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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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: SEPTEMBER 30, 2000.
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.
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. 121,807,939 SHARES AT
OCTOBER 25, 2000.
Exhibit index is at Item 6(a) on pages 14 - 16.
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PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
12/31/99 09/30/00
________ __________
ASSETS
Cash and cash equivalents $358,472 $ 111,684
Accounts receivable 121,637 147,496
Investments in sponsored mutual funds 233,924 180,768
Other investments 44,986 58,304
Property and equipment 210,302 245,408
Goodwill 2,474 702,215
Other assets 26,244 18,254
________ __________
$998,039 $1,464,129
________ __________
________ __________
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 37,712 $ 48,480
Accrued compensation and related costs 64,774 106,680
Income taxes payable 31,819 12,506
Dividends payable 15,614 15,816
Debt and accrued interest 17,716 319,954
Minority interests in consolidated subsidiaries 60,220 604
________ __________
Total liabilities 227,855 504,040
________ __________
Commitments and contingent liabilities
Stockholders' equity
Preferred stock, undesignated, $.20 par value -
authorized and unissued 20,000,000 shares -- --
Common stock, $.20 par value - authorized
500,000,000 shares; issued 120,107,818 shares in
1999 and 121,719,139 shares in 2000 24,022 24,344
Capital in excess of par value 48,057 71,566
Retained earnings 649,378 815,667
Accumulated other comprehensive income 48,727 48,512
________ __________
Total stockholders' equity 770,184 960,089
________ __________
$998,039 $1,464,129
________ __________
________ __________
See the accompanying notes to the condensed consolidated financial
statements.
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T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per-share amounts)
Three months Nine months
ended ended
_________________ _________________
09/30/99 09/30/00 09/30/99 09/30/00
________ ________ ________ ________
Revenues
Investment advisory fees $204,225 $239,206 $586,648 $699,740
Administrative fees 49,954 57,557 147,550 175,582
Investment and other income 5,750 6,941 17,328 45,395
________ ________ ________ ________
259,929 303,704 751,526 920,717
________ ________ ________ ________
Expenses
Compensation and related costs 83,531 98,912 247,926 284,544
Advertising and promotion 13,309 15,547 49,802 61,728
Occupancy and equipment 24,625 27,078 66,974 80,424
International investment
research fees 13,041 5,961 37,766 36,665
Goodwill amortization 186 4,276 559 4,649
Interest expense 58 3,608 111 3,730
Other operating expenses 16,824 33,810 49,32 83,176
________ ________ ________ ________
151,574 189,192 452,461 554,916
________ ________ ________ ________
Income before income taxes and
minority interests 108,355 114,512 299,065 365,801
Provision for income taxes 40,509 42,800 113,454 137,595
________ ________ ________ ________
Income from consolidated companies 67,846 71,712 185,611 228,206
Minority interests in consolidated
subsidiaries 5,625 2,529 16,287 14,650
________ ________ ________ ________
Net income $ 62,221 $ 69,183 $169,324 $213,556
________ ________ ________ ________
________ ________ ________ ________
Basic earnings per share $ .51 $ .57 $ 1.40 $ 1.77
________ ________ ________ ________
________ ________ ________ ________
Diluted earnings per share $ .48 $ .53 $ 1.31 $ 1.65
________ ________ ________ ________
________ ________ ________ ________
Dividends declared per share $ .10 $ .13 $ .30 $ .39
________ ________ ________ ________
________ ________ ________ ________
Weighted average shares outstanding 120,967 121,425 120,879 120,926
________ ________ ________ ________
________ ________ ________ ________
Weighted average shares outstanding-
assuming dilution 129,041 130,500 129,562 129,415
________ ________ ________ ________
________ ________ ________ ________
See the accompanying notes to the condensed consolidated financial
statements.
