N-CSRS 1 spc.txt T. ROWE PRICE SPECTRUM FUND Item 1. Report to Shareholders T. Rowe Price Spectrum Funds -------------------------------------------------------------------------------- Certified Financials T. Rowe Price Spectrum Growth Fund -------------------------------------------------------------------------------- Certified Financials (Unaudited) Financial Highlights For a share outstanding throughout each period -------------------------------------------------------------------------------- 6 Months Year Ended Ended 6/30/03 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98 NET ASSET VALUE Beginning of period $ 11.13 $ 14.07 $ 15.72 $ 17.71 $ 16.45 $ 15.93 Investment activities Net investment income (loss) 0.02 0.09 0.16 0.13 0.15 0.19 Net realized and unrealized gain (loss) 1.42 (2.88) (1.37) (0.15) 3.19 1.88 Total from investment activities 1.44 (2.79) (1.21) (0.02) 3.34 2.07 Distributions Net investment income -- (0.08) (0.16) (0.12) (0.17) (0.18) Net realized gain -- (0.07) (0.28) (1.85) (1.91) (1.37) Total distributions -- (0.15) (0.44) (1.97) (2.08) (1.55) NET ASSET VALUE End of period $ 12.57 $ 11.13 $ 14.07 $ 15.72 $ 17.71 $ 16.45 ----------------------------------------------------------------- Ratios/Supplemental Data Total return^ 12.94% (19.83)% (7.63)% (0.11)% 21.20% 13.62% Ratio of total expenses to average net assets 0.00%*! 0.00% 0.00% 0.00% 0.00% 0.00% Ratio of net investment income (loss) to average net assets 0.32%! 0.68% 1.05% 0.70% 0.85% 1.09% Portfolio turnover rate 1.90%! 3.9% 6.1% 11.6% 20.3% 17.9% Net assets, end of period (in millions) $ 1,912 $ 1,739 $ 2,373 $ 2,889 $ 3,031 $ 2,768 ^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. * See Note 4. The annualized weighted average expense ratio of the underlying funds was 0.90% for the 6 months ended June 30, 2003. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum Income Fund -------------------------------------------------------------------------------- Certified Financials (Unaudited) Financial Highlights For a share outstanding throughout each period -------------------------------------------------------------------------------- 6 Months Year Ended Ended 6/30/03 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98 NET ASSET VALUE Beginning of period $ 10.76 $ 10.60 $ 10.77 $ 10.71 $ 11.50 $ 11.66 Investment activities Net investment income (loss) 0.26 0.55 0.63 0.62 0.67 0.72 Net realized and unrealized gain (loss) 0.67 0.16 (0.15) 0.14 (0.64) 0.02 Total from investment activities 0.93 0.71 0.48 0.76 0.03 0.74 Distributions Net investment income (0.25) (0.55) (0.55) (0.70) (0.69) (0.72) Net realized gain -- -- (0.02) -- (0.13) (0.18) Tax return of capital -- -- (0.08) -- -- -- Total distributions (0.25) (0.55) (0.65) (0.70) (0.82) (0.90) NET ASSET VALUE End of period $ 11.44 $ 10.76 $ 10.60 $ 10.77 $ 10.71 $ 11.50 ----------------------------------------------------------------- Ratios/Supplemental Data Total return^ 8.74% 6.86% 4.59% 7.40% 0.26% 6.57% Ratio of total expenses to average net assets 0.00%*! 0.00% 0.00% 0.00% 0.00% 0.00% Ratio of net investment income (loss) to average net assets 4.57%! 5.17% 5.91% 6.03% 5.95% 6.22% Portfolio turnover rate 2.2%! 14.1% 22.7% 19.3% 18.6% 12.8% Net assets, end of period (in millions) $ 3,262 $ 2,713 $ 2,465 $ 2,471 $ 2,548 $ 2,574 ^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. * See Note 4. The annualized weighted average expense ratio of the underlying funds was 0.80% for the six months ended June 30, 2003. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum International Fund -------------------------------------------------------------------------------- Certified Financials (Unaudited) Financial Highlights For a share outstanding throughout each period -------------------------------------------------------------------------------- 6 Months Year Ended Ended 6/30/03 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98 NET ASSET VALUE Beginning of period $ 6.40 $ 7.76 $ 10.08 $ 13.53 $ 10.56 $ 9.74 Investment activities Net investment income (loss) -- 0.07 0.18 0.12 0.12 0.21 Net realized and unrealized gain (loss) 0.63 (1.36) (2.17) (2.10) 3.95 0.97 Total from investment activities 0.63 (1.29) (1.99) (1.98) 4.07 1.18 Distributions Net investment income -- (0.07) (0.18) (0.12) (0.13) (0.21) Net realized gain -- -- (0.15) (1.35) (0.97) (0.15) Total distributions -- (0.07) (0.33) (1.47) (1.10) (0.36) NET ASSET VALUE End of period $ 7.03 $ 6.40 $ 7.76 $ 10.08 $ 13.53 $ 10.56 ----------------------------------------------------------------- Ratios/Supplemental Data Total return^ 9.84% (16.61)% (19.71)% (14.71)% 39.49% 12.28% Ratio of total expenses to average net assets 0.00%*! 