Registration Nos. 002-65539/811-2958
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Post-Effective Amendment No. 130 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 112 /X/
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
Exact Name of Registrant as Specified in Charter
100
East Pratt Street, Baltimore, Maryland 21202
Address of Principal Executive Offices
410-345-2000
Registrants
Telephone Number, Including Area Code
David Oestreicher
100 East Pratt Street, Baltimore, Maryland
21202
Name and Address of Agent for Service
Approximate Date of Proposed Public Offering May 1, 2013
It is proposed that this filing will become effective (check appropriate box):
// Immediately upon filing pursuant to paragraph (b)
/X/ On May 1, 2013 pursuant to paragraph (b)
// 60 days after filing pursuant to paragraph (a)(1)
// On (date) pursuant to paragraph (a)(1)
// 75 days after filing pursuant to paragraph (a)(2)
// On (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
// This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
PROSPECTUS | T. Rowe Price |
PREMX TRECX PRELX RPIBX | Emerging Markets Bond Fund Emerging Markets Corporate Bond Fund Emerging Markets Local Currency Bond Fund International Bond Fund |
May 1, 2013 | A choice of four different international bond funds for investors seeking to diversify beyond U.S. borders. |
The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. | |
Table of Contents
1 | Summary | Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the Federal Deposit Insurance Corporation, Federal Reserve, or any other government agency, and are subject to investment risks, including possible loss of the principal amount invested. | |
Emerging Markets Bond Fund 1 Emerging Markets Corporate Bond Fund 7 Emerging Markets Local Currency Bond Fund 12 International Bond Fund 19 | |||
2 | Information
About Accounts | ||
Pricing Shares and Receiving Sale Proceeds 25 Useful Information on Distributions and Taxes 30 Transaction Procedures and Special Requirements 36 Account Service Fee 40 | |||
3 | More About the Funds | ||
Organization and Management 42 More Information About the Funds and Their Investment Risks 46 Investment Policies and Practices 52 Disclosure of Fund Portfolio Information 65 Financial Highlights 66 | |||
4 | Investing With T. Rowe Price | ||
Account Requirements and Transaction Information 71 Opening a New Account 72 Purchasing Additional Shares 75 Exchanging and Redeeming Shares 76 Rights Reserved by the Funds 78 Information About Your Services 79 T. Rowe Price Brokerage 81 Investment Information 82 T. Rowe Price Privacy Policy 83 |
SUMMARY
T. Rowe Price Emerging Markets Bond Fund
The fund seeks to provide high income and capital appreciation.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold shares of the fund.
Fees and Expenses of the Fund
Shareholder fees (fees paid directly from your investment) | |
Maximum sales charge (load) imposed on | NONE |
Maximum deferred sales charge (load) | NONE |
Redemption fee (as a percentage of amount redeemed on shares held for 90 days or less) | 2.00% |
Maximum account fee | $20a |
Annual fund operating expenses | |
Management fees | 0.75% |
Distribution and service (12b-1) fees | 0.00% |
Other expenses | 0.19% |
Total annual fund operating expenses | 0.94% |
a Subject to certain exceptions, accounts with a balance of less than $10,000 are charged an annual $20 fee.
Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the funds operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year | 3 years | 5 years | 10 years |
$96 | $300 | $520 | $1,155 |
Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the funds performance. During the
T. Rowe Price | 2 |
most recent fiscal year, the funds portfolio turnover rate was 40.7% of the average value of its portfolio.
Investments, Risks, and Performance
Principal Investment Strategies The fund will normally invest at least 80% (and potentially all) of its net assets (including any borrowings for investment purposes) in debt securities of emerging market governments or companies located in emerging market countries. Fund holdings may be denominated in U.S. dollars or non-U.S. dollar currencies, including emerging market currencies. The extent, if any, to which the fund attempts to cushion the impact of foreign currency fluctuations on the dollar depends on market conditions. Fund holdings may include the lowest-rated bonds, including those in default, and there are no overall limits on the funds investments that are rated below investment-grade (BB or lower, or an equivalent rating), also known as junk bonds).
Although the fund expects to maintain an intermediate- to long-term weighted average maturity, there are no maturity restrictions on the overall portfolio or on individual securities. Security selection relies heavily on research, which analyzes political and economic trends as well as creditworthiness. The fund tends to favor bonds it expects will be upgraded. The fund sells holdings for a variety of reasons, such as to adjust its average maturity or credit quality, to shift assets into and out of higher-yielding securities, or to alter geographic or currency exposure.
The fund is nondiversified, meaning it may invest a greater portion of its assets in fewer issuers than is permissible for a diversified fund.
While most assets will be invested in bonds, the fund may enter into forward currency exchange contracts in keeping with the funds objectives. Forward currency exchange contracts would primarily be used to help protect the funds holdings from unfavorable changes in foreign currency exchange rates, although other currency hedging techniques may be used from time to time.
Principal Risks As with any mutual fund, there is no guarantee that the fund will achieve its objective. The funds share price fluctuates, which means you could lose money by investing in the fund. The principal risks of investing in this fund are summarized as follows:
Active management risk The fund is subject to the risk that the investment advisers judgments about the attractiveness, value, or potential appreciation of the funds investments may prove to be incorrect. If the securities selected and strategies employed by the fund fail to produce the intended results, the fund could underperform other funds with similar objectives and investment strategies.
International investing risk Investing in the securities of non-U.S. issuers involves special risks not typically associated with investing in U.S. securities. International securities tend to be more volatile and less liquid than investments in U.S. securities and may lose value because of adverse political, social, or economic developments
Summary | 3 |
overseas. In addition, international investments may be subject to regulatory and accounting standards that differ from those of the U.S.
Emerging markets risk The risks of international investing are heightened for securities of issuers in emerging market countries. Emerging market countries tend to have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. In addition to all of the risks of investing in international developed markets, emerging markets are more susceptible to governmental interference, local taxes being imposed on international investments, restrictions on gaining access to sales proceeds, and less liquid and efficient trading markets.
Currency risk Because the fund may invest in securities issued in foreign currencies, the fund is subject to the risk that it could experience losses based solely on the weakness of foreign currencies versus the U.S. dollar and changes in the exchange rates between such currencies and the U.S. dollar. Any attempts at currency hedging may not be successful and could cause the fund to lose money.
Credit risk This is the risk that an issuer of a debt security could suffer an adverse change in financial condition that results in a payment default, security downgrade, or inability to meet a financial obligation. The risk of default is much greater for emerging market bonds and securities rated as below investment-grade (junk bonds). The fund is exposed to greater credit risk than other bond funds because companies and governments in emerging markets are usually not as strong financially and are more susceptible to economic downturns. Junk bonds should be considered speculative as they carry greater risks of default and erratic price swings due to real or perceived changes in the credit quality of the issuer.
Interest rate risk This risk refers to the chance that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Generally, securities with longer maturities and funds with longer weighted average maturities carry greater interest rate risk.
Liquidity risk This is the risk that the fund may not be able to sell a holding in a timely manner at a desired price.
Nondiversification risk As a nondiversified fund, the fund has the ability to invest a larger percentage of its assets in the securities of a smaller number of issuers than a diversified fund. As a result, poor performance by a single issuer could adversely affect fund performance more than if the fund were invested in a larger number of issuers. The funds share price can be expected to fluctuate more than that of a comparable diversified fund.
Derivatives risk To the extent the fund uses forward currency exchange contracts, it is exposed to greater volatility and losses in comparison to investing directly in foreign bonds. Forward currency exchange contracts are also subject to the risks that anticipated currency movements will not be accurately predicted, a counterparty will
T. Rowe Price | 4 |
fail to perform in accordance with the terms of the agreement, and the chance that potential government regulation could negatively affect the funds investments in such instruments.
Performance The bar chart showing calendar year returns and the average annual total returns table indicate risk by illustrating how much returns can differ from one year to the next and how fund performance compares with that of a comparable market index. The funds past performance (before and after taxes) is not necessarily an indication of future performance.
The fund can also experience short-term performance swings, as shown by the best and worst calendar quarter returns during the years depicted.
In addition, the average annual total returns table shows hypothetical after-tax returns to suggest how taxes paid by a shareholder may influence returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as a 401(k) account or individual retirement account.
Summary | 5 |
Average Annual Total Returns | ||||||||||||
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| Periods ended |
| ||||||||
| December 31, 2012 |
| ||||||||||
| 1 Year | 5 Years | 10 Years |
| ||||||||
| Emerging Markets Bond Fund |
| ||||||||||
| Returns before taxes | 19.62 | % |
| 9.26 | % |
| 12.03 | % |
|
| |
| Returns after taxes on distributions | 17.07 |
|
| 6.64 |
|
| 9.47 |
|
|
| |
| Returns after taxes on distributions |
|
|
|
|
|
|
|
|
|
| |
| and sale of fund shares | 12.94 |
|
| 6.37 |
|
| 9.13 |
|
|
| |
| J.P. Morgan Emerging Markets Bond Index Global (reflects no deduction for fees, expenses, or taxes) | 18.54 |
|
| 10.47 |
|
| 11.56 |
|
|
| |
| Lipper Emerging Markets Debt Funds Average | 18.56 |
|
| 9.42 |
|
| 11.60 |
|
|
|
Updated performance information is available through troweprice.com or may be obtained by calling 1-800-225-5132.
Management
Investment Adviser T. Rowe Price Associates, Inc. (T. Rowe Price)
Portfolio Manager | Title | Managed Fund Since | Joined Investment |
Michael J. Conelius | Chairman of Investment Advisory Committee | 1994 | 1988 |
Purchase and Sale of Fund Shares
The funds investment minimums generally are as follows (if you hold shares through a financial intermediary, the intermediary may impose different investment minimums):
Type of Account | Minimum | Minimum subsequent |
Individual retirement accounts, small business retirement plan accounts, and Uniform Gifts to Minors Act or Uniform Transfers to Minors Act accounts | $1,000 | $100 |
All other accounts | 2,500 | 100 |
You may purchase, redeem, or exchange shares of the fund on any day the New York Stock Exchange is open for business by accessing your account online at troweprice.com, by calling 1-800-225-5132, or by written request. If you hold shares through a financial intermediary, you must purchase, redeem, and exchange shares through your intermediary.
T. Rowe Price | 6 |
Tax Information
The fund declares dividends daily and pays them on the first business day of each month. Any capital gains are declared and paid annually, usually in December. Distributions by the fund, whether or not you reinvest these amounts in additional fund shares, may be taxed as ordinary income or capital gains unless you invest through a tax-deferred account. A redemption or exchange of fund shares may be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
SUMMARY
T. Rowe Price Emerging Markets Corporate Bond Fund
The fund seeks to provide high current income and, secondarily, capital appreciation.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold shares of the fund.
Fees and Expenses of the Fund
Shareholder fees (fees paid directly from your investment) | |
Maximum sales charge (load) imposed on | NONE |
Maximum deferred sales charge (load) | NONE |
Redemption fee (as a percentage of amount redeemed on shares held for 90 days or less) | 2.00% |
Maximum account fee | $20a |
Annual fund operating expenses | |
Management fees | 0.80% |
Distribution and service (12b-1) fees | 0.00% |
Other expenses | 1.54% |
Total annual fund operating expenses | 2.34% |
Fee waiver/expense reimbursement | 1.19%b |
Total annual fund operating expenses after fee waiver/expense reimbursement | 1.15%b |
a Subject to certain exceptions, accounts with a balance of less than $10,000 are charged an annual $20 fee.
b T. Rowe Price Associates, Inc. has agreed (through April 30, 2015) to waive its fees and/or bear any expenses (excluding interest, taxes, brokerage, extraordinary expenses, and acquired fund fees) that would cause the funds ratio of expenses to average daily net assets to exceed 1.15%. Termination of the agreement would require approval by the funds Board of Directors. Fees waived and expenses paid under this agreement are subject to reimbursement to T. Rowe Price Associates, Inc. by the fund whenever the funds expense ratio is below 1.15%. However, no reimbursement will be made more than three years after the waiver or payment, or if it would result in the expense ratio exceeding 1.15% (excluding interest, taxes, brokerage, extraordinary expenses, and acquired fund fees).
Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment
T. Rowe Price | 8 |
has a 5% return each year, the funds operating expenses remain the same, and the expense limitation currently in place is not renewed. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year | 3 years | 5 years | 10 years |
$117 | $495 | $1,027 | $2,486 |
Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the funds performance. For the period of May 24, 2012, through December 31, 2012, the funds portfolio turnover rate was 26.5% of the average value of its portfolio.
Investments, Risks, and Performance
Principal Investment Strategies The fund will normally invest at least 80% of its net assets (including any borrowings for investment purposes) in bonds that are issued by companies that are located or listed in, or conduct the predominant part of their business activities in, the emerging market countries of Latin America, Asia, Europe, Africa, and the Middle East.
While it is expected that the securities held by the fund will primarily be U.S. dollar-denominated, the fund may also hold securities denominated in emerging market currencies and other non-U.S. currencies. The fund does not generally attempt to cushion the impact of non-U.S. currency fluctuations against the U.S. dollar. Although the fund expects to generally maintain an intermediate-term weighted average maturity (between three and ten years), there are no maturity restrictions on the overall portfolio or on individual securities purchased by the fund.
Most of the funds investments are expected to be rated below investment-grade (BB or lower, or an equivalent rating) by a major credit rating agency or by T. Rowe Price. However, the fund may purchase bonds of any credit quality and there are no overall limits on the funds holdings that are unrated or rated below investment-grade. Investments in below investment-grade corporate bonds, also known as junk bonds, should be considered speculative.
The fund may sell holdings for a variety of reasons, such as to alter geographic or currency exposure, to adjust its average maturity, duration, or credit quality, or to shift assets into or out of higher-yielding securities.
Principal Risks As with any mutual fund, there is no guarantee that the fund will achieve its objective. The funds share price fluctuates, which means you could lose money by investing in the fund. The principal risks of investing in this fund are summarized as follows:
Summary | 9 |
Active management risk The fund is subject to the risk that the investment advisers judgments about the attractiveness, value, or potential appreciation of the funds investments may prove to be incorrect. If the securities selected and strategies employed by the fund fail to produce the intended results, the fund could underperform other funds with similar objectives and investment strategies.
International investing risk Investing in the securities of non-U.S. issuers involves special risks not typically associated with investing in U.S. securities. International securities tend to be more volatile and less liquid than investments in U.S. securities and may lose value because of adverse political, social, or economic developments overseas. In addition, international investments may be subject to regulatory and accounting standards that differ from those of the U.S.
Emerging markets risk The risks of international investing are heightened for securities of issuers in emerging market countries. Emerging market countries tend to have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. In addition to all of the risks of investing in international developed markets, emerging markets are more susceptible to governmental interference, local taxes being imposed on international investments, restrictions on gaining access to sales proceeds, and less liquid and efficient trading markets.
Currency risk Although the fund primarily invests in U.S. dollar-denominated bonds of emerging markets issuers, the fund may invest in securities issued in foreign currencies and is therefore subject to the risk that it could experience losses based solely on the weakness of those foreign currencies versus the U.S. dollar and changes in the exchange rates between such currencies and the U.S. dollar.
Credit risk This is the risk that an issuer of a debt security could suffer an adverse change in financial condition that results in a payment default, security downgrade, or inability to meet a financial obligation. The risk of default is much greater for emerging market bonds and securities rated as below investment-grade (junk bonds). The fund is exposed to greater credit risk than other bond funds because companies and governments in emerging markets are usually not as strong financially and are more susceptible to economic downturns. Junk bonds should be considered speculative as they carry greater risks of default and erratic price swings due to real or perceived changes in the credit quality of the issuer.
Interest rate risk This risk refers to the chance that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Generally, securities with longer maturities and funds with longer weighted average maturities carry greater interest rate risk.
Liquidity risk This is the risk that the fund may not be able to sell a holding in a timely manner at a desired price.
T. Rowe Price | 10 |
Performance Because the fund commenced operations in 2012, there is no historical performance information shown here. Performance history will be presented after the fund has been in operation for one full calendar year.
Updated performance information is available through troweprice.com or may be obtained by calling 1-800-225-5132.
Management
Investment Adviser T. Rowe Price Associates, Inc. (T. Rowe Price)
Portfolio Manager | Title | Managed Fund Since | Joined Investment |
Michael J. Conelius | Chairman of Investment Advisory Committee | 2012 | 1988 |
Purchase and Sale of Fund Shares
The funds investment minimums generally are as follows (if you hold shares through a financial intermediary, the intermediary may impose different investment minimums):
Type of Account | Minimum | Minimum subsequent |
Individual retirement accounts, small business retirement plan accounts, and Uniform Gifts to Minors Act or Uniform Transfers to Minors Act accounts | $1,000 | $100 |
All other accounts | 2,500 | 100 |
You may purchase, redeem, or exchange shares of the fund on any day the New York Stock Exchange is open for business by accessing your account online at troweprice.com, by calling 1-800-225-5132, or by written request. If you hold shares through a financial intermediary, you must purchase, redeem, and exchange shares through your intermediary.
Tax Information
The fund declares dividends daily and pays them on the first business day of each month. Any capital gains are declared and paid annually, usually in December. Distributions by the fund, whether or not you reinvest these amounts in additional fund shares, may be taxed as ordinary income or capital gains unless you invest through a tax-deferred account. A redemption or exchange of fund shares may be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary
Summary | 11 |
and your salesperson to recommend the fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
SUMMARY
T. Rowe Price Emerging Markets Local Currency Bond Fund
The fund seeks to provide high income and capital appreciation.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold shares of the fund.
Fees and Expenses of the Fund
Shareholder fees (fees paid directly from your investment) | |
Maximum sales charge (load) imposed on | NONE |
Maximum deferred sales charge (load) | NONE |
Redemption fee (as a percentage of amount redeemed on shares held for 90 days or less) | 2.00% |
Maximum account fee | $20a |
Annual fund operating expenses | |
Management fees | 0.75% |
Distribution and service (12b-1) fees | 0.00% |
Other expenses | 0.90% |
Total annual fund operating expenses | 1.65% |
Fee waiver/expense reimbursement | 0.55%b |
Total annual fund operating expenses after fee waiver/expense reimbursement | 1.10%b |
a Subject to certain exceptions, accounts with a balance of less than $10,000 are charged an annual $20 fee.
b T. Rowe Price Associates, Inc. has agreed (through April 30, 2014) to waive its fees and/or bear any expenses (excluding interest, taxes, brokerage, extraordinary expenses, and acquired fund fees) that would cause the funds ratio of expenses to average daily net assets to exceed 1.10%. Termination of the agreement would require approval by the funds Board of Directors. Fees waived and expenses paid under this agreement are subject to reimbursement to T. Rowe Price Associates, Inc. by the fund whenever the funds expense ratio is below 1.10%. However, no reimbursement will be made more than three years after the waiver or payment, or if it would result in the expense ratio exceeding 1.10% (excluding interest, taxes, brokerage, extraordinary expenses, and acquired fund fees).
Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment
Summary | 13 |
has a 5% return each year, the funds operating expenses remain the same, and the expense limitation currently in place is not renewed. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year | 3 years | 5 years | 10 years |
$112 | $467 | $845 | $1,908 |
Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the funds performance. During the most recent fiscal year, the funds portfolio turnover rate was 82.3% of the average value of its portfolio.
Investments, Risks, and Performance
Principal Investment Strategies Under normal conditions, at least 80% of the funds net assets (including any borrowings for investment purposes) will be invested in bonds that are denominated in emerging markets currencies, and in derivative instruments that provide investment exposure to such securities. Emerging market bonds include fixed rate and floating rate bonds that are issued by governments, government agencies, and supranational organizations of, and corporate issuers located in or conducting the predominant part of their business activities in, the emerging market countries of Latin America, Asia, Europe, Africa, and the Middle East.
Investment decisions are based on fundamental research as well as market factors, such as yield and credit quality differences among bonds as well as supply and demand trends and currency values. The fund generally invests in securities where the combination of fixed-income returns and currency exchange rates appears attractive or, if the currency trend is unfavorable, where we believe the currency risk can be minimized through hedging. The fund may purchase bonds of any credit quality and there are no overall limits on the funds investments in bonds that are unrated or rated below investment-grade (also known as junk bonds). While the fund expects normally to maintain a weighted average maturity of at least 3 years, there are no maturity restrictions on the overall portfolio or on individual securities purchased by the fund.
Through the use of currency derivative instruments such as forward currency exchange contracts, currency swaps, foreign currency options, and currency futures, the fund has wide flexibility to purchase and sell currencies independently of whether the fund owns bonds in those currencies and to engage in currency hedging transactions. The funds currency positions will vary with its outlook on the strength or weakness of the U.S. dollar compared to foreign currencies and the relative value of various foreign currencies to one another. Currency hedging into the U.S. dollar is permitted, but not required, and the fund will be heavily exposed to foreign
T. Rowe Price | 14 |
currencies. The funds overall net short positions in currencies (including the U.S. dollar) are limited to 10% of its net assets. A short position in a currency allows the fund to sell a currency in excess of the value of its holdings denominated in that currency or sell a currency even if it does not hold any assets denominated in the currency. In addition, the fund may use interest rate swaps and futures in order to take long or short positions with respect to its exposure to a particular country, subject to the investment restrictions applicable to futures and swaps.
The fund is nondiversified, meaning it may invest a greater portion of its assets in fewer issuers than is permissible for a diversified fund.
The fund may sell holdings for a variety of reasons, such as to alter geographic or currency exposure, to adjust its average maturity, duration, or credit quality, or to shift assets into or out of higher-yielding securities.
Principal Risks As with any mutual fund, there is no guarantee that the fund will achieve its objective. The funds share price fluctuates, which means you could lose money by investing in the fund. The principal risks of investing in this fund are summarized as follows:
Active management risk The fund is subject to the risk that the investment advisers judgments about the attractiveness, value, or potential appreciation of the funds investments may prove to be incorrect. If the securities selected and strategies employed by the fund fail to produce the intended results, the fund could underperform other funds with similar objectives and investment strategies.
International investing risk Investing in the securities of non-U.S. issuers involves special risks not typically associated with investing in U.S. securities. International securities tend to be more volatile and less liquid than investments in U.S. securities and may lose value because of adverse political, social, or economic developments overseas. In addition, international investments may be subject to regulatory and accounting standards that differ from those of the U.S.
Emerging markets risk The risks of international investing are heightened for securities of issuers in emerging market countries. Emerging market countries tend to have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. In addition to all of the risks of investing in international developed markets, emerging markets are more susceptible to governmental interference, local taxes being imposed on international investments, restrictions on gaining access to sales proceeds, and less liquid and efficient trading markets.
Currency risk Because the funds emphasis is on investing in securities denominated in the currencies of emerging market countries, the fund is subject to the significant risk that it could experience losses based solely on the weakness of foreign currencies versus the U.S. dollar and changes in the exchange rates between such currencies and the U.S. dollar.
Summary | 15 |
Hedging risk The funds attempts at hedging and taking long and short positions in currencies may not be successful and could cause the fund to lose money or fail to get the benefit of a gain on a hedged position. If currency values and exchange rates do not move in the anticipated direction, the fund could be in a worse position than if it had not entered into such transactions.
Credit risk This is the risk that an issuer of a debt security could suffer an adverse change in financial condition that results in a payment default, security downgrade, or inability to meet a financial obligation. The risk of default is much greater for emerging market bonds and securities rated as below investment-grade (junk bonds). The fund is exposed to greater credit risk than other bond funds because companies and governments in emerging markets are usually not as strong financially and are more susceptible to economic downturns. Junk bonds should be considered speculative as they carry greater risks of default and erratic price swings due to real or perceived changes in the credit quality of the issuer.
Interest rate risk This risk refers to the chance that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Generally, securities with longer maturities and funds with longer weighted average maturities carry greater interest rate risk. The monetary policies of emerging markets countries tend to make the impact and likelihood of local interest rate changes more difficult to predict.
Liquidity risk This is the risk that the fund may not be able to sell a holding in a timely manner at a desired price.
Nondiversification risk As a nondiversified fund, the fund has the ability to invest a larger percentage of its assets in the securities of a smaller number of issuers than a diversified fund. As a result, poor performance by a single issuer could adversely affect fund performance more than if the fund were invested in a larger number of issuers. The funds share price can be expected to fluctuate more than that of a comparable diversified fund.
Derivatives risk To the extent the fund uses forward currency exchange contracts, swaps, options, or futures, it is exposed to additional volatility in comparison to investing directly in bonds and other debt securities. These instruments can be illiquid and difficult to value, may involve leverage so that small changes produce disproportionate losses for the fund, and instruments not traded on an exchange are subject to the risk that a counterparty to the transaction will fail to meet its obligations under the derivatives contract. The funds principal use of derivatives involves the risk that anticipated changes in currency values, currency exchange rates, or interest rate movements will not be accurately predicted, which could significantly harm the funds performance, and the chance that regulatory developments could negatively affect the funds investments in such instruments. Taking a short position in a particular currency could cause the fund to lose money if the currency appreciates in value.
T. Rowe Price | 16 |
Performance The bar chart showing calendar year returns and the average annual total returns table indicate risk by illustrating how much returns can differ from one year to the next and how fund performance compares with that of a comparable market index. The funds past performance (before and after taxes) is not necessarily an indication of future performance.
The fund can also experience short-term performance swings, as shown by the best and worst calendar quarter returns during the year depicted.
In addition, the average annual total returns table shows hypothetical after-tax returns to suggest how taxes paid by a shareholder may influence returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as a 401(k) account or individual retirement account.
Summary | 17 |
Average Annual Total Returns | ||||||||
|
|
| Periods ended |
| ||||
| December 31, 2012 |
| ||||||
| Since inception |
| ||||||
| 1 Year | (5/26/11) |
| |||||
| Emerging Markets Local Currency Bond Fund |
| ||||||
| Returns before taxes | 17.69 | % |
| 4.83 | % |
| |
| Returns after taxes on distributions | 16.39 |
|
| 3.74 |
|
| |
| Returns after taxes on distributions |
|
|
|
|
|
| |
| and sale of fund shares | 11.46 |
|
| 3.44 |
|
| |
| J.P. Morgan GBI - EM Global Diversified (reflects no deduction for fees, expenses, or taxes) | 16.76 |
|
| 5.88 |
|
| |
| Lipper Emerging Markets Local Debt Funds Average | 16.13 |
|
| 4.06 | * |
|
* Since 5/31/11.
Updated performance information is available through troweprice.com or may be obtained by calling 1-800-225-5132.
Management
Investment Adviser T. Rowe Price Associates, Inc. (T. Rowe Price)
Investment Sub-adviser T. Rowe Price International Ltd (T. Rowe Price International)
Portfolio Manager | Title | Managed Fund Since | Joined Investment |
Andrew J. Keirle | Chairman of Investment Advisory Committee | 2011 | 2005 |
Purchase and Sale of Fund Shares
The funds investment minimums generally are as follows (if you hold shares through a financial intermediary, the intermediary may impose different investment minimums):
Type of Account | Minimum | Minimum subsequent |
Individual retirement accounts, small business retirement plan accounts, and Uniform Gifts to Minors Act or Uniform Transfers to Minors Act accounts | $1,000 | $100 |
All other accounts | 2,500 | 100 |
You may purchase, redeem, or exchange shares of the fund on any day the New York Stock Exchange is open for business by accessing your account online at troweprice.com, by calling 1-800-225-5132, or by written request. If you hold shares
T. Rowe Price | 18 |
through a financial intermediary, you must purchase, redeem, and exchange shares through your intermediary.
Tax Information
The fund declares dividends daily and pays them on the first business day of each month. Any capital gains are declared and paid annually, usually in December. Distributions by the fund, whether or not you reinvest these amounts in additional fund shares, may be taxed as ordinary income or capital gains unless you invest through a tax-deferred account. A redemption or exchange of fund shares may be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
SUMMARY
T. Rowe Price International Bond Fund
The fund seeks to provide high current income and capital appreciation by investing primarily in high-quality, nondollar-denominated bonds outside the U.S.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold shares of the fund.
Fees and Expenses of the Fund
Shareholder fees (fees paid directly from your investment) | |
Maximum sales charge (load) imposed on | NONE |
Maximum deferred sales charge (load) | NONE |
Redemption fee (as a percentage of amount redeemed on shares held for 90 days or less) | 2.00% |
Maximum account fee | $20a |
Annual fund operating expenses | |
Management fees | 0.65% |
Distribution and service (12b-1) fees | 0.00% |
Other expenses | 0.19% |
Total annual fund operating expenses | 0.84% |
a Subject to certain exceptions, accounts with a balance of less than $10,000 are charged an annual $20 fee.
Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the funds operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year | 3 years | 5 years | 10 years |
$86 | $268 | $466 | $1,037 |
Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual
T. Rowe Price | 20 |
fund operating expenses or in the example, affect the funds performance. During the most recent fiscal year, the funds portfolio turnover rate was 52.2% of the average value of its portfolio.
Investments, Risks, and Performance
Principal Investment Strategies Normally, the fund will invest at least 80% of its net assets (including any borrowings for investment purposes) in foreign bonds and 65% of its net assets in foreign bonds that are rated within the three highest credit categories (i.e., A- or equivalent, or better), as determined by at least one major credit rating agency or, if unrated, deemed to be of comparable quality by T. Rowe Price. If a bond is split-rated (i.e., assigned different ratings by different credit rating agencies), the higher rating will be used. The fund may invest up to 20% of its total assets in junk bonds that have received a below investment-grade rating (i.e., BB or equivalent, or lower) from each of the rating agencies that has assigned a rating to the bond (or, if unrated, deemed to be below investment-grade quality by T. Rowe Price), including those in default or with the lowest rating. Up to 20% of total assets may be invested in U.S. dollar-denominated foreign bonds, such as Brady bonds and other emerging markets bonds.
Although the fund expects to maintain an intermediate- to long-term weighted average maturity, there are no maturity restrictions on the overall portfolio or on individual securities. The fund has wide flexibility to purchase and sell currencies and engage in hedging transactions. However, we normally do not attempt to cushion the impact of foreign currency fluctuations on the U.S. dollar. Therefore, the fund is likely to be heavily exposed to the risk of bonds denominated in foreign currencies.
Investment decisions are based on fundamental market factors, such as yield and credit quality differences among bonds as well as supply and demand trends and currency values. The fund generally invests in securities where the combination of fixed-income returns and currency exchange rates appears attractive or, if the currency trend is unfavorable, where we believe the currency risk can be minimized through hedging. The fund sells holdings for a variety of reasons, such as to adjust the portfolios average maturity or credit quality, to shift assets into and out of higher-yielding securities, or to alter geographic or currency exposure.
The fund is nondiversified, meaning it may invest a greater portion of its assets in fewer issuers than is permissible for a diversified fund.
While most assets will be invested in bonds, the fund may enter into forward currency exchange contracts in keeping with the funds objectives. Forward currency exchange contracts would primarily be used to help protect the funds holdings from unfavorable changes in foreign currency exchange rates, although other currency hedging techniques may be used from time to time.
Summary | 21 |
Principal Risks As with any mutual fund, there is no guarantee that the fund will achieve its objective. The funds share price fluctuates, which means you could lose money by investing in the fund. The principal risks of investing in this fund are summarized as follows:
Active management risk The fund is subject to the risk that the investment advisers judgments about the attractiveness, value, or potential appreciation of the funds investments may prove to be incorrect. If the securities selected and strategies employed by the fund fail to produce the intended results, the fund could underperform other funds with similar objectives and investment strategies.
International investing risk Investing in the securities of non-U.S. issuers involves special risks not typically associated with investing in U.S. securities. International securities tend to be more volatile and less liquid than investments in U.S. securities and may lose value because of adverse political, social, or economic developments overseas. In addition, international investments may be subject to regulatory and accounting standards that differ from those of the U.S.
Emerging markets risk The risks of international investing are heightened for securities of issuers in emerging market countries. Emerging market countries tend to have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. In addition to all of the risks of investing in international developed markets, emerging markets are more susceptible to governmental interference, local taxes being imposed on international investments, restrictions on gaining access to sales proceeds, and less liquid and efficient trading markets.
Currency risk Because the fund generally invests in securities issued in foreign currencies, the fund is subject to the risk that it could experience losses based solely on the weakness of foreign currencies versus the U.S. dollar and changes in the exchange rates between such currencies and the U.S. dollar. Any attempts at currency hedging may not be successful and could cause the fund to lose money.
Credit risk This is the risk that an issuer of a debt security could suffer an adverse change in financial condition that results in a payment default, security downgrade, or inability to meet a financial obligation. The funds overall credit risk is increased to the extent the fund invests in emerging markets bonds or bonds rated below investment-grade. Such investments carry a higher risk of default and should be considered speculative.
Interest rate risk This risk refers to the chance that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Generally, securities with longer maturities and funds with longer weighted average maturities carry greater interest rate risk.
Liquidity risk This is the risk that the fund may not be able to sell a holding in a timely manner at a desired price.
T. Rowe Price | 22 |
Nondiversification risk As a nondiversified fund, the fund has the ability to invest a larger percentage of its assets in the securities of a smaller number of issuers than a diversified fund. As a result, poor performance by a single issuer could adversely affect fund performance more than if the fund were invested in a larger number of issuers. The funds share price can be expected to fluctuate more than that of a comparable diversified fund.
Derivatives risk To the extent the fund uses forward currency exchange contracts, it is exposed to greater volatility and losses in comparison to investing directly in foreign bonds. Forward currency exchange contracts are also subject to the risks that anticipated currency movements will not be accurately predicted, a counterparty will fail to perform in accordance with the terms of the agreement, and the chance that potential government regulation could negatively affect the funds investments in such instruments.
Performance The bar chart showing calendar year returns and the average annual total returns table indicate risk by illustrating how much returns can differ from one year to the next and how fund performance compares with that of a comparable market index. The funds past performance (before and after taxes) is not necessarily an indication of future performance.
The fund can also experience short-term performance swings, as shown by the best and worst calendar quarter returns during the years depicted.
In addition, the average annual total returns table shows hypothetical after-tax returns to suggest how taxes paid by a shareholder may influence returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns
Summary | 23 |
depend on an investors tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as a 401(k) account or individual retirement account.
Average Annual Total Returns | ||||||||||||
|
|
| Periods ended |
| ||||||||
| December 31, 2012 |
| ||||||||||
| 1 Year | 5 Years | 10 Years |
| ||||||||
| International Bond Fund |
| ||||||||||
| Returns before taxes | 6.10 | % |
| 4.78 | % |
| 6.15 | % |
|
| |
| Returns after taxes on distributions | 5.26 |
|
| 3.10 |
|
| 4.44 |
|
|
| |
| Returns after taxes on distributions |
|
|
|
|
|
|
|
|
|
| |
| and sale of fund shares | 3.95 |
|
| 3.08 |
|
| 4.34 |
|
|
| |
| Barclays Global Aggregate ex USD Bond Index (reflects no deduction for fees, expenses, or taxes) | 4.09 |
|
| 5.06 |
|
| 6.55 |
|
|
| |
| Lipper International Income Funds Average | 7.38 |
|
| 5.99 |
|
| 6.33 |
|
|
|
Updated performance information is available through troweprice.com or may be obtained by calling 1-800-225-5132.
Management
Investment Adviser T. Rowe Price Associates, Inc. (T. Rowe Price)
Investment Sub-adviser T. Rowe Price International Ltd (T. Rowe Price International)
Portfolio Manager | Title | Managed Fund Since | Joined Investment |
Ian D. Kelson | Co-Chairman of | 2001 | 2000 |
Christopher J. Rothery | Co-Chairman of | 2012 | 1994 |
Purchase and Sale of Fund Shares
The funds investment minimums generally are as follows (if you hold shares through a financial intermediary, the intermediary may impose different investment minimums):
Type of Account | Minimum | Minimum subsequent |
Individual retirement accounts, small business retirement plan accounts, and Uniform Gifts to Minors Act or Uniform Transfers to Minors Act accounts | $1,000 | $100 |
All other accounts | 2,500 | 100 |
T. Rowe Price | 24 |
You may purchase, redeem, or exchange shares of the fund on any day the New York Stock Exchange is open for business by accessing your account online at troweprice.com, by calling 1-800-225-5132, or by written request. If you hold shares through a financial intermediary, you must purchase, redeem, and exchange shares through your intermediary.
Tax Information
The fund declares dividends daily and pays them on the first business day of each month. Any capital gains are declared and paid annually, usually in December. Distributions by the fund, whether or not you reinvest these amounts in additional fund shares, may be taxed as ordinary income or capital gains unless you invest through a tax-deferred account. A redemption or exchange of fund shares may be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
Information About Accounts in T. Rowe Price Funds | 2 | |
As a T. Rowe Price shareholder, you will want to know about the following policies and procedures that apply to the T. Rowe Price family of funds.
How and When Shares Are Priced
The share price, also called the net asset value, for the funds is calculated at the close of the New York Stock Exchange (normally 4 p.m. ET) each day that the exchange is open for business. To calculate the net asset value, the funds assets are valued and totaled; liabilities are subtracted; and the balance, called net assets, is divided by the number of shares outstanding. Market values are used to price portfolio holdings for which market quotations are readily available. Market values represent the prices at which securities actually trade or evaluations based on the judgment of the funds pricing services. If a market value for a security is not available or normal valuation procedures are deemed to be inappropriate, the fund will make a good faith effort to assign a fair value to the security by taking into account various factors that have been approved by the funds Board of Directors/Trustees. This value may differ from the value the fund receives upon sale of the securities. Amortized cost is used to price securities held by money funds and certain other debt securities held by a fund. Investments in other mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation.
