Item 1. Report to Shareholders
DECEMBER 31, 2004
SPECTRUM FUNDS
Annual Report
T. ROWE PRICE
The views and opinions in this report were current as of December 31, 2004. They
are not guarantees of performance or investment results and should not be taken
as investment advice. Investment decisions reflect a variety of factors, and the
managers reserve the right to change their views about individual stocks,
sectors, and the markets at any time. As a result, the views expressed should
not be relied upon as a forecast of the fund's future investment intent. The
report is certified under the Sarbanes-Oxley Act of 2002, which requires mutual
funds and other public companies to affirm that, to the best of their knowledge,
the information in their financial reports is fairly and accurately stated in
all material respects.
REPORTS ON THE WEB
Sign up for our E-mail Program, and you can begin to receive updated fund
reports and prospectuses online rather than through the mail. Log in to your
account at troweprice.com for more information.
T. ROWE PRICE SPECTRUM FUNDS
Fellow Shareholders
Financial markets worldwide enjoyed positive performance in 2004. The U.S. stock
market gained ground for the second straight year, thanks to a sharp year-end
rally. Overseas stock markets posted even better returns, getting an extra boost
from the declining dollar. Despite several interest rate increases by the
Federal Reserve, the bond market put together another year of positive results.
The performance of the Spectrum Funds reflected this favorable environment.
MARKET ENVIRONMENT
The U.S. economic recovery moderated somewhat but remained on track in 2004.
Despite some false starts, employment growth rebounded during the year,
providing a missing source of support for the economic expansion. The Federal
Reserve perceived that the economy was growing steadily enough to reverse its
extraordinary monetary accommodation, which had guided interest rates to their
lowest levels in decades. In the spring, the central bank began signaling its
intention to raise rates at a "measured" pace. The Fed embarked on a series of
interest rate increases during the second half of the year, raising the federal
funds rate target from 1.00% to a three-year high of 2.25% via five
quarter-point rate hikes between June and December.
Despite the economic recovery and its favorable impact on corporate earnings,
stocks produced lackluster results for much of the year. Investors were
apprehensive about soaring oil prices, the Iraq conflict, and the November
presidential election. But a pullback in the price of oil and a problem-free
election alleviated some of the uncertainty restraining the market, and stocks
surged in the final months of the year.
As the table shows, the major U.S. stock indexes posted double-digit gains in
2004. For the fifth consecutive year, small-cap stocks outperformed large, while
value stocks generally outpaced growth issues across the capitalization
spectrum.
GLOBAL EQUITY RETURNS
- --------------------------------------------------------------------------------
Periods Ended 12/31/04 6 Months 12 Months
- --------------------------------------------------------------------------------
S&P 500 Stock Index 7.19% 10.88%
Russell 2000 Index 10.83 18.33
MSCI EAFE Index 15.10 20.70
MSCI Emerging
Markets Index 26.95 25.95
International stocks outdistanced the domestic market, largely because of the
U.S. dollar's further decline against most foreign currencies. The dollar's
slide boosted foreign investment returns when converted into the U.S. currency.
Emerging markets, led by Latin America, posted the best results after a surge in
the second half of the year. In the developed markets, Europe generally produced
better returns than Asian bourses.
[GRAPHIC OMITTED]
INTEREST RATE LEVELS
- --------------------------------------------------------------------------------
10-Year 5-Year 90-Day
Treasury Note Treasury Note Treasury Bill
12/31/03 4.25% 3.25% 0.92%
4.13 3.14 0.91
3.97 2.94 0.94
3/04 3.84 2.78 0.94
4.51 3.62 0.96
4.65 3.79 1.06
6/04 4.58 3.77 1.26
4.48 3.69 1.43
4.12 3.31 1.58
9/04 4.12 3.37 1.70
4.02 3.28 1.89
4.35 3.69 2.22
12/31/04 4.22 3.61 2.21
U.S. bonds posted positive results for the fifth straight year. As the chart
shows, short-term bond yields rose in lockstep with the Fed's rate hikes, but
long-term bond yields declined in the second half of 2004 after peaking in the
spring. Every segment of the U.S. bond market gained for the year, but the best
returns came from high-yield corporate bonds, which are closely tied to the
stock market and the economic recovery. Mortgage-backed securities and
investment-grade corporate bonds also produced solid results, while Treasury and
government agency securities lagged.
As was the case with stocks, international bonds outpaced their domestic
counterparts, thanks to the weak dollar. Bonds in developed markets performed
slightly better than emerging market debt. The J.P. Morgan Non-U.S. Dollar
Government Bond Index returned 12.04% in 2004, while the J.P. Morgan Emerging
Markets Bond Index Plus returned 11.77%.
Spectrum Growth Fund
Your fund performed well in 2004, returning 10.53% and 15.16% for the 6- and
12-month periods ended December 31, 2004, respectively. As the table shows,
Spectrum Growth outperformed the S&P 500 and its Lipper peer group index for
both time periods. Meaningful positions in foreign equities, smaller-cap shares,
and value stocks were the key reasons behind the fund's outperformance.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
Periods Ended 12/31/04 6 Months 12 Months
- --------------------------------------------------------------------------------
Spectrum Growth Fund 10.53% 15.16%
Lipper Multi-Cap Core
Funds Index 8.01 12.39
S&P 500 Stock Index 7.19 10.88
The best performers in the portfolio were the international components, led by
Emerging Markets Stock and International Growth & Income, both of which returned
more than 20% for the year. We trimmed our international exposure during the
past year to its current neutral weighting. In addition, we reallocated some
assets from International Stock into International Growth & Income to provide
better diversification in this segment of the portfolio.
Beyond the international holdings, the top contributors were the small- and
mid-cap components. Mid-Cap Value and New Horizons were the best performers
among the portfolio's domestic holdings. Value-oriented funds also performed
well, with both Equity Income and Value producing better results than the
broader market. Value was a new addition to the Spectrum Growth portfolio in
2004; we increased its weighting over the course of the year at the expense of
Growth & Income, which we are gradually phasing out of the portfolio.
The fund's large-cap growth holdings, Blue Chip Growth and Growth Stock, lagged
the rest of the portfolio (though they each produced returns of approximately
10%). We increased our allocations to these holdings in 2004 and are
overweighting large-cap growth over large-cap value as relative valuations and
earnings growth favor quality large-cap growth stocks in an environment of a
recovering economy. Quality large-cap growth companies that can offer consistent
earnings growth should command a premium as many companies face slowing rates of
growth.
[GRAPHIC OMITTED]
Security Diversification
- --------------------------------------------------------------------------------
Spectrum Growth Fund
Large-Cap Stocks 54%
Mid-Cap Stocks 14
Small-Cap Stocks 4
Other and Reserves 3
Foreign Stocks 25
Based on net assets as of 12/31/04.
Spectrum Income Fund
Your fund returned 8.05% in 2004, surpassing the performance of both the Lehman
Brothers U.S. Aggregate Index and its Lipper peer group average. As the table on
page 4 shows, Spectrum Income also outperformed the index and peer group for the
six months ended December 31, 2004. Our allocations to "diversifiers" such as
dividend-paying stocks, international bonds, and high-yield securities
contributed to our performance advantage.
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
Periods Ended 12/31/04 6 Months 12 Months
- --------------------------------------------------------------------------------
Spectrum Income Fund 7.24% 8.05%
Lipper General Bond
Funds Average 4.07 4.27
Lehman Brothers U.S.
Aggregate Index 4.18 4.34
The top performer in the portfolio for the year was Equity Income, which
benefited from the year-end rally in the stock market. The portfolio's
international components, Emerging Markets Bond and International Bond, also
posted double-digit returns in 2004. Within the domestic fixed-income holdings,
High Yield produced the best results, gaining about 10%. The laggards in the
portfolio included GNMA, the mortgage-backed securities component, and
Short-Term Bond, which struggled with the Fed's interest rate hikes.
[GRAPHIC OMITTED]
Security Diversification
- --------------------------------------------------------------------------------
Spectrum Income Fund
Money Markets 7%
Investment-Grade Bonds 45
High-Yield Bonds 18
Non-U.S. Dollar Bonds 14
Equities 16
Based on net assets as of 12/31/04.
We continued to over-weight economically sensitive sectors, such as Equity
Income, while under-weighting the most interest rate-sensitive segments. We also
established a modest position in Summit Cash Reserves and increased our
allocation to Short-Term Bond to lessen the interest rate sensitivity of the
portfolio. We trimmed some of our better recent performers, including High Yield
and International Bond.