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T. ROWE PRICE ASSOCIATES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended
__________________
09/30/99 09/30/00
________ ________
Cash flows from operating activities
Net income $169,324 $213,556
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization of property
and equipment 23,548 29,966
Minority interests in consolidated subsidiaries 16,287 14,650
Amortization of goodwill 559 4,649
Change in accounts receivable (11,091) (25,588)
Change in accrued compensation 33,391 52,964
Other changes in assets and liabilities 10,020 2,885
________ ________
Net cash provided by operating activities 242,038 293,082
________ ________
Cash flows from investing activities
Acquisition of minority interests in
Rowe Price-Fleming International -- (783,194)
Investments in sponsored mutual funds (5,363) (8,699)
Dispositions of sponsored mutual funds 1,186 67,038
Other investments (23,633) (13,228)
Distributions from other investments 9,537 576
Additions to property and equipment (47,009) (66,544)
________ ________
Net cash used in investing activities (65,282) (804,051)
________ ________
Cash flows from financing activities
Purchases of stock (55,468) --
Receipts relating to stock issuances 6,674 12,293
Proceeds of bank borrowing 15,019 300,000
Dividends paid to stockholders (36,231) (47,065)
Other activities (23) (1,047)
________ ________
Net cash used in financing activities (70,029) 264,181
________ ________
Cash and cash equivalents
Net change during period 106,727 (246,788)
At beginning of year 283,838 358,472
________ ________
At end of period $390,565 $111,684
________ ________
________ ________
See the accompanying notes to the condensed consolidated financial
statements.
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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, 1999,
120,107,818 common shares $24,022 $48,057 $649,378 $48,727 $770,184
Comprehensive income
Net income 213,556
Change in unrealized
security holding gains (215)
Total comprehensive income 213,341
1,611,321 common shares
issued under stock-based
compensation plans 322 23,509 23,831
Dividends declared (47,267) (47,267)
_______ _______ ________ _______ ________
Balance at September 30, 2000,
121,719,139 common shares $24,344 $71,566 $815,667 $48,512 $960,089
_______ _______ ________ _______ ________
_______ _______ ________ _______ ________
See the accompanying notes to the condensed consolidated financial
statements.
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T. ROWE PRICE ASSOCIATES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - THE COMPANY AND BASIS OF PREPARATION.
T. Rowe Price Associates derives its consolidated revenues and net income
primarily from investment advisory services provided to individual and
institutional investors in the sponsored T. Rowe Price mutual funds and other
investment portfolios. We also provide our investment advisory clients with
related administrative services, including mutual fund transfer agent,
accounting and shareholder services; participant recordkeeping and transfer
agent services for defined contribution retirement plans; discount brokerage;
and trust services. The investors that we serve are primarily domiciled in
the United States.
Investment advisory revenues depend largely on the total value and
composition of assets under management. Accordingly, fluctuations in
financial markets and in the composition of assets under management impact
our revenues and results of operations.
These unaudited condensed consolidated financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of our results for the interim periods presented. All such
adjustments are of a normal recurring nature.
The unaudited interim financial information contained in these condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements contained in our 1999 Annual Report.
Certain 1999 amounts have been reclassified to conform to the 2000
presentation.
NOTE 2 - INFORMATION ABOUT REVENUES AND SERVICES.
Our revenues (in thousands) from advisory services provided under agreements
with our sponsored mutual funds and other investment clients for the nine
months ended September 30 were:
1999 2000
________ ________
Sponsored mutual funds
Stock and blended
Domestic $261,246 $321,830
International 87,739 111,492
Bond and money market 73,511 69,709
________ ________
422,496 503,031
Other portfolios 164,152 196,709
________ ________
Total investment advisory fees $586,648 $699,740
________ ________
________ ________
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The following table summarizes the various investment portfolios and assets
under management (in billions) on which we earn advisory fees.
Average during
first 9 months
_______________
1999 2000 12/31/99 09/30/00
______ ______ ________ ________
Sponsored mutual funds
Stock and blended
Domestic $ 60.3 $ 73.0 $ 71.2 $ 75.7
International 16.5 20.5 21.4 18.3
Bond and money market 22.2 21.7 21.9 21.7
______ ______ ______ ______
99.0 115.2 114.5 115.7
Other portfolios 55.4 64.4 65.4 63.9
______ ______ ______ ______
$154.4 $179.6 $179.9 $179.6
______ ______ ______ ______
______ ______ ______ ______
Fees for advisory-related administrative services provided to the funds were
$110.7 million and $131.2 million for the first nine months of 1999 and 2000,
respectively. Accounts receivable from the funds totaled $82.5 million at
September 30, 2000.
NOTE 3 - ROWE PRICE-FLEMING INTERNATIONAL ACQUISITION.
