UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File Number: 811-04119
T. Rowe Price High Yield Fund, Inc. |
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(Exact name of registrant as specified in charter) |
100 East Pratt Street, Baltimore, MD 21202 |
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(Address of principal executive offices) |
David Oestreicher |
100 East Pratt Street, Baltimore, MD 21202 |
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(Name and address of agent for service) |
Registrants telephone number, including area
code: (410) 345-2000
Date of fiscal year end: May 31
Date of reporting period: May 31, 2017
Item 1. Report to Shareholders
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High
Yield Fund |
May 31,
2017 |
The views and opinions in this report were current as of May 31, 2017. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the funds future investment intent. The 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
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Managers Letter
Fellow Shareholders
High yield bonds rallied amid positive market conditions over the past 12 months, as oil and commodity prices stabilized and provided a favorable tailwind for the asset class in the latter half of 2016. In the past six months, other sectors exhibited leadership, generating good performance and significant capital appreciation.
PORTFOLIO PERFORMANCE
The High Yield Fund gained 12.46% over the 12-month period ended May 31, 2017. About half of the annual return, 6.61%, was generated in the last six months of the period. As shown in the Performance Comparison table, your fund outperformed the Lipper peer group average of similarly managed funds but underperformed its benchmark, the Credit Suisse High Yield Index. (Results for Advisor and I Class shares varied, reflecting their different fee structures.)
In our fiscal year, security selection was a strong contributor to relative returns, especially in the health care, media/ telecom, and utilities industry groups. Despite generating double-digit gains, credit selection in the energy and the metals and mining segments detracted as our focus remained on owning higher-quality holdings, which underperformed the lower-quality issuers in the benchmark that drove gains, rallying from distressed levels.
The funds share price advanced $0.38 over the past 12 months to $6.79 from $6.41 at the end of May 2016. Dividend income also totaled $0.38 for the 12-month period. The funds 30-day SEC yield at the end of the reporting period was 4.74%, about a full percentage point lower than at the end of May a year ago.
Our longer-term returns compared favorably with similarly managed funds. Lipper ranked the High Yield Fund in the top quintile of its high yield funds peer group for the 5- and 10-year periods ended May 31, 2017. (Based on cumulative total return, the High Yield Fund ranked 227 of 663, 145 of 567, 68 of 452, and 44 of 304 funds in the Lipper high yield funds category for the 1-, 3-, 5-, and 10-year periods ended May 31, 2017, respectively. Past performance cannot guarantee future results.)
MARKET ENVIRONMENT
The high yield market continued its strong performance from the back half of 2016 into 2017. However, market stasis or inactivity appeared to set in during the last few months of the period as Trump election-related enthusiasm waned and stretched valuations followed the recent outperformance. The period was marked by reasonable economic growth and solid corporate profitability coupled with low interest rates, declining default rates, and decent employment statistics. However, uncertainty about the Trump administrations fiscal policies, concerns about valuations, and the historically low yields offered by high yield bonds offset the positives. Our analysts have become increasingly challenged to find compelling investment opportunities as the economic and credit cyclesalready extendedstretch further.
Toward the end of the reporting period, the high yield market was yielding under 6%, still relatively attractive compared with the 1.7% yield on five-year Treasuries, but a lot less than the levels we typically associate with high yield bonds. Upon closer inspection, we see that less than half of the funds return over the last six months was provided by interest income and the balance was generated from appreciation. In our view, that amount of appreciation is not sustainable at this point in a high yield market cycle. At the end of the reporting period, approximately two-thirds of the high yield market was trading at a premium to par value. Increased downside risk means less potential for gains in our market. History shows that when the road gets very smooth, there is a temptation to drive too fast. As a result, we have moderated our riskiest holdings and are not aggressively reaching for yield at these elevated levels.
PORTFOLIO REVIEW
Reflecting our somewhat conservative outlook for the high yield market based on valuations over the balance of the year, we systematically rotated the portfolio into higher-quality holdings. We accomplished this by increasing our BB and B rated exposures. BB holdings (the top tier of the high yield market) represented 18.9% of the fund at the end of the period, and B rated issuers tallied 36.2%. Concurrently, we trimmed our B/CCC and lower allocation to 17.4% from 23.3% six months ago. Of the CCC rated issues we still hold, many yield significantly less than those in the benchmark, indicating we are positioned more conservatively than our benchmark. We are focusing on bonds poised for an upgrade.
The gradual shift also allowed us to harvest healthy gains. We think the market is currently priced for perfection. In addition, we have been operating in a period of extremely low volatility, another sign of market stasis, or a plateau. At this point, we are positioned somewhat defensively given that the leading indicators have stopped improving, commodities have weakened, the yield curve has flattened, and the job market is losing steam.
We believe the U.S. high yield market may be trading near peak valuations now that the period of commodities outperformance has run its course. However, we are finding good value in Europe, which led us to add to our international exposure over the past six months. The high yield markets leadership has broadened, and some of our best-contributing sectors in 2017 included media and telecommunications, energy, health care, and financials, almost exclusively due to credit selection.
European high yield is benefiting from supportive central bank policy and generally improving European economic conditions. The solid results in the French elections were a positive catalyst for investor sentiment. Several large European banks rallied following the presidential election, and our holdings in BNP Paribas, Barclays, Credit Suisse, and Standard Chartered helped performance. These banks are largely rated investment grade at the issuer level. However, our positions are lower on the capital structure with a high yield rating and generated equity-like returns. (Please refer to the funds portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
Merger and acquisition activity within the greater media/telecom sector drove excellent gains in Sprint, T-Mobile US, and Charter Communications. These top performers were among our highest-conviction holdings. Sprint was our best 12-month absolute performance contributor. Our T-Mobile securities were the top relative performance contributor, including a position in a convertible preferred issue. The convertible securities generate about a 5.5% yield, have a mandatory conversion feature, and delivered double-digit performance. Charter also posted superior gains after it received a bid from Verizon for $350 to $400. Like T-Mobile, we own a small position in Charter stock in addition to its bonds. Our health care holdings also recovered in 2017 after underperforming at the end of last year. We benefited from excellent credit selection, and our underweight allocation during the late-2016 downturn contributed to strong relative results.
As expected, in a year in which we earned more than 12%, your funds individual bond gains dwarfed the declining issuers. However, performance was not uniformly positive. Pacific Exploration & Production (formerly Pacific Rubiales Energy) faltered after the company filed for bankruptcy. We took common stock in exchange for our bond holdings, and it also languished. We had a position in Agrokor, a Croatian food and beverage company. It operates a large distribution business in southern Europe, but liquidity concerns plagued its capital structure. The company has entered bankruptcy proceedings and was a detractor for the year.
LOANS OFFER SOLID RISK-ADJUSTED RETURNS
We have selectively added to our positions in off-benchmark floating rate bank loans (approximately 12% of the portfolio) that generate more yield than traditional BB fixed rate, high yield bonds. We like loans for their combination of yield, low duration (a measure of interest rate sensitivity) in a rising rate environment, and seniority in the capital structure. Additionally, the Sharpe ratio (a measure of risk-adjusted performance) is compelling in our loans.
OUTLOOK
We believe the market is richly priced on a valuation basis. However, high yield bonds continue to provide above-average current income compared with other fixed income strategies. The funds sub-5% 30-day SEC yield at the end of the reporting period was very low on an absolute and historical basis, in part because of our conservative positioning. We will not reach for yield in bonds that do not offer favorable risk/return metrics. Given that the fundamentals underpinning the asset class are stable, we do not see a reason for a material uptick in the default rate.
However, with considerable uncertainty surrounding the Trump administration, fiscal policy implementation, and stretched asset class valuations, we recommend that shareholders evaluate their overall allocation to the high yield asset class. If you find that the mix has become overweight in below investment-grade bonds, consider rebalancing the asset allocation.
Our goal is to deliver high current income and attractive total returns over time while seeking to cushion the volatility inherent in this market. Diversifying sectorsincluding bank loans, which offer a hedge against rising interest rates, and European high yield, which operates in an environment where interest rates are unlikely to rise for several yearscould counter volatility in the U.S. high yield market. We remain committed to our rigorous research efforts and constructing a diversified portfolio, which we believe is prudent for a fund that invests in a riskier area of the bond market.
Thank you for your confidence in us and for investing with T. Rowe Price.
Respectfully submitted,
Mark J. Vaselkiv
Chairman of the funds Investment Advisory Committee
June 12, 2017
The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the funds investment program.
RISKS OF BOND 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 (fail to make timely payments of interest or principal), potentially reducing the funds income level and share price. High yield corporate bonds could have greater price declines than funds that invest primarily in high-quality bonds. Companies issuing high yield bonds are not as strong financially as those with higher credit ratings, so the bonds are usually considered speculative investments.
RISK MANAGEMENT: A KEY COMPONENT OF OUR STRATEGY
We would like to remind shareholders about some fundamental changes that have occurred in the fixed income markets in recent years. The markets have been particularly volatile over the past 12 months. The volatility has highlighted the importance of sound risk management.