Spectrum International Fund
As the table on page 5 shows, your fund posted double-digit returns for both the
6- and 12-month periods ended December 31, 2004. However, Spectrum
International's results lagged the returns of its combined index benchmark and
its Lipper peer group index for both time periods. The portfolio's
underperformance was the result of disappointing returns by its largest
holdings.
The emerging market components posted the best returns in the portfolio.
Emerging Europe & Mediterranean was the top performer, gaining 30%, thanks to
strong investment results in Egypt and Turkey. Emerging
PERFORMANCE COMPARISON
- --------------------------------------------------------------------------------
Periods Ended 12/31/04 6 Months 12 Months
- --------------------------------------------------------------------------------
Spectrum International Fund 13.23% 16.36%
Lipper International
Multi-Cap Core Funds Average 14.53 18.77
Combined Index Benchmark* 15.02 19.82
* 90% MSCI EAFE Index/10% J.P. Morgan Non-U.S. Dollar Government Bond Index.
[GRAPHIC OMITTED]
Geographic Diversification
- --------------------------------------------------------------------------------
Spectrum International Fund
Europe 62%
Japan 20
Far East 10
Other and Reserves 5
Latin America 3
Based on net assets as of 12/31/04.
Markets Stock and International Discovery, which focuses on international
small-cap stocks, were also strong contributors to portfolio performance. The
two largest portfolio holdings, International Stock and European Stock, trailed
the broad foreign stock indexes and were the main contributors to the
portfolio's relative underperformance. A growth orientation hampered the
performance of these two holdings during a period in which value outperformed
growth among international equities.
We made few adjustments to the allocation of the portfolio in 2004. In the first
half of the year, we shifted some assets from New Asia to Japan, and we
eliminated our position in Emerging Markets Bond. In the last six months,
however, we made no changes.
- --------------------------------------------------------------------------------
THE FOLLOWING UPDATES THE SPECTRUM FUNDS' PROSPECTUS DATED MAY 1, 2004:
On February 8, 2005, the Spectrum Funds' Board of Directors voted to add the
International Growth & Income Fund to the roster of the Spectrum International
Fund's underlying T. Rowe Price mutual funds. Effective March 1, 2005, Spectrum
International will be allowed to invest up to 35% of its assets in International
Growth & Income.
In addition, the Directors authorized a change in the investment range for the
International Stock Fund. Currently, Spectrum International may invest between
35% and 65% of its assets in International Stock. Effective March 1, 2005, the
new range will be 0% to 55%.
OUTLOOK
The year 2005 is likely to bring both opportunities and challenges to the global
financial markets. Domestically, stocks stand to benefit from continued strength
in the economy, but they also face a likely decline in profit growth. We expect
interest rates to rise across the board, with additional Fed rate hikes causing
short-term rates to rise faster than longer-term rates. The widening U.S. trade
and budget deficits could lead to further declines in the dollar, which would
boost international stock and bond market returns in U.S. dollar terms.
This mixed outlook reinforces our belief that investors should maintain broad
diversification, which helps overcome short-term pitfalls in the financial
markets and may produce favorable long-term returns.
Respectfully submitted,
Edmund M. Notzon III
President of the Spectrum Funds and chairman of the Investment Advisory
Committee
January 19, 2005
The committee chairman has day-to-day responsibility for managing the portfolios
and works with committee members in developing and executing the funds'
investment programs.
- --------------------------------------------------------------------------------
RISKS OF INVESTING
As with all stock and bond mutual funds, each fund's share price can fall
because of weakness in the stock or bond markets, a particular industry, or
specific holdings. Stock markets can decline for many reasons, including adverse
political or economic developments, changes in investor psychology, or heavy
institutional selling. The prospects for an industry or company may deteriorate
because of a variety of factors, including disappointing earnings or changes in
the competitive environment. In addition, the investment manager's assessment of
companies held in a fund may prove incorrect, resulting in losses or poor
performance even in rising markets.
Bonds are subject to interest rate risk, the decline in bond prices that usually
accompanies a rise in interest rates, and credit risk, the chance that any fund
holding could have its credit rating downgraded, or that a bond issuer will
default (fail to make timely payments of interest or principal), potentially
reducing the fund's income level and share price. High-yield corporate bonds
could have greater price declines than funds that invest primarily in
high-quality bonds. Companies issuing high-yield bonds are not as strong
financially as those with higher credit ratings, so the bonds are usually
considered speculative investments.
Funds that invest overseas may carry more risk than funds that invest strictly
in U.S. assets. Risks can result from varying stages of economic and political
development, differing regulatory environments, trading days, and accounting
standards, and higher transaction costs of non-U.S. markets. Non-U.S.
investments are also subject to currency risk, or a decline in the value of a
foreign currency versus the U.S. dollar, which reduces the dollar value of
securities denominated in that currency.
GLOSSARY
J.P. Morgan Emerging Markets Bond Index Plus: An unmanaged index that tracks
dollar-denominated bonds issued by emerging market countries.
J.P. Morgan Non-U.S. Dollar Government Bond Index: An unmanaged index that
tracks the performance of major non-U.S. bond markets.
Lehman Brothers U.S. Aggregate Index: An unmanaged index that tracks
investment-grade corporate and government bonds.
MSCI EAFE Index: An unmanaged index that tracks the stocks of about 1,000
companies in Europe, Australasia, and the Far East (EAFE).
MSCI Emerging Markets Index: An unmanaged index that tracks stocks in 26
emerging market countries.
Russell 2000 Index: An unmanaged index that tracks the smallest 2,000 of the
largest 3,000 U.S. stocks.
S&P 500 Stock Index: An unmanaged index that tracks the stocks of 500 primarily
large-cap U.S. companies.
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
LARGEST HOLDINGS
Percent of
(Of the combined underlying funds at 12/31/04) Net Assets
12/31/04
Spectrum Growth Fund
- --------------------------------------------------------------------------------
GE 1.5%
Citigroup 1.2
Microsoft 1.1
UnitedHealth Group 0.9
Apollo Group 0.7
- --------------------------------------------------------------------------------
American International Group 0.7
State Street 0.7
Tyco International 0.7
Dell 0.6
Wal-Mart 0.6
- --------------------------------------------------------------------------------
Total 8.7%
LARGEST HOLDINGS
Percent of
(Of the combined underlying funds at 12/31/04) Net Assets
12/31/04
Spectrum International Fund
- --------------------------------------------------------------------------------
GlaxoSmithKline 2.5%
Royal Bank of Scotland 2.4
Total 2.1
Vodafone 2.1
Shell T&T/Royal Dutch 1.8
- --------------------------------------------------------------------------------
Sanofi-Aventis 1.6
UBS 1.5
Nestle 1.4
Kingfisher 1.2
ENI S.p.A. 1.2
- --------------------------------------------------------------------------------
Total 17.8%
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
KEY STATISTICS
6/30/04 12/31/04
Spectrum Income Fund
- --------------------------------------------------------------------------------
Price Per Share $ 11.62 $ 12.09
Capital Gain Distribution Per Share
Short Term -- 0.05
Long Term -- 0.06
Dividends Per Share
For 6 months 0.24 0.25
For 12 months 0.49 0.49
30-Day Standardized Yield to Maturity* 3.95% 3.66%
Weighted Average Maturity (years)* 6.6 6.6
Weighted Average Effective Duration
(years)* 4.1 3.8
* Excludes Equity Income Fund.
