<PAGE>
- -------------------------------------------------------------------------------
Fellow Shareholders
- -------------------------------------------------------------------------------
There were few safe havens for investors in 1994. In the U.S. both stocks and
bonds suffered from the effects of rising interest rates, shown below. Among
fixed-income investments, money market securities were about the only source
of positive returns. On the stock side, the notable exceptions to lackluster
or negative results were technology stocks and some natural resource issues.
The equity and bond pictures were more mixed outside the U.S., but were
generally disappointing.
- -------------------------------------------------------------------------------
Interest Rate Levels
- -------------------------------------------------------------------------------
[CHART APPEARS HERE]
T. Rowe Price Spectrum Income Fund
- ----------------------------------
Interest Rate Levels: A three line chart showing yields on 90-day Treasury
bills, 5-year Treasury Notes, and 30-year Treasury bonds from 12/31/93 to
12/31/94.
A series of shocks in the final quarter reversed the previous
quarter's encouraging progress in both the stock and bond markets. First, in
early November, the Federal Reserve continued its efforts to preempt a rise
in inflation by announcing its sixth and largest increase this year in the
target for the key federal funds rate. Next, ripple effects from the
bankruptcy of Orange County, California, disrupted the fixed-income markets
far beyond the sphere of California municipal securities. Finally, Mexico's
dramatic devaluation of the peso torpedoed Latin American investments, which
had been enjoying tremendous worldwide popularity.
- --------------------------------------------------------------------------------
Spectrum Growth Fund
- --------------------------------------------------------------------------------
Repeating the overall market pattern, your Fund's excellent third quarter was
basically wiped out by negative results in the final three months. For the
year as a whole, the Fund provided a positive but modest return that was
about even with the 1.3% gain of the overall U.S. market as represented by
the unmanaged Standard & Poor's 500 Stock Index. While we were pleased that
your Fund surpassed its competitive benchmark index for both the quarter and
the year, as shown below, we were not happy with such dull performance.
- -------------------------------------------------------------------------------
Performance Comparison
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 12/31/94
3 Months 12 Months
----------------------
<S> <C> <C>
Spectrum Growth Fund -1.5% 1.4%
Lipper Growth & Income
Fund Index* -1.9 -0.7
</TABLE>
- --------------------------------------------------------------------------------
* Based on the 30 largest growth & income funds.
During the year, we slightly reduced Spectrum Growth's weighting in
underlying funds with a "value" orientation, namely the Equity Income and
Growth & Income Funds. In light of the above-market return of the Equity
Income Fund for 1994 (up 4.5%), this move may have cost us a bit in performance.
Nevertheless, we continue to expect growth stocks to become the new market
leaders as the economy gradually slows from its vigorous pace and the consistent
earnings gains of growth companies attract investors. Accordingly, we increased
our holdings of both large- and small-cap growth stocks as represented by the
Growth Stock and New Horizons Funds, respectively. The Growth Stock Fund was our
largest weighting (23%) at year-end.
To take advantage of the improving earnings of natural resource
stocks, which typically do well in the later stages of economic cycles, we
raised our exposure to the New
<PAGE>
Era Fund during the year before paring it slightly in the last quarter. This
Fund's 5.2% return for 1994 contributed positively to Spectrum Growth's
performance.
Reflecting the indifferent returns of most foreign stock markets, our
significant exposure to foreign stocks was largely a neutral influence on
Fund results until the fourth quarter's Mexican currency debacle initiated a
downward spiral. Thus, our substantial weighting (25%) in foreign stocks,
most of which reflects our International Stock Fund holding, was a negative
contributor for the year.
- -------------------------------------------------------------------------------
Security Diversification
- -------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
Spectrum Growwth Fund - Pie Chart
<TABLE>
<CAPTION>
Money Domestic Internation
Markets Stocks Stocks Bonds Total
<S> <C> <C> <C> <C> <C>
12/31/94 8 65 25 2 100
</TABLE>
We are stalwart in our belief that, over time, international stocks
will provide attractive returns as well as an excellent source of
diversification for our U.S.-dominated portfolio. Therefore, we are
maintaining our significant exposure in this area. For reasons mentioned, we
also feel confident that our tilt toward growth stocks will pay off in the
coming months.