Bond fund assets have grown substantially over the past three decades, with much of the growth taking place since 2008. This has been beneficial in many ways, but like many positive events, it has side effects as well. The prospect of rising interest rates triggers concerns that some investors could change course and redeploy their assets into other financial markets. Net outflows during periods of rising rates are not new; indeed, such was the case in 1994 and 2000 when rates turned up. Because of this evolving environment, T. Rowe Price is taking steps to ensure that our funds function smoothly during transitional periods as the Fed implements policy changes that are likely to affect the direction of interest rates. These measures include assessing the liquidity of our portfolios, conducting stress tests that take various market scenarios under consideration, and taking other steps to ensure successful implementation of our investment strategy. We want to reassure our shareholders that we are aware of the changing market environment and are monitoring it closely.
GLOSSARY
Credit Suisse High Yield Index: An index that tracks the performance of domestic noninvestment-grade corporate bonds.
Duration: The average time (expressed in years) needed for an investor to receive the present value of the future cash flows on a fixed income investment. It is used to measure a bonds or bond funds sensitivity to interest rate changes. For example, a fund with a three-year duration would fall about 3% in price in response to a one-percentage-point increase in interest rates, and vice versa. Modified duration provides a more accurate estimate of the funds price sensitivity based solely on changes in real 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 funds yield that assumes all portfolio securities are held until maturity. Yield will vary and is not guaranteed.
Weighted average maturity: A measure of a funds sensitivity to changes in interest rates. In general, the longer the average maturity, the greater the funds sensitivity to interest rate changes. The weighted average maturity may take into account the interest rate readjustment dates for certain securities.
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.
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 three share classes: The original share class (Investor Class) charges no distribution and service (12b-1) fee, the Advisor Class shares are offered only through unaffiliated brokers and other financial intermediaries and charge a 0.25% 12b-1 fee, and I Class shares are 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 funds 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 funds actual expense ratio and an assumed 5% per year
rate of return before expenses (not the funds actual return). You may compare
the ongoing costs of investing in the fund with other funds by contrasting this
5% hypothetical example and the 5% hypothetical examples that appear in the
shareholder reports of the other funds. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period.
Note: T. Rowe Price charges an annual 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.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements |
T. Rowe Price High Yield Fund, Inc. (the fund), is registered under the Investment Company Act of 1940 (the 1940 Act) as a diversified, open-end management investment company. The fund seeks high current income and, secondarily, capital appreciation. The fund has three classes of shares: the High Yield Fund (Investor Class), the High Yield FundAdvisor Class (Advisor Class), and the High Yield FundI Class (I Class). Advisor Class shares are sold only through unaffiliated brokers and other unaffiliated financial intermediaries. I Class shares generally are available only to investors meeting a $1,000,000 minimum investment or certain other criteria. The Advisor Class operates under a Board-approved Rule 12b-1 plan pursuant to which the class compensates financial intermediaries for distribution, shareholder servicing, and/or certain administrative services; the Investor and I Classes do not pay Rule 12b-1 fees. Each class has exclusive voting rights on matters related solely to that class; separate voting rights on matters that relate to all classes; and, in all other respects, the same rights and obligations as the other classes.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation The fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including, but not limited to, ASC 946. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Paydown gains and losses are recorded as an adjustment to interest income. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Income distributions are declared by each class daily and paid monthly. Distributions to shareholders are recorded on the ex-dividend date. Capital gain distributions are generally declared and paid by the fund annually.
Currency Translation Assets, including investments, and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and asked prices of such currencies against U.S. dollars as quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the date of the transaction. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is reflected as a component of security gains and losses.
Class Accounting Shareholder servicing, prospectus, and shareholder report expenses incurred by each class are charged directly to the class to which they relate. Expenses common to all classes and investment income are allocated to the classes based upon the relative daily net assets of each classs settled shares; realized and unrealized gains and losses are allocated based upon the relative daily net assets of each classs outstanding shares. The Advisor Class pays Rule 12b-1 fees, in an amount not exceeding 0.25% of the classs average daily net assets.
Redemption Fees A 2% fee is assessed on redemptions of fund shares held for 90 days or less to deter short-term trading and to protect the interests of long-term shareholders. Redemption fees are withheld from proceeds that shareholders receive from the sale or exchange of fund shares. The fees are paid to the fund and are recorded as an increase to paid-in capital. The fees may cause the redemption price per share to differ from the net asset value per share.
New Accounting Guidance In October 2016, the Securities and Exchange Commission (SEC) issued a new rule, Investment Company Reporting Modernization, which, among other provisions, amends Regulation S-X to require standardized, enhanced disclosures, particularly related to derivatives, in investment company financial statements. Compliance with the guidance is effective for financial statements related to periods ending on or after August 1, 2017; adoption will have no effect on the funds net assets or results of operations.
NOTE 2 - VALUATION
The funds financial instruments are valued and each classs net asset value (NAV) per share is computed at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day the NYSE is open for business. However, the NAV per share may be calculated at a time other than the normal close of the NYSE if trading on the NYSE is restricted, if the NYSE closes earlier, or as may be permitted by the SEC.
Fair Value The funds financial instruments are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The T. Rowe Price Valuation Committee (the Valuation Committee) is an internal committee that has been delegated certain responsibilities by the funds Board of Directors (the Board) to ensure that financial instruments are appropriately priced at fair value in accordance with GAAP and the 1940 Act. Subject to oversight by the Board, the Valuation Committee develops and oversees pricing-related policies and procedures and approves all fair value determinations. Specifically, the Valuation Committee establishes procedures to value securities; determines pricing techniques, sources, and persons eligible to effect fair value pricing actions; oversees the selection, services, and performance of pricing vendors; oversees valuation-related business continuity practices; and provides guidance on internal controls and valuation-related matters. The Valuation Committee reports to the Board and has representation from legal, portfolio management and trading, operations, risk management, and the funds treasurer.
Various valuation techniques and inputs are used to determine the fair value of financial instruments. GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value:
Level 1 quoted prices (unadjusted) in active markets for identical financial instruments that the fund can access at the reporting date
Level 2 inputs other than Level 1 quoted prices that are observable, either directly or indirectly (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads)
Level 3 unobservable inputs
Observable inputs are developed using market data, such as publicly available information about actual events or transactions, and reflect the assumptions that market participants would use to price the financial instrument. Unobservable inputs are those for which market data are not available and are developed using the best information available about the assumptions that market participants would use to price the financial instrument. GAAP requires valuation techniques to maximize the use of relevant observable inputs and minimize the use of unobservable inputs. When multiple inputs are used to derive fair value, the financial instrument is assigned to the level within the fair value hierarchy based on the lowest-level input that is significant to the fair value of the financial instrument. Input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level but rather the degree of judgment used in determining those values.
Valuation Techniques Debt securities generally are traded in the over-the-counter (OTC) market. Securities with remaining maturities of one year or more at the time of acquisition are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service, which considers the yield or price of bonds of comparable quality, coupon, maturity, and type, as well as prices quoted by dealers who make markets in such securities. Securities with remaining maturities of less than one year at the time of acquisition generally use amortized cost in local currency to approximate fair value. However, if amortized cost is deemed not to reflect fair value or the fund holds a significant amount of such securities with remaining maturities of more than 60 days, the securities are valued at prices furnished by dealers who make markets in such securities or by an independent pricing service. Generally, debt securities are categorized in Level 2 of the fair value hierarchy; however, to the extent the valuations include significant unobservable inputs, the securities would be categorized in Level 3.
Equity securities listed or regularly traded on a securities exchange or in the OTC market are valued at the last quoted sale price or, for certain markets, the official closing price at the time the valuations are made. OTC Bulletin Board securities are valued at the mean of the closing bid and asked prices. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the closing bid and asked prices for domestic securities and the last quoted sale or closing price for international securities.
For valuation purposes, the last quoted prices of non-U.S. equity securities may be adjusted to reflect the fair value of such securities at the close of the NYSE. If the fund determines that developments between the close of a foreign market and the close of the NYSE will, in its judgment, materially affect the value of some or all of its portfolio securities, the fund will adjust the previous quoted prices to reflect what it believes to be the fair value of the securities as of the close of the NYSE. In deciding whether it is necessary to adjust quoted prices to reflect fair value, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The fund may also fair value securities in other situations, such as when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with quoted prices and information to evaluate or adjust those prices. The fund cannot predict how often it will use quoted prices and how often it will determine it necessary to adjust those prices to reflect fair value. As a means of evaluating its security valuation process, the fund routinely compares quoted prices, the next days opening prices in the same markets, and adjusted prices.
Actively traded equity securities listed on a domestic exchange generally are categorized in Level 1 of the fair value hierarchy. Non-U.S. equity securities generally are categorized in Level 2 of the fair value hierarchy despite the availability of quoted prices because, as described above, the fund evaluates and determines whether those quoted prices reflect fair value at the close of the NYSE or require adjustment. OTC Bulletin Board securities, certain preferred securities, and equity securities traded in inactive markets generally are categorized in Level 2 of the fair value hierarchy.
