SemiANNual REPORT November 30, 2015
T. Rowe Price
PRFRX
Floating Rate Fund
PAFRX
Floating Rate Fund– Advisor Class The fund invests in variable rate bank loans and other high yield securities for current income and capital appreciation.
T. R owe P rice F loating R ate F und
HIGHLIGHTS • The bank loan market posted a loss for the six-month period ended November 30, 2015, but was less volatile and outperformed high yield bonds. • The Floating Rate Fund outperformed its Lipper peer group average and the benchmark S&P/LSTA Performing Loan Index in the first half of our fiscal year. • The default rate for the loan market is expected to remain below the long-term historical average, except in the energy and commodities segments. Overall, the fundamentals underpinning the companies in our asset class appear stable. • We have endured a challenging six-month period, and the loan market is trading below par value, which provides us with opportunities for capital appreciation.
The views and opinions in this report were current as of November 30, 2015. 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 fund’s future investment intent. The report is 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 Sign up for our E-mail Program, and you can begin to receive updated fund reports and prospectuses online rather than through the mail. Log in to your account at troweprice.com for more information.
T. Rowe Price Floating Rate Fund Manager’s Letter
Fellow Shareholders The bank loan market posted losses in the six months ended November 30, 2015. Below investment-grade securities generally underperformed higher-quality fixed income sectors. The most significant negative factor for our market has been the impact of declining oil and commodity prices on loans in the energy and metals and mining industries. However, these sectors represent a smaller portion of the loan asset class than they do in the high yield bond market. With less commodity sector exposure and better relative positioning in capital structures, loan prices were more resilient and less volatile than high yield bonds during the period. Unfortunately, loans do not trade in isolation from bonds, so the performance of the asset class was, nonetheless, affected by association with the high yield market sell-off.
Portfolio Performance
The Floating Rate Fund returned -1.49% for the six months ended November 30, 2015. As shown in the Performance Comparison table, the fund and its Advisor Class shares, which have a slightly different expense structure, P erformance C omparison outperformed the Lipper peer group average and Six-Month Period Ended 11/30/15 Total Return the S&P/LSTA Performing Floating Rate Fund -1.49% Loan Index. During the Floating Rate Fund–Advisor Class -1.44 reporting period, we modestly added exposure S&P/LSTA Performing Loan Index -2.25 to higher-rated loans. The Lipper Loan Participation Funds Average -3.01 bulk of the fund’s holdings are in bank loans and corporate bonds in the higher-quality tiers of the below investmentgrade universe. We invest primarily in BB and B rated loans, which have historically outperformed CCC rated loans with less volatility. 1
The fund maintained its large allocation to traditional loan structures that include a first priority on assets. Conversely, we typically avoid smaller, less liquid loans. The riskiest segments of the market lagged during the past six months, and our relative performance benefited from our underweights to several of the most distressed industries and credits. For example, we are underweight the energy and metals and mining sectors and have avoided several of the struggling companies in those segments. Overall, loan selection P ortfolio C haracteristics and allocation decisions Periods Ended 5/31/15 11/30/15 generated strong positive Floating Rate Fund Share Price $10.03 $9.69 relative results. However, credit selection in the Dividends Per Share metals and mining and For 6 Months 0.20 0.19 chemicals segments, an For 12 Months 0.39 0.39 underweight to food, and SEC Yield (30-day) 3.49% 3.96% an overweight to wireless Floating Rate Fund– communications hurt our Advisor Class Share Price $10.02 $9.69 relative returns. Dividends Per Share For 6 Months
0.20
For the past six months, the fund’s share price For 12 Months 0.38 0.38 declined $0.34. Many of SEC Yield (30-day) 3.40% 3.86% the loans that we own traded down from above Weighted Average Maturity (years) 5.2 5.3 par value. However, that Weighted Average Modified means there should be Duration (years) 0.4 0.4 opportunities for capital 12-month dividends may not equal the combined appreciation in the future. 6-month figures due to rounding. Dividend income, which totaled $0.19 over the past six months, was a penny less than in the prior six-month period. At the end of November, the fund’s 3.96% 30-day SEC yield was significantly higher than its 3.49% yield six months ago. The Floating Rate Fund’s longer-term returns continue to compare favorably with its peer group. Lipper ranked the fund in the top quartile of its peer group of loan participation funds for the one- and three-year periods ended November 30, 2015. (Based on cumulative total return, Lipper ranked the Floating Rate Fund 23 of 209 and 34 of 166 funds in the loan funds universe for the one- and three-year periods ended November 30, 2015, respectively. Past performance cannot guarantee future results.)
2
0.19
Market Environment
Bank loans are typically less volatile than high yield bonds, and, true to form, they held up better than bonds over the course of the downturn during the past six months. Several factors benefited bank loans, including their seniority in the capital structure, the prospect of rising interest rates, and, as discussed earlier, the composition of the asset class (less metals and mining and energy exposure). However, a confluence of factors hurt the loan market and eroded investor confidence, which led to outflows and selling pressure. In August, the Chinese government devalued its currency, the yuan, which led to concerns that China’s economic growth slowdown had worsened, casting a pall on the global economic outlook. This macroeconomic landscape spooked investors who became increasingly risk averse. In tandem, oil prices fluctuated throughout the period—from about $60 per barrel at the end of May to just above $40 at the end of November. Other commodity prices similarly tumbled. Aside from commodity-related issuers, the overall environment for loan investing appears positive. Companies have abundant liquidity, near-term maturity issues that were a concern a couple of years ago have been addressed, and the corporate fundamentals of companies in most sectors of the asset class are stable. Balance sheet leverage has remained in check, and debt service ratios have benefited from companies refinancing into lower rates. Selling pressure in the equity market, which is typically correlated with below investment-grade bonds, intensified in the third quarter. Heightened idiosyncratic risks soon followed. Allegations of drug pricing abuses caused severe losses in several pharmaceutical company stocks. Valeant Pharmaceuticals, one of the largest issuers in the bank loan space, came under scrutiny for alleged improprieties, hurting the value of our loans. Additionally, mixed earnings results and lowered guidance affected a swath of companies. The pivot from several years of expanding profit margins to slower growth led many investors to believe that the credit cycle had peaked. On top of all of these factors, our market faced poor liquidity and low dealer inventories, which prompted us to build our short-term reserves allocation. (Please refer to the fund’s portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
3
Nevertheless, we expect the 2016 default rate in the bank debt market (aside from energy and commodity-related issuers) to remain well below long-term historical levels. We also believe that as the Federal Reserve begins to raise short-term interest rates, investors will increasingly favor bank debt for its lower interest rate risk characteristics and the floating rate feature—rising interest rates are likely to inflict losses on traditional bond portfolios. Recent market volatility has highlighted the importance of sound risk management. Because of this evolving environment, T. Rowe Price is taking steps to ensure that our funds function smoothly during transitional periods as the Fed makes policy changes that are likely to affect the direction of interest rates. These measures include assessing the liquidity of our portfolios, conducting stress tests that take various market scenarios into consideration, evaluating risk management strategies to determine appropriate actions, and taking other steps to ensure the continuing smooth operation of our portfolios. We do not believe that your fund will be adversely affected by the conditions we have just mentioned, but we want to inform our shareholders that we are aware of the changing market environment and are monitoring it closely. Portfolio Review
Most of our companies are performing well, and we have maintained a focus on higher-quality loan issuance. At the end of the reporting period, more than 93% of the portfolio was invested in securities rated split B or higher (including short-term holdings). Credit selection generated a significant contribution in our comparison with the S&P/LSTA benchmark, especially in our B and CCC rated holdings. Our underweight allocation to BB rated holdings and a slight overweight in CCC rated issuers during the period detracted from relative returns. From an industry perspective, energy was our largest absolute performance detractor but our best performance contributor relative to the benchmark. Within energy, we benefited from credit selection— not owning the benchmark’s largest decliners—and an underweight allocation to this sector. We have maintained an underweight to the energy sector (both versus our benchmark and the Lipper peer group) for several years, and we continued to trim our allocation during the reporting period. We do not intend to change that stance in the
4
C redit R atings in a N utshell Credit rating agencies assign letter ratings to bonds after analyzing the issuer’s financial situation, although some issuers choose not to be rated. The chart below shows the range of ratings used by Moody’s, Standard & Poor’s, and Fitch Ratings. Bonds within the four highest rating categories are considered to be investment grade; those with lower ratings are considered noninvestment grade and are often called high yield or junk bonds. There are also intermediate gradations called split ratings; these occur when two of the rating agencies do not agree on a rating. For example, one agency may rate a bond BB and another B, creating a BB/B split rating.
Moody’s and Standard & Poor’s/Fitch Rating Codes Investment-Grade Bonds Moody’s
S&P/Fitch
Meaning
Aaa
AAA
Highest-quality bonds. Issuers are considered extremely stable and dependable.
Aa
AA
High-quality bonds. The long-term investment risk is slightly higher than on AAA bonds.
A
A
Bonds with many favorable attributes.
Baa
BBB
Medium-grade bonds. Quality is adequate at present but less certain for the long term.
Noninvestment-Grade Bonds Ba
BB
B
B
Caa
CCC
Ca
CC
C
C
–
D
Bonds with a speculative element. Security of payments is not well safeguarded. Bonds are extremely speculative. The danger of a default is high. In default.
near term. We continue to believe in a lower-for-longer environment for oil and commodities. There is too much supply and insufficient demand, and we expect more weakness over the next six months. Our poorest-performing holdings in the past six months were energy and commodity names, including Chesapeake Energy, Pacific Rubiales Energy, SandRidge Energy, and Murray Energy. Murray, for example, looked like a relatively safe position as it had a number of long-term contracts for its assets. However, the price of spot coal fell so far and fast that Murray’s buyers effectively “tore up their contracts.”
5
In the case of Chesapeake, a number of factors hurt Percent of Net Assets its loans. The company 5/31/15 11/30/15 did not hedge against the BBB/BB Rated and Above 2.9% 4.2% falling price of natural gas, it had too much BB Rated 23.1 22.8 debt, and the asset-sale BB/B Rated 18.1 20.6 program has been B Rated 38.4 35.3 slower than expected. B/CCC Rated 3.8 2.8 One of our biggest disappointments, and CCC Rated and Below 6.2 5.3 the largest holding in the Not Rated 1.6 1.3 wireless communications Short-Term Holdings 5.9 7.7 space, was Asurion. Based on net assets as of 11/30/15. Although the company Sources: Moody’s Investors Service and Standard & continued to perform Poor’s (S&P); split ratings (e.g., BB/B and B/CCC) are well, the wireless assigned when the Moody’s and S&P ratings differ. handheld device insurer T. Rowe Price does not evaluate these ratings but now faces increasing simply assigns them to the appropriate credit quality competition from category as determined by the rating agency. Apple, which recently Short-term holdings are not rated. launched a new financing option for iPhones that could benefit AppleCare, an insurance program that competes with Asurion. We believe that Apple’s insurance product is inferior, but investors sold Asurion’s loans on concerns about market share erosion. Q uality D iversification
We remain positive on the prospects for cable companies, and Cablevision Systems, Altice Financing, and Cequel Communications continued to generate strong performance. Among our largest holdings, Kronos and First Data, both in the services industry, were the best contributors. We also generated solid results from Burger King and Rite Aid, which is being acquired by Walgreen’s. Outlook
Over the past six months, loans have performed as expected; they have been less volatile and more defensive than high yield bonds, and they have continued to generate steady income. The major reason for their outperformance versus high yield is that commodities (energy plus metals) account for a significantly larger portion of the high yield
6
market than in the loan space. As we said earlier, we are not immune to the volatility in these sectors, but they should have less of an impact on our investment universe. Because of their short-duration characteristics, loans are less exposed to losses than traditional bond portfolios in a rising rate environment. Additionally, the default rate in the loan market should remain below the historical average in 2016. The companies in our asset class have improved their balance sheets and ability to service outstanding debt obligations, thanks to a prolonged period of low interest rates and steady, albeit modest, economic growth. Heading into 2016, we feel good about the backdrop of the Fed raising interest rates. This is an environment that we haven’t experienced for almost a decade, and loans have historically outperformed other fixed income assets in a rising rate environment. The loans we own today are less likely to get refinanced to a lower coupon. All these factors make us constructive on the market. Loan prices are now below par, which has not been the case for several years. We should benefit from a bit of capital appreciation, if our 2% default rate forecast proves correct, and we expect to be able to continue to generate steady income over the next 12 months. As always, we will continue to work diligently on your behalf. Thank you for your support and confidence in T. Rowe Price.
Paul M. Massaro Chairman of the fund’s Investment Advisory Committee December 9, 2015 The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund’s investment program.