- -------------------------------------------------------------------------------
Spectrum Income Fund
- -------------------------------------------------------------------------------
For 1994, your Fund fared better than the overall U.S. bond market's return
of -2.9% as measured by the broad-based Lehman Brothers Aggregate Bond Index.
In addition, Spectrum Income Fund consistently outperformed the average fund
in its Lipper category, as shown below. Nevertheless, the Fund was not immune
to the terrible bond market environment; favorable returns on our investment
in the Prime Reserve and Equity Income Funds (together totaling 20% of net
assets) reduced, but were unable to fully offset, declines in other areas. We
realize that your Fund's good comparative results are small comfort when
absolute returns were, in fact, negative.
- -------------------------------------------------------------------------------
Performance Comparison
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 12/31/94
3 Months 12 Months
----------------------
<S> <C> <C>
Spectrum Income Fund -0.43% -1.94%
Lipper Flexible Income
Funds Average* -0.95 -3.69
</TABLE>
- --------------------------------------------------------------------------------
* Composed of income-oriented funds that invest in stocks and bonds.
During the second half of 1994, we increased our weighting in mortgage-
backed securities and other longer-term, high-grade bonds primarily by
raising our commitments to the GNMA and New Income Funds. This strategy
reflected our expectation that longer-term interest rates would not go much
higher and would possibly decline somewhat in the coming months. In this
event, the high coupon income generated by these portfolios, possibly
enhanced by some appreciation, should provide solid returns. The results we
hoped for were not realized in the fourth quarter, as the Fed's continued
tightening depressed bond returns. Nevertheless, our forecast and our
emphasis on these securities are unchanged.
One move we made in the first half of the year--a small increase in
our investment in the High Yield Bond Fund--hurt us as U.S. rates rose and
emerging-country bonds collapsed. We have trimmed this allocation, but still
maintain 17% of net assets in lower-rated bonds, which we believe will
perform well as long as the U.S. economy remains healthy.
We continued to reduce our exposure to high-quality foreign bonds,
represented primarily by the International Bond Fund. As we discussed in our
previous report, economies overseas are recovering from their recent
2
<PAGE>
slumps, and we do not see much potential for further rate declines. In
addition, higher U.S. interest rates may help strengthen the dollar versus
other currencies, which would reduce returns on foreign bonds for U.S.
investors.
- -------------------------------------------------------------------------------
Security Diversification
- -------------------------------------------------------------------------------
[PIE CHART APPEARS HERE]
SPECTRUM INCOME FUND GRID - ANNUAL
Ending December 31, 1994
----------------------------------------------------------------
Security Diversification (Pie Chart)
<TABLE>
<S> <C>
High-Grade Bonds 46%
Money Markets 12%
High-Yield Bonds 17%
International Bonds 11%
Stocks 14%
</TABLE>
Spectrum Income Fund enjoys unusually wide diversification for an
income fund, the benefits of which are evident in the Fund's performance
versus its benchmarks. To be sure, there are times when holdings in a
particular sector reduce overall returns. But it is important to remember
that attempts to "time" investments to be exclusively in the right areas at
the right time are generally futile; your Fund's broad reach virtually
assures that it will benefit from market sectors, including equities, whenever
they are performing well.
OUTLOOK
The U.S. economy should continue to perform reasonably well in 1995, with
good corporate earnings and dividend growth, and we expect overseas economies
to accelerate when it becomes clearer that U.S. interest rates have stopped
rising. In the near term, we expect a mild acceleration in inflation to
result in a small rise in rates, but much less than in 1994. Consequently,
we look for positive but not spectacular progress in the equity markets and a
return to positive fixed-income returns.