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
TARGET ALLOCATIONS FOR UNDERLYING FUNDS
Minimum- Target at Target at
Maximum 6/30/04 12/31/04
Spectrum Growth Fund
- --------------------------------------------------------------------------------
Growth Stock 5-20% 13.50% 16.50%
Equity Income 5-20 16.00 16.25
Blue Chip Growth 5-20 13.50 15.50
New Horizons 10-25 16.50 15.00
International Stock 0-15 14.00 10.00
Mid-Cap Value 0-15 8.00 8.00
International Growth & Income 0-15 4.00 6.00
Value 5-20 1.25 6.00
Emerging Markets Stock 0-10 4.00 4.00
Growth & Income 0-10 7.25 2.75
New Era 0-15 2.00 --
Summit Cash Reserves 0-25 -- --
Spectrum Income Fund
- --------------------------------------------------------------------------------
New Income 10-25 23.00 23.00
High Yield 10-25 21.50 19.50
Equity Income 10-25 15.00 16.00
International Bond 5-20 14.50 12.50
GNMA 5-20 12.00 12.00
Short-Term Bond 0-15 8.00 9.00
Corporate Income 0-10 2.00 2.50
Emerging Markets Bond 0-10 2.00 2.00
U.S. Treasury Long-Term 0-15 2.00 2.00
Summit Cash Reserves 0-25 -- 1.50
Spectrum International Fund
- --------------------------------------------------------------------------------
International Stock 35-65 46.05 46.05
European Stock 0-30 28.35 28.35
Japan 0-30 9.55 9.55
Emerging Markets Stock 0-20 6.75 6.75
International Discovery 0-20 4.65 4.65
New Asia 0-20 2.65 2.65
Emerging Europe & Mediterranean 0-15 2.00 2.00
Emerging Markets Bond 0-15 -- --
International Bond 0-20 -- --
Latin America 0-15 -- --
Summit Cash Reserves 0-25 -- --
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
GROWTH OF $10,000
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
SPECTRUM GROWTH FUND
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
As of 12/31/04
Spectrum Growth Fund $ 28,927
S&P 500 Stock Index $ 31,258
Lipper Multi-Cap Core
Funds Index $ 28,721
Lipper
Spectrum S&P 500 Multi-Cap Core
Growth Fund Stock Index Funds Index
12/94 $ 10,000 $ 10,000 $ 10,000
12/95 12,996 13,758 13,221
12/96 15,664 16,917 15,927
12/97 18,390 22,561 20,112
12/98 20,895 29,008 23,871
12/99 25,324 35,112 28,828
12/00 25,298 31,915 27,866
12/01 23,366 28,122 24,868
12/02 18,733 21,907 19,461
12/03 25,120 28,190 25,555
12/04 28,927 31,258 28,721
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
This table shows how the fund and its benchmarks would have performed if their
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 12/31/04 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Spectrum Growth Fund 15.16% 2.70% 11.21%
Lipper Multi-Cap Core Funds Index 12.39 -0.07 11.13
S&P 500 Stock Index 10.88 -2.30 12.07
Current performance may be higher or lower than the quoted past performance,
which cannot guarantee future results. Share price, principal value, and return
will vary, and you may have a gain or loss when you sell your shares. For the
most recent month-end performance information, please visit our Web site
(troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132.
Average annual total return figures include changes in principal value,
reinvested dividends, and capital gain distributions. Returns do not reflect
taxes that the shareholder may pay on fund distributions or the redemption of
fund shares. When assessing performance, investors should consider both
short- and long-term returns.
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
GROWTH OF $10,000
- --------------------------------------------------------------------------------
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
SPECTRUM INCOME FUND
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
As of 12/31/04
Spectrum Income Fund $ 22,975
Lehman Brothers U.S. Aggregate Index $ 21,038
Lipper General Bond Funds Average $ 20,741
Lehman Brothers Lipper
Spectrum U.S. General Bond
Income Fund Aggregate Index Funds Average
12/94 $ 10,000 $ 10,000 $ 10,000
12/95 11,941 11,847 11,739
12/96 12,854 12,278 12,487
12/97 14,420 13,463 13,907
12/98 15,368 14,632 15,044
12/99 15,408 14,512 15,249
12/00 16,549 16,199 16,443
12/01 17,309 17,567 17,348
12/02 18,497 19,369 18,278
12/03 21,263 20,164 19,757
12/04 22,975 21,038 20,741
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
This table shows how the fund and its benchmarks would have performed if their
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 12/31/04 1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Spectrum Income Fund 8.05% 8.32% 8.67%
Lipper General Bond
Funds Average 4.27 6.02 7.53
Lehman Brothers
U.S. Aggregate Index 4.34 7.71 7.72
Current performance may be higher or lower than the quoted past performance,
which cannot guarantee future results. Share price, principal value, and return
will vary, and you may have a gain or loss when you sell your shares. For the
most recent month-end performance information, please visit our Web site
(troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132.
Average annual total return figures include changes in principal value,
reinvested dividends, and capital gain distributions. Returns do not reflect
taxes that the shareholder may pay on fund distributions or the redemption of
fund shares. When assessing performance, investors should consider both
short- and long-term returns.
GROWTH OF $10,000
This chart shows the value of a hypothetical $10,000 investment in the fund over
the past 10 fiscal year periods or since inception (for funds lacking 10-year
records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
SPECTRUM INTERNATIONAL FUND
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
As of 12/31/04
Spectrum International Fund $ 14,681
Combined Index Benchmark * $ 15,292
Lipper International Multi-Cap Core Funds Average $ 15,617
Lipper
International
Spectrum Combined Multi-Cap
International Index Core Funds
Fund Benchmark* Average
12/31/96 $ 10,000 $ 10,000 $ 10,000
12/97 10,242 10,157 10,704
12/98 11,499 12,229 11,944
12/99 16,041 15,114 16,263
12/00 13,681 13,175 14,067
12/01 10,985 10,610 11,320
12/02 9,160 9,309 9,567
12/03 12,617 12,762 13,060
12/04 14,681 15,292 15,617
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- --------------------------------------------------------------------------------
This table shows how the fund and its benchmarks would have performed if their
actual (or cumulative) returns for the periods shown had been earned at a
constant rate.
Since
Inception
Periods Ended 12/31/04 1 Year 5 Years 12/31/96
- --------------------------------------------------------------------------------
Spectrum International
Fund 16.36% -1.76% 4.92%
Lipper International
Multi-Cap Core Funds
Average 18.77 -1.32 5.49
Combined Index Benchmark * 19.82 0.24 5.45
* 90% MSCI EAFE Index/10% J.P. Morgan Non-U.S. Dollar Government Bond Index
Current performance may be higher or lower than the quoted past performance,
which cannot guarantee future results. Share price, principal value, and return
will vary, and you may have a gain or loss when you sell your shares. For the
most recent month-end performance information, please visit our Web site
(troweprice.com) or contact a T. Rowe Price representative at 1-800-225-5132.
The fund charges a redemption fee of 2% on shares held for 90 days or less. The
performance information shown does not reflect the deduction of the redemption
fee. If it did, the performance would be lower.
Average annual total return figures include changes in principal value,
reinvested dividends, and capital gain distributions. Returns do not reflect
taxes that the shareholder may pay on fund distributions or the redemption of
fund shares. When assessing performance, investors should consider both short-
and long-term returns.
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
FUND EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
Fund Expense Example
As a mutual fund shareholder, you may incur two types of costs: (1) transaction
costs such as redemption fees or sales loads and (2) ongoing costs, including
management fees, distribution and service (12b-1) fees, and other fund expenses.
The following example is intended to help you understand your ongoing costs (in
dollars) of investing in the fund and to compare these costs with the ongoing
costs of investing in other mutual funds. The example is based on an investment
of $1,000 invested at the beginning of the most recent six-month period and held
for the entire period.
Actual Expenses
The first line of the following table ("Actual") provides information about
actual account values and expenses based on the fund's actual returns. You may
use the information in this line, together with your account balance, to
estimate the expenses that you paid over the period. Simply divide your account
value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6),
then multiply the result by the number in the first line under the heading
"Expenses Paid During Period" to estimate the expenses you paid on your account
during this period.
Hypothetical Example for Comparison Purposes
The information on the second line of the table ("Hypothetical") is based on
hypothetical account values and expenses derived from the fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the fund's
actual return). You may compare the ongoing costs of investing in the fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period.
Note: T. Rowe Price charges an annual small-account maintenance fee of $10,
generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is
waived for any investor whose T. Rowe Price mutual fund accounts total $25,000
or more, accounts employing automatic investing, and IRAs and other retirement
plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although
a separate custodial or administrative fee may apply to such accounts). This fee
is not included in the accompanying table. If you are subject to the fee, keep
it in mind when you are estimating the ongoing expenses of investing in the fund
and when comparing the expenses of this fund with other funds.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs, such as redemption
fees or sales loads. Therefore, the second line of the table is useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. To the extent a fund charges transaction costs,
however, the total cost of owning that fund is higher.
T. ROWE PRICE SPECTRUM FUNDS
Effective
Expenses Expenses
Beginning Ending Paid During Paid During
Account Account Period * Period **
Value Value 7/1/04 to 7/1/04 to
7/1/04 12/31/04 12/31/04 12/31/04
- --------------------------------------------------------------------------------
Spectrum Growth
Actual $ 1,000.00 $ 1,105.30 $ 0.00 $ 4.55
Hypothetical
(assumes 5% return
before expenses) 1,000.00 1,020.81 0.00 4.37
Spectrum Income
Actual 1,000.00 1,072.40 0.00 3.80
Hypothetical
(assumes 5% return
before expenses) 1,000.00 1,021.47 0.00 3.71
Spectrum International
Actual 1,000.00 1,132.30 0.00 5.63
Hypothetical
(assumes 5% return
before expenses) 1,000.00 1,019.86 0.00 5.33
* Expenses are equal to a fund's annualized expense ratio for the six-month
period, multiplied by the average account value over the period, multiplied
by the number of days in the most recent fiscal half year (184) divided by
days in the year (366) to reflect the half-year period. Expenses reflect
only costs borne directly by a fund. Because all expenses associated with
the operation of the Spectrum Funds are fully reimbursed by the underlying
Price funds, the annualized expense ratio for each Spectrum Fund for the
six-month period was 0.00%.
