PAGE 1
Prospectus for the T. Rowe Price Spectrum Fund, Inc., dated May
1, 1995 should be inserted here.
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T. Rowe Price
SPECTRUM FUNDS
Prospectus
- -------------------------------------------------------------------------------
T. Rowe Price
Spectrum Fund, Inc.
May 1, 1995
PROSPECTUS & IRA PLAN DISCLOSURE STATEMENT AND CUSTODIAL AGREEMENT
To Open an Account:
Investor Services
1-800-638-5660
547-2308 in Baltimore
Yields & Prices:
Tele*AccessRegistration Mark
24 hours, 7 days a week
1-800-638-2587
625-7676 in Baltimore
Existing Account:
Shareholder Services
1-800-225-5132
625-6500 in Baltimore
Investor Centers:
101 East Lombard Street
First Floor
Baltimore, Maryland
Farragut Square
First Floor
900 17th Street, NW
Washington, DC
T. Rowe Price Financial Center
First Floor
10090 Red Run Boulevard
Owings Mills, Maryland
ARCO Tower
31st Floor
515 South Flower Street
Los Angeles, California
<PAGE>
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SPECTRUM FUNDS
=============================
Investment Summary
The T. Rowe Price Spectrum Fund, Inc. is composed of two separate funds
with distinct investment objectives and programs. Each seeks to achieve its
objective by investing in a number of other T. Rowe Price mutual funds. The
funds are designed to meet long-term investment needs particularly of investors
participating in tax-deferred retirement plans.
Spectrum Income Fund seeks a high level of current income consistent with
moderate price fluctuation by investing primarily in a diversified group of T.
Rowe Price mutual funds which, in turn, invest principally in fixed income
securities.
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Prospectus
May 1, 1995
T. Rowe Price
Spectrum Funds
=============================
Spectrum Growth Fund seeks long-term growth of capital and growth of income
by investing primarily in a diversified group of T. Rowe Price mutual funds
which invest principally in equity securities. Current income is a secondary
objective.
<PAGE>
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Table of Contents
Fund Information
Investment Objectives and
Programs
Summary of Funds' Fees
and Expenses
Financial Highlights
Description of Underlying
Price Funds
Special Risks and
Considerations
Investment Policies
Investment Policies of
Underlying Price Funds
Performance Information
Capital Stock
NAV, Pricing, and
Effective Date
Receiving Your Proceeds
Dividends and
Distributions
Taxes
Management of the Fund
Management Fee
Expenses
How to Invest
Shareholder Services
Conditions of Your
Purchase
Account Requirements and
Transaction Information
Opening a New Account
Purchasing Additional
Shares
Exchanging and Redeeming
Shares
=============================
T. Rowe Price
100% No Load. The funds have no sales charges, no redemption fees and no
12b-1 fees. 100% of your investment is credited to your account.
Services. T. Rowe Price provides easy access to your money through
checkwriting (Income Fund only), bank wires, or telephone redemptions and offers
easy exchange to other T. Rowe Price funds.
<PAGE>
T. Rowe Price Associates, Inc. (T. Rowe Price) was founded in 1937 by the
late Thomas Rowe Price, Jr. As of December 31, 1994, the firm and its affiliates
managed over $57 billion of assets for over three million individual and
institutional investor accounts.
This prospectus contains information you should know about the funds before
you invest. Please keep it for future reference. A Statement of Additional
Information for the funds (dated May 1, 1995) has been filed with the Securities
and Exchange Commission and is incorporated by reference in this prospectus. It
is available at no charge by calling: 1-800-638-5660.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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INVESTMENT OBJECTIVES AND
PROGRAMS
=============================
Each fund offers investors a professionally-managed investment program by
purchasing shares in existing T. Rowe Price mutual funds (the underlying Price
funds), which are managed by T. Rowe Price or Rowe Price-Fleming International,
Inc. (Price-Fleming). Shares of the funds are available to investors
participating in tax-advantaged retirement accounts and to others investing for
long-term purposes.
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The funds offer
professionally-managed
allocation of assets among
other Price funds.
=============================
Each fund will allocate its assets among the underlying Price funds
according to T. Rowe Price's outlook for the economy, financial markets, and
relative market valuation of the underlying Price funds. T. Rowe Price may vary
the allocation within the ranges specified in each fund's investment program.
The funds will not purchase shares of any underlying Price fund if, as a result
of the purchase, they would own in total more than 15% of an underlying Price
fund's outstanding voting shares. The fund has applied to the Securities and
Exchange Commission for permission to raise this limit to 30%. If the request is
granted, the funds could own in the aggregate up to 30% of an underlying Price
fund's outstanding voting securities.
The funds will invest their assets in the following underlying Price funds
within the ranges indicated below.
<PAGE>
<TABLE>
<CAPTION>
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Investment Investment
Spectrum Range (Percent Spectrum Range (Percent Income
Fund of Income Fund Assets) Growth Fund of Growth Fund Assets)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Short-Term Bond Fund 0-15% Prime Reserve Fund 0-25%
GNMA Fund 5-20% Equity Income Fund 5-20%
International Bond Fund 5-20% Growth & Income Fund 5-20%
Equity Income Fund 10-25% International Stock Fund 5-20%
High Yield Fund 10-25% New Era Fund 10-25%
Prime Reserve Fund 5-30% New Horizons Fund 10-25%
New Income Fund 15-30% Growth Stock Fund 15-30%
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Characteristics of Underlying Price Funds
- --------------------------------------------------------------------------------------------------------
<S> <C>
Prime Reserve Fund --Stability
High Yield Fund --Aggressive income
GNMA Fund, International Bond Fund, New Income Fund --Income
Short-Term Bond Fund --Conservative income
New Horizons Fund --Aggressive growth
Equity Income Fund, Growth & Income Fund --Growth and income
International Stock Fund, New Era Fund, Growth Stock Fund --Growth
</TABLE>
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No fund should be used for
short-term trading purposes.
=============================
Each fund's share price will fluctuate with changing market conditions, and
the value of the underlying Price funds in which it invests will also fluctuate;
when you sell your shares you may lose money. The fund or funds you select
should reflect your individual investment goals, but should not represent your
complete investment program. The funds cannot guarantee they will achieve their
investment objectives.
Spectrum Income Fund's investment objective is to seek a high level of
current income consistent with moderate price fluctuation by investing primarily
in a diversified group of underlying Price funds which, in turn, invest
principally in fixed-income securities.
<PAGE>
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Investing in a diversified
pool of mutual funds should
help to reduce the volatility
normally associated with
investments in an individual
fund.
=============================
The fund's net asset value per share will fluctuate principally in response
to changes in interest rate levels. A decline in interest rates can be expected
to cause the fund's value to increase, and conversely, an increase in rates can
be expected to cause the value of the fund to decline. The fund's sensitivity to
domestic interest rates is reduced by its investment in the Equity Income Fund,
which invests primarily in dividend-paying common stocks of established
companies, and the International Bond Fund, which invests primarily in non-U.S.
dollar-denominated fixed-income securities.
Spectrum Growth Fund's investment objectives are to seek long-term growth
of capital and growth of income by investing primarily in a diversified group of
underlying Price funds which, in turn, invest principally in equity securities.
Current income is a secondary objective.
The fund's net asset value per share will fluctuate, principally in
response to changes in the equity markets. The fund's return is diversified by
its investment in underlying Price funds which invest in traditional growth
companies, small aggressive growth stocks, growth and income stocks, and
international stocks.
Please see pages 5-11 for a complete description of the underlying Price
funds; pages 13-14 for other investment policies; and pages 28-31 for
information on how to purchase, exchange and redeem shares of the funds. The
funds are 100% no-load. You pay no fees to purchase, exchange or redeem shares,
nor any ongoing marketing (12b-1) expenses. Lower expenses benefit you by
increasing your investment return from a fund.
- -----------------------------
SUMMARY OF FUNDS' FEES AND
EXPENSES
=============================
Shown below are all expenses and fees each fund incurred during its fiscal
year. More information about these expenses may be found below and under
Management Fee and Expenses and in the Statement of Additional Information under
Management Fees of Underlying Price Funds.
<PAGE>
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The funds will indirectly bear
their pro rata share of the
expenses of the underlying
Price funds.
=============================
Income Growth
Fund Fund
_____ _____
Shareholder Transaction Expenses
Sales load "charge" on purchases None None
Sales load "charge" on reinvested dividends None None
Redemption fees None None
Exchange fees None None
Annual Fund Expenses
Management fee None None
Distribution fees (12b-1) None None
Total other (Shareholder servicing,
custodial, auditing, etc.) None None
_____ _____
Total fund expenses None None
Note: The funds charge a $5 fee for wire redemptions under $5,000, subject
to change without notice.
The income and growth funds will operate at a zero expense level (see
Expenses, page 24 for an explanation of the Special Servicing Agreement).
However, the funds will indirectly bear their pro rata share of fees and
expenses incurred by the underlying Price funds and the investment returns of
the funds will be net of the expenses of the underlying Price funds. The
following chart provides the expense ratios for each of the underlying Price
funds in which the income and growth funds will invest (based on information as
of December 31, 1994). Where applicable, expense ratios are restated to reflect
current fees.
<PAGE>
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Expense
Ratio
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Spectrum Income Fund
Prime Reserve Fund 0.69%
Equity Income Fund 0.88
Short-Term Bond Fund 0.80
International Bond Fund 0.98
GNMA Fund 0.76
High Yield Fund 0.88
New Income Fund 0.78
Spectrum Growth Fund
Prime Reserve Fund 0.69%
Equity Income Fund 0.88
Growth & Income Fund 0.81
International Stock Fund 0.92
New Era Fund 0.80
New Horizons Fund 0.93
Growth Stock Fund 0.81
Based on the foregoing, the range of the average weighted expense ratio for
the Income Fund is expected to be 0.78% to 0.87% and for the Growth Fund 0.80%
to 0.88%. A range is provided since the average assets of the income and growth
funds invested in each of the underlying Price funds will fluctuate.
Using the midpoint of the above ranges, the following example illustrates
the expenses you would incur on a $1,000 investment, assuming the funds return
5% annually, expense ratios as listed above remain, and you close your account
at the end of the time periods shown. For example, expenses for the first year
in the Income Fund would be $9.
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The table below is just an
example; actual expenses can
be higher or lower than those
shown.
=============================
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Fund 1 Year 3 Years 5 Years 10 Years
- -------------------------------------------------------------------------------
Income Fund $8 $26 $46 $103
Growth Fund $9 $27 $47 $104
<PAGE>
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FINANCIAL HIGHLIGHTS
=============================
The following table provides information about each fund's financial
history. It is based on a single share outstanding throughout each fiscal year.
The table is part of the each funds financial statements which are included in
the funds' annual report and incorporated by reference into the Statement of
Additional Information. This document is available to shareholders upon request.
The financial statements in the annual report have been audited by Price
Waterhouse LLP, independent accountants, whose unqualified report covers the
periods shown.
<TABLE>
<CAPTION>
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Investment Activities Distributions
--------------------------------------------------- ----------------------------------------
Net Asset Net Net Realized and Total from Net Net
Year Ended, Value, Beginning Investment Unrealized Gain (Loss) Investment Investment Realized Total
December 31 of Year Income (Loss) on Investments Activities Income Gain Distributions
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Fund
1990(a) $10.00 $0.44 $(0.18) $0.26 $(0.44) $(0.05) $(0.49)
1991 9.77 0.82 1.03 1.85 (0.83) (0.06) (0.89)
1992 10.73 0.76 0.05 0.81 (0.76) (0.08) (0.84)
1993 10.70 0.69 0.60 1.29 (0.69) (0.19) (0.88)
1994 11.11 0.69 (0.90) (0.21) (0.69) (0.10) (0.79)
Growth Fund
1990(a) 10.00 0.20 (1.21) (1.01) (0.19) (0.28) (0.47)
1991 8.52 0.21 2.33 2.54 (0.21) (0.32) (0.53)
1992 10.53 0.20 0.56 0.76 (0.20) (0.55) (0.75)
1993 10.54 0.16 2.05 2.21 (0.16) (0.72) (0.88)
1994 11.87 0.17 (0.01) 0.16 (0.17) (0.73) (0.90)
<PAGE>
<CAPTION>
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End of Period
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Net Asset Total Return Ratio of Ratio of Net Portfolio
Year Ended, Value, (Includes Reinvested Net Assets Expenses to Average Investment Income to Turnover
December 31 End of Period Dividends) ($ Thousands) Net Assets Average Net Assets Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income Fund
1990(a) $ 9.77 2.7% $ 40,082 0.00%(b) 9.58%(b) 36.9%(b)
1991 10.73 19.6% 147,859 0.00% 8.03% 18.8%
1992 10.70 7.8% 376,435 0.00% 7.10% 14.2%
1993 11.11 12.4% 587,931 0.00% 6.19% 14.4%
1994 10.11 (1.9%) 624,940 0.00% 6.48% 23.1%
Growth Fund
1990(a) 8.52 (10.1)% 35,387 0.00%(b) 4.50%(b) 33.4%(b)
1991 10.53 29.9% 148,661 0.00% 2.77% 14.6%
1992 10.54 7.2% 355,134 0.00% 2.15% 7.9%
1993 11.87 21.0% 584,876 0.00% 1.57% 7.0%
1994 11.13 1.4% 879,366 0.00% 1.60% 20.7%
<FN>
(a) For the period June 29, 1990 (commencement of operations) to December 31, 1990.
(b) Annualized.
</FN>
</TABLE>
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DESCRIPTION OF UNDERLYING
PRICE FUNDS
=============================
The following is a brief description of the principal investment programs
of the underlying Price funds. Additional investment practices are described in
the Special Risks and Considerations section on pages 12-13, the Statement of
Additional Information and the prospectuses for each of the funds.
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Underlying Price funds of Both
Income and Growth Funds
=============================
T. Rowe Price Prime Reserve Fund, Inc. is a money market fund which is
managed to maintain a stable share price of $1.00. This policy has been
maintained since its inception; however, the $1.00 price is neither insured by
the U.S. Government, nor is its yield fixed. The dollar-weighted average
maturity of the fund will not exceed 90 days. Since the fund is managed to
maintain a constant share price, its total return should be composed entirely of
income.
<PAGE>
The objectives of the fund are preservation of capital, liquidity, and,
consistent with these objectives, the highest possible current income through
investments primarily in high-quality money market securities. To achieve its
objectives, the fund invests at least 95% of its total assets in prime money
market instruments, that is, securities receiving the highest credit rating
assigned by at least two established rating agencies or, if unrated, an
equivalent rating as established by T. Rowe Price.
T. Rowe Price Equity Income Fund's objective is to provide substantial
dividend income as well as long-term capital appreciation through investments in
common stocks of established companies. Under normal circumstances, the fund
will invest at least 65% of total assets in the common stocks of established
companies paying above-average dividends. These companies will have favorable
prospects for dividend growth and capital appreciation, according to T. Rowe
Price. Most of the assets will be invested in U.S. common stocks. However, the
fund may also purchase other types of securities, for example, foreign
securities, convertible stocks and bonds, and warrants, when considered
consistent with the fund's investment objectives and program. The portfolio
manager may also engage in a variety of investment management practices, such as
buying and selling futures and options. T. Rowe Price believes that income can
be a significant contributor to total return over time, and expects the fund's
yield to be above that of the Standard & Poor's 500 Stock Index. The fund will
tend to take a "value" approach and invest in stocks and other securities that
appear to be undervalued by various measures, such as price/earnings ratios.
- -----------------------------
SPECTRUM INCOME FUND
=============================
Each of the underlying Price funds in the Income Fund seeks the highest
level of income consistent with its individual investment program.
T. Rowe Price Short-Term Bond Fund, Inc.'s objective is to provide a high
level of income consistent with minimum fluctuation in principal value and
liquidity. The fund will invest in a diversified portfolio of short- and
intermediate-term corporate, government, and mortgage debt securities. The fun d
may also invest in other types of securities such as bank obligations,
collateralized mortgage obligations (CMOs), foreign securities, hybrids, and
futures and options. Under normal circumstances, at least 65% of total assets
will be invested in short-term bonds. The fund's dollar-weighted average
effective maturity will not exceed three years, and the fund will not purchase
any security whose effective maturity, average life or tender date measured from
the date of settlement, exceeds seven years. Securities purchased by the fund
will be rated within the four highest credit categories by at least one
established public rating agency (or, if unrated, the T. Rowe Price equivalent).
<PAGE>
T. Rowe Price GNMA Fund's objective is to provide a high level of current
income consistent with maximum credit protection and moderate price fluctuation
by investing exclusively in securities backed by the full faith and credit of
the U.S. Government and instruments involving these securities. The fund invests
primarily in mortgage-backed securities issued and guaranteed by the Government
National Mortgage Association (GNMA), an agency of the Department of Housing and
Urban Development (HUD). The GNMA guarantee does not apply in any way to the
price of GNMA securities or the fund, both of which will fluctuate with market
conditions. The fund can also purchase bills, notes, and bonds issued by the
U.S. Treasury as well as related futures; other agency securities backed by the
full faith and credit of the U.S. Government, and securities involving GNMAs,
such as CMOs and stripped certificates (securities that receive only the
interest or principal portion of the underlying mortgage payments).
- -----------------------------
Mortgage-backed securities
have a number of special
characteristics
=============================
Mortgage-backed securities are securities representing an interest in a
pool of mortgages. The mortgages may be of a variety of types, including
adjustable rate, conventional 30-year fixed rate, graduated payment, and
15-year. Principal and interest payments made on the mortgages in the underlying
mortgage pool are passed through to the fund. This is in contrast to traditional
bonds where principal is normally paid back at maturity in a lump sum.
Unscheduled prepayments of principal shorten the securities' weighted average
life and may lower their total return. (When a mortgage in the underlying
mortgage pool is prepaid, an unscheduled principal prepayment is passed through
to the fund. This principal is returned to the fund at par. As result, if a
mortgage security were trading at a premium, its total return would be lowered
by prepayments, and if a mortgage security were trading at a discount, its total
return would be increased by prepayments.) The value of these securities also
may change because of changes in the market's perception of the creditworthiness
of the federal agency that issued them. In addition, the mortgage securities
market in general may be adversely affected by changes in governmental
regulation or tax policies. As a result the actual or "effective" maturity of a
mortgage-backed security is virtually always shorter than its stated maturity.
T. Rowe Price International Bond Fund's objective is to provide high
current income and capital appreciation by investing in high-quality,
nondollar-denominated government and corporate bonds outside the U.S. The fund
also seeks to moderate price fluctuation by actively managing its maturity
structure and currency exposure. The fund will invest at least 65% of its assets
in high-quality bonds but may invest up to 20% of assets in below
investment-grade, high-risk bonds, including bonds in default or those with the
lowest rating.
Price-Fleming bases its investment decisions on fundamental market factors,
currency trends, and credit quality. The fund generally invests in countries
where the combination of fixed-income returns and currency exchange rates
appears attractive, or, if the currency trend is unfavorable, where the currency
risk can be minimized through hedging.
<PAGE>
Although the fund expects to maintain an intermediate to long weighted
average maturity, it has no maturity restrictions on the overall portfolio or on
individual securities. Normally, the fund does not hedge its foreign currency
exposure back to the dollar, nor involve more than 50% of total assets in cross
hedging transactions. Therefore, changes in foreign interest rates and currency
exchange rates are likely to have a significant impact on total return and the
market value of portfolio securities. Such changes provide greater opportunities
for capital gains and greater risks of capital loss. Price-Fleming attempts to
reduce these risks through diversification among foreign securities and active
management of maturities and currency exposures.
T. Rowe Price High Yield Fund, Inc. has high current income and,
secondarily, capital appreciation as its objectives. Under normal conditions,
the fund expects to invest at least 80% of its total assets in a widely
diversified portfolio of high-yield bonds (so-called "junk" bonds), and income
producing convertible securities and preferred stocks. The fund may also invest
in a variety of other securities, including foreign securities, pay-in-kind
bonds, private placements, bank loans, hybrid instruments, futures and options.
The fund's longer average maturity (expected to be in the 8- to 12- year range),
makes its price more sensitive to broad changes in interest rate movements than
shorter-term bond funds. The portfolio manager buys defaulted bonds only if
significant potential for capital appreciation is expected.
- -----------------------------
High yield bond investing
involves special risks.
=============================
This fund is expected to have greater price swings than are associated with
most bond funds emphasizing high-quality investments. The major risk factors
include:
Greater credit risk. Companies issuing high-yield bonds are not as strong
financially as those with higher credit ratings and their bonds are often viewed
as speculative investments. High-yield bond issuers are more vulnerable to real
or perceived business setbacks and to changes in the economy, such as a
recession, that might impair their ability to make timely interest and principal
payments. As a result, we rely heavily on our proprietary research when
selecting investments.
<PAGE>
Reduced market liquidity. The junk bond market is generally less "liquid"
than the market for higher-quality bonds, meaning large purchases or sales of
certain issues may cause significant changes in their prices. Many high-yield
bonds do not trade frequently. When they do trade, their price may be
substantially higher or lower than had been expected. A lack of liquidity also
means that judgment may play a bigger role in valuing the securities.
Other factors. The dominant influence on prices of high-quality bonds is
changes in interest rate levels, but this is only one of many factors affecting
high-yield (junk) bond prices. While better-quality junk bonds will follow the
high-grade market to some extent, lower-quality junk bonds are often more
sensitive to developments affecting their issuer's underlying fundamentals, such
as changes in cash flow. In addition, the entire junk bond market can experience
sudden and sharp price swings due to a variety of factors, including changes in
economic forecasts, stock market activity, large or sustained sales by major
investors, a high-profile default, or just a change in the market's psychology.
This type of volatility is usually associated more with stocks than bonds, but
junk bond investors should be prepared for it.
