t. rowe price spectrum funds - december 31, 2006 chart shows the value of a hypothetical $10,000...

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0000808303-07-000003.txt : 200702270000808303-07-000003.hdr.sgml : 2007022720070227115103ACCESSION NUMBER:0000808303-07-000003CONFORMED SUBMISSION TYPE:N-CSRPUBLIC DOCUMENT COUNT:47CONFORMED PERIOD OF REPORT:20061231FILED AS OF DATE:20070227DATE AS OF CHANGE:20070227EFFECTIVENESS DATE:20070227

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:07651951

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, 2006

Item 1: Report to Shareholders

Spectrum FundsDecember 31, 2006

The views and opinions in this report were current as of December 31, 2006. 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.

REPORTS ON THE WEB

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Fellow Shareholders

The year 2006 was a banner year for global financial markets, which generated considerable momentum in the last six months after a sluggish start. The strong results reflected the supportive environment for economic and corporate profitgrowth worldwide. As the performance of the Spectrum Funds illustrates, both international and domestic stocks enjoyed double-digit returns, while bonds posted more muted gains.

MARKET ENVIRONMENT

Global economies continued to expand in 2006, though the most significant increases in the rate of growth occurred outside the U.S. European economies showed significant improvement, while India and China led the robust growth in Asia.The main exceptions were Japan, where an apparent economic turnaround stalled in the second half of the year, and the U.S., which saw economic growth decelerate after several years of expansion. While central banks around the world continued toraise interest rates throughout the year, the Federal Reserve ended its program of rate hikes in June, holding rates steady during the last six months after 17 rate increases between June 2004 and June 2006.

The rising economic tide lifted corporate profit growth around the world. Even in the U.S., where economic growth slowed markedly, corporate earnings consistently exceeded expectations. Another global trend was a sharp increase inmergers and acquisitions; globally, M&A deals totaled a record-high $4 trillion in 2006. Private-equity firms played a substantial role in some of the largest transactions.

HIGHLIGHTS

International and domestic stocks enjoyed double-digit returns in 2006, while bonds posted more muted gains.

Each of the three Spectrum Funds performed better than its benchmark in the second half of the year. The Spectrum Growth and Spectrum Income funds also outperformed their benchmarks for the entire year.

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

Economic conditions remain favorable for global equity markets. An easing of inflationary pressures should augur well for bonds, while overseas markets could benefit from a weaker U.S. dollar.

The combination of strong corporate earnings growth, record-setting merger activity, and a stable Fed monetary policy provided the backdrop for a solid rally in the U.S. stock market. As the accompanying table shows, most of the gains occurred in the second half of the year, when energy prices fell and the Fed was on hold. Based on Russell indexes, small-cap stocks outperformed large-company issues for the year, while value shares won out over growth bya substantial margin.

International stocks posted higher returns than the domestic market. The same factors supporting U.S. stocks also contributed to outsized returns in overseas markets. Nearly every region produced gains in excess of 25% for the year,with emerging markets leading the way, especially in Latin America. Among developed countries, European and Asian markets delivered very similar returns, gaining more than 30% for the year. The laggard was Japan, which posted single-digit gains amida softer-than-expected economy.

U.S. bonds also produced positive results in 2006, though returns were more modest than in the equity markets. Bonds declined during the first half of the year, but the decelerating economic environment and the shift in Fed rate policy helped set the stage for a bond market rally in the last six months. For the year, the broad Lehman Brothers U.S. Aggregate Index returned 4.33%. High-yield corporate bonds were the best performers, benefiting from strong investor demand for higher-yielding investments. Mortgage-backed securities also posted strong gains, while Treasury bonds lagged.

International bonds outperformed domestic fixed-income securities for the year; returns were enhanced by the U.S. dollars weakness versus European and some Asian currencies. The J.P. Morgan Non-U.S. Dollar Government Bond Index returned 6.84% in 2006, while the J.P. Morgan Emerging Markets Bond Index Plus returned 10.49%.

SPECTRUM GROWTH FUND

In 2006, your fund posted a double-digit gain and outperformed its benchmark. As shown in the accompanying table, Spectrum Growth returned 16.37% for the year, surpassing the performance of both the S&P 500 Stock Index and the funds Lipper peer group index. The funds 12.78% return in the last six months was also better than the performance of the S&P 500 and Lipper benchmarks. The portfolios strong results in 2006resulted primarily from its exposure to foreign issues and value stocks.