Non-U.S. equity securities are valued on the basis of their most recent closing market prices at 4 p.m. ET except under the circumstances described below. Most foreign markets close before 4 p.m. ET. For securities primarily traded in the Far East, for example, the most recent closing prices may be as much as 15 hours old at 4 p.m. ET. If a fund determines that developments between the close of a foreign market and the close of the New York Stock Exchange will, in its judgment, materially affect the value of some or all of the funds securities, the fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of 4 p.m. ET. In deciding whether to make these adjustments, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The fund may also fair value certain securities or a group of securities in other situationsfor example, when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with closing market prices and information used for adjusting those prices and to value most fixed income securities. The fund cannot predict how often it will use closing prices and how often it will adjust those prices.
T. Rowe Price | 26 |
As a means of evaluating its fair value process, the fund routinely compares closing market prices, the next days opening prices in the same markets, and adjusted prices. The fund also evaluates a variety of factors when assigning fair values to private placements and other restricted securities. Other mutual funds may adjust the prices of their securities by different amounts or assign different fair values than the fair value that the fund assigns to the same security.
The various ways you can buy, sell, and exchange shares are explained at the end of this prospectus and on the New Account form. These procedures may differ for institutional and employer-sponsored retirement accounts or if you hold your account through an intermediary.
How Your Purchase, Sale, or Exchange Price Is Determined
If your request is received by T. Rowe Price in correct form by the close of the New York Stock Exchange (normally 4 p.m. ET), your transaction will be priced at that business days net asset value. If your request is received by T. Rowe Price after the close of the New York Stock Exchange, your transaction will be priced at the next business days net asset value.
The funds generally do not accept orders that request a particular day or price for a transaction or any other special conditions.
Fund shares may be purchased through various third-party intermediaries, including banks, brokers, and investment advisers. Where authorized by a fund, orders will be priced at the net asset value next computed after receipt by the intermediary. Contact your intermediary for trade deadlines and the applicable policies for purchasing, selling, or exchanging your shares, as well as initial and subsequent investment minimums. The intermediary may charge a fee for its services.
When authorized by the fund, certain financial institutions or retirement plans purchasing fund shares on behalf of customers or plan participants through T. Rowe Price Financial Institution Services or T. Rowe Price Retirement Plan Services may place a purchase order unaccompanied by payment. Payment for these shares must be received by the time designated by the fund (not to exceed the period established for settlement under applicable regulations). If payment is not received by this time, the order may be canceled. The financial institution or retirement plan is responsible for any costs or losses incurred by the fund or T. Rowe Price if payment is delayed or not received.
Note: The time at which transactions and shares are priced and the time until which orders are accepted may be changed in case of an emergency or if the New York Stock Exchange closes at a time other than 4 p.m. ET. In the event of an emergency closing, a funds shareholders will receive the next share price calculated by the fund. There may be times when you are unable to contact us by telephone or access your account online due to extreme market activity, the unavailability of the T. Rowe Price website, or other circumstances. Should this occur, your order must still be placed
Information About Accounts in T. Rowe Price Funds | 27 |
and accepted by T. Rowe Price prior to the time the New York Stock Exchange closes to be priced at that business days net asset value. Under certain conditions, a money fund may accept and process purchase and redemption orders beyond the close of the New York Stock Exchange on days that the New York Stock Exchange closes early and does not reopen, and may accept orders on a business day that the New York Stock Exchange is unexpectedly closed.
How You Can Receive the Proceeds From a Sale
When filling out the New Account form, you may wish to give yourself the widest range of options for receiving proceeds from a sale.
If your request is received in correct form by T. Rowe Price on a business day prior to the close of the New York Stock Exchange, proceeds are usually sent on the next business day. Proceeds can be mailed to you by check or sent electronically to your bank account by Automated Clearing House transfer or bank wire. Automated Clearing House is an automated method of initiating payments from, and receiving payments in, your financial institution account. Proceeds sent by Automated Clearing House transfer are usually credited to your account the second business day after the sale and there are typically no fees associated with such payments. Proceeds sent by bank wire are usually credited to your account the next business day after the sale, although your financial institution may charge an incoming wire fee.
Exception Under certain circumstances, and when deemed to be in a funds best interest, your proceeds may not be sent for up to seven calendar days after we receive your redemption request. Under certain limited circumstances, the Board of Directors/Trustees of a money fund may elect to suspend redemptions and postpone payment of redemption proceeds in order to facilitate an orderly liquidation of the money fund.
If for some reason we cannot accept your request to sell shares, we will contact you.
Contingent Redemption Fee
Short-term trading can disrupt a funds investment program and create additional costs for long-term shareholders. For these reasons, certain T. Rowe Price funds, listed in the following table, assess a fee on redemptions (including exchanges out of a fund), which reduces the proceeds from such redemptions by the amounts indicated:
T. Rowe Price Funds With Redemption Fees | ||
Fund | Redemption fee | Holding period |
Africa & Middle East | 2% | 90 days or less |
Diversified Small-Cap Growth | 1% | 90 days or less |
Emerging Europe | 2% | 90 days or less |
Emerging Markets Bond | 2% | 90 days or less |
T. Rowe Price | 28 |
T. Rowe Price Funds With Redemption Fees | ||
Fund | Redemption fee | Holding period |
Emerging Markets Corporate Bond | 2% | 90 days or less |
Emerging Markets Local Currency Bond | 2% | 90 days or less |
Emerging Markets Stock | 2% | 90 days or less |
Equity Index 500 | 0.5% | 90 days or less |
European Stock | 2% | 90 days or less |
Extended Equity Market Index | 0.5% | 90 days or less |
Floating Rate | 2% | 90 days or less |
Global Infrastructure | 2% | 90 days or less |
Global Large-Cap Stock | 2% | 90 days or less |
Global Real Estate | 2% | 90 days or less |
Global Stock | 2% | 90 days or less |
High Yield | 2% | 90 days or less |
International Bond | 2% | 90 days or less |
International Discovery | 2% | 90 days or less |
International Equity Index | 2% | 90 days or less |
International Growth & Income | 2% | 90 days or less |
International Stock | 2% | 90 days or less |
Japan | 2% | 90 days or less |
Latin America | 2% | 90 days or less |
New Asia | 2% | 90 days or less |
Overseas Stock | 2% | 90 days or less |
Real Assets | 2% | 90 days or less |
Real Estate | 1% | 90 days or less |
Small-Cap Value | 1% | 90 days or less |
Spectrum International | 2% | 90 days or less |
Tax-Efficient Equity | 1% | less than 365 days |
Tax-Free High Yield | 2% | 90 days or less |
Total Equity Market Index | 0.5% | 90 days or less |
U.S. Bond Enhanced Index | 0.5% | 90 days or less |
Redemption fees are paid to a fund to deter short-term trading, offset costs, and protect the funds long-term shareholders. Subject to the exceptions described on the following pages, all persons holding shares of a T. Rowe Price fund that imposes a redemption fee are subject to the fee, whether the person is holding shares directly with a T. Rowe Price fund; through a retirement plan for which T. Rowe Price serves as recordkeeper; or indirectly through an intermediary (such as a broker, bank, or
Information About Accounts in T. Rowe Price Funds | 29 |
investment adviser), recordkeeper for retirement plan participants, or other third party.
Computation of Holding Period
When an investor sells shares of a fund that assesses a redemption fee, T. Rowe Price will use the first-in, first-out method to determine the holding period for the shares sold. Under this method, the date of redemption or exchange will be compared with the earliest purchase date of shares held in the account. The day after the date of your purchase is considered Day 1 for purposes of computing the holding period. For a fund with a 365-day holding period, a redemption fee will be charged on shares sold before the end of the required holding period. For funds with a 90-day holding period, a redemption fee will be charged on shares sold on or before the end of the required holding period. For example, if you redeem your shares on or before the 90th day from the date of purchase, you will be assessed the redemption fee. If you purchase shares through an intermediary, consult your intermediary to determine how the holding period will be applied.
Transactions Not Subject to Redemption Fees
The T. Rowe Price funds will not assess a redemption fee with respect to certain transactions. As of the date of this prospectus, the following shares of T. Rowe Price funds will not be subject to redemption fees:
· Shares redeemed through an automated, systematic withdrawal plan;
· Shares redeemed through or used to establish certain rebalancing, asset allocation, wrap, and advisory programs, as well as non-T. Rowe Price fund-of-funds products, if approved in writing by T. Rowe Price;
· Shares purchased through the reinvestment of dividends or capital gain distributions;*
· Shares converted from one share class to another share class of the same fund;*
· Shares redeemed automatically by a fund to pay fund fees or shareholder account fees (e.g., for failure to meet account minimums);
· Shares purchased by rollover or changes of account registration within the same fund;*
· Shares redeemed to return an excess contribution from a retirement account;
· Shares of T. Rowe Price funds purchased by another T. Rowe Price fund and shares purchased by discretionary accounts managed by T. Rowe Price or one of its affiliates (please note that other shareholders of the investing T. Rowe Price fund are still subject to the policy);
· Shares that are redeemed in-kind;
· Shares transferred to T. Rowe Price or a third-party intermediary acting as a service provider when the age of the shares cannot be determined systematically;* and
· Shares redeemed in retirement plans or other products that restrict trading to no more frequently than once per quarter, if approved in writing by T. Rowe Price.
* Subsequent exchanges of these shares into funds that assess redemption fees will subject such shares to the fee.
T. Rowe Price | 30 |
Redemption Fees on Shares Held in Retirement Plans
If shares are held in a retirement plan, redemption fees generally will be assessed on shares redeemed by exchange only if they were originally purchased by exchange. However, redemption fees may apply to transactions other than exchanges depending on how shares of the plan are held at T. Rowe Price or how the fees are applied by your plans recordkeeper. To determine which of your transactions are subject to redemption fees, you should contact T. Rowe Price or your plan recordkeeper.
Omnibus Accounts
If your shares are held through an intermediary in an omnibus account, T. Rowe Price relies on the intermediary to assess the redemption fee on underlying shareholder accounts. T. Rowe Price seeks to identify intermediaries establishing omnibus accounts and to enter into agreements requiring the intermediary to assess the redemption fees. There are no assurances that T. Rowe Price will be successful in identifying all intermediaries or that the intermediaries will properly assess the fees.
Certain intermediaries may not apply the exemptions previously listed to the redemption fee policy; all redemptions by persons trading through such intermediaries may be subject to the fee. Certain intermediaries may exempt transactions not listed from redemption fees, if approved by T. Rowe Price. Persons redeeming shares through an intermediary should check with their respective intermediary to determine which transactions are subject to the fees.
Each fund intends to qualify to be treated each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. In order to qualify, a fund must satisfy certain income, diversification, and distribution requirements. A regulated investment company is not subject to U.S. federal income tax at the portfolio level on income and gains from investments that are distributed to shareholders. However, if a fund were to fail to qualify as a regulated investment company and was ineligible to or otherwise did not cure such failure, the result would be fund-level taxation and, consequently, a reduction in income available for distribution to the funds shareholders.
To the extent possible, all net investment income and realized capital gains are distributed to shareholders.
Dividends and Other Distributions
Dividend and capital gain distributions are reinvested in additional fund shares in your account unless you select another option. Reinvesting distributions results in compounding, which allows you to receive dividends and capital gain distributions on an increasing number of shares.
Information About Accounts in T. Rowe Price Funds | 31 |
Distributions not reinvested are paid by check or transmitted to your bank account via Automated Clearing House. If the U.S. Postal Service cannot deliver your check, or if your check remains uncashed for six months, the fund reserves the right to reinvest your distribution check in your account at the net asset value on the day of the reinvestment and to reinvest all subsequent distributions in shares of the fund. Interest will not accrue on amounts represented by uncashed distributions or redemption checks.
The following table provides details on dividend payments:
Dividend Payment Schedule | |
Fund | Dividends |
Money funds | · Purchases received by T. Rowe Price by noon ET via wire begin to earn dividends on that day. Other shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price. · Declared daily and paid on the first business day of each month. |
Bond funds | · Shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price. · Declared daily and paid on the first business day of each month. |
These stock funds only: · Balanced · Dividend Growth · Equity Income · Equity Index 500 · Global Real Estate · Growth & Income · Personal Strategy Balanced · Personal Strategy Income · Real Estate | · Declared and paid quarterly, if any, in March, June, September, and December. · Must be a shareholder on the dividend record date. |
Other stock funds | · Declared and paid annually, if any, generally in December. · Must be a shareholder on the dividend record date. |
Retirement and Spectrum Funds: | |
· Retirement Income and | · Shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price. · Declared daily and paid on the first business day of each month. |
· All others | · Declared and paid annually, if any, generally in December. · Must be a shareholder on the dividend record date. |
Bond and money fund shares earn dividends through the date of redemption (except for wire redemptions from money funds prior to noon ET, which earn dividends through the calendar day prior to the date of redemption). Shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business
T. Rowe Price | 32 |
day. Generally, if you redeem all of your bond or money fund shares at any time during the month, you will also receive all dividends earned through the date of redemption in the same check. When you redeem only a portion of your bond or money fund shares, all dividends accrued on those shares will be reinvested, or paid in cash, on the next dividend payment date. The funds do not pay dividends in fractional cents. Any dividend amount earned for a particular day on all shares held that is one-half of one cent or greater (for example, $0.016) will be rounded up to the next whole cent ($0.02), and any amount that is less than one-half of one cent (for example, $0.014) will be rounded down to the nearest whole cent ($0.01). Please note that if the dividend payable on all shares held is less than one-half of one cent for a particular day, no dividend will be earned for that day.
If you purchase and sell your shares through an intermediary, consult your intermediary to determine when your shares begin and stop accruing dividends; the information previously described may vary.
Capital Gain Payments
A capital gain or loss is the difference between the purchase and sale price of a security. If a fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December to shareholders of record on a specified date that month. If a second distribution is necessary, it is paid the following year.
Capital gain payments are not expected from money funds, which are managed to maintain a constant share price.
Tax Information
In most cases, you will be provided information for your tax filing needs no later than mid-February.
If you invest in the fund through a tax-deferred account, such as an individual retirement account, you will not be subject to tax on dividends and distributions from the fund or the sale of fund shares if those amounts remain in the tax-deferred account. You may receive a Form 1099-R or other Internal Revenue Service forms, as applicable, if any portion of the account is distributed to you.
If you invest in the fund through a taxable account, you generally will be subject to tax when:
· You sell fund shares, including an exchange from one fund to another.
· The fund makes dividend or capital gain distributions.
Additional information about the taxation of dividends for certain T. Rowe Price funds is listed below:
Tax-Free and Municipal Funds |
· Regular monthly dividends (including those from the state-specific tax-free funds) are expected to be exempt from federal income taxes. |
Information About Accounts in T. Rowe Price Funds | 33 |
Tax-Free and Municipal Funds |
· Exemption is not guaranteed, since the fund has the right under certain conditions to invest in nonexempt securities. |
· A fund may hold Build America Bonds or other qualified tax credit bonds. Investments in these bonds will result in taxable interest income, although the federal income tax on such interest income may be fully or partially offset by the specified tax credits that are available to the bondholders. A fund may elect to pass through to the shareholders taxable interest income and any corresponding tax credits. Any available tax creditswhich are also included in federal taxable incomegenerally can be used to offset federal regular income tax and alternative minimum tax, but those tax credits generally are not refundable. |
· Tax-exempt dividends paid to Social Security recipients may increase the portion of benefits that is subject to tax. |
· For state-specific funds, the monthly dividends you receive are expected to be exempt from state and local income tax of that particular state. For other funds, a small portion of your income dividend may be exempt from state and local income taxes. |
· If a fund invests in certain private activity bonds that are not exempt from the alternative minimum tax, shareholders who are subject to the alternative minimum tax must include income generated by those bonds in their alternative minimum tax calculation. Private activity bonds issued in 2009 and 2010, and refunding bonds issued in 2009 and 2010 to refund private activity bonds that were issued from the beginning of 2004 to the end of 2008, are exempt from the alternative minimum tax. The portion of a funds income dividend that should be included in your alternative minimum tax calculation, if any, will be reported to you in January on Form 1099-DIV. |
For individual shareholders,
a portion of ordinary dividends representing qualified dividend income received by the fund
may be subject to tax at the lower rates applicable to long-term capital gains rather than ordinary income.
You may report it as qualified dividend income in computing your taxes, provided you have
held the fund shares on which the dividend was paid for more than 60 days during the
121-day period
beginning 60 days before the ex-dividend date. Ordinary dividends that do not qualify for this lower
rate are generally taxable at the investors marginal income tax rate. This includes the portion
of ordinary dividends derived from interest, short-term capital gains, distributions from nonqualified
foreign corporations, and dividends received by the fund from stocks that were on loan. Little, if any,
of the ordinary dividends paid by the Global Real Estate Fund, Real Estate Fund, or the bond and money
funds is expected to qualify for this lower rate.
For corporate shareholders, a portion of ordinary dividends may be eligible for the 70% deduction for dividends received by corporations to the extent the funds income consists of dividends paid by U.S. corporations. Little, if any, of the ordinary dividends paid by the international stock funds or the bond and money funds is expected to qualify for this deduction.
Beginning in 2013, a 3.8% net investment income tax is imposed on net investment income, including interest, dividends, and capital gains, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing jointly) and of estates and trusts.
T. Rowe Price | 34 |
Taxes on Fund Redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange from one fund to another in a taxable account is also a sale for tax purposes.
T. Rowe Price will make available to you Form 1099-B, if applicable, no later than mid-February, indicating the date and amount of each sale you made in the fund during the prior year. This information will also be reported to the Internal Revenue Service. For most new accounts or those opened by exchange in 1984 or later, we will provide you with the gain or loss on the shares you sold during the year based on the average cost single category method. You may calculate the cost basis using other methods acceptable to the Internal Revenue Service, such as specific identification.
If you hold your fund through an intermediary, the intermediary is responsible for providing you with any necessary tax forms. You should contact your intermediary for the tax information that will be sent to you and reported to the Internal Revenue Service.
For
mutual fund shares acquired after 2011, new tax regulations require us to
report the cost basis information
to you and the Internal Revenue Service on
Form 1099-B using a cost basis method selected by
you or, in the absence of such selected method, our default method if you acquire your shares directly
from us. Our default method is average cost. If you acquire your fund shares through an intermediary
after 2011, you should check with your intermediary regarding the applicable cost basis method. You should,
however, note that the cost basis information reported to you may not always be the same as what you
should report on your tax return because the rules applicable to the determination of cost basis on Form 1099-B
may be different from the rules applicable to the determination of cost basis for reporting on your tax
return. Therefore, you should save your transaction records to make sure the information reported on
your tax return is accurate. To help you maintain accurate records, T. Rowe Price will make available
to you a confirmation promptly following each transaction you make (except for systematic purchases and
systematic redemptions) and a year-end statement detailing all of your transactions in each fund account
during the year. If you hold your fund through an intermediary, the intermediary is responsible for providing
you with transaction confirmations and statements.
Taxes on Fund Distributions
T. Rowe Price (or your intermediary) will make available to you, as applicable, no later than mid-February, a Form 1099-DIV, or other Internal Revenue Service forms, as required, indicating the tax status of any income dividends, dividends exempt from federal income taxes, and capital gain distributions made to you. This information will be reported to the Internal Revenue Service. Taxable distributions are generally taxable to you in the year in which they are paid. Your bond or money fund dividends for each calendar year will include dividends accrued up to the first
Information About Accounts in T. Rowe Price Funds | 35 |
business day of the next calendar year. You will be sent any additional information you need to determine your taxes on fund distributions, such as the portion of your dividends, if any, that may be exempt from state and local income taxes. Dividends from tax-free funds are generally expected to be tax-exempt.
The tax treatment of a capital gain distribution is determined by how long the fund held the portfolio securities, not how long you held the shares in the fund. Short-term (one year or less) capital gain distributions are taxable at the same rate as ordinary income, and gains on securities held for more than one year are taxed at the lower rates applicable to long-term capital gains. If you realized a loss on the sale or exchange of fund shares that you held for six months or less, your short-term capital loss must be reclassified as a long-term capital loss to the extent of any long-term capital gain distributions received during the period you held the shares. For funds investing in foreign securities, distributions resulting from the sale of certain foreign currencies, currency contracts, and the foreign currency portion of gains on debt securities are taxed as ordinary income. Net foreign currency losses may cause monthly or quarterly dividends to be reclassified as returns of capital.
If the fund qualifies and elects to pass through nonrefundable foreign income taxes paid to foreign governments during the year, your portion of such taxes will be reported to you as taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for those amounts. There can be no assurance that a fund will meet the requirements to pass through foreign income taxes paid.
Taxable distributions are subject to tax whether reinvested in additional shares or received in cash.
If a fund holds Build America Bonds or other qualified tax credit bonds and elects to pass through the corresponding interest income and any available tax credits, you will need to report both the interest income and any such tax credits as taxable income. You may be able to claim the tax credits on your federal tax return as an offset to your income tax (including alternative minimum tax) liability, but the tax credits generally are not refundable. There is no assurance, however, that a fund will elect to pass through the income and credits.
The following table provides additional details on distributions for certain funds:
Taxes on Fund Distributions |
Tax-Free and Municipal Funds |
· Gains realized on the sale of market discount bonds with maturities beyond one year may be treated as ordinary income and cannot be offset by other capital losses. · Payments received or gains realized on certain derivative transactions may result in taxable ordinary income or capital gains. · To the extent the fund makes such investments, the likelihood of a taxable distribution will be increased. |
T. Rowe Price | 36 |
Taxes on Fund Distributions |
Inflation Protected Bond Fund |
· Inflation adjustments on Treasury inflation-protected securities that exceed deflation adjustments for the year will be distributed as a short-term capital gain resulting in ordinary income. · In computing the distribution amount, the fund cannot reduce inflation adjustments by short- or long-term capital losses from the sales of securities. · Net deflation adjustments for a year may result in all or a portion of dividends paid earlier in the year being treated as a return of capital. |
Retirement and Spectrum Funds |
· Distributions by the underlying funds and changes in asset allocations may result in taxable distributions of ordinary income or capital gains. |
Tax Consequences of Hedging
Entering into certain transactions involving options, futures, swaps, and forward currency exchange contracts may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in a fund being required to distribute gains on such transactions even though it did not close the contracts during the year or receive cash to pay such distributions. The fund may not be able to reduce its distributions for losses on such transactions to the extent of unrealized gains in offsetting positions.
Tax Effect of Buying Shares Before an Income Dividend or Capital Gain Distribution
If you buy shares shortly before or on the record datethe date that establishes you as the person to receive the upcoming distributionyou may receive a portion of the money you just invested in the form of a taxable distribution. Therefore, you may wish to find out a funds record date before investing. In addition, a funds share price may, at any time, reflect undistributed capital gains or income and unrealized appreciation, which may result in future taxable distributions. Such distributions can occur even in a year when the fund has a negative return.
Following these procedures helps assure timely and accurate transactions.
Purchase Conditions
Nonpayment If you pay with a check or Automated Clearing House transfer that does not clear or if your payment is not received in a timely manner, your purchase may be canceled. You will be responsible for any losses or expenses incurred by the fund or transfer agent, and the fund can redeem shares you own in this or another identically registered T. Rowe Price account as reimbursement. The funds and their agents have the right to reject or cancel any purchase, exchange, or redemption due to nonpayment.
Information About Accounts in T. Rowe Price Funds | 37 |
U.S. Dollars All purchases must be paid for in U.S. dollars; checks must be drawn on U.S. banks.
Sale (Redemption) Conditions
Holds on Immediate Redemptions: 10-Day Hold If you sell shares that you just purchased and paid for by check or Automated Clearing House transfer, the fund will process your redemption but generally will delay sending you the proceeds for up to 10 calendar days to allow the check or transfer to clear. If, during the clearing period, we receive a check drawn against your newly purchased shares, it will be returned marked uncollected. (The 10-day hold does not apply to purchases paid for by bank wire or automatic purchases through your paycheck.)
Telephone and Online Account Transactions You may access your account and conduct transactions using the telephone or the T. Rowe Price website. The T. Rowe Price funds and their agents use reasonable procedures to verify the identity of the shareholder. If these procedures are followed, the funds and their agents are not liable for any losses that may occur from acting on unauthorized instructions. A confirmation is sent promptly after a transaction. Please review it carefully and contact T. Rowe Price immediately about any transaction you believe to be unauthorized. Telephone conversations are recorded.
Large Redemptions Large redemptions can adversely affect a portfolio managers ability to implement a funds investment strategy by causing the premature sale of securities. Therefore, the fund reserves the right (without prior notice) to pay all or part of redemption proceeds with securities from the funds portfolio rather than in cash (redemption in-kind). If this occurs, the securities will be selected by the fund in its absolute discretion, and the redeeming shareholder or account will be responsible for disposing of the securities and bearing any associated costs.
Excessive and Short-Term Trading Policy
Excessive transactions and short-term trading can be harmful to fund shareholders in various ways, such as disrupting a funds portfolio management strategies, increasing a funds trading costs, and negatively affecting its performance. Short-term traders in funds that invest in foreign securities may seek to take advantage of developments overseas that could lead to an anticipated difference between the price of the funds shares and price movements in foreign markets. While there is no assurance that T. Rowe Price can prevent all excessive and short-term trading, the Boards of Directors/Trustees of the T. Rowe Price funds have adopted the following trading limits that are designed to deter such activity and protect the funds shareholders. The funds may revise their trading limits and procedures at any time as the Boards of Directors/Trustees deem necessary or appropriate to better detect short-term trading that may adversely affect the funds, to comply with applicable regulatory requirements, or to impose additional or alternative restrictions.
Subject to certain exceptions, each T. Rowe Price fund restricts a shareholders purchases (including through exchanges) into a fund account for a period of
T. Rowe Price | 38 |
30 calendar days after the shareholder has redeemed or exchanged out of that same fund account (the 30-Day Purchase Block). The calendar day after the date of redemption is considered Day 1 for purposes of computing the period before another purchase may be made.
General Exceptions As of the date of this prospectus, the following types of transactions generally are not subject to the 30-Day Purchase Block:
· Shares purchased or redeemed in money funds and ultra short-term bond funds;
· Shares purchased or redeemed through a systematic purchase or withdrawal plan;
· Checkwriting redemptions from bond and money funds;
· Shares purchased through the reinvestment of dividends or capital gain distributions;
· Shares redeemed automatically by a fund to pay fund fees or shareholder account fees;
· Transfers and changes of account registration within the same fund;
· Shares purchased by asset transfer or direct rollover;
· Shares purchased or redeemed through IRA conversions and recharacterizations;
· Shares redeemed to return an excess contribution from a retirement account;
· Transactions in Section 529 college savings plans;
· Shares converted from one share class to another share class in the same fund; and
· Shares of T. Rowe Price funds that are purchased by another T. Rowe Price fund, including shares purchased by T. Rowe Price fund-of-funds products, and shares purchased by discretionary accounts managed by T. Rowe Price or one of its affiliates (please note that shareholders of the investing T. Rowe Price fund are still subject to the policy).
Transactions in certain rebalancing, asset allocation, wrap programs, and other advisory programs, as well as non-T. Rowe Price fund-of-funds products, may also be exempt from the 30-Day Purchase Block, subject to prior written approval by T. Rowe Price.
In addition to restricting transactions in accordance with the 30-Day Purchase Block, T. Rowe Price may, in its discretion, reject (or instruct an intermediary to reject) any purchase or exchange into a fund from a person (which includes individuals and entities) whose trading activity could disrupt the management of the fund or dilute the value of the funds shares, including trading by persons acting collectively (e.g., following the advice of a newsletter). Such persons may be barred, without prior notice, from further purchases of T. Rowe Price funds for a period longer than 30 calendar days or permanently.
Intermediary Accounts If you invest in T. Rowe Price funds through an intermediary, you should review the intermediarys materials carefully or consult with the intermediary directly to determine the trading policy that will apply to your trades in the funds as well as any other rules or conditions on transactions that may apply. If
Information About Accounts in T. Rowe Price Funds | 39 |
T. Rowe Price is unable to identify a transaction placed through an intermediary as exempt from the excessive trading policy, the 30-Day Purchase Block may apply.
Intermediaries may maintain their underlying accounts directly with the fund, although they often establish an omnibus account (one account with the fund that represents multiple underlying shareholder accounts) on behalf of their customers. When intermediaries establish omnibus accounts in the T. Rowe Price funds, T. Rowe Price is not able to monitor the trading activity of the underlying shareholders. However, T. Rowe Price monitors aggregate trading activity at the intermediary (omnibus account) level in an attempt to identify activity that indicates potential excessive or short-term trading. If it detects suspicious trading activity, T. Rowe Price contacts the intermediary and may request personal identifying information and transaction histories for some or all underlying shareholders (including plan participants, if applicable). If T. Rowe Price believes that excessive or short-term trading has occurred, it will instruct the intermediary to impose restrictions to discourage such practices and take appropriate action with respect to the underlying shareholder, including restricting purchases for 30 calendar days or longer. There is no assurance that T. Rowe Price will be able to properly enforce its excessive trading policies for omnibus accounts. Because T. Rowe Price generally relies on intermediaries to provide information and impose restrictions for omnibus accounts, its ability to monitor and deter excessive trading will be dependent upon the intermediaries timely performance of their responsibilities.
T. Rowe Price may allow an intermediary or other third party to maintain restrictions on trading in the T. Rowe Price funds that differ from the 30-Day Purchase Block. An alternative excessive trading policy would be acceptable to T. Rowe Price if it believes that the policy would provide sufficient protection to the T. Rowe Price funds and their shareholders that is consistent with the excessive trading policy adopted by the funds Boards of Directors/Trustees.
Retirement Plan Accounts If
shares are held in a retirement plan, generally the
30-Day Purchase Block applies only to shares
redeemed by a participant-directed exchange to another fund. However, the 30-Day Purchase Block may apply
to transactions other than exchanges depending on how shares of the plan are held at T. Rowe Price
or the excessive trading policy applied by your plans recordkeeper. An alternative excessive trading
policy may apply to the T. Rowe Price funds where a retirement plan has its own policy deemed acceptable
to T. Rowe Price. You should contact T. Rowe Price or your plan recordkeeper to determine which
of your transactions are subject to the funds 30-Day Purchase Block or an alternative policy.
There is no guarantee that T. Rowe Price will be able to identify or prevent all excessive or short-term trades or trading practices.
Keeping Your Account Open
Due to the relatively high cost to a fund of maintaining small accounts, we ask you to maintain an account balance of at least $1,000 ($10,000 for Summit Funds). If, for
T. Rowe Price | 40 |
any reason, your balance is below this amount for three months or longer, we have the right to redeem your account at the then-current net asset value after giving you 60 days to increase your balance. This could result in a taxable gain.
Signature Guarantees
A Medallion signature guarantee is designed to protect you and the T. Rowe Price funds from fraud by verifying your signature.
You may need to have your signature guaranteed in certain situations, such as:
· Written requests: (1) to redeem over $100,000 or (2) to wire redemption proceeds when prior bank account authorization is not on file.
· Remitting redemption proceeds to any person, address, or bank account not on record.
· Transferring redemption proceeds to a T. Rowe Price fund account with a different registration (name or ownership) from yours.
· Establishing certain services after the account is opened.
The signature guarantee must be obtained from a financial institution that is a participant in a Medallion signature guarantee program. You can obtain a Medallion signature guarantee from most banks, savings institutions, broker-dealers, and other guarantors acceptable to T. Rowe Price. When obtaining a Medallion signature guarantee, please discuss with the guarantor the dollar amount of your proposed transaction. It is important that the level of coverage provided by the guarantors stamp covers the dollar amount of the transaction or it may be rejected. We cannot accept guarantees from notaries public or organizations that do not provide reimbursement in the case of fraud.
In an effort to help offset the disproportionately high costs incurred by the funds in connection with servicing lower-balance accounts, an annual $20 account service fee (paid to T. Rowe Price Services, Inc., or one of its affiliates) is charged to certain fund accounts with a balance below $10,000. The determination of whether a fund account is subject to the account service fee is based on account balances and services selected for accounts as of the last business day of August. The fee will be charged to an account with a balance below $10,000 for any reason, including market fluctuation and recent redemptions. The fee, which is automatically deducted from an account by redeeming fund shares, is typically charged to accounts in early September each calendar year.
The account service fee generally does not apply to fund accounts that are held through an intermediary, participant accounts in employer-sponsored retirement plans for which T. Rowe Price Retirement Plan Services provides recordkeeping
Information About Accounts in T. Rowe Price Funds | 41 |
services, or money funds that are used as a T. Rowe Price Brokerage sweep account. Regardless of a particular fund accounts balance on the last business day of August, the account service fee is automatically waived for accounts that satisfy any of the following conditions:
· Any accounts for which the shareholder has elected to receive electronic delivery of all of the following: account statements, transaction confirmations, and prospectuses and shareholder reports;
· Any accounts of a shareholder with at least $50,000 in total assets with T. Rowe Price (for this purpose, total assets includes investments in T. Rowe Price mutual funds, except for those held through a retirement plan for which T. Rowe Price Retirement Plan Services provides recordkeeping services; T. Rowe Price Brokerage; and T. Rowe Price variable annuities); or
· Any accounts of a shareholder who is a T. Rowe Price Preferred Services, Personal Services, or Enhanced Personal Services client (enrollment in these programs generally requires T. Rowe Price assets of at least $100,000visit troweprice.com or call 1-800-537-1098 for more information).
T. Rowe Price reserves the right to authorize additional waivers for other types of accounts or to modify the conditions for assessment of the account service fee. Fund shares held in a T. Rowe Price individual retirement account, Education Savings Account, or small business retirement plan account (including certain 403(b) plan accounts) are subject to the account service fee and may be subject to additional administrative fees when distributing all fund shares from such accounts.
More About the Funds | 3 | |
How are the funds organized?
T. Rowe Price International Funds, Inc. (the corporation) was incorporated in Maryland in 1979. Currently, the corporation consists of 18 series, each representing a separate pool of assets with different objectives and investment policies. Each is an open-end management investment company, or mutual fund. Mutual funds pool money received from shareholders and invest it to try to achieve specified objectives.
Shareholders have benefitted from T. Rowe Prices investment management experience since 1937.
What is meant by shares?
As with all mutual funds, investors purchase shares when they put money in a fund. These shares are part of a funds authorized capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
· Receive a proportional interest in income and capital gain distributions.
· Cast one vote per share on certain fund matters, including the election of fund directors/trustees, changes in fundamental policies, or approval of changes in the funds management contract.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and, to avoid unnecessary costs to fund shareholders, do not do so except when certain matters, such as a change in fundamental policies, must be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting for the purpose of voting on the removal of any fund director or trustee. If a meeting is held and you cannot attend, you can vote by proxy. Before the meeting, the fund will send or make available to you proxy materials that explain the issues to be decided and include instructions on voting by mail or telephone or on the Internet.
Who runs the funds?
General Oversight
Each fund is governed by a Board of Directors that meets regularly to review fund investments, performance, expenses, and other business affairs. The Board elects the funds officers. At least 75% of Board members are independent of T. Rowe Price and its affiliates (the Firm).
More About the Funds | 43 |
All decisions regarding the purchase and sale of fund investments are made by T. Rowe Price or an affiliated investment adviserspecifically by the funds portfolio managers.
Investment Adviser
T. Rowe Price is each funds investment adviser and oversees the selection of each funds investments and management of each funds portfolio. T. Rowe Price is a SEC-registered investment adviser that provides investment management services to individual and institutional investors, and sponsors and serves as adviser and sub-adviser to registered investment companies, institutional separate accounts, and common trust funds. The address for T. Rowe Price is 100 East Pratt Street, Baltimore, Maryland 21202. As of December 31, 2012, the Firm managed approximately $577 billion for more than 10 million individual and institutional investor accounts.
With respect to the Emerging Markets Local Currency Bond Fund and International Bond Fund, T. Rowe Price has entered into a sub-advisory agreement with T. Rowe Price International under which T. Rowe Price International is authorized to trade securities and make discretionary investment decisions on behalf of the fund. T. Rowe Price International is an investment adviser registered or licensed with the SEC, United Kingdom Financial Conduct Authority, Financial Services Agency of Japan, and other non-U.S. regulatory authorities. T. Rowe Price International sponsors and serves as adviser to foreign collective investment schemes and provides investment management services to investment companies and other institutional investors. T. Rowe Price International is headquartered in London and has several branch offices around the world. T. Rowe Price International is a direct subsidiary of T. Rowe Price and its address is 60 Queen Victoria Street, London EC4N 4TZ, United Kingdom.
Portfolio Management
T. Rowe Price has established an Investment Advisory Committee with respect to each fund. The committee chairman has day-to-day responsibility for managing the funds portfolio and works with the committee in developing and executing each funds investment program. The members of each advisory committee are listed below, along with information that provides the year that the chairman first joined the Firm and the chairmans specific business experience during the past five years (although the chairman may have had portfolio management responsibilities for a longer period). The Statement of Additional Information provides additional information about the portfolio managers compensation, other accounts managed by the portfolio managers, and the portfolio managers ownership of fund shares.
