-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DfHBahxNbbQM+qk0S/Vh6sNiCtPPbVncZrUbyEGL64OivxGyZxUBRKWGCDZDR7GZ NVc8nlyFfe12IpcskKYVFA== 0000080255-99-000455.txt : 19990309 0000080255-99-000455.hdr.sgml : 19990309 ACCESSION NUMBER: 0000080255-99-000455 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE ASSOCIATES INC /MD/ CENTRAL INDEX KEY: 0000080255 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 520556948 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14282 FILM NUMBER: 99559568 BUSINESS ADDRESS: STREET 1: 100 EAST PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: (410) 345-2000 MAIL ADDRESS: STREET 1: P.O. BOX 89000 CITY: BALTIMORE STATE: MD ZIP: 21289 10-K 1 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. 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 last reported NNM price) held by non-affiliates of the registrant (excludes executive officers and directors). $3,315,800,000 AT FEBRUARY 16, 1999. Indicate the number of shares outstanding of the registrant's common stock, as of the latest practicable date. 120,630,067 SHARES AT MARCH 5, 1999. Documents incorporated by reference: IN PART III OF THIS FORM 10-K, THE DEFINITIVE PROXY STATEMENT FOR THE 1999 ANNUAL MEETING OF STOCKHOLDERS (FORM DEF 14A; ACCESSION NO. 0000080255-99-000454). Exhibit index is at Item 14(a)3 on pages 37 - 39. 2 PART I. ITEM 1. BUSINESS. T. Rowe Price Associates, Inc. (Price Associates) and its consolidated subsidiaries (collectively, the Company) serve as investment adviser to individual and institutional investors in the sponsored T. Rowe Price Mutual Funds (the Price Funds) and private account investment portfolios, including those of defined benefit and defined contribution retirement plans, endowments, foundations, trusts, and other mutual funds, including those that hold the assets of variable annuity insurance contracts. Total assets under management increased $23.5 billion during 1998 to $147.8 billion at year-end, including $86.2 billion of retirement assets and $107.9 billion of equity investments. The Company also provides 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 in the United States of America. The Company was incorporated in Maryland in 1947 as successor to the investment counseling business formed by the late Mr. T. Rowe Price in 1937. The Company offers the Price Funds' shareholders and private account advisory clients a broad range of investment portfolios designed to attract and retain investors with varying investment objectives. Shareholders are allowed to exchange balances among mutual funds as economic and market conditions and investor needs change. The Company frequently introduces new mutual funds and investment portfolios designed to complement and expand its investment offerings, respond to competitive developments in the financial marketplace, and meet the changing needs of its investment advisory clients. New mutual funds and other investment portfolios are introduced when the Company believes that it has personnel with sufficient investment expertise to manage the portfolio successfully for a substantial group of investors over a long period of time. 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 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. Administrative services are provided as an ancillary service to investment advisory clients; the majority of administrative revenues results from services rendered under annual contracts to the Price Funds. These administrative services do not significantly impact the Company's net income. In the performance of its investment advisory function, the Company uses fundamental, technical and cyclical security analyses. The Company maintains a substantial internal equity and fixed income investment research effort, which includes original industry and company research using such sources as inspection of corporate activities, management interviews, 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 or competitors in the industry or business sector. In addition, the Company utilizes research provided by brokerage firms in a supportive capacity; information is received from private economists, political observers, foreign commentators, government experts, and market and security analysts. In certain instances, computerized data analyses are the bases of the stock selection process. Investment objectives for the managed investment portfolios, including the Price Funds, accommodate a variety of strategies. Investors in the Price Funds select funds for investment based on the unique approaches that are detailed in each fund's prospectus. Investment management of private account stock portfolios include active approaches similar to those employed in several of the Price Funds, including ones emphasizing large-cap blue chip growth, large-cap value, mid-cap growth, mid-cap value, small-cap, small-cap growth, small-cap value, international, and natural resources as well as systematic and balanced portfolio strategies. Approaches for private account investing in fixed income securities include active and systematic management strategies. The Company has also developed several specialized investment advisory services including investing in private companies with prospects of becoming public companies, investing in securities and creditor claims of financially-troubled companies, the efficient disposition of equity distributions from venture capital investments, and stable value investment contract management. Information concerning revenues, results of operations and assets under management during the past three years is contained in the consolidated statements of income and in note 5 to the consolidated financial statements included in Item 8 of this Form 10-K. PRICE FUNDS. The Company provides investment advisory, distribution and other administrative services to the Price Funds under investment management, underwriting, transfer agency and service agreements. Pursuant to 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's fundamental investment objective. The investment management agreements with the Price Funds are approved annually by the boards of the respective funds, including a majority who are not "interested persons" of the funds or the Company as defined