On April 11, 2000, we entered into an agreement with Robert Fleming Holdings
Limited to purchase its 50% interest in our consolidated subsidiary, Rowe
Price-Fleming International, which was formed in 1979 to provide U.S.
investors with international investment advisory services. On August 8,
2000, we completed our purchase of Robert Fleming's interest for $780
million. Investment banking and legal fees incurred were $3.2 million.
Immediately after completing this transaction, we changed the name of Rowe
Price-Fleming International to T. Rowe Price International. We financed the
acquisition with $483 million from our cash holdings and $300 million
borrowed under our five-year, $500 million syndicated bank credit facility
for which The Chase Manhattan Bank serves as administrative agent. The
purchase transaction resulted in goodwill of $704.4 million which will be
amortized on a straight line basis over 25 years. At September 30, 2000, T.
Rowe Price International's assets under management totaled $35.8 billion.
NOTE 4 - PENDING TRANSACTION.
On June 30, 2000, our stockholders approved the one-for-one exchange of their
shares of our outstanding common stock for that of our newly-organized
holding company, T. Rowe Price Group. The share exchange is subject to
receipt of regulatory approvals and is expected to occur before the end of
2000. The exchange will result in Price Group becoming the sole owner of
Price Associates and our stockholders becoming the stockholders of Price
Group. The exchange will be accounted for similar to a pooling-of-interests
transaction. Subsequent to the share exchange, Price Group will succeed to
Price Associates' obligation for periodic public reporting.
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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 financial statements of T. Rowe
Price Associates, Inc. and its subsidiaries as of September 30, 2000 and for
the three- and nine-month periods ended September 30, 1999 and September 30,
2000, appearing on pages two through seven 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 auditing standards generally accepted in the
United States of America, 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 for them to be in conformity with accounting principles generally
accepted in the United States of America.
We previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as
of December 31, 1999, and the related consolidated statements of income, of
cash flows, and of stockholders' equity for the year then ended (not
presented herein), and in our report dated January 25, 2000, 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, 1999, is fairly stated in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
October 25, 2000
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL.
Our revenues and net income are derived primarily from investment advisory
services provided to U.S. individual and institutional investors in our
sponsored mutual funds and other investment portfolios.
We 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 individual and institutional investors. Investment
advisory revenues depend largely on the total value and composition of assets
under management. Accordingly, fluctuations in financial markets and in the
composition of assets under management impact our revenues and results of
operations. Total assets under our management were $179.6 billion at
September 30, 2000, including $139.6 billion in equity securities.
ROWE PRICE-FLEMING INTERNATIONAL ACQUISITION.
On August 8, 2000, we completed our purchase of Robert Fleming Holdings' 50%
interest in our consolidated subsidiary, Rowe Price-Fleming International.
We financed the acquisition with $483 million from our cash holdings in the
T. Rowe Price money market funds and with borrowings of $300 million. The
purchase transaction resulted in goodwill of $704.4 million which will be
amortized on a straight line basis over 25 years. We believe that our
acquisition will be modestly dilutive to earnings per share near-term and
somewhat accretive to income before goodwill charges.
As a result of the Rowe Price-Fleming transaction, our international research
contracts with Robert Fleming affiliates were terminated. Transition
services are being provided to us by Robert Fleming affiliates during an
interim period in which we are establishing the new operating infrastructure
for our international investment operations. Additionally, we are now
expanding our marketing efforts to include European investors and may seek
other investors on a global basis. Our expenditures in these efforts may be
significant and will precede revenues from any new investment advisory
clients that we may obtain.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS 1999.
Net income increased $7 million or 11% to $69 million and diluted earnings
per share rose from $.48 to $.53. Total revenues increased 17% from $260
million to $304 million, led by an increase of $35 million in investment
advisory fees.
Investment advisory revenues earned from the T. Rowe Price mutual funds
increased $23 million as average fund assets under management during the
quarter were $116.9 billion, $14.1 billion more than in the third quarter of
1999. Fund assets rose $424 million during the three months ended September
30, 2000 and totaled $115.7 billion at quarter end, including $94.0 billion
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in stock and blended assets funds. Net cash inflows of $548 million into
domestic stock funds were more than offset by outflows during the quarter of
$379 million from international stock funds and $348 million from bond and
money market funds. Included in these amounts was our redemption of $483
million from the money market funds to partially finance our Rowe Price-
Fleming acquisition. Excluding this redemption, net cash inflows to all
funds were $304 million during the quarter. Our domestic growth stock funds
generally had net inflows while the value funds had net outflows.