Investments in mutual funds are valued at the mutual funds closing NAV per share on the day of valuation and are categorized in Level 1 of the fair value hierarchy. Listed options, and OTC options with a listed equivalent, are valued at the mean of the closing bid and asked prices and generally are categorized in Level 2 of the fair value hierarchy. Forward currency exchange contracts are valued using the prevailing forward exchange rate and are categorized in Level 2 of the fair value hierarchy. Swaps are valued at prices furnished by an independent pricing service or independent swap dealers and generally are categorized in Level 2 of the fair value hierarchy; however, if unobservable inputs are significant to the valuation, the swap would be categorized in Level 3. Assets and liabilities other than financial instruments, including short-term receivables and payables, are carried at cost, or estimated realizable value, if less, which approximates fair value.
Thinly traded financial instruments and those for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by the Valuation Committee. The objective of any fair value pricing determination is to arrive at a price that could reasonably be expected from a current sale. Financial instruments fair valued by the Valuation Committee are primarily private placements, restricted securities, warrants, rights, and other securities that are not publicly traded.
Subject to oversight by the Board, the Valuation Committee regularly makes good faith judgments to establish and adjust the fair valuations of certain securities as events occur and circumstances warrant. For instance, in determining the fair value of troubled or thinly traded debt instruments, the Valuation Committee considers a variety of factors, which may include, but are not limited to, the issuers business prospects, its financial standing and performance, recent investment transactions in the issuer, strategic events affecting the company, market liquidity for the issuer, and general economic conditions and events. In consultation with the investment and pricing teams, the Valuation Committee will determine an appropriate valuation technique based on available information, which may include both observable and unobservable inputs. The Valuation Committee typically will afford greatest weight to actual prices in arms length transactions, to the extent they represent orderly transactions between market participants, transaction information can be reliably obtained, and prices are deemed representative of fair value. However, the Valuation Committee may also consider other valuation methods such as a discount or premium from market value of a similar, freely traded security of the same issuer; discounted cash flows; yield to maturity; or some combination. Fair value determinations are reviewed on a regular basis and updated as information becomes available, including actual purchase and sale transactions of the issue. Because any fair value determination involves a significant amount of judgment, there is a degree of subjectivity inherent in such pricing decisions, and fair value prices determined by the Valuation Committee could differ from those of other market participants. Depending on the relative significance of unobservable inputs, including the valuation technique(s) used, fair valued securities may be categorized in Level 2 or 3 of the fair value hierarchy.
Valuation Inputs The following table summarizes the funds financial instruments, based on the inputs used to determine their fair values on May 31, 2017:
There were no material transfers between Levels 1 and 2 during the year ended May 31, 2017.
Following is a reconciliation of the funds Level 3 holdings for the year ended May 31, 2017. Gain (loss) reflects both realized and change in unrealized gain/loss on Level 3 holdings during the period, if any, and is included on the accompanying Statement of Operations. The change in unrealized gain/loss on Level 3 instruments held at May 31, 2017, totaled $1,017,000 for the year ended May 31, 2017. Transfers into and out of Level 3 are reflected at the value of the financial instrument at the beginning of the period. During the year, transfers into Level 3 resulted from a lack of observable market data for the security and transfers out of Level 3 were because observable market data became available for the security.
NOTE 3 - DERIVATIVE INSTRUMENTS
During the year ended May 31, 2017, the fund invested in derivative instruments. As defined by GAAP, a derivative is a financial instrument whose value is derived from an underlying security price, foreign exchange rate, interest rate, index of prices or rates, or other variable; it requires little or no initial investment and permits or requires net settlement. The fund invests in derivatives only if the expected risks and rewards are consistent with its investment objectives, policies, and overall risk profile, as described in its prospectus and Statement of Additional Information. The fund may use derivatives for a variety of purposes, such as seeking to hedge against declines in principal value, increase yield, invest in an asset with greater efficiency and at a lower cost than is possible through direct investment, or to adjust portfolio duration and credit exposure. The risks associated with the use of derivatives are different from, and potentially much greater than, the risks associated with investing directly in the instruments on which the derivatives are based. The fund at all times maintains sufficient cash reserves, liquid assets, or other SEC-permitted asset types to cover its settlement obligations under open derivative contracts.
The fund values its derivatives at fair value and recognizes changes in fair value currently in its results of operations. Accordingly, the fund does not follow hedge accounting, even for derivatives employed as economic hedges. Generally, the fund accounts for its derivatives on a gross basis. It does not offset the fair value of derivative liabilities against the fair value of derivative assets on its financial statements, nor does it offset the fair value of derivative instruments against the right to reclaim or obligation to return collateral. The following table summarizes the fair value of the funds derivative instruments held as of May 31, 2017, and the related location on the accompanying Statement of Assets and Liabilities, presented by primary underlying risk exposure:
Additionally, the amount of gains and losses on derivative instruments recognized in fund earnings during the year ended May 31, 2017, and the related location on the accompanying Statement of Operations is summarized in the following table by primary underlying risk exposure:
Counterparty Risk and Collateral The fund invests in derivatives in various markets, which expose it to differing levels of counterparty risk. Counterparty risk on exchange-traded and centrally cleared derivative contracts, such as futures, exchange-traded options, and centrally cleared swaps, is minimal because the clearinghouse provides protection against counterparty defaults. For futures and centrally cleared swaps, the fund is required to deposit collateral in an amount specified by the clearinghouse and the clearing firm (margin requirement), and the margin requirement must be maintained over the life of the contract. Each clearinghouse and clearing firm, in its sole discretion, may adjust the margin requirements applicable to the fund.
Derivatives, such as bilateral swaps, forward currency exchange contracts, and OTC options, that are transacted and settle directly with a counterparty (bilateral derivatives) expose the fund to greater counterparty risk. To mitigate this risk, the fund has entered into master netting arrangements (MNAs) with certain counterparties that permit net settlement under specified conditions and, for certain counterparties, also require the exchange of collateral to cover mark-to-market exposure. MNAs may be in the form of International Swaps and Derivatives Association master agreements (ISDAs) or foreign exchange letter agreements (FX letters).
MNAs provide the ability to offset amounts the fund owes a counterparty against amounts the counterparty owes the fund (net settlement). Both ISDAs and FX letters generally allow termination of transactions and net settlement upon the occurrence of contractually specified events, such as failure to pay or bankruptcy. In addition, ISDAs specify other events, the occurrence of which would allow one of the parties to terminate. For example, a downgrade in credit rating of a counterparty would allow the fund to terminate while a decline in the funds net assets of more than a specified percentage would allow the counterparty to terminate. Upon termination, all transactions with that counterparty would be liquidated and a net termination amount settled. ISDAs include collateral agreements whereas FX letters do not. Collateral requirements are determined daily based on the net aggregate unrealized gain or loss on all bilateral derivatives with a counterparty, subject to minimum transfer amounts that typically range from $100,000 to $250,000. Any additional collateral required due to changes in security values is typically transferred the same business day.
Collateral may be in the form of cash or debt securities issued by the U.S. government or related agencies. Cash posted by the fund is reflected as cash deposits in the accompanying financial statements and generally is restricted from withdrawal by the fund; securities posted by the fund are so noted in the accompanying Portfolio of Investments; both remain in the funds assets. Collateral pledged by counterparties is not included in the funds assets because the fund does not obtain effective control over those assets. For bilateral derivatives, collateral posted or received by the fund is held in a segregated account at the funds custodian. As of May 31, 2017, securities valued at $355,000 had been posted by the fund to counterparties for bilateral derivatives. As of May 31, 2017, collateral pledged by counterparties to the fund for bilateral derivatives consisted of $538,000 cash and securities valued at $2,052,000. As of May 31, 2017, securities valued at $5,904,000 had been posted by the fund for exchange-traded and/or centrally cleared derivatives.
Forward Currency Exchange Contracts The fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. It uses forward currency exchange contracts (forwards) primarily to protect its non-U.S. dollar-denominated securities from adverse currency movements relative to the U.S. dollar. A forward involves an obligation to purchase or sell a fixed amount of a specific currency on a future date at a price set at the time of the contract. Although certain forwards may be settled by exchanging only the net gain or loss on the contract, most forwards are settled with the exchange of the underlying currencies in accordance with the specified terms. Forwards are valued at the unrealized gain or loss on the contract, which reflects the net amount the fund either is entitled to receive or obligated to deliver, as measured by the difference between the forward exchange rates at the date of entry into the contract and the forward rates at the reporting date. Appreciated forwards are reflected as assets and depreciated forwards are reflected as liabilities on the accompanying Statement of Assets and Liabilities. Risks related to the use of forwards include the possible failure of counterparties to meet the terms of the agreements; that anticipated currency movements will not occur, thereby reducing the funds total return; and the potential for losses in excess of the funds initial investment. During the year ended May 31, 2017, the volume of the funds activity in forwards, based on underlying notional amounts, was generally between 4% and 8% of net assets.