Respectfully submitted,
/s/ Peter Van Dyke
Peter Van Dyke
President and Chairman of the
Investment Advisory Committee
January 23, 1995
3
<PAGE>
- --------------------------------------------------------------------------------
Spectrum Growth Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Change in Price Per Share Periods Ended 12/31/94
- -----------------------------------------------------------------
<S> <C>
3 Months (From $12.22 to $11.13) $-1.09
12 Months (From $11.87 to $11.13) -0.74
Dividend Per Share (12 months) 0.17
- -----------------------------------------------------------------
Capital Gains Per Share (12 months) 0.73
- -----------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
Ten Largest Holdings
- -------------------------------------------------------------------------------
Of the combined underlying funds at December 31, 1994
<TABLE>
<CAPTION>
Percent of
Company Net Assets
- ------------------------------------------- ----------
<S> <C>
Atlantic Richfield 1.0 %
Royal Dutch Petroleum 0.8
Viacom 0.8
GE 0.8
Schlumberger 0.7
Mobil 0.7
CUC International 0.7
Paychex 0.6
Wal-Mart 0.6
Texaco 0.5
- ----------------------------------------------------------
Total 7.2 %
</TABLE>
- -------------------------------------------------------------------------------
Allocations
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Minimum-
Underlying Fund Maximum 12/31/94
- -----------------------------------------------------------
<S> <C> <C>
Prime Reserve 0-25% 0.0%
Equity Income 5-20 11.0
Growth & Income 5-20 13.0
Growth Stock 15-30 23.0
New Era 10-25 14.0
International Stock 5-20 20.0
New Horizons 10-25 19.0
</TABLE>
- -------------------------------------------------------------------------------
Spectrum Income Fund
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Key Statistics
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dividend Yield* Periods Ended 12/31/94
- -------------------------------------------------------------
<S> <C>
3 Months 6.77%
12 Months 6.65
Dividend Per Share
- -------------------------------------------------------------
3 Months $ 0.17
12 Months 0.69
Capital Gains Per Share (12 months) 0.10
- -------------------------------------------------------------
Change in Price Per Share
- -------------------------------------------------------------
3 Months (From $10.43 to $10.11) $-0.32
12 Months (From $11.11 to $10.11) -1.00
Weighted Average Quality** 2.5***
- -------------------------------------------------------------
Weighted Average Maturity 7.9 yrs.***
</TABLE>
- --------------------------------------------------------------------------------
* Dividends earned and reinvested for the periods indicated are
annualized and divided by the average daily net asset values per share
for the same period.
** On a scale of 1 to 10, with Grade 1 representing highest quality.
*** Excludes the Equity Income Fund.
- --------------------------------------------------------------------------------
Allocations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Minimum-
Underlying Fund Maximum 12/31/94
- ----------------------------------------------------------
<S> <C> <C>
Prime Reserve 5-30% 5.0%
Short-Term Bond 0-15 3.0
GNMA 5-20 17.0
New Income 15-30 26.0
High Yield 10-25 20.0
International Bond 5-20 14.0
Equity Income 10-25 15.0
</TABLE>
- --------------------------------------------------------------------------------
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
4
<PAGE>
- -------------------------------------------------------------------------------
Spectrum Growth Fund
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Fiscal-Year Performance Comparison
- -------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Fund Name: Spectrum Growth
Fiscal-Year Performance Comparison: A two-line chart comparing the growth in an
initial $10,000 investment in the Fund with the same investment in the S&P 500
Index starting on 6/30/90 and ending on 12/31/94.
- -------------------------------------------------------------------------------
Fiscal-Year Performance
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended December 31, 1994
- -------------------------------------------------------
<S> <C>
1 Year 1.40%
Since Inception (6/29/90)* 10.00%
</TABLE>
- --------------------------------------------------------------------------------
* Average Annual Compound Total Return
- -------------------------------------------------------------------------------
Spectrum Income Fund
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Fiscal-Year Performance Comparison
- -------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Fund Name: Spectrum Income
Fiscal-Year Performance Comparison: A two-line chart comparing the growth in an
initial $10,000 investment in the Fund with the same investment in the Salomon
Brothers Broad Investment-Grade Index starting on 6/30/90 and ending on
12/31/94.
