Corporate Income Fund Corporate Income Fund I Class

Transcription

1 SEMIANNual REPORT November 30, 2017 PRPIX TICCX T. Rowe Price Corporate Income Fund Corporate Income Fund I Class The fund invests in longer-maturity corporate bonds at home and abroad for high current income and some capital growth.

2 HIGHLIGHTS Stronger corporate earnings, synchronized global growth, and positive momentum for corporate tax reform helped support demand for investment-grade corporate bonds. The Corporate Income Fund outperformed its benchmark index and its Lipper peer group average during the six-month period ended November 30, Our strong security selection boosted results, with bonds in the energy, insurance, and banking industries contributing the most to relative returns during the period. While there will likely be headwinds for investment-grade corporate bonds in 2018, the fundamental backdrop remains supportive, especially as corporate earnings remain strong and continue to improve. 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 Stronger corporate earnings, synchronized global growth, and positive momentum for corporate tax reform helped support demand for investment-grade corporate bonds during the six-month reporting period. Against this backdrop, we increased our exposure to higher-yielding segments of the markets, in particular, adding holdings in the energy sector. Your fund benefited from those security-selection decisions and outperformed its benchmark. PERFORMANCE During the six-month period ended November 30, 2017, the fund returned 1.95%, compared with 1.91% for the Bloomberg Barclays U.S. Corporate Investment Grade Bond Index and 1.67% for the Lipper Corporate Debt Funds BBB-Rated Average. (Performance for the I Class will vary due to its Performance Comparison Six-Month Period Ended 11/30/17 Total Return Corporate Income Fund 1.95% Corporate Income Fund I Class 2.01 Bloomberg Barclays U.S. Corporate Investment Grade Bond Index 1.91 Lipper Corporate Debt Funds BBB-Rated Average 1.67 differing fee structure.) The fund started the six-month period with a net asset value of $9.66 and ended at $9.69, and dividends contributed $0.16 per share to total return. The fund s 30-day SEC yield rose to 3.00% from 2.89% over the period. 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 Portfolio Characteristics ECONOMY AND INTEREST RATES Periods Ended 5/31/17 11/30/17 The U.S. economy grew Corporate Income Fund at an annualized pace of Share Price $9.66 $ % in the third quarter Dividends Per Share of 2017 and is on track For 6 Months to expand about 2% for For 12 Months the full year. The solid SEC Yield (30-day) 2.89% 3.00% growth combined with strong employment and Corporate Income Fund I Class Share Price $9.66 $9.69 signs that inflation may have bottomed prompted Dividends Per Share the Federal Reserve to For 6 Months continue its gradual For 12 Months tightening plans, with SEC Yield (30-day) 3.01% 3.12% a quarter-point increase Weighted Average Maturity (years) in the federal funds target rate last summer. Weighted Average Effective (On December 13, Duration (years) immediately after our 12-month dividends may not equal the combined reporting period ended, 6-month figures due to rounding. the central bank raised rates by another quarter point, bringing the fed funds target rate to the 1.25% to 1.50% range.) The central bank also indicated that three more rate hikes would likely follow in The Fed began to slowly unwind its $4.5 trillion balance Interest Rate Levels 6% Bloomberg Barclays U.S. Corporate Investment Grade Bond Index 5 10-Year Treasury Note 11/30/16 2/17 5/17 8/17 11/30/17 Sources: Bloomberg Barclays and the Federal Reserve Board. sheet that it built up as part of its quantitative easing measures following the 2008 financial crisis. In Europe, sustained economic growth and gradually accelerating inflation have convinced the European Central Bank (ECB) to slowly normalize monetary policy. While European 3

6 political risks eased in the aftermath of various national elections, uncertainty surrounded the effects of Brexit and Spain s Catalonia secessionist vote. In the investment-grade corporate bond market, companies issued investment-grade debt at a brisk pace to take advantage of low rates. Strong demand from foreign buyers looking for higher yields helped absorb the supply and pushed prices higher. While expectations of accelerating inflation and stronger growth under the Trump administration supported the investment-grade corporate market, each delay in implementing proposed fiscal and tax policies chipped away hopes for stronger growth. Corporate bonds outperformed U.S. Treasuries with similar maturities as credit spreads compressed significantly. The Treasury yield curve, especially between 2- and 10-year notes, flattened as short-term rates increased more than longer-term yields. The yield on the two-year Treasury note began the period at 1.28% and rose to 1.78%, while the yield on the 10-year Treasury began the period at 2.21% and rose to 2.42%. (Bond prices and yields move in opposite directions.) PORTFOLIO REVIEW Strong security selection boosted relative returns, with bonds in the energy, insurance, and the non-u.s. and U.S. banking industries contributing the most during the period. We continued to close our relative underweight in energy, adding to master limited partnerships and crossover oil exploration and production companies. These are areas of the energy sector that experienced the most volatility and where we feel our fundamental research gave us an advantage in terms of long-term security selection. Canadian Natural Resources which this year bought oil assets of Cenovus Energy, Shell, and Marathon Oil was the top contributor in this area. We also initiated positions in Boardwalk Pipelines, Sabine Pass Liquefaction, APT Pipelines, and Vale Overseas. Even so, after these additions, we maintained an underweight to the energy sector relative to the benchmark, in part because T. Rowe Price s energy analysts expect oil prices will be lower for longer than the market anticipates. (Please refer to the fund s portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.) 4