under the Investment Company Act of 1940, as amended (the Investment Company Act). Amendments to such agreements must be approved by the Price Funds' shareholders. Each agreement automatically terminates in the event of its assignment (as defined in the Investment Company Act) and 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. The Company is paid an investment advisory fee based upon the average daily net assets of each fund. Additionally, distinct fees are earned for other 4 investment-advisory related administrative services. Management of the Company and the independent directors and trustees of the Price Funds 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) is computed by multiplying the individual fund's average daily net assets by a fee rate equal to the sum of a group charge based on the combined net assets of the Price Funds and the applicable individual fund charge. As the combined net assets of the Price Funds increase, the group charge component of fee rates decreases. Details of fund fee arrangements are available to all fund investors in the offering prospectus for each of the Price Funds. Except as noted in the following paragraph, each fund (excluding the Price Spectrum and Summit Funds) bears all expenses associated with the operation of the fund and the issuance and redemption of its securities. In particular, each fund pays 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, promotion and selling expenses are borne by the Company. The Company generally guarantees that a newly-organized fund's expenses will not exceed a specified percentage of the fund's net assets during its initial operations. Advisory fees and other mutual fund expenses in excess of these self-imposed limits are absorbed by the Company 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 of the Price Funds. TRP Investment Services does not receive a separate fee for its services to the Price Funds. The Company expends substantial resources in advertising and direct mail communications to existing and potential Price Funds' shareholders and in providing the staff and communications capabilities to respond to inquiries. The Company's marketing effort has traditionally been focused in the print media, but in recent years, the Company has expanded its promotional activities to 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. In addition, considerable marketing efforts are targeted at participant-directed defined contribution plans that invest, in whole or in part, in mutual funds. Pursuant to agreements with the Price Funds, T. Rowe Price Services, Inc. (TRP Services) provides 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 provides 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) provides participant accounting, plan administration and transfer agent services for defined contribution retirement plans that invest in the Price Funds. Plan sponsors compensate TRP Retirement Plan Services for certain services while the Price Funds compensate it for maintaining and administering the individual participant accounts for those plans that invest in the Price Funds. The Company provides certain trust services through its Maryland-chartered limited-service 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 sponsors common trust funds principally for investment by qualified retirement plans. Under its charter, TRP Trust Company may not be in the business of accepting 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. At December 31, 1998, assets under management in the Price Funds aggregated $94.4 billion, an increase of $13.3 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). The following information sets forth the net assets (in millions) at December 31, 1998 of each fund available to the investing public and includes the year the fund was added to the Price family of funds. STOCK AND BALANCED FUNDS: DOMESTIC: Growth Stock (1950) $ 5,041 New Horizons (1960) 5,229 New Era (1969) 999 Growth & Income (1982) 3,563 Equity Income (1985) 13,494 New America Growth (1985) 2,064 Capital Appreciation (1986) 1,004 Science & Technology (1987) 4,696 Small-Cap Value (1988) 1,632 Equity Index 500 (1990) 3,348 6 Balanced (1991) $ 1,650 Dividend Growth (1992) 1,338 Mid-Cap Growth (1992) 3,310 Small-Cap Stock (1992) 1,153 Blue Chip Growth (1993) 4,330 Media & Telecommunications (1993) 246 Capital Opportunity (1994) 125 Personal Strategy - Balanced (1994) 421 Personal Strategy - Growth (1994) 194 Personal Strategy - Income (1994) 213 Value (1994) 775 Health Sciences (1995) 317 Financial Services (1996) 224 Mid-Cap Value (1996) 221 Diversified Small-Cap Growth (1997) 70 Real Estate (1997) 28 Tax-Efficient Balanced (1997) 32 Extended Equity Market Index (1998) 21 Total Equity Market Index (1998) 61 INTERNATIONAL: International Stock (1980) 10,142 International Discovery (1988) 193 European Stock (1990) 1,549 New Asia (1990) 622 Japan (1991) 181 Latin America (1993) 182 Emerging Markets Stock (1995) 72 Global Stock (1995) 49 International Growth & Income (1998) 2 BOND AND MONEY MARKET FUNDS: New Income (1973) 2,103 Prime Reserve (1976) 5,100 Tax-Free Income (1976) 1,481 Tax-Exempt Money (1981) 764 U.S. Treasury Money (1982) 927 Tax-Free Short-Intermediate (1983) 458 High Yield (1984) 1,704 Short-Term Bond (1984) 347 GNMA (1985) 1,146 Tax-Free High Yield (1985) 1,344 California Tax-Free Bond (1986) 220 California Tax-Free Money (1986) 102 International Bond (1986) 926 New York Tax-Free Bond (1986) 210 New York Tax-Free Money (1986) 104 Maryland Tax-Free Bond (1987) 1,039 U.S. Treasury Intermediate (1989) 263 U.S. Treasury Long-Term (1989) 310 Global Government Bond (1990) 42 New Jersey Tax-Free Bond (1991) 118 Short-Term U.S. Government (1991) 136 7 Virginia Tax-Free Bond (1991) $ 270 Tax-Free Intermediate Bond (1992) 119 Florida Intermediate Tax-Free Bond (1993) 116 Georgia Tax-Free Bond (1993) 59 Maryland Short-Term Tax-Free Bond (1993) 119 Summit Cash Reserves (1993) 1,867 Summit GNMA (1993) 50 Summit Limited-Term Bond (1993) 50 Summit Municipal Income (1993) 72 Summit Municipal Intermediate (1993) 81 Summit Municipal Money Market (1993) 173 Emerging Markets Bond (1994) 148 Virginia Short-Term Tax-Free Bond (1994) 27 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, 