BRIEFING BOOK

Data Information Knowledge WISDOM

BRIAN ROGERS

is Chairman and CIO of T. Rowe Price, a no-load mutual fund, based in

Baltimore.

Location: T. Rowe Price Office, Baltimore

About Brian Rogers……………………………………………………….. 2

Suggested Questions……………………………………………………. 3

Forbes on Rogers “Shot Selection,” 03/04/02………………………………………. “How Stable is Your Core?” 09/12/07………………………….. “Payout Payoff,” 04/25/05………………………………………... “The Price is Right,” 01/10/05……………………………………

4 8 12 15

The Rogers Interview…………………………………………………….. 20

- 2 -

ABOUT BRIAN ROGERS Intelligent Investing with Steve Forbes

Brian Rogers is chairman of T. Rowe Price, a no-load mutual fund, based in Baltimore. Rogers is committed to value investing and describes his investment philosophy as one that doubts industry assumptions. Rogers says he will invest in “good companies with bad psychology,” solid companies that may have gone through a rough spell, but are on their way to getting back on track. Rogers also looks for companies with lower relative P/Es, a solid balance sheet and good dividend history.

In 1982, Rogers joined T. Rowe Price and was tapped to manage its Equity-Income Fund from its inception in 1985. It has been lauded for its low volatility and steady performance. At the end of 2006, Rogers was named Chairman, Vice President and Chief Investment Officer of the quickly-growing firm.

Rogers didn’t buy into tech stocks, despite the late 1990s buying frenzy, and his funds’ investors held up well after the crash. A Massachusetts native, Rogers received his undergraduate degree at Harvard University In 1977. He worked for three years at Bankers Trust before returning to Harvard for his MBA. Rogers and his wife, Mary, have three children: Hilary, Peter and Sydney.

- 3 -

SUGGESTED QUESTIONS Intelligent Investing with Steve Forbes

1. What do you think about the current economic crisis? Will the bail out plan

actually work?

2. What should investors know about firms before they invest?

3. Criticism comes in all different forms. What was your most memorable critique

and how did you handle it?

4. What is the best business book you’ve ever read?

Forbes Four: 5. What is one misplaced assumption in business today?

6. What was the best financial lesson you've ever learned?

7. Who is the greatest financial mind working today?

8. What is your bold prediction for the future?

- 4 -

FORBES ON ROGERS Intelligent Investing with Steve Forbes

Shot Selection James M. Clash, 03.04.02

T. Rowe Price value manager Brian Rogers has outdone the market in a downturn by playing defense. Expecting a rebound, he's switching to more aggressive--and riskier--plays.

As Rogers relaxed poolside one balmy afternoon on his Caribbean vacation, a man recognized him from the PBS show Wall Street Week. Yet Rogers, a veteran T. Rowe Price fund manager, didn't exactly get the star treatment. It was March 2000, tech stocks were on a tear, and Rogers' value-oriented Equity Income Fund had turned in an anemic 3.8% return the previous year, when the S&P 500 hit 21%; investors were fleeing. The man launched into a diatribe about how out of touch Rogers was. "It's not like I tossed a drink at the guy," recalls the mild-mannered Rogers, "but I did tell him every dog has its day." Indeed, that happened to be the week Nasdaq peaked. Since the start of 2000 Rogers has clocked a 5.7% average annual return, 17.6 points better than the market. Over the long term he has a track record few can match. Since he launched Equity Income, T. Rowe's first value vehicle, in October 1985, Rogers has been one of only a half-dozen domestic equity managers who have outpaced the S&P, (see chart, below). And he has done so with low expenses (78 cents on $100 of assets), low annual turnover (22%) and low-multiple stocks like tax preparer H&R Block, food giant General Mills and utility Southern Co. Rogers, 46, is not one to sit still. Lately he has ditched these classically defensive stocks for cyclical ones, betting on an upturn in the economy. Not a return to the go-go days of the late 1990s, mind you, but a decent recovery. He thinks the market will be up 10% to 20% this year. "It's time for a leap of faith," he says. "We have a Fed that's cut rates 11 times, earnings down by nearly half year over year, the S&P off two years in a row and the most ever in money funds as a percentage of the market." The time seems to be right for a spring-back. But he admits that there's a big drag: Despite their fall in the past two years, stocks are trading at abnormally high multiples of their earnings. Parting company with the inbred bearishness of value managers, Rogers has no patience with Cassandras who liken the U.S. to Japan. He says our tech bubble is nowhere near the size of Japan's real estate bubble in the 1980s, in which properties were changing hands at prices implying that Tokyo was worth more than the entire state of California. "Sure, Amazon was above $100 in 1999," says Rogers, "but if it disappeared the world wouldn't end." The online retailer, which he wouldn't touch, is now at $12.50.

- 5 -

His new strategy is chancy, and it's part of the reason he's down a bit in 2002. The positions he has taken look like value plays only in that they've been beaten up. American Express saw earnings halved in 2001 to $1.3 billion while the stock tumbled from $35 to $26 after Sept. 11. To blame: a slump in its travel-related business and concerns about junk bonds in its portfolio. Rogers bravely bought in at $30 in the fall. He's gambling that a better economy and fading fear of terrorism will restore the company's luster.

Another recent risky Rogers pick is Walt Disney, also suffering mightily from Sept. 11 and the recession. Last year the company lost $158 million--and shares sank from $24 to $16 after the attacks. Putting more pressure on the stock, the week after Sept. 11 Sid, Lee and Perry Bass unloaded 135 million shares to meet a margin call. That's when Rogers bought at $16. Disney has inched back to $22.50. "We're moving out of relative strength and recycling into what appears to offer more upside," he says. Merck's price has declined by a third in the last 12 months to $58 on concerns about patent expirations. "If you bought a year ago, you feel like an idiot. But if you buy today at 19 times earnings with a 2.4% yield, you might look dumb in 12 months, but the chances are better you'll look like a hero." If Rogers were a pure value investor in the tradition of Benjamin Graham, he would buy stocks only when they are trading at low multiples of earnings, dividends or book value--preferably all three. That doesn't describe his guiding philosophy; American Express is going for 35 times earnings and 105 times dividends. Rogers is more likely to talk about defensive stocks than cheap stocks. When the conversation veers off into sports, as it sooner or later does, he