Since high-yield bond mutual funds are a major source of demand in this
market, substantially cash flows into and out of these funds can affect
high-yield bond prices. If, for example, a significant number of high-yield bond
funds were to sell bonds to meet shareholder redemptions, both bond prices and
the fund's share price could fall more than underlying fundamentals might
justify.
- -----------------------------
For more information about an
underlying Price fund, please
call: 1-800-638-5660
1-410-547-2308
=============================
The High Yield Fund imposes a redemption fee of 1% on all redemptions
(including exchanges) of shares held in the fund for less than one year and
purchased on or after July 6, 1993. The redemption fee is paid to the High Yield
Fund.
Asset Composition. For the fiscal period ended May 31, 1994, the High Yield
Fund's assets (excluding equities and reserves) were invested in the following
Standard & Poor's rating categories: AA, 0.2%; BBB, 0.1%; BB, 7.4%; B, 50.2%;
CCC, 5.3%; CC, 0.1%; D, 2.0%; Not Rated, 32.4%. T. Rowe Price's assessment of
not rated securities is as follows: AAA, 0.2%; BB, 0.7%; B, 17.0%; CCC, 2.1%;
CC, 1.2%; C, 0.8%; D, 0.4%. Percentages are computed on a dollar-weighted basis
and are an average of 12 monthly calculati ons. T. Rowe Price New Income Fund,
Inc.'s objective is to provide the highest level of income over time consistent
with the preservation of capital through investment primarily in marketable debt
securities. At least 80% of total assets will be invested in income-producing,
investment-grade instruments, including (but not limited to) U.S. Government and
agency obligations, mortgage-backed securities, corporate debt securities,
asset-backed securities, bank obligations, CMOs, commercial paper, foreign
securities, and others. There are no maturity restrictions on securities
purchased by the fund, but the fund's dollar-weighted average maturity is
generally expected to be between four and 15 years.
<PAGE>
- -----------------------------
Summary of Programs
=============================
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Fund Credit quality Yield Share price Expexted average maturity
(rating categories) fluctuation (NAV)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Prime Reserve 2 highest possible Lowest Maintain $1.00 No more than 90 days
(not guaranteed)
Short-Term Bond 4 highest Moderate Moderate Not greater than 3 years
GNMA Highest possible Moderate Moderate Varies, 3-10 years
New Income 4 highest High High No restriction
International primarily 4 highest High High Intermediate to long
(up to 20% below
4 highest)
High Yield BB or lower Highest Highest Normally 8-12 years
</TABLE>
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SPECTRUM GROWTH FUND
=============================
Each of the underlying Price funds in the Spectrum Growth Fund seeks
long-term growth of capital as its primary objective.
T. Rowe Price Growth & Income Fund, Inc.'s investment objective is to
provide long-term capital growth, a reasonable level of current income, and
increasing future income through investments primarily in dividend-paying
stocks. The fund can focus on companies whose earnings are expected by T. Rowe
Price to grow at an above average rate and can support a growing dividend
payment as well as stocks that do not pay dividends currently but offer
prospects of appreciation and future income.
<PAGE>
T. Rowe Price International Stock Fund's objective is to seek long-term
growth of capital through investments primarily in common stocks of established,
non-U.S. companies. The fund expects to invest substantially all of its assets
outside the U.S. and to diversify broadly among countries throug hout the world,
both developed, newly industrialized, and emerging.
- -----------------------------
Most of the assets of the
underlying Price funds in the
Spectrum Growth Fund will be
invested in common stocks.
However, the funds may also
purchase other types of
securities, for example,
foreign securities,
convertible stocks and bonds,
and warrants, when considered
consistent with a fund's
investment objective. The
funds may also engage in a
variety of investment
management practices, such as
buying and selling futures and
options.
=============================
T. Rowe Price New Era Fund, Inc.'s objective is to provide long-term
capital appreciation by investing primarily in common stocks of companies that
own or develop natural resources and other basic commodities, and in stocks of
selected non-resource growth companies. The fund's primary focus will be on the
stocks of companies whose earnings and tangible assets could benefit from
accelerating inflation. The fund will also invest in selected nonresource growth
companies with strong potential for earnings growth. T. Rowe Price believes that
natural resource companies with the flexibility to adjust prices or control
operating costs offer attractive opportunities for capital growth when inflation
is rising. Income is not a consideration in the selection of securities.
T. Rowe Price New Horizons Fund, Inc.'s investment objective is to provide
long-term growth of capital by investing primarily in common stocks of small,
rapidly growing companies. The fund will invest in a diversified group of small,
emerging growth companies. It will seek to invest early in the corporate life
cycle, before a company becomes widely recognized by the investment community.
The fund may also invest in companies that offer the possibility of accelerating
earnings growth because of rejuvenated management, new products, or structural
changes in the economy. Total return will consist primarily of capital
appreciation or depreciation.
<PAGE>
T. Rowe Price Growth Stock Fund, Inc.'s objective is to provide long-term
growth of capital and, secondarily, increasing dividend income by investing
primarily in common stocks of well-established growth companies. The fund will
invest in the common stocks of a diversified group of growth companies. While
not required, the companies in which the fund invests normally pay dividends,
which are generally expected to rise in future years as earnings increase.
- -----------------------------
SPECIAL RISKS AND
CONSIDERATIONS
=============================
Prospective investors should consider the following factors:
* The investments of each fund are concentrated in the underlying Price
funds, so each fund's investment performance is directly related to the
investment performance of these underlying funds.
* As a matter of fundamental policy, the funds must allocate their
investments among the underlying Price funds within certain ranges. As a result
they do not have the same flexibility to invest as a mutual fund without such
constraints.
* Under the terms of an Exemptive Order issued on November 29, 1989 (the
Order) by the Securities and Exchange Commission (Commission): each fund may not
redeem more than 1% of any underlying Price fund's assets during any period of
less than 30 days, except when necessary to meet the fund's shareholder
redemption requests. As a result, the funds may not be able to reallocate assets
among the underlying Price funds as efficiently and rapidly as would be the case
in the absence of this constraint.
* In addition to their principal investments, certain underlying Price
funds may: invest a portion of their assets in foreign securities; enter into
forward currency transactions; lend their portfolio securities; enter into stock
index, interest rate and currency futures contracts, and options on such
contracts; engage in options transactions; make short sales; purchase zero
coupon bonds and payment-in-kind bonds; and engage in various other investment
practices. Further information on these investment policies and practices can be
found under Investment Policies of the underlying Price funds on pages 15-16 and
in the Statement of Additional Information as well as the prospectuses of each
of the underlying Price funds.
<PAGE>
* The officers, interested directors, and T. Rowe Price, the investment
manager of Spectrum funds, presently serve as officers, interested directors,
and investment manager of most of the underlying Price funds. Therefore,
conflicts may arise as these persons fulfill their fiduciary responsibilities to
Spectrum Funds and the underlying Price funds.
* Spectrum Income Fund must invest at least 10% and can invest as much as
25% of its assets in the T. Rowe Price High Yield Fund. As a result, the Income
Fund will be subject to some of the risks resulting from high yield investing.
* Each of the funds may invest in underlying Price funds which invest in
medium grade bonds. If these bonds are downgraded, the funds will consider
whether to increase or decrease their investment in the affected underlying
fund.
* Spectrum Income Fund may invest in underlying Price funds which
concentrate their assets in certain industries. Under certain unusual
circumstances, this could result in the Income Fund being indirectly
concentrated in these industries. If this were to occur, the Income Fund would
consider whether to maintain or change its investments in such underlying funds.
* Spectrum Income Fund must invest at least 5% and can invest as much as
20% of its assets in the International Bond Fund, which invests primarily in
foreign fixed-income securities; and, the Spectrum Growth Fund must invest at
least 5% and can invest as much as 20% of its assets in the International Stock
Fund, which invests primarily in foreign equity securities. These investments
will subject the funds to risks associated with investing in foreign securities.
- -----------------------------
INVESTMENT POLICIES
=============================
Each fund's investment policies and practices are subject to further
restrictions and risks which are described in the Statement of Additional
Information. The funds will not make a material change in their investment
objectives or their fundamental policies without obtaining shareholder approval.
The funds' investment programs, unless otherwise specified, are not fundamental
policies and may be changed without shareholder approval. Shareholders will be
notified of any material change in such investment programs.
Cash Position. While the Income Fund will remain primarily invested in bond
funds and the Growth Fund in stock funds, each fund can hold a certain portion
of its assets in U.S. and foreign dollar-denominated money market securities,
including repurchase agreements, in the two highest rating categories, maturing
in one year or less. For temporary, defensive purposes, a fund may also invest
without limitation in such securities. Each fund may invest its cash reserves in
the Prime Reserve Fund. A reserve position provide s flexibility in meeting
redemptions, expenses, and the timing of new investments, and serves as a
short-term defense during periods of unusual volatility.
<PAGE>
Diversification. Spectrum Fund is a "nondiversified" investment company for
purposes of the 1940 Act because it invests in the securities of a limited
number of mutual funds. However, the underlying Price funds themselves are
diversified investment companies (with the exception of the T. Rowe Price
International Bond Fund). Spectrum Fund intends to qualify as a diversified
investment company for the purposes of Subchapter M of the Internal Revenue
Code.
Fundamental Investment Policies and other Restrictions. As a matter of
fundamental policy, each fund will not: (i) invest more than 25% of its
respective total assets in any one industry, except for investment companies
which are members of the
T. Rowe Price family of funds; (ii) borrow money except temporarily to
facilitate redemption requests in amounts not exceeding 30% of each fund's total
assets valued at market; and (iii) in any manner transfer as collateral for
indebtedness any securities owned by each fund except in connection with
permissible borrowings, which in no event will exceed 30% of each fund's total
assets valued at market.
Under the terms of the Order issued by the Commission, each fund may not
without obtaining a shareholder vote (a) change the selection of the underlying
Price funds in which it can invest; or (b) change the percentage ranges of each
fund which may be allocated to the underlying Price funds.
Each fund may not purchase shares of any underlying Price fund if, as a
result of such purchase, it would own more than 15% of the outstanding voting
securities of any underlying Price fund. A change in this restriction cannot be
made unless and until the Commission issues a further Order increasing this
limit. The funds have applied to the Securities and Exchange Commission to raise
this limit to 30%. If the request is granted, the funds could own in the
aggregate up to 30% of an underlying Price fund's outstanding voting securities.
The ability to invest a greater amount in the underlying Price funds could
subject the funds to greater risk due to the resulting higher concentration.
If a fund reaches a percentage investment limit with any underlying Price
fund, the Directors will have to determine whether to apply to the Commission to
increase the limit, stop sales of shares of that fund, recommend that
shareholders change the allocation limits on that fund's assets, or take other
suitable steps (provided, however, that each fund may temporarily exceed the 15%
(or if permitted by the Securities and Exchange Commission, 30%) limitation
under the standards set forth in Section 5(c) of the Investment Company Act of
1940 (the 1940 Act).
<PAGE>
Portfolio Turnover. Each fund's portfolio turnover is expected to be low.
The funds will purchase or sell securities to: (a) accommodate purchases and
sales of each fund's shares, (b) change the percentages of each fund's assets
invested in each of the underlying Price funds in response to market conditions,
and (c) maintain or modify the allocation of each fund's assets among the
underlying Price funds within the percentage limits described above. The
following chart sets forth each fund's portfolio turnover rates for the fiscal
years ended December 31, 1994, 1993 and 1992.
Fund 1994 1993 1992
____ ____ ____ ____
Income 23.1% 14.4% 14.2%
Growth 20.7 7.0 7.9
Other Investment Restrictions. As a matter of operating policy, each fund
will not, among other things: (1) purchase additional securities when money
borrowed exceeds 5% of the fund's total assets; (2) invest more than 10% of its
net assets in illiquid securities, provided that the fund will not invest more
than 5% of its net assets in restricted securities (other than securities
eligible for resale under Rule 144A of the Securities Act of 1933); and (3)
redeem securities from any underlying Price fund at a rate in excess of 1% of
the underlying Price fund's assets in any period of less than 30 days, except
where necessary to meet shareholder redemption requests.
- -----------------------------
INVESTMENT POLICIES OF
UNDERLYING PRICE FUNDS
=============================
In pursuing their investment objectives and programs, each of the
underlying Price funds is permitted to engage in a wide range of investment
policies. Certain of these policies are described below and further information
about the underlying Price funds is contained in the Statement of Additional
Information as well as the prospectuses of such funds. Because each fund invests
in the underlying Price funds, shareholders of each fund will be affected by
these investment policies in direct proportion to the amount of assets each fund
allocates to the Underlying funds pursuing such policies.
Lending of Portfolio Securities. Like other mutual funds, the underlying
Price funds may lend securities to broker-dealers, other institutions, or other
persons to earn additional income. The principal risk is the potential
insolvency of the broker-dealer or other borrower. In this event, the underlying
Price funds could experience delays in recovering securities and possibly
capital losses.
<PAGE>
Managing Foreign Currency Risk. Foreign securities in which the underlying
Price funds invest are subject to currency risk, that is, the risk that the U.S.
dollar value of these securities may be affected favorably or unfavorably by
changes in foreign currency exchange rates and exchange control regulations.
Investors in foreign securities may "hedge" their exposure to potentially
unfavorable currency changes by purchasing a contract to exchange one currency
for another on some future date at a specified exchange rate. In certain
circumstances, a "proxy currency" may be substituted for the currency in which
the investment is denominated, a strategy known as "proxy hedging." Although
foreign currency transactions will be used, primarily to protect a fund's
foreign securities from adverse currency movements relative to the dollar, they
involve the risk that anticipated currency movements will not occur and a fund's
total return could be reduced.
Foreign Securities. The funds will each invest in certain underlying Price
funds that invest all or a portion of their assets in foreign securities. These
include nondollar-denominated securities traded outside the U.S. and
dollar-denominated securities traded in the U.S. (such as ADRs). Such
investments increase a portfolio's diversification and may enhance return, but
they also involve some special risks such as exposure to potentially adverse
local, political, and economic developments; nationalization and exchange
controls; potentially lower liquidity and high volatility; possible problems
arising from accounting, disclosure, settlement, and regulatory practices that
differ from U.S. standards; and the chance that fluctuations in foreign exchange
rates will decrease the investment's value (favorable changes can increase its
value).
Futures Contracts and Options. Certain of the underlying Price funds may
enter into stock index, interest rate and currency futures contracts (or options
thereon) as a hedging device, or as an efficient means of regulating their
exposure to various markets. Certain of the underlying Price funds may also
purchase and sell call and put options. Futures (a type of potentially high-risk
derivative) are often used to manage risk because they enable the investor to
buy or sell an asset in the future at an agreed upon price. Options (another
type of potentially high-risk derivative) give the investor the right, but not
the obligation, to buy or sell an asset at a predetermined price in the future.
The underlying Price funds may buy and sell futures and options contracts for a
number of reasons including: to manage their exposure to changes in interest
rates, stock and bond prices, and foreign currencies; as an efficient means of
adjusting their overall exposure to certain markets; to adjust the portfolio's
duration; to enhance income; and to protect the value of portfolio securities.
The funds may purchase, sell, or write call and put options on securities,
financial indices, and foreign currencies.
Futures contracts and options may not always be successful hedges; their
prices can be highly volatile; using them could lower the fund's total return
and the potential loss from the use of futures can exceed the fund's initial
investment in such contracts.
<PAGE>
- -----------------------------
PERFORMANCE INFORMATION
=============================
Total Return. This tells you how much an investment in a fund has changed
in value over a given time period. It reflects any net increase or decrease in
the share price and assumes that all dividends and capital gains (if any) paid
during the period were reinvested in additional shares. Reinvesting
distributions means that total return numbers include the effect of compounding,
i.e., you receive income and capital gain distributions on a rising number of
shares.
Advertisements for the funds may include cumulative or compound average
annual total return figures, which may be compared with various indices, other
performance measures, or other mutual funds.
Cumulative Total Return. This is the actual rate of return on an investment
for a specified period. A cumulative return does not include how much the value
of the investment may have fluctuated between the beginning and the end of the
period specified.
Average Annual Total Return. This is always hypothetical. Working backward
from the actual cumulative return, it tells you what constant year-by-year
return would have produced the actual, cumulative return. By smoothing out all
the variations in annual performance, it gives you an idea of the investment's
annualcontribution to your portfolio provided you held it for the entire period
in question.
Yield (Income Fund) The fund may advertise a yield that is found by
determining the net income per share (as defined by the SEC) earned by the fund
during a 30-day base period and dividing this amount by the per-share price on
the last day of the base period. The "SEC yield" may differ from the dividend
yield.
- -----------------------------
CAPITAL STOCK
=============================
The T. Rowe Price Spectrum Fund, Inc. (Spectrum Fund) is a Maryland
corporation organized in 1987 and is registered with the Commission under the
1940 Act as a nondiversified, open-end investment company, commonly known as a
"mutual fund." Mutual funds pool money received from shareholders and invest it
to try to achieve specified objectives.
<PAGE>
Currently, Spectrum Fund consists of two series, the Spectrum Income Fund
and the Spectrum Growth Fund, each of which represents a separate class of
shares and has different objectives and investment policies. The Spectrum Fund's
Charter provides that the Board of Directors may issue additional series of
shares and/or additional classes of shares for each series. However, Spectrum
Fund will not offer any additional series without first filing an amended
application for and being granted further exemptive relief under Section 6(c) of
the 1940 Act.
The funds have an Investment Advisory Committee composed of the following
members: Peter Van Dyke, Chairman, Stephen W. Boesel, Edmund M. Notzon, James S.
Riepe, Charles P. Smith and M. David Testa. The Committee Chairman has
day-to-day responsibility for managing the fund and works with the Committee in
developing and executing the fund's investment program. Mr. Van Dyke has been
Chairman of the Committee since 1990. He has been managing investments since
joining T. Rowe Price in 1985.
Shareholder Rights. As will all mutual funds, investors purchase "shares"
when they invest in a fund. These shares are part of a fund's authorized capital
stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
* receive a proportional interest in a fund's capital gain distributions;
* cast one vote per share on certain fund matters, including the election
of fund directors, changes in fundamental policies, or approval of changes in a
fund's management contract.
On matters affecting an individual fund, a separate vote of that fund is
required. The funds are not required to hold annual meetings and do not intend
to do so except when certain matters, such as a change in a fund's fundamental
policies, are to be decided. In addition, shareholders representing at least 10%
of all eligible votes may call a special meeting if they wish for the purpose of
voting on the removal of any fund director. If a meeting is held and you cannot
attend, you can vote by proxy. Before the meeting, the fund will send you proxy
materials that explain the issues to be decided and include a voting card for
you to mail back.
- -----------------------------
NAV, PRICING, AND EFFECTIVE
DATE
=============================
Net Asset Value Per Share (NAV). The share price (also called "net asset
value" or NAV per share) for each fund is calculated at 4:00 pm ET each day the
New York Stock Exchange is open for business. To calculate the NAV, a fund's
assets are valued and totaled, liabilities are subtracted, and the balance, call
net assets, is divided by the number of shares outstanding.
<PAGE>
- -----------------------------
If your request is received in
good order before 4:00 pm ET,
you will receive that day's
NAV.
=============================
If we receive your request in correct form before 4:00 p.m. ET, your
transaction will be priced at that day's NAV. If we receive it after 4:00 pm, it
will be priced at the next business day's NAV.
Also, we cannot accept orders that request a particular day or price for
your transaction or any other special conditions. If for some reason we cannot
accept your request to sell shares, we will contact you.
Note: The time at which transactions are priced and until which orders are
accepted may be changed in case of an emergency or if the New York Stock
Exchange closes at a time other than 4:00 p.m. ET.
- -----------------------------
RECEIVING YOUR PROCEEDS
=============================
If your request is received by 4:00 p.m. ET in correct form, proceeds are
usually sent on the next business day. Proceeds can be sent to you by mail, or
to your bank account by ACH transfer or bank wire. Proceeds sent by ACH transfer
should be credited the second day after the sale. ACH (Automated Clearing House)
is an automated method of initiating payments from and receiving payments in
your financial institution account. ACH is a payment system supported by over
20,000 banks, savings banks and credit unions, which electronically exchanges
the transactions primarily through the Federal Reserve Banks. Proceeds sent by
bank wire should be credited to your account the next business day.
Exception:
* Under certain circumstances and when deemed to be in the fund's best
interest, your proceeds may not be sent for up to five business days after
receiving your sale or exchange request. If you were exchanging into a bond or
money fund, your new investment would not begin to earn dividends until the
sixth business day.
- -----------------------------
DIVIDENDS AND OTHER
DISTRIBUTIONS
=============================
<PAGE>
Dividends and other distributions. Dividend and capital gain distributions
are reinvested in additional fund shares in your account unless you select
another option on your New Account Form. The advantage of reinvesting
distributions arises from compounding, that is, you receive dividends and
capital gain distributions on a rising number of shares.
- -----------------------------
The funds distribute all net
investment income and realized
capital gains to shareholders.
=============================
Distributions not reinvested are paid by check or transmitted to your bank
account via ACH. If the Post Office cannot deliver your check, or if your check
remains uncashed for six months, the fund reserves the right to reinvest your
distribution check in your account at the then current NAV and to reinvest all
subsequent distributions in shares of the fund.
- -----------------------------
Spectrum Growth Fund
=============================
Income dividends
* The fund declares and pays dividends (if any) annually.
* All or part of the fund's dividends will be eligible for the 70%
deduction for dividends received by corporations.
- -----------------------------
Spectrum Income Fund
=============================
* The fund declares income dividends daily at 4:00 p.m. ET to shareholders
of record at that time provided payment for any share purchases has been
received on the previous business day.
* Fund shares will earn dividends through the date of redemption; shares
redeemed on a Friday or prior to a holiday will continue to earn dividends until
the next business day. Generally, if you redeem all of your shares at any time
during the month, you will also receive all dividends earned through the date of
redemption in the same check. When you redeem only a portion of your shares, all
dividends accrued on these shares will be reinvested, or paid in cash, on the
next dividend payment date.
