10-Q 1 0001.txt 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended: SEPTEMBER 30, 2000. Commission file number: 000-14282. Exact name of registrant as specified in its charter: T. ROWE PRICE ASSOCIATES, INC. State of incorporation: MARYLAND. I.R.S. Employer Identification No.: 52-0556948. Address and Zip Code of principal executive offices: 100 EAST PRATT STREET, BALTIMORE, MARYLAND 21202. Registrant's telephone number, including area code: (410) 345-2000. Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. Indicate the number of shares outstanding of the issuer's common stock ($.20 par value), as of the latest practicable date. 121,807,939 SHARES AT OCTOBER 25, 2000. Exhibit index is at Item 6(a) on pages 14 - 16. 2 PART I. FINANCIAL INFORMATION. ITEM 1. FINANCIAL STATEMENTS. T. ROWE PRICE ASSOCIATES, INC. UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data) 12/31/99 09/30/00 ________ __________ ASSETS Cash and cash equivalents $358,472 $ 111,684 Accounts receivable 121,637 147,496 Investments in sponsored mutual funds 233,924 180,768 Other investments 44,986 58,304 Property and equipment 210,302 245,408 Goodwill 2,474 702,215 Other assets 26,244 18,254 ________ __________ $998,039 $1,464,129 ________ __________ ________ __________ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Accounts payable and accrued expenses $ 37,712 $ 48,480 Accrued compensation and related costs 64,774 106,680 Income taxes payable 31,819 12,506 Dividends payable 15,614 15,816 Debt and accrued interest 17,716 319,954 Minority interests in consolidated subsidiaries 60,220 604 ________ __________ Total liabilities 227,855 504,040 ________ __________ Commitments and contingent liabilities Stockholders' equity Preferred stock, undesignated, $.20 par value - authorized and unissued 20,000,000 shares -- -- Common stock, $.20 par value - authorized 500,000,000 shares; issued 120,107,818 shares in 1999 and 121,719,139 shares in 2000 24,022 24,344 Capital in excess of par value 48,057 71,566 Retained earnings 649,378 815,667 Accumulated other comprehensive income 48,727 48,512 ________ __________ Total stockholders' equity 770,184 960,089 ________ __________ $998,039 $1,464,129 ________ __________ ________ __________ See the accompanying notes to the condensed consolidated financial statements. 3 T. ROWE PRICE ASSOCIATES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per-share amounts) Three months Nine months ended ended _________________ _________________ 09/30/99 09/30/00 09/30/99 09/30/00 ________ ________ ________ ________ Revenues Investment advisory fees $204,225 $239,206 $586,648 $699,740 Administrative fees 49,954 57,557 147,550 175,582 Investment and other income 5,750 6,941 17,328 45,395 ________ ________ ________ ________ 259,929 303,704 751,526 920,717 ________ ________ ________ ________ Expenses Compensation and related costs 83,531 98,912 247,926 284,544 Advertising and promotion 13,309 15,547 49,802 61,728 Occupancy and equipment 24,625 27,078 66,974 80,424 International investment research fees 13,041 5,961 37,766 36,665 Goodwill amortization 186 4,276 559 4,649 Interest expense 58 3,608 111 3,730 Other operating expenses 16,824 33,810 49,32 83,176 ________ ________ ________ ________ 151,574 189,192 452,461 554,916 ________ ________ ________ ________ Income before income taxes and minority interests 108,355 114,512 299,065 365,801 Provision for income taxes 40,509 42,800 113,454 137,595 ________ ________ ________ ________ Income from consolidated companies 67,846 71,712 185,611 228,206 Minority interests in consolidated subsidiaries 5,625 2,529 16,287 14,650 ________ ________ ________ ________ Net income $ 62,221 $ 69,183 $169,324 $213,556 ________ ________ ________ ________ ________ ________ ________ ________ Basic earnings per share $ .51 $ .57 $ 1.40 $ 1.77 ________ ________ ________ ________ ________ ________ ________ ________ Diluted earnings per share $ .48 $ .53 $ 1.31 $ 1.65 ________ ________ ________ ________ ________ ________ ________ ________ Dividends declared per share $ .10 $ .13 $ .30 $ .39 ________ ________ ________ ________ ________ ________ ________ ________ Weighted average shares outstanding 120,967 121,425 120,879 120,926 ________ ________ ________ ________ ________ ________ ________ ________ Weighted average shares outstanding- assuming dilution 129,041 130,500 129,562 129,415 ________ ________ ________ ________ ________ ________ ________ ________ See the accompanying notes to the condensed consolidated financial statements. 