** Effective expenses reflect the sum of expenses borne directly by a fund
plus the fund's prorata share of the weighted average expense ratio of the
underlying Price funds in which it invests. The annualized weighted average
expense ratio of the underlying Price funds for the six-month period
reflects the actual expense ratio of each underlying Price fund for the
six-month period, annualized and weighted for each Spectrum Fund's relative
average investment therein during the period. The annualized expense ratio
of the underlying Price funds for the six-month period was: 0.86% for
Spectrum Growth, 0.73% for Spectrum Income, and 1.05% for Spectrum
International.
T. ROWE PRICE SPECTRUM GROWTH FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
12/31/04 12/31/03 12/31/02 12/31/01 12/31/00
NET ASSET VALUE
Beginning
of period $ 14.80 $ 11.13 $ 14.07 $ 15.72 $ 17.71
Investment
activities
Net investment
income (loss) 0.12 0.09 0.09 0.16 0.13
Net realized
and unrealized
gain (loss) 2.12 3.70 (2.88) (1.37) (0.15)
Total from
investment
activities 2.24 3.79 (2.79) (1.21) (0.02)
Distributions
Net investment
income (0.12) (0.10) (0.08) (0.16) (0.12)
Net realized
gain (0.05) (0.02) (0.07) (0.28) (1.85)
Total
distributions (0.17) (0.12) (0.15) (0.44) (1.97)
NET ASSET VALUE
End of period $ 16.87 $ 14.80 $ 11.13 $ 14.07 $ 15.72
---------------------------------------------------------
Ratios++
Total return^ 15.16% 34.09% (19.83)% (7.63)% (0.11)%
Ratio of total
expenses to
average net
assets 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio of net
investment income
(loss) to average
net assets 0.81% 0.75% 0.68% 1.05% 0.70%
Portfolio
turnover rate 20.3% 18.0%v 3.9% 6.1% 11.6%
Net assets, end
of period
(in millions) $ 2,603 $ 2,236 $ 1,739 $ 2,373 $ 2,889
Supplemental Data
Weighted average
expense ratio
of underlying
Price funds* 0.86% 0.88% 0.88% 0.87% 0.83%
Effective expense
ratio 0.86% 0.88% 0.88% 0.87% 0.83%
++ Reflects the activity of the fund, and does not include the activity of the
underlying Price funds. However, investment performance of the fund is
directly related to the investment performance of the underlying Price
funds in which it invests.
^ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
v Recalculated during the year ended December 31, 2004; this revision had no
impact on net assets or results of operations.
* Reflects the indirect expense impact to the fund from its investment in the
underlying Price funds, based on the actual expense ratio of each
underlying Price fund weighted for the fund's relative average investment
therein.
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM INCOME FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
12/31/04 12/31/03 12/31/02 12/31/01 12/31/00
NET ASSET VALUE
Beginning
of period $ 11.77 $ 10.76 $ 10.60 $ 10.77 $ 10.71
Investment
activities
Net investment
income (loss) 0.49 0.51 0.55 0.63 0.62
Net realized
and unrealized
gain (loss) 0.43 1.06 0.16 (0.15) 0.14
Total from
investment
activities 0.92 1.57 0.71 0.48 0.76
Distributions
Net investment
income (0.49) (0.50) (0.55) (0.55) (0.70)
Net realized
gain (0.11) (0.06) -- (0.02) --
Tax return of
capital -- -- -- (0.08) --
Total
distributions (0.60) (0.56) (0.55) (0.65) (0.70)
NET ASSET VALUE
End of period $ 12.09 $ 11.77 $ 10.76 $ 10.60 $ 10.77
---------------------------------------------------------
Ratios++
Total return^ 8.05% 14.96% 6.86% 4.59% 7.40%
Ratio of total
expenses to
average
net assets 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio of net
investment income
(loss) to average
net assets 4.18% 4.47% 5.17% 5.91% 6.03%
Portfolio turnover
rate 8.2% 7.4%v 14.1% 22.7% 19.3%
Net assets,
end of period
(in millions) $ 4,502 $ 3,552 $ 2,713 $ 2,465 $ 2,471
Supplemental Data
Weighted average
expense ratio
of underlying
Price funds* 0.73% 0.78% 0.80% 0.80% 0.77%
Effective expense
ratio 0.73% 0.78% 0.80% 0.80% 0.77%
++ Reflects the activity of the fund, and does not include the activity of the
underlying Price funds. However, investment performance of the fund is
directly related to the investment performance of the underlying Price
funds in which it invests.
^ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
v Recalculated during the year ended December 31, 2004; this revision had no
impact on net assets or results of operations.
* Reflects the indirect expense impact to the fund from its investment in the
underlying Price funds, based on the actual expense ratio of each
underlying Price fund weighted for the fund's relative average investment
therein.
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM INTERNATIONAL FUND
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
12/31/04 12/31/03 12/31/02 12/31/01 12/31/00
NET ASSET VALUE
Beginning
of period $ 8.70 $ 6.40 $ 7.76 $ 10.08 $ 13.53
Investment
activities
Net investment
income (loss) 0.10 0.09 0.07 0.18 0.12
Net realized
and unrealized
gain (loss) 1.32 2.32 (1.36) (2.17) (2.10)
Total from
investment
activities 1.42 2.41 (1.29) (1.99) (1.98)
Distributions
Net investment
income (0.09) (0.10) (0.07) (0.18) (0.12)
Net realized
gain -- (0.01) -- (0.15) (1.35)
Total
distributions (0.09) (0.11) (0.07) (0.33) (1.47)
NET ASSET VALUE
End of period $ 10.03 $ 8.70 $ 6.40 $ 7.76 $ 10.08
---------------------------------------------------------
Ratios++
Total return^ 16.36% 37.73% (16.61)% (19.71)% (14.71)%
Ratio of total
expenses to
average net
assets 0.00% 0.00% 0.00% 0.00% 0.00%
Ratio of net
investment income
(loss) to average
net assets 1.13% 1.36% 1.01% 2.06% 0.94%
Portfolio
turnover rate 12.5% 488.6%v 94.4% 30.6% 42.5%
Net assets,
end of period
(in thousands) $ 112,523 $ 79,477 $ 52,652 $ 64,153 $ 81,843
Supplemental Data
Weighted average
expense ratio
of underlying
Price funds* 1.05% 1.10% 1.12% 1.09% 0.98%
Effective expense
ratio 1.05% 1.10% 1.12% 1.09% 0.98%
++ Reflects the activity of the fund, and does not include the activity of the
underlying Price funds. However, investment performance of the fund is
directly related to the investment performance of the underlying Price
funds in which it invests.
^ Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
v Recalculated during the year ended December 31, 2004; this revision had no
impact on net assets or results of operations.
* Reflects the indirect expense impact to the fund from its investment in the
underlying Price funds, based on the actual expense ratio of each
underlying Price fund weighted for the fund's relative average investment
therein.
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM GROWTH FUND
- --------------------------------------------------------------------------------
December 31, 2004
PORTFOLIO OF Percent of
INVESTMENTS (1)+ Net Assets Shares Value
- --------------------------------------------------------------------------------
(Cost and value in $ 000s)
T. Rowe Price
Growth Stock Fund 16.3% 15,917,372 424,516
T. Rowe Price
Equity Income Fund 16.0 15,696,720 417,376
T. Rowe Price
Blue Chip Growth Fund 15.3 12,860,216 397,638
T. Rowe Price
New Horizons Fund* 15.2 13,567,481 396,713
T. Rowe Price
International Stock
Fund 10.1 20,262,115 261,989
T. Rowe Price
Mid-Cap Value Fund 8.0 9,042,871 207,896
T. Rowe Price
Value Fund 7.1 8,118,509 185,914
T. Rowe Price
International
Growth & Income
Fund 6.2 12,817,815 160,607
T. Rowe Price
Emerging Markets
Stock Fund 4.5 5,994,028 116,344
T. Rowe Price
Growth & Income
Fund 1.3 1,522,445 34,270
Total Investments in Securities
100.0% of Net Assets (Cost $1,940,724) $ 2,603,263
-----------
(1) Denominated in U.S. dollars unless otherwise noted
* Non-income producing
T. ROWE PRICE SPECTRUM GROWTH FUND
- --------------------------------------------------------------------------------
+Affiliated Companies
($000s)
The fund may invest in certain securities that are considered affiliated
companies. As defined by the 1940 Act, an affiliated company is one in which the
fund owns 5% or more of the outstanding voting securities, or a company which is
under common ownership or control.
