<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
Keeping your eggs in many different baskets proved timely in 1995, as shown by
the stellar performance of the Spectrum Funds. U.S. stock and bond markets
enjoyed broad-based rallies, propelled by nearly perfect conditions: falling
interest rates, rising corporate earnings, a slowing yet fundamentally sound
economy, subdued inflation, and prospects for a balanced budget. The U.S. stock
market, as measured by the unmanaged Standard & Poor's Stock Index, continued
its bull run through the second half, rising more than 14%, and bringing its
full-year gain to 37.6%, the best since 1958.
While large-capitalization, technology, financial, and health care stocks
led the way, the bull charged its way into nearly every equity category. The
technology rally faded in the fourth quarter, hurt by profit-taking and earnings
disappointments at some semiconductor firms, but the market as a whole suffered
no serious correction all year.
After sputtering briefly in the summer, bonds regained momentum on
continued signs of subdued inflation and the renewed vigor of budget-balancing
efforts in Washington. Although budget negotiations reached an impasse, the
markets cheered the bipartisan determination to eventually achieve fiscal
prudence. As measured by the Lehman Brothers Aggregate Bond Index, the market
returned almost 18.5% for 1995 and just over 6% for the second half. Over the
last six months, interest rates fell across all maturities. The market expected
further easing by the Federal Reserve to help the private sector compensate for
slower growth in federal spending. Indeed, in December the Fed lowered the key
federal funds target to 5.5%, its second cut in 1995. As the year ended, the
benchmark 30-year Treasury bond yield dipped below 6%, its lowest level since
1993 and nearly two percentage points lower than a year ago.
Foreign stocks, hampered earlier in the year by fallout from the Mexican
peso devaluation, rebounded over the last six months to
- --------------------------------------------------------------------------------
Interest Rate Levels
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
post solid gains for the year, though still well below their U.S. counterparts.
Europe was the best performing region over the year. The Japanese market,
plagued by deflation and a banking loan crisis, improved in the last quarter,
reflecting a weaker yen and the slow economic recovery that began in midyear.
While some emerging markets recovered in the second half -- notably Mexico and
Brazil -- they declined as a group for the year, due to overall poor performance
in Latin America.
High-quality foreign bonds lost some momentum in the last six months as the
dollar strengthened against major foreign currencies, dampening returns to U.S.
investors. Nevertheless, buoyed by the dollar's weakness earlier in the year,
foreign bonds provided double-digit returns for the year, with the Salomon World
Government Bond Index (excluding the U.S.) gaining more than 19% in dollar
terms.
YEAR-END DISTRIBUTIONS
Spectrum Growth Fund's Board of Directors declared a fourth quarter dividend of
$0.21 per share, a short-term capital gain of $0.16 per share, and a long-term
capital gain of $0.60 per share. Spectrum Income's Board of Directors declared a
fourth quarter short-term capital
<PAGE>
gain of $0.02 and a long-term capital gain of $0.01. All distributions were paid
on December 28 to shareholders of record on December 26. You should already have
received a check or statement reflecting these distributions as well as your
Form 1099-DIV reporting them for tax purposes.
PERFORMANCE AND STRATEGY REVIEW
SPECTRUM GROWTH FUND
The Spectrum Growth Fund had an excellent year, as virtually all its well-
diversified holdings surged. The fund outperformed its peer group for the last
half of the year, but trailed slightly for the year due to exposure to foreign
stocks. The fund's second half performance was bolstered by small-company
stocks, held primarily in the New Horizons Fund, which gained 25.3%.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 12/31/95
6 Months 12 Months
-------- ---------
<S> <C> <C>
Spectrum Growth Fund 13.8% 30.0%
Lipper Growth & Income
Fund Index* 11.8 30.5
- --------------------------------------------------------------------------------
*Based on the 30 largest growth and income funds.
</TABLE>
After lagging U.S. stocks in 1995, foreign equity markets may be poised to
outperform. Therefore, we maintained a maximum allocation of 20% of net assets
to the International Stock Fund, raising the fund's total exposure to foreign
stocks to 31%, as shown in the chart. The slowing economy and possibility of a
market pullback persuaded us to lock in some gains in the New Horizons Fund,
which gained 55% in 1995. We increased our investment to 14% in the Equity
Income Fund, which holds large-company, high-dividend-paying stocks that should
be somewhat less vulnerable to a market downturn.
