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SPECTRUM FUNDS PROXY Q&A
This proxy only relates to the Spectrum Growth and Spectrum
Income Funds. The changes being voted on do not relate to the
Spectrum International Fund (the policies being considered are
already operating policies for this Fund).
Q. What are the proposed changes?
A. The proposed changes involve changing two fundamental
policies to operating policies. Fundamental policies may only be
changed with shareholder vote, while operating policies may be
changed by the approval of the Funds Board of Directors, without
shareholder vote. The two policies which we are requesting be
changed to operating policies are 1) the selection of the various
underlying Price Funds in which the Spectrum Funds can invest and
2) the minimum and maximum percentages of the Spectrum Funds
assets which can be allocated to each of these underlying Price
Funds.
Note: We ARE NOT asking the shareholders to make specific changes
to the mix of underlying funds, nor are we asking them to change
any of the investment ranges of the underlying funds. We ARE
asking shareholders to give the Board of Directors the ability to
make future changes without having a shareholder vote for each
change.
More information on the policies:
The current fundamental policies are as follows:
1) Each Spectrum Fund has a fixed list of underlying
Price Funds in which it may invest. This list may not be
changed without shareholder approval. (For example,
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without shareholder vote we cannot add Blue Chip Growth to
Spectrum Growth Fund, nor can we delete Equity Income.)
2) Each Spectrum Fund has fixed ranges in which it
must invest in each underlying Price Fund. These ranges may
not be changed without shareholder approval. (For example,
Spectrum Income Fund must invest at least 5% and not more
than 20% of its assets in International Bond Fund unless a
change to that percentage is approved by shareholders.)
If approved by shareholders, the policies would become
operating policies, which would give the Board the flexibility
to:
1) add or delete Price Funds to the list of
underlying funds without prior shareholder approval. (For
example, the Board could add Blue Chip Growth Fund to
Spectrum Growth Fund s list of underlying Price Funds.)
2) adjust the investment ranges of each underlying
Price Fund. (For example, the Directors could widen
Spectrum Income Fund s investment range in International
Bond Fund to 0-25%.)
Q. Why are the changes being proposed?
A. Adoption of the proposals would provide the investment
manager of the Spectrum Funds with the same degree of
flexibility in managing their investment programs that
they have in managing the other Price Funds - the
ability to select appropriate investments and determine
how much of the Fund s assets to allocate to these
investments without seeking shareholder approval. For
example, the change would allow the Board the
flexibility to add another existing Price Fund or a
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Price Fund created in the future which may be an
appropriate investment for the Spectrum Fund. While
the Board doesn t anticipate making numerous changes,
nor does it anticipate making dramatic changes, the
added flexibility provided by the changes could help
the Spectrum Funds achieve their objectives more fully.
Q. Will the investment objective or philosophy of the Funds
change as a result of this change?
A. No. The proposed changes do not reflect any change in
the investment objectives and philosophies of the
Spectrum Funds. Moreover, as operating policies, any
changes which the Spectrum Funds desire to make in the
mix of underlying Price Funds or the percentage ranges
allocated to each Price Fund would still be subject to
approval of the Board of Directors before
implementation. Shareholders will be informed of any
changes made in the composition of the Spectrum Funds
through the prospectus and shareholder reports.
Q. How would the changes impact the management of the
funds?
A. Again, the changes will not impact the funds
philosophy. The Spectrum Funds will continue to invest in
various Price Funds based on T. Rowe Price s outlook for the
relative valuations of underlying Price Funds and the various
markets in which the underlying Price Funds invest. The
Spectrum Funds do not and will not attempt to time the
market by making rapid shifts in their investment allocations
in an attempt to make short-term profits. Rather they will
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continue to invest based on long-term investment
considerations.
A point that is worth noting is that a Spectrum Fund
cannot redeem more than 1% of its assets from an underlying
fund in any 15 day period (unless it needs to do so to meet
shareholder redemptions from the Spectrum Fund). While this
is an operating policy changeable by the Board, it is
indicative of the fact that the Spectrum Funds do not make
large purchases and redemptions in an attempt to time markets
over very short-term periods.
Q. Why are these policies currently Fundamental?
A. These policies were originally required to be made
fundamental by the SEC when the Spectrum Funds opened
in 1990. This condition was part of an exemptive order
the SEC granted to the Spectrum Funds to permit their
operation as a fund of funds (a mutual fund which
invests in other mutual funds). Since that time, the
SEC has relaxed its position and consequently, new
funds-of-funds are being introduced without these
somewhat rigid restrictions (case in point is Spectrum
International). Under an amendment to the Investment
Company Act of 1940, fund of funds are permitted to
operate without the two fundamental policies to which
the Spectrum Funds are subject. By changing the
policies to operating policies, the Spectrum Funds will
be able to operate more effectively and on a level
playing field with their competitors.
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Q. What types of changes would the Spectrum Funds make to
their mix of underlying funds?
A. While the Spectrum Funds are not anticipating making
any drastic changes, the following are examples of the types
of changes that may be made:
1) May add a new underlying Price Fund to enhance
diversification.
2) May delete an underlying Price Fund where such fund was
not providing any diversification benefit.
3) May increase the percentage of Spectrum Fund assets
which may be invested in an underlying Price Fund if such
Price Fund is considered by the portfolio manager to have a
favorable long-term outlook relative to other underlying Price
Funds.
4) May decrease the percentage of assets which must be
invested in an underlying Price Fund if such Price Fund is
considered to have a relatively unfavorable long-term outlook.
Q. How will shareholders know if underlying funds have
been added?
A. The Spectrum Funds prospectus will continue to have a
table identifying the underlying Price Funds and their
approved ranges. If the Board decides to change the list of
underlying Price Funds or the investment ranges, shareholders
will be notified through semi-annual and annual reports.
Spectrum Growth and Spectrum Income proxy
The proposed changes on which the shareholders are being
asked to vote involve changing two fundamental policies of the
fund to operating policies. Fundamental policies may only be
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changed with shareholder vote, while operating policies may be
changed by the approval of the Funds' Board of Directors, without
shareholder vote. The two policies which we are requesting be
changed to operating policies are the selection of the various
underlying Price Funds in which the Spectrum Funds can invest and
the minimum and maximum percentages of the Spectrum Funds' assets
which can be allocated to each of these underlying Price Funds.
We ARE NOT asking the shareholders to make specific changes to
the mix of underlying funds nor are we asking them to change any
of the investment ranges of the underlying funds. We ARE asking
shareholders to give the Board of Directors the ability to make
future changes without having a shareholder vote for each change.