Purchase Sales Investment Value
Affiliate Cost Cost Income 12/31/04 12/31/03
- --------------------------------------------------------------------------------
T. Rowe Price
Growth
Stock Fund $ 119,463 $ 2,711 $ 2,325 $ 424,516 $ 273,986
T. Rowe Price
Equity Income
Fund 52,260 5,216 6,368 417,376 346,262
T. Rowe Price
Blue Chip
Growth Fund 109,853 3,665 2,040 397,638 261,904
T. Rowe Price
New Horizons
Fund 7,111 74,890 -- 396,713 416,006
T. Rowe Price
International
Stock Fund 3,011 155,916 3,011 261,989 367,599
T. Rowe Price
Mid-Cap
Value Fund 17,002 902 847 207,896 185,534
T. Rowe Price
Value Fund 169,021 -- 1,450 185,914 --
T. Rowe Price
International
Growth & Income
Fund 66,526 -- 1,396 160,607 67,854
T. Rowe Price
Emerging Markets
Stock Fund 1,814 1,193 237 116,344 93,489
T. Rowe Price
Growth & Income
Fund 4,114 106,856 1,190 34,270 175,441
T. Rowe Price
New Era Fund 115 33,836 -- -- 47,392
Totals $ 18,864 $2,603,263 $2,235,467
---------------------------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM GROWTH FUND
- --------------------------------------------------------------------------------
December 31, 2004
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
(In thousands except shares and per share amounts)
Assets
Investments in affiliated companies, at value
(cost $1,940,724) $ 2,603,263
Other assets 2,717
Total assets 2,605,980
Liabilities
Total liabilities 2,664
NET ASSETS $ 2,603,316
--------------------
Net Assets Consist of:
Undistributed net investment income (loss) $ 916
Undistributed net realized gain (loss) (62,079)
Net unrealized gain (loss) 662,539
Paid-in-capital applicable to 154,360,291 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized 2,001,940
NET ASSETS $ 2,603,316
--------------------
NET ASSET VALUE PER SHARE $ 16.87
--------------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM INCOME FUND
- --------------------------------------------------------------------------------
December 31, 2004
PORTFOLIO OF Percent of
INVESTMENTS (1)+ Net Assets Shares Value
- --------------------------------------------------------------------------------
(Cost and value in $ 000s)
T. Rowe Price
New Income Fund 22.9% 112,961,724 1,029,081
T. Rowe Price
High Yield Fund 19.5 121,705,696 876,281
T. Rowe Price
Equity Income Fund 16.5 27,963,162 743,541
T. Rowe Price
International Bond
Fund 12.5 52,750,714 563,905
T. Rowe Price
GNMA Fund 11.9 55,258,769 533,800
T. Rowe Price
Short-Term Bond Fund 9.0 84,835,473 403,817
T. Rowe Price
Corporate Income Fund 2.2 10,065,986 99,653
T. Rowe Price
Emerging Markets
Bond Fund 2.0 6,959,169 92,279
T. Rowe Price
U.S. Treasury
Long-Term Fund 2.0 7,696,914 91,285
T. Rowe Price
Summit Cash
Reserve Fund 1.5 69,123,367 69,123
Total Investments in Securities
100.0% of Net Assets (Cost $4,200,754) $ 4,502,765
--------------------
(1) Denominated in U.S. dollars unless otherwise noted
T. ROWE PRICE SPECTRUM INCOME FUND
- --------------------------------------------------------------------------------
+Affiliated Companies
($000s)
The fund may invest in certain securities that are considered affiliated
companies. As defined by the 1940 Act, an affiliated company is one in which the
fund owns 5% or more of the outstanding voting securities, or a company which is
under common ownership or control.
Purchase Sales Investment Value
Affiliate Cost Cost Income 12/31/04 12/31/03
- --------------------------------------------------------------------------------
T. Rowe Price
New Income Fund $ 218,688 $ 33,325 $ 35,110 $1,029,081 $ 838,177
T. Rowe Price
High Yield Fund 125,046 82,191 65,454 876,281 817,001
T. Rowe Price
Equity Income Fund 141,388 16,951 10,716 743,541 554,908
T. Rowe Price
International Bond
Fund 66,874 120,705 14,139 563,905 594,889
T. Rowe Price
GNMA Fund 118,478 17,268 21,931 533,800 436,507
T. Rowe Price
Short-Term Bond
Fund 303,374 5,531 8,465 403,817 109,835
T. Rowe Price
Corporate Income
Fund 97,655 -- 1,455 99,653 --
T. Rowe Price
Emerging Markets
Bond Fund 5,536 21,385 5,536 92,279 101,580
T. Rowe Price
U.S. Treasury
Long-Term Fund 21,433 30,394 4,547 91,285 99,856
T. Rowe Price
Summit Cash
Reserve Fund 70,436 1,313 322 69,123 --
Totals $ 167,675 $4,502,765 $3,552,753
----------------------------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM INCOME FUND
- --------------------------------------------------------------------------------
December 31, 2004
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
(In thousands except shares and per share amounts)
Assets
Investments in affiliated companies, at value
(cost $4,200,754) $ 4,502,765
Other assets 12,335
Total assets 4,515,100
Liabilities
Total liabilities 13,145
NET ASSETS $ 4,501,955
--------------------
Net Assets Consist of:
Undistributed net realized gain (loss) $ 15,198
Net unrealized gain (loss) 302,011
Paid-in-capital applicable to 372,234,484 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized 4,184,746
NET ASSETS $ 4,501,955
--------------------
NET ASSET VALUE PER SHARE $ 12.09
--------------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM INTERNATIONAL FUND
- --------------------------------------------------------------------------------
December 31, 2004
PORTFOLIO OF Percent of
INVESTMENTS (1)+ Net Assets Shares Value
- --------------------------------------------------------------------------------
(Cost and value in $ 000s)
T. Rowe Price
International Stock Fund 46.0% 4,001,999 51,746
T. Rowe Price
European Stock Fund 28.3 1,599,428 31,829
T. Rowe Price
Japan Fund * 9.3 1,230,020 10,455
T. Rowe Price Emerging
Markets Stock Fund 7.0 405,826 7,877
T. Rowe Price
International Discovery
Fund 4.4 152,909 4,989
T. Rowe Price
New Asia Fund 2.9 328,476 3,298
T. Rowe Price
Emerging Europe &
Mediterranean Fund * 2.1 146,303 2,326
Total Investments in Securities
100.0% of Net Assets (Cost $110,795) $ 112,520
--------------------
(1) Denominated in U.S. dollars unless otherwise noted
* Non-income producing
T. ROWE PRICE SPECTRUM INTERNATIONAL FUND
- --------------------------------------------------------------------------------
+Affiliated Companies
($000s)
The fund may invest in certain securities that are considered affiliated
companies. As defined by the 1940 Act, an affiliated company is one in which the
fund owns 5% or more of the outstanding voting securities, or a company which is
under common ownership or control.