- -------------------------------------------------------------------------------
Fiscal-Year Performance
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended December 31, 1994
- -------------------------------------------------------
<S> <C>
1 Year -1.94%
Since Inception (6/29/90)* 8.75%
</TABLE>
- --------------------------------------------------------------------------------
* Average Annual Compound Total Return
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
5
<PAGE>
- -------------------------------------------------------------------------------
Investment Record
T. Rowe Price Spectrum Funds
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Spectrum Growth Fund -- Per-Share Data
- -------------------------------------------------------------------------------
The table below shows the investment record of one share of the T. Rowe Price
Spectrum Growth Fund, purchased at the initial offering price of $10.00, for
the period 6/29/90 through 12/31/94. Over this time stock prices in general
have risen. The results shown should not be considered a representation of
the dividend income or capital gain or loss which may be realized from an
investment made in the Fund today.
<TABLE>
<CAPTION>
With Capital Gains and Income Dividends
-----------------------------------------
Taken in Cash Reinvested in Additional Shares Annual Total Return
----------------------------------- -------------------------------------- On Investment
Periods Net Capital Capital % Change
Ended Asset Gain Income Gain Income Value of ---------------------
12/31 Value Distributions/1/ Dividend Distributions Dividend Investment Fund S&P 500
------- ------ ---------------- -------- ------------- -------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990/2/ $ 8.52 $0.28 $0.19 $0.28 $0.19 $ 8.99 -10.1% 3.4%
1991 10.53 0.32 0.21 0.33 0.22 11.68 29.9 30.3
1992 10.54 0.55 0.20 0.59 0.22 12.52 7.2 7.6
1993 11.87 0.72 0.16 0.86 0.19 15.15 21.0 10.1
1994 11.13 0.73 0.17 0.93 0.22 15.36 1.4 1.3
-------------------------------------------------------------------------------------------------------------------
Total $2.60 $0.93 $2.99 $1.04
-------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Includes short-term capital gains of $0.06 in 1991; $0.02 in 1992; $0.08
in 1993; and $0.09 in 1994 which are taxable to shareholders at ordinary
income rates.
/2/ From inception 6/29/90 to 12/31/90.
- -------------------------------------------------------------------------------
Spectrum Income Fund -- Per-Share Data
- -------------------------------------------------------------------------------
The table below shows the investment record of one share of the T. Rowe Price
Spectrum Income Fund, purchased at the initial offering price of $10.00, for the
period 6/29/90 through 12/31/94. The results shown should not be considered a
representation of the dividend income or capital gain or loss which may be
realized from an investment made in the Fund today.
<TABLE>
<CAPTION>
Adjusted to Reflect Reinvestment
--------------------------------
Income Cumulative Dollars Annual Percentage Return
Periods Net Dividend ---------------------------- ---------------------------------------
Ended Asset Taken in Income Value of Income Change in Total
12/31 Value Cash Dividend Investment/2/ Return Net Asset Value/2/ Return/2/
------- ------ -------- -------- -------------- ------ ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1990/1/ $ 9.77 $0.44 $0.45 $10.27 4.5% -1.8% 2.7%
1991 10.73 0.83 1.44 12.28 9.2 10.4 19.6
1992 10.70 0.76 2.35 13.24 7.3 0.5 7.8
1993 11.11 0.69 3.39 14.88 6.8 5.6 12.4
1994 10.11 0.69 4.00 14.59 6.2 -8.1 -1.9
----------------------------------------------------------------------------------------------------------------
Total $3.41
----------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ From inception 6/29/90 to 12/31/90.
/2/ Also reflects reinvestment of $0.02 long-term capital gain and $0.03
short-term capital gain distributions in 1990; $0.03 long-term capital
gain and $0.03 short-term capital gain distributions in 1991; $0.05
long-term capital gain and $0.03 short-term capital gain distributions
in 1992; $0.11 long-term capital gain and $0.08 short-term capital
gain distributions in 1993; and $0.05 long-term capital gain and $0.05
short-term capital gain distributions in 1994.