<PAGE>
- -----------------------------
Both Funds
=============================
Capital gains
* A capital gain or loss is the difference between the purchase and sale
price of a security.
* If a fund has net capital gains for the year (after subtracting any
capital losses), they are usually declared and paid in December to shareholders
of record on a specified date that month.
- -----------------------------
TAX INFORMATION
=============================
You need to be aware of the possible tax consequences when
* the fund makes a distribution to your account, or
* you sell fund shares, including an exchange from one fund to another.
- -----------------------------
The funds send timely
information for your tax
filing needs.
=============================
Taxes on fund redemptions. When you sell shares in the fund, you may
realize a gain or loss. An exchange from one fund to another is still a sale for
tax purposes.
In January, the fund will send you Form 1099-B indicating the date and
amount of each sale you made in the fund during the prior year. This information
will also be reported to the IRS. For accounts opened new or by exchange in 1983
or later, we will provide you the gain or loss on the shares you sold during the
year, based on the "average cost" method. This information is not reported to
the IRS, and you do not have to use it. You may calculate the cost basis using
other methods acceptable to the IRS, such as "specific identification."
To help you maintain accurate records, we send you a confirmation
immediately following each transaction (except for systematic purchases and
redemptions) you make and a year-end statement detailing all your transactions
in each fund account during the year.
- -----------------------------
Distributions are taxable
whether reinvested in
additional shares or received
in cash.
=============================
<PAGE>
Taxes on fund distributions. The following summary does not apply to
retirement accounts, such as IRAs, which are tax-deferred until you withdraw
money from them.
In January, the fund will send you Form 1099-DIV indicating the tax status
of any dividend and capital gain distribution made to you. This information will
also be reported to the IRS. All distributions made by the fund are taxable to
you for the year in which they were paid. Dividends and distributions are
taxable to you regardless of whether they are taken in cash or reinvested. The
fund will send you any additional information you need to determine your taxes
on fund distributions, such as the portion of your dividend, if any, that may be
exempt from state income taxes.
Short-term capital gain distributions are taxable as ordinary income and
long-term gain distributions are taxable at the applicable long-term gain rate.
The gain is long- or short-term depending on how long the fund held the
securities, not how long you held shares in the fund. To the extent the
underlying Price funds make long-term capital gain distributions, such amounts
will be distributed to the funds' shareholders as long-term capital gains. If
you realize a loss on the sale or exchange of fund shares held six months or
less, your short-term loss recognized is reclassified to long-term to the extent
of any captial gain distribution received.
Tax effect of buying shares before a capital gain or dividend distribution.
If you buy shares near or on the "record date"--the date that establishes you as
the person to receive the upcoming distribution--you will receive, in the form
of a taxable distribution, a portion of the money you just invested. Therefore,
you may wish to find out a fund's record date(s) before investing. Of course, a
fund's share price may at any time reflect undistributed capital gains or
unrealized appreciation.
Tax-Qualified Retirement Plans. Tax-qualified retirement plans generally
will not be subject to federal tax liability on either distributions from the
funds or redemption of shares of the funds. Rather, participants in such plans
will be taxed when they begin taking distributions from the plans.
- -----------------------------
MANAGEMENT OF THE FUND
=============================
The management of each fund's business and affairs is the responsibility of
the Board of Directors for Spectrum Fund. In exercising their responsibilities,
the Board, among other things, will refer to the Special Servicing Agreement
(see page 25) and policies and guidelines included in the Order issued by the
Commission. A majority of Spectrum Fund's directors will be non-interested
persons as defined in Section 2(a)(19) of the 1940 Act and none of these
independent directors will be directors of any underlying Price fund. However,
the interested directors and the officers of Spectrum Fund and T. Rowe Price
also serve in similar positions with most of the underlying Price funds. Thus,
if the interests of a fund and the underlying Price funds were ever to become
divergent, it is possible that a conflict of interest could arise and affect how
this latter group of persons fulfill their fiduciary duties to that fund and the
underlying Price funds. The Directors of Spectrum Fund believe they have
structured each fund to avoid these concerns. However, conceivably, a situation
could occur where proper action for Spectrum Fund or the Growth Fund or Income
Fund separately, could be adverse to the interests of an underlying Price fund,
or the reverse could occur. If such a possibility arises, the directors and
officers of the affected funds and T. Rowe Price will carefully analyze the
situation and take all steps they believe reasonable to minimize and, where
possible, eliminate the potential conflict. Moreover, limitations on aggregate
investments in the underlying Price funds and other restrictions have been
adopted by Spectrum Fund to minimize this possibility, and close and continuous
monitoring will be exercised to avoid, insofar as possible, these concerns.
Management of the underlying Price funds. T. Rowe Price serves as
investment manager to all of the underlying Price funds with the exception of
the T. Rowe Price International Stock Fund and the T. Rowe Price International
Bond Fund, and is responsible for selection and management of the underlying
Price funds' portfolio investments. T. Rowe Price serves as investment manager
to a variety of individual and institutional investors, including limited and
real estate partnerships and other mutual funds.
Price-Fleming is responsible for selection and management of the portfolio
investments of the T. Rowe Price International Stock Fund and the T. Rowe Price
International Bond Fund and, subject to the authority of such Funds' Board of
Directors, for their business affairs. As of December 31, 1994, Price-Fleming
managed approximately $18 billion of assets, substantially all of which were
invested in foreign securities. Price-Fleming's U.S. office is located at 100
East Pratt Street, Baltimore, Maryland 21202.
Price-Fleming was incorporated in Maryland in 1979 as a joint venture
between T. Rowe Price and Robert Fleming Holdings Limited (Flemings). Flemings
is a diversified investment organization which participates in a global network
of regional investment offices in New York, London, Zurich, Geneva, Tokyo, Hong
Kong, Manila, Kuala Lumpur, Seoul, Taipei, Bombay, Jakarta, Singapore, Bangkok,
and Johannesburg.
Flemings was incorporated in 1974 in the United Kingdom as successor to the
business founded by Robert Fleming in 1873.
<PAGE>
T. Rowe Price, Flemings, and Jardine Fleming are owners of Price-Fleming.
The common stock of Price-Fleming is 50% owned by a wholly-owned subsidiary of
T. Rowe Price, 25% by Flemings and 25% by Jardine Fleming Group Limited (Jardine
Fleming). (Half of Jardine Fleming is owned by Flemings and half by Jardine
Matheson Holdings Limited.) T. Rowe Price has the right to elect a majority of
the board of directors of Price-Fleming, and Flemings has the right to elect the
remaining directors, one of whom will be nominated by Jardine Fleming.
Marketing. T. Rowe Price Investment Services, Inc., a wholly-owned
subsidiary of T. Rowe Price, distributes (sells) shares of these and all other
T. Rowe Price funds.
Shareholder Services. T. Rowe Price Services, Inc. another wholly-owned
subsidiary, acts as the funds' transfer and dividend disbursing agent and
provides shareholder and administrative services. Services for certain types of
retirement plans are provided by T. Rowe Price Retirement Plan Services, Inc.,
also a wholly-owned subsidiary. The address for each is 100 East Pratt Street,
Baltimore, Maryland 21202.
- -----------------------------
MANAGEMENT FEE
=============================
T. Rowe Price will act as the investment manager for the Income Fund and
the Growth Fund, but will not be paid a management fee for performing such
services. However, T. Rowe Price and Price-Fleming receive management fees from
managing the underlying Price funds in which the funds invest.
The determination of how each fund's assets will be invested in the
underlying Price funds, will be made by T. Rowe Price pursuant to the investment
objectives and policies of each fund set forth in this prospectus and procedures
and guidelines established by the Board of Directors for the Spectrum Fund. The
Directors for Spectrum Fund will periodically monitor the allocations made and
the basis upon which such allocations were made or maintained. Each fund, as a
shareholder in any underlying Price fund, will indirectly bear its proportionate
share of any investment management fees and other expenses paid by the
underlying Price funds.
Each underlying Price fund pays T. Rowe Price (or Price-Fleming) an
investment management fee consisting of two parts: an "Individual Fund Fee"
(discussed below) and a "Group Fee". The Group Fee which reflects the benefits
each Underlying Price fund derives from sharing the resources of the T. Rowe
Price investment management complex, is calculated daily based on the combined
net assets of all T. Rowe Price funds (except Equity Index and the Spectrum
Funds and any institutional or private label mutual funds). The group fee
schedule (shown below) is graduated, declining as the asset total rises, so
shareholders benefit from the overall growth in mutual fund assets.
<PAGE>
0.480% First $1 billion 0.350% Next $2 billion
0.450% Next $1 billion 0.340% Next $5 billion
0.420% Next $1 billion 0.330% Next $10 billion
0.390% Next $1 billion 0.320% Next $10 billion
0.370% Next $1 billion 0.310% Thereafter
0.360% Next $2 billion
The underlying Price fund's portion of the group fee is determined by the
ratio of its daily net assets to the daily net assets of all the Price funds
described above. Based on the combined Price funds' assets of approximately $36
billion at December 31, 1994, the Group Fee was 0.34%.
The Individual Fund Fees and total management fees of the underlying Price
funds are as follows:
- -------------------------------------------------------------------------------
Individual Fee Total
as a % of Fund Management
Fund Net Assets Fee Paid
- -------------------------------------------------------------------------------
International Bond 0.35% 0.69%
International Stock 0.35 0.69
New Horizons 0.35 0.69
High Yield 0.30 0.64
Equity Income 0.25 0.59
Growth Stock 0.25 0.59
New Era 0.25 0.59
GNMA 0.15 0.49
Growth & Income 0.25 0.59
New Income 0.15 0.49
Short-Term Bond 0.10 0.44
Prime Reserve 0.05 0.39
The total combined management fee for each of the underlying Price funds
was an annual rate as shown above.
- -----------------------------
EXPENSES
=============================
Each fund will operate at a zero expense ratio. To accomplish this, the
payment of each fund's operational expenses is subject to the Special Servicing
Agreement described below as well as certain undertakings made by T. Rowe Price,
under its Investment Management Agreement with each fund. Fund expenses include:
shareholder servicing fees and expenses; custodian and accounting fees and
expenses; legal and auditing fees; expenses of preparing and printing
prospectuses and shareholder reports; registration fees and expenses; proxy and
annual meeting expenses, if any; and directors' fees and expenses.
<PAGE>
- -----------------------------
Special Servicing Agreement
=============================
The Special Servicing Agreement (Agreement) is between and among Spectrum
Fund, the underlying Price funds, T. Rowe Price and TRP Services. Under the
Agreement, TRP Services will act as Shareholder Servicing Agent for Spectrum
Fund and arrange for all other services necessary for the operation of Spectrum
Fund.
The Agreement provides that, if the Board of Directors/ Trustees of any
underlying Price fund determines that such underlying fund's share of the
aggregate expenses of Spectrum Fund is less than the estimated savings to the
underlying Price fund from the operation of Spectrum Fund, the underlying Price
fund will bear those expenses in proportion to the average daily value of its
shares owned by Spectrum Fund, provided further that no underlying Price fund
will bear such expenses in excess of the estimated savings to it. Such savings
are expected to result primarily from the elimination of numerous separate
shareholder accounts which are or would have been invested directly in the
underlying Price funds and the resulting reduction in shareholder servicing
costs. Although such cost savings are not certain, the estimated savings to the
underlying Price funds generated by the operation of Spectrum Fund are expected
to be sufficient to offset most, if not all, of the expenses incurred by
Spectrum Fund.
Under the Investment Management Agreement with the funds, and the Special
Servicing Agreement, T. Rowe Price has agreed to bear any expenses of Spectrum
Fund which exceed the estimated savings to each of the underlying Price funds.
Thus, Spectrum Fund will operate at a zero expense ratio. Of course,
shareholders of Spectrum Fund will still indirectly bear their fair and
proportionate share of the cost of operating the underlying Price funds owned by
Spectrum Fund.
- -----------------------------
SHAREHOLDER SERVICES
=============================
The following is a brief summary of services available to shareholders in
the T. Rowe Price funds, some of which may be restricted or unavailable to
institutional or retirement plan accounts. You must authorize most of these
services on a New Account or Shareholder Services Form. Services may be modified
or withdrawn at any time without notice. Please verify all transactions on your
confirmation statements promptly after receiving them. Any discrepancies must be
reported to Shareholder Services immediately. Automatic Investing ($50 minimum)
<PAGE>
- -----------------------------
Shareholder Services
1-800-225-5132
1-410-625-6500
=============================
You can invest automatically in several different ways, including:
* Automatic Asset Builder. You instruct us to move $50 or more once a month
or less often from your bank account, or you can instruct your employer to send
all or a portion of your paycheck to the fund or funds you designate.
* Automatic Exchange. You can set up systematic investments from one fund
account into another, such as from a money fund into a stock fund.
Checkwriting (Not available for equity funds, or the High Yield or Emerging
Markets Bond Funds)
You may write an unlimited number of free checks on any money fund, and
most bond funds, with a minimum of $500 per check. Keep in mind, however that a
check results in a redemption; a check written on a bond fund will create a
taxable event which you and we must report to the IRS.
Discount Brokerage
You can trade stocks, bonds, options, precious metals, and other securities
at a savings over regular commission rates. Call Investor Services for
information.
- -----------------------------
Investor Services
1-800-638-5660
1-410-547-2308
=============================
Note: If you buy or sell T. Rowe Price funds through anyone other than T.
Rowe Price, such as broker-dealers or banks, you may be charged transaction or
service fees by those institutions. No such fees are charged by T. Rowe Price
Investment Services or the fund for transactions conducted directly with the
fund.
Exchange Service
You can move money from one account to an existing identically registered
account, or open a new identically registered account. Remember, exchanges are
purchases and sales for tax purposes. (Exchanges into a state tax-free fund are
limited to investors living in states where the funds are registered.) Some of
the T. Rowe Price funds may impose a redemption fee of .50% to 2%, payable to
such funds, on shares held for less than one year, or in some funds, six months.
<PAGE>
Retirement Plans
We offer a wide range of plans for individuals and institutions, including
large and small businesses: IRAs, SEP-IRAs, Keoghs (profit sharing, money
purchase pension), 401(k), and 403(b)(7). For information on IRAs, call Investor
Services. For information on all other retirement plans, please call our Trust
Company at 1-800-492-7670.
Automated Services
- -----------------------------
Tele*Access
1-800-638-2587
=============================
Tele*AccessRegistration Mark. 24-hour service via toll-free number provides
information on fund yields and prices, dividends, account balances, and your
latest transaction as well as the ability to request prospectuses, account and
tax forms, duplicate statements, checks, and to initiate purchase, redemption
and exchange orders in your accounts (see "Electronic Transfers" below).
PC*AccessRegistration Mark. 24-hour service via dial-up modem provides the
same information as Tele*Access, but on a personal computer. Please call
Investor Services for an information guide.
Telephone and Walk-In Services Buy, sell, or exchange shares by calling one
of our service representatives or by visiting one of our four investor center
locations whose addresses are listed on the cover.
Electronic Transfers
By ACH. With no charges to pay, you can initiate a purchase or redemption
of as little as $100 or as much as $100,000 between your bank account and fund
account using the ACH network. Enter instructions via Tele*Access, PC*Access or
call Shareholder Services.
By Wire. Electronic transfers can also be conducted via bank wire. There is
currently a $5 fee for wire redemptions under $5,000, and your bank may charge
for incoming or outgoing wire transfers regardless of size.
- -----------------------------
CONDITIONS OF YOUR PURCHASE
=============================
Account Balance. Due to the relatively high cost to the funds of
maintaining small accounts, we ask you to maintain an account balance of at
least $1,000. If your account is below $1,000 for three months or longer, the
funds have the right to close your account after giving you 60 days in which to
increase your balance.
<PAGE>
Excessive Trading
Frequent trades involving either substantial fund assets or a substantial
portion of your account or accounts controlled by you, can disrupt management of
the fund and raise its expenses. We define "excessive trading" as exceeding one
purchase and sale involving the same fund within any 120-day period.
For example, you are in fund A. You can move substantial assets from fund A
to fund B, and, within the next 120 days, sell you shares in fund B to return to
fund A or move to fund C.
If you exceed the number of trades described above, you may be barred
indefinitely from further purchases of T. Rowe Price funds.
Three types of transactions are exempt from excessive trading guidelines:
(1)trades solely between money market funds, (2)redemptions that are not part of
exchanges, and (3)systematic purchases or redemptions (See "Automatic
Investing").
U.S. dollars. All purchases must be paid for in U.S. dollars; and checks
must be drawn on U.S. banks.
Redemptions over $250,000. Large sales can adversely affect the portfolio
manager's ability to implement a fund's investment strategy by causing the
premature sale of securities that would otherwise be held. If in any 90-day
period, you redeem (sell) more than $250,000, or your sale amounts to more than
1% of the fund's net assets, the fund has the right to delay sending your
proceeds for up to five business days after receiving your request, or to pay
the difference between the redemption amount and the lesser of the two
previously mentioned figures with securities from the fund.
- -----------------------------
A signature guarantee is
designed to protect you and
the fund from fraud by
verifying your signature.
=============================
<PAGE>
Signature Guarantees
You may need to have your signature guaranteed in certain situations, such
as:
* Written requests 1) to redeem over $50,000 or 2) to wire redemption
proceeds.
* Remitting redemption proceeds to any person, address, or bank account not
on record.
* Transferring redemption proceeds to a T. Rowe Price fund account with a
different registration from yours.
* Establishing certain services after the account is opened.
You can obtain a signature guarantee from most banks, savings institutions,
broker/dealers and other guarantors acceptable to T. Rowe Price. We cannot
accept guarantees from notaries public or organizations that do not provide
reimbursement in the case of fraud.
Telephone, Tele*Access and PC*Access Transactions. These exchange and
redemption services are established automatically when you sign the New Account
Form unless you check the box which states that you do not want these services.
The fund uses reasonable procedures (including shareholder identity
verification) to confirm that instructions given by telephone are genuine and is
not liable for acting on these instructions. If these procedures are not
followed, it is the opinion of certain regulatory agencies that the fund may be
liable for any losses that may result from acting on the instructions given. All
conversations are recorded, and a confirmation is sent promptly after the
telephone transaction.
10-day hold. If you sell shares that you just purchased and paid for by
check or ACH transfer, the fund will process your redemption but will generally
delay sending you the proceeds for up to 10 calendar days to allow the check or
transfer to clear. If your redemption request was sent by mail or mailgram,
proceeds will be mailed no later than the seventh calendar day following receipt
unless the check or ACH transfer has not cleared. (The 10-day hold does not
apply to the following purchases paid for by: bank wire; cashier's, certified,
or treasurer's checks; or automatic purchases through your paycheck.)
Note: The fund and its agents reserve the right to waive or lower
investment minimums; to accept initial purchases by telephone or mailgram; to
cancel or rescind any purchase or exchange (for example, if an account has been
restricted due to excessive trading or fraud) upon notice to the shareholder
within five business days of the trade or if the written confirmation has not
been received by the shareholder, whichever is sooner; to freeze any account and
temporarily suspend services on the account when notice has been received of a
dispute between the registered or beneficial account owners or there is reason
to believe a fraudulent transaction may occur; to otherwise modify the
conditions of purchase and any services at any time; or to act on instructions
believed to be genuine.
<PAGE>
- -----------------------------
ACCOUNT REQUIREMENTS AND
TRANSACTION INFORMATION
=============================
Tax Identification Number
We must have your correct social security or corporate tax identification
number on a signed New Account Form or W-9 Form. Otherwise, federal law requires
the funds to withhold a percentage (currently 31%) of your dividends, capital
gain distributions, and redemptions, and may subject you to an IRS fine. If this
information is not received within 60 days after your account is established,
your account may be redeemed, priced at the NAV on the date of redemption.
- -----------------------------
We must have your tax ID
number and you should make
sure you have signed the New
Account Form.
=============================
Unless you otherwise request, one shareholder report will be mailed to
multiple account owners with the same tax identification number and same zip
code and to shareholders who have requested that their account be combined with
someone else's for financial reporting.
Employer-Sponsored Retirement Plans and Institutional Accounts Transaction
procedures in the following sections may not apply to employer-sponsored
retirement plans and institutional accounts. For procedures regarding
employer-sponsored retirement plans, please call T. Rowe Price Trust Company or
consult your plan administrator. For institutional account procedures, please
call your designated account manager or service representative.
- -----------------------------
OPENING A NEW ACCOUNT
=============================
Minimum initial investment: $2,500; ($1,000 for retirement plans and
uniform gifts or transfers to minors (UGMA/UTMA) accounts. Account Registration.
If you own other T. Rowe Price funds, be sure to register any new account just
like your existing accounts so you can exchange among them easily. (The name and
account type would have to be identical.) Services. By signing up for services
on the New Account Form, rather than after the account is opened, you will avoid
having to complete a separate form and obtain a signature guarantee (see
Conditions of Your Purchase).
<PAGE>
By Mail
Please send your check payable to T. Rowe Price funds (otherwise it will be
returned) and send your check together with the New Account Form to the address
below. We do not accept third party checks, except for IRA Rollover checks, to
open new accounts.
Regular Mail Mailgram, Express
Registered, or
Certified Mail
T. Rowe Price T. Rowe Price
Account Services Account Services
P.O. Box 17300 10090 Red Run
Baltimore, MD Boulevard
21298-9353 Owings Mills, MD
21117
- -----------------------------
Investor Services
1-800-638-5660
1-410-547-2308
=============================
By Wire *Call Investor Services for an account number and give the
following wire address to your bank:
Morgan Guaranty Trust Co. of New York
ABA #021000238
T. Rowe Price [fund name]
AC-00153938
account name(s) and account number
*Complete a New Account Form and mail it to one of the appropriate
addresses listed above.
