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: 811-07173
T. Rowe Price Personal Strategy Funds, Inc. |
(Exact name of registrant as specified in charter) |
100 East Pratt Street, Baltimore, MD 21202 |
(Address of principal executive offices) |
David Oestreicher |
100 East Pratt Street, Baltimore, MD 21202 |
(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
Personal
Strategy Balanced 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
Sign up for our Email Program, and you can begin to receive updated fund reports and prospectuses online rather than through the mail. Log in to your account at troweprice.com for more information.
Managers Letter
Fellow Shareholders
A recovery in global economic growth starting at the end of 2016 continued to gain momentum in 2017. U.S. stocks surged as the major market indexes set new records this year against a backdrop of improving corporate earnings growth. Stocks in international developed and emerging markets rallied as the global recovery translated into increased trade, benefiting Japan and Europe and export-driven economies in the developing world. In fixed income, U.S. investment-grade bonds advanced amid strong investor demand in a low-yield environment globally, while high yield bonds benefited from stabilizing oil prices. Non-U.S. dollar-denominated debt ended nearly flat as declines in our reporting periods first half were offset by second-half gains resulting from stronger global currencies against the dollar. In this supportive environment, the Personal Strategy Funds generated double-digit gains in the 12 months ended May 31, 2017. Each fund outperformed its respective combined index benchmark and Lipper peer group index.
MARKET ENVIRONMENT
Evidence of stronger growth appeared in both developed and emerging markets over the past year and provided a positive backdrop for global financial markets. During our 12-month reporting period, U.S. stocks surged as the postelection rally continued into 2017, pushing the S&P 500 Index to record levels in May, amid investor optimism about business-friendly policies under President Donald Trump. Small-cap stocks have lagged in 2017, though they outperformed their larger counterparts over the full period given strong performance in last years second half as investors deemed that smaller companies with greater exposure to the domestic economy would benefit more from the relaxed regulations, lower taxes, and infrastructure spending advocated by the Trump administration. The U.S. economy grew at a revised 1.2% annual pace in this years first quarter, higher than initially forecast but continuing a modest growth trend since the recession ended in mid-2009. Citing an improving labor market and rising inflation, the Federal Reserve raised interest rates by 25 basis points in December 2016 and March 2017. After the two hikes, the range for the fed funds target rate was 0.75% to 1.00%. (The Fed also raised rates in June, shortly after the end of the reporting period.)
Stocks in developed European markets rose as corporate earnings and economic growth picked up across the Continent. The eurozone economy grew at a revised 1.9% pace in this years first quarter from a year ago, marking the currency blocs fastest growth rate since the first quarter of 2015. Against a backdrop of an improving economy, markets began to anticipate that the European Central Bank would start winding down its bond-buying program, though the ECB recently affirmed its intention to keep buying bonds at least through the end of this year. Japanese stocks advanced as that countrys economy also gained momentum. Japans gross domestic product expanded for the fifth straight quarter in the first three months of 2017its longest growth streak in more than a decadefueled by export demand and domestic spending. Japan continued to struggle with deflation, however, and its central bank introduced a 0% target rate on 10-year government bonds in an effort to control the yield curvethe latest of many unprecedented actions intended to generate sustained growth and inflation.
Emerging markets stocks rallied as signs of economic recovery worldwide arose this year and instilled more confidence in the global growth outlook. Emerging markets assets plunged last November shortly after the U.S. election as worries about protectionism and rising U.S. interest rates caused a sell-off in developing world assets. However, the asset class rebounded in subsequent months as steady growth in China, rising energy prices, and improved earnings growth in many countries revived investors risk appetite.
U.S. investment-grade bonds generated slightly positive returns as bond prices rose and yields fell over the second half of the period. Treasury yields rose sharply in the last few months of 2016 amid hopes that the Trump administration would cut taxes and increase infrastructure spending, but retraced much of their gains in recent months as geopolitical risks rose and investors surmised that the presidents expansionary fiscal policies would take longer than expected to materialize. Treasury yields still ended the reporting period at higher levels than they were at the start, with the yield on the benchmark 10-year note increasing to 2.21% at the end of May from 1.84% a year earlier. High yield bonds rallied as they benefited from commodity prices stabilizing well above their lows in early 2016 and strong demand in an environment of low yields on government bonds in most developed markets.
Non-U.S. dollar-denominated bonds in developed markets ended nearly flat as second-half gains resulting from stronger overseas currencies offset first-half declines. Most global currencies appreciated against the dollar starting in January 2017, bolstering the more recent returns of non-U.S. developed markets debt in dollar terms. The gains in most currencies versus the dollar this year helped offset declining prices of government bonds in local currency terms as yields increased in many developed markets. Dollar-denominated emerging markets bonds also advanced, overcoming a post-U.S. election sell-off, as relatively higher interest rates in developing countries attracted yield-seeking investors.
INTRODUCING NEW UNDERLYING INVESTMENT STRATEGIES
On October 1, 2016, we introduced three new underlying investment strategies to the Personal Strategy Funds. The inclusion of these strategies follows extensive quantitative and qualitative analysis in evaluating their prospective impact on the Personal Strategy Funds as we sought to add diversifying investment strategies that would benefit the risk/return profile of the portfolios. The changes include a new allocation to alternatives through a hedge fund-of-funds, as well as initiating an investment in the T. Rowe Price Dynamic Global Bond Fund and an equity index option strategy.
We believe that a modest allocation to a hedge fund-of-funds with exposure to multiple hedge fund strategies and managers can benefit diversification by offering returns that historically have been less correlated with traditional stock and bond asset classes in the Personal Strategy Funds. The allocation to the Dynamic Global Bond Fund aims to diversify the Personal Strategy Funds fixed income investments by including a lower-volatility strategy with less strategic sensitivity to interest rate changes than traditional bond strategies, but with the flexibility to opportunistically adjust its exposure. This fund invests in various fixed income sectors offering the potential to add value from sources such as interest rates, credit, and currency, expressing both long and short views, while seeking to reduce downside risk and diversify against stock market volatility and rising rates.