Emerging Markets Bond Fund Michael J. Conelius, Chairman, Roy Adkins, Peter I. Botoucharov, Carolyn Hoi Che Chu, Bridget A. Ebner, Richard Hall, Andrew J. Keirle, Ian D. Kelson, Christopher J. Kushlis, Christopher C. Loop, Michael D. Oh, Kenneth A. Orchard, and Christopher J. Rothery. Mr. Conelius has been chairman of the committee since 2001, but has been managing the fund since the funds inception
T. Rowe Price | 44 |
in 1994. He joined the Firm in 1988 and his investment experience dates from that time. He has served as a portfolio manager with the Firm throughout the past five years.
Emerging Markets Corporate Bond Fund Michael J. Conelius, Chairman, Roy H. Adkins, Peter I. Botoucharov, Sheldon Chan, Carolyn Hoi Che Chu, Bridget A. Ebner, Richard Hall, Andrew J. Keirle, Ian D. Kelson, Christopher J. Kushlis, Christopher C. Loop, Samy B Muaddi, Michael D. Oh, Kenneth A. Orchard, and Siby Thomas. Mr. Conelius has been chairman of the committee since the funds inception in 2012. He joined the Firm in 1988 and his investment experience dates from that time. He has served as a portfolio manager with the Firm throughout the past five years.
Emerging Markets Local Currency Bond Fund Andrew J. Keirle, Chairman, Roy H. Adkins, Peter I. Botoucharov, Michael J. Conelius, Richard Hall, Ian D. Kelson, Christopher J. Kushlis, Michael D. Oh, Kenneth A. Orchard, Christopher J. Rothery, and Ju Yen Tan. Mr. Keirle was appointed co-chairman of the committee when the fund incepted in 2011 and became sole chairman in 2012. Mr. Keirle joined the Firm in 2005 and his investment experience dates from 1996. During the past five years, he has served as a portfolio manager for various global fixed income strategies managed by the Firm.
International Bond Fund Ian D. Kelson and Christopher J. Rothery, Co-chairmen, Brian J. Brennan, Michael J. Conelius, Michael Della Vedova, Andrew J. Keirle, Kenneth A. Orchard, David Stanley, Ju Yen Tan, and J. Howard Woodward. Mr. Kelson has been chairman of the committee since 2001. He joined the Firm in 2000 and his investment experience dates from 1981. He has served as a portfolio manager with the Firm throughout the past five years. Mr. Rothery became co-chairman of the committee in 2012. Mr. Rothery joined the Firm in 1994 and his investment experience dates from 1986. During the past five years, he has served as a portfolio manager for various global fixed income strategies managed by the Firm.
The Management Fee
This fee has two partsan individual fund fee, which reflects a funds particular characteristics, and a group fee. The group fee, which is designed to reflect the benefits of the shared resources of the T. Rowe Price investment management complex, is calculated daily based on the combined net assets of all T. Rowe Price funds (except the Spectrum Funds, Retirement Funds, TRP Reserve Investment Funds, and any index or private label mutual funds). The group fee schedule (in the following table) is graduated, declining as the asset total rises, so shareholders benefit from the overall growth in mutual fund assets.
More About the Funds | 45 |
Group Fee Schedule
0.334%* | First $50 billion |
0.305% | Next $30 billion |
0.300% | Next $40 billion |
0.295% | Next $40 billion |
0.290% | Next $60 billion |
0.285% | Next $80 billion |
0.280% | Next $100 billion |
0.275% | Thereafter |
* Represents a blended group fee rate containing various breakpoints.
Each funds group fee is determined by applying the group fee rate to the funds average daily net assets. On December 31, 2012, the annual group fee rate was 0.30%. The individual fund fees, also applied to the funds average daily net assets, are as follows: Emerging Markets Bond Fund and Emerging Markets Local Currency Bond Fund, 0.45%; Emerging Markets Corporate Bond Fund, 0.50%, and International Bond Fund, 0.35%.
The expenses shown in the fee table in Section 1 are generally based on a funds prior fiscal year. In periods of market volatility, assets may decline significantly, causing total annual fund operating expenses to become higher than the numbers shown in the fee table.
A discussion about the factors considered by the Board and its conclusions in approving each funds investment management contract with T. Rowe Price appears in each funds semiannual report to shareholders for the period ended June 30.
Fund Operations and Shareholder Services
T. Rowe Price provides accounting services to the T. Rowe Price funds. T. Rowe Price Services, Inc. acts as the transfer and dividend disbursing agent and provides shareholder and administrative services to the funds. T. Rowe Price Retirement Plan Services, Inc., provides recordkeeping, sub-transfer agency, and administrative services for certain types of retirement plans investing in the funds. These companies receive compensation from the funds for their services. The funds may also pay third-party intermediaries for performing shareholder and administrative services for underlying shareholders in omnibus accounts. Certain funds also serve as underlying funds in which certain fund-of-funds products, the T. Rowe Price Spectrum and/or Retirement Funds, invest. Subject to approval by each funds Board of Directors, each fund bears a proportional share of the operating expenses of the fund-of-funds products. All of the fees discussed above are included in the fees and expenses table under Other expenses and in the funds financial statements.
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Consider your investment goals, your time horizon for achieving them, and your tolerance for risk. The funds are more suitable for investors with long-term financial goals. The funds may be appropriate if you seek diversification for your equity or domestic fixed income investments and can accept the risks that accompany foreign bond investing, including the potentially greater volatility associated with emerging markets. Your decision should take into account whether you have any other foreign bond investments. If not, you may want to consider the International Bond Fund to gain broader exposure to opportunities abroad. The Emerging Markets Bond Fund, Emerging Markets Corporate Bond Fund, or Emerging Markets Local Currency Bond Fund may be an appropriate part of your overall investment strategy if you are supplementing existing holdings that focus on developed foreign markets and can accept the potentially greater volatility of investing in emerging markets, including the increased currency risk associated with the Emerging Markets Local Currency Bond Fund.
The fund or funds you select should not represent your complete investment program or be used for short-term purposes.
Buying foreign bonds can be difficult and costly for the individual investor, and gaining access to many foreign markets can be complicated. Few investors have the time, the expertise, or the resources to evaluate foreign markets effectively on their own. The professional management, broad diversification, and relative simplicity of mutual funds make them an attractive, low-cost vehicle for this type of investing.
Interest rates vary from country to country depending on local economic conditions and monetary and fiscal policies. By investing in foreign bond markets, investors can benefit from potentially higher yields than U.S. bond markets provide. Therefore, diversifying internationally across various countries can help reduce portfolio volatility and smooth out returns.
The funds security selection relies heavily on in-depth research that analyzes various factors such as the creditworthiness of particular issuers, shifts in country fundamentals, political and economic trends, anticipated currency movements, and the risk adjusted attractiveness of various countries. While the International Bond Fund focuses its investments in non-U.S. dollar-denominated, investment-grade bonds of issuers in developed markets, the Emerging Markets Bond Fund, Emerging Markets Corporate Bond Fund, and Emerging Markets Local Currency Bond Fund focus their investments on issuers in emerging markets. The Emerging Markets Bond Fund has wide flexibility to choose among bonds issued in local currencies or the U.S. dollar, and to choose among corporate and sovereign issuers. The Emerging Markets Local Currency Bond Fund may diversify its investments between corporate and sovereign issuers but tends to invest more in sovereign bonds, whereas the Emerging Markets Corporate Bond Fund focuses its investments almost entirely on
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corporate issuers. Furthermore, the Emerging Markets Local Currency Bond Fund focuses its investments on bonds and other debt instruments that are denominated in the local currency of the issuer, which enables investors to get exposure both to local interest rates and to the currencies of emerging markets. Investments in bonds issued in foreign currencies may afford investors a potential hedge against weakness in the U.S. dollar, although investments by the Emerging Markets Local Currency Bond Fund and International Bond Fund will be significantly affected by changes in the exchange rates between the U.S. dollar and the currencies in which the funds holdings are denominated and traded.
The funds ordinarily invest in the securities of at least three countries; however, they may invest in the securities of one country, including the U.S., for temporary defensive purposes.
While the use of forward currency exchange contracts is not a principal investment strategy of the Emerging Markets Corporate Bond Fund, each of the funds may enter into forward currency exchange contracts in an effort to hedge against an expected decline in the value of currencies in which its portfolio holdings are denominated, to increase exposure to a particular foreign currency or to shift the funds foreign currency exposure from one country to another, or to enhance the funds returns. In an effort to achieve these same goals, the Emerging Markets Local Currency Bond Fund may also enter into currency swaps, purchase and write options on currencies, and purchase and sell currency futures contracts and related options thereon, as well as use interest rate swaps and futures contracts to adjust its country exposure.
Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. The risk profiles of foreign bond funds vary with the types of bonds they purchase, their degree of currency exposure, and whether they invest in developed markets, emerging markets, or both. Of the funds, the emerging markets funds tend to be more risky, with the Emerging Markets Local Currency Bond Fund having the higher potential for share price volatility resulting from currency fluctuations.
As with any mutual fund, there is no guarantee the funds will achieve their objectives. The funds share price fluctuates, which means you could lose money when you sell your shares of the funds. Some particular risks affecting the funds include the following:
Currency risk This is the risk of a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that foreign currency. The overall impact on a funds holdings can be significant and long-lasting depending on the currencies represented in the portfolio, how each currency appreciates or depreciates in relation to the U.S. dollar, and whether currency positions are hedged. Foreign currency exchange rates may fluctuate significantly over short periods of time, particularly with respect to emerging markets currencies. Currency exchange rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks, or by currency controls or political
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developments. Because the Emerging Markets Local Currency Bond Fund and International Bond Fund are normally heavily exposed to foreign currencies and do not attempt to hedge the impact of these currencies on the U.S. dollar, changes in currency exchange rates are likely to have a significant impact on the funds performance. Many bonds held in the Emerging Markets Bond Fund and Emerging Markets Corporate Bond Fund may be denominated in U.S. dollars to improve their marketability, but this does not protect them from substantial price declines in the face of political and economic turmoil. Currency trends are unpredictable, and to the extent each fund purchases and sells currencies, it will also be subject to the risk that its trading strategies, including efforts at hedging, will not succeed. Furthermore, hedging and trading costs can be significant and reduce fund net asset value, and many emerging market currencies cannot be effectively hedged.
Other risks of foreign investing Risks can result from varying stages of economic and political development, differing regulatory environments, trading days and accounting standards, uncertain tax laws, and higher transaction costs of non-U.S. markets. Investments outside the U.S. could be subject to governmental actions such as capital or currency controls, nationalization of a company or industry, expropriation of assets, or imposition of high taxes. A trading market may close without warning for extended time periods, preventing a fund from buying or selling securities in that market.
Emerging market risk Investments in emerging markets, which generally include Africa, parts of Europe and much of Asia, the Middle East, and Central and South America, are subject to the risk of abrupt and severe price declines. The economic and political structures of emerging market countries, in most cases, do not compare favorably with the U.S. or other developed countries in terms of wealth and stability, and their financial markets often lack liquidity. These economies are less developed and can be overly reliant on particular industries and more vulnerable to the ebb and flow of international trade, trade barriers, and other protectionist or retaliatory measures. Certain countries have legacies and periodic episodes of hyperinflation and currency devaluations, particularly Russia and many Latin American nations, and more recently many Asian countries. Governments in many emerging market countries participate to a significant degree in their economies and securities markets. Foreign investments may be restricted and subject to greater government control, including repatriation of sales proceeds. Some countries have histories of instability and upheaval that could cause their governments to act in a detrimental or hostile manner toward private enterprise or foreign investment. Investments in countries or regions that have recently begun moving away from central planning and state-owned industries toward free markets should be regarded as speculative.
While some countries have made progress in economic growth, liberalization, fiscal discipline, and political and social stability, there is no assurance these trends will continue. Significant risks, such as war and terrorism, currently affect some emerging market countries. Fund performance will likely be hurt by exposure to nations in the
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midst of hyperinflation, currency devaluation, trade disagreements, sudden political upheaval, or interventionist government policies. The volatility of emerging markets may be heightened by the actions (such as significant buying or selling) of a few major investors. For example, substantial decreases in cash flows of mutual funds investing in these markets could significantly affect local securities prices and, therefore, cause fund share prices to decline.
All of these factors make investing in such countries significantly riskier than in other countries and any one of these could cause a funds share price to decline.
Credit risk This is the risk that an issuer of a debt security or counterparty to an over-the-counter derivative held by a fund will default (fail to make scheduled payments), potentially reducing the funds income and share price. This risk is increased when a portfolio security is downgraded or the perceived creditworthiness of an issuer or counterparty deteriorates. The risk of default is much greater for emerging market bonds and securities rated as below investment-grade.
Companies and governments issuing lower-rated bonds are not as strong financially as those with higher credit ratings, and their bonds are often viewed as speculative investments. Such issuers are more vulnerable to real or perceived business setbacks and to changes in the economy, such as a recession, that might impair their ability to make timely interest and principal payments. Certain emerging markets governments and corporations have in the past defaulted on payment of interest and principal on debt they have issued. As a result, your portfolio managers rely heavily on proprietary T. Rowe Price and T. Rowe Price International research when selecting these investments.
Liquidity risk This is the risk that a fund may not be able to sell a holding in a timely manner at a desired price. Sectors of the bond market can experience sudden downturns in trading activity. During periods of reduced market liquidity, the spread between the price at which a security can be bought and the price at which it can be sold can widen, and the fund may not be able to sell a holding readily at a price that reflects what the fund believes it should be worth. Less liquid securities can also become more difficult to value.
Emerging market bonds are generally less liquid than higher-quality bonds issued by companies and governments in developed countries. Consequently, large purchases or sales of certain high-yield, emerging market debt issues may cause significant changes in their prices. Because many of these bonds do not trade frequently, when they do trade, their prices may be substantially higher or lower than had been expected. A lack of liquidity also means that more subjectivity will be used in establishing the fair value of the securities.
Interest rate risk This is the risk that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Prices fall because the bonds and notes in the funds portfolio become less attractive to other investors when securities with higher yields become available. Generally, the
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longer the maturity of a security or the longer a bond funds weighted average maturity, the greater its interest rate risk. Because the Emerging Markets Bond Fund, Emerging Markets Corporate Bond Fund, and International Bond Fund expect to maintain an intermediate- or long-term weighted average maturity, they should carry more interest rate risk than the Emerging Markets Local Currency Bond Fund and other funds that invest in shorter-term securities, although changes in the local interest rates of emerging market countries tend to be more erratic than changes in interest rates of the U.S. and developed market countries.
Other factors The major factor influencing prices of high-quality bonds is changes in interest rate levels; but this is only one of several factors affecting prices of lower-quality bonds. Because the credit quality of the issuer is lower, such bonds are more sensitive to developments affecting the issuers underlying fundamentals (for example, changes in financial condition or a particular countrys general economy). In addition, the entire bond market in an emerging market can experience sudden and sharp price swings due to a variety of factors, including changes in economic forecasts, stock market activity, large or sustained sales by institutional investors, a high-profile default, a political upheaval of some kind, or just a change in the markets psychology. This type of volatility is usually associated more with stocks than bonds, but investors in lower-quality bonds should also anticipate it.
Since mutual funds can be a major source of demand in certain markets, substantial cash flows into and out of these funds can affect high-yield and emerging market bond prices. If, for example, a significant number of funds were to sell bonds to meet shareholder redemptions, both bond prices and a funds share price could fall more than underlying fundamentals might justify.
Nondiversification risk Because each fund (other than Emerging Markets Corporate Bond Fund) is nondiversified, the fund can invest more of its assets in a smaller number of issuers than diversified funds. Concentrating investments could result in greater potential losses than for funds investing in a broader variety of issuers.
Derivatives risk To the extent a fund enters into forward currency exchange contracts, it is exposed to additional volatility and losses in excess of the funds initial investment, the risk that anticipated currency movements will not be accurately predicted, and the risk that the other party to the transaction will not fulfill its contractual obligation. If currency values and exchange rates move in a direction not predicted by the investment adviser, the fund could be in a worse position than if it had not entered into such transactions. Any attempts at hedging currencies may not be successful and could cause the fund to lose money or fail to get the benefit of a gain on a hedged position. To the extent the Emerging Markets Local Currency Bond Fund also uses swaps, options, and futures involving currencies, it is similarly exposed to additional volatility and losses greater than direct investments in the contracts underlying assets and the risk that anticipated currency movements will not be accurately predicted. These instruments may be less liquid and difficult to price.
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Any efforts at buying or selling currencies could result in significant losses for a fund and, if the fund takes a short position in a particular currency, it will lose money if the currency appreciates in value. Further, if the funds foreign currency transactions are intended to hedge the currency risk associated with investing in foreign securities and minimize the risk of loss that would result from a decline in the value of the hedged currency, these transactions also may limit any potential gain that might result should the value of such currency increase.
The Emerging Markets Local Currency Bond Funds use of interest rate swaps and futures involve the risk that interest rate movements will not be accurately predicted. Interest rates and yield curves vary from country to country depending on local economic conditions and monetary and fiscal policies, and interest rate changes and their impact tend to be more difficult to predict for emerging market countries.
Efforts to reduce risk Consistent with each funds objective, the portfolio manager uses various tools to try to reduce risk and increase total return, including:
· Thorough credit research by our own analysts.
· Analysis of industry, country, and regional fundamentals.
· Adjusting fund duration to try to reduce the drop in the funds price when interest rates rise or to benefit from the rise in price when rates fall.
· Management of the impact of foreign currency changes on the funds portfolio.
Other strategies may be employed that are not considered part of a funds principal investment strategies. For instance, the Emerging Markets Bond Fund, Emerging Markets Corporate Bond Fund, and International Bond Fund may also use futures and swaps, although these funds would primarily use such instruments to manage interest rate exposure, adjust portfolio duration, or as a tool to help manage cash flows into and out of the fund. Each fund may also use credit default swaps in an effort to manage overall credit quality or to protect the value of certain portfolio holdings. For the Emerging Markets Corporate Bond Fund, any forward currency exchange contracts would typically be used to settle trades in a foreign currency, although they could be used to help protect the funds holdings from unfavorable changes in currency exchange rates. To the extent a fund invests in futures, swaps, or credit default swaps, it could be exposed to additional volatility and the risk that anticipated changes in interest rates or the creditworthiness of an issuer, or the likelihood of a particular credit event, will not be accurately predicted. From time to time, the funds may use other derivatives that are consistent with their investment program.
A derivative involves risks different from, and possibly greater than, the risks associated with investing directly in the assets on which the derivative is based. Derivatives can be highly volatile, illiquid, and difficult to value, and changes in the value of a derivative may not properly correlate with changes in the value of the underlying asset, reference rate, or index. A fund could be exposed to significant losses if it is unable to close a derivatives position due to the lack of a liquid
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secondary trading market. Derivatives involve the risk that a counterparty to the derivatives agreement will fail to make required payments or comply with the terms of the agreement. There is also the possibility that limitations or trading restrictions may be imposed by an exchange or government regulation, which could adversely impact the value and liquidity of a derivatives contract subject to such regulation.
Recent legislation calls for a new regulatory framework for the derivatives markets. The full extent and impact of new regulations are not certain at this time. New regulations have made the use of derivatives by funds more costly, may limit the availability of certain types of derivatives, and may otherwise adversely affect the value or performance of derivatives used by funds.
The Statement of Additional Information contains more detailed information about each fund and its investments, operations, and expenses.
This section takes a detailed look at some of the types of fund securities and the various kinds of investment practices that may be used in day-to-day portfolio management. Fund investments are subject to further restrictions and risks described in the Statement of Additional Information.
Shareholder approval is required to substantively change fund objectives. Shareholder approval is also required to change certain investment restrictions noted in the following section as fundamental policies. Portfolio managers also follow certain operating policies that can be changed without shareholder approval. Shareholders will receive at least 60 days prior notice of a change in a funds policy requiring it to normally invest at least 80% of net assets in 1) bonds of issuers in emerging markets countries (Emerging Markets Bond); 2) corporate bonds of issuers in emerging market countries (Emerging Markets Corporate Bond); 3) bonds denominated in emerging markets currencies (Emerging Markets Local Currency Bond); and 4) foreign bonds (International Bond).
Fund holdings of certain kinds of investments cannot exceed maximum percentages of total assets, which are set forth in this prospectus. For instance, fund investments in certain derivatives are limited to 10% of total assets. While these restrictions provide a useful level of detail about fund investments, investors should not view them as an accurate gauge of the potential risk of such investments. For example, in a given period, a 5% investment in derivatives could have significantly more of an impact on a funds share price than its weighting in the portfolio. The net effect of a particular investment depends on its volatility and the size of its overall return in relation to the performance of all other fund investments.
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Certain investment restrictions, such as a required minimum or maximum investment in a particular type of security, are measured at the time a fund purchases a security. The status, market value, maturity, credit quality, or other characteristics of a funds securities may change after they are purchased, and this may cause the amount of a funds assets invested in such securities to exceed the stated maximum restriction or fall below the stated minimum restriction. If any of these changes occur, it would not be considered a violation of the investment restriction and will not require the sale of an investment if it was proper at the time it was made (this exception does not apply to a funds borrowing policy). However, purchases by a fund during the time it is above or below the stated percentage restriction would be made in compliance with applicable restrictions.
For purposes of determining whether a particular country is considered a developed market or an emerging market, the funds consider a country to be an emerging market if it is either included in a JP Morgan emerging market bond index or not included in the International Monetary Funds listing of advanced economies. For purposes of determining whether a fund invests at least 80% of its net assets in a particular type of security, the funds use the country assigned to a security by Bloomberg or another unaffiliated third-party data provider.
Changes in fund holdings, fund performance, and the contribution of various investments to fund performance are discussed in the shareholder reports.
Portfolio managers have considerable discretion in choosing investment strategies and selecting securities they believe will help achieve fund objectives.
Types of Portfolio Securities
In seeking to meet their investment objectives, fund investments may be made in any type of security or instrument (including certain potentially high-risk derivatives described in this section) whose investment characteristics are consistent with their investment programs. The following pages describe various types of fund holdings and investment management practices.
Diversification As a fundamental policy, the Emerging Markets Corporate Bond Fund will not purchase a security if, as a result, with respect to 75% of its total assets, more than 5% of the funds total assets would be invested in securities of a single issuer or more than 10% of the outstanding voting securities of the issuer would be held by the fund. These limitations do not apply to the funds purchase of securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities.
Nondiversified StatusEmerging Markets Bond, Emerging Markets Local Currency Bond, and International Bond Funds
Each fund is registered as a nondiversified mutual fund. Therefore, each fund is able to invest more than 5% of its assets in the securities of individual foreign governments and may invest a greater portion of its assets in a single issuer than a diversified fund. Since each fund is a nondiversified investment company and is
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permitted to invest a greater proportion of its assets in the securities of a smaller number of issuers, the funds may be subject to greater credit risk with respect to their portfolio securities and greater volatility with respect to their share prices than an investment company that is more broadly diversified.
However, each fund intends to qualify as a regulated investment company for purposes of the Internal Revenue Code. This requires each fund to limit its investments so that, at the end of each fiscal quarter, with respect to 50% of its total assets, no more than 5% of its assets is invested in the securities of a single issuer, and not more than 10% of the voting securities of any issuer are held by each fund. With respect to the remaining 50% of fund assets, no more than 25% may be invested in a single issuer.
Debt Securities
The funds investments may be in fixed-rate and floating rate debt securities and may include, but shall not be limited to: (1) debt obligations issued or guaranteed by: (a) a foreign sovereign government or one of its agencies, authorities, instrumentalities, or political subdivisions, including a foreign state, province, or municipality, and (b) supranational organizations such as the World Bank, Asian Development Bank, European Investment Bank, and European Economic Community; (2) debt obligations: (a) of foreign banks and bank holding companies, and (b) of domestic banks and corporations issued in non-U.S. dollar denominations; and (3) foreign corporate debt securities, asset-backed securities, and commercial paper. Such securities may take a variety of forms including those issued in the local currency of the issuer, U.S. dollar-denominated bonds, Eurobonds, and Euro-denominated bonds. Normally, the Emerging Markets Corporate Bond Fund will invest substantially all of its assets in bonds issued by emerging markets corporations, the Emerging Markets Local Currency Bond Fund will invest substantially all of its assets in bonds denominated in the local currency of the issuer, and the International Bond Fund will only purchase non-U.S. dollardenominated bonds (other than Brady and other emerging market bonds). The funds may from time to time purchase securities on a when-issued basis, invest in repurchase agreements, and purchase bonds convertible into equities.
The Emerging Markets Bond Fund and International Bond Fund generally will not invest more than 5% of its assets in any individual corporate issuer, provided that (1) a fund may place assets in bank deposits or other short-term bank instruments with a maturity of up to 30 days provided that (a) the bank has a short-term credit rating of A1+ (or, if unrated, the equivalent as determined by T. Rowe Price or T. Rowe Price International) and (b) a fund will not maintain more than 10% of its total assets with any single bank; and (2) a fund may maintain more than 5% of its total assets, including cash and currencies, in custodial accounts or deposits of the funds custodian or sub-custodians.
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The Emerging Markets Bond Fund may also invest in: such dollar-denominated fixed-income securities as (1) debt obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities; (2) domestic corporate debt securities; (3) domestic commercial paper, including commercial paper indexed to certain specific foreign currency exchange rates; (4) debt obligations of domestic banks and bank holding companies; and (5) collateralized mortgage obligations or asset-backed bonds.
Concentration of Investments (Emerging Markets Bond Fund and Emerging Markets Local Currency Bond Fund) From time to time, each fund may invest more than 25% of its total assets in the securities of foreign governmental and corporate entities located in the same country. However, the fund will not invest more than 25% of its total assets in the securities of any single foreign governmental issuer or in two or more such issuers subject to a common, explicit guarantee.
Brady Bonds Brady bonds, named after former U.S. Secretary of the Treasury Nicholas Brady, are used as a means of restructuring the external debt burden of a government in certain emerging markets. A Brady bond is created when an outstanding commercial bank loan to a government or private entity is exchanged for a new bond in connection with a debt restructuring plan. Brady bonds may be collateralized or uncollateralized and issued in various currencies (although typically in the U.S. dollar). They are often fully collateralized as to principal in U.S. Treasury zero coupon bonds. However, even with this collateralization feature, Brady bonds are often considered speculative, below investment-grade investments because the timely payment of interest is the responsibility of the issuing party (for example, a Latin American country) and the value of the bonds can fluctuate significantly based on the issuers ability or perceived ability to make these payments. Finally, some Brady bonds may be structured with floating rate or low fixed-rate coupons.
Below Investment-Grade Bonds The price and yield of lower-quality (high yield, high-risk) bonds, commonly referred to as junk bonds and below investment-grade emerging market bonds, can be expected to fluctuate more than the price and yield of higher-quality bonds. Investment-grade bonds are those rated from the highest quality (AAA or equivalent) to medium quality (BBB or equivalent), and below investment-grade bonds are those rated BB (or equivalent) and lower. Below investment-grade bonds are considered speculative with respect to the issuers continuing ability to meet principal and interest payments since their issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers. Even BBB rated bonds may have speculative elements as well. The values of below investment-grade bonds often fluctuate more in response to political, regulatory, or economic developments than higher quality bonds. Successful investment in lower-medium- and low-quality bonds involves greater investment risk and is highly dependent on careful credit analysis.
Operating policies The International Bond Fund may invest up to 20% of total assets in below investment-grade (junk) bonds. For the Emerging Markets Bond Fund,
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Emerging Markets Corporate Bond, and Emerging Markets Local Currency Bond Fund, there is no limit on the funds investments in securities that are rated below investment grade.
While each fund intends to invest primarily in debt securities, it may invest in convertible bonds or equity securities. While some countries or companies may be regarded as favorable investments, pure bond opportunities may be unattractive or limited due to insufficient supply, or legal or technical restrictions. In such cases, the fund may consider equity securities or convertible bonds to gain exposure to such markets.
Preferred Stocks
Stocks represent shares of ownership in a company. Generally, preferred stock has a specified dividend and ranks after bonds and before common stocks in its claim on income for dividend payments and on assets should the company be liquidated. After other claims are satisfied, common stockholders participate in company profits on a pro-rata basis; profits may be paid out in dividends or reinvested in the company to help it grow. Increases and decreases in earnings are usually reflected in a companys stock price, so common stocks generally have the greatest appreciation and depreciation potential of all corporate securities. Unlike common stock, preferred stock does not ordinarily carry voting rights. While most preferred stocks pay a dividend, a fund may decide to purchase preferred stock where the issuer has omitted, or is in danger of omitting, payment of its dividend.
Convertible Securities and Warrants
Investments may be made in debt or preferred equity securities that are convertible into, or exchangeable for, equity securities at specified times in the future and according to a certain exchange ratio. Convertible bonds are typically callable by the issuer, which could in effect force conversion before the holder would otherwise choose. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than nonconvertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree than common stock. Some convertible securities combine higher or lower current income with options and other features. Warrants are options to buy, directly from the issuer, a stated number of shares of common stock at a specified price anytime during the life of the warrants (generally, two or more years). Warrants can be highly volatile, have no voting rights, and pay no dividends.
Operating policies The Emerging Markets Corporate Bond Fund and International Bond Fund may invest up to 5% of total assets, and the Emerging Markets Bond Fund and Emerging Markets Local Currency Bond Fund may invest up to 10% of total assets, in preferred stocks and securities that are convertible into, or which carry warrants for common stocks or other equity securities. Under normal conditions, the funds do not expect to directly purchase common stocks. Any shares of common
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stock that are received through a reorganization, restructuring, exercise, exchange, conversion, or similar action will be sold within a reasonable timeframe taking into consideration market conditions and any legal restrictions.
Loan Participations and Assignments
Large loans to corporations or governments, including governments of less developed countries, may be shared or syndicated among several lenders, usually banks. Each fund could participate in such syndicates, or could buy part of a loan, becoming a direct lender. Each fund may acquire loans as an assignment from another lender that holds a direct interest in the loan or as a participation interest in another lenders portion of the loan. Participations and assignments involve special types of risk, including limited marketability and the risks of being considered a lender. If a fund purchases a participation, it may only be able to enforce its rights through the lender, and it may assume the credit risk of the lender in addition to the borrower. With assignments, the funds rights against the borrower may be more limited than those held by the original lender. The funds may also make investments in a company through the purchase or execution of a privately negotiated note representing the equivalent of a loan.
Operating policies The Emerging Markets Bond Fund and Emerging Markets Local Currency Bond Fund may not invest more than 20% of total assets, and the Emerging Markets Corporate Bond Fund and International Bond Fund may not invest more than 5% of total assets, in loan participations and assignments.
Derivatives and Leverage
A derivative is a financial instrument whose value is derived from an underlying security such as a stock or bond or from a market benchmark, such as an interest rate index. Many types of investments representing a wide range of risks and potential rewards may be considered derivatives, including conventional instruments such as futures and options, as well as other potentially more complex investments such as swaps and structured notes. The use of derivatives can involve leverage. Leverage has the effect of magnifying returns, positively or negatively. The effect on returns will depend on the extent to which an investment is leveraged. For example, an investment of $1, leveraged at 2 to 1, would have the effect of an investment of $2. Leverage ratios can be higher or lower with a corresponding effect on returns. The funds may use derivatives in certain situations to help accomplish any or all of the following: to hedge against a decline in principal value, to increase yield, to manage exposure to changes in interest or currency exchange rates, to invest in eligible asset classes with greater efficiency and at a lower cost than is possible through direct investment, or to adjust portfolio duration or credit risk exposure.
Operating policy The Emerging Markets Local Currency Bond Funds overall net short positions in bond markets will not exceed 10% of the funds net assets.
Derivatives that may be used include the following as well as others that combine the risk characteristics and features of futures, options, and swaps:
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Futures and Options Futures, a type of potentially high-risk derivative, are often used to manage or hedge risk because they enable the investor to buy or sell an asset in the future at an agreed-upon price. Options, another type of potentially high-risk derivative, give the investor the right (when the investor purchases the option), or the obligation (when the investor writes or sells the option), to buy or sell an asset at a predetermined price in the future. Futures and options contracts may be bought or sold for any number of reasons, including to manage exposure to changes in interest rates, bond prices, foreign currencies, and credit quality; as an efficient means of increasing or decreasing a funds exposure to certain markets; in an effort to enhance income; to protect the value of portfolio securities; and to serve as a cash management tool. Call or put options may be purchased or sold on securities, futures, financial indexes, and foreign currencies.
Futures contracts and options may not always be successful hedges; their prices can be highly volatile; using them could lower a funds total return; and the potential loss from the use of futures can exceed a funds initial investment in such contracts.
Operating policies Initial margin deposits on futures and premiums on options used for non-hedging purposes will not exceed 5% of a funds net asset value. The total market value of securities covering call or put options may not exceed 25% of total assets. No more than 5% of total assets will be committed to premiums when purchasing call or put options.
Swaps Fund investments may be made in interest rate, index, total return, credit default, and other types of swap agreements, as well as options on swaps, commonly referred to as swaptions, and interest rate swap futures, which are instruments that provide a way to gain swap exposure and the benefits of futures in one contract. All of these agreements are considered derivatives and, in certain cases, high-risk derivatives. Interest rate, index, and total return swaps are two-party contracts under which a fund and a counterparty, such as a broker or dealer, agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or indexes. Credit default swaps are agreements where one party (the protection buyer) will make periodic payments to another party (the protection seller) in exchange for protection against specified credit events, such as defaults and bankruptcies related to an issuer or underlying credit instrument. Swap futures are futures contracts on interest rate swaps that enable purchasers to cash settle at a future date at the price determined by a specific benchmark rate at the end of a fixed period. Swaps, swaptions, and swap futures can be used for a variety of purposes, including to manage a funds overall exposure to changes in interest or foreign currency exchange rates and credit quality; as an efficient means of adjusting a funds exposure to certain markets; in an effort to enhance income or total return or protect the value of portfolio securities; to serve as a cash management tool; and to adjust portfolio duration or credit risk exposure.
There are risks in the use of swaps and related instruments. Swaps could result in losses if interest or foreign currency exchange rates or credit quality changes are not
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correctly anticipated by a fund. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. Credit default swaps can increase a funds exposure to credit risk and could result in losses if evaluation of the creditworthiness of the counterparty, or of the company or government on which the credit default swap is based, is incorrect. The use of swaps, swaptions, and swap futures may not always be successful. Using them could lower a funds total return, their prices can be highly volatile, and the potential loss from the use of swaps can exceed a funds initial investment in such instruments. Also, the other party to a swap agreement could default on its obligations or refuse to cash out a funds investment at a reasonable price, which could turn an expected gain into a loss. Although there should not be any counterparty risk associated with investments in interest rate swap futures, a fund could experience delays and/or losses associated with the bankruptcy of a broker through which the fund engaged in the transaction.
Operating policies A swap agreement with any single counterparty will not be entered into if the net amount owed or to be received under existing contracts with that party would exceed 5% of total assets or if the net amount owed or to be received by a fund under all outstanding swap agreements will exceed 10% of total assets. For swaptions, the total market value of securities covering call or put options may not exceed 25% of total assets. No more than 5% of total assets will be committed to premiums when purchasing call or put swaptions.
Hybrid Instruments These instruments (a type of potentially high-risk derivative) can combine the characteristics of securities, futures, and options. For example, the principal amount or interest rate of a hybrid could be tied (positively or negatively) to the price of some commodity, currency, security, or securities index or another interest rate (each a benchmark). Hybrids can be used as an efficient means of pursuing a variety of investment goals, including currency hedging, and increased total return. Hybrids may or may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark. These benchmarks may be sensitive to economic and political events, such as commodity shortages and currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes the fund to the credit risk of the issuer of the hybrid. These risks may cause significant fluctuations in the net asset value of the fund.
Hybrids can have volatile prices and limited liquidity, and their use may not be successful.
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Operating policy Fund investments in hybrid instruments are limited to 10% of total assets.
Currency Derivatives Each fund may engage in foreign currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market at the time or through forward currency exchange contracts, which are contracts between two counterparties to exchange one currency for another on a future date at a specified exchange rate. In addition to foreign currency forwards, futures, swaps, and options on foreign currencies may also be used to protect a funds foreign securities from adverse currency movements relative to the U.S. dollar, as well as to gain exposure to currencies and markets expected to increase or decrease in value relative to other currencies or securities.
Each fund may attempt to hedge its exposure to potentially unfavorable currency changes. Forward currency contracts will be used primarily to adjust the foreign exchange exposure of the fund with a view to protecting the portfolio from adverse currency movements, based on T. Rowe Prices outlook. However, forward currency contracts can also be used in an effort to benefit from a currency believed to be appreciating in value versus other currencies. The funds may invest in foreign currencies directly without holding any foreign securities denominated in those currencies.
Forward currency contracts involve special risks, including, but not limited to, the potential for significant volatility in currency markets, and the risk that in certain markets, particularly emerging markets, it is not possible to engage in effective foreign currency hedging. In addition, such transactions involve the risk that currency movements will not occur as anticipated by T. Rowe Price, which could reduce a funds total return. The funds might enter into foreign currency transactions under the following circumstances:
Lock In When the fund desires to lock in the U.S. dollar price on the purchase or sale of a security denominated in a foreign currency.
Cross Hedge If a particular currency is expected to decrease in value relative to another currency, the fund may sell the currency expected to decrease and purchase a currency that is expected to increase against the currency sold. The funds cross hedging transactions may involve currencies in which the funds holdings are denominated. However, the fund is not required to own securities in the particular currency being purchased or sold.