4 T. ROWE PRICE ASSOCIATES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Nine months ended __________________ 09/30/99 09/30/00 ________ ________ Cash flows from operating activities Net income $169,324 $213,556 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization of property and equipment 23,548 29,966 Minority interests in consolidated subsidiaries 16,287 14,650 Amortization of goodwill 559 4,649 Change in accounts receivable (11,091) (25,588) Change in accrued compensation 33,391 52,964 Other changes in assets and liabilities 10,020 2,885 ________ ________ Net cash provided by operating activities 242,038 293,082 ________ ________ Cash flows from investing activities Acquisition of minority interests in Rowe Price-Fleming International -- (783,194) Investments in sponsored mutual funds (5,363) (8,699) Dispositions of sponsored mutual funds 1,186 67,038 Other investments (23,633) (13,228) Distributions from other investments 9,537 576 Additions to property and equipment (47,009) (66,544) ________ ________ Net cash used in investing activities (65,282) (804,051) ________ ________ Cash flows from financing activities Purchases of stock (55,468) -- Receipts relating to stock issuances 6,674 12,293 Proceeds of bank borrowing 15,019 300,000 Dividends paid to stockholders (36,231) (47,065) Other activities (23) (1,047) ________ ________ Net cash used in financing activities (70,029) 264,181 ________ ________ Cash and cash equivalents Net change during period 106,727 (246,788) At beginning of year 283,838 358,472 ________ ________ At end of period $390,565 $111,684 ________ ________ ________ ________ See the accompanying notes to the condensed consolidated financial statements. 5 T. ROWE PRICE ASSOCIATES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (dollars in thousands) Accumu- Capital lated Common in other Total stock excess compre- stock- - par of par Retained hensive holders' value value earnings income equity _______ _______ ________ ________ ________ Balance at December 31, 1999, 120,107,818 common shares $24,022 $48,057 $649,378 $48,727 $770,184 Comprehensive income Net income 213,556 Change in unrealized security holding gains (215) Total comprehensive income 213,341 1,611,321 common shares issued under stock-based compensation plans 322 23,509 23,831 Dividends declared (47,267) (47,267) _______ _______ ________ _______ ________ Balance at September 30, 2000, 121,719,139 common shares $24,344 $71,566 $815,667 $48,512 $960,089 _______ _______ ________ _______ ________ _______ _______ ________ _______ ________ See the accompanying notes to the condensed consolidated financial statements. 6 T. ROWE PRICE ASSOCIATES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - THE COMPANY AND BASIS OF PREPARATION. T. Rowe Price Associates derives its consolidated revenues and net income primarily from investment advisory services provided to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios. We also provide our investment advisory clients with related administrative services, including mutual fund transfer agent, accounting and shareholder services; participant recordkeeping and transfer agent services for defined contribution retirement plans; discount brokerage; and trust services. The investors that we serve are primarily domiciled in the United States. Investment advisory revenues depend largely on the total value and composition of assets under management. Accordingly, fluctuations in financial markets and in the composition of assets under management impact our revenues and results of operations. These unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of our results for the interim periods presented. All such adjustments are of a normal recurring nature. The unaudited interim financial information contained in these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in our 1999 Annual Report. Certain 1999 amounts have been reclassified to conform to the 2000 presentation. NOTE 2 - INFORMATION ABOUT REVENUES AND SERVICES. Our revenues (in thousands) from advisory services provided under agreements with our sponsored mutual funds and other investment clients for the nine months ended September 30 were: 1999 2000 ________ ________ Sponsored mutual funds Stock and blended Domestic $261,246 $321,830 International 87,739 111,492 Bond and money market 73,511 69,709 ________ ________ 422,496 503,031 Other portfolios 164,152 196,709 ________ ________ Total investment advisory fees $586,648 $699,740 ________ ________ ________ ________ 7 The following table summarizes the various investment portfolios and assets under management (in billions) on which we earn advisory fees. Average during first 9 months _______________ 1999 2000 12/31/99 09/30/00 ______ ______ ________ ________ Sponsored mutual funds Stock and blended Domestic $ 60.3 $ 73.0 $ 71.2 $ 75.7 International 16.5 20.5 21.4 18.3 Bond and money market 22.2 21.7 21.9 21.7 ______ ______ ______ ______ 99.0 115.2 114.5 115.7 Other portfolios 55.4 64.4 65.4 63.9 ______ ______ ______ ______ $154.4 $179.6 $179.9 $179.6 ______ ______ ______ ______ ______ ______ ______ ______ Fees for advisory-related administrative services provided to the funds were $110.7 million and $131.2 million for the first nine months of 1999 and 2000, respectively. Accounts receivable from the funds totaled $82.5 million at September 30, 2000. NOTE 3 - ROWE PRICE-FLEMING INTERNATIONAL ACQUISITION. On April 11, 2000, we entered into an agreement with Robert Fleming Holdings Limited to purchase its 50% interest in our consolidated subsidiary, Rowe Price-Fleming International, which was formed in 1979 to provide U.S. investors with international investment advisory services. On August 8, 2000, we completed our purchase of Robert Fleming's interest for $780 million. Investment banking and legal fees incurred were $3.2 million. Immediately after completing this transaction, we changed the name of Rowe Price-Fleming International to T. Rowe Price International. We financed the acquisition with $483 million from our cash holdings and $300 million borrowed under our five-year, $500 million syndicated bank credit facility for which The Chase Manhattan Bank serves as administrative agent. The purchase transaction resulted in goodwill of $704.4 million which will be amortized on a straight line basis over 25 years. At September 30, 2000, T. Rowe Price International's assets under management totaled $35.8 billion. NOTE 4 - PENDING TRANSACTION. On June 30, 2000, our stockholders approved the one-for-one exchange of their shares of our outstanding common stock for that of our newly-organized holding company, T. Rowe Price Group. The share exchange is subject to receipt of regulatory approvals and is expected to occur before the end of 2000. The exchange will result in Price Group becoming the sole owner of Price Associates and our stockholders becoming the stockholders of Price Group. The exchange will be accounted for similar to a pooling-of-interests transaction. Subsequent to the share exchange, Price Group will succeed to Price Associates' obligation for periodic public reporting. 8 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of T. Rowe Price Associates, Inc. We have reviewed the condensed consolidated financial statements of T. Rowe Price Associates, Inc. and its subsidiaries as of September 30, 2000 and for the three- and nine-month periods ended September 30, 1999 and September 30, 2000, appearing on pages two through seven of this Form 10-Q Quarterly Report. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. We previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 1999, and the related consolidated statements of income, of cash flows, and of stockholders' equity for the year then ended (not presented herein), and in our report dated January 25, 2000, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1999, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/ PricewaterhouseCoopers LLP Baltimore, Maryland October 25, 2000 THE ABOVE REPORT IS NOT A "REPORT" WITHIN THE MEANING OF SECTIONS 7 AND 11 OF THE SECURITIES ACT OF 1933 AND THE INDEPENDENT ACCOUNTANTS' LIABILITY PROVISIONS OF SECTION 11 OF THE ACT DO NOT APPLY. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. GENERAL. Our revenues and net income are derived primarily from investment advisory services provided to U.S. individual and institutional investors in our sponsored mutual funds and other investment portfolios. We manage a broad range of domestic and international stock, bond, and money market mutual funds and other investment portfolios which meet the varied needs and objectives of individual and institutional investors. Investment advisory revenues depend largely on the total value and composition of assets under management. Accordingly, fluctuations in financial markets and in the composition of assets under management impact our revenues and results of operations. Total assets under our management were $179.6 billion at September 30, 2000, including $139.6 billion in equity securities. ROWE PRICE-FLEMING INTERNATIONAL ACQUISITION. On August 8, 2000, we completed our purchase of Robert Fleming Holdings' 50% interest in our consolidated subsidiary, Rowe Price-Fleming International. We financed the acquisition with $483 million from our cash holdings in the T. Rowe Price money market funds and with borrowings of $300 million. The purchase transaction resulted in goodwill of $704.4 million which will be amortized on a straight line basis over 25 years. We believe that our acquisition will be modestly dilutive to earnings per share near-term and somewhat accretive to income before goodwill charges. As a result of the Rowe Price-Fleming transaction, our international research contracts with Robert Fleming affiliates were terminated. Transition services are being