The Wall Street Journal-20080130-Two Mutual-Fund Firms Fight the Tape- Gains at T- Rowe- Waddell - Reed Despite Volatility

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Two Mutual-Fund Firms Fight the Tape; Gains at T. Rowe, Waddell & Reed Despite Volatility

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Mutual-fund managers T. Rowe Price Group Inc. and Waddell & Reed Financial Inc. reported higher fourth-quarter profit, driven by interest in their investment products despite volatile financial markets.

T. Rowe Chief Executive James Kennedy, in an interview, pointed to the continuing strength of the Baltimore company's "target-date" retirement funds, which are designed to automatically manage investors' asset allocations as they age.

"Some investors panic or withdraw in volatile markets, but they can't time the market in the short term," he said. "We hope they won't panic, so we're encouraged to see strong inflows in the target-date funds."

T. Rowe said its quarterly net income rose to $190.7 million, or 68 cents a share, up from $148.9 million, or 53 cents a share, a year earlier. Net revenue rose to $597.8 million from $489.1 million. Investment advisory fees climbed to $506.6 million from $409.7 million. Analysts polled by Thomson Financial had expected the firm to earn 63 cents a share in the quarter.

T. Rowe said net buying, or cash inflows, in the quarter of $9.1 billion offset falling markets, as assets under management rose $3.2 billion to $400 billion.

Assets in the target-date funds rose $2.9 billion in the quarter to $30 billion at year end. "We view this as a very good sign," Wachovia analysts wrote in a note to clients. "It appears the pension bill and other efforts to boost 401(k) participation are clear in T. Rowe's results."

Mr. Kennedy said assets under management at rose about 20% during the year, while the firm has expanded its staff about 10%. The company raised its quarterly dividend 41% in December.

Meanwhile, the company's fixed-income business is improving as it sidestepped the troubles in structured-investment vehicles.

Also yesterday, Waddell & Reed said its fourth-quarter net rose 17% to $35.1 million, or 42 cents a share, from $30 million, or 36 cents a share, a year earlier.

Total operating revenue at the Overland Park, Kan., company rose 27% to $236.1 million. Analysts had been expecting earnings of 42 cents a share on revenue of $229 million.

The company said sales through its advisory channel benefited from the launch of new asset-allocation products and increased demand for variable annuities. In its wholesale channel, daily flows into the firm's asset-strategy fund continued to increase throughout the year.

Total assets under management at Waddell & Reed rose to $64.9 billion from $59.4 billion at the end of the third quarter.

"Waddell's flows continued to accelerate into year-end," analysts at Goldman Sachs wrote in a research note, as a result of strong performance.

Bond-Pricing Settlement

The Securities and Exchange Commission and Heartland Advisors Inc. agreed to settle a case involving mispricing of certain bonds owned by Heartland-managed funds.

The agency found that Heartland Advisors and some of its executives willfully violated federal securities laws in connection with the bonds that resulted in about $60 million in losses to shareholders. Heartland Advisors and its CEO and Chief Investment Officer William J. Nasgovitz agreed to pay a $3.5 million civil penalty and to cease from committing any future securities laws violations.

-- Yogita Patel