Operating policy The International Bond Fund does not normally commit more than 50% of its assets to cross-hedging.
Direct Hedge If the fund seeks to eliminate substantially all of the risk of owning a particular currency or believes the portfolio could benefit from price appreciation in a given countrys bonds but did not want to hold the currency, it could employ a direct hedge back into the U.S. dollar. In either case, a fund would enter into a forward
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contract to sell the currency in which a portfolio security is denominated and purchase U.S. dollars at an exchange rate established at the time it initiated the contract. The cost of the direct hedge transaction may offset most, if not all, of the yield advantage offered by the foreign security, but the fund would hope to benefit from an increase (if any) in the value of the bond.
Proxy Hedge In certain circumstances, a different currency may be substituted for the currency in which the investment is denominated, as part of a strategy known as proxy hedging. In this case, the fund, having purchased a security, will sell a currency whose value is believed to be closely linked to the currency in which the security is denominated. This type of hedging entails greater risk than a direct hedge because it is dependent on a stable relationship between the two currencies paired as proxies, and that relationship may not always be maintained. The fund may also use these instruments to create a synthetic bond, which is issued in one currency with the currency component transformed into another currency.
Generally, the Emerging Markets Local Currency Bond Fund and International Bond Fund seek to maintain little net exposure to the U.S. dollar. Thus, any U.S. dollar investments, including any hedges into the U.S. dollar, will normally be offset by hedges out of the U.S. dollar.
Operating policy The Emerging Markets Local Currency Bond Funds overall net short positions in currencies will not exceed 10% of the funds net assets.
Costs of Hedging When the fund purchases a foreign bond with a higher interest rate than is available on U.S. bonds of a similar maturity, the additional yield on the foreign bond could be substantially lessened if the fund were to enter into a direct hedge by selling the foreign currency and purchasing the U.S. dollar. This is what is known as the cost of hedging. A proxy hedge, which is less costly than a direct hedge, may attempt to reduce this cost through an indirect hedge back to the U.S. dollar.
It is important to note that hedging costs are treated as capital transactions and are not, therefore, deducted from a funds dividend distribution and are not reflected in its yield. Instead, such costs will, over time, be reflected in a funds net asset value per share and total return. Hedging may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in an increase (or decrease) in the amount of taxable dividends paid by the funds and could affect whether dividends paid by the funds are classified as capital gains or ordinary income.
Investments in Other Investment Companies
A fund may invest in other investment companies, including open-end funds, closed-end funds, and exchange-traded funds.
A fund may purchase the securities of another investment company to temporarily gain exposure to a portion of the market while awaiting purchase of securities or as
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an efficient means of gaining exposure to a particular asset class. The fund might also purchase shares of another investment company to gain exposure to the securities in the investment companys portfolio at times when the fund may not be able to buy those securities directly. Any investment in another investment company would be consistent with the funds objective and investment program.
The risks of owning another investment company are generally similar to the risks of investing directly in the securities in which that investment company invests. However, an investment company may not achieve its investment objective or execute its investment strategy effectively, which may adversely affect the funds performance. In addition, because closed-end funds and exchange-traded funds trade on a secondary market, their shares may trade at a premium or discount to the actual net asset value of their portfolio securities and their shares may have greater volatility because of the potential lack of liquidity.
As a shareholder of an investment company not sponsored by T. Rowe Price, the fund must pay its pro-rata share of that investment companys fees and expenses. The funds investments in non-T. Rowe Price investment companies are subject to the limits that apply to investments in other funds under the Investment Company Act of 1940 or under any applicable exemptive order.
A fund may also invest in certain other T. Rowe Price funds as a means of gaining efficient and cost-effective exposure to certain asset classes, provided the investment is consistent with the funds investment program and policies. Such an investment could allow the fund to obtain the benefits of a more diversified portfolio than might otherwise be available through direct investments in the asset class, and will subject the fund to the risks associated with the particular asset class. Examples of asset classes in which other T. Rowe Price mutual funds concentrate their investments include high yield bonds, floating rate loans, international bonds, emerging market bonds, and emerging market stocks. If the fund invests in another T. Rowe Price fund, the management fee paid by the fund will be reduced to ensure that the fund does not incur duplicate management fees as a result of its investment.
Illiquid Securities
Some fund holdings may be considered illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold in the ordinary course of business within seven days at approximately the prices at which they are valued. The determination of liquidity involves a variety of factors. Illiquid securities may include private placements that are sold directly to a small number of investors, usually institutions. Unlike public offerings, such securities are not registered with the SEC. Although certain of these securities may be readily sold, for example under Rule 144A of the Securities Act of 1933, others may have resale restrictions and can be illiquid. The sale of illiquid securities may involve substantial delays and additional costs, and a fund may only be able to sell such securities at prices substantially less than what it believes they are worth.
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Operating policy Fund investments in illiquid securities are limited to 15% of net assets.
Types of Investment Management Practices
Reserve Position
A certain portion of fund assets will be held in reserves. Fund reserve positions can consist of: 1) shares of a T. Rowe Price internal money fund or short-term bond fund; 2) short-term, high-quality U.S. and foreign dollar-denominated money market securities, including repurchase agreements; and 3) U.S. dollar or non-U.S. dollar currencies. For temporary, defensive purposes, there is no limit on a funds holdings in reserves. If a fund has significant holdings in reserves, it could compromise the funds ability to achieve its objectives. The reserve position provides flexibility in meeting redemptions, paying expenses and managing cash flows into a fund, and can serve as a short-term defense during periods of unusual market volatility. Non-U.S. dollar reserves are subject to currency risk.
When-Issued Securities and Forwards
A fund may purchase securities on a when-issued or delayed delivery basis or may purchase or sell securities on a forward commitment basis. The price of these securities is fixed at the time of the commitment to buy, but delivery and payment take place after the customary settlement period for that type of security (often a month or more later). During the interim period, the price and yield of the securities can fluctuate, and typically no interest accrues to the purchaser. At the time of delivery, the market value of the securities may be more or less than the purchase or sale price. To the extent the fund remains fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time it purchases these securities, there will be greater fluctuations in the funds net asset value than if the fund did not purchase them.
Borrowing Money and Transferring Assets
A fund may borrow from banks, other persons, and other T. Rowe Price funds for temporary emergency purposes to facilitate redemption requests, or for other purposes consistent with fund policies as set forth in this prospectus. Such borrowings may be collateralized with fund assets, subject to restrictions.
Fundamental policy Borrowings may not exceed 331/3% of total assets.
Operating policy A fund will not transfer portfolio securities as collateral except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 331/3% of total assets. A fund will not purchase additional securities when borrowings exceed 5% of total assets.
Lending of Portfolio Securities
A fund may lend its securities to broker-dealers, other institutions, or other persons to earn additional income. Risks include the potential insolvency of the broker-dealer or other borrower that could result in delays in recovering securities and capital
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losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform as well as expected.
Fundamental policy The value of loaned securities may not exceed 331/3% of total assets.
Credit Quality Considerations
The credit quality of many fund holdings is evaluated by rating agencies such as Moodys Investors Service, Inc. (Moodys), Standard & Poors Corporation (S&P), and Fitch Ratings (Fitch) on the basis of the issuers ability to meet all required interest and principal payments. The highest ratings are assigned to issuers perceived to have the lowest credit risks. T. Rowe Price research analysts also evaluate fund holdings, including those rated by outside agencies. Other things being equal, lower-rated bonds and other debt obligations have higher yields due to greater credit risk. High-yield bonds, also called junk bonds, are those rated below BBB.
Credit quality ratings are not guarantees. They are estimates of an issuers financial strength and ability to make interest and principal payments as they come due. Ratings can change at any time due to real or perceived changes in an issuers credit or financial fundamentals.
The following table shows the rating scale used by the major rating agencies. T. Rowe Price considers publicly available ratings but emphasizes its own credit analysis when selecting investments.
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Ratings of Corporate Debt Securities
Moodys | S & P | Fitch | Definition | |||||||
Long Term | Aaa | AAA | AAA | Highest quality | ||||||
Aa | AA | AA | High quality | |||||||
A | A | A | Upper-medium grade | |||||||
Baa | BBB | BBB | Medium grade | |||||||
Ba | BB | BB | Speculative | |||||||
B | B | B | Highly speculative | |||||||
Caa | CCC | CCC | Vulnerable to default | |||||||
Ca | CC | CC | Default is imminent | |||||||
C | C | C | Probably in default | |||||||
Moodys | S&P | Fitch | ||||||||
Commercial Paper | P-1 | Superior quality | A-1+ A-1 | Extremely strong quality Strong quality | F-1+ F-1 | Exceptionally strong quality Very strong quality | ||||
P-2 | Strong quality | A-2 | Satisfactory quality | F-2 | Good credit quality | |||||
P-3 | Acceptable quality | A-3 B C | Adequate quality Speculative quality Doubtful quality | F-3 | Fair credit quality |
Portfolio Turnover
Turnover is an indication of frequency of trading. A fund will not generally trade in securities for short-term profits, but when circumstances warrant, securities may be purchased and sold without regard to the length of time held. Each time a fund purchases or sells a security, it incurs a cost. This cost is reflected in its net asset value but not in its operating expenses. The higher the turnover rate, the higher the transaction costs and the greater the impact on a funds total return. Higher turnover can also increase the possibility of taxable capital gain distributions. The funds portfolio turnover rates are shown in the Financial Highlights table.
Each T. Rowe Price funds portfolio holdings are disclosed on a regular basis in its semiannual and annual shareholder reports, and on Form N-Q, which is filed with the SEC within 60 days of the funds first and third fiscal quarter-end. The money funds also file detailed month-end portfolio holdings information with the SEC each month. Such information will be made available to the public 60 days after the end of the month to which the information pertains. In addition, the funds disclose their calendar quarter-end portfolio holdings on troweprice.com 15 calendar days after each quarter. Under certain conditions, up to 5% of a funds holdings may be
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included in this portfolio list without being individually identified. Generally, securities would not be individually identified if they are being actively bought or sold and it is determined that the quarter-end disclosure of the holding could be harmful to the fund. A security will not be excluded for these purposes from a funds quarter-end holdings disclosure for more than one year. Money funds also disclose their month-end portfolio holdings on troweprice.com five business days after each month. The quarter-end portfolio holdings will remain on the website for one year and the month-end money fund portfolio holdings will remain on the website for six months. Each fund also discloses its 10 largest holdings on troweprice.com on the seventh business day after each month-end. These holdings are listed in alphabetical order along with the aggregate percentage of the funds total assets that these 10 holdings represent. Each monthly top 10 list will remain on the website for six months. A description of T. Rowe Prices policies and procedures with respect to the disclosure of portfolio information is in the Statement of Additional Information.
The Financial Highlights table, which provides information about each funds financial history, is based on a single share outstanding throughout the periods shown. Each funds section of the table is part of the funds financial statements, which are included in its annual report and are incorporated by reference into the Statement of Additional Information (available upon request). The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions and no payment of any applicable account or redemption fees). The financial statements in the annual reports were audited by the funds independent registered public accounting firm, PricewaterhouseCoopers LLP.
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Financial Highlights
Year ended December 31 | ||||||||||
Emerging Markets Bond Fund | 2008 | 2009 | 2010 | 2011 | 2012 | |||||
Net asset value, | $13.46 | $10.11 | $12.54 | $13.28 | $12.74 | |||||
Income From Investment Operations | ||||||||||
Net investment income* | 1.02 | 0.93 | 0.88 | 0.88 | 0.79 | |||||
Net gains or losses on | (3.26 | ) | 2.46 | 0.74 | (0.43 | ) | 1.65 | |||
Total from
investment | (2.24 | ) | 3.39 | 1.62 | 0.45 | 2.44 | ||||
Less Distributions | ||||||||||
Dividends (from net | (1.04 | ) | (0.67 | ) | (0.86 | ) | (0.89 | ) | (0.77 | ) |
Distributions (from | (0.07 | ) | | (0.02 | ) | (0.10 | ) | (0.19 | ) | |
Returns of capital | | (0.29 | ) | | | | ||||
Total distributions | (1.11 | ) | (0.96 | ) | (0.88 | ) | (0.99 | ) | (0.96 | ) |
Net asset
value, | $10.11 | $12.54 | $13.28 | $12.74 | $14.22 | |||||
Total return | (17.71 | )% | 34.93 | % | 13.29 | % | 3.47 | % | 19.62 | % |
Ratios/Supplemental Data | ||||||||||
Net assets,
end of period | $544 | $1,833 | $2,658 | $3,087 | $4,024 | |||||
Ratio of
expenses to | 0.98 | % | 0.97 | % | 0.95 | % | 0.94 | % | 0.94 | % |
Ratio of net income to | 8.33 | % | 7.95 | % | 6.73 | % | 6.72 | % | 5.83 | % |
Portfolio turnover rate | 57.1 | % | 37.0 | % | 35.3 | % | 50.1 | % | 40.7 | % |
* Per share amounts calculated using average shares outstanding method.
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Financial Highlights
5/24/12* | ||||||
Emerging Markets Corporate Bond Fund | ||||||
Net asset value, | $10.00 | |||||
Income From Investment Operations | ||||||
Net investment incomea | 0.28 | b | ||||
Net gains or losses on securities (both realized and unrealized) | 0.93 | |||||
Total from investment operations | 1.21 | |||||
Less Distributions | ||||||
Dividends (from net | (0.28 | ) | ||||
Distributions (from | (0.02 | ) | ||||
Total distributions | (0.30 | ) | ||||
Net asset value, | $10.91 | |||||
Total return | 12.20 | %b | ||||
Ratios/Supplemental Data | ||||||
Net assets, end of period | $34,726 | |||||
Ratio of
expenses to | 1.15 | %b,c | ||||
Ratio of net income to average net assets | 4.37 | %b,c | ||||
Portfolio turnover rate | 26.5 | % |
* Inception date.
a Per share amounts calculated using average shares outstanding method.
b Excludes expenses in excess of a 1.15% contractual expense limitation in effect through April 30, 2015.
c Annualized.
More About the Funds | 69 |
Financial Highlights
5/26/11* | Year ended December 31 | |||
Emerging Markets Local Currency Bond Fund | 2012 | |||
Net asset
value, | $10.00 | $8.89 | ||
Income From Investment Operations | ||||
Net investment incomea | 0.30 | b | 0.49 | b |
Net gains
or losses on | (1.12 | ) | 1.05 | |
Total from
investment | (0.82 | ) | 1.54 | |
Less Distributions | ||||
Dividends (from net | (0.15 | ) | (0.30 | ) |
Distributions (from | | (0.01 | ) | |
Returns of capital | (0.14 | ) | (0.18 | ) |
Total distributions | (0.29 | ) | (0.49 | ) |
Net asset value, | $8.89 | $9.94 | ||
Total return | (8.36 | )%b | 17.69 | %b |
Ratios/Supplemental Data | ||||
Net assets, end of period | $40,498 | $58,0362 | ||
Ratio of
expenses to | 1.10 | %b,c | 1.10 | %b |
Ratio of net income to | 5.13 | %b,c | 5.17 | %b |
Portfolio turnover rate | 49.6 | % | 82.3 | % |
* Inception date.
a Per share amounts calculated using average shares outstanding method.
b Excludes expenses in excess of a 1.10% contractual expense limitation in effect through April 30, 2014.
c Annualized.
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Financial Highlights
Year ended December 31 | ||||||||||
International Bond Fund | 2008 | 2009 | 2010 | 2011 | 2012 | |||||
Net asset value, | $10.09 | $9.57 | $9.87 | $9.95 | $9.74 | |||||
Income From Investment Operations | ||||||||||
Net investment income* | 0.37 | 0.27 | 0.25 | 0.26 | 0.23 | |||||
Net gains or losses on | (0.19 | ) | 0.49 | 0.25 | | 0.36 | ||||
Total from investment | 0.18 | 0.76 | 0.50 | 0.26 | 0.59 | |||||
Less Distributions | ||||||||||
Dividends
(from net | (0.37 | ) | (0.27 | ) | (0.25 | ) | (0.26 | ) | (0.23 | ) |
Distributions (from | (0.33 | ) | (0.19 | ) | (0.17 | ) | (0.21 | ) | | |
Returns of capital | | | | | | |||||
Total distributions | (0.70 | ) | (0.46 | ) | (0.42 | ) | (0.47 | ) | (0.23 | ) |
Net asset
value, | $9.57 | $9.87 | $9.95 | $9.74 | $10.10 | |||||
Total return | 1.77 | % | 8.38 | % | 5.17 | % | 2.63 | % | 6.10 | % |
Ratios/Supplemental Data | ||||||||||
Net assets,
end of period | $2,142 | $3,423 | $4,402 | $4,776 | $4,972 | |||||
Ratio of
expenses to | 0.81 | % | 0.82 | % | 0.82 | % | 0.83 | % | 0.84 | % |
Ratio of net income to | 3.70 | % | 2.82 | % | 2.50 | % | 2.59 | % | 2.31 | % |
Portfolio turnover rate | 69.2 | % | 57.6 | % | 61.5 | % | 35.7 | % | 52.2 | % |
* Per share amounts calculated using average shares outstanding method.
Investing With T. Rowe Price | 4 | |
If you are purchasing fund shares through a third-party intermediary, contact the intermediary for information regarding its policies on purchasing, exchanging, and redeeming fund shares, as well as initial and subsequent investment minimums. |
Tax Identification | We must have your correct Social Security number or employer identification number on a signed New Account form or W-9 Form. Otherwise, federal law requires the funds to withhold a percentage of your dividends, capital gain distributions, and redemptions and may subject you to an Internal Revenue Service fine. If this information is not received within 60 days after your account is established, your account may be redeemed at the funds then-current net asset value. |
Transaction Confirmations | We send immediate confirmations for most of your fund transactions. However, certain transactions, such as systematic purchases, dividend reinvestments, checkwriting redemptions for money funds, and transactions in money funds used as a T. Rowe Price Brokerage sweep account, do not receive an immediate transaction confirmation but are reported on your account statement. Please review transaction confirmations and account statements as soon as you receive them and promptly report any discrepancies to Shareholder Services by calling 1-800-225-5132. | |
Employer-Sponsored T.
Rowe Price 1-800-492-7670 | Transaction procedures in the following sections may not apply to employer-sponsored retirement plans and institutional accounts. For procedures regarding employer-sponsored retirement plans, please call T. Rowe Price Trust Company or consult your plan administrator. For institutional account procedures, please call your designated account manager or service representative. |
T. Rowe Price | 72 |
We do not accept third-party checks for initial purchases; however, we do accept third-party checks for subsequent purchases. In addition, T. Rowe Price does not accept purchases by cash, travelers checks, or credit card checks. |
$2,500 minimum initial investment; $1,000 for retirement accounts and Uniform Gifts to Minors Act/Uniform Transfers to Minors Act accounts ($25,000 minimum initial investment for Summit Funds only) |
Important Information | Pursuant to federal law, all financial institutions must obtain, verify, and record information that identifies each person or entity that opens an account. This information is needed not only for the account owner and any other person who opens the account, but also for any person who has authority to act on behalf of the account. | |
When
you open an account, you will be asked for the name, residential street address, date of birth, and Social
Security number or employer identification number for each account owner and person(s) opening an account
on behalf of others, such as custodians, agents, trustees, or other authorized signers. Corporate and
other institutional accounts require documents showing the existence of the entity (such as articles
of incorporation or partnership agreements) to open an account. Certain other fiduciary accounts (such
as trusts or power of attorney arrangements) require documentation, which may include an original or
certified copy of the trust agreement or power of attorney to open an account. For more information,
call Investor Services at |
We will use this information to verify the identity of the person(s)/entity opening the account. We will not be able to open your account until we receive all of this information. If we are unable to verify your identity, we are authorized to take any action permitted by law. (See Rights Reserved by the Funds.) |
Investing With T. Rowe Price | 73 |
The funds are generally available only to investors residing in the United States. In addition, purchases in state tax-free funds are limited to investors living in states where the fund is available for sale. The address of record on your account must be located in one of these states, or you will be restricted from purchasing fund shares. Contact Investor Services for more information. |
Account Registration | If you own other T. Rowe Price funds, you should consider registering any new account identically to your existing accounts so you can exchange shares among them easily. (The name(s) of the account owner(s) and the account type must be identical.) | |
For joint accounts or other types of accounts owned or controlled by more than one party, either owner/party has complete authority to act on behalf of all and give instructions concerning the account without notice to the other party. T. Rowe Price may, in its sole discretion, require written authorization from all owners/parties to act on the account for certain transactions (for example, to transfer ownership). |
By Mail | Please make your check payable to T. Rowe Price Funds (otherwise it may be returned), and send your check, together with the New Account form, to the appropriate address below: via U.S. Postal Service via private carriers/overnight services Note: Please use the correct address to avoid a delay in opening your new account. |
By Wire | Visit us online at troweprice.com or call Investor Services for an account number and wire transfer instructions. | |
T. Rowe Price | 74 |
In order to obtain an account number, you must supply the name, date of birth, Social Security number or employer identification number, and residential or business street address for each owner on the account. | ||
Complete a New Account form and mail it to one of the appropriate T. Rowe Price addresses listed under By Mail. |
Note: Although the purchase will be made, services may not be established and Internal Revenue Service penalty withholding may occur until we receive a signed New Account form. |
Online | You can open a new mutual fund account online. Go to troweprice.com/newaccount to choose the type of account you wish to open. | |
To open an account electronically, you must be a U.S. citizen residing in the U.S. or a resident alien and not subject to Internal Revenue Service backup withholding. Additionally, you must provide consent to receive certain documents electronically. |
You will have the option of providing your bank account information that will enable you to make electronic funds transfers to and from your bank account. To set up this banking service online, additional steps will be taken to verify your identity. |
By Exchange
| Visit us online at troweprice.com (see Automated Services under Information About Your Services) or call Shareholder Services. The new account will have the same registration as the account from which you are exchanging. Services for the new account may be carried over by telephone request if they are preauthorized on the existing account. For limitations on exchanging, please see Transaction Procedures and Special RequirementsExcessive and Short-Term Trading. | |
In Person | Drop off your New Account form at any Investor Center location listed on the back cover and obtain a receipt. |
Investing With T. Rowe Price | 75 |
$100 minimum per fund account for all additional purchases, including those made through Automatic Asset Builder (all funds except Summit Funds); $100 minimum per fund account for additional purchases through Automatic Asset Builder and $1,000 for all other additional purchases (Summit Funds) |
By Automated | Visit us online at troweprice.com or call Shareholder Services if you have established electronic transfers using the Automated Clearing House system. |
By Wire | Go to troweprice.com or call Shareholder Services for wire transfer instructions. T. Rowe Price must receive the wire by the close of the New York Stock Exchange (normally 4 p.m. ET) to receive that days share price. There is no assurance that you will receive the share price for the same day you initiated the wire from your financial institution. |
By Mail | 1. Make your check payable to T. Rowe Price Funds (otherwise it may be returned). 2. Mail the check to us at the following address with either a fund reinvestment slip or a note indicating the fund you want to purchase and your fund account number. 3. Please use the correct address to avoid a delay in processing your transaction and remember to provide your account number and the fund name on the memo line of your check. | |
via U.S. Postal Service (To send mail directly to T. Rowe Price via private carriers and overnight services, see previous section.) |
Your transaction will receive the share price for the business day that the request is received by T. Rowe Price prior to the close of the New York Stock Exchange (normally 4 p.m. ET) (not the day the request is received at the P.O. box). |
By
Automatic | Fill out the Automatic Asset Builder section on the New Account form or Shareholder Services form. |
T. Rowe Price | 76 |
Exchange Service | You can move money from one account to an existing, identically registered account or open a new identically registered account. For taxable accounts, an exchange from one fund to another is considered a sale and purchase for tax purposes. (Exchanges into a state tax-free fund are limited to investors living in states where the fund is available.) For exchange policies, please see Transaction Procedures and Special RequirementsExcessive and Short-Term Trading Policy. | |
Redemptions | Redemption proceeds can be mailed to your account address, sent by Automated Clearing House transfer to your bank, or wired to your bank (provided your bank information is already on file). Redemption proceeds of less than $5,000 sent by wire are subject to a $5 fee paid to the fund. Please note that large purchase and redemption requests initiated through automated services, including the National Securities Clearing Corporation, may be rejected and, in such instances, the transaction must be placed by contacting a service representative. |
If you request to redeem a specific dollar amount, and the market value of your account is less than the amount of your request, your redemption will not be processed, and you will need to submit a new redemption request in proper form. If you change your address on an account, proceeds will not be mailed to the new address for 15 calendar days after the address change, unless we receive a signature guaranteed letter of instruction. |
Some of the T. Rowe Price funds may impose a redemption fee. Check the funds prospectus under Contingent Redemption Fee in Pricing Shares and Receiving Sale Proceeds. The fee is paid to the fund. |
For redemptions by check or electronic transfer, please see Information About Your Services. |
Investing With T. Rowe Price | 77 |
Online | Visit us online at troweprice.com. Customers with Account Access (our secure self-service Web platform for individual investors) can electronically exchange shares between identically registered T. Rowe Price accounts and electronically redeem shares from their mutual fund accounts. |
By Phone | You can call Shareholder Services at 1-800-225-5132 to place your transaction. If you find our phones busy during unusually volatile markets, please consider placing your order online through troweprice.com. | |
By Mail | For each account involved, provide the account name and number, fund name, and exchange or redemption amount. For exchanges, be sure to specify any fund you are exchanging out of and the fund or funds you are exchanging into. T. Rowe Price may require a signature guarantee of all registered owners (see Transaction Procedures and Special RequirementsSignature Guarantees). Please use one of the following addresses: |
For nonretirement and individual retirement
accounts: via private carriers/overnight
services For
employer-sponsored retirement accounts: via private carriers/overnight services |
T. Rowe Price | 78 |
For requests that are not sent via private carriers or overnight services, your transaction will receive the share price for the business day that the request is received by T. Rowe Price prior to the close of the New York Stock Exchange (normally 4 p.m. ET) (not the day the request is received at the P.O. box). |
Requests for redemptions from employer-sponsored retirement accounts may be required to be in writing; please call T. Rowe Price Trust Company or your plan administrator for instructions. Individual retirement account distributions may be requested in writing or by telephone; please call Shareholder Services to obtain an Individual Retirement Account Distribution form or an Individual Retirement Account Shareholder Services form to authorize the telephone redemption service. |
| T. Rowe Price funds and their agents, in their sole discretion, reserve the following rights: (1) to waive or lower investment minimums; (2) to accept initial purchases by telephone; (3) to refuse any purchase or exchange order; (4) to cancel or rescind any purchase or exchange order placed through an intermediary, no later than the business day after the order is received by the intermediary (including, but not limited to, orders deemed to result in excessive trading, market timing, or 5% ownership); (5) to cease offering fund shares at any time to all or certain groups of investors; (6) to freeze any account and suspend account services when notice has been received of a dispute regarding the ownership of the account or a legal claim against an account or if there is reason to believe a fraudulent transaction may occur; (7) to otherwise modify the conditions of purchase and modify or terminate any services at any time; (8) to waive any wire, small account, maintenance, or fiduciary fees charged to a group of shareholders; (9) to act on instructions reasonably believed to be genuine; (10) to involuntarily redeem an account at the net asset value calculated the day the account is |
Investing With T. Rowe Price | 79 |
|
| redeemed, in cases of threatening conduct, suspected fraudulent or illegal activity, or if the fund or its agent is unable, through its procedures, to verify the identity of the person(s) or entity opening an account; and (11) for money funds, to suspend redemptions and postpone the payment of proceeds to facilitate an orderly liquidation of the fund. |
Shareholder Services 1-800-225-5132 Investor Services 1-800-638-5660 | Many services are available to you as a shareholder; some you receive automatically, and others you must authorize or request on the New Account form. By signing up for services on the New Account form, you avoid having to complete a separate form at a later time and obtain a signature guarantee. This section discusses some of the services currently offered. |
Retirement Plans | We offer a wide range of plans for individuals, institutions, and large and small businesses: Traditional IRAs, Roth IRAs, SIMPLE IRAs, SEP-IRAs, 401(k)s, and 403(b)(7)s. For information on individual retirement accounts or our no-load variable annuity (for existing variable annuity contract holders), call Investor Services. For information on all other retirement plans, please call 1-800-492-7670. | |
Investing for College | We can help you save for future college expenses on a tax-advantaged basis. |
529
Plans |
T. Rowe Price | 80 |
Automated Services | Online Account Access |
Tele*AccessSM 1-800-638-2587 |
Plan Account Line 1-800-401-3279 |
By Telephone and | Purchase, redeem, or exchange shares by calling one of our service representatives or by visiting one of our Investor Center locations listed on the back cover. | |
Electronic Transfers | By Automated Clearing
House |
By Wire |
Checkwriting | (Not available for equity funds or the Emerging Markets Bond, Emerging Markets Corporate Bond, Emerging Markets Local Currency Bond, Floating Rate, High Yield, International Bond, or U.S. Bond Enhanced Index Funds.) You may write an unlimited number of free checks on any money fund and most bond funds, with a minimum of $500 per check. Keep in mind, however, that a check results in a redemption; a check written on a bond fund will create a taxable event that you and we must report to the Internal Revenue Service. | |
Investing With T. Rowe Price | 81 |
Automatic Investing | Automatic Asset Builder | |
Automatic Exchange |
To Open an Account 1-800-638-5660 For Existing 1-800-225-7720 | Investments available through our Brokerage service include stocks, options, bonds, and other securities at commission savings over full-service brokers.* We also provide a wide range of services, including: Automated Telephone and Computer Services | |
Investor Information |
Dividend Reinvestment
Service *Services vary by firm. T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services, Inc., Member FINRA/SIPC. |
T. Rowe Price | 82 |
To help you monitor your investments and make decisions that accurately reflect your financial goals, T. Rowe Price offers a wide variety of information in addition to account statements. Most of this information is also available on our website at troweprice.com. |
If your account has no activity in it for a certain period of time, T. Rowe Price may be required to transfer your account to the appropriate state under its abandoned property laws. |
A note on mailing procedures: If two or more members of a household own the same fund, we economize on fund expenses by sending only one fund report and prospectus. If you need additional copies or do not want your mailings to be householded, please call Shareholder Services at 1-800-225-5132 or write to us at P.O. Box 17630, Baltimore, MD 21297-1630. |
Shareholder Reports |
The T. Rowe Price Report |
Insights |
Investment Guides | ||
Investing With T. Rowe Price | 83 |
In the course of doing business with T. Rowe Price, you share personal and financial information with us. We treat this information as confidential and recognize the importance of protecting access to it.
You may provide information when communicating or transacting business with us in writing, electronically, or by phone. For instance, information may come from applications, requests for forms or literature, and your transactions and account positions with us. On occasion, such information may come from consumer reporting agencies and those providing services to us.
We do not sell information about current or former customers to any third parties, and we do not disclose it to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law. We may share information within the T. Rowe Price family of companies in the course of providing or offering products and services to best meet your investing needs. We may also share that information with companies that perform administrative or marketing services for T. Rowe Price, with a research firm we have hired, or with a business partner, such as a bank or insurance company with which we are developing or offering investment products. When we enter into such a relationship, our contracts restrict the companies use of our customer information, prohibiting them from sharing or using it for any purposes other than those for which they were hired.
We maintain physical, electronic, and procedural safeguards to protect your personal information. Within T. Rowe Price, access to such information is limited to those who need it to perform their jobs, such as servicing your accounts, resolving problems, or informing you of new products or services. Finally, our Code of Ethics, which applies to all employees, restricts the use of customer information and requires that it be held in strict confidence.
This Privacy Policy applies to the following T. Rowe Price family of companies: T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price Trust Company; and the T. Rowe Price Funds.
To help you achieve your financial goals, T. Rowe Price offers a wide range of stock, bond, and money market investments, as well as convenient services and informative reports.
For mutual fund or T. Rowe Price Brokerage information
Investor Services
1-800-638-5660
For existing accounts
Shareholder Services
1-800-225-5132
For the hearing impaired
1-800-367-0763
For performance, prices, or account information
Tele*AccessSM
24 hours, 7 days
1-800-638-2587
Internet address
troweprice.com
Plan Account Line
For retirement plan investors: The appropriate 800 number appears on your retirement account statement.
Investor Centers For directions,
call Baltimore Area Downtown 105 East
Lombard Owings Mills Three Financial Center Colorado Springs 2260 Briargate Parkway | Tampa 4211 W. Boy Scout Washington, D.C. Area Downtown 1000 Connecticut Tysons Corner 1600 Tysons Boulevard | A Statement of Additional Information for the T. Rowe Price family of funds, which includes additional information about the funds, has been filed with the SEC and is incorporated by reference into this prospectus. Further information about fund investments, including a review of market conditions and the managers recent investment strategies and their impact on performance during the past fiscal year, is available in the annual and semiannual shareholder reports. To obtain free copies of any of these documents, or for shareholder inquiries, call 1-800-638-5660. These documents and updated performance information are available through troweprice.com. Fund information and Statements of Additional Information are also available from the Public Reference Room of the SEC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. Fund reports and other fund information are available on the EDGAR Database on the SECs Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Public Reference Room, Washington, D.C. 20549-1520. |
T. Rowe Price Associates, Inc. |
1940 Act File No. 811-2958 | C02-040 5/1/13 |
PROSPECTUS | |
PACEX | |
May 1, 2013 | |
T. Rowe Price Emerging Markets Corporate Bond FundAdvisor Class | |
A fund seeking high current income and capital appreciation through investments in emerging markets corporate bonds. This class of shares is sold only through financial intermediaries. | |
The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. | |
Table of Contents
1 | Summary | Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the Federal Deposit Insurance Corporation, Federal Reserve, or any other government agency, and are subject to investment risks, including possible loss of the principal amount invested. | |
Emerging Markets Corporate Bond FundAdvisor Class 1 | |||
2 | Information About Accounts | ||
Pricing Shares and Receiving Sale Proceeds 5 Useful Information on Distributions and Taxes 9 Transaction Procedures and Special Requirements 13 Distribution, Shareholder Servicing, and Recordkeeping Fees 17 | |||
3 | More About the Fund | ||
Organization and Management 18 More Information About the Fund and Its Investment Risks 20 Investment Policies and Practices 25 Disclosure of Fund Portfolio Information 36 Financial Highlights 36 | |||
4 | Investing With T. Rowe Price | ||
Account Requirements and Transaction Information 38 Purchasing Additional Shares 40 Exchanging and Redeeming Shares 40 Rights Reserved by the Funds 41 T. Rowe Price Privacy Policy 42 |
SUMMARY
The fund seeks to provide high current income and, secondarily, capital appreciation.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold shares of the fund.
Fees and Expenses of the Funds Advisor Class
Shareholder fees (fees paid directly from your investment) | |
Redemption fee (as a percentage of amount redeemed on shares held for 90 days or less) | 2.00% |
Annual
fund operating expenses | |
Management fees | 0.80% |
Distribution and service (12b-1) fees | 0.25% |
Other expenses | 7.62% |
Total annual fund operating expenses | 8.67% |
Fee waiver/expense reimbursement | 7.42%a |
Total annual fund operating expenses after fee waiver/expense reimbursement | 1.25%a |
a T. Rowe Price Associates, Inc. has agreed (through April 30, 2015) to waive its fees and/or bear any expenses (excluding interest, taxes, brokerage, extraordinary expenses, and acquired fund fees) that would cause the class ratio of expenses to average daily net assets to exceed 1.25%. Termination of the agreement would require approval by the funds Board of Directors. Fees waived and expenses paid under this agreement are subject to reimbursement to T. Rowe Price Associates, Inc. by the fund whenever the class expense ratio is below 1.25%. However, no reimbursement will be made more than three years after the waiver or payment, or if it would result in the expense ratio exceeding 1.25% (excluding interest, taxes, brokerage, extraordinary expenses, and acquired fund fees).
Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, the funds operating expenses remain the same, and the expense limitation currently in place is not renewed. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year | 3 years | 5 years | 10 years |
$127 | $1,176 | $2,908 | $6,713 |
Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual
T. Rowe Price | 2 |
fund operating expenses or in the example, affect the funds performance. For the period of May 24, 2012, through December 31, 2012, the funds portfolio turnover rate was 26.5% of the average value of its portfolio.
Investments, Risks, and Performance
Principal Investment Strategies The fund will normally invest at least 80% of its net assets (including any borrowings for investment purposes) in bonds that are issued by companies that are located or listed in, or conduct the predominant part of their business activities in, the emerging market countries of Latin America, Asia, Europe, Africa, and the Middle East.
While it is expected that the securities held by the fund will primarily be U.S. dollar-denominated, the fund may also hold securities denominated in emerging market currencies and other non-U.S. currencies. The fund does not generally attempt to cushion the impact of non-U.S. currency fluctuations against the U.S. dollar. Although the fund expects to generally maintain an intermediate-term weighted average maturity (between three and ten years), there are no maturity restrictions on the overall portfolio or on individual securities purchased by the fund.
Most of the funds investments are expected to be rated below investment-grade (BB or lower, or an equivalent rating) by a major credit rating agency or by T. Rowe Price. However, the fund may purchase bonds of any credit quality and there are no overall limits on the funds holdings that are unrated or rated below investment-grade. Investments in below investment-grade corporate bonds, also known as junk bonds, should be considered speculative.