Finally, the equity index option strategy provides an alternative means of compensation for bearing the downside risk of equities. We expect this strategy, which involves selling call options on the Standard & Poors 500 Index, to generate returns that are less correlated with the broader stock market as it earns a premium in exchange for forgoing some of the stock markets upside potential. The consistency of receiving the premium collected from selling index call options, coupled with the lower equity exposure associated with writing call options, can provide a more stable pattern of returns. We believe this strategy can be particularly beneficial by providing an alternative source of return in flat to lower equity markets.
PORTFOLIO REVIEW AND POSITIONING
Asset Allocation
The Personal Strategy Funds have the ability to overweight or
underweight allocations to asset classes or sub-asset classes based on the views
of the T. Rowe Price Asset Allocation Committee. The committee meets on a monthly basis to evaluate economic, market, and
earnings trends, among other factors, and to look for opportunities over a 6- to
18-month investment horizon. We typically seek to overweight segments of the
market that we believe are attractively valued and underweight areas that are
more richly valued. Several years of strong performance have left valuations at
or above fair value in many asset classes, reducing the number of compelling
investment opportunities. Nevertheless, we are still finding opportunities in
select areas where valuations appear more attractive and have reduced
allocations where we see potential risks.
As of May 31, 2017, we are underweight stocks relative to bonds. We initiated this underweight in January after last Novembers post-election stock market rally and further reduced our exposure in the ensuing months as we believed that stock valuations and earnings forecasts appeared extended against a backdrop of low growth and greater policy uncertainty. As for bonds, we expect modest returns given that the current low-yield environment offers a weak foundation for future returns and the potential for capital losses as interest rates rise. However, global monetary policies are expected to stay accommodative this year, which should temper downside risks to bonds. Furthermore, we believe that any rise in U.S. interest rates will be limited as growth remains subdued. Strong demand for U.S. bonds for their added yield over other developed markets bonds should also restrain a rise in long-term yields.
Stocks
We ended our fiscal year overweight to international stocks relative to
U.S. stocks based on signs of improving economic fundamentals and stronger
earnings growth outside the U.S., particularly in Europe, though this relative
positioning fluctuated over the period. Europe is benefiting from greater
political certainty following Emmanuel Macrons presidential election victory in
France, stronger economic growth, and accommodative monetary policies. In Japan,
stocks are more attractively valued compared with U.S. stocks. Moreover, we
believe that Japanese stocks stand to benefit from greater emphasis on
shareholder-friendly policies and corporate governance reflected in higher
dividend payouts and more representation of outside directors. We gradually
pared our overweight allocation to emerging markets stocks over the past 12
months and were underweight to the asset class relative to developed market
stocks at period-end. Our positioning reflects the risk of a renewed decline in
energy and commodity prices, as well as concerns about protectionist trade
policies and the adverse impact of rising interest rates in developed markets.
We maintained an underweight to real assets equities over the past year given our cautious outlook for energy and commodity prices. Despite ongoing efforts to curb output by the worlds top oil producers, prices are still under pressure from persistent global oversupply as rising prices encourage U.S. producers to increase production. Additionally, industrial metals demand will likely stay subdued as China rebalances its economy to reduce its dependency on industrial production. As for real estate investment trusts (REITs), we believe that fundamentals for REITs in developed markets remain positive, though they remain sensitive to rising interest rates.
At the end of our reporting period, we initiated an overweight to U.S. small-cap stocks relative to large-caps, departing from our longstanding underweight to the asset class. We initiated the change based on improving relative valuations following recent underperformance for small-cap stocks, which have lagged large-caps since the start of 2017 amid diminished expectations for pro-growth policies. We are overweight U.S. growth versus value stocks due to more attractive valuations for growth stocks, as well as our expectations for a low-growth environment. While stepped-up spending, tax cuts, and deregulation espoused by the Trump administration would likely support value sectors like financials and energy, the prospects for these measures receiving congressional approval and the final scope of these proposals appear uncertain.
Bonds
We moved to a neutral allocation to high yield bonds relative to U.S.
investment-grade bonds in April, having gradually reduced our overweight as
spreads in the high yield sector fell below historical averages following strong
performance. Despite the yield advantage that high yield debt has over
investment-grade bonds, we believe that current yield levels offer limited room
for further appreciation and a weak buffer against risks such as a downturn in
commodity prices.
We moved to neutral between emerging markets bonds and U.S. investment-grade bonds in February, as valuations became less compelling given a strong rally following the presidential election. Though emerging markets have benefited from stronger commodity prices since the start of 2016, concerns about protectionist trade policies, rising interest rates in developed markets, and U.S. dollar strength continue to weigh on the asset class. Furthermore, while developing economies are broadly in better fiscal shape than they were just a few years ago, individual countries differ widely in their fiscal positions, political stability, and reform progress.
We were underweight to nondollar bonds relative to U.S. investment-grade bonds for most of our fiscal year, though we reduced the size of our underweight this spring. Yields outside the U.S. have increased over the year but remain at historically low levels, leaving developed markets bonds with an unattractive risk/reward trade-off. Moreover, we are underweight to nondollar bonds as the current growth and interest rate environment should be supportive for the U.S. dollar. However, we have moderated our underweight to nondollar bonds since the start of 2017 as growth outside the U.S. is picking up and global central banks prepare to unwind their accommodative monetary policies.
