PRIPX TIIPX. Inflation Protected Bond Fund Inflation Protected Bond Fund I Class. SEMIANNual REPORT

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1 SEMIANNual REPORT November 30, 2017 PRIPX TIIPX T. Rowe Price Inflation Protected Bond Fund Inflation Protected Bond Fund I Class The fund invests in Treasury inflation protected securities for current income and capital appreciation that keeps pace with inflation over time.

2 HIGHLIGHTS U.S. Treasury inflation protected securities (TIPS) produced positive returns over the six-month period ended November 30, 2017, outperforming nominal Treasuries. Rising gas prices contributed to higher inflation readings near the end of the reporting period. The Inflation Protected Bond Fund performed roughly in line with the Bloomberg Barclays U.S. TIPS Index but trailed its Lipper peer group average in our six-month reporting period. The fund s yield curve positioning aided relative results during the period. We expect core inflation to firm in the coming months, although the Federal Reserve s plans to continue raising interest rates could put a cap on TIPS performance in the medium term. The views and opinions in this report were current as of November 30, 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 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.

3 Manager s Letter Fellow Shareholders U.S. Treasury inflation protected securities (TIPS) produced positive results over the six-month period ended November 30, 2017, and outperformed nominal Treasuries. Inflation was weaker than expected at the start of our reporting period but firmed up in September when the effects of Hurricane Harvey led to a spike in gasoline prices and ended a run of four months when headline inflation came in under 2% on an annualized basis. The real (inflation-adjusted) yields offered by 30-year TIPS were a bit lower at the end of the period, but the yields offered by shorter-maturity TIPS increased. Performance Comparison Six-Month Period Ended 11/30/17 Total Return Inflation Protected Bond Fund 0.17% Inflation Protected Bond Fund I Class 0.33 Bloomberg Barclays U.S. TIPS Index 0.25 Lipper Inflation Protected Bond Funds Average 0.36 Your fund returned 0.17% in the six-month period ended November 30, As shown in the Performance Comparison table, the Bloomberg Barclays U.S. TIPS Index and the fund s Lipper peer group average gained 0.25% and 0.36%, respectively. (The performance of the fund s I Class shares varies due to a different fee structure.) 1

4 What Rising Rates Mean for Bonds With the Federal Reserve expected to continue its measured approach to interest rate hikes, yields on U.S. Treasuries and other fixed income securities have slowly increased from the low levels of the recent past. We expect the Fed to pause after each increase in the federal funds rate and to carefully analyze incoming U.S. economic data to be sure that economic activity is strong enough to withstand further incremental moves toward normalization of monetary policy. The Fed s more gradual approach to interest rate increases than in previous cycles nonetheless brings the risk of rising rates to the forefront for bond investors. Higher interest rates weigh on the prices of most types of bonds. Importantly, investors also need to understand that not all bonds or bond funds respond uniformly in such an environment. In particular, the duration of a bond or bond fund, which is tied in part to its maturity, provides important information about how the asset will perform when rates change. Also, some bond sectors and bonds of varying quality are better insulated from rate changes and may even perform well as rates rise. A bond fund s duration (shown in the Portfolio Characteristics exhibit) is the most precise indicator of how the fund will respond to rising rates. If a bond fund has a duration of 5.3 years, for example, the fund s net asset value (NAV) would be expected to fall about 5.3% for every one-percentage-point rise in rates. Even this is only part of the picture, however rising rates will also generally mean higher dividends per share as the fund invests in new, higher-yielding bonds. As a result, the fund s total return (change in NAV plus dividend income) is unlikely to fall as steeply as the duration indicates. Generally, bond funds with a shorter weighted average maturity in other words, those with holdings that come due sooner have lower durations and should fare better than funds with longer average maturities when rates rise. This is because investors in the bonds will not be locked into lower yields, or coupon payments, for long. When the fund receives principal payments from maturing bonds, it can reinvest them at a higher yield. Indeed, for investors in a bond fund with a low duration and a low weighted average maturity, higher rates can mean an increase in income potential. Some fixed income sectors offer an added degree of protection from rising rates. Floating rate funds invest in bank loans where the interest rate on the loan is periodically reset, meaning that investors face very little interest rate risk. However, the bank loans usually have a credit profile that is below investment quality, which means these investments may have greater exposure to default risk than investment-grade bonds. Mortgage-backed securities typically fare better than other bonds of similar maturity when rates rise modestly, as fewer homeowners will refinance and pay off their loans early. In addition, lower-quality bonds with a price that is highly sensitive to the issuer s credit rating (shown in the Quality Diversification exhibit) may perform better as rates increase. Rising rates often accompany a strengthening economy, which can lead to credit upgrades for lower-rated issuers. Also, the higher yields offered by lower-quality bonds provide an additional cushion to total return if bond prices fall as interest rates increase. However, lower-quality bonds are generally exposed to greater credit risk than other bonds because the securities carry a higher risk of default. 2