The fund's overall security diversification changed only slightly since our
last report, except for a 2% increase in foreign stocks and a 3% decrease in our
money market position.
- --------------------------------------------------------------------------------
Security Diversification
- --------------------------------------------------------------------------------
Spectrum Growth Fund
12/31/95
[PIE GRAPH APPEARS HERE]
<TABLE>
<S> <C>
U. S. Stocks 61%
International Stocks 31%
Money Markets 7%
Bonds 1%
</TABLE>
SPECTRUM INCOME FUND
Spectrum Income's performance was led by investments in the Equity Income and
International Bond Funds, which rose 33% and 20% for the year, respectively.
Equity Income continued to demonstrate its valuable role as Spectrum Income's
main vehicle for diversification away from strictly fixed income investments.
The fund's positions in the GNMA, High Yield, and New Income Funds also produced
double-digit annual returns. As a result, your fund had a stellar year,
comparing favorably with its Lipper benchmark in both reporting periods. Note:
the fund's benchmark was changed to the Lipper General Bond Funds Average, a
more appropriate peer group given the fund's income-oriented objectives./1/
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 12/31/95
6 Months 12 Months
-------- ---------
<S> <C> <C>
Spectrum Income Fund 7.0% 19.4%
Lipper General Bond Funds
Average 6.8 18.0
- --------------------------------------------------------------------------------
</TABLE>
/1/ Spectrum Income outperformed its previous benchmark, the Lipper Flexible
Income Funds Average, which gained 5.9% and 16.8% for the 6- and 12-month
periods ended 12/31/95, respectively.
<PAGE>
While 1995 will be a tough act to follow, the bond market should continue
to perform well in 1996, given the slowing economy and the Fed's apparently
settling into an easing mode. In the last six months, we slightly increased the
fund's exposure to high-grade bonds to just over half of net assets, since they
tend to outperform their high-yield (lower-quality) counterparts in such an
environment. The latter are more vulnerable to the pace of corporate earnings
growth, which is expected to slow this year.
- --------------------------------------------------------------------------------
Security Diversification
- --------------------------------------------------------------------------------
Spectrum Income Fund
12/31/95
[PIE GRAPH APPEARS HERE]
<TABLE>
<S> <C>
High-Grade Bonds 51%
High-Yield Bonds 18%
Stocks 14%
International Bonds 10%
Money Markets 7%
</TABLE>
We trimmed our commitment to international bonds from 11% to 10% since we
expect the dollar to strengthen against most foreign currencies, which would
dampen returns to U.S. investors. We held our equity exposure, through the
Equity Income Fund, steady at 14% of assets. This fund uses a value strategy to
select stocks with above-average dividends that can cushion declines if the U.S.
market suffers a correction.
OUTLOOK
The stock and bond markets are unlikely to repeat their exhilarating 1995
performances. However, the bond market's fundamentals continue to look good:
stable to lower interest rates, subdued inflation, and slower economic growth as
the expansion settles into its fifth year. On the other hand, the stock market
could retreat, especially sectors that had the most spectacular gains in 1995.
Among the trouble signs: the retailing sector's lackluster holiday sales may
foretell continued weakness; the spate of mergers and restructurings may lead to
increased layoffs, as evidenced by the 40,000 jobs cut at AT&T, further
restraining consumer spending; and corporate earnings may be disappointing. In
addition, the stock market could suffer if the budget stalemate remains
unresolved before the presidential election.
Looking abroad, foreign bonds are unlikely to repeat their robust
performance if, as we expect, the dollar strengthens against most currencies.
Conversely, we believe foreign stocks offer good value at this time. As global
economies improve, especially in Japan, the performance of these markets should
help the Spectrum Growth Fund.
The broad diversification of the Spectrum Funds offers the potential for
attractive returns over the long term with less volatility than more narrowly
focused funds. Declines in one sector can be balanced by advances in other,
unrelated sectors. While most markets did well in 1995, we believe the
advantages of diversification will be more apparent in coming months. We welcome
all our new shareholders, who helped push the Spectrum Funds' assets to more
than $2 billion in 1995, and we thank you all for your continued support.