Every holding in the portfolio produced positive returns during the year. The funds underlying international stock portfolios, which composed about 20% of the fund as of December 31, 2006, were the top performers. The smallest position in the portfolio, Emerging Markets Stock, posted the best return, gaining more than 30%. We maintained neutral weightings in foreign stocks throughout the year and are optimistic about their prospectsin 2007.

On the domestic side, the funds value holdingsMid-Cap Value, Value, and Equity Income (a dividend-oriented holding with a value element)also performed well, benefiting from the broad outperformance of value stocks. We shuffled some assets among our value holdings, trimming our position in Equity Income and adding to our position in Value, in order to achieve greater balance in this segment of the portfolio.

The growth components of the portfolio lagged, particularly Blue Chip Growth and New Horizons, which were the only holdings to post single-digit gains for the year. We continued to overweight large-cap growth stocks, adding to our positions in Growth Stock and Blue Chip Growth throughout the year. In an environment of solid but slower earnings growth, high-quality large-cap companies could benefit if they are able to produce more dependable earnings growth. The underperformance of large-cap growth stocks in 2006 reinforced their attractive valuations.

We cut back on our position in New Horizons, the lone small-cap holding in the portfolio. Small-cap valuations remain high relative to large-cap issues, and small-cap stocks may face a more challenging profit environment in an economic slowdown.

SPECTRUM INCOME FUND

As the accompanying table indicates, your fund delivered a solid return in 2006. Spectrum Incomes 8.38% return for the year was ahead of both the Lehman Brothers U.S. Aggregate Index and its Lipper peer group average. Thefunds 6.89% return for the last six months also outpaced the index and peer group. Spectrum Income continued to benefit from its broad diversification, as the funds positions in high-yield corporate bonds, dividend-paying stocks, andinternational bonds were all top contributors to performance in 2006.

All portfolio holdings gained ground for the year. The best performer was Equity Income, which derives its income from dividend-paying stocks. Equity Income gained nearly 20% as the stock market staged a strong rally in 2006. High Yield and Emerging Markets Bond were also top contributors; both benefited from strong investor demand for the highest yields available in the bond market. Rising interest rates weighed on U.S. Treasury Long-Term, which has the greatest sensitivity to interest rate fluctuations. However, it was also one of the smallest positions in the portfolio.

We reallocated some assets during the year to take advantage of valuation disparities and broaden our diversification. With the Fed on hold, we shifted assets from Summit Cash Reserves to Short-Term Bond. We also reduced our positions in areas that have outperformed in recent yearsincluding Equity Income (value stocks), New Income (investment-grade bonds), andCorporate Income (primarily investment-grade corporate bonds)and added to holdings that have lagged, such as U.S. Treasury Long-Term.

Earlier in the period, we increased our weighting in High Yield, as the sector benefited from strong fundamentals thanks to strong corporate profit growth and low default levels. Toward the end of the year, we began to lower ourexposure as the difference between yields of high-and low-quality bonds narrowed to historically low levels following several years of strong returns.

SPECTRUM INTERNATIONAL FUND

Despite a very strong return in 2006, your fund lagged its benchmark and peer group average. As the accompanying table shows, Spectrum Internationals 22.60% return for the year came up short of its combined index benchmark andLipper peer group average. All of the underperformance occurred in the first half of the yearSpectrum International returned 16.79% for the six months ended December 31, 2006, well ahead of the combined benchmark and Lipper group returns. A meaningful position inJapan and a reduction in emerging markets exposure contributed to the portfolios underperformance for the year.

The portfolios best performer in 2006 was New Asia, which gained more than 35% as Asian markets surged during the year. European Stock, one of the largest positions in the portfolio, also produced strong results. We addedInternational Growth & Income to the portfolio early in the year to provide further diversification, and it ended up being a noteworthy contributor to performance. By the end of the year, we had increased our position in International Growth& Income to 10% of the portfolio.

Our two emerging markets holdings, Emerging Markets Stock and Emerging Europe & Mediterranean, continued to be strong performers. However, given the outperformance of emerging markets in recent years, we reduced our holdings in 2006, eliminating Emerging Europe & Mediterranean entirely from the portfolio in the last six months of the year. We shifted the assets into New Asia and International Growth & Income.

The only holding in the portfolio to decline was Japan, reflecting the weakness in the Japanese stock market in 2006. International Stock, the funds largest holding, also underperformed the broad international stock indexes. We lowered our weighting in International Stock during the year from 46% to 40% of the portfolio to make room for International Growth & Income. We also scaled back our position in International Discovery following severalyears of outperformance in small-cap stocks worldwide.