5 4.0% Economy and Interest Rates Interest Rate Levels 10-Year Treasury Note 5-Year Treasury Note 90-Day Treasury Bill 11/30/16 2/17 5/17 8/17 11/30/17 Source: Federal Reserve Board. The U.S economy picked up after a sluggish first quarter, with gross domestic product increasing at an annualized rate of 3.1% and 3.2% in the second and third quarters, respectively. The labor market has been healthy, with the national unemployment rate reaching a 17-year low in October. The headline consumer price index (CPI) rose 2.2% for the 12-month period through November with gasoline prices up about 17% during that period. Core CPI, which excludes food and energy prices, rose 1.7% for the 12 months while average hourly earnings were up 2.5%. Citing the strengthening labor market and expectations that inflation would move higher over the medium Inflation term, the Federal Reserve raised short-term interest expectations were rates once during our reporting period its fourth rate hike since the end of 2015 lifting the federal funds little changed target rate to a range of 1.00% to 1.25%. In October, over the past the Fed began slowly unwinding its $4.5 trillion balance sheet, a legacy of its massive purchases of six months. Treasury bonds and mortgage-backed securities in the aftermath of the 2008 financial crisis. (On December 13, soon after our reporting period ended, the Fed raised its target rate another quarter percentage point.) 3

6 3.0% The nominal Treasury yield curve flattened during the six-month period as short-term yields rose more than longer maturities. The yield of the two-year Treasury note, which is more sensitive to expectations for Fed rate hikes, increased from 1.28% to 1.78% while the benchmark 10-year note s yield moved from 2.21% to 2.42%. Demand was stronger for the 30-year bond, and its yield modestly decreased. Since the beginning of our reporting period, the additional yield offered by the 10-year Treasury note compared with the two-year note has shrunk from 93 basis points to 64, its lowest level since Nominal Treasury yields reached their low point for the period in early September, as growing concerns about the potential for conflict on the Korean Peninsula led to increased demand for safe-haven securities. Lower core inflation numbers, which seemed to call into question the Fed s rate hike projections, also contributed to the lower yields. However, a pickup in inflation, the Trump administration s announcement of its tax reform proposal, and increasingly hawkish rhetoric from the Federal Reserve helped drive rates higher. Ten- and 30-year yields reached their period highs in late October, but the twoyear yield continued to 30-Year TIPS 10-Year TIPS advance, reaching its 5-Year TIPS highest point in more than nine years by the end of the period in anticipation of a Fed rate hike in December. Real Yields on TIPS 11/30/16 2/17 5/17 8/17 11/30/17 Sources: J.P. Morgan and the Federal Reserve Board. The real rate curve also flattened during the period. Real yields on 30-year TIPS finished November at 0.88%, slightly lower than where they were at the start of the six-month period. However, 2-, 5-, and 10-year TIPS real yields increased, with the two- and five-year yields moving into positive territory. 4

7 Portfolio Characteristics Periods Ended 5/31/17 11/30/17 Inflation Protected Bond Fund Share Price $11.93 $11.95 Dividends Per Share For 6 months For 12 months SEC Yield (30-day)* ab -0.18% 0.19% Inflation Protected Bond Fund I Class Share Price $11.95 $11.99 Dividends Per Share For 6 months For 12 months SEC Yield (30-day)* ac -0.08% 0.38% Weighted Average Maturity (years) Weighted Average Effective Duration (years) month dividends may not equal the combined 6-month figures due to rounding. * This yield has not been adjusted for inflation. Because inflation fluctuates, it cannot be projected into the future precisely enough to be included in the yield calculation. a Through September 30, 2019, T. Rowe Price Associates, Inc. (TRPA), has agreed to reduce the fund s annual investment management fee to 0.17%. Details are available in the fund s prospectus. b Through September 30, 2019, T. Rowe Price Associates, Inc. (TRPA), has agreed to waive its management fees or bear any expenses (excluding interest; expenses related to borrowings, taxes, and brokerage; nonrecurring, extraordinary expenses; and acquired fund fees and expenses) that would cause the class s ratio of expenses to average daily net assets to exceed 0.41%. Details are available in the fund s prospectus. c Through September 30, 2018, TRPA has agreed to pay the operating expenses of the fund s I Class, excluding management fees; interest; expenses related to borrowings, taxes, and brokerage; nonrecurring, extraordinary expenses; and acquired fund fees and expenses (I Class operating expenses) to the extent the I Class operating expenses exceed a certain portion of the class s average daily net assets. Details are available in the fund s prospectus. Inflation expectations were little changed over the past six months. As of November 30, 2017, the difference between a 10-year TIPS yielding 0.56% and a conventional 10-year Treasury note yielding 2.42% was 186 basis points versus 181 basis points six months ago, and the difference between a five-year TIPS yielding 0.34% and a conventional five-year Treasury note yielding 2.14% was 180 basis points versus 175 basis points six months ago. These arithmetic differences (also called the break-even rate) are quick proxies of the market s inflation expectations over the respective periods. When actual inflation runs higher than what is priced in the market or inflation expectations move higher, TIPS have the potential to deliver a higher return than comparable Treasuries. Portfolio Review Interest rate management contributed to the fund s relative results during the period. The fund s average duration a measure of its 5

8 Quality Diversification BBB 4% A 1% AA 1% AAA 3% Based on net assets as of 11/30/17. *U.S. Treasury securities are issued by the U.S. Treasury and are backed by the full faith and credit of the U.S. government. The ratings of U.S Treasury securities are derived from the ratings on the U.S. government. Sources: Moody s Investors Service; if Moody s does not rate a security, then Standard & Poor s (S&P) is used as a secondary source. When available, T. Rowe Price will use Fitch for securities that are not rated by Moody s or S&P. T. Rowe Price does not evaluate these ratings but simply assigns them to the appropriate credit quality category as determined by the rating agency. Securities that have not been rated by any rating agency totaled 0.03% of the portfolio at the end of the reporting period. 6 BB 1% U.S. Treasury Securities* 90% interest rate sensitivity was shorter than that of the benchmark, which was beneficial as yields generally rose. We were also well positioned for the flattening of the yield curve that occurred during the period. Specifically, our underweight in the five-year portion of the curve added value as these securities underperformed longer-maturity TIPS. The fund s duration shortened over the six months from 6.3 years to 5.8 years, which we think is appropriate given the prospects for continued Fed rate hikes. The fund s out-ofbenchmark positioning in mortgage- and asset-backed securities generated modest gains, while our holdings in investment-grade corporate bonds and commercial mortgage-backed securities produced generally flat results. These out-of-benchmark Security Diversification Mortgage- Backed Securities 3% Corporate Securities 4% Based on net assets as of 11/30/17. Asset- Backed Securities 2% Other and Reserves 1% Treasury Inflation Protected Securities 90% sectors provide additional income and can help our performance in low inflation environments. Our TIPS holdings decreased during the period as we added to non-benchmark sectors, but the fund also uses inflationrelated derivatives to maintain our exposure to a potential pickup in inflation.

