t. rowe price spectrum funds - december 31, 2007 federal reserve took the rare step of lowering...

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0000808303-08-000004.txt : 200802290000808303-08-000004.hdr.sgml : 2008022920080229135513ACCESSION NUMBER:0000808303-08-000004CONFORMED SUBMISSION TYPE:N-CSRPUBLIC DOCUMENT COUNT:50CONFORMED PERIOD OF REPORT:20071231FILED AS OF DATE:20080229DATE AS OF CHANGE:20080229EFFECTIVENESS DATE:20080229

FILER:

COMPANY DATA:COMPANY CONFORMED NAME:T. Rowe Price Spectrum Fund, Inc.CENTRAL INDEX KEY:0000808303IRS NUMBER:000000000STATE OF INCORPORATION:MDFISCAL YEAR END:1231

FILING VALUES:FORM TYPE:N-CSRSEC ACT:1940 ActSEC FILE NUMBER:811-04998FILM NUMBER:08654383

BUSINESS ADDRESS:STREET 1:100 EAST PRATT STREETCITY:BALTIMORESTATE:MDZIP:21202BUSINESS PHONE:410-345-2000

MAIL ADDRESS:STREET 1:100 EAST PRATT STREETCITY:BALTIMORESTATE:MDZIP:21202

FORMER COMPANY:FORMER CONFORMED NAME:PRICE T ROWE SPECTRUM FUND INCDATE OF NAME CHANGE:19920703

FORMER COMPANY:FORMER CONFORMED NAME:PRICE T ROWE OMNI TRUSTDATE OF NAME CHANGE:19870726

0000808303S000002122Spectrum Income Fund

C000005512Spectrum Income FundRPSIX

0000808303S000002123Spectrum Growth Fund

C000005513Spectrum Growth FundPRSGX

0000808303S000002124Spectrum International Fund

C000005514Spectrum International FundPSILX

N-CSR1arspc.htmT. ROWE PRICE SPECTRUM FUNDS

T. Rowe Price Spectrum Funds - December 31, 2007

Item 1: Report to Shareholders

Spectrum FundsDecember 31, 2007

The views and opinions in this report were current as of December 31, 2007. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors,and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the funds future investment intent. The reportis certified under the Sarbanes-Oxley Act, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.

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Managers Letter

Fellow Shareholders

Despite some upheaval in recent months, the global financial markets produced generally positive returns in 2007. Stock markets worldwide enjoyed solid gains in the first half of the year, then rode out a significant increase involatility over the last six months. The bond market, in contrast, was relatively muted in the first six months, then put together a robust rally in the latter part of the year. As the performance of the Spectrum Funds illustrates, foreign stocksdelivered double-digit returns in 2007, while U.S. stocks and bonds posted moderate gains.

HIGHLIGHTS

International stocks produced double-digit returns, while U.S. stocks and bonds posted modest gains in 2007.

The Spectrum Funds generally reflected these performance patterns, and Spectrum Growth and Spectrum International outpaced their broad market benchmarks for the year, while Spectrum Income modestly lagged.

Broad diversification among multiple T. Rowe Price funds is at the heart of each funds long-term investment strategy.

The credit crunch and housing debacle are putting increasing strains on the U.S. economy. Interest rates should continue to decline in the first part of the year, which would favor U.S. bonds. Overseas markets, particularlyemerging markets, show signs of continued expansion.

MARKET ENVIRONMENT

The linchpin event for the global economy and financial markets was the implosion of the U.S. subprime lending industry and the credit crunch that followed. In the U.S., the debacle led to higher mortgage delinquencies and defaults,tighter lending standards, a lack of liquidity in the credit markets, and substantial losses from structured securities backed by subprime mortgages. It also increased the odds of a recession in the U.S. economy, leading the Federal Reserve to cutthe fed funds rate three times in the last four months of the yeareven as record energy and commodity prices were contributing to a higher inflation rate. On January 22, 2008, following the end of the Spectrum Funds 2007 reportingperiod, the Fed took the aggressive action of cutting rates by 75 basis points, citing the increasing downside risks to growth.

The challenging credit environment had a deleterious effect on economic activity elsewhere in the world. European economies generally improved in 2007, boosted by higher consumer spending and industrial output, but a combination oftighter credit and a stronger euro prompted European central banks to stop raising interest rates in the last six months of the year. The Japanese economy, already struggling with weak domestic consumption, was squeezed further by expectations ofslowing growth in the U.S., its largest export market. The only exception was developing markets, where economic growth remained on a strong upward trajectory, with China and India as the largest, most visible examples.

Despite the difficulties created by the subprime crisis, U.S. stocks managed to gain ground for the fifth straight year in 2007. Two brief subprime-related dips in February and June were the only interruptions in a steady stock market rally during the first half of the year as corporate profit growth exceeded expectations and merger activity remained strong. In the wake of the subprime market collapse, market volatility increased markedly, and stocks closed the year on a pessimistic note, declining broadly in the final quarter. Nonetheless, the major stock indexes advanced overall for the year, led by large-cap issues, while small-cap shares declined modestly. For the first time since 2000, growth stocks outperformed value across all market capitalizations.

International stocks also registered their fifth consecutive year of positive performance, outpacing the domestic market. Emerging markets generated the best returns, continuing to rise smartly in the second half of the year, despite the turbulence elsewhere in the world. Among developed markets, Pacific Rim countries were the best performers, followed by Europe, while Japan was one of the few markets worldwide to decline in 2007.

The U.S. bond market enjoyed its best year since 2002. Bonds were volatile but largely unchanged in the first half of the year amid mixed economic and inflation data. However, investment-grade bonds staged an impressive rally in the last six months as the subprime disaster led to a flight to quality, with investors fleeing riskier investments for the relative safety of U.S. Treasuries. The Federal Reserves first interest rate cuts in four years also contributed to the favorable bond environment. Overall, the broad Lehman Brothers U.S. Aggregate Index returned 6.97% for the year. Treasury bonds were the best performers, while high-yield corporate bonds lagged, weighed down by credit concerns.