- 6 -

talks defense. A high school forward at 6 foot 1, Rogers was too small to play basketball as a Harvard undergrad. Now he coaches kids. "Defense is a lost art," he says. "When you're 9 years old the emphasis is on shooting, but it's just as important to learn good defense. The other thing I tell my kids is to take good shots. That's akin to making a carefully calculated investment. You only lob from three-point land if you're desperate." T. Rowe Price, once a pure growth-stock firm, has evolved into more of a defensive shop during Rogers' tenure there. He joined in 1982 upon graduation from Harvard Business School and after Fidelity turned him down. "Sure I was disappointed," he says from his modest, cluttered office on the ninth floor of T. Rowe headquarters overlooking Baltimore's Inner Harbor. "And to compensate, I was irritated. You just have to say, ‘Their loss.'" A photo of him with Wall Street Week's Louis Rukeyser sits on a shelf ("The first time I was on, in 1996, I lost 8 pounds to perspiration"). Founded in 1937 by former chemist Thomas Rowe Price Jr., the firm was run until the 1970s much the way Janus is today. "Growth, growth in various stripes with very little fixed income," says Chief Financial Officer David Testa, 57, who has been with T. Rowe since 1972. Money poured in during the Nifty Fifty era and assets under management ballooned from $423 million in 1960 to $7.2 billion in 1972. Then came the bear market of 1973-74, and T. Rowe watched assets slide 36% by year-end 1974. "The crash seared into our minds that we had to diversify," says Testa. It seems to have worked. T. Rowe has grown into the fourth-largest no-load fund family behind Fidelity, Vanguard and Janus, with $156 billion in managed assets ($98 billion of it retail, spread among 80 funds). Within T. Rowe's management, Rogers is a strong voice for controlling beta, or market-related risk, and for controlling volatility, or the degree to which monthly returns fluctuate. (Contrary to popular belief, beta is not a measure of volatility; a gold stock could have a 0 beta and still be as volatile as Amazon.) "A volatile path scares people out at the wrong time," says Rogers. "People buy when a fund is hot and get shaken out when it's cold." As an example, Munder NetNet (Class A shares), a technology fund with assets of $505 million, and T. Rowe Equity Income have had similar annual returns (10.6% and 10.3%, respectively) for the last five years, but the Munder fund has a beta of 2.5, more than four times Equity Income's 0.6. If you stayed put in the Munder fund the whole time, that is, you did as well as someone in Rogers' fund. But Munder's investors did not stay put. They've averaged a –35.6% per year dollar-weighted return, a statistic that takes into account how much money was in the fund when it was going up and how much when it was going down. Equity

- 7 -

Income's dollar-weighted average was 10.5%. T. Rowe funds hold up well in down markets. Since the market peak in late March 2000, 75% (or 18 of 24) of T. Rowe's actively managed domestic stock funds have outperformed the market and, of those, 12 are in positive territory. Rogers contrasts Vanguard, Fidelity and Janus, with respective 74%, 64%, and 10% of domestic funds market-beaters in the same period. A defensive posture tends to mean a preference for dividend payers; the fund yields 2.2% to the market's 1.4%. Rogers looks beyond the quarterly checks, though: He likes companies that pay dividends and repurchase stock at the same time. Fortune Brands is an example in his current portfolio. It has an annual 2.4% dividend and has been buying back stock to the tune of 2% a year. Asks Rogers "Is that really different from a company with a 4.5% cash dividend?" In two decades of managing money, Brian Rogers has learned an investment lesson or two, often the hard way. Here are three he considers most important: Don't time the market. Leading up to the crash of 1987, Rogers had 59% of his fund in stocks, the rest in cash and fixed income. In that period the S&P was up 36%, his fund just 20%. When the market crashed on Oct. 19, his fund was down 14%, the S&P 23%. For one day, he looked like a genius. Contrary to what you might think, Rogers says he made a mistake by not being fully invested prior to the crash. He could have been a real genius if he had reverted to 100% stocks right at the bottom, but he didn't. In the end, his bearishness didn't buy him any results. For the full year, Equity Income was up 3.5%; the S&P, up 5.1%. Ever since, Rogers has had at least 90% of his fund in stocks. Currently he is just 3% in cash. Focus on companies, not industries and trends. In 1989 T. Rowe had a bearish view on energy prices, so Rogers underweighted his portfolio there by two-thirds--4% to the S&P's 12%. But because of a much colder winter than expected, oil prices shot up like a Texas gusher. "We should have focused on the individual companies," says Rogers. Exxon, Mobil and Texaco were all cheap, and he overlooked them because of his top-down approach. Scrutinize financial statements. A decade ago Rogers put 1% of his fund into Borden after it had fallen from $35 to $20. "The P/E was down, dividend yield up--it looked like the time to buy," he says. But management continued to follow an acquisition strategy that slowly compromised the balance sheet. Kohlberg Kravis & Roberts did a leveraged buyout at $14. Needless to say, Rogers likes it better when he does the scoring.

- 8 -

Newsletter Watch How Stable Is Your Core? Josh Lipton 09.12.07, 4:58 PM ET

As you invest for retirement, the mutual funds at the core of your portfolio should be capable of surviving the claws of a bear market and still go on to deliver rock-solid performance over the long term. These are the mutual funds investors typically buy, set up automatic investing programs for and check once a year.

“Using this core-satellite approach, an investor can then add short-term bonds or cash, a health care sector fund, or myriad other domestic/foreign stock funds to improve the portfolio's 'alpha' or excess return,” says Daniel Wiener, portfolio manager and editor of the newsletter Independent Adviser for Vanguard Funds.

Given the fact that overseas markets have become more liquid and often outpace U.S. stocks, Wiener argues that a core fund should be a global fund that gives exposure to both domestic and foreign stock markets. Two funds fit this bill, says Wiener: Vanguard Global Equity (VHGEX), which has a five year average annual return of 21% and Polaris Global Value (PGVFX), whose five year average annual return is close to 20%.

"Both tend to take a value-oriented approach to stock-picking and aren't burdened by a focus on large-cap stocks, roaming the globe for good values," Wiener says. "The managers (three teams at the Vanguard fund and one at Polaris) are old hands at stock-picking and have great track records."

Janet Brown is editor of No-Load Fund*X . Since 1982, Brown's model portfolio of mutual funds has produced annualized returns of 15.5%, compared to 13.3% for the DJ Wilshire 5000 over the same time period, according to Hulbert Financial Digest.

Brown has three picks for retirement fund shoppers:

She recommends investors take a look at Kansas City-based American Century Heritage (TWHIX), a mid-cap growth fund with a good long-term record. During the last 12 months Heritage has logged a total return of 42.6%.

Another Brown favorite: Fidelity Worldwide (FWWFX), a broadly diversified global growth fund that Brown describes as a fairly conservative fund with a decent long-term record of 16.7% per year on average over the last five years. Some of Fidelity Worldwide's biggest holdings include Exxon Mobil and Swiss power and automation company ABB.

Finally, Brown recommends buying Excelsior Emerging Markets (UMEMX). She notes that the manager of this fund, Don Elefson, concentrates on countries

- 9 -

more than companies and especially likes countries with capital surplus. Brown said that the current heavy emphasis of the fund is Asia, and in terms of sectors, energy stocks. It’s biggest holdings include South Korea's Samsung and LG, and Brazil's Petroleo Brasileiro S.A. - Petrobras.

While Brown’s approach is almost entirely performance focused, James Lowell, portfolio manager and editor of the Fidelity Investor, is manager focused. He suggests three core growth investor picks, based on the individual track records of each manager.

"Buy the manager, not the fund," Lowell advises.

First, Lowell recommends investors take a good look at Fidelity Dividend Growth (FDGFX). This fund, run by Charles Mangum, is a mega-cap, multinational that boasts, according to Lowell, a defensive track record second to none. Over the last 10 years its total return exceeds 8% per year vs. 4.9% for the S&P 500.

"His current overweights in health care and technology provide both near-term defense and longer-term offense," Lowell argues.

Another Lowell pick: Fidelity Leveraged Company Stock (FLVCX), run by Thomas Soviero.

"Soviero's unique mid-cap fund has proven to be a valuable way to capitalize on this capitalization's range's overlooked and most promising companies," Lowell says. Leveraged Company Stock Fund has an impressive five-year annual average return of 35%.

Finally, investors would be wise to mull over the prospectus of Fidelity International Small Cap Opportunity (FSCOX), which Lowell describes as an international barn burner. The fund is run by Andrew Sassine.