6
<PAGE>
- -------------------------------------------------------------------------------
Statement of Net Assets (Value in thousands)
T. Rowe Price Spectrum Funds / December 31, 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Growth Fund Investments
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
--------
<S> <C> <C>
10,686,793 shs. T. Rowe Price Growth Stock
Fund............................... $200,377
15,395,063 T. Rowe Price International
Stock Fund......................... 174,272
11,472,535 T. Rowe Price New Horizons
Fund............................... 169,335
6,065,349 T. Rowe Price New Era Fund............ 122,217
7,238,105 T. Rowe Price Growth & Income
Fund............................... 113,132
5,986,248 T. Rowe Price Equity Income
Fund............................... 95,660
339,018 T. Rowe Price Prime Reserve
Fund............................... 339
- ------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.5% OF NET ASSETS
(COST $873,794) 875,332
- ------------------------------------------------------------------------
Other Assets Less Liabilities 4,034
NET ASSETS CONSISTING OF:
Accumulated realized gains/
losses -- net of distributions...... $ 4,074
Net unrealized gain..................... 1,538
Paid-in-capital applicable to
78,990,570 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares of Spectrum
authorized.......................... 873,754
--------
NET ASSETS $879,366
========
NET ASSET VALUE PER SHARE $11.13
======
</TABLE>
- -------------------------------------------------------------------------------
Income Fund Investments
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
--------
<S> <C>
19,011,783 shs. T. Rowe Price New Income
Fund............................... $159,509
16,182,707 T. Rowe Price High Yield
Fund............................... 125,416
11,914,883 T. Rowe Price GNMA Fund............... 105,804
5,832,385 T. Rowe Price Equity Income
Fund............................... 93,201
9,278,662 T. Rowe Price International
Bond Fund.......................... 86,663
31,272,955 T. Rowe Price Prime Reserve
Fund............................... 31,273
4,177,477 T. Rowe Price Short-Term Bond
Fund............................... 19,342
- ------------------------------------------------------------------------
TOTAL INVESTMENTS -- 99.4% OF NET ASSETS
(COST $659,542) 621,208
- ------------------------------------------------------------------------
Other Assets Less Liabilities 3,732
NET ASSETS CONSISTING OF:
Accumulated realized gains/
losses -- net of distributions $ 1,316
Net unrealized loss..................... (38,334)
Paid-in-capital applicable to
61,807,446 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares of Spectrum
authorized.......................... 661,958
--------
NET ASSETS $624,940
========
NET ASSET VALUE PER SHARE $10.11
======
- ------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
- -------------------------------------------------------------------------------
Statement of Operations
- -------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds / Year Ended December 31, 1994
<TABLE>
<CAPTION>
Growth Income
Fund Fund
--------- --------
(Amounts in thousands)
<S> <C> <C>
INVESTMENT INCOME
Income distributions from Underlying Funds..................................... $ 12,230 $ 39,951
-------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Sale of Underlying Funds................................................... 5,394 (230)
Capital gain distributions from Underlying Funds........................... 52,394 7,518
-------- --------
Net realized gain.......................................................... 57,788 7,288
Change in net unrealized gain or loss.......................................... (59,702) (59,602)
-------- --------
Net realized and unrealized loss............................................... (1,914) (52,314)
-------- --------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 10,316 $(12,363)
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
8
<PAGE>
- -------------------------------------------------------------------------------
Statement of Changes in Net Assets
- -------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds
<TABLE>
<CAPTION>
Growth Fund Income Fund
------------------------- ------------------------
Year Ended December 31, Year Ended December 31,
1994 1993 1994 1993
----------- --------- --------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Income distributions................................. $ 12,230 $ 7,197 $ 39,951 $ 30,918
Net realized gain.................................... 57,788 33,587 7,288 10,294
Change in net unrealized gain or loss................ (59,702) 50,137 (59,602) 15,013