provided to us by Robert Fleming affiliates during an interim period in which we are establishing the new operating infrastructure for our international investment operations. Additionally, we are now expanding our marketing efforts to include European investors and may seek other investors on a global basis. Our expenditures in these efforts may be significant and will precede revenues from any new investment advisory clients that we may obtain. RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS 1999. Net income increased $7 million or 11% to $69 million and diluted earnings per share rose from $.48 to $.53. Total revenues increased 17% from $260 million to $304 million, led by an increase of $35 million in investment advisory fees. Investment advisory revenues earned from the T. Rowe Price mutual funds increased $23 million as average fund assets under management during the quarter were $116.9 billion, $14.1 billion more than in the third quarter of 1999. Fund assets rose $424 million during the three months ended September 30, 2000 and totaled $115.7 billion at quarter end, including $94.0 billion 10 in stock and blended assets funds. Net cash inflows of $548 million into domestic stock funds were more than offset by outflows during the quarter of $379 million from international stock funds and $348 million from bond and money market funds. Included in these amounts was our redemption of $483 million from the money market funds to partially finance our Rowe Price- Fleming acquisition. Excluding this redemption, net cash inflows to all funds were $304 million during the quarter. Our domestic growth stock funds generally had net inflows while the value funds had net outflows. Greater assets in other managed investment portfolios, including variable annuity and other subadvised funds, resulted in the balance of our advisory revenue gains totaling $11.9 million. Performance-related advisory fees were $5.4 million higher this quarter than the comparable quarter last year. We earn these performance-related fees primarily on venture capital investments that we manage and, though recurring, these fees will vary significantly as market conditions and investment portfolios change. Assets under management in the other investment portfolios that we manage were $63.9 billion at September 30, 2000, up $7.4 billion from September 30, 1999 and $200 million from June 30, 2000. Administrative fees from advisory-related services that we provide to the funds and their shareholders rose $7.6 million from the third quarter of 1999 to $57.6 million. This increase is primarily attributable to transfer agency and recordkeeping services that we provide to defined contribution retirement plans and the T. Rowe Price mutual funds. These revenues are largely offset by the costs that we incur in providing the services. Operating expenses increased 25% to $189 million. Greater compensation and related costs, which were up $15.4 million or 18%, were attributable to increases in our rates of compensation, including performance-related bonuses, and a 4% increase in our staff size primarily to support our growing operations. As of September 30, 2000, we employed almost 3,900 associates. Our advertising and promotion expenditures increased $2.2 million from last year's quarter to $15.5 million. These costs will vary with market conditions and investor demand for our products as we seek to expand our base both domestically and internationally. We expect to increase spending in the fourth quarter of 2000 to a level somewhat higher than that of the fourth quarter last year. Occupancy and equipment expense was $2.5 million higher in 2000 due primarily to the expansion of our operating facilities in Owings Mills in late 1999 and early 2000. New goodwill and interest charges arising from our Rowe Price-Fleming acquisition were $4.1 million and $3.5 million, respectively, during the third quarter of 2000. Because the acquisition occurred in August, these charges will increase in the fourth quarter and thereafter. Other operating expenses increased $17 million largely due to significant technology expenditures that are broad-based and include spending on current activities and new business initiatives. Additional expenses in connection with our international expansion contributed to the higher expense levels. We anticipate that these expenses will continue to be higher in the fourth quarter and thereafter in comparison to prior comparable periods, but that the amount of increase will moderate in comparison to the third quarter. 