7
T. Rowe Price Floating Rate Fund
R isks of I nvesting in F loating R ate L oan F unds Floating rate loans are subject to credit risk, the chance that any fund holding could have its credit rating downgraded, or that an issuer will default (fail to make timely payments of interest or principal), and liquidity risk, the chance that the fund may not be able to sell loans or securities at desired prices, potentially reducing the fund’s income level and share price. Like bond funds, this fund is exposed to interest rate risk, but credit and liquidity risks may often be more important. The loans in which the fund invests are often referred to as “leveraged loans” because the borrowing companies have significantly more debt than equity. In many cases, leveraged loans are issued in connection with recapitalizations, acquisitions, leveraged buyouts, and refinancings. Companies issuing leveraged loans typically have a below investment-grade credit rating or may not be rated by a major credit rating agency. Leveraged-loan funds could have greater price declines than funds that invest primarily in high-quality bonds, so the securities are usually considered speculative investments. G lossary Basis Point: One one-hundredth of a percentage point, or 0.01%. Duration: A measure of a bond fund’s sensitivity to changes in interest rates. For example, a fund with a one-year duration would fall about 1% in response to a one-percentage-point rise in interest rates, and vice versa. Lipper averages: The averages of available mutual fund performance returns for specified time periods in categories defined by Lipper Inc. SEC yield (30-day): A method of calculating a fund’s yield that assumes all portfolio securities are held until maturity. Yield will vary and is not guaranteed. S&P/LSTA Performing Loan Index: A benchmark that tracks the performance of the leveraged-loan market. Weighted average maturity: A measure of a fund’s interest rate sensitivity—in general, the longer the average maturity, the greater the fund’s sensitivity to interest rate changes. The weighted average maturity may take into account the interest rate readjustment dates for certain securities.
8
T. Rowe Price Floating Rate Fund
P ortfolio H ighlights
INDUSTRY DIVERSIFICATION
Percent of Net Assets 5/31/15 11/30/15
Health Care Services Information Technology Cable Operators Retail Chemicals Broadcasting Utilities Other Telecommunications Financials Container Wireless Communications Manufacturing Entertainment and Leisure Building Products Lodging Consumer Products Gaming Automotives Energy Restaurants All Other Short-Term Holdings
Total Historical weightings reflect current industry/sector classifications.
9
10% 12 6 5 4 4 5 5 3 3 2 2 3 3 2 2 2 2 2 4 2 11 6
12% 11 7 6 4 4 4 4 3 3 3 3 3 2 2 2 2 2 2 2 2 9 8
100%
100%
T. Rowe Price Floating Rate Fund
P ortfolio H ighlights
TWENTY-FIVE LARGEST ISSUERS
First Data Asurion Kronos Univision Communications Valeant Pharmaceuticals
2.5% 1.9 1.7 1.6 1.6
Burger King Level 3 Communications Altice Financing U.S. Renal Care Cablevision Systems
1.5 1.5 1.4 1.4 1.4
Rite Aid Onex Wizard Community Health Systems Four Seasons Filtration Group
1.1 1.0 0.9 0.9 0.9
Exgen Renewables Numericable TXU Dollar Tree Avago Technologies
0.9 0.9 0.8 0.8 0.8
Charter Communications Life Time Fitness Patheon Intelsat Husky Injection Molding
0.7 0.7 0.7 0.7 0.7
Total
Percent of Net Assets 11/30/15
29.0%
Note: The information shown does not reflect any exchange-traded funds (ETFs), cash reserves, or collateral for securities lending that may be held in the portfolio. Holdings of the issuers are combined and may be shown in the Portfolio of Investments under their subsidiaries.
10
T. Rowe Price Floating Rate Fund Performance and Expenses G rowth 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 a broad-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.
F LO AT I N G R AT E F U N D As of 11/30/15 $14,000
Floating Rate Fund $11,474
13,200
S&P/LSTA Performing Loan Index $11,770
12,400
Lipper Loan Participation Funds Average $11,361
11,600 10,800 10,000 7/29/11
11/11
11/12
11/13
11/14
11/15
Note: Performance for the Advisor Class will vary due to its differing fee structure. See returns table below.
A verage A nnual C ompound T otal R eturn Periods Ended 11/30/15
One Year
Since Inception 7/29/11
Floating Rate Fund
0.90%
3.22%
Floating Rate Fund–Advisor Class
0.91
3.12
This table shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. Past performance cannot guarantee future results.
11
T. Rowe Price Floating Rate Fund
F und E xpense E xample 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 fund expenses. 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 investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period. Please note that the fund has two share classes: The original share class (Investor Class) charges no distribution and service (12b-1) fee, and the Advisor Class shares are offered only through unaffiliated brokers and other financial intermediaries and charge a 0.25% 12b-1 fee. Each share class is presented separately in the table. Actual Expenses The first line of the following table (Actual) provides information about actual account values and expenses based on the fund’s actual returns. You may use the information on this line, together with your account balance, 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 on the first line under the 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 fund’s actual expense ratio and an assumed 5% per year rate of return before expenses (not the fund’s 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 account service fee of $20, generally for accounts with less than $10,000. The fee is waived for any investor whose T. Rowe Price mutual fund accounts total $50,000 or more; accounts electing to receive electronic delivery of account statements, transaction confirmations, prospectuses, and shareholder reports; or accounts of an investor who is a T. Rowe Price Preferred Services, Personal Services, or Enhanced Personal Services client (enrollment in these programs generally requires T. Rowe Price assets of at least $100,000). 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 other funds. 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 in comparing 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.
12
T. Rowe Price Floating Rate Fund
F und E xpense E xample ( continued ) F loating R ate F und
Beginning Account Value 6/1/15
Ending Account Value 11/30/15
Expenses Paid During Period* 6/1/15 to 11/30/15
$1,000.00
$985.10
$4.27
Hypothetical (assumes 5% return before expenses)
1,000.00
1,020.70
4.34
Advisor Class Actual
1,000.00
985.60
4.77
Hypothetical (assumes 5% return before expenses)
1,000.00
1,020.20
4.85
Investor Class Actual
*Expenses are equal to the fund’s annualized expense ratio for the 6-month period, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (183), and divided by the days in the year (366) to reflect the half-year period. The annualized expense ratio of the Investor Class was 0.86%, and the Advisor Class was 0.96%.
13
T. Rowe Price Floating Rate Fund
Q uarter -E nd R eturns Periods Ended 9/30/15 Floating Rate Fund
One Year
Since Inception 7/29/11
2.13%
3.47%
Floating Rate Fund–Advisor Class
2.03
3.34
urrent performance may be higher or lower than the quoted past performance, which C cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. For the most recent month-end performance, please contact a T. Rowe Price representative at 1-800-225-5132 or, for Advisor Class shares, 1-800-638-8790. The performance information shown does not reflect the deduction of a 2% redemption fee on shares held for 90 days or less. If it did, the performance would be lower. This table provides returns through the most recent calendar quarter-end rather than through the end of the fund’s fiscal period. It shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. Average annual total return figures include changes in principal value, reinvested dividends, and capital gain distributions. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. When assessing performance, investors should consider both short- and long-term returns.
E xpense R atio Floating Rate Fund
0.86%
Floating Rate Fund–Advisor Class
1.12
The expense ratio shown is as of the fund’s fiscal year ended 5/31/15. This number may vary from the expense ratio shown elsewhere in this report because it is based on a different time period and, if applicable, includes acquired fund fees and expenses but does not include fee or expense waivers.
14
T. Rowe Price Floating Rate Fund Unaudited
F inancial H ighlights
For a share outstanding throughout each period
Investor Class 6 Months Ended 11/30/15
Year Ended 5/31/15
5/31/14
7/29/11 Through 5/31/12
5/31/13
NET ASSET VALUE Beginning of period
$ 10.03
$ 10.12
$ 10.17
$
9.87
$ 10.00
Investment activities (1)
(2)
(3)
(3)
(3)
(3)
0.19
0.39
0.36
0.39
0.33
(0.34) (0.15)
(0.08) 0.31
(0.04) 0.32
0.31 0.70
(0.13) 0.20
Net investment income
(0.19)
(0.39)
(0.36)
(0.40)
(0.33)
Net realized gain
–
(0.01)
(0.01)
–
–
Total distributions
(0.19)
(0.40)
(0.37)
(0.40)
(0.33)
Net investment income
Net realized and unrealized gain / loss Total from investment activities Distributions
NET ASSET VALUE End of period
$
9.69
$ 10.03
$ 10.12
$ 10.17
$
9.87
Ratios/Supplemental Data (4)
(2)
Total return
(1.49)%
Ratio of total expenses to average net assets Ratio of net investment income to average net assets
15
0.86%
(2)(5)(6)
3.87%
(2)(5)
3.12% 0.86%
(3)
(3)(6)
3.87%
(3)
3.21% 0.86%
(3)
(3)(6)
3.58%
(3)
7.25% 0.86%
(3)
(3)(6)
3.92%
(3)
2.04% 0.85%
(3)
(3)(5)(6)
4.02%
(3)(5)
T. Rowe Price Floating Rate Fund Unaudited
F inancial H ighlights
For a share outstanding throughout each period
6 Months Ended 11/30/15
Year Ended 5/31/15
5/31/14
5/31/13
7/29/11 Through 5/31/12
55.1%
40.0%
69.1%
45.4%
Ratios/Supplemental Data (continued) Portfolio turnover rate
21.9%
Net assets, end of period (in thousands)
(1) (2) (3) (4)
(5) (6)
$ 555,405 $ 507,500 $ 377,031 $ 154,693 $ 68,108
Per share amounts calculated using average shares outstanding method. See Note 6. Includes expenses repaid (0.85% of average net assets) related to its contractual expense limitation. Excludes expenses in excess of a 0.85% contractual expense limitation in effect through 9/30/17. Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions and payment of no redemption or account fees. Total return is not annualized for periods less than one year. Annualized Includes interest expense on borrowings (see Note 7) equal to 0.01%, 0.01%, 0.01%, 0.01%, and 0.00% of average net assets for the periods ended 11/30/15, 5/31/15, 5/31/14, 5/31/13 and 5/31/12, respectively.
The accompanying notes are an integral part of these financial statements.
16
T. Rowe Price Floating Rate Fund Unaudited
F inancial H ighlights
For a share outstanding throughout each period
Advisor Class 6 Months Ended 11/30/15
Year Ended 5/31/15
5/31/14
7/29/11 Through 5/31/12
5/31/13
NET ASSET VALUE Beginning of period
$ 10.02
$ 10.11
$ 10.16
$
9.86
$ 10.00
Investment activities (1)
(2)
(2)
(2)
(2)
(2)
0.19
0.38
0.36
0.36
0.29
(0.33) (0.14)
(0.08) 0.30
(0.05) 0.31
0.33 0.69
(0.11) 0.18
Net investment income
(0.19)
(0.38)
(0.35)
(0.39)
(0.32)
Net realized gain
–
(0.01)
(0.01)
–
–
Total distributions
(0.19)
(0.39)
(0.36)
(0.39)
(0.32)
Net investment income
Net realized and unrealized gain / loss Total from investment activities Distributions
NET ASSET VALUE End of period
$
9.69
$ 10.02
$ 10.11
$ 10.16
$
9.86
Ratios/Supplemental Data (3)
Total return Ratio of total expenses to average net assets Ratio of net investment income to average net assets
17
(2)
(1.44)% 0.96%
(2)(4)(5)
3.76%
(2)(4)
3.02% 0.96%
(2)
(2)(5)
3.77%
(2)
3.11% 0.96%
(2)
(2)(5)
3.47%
(2)
7.15% 0.96%
(2)
(2)(5)
3.73%
(2)
1.85% 0.95%
(2)
(2)(4)(5)
3.81%
(2)(4)
T. Rowe Price Floating Rate Fund Unaudited
F inancial H ighlights
For a share outstanding throughout each period
6 Months Ended 11/30/15
Year Ended 5/31/15
5/31/14
5/31/13
7/29/11 Through 5/31/12
55.1%
40.0%
69.1%
45.4%
Ratios/Supplemental Data (continued) Portfolio turnover rate
21.9%
Net assets, end of period (in thousands)
(1) (2) (3)
(4) (5)
$ 26,680 $ 18,683 $ 15,731 $ 7,048
$ 1,585
Per share amounts calculated using average shares outstanding method. Excludes expenses in excess of a 0.95% contractual expense limitation in effect through 9/30/17. Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions and payment of no redemption or account fees. Total return is not annualized for periods less than one year. Annualized Includes interest expense on borrowings (see Note 7) equal to 0.01%, 0.01%, 0.01%, 0.01%, and 0.00% of average net assets for the periods ended 11/30/15, 5/31/15, 5/31/14, 5/31/13 and 5/31/12, respectively.
The accompanying notes are an integral part of these financial statements.
