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: 811-08203
T. Rowe Price Quantitative Management 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 |
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(Name and address of agent for service) |
Registrants telephone number, including area
code: (410) 345-2000
Date of fiscal year end: December
31
Date of reporting period: December 31, 2016
Item 1. Report to Shareholders
QM U.S.
Small & Mid-Cap Core Equity Fund |
December
31, 2016 |
The views and opinions in this report were current as of December 31, 2016. They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the funds future investment intent. The report is certified under the Sarbanes-Oxley Act, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.
REPORTS ON THE WEB
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Managers Letter
Fellow Shareholders
Domestic small- and mid-cap stocks produced solid returns in a volatile 2016. In the first half of the year, the equity market tumbled through mid-February, then rebounded until late June, when the UKs vote to leave the European Union triggered a steep but short-lived drop. Since the end of June, stocks climbed despite uncertainty related to the November elections and the timing of a possible Federal Reserve interest rate increase. The market ralliedled by small-cap and value stocksafter the unexpected election victory of Donald Trump as the next U.S. president. The rally continued into December, even as the Fed decided to raise short-term rates on December 14.
PERFORMANCE COMPARISON
Your fund returned 13.38% in the second half of 2016 and 25.40% for the period from its inception on February 26, 2016, through the end of the year. (The performance of the funds Advisor and I Class shares varied due to different fee structures and other factors.) As shown in the Performance Comparison table, the fund outperformed its benchmark, the Russell 2500 Index, and its Lipper peer group index in the last six months. Since its inception, the fund outperformed the Lipper index but trailed the Russell 2500.
The funds outperformance versus the Russell index in the second half of 2016 was driven by stock selection in several sectors, especially materials, industrials and business services, and consumer staples. Sector allocations in aggregate had a slight negative impact on relative performance, primarily because of a small underweight in the financials sector, which produced brisk returns and outpaced other sectors. Nevertheless, several bank stocks were among our top contributors to absolute performance, as shown in the Contributions to the Change in Net Asset Value table on page 12.
MARKET ENVIRONMENT
The U.S. economy and the labor market have been growing at a steady pace for many quarters. The 4.7% unemployment rate in December was fairly lownear a nine-year low, in fact. After warning the financial markets for the last few months that the case for raising short-term interest rates had strengthened, the Federal Reserve raised rates at its mid-December monetary policy meeting. The central bank also hinted that the market could expect three more rate increases in 2017. As many economic growth indicators are trending positive, we expect that the Fed will follow through with a few rate increases in the new year.
Small-cap stocks had good returns and strongly outperformed mid- and large-cap stocks in the second half of 2016 and for the full year. Growth stocks, however, generally lagged value stocks across all market capitalizations in both periods, and especially in the fourth quarter. The market reacted to the November elections with an expectation of fiscal stimulus and less regulation. Increased growth expectations were reflected in higher Treasury bond yields. This configuration of events favored cyclical stocks and stocks of companies that benefit from higher interest rates, such as banks.
In the small- and mid-cap universe, as measured by the Russell 2500 Index, most sectors produced positive returns in the second half of 2016. Financial stocks strongly outperformed amid expectations for reduced regulations and more profitable bank lending due to rising interest rates. Industrials and business services shares also did very well amid hopes that President Trumps plans to increase infrastructure spending would lead to stronger economic growth. Energy and materials stocks did well, too, lifted by the rebound in commodity prices from early-2016 lows. Energy stocks also benefited from OPECs late-year agreement to curtail production starting in 2017. Health care stocks lagged with mild gains, as heightened scrutiny over drug-pricing practices and fears of tighter regulations periodically weighed on biotechnology and pharmaceutical stocks. The noncyclical utilities, telecommunication services, and consumer staples sectors edged lower during the period. These safe havens lagged as cyclical stocks surged following the Trump election victory.
OUR INVESTMENT APPROACH
We would like to welcome new shareholders to the fund. For the benefit of all investors, including those who are new to T. Rowe Prices suite of four quantitatively managed (QM) equity mutual funds, we would like to briefly review how we build and manage our portfolios.
The QM funds use a multifactor stock selection process to identify attractive stocks in our opportunity setin this case, domestic small- and mid-cap companies. Our stock selection approach reflects three of our quant teams key investment convictions:
● | Stocks with lower valuations tend to outperform
in every global universe. There are periods during the market cycle when
stocks with lower valuations may underperform, but over time, the evidence
for value outperformance is convincing. |
● | Quality stocks outperform in part because,
historically, they have tended to experience more moderate declines in
down markets. Limiting portfolio losses in market downturns facilitates
compounding, leading to stronger portfolio growth over
time. |
● | Firms that are profitable and good allocators of capital should be able to outperform over the long term. |
WHAT WE SEEK: VALUE AND QUALITY
While each T. Rowe Price QM fund has a customized stock selection process, we focus most on identifying attractive stocks by looking at valuation and quality. We also include metrics that measure the capital allocation decisions of corporate managements. There is also an emphasis on buying stocks that the market recognizes as experiencing a change; company earnings estimate revisions and price change (classified as momentum metrics in academic literature) are two of the metrics that capture market recognition. We weight valuation, cash flow generation, and capital allocation metrics heavily, which reflects our long-term orientation. We expect that this should reduce our portfolio turnover and could help reduce taxable distributions. Finally, we want to hold onto our winners rather than sell them too early.