Overseas bonds outperformed domestic fixed-income securities, primarily because of weakness in the U.S. dollar. The J.P. Morgan Non-U.S. Dollar Government Bond Index returned 11.30% in 2007, while the J.P. Morgan Emerging Markets Bond Index Plus returned 6.45%.

SPECTRUM GROWTH FUND

Your fund posted good relative results in 2007, outperforming its benchmark and peer group for both the full year and the last six months. Looking at the accompanying table, Spectrum Growths 0.56% return for the six monthsended December 31, 2007, and its 8.65% return for all of 2007 outpaced the returns of both the S&P 500 Stock Index and the Lipper Multi-Cap Core Funds Index over the same time periods. Diversification was the key behind the fundsoutperformance, particularly its exposure to international stocks and large, growth-oriented companies.

The funds international holdings, which made up approximately 26% of the portfolio as of December 31, 2007, produced the best returns. In particular, Emerging Markets Stock was the top performer, returning 43% in 2007. We modestly reduced our position in Emerging Markets Stock early in the year, moving the assets into our two other international components, International Stock and International Growth & Income.

Among domestic holdings, the portfolios large-cap growth fundsBlue Chip Growth and Growth Stockwere the best performers, generating double-digit gains. The two largest positions in the portfolio, Blue Chip Growth and Growth Stock had lagged in recent years as large-cap growth stocks underperformed other segments of the market. We remain confident that large growth will continue to outperform as the economy remains weak in 2008, so we have increased our overweights in Blue Chip Growth and Growth Stock while trimming our holdings of New Horizons, a small-cap growth fund.

The portfolios value holdings lagged in 2007, reflecting the broad underperformance of value stocks after seven years of market leadership. Value and Mid-Cap Value were the two weakest performers, posting barely positive returnsfor the year after declining sharply over the last six months. Equity Income, which emphasizes dividend-paying stocks, held up somewhat better but underperformed the broad stock market indexes.

SPECTRUM INCOME FUND

As the accompanying table shows, your fund advanced for the six and 12 months ended December 31, 2007. Spectrum Income returned 3.51% over the last six months of 2007 and 6.19% for the full year, well ahead of the Lipper General Bond Funds Average but trailing the Lehman Brothers U.S. Aggregate Index. Spectrum Incomes underperformance of its benchmark index resulted primarily from significant weightings in non-benchmark holdings such as high-yield corporate bonds and dividend-paying stocks, both of which declined in the second half of the year.

The top performers in the portfolio were International Bond and U.S. Treasury Long-Term. Both holdings returned approximately 10% in 2007, with virtually all of the gains coming in the last six months of the year. We increased our positions in these two funds in the first half of the year, which proved beneficial for performance, and we added further to U.S. Treasury Long-Term in the last six months.

Among the remaining positions in the portfolio, the best performers were GNMA, which invests in high-quality mortgage-backed securities, and New Income, a diversified bond fund and the portfolios largest holding. We lowered our position in GNMA early in the year as the housing market continued to deteriorate, but we moved some assets back into GNMA late in the year as the subprime fiasco boosted demand for high-quality mortgage-backed securities.

Equity Income, which earns income from dividend-paying stocks, and High Yield were the laggards in the portfolio. These two holdings have been strong performers and valuable diversifiers over the past several years, and they continued this role in the first half of the year. However, both positions lost ground in the last six months as the equities and credit-related sectors underperformed. We cut back on our holdings of both Equity Income and High Yield during the year, but they remained the second- andthird-largest positions in the portfolio.

In addition to the adjustments mentioned above, we shifted nearly all of the assets out of Summit Cash Reserves and into Short-Term Bond, which has historically provided better results when the Fed is cutting short-term interest rates.

SPECTRUM INTERNATIONAL FUND

Your fund generated strong returns and outperformed its benchmarks in 2007. As the accompanying table illuminates, Spectrum International returned 15.73% for the year, ahead of its combined index benchmark and the Lipper International Multi-Cap Core Funds Average. Much of this outperformance was derived from the last six months of the year when Spectrum International returned 4.78%, surpassing the narrow advances of the combined benchmark and the Lipper group average. Strongresults from Asian markets helped the portfolio outperform the benchmarks in 2007.

For the second straight year, New Asia was the portfolios best performer, returning 66.38% in 2007 after a 36.12% gain in 2006. New Asia, which invests in Asian markets other than Japan, benefited from its significant exposure toChina and India. Emerging Markets Stock also produced strong results, returning 43% for the year.

Among the remaining holdings, International Discovery, European Stock, and International Stock were the top performers. International Discovery, which focuses on small-cap foreign equities, and International Stock, the portfolios largest holding, both benefited from increased exposure to non-Japan Asia. Robust European equity returns in the first half of theyear helped lift European Stock.

The only position in the portfolio to decline in 2007 was Japan, reflecting the weakness in the Japanese equity market. International Growth & Incomea diverse, value-oriented foreign holdingfell in the second half of the year as value stocks underperformed on a global basis.

We made no material changes to the portfolios individual weightings in 2007. Spectrum Internationals primary focus remained on developed markets, with modest but meaningful exposure to emerging markets.

OUTLOOK

The continuing credit crunch brought on by the subprime housing debacle is putting increasing pressure on the U.S. economy. In a slowing economic environment, corporate profits growth rates are likely to slow, putting a premium oncompanies that can deliver steady increases in earnings. International companies that are heavily dependent on exports to the U.S. would also be adversely affected by slower U.S. growth. Nonetheless, many overseas economies remain poised forcontinued expansion, particularly in emerging markets.

The Federal Reserve took the rare step of lowering interest rates by 75 basis points on January 22, 2008. The decision came one week before a regularly scheduled board meeting. It served to underscore the fragility of the economy.Indeed, further rate cuts were expected, as the Fed appears ready to lower interest rates to forestall a contraction, which would generally be favorable for U.S. bonds. In addition, certain high-quality sectors of the bond market that have beenharmed by the mortgage crisis may begin to look attractive, though risks of further subprime fallout remain.

We believe that uncertainty about the economy and the potential for market turbulence underscores the value of the Spectrum Funds broadly diversified portfolios.