Greater assets in other managed investment portfolios, including variable
annuity and other subadvised funds, resulted in the balance of our advisory
revenue gains totaling $11.9 million. Performance-related advisory fees were
$5.4 million higher this quarter than the comparable quarter last year. We
earn these performance-related fees primarily on venture capital investments
that we manage and, though recurring, these fees will vary significantly as
market conditions and investment portfolios change. Assets under management
in the other investment portfolios that we manage were $63.9 billion at
September 30, 2000, up $7.4 billion from September 30, 1999 and $200 million
from June 30, 2000.
Administrative fees from advisory-related services that we provide to the
funds and their shareholders rose $7.6 million from the third quarter of
1999 to $57.6 million. This increase is primarily attributable to transfer
agency and recordkeeping services that we provide to defined contribution
retirement plans and the T. Rowe Price mutual funds. These revenues are
largely offset by the costs that we incur in providing the services.
Operating expenses increased 25% to $189 million. Greater compensation and
related costs, which were up $15.4 million or 18%, were attributable to
increases in our rates of compensation, including performance-related
bonuses, and a 4% increase in our staff size primarily to support our growing
operations. As of September 30, 2000, we employed almost 3,900 associates.
Our advertising and promotion expenditures increased $2.2 million from last
year's quarter to $15.5 million. These costs will vary with market
conditions and investor demand for our products as we seek to expand our base
both domestically and internationally. We expect to increase spending in the
fourth quarter of 2000 to a level somewhat higher than that of the fourth
quarter last year. Occupancy and equipment expense was $2.5 million higher
in 2000 due primarily to the expansion of our operating facilities in Owings
Mills in late 1999 and early 2000. New goodwill and interest charges arising
from our Rowe Price-Fleming acquisition were $4.1 million and $3.5 million,
respectively, during the third quarter of 2000. Because the acquisition
occurred in August, these charges will increase in the fourth quarter and
thereafter. Other operating expenses increased $17 million largely due to
significant technology expenditures that are broad-based and include spending
on current activities and new business initiatives. Additional expenses in
connection with our international expansion contributed to the higher expense
levels. We anticipate that these expenses will continue to be higher in the
fourth quarter and thereafter in comparison to prior comparable periods, but
that the amount of increase will moderate in comparison to the third quarter.
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RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS 1999.
Net income increased $44 million or 26% to nearly $214 million and diluted
earnings per share rose from $1.31 to $1.65. Total revenues increased 23%
from $752 million to $921 million, led by increases of $113 million in
investment advisory fees and $28 million in investment income.
Investment advisory revenues earned from the T. Rowe Price mutual funds
increased $80.5 million as average fund assets under management during the
first nine months of 2000 were $115.2 billion, $16.2 billion more than in the
comparable period last year. Fund assets increased $1.3 billion during the
2000 period after net cash outflows from the funds of $698 million. Net cash
inflows in 2000 of $911 million into domestic stock funds were more than
offset by outflows of $590 million from international stock funds and $1
billion from bond and money market funds. Included in these amounts was our
redemption of $483 million from the money market funds to partially finance
our Rowe Price-Fleming acquisition. Excluding our redemption, net cash
outflows from all funds were $215 million in the 2000 period.
Greater assets in other managed investment portfolios resulted in the balance
of our advisory revenue gains totaling $32.6 million. Performance-related
advisory fees account for $6.3 million of this increase.
Administrative fees from advisory-related services rose $28.0 million from
the first nine months of 1999 to $175.6 million. These revenues are largely
offset by the costs that we incur in providing the services.
Investment and other income rose $28.1 million from the first nine months of
1999 to $45.4 million. The strong IPO markets of late 1999 and early 2000
produced significant market gains and distributions this year from our
venture investments. Higher returns on these investments account for $11.5
million of the increase; however, income from this source will vary with
market conditions and the size of our investments. Net gains on stock and
bond mutual fund dispositions added $7.6 million this year; larger cash
holdings prior to the Rowe Price-Fleming acquisition added $4 million; and
foreign currency rate fluctuations added another $3 million in 2000. We
expect that investment income will generally be lower in future periods due
to our smaller cash balances and bond fund holdings.