OUTLOOK

Looking ahead to 2007, we expect global economic growth to moderate as the year progresses. Central banks around the world are likely to follow the Federal Reserves lead and bring an end to their recent cycle of interest rateincreases, while the Fed itself looks ahead to the possibility of cutting interest rates in the second half of the year.

Despite the expected slowdown, economic conditions remain favorable for the global financial markets. Corporate profit growth, although slowing from the torrid pace of recent years, is still expected to be above the long-term historical average and the strength of corporate balance sheets should be supportive for stock prices. An easing of inflationary pressures should augur well for bonds, while overseas markets could benefit from a weaker U.S. dollar and improving productivity.

Nonetheless, a host of unforeseen challengesfrom an unexpectedly sharp economic downturn to a commodity price spike to an adverse geopolitical eventcould lead to a dramatic change in the market environment. As a result, broad diversification remains a critical investment preceptone that we follow adamantly in the Spectrum Funds.

Respectfully submitted,

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

January 23, 2007

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

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 more than 1,000 companies in Europe, Australasia, and the Far East (EAFE).

MSCI Emerging Markets Index: An unmanaged index that tracks stocks in 25 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.

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.

T. ROWE PRICE SPECTRUM GROWTH FUND

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

T. ROWE PRICE SPECTRUM INCOME FUND


T. ROWE PRICE SPECTRUM INTERNATIONAL FUND























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. One of the underlying Price funds held by Spectrum International, the T. Rowe Price Japan Fund, is not openon certain days when Spectrum International is open. On such days, a net asset value per share is computed for the Japan Fund solely for purposes of valuing Spectrum International. The net asset value is computed in the normal manner using the mostrecent yen-denominated closing prices and exchange rates on the day of valuation. Investments for which these valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by theT. 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 less than 90 days 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 of fund 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 itsshares owned by the fund. Accordingly, redemption fees have no effect on the net assets 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. Realized gains and losses are reported on the identified cost basis. Distributions to the Spectrum Funds shareholders are recorded on the ex-dividenddate. Income distributions are declared by Spectrum Income on a daily basis and paid monthly. Income distributions are declared and paid by Spectrum Growth and Spectrum International on an annual basis. Capital gain distributions, if any, aredeclared and paid by the fund, typically on an annual basis.

New Accounting Pronouncements In June 2006, the Financial Accounting Standards Board (FASB) issued 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 reporting rules regarding recognition and measurement of tax positions taken or expected to be taken on a tax return. Management is evaluating the anticipated impact, if any, that FIN 48 will have on the funds upon adoption, which, pursuant to a delay granted by the U.S. Securities and Exchange Commission, is expected to be on the last business day of the funds semi-annual period, June 29, 2006.

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 and establishes 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 year beginning January 1, 2008. Management is evaluating the effects of 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, 2006, 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 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. Financial records are not adjusted for temporary differences.

Distributions during the year ended December 31, 2006, were characterized as follows for tax purposes:

At December 31, 2006, the tax-basis components of net assets were as follows:

Each fund intends to retain realized gains to the extent of available capital loss carryforwards. During the year ended December 31, 2006, the Spectrum Income Fund utilized $8,781,000 of capital loss carryforwards.

For the year ended December 31, 2006, the Spectrum International Fund recorded the following permanent reclassifications to reflect tax character. Reclassifications between income and gain relate primarily to the character ofdistributions from the underlying funds. Results of operations and net assets were not affected by these reclassifications.

At December 31, 2006, the cost of investments for federal income tax purposes was $2,436,031,000 for Spectrum Growth, $4,086,760,000 for Spectrum Income, and $264,356,000 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 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 reimbursed 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 netassets. At December 31, 2006, 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 50.4% of the outstanding shares of the U.S.Treasury Long-Term Fund, 43.5% of the GNMA Fund, 43.0% of the Corporate Income Fund, and 25.6% of the International 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, 2006, approximately 16% of the outstanding shares of Spectrum Income Fund were held by the college savings plans.

As of December 31, 2006, T. Rowe Price Group, Inc., and/or its wholly owned subsidiaries owned 2,341,284 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 Funds, Inc. and Shareholders of T. Rowe Price Spectrum Growth Fund, Spectrum Income Fund, and Spectrum International Fund