PERFORMANCE COMPARISON
Personal Strategy Income Fund
As shown in the Performance Comparison table on page 8, the Personal Strategy Income Fund returned 7.62% and 10.06% for the six and 12 months ended May 31, 2017, respectively. The fund outperformed its combined index benchmark and its Lipper peer group index over both periods. The Personal Strategy Income Funds performance versus its peers over longer time periods remained excellent: The fund is in the top decile of its Lipper peer group for the trailing 1-, 3-, 5-, and 10-year periods. Based on cumulative total return, Lipper ranked the fund 29 of 360, 24 of 314, 9 of 279, and 10 of 207 mixed-asset target allocation conservative funds for the 1-, 3-, 5-, and 10-year periods ended May 31, 2017, respectively. (Past performance cannot guarantee future results.)
The inclusion of diversifying sectors, especially those within fixed income, contributed the most to relative performance. Our exposure to high yield bonds lifted relative returns as high yield debt surged over the past year amid strong demand from yield-seeking investors and a rebound in oil prices that benefited the commodity producers that dominate the high yield market. Our exposure to emerging markets bonds also helped as relatively higher yields in many developing countries supported demand and drove strong performance in dollar-denominated emerging markets debt. Conversely, an allocation to real assets detracted from relative performance as real assets equities lagged broader equity markets over the period.
Security selection in the funds underlying investments also helped relative performance. Selection in the funds U.S. large-cap growth stocks added the most to relative returns, followed by selection in emerging markets bonds and international developed markets stocks. These underlying funds outpaced their respective benchmarks over the period. On the other hand, selection in investment-grade and high yield bonds detracted from relative performance as both underlying funds trailed their respective benchmarks in the past year. Tactical decisions to overweight and underweight asset classes had a modestly positive impact on relative returns, as the positive contribution from underweighting real assets equities offset the drag from our underweight to small-cap stocks.
Technology stocks led contributors as investors piled into fast-growing tech companies on hopes that they would outperform the overall economy. Amazon.com, Microsoft, Facebook, and Google parent company Alphabet ranked among the funds top contributors to absolute returns. Banks and industrial companies such as Morgan Stanley, JPMorgan Chase, and Boeing performed well as investors bet that they would benefit from tax cuts, looser regulations, and infrastructure spending under the Trump administration. Among non-U.S. stocks, Chinese Internet companies Alibaba and Tencent were standout performers as both solidified their dominant positions in Chinas fast-growing online economy. On the other hand, UK mobile phone operator Vodafone and Royal Bank of Scotland ranked among the biggest detractors as their shares fell amid Brexit-related concerns. Other large detractors included Bristol-Myers Squibb, which suffered from unfavorable clinical results for a key cancer drug last summer, and Tyson Foods, whose shares fell amid various setbacks including disappointing earnings and allegations of antitrust violations. (Please refer to the funds portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
Personal Strategy Balanced Fund
As shown in the Performance Comparison table on page 10, the Personal Strategy Balanced Fund returned 9.80% and 13.32% for the six and 12 months ended May 31, 2017, respectively. The fund outperformed its combined index benchmark and its Lipper peer group index over both periods. The Personal Strategy Balanced Funds performance versus its peers over longer time periods remained excellent: The fund is in the top decile of its Lipper peer group for the trailing 1-, 5-, and 10-year periods and in the top quintile for the trailing three-year period. Based on cumulative total return, Lipper ranked the fund 44 of 567, 62 of 510, 41of 464, and 14 of 336 mixed-asset target allocation moderate funds for the 1-, 3-, 5-, and 10-year periods ended May 31, 2017, respectively. (Past performance cannot guarantee future results.)
Security selection in the funds underlying investments contributed the most to relative performance. Selection in the funds U.S. large-cap growth stocks added the most to relative returns, followed by selection in international developed markets stocks and emerging markets bonds. These underlying funds outpaced their respective benchmarks over the period. On the other hand, selection in real assets equities, small-cap stocks, and high yield bonds detracted from relative performance as these underlying funds trailed their respective benchmarks in the past year.
The inclusion of diversifying sectors, especially those within fixed income, also helped relative performance. Our exposure to high yield bonds lifted relative returns as high yield debt surged over the past year amid strong demand from yield-seeking investors and a rebound in oil prices that benefited the commodity producers that dominate the high yield market. Our exposure to emerging markets bonds also helped as relatively higher yields in many developing countries supported demand and drove strong performance in dollar-denominated emerging markets debt. Conversely, an allocation to real assets detracted from relative performance as real assets equities lagged the blended equity benchmark over the period. Tactical decisions to overweight and underweight asset classes had a modestly positive impact on relative returns, as the positive contribution from underweighting real assets equities offset the drag from our underweight to small-cap stocks.
Technology stocks led contributors as investors piled into fast-growing tech companies on hopes that they would outperform the overall economy. Amazon.com, Microsoft, Facebook, and Google parent company Alphabet ranked among the funds top contributors to absolute returns. Banks and industrial companies such as Morgan Stanley, JPMorgan Chase, and Boeing performed well as investors bet that they would benefit from tax cuts, looser regulations, and infrastructure spending under the Trump administration. Among non-U.S. stocks, Chinese Internet companies Alibaba and Tencent were standout performers as both solidified their dominant positions in Chinas fast-growing online economy. On the other hand, UK mobile phone operator Vodafone and Royal Bank of Scotland ranked among the biggest detractors as their shares fell amid Brexit-related concerns. Other large detractors included Bristol-Myers Squibb, which suffered from unfavorable clinical results for a key cancer drug last summer, and Tyson Foods, whose shares fell amid various setbacks including disappointing earnings and allegations of antitrust violations. (Please refer to the funds portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
Personal Strategy Growth Fund
As shown in the Performance Comparison table on page 12, the Personal Strategy Growth Fund returned 11.97% and 16.56% for the six and 12 months ended May 31, 2017, respectively. The fund outperformed its combined index benchmark and its Lipper peer group index over both periods. The Personal Strategy Growth Funds performance versus its peers over longer time periods remained excellent: The fund is in the top decile of its Lipper peer group for the trailing one- and five-year periods and in the top quintile in the trailing 3- and 10-year periods. Based on cumulative total return, Lipper ranked the fund 11 of 500, 60 of 446, 10 of 411, and 47 of 319 mixed-asset target allocation growth funds for the 1-, 3-, 5-, and 10-year periods ended May 31, 2017, respectively. (Past performance cannot guarantee future results.)