9 Outlook We believe that inflation has bottomed and is likely to pick up in the coming months, although Fed policy could be a headwind. Core services, which are more dependent on labor costs than other CPI sectors, could see increasing price pressure from the tightening employment market, while a weaker U.S. dollar will contribute to higher prices of imported goods. As a result, core inflation seems poised to rise to 2% by the second quarter of 2018 from the 1.7% level where it has been trending in recent months, and this would also support higher headline CPI. However, the Federal Reserve has indicated that it is more focused on the tightening labor market and easy financial conditions than it is on allowing inflation to reach the central bank s 2% target. Thus, the Fed will likely serve as a cap on TIPS performance in the medium term by continuing to raise short-term interest rates. The median rate projections that the Fed released at its December meeting indicated that it intends to hike rates three times in 2018, raising the fed funds target another 0.75 percentage point, which should tamp down nascent inflation. While the short-term TIPS outlook may be mixed, investors should remember that an investment in TIPS can help preserve real value in their portfolios over longer time periods even low inflation can eat into purchasing power. We will remain disciplined in our investment approach and use the firm s broad credit research capabilities to enhance the risk profile of the fund. Thank you for investing with T. Rowe Price. Respectfully submitted, Steve Bartolini Chairman of the fund s Investment Advisory Committee December 20, 2017 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

10 Risks of Investing in the Fund Bonds are subject to interest rate risk, the decline in bond prices that usually accompanies a rise in interest rates, and credit risk, the chance that any fund holding could have its credit rating downgraded or that a bond issuer will default (fail to make timely payments of interest or principal), potentially reducing the fund s income level and share price. During periods of extremely low or negative interest rates, the fund may not be able to maintain a positive yield or yields on par with historical levels. However, because most of the fund s holdings typically have an inflation adjustment feature, the fund should have less overall interest rate risk (but also a lower yield) than a traditional bond fund with a similar weighted average maturity. When inflation is negative or concerns over inflation are low, the value and income of the fund s investments in inflation-linked securities could fall and result in losses for the fund. During some extreme environments, the quoted yield to maturity on an inflationlinked security may be negative. This may reflect that the rate of inflation is anticipated to be higher than the quoted yield to maturity of the bond or that market participants are willing to pay a premium to receive inflation protection. The fund s investments in foreign securities may be adversely affected by political, social, and economic conditions overseas; reduced liquidity; or decreases in foreign currency values relative to the U.S. dollar. Glossary Asset-backed securities: Bonds whose payments are backed by a pool of receivables or other financial assets. Basis point: One one-hundredth of a percentage point, or 0.01%. Bloomberg Barclays U.S. TIPS Index: An unmanaged index that consists of inflation protected securities issued by the U.S. Treasury. Commercial mortgage-backed securities: Bonds backed by loans on commercial rather than residential properties. Consumer price index (CPI): A measure of the average change over time in the prices paid by urban consumers for a representative basket of goods and services. Duration: A measure of a bond fund s sensitivity to changes in interest rates. For example, a fund with a five-year duration would fall about 5% in response to a one-percentagepoint rise in interest rates, and vice versa. 8

11 Glossary (continued) Federal funds rate (or target rate): The interest rate charged on overnight loans of reserves by one financial institution to another in the United States. The Federal Reserve sets a target federal funds rate to affect the direction of interest rates. Gross domestic product: The total market value of all goods and services produced in a country in a given year. Lipper average: The averages of available mutual fund performance returns for specified time periods in categories defined by Lipper Inc. Mortgage-backed securities (MBS): Bonds backed by loans on residential properties. Nominal interest rate: The stated rate of interest offered by a fixed income security. Real interest rate (or yield): The excess of the current interest rate over the current inflation rate. 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. Treasury inflation protected securities (TIPS): Income-generating bonds that are issued by the federal government and whose interest and principal payments are adjusted for inflation. The inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation index, such as the consumer price index. 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. Money funds must maintain a weighted average maturity of less than 60 days. Yield curve: A graphic depiction of the relationship between yields and maturity dates for a set of similar securities. A security with a longer maturity usually has a higher yield. If a short-term security offers a higher yield, then the curve is said to be inverted. If shortand long-term bonds are offering equivalent yields, then the curve is said to be flat. Note: Bloomberg Index Services Ltd. Copyright 2017, Bloomberg Index Services Ltd. Used with permission. 9

