SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 11-K (Mark One) [X] Annual Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1998 [ ] Transition Report Pursuant to Section 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to ____ Commission File Number: 0-20842 A. Full title of the plan and the address of the plan, if different from that of the issuer named below: TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: TRO Learning, Inc. 1721 Moon Lake Boulevard Suite 555 Hoffman Estates, IL 60194 This document contains 17 pages. -1- INDEX Report of Independent Public Accountants........................................ 3 Statements of Net Assets Available For Benefits as of December 31, 1998 and 1997.............................................. 4 Statement of Changes in Net Assets Available For Benefits, With Fund Information, for the year ended December 31, 1998....................................................... 5 Statement of Changes in Net Assets Available For Benefits, With Fund Information, for the year ended December 31, 1997....................................................... 7 Notes To Financial Statements................................................... 9 Item 27a - Schedule of Assets Held For Investment Purposes as of December 31, 1998............................................. 14 Item 27d - Schedule of Reportable Transactions for the year ended December 31, 1998............................................. 15 Consent of Independent Public Accountants...................................... 16 Signatures..................................................................... 17 -2- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Plan Administrator of the TRO Learning, Inc. Savings/Retirement Plan: We have audited the accompanying statements of net assets available for benefits of the TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN as of December 31, 1998 and 1997, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 1998 and 1997, and the changes in net assets available for benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for purposes of additional analysis and are not a required part of the basic financial statements, but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. These supplemental schedules are the responsibility of the Plan's management. The fund information in the statements of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the changes in net assets available for benefits of each fund. The supplemental schedules and fund information have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole. The schedule of assets held for investment purposes and the schedule of reportable transactions that accompany the Plan's financial statements do not disclose the historical cost of certain plan assets held by the Plan's asset custodian. Disclosure of this information is required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. Chicago, Illinois May 27, 1999 -3- TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS As of December 31, 1998 and 1997 (Employer Identification Number 41-1646390, Plan Number 001) 1998 1997 INVESTMENTS, at fair value (Note 1): Scudder Cash Investment Trust $ 282,869 $ 223,374 Scudder Income Fund 292,426 241,678 Scudder Growth & Income Fund 1,365,667 1,389,224 Scudder Large Company Value Fund 920,559 804,773 Scudder Global Fund 470,725 449,607 Scudder Global Discovery Fund 313,010 288,566 Scudder International Fund 75,296 53,215 Scudder Pathway Series--Balanced Fund 235,004 174,827 TRO Learning, Inc. Company Stock 569,411 285,203 American Century Ultra Fund 436,281 399,740 Participant loans 19,768 80,613 ---------- ---------- NET ASSETS AVAILABLE FOR BENEFITS $4,981,016 $4,390,820 ---------- ---------- ---------- ---------- The accompanying notes are an integral part of these statements. -4- TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION For the Year Ended December 31, 1998 (Employer Identification Number 41-1646390, Plan Number 001) Participant Directed --------------------------------------------------------------- Scudder Scudder Scudder Large Cash Scudder Growth & Company Investment Income Income Value Trust Fund Fund Fund ADDITIONS: Participant contributions $ 37,102 $ 48,835 $ 224,788 $141,181 Net appreciation (depreciation) in fair value of investments - (5,491) (49,149) 4,584 Interest and dividend income 10,868 20,633 127,429 71,304 -------- -------- --------- -------- Total additions 47,970 63,977 303,068 217,069 DEDUCTIONS: Benefits