Options The fund is subject to interest rate risk in the normal course of pursuing its investment objectives and uses options to help manage such risk. The fund may use options to manage exposure to security prices, interest rates, foreign currencies, and credit quality; as an efficient means of adjusting exposure to all or a part of a target market; to enhance income; as a cash management tool; or to adjust credit exposure. Options are included in net assets at fair value, purchased options are included in Investments in Securities, and written options are separately reflected as a liability on the accompanying Statement of Assets and Liabilities. Premiums on unexercised, expired options are recorded as realized gains or losses; premiums on exercised options are recorded as an adjustment to the proceeds from the sale or cost of the purchase. The difference between the premium and the amount received or paid in a closing transaction is also treated as realized gain or loss. In return for a premium paid, options on swaps give the holder the right, but not the obligation, to enter a specified swap contract on predefined terms. The exercise price of an option on a credit default swap is stated in terms of a specified spread that represents the cost of credit protection on the reference asset, including both the upfront premium to open the position and future periodic payments. The exercise price of an interest rate swap is stated in terms of a fixed interest rate; generally, there is no upfront payment to open the position. Risks related to the use of options include possible illiquidity of the options markets; trading restrictions imposed by an exchange or counterparty; movements in the underlying asset values and interest rates; and, for written options, potential losses in excess of the funds initial investment. During the year ended May 31, 2017, the volume of the funds activity in options, based on underlying notional amounts, was generally between 0% and 10% of net assets. Transactions in written options and related premiums received during the year ended May 31, 2017, were as follows:
Swaps The fund is subject to credit risk in the normal course of pursuing its investment objectives and uses swap contracts to help manage such risk. The fund may use swaps in an effort to manage exposure to changes in interest rates, inflation rates, and credit quality; to adjust overall exposure to certain markets; to enhance total return or protect the value of portfolio securities; to serve as a cash management tool; or to adjust portfolio duration and credit exposure. Swap agreements can be settled either directly with the counterparty (bilateral swap) or through a central clearinghouse (centrally cleared swap). Fluctuations in the fair value of a contract are reflected in unrealized gain or loss and are reclassified to realized gain or loss upon contract termination or cash settlement. Net periodic receipts or payments required by a contract increase or decrease, respectively, the value of the contract until the contractual payment date, at which time such amounts are reclassified from unrealized to realized gain or loss. For bilateral swaps, cash payments are made or received by the fund on a periodic basis in accordance with contract terms; unrealized gain on contracts and premiums paid are reflected as assets and unrealized loss on contracts and premiums received are reflected as liabilities on the accompanying Statement of Assets and Liabilities. For bilateral swaps, premiums paid or received are amortized over the life of the swap and are recognized as realized gain or loss in the Statement of Operations. For centrally cleared swaps, payments are made or received by the fund each day to settle the daily fluctuation in the value of the contract (variation margin). Accordingly, the value of a centrally cleared swap included in net assets is the unsettled variation margin; net variation margin receivable is reflected as an asset and net variation margin payable is reflected as a liability on the accompanying Statement of Assets and Liabilities.
Credit default swaps are agreements where one party (the protection buyer) agrees to make periodic payments to another party (the protection seller) in exchange for protection against specified credit events, such as certain defaults and bankruptcies related to an underlying credit instrument, or issuer or index of such instruments. Upon occurrence of a specified credit event, the protection seller is required to pay the buyer the difference between the notional amount of the swap and the value of the underlying credit, either in the form of a net cash settlement or by paying the gross notional amount and accepting delivery of the relevant underlying credit. For credit default swaps where the underlying credit is an index, a specified credit event may affect all or individual underlying securities included in the index and will be settled based upon the relative weighting of the affected underlying security(ies) within the index. Generally, the payment risk for the seller of protection is inversely related to the current market price or credit rating of the underlying credit or the market value of the contract relative to the notional amount, which are indicators of the markets valuation of credit quality. As of May 31, 2017, the notional amount of protection sold by the fund totaled $3,400,000 (0.0% of net assets), which reflects the maximum potential amount the fund could be required to pay under such contracts. Risks related to the use of credit default swaps include the possible inability of the fund to accurately assess the current and future creditworthiness of underlying issuers, the possible failure of a counterparty to perform in accordance with the terms of the swap agreements, potential government regulation that could adversely affect the funds swap investments, and potential losses in excess of the funds initial investment.
During the year ended May 31, 2017, the volume of the funds activity in swaps, based on underlying notional amounts, was generally between 0% and 3% of net assets.
NOTE 4 - OTHER INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks and/or to enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the funds prospectus and Statement of Additional Information.
Noninvestment-Grade Debt At May 31, 2017, approximately 90% of the funds net assets were invested, either directly or through its investment in T. Rowe Price institutional funds, in noninvestment-grade debt, including high yield or junk bonds or leveraged loans. The noninvestment-grade debt market may experience sudden and sharp price swings due to a variety of factors, including changes in economic forecasts, stock market activity, large sustained sales by major investors, a high-profile default, or a change in market sentiment. These events may decrease the ability of issuers to make principal and interest payments and adversely affect the liquidity or value, or both, of such securities. Investments in noninvestment-grade holdings may be considered speculative.
Restricted Securities The fund may invest in securities that are subject to legal or contractual restrictions on resale. Prompt sale of such securities at an acceptable price may be difficult and may involve substantial delays and additional costs.
Bank Loans The fund may invest in bank loans, which represent an interest in amounts owed by a borrower to a syndicate of lenders. Bank loans are generally noninvestment grade and often involve borrowers whose financial condition is highly leveraged. Bank loans may be in the form of either assignments or participations. A loan assignment transfers all legal, beneficial, and economic rights to the buyer, and transfer typically requires consent of both the borrower and agent. In contrast, a loan participation generally entitles the buyer to receive the cash flows from principal, interest, and any fee payments on a portion of a loan; however, the seller continues to hold legal title to that portion of the loan. As a result, the buyer of a loan participation generally has no direct recourse against the borrower and is exposed to credit risk of both the borrower and seller of the participation. Bank loans often have extended settlement periods, usually may be repaid at any time at the option of the borrower, and may require additional principal to be funded at the borrowers discretion at a later date (unfunded commitments). Until settlement, the fund maintains liquid assets sufficient to settle its unfunded loan commitments. The fund reflects both the funded portion of a bank loan as well as its unfunded commitment in the Portfolio of Investments. However, if a credit agreement provides no initial funding of a tranche, and funding of the full commitment at a future date(s) is at the borrowers discretion and considered uncertain, a loan is reflected in the Portfolio of Investments only if, and only to the extent that, the fund has actually settled a funding commitment. At May 31, 2017, the funds total unfunded commitments not included in the Portfolio of Investments were $52,770,000.
Other Purchases and sales of portfolio securities other than short-term and U.S. government securities aggregated $6,620,362,000 and $7,181,291,000, respectively, for the year ended May 31, 2017. Purchases and sales of U.S. government securities aggregated $288,523,000 and $289,687,000, respectively, for the year ended May 31, 2017.
NOTE 5 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code and distribute to shareholders all of its taxable income and gains. Distributions determined in accordance with federal income tax regulations may differ in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences.
The fund files U.S. federal, state, and local tax returns as required. The funds tax returns are subject to examination by the relevant tax authorities until expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return but which can be extended to six years in certain circumstances. Tax returns for open years have incorporated no uncertain tax positions that require a provision for income taxes.
Reclassifications between income and gain relate primarily to differences between book/tax amortization policies. For the year ended May 31, 2017, the following reclassifications were recorded to reflect tax character (there was no impact on results of operations or net assets):
Distributions during the years ended May 31, 2017 and May 31, 2016, totaled $592,118,000 and $573,082,000, respectively, and were characterized as ordinary income. At May 31, 2017, the tax-basis cost of investments and components of net assets were as follows:
The fund intends to retain realized gains to the extent of available capital loss carryforwards. Net realized capital losses may be carried forward indefinitely to offset future realized capital gains. During the year ended May 31, 2017, the fund utilized $178,577,000 of capital loss carryforwards.
In accordance with federal tax laws applicable to investment companies, all or a portion of net losses resulting from (a) specified gains and losses realized between November 1 and the funds fiscal year-end plus (b) ordinary income or loss realized between January 1 and the funds fiscal year-end are not recognized for tax purposes until the subsequent year (late-year ordinary loss deferrals); however, such losses are recognized for financial reporting purposes in the year realized.
NOTE 6 - RELATED PARTY TRANSACTIONS
The fund is managed by T. Rowe Price Associates, Inc. (Price Associates), a wholly owned subsidiary of T. Rowe Price Group, Inc. (Price Group). The investment management agreement between the fund and Price Associates provides for an annual investment management fee, which is computed daily and paid monthly. The fee consists of an individual fund fee, equal to 0.30% of the funds average daily net assets, and a group fee. The group fee rate is calculated based on the combined net assets of certain mutual funds sponsored by Price Associates (the group) applied to a graduated fee schedule, with rates ranging from 0.48% for the first $1 billion of assets to 0.265% for assets in excess of $650 billion. The funds group fee is determined by applying the group fee rate to the funds average daily net assets. At May 31, 2017, the effective annual group fee rate was 0.29%.