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 series 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 billion at December 31, 1998, are included in the amounts presented above for each underlying fund. OTHER INVESTMENT PORTFOLIOS. The Company serves as investment adviser to other private account investors. Total assets in these portfolios aggregate $53.4 billion at December 31, 1998. No private account client accounted for more than 1.5% of the Company's 1998 investment advisory revenues. Investment management services are provided to client accounts on an individual, separately-managed basis and through sponsored investment portfolios organized generally as partnerships and common trust funds. Sponsored investment portfolios have generally been issued through private placements. Various special-purpose subsidiaries generally serve as the general partner of the sponsored investment partnerships. Fees for separately managed private account clients are generally computed based on the value of assets under management. The standard form of investment advisory agreement with private account clients provides that the agreement may be terminated at any time and that any unearned fees paid in advance will be refunded. Fees for sponsored portfolio management are based on individual advisory agreements that consider, among other things, the unique investment management services to be provided. Many specialized investment advisory services are provided to private accounts by Price Associates and its investment adviser subsidiaries. International equity and fixed income securities management, which totalled $15.4 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 provided by T. Rowe Price Stable Asset Management, Inc. (TRP Stable Asset Management). RPFI. The Company's investment holding company subsidiary, TRP Finance, Inc., owns 50% of the common stock of RPFI which, by virtue of the Company's controlling interest,is 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 merchant 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.) During 1998, international assets under management by RPFI increased $2.9 billion to $32.9 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 RPFI by affiliates of its minority stockholders. Fees paid for these services are based on RPFI's assets under management. REGULATION. Price Associates, RPFI, TRP 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 Services is registered under the Securities Exchange Act of 1934 (Exchange Act) as a transfer agent, and TRP 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. TRP Investment Services is registered as a broker-dealer under the Exchange Act and all applicable state securities laws and is a member of the National Association of Securities Dealers and the Securities Investor Protection Corporation. TRP Investment Services provides discount brokerage services primarily to complement the other investment services offered to shareholders of the Price Funds. All discount brokerage transactions are cleared through and accounts maintained by BHC Securities, Inc., an independent clearing broker. All aspects of the Company's business are subject to extensive federal and state laws and regulations. These laws and regulations are primarily intended to benefit or protect the Company's clients and the Price Funds' shareholders and generally grant supervisory agencies and bodies broad administrative powers, including the power to limit or restrict the Company from carrying on its business in the event that it fails to comply with such laws and regulations. In such event, the possible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment adviser and other registrations, censures and fines. 9 The Company and certain of its subsidiaries are subject to net capital requirements including those of various federal and state regulatory agencies. The Company's net capital, as defined, has consistently met or exceeded all minimum requirements. COMPETITION. As a member of the financial services industry, the Company is subject to substantial competition in all aspects of its business. A significant number of mutual funds are sold to the public by investment management firms, broker-dealers, banks and insurance companies and, in recent years, brokerage and other mutual fund companies have extended their offerings to include other sponsors' mutual funds. The Company competes with brokerage and investment banking firms, insurance companies, banks, and other financial institutions in all aspects of its business. Many of these financial institutions have substantially greater resources than the Company. The Company competes 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 believes that competition within the investment management industry will increase as a result of consolidation and acquisition activity. In order to maintain and enhance its competitive position as an independent, no-load, direct marketer of mutual funds, the Company may review acquisition prospects and, if appropriate opportunities arise, engage in discussions or negotiations that could lead to acquisitions by the Company. The Company is not currently party to any agreements or understandings regarding any acquisitions or ventures, except as set forth in the capital resources and liquidity discussion in Item 7 of this Form 10-K. EMPLOYEES. At December 31, 1998, the Company and its subsidiaries had almost 3,500 active, full-time employees. The Company also employs additional temporary and part-time personnel to meet periodic or special project demands of its technology-based support functions and for its mutual fund administrative services. ITEM 2. PROPERTIES. The Company's primary corporate offices consist of approximately 270,000 square feet of leased space located at 100 East Pratt Street in Baltimore, Maryland. The Company owns 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 a 46,000 square foot technology center on a separate parcel of land in Owings Mills, Maryland. Information concerning anticipated 1999 capital expenditures 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. Future minimum rental payments under noncancelable operating leases at December 31, 1998 are set forth in note 7 to the consolidated financial statements included in Item 8 of this Form 10-K. ITEM 3. LEGAL PROCEEDINGS. On July 6, 1998, RPFI, the T. Rowe Price International Stock Fund (the International Stock Fund) and its 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 RPFI 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 allegation 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 T. Rowe Price Growth Stock Fund, T. Rowe Price Associates, and three of the Company's wholly-owned subsidiaries (T. Rowe Price Investment Services, T. Rowe Price Services and T. Rowe Price Retirement Plan Services) 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, though the fund directors were excluded. The Company believes that the factual and legal basis on which the complaint is based is wholly unfounded, and the Company and the other defendants intend to defend the case vigorously. 