Respectfully submitted,

Edmund M. Notzon III
President of the Spectrum Funds and chairman of the Investment
Advisory Committee

January 23, 2008

The committee chairman has day-to-day responsibility for managing the portfolios and works with committee members in developing and executing the funds investment programs.

RISKS OF INVESTING

As with all stock and bond mutual funds, each funds share price can fall because of weakness in the stock or bond markets, a particular industry, or specific holdings. Stock markets can decline for many reasons, including adversepolitical or economic developments, changes in investor psychology, or heavy institutional selling. The prospects for an industry or company may deteriorate because of a variety of factors, including disappointing earnings or changes in thecompetitive environment. In addition, the investment managers assessment of companies held in a fund may prove incorrect, resulting in losses or poor performance even in rising markets.

Bonds are subject to interest rate risk, the decline in bond prices that usually accompanies a rise in interest rates, and credit risk, the chance that any fund holding could have its credit rating downgraded, or that a bond issuer willdefault (fail to make timely payments of interest or principal), potentially reducing the funds income level and share price. High-yield corporate bonds could have greater price declines than funds that invest primarily in high-quality bonds.Companies issuing high-yield bonds are not as strong financially as those with higher credit ratings, so the bonds are usually considered speculative investments.

Funds that invest overseas may carry more risk than funds that invest strictly in U.S. assets. Risks can result from varying stages of economic and political development; differing regulatory environments, trading days, and accountingstandards; and higher transaction costs of non-U.S. markets. Non-U.S. investments are also subject to currency risk, or a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated inthat currency.

GLOSSARY

J.P. Morgan Non-U.S. Dollar Government Bond Index: An unmanaged index that tracks the performance of major non-U.S. bond markets.

J.P. Morgan Emerging Markets Bond Index: An unmanaged index that tracks dollar-denominated bonds issued by emerging market countries.

Lehman Brothers U.S. Aggregate Index: An unmanaged index that tracks investment-grade corporate and government bonds.

MSCI EAFE Index: An unmanaged index that tracks the stocks of about 1,000 companies in Europe, Australasia, and the Far East (EAFE).

MSCI Emerging Markets Free Index: An unmanaged index that tracks stocks in 26 emerging market countries.

Russell 2000 Index: An unmanaged index that tracks the smallest 2,000 of the largest 3,000 U.S. stocks.

S&P 500 Stock Index: An unmanaged index that tracks the stocks of 500 U.S. primarily large-cap companies.

Performance and Expenses

GROWTH OF $10,000

This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include abroad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes.

AVERAGE ANNUAL COMPOUND TOTAL RETURN

This table shows how the fund would have performed each year if its actual (or cumulative) returns had been earned at a constant rate.

GROWTH OF $10,000




GROWTH OF $10,000




FUND EXPENSE EXAMPLE

As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, such as redemption fees or sales loads, and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fundexpenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investmentof $1,000 invested at the beginning of the most recent six-month period and held for the entire period.

Actual Expenses
The first line of the following table (Actual) provides information about actual account values and expenses based on the funds actual returns. You may use the information in this line, together with your accountbalance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line underthe heading Expenses Paid During Period to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes
The information on the second line of the table (Hypothetical) is based on hypothetical account values and expenses derived from the funds actual expense ratio and an assumed 5% per year rate of return before expenses(not the funds actual return). You may compare the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds.The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period.

Note: T. Rowe Price charges an annual small-account maintenance fee of $10, generally for accounts with less than $2,000 ($500 for UGMA/UTMA). The fee is waived for any investor whose T. Rowe Pricemutual fund accounts total $25,000 or more, accounts employing automatic investing, and IRAs and other retirement plan accounts that utilize a prototype plan sponsored by T. Rowe Price (although a separate custodial or administrative fee mayapply to such accounts). This fee is not included in the accompanying table. If you are subject to the fee, keep it in mind when you are estimating the ongoing expenses of investing in the fund and when comparing the expenses of this fund with otherfunds.

You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful incomparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher.

The accompanying notes are an integral part of these financial statements.















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, andSpectrum International Fund (collectively, the Spectrum Funds) are three portfolios established by the corporation. Spectrum Growth and Spectrum Income commenced operations on June 29, 1990, and Spectrum International commenced operations onDecember 31, 1996.

Each Spectrum Fund diversifies its assets within set limits among specific underlying T. Rowe Price funds (underlying Price funds). Spectrum Growth seeks long-term capital appreciation and growth of income with current income asecondary objective. Spectrum Income seeks a high level of current income with moderate share price fluctuation. Spectrum International 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 byfund management.

Valuation Each fund values its investments and computes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE isopen for business. Investments in the underlying Price funds are valued at their closing net asset value per share on the day of valuation. Investments for which these valuation procedures are inappropriate or are deemed not to reflect fair valueare stated at fair value as determined in good faith by the T. Rowe Price Valuation Committee, established by the funds Board of Directors.

Redemption Fees A 2% fee is assessed on redemptions of Spectrum International fund shares held for 90 days or less to deter short-term trading and to protect the interests of long-term shareholders. Redemption fees are withheld from proceeds that shareholders receive from the sale or exchange offund shares and are paid to the fund. Redemption fees received by the fund are allocated to each underlying Price fund in proportion to the average daily value of its shares owned by the fund. Accordingly, redemption fees have no effect on the netassets of the fund.

Investment Transactions, Investment Income, and Distributions Income is recorded on the accrual basis. Income and capital gain distributions from the underlying Price funds are recorded on the ex-dividenddate. Purchases and sales of the underlying Price funds are accounted for on the trade date. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. Realized gains and losses are reported on the identifiedcost basis. Distributions to the Spectrum Funds shareholders are recorded on the ex-dividend date. Income distributions are declared by Spectrum Income on a daily basis and paid monthly. Income distributions are declared and paid by SpectrumGrowth and Spectrum International on an annual basis. Capital gain distributions, if any, are declared and paid by the funds, typically on an annual basis.

New Accounting Pronouncements Effective June 29, 2007, the funds adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes, a clarification of FASB Statement No. 109, Accounting for Income Taxes. FIN 48 establishes financial accounting anddisclosure requirements for recognition and measurement of tax positions taken or expected to be taken on an income tax return. The adoption of FIN 48 had no impact on the funds net assets or results of operations.