The I Class is subject to an operating expense limitation (I Class limit) pursuant to which Price Associates is contractually required to pay all operating expenses of the I Class, excluding management fees, interest, expenses related to borrowings, taxes, brokerage, and other non-recurring expenses permitted by the investment management agreement, to the extent such operating expenses, on an annualized basis, exceed 0.05% of average net assets. This agreement will continue until September 30, 2017 and may be renewed, revised, or revoked only with approval of the funds Board. The I Class is required to repay Price Associates for expenses previously paid to the extent the classs net assets grow or expenses decline sufficiently to allow repayment without causing the classs operating expenses to exceed the I Class limit in effect at the time of the waiver. However, no repayment will be made more than three years after the date of a payment or waiver. For the year ended May 31, 2017, the I Class operated below its expense limitation.
In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates provides certain accounting and administrative services to the fund. T. Rowe Price Services, Inc. provides shareholder and administrative services in its capacity as the funds transfer and dividend-disbursing agent. T. Rowe Price Retirement Plan Services, Inc. provides subaccounting and recordkeeping services for certain retirement accounts invested in the Investor Class and I Class. For the year ended May 31, 2017, expenses incurred pursuant to these service agreements were $81,000 for Price Associates; $1,488,000 for T. Rowe Price Services, Inc.; and $242,000 for T. Rowe Price Retirement Plan Services, Inc. The total amount payable at period-end pursuant to these service agreements is reflected as Due to Affiliates in the accompanying financial statements.
Additionally, the fund is one of several mutual funds in which certain college savings plans managed by Price Associates may invest. As approved by the funds Board of Directors, shareholder servicing costs associated with each college savings plan are borne by the fund in proportion to the average daily value of its shares owned by the college savings plan. For the year ended May 31, 2017, the fund was charged $26,000 for shareholder servicing costs related to the college savings plans, of which $22,000 was for services provided by Price. The amount payable at period-end pursuant to this agreement is reflected as Due to Affiliates in the accompanying financial statements. At May 31, 2017, less than 1% of the outstanding shares of the Investor Class were held by college savings plans.
The fund is also one of several mutual funds sponsored by Price Associates (underlying Price funds) in which the T. Rowe Price Spectrum Funds (Spectrum Funds) and T. Rowe Price Retirement Funds (Retirement Funds) may invest. None of the Spectrum Funds or Retirement Funds invest in the underlying Price funds for the purpose of exercising management or control. Pursuant to special servicing agreements, expenses associated with the operation of the Spectrum Funds and Retirement Funds are borne by each underlying Price fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by the Spectrum Funds and Retirement Funds.
Expenses allocated under these agreements are reflected as shareholder servicing expense in the accompanying financial statements. For the year ended May 31 2017, the fund was allocated $1,371,000 of Spectrum Funds expenses and $5,744,000 of Retirement Funds expenses. Of these amounts, $3,108,000 related to services provided by Price. At period-end, the amount payable to Price pursuant to these agreements is reflected as Due to Affiliates in the accompanying financial statements. At May 31, 2017, approximately 60% of the outstanding shares of the Investor Class were held by the Spectrum Funds and Retirement Funds.
In addition, other mutual funds, trusts, and other accounts managed by Price Associates or its affiliates (collectively, Price funds and accounts) may invest in the fund and are not subject to the special servicing agreements disclosed above. No Price fund or account may invest for the purpose of exercising management or control over the fund. At May 31, 2017, approximately 18% of the I Classs outstanding shares were held by Price funds and accounts.
The fund may invest in the T. Rowe Price Government Reserve Fund, the T. Rowe Price Treasury Reserve Fund, or the T. Rowe Price Short-Term Fund (collectively, the Price Reserve Funds), open-end management investment companies managed by Price Associates and considered affiliates of the fund. The Price Reserve Funds are offered as short-term investment options to mutual funds, trusts, and other accounts managed by Price Associates or its affiliates and are not available for direct purchase by members of the public. The Price Reserve Funds pay no investment management fees.
The fund may also invest in certain other T. Rowe Price funds (Price Funds) as a means of gaining efficient and cost-effective exposure to certain markets. The fund does not invest for the purpose of exercising management or control; however, investments by the fund may represent a significant portion of an underlying Price Funds net assets. Each underlying Price Fund is an open-end management investment company managed by Price Associates and is considered an affiliate of the fund. To ensure that the fund does not incur duplicate management fees (paid by the underlying Price Fund(s) and the fund), Price Associates has agreed to permanently waive a portion of its management fee charged to the fund in an amount sufficient to fully offset that portion of management fees paid by each underlying Price Fund related to the funds investment therein. Annual management fee rates and amounts waived related to investments in the underlying Price Fund(s) for the year ended May 31, 2017, are as follows:
The fund may participate in securities purchase and sale transactions with other funds or accounts advised by Price Associates (cross trades), in accordance with procedures adopted by the funds Board and Securities and Exchange Commission rules, which require, among other things, that such purchase and sale cross trades be effected at the independent current market price of the security. During the year ended May 31, 2017, the fund had no purchases or sales cross trades with other funds or accounts advised by Price Associates.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors of T. Rowe
Price High Yield Fund, Inc. and
Shareholders of T. Rowe Price High Yield
Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of the T. Rowe Price High Yield Fund, Inc. (one of the portfolios comprising T. Rowe Price High Yield Fund, Inc., hereafter referred to as the Fund) as of May 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as financial statements) are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities as of May 31, 2017 by correspondence with the custodian and brokers, and confirmation of the underlying funds by correspondence with the transfer agent, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore,
Maryland
July 19, 2017
Tax Information (Unaudited) for the Tax Year Ended 5/31/17 |
We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements.
The funds distributions to shareholders included $25,391,000 from short-term capital gains.
For taxable non-corporate shareholders, $2,506,000 of the funds income represents qualified dividend income subject to a long-term capital gains tax rate of not greater than 20%.
For corporate shareholders, $1,291,000 of the funds income qualifies for the dividends-received deduction.
Information on Proxy Voting Policies, Procedures, and Records |
A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxies relating to portfolio securities is available in each funds Statement of Additional Information. You may request this document by calling 1-800-225-5132 or by accessing the SECs website, sec.gov.
The description of our proxy voting policies and procedures is also available on our corporate website. To access it, please visit the following Web page:
https://www3.troweprice.com/usis/corporate/en/utility/policies.html
Scroll down to the section near the bottom of the page that says, Proxy Voting Policies. Click on the Proxy Voting Policies link in the shaded box.
Each funds most recent annual proxy voting record is available on our website and through the SECs website. To access it through T. Rowe Price, visit the website location shown above, and scroll down to the section near the bottom of the page that says, Proxy Voting Records. Click on the Proxy Voting Records link in the shaded box.
How to Obtain Quarterly Portfolio Holdings |
The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The funds Form N-Q is available electronically on the SECs website (sec.gov); hard copies may be reviewed and copied at the SECs Public Reference Room, 100 F St. N.E., Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.
Approval of Investment Management Agreement |
Each year, the funds Board of Directors (Board) considers the continuation of the investment management agreement (Advisory Contract) between the fund and its investment advisor, T. Rowe Price Associates, Inc. (Advisor). In that regard, at an in-person meeting held on March 67, 2017 (Meeting), the Board, including a majority of the funds independent directors, approved the continuation of the funds Advisory Contract. At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of the Advisor and the approval of the Advisory Contract. The independent directors were assisted in their evaluation of the Advisory Contract by independent legal counsel from whom they received separate legal advice and with whom they met separately.
In providing information to the Board, the Advisor was guided by a detailed set of requests for information submitted by independent legal counsel on behalf of the independent directors. In considering and approving the Advisory Contract, the Board considered the information it believed was relevant, including, but not limited to, the information discussed below. The Board considered not only the specific information presented in connection with the Meeting but also the knowledge gained over time through interaction with the Advisor about various topics. The Board meets regularly and, at each of its meetings, covers an extensive agenda of topics and materials and considers factors that are relevant to its annual consideration of the renewal of the T. Rowe Price funds advisory contracts, including performance and the services and support provided to the funds and their shareholders.
Services Provided by the Advisor
The Board considered the nature, quality,
and extent of the services provided to the fund by the Advisor. These services
included, but were not limited to, directing the funds investments in
accordance with its investment program and the overall management of the funds
portfolio, as well as a variety of related activities such as financial,
investment operations, and administrative services; compliance; maintaining the
funds records and registrations; and shareholder communications. The Board also
reviewed the background and experience of the Advisors senior management team
and investment personnel involved in the management of the fund, as well as the
Advisors compliance record. The Board concluded that it was satisfied with the
nature, quality, and extent of the services provided by the Advisor.
Investment Performance of the Fund
The Board took into account discussions
with the Advisor and reports that it receives throughout the year relating to
fund performance. In connection with the Meeting, the Board reviewed the funds
net annualized total returns for the 1-, 2-, 3-, 4-, 5-, and 10-year periods as
of September 30, 2016, and compared these returns with the performance of a peer
group of funds with similar investment programs and a wide variety of other
previously agreed-upon comparable performance measures and market data,
including those supplied by Broadridge, which is an independent provider of
mutual fund data.
On the basis of this evaluation and the Boards ongoing review of investment results, and factoring in the relative market conditions during certain of the performance periods, the Board concluded that the funds performance was satisfactory.
