Morgan Stanley 1999 Annual Report Download - page 34

ASSET MANAGEMENT
STATEMENTS OF INCOME
FISCAL FISCAL FISCAL
(dollars in millions) 1999 1998 1997
Revenues:
Investment banking $ 93 $26 $34
Principal transactions:
Investments 13 (301) (10)
Commissions 17 33 42
Asset management, distribution
and administration fees 1,930 1,891 1,742
Interest and dividends 61 252 227
Other 7 27 9
Total revenues 2,121 1,928 2,044
Interest expense 9 165 163
Net revenues 2,112 1,763 1,881
Compensation and benefits 648 659 659
Occupancy and equipment 96 97 77
Brokerage, clearing and
exchange fees 107 198 142
Information processing and
communications 92 87 95
Marketing and business
development 127 125 119
Professional services 137 135 88
Other 138 91 136
Total non-interest expenses 1,345 1,392 1,316
Gain on sale of businesses — 323 —
Income before income taxes
and cumulative effect of
accounting change 767 694 565
Provision for income taxes 319 264 230
Income before cumulative
effect of accounting change 448 430 335
Cumulative effect of
accounting change — (117) —
Net income $ 448 $ 313 $ 335
Asset Management ranks among the top five global active asset
managers and provides a wide range of investment advisory products
through both proprietary and non-proprietary distribution channels.
Morgan Stanley Dean Witter Advisors and Van Kampen Investments
(“VK”) offer individual investors a broad array of mutual fund and
wealth management tools that cover the full spectrum of investment
categories, including growth, income, sector and global. Morgan
Stanley Dean Witter Investment Management and Miller Anderson &
Sherrerd serve the specialized needs of global institutional and high
net worth investors. Asset Management’s product breadth includes
mutual funds, closed-end funds, managed accounts, managed
futures funds, pooled vehicles, variable annuities and unit invest-
ment trusts. In fiscal 1999, Asset Management’s assets under man-
agement or supervision increased $49 billion to $425 billion at
November 30, 1999.
Asset Management achieved net revenues and net income
of $2,112 million and $448 million in fiscal 1999, increases of
20% and 43%, respectively, from fiscal 1998. Fiscal 1998’s net
income included a net gain of $182 million from the sale of the
Company’s Global Custody business (see “Results of Operations —
Business Acquisition and Dispositions” herein). Fiscal 1998 net
income also included a $117 million charge resulting from the
cumulative effect of an accounting change. This charge represents
the effect of an accounting change adopted in the fourth quarter of
fiscal 1998 (effective December 1, 1997) with respect to the
accounting for offering costs paid by investment advisors of closed-
end funds, where such costs are not specifically reimbursed through
separate advisory contracts (see Note 2 to the consolidated finan-
cial statements). Excluding the net gain from the sale of the Global
Custody business and the charge resulting from the cumulative
effect of an accounting change, fiscal 1999’s net income increased
81%. In fiscal 1998, Asset Management net revenues and net
income decreased 6% and 7%, respectively, from fiscal 1997.
Excluding the net gain from the sale of the Global Custody business
and the charge resulting from the cumulative effect of an account-
ing change, fiscal 1998’s net income decreased 26%.
The fiscal 1999 and fiscal 1998 levels of net revenues
and net income in the Company’s Asset Management business pri-
marily reflected strong growth in customer assets under manage-
ment or supervision. In fiscal 1998, net revenues and net income
were adversely affected by losses from an institutional leveraged
emerging market debt portfolio.
Investment Banking
Asset Management primarily generates investment banking
revenues from the underwriting of Unit Investment Trust products.
Investment banking revenues increased 258% in fiscal 1999 and
decreased 24% in fiscal 1998. In both periods, the fluctuations
were primarily associated with changes in the level of Unit
Investment Trust sales volumes.
Principal Transactions
Asset Management primarily generates principal transaction rev-
enues from gains and losses resulting from the Company’s capital
investments in certain of its funds and other investments.
Principal transaction investment revenues aggregating
$13 million were recognized in fiscal 1999 as compared with
losses of $(301) million in fiscal 1998. Fiscal 1999’s revenues pri-
marily consist of net gains from the Company’s capital investments
in certain of its funds, reflecting generally favorable market condi-
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