Purchase Sales Investment Value
Affiliate Cost Cost Income 12/31/04 12/31/03
- --------------------------------------------------------------------------------
International
Stock Fund $ 12,799 $ 2,982 $ 584 $ 51,746 $ 36,558
T. Rowe Price
European Stock Fund 8,922 2,494 413 31,829 21,586
T. Rowe Price
Japan Fund 5,101 984 -- 10,455 5,131
T. Rowe Price
Emerging Markets
Stock Fund 1,106 456 16 7,877 5,609
T. Rowe Price
International
Discovery Fund 487 35 2 4,989 3,610
T. Rowe Price
New Asia Fund 1,755 2,606 -- 3,298 3,812
T. Rowe Price
Emerging Europe
& Mediterranean Fund 259 224 -- 2,326 1,740
T. Rowe Price
Emerging Market Bond
Fund 401 1,774 32 -- 1,429
Totals $ 1,047 $ 112,520 $ 79,475
---------------------------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM INTERNATIONAL FUND
- --------------------------------------------------------------------------------
December 31, 2004
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
(In thousands except shares and per share amounts)
Assets
Investments in affiliated companies, at value
(cost $110,795) $ 112,520
Other assets 1,099
Total assets 113,619
Liabilities
Total liabilities 1,096
NET ASSETS $ 112,523
--------------------
Net Assets Consist of:
Undistributed net investment income (loss) $ 61
Undistributed net realized gain (loss) (4,467)
Net unrealized gain (loss) 1,725
Paid-in-capital applicable to 11,223,444 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized 115,204
NET ASSETS $ 112,523
--------------------
NET ASSET VALUE PER SHARE $ 10.03
--------------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
($ 000s) Growth Income International
Fund Fund Fund
Year Year Year
Ended Ended Ended
12/31/04 12/31/04 12/31/04
Investment Income (Loss)
Income
Dividend $ 18,864 $ 10,716 $ 1,015
Interest -- 156,959 32
Total income 18,864 167,675 1,047
Expenses
Shareholder servicing 4,148 7,659 226
Prospectus and shareholder
reports 84 72 12
Registration 79 186 42
Custody and accounting 36 36 36
Legal and audit 12 14 9
Directors 9 10 5
Expenses reimbursed by
underlying Price funds (4,368) (7,977) (330)
Total expenses -- -- --
Net investment income
(loss) 18,864 167,675 1,047
Realized and Unrealized Gain
(Loss)
Net realized gain (loss)
Sale of underlying Price
funds 64,705 6,364 257
Capital gain distributions
from underlying Price
funds 26,181 44,763 109
Net realized gain (loss) 90,886 51,127 366
Change in net unrealized
gain (loss) from
underlying Price funds 229,890 103,803 13,516
Net realized and unrealized
gain (loss) 320,776 154,930 13,882
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 339,640 $ 322,605 $ 14,929
----------------------------------------------
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM GROWTH FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04 12/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 18,864 $ 14,294
Net realized gain (loss) 90,886 (87,644)
Change in net unrealized gain (loss) 229,890 652,263
Increase (decrease) in net assets
from operations 339,640 578,913
Distributions to shareholders
Net investment income (18,322) (15,230)
Net realized gain (7,634) (3,047)
Decrease in net assets from distributions (25,956) (18,277)
Capital share transactions *
Shares sold 336,630 233,024
Distributions reinvested 25,318 17,823
Shares redeemed (307,826) (314,892)
Increase (decrease) in net assets
from capital share transactions 54,122 (64,045)
Net Assets
Increase (decrease) during period 367,806 496,591
Beginning of period 2,235,510 1,738,919
End of period $ 2,603,316 $ 2,235,510
------------------------------------
(Including undistributed net investment
income of $916 at 12/31/04 and $374 at
12/31/03)
*Share information
Shares sold 21,859 18,699
Distributions reinvested 1,530 1,252
Shares redeemed (20,060) (25,226)
Increase (decrease) in shares outstanding 3,329 (5,275)
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM INCOME FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04 12/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 167,675 $ 139,767
Net realized gain (loss) 51,127 35,229
Change in net unrealized gain (loss) 103,803 262,849
Increase (decrease) in net assets
from operations 322,605 437,845
Distributions to shareholders
Net investment income (167,675) (139,767)
Net realized gain (40,165) (17,825)
Decrease in net assets from distributions (207,840) (157,592)
Capital share transactions *
Shares sold 1,241,161 1,071,950
Distributions reinvested 196,747 147,592
Shares redeemed (602,725) (660,550)
Increase (decrease) in net assets
from capital share transactions 835,183 558,992
Net Assets
Increase (decrease) during period 949,948 839,245
Beginning of period 3,552,007 2,712,762
End of period $ 4,501,955 $ 3,552,007
------------------------------------
(Including undistributed net
investment income of $0
at 12/31/04 and $0 at 12/31/03)
*Share information
Shares sold 104,888 95,505
Distributions reinvested 16,589 13,042
Shares redeemed (51,123) (58,719)
Increase (decrease) in shares outstanding 70,354 49,828
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM INTERNATIONAL FUND
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
($ 000s)
Year
Ended
12/31/04 12/31/03
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 1,047 $ 820
Net realized gain (loss) 366 (1,293)
Change in net unrealized gain (loss) 13,516 21,510
Increase (decrease) in net assets from
operations 14,929 21,037
Distributions to shareholders
Net investment income (986) (893)
Net realized gain -- (89)
Decrease in net assets from distributions (986) (982)
Capital share transactions *
Shares sold 39,324 58,336
Distributions reinvested 940 939
Shares redeemed (21,161) (52,505)
Increase (decrease) in net assets from
capital share transactions 19,103 6,770
Net Assets
Increase (decrease) during period 33,046 26,825
Beginning of period 79,477 52,652
End of period $ 112,523 $ 79,477
------------------------------------
(Including undistributed net investment
income of $61 at 12/31/04 and $0 at 12/31/03)
*Share information
Shares sold 4,345 8,494
Distributions reinvested 97 113
Shares redeemed (2,356) (7,692)
Increase (decrease) in shares outstanding 2,086 915
The accompanying notes are an integral part of these financial statements.
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
December 31, 2004
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
T. Rowe Price Spectrum Fund, Inc. (the corporation), is registered under the
Investment Company Act of 1940 (the 1940 Act) as a nondiversified, open-end
management investment company. Spectrum Growth Fund, Spectrum Income Fund, and
Spectrum International Fund (collectively, the Spectrum Funds) are three
portfolios established by the corporation. Spectrum Growth and Spectrum Income
commenced operations on June 29, 1990, and Spectrum International commenced
operations on December 31, 1996.
Each Spectrum Fund diversifies its assets within set limits among specific
underlying T. Rowe Price funds (underlying Price funds). Spectrum Growth seeks
long-term capital appreciation and growth of income, with current income a
secondary objective. Spectrum Income seeks a high level of current income with
moderate share price fluctuation. Spectrum International seeks long-term capital
appreciation.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The accompanying financial statements were prepared in accordance with
accounting principles generally accepted in the United States of America, which
require the use of estimates made by fund management.
Valuation
Each fund values its investments and computes its net asset value per share at
the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day
that the NYSE is open for business. Investments in the underlying Price funds
are valued at their closing net asset value per share on the day of valuation.
One of the underlying Price funds held by Spectrum International, the T. Rowe
Price Japan Fund, is not open on certain days when Spectrum International is
open. On such days, a net asset value per share is computed for the Japan Fund
solely for purposes of valuing Spectrum International. The net asset value is
computed in the normal manner using the most recent yen-denominated closing
prices and exchange rates on the day of valuation. Investments for which these
valuation procedures are inappropriate or are deemed not to reflect fair value
are stated at fair value as determined in good faith by the T. Rowe Price
Valuation Committee, established by the funds' Board of Directors.
Redemption Fees
For Spectrum International, a 2% fee is assessed on redemptions of fund shares
held less than 90 days. Redemption fees are withheld from proceeds that
shareholders receive from the sale or exchange of fund shares and
are paid to the fund. Redemption fees received by the fund are allocated to each
underlying Price fund in proportion to the average daily value of its shares
owned by the fund. Accordingly, redemption fees have no effect on the net assets
of the fund.
Investment Transactions, Investment Income, and Distributions
Income is recorded on the accrual basis. Income and capital gain distributions
from the underlying Price funds are recorded on the ex-dividend date. Purchases
and sales of the underlying Price funds are accounted for on the trade date.
Realized gains and losses are reported on the identified cost basis.
Distributions to the Spectrum Funds' shareholders are recorded on the
ex-dividend date. Income distributions are declared by Spectrum Income on a
daily basis and paid monthly. Income distributions are declared and paid by
Spectrum Growth and Spectrum International on an annual basis. Capital gain
distributions, if any, are declared and paid by each fund, typically on an
annual basis.
Other
In the normal course of business, each fund enters into contracts that provide
general indemnifications. Each fund's maximum exposure under these arrangements
is dependent on claims that may be made against the fund in the future and,
therefore, cannot be estimated; however, based on experience, the risk of
material loss from such claims is considered remote.
NOTE 2 - INVESTMENTS IN UNDERLYING PRICE FUNDS
Purchases and sales of the underlying Price funds for the year ended December
31, 2004 were as follows:
- --------------------------------------------------------------------------------
Spectrum Spectrum Spectrum
Growth Income International
Purchases $504,099,000 $956,951,000 $29,672,000
Sales 475,943,000 329,063,000 11,555,000
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since each fund intends to
continue to qualify as a regulated investment company under Subchapter M of the
Internal Revenue Code and distribute to shareholders all of its taxable income
and gains. Federal income tax regulations differ from generally accepted
accounting principles; therefore, distributions determined in accordance with
tax regulations may differ significantly in amount or character from net
investment income and realized gains for financial reporting purposes. Financial
reporting records are adjusted for permanent book/tax differences to reflect tax
character. Financial records are not adjusted for temporary differences.
