100 East Pratt Street
The objective of our firm is to help individuals achieve their financial goals. Toward this end, we offer investors comprehensive financial planning information and the tools to make confident investment decisions.
T. Rowe Price Associates, Inc. is a Baltimore-based investment management firm that provides a broad range of mutual funds and other investment services, including retirement planning, discount brokerage, trust, and international investment programs. In addition to serving as investment adviser to the T. Rowe Price family of mutual funds (Price Funds), the firm offers a full spectrum of investment advice on equity, bond, and money market securities. The company's diverse client base ranges from individual investors to institutions.
Providing Financial Advice and Services: 1930s-40s
Thomas Rowe Price, Jr., set the groundwork for his own investment counsel firm in the mid-1930s. Mr. Price's original goal was to provide stock investors with a new and virtually unavailable service, which he called 'investment counseling.' Price's idea was to recommend investment picks and strategies by applying sound research, basing his fees on expertise, not on standard commission income. With that goal in mind, the young entrepreneur founded Price Associates, a financial counseling business, in 1937; ten years later the partnership was renamed T. Rowe Price & Associates.
If Price's idea to market financial advice was novel, then the growth stock theory of investing that he championed was unheard of. Price was not satisfied with the common treatment of stocks as cyclical investments, which rise and fall in value according to prevalent economic trends and should be bought or sold at the right time to make a profit. Instead, he believed that investor interests were best served by a long-term view of the investment process--one by which a financial advisor helped clients identify stocks in well-managed companies that would grow over a long period of time. Rather than buying and selling stocks for speculative profits, Price emphasized the value of investing in growing businesses and sticking with them 'through thick and thin.' Price believed that true growth companies--identified with careful research--would enjoy earnings growth that would augment both market value and growth of dividend income over the long haul.
Price's early experience and some of his distinct personality traits helped prepare him for the rigors of starting his own firm--especially one that would initially run against the grain of generally accepted investment practices. After studying for a career as an industrial chemist and landing two short-lived jobs in that field, he decided to turn his energies toward his real passion: investing. Brief stints at a brokerage house and a small bond house in the early 1920s provided him with enough experience to land a more permanent position in finance. In 1925, he became a stockbroker at the Baltimore investment firm Mackubin, Goodrich & Co. (later known as Mackubin, Legg & Co. and ultimately as Legg, Mason & Co. by the late 1980s). There, he climbed the corporate ladder, becoming head of the bond department and, by 1930, head of the investment management department.
By 1934, Price had convinced senior management at Mackubin, Goodrich to let him start up an investment management department at the firm. Several factors, however, worked against Price. First, his growth-stock philosophy met with unusual resistance from many principals at the firm. In addition, the residual effect of the Great Depression still cast somber light on investing in general. Finally, Price was reputed as iron-willed and often difficult to work with, adding some disfavor to his already unprofitable department. By 1937, the principals of Mackubin, Goodrich decided to phase out the investment management program altogether, prompting Price to set out on his own. Several of Price's closest colleagues joined his entrepreneurial venture. Marie Walper, Isabella Craig, Walter Kidd, and Charles Schaeffer comprised the original 'Associates' of the newly established partnership, T. Rowe Price & Associates.
Price's fledgling investment management firm struggled through its early years. Even in the best of financial markets, such a business depended on the time-consuming and uncertain process of winning client confidence. From the late 1930s right through the 1950s, moreover, financial markets were unfavorable. For several years, T. Rowe Price & Associates boasted few individual and no institutional clients. The partners accepted irregular salaries and exchanged actual pay for shares in the new enterprise. Fortunately, Price's wife had the financial resources to bankroll many of the firm's early losses. Even though Price's initial objective--that of building a company with 25 employees and $60 million in assets under management--was reasonable, it remained dubious for nearly the first decade in operation.
By the late 1940s, however, T. Rowe Price's growth-style of investing had started to chalk up a few of the successes that would give the firm forward momentum. The key was careful research, on which T. Rowe Price placed tremendous importance. For example, the firm would only invest in stock of a company whose president had been carefully interviewed by a T. Rowe Price analyst. The result was several winning stock picks between 1938 and 1949: Sharp & Dohme, the pharmaceutical company, jumped 468 percent over that period; Abbott Laboratories (334 percent); USF & G Corporation, the insurance provider (198 percent); Addressograph-Multigraph (140 percent). In the late 1930s and early 1940s, the company's investments in companies such as Minnesota Mining and Manufacturing (later 3M Corp.) and IBM Corp. also proved invaluable.