"Sassine's ability to cover the map of the least followed capitalization range's stocks in the established international markets make this fund the most likely 10- to 15-year breadwinner from this or any fund family," says Lowell.

There are also some funds that the pros love but shun new investors. Jim Stack, editor of InvesTech Research , thinks highly of Artisan Mid-cap Value (ARTQX) and T. Rowe Price Mid-cap Growth (RPMGX). One way to get around the “no new investors” restriction is to find someone already holding shares in one of these funds and get him or her to gift you a single share in the fund. Most closed mutual funds allow existing shareholders the opportunity to increase their holdings.

Stack also advises his clients to buy T. Rowe Price Equity-Income Fund (PRFDX). In addition to the fund’s low volatility and steady performance, which

- 10 -

ranks in the top quartile for equity-income funds over the past 10- and 15-year periods, Stack says there are several reasons he thinks this fund makes a good long-term investment.

First, Stack likes the fact that Brian Rogers has been running the fund since its inception in 1985, and since then it has an enviable 13.4% average annual return.

"Brian follows a true value approach, seeking companies that trade at a discount to historical valuations," argues Stack. "This strategy naturally favors stable, dividend-paying companies that are typically more stable under adverse market conditions."

The fund’s low expense ratio at 0.7% also helps enhance returns for investors, he says.

For those socking away retirement funds in a taxable account, Thurman Smith, editor of Equity Fund Outlook , recommends low tax-impact choices such as Fairholme (FAIRX), which he argues is a large-cap blend that enjoys exceptional reward/risk efficiency.

Smith notes that this fund has enjoyed a four-year return of 18.2% vs. 11.5% for the DJ Wilshire 5000. It's only 80% as volatile as the overall market, he says.

Another winner, according to Smith: Gabelli Asset (GABAX). This all-cap blend has above par reward/risk efficiency, he argues. "Market-risk, but more 'growthy' in up markets," Smith says.

Go with Vanguard Value Index (VIVAX), if you're looking for an index choice. Smith points out this fund returned 11.6% annualized since its inception in late 1992 vs. 10.6% for the Wilshire.

"Value Index is also tax efficient, so any investor can use it," he says. "The only requirement to hold the fund is to recognize that in a period when large growth stocks are predominate, Value Index will lag. But for this long-term strategy, one just waits that out."

John Schloegal, associate editor of All Star Fund Trader , recommends two core funds for play-it-safe investors. With half the volatility of the market, Gateway Fund (GATEX) has had a 9.2% annual return since inception in January 1988. It utilizes a proprietary hedging program with puts and calls, seeking to reduce risk and avoid sector, interest-rate and market-timing risks.

Schloegal also likes Yacktman Fund (YACKX) with its low turnover and low expense ratio of 0.96%. Managers Don Yacktman and son Stephen are Buffett-like value hunters, picking companies with strong managers, generating lots of

- 11 -

excess cash. They also tend to buy back shares. Over the last 10 years, Yacktman fund has had a total return of 8.0% vs.1.3% for S&P 500.

- 12 -

On The Cover/Top Stories Payout Payoff Michael Maiello, 04.25.05

The 2003 dividend tax cut brought cash-paying stocks back into vogue. Some dividend funds are doing much better than others.

This should be the hour of the dividend fund. When Congress dropped the maximum tax rate on dividends from 39.6% to 15%, mutual funds specializing in payout-generating stocks enjoyed a new vogue. Since January 2003, when the lower rates kicked in, the number of so-called equity income funds increased 35% to 242 now, versus a 6% expansion for all stock funds. The funds have plenty of stocks to buy. Companies boosted dividends 11.8% last year, the best increase since 1989, with still more expected for 2005, says Standard & Poor's. And there's a case for holding dividend-payers long term. S&P analyst Howard Silverblatt calculates that payers' returns have eclipsed nonpayers' by 3 percentage points yearly since 1980. Nevertheless, dividend funds' performance lately has been underwhelming-good, yet not great. The category has returned 18.1% annually since the tax cut, besting the S&P 500's total return by a mere 0.5 percentage points. Of the 54 Lipper equity fund categories, income funds inched up to 36th place last year and have clawed their way to 16th in 2005. True, that's an improvement from the late 1990s, the era of hot tech portfolios (mostly dividend-free). Dividend-paying stocks tend to be large-cap, established names, viewed back then as stodgy. In 1999, when payout-centric portfolios averaged a 4% return to the S&P's 21%, the category finished an ignominious 49th. With all they have going for them, why haven't income funds done even better since 2003? First, the tax cuts didn't leave dividend funds with an advantage, just placed them on an equal footing with others. Before, capital gains had the leg up, taxed at a max 20%. Now both cap gains and dividends are taxed at 15%. But the larger factor is that, when investing in the 381 dividend-payers in the S&P 500, some portfolio managers' strategies are simply better than others'. It pays to shop around. So we've selected the best-performing income funds (see table, p. 68) that passed two performance tests to measure long-term and short-term (post-tax cut) results. They must have beaten the S&P 500 over the past five years-a span that takes in both a bull and a bear market-as well as since January 2003. We included only those with no loads and with annual fees at or below 1% of assets.

- 13 -

Our list obviously does not encompass promising new funds that have popped up since the tax cut. For instance, Fidelity Strategic Dividend & Income, launched just before Christmas 2003, has done 4 points better than the S&P's annualized performance since then. This eclectic mix is half common stocks, 20% preferred, 15% convertibles and 15% real estate investment trusts (which don't get the favorable 15% tax treatment but usually sport nice yields). Some longtime notables among the income set also are not part of our roster because they stumbled. Most prominent by its absence is another Fidelity fund, Dividend Growth. Since Charles Mangum became manager in 1997, Dividend Growth has returned an annual 12.1%, handily ahead of the broad market. Mangum outpaced the S&P 500 during the three years through 2002. Then, after the tax cut, the market got away from Mangum. He lost out to the index by 5 points in 2003 and another 5 in 2004. Morningstar analyst Gregory Carlson's diagnosis: Mangum's assets are dangerously concentrated in ten holdings, leaving the fund vulnerable if things go awry. Did they ever. While Mangum was unavailable for comment, in his year-end 2004 letter to shareholders he blamed his largest holding, insurer American International Group, then in the early stages of its public ignominy, for his woes. He previously had fingered Merck and Pfizer, vexed by drug recalls, as culprits that harmed his returns. Also overweighted in his fund: troubled Fannie Mae, a favorite of dividend investors, unfortunately also a favorite target of hard-nosed auditors. The champ of our list is Vantagepoint Equity Income, a fund slanted to large-capitalization companies (average for the portfolio: $23 billion), with a nice 12.7% annual return over five years and a 22.1% annual showing since 2003. The managers have spread their money around, with no stock making up more than 3% of the portfolio. Management is farmed out to several estimable souls, including Mason Hawkins of Longleaf Partners and Brian Rogers of T. Rowe Price. Rogers' own fund, T. Rowe Price Equity Income, is on our list, too. For income fund managers, the size and quality of dividends are always the burning questions. A 5% yield doesn't mean anything if it's about to be sliced. At Equity Income's tiller since 1985, Rogers vows never to buy a stock on a down spiral, even if its dividend is enticing. For example, he shunned generously paying Coca-Cola until late last year, when he concluded that stock in Coke (yield: 2.4%) had fallen enough to be a worthwhile bargain-and that the embattled soda titan was fixing its weaknesses. "Had I held it throughout 2004, I wouldn't be as happy with it as I am now," he says. Rogers always is on the lookout for strong companies that will start dividends. After the tax cut he figured that more corporate heads would be tempted to launch payouts because, as stockholders themselves, they would be lining their own pockets. In 2002 Viacom Chief Sumner Redstone told T. Rowe managers