11 RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2000 VERSUS 1999. Net income increased $44 million or 26% to nearly $214 million and diluted earnings per share rose from $1.31 to $1.65. Total revenues increased 23% from $752 million to $921 million, led by increases of $113 million in investment advisory fees and $28 million in investment income. Investment advisory revenues earned from the T. Rowe Price mutual funds increased $80.5 million as average fund assets under management during the first nine months of 2000 were $115.2 billion, $16.2 billion more than in the comparable period last year. Fund assets increased $1.3 billion during the 2000 period after net cash outflows from the funds of $698 million. Net cash inflows in 2000 of $911 million into domestic stock funds were more than offset by outflows of $590 million from international stock funds and $1 billion from bond and money market funds. Included in these amounts was our redemption of $483 million from the money market funds to partially finance our Rowe Price-Fleming acquisition. Excluding our redemption, net cash outflows from all funds were $215 million in the 2000 period. Greater assets in other managed investment portfolios resulted in the balance of our advisory revenue gains totaling $32.6 million. Performance-related advisory fees account for $6.3 million of this increase. Administrative fees from advisory-related services rose $28.0 million from the first nine months of 1999 to $175.6 million. These revenues are largely offset by the costs that we incur in providing the services. Investment and other income rose $28.1 million from the first nine months of 1999 to $45.4 million. The strong IPO markets of late 1999 and early 2000 produced significant market gains and distributions this year from our venture investments. Higher returns on these investments account for $11.5 million of the increase; however, income from this source will vary with market conditions and the size of our investments. Net gains on stock and bond mutual fund dispositions added $7.6 million this year; larger cash holdings prior to the Rowe Price-Fleming acquisition added $4 million; and foreign currency rate fluctuations added another $3 million in 2000. We expect that investment income will generally be lower in future periods due to our smaller cash balances and bond fund holdings. Operating expenses increased $102 million to almost $555 million. Greater compensation costs added $37 million while other operating expenses were up $34 million. CAPITAL RESOURCES AND LIQUIDITY. We financed the Rowe Price-Fleming International acquisition from available cash holdings of $483 million and borrowings of $300 million from the five- year, $500 million syndicated bank credit facility that we obtained in June 2000. Borrowings are set at an interest rate at 7.185% until November 8, 2000. We have also obtained a complementary $100 million, 364-day syndicated bank credit facility. We expect that available cash resources will be used 12 to reduce outstanding borrowings in the fourth quarter of 2000 by a modest amount. FORWARD-LOOKING INFORMATION. From time-to-time, information or statements provided by or on behalf of T. Rowe Price, including those within this Form 10-Q Quarterly Report, may contain certain "forward-looking information," including information relating to anticipated growth in our revenues or earnings, anticipated changes in the amount and composition of assets under management, our anticipated expense levels, and our expectations regarding financial market and other conditions. Readers are cautioned that any forward-looking information provided by or on behalf of T. Rowe Price is not a guarantee of future performance. Actual results may differ materially from those in forward-looking information as a result of various factors, including but not limited to those discussed below. Further, such forward-looking statements speak only as of the date on which such statements are made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. Our future revenues will fluctuate due to many factors, such as the total value and composition of assets under our management and related cash inflows or outflows in the T. Rowe Price mutual funds and other managed investment portfolios; fluctuations in worldwide financial markets, including those in emerging countries, resulting in appreciation or depreciation of assets under our management; the relative investment performance of the Price mutual funds and other managed investment portfolios as compared to competing offerings and market indices; the extent to which we earn performance-based investment advisory fees; the expense ratios of the Price mutual funds; investor sentiment and investor confidence; the ability to maintain our investment management and administrative fees at appropriate levels; competitive conditions in the mutual fund, asset management, and broader financial services sectors; our introduction of new mutual funds and investment portfolios; our