Despite the tremendous odds facing T. Rowe Price before the end of World War II, the company managed to expand at a reasonable rate. According to records kept by Walter Kidd, director of research, total assets under management increased from $2.3 million in 1938 to $28 million in 1945 and $42 million in 1949. That year marked an important milestone: 12 years after the company's inception, T. Rowe Price finally broke into the black.
Steady Growth and Focus on Mutual Funds in the 1950s and 1960s
The 1950s marked an overall transition into a faster rate of growth and change for the company. In 1950, the firm converted from a three-person partnership to a corporation. Also that year, T. Rowe Price contracted its first institutional client, American Cyanamid, which remained a major account into the 1990s. In 1950, Price also introduced the Growth Stock Fund, the firm's first mutual fund. At that time, mutual funds were still not in vogue. Price regarded the new fund merely as a service to clients who wanted to capitalize on the Uniform Gift to Minors Act. Recently passed by Congress, the act permitted parents to manage trusts for their children and pay taxes at a relatively negligible rate. Moreover, the fund charged no 'load,' or sales charge, adding extra appeal to its subscribers. Although the Growth Stock Fund began as a low-profile product, it ultimately showcased the success of T. Rowe Price's growth-stock strategy in action; by 1960, Weisenberger's fund-rating service rated it as the country's best performer for the ten-year period.
The success of the Growth Stock Fund through the 1950s reflected an improved investment environment. With the exception of some economic fallout from the Korean War--such as a new Excess Profits Tax--the 1950s was a decade of strong economic growth and low inflation. Growth stocks made a comeback, and Mr. Price stood in the limelight, claiming center stage through a series of articles he contributed to Forbes magazine on a regular basis. Meanwhile, a vigorous market for pension funds had taken shape, and T. Rowe Price jumped on the bandwagon. In all, economic recovery and a turnaround in growth stocks set the groundwork for an upcoming decade of new institutional clients and a broader range of mutual fund offerings, including pension funds.
One such fund was the New Horizons Fund, which Price introduced in 1960 in order to capitalize on the growth potential of so-called emerging growth companies, or small, rapidly growing companies in the early stage of corporate development. Some of the first stocks in New Horizon Fund's portfolio of investments included Texas Instruments, Hertz, and Haloid-Xerox, the precursor of Xerox Corp. To manage New Horizons (and a projected progeny of other mutual funds to follow) Price founded Rowe Price Management, which he headed while remaining at the helm of the parent company.
The New Horizons Fund, like T. Rowe Price itself, suffered difficult beginnings. In fact, the fund not only lagged in the 1961 bull market but also when the market turned bearish in 1962: New Horizons dropped by 29 percent, versus a decline of nine percent for the Standard and Poor's (S & P) 500--a common index of leading company performance. Not surprisingly, critics coined derogatory variations on the fund's forward-looking name: 'New Horizontal,' 'Blue Horizons,' and 'Lost Horizons.'
By 1965, yet another market correction worked in favor of small growth companies, and the New Horizons Fund lived up to its real name. The fund's total return leaped 44 percent in one year, compared to 12 percent for the S & P 500. Such success attracted new investors, and both New Horizons and T. Rowe Price snowballed; by the end of 1965, the firm had topped the $1 billion mark. In fact, emerging growth stocks grew so heated that Price decided to temporarily step back. Price thought shareholders might be ill-served if the New Horizons Fund continued to invest new assets in an overvalued growth. From October 1967 to June 1970 and from March 1972 to September 1974, Price closed the fund to new investors. As John Train suggested in The Money Masters, Price was clearly not driven by short-term greed but had the best interest of his shareholders in mind through these maneuvers. Meanwhile, the Growth Stock Fund also rode the wave and would continue to do so into the 1970s. From 1966 through 1972, shares of that fund appreciated 80 percent, assuming reinvestment of dividends and capital gains.