- 14 -

that Viacom would begin paying a dividend only if the tax cuts went through. After Congress obliged, the media company in mid-2003 started a payout and Rogers bought in. An even more ardent seeker of nonpayers who might start paying is Minerva Butler, a protégé of Mangum (she once worked for him as a Fidelity analyst) and manager of the $980 million Vanguard Dividend Growth fund. In 2002, sure that nonpayer Apple Computer would start a dividend, she purchased a small stake. Her reasoning for nibbling at Apple: It once had paid a dividend, which ended in 1995 amid hard times at the computer company. But seven years later a reinvigorated Apple, with bestselling gadgets like the iPod, saw earnings blooming anew. When Apple didn't deliver the hoped-for dividend, she ran out of patience and unloaded it in early 2004, making a nice gain but missing out on a lot more. While tech outfits usually don't offer dividends, Butler is convinced that some of the larger ones will. And to date she has scored one such trophy. In winter last year she bought Microsoft shares after the cash-laden company debuted a payout. Another enticing goodie: It tossed in a special one-time payment of $3 per share in late 2004. The software behemoth's first-ever dividend now yields 1.3%. Today Microsoft is her largest asset. Income managers like Butler seek the highest yields they can get, preferably better than the S&P 500's 1.6%. Hence she holds construction equipment maker Caterpillar, which yields 1.8%. Butler, however, will buy a lower-yielding stock if it has consistent dividend increases. Example: Illinois Tool Works (1.2%), which aims to raise dividends in line with the previous three years of earnings growth. Its last hike, in fall 2004, was a spiffy 17%. Butler believes more and more companies will feature dividends. "Managements across industries are going back to Corporate Finance 101," Butler says. "You raise your dividend to show confidence."

- 15 -

The 2005 Mutual Fund Survey Price Is Right Ira Carnahan, 01.10.05 How a seldom-celebrated, low-cost fund house became a powerhouse. Say "Vanguard" and you think index funds. Say "Fidelity Investments" and it's stars like Peter Lynch. But T. Rowe Price? You might shrug. Sitting in graceful, tradition-minded Baltimore, far from Wall Street's hurly-burly, T. Rowe doesn't get a lot of attention. But while no one was looking, T. Rowe has become the country's third-largest direct marketer of funds. Its secrets of success have powered it through the dark days of the bear market, scoring good returns that nicely exceed the market. Like the U.S.S. Constellation, an elegant 19th-century wood-hulled warship moored in the nearby harbor, the old investment firm was once written off as a relic. Hardly. With $212 billion under management, the venerable company, founded in 1937, has become a force in funds, retirement plans and institutional investing by playing it safe and offering customers a good deal. Its strong suits are low risk and low expenses. Such attributes made it stodgy-looking in the Internet mania of the late 1990s but enabled it to breeze by go-go shop Janus when the bubble burst. Over the past five years 83% of T. Rowe's mutual funds have beaten the average return for their category. The share of T. Rowe's funds rated by Morningstar that earn four or five stars stands at 64%--more than double the average for funds as a whole. And four of T. Rowe's funds, including Capital Appreciation and Mid-Cap Value, are on the Forbes Best Buys list. This list recognizes a fund's ability to perform, through up and down markets, while keeping expenses low. The irony here is that many of T. Rowe's best funds invest quite differently than founder Thomas Rowe Price Jr. did. Once the investment chief at another Baltimore institution, Legg Mason (then called Mackubin, Legg), Price struck out on his own with a philosophy that would challenge value avatar Benjamin Graham. Price rattled teacups by advocating glamour stocks. Trained as a chemist, Price looked for companies with a certain combustible mixture: strong growth records, talented managers, new technologies and no cutthroat competition or troublesome unions. He disdained the "decadent" railroads that anchored many a gilded portfolio of that day. He bought Honeywell, 3M, IBM and Xerox early. Back then you were supposed to hesitate before paying more than ten times earnings. Price didn't hesitate. By 1972 the firm's New Horizons Fund of small-company stocks had the best 10-year record of any fund and its Growth Stock Fund the best 20-year record. "It's almost like we were the Janus of 1972," says Brian Rogers, T. Rowe's

- 16 -

investment chief today. And like Janus in the new century, T. Rowe soon crashed. Amid the OPEC oil embargo, soaring inflation and the fall of the high-multiple Nifty Fifty, that era's darlings, New Horizons dropped 42% in 1973 versus the S&P 500's 15% loss. In 1974 it fell another 39%; the S&P was down 27%. Price himself mostly avoided that unpleasantness. Getting older and skeptical of the Vietnam-era guns-and-butter economy, he sold off most of his interest in the firm to employees in the mid-1960s. He died in 1983 at 85. The T. Rowe Price that emerged in the early 1980s was a firm chastened, wiser and much more valuation-conscious, with strong bond and value funds to complement its original growth specialty. It went public in 1986 and is now run by a seven-person management committee headed by soft-spoken Chairman George Roche, 63, who joined in 1968 as an analyst and worked closely with Price. He was there when the Nifty Fifty melted down. Helping to run the company is Vice Chairman James Riepe, 61, a veteran of Vanguard. Riepe worked with John Bogle to found Vanguard in the mid-1970s and was viewed as Bogle's likely successor until he left for T. Rowe in 1982. Riepe helped bring modern technology, marketing discipline and cost consciousness to the operation--with a pleasant informality. On a recent day Roche and Riepe were working tieless in the firm's modest offices overlooking Baltimore's lively Inner Harbor. Investment chief Rogers, 49, joined T. Rowe following Harvard Business School in 1982. From a cluttered office filled with books on finance, he keeps an eye on market defense as well as offense. Rogers also manages Equity Income, the biggest of the firm's 91 funds, with $17.4 billion in assets. This large-cap value fund, which he has run since 1985, has returned an average 7.9% a year over the past five years, beating its category's index by 3 percentage points and the S&P 500 by 10 points. His only down year during the bear market was in 2002, although he still outperformed the S&P by 9 points. The pioneering, 45-year-old New Horizons small-cap growth fund (assets: $5.6 billion) is still around. Indeed, some analysts have long compared the price/earnings ratio of New Horizons' holdings to the P/E of the S&P to gauge whether small stocks are overheated (see box). New Horizons is just a small piece of today's T. Rowe story. The company's second-largest fund, Mid-Cap Growth, is run by Brian Berghuis, the fund's manager since its inception in 1992. The fund has returned 6.8% a year for the past five years, besting the S&P by 9 points and its category by 12. Investment