Note: No services will be established and IRS penalty withholding may occur
until a signed New Account Form is received. Also, retire- ment plans cannot be
opened by wire.
- -----------------------------
Shareholder Services
1-800-225-5132
1-410-625-6500
=============================
By Exchange*Call Shareholder Services or use Tele*Access or PC*Access (see
"Automated Services").
<PAGE>
The new account will have the same registration as the account from which
you are exchanging. Services for the new account may be carried over by
telephone request if preauthorized on the existing account. (See explanation of
"Excessive Trading" under "Transaction Procedures.")
In Person Drop off your New Account Form at any of the
locations listed below and obtain a receipt.
101 East Lombard Street T. Rowe Price
First Floor Financial Center
Baltimore, MD First Floor
10090 Red Run Boulevard
Owings Mills, MD
Farragut Square ARCO Tower
First Floor 31st Floor
900 17th Street, NW 515 South Flower Street
Washington, DC Los Angeles, CA
- -----------------------------
PURCHASING ADDITIONAL SHARES
=============================
Minimum: $100 ($50 for retirement plans and Automatic Asset Builder)
By ACH
Transfer
Use Tele*Access, PC*Access or call Investor Services if you have
established electronic transfers using the ACH network.
By Wire
Call Shareholder Services or use the Wire Address in Opening a New Account.
- -----------------------------
Shareholder Services
1-800-225-5132
1-410-625-6500
=============================
By Mail
Provide your account number and the fund name on your check. Mail the check
to us at the address below either with a fund reinvestment slip or a note
indicating the fund and account number in which you wish to purchase shares.
T. Rowe Price Funds
Account Services
P.O. Box 89000
Baltimore, MD 21289-1500
<PAGE>
By Automatic
Asset Builder
Fill out the Automatic Asset Builder section on the New Account or
Shareholder Services Form ($50 minimum).
- -----------------------------
EXCHANGING AND REDEEMING
SHARES
=============================
By Phone
Call Shareholder Services. If you find our phones busy during unusually
volatile markets, please consider placing your order by Tele*- Access, PC*Access
(if you have previously authorized telephone services), mailgram or by express
mail. For exchange policies, please see "Transaction Procedures and Special
Requirements--Excessive Trading."
- -----------------------------
Mailgram, Express, Registered,
or Certified Mail (See
"Opening a New Account").
=============================
By Mail
Provide account name(s) and numbers, fund name(s), and exchange or
redemption amount. For exchanges, mail to the appropriate address below or from
p. 29, indicate the fund you are exchanging from the fund(s) you are exchanging
into. T. Rowe Price requires the signatures of all owners exactly as
registered,and possibly a signature guarantee (see "Transaction Procedures and
Special Requirements --Signature Guarantees").
Regular Mail For employer-sponsored
For nonretirement and IRA accounts: retirement accounts:
T. Rowe Price T. Rowe Price Trust Co.
Account Services P.O. Box 89000
P.O. Box 89000 Baltimore, MD
Baltimore, MD21289-0300
21289-0220
Note: Redemptions from retirement accounts, including IRAs, must be in
writing. Please call Shareholder Services to obtain an IRA Distribution Request
Form.
<PAGE>
T. ROWE PRICE TRUST COMPANY INDIVIDUAL RETIREMENT ACCOUNT DISCLOSURE STATEMENT
This Disclosure Statement is provided to each person who establishes an
Individual Retirement Account ("IRA"). Please read it and the Custodial
Agreement carefully as well as the prospectuses for any of the T. Rowe Price
Funds you select for your IRA investment.
Revocation
You must receive this Disclosure Statement and Custodial Agreement seven
days prior to opening your IRA. Your Application cannot be accepted, nor can
your account be opened, until you have had these documents for seven days. You
may not revoke your Application for a T. Rowe Price IRA after it has been
received and accepted by the Custodian. Definition of Individual Retirement
Account An IRA is a trust created in the United States for the exclusive benefit
of an individual (or his beneficiaries). Generally, you defer federal income
taxes on the earnings in your account and you may be able to defer income taxes
on the amount you invest. State income tax treatment of an IRA varies.
Eligibility
All individuals who receive compensation may contribute to an IRA before
the year in which they reach age 701/2. If you or your spouse is an active
participant in an employer-sponsored retirement plan, you will be eligible to
make tax-deductible contributions only under limited conditions. If you are not
eligible to make deductible contributions, you may be able to make nondeductible
contributions.
Contributions
Your contributions must be in cash or a cash equivalent (for example, a
check). Except for rollovers, the maximum amount that you may contribute to all
IRAs for a calendar year is $2,000, but you can contribute less if you choose.
However, if your compensation for a year is less than $2,000, your contribution
is limited to the total amount of that compensation. If your spouse's earned
income is less than $250 during the year, your spouse may elect to be treated as
having no compensation and you may make a contribution to a separate spousal IRA
on your spouse's behalf. You need not make equal contributions to the two IRAs;
however, you may not contribute more than $2,000 to either IRA for any year and
the total contribution for both IRAs cannot exceed $2,250.
There are two different types of contributions: deductible contributions
and nondeductible contributions. Depending on your personal situation, your
contribution may be entirely deductible, entirely nondeductible or a portion of
both. The Internal Revenue Code ("Code") requires you to determine and report to
the IRS which portion of your contribution is deductible and/or nondeductible.
This information is needed to determine the taxable portion of any distributions
you receive. You are not required to inform the IRA Custodian what portion of
your contribution is deductible, and the Custodian is not obligated to check
whether you are correct. Penalties apply if you overstate the amount of your
deductible and/or nondeductible contributions.
<PAGE>
If your deductible IRA contribution is limited because you are an active
participant in a qualified employer-sponsored plan and your modified adjusted
gross income exceeds a certain level, you may make a nondeductible contribution
which, when added to your maximum deductible contribution, is no more than your
total annual limit on contributions (in most cases, $2,000). No contributions
(except rollover contributions) may be made to your IRA account for the year in
which you reach age 70 1/2 or any following year.
Rollover
IRA to IRA. You may roll over a distribution from one IRA to another IRA.
The amount may be all or part of the IRA. You must complete the transaction
within 60 days after you receive the distribution. You may make only one
rollover from an IRA in any 12-month period. There is no limit on the number of
rollovers you may make to an IRA in any period. There is also no limit on the
amount you may roll over from one IRA to another IRA.
Qualified Plan to IRA. You may roll over all or part of an eligible
rollover distribution from a qualified employer plan to an IRA. Before you
receive the plan distribution, the plan should be able to tell you if all or
part of your plan distribution will qualify as an eligible rollover
distribution. The rollover may be accomplished by a "direct rollover;" that is,
the plan sends the distribution directly to the IRA. "Indirect" rollovers must
be completed within 60 days after you receive the distribution.
Transfer
You may authorize an IRA custodian to transfer cash (or securities)
directly from one IRA to another. As long as you do not directly receive a
distribution, you may transfer the funds between IRAs as often as you wish. If
you are transferring IRA assets to T. Rowe Price, call to request the proper
forms.
Limitation Regarding When Contributions Can Be Made Regular contributions
to an IRA, whether deductible or nondeductible, must be made no later than the
date required for filing your tax return for that year without any extension
(usually April 15).
All contributions must be made in cash. You may not make contributions of
property such as stock or real estate. In limited circumstances, you may be able
to transfer current property held in an IRA or employer-sponsored retirement
plan. Call us for specific details regarding the T. Rowe Price Discount
Brokerage IRA.
<PAGE>
IRA Prohibitions
The following transactions are prohibited in your IRA:
1. No part of your IRA assets may be invested in life insurance or
commingled with other property except in a common trust or investment fund. In
addition, no part of your IRA assets may be invested in collectibles within the
meaning of section 408(m) of the Code, except for certain U.S. minted gold and
silver coins.
2. Transactions between you (or your beneficiary) and the assets held in
your IRA are not allowed. The specific prohibited transactions are described in
the Code (for example, borrowing from the account).
3. You may not pledge or use any portion of your IRA as security for a
loan.
If any one of these transactions occurs, part or all of your account will
lose its tax-deferred status and will be treated as having been distributed to
you.
Distributions
Timing of Distributions You can withdraw funds from your IRA at any time;
however, all taxable amounts withdrawn may be subject to an additional 10%
penalty. The most common types of distributions which can be made without
incurring the penalty include distributions:
a. after age 591/2,
b. upon death,
c. upon permanent disability,
d. that are part of a series of substantially equal periodic
payments taken at least annually over your life expectancy, or
e. timely rolled over to another IRA.
Minimum Required Distribution ("MRD"). You must begin to receive
distributions from your IRA by April 1 of the year following the year in which
you reach age 70 1/2. The distributions must be paid out at least annually based
upon your life expectancy or the combined life expectancy of you and your
designated primary beneficiary.
<PAGE>
In calculating your MRD, your life expectancy may be recalculated annually.
If your life expectancy is not recalculated, the original life expectancy factor
will be reduced by one each year. The recalculation method is available for you
and your spousal beneficiary. You must make an Irrevocable election whether to
recalculate. This election must be made before the first required distribution
date. If you fail to make an election, the life expectancy will not be
recalculated.
When you receive an MRD, please be aware that you may not roll over the MRD
to another IRA.
For purposes of calculating your MRD, you can aggregate your IRA accounts
from different custodians and take the MRD amount from any IRA. Therefore, T.
Rowe Price cannot monitor the required distributions from your
T. Rowe Price IRAs. Please check with your tax advisor to verify that you
are receiving the proper amount from all of your IRAs. All distribution requests
must be made in writing. Please contact T. Rowe Price to receive the proper
distribution form.
Payment Options. Your account may be distributed to you in one or both of
the following methods:
a. A lump-sum payment of all or a part of the IRA.
b. Substantially equal installments taken at least annually for
a period not exceeding your life expectancy or the combined life expectancy
of you and your designated primary beneficiary. Taxation. Distributions from
your IRA will be treated as part taxable and part nontaxable if you have made
nondeductible contributions to any IRA. You must use IRS forms to determine how
much of any distribution is nontaxable. Unlike certain distributions from
qualified plans, lump sum distributions from IRAs are not eligible for capital
gains or special averaging treatment. U nless you elect in writing not to have
federal income taxes withheld, the IRS requires T. Rowe Price to withhold from
the entire distribution an amount determined by current IRS tables and
regulations.
Payment to Beneficiary. If you die after distributions begin, the remaining
money will be distributed to your designated primary beneficiary in accordance
with the regulations under section 401(a)(9) of the Code. If you die before
distributions begin, your entire interest will be distributed in accordance with
the provisions outlined in Section 3.3 of the IRA Agreement. Your designated
beneficiary will be the last written designation that you filed with T. Rowe
Price during your lifetime.
Penalty Taxes
Excess Contributions. If you contribute more to an IRA than allowed in a
year, you must pay a 6% excise tax. Contributions (except rollover
contributions) which are subject to the excise tax are those contributions which
are greater than the lesser of (1) $2,000, or (2) your compensation for the
year. The 6% excise tax will apply for each year the excess contributions remain
in the IRA.
<PAGE>
You can avoid the excise tax by withdrawing the excess contribution and any
earnings on it before the due date for filing your federal tax return including
extensions, for the year of the excess contribution. The withdrawn earnings, if
any, must be included in income for the tax year in which the excess
contribution was made. If you do not withdraw the excess contribution by the due
date of your tax return, you may be able to treat the excess contribution as a
contribution for the year after the excess contribution was made and eliminate
the penalty for that following year.
Failure to Report Nondeductible Contributions Properly. If, on your tax
return, you overstate the amount of a nondeductible contribution, you will be
subject to a $100 penalty for each overstatement unless you can prove that the
overstatement was due to a reasonable cause. Failure to report nondeductible
contributions will result in a $50 penalty.
Premature Distributions. If you receive distributions from your IRA before
you reach age 591/2, you may be subject to a 10% penalty tax in addition to the
ordinary income taxes you must pay on the distribution. See Timing of
Distributions section above.
Excess Accumulations. After you reach age 70 1/2, a 50% penalty tax will be
imposed on any amount which must be distributed to you under the minimum
required distribution rules, but which you fail to withdraw.
Excess Distributions. If the total annual amount you receive in a year from
all retirement plans, including IRAs, is in excess of the lesser of $150,000 or
$112,500 (as indexed), a 15% excise tax is applied to the excess amount. This
tax does not apply to nontaxable distributions or amounts rolled over.
Please refer to IRS Publication 590, Individual Retirement Arrangements
(IRAs), for additional information concerning these complicated rules. You may
obtain this publication from your local IRS office or call 1-800-TAX-FORM. In
addition, you should contact your tax advisor to determine how these penalties
may affect you.
Fees
Fees. An annual fiduciary fee of $10 will be charged for each IRA mutual
fund account. However, this fee will be waived if the individual IRA mutual fund
account balance is $5,000 or greater at the time of fee billing. If you close
any mutual fund account in your T. Rowe Price IRA during the year other than by
exchange to another T. Rowe Price mutual fund account, the $10 fiduciary fee
will be deducted automatically from the proceeds of the redemption.
<PAGE>
Some of these fees may be deductible on your federal income tax return if
you itemize your deductions and if you pay the fee directly during the same
calendar year for which you are claiming the deduction.
Information on fees and commissions associated with a Discount Brokerage
account is in the material provided with your Self-Directed IRA kit.
Miscellaneous
Tax Forms. T. Rowe Price will send you Form 5498 each year that you
contribute to your IRA. This form shows the total contributions for the prior
tax year and the total rollover contributions for the prior calendar year. You
also will receive a statement of the market value of your IRA account(s) on the
preceding December 31.
If you make nondeductible contributions, you must report the amount to the
IRS on Form 8606.
If you incur a penalty tax due to excess accumulations, premature
distributions, excess contributions and/or excess distributions, you must file
Form 5329 for that year.
Investment Performance. The growth of your mutual fund account can be
neither projected nor guaranteed.
IRS Approval. The updated T. Rowe Price Trust Company IRA Custodial
Agreement was approved by the Internal Revenue Service on August 2, 1993. The
IRS approval concerns the form of the IRA Agreement with respect to its tax
qualification and does not involve the merits of investing in the particular
investment.
We recommend that you consult with your personal tax advisor concerning any
questions you have about your IRA. You also may obtain information from any
district office of the Internal Revenue Service.
T. ROWE PRICE TRUST COMPANY INDIVIDUAL RETIREMENT ACCOUNT CUSTODIAL AGREEMENT
This Agreement is an amendment and restatement of the T. Rowe Price Funds
Prototype Individual Retirement Account Agreement which was approved by the
Internal Revenue Service (the "IRS") on March 27, 1986. This Agreement was
approved by the IRS on August 2, 1993.
By signing the Application, the individual hereinafter referred to as the
Investor (the "Investor") establishes an Individual Retirement Custodial Account
(the "Account") under section 408(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), sponsored by T. Rowe Price Trust Company (the "Sponsor"),
and T. Rowe Price Trust Company (the "Custodian"), by accepting the Application,
accepts the custodianship of the Account. The Investor and the Custodian agree
that the Account is subject to the terms and conditions of this Agreement and
the Application signed by the Investor, which shall be effective as of the date
the Application is accepted by the Custodian.
<PAGE>
Article I - Contributions
1.1 Regular Contributions. Except in the case of a rollover contribution
described in section 402, 403 or 408 of the Code or an employer contribution to
a Simplified Employee Pension Plan described in section 408(k) of the Code, for
any tax year the Investor may contribute no more than the lesser of the
Investor's compensation or $2,000. Contributions for a given tax year may be
made during that year or no later than the time prescribed by law for filing the
tax return for that year (not including extensions).
For this purpose, "compensation" means wages, salaries, professional fees
or other amounts derived from or received for personal service actually rendered
(including, but not limited to, commissions-paid salespeople, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses) and includes earned income, as defined in section
401(c)(2) of the Code (reduced by the deduction the self-employed individual
takes for contributions made to a qualified retirement plan pursuant to section
401(a) of the Code). For purposes of this definition, section 401(c)(2) of the
Code shall be applied as if the term trade or business for purposes of section
1402 of the Code included service described in subsection (c)(6). Compensation
does not include amounts derived from or received as earnings or profits from
property (including, but not limited to, interest and dividends) or amounts not
includable in gross income. Compensation also does not include any amount
received as a pension or annuity or as deferred compensation. The term
"compensation" shall include any amount includable in the individual's gross
income under section 71 of the Code with respect to a divorce or separation
instrument described in section 71(b)(2)(A) of the Code.
1.2 Rollover Contribution. The Custodian may accept rollover contributions
as an investment in the Account. To effect a rollover, the Investor shall
execute any and all forms as the Custodian may reasonably request.
1.3 Transfer of Assets. The Custodian may accept, in the form or manner
acceptable to it, a transfer of assets held on behalf of the Investor from a
trustee or custodian of another individual retirement account. At the written
request of the Investor, the Custodian may, in the form or manner acceptable to
it, transfer assets in the Account directly to the trustee or custodian of
another individual retirement account established on behalf of the Investor or,
as provided in section 408(d)(6) of the Code, to an individual retirement
account established on behalf of the Investor's spouse or former spouse incident
to divorce.
1.4 Return of Excess Contributions. At the written request of the Investor,
the Custodian shall return to the Investor any excess contribution as defined in
section 408(d)(4) or 408(d)(5) of the Code (and any income on such excess
contribution, if the Investor's request asks for such income and states that the
return is intended to comply with section 408(d)(4) of the Code).
<PAGE>
1.5 Form of Contributions. Rollover contributions or transfers may be made
in cash or other property acceptable to the Custodian and which are permissible
investments under section 408 of the Code. All other contributions must be made
in cash.
1.6 Responsibility of Custodian. The Custodian shall have no obligation to
verify the allowability, amount, deductibility or tax effect of any
contribution, transfer or return of excess contributions made by or on behalf of
the Investor.
Article II - Investments
2.1 Investment Instructions. The Custodian shall invest and reinvest all
contributions and transfers to the Account in accordance with the Investor's
written directions in the Application and in accordance with any subsequent
directions given in the form and manner acceptable to the Custodian by the
Investor (or, following the Investor's death, the beneficiary). If any
investment instructions are unclear in the opinion of the Custodian, or if any
contribution exceeds $2,000 and is not identified as a rollover contribution,
the Custodian may hold or return all or a portion of the contribution or
transfer uninvested without liability for loss of income or depreciation and
without liability for interest, pending receipt of proper instructions or
clarification.
2.2 Permissible Investments. Assets in the Account may be invested or
reinvested in shares of one or more of the regulated investment companies for
which T. Rowe Price Associates, Inc., or any of its affiliates, serves as
investment adviser ( "Price Fund") and any other investment permitted under
section 408(a) of the Code which the Custodian permits as an investment under
this Agreement ("Other Investment Vehicle"). The Investor must provide specific
instructions to the Custodian of specific purchases, sales, exchanges and other
transactions in the Account. All such transactions must comply with this
Agreement and the current prospectus, or other offering materials, of the
investment(s) involved. By giving instructions to the Custodian to invest in a
Price Fund, the Investor will be deemed to have acknowledged receipt of the
current prospectus for such Price Fund. The Custodian shall execute such
instructions promptly; provided, however, that neither the Custodian nor any
affiliated company shall be obligated to invest any portion of the Investor's
initial contribution to his or her Account until seven calendar days shall have
elapsed from the date of acceptance of the Investor's Application by the
Custodian.
2.3 Reinvestment of Earnings. All dividends and other distributions
received by the Custodian on shares of any Price Fund held in the Account shall
be reinvested in additional shares of such Price Fund unless the Investor elects
in writing, in the form and manner acceptable to the Custodian, to receive such
dividends and other distributions in cash. Dividends, interest or any other
distributions received with respect to Other Investment Vehicles held in the
Account shall be reinvested in accordance with the Investor's written
instructions in the Application or in subsequent written instructions furnished
to the Custodian in the form and manner acceptable to the Custodian.
<PAGE>
2.4 Registration of Assets. All assets held in the Account shall be
registered in the name of the Custodian for the benefit of the Investor. The
Custodian shall deliver, or cause to be delivered, to the Investor all notices,
prospectuses, financial statements, proxies and proxy solicitation materials
relating to the Price Fund shares or Other Investment Vehicles held in the
Account. The Custodian shall not vote any such shares or Other Investment
Vehicles except in accordance with written instructions received from the
Investor; provided, however, that the Custodian may, without written direction
from the Investor, vote shares "present" solely for purposes of establishing a
quorum.
2.5 Impermissible Investments. The Account cannot invest in life insurance
contracts or collectibles within the meaning of section 408(m) of the Code. The
Account cannot be commingled with other property except in a common trust fund
or in a common investment fund.
2.6 Responsibility of Custodian. The Custodian shall be entitled to rely
completely on investment instructions furnished to it by the Investor and shall
have no duty or obligation to question such investment instructions. The
Investor acknowledges that the Custodian does not undertake to render any
investment advice and that the Custodian is not responsible for any loss which
results from the Investor's exercise of (or failure to exercise) investment
control. #
Article III - Distribution Rules
3.1 General Requirements. Subject to the following requirements of this
Article, the Investor may elect in a form or manner acceptable to the Custodian
to have all or any part of the Account distributed in one or any combination of
the following ways:
a. single sum payment, or
b. monthly, quarterly or annual installment payments.
3.2 Lifetime Minimum Required Distributions. The entire value of the
Account of the Investor will be distributed, or commence to be distributed, no
later than the first day of April following the calendar year in which the
Investor attains age 70 1/2 (required beginning date), over a period certain not
extending beyond the life expectancy of the Investor, or the joint and last
survivor expectancy of the Investor and his or her designated beneficiary.
