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Analyst Report

Shannon

Kirwin

by

12/12/2012

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Seen in the right light, this fund stands out in a

good way.

There's more to T. Rowe Price Corporate Income than

its star rating implies.

This fund is not like many others in the long-term

bond category. Manager Dave Tiberii almost

exclusively buys corporate bonds, while many

category peers hold large stakes in munis or

Treasuries. The fund also has a lighter share of

interest-rate sensitivity--its duration was 6.9 years in

September, compared with the 7.6 year median for

the category. That can blunt the fund's volatility

relative to category peers, but it also has meant

underperforming its ultra-long rivals over the past

decade, when yields have largely fallen.

That said, compared with the set of intermediate- to long-term funds that invest

primarily in corporate issues, the fund's 6.4% annualized return under Tiberii's

tenure beats two thirds of the group. On the other hand, it's also among the most

volatile of that subset; it lost 10.0% in 2008, trailing two thirds of those rivals, but

then came roaring back with a 22.1% return in 2009's rally, landing in the group's

top third.

Those relatively dramatic ups and downs are partly due to the fund's duration,

which--while relatively muted versus the long-term category average--is often a

year or so longer than its typical corporate peer's. It also carries more credit risk;

recently, more than two thirds of its assets were invested in BBB rated issues

versus just 45% for its typical corporate-focused rival. It held another 9% inhigh-yield bonds, slightly more than the group's median.

That penchant for mid- and low-quality credits reflects a long-standing bias on

Tiberii's part. Thanks to T. Rowe's large stable of 15 corporate and 12 high-yield

analysts, he's confident that he can sniff out undervalued companies with

improving fundamentals. Earlier this year, for example, he added to positions in

BBB rated advertising companies that he expected to benefit as American

corporations' earnings, and marketing budgets, increase.

Morningstar's

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Morningstar evaluates

analysts believe lead to

long term on a risk-ad

Analyst Rating Spectru

Morningstar Anal

Morningstar Pillar

Process

Performance

People

Parent

Price

Role in Portfolio

Supporting Player

Fund Performa

Year

YTD

2012

2011

2010

2009

T. Rowe Price Corporate Income PRPIX

we Price Corporate Income ( PRPIX ) | 2013 Trowe Analyst Report http://analysis.morningstar.com/Centers/analyst-report?cn=Trowe&

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For investors who can stomach a little extra volatility, this is a solid option for

corporate bond exposure. Its 0.64% price tag is decent, too.

Process Pillar: Positive

Manager Dave Tiberii keeps the majority of this fund's assets in investment-grade

corporate bonds, though he will hold up to 15% in high-yield fare. Within the

investment-grade stake, the fund's exposure to BBB rated issues is often above

average. Tiberii also invests another 5% of assets in noncorporate sectors,including foreign sovereign debt, asset-backed securities, government mortgages

and commercial mortgage-backed securities. He relies heavily on the fundamental

research of T. Rowe's credit analyst teams, but also adjusts the fund's exposure to

various sectors depending on his outlook. He generally keeps the fund's duration

within half a year of its benchmark, the Barclays US Corporate Investment Grade

index.

Performance Pillar: Positive | Shannon Kirwin 12/12/2012

People Pillar: Positive

Dave Tiberii took over this fund in 2003 after managing a $60 billion

investment-grade bond portfolio of insurance money for GE Capital and working as

a corporate-bond strategist for Goldman Sachs. He relies on T. Rowe's team of 15

experienced investment-grade bond analysts for security recommendations. As the

fund's focus has expanded to include more international issues, the team has

added overseas positions; five of its analysts are based in London and cover foreign

companies. Tiberii also works with the company's 12-member high-yield credit

analyst team.

Parent Pillar: Positive | Katie Rushkewicz Reichart, CFA 11/14/2012

T. Rowe Price has made a name for itself by putting investors' interests first,

maintaining a disciplined investment process, and consistently turning in

peer-beating performances. The firm's sturdiness stems from its ability to attract

and retain top talent. Professionals often spend their entire careers at the firm,

and many of T. Rowe's top executives have come up through the ranks, including

CEO James Kennedy and CIO Brian Rogers. Unsurprisingly, T. Rowe Price's

manager tenure and retention rates rank well above industry norms, and analyst

retention has been good, too. When a manager change does occur, it's typically

because of a preannounced retirement, allowing for a months-long transition

period. Managers write detailed shareholder letters, T. Rowe's website is

exemplary, and manager ownership of fund shares is decent.

Security selection, based on the firm's in-house fundamental analysis, drives the

funds' strategies and performance, which has proved remarkably good across the

board with strong fixed-income and equity offerings that are often less volatile

than peers. However, T. Rowe still hasn't established itself as a powerhouse on the

international side following its decade-long build-out of a global team. Meanwhile,


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the huge asset bases of its small-cap funds bear watching. Overall, though, T.

Rowe has kept investors' interests in mind.

Price Pillar: Positive

S&P 500 index data: S&P 500 Copyright @ 2013

All data from Morningstar except U.S. intraday real-time exchange quotes, which are provided by BATS whenavailable. End-of-day quotes for Nasdaq, NYSE, and Amex securities will appear 15 minutes after close. Graph

times are Eastern Standard. @ Copyright 2013 Morningstar, Inc.


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