- 17 -

tracker Morningstar just named Berghuis, whose fund is now closed to new investors, its domestic stock manager of the year. One exception to the overall T. Rowe success story is International Stock, the firm's largest foreign equity fund. While T. Rowe's more specialized foreign funds have generally done well, this large-cap growth fund has lagged, returning 5.1% a year for the past ten years versus 5.6% for its benchmark. Not great, since investors lately want more foreign exposure. T. Rowe officials have recently moved to fix the weaknesses, tweaking fund management, bringing on a new director of foreign stock research from Goldman Sachs and hiring additional analysts. The T. Rowe Price secrets of success: • Long-term managers. David Wallack is a rookie as a manager at the firm, having run Mid-Cap Value ($4.2 billion) for a mere four years. But he joined the firm as an analyst 15 years ago. Turnover of stock fund managers at T. Rowe is low--less than 3% a year. And you won't see Wallack in an ad; investing at T. Rowe is a collaborative effort. "We don't have any rock stars," says Edward Bernard, head of investment services. • Second-quartile finishes. T. Rowe funds' solid long-term records are not the result of blowout years mixed with awful ones, but of solid, steady returns from one period to the next. For example, Mid-Cap Growth lands in the second quartile for annual returns almost as often as the first. Yet this puts it in the top 5% of funds in its category for the past ten years, according to Morningstar. Vice Chairman Riepe warns prospective customers they shouldn't expect T. Rowe funds to be at the very top in short time frames, "because we're not going to risk being in the fourth quartile, which is what you have to do [some of the time] to get into the first quartile [some of the time]." •Bottom-up stock picking. T. Rowe's process--which looks at individual companies first, rather than keying in on a big investment trend--also works to lower risk. "There tend to be not many macro calls; there tends to be not an awful lot of theme investing," investment chief Rogers says. Meaning, T. Rowe doesn't run off to invest in a slew of companies that are all supposed to benefit from the retirement of the baby boomers or a resurgence of inflation or a spike in oil prices. • Low risk. Even T. Rowe funds that are inherently risky, such as Robert Gensler's Global Technology, tend to be safer than their peer group. Global Technology consciously constructs a portfolio with a low volatility and a low degree of market-

- 18 -

related risk (low beta, that is). By both measures it's in the bottom quarter for tech funds over the past three years, even though the returns of the fund put it in the top 10%, according to Morningstar. Another way T. Rowe keeps a lid on risk is by filling its funds with many stocks--usually more than 100 per fund. "We don't try to pick the top 20," says James Kennedy, T. Rowe's director of equities, which will "be good for a while, and then they blow up." • Style consistency. T. Rowe is a big believer that the ingredients should match the name on the bottle. A large-cap value fund must buy large-cap value stocks and not, as many other fund companies permit, whatever strikes the manager as a good stock. "The quickest way to get fired here is to go outside of your charter and do a lousy job of it," says William Stromberg, head of global equity research. Style consistency also limits risk, because swinging portfolios around in pursuit of the latest sizzling stock adds to volatility and the danger of a sudden drop. And, T. Rowe managers say, consistency lets investors more easily achieve the diversification and balance they want in their own portfolios. • Avoidance of fads. Whatever's hip and happening, T. Rowe doesn't want to know about it. This investment discipline was sorely tested in the late 1990s, when the market was richly rewarding speculation. "We took a lot of heat," recalls investment services head Bernard. Critics asked: "Are we stuck in the dark ages? Have we got our head in the sand?" T. Rowe executives ruefully recall a Wall Street Journal article from March 2000, which labeled the firm's investing approach "tradition-bound," and declared: "The gears of the investing machine that helped make T. Rowe one of the nation's ten biggest mutual fund firms have gotten stuck over the past few years, especially in the fast-growing field of technology stocks." One week after the article appeared the Nasdaq began a sharp drop that would continue, with only the occasional interruption, for the next two and a half years. Speculators got killed. But T. Rowe investors came out okay. "You think twice before you invest in a company with no earnings," says Bernard. • Low expenses. Morningstar rates T. Rowe's fees on domestic stock, international stock, municipal bond and taxable bond funds as "very low." Yes, Vanguard is the low-cost leader and investors looking to invest only in index funds would do well to stick with Vanguard. (T. Rowe's five index funds cost an average of 39 cents per $100 of assets, an appreciable 16 cents more than the comparable funds at

- 19 -

Vanguard.) On actively managed stock funds, Vanguard is the cheapest, as well, with most of its funds costing 40 cents to 75 cents, versus an average of $1.68 industrywide. But T. Rowe, with most of its funds between 75 cents and $1.25, is reasonable, too. Equity Income charges just 78 cents, Mid-Cap Growth 87 cents, with Mid-Cap Value and New Horizons each at 91 cents. Riepe, the former Vanguard man, makes the case for spending a little extra for active management. "Number one, I think there are managers, and we've got a bunch of them here, who in fact can beat the indexes," he says. "And number two, I think there are times when you don't want to be indexed. All those people who bought index funds in 1999 weren't buying some diversified index. They bought the S&P 500, which was 40% technology-weighted. They bought a very aggressive growth fund, at that moment." When asked what other fund companies are similar, T. Rowe executives repeatedly mention Capital Research & Management, the Los Angeles firm that runs the American Funds. Some conspicuous similarities: low profile, low expenses, absence of celebrity managers. One big difference: American Funds are sold only through brokers, while T. Rowe has long sold its funds straight to customers. "By and large, I think we're looking for self-directed investors," says T. Rowe equity research chief Stromberg of the firm's typical retail client. "People who take their investing relatively seriously, who want a good deal and are willing to do a little bit of research on their own to find a place they can trust." The word "trust" comes up a lot at T. Rowe. Thus far T. Rowe hasn't been touched by the mutual fund scandals. "We're quite confident that we're going to continue to be viewed as people with white hats on," says Rogers. "We have scrubbed things every which way from Sunday. We know we're a good actor." Interestingly, Vice Chairman Riepe was elected in October as the Investment Company Institute's new chairman. The mutual fund trade group needs to burnish its sullied image in Washington. The ICI, of course, long has acted as a brake on tough fund regulation. After the fund scandal of 2003--the revelation that some funds allowed outsiders special privileges at the expense of ordinary investors--the ICI fought efforts to require funds to have a chairman not from the fund company, as well as some other cleanup ideas. Riepe, a polished fellow who will look good testifying on Capitol Hill, says that a few bad apples have overshadowed the far larger number of funds that are fine. But who cares what the regulators do? If you want trustworthiness, you can vote with your feet.

- 20 -

THE ROGERS INTERVIEW Intelligent Investing with Steve Forbes

Show Open [00:00-00:07] Jump 1 [00:08]: Steve: Strong Dollar Now Welcome, I’m Steve Forbes. It’s a pleasure and a privilege to introduce you to our featured guest: Brian Rogers, chief investment officer and chairman of T. Rowe Price, the venerable no-load mutual fund company from Baltimore. Rogers is a devoted value investor who will share some of his contrarian ideas. But first, The weak dollar is the virus that has sickened the American economy. The Federal Reserve’s reckless, loose-money policy in 2004, repeated in 2007 led to a catastrophic inflation in the commodities and housing markets. The binge of recent years, and the purge that’s happening now, would not have been possible if the Fed had practiced a prudent monetary policy. There is no shortage of liquidity. The problem is that everyone has been clutching their dollars for dear life instead of putting them to work. With a weak dollar, the prices of oil, copper and rice go up. But you also distort investments in the American economy. That’s one of the reasons why the housing market was so inflated. When the dollar is weak, it has a global impact. We need to turn that around. A stronger dollar will take the pressure off inflation and help end the credit crisis. With a stable economy, companies will feel confident to invest and bargain hunters will start to buy houses, jumpstarting recovery process. The weak dollar caused this mess. A strong dollar will help clean it up. And now, my conversation, from Baltimore, with Brian Rogers. Jump 2 [01:43] Irrational Pessimism Steve Forbes: Brian, thank you very much for joining us.