Security selection in the funds underlying investments contributed the most to relative performance. Selection in the funds U.S. large-cap growth stocks added the most to relative returns, followed by selection in international developed markets stocks. These underlying funds outpaced their respective benchmarks over the period. On the other hand, selection in real assets equities and small-cap stocks detracted from relative performance as both underlying funds trailed their respective benchmarks in the past year.
The inclusion of diversifying sectors, especially those within fixed income, also helped relative performance. Our exposure to high yield bonds lifted relative returns as high yield debt surged over the past year amid strong demand from yield-seeking investors and a rebound in oil prices that benefited the commodity producers that dominate the high yield market. Our exposure to emerging markets bonds also helped as relatively higher yields in many developing countries supported demand and drove strong performance in dollar-denominated emerging markets debt. Conversely, an allocation to real assets detracted from relative performance as real assets equities lagged the blended equity benchmark over the period. Tactical decisions to overweight and underweight asset classes had a modestly positive impact on relative returns, as the positive contribution from underweighting real assets equities offset the drag from our underweight to small-cap stocks.
Technology stocks led contributors as investors piled into fast-growing tech companies on hopes that they would outperform the overall economy. Amazon.com, Microsoft, Facebook, and Google parent company Alphabet ranked among the funds top contributors to absolute returns. Banks and industrial companies such as Morgan Stanley, JPMorgan Chase, and Boeing performed well as investors bet that they would benefit from tax cuts, looser regulations, and infrastructure spending under the Trump administration. Among non-U.S. stocks, Chinese Internet companies Alibaba and Tencent were standout performers as both solidified their dominant positions in Chinas fast-growing online economy. On the other hand, UK mobile phone operator Vodafone and Royal Bank of Scotland ranked among the biggest detractors as their shares fell amid Brexit-related concerns. Other large detractors included Bristol-Myers Squibb, which suffered from unfavorable clinical results for a key cancer drug last summer, and Tyson Foods, whose shares fell amid various setbacks including disappointing earnings and allegations of antitrust violations. (Please refer to the funds portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.)
OUTLOOK
We expect that the modest global recovery that began at the end of 2016 will continue as improving global trade boosts export-oriented developed and emerging economies. We are encouraged to see evidence of stronger growth across most developed and emerging markets, an uncommon development in the current economic cycle. This improving economic environment should serve as a supportive catalyst to earnings growth.
Outside the U.S., growth in Europe is expected to improve this year, supported by rising household consumption, improving business investment, and increased global trade. Fears about a disorderly breakup of the euro have subsided after mainstream candidates won several key elections this year. Japans recent growth streak offers evidence that years of unorthodox fiscal and monetary stimulus under Abenomics may finally be working, though the country still struggles with weak consumption and low inflation. In emerging markets, growth is expected to pick up as Brazil and Russia exit recession, though recent corruption charges against Brazils president may slow reform momentum. Growth is expected to moderate in China, which is in the midst of a long-term transition to slower but more sustainable growth as Beijing tries to rebalance the drivers of economic activity.
Our outlook is tempered by several issues that could disrupt global markets in the near term. These risks include a potential misstep in monetary policy by the Fed or the possibility that U.S. fiscal policy will disappoint investors expectations. Given that U.S. stocks are trading near record price levels based on hopes for infrastructure spending, lower taxes, and deregulation promised by President Trump, any setback regarding the passage of these measures could derail the rally. In Europe, sovereign risks remain with Germanys federal election and a possible early election in Italy set to occur this fall. Meanwhile, several European countries are still grappling with high debt and unemployment. In emerging markets, the prospect of reduced global trade and cross-border investment flows resulting from a shift toward U.S. protectionism remains a risk, as does a recent decline in energy prices. Finally, unexpected geopolitical developments could potentially curtail the global recovery, particularly given rising tensions with North Korea and in the South China Sea.
We believe that the broadening of global growth that began late last year will continue, albeit at modest levels, for the next several quarters. Nevertheless, we are mindful of the many geopolitical and policy developments that could undermine the current recovery. Given the numerous crosscurrents affecting global financial markets, we believe that the Personal Strategy Funds broad diversification and T. Rowe Prices strengths in fundamental research will allow us to continue generating solid returns for our shareholders over the long run.
Thank you for investing with T. Rowe Price.
Respectfully submitted,
Charles
Shriver
Portfolio manager and chairman of
the funds Investment Advisory Committee
June 14, 2017
The committee chairman has day-to-day responsibility for managing the portfolios and works with committee members in developing and executing the funds investment programs.
RISKS OF INVESTING
As with all stock and bond mutual funds, each funds share price can fall because of weakness in the stock or bond markets, a particular industry, or specific holdings. Stock markets can decline for many reasons, including adverse political or economic developments, changes in investor psychology, or heavy institutional selling. The prospects for an industry or company may deteriorate because of a variety of factors, including disappointing earnings or changes in the competitive environment. In addition, the investment managers assessment of companies held in a fund may prove incorrect, resulting in losses or poor performance even in rising markets.
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.
Funds that invest overseas may carry more risk than funds that invest strictly in U.S. assets. Risks can result from varying stages of economic and political development; differing regulatory environments, trading days, and accounting standards; and higher transaction costs of non-U.S. markets. Non-U.S. investments are also subject to currency risk, or a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency.
