T. ROWE PRICE
- ------------------------------------------------------------------------------
Spectrum Funds, Inc.
Spectrum Growth Fund
Spectrum Income Fund
Spectrum International Fund
Supplement to prospectus dated May 1, 1997
- ------------------------------------------------------------------------------
CHANGES IN THE SPECTRUM FUNDS
On July 21, 1997, the Spectrum Fund's Board of Directors voted to implement
some changes to the three Spectrum Funds as of August 18, 1997. Last April,
the shareholders of the Spectrum Growth and Spectrum Income Funds voted to
allow the Board to change certain policies of those funds from "fundamental"
(requiring a shareholder vote to change) to "operating" (requiring Board
approval but no shareholder vote). Specifically, these changes related to: 1)
the selection of T. Rowe Price funds in which Spectrum Growth and Spectrum
Income can invest, and 2) the minimum and maximum percentages of Spectrum
Growth Fund's and Spectrum Income Fund's assets that can be invested in each
underlying fund.
Last year, Congress amended legislation and the Securities and Exchange
Commission liberalized its position regarding funds like Spectrum, so we acted
to take advantage of this additional investment flexibility. The changes give
Spectrum Growth and Spectrum Income Funds the same degree of flexibility and
discretion in selecting the types and amounts of underlying investments
enjoyed by other T. Rowe Price funds, consistent with their particular goals
and programs. Since Spectrum International Fund commenced operations after the
new legislation was in effect, it was not subject to the fundamental policies
described above. Shareholders will be informed of any changes in the annual
prospectus mailing and the shareholder reports.
Effective August 18, the Spectrum Growth, Income, and International Funds will
replace the Prime Reserve Fund with the Summit Cash Reserves Fund as their
primary money market vehicle. Summit Cash Reserves is managed in the same
manner as Prime Reserve, but its high minimum balance requirement and
resulting lower expense ratio enables it to have a higher yield.
The Spectrum Board also approved further changes. Specifically, Spectrum
Growth Fund will add two T. Rowe Price funds to its roster of underlying
funds, neither of which existed when Spectrum was originally launched. The new
funds to be added as well as their objectives are:
o Blue Chip Growth Fund, which seeks long-term capital appreciation through
investments in the common stocks of large- and medium-sized blue chip
companies with potential for above-average earnings growth; and
o Mid-Cap Value Fund, which seeks long-term appreciation through investments
in midsized companies whose stocks appear undervalued.
The first will give Spectrum Growth additional exposure to large-cap growth
companies while the second will give the fund a way to participate directly in
the fast-growing mid-cap market sector. These moves will enhance the
diversification of Spectrum Growth Fund. The Board also amended the allowable
investment limits in the underlying funds, as shown in the table below.
The Board also elected to add two funds to Spectrum Income's investment mix.
The funds and their objectives are:
o U.S. Treasury Long-Term Fund, which seeks a high level of income from
investments in U.S. government-backed securities, primarily long-term U.S.
Treasuries; and
o Emerging Markets Bond Fund, which seeks high current income and
appreciation by investing primarily in high-yielding, high-risk government and
corporate debt securities of less-developed countries.
The long-term Treasury fund gives Spectrum Income greater sensitivity to U.S.
interest rate movements, while emerging market bonds provide a means of
participating in an expanding sector of the global bond market. While these
funds have a high risk/reward profile, they should enhance the fund's
diversification benefits. Changes to this fund's investment mix are shown in
the table below.
<TABLE>
<CAPTION>
Revisions to Asset Allocation Ranges for Underlying Funds of Spectrum Income
and Spectrum Growth
- ------------------------------------------------------------------------------
Current New Current New
Spectrum Investment Investment Spectrum Investment Investment
Income Fund Range Range Growth Fund Range Range
- ----------- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Prime Reserve* 5-30% 0-25% Prime Reserve* 0-25% no change
Short-Term Bond 0-15 no change New Era 10-25 0-15%
GNMA 5-20 no change Equity Income 5-20 7.5-22.5
New Income 15-30 no change Growth & Income 5-20 7.5-22.5
High Yield 10-25 no change Growth Stock 15-30 5-20
International
Bond 5-20 no change New Horizons 10-25 no change
Equity Income 10-25 no change International
Stock 5-20 10-25
U.S. Treasury
Long-Term N/A 0-15 Blue Chip Growth N/A 5-20
Emerging Markets
Bond N/A 0-10 Mid-Cap Value N/A 0-15
- ------------------------------------------------------------------------------
<FN>
*After 8/18/97, the reference to Prime Reserve will apply to Summit Cash
Reserves.
</FN>
</TABLE>
The information in the preceding table updates the Asset Allocation Ranges for
Underlying Funds Table on page 6 of your prospectus.
The Board's changes will result in slight alterations to each fund's expense
ratio range, as shown in the revision below (found in your prospectus on page
3).
<TABLE>
<CAPTION>
Table 1 Range of Average Weighted Expense Ratios
- -----------------------------------------------------------------
<S> <C> <C> <C>
Spectrum Income Spectrum Growth Spectrum International
--------------- --------------- ----------------------
0.70% to 0.86% 0.73% to 0.97% 0.76% to 1.30%
- -----------------------------------------------------------------
</TABLE>
Shareholders and potential investors should be aware of minor changes to the
current prospectus with the addition of the new underlying funds.
Under the Strategy section of Facts At A Glance, please note that Spectrum
Income Fund invests primarily in domestic bond funds and also in two (had
formerly been one) foreign bond funds, but it may allocate up to 25% of assets
to a stock fund.
Also, since there is no limit on the number of underlying funds the Spectrum
Funds can invest in, we have deleted the reference to number under "What are
the Spectrum Funds' investment programs?" on page 6 of the prospectus. The
changes are as follows:
o Spectrum Income Fund will allocate its assets among a diversified group of
underlying T. Rowe Price funds that invest primarily in fixed income
securities.
o Spectrum Growth Fund will allocate its assets among a diversified group of
underlying T. Rowe Price funds that invest primarily in stocks.
o Spectrum International Fund allocates its assets among a group of
underlying T. Rowe Price funds that invest primarily in international stocks
and, to a lesser degree, international bonds.
Table 5, describing the major characteristics of the underlying T. Rowe Price
funds beginning on page 25 of your prospectus, will also be revised to include
the fund descriptions for Summit Cash Reserves, Blue Chip Growth, Mid-Cap
Value, U.S. Treasury Long-Term, and Emerging Markets Bond Funds that were
previously stated.
- ------------------------------------------------------------------------------
The date of this supplement is August 4, 1997.
- ------------------------------------------------------------------------------
C08-042 8/04/97