Costs, Benefits, Profits, and Economies
of Scale
The Board reviewed detailed
information regarding the revenues received by the Advisor under the Advisory
Contract and other benefits that the Advisor (and its affiliates) may have
realized from its relationship with the fund, including any research received
under soft dollar agreements and commission-sharing arrangements with
broker-dealers. The Board considered that the Advisor may receive some benefit
from soft-dollar arrangements pursuant to which research is received from
broker-dealers that execute the funds portfolio transactions. The Board
received information on the estimated costs incurred and profits realized by the
Advisor from managing the T. Rowe Price funds. The Board also reviewed estimates
of the profits realized from managing the fund in particular, and the Board
concluded that the Advisors profits were reasonable in light of the services
provided to the fund.
The Board also considered whether the fund benefits under the fee levels set forth in the Advisory Contract from any economies of scale realized by the Advisor. Under the Advisory Contract, the fund pays a fee to the Advisor for investment management services composed of two componentsa group fee rate based on the combined average net assets of most of the T. Rowe Price funds (including the fund) that declines at certain asset levels and an individual fund fee rate based on the funds average daily net assetsand the fund pays its own expenses of operations (subject to an expense limitation agreed to by the Advisor with respect to the funds I Class). At the Meeting, the Board approved an additional 0.005% breakpoint to the group fee schedule, effective May 1, 2017. With the new breakpoint, the group fee rate will decline to 0.265% when the combined average net assets of the applicable T. Rowe Price funds exceed $650 billion. The Board concluded that the advisory fee structure for the fund continued to provide for a reasonable sharing of benefits from any economies of scale with the funds investors.
Fees and Expenses
The Board was provided with information regarding industry
trends in management fees and expenses. Among other things, the Board reviewed
data for peer groups that were compiled by Broadridge, which compared: (i)
contractual management fees, total expenses, actual management fees, and
non-management expenses of the Investor Class of the fund with a group of
competitor funds selected by Broadridge (Investor Class Expense Group); (ii)
total expenses and actual management fees of the Advisor Class of the fund with
a group of competitor funds selected by Broadridge (Advisor Class Expense
Group); and (iii) total expenses, actual management fees, and non-management
expenses of the Investor Class of the fund with a broader set of funds within
the Lipper investment classification (Expense Universe). The Board considered
the funds contractual management fee rate, actual management fee rate (which
reflects the management fees actually received
from the fund by the Advisor after any applicable waivers, reductions, or
reimbursements), operating expenses, and total expenses (which reflects the net
total expense ratio of the fund after any waivers, reductions, or
reimbursements) in comparison with the information for the Broadridge peer
groups. Broadridge generally constructed the peer groups by seeking the most
comparable funds based on similar investment classifications and objectives,
expense structure, asset size, and operating components and attributes and
ranked funds into quintiles, with the first quintile representing the funds with
the lowest relative expenses and the fifth quintile representing the funds with
the highest relative expenses. The information provided to the Board indicated
that the funds contractual management fee ranked in the third quintile
(Investor Class Expense Group), the funds actual management fee rate ranked in
the third quintile (Investor Class Expense Group) and fourth quintile (Advisor
Class Expense Group and Expense Universe), and the funds total expenses ranked
in the third quintile (Investor Class Expense Group), second quintile (Expense
Universe), and first and fourth quintiles (Advisor Class Expense Group).
The Board also reviewed the fee schedules for institutional accounts and private accounts with similar mandates that are advised or subadvised by the Advisor and its affiliates. Management provided the Board with information about the Advisors responsibilities and services provided to subadvisory and other institutional account clients, including information about how the requirements and economics of the institutional business are fundamentally different from those of the mutual fund business. The Board considered information showing that the Advisors mutual fund business is generally more complex from a business and compliance perspective than its institutional account business and considered various relevant factors, such as the broader scope of operations and oversight, more extensive shareholder communication infrastructure, greater asset flows, heightened business risks, and differences in applicable laws and regulations associated with the Advisors proprietary mutual fund business. In assessing the reasonableness of the funds management fee rate, the Board considered the differences in the nature of the services required for the Advisor to manage its mutual fund business versus managing a discrete pool of assets as a subadvisor to another institutions mutual fund or for an institutional account and that the Advisor generally performs significant additional services and assumes greater risk in managing the fund and other T. Rowe Price funds than it does for institutional account clients.
On the basis of the information provided and the factors considered, the Board concluded that the fees paid by the fund under the Advisory Contract are reasonable.
Approval of the Advisory Contract
As noted, the Board approved the
continuation of the Advisory Contract. No single factor was considered in
isolation or to be determinative to the decision. Rather, the Board concluded,
in light of a weighting and balancing of all factors considered, that it was in
the best interests of the fund and its shareholders for the Board to approve the
continuation of the Advisory Contract (including the fees to be charged for
services thereunder).
About the Funds Directors and Officers |
Your fund is overseen by a Board of Directors (Board) that meets regularly to review a wide variety of matters affecting or potentially affecting the fund, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and business and regulatory affairs. The Board elects the funds officers, who are listed in the final table. At least 75% of the Boards members are independent of T. Rowe Price Associates, Inc. (T. Rowe Price), and its affiliates; inside or interested directors are employees or officers of T. Rowe Price. The business address of each director and officer is 100 East Pratt Street, Baltimore, Maryland 21202. The Statement of Additional Information includes additional information about the fund directors and is available without charge by calling a T. Rowe Price representative at 1-800-638-5660.
Independent Directors | ||
Name | ||
(Year of Birth) | ||
Year Elected* | ||
[Number of T. Rowe Price | Principal Occupation(s) and Directorships of Public Companies and | |
Portfolios Overseen] | Other Investment Companies During the Past Five Years | |
Anthony W. Deering | Chairman, Exeter Capital, LLC, a private investment firm (2004 to | |
(1945) | present); Director and Advisory Board Member, Deutsche Bank North | |
1984 | America (2004 to present); Director, Vornado Real Estate Investment | |
[189] | Trust (2004 to 2012); Director, Under Armour (2008 to present); | |
Director, Brixmor Real Estate Investment Trust (2012 to present) | ||
Bruce W. Duncan | Chief Executive Officer and Director (2009 to December 2016), | |
(1951) | Chairman of the Board (January 2016 to present), and President | |
2013 | (2009 to September 2016), First Industrial Realty Trust, an owner | |
[189] | and operator of industrial properties; Chairman of the Board | |
(2005 to September 2016) and Director (1999 to September | ||
2016), Starwood Hotels & Resorts, a hotel and leisure company; | ||
Director, Boston Properties (May 2016 to present); Director, Marriott | ||
International, Inc. (September 2016 to present) | ||
Robert J. Gerrard, Jr. | Advisory Board Member, Pipeline Crisis/Winning Strategies, a | |
(1952) | collaborative working to improve opportunities for young African | |
2013 | Americans (1997 to present) | |
[189] | ||
Paul F. McBride | Advisory Board Member, Vizzia Technologies (2015 to present) | |
(1956) | ||
2013 | ||
[189] | ||
Cecilia E. Rouse, Ph.D. | Dean, Woodrow Wilson School (2012 to present); Professor and | |
(1963) | Researcher, Princeton University (1992 to present); Member of | |
2013 | National Academy of Education (2010 to present); Director, MDRC, | |
[189] | a nonprofit education and social policy research organization (2011 | |
to present); Research Associate of Labor Studies Program (2011 | ||
to 2015) and Board Member (2015 to present), National Bureau | ||
of Economic Research (2011 to present); Chair of Committee | ||
on the Status of Minority Groups in the Economic Profession | ||
(2012 to present); Vice President (2015 to present), American | ||
Economic Association | ||
John G. Schreiber | Owner/President, Centaur Capital Partners, Inc., a real estate | |
(1946) | investment company (1991 to present); Cofounder, Partner, and | |
1992 | Cochairman of the Investment Committee, Blackstone Real Estate | |
[189] | Advisors, L.P. (1992 to 2015); Director, General Growth Properties, | |
Inc. (2010 to 2013); Director, Blackstone Mortgage Trust, a real | ||
estate finance company (2012 to 2016); Director and Chairman of | ||
the Board, Brixmor Property Group, Inc. (2013 to present); Director, | ||
Hilton Worldwide (2013 to present); Director, Hudson Pacific | ||
Properties (2014 to 2016) | ||
Mark R. Tercek | President and Chief Executive Officer, The Nature Conservancy | |
(1957) | (2008 to present) | |
2009 | ||
[189] | ||
*Each independent director serves until retirement, resignation, or election of a successor. |
Inside Directors | ||
Name | ||
(Year of Birth) | ||
Year Elected* | ||
[Number of T. Rowe Price | Principal Occupation(s) and Directorships of Public Companies and | |
Portfolios Overseen] | Other Investment Companies During the Past Five Years | |
Edward C. Bernard | Director and Vice President, T. Rowe Price; Vice Chairman of the | |
(1956) | Board, Director, and Vice President, T. Rowe Price Group, Inc.; | |
2006 | Chairman of the Board, Director, and Vice President, T. Rowe Price | |
[189] | Investment Services, Inc., and T. Rowe Price Services, Inc.; Chairman | |
of the Board and Director, T. Rowe Price Retirement Plan Services, | ||
