CHANGES IN THE SPECTRUM FUNDS
On July 21, 1997, the Spectrum Funds' Board of Directors voted to implement
some changes to the three Spectrum Funds as of August 18, 1997.
Last April, the shareholders of each fund voted to allow the Board to change
certain policies of the Spectrum Growth and Spectrum Income Funds from
"fundamental" (requiring a shareholder vote to change) to "operating"
(requiring Board approval but no shareholder vote). The vote totals are listed
on the inside back cover of this report. 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 each
Spectrum Fund's assets that can be invested in each underlying fund.
The changes give each fund 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. 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.
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.
o Blue Chip Growth, 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, which seeks long-term appreciation through investments in
mid-size 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 most of the underlying funds, as shown in the table on
the next page.
The Board also elected to add two funds to Spectrum Income's investment mix.
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.
The minimum and maximum amounts of Spectrum Income's assets that can be
invested in the new funds are shown in the table, together with the investment
ranges of the current underlying funds, which will not change.
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Minimum-Maximum Allocations
Underlying Fund Current New (effective 8/18/97)
- ---------------- ------- -----------------------
Spectrum Growth Fund
Prime Reserve* 0-25% no change
New Era 10-25 0-15%
Equity Income 5-20 7.5-22.5
Growth & Income 5-20 7.5-22.5
Growth Stock 15-30 5-20
New Horizons 10-25 no change
International Stock 5-20 10-25
Blue Chip Growth - 5-20
Mid-Cap Value - 0-15
Spectrum Income Fund
Prime Reserve* 5-30% 0-25%
Short-Term Bond 0-15 no change
GNMA 5-20 no change
New Income 15-30 no change
High Yield 10-25 no change
International Bond 5-20 no change
Equity Income 10-25 no change
U.S. Treasury Long-Term - 0-15
Emerging Markets Bond - 0-10
*After 8/18/97, applies to Summit Cash Reserves.
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The Board's changes will result in slight alterations to each fund's expense
ratio range. The new ranges are as follows: Spectrum Income 0.70% to 0.86%;
Spectrum Growth 0.73% to 0.97%; and Spectrum International 0.76% to 1.30%.
Note: This updates information in the "Fund, Market, and Risk Characteristics"
section of your Spectrum Funds prospectus dated May 1, 1997; you should file
it with your fund records.