In short, here are some of the most important factors we consider when ranking thousands of possible investments:
● |
Value. We favor stocks that appear inexpensively valued relative to their
respective industries and equity universes. |
● |
Quality. We seek companies with high-quality characteristics,
which includes a high return on capital employed, good earnings quality,
and stability of earnings. |
● |
Cash Flows and Capital Deployment. We prefer companies that generate substantial free cash flow. Such companies have the potential to be self-financing and can continue to invest in periods when borrowing capital is not easy. We particularly like companies that use cash flows wisely in a manner that benefits shareholdersfor example, by executing projects with an expected high return. Free cash flows also give companies the ability to buy back their stock, even in down markets, if management determines that is the best use of capital. |
PORTFOLIO REVIEW
As shown in the Portfolio Characteristics table on page 4, some of the funds fundamental characteristics were similar to those of the Russell 2500 Index. At the end of 2016, the projected earnings growth rate of our holdings matched that of the index, and our investment-weighted median market capitalization was about the same as that of the index. Other fund metrics, however, demonstrate our commitment to small- and mid-cap companies with attractive valuations and quality. The portfolios price/earnings ratio was lower than that of the index, while the historical earnings growth rate of our holdings was notably higher than those in the benchmark. Also, the funds return on equity (ROE), which measures how effectively and efficiently a company and its management are using stockholder investments, was materially higher than that of the benchmark. This is not surprising, as ROE is one of several important metrics that we consider when ranking current and potential portfolio holdings.
As you can see in the Sector Diversification table, the funds sector allocations as of December 31 were very similar to those of the index. We may occasionally have small overweights or underweights, but we aim to outperform through stock selection, rather than sector bets.
Another means of controlling risk is broad diversification: We had a little more than 350 holdings at the end of the year, and the size of our largest positions was 0.6% of assets, as shown in the Twenty-Five Largest Holdings table on page 10. Position size depends on a stocks valuation, riskiness, earnings stability, and quality. For example, we tend to have smaller positions in higher-risk companies, such as small-cap pharmaceuticals and biotechnology firms.
As you can see in the Industry Diversification table on page 11, our 25 largest industry allocations are, in most cases, fairly similar to those of the Russell index. Some of the most significant differences are our overweights to IT services; hotels, restaurants, and leisure; and aerospace and defense. These overweights stem from our decision to invest in companies weve identified as having favorable attributes, such as attractive valuations, earnings quality, and high cash flows.
Equity real estate investment trusts (REITs) represented our largest industry allocation in absolute terms at the end of Decemberin fact, this is the entirety of our real estate sector allocationand we have a slight underweight versus the index. REITs, which often have high dividend yields and tend to act like bonds in response to interest rate movements, lagged as Treasury yields rose in the last six months. While our models continue to indicate that some REITs remain richly priced, there are several REITs among our 25 largest holdings due to favorable metrics, such as funds from operation.
OUTLOOK
The year 2016 ended with a growing sense of optimism that U.S. business conditions should improve under the incoming Trump administration. While generally looser regulations are likely, theres no way to know which of Trumps policy proposals will become law. Once Congress acts on the Trump administrations agenda, we expect to gain more clarity on the path of government fiscal initiatives and, in particular, tax rate changes.
While the U.S. economy picked up in the second half of 2016, it may encounter some headwinds in the new year. For example, the Federal Reserve seems prepared to raise short-term interest rates a few times in 2017. That should benefit many financial stocks in the near term, but higher borrowing costs will eventually, if history is a guide, cap the stock markets upside and slow the economy. Another potential drag on the economy is the increase in oil prices to around $55 per barrelcompared with a low of $26 per barrel about one year ago. The higher oil price does help energy companies, but it also means consumers and businesses will have higher energy costs. In addition, exporters may be hurt by the recent sharp rise in the U.S. dollar versus other currencies.
While U.S. stock valuations are generally at or above historical averages, corporate earnings are expected to improve in 2017, having recently recovered from an earnings recession that lasted more than one year. However, we feel that unless there is a large increase in earnings above consensus expectations, many stocks in the small- and mid-cap universe are fully valued. We believe investors should temper their total return expectations for the year ahead.
Through our disciplined stock selection process, we continue to seek and invest in small- and mid-cap growth and value stocks with favorable attributes. We especially like high-quality stocks of companies that generate good cash flows and are judicious in deploying capital. We believe that such companies will distinguish themselves over time with superior performance relative to lower-quality businesses.
We are grateful for the confidence that our shareholders have in our investment management abilities. Thank you for investing with T. Rowe Price.