In September 2006, the FASB released the Statement of Financial Accounting Standard No. 157 (FAS 157), Fair Value Measurements. FAS 157 clarifies the definition of fair value andestablishes the framework for measuring fair value, as well as proper disclosure of this methodology in the financial statements. It will be effective for the funds fiscal years beginning January 1, 2008. Management is evaluating the effectsof FAS 157; however, it is not expected to have a material impact on the funds net assets or results of operations.

NOTE 2 - INVESTMENTS IN UNDERLYING PRICE FUNDS

Purchases and sales of the underlying Price funds for the year ended December 31, 2007, were as follows:

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 under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable incomeand 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 andrealized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences.

Distributions during the year ended December 31, 2007, were characterized as follows for tax purposes:

At December 31, 2007, the tax-basis components of net assets were as follows:

For the year ended December 31, 2007, the Spectrum Growth Fund recorded the following permanent reclassifications to reflect tax character. Reclassifications between income and gain relate primarily to per-share rounding ofdistributions. Results of operations and net assets were not affected by these reclassifications.

At December 31, 2007, the cost of investments for federal income tax purposes was $2,726,509,000 for Spectrum Growth, $4,889,714,000 for Spectrum Income, and $428,495,000 for Spectrum International.

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, and also serves as manager for the domestic underlying Pricefunds. T. Rowe Price International, Inc. (Price International), a wholly owned subsidiary of Price Associates, is the investment manager for Spectrum International and also serves as manager for the international underlying Price funds. Pursuant tovarious service agreements, Price Associates and its wholly owned subsidiaries provide shareholder servicing and administrative, transfer and dividend disbursing, accounting, marketing, and certain other services to the Spectrum Funds. Certainofficers and directors of the Spectrum Funds are also officers and directors of Price Associates and its subsidiaries, and of the underlying Price funds.

The Spectrum Funds pay no management fees; however, Price Associates and Price International receive management fees from the underlying Price funds. The Spectrum Funds operate in accordance with the investment management and specialservicing 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 theSpectrum 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 funds net assets. At December 31, 2007, Spectrum Growth and Spectrum International Funds each held less than 25% of the outstanding shares of any underlying Price fund; Spectrum Income Fund held approximately 64% of the outstanding shares of the U.S. Treasury Long-Term Fund, 48% of the GNMA Fund, 45% of the Corporate Income Fund, 28% of the International Bond Fund, and 27% of the Short-Term Bond 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 toSpectrum 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 servicingagreements. At December 31, 2007, approximately 18% of the outstanding shares of Spectrum Income Fund were held by the college savings plans.

As of December 31, 2007, T. Rowe Price Group, Inc., and/or its wholly owned subsidiaries owned 2,465,341 shares of the Spectrum Growth Fund, representing 1% of the funds net assets.

REPORT OF INDEPENDENT REGISTERED PUBLICACCOUNTING FIRM

To the Board of Directors of T. Rowe Price Spectrum Fund, Inc. and
Shareholders of T. Rowe Price Spectrum Growth Fund, Spectrum Income
Fund, and Spectrum International Fund

In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in allmaterial respects, the financial position of T. Rowe Price Spectrum Growth Fund, Spectrum Income Fund and Spectrum International Fund (the funds comprising T. Rowe Price Spectrum Fund, Inc., hereafter referred to collectively as theFunds) at December 31, 2007, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended and the financial highlights for each of the five years in theperiod then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as financial statements) are the responsibility ofthe 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 the auditing standards of the Public CompanyAccounting Oversight Board (United States). Those standards 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 testbasis, 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 thatour audits, which included confirmation of the underlying funds at December 31, 2007, by correspondence with the transfer agent, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP
Baltimore, Maryland
February 12, 2008

TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/07

SPECTRUM GROWTH FUND

We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements.

The funds distributions to shareholders included:

$31,092,000 from short-term capital gains,

$119,631,000 from long-term capital gains, subject to the 15% rate gains category.

For taxable non-corporate shareholders, $44,268,000 of the funds income represents qualified dividend income subject to the 15% rate category.

For corporate shareholders, $31,538,000 of the funds income qualifies for the dividends-received deduction.

SPECTRUM INCOME FUND






For corporate shareholders, $17,218,000 of the funds income qualifies for the dividends-received deduction.

SPECTRUM INTERNATIONAL FUND






INFORMATION ON PROXY VOTING POLICIES, PROCEDURES, AND RECORDS

A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each funds Statement of Additional Information, which youmay request by calling 1-800-225-5132 or by accessing the SECs Web site, www.sec.gov. The description of our proxy voting policies and procedures is also available on our Web site, www.troweprice.com. To access it, click on the wordsCompany Info at the top of our homepage for individual investors. Then, in the window that appears, click on the Proxy Voting Policy navigation button in the top left corner.

Each funds most recent annual proxy voting record is available on our Web site and through the SECs Web site. To access it through our Web site, follow the directions above, then click on the words Proxy VotingRecord at the bottom of the Proxy Voting Policy page.

HOW TO OBTAIN QUARTERLY PORTFOLIO HOLDINGS

The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The funds Form N-Q is available electronically on theSECs Web site (www.sec.gov); hard copies may be reviewed and copied at the SECs Public Reference Room, 450 Fifth St. N.W., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.

ABOUT THE FUNDS DIRECTORS AND OFFICERS

Your funds are governed by a Board of Directors (Board) that meets regularly to review a wide variety of matters affecting the funds, including performance, investment programs, compliance matters, advisory fees and expenses, serviceproviders, and other business affairs. The Board elects the funds officers, who are listed in the final table. At least 75% of Board members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price), and T. Rowe Price International,Inc. (T. Rowe Price International); inside or interested directors are employees or officers of T. Rowe Price. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. TheStatement of Additional Information includes additional information about the directors and is available without charge by calling a T. Rowe Price representative at 1-800-225-5132.