Respectfully submitted,
/s/ Peter Van Dyke
Peter Van Dyke
President and Chairman of the
Investment Advisory Committee
January 17, 1996
<PAGE>
- --------------------------------------------------------------------------------
A Word on Market Corrections
- --------------------------------------------------------------------------------
After the stock market's spectacular run in 1995, concerns about a "correction"
have intensified. Most market observers consider a correction to be a short and
sometimes steep decline following a period of rising prices. Moderate
corrections of around 10% have been quite common, occurring on average about
once every two years over the last half-century, according to Ned Davis
Research.
The market as measured by the Dow Jones Industrial Average has not
experienced a moderate correction since early 1994. Furthermore, the Dow last
hit a bear market bottom -- defined as a drop of at least 20% -- in October
1990. Therefore, it would not be surprising to see a modest pullback in 1996, on
the order of 5% to 10%. In fact, as we write, the market has gotten off to a
rocky start.
Corrections are not only common, but can be beneficial for long-term
investors, especially those who invest in regular amounts through dollar cost
averaging. In a correction, overall stock prices decline, often leading to more
attractive valuations and good buying opportunities. History has shown that
investors who continue to buy through a downturn fare quite well. In fact, the
Dow has proven resilient in the aftermath of past corrections of around 10%,
taking an average of just six months to recover its losses, according to Ned
Davis. (To realize the benefits of dollar cost averaging, you should be prepared
to continuously purchase securities over a period of time, in up and down
markets. This approach does not assure a gain nor protect you from a loss in
declining markets.)
We raise the issue of a market correction not as a prediction, but as a
reminder that stock prices do not move in only one direction. If you are
satisfied that your investments are appropriate for your various objectives, we
recommend that you stay the course when a correction eventually occurs.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Spectrum Growth Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION> Periods Ended
Change in Price Per Share 12/31/95
- --------------------------------------------------------------------------------
<S> <C>
6 Months (From $12.71 to $13.49) $0.78
12 Months (From $11.13 to $13.49) 2.36
Dividend Per Share (12 months) 0.21
- --------------------------------------------------------------------------------
Capital Gain Per Share (12 months) 0.76
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Ten Largest Holdings
- --------------------------------------------------------------------------------
Of the combined underlying funds at December 31, 1995
<TABLE>
<CAPTION>
Percent of
Company Net Assets
- --------------------------------------------------------------------------------
<S> <C>
Royal Dutch Petroleum 1.1%
Atlantic Richfield 0.9
Schlumberger 0.8
GE 0.7
Freddie Mac 0.6
Great Lakes Chemical 0.6
Mobil 0.6
Texaco 0.5
Viacom 0.5
CUC International 0.5
- --------------------------------------------------------------------------------
Total 6.8%
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Allocations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Minimum- Target at
Underlying Fund Maximum 12/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
Prime Reserve Fund 0 - 25% 0.0%
Equity Income Fund 5 - 20 14.0
Growth & Income Fund 5 - 20 12.5
Growth Stock Fund 15 - 30 23.0
New Era Fund 10 - 25 13.0
International Stock Fund 5 - 20 20.0
New Horizons Fund 10 - 25 17.5
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Spectrum Income Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended
Dividend Yield* 12/31/95
- --------------------------------------------------------------------------------
<S> <C>
6 Months 6.57%
12 Months 6.86
Dividend Per Share
- --------------------------------------------------------------------------------
6 Months $0.36
12 Months 0.72
Capital Gain Per Share (12 months) 0.06
- --------------------------------------------------------------------------------
Change in Price Per Share
- --------------------------------------------------------------------------------
6 Months (From $10.88 to $11.24) $0.36
12 Months (From $10.11 to $11.24) 1.13
Weighted Average Quality** 2.4***
- --------------------------------------------------------------------------------
Weighted Average Maturity 8.1 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 T. Rowe Price scale of 1 to 10, with Grade 1 representing highest
quality.