Distributions during the year ended December 31, 2004 were characterized as
follows for tax purposes:
- --------------------------------------------------------------------------------
Spectrum Spectrum Spectrum
Growth Income International
Ordinary income $25,956,000 $ 185,932,000 $ 986,000
Long-term capital gains -- 21,908,000 --
Total distributions $25,956,000 $ 207,840,000 $ 986,000
---------------------------------------------------
At December 31, 2004, the tax-basis components of net assets were as follows:
- --------------------------------------------------------------------------------
Spectrum Spectrum Spectrum
Growth Income International
Unrealized appreciation $ 662,539,000 $ 340,146,000 $ 5,430,000
Unrealized depreciation -- (38,135,000) (3,705,000)
Net unrealized
appreciation
(depreciation) 662,539,000 302,011,000 1,725,000
Undistributed ordinary
income 1,358,000 13,986,000 108,000
Undistributed long-term
capital gains -- 1,212,000 --
Capital loss
carryforwards (62,521,000) -- (4,514,000)
Paid-in capital 2,001,940,000 4,184,746,000 115,204,000
Net assets $2,603,316,000 $4,501,955,000 $112,523,000
-----------------------------------------------------
Each fund intends to retain realized gains to the extent of available capital
loss carryforwards for federal income tax purposes. During the year ended
December 31, 2004, Spectrum Growth utilized $76,633,000 of capital loss
carryforwards and, as of December 31, 2004, had $62,521,000 of capital loss
carryforwards that expire in 2011. During the year ended December 31, 2004,
Spectrum International utilized $329,000 of capital loss carryforwards and, as
of December 31, 2004, had $793,000 of capital loss carryforwards that expire in
2009, $1,841,000 that expire in 2010, and $1,880,000 that expire in 2011.
At December 31, 2004, the cost of investments for federal income tax purposes
was $1,940,724,000 for Spectrum Growth, $4,200,754,000 for Spectrum Income, and
$110,795,000 for Spectrum International.
NOTE 4 - RELATED PARTIES
T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of
T. Rowe Price Group, Inc., is the investment manager for Spectrum Growth and
Spectrum Income, and also serves as manager for the domestic underlying Price
funds. T. Rowe Price International, Inc. (Price International), a wholly owned
subsidiary of Price Associates, is the investment manager for Spectrum
International and also serves as manager for the international underlying Price
funds. Pursuant to various service agreements, Price Associates and its wholly
owned subsidiaries provide shareholder servicing and administrative, transfer
and dividend disbursing, accounting, marketing, and certain other services to
the Spectrum Funds. Certain officers and directors of the Spectrum Funds are
also officers and directors of Price Associates and its subsidiaries, and of the
underlying Price funds.
The Spectrum Funds pay no management fees; however, Price Associates and Price
International receive management fees from the underlying Price funds. The
Spectrum Funds operate in accordance with the investment management and special
servicing agreements between and among the corporation, the underlying Price
funds, Price Associates, and, in the case of Spectrum International, Price
International. Pursuant to these agreements, expenses associated with the
operation of the Spectrum Funds are reimbursed by each underlying Price fund to
the extent of estimated savings to it and in proportion to the average daily
value of its shares owned by the Spectrum Funds. Therefore, each Spectrum Fund
operates at a zero expense ratio. However, each Spectrum Fund indirectly bears
its proportionate share of the management fees and operating costs of the
underlying Price funds in which it invests.
The Spectrum Funds do not invest in the underlying Price funds for the purpose
of exercising management or control; however, investments by the Spectrum Funds
may represent a significant portion of an underlying Price fund's net assets. At
December 31, 2004, Spectrum International Fund held less than 25% of the
outstanding shares of any underlying Price fund; Spectrum Growth Fund held
approximately 29.1% of the outstanding shares of the International Growth &
Income Fund, and Spectrum Income Fund held approximately 35.7% of the
outstanding shares of the New Income Fund, 33.9% of the
International Bond Fund, 39.5% of the GNMA Fund, 26.6% of the Short-Term Bond
Fund, 46.2% of the Corporate Income Fund, 33.2% of the Emerging Markets Bond
Fund, and 39.3% of the U.S. Treasury Long-Term Fund.
Additionally, Spectrum Income is one of several mutual funds in which certain
college savings plans managed by Price Associates may invest. Shareholder
servicing costs associated with each college savings plan are allocated to
Spectrum Income in proportion to the average daily value of its shares owned by
the college savings plan and, in turn, are borne by the underlying Price funds
in accordance with the terms of the investment management and special servicing
agreements. At December 31, 2004, approximately 8.9% of the outstanding shares
of Spectrum Income were held by the college savings plans.
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Board of Directors of T. Rowe Price Spectrum Fund, Inc. and Shareholders
of Spectrum Growth Fund, Spectrum Income Fund, and Spectrum International Fund
In our opinion, the accompanying statements of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Spectrum Growth Fund, Spectrum
Income Fund, and Spectrum International Fund (the funds comprising T. Rowe Price
Spectrum Fund, Inc., hereafter referred to collectively as the "Funds") at
December 31, 2004, and the results of each of their operations, the changes in
each of their net assets and the financial highlights for each of the fiscal
periods presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the auditing standards
of the Public Company Accounting Oversight Board (United States). 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2004, by
correspondence with the transfer agent, provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Baltimore, Maryland
February 11, 2005
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/04
We are providing this information as required by the Internal Revenue Code. The
amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The funds' distributions included capital gain amounts as follows:
Spectrum Spectrum Spectrum
Growth Income International
Fund Fund Fund
Short-term gains $7,634,000 $18,257,000 --
Total long-term gains
15% rate gains -- $21,908,000 --
For taxable non-corporate shareholders, income represents qualified dividend
income subject to the 15% rate category as follows:
Spectrum Spectrum Spectrum
Growth Income International
Fund Fund Fund
$20,988,000 $15,883,000 $856,000
For corporate shareholders, income qualifies for the dividends-received
deduction as follows:
Spectrum Spectrum Spectrum
Growth Income International
Fund Fund Fund
$16,933,000 $15,883,000 --
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS
- --------------------------------------------------------------------------------
A description of the policies and procedures used by T. Rowe Price funds and
portfolios to determine how to vote proxies relating to portfolio securities is
available in each fund's Statement of Additional Information, which you may
request by calling 1-800-225-5132 or by accessing the SEC's Web site,
www.sec.gov. The description of our proxy voting policies and procedures is also
available on our Web site, www.troweprice.com. To access it, click on the words
"Company Info" at the top of our homepage for individual investors. Then, in the
window that appears, click on the "Proxy Voting Policy" navigation button in the
top left corner.
Each fund's most recent annual proxy voting record is available on our Web site
and through the SEC's Web site. To access it through our Web site, follow the
directions above, then click on the words "Proxy Voting Record" at the bottom of
the Proxy Voting Policy page.
HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS
- --------------------------------------------------------------------------------
The fund files a complete schedule of portfolio holdings with the Securities and
Exchange Commission for the first and third quarters of each fiscal year on Form
N-Q. The fund's Form N-Q is available electronically on the SEC's Web site
(www.sec.gov); hard copies may be reviewed and copied at the SEC's Public
Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information
on the Public Reference Room, call 1-800-SEC-0330.
T. ROWE PRICE SPECTRUM FUNDS
- --------------------------------------------------------------------------------
ABOUT THE FUNDS' DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
Your funds are governed by a Board of Directors that meets regularly to review
investments, performance, compliance matters, advisory fees, expenses, and other
business affairs, and is responsible for protecting the interests of
shareholders. The majority of the funds' directors are independent of T. Rowe
Price Associates, Inc. (T. Rowe Price); "inside" directors are officers of T.
Rowe Price. The Board of Directors elects the funds' officers, who are listed in
the final table. The business address of each director and officer is 100 East
Pratt Street, Baltimore, MD 21202. The Statement of Additional Information
includes additional information about the funds' directors and is available
without charge by calling a T. Rowe Price representative at 1-800-225-5132.
Independent Directors
Name
(Year of Birth)
Year Elected*
Principal Occupation(s) During Past 5 Years and Directorships of Other Public
Companies
Anthony W. Deering
(1945)
2001
Director, Chairman of the Board, President, and Chief Executive Officer, The
Rouse Company, real estate developers; Director, Mercantile Bank (4/03 to
present)
Donald W. Dick, Jr.