The amount to be distributed each year, beginning with the first calendar
year for which distributions are required and then for each succeeding calendar
year, shall not be less than the quotient obtained by dividing the Investor's
Account balance as of December 31 of the preceding year by the lesser of (a) the
applicable life expectancy, or (b) if the Investor's spouse is not the
designated beneficiary, the applicable divisor determined from the table set
forth in Q&A-4 or Q&A-5, as applicable, of section 1.401(a)(9)-2 of the Proposed
Income Tax Regulations or any successor regulation.
<PAGE>
Distributions after the death of the Investor shall be distributed using
the applicable life expectancy as the relevant divisor without regard to
proposed regulations section 1.401(a)(9)-2.
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations. Unless
otherwise elected by the Investor by the time distributions are required to
begin, life expectancies shall not be recalculated. Such election shall be
irrevocable by the Investor and shall apply to all subsequent years. The life
expectancy of a non-spouse beneficiary may not be recalculated even if the
Investor elects to recalculate life expectancies annually. Instead, if the
Investor elects recalculation, life expectancy will be calculated using the
attained age of such beneficiary during the calendar year in which the Investor
attains age 70 1/2, and payments for subsequent years shall be calculated based
on such life expectancy reduced by one for each calendar year which has elapsed
since the calendar year life expectancy was first calculated.
3.3 Minimum Required Distributions Upon Death.
a. If the Investor dies after distribution of his or her interest has
begun, the remaining portion of such interest will continue to be distributed at
least as rapidly as under the method of distribution being used prior to the
Investor's death.
b. If the Investor dies before distribution of his or her interest begins,
distribution of the Investor's entire Account shall be completed by December 31
of the calendar year containing the fifth anniversary of the Investor's death
except to the extent that an election is made to receive distributions in
accordance with (i), (ii) or (iii) below:
(i) If the Investor's interest is payable to a designated beneficiary, then
the entire interest of the Investor may be distributed over a period certain not
great er than the life expectancy of the designated beneficiary commencing on or
before December 31 of the calendar year immediately following the calendar year
in which the Investor died.
(ii) If the designated beneficiary is the Investor's surviving spouse, the
date distributions are required to begin in accordance with (i) above shall not
be earlier than the later of (1) December 31 of the calendar year immediately
following the calendar year in which the Investor died, or (2) December 31 of
the calendar year in which the Investor would have attained age 70 1/2.
(iii) If the designated beneficiary is the Investor's surviving spouse, the
spouse may elect to treat the Account as his or her own individual retirement
arrangement (IRA) by giving written notice of such election to the Custodian at
least 30 days before distribut ions are required to begin under (ii) above.
<PAGE>
c. Life expectancy is computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations. For purposes of
distributions beginning after the Investor's death, unless otherwise elected by
the surviving spouse by the time distributions are required to begin, life
expectancies shall not be recalculated annually. An election to recalculate life
expectancies annually shall be irrevocable by the surviving spouse and shall
apply to all subsequent years. In the case of any other designated beneficiary,
life expectancies shall be calculated using the attained age of such beneficiary
during the calendar year in which distributions are required to begin pursuant
to this section, and payments for any subsequent calendar year shall be
calculated based on such life expectancy reduced by one for each calendar year
which has elapsed since the calendar year life expectancy was first calculated.
d. Distributions under this section are considered to have begun if the
distributions are made on account of the Investor reaching his or her required
beginning date. If the Investor receives distributions prior to the required
beginning date and the Investor dies, distributions will not be considered to
have begun.
3.4 Aggregation of IRAs for Purposes of Minimum Required Distributions. An
Investor (or beneficiary, if applicable) may satisfy the minimum distribution
requirements described above and under sections 408(a)(6) and 408(b)(3) of the
Code by receiving a distribution from one IRA that is equal to the amount
required to satisfy the minimum distribution requirements for two or more IRAs.
For this purpose, the Investor may use the "alternative method" described in
Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum distribution requirements
described above. Accordingly, if the Investor fails to elect one of the
described methods of distribution before the required beginning date, the
Custodian will assume the Investor has received the minimum required
distribution from another source.
3.5 Responsibility of Custodian. The Custodian will not assume any
responsibility to make any distribution from the Account except at the written
direction of the Investor (or beneficiary, if applicable). Furthermore, the
Custodian shall have no responsibility for the tax consequences of any
distribution, or the failure to elect any distribution, from the Account; such
responsibility is solely that of the Investor (or beneficiary, if applicable).
3.6 Beneficiary Designation. The Investor may designate and change his
beneficiary or beneficiaries by filing a written designation with the Custodian
prior to the Investor's death in the form or manner acceptable to the Custodian.
If no such designation is in effect at the time of the Investor's death, the
beneficiary shall be the Investor's surviving spouse, or, if there is no
surviving spouse, then the estate of the Investor.
<PAGE>
Article IV - Reporting, Disclosure and Charges
4.1 Investor Information. The Investor agrees to provide in the manner
requested by the Custodian any information that may be necessary for the
Custodian to prepare reports required by the IRS.
4.2 Custodian Reports. The Custodian agrees to submit reports to the IRS
and to the Investor which contain information prescribed by the IRS. Within 60
days after the close of each calendar year, or after the Custodian's resignation
or removal pursuant to Section 7.1, the Custodian shall send to the Investor a
written report reflecting the transactions made during such period and the
market value of the Account at the close of the period. If, within 60 days after
receiving such report, the Investor does not object in writing to any specific
item in such report, the accounting in such report shall be deemed final and the
Custodian shall, to the extent permitted by applicable law, be forever released
and discharged from all liability and accountability with respect to items set
forth in such report.
4.3 Custodian Fees and Expenses. The Custodian shall be entitled to such
fees for maintaining and administering the Account as it may establish from time
to time and which may be changed by it at any time upon 30 days' written notice
to the Investor. All such fees, and all other expenses incurred in maintaining
the Account (including, but not limited to, taxes, brokerage commissions and
transfer taxes) shall be charged to the Account unless, with the consent of the
Custodian, all or part of such fees and expenses are paid by the Investor.
Article V - Additional Provisions Regarding the Custodian
5.1 Duties of Custodian. The parties do not intend to confer any fiduciary
duties on the Custodian, and none shall be implied. The Custodian may rely
conclusively upon and shall be protected in acting upon any written order from
the Investor or the Investor's beneficiary or any other notice, request, consent
or certificate believed by it to be genuine. The Custodian may perform any of
its administrative duties through other persons designated by the Custodian from
time to time, except that assets must be registered as stated in Section 2.4. No
such delegation or future change therein shall be considered as an amendment of
this Agreement.
5.2 Indemnification. To the extent permitted by applicable law, the
Investor shall fully indemnify the Custodian and hold it harmless from any and
all liability whatsoever which may arise in connection with this Agreement and
matters which it contemplates except those which arise due to the Custodian's
gross negligence or willful misconduct. The Custodian shall not be obligated or
expected to commence or defend any legal action or proceeding in connection with
this Agreement unless agreed upon by the Custodian and the Investor and unless
the Custodian is fully indemnified for so doing to the Custodian's satisfaction.
<PAGE>
Article VI - Amendment
6.1 General. The Sponsor reserves the right to amend the Agreement at any
time in any manner which would not cause the Agreement to be disqualified under
section 408 of the Code. Any amendment by the Sponsor shall be effective upon
communication, in writing, to the Investor, and the Investor shall be deemed to
have consented thereto unless, within 30 days after such communication to the
Investor is mailed, the Investor gives the Custodian a proper written order for
a lump-sum distribution or a transfer of the entire Account.
6.2 Exceptions. This Article shall not be construed to restrict the
Custodian's freedom to agree with the Price Funds upon the terms by which Price
Funds may be offered or chosen for investment in the Account. Also, this Article
VI shall not be construed to restrict any change in fees made as provided in
Section 4.3. No such agreement or change shall be deemed to be an amendment of
this Agreement.
Article VII - Resignation or Removal of Custodian
7.1 General. The Custodian may resign and appoint a successor custodian at
any time upon at least thirty days' prior written notice to the Investor. The
Investor may remove the Custodian and designate a successor custodian at any
time upon thirty days' prior written notice to the Custodian. Upon such
resignation or removal, and upon receipt by the Custodian of written acceptance
of its appointment by the successor custodian, which must be a bank or other
person qualified to serve as a custodian under section 408 of the Code, the
Custodian shall transfer to such successor custodian the assets of the Account
and all pertinent records (or copies thereof), provided that (if so requested by
the Custodian) such successor custodian agrees not to dispose of any such
records without the Custodian's consent. The Custodian is authorized, however,
to reserve such a portion of such assets as it may deem advisable for payment
for all its fees, compensation, costs and expenses, or for payment of any other
liabilities constituting a charge on or against the assets of the Account or on
or against the Custodian, with any balance of such reserve remaining after the
payment of all such items to be paid over to the successor custodian. If, within
thirty days after the Custodian's resignation or removal, or such longer time as
the Custodian may agree to, the Investor or Custodian has not appointed a
successor custodian which has accepted such appointment, the Custodian shall
terminate the Account pursuant to Article VIII.
7.2 Responsibility of Custodian. After the Custodian has transferred the
Account assets (including any reserve balance as contemplated above) to the
successor custodian, the Custodian shall be relieved of all further liability
with respect to this Agreement, the Account and the assets thereof.
Article VIII - Termination of Account
8.1 General. The Investor may terminate the Account at any time upon prior
written notice to the Custodian. The Custodian shall terminate the Account if,
within the time specified in Section 7.1 after the Custodian's resignation or
removal, neither the Investor nor the Custodian have appointed a successor
custodian which has accepted such appointment. Termination of the Account shall
be effected by distributing all assets thereof in a lump sum to the Investor,
subject to the Custodian's right to reserve funds as provided in Section 7.1.
<PAGE>
8.2 Responsibility of Custodian. Upon termination of the Account, this
Agreement shall terminate and have no further force and effect, and the
Custodian shall be relieved from all further liability with respect to this
Agreement, the Account and all assets thereof so distributed.
Article IX - Miscellaneous
9.1 Governing Law. This Agreement shall be construed and enforced according
to the laws of the State of Maryland; however, it is intended that this
Agreement create an Account for a qualified individual retirement account under
the Code, and this Agreement shall be construed so as to accomplish that
purpose.
9.2 Gender; Plural. Whenever used in this Agreement, personal pronouns are
deemed to mean masculine and feminine. The singular form, whenever used herein,
shall mean or include the plural form where applicable, and vice versa.
9.3 Notices. Any notice, accounting or other communication which the
Custodian may give the Investor shall be deemed given when mailed to the
Investor at the address on record with the Custodian. All notices the Investor
is required to give to the Custodian shall be deemed given when received by the
Custodian at its principal office.
9.4 Enforceability. If any provision of this Agreement shall be for any
reason invalid or unenforceable, the remaining provisions shall, nevertheless,
continue in effect and shall not be invalidated thereby unless they are rendered
unconscionable, inadequate or incapable of being interpreted as a result of the
deletion of the invalid or unenforceable portions of the Agreement.
9.5 Exclusive Benefit; Nonforfeitability. The Account has been created for
the exclusive benefit of the Investor and his or her beneficiaries. The interest
of the Investor in the Account shall at all times be nonforfeitable, but shall
be subject to the fees, expenses and charges described in Sections 4.3, 7.1 and
8.1.
9.6 Prohibition Against Assignment. Other than as provided in Sections 4.3,
7.1 and 8.1, no interest, right or claim in or to any portion of the Account or
any payment therefrom shall be assignable, transferable or subject to sale,
mortgage, pledge, hypothecation, commutation, anticipation, garnishment,
attachment, execution or levy of any kind. The Custodian shall not recognize any
attempt to do any of the above, except to the extent required by law.
PAGE 2
STATEMENT OF ADDITIONAL INFORMATION
T. ROWE PRICE SPECTRUM FUND, INC. ("Spectrum Fund")
Spectrum Income Fund ("Income Fund")
Spectrum Growth Fund ("Growth Fund")
(the "Funds")
This Statement of Additional Information is not a
prospectus but should be read in conjunction with the Funds'
prospectus dated May 1, 1995, which may be obtained from T. Rowe
Price Investment Services, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202.
The date of this Statement of Additional Information is
May 1, 1995.
PAGE 3
TABLE OF CONTENTS
Page Page
Capital Stock . . . . . . . 29 Investment Policies . . . . 4
Code of Ethics . . . . . . 20 Investment Program . . . . 3
Custodian . . . . . . . . . 20 Investment Restrictions . . 11
Distributor for the Funds . 19 Legal Counsel . . . . . . . 30
Dividends . . . . . . . . . 21 Management of the Funds . . 14
Federal and State . . . . . . Net Asset Value Per Share . 21
Registration of Shares . . 30 Pricing of Securities . . . 20
Independent Accountants . . 30 Principal Holders of
Investment Management . . . . Securities . . . . . . . 16
Services . . . . . . . . 16 Repurchase Agreements . . . 3
Investment Objectives . . . 3 Special Considerations . . 10
Investment Objective
and Policies . . . . . . . 2 Tax Status . . . . . . . . 21
Investment Performance . . 23 Yield Information . . . . . 22
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of
the Funds' investment objectives and policies discussed in the
Funds' prospectus. The Funds' will not make a material change in
their investment objectives without obtaining shareholder
approval. Unless otherwise specified, the investment programs
and restrictions of the Funds are not fundamental policies. The
operating policies of a Fund are subject to change by Spectrum
Fund's Board of Directors without shareholder approval. However,
shareholders will be notified of a material change in an
operating policy. The fundamental policies of a Fund may not be
changed without the approval of at least a majority of the
outstanding shares of the Fund or, if it is less, 67% of the
shares represented at a meeting of shareholders at which the
holders of 50% or more of the shares are represented.
Spectrum Fund
The proliferation of mutual funds has left many
investors in search of a means of diversifying among a number of
mutual funds while obtaining professional management in
determining which funds to select, how much of their assets to
commit to each fund, and when to make the selections. In
response to this need, the Spectrum Fund has been created as a
means of providing a simple and effective means of structuring a
comprehensive mutual fund investment program. By selecting the
Spectrum Growth Fund or Spectrum Income Fund, or a combination of
both, investors may choose the investment objective appropriate
for their long-term investment goals. The Spectrum Funds will
PAGE 4
attempt to achieve these goals by diversification in a selected
group of other T. Rowe Price Funds. Although the Spectrum Funds
are not asset allocation or market timing funds, each, over time,
will adjust the amount of its assets invested in the various
other T. Rowe Price Funds as economic, market and financial
conditions warrant.
INVESTMENT OBJECTIVES
Spectrum Income Fund
The Income Fund's investment objectives are to seek a
high level of current income consistent with moderate price
fluctuation by investing primarily in a diversified group of T.
Rowe Price mutual funds which, in turn, invest principally in
fixed-income securities.
Spectrum Growth Fund
The Growth Fund's investment objective is to seek long-
term growth of capital and growth of income by investing
primarily in a diversified group of T. Rowe Price mutual funds
which, in turn, invest principally in equity securities. Current
income is a secondary objective of the Fund.
Each Fund's share price will fluctuate with changing
market conditions and the value of the Underlying Price Funds in
which it invests, and your investment may be worth more or less
when redeemed than when purchased. The Funds should not be
relied upon for short-term financial needs, nor used to play
short-term swings in the stock or bond markets. The Funds cannot
guarantee they will achieve their objectives.
INVESTMENT PROGRAM
InterFund Borrowing and Lending
Subject to approval by the Securities and Exchange
Commission, and certain state regulatory agencies, each Fund may
borrow funds from, and certain of the Underlying Price Funds may
make loans to and borrow funds from, other Price Funds. These
Funds have no current intention of engaging in these practices at
this time.
Repurchase Agreements
Each Fund may enter into repurchase agreements through
which investors (such as the Funds) purchases a security (the
PAGE 5
"underlying security") from a well-established securities dealer
or a bank which is a member of the Federal Reserve System. Any
such dealer or bank will be on T. Rowe Price's approved list and
have a credit rating with respect to its short-term debt of at
least A1 by Standard & Poor's Corporation, P1 by Moody's
Investors Service, Inc., or the equivalent rating by T. Rowe
Price Associates, Inc. ("T. Rowe Price"). At that time, the bank
or securities dealer agrees to repurchase the underlying security
at the same price, plus specified interest. Repurchase
agreements are generally for a short period of time, often less
than a week. Neither Fund will enter into a repurchase agreement
which does not provide for payment within seven days if, as a
result, more than 10% of the value of its net assets would then
be invested in such repurchase agreements. The Funds will only
enter into a repurchase agreement where (i) the underlying
securities are of the type (excluding maturity limitations) which
each Fund's investment guidelines would allow it to purchase
directly (however, the underlying securities for the Prime
Reserve Fund will either be U.S. government securities or
securities which, at the time the repurchase agreement is entered
into, are rated in the highest rating category by public rating
agencies), (ii) the market value of the underlying security,
including interest accrued, will be at all times equal to or
exceed the value of the repurchase agreement, and (iii) payment
for the underlying security is made only upon physical delivery
or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent. In the event of bankruptcy
or other default of a seller of a repurchase agreement, the Funds
could experience both delays in liquidating the underlying
security and losses, including: (a) possible decline in the value
of the underlying security during the period while the Fund seeks
to enforce its rights thereto; (b) possible subnormal levels of
income and lack of access to income during this period; and (c)
expenses of enforcing its rights.
INVESTMENT POLICIES
The following is a description of the investment
objective and program for each of the Underlying Price Funds.
Income Fund
T. Rowe Price Short-Term Bond Fund, Inc. seeks a high
level of income consistent with minimum fluctuation in principal
value and liquidity. The Fund will invest in a diversified
portfolio of short- and intermediate-term corporate, government,
and mortgage securities. The fund may also invest in other
types of securities such as bank obligations, collateralized
mortgage-obligations (CMOs), foreign securities, hybrids, and
PAGE 6
futures and options. Under normal circumstances, at least 65% of
the Fund's total assets will be invested in short-term bonds. In
this regard, the dollar-weighted average effective maturity will
not exceed three years, and the Fund will not purchase any
security whose effective maturity, average life or tender date,
measured from the date of settlement, exceeds seven years. The
Fund will purchase securities rated within the four highest
credit categories by at least one established public rating
agency (or, if unrated, a T. Rowe Price equivalent). Short and
intermediate-term securities typically yield more than money
market securities, but less than longer term securities. Also,
share price fluctuations should be lower than a mutual fund
investing in longer term securities.
T. Rowe Price GNMA Fund seeks to provide high level of
current income consistent with maximum credit protection and
moderate price fluctuation by investing exclusively in securities
backed by the full faith and credit of the U.S. government and
instruments involving these securities. The fund invests
primarily in mortgage-backed securities issued and guaranteed by
the Government National Mortgage Association (GNMA), an agency of
the Department of Housing and Urban Development (HUD). The GNMA
guarantee does not apply in any way to the price of GNMA
securities or the fund, both of which will fluctuate with market
conditions. The fund can also purchase bills, notes and bonds
issued by the U.S. Treasury as well as related futures, other
agency securities backed by the full faith and credit of the U.S.
Government; and securities involving GNMAs, such as CMO's and
stripped certificates (securities that receive only the interest
or principal portion of the underlying mortgage payments).
Mortgage-Backed Securities. Mortgage-backed securities
are securities representing an interest in a pool of mortgages.
The mortgages may be of a variety of types, including adjustable
rate, conventional 30-year fixed rate, graduated payment, and 15-
year. Principal and interest payments made on the mortgages in
the underlying mortgage pool are passed through to the fund.
This is in contrast to traditional bonds where principal is
normally paid back at maturity in a lump sum. Unscheduled
prepayments of principal shorten the securities' weighted average
life and may lower their total return. (When a mortgage in the
underlying mortgage pool is prepaid, an unscheduled principal
prepayment is passed through to the fund. This principal is
returned to the fund at par. As result, if a mortgage security
were trading at a premium, its total return would be lowered by
prepayments, and if a mortgage security were trading at a
discount, its total return would be increased by prepayments.)
The value of these securities also may change because of changes
in the market's perception of the creditworthiness of the federal
agency that issued them. In addition, the mortgage securities
PAGE 7
market in general may be adversely affected by changes in
governmental regulation or tax policies. As a result the actual
or "effective" maturity of a mortgage-backed security is
virtually always shorter than its stated maturity.
T. Rowe Price International Bond Fund seeks a high
level of current income and capital appreciation by investing in
a diversified portfolio of high-quality nondollar-denominated,
government and corporate bonds outside the U.S. The Fund also
seeks to moderate price fluctuation by actively managing its
maturity structure and currency exposure.
The Fund will invest primarily (at least 65% of
assets) in debt securities that are considered high quality at
the time of purchase. The Fund may also invest up to 20% of its
total assets in below investment grade, high-risk ("junk") bonds,
including bonds in default or those which have received the
lowest rating.
Rowe Price-Fleming International, Inc. ("Price-
Fleming"), the Fund's investment manager, will base its
investment decisions on fundamental market attractiveness,
currency trends, local market factors and credit quality. The
Fund will generally invest in countries where the combination of
fixed income market returns and currency exchange rate movements
is attractive, or, if the currency trend is unfavorable, where
the currency risk can be minimized through hedging.
Although the fund expects to maintain an intermediate
to long weighted average maturity, it has no maturity
restrictions on the overall portfolio or on individual
securities. Normally, the fund does not hedge its foreign
currency exposure back to the dollar, nor involve more than 50%
of total assets in cross hedging transactions. Therefore, changes
in foreign interest rates and currency exchange rates are likely
to have a significant impact on total return and the market value
of portfolio securities. Such changes provide greater
opportunities for capital gains and greater risks of capital
loss. Price-Fleming attempts to reduce these risks through
diversification among foreign securities and active management of
maturities and currency exposures.