7 Credit Ratings in a Nutshell 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 Investors Service, 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 Bonds with a speculative element. B B Security of payments is not well safeguarded. Caa CCC Ca CC Bonds are extremely speculative. The danger of a default is high. C C D In default. Insurance was the portfolio s largest overweight because of the industry s strong fundamentals and a supportive regulatory environment. We favored property and casualty (P&C) names over health insurers, which were pressured by the uncertainty about the future of the Affordable Care Act. P&C holdings, on the other hand, benefited from years of low levels of catastrophic losses, which enabled them to build up their capital reserves. Also, many of these bonds have longer maturities, which held up better than shorter-maturity assets as the yield curve flattened. Health insurers Anthem and Humana, despite the overall 5

8 trend, were top relative and absolute contributors. While we initiated the Anthem position during the period, we sold Humana. P&C company Liberty Mutual Group was another top performer. We favored high-quality global and U.S. banks, which we expect to benefit from potential tax and regulatory reform. Our security selection in these industries was a top contributor to relative returns. During the period, we increased our non-u.s. bank holdings, adding to among others UniCredit and Intesa SanPaolo. Both Italian banks have reaped the benefits of the European economic recovery, which has helped them improve solvency and profitability. We expect this trend to last for the next three to five years and think that these banks will continue to benefit from relatively low rates in the region, as the ECB has yet to end its quantitative easing program. UniCredit, which has significantly decreased the amount of its nonperforming loans, was the top contributor to relative and absolute performance. Among U.S. commercial banks, our holdings of junior subordinated debt from PNC Financial Services Industry Diversification Percent of Net Assets 5/31/17 11/30/17 U.S. Diversified Banking 8.9% 13.1% Banking Outside the U.S Energy Health Care/Pharmaceuticals Insurance Consumer Cyclicals REITs Electric Utility Basic Industry All Other Reserves Total 100.0% 100.0% Historical weightings reflect current industry/sector classifications. and M&T Bank boosted returns amid expectations that they would benefit from regulatory and tax reforms. Charter Communications and Time Warner Cable weighed on relative results. The media industry had a negative impact on returns as delayed government approval of proposed mergers created uncertainty. We eliminated Teva Pharmaceutical Finance because we expect the company will announce a restructuring plan, which could involve 6

9 Quality Diversification Reserves 1% BB Rated 8% A Rated and Above 18% BBB Rated 73% Based on net assets as of 11/30/17. Sources: Credit Quality Ratings are obtained using Bloomberg Barclays methodology using ratings derived from Moody s Investors Service (Moody s), Standard & Poor s (S&P), and Fitch Ratings (Fitch). When ratings from all 3 agencies are available, the median rating is used. When ratings are available from 2 of the agencies, the lower rating is used. When 1 rating is available, that rating is used. T. Rowe Price does not evaluate these ratings but simply assigns them to the appropriate credit quality category as determined by the rating agency. T. Rowe Price uses the rating of the underlying investment vehicle for credit default swaps. Unrated securities totaled 0.02% of the portfolio at the end of the reporting period. new issuance and debt refinancing and prompt another ratings downgrade. In November, Fitch Ratings cut Teva s debt to below investment grade, citing the significant operational stress that the Israeli drugmaker faces as it deals with debt obligations that are almost three times its market value. The portfolio s duration, which was slightly longer than that of the benchmark, detracted from relative returns during the period. The rise in yields, especially in the intermediate-maturity part of the yield curve, hurt overall performance. OUTLOOK We were able to take advantage of many positive trends in the reporting period, including the rally in financial- and insurance-related names driven by hopes for deregulation. Many of these opportunities have now run their course as spreads have contracted, volatility ebbed, and oil prices stabilized. We believe that the U.S. economic expansion is in its later stages; however, cuts enacted by Congress may prolong it. While we have seen record-high levels of issuance, tax cuts and other provisions of the new tax measure may result in less issuance of corporate debt. The fundamental backdrop remains supportive for investment-grade corporate bonds, especially as corporate earnings continue to improve. Demand for investment-grade debt remains strong in a yield-hungry world, and investors have been more willing to add risk to achieve higher returns. 7

10 Global growth remains steady and inflation subdued. However, global macroeconomic events, including commodity price volatility, could affect performance. Likewise, the escalation of tensions with North Korea is another risk. As such, we will closely monitor global economic and political conditions and be cautious around new bouts of risk-taking. In keeping with our long-term strategy, we will seek lower-rated, asset-rich companies that provide the portfolio with a notable yield and spread advantage over the benchmark and that we believe can be significant drivers of relative returns. We remain committed to a risk-aware, fundamentals-based investment approach and long-term perspective. Thank you for investing with T. Rowe Price. Respectfully submitted, David A. Tiberii, CFA Chairman of the fund s Investment Advisory Committee December 19, 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. 8