18
T. Rowe Price Floating Rate Fund Unaudited
November 30, 2015
P ortfolio of I nvestments
‡
Par/Shares
$ Value
1,450
1,562
Ford Motor Credit, VR, 1.594%, 5/9/16
200
200
Metaldyne, 7.375%, 10/15/22
175
184
(Amounts in 000s)
CORPORATE BONDS 7.6% Automotive 0.3% Chrysler, 8.25%, 6/15/21
1,946 Broadcasting 0.4% Univision Communications, 5.125%, 2/15/25 (1) Univision Communications, 6.75%, 9/15/22 (1)
925
894
1,124
1,164 2,058
Building Products 0.2% CEMEX, VR, 5.071%, 10/15/18 (1) Summit Materials, 10.50%, 1/31/20
1,050
1,063
203
217 1,280
Cable Operators 1.1% Altice Financing, 6.625%, 2/15/23 (1)
575
569
B Communications, 7.375%, 2/15/21 (1)
750
814
Charter Communications Holdings, 6.50%, 4/30/21
450
469
Numericable, 4.875%, 5/15/19 (1)
375
372
UnityMedia, 5.00%, 1/15/25 (1)
1,175
1,146
UPCB Finance, 6.875%, 1/15/22 (1)
1,103
1,166
300
293
1,425
1,407
Virgin Media Secured Finance, 5.25%, 1/15/26 (1) WideOpenWest Financial, 13.375%, 10/15/19
6,236 Container 0.3% Ardagh Packing Finance, VR, 3.337%, 12/15/19 (1)
1,900
1,862 1,862
19
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
CrownRock, 7.125%, 4/15/21 (1)
375
379
CrownRock, 7.75%, 2/15/23 (1)
916
937
Markwest Energy Partners, 4.50%, 7/15/23
800
712
Matador Resources, 6.875%, 4/15/23
1,675
1,658
Newfield Exploration, 5.625%, 7/1/24
550
517
Noble Energy, 5.875%, 6/1/22
375
377
Noble Energy, 5.875%, 6/1/24
275
277
Pacific Rubiales Energy, 5.375%, 1/26/19 (1)
500
162
Pacific Rubiales Energy, 5.625%, 1/19/25 (1)
450
137
Sandridge Energy, 8.75%, 6/1/20 (1)
250
95
SESI, 7.125%, 12/15/21
475
450
Seven Generations Energy, 6.75%, 5/1/23 (1)
425
375
1,325
1,275
600
505
50
46
Tervita, 8.00%, 11/15/18 (1)
395
270
WPX Energy, 7.50%, 8/1/20
875
816
(Amounts in 000s)
Energy 1.6%
Seven Generations Energy, 8.25%, 5/15/20 (1) Targa Resources, 4.25%, 11/15/23 Targa Resources, 5.25%, 5/1/23
8,988 Financial 0.7% General Motors Financial, VR, 1.681%, 4/10/18
725
719
General Motors Financial, VR, 2.387%, 1/15/19
725
728
Hub Holdings, PIK, 8.125%, 7/15/19 (1)
575
552
International Lease Finance, VR, 2.287%, 6/15/16
300
300
JPMorgan Chase, VR, 1.22%, 1/25/18
275
276
Morgan Stanley, VR, 1.17%, 1/24/19
1,000
997
Morgan Stanley, VR, 1.60%, 4/25/18
275
278
20
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
365
366
(Amounts in 000s)
Morgan Stanley, VR, 1.643%, 2/25/16
4,216 Food/Tobacco 0.1% Shearer's Foods, 9.00%, 11/1/19 (1)
508
539 539
Health Care 1.0% Allergan, VR, 1.591%, 3/12/20
725
Community Health Systems, 6.875%, 2/1/22
325
315
Ephios Bondco, VR, 5.00%, 7/1/22 (EUR) (1)
950
1,012
JLL/Delta Dutch Pledgeco, PIK, 8.75%, 5/1/20 (1)
250
251
3,425
3,382
Tenet Healthcare, VR, 3.837%, 6/15/20 (1)
721
5,681 Information Technology 0.3% Ancestry.com, 11.00%, 12/15/20
675
733
Commscope, 4.375%, 6/15/20 (1)
825
831 1,564
Publishing 0.1% McGraw-Hill Global Education, VR, 9.75%, 4/1/21
775
849 849
Restaurants 0.2% Burger King, 4.625%, 1/15/22 (1)
1,150
1,161 1,161
Retail 0.2% Dollar Tree, 5.25%, 3/1/20 (1)
21
225
232
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
975
1,025
(Amounts in 000s)
New Look Secured Issuer, VR, 4.50%, 7/1/22 (EUR) (1)
1,257 Services 0.2% First Data, 7.00%, 12/1/23 (1)
1,100
1,114 1,114
Telephones 0.3% AT&T, VR, 1.257%, 6/30/20 Verizon Communications, VR, 2.086%, 9/14/18
345
345
1,275
1,310 1,655
Utilities 0.3% AES, VR, 3.324%, 6/1/19 Energy Future International Holdings Finance, VR 12.25%, 3/1/22 (1)(2)(3)
1,325
1,245
813
793 2,038
Wireless Communications 0.3% Sprint Nextel, 9.00%, 11/15/18 (1) Sprint Nextel, 11.50%, 11/15/21 Wind Acquisition, 4.75%, 7/15/20 (1)
75
81
105
101
550
549
Wind Acquisition, VR, 3.951%, 7/15/20 (EUR) (1)
1,025
1,080
Wind Acquisition, VR, 5.183%, 4/30/19 (EUR) (1)
100
106 1,917 44,361
Total Corporate Bonds (Cost $46,488)
BANK LOANS 84.5% (4) Aerospace & Defense 1.2% B/E Aerospace, VR, 4.00%, 12/16/21
22
1,009
1,008
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
1,580
1,548
525
512
Standard Aero, VR, 5.25%, 7/7/22
2,575
2,560
Transdigm, VR, 3.50%, 5/16/22
1,667
1,612
(Amounts in 000s)
Camp Systems International, VR, 4.75%, 5/31/19 Camp Systems International, VR, 8.25%, 11/29/19
7,240 Airlines 0.4% American Airlines, VR, 3.25%, 6/27/20
1,126
1,113
American Airlines, VR, 3.50%, 10/10/21
1,064
1,054 2,167
Automotive 1.6% Affina Group, VR, 4.75%, 4/27/20 Chrysler Group, VR, 3.25%, 12/31/18
116
116
1,064
1,056
Chrysler Group, VR, 3.50%, 5/24/17
782
779
Federal-Mogul Holdings, VR, 4.75%, 4/15/21
938
835
1,559
1,455
520
506
Gates Global, VR, 4.25%, 7/6/21 Key Safety Systems, VR, 4.75%, 8/29/21 Metaldyne, VR, 3.75%, 10/20/21
1,024
1,009
Navistar, VR, 6.50%, 8/7/20
950
866
Schaeffler Finance, VR, 4.25%, 5/15/20
364
364
2,175
2,142
TI Group Auto Systems, VR, 4.50%, 6/30/22
9,128 Broadcasting 3.5% Clear Channel Communications, VR, 6.982%, 1/30/19
3,301
2,381
Cumulus Media, VR, 4.25%, 12/23/20
2,638
1,929
Entercom Radio, VR, 4.021%, 11/23/18
1,002
998
623
618
1,867
1,853
Gray Communications Systems, VR, 3.75%, 6/13/21 Media General, VR, 4.00%, 7/31/20
23
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
(Amounts in 000s)
NEP Broadcasting, VR, 4.25%, 1/22/20 NEP Broadcasting, VR, 10.00%, 7/22/20 Nexstar Broadcasting, VR, 3.75%, 10/1/20 Townsquare Media, VR, 4.25%, 4/1/22 Tribune Company, VR, 3.75%, 12/27/20
984
920
1,050
987
579
575
1,585
1,579
863
858
Univision Communications, Series C3, VR, 4.00%, 3/1/20
3,344
3,289
Univision Communications, Series C4, VR, 4.00%, 3/1/20
4,268
4,195 20,182
Building & Real Estate 0.3% Americold, VR, 6.50%, 11/20/22 Realogy, VR, 0.057%, 10/10/16 Realogy, VR, 3.75%, 3/5/20
900
889
18
18
1,153
1,147 2,054
Building Products 2.3% Beacon Roofing Supply, VR, 4.00%, 10/1/22 CHI Overhead Doors, VR, 4.75%, 7/29/22 CHI Overhead Doors, VR, 8.75%, 7/31/23
775
770
1,425
1,404
400
386
1,356
1,345
GYP Holdings, VR, 4.75%, 4/1/21
862
833
Jeld-Wen, VR, 4.75%, 7/1/22
550
546
Continental Building Products, VR, 4.00%, 8/28/20
Jeld-Wen, VR, 5.25%, 10/15/21
1,886
1,878
NCI Building Systems, VR, 4.25%, 6/24/19
498
496
Quanex Building Products, VR, 6.25%, 11/2/22
900
892
1,058
1,052
Quikrete, VR, 4.00%, 9/28/20 Quikrete, VR, 7.00%, 3/26/21 Summit Materials, VR, 4.25%, 7/18/22
619
618
3,217
3,182 13,402
24
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
Altice Financing, VR, 5.25%, 2/4/22
1,022
1,015
Altice Financing, VR, 5.50%, 7/2/19
6,661
6,661
CCO Safari III, VR, 3.50%, 1/24/23
3,900
3,889
Cequel, VR, 3.50%, 12/14/22
1,432
1,396
Neptune Finco, VR, 5.00%, 10/9/22
8,050
8,021
Numericable, VR, 4.50%, 5/21/20
4,716
4,613
Virgin Media Investment Holdings, VR, 3.50%, 6/30/23
1,366
1,344
Virgin Media Investment Holdings, VR, 4.25%, 6/30/23 (GBP)
125
186
WaveDivision, VR, 4.00%, 10/15/19
462
456
WideOpenWest Financial, VR, 4.50%, 4/1/19
2,181
2,122
Yankee Cable, VR, 3.438%, 3/1/20
1,255
1,245
(Amounts in 000s)
Cable Operators 5.3%
30,948 Chemicals 3.9% AI Chem, VR, 4.50%, 10/3/19
788
780
AZ Chem U.S., VR, 4.50%, 6/11/21
349
348
AZ Chem U.S., VR, 7.50%, 6/10/22
150
149
DuPont Performance Coatings, VR, 3.75%, 2/1/20
544
538
Eco Services, VR, 4.75%, 12/1/21
670
663
Encapsys, VR, 11.00%, 2/3/21 (5)
1,475
1,453
Ennis Flint, VR, 7.75%, 9/30/21
225
214
Gemini HDPE, VR, 4.75%, 8/6/21
691
687
Ineos U.S. Finance, VR, 4.25%, 3/31/22
871
852
Methanol Holdings (Trinidad), VR, 4.25%, 6/30/22
1,072
1,003
Minerals Technologies, 4.75%, 5/7/21
1,625
1,605
OCI Beaumont, VR, 6.50%, 8/20/19
847
855
OXEA, VR, 4.25%, 1/15/20
735
702
OXEA, VR, 9.50%, 7/15/20
550
496
25
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
2,075
2,017
870
865
Royal Holdings, VR, 4.50%, 6/20/22
1,920
1,902
Royal Holdings, VR, 8.50%, 6/19/23
1,275
1,263
Solenis International, VR, 4.25%, 7/31/21
1,913
1,872
Solenis International, VR, 7.75%, 7/31/22
1,450
1,316
Univar, VR, 4.25%, 7/1/22
3,550
3,442
(Amounts in 000s)
Platform Specialty, VR, 5.50%, 6/7/20 PQ, VR, 4.00%, 8/7/17
23,022 Consumer Products 2.2% Bauer Performance Sports, VR, 4.50%, 4/15/21
1,450
1,406
Equinox, VR, 5.00%, 1/31/20
1,869
1,866
Equinox, VR, 9.75%, 7/31/20
525
528
Life Time Fitness, VR, 4.25%, 6/10/22
4,414
4,306
Otter Products, VR, 5.75%, 6/3/20
1,122
1,069
Prestige Brands, VR, 3.509%, 9/3/21
1,862
1,853
Sun Products, VR, 5.50%, 3/23/20
1,722
1,632 12,660
Container 2.6% Anchor Glass Container, VR, 4.50%, 7/1/22 Ardagh Glass Group, VR, 4.00%, 12/17/19 Berry Plastics Group, VR, 4.00%, 10/3/22
1,721
1,713
443
439
2,700
2,680
Exopack, VR, 4.50%, 5/8/19
417
410
Hilex Poly, VR, 6.003%, 12/5/21
819
816
Kloeckner Pentaplast, VR, 5.00%, 4/28/20
873
871
5,728
5,676
325
322
1,391
1,384
973
958
ONEX Wizard, VR, 4.25%, 3/11/22 Prolampac, VR, 5.003%, 8/18/22 Reynolds Group Holdings, VR, 4.50%, 12/1/18 Tekni-Plex, VR, 4.50%, 6/1/22
26
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
125
122
(Amounts in 000s)
Tekni-Plex, VR, 8.75%, 6/1/23
15,391 Energy 0.3% EMG Utica, VR, 4.75%, 3/27/20
1,664
1,560 1,560
Entertainment & Leisure 2.6% AMF Bowling WorldWide, VR, 7.25%, 9/18/21
1,116
1,099
AP NMT Acquisition, VR, 6.75%, 8/13/21
1,214
1,135
850
842
1,200
1,193
447
446
Formula One, VR, 4.75%, 7/30/21
2,672
2,599
Formula One, VR, 7.75%, 7/29/22
1,200
1,123
IMG Worldwide, VR, 5.25%, 5/6/21
814
807
IMG Worldwide, VR, 8.25%, 5/6/22
850
801
Intrawest, VR, 4.75%, 12/9/20
1,331
1,327
Lions Gate, 5.00%, 3/17/22
1,375
1,372
NCL, VR, 4.00%, 11/19/21
1,092
1,087
WMG Acquisition, VR, 3.75%, 7/1/20
539
515
World Triathlon, VR, 5.25%, 6/25/21
617
611
Cirque du Soleil, VR, 5.00%, 7/8/22 ClubCorp Club Operations, VR, 4.25%, 7/24/20 Creative Artists Agency, VR, 5.50%, 12/17/21
14,957 Financial 2.3% Acrisure, VR, 5.25%, 5/19/22
1,422
1,358
Alliant Insurance Services, VR, 4.50%, 8/12/22
1,571