- 21 -

BR: Steve, it’s my pleasure. SF: Well, big question. What is happening and what should be done that hasn’t been done? BR: Well, Steve, I wish I had all of the answers. Obviously, we’re in a very tight… SF: Clearly, Washington doesn’t know, that’s why I’m asking you. BR: I think directionally, they’re going in the right way. I view what’s been happening as more a crisis of confidence than a crisis of fundamentals. I mean, sure, we know the housing market has been a major, major problem. Sure, we know a lot of companies have borrowed too much money and got into trouble with their balance sheets, but I think what we’ve been seeing most recently is just a crisis of fear, and if I were Alan Greenspan, I almost might define it as a potentially irrational pessimism because I’m not sure if the long-term prospects for the global economy are as negative as it seemed to be reflected in prices in today’s world. SF: So, what’s an investor to do in this kind of environment? BR: Well, I think investors have to focus on where there are great valuation opportunities that you can capitalize on for the next couple of years. It’s-- Jump 3 [02:44]: Safety is Too Expensive SF: You’ve made your career on that. What isn’t undervalued these days? BR: Well, and it’s hard. I mean if you look at the things that are most overvalued right now, they are the safest assets. So, it might be gold. It might be a treasury note. It might be a very high quality consumer staples company. It might be an electric utility stock. These are the safest areas of the market place, and I think that’s where the money has been flowing. And you can see it when looking at what’s happening at the treasury curve in terms of how yields have dropped dramatically on treasury bills. SF: Talk about irrational behavior, whoever would’ve thought that at the time when the dollar still relatively weak to commodities, and at a time when people just sort of fly to safety that, thirty-year treasuries would have capital gains. BR: Um-hmm. And I think the thirty-year treasury over the last twelve months has been one of the best performing assets in the world. Interestingly, you mentioned the dollar and the dollar has shown some signs, I think, of firming pretty dramatically recently reflecting that flight to quality. And all of sudden, money has been flowing out of some of the more aggressive emerging markets.

- 22 -

SF: Even though they can’t seem to print enough of it. BR: And the Fed is printing a lot of it right now. SF: So, an investor, so you wouldn’t tell them what another fellow on TV said the other day, “If you need the money in five years, get out of the market.”? BR: Yeah. Well, I heard reference to what transpired I guess on CNBC or NBC, and we know who that was-- SF: Yes. BR: One of my college classmates, I might add-- SF: What did you do to him? BR: I think Jim [Cramer] was getting a little carried away, and I think after what’s happened already, I’m not sure that’s great advice. I think a lot of the damages already occurred. SF: Right. BR: And I wouldn’t encourage people to take money out and put it away for five years now. I think there are a lot of probably good investment opportunities out there in today’s world. Jump 4 [04:35]: Nerves of Steel SF: Now, you’ve made your reputation looking for value; stocks that are beaten down after they’re beaten down. You’ve mentioned once Coca-Cola, when it was on the way down, you didn’t want to buy it. But soon as one has beaten to a pulp then, that was the time to go in. What areas, what kind of stocks would you tell investors who have nerves of steel to really look at? BR: Well, Steve, in terms of the US market, I think the best values are in the industrial cyclicals, and the financials that will survive. And in terms of industrial cyclicals, that’s anyone from a General Electric, which has been all over the press lately, to-- SF: Do you think that would go down to what it is? BR: I never would’ve guessed. To a high quality company like an Illinois Tool Works to someone like Boeing, to any of the equipment manufacturers. I think those are really good values because people are extremely negative right now on

- 23 -

cyclicality. And I think over the next couple of years, that negativity will probably change. On the financial side, I think what you just have to invest are in the winners, and not take too many gambles on too many-- SF: Aside from your company, what other companies? BR: Well, with a little luck, maybe we’re a winner, too. But you know, the strong banks, the Wells Fargo’s, the US Bank Corp’s, you know, Goldman Sachs. I mean, while people are panicking, when you turn around and take a look whose buying; it’s Warren Buffett with new investments in GE and Goldman Sachs. And so, you have to ask yourself, if you’re selling because you’re worried and Buffett’s buying, what does that mean to you? And I think there’s information content in reflecting on that situation. SF: Buffett’s not known to give in to emotions. BR: No, I think he steps back and he tries to be very rational and removed. He also gets better deals than the average person-- SF: Ten percent. BR: In terms of some of the coupons that he preferred. So, he has more negotiating power than many of us do, Steve. But I think he wouldn’t be investing in the entities if he didn’t like their long-term prospects. SF: Now, you once said, “Don’t buy stocks on a downward spiral.” Everything now is on downward spiral. You mentioned industrials, financials, any other areas that investors might look at? BR: Well, again I think within the US market and outside the US as a whole separate conversation; I think some of the energy stocks have declined really, really sharply. Again, when you think about consensus thinking twelve months ago, it was that the price of oil would never go down, and that India and China would put up with pressure on the price of the commodity forever. Now, that view has changed. I think the truth is probably somewhere in between where we were then and where we are now. And so I think, companies like, you know, Schlumberger, EXXON, I mean, you don’t have to take a lot of chances, Enron Oil and Gas, the good companies. I think you can invest in the energy sector because they’ve pulled back very, very sharply. Jump 5 [07:28]: Global Opportunities Are Back SF: Now, looking outside the US briefly, we were talking before about how hammered emerging markets Russia and China, everything, has just been really knocked down. Is it still too early looking at that when the values, considering the values we have here in the United States?

- 24 -

BR: Yeah, I think when you look at the values that have been created in some of the emerging markets; I think the long-term investor can move directionally that way now. I mean, China takes its growth rate down from 11 to 8% hypothetically. Eight percent is faster growth than we’ve had in this country in so many years-- SF: Right. BR: That market is down probably 70 or 80% trailing twelve months. So, again, an awful lot of negativity and some pretty attractive growth opportunities if you look out over the next several years. I suppose I would encourage investors to look to some of the emerging markets because in my view, they have better growth prospects long-term than do some of the European markets. Some of the European economies have some of the same issues we have in the U.S., and it seems to me that the growth will once again be in the emerging markets once we get through this crisis of confidence and this credit crunch. Jump 6 [08:35]: The Turning Point SF: Now, just looking out in the next few months, it seems clear the U.S. is in a recession; Europe is certainly in a recession; Asia, as you mentioned, is growing but at a much slower pace. When will the market overcome what it sees in the immediate future, when will the market say, “We know things are bad now but it’s going to turn?” BR: Steve, I think the most important thing is to have the credit markets working better. If you think back to how bad the equity market environment was in 2000, 2001, 2002; no one really worried about the debt markets. You never heard people worrying about the commercial paper market, and I think what’s necessary to restore investor confidence is to get the credit markets working better and functioning more smoothly. Then, I think the equity markets will begin to fall into place and behave more positively. You know, we have an election coming up. I think Americans are desperate for a new change, whatever it might be. I think the world is ready for a change in America, and I think the combination of a new administration, whoever it will be, combined with better functioning credit markets will provide some respite for the very weary equity investor. SF: Let’s step back just for a moment that credit markets certainly seemed to be the dominating theme right now. The stocks; well, they get headlines that are almost a sideshow if you don’t have credit, nothing works. Why hasn’t the market seized up? There is not a shortage of liquidity when you look even at the money funds, trillions of dollars around the world, corporate balance sheets in this country, overall outside of housing in a few areas flushed with cash. Why would there be a credit crisis?