12 Performance and Expenses Growth of $10,000 This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include 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. INFLATION PROTECTED BOND FUND $30,000 26,000 22,000 18,000 14,000 10,000 As of 11/30/17 Inflation Protected Bond Fund $13,405 Bloomberg Barclays U.S. TIPS Index $13,994 Lipper Inflation Protected Bond Funds Average $12,940 11/07 11/08 11/09 11/10 11/11 11/12 11/13 11/14 11/15 11/16 11/17 Note: Performance for the I Class will vary due to its differing fee structure. See returns table below. Average Annual Compound Total Return Since Inception Periods Ended 11/30/17 1 Year 5 Years 10 Years Inception Date Inflation Protected Bond Fund 1.61% -0.53% 2.97% Inflation Protected Bond Fund I Class % 12/17/15 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. 10

13 Fund Expense Example As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, such as redemption fees or sales loads, and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other 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 I Class shares are also available to institutionally oriented clients and impose no 12b-1 or administrative fee payment. 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 Personal Services or Enhanced Personal Services client (enrollment in these programs generally requires T. Rowe Price assets of at least $250,000). 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. 11

14 Fund Expense Example (continued) Inflation Protected Bond Fund Beginning Ending Expenses Paid Account Value Account Value During Period* 6/1/17 11/30/17 6/1/17 to 11/30/17 Investor Class Actual $1, $1, $2.21 Hypothetical (assumes 5% return before expenses) 1, , I Class Actual 1, , Hypothetical (assumes 5% return before expenses) 1, , * 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 (365) to reflect the half-year period. The annualized expense ratio of the Investor Class was 0.44%, and the I Class was 0.28%. Prior to August 1, 2017, the annual investment management fee for the fund was 0.34% and the expense limitation for the Investor Class was 0.50%. Effective August 1, 2017, Price Associates agreed to reduce the fund s management fee to 0.17% and the expense limitation for the Investor Class to 0.41%. For the Investor Class, the actual ending account value and expenses paid during the period would have been $1, and $2.06, and the hypothetical ending account value and expenses paid during the period would have been $1, and $2.08, respectively, had the fund s reduced management fee and expense limitation been in effect throughout the full 6-month period. For the I Class, the actual ending account value and expenses paid during the period would have been $1, and $1.10, and the hypothetical ending account value and expenses paid during the period would have been $1, and $1.12, respectively, had the fund s reduced management fee been in effect throughout the full 6-month period. 12

15 Quarter-End Returns Since Inception Periods Ended 9/30/17 1 Year 5 Years 10 Years Inception Date Inflation Protected Bond Fund -1.54% -0.38% 3.47% Inflation Protected Bond Fund I Class % 12/17/15 Current performance may be higher or lower than the quoted past performance, which 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 visit our website (troweprice.com) or contact a T. Rowe Price representative at or, for I Class shares, 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. Expense Ratio Inflation Protected Bond Fund 0.58% Inflation Protected Bond Fund I Class 0.43 The expense ratio shown is as of the fund s fiscal year ended 5/31/17. 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. 13

16 Unaudited Financial Highlights For a share outstanding throughout each period Investor Class 6 Months Ended 11/30/17 Year Ended 5/31/17 5/31/16 5/31/15 5/31/14 5/31/13 NET ASSET VALUE Beginning of period $ $ $ $ $ $ Investment activities Net investment income (1) 0.13 (2)(3) 0.23 (3) 0.10 (3) 0.07 (3) 0.24 (3) 0.23 (3) Net realized and unrealized gain / loss (0.11) (0.03) (0.01) (0.17) (0.29) (0.45) Total from investment activities (0.10) (0.05) (0.22) Distributions Net investment income (0.01) (4) (0.09) (0.07) Net realized gain (0.15) (0.20) (0.51) (0.23) (0.22) Total distributions (0.15) (0.21) (0.51) (0.32) (0.29) NET ASSET VALUE End of period $ $ $ $ $ $

17 Unaudited Financial Highlights For a share outstanding throughout each period Ratios/Supplemental Data Total return (5) 0.17% (2)(3) 1.70% (3) 0.78% (3) (0.71)% (3) (0.29)% (3) (1.75)% (3) Ratio of total expenses to average net assets 0.44% (2)(3)(6) 0.50% (3) 0.50% (3) 0.50% (3) 0.50% (3) 0.50% (3) Ratio of net investment income to average net assets 2.19% (2)(3)(6) 1.97% (3) 0.87% (3) 0.57% (3) 1.97% (3) 1.67% (3) Portfolio turnover rate 64.3% 179.8% 102.2% 178.2% 28.5% 15.3% Net assets, end of period (in thousands) $ 412,962 $ 440,277 $ 364,680 $ 376,865 $ 348,306 $ 495,496 (1) Per share amounts calculated using average shares outstanding method. (2) See Note 6. Excludes expenses in excess of a 0.41% contractual expense limitation in effect through 9/30/19. (3) See Note 6. Excludes expenses in excess of a 0.50% contractual expense limitation in effect through 7/31/17. (4) Amounts round to less than $0.01 per share. (5) 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. Total return is not annualized for periods less than one year. (6) Annualized The accompanying notes are an integral part of these financial statements. 15