11 T. Rowe Price Corporate Income Fund Supplement to Summary Prospectus dated October 1, 2017 On page 6, the portfolio manager table under Management is supplemented as follows: Effective January 31, 2018, Steve Boothe and Lauren T. Wagandt will join David A. Tiberii as the fund s co-portfolio managers and Cochairmen of the fund s Investment Advisory Committee. Mr. Boothe and Ms. Wagandt joined T. Rowe Price in 1999 and 2009, respectively. Effective June 30, 2018, Mr. Tiberii will step down from his responsibilities as co-portfolio manager and Cochairman of the fund s Investment Advisory Committee. Mr. Boothe and Ms. Wagandt will continue to serve as the fund s coportfolio managers and Cochairmen of the fund s Investment Advisory Committee. Mr. Tiberii plans to retire from T. Rowe Price during the third quarter of The date of this supplement is January 11, F S 1/11/2018 9

12 Risks of Fixed Income Investing 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 by failing to make timely payments of interest or principal), potentially reducing the fund s income level and share price. High yield corporate bonds could have greater price declines than funds that invest primarily in high-quality bonds. Companies issuing high yield bonds are not as strong financially as those with higher credit ratings, so the bonds are usually considered speculative investments. International investments can be riskier than U.S. investments because of the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. Glossary Bloomberg Barclays U.S. Corporate Investment Grade Bond Index: A measure of corporate fixed income securities that are primarily rated investment grade (Baa by Moody s Investors Service and BBB by Standard & Poor s). Credit spreads: The additional yield that investors demand to hold a bond with credit risk compared with a Treasury security with a comparable maturity date. Duration: A measure of a bond fund s sensitivity to changes in interest rates. For example, a fund with a duration of six years would fall about 6% in price in response to a one-percentage-point rise in interest rates, and vice versa. Fed funds 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. 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. 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. Yield curve: A graphic depiction of the relationship between yields and maturity dates for a set of similar securities. These curves are in constant flux. One of the key activities in managing any fixed income portfolio is to study the trends reflected by yield curves. Note: Bloomberg Index Services Ltd. Copyright 2017, Bloomberg Index Services Ltd. Used with permission. 10

13 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. $25,000 22,000 19,000 16,000 13,000 10,000 7,000 CORPORATE INCOME FUND As of 11/30/17 Corporate Income Fund $16,964 Bloomberg Barclays U.S. Corporate Investment Grade Bond Index $17,202 Lipper Corporate Debt Funds BBB-Rated Average $16,470 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 Corporate Income Fund 6.36% 3.37% 5.43% Corporate Income 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. 11

14 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. 12

15 Fund Expense Example (continued) Corporate Income 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, $3.04 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 0.60%, and the I Class was 0.48%. 13

16 Quarter-End Returns Since Inception Periods Ended 9/30/17 1 Year 5 Years 10 Years Inception Date Corporate Income Fund 1.68% 3.57% 5.60% Corporate Income 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 Corporate Income Fund 0.60% Corporate Income Fund I Class 0.48 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. 14

17 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 $ 9.66 $ 9.60 $ 9.71 $ 9.90 $ $ 9.95 Investment activities Net investment income (1) Net realized and unrealized gain / loss (0.05) (0.03) Total from investment activities Distributions Net investment income (0.16) (0.30) (0.32) (0.34) (0.36) (0.39) Net realized gain (0.06) (0.16) (0.20) (0.15) Total distributions (0.16) (0.30) (0.38) (0.50) (0.56) (0.54) NET ASSET VALUE End of period $ 9.69 $ 9.66 $ 9.60 $ 9.71 $ 9.90 $ Ratios/Supplemental Data Total return (2) 1.95% 3.82% 2.91% 3.22% 4.91% 5.93% Ratio of total expenses to average net assets 0.60% (3) 0.60% 0.62% 0.62% 0.63% 0.62% Ratio of net investment income to average net assets 3.24% (3) 3.16% 3.44% 3.48% 3.73% 3.79% Portfolio turnover rate 36.4% 41.7% 48.5% 48.9% 44.3% 46.8% Net assets, end of period (in thousands) $ 924,361 $ 879,208 $ 829,109 $ 680,494 $ 598,625 $ 650,870 (1) Per share amounts calculated using average shares outstanding method. (2) 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. (3) 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 Ended 5/31/17 12/17/15 (1) Through 5/31/16 NET ASSET VALUE Beginning of period $ 9.66 $ 9.60 $ 9.29 Investment activities Net investment income (2) (3) 0.14 (4) Net realized and unrealized gain / loss Total from investment activities Distributions Net investment income (0.16) (0.31) (0.15) NET ASSET VALUE End of period $ 9.69 $ 9.66 $ 9.60 Ratios/Supplemental Data Total return (5) 2.01% 3.94% (3) 4.95% (4) Ratio of total expenses to average net assets 0.48% (6) 0.49% (3) 0.49% (4)(6) Ratio of net investment income to average net assets 3.36% (6) 3.34% (3) 3.50% (4)(6) Portfolio turnover rate 36.4% 41.7% 48.5% Net assets, end of period (in thousands) $ 59,324 $ 57,715 $ 1,650 (1) Inception date (2) Per share amounts calculated using average shares outstanding method. (3) See Note 6. Includes expenses repaid (0.01% of average net assets) related to its contractual operating expense limitation. (4) See Note 6. Excludes expenses in excess of a 0.05% contractual operating expense limitation in effect through 9/30/18. (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 96.6% FINANCIAL INSTITUTIONS 39.8% Banking 24.3% Banco Bilbao Vizcaya Argentaria, 3.00%, 10/20/20 5,280 5,341 Banco Santander, 3.125%, 2/23/23 3,200 3,189 Banco Santander, 3.50%, 4/11/22 1,000 1,018 Banco Santander, 3.80%, 2/23/28 5,000 4,971 Bank of America, 3.248%, 10/21/27 4,750 4,694 Bank of America, 3.95%, 4/21/25 7,035 7,221 Bank of America, 4.00%, 4/1/24 3,395 3,569 Bank of America, 4.183%, 11/25/27 4,605 4,781 Bank of America, 4.20%, 8/26/24 2,950 3,091 Bank of America, VR, 3.124%, 1/20/23 (1) 4,630 4,676 Bank of America, VR, 3.824%, 1/20/28 (1) 9,090 9,391 BBVA Bancomer, 4.375%, 4/10/24 (2) 1,255 1,319 BNP Paribas, VR, 7.625% (1)(2)(3) 4,415 4,884 BPCE, 3.00%, 5/22/22 (2) 2,820 2,826 BPCE, 3.50%, 10/23/27 (2) 4,935 4,846 BPCE, 4.50%, 3/15/25 (2) 3,035 3,165 BPCE, 5.15%, 7/21/24 (2) 2,740 2,960 Citigroup, 3.20%, 10/21/26 4,970 4,876 Citigroup, 4.60%, 3/9/26 3,485 3,694 Citigroup, VR, 3.887%, 1/10/28 (1) 8,510 8,712 Credit Agricole, 3.25%, 10/4/24 (2) 3,450 3,417 Credit Suisse, 3.125%, 12/10/20 8,680 8,782 Discover Financial Services, 3.75%, 3/4/25 1,300 1,309 Discover Financial Services, 3.95%, 11/6/24 3,190 3,260 Discover Financial Services, 10.25%, 7/15/19 1,070 1,169 Goldman Sachs, 3.00%, 4/26/22 6,200 6,221 Goldman Sachs, 3.75%, 5/22/25 2,850 2,914 17