--------- -------- -------- --------
Increase (decrease) in net assets from operations.... 10,316 90,921 (12,363) 56,225
--------- -------- -------- --------
Distributions to shareholders
Net investment income................................ (12,230) (7,015) (39,951) (31,008)
Net realized gain.................................... (53,228) (33,219) (6,247) (9,974)
--------- -------- -------- --------
Decrease in net assets from distributions............ (65,458) (40,234) (46,198) (40,982)
--------- -------- -------- --------
Capital share transactions/1/
Shares sold.......................................... 412,180 227,185 268,102 291,924
Distributions reinvested............................. 62,074 39,608 40,313 36,129
Shares redeemed...................................... (124,622) (87,738) (212,845) (131,800)
--------- -------- -------- --------
Increase in net assets from capital share transactions 349,632 179,055 95,570 196,253
--------- -------- -------- --------
Increase in net assets................................... 294,490 229,742 37,009 211,496
NET ASSETS
Beginning of year.................................... 584,876 355,134 587,931 376,435
--------- -------- -------- --------
End of year.......................................... $ 879,366 $584,876 $624,940 $587,931
========= ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
/1/Capital share transactions (number of shares)
Shares sold.......................................... 34,623 19,948 25,117 26,244
Distributions reinvested............................. 5,613 3,343 3,858 3,245
Shares redeemed...................................... (10,518) (7,711) (20,072) (11,772)
--------- -------- -------- --------
Increase in capital shares outstanding............... 29,718 15,580 8,903 17,717
========= ======== ======== ========
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
9
<PAGE>
- -------------------------------------------------------------------------------
Notes to Financial Statements
- -------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds / December 31, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Spectrum Fund, Inc. (Spectrum) is registered under the
Investment Company Act of 1940. Spectrum Growth Fund (the Growth Fund) and
Spectrum Income Fund (the Income Fund), non-diversified, open-end management
investment companies, are the two portfolios established by Spectrum.
The Growth Fund and Income Fund invest in other mutual funds (the
Underlying Funds) sponsored and managed by T. Rowe Price Associates, Inc.
A) Security valuation - Investments in the Underlying Funds are valued at the
closing net asset value per share of each Underlying Fund on the day of
valuation.
B) Other - Income is recorded on the accrual basis. Distributions from the
Underlying Funds and distributions to Spectrum's shareholders are recorded on
the ex-dividend date. Purchases and sales of the Underlying Funds are
accounted for on the trade date. Realized gains and losses are reported on
an identified cost basis. Capital gain distributions are determined in
accordance with federal income tax regulations which may differ from
generally accepted accounting principles.
NOTE 2 - UNDERLYING FUND TRANSACTIONS
Purchases and sales of the Underlying Funds for the year ended December 31,
1994, were as follows:
<TABLE>
<CAPTION>
Growth Income
Fund Fund
-------- --------
(Amounts in thousands)
<S> <C> <C>
Purchases $503,361 $235,898
Sales 158,060 143,497
</TABLE>
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since each Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income.
At December 31, 1994, the aggregate cost of the Underlying Funds held
by the Growth Fund and Income Fund for federal income tax and financial
reporting purposes was $873,794,000 and $659,542,000, respectively. Net
unrealized gain or loss of the Underlying Funds was as follows:
<TABLE>
<CAPTION>
Growth Income
Fund Fund
-------- --------
(Amounts in thousands)
<S> <C> <C>
Appreciated Funds $ 14,238 $ 2,332
Depreciated Funds (12,700) (40,666)
-------- --------
Net Unrealized Gain (Loss) $ 1,538 $(38,334)
======== ========
</TABLE>
NOTE 4 - INVESTMENT MANAGER
The Growth Fund and Income Fund are managed by T. Rowe Price Associates, Inc.
(the Manager). Each Fund operates at a zero expense ratio by virtue of a
Special Servicing Agreement (the Agreement) between and among Spectrum, the
Underlying Funds, the Manager and T. Rowe Price Services, Inc. The Agreement
provides that each Underlying Fund will bear expenses associated with the
operation of Spectrum in proportion to the average daily value of its shares
owned by Spectrum.