Respectfully submitted,
Boyko Atanassov
Chairman of the funds Investment Advisory
Committee
January 25, 2017
The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the funds investment program.
RISKS OF INVESTING IN THE FUND
Stocks generally fluctuate in value more than bonds and may decline significantly over short time periods. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. The value of a stock in which the fund invests may decline due to general weakness in the U.S. stock market, such as when the U.S. financial markets decline, or because of factors that affect a particular company or industry.
Because the fund invests primarily in small and medium-sized companies, its share price could be more volatile than a fund that is exposed to only large companies. Small and medium-sized companies often have less experienced management, narrower product lines, more limited financial resources, and less publicly available information than larger companies. Smaller companies may have limited trading markets and tend to be more sensitive to changes in overall economic conditions.
The funds strategy relies heavily on quantitative models and the analysis of specific metrics to construct the portfolio. The impact of these metrics on a stocks performance can be difficult to predict, and stocks that previously possessed certain desirable quantitative characteristics may not continue to demonstrate those same characteristics in the future. In addition, relying on quantitative models entails the risk that the models themselves may be limited or incorrect, that the data on which the models rely may be incorrect or incomplete, and that the advisor may not be successful in selecting companies for investment or determining the weighting of particular stocks in the funds portfolio. Any of these factors could cause the fund to underperform funds with similar strategies that do not select stocks based on quantitative analysis.
GLOSSARY
Earnings growth rate current fiscal year: Measures the annualized percent change in earnings per share from the prior fiscal year to the current fiscal year.
Lipper indexes: Fund benchmarks that consist of a small number (10 to 30) of the largest mutual funds in a particular category as tracked by Lipper Inc.
Price-to-earnings (P/E) ratio 12 months forward: A valuation measure calculated by dividing the price of a stock by the analysts forecast of the next 12 months expected earnings. The ratio is a measure of how much investors are willing to pay for the companys future earnings. The higher the P/E, the more investors are paying for a companys earnings growth in the next 12 months.
Projected earnings growth rate (IBES): A companys expected earnings per share growth rate for a given time period based on the forecast from the Institutional Brokers Estimate System, which is commonly referred to as IBES.
Real estate investment trusts (REITs): Publicly traded companies that own, develop, and operate apartment complexes, hotels, office buildings, and other commercial properties.
Return on equity (ROE) current fiscal year: A valuation measure calculated by dividing the companys current fiscal year net income by shareholders equity (i.e., the companys book value). ROE measures how much a company earns on each dollar that common stock investors have put into the company. It indicates how effectively and efficiently a company and its management are using stockholder investments.
Russell 2500 Index: Tracks the performance of domestic small- and mid-cap stocks as defined by Russell. The index includes the 2,500 smallest companies in the broad Russell 3000 Index.
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
Fund Expense Example |
As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, such as redemption fees or sales loads, and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period.
Please note that the fund has three share classes: The original share class (Investor Class) charges no distribution and service (12b-1) fee, the Advisor Class shares are offered only through unaffiliated brokers and other financial intermediaries and charge a 0.25% 12b-1 fee, and I Class shares are available to institutionally oriented clients and impose no 12b-1 or administrative fee payment. Each share class is presented separately in the table.
Actual Expenses
The first line of the following table (Actual) provides
information about actual account values and expenses based on the funds actual
returns. You may use the information on this line, together with your account
balance, to estimate the expenses that you paid over the period. Simply divide
your account value by $1,000 (for example, an $8,600 account value divided by
$1,000 = 8.6), then multiply the result by the number on the first line under
the heading Expenses Paid During Period to estimate the expenses you paid on
your account during this period.
Hypothetical Example for Comparison
Purposes
The information on the second
line of the table (Hypothetical) is based on hypothetical account values and
expenses derived from the funds actual expense ratio and an assumed 5% per year
rate of return before expenses (not the funds actual return). You may compare
the ongoing costs of investing in the fund with other funds by contrasting this
5% hypothetical example and the 5% hypothetical examples that appear in the
shareholder reports of the other funds. The hypothetical account values and
expenses may not be used to estimate the actual ending account balance or
expenses you paid for the period.
Note: T. Rowe Price charges an annual account service fee of $20, generally for accounts with less than $10,000. The fee is waived for any investor whose T. Rowe Price mutual fund accounts total $50,000 or more; accounts electing to receive electronic delivery of account statements, transaction confirmations, prospectuses, and shareholder reports; or accounts of an investor who is a T. Rowe Price Preferred Services, Personal Services, or Enhanced Personal Services client (enrollment in these programs generally requires T. Rowe Price assets of at least $100,000). This fee is not included in the accompanying table. If you are subject to the fee, keep it in mind when you are estimating the ongoing expenses of investing in the fund and when comparing the expenses of this fund with other funds.