1,536
American Stock Transfer, VR, 5.75%, 6/26/20
144
141
AssuredPartners, VR, 6.00%, 10/21/22
850
845
Bats Global Markets, VR, 3.99%, 3/13/18
372
371
27
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
(Amounts in 000s)
Bats Global Markets, VR, 5.75%, 1/31/20
923
924
1,961
1,898
iStar Financial, VR, 7.00%, 3/19/17
578
578
Sedgwick, VR, 3.75%, 3/1/21
734
710
Sedgwick, VR, 6.75%, 2/28/22
1,300
1,194
USI Insurance Services, VR, 4.25%, 12/27/19
1,996
1,952
Walter Investment Management, VR, 4.75%, 12/18/20
2,151
1,859
HUB International Holdings, VR, 4.00%, 10/2/20
13,366 Food/Tobacco 1.3% B & G Foods, VR, 3.75%, 10/5/22
775
773
DE Master Blenders, VR, 4.25%, 7/2/22
584
579
Del Monte, VR, 5.50%, 2/18/21
884
842
Hostess, VR, 4.50%, 8/3/22
1,425
1,418
Hostess, VR, 8.50%, 8/3/23
1,425
1,416
Post Holdings, VR, 3.75%, 6/2/21
290
289
1,064
1,043
Shearer's Foods, VR, 5.25%, 6/30/21
400
396
Shearer's Foods, VR, 7.75%, 6/30/22
1,075
1,021
Shearer's Foods, VR, 4.938%, 6/30/21
7,777 Forest Products 0.2% Caraustar Industries, Series B1, VR, 8.00%, 5/1/19
761
757
Caraustar Industries, Series B2, VR, 8.00%, 5/1/19
579
577 1,334
Gaming 2.1% American Casino & Entertainment, VR, 4.75%, 7/7/22 Boyd Gaming, VR, 4.00%, 8/14/20 CCM Merger, VR, 4.50%, 8/6/21
28
1,072
1,071
623
619
1,195
1,187
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
CityCenter Holdings, VR, 4.25%, 10/16/20
3,450
3,425
Eldorado Resorts, VR, 4.25%, 7/25/22
1,721
1,710
Graton Economic Development Authority, VR, 4.75%, 9/1/22
1,848
1,840
Peninsula Gaming, VR, 4.25%, 11/20/17
944
939
Shingle Springs Tribal Gaming, VR, 6.25%, 8/29/19
524
523
Station Casinos, VR, 4.25%, 3/2/20
868
861
(Amounts in 000s)
12,175 Health Care 10.7% Acadia Healthcare, VR, 4.25%, 2/11/22 AMAG Pharmaceuticals, VR, 4.75%, 8/17/21 Amneal Pharmaceuticals, VR, 4.50%, 11/1/19
1,117
1,118
450
423
815
799
Amsurg, VR, 3.50%, 7/16/21
1,167
1,157
Catalent Pharma Solutions, VR, 4.25%, 5/20/21
1,733
1,713
Community Health Systems, VR, 3.75%, 12/31/19
1,863
1,822
Community Health Systems, VR, 4.00%, 1/27/21
3,428
3,368
Concordia Healthcare, VR, 5.25%, 10/21/21
1,750
1,666
DJO Finance, VR, 4.25%, 6/8/20
1,746
1,703
Emergency Medical Services, VR, 4.50%, 10/28/22
1,425
1,417
Endo International, VR, 3.75%, 9/26/22
575
565
Genoa Healthcare, VR, 4.50%, 4/29/22
274
272
HCA, VR, 3.077%, 5/1/18
711
709
Horizon Pharma, VR, 4.50%, 5/7/21
1,995
1,751
IASIS Healthcare, VR, 4.50%, 5/3/18
1,427
1,405
IMS Health, VR, 3.50%, 3/17/21
2,308
2,282
Kindred Healthcare, VR, 4.25%, 4/9/21
587
558
Kinetic Concepts, VR, 4.50%, 5/4/18
682
663
Medimpact OpCo, VR, 5.75%, 10/27/22
775
771
Medpace, VR, 4.892%, 4/1/21
540
530
29
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
(Amounts in 000s)
MPH Acquisition Holdings, VR, 3.75%, 3/31/21
1,067
1,036
National Mentor, VR, 4.25%, 1/31/21
566
551
National Surgical Hospitals, VR, 4.50%, 6/1/22
873
849
1,250
1,166
Opal Acquisition, VR, 5.00%, 11/27/20 Ortho Clinical, VR, 4.75%, 6/30/21
617
579
Patheon, VR, 4.253%, 3/11/21
4,177
4,039
Pharmaceutical Product Development, VR, 4.25%, 8/18/22
2,302
2,238
RegionalCare Hospital, VR, 5.25%, 4/23/19
1,683
1,665
RegionalCare Hospital, VR, 10.50%, 10/23/19
450
446
Schumacher Group, VR, 5.00%, 7/29/22
550
545
Select Medical Holdings, VR, 3.751%, 6/1/18
523
516
1,200
1,179
Sterigenics-Nordion, VR, 4.25%, 5/16/22 Steward Health Care System, VR, 6.75%, 4/10/20
343
336
Surgery Center, VR, 5.25%, 11/3/20
1,166
1,156
Surgery Center, VR, 8.50%, 11/3/21
503
495
1,775
1,762
781
763
U.S. Renal Care, VR, 4.25%, 7/3/19
2,296
2,286
U.S. Renal Care, VR, 5.25%, 11/16/22
3,500
3,474
U.S. Renal Care, VR, 9.00%, 11/16/23
1,425
1,404
980
988
Team Health, VR, 4.50%, 11/17/22 Truven Health Analytics, VR, 4.50%, 6/6/19
U.S. Renal Care, VR, 9.75%, 1/3/20 U.S. Renal Care, VR, 11.25%, 1/3/20 Valeant Pharmaceuticals, VR, 3.34%, 8/5/20 Valeant Pharmaceuticals, VR, 3.50%, 2/13/19 Valeant Pharmaceuticals, VR, 4.00%, 4/1/22 Walgreens Infusion Services, VR, 6.00%, 4/7/22
75
75
3,504
3,294
768
722
5,708
5,381
399
398 62,035
30
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
Active Network, VR, 5.50%, 11/13/20
1,433
1,401
Ancestry.com, VR, 5.00%, 8/29/22
3,325
3,295
900
899
Avago Technologies, VR, 4.25%, 11/13/22
3,900
3,858
Blue Coat Systems, VR, 4.50%, 5/20/22
2,600
2,524
BMC Software, VR, 5.00%, 9/10/20
1,114
963
358
349
CommScope, VR, 3.75%, 12/29/22
1,000
987
Dell, VR, 4.00%, 4/29/20
1,820
1,809
(Amounts in 000s)
Information Technology 6.6%
Avago Technologies, VR, 3.75%, 5/6/21
BMC Software, VR, 5.50%, 9/10/20 (EUR)
Dell, VR, 4.00%, 4/29/20 (EUR)
221
233
1,397
1,369
637
636
1,875
1,866
Hyland Software, VR, 4.75%, 7/1/22
739
727
Hyland Software, VR, 8.25%, 7/3/23
400
379
1,283
1,254
450
474
1,219
1,187
775
705
Lawson Software, VR, 3.75%, 6/3/20
1,765
1,680
Linxens, VR, 5.00%, 10/14/22
1,450
1,427
Epicor Software, VR, 4.75%, 6/1/22 Freescale Semiconductor, VR, 5.00%, 1/15/21 Go Daddy Operating, VR, 4.25%, 5/13/21
ION Trading Technologies, VR, 4.25%, 6/10/21 ION Trading Technologies, VR, 4.50%, 6/10/21 (EUR) IPC, VR, 5.50%, 8/6/21 IPC, VR, 10.50%, 2/4/22
Linxens, VR, 9.50%, 10/16/23
575
565
Match Group, VR, 5.50%, 11/16/22
2,450
2,432
NXP, VR, 3.75%, 10/30/20
1,250
1,242
Presidio, VR, 5.25%, 2/2/22
1,192
1,178
Riverbed Technology, VR, 6.00%, 4/25/22
1,143
1,140
SS&C Technologies, VR, 3.75%, 7/8/22
1,182
1,177
SurveyMonkey.com, VR, 6.25%, 2/7/19
741
714
31
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
1,701
1,702
(Amounts in 000s)
Zebra Technologies, VR, 4.75%, 10/27/21
38,172 Lodging 2.5% Extended Stay, VR, 5.00%, 6/24/19
2,289
2,297
Four Seasons, VR, 3.50%, 6/27/20
2,321
2,287
Four Seasons, VR, 6.25%, 12/27/20
3,175
3,139
Hilton, VR, 3.50%, 10/26/20
1,430
1,421
La Quinta, VR, 3.75%, 4/14/21
4,025
3,948
Playa Resorts, VR, 4.00%, 8/9/19
1,383
1,361 14,453
Manufacturing 2.7% 1,504
1,450
349
345
Filtration Group, VR, 4.25%, 11/23/20
5,005
4,884
Filtration Group, VR, 8.25%, 11/22/21
467
460
1,524
1,395
Apex Tool Group, VR, 4.50%, 1/31/20 Ceramtec, VR, 4.25%, 8/30/20
Gardner Denver, VR, 4.25%, 7/30/20 Hamilton SundStrand, VR, 4.00%, 12/13/19
576
505
Husky Injection Molding, VR, 4.25%, 6/30/21
2,499
2,427
Husky Injection Molding, VR, 7.25%, 6/30/22
1,814
1,778
Milacron, VR, 4.50%, 9/28/20
1,085
1,074
Rexnord, VR, 4.00%, 8/21/20
774
756
SRAM, VR, 4.017%, 4/10/20
757
617 15,691
Metals & Mining 0.0% Phoenix Services, VR, 6.00%, 6/30/17
122
110 110
32
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
(Amounts in 000s)
Other Telecommunications 2.7% 1,058
1,051
Integra Telecom, VR, 5.25%, 8/14/20
988
959
Integra Telecom, VR, 9.75%, 2/12/20
441
431
Level 3 Financing, VR, 3.50%, 5/31/22
4,800
4,750
Level 3 Financing, VR, 4.00%, 8/1/19
1,775
1,771
Level 3 Financing, VR, 4.00%, 1/15/20
2,100
2,096
LTS Buyer, VR, 4.00%, 4/13/20
2,298
2,253
LTS Buyer, VR, 8.00%, 4/12/21
407
394
Tierpoint, VR, 5.25%, 12/2/21
323
319
2,034
2,008
Consolidated Communications, VR, 4.25%, 12/23/20
Zayo Group, VR, 3.75%, 5/6/21
16,032 Publishing 1.1% 1,916
1,884
Harland Clarke, VR, 6.00%, 8/4/19
693
682
Harland Clarke, VR, 7.00%, 5/22/18
283
281
Houghton Mifflin Harcourt Publisher, VR, 4.00%, 5/28/21
1,496
1,433
McGraw-Hill Global Education, VR, 4.75%, 3/22/19
1,950
1,944
Cengage Learning Acquisitions, VR, 7.00%, 3/31/20
6,224 Real Estate Investment Trust Securities 1.0% Capital Automotive, VR, 4.00%, 4/10/19
954
952
Capital Automotive, VR, 6.00%, 4/30/20
3,175
3,185
International Market Centers, VR, 4.50%, 8/15/20
820
813
International Market Centers, VR, 8.75%, 8/15/21
800
792 5,742
Restaurants 1.5% Burger King, VR, 3.75%, 12/10/21
33
7,533
7,484
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
PF Chang's China Bistro, VR, 4.25%, 6/22/19
764
726
Red Lobster, VR, 6.25%, 7/28/21
792
789
(Amounts in 000s)
8,999 Retail 4.0% Academy Sports, VR, 5.00%, 7/1/22
4,323
4,113
BJ's Wholesale Club, VR, 4.50%, 9/26/19
1,050
1,028
Dollar Tree, 4.25%, 7/6/22
2,975
2,953
Dollar Tree, VR, 3.50%, 7/6/22
1,639
1,631
JCPenney, VR, 5.00%, 6/20/19
494
491
JCPenney, VR, 6.00%, 5/22/18
2,310
2,287
Kirk Beauty, VR, 6.00%, 8/13/22 (EUR)
950
1,006
Leslie's Poolmart, VR, 4.25%, 10/16/19
1,019
993
Men's Wearhouse, 5.00%, 6/18/21
2,000
1,812
978
913
2,900
2,828
375
221
2,931
2,876
Neiman Marcus Group, VR, 4.25%, 10/25/20 Party City Holdings, VR, 4.25%, 8/19/22 Payless, VR, 8.50%, 3/11/22 PetSmart, VR, 4.25%, 3/11/22
23,152 Satellites 1.3% Intelsat Jackson Holding, VR, 3.75%, 6/30/19
4,592
4,288
Telesat Canada, VR, 3.50%, 3/28/19
2,691
2,660
536
393
Telesat Canada, VR, 4.43%, 3/28/19 (CAD)
7,341 Services 10.9% Acosta, VR, 4.25%, 9/26/21
1,660
1,587
Advantage Sales & Marketing, VR, 4.25%, 7/23/21
1,609
1,555
Advantage Sales & Marketing, VR, 7.50%, 7/25/22
775
705
34
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
Allied Security, VR, 4.25%, 2/12/21
1,593
1,557
Allied Security, VR, 8.00%, 8/13/21
508
479
Audio Visual Services, VR, 4.50%, 1/25/21
1,383
1,336
Brickman Group, VR, 4.003%, 12/18/20
1,626
1,581
Brickman Group, VR, 7.50%, 12/17/21
(Amounts in 000s)
1,200
1,133
Centerplate, VR, 4.753%, 11/26/19
368
354
Ceridian, VR, 4.50%, 9/15/20
963
801
CPI Card, VR, 5.50%, 8/17/22
1,501
1,493
Diamond U.S. Holdings, VR, 4.75%, 12/17/21
868
862
Emerald Expositions, VR, 4.75%, 6/17/20
1,240
1,230
First Data, VR, 3.712%, 3/23/18
3,775
3,732
First Data, VR, 3.712%, 9/24/18
1,250
1,237
First Data, VR, 3.962%, 7/8/22
4,650
4,592
First Data, VR, 4.212%, 3/24/21
3,985
3,968
HD Supply, VR, 3.75%, 8/13/21
1,450
1,434
Interactive Data, VR, 4.75%, 5/2/21
1,870
1,866
Kronos, VR, 4.50%, 10/30/19
5,124
5,090
Kronos, VR, 9.75%, 4/30/20
4,579
4,625
Monitronics International, VR, 4.25%, 3/23/18
329
325