As T. Rowe Price grew in the 1960s, Mr. Price's relationship with the firm loosened and a new generation of leaders began to move toward the helm. Employing roughly 200 personnel and offering new and diverse products and services required a more formal administrative structure. Price's various colleagues gradually moved away from their multiple-chore posts and into more specialized cadres. Mr. Schaeffer gravitated toward public relations and Mr. Kidd became the equivalent of chief operations officer, while other associates such as E. Kirdbride Miller and John Ramsay became senior investment counselors. In 1968, Price relinquished presidency of the Growth Stock Fund, and he resigned as president of New Horizons Fund the following year. In addition, in 1968, he sold the remaining shares of Rowe Price Management (RPM) to T. Rowe Price Associates, which held a controlling interest in RPM since 1966.
Along with his responsibilities at the company, Price's overall economic outlook began to change. He foresaw the onset of a bleak 'new era' in which the dollar would decline, inflation would rage, natural resources would diminish, and growth stocks would suffer. In near antipathy to his previous growth theories, he told Forbes in 1969 that: 'People will not want paper dollars. They will want tangible property: land, natural resources, timber, minerals in the ground. They will want investments in companies that can increase their profits faster than the decline in the value of the dollar.'
To accommodate such a shift, Price founded the New Era Fund in 1969. The fund's portfolio of investments emphasized natural resource companies (gold, silver, uranium, copper, and forest products), while mixing in some technology and a measure of more traditional growth stocks. As was often the case with Price's initiatives, the New Era Fund performed badly at first and eventually proved itself. In the early 1970s, growth stocks held up well, and the New Era Fund lost ground. When the oil embargo aggravated economic recession until the end of 1974, the New Era Fund and its growth-driven cousins all suffered comparable pains. By the late 1970s and early 1980s, however, rampant inflation finally paid off for Price's 'Anti-Inflation Fund,' as he had originally intended to call the New Era Fund. Between 1978 and 1981--with inflation approaching the 20 percent mark and the price of gold topping $800 an ounce--New Era jumped almost 130 percent. A key lesson that the firm derived from New Era's performance was that its traditional growth strategy could be effectively combined with other strategies to best accommodate economic change.
Diversification in the 1970s and 1980s
Starting in the 1970s--and to a much greater degree in the 1980s and onward--T. Rowe Price Associates began diversifying its strategies and its products. Indeed, Price's retirement in 1971 marked just one of many momentous changes. In 1971, George J. Collins was hired to start a fixed-income division. By the end of 1973, Collins had created New Income Fund, a balanced, fixed-income mutual fund. Though the new bond fund was not an immediate eye-opener, it soared when interest rates increased dramatically in the latter half of the decade; by 1977, New Income ranked as the third largest corporate bond fund in the United States.
When Congress passed legislation permitting tax-free municipal bond funds, Collins launched the Tax-Free Income Fund in 1976. By 1978, that fund boasted $215 million in assets and ranked third among more than 40 rivals. By the early 1990s, T. Rowe Price's lineup of tax-free mutual funds offered nearly every maturity category, as well as an insured fund for investors seeking extra credit protection and a high-yield fund for the more risk-tolerant.
A combination of sociopolitical and technological advances in the late 1970s and early 1980s greatly facilitated international trade and investing, virtually turning the financial world into a global marketplace. In 1979, T. Rowe Price's joint venture with Robert Fleming Holdings Ltd., a London-based merchant bank, rode the wave. Meanwhile, the growing popularity of mutual funds throughout the 1980s gave individual investors the resources to invest globally--through fund managers with the ability to conduct international research, probe credit and currency risk, and employ sophisticated hedging techniques. By 1994, Rowe Price-Fleming International, Inc. had become one of the largest managers of overseas assets in the United States, with approximately $17 billion under management.
In addition to new vigor in the international investment arena, numerous other influences prompted T. Rowe Price to diversify its financial services and products. Entering the 1980s, the rapidly growing firm had struck a delicate balance between its past growth tradition and a wide slew of new investment alternatives. Indeed, in 1984--the year after Mr. Price passed away--George J. Collins stepped up as president. The man who had brought bond investing to the exclusively growth-stock-driven firm 13 years earlier was now in command. Responding to greater competition in the financial services field--largely spurred by deregulation in the early 1980s--the company launched numerous new types of stock and bond funds.