You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements |
T. Rowe Price Quantitative Management Funds, Inc. (the corporation), is registered under the Investment Company Act of 1940 (the 1940 Act). The QM U.S. Small & Mid-Cap Core Equity Fund (the fund) is a diversified, open-end management investment company established by the corporation. The fund seeks long-term growth of capital. The fund has three classes of shares: the QM U.S. Small & Mid-Cap Core Equity Fund (Investor Class), the QM U.S. Small & Mid-Cap Core Equity FundAdvisor Class (Advisor Class), and the QM U.S. Small & Mid-Cap Core Equity FundI Class (I Class). Advisor Class shares are sold only through unaffiliated brokers and other unaffiliated financial intermediaries. I Class shares generally are available only to investors meeting a $1,000,000 minimum investment or certain other criteria. The Advisor Class operates under a Board-approved Rule 12b-1 plan pursuant to which the class compensates financial intermediaries for distribution, shareholder servicing, and/or certain administrative services; the Investor and I Classes do not pay Rule 12b-1 fees. Each class has exclusive voting rights on matters related solely to that class; separate voting rights on matters that relate to all classes; and, in all other respects, the same rights and obligations as the other classes.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation The fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including, but not limited to, ASC 946. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity.
Investment Transactions, Investment Income, and Distributions Income and expenses are recorded on the accrual basis. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Income tax-related interest and penalties, if incurred, would be recorded as income tax expense. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. 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 annually. Distributions to shareholders are recorded on the ex-dividend date. Capital gain distributions are generally declared and paid by the fund annually.
Class Accounting Shareholder servicing, prospectus, and shareholder report expenses incurred by each class are charged directly to the class to which they relate. Expenses common to all classes, investment income, and realized and unrealized gains and losses are allocated to the classes based upon the relative daily net assets of each class. The Advisor Class pays Rule 12b-1 fees, in an amount not exceeding 0.25% of the classs average daily net assets.
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.
Redemption Fees A 1% fee is assessed on redemptions of fund shares held for 90 days or less to deter short-term trading and to protect the interests of long-term shareholders. Redemption fees are withheld from proceeds that shareholders receive from the sale or exchange of fund shares. The fees are paid to the fund and are recorded as an increase to paid-in capital. The fees may cause the redemption price per share to differ from the net asset value per share.
New Accounting Guidance In October 2016, the Securities and Exchange Commission (SEC) issued a new rule, Investment Company Reporting Modernization, which, among other provisions, amends Regulation S-X to require standardized, enhanced disclosures, particularly related to derivatives, in investment company financial statements. Compliance with the guidance is effective for financial statements filed with the SEC 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. Actively traded equity securities listed on a domestic exchange generally are categorized in Level 1 of the fair value hierarchy. OTC Bulletin Board securities, certain preferred securities, and equity securities traded in inactive markets generally are categorized in Level 2 of the fair value hierarchy.
Investments in mutual funds are valued at the mutual funds closing NAV per share on the day of valuation and are categorized in Level 1 of the fair value hierarchy. 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 On December 31, 2016, all of the funds financial instruments were classified as Level 1, based on the inputs used to determine their fair values. There were no material transfers between Levels 1 and 2 during the period ended December 31, 2016.
NOTE 3 - 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.
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 December 31, 2016, the value of loaned securities was $851,000; the value of cash collateral and related investments was $876,000.
Other Purchases and sales of portfolio securities other than short-term securities aggregated $28,575,000 and $1,792,000, respectively, for the period ended December 31, 2016.
NOTE 4 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends 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.
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 per-share rounding of distributions. For the period ended December 31, 2016, the following reclassifications were recorded to reflect tax character (there was no impact on results of operations or net assets):
Distributions during the period ended December 31, 2016, totaled $225,000, and were characterized as ordinary income for tax purposes. At December 31, 2016, the tax-basis cost of investments and components of net assets were as follows:
NOTE 5 - 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 0.35% 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 0.270% for assets in excess of $500 billion. The funds group fee is determined by applying the group fee rate to the funds average daily net assets. At December 31, 2016, the effective annual group fee rate was 0.29%.
The Investor Class and Advisor Class are each subject to a contractual expense limitation through the limitation dates indicated in the table below. During the limitation period, Price Associates is required to waive its management fee or pay any expenses (excluding interest, expenses related to borrowings, taxes, and brokerage, and other non-recurring expenses permitted by the investment management agreement) that would otherwise cause the classs ratio of annualized total expenses to average net assets (expense ratio) to exceed its expense limitation. Each class is required to repay Price Associates for expenses previously waived/paid to the extent the classs net assets grow or expenses decline sufficiently to allow repayment without causing the classs expense ratio to exceed its expense limitation 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.
The I Class is also 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, and 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 April 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.
Pursuant to these agreements, $264,000 of expenses were waived/paid by Price Associates during the period ended December 31, 2016 and remain subject to repayment by the fund.
In addition, the fund has entered into service agreements with Price Associates and a wholly owned subsidiary 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. For the period ended December 31, 2016, expenses incurred pursuant to these service agreements were $59,000 for Price Associates and $8,000 for T. Rowe Price 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.