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. From time to time, the Company is a party to various claims arising 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. 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's stockholders during the fourth quarter of 1998. ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT. The following information includes the names, ages, and positions of the executive officers of the Company. There are no arrangements or understandings pursuant to which any person serves the Company. George A. Roche (57), Chairman (1997), President (1997), Managing Director (1989) and Chief Financial Officer (1984-1997) James S. Riepe (55), Vice Chairman (1997) and Managing Director (1989) M. David Testa (54), 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), Managing Director (1995) and Vice President (1989-1995) Michael A. Goff (39), Managing Director (1997) and Vice President (1994-1997) Henry H. Hopkins (56), Managing Director (1989) James A.C. Kennedy (45), Managing Director (1990) Wayne D. O'Melia (46), Managing Director (1998) and Vice President (1991-1998) William T. Reynolds (50), Managing Director (1990) Charles E. Vieth (42), Managing Director (1993) Similar information for certain significant employees who are the Company's other managing directors follows. John H. Laporte (53), Managing Director (1989) Brian C. Rogers (43), Managing Director (1991) Preston G. Athey (49), Managing Director (1997) and Vice President (1991-1997) Brian W.H. Berghuis (40), Managing Director (1997) and Vice President (1991-1997) Stephen W. Boesel (54), Managing Director (1993) Gregory A. McCrickard (40), Managing Director (1998) and Vice President (1991-1998) Mary J. Miller (43), Managing Director (1993) Charles A. Morris (36), Managing Director (1995) and Vice President (1990-1995) George A. Murnaghan (42), Managing Director (1997) and Vice President (1986-1997) Edmund M. Notzon (53), Managing Director (1997) and Vice President (1991-1997) Larry J. Puglia (38), Managing Director (1998) and Vice President (1993-1998) John R. Rockwell (56), Managing Director (1998) and Vice President (1991-1998) R. Todd Ruppert (42), Managing Director (1997) and Vice President (1988-1997) Robert W. Smith (37), Managing Director (1998) and Vice President (1993-1998) 12 William J. Stromberg (38), Managing Director (1998) and Vice President (1990-1998) Richard T. Whitney (40), Managing Director (1995) and Vice President (1988-1995) PART II. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's 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 ________ ________ ________ ________ 1997 - High price $ 27.125 $ 26.000 $ 33.938 $ 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 22.750 Cash dividends declared .085 .085 .085 .10 At February 16, 1999, there were approximately 3,600 registered holders of record of the Company's outstanding common stock. The Company currently expects that cash dividends comparable to that paid for the fourth quarter of 1998 will be continued for the first three quarters of 1999. 13 ITEM 6. SELECTED FINANCIAL DATA. Year ended December 31, ____________________________________________________ 1994 1995 1996 1997 1998 ________ ________ ________ ________ ________ (in millions, except per-share amounts) Revenues $ 382.4 $ 439.3 $ 586.1 $ 755.0 $ 886.1 Net income $ 61.2 $ 75.4 $ 98.5 $ 144.4 $ 174.1 Basic earnings per share (1) $ .53 $ .66 $ .86 $ 1.24 $ 1.46 Diluted earnings per share (1) $ .50 $ .62 $ .79 $ 1.13 $ 1.34 Cash dividends declared per share (1) $ .1375 $ .1725 $ .2225 $ .28 $ .355 Weighted average shares outstanding (1) 115.5 114.2 114.5 116.3 119.1 Weighted average shares outstanding - assuming dilution (1) 122.3 122.1 123.9 128.1 130.0 December 31, ________________________________________________ 1994 1995 1996 1997 1998 ________ ________ ________ ________ ________ (in millions, except as noted) Balance sheet data Total assets $ 297.3 $ 365.3 $ 478.8 $ 646.1 $ 796.8 Debt $ 12.6 $ -- $ -- $ -- -- Stockholders' equity $ 216.2 $ 274.2 $ 345.7 $ 486.7 $ 614.3 Common shares outstanding (1) 114.3 114.7 115.1 118.2 120.2 Assets under manage- ment (in billions) $ 57.8 $ 75.4 $ 99.4 $ 124.3 $ 147.8 (1) 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 revenue and net income primarily from investment advisory services provided to individual and institutional investors in the Company's sponsored mutual funds and private account investment portfolios. The Company 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. 14 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 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, assets under management totalled $147.8 billion, including $94.4 billion in the mutual funds. Equity investments comprise 73% of all assets under management at the end of 1998. RESULTS OF OPERATIONS. 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 totalled $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 totalled $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. 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. 