluted
earnings per share of $0.34 from $33.8 million or $.53diluted earnings per share
from $24.5 million or $.40of $0.27. Earnings per share.share have been retroactively restated for the two-
for-one stock split effected at April 30, 1998. Total revenues increased 25%23%
from $143.7$180 million to a record quarterly total of $180.1$222 million, led by an increase of more than $31.8$35.2 million in
investment advisory fees.
Investment advisory revenuesfees from the Funds increased $20.8nearly $27.8 million as the
Fund's average fund assets under management were up $14.1during the second quarter rose $20.6
billion to $70.1$91.1 billion. Fund assets totaled $75.3$91.4 billion at June 30,
1997,1998, up $5.2 billion over the
quarterly average and up almost $8.7$10.3 billion from MarchDecember 31, 1997, with stock1997. Stock funds, accountingwhich totaled
$70.7 billion at June 30, 1998, accounted for mostapproximately 85% of the
increase. Net cash inflows to the Funds during the second quarter totaled $1.9 billion.of 1998
were nearly $1.4 billion with the balance of the change in Fund assets coming
primarily from declines in value of the funds' investment portfolios. As of
July 19, fund assets had risen nearly $3.0 billion since June 30, including
net cash inflows of about $430 million. Advisory fees from private accounts
and other sponsored productsinvestment portfolios contributed the balance of the
investment advisory revenue gains. These assets under management rose to
$41.6$50.5 billion at June 30, 1997,1998, up $5.3 billion from March 31, 1997 and
almost $6.6$7.4 billion from December 31, 1996.1997 and
$9.0 billion over the past twelve months. Total assets under management
closed the second quarter at $116.9$141.9 billion, up from $102.9 billion at March 31,
1997 and $99.4$124.3 billion at
December 31, 1996.1997 and $116.9 billion at June 30, 1997.
Administrative fees primarily from services to the Funds and their shareholders grew
$4.7$8.7 million to $34.7 million;$43.4 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 9
offset these revenue gains.
Investment and other income declined nearly $.2fell $1.6 million due primarily to a decline in
value of investment portfolios held by certain partnerships in which the
company invests.
Operating expenses increased 20% to $140.6 million. Compensation and related
costs were up $13.6 million due to lower earnings recognized from
partnership investments.
Operating expenses increased 21% or almost $20.6 million to $117.0 million.
Greaterhigher rates of compensation including
performance-based bonus accruals and related costs of $12.6 million were attributable to
a 22%16% increase in the number of
associates as well as the greater use of temporary employees, during the past twelve months,
9
primarily to supportin
the Company's growing technology support and administrative services
and data
processing operations, and to higher ratesoperations. At the end of pay including performance-
related compensation accruals.the second quarter, the Company employed more than
3,250 associates.
Advertising and promotion expenditures were
slightly lower thanincreased 24% to $17.0 million as the
prior year's quarter. Depreciation, amortizationCompany continued to take advantage of favorable marketing conditions for its
investment portfolios. These expenditures will vary over time as market
conditions and operating rentals of propertycash flows to the Funds warrant. Occupancy and equipment
expense was up 23% or $2.1 million34% due to the recent expansion of operating facilities and recent
equipment acquisitions, primarily investments in technology assets. International investment research fees
increased $2.1 million as international assets under management by Rowe
Price-Fleming International (RPFI) rose to $33.8 billion at June 30, 1997.
Administrative and general expenses increased $4.3 million due mainly to
greater costs associated with the Company's growing administrative operations
including data processing and communications capabilities.
Increased earnings by RPFI on greater assets under management was responsible
for the increase in minority interests in consolidated subsidiaries.technology.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 19971998 VERSUS 1996.1997.
Net income increased $17.5$23.8 million or 39%38% to $62.3$86.2 million or $.98diluted
earnings per share from $44.9 million or $.73 per share.of $0.66 versus $0.49 in 1997. Total revenues increased
26%24% from $276.1$348 million to a record quarterly total of more than $348almost $433 million, led by an increase of more than $61.1$69.6
million in investment advisory fees.
Investment advisory revenuesfees from the Funds increased more than $42.8nearly $51.7 million as the
Fund's average fund assets under management during the first half rose $14.9$19.5
billion to $68.6$88.1 billion. Net cash inflows to the Funds during the first
six monthshalf of 1997 totaled
$5.3 billion.1998 were more than $3.2 billion with the balance of Fund asset
growth coming from market gains. Approximately 70% of the net inflows were
to stock funds. Advisory fees from private accounts and other sponsored
productsinvestment portfolios contributed the balance of the investment advisory
revenue gains.
Administrative fees primarily from services to the Funds and their shareholders grew
$11.7$15.7 million to $69.8 million;$85.5 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 revenue gains. Investment
income declined $.9 million due to lower earnings recognized from partnership
investments.