The fund may sell holdings for a variety of reasons, such as to alter geographic or currency exposure, to adjust its average maturity, duration, or credit quality, or to shift assets into or out of higher-yielding securities.
Principal Risks As with any mutual fund, there is no guarantee that the fund will achieve its objective. The funds share price fluctuates, which means you could lose money by investing in the fund. The principal risks of investing in this fund are summarized as follows:
Active management risk The fund is subject to the risk that the investment advisers judgments about the attractiveness, value, or potential appreciation of the funds investments may prove to be incorrect. If the securities selected and strategies employed by the fund fail to produce the intended results, the fund could underperform other funds with similar objectives and investment strategies.
International investing risk Investing in the securities of non-U.S. issuers involves special risks not typically associated with investing in U.S. securities. International securities tend to be more volatile and less liquid than investments in U.S. securities and may lose value because of adverse political, social, or economic developments overseas. In addition, international investments may be subject to regulatory and accounting standards that differ from those of the U.S.
Summary | 3 |
Emerging markets risk The risks of international investing are heightened for securities of issuers in emerging market countries. Emerging market countries tend to have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. In addition to all of the risks of investing in international developed markets, emerging markets are more susceptible to governmental interference, local taxes being imposed on international investments, restrictions on gaining access to sales proceeds, and less liquid and efficient trading markets.
Currency risk Although the fund primarily invests in U.S. dollar-denominated bonds of emerging markets issuers, the fund may invest in securities issued in foreign currencies and is therefore subject to the risk that it could experience losses based solely on the weakness of those foreign currencies versus the U.S. dollar and changes in the exchange rates between such currencies and the U.S. dollar.
Credit risk This is the risk that an issuer of a debt security could suffer an adverse change in financial condition that results in a payment default, security downgrade, or inability to meet a financial obligation. The risk of default is much greater for emerging market bonds and securities rated as below investment-grade (junk bonds). The fund is exposed to greater credit risk than other bond funds because companies in emerging markets are usually not as strong financially and are more susceptible to economic downturns. Junk bonds should be considered speculative as they carry greater risks of default and erratic price swings due to real or perceived changes in the credit quality of the issuer.
Interest rate risk This risk refers to the chance that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Generally, securities with longer maturities and funds with longer weighted average maturities carry greater interest rate risk.
Liquidity risk This is the risk that the fund may not be able to sell a holding in a timely manner at a desired price.
Performance Because the fund commenced operations in 2012, there is no historical performance information shown here. Performance history will be presented after the fund has been in operation for one full calendar year.
Updated performance information is available through troweprice.com or may be obtained by calling 1-800-638-8790.
Management
Investment Adviser T. Rowe Price Associates, Inc. (T. Rowe Price)
Portfolio Manager | Title | Managed Fund Since | Joined Investment |
Michael J. Conelius | Chairman of Investment Advisory Committee | 2012 | 1988 |
T. Rowe Price | 4 |
Purchase and Sale of Fund Shares
For retirement plan accounts and Uniform Gifts to Minors Act or Uniform Transfers to Minors Act accounts, generally the funds minimum initial investment requirement is $1,000 and, for all other accounts, generally the funds minimum initial investment requirement is $2,500. The funds minimum subsequent investment requirement is $100. Your financial intermediary may impose different investment minimums.
You may purchase, redeem, or exchange shares of the fund on any day the New York Stock Exchange is open for business. You must purchase, redeem, and exchange shares through your financial intermediary.
Tax Information
The fund declares dividends daily and pays them on the first business day of each month. Any capital gains are declared and paid annually, usually in December. Distributions by the fund, whether or not you reinvest these amounts in additional fund shares, may be taxed as ordinary income or capital gains unless you invest through a tax-deferred account. A redemption or exchange of fund shares may be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
Information About Accounts in T. Rowe Price Funds | 2 | |
As a T. Rowe Price shareholder, you will want to know about the following policies and procedures that apply to Advisor Class accounts in the T. Rowe Price family of funds.
How and When Shares Are Priced
The share price, also called the net asset value, for each class of shares is calculated at the close of the New York Stock Exchange (normally 4 p.m. ET) each day that the exchange is open for business. To calculate the net asset value, the funds assets are valued and totaled; liabilities are subtracted; and each classs proportionate share of the balance, called net assets, is divided by the number of shares outstanding of that class. Market values are used to price portfolio holdings for which market quotations are readily available. Market values represent the prices at which securities actually trade or evaluations based on the judgment of the funds pricing services. If a market value for a security is not available or normal valuation procedures are deemed to be inappropriate, the fund will make a good faith effort to assign a fair value to the security by taking into account various factors that have been approved by the funds Board of Directors/Trustees. This value may differ from the value the fund receives upon sale of the securities. Amortized cost is used to price securities held by money funds and certain other debt securities held by a fund. Investments in other mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation.
Non-U.S. equity securities are valued on the basis of their most recent closing market prices at 4 p.m. ET except under the circumstances described below. Most foreign markets close before 4 p.m. ET. For securities primarily traded in the Far East, for example, the most recent closing prices may be as much as 15 hours old at 4 p.m. ET. If a fund determines that developments between the close of a foreign market and the close of the New York Stock Exchange will, in its judgment, materially affect the value of some or all of the funds securities, the fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of 4 p.m. ET. In deciding whether to make these adjustments, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The fund may also fair value certain securities or a group of securities in other situationsfor example, when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with closing market prices and information used for adjusting those prices and to value most fixed income
T. Rowe Price | 6 |
securities. The fund cannot predict how often it will use closing prices and how often it will adjust those prices. As a means of evaluating its fair value process, the fund routinely compares closing market prices, the next days opening prices in the same markets, and adjusted prices. The fund also evaluates a variety of factors when assigning fair values to private placements and other restricted securities. Other mutual funds may adjust the prices of their securities by different amounts or assign different fair values than the fair value that the fund assigns to the same security.
How Your Purchase, Sale, or Exchange Price Is Determined
Advisor Class shares are intended for purchase through various third-party intermediaries, including brokers, banks, insurance companies, retirement plan recordkeepers, and others. Contact your intermediary to find out how to purchase, sell, or exchange your shares; trade deadlines; and other applicable procedures for these transactions. The intermediary may charge a fee for its services.
The fund may have an agreement with your intermediary that permits the intermediary to accept orders on behalf of the fund until the close of the New York Stock Exchange (normally 4 p.m. ET). In such cases, if your order is received by the intermediary in correct form by the close of the New York Stock Exchange and is transmitted to T. Rowe Price and paid for in accordance with the agreement, the transaction will be priced at the next net asset value computed after the intermediary received your order. If the fund does not have an agreement with your intermediary, T. Rowe Price must receive the request in correct form from your intermediary by the close of the New York Stock Exchange in order for your transaction to be priced at that business days net asset value.
When authorized by the fund, certain financial institutions or retirement plans purchasing fund shares on behalf of customers or plan participants through T. Rowe Price Financial Institution Services or T. Rowe Price Retirement Plan Services may place a purchase order unaccompanied by payment. Payment for these shares must be received by the time designated by the fund (not to exceed the period established for settlement under applicable regulations). If payment is not received by this time, the order may be canceled. The financial institution or retirement plan is responsible for any costs or losses incurred by the fund or T. Rowe Price if payment is delayed or not received.
Note: The time at which transactions and shares are priced and the time until which orders are accepted by the fund or an intermediary may be changed in case of an emergency or if the New York Stock Exchange closes at a time other than 4 p.m. ET. In the event of an emergency closing, a funds shareholders will receive the next share price calculated by the fund. There may be times when you are unable to contact us by telephone or access your account online due to extreme market activity, the unavailability of the T. Rowe Price website, or other circumstances. Should this occur, your order must still be placed and accepted by T. Rowe Price prior to the
Information About Accounts in T. Rowe Price Funds | 7 |
time the New York Stock Exchange closes to be priced at that business days net asset value.
How Proceeds Are Received
Normally, the fund transmits proceeds to intermediaries for redemption orders received in correct form on either the next or third business day after receipt, depending on the arrangement with the intermediary. Under certain circumstances, and when deemed to be in a funds best interests, proceeds may not be sent to intermediaries for up to seven calendar days after receipt of the redemption order. You must contact your intermediary about procedures for receiving your redemption proceeds.
Contingent Redemption Fee
Short-term trading can disrupt a funds investment program and create additional costs for long-term shareholders. For these reasons, certain T. Rowe Price funds, listed in the following table, assess a fee on redemptions (including exchanges out of a fund), which reduces the proceeds from such redemptions by the amounts indicated:
T. Rowe Price Advisor Class Funds With Redemption Fees | ||
Fund | Redemption fee | Holding period |
Emerging Markets Corporate BondAdvisor Class | 2% | 90 days or less |
Emerging Markets Local Currency BondAdvisor Class | 2% | 90 days or less |
Floating RateAdvisor Class | 2% | 90 days or less |
Global InfrastructureAdvisor Class | 2% | 90 days or less |
Global Large-Cap StockAdvisor Class | 2% | 90 days or less |
Global Real EstateAdvisor Class | 2% | 90 days or less |
Global StockAdvisor Class | 2% | 90 days or less |
High YieldAdvisor Class | 2% | 90 days or less |
International BondAdvisor Class | 2% | 90 days or less |
International Growth & IncomeAdvisor Class | 2% | 90 days or less |
International StockAdvisor Class | 2% | 90 days or less |
Real EstateAdvisor Class | 1% | 90 days or less |
Small-Cap ValueAdvisor Class | 1% | 90 days or less |
Tax-Free High YieldAdvisor Class | 2% | 90 days or less |
Redemption fees are paid to a fund to deter short-term trading, offset costs, and protect the funds long-term shareholders. Subject to the exceptions described on the following pages, all persons holding shares of a T. Rowe Price fund that imposes a redemption fee are subject to the fee, whether the person is holding shares directly with a T. Rowe Price fund; through a retirement plan for which T. Rowe Price serves
T. Rowe Price | 8 |
as recordkeeper; or indirectly through an intermediary (such as a broker, bank, or investment adviser), recordkeeper for retirement plan participants, or other third party.
Computation of Holding Period
When an investor sells shares of a fund that assesses a redemption fee, T. Rowe Price will use the first-in, first-out method to determine the holding period for the shares sold. Under this method, the date of redemption or exchange will be compared with the earliest purchase date of shares held in the account. The day after the date of your purchase is considered Day 1 for purposes of computing the holding period. A redemption fee will be charged on shares sold on or before the end of the required holding period. For example, if you redeem your shares on or before the 90th day after the date of purchase, you will be assessed the redemption fee. If you purchase shares through an intermediary, consult your intermediary to determine how the holding period will be applied.
Transactions Not Subject to Redemption Fees
The T. Rowe Price funds will not assess a redemption fee with respect to certain transactions. As of the date of this prospectus, the following shares of T. Rowe Price funds will not be subject to redemption fees:
· Shares redeemed through an automated, systematic withdrawal plan;
· Shares redeemed through or used to establish certain rebalancing, asset allocation, wrap, and advisory programs, as well as non-T. Rowe Price fund-of-funds products, if approved in writing by T. Rowe Price;
· Shares purchased through the reinvestment of dividends or capital gain distributions; *
· Shares converted from one share class to another share class of the same fund;*
· Shares redeemed automatically by a fund to pay fund fees or shareholder account fees (e.g., for failure to meet account minimums);
· Shares purchased by rollover or changes of account registration within the same fund; *
· Shares redeemed to return an excess contribution from a retirement account;
· Shares of T. Rowe Price funds purchased by another T. Rowe Price fund and shares purchased by discretionary accounts managed by T. Rowe Price or one of its affiliates (please note that other shareholders of the investing T. Rowe Price fund are still subject to the policy);
· Shares that are redeemed in-kind;
· Shares transferred to T. Rowe Price or a third-party intermediary acting as a service provider when the age of the shares cannot be determined systematically; * and
· Shares redeemed in retirement plans or other products that restrict trading to no more frequently than once per quarter, if approved in writing by T. Rowe Price.
* Subsequent exchanges of these shares into funds that assess redemption fees will subject such shares to the fee.
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Redemption Fees on Shares Held in Retirement Plans
If shares are held in a retirement plan, redemption fees generally will be assessed on shares redeemed by exchange only if they were originally purchased by exchange. However, redemption fees may apply to transactions other than exchanges depending on how shares of the plan are held at T. Rowe Price or how the fees are applied by your plans recordkeeper. To determine which of your transactions are subject to redemption fees, you should contact T. Rowe Price or your plan recordkeeper.
Omnibus Accounts
If your shares are held through an intermediary in an omnibus account, T. Rowe Price relies on the intermediary to assess the redemption fee on underlying shareholder accounts. T. Rowe Price seeks to identify intermediaries establishing omnibus accounts and to enter into agreements requiring the intermediary to assess the redemption fees. There are no assurances that T. Rowe Price will be successful in identifying all intermediaries or that the intermediaries will properly assess the fees.
Certain intermediaries may not apply the exemptions previously listed to the redemption fee policy; all redemptions by persons trading through such intermediaries may be subject to the fee. Certain intermediaries may exempt transactions not listed from redemption fees, if approved by T. Rowe Price. Persons redeeming shares through an intermediary should check with their respective intermediary to determine which transactions are subject to the fees.
Each fund intends to qualify to be treated each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. In order to qualify, a fund must satisfy certain income, diversification, and distribution requirements. A regulated investment company is not subject to U.S. federal income tax at the portfolio level on income and gains from investments that are distributed to shareholders. However, if a fund were to fail to qualify as a regulated investment company, and was ineligible to or otherwise did not cure such failure, the result would be fund-level taxation and, consequently, a reduction in income available for distribution to the funds shareholders.
To the extent possible, all net investment income and realized capital gains are distributed to shareholders.
Dividends and Other Distributions
Dividend and capital gain distributions are reinvested in additional fund shares in your account unless you select another option. Reinvesting distributions results in compounding, which allows you to receive dividends and capital gain distributions on an increasing number of shares.
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Interest will not accrue on amounts represented by uncashed distributions or redemption checks.
The following table provides details on dividend payments:
Dividend Payment Schedule | |
Fund | Dividends |
Bond funds | · Shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price. · Declared daily and paid on the first business day of each month. |
These stock funds only: · Dividend GrowthAdvisor Class · Equity IncomeAdvisor Class · Global Real EstateAdvisor Class · Real EstateAdvisor Class | · Declared and paid quarterly, if any, in March, June, September, and December. · Must be a shareholder on the dividend record date. |
Other stock funds | · Declared and paid annually, if any, generally in December. · Must be a shareholder on the dividend record date. |
Retirement Funds: | |
· Retirement IncomeAdvisor Class | · Shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price. · Declared daily and paid on the first business day of each month. |
· All others | · Declared and paid annually, if any, generally in December. · Must be a shareholder on the dividend record date. |
Bond fund shares will earn dividends through the date of redemption. Shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business day. Generally, if you redeem all of your bond fund shares at any time during the month, you will also receive all dividends earned through the date of redemption in the same check. When you redeem only a portion of your bond fund shares, all dividends accrued on those shares will be reinvested, or paid in cash, on the next dividend payment date. The funds do not pay dividends in fractional cents. Any dividend amount earned for a particular day on all shares held that is one-half of one cent or greater (for example, $0.016) will be rounded up to the next whole cent ($0.02), and any amount that is less than one-half of one cent (for example, $0.014) will be rounded down to the nearest whole cent ($0.01). Please note that, if the dividend payable on all shares held is less than one-half of one cent for a particular day, no dividend will be earned for that day.
If you purchase and sell your shares through an intermediary, consult your intermediary to determine when your shares begin and stop accruing dividends; the information previously described may vary.
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Capital Gain Payments
A capital gain or loss is the difference between the purchase and sale price of a security. If a fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December to shareholders of record on a specified date that month. If a second distribution is necessary, it is paid the following year.
Tax Information
You should contact your intermediary for the tax information that will be sent to you and reported to the Internal Revenue Service.
If you invest in the fund through a tax-deferred account, such as an individual retirement account, you will not be subject to tax on dividends and distributions from the fund or the sale of fund shares if those amounts remain in the tax-deferred account. You may receive a Form 1099-R or other Internal Revenue Service forms, as applicable, if any portion of the account is distributed to you.
If you invest in the fund through a taxable account, you generally will be subject to tax when:
· You sell fund shares, including an exchange from one fund to another.
· The fund makes dividend or capital gain distributions.
For individual shareholders, a portion of ordinary dividends representing qualified dividend income received by the fund may be subject to tax at the lower rates applicable to long-term capital gains rather than ordinary income. You may report it as qualified dividend income in computing your taxes, provided you have held the fund shares on which the dividend was paid for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Ordinary dividends that do not qualify for this lower rate are generally taxable at the investors marginal income tax rate. This includes the portion of ordinary dividends derived from interest, short-term capital gains, distributions from nonqualified foreign corporations, and dividends received by the fund from stocks that were on loan. Little, if any, of the ordinary dividends paid by the Global Real Estate FundAdvisor Class, Real Estate FundAdvisor Class, or the bond fund Advisor Classes is expected to qualify for this lower rate.
For corporate shareholders, a portion of ordinary dividends may be eligible for the 70% deduction for dividends received by corporations to the extent the funds income consists of dividends paid by U.S. corporations. Little, if any, of the ordinary dividends paid by the international stock or bond fund Advisor Classes is expected to qualify for this deduction.
Regular monthly dividends from the Summit Municipal Income FundAdvisor Class, Summit Municipal Intermediate FundAdvisor Class, Tax-Free High Yield FundAdvisor Class, Tax-Free Income FundAdvisor Class, and the Tax-Free Short-Intermediate FundAdvisor Class are expected to be exempt from federal income
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taxes. Exemption is not guaranteed since the fund has the right under certain conditions to invest in nonexempt securities. You must report your total tax-free income on Internal Revenue Service Form 1040. The Internal Revenue Service uses this information to help determine the tax status of any Social Security payments you may have received during the year. Tax-exempt dividends paid to Social Security recipients may increase the portion of benefits that is subject to tax.
Beginning in 2013, a 3.8% net investment income tax is imposed on net investment income, including interest, dividends, and capital gains, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing jointly) and of estates and trusts.
Taxes on Fund Redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange from one fund to another in a taxable account is also a sale for tax purposes.
Taxes on Fund Distributions
The tax treatment of a capital
gain distribution is determined by how long the fund held the portfolio securities, not how long you
held the shares in the fund.
Short-term (one year or less) capital gain distributions are taxable
at the same rate as ordinary income, and gains on securities held more than one year are taxed at the
lower rates applicable to long-term capital gains. If you realized a loss on the sale or exchange of
fund shares that you held six months or less, your short-term capital loss must be reclassified as a
long-term capital loss to the extent of any long-term capital gain distributions received during the
period you held the shares. For funds investing in foreign securities, distributions resulting from the
sale of certain foreign currencies, currency contracts, and the foreign currency portion of gains on
debt securities are taxed as ordinary income. Net foreign currency losses may cause monthly or quarterly
dividends to be reclassified as returns of capital.
If the fund qualifies and elects to pass through nonrefundable foreign income taxes paid to foreign governments during the year, your portion of such taxes will be reported to you as taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for those amounts. There can be no assurance that a fund will meet the requirements to pass through foreign income taxes paid.
If a fund holds Build America Bonds or other qualified tax credit bonds and elects to pass through the corresponding interest income and any available tax credits, you will need to report both the interest income and any such tax credits as taxable income. You may be able to claim the tax credits on your federal tax return as an offset to your income tax (including alternative minimum tax) liability, but the tax credits generally are not refundable. There is no assurance, however, that a fund will elect to pass through the income and credits.
For the tax-free bond fund Advisor Classes, gains realized on the sale of market discount bonds with maturities beyond one year may be treated as ordinary income
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and cannot be offset by other capital losses, and payments received or gains realized on certain derivative transactions may result in taxable ordinary income or capital gain. To the extent the fund invests in these securities, the likelihood of a taxable gain distribution will be increased.
For the Retirement Funds, distributions by the underlying funds and changes in asset allocations may result in taxable distributions of ordinary income or capital gains.
Taxable distributions are subject to tax whether reinvested in additional shares or received in cash.
Tax Consequences of Hedging
Entering into certain transactions involving options, futures, swaps, and forward currency exchange contracts may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in a fund being required to distribute gains on such transactions even though it did not close the contracts during the year or receive cash to pay such distributions. The fund may not be able to reduce its distributions for losses on such transactions to the extent of unrealized gains in offsetting positions.
Tax Effect of Buying Shares Before an Income Dividend or Capital Gain Distribution
If you buy shares shortly before or on the record datethe date that establishes you as the person to receive the upcoming distributionyou may receive a portion of the money you just invested in the form of a taxable distribution. Therefore, you may wish to find out a funds record date before investing. In addition, a funds share price may, at any time, reflect undistributed capital gains or income and unrealized appreciation, which may result in future taxable distributions. Such distributions can occur even in a year when the fund has a negative return.
The Advisor Class is a share class of its respective T. Rowe Price fund and is not a separate mutual fund. The funds Advisor Class shares are intended for purchase through various third-party intermediaries, including brokers, banks, insurance companies, retirement plan recordkeepers, and other financial intermediaries that provide various distribution and administrative services.
The Advisor Class is designed for use by investors investing through intermediaries and requires an agreement between the intermediary and T. Rowe Price to be executed prior to investment. Purchases of Advisor Class shares for which the required agreement with T. Rowe Price has not been executed, or that are not made through an eligible intermediary, are subject to rejection or cancellation without prior notice to the intermediary or investor. Existing investments in the Advisor Class shares that are not held through an eligible intermediary may be transferred by
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T. Rowe Price to another class (with lower expenses) in the same fund following notice to the intermediary or shareholder.
Purchase Conditions for Intermediaries
Nonpayment If the fund does not receive payment for an order in a timely manner, your purchase may be canceled. The intermediary will be responsible for any losses or expenses incurred by the fund or transfer agent. The funds and their agents have the right to reject or cancel any purchase, exchange, or redemption due to nonpayment.
U.S. Dollars All purchases must be paid for in U.S. dollars; checks must be drawn on U.S. banks.
Sale (Redemption) Conditions
Holds on Immediate Redemptions: 10-Day Hold If an intermediary sells shares that it just purchased and paid for by check or Automated Clearing House transfer, the fund will process the redemption but generally will delay sending the proceeds for up to 10 calendar days to allow the check or transfer to clear. (The 10-day hold does not apply to purchases paid for by bank wire.)
Large Redemptions Large redemptions can adversely affect a portfolio managers ability to implement a funds investment strategy by causing the premature sale of securities. Therefore, the fund reserves the right (without prior notice) to pay all or part of redemption proceeds with securities from the funds portfolio rather than in cash (redemption in-kind). If this occurs, the securities will be selected by the fund in its absolute discretion, and the redeeming shareholder or account will be responsible for disposing of the securities and bearing any associated costs.
Excessive and Short-Term Trading Policy
Excessive transactions and short-term trading can be harmful to fund shareholders in various ways, such as disrupting a funds portfolio management strategies, increasing a funds trading costs, and negatively affecting its performance. Short-term traders in funds that invest in foreign securities may seek to take advantage of developments overseas that could lead to an anticipated difference between the price of the funds shares and price movements in foreign markets. While there is no assurance that T. Rowe Price can prevent all excessive and short-term trading, the Boards of Directors/Trustees of the T. Rowe Price funds have adopted the following trading limits that are designed to deter such activity and protect the funds shareholders. The funds may revise their trading limits and procedures at any time as the Boards of Directors/Trustees deem necessary or appropriate to better detect short-term trading that may adversely affect the funds, to comply with applicable regulatory requirements, or to impose additional or alternative restrictions.
Subject to certain exceptions, each T. Rowe Price fund restricts a shareholders purchases (including through exchanges) into a fund account for a period of 30 calendar days after the shareholder has redeemed or exchanged out of that same
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fund account (the 30-Day Purchase Block). The calendar day after the date of redemption is considered Day 1 for purposes of computing the period before another purchase may be made.
General Exceptions As of the date of this prospectus, the following types of transactions generally are not subject to the 30-Day Purchase Block:
· Shares purchased or redeemed in money funds;
· Shares purchased or redeemed through a systematic purchase or withdrawal plan;
· Checkwriting redemptions from bond and money funds;
· Shares purchased through the reinvestment of dividends or capital gain distributions;
· Shares redeemed automatically by a fund to pay fund fees or shareholder account fees;
· Transfers and changes of account registration within the same fund;
· Shares purchased by asset transfer or direct rollover;
· Shares purchased or redeemed through IRA conversions and recharacterizations;
· Shares redeemed to return an excess contribution from a retirement account;
· Transactions in Section 529 college savings plans;
· Shares converted from one share class to another share class in the same fund; and
· Shares of T. Rowe Price funds that are purchased by another T. Rowe Price fund, including shares purchased by T. Rowe Price fund-of-funds products, and shares purchased by discretionary accounts managed by T. Rowe Price or one of its affiliates (please note that shareholders of the investing T. Rowe Price fund are still subject to the policy).
Transactions in certain rebalancing, asset allocation, wrap programs, and other advisory programs, as well as non-T. Rowe Price fund-of-funds products, may also be exempt from the 30-Day Purchase Block, subject to prior written approval by T. Rowe Price.
In addition to restricting transactions in accordance with the 30-Day Purchase Block, T. Rowe Price may, in its discretion, reject (or instruct an intermediary to reject) any purchase or exchange into a fund from a person (which includes individuals and entities) whose trading activity could disrupt the management of the fund or dilute the value of the funds shares, including trading by persons acting collectively (e.g., following the advice of a newsletter). Such persons may be barred, without prior notice, from further purchases of T. Rowe Price funds for a period longer than 30 calendar days or permanently.
Intermediary Accounts If you invest in T. Rowe Price funds through an intermediary, you should review the intermediarys materials carefully or consult with the intermediary directly to determine the trading policy that will apply to your trades in the funds as well as any other rules or conditions on transactions that may apply. If T. Rowe Price is unable to identify a transaction placed through an intermediary as exempt from the excessive trading policy, the 30-Day Purchase Block may apply.
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Intermediaries may maintain their underlying accounts directly with the fund, although they often establish an omnibus account (one account with the fund that represents multiple underlying shareholder accounts) on behalf of their customers. When intermediaries establish omnibus accounts in the T. Rowe Price funds, T. Rowe Price is not able to monitor the trading activity of the underlying shareholders. However, T. Rowe Price monitors aggregate trading activity at the intermediary (omnibus account) level in an attempt to identify activity that indicates potential excessive or short-term trading. If it detects suspicious trading activity, T. Rowe Price contacts the intermediary and may request personal identifying information and transaction histories for some or all underlying shareholders (including plan participants, if applicable). If T. Rowe Price believes that excessive or short-term trading has occurred, it will instruct the intermediary to impose restrictions to discourage such practices and take appropriate action with respect to the underlying shareholder, including restricting purchases for 30 calendar days or longer. There is no assurance that T. Rowe Price will be able to properly enforce its excessive trading policies for omnibus accounts. Because T. Rowe Price generally relies on intermediaries to provide information and impose restrictions for omnibus accounts, its ability to monitor and deter excessive trading will be dependent upon the intermediaries timely performance of their responsibilities.
T. Rowe Price may allow an intermediary or other third party to maintain restrictions on trading in the T. Rowe Price funds that differ from the 30-Day Purchase Block. An alternative excessive trading policy would be acceptable to T. Rowe Price if it believes that the policy would provide sufficient protection to the T. Rowe Price funds and their shareholders that is consistent with the excessive trading policy adopted by the funds Boards of Directors/Trustees.
Retirement Plan Accounts If
shares are held in a retirement plan, generally the
30-Day Purchase Block applies only to shares redeemed
by a participant-directed exchange to another fund. However, the 30-Day Purchase Block may apply to transactions
other than exchanges depending on how shares of the plan are held at T. Rowe Price or the excessive
trading policy applied by your plans recordkeeper. An alternative excessive trading policy may
apply to the T. Rowe Price funds where a retirement plan has its own policy deemed acceptable to
T. Rowe Price. You should contact T. Rowe Price or your plan recordkeeper to determine which
of your transactions are subject to the funds 30-Day Purchase Block or an alternative policy.
There is no guarantee that T. Rowe Price will be able to identify or prevent all excessive or short-term trades or trading practices.
Signature Guarantees
An intermediary may need to obtain a signature
guarantee in certain situations,
such as:
· Written requests to redeem over $5 million and wire the redemption proceeds to a bank account not on file;
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· Remitting redemption proceeds to any person, address, or bank account not on record; or
· Changing the account registration or broker-dealer of record for an account.
Intermediaries should consult their T. Rowe Price Financial Institution Services representative for specific requirements.
The signature guarantee must be obtained from a financial institution that is a participant in a Medallion signature guarantee program. You can obtain a Medallion signature guarantee from most banks, savings institutions, broker-dealers, and other guarantors acceptable to T. Rowe Price. When obtaining a Medallion signature guarantee, please discuss with the guarantor the dollar amount of your proposed transaction. It is important that the level of coverage provided by the guarantors stamp covers the dollar amount of the transaction or it may be rejected. We cannot accept guarantees from notaries public or organizations that do not provide reimbursement in the case of fraud.
The Advisor Class has adopted a 12b-1 plan under which it pays a fee at a rate of up to 0.25% of its average daily net assets per year to various unaffiliated intermediaries, such as brokers, banks, insurance companies, and retirement plan recordkeepers for distribution and/or shareholder servicing of the Advisor Class shares. Distribution payments may include payments to intermediaries for making the Advisor Class shares available to their customers (e.g., providing the fund with shelf space or inclusion on a preferred list or supermarket platform). Shareholder servicing payments may include payments to intermediaries for providing shareholder support services to existing shareholders of the Advisor Class. These payments may be more or less than the costs incurred by the intermediaries. Because the fees are paid from the Advisor Class net assets on an ongoing basis, they will increase the cost of your investment and, over time, could result in your paying more than with other types of sales charges. The Advisor Class may also separately compensate intermediaries at a rate of up to 0.15% of average daily net assets per year for various recordkeeping and transfer agent services they perform. These services include maintaining separate records for each customer, transmitting net purchase and redemption orders, mailing shareholder confirmations and periodic statements, and providing telephone and Internet support to respond to questions regarding the customers account.
Payment of these fees may influence your financial advisors recommendation of the fund or of any particular share class of the fund.
More About the Fund | 3 | |
How is the fund organized?
T. Rowe Price International Funds, Inc. (the corporation) was incorporated in Maryland in 1979. Currently, the corporation consists of 18 series, each representing a separate pool of assets with different objectives and investment policies. Each is an open-end management investment company, or mutual fund. Mutual funds pool money received from shareholders of each class into a single portfolio and invest it to try to achieve specified objectives. In 2012, the Emerging Markets Corporate Bond Fund issued a separate class of shares known as the Advisor Class.
What is meant by shares?
As with all mutual funds, investors purchase shares when they put money in a fund. These shares are part of a funds authorized capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
· Receive a proportional interest in income and capital gain distributions of the class. The income dividends for Advisor Class shares will generally differ from those of other classes to the extent that the expense ratios of the classes differ.
· Cast one vote per share on certain fund matters, including the election of fund directors/trustees, changes in fundamental policies, or approval of changes in the funds management contract. Shareholders of each class have exclusive voting rights on matters affecting only that class.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and, to avoid unnecessary costs to fund shareholders, do not do so except when certain matters, such as a change in fundamental policies, must be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting for the purpose of voting on the removal of any fund director or trustee. If a meeting is held and you cannot attend, you can vote by proxy. Before the meeting, the fund will send or make available to you proxy materials that explain the issues to be decided and include instructions on voting by mail or telephone or on the Internet.
Who runs the fund?
General Oversight
The fund is governed by a Board of Directors that meets regularly to review fund investments, performance, expenses, and other business affairs. The Board elects the
More About the Fund | 19 |
funds officers. At least 75% of Board members are independent of T. Rowe Price and its affiliates (the Firm).
All decisions regarding the purchase and sale of fund investments are made by T. Rowe Pricespecifically by the funds portfolio manager.
Investment Adviser
T. Rowe Price is the funds investment adviser and oversees the selection of the funds investments and management of the funds portfolio. T. Rowe Price is a SEC-registered investment adviser that provides investment management services to individual and institutional investors, and sponsors and serves as adviser and sub-adviser to registered investment companies, institutional separate accounts, and common trust funds. The address for T. Rowe Price is 100 East Pratt Street, Baltimore, Maryland 21202. As of December 31, 2012, the Firm managed approximately $577 billion for more than 10 million individual and institutional investor accounts.
Portfolio Management
T. Rowe Price has established an Investment Advisory Committee with respect to the fund. The committee chairman has day-to-day responsibility for managing the funds portfolio and works with the committee in developing and executing the funds investment program. The members of the committee are as follows: Michael J. Conelius, Chairman, Roy H. Adkins, Peter I. Botoucharov, Sheldon Chan, Carolyn Hoi Che Chu, Bridget A. Ebner, Richard Hall, Andrew J. Keirle, Ian D. Kelson, Christopher J. Kushlis, Christopher C. Loop, Samy B. Muaddi, Michael D. Oh, Kenneth A. Orchard, and Siby Thomas. The following information provides the year that the chairman first joined the Firm and the chairmans specific business experience during the past five years (although the chairman may have had portfolio management responsibilities for a longer period). Mr. Conelius has been chairman since the funds inception in 2012. He joined the Firm in 1988 and his investment experience dates from that time. He has served as a portfolio manager with the Firm throughout the past five years. The Statement of Additional Information provides additional information about the portfolio managers compensation, other accounts managed by the portfolio manager, and the portfolio managers ownership of fund shares.
The Management Fee
This fee has two partsan individual fund fee, which reflects a funds particular characteristics, and a group fee. The group fee, which is designed to reflect the benefits of the shared resources of the T. Rowe Price investment management complex, is calculated daily based on the combined net assets of all T. Rowe Price funds (except the Spectrum Funds, Retirement Funds, TRP Reserve Investment Funds, and any index or private label mutual funds). The group fee schedule (in the following table) is graduated, declining as the asset total rises, so shareholders benefit from the overall growth in mutual fund assets.
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Group Fee Schedule
0.334%* | First $50 billion |
0.305% | Next $30 billion |
0.300% | Next $40 billion |
0.295% | Next $40 billion |
0.290% | Next $60 billion |
0.285% | Next $80 billion |
0.280% | Next $100 billion |
0.275% | Thereafter |
* Represents a blended group fee rate containing various breakpoints.
The funds group fee is determined by applying the group fee rate to the funds average daily net assets. On December 31, 2012, the annual group fee rate was 0.30%. The individual fund fee, also applied to the funds average daily net assets, is 0.50%.
A discussion about the factors considered by the Board and its conclusions in approving the funds investment management contract with T. Rowe Price will appear in the funds semiannual report to shareholders for the period ended June 30.
Fund Operations and Shareholder Services
T. Rowe Price provides accounting services to the T. Rowe Price funds. T. Rowe Price Services, Inc. acts as the transfer and dividend disbursing agent and provides shareholder and administrative services to the funds. These companies receive compensation from the funds for their services. The funds may also pay third-party intermediaries for performing shareholder and administrative services for underlying shareholders in omnibus accounts.
The fund focuses its investments on bonds issued by emerging markets corporate issuers. Security selection relies heavily on research, which analyzes political and economic trends as well as the creditworthiness of particular issuers. This in-depth analysis seeks to identify shifts in country fundamentals, and considers the risk adjusted attractiveness of various emerging market countries.
Buying foreign bonds can be difficult and costly for the individual investor, and gaining access to many foreign markets can be complicated. Few investors have the time, the expertise, or the resources to evaluate foreign markets effectively on their own. The professional management, broad diversification, and relative simplicity of mutual funds make them an attractive, low-cost vehicle for this type of investing.
Interest rates vary from country to country depending on local economic conditions and monetary and fiscal policies. By investing in foreign bond markets, investors can
More About the Fund | 21 |
benefit from potentially higher yields than U.S. bond markets provide. Therefore, diversifying internationally across various countries can help reduce portfolio volatility and smooth out returns.
As with any mutual fund, there is no guarantee the fund will achieve its objective. The funds share price fluctuates, which means you could lose money when you sell your shares of the fund. Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. Some particular risks affecting the fund include the following:
Currency risk This is the risk of a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that foreign currency. The overall impact on a funds holdings can be significant and long-lasting depending on the currencies represented in the portfolio, how each currency appreciates or depreciates in relation to the U.S. dollar, and whether currency positions are hedged. Foreign currency exchange rates may fluctuate significantly over short periods of time, particularly with respect to emerging markets currencies. Currency exchange rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks, or by currency controls or political developments. Although bonds held by the fund may be denominated in U.S. dollars to improve their marketability, this does not protect them from substantial price declines in the face of political and economic turmoil. Currency trends are unpredictable, and to the extent the fund purchases and sells currencies, it will also be subject to the risk that its trading strategies, including efforts at hedging, will not succeed. Furthermore, hedging and trading costs can be significant and reduce fund net asset value, and many emerging market currencies cannot be effectively hedged.
Other risks of foreign investing Risks can result from varying stages of economic and political development, differing regulatory environments, trading days and accounting standards, uncertain tax laws, and higher transaction costs of non-U.S. markets. Investments outside the U.S. could be subject to governmental actions such as capital or currency controls, nationalization of a company or industry, expropriation of assets, or imposition of high taxes. A trading market may close without warning for extended time periods, preventing a fund from buying or selling securities in that market.