Inc.; Chairman of the Board, Chief Executive Officer, Director, and | ||
President, T. Rowe Price International and T. Rowe Price Trust | ||
Company; Chairman of the Board, all funds | ||
Edward A. Wiese, CFA | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., T. Rowe | |
(1959) | Price International, and T. Rowe Price Trust Company; President, | |
2015 | High Yield Fund | |
[57] | ||
*Each inside director serves until retirement, resignation, or election of a successor. |
Officers | ||
Name (Year of Birth) | ||
Position Held With High Yield Fund | Principal Occupation(s) | |
Jason A. Bauer (1979) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Darrell N. Braman (1963) | Vice President, Price Hong Kong, Price | |
Vice President and Secretary | Singapore, T. Rowe Price, T. Rowe Price Group, | |
Inc., T. Rowe Price International, T. Rowe Price | ||
Investment Services, Inc., and T. Rowe Price | ||
Services, Inc. | ||
Andrew M. Brooks (1956) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Charles Devereux (1969) | Vice President, T. Rowe Price | |
Vice President | ||
Michael F. Connelly, CFA (1977) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Michael Della Vedova (1969) | Vice President, T. Rowe Price Group, Inc., and | |
Vice President | T. Rowe Price International | |
Carson R. Dickson, CFA, CPA (1976) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Devon Everhart (1977) | Vice President, T. Rowe Price | |
Vice President | ||
Matthew Fanandakis (1983) | Vice President, T. Rowe Price | |
Vice President | ||
Stephen M. Finamore, CPA (1976) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Justin T. Gerbereux, CFA (1975) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
John R. Gilner (1961) | Chief Compliance Officer and Vice President, | |
Chief Compliance Officer | T. Rowe Price; Vice President, T. Rowe Price | |
Group, Inc., and T. Rowe Price Investment | ||
Services, Inc. | ||
Gregg Gola (1965) | Vice President, T. Rowe Price | |
Vice President | ||
Andrew P. Jamison (1981) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Paul J. Krug, CPA (1964) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
Kevin P. Loome, CFA (1967) | Vice President, T. Rowe Price and T. Rowe | |
Vice President | Price Group, Inc.; formerly, Head of U.S. Credit, | |
Henderson Global Investors (to 2017) and | ||
Head of High Yield and Bank Loans, Delaware | ||
Investments (to 2013) | ||
Paul M. Massaro, CFA (1975) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
Catherine D. Mathews (1963) | Vice President, T. Rowe Price, T. Rowe Price | |
Treasurer and Vice President | Group, Inc., and T. Rowe Price Trust Company | |
David Oestreicher (1967) | Director, Vice President, and Secretary, | |
Vice President | T. Rowe Price Investment Services, Inc., T. Rowe | |
Price Retirement Plan Services, Inc., T. Rowe | ||
Price Services, Inc., and T. Rowe Price Trust | ||
Company; Chief Legal Officer, Vice President, | ||
and Secretary, T. Rowe Price Group, Inc.; Vice | ||
President and Secretary, T. Rowe Price and | ||
T. Rowe Price International; Vice President, | ||
Price Hong Kong and Price Singapore | ||
John W. Ratzesberger (1975) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company; | |
formerly, North American Head of Listed | ||
Derivatives Operation, Morgan Stanley (to 2013) | ||
Shannon H. Rauser (1987) | Employee, T. Rowe Price | |
Assistant Secretary | ||
Brian A. Rubin, CPA (1974) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
Deborah D. Seidel (1962) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., T. Rowe Price Investment Services, | |
Inc., and T. Rowe Price Services, Inc. | ||
Jamie Shin, CFA (1984) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Michael J. Trivino (1981) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Mark J. Vaselkiv (1958) | Vice President, T. Rowe Price, T. Rowe Price | |
Executive Vice President | Group, Inc., and T. Rowe Price Trust Company | |
Thea N. Williams (1961) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
Douglas Zinser (1975) | Vice President, T. Rowe Price | |
Vice President | ||
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least 5 years. |
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrants Board of Directors/Trustees has determined that Mr. Bruce W. Duncan qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Duncan is considered independent for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) (d) Aggregate fees billed for the last two fiscal years for professional services rendered to, or on behalf of, the registrant by the registrants principal accountant were as follows:
Audit fees include amounts related to the audit of the registrants annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrants financial statements and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions. Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. All other fees include the registrants pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrants Board of Directors/Trustees.
(e)(1) The registrants audit committee has adopted a policy whereby audit and non-audit services performed by the registrants principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountants engagement to audit the registrants financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountants full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrants principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $1,765,000 and $2,409,000, respectively.
(h) All non-audit services rendered in (g) above were pre-approved by the registrants audit committee. Accordingly, these services were considered by the registrants audit committee in maintaining the principal accountants independence.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) Not applicable. The complete schedule of investments is included in Item 1 of this Form N-CSR.
(b) Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) The registrants principal executive officer and principal financial officer have evaluated the registrants disclosure controls and procedures within 90 days of this filing and have concluded that the registrants disclosure controls and procedures were effective, as of that date, in ensuring that information required to be disclosed by the registrant in this Form N-CSR was recorded, processed, summarized, and reported timely.
(b) The registrants principal executive officer and principal financial officer are aware of no change in the registrants internal control over financial reporting that occurred during the registrants second fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
Item 12. Exhibits.
(a)(1) The registrants code of ethics pursuant to Item 2 of Form N-CSR is attached.
(b) A certification by the registrant's principal executive officer and principal financial officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and required by Rule 30a-2(b) under the Investment Company Act of 1940, is attached.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
T. Rowe Price High Yield Fund, Inc.
By | /s/ Edward C. Bernard | |||||
Edward C. Bernard | ||||||
Principal Executive Officer | ||||||
Date | July 18, 2017 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By | /s/ Edward C. Bernard | |||||
Edward C. Bernard | ||||||
Principal Executive Officer | ||||||
Date | July 18, 2017 | |||||
By | /s/ Catherine D. Mathews | |||||
Catherine D. Mathews | ||||||
Principal Financial Officer | ||||||
Date | July 18, 2017 |
Item 12(a)(2).
CERTIFICATIONS
I, Edward C. Bernard, certify that:
1. | I have reviewed this report on Form N-CSR of T. Rowe Price High Yield Fund; | |||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; | |||
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | |||
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and | |||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |||
5. | The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and | |||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: July 18, 2017 | /s/ Edward C. Bernard |
Edward C. Bernard | |
Principal Executive Officer |
CERTIFICATIONS
I, Catherine D. Mathews, certify that:
1. | I have reviewed this report on Form N-CSR of T. Rowe Price High Yield Fund; | |||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; | |||
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | |||
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |||
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |||
(c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and | |||
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | |||
5. | The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | |||
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and | |||
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: July 18, 2017 | /s/ Catherine D. Mathews |
Catherine D. Mathews | |
Principal Financial Officer |
Item 12(b).
CERTIFICATION UNDER SECTION 906 OF SARBANES-OXLEY ACT OF 2002 | ||
Name of Issuer: T. Rowe Price High Yield Fund | ||
In connection with the Report on Form N-CSR for the above named Issuer, the undersigned hereby certifies, to the best of his knowledge, that: | ||
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; | |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. |
Date: July 18, 2017 | /s/ Edward C. Bernard |
Edward C. Bernard | |
Principal Executive Officer | |
Date: July 18, 2017 | /s/ Catherine D. Mathews |
Catherine D. Mathews | |
Principal Financial Officer |
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND
SENIOR FINANCIAL
OFFICERS OF THE PRICE FUNDS
UNDER THE SARBANES-OXLEY ACT OF 2002
I. General Statement. This Code of Ethics (the Price Funds S-O Code) has been designed to bring the Price Funds into compliance with the applicable requirements of the Sarbanes-Oxley Act of 2002 (the Act) rules promulgated by The Securities and Exchange Commission thereunder (Regulations). The Price Funds S-O Code applies solely to the Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller of, or persons performing similar functions for, a Price Fund (whether such persons are employed by a Price Fund or third party) (Covered Officers). The Price Funds shall include each mutual fund that is managed, sponsored and distributed by affiliates of T. Rowe Price Group, Inc. (Group). The investment managers to the Price Funds will be referred to as the Price Fund Advisers. A list of Covered Officers is attached as Exhibit A.
The Price Fund Advisers have, along with their parent, T. Rowe Price Group, Inc. (Group) also maintained a comprehensive Code of Ethics and Conduct (the Group Code) since 1972, which applies to all officers, directors and employees of the Price Funds, Group and its affiliates.
As mandated by the Act, Group has adopted a Code (the Group S-O Code), similar to the Price Funds S-O Code, which applies solely to its principal executive and senior financial officers. The Group S-O Code and the Price Funds S-O Code will be referred to collectively as the S-O Codes.