- 25 -

BR: It seems to me as though the problem begins in the banking sector, and so many banks both in the U.S. and around the world have asset quality problems. And when you look at what’s happened to LIBOR [the London Interbank Offered Rate] and how that spiked up, banks are afraid to lend to each other. So, CitiGroup is afraid to lend to The Royal Bank of Scotland to go to. I think if you had General Electric lending directly to Pfizer, if there was a corporate interbank offered rate, you would not have this problem. But I think in the banking sector, and again, it’s a crisis of confidence of banks of five to eight percent capital and the rest are liabilities, they’re very different from those industrial companies you’ve mentioned with the good balance sheets. So, I think it’s just fundamental confidence concerns in the banking sector that have contributed to all of this, and of course, much of that derived from the housing problem and all the mortgage loans, and the loans that would’ve taken place to more challenged borrowers to be polite over the last couple of years. So, it all gets down to confidence in the banking system-- SF: It’s amazing when you look at the amount outstanding of potentially toxic mortgages; taking worst case scenario when you consider net assets of American households to recently fifty plus trillion. It’s not something the system couldn’t absorb over, say, two years just to write this stuff down. What made it seize up? BR: You know, I’m just wondering if it was just too many bad things happening at once. SF: Right. BR: It’s a bit like the perfect storm where all the meteorological factors come together at one time and that causes the crisis to occur and of course, within the confines of the crisis, um, the seeds of the recovery are sown. So, what happens? Housing starts to weigh down, inventories are starting to level off, you know, affordability’s increasing because prices are down. I mean, even Case-Shiller came out the other week and said, “You know, in nine out of twenty markets we’re starting to see some signs of life.” So, you can see how, you know, someday the housing market will be a good place again. You know, I suppose I’ve learned over the years that things don’t turn on a dime and that improvements take a while to work through the system. But people, once again, you know, get married, save money, go to a bank, take out a mortgage, and buy a house. And in today’s world, it doesn’t seem like that will ever happen again in terms of what investors are thinking. Jump 7 [12:50] Obama vs. McCain SF: Looking out, you mentioned the elections. How much of a downer on the market would it be to, say, eliminate or substantially reduce the dividend exclusion for individuals or making a real boost on the capital gains left?

- 26 -

BR: Well, I think changing either dividend taxation or capital gains taxation at the margin would have a negative impact. These are topics near and dear to your heart. If you look at even some of Barack Obama’s proposals, some of his hypothetical changes are directionally hostile but in degree, not overtly hostile. So, I think it’s reasonable to expect that the top capital gains are aimed for the top income tax payers would rise, the dividend tax would rise. If you’re talking 5% for 15 to 20 or 15 to 25, it should be 10%. I’m not sure those are crippling. I think the margin, they will alter behavior but I don’t think those are damning changes, if it in fact they were to occur. And of course, we know where John McCain is on some of these topics. I mean, he would pretty much keep things the way they are. So, I don’t think even an Obama administration could do much more to knock the socks off the market than we’ve already seen. Jump 8 [14:12]: It’s Not The Great Depression SF: So, looking at the environment today, what do you think is the one misplaced assumption in business today? When you look around, what conventional wisdom floating out there that you say, “Hey, this doesn’t ring right.” BR: Steve, it’s hard to say if this consensus thinking is everywhere but you read a lot about the U.S. becoming Japan of 1990-- SF: Right. BR: In a more negative context, you read about this being the “Big One,” the ‘30s, and maybe a lot of commentators just get a lot of press and a lot of notoriety by talking this way. I suppose, I don’t see that happening. I mean, I think the comparisons of the U.S. today, Japan 1989-1990 are shaky at best. And I think our economy-- SF: Much more resilient, much more-- BR: Diverse, much more entrepreneurial. I mean, we actually have slightly positive population growth unlike Japan. So, I suppose I reject the notion that we’re like Japan circa 1989-1990. Remember, the irrational exuberance then in Japan was much crazier than it was with anything to do with the U.S. real estate market. SF: So a block of Tokyo could buy New York City. BR: The Imperial Palace’s being worth more than California, I remember that analogy. I found it hard having to walk around there. It’s kind of hard to envision that. [Laughter] SF: It didn’t even have Disney World.

- 27 -

BR: Yeah, exactly! So, I suppose to the extent, a lot of people are worried about that now. I view that despite the daily trauma that we seem to be experiencing right now. I view that as highly unlikely. SF: Now, as a money manager, you’ve gotten a reputation for knowing how to look at financial statements. Looking back, looking at the financial statements of an AIG, or a Lehman or something, could anyone rational have looked at that and said, there’s a potential bankruptcy or is there something else at work here that really just blew some things up that you could’ve not seen just looking at a financial statement. BR: Steve, in the interest of full disclosure, someone who owned AIG-- SF: Most of the world owned AIG. [Laughter] BR: I mean, I would like to say that I looked and I couldn’t find it. You know, I would say that for many years, investors including yours truly always said something along the following. You know AIG really is a black box. It’s hard to tell where their earnings come from but you have to have such a great record. We will make a leap of faith and invest in the company-- SF: Which worked for 40 years. BR: Which worked for 40 years and it just didn’t work in 2008. I think some investors correctly sniffed out the asset quality problems in terms some of the Wall Street firms. Witness Lehman Brothers, they were smart people on the other side of that who basically said, “You know, we aren’t accounting for this correctly.” I think some things were really tough to identify that I think people always thought Freddie Mac was a little more aggressive but then Fannie Mae would have been okay-- SF: Right. BR: And I was intrigued reading some of the commentary that Secretary Paulson basically just said, “We have to deal with both of you, we can’t just leave one of you surviving.” I would have guessed Fannie Mae could have toughed it out. I mean their capital positions were okay. They could have raised a little more equity. This is as unprecedented an environment, really if you go back to when Drexel got into some trouble in 1989-- SF: And that’s just one firm-- BR: Now it’s just one firm and not that big a firm. That is more analogous to a Bear Sterns--

- 28 -

SF: Right. BR: Getting into trouble. But this time around it took down some very big and very globally household name type companies. And one hopes we’ve seen the end of it but I keep saying that after each one gets into trouble and now it looks as though maybe we’ll see a couple of incidents perhaps in Europe and some resolution of some situations there. And then you hope enough: no mas at some point. Jump 9 [18:11]: Fannie, Freddie, AIG SF: Well talking about Freddie and Fannie, the amazing thing is even with this $200 billion facility under the government conservatorship whatever they call it, companies are cash flow positive. Getting to your point-- BR: Yeah. I think there are probably investors that will make money on Fannie and AIG coming out of the other end of the barrel. You know the federal government now has the right 80% ownership of the companies. The stocks are down so far you can almost impute some value that says the other 20% would be worth more than a couple of dollars a share over five years. So I suspect we haven’t seen the end of that and someday sure as we’re sitting here, I can assure you the management of Fannie Mae will be coming through here as part of the IPO in five or seven years. And much like the government took over Conrail [Consolidated Rail Corporation] and then it went public again. I suspect we haven’t seen the last of Fannie Mae as a publicly traded company with the government cutting back its stake at some point. SF: And my only wish is to break them up into several companies so that when you get real competition to if one gets in trouble it’s not seen in the systemic-- BR: Well that certainly could happen. I mean when you have an 80% voting stake in the company, you can do a lot of splitting up if that’s your wish. There’s no need for an election when you own 80%-- SF: Although talking about AIG, they almost look like that deal which was written Tony Soprano. A 1.7 billion fee, that facility you don’t use, you’re paying eight and a half, not the basis points but eight point less percent. Amazing! BR: Um-hmm. And what’s interesting in AIG is a lot of people are circling around some of the business. Some of their businesses have a lot of inherent value. SF: One of the noteworthy things is when AIG went down the next morning even though the markets were slightly turbulent, several European insurers were actually up in the morning in the anticipation of feasting off of the parts of AIG, getting to your point that there is real value there. So given what you’ve seen

