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June 19, 2013

Dan Shackelford Dan Shackelford, portfolio manager of the T. Rowe Price New Income Fund, focuses on maintaining stability and maximizing current income.

In the 10 years through March 31, 2013—all under Shackelford's leadership—the fund generated a 5.41% average total return, outperforming its Lipper benchmark.* "The corporate bond market continues to defy expectations, delivering equity-like returns in an environment where yields keep getting lower," says Shackelford. "Using fundamental research gives us insight into the ways the markets are evolving and that has really helped us."

Taking a Broad View

Shackelford's love of math and finance led him to capital markets early in his career. Soon after graduating from the University of North Carolina at Chapel Hill, he took a job trading money market securities and then currencies, which exposed him to global markets. "It was the early 1980s, and the Fed was pushing short-term interest rates toward 20%," he says, adding that, at the time, Europe's individual currencies also floated freely. "The market mechanism—the dynamic, day-to-day action—really captured my attention. It was thrilling."

Shackelford left the currency trading position to pursue an M.B.A. from the Fuqua School of Business at Duke University, where he discovered the virtue of patience and reflection as an investor. "I found a good balance—thinking strategically while understanding how markets and trading work," says Shackelford, who joined T. Rowe Price in 1999 and became portfolio manager of the New Income Fund in December 2002. "Now I consider opportunities that may play out over months and years rather than hours."

Balancing Risk and Yield

In the current low-growth, low-inflation environment, Shackelford and his team manage risk with relatively low-yielding Treasury, government agency, and high-quality corporate bonds. At the same time, the team has sought to boost the fund's current income with carefully selected lower-quality holdings. Securities issued by government agencies such as Ginnie Mae, Fannie Mae, and Freddie Mac recently accounted for more than one-third of the portfolio, and Treasuries composed roughly 15% of assets. Among corporate bonds, the fund held its largest stake in bonds with low investment-grade ratings, with 21% of assets in BBB rated securities.

Shackelford credits the fund's strength during the market's tumultuous last few years to the insights of T. Rowe Price's global research team. "T. Rowe Price values collaboration and teamwork, which contribute significantly to our ability to manage portfolios effectively," he says. "We aim to be good stewards of the money people depend on, especially when things aren't going well in the rest of their portfolio."

Yield and share price will vary with interest rate changes. Investors should note that if interest rates rise significantly from current levels, bond fund total returns will decline and may even turn negative in the short term.

* The T. Rowe Price New Income Fund returned 4.85%, 5.69%, 6.10% and 5.41% versus 6.00%, 6.45%, 6.14%, and 5.17% for the Lipper Corporate Debt Funds A-Rated Average, for the 1-, 3-, 5-, and 10-year periods ended 3/31/13, respectively. Source for Lipper data: Lipper Inc.

Current performance may be higher or lower than past performance, which cannot guarantee future results. Share price, principal value, and return will vary, and you may have a gain or loss when you sell shares. For the most recent month-end performance, visit troweprice.com/nif.

The fund's expense ratio as of its fiscal year ended 5/31/12 was 0.63%.

Copyright 2014, T. Rowe Price Investment Services, Inc., Distributor. All rights reserved.