20 (Amounts in 000s) Par/Shares $ Value Goldman Sachs, 3.85%, 1/26/27 8,990 9,174 Goldman Sachs, VR, 3.272%, 9/29/25 (1) 9,715 9,620 HSBC Holdings, VR, 6.875% (1)(3) 4,595 4,974 ING Groep, VR, 6.875% (1)(3) 4,560 4,992 Intesa Sanpaolo, 3.125%, 7/14/22 (2) 4,815 4,788 JPMorgan Chase, VR, 2.776%, 4/25/23 (1) 4,735 4,731 JPMorgan Chase, VR, 3.782%, 2/1/28 (1) 10,945 11,264 JPMorgan Chase, VR, 3.882%, 7/24/38 (1) 11,570 11,684 M&T Bank, VR, 5.125% (1)(3) 7,065 7,507 Morgan Stanley, 3.125%, 7/27/26 1,905 1,859 Morgan Stanley, 3.75%, 2/25/23 5,225 5,394 Morgan Stanley, 4.35%, 9/8/26 4,845 5,038 Morgan Stanley, VR, 3.971%, 7/22/38 (1) 5,355 5,407 Nationwide Building Society, 3.90%, 7/21/25 (2) 1,630 1,706 Nordea Bank, 4.875%, 5/13/21 (2) 3,680 3,919 PNC Financial Services, VR, 5.00% (1)(3) 7,040 7,498 Toronto-Dominion Bank, VR, 3.625%, 9/15/31 (1) 1,180 1,166 UBS Group Funding, 4.125%, 9/24/25 (2) 7,320 7,671 UniCredit, 4.625%, 4/12/27 (2) 6,210 6,531 UniCredit, VR, 5.861%, 6/19/32 (1)(2) 7,255 7, ,941 Finance Companies 2.4% AerCap Ireland Capital Limited, 3.50%, 5/26/ AerCap Ireland Capital Limited, 3.50%, 1/15/25 4,615 4,578 AerCap Ireland Capital Limited, 3.95%, 2/1/22 1,155 1,194 AerCap Ireland Capital Limited, 4.625%, 7/1/ Air Lease, 2.75%, 1/15/23 4,675 4,604 Air Lease, 3.625%, 4/1/27 2,540 2,525 GATX, 3.25%, 3/30/25 2,410 2,365 18

21 (Amounts in 000s) Par/Shares $ Value GATX, 3.50%, 3/15/28 5,495 5,403 GATX, 4.50%, 3/30/45 1,610 1,651 23,784 Insurance 7.1% ACE INA Holdings, 4.35%, 11/3/45 1,630 1,794 American International Group, 3.30%, 3/1/21 5,755 5,879 Anthem, 4.375%, 12/1/47 9,695 9,971 Arch Capital Finance, 4.011%, 12/15/26 2,265 2,342 CNA Financial, 5.875%, 8/15/20 3,555 3,841 CNO Financial, 4.50%, 5/30/20 3,110 3,195 CNO Financial, 5.25%, 5/30/25 2,270 2,403 First American Financial, 4.60%, 11/15/24 3,945 4,061 Liberty Mutual, 4.85%, 8/1/44 (2) 5,710 6,263 Lincoln National, 3.625%, 12/12/26 6,910 6,998 Principal Financial Group, VR, 4.70%, 5/15/55 (1) 4,605 4,705 Prudential Financial, VR, 5.375%, 5/15/45 (1) 4,200 4,502 Reinsurance Group of America, 5.00%, 6/1/ Reinsurance Group of America, 6.45%, 11/15/19 1,465 1,576 Trinity Acquisition, 3.50%, 9/15/21 1,395 1,413 Unum Group, 3.00%, 5/15/21 1,045 1,052 Unum Group, 5.625%, 9/15/20 1,195 1,282 WellCare Health Plans, 5.25%, 4/1/25 4,345 4,595 Willis North America, 3.60%, 5/15/24 3,771 3,821 70,400 Real Estate Investment Trusts 6.0% American Campus Communities, 3.625%, 11/15/27 2,475 2,454 American Campus Communities, 3.75%, 4/15/23 2,680 2,757 American Campus Communities, 4.125%, 7/1/24 4,205 4,376 19