Monitronics International, VR, 4.50%, 4/8/22
498
477
Neff Rental, VR, 7.25%, 6/9/21
600
540
Nord Anglia Education, VR, 4.407%, 3/31/21
2,449
2,412
On Assignment, VR, 3.75%, 6/3/22
1,278
1,274
Renaissance Learning, VR, 4.50%, 4/9/21
1,331
1,275
Renaissance Learning, VR, 8.00%, 4/11/22
1,075
1,014
Sabre, VR, 4.00%, 2/19/19
2,004
1,988
SCS Holdings, VR, 6.00%, 11/2/22
1,631
1,609
ServiceMaster, VR, 4.25%, 7/1/21
3,408
3,384
613
612
Symphonyiri Group, VR, 4.753%, 9/30/20
35
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
(Amounts in 000s)
Travelport, VR, 5.75%, 9/2/21
2,005
1,966
U.S. Ecology, VR, 3.75%, 6/17/21
276
275
U.S. Food Service, VR, 4.50%, 3/31/19
766
759
Vantiv, VR, 3.75%, 6/13/21
570
569
WASH Multifamily Laundry Systems, VR, 4.25%, 5/16/22
3,491
3,411
WASH Multifamily Laundry Systems, VR, 8.00%, 5/15/23
400
384 63,491
Supermarkets 1.3% New Albertson's, VR, 4.75%, 6/27/21
225
223
Pilot Travel Centers, VR, 3.75%, 10/1/21
1,407
1,408
Rite Aid, VR, 4.875%, 6/21/21
1,650
1,651
Rite Aid, VR, 5.75%, 8/21/20
4,525
4,538 7,820
Transportation 0.3% Omnitracs, VR, 4.75%, 11/25/20 Overseas Shipholding, VR, 5.25%, 8/5/19
1,355
1,335
568
563 1,898
Utilities 3.4% Calpine, VR, 4.00%, 1/15/23
1,225
1,213
Chief Power Finance, VR, 5.75%, 12/31/20
1,042
1,006
Energy Future Holdings, VR, 4.25%, 6/19/16
4,125
4,107
Exgen Renewables, VR, 5.25%, 2/6/21
5,080
5,067
Granite Acquisition, VR, 5.00%, 12/17/21
1,340
1,246
Granite Acquisition, VR, 8.25%, 12/19/22
925
771
Panda Power Funds, VR, 6.75%, 12/19/20
1,300
1,222
Panda Stonewall, VR, 6.50%, 11/13/21
775
740
Terra-Gen Finance, VR, 5.25%, 12/9/21
2,167
2,070
36
T. Rowe Price Floating Rate Fund
Par/Shares
$ Value
2,317
2,278
(Amounts in 000s)
TPF II Power, VR, 5.50%, 10/2/21
19,720 Wireless Communications 2.4% Asurion, VR, 5.00%, 5/24/19
3,044
2,865
Asurion, VR, 5.00%, 8/4/22
3,192
2,948
Asurion, VR, 8.50%, 3/3/21
5,725
5,035
875
856
2,200
2,201
SBA Senior Finance, VR, 3.25%, 3/24/21 T-Mobile USA, VR, 3.50%, 11/9/22
13,905 492,148
Total Bank Loans (Cost $504,123)
SHORT-TERM INVESTMENTS 9.6% Money Market Funds 9.6% T. Rowe Price Reserve Investment Fund, 0.12% (6)(7)
55,614
55,614 55,614
Total Short-Term Investments (Cost $55,614) Total Investments in Securities 101.7% of Net Assets (Cost $606,225) ‡ (1)
(2) (3) (4)
(5) (6) (7)
CAD EUR
$
592,123
Par/Shares are denominated in U.S. dollars unless otherwise noted. Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration only to qualified institutional buyers -- total value of such securities at period-end amounts to $25,681 and represents 4.4% of net assets. In default with respect to payment of interest. Non-income producing Bank loan positions may involve multiple underlying tranches. In those instances, the position presented reflects the aggregate of those respective underlying tranches and the rate presented reflects their weighted average rate. Level 3 in fair value hierarchy. See Note 2. Seven-day yield Affiliated Company Canadian Dollar Euro
37
T. Rowe Price Floating Rate Fund
GBP PIK USD VR
British Pound Payment-in-kind U.S. Dollar Variable Rate; rate shown is effective rate at period-end.
38
T. Rowe Price Floating Rate Fund
(Amounts in 000s, except market price)
SWAPS 0.0% Notional Amount
Market Upfront Premiums Value Paid/(Received)
Unrealized Gain (Loss)
BILATERAL SWAPS 0.0% Credit Default Swaps, Protection Sold 0.0% Credit Suisse, Protection Sold (Relevant Credit: Chesapeake Energy, 6.625%, 8/15/20, $47.25*) Receive 5.00%, Pay upon credit default, 6/20/20
275 $ (132) $
Total Bilateral Credit Default Swaps, Protection Sold Total Bilateral Swaps *Market price at November 30, 2015
39
$
10 $
(142)
10
(142)
10 $
(142)
T. Rowe Price Floating Rate Fund
(Amounts in 000s)
Forward Currency Exchange Contracts Counterparty Settlement Bank of America Merrill Lynch 12/31/15 Citibank 12/15/15 Credit Suisse 1/13/16 JPMorgan Chase 12/15/15 JPMorgan Chase 12/31/15 Morgan Stanley 12/15/15 Royal Bank of Scotland 1/13/16 UBS Investment Bank 1/13/16 Net unrealized gain (loss) on open forward currency exchange contracts
40
Receive USD USD USD EUR CAD USD GBP GBP
Deliver 405 1,044 887 56 7 4,609 452 3
CAD EUR GBP USD USD EUR USD USD
Unrealized Gain (Loss) 540 $ 944 579 63 5 4,127 680 4
— 47 15 (5) — 247 1 —
$
305
T. Rowe Price Floating Rate Fund
Affiliated Companies ($000s)
The fund may invest in certain securities that are considered affiliated companies. As defined by the 1940 Act, an affiliated company is one in which the fund owns 5% or more of the outstanding voting securities, or a company which is under common ownership or control. Based on the fund’s relative ownership, the following securities were considered affiliated companies for all or some portion of the six months ended November 30, 2015. Purchase and sales cost and investment income reflect all activity for the period then ended. Purchase Cost
Affiliate T. Rowe Price Reserve Investment Fund
Sales Cost
¤
Totals
Investment Income
Value 11/30/15
Value 5/31/15
¤$
28 $
55,614 $
67,920
$
28 $
55,614 $
67,920
¤ Purchase and sale information not shown for cash management funds. Amounts reflected on the accompanying financial statements include the following amounts related to affiliated companies: Investment in securities, at cost
$
Dividend income Interest income
55,614 28 -
Investment income
$
28
Realized gain (loss) on securities
$
-
Capital gain distributions from mutual funds
$
-
The accompanying notes are an integral part of these financial statements.
41
T. Rowe Price Floating Rate Fund Unaudited
November 30, 2015
S tatement of A ssets and L iabilities ($000s, except shares and per share amounts)
Assets Investments in securities, at value (cost $606,225)
$
592,123
Receivable for investment securities sold
4,549
Cash
3,460
Interest receivable
3,286
Receivable for shares sold
986
Foreign currency (cost $688)
685
Unrealized gain on forward currency exchange contracts
310
Bilateral swap premiums paid
10
Other assets
1,036
Total assets
606,445
Liabilities Payable for investment securities purchased
22,617
Payable for shares redeemed
431
Investment management fees payable
281
Unrealized loss on bilateral swaps
142
Due to affiliates
17
Unrealized loss on forward currency exchange contracts
5
Other liabilities
867
Total liabilities
24,360
NET ASSETS
$
582,085
Net Assets Consist of: Overdistributed net investment income
$
Accumulated undistributed net realized loss
(39) (8,070)
Net unrealized loss
(13,944)
Paid-in capital applicable to 60,067,828 shares of $0.0001 par value capital stock outstanding; 1,000,000,000 shares authorized
604,138
NET ASSETS
42
$
582,085
T. Rowe Price Floating Rate Fund Unaudited
November 30, 2015
S tatement of A ssets and L iabilities NET ASSET VALUE PER SHARE Investor Class ($555,405,011 / 57,313,949 shares outstanding)
$
9.69
Advisor Class ($26,680,232 / 2,753,879 shares outstanding)
$
9.69
The accompanying notes are an integral part of these financial statements.
43
T. Rowe Price Floating Rate Fund Unaudited
S tatement of O perations ($000s)
6 Months Ended 11/30/15
Investment Income (Loss) Income Interest Dividend Other
$
Total income Expenses Investment management Shareholder servicing Investor Class Advisor Class Rule 12b-1 fees Advisor Class Prospectus and shareholder reports Investor Class Advisor Class Custody and accounting Registration Legal and audit Directors Miscellaneous Repaid to Price Associates Total expenses Net investment income
44
13,218 28 164 13,410 1,679
$
295 21
316 31
31 1
32 110 58 33 1 32 158 2,450 10,960
T. Rowe Price Floating Rate Fund Unaudited
S tatement of O perations ($000s)
6 Months Ended 11/30/15
Realized and Unrealized Gain / Loss Net realized gain (loss) Securities Swaps Foreign currency transactions
(4,612) (303) (58)
Net realized loss
(4,973)
Change in net unrealized gain / loss Securities Swaps Other assets and liabilities denominated in foreign currencies
(15,043) (142) 395
Change in net unrealized gain / loss
(14,790)
Net realized and unrealized gain / loss
(19,763)
DECREASE IN NET ASSETS FROM OPERATIONS
The accompanying notes are an integral part of these financial statements.
45
$
(8,803)
T. Rowe Price Floating Rate Fund Unaudited
S tatement of C hanges in N et A ssets ($000s)
6 Months Ended 11/30/15
Year Ended 5/31/15
Increase (Decrease) in Net Assets Operations Net investment income Net realized loss Change in net unrealized gain / loss Increase (decrease) in net assets from operations Distributions to shareholders Net investment income Investor Class Advisor Class Net realized gain Investor Class Advisor Class Decrease in net assets from distributions Capital share transactions* Shares sold Investor Class Advisor Class Distributions reinvested Investor Class Advisor Class Shares redeemed Investor Class Advisor Class Redemption fees received Increase in net assets from capital share transactions
46
$
10,960 (4,973) (14,790)
$
18,204 (2,252) (1,010)
(8,803)
14,942
(10,532) (467)
(17,578) (680)
– – (10,999)
(516) (18) (18,792)
127,022 13,142
314,807 9,430
9,976 465
15,051 688
(70,211) (4,741) 51
(195,769) (7,006) 70
75,704
137,271
T. Rowe Price Floating Rate Fund Unaudited
S tatement of C hanges in N et A ssets ($000s)
6 Months Ended 11/30/15
Year Ended 5/31/15
55,902 526,183
133,421 392,762
Net Assets Increase during period Beginning of period End of period
$
Undistributed (overdistributed) net investment income
*Share information Shares sold Investor Class Advisor Class Distributions reinvested Investor Class Advisor Class Shares redeemed Investor Class Advisor Class Increase in shares outstanding
The accompanying notes are an integral part of these financial statements.