paid (13,948) (15,147) (489,109) (86,037) OTHER ADDITIONS (DEDUCTIONS): Interfund transfers 25,662 2,136 161,069 (16,630) Loan withdrawals (539) (1,307) (3,469) (3,297) Loan principal payments 350 1,089 4,884 4,681 -------- -------- --------- -------- Net increase (decrease) in net assets 59,495 50,748 (23,557) 115,786 NET ASSETS AVAILABLE FOR BENEFITS: Beginning of year 223,374 241,678 1,389,224 804,773 -------- -------- --------- -------- End of year $282,869 $292,426 $1,365,667 $920,559 -------- -------- --------- -------- -------- -------- --------- -------- Participant Directed ----------------------------- Scudder Scudder Global Global Discovery Fund Fund ADDITIONS: Participant contributions $ 73,740 $ 47,388 Net appreciation (depreciation) in fair value of investments 4,994 44,818 Interest and dividend income 46,812 264 -------- -------- Total additions 125,546 92,470 DEDUCTIONS: Benefits paid (77,350) (51,367) OTHER ADDITIONS (DEDUCTIONS): Interfund transfers (29,102) (18,194) Loan withdrawals - - Loan principal payments 2,024 1,535 -------- -------- Net increase (decrease) in net assets 21,118 24,444 NET ASSETS AVAILABLE FOR BENEFITS: Beginning of year 449,607 288,566 -------- -------- End of year $470,725 $313,010 -------- -------- -------- -------- The accompanying notes are an integral part of this statement. -5- TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION For the Year Ended December 31, 1998 (Employer Identification Number 41-1646390, Plan Number 001) Participant Directed --------------------------------------------------------------------------- Scudder TRO Pathway Learning, American Scudder Series-- Inc. Century International Balanced Company Ultra Participant Fund Fund Stock Fund Loans Total ADDITIONS: Participant contributions $25,281 $ 72,555 $ 74,308 $117,826 $ - $ 863,004 Net appreciation (depreciation) in fair value of investments 3,024 969 160,313 83,645 - 247,707 Interest and dividend income 7,731 13,827 438 36,821 - 336,127 ------- -------- -------- -------- ------- ---------- Total additions 36,036 87,351 235,059 238,292 - 1,446,838 DEDUCTIONS: Benefits paid (10,337) (10,485) (25,191) (22,178) (55,493) (856,642) OTHER ADDITIONS (DEDUCTIONS): Interfund transfers (3,634) (13,490) 72,196 (180,013) - - Loan withdrawals (175) (4,013) - - 12,800 - Loan principal payments 191 814 2,144 440 (18,152) - ------- -------- -------- -------- ------- ---------- Net increase (decrease) in net assets 22,081 60,177 284,208 36,541 (60,845) 590,196 NET ASSETS AVAILABLE FOR BENEFITS: Beginning of year 53,215 174,827 285,203 399,740 80,613 4,390,820 ------- -------- -------- -------- ------- ---------- End of year $75,296 $235,004 $569,411 $436,281 $19,768 $4,981,016 ------- -------- -------- -------- ------- ---------- ------- -------- -------- -------- ------- ---------- The accompanying notes are an integral part of this statement. -6- TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION For the Year Ended December 31, 1997 (Employer Identification Number 41-1646390, Plan Number 001) Participant Directed ------------------------------------------------------------ Scudder Scudder Scudder Large Cash Scudder Growth & Company Scudder Investment Income Income Value Global Trust Fund Fund Fund Fund ADDITIONS: Participant contributions $ 90,404 $ 53,730 $ 257,869 $171,482 $113,708 Net appreciation (depreciation) in fair value of investments - 4,822 176,422 168,268 4,342 Interest and dividend income 18,174 13,828 135,154 59,556 78,081 -------- -------- ---------- -------- -------- Total additions 108,578 72,380 569,445 399,306 196,131 DEDUCTIONS: Benefits paid (77,082) (2,593) (217,502) (227,974) (146,494) OTHER ADDITIONS (DEDUCTIONS): Interfund transfers (165,504) (9,816) 98,291 (14,217) (8,500) Loan withdrawals (6,895) (3,475) (3,833) (12,543) (3,517) Loan principal payments 588 2,372 13,602 9,586 4,935 -------- -------- ---------- -------- -------- Net increase (decrease) in net assets (140,315) 58,868 460,003 154,158 42,555 NET ASSETS AVAILABLE FOR BENEFITS: Beginning of year 363,689 182,810 929,221 650,615 407,052 -------- -------- ---------- -------- -------- End of year $223,374 $241,678 $1,389,224 $804,773 $449,607 -------- -------- ---------- -------- -------- -------- -------- ---------- -------- -------- Scudder Global Scudder Discovery International Fund Fund ADDITIONS: Participant contributions $ 63,420 $26,169 Net appreciation (depreciation) in fair value of investments 1,789 (2,860) Interest and dividend