The Price Funds S-O Code has been adopted by the Price Funds in accordance with the Act and Regulations thereunder and will be administered in conformity with the disclosure requirements of Item 2 of Form N-CSR. The S-O Codes are attachments to the Group Code. In many respects the S-O Codes are supplementary to the Group Code, but the Group Code is administered separately from the S-O Codes, as the S-O Codes are from each other.
II. Purpose of the Price Funds S-O Code. The purpose of the Price Funds S-O Code, as mandated by the Act and the Regulations, is to establish standards that are reasonably designed to deter wrongdoing and to promote:
Ethical Conduct. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.
Disclosure. Full, fair, accurate, timely and understandable disclosure in reports and documents that the Price Funds file with, or submit to, the SEC and in other public communications made by the Price Funds.
Compliance. Compliance with applicable governmental laws, rules and regulations.
Reporting of Violations. The prompt internal reporting of violations of the Price Funds S-O Code to an appropriate person or persons identified in the Price Funds S-O Code.
Accountability. Accountability for adherence to the Price Funds S-O Code.
III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest.
Overview. Each Covered Officer owes a duty to the Price Funds to adhere to a high standard of honesty and business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.
A conflict of interest occurs when a Covered Officers private interest interferes with the interests of, or his or her service to, the Price Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with a Price Fund.
Certain conflicts of interest covered by the Price Funds S-O Code arise out of the relationships between Covered Officers and the Price Funds and may already be subject to provisions regulating conflicts of interest in the Investment Company Act of 1940 (Investment Company Act), the Investment Advisers Act of 1940 (Investment Advisers Act) and the Group Code. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Price Fund because of their status as affiliated persons of a Price Fund. The compliance programs and procedures of the Price Funds and Price Fund Advisers are designed to prevent, or identify and correct, violations of these provisions.
Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Price Fund and its Price Fund Adviser (and its affiliates) of which the Covered Officers may also be officers or employees. As a result, the Price Funds S-O Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Price Funds or for the Price Fund Advisers, or for both), be involved in establishing policies and implementing decisions which will have different effects on these entities. The participation of the Covered Officers in such activities is inherent in the contractual relationship between each Price Fund and its respective Price Fund Adviser. Such participation is also consistent with the performance by the Covered Officers of their duties as officers of the Price Funds and, if consistent with the provisions of the Investment Company Act and the Investment Advisers Act, it will be deemed to have been handled ethically.
Other conflicts of interest are covered by the Price Funds S-O Code, even if these conflicts of interest are not addressed by or subject to provisions in the Investment Company Act and the Investment Advisers Act.
Whenever a Covered Officer is confronted with a conflict of interest situation where he or she is uncertain as to the appropriate action to be taken, he or she should discuss the matter with the Chairperson of Groups Ethics Committee or another member of the Committee.
Handling of Specific Types of Conflicts. Each Covered Officer (and close family members) must not:
Entertainment. Accept entertainment from any company with which any Price Fund or any Price Fund Adviser has current or prospective business dealings, including portfolio companies, unless such entertainment is in full compliance with the policy on entertainment as set forth in the Group Code.
Gifts. Accept any gifts, except as permitted by the Group Code.
Improper Personal Influence. Use his or her personal influence or personal relationships improperly to influence investment decisions, brokerage allocations or financial reporting by the Price Funds to the detriment of any one or more of the Price Funds.
Taking Action at the Expense of a Price Fund. Cause a Price Fund to take action, or fail to take action, for the personal benefit of the Covered Officer rather than for the benefit of one or more of the Price Funds.
Misuse of Price Funds Transaction Information. Use knowledge of portfolio transactions made or contemplated for a Price Fund or any other clients of the Price Fund Advisers to trade personally or cause others to trade in order to take advantage of or avoid the market impact of such portfolio transactions.
Outside Business Activities. Engage in any outside business activity that detracts from a Covered Officers ability to devote appropriate time and attention to his or her responsibilities to a Price Fund.
Service Providers. Excluding Group and its affiliates, have any ownership interest in, or any consulting or employment relationship with, any of the Price Funds service providers, except that an ownership interest in public companies is permitted
Receipt of Payments. Have a direct or indirect financial interest in commissions, transaction charges, spreads or other payments paid by a Price Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest (such as compensation or equity ownership) arising from the Covered Officers employment by Group or any of its affiliates.
Service as a Director or Trustee. Serve as a director, trustee or officer of any public or private company or a non-profit organization that issues securities eligible for purchase by any of the Price Funds, unless approval is obtained as required by the Group Code.
IV. Covered Officers Specific Obligations and Accountabilities.
A. Disclosure Requirements and Controls. Each Covered Officer must familiarize himself or herself with the disclosure requirements (Form N-1A registration statement, proxy (Schedule 14A), shareholder reports, Forms N-SAR, N-CSR, etc.) applicable to the Price Funds and the disclosure controls and procedures of the Price Fund and the Price Fund Advisers.
B. Compliance with Applicable Law. It is the responsibility of each Covered Officer to promote compliance with all laws, rules and regulations applicable to the Price Funds and the Price Fund Advisers. Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Price Funds and the Price Fund Advisers and take other appropriate steps with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Price Funds file with, or submit to, the SEC, and in other public communications made by the Price Funds.
C. Fair Disclosure. Each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about a Price Fund to others, whether within or outside the Price organization, including to the Price Funds directors and auditors, and to governmental regulators and self-regulatory organizations.
D. Initial and Annual Affirmations. Each Covered Officer must:
1. Upon adoption of the Price Funds S-O Code (or thereafter, as applicable, upon becoming a Covered Officer), affirm in writing that he or she has received, read, and understands the Price Funds S-O Code.
2. Annually affirm that he or she has complied with the requirements of the Price Funds S-O Code.
E. Reporting of Material Violations of the Price Funds S-O Code. If a Covered Officer becomes aware of any material violation of the Price Funds S-O Code or laws and governmental rules and regulations applicable to the operations of the Price Funds, he or she must promptly report the violation (Report) to the Chief Legal Counsel of the Price Funds (CLC). Failure to report a material violation will be considered itself a violation of the Price Funds S-O Code. The CLC is identified in the attached Exhibit B.
It is the Price Funds policy that no retaliation or other adverse action will be taken against any Covered Officer or other employee of a Price Fund, a Price Fund Adviser or their affiliates based upon any lawful actions of the Covered Officer or employee with respect to a Report made in good faith.
F. Annual Disclosures. Each Covered Officer must report, at least annually, all affiliations or other relationships as called for in the Annual Questionnaire for Executive Officers and/or Employee Directors/Trustees of Group and the Price Funds.
V. Administration of the Price Funds S-O Code. The Ethics Committee is responsible for administering the Price Funds S-O Code and applying its provisions to specific situations in which questions are presented.
A. Waivers and Interpretations. The Chairperson of the Ethics Committee has the authority to interpret the Price Funds S-O Code in any particular situation and to grant waivers where justified, subject to the approval of the Joint Audit Committee of the Price Funds. All material interpretations concerning Covered Officers will be reported to the Joint Audit Committee of the Price Funds at its next meeting. Waivers, including implicit waivers, to Covered Officers will be publicly disclosed as required in the Instructions to N-CSR. Pursuant to the definition in the Regulations, an implicit waiver means a Price Funds failure to take action within a reasonable period of time regarding a material departure from a provision of the Price Funds S-O Code that has been made known to an executive officer (as defined in Rule 3b-7 under the Securities Exchange Act of 1934) of a Price Fund. An executive officer of a Price Fund includes its president and any vice-president in charge of a principal business unit, division or function.
B. Violations/Investigations. The following procedures will be followed in investigating and enforcing the Price Funds S-O Code:
1. The CLC will take or cause to be taken appropriate action to investigate any potential or actual violation reported to him or her.
2. The CLC, after consultation if deemed appropriate with Outside Counsel to the Price Funds, will make a recommendation to the appropriate Price Funds Board regarding the action to be taken with regard to each material violation. Such action could include any of the following: a letter of censure or suspension, a fine, a suspension of trading privileges or termination of officership or employment. In addition, the violator may be required to surrender any profit realized (or loss avoided) from any activity that is in violation of the Price Funds S-O Code.
VI. Amendments to the Price Funds S-O Code. Except as to the contents of Exhibit A and Exhibit B, the Price Funds S-O Code may not be materially amended except in written form, which is specifically approved or ratified by a majority vote of each Price Fund Board, including a majority of the independent directors on each Board.
VII. Confidentiality. All reports and records prepared or maintained pursuant to the Price Funds S-O Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law, the Price Funds S-O Code or as necessary in connection with regulations under the Price Funds S-O Code, such matters shall not be disclosed to anyone other than the directors of the appropriate Price Fund Board, Outside Counsel to the Price Funds, members of the Ethics Committee and the CLC and authorized persons on his or her staff.
Preparation Date: 9/30/03
Adoption Date: 10/22/03
Exhibit A
Persons Covered by the Price Funds S-O Code of
Ethics
Edward C. Bernard, Chairman and Chief Executive Officer
Catherine
D. Mathews, Treasurer and Chief Financial Officer
Exhibit B
David Oestreicher, Chief Legal Counsel to the Price Funds
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