In our opinion, the accompanying statements of assets and liabilities, including the portfolios 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 Funds, Inc., hereafter referred to collectively as theFunds) at December 31, 2006, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the fiveyears in the period 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 theresponsibility of the 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 thePublic Company Accounting 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 includesexamining, on a test basis, 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 statementpresentation. We believe that our audits, which included confirmation of securities at December 31, 2006 by agreement to the underlying ownership records for T. Rowe Price Blue Chip Growth Fund, T. Rowe Price Corporate Income Fund, T. Rowe PriceEmerging Markets Bond Fund, T. Rowe Price Emerging Markets Stock Fund, T. Rowe Price Equity Income Fund, T. Rowe Price European Stock Fund, T. Rowe Price GNMA Fund, T. Rowe Price Growth Stock Fund, T. Rowe Price High Yield Fund, T. Rowe PriceInternational Bond Fund, T. Rowe Price International Discovery Fund, T. Rowe Price International Growth & Income Fund, T. Rowe Price International Stock Fund, T. Rowe Price Japan Fund, T. Rowe Price Mid-Cap Value Fund, T. Rowe Price New AsiaFund, T. Rowe Price New Horizons Fund, T. Rowe Price New Income Fund, T. Rowe Price Short-Term Bond Fund, T. Rowe Price Summit Cash Reserves Fund, T. Rowe Price U.S. Treasury Long-Term Fund, and T. Rowe Price Value Fund provide a reasonable basisfor our opinion.

PricewaterhouseCoopers LLP
Baltimore, Maryland
February 12, 2007

TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 12/31/06

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:

$23,103,000 from short-term capital gains,

$80,859,000 from long-term capital gains, subject to the 15% rate gains category.

For taxable non-corporate shareholders, $32,299,000 of the funds income represents qualified dividend income subject to the 15% rate category.

For corporate shareholders, $24,525,000 of the funds income qualifies for the dividends-received deduction.

SPECTRUM INCOME FUND

The funds distributions to shareholders included $7,035,000 from short-term capital gains.


For corporate shareholders, $14,388,000 of the funds income qualifies for the dividends-received deduction.

SPECTRUM INTERNATIONAL FUND

The funds distributions to shareholders included:

$5,515,000 from short-term capital gains,

$9,224,000 from long-term capital gains, subject to the 15% rate gains category


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 that meets regularly to review a wide variety of matters affecting the funds, including performance, investment programs, compliance matters, advisory fees and expenses, service providers,and other business affairs. The Board of Directors 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 officers of T. Rowe Price. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. The Statement ofAdditional Information includes additional information about the fund 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

Year Elected*and Directorships of Other Public Companies

Jeremiah E. CaseyDirector, Allfirst Financial Inc. (previously First Maryland Bankcorp)

(1940)(1983 to 2002); Director, National Life Insurance (2001 to 2005);

2005Director, The Rouse Company, real estate developers (1990 to 2004)

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

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

2001to present); Director, Mercantile Bankshares (4/03 to present);

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, President, and Chief Executive Officer,

1999The Haven Group, a custom manufacturer of modular homes

(1/04 to present)

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

(1938)Director, Canyon Resources Corp., Golden Star Resources Ltd.

1999(5/92 to present), and 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

(1941)

2005

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

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

2001

* Each independent director oversees 115 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

Portfolios Overseen]and Directorships of Other Public Companies

Edward C. BernardDirector and Vice President, T. Rowe Price and T. Rowe Price Group,

(1956)Inc.; Chairman of the Board, Director, and President, T. Rowe Price

2006Investment Services, Inc.; Chairman of the Board and Director,

[115]T. Rowe Price International, Inc., T. Rowe Price Retirement Plan

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

Bank; Director, T. Rowe Price Global Asset Management Limited and

T. Rowe Price Global Investment Services Limited; 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)and T. Rowe Price Group, Inc.; Vice President, T. Rowe Price Trust

2006Company; Vice President, Spectrum Funds

[62]

* 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 and Vice President, T. Rowe Price; Vice

Executive Vice President, Spectrum FundsPresident, 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

Vice President, Spectrum Funds

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 Mr. Donald W. Dick Jr. qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Dick is considered independent for purposes of Item 3of Form 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 for 2006, agreed-upon procedures related to fundacquisitions. 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 excisetax returns. Reclassification from tax fees to audit fees of fiscal 2005 amounts related to the auditing of tax disclosures within the registrants annual financial statements has been made in order to conform to fiscal 2006 presentation. Allother 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 $1,401,000 and $883,000, respectively, and were less than the aggregate fees billed for those same periodsby the registrants principal accountant for audit services rendered to the T. Rowe Price Funds. Preceding fiscal year amount reflects the reclassification of tax fees described in (a) (d) above.

(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 16, 2007

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 16, 2007/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 16, 2007/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 16, 2007/s/ Edward C. Bernard

Edward C. Bernard


Date: February 16, 2007/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.

Approved: October 2003

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, 2006 chart shows the value of a hypothetical $10,000...

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