As of December 31, 2016, T. Rowe Price Group, Inc., or its wholly owned subsidiaries owned 950,000 shares of the Investor Class, representing 39% of the Investor Classs net assets, 25,000 shares of the Advisor Class, representing 98% of the Advisor Classs net assets, and 25,000 shares of the I Class, representing 99% of the I Classs net assets.
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 period ended December 31, 2016, the fund had no purchases or sales cross trades with other funds or accounts advised by Price Associates.
Report of Independent Registered Public Accounting Firm |
To the Board of Directors of T. Rowe
Price Quantitative Management
Funds, Inc. and Shareholders of T. Rowe Price
QM U.S. Small & Mid-Cap
Core Equity 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 T. Rowe Price QM U.S. Small & Mid-Cap Core Equity Fund (one of the portfolios constituting T. Rowe Price Quantitative Management Funds, Inc., hereafter referred to as the Fund) as of December 31, 2016, the results of its operations, the changes in its net assets and the financial highlights for the period February 26, 2016 (date of Funds inception) through December 31, 2016, 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 audit. We conducted our audit 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 audit, which included confirmation of securities as of December 31, 2016 by correspondence with the custodian and brokers, and confirmation of the underlying funds by correspondence with the transfer agent, provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Baltimore,
Maryland
February 16, 2017
Tax Information (Unaudited) for the Tax Year Ended 12/31/16 |
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 $84,000 from short-term capital gains.
For taxable non-corporate shareholders, $156,000 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, $148,000 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.
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 | |
William R. Brody, M.D., Ph.D. | President and Trustee, Salk Institute for Biological Studies | |
(1944) | (2009 to present); Director, BioMed Realty Trust (2013 to 2016); | |
2009 | Chairman of the Board, Mesa Biotech, a molecular diagnostic | |
[187] | company (March 2016 to present); Director, Radiology Partners, | |
an integrated radiology practice management company (June 2016 | ||
to present); Director, Novartis, Inc. (2009 to 2014); Director, IBM | ||
(2007 to present) | ||
Anthony W. Deering | Chairman, Exeter Capital, LLC, a private investment firm (2004 to | |
(1945) | present); Director, Brixmor Real Estate Investment Trust (2012 to | |
2001 | present); Director and Advisory Board Member, Deutsche Bank | |
[187] | North America (2004 to present); Director, Under Armour (2008 | |
to present); Director, Vornado Real Estate Investment Trust (2004 | ||
to 2012) | ||
Bruce W. Duncan | Chief Executive Officer and Director (2009 to present), Chairman | |
(1951) | of the Board (January 2016 to present), and President (2009 | |
2013 | to September 2016), First Industrial Realty Trust, an owner | |
[187] | and operator of industrial properties; Chairman of the Board (2005 | |
to May 2016) and Director (1999 to May 2016), Starwood Hotels & | ||
Resorts, a hotel and leisure company; Director, Boston Properties | ||
(May 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) | |
[187] | ||
Paul F. McBride | Advisory Board Member, Vizzia Technologies (2015 to present) | |
(1956) | ||
2013 | ||
[187] | ||
Cecilia E. Rouse, Ph.D. | Dean, Woodrow Wilson School (2012 to present); Professor and | |
(1963) | Researcher, Princeton University (1992 to present); Director, MDRC, | |
2012 | a nonprofit education and social policy research organization (2011 | |
[187] | to present); Member of National Academy of Education (2010 to | |
present); Research Associate of Labor Program (2011 to present) | ||
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) and | ||
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 | |
[187] | Advisors, L.P. (1992 to 2015); Director, General Growth Properties, | |
Inc. (2010 to 2013); Director, Blackstone Mortgage Trust, a real | ||
estate finance company (2012 to 2016); Director and Chairman of | ||
the Board, Brixmor Property Group, Inc. (2013 to present); Director, | ||
Hilton Worldwide (2013 to present); Director, Hudson Pacific | ||
Properties (2014 to 2016) | ||
Mark R. Tercek | President and Chief Executive Officer, The Nature Conservancy | |
(1957) | (2008 to present) | |
2009 | ||
[187] | ||
*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 President, T. Rowe Price | |
[187] | Investment Services, Inc.; Chairman of the Board and Director, | |
T. Rowe Price Retirement Plan Services, Inc., and T. Rowe Price | ||
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 | Chief Investment Officer, Director, and Vice President, T. Rowe | |
(1955) | Price; Chairman of the Board, Chief Investment Officer, Director, and | |
2013 | Vice President, T. Rowe Price Group, Inc.; Vice President, T. Rowe | |
[131] | Price Trust Company; Director, United Technologies (January 2016 | |
to present) | ||
*Each inside director serves until retirement, resignation, or election of a successor. |
Officers | ||
Name (Year of Birth) | ||
Position Held With Quantitative | ||
Management Funds, Inc. | Principal Occupation(s) | |
Vinit Agrawal (1987) | Vice President, T. Rowe Price | |
Vice President | ||
Boyko D. Atanassov (1969) | Vice President, T. Rowe Price and T. Rowe Price | |
Executive Vice President | Group, Inc. | |
Darrell N. Braman (1963) | Vice President, Price Hong Kong, Price | |
Vice President and Secretary | Singapore, T. Rowe Price, T. Rowe Price Group, | |
Inc., T. Rowe Price International, T. Rowe Price | ||
Investment Services, Inc., and T. Rowe Price | ||
Services, Inc. | ||
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. | ||
Prashant G. Jeyaganesh (1983) | Vice President, T. Rowe Price and T. Rowe Price | |
Executive Vice President | Group, Inc. | |
Vidya Kadiyam (1980) | 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 | |
Catherine D. Mathews (1963) | Vice President, T. Rowe Price, T. Rowe Price | |
Treasurer and Vice President | Group, Inc., and T. Rowe Price Trust Company | |
Sudhir Nanda, Ph.D., CFA (1959) | Vice President, T. Rowe Price and T. Rowe Price | |
President | Group, Inc. | |
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 | ||
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. | ||
Farris G. Shuggi (1984) | Vice President, T. Rowe Price and T. Rowe Price | |
Executive Vice President | Group, Inc. | |
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe Price International for at least 5 years. |
Item 2. Code of Ethics.