Independent Directors

Name

(Year of Birth)Principal Occupation(s) During Past 5 Years and

Year Elected*Directorships of Other Public Companies

Jeremiah E. CaseyDirector, National Life Insurance (2001 to 2005); Director, The Rouse

(1940)Company, real estate developers (1990 to 2004); Director, Allfirst

2005Financial Inc. (previously First Maryland Bancorp) (1983 to 2002)

Anthony W. DeeringChairman, Exeter Capital, LLC, a private investment firm (2004 to

(1945)present); Director, Vornado Real Estate Investment Trust (3/04 to

2001present); Member, Advisory Board, Deutsche Bank North America

(2004 to present); Director, Chairman of the Board, and Chief Executive

Officer, The Rouse Company, real estate developers (1997 to 2004)

Donald W. Dick, Jr.Principal, EuroCapital Advisors, LLC, an acquisition and management

(1943)advisory firm; Chairman, The Haven Group, a custom manufacturer of

1999modular homes (1/04 to present)

David K. FaginChairman and President, Nye Corporation (6/88 to present);

(1938)Chairman, Canyon Resources Corp. (8/07 to present); Director,

1999Golden Star Resources Ltd. (5/92 to present); Director, Pacific Rim

Mining Corp. (2/02 to present)

Karen N. HornDirector, Federal National Mortgage Association (9/06 to present);

(1943)Managing Director and President, Global Private Client Services,

2003Marsh Inc. (1999 to 2003); Director, Georgia Pacific (5/04 to 12/05),

Eli Lilly and Company, and Simon Property Group

Theo C. RodgersPresident, A&R Development Corporation (1977 to present)

(1941)

2005

John G. SchreiberOwner/President, Centaur Capital Partners, Inc., a real estate invest-

(1946)ment company; Partner, Blackstone Real Estate Advisors, L.P.

2001

*Each independent director oversees 121 T. Rowe Price portfolios and serves until retirement, resignation, or

election of a successor.

Inside Directors

Name

(Year of Birth)

Year Elected*

[Number of T. Rowe PricePrincipal Occupation(s) During Past 5 Years and

Portfolios Overseen]Directorships of Other Public Companies

Edward C. BernardDirector and Vice President, T. Rowe Price; Vice Chairman of the

(1956)Board, Director, and Vice President, T. Rowe Price Group, Inc.;

2006Chairman of the Board, Director, and President, T. Rowe Price

[121]Investment Services, Inc.; Chairman of the Board and Director,

T. Rowe Price Global Asset Management Limited, T. Rowe Price

Global Investment Services Limited, T. Rowe Price Retirement Plan

Services, Inc., T. Rowe Price Savings Bank, and T. Rowe Price

Services, Inc.; Director, T. Rowe Price International, Inc.; Chief

Executive Officer, Chairman of the Board, Director, and President,

T. Rowe Price Trust Company; Chairman of the Board, all funds

Brian C. Rogers, CFA, CICChief Investment Officer, Director, and Vice President, T. Rowe Price;

(1955)Chairman of the Board, Chief Investment Officer, Director, and Vice

2006President, T. Rowe Price Group, Inc.; Vice President, T. Rowe Price

[68]Trust Company; Vice President, Spectrum Funds

*Each inside director serves until retirement, resignation, or election of a successor.

Officers

Name (Year of Birth)

Title and Fund(s) ServedPrincipal Occupation(s)

Mark C.J. Bickford-Smith (1962)Vice President, T. Rowe Price Group, Inc., and

Vice President, Spectrum FundsT. Rowe Price International, Inc.

Joseph A. Carrier, CPA (1960)Vice President, T. Rowe Price, T. Rowe Price

Treasurer, Spectrum FundsGroup, Inc., T. Rowe Price Investment Services,

Inc., and T. Rowe Price Trust Company

Roger L. Fiery III, CPA (1959)Vice President, T. Rowe Price, T. Rowe Price

Vice President, Spectrum FundsGroup, Inc., T. Rowe Price International, Inc.,

and T. Rowe Price Trust Company

Kenneth D. Fuller (1958)Vice President, T. Rowe Price and T. Rowe Price

Vice President, Spectrum FundsGroup, Inc.

John R. Gilner (1961)Chief Compliance Officer and Vice President,

Chief Compliance Officer, Spectrum FundsT. Rowe Price; Vice President, T. Rowe Price

Group, Inc., and T. Rowe Price Investment

Services, Inc.

Gregory S. Golczewski (1966)Vice President, T. Rowe Price and T. Rowe Price

Vice President, Spectrum FundsTrust Company

Henry H. Hopkins (1942)Director and Vice President, T. Rowe Price

Vice President, Spectrum FundsInvestment Services, Inc., T. Rowe Price

Services, Inc., and T. Rowe Price Trust Company;

Vice President, T. Rowe Price, T. Rowe Price

Group, Inc., T. Rowe Price International, Inc., and

T. Rowe Price Retirement Plan Services, Inc.

John H. Laporte, CFA (1945)Vice President, T. Rowe Price, T. Rowe Price

Executive Vice President, Spectrum FundsGroup, Inc., and T. Rowe Price Trust Company

Patricia B. Lippert (1953)Assistant Vice President, T. Rowe Price and

Secretary, Spectrum FundsT. Rowe Price Investment Services, Inc.

Mary J. Miller, CFA (1955)Director, T. Rowe Price Trust Company; Director

Executive Vice President, Spectrum Fundsand Vice President, T. Rowe Price; Vice

President, T. Rowe Price Group, Inc.

Raymond A. Mills, Ph.D., CFA (1960)Vice President, T. Rowe Price, T. Rowe Price

Vice President, Spectrum FundsGroup, Inc., and T. Rowe Price International, Inc.

Edmund M. Notzon III, Ph.D., CFA (1945)Vice President, T. Rowe Price, T. Rowe Price

President, Spectrum FundsGroup, Inc., T. Rowe Price Investment Services,

Inc., and T. Rowe Price Trust Company

Charles M. Shriver, CFA (1967)Vice President, T. Rowe Price and T. Rowe Price

Vice President, Spectrum FundsGroup, Inc.