Special emphasis was placed on retirement funds for both large institutional clients and small retail investors. After Congress created tax incentives for individuals to establish retirement accounts, T. Rowe Price correctly anticipated a decline in defined benefit retirement programs--pension plans in which a retired worker was assured a fixed income. Instead, the firm began developing funds geared toward 401(k) plans, funds sponsored by an employer in which workers can invest money tax-free until it is withdrawn after age 59. Although T. Rowe Price barely placed among the top ten mutual fund companies in assets by October 1993, it stood third in the 401(k) market, according to Leslie Wayne in a 1993 New York Times article.
In an effort to diversify its services, T. Rowe Price also made available innovative limited partnerships starting in the early 1980s. In 1983, the Threshold Limited Partnership was formed to help finance select private companies expected to go public within 12 to 18 months. T. Rowe Price eventually joined the bandwagon itself; it went public in 1986, and--disregarding a slight dip in 1990&mdash-joyed steadily rising earnings into the early 1990s. The New Frontier Fund Limited Partnership was also introduced to help non-U.S. clients invest in very small U.S. public companies.
Applying many of the venture-capital techniques from its limited partnership dealings, T. Rowe Price moved into real estate in 1984. That year, it developed the first real estate limited partnership available to investors nationwide with no sales commission. According to the company's 1986 annual report, the real estate business was 'an excellent source of diversification and improved long-term returns for all investors.' Consequently, a real estate management subsidiary was formed.
A Volatile Market and Heavy Competition in the 1990s
The early 1990s saw continued efforts to diversify in order to compete in an increasingly ferocious investment market. In 1992, for example, the company acquired six mutual funds managed and distributed by USF & G Corporation. Then in 1993, T. Rowe Price, the CUNA Mutual Insurance Group, and the Credit Union National Association & Affiliates formed a joint venture to provide a family of proprietary no-load mutual funds for credit union members.
These and other initiatives called for more effective programs in customer support. By the late 1980s, the company had already implemented a sophisticated computerized telephone system--Tele*Access--with which customers could use a touchtone phone to access their accounts 24 hours a day, or to buy, sell, and exchange shares in the T. Rowe Price fund family. The company also implemented advanced administrative tools, such as PAS, a computerized record keeping system for defined contribution retirement plans.
Meticulously planned marketing campaigns also helped support T. Rowe Price's services into the 1990s. In 1989, the company first introduced its Retirement Planning Kit and Retirees Financial Guide, designed for both employed people planning ahead and retired investors seeking advice. While other financial houses offered similar free guides, Price's stood out for their lucid language and current details on tax and Social Security laws, according to Susan Antilla in a 1992 New York Times article. Accompanying Retirement Planning Kit software was described as 'friendly to the point of being verbose, but its price makes it a package to consider,' by PC Magazine. By 1994, when the company offered new editions, investors had requested more than one million kits.
T. Rowe Price advertising was consistent with a low-key, honest approach. In September 1993, for example, the company introduced its first corporate campaign designed to burnish its corporate image rather than specific products. The broadcast and print campaign, by McCaffrey & McCall New York, carried the slogan, 'Invest with confidence.' The campaign was intended to correspond with the company's product-oriented promotions, which have been consistently noted for their lucidity and usefulness by such independent rating agencies as Morningstar, Inc.
As T. Rowe Price entered the mid-1990s, the firm introduced several new funds, including Emerging Markets Stocks and Health Sciences, in 1995. The following year, George Collins, who had headed the firm since 1984, retired, passing on the CEO position to George Roche. Roche began working at T. Rowe Price in 1968 and had developed a reputation as a detail-oriented and conservative manager. Prior to taking over as president and CEO in April 1997, Roche had served as the firm's CFO.
Conservative investing continued to guide T. Rowe Price in the late 1990s, and the policy proved to be a bit of a hindrance as the market remained highly volatile. Risky investments often outperformed low-risk alternatives, but T. Rowe Price managed to boost revenues nonetheless, helped by growing numbers of clients putting money into mutual funds. By mid-1997, T. Rowe Price was the 25th biggest mutual fund company in the nation. The firm's revenues had more than doubled between 1992 and 1997, and net income had nearly tripled to reach $98.5 million. Industry analysts voiced confidence in T. Rowe Price's financial future. Alexander Brown Inc. analyst John Hall told the Baltimore Sun, 'Their numbers have been great. ... I think the growth prospects from a long-term perspective are pretty good.'