Emerging markets risk Investments in emerging markets, which include Africa, parts of Europe and much of Asia, the Middle East, and Central and South America, are subject to the risk of abrupt and severe price declines. The economic and political structures of emerging market countries, in most cases, do not compare favorably with the U.S. or other developed countries in terms of wealth and stability, and their financial markets often lack liquidity. These economies are less developed and can be overly reliant on particular industries and more vulnerable to the ebb and flow of international trade, trade barriers, and other protectionist or retaliatory measures. Certain countries have legacies and periodic episodes of hyperinflation and currency devaluations, particularly Russia and many Latin American nations, and more
T. Rowe Price | 22 |
recently many Asian countries. Governments in many emerging market countries participate to a significant degree in their economies and securities markets. Foreign investments may be restricted and subject to greater government control, including repatriation of sales proceeds. Some countries have histories of instability and upheaval that could cause their governments to act in a detrimental or hostile manner toward private enterprise or foreign investment. Investments in countries or regions that have recently begun moving away from central planning and state-owned industries toward free markets should be regarded as speculative.
While some countries have made progress in economic growth, liberalization, fiscal discipline, and political and social stability, there is no assurance these trends will continue. Significant risks, such as war and terrorism, currently affect some emerging market countries. Fund performance will likely be hurt by exposure to nations in the midst of hyperinflation, currency devaluation, trade disagreements, sudden political upheaval, or interventionist government policies. The volatility of emerging markets may be heightened by the actions (such as significant buying or selling) of a few major investors. For example, substantial decreases in cash flows of mutual funds investing in these markets could significantly affect local securities prices and, therefore, cause fund share prices to decline.
All of these factors make investing in such countries significantly riskier than in other countries and any one of these could cause a funds share price to decline.
Credit risk This is the risk that an issuer of a debt security held by the fund will default (fail to make scheduled payments), potentially reducing the funds income and share price. This risk is increased when a portfolio security is downgraded or the perceived creditworthiness of an issuer or counterparty deteriorates. The risk of default is much greater for emerging market bonds and securities rated as below investment-grade.
Companies and governments issuing lower-rated bonds are not as strong financially as those with higher credit ratings, and their bonds are often viewed as speculative investments. Such issuers are more vulnerable to real or perceived business setbacks and to changes in the economy, such as a recession, that might impair their ability to make timely interest and principal payments. Certain emerging market governments and corporations have in the past defaulted on payment of interest and principal on debt they have issued. As a result, your portfolio managers rely heavily on proprietary T. Rowe Price and T. Rowe Price International research when selecting these investments.
Liquidity risk This is the risk that a fund may not be able to sell a holding in a timely manner at a desired price. Sectors of the bond market can experience sudden downturns in trading activity. During periods of reduced market liquidity, the spread between the price at which a security can be bought and the price at which it can be sold can widen, and the fund may not be able to sell a holding readily at a price that
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reflects what the fund believes it should be worth. Less liquid securities can also become more difficult to value.
Emerging market bonds are generally less liquid than higher-quality bonds issued by companies and governments in developed countries. Consequently, large purchases or sales of certain high-yield, emerging market debt issues may cause significant changes in their prices. Because many of these bonds do not trade frequently, when they do trade, their prices may be substantially higher or lower than had been expected. A lack of liquidity also means that more subjectivity will be used in establishing the fair value of the securities.
Interest rate risk This is the risk that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Prices fall because the bonds in the funds portfolio become less attractive to other investors when securities with higher yields become available. Generally, the longer the maturity of a security or the longer a bond funds weighted average maturity, the greater its interest rate risk. Because the fund may invest in debt securities of any maturity, it carries more interest rate risk than a fund that invests in shorter-term securities.
Other factors The major factor influencing prices of high-quality bonds is changes in interest rate levels, but this is only one of several factors affecting prices of lower-quality bonds. Because the credit quality of the issuer is lower, such bonds are more sensitive to developments affecting the issuers underlying fundamentals (for example, changes in financial condition or a particular countrys general economy). In addition, the entire bond market in an emerging market can experience sudden and sharp price swings due to a variety of factors, including changes in economic forecasts, stock market activity, large or sustained sales by institutional investors, a high-profile default, a political upheaval of some kind, or just a change in the markets psychology. This type of volatility is usually associated more with stocks than bonds, but investors in lower-quality bonds should also anticipate it.
Since mutual funds can be a major source of demand in certain markets, substantial cash flows into and out of these funds can affect high-yield and emerging market bond prices. If, for example, a significant number of funds were to sell bonds to meet shareholder redemptions, both bond prices and a funds share price could fall more than underlying fundamentals might justify.
Efforts to reduce risk Consistent with the funds objective, the portfolio manager uses various tools to try to reduce risk and increase total return, including:
· Thorough credit research by our own analysts.
· Analysis of industry, country, and regional fundamentals.
· Adjusting fund duration to try to reduce the drop in the funds price when interest rates rise or to benefit from the rise in price when rates fall.
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While most assets will be invested in emerging market corporate bonds, other strategies may be employed that are not considered part of the funds principal investment strategies. Such investments may include emerging market sovereign bonds and, to a limited extent, certain types of derivatives that are consistent with the funds overall investment program. For example, the fund may occasionally use forward currency exchange contracts, credit default swaps, or interest rate futures. Forward currency exchange contracts would typically be used to settle trades in a foreign currency, although they could be used to help protect the funds holdings from unfavorable changes in currency exchange rates. Credit default swaps would typically be used to protect the value of certain portfolio holdings or to manage the funds overall exposure to changes in credit quality. Futures would typically be used to manage the funds interest rate exposure or as a tool to help manage cash flows into and out of the fund. Forward currency exchange contracts involve the risk that currency movements will not be accurately predicted, credit default swaps expose the fund to the risks that anticipated changes in the creditworthiness of an issuer or the likelihood of a particular credit event will not be accurately predicted, and futures involve the risk that expected changes in interest rate movements will not be accurately predicted.
A derivative involves risks different from, and possibly greater than, the risks associated with investing directly in the assets on which the derivative is based. Derivatives can be highly volatile, illiquid, and difficult to value, and changes in the value of a derivative may not properly correlate with changes in the value of the underlying asset, reference rate, or index. A fund could be exposed to significant losses if it is unable to close a derivatives position due to the lack of a liquid secondary trading market. Derivatives involve the risk that a counterparty to the derivatives agreement will fail to make required payments or comply with the terms of the agreement. There is also the possibility that limitations or trading restrictions may be imposed by an exchange or government regulation, which could adversely impact the value and liquidity of a derivatives contract subject to such regulation.
Recent legislation calls for a new regulatory framework for the derivatives markets. The full extent and impact of new regulations are not certain at this time. New regulations have made the use of derivatives by funds more costly, may limit the availability of certain types of derivatives, and may otherwise adversely affect the value or performance of derivatives used by funds.
The Statement of Additional Information contains more detailed information about the fund and its investments, operations, and expenses.
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This section takes a detailed look at some of the types of fund securities and the various kinds of investment practices that may be used in day-to-day portfolio management. Fund investments are subject to further restrictions and risks described in the Statement of Additional Information.
Shareholder approval is required to substantively change fund objectives. Shareholder approval is also required to change certain investment restrictions noted in the following section as fundamental policies. Portfolio managers also follow certain operating policies that can be changed without shareholder approval. Shareholders will receive at least 60 days prior notice of change in the funds policy requiring it to normally invest at least 80% of its net assets in corporate bonds of issuers in emerging market countries.
Fund holdings of certain kinds of investments cannot exceed maximum percentages of total assets, which are set forth in this prospectus. For instance, fund investments in certain derivatives are limited to 10% of total assets. While these restrictions provide a useful level of detail about fund investments, investors should not view them as an accurate gauge of the potential risk of such investments. For example, in a given period, a 5% investment in derivatives could have significantly more of an impact on a funds share price than its weighting in the portfolio. The net effect of a particular investment depends on its volatility and the size of its overall return in relation to the performance of all other fund investments.
Certain investment restrictions, such as a required minimum or maximum investment in a particular type of security, are measured at the time a fund purchases a security. The status, market value, maturity, credit quality, or other characteristics of a funds securities may change after they are purchased, and this may cause the amount of a funds assets invested in such securities to exceed the stated maximum restriction or fall below the stated minimum restriction. If any of these changes occur, it would not be considered a violation of the investment restriction and will not require the sale of an investment if it was proper at the time it was made (this exception does not apply to a funds borrowing policy). However, purchases by a fund during the time it is above or below the stated percentage restriction would be made in compliance with applicable restrictions.
For purposes of determining whether a particular country is considered a developed market or an emerging market, the fund considers a country to be an emerging market if it is either included in a JP Morgan emerging market bond index or not included in the International Monetary Funds listing of advanced economies. For purposes of determining whether the fund invests at least 80% of its net assets in a particular type of security, the fund uses the country assigned to a security by Bloomberg or another unaffiliated third-party data provider.
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Changes in fund holdings, fund performance, and the contribution of various investments to fund performance are discussed in the shareholder reports.
Portfolio managers have considerable discretion in choosing investment strategies and selecting securities they believe will help achieve fund objectives.
Types of Portfolio Securities
In seeking to meet its investment objective, fund investments may be made in any type of security or instrument (including certain potentially high-risk derivatives described in this section) whose investment characteristics are consistent with its investment program. The following pages describe various types of fund holdings and investment management practices.
Diversification As a fundamental policy, the fund will not purchase a security if, as a result, with respect to 75% of its total assets, more than 5% of the funds total assets would be invested in securities of a single issuer or more than 10% of the outstanding voting securities of the issuer would be held by the fund. These limitations do not apply to the funds purchase of securities issued or guaranteed by the U.S. government, its agencies, or instrumentalities.
Debt Securities
The funds investments may be in fixed-rate and floating rate debt securities and may include, but shall not be limited to: (1) debt obligations issued or guaranteed by: (a) a foreign sovereign government or one of its agencies, authorities, instrumentalities, or political subdivisions, including a foreign state, province, or municipality, and (b) supranational organizations such as the World Bank, Asian Development Bank, European Investment Bank, and European Economic Community; (2) debt obligations: (a) of foreign banks and bank holding companies, and (b) of domestic banks and corporations issued in non-U.S. dollar denominations; and (3) foreign corporate debt securities, asset-backed securities, and commercial paper. Such securities may take a variety of forms including those issued in the local currency of the issuer, U.S. dollar-denominated bonds, Eurobonds, and Euro-denominated bonds. Normally, the fund will invest substantially all of its assets in bonds issued by emerging markets corporations. The fund may from time to time purchase securities on a when-issued basis, invest in repurchase agreements, and purchase bonds convertible into equities.
Below Investment-Grade Bonds The price and yield of lower-quality (high yield, high-risk) bonds, commonly referred to as junk bonds and below investment-grade emerging market bonds, can be expected to fluctuate more than the price and yield of higher-quality bonds. Investment-grade bonds are those rated from the highest quality (AAA or equivalent) to medium quality (BBB or equivalent), and below investment-grade bonds are those rated BB (or equivalent) and lower. Below investment-grade bonds are considered speculative with respect to the issuers continuing ability to meet principal and interest payments since their issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers.
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Even BBB rated bonds may have speculative elements as well. The values of below investment-grade bonds often fluctuate more in response to political, regulatory, or economic developments than higher quality bonds. Successful investment in lower-medium- and low-quality bonds involves greater investment risk and is highly dependent on careful credit analysis.
Operating policy There is no limit on the funds investments in debt securities that are rated below investment-grade.
While the fund intends to invest primarily in debt securities, it may invest in convertible bonds or equity securities. While some countries or companies may be regarded as favorable investments, pure bond opportunities may be unattractive or limited due to insufficient supply, or legal or technical restrictions. In such cases, the fund may consider equity securities or convertible bonds to gain exposure to such markets.
Preferred Stocks
Stocks represent shares of ownership in a company. Generally, preferred stock has a specified dividend and ranks after bonds and before common stocks in its claim on income for dividend payments and on assets should the company be liquidated. After other claims are satisfied, common stockholders participate in company profits on a pro-rata basis; profits may be paid out in dividends or reinvested in the company to help it grow. Increases and decreases in earnings are usually reflected in a companys stock price, so common stocks generally have the greatest appreciation and depreciation potential of all corporate securities. Unlike common stock, preferred stock does not ordinarily carry voting rights. While most preferred stocks pay a dividend, a fund may decide to purchase preferred stock where the issuer has omitted, or is in danger of omitting, payment of its dividend.
Convertible Securities and Warrants
Investments may be made in debt or preferred equity securities that are convertible into, or exchangeable for, equity securities at specified times in the future and according to a certain exchange ratio. Convertible bonds are typically callable by the issuer, which could in effect force conversion before the holder would otherwise choose. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than nonconvertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree than common stock. Some convertible securities combine higher or lower current income with options and other features. Warrants are options to buy, directly from the issuer, a stated number of shares of common stock at a specified price anytime during the life of the warrants (generally, two or more years). Warrants can be highly volatile, have no voting rights, and pay no dividends.
Operating policy The fund may invest up to 5% of total assets in preferred stocks and securities that are convertible into, or which carry warrants for, common stocks or
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other equity securities. Under normal conditions, the fund does not expect to directly purchase common stocks. Any shares of common stock that are received through a reorganization, restructuring, exercise, exchange, conversion, or similar action will be sold within a reasonable timeframe taking into consideration market conditions and any legal restrictions.
Loan Participations and Assignments
Large loans to corporations or governments, including governments of less developed countries, may be shared or syndicated among several lenders, usually banks. The fund could participate in such syndicates, or could buy part of a loan, becoming a direct lender. The fund may acquire loans as an assignment from another lender that holds a direct interest in the loan or as a participation interest in another lenders portion of the loan. Participations and assignments involve special types of risk, including limited marketability and the risks of being considered a lender. If a fund purchases a participation, it may only be able to enforce its rights through the lender, and it may assume the credit risk of the lender in addition to the borrower. With assignments, the funds rights against the borrower may be more limited than those held by the original lender. The fund may also make investments in a company through the purchase or execution of a privately negotiated note representing the equivalent of a loan.
Operating policy The fund may invest up to 5% of total assets in loan participations and assignments.
Derivatives and Leverage
A derivative is a financial instrument whose value is derived from an underlying security such as a stock or bond or from a market benchmark, such as an interest rate index. Many types of investments representing a wide range of risks and potential rewards may be considered derivatives, including conventional instruments such as futures and options, as well as other potentially more complex investments such as swaps and structured notes. The use of derivatives can involve leverage. Leverage has the effect of magnifying returns, positively or negatively. The effect on returns will depend on the extent to which an investment is leveraged. For example, an investment of $1, leveraged at 2 to 1, would have the effect of an investment of $2. Leverage ratios can be higher or lower with a corresponding effect on returns. The fund may use derivatives in certain situations to help accomplish any or all of the following: to hedge against a decline in principal value, to increase yield, to manage exposure to changes in interest or currency exchange rates, to invest in eligible asset classes with greater efficiency and at a lower cost than is possible through direct investment, or to adjust portfolio duration or credit risk exposure.
Derivatives that may be used include the following as well as others that combine the risk characteristics and features of futures, options, and swaps:
Futures and Options Futures, a type of potentially high-risk derivative, are often used to manage or hedge risk because they enable the investor to buy or sell an asset in the
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future at an agreed-upon price. Options, another type of potentially high-risk derivative, give the investor the right (when the investor purchases the option), or the obligation (when the investor writes or sells the option), to buy or sell an asset at a predetermined price in the future. Futures and options contracts may be bought or sold for any number of reasons, including to manage exposure to changes in interest rates, bond prices, foreign currencies, and credit quality; as an efficient means of increasing or decreasing a funds exposure to a specific part or broad segment of the U.S. market or a foreign market; in an effort to enhance income; to protect the value of portfolio securities; to serve as a cash management tool; and to adjust portfolio duration or credit exposure. Call or put options may be purchased or sold on securities, futures, and financial indexes. A fund may choose to continue a futures contract by rolling over an expiring futures contract into an identical contract with a later maturity date. This could increase the funds transaction costs and portfolio turnover rate.
Futures contracts and options may not always be successful hedges; their prices can be highly volatile; using them could lower a funds total return; and the potential loss from the use of futures can exceed a funds initial investment in such contracts.
Operating policies Initial margin deposits on futures and premiums on options used for non-hedging purposes will not exceed 5% of a funds net asset value. The total market value of securities covering call or put options may not exceed 25% of total assets. No more than 5% of total assets will be committed to premiums when purchasing call or put options.
Swaps Fund investments may be made in interest rate, index, total return, credit default, and other types of swap agreements, as well as options on swaps, commonly referred to as swaptions, and interest rate swap futures, which are instruments that provide a way to gain swap exposure and the benefits of futures in one contract. All of these agreements are considered derivatives and, in certain cases, high-risk derivatives. Interest rate, index, and total return swaps are two-party contracts under which a fund and a counterparty, such as a broker or dealer, agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or indexes. Credit default swaps are agreements where one party (the protection buyer) will make periodic payments to another party (the protection seller) in exchange for protection against specified credit events, such as defaults and bankruptcies related to an issuer or underlying credit instrument. Swap futures are futures contracts on interest rate swaps that enable purchasers to cash settle at a future date at the price determined by a specific benchmark rate at the end of a fixed period. Swaps, swaptions, and swap futures can be used for a variety of purposes, including to manage a funds overall exposure to changes in interest or foreign currency exchange rates and credit quality; as an efficient means of adjusting a funds exposure to certain markets; in an effort to enhance income or total return or protect the value of portfolio securities; to serve as a cash management tool; and to adjust portfolio duration or credit risk exposure.
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There are risks in the use of swaps and related instruments. Swaps could result in losses if interest or foreign currency exchange rates or credit quality changes are not correctly anticipated by a fund. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. Credit default swaps can increase a funds exposure to credit risk and could result in losses if evaluation of the creditworthiness of the counterparty, or of the company or government on which the credit default swap is based, is incorrect. The use of swaps, swaptions, and swap futures may not always be successful. Using them could lower a funds total return, their prices can be highly volatile, and the potential loss from the use of swaps can exceed a funds initial investment in such instruments. Also, the other party to a swap agreement could default on its obligations or refuse to cash out a funds investment at a reasonable price, which could turn an expected gain into a loss. Although there should not be any counterparty risk associated with investments in interest rate swap futures, a fund could experience delays and/or losses associated with the bankruptcy of a broker through which the fund engaged in the transaction.
Operating policies A swap agreement with any single counterparty will not be entered into if the net amount owed or to be received under existing contracts with that party would exceed 5% of total assets or if the net amount owed or to be received by the fund under all outstanding swap agreements will exceed 10% of total assets. For swaptions, the total market value of securities covering call or put options may not exceed 25% of total assets. No more than 5% of total assets will be committed to premiums when purchasing call or put swaptions.
Hybrid Instruments These instruments (a type of potentially high-risk derivative) can combine the characteristics of securities, futures, and options. For example, the principal amount or interest rate of a hybrid could be tied (positively or negatively) to the price of some commodity, currency, security, or securities index or another interest rate (each a benchmark). Hybrids can be used as an efficient means of pursuing a variety of investment goals, including currency hedging, duration management, and increased total return. Hybrids may or may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark. These benchmarks may be sensitive to economic and political events, such as commodity shortages and currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes the fund to the credit risk of the issuer of the hybrid. These risks may cause significant fluctuations in the net asset value of the fund.
Hybrids can have volatile prices and limited liquidity, and their use may not be successful.
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Operating policy Fund investments in hybrid instruments are limited to 10% of total assets.
Currency Derivatives The fund may engage in foreign currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market at the time or through forward currency exchange contracts, which are contracts between two counterparties to exchange one currency for another on a future date at a specified exchange rate. In addition to foreign currency forwards, futures, swaps, and options on foreign currencies may also be used to protect a funds foreign securities from adverse currency movements relative to the U.S. dollar, as well as to gain exposure to currencies and markets expected to increase or decrease in value relative to other currencies or securities.
The fund may attempt to hedge its exposure to potentially unfavorable currency changes. Forward currency contracts will be used primarily to adjust the foreign exchange exposure of the fund with a view to protecting the portfolio from adverse currency movements, based on T. Rowe Prices outlook. However, forward currency contracts can also be used in an effort to benefit from a currency believed to be appreciating in value versus other currencies. The fund may invest in foreign currencies directly without holding any foreign securities denominated in those currencies.
Forward currency contracts involve special risks, including, but not limited to, the potential for significant volatility in currency markets, and the risk that in certain markets, particularly emerging markets, it is not possible to engage in effective foreign currency hedging. In addition, such transactions involve the risk that currency movements will not occur as anticipated by T. Rowe Price, which could reduce a funds total return. The fund might enter into foreign currency transactions under the following circumstances:
Lock In When the fund desires to lock in the U.S. dollar price on the purchase or sale of a security denominated in a foreign currency.
Cross Hedge If a particular currency is expected to decrease in value relative to another currency, the fund may sell the currency expected to decrease and purchase a currency that is expected to increase against the currency sold. The funds cross hedging transactions may involve currencies in which the funds holdings are denominated. However, the fund is not required to own securities in the particular currency being purchased or sold.
Direct Hedge If the fund seeks to eliminate substantially all of the risk of owning a particular currency or believes the portfolio could benefit from price appreciation in a given countrys bonds but did not want to hold the currency, it could employ a direct hedge back into the U.S. dollar. In either case, a fund would enter into a forward contract to sell the currency in which a portfolio security is denominated and purchase U.S. dollars at an exchange rate established at the time it initiated the contract. The cost of the direct hedge transaction may offset most, if not all, of the
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yield advantage offered by the foreign security, but the fund would hope to benefit from an increase (if any) in the value of the bond.
Proxy Hedge In certain circumstances, a different currency may be substituted for the currency in which the investment is denominated, as part of a strategy known as proxy hedging. In this case, the fund, having purchased a security, will sell a currency whose value is believed to be closely linked to the currency in which the security is denominated. This type of hedging entails greater risk than a direct hedge because it is dependent on a stable relationship between the two currencies paired as proxies, and that relationship may not always be maintained. The fund may also use these instruments to create a synthetic bond, which is issued in one currency with the currency component transformed into another currency.
Costs of Hedging When the fund purchases a foreign bond with a higher interest rate than is available on U.S. bonds of a similar maturity, the additional yield on the foreign bond could be substantially lessened if the fund were to enter into a direct hedge by selling the foreign currency and purchasing the U.S. dollar. This is what is known as the cost of hedging. A proxy hedge, which is less costly than a direct hedge, may attempt to reduce this cost through an indirect hedge back to the U.S. dollar.
It is important to note that hedging costs are treated as capital transactions and are not, therefore, deducted from a funds dividend distribution and are not reflected in its yield. Instead, such costs will, over time, be reflected in a funds net asset value per share and total return. Hedging may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in an increase (or decrease) in the amount of taxable dividends paid by the funds and could affect whether dividends paid by the funds are classified as capital gains or ordinary income.
Investments in Other Investment Companies
A fund may invest in other investment companies, including open-end funds, closed-end funds, and exchange-traded funds.
A fund may purchase the securities of another investment company to temporarily gain exposure to a portion of the market while awaiting purchase of securities or as an efficient means of gaining exposure to a particular asset class. The fund might also purchase shares of another investment company to gain exposure to the securities in the investment companys portfolio at times when the fund may not be able to buy those securities directly. Any investment in another investment company would be consistent with the funds objective and investment program.
The risks of owning another investment company are generally similar to the risks of investing directly in the securities in which that investment company invests. However, an investment company may not achieve its investment objective or execute its investment strategy effectively, which may adversely affect the funds
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performance. In addition, because closed-end funds and exchange-traded funds trade on a secondary market, their shares may trade at a premium or discount to the actual net asset value of their portfolio securities and their shares may have greater volatility because of the potential lack of liquidity.
As a shareholder of an investment company not sponsored by T. Rowe Price, the fund must pay its pro-rata share of that investment companys fees and expenses. The funds investments in non-T. Rowe Price investment companies are subject to the limits that apply to investments in other funds under the Investment Company Act of 1940 or under any applicable exemptive order.
A fund may also invest in certain other T. Rowe Price funds as a means of gaining efficient and cost-effective exposure to certain asset classes, provided the investment is consistent with the funds investment program and policies. Such an investment could allow the fund to obtain the benefits of a more diversified portfolio than might otherwise be available through direct investments in the asset class, and will subject the fund to the risks associated with the particular asset class. Examples of asset classes in which other T. Rowe Price mutual funds concentrate their investments include high yield bonds, floating rate loans, international bonds, emerging market bonds, and emerging market stocks. If the fund invests in another T. Rowe Price fund, the management fee paid by the fund will be reduced to ensure that the fund does not incur duplicate management fees as a result of its investment.
Illiquid Securities
Some fund holdings may be considered illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold in the ordinary course of business within seven days at approximately the prices at which they are valued. The determination of liquidity involves a variety of factors. Illiquid securities may include private placements that are sold directly to a small number of investors, usually institutions. Unlike public offerings, such securities are not registered with the SEC. Although certain of these securities may be readily sold, for example under Rule 144A of the Securities Act of 1933, others may have resale restrictions and can be illiquid. The sale of illiquid securities may involve substantial delays and additional costs, and a fund may only be able to sell such securities at prices substantially less than what it believes they are worth.
Operating policy Fund investments in illiquid securities are limited to 15% of net assets.
Types of Investment Management Practices
Reserve Position
A certain portion of fund assets will be held in reserves. Fund reserve positions can consist of: 1) shares of a T. Rowe Price internal money fund or short-term bond fund; 2) short-term, high-quality U.S. and foreign dollar-denominated money market securities, including repurchase agreements; and 3) U.S. dollar or non-U.S. dollar currencies. For temporary, defensive purposes, there is no limit on a funds holdings
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in reserves. If a fund has significant holdings in reserves, it could compromise the funds ability to achieve its objectives. The reserve position provides flexibility in meeting redemptions, paying expenses and managing cash flows into a fund, and can serve as a short-term defense during periods of unusual market volatility. Non-U.S. dollar reserves are subject to currency risk.
When-Issued Securities and Forwards
A fund may purchase securities on a when-issued or delayed delivery basis or may purchase or sell securities on a forward commitment basis. The price of these securities is fixed at the time of the commitment to buy, but delivery and payment take place after the customary settlement period for that type of security (often a month or more later). During the interim period, the price and yield of the securities can fluctuate, and typically no interest accrues to the purchaser. At the time of delivery, the market value of the securities may be more or less than the purchase or sale price. To the extent the fund remains fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time it purchases these securities, there will be greater fluctuations in the funds net asset value than if the fund did not purchase them.
Borrowing Money and Transferring Assets
A fund may borrow from banks, other persons, and other T. Rowe Price funds for temporary emergency purposes to facilitate redemption requests, or for other purposes consistent with fund policies as set forth in this prospectus. Such borrowings may be collateralized with fund assets, subject to restrictions.
Fundamental policy Borrowings may not exceed 331/3% of total assets.
Operating policy A fund will not transfer portfolio securities as collateral except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 331/3% of total assets. A fund will not purchase additional securities when borrowings exceed 5% of total assets.
Lending of Portfolio Securities
A fund may lend its securities to broker-dealers, other institutions, or other persons to earn additional income. Risks include the potential insolvency of the broker-dealer or other borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform as well as expected.
Fundamental policy The value of loaned securities may not exceed 331/3% of total assets.
Credit Quality Considerations
The credit quality of many fund holdings is evaluated by rating agencies such as Moodys Investors Service, Inc. (Moodys), Standard & Poors Corporation (S&P), and Fitch Ratings (Fitch) on the basis of the issuers ability to meet all required
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interest and principal payments. The highest ratings are assigned to issuers perceived to have the lowest credit risks. T. Rowe Price research analysts also evaluate fund holdings, including those rated by outside agencies. Other things being equal, lower-rated bonds and other debt obligations have higher yields due to greater credit risk. High-yield bonds, also called junk bonds, are those rated below BBB.
Credit quality ratings are not guarantees. They are estimates of an issuers financial strength and ability to make interest and principal payments as they come due. Ratings can change at any time due to real or perceived changes in an issuers credit or financial fundamentals.
The following table shows the rating scale used by the major rating agencies. T. Rowe Price considers publicly available ratings but emphasizes its own credit analysis when selecting investments.
Ratings of Corporate Debt Securities
Moodys | S & P | Fitch | Definition | |||||||
Long Term | Aaa | AAA | AAA | Highest quality | ||||||
Aa | AA | AA | High quality | |||||||
A | A | A | Upper-medium grade | |||||||
Baa | BBB | BBB | Medium grade | |||||||
Ba | BB | BB | Speculative | |||||||
B | B | B | Highly speculative | |||||||
Caa | CCC | CCC | Vulnerable to default | |||||||
Ca | CC | CC | Default is imminent | |||||||
C | C | C | Probably in default | |||||||
Moodys | S&P | Fitch | ||||||||
Commercial Paper | P-1 | Superior quality | A-1+ A-1 | Extremely strong quality Strong quality | F-1+ F-1 | Exceptionally strong quality Very strong quality | ||||
P-2 | Strong quality | A-2 | Satisfactory quality | F-2 | Good credit quality | |||||
P-3 | Acceptable quality | A-3 B C | Adequate quality Speculative quality Doubtful quality | F-3 | Fair credit quality |
Portfolio Turnover
Turnover is an indication of frequency of trading. A fund will not generally trade in securities for short-term profits, but when circumstances warrant, securities may be purchased and sold without regard to the length of time held. Each time a fund purchases or sells a security, it incurs a cost. This cost is reflected in its net asset value but not in its operating expenses. The higher the turnover rate, the higher the transaction costs and the greater the impact on a funds total return. Higher turnover can also increase the possibility of taxable capital gain distributions. The funds portfolio turnover rate is shown in the Financial Highlights table.
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Each T. Rowe Price funds portfolio holdings are disclosed on a regular basis in its semiannual and annual shareholder reports, and on Form N-Q, which is filed with the SEC within 60 days of the funds first and third fiscal quarter-end. The money funds also file detailed month-end portfolio holdings information with the SEC each month. Such information will be made available to the public 60 days after the end of the month to which the information pertains. In addition, the funds disclose their calendar quarter-end portfolio holdings on troweprice.com 15 calendar days after each quarter. Under certain conditions, up to 5% of a funds holdings may be included in this portfolio list without being individually identified. Generally, securities would not be individually identified if they are being actively bought or sold and it is determined that the quarter-end disclosure of the holding could be harmful to the fund. A security will not be excluded for these purposes from a funds quarter-end holdings disclosure for more than one year. Money funds also disclose their month-end portfolio holdings on troweprice.com five business days after each month. The quarter-end portfolio holdings will remain on the website for one year and the month-end money fund portfolio holdings will remain on the website for six months. Each fund also discloses its 10 largest holdings on troweprice.com on the seventh business day after each month-end. These holdings are listed in alphabetical order along with the aggregate percentage of the funds total assets that these 10 holdings represent. Each monthly top 10 list will remain on the website for six months. A description of T. Rowe Prices policies and procedures with respect to the disclosure of portfolio information is in the Statement of Additional Information.
The Financial Highlights table, which provides information about the funds Advisor Class financial history, is based on a single share outstanding throughout the periods shown. The classs section of the table is part of the funds financial statements, which are included in its annual report and are incorporated by reference into the Statement of Additional Information (available upon request). The total returns in the table represent the rate that an investor would have earned or lost on an investment in the funds Advisor Class (assuming reinvestment of all dividends and distributions and no payment of any applicable account or redemption fees). The financial statements in the annual report were audited by the funds independent registered public accounting firm, PricewaterhouseCoopers LLP.
More About the Fund | 37 |
Financial Highlights
5/24/12* | ||||
Net asset value, | $10.00 | |||
Income From Investment Operations | ||||
Net investment incomea | 0.28 | b | ||
Net gains or losses on | 0.93 | |||
Total from investment | 1.21 | |||
Less Distributions | ||||
Dividends (from net | (0.28 | ) | ||
Distributions (from | (0.02 | ) | ||
Returns of capital | | |||
Total distributions | (0.30 | ) | ||
Net asset value, | $10.91 | |||
Total return | 12.13 | % | ||
Ratios/Supplemental Data | ||||
Net assets, end of period | $292 | |||
Ratio of expenses to | 1.25 | %b,c | ||
Ratio of net income to | 4.30 | %b,c | ||
Portfolio turnover rate | 26.5 | % |
* Inception date.
a Per share amounts calculated using average shares outstanding method.
b Excludes expenses in excess of a 1.25% contractual expense limitation in effect through April 30, 2015.
c Annualized.
Investing With T. Rowe Price | 4 | |
Your fund shares must be purchased through a third-party intermediary, therefore please contact the intermediary for information regarding its policies on purchasing, exchanging, and redeeming fund shares, as well as initial and subsequent investment minimums. |
Tax Identification | The intermediary must provide T. Rowe Price with its certified taxpayer identification number. Otherwise, federal law requires the funds to withhold a percentage of dividends, capital gain distributions, and redemptions and may subject the intermediary or account holder to an Internal Revenue Service fine. If this information is not received within 60 days after the account is established, the account may be redeemed at the funds then-current net asset value. | |
All initial and subsequent
investments by intermediaries should be made by bank wire or electronic payment. For more information,
contact Financial Institution Services by calling |
Important Information About Opening an Account | Opening a New Account | |
Pursuant to federal law, all financial institutions must obtain, verify, and record information that identifies each person or entity that opens an account. |
| When an account is opened, the name, residential street address, date of birth, and Social Security or employer identification number for each account owner and person(s) opening an account on behalf of others (such as custodians, agents, trustees, or other authorized signers) must be provided. Corporate and other institutional accounts require documents showing the existence of the entity (such as articles of incorporation or partnership agreements) to open an |
Investing With T. Rowe Price | 39 |
|
| account. Certain other fiduciary accounts (such as trusts or power of attorney arrangements) require documentation, which may include an original or certified copy of the trust agreement or power of attorney to open an account. For more information, call Financial Institution Services. |
T. Rowe Price will use this information to verify the identity of the person(s)/entity opening the account. An account cannot be opened until all of this information is received. If the identity of the account holder cannot be verified, T. Rowe Price is authorized to take any action permitted by law. (See Rights Reserved by the Funds.) |
Intermediaries should call Financial Institution Services for an account number, assignment to a dedicated service representative, and wire transfer instructions. |
In order to obtain an account number, the intermediary must supply the name, Social Security or employer identification number, and business street address for the account. |
Intermediaries should complete a New Account form and mail it, with proper documentation identifying your firm, to one of the appropriate addresses listed below. Intermediaries must also enter into a separate agreement with the fund or its agent. The funds are generally available only to investors residing in the United States. |
via U.S. Postal Service |
via private carriers/overnight
services |
Note: Please use the correct address to avoid a delay in opening your new account. |
T. Rowe Price | 40 |
$100 minimum per fund for all additional purchases and $1,000 minimum required for Summit Funds (your intermediary may impose different minimums) |
By Wire | Intermediaries should call Financial Institution Services or access troweprice.com for wire transfer instructions. T. Rowe Price must receive the wire by the close of the New York Stock Exchange (normally 4 p.m. ET) to receive that days share price. There is no assurance that the share price for the purchase will be the same day the wire was initiated. | |
Exchange Service | Money can be moved from one account to an existing, identically registered account or a new identically registered account can be opened. Intermediaries should call their Financial Institution Services representative for more information or to place a trade. For exchange policies, please see Transaction Procedures and Special RequirementsExcessive and Short-Term Trading Policy. |
Redemptions | Unless otherwise indicated, redemption proceeds will be wired to the intermediarys designated bank. Intermediaries should contact their Financial Institution Services representative. |
Some of the T. Rowe Price funds may impose a redemption fee. Check the funds prospectus under Contingent Redemption Fee in Pricing Shares and Receiving Sale Proceeds. The fee is paid to the fund. |
If your account has no activity in it for a certain period of time, your intermediary may be required to transfer your account to the appropriate state under its abandoned property laws. |
Investing With T. Rowe Price | 41 |
T. Rowe Price funds and their agents, in their sole discretion, reserve the following rights: (1) to waive or lower investment minimums; (2) to accept initial purchases by telephone; (3) to refuse any purchase or exchange order; (4) to cancel or rescind any purchase or exchange order placed through an intermediary, no later than the business day after the order is received by the intermediary (including, but not limited to, orders deemed to result in excessive trading, market timing, or 5% ownership); (5) to cease offering fund shares at any time to all or certain groups of investors; (6) to freeze any account and suspend account services when notice has been received of a dispute regarding the ownership of the account or a legal claim against an account, or if there is reason to believe a fraudulent transaction may occur; (7) to otherwise modify the conditions of purchase and modify or terminate any services at any time; (8) to waive any wire, small account, maintenance, or fiduciary fees charged to a group of shareholders; (9) to act on instructions reasonably believed to be genuine; (10) to involuntarily redeem an account at the net asset value calculated the day the account is redeemed, in cases of threatening conduct, suspected fraudulent or illegal activity, or if the fund or its agent is unable, through its procedures, to verify the identity of the person(s) or entity opening an account; and (11) for money funds, to suspend redemptions and postpone the payment of proceeds to facilitate an orderly liquidation of the fund. | ||
T. Rowe Price | 42 |
In the course of doing business with T. Rowe Price, you share personal and financial information with us. We treat this information as confidential and recognize the importance of protecting access to it.