income 27,447 5,829 -------- ------- Total additions 92,656 29,138 DEDUCTIONS: Benefits paid (35,887) - OTHER ADDITIONS (DEDUCTIONS): Interfund transfers (16,897) (817) Loan withdrawals (1,079) - Loan principal payments 3,320 1,079 -------- ------- Net increase (decrease) in net assets 42,113 29,400 NET ASSETS AVAILABLE FOR BENEFITS: Beginning of year 246,453 23,815 -------- ------- End of year $288,566 $53,215 -------- ------- -------- ------- The accompanying notes are an integral part of this statement. -7- TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION For the Year Ended December 31, 1997 (Employer Identification Number 41-1646390, Plan Number 001) Participant Directed ----------------------------------------------------------------- Scudder TRO Scudder Pathway Learning, American Managed Series-- Inc. Century Retirement Balanced Company Ultra Trust Fund Stock Fund ADDITIONS: Participant contributions $ 11,304 $ 48,547 $101,732 $111,313 Net appreciation (depreciation) in fair value of investments 2,523 10,580 (272,132) (34,831) Interest and dividend income 12 7,830 1,274 80,273 -------- -------- -------- -------- Total additions 13,839 66,957 (169,126) 156,755 DEDUCTIONS: Benefits paid (25) (26,458) (38,147) (95,270) OTHER ADDITIONS (DEDUCTIONS): Interfund transfers (179,835) 137,534 58,925 100,836 Loan withdrawals - (3,846) - (6,912) Loan principal payments 186 640 4,050 5,690 -------- -------- -------- -------- Net increase (decrease) in net assets (165,835) 174,827 (144,298) 161,099 NET ASSETS AVAILABLE FOR BENEFITS: Beginning of year 165,835 - 429,501 238,641 -------- -------- -------- -------- End of year $ - $174,827 $285,203 $399,740 -------- -------- -------- -------- -------- -------- -------- -------- Participant Loans Total ADDITIONS: Participant contributions $ - $1,049,678 Net appreciation (depreciation) in fair value of investments - 58,923 Interest and dividend income - 427,458 ------- ---------- Total additions - 1,536,059 DEDUCTIONS: Benefits paid (2,220) (869,652) OTHER ADDITIONS (DEDUCTIONS): Interfund transfers - - Loan withdrawals 42,100 - Loan principal payments (46,048) - ------- ---------- Net increase (decrease) in net assets (6,168) 666,407 NET ASSETS AVAILABLE FOR BENEFITS: Beginning of year 86,781 3,724,413 ------- ---------- End of year $80,613 $4,390,820 ------- ---------- ------- ---------- The accompanying notes are an integral part of this statement. -8- TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN NOTES TO FINANCIAL STATEMENTS AND SCHEDULES December 31, 1998 and 1997 (Employer Identification Number 41-1646390, Plan Number 001) 1. DESCRIPTION OF PLAN A brief description of the TRO Learning, Inc. (the "Company") Savings/Retirement Plan (the "Plan") is provided for general informational purposes only. Participants should refer to the Plan document for a more complete description of the Plan's provisions. General The Plan is a defined contribution plan covering all eligible employees of the Company. Employees of the Company must complete 90 days of service to be eligible to participate. The Company employs Scudder Trust Company as the Plan's investment manager, asset custodian and record keeper. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. Contributions Participants may defer the lesser of 20% of their compensation or $10,000 in 1998 or $9,500 in 1997. These contributions are deducted from participants' salaries before income taxes are withheld. The Company may also make contributions to the Plan at its discretion. Any such amount must be designated by Company resolution. There were no Company contributions in 1998 or 1997. Participant Accounts Individual participant accounts are maintained by Scudder Trust Company. Each participant's account is credited with the participant's contribution, Plan earnings and an allocation of the Company's contribution. Allocations are determined by the Company. Vesting Participants are immediately vested in their salary deferral contribution accounts plus actual earnings thereon. -9- Vesting in the discretionary Company contribution account is based on the following schedule: Vested Years of Service Percentage Less than 1 year 0% 1 year but less than 2 20 2 years but less than 3 40 3 years but less than 4 60 4 years but less than 5 80 5 years or more 100 --- --- A participant will also become fully vested upon permanent disability or attainment of normal or early retirement as defined in the Plan. Forfeitures are used to reduce future contributions