Operating expenses increased $102 million to almost $555 million. Greater
compensation costs added $37 million while other operating expenses were up
$34 million.
CAPITAL RESOURCES AND LIQUIDITY.
We financed the Rowe Price-Fleming International acquisition from available
cash holdings of $483 million and borrowings of $300 million from the five-
year, $500 million syndicated bank credit facility that we obtained in June
2000. Borrowings are set at an interest rate at 7.185% until November 8,
2000. We have also obtained a complementary $100 million, 364-day syndicated
bank credit facility. We expect that available cash resources will be used
<PAGE> 12
to reduce outstanding borrowings in the fourth quarter of 2000 by a modest
amount.
FORWARD-LOOKING INFORMATION.
From time-to-time, information or statements provided by or on behalf of T.
Rowe Price, including those within this Form 10-Q Quarterly Report, may
contain certain "forward-looking information," including information relating
to anticipated growth in our revenues or earnings, anticipated changes in the
amount and composition of assets under management, our anticipated expense
levels, and our expectations regarding financial market and other conditions.
Readers are cautioned that any forward-looking information provided by or on
behalf of T. Rowe Price is not a guarantee of future performance. Actual
results may differ materially from those in forward-looking information 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 we undertake 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.
Our future revenues will fluctuate due to many factors, such as the total
value and composition of assets under our management and related cash inflows
or outflows in the T. Rowe Price mutual funds and other managed investment
portfolios; fluctuations in worldwide financial markets, including those in
emerging countries, resulting in appreciation or depreciation of assets under
our management; the relative investment performance of the Price mutual funds
and other managed investment portfolios as compared to competing offerings
and market indices; the extent to which we earn performance-based investment
advisory fees; the expense ratios of the Price mutual funds; investor
sentiment and investor confidence; the ability to maintain our investment
management and administrative fees at appropriate levels; competitive
conditions in the mutual fund, asset management, and broader financial
services sectors; our introduction of new mutual funds and investment
portfolios; our ability to contract with the Price 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 participant-directed
investments; and the amount and timing of income recognized on our venture
capital and other investments. Our revenues are substantially dependent on
fees earned under contracts with the Price funds and could be adversely
affected if the independent directors of one or more of the Price funds
determined to terminate or significantly alter the terms of the investment
management or related administrative services agreements.
Our future operating results are also dependent upon the level of our
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, expansion of marketing efforts both within the U.S. and
internationally, or other factors; variations in the level of compensation
expense due to, among other things, performance-based bonuses, changes in our
<PAGE> 13
employee count and mix, and competitive factors; changes in expense levels
resulting from our acquisition of the minority interests in Rowe Price-
Fleming International, including goodwill charges and interest expense, and
from differences in the manner in which we provide support for our
international investment advisory services; expenses and capital costs, such
as technology assets, depreciation, amortization and research and
development, incurred to maintain and enhance our administrative and
operating services infrastructure, including Internet capabilities;
unanticipated costs that may be incurred to protect investor accounts and the
goodwill of our clients; and disruptions of services, including those
provided by third parties such as communications, power, and the mutual fund
transfer agent system.
Our business is also subject to substantial governmental regulation, and
changes in legal, regulatory, accounting, tax, and compliance requirements
may have a substantial effect on our operations and results, including but
not limited to effects on costs we incur and effects on investor interest in
mutual funds and investing in general or in particular classes of mutual
funds or other investments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Since December 31, 1999, there has been no material change in the information
provided in Item 7A of the 1999 Form 10-K Annual Report.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
On July 6, 1998, Rowe Price-Fleming, the T. Rowe Price International Stock
Fund and the fund's five directors were named as defendants in 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 Rowe Price-Fleming and the
International Stock Fund, and sought recovery of an unspecified amount of
advisory fees paid by the International Stock Fund to Rowe 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 certain of its subsidiaries which provide
services to the 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, but the fund directors were excluded as
defendants. The Second Amended Complaint alleged a claim under Section 36(b)
<PAGE> 14
of the Investment Company Act 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 fees
paid to the corporate defendants were excessive and (ii) the advisory
agreements were not negotiated at arm's length because each of the boards of
directors of the Price funds is not independent as required under the
Investment Company Act of 1940. On March 19, 1999, we and the other
defendants filed a Motion to Dismiss the Second Amended Complaint. In an
order dated March 20, 2000, our motion was granted and the case dismissed
with prejudice. On April 6, 2000, the plaintiffs filed a Notice of Appeal of
the Dismissal of the case. On June 16, 2000, we and the other defendants
filed a Brief with the United States Court of Appeals (Fourth Circuit) to
affirm the District Court's judgment.