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'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, stockholders' equity increased 124% from $274 million to $614 million. Stockholders' equity at December 31, 1998 includes $49.1 million of unrealized security holding gains (before income taxes) on the Company's investments in sponsored mutual funds and $31.9 million which is restricted as to use under various regulations and agreements to which the Company and its subsidiaries are subject in the ordinary course of business. At December 31, 1998, the Company held net liquid assets of almost $400 million to meet business demands and opportunities. Operating activities provided net cash inflows of $232.0 million in 1998 as net income increased $29.7 million from the prior year. Comparatively, 1997 provided net operating cash inflows of $197.8 million. Net cash expended in investing activities during 1998 totalled $67.6 million, a $12.1 million decrease from 1997. Property and equipment expenditures decreased $13.5 million to $56.6 million in 1998, due to lower expenditures for furniture 17 which in 1997 was acquired to outfit completed buildings and for computer equipment which in 1998 was acquired under operating leases. Financing activities consumed $81.0 million in 1998, up $48.7 million from 1997. This increase includes $26.8 million attributable to the repurchase of Company stock, $10.3 million in dividends paid to common stockholders, and $9.5 million in distributions to RPFI's minority interests. The Company anticipates 1999 property and equipment acquisitions of more than $80 million, including approximately $41 million for the completion of two office buildings and parking garages in Owings Mills, Maryland. 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. Information or statements provided by or on behalf of the Company from time to time, 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 readers that any forward-looking information provided by or on behalf of the Company 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 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. In addition to those factors discussed above with respect to the Year 2000 processing issue, the Company's future revenues may fluctuate due to other factors such as: the total value and composition of assets under management and related cash inflows or outflows in mutual funds and private account 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; 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; the introduction of new mutual funds and investment portfolios; the ability of the Company to contract with the 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 the Company's investment portfolio. The Company's 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 more investment management and/or related administrative services agreements. The Company's future 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, 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 its administrative and services infrastructure, 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; and third-party noncompliance in Year 2000 processing. 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 and investing in general or in particular classes of mutual funds or other investments. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company 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 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 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 using each fund s lowest fair value per share during 1998. 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) it is likely that the Company would modify the composition of its mutual fund investment portfolios if adverse market conditions persisted; and 3) the Company could experience future losses in excess of those presented below. 21 Fair value at Potential December 31, % of lower % of Potential loss 1998 Portfolio value Portfolio of value _____________ _________ _________ _________ _______________ Stock funds Domestic $107,364 56 $ 84,162 52 $23,202 22% International 25,976 13 21,448 14 4,528 17 ________ ___ ________ ___ _______ Total 133,340 69 105,610 66 27,730 21 Balanced funds 18,838 10 16,594 10 2,244 12 Bond funds 40,736 21 39,212 24 1,524 4 ________ ___ ________ ___ _______ $192,914 100 $161,416 100 31,498 16 ________ ___ ________ ___ ________ ___ ________ ___ Less potential loss attributable to minority interests 534 _______ Potential loss before income taxes attributable to accumulated comprehensive income $30,964 _______ _______ Investments in mutual funds generally moderate market risk because funds, by their nature, invest in a number of different financial instruments. The Company further manages its exposure to market risk by diversifying its investments into numerous stock, balanced, and bond funds, as well as both domestic and international funds. In addition, the Company will alter its investment holdings from time-to-time, in response to changes in market risks and other factors, as deemed appropriate by management. As noted in Item 7, the Company's 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, its revenues and net income. Foreign currency denominated assets and liabilities are not material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Index to Financial Statements: Report of Independent Accountants 22 Consolidated Balance Sheets at December 31, 1997 and 1998 23 Consolidated Statements of Income for each of the three years in the period ended December 31, 1998 24 Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998 25 Consolidated Statements of Stockholders' Equity for each of the three years in the period ended December 31, 1998 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, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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 generally accepted auditing standards 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, 1999 23 T. ROWE PRICE ASSOCIATES, INC. CONSOLIDATED BALANCE SHEETS December 31, __________________ 1997 1998 ________ ________ (in thousands) ASSETS Cash and cash equivalents (Note 1) $200,409 $283,838 Accounts receivable (Note 5) 86,795 100,702 Investments in sponsored mutual funds (Note 1) 173,729 192,914 Partnership and other investments (Note 7) 19,030 26,597 Property and equipment (Note 2) 142,497 166,612 Other assets (Note 6) 23,607 26,121 ________ ________ $646,067 $796,784 ________ ________ ________ ________ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable and accrued expenses $ 30,722 $ 45,737 Accrued compensation and retirement costs 49,694 56,757 Income taxes payable (Note 3) 19,102 15,308 Dividends payable 10,039 12,012 Minority interests in consolidated subsidiaries 49,837 52,666 ________ ________ Total liabilities 159,394 182,480 ________ ________ Commitments and contingent liabilities (Notes 2, 6 and 7) Stockholders' equity (Notes 1, 4 and 7) 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; issued 59,097,705 shares in 1997 and 120,183,266 shares in 1998 11,819 24,037 Capital in excess of par value 30,707 41,073 Retained earnings 415,279 517,631 Accumulated other comprehensive income 28,868 31,563 ________ ________ Total stockholders' equity 486,673 614,304 ________ ________ $646,067 $796,784 ________ ________ ________ ________ 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 ________ ________ ________ (in thousands, except per-share amounts) Revenues (Notes 1 and 5) Investment advisory fees $451,307 $588,014 $684,296 Administrative fees 117,803 144,906 173,321 Investment and other income 16,960 22,037 28,525 ________ ________ ________ 586,070 754,957 886,142 ________ ________ ________ Expenses Compensation and related costs (Notes 4 and 6) 196,925 253,676 304,376 Advertising and promotion 58,291 66,954 73,044 Occupancy and equipment (Note 7) 51,850 68,018 83,374 International investment research fees 39,328 47,105 48,066 Other operating expenses (Note 7) 52,205 54,445 64,468 ________ ________ ________ 398,599 490,198 573,328 ________ ________ ________ Income before income taxes and minority interests 187,471 264,759 312,814 Provision for income taxes (Note 3) 72,608 101,208 118,676 ________ ________ ________ Income from consolidated companies 114,863 163,551 194,138 Minority interests in consolidated subsidiaries 16,410 19,154 19,998 ________ ________ ________ Net income $ 98,453 $144,397 $174,140 ________ ________ ________ ________ ________ ________ Earnings per share Basic $ .86 $ 1.24 $ 1.46 ________ ________ ________ ________ ________ ________ Diluted $ .79 $ 1.13 $ 1.34 ________ ________ ________ ________ ________ ________ 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 ________ ________ ________ (in thousands) Cash flows from operating activities Net income $ 98,453 $144,397 $174,140 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 Minority interests in consolidated subsidiaries 16,410 19,154 19,998 Increase in accounts receivable (17,398) (13,556) (13,865) Increase in accounts payable and accrued liabilities 27,421 19,016 26,236 Other changes in assets and liabilities (1,792) (237) (7,149) ________ ________ ________ Net cash provided by operating activities 141,156 197,808 231,975 ________ ________ ________ Cash flows from investing activities Investments in sponsored mutual funds (14,151) (28,675) (32,538) Proceeds from dispositions of sponsored mutual funds 3,580 14,172 21,708 Partnership and other investments (7,186) (2,146) (3,119) Distributions from partnership investments 7,201 7,062 2,934 Additions to property and equipment (58,771) (70,081) (56,558) ________ ________ ________ Net cash used in investing activities (69,327) (79,668) (67,573) ________ ________ ________ Cash flows from financing activities Purchases of stock (19,667) (9,655) (36,424) Receipts relating to stock issuances 5,061 15,066 12,901 Dividends paid to stockholders (24,058) (30,132) (40,406) Distributions to minority interests (45) (7,561) (17,044) ________ ________ ________ Net cash used in financing activities (38,709) (32,282) (80,973) ________ ________ ________ Cash and cash equivalents Net increase during year 33,120 85,858 83,429 At beginning of year 81,431 114,551 200,409 ________ ________ ________ At end of year $114,551 $200,409 $283,838 ________ ________ ________ ________ ________ ________ 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 7,823 306,566 19,763 345,666 Comprehensive income Net income 144,397 Unrealized security holding gains 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 $486,673 _______ _______ ________ _______ ________ _______ _______ ________ _______ ________ 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, 59,097,705 common shares $11,819 $30,707 $415,279 $28,868 $486,673 Comprehensive income Net income 174,140 Unrealized security holding gains 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 _______ _______ ________ _______ ________ _______ _______ ________ _______ ________ 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 its revenue and net income primarily from investment advisory services provided to individual and institutional investors in the Company's sponsored mutual funds and private account investment portfolios. The Company 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 generally accepted accounting principles which requires 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's controlling interest, its 50%-owned subsidiary, Rowe Price-Fleming International, Inc. (RPFI). All material intercompany accounts and transactions are eliminated in consolidation. CASH EQUIVALENTS. Cash equivalents consist of all short-term, highly liquid investments including money market mutual funds and overnight commercial paper investments. 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 investments in sponsored stock and bond mutual funds as available-for-sale securities and reports them at fair value. Unrealized security holding gains are recognized in comprehensive income. Mutual fund investments expose the Company 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. 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 estimated average useful lives: computer and communications equipment, 3 to 4 years; furniture and other equipment, 5 years; buildings, 33 years; leasehold improvements, 10 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. Fees paid for these services are based on international assets under management by RPFI. 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. 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. 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 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 Balanced funds 14,082 4,756 18,838 Bond funds 39,548 1,188 40,736 ________ _______ ________ $143,852 $49,062 $192,914 ________ _______ ________ ________ _______ ________ The following table reconciles unrealized holding gains on investments (in thousands) in sponsored mutual funds to that recognized in comprehensive income. 