0.00%* 0.00% 0.00% 0.00% 0.00% Ratio of net investment income (loss) to average net assets 0.13%! 1.01% 2.06% 0.94% 1.14% 1.94% Portfolio turnover rate 66.3%! 94.4% 30.6% 42.5% 20.1% 31.7% Net assets, end of period (in thousands) $ 58,995 $ 52,652 $ 64,153 $ 81,843 $ 82,846 $ 54,752 ^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions. * See Note 4. The annualized weighted average expense ratio of the underlying funds was 1.13% for the six months ended June 30, 2003. ! Annualized The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum Growth Fund -------------------------------------------------------------------------------- Certified Financials (Unaudited) June 30, 2003 Percent of Statement of Net Assets Net Assets Shares Value -------------------------------------------------------------------------------- In thousands T. Rowe Price International Stock Fund 22.9% 45,742,460 $ 437,755 T. Rowe Price New Horizons Fund * 20.4 19,159,063 390,079 T. Rowe Price Equity Income Fund 11.9 10,545,980 226,949 T. Rowe Price Growth & Income Fund 11.8 11,989,143 225,756 T. Rowe Price Growth Stock Fund 11.3 10,189,565 216,732 T. Rowe Price Blue Chip Growth Fund * 11.2 8,551,425 214,042 T. Rowe Price Mid-Cap Value Fund 8.1 9,179,145 155,770 T. Rowe Price New Era Fund 2.4 2,041,060 45,271 Total Investments 100.0% of Net Assets (Cost $1,869,781) $ 1,912,354 Other Assets Less Liabilities 1 NET ASSETS $ 1,912,355 ------------ Net Assets Consist of: Undistributed net investment income (loss) $ 4,116 Undistributed net realized gain (loss) (98,997) Net unrealized gain (loss) 42,573 Paid-in-capital applicable to 152,107,681 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares of the Corporation authorized 1,964,663 NET ASSETS $ 1,912,355 ------------ NET ASSET VALUE PER SHARE $ 12.57 ------------ * Non-income producing The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum Income Fund -------------------------------------------------------------------------------- Certified Financials (Unaudited) June 30, 2003 Percent of Statement of Net Assets Net Assets Shares Value -------------------------------------------------------------------------------- In thousands T. Rowe Price New Income Fund 24.9% 88,371,781 $ 811,253 T. Rowe Price High Yield Fund 23.2 111,256,234 756,543 T. Rowe Price International Bond Fund 17.1 55,821,478 557,657 T. Rowe Price Equity Income Fund 15.4 23,393,556 503,429 T. Rowe Price GNMA Fund 12.5 41,153,816 406,188 T. Rowe Price U.S. Treasury Long-Term Fund 3.3 8,618,046 109,018 T. Rowe Price Emerging Markets Bond Fund 3.3 8,851,707 107,371 T. Rowe Price Short-Term Bond Fund 0.3 2,267,158 11,041 Total Investments 100.0% of Net Assets (Cost $3,142,604) $ 3,262,500 Other Assets Less Liabilities (436) NET ASSETS $ 3,262,064 ------------ Net Assets Consist of: Undistributed net investment income (loss) $ (11,365) Undistributed net realized gain (loss) (4,605) Net unrealized gain (loss) 119,896 Paid-in-capital applicable to 285,222,377 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares of the Corporation authorized 3,158,138 NET ASSETS $ 3,262,064 ------------ NET ASSET VALUE PER SHARE $ 11.44 ------------ The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum International Fund -------------------------------------------------------------------------------- Certified Financials (Unaudited) June 30, 2003 Percent of Statement of Net Assets Net Assets Shares Value -------------------------------------------------------------------------------- In thousands T. Rowe Price International Stock Fund 46.7% 2,877,406 $ 27,537 T. Rowe Price European Stock Fund 27.8 1,148,904 16,372 T. Rowe Price Emerging Markets Stock Fund 6.7 341,459 3,947 T. Rowe Price Japan Fund * 5.3 591,976 3,114 T. Rowe Price International Discovery Fund * 4.6 141,419 2,741 T. Rowe Price New Asia Fund 4.5 427,270 2,645 T. Rowe Price Emerging Markets Bond Fund 2.0 99,353 1,205 T. Rowe Price Emerging Europe and Mediterranean Fund * 2.0 131,584 1,193 Total Investments 99.6% of Net Assets (Cost $72,997) $ 58,754 Other Assets Less Liabilities 241 NET ASSETS $ 58,995 ------------ Net Assets Consist of: Undistributed net investment income (loss) $ 67 Undistributed net realized gain (loss) (17,037) Net unrealized gain (loss) (14,243) Paid-in-capital applicable to 8,390,544 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares of the Corporation authorized 90,208 NET ASSETS $ 58,995 ------------ NET ASSET VALUE PER SHARE $ 7.03 ------------ * Non-income producing The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum Funds -------------------------------------------------------------------------------- Certified Financials (Unaudited) Statement of Operations -------------------------------------------------------------------------------- In thousands Growth Income International Fund Fund Fund 6 Months 6 months 6 Months Ended Ended Ended 6/30/03 6/30/03 6/30/03 Investment Income Income distributions from underlying funds $ 2,806 $ 66,854 $ 35 Realized and Unrealized Gain (Loss) Net realized gain (loss) Sale of underlying funds (44,576) (3,254) (13,627) Capital gain distributions from underlying funds 219 452 -- Net realized gain (loss) (44,357) (2,802) (13,627) Change in net unrealized gain or loss 262,187 184,537 19,058 Net realized and unrealized gain (loss) 217,830 181,735 5,431 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 220,636 $ 248,589 $ 5,466 --------------------------------------------- The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum Growth Fund -------------------------------------------------------------------------------- Certified Financials (Unaudited) Statement of Changes in Net Assets -------------------------------------------------------------------------------- In thousands 6 Months Year Ended Ended 6/30/03 12/31/02 Increase (Decrease) in Net Assets Operations Net investment income $ 2,806 $ 13,695 Net realized gain (loss) (44,357) (54,142) Change in net unrealized gain or loss 262,187 (416,799) Increase (decrease) in net assets from operations 220,636 (457,246) Distributions to shareholders Net investment income -- (12,385) Net realized gain -- (10,837) Decrease in net assets from distributions -- (23,222) Capital share transactions * Shares sold 104,604 219,126 Distributions reinvested -- 22,708 Shares redeemed (151,804) (395,484) Increase (decrease) in net assets from capital share transactions (47,200) (153,650) Net Assets Increase (decrease) during period 173,436 (634,118) Beginning of period 1,738,919 2,373,037 End of period $ 1,912,355 $ 1,738,919 ------------------------------------- *Share information Shares sold 9,238 17,322 Distributions reinvested -- 2,040 Shares redeemed (13,436) (31,754) Increase (decrease) in shares outstanding (4,198) (12,392) The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum Income Fund -------------------------------------------------------------------------------- Certified Financials (Unaudited) Statement of Changes in Net Assets -------------------------------------------------------------------------------- In thousands 6 Months Year Ended Ended 6/30/03 12/31/02 Increase (Decrease) in Net Assets Operations Net investment income $ 66,854 $ 134,384 Net realized gain (loss) (2,802) (1,451) Change in net unrealized gain or loss 184,537 43,007 Increase (decrease) in net assets from operations 248,589 175,940 Distributions to shareholders Net investment income (66,854) (134,384) Capital share transactions * Shares sold 582,738 764,670 Distributions reinvested 62,372 124,519 Shares redeemed (277,543) (682,723) Increase (decrease) in net assets from capital share transactions 367,567 206,466 Net Assets Increase (decrease) during period 549,302 248,022 Beginning of period 2,712,762 2,464,740 End of period $ 3,262,064 $ 2,712,762 ------------------------------------- *Share information Shares sold 52,656 72,313 Distributions reinvested 5,623 11,751 Shares redeemed (25,109) (64,526) Increase (decrease) in shares outstanding 33,170 19,538 The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum International Fund -------------------------------------------------------------------------------- Certified Financials (Unaudited) Statement of Changes in Net Assets -------------------------------------------------------------------------------- In thousands 6 Months Year Ended Ended 6/30/03 12/31/02 Increase (Decrease) in Net Assets Operations Net investment income $ 35 $ 594 Net realized gain (loss) (13,627) (2,018) Change in net unrealized gain or loss 19,058 (8,407) Increase (decrease) in net assets from operations 5,466 (9,831) Distributions to shareholders Net investment income -- (568) Capital share transactions * Shares sold 32,357 89,618 Distributions reinvested -- 547 Shares redeemed (31,480) (91,267) Increase (decrease) in net assets from capital share transactions 877 (1,102) Net Assets Increase (decrease) during period 6,343 (11,501) Beginning of period 52,652 64,153 End of period $ 58,995 $ 52,652 ------------------------------------- *Share information Shares sold 5,114 12,385 Distributions reinvested -- 87 Shares redeemed (4,945) (12,522) Increase (decrease) in shares outstanding 169 (50) The accompanying notes are an integral part of these financial statements. T. Rowe Price Spectrum Funds -------------------------------------------------------------------------------- Certified Financials (Unaudited) June 30, 2003 Notes to Financial Statements -------------------------------------------------------------------------------- T. Rowe Price Spectrum Fund, Inc. (the corporation) is registered under the Investment Company Act of 1940 (the 1940 Act) as a nondiversified, open-end management investment company. Spectrum Growth Fund, Spectrum Income Fund, and Spectrum International Fund (collectively, the Spectrum Funds), are three portfolios established by the corporation. Spectrum Growth and Spectrum Income Funds commenced operations on June 29, 1990, and Spectrum International Fund commenced operations on December 31, 1996. Each Spectrum Fund diversifies its assets within set limits among specific underlying T. Rowe Price funds (underlying Price funds). Spectrum Growth Fund seeks long-term capital appreciation and growth of income, with current income a secondary objective. Spectrum Income Fund seeks a high level of current income with moderate share price fluctuation. Spectrum International Fund seeks long-term capital appreciation. NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America, which require the use of estimates made by fund management. Valuation Investments are valued at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business. Investments in the underlying Price funds are valued at the closing net asset value per share of each underlying fund on the day of valuation. Assets for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by or under the supervision of the officers of the fund, as authorized by the Board of Directors. Distributions Income and gain distributions from the underlying Price funds and distributions to the Spectrum Funds' shareholders are recorded on the ex-dividend date. Other Income is recorded on the accrual basis. Purchases and sales of the underlying Price funds are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. NOTE 2 - INVESTMENTS IN UNDERLYING PRICE FUNDS Purchases and sales of the underlying Price funds for the six months ended June 30, 2003, were as follows: -------------------------------------------------------------------------------- Growth Income International Fund Fund Fund Purchases $ 16,999,000 $ 339,588,000 $ 18,199,000 Sales 61,164,000 31,957,000 17,563,000 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 to shareholders all of its taxable income and gains. Federal income tax regulations differ from generally accepted accounting principles; therefore, distributions determined in accordance with tax regulations may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Temporary differences are not adjusted. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of June 30, 2003. For tax purposes, each fund has elected to treat net capital losses realized between November 1 and December 31 of each year as occurring on the first day of the following tax year. Consequently, realized losses in the amount of $6,128,000 for Spectrum Growth Fund, $1,355,000 for Spectrum Income Fund, and $458,000 for Spectrum International Fund that were recognized for financial reporting purposes in the year ended December 31, 2002, were recognized for tax purposes on January 1, 2003. Each fund intends to retain realized gains to the extent of available capital loss carryforwards. As of December 31, 2002, the funds' most recent tax year-end, the Spectrum Growth Fund had $48,512,000 of unused capital loss carryforwards that expire in 2010. The Spectrum Income Fund had $448,000 of unused capital loss carryforwards that expire in 2010. The Spectrum International Fund had $1,122,000 of capital loss carryforwards that expire in 2009, and $1,841,000 that expire in 2010. At June 30, 2003, the cost of investments for federal income tax purposes and net unrealized gain (loss) on investments was as follows: -------------------------------------------------------------------------------- Growth Income International Fund Fund Fund Cost $ 1,869,781,000 $ 3,142,604,000 $ 72,997,000 Unrealized