18 Unaudited Financial Highlights For a share outstanding throughout each period I Class 6 Months Ended 11/30/17 Year 12/17/15 (1) Ended Through 5/31/17 5/31/16 NET ASSET VALUE Beginning of period $ $ $ Investment activities Net investment income (2) 0.14 (3) 0.22 (3) 0.06 (3) Net realized and unrealized gain / loss (0.10) (0.01) 0.36 (4) Total from investment activities Distributions Net investment income (0.01) Net realized gain (0.15) Total distributions (0.15) (0.01) NET ASSET VALUE End of period $ $ $ Ratios/Supplemental Data Total return (5) 0.33% (3) 1.78% (3) 3.67% (3) Ratio of total expenses to average net assets 0.28% (3)(6) 0.39% (3) 0.39% (3)(6) Ratio of net investment income to average net assets 2.40% (3)(6) 1.87% (3) 1.05% (3)(6) Portfolio turnover rate 64.3% 179.8% 102.2% Net assets, end of period (in thousands) $ 57,213 $ 50,342 $ 492 (1) Inception date (2) Per share amounts calculated using average shares outstanding method. (3) See Note 6. Excludes expenses in excess of a 0.05% contractual operating expense limitation in effect through 9/30/18. (4) The amount presented is inconsistent with the fund s aggregate gains and losses because of the timing of sales and redemptions of fund shares in relation to fluctuating market values for the investment portfolio. (5) 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. Total return is not annualized for periods less than one year. (6) Annualized The accompanying notes are an integral part of these financial statements. 16

19 Unaudited November 30, 2017 Portfolio of Investments Par/Shares $ Value (Amounts in 000s) CORPORATE BONDS 4.3% FINANCIAL INSTITUTIONS 1.4% Banking 1.2% Bank of America, 5.65%, 5/1/18 1,460 1,483 Bank of America, VR, 3M USD LIBOR %, 1.971%, 10/1/ Barclays Bank, 6.05%, 12/4/17 (1) Capital One, 2.35%, 8/17/ Discover Bank, 3.10%, 6/4/ First Niagara Finance, 7.25%, 12/15/ Goldman Sachs, 2.30%, 12/13/ Intesa Sanpaolo, 3.875%, 1/15/ Sumitomo Mitsui Trust Bank, 1.95%, 9/19/19 (1) Finance Companies 0.2% 5,598 AerCap Ireland, 3.75%, 5/15/ GATX, 2.375%, 7/30/ GATX, 2.50%, 3/15/ Total Financial Institutions 6,546 INDUSTRIAL 2.8% Basic Industry 0.1% LyondellBasell, 5.00%, 4/15/ Capital Goods 0.3% CSCEC Finance, 2.95%, 11/19/ Harris, 1.999%, 4/27/ Martin Marietta Material, VR, 3M USD LIBOR % 2.096%, 5/22/

20 (Amounts in 000s) Par/Shares $ Value Roper Industries, 2.05%, 10/1/ ,428 Communications 0.8% BellSouth, STEP, 4.285%, 4/26/21 (1) 1,670 1,687 Charter Communications Operating, 3.579%, 7/23/20 1,130 1,150 Crown Castle Towers, 6.113%, 1/15/40 (1) Discovery Communications, 2.20%, 9/20/ Time Warner Cable, 6.75%, 7/1/ ,654 Consumer Cyclical 0.2% D.R. Horton, 2.55%, 12/1/ Hyundai Capital America, 2.40%, 10/30/18 (1) ,124 Consumer Non-Cyclical 0.7% Actavis Funding, 3.00%, 3/12/ Agilent Technologies, 5.00%, 7/15/ Becton Dickinson, 2.404%, 6/5/ Imperial Tobacco Finance, 2.05%, 2/11/18 (1) Tyson Foods, 2.25%, 8/23/ ,417 Energy 0.1% Panhandle Eastern Pipeline, 7.00%, 6/15/ Reliance Holdings USA, 4.50%, 10/19/ Technology 0.5% Baidu, 2.75%, 6/9/19 1,180 1,189 Broadcom, 2.20%, 1/15/21 (1)

21 (Amounts in 000s) Par/Shares $ Value HP Enterprise, 2.10%, 10/4/19 (1) Transportation 0.1% 2,339 Penske Truck Leasing, 2.875%, 7/17/18 (1) Total Industrial 12,873 UTILITY 0.1% Electric 0.1% Dominion Resources, STEP, 2.962%, 7/1/ Origin Energy Finance, 3.50%, 10/9/18 (1) Total Utility 640 Total Corporate Bonds (Cost $20,105) 20,059 ASSET-BACKED SECURITIES 1.8% Car Loan 0.7% AmeriCredit Automobile Receivables Trust Series , Class D 2.57%, 7/8/ AmeriCredit Automobile Receivables Trust Series , Class C 2.24%, 4/8/ Avis Budget Rental Car Funding Series A, Class A 1.92%, 9/20/19 (1) General Motors Financial Auto Lease Series , Class B 1.97%, 5/20/ General Motors Financial Auto Lease Series , Class C 2.73%, 9/20/

22 (Amounts in 000s) Par/Shares $ Value General Motors Floorplan Owner Revolving Trust Series , Class B 2.41%, 5/17/21 (1) General Motors Floorplan Owner Revolving Trust Series , Class B 2.44%, 7/15/22 (1) General Motors Floorplan Owner Revolving Trust Series , Class C 2.63%, 7/15/22 (1) Hyundai Auto Receivables Trust Series 2016-B, Class D 2.68%, 9/15/ Other Asset-Backed Securities 1.0% 3,234 ALM Loan Funding Series A, Class A2R, CLO, VR 3M USD LIBOR+ 1.55%, 2.928%, 7/28/26 (1) Elara HGV Timeshare Issuer Series 2014-A, Class A 2.53%, 2/25/27 (1) Halcyon Loan Advisors Funding Series A, Class B1R, CLO, VR 3M USD LIBOR+ 1.70%, 3.063%, 10/22/25 (1) Hilton Grand Vacation Trust Series 2014-AA, Class A 1.77%, 11/25/26 (1) Jimmy John's Funding Series A, Class A2I 3.61%, 7/30/47 (1) KKR Financial Series 2012, Class A1R, CLO, VR 3M USD LIBOR+ 1.05%, 2.409%, 7/15/27 (1) 1,200 1,202 Marriott Vacation Club Owner Trust Series A, Class A 2.25%, 9/22/31 (1)