From time to time, claims arise in the ordinary course of our business,
including employment-related claims. After consulting with counsel, we
believe it unlikely that any adverse determination in one or more pending
claims would have a material adverse effect on our financial condition or
results of operations.
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. Exhibits 10.06
through 10.11 are compensatory plan arrangements.
2.01 Agreement and Plan of Exchange as of April 30, 2000 between
T. Rowe Price Associates, Inc. and T. Rowe Price Group, Inc.
(Incorporated by reference from Form 424B3; Accession No.
0001113169-00-000003.)
2.02 Form of Articles of Share Exchange between T. Rowe Price
Associates, Inc. and T. Rowe Price Group, Inc. (Incorporated
by reference from Form 424B3; Accession No. 0001113169-00-
000003.)
2.03 Stock Purchase Agreement dated as of April 11, 2000 by and
between Robert Fleming Holdings Limited and its wholly owned
subsidiaries Jardine Fleming International Holdings Limited
and Copthall Overseas Limited, T. Rowe Price Associates,
Inc., and The Chase Manhattan Corporation.
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.)
<PAGE> 15
4.01 $500,000,000 Five-Year Credit Agreement among T. Rowe Price
Associates, Inc., the several lenders, and The Chase
Manhattan Bank, as administrative agent.
10.01 Representative Investment Management Agreement with each of
the T. Rowe Price mutual funds. (Incorporated by reference
from Form N-1A/A; Accession No. 0001046404-97-000008.)
10.02 Transfer Agency and Service Agreement dated as of January 1,
2000 between each of the T. Rowe Price mutual funds and T.
Rowe Price Services, Inc. (Incorporated by reference from
Form 485BPOS; Accession No. 0001012968-00-000024.)
10.03 Agreement dated January 1, 2000, as amended February 9, 2000,
between T. Rowe Price Retirement Plan Services, Inc. and each
of the T. Rowe Price taxable mutual funds. (Incorporated by
reference from Form 485BPOS; Accession No. 0001012968-00-
000024.)
10.04 Representative Underwriting Agreement between each of the T.
Rowe Price mutual funds and T. Rowe Price Investment
Services, Inc. (Incorporated by reference from Form N-1A/A;
Accession No. 0001046404-97-000008.)
10.05 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.)
10.06 T. Rowe Price Associates, Inc. 1990 Stock Incentive Plan.
(Incorporated by reference from Form S-8 Registration
Statement [File No. 33-37573].)
10.07 T. Rowe Price Associates, Inc. 1993 Stock Incentive Plan.
(Incorporated by reference from Form S-8 Registration
Statement [File No. 33-72568].)
10.08 T. Rowe Price Associates, Inc. 1995 Director Stock Option
Plan. (Incorporated by reference from Form DEF 14A;
Accession No. 000933259-95-000009; CIK 0000080255.)
10.09 T. Rowe Price Associates, Inc. 1996 Stock Incentive Plan.
(Incorporated by reference from Form DEF 14A; Accession No.
0001006199-96-000031; CIK 0000080255.)
10.10 T. Rowe Price Associates, Inc. 1998 Director Stock Option
Plan. (Incorporated by reference from Form DEF 14A;
Accession No. 00080255-98-000355.)
<PAGE> 16
10.11 Executive Incentive Compensation Plan. (Incorporated by
reference from Form DEF 14A; Accession No. 933259-95-000009;
CIK 0000080255.)
15 Letter from PricewaterhouseCoopers LLP, independent
accountants, re unaudited interim financial information.
27 Financial Data Schedule.
(b) A report on Form 8-K dated August 8, 2000 was filed on August 22, 2000
reporting the acquisition of the minority interests in Rowe Price-
Fleming International. (Accession No. 0000080255-00-000437.)
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 October 26, 2000.
T. Rowe Price Associates, Inc.
/s/ George A. Roche
Chairman, President & Principal Financial Officer
/s/ Joseph P. Croteau, CPA
Vice President, Treasurer & Controller