GLOSSARY
Bloomberg Barclays Global Aggregate ex U.S. Dollar Bond Index: Tracks the performance of government, corporate, agency, and mortgage-related bonds in Europe, the Asia-Pacific region, and Canada.
Bloomberg Barclays U.S. Aggregate Bond Index: An unmanaged index that tracks investment-grade bonds, including corporate, government, and mortgage-backed securities.
Citigroup 3-Month Treasury Bill Index: An unmanaged index that tracks short-term U.S. government debt instruments.
Combined index benchmarks: Unmanaged portfolios composed of the following underlying indexes as of May 31, 2016:
● |
Personal Strategy
Income40% stocks (28% Russell 3000
Index, 12% MSCI All Country World Index ex USA), 40% bonds (Bloomberg
Barclays U.S. Aggregate Bond Index), and 20% money market securities
(Citigroup 3-Month Treasury Bill Index). |
● |
Personal Strategy
Balanced60% stocks (42% Russell 3000
Index, 18% MSCI All Country World Index ex USA), 30% bonds (Bloomberg
Barclays U.S. Aggregate Bond Index), and 10% money market securities
(Citigroup 3-Month Treasury Bill Index). |
● |
Personal Strategy Growth80% stocks (56% Russell 3000 Index, 24% MSCI All Country World Index ex USA) and 20% bonds (Bloomberg Barclays U.S. Aggregate Bond Index). |
Credit Suisse High Yield Index: Tracks the performance of domestic noninvestment-grade corporate bonds.
Federal funds rate (or target rate): The interest rate charged on overnight loans of reserves by one financial institution to another in the United States. The Federal Reserve sets a target federal funds rate to affect the direction of interest rates.
Gross domestic product: The total market value of all goods and services produced in a country in a given year.
Lipper Mixed-Asset Target Allocation Conservative Funds Index: A peer group benchmark that measures the performance of similar funds with a mix of between 20% and 40% equities, with the remainder invested in bonds and short-term investments.
Lipper Mixed-Asset Target Allocation Growth Funds Index: A peer group benchmark that measures the performance of similar funds with a mix of between 60% and 80% equities, with the remainder invested in bonds and short-term investments.
Lipper Mixed-Asset Target Allocation Moderate Funds Index: A peer group benchmark that measures the performance of similar funds with a mix of between 40% and 60% equities, with the remainder invested in bonds and short-term investments.
Morningstar Moderate Target Risk Index: Represents a portfolio of global equities (fixed at 60%), bonds, and other asset classes.
Morningstar Moderately Aggressive Target Risk Index: Represents a portfolio of global equities (fixed at 80%), bonds, and other asset classes.
Morningstar Moderately Conservative Target Risk Index: Represents a portfolio of global equities (fixed at 40%), bonds, and other asset classes.
MSCI All Country World Index ex USA: An index that measures equity market performance of developed and emerging countries, excluding the U.S.
MSCI Emerging Markets Index: A capitalization-weighted index of stocks from emerging market countries that only includes securities that may be traded by foreign investors.
Russell 3000 Index: An index that tracks the performance of the 3,000 largest U.S. companies, representing approximately 98% of the investable U.S. equity market.
S&P 500 Index: An index that tracks the stocks of 500 primarily large-cap U.S. companies.
Note: Bloomberg Index Services Ltd. Copyright 2017, Bloomberg Index Services Ltd. Used with permission.
Note: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
Note: Russell Investment Group is the source and owner of the trademarks, service marks, and copyrights related to the Russell indexes. Russell® is a trademark of Russell Investment Group.
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.
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.
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 two share classes: The original share class (Investor Class) charges no distribution and service (12b-1) fee, and the I Class shares are also available to institutionally oriented clients and impose no 12b-1 or administrative fee payment. Each share class is presented separately in the table.
Actual Expenses
The first line of the following table (Actual) provides
information about actual account values and expenses based on the 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.
Notes to Financial Statements |
T. Rowe Price Personal Strategy Funds, Inc. (the corporation), is registered under the Investment Company Act of 1940 (the 1940 Act). The Personal Strategy Balanced Fund (the fund) is a diversified, open-end management investment company established by the corporation. The fund seeks the highest total return over time consistent with an emphasis on both capital growth and income. The fund has two classes of shares: the Personal Strategy Balanced Fund (Investor Class) and the Personal Strategy Balanced FundI Class (I Class). I Class shares generally are available only to investors meeting a $1,000,000 minimum investment or certain other criteria. Each class has exclusive voting rights on matters related solely to that class; separate voting rights on matters that relate to both classes; and, in all other respects, the same rights and obligations as the other class.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation The fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including, but not limited to, ASC 946. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes. Paydown gains and losses are recorded as an adjustment to interest income. Inflation adjustments to the principal amount of inflation-indexed bonds are reflected as interest income. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Earnings on investments recognized as partnerships for federal income tax purposes reflect the tax character of such earnings. 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. Distributions from REITs are initially recorded as dividend income and, to the extent such represent a return of capital or capital gain for tax purposes, are reclassified when such information becomes available. Income distributions are declared and paid by each class quarterly. 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 both classes, investment income, and realized and unrealized gains and losses are allocated to the classes based upon the relative daily net assets of each class.
Rebates Subject to best execution, the fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the fund in cash. Commission rebates are reflected as realized gain on securities in the accompanying financial statements and totaled $15,000 for the year ended May 31, 2017.
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 Equity securities listed or regularly traded on a securities exchange or in the over-the-counter (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.
Debt securities generally are traded in the 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. Debt 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.