23 (Amounts in 000s) Par/Shares $ Value Marriott Vacation Club Owner Trust Series A, Class A 2.42%, 12/20/34 (1) Neuberger Berman Series A, Class A1R, CLO, VR 3M USD LIBOR+ 1.05%, 2.409%, 7/15/27 (1) Neuberger Berman Series A, Class A2R, CLO, VR 3M USD LIBOR+ 1.55%, 2.909%, 7/15/27 (1) Sierra Receivables Funding Series A, Class A 2.33%, 7/20/33 (1) Wendy's Funding Series A, Class A2I 3.371%, 6/15/45 (1) Student Loan 0.1% 4,503 SLM Student Loan Trust Series , Class A4, VR 3M USD LIBOR+ 1.65%, 3.017%, 7/25/ SLM Student Loan Trust Series , Class A, VR 3M USD LIBOR+ 1.50%, 2.867%, 4/25/ Total Asset-Backed Securities (Cost $8,395) 8,383 NON-U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 3.1% Collateralized Mortgage Obligations 2.5% Bayview Opportunity Master Fund Series 2017-RT3, Class A, CMO, ARM 3.50%, 1/28/58 (1) 1,519 1,554 Bayview Opportunity Master Fund Series 2017-SPL4, Class A, CMO, ARM 3.50%, 1/28/55 (1)

24 (Amounts in 000s) Par/Shares $ Value Colt Funding Series , Class A1A, CMO, ARM 2.415%, 10/25/47 (1) 1,138 1,140 Colt Funding Series , Class A2A, CMO, ARM 2.568%, 10/25/47 (1) Colt Funding Series , Class A3A, CMO, ARM 2.773%, 10/25/47 (1) Connecticut Avenue Securites Series 2016-C02, Class 1M1, CMO, ARM 1M USD LIBOR+ 2.15%, 3.479%, 9/25/ Connecticut Avenue Securites Series 2016-C04, Class 1M1, CMO, ARM 1M USD LIBOR+ 1.45%, 2.779%, 1/25/ Connecticut Avenue Securites Series 2016-C05, Class 2M1, CMO, ARM 1M USD LIBOR+ 1.35%, 2.679%, 1/25/ Connecticut Avenue Securites Series 2016-C07, Class 2M1, CMO, ARM 1M USD LIBOR+ 1.30%, 2.629%, 5/25/ Deephaven Residential Mortgage Trust Series A, Class A1, CMO, ARM 2.577%, 10/25/47 (1) Deephaven Residential Mortgage Trust Series A, Class A2, CMO, ARM 2.711%, 10/25/47 (1) Deephaven Residential Mortgage Trust Series A, Class A3, CMO, ARM 2.813%, 10/25/47 (1) Freddie Mac Whole Loan Securities Series 2017-SPI1, Class M1, CMO, ARM 3.993%, 9/25/47 (1) Goldman Sachs Mortgage-Backed Securities Trust Series 2014-EB1A, Class 2A1, CMO, ARM 2.47%, 7/25/44 (1)

25 (Amounts in 000s) Par/Shares $ Value Metlife Securitization Trust Series A, Class A, CMO, ARM 3.00%, 4/25/55 (1) Mill City Mortgage Trust Series , Class A1, CMO, ARM 2.50%, 4/25/57 (1) Mill City Mortgage Trust Series , Class A1, CMO, ARM 2.75%, 7/25/59 (1) Structured Agency Credit Risk Debt Notes Series 2015-HQA1, Class M2, CMO, ARM 1M USD LIBOR+ 2.65%, 3.979%, 3/25/ Structured Agency Credit Risk Debt Notes Series 2016-HQA1, Class M1, CMO, ARM 1M USD LIBOR+ 1.75%, 3.079%, 9/25/ Structured Agency Credit Risk Debt Notes Series 2017-HQA3, Class M1, CMO, ARM 1M USD LIBOR+ 0.55%, 1.879%, 4/25/ Towd Point Mortgage Trust Series , Class A1B, CMO, ARM 2.75%, 4/25/55 (1) Towd Point Mortgage Trust Series , Class A1B, CMO, ARM 2.75%, 2/25/55 (1) Towd Point Mortgage Trust Series , Class A3B, CMO, ARM 3.00%, 2/25/55 (1) Towd Point Mortgage Trust Series , Class A1A, CMO, ARM 2.75%, 8/25/55 (1) Towd Point Mortgage Trust Series , Class A1, CMO, ARM 2.25%, 4/25/56 (1) Towd Point Mortgage Trust Series , Class A1, CMO, ARM 2.25%, 7/25/56 (1)

