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June 19, 2012

Ms. McDonold: I'm Heather McDonold with T. Rowe Price, and I'm here today with Mike Conelius, portfolio manager of the newly launched Emerging Markets Corporate Bond Fund. Mike also manages T. Rowe Price's Emerging Markets Bond Fund and has done so for nearly 18 years, making him the second-longest tenured emerging markets bond fund manager in the industry. Mike, thanks for being here.

Mr. Conelius: My pleasure.

McDonold: Now, the newly launched Emerging Markets Corporate Bond Fund, that's T. Rowe Price's third emerging markets bond fund offering—the other ones being the Emerging Markets Local Currency Bond Fund and the Emerging Markets Bond Fund. Why is the firm offering three different options for investing in emerging markets debt?

Conelius: Well, I think it sort of reflects that, as the markets have matured and the asset class has matured, it gives investors the opportunity to specialize their investments. It's not that dissimilar from the New Income Fund being your one-stop shop for U.S. fixed income, but also having the Corporate Income or the High Yield Fund as a more focused opportunity for investors.

McDonold: Now, how is the Emerging Markets Corporate Bond Fund different from the other two emerging markets bond fund offerings?

Conelius: Well, the Emerging Markets Corporate Bond Fund only invests in emerging companies—that's companies domiciled around the world in emerging markets. The longstanding Emerging Markets Bond Fund is your one-stop shop.

I'm investing in sovereigns and in corporates and in local markets, so you get a little bit of everything in the original Emerging Markets Bond Fund, and then the local fund is mostly focused on currencies—or most of your returns, anyway, will be dictated by what emerging currencies do relative to the dollar.

McDonold: Now, what are some of the reasons investors may want to focus and drill down on emerging markets corporates in particular?

Conelius: Well, if you're a more yield-oriented investor, one way to think about the emerging corporate product is as an alternative to emerging equities—in that it's oftentimes the same companies, or at least the same sectors, but without the currency exposure of emerging markets, and you're higher up in a company's capital structure.

So it's a slightly more defensive way of gaining exposure to what are some of the largest companies in emerging markets, and that's where the growth is globally, so that's one way to think about it.

McDonold: Interesting. Now, how do you go about selecting the individual bonds and companies for the fund?

Conelius: Well, we're very bottom up, so we rely on our own team of analysts. We have a dedicated team of five corporate analysts; plus over 20 sector specialists, either investment-grade or high yield corporate analysts; plus over 20 emerging equity analysts.

And we work very closely with our emerging equity colleagues. We travel together and share research ideas. Oftentimes, they're buying the same companies on the equity side as we are on the credit side.

McDonold: Now, how should investors consider this fund as part of their overall portfolio?

Conelius: I think an investor needs to be aware of their allocation, the collective allocation to emerging markets equities, emerging markets corporates, and high yield, because I think there are some common return drivers that you won't want to be redundant or duplicate in a portfolio, so perhaps rotating amongst those.

And if you have a view, as we do, that emerging markets are the source of growth for several years to come, that's why I think emerging corporates are particularly well timed to offer this strategy now.

McDonold: Interesting. Now, what would you say are the risks associated with this fund?

Conelius: It's still a relatively new asset class. Although the companies have been around for many years, the asset class is still relatively new, so liquidity is probably our biggest challenge. We have to take a longer-term investment horizon as we do in all of our investments, but it's a longer-term investment horizon so there is an early redemption fee.

This is not a product for short-term investment views. That's probably the main risk—liquidity—and of course credit risk. You're lending to companies. That said, it's a range of companies that we are investing in, everywhere from high investment grade all the way down to single B or below investment grade, or junk bonds.

That's the one differentiator, I think, between the corporate strategy and our high yield strategy. The emerging corporates are a range of credit quality—we have investment grade all the way down to below investment grade—whereas the high yield strategy would be almost entirely below investment grade.

McDonold: So it's a higher-quality—you're investing in higher-quality companies then?

Conelius: It's relatively higher quality compared to high yield. I think the most important attraction of this asset class is it gives investors exposure or the opportunity to take exposure to the rest of the world's corporate bond market.

You have the U.S. exposure through the Corporate Income Fund, you have the high yield exposure to the junk bond part of the U.S. market, and this is the rest of the world. This is where the growth is.

That's the most exciting part about this product.

McDonold: Great. Well, thanks for being here today, Mike.

Conelius: Thank you.

The information presented was current as of April 12, 2012. The manager's views and the fund's portfolio may have changed since that time.

Securities and sectors may not perform in line with the manager's expectations. Investing in emerging markets bonds involves a high risk approach to income and its share prices could fluctuate significantly. International investing involves unique risks, including unfavorable changes in currency values. There is also liquidity risk, as well as credit risk and interest rate risk normally associated with investing in bonds. Investors should note that if interest rates rise significantly from current levels, bond fund total returns are likely to decline.

T. Rowe Price Investment Services, Inc., Distributor.

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