The registrant has adopted a code of ethics, as defined in Item 2 of Form N-CSR, applicable to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of this code of ethics is filed as an exhibit to this Form N-CSR. No substantive amendments were approved or waivers were granted to this code of ethics during the period covered by this report.
Item 3. Audit Committee Financial Expert.
The registrants Board of Directors/Trustees has determined that Mr. Bruce W. Duncan qualifies as an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mr. Duncan is considered independent for purposes of Item 3 of Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) (d) Aggregate fees billed for the last two fiscal years for professional services rendered to, or on behalf of, the registrant by the registrants principal accountant were as follows:
Audit fees include amounts related to the audit of the registrants annual financial statements and services normally provided by the accountant in connection with statutory and regulatory filings. Audit-related fees include amounts reasonably related to the performance of the audit of the registrants financial statements and specifically include the issuance of a report on internal controls and, if applicable, agreed-upon procedures related to fund acquisitions. Tax fees include amounts related to services for tax compliance, tax planning, and tax advice. The nature of these services specifically includes the review of distribution calculations and the preparation of Federal, state, and excise tax returns. All other fees include the registrants pro-rata share of amounts for agreed-upon procedures in conjunction with service contract approvals by the registrants Board of Directors/Trustees.
(e)(1) The registrants audit committee has adopted a policy whereby audit and non-audit services performed by the registrants principal accountant for the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant require pre-approval in advance at regularly scheduled audit committee meetings. If such a service is required between regularly scheduled audit committee meetings, pre-approval may be authorized by one audit committee member with ratification at the next scheduled audit committee meeting. Waiver of pre-approval for audit or non-audit services requiring fees of a de minimis amount is not permitted.
(2) No services included in (b) (d) above were approved pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Less than 50 percent of the hours expended on the principal accountants engagement to audit the registrants financial statements for the most recent fiscal year were attributed to work performed by persons other than the principal accountants full-time, permanent employees.
(g) The aggregate fees billed for the most recent fiscal year and the preceding fiscal year by the registrants principal accountant for non-audit services rendered to the registrant, its investment adviser, and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant were $2,146,000 and $2,158,000, 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 Quantitative Mangement Funds, Inc.
By | /s/ Edward C. Bernard | |
Edward C. Bernard | ||
Principal Executive Officer | ||
Date February 16, 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 February 16, 2017 | ||
By | /s/ Catherine D. Mathews | |
Catherine D. Mathews | ||
Principal Financial Officer | ||
Date February 16, 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 QM U.S. Small & Mid-Cap Core Equity 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: February 16, 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 QM U.S. Small & Mid-Cap Core Equity 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: February 16, 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 QM U.S. Small & Mid-Cap Core Equity 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: February 16, 2017 | /s/ Edward C. Bernard | |
Edward C. Bernard | ||
Principal Executive Officer | ||
Date: February 16, 2017 | /s/ Catherine D. Mathews | |
Catherine D. Mathews | ||
Principal Financial Officer |
CODE OF ETHICS FOR PRINCIPAL EXECUTIVE
AND SENIOR FINANCIAL
OFFICERS OF THE PRICE FUNDS
UNDER THE SARBANES-OXLEY ACT OF 2002
I. General Statement. This Code of Ethics (the Price Funds S-O Code) has been designed to bring the Price Funds into compliance with the applicable requirements of the Sarbanes-Oxley Act of 2002 (the Act) rules promulgated by The Securities and Exchange Commission thereunder (Regulations). The Price Funds S-O Code applies solely to the Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer or Controller of, or persons performing similar functions for, a Price Fund (whether such persons are employed by a Price Fund or third party) (Covered Officers). The Price Funds shall include each mutual fund that is managed, sponsored and distributed by affiliates of T. Rowe Price Group, Inc. (Group). The investment managers to the Price Funds will be referred to as the Price Fund Advisers. A list of Covered Officers is attached as Exhibit A.