10
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights
- -------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds
<TABLE>
<CAPTION>
For a share outstanding throughout each period
--------------------------------------------------
June 29, 1990
Year Ended December 31, (Commencement of
------------------------------------------ Operations) to
1994 1993 1992 1991 December 31, 1990
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Spectrum Growth Fund
NET ASSET VALUE,
BEGINNING OF PERIOD........................... $ 11.87 $ 10.54 $ 10.53 $ 8.52 $ 10.00
------- ------- ------- ------- ------
Investment Activities
Income distributions from
Underlying Funds............................ 0.17 0.16 0.20 0.21 0.20
Net realized and unrealized
gain (loss)................................. (0.01) 2.05 0.56 2.33 (1.21)
------- ------- ------- ------- ------
Total from Investment Activities.............. 0.16 2.21 0.76 2.54 (1.01)
------- ------- ------- ------- ------
Distributions
Income........................................ (0.17) (0.16) (0.20) (0.21) (0.19)
Net realized gain............................. (0.73) (0.72) (0.55) (0.32) (0.28)
------- ------- ------- ------- ------
Total Distributions........................... (0.90) (0.88) (0.75) (0.53) (0.47)
------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD.................... $ 11.13 $ 11.87 $ 10.54 $ 10.53 $ 8.52
======= ======= ======= ======= ======
- -----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return...................................... 1.40% 21.0% 7.2% 29.9% (10.1)%
Ratio of Expenses to Average Net Assets........... 0.00% 0.00% 0.00% 0.00% 0.00%+
Ratio of Net Investment Income to
Average Net Assets............................ 1.60% 1.57% 2.15% 2.77% 4.50%+
Portfolio Turnover Rate........................... 20.7% 7.0% 7.9% 14.6% 33.4%+
Net Assets, End of Period
(in thousands)................................ $879,366 $584,876 $355,134 $148,661 $35,387
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
11
<PAGE>
- -------------------------------------------------------------------------------
Financial Highlights (cont.)
- -------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds
<TABLE>
<CAPTION>
For a share outstanding throughout each period
---------------------------------------------------
June 29, 1990
Year Ended December 31, (Commencement of
---------------------------------------------------------- Operations) to
1994 1993 1992 1991 December 31, 1990
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Spectrum Income Fund
NET ASSET VALUE,
BEGINNING OF PERIOD...................... $ 11.11 $ 10.70 $ 10.73 $ 9.77 $ 10.00
------- ------- ------- ------- ------
Investment Activities
Income distributions from
Underlying Funds ...................... 0.69 0.69 0.76 0.82 0.44
Net realized and unrealized
gain (loss)............................ (0.90) 0.60 0.05 1.03 (0.18)
------- ------- ------- ------- ------
Total from Investment Activities............. (0.21) 1.29 0.81 1.85 (0.26)
------- ------- ------- ------- ------
Distributions
Income................................... (0.69) (0.69) (0.76) (0.83) (0.44)
Net realized gain........................ (0.10) (0.19) (0.08) (0.06) (0.05)
------- ------- ------- ------- ------
Total Distributions.......................... (0.79) (0.88) (0.84) (0.89) (0.49)
------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD............... $ 10.11 $ 11.11 $ 10.70 $ 10.73 $ 9.77
======= ======= ======= ======= ======
- -------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return................................. (1.9)% 12.4% 7.8% 19.6% 2.7%
Ratio of Expenses to Average Net Assets...... 0.00% 0.00% 0.00% 0.00% 0.00%+
Ratio of Net Investment Income to
Average Net Assets....................... 6.48% 6.19% 7.10% 8.03% 9.58%+
Portfolio Turnover Rate...................... 23.1% 14.4% 14.2% 18.8% 36.9%+
Net Assets, End of Period
(in thousands)........................... $624,940 $587,931 $376,435 $147,859 $40,082
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
12
<PAGE>
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Report of Independent Accountants
- -------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Spectrum Fund, Inc.
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the selected per
share data and information (which appears under the heading "Financial
Highlights") present fairly, in all material respects, the financial position
of Spectrum Growth Fund and Spectrum Income Fund (the two portfolios
constituting T. Rowe Price Spectrum Fund, Inc.) at December 31, 1994, and the
results of each of their operations, the changes in each of their net assets
and the selected per share data and information for each of the fiscal
periods presented, in conformity with generally accepted accounting
principles. These financial statements and selected per share data and
information (hereafter referred to as "financial statements") are the
responsibility of the Funds' management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Baltimore, Maryland
January 19, 1995
13
<PAGE>
- -------------------------------------------------------------------------------
Shareholder Services
- -------------------------------------------------------------------------------
To help shareholders monitor their current investments and make decisions
that accurately reflect their financial goals, T. Rowe Price offers a wide
variety of information and services--at no extra cost.