Operating expenses increased 21% or $40.7 million19% to $230.6$275.4 million. Greater
compensationCompensation and related
costs were attributable to increases in the number
of employees and to higher rates of pay including performance-related
compensation accruals. Advertising and promotion expenditures were up 3% or
nearly $.8$24.9 million versus the first six months of 1996. Depreciation,
amortization and operating rentals of propertywhile occupancy and equipment was up $4.1costs rose
$10.2 million due to expansion of facilities and recent equipment acquisitions,
primarily investmentsor 36%. Growth in technology assets.support and administrative
services operations contributed significantly to these increases.
International investment research fees increased $4.0 million based on10% or $2.4 million. During
the higherfirst half of 1997, international assets under management by RPFI. Administrativegrew from $29.2
billion to $33.8 billion while 1998 totals have been flat on both March 31
10
and general expenses increased
almost $7.1 million due mainly to greater costs ofJune 30, at $33.6 billion including $18 billion in the Funds.
International assets are managed by the Company's growing
administrative operations including data processing and communications
capabilities.
Increased earnings by RPFI on greater assets under management was responsible
for the increase in minority interests in consolidated subsidiaries.
1050%-owned subsidiary, Rowe
Price-Fleming International, Inc. (RPFI).
FORWARD-LOOKING INFORMATION.
Information or statements provided by or on behalf of the Company from time
to time, including those within this Form 10-Q Quarterly Report, may contain
certain "forward-looking information",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 readers that any forward-looking information provided by or on
behalf of the Company is not a guarantee of future performance and that
actualperformance. 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 Company 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.
The Company's future revenues may fluctuate due to factors such as: the
total value and composition of assets under management and related cash
inflows or outflows in mutual funds and private accounts; 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 investment productsportfolios and
private accounts as compared to competing productsofferings and market indices; the
extent to which performance-based investment advisory fees are earned from
private accounts; the expense ratios of the Company's sponsored investment
products;portfolios; investor sentiment and investor confidence in mutual funds; the
ability of the Company to maintain investment management fees at current
levels; competitive conditions in the mutual funds industry; the introduction
of new mutual funds and investment products;portfolios; the ability of the Company to
contract with the Price Funds for payment for administrative services offered to
the Price Funds and Price Fundtheir shareholders; the continuation of trends in the
retirement plan marketplace favoring defined contribution plans and
participant-directed investments; and the amount and timing of income
fromrecognized on the Company's investment portfolio.
The Company's future operating results are also dependent upon the level of
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, including performance-based compensation
based on the Company's financial results, as well as changes in response to
the size of the total employee population, competitive factors, or other
reasons; changes in the manner in which the Company provides international
investment services; expenses and capital costs, including depreciation,
amortization and other non-cash charges, incurred by the Company to maintain
11
its administrative and service infrastructure; andinfrastructure, including costs incurred with
respect to readiness for Year 2000 processing; unanticipated costs that may
be incurred by the Company from time to time to protect investor accounts and
client goodwill.goodwill; and third-party noncompliance in Year 2000 processing.
The Company's revenues are substantially dependent on revenues from the Price
11
Funds, which could be adversely affected if the independent directors of one
or more of the Price Funds determined to terminate or renegotiatesignificantly alter the terms
of one or more investment management agreements.
The Company'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 business 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 in general or in particular classes of mutual funds.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Because the Company's market capitalization on January 28, 1997 was less than
$2.5 billion, this item is not applicable until the filing of the 1998 Form
10-K Annual Report.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
On July 6, 1998, RPFI, the T. Rowe Price International Stock Fund (the Fund)
and the 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 seeks to
invalidate the advisory agreement between RPFI and the Fund, and seeks
recovery of an unspecified amount of advisory fees paid by the Fund to RPFI.
This relief is sought based on an allegation that the Fund does not have a
sufficient number of independent directors, as required by the Investment
Company Act of 1940, as amended, because the Fund's 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.
The Company and RPFI believe that the factual and legal basis on which the
complaint is based is wholly unfounded, and RPFI and the other defendants
intend to defend the case vigorously. Among other things, the Company has
been advised that the structure of the board of the Fund complies with all
applicable federal and state legal and regulatory requirements and practices,
as well as with established industry norms. Accordingly, 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 operations of the
Company.
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits required to be filed by Item 601 of Regulation S-K
are filed herewith and incorporated by reference herein:
3 (ii) - Amended and Restated By-Laws of T. Rowe Price Associates, Inc.
as of April 17, 1997.
15 - Letter from Price WaterhousePricewaterhouseCoopers LLP, independent accountants,
re unaudited interim financial information.
27 - Financial Data Schedule.
All other items in Part II are omitted because they are not applicable or the
answers are none.
SIGNATURES.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on July 24, 1997.22, 1998.
T. Rowe Price Associates, Inc.
/s/ Alvin M. Younger, Jr., Chief Financial & Accounting Officer