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. Investments in private investment companies are valued at the investees NAV per share as of the valuation date, if available. If the investees NAV is not available as of the valuation date or is not calculated in accordance with GAAP, the Valuation Committee may adjust the investees NAV to reflect fair value at the valuation date. Investments in private investment companies generally are categorized either in Level 2 or 3, depending on the significance of unobservable inputs. 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. Financial futures contracts are valued at closing settlement prices and are categorized in Level 1 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 an equity investment with limited market activity, such as a private placement or a thinly traded public company stock, 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, new rounds of financing, negotiated transactions of significant size between other investors in the company, relevant market valuations of peer companies, 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 market-based valuation multiples; a discount or premium from market value of a similar, freely traded security of the same issuer; 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 $5,110,000 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 out of Level 3 were because observable market data became available for the security.
In accordance with GAAP, the following table provides quantitative information about significant unobservable inputs used to determine the fair valuations of the funds Level 3 assets, by class of financial instrument; it also indicates the sensitivity of the Level 3 valuations to changes in those significant unobservable inputs. Because the Valuation Committee considers a wide variety of factors and inputs, both observable and unobservable, in determining fair value, the unobservable inputs presented do not reflect all inputs significant to the fair value determination.
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 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, no collateral was pledged by either the fund or counterparties for bilateral derivatives. As of May 31, 2017, securities valued at $3,578,000 had been posted by the fund for exchange-traded and/or centrally cleared derivatives.
Futures Contracts The fund is subject to interest rate risk and equity price risk in the normal course of pursuing its investment objectives and uses futures contracts to help manage such risks. The fund may enter into futures contracts to manage exposure to interest rates, security prices, foreign currencies, and credit quality; as an efficient means of adjusting exposure to all or part of a target market; to enhance income; as a cash management tool; or to adjust credit exposure. A futures contract provides for the future sale by one party and purchase by another of a specified amount of a specific underlying financial instrument at an agreed-upon price, date, time, and place. The fund currently invests only in exchange-traded futures, which generally are standardized as to maturity date, underlying financial instrument, and other contract terms. Payments are made or received by the fund each day to settle daily fluctuations in the value of the contract (variation margin), which reflect changes in the value of the underlying financial instrument. Variation margin is recorded as unrealized gain or loss until the contract is closed. The value of a futures contract included in net assets is the amount of 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. Risks related to the use of futures contracts include possible illiquidity of the futures markets, contract prices that can be highly volatile and imperfectly correlated to movements in hedged security values and/or interest rates, and potential losses in excess of the funds initial investment. During the year ended May 31, 2017, the volume of the funds activity in futures, based on underlying notional amounts, was generally between 0% and 7% of net assets.
Options The fund is subject to interest rate risk and equity price risk in the normal course of pursuing its investment objectives and uses options to help manage such risks. 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, call and put options on futures give the holder the right, but not the obligation, to purchase or sell, respectively, a position in a particular futures contract at a specified exercise price. In return for a premium paid, call and put index options give the holder the right, but not the obligation, to receive cash equal to the difference between the value of the reference index on the exercise date and the exercise price of the option. 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 6% 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 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 $920,000 (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 less than 1% 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.
Emerging and Frontier Markets The fund may invest, either directly or through investments in T. Rowe Price institutional funds, in securities of companies located in, issued by governments of, or denominated in or linked to the currencies of emerging and frontier market countries; at period-end, approximately 10% of the funds net assets were invested in emerging markets and 2% in frontier markets. Emerging markets, and to a greater extent frontier markets, generally have economic structures that are less diverse and mature, and political systems that are less stable, than developed countries. These markets may be subject to greater political, economic, and social uncertainty and differing regulatory environments that may potentially impact the funds ability to buy or sell certain securities or repatriate proceeds to U.S. dollars. Such securities are often subject to greater price volatility, less liquidity, and higher rates of inflation than U.S. securities. Investing in frontier markets is significantly riskier than investing in other countries, including emerging markets.
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.
Collateralized Loan Obligations The fund may invest in collateralized loan obligations (CLOs) which are entities backed by a diversified pool of syndicated bank loans. The cash flows of the CLO can be split into multiple segments, called tranches or classes, which will vary in risk profile and yield. The riskiest segments, which are the subordinate or equity tranches, bear the greatest risk of loss from defaults in the underlying assets of the CLO and serve to protect the other, more senior, tranches. Senior tranches will typically have higher credit ratings and lower yields than the securities underlying the CLO. Despite the protection from the more junior tranches, senior tranches can experience substantial losses.
TBA Purchase and Sale Commitments The fund may enter into to-be-announced (TBA) purchase or sale commitments (collectively, TBA transactions), pursuant to which it agrees to purchase or sell, respectively, mortgage-backed securities for a fixed unit price, with payment and delivery at a scheduled future date beyond the customary settlement period for such securities. With TBA transactions, the particular securities to be received or delivered by the fund are not identified at the trade date; however, the securities must meet specified terms, including issuer, rate, and mortgage term, and be within industry-accepted good delivery standards. The fund may enter into TBA transactions with the intention of taking possession of or relinquishing the underlying securities, may elect to extend the settlement by rolling the transaction, and/or may use TBA transactions to gain or reduce interim exposure to underlying securities. Until settlement, the fund maintains liquid assets sufficient to settle its TBA commitments.
To mitigate counterparty risk, the fund has entered into agreements with TBA counterparties that provide for collateral and the right to offset amounts due to or from those counterparties under specified conditions. Subject to minimum transfer amounts, collateral requirements are determined and transfers made based on the net aggregate unrealized gain or loss on all TBA commitments with a particular counterparty. At any time, the funds risk of loss from a particular counterparty related to its TBA commitments is the aggregate unrealized gain on appreciated TBAs in excess of unrealized loss on depreciated TBAs and collateral received, if any, from such counterparty. As of May 31, 2017, no collateral was pledged by the fund or counterparties for TBAs.