22 (Amounts in 000s) Par/Shares $ Value Brixmor Operating Partnership, 3.85%, 2/1/25 3,310 3,304 Brixmor Operating Partnership, 3.875%, 8/15/22 1,765 1,813 Camden Property Trust, 4.875%, 6/15/23 2,925 3,066 DCT Industrial Trust, 4.50%, 10/15/23 3,120 3,266 Essex Portfolio, 3.375%, 4/15/26 4,360 4,318 Essex Portfolio, 3.625%, 5/1/27 2,275 2,285 Goodman Australia Industrial Partnership, 3.40%, 9/30/26 (2) 1,872 1,834 Healthcare Realty Trust, 3.75%, 4/15/23 2,235 2,281 Healthcare Realty Trust, 5.75%, 1/15/21 1,065 1,166 Highwoods Realty, 3.625%, 1/15/23 2,535 2,550 Host Hotels & Resorts, 4.00%, 6/15/25 3,060 3,122 Kilroy Realty, 3.45%, 12/15/24 3,640 3,622 Kilroy Realty, 4.80%, 7/15/18 1,410 1,429 Kilroy Realty, 6.625%, 6/1/20 1,190 1,304 VEREIT, 3.95%, 8/15/27 7,061 6,989 VEREIT, 4.875%, 6/1/26 6,485 6,907 58,843 Total Financial Institutions 391,968 INDUSTRIAL 50.3% Basic Industry 5.7% Arcelormittal, STEP, 7.50%, 10/15/39 2,240 2,814 Carpenter Technology, 4.45%, 3/1/23 1,085 1,105 Carpenter Technology, 5.20%, 7/15/21 4,650 4,848 Celulosa Arauco y Constitucion, 3.875%, 11/2/27 (2) 1,625 1,609 Celulosa Arauco y Constitucion, 4.50%, 8/1/24 10,060 10,670 Celulosa Arauco y Constitucion, 5.50%, 11/2/47 (2) Dow Chemical, 8.55%, 5/15/19 2,085 2,267 Ecolab, 3.95%, 12/1/47 (2) 3,210 3,195 20

23 (Amounts in 000s) Par/Shares $ Value Fresnillo, 5.50%, 11/13/23 (2) 1,440 1,584 Gerdau Trade, 4.875%, 10/24/27 (2) 3,605 3,624 LyondellBasell, 5.00%, 4/15/19 1,837 1,889 Mexichem, 4.00%, 10/4/27 (2) 2,845 2,838 Reliance Steel & Aluminum, 4.50%, 4/15/23 2,155 2,281 Solvay Finance, 3.40%, 12/3/20 (2) 2,383 2,425 Solvay Finance, 4.45%, 12/3/25 (2) 1,634 1,732 Southern Copper, 5.25%, 11/8/42 2,510 2,810 Vale Overseas, 4.375%, 1/11/22 4,445 4,627 West Fraser Timber, 4.35%, 10/15/24 (2) 5,170 5,059 55,977 Capital Goods 5.2% Arconic, 6.15%, 8/15/20 4,910 5,291 Harris, 4.854%, 4/27/35 2,740 3,039 Holcim, 6.00%, 12/30/19 (2) 4,285 4,560 Lockheed Martin, 3.60%, 3/1/ Lockheed Martin, 4.50%, 5/15/36 6,890 7,557 Martin Marietta Material, 3.45%, 6/1/27 3,590 3,536 Martin Marietta Material, 4.25%, 7/2/24 3,130 3,303 Masco, 3.50%, 11/15/27 4,220 4,165 Meccanica Holdings, 6.25%, 1/15/40 (2) Mohawk Industries, 3.85%, 2/1/23 3,340 3,455 Roper Technologies, 3.80%, 12/15/26 2,205 2,266 Roper Technologies, 3.85%, 12/15/25 2,225 2,292 Vulcan Materials, 3.90%, 4/1/27 2,290 2,330 Vulcan Materials, 4.50%, 6/15/47 2,320 2,340 Vulcan Materials, 7.50%, 6/15/21 2,615 3,036 21