*** Excludes the Equity Income Fund.
- --------------------------------------------------------------------------------
Allocations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Minimum- Target at
Underlying Fund Maximum 12/31/95
- --------------------------------------------------------------------------------
<S> <C> <C>
Prime Reserve Fund 5 - 30% 5.0%
Short-Term Bond Fund 0 - 15 2.0
GNMA Fund 5 - 20 17.5
New Income Fund 15 - 30 30.0
High Yield Fund 10 - 25 19.5
International Bond Fund 5 - 20 10.0
Equity Income Fund 10 - 25 16.0
================================================================================
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
Performance Comparison -- Spectrum Growth Fund
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Note: The index return does not reflect expenses, which have been deducted from
the fund's return
- --------------------------------------------------------------------------------
Performance Comparison -- Spectrum Income Fund
- --------------------------------------------------------------------------------
[LINE GRAPH APPEARS HERE]
Note: The index return does not reflect expenses, which have been deducted from
the fund's return
- --------------------------------------------------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
Spectrum Growth Fund
Periods Ended December 31, 1995
<TABLE>
<CAPTION>
Since Inception
1 Year 5 Years 6/29/90
------ ------- ---------------
<S> <C> <C>
29.96% 17.30% 13.38%
</TABLE>
- --------------------------------------------------------------------------------
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
- --------------------------------------------------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
Spectrum Income Fund
Periods Ended December 31, 1995
<TABLE>
<CAPTION>
Since Inception
1 Year 5 Years 6/29/90
------ ------- ---------------
<S> <C> <C>
19.41% 11.16% 10.61%
</TABLE>
- --------------------------------------------------------------------------------
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
<PAGE>
- --------------------------------------------------------------------------------
Investment Record
T. Rowe Price Spectrum Funds
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Spectrum Growth Fund -- Per Share Data
- --------------------------------------------------------------------------------
The tables below show the investment records 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 12/31/95 and 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 12/31/95. 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
% Change
-------------------
Periods Net Capital Capital
Ended Asset Gain Income Gain Income Value of
12/31 Value Distributions/1/ Dividends Distributions Dividends 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
1995 13.49 0.76 0.21 0.97 0.27 19.96 29.96 37.6
Total $3.36 $1.14 $3.96 $1.31
</TABLE>
/1/ Includes short-term capital gains of $0.06 in 1991; $0.02 in 1992; $0.08 in
1993; $0.09 in 1994; and $0.16 in 1995 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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Adjusted to Reflect Reinvestment
--------------------------------
Income Cumulative Annual Percentage Return
Year Net Dividend -------------------------- ----------------------------------------
Ended Asset Taken in Income Value of Income Change in Total
12/31 Value Cash Dividends 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
1995 11.24 0.72 5.65 17.43 7.6 11.8 19.4
Total $4.13
</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;
$0.05 long-term capital gain and $0.05 short-term capital gain distributions
in 1994; and $0.04 long-term capital gain and $0.02 short-term capital gain
distributions in 1995.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets
T. Rowe Price Spectrum Funds / December 31, 1995
- --------------------------------------------------------------------------------
(values in thousands)
Growth Fund Investments
- -----------------------
<TABLE>
<CAPTION>
Value
-----
<S> <C> <C>
13,398,603 shs T. Rowe Price Growth Stock
Fund...................................... $ 312,858
22,100,426 T. Rowe Price International
Stock Fund................................ 270,288
11,901,951 T. Rowe Price New Horizons
Fund...................................... 243,990
9,449,981 T. Rowe Price Equity Income
Fund...................................... 189,094
7,738,721 T. Rowe Price New Era Fund................... 175,282
8,808,634 T. Rowe Price Growth &
Income Fund............................... 168,950
131,184 T. Rowe Price Prime Reserve
Fund...................................... 131
- ----------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.2% OF
NET ASSETS (COST $1,157,141) 1,360,593
- ----------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS LESS LIABILITIES..................................... (2,249)
-------
<CAPTION>
NET ASSETS CONSISTING OF: Value
-----
<S> <C>
Accumulated net investment
income - net of distributions........ $ 432
Accumulated realized gains/losses
- net of distributions............... 2,141
Net unrealized gain (loss).............. 203,452
Paid-in-capital applicable to
100,687,097 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares of Spectrum
authorized........................... 1,152,319
---------
NET ASSETS........................................................ $1,358,344
==========
NET ASSET VALUE PER SHARE......................................... $13.49
======
- ----------------------------------------------------------------------------------
</TABLE>
Income Fund Investments
- -----------------------
<TABLE>
<CAPTION>
Value
-----
