Q:  What is the history and objective of the fund? A : T. Rowe Price Corporate Income Fund was launched in 1995. We manage $146 billion in our fixed income group, with assets under management in the Corporate Income Fund accounting totaling $591 million. Additionally, we manage over $20 billion of investment grade corporate fixed-income securities through dedicated separate account mandates as well as our multi-sector strategies. The objective of the fund is to provide long-term superior risk-adjusted performance with a high level of income and potential for capital appreciation. Q:  What is the investment philosophy behind the fund? A : Our investment philosophy is driven by the belief that proprietary fundamental research is the key driver of value added management. The collaborative culture fostered across our fixed income and equity analyst teams gives us unique capital structure perspective and information advantage. This holistic company and industry perspective allows us to exploit long-term industry trends, while our global research and trading capabilities assist us in finding the best ideas and best execution in the major markets across the world. Q:  How does this philosophy translate into an investment process? A : As a fundamental research driven manager, our proprietary credit analysis is the primary source of value added. The universe we cover includes 700 to 900 companies. Our process draws on the broad views and specialization from both our fixed income and equity investment teams, as collaboration across analyst teams is a key tenet in our investment process. We select securities based on proprietary fundamental credit research, which covers a universe of fixed income bonds including investment-grade U.S. corporate debt, as well as measured allocations to Yankee bonds and high yield corporate securities. Our extensive research effort allows us to identify bond pricing anomalies. For example, a particular issuer’s valuation may be out of line with those of other issuers in the same industry, presenting an opportunity to add value through active management. This bottom up research conducted by our 47 fixed income analysts is complemented with a top-down view formed by extensive capital market research. Macro economic analysis allows us to incorporate economic, interest rate, and industry themes into our investment process. Q:  Would you outline the analytical steps in your research process? A : Our process of credit research is as follows: – Perform top-down analysis of credit sectors focusing on relative value and demographic trends, and legislative changes. – Perform bottom-up review of individual securities focusing on factors such as financial analysis, legal analysis and security provisions, and a host of qualitative factors – such as quality of company management. – Approve and rate holdings in each portfolio, using the proprietary T. Rowe Price rating system. – Conduct periodic portfolio reviews to monitor credit strategies and goals. – Monitor credits through use of proprietary ratings database and our credit watch system. Q:  Would you give a couple of examples to illustrate your research process? A : One example of our collaborative research process is Ford Motor Company, the global maker of cars and trucks. Our high yield analyst team has followed the company for some time, and following meetings with company management, we believed early on that Ford would achieve investment grade status by the major ratings agencies. Looking at the business fundamentals in total and the improving economic backdrop, we believed Ford, in combination with some other companies in the auto industry, was set to improve and gain market share globally. Overall, it was an improving credit story, and we had a high level of confidence that the name would move into the investment grade category at some point. The collaboration across our high yield and investment grade platforms allowed us to participate in the debt issue early, and Ford was recently upgraded to investment grade by Fitch and by Moody’s. Another example in terms of collaboration would be American Tower Corp., the wireless and broadcast communications infrastructure company. American Tower is not only a market leader but, more importantly, we believed the company would benefit from further industry consolidation. Our analysts were looking into the future at industry trends and dynamics in the wireless space, and the tower space in particular. As a result of their thorough review they had a high level of conviction in the company and management. The company is not only a good management story but it is also part of an overall industry dynamic. Moreover, that name is continuing to improve credit metrics and credit quality. Q:  When do you decide to sell a portfolio holding? A : The process by which we make sell decisions is ongoing and dynamic. This decision is driven by sector and issue valuation, a change in our credit or market outlook, or a shift in how we want to allocate the risk in the portfolio. Q:  How do you build your portfolio? A : Our portfolio is well diversified and typically holds between 300 and 400 issues and 200 to 300 issuers. Furthermore, we limit each issuer exposure to 5% of the total fund to ensure adequate diversification. Additionally, we have the ability to invest up to 15% in high yield bonds. All credits within the portfolio are covered by one of our analysts that specialize by industry and who will develop an investment thesis, internal credit rating and outlook, independent of Wall Street research and the major rating agencies. Analyst recommendations on company credit trends and bond valuations are provided to the portfolio manager team, who integrate these recommendations holistically into the portfolio subject to top-down macroeconomic, industry, and interest rate views. Duration management is not a key component of our value add, so we tend to be duration neutral to the benchmark index given our emphasis on credit. The benchmark for the fund is the Barclays Capital U.S. Corporate Investment Grade Bond Index. Q:  When do you decide to increase your international exposure? A : All of our investments are made within a global context. We have analysts that specialize in sovereign credit analysis that assess the risk of investing in countries outside the U.S. For our international corporate exposure, we have Baltimore-based analysts as well as analysts based in London and Hong Kong researching companies outside of the U.S. Our global research team is an integral part of our investment strategy. We meet regularly with our colleagues via voice and video teleconference and they are involved in all of our credit conversations. In terms of how we would view our U.S. versus international allocations, those decisions are driven primarily by our bottom-up process in identifying where the best opportunities are, regardless of geographic location. Still, from a top-down perspective we also try to discern any potential country risks and relative value advantages to focus our credit research efforts. Q:  What kinds of risk do you primarily focus on? A : Our goal is to outperform the Barclays Capital U.S. Corporate Investment Grade Index. We focus primarily on credit risk within the portfolio and to a lesser extent interest rate risk, in a couple of different ways. In terms of credit risk, we assign a large team of credit analysts to analyze and monitor companies and mitigate credit risk as our primary way in controlling portfolio risk. From an interest rate risk perspective, we tend to be neutral or close to the duration of the benchmark. Some of the risk metrics that we track are portfolio spread duration and tracking error volatility. In terms of spread duration, we are looking at the sensitivity of the value of the portfolio to changes in spreads. Additionally, tracking error volatility is broken out by industry and credit quality segments, which allows for deeper analysis of the portfolio’s allocations versus the benchmark.