26 (Amounts in 000s) Par/Shares $ Value Towd Point Mortgage Trust Series , Class A1, CMO, ARM 2.75%, 10/25/56 (1) Towd Point Mortgage Trust Series , Class A1, CMO, ARM 2.75%, 6/25/57 (1) 1,360 1,358 Commercial Mortgage-Backed Securities 0.6% 11,594 BX Trust Series 2017-IMC, Class B, ARM 1M USD LIBOR+ 1.40%, 2.639%, 10/15/32 (1) 1,120 1,120 BX Trust Series 2017-IMC, Class D, ARM 1M USD LIBOR+ 2.25%, 3.489%, 10/15/32 (1) Citigroup Commercial Mortgage Trust Series 2014-GC25, Class A %, 10/10/ CLNS Trust Series 2017-IKPR, Class A, ARM 1M USD LIBOR+ 0.80%, 2.045%, 6/11/32 (1) Great Wolf Trust Series 2017-WOLF, Class A, ARM 1M USD LIBOR+ 0.85%, 2.093%, 9/15/34 (1) WF-RBS Commercial Mortgage Trust Series 2014-C23, Class A %, 10/15/ Home Equity 0.0% 3,128 Nationstar Home Equity Loan Trust Series A, Class A, ARM 2.239%, 6/25/26 (1)

27 (Amounts in 000s) Par/Shares $ Value Nationstar Home Equity Loan Trust Series A, Class A 2.013%, 8/25/26 (1) Total Non-U.S. Government Mortgage-Backed Securities (Cost $14,877) 14,859 U.S. GOVERNMENT AGENCY OBLIGATIONS (EXCLUDING MORTGAGE-BACKED) 89.9% U.S. Treasury Obligations 89.9% U.S. Treasury Inflation-Indexed Bonds, 0.625%, 2/15/43 19,208 18,118 U.S. Treasury Inflation-Indexed Bonds, 0.75%, 2/15/42 13,694 13,352 U.S. Treasury Inflation-Indexed Bonds, 0.75%, 2/15/45 1,631 1,574 U.S. Treasury Inflation-Indexed Bonds, 0.875%, 2/15/47 4,544 4,536 U.S. Treasury Inflation-Indexed Bonds, 1.00%, 2/15/46 4,999 5,135 U.S. Treasury Inflation-Indexed Bonds, 1.375%, 2/15/44 3,373 3,758 U.S. Treasury Inflation-Indexed Bonds, 1.75%, 1/15/28 6,473 7,194 U.S. Treasury Inflation-Indexed Bonds, 2.125%, 2/15/40 (2) 3,893 4,926 U.S. Treasury Inflation-Indexed Bonds, 2.125%, 2/15/41 6,525 8,305 U.S. Treasury Inflation-Indexed Bonds, 2.50%, 1/15/29 11,166 13,368 U.S. Treasury Inflation-Indexed Bonds, 3.375%, 4/15/32 3,083 4,201 U.S. Treasury Inflation-Indexed Bonds, 3.875%, 4/15/ U.S. Treasury Inflation-Indexed Notes, 0.125%, 4/15/21 40,342 40,058 U.S. Treasury Inflation-Indexed Notes, 0.125%, 1/15/22 42,341 42,063 U.S. Treasury Inflation-Indexed Notes, 0.125%, 4/15/22 28,130 27,862 U.S. Treasury Inflation-Indexed Notes, 0.125%, 1/15/23 4,491 4,436 U.S. Treasury Inflation-Indexed Notes, 0.125%, 7/15/24 32,031 31,470 U.S. Treasury Inflation-Indexed Notes, 0.125%, 7/15/26 15,653 15,132 U.S. Treasury Inflation-Indexed Notes, 0.375%, 7/15/23 15,385 15,127 U.S. Treasury Inflation-Indexed Notes, 0.375%, 7/15/25 37,936 37,681 U.S. Treasury Inflation-Indexed Notes, 0.375%, 1/15/27 32,356 31,

28 (Amounts in 000s) Par/Shares $ Value U.S. Treasury Inflation-Indexed Notes, 0.375%, 7/15/27 15,058 15,098 U.S. Treasury Inflation-Indexed Notes, 0.625%, 1/15/24 40,096 40,609 U.S. Treasury Inflation-Indexed Notes, 0.625%, 1/15/26 24,848 25,019 U.S. Treasury Inflation-Indexed Notes, 1.125%, 1/15/21 10,717 11,020 Total U.S. Government Agency Obligations (Excluding Mortgage-Backed) (Cost $423,777) 422,696 FOREIGN GOVERNMENT OBLIGATIONS & MUNICIPALITIES 0.3% Owned No Guarantee 0.3% CNOOC Finance 2011, 4.25%, 1/26/ KazMunaiGaz Finance, 9.125%, 7/2/ Total Foreign Government Obligations & Municipalities (Cost $1,465) 1,460 SHORT-TERM INVESTMENTS 0.6% Money Market Funds 0.6% T. Rowe Price Treasury Reserve Fund, 1.12% (3)(4) 2,795 2,795 Total Short-Term Investments (Cost $2,795) 2,795 Total Investments in Securities 100.0% of Net Assets (Cost $471,414) $ 470,252 Par/Shares are denominated in U.S. dollars unless otherwise noted. (1) 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 $24,404 and represents 5.2% of net assets. (2) At November 30, 2017, all or a portion of this security is pledged as collateral and/or margin deposit to cover future funding obligations. (3) Seven-day yield (4) Affiliated Company 1M USD LIBOR One month USD LIBOR (London Interbank Offered Rate) 3M USD LIBOR Three month USD LIBOR (London Interbank Offered Rate) 26

29 ARM Adjustable Rate Mortgage; rate shown is effective rate at period-end. The rates for certain ARMs are not based on a published reference rate and spread but may be determined using a formula based on the rates of the underlying loans. CLO Collateralized Loan Obligation CMO Collateralized Mortgage Obligation CPI Consumer Price Index STEP Stepped coupon bond for which the coupon rate of interest adjusts on specified date(s); rate shown is effective rate at period-end. VR Variable Rate; rate shown is effective rate at period-end. The rates for certain variable rate securities are not based on a published reference rate and spread but are determined by the issuer or agent and based on current market conditions. 27