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE--Shareholder service representatives are available from 8:00 a.m. to
10:00 p.m., Monday - Friday, and weekends from 9:00 a.m. to 5:00 p.m., ET.
Call 1-800-225-5132 to speak directly with a representative who will be able
to assist you with your accounts.
IN PERSON--Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. While
there, you can drop off applications or obtain prospectuses and other
literature.
AUTOMATED 24-HOUR SERVICES
Tele*Access/(R)/ (1-800-638-2587) provides information such as
account balance, date and amount of your last transaction, latest dividend
payment, and fund prices and yields. Additionally, you have the ability to
request prospectuses, statements, account and tax forms; reorder checks; and
initiate purchase, redemption, and exchange orders for identically registered
accounts.
PC*Access/(R)/ provides the same information as Tele*Access, but on a
personal computer via dial-up modem.
ACCOUNT SERVICES
Checking--Write checks for $500 or more on any money market and most
bond fund accounts.
Automatic Investing--Build your account over time by investing
directly from your bank account or paycheck with Automatic Asset Builder.
Additionally, Automatic Exchange enables you to set up systematic investments
from one fund account into another, such as from a money fund into a stock
fund. A low, $50 minimum makes it easy to get started.
Automatic Withdrawal--If you need money from your fund account on a
regular basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options--Reinvest all or some of
your distributions, or take them in cash. We give you maximum flexibility and
convenience.
INVESTMENT INFORMATION
Combined Statement--A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides
total portfolio value, and lists your investments by type--stock, bond, and
money market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports--Portfolio managers review the
performance of the funds in plain language and discuss T. Rowe Price's
economic outlook.
The T. Rowe Price Report--A quarterly newsletter with relevant
articles on market trends, personal financial planning, and T. Rowe Price's
economic perspective.
Insights--A library of information that includes reports on mutual
fund tax issues, investment strategies, and financial markets.
Detailed Investment Guides--Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, Retirement Planning Kit (also
available on disk for PC use), and Guide to Risk-Adjusted Performance can
help you determine and reach your investment goals.
DISCOUNT BROKERAGE
You can trade stocks, bonds, options, precious metals, and other securities
at a substantial savings over regular commission rates. Call a shareholder
service representative for more information.
14
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price No-Load Mutual Funds
- --------------------------------------------------------------------------------
STABILITY
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money
Market
Tax-Exempt Money
CONSERVATIVE INCOME
Adjustable Rate
U.S. Government
Short-Term Bond
Short-Term Global Income
Summit Limited-Term Bond
U.S. Treasury Intermediate
Florida InsuredIntermediate
Tax-Free
Maryland Short-Term
Tax-Free Bond
Summit Municipal
Intermediate
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
INCOME
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond
Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
AGGRESSIVE INCOME
Emerging Markets Bond
High Yield
International Bond
Tax-Free High Yield
CONSERVATIVE GROWTH
Balanced
Capital Appreciation
Dividend Growth
Equity Income
Equity Index
Growth & Income
Spectrum Growth
Value
GROWTH
Blue Chip Growth
European Stock
Growth Stock
International Stock
Japan
Mid-Cap Growth
New Era
Small-Cap Value
AGGRESSIVE GROWTH
Capital Opportunity
International Discovery
Latin America
New America Growth
New Asia
New Horizons
OTC
Science & Technology
PERSONAL STRATEGY FUNDS
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
Call if you want to know about any T. Rowe Price Fund. We'll send you a
prospectus with more complete information, including management fees and
other expenses. Read it carefully before you invest or send money.
15
<PAGE>
ANNUAL REPORT
T. Rowe Price
- -------------
SPECTRUM FUNDS
DECEMBER 31, 1994
FOR YIELD, PRICE, LAST TRANSACTION, AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
FOR ASSISTANCE WITH YOUR EXISTING FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to
others who have received a copy of the prospectus of the T. Rowe Price
Spectrum Funds.
T. Rowe Price
Invest With Confidence/(R)/
SPC