- 29 -

recently and what you have seen over a lifetime of successful investing, what was the best financial lesson you’ve ever learned? BR: Well I think the-- SF: What do you tell your kids, especially your older daughter who is now in the business? BR: Well, I tell something very apropos to her circumstance right now. I always remember my grandfather who worked for AT&T for almost fifty years and was one of those folks who tried to keep a family together in the depression. He always said, “Work hard, save money, watch what you borrow.” Great advice for a 23-year-old daughter just starting out, graduated from college. So I think that is timeless advice. Borrow judiciously, work hard, and save, and try to deal with that American low saving rate, perhaps in a micro sense by saving yourself. So I think that’s really important advice. The other thing that is important for investors, because I see it within our organization and elsewhere all the time, is we never know as much as we think we know. And over-confidence is really dangerous when it comes to making investment decisions and so I think having some humility as you gauge the risk and return opportunities in investment is really important and it’s dangerous to get real carried away by saying “Well I know more about by anybody else. Therefore I can make a very reckless and aggressive investment and I’m smarter than everybody else.” I think those are dangerous words, dangerous pattern of behavior. SF: Does that boil down to emotions or your enemy when it comes to investing? BR: Well, Steve, I think emotions are always around and observers have always commented that stocks are one of the few products out there, goods out there that people want to buy more of as the price goes up. Economics, this is a so called “giffen good”, champagne, jewelry, expensive watches, and equities. As prices rise, people want them more. As prices fall, people want less of them. And so I think the emotions are constant tug of fear and greed. I mean we’ve seen it forever, we seen from way back before I was born-- SF: Wal-Mart mentality doesn’t work with investing. BR: Yeah and I think these same emotional tugs will be in play in a hundred years when we’re both long gone. Jump 10 [22:43]: Seth Klarman: Financial Genius SF: So aside from own great mind, who do you think has the best financial mind out there?

- 30 -

BR: Well for a long time, I’ve always thought, and this is a pretty obscure person, but one of my business school classmates I think is the smartest person in the investment business and his name is Seth Klarman and he runs a firm in Boston called the Baupost Group and he is the new editor of the new sixth edition of the Graham and Dodd Security Analysis. And I think Seth is the best investment mind on the planet. And a lot of people would say Warren Buffett, but I think because everybody knows Warren Buffett. But I think if more people know Seth they would say Seth Klarman. SF: And quickly what about him makes you admire him so much? What insights that-- BR: I think he is the ultimate contrarian. He is the most detailed analyst I know and he has a very great ability to withstand those emotional tugs and pulls that we were just referencing. SF: Any quick example comes to your mind that had you bobbing your head, that something he did that-- BR: Well he is one of the folks that look out and acted on the housing situation and would have made a lot of investments and benefited from a lot of investments betting against some prime lenders, for example. SF: Because you yourself at one point, a little over a year ago, thought may be house builders had been beaten down enough. BR: Yeah and I have an investment in one to this day and I’m down probably 40% on the investment. SF: Is that all? BR: That’s all. So that’s good? [Laughter] SF: In this environment, it’s genius. BR: Maybe it’s relatively good but it’s not good in my book I suppose. SF: Right. Right. BR: You know I think Seth was able to see through a lot of that. And the rest of us were more attracted to, maybe, the low P/E appeal of a stock that are already gone and I think that’s one of the challenges for value investors generally is to differentiate between just a price that’s gone down and value really materializing and I know I get caught up in that conflict all the time.

- 31 -

SF: Somebody I knew years ago and I heard his name mentioned just recently Roy Neuberger, who said, “If a company has a low P/E, it doesn’t mean it’s a real value. It is when the company has really been beaten down, closing the factory doors with the P/E that’s astronomical because they’ve been losing money. That’s probably the time you ought to take a real look of the company. BR: Yeah. Well that’s the great lesson for cyclical companies like auto companies and housing companies. Roy’s been around, has lot more perspective than I have. Jump 11 [25:30]: Keep The Faith SF: Both of us. So what is your bold prediction for the future, seeing through all this turmoil? BR: You know Steve, it’s so hard right now. I think again the anti-consensus front page view today would be that given price dislocation which is a fancy way of saying a lot of prices have really gone down a ton, wouldn’t it be ironic if we’re just setting ourselves up for the next great spurt of global growth three to five years out and wouldn’t it be unusual if we look back on today and basically said, “Wow, I could buy a telecom company in India for this price, something that could grow at 15% a year over the next ten years or I could invest in a big oil company in Brazil with all these rich resources that’s down 60% from its high, or I could invest in one of the world’s leading company like Cisco at 12 or 13 times earnings. I think that would be the big surprise if we get back together in three to four years and talk. I think that would have been a big surprise. So I think investors have to keep the faith and be willing to try to look through the valley to identify great values for the next move which I think will be upward. SF: And this, in conclusion, looking at your own business when you see the growth of the middle class around the world, this as you say is not going to last forever, one of the growth industries would seem to be financial services. Looking out three, five years, seven years, how do you see T. Rowe Price moving to take advantage when we get through this valley? BR: Well I think over the next five to seven years, our outlook is good. I mean this I believe this is a bump in the road. If we keep our investment organization together, if we offer our clients a good value proposition, if we provide them with great service, if we run the company with integrity, which I think is important, and clients feel rewarded by investing with us, I think we’ll do fine. And I think when the economy begins to recover and you know if you read what Tom Friedman writes which is very front page these days, the world is getting much more, much more flat in terms of economic activity. I think the outlook for companies like T. Rowe Price will get a long term was very positive. Jump 12 [27:45]: We’ll Reward Execs for Success

- 32 -

SF: Just one other question, that really sticks in people‘s craw right now, no surprise CEO pay-- do investors like yourself have obligation to go in and say to a company that’s starting to look excessive, you’re not responding to the real world? BR: Well, I think that what we’ve seen over the last five years, is somewhat more reasonable behavior in that regard than we saw in the, what I’ll call the maybe the ’96 to 2001 timeframe, which was the time of Tyco and Enron and big pay packages of Disney and then more recently we had account of Bob Nardelli thing at Home Depot which is one of the things we’re actually vocal in terms of opposing, I mean we have no problem with people being rewarded for doing a good job for their investors particularly for those individuals that build a company-- SF: Right. BR: And what we think there is a kind of disconnect, Steve, we will engage through the proxy process. We will engage in conversation for directors and particularly what we believe are troublesome situations. So we have no problem with people being rewarded for success, but again, I think we want to see some connection between growing shareholder value and executive compensation. SF: Right. Thank you very much. BR: Thank you Steve. SF: This is great. BR: My pleasure. Nice to see you! SF: Nice to see you. Thank you. Show promo [29:17] Steve Forbes: Legendary oil wildcatter T. Boone Pickens has a plan to solve our dependence on foreign oil, without relying on government mandates. Learn from this Texas billionaire next time on Intelligent Investing. ### [29:32]