24 (Amounts in 000s) Par/Shares $ Value Wabtec, 3.45%, 11/15/26 2,785 2,720 51,158 Communications 8.6% 21st Century Fox America, 8.25%, 8/10/18 1,530 1,591 Charter Communications Operating, 3.75%, 2/15/28 8,385 7,963 Charter Communications Operating, 4.908%, 7/23/25 4,900 5,158 Crown Castle International, 4.45%, 2/15/26 6,355 6,667 Crown Castle International, 4.75%, 5/15/47 1,675 1,730 Crown Castle Towers, 3.663%, 5/15/45 (2) 1,785 1,803 Discovery Communications, 3.95%, 3/20/ Grain Spectrum Funding, 4.00%, 10/10/33 (2) 1,505 1,508 Interpublic Group of Companies, 4.20%, 4/15/24 4,205 4,396 Match Group, 5.00%, 12/15/27 (2) Omnicom Group, 3.625%, 5/1/22 1,540 1,597 Omnicom Group, 3.65%, 11/1/24 1,345 1,372 SBA Tower Trust, 2.898%, 10/11/44 (2) 4,078 4,099 SBA Tower Trust, 3.156%, 10/10/45 (2) 4,760 4,804 SBA Tower Trust, 3.598%, 4/15/18 (2) 2,665 2,662 Telefonica Emisiones, 4.103%, 3/8/27 4,405 4,498 Thomson Reuters, 3.85%, 9/29/24 3,000 3,113 Time Warner Cable, 8.25%, 4/1/19 3,425 3,678 Time Warner Cable, 8.75%, 2/14/ Verizon Communications, 4.862%, 8/21/46 4,665 4,748 Verizon Communications, 5.25%, 3/16/37 10,945 11,970 Videotron, 5.125%, 4/15/27 (2) 2,030 2,126 WPP Finance 2010, 3.625%, 9/7/22 2,575 2,654 WPP Finance 2010, 3.75%, 9/19/24 4,860 4,957 84,459 22

25 (Amounts in 000s) Consumer Cyclical 4.1% Par/Shares $ Value Delphi, 4.15%, 3/15/24 1,470 1,550 Expedia, 3.80%, 2/15/28 (2) 4,590 4,406 Expedia, 4.50%, 8/15/24 2,440 2,551 General Motors Financial, 3.50%, 7/10/19 3,000 3,049 Goodyear Tire & Rubber, 4.875%, 3/15/27 2,140 2,183 Hilton, 4.25%, 9/1/24 3,150 3,197 Hilton Worldwide, 4.625%, 4/1/25 4,565 4,713 Hyundai Capital America, 2.55%, 2/6/19 (2) 2,410 2,407 Hyundai Capital America, 2.875%, 8/9/18 (2) Priceline Group, 3.55%, 3/15/28 1,225 1,212 Priceline Group, 3.60%, 6/1/26 3,865 3,871 Priceline Group, 3.65%, 3/15/25 2,755 2,780 QVC, 5.125%, 7/2/22 4,350 4,615 Visa, 4.15%, 12/14/35 2,755 3,013 40,268 Consumer Non-Cyclical 10.5% Abbott Laboratories, 3.40%, 11/30/23 9,295 9,423 AbbVie, 3.20%, 5/14/26 1,195 1,180 AbbVie, 3.60%, 5/14/25 4,642 4,737 AbbVie, 4.45%, 5/14/46 2,190 2,296 Baxalta, 4.00%, 6/23/25 3,780 3,885 Becton Dickinson, 3.70%, 6/6/27 8,880 8,846 Becton Dickinson, 3.734%, 12/15/ Becton Dickinson, 4.669%, 6/6/47 4,350 4,559 Celegene, 3.45%, 11/15/27 5,020 4,991 Celgene, 3.875%, 8/15/25 5,755 5,927 Celgene, 4.35%, 11/15/47 2,360 2,385 Danone, 2.589%, 11/2/23 (2) 4,810 4,681 23

26 (Amounts in 000s) Par/Shares $ Value Danone, 2.947%, 11/2/26 (2) 2,435 2,353 Express Scripts Holding, 3.00%, 7/15/23 1,450 1,436 Express Scripts Holding, 3.40%, 3/1/27 4,290 4,181 Express Scripts Holding, 4.80%, 7/15/46 2,770 2,863 Hasbro, 3.50%, 9/15/27 4,485 4,376 Life Technologies, 6.00%, 3/1/20 1,790 1,920 Newell Rubbermaid, 3.90%, 11/1/25 3,955 4,069 Newell Rubbermaid, 5.375%, 4/1/36 3,580 4,120 Pernod-Ricard, 4.45%, 1/15/22 (2) 3,600 3,836 Reynolds American, 4.00%, 6/12/ Reynolds American, 4.45%, 6/12/25 3,600 3,842 Shire Acquisition Investments Ireland, 3.20%, 9/23/26 7,730 7,461 Teva Pharmaceutical Finance III, 2.20%, 7/21/21 6,245 5,711 Tupperware Brands, 4.75%, 6/1/21 2,360 2, ,397 Energy 8.4% APT Pipelines, 4.25%, 7/15/27 (2) 2,570 2,651 Boardwalk Pipelines, 4.45%, 7/15/ Boardwalk Pipelines, 4.95%, 12/15/24 3,250 3,436 Boardwalk Pipelines, 5.95%, 6/1/26 2,800 3,124 Canadian Natural Resources, 4.95%, 6/1/47 3,110 3,360 Cenovus Energy, 4.25%, 4/15/27 (2) 5,325 5,278 Cimarex Energy, 3.90%, 5/15/27 2,180 2,218 Columbia Pipeline Group, 4.50%, 6/1/25 2,425 2,577 Concho Resources, 3.75%, 10/1/27 1,255 1,261 Concho Resources, 4.375%, 1/15/25 2,545 2,650 Enbridge, VR, 5.50%, 7/15/77 (1) 2,335 2,329 Enogex, 6.25%, 3/15/20 (2) 1,500 1,580 Enterprise Products Operations, VR, 5.25%, 8/16/77 (1) 3,040 3,037 24