You may provide information when communicating or transacting business with us in writing, electronically, or by phone. For instance, information may come from applications, requests for forms or literature, and your transactions and account positions with us. On occasion, such information may come from consumer reporting agencies and those providing services to us.
We do not sell information about current or former customers to any third parties, and we do not disclose it to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law. We may share information within the T. Rowe Price family of companies in the course of providing or offering products and services to best meet your investing needs. We may also share that information with companies that perform administrative or marketing services for T. Rowe Price, with a research firm we have hired, or with a business partner, such as a bank or insurance company with which we are developing or offering investment products. When we enter into such a relationship, our contracts restrict the companies use of our customer information, prohibiting them from sharing or using it for any purposes other than those for which they were hired.
We maintain physical, electronic, and procedural safeguards to protect your personal information. Within T. Rowe Price, access to such information is limited to those who need it to perform their jobs, such as servicing your accounts, resolving problems, or informing you of new products or services. Finally, our Code of Ethics, which applies to all employees, restricts the use of customer information and requires that it be held in strict confidence.
This Privacy Policy applies to the following T. Rowe Price family of companies: T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price Trust Company; and the T. Rowe Price Funds.
A Statement of Additional Information for the T. Rowe Price family of funds, which includes additional information about the funds, has been filed with the SEC and is incorporated by reference into this prospectus. Further information about fund investments, including a review of market conditions and the managers recent investment strategies and their impact on performance during the past fiscal year, is available in the annual and semiannual shareholder reports. To obtain free copies of any of these documents, call your intermediary.
Fund information and Statements of Additional Information are also available from the Public Reference Room of the SEC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. Fund reports and other fund information are available on the EDGAR Database on the SECs Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Public Reference Room, Washington, D.C. 20549-1520.
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
1940 Act File No. 811-2958 E295-040 5/1/13
PROSPECTUS | |
PAELX | |
May 1, 2013 | |
T. Rowe Price Emerging Markets Local Currency Bond FundAdvisor Class | |
A fund seeking high income and capital appreciation through investments in bonds denominated in emerging markets currencies. This class of shares is sold only through financial intermediaries. | |
The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. | |
Table of Contents
1 | Summary | Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the Federal Deposit Insurance Corporation, Federal Reserve, or any other government agency, and are subject to investment risks, including possible loss of the principal amount invested. | |
Emerging Markets Local Currency Bond FundAdvisor Class 1 | |||
2 | Information About Accounts | ||
Pricing Shares and Receiving Sale Proceeds 7 Useful Information on Distributions and Taxes 11 Transaction Procedures and Special Requirements 15 Distribution, Shareholder Servicing, and Recordkeeping Fees 19 | |||
3 | More About the Fund | ||
Organization and Management 20 More Information About the Fund and Its Investment Risks 23 Investment Policies and Practices 28 Disclosure of Fund Portfolio Information 40 Financial Highlights 40 | |||
4 | Investing With T. Rowe Price | ||
Account Requirements and Transaction Information 42 Purchasing Additional Shares 44 Exchanging and Redeeming Shares 44 Rights Reserved by the Funds 45 T. Rowe Price Privacy Policy 46 |
SUMMARY
The fund seeks to provide high income and capital appreciation.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold shares of the fund.
Fees and Expenses of the Funds Advisor Class
Shareholder fees (fees paid directly from your investment) | |
Redemption fee (as a percentage of amount redeemed on shares held for 90 days or less) | 2.00% |
Annual
fund operating expenses | |
Management fees | 0.75% |
Distribution and service (12b-1) fees | 0.25% |
Other expenses | 3.78% |
Total annual fund operating expenses | 4.78% |
Fee waiver/expense reimbursement | 3.58%a |
Total annual fund operating expenses after fee waiver/expense reimbursement | 1.20%a |
a T. Rowe Price Associates, Inc. has agreed (through April 30, 2014) to waive its fees and/or bear any expenses (excluding interest, taxes, brokerage, extraordinary expenses, and acquired fund fees) that would cause the class ratio of expenses to average daily net assets to exceed 1.20%. Termination of the agreement would require approval by the funds Board of Directors. Fees waived and expenses paid under this agreement are subject to reimbursement to T. Rowe Price Associates, Inc. by the fund whenever the class expense ratio is below 1.20%. However, no reimbursement will be made more than three years after the waiver or if it would result in the expense ratio exceeding 1.20% (excluding interest, taxes, brokerage, extraordinary expenses, and acquired fund fees).
Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year, the funds operating expenses remain the same, and the expense limitation currently in place is not renewed. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year | 3 years | 5 years | 10 years |
$122 | $1,117 | $2,116 | $4,632 |
Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual
T. Rowe Price | 2 |
fund operating expenses or in the example, affect the funds performance. During the most recent fiscal year, the funds portfolio turnover rate was 82.3% of the average value of its portfolio.
Investments, Risks, and Performance
Principal Investment Strategies Under normal conditions, at least 80% of the funds net assets (including any borrowings for investment purposes) will be invested in bonds that are denominated in emerging markets currencies, and in derivative instruments that provide investment exposure to such securities. Emerging market bonds include fixed rate and floating rate bonds that are issued by governments, government agencies, and supranational organizations of, and corporate issuers located in or conducting the predominant part of their business activities in, the emerging market countries of Latin America, Asia, Europe, Africa, and the Middle East.
Investment decisions are based on fundamental research as well as market factors, such as yield and credit quality differences among bonds as well as supply and demand trends and currency values. The fund generally invests in securities where the combination of fixed-income returns and currency exchange rates appears attractive or, if the currency trend is unfavorable, where we believe the currency risk can be minimized through hedging. The fund may purchase bonds of any credit quality and there are no overall limits on the funds investments in bonds that are unrated or rated below investment-grade (also known as junk bonds). While the fund expects normally to maintain a weighted average maturity of at least 3 years, there are no maturity restrictions on the overall portfolio or on individual securities purchased by the fund.
Through the use of currency derivative instruments such as forward currency exchange contracts, currency swaps, foreign currency options, and currency futures, the fund has wide flexibility to purchase and sell currencies independently of whether the fund owns bonds in those currencies and to engage in currency hedging transactions. The funds currency positions will vary with its outlook on the strength or weakness of the U.S. dollar compared to foreign currencies and the relative value of various foreign currencies to one another. Currency hedging into the U.S. dollar is permitted, but not required, and the fund will be heavily exposed to foreign currencies. The funds overall net short positions in currencies (including the U.S. dollar) are limited to 10% of its net assets. A short position in a currency allows the fund to sell a currency in excess of the value of its holdings denominated in that currency or sell a currency even if it does not hold any assets denominated in the currency. In addition, the fund may use interest rate swaps and futures in order to take long or short positions with respect to its exposure to a particular country, subject to the investment restrictions applicable to futures and swaps.
The fund is nondiversified, meaning it may invest a greater portion of its assets in fewer issuers than is permissible for a diversified fund.
Summary | 3 |
The fund may sell holdings for a variety of reasons, such as to alter geographic or currency exposure, to adjust its average maturity, duration, or credit quality, or to shift assets into or out of higher-yielding securities.
Principal Risks As with any mutual fund, there is no guarantee that the fund will achieve its objective. The funds share price fluctuates, which means you could lose money by investing in the fund. The principal risks of investing in this fund are summarized as follows:
Active management risk The fund is subject to the risk that the investment advisers judgments about the attractiveness, value, or potential appreciation of the funds investments may prove to be incorrect. If the securities selected and strategies employed by the fund fail to produce the intended results, the fund could underperform other funds with similar objectives and investment strategies.
International investing risk Investing in the securities of non-U.S. issuers involves special risks not typically associated with investing in U.S. securities. International securities tend to be more volatile and less liquid than investments in U.S. securities and may lose value because of adverse political, social, or economic developments overseas. In addition, international investments may be subject to regulatory and accounting standards that differ from those of the U.S.
Emerging markets risk The risks of international investing are heightened for securities of issuers in emerging market countries. Emerging market countries tend to have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. In addition to all of the risks of investing in international developed markets, emerging markets are more susceptible to governmental interference, local taxes being imposed on international investments, restrictions on gaining access to sales proceeds, and less liquid and efficient trading markets.
Currency risk Because the funds emphasis is on investing in securities denominated in the currencies of emerging market countries, the fund is subject to the significant risk that it could experience losses based solely on the weakness of foreign currencies versus the U.S. dollar and changes in the exchange rates between such currencies and the U.S. dollar.
Hedging risk The funds attempts at hedging and taking long and short positions in currencies may not be successful and could cause the fund to lose money or fail to get the benefit of a gain on a hedged position. If currency values and exchange rates do not move in the anticipated direction, the fund could be in a worse position than if it had not entered into such transactions.
Credit risk This is the risk that an issuer of a debt security could suffer an adverse change in financial condition that results in a payment default, security downgrade, or inability to meet a financial obligation. The risk of default is much greater for emerging market bonds and securities rated as below investment-grade (junk
T. Rowe Price | 4 |
bonds). The fund is exposed to greater credit risk than other bond funds because companies and governments in emerging markets are usually not as strong financially and are more susceptible to economic downturns. Junk bonds should be considered speculative as they carry greater risks of default and erratic price swings due to real or perceived changes in the credit quality of the issuer.
Interest rate risk This risk refers to the chance that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Generally, securities with longer maturities and funds with longer weighted average maturities carry greater interest rate risk. The monetary policies of emerging markets countries tend to make the impact and likelihood of local interest rate changes more difficult to predict.
Liquidity risk This is the risk that the fund may not be able to sell a holding in a timely manner at a desired price.
Nondiversification risk As a nondiversified fund, the fund has the ability to invest a larger percentage of its assets in the securities of a smaller number of issuers than a diversified fund. As a result, poor performance by a single issuer could adversely affect fund performance more than if the fund were invested in a larger number of issuers. The funds share price can be expected to fluctuate more than that of a comparable diversified fund.
Derivatives risk To the extent the fund uses forward currency exchange contracts, swaps, options, or futures, it is exposed to additional volatility in comparison to investing directly in bonds and other debt securities. These instruments can be illiquid and difficult to value, may involve leverage so that small changes produce disproportionate losses for the fund, and instruments not traded on an exchange are subject to the risk that a counterparty to the transaction will fail to meet its obligations under the derivatives contract. The funds principal use of derivatives involves the risk that anticipated changes in currency values, currency exchange rates, or interest rate movements will not be accurately predicted, which could significantly harm the funds performance, and the chance that regulatory developments could negatively affect the funds investments in such instruments. Taking a short position in a particular currency could cause the fund to lose money if the currency appreciates in value.
Performance The bar chart showing calendar year returns and the average annual total returns table indicate risk by illustrating how much returns can differ from one year to the next and how fund performance compares with that of a comparable market index. The funds past performance (before and after taxes) is not necessarily an indication of future performance.
The fund can also experience short-term performance swings, as shown by the best and worst calendar quarter returns during the year depicted.
Summary | 5 |
In addition, the average annual total returns table shows hypothetical after-tax returns to suggest how taxes paid by a shareholder may influence returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as a 401(k) account or individual retirement account.
Average Annual Total Returns | ||||||||
|
|
| Periods ended |
| ||||
| December 31, 2012 |
| ||||||
| Since inception |
| ||||||
| 1 Year | (5/26/11) |
| |||||
| Emerging Markets Local Currency Bond Fund-Advisor Class |
| ||||||
| Returns before taxes | 17.71 | % |
| 4.73 | % |
| |
| Returns after taxes on distributions | 16.44 |
|
| 3.66 |
|
| |
| Returns after taxes on distributions |
|
|
|
|
|
| |
| and sale of fund shares | 11.47 |
|
| 3.37 |
|
| |
| J.P. Morgan GBI - EM Global Diversified (reflects no deduction for fees, expenses, or taxes) | 16.76 |
|
| 5.88 |
|
| |
| Lipper Emerging Markets Local Debt Funds Average | 16.13 |
|
| 4.06 | * |
|
* Since 5/31/11.
Updated performance information is available through troweprice.com or may be obtained by calling 1-800-638-8790.
T. Rowe Price | 6 |
Management
Investment Adviser T. Rowe Price Associates, Inc. (T. Rowe Price)
Investment Sub-adviser T. Rowe Price International Ltd (T. Rowe Price International)
Portfolio Manager | Title | Managed Fund Since | Joined Investment |
Andrew J. Keirle | Chairman of Investment Advisory Committee | 2011 | 2005 |
Purchase and Sale of Fund Shares
For retirement plan accounts and Uniform Gifts to Minors Act or Uniform Transfers to Minors Act accounts, generally the funds minimum initial investment requirement is $1,000 and, for all other accounts, generally the funds minimum initial investment requirement is $2,500. The funds minimum subsequent investment requirement is $100. Your financial intermediary may impose different investment minimums.
You may purchase, redeem, or exchange shares of the fund on any day the New York Stock Exchange is open for business. You must purchase, redeem, and exchange shares through your financial intermediary.
Tax Information
The fund declares dividends daily and pays them on the first business day of each month. Any capital gains are declared and paid annually, usually in December. Distributions by the fund, whether or not you reinvest these amounts in additional fund shares, may be taxed as ordinary income or capital gains unless you invest through a tax-deferred account. A redemption or exchange of fund shares may be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
Information About Accounts in T. Rowe Price Funds | 2 | |
As a T. Rowe Price shareholder, you will want to know about the following policies and procedures that apply to Advisor Class accounts in the T. Rowe Price family of funds.
How and When Shares Are Priced
The share price, also called the net asset value, for each class of shares is calculated at the close of the New York Stock Exchange (normally 4 p.m. ET) each day that the exchange is open for business. To calculate the net asset value, the funds assets are valued and totaled; liabilities are subtracted; and each classs proportionate share of the balance, called net assets, is divided by the number of shares outstanding of that class. Market values are used to price portfolio holdings for which market quotations are readily available. Market values represent the prices at which securities actually trade or evaluations based on the judgment of the funds pricing services. If a market value for a security is not available or normal valuation procedures are deemed to be inappropriate, the fund will make a good faith effort to assign a fair value to the security by taking into account various factors that have been approved by the funds Board of Directors/Trustees. This value may differ from the value the fund receives upon sale of the securities. Amortized cost is used to price securities held by money funds and certain other debt securities held by a fund. Investments in other mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation.
Non-U.S. equity securities are valued on the basis of their most recent closing market prices at 4 p.m. ET except under the circumstances described below. Most foreign markets close before 4 p.m. ET. For securities primarily traded in the Far East, for example, the most recent closing prices may be as much as 15 hours old at 4 p.m. ET. If a fund determines that developments between the close of a foreign market and the close of the New York Stock Exchange will, in its judgment, materially affect the value of some or all of the funds securities, the fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of 4 p.m. ET. In deciding whether to make these adjustments, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The fund may also fair value certain securities or a group of securities in other situationsfor example, when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with closing market prices and information used for adjusting those prices and to value most fixed income
T. Rowe Price | 8 |
securities. The fund cannot predict how often it will use closing prices and how often it will adjust those prices. As a means of evaluating its fair value process, the fund routinely compares closing market prices, the next days opening prices in the same markets, and adjusted prices. The fund also evaluates a variety of factors when assigning fair values to private placements and other restricted securities. Other mutual funds may adjust the prices of their securities by different amounts or assign different fair values than the fair value that the fund assigns to the same security.
How Your Purchase, Sale, or Exchange Price Is Determined
Advisor Class shares are intended for purchase through various third-party intermediaries, including brokers, banks, insurance companies, retirement plan recordkeepers, and others. Contact your intermediary to find out how to purchase, sell, or exchange your shares; trade deadlines; and other applicable procedures for these transactions. The intermediary may charge a fee for its services.
The fund may have an agreement with your intermediary that permits the intermediary to accept orders on behalf of the fund until the close of the New York Stock Exchange (normally 4 p.m. ET). In such cases, if your order is received by the intermediary in correct form by the close of the New York Stock Exchange and is transmitted to T. Rowe Price and paid for in accordance with the agreement, the transaction will be priced at the next net asset value computed after the intermediary received your order. If the fund does not have an agreement with your intermediary, T. Rowe Price must receive the request in correct form from your intermediary by the close of the New York Stock Exchange in order for your transaction to be priced at that business days net asset value.
When authorized by the fund, certain financial institutions or retirement plans purchasing fund shares on behalf of customers or plan participants through T. Rowe Price Financial Institution Services or T. Rowe Price Retirement Plan Services may place a purchase order unaccompanied by payment. Payment for these shares must be received by the time designated by the fund (not to exceed the period established for settlement under applicable regulations). If payment is not received by this time, the order may be canceled. The financial institution or retirement plan is responsible for any costs or losses incurred by the fund or T. Rowe Price if payment is delayed or not received.
Note: The time at which transactions and shares are priced and the time until which orders are accepted by the fund or an intermediary may be changed in case of an emergency or if the New York Stock Exchange closes at a time other than 4 p.m. ET. In the event of an emergency closing, a funds shareholders will receive the next share price calculated by the fund. There may be times when you are unable to contact us by telephone or access your account online due to extreme market activity, the unavailability of the T. Rowe Price website, or other circumstances. Should this occur, your order must still be placed and accepted by T. Rowe Price prior to the
Information About Accounts in T. Rowe Price Funds | 9 |
time the New York Stock Exchange closes to be priced at that business days net asset value.
How Proceeds Are Received
Normally, the fund transmits proceeds to intermediaries for redemption orders received in correct form on either the next or third business day after receipt, depending on the arrangement with the intermediary. Under certain circumstances, and when deemed to be in a funds best interests, proceeds may not be sent to intermediaries for up to seven calendar days after receipt of the redemption order. You must contact your intermediary about procedures for receiving your redemption proceeds.
Contingent Redemption Fee
Short-term trading can disrupt a funds investment program and create additional costs for long-term shareholders. For these reasons, certain T. Rowe Price funds, listed in the following table, assess a fee on redemptions (including exchanges out of a fund), which reduces the proceeds from such redemptions by the amounts indicated:
T. Rowe Price Advisor Class Funds With Redemption Fees | ||
Fund | Redemption fee | Holding period |
Emerging Markets Corporate BondAdvisor Class | 2% | 90 days or less |
Emerging Markets Local Currency BondAdvisor Class | 2% | 90 days or less |
Floating RateAdvisor Class | 2% | 90 days or less |
Global InfrastructureAdvisor Class | 2% | 90 days or less |
Global Large-Cap StockAdvisor Class | 2% | 90 days or less |
Global Real EstateAdvisor Class | 2% | 90 days or less |
Global StockAdvisor Class | 2% | 90 days or less |
High YieldAdvisor Class | 2% | 90 days or less |
International BondAdvisor Class | 2% | 90 days or less |
International Growth & IncomeAdvisor Class | 2% | 90 days or less |
International StockAdvisor Class | 2% | 90 days or less |
Real EstateAdvisor Class | 1% | 90 days or less |
Small-Cap ValueAdvisor Class | 1% | 90 days or less |
Tax-Free High YieldAdvisor Class | 2% | 90 days or less |
Redemption fees are paid to a fund to deter short-term trading, offset costs, and protect the funds long-term shareholders. Subject to the exceptions described on the following pages, all persons holding shares of a T. Rowe Price fund that imposes a redemption fee are subject to the fee, whether the person is holding shares directly with a T. Rowe Price fund; through a retirement plan for which T. Rowe Price serves
T. Rowe Price | 10 |
as recordkeeper; or indirectly through an intermediary (such as a broker, bank, or investment adviser), recordkeeper for retirement plan participants, or other third party.
Computation of Holding Period
When an investor sells shares of a fund that assesses a redemption fee, T. Rowe Price will use the first-in, first-out method to determine the holding period for the shares sold. Under this method, the date of redemption or exchange will be compared with the earliest purchase date of shares held in the account. The day after the date of your purchase is considered Day 1 for purposes of computing the holding period. A redemption fee will be charged on shares sold on or before the end of the required holding period. For example, if you redeem your shares on or before the 90th day after the date of purchase, you will be assessed the redemption fee. If you purchase shares through an intermediary, consult your intermediary to determine how the holding period will be applied.
Transactions Not Subject to Redemption Fees
The T. Rowe Price funds will not assess a redemption fee with respect to certain transactions. As of the date of this prospectus, the following shares of T. Rowe Price funds will not be subject to redemption fees:
· Shares redeemed through an automated, systematic withdrawal plan;
· Shares redeemed through or used to establish certain rebalancing, asset allocation, wrap, and advisory programs, as well as non-T. Rowe Price fund-of-funds products, if approved in writing by T. Rowe Price;
· Shares purchased through the reinvestment of dividends or capital gain distributions; *
· Shares converted from one share class to another share class of the same fund;*
· Shares redeemed automatically by a fund to pay fund fees or shareholder account fees (e.g., for failure to meet account minimums);
· Shares purchased by rollover or changes of account registration within the same fund; *
· Shares redeemed to return an excess contribution from a retirement account;
· Shares of T. Rowe Price funds purchased by another T. Rowe Price fund and shares purchased by discretionary accounts managed by T. Rowe Price or one of its affiliates (please note that other shareholders of the investing T. Rowe Price fund are still subject to the policy);
· Shares that are redeemed in-kind;
· Shares transferred to T. Rowe Price or a third-party intermediary acting as a service provider when the age of the shares cannot be determined systematically; * and
· Shares redeemed in retirement plans or other products that restrict trading to no more frequently than once per quarter, if approved in writing by T. Rowe Price.
* Subsequent exchanges of these shares into funds that assess redemption fees will subject such shares to the fee.
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Redemption Fees on Shares Held in Retirement Plans
If shares are held in a retirement plan, redemption fees generally will be assessed on shares redeemed by exchange only if they were originally purchased by exchange. However, redemption fees may apply to transactions other than exchanges depending on how shares of the plan are held at T. Rowe Price or how the fees are applied by your plans recordkeeper. To determine which of your transactions are subject to redemption fees, you should contact T. Rowe Price or your plan recordkeeper.
Omnibus Accounts
If your shares are held through an intermediary in an omnibus account, T. Rowe Price relies on the intermediary to assess the redemption fee on underlying shareholder accounts. T. Rowe Price seeks to identify intermediaries establishing omnibus accounts and to enter into agreements requiring the intermediary to assess the redemption fees. There are no assurances that T. Rowe Price will be successful in identifying all intermediaries or that the intermediaries will properly assess the fees.
Certain intermediaries may not apply the exemptions previously listed to the redemption fee policy; all redemptions by persons trading through such intermediaries may be subject to the fee. Certain intermediaries may exempt transactions not listed from redemption fees, if approved by T. Rowe Price. Persons redeeming shares through an intermediary should check with their respective intermediary to determine which transactions are subject to the fees.
Each fund intends to qualify to be treated each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. In order to qualify, a fund must satisfy certain income, diversification, and distribution requirements. A regulated investment company is not subject to U.S. federal income tax at the portfolio level on income and gains from investments that are distributed to shareholders. However, if a fund were to fail to qualify as a regulated investment company, and was ineligible to or otherwise did not cure such failure, the result would be fund-level taxation and, consequently, a reduction in income available for distribution to the funds shareholders.
To the extent possible, all net investment income and realized capital gains are distributed to shareholders.
Dividends and Other Distributions
Dividend and capital gain distributions are reinvested in additional fund shares in your account unless you select another option. Reinvesting distributions results in compounding, which allows you to receive dividends and capital gain distributions on an increasing number of shares.
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Interest will not accrue on amounts represented by uncashed distributions or redemption checks.
The following table provides details on dividend payments:
Dividend Payment Schedule | |
Fund | Dividends |
Bond funds | · Shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price. · Declared daily and paid on the first business day of each month. |
These stock funds only: · Dividend GrowthAdvisor Class · Equity IncomeAdvisor Class · Global Real EstateAdvisor Class · Real EstateAdvisor Class | · Declared and paid quarterly, if any, in March, June, September, and December. · Must be a shareholder on the dividend record date. |
Other stock funds | · Declared and paid annually, if any, generally in December. · Must be a shareholder on the dividend record date. |
Retirement Funds: | |
· Retirement IncomeAdvisor Class | · Shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price. · Declared daily and paid on the first business day of each month. |
· All others | · Declared and paid annually, if any, generally in December. · Must be a shareholder on the dividend record date. |
Bond fund shares will earn dividends through the date of redemption. Shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business day. Generally, if you redeem all of your bond fund shares at any time during the month, you will also receive all dividends earned through the date of redemption in the same check. When you redeem only a portion of your bond fund shares, all dividends accrued on those shares will be reinvested, or paid in cash, on the next dividend payment date. The funds do not pay dividends in fractional cents. Any dividend amount earned for a particular day on all shares held that is one-half of one cent or greater (for example, $0.016) will be rounded up to the next whole cent ($0.02), and any amount that is less than one-half of one cent (for example, $0.014) will be rounded down to the nearest whole cent ($0.01). Please note that, if the dividend payable on all shares held is less than one-half of one cent for a particular day, no dividend will be earned for that day.
If you purchase and sell your shares through an intermediary, consult your intermediary to determine when your shares begin and stop accruing dividends; the information previously described may vary.
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Capital Gain Payments
A capital gain or loss is the difference between the purchase and sale price of a security. If a fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December to shareholders of record on a specified date that month. If a second distribution is necessary, it is paid the following year.
Tax Information
You should contact your intermediary for the tax information that will be sent to you and reported to the Internal Revenue Service.
If you invest in the fund through a tax-deferred account, such as an individual retirement account, you will not be subject to tax on dividends and distributions from the fund or the sale of fund shares if those amounts remain in the tax-deferred account. You may receive a Form 1099-R or other Internal Revenue Service forms, as applicable, if any portion of the account is distributed to you.
If you invest in the fund through a taxable account, you generally will be subject to tax when:
· You sell fund shares, including an exchange from one fund to another.
· The fund makes dividend or capital gain distributions.
For individual shareholders, a portion of ordinary dividends representing qualified dividend income received by the fund may be subject to tax at the lower rates applicable to long-term capital gains rather than ordinary income. You may report it as qualified dividend income in computing your taxes, provided you have held the fund shares on which the dividend was paid for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Ordinary dividends that do not qualify for this lower rate are generally taxable at the investors marginal income tax rate. This includes the portion of ordinary dividends derived from interest, short-term capital gains, distributions from nonqualified foreign corporations, and dividends received by the fund from stocks that were on loan. Little, if any, of the ordinary dividends paid by the Global Real Estate FundAdvisor Class, Real Estate FundAdvisor Class, or the bond fund Advisor Classes is expected to qualify for this lower rate.
For corporate shareholders, a portion of ordinary dividends may be eligible for the 70% deduction for dividends received by corporations to the extent the funds income consists of dividends paid by U.S. corporations. Little, if any, of the ordinary dividends paid by the international stock or bond fund Advisor Classes is expected to qualify for this deduction.
Regular monthly dividends from the Summit Municipal Income FundAdvisor Class, Summit Municipal Intermediate FundAdvisor Class, Tax-Free High Yield FundAdvisor Class, Tax-Free Income FundAdvisor Class, and the Tax-Free Short-Intermediate FundAdvisor Class are expected to be exempt from federal income
T. Rowe Price | 14 |
taxes. Exemption is not guaranteed since the fund has the right under certain conditions to invest in nonexempt securities. You must report your total tax-free income on Internal Revenue Service Form 1040. The Internal Revenue Service uses this information to help determine the tax status of any Social Security payments you may have received during the year. Tax-exempt dividends paid to Social Security recipients may increase the portion of benefits that is subject to tax.
Beginning in 2013, a 3.8% net investment income tax is imposed on net investment income, including interest, dividends, and capital gains, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing jointly) and of estates and trusts.
Taxes on Fund Redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange from one fund to another in a taxable account is also a sale for tax purposes.
Taxes on Fund Distributions
The tax treatment of a capital
gain distribution is determined by how long the fund held the portfolio securities, not how long you
held the shares in the fund.
Short-term (one year or less) capital gain distributions are taxable
at the same rate as ordinary income, and gains on securities held more than one year are taxed at the
lower rates applicable to long-term capital gains. If you realized a loss on the sale or exchange of
fund shares that you held six months or less, your short-term capital loss must be reclassified as a
long-term capital loss to the extent of any long-term capital gain distributions received during the
period you held the shares. For funds investing in foreign securities, distributions resulting from the
sale of certain foreign currencies, currency contracts, and the foreign currency portion of gains on
debt securities are taxed as ordinary income. Net foreign currency losses may cause monthly or quarterly
dividends to be reclassified as returns of capital.
If the fund qualifies and elects to pass through nonrefundable foreign income taxes paid to foreign governments during the year, your portion of such taxes will be reported to you as taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for those amounts. There can be no assurance that a fund will meet the requirements to pass through foreign income taxes paid.
If a fund holds Build America Bonds or other qualified tax credit bonds and elects to pass through the corresponding interest income and any available tax credits, you will need to report both the interest income and any such tax credits as taxable income. You may be able to claim the tax credits on your federal tax return as an offset to your income tax (including alternative minimum tax) liability, but the tax credits generally are not refundable. There is no assurance, however, that a fund will elect to pass through the income and credits.
For the tax-free bond fund Advisor Classes, gains realized on the sale of market discount bonds with maturities beyond one year may be treated as ordinary income
Information About Accounts in T. Rowe Price Funds | 15 |
and cannot be offset by other capital losses, and payments received or gains realized on certain derivative transactions may result in taxable ordinary income or capital gain. To the extent the fund invests in these securities, the likelihood of a taxable gain distribution will be increased.
For the Retirement Funds, distributions by the underlying funds and changes in asset allocations may result in taxable distributions of ordinary income or capital gains.
Taxable distributions are subject to tax whether reinvested in additional shares or received in cash.
Tax Consequences of Hedging
Entering into certain transactions involving options, futures, swaps, and forward currency exchange contracts may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in a fund being required to distribute gains on such transactions even though it did not close the contracts during the year or receive cash to pay such distributions. The fund may not be able to reduce its distributions for losses on such transactions to the extent of unrealized gains in offsetting positions.
Tax Effect of Buying Shares Before an Income Dividend or Capital Gain Distribution
If you buy shares shortly before or on the record datethe date that establishes you as the person to receive the upcoming distributionyou may receive a portion of the money you just invested in the form of a taxable distribution. Therefore, you may wish to find out a funds record date before investing. In addition, a funds share price may, at any time, reflect undistributed capital gains or income and unrealized appreciation, which may result in future taxable distributions. Such distributions can occur even in a year when the fund has a negative return.
The Advisor Class is a share class of its respective T. Rowe Price fund and is not a separate mutual fund. The funds Advisor Class shares are intended for purchase through various third-party intermediaries, including brokers, banks, insurance companies, retirement plan recordkeepers, and other financial intermediaries that provide various distribution and administrative services.
The Advisor Class is designed for use by investors investing through intermediaries and requires an agreement between the intermediary and T. Rowe Price to be executed prior to investment. Purchases of Advisor Class shares for which the required agreement with T. Rowe Price has not been executed, or that are not made through an eligible intermediary, are subject to rejection or cancellation without prior notice to the intermediary or investor. Existing investments in the Advisor Class shares that are not held through an eligible intermediary may be transferred by
T. Rowe Price | 16 |
T. Rowe Price to another class (with lower expenses) in the same fund following notice to the intermediary or shareholder.
Purchase Conditions for Intermediaries
Nonpayment If the fund does not receive payment for an order in a timely manner, your purchase may be canceled. The intermediary will be responsible for any losses or expenses incurred by the fund or transfer agent. The funds and their agents have the right to reject or cancel any purchase, exchange, or redemption due to nonpayment.
U.S. Dollars All purchases must be paid for in U.S. dollars; checks must be drawn on U.S. banks.
Sale (Redemption) Conditions
Holds on Immediate Redemptions: 10-Day Hold If an intermediary sells shares that it just purchased and paid for by check or Automated Clearing House transfer, the fund will process the redemption but generally will delay sending the proceeds for up to 10 calendar days to allow the check or transfer to clear. (The 10-day hold does not apply to purchases paid for by bank wire.)
Large Redemptions Large redemptions can adversely affect a portfolio managers ability to implement a funds investment strategy by causing the premature sale of securities. Therefore, the fund reserves the right (without prior notice) to pay all or part of redemption proceeds with securities from the funds portfolio rather than in cash (redemption in-kind). If this occurs, the securities will be selected by the fund in its absolute discretion, and the redeeming shareholder or account will be responsible for disposing of the securities and bearing any associated costs.
Excessive and Short-Term Trading Policy
Excessive transactions and short-term trading can be harmful to fund shareholders in various ways, such as disrupting a funds portfolio management strategies, increasing a funds trading costs, and negatively affecting its performance. Short-term traders in funds that invest in foreign securities may seek to take advantage of developments overseas that could lead to an anticipated difference between the price of the funds shares and price movements in foreign markets. While there is no assurance that T. Rowe Price can prevent all excessive and short-term trading, the Boards of Directors/Trustees of the T. Rowe Price funds have adopted the following trading limits that are designed to deter such activity and protect the funds shareholders. The funds may revise their trading limits and procedures at any time as the Boards of Directors/Trustees deem necessary or appropriate to better detect short-term trading that may adversely affect the funds, to comply with applicable regulatory requirements, or to impose additional or alternative restrictions.
Subject to certain exceptions, each T. Rowe Price fund restricts a shareholders purchases (including through exchanges) into a fund account for a period of 30 calendar days after the shareholder has redeemed or exchanged out of that same
Information About Accounts in T. Rowe Price Funds | 17 |
fund account (the 30-Day Purchase Block). The calendar day after the date of redemption is considered Day 1 for purposes of computing the period before another purchase may be made.
General Exceptions As of the date of this prospectus, the following types of transactions generally are not subject to the 30-Day Purchase Block:
· Shares purchased or redeemed in money funds;
· Shares purchased or redeemed through a systematic purchase or withdrawal plan;
· Checkwriting redemptions from bond and money funds;
· Shares purchased through the reinvestment of dividends or capital gain distributions;
· Shares redeemed automatically by a fund to pay fund fees or shareholder account fees;
· Transfers and changes of account registration within the same fund;
· Shares purchased by asset transfer or direct rollover;
· Shares purchased or redeemed through IRA conversions and recharacterizations;
· Shares redeemed to return an excess contribution from a retirement account;
· Transactions in Section 529 college savings plans;
· Shares converted from one share class to another share class in the same fund; and
· Shares of T. Rowe Price funds that are purchased by another T. Rowe Price fund, including shares purchased by T. Rowe Price fund-of-funds products, and shares purchased by discretionary accounts managed by T. Rowe Price or one of its affiliates (please note that shareholders of the investing T. Rowe Price fund are still subject to the policy).
Transactions in certain rebalancing, asset allocation, wrap programs, and other advisory programs, as well as non-T. Rowe Price fund-of-funds products, may also be exempt from the 30-Day Purchase Block, subject to prior written approval by T. Rowe Price.
In addition to restricting transactions in accordance with the 30-Day Purchase Block, T. Rowe Price may, in its discretion, reject (or instruct an intermediary to reject) any purchase or exchange into a fund from a person (which includes individuals and entities) whose trading activity could disrupt the management of the fund or dilute the value of the funds shares, including trading by persons acting collectively (e.g., following the advice of a newsletter). Such persons may be barred, without prior notice, from further purchases of T. Rowe Price funds for a period longer than 30 calendar days or permanently.
Intermediary Accounts If you invest in T. Rowe Price funds through an intermediary, you should review the intermediarys materials carefully or consult with the intermediary directly to determine the trading policy that will apply to your trades in the funds as well as any other rules or conditions on transactions that may apply. If T. Rowe Price is unable to identify a transaction placed through an intermediary as exempt from the excessive trading policy, the 30-Day Purchase Block may apply.
T. Rowe Price | 18 |
Intermediaries may maintain their underlying accounts directly with the fund, although they often establish an omnibus account (one account with the fund that represents multiple underlying shareholder accounts) on behalf of their customers. When intermediaries establish omnibus accounts in the T. Rowe Price funds, T. Rowe Price is not able to monitor the trading activity of the underlying shareholders. However, T. Rowe Price monitors aggregate trading activity at the intermediary (omnibus account) level in an attempt to identify activity that indicates potential excessive or short-term trading. If it detects suspicious trading activity, T. Rowe Price contacts the intermediary and may request personal identifying information and transaction histories for some or all underlying shareholders (including plan participants, if applicable). If T. Rowe Price believes that excessive or short-term trading has occurred, it will instruct the intermediary to impose restrictions to discourage such practices and take appropriate action with respect to the underlying shareholder, including restricting purchases for 30 calendar days or longer. There is no assurance that T. Rowe Price will be able to properly enforce its excessive trading policies for omnibus accounts. Because T. Rowe Price generally relies on intermediaries to provide information and impose restrictions for omnibus accounts, its ability to monitor and deter excessive trading will be dependent upon the intermediaries timely performance of their responsibilities.
T. Rowe Price may allow an intermediary or other third party to maintain restrictions on trading in the T. Rowe Price funds that differ from the 30-Day Purchase Block. An alternative excessive trading policy would be acceptable to T. Rowe Price if it believes that the policy would provide sufficient protection to the T. Rowe Price funds and their shareholders that is consistent with the excessive trading policy adopted by the funds Boards of Directors/Trustees.