Robert W. Smith (1961)Vice President, T. Rowe Price, T. Rowe Price

Vice President, Spectrum FundsGroup, Inc., and T. Rowe Price Trust Company

Julie L. Waples (1970)Vice President, T. Rowe Price

Vice President, Spectrum Funds

David J.L. Warren (1957)Director, T. Rowe Price, T. Rowe Price Global

Executive Vice President, Spectrum FundsAsset Management Limited, and T. Rowe Price

Global Investment Services Limited; Vice

President, T. Rowe Price Group, Inc.; Chief

Executive Officer, Director, and President,

T. Rowe Price International, Inc.

Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least

five years.

Item 2. Code of Ethics.

The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similarfunctions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.

Item 3. Audit Committee Financial Expert.

The registrants Board of Directors/Trustees has determined that Ms. Karen N. Horn qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Ms. Horn is considered independent for purposes of Item 3 ofForm N-CSR.

Item 4. Principal Accountant Fees and Services.

(a) (d) Aggregate fees billed to the registrant for the last two fiscal years for professional services rendered by the registrants principal accountant were as follows:

Audit fees include amounts related to the audit of the registrants annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees includeamounts reasonably related to the performance of the audit of the registrants financial statements and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions.Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. All other fees include the registrants pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrants Board of Directors/Trustees.

(e)(1) The registrants audit committee has adopted a policy whereby audit and non-audit services performed by the registrants principal accountant for the registrant, its investment adviser, and any entity controlling,controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularlyscheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimisamount is not permitted.

(2) No services included in (b) (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

(f) Less than 50 percent of the hours expended on the principal accountants engagement to audit the registrants financial statements for the most recent fiscal year were attributed to work performed by persons other than theprincipal accountants full-time, permanent employees.

(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrants principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entitycontrolling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $1,486,000 and $1,401,000, respectively, and were less than the aggregate fees billed for those sameperiods by the registrants principal accountant for audit services rendered to the T. Rowe Price Funds.

(h) All non-audit services rendered in (g) above were pre-approved by the registrants audit committee. Accordingly, these services were considered by the registrants audit committee in maintaining the principalaccountants independence.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Schedule of Investments.

Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 11. Controls and Procedures.

(a) The registrants principal executive officer and principal financial officer have evaluated the registrants disclosure controls and procedures within 90 days of this filing and have concluded that the registrantsdisclosure 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 registrants principal executive officer and principal financial officer are aware of no change in the registrants internal control over financial reporting that occurred during the registrants second fiscalquarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.

Item 12. Exhibits.

(a)(1) The registrants code of ethics pursuant to Item 2 of Form N-CSR is attached.

(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.

(3) Written solicitation to repurchase securities issued by closed-end companies: not applicable.

(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, isattached.

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/ Edward C. Bernard

Edward C. Bernard

Principal Executive Officer

DateFebruary 19, 2008

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/ Edward C. Bernard

Edward C. Bernard



By/s/ Joseph A. Carrier

Joseph A. Carrier

Principal Financial Officer


EX-99.CERT2ex-99cert.htm302 CERTIFICATIONS

CERTIFICATIONS

Item 12(a)(2).

CERTIFICATIONS

I, Edward C. Bernard, certify that:

1.I have reviewed this report on Form N-CSR of T. Rowe Price Spectrum Funds;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit

to state a material fact necessary to make the statements made, in light of the circumstances under

which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this

report, fairly present in all material respects the financial condition, results of operations, changes in

net assets, and cash flows (if the financial statements are required to include a statement of cash

flows) of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining

disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act

of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the

Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to

the registrant, including its consolidated subsidiaries, is made known to us by others within those

entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over

financial reporting to be designed under our supervision, to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of financial statements for

external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in

this report our conclusions about the effectiveness of the disclosure controls and procedures, as of

a date within 90 days prior to the filing date of this report based on such evaluation; and

(d)Disclosed in this report any change in the registrants internal control over financial reporting that

occurred during the second fiscal quarter of the period covered by this report that has materially

affected, or is reasonably likely to materially affect, the registrants internal control over financial

reporting; and

5.The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the

audit committee of the registrant's board of directors (or persons performing the equivalent

functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control

over financial reporting which are reasonably likely to adversely affect the registrant's ability to

record, process, summarize, and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant's internal control over financial reporting.

Date:February 19, 2008/s/ Edward C. Bernard

Edward C. Bernard


CERTIFICATIONS

I, Joseph A. Carrier, certify that:

1.I have reviewed this report on Form N-CSR of T. Rowe Price Spectrum Funds;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit

to state a material fact necessary to make the statements made, in light of the circumstances under

which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this

report, fairly present in all material respects the financial condition, results of operations, changes in

net assets, and cash flows (if the financial statements are required to include a statement of cash

flows) of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer(s) and I are responsible for establishing and maintaining

disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act

of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the

Investment Company Act of 1940) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and

procedures to be designed under our supervision, to ensure that material information relating to

the registrant, including its consolidated subsidiaries, is made known to us by others within those

entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over

financial reporting to be designed under our supervision, to provide reasonable assurance

regarding the reliability of financial reporting and the preparation of financial statements for

external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in

this report our conclusions about the effectiveness of the disclosure controls and procedures, as of

a date within 90 days prior to the filing date of this report based on such evaluation; and

(d)Disclosed in this report any change in the registrants internal control over financial reporting that

occurred during the second fiscal quarter of the period covered by this report that has materially

affected, or is reasonably likely to materially affect, the registrants internal control over financial

reporting; and

5.The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the

audit committee of the registrant's board of directors (or persons performing the equivalent

functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control

over financial reporting which are reasonably likely to adversely affect the registrant's ability to

record, process, summarize, and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a

significant role in the registrant's internal control over financial reporting.

Date:February 19, 2008/s/ Joseph A. Carrier

Joseph A. Carrier


EX-99.906 CERT3ex-99_906cert.htm906 CERTIFICATIONS

CERTIFICATION UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002

Item 12(b).

CERTIFICATION UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002

Name of Issuer: T. Rowe Price Spectrum Funds

In connection with the Report on Form N-CSR for the above named Issuer, the undersigned hereby

certifies, to the best of his knowledge, that:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities

Exchange Act of 1934;

2.The information contained in the Report fairly presents, in all material respects, the financial

condition and results of operations of the Issuer.