Securities Lending The fund may lend its securities to approved brokers to earn additional income. Its securities lending activities are administered by a lending agent in accordance with a securities lending agreement. Security loans generally do not have stated maturity dates, and the fund may recall a security at any time. The fund receives collateral in the form of cash or U.S. government securities, valued at 102% to 105% of the value of the securities on loan. Collateral is maintained over the life of the loan in an amount not less than the value of loaned securities; any additional collateral required due to changes in security values is delivered to the fund the next business day. Cash collateral is invested by the lending agent(s) in accordance with investment guidelines approved by fund management. Additionally, the lending agent indemnifies the fund against losses resulting from borrower default. Although risk is mitigated by the collateral and indemnification, the fund could experience a delay in recovering its securities and a possible loss of income or value if the borrower fails to return the securities, collateral investments decline in value, and the lending agent fails to perform. Securities lending revenue consists of earnings on invested collateral and borrowing fees, net of any rebates to the borrower, compensation to the lending agent, and other administrative costs. In accordance with GAAP, investments made with cash collateral are reflected in the accompanying financial statements, but collateral received in the form of securities is not. At May 31, 2017, the value of loaned securities was $4,312,000; the value of cash collateral and related investments was $4,556,000.
Mortgage-Backed Securities The fund may invest in mortgage-backed securities (MBS or pass-through certificates) that represent an interest in a pool of specific underlying mortgage loans and entitle the fund to the periodic payments of principal and interest from those mortgages. MBS may be issued by government agencies or corporations, or private issuers. Most MBS issued by government agencies are guaranteed; however, the degree of protection differs based on the issuer. The fund also may invest in stripped MBS, created when a traditional MBS is split into an interest-only (IO) and a principal-only (PO) strip. MBS, including IOs and POs, are sensitive to changes in economic conditions that affect the rate of prepayments and defaults on the underlying mortgages; accordingly, the value, income, and related cash flows from MBS may be more volatile than other debt instruments. IOs also risk loss of invested principal from faster-than-anticipated prepayments.
Investment in Blackstone Partners Offshore Fund The fund invested in Blackstone Partners Offshore Fund Ltd. (Blackstone Partners), a multi-strategy hedge fund-of-funds offered by Blackstone Alternative Asset Management (BAAM), a unit of Blackstone Group L.P. (Blackstone). Blackstone Partners provides the fund exposure to alternative investments primarily through Blackstone Partners investments in underlying private investment funds, and the underlying funds are mostly managed by investment managers unaffiliated with BAAM or Blackstone. Blackstone Partners and the underlying funds may use leverage, engage in short-selling, and invest in commodities or other speculative investments, which may increase the risk of investment loss. Blackstone Partners and the underlying funds are not subject to the same regulatory requirements as open-end mutual funds, and, therefore, their investments and related valuations may not be as transparent. Ownership interests in Blackstone Partners are not transferable and are subject to various redemption restrictions, such as advance notice requirements, limited redemption dates, and possible suspension of redemption rights. In addition, Blackstone Partners ownership in the underlying funds may also be subject to transfer and redemption restrictions, such as advance notice requirements, limited redemption dates, and possible suspension of redemption rights. All of these restrictions are subject to change at the sole discretion of Blackstone Partners or an underlying funds management. As of May 31, 2017, the funds investment in Blackstone Partners is subject to semi-annual redemption with 95 days prior written notice and is considered an illiquid asset.
Other Purchases and sales of portfolio securities other than short-term and U.S. government securities aggregated $938,189,000 and $976,919,000, respectively, for the year ended May 31, 2017. Purchases and sales of U.S. government securities aggregated $360,942,000 and $422,380,000, 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 to paid-in capital relate primarily to a tax practice that treats a portion of the proceeds from each redemption of capital shares as a distribution of taxable net investment income or realized capital gain. Reclassifications between income and gain relate primarily to the character of paydown gains and losses on asset-backed securities. 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, were characterized for tax purposes as follows:
At May 31, 2017, the tax-basis cost of investments and components of net assets were as follows:
The difference between book-basis and tax-basis net unrealized appreciation (depreciation) is attributable to the deferral of losses from wash sales and/or certain derivative contracts, the realization of gains/losses on passive foreign investment companies and/or certain open derivative contracts for tax purposes.
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 0.25% 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, 2018, 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. Pursuant to this agreement, less than $1,000 of expenses were repaid to Price Associates during the year ended May 31, 2017. At May 31, 2017, there were no amounts subject to repayment by the fund.
In addition, the fund has entered into service agreements with Price Associates and two wholly owned subsidiaries of Price Associates (collectively, Price). Price Associates provides certain accounting and administrative services to the fund. T. Rowe Price Services, Inc. provides shareholder and administrative services in its capacity as the 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; $557,000 for T. Rowe Price Services, Inc.; and $603,000 for T. Rowe Price Retirement Plan Services, Inc. The total amount payable at period-end pursuant to these service agreements is reflected as Due to Affiliates in the accompanying financial statements.
The fund 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 aggregate value of purchases and sales cross trades with other funds or accounts advised by Price Associates was less than 1% of the funds net assets as of May 31, 2017.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors of T. Rowe
Price Personal Strategy Funds,
Inc.
and
Shareholders of T. Rowe Price Personal
Strategy Balanced Fund
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 Personal Strategy Balanced Fund (one of the portfolios comprising T. Rowe Price Personal Strategy Funds, 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:
● | $9,256,000 from short-term capital gains |
● | $26,752,000 from long-term capital gains, subject to a long-term capital gains tax rate of not greater than 20. |
For taxable non-corporate shareholders, $22,355,000 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, $10,707,000 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 (Expense Group); and (ii) 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 first quintile (Expense Group), the
funds actual management fee rate ranked in the first quintile (Expense Group
and Expense Universe), and the funds total expenses ranked in the first
quintile (Expense Group and Expense Universe).