1996 1997 1998 _______ _______ _______ Unrealized holding gains during the year $11,233 $15,817 $ 8,355 Less gains (losses) realized in net income (146) 1,527 4,840 _______ _______ _______ 11,379 14,290 3,515 Deferred taxes (4,074) (5,108) (946) _______ _______ _______ 7,305 9,182 2,569 Minority interests (195) (77) 126 _______ _______ _______ Unrealized holding gains recognized in compre- hensive income $ 7,110 $ 9,105 $ 2,695 _______ _______ _______ _______ _______ _______ 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. NOTE 2 - PROPERTY AND EQUIPMENT. Property and equipment (in thousands) at December 31 consists of: 1997 1998 ________ ________ Computer and communications equipment $ 92,154 $ 92,138 Buildings and leasehold improvements 80,463 112,997 Furniture and other equipment 26,616 28,943 Land owned and leased 16,552 16,553 ________ ________ 215,785 250,631 Accumulated depreciation and amortization (73,288) (84,019) ________ ________ $142,497 $166,612 ________ ________ ________ ________ The Company is constructing two office buildings and parking garages on land owned in Owings Mills, Maryland, for an aggregate price not to exceed $70,840,000. Buildings 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 late 1999. NOTE 3 - INCOME TAXES. The provision for income taxes (in thousands) consists of: 1996 1997 1998 ________ ________ ________ Current income taxes Federal and foreign $ 63,399 $ 88,061 $104,376 State and local 9,531 15,624 13,562 Deferred income taxes (tax benefits) (322) (2,477) 738 ________ ________ ________ $ 72,608 $101,208 $118,676 ________ ________ ________ ________ ________ ________ 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 related to accrued compensation 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'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. 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. The following table reconciles the statutory federal income tax rate to the Company's effective income tax rate. 1996 1997 1998 ______ ______ ______ 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 Other items .3 (.5) - ______ ______ ______ Effective income tax rate 38.7% 38.2% 37.9% ______ ______ ______ ______ ______ ______ NOTE 4 - COMMON STOCK AND STOCK-BASED COMPENSATION PLANS. SHARES AUTHORIZED AND ISSUED. Two-for-one splits of the Company's common stock were effected at the close of business on 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 these stock splits. At December 31, 1998, the Company had reserved 36,425,304 shares of its unissued common stock for issuance upon the exercise of stock options and 1,680,000 shares for issuance under a plan whereby substantially all employees may acquire shares of Company stock through payroll deductions at prevailing market prices. The Company's board of directors has authorized the future repurchase of up to 3,720,000 common shares at December 31, 1998. DIVIDENDS. The Company declared cash dividends per share of $.2225 in 1996, $.28 in 1997 and $.355 in 1998. 33 FIXED STOCK OPTION PLANS. The Company has 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 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's stock at the date of grant. The Company applies the intrinsic value based method of accounting for its stock option awards. Accordingly, the Company has not recognized any related compensation expense in its 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 23,301,168 $ 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 __________ Outstanding at end of 1998 22,640,569 16.41 12,479,069 9.91 __________ __________ Additional information regarding stock options outstanding at December 31, 1998 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 2.13 459,110 $ 1.83 1.8 459,110 $ 1.83 2.84 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 32.30 __________ __________ 1.80 to 39.09 22,640,569 16.41 8.1 12,479,069 9.91 __________ __________ __________ __________ 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's stock option grants made subsequent to 1994. Accordingly, the Company estimated the grant-date fair value of each option awarded of $5.33 in 1996, $9.40 in 1997, and $9.88 in 1998 using the Black-Scholes option- pricing model with the following weighted-average assumptions: dividend yield of 1.6% in 1996, 1.5% in 1997, and 1.4% in 1998; expected volatility of 27% in 1996, 29% in 1997, and 30% in 1998; risk-free interest rates of 5.8% in 1996, 5.9% in 1997, and 4.5% in 1998; and expected lives of 5.1 years in 1996, 4.7 years in 1997, and 4.4 years in 1998. Had compensation costs been determined including the weighted-average estimate 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. Pro forma basic earnings per share would be $.81 in 1996, $1.16 in 1997, and $1.36 in 1998. Pro forma diluted earnings per share would be $.75 in 1996, $1.06 in 1997, and $1.25 in 1998. 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 5 - INFORMATION ABOUT REVENUES AND SERVICES. The Company's revenues (in thousands) from advisory services provided under agreements with its sponsored mutual funds and other investment clients include: 1996 1997 1998 _________ _________ _________ Sponsored mutual funds Stock and balanced Domestic $159,281 $232,928 $296,389 International 101,526 121,266 115,914 Bond and money market 75,181 81,771 92,360 ________ ________ ________ 335,988 435,965 504,663 Other portfolios 115,319 152,049 179,633 ________ ________ ________ Total investment advisory fees $451,307 $588,014 $684,296 ________ ________ ________ ________ ________ ________ 35 The following table summarizes the various investment portfolios and assets under management (in billions) on which the Company earns its advisory fees. Average during December 31, ________________________ _______________ 1996 1997 1998 1997 1998 ______ ______ ______ ______ ______ Sponsored mutual funds Stock and balanced Domestic $ 26.4 $ 39.3 $ 50.9 $ 46.2 $ 55.9 International 13.9 16.7 16.3 15.7 16.4 Bond and money market 16.7 18.3 20.8 19.2 22.1 ______ ______ ______ ______ ______ 57.0 74.3 