ability to contract with the Price mutual funds for payment for investment advisory-related administrative services provided to the funds and their shareholders; the continuation of trends in the retirement plan marketplace favoring defined contribution plans and participant-directed investments; and the amount and timing of income recognized on our venture capital and other investments. Our revenues are substantially dependent on fees earned under contracts with the Price funds and could be adversely affected if the independent directors of one or more of the Price funds determined to terminate or significantly alter the terms of the investment management or related administrative services agreements. Our future operating results are also dependent upon the level of our operating expenses, which are subject to fluctuation for the following or other reasons: changes in the level of advertising expenses in response to market conditions, expansion of marketing efforts both within the U.S. and internationally, or other factors; variations in the level of compensation expense due to, among other things, performance-based bonuses, changes in our 13 employee count and mix, and competitive factors; changes in expense levels resulting from our acquisition of the minority interests in Rowe Price- Fleming International, including goodwill charges and interest expense, and from differences in the manner in which we provide support for our international investment advisory services; expenses and capital costs, such as technology assets, depreciation, amortization and research and development, incurred to maintain and enhance our administrative and operating services infrastructure, including Internet capabilities; unanticipated costs that may be incurred to protect investor accounts and the goodwill of our clients; and disruptions of services, including those provided by third parties such as communications, power, and the mutual fund transfer agent system. Our business is also subject to substantial governmental regulation, and changes in legal, regulatory, accounting, tax, and compliance requirements may have a substantial effect on our operations and results, including but not limited to effects on costs we incur and effects on investor interest in mutual funds and investing in general or in particular classes of mutual funds or other investments. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Since December 31, 1999, there has been no material change in the information provided in Item 7A of the 1999 Form 10-K Annual Report. PART II. OTHER INFORMATION. ITEM 1. LEGAL PROCEEDINGS. On July 6, 1998, Rowe Price-Fleming, the T. Rowe Price International Stock Fund and the fund's five directors were named as defendants in Migdal v. Rowe Price-Fleming International, Inc., et al., filed in the United States District Court for the District of Maryland. The Complaint sought to invalidate the advisory agreement between Rowe Price-Fleming and the International Stock Fund, and sought recovery of an unspecified amount of advisory fees paid by the International Stock Fund to Rowe Price-Fleming. Plaintiffs alleged that the International Stock Fund does not have a sufficient number of independent directors, as required by the Investment Company Act of 1940, as amended, because its independent directors serve on multiple boards of directors within the T. Rowe Price mutual fund complex and receive substantial compensation in the form of director fees. On October 12, 1998, the plaintiffs filed an Amended Complaint adding as a plaintiff Linda B. Rohrbaugh, a shareholder in the T. Rowe Price Growth Stock Fund. The Amended Complaint also added as defendants the T. Rowe Price Growth Stock Fund, T. Rowe Price Associates and certain of its subsidiaries which provide services to the funds, as well as five directors of the T. Rowe Price Growth Stock Fund. On January 21, 1999, the Amended Complaint was dismissed with leave for plaintiffs to re-file. On February 16, 1999, the plaintiffs filed a Second Amended Complaint, but the fund directors were excluded as defendants. The Second Amended Complaint alleged a claim under Section 36(b) 14 of the Investment Company Act of 1940. The Complaint sought to invalidate the advisory and service agreements negotiated between the corporate defendants and certain T. Rowe Price funds based on a claim that (i) the fees paid to the corporate defendants were excessive and (ii) the advisory agreements were not negotiated at arm's length because each of the boards of directors of the Price funds is not independent as required under the Investment Company Act of 1940. On March 19, 1999, we and the other defendants filed a Motion to Dismiss the Second Amended Complaint. In an order dated March 20, 2000, our motion