The Price Fund Advisers have, along with their parent, T. Rowe Price Group, Inc. (Group) also maintained a comprehensive Code of Ethics and Conduct (the Group Code) since 1972, which applies to all officers, directors and employees of the Price Funds, Group and its affiliates.
As mandated by the Act, Group has adopted a Code (the Group S-O Code), similar to the Price Funds S-O Code, which applies solely to its principal executive and senior financial officers. The Group S-O Code and the Price Funds S-O Code will be referred to collectively as the S-O Codes.
The Price Funds S-O Code has been adopted by the Price Funds in accordance with the Act and Regulations thereunder and will be administered in conformity with the disclosure requirements of Item 2 of Form N-CSR. The S-O Codes are attachments to the Group Code. In many respects the S-O Codes are supplementary to the Group Code, but the Group Code is administered separately from the S-O Codes, as the S-O Codes are from each other.
II. Purpose of the Price Funds S-O Code. The purpose of the Price Funds S-O Code, as mandated by the Act and the Regulations, is to establish standards that are reasonably designed to deter wrongdoing and to promote:
Ethical Conduct. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships.
Disclosure. Full, fair, accurate, timely and understandable disclosure in reports and documents that the Price Funds file with, or submit to, the SEC and in other public communications made by the Price Funds.
Compliance. Compliance with applicable governmental laws, rules and regulations.
Reporting of Violations. The prompt internal reporting of violations of the Price Funds S-O Code to an appropriate person or persons identified in the Price Funds S-O Code.
Accountability. Accountability for adherence to the Price Funds S-O Code.
III. Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest.
Overview. Each Covered Officer owes a duty to the Price Funds to adhere to a high standard of honesty and business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.
A conflict of interest occurs when a Covered Officers private interest interferes with the interests of, or his or her service to, the Price Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of his or her position with a Price Fund.
Certain conflicts of interest covered by the Price Funds S-O Code arise out of the relationships between Covered Officers and the Price Funds and may already be subject to provisions regulating conflicts of interest in the Investment Company Act of 1940 (Investment Company Act), the Investment Advisers Act of 1940 (Investment Advisers Act) and the Group Code. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Price Fund because of their status as affiliated persons of a Price Fund. The compliance programs and procedures of the Price Funds and Price Fund Advisers are designed to prevent, or identify and correct, violations of these provisions.
Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between a Price Fund and its Price Fund Adviser (and its affiliates) of which the Covered Officers may also be officers or employees. As a result, the Price Funds S-O Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Price Funds or for the Price Fund Advisers, or for both), be involved in establishing policies and implementing decisions which will have different effects on these entities. The participation of the Covered Officers in such activities is inherent in the contractual relationship between each Price Fund and its respective Price Fund Adviser. Such participation is also consistent with the performance by the Covered Officers of their duties as officers of the Price Funds and, if consistent with the provisions of the Investment Company Act and the Investment Advisers Act, it will be deemed to have been handled ethically.
Other conflicts of interest are covered by the Price Funds S-O Code, even if these conflicts of interest are not addressed by or subject to provisions in the Investment Company Act and the Investment Advisers Act.
Whenever a Covered Officer is confronted with a conflict of interest situation where he or she is uncertain as to the appropriate action to be taken, he or she should discuss the matter with the Chairperson of Groups Ethics Committee or another member of the Committee.
Handling of Specific Types of Conflicts. Each Covered Officer (and close family members) must not:
Entertainment. Accept entertainment from any company with which any Price Fund or any Price Fund Adviser has current or prospective business dealings, including portfolio companies, unless such entertainment is in full compliance with the policy on entertainment as set forth in the Group Code.
Gifts. Accept any gifts, except as permitted by the Group Code.
Improper Personal Influence. Use his or her personal influence or personal relationships improperly to influence investment decisions, brokerage allocations or financial reporting by the Price Funds to the detriment of any one or more of the Price Funds.
Taking Action at the Expense of a Price Fund. Cause a Price Fund to take action, or fail to take action, for the personal benefit of the Covered Officer rather than for the benefit of one or more of the Price Funds.
Misuse of Price Funds Transaction Information. Use knowledge of portfolio transactions made or contemplated for a Price Fund or any other clients of the Price Fund Advisers to trade personally or cause others to trade in order to take advantage of or avoid the market impact of such portfolio transactions.
Outside Business Activities. Engage in any outside business activity that detracts from a Covered Officers ability to devote appropriate time and attention to his or her responsibilities to a Price Fund.
Service Providers. Excluding Group and its affiliates, have any ownership interest in, or any consulting or employment relationship with, any of the Price Funds service providers, except that an ownership interest in public companies is permitted
Receipt of Payments. Have a direct or indirect financial interest in commissions, transaction charges, spreads or other payments paid by a Price Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest (such as compensation or equity ownership) arising from the Covered Officers employment by Group or any of its affiliates.