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 | |
2001 | 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 | |
2012 | 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 | |
2012 | 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 | |
2001 | 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 (2008 | |
(1957) | 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 | ||
Brian C. Rogers, CFA, CIC** | Director and non-executive Chairman of the Board, T. Rowe Price | |
(1955) | Group, Inc.; Director, United Technologies (January 2016 to present) | |
[0] | ||
Robert W. Sharps, CFA** | Vice President, T. Rowe Price, T. Rowe Price Group, Inc., and | |
(1971) | T. Rowe Price Trust Company; Director and Vice President, Personal | |
2017 | Strategy Funds | |
[132] | ||
*Each inside director serves until retirement, resignation, or election of a successor. | ||
**Effective April 1, 2017, Brian C. Rogers was replaced by Robert W. Sharps as an inside director of certain Price Funds. |
Officers | ||
Name (Year of Birth) | ||
Position Held With Personal Strategy Funds | Principal Occupation(s) | |
Christopher D. Alderson (1962) | Director and Vice President, T. Rowe Price | |
Vice President | International; Vice President, Price Hong Kong, | |
Price Singapore, and T. Rowe Price Group, Inc. | ||
E. Frederick Bair, CFA, CPA (1969) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
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. | ||
Jerome A. Clark, CFA (1961) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., T. Rowe Price Investment Services, | |
Inc., and T. Rowe Price Trust Company | ||
Kimberly E. DeDominicis (1976) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price International | |
Mark S. Finn, CFA, CPA (1963) | 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. | ||
David R. Giroux, CFA (1975) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
Ian D. Kelson (1956) | Director and Vice President, T. Rowe Price | |
Vice President | International; Vice President, T. Rowe Price | |
Group, Inc. | ||
Steven D. Krichbaum (1977) | 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 | |
Wyatt A. Lee, CFA (1971) | 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 | |
Raymond A. Mills, Ph.D., CFA (1960) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., T. Rowe Price International, and | |
T. Rowe Price Trust Company | ||
David Oestreicher (1967) | Director, Vice President, and Secretary, T. Rowe | |
Vice President | 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 | ||
Sebastien Page (1977) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Larry J. Puglia, CFA, CPA (1960) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
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 | ||
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. | ||
Daniel O. Shackelford, CFA (1958) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
Charles M. Shriver, CFA (1967) | Vice President, T. Rowe Price, T. Rowe Price | |
President | Group, Inc., T. Rowe Price International, and | |
T. Rowe Price Trust Company | ||
Guido F. Stubenrauch (1970) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Toby M. Thompson, CFA, CAIA (1971) | Vice President, T. Rowe Price and T. Rowe Price | |
Vice President | Group, Inc. | |
Justin Thomson (1968) | Vice President, T. Rowe Price Group, Inc., and | |
Vice President | T. Rowe Price International | |
Mark J. Vaselkiv (1958) | Vice President, T. Rowe Price, T. Rowe Price | |
Vice President | Group, Inc., and T. Rowe Price Trust Company | |
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 registrant’s 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 Personal Strategy Funds, 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 Personal Strategy Balanced 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 Personal Strategy Balanced 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 Personal Strategy Balanced 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
DHYA#,"!8
MSSA"24T$.@ Y0 ! ! +<')I;G1/=71P=70 %
M %!S=%-B;V]L 0 !);G1E96YU;0 !);G1E $-L '1) &%P+S$N,"\ /#]X
M<&%C:V5T(&)E9VEN/2+ON[\B(&ED/2)7-4TP37!#96AI2'IR95-Z3E1C>FMC
M.60B/SX@/'@Z>&UP;65T82!X;6QN 'X$D<=+[#)O9BJLR$!TJ+F)+UDZO
M:'6M7@QQLX?\$,O,%VR06*A%NG22]Q2(Q7@0^*T\.3C9BO'G47'[(8N26-LZ
MI/X5;8+!"ZI=P=66QRZ4DE?8TZRMWB@A8WP*F&DX\8>7?CI]2JY,U6;>5*PQ
MHZE0K*H;8Y#Q&J"7MDYPV(W'+M%TE+O%'.PWMU/QL=,S'Y5T>-%=9 +9E,W,"#!5\":SC6M:\
M*E: #0C8=HD5@"1%MC&].&P0*["[1Q-@8=[&[G,:VC]-^?]#TD?&S>
MIV4,??B^A<1^DJ@N@@Q[7L=[V.^DQ+A*K=))4?M.=_HO^B[^]+[3G?Z+_HN_
MO2X3X*X@WDE1^TYW^B_Z+O[TOM.=_HO^B[^]+A/@KB#>25'[3G?Z+_HN_O4J
M\C,=8UKJH:2 3M=H/O2X2KB;B222"5C$&>.\\0JOJ]*_?Q^_=GS5M-M;X!)!
M^W.WD_E^Z[*_AM7?F>G;PO\ GMV^
M?2?Y^<::]2/Z_.==.VJ<_P8Y[H Y+C+CSU8EJ]B1\)KR8"U<=NVMQ(;STK
MM\OV_LZ?GY[:=_\ D_9Y;Z]-?]D$7W=]O)49
NA+]MNXC&CU1GTW]IU53;3'LT$CE*SX=Q
M=O2OJO$6
N1RDR1';)!E*29!5FO:L: ZV(GA\X/_C"T)\]BPR'N'CL?CY>
M1CO30
2\ZR#J\/)<;-
MQ >.G6O64!%2HTCT_P#N4J9';]KYM9GZU'Q[/DGX;+0
+'J+7R#HL>FJPF;=Q?=Z".'[D>997%X-N.''QY,^)FI
M$QLF-)J%*X:4N/2JT5
I:AX+@