30 (Amounts in 000s) SWAPS 0.0% Description BILATERAL SWAPS 0.0% Zero-Coupon Inflation Swaps 0.0% Notional Amount Upfront Payments/ Value (Receipts) Unrealized Gain (Loss) Bank of America, 2 Year Zero-Coupon Inflation Swap, Pay Fixed 2.11%, Receive variable change in CPI, 9/29/19 2,400$ 4$ 0$ 4 Bank of America, 2 Year Zero-Coupon Inflation Swap, Pay Fixed, 2.09%, Receive variable change in CPI, 10/13/19 2, Bank of America, 2 Year Zero-Coupon Inflation Swap, Pay Fixed 1.88%, Receive variable change in CPI, 8/10/ Bank of America, 2 Year Zero-Coupon Inflation Swap, Pay Fixed 1.90%, Receive variable change in CPI, 8/14/19 2, Bank of America, 2 Year Zero-Coupon Inflation Swap, Pay Fixed 1.89%, Receive variable change in CPI, 8/11/19 1, Bank of America, 5 Year Zero-Coupon Inflation Swap, Pay Fixed 2.07%, Receive variable change in CPI, 11/15/22 11,700 0 Bank of America, 5 Year Zero-Coupon Inflation Swap, Pay Fixed 2.08%, Receive variable change in CPI, 10/12/22 7, Barclays Capital, 2 Year Zero-Coupon Inflation Swap, Pay Fixed 1.94%, Receive variable change in CPI, 9/15/19 2, Barclays Capital, 2 Year Zero-Coupon Inflation Swap, Pay Fixed 2.07%, Receive variable change in CPI, 10/10/19 4,

31 (Amounts in 000s) Description Notional Amount Upfront Payments/ Value (Receipts) Unrealized Gain (Loss) Barclays Capital, 2 Year Zero-Coupon Inflation Swap, Pay Fixed 1.85%, Receive variable change in CPI, 8/4/19 9, Societe Generale, 2 Year Zero-Coupon Inflation Swap, Pay Fixed, 2.01%, Receive variable change in CPI, 9/18/19 4, Total Bilateral Zero-Coupon Inflations Swaps Total Bilateral Swaps $ 0$

32 Futures Contracts ($000s) Expiration Date Notional Amount Value and Unrealized Gain/(Loss) Long, 21 U.S. Treasury Bonds 30 year contracts 3/18 $ 3,186 $ (30) Short, 91 U.S. Treasury Bonds 30 year contracts 3/18 (13,806) 130 Short, 413 U.S. Treasury Notes five year contracts 3/18 (48,050) 145 Long, 23 U.S. Treasury Notes ten year contracts 3/18 2,853 (16) Short, 44 U.S. Treasury Notes ten year contracts 3/18 (5,458) 29 Long, 184 U.S. Treasury Notes two year contracts 3/18 39,451 (23) Long, 48 Ultra U.S. Treasury Bonds contracts 3/18 7,914 (98) Short, 55 Ultra U.S. Treasury Notes ten year contracts 3/18 (7,324) 46 Net payments (receipts) of variation margin to date (43) Variation margin receivable (payable) on open futures contracts $

33 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 that is under common ownership or control. The following securities were considered affiliated companies for all or some portion of the six months ended November 30, Net realized gain (loss), investment income, change in net unrealized gain/loss, and purchase and sales cost reflect all activity for the period then ended. Net Realized Gain (Loss) Change in Net Unrealized Gain/Loss Investment Income Affiliate T. Rowe Price Short-Term Fund $ $ $ ++ T. Rowe Price Treasury Reserve Fund 10 Totals $ # $ $ 10+ Supplementary Investment Schedule Value Affiliate 5/31/17 Purchase Cost Sales Cost Value 11/30/17 T. Rowe Price Short-Term Fund $ $ T. Rowe Price Treasury Reserve Fund $ 2,466 $ 2,795 $ 2,795^ # Capital gain/loss distributions from mutual funds represented $0 of the net realized gain (loss). ++ Excludes earning on securities lending collateral, which are subject to rebates and fees as described in Note 4. + Investment income comprised $10 of dividend income and $0 of interest income. Purchase and sale information not shown for cash management funds. ^ The cost basis of investments in affiliated companies was $2,795. The accompanying notes are an integral part of these financial statements. 31

34 Unaudited November 30, 2017 Statement of Assets and Liabilities ($000s, except shares and per share amounts) Assets Investments in securities, at value (cost $471,414) $ 470,252 Receivable for shares sold 1,805 Interest receivable 973 Cash 391 Variation margin receivable on futures contracts 140 Unrealized gain on bilateral swaps 126 Other assets 44 Total assets 473,731 Liabilities Payable for investment securities purchased 2,915 Payable for shares redeemed 482 Investment management fees payable 66 Due to affiliates 49 Other liabilities 44 Total liabilities 3,556 NET ASSETS $ 470,175 Net Assets Consist of: Undistributed net investment income $ 5,291 Accumulated undistributed net realized loss (1,182) Net unrealized loss (853) Paid-in capital applicable to 39,316,479 shares of $ par value capital stock outstanding; 1,000,000,000 shares authorized 466,919 NET ASSETS $ 470,175 NET ASSET VALUE PER SHARE Investor Class ($412,962,126 / 34,543,475 shares outstanding) $ I Class ($57,213,235 / 4,773,004 shares outstanding) $ The accompanying notes are an integral part of these financial statements. 32