27 (Amounts in 000s) Par/Shares $ Value EOG Resources, 4.15%, 1/15/26 4,250 4,493 Husky Energy, 4.00%, 4/15/24 2,044 2,124 Marathon Oil, 4.40%, 7/15/27 7,010 7,199 Plains All American Pipeline, 2.85%, 1/31/ Plains All American Pipeline, 4.50%, 12/15/ Plains All American Pipeline, VR, 6.125% (1)(3) 3,300 3,279 Sabine Pass Liquefaction, 4.20%, 3/15/28 6,830 6,915 Sabine Pass Liquefaction, 5.00%, 3/15/27 2,500 2,663 Suncor Energy, 4.00%, 11/15/47 6,485 6,466 TransCanada Trust, VR, 5.30%, 3/15/77 (1) 4,375 4,555 Williams Partners, 4.00%, 9/15/25 2,210 2,253 Woodside Finance, 3.65%, 3/5/25 (2) 2,020 2,038 Woodside Finance, 3.70%, 9/15/26 (2) 2,293 2,310 Woodside Finance, 3.70%, 3/15/28 (2) 3,175 3,151 82,654 Technology 4.5% Amphenol, 3.125%, 9/15/21 3,170 3,223 Arrow Electronics, 3.50%, 4/1/22 1,140 1,152 Arrow Electronics, 4.50%, 3/1/23 2,905 3,043 Broadcom, 3.125%, 1/15/25 (2) 4,800 4,568 Broadcom, 3.625%, 1/15/24 (2) 2,600 2,571 Broadcom, 3.875%, 1/15/27 (2) Brocade Communications, 4.625%, 1/15/23 1,030 1,054 Fidelity National Information Services, 3.50%, 4/15/23 1,397 1,428 Keysight Technologies, 4.55%, 10/30/24 3,900 4,125 Keysight Technologies, 4.60%, 4/6/27 4,815 5,069 Microsoft, 4.20%, 11/3/35 3,715 4,123 NXP, 4.125%, 6/1/21 (2) 2,015 2,081 NXP, 4.625%, 6/1/23 (2) 6,380 6,739 25

28 (Amounts in 000s) Par/Shares $ Value VeriSign, 4.75%, 7/15/27 4,080 4,208 Transportation 3.3% 44,124 American Airlines, PTT, Series , Class B, 3.70%, 11/1/ American Airlines, PTT, Series , Class B, 4.95%, 8/15/26 1,990 2,092 American Airlines, PTT, Series , Class A, 3.60%, 4/15/31 3,990 4,041 Burlington Northern Santa Fe, 4.15%, 4/1/45 2,415 2,558 Burlington Northern Santa Fe, 5.05%, 3/1/ ,066 Burlington Northern Santa Fe, 5.40%, 6/1/41 1,465 1,801 Canadian National Railway, 3.20%, 8/2/46 5,050 4,710 Continental Airlines, Series , 4.15%, 10/11/25 2,550 2,667 Delta Airlines, ETC, 3.625%, 3/15/22 1,965 1,997 Heathrow Funding, 4.875%, 7/15/23 (2) 2,690 2,878 Kansas City Southern, 3.125%, 6/1/26 2,040 1,974 United Airlines, PTT, ETC, Series , Class B 4.75%, 10/11/ United Airlines, PTT, Series , Class B, 4.625%, 3/3/24 5,573 5,727 32,936 Total Industrial 494,973 UTILITY 6.5% Electric 5.9% Alabama Power, 3.75%, 3/1/45 5,895 5,918 American Transmission Systems, 5.00%, 9/1/44 (2) 1,315 1,509 Cleveland Electric Illuminating, 3.50%, 4/1/28 (2) 2,575 2,573 Commonwealth Edison, 4.35%, 11/15/45 3,515 3,919 Consolidated Edison, 3.85%, 6/15/46 4,185 4,282 Enel Finance International, 3.625%, 5/25/27 (2) 4,710 4,627 Enel Finance International, 4.75%, 5/25/47 (2) 4,810 5,032 26

29 (Amounts in 000s) Par/Shares $ Value FirstEnergy Transmission, 4.35%, 1/15/25 (2) 1,135 1,198 IPALCO Enterprises, 3.45%, 7/15/20 3,380 3,422 MidAmerican Energy, 4.25%, 5/1/46 5,305 5,769 Origin Energy Finance, 3.50%, 10/9/18 (2) 3,255 3,280 Pennsylvania Electric, 6.15%, 10/1/38 1,000 1,225 PPL Capital Funding, 4.00%, 9/15/47 6,930 6,957 Southern Company, 4.25%, 7/1/36 4,110 4,262 Southern Company, 4.40%, 7/1/46 4,145 4,362 Natural Gas 0.6% 58,335 NiSource Finance, 3.95%, 3/30/48 5,250 5,243 5,243 Total Utility 63,578 Total Corporate Bonds (Cost $932,188) 950,519 ASSET-BACKED SECURITIES 0.2% Communications 0.2% Vertical Bridge Series A, Class C 3.065%, 6/15/46 (2) 2,100 2,085 Total Asset-Backed Securities (Cost $2,100) 2,085 BANK LOANS 0.2% (4) Energy 0.2% MEG Energy, VR, 3M USD LIBOR %, 4.833%, 12/31/23 1,790 1,788 Total Bank Loans (Cost $1,790) 1,788 27