Date: February 19, 2008/s/ Edward C. Bernard

Edward C. Bernard


Date:February 19, 2008/s/ Joseph A. Carrier

Joseph A. Carrier


EX-99.CODE ETH4ex-99_codeeth.htmCODE OF ETHICS

Code of Ethics

CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL

OFFICERS OF THE PRICE FUNDS

UNDER THE SARBANES-OXLEY ACT OF 2002

I. General Statement. This Code of Ethics (the Price Funds S-O Code) has been designed

to bring the Price Funds into compliance with the applicable requirements of the Sarbanes-Oxley

Act of 2002 (the Act)rules promulgated by The Securities and Exchange Commission

thereunder (Regulations).The Price Funds S-O Code applies solely to the Principal

Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller of, or

persons performing similar functions for, a Price Fund (whether such persons are employed by a

Price Fund or third party) (Covered Officers). The Price Funds shall include each mutual

fund that is managed, sponsored and distributed by affiliates of T. Rowe Price Group, Inc.

(Group). The investment managers to the Price Funds will be referred to as the Price Fund

Advisers.A list of Covered Officers is attached as Exhibit A.

The Price Fund Advisers have, along with their parent, T. Rowe Price Group, Inc. (Group)

also maintained a comprehensive Code of Ethics and Conduct (the Group Code) since 1972,

which applies to all officers, directors and employees of the Price Funds, Group and its affiliates.

As mandated by the Act, Group has adopted a Code (the Group S-O Code), similar to the

Price Funds S-O Code, which applies solely to its principal executive and senior financial

officers. The Group S-O Code and the Price Funds S-O Code will be referred to collectively as

the S-O Codes.

The Price Funds S-O Code has been adopted by the Price Funds in accordance with the Act and

Regulations thereunder and will be administered in conformity with the disclosure requirements

of Item 2 of Form N-CSR. The S-O Codes are attachments to the Group Code. In many respects

the S-O Codes are supplementary to the Group Code, but the Group Code is administered

separately from the S-O Codes, as the S-O Codes are from each other.

II. Purpose of the Price Funds S-O Code. The purpose of the Price Funds S-O Code, as

mandated by the Act and the Regulations, is to establish standards that are reasonably designed

to deter wrongdoing and to promote:

Ethical Conduct. Honest and ethical conduct, including the ethical handling of actual or

apparent conflicts of interest between personal and professional relationships.

Disclosure. Full, fair, accurate, timely and understandable disclosure in reports and

documents that the Price Funds file with, or submit to, the SEC and in other public

communications made by the Price Funds.

Compliance. Compliance with applicable governmental laws, rules and regulations.

Reporting of Violations. The prompt internal reporting of violations of the Price Funds

S-O Code to an appropriate person or persons identified in the Price Funds S-O Code.

Accountability. Accountability for adherence to the Price Funds S-O Code.

III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest.

Overview. Each Covered Officer owes a duty to the Price Funds to adhere to a high standard of

honesty and business ethics and should be sensitive to situations that may give rise to actual as

well as apparent conflicts of interest.

A conflict of interest occurs when a Covered Officers private interest interferes with the

interests of, or his or her service to, the Price Funds. For example, a conflict of interest would

arise if a Covered Officer, or a member of his or her family, receives improper personal benefits

as a result of his or her position with a Price Fund.

Certain conflicts of interest covered by the Price Funds S-O Code arise out of the relationships

between Covered Officers and the Price Funds and may already be subject to provisions

regulating conflicts of interest in the Investment Company Act of 1940 (Investment Company

Act), the Investment Advisers Act of 1940 (Investment Advisers Act) and the Group Code.

For example, Covered Officers may not individually engage in certain transactions (such as the

purchase or sale of securities or other property) with a Price Fund because of their status as

affiliated persons of a Price Fund. The compliance programs and procedures of the Price

Funds and Price Fund Advisers are designed to prevent, or identify and correct, violations of

these provisions.

Although typically not presenting an opportunity for improper personal benefit, conflicts arise

from, or as a result of, the contractual relationship between a Price Fund and its Price Fund

Adviser (and its affiliates) of which the Covered Officers may also be officers or employees. As

a result, the Price Funds S-O Code recognizes that the Covered Officers will, in the normal

course of their duties (whether formally for the Price Funds or for the Price Fund Advisers, or for

both), be involved in establishing policies and implementing decisions which will have different

effects on these entities. The participation of the Covered Officers in such activities is inherent

in the contractual relationship between each Price Fund and its respective Price Fund Adviser.

Such participation is also consistent with the performance by the Covered Officers of their duties

as officers of the Price Funds and, if consistent with the provisions of the Investment Company

Act and the Investment Advisers Act, it will be deemed to have been handled ethically.

Other conflicts of interest are covered by the Price Funds S-O Code, even if these conflicts of

interest are not addressed by or subject to provisions in the Investment Company Act and the

Investment Advisers Act.

Whenever a Covered Officer is confronted with a conflict of interest situation where he or she is

uncertain as to the appropriate action to be taken, he or she should discuss the matter with the

Chairperson of Groups Ethics Committee or another member of the Committee.

Handling of Specific Types of Conflicts. Each Covered Officer (and close family members)

must not:

Entertainment. Accept entertainment from any company with which any Price

Fund or any Price Fund Adviser has current or prospective business dealings,

including portfolio companies, unless such entertainment is in full compliance

with the policy on entertainment as set forth in the Group Code.

Gifts. Accept any gifts, except as permitted by the Group Code.

Improper Personal Influence. Use his or her personal influence or personal

relationships improperly to influence investment decisions, brokerage allocations

or financial reporting by the Price Funds to the detriment of any one or more of

the Price Funds. Taking Action at the Expense of a Price Fund. Cause a Price Fund to take

action, or fail to take action, for the personal benefit of the Covered Officer rather

than for the benefit of one or more of the Price Funds. Misuse of Price Funds Transaction Information. Use knowledge of portfolio

transactions made or contemplated for a Price Fund or any other clients of the

Price Fund Advisers to trade personally or cause others to trade in order to take

advantage of or avoid the market impact of such portfolio transactions. Outside Business Activities. Engage in any outside business activity that

detracts from a Covered Officers ability to devote appropriate time and attention

to his or her responsibilities to a Price Fund. Service Providers. Excluding Group and its affiliates, have any ownership

interest in, or any consulting or employment relationship with, any of the Price

Funds service providers, except that an ownership interest in public companies is

permitted Receipt of Payments. Have a direct or indirect financial interest in commissions,

transaction charges, spreads or other payments paid by a Price Fund for effecting

portfolio transactions or for selling or redeeming shares other than an interest

(such as compensation or equity ownership) arising from the Covered Officers

employment by Group or any of its affiliates.