<S> <C>
31,622,714 shs T. Rowe Price New Income <C>
Fund...................................... $293,459
23,366,503 T. Rowe Price High.Yield
Fund...................................... 191,372
17,711,196 T. Rowe Price GNMA Fund...................... 172,507
7,861,380 T. Rowe Price Equity Income
Fund...................................... 157,306
9,375,289 T. Rowe Price International
Bond Fund................................. 98,066
50,793,969 T. Rowe Price Prime Reserve
Fund...................................... 50,794
4,513,317 T. Rowe Price Short-Term Bond
Fund...................................... 21,528
- ----------------------------------------------------------------------------------
<CAPTION>
TOTAL INVESTMENTS -- 99.8% OF
NET ASSETS (COST $936,805) 985,032
- ----------------------------------------------------------------------------------
<S> <C>
OTHER ASSETS LESS LIABILITIES..................................... 1,669
-----
<CAPTION>
NET ASSETS CONSISTING OF:............... Value
-----
<S> <C>
Accumulated realized gains/
losses - net of distributions........ $ 1,179
Net unrealized gain (loss).............. 48,227
Paid-in-capital applicable to
87,760,460 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares of Spectrum
authorized........................... 937,295
-------
NET ASSETS........................................................ $986,701
========
NET ASSET VALUE PER SHARE......................................... $11.24
======
- ----------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds / Year Ended December 31, 1995
(in thousands)
<TABLE>
<CAPTION>
Growth Income
Fund Fund
------ ------
<S> <C> <C>
INVESTMENT INCOME
Income distributions from Underlying Funds............................. $ 20,218 $ 55,762
-------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Sale of Underlying Funds............................................ 9,010 (309)
Capital gain distributions from Underlying Funds.................... 60,651 5,107
-------- --------
Net realized gain................................................... 69,661 4,798
-------- --------
Change in net unrealized gain or loss.................................. 201,914 86,560
-------- --------
Net realized and unrealized gain (loss)................................ 271,575 91,358
-------- --------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS...................... $291,793 $147,120
======== ========
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds
(in thousands)
<TABLE>
<CAPTION>
Growth Fund Income Fund
----------------------- -----------------------
Year Ended December 31, Year Ended December 31,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Income distributions....................................... $ 20,218 $ 12,230 $ 55,762 $ 39,951
Net realized gain (loss)................................... 69,661 57,788 4,798 7,288
Change in net unrealized gain or loss...................... 201,914 (59,702) 86,560 (59,602)
---------- --------- -------- --------
Increase (decrease) in net assets from operations.......... 291,793 10,316 147,120 (12,363)
---------- --------- -------- --------
Distributions to shareholders
Net investment income...................................... (19,785) (12,230) (56,016) (39,951)
Net realized gain.......................................... (71,595) (53,228) (4,681) (6,247)
---------- --------- -------- --------
Decrease in net assets from distributions.................. (91,380) (65,458) (60,697) (46,198)
---------- --------- -------- --------
Capital share transactions*
Shares sold................................................ 361,400 412,180 396,188 268,102
Distributions reinvested................................... 88,268 62,074 54,428 40,313
Shares redeemed............................................ (171,103) (124,622) (175,278) (212,845)
---------- --------- -------- --------
Increase (decrease) in net assets from capital
share transactions...................................... 278,565 349,632 275,338 95,570
---------- --------- -------- --------
Increase (decrease) in net assets............................. 478,978 294,490 361,761 37,009
NET ASSETS
Beginning of period........................................... 879,366 584,876 624,940 587,931
---------- --------- -------- --------
End of period................................................. $1,358,344 $ 879,366 $986,701 $624,940
========== ========= ======== ========
- -------------------------------------------------------------------------------------------------------------------------
*Share information
Shares sold................................................ 28,680 34,623 37,162 25,117
Distributions reinvested................................... 6,614 5,613 5,021 3,858
Shares redeemed............................................ (13,597) (10,518) (16,229) (20,072)
---------- --------- -------- --------
Increase (decrease) in shares outstanding.................. 21,697 29,718 25,954 8,903
========== ========= ======== ========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds / December 31, 1995
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,
1995, were as follows:
<TABLE>
<CAPTION>
Growth Income
Fund Fund
------ ------
(Amounts in thousands)
<S> <C> <C>
Purchases $356,638 $447,105
Sales 82,301 169,279
</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.
In order for the Income Fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, $254,000 of
undistributed net investment income was reclassified as a decrease to
undistributed net realized gains during the year ended December 31, 1995. The
results of operations and net assets were not affected by the reclassifications.