The Fund will normally not hedge its foreign currency
exposure back to the dollar and will normally have no more than
50% of the value of its total assets involved in cross hedging
transactions. Therefore, its total return, and, in particular,
the principal value of its foreign-currency-denominated debt
securities, is likely to be significantly affected by changes in
foreign interest rate levels and foreign currency exchange rates.
These changes provide greater opportunity for capital gains as
PAGE 8
well as greater risks of capital loss. Exchange rate movements
can be large and endure for extended periods of time. Price-
Fleming will attempt to reduce the risks associated with
investments in international fixed income securities through
portfolio diversification and active management of the Fund's
maturity structure and currency exposure.
Because Price-Fleming currently expects to invest a
large percentage of assets in foreign government securities in
order to maintain liquidity and to reduce credit risk, the Fund
has registered as a "non-diversified" investment company. The
Fund may, for temporary defensive purposes, invest, without
limitation, in U.S. dollar-denominated debt securities.
T. Rowe Price High Yield Fund, Inc. has high current
income and, secondarily, capital appreciation as its objective.
Under normal conditions the fund expects to invest at least 80%
of its total assets in a widely diversified portfolio of high-
yield bonds (so-called "junk" bonds), and income producing
convertible securities and preferred stocks. The fund may also
invest in a variety of other securities, including foreign
securities, pay-in-kind bonds, private placements, bank loans,
hybrid instruments, futures and options. The fund's longer
average maturity (expected to be in the 8- to 12- year range),
makes its price more sensitive to broad changes in interest rate
movements than shorter-term bond funds. The portfolio manager
buys defaulted bonds only if significant potential for capital
appreciation is expected. In addition, the Fund may invest in
medium quality, investment grade securities, and, for temporary
defensive purposes, higher quality securities. The Fund may also
invest up to 20% of its net assets in non-U.S. dollar-denominated
fixed income securities.
Special Risks of Investing in Junk Bonds
The following special considerations are additional
risk factors associated with the Fund's investments in lower
rated debt securities.
Youth and Growth of the Lower Rated Debt Securities
Market. The market for lower rated debt securities is relatively
new and its growth has paralleled a long economic expansion.
Past experience may not, therefore, provide an accurate
indication of future performance of this market, particularly
during periods of economic recession. An economic downturn or
increase in interest rates is likely to have a greater negative
effect on this market, the value of lower rated debt securities
in the Fund's portfolio, the Fund's net asset value and the
ability of the bonds' issuers to repay principal and interest,
meet projected business goals and obtain additional financing
PAGE 9
than on higher rated securities. These circumstances also may
result in a higher incidence of defaults than with respect to
higher rated securities. An investment in this Fund is more
speculative than investment in shares of a fund which invests
only in higher rated debt securities.
Sensitivity to Interest Rate and Economic Changes.
Prices of lower rated debt securities may be more sensitive to
adverse economic changes or corporate developments than higher
rated investments. Debt securities with longer maturities, which
may have higher yields, may increase or decrease in value more
than debt securities with shorter maturities. Market prices of
lower rated debt securities structured as zero coupon or pay-in-
kind securities are affected to a greater extent by interest rate
changes and may be more volatile than securities which pay
interest periodically and in cash. Where it deems it appropriate
and in the best interests of Fund shareholders, the Fund may
incur additional expenses to seek recovery on a debt security on
which the issuer has defaulted and to pursue litigation to
protect the interests of security holders of its portfolio
companies.
Liquidity and Valuation. Because the market for lower
rated securities may be thinner and less active than for higher
rated securities, there may be market price volatility for these
securities and limited liquidity in the resale market. Nonrated
securities are usually not as attractive to as many buyers as
rated securities are, a factor which may make nonrated securities
less marketable. These factors may have the effect of limiting
the availability of the securities for purchase by the Fund and
may also limit the ability of the Fund to sell such securities at
their fair value either to meet redemption requests or in
response to changes in the economy or the financial markets.
Adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of
lower rated debt securities, especially in a thinly traded
market. To the extent the Fund owns or may acquire illiquid or
restricted lower rated securities, these securities may involve
special registration responsibilities, liabilities and costs, and
liquidity and valuation difficulties. Changes in values of debt
securities which the Fund owns will affect its net asset value
per share. If market quotations are not readily available for
the Fund's lower rated or nonrated securities, these securities
will be valued by a method that the Fund's Board of Directors
believes accurately reflects fair value. Judgment plays a
greater role in valuing lower rated debt securities than with
respect to securities for which more external sources of
quotations and last sale information are available.
PAGE 10
Congressional Action. New and proposed laws may have
an impact on the market for lower rated debt securities. For
example, as a result of the Financial Institution's Reform,
Recovery, and Enforcement Act of 1989, savings and loan
associations must dispose of their high yield bonds no later than
July 1, 1994. Qualified affiliates of savings and loan
associations, however, may purchase and retain these securities,
and savings and loan associations may divest these securities by
sale to their qualified affiliates. T. Rowe Price is unable at
this time to predict what effect, if any, the legislation may
have on the market for lower rated debt securities.
Taxation. Special tax considerations are associated
with investing in lower rated debt securities structured as zero
coupon or pay-in-kind securities. The Fund accrues income on
these securities prior to the receipt of cash payments. The Fund
must distribute substantially all of its income to its
shareholders to qualify for pass-through treatment under the tax
laws and may, therefore, have to dispose of its portfolio
securities to satisfy distribution requirements.
T. Rowe Price New Income Fund, Inc. seeks the highest
level of income over time consistent with the preservation of
capital through investment primarily in marketable debt
securities. The Fund invests in long, intermediate and short-
term debt securities. The Fund has no maturity restrictions, but
the average portfolio maturity is generally expected to be
between four and 15 years although it may vary significantly. At
least 80% of the Fund's total assets will be invested in income-
producing, investment-grade instruments, including (but not
limited to) U.S. Government and agency obligations, mortgage-
backed securities, corporate debt securities, asset-backed
securities, bank obligations, CMO's, commercial paper, foreign
securities, and others. The Fund will purchase securities rated
investment grade by at least one of the established public rating
agencies (e.g., AAA, AA, A, or BBB by Standard & Poor's
Corporation (S&P) or Aaa, Aa, A, or Baa by Moody's investors
Services, Inc. (Moody's)) or, if unrated, are of equivalent
investment quality as determined by the Fund's investment
manager, T. Rowe Price. Debt securities within the top two
credit categories comprise what are generally known as high-grade
bonds. Medium-grade bonds (e.g., BBB by S&P) are more
susceptible to adverse economic conditions or changing
circumstances than higher grade bonds. The Fund may invest up to
5% of net assets in securities rated at the time of purchase
within T. Rowe Price top four credit categories without regard to
the public agency ratings. Without regard to quality, the Fund
may invest up to 25% of its total assets (not including cash) in
preferred and common stocks and convertible securities,
convertible into or which carry warrants for common stocks or
PAGE 11
other equity securities. The Fund may also invest up to 20% of
its net assets in non-U.S. dollar-denominated fixed income
securities.
Growth Fund
T. Rowe Price Growth & Income Fund, Inc. seeks long-
term capital growth, a reasonable level of current income, and
increasing future income through investments primarily in
dividend-paying stocks with prospects for appreciation and
increasing dividends. The Fund's assets are invested primarily
in common stocks of companies whose earnings are expected by T.
Rowe Price to grow at a rate in excess of that of common stocks
in general and are adequate to support a growing dividend. To
further its objectives, the Fund may also purchase common stocks
which do not provide current income, but which offer prospects
for capital appreciation and future income. Relative value
(based on a company's asset value or projected earnings growth),
dividend yield, and potential for dividend and earnings growth
are the predominant considerations in evaluating prospective Fund
holdings.
In seeking to achieve its investment objective, the
Fund may invest in companies which are believed to be undervalued
or out of favor in the eyes of the investment community. An
undervalued company is generally one where (1) the stock/bond
price is low in relation to the general market, industry
standards or a company's historical record based on an evaluation
of various financial measures such as earnings, cash flow, book
value and dividends; or (2) potential value exists because of a)
a company's assets, such as real estate, which are carried on a
company's books at lower than market value, or b) intangibles,
such as franchise value, a dominant market share in the industry
or a well-known brand name.
Although the Fund will invest primarily in U.S. common
stocks, it may also purchase other types of securities, for
example, foreign securities (25% of total assets), convertible
securities and warrants, when considered consistent with the
Fund's investment objectives and program. The Fund may also
engage in a variety of investment management practices, such as
buying and selling futures and options. The Fund's investments
in convertible securities, preferred stocks and debt securities
are limited to 30% of the Fund's total assets. The Fund's
investments in non-investment grade debt securities are limited
to 10% of total assets.
T. Rowe Price International Stock Fund seeks long-term
growth of capital through investments primarily in common stocks
of established, non-U.S. companies.
PAGE 12
The Fund intends to diversify investments broadly among
countries and to normally have at least three different countries
represented in the portfolio. The Fund may invest in countries
of the Far East and Europe as well as Africa, Australia, Canada,
and other areas (including newly industrialized and emerging
countries).
The Fund expects to invest substantially all of its
assets in common stocks. However, the Fund may also invest in a
variety of other equity related securities, such as preferred
stocks, warrants and convertible securities, as well as corporate
and governmental debt securities, when considered consistent with
the Fund's investment objective and program. The Fund may also
engage in a variety of investment management practices, such as
buying and selling futures and options. The Fund's investments
in securities other than common stocks is, under normal market
conditions, limited to no more than 35% of total assets.
However, for temporary defensive purposes, the Fund may invest
all or a significant portion of its assets in U.S. government and
corporate debt obligations. The Fund will not purchase any debt
security which at the time of purchase is rated below investment
grade. This would not prevent the Fund from retaining a security
downgraded to below investment grade after purchase.
T. Rowe Price New Era Fund, Inc. seeks long-term
capital appreciation by investing primarily in common stocks of
companies that own or develop natural resources and other basic
commodities, as well as through investment in stocks of selected,
non-resource growth companies. Current income is not a factor in
the selection of stocks for investment by the Fund. The Fund
invests in a diversified group of companies whose earnings and/or
value of tangible assets are expected to grow faster than the
rate of inflation over the long term. T. Rowe Price believes the
most attractive opportunities which satisfy the Fund's objective
are in companies which own or develop natural resources and in
companies where management has the flexibility to adjust prices
or the ability to control operating costs. The percentage of the
Fund's assets invested in natural resource and related businesses
versus the percentage invested in non-resource companies may vary
greatly depending upon economic and monetary conditions and the
outlook for inflation. The earnings of natural resource
companies may be expected to follow irregular patterns, because
these companies are particularly influenced by the forces of
nature and international politics. Companies which own or
develop real estate might also be subject to irregular
fluctuations of earnings, because these companies are affected by
changes in the availability of money, interest rates, and other
factors.
PAGE 13
Although the Fund will invest primarily in U.S.
common stocks, it may also purchase other types of securities,
for example, foreign securities (35% of total assets),
convertible securities and warrants, when considered consistent
with the Fund's investment objective and program. The Fund may
also engage in a variety of investment management practices, such
as buying and selling futures and options. The Fund's
investments in non-investment grade debt securities are limited
to 10% of total assets.
T. Rowe Price Growth Stock Fund, Inc. seeks long-term
growth of capital and increasing dividend income through
investment primarily in common stocks of well-established growth
companies. The fund will invest primarily in the common stocks
of a diversified group of growth companies. A growth company is
defined as one which: (1) has demonstrated historical growth of
earnings faster than the growth of inflation and the economy in
general; and (2) has indications of being able to continue this
growth pattern in the future. While current dividend income is
not a prerequisite in the selection of a growth company, the
companies in which the Fund will invest normally have a record of
paying dividends and are generally expected to increase the
amounts of such dividends in future years as earnings increase.
Although the Fund will invest primarily in U.S. common
stocks, it may also purchase other types of securities, for
example, foreign securities (30% of total assets), convertible
securities and warrants, when considered consistent with the
Fund's investment objectives and program. The Fund may also
engage in a variety of investment management practices, such as
buying and selling futures and options.
T. Rowe Price New Horizons Fund, Inc. seeks long-term
growth of capital through investment primarily in common stocks
of small, rapidly growing companies. The fund will invest
primarily in a diversified group of small, emerging growth
companies. It seeks to invest early in the corporate life cycle
and before a company becomes widely-recognized by the investment
community. The Fund may also invest in companies which offer the
possibility of accelerating earnings growth because of
rejuvenated management, new products, or structural changes in
the economy. Current income is not a factor in the selection of
stocks.
Investors should realize that the very nature of
investing in small companies involves greater risk than is
customarily associated with more established companies. The Fund
is designed for long-term investors who are willing to accept
greater investment risks in search of substantial long-term
rewards. Small companies often have limited product lines,
PAGE 14
markets, or financial resources, and they may be dependent upon a
small group of inexperienced managers. The securities of small
companies may have limited marketability and may be subject to
more abrupt or erratic market movements than securities of larger
companies or the market averages in general. However, small
companies may offer greater opportunities for capital
appreciation than larger, more established companies. In
addition, small companies are often overlooked by the investment
community. Therefore, these securities may be undervalued and
provide the potential for significant capital appreciation.
Although the Fund will invest primarily in U.S. common
stocks, it may also purchase other types of securities, for
example, foreign securities (10% of total assets), convertible
securities and warrants, when considered consistent with the
Fund's investment objective and program. The Fund may also
engage in a variety of investment management practices, such as
buying and selling futures and options.
Income and Growth Funds
T. Rowe Price Prime Reserve Fund, Inc. is a money
market fund which maintain a stable share price of $1.00. This
policy has been maintained since its inception; however, the
$1.00 price is not guaranteed or insured by the U.S. government,
nor is its yield fixed. The Fund generally purchases securities
which mature in 13 months or less, although the Fund may purchase
U.S. government securities with a maturity of up to 25 months.
The dollar-weighted average maturity of the Fund will not exceed
90 days.
The objectives of the Fund are preservation of capital,
liquidity, and, consistent with these objectives, the highest
possible current income through investments primarily in high-
quality money market securities. To achieve its objectives, the
Fund invests in a diversified portfolio of domestic and foreign
U.S. dollar-denominated money market securities rated within the
two highest credit categories assigned by established rating
agencies or, if not rated, of equivalent investment quality as
determined by the Fund's investment manager, T. Rowe Price.
The Fund will invest at least 95% of its total assets
in prime money market instruments--that is, securities which are
rated within the highest credit category assigned by at least two
established rating agencies (or one rating agency if the security
is rated by only one, or, if not rated, T. Rowe Price's
equivalent). A security is considered rated if the security
itself, the issuer, or a comparable security of the issuer is
rated. T. Rowe Price subjects all securities eligible for
investment to its own credit analysis and considers all Fund's
PAGE 15
securities may have adjustable rates of interest with periodic
demand features.
T. Rowe Price Equity Income Fund seeks to provide
substantial dividend income as well as long-term capital
appreciation by investing primarily in dividend-paying common
stocks of established companies. In pursuing its objective, the
Fund emphasizes companies with favorable prospects for increasing
dividend income, and secondarily, capital appreciation. Over
time, the income component (dividends and interest earned) of the
Fund's investments is expected to be a significant contributor to
the Fund's total return. The Fund's income yield is expected to
be significantly above that of the Standard & Poor's 500 Stock
Index.
To achieve its objective, the Fund will, under normal
circumstances, invest at least 65% of its assets in income-
producing common stocks, whose prospectus for dividend growth and
capital appreciation are considered favorable by T. Rowe Price.
To enhance capital appreciation potential, the Fund also uses a
value-oriented approach, which means it invests in stocks it
believes are currently undervalued. The Fund's investments will
generally be made in companies which share some of the following
characteristics:
o established operating histories;
o above-average current dividend yields relative to
the S&P 500;
o low price/earnings ratios relative to the S&P 500;
o sound balance sheets and other financial
characteristics; and
o low stock price relative to company's underlying
value as measured by assets, earnings, cash flow or
business franchises.
The Fund may also invest its assets in fixed income
securities (corporate, government, and municipal bonds of various
maturities). The Fund would invest in municipal bonds when the
expected total return from such bonds appears to exceed the total
returns obtainable from corporate or government bonds of similar
credit quality. Interest earned on municipal bonds purchased by
the Fund will be taxable income to Fund shareholders. Although
the Fund will invest primarily in U.S. common stocks, it may also
purchase other types of securities, for example, foreign
securities (25% of total assets), convertible securities and
warrants, when considered consistent with the Fund's investment
objective and program. The Fund may also engage in a variety of
investment management practices, such as buying and selling
futures and options.
PAGE 16
SPECIAL CONSIDERATIONS
Prospective investors should consider that certain
Underlying Price Funds (the "Price Funds") may engage in the
following:
(1) Foreign Currency Transactions. Enter into
foreign currency transactions. Since investments
in foreign companies will usually involve
currencies of foreign countries, and the
International Bond and International Stock Funds,
as well as certain other Price Funds, will hold
funds in bank deposits in foreign custodians
during the completion of investment programs, the
value of the assets of the Price Funds as measured
in U.S. dollars may be affected favorably or
unfavorably by changes in foreign currency
exchange rates and exchange control regulations,
and these Price Funds may incur costs in
connection with conversions between various
currencies. The Price Funds will generally
conduct their foreign currency exchange
transactions either on a spot (i.e., cash) basis
at the prevailing rate in the foreign currency
exchange market, or through entering into forward
contracts to purchase or sell foreign currencies.
The Price Funds will generally not enter into a
forward contract with a term of greater than one
year. Although foreign currency transactions will
be used primarily to protect the Price Funds from
adverse currency movements, they also involve the
risk that anticipated currency movements will not
be accurately predicted.
(2) Lending Portfolio Securities. Lend portfolio
securities for the purpose of realizing additional
income. The Price Funds may lend securities to
broker-dealers or institutional investors. Any
such loan will be continuously secured by
collateral at least equal to the value of the
security loaned. Such lending could result in
delays in receiving additional collateral or in
the recovery of the securities or possible loss of
rights in the collateral should the borrower fail
financially.
(3) Futures Contracts and Options (types of
potentially high-risk derivatives). Enter into
interest rate, stock index or currency futures
contracts. Certain Price Funds may enter into
PAGE 17
such contracts (or options thereon), or a
combination of such contracts, (1) as a hedge
against changes in prevailing levels of interest
rates, price movements or currency exchange rates
in the Price Funds' portfolios in order to
establish more definitely the effective return on
securities or currencies held or intended to be
acquired by such Price Funds; (2) as an efficient
means of adjusting the Price Funds' exposure to
the markets; or (3) to adjust the duration of the
Price Funds' portfolios. Initial margin deposits
and premiums on options used for non-hedging
purposes will not equal more than 5% of each Price
Fund's net asset value. Certain Price Funds may
also purchase and sell call and put options on
securities, currencies and financial and stock
indices. The aggregate market value of each
Fund's currencies or portfolio securities covering
call or put options will not exceed 25% of a
Fund's net assets. Futures contracts and options
can be highly volatile and could result in
reduction of a Price Fund's total return and a
Price Fund's attempt to use such investments for
hedging purposes may not be successful.
FOR MORE INFORMATION ABOUT AN UNDERLYING PRICE FUND, CALL
1-800-638-5660 (1-410-547-2308).
INVESTMENT RESTRICTIONS
Fundamental policies of the Funds may not be changed
without the approval of the lesser of (1) 67% of the Funds'
shares present at a meeting of shareholders if the holders of
more than 50% of the outstanding shares are present in person or
by proxy or (2) more than 50% of the Funds' outstanding shares.
Other restrictions, in the form of operating policies, are
subject to change by Spectrum Fund's Board of Directors without
shareholder approval. Any investment restriction which involves
a maximum percentage of securities or assets shall not be
considered to be violated unless an excess over the percentage
occurs immediately after, and is caused by, an acquisition of
securities or assets of, or borrowings by, a Fund.
Fundamental Policies
As a matter of fundamental policy, each Fund may not:
PAGE 18
(1) Borrowing. Borrow money, except each Fund may
borrow from banks or other Price Funds as a
temporary measure for extraordinary or emergency
purposes, and then only in amounts not exceeding
30% of its total assets valued at market. Each
Fund will not borrow in order to increase income
(leveraging), but only to facilitate redemption
requests which might otherwise require untimely
disposition of portfolio securities (see page __
of the prospectus). Interest paid on any such
borrowings will reduce net investment income;
(2) Commodities. Purchase or sell commodities or
commodity or futures contracts;
(3) Loans. Make loans, although the Funds may
purchase money market securities and enter into
repurchase agreements;
(4) Margin. Purchase securities on margin, except for
use of short-term credit necessary for clearance
of purchases of portfolio securities;
(5) Mortgaging. Mortgage, pledge, hypothecate or, in
any manner, transfer any security owned by the
Funds as security for indebtedness except as may
be necessary in connection with permissible
borrowings, in which event such mortgaging,
pledging, or hypothecating may not exceed 30% of
each Fund's total assets, valued at market;
(6) Real Estate. Purchase or sell real estate
(although each Fund may purchase money market
securities secured by real estate or interests
therein, or issued by companies or investment
trusts which invest in real estate or interests
therein);
(7) Senior Securities. Issue senior securities;
(8) Short Sales. Effect short sales of securities; or
(9) Underwriting. Underwrite securities issued by
other persons, except to the extent the Funds may
be deemed to be underwriters within the meaning of
the Securities Act of 1933 in connection with the
purchase and sale of their portfolio securities in
the ordinary course of pursuing their investment
programs.
