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Analyst Report

David Falkof

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4/20/2012

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This fund's broad approach has benefited

investors.

T. Rowe Price Emerging Markets Bond strikes a good

balance.

Manager Mike Conelius makes use of a broad

opportunity set. Similar to other emerging-markets

bond funds that primarily own hard-currency

sovereign debt, this fund has the flexibility to invest in

more niche segments of the market, such as local

currency and corporate bonds. In Brazil, for instance,

Conelius doesn't think the country's hard-currency

sovereign debt can add much value over the long-run,

so he has instead held local-currency sovereign debt

and corporate bonds. In total, the fund has an 11%

allocation to local-currency bonds and a 28% stake in

corporate debt, as of Dec. 31, 2011.

Even within the fund's hard-currency sovereign stake, Conelius takes a distinctive

approach. He has long found opportunities owning less commonly traded frontier

countries, such as Iraq, Serbia, and Vietnam. Exposure to each country tends to be

less than 2% of assets, but as a whole the frontier exposure has been as high as

24% in 2007, whereas the fund's benchmark, the JPMorgan EMBI Global, has a

roughly 10% stake. Conelius has a sizable seven-person team of sovereign debt

analysts to closely monitor these smaller countries.

While corporate, local-currency, and frontier bonds can carry higher risks related

to liquidity and credit, Conelius has managed to keep the fund's profile relatively

tame. For the trailing five- and 10-year periods through March 2012, the fund hasbeen among the least volatile in the category, as measured by standard deviation.

Partly helping the fund is its broad diversification across bond sectors and more

than 50 countries. Conelius also keeps the fund's total region weightings roughly in

line with those of its benchmark.

The broad portfolio hasn't been entirely at the expense of returns either. The

fund's 10-year return of 10.8% annualized through April 18, 2012, roughly

matches its benchmark's and the category norm. All told, this is an appealing way

Morningstar's

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analysts believe lead to

long term on a risk-adj

Analyst Rating Spectru

Morningstar Anal

Morningstar Pillar

Process

Performance

People

Parent

Price

Role in Portfolio

Specialty

Fund Performa

Year

YTD

2012

2011

2010

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Analyst Favori

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PIMCO Emerging Lo

T. Rowe Price Emerging Markets Bond PREMX

we Price Emerging Markets Bond ( PREMX ) | 2013 Trowe Analyst... http://analysis.morningstar.com/Centers/analyst-report?cn=Trowe&t

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to get broad exposure to emerging-markets debt.

Process Pillar: Positive

Manager Mike Conelius seeks to outpace the fund's benchmark, the JPMorgan

Emerging Markets Bond Index Global, by 3 percentage points per year while

keeping the fund's tracking error within 5 percentage points. Conelius and his

analyst team look for long-term opportunities based on their fundamental

research. Broad diversification is an important feature of the fund. The portfolio'sregional and country allocations tend to be roughly in line with the benchmark's,

although this fund is not limited to hard-currency sovereign debt like the index.

The fund's duration also stays relatively close to the benchmark's.

While the fund primarily owns hard-currency sovereign debt, Conelius has

increasingly bought local-currency and corporate debt as those markets have

matured. The fund has historically held a 10%-20% stake in local-currency debt

and can own up to 25% there (using currency forward contracts to adjust

exposures). The fund can own up to 35% in corporate debt, which gradually

increased to its high of 28% in December 2011. The fund also will invest up to

20% of assets in frontier debt, smaller countries that are newer to the bond

market. Allocations to each of these countries are typically less than 2%.

Management will use credit default swaps to hedge away credit exposure or to

build synthetic exposure to a country but has historically kept notional swap

exposure below 3% of assets.

Performance Pillar: Neutral | David Falkof 04/20/2012

People Pillar: Positive

Lead manager Michael Conelius has run this fund since its December 1994 launch,

having joined T. Rowe Price in 1988. He previously worked as a consultant for

Booz Allen Hamilton. A team of seven emerging-markets sovereign analysts and

five emerging-markets corporate analysts support the fund. Turnover within the

team has been low, and the firm plans to add another sovereign and corporate

analyst. Conelius also draws upon T. Rowe's 17 global corporate analysts and 24

emerging-markets equity analysts.

Parent Pillar: Positive | Katie Rushkewicz Reichart, CFA 09/01/2011

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

due to a preannounced retirement, allowing for a months-long transition

PIMCO Emerging Marke

Emerging Markets Bond


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

exemplary, and manager ownership of fund shares is decent.

Stock-picking, based on the firm's in-house fundamental analysis, drives the equity

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

Rowe has kept investors' interests in mind.

Price Pillar: Positive

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available. 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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