appreciation 165,503,000 199,792,000 227,000 Unrealized depreciation (122,930,000) (79,896,000) (14,470,000) Net unrealized appreciation (depreciation) $ 42,573,000 $ 119,896,000 $ (14,243,000) ------------ ------------- ------------- NOTE 4 - RELATED PARTIES T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc., is the investment manager for Spectrum Growth and Spectrum Income Funds, and also serves as manager for the domestic underlying Price funds. T. Rowe Price International, Inc. (Price International), wholly owned by Price Associates, is the investment manager for Spectrum International Fund, and also serves as manager for the international underlying Price funds. Price Associates and its wholly owned subsidiaries provide transfer and dividend disbursing agent, accounting, shareholder servicing, administrative, marketing, and certain other services to the Spectrum Funds. Certain officers and directors of the Spectrum Funds are also officers and directors of Price Associates and its subsidiaries, and the underlying Price funds. The Spectrum Funds pay no management fees; however, Price Associates and Price International receive management fees for managing the underlying Price funds. The Spectrum Funds recognize no expenses, pursuant to the investment management and special servicing agreements between and among the corporation, the underlying Price funds, Price Associates, and, in the case of Spectrum International, Price International. Pursuant to these agreements, expenses associated with the operation of the Spectrum Funds are borne by each underlying Price fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by the Spectrum Funds. Therefore, each Spectrum Fund operates at a zero expense ratio. However, each Spectrum Fund indirectly bears its proportionate share of the management fees and operating costs of the underlying Price funds in which it invests. The Spectrum Funds do not invest in the underlying Price funds for the purpose of exercising management or control; however, investments by the Spectrum Funds may represent a significant portion of an underlying Price fund's net assets. At June 30, 2003, the Spectrum Growth Fund and Spectrum International Fund each held less than 25% of the outstanding shares of any underlying Price fund; Spectrum Income Fund held approximately 46.2% of the outstanding shares of the International Bond Fund, 40.4% of the Emerging Markets Bond Fund, 36.8% of the U.S. Treasury Long-Term Fund, 35.6% of the New Income Fund and 27.9% of the GNMA Fund. Additionally, Spectrum Income Fund is one of several mutual funds in which certain college savings plans managed by Price Associates may invest. Shareholder servicing costs associated with each college savings plan are allocated to Spectrum Income Fund in proportion to the average daily value of its shares owned by the college savings plan and, in turn, are borne by the underlying Price funds in accordance with the terms of the investment management and special servicing agreements. At June 30, 2003, approximately 6% of the outstanding shares of Spectrum Income Fund were held by the college savings plans. Item 2. Code of Ethics. Not required at this time. Item 3. Audit Committee Financial Expert. Not required at this time. Item 4. Principal Accountant Fees and Services. Not required at this time. Item 5. Audit Committee of Listed Registrants. Not required at this time. Item 6. [Reserved] Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable. Item 8. [Reserved] Item 9. Controls and Procedures (a) The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of this filing and have concluded that the registrant's disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely. (b) The registrant's principal executive officer and principal financial officer are aware of no changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10. Exhibits. (a)(1) Not required at this time. (a)(2) Separate certifications by the registrant's principal executive officer and principal financial officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(a) under the Investment Company Act of 1940, are attached. (b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. T. Rowe Price Spectrum Fund, Inc. By /s/ James S. Riepe James S. Riepe Principal Executive Officer Date August 22, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By /s/ James S. Riepe James S. Riepe Principal Executive Officer Date August 22, 2003 By /s/ Joseph A. Carrier Joseph A. Carrier Principal Financial Officer Date August 22, 2003