T. Rowe Price counted on its investors to focus on long-term growth as the unpredictable market continued to pose challenges. Many investors began to shy away from stock funds because of the poor performance by international and small stocks, opting instead to invest in more stable money market and bond funds. T. Rowe Price's net sales of stock and bond funds declined from $9 billion in 1997 to about $3.5 billion in 1998. Still, the firm managed to generate record revenues of $886.1 million in 1998, and assets under management increased from $124.3 billion to $147.8 billion. Of the total assets under management, the majority, $94 billion, consisted of mutual funds. Rose Price-Fleming International also performed well, increasing its assets under management by $2.9 billion to end the year at $32.9 billion.
Maintaining strength and remaining competitive were priorities for T. Rowe Price in the late 1990s, and the firm introduced new funds and undertook new ventures to ensure the company's growth. In early 1999, T. Rowe Price announced it would form an asset management company with Sumitomo Bank Ltd. and Daiwa Securities Co. to serve retail and institutional investors in Japan. T. Rowe Price planned to acquire ten percent of the joint venture, known as Daiwa SB Investments, for about $15 million. Though Japan had not yet recovered from a recession, the country had ample potential in the eyes of U.S. financial firms--Japan's pension market was undergoing deregulation, and the nation had about $11 trillion in household savings. T. Rowe Price also said it would form a joint venture with Robert Fleming Holdings designed to manage the non-Japanese security investments of Japanese clients.
Also in 1999, T. Rowe Price opened a customer service call center in a leased building in Colorado Springs, Colorado, and made plans to further expand its operations in Colorado. The firm agreed to purchase 31 acres in a business development area in Colorado Springs and said it intended to build a new call center and, if warranted, a second building. Work also continued on the expansion of its headquarters, including the completion of two office buildings and parking facilities in Owings Mills, Maryland.
In October, T. Rowe Price received a boost when its common stock was added to the S & P 500 index. News of the announcement sent its share price up 12.8 percent in one day. The firm's share price was also affected by rumors that T. Rowe Price was a prime target for acquisition. Not only had other mutual fund firms, such as Pimco Advisors, been purchased by foreign companies, but some industry analysts stated their opinions that T. Rowe Price would make a fine acquisition for a foreign business trying to break into the United States. Though CEO Roche said the firm, which by 1999 was the seventh largest mutual fund company in the United States, was not for sale, speculation caused the stock price to rise 4.9 percent in one day.
The year 1999 proved to be a standout one for T. Rowe Price, and the firm reported record revenues of more than $1 billion, up 17 percent from the previous year. Net income rose 37 percent from 1998 to reach $239 million, and for the first time in the company's history, three of its funds had returns of at least 100 percent. T. Rowe Price International Discovery, which was heavy on foreign, small company stocks, achieved a total one-year return of 155 percent. T. Rowe Price Japan was up 112.7 percent, and T. Rowe Price Science & Technology was up 101 percent. Despite such outstanding performance, however, the firm advised investors to temper their expectations, as such continued growth was not sustainable over the long term. In addition, some analysts continued to criticize T. Rowe Price's conservative approach. With a long and dependable history of steady growth, however, few could question T. Rowe Price's abilities to survive. T. Rowe Price vice-chairman James Riepe told the Wall Street Journal, 'We've got to stick to our principles, even though those principles might hurt us in the short term. We have discipline, and we'll keep on doing this for a long time.'
Principal Subsidiaries: T. Rowe Price Investment Services, Inc.; T. Rowe Price Investment Technologies, Inc.; T. Rowe Price Retirement Plan Services, Inc.; T. Rowe Price Services, Inc.; T. Rowe Price Stable Asset Management, Inc.; TRP Finance, Inc.; T. Rowe Price (Canada), Inc.; Daiwa SB Investments (Japan; 10%); Rowe Price-Fleming International, Inc. (50%); TRP Suburban Second, Inc.
Principal Competitors: FMR Corp.; The Vanguard Group, Inc.; Merrill Lynch & Co. Inc.