https://www.sec.gov/Archives/edgar/data/808303/000174177320003154/c497.htm(see link for table also)
497 1 c497.htm SPI STAT STICKER 11-4-20
T. Rowe Price Spectrum Income Fund
Supplement to Prospectus Dated May 1, 2020
At a meeting held on October 26, 2020, the fund’s Board of Directors approved an amended and restated investment management agreement, which will result in changes to the fund’s overall expense structure, as described below.
The changes to the fund’s expense structure are subject to shareholders approving the fund’s amended and restated investment management agreement. Shareholders of the fund at the close of business on the record date, November 30, 2020, will have the opportunity to vote on a proposal to approve the amended and restated investment management agreement. It is anticipated that proxy materials and voting instructions will be mailed to shareholders of record beginning on January 4, 2021, and a special shareholder meeting will be held on February 10, 2021. If the proposal is approved by a majority of the fund’s shareholders, the changes to the fund’s expense structure are expected to take place in mid- to late March 2021.
The fund does not currently charge a management fee. However, the fund incurs acquired fund fees and expenses, which represent the fund’s proportionate share of the expenses of the underlying T. Rowe Price Funds in which it invests (Underlying Funds). In addition, the fund passes through its direct operating expenses to its Underlying Funds and the fund effectively does not directly pay any operating expenses.
If shareholders approve the proposal, it is anticipated that in mid- to late March 2021, the fund will begin charging an all-inclusive management fee of 0.62% based on the fund’s average daily net assets. The all-inclusive management fee will cover investment management and all of the fund’s operating expenses except for interest; expenses related to borrowings, taxes, and brokerage; nonrecurring, extraordinary expenses; and any acquired fund fees and expenses.
The fund currently invests in the Investor Class of its Underlying Funds. Effective on the date that the fund begins charging an all-inclusive management fee, the fund will end the pass-through of its direct operating expenses to its Underlying Funds and will convert its Investor Class shares of each Underlying Fund to Z Class shares. T. Rowe Price is contractually obligated to waive and/or bear all of the Z Class’ expenses, other than interest; expenses related to borrowings, taxes, and brokerage; and nonrecurring, extraordinary expenses. As a result, the fund’s total acquired fund fees and expenses associated with investing in the Underlying Funds’ Z Classes are expected to be less than 0.01%.
If shareholders approve the proposal, the prospectus will be further supplemented with more details regarding the changes to the expense structure prior to its implementation. However, the following changes to the prospectus are effective immediately:
Under “Principal Investment Strategies” in section 1, there are no changes to the investment ranges set forth in the “Asset Allocation Ranges for Underlying Funds” table. However, the T. Rowe Price U.S. Treasury Intermediate Fund has changed its name to the T. Rowe Price U.S. Treasury Intermediate Index Fund and the T. Rowe Price U.S. Treasury Long-Term Fund has changed its name to the T. Rowe Price U.S. Treasury Long-Term Index Fund.
Comments
The more important change, common to Spectrum Income, Growth, and International is that the ER will be calculated differently. Instead of TRP making money by charging nothing while investing in underlying T. Rowe Price funds with their own ERs, these funds will impose their own ER and invest in a share class (Z) of underlying T. Rowe Price funds that charges no fees (0% ER).
This adds slightly to the certainty of these Spectrum funds' ERs, since the expenses won't be dependent on what underlying funds charge. Otherwise, one hopes this has no effect (i.e. the fees will be about the same as before). A minor plus is that these funds will no longer appear to have 0% ERs. This currently causes problems with some screeners (notably M*).
We could delve into numerous issues confronting this once fine fund, notably its exposure to a value-leaning equity fund, as noted by msf.
I’m inclined to think it has more to do with the extremely low rate environment. Which leads me to comments by Ed in the November Commentary regarding his old fund, OAKBX. ISTM - Ed exculpates (or attempts to) Clyde McGregor for the fund’s loss of more than half its AUM in recent years and related sub-par performance. To oversimplify Ed’s well reasoned arguments - the issue traces back not to management but to the prevailing historically low rate environment and the way
balanced funds seek to operate. The downside protection once offered by bonds simply doesn’t exist in this environment.
I think to an extent the same argument can be applied to RPSIX - thought it isn’t a balanced fund in the traditional sense. The fund has always sought to balance risk (from equity, EM debt, junk bonds) with higher quality paper, including longer dated treasury bonds. But that hedge has largely been lost now in a period of such low rates. Is Price’s new “darling” TMSRX the answer? At just 2 years of age, I’m inclined to withhold judgment. But that won’t stop torrents of $$ from pouring in (including some of mine).
@TheShadow / Sorry for the thread drift here. Afraid my brain doesn’t always run in a straight line.
Derf
My abandonment of RPSIX has more to do with changes in investment style. I’ve added some additional risk out on the “risk end” of the spectrum (with spec positions in gold and foreign equity), reduced my allocation to the center of the spectrum (RPSIX) and gotten more conservative on the conservative end of the spectrum by adding the investment grade bond index fund PBDIX so that it is now one of my largest holdings.
One size doesn’t fit all. Nor were these changes sudden. Just a slow shift that began in early March as I reacted to a drastically altered playing field. It gets complicated - but as an investor one tries to balance out competing themes and risk/reward contingencies: Covid-19 / very low prevailing interest rates / an accommodative Fed / Government stimulus packages / supply chain issues and shortages of some goods (ie lumber) / political strife / action in the dollar on currency markets, etc.