PAGE 19
Operating Policies
As a matter of operating policy, each Fund may not:
(1) Control of Portfolio Companies. Invest in
companies for the purpose of exercising management
or control;
(2) Illiquid Securities. Purchase a security if, as a
result of such purchase, more than 10% of the
value of each Fund's net assets would be invested
in illiquid securities or other securities that
are not readily marketable, including repurchase
agreements which do not provide for payment within
seven days, provided that each Fund will not
invest more than 5% of the value of its total
assets in restricted securities (other than
securities eligible for resale under Rule 144A
under the Securities Act of 1933);
(3) Oil and Gas Programs. Purchase participations or
other direct interests or enter into leases with
respect to, oil, gas, other mineral exploration or
development programs;
(4) Options. Invest in options;
(5) Ownership of Portfolio Securities by Officers and
Directors. Purchase or retain the securities of
any issuer if, to the knowledge of the Funds'
management, those officers and directors of
Spectrum Fund, and of its investment manager, who
each owns beneficially more than .5% of the
outstanding securities of such issuer, together
own beneficially more than 5% of such securities;
(6) Unseasoned Issuers. Purchase the securities of
any issuer (other than obligations issued or
guaranteed by the U.S. government or any foreign
government, their agencies or instrumentalities or
shares of Price mutual funds) if, as a result,
more than 5% of the value of each Fund's total
assets would be invested in the securities of
issuers which at the time of purchase had been in
operation for less than three years, including
predecessors and unconditional guarantors; or
(7) Warrants. Invest in warrants.
PAGE 20
Pursuant to an Exemptive Order issued by the Securities
and Exchange Commission (Investment Company Act Release No. IC-
17242, November 29, 1989): (i) the Funds may own in the
aggregate up to 15% of the total outstanding voting securities of
certain registered investment companies which are members of the
T. Rowe Price family of funds (The fund has applied to the
Securities and Exchange Commission for permission to raise this
limit to 30%. If this request is granted, the fund could own in
the aggregate up to 30% of an Underlying Price Fund's outstanding
voting securities.), (ii) each Fund, in accordance with its
prospectus, may invest more than 5% of its assets in any one such
investment company, and (iii) each Fund may invest more than 10%
of its assets, collectively, in registered investment companies
which are members of the T. Rowe Price family of funds.
Because of their investment objectives and policies,
the Funds will each concentrate more than 25% of their assets in
the mutual fund industry. In accordance with the Funds'
investment programs set forth in the prospectus, each of the
Funds may invest more than 25% of its assets in certain of the
Underlying Price Funds. However, each of the Underlying Price
Funds in which each Fund will invest (other than New Income Fund,
Short-Term Bond Fund, High Yield Fund and International Bond
Fund) will not concentrate more than 25% of its total assets in
any one industry. The New Income Fund and Short-Term Bond Fund
will, under certain conditions, invest up to 50% of their assets
in any one of the following industries: gas, utility, gas
transmission utility, electric utility, telephone utility and
petroleum.
The Short-Term Bond Fund, International Bond Fund and
High Yield Fund will each normally concentrate 25% or more of
their assets in the securities of the banking industry when their
position in issues maturing in one year or less equals 35% or
more of their total assets.
Redemptions in Kind
In the unlikely event a shareholder were to receive an
in kind redemption of portfolio securities of either Fund,
brokerage fees could be incurred by the shareholder in subsequent
sale of such securities.
Issuance of Fund Shares for Securities
Transactions involving issuance of a fund's shares for
securities or assets other than cash will be limited to (1) bona
fide reorganizations; (2) statutory mergers; or (3) other
acquisitions of portfolio securities that: (a) meet the
PAGE 21
investment objectives and policies of the Fund; (b) are acquired
for investment and not for resale except in accordance with
applicable law; (c) have a value that is readily ascertainable
via listing on or trading in a recognized United States or
international market; and (d) are not illiquid.
MANAGEMENT OF THE FUNDS
The management of each Fund's business and affairs is
the responsibility of the Board of Directors for Spectrum Fund.
In exercising their responsibilities, the Board, among other
things, will refer to the Special Servicing Agreement (see page
18) and policies and guidelines included in an Application for an
Exemptive Order (and accompanying Notice and Order issued by the
Commission). A majority of Spectrum Fund's directors will be
non-interested persons as defined in Section 2(a)(19) of the 1940
Act and none of these independent directors will be directors of
any Underlying Price Fund. However, the interested directors and
the officers of Spectrum Fund and T. Rowe Price also serve in
similar positions with most of the Underlying Price Funds. Thus,
if the interests of a Fund and the Underlying Price Funds were
ever to become divergent, it is possible that a conflict of
interest could arise and affect how this latter group of persons
fulfill their fiduciary duties to that Fund and the Underlying
Price Funds. The directors of Spectrum Fund believe they have
structured each Fund to avoid these concerns. However,
conceivably, a situation could occur where proper action for
Spectrum Fund or the Growth Fund or Income Fund separately, could
be adverse to the interests of an Underlying Price Fund, or the
reverse could occur. If such a possibility arises, the directors
and officers of the affected funds and T. Rowe Price will
carefully analyze the situation and take all steps they believe
reasonable to minimize and, where possible, eliminate the
potential conflict. Moreover, limitations on aggregate
investments in the Underlying Price Funds and other restrictions
have been adopted by Spectrum Fund to minimize this possibility,
and close and continuous monitoring will be exercised to avoid,
insofar as possible, these concerns.
The officers and directors of Spectrum Fund are listed
below. Unless otherwise noted, the address of each is 100 East
Pratt Street, Baltimore, Maryland 21202. Except as indicated,
each has been an employee of T. Rowe Price for more than five
years. In the list below, Spectrum Fund's directors who are
considered "interested persons" of T. Rowe Price or the Fund as
defined under Section 2(a)(19) of the Investment Company Act of
PAGE 22
1940 are noted with an asterisk (*). Mr. Riepe is referred to as
an inside director by virtue of his directorship and employment
by T. Rowe Price.
*JAMES S. RIEPE, Chairman of the Board--Managing Director, T.
Rowe Price; Chairman of the Board, T. Rowe Price Services, Inc.,
T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price
Trust Company; President and Director, T. Rowe Price Investment
Services, Inc.; Director, Rhone-Poulenc Rorer, Inc.
JEFFREY H. DONAHUE, Director--Senior Vice President and Chief
Financial Officer of The Rouse Company, a full-service real
estate and development company, Columbia, Maryland; Address:
10275 Little Patuxent Parkway, Columbia, Maryland 21044
A. MACDONOUGH PLANT, Director--Partner, law firm of Stewart,
Plant & Blumenthal; (formerly until 4/91) Partner, law firm of
Semmes, Bowen & Semmes, Baltimore, Maryland; Address: Suite 910,
7 Seven St. Paul Street, Baltimore, Maryland 21202
PETER VAN DYKE, President--Managing Director, T. Rowe Price; Vice
President, Price-Fleming and T. Rowe Price Trust Company
STEPHEN W. BOESEL, Vice President--Vice President, T. Rowe Price
GEORGE J. COLLINS, Vice President--President, Chief Executive
Officer, and Managing Director, T. Rowe Price; Director, Price-
Fleming, T. Rowe Price Trust Company and T. Rowe Price Retirement
Plan Services, Inc.; Chartered Investment Counselor
HENRY H. HOPKINS, Vice President--Managing Director, T. Rowe
Price; Vice President and Director, T. Rowe Price Investment
Services, Inc., T. Rowe Price Services, Inc., and T. Rowe Price
Trust Company; Vice President, Price-Fleming and T. Rowe Price
Retirement Plan Services, Inc.
EDMUND M. NOTZON, Vice President--Vice President, T. Rowe Price
and T. Rowe Price Trust Company; formerly, (1972-1989) charter
member of the U.S. Senior Executive Service and Director,
Analysis and Evaluation Division in the Office of Water
Regulations and Standards of the U.S. Environmental Protection
Agency
CHARLES P. SMITH, Vice President--Managing Director, T. Rowe
Price; Vice President, Price-Fleming
M. DAVID TESTA, Vice President--Managing Director, T. Rowe Price;
Chairman of the Board, Price-Fleming; Director and Vice
President, T. Rowe Price Trust Company; Chartered Financial
Analyst
LENORA V. HORNUNG, Secretary--Vice President, T. Rowe Price
PATRICIA S. BUTCHER, Assistant Secretary--Assistant Vice
President, T. Rowe Price and T. Rowe Price Investment Services,
Inc.
CARMEN F. DEYESU, Treasurer--Vice President, T. Rowe Price, T.
Rowe Price Services, Inc., and T. Rowe Price Trust Company
PAGE 23
DAVID S. MIDDLETON, Controller--Vice President, T. Rowe Price,
T. Rowe Price Services, Inc., and T. Rowe Price Trust Company
ROGER L. FIERY, III, Assistant Vice President--Vice President,
T. Rowe Price and Price-Fleming
EDWARD T. SCHNEIDER, Assistant Vice President--Assistant Vice
President, T. Rowe Price; Vice President, T. Rowe Price Services,
Inc.
INGRID I. VORDEMBERGE, Assistant Vice President--Employee, T.
Rowe Price
JUDITH B. WARD, Assistant Vice President--Employee, T. Rowe Price
COMPENSATION TABLE
_________________________________________________________________
Pension or Total Compensation
Retirement from Fund and
Name of Aggregate Benefits Fund Complex
Person, Compensation Accrued as Paid to
Position from Fund(a) Part of Fund(b) Directors(c)
_________________________________________________________________
Spectrum Income
Jeffrey H. Donahue, $7,972 N/A $22,000
Director
A. MacDonough Plant, 7,972 N/A 22,000
Director
James S. Riepe, -- N/A --
Director(d)
Spectrum Growth
Jeffrey H. Donahue, $7,028 N/A $22,000
Director
A. MacDonough Plant, 7,028 N/A 22,000
Director
James S. Riepe, -- N/A --
Director(d)
a Amounts in this column are for the fiscal year January 1,
1994 to December 31, 1994.
b Not applicable. The funds do not pay pension or retirement
benefits to officers or directors of the Fund.
c Amounts in this column included three funds at December 31,
1994.
PAGE 24
d Any director of the fund who is an officer or employee of T.
Rowe Price receives no remuneration from the fund.
The Fund's Executive Committee, comprised of Mr. Riepe and
Mr. Plant, have been authorized by the Board of Directors to
exercise all powers of the Board to manage Spectrum Fund in the
intervals between meetings of the Board, except the powers
prohibited by statute from being delegated.
Spectrum Fund's officers will receive no remuneration from
the Fund, but are paid by T. Rowe Price. Spectrum Fund's
officers and interested directors presently serve as officers or
interested directors of most of the Underlying Price Funds. The
Underlying Price Funds pay their disinterested directors a
director's fee plus a proportionate share of travel and other
expenses incurred in attending Board meetings.
PRINCIPAL HOLDERS OF SECURITIES
As of the date of the prospectus, the officers and directors
of Spectrum Fund, as a group, owned less than 1% of the
outstanding shares of the Fund.
INVESTMENT MANAGEMENT SERVICES
The business of Spectrum Fund will be conducted by its
officers, directors, and investment manager in accordance with
policies and guidelines set up by Spectrum Fund's directors which
were included in the Exemptive Order issued by the Securities and
Exchange Commission (Investment Company Act Release No. IC-17242,
November 29, 1989).
Each Fund will operate at a zero expense ratio. To
accomplish this, the payment of each Fund's operational expenses
is subject to the Special Servicing Agreement described below as
well as certain undertakings made by T. Rowe Price, under its
Investment Management Agreement with T. Rowe Price. Fund
expenses include: shareholder servicing fees and expenses;
custodian and accounting fees and expenses; legal and auditing
fees; expenses of preparing and printing prospectuses and
shareholder reports; registration fees and expenses; proxy and
annual meeting expenses, if any; and directors' fees and
expenses.
PAGE 25
Special Servicing Agreement. Spectrum Fund has entered into
a Special Servicing Agreement ("Agreement") between and among the
Underlying Price Funds, T. Rowe Price and T. Rowe Price Services,
Inc. ("Price Services"). Under the Agreement, Price Services
will act as Shareholder Servicing Agent for Spectrum Fund and
arrange for all other services necessary for the operation of
Spectrum Fund.
The Agreement provides that, if the Board of
Directors/Trustees of any Underlying Price Fund determines that
such Underlying Price Fund's share of the aggregate expenses of
Spectrum Fund is less than the estimated savings to such
Underlying Price Fund from the operation of Spectrum Fund, the
Underlying Price Fund will bear those expenses in proportion to
the average daily value of its shares owned by each Fund,
provided further that no Underlying Price Fund will bear such
expenses in excess of the estimated savings to it. Such savings
are expected to result primarily from the elimination of numerous
separate shareholder accounts which are or would have been
invested directly in the Underlying Price Funds and the resulting
reduction in shareholder servicing costs. Although such cost
savings are not certain, the estimated savings to the Underlying
Price Funds generated by the operation of Spectrum Fund are
expected to be sufficient to offset most, if not all, of the
expenses incurred by Spectrum Fund.
The Special Servicing Agreement also gives authority to
Spectrum Fund to utilize the Price name so long as (1) the
Special Servicing Agreement is in effect, and (2) the assets of
the Growth Fund and the Income Fund are invested pursuant to each
Fund's objectives and policies in shares of the various
Underlying Price Funds (except for such cash or cash items as the
directors may determine to maintain from time to time to meet
current expenses and redemptions). The Special Servicing
Agreement provides that the Funds will utilize assets deposited
with the custodian of each Fund from the sale of each Fund's
shares to promptly purchase shares of the specified Underlying
Price Funds, and will undertake redemption or exchange of such
shares of the Underlying Price Funds in the manner provided by
the objectives and policies of each Fund.
Under the Investment Management Agreement with the Funds, and
the Special Servicing Agreement, T. Rowe Price has agreed to bear
any expenses of Spectrum Fund which exceed the estimated savings
to each of the Underlying Price Funds. Of course, shareholders
of Spectrum Fund will still indirectly bear their fair and
PAGE 26
proportionate share of the cost of operating the Underlying Price
Funds in which the Spectrum Fund invests because, Spectrum Fund,
as a shareholder of the Underlying Price Funds, will bear its
proportionate share of any fees and expenses paid by the
Underlying Price Funds. Spectrum Fund, as a shareholder of the
selected Underlying Price Funds, will benefit only from cost-
sharing reductions in proportion to its interest in such
Underlying Price Funds.
Services
Under the Management Agreement with each Fund, T. Rowe Price
provides each Fund with discretionary investment services.
Specifically, T. Rowe Price is responsible for supervising and
directing the investments of each Fund in accordance with each
Fund's investment objectives, program, and restrictions as
provided in their prospectus and this Statement of Additional
Information. T. Rowe Price is also responsible for effecting all
security transactions on behalf of each Fund, including the
negotiation of commissions and the allocation of principal
business and portfolio brokerage. However, it should be
understood that the Funds will invest their assets almost
exclusively in the shares of the Underlying Price Funds and such
investments will be made without the payment of any commission or
other sales charges. In addition to these services, T. Rowe
Price provides each Fund with certain corporate administrative
services, including: maintaining Spectrum Fund's corporate
existence, corporate records, and registering and qualifying each
Fund's shares under federal and state laws; monitoring the
financial, accounting, and administrative functions of each Fund;
maintaining liaison with the agents employed by each Fund such as
the custodian and transfer agent; assisting each Fund in the
coordination of such agents' activities; and permitting T. Rowe
Price's employees to serve as officers, directors, and committee
members of each Fund without cost to the Fund.
T. Rowe Price has agreed not to be paid a management fee for
performing its services. However, T. Rowe Price and Price-
Fleming will receive management fees from managing the Underlying
Price Funds in which Spectrum Fund invests.
Each Fund's Management Agreement also provides that T. Rowe
Price, its directors, officers, employees, and certain other
persons performing specific functions for the Fund will only be
liable to the Fund for losses resulting from willful misfeasance,
bad faith, gross negligence, or reckless disregard of duty.
PAGE 27
Each Fund's Management Agreement provides that the Fund will
bear all expenses of its operations not specifically assumed by
T. Rowe Price. However, T. Rowe Price will reimburse the Fund
for certain expenses which in any year exceed the limits
prescribed by any state in which the Fund's shares are qualified
for sale. Presently, the most restrictive expense ratio
limitation imposed by any state is 2.5% of the first $30 million
of the Fund's average daily net assets, 2% of the next $70
million of such assets, and 1.5% of net assets in excess of $100
million. For the purpose of determining whether the Fund is
entitled to reimbursement, the expenses of the Fund are
calculated on a monthly basis. If the Fund is entitled to
reimbursement, that month's management fee will be reduced or
postponed with any adjustment made after the end of the year.
Management Fees of Underlying Price Funds
Each Underlying Price Fund pays T. Rowe Price or Price-
Fleming a fee ("Fee") which consists of two components: a Group
Management Fee ("Group Fee") and an Individual Fund Fee ("Fund
Fee"). The Fee is paid monthly to T. Rowe Price or Price-Fleming
on the first business day of the next succeeding calendar month
and is calculated as described below.
The monthly Group Fee ("Monthly Group Fee") is the sum of the
daily Group Fee accruals ("Daily Group Fee Accruals") for each
month. The Daily Group Fee Accrual for any particular day is
computed by multiplying the Price Funds' group fee accrual as
determined below ("Daily Price Funds' Group Fee Accrual") by the
ratio of the Fund's net assets for that day to the sum of the
aggregate net assets of the Price Funds for that day. The Daily
Price Funds' Group Fee Accrual for any particular day is
calculated by multiplying the fraction of one (1) over the number
of calendar days in the year by the annualized Daily Price Funds'
Group Fee Accrual for that day as determined in accordance with
the following schedule:
PAGE 28
Price Funds'
Annual Group Base Fee
Rate for Each Level of Assets
_________________________________
0.480% First $1 billion
0.450% Next $1 billion
0.420% Next $1 billion
0.390% Next $1 billion
0.370% Next $1 billion
0.360% Next $2 billion
0.350% Next $2 billion
0.340% Next $5 billion
0.330% Next $10 billion
0.320% Next $10 billion
0.310% Thereafter
The Individual Fund Fees and total management fees of
the Underlying Price Funds are as follows:
Individual Fee Total
as a % of Fund Management
Name of Fund Net Assets Fee Paid
International Bond Fund 0.35% 0.69%
International Stock Fund 0.35 0.69
New Horizons Fund 0.35 0.69
High Yield Fund 0.30 0.64
Equity Income Fund 0.25 0.59
Growth Stock Fund 0.25 0.59
New Era Fund 0.25 0.59
GNMA Fund 0.15 0.49
Growth & Income Fund 0.25 0.59
New Income Fund 0.15 0.49
Short-Term Bond Fund 0.10 0.44
Prime Reserve Fund 0.05 0.39
Based on combined Price Funds' assets of approximately
$36 billion at December 31, 1994, the Group Fee was 0.34%. The
total combined management fee for each of the Underlying Price
Funds would have been an annual rate as shown above.
For the purpose of calculating the Group Fee, the
Price Funds include all the mutual funds distributed by T. Rowe
Price Investment Services, Inc. (excluding the Spectrum Fund,
Equity Index Fund, and any institutional or private label mutual
funds). For the purpose of calculating the Daily Price Funds'
Group Fee Accrual for any particular day, the net assets of each
Price Fund are determined in accordance with the Fund's
prospectus as of the close of business on the previous business
day on which the Fund was open for business.
PAGE 29
The monthly Fund Fee for each Underlying Price Fund
("Monthly Fund Fee") is the sum of the daily Fund Fee accruals
("Daily Fund Fee Accruals") for each month. The Daily Fund Fee
accrual for any particular day is computed by multiplying the
fraction of one (1) over the number of calendar days in the year
by the individual Fund Fee Rate for each Fund and multiplying
this product by the net assets of the Fund for that day, as
determined in accordance with the Fund's prospectus as of the
close of business on the previous business day on which the Fund
was open for business.
DISTRIBUTOR FOR THE FUNDS
T. Rowe Price Investment Services, Inc. ("Investment
Services"), a Maryland corporation formed in 1980 as a wholly-
owned subsidiary of T. Rowe Price, serves as Spectrum Fund's
distributor, on behalf of the Income and Growth Fund. Investment
Services is registered as a broker-dealer under the Securities
Exchange Act of 1934 and is a member of the National Association
of Securities Dealers, Inc. The offering of Spectrum Fund's
shares is continuous.
Investment Services is located at the same address as
Spectrum Fund and T. Rowe Price -- 100 East Pratt Street,
Baltimore, Maryland 21202.
Investment Services serves as distributor to Spectrum
Fund, on behalf of the Income and Growth Fund, pursuant to an
Underwriting Agreement ("Underwriting Agreement"), which provides
for each Fund to pay its fees and expenses in connection with
registering and qualifying its shares under the various state
"blue sky" laws; preparing, setting in type, printing, and
mailing its prospectuses and reports to shareholders; and issuing
its shares, including expenses of confirming purchase orders.
However, all such fees and expenses are subject to the Special
Servicing Agreement.
The Underwriting Agreement provides that Investment
Services will pay all fees and expenses in connection with:
printing and distributing prospectuses and reports for use in
offering and selling shares for each Fund; preparing, setting in
type, printing, and mailing all sales literature and advertising;
Investment Services' federal and state registrations as a
broker-dealer; and offering and selling shares for each Fund,
except for those fees and expenses specifically assumed by the
Funds. Investment Services' expenses are paid by T. Rowe Price.
PAGE 30
Investment Services acts as the agent of Spectrum
Fund, on behalf of the Income and Growth Fund, in connection with
the sale of the shares for each Fund in all states in which the
shares are qualified and in which Investment Services is
qualified as a broker-dealer. Under the Underwriting Agreement,
Investment Services accepts orders for each Fund's shares at net
asset value. No sales charges are paid by investors or the Fund.