47
582,085
(39)
$
526,183
–
12,778 1,324
31,491 942
1,013 48
1,505 69
(7,075) (482) 7,606
(19,646) (702) 13,659
T. Rowe Price Floating Rate Fund Unaudited
November 30, 2015
N otes to F inancial S tatements
T. Rowe Price Floating Rate Fund (the fund), is registered under the Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end management investment company. The fund seeks high current income and, secondarily, capital appreciation. The fund has two classes of shares: the Floating Rate Fund original share class, referred to in this report as the Investor Class, offered since July 29, 2011, and the Floating Rate Fund–Advisor Class (Advisor Class), offered since July 29, 2011. Advisor Class shares are sold only through unaffiliated brokers and other unaffiliated financial intermediaries that are compensated by the class for distribution, shareholder servicing, and/or certain administrative services under a Board-approved Rule 12b-1 plan; the Investor Class does not pay Rule 12b-1 fees. Each class has exclusive voting rights on matters related solely to that class; separate voting rights on matters that relate to both classes; and, in all other respects, the same rights and obligations as the other class. Note 1 - Significant Accounting Policies Basis of Preparation The fund is an investment company and follows accounting
and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including, but not limited to, ASC 946. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity. Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. Investment transactions are accounted for on the trade date. Realized gains and
48
T. Rowe Price Floating Rate Fund
losses are reported on the identified cost basis. Distributions to shareholders are recorded on the ex-dividend date. Income distributions are declared by each class daily and paid monthly. Capital gain distributions, if any, are generally declared and paid by the fund annually. Currency Translation Assets, including investments, and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and asked prices of such currencies against U.S. dollars as quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is reflected as a component of security gains and losses. Class Accounting Shareholder servicing, prospectus, and shareholder report
expenses incurred by each class are charged directly to the class to which they relate. Expenses common to both classes and investment income are allocated to the classes based upon the relative daily net assets of each class’s settled shares; realized and unrealized gains and losses are allocated based upon the relative daily net assets of each class’s outstanding shares. The Advisor Class pays distribution, shareholder servicing, and/or certain administrative expenses in the form of Rule 12b-1 fees, in an amount not exceeding 0.25% of the class’s average daily net assets. Redemption Fees A 2% fee is assessed on redemptions of 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 of fund shares. The fees are paid to the fund and are recorded as an increase to paid-in capital. The fees may cause the redemption price per share to differ from the net asset value per share. New Accounting Guidance In May 2015, FASB issued ASU No. 2015-07, Fair
Value Measurement (Topic 820), Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). The ASU removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient and amends certain disclosure requirements for such investments. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015. Adoption will have no effect on the fund’s net assets or results of operations.
49
T. Rowe Price Floating Rate Fund
Note 2 - VALUATION
The fund’s financial instruments are valued and each class’s net asset value (NAV) per share is computed at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day the NYSE is open for business. Fair Value The fund’s financial instruments are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The T. Rowe Price Valuation Committee (the Valuation Committee) has been established by the fund’s Board of Directors (the Board) to ensure that financial instruments are appropriately priced at fair value in accordance with GAAP and the 1940 Act. Subject to oversight by the Board, the Valuation Committee develops and oversees pricing-related policies and procedures and approves all fair value determinations. Specifically, the Valuation Committee establishes procedures to value securities; determines pricing techniques, sources, and persons eligible to effect fair value pricing actions; oversees the selection, services, and performance of pricing vendors; oversees valuation-related business continuity practices; and provides guidance on internal controls and valuation-related matters. The Valuation Committee reports to the Board and has representation from legal, portfolio management and trading, operations, risk management, and the fund’s treasurer.
Various valuation techniques and inputs are used to determine the fair value of financial instruments. GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value: Level 1 – quoted prices (unadjusted) in active markets for identical financial instruments that the fund can access at the reporting date Level 2 – inputs other than Level 1 quoted prices that are observable, either directly or indirectly (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads) Level 3 – unobservable inputs
50
T. Rowe Price Floating Rate Fund
Observable inputs are developed using market data, such as publicly available information about actual events or transactions, and reflect the assumptions that market participants would use to price the financial instrument. Unobservable inputs are those for which market data are not available and are developed using the best information available about the assumptions that market participants would use to price the financial instrument. GAAP requires valuation techniques to maximize the use of relevant observable inputs and minimize the use of unobservable inputs. When multiple inputs are used to derive fair value, the financial instrument is assigned to the level within the fair value hierarchy based on the lowest-level input that is significant to the fair value of the financial instrument. Input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level but rather the degree of judgment used in determining those values. Valuation Techniques Debt securities generally are traded in the over-thecounter (OTC) market. Securities with remaining maturities of one year or more at the time of acquisition are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service, which considers the yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with remaining maturities of less than one year at the time of acquisition generally use amortized cost in local currency to approximate fair value. However, if amortized cost is deemed not to reflect fair value or the fund holds a significant amount of such securities with remaining maturities of more than 60 days, the securities are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service. Generally, debt securities are categorized in Level 2 of the fair value hierarchy; however, to the extent the valuations include significant unobservable inputs, the securities would be categorized in Level 3.
Investments in mutual funds are valued at the mutual fund’s closing NAV per share on the day of valuation and are categorized in Level 1 of the fair value hierarchy. Forward currency exchange contracts are valued using the prevailing forward exchange rate and are categorized in Level 2 of the fair value hierarchy. Swaps are valued at prices furnished by independent swap dealers or by an independent pricing service and generally are categorized in Level 2 of the fair
51
T. Rowe Price Floating Rate Fund
value hierarchy; however, if unobservable inputs are significant to the valuation, the swap would be categorized in Level 3. Assets and liabilities other than financial instruments, including short-term receivables and payables, are carried at cost, or estimated realizable value, if less, which approximates fair value. Thinly traded financial instruments and those for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by the Valuation Committee. The objective of any fair value pricing determination is to arrive at a price that could reasonably be expected from a current sale. Financial instruments fair valued by the Valuation Committee are primarily private placements, restricted securities, warrants, rights, and other securities that are not publicly traded. Subject to oversight by the Board, the Valuation Committee regularly makes good faith judgments to establish and adjust the fair valuations of certain securities as events occur and circumstances warrant. For instance, in determining the fair value of troubled or thinly traded debt instruments, the Valuation Committee considers a variety of factors, which may include, but are not limited to, the issuer’s business prospects, its financial standing and performance, recent investment transactions in the issuer, strategic events affecting the company, market liquidity for the issuer, and general economic conditions and events. In consultation with the investment and pricing teams, the Valuation Committee will determine an appropriate valuation technique based on available information, which may include both observable and unobservable inputs. The Valuation Committee typically will afford greatest weight to actual prices in arm’s length transactions, to the extent they represent orderly transactions between market participants, transaction information can be reliably obtained, and prices are deemed representative of fair value. However, the Valuation Committee may also consider other valuation methods such as a discount or premium from market value of a similar, freely traded security of the same issuer; discounted cash flows; yield to maturity; or some combination. Fair value determinations are reviewed on a regular basis and updated as information becomes available, including actual purchase and sale transactions of the issue. Because any fair value determination involves a significant amount of judgment, there is a degree of subjectivity inherent in such pricing decisions, and fair value prices determined by the Valuation Committee could differ from those of other market participants. Depending
52
T. Rowe Price Floating Rate Fund
on the relative significance of unobservable inputs, including the valuation technique(s) used, fair valued securities may be categorized in Level 2 or 3 of the fair value hierarchy. Valuation Inputs The following table summarizes the fund’s financial instruments, based on the inputs used to determine their fair values on November 30, 2015: ($000s)
Level 1
Level 2
Level 3
Quoted Prices
Significant Observable Inputs
Significant Unobservable Inputs
Total Value
Assets Investments in Securities, except:
$
Bank Loans
— $ —
44,361 $ 490,695
— $ 1,453
44,361 492,148
Short-Term Investments
55,614
—
—
55,614
Total Securities
55,614
535,056
1,453
592,123
—
310
—
310
Forward Currency Exchange Contracts Total
$
55,614 $
535,366 $
1,453 $
592,433
$
— $
132 $
— $
132
Liabilities Swaps Forward Currency Exchange Contracts Total
— $
— $
5 137 $
— — $
5 137
There were no material transfers between Levels 1 and 2 during the six months ended November 30, 2015. Following is a reconciliation of the fund’s Level 3 holdings for the six months ended November 30, 2015. Gain (loss) reflects both realized and change in unrealized gain/loss on Level 3 holdings during the period, if any, and
53
T. Rowe Price Floating Rate Fund
is included on the accompanying Statement of Operations. The change in unrealized gain/loss on Level 3 instruments held at November 30, 2015, totaled $(1,000) for the six months ended November 30, 2015. Beginning Balance 6/1/15
($000s)
Gain (Loss) During Period
Ending Balance 11/30/15
Total Purchases
Investments in Securities Bank Loans
$
—
$
(1) $
1,454
$
1,453
Note 3 - derivative instruments
During the six months ended November 30, 2015, the fund invested in derivative instruments. As defined by GAAP, a derivative is a financial instrument whose value is derived from an underlying security price, foreign exchange rate, interest rate, index of prices or rates, or other variable; it requires little or no initial investment and permits or requires net settlement. The fund invests in derivatives only if the expected risks and rewards are consistent with its investment objectives, policies, and overall risk profile, as described in its prospectus and Statement of Additional Information. The fund may use derivatives for a variety of purposes, such as seeking to hedge against declines in principal value, increase yield, invest in an asset with greater efficiency and at a lower cost than is possible through direct investment, or to adjust portfolio duration and credit exposure. The risks associated with the use of derivatives are different from, and potentially much greater than, the risks associated with investing directly in the instruments on which the derivatives are based. The fund at all times maintains sufficient cash reserves, liquid assets, or other SEC-permitted asset types to cover its settlement obligations under open derivative contracts. The fund values its derivatives at fair value, as described in Note 2, and recognizes changes in fair value currently in its results of operations. Accordingly, the fund does not follow hedge accounting, even for derivatives employed as economic hedges. Generally, the fund accounts for its derivatives on a gross basis. It does not offset the fair value of derivative liabilities against the fair value of derivative assets on its financial statements, nor does it offset the fair value of derivative instruments against the right to reclaim or obligation to return collateral.
54
T. Rowe Price Floating Rate Fund
The following table summarizes the fair value of the fund’s derivative instruments held as of November 30, 2015, and the related location on the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure: Location on Statement of Assets and Liabilities
($000s)
Fair Value
Assets Foreign exchange derivatives
Forwards
$
310
Forwards
$
5
Liabilities Foreign exchange derivatives Credit derivatives
Bilateral Swaps, and Premiums
132
Total
$
137
Additionally, the amount of gains and losses on derivative instruments recognized in fund earnings during the six months ended November 30, 2015, and the related location on the accompanying Statement of Operations is summarized in the following table by primary underlying risk exposure: Location of Gain (Loss) on Statement of Operations
($000s)
Foreign Currency Transactions
Swaps
Total
Realized Gain (Loss) Foreign exchange derivatives
$
Credit derivatives Total
(56) $ —
$
(56) $
$
400
— $
(56)
(303)
(303)
(303) $
(359)
Change in Unrealized Gain / Loss Foreign exchange derivatives Credit derivatives Total
$
55
$
— 400
– $ (142)
$
(142) $
400 (142) 258
T. Rowe Price Floating Rate Fund
Counterparty Risk and Collateral The fund invests in derivatives, such as bilateral
swaps, forward currency exchange contracts, or OTC options, that are transacted and settle directly with a counterparty (bilateral derivatives), and thereby expose the fund to counterparty risk. To mitigate this risk, the fund has entered into master netting arrangements (MNAs) with certain counterparties that permit net settlement under specified conditions and, for certain counterparties, also provide collateral agreements. MNAs may be in the form of International Swaps and Derivatives Association master agreements (ISDAs) or foreign exchange letter agreements (FX letters). MNAs govern the ability to offset amounts the fund owes a counterparty against amounts the counterparty owes the fund (net settlement). Both ISDAs and FX letters generally allow net settlement in the event of contract termination and permit termination by either party prior to maturity upon the occurrence of certain stated events, such as failure to pay or bankruptcy. In addition, ISDAs specify other events, the occurrence of which would allow one of the parties to terminate. For example, a downgrade in credit rating of a counterparty would allow the fund to terminate while a decline in the fund’s net assets of more than a certain percentage would allow the counterparty to terminate. Upon termination, all bilateral derivatives with that counterparty would be liquidated and a net amount settled. ISDAs typically include collateral agreements whereas FX letters do not. Collateral requirements are determined based on the net aggregate unrealized gain or loss on all bilateral derivatives with each counterparty, subject to minimum transfer amounts that typically range from $100,000 to $250,000. Any additional collateral required due to changes in security values is transferred the next business day. Collateral may be in the form of cash or debt securities issued by the U.S. government or related agencies. Cash and currencies posted by the fund are reflected as cash deposits in the accompanying financial statements and generally are restricted from withdrawal by the fund; securities posted by the fund are so noted in the accompanying Portfolio of Investments; both remain in the fund’s assets. Collateral pledged by counterparties is not included in the fund’s assets because the fund does not obtain effective control over those assets. For bilateral derivatives, collateral posted or received by the fund is held in a segregated account by the fund’s custodian. As of November 30, 2015, cash of $300,000 had been posted by the fund to counterparties for bilateral derivatives. As of November 30, 2015, collateral pledged by counterparties to the fund for bilateral derivatives consisted of $226,000 cash.