30 (Amounts in 000s) NON-U.S. GOVERNMENT MORTGAGE-BACKED SECURITIES 0.1% Home Equity Loans Backed 0.1% Par/Shares $ Value Nationstar Home Equity Loan Trust Series A, Class A 2.013%, 8/25/26 (2) Total Non-U.S. Government Mortgage-Backed Securities (Cost $741) 741 U.S. GOVERNMENT AGENCY OBLIGATIONS (EXCLUDING MORTGAGE-BACKED) 0.5% U.S. Treasury Obligations 0.5% U.S. Treasury Bonds, 2.75%, 8/15/47 (5) 4,565 4,483 Total U.S. Government Agency Obligations (Excluding Mortgage-Backed) (Cost $4,505) 4,483 FOREIGN GOVERNMENT OBLIGATIONS & MUNICIPALITIES 0.4% Owned No Guarantee 0.4% Pemex Project Funding Master Trust, 5.75%, 3/1/18 2,240 2,260 Petroleos Mexicanos, 4.625%, 9/21/23 2,085 2,158 Total Foreign Government Obligations & Municipalities (Cost $4,380) 4,418 SHORT-TERM INVESTMENTS 1.3% Money Market Funds 1.3% T. Rowe Price Government Reserve Fund, 1.13% (6)(7) 12,839 12,839 Total Short-Term Investments (Cost $12,839) 12,839 28

31 (Amounts in 000s, except for contracts) OPTIONS PURCHASED 0.0% OTC Options Purchased 0.0% Counterparty Description Contracts Notional Amount Value Barclays Bank Credit Default Swap, Protection Sold (Relevant Credit: Markit.CDX.IG-S29 5 Year Index), Receive 1.00% Quarterly, Pay upon credit default 0.65%* (8) 1 150,000 $ 240 Total OTC Options Purchased 240 Total Options Purchased (Cost $338) 240 Total Investments in Securities 99.3% of Net Assets (Cost $958,881) $ 977,113 Par/Shares are denominated in U.S. dollars unless otherwise noted. * Exercise Spread. (1) Security is a fix-to-float security, which carries a fixed coupon until a certain date, upon which it switches to a floating rate. Reference rate and spread is provided if the rate is currently floating. (2) 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 $185,212 and represents 18.8% of net assets. (3) Perpetual security with no stated maturity date. (4) 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. (5) At November 30,2017, all or a portion of this security is pledged as collateral and/or margin deposit to cover future funding obligations. (6) Seven-day yield (7) Affiliated Company (8) Non-income producing 3M USD LIBOR Three month USD LIBOR (London Interbank Offered Rate) ETC Equipment Trust Certificate OTC Over the counter PTT Pass-Through Trust 29

32 STEP VR Stepped coupon bond for which the coupon rate of interest adjusts on specified date(s); rate shown is effective rate at period-end. 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. 30

33 (Amounts in 000s, except for contracts) OPTIONS WRITTEN 0.0% OTC Options Written 0.0% Counterparty Description Contracts Notional Amount Value Barclays Bank Credit Default Swap, Protection Sold (Relevant Credit: Markit.CDX.IG-S29, 5 Year Index), Receive 1.00% Quarterly Pay upon credit default, 0.75%* 1 150,000 $ (69) Total OTC Options Written (69) Total Options Written (Premiums $(127)) $ (69) 31

34 (Amounts in 000s, except market price) SWAPS 0.0% Description Notional Amount Value Upfront Payments/ Receipts Unrealized Gain/(Loss) BILATERAL SWAPS 0.0% Credit Default Swaps, Protection Sold 0.0% JPMorgan Chase, Protection Sold, (Relevant Credit: Humana, 6.30%, 8/1/18, $102.60*) Receive 1.00% Quarterly, Pay upon credit default, 12/20/18 1,110$ 13 $ 1$ 12 Total Bilateral Credit Default Swaps, Protection Sold 1 12 Total Bilateral Swaps $ 1$ 12 *Market Price at November 30,

35 Futures Contracts ($000s) Expiration Date Notional Amount Value and Unrealized Gain/(Loss) Long, 17 U.S. Treasury Bonds 30 year contracts 3/18 $ 2,579 $ (25) Long, 164 U.S. Treasury Notes 10 year contracts 3/18 20,344 (110) Net payments (receipts) of variation margin to date 58 Variation margin receivable (payable) on open futures contracts $ (77) 33

36 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. Affiliate Net Realized Gain (Loss) Change in Net Unrealized Gain/Loss Investment Income T. Rowe Price Government Reserve Fund $ $ $ 85 Totals $ # $ $ 85+ Supplementary Investment Schedule Value Affiliate 5/31/17 Purchase Cost Sales Cost Value 11/30/17 T. Rowe Price Government Reserve Fund $ 18,181 $ 12,839 $ 12,839^ # Capital gain/loss distributions from mutual funds represented $0 of the net realized gain (loss). + Investment income comprised $85 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 $12,839. The accompanying notes are an integral part of these financial statements. 34