88.0 81.1 94.4 Other portfolios 30.5 40.0 48.6 43.2 53.4 ______ ______ ______ ______ ______ $ 87.5 $114.3 $136.6 $124.3 $147.8 ______ ______ ______ ______ ______ ______ ______ ______ ______ ______ 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. Accounts receivable from the funds aggregate $48,952,000 and $56,345,000 at December 31, 1997 and 1998, 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 6 - 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 credit at December 31, 1998. Employee retirement plan expense for the Company's two defined contribution plans was $10,048,000 in 1996, $13,912,000 in 1997, and $17,852,000 in 1998. NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES. The Company 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. Future minimum rental payments under these leases aggregate $15,201,000 in 1999, $17,184,000 in 2000, $9,594,000 in 2001, $8,400,000 in 2002, $7,214,000 in 2003, and $24,306,000 in later years. At December 31, 1998, the Company had outstanding commitments to invest an additional $4,728,000 in various investment partnerships and ventures. Consolidated stockholders' equity at December 31, 1998 includes $35,153,000 which is restricted as to use under various regulations and agreements to which the Company and its subsidiaries are subject in the ordinary course of 36 business. From time to time, the Company is a party to various claims arising 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 8 - 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 2nd quarter 222,309 44,869 .38 .34 3rd quarter 218,559 42,974 .36 .33 4th quarter 234,840 45,007 .38 .35 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 to 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's directors and executive officers appears in the definitive proxy statement for the Company's 1999 Annual Meeting of Stockholders and is incorporated by reference in this Form 10-K. 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 Items appears in the definitive proxy statement for the Company's 1999 Annual Meeting of Stockholders and is incorporated by reference in this Form 10-K. 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 or 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 of Investment Management Agreement with each of the T. Rowe Price Funds. (Incorporated by reference from Form N-1A; Accession No. 0000775688-99-000003.) 38 10.02 Transfer Agency and Service Agreement dated as of January 1, 1999 between each of the T. Rowe Price Funds and T. Rowe Price Services, Inc. (Incorporated by reference from Form N- 1A; Accession No. 0000775688-99-000003.) 10.03 Agreement dated January 1, 1999 between T. Rowe Price Retirement Plan Services, Inc. and each of the T. Rowe Price Taxable Funds. (Incorporated by reference from Form N-1A; Accession No. 0000775688-99-000003.) 10.04 Form of Underwriting Agreement between each of the T. Rowe Price Funds and T. Rowe Price Investment Services, Inc. (Incorporated by reference from Form N-1A; Accession No. 0000775688-99-000003.) 10.05 Agreement dated February 11, 1998 between TRP Suburban Second, Inc. and Riparius Construction, Inc. as Construction Manager and Constructor (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].) 10.09 T. Rowe Price Associates, Inc. 1990 Stock Incentive Plan. (Incorporated by reference from Form S-8 Registration Statement [File No. 33-37573].) 10.10 T. Rowe Price Associates, Inc. 1993 Stock Incentive Plan. (Incorporated by reference from Form S-8 Registration Statement [File No. 33-72568].) 10.11 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 10.12 T. Rowe Price Associates, Inc. 1996 Stock Incentive Plan (Incorporated by reference from Form DEF 14A; Accession No. 0001006199-96-000031; CIK 0000080255.) 10.13 T. Rowe Price Associates, Inc. 1998 Director Stock Option Plan. (Incorporated by reference from Form DEF 14A; Accession No. 00080255-98-000355.) 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. 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. 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. /s/ George A. Roche, Chairman, President and Director /s/ James S. Riepe, Vice Chairman and Director /s/ M. David Testa, Vice Chairman and Director /s/ James E. Halbkat, 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 Financial and Accounting Officer EX-21 2 EXHIBIT 21 SUBSIDIARIES OF T. ROWE PRICE ASSOCIATES, INC. (1) DECEMBER 31, 1998 Subsidiary companies and state of incorporation Ownership percentage _____________________________________________________________________________ T. Rowe Price (Canada), Inc. (Maryland) 100% T. Rowe Price Investment Services, Inc. (Maryland) 100% T. Rowe Price Investment Technologies, Inc. (Maryland) 100% T. Rowe Price Retirement Plan Services, Inc. (Maryland) 100% T. Rowe Price Services, Inc. (Maryland) 100% T. Rowe Price Stable Asset Management, Inc. (Maryland) 100% TRP Finance, Inc. (Delaware) 100% Rowe Price-Fleming International, Inc. (Maryland) 50% TRP Suburban Second, Inc. (Maryland) 100% ________________ (1) Omitted subsidiaries, when considered in the aggregate, do not constitute a significant subsidiary. EX-23 3 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 033-07012, No. 033-08672, No. 033-37573, No. 033- 72568, No. 033-58749 and No. 333-20333) of T. Rowe Price Associates, Inc. of our report dated January 26, 1999 appearing on page 22 of this Form 10-K. /s/ PricewaterhouseCoopers LLP Baltimore, Maryland March 4, 1999 EX-27 4
5 This schedule contains summary financial information extracted from the consolidated financial statements of T. Rowe Price Associates, Inc. listed in the Index at Item 8 of the accompanying Form 10-K Annual Report for the year ended December 31, 1998 and is qualified in its entirety by reference to such financial statements. 0000080255 T. ROWE PRICE ASSOCIATES, INC. YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 283,838,000 192,914,000 100,702,000 0 0 0 250,631,000 84,019,000 796,784,000 0 0 0 0 24,037,000 590,267,000 796,784,000 0 886,142,000 0 573,328,000 0 0 0 312,814,000 118,676,000 174,140,000 0 0 0 174,140,000 1.46 1.34 Item is not contained in registrant's unclassified balance sheet. Basic earnings per share.
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