56
T. Rowe Price Floating Rate Fund
Forward Currency Exchange Contracts The fund is subject to foreign currency
exchange rate risk in the normal course of pursuing its investment objectives. It uses forward currency exchange contracts (forwards) primarily to protect its non-U.S. dollar-denominated securities from adverse currency movements relative to the U.S. dollar. A forward involves an obligation to purchase or sell a fixed amount of a specific currency on a future date at a price set at the time of the contract. Although certain forwards may be settled by exchanging only the net gain or loss on the contract, most forwards are settled with the exchange of the underlying currencies in accordance with the specified terms. Forwards are valued at the unrealized gain or loss on the contract, which reflects the net amount the fund either is entitled to receive or obligated to deliver, as measured by the difference between the forward exchange rates at the date of entry into the contract and the forward rates at the reporting date. Appreciated forwards are reflected as assets and depreciated forwards are reflected as liabilities on the accompanying Statement of Assets and Liabilities. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the agreements; that anticipated currency movements will not occur, thereby reducing the fund’s total return; and the potential for losses in excess of the fund’s initial investment. During the six months ended November 30, 2015, the volume of the fund’s activity in forwards, based on underlying notional amounts, was generally between 0% and 2% of net assets. Swaps The fund is subject to credit risk in the normal course of pursuing its
investment objectives and uses swap contracts to help manage such risk. The fund may use swaps in an effort to manage exposure to changes in interest rates, inflation rates, and credit quality; to adjust overall exposure to certain markets; to enhance total return or protect the value of portfolio securities; to serve as a cash management tool; or to adjust portfolio duration and credit exposure. Swap agreements can be settled either directly with the counterparty (bilateral swap) or through a central clearinghouse (centrally cleared swap). Fluctuations in the fair value of a contract are reflected in unrealized gain or loss and are reclassified to realized gain or loss upon contract termination or cash settlement. Net periodic receipts or payments required by a contract increase or decrease, respectively, the value of the contract until the contractual payment date, at which time such amounts are reclassified from unrealized to realized gain or loss. For bilateral swaps, cash payments are made or received by the fund on a periodic basis in accordance with contract terms;
57
T. Rowe Price Floating Rate Fund
unrealized gain on contracts and premiums paid are reflected as assets and unrealized loss on contracts and premiums received are reflected as liabilities on the accompanying Statement of Assets and Liabilities. For centrally cleared swaps, payments are made or received by the fund each day to settle the daily fluctuation in the value of the contract (variation margin). Accordingly, the value of a centrally cleared swap included in net assets is the unsettled variation margin; net variation margin receivable is reflected as an asset and net variation margin payable is reflected as a liability on the accompanying Statement of Assets and Liabilities. Credit default swaps are agreements where one party (the protection buyer) agrees to make periodic payments to another party (the protection seller) in exchange for protection against specified credit events, such as certain defaults and bankruptcies related to an underlying credit instrument, or issuer or index of such instruments. Upon occurrence of a specified credit event, the protection seller is required to pay the buyer the difference between the notional amount of the swap and the value of the underlying credit, either in the form of a net cash settlement or by paying the gross notional amount and accepting delivery of the relevant underlying credit. For credit default swaps where the underlying credit is an index, a specified credit event may affect all or individual underlying securities included in the index and will be settled based upon the relative weighting of the affected underlying security(ies) within the index. Generally, the payment risk for the seller of protection is inversely related to the current market price or credit rating of the underlying credit or the market value of the contract relative to the notional amount, which are indicators of the markets’ valuation of credit quality. As of November 30, 2015, the notional amount of protection sold by the fund totaled $275,000 (0.0% of net assets), which reflects the maximum potential amount the fund could be required to pay under such contracts. Risks related to the use of credit default swaps include the possible inability of the fund to accurately assess the current and future creditworthiness of underlying issuers, the possible failure of a counterparty to perform in accordance with the terms of the swap agreements, potential government regulation that could adversely affect the fund’s swap investments, and potential losses in excess of the fund’s initial investment. During the six months ended November 30, 2015, the volume of the fund’s activity in swaps, based on underlying notional amounts, was generally less than 1% of net assets.
58
T. Rowe Price Floating Rate Fund
Note 4 - OTHER Investment Transactions
Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks and/or to enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund’s prospectus and Statement of Additional Information. Noninvestment-Grade Debt Securities At November 30, 2015, approximately
91% of the fund’s net assets were invested, either directly or through its investment in T. Rowe Price institutional funds, in noninvestment-grade debt, including “high yield” or “junk” bonds or leveraged loans. The noninvestmentgrade debt market may experience sudden and sharp price swings due to a variety of factors, including changes in economic forecasts, stock market activity, large sustained sales by major investors, a high-profile default, or a change in market sentiment. These events may decrease the ability of issuers to make principal and interest payments and adversely affect the liquidity or value, or both, of such securities. Restricted Securities The fund may invest in securities that are subject to legal or contractual restrictions on resale. Prompt sale of such securities at an acceptable price may be difficult and may involve substantial delays and additional costs. Bank Loans The fund may invest in bank loans, which represent an interest in amounts owed by a borrower to a syndication of lenders. Bank loans are generally noninvestment grade and often involve borrowers whose financial condition is troubled or highly leveraged. Bank loans may be in the form of either assignments or participations. A loan assignment transfers all legal, beneficial, and economic rights to the buyer, and transfer typically requires consent of both the borrower and agent. In contrast, a loan participation generally entitles the buyer to receive the cash flows from principal, interest, and any fee payments; however, the seller continues to hold legal title to the loan. As a result, the buyer of a loan participation generally has no direct rights against the borrower and is exposed to credit risk of both the borrower and seller of the participation. Bank loans often have extended settlement periods, usually may be repaid at any time at the option of the borrower, and may require additional principal to be funded at the borrowers’ discretion at a later date (unfunded commitments). Until settlement, the fund maintains liquid
59
T. Rowe Price Floating Rate Fund
assets sufficient to settle its unfunded loan commitments. The fund reflects both the funded portion of a bank loan as well as its unfunded commitment in the Portfolio of Investments. However, to the extent a credit agreement provides no initial funding of a tranche and funding of the full commitment at a future date(s) is at the borrower’s discretion and considered uncertain, no loan is reflected in the Portfolio of Investments until paid. At November 30, 2015, the fund’s total unfunded commitments not included in the Portfolio of Investments were $5,206,000. Other Purchases and sales of portfolio securities other than short-term securities
aggregated $177,269,000 and $114,921,000, respectively, for the six months ended November 30, 2015. Note 5 - Federal Income Taxes
No provision for federal income taxes is required since the 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. Distributions determined in accordance with federal income tax regulations may differ 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 but are not adjusted for temporary differences. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of the date of this report. The fund intends to retain realized gains to the extent of available capital loss carryforwards. Net realized capital losses may be carried forward indefinitely to offset future realized capital gains. As of May 31, 2015, the fund had $3,632,000 of available capital loss carryforwards. At November 30, 2015, the cost of investments for federal income tax purposes was $606,243,000. Net unrealized loss aggregated $13,962,000 at period-end, of which $819,000 related to appreciated investments and $14,781,000 related to depreciated investments.
60
T. Rowe Price Floating Rate Fund
Note 6 - related Party Transactions
The fund is managed by T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. (Price Group). The investment management agreement between the fund and Price Associates provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.30% of the fund’s average daily net assets, and a group fee. The group fee rate is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.275% for assets in excess of $400 billion. The fund’s group fee is determined by applying the group fee rate to the fund’s average daily net assets. At November 30, 2015, the effective annual group fee rate was 0.29%. The Investor Class and Advisor Class are also each subject to a contractual expense limitation through the limitation dates indicated in the table below. During the limitation period, Price Associates is required to waive its management fee or pay any expenses, excluding interest, taxes, brokerage commissions, and extraordinary expenses, that would otherwise cause the class’s ratio of annualized total expenses to average net assets (expense ratio) to exceed its expense limitation. Each class is required to repay Price Associates for expenses previously waived/paid to the extent the class’s net assets grow or expenses decline sufficiently to allow repayment without causing the class’s expense ratio to exceed its expense limitation. However, no repayment will be made more than three years after the date of a payment or waiver. Advisor Class
Investor Class Expense limitation
0.85%
Limitation date
9/30/17
0.95% 9/30/17
Pursuant to these agreements, $158,000 of expenses were repaid to Price Associates during the six months ended November 30, 2015. Including these amounts, expenses previously waived/paid by Price Associates in the amount of $95,000 remain subject to repayment by the fund at November 30, 2015.
61
T. Rowe Price Floating Rate Fund
In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates provides certain accounting and administrative services to the fund. T. Rowe Price Services, Inc., provides shareholder and administrative services in its capacity as the fund’s transfer and dividend-disbursing agent. T. Rowe Price Retirement Plan Services, Inc., provides subaccounting and recordkeeping services for certain retirement accounts invested in the Investor Class. For the six months ended November 30, 2015, expenses incurred pursuant to these service agreements were $47,000 for Price Associates; $68,000 for T. Rowe Price Services, Inc.; and $2,000 for T. Rowe Price Retirement Plan Services, Inc. The total amount payable at period-end pursuant to these service agreements is reflected as Due to Affiliates in the accompanying financial statements. The fund is also one of several mutual funds sponsored by Price Associates (underlying Price funds) in which the T. Rowe Price Spectrum Funds (Spectrum Funds) may invest. The Spectrum Funds do not invest in the underlying Price funds for the purpose of exercising management or control. Pursuant to a special servicing agreement, expenses associated with the operation of the Spectrum Funds are borne by each underlying Price fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by the Spectrum Funds. Expenses allocated under this agreement are reflected as shareholder servicing expense in the accompanying financial statements. For the six months ended November 30, 2015, the fund was allocated $149,000 of Spectrum Funds’ expenses, of which $103,000 related to services provided by Price. At period-end, the amount payable to Price pursuant to this agreement is reflected as Due to Affiliates in the accompanying financial statements. At November 30, 2015, approximately 45% of the outstanding shares of the Investor Class were held by the Spectrum Funds. The fund may invest in the T. Rowe Price Reserve Investment Fund, the T. Rowe Price Government Reserve Investment Fund, or the T. Rowe Price Short-Term Reserve Fund (collectively, the Price Reserve Investment Funds), open-end management investment companies managed by Price Associates and considered affiliates of the fund. The Price Reserve Investment Funds are offered as short-term investment options to mutual funds, trusts, and other accounts managed by Price Associates or its affiliates and are not available for direct purchase by members of the public. The Price Reserve Investment Funds pay no investment management fees.
62
T. Rowe Price Floating Rate Fund
Note 7 - Borrowing
The fund may borrow to provide temporary liquidity. The fund, along with several other T. Rowe Price-sponsored mutual funds (collectively, the participating funds), has entered into a $500 million, 364-day, syndicated credit facility (the facility) pursuant to which the participating funds may borrow on a first-come, first-served basis up to the full amount of the facility. Interest is charged to the borrowing fund at a rate equal to 1.00% plus the greater of (a) the Federal Funds rate or (b) the one-month LIBOR. A commitment fee, equal to 0.08% per annum of the average daily undrawn commitment, is allocated to the participating funds based on each fund’s relative net assets; it is accrued daily and paid quarterly. Loans are generally unsecured; however, the fund must collateralize any borrowings under the facility on an equivalent basis if it has other collateralized borrowings. During the six months ended November 30, 2015, the fund incurred $27,000 in commitment fees. At November 30, 2015, the fund had no borrowings outstanding under the facility, and the undrawn amount of the facility was $500,000,000.
63
T. Rowe Price Floating Rate Fund
I nformation on P roxy V oting P olicies, P rocedures, and R ecords 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 fund’s Statement of Additional Information. You may request this document by calling 1-800-225-5132 or by accessing the SEC’s website, sec.gov. The description of our proxy voting policies and procedures is also available on our website, troweprice.com. To access it, click on the words “Social Responsibility” at the top of our corporate homepage. Next, click on the words “Conducting Business Responsibly” on the left side of the page that appears. Finally, click on the words “Proxy Voting Policies” on the left side of the page that appears. Each fund’s most recent annual proxy voting record is available on our website and through the SEC’s website. To access it through our website, follow the above directions to reach the “Conducting Business Responsibly” page. Click on the words “Proxy Voting Records” on the left side of that page, and then click on the “View Proxy Voting Records” link at the bottom of the page that appears.