made by the Company. Benefit Payments Upon termination, participants receive lump-sum distributions of the vested amounts in their accounts, less any outstanding loans at the time of termination. If participants elect not to receive their distributions immediately after termination, interest and dividends continue to accrue on their participant contribution balances until final distribution. Loans Participants may borrow from the Plan, as defined in the Plan agreement, subject to appropriate limitations. The rate of interest will be the current prime rate plus 1%. The terms of all such loans are set by the Company and the maximum payment term is generally five years. Investment Options The Plan offers 10 different investment options. In addition to 9 mutual funds, participants also have the option to allocate a portion of their contributions to Company stock. Per the Plan agreement, a maximum of 30% of participant contributions can be allocated to Company stock. Plan participants direct the investment of their accounts into these ten options. The options are as follows: Scudder Cash Investment Trust--Cash Investment Trust is like a money market account. Assets invested in this fund are not at risk as the per share cost remains constant. Scudder Income Fund--Income Fund seeks to provide a high level of current income by investing primarily in bonds. Intended for the investor who desires flexibility, higher than money market rates of interest and who can accept some principal fluctuation. Scudder Growth & Income Fund--Growth & Income Fund seeks to provide long-term growth of capital, current income and growth of income. -10- Intended for the conservative, growth-oriented investor who can accept a moderate degree of risk. Scudder Large Company Value Fund--Large Company Value Fund seeks maximum long-term growth of capital through a broad and flexible investment strategy. This fund is intended for the investor willing to accept above-average risk for potential of above-average growth. Scudder Global Fund--Global Fund seeks long-term capital growth through investments in economic securities of mainly large, established companies which are expected to derive the greatest benefits from global economic trends. This fund is designed for long-term investors who can accept risks of international volatility and fluctuating foreign exchange rates. Scudder Global Discovery Fund--Global Discovery Fund seeks above-average, long-term growth of capital by investing in small companies with strong growth potential worldwide. Intended for the investor who can assume a greater risk in return for potentially greater rewards. This fund should be considered as a complement to a portfolio that also holds other types of funds. Scudder International Fund--International Fund focuses on long-term capital growth and international diversification. This fund invests in foreign stocks and bonds. Scudder Pathway Series--Balanced Fund--Scudder Pathway Series--Balanced Fund--spreads assets among several funds with different objectives. Investments are selected to complement one another so that they work together in an integrated fashion. Intended for the investor who wants a good measure of income and growth with less fluctuation than stock or bond funds. TRO Learning, Inc. Company Stock--The Company is a publicly held international training and education company with annual revenues of more than $40 million. Trading on the national market system under the NASDAQ symbol TUTR, the Company is a leading developer and marketer of microcomputer-based, interactive, self-paced instructional systems used in a wide variety of training and educational settings. American Century Ultra Fund--The fund seeks capital growth and typically invests at least 90% of assets in equity securities selected for their appreciation potential. The majority of these securities are common stocks issued by midcap companies that meet management's standards for earnings and revenue trends. The fund may purchase securities only of companies that have operated continuously for three or more years. Trustees The trustees of the Plan during 1998 were William R. Roach, John Murray and Patricia Hawver, officers of the Company. The trustees of the Plan -11- during 1997 were William R. Roach, Andrew Peterson and Patricia Hawver, officers of the Company. 2. SUMMARY OF ACCOUNTING POLICIES Basis of Accounting The accompanying financial statements have been prepared using the accrual basis of accounting. Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates. Valuation of Investments Investments are stated at fair value, as determined by quoted market prices. The increase (decrease) in unrealized appreciation (depreciation) of investments and realized gain (loss) on sale of investments are determined based on an average cost basis of the assets. The average cost basis is composed of the market values of assets: (a) on hand at the beginning of the year rather than the original cost at the time of purchase and (b) values on the date of purchase during the year. Administrative Expenses All administrative expenses are paid by the Company. Payment of Benefits Benefits are recorded when paid. 3. PLAN TERMINATION Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts. 4. TAX STATUS The Plan obtained its latest determination letter on January 12, 1996, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the requirements of the Internal Revenue Code (IRC). The plan administrator believes that the Plan is currently -12- designed and is being operated in compliance with the applicable requirements of the IRC. 5. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500 As of December 31, 1998 and 1997, the Plan had approximately $0 and $126,546, respectively, of pending distributions to participants who elected to withdraw from the Plan. These amounts are recorded as a liability in the Plan's Form 5500; however, these amounts are not recorded as a liability in the accompanying statements of net assets available for benefits in accordance with generally accepted accounting principles. The following table reconciles net assets available for benefits per the financial statements to the Form 5500 as filed by the Company for the year ended December 31, 1998: Net Assets Available Benefits for Benefits Paid 1998 1997 Per financial statements $856,642 $4,981,016 $4,390,820 1998 amounts pending distribution to participants - - - 1997 amounts pending distribution to participants (126,546) - (126,546) -------- ---------- ---------- Per Form 5500 $730,096 $4,981,016 $4,264,274 -------- ---------- ---------- -------- ---------- ---------- -13- Schedule I TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN ITEM 27a--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES As of December 31, 1998 (Employer Identification Number 41-1646390, Plan Number 001) Current Description of Investment Cost (1) Value MUTUAL FUNDS: *Scudder- Cash Investment Trust $ - $ 282,869 Income Fund - 292,426 Growth & Income Fund - 1,365,667 Large Company Value Fund - 920,559 Global Fund - 470,725 Global Discovery Fund - 313,010 International Fund - 75,296 Pathway Series--Balanced Fund - 235,004 American Century Ultra Fund - 436,281 *TRO LEARNING, INC. COMPANY STOCK - 569,411 *PARTICIPANT LOANS (interest rate at 7.00%) - 19,768 ---- ---------- $ - $4,981,016 ---- ---------- ---- ---------- * Represents party-in-interest. (1) Historical cost information could not be obtained from the Plan's asset custodian. The accompanying notes are an integral part of this schedule. -14- Schedule II TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN ITEM 27d--SCHEDULE OF REPORTABLE TRANSACTIONS (a) For the Year Ended December 31, 1998 (Employer Identification Number 41-1646390, Plan Number 001) Purchases Sales --------- -------------------------------------------------------- Current Value of Asset on Purchase Selling Cost of Transaction Net Gain Description Price Price Asset (b) Date (Loss) (b) SCUDDER MUTUAL FUNDS: Growth & Income Fund $416,889 $520,141 $ - $520,141 $ - Large Company Value Fund 161,205 122,692 - 122,692 - TRO LEARNING, INC. COMPANY STOCK 339,170 217,857 - 217,857 - AMERICAN CENTURY ULTRA FUND 130,927 215,292 - 215,292 - -------- -------- ------- -------- --------- -------- -------- ------- -------- --------- NOTES: (a) Represents transactions or a series of transactions in excess of 5% of the fair value of plan assets at the beginning of the year. (b) Historical cost information could not be obtained from the Plan's asset custodian. The accompanying notes are an integral part of this schedule. -15- CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report, included in this Form 11-K, into TRO Learning, Inc.'s previously filed Registration Statement File No. 33-30963. ARTHUR ANDERSEN LLP Chicago, Illinois June 23, 1999 -16- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized on June 25, 1999. TRO LEARNING, INC. SAVINGS/RETIREMENT PLAN By: /s/John Murray ------------------ Trustee -17-