(1943)
1999
Principal, EuroCapital Advisors, LLC, an acquisition and management advisory
firm
David K. Fagin
(1938)
1999
Director, Golden Star Resources Ltd., Canyon Resources Corp. (5/00 to present),
and Pacific Rim Mining Corp. (2/02 to present); Chairman and President, Nye
Corp.
Karen N. Horn
(1943)
2003
Managing Director and President, Global Private Client Services, Marsh Inc.
(1999-2003); Managing Director and Head of International Private Banking,
Bankers Trust (1996-1999); Director, Eli Lilly and Company and Georgia Pacific
(5/04 to present)
F. Pierce Linaweaver
(1934)
2001
President, F. Pierce Linaweaver & Associates, Inc., consulting environmental
and civil engineers
John G. Schreiber
(1946)
2001
Owner/President, Centaur Capital Partners, Inc., a real estate investment
company; Partner, Blackstone Real Estate Advisors, L.P.; Director, AMLI
Residential Properties Trust and The Rouse Company, real estate developers
* Each independent director oversees 112 T. Rowe Price portfolios and serves
until retirement, resignation, or election of a successor.
Inside Directors
Name
(Year of Birth)
Year Elected*
[Number of T. Rowe Price
Portfolios Overseen]
Principal Occupation(s) During Past 5 Years and Directorships of
Other Public Companies
James A.C. Kennedy, CFA
(1953)
2001
[43]
Director and Vice President, T. Rowe Price and T. Rowe Price Group, Inc.;
Director, T. Rowe Price Global Investment Services Limited and T. Rowe Price
International, Inc.
James S. Riepe
(1943)
1990
[112]
Director and Vice President, T. Rowe Price; Vice Chairman of the Board,
Director, and Vice President, T. Rowe Price Group, Inc.; Chairman of the Board
and Director, T. Rowe Price Global Asset Management Limited, T. Rowe Price
Global Investment Services Limited, T. Rowe Price Investment Services, Inc.,
T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price Services, Inc.;
Chairman of the Board, Director, President, and Trust Officer, T. Rowe Price
Trust Company; Director, T. Rowe Price International, Inc.; Chairman of the
Board, Spectrum Funds
* Each inside director serves until retirement, resignation, or election of a
successor.
Officers
Name (Year of Birth)
Title and Fund(s) Served
Principal Occupation(s)
Stephen W. Boesel (1944)
Executive Vice President, Spectrum Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price
Trust Company
Stephen V. Booth, CPA (1961)
Vice President, Spectrum Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and T. Rowe Price
Trust Company
Joseph A. Carrier (1960)
Treasurer, Spectrum Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price
Investment Services, Inc., and T. Rowe Price Trust Company
Roger L. Fiery III, CPA (1959)
Vice President, Spectrum Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price
International, Inc., and T. Rowe Price Trust Company
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
John R. Gilner (1961)
Chief Compliance Officer, Spectrum Funds
Chief Compliance Officer and Vice President, T. Rowe Price; Vice President,
T. Rowe Price Investment Services, Inc., and T. Rowe Price Group, Inc.
Gregory S. Golczewski (1966)
Vice President, Spectrum Funds
Vice President, T. Rowe Price and T. Rowe Price Trust Company
Henry H. Hopkins (1942)
Vice President, Spectrum Funds
Director and Vice President, T. Rowe Price Investment Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe Price Trust Company; Vice President, T. Rowe
Price, T. Rowe Price Group, Inc., T. Rowe Price International, Inc., and T. Rowe
Price Retirement Plan Services, Inc.
John H. Laporte, CFA (1945)
Vice President, Spectrum Funds
Vice President, T. Rowe Price and T. Rowe Price Group, Inc.
Patricia B. Lippert (1953)
Secretary, Spectrum Funds
Assistant Vice President, T. Rowe Price and T. Rowe Price Investment Services,
Inc.
George A. Murnaghan (1956)
Vice President, Spectrum Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc, T. Rowe Price
International, Inc., T. Rowe Price Investment Services, Inc., and T. Rowe Price
Trust Company
Edmund M. Notzon III, Ph.D., CFA (1945)
President, Spectrum Funds
Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe Price
Investment Services, Inc., and T. Rowe Price Trust Company
Brian C. Rogers, CFA, CIC (1955)
Vice President, Spectrum Funds
Chief Investment Officer, Director, and Vice President, T. Rowe Price and
T. Rowe Price Group, Inc.; Director and Vice President, T. Rowe Price Trust
Company
Julie L. Waples (1970)
Vice President, Spectrum Funds
Vice President, T. Rowe Price
David J.L. Warren (1957)
Vice President, Spectrum Funds
Director and Vice President, T. Rowe Price; Vice President, T. Rowe Price Group,
Inc.; Chief Executive Officer, Director, and President, T. Rowe Price
International, Inc.; Director, T. Rowe Price Global Asset Management Limited and
T. Rowe Price Global Investment Services Limited
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR,
applicable to its principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. A copy of this code of ethics is filed as an exhibit to this Form
N-CSR. No substantive amendments were approved or waivers were granted to this
code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Directors/Trustees has determined that Mr. David K.
Fagin qualifies as an audit committee financial expert, as defined in Item 3 of
Form N-CSR. Mr. Fagin is considered independent for purposes of Item 3 of Form
N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) - (d) Aggregate fees billed to the registrant for the last two fiscal years
for professional services rendered by the registrant's principal accountant were
as follows:
2004 2003
Audit Fees $17,682 $17,539
Audit-Related Fees 2,815 1,050
Tax Fees 4,795 4,555
All Other Fees - 371
Audit fees include amounts related to the audit of the registrant's annual
financial statements and services normally provided by the accountant in
connection with statutory and regulatory filings. Audit-related fees include
amounts reasonably related to the performance of the audit of the registrant's
financial statements, specifically the issuance of a report on internal
controls. Tax fees include amounts related to tax compliance, tax planning, and
tax advice. Other fees include the registrant's pro-rata share of amounts for
agreed-upon procedures in conjunction with service contract approvals by the
registrant's Board of Directors/Trustees.
(e)(1) The registrant's audit committee has adopted a policy whereby audit and
non-audit services performed by the registrant's principal accountant for the
registrant, its investment adviser, and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the registrant require pre-approval in advance at regularly
scheduled audit committee meetings. If such a service is required between
regularly scheduled audit committee meetings, pre-approval may be authorized by
one audit committee member with ratification at the next scheduled audit
committee meeting. Waiver of pre-approval for audit or non-audit services
requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) - (d) above were approved pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountant's
engagement to audit the registrant's financial statements for the most recent
fiscal year were attributed to work performed by persons other than the
principal accountant's full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding
fiscal year by the registrant's principal accountant for non-audit services
rendered to the registrant, its investment adviser, and any entity controlling,
controlled by, or under common control with the investment adviser that provides
ongoing services to the registrant were $903,000 and $821,000, respectively, and
were less than the aggregate fees billed for those same periods by the
registrant's principal accountant for audit services rendered to the T. Rowe
Price Funds.
(h) All non-audit services rendered in (g) above were pre-approved by the
registrant's audit committee. Accordingly, these services were considered by the
registrant's audit committee in maintaining the principal accountant's
independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments.
Not applicable. The complete schedule of investments is included in Item 1 of
this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial officer
have evaluated the registrant's disclosure controls and procedures within 90
days of this filing and have concluded that the registrant's disclosure controls
and procedures were effective, as of that date, in ensuring that information
required to be disclosed by the registrant in this Form N-CSR was recorded,
processed, summarized, and reported timely.
(b) The registrant's principal executive officer and principal financial officer
are aware of no change in the registrant's internal control over financial
reporting that occurred during the registrant's second fiscal quarter covered by
this report that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The registrant's code of ethics pursuant to Item 2 of Form N-CSR is
attached.
(2) Separate certifications by the registrant's principal executive officer
and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of
1940, are attached.
(3) Written solicitation to repurchase securities issued by closed-end
companies: not applicable.
(b) A certification by the registrant's principal executive officer and
principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940,
is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price Spectrum Fund, Inc.
By /s/ James S. Riepe
-----------------------------------
James S. Riepe
Principal Executive Officer
Date February 18, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By /s/ James S. Riepe
-----------------------------------
James S. Riepe
Principal Executive Officer
Date February 18, 2005
By /s/ Joseph A. Carrier
-----------------------------------
Joseph A. Carrier
Principal Financial Officer
Date February 18, 2005