CUSTODIAN
State Street Bank and Trust Company (the "Bank"),
under an agreement with Spectrum Fund, on behalf of the Income
and Growth Fund, serves as the custodian for each Fund's
securities and cash, but it does not participate in the Funds'
investment decisions. Portfolio securities purchased in the U.S.
are maintained in the custody of the Bank and may be entered into
the Federal Reserve Book Entry system, or the security depository
system of the Depository Trust Corporation. The Bank maintains
shares of the Underlying Funds in the book entry system of such
funds transfer agent. T. Rowe Price Services, Inc. State Street
Bank's main office is at 225 Franklin Street, Boston,
Massachusetts 02110. Payments of the fees and expenses of the
Income and Growth Funds under the Custodian Agreement are subject
to the Special Servicing Agreement.
CODE OF ETHICS
The Fund's investment adviser (T. Rowe Price) has a
written Code of Ethics which requires all employees to obtain
prior clearance before engaging in any personal securities
transactions. In addition, all employees must report their
personal securities transactions within ten days of their
execution. Employees will not be permitted to effect
transactions in a security: If there are pending client orders in
the security; the security has been purchased or sold by a client
within seven calendar days; the security is being considered for
purchase for a client; a change has occurred in T. Rowe Price's
rating of the security within five days; or the security is
subject to internal trading restrictions. In addition, employees
are prohibited from engaging in short-term trading (e.g.,
purchases and sales involving the same security within 60 days).
Any material violation of the Code of Ethics is reported to the
Board of the Fund. The Board also reviews the administration of
the Code of Ethics on an annual basis.
PAGE 31
PRICING OF SECURITIES
The securities of the Underlying Price Funds held by
each Fund are valued at the net asset value of each Underlying
Price Fund. For the Growth Fund, short-term money market
investments are valued at cost which, when combined with accrued
interest receivable, approximates market value. For the Income
Fund, securities with less than one year to maturity are stated
at fair value which is determined by using a matrix system that
establishes a value for each security based on money market
yields.
NET ASSET VALUE PER SHARE
The purchase and redemption price of each Fund's
shares is equal to its net asset value per share or share price.
Each Fund determines its net asset value per share by subtracting
its liabilities (including accrued expenses and dividends
payable) from its total assets (the market value of the
securities each Fund holds plus cash and other assets, including
income accrued but not yet received) and dividing the result by
the total number of shares outstanding. The net asset value per
share of each Fund is calculated as of the close of trading on
the New York Stock Exchange ("NYSE") every day the NYSE is open
for trading. The NYSE is closed on the following days: New
Year's Day, Washington's Birthday, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
Determination of net asset value (and the offering,
sale, redemption and repurchase of shares) for a Fund may be
suspended at times (a) during which the NYSE is closed, other
than customary weekend and holiday closings, (b) during which
trading on the NYSE is restricted (c) during which an emergency
exists as a result of which disposal by a Fund of securities
owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net
assets, or (d) during which a governmental body having
jurisdiction over the Fund may by order permit such a suspension
for the protection of the Fund's shareholders; provided that
applicable rules and regulations of the Securities and Exchange
Commission (or any succeeding governmental authority) shall
govern as to whether the conditions prescribed in (b), (c) or (d)
exist.
PAGE 32
DIVIDENDS
Unless you elect otherwise, capital gain
distributions, if any, will be reinvested on the reinvestment
date using the NAV per share of that date. The reinvestment date
normally precedes the payment date by about 10 days although the
exact timing is subject to change.
TAX STATUS
Each Fund intends to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue
Code of 1986, as amended ("Code").
A portion of dividends paid by each Fund may be
eligible for the dividends-received deduction for corporate
shareholders. Capital gain distributions paid from these Funds
are never eligible for the dividends-received deduction. For tax
purposes, it does not make any difference whether dividends and
capital gain distributions are paid in cash or in additional
shares. Each Fund must declare dividends by December 31 of each
year equal to at least 98% of ordinary income (as of December 31)
and capital gains (as of October 31), in order to avoid a federal
excise tax and distribute within 12 months 100% of ordinary
income and capital gains as of December 31 in order to avoid a
federal income tax.
At the time of your purchase, each Fund's net asset
value may reflect undistributed income (Growth Fund only),
capital gains or net unrealized appreciation of securities held
by the Fund. A subsequent distribution to you of such amounts,
although constituting a return of your investment, would be
taxable either as dividends or capital gain distributions. For
federal income tax purposes, each Fund is permitted to carry
forward its net realized capital losses, if any, for eight years
and realize net capital gains up to the amount of such losses
without being required to pay taxes on, or distribute such gains.
On March 31, 1995, the books of the Income Fund indicated that
the Fund's aggregate net assets included realized capital gains
of $168,278 and unrealized depreciation of $5,202,781. On March
31, 1995, the books of the Growth Fund indicated that the Fund's
aggregate net assets included undistributed net income of
$2,071,723, net realized capital gains of $2,169,129, and
unrealized appreciation of $56,366,390.
If, in any taxable year, either Fund should not
qualify as a regulated investment company under the Code:
(i) the Fund would be taxed at normal corporate rates on the
PAGE 33
entire amount of its taxable income, if any, without deduction
for dividends or other distributions to shareholders, and
(ii) the Fund's distributions to the extent made out of the
Fund's current or accumulated earnings and profits would be
taxable to shareholders as ordinary dividends (regardless of
whether they would otherwise have been considered capital gain
dividends), and would qualify for the 70% deduction for dividends
received by corporations.
Taxation of Foreign Shareholders
The Code provides that dividends from net income will
be subject to U.S. tax. For shareholders who are not engaged in
a business in the U.S., this tax would be imposed at the rate of
30% upon the gross amount of the dividends in the absence of a
Tax Treaty providing for a reduced rate or exemption from U.S.
taxation. Distributions of net long-term capital gains realized
by the Fund are not subject to tax unless the foreign shareholder
is a nonresident alien individual who was physically present in
the U.S. during the tax year for more than 182 days.
YIELD INFORMATION
Income Fund
From time to time, the Income Fund may advertise a
yield figure calculated in the following manner:
An income factor is calculated for each security in
the portfolio based upon the security's market value at the
beginning of the period and yield as determined in conformity
with regulations of the Securities and Exchange Commission. The
income factors are then totalled for all securities in the
portfolio. Next, expenses of the Fund for the period, net of
expected reimbursements, are deducted from the income to arrive
at net income, which is then converted to a per-share amount by
dividing net income by the average number of shares outstanding
during the period. The net income per share is divided by the
net asset value on the last day of the period to produce a
monthly yield which is then annualized. Quoted yield factors are
for comparison purposes only, and are not intended to indicate
future performance or forecast the dividend per share of the
Fund.
The yield of the Fund calculated under the above-
described method for the month ended March 31, 1995 was
6.88%.
PAGE 34
INVESTMENT PERFORMANCE
Total Return Performance
Each Fund's calculation of total return performance
includes the reinvestment of all capital gain distributions and
income dividends for the period or periods indicated, without
regard to tax consequences to a shareholder in the Fund. Total
return is calculated as the percentage change between the
beginning value of a static account in the Fund and the ending
value of that account measured by the then current net asset
value, including all shares acquired through reinvestment of
income and capital gains dividends. The results shown are
historical and should not be considered indicative of the future
performance of the Fund. Each average annual compound rate of
return is derived from the cumulative performance of the Fund
over the time period specified. The annual compound rate of
return of the Fund over any other period of time will vary from
the average.
Income Fund
Cumulative Performance Percentage Change
1 Year 3 Years Since Inception
Ended Ended 6/29/90 to
12/31/94+ 12/31/94 12/31/94++
_________ ________ _______________
Income Fund -1.94% 18.82% 45.93%
90-day Treasury Bill 4.33 11.27 21.75
Lehman Brothers Govt./Corp.
Bond Index -3.51 15.26 41.51
Lipper Flexible Income -3.69 17.98 43.49
CPI 2.67 8.56 15.24
Average Annual Compound Rates of Return
1 Year 3 Years Since Inception
Ended Ended 6/29/90 to
12/31/94+ 12/31/94 12/31/94++
_________ ________ _______________
Income Fund -1.94% 5.92% 8.75%
90-day Treasury Bill 4.33 3.62 4.46
Lehman Brothers Govt./Corp.
Bond Index -3.51 4.85 8.01
Lipper Flexible Income -3.69 5.67 8.34
CPI 2.95 2.87 3.26
PAGE 35
+ If you invested $1,000 at the beginning of 1994, the total
return on 12/31/94 would be $980.60 ($1,000 x -1.94%).
++ Assumes purchase of one share of the Income Fund at the
inception price of $10.00 on 6/29/90.
Growth Fund
Cumulative Performance Percentage Change
1 Year 3 Years Since Inception
Ended Ended 6/29/90 to
12/31/94+ 12/31/94 12/31/94++
_________ ________ _______________
Growth Fund 1.40% 31.55% 53.61%
S & P 500 1.35 20.06 47.23
Lipper Growth and Income
Fund Index -0.72 26.59 50.06
Wilshire 5000 -0.06 21.18 49.93
CPI 2.67 8.56 15.24
Average Annual Compound Rates of Return
1 Year 3 Years Since Inception
Ended Ended 6/29/90 to
12/31/94+ 12/31/94 12/31/94++
_________ ________ _______________
Growth Fund 1.40% 9.57% 10.00%
S & P 500 1.35 6.29 8.97
Lipper Growth and Income
Fund Index -0.72 8.18 9.44
Wilshire 5000 -0.06 6.61 9.41
CPI 2.67 2.77 3.20
+ If you invested $1,000 at the beginning of 1994, the total
return on 12/31/94 would be $1,014 ($1,000 x 1.40%).
++ Assumes purchase of one share of the Growth Fund at the
inception price of $10.00 on 6/29/90. Over this time, stock
prices in general have risen.
From time to time, in reports and promotional
literature: (1) the Fund's total return performance or P/E ratio
may be compared to any one or combination of the following: (i)
the Standard & Poor's 500 Stock Index and Dow Jones Industrial
Average so that you may compare the Fund's results with those of
a group of unmanaged securities widely regarded by investors as
representative of the stock market in general; (ii) other groups
of mutual funds, including T. Rowe Price Funds tracked by: (A)
Lipper Analytical Services, a widely used independent research
firm which rates mutual funds by overall performance, investment
PAGE 36
objectives, and assets; (B) Morningstar, Inc. another widely used
independent research firm which ranks mutual funds; or (C) other
financial or business publications, such as Business Week, Money
Magazine, Forbes and Barron's, which provide similar information;
(iii) indices of stocks comparable to those in which the Fund
invests; (2) the Consumer Price Index (measure for inflation) may
be used to assess the real rate of return from an investment in
the Fund; (3) other government statistics such as GNP, and net
import and export figures derived from governmental publications,
e.g. The Survey of Current Business, may be used to illustrate
investment attributes of the Fund or the general economic,
business, investment, or financial environment in which the Fund
operates; (4) various financial, economic and market statistics
developed by brokers, dealers and other persons may be used to
illustrate aspects of the Fund's performance; (5) the effect of
tax-deferred compounding on the Fund's investment returns, or on
returns in general, may be illustrated by graphs, charts, etc.
where such graphs or charts would compare, at various points in
time, the return from an investment in the Fund (or returns in
general) on a tax-deferred basis (assuming reinvestment of
capital gains and dividends and assuming one or more tax rates)
with the return on a taxable basis; and (6) the sectors or
industries in which the Fund invests may be compared to relevant
indices or surveys (e.g. S&P Industry Surveys) in order to
evaluate the Fund's historical performance or current or
potential value with respect to the particular industry or
sector. The Income Fund may also compare its performance or
yield to a variety of fixed income investments (e.g., repos, CDs,
Treasury bills) and other measures of performance set forth in
financial publications maintained by persons such as the Donoghue
Organization, Merrill Lynch, Pierce Fenner & Smith, Inc., Salomon
Brothers, Inc. etc. In connection with (5) above, information
derived from the following chart may be used:
IRA Versus Taxable Return
Assuming 9% annual rate of return, $2,000 annual contribution and
28% tax bracket.
Year Taxable Tax Deferred
10 $ 28,700 $ 33,100
15 51,400 64,000
20 82,500 111,500
25 125,100 184,600
30 183,300 297,200
PAGE 37
IRAs
An IRA is a long-term investment whose objective is
to accumulate personal savings for retirement. Due to the long-
term nature of the investment, even slight differences in
performance will result in significantly different assets at
retirement. Mutual funds, with their diversity of choice, can be
used for IRA investments. Generally, individuals may need to
adjust their underlying IRA investments as their time to
retirement and tolerance for risk changes.
As shown in the pyramid below, with Social Security
and pensions providing only 38% of the total, the foundation of
income for today's retirees is personal investments.
Source: Social Security Administration. For retirees with at
least $28,714 in annual income in 1990.
Other Features and Benefits
The Fund is a member of the T. Rowe Price Family of
Funds and may help investors achieve various long-term investment
goals, such as investing money for retirement, saving for a down
payment on a home, or paying college costs. To explain how the
Fund could be used to assist investors in planning for these
goals and to illustrate basic principles of investing, various
worksheets and guides prepared by T. Rowe Price Associates, Inc.
and/or T. Rowe Price Investment Services, Inc. may be made
available. These currently include: the Asset Mix Worksheet
which is designed to show shareholders how to reduce their
investment risk by developing a diversified investment plan; the
College Planning Guide which discusses various aspects of
financial planning to meet college expenses and assists parents
in projecting the costs of a college education for their
children; the Retirement Planning Kit (also available in a PC
version) includes a detailed workbook to determine how much money
you may need for retirement and suggests how you might invest to
achieve your objectives; and the Retirees Financial Guide which
includes a detailed workbook to determine how much money you can
afford to spend and still preserve your purchasing power and
suggests how you might invest to reach your goal. From time to
time, other worksheets and guides may be made available as well.
Of course, an investment in the Fund cannot guarantee that such
goals will be met. Personal Strategy Planner simplifies
investment decision making by helping investors define personal
financial goals, establish length of time the investor intends to
invest, determine risk "comfort zone" and select diversified
investment mix.
PAGE 38
To assist investors in understanding the different
returns and risk characteristics of various investments, the
aforementioned guides will include presentation of historical
returns of various investments using published indices. An
example of this is shown below.
Historical Returns for Different Investments
Annualized returns for periods ended 12/31/94
50 years 20 years 10 years 5 years
Small-Company Stocks 14.4% 20.3% 11.1% 11.8%
Large-Company Stocks 11.9 14.6 14.4 8.7
Foreign Stocks N/A 16.3 17.9 1.8
Long-Term Corporate Bonds 5.3 10.0 11.6 8.4
Intermediate-Term U.S.
Gov't. Bonds 5.6 9.3 9.4 7.5
Treasury Bills 4.7 7.3 5.8 4.7
U.S. Inflation 4.5 5.5 3.6 3.5
Sources: Ibbotson Associates, Morgan Stanley. Foreign stocks
reflect performance of The Morgan Stanley Capital International
EAFE Index, which includes some 1,000 companies representing the
stock markets of Europe, Australia, New Zealand, and the Far
East. This chart is for illustrative purposes only and should
not be considered as performance for, or the annualized return
of, any T. Rowe Price Fund. Past performance does not guarantee
future results.
Also included will be various portfolios demonstrating how
these historical indices would have performed in various
combinations over a specified time period in terms of return. An
example of this is shown below.
PAGE 39
Performance of Retirement Portfolios*
Asset Mix Average Annualized Value
Returns 20 Years of
Ended 12/31/94 $10,000
Investment
After Period
__________________ ______________________ ____________
Nominal Real Best Worst
PortfolioGrowth Income Safety Return Return** Year Year
I. Low
Risk 40% 40% 20% 12.4% 6.9% 24.9% 0.1%$ 92,515
II. Moderate
Risk 60% 30% 10% 13.5% 8.1% 29.1%-1.8%$118,217
III. High
Risk 80% 20% 0% 14.5% 9.1% 33.4%-5.2%$149,200
Source: T. Rowe Price Associates; data supplied by Lehman
Brothers, Wilshire Associates, and Ibbotson Associates.
* Based on actual performance for the 20 years ended 1993 of
stocks (85% Wilshire 5000 and 15% Europe, Australia, Far East
[EAFE] Index), bonds (Lehman Brothers Aggregate Bond Index
from 1976-94 and Lehman Brothers Government/Corporate Bond
Index from 1975), and 30-day Treasury bills from January 1975
through December 1994. Past performance does not guarantee
future results. Figures include changes in principal value
and reinvested dividends and assume the same asset mix is
maintained each year. This exhibit is for illustrative
purposes only and is not representative of the performance of
any T. Rowe Price fund.
** Based on inflation rate of 5.5% for the 20-year period ended
12/31/94.
Insights
From time to time, Insights, a T. Rowe Price publication of
reports on specific investment topics and strategies, may be
included in the Fund's fulfillment kit. Such reports may include
information concerning: calculating taxable gains and losses on
mutual fund transactions, coping with stock market volatility,
benefiting from dollar cost averaging, understanding
international markets, investing in high-yield "junk" bonds,
growth stock investing, conservative stock investing, value
PAGE 40
investing, investing in small companies, tax-free investing,
fixed income investing, investing in mortgage-backed securities,
as well as other topics and strategies.
CAPITAL STOCK
The Articles of Incorporation of Spectrum Fund
currently establish two series (i.e., the Income Fund and the
Growth Fund), each of which represents a separate class of the
Corporation's shares and has different objectives and investment
policies. The Articles of Incorporation also provide that the
Board of Directors may issue additional series of shares.
However, Spectrum Fund will not offer any additional series
without first filing an amended application for and being granted
further exemptive relief under Section 6(c) of the 1940 Act. Each
share of each Fund represents an equal proportionate share in
that Fund, with each other share, and is entitled to such
dividends and distributions of income belonging to that Fund as
are declared by the Directors. In the event of the liquidation
of a Fund, each share is entitled to a pro rata share of the net
assets of that Fund.
The Funds' Charter authorizes the Board of Directors
to classify and reclassify any and all shares which are then
unissued, including unissued shares of capital stock into any
number of classes or series, each class or series consisting of
such number of shares and having such designations, such powers,
preferences, rights, qualifications, limitations, and
restrictions, as shall be determined by the Board subject to the
Investment Company Act and other applicable law. The shares of
any such additional classes or series might therefore differ from
the shares of the present class and series of capital stock and
from each other as to preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends,
qualifications or terms or conditions of redemption, subject to
applicable law, and might thus be superior or inferior to the
capital stock or to other classes or series in various
characteristics. The Board of Directors may increase or decrease
the aggregate number of shares of stock or the number of shares
of stock of any class or series that the Funds have authorized to
issue without shareholder approval.
Each share of each series has equal voting rights with
every other share of every other series, and all shares of all
series vote as a single group except where a separate vote of any
class or series is required by the Investment Company Act of
1940, the laws of the State of Maryland, the Funds' Articles of
PAGE 41
Incorporation, the By-Laws of the Corporation, or as the Board of
Directors may determine in its sole discretion. Where a separate
vote is required with respect to one or more classes or series,
then the shares of all other classes or series vote as a single
class or series, provided that, as to any matter which does not
affect the interest of a particular class or series, only the
holders of shares of the one or more affected classes or series
is entitled to vote. The preferences, rights, and other
characteristics attaching to any series of shares, including the
present series of capital stock, might be altered or eliminated,
or the series might be combined with another series, by action
approved by the vote of the holders of a majority of all the
shares of all series entitled to be voted on the proposal,
without any additional right to vote as a series by the holders
of the capital stock or of another affected series.
Shareholders are entitled to one vote for each full
share held (and fractional votes for fractional shares held) and
will vote in the election of or removal of directors (to the
extent hereinafter provided) and on other matters submitted to
the vote of shareholders. There will normally be no meetings of
shareholders for the purpose of electing directors unless and
until such time as less than a majority of the directors holding
office have been elected by shareholders, at which time the
directors then in office will call a shareholders' meeting for
the election of directors. Except as set forth above, the
directors shall continue to hold office and may appoint successor
directors. Voting rights are not cumulative, so that the
holders of more than 50% of the shares voting in the election of
directors can, if they choose to do so, elect all the directors
of the Funds, in which event the holders of the remaining shares
will be unable to elect any person as a director. As set forth
in the By-Laws of the Corporation, a special meeting of
shareholders of the Corporation shall be called by the Secretary
of the Corporation on the written request of shareholders
entitled to cast at least 10% of all the votes of the
Corporation, entitled to be cast at such meeting. Shareholders
requesting such a meeting must pay to the Corporation the
reasonably estimated costs of preparing and mailing the notice of
the meeting. The Corporation, however, will otherwise assist the
shareholders seeking to hold the special meeting in communicating
to the other shareholders of the Corporation to the extent
required by Section 16(c) of the 1940 Act.
FEDERAL AND STATE REGISTRATION OF SHARES
The Funds' shares are registered for sale under the
Securities Act of 1933 and the Funds or their shares are
PAGE 42
registered under the laws of all states which require
registration, as well as the District of Columbia and Puerto
Rico.
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman LLP, whose
address is 919 Third Avenue, New York, New York 10022, is legal
counsel to the Funds.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 7 St. Paul Street, Suite 1700,
Baltimore, Maryland 21202, are independent accountants to the
Funds. The financial statements of each Fund for the year ended
December 31, 1994, and the report of independent accountants are
included in the Funds' Annual Report for the year ended December
31, 1994 on pages 7-13. A copy of the Annual Report accompanies
this Statement of Additional Information. The following
financial statements and the report of independent accountants
appearing in the Annual Report for the year ended December 31,
1994, are incorporated into this Statement of Additional
Information by reference:
Annual
Report Page
_____________
Report of Independent Accountants 13
Statement of Net Assets, December 31, 1994 7
Statement of Operations, year ended
December 31, 1994 8
Statement of Changes in Net Assets, years ended
December 31, 1994 and December 31, 1993 9
Notes to Financial Statements,
December 31, 1994 10
Financial Highlights 11-12