Service as a Director or Trustee. Serve as a director, trustee or officer of any public or private company or a non-profit organization that issues securities eligible for purchase by any of the Price Funds, unless approval is obtained as required by the Group Code.
IV. Covered Officers Specific Obligations and Accountabilities.
A. Disclosure Requirements and Controls. Each Covered Officer must familiarize himself or herself with the disclosure requirements (Form N-1A registration statement, proxy (Schedule 14A), shareholder reports, Forms N-SAR, N-CSR, etc.) applicable to the Price Funds and the disclosure controls and procedures of the Price Fund and the Price Fund Advisers.
B. Compliance with Applicable Law. It is the responsibility of each Covered Officer to promote compliance with all laws, rules and regulations applicable to the Price Funds and the Price Fund Advisers. Each Covered Officer should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Price Funds and the Price Fund Advisers and take other appropriate steps with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Price Funds file with, or submit to, the SEC, and in other public communications made by the Price Funds.
C. Fair Disclosure. Each Covered Officer must not knowingly misrepresent, or cause others to misrepresent, facts about a Price Fund to others, whether within or outside the Price organization, including to the Price Funds directors and auditors, and to governmental regulators and self-regulatory organizations.
D. Initial and Annual Affirmations. Each Covered Officer must:
1. Upon adoption of the Price Funds S-O Code (or thereafter, as applicable, upon becoming a Covered Officer), affirm in writing that he or she has received, read, and understands the Price Funds S-O Code.
2. Annually affirm that he or she has complied with the requirements of the Price Funds S-O Code.
E. Reporting of Material Violations of the Price Funds S-O Code. If a Covered Officer becomes aware of any material violation of the Price Funds S-O Code or laws and governmental rules and regulations applicable to the operations of the Price Funds, he or she must promptly report the violation (Report) to the Chief Legal Counsel of the Price Funds (CLC). Failure to report a material violation will be considered itself a violation of the Price Funds S-O Code. The CLC is identified in the attached Exhibit B.
It is the Price Funds policy that no retaliation or other adverse action will be taken against any Covered Officer or other employee of a Price Fund, a Price Fund Adviser or their affiliates based upon any lawful actions of the Covered Officer or employee with respect to a Report made in good faith.
F. Annual Disclosures. Each Covered Officer must report, at least annually, all affiliations or other relationships as called for in the Annual Questionnaire for Executive Officers and/or Employee Directors/Trustees of Group and the Price Funds.
V. Administration of the Price Funds S-O Code. The Ethics Committee is responsible for administering the Price Funds S-O Code and applying its provisions to specific situations in which questions are presented.
A. Waivers and Interpretations. The Chairperson of the Ethics Committee has the authority to interpret the Price Funds S-O Code in any particular situation and to grant waivers where justified, subject to the approval of the Joint Audit Committee of the Price Funds. All material interpretations concerning Covered Officers will be reported to the Joint Audit Committee of the Price Funds at its next meeting. Waivers, including implicit waivers, to Covered Officers will be publicly disclosed as required in the Instructions to N-CSR. Pursuant to the definition in the Regulations, an implicit waiver means a Price Funds failure to take action within a reasonable period of time regarding a material departure from a provision of the Price Funds S-O Code that has been made known to an executive officer (as defined in Rule 3b-7 under the Securities Exchange Act of 1934) of a Price Fund. An executive officer of a Price Fund includes its president and any vice-president in charge of a principal business unit, division or function.
B. Violations/Investigations. The following procedures will be followed in investigating and enforcing the Price Funds S-O Code:
1. The CLC will take or cause to be taken appropriate action to investigate any potential or actual violation reported to him or her.
2. The CLC, after consultation if deemed appropriate with Outside Counsel to the Price Funds, will make a recommendation to the appropriate Price Funds Board regarding the action to be taken with regard to each material violation. Such action could include any of the following: a letter of censure or suspension, a fine, a suspension of trading privileges or termination of officership or employment. In addition, the violator may be required to surrender any profit realized (or loss avoided) from any activity that is in violation of the Price Funds S-O Code.
VI. Amendments to the Price Funds S-O Code. Except as to the contents of Exhibit A and Exhibit B, the Price Funds S-O Code may not be materially amended except in written form, which is specifically approved or ratified by a majority vote of each Price Fund Board, including a majority of the independent directors on each Board.
VII. Confidentiality. All reports and records prepared or maintained pursuant to the Price Funds S-O Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law, the Price Funds S-O Code or as necessary in connection with regulations under the Price Funds S-O Code, such matters shall not be disclosed to anyone other than the directors of the appropriate Price Fund Board, Outside Counsel to the Price Funds, members of the Ethics Committee and the CLC and authorized persons on his or her staff.
Preparation Date: 9/30/03
Adoption Date: 10/22/03
Exhibit A
Persons Covered by the Price Funds S-O Code of
Ethics
Edward C. Bernard, Chairman
and Chief Executive Officer
Catherine D. Mathews, Treasurer and Chief Financial
Officer
Exhibit B
David Oestreicher, Chief Legal Counsel to the Price Funds
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