was granted and the case dismissed with prejudice. On April 6, 2000, the plaintiffs filed a Notice of Appeal of the Dismissal of the case. On June 16, 2000, we and the other defendants filed a Brief with the United States Court of Appeals (Fourth Circuit) to affirm the District Court's judgment. From time to time, claims arise in the ordinary course of our business, including employment-related claims. After consulting with counsel, we believe it unlikely that any adverse determination in one or more pending claims would have a material adverse effect on our financial condition or results of operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) The following exhibits required to be filed by Item 601 of Regulation S-K are filed herewith and incorporated by reference herein. Exhibits 10.06 through 10.11 are compensatory plan arrangements. 2.01 Agreement and Plan of Exchange as of April 30, 2000 between T. Rowe Price Associates, Inc. and T. Rowe Price Group, Inc. (Incorporated by reference from Form 424B3; Accession No. 0001113169-00-000003.) 2.02 Form of Articles of Share Exchange between T. Rowe Price Associates, Inc. and T. Rowe Price Group, Inc. (Incorporated by reference from Form 424B3; Accession No. 0001113169-00- 000003.) 2.03 Stock Purchase Agreement dated as of April 11, 2000 by and between Robert Fleming Holdings Limited and its wholly owned subsidiaries Jardine Fleming International Holdings Limited and Copthall Overseas Limited, T. Rowe Price Associates, Inc., and The Chase Manhattan Corporation. 3.(i) Composite Restated Charter of T. Rowe Price Associates, Inc. as of April 16, 1998. (Incorporated by reference from Form 10-Q Report for the quarterly period ended March 31, 1998; Accession No. 0000080255-98-000361.) 3.(ii) Amended and Restated By-Laws of T. Rowe Price Associates, Inc. as of April 17, 1997. (Incorporated by reference from Form 10-Q Report for the quarterly period ended June 30, 1997; Accession No. 0000080255-97-000369.) 15 4.01 $500,000,000 Five-Year Credit Agreement among T. Rowe Price Associates, Inc., the several lenders, and The Chase Manhattan Bank, as administrative agent. 10.01 Representative Investment Management Agreement with each of the T. Rowe Price mutual funds. (Incorporated by reference from Form N-1A/A; Accession No. 0001046404-97-000008.) 10.02 Transfer Agency and Service Agreement dated as of January 1, 2000 between each of the T. Rowe Price mutual funds and T. Rowe Price Services, Inc. (Incorporated by reference from Form 485BPOS; Accession No. 0001012968-00-000024.) 10.03 Agreement dated January 1, 2000, as amended February 9, 2000, between T. Rowe Price Retirement Plan Services, Inc. and each of the T. Rowe Price taxable mutual funds. (Incorporated by reference from Form 485BPOS; Accession No. 0001012968-00- 000024.) 10.04 Representative Underwriting Agreement between each of the T. Rowe Price mutual funds and T. Rowe Price Investment Services, Inc. (Incorporated by reference from Form N-1A/A; Accession No. 0001046404-97-000008.) 10.05 Amended, Restated, and Consolidated Office Lease dated as of May 22, 1997 between 100 East Pratt Street Limited Partnership and T. Rowe Price Associates, Inc. (Incorporated by reference from Form 10-K for 1997; Accession No. 0000080255-98-000358.) 10.06 T. Rowe Price Associates, Inc. 1990 Stock Incentive Plan. (Incorporated by reference from Form S-8 Registration Statement [File No. 33-37573].) 10.07 T. Rowe Price Associates, Inc. 1993 Stock Incentive Plan. (Incorporated by reference from Form S-8 Registration Statement [File No. 33-72568].) 10.08 T. Rowe Price Associates, Inc. 1995 Director Stock Option Plan. (Incorporated by reference from Form DEF 14A; Accession No. 000933259-95-000009; CIK 0000080255.) 10.09 T. Rowe Price Associates, Inc. 1996 Stock Incentive Plan. (Incorporated by reference from Form DEF 14A; Accession No. 0001006199-96-000031; CIK 0000080255.) 10.10 T. Rowe Price Associates, Inc. 1998 Director Stock Option Plan. (Incorporated by reference from Form DEF 14A; Accession No. 00080255-98-000355.) 16 10.11 Executive Incentive Compensation Plan. (Incorporated by reference from Form DEF 14A; Accession No. 933259-95-000009; CIK 0000080255.) 15 Letter from PricewaterhouseCoopers LLP, independent accountants, re unaudited interim financial information. 27 Financial Data Schedule. (b) A report on Form 8-K dated August 8, 2000 was filed on August 22, 2000 reporting the acquisition of the minority interests in Rowe Price- Fleming International. (Accession No. 0000080255-00-000437.) SIGNATURES. Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on October 26, 2000. T. Rowe Price Associates, Inc. /s/ George A. Roche Chairman, President & Principal Financial Officer /s/ Joseph P. Croteau, CPA Vice President, Treasurer & Controller