Service as a Director or Trustee. Serve as a director, trustee or officer of any

public or private company or a non-profit organization that issues securities

eligible for purchase by any of the Price Funds, unless approval is obtained as

required by the Group Code.

IV. Covered Officers Specific Obligations and Accountabilities.

A. Disclosure Requirements and Controls. Each Covered Officer must

familiarize himself or herself with the disclosure requirements (Form N-1A registration

statement, proxy (Schedule 14A), shareholder reports, Forms N-SAR, N-CSR, etc.)

applicable to the Price Funds and the disclosure controls and procedures of the Price

Fund and the Price Fund Advisers.

B. Compliance with Applicable Law. It is the responsibility of each Covered

Officer to promote compliance with all laws, rules and regulations applicable to the Price

Funds and the Price Fund Advisers. Each Covered Officer should, to the extent

appropriate within his or her area of responsibility, consult with other officers and

employees of the Price Funds and the Price Fund Advisers and take other appropriate

steps with the goal of promoting full, fair, accurate, timely and understandable disclosure

in the reports and documents the Price Funds file with, or submit to, the SEC, and in

other public communications made by the Price Funds.

C. Fair Disclosure. Each Covered Officer must not knowingly misrepresent, or

cause others to misrepresent, facts about a Price Fund to others, whether within or

outside the Price organization, including to the Price Funds directors and auditors, and

to governmental regulators and self-regulatory organizations.

D. Initial and Annual Affirmations. Each Covered Officer must:

1. Upon adoption of the Price Funds S-O Code (or thereafter, as applicable, upon

becoming a Covered Officer), affirm in writing that he or she has received, read,

and understands the Price Funds S-O Code.

2. Annually affirm that he or she has complied with the requirements of the Price

Funds S-O Code.

E. Reporting of Material Violations of the Price Funds S-O Code. If a

Covered Officer becomes aware of any material violation of the Price Funds S-O Code

or laws and governmental rules and regulations applicable to the operations of the

Price Funds, he or she must promptly report the violation (Report) to the Chief

Legal Counsel of the Price Funds (CLC). Failure to report a material violation will

be considered itself a violation of the Price Funds S-O Code. The CLC is identified in

the attached Exhibit B.

It is the Price Funds policy that no retaliation or other adverse action will be taken

against any Covered Officer or other employee of a Price Fund, a Price Fund Adviser

or their affiliates based upon any lawful actions of the Covered Officer or employee

with respect to a Report made in good faith.

F. Annual Disclosures. Each Covered Officer must report, at least annually, all

affiliations or other relationships as called for in the Annual Questionnaire for

Executive Officers and/or Employee Directors/Trustees of Group and the Price Funds.

V. Administration of the Price Funds S-O Code. The Ethics Committee is responsible for

administering the Price Funds S-O Code and applying its provisions to specific situations in

which questions are presented.

A. Waivers and Interpretations. The Chairperson of the Ethics Committee has

the authority to interpret the Price Funds S-O Code in any particular situation and to

grant waivers where justified, subject to the approval of the Joint Audit Committee of

the Price Funds. All material interpretations concerning Covered Officers will be

reported to the Joint Audit Committee of the Price Funds at its next meeting. Waivers,

including implicit waivers, to Covered Officers will be publicly disclosed as required

in the Instructions to N-CSR. Pursuant to the definition in the Regulations, an implicit

waiver means a Price Funds failure to take action within a reasonable period of time

regarding a material departure from a provision of the Price Funds S-O Code that has

been made known to an executive officer (as defined in Rule 3b-7 under the

Securities Exchange Act of 1934) of a Price Fund. An executive officer of a Price

Fund includes its president and any vice-president in charge of a principal business

unit, division or function.

B. Violations/Investigations. The following procedures will be followed in

investigating and enforcing the Price Funds S-O Code:

1. The CLC will take or cause to be taken appropriate action to

investigate any potential or actual violation reported to him or her.

2. The CLC, after consultation if deemed appropriate with Outside

Counsel to the Price Funds, will make a recommendation to the

appropriate Price Funds Board regarding the action to be taken with

regard to each material violation. Such action could include any of the

following: a letter of censure or suspension, a fine, a suspension of trading

privileges or termination of officership or employment. In addition, the

violator may be required to surrender any profit realized (or loss avoided)

from any activity that is in violation of the Price Funds S-O Code.

VI. Amendments to the Price Funds S-O Code. Except as to the contents of Exhibit A and

Exhibit B, the Price Funds S-O Code may not be materially amended except in written form,

which is specifically approved or ratified by a majority vote of each Price Fund Board, including

a majority of the independent directors on each Board.

VII. Confidentiality. All reports and records prepared or maintained pursuant to the Price

Funds S-O Code will be considered confidential and shall be maintained and protected

accordingly. Except as otherwise required by law, the Price Funds S-O Code or as necessary in

connection with regulations under the Price Funds S-O Code, such matters shall not be disclosed

to anyone other than the directors of the appropriate Price Fund Board, Outside Counsel to the

Price Funds, members of the Ethics Committee and the CLC and authorized persons on his or

her staff.

Preparation Date: 9/30/03

Adoption Date: 10/22/03
Exhibit A

Persons Covered by the Price Funds S-O Code of Ethics

Edward C. Bernard, Chairman and Chief Executive Officer

Joseph A. Carrier, Treasurer and Chief Financial Officer

Exhibit B

Chief Legal Counsel to the Price Funds

Henry H. Hopkins

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t. rowe price spectrum funds - december 31, 2007 federal reserve took the rare step of lowering...

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