H ow to O btain Q uarterly P ortfolio H oldings 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 fund’s Form N-Q is available electronically on the SEC’s website (sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 100 F St. N.E., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.
64
T. Rowe Price Investment Services and Information This page contains supplementary information that is not part of the shareholder report.
Investment Services and Information KNOWLEDGEABLE CUSTOMER SERVICE
On the Web at troweprice.com. By Phone at 1-800-225-5132. Available Monday through Friday from 8 a.m. until 10 p.m. ET and Saturday from 8:30 a.m. until 5 p.m. ET. In Person at a T. Rowe Price Investor Center. Please visit the website at troweprice.com/investorcenter or call 1-800-225-5132 to locate a center near you. ACCOUNT SERVICES
Account Access. Through the T. Rowe Price website at troweprice.com and via phone through Tele*Access®. Automatic Investing. From your bank account or paycheck. Automatic Withdrawal. Scheduled, periodic redemptions. IRA Rebalancing. Automatically rebalance to ensure that your accounts reflect your desired asset allocations. BROKERAGE SERVICES ‡
Trade stocks, mutual funds, ETFs, bonds, options, CDs, precious metals, and more at competitive commissions. INVESTMENT INFORMATION
Consolidated Statement. Overview of all of your T. Rowe Price mutual fund and Brokerage accounts. Shareholder Reports. Manager reviews of their strategies and results. T. Rowe Price Report. Quarterly investment newsletter. T. Rowe Price Investor. Quarterly publication of insightful financial articles. Investment Guides. International Investing Guide and Guide to Bond Funds. FINANCIAL INTERMEDIARIES AND ADVISORS
By Phone at 1-877-804-2315. Contact us Monday through Friday from 8:30 a.m. until 6 p.m. ET. By Mail: T. Rowe Price, Financial Institution Services, P.O. Box 89000, Baltimore, MD 21289-4232. CUSTOMERS WHO TRADE THROUGH A FINANCIAL INTERMEDIARY
Please contact your intermediary or financial professional for assistance.
‡ Options trading involves additional risk and is not suitable for all investors. Brokerage services offered by T. Rowe Price Investment Services, Inc., member FINRA/SIPC. 65
T. Rowe Price Web Services This page contains supplementary information that is not part of the shareholder report.
troweprice.com LOG IN AND MANAGE YOUR INVESTMENTS ONLINE
troweprice.com/access
Manage your account by checking balances with up-to-date statements, tracking and analyzing your portfolio, and/or granting View Access to others as you see fit. Perform transactions at your convenience. Buy, sell, or exchange shares quickly and securely. You can also set up automatic investing and add a bank account to move money easily. Update your preferences by confirming your contact information and verifying your beneficiaries so that your assets can be distributed as you wish. ONLINE SERVICING
troweprice.com/paperless
Enroll to receive your transaction confirmations, investor statements, prospectuses, and shareholder reports online instead of by U.S. mail.1 You will receive an e-mail with a link to our website informing you that your document is available to view online, print, or download. Join our E-mail Program to receive market and fund information by e-mail. Receive timely market reports, performance of T. Rowe Price mutual funds, investment and market insights from T. Rowe Price managers, and more. INVESTMENT GUIDANCE AND TOOLS
troweprice.com/planningtools
FuturePath®
helps you define your path to retirement, connecting where you are today to where you want to be tomorrow. Personal Rate of Return aids in tracking the historical performance of your mutual funds over time. Portfolio Growth Tracker allows you to track the historical growth of your mutual fund investments over time. The analysis consists of three components: Activity Summary, Asset Allocation, and Net Investment versus Market Value. Retirement Income Calculator can help you see if your retirement goals are on track. Social Security Benefits Evaluator can help you decide how and when to claim Social Security benefits.
FINANCIAL INTERMEDIARIES AND ADVISORS
troweprice.com/financialintermediaries
This secure site is designed for professional financial intermediaries and advisors. Financial professionals may access daily prices and historical performance of mutual funds; view market research, manager commentary, and sales ideas; and access literature and forms. For U.S. technical assistance, call 1-888-358-8490 or e-mail us at
[email protected]. For non-U.S. technical assistance, call +1 (410) 345 4400 or contact us via e-mail.
By signing up for paperless services, you may qualify for the account service fee waiver. Visit us at troweprice.com/feesandminimums to find out more.
1
66
T. Rowe Price Planning Tools and Services This page contains supplementary information that is not part of the shareholder report.
T. Rowe Price Retirement Services T. Rowe Price offers unique retirement services that can help you meet a broad variety of planning challenges. Our retirement tools are suitable for individuals, the self-employed, small businesses, corporations, and nonprofit organizations. For more information, call 1-800-IRA-5000 or visit our website at troweprice.com/retirement. INVESTMENT ACCOUNTS
Rollover IRAs. If you’ve changed jobs, experienced a job loss, or retired and are considering moving your assets into an IRA, call toll-free 1-800-IRA-5000. Our rollover specialists can explain your options, answer your questions, and help determine which option is right for you. Roth IRAs. A Roth IRA offers tax-free withdrawals and a flexible distribution schedule. Open your account at troweprice.com/ira or call 1-800-IRA-5000. Traditional IRAs. Traditional IRA contributions may be tax-deductible, with no taxes due until withdrawal. Open your account at troweprice.com/ira or call 1-800-IRA-5000. Small Business Retirement Plans. If you’re self-employed or run a small business or professional practice, T. Rowe Price can help you establish a cost-effective retirement plan that’s easy to set up and maintain. Call 1-800-638-3804, and our small business specialists can answer your questions, set up a plan, or open an account. INVESTMENT ADVICE
T. Rowe Price Advisory Planning Services offers a wide range of services that provide expert advice based on your individual needs and financial goals, including consultations with an advisory counselor. Please contact one of our specialists at 1-888-744-0270 to determine the most appropriate service to fit your needs.*
*Services offered by T. Rowe Price Advisory Services, Inc., a federally registered investment adviser. There may be costs associated with these services. 67
T. Rowe Price College Planning This page contains supplementary information that is not part of the shareholder report.
College Planning One of the most important things to do when it comes to saving for college is to just get started. Every dollar saved today is one less dollar you may have to borrow later. Our college planning information and college savings products can help you meet your educational investment goals. For more information, visit our website at troweprice.com/college, where you will find the College Savings Planner, an interactive tool that can help you determine how much you should save, estimate future tuition costs, and review college savings options. In a few easy steps, the calculator provides you with information and a plan of action. To speak with a college planning specialist, please call 1-800-638-5660. College Savings Plans (529 Plans). To help families prepare for college education costs, T. Rowe Price manages three 529 plans that are open to all U.S. residents. Any earnings on contributions are tax-deferred, and distributions are exempt from federal income taxes when used for qualified educational expenses. Also, these plans offer high contribution limits and affordable systematic investing. T. Rowe Price manages the T. Rowe Price College Savings Plan, a national 529 plan offered by the Education Trust of Alaska; the Maryland College Investment Plan; and the University of Alaska College Savings Plan. The Maryland College Investment Plan offers certain potential benefits for Maryland residents, and the University of Alaska College Savings Plan offers potential benefits for Alaska residents. Earnings on a distribution not used for qualified expenses may be subject to income taxes and a 10% federal penalty. Please note that the availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors, as applicable. Please visit our website or call 1-800-638-5660 to obtain the applicable plan disclosure document, which includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. Please consider, before investing, whether your or your beneficiary’s home state offers any state tax or other benefits that are only available for investments in that state’s plan. T. Rowe Price Investment Services, Inc., Distributor/Underwriter.
68
T. Rowe Price Charitable Giving This page contains supplementary information that is not part of the shareholder report.
The T. Rowe Price Program for Charitable Givingsm Simplify your giving. The Program for Charitable Giving is a donor-advised fund that provides a simple way to support your favorite charities while achieving attractive tax savings. The Program lets you do all your charitable giving through one convenient account. Our donor relations specialists take care of the administrative details, so you spend less time writing checks and keeping records. Lock in your charitable deduction now. You can establish a Program account with a minimum contribution of $10,000 or more. Your contributions are fully deductible (up to allowable IRS limits) in the tax year when they are made. Donation amounts above IRS limits can be carried over and deducted in future years. The Program makes it easy to contribute long-term appreciated securities. You simply transfer the securities in kind to your Program account. You can deduct the full market value and do not have to pay capital gains taxes. Recommend grants to support your favorite charities. Once your account is established, you have the flexibility to recommend grants to your favorite charities whenever you like—this year or in the future. The Program confirms that your charity qualifies for a grant and is in good standing with the IRS. Benefit from the investment expertise of T. Rowe Price. You advise how your account’s balance is invested among six professionally managed investment pools. This means your donations have the potential to grow over time and produce additional funds for your charities. Investment returns are net of the expenses of the underlying mutual funds. All investment pools are subject to market risk, including possible loss of principal. Save with low fees. The Program’s administrative fees are among the lowest in the industry, and there is no minimum annual fee. Since you also save with low investment management fees, there is the potential for more money to be available for your charities. It’s easy to start giving more efficiently with the Program. You can call a donor relations specialist at 1-800-690-0438 to learn more about the Program, receive printed information, or get help to open your Program account. You also will find everything you need to open an account online at ProgramForGiving.org. The T. Rowe Price Program for Charitable Giving is an independent, nonprofit corporation founded by T. Rowe Price to assist individuals and corporations with planning and managing their charitable giving. The Program has contracted with various T. Rowe Price companies to provide operational, recordkeeping, and investment management services to the Program. 69
T. Rowe Price Mutual Funds This page contains supplementary information that is not part of the shareholder report.
STOCK FUNDS
BOND FUNDS
Money MArket FUNDS (cont.)
Domestic Blue Chip Growth Capital Appreciation‡ Capital Opportunity Diversified Mid-Cap Growth Diversified Small-Cap Growth Dividend Growth Equity Income Equity Index 500 Extended Equity Market Index Financial Services Growth & Income Growth Stock Health Sciences‡ Media & Telecommunications Mid-Cap Growth‡ Mid-Cap Value‡ New America Growth New Era New Horizons‡ Real Estate Science & Technology Small-Cap Stock‡ Small-Cap Value Tax-Efficient Equity Total Equity Market Index U.S. Large-Cap Core Value
Domestic Taxable Corporate Income Credit Opportunities Floating Rate GNMA High Yield‡ Inflation Protected Bond Limited Duration Inflation Focused Bond New Income Short-Term Bond Ultra Short-Term Bond U.S. Bond Enhanced Index U.S. Treasury Intermediate U.S. Treasury Long-Term Domestic Tax-Free California Tax-Free Bond Georgia Tax-Free Bond Intermediate Tax-Free High Yield Maryland Short-Term Tax-Free Bond Maryland Tax-Free Bond New Jersey Tax-Free Bond New York Tax-Free Bond Summit Municipal Income Summit Municipal Intermediate Tax-Free High Yield Tax-Free Income Tax-Free Short-Intermediate Virginia Tax-Free Bond
Tax-Free California Tax-Free Money Maryland Tax-Free Money New York Tax-Free Money Summit Municipal Money Market Tax-Exempt Money
ASSET ALLOCATION FUNDS Balanced Global Allocation Personal Strategy Balanced Personal Strategy Growth Personal Strategy Income Real Assets Spectrum Growth Spectrum Income Spectrum International Target Date Fundsˆ
MONEY MARKET FUNDS Taxable Prime Reserve Summit Cash Reserves U.S. Treasury Money
INTERNATIONAL/GLOBAL FUNDS Stock Africa & Middle East Asia Opportunities Emerging Europe Emerging Markets Stock Emerging Markets Value Stock European Stock Global Growth Stock Global Industrials Global Real Estate Global Stock Global Technology International Concentrated Equity International Discovery International Equity Index International Growth & Income International Stock Japan Latin America New Asia Overseas Stock Bond Emerging Markets Bond Emerging Markets Corporate Bond Emerging Markets Local Currency Bond Global High Income Bond Global Multi-Sector Bond Global Unconstrained Bond International Bond
Call 1-800-225-5132 to request a prospectus or summary prospectus; each includes investment objectives, risks, fees, expenses, and other information that you should read and consider carefully before investing. Investments in the money market funds are not insured or guaranteed by the FDIC or any other government agency. Although the funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the funds. Closed to new investors except for a direct rollover from a retirement plan into a T. Rowe Price IRA invested in this fund. ˆThe Target Date Funds are inclusive of the Retirement Funds, the Target Retirement Funds, and the Retirement Balanced Fund. ‡
2015-US-17294
T. Rowe Price Investment Services, Inc. 100 East Pratt Street Baltimore, MD 21202
F194-051 1/16