At December 31, 1995, the aggregate cost of the Underlying Funds held by
the Growth Fund and Income Fund for federal income tax and financial reporting
purposes was $1,157,141,000 and $936,805,000, 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 $203,452 $52,151
Depreciated Funds -- (3,924)
-------- -------
Net Unrealized Gain or Loss $203,452 $48,227
======== =======
</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.
11
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds
<TABLE>
<CAPTION>
For a share outstanding throughout each period
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SPECTRUM GROWTH FUND
NET ASSET VALUE,
BEGINNING OF PERIOD............................. $11.13 $11.87 $10.54 $10.53 $ 8.52
------ ------ ------ ------ ------
Investment Activities
Income distributions received................... 0.21 0.17 0.16 0.20 0.21
Net realized and unrealized
gain (loss).................................. 3.12 (0.01) 2.05 0.56 2.33
------ ------ ------ ------ ------
Total from Investment Activities................ 3.33 0.16 2.21 0.76 2.54
------ ------ ------ ------ ------
Distributions
Income.......................................... (0.21) (0.17) (0.16) (0.20) (0.21)
Net realized gain............................... (0.76) (0.73) (0.72) (0.55) (0.32)
------ ------ ------ ------ ------
Total Distributions............................. (0.97) (0.90) (0.88) (0.75) (0.53)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD..................... $13.49 $11.13 $11.87 $10.54 $10.53
====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
Total Return....................................... 30.0% 1.40% 21.0% 7.2% 29.9%
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.............................. 1.81% 1.60% 1.57% 2.15% 2.77%
Portfolio Turnover Rate............................ 7.4% 20.7% 7.0% 7.9% 14.6%
Net Assets, End of Period
(in thousands).................................. $1,358,344 $879,366 $584,876 $355,134 $148,661
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price Spectrum Funds
<TABLE>
<CAPTION>
For a share outstanding throughout each period
-------------------------------------------------------------
Year Ended December 31,
-------------------------------------------------------------
1995 1994 1993 1992 1991
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SPECTRUM INCOME FUND
NET ASSET VALUE,
BEGINNING OF PERIOD............................. $10.11 $11.11 $10.70 $10.73 $ 9.77
------ ------ ------ ------ ------
Investment Activities
Income distributions received................... 0.72 0.69 0.69 0.76 0.82
Net realized and unrealized
gain (loss).................................. 1.16 (0.90) 0.60 0.05 1.03
------ ------ ------ ------ ------
Total from Investment Activities................ 1.88 (0.21) 1.29 0.81 1.85
------ ------ ------ ------ ------
Distributions
Income.......................................... (0.72) (0.69) (0.69) (0.76) (0.83)
Net realized gain............................... (0.03) (0.10) (0.19) (0.08) (0.06)
------ ------ ------ ------ ------
Total Distributions............................. (0.75) (0.79) (0.88) (0.84) (0.89)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD..................... $11.24 $10.11 $11.11 $10.70 $10.73
====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS / SUPPLEMENTAL DATA
Total Return....................................... 19.4% (1.9)% 12.4% 7.8% 19.6%
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.............................. 6.43% 6.48% 6.19% 7.10% 8.03%
Portfolio Turnover Rate............................ 20.2% 23.1% 14.4% 14.2% 18.8%
Net Assets, End of Period
(in thousands).................................. $986,701 $624,940 $587,931 $376,435 $147,859
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
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 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., hereafter referred to as the "Funds") at
December 31, 1995, and the results of each of their operations, the changes in
each of their net assets and the financial highlights for each of the fiscal
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with 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, which included confirmation of securities at
December 31, 1995 by correspondence with custodians and brokers and, where
appropriate, the application of alternative auditing procedures for unsettled
security transactions, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
January 18, 1996
14
<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 a.m. to
10 p.m. Monday - Friday, and weekends from 8:30 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 (except the High Yield Fund and Emerging Markets Bond Fund).
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.
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.
Performance Update--A quarterly report reviewing recent market developments
and providing comprehensive performance information for every T. Rowe Price
fund.
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.
15
<PAGE>
- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
T. Rowe Price
- -------------
SPECTRUM FUNDS
DECEMBER 31, 1995
[LOGO APPEARS HERE]
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.
Invest With Confidence/(R)/ [LOGO APPEARS HERE]
T. Rowe Price
SPC