Retirement Plan Accounts If
shares are held in a retirement plan, generally the
30-Day Purchase Block applies only to shares redeemed
by a participant-directed exchange to another fund. However, the 30-Day Purchase Block may apply to transactions
other than exchanges depending on how shares of the plan are held at T. Rowe Price or the excessive
trading policy applied by your plans recordkeeper. An alternative excessive trading policy may
apply to the T. Rowe Price funds where a retirement plan has its own policy deemed acceptable to
T. Rowe Price. You should contact T. Rowe Price or your plan recordkeeper to determine which
of your transactions are subject to the funds 30-Day Purchase Block or an alternative policy.
There is no guarantee that T. Rowe Price will be able to identify or prevent all excessive or short-term trades or trading practices.
Signature Guarantees
An intermediary may need to obtain a signature
guarantee in certain situations,
such as:
· Written requests to redeem over $5 million and wire the redemption proceeds to a bank account not on file;
Information About Accounts in T. Rowe Price Funds | 19 |
· Remitting redemption proceeds to any person, address, or bank account not on record; or
· Changing the account registration or broker-dealer of record for an account.
Intermediaries should consult their T. Rowe Price Financial Institution Services representative for specific requirements.
The signature guarantee must be obtained from a financial institution that is a participant in a Medallion signature guarantee program. You can obtain a Medallion signature guarantee from most banks, savings institutions, broker-dealers, and other guarantors acceptable to T. Rowe Price. When obtaining a Medallion signature guarantee, please discuss with the guarantor the dollar amount of your proposed transaction. It is important that the level of coverage provided by the guarantors stamp covers the dollar amount of the transaction or it may be rejected. We cannot accept guarantees from notaries public or organizations that do not provide reimbursement in the case of fraud.
The Advisor Class has adopted a 12b-1 plan under which it pays a fee at a rate of up to 0.25% of its average daily net assets per year to various unaffiliated intermediaries, such as brokers, banks, insurance companies, and retirement plan recordkeepers for distribution and/or shareholder servicing of the Advisor Class shares. Distribution payments may include payments to intermediaries for making the Advisor Class shares available to their customers (e.g., providing the fund with shelf space or inclusion on a preferred list or supermarket platform). Shareholder servicing payments may include payments to intermediaries for providing shareholder support services to existing shareholders of the Advisor Class. These payments may be more or less than the costs incurred by the intermediaries. Because the fees are paid from the Advisor Class net assets on an ongoing basis, they will increase the cost of your investment and, over time, could result in your paying more than with other types of sales charges. The Advisor Class may also separately compensate intermediaries at a rate of up to 0.15% of average daily net assets per year for various recordkeeping and transfer agent services they perform. These services include maintaining separate records for each customer, transmitting net purchase and redemption orders, mailing shareholder confirmations and periodic statements, and providing telephone and Internet support to respond to questions regarding the customers account.
Payment of these fees may influence your financial advisors recommendation of the fund or of any particular share class of the fund.
More About the Fund | 3 | |
How is the fund organized?
T. Rowe Price International Funds, Inc. (the corporation) was incorporated in Maryland in 1979. Currently, the corporation consists of 18 series, each representing a separate pool of assets with different objectives and investment policies. Each is an open-end management investment company, or mutual fund. Mutual funds pool money received from shareholders of each class into a single portfolio and invest it to try to achieve specified objectives. In 2011, the Emerging Markets Local Currency Bond Fund issued a separate class of shares known as the Advisor Class.
What is meant by shares?
As with all mutual funds, investors purchase shares when they put money in a fund. These shares are part of a funds authorized capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
· Receive a proportional interest in income and capital gain distributions of the class. The income dividends for Advisor Class shares will generally differ from those of other classes to the extent that the expense ratios of the classes differ.
· Cast one vote per share on certain fund matters, including the election of fund directors/trustees, changes in fundamental policies, or approval of changes in the funds management contract. Shareholders of each class have exclusive voting rights on matters affecting only that class.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and, to avoid unnecessary costs to fund shareholders, do not do so except when certain matters, such as a change in fundamental policies, must be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting for the purpose of voting on the removal of any fund director or trustee. If a meeting is held and you cannot attend, you can vote by proxy. Before the meeting, the fund will send or make available to you proxy materials that explain the issues to be decided and include instructions on voting by mail or telephone or on the Internet.
Who runs the fund?
General Oversight
The fund is governed by a Board of Directors that meets regularly to review fund investments, performance, expenses, and other business affairs. The Board elects the
More About the Fund | 21 |
funds officers. At least 75% of Board members are independent of T. Rowe Price and its affiliates (the Firm).
All decisions regarding the purchase and sale of fund investments are made by T. Rowe Price or an affiliated investment adviserspecifically by the funds portfolio managers.
Investment Adviser
T. Rowe Price is the funds investment adviser and oversees the selection of the funds investments and management of the funds portfolio. T. Rowe Price is a SEC-registered investment adviser that provides investment management services to individual and institutional investors, and sponsors and serves as adviser and sub-adviser to registered investment companies, institutional separate accounts, and common trust funds. The address for T. Rowe Price is 100 East Pratt Street, Baltimore, Maryland 21202. As of December 31, 2012, the Firm managed approximately $577 billion for more than 10 million individual and institutional investor accounts.
T. Rowe Price has entered into a sub-advisory agreement with T. Rowe Price International under which T. Rowe Price International is authorized to trade securities and make discretionary investment decisions on behalf of the fund. T. Rowe Price International is an investment adviser registered or licensed with the SEC, United Kingdom Financial Conduct Authority, Financial Services Agency of Japan, and other non-U.S. regulatory authorities. T. Rowe Price International sponsors and serves as adviser to foreign collective investment schemes and provides investment management services to investment companies and other institutional investors. T. Rowe Price International is headquartered in London and has several branch offices around the world. T. Rowe Price International is a direct subsidiary of T. Rowe Price and its address is 60 Queen Victoria Street, London EC4N 4TZ, United Kingdom.
Portfolio Management
T. Rowe Price has established an Investment Advisory Committee with respect to the fund. The committee chairman has day-to-day responsibility for managing the funds portfolio and works with the committee in developing and executing the funds investment program. The members of the committee are as follows: Andrew J. Keirle, Chairman, Roy H. Adkins, Peter I. Botoucharov, Michael J. Conelius, Richard Hall, Ian D. Kelson, Christopher J. Kushlis, Michael D. Oh, Kenneth A. Orchard, Christoper J. Rothery, and Ju Yen Tan. The following information provides the year that the chairman first joined the Firm and the chairmans specific business experience during the past five years (although the chairman may have had portfolio management responsibilities for a longer period). Mr. Keirle was appointed co-chairman of the committee when the fund incepted in 2011 and became sole chairman in 2012. Mr. Keirle joined the Firm in 2005 and his investment experience dates from 1996. During the past five years, he has served as a portfolio manager for various global fixed income strategies managed by the Firm. The Statement of
T. Rowe Price | 22 |
Additional Information provides additional information about the portfolio managers compensation, other accounts managed by the portfolio manager, and the portfolio managers ownership of fund shares.
The Management Fee
This fee has two partsan individual fund fee, which reflects a funds particular characteristics, and a group fee. The group fee, which is designed to reflect the benefits of the shared resources of the T. Rowe Price investment management complex, is calculated daily based on the combined net assets of all T. Rowe Price funds (except the Spectrum Funds, Retirement Funds, TRP Reserve Investment Funds, and any index or private label mutual funds). The group fee schedule (in the following table) is graduated, declining as the asset total rises, so shareholders benefit from the overall growth in mutual fund assets.
Group Fee Schedule
0.334%* | First $50 billion |
0.305% | Next $30 billion |
0.300% | Next $40 billion |
0.295% | Next $40 billion |
0.290% | Next $60 billion |
0.285% | Next $80 billion |
0.280% | Next $100 billion |
0.275% | Thereafter |
* Represents a blended group fee rate containing various breakpoints.
The funds group fee is determined by applying the group fee rate to the funds average daily net assets. On December 31, 2012, the annual group fee rate was 0.30%. The individual fund fee, also applied to the funds average daily net assets, is 0.45%.
The expenses shown in the fee table in Section 1 are generally based on a funds prior fiscal year. In periods of market volatility, assets may decline significantly, causing total annual fund operating expenses to become higher than the numbers shown in the fee table.
A discussion about the factors considered by the Board and its conclusions in approving the funds investment management contract with T. Rowe Price appears in the funds semiannual report to shareholders for the period ended June 30.
Fund Operations and Shareholder Services
T. Rowe Price provides accounting services to the T. Rowe Price funds. T. Rowe Price Services, Inc. acts as the transfer and dividend disbursing agent and provides shareholder and administrative services to the funds. These companies receive compensation from the funds for their services. The funds may also pay third-party intermediaries for performing shareholder and administrative services for underlying shareholders in omnibus accounts.
More About the Fund | 23 |
Consider your investment goals, your time horizon for achieving them, and your tolerance for risk. The fund may be appropriate for you if you are investing through an intermediary and seek diversification for your equity or domestic fixed income investments and can accept the risks that accompany foreign investing, including the potentially greater volatility associated with emerging markets and the increased currency risk associated with the fund. Your decision should also take into account whether you have any other foreign bond investments. If you can accept the possibility of share price declines in an effort to achieve high income and some capital growth, the fund could be an appropriate part of your overall investment strategy.
Buying foreign bonds can be difficult and costly for the individual investor, and gaining access to many foreign markets can be complicated. Few investors have the time, the expertise, or the resources to evaluate foreign markets effectively on their own. The professional management, broad diversification, and relative simplicity of mutual funds make them an attractive, low-cost vehicle for this type of investing.
Interest rates vary from country to country depending on local economic conditions and monetary and fiscal policies. By investing in foreign bond markets, investors can benefit from potentially higher yields than U.S. bond markets provide. Therefore, diversifying internationally across various countries can help reduce portfolio volatility and smooth out returns.
The fund focuses its investments on emerging market bonds and other debt instruments that are denominated in the local currency of the issuer. These bond markets enable investors to get exposure both to local interest rates and to the currencies of emerging markets. Emerging market currencies also afford investors a potential hedge against weakness in the U.S. dollar. Therefore, the market value of the funds investments will be significantly affected by changes in the exchange rates between the U.S. dollar and the currencies in which those investments are traded. Security selection relies on in-depth country and currency analysis that seeks to identify shifts in country fundamentals and anticipated currency movements, and considers the risk adjusted attractiveness of currency and duration returns for various emerging market countries.
The fund may enter into forward currency exchange contracts and currency swaps, purchase and write options on currencies, and purchase and sell currency futures contracts and related options thereon in an effort to hedge against an expected decline in the value of currencies in which its portfolio holdings are denominated, to increase exposure to a particular foreign currency or to shift the funds foreign currency exposure from one country to another, or to enhance the funds returns. The fund may also use interest rate swaps and futures to adjust its country exposure.
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As with any mutual fund, there is no guarantee the fund will achieve its objective. The funds share price fluctuates, which means you could lose money when you sell your shares of the fund. Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. Some particular risks affecting the fund include the following:
Currency risk This is the risk of a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that foreign currency. The overall impact on a funds holdings can be significant and long-lasting depending on the currencies represented in the portfolio, how each currency appreciates or depreciates in relation to the U.S. dollar, and whether currency positions are hedged. Foreign currency exchange rates may fluctuate significantly over short periods of time, particularly with respect to emerging markets currencies. Currency exchange rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks, or by currency controls or political developments. Because the fund is normally heavily exposed to foreign currencies, changes in currency exchange rates are likely to have a significant effect on the funds performance. Currency trends are unpredictable, and to the extent the fund purchases and sells currencies, it will also be subject to the risk that its trading strategies, including efforts at hedging, will not succeed. Furthermore, hedging and trading costs can be significant and reduce fund net asset value, and many emerging market currencies cannot be effectively hedged.
Other risks of foreign investing Risks can result from varying stages of economic and political development, differing regulatory environments, trading days and accounting standards, uncertain tax laws, and higher transaction costs of non-U.S. markets. Investments outside the U.S. could be subject to governmental actions such as capital or currency controls, nationalization of a company or industry, expropriation of assets, or imposition of high taxes. A trading market may close without warning for extended time periods, preventing a fund from buying or selling securities in that market.
Emerging markets risk Investments in emerging markets, which include Africa, parts of Europe and much of Asia, the Middle East, and Central and South America, are subject to the risk of abrupt and severe price declines. The economic and political structures of emerging market countries, in most cases, do not compare favorably with the U.S. or other developed countries in terms of wealth and stability, and their financial markets often lack liquidity. These economies are less developed and can be overly reliant on particular industries and more vulnerable to the ebb and flow of international trade, trade barriers, and other protectionist or retaliatory measures. Certain countries have legacies and periodic episodes of hyperinflation and currency devaluations, particularly Russia and many Latin American nations, and more recently many Asian countries. Governments in many emerging market countries participate to a significant degree in their economies and securities markets. Foreign investments may be restricted and subject to greater government control, including
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repatriation of sales proceeds. Some countries have histories of instability and upheaval that could cause their governments to act in a detrimental or hostile manner toward private enterprise or foreign investment. Investments in countries or regions that have recently begun moving away from central planning and state-owned industries toward free markets should be regarded as speculative.
While some countries have made progress in economic growth, liberalization, fiscal discipline, and political and social stability, there is no assurance these trends will continue. Significant risks, such as war and terrorism, currently affect some emerging market countries. Fund performance will likely be hurt by exposure to nations in the midst of hyperinflation, currency devaluation, trade disagreements, sudden political upheaval, or interventionist government policies. The volatility of emerging markets may be heightened by the actions (such as significant buying or selling) of a few major investors. For example, substantial decreases in cash flows of mutual funds investing in these markets could significantly affect local securities prices and, therefore, cause fund share prices to decline.
All of these factors make investing in such countries significantly riskier than in other countries and any one of these could cause a funds share price to decline.
Credit risk This is the chance that an issuer of a debt security or counterparty to over-the-counter derivatives held by the fund will default (fail to make scheduled payments), potentially reducing the funds income and share price. This risk is increased when a portfolio security is downgraded or the perceived creditworthiness of an issuer or counterparty deteriorates. The risk of default is much greater for emerging market bonds and securities rated as below investment-grade.
Companies and governments issuing lower-rated bonds are not as strong financially as those with higher credit ratings, and their bonds are often viewed as speculative investments. Such issuers are more vulnerable to real or perceived business setbacks and to changes in the economy, such as a recession, that might impair their ability to make timely interest and principal payments. Certain less-developed governments have in the past defaulted on payment of interest and principal on debt they have issued. As a result, your portfolio manager relies heavily on proprietary T. Rowe Price and T. Rowe Price International research when selecting these investments.
Liquidity risk This is the risk that the fund may not be able to sell a holding in a timely manner at a desired price. Sectors of the bond market can experience sudden downturns in trading activity. During periods of reduced market liquidity, the spread between the price at which a security can be bought and the price at which it can be sold can widen, and the fund may not be able to sell a holding readily at a price that reflects what the fund believes it should be worth. Less liquid securities can also become more difficult to value.
Emerging market bonds are generally less liquid than higher-quality bonds issued by companies and governments in developed countries. Consequently, large purchases or sales of certain high-yield, emerging market debt issues may cause significant
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changes in their prices. Because many of these bonds do not trade frequently, when they do trade, their prices may be substantially higher or lower than had been expected. A lack of liquidity also means that more subjectivity will be used in establishing the fair value of the securities.
Interest rate risk This is the risk that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Prices fall because the bonds and notes in the funds portfolio become less attractive to other investors when securities with higher yields become available. Generally, the longer the maturity of a security or the longer a bond funds weighted average maturity, the greater its interest rate risk. Because the fund may invest in debt securities of any maturity, it carries more interest rate risk than a fund that invests in shorter-term securities. In addition, changes in the local interest rates of emerging market countries tend to be more erratic than changes in interest rates of the U.S. and developed market countries.
Other factors The major factor influencing prices of high-quality bonds is changes in interest rate levels, but this is only one of several factors affecting prices of lower-quality bonds. Because the credit quality of the issuer is lower, such bonds are more sensitive to developments affecting the issuers underlying fundamentals (for example, changes in financial condition or a particular countrys general economy). In addition, the entire bond market in an emerging market can experience sudden and sharp price swings due to a variety of factors, including changes in economic forecasts, stock market activity, large or sustained sales by institutional investors, a high-profile default, a political upheaval of some kind, or just a change in the markets psychology. This type of volatility is usually associated more with stocks than bonds, but investors in lower-quality bonds should also anticipate it.
Since mutual funds can be a major source of demand in certain markets, substantial cash flows into and out of these funds can affect high-yield and emerging market bond prices. If, for example, a significant number of funds were to sell bonds to meet shareholder redemptions, both bond prices and a funds share price could fall more than underlying fundamentals might justify.
Nondiversification risk Because the fund is nondiversified, the fund can invest more of its assets in a smaller number of issuers than diversified funds. Concentrating investments could result in greater potential losses than for funds investing in a broader variety of issuers.
Derivatives risk To the extent the fund uses forwards, swaps, options, and futures, it is exposed to potential volatility and losses greater than direct investments in the contracts underlying assets, the risk that anticipated currency or interest rate movements will not be accurately predicted, and the risk that the other party to the transaction will not fulfill its contractual obligation. These instruments may be illiquid and difficult to price, and subject to the risk that the other party to the transaction will not fulfill its contractual obligation. The funds efforts at buying or
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selling currencies in order to take advantage of anticipated changes in exchange rates could result in significant losses for the fund. If the fund takes a short position in a particular currency, it will lose money if the currency appreciates in value.
If the funds foreign currency transactions are intended to hedge the currency risk associated with investing in foreign securities and minimize the risk of loss that would result from a decline in the value of the hedged currency, these transactions also may limit any potential gain that might result should the value of such currency increase.
The funds use of interest rate swaps and futures involves the risk that interest rate movements will not be accurately predicted. Interest rates and yield curves vary from country to country depending on local economic conditions and monetary and fiscal policies, and interest rate changes and their impact tend to be more difficult to predict for emerging market countries.
Other strategies may be employed that are not considered part of the funds principal investment strategies. For instance, the fund may also, to a limited extent, use credit default swaps to manage overall credit quality or to protect the value of certain portfolio holdings. To the extent the fund invests in credit default swaps, it is exposed to the risk of losses in excess of the funds initial investment and the risk that anticipated changes in the creditworthiness of an issuer or the likelihood of a credit event will not be accurately predicted. From time to time, the fund may use other derivatives that are consistent with its investment program.
A derivative involves risks different from, and possibly greater than, the risks associated with investing directly in the assets on which the derivative is based. Derivatives can be highly volatile, illiquid, and difficult to value, and changes in the value of a derivative may not properly correlate with changes in the value of the underlying asset, reference rate, or index. A fund could be exposed to significant losses if it is unable to close a derivatives position due to the lack of a liquid secondary trading market. Derivatives involve the risk that a counterparty to the derivatives agreement will fail to make required payments or comply with the terms of the agreement. There is also the possibility that limitations or trading restrictions may be imposed by an exchange or government regulation, which could adversely impact the value and liquidity of a derivatives contract subject to such regulation.
Recent legislation calls for a new regulatory framework for the derivatives markets. The full extent and impact of new regulations are not certain at this time. New regulations have made the use of derivatives by funds more costly, may limit the availability of certain types of derivatives, and may otherwise adversely affect the value or performance of derivatives used by funds.
The Statement of Additional Information contains more detailed information about the fund and its investments, operations, and expenses.
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This section takes a detailed look at some of the types of fund securities and the various kinds of investment practices that may be used in day-to-day portfolio management. Fund investments are subject to further restrictions and risks described in the Statement of Additional Information.
Shareholder approval is required to substantively change fund objectives. Shareholder approval is also required to change certain investment restrictions noted in the following section as fundamental policies. Portfolio managers also follow certain operating policies that can be changed without shareholder approval. Shareholders will receive at least 60 days prior notice of a change in the funds policy requiring it to normally invest at least 80% of its net assets in bonds denominated in emerging market currencies.
Fund holdings of certain kinds of investments cannot exceed maximum percentages of total assets, which are set forth in this prospectus. For instance, fund investments in certain derivatives are limited to 10% of total assets. While these restrictions provide a useful level of detail about fund investments, investors should not view them as an accurate gauge of the potential risk of such investments. For example, in a given period, a 5% investment in derivatives could have significantly more of an impact on a funds share price than its weighting in the portfolio. The net effect of a particular investment depends on its volatility and the size of its overall return in relation to the performance of all other fund investments.
Certain investment restrictions, such as a required minimum or maximum investment in a particular type of security, are measured at the time a fund purchases a security. The status, market value, maturity, credit quality, or other characteristics of a funds securities may change after they are purchased, and this may cause the amount of a funds assets invested in such securities to exceed the stated maximum restriction or fall below the stated minimum restriction. If any of these changes occur, it would not be considered a violation of the investment restriction and will not require the sale of an investment if it was proper at the time it was made (this exception does not apply to a funds borrowing policy). However, purchases by a fund during the time it is above or below the stated percentage restriction would be made in compliance with applicable restrictions.
For purposes of determining whether a particular country is considered a developed market or an emerging market, the fund considers a country to be an emerging market if it is either included in a JP Morgan emerging market bond index or not included in the International Monetary Funds listing of advanced economies. For purposes of determining whether the fund invests at least 80% of its net assets in a particular type of security, the fund uses the country assigned to a security by Bloomberg or another unaffiliated third-party data provider.
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Changes in fund holdings, fund performance, and the contribution of various investments to fund performance are discussed in the shareholder reports.
Portfolio managers have considerable discretion in choosing investment strategies and selecting securities they believe will help achieve fund objectives.
Types of Portfolio Securities
In seeking to meet its investment objective, fund investments may be made in any type of security or instrument (including certain potentially high-risk derivatives described in this section) whose investment characteristics are consistent with its investment program. The following pages describe various types of fund holdings and investment management practices.
Nondiversified Status
The fund is registered as a nondiversified mutual fund. Therefore, the fund is able to invest more than 5% of its assets in the securities of individual foreign governments and may invest a greater portion of its assets in a single issuer than a diversified fund. Since the fund is a nondiversified investment company and is permitted to invest a greater proportion of its assets in the securities of a smaller number of issuers, the fund may be subject to greater credit risk with respect to its portfolio securities and greater volatility with respect to its share price than an investment company that is more broadly diversified.
However, the fund intends to qualify as a regulated investment company for purposes of the Internal Revenue Code. This requires the fund to limit its investments so that, at the end of each fiscal quarter, with respect to 50% of its total assets, no more than 5% of its assets is invested in the securities of a single issuer, and not more than 10% of the voting securities of any issuer are held by the fund. With respect to the remaining 50% of fund assets, no more than 25% may be invested in a single issuer.
Debt Securities
The funds investments may be in fixed-rate and floating rate debt securities and may include, but shall not be limited to: (1) debt obligations issued or guaranteed by: (a) a foreign sovereign government or one of its agencies, authorities, instrumentalities, or political subdivisions, including a foreign state, province, or municipality, and (b) supranational organizations such as the World Bank, Asian Development Bank, European Investment Bank, and European Economic Community; (2) debt obligations: (a) of foreign banks and bank holding companies, and (b) of domestic banks and corporations issued in non-U.S. dollar denominations; and (3) foreign corporate debt securities, asset-backed securities, and commercial paper. Such securities may take a variety of forms including those issued in the local currency of the issuer, U.S. dollar-denominated bonds, Eurobonds, and Euro-denominated bonds. Normally, the fund will invest substantially all of its assets in bonds denominated in the local currency of the issuer. The fund may from time to
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time purchase securities on a when-issued basis, invest in repurchase agreements, and purchase bonds convertible into equities.
Concentration of Investments From time to time, the fund may invest more than 25% of its total assets in the securities of foreign governmental and corporate entities located in the same country. However, the fund will not invest more than 25% of its total assets in any single foreign governmental issuer or in two or more such issuers subject to a common, explicit guarantee.
Brady Bonds Brady bonds, named after former U.S. Secretary of the Treasury Nicholas Brady, are used as a means of restructuring the external debt burden of a government in certain emerging markets. A Brady bond is created when an outstanding commercial bank loan to a government or private entity is exchanged for a new bond in connection with a debt restructuring plan. Brady bonds may be collateralized or uncollateralized and issued in various currencies (although typically in the U.S. dollar). They are often fully collateralized as to principal in U.S. Treasury zero coupon bonds. However, even with this collateralization feature, Brady bonds are often considered speculative, below investment-grade investments because the timely payment of interest is the responsibility of the issuing party (for example, a Latin American country) and the value of the bonds can fluctuate significantly based on the issuers ability or perceived ability to make these payments. Finally, some Brady bonds may be structured with floating rate or low fixed-rate coupons.
Below Investment-Grade Bonds The price and yield of lower-quality (high yield, high-risk) bonds, commonly referred to as junk bonds and below investment-grade emerging market bonds, can be expected to fluctuate more than the price and yield of higher-quality bonds. Investment-grade bonds are those rated from the highest quality (AAA or equivalent) to medium quality (BBB or equivalent), and below investment-grade bonds are those rated BB (or equivalent) and lower. Below investment-grade bonds are considered speculative with respect to the issuers continuing ability to meet principal and interest payments since their issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers. Even BBB rated bonds may have speculative elements as well. The values of below investment-grade bonds often fluctuate more in response to political, regulatory, or economic developments than higher quality bonds. Successful investment in lower-medium- and low-quality bonds involves greater investment risk and is highly dependent on careful credit analysis.
Operating policy There is no limit on the funds investments in debt securities that are rated below investment-grade.
While the fund intends to invest primarily in debt securities, it may invest in convertible bonds or equity securities. While some countries or companies may be regarded as favorable investments, pure bond opportunities may be unattractive or limited due to insufficient supply, or legal or technical restrictions. In such cases, the
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fund may consider equity securities or convertible bonds to gain exposure to such markets.
Preferred Stocks
Stocks represent shares of ownership in a company. Generally, preferred stock has a specified dividend and ranks after bonds and before common stocks in its claim on income for dividend payments and on assets should the company be liquidated. After other claims are satisfied, common stockholders participate in company profits on a pro-rata basis; profits may be paid out in dividends or reinvested in the company to help it grow. Increases and decreases in earnings are usually reflected in a companys stock price, so common stocks generally have the greatest appreciation and depreciation potential of all corporate securities. Unlike common stock, preferred stock does not ordinarily carry voting rights. While most preferred stocks pay a dividend, a fund may decide to purchase preferred stock where the issuer has omitted, or is in danger of omitting, payment of its dividend.
Convertible Securities and Warrants
Investments may be made in debt or preferred equity securities that are convertible into, or exchangeable for, equity securities at specified times in the future and according to a certain exchange ratio. Convertible bonds are typically callable by the issuer, which could in effect force conversion before the holder would otherwise choose. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than nonconvertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree than common stock. Some convertible securities combine higher or lower current income with options and other features. Warrants are options to buy, directly from the issuer, a stated number of shares of common stock at a specified price anytime during the life of the warrants (generally, two or more years). Warrants can be highly volatile, have no voting rights, and pay no dividends.
Operating policy The fund may invest up to 10% of total assets in preferred stocks and securities that are convertible into, or which carry warrants for, common stocks and other equity securities. Under normal conditions, the funds do not expect to directly purchase common stocks. Any shares of common stock that are received through a reorganization, restructuring, exercise, exchange, conversion, or similar action will be sold within a reasonable timeframe taking into consideration market conditions and any legal restrictions.
Loan Participations and Assignments
Large loans to corporations or governments, including governments of less developed countries, may be shared or syndicated among several lenders, usually banks. The fund could participate in such syndicates, or could buy part of a loan, becoming a direct lender. The fund may acquire loans as an assignment from another lender that holds a direct interest in the loan or as a participation interest in another lenders
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portion of the loan. Participations and assignments involve special types of risk, including limited marketability and the risks of being considered a lender. If a fund purchases a participation, it may only be able to enforce its rights through the lender, and it may assume the credit risk of the lender in addition to the borrower. With assignments, the funds rights against the borrower may be more limited than those held by the original lender. The fund may also make investments in a company through the purchase or execution of a privately negotiated note representing the equivalent of a loan.
Operating policy The fund may invest up to 20% of total assets in loan participations and assignments.
Derivatives and Leverage
A derivative is a financial instrument whose value is derived from an underlying security such as a stock or bond or from a market benchmark, such as an interest rate index. Many types of investments representing a wide range of risks and potential rewards may be considered derivatives, including conventional instruments such as futures and options, as well as other potentially more complex investments such as swaps and structured notes. The use of derivatives can involve leverage. Leverage has the effect of magnifying returns, positively or negatively. The effect on returns will depend on the extent to which an investment is leveraged. For example, an investment of $1, leveraged at 2 to 1, would have the effect of an investment of $2. Leverage ratios can be higher or lower with a corresponding effect on returns. The fund may use derivatives in certain situations to help accomplish any or all of the following: to hedge against a decline in principal value, to increase yield, to manage exposure to changes in interest or currency exchange rates, to invest in eligible asset classes with greater efficiency and at a lower cost than is possible through direct investment, or to adjust portfolio duration or credit risk exposure.
Operating policy The funds overall net short positions in particular bond markets will not exceed 10% of the funds net assets.
Derivatives that may be used include the following as well as others that combine the risk characteristics and features of futures, options, and swaps:
Futures and Options Futures, a type of potentially high-risk derivative, are often used to manage or hedge risk because they enable the investor to buy or sell an asset in the future at an agreed-upon price. Options, another type of potentially high-risk derivative, give the investor the right (when the investor purchases the option), or the obligation (when the investor writes or sells the option), to buy or sell an asset at a predetermined price in the future. Futures and options contracts may be bought or sold for any number of reasons, including to manage exposure to changes in interest rates, bond prices, foreign currencies, and credit quality; as an efficient means of increasing or decreasing a funds exposure to a specific part or broad segment of the U.S. market or a foreign market; in an effort to enhance income; to protect the value of portfolio securities; to serve as a cash management tool; and to adjust portfolio
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duration or credit exposure. Call or put options may be purchased or sold on securities, futures, and financial indexes. A fund may choose to continue a futures contract by rolling over an expiring futures contract into an identical contract with a later maturity date. This could increase the funds transaction costs and portfolio turnover rate.
Futures contracts and options may not always be successful hedges; their prices can be highly volatile; using them could lower a funds total return; and the potential loss from the use of futures can exceed a funds initial investment in such contracts.
Operating policies Initial margin deposits on futures and premiums on options used for non-hedging purposes will not exceed 5% of a funds net asset value. The total market value of securities covering call or put options may not exceed 25% of total assets. No more than 5% of total assets will be committed to premiums when purchasing call or put options.
Swaps Fund investments may be made in interest rate, index, total return, credit default, and other types of swap agreements, as well as options on swaps, commonly referred to as swaptions, and interest rate swap futures, which are instruments that provide a way to gain swap exposure and the benefits of futures in one contract. All of these agreements are considered derivatives and, in certain cases, high-risk derivatives. Interest rate, index, and total return swaps are two-party contracts under which a fund and a counterparty, such as a broker or dealer, agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or indexes. Credit default swaps are agreements where one party (the protection buyer) will make periodic payments to another party (the protection seller) in exchange for protection against specified credit events, such as defaults and bankruptcies related to an issuer or underlying credit instrument. Swap futures are futures contracts on interest rate swaps that enable purchasers to cash settle at a future date at the price determined by a specific benchmark rate at the end of a fixed period. Swaps, swaptions, and swap futures can be used for a variety of purposes, including to manage a funds overall exposure to changes in interest or foreign currency exchange rates and credit quality; as an efficient means of adjusting a funds exposure to certain markets; in an effort to enhance income or total return or protect the value of portfolio securities; to serve as a cash management tool; and to adjust portfolio duration or credit risk exposure.
There are risks in the use of swaps and related instruments. Swaps could result in losses if interest or foreign currency exchange rates or credit quality changes are not correctly anticipated by a fund. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. Credit default swaps can increase a funds exposure to credit risk and could result in losses if evaluation of the creditworthiness of the counterparty, or of the company or government on which the credit default swap is based, is incorrect. The use of swaps, swaptions, and swap futures may not always be successful. Using them could lower a funds total return, their prices can be highly volatile, and the potential loss from the
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use of swaps can exceed a funds initial investment in such instruments. Also, the other party to a swap agreement could default on its obligations or refuse to cash out a funds investment at a reasonable price, which could turn an expected gain into a loss. Although there should not be any counterparty risk associated with investments in interest rate swap futures, a fund could experience delays and/or losses associated with the bankruptcy of a broker through which the fund engaged in the transaction.
Operating policies A swap agreement with any single counterparty will not be entered into if the net amount owed or to be received under existing contracts with that party would exceed 5% of total assets or if the net amount owed or to be received by the fund under all outstanding swap agreements will exceed 10% of total assets. For swaptions, the total market value of securities covering call or put options may not exceed 25% of total assets. No more than 5% of total assets will be committed to premiums when purchasing call or put swaptions.
Hybrid Instruments These instruments (a type of potentially high-risk derivative) can combine the characteristics of securities, futures, and options. For example, the principal amount or interest rate of a hybrid could be tied (positively or negatively) to the price of some commodity, currency, security, or securities index or another interest rate (each a benchmark). Hybrids can be used as an efficient means of pursuing a variety of investment goals, including currency hedging, duration management, and increased total return. Hybrids may or may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark. These benchmarks may be sensitive to economic and political events, such as commodity shortages and currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes the funds to the credit risk of the issuer of the hybrid. These risks may cause significant fluctuations in the net asset value of the funds.
Hybrids can have volatile prices and limited liquidity, and their use may not be successful.
Operating policy Fund investments in hybrid instruments are limited to 10% of total assets.
Currency Derivatives The fund may engage in foreign currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market at the time or through forward currency exchange contracts, which are contracts between two counterparties to exchange one currency for another on a future date at a specified exchange rate. In addition to foreign currency forwards, futures, swaps, and options on foreign currencies may also be used to protect a funds foreign securities from
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adverse currency movements relative to the U.S. dollar, as well as to gain exposure to currencies and markets expected to increase or decrease in value relative to other currencies or securities.
The fund may attempt to hedge its exposure to potentially unfavorable currency changes. Forward currency contracts will be used primarily to adjust the foreign exchange exposure of the fund with a view to protecting the portfolio from adverse currency movements, based on T. Rowe Prices outlook. However, forward currency contracts can also be used in an effort to benefit from a currency believed to be appreciating in value versus other currencies. The fund may invest in foreign currencies directly without holding any foreign securities denominated in those currencies.
Forward currency contracts involve special risks, including, but not limited to, the potential for significant volatility in currency markets, and the risk that in certain markets, particularly emerging markets, it is not possible to engage in effective foreign currency hedging. In addition, such transactions involve the risk that currency movements will not occur as anticipated by T. Rowe Price, which could reduce a funds total return. The fund might enter into foreign currency transactions under the following circumstances:
Lock In When the fund desires to lock in the U.S. dollar price on the purchase or sale of a security denominated in a foreign currency.
Cross Hedge If a particular currency is expected to decrease in value relative to another currency, the fund may sell the currency expected to decrease and purchase a currency that is expected to increase against the currency sold. The funds cross hedging transactions may involve currencies in which the funds holdings are denominated. However, the fund is not required to own securities in the particular currency being purchased or sold.
Direct Hedge If the fund seeks to eliminate substantially all of the risk of owning a particular currency or believes the portfolio could benefit from price appreciation in a given countrys bonds but did not want to hold the currency, it could employ a direct hedge back into the U.S. dollar. In either case, a fund would enter into a forward contract to sell the currency in which a portfolio security is denominated and purchase U.S. dollars at an exchange rate established at the time it initiated the contract. The cost of the direct hedge transaction may offset most, if not all, of the yield advantage offered by the foreign security, but the fund would hope to benefit from an increase (if any) in the value of the bond.
Proxy Hedge In certain circumstances, a different currency may be substituted for the currency in which the investment is denominated, as part of a strategy known as proxy hedging. In this case, the fund, having purchased a security, will sell a currency whose value is believed to be closely linked to the currency in which the security is denominated. This type of hedging entails greater risk than a direct hedge because it is dependent on a stable relationship between the two currencies paired as
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proxies, and that relationship may not always be maintained. The fund may also use these instruments to create a synthetic bond, which is issued in one currency with the currency component transformed into another currency.
Operating policy The funds overall net short positions in currencies will not exceed 10% of the funds net assets.
Costs of Hedging When the fund purchases a foreign bond with a higher interest rate than is available on U.S. bonds of a similar maturity, the additional yield on the foreign bond could be substantially lessened if the fund were to enter into a direct hedge by selling the foreign currency and purchasing the U.S. dollar. This is what is known as the cost of hedging. A proxy hedge, which is less costly than a direct hedge, may attempt to reduce this cost through an indirect hedge back to the U.S. dollar.
It is important to note that hedging costs are treated as capital transactions and are not, therefore, deducted from a funds dividend distribution and are not reflected in its yield. Instead, such costs will, over time, be reflected in a funds net asset value per share and total return. Hedging may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in an increase (or decrease) in the amount of taxable dividends paid by the funds and could affect whether dividends paid by the funds are classified as capital gains or ordinary income.
Investments in Other Investment Companies
A fund may invest in other investment companies, including open-end funds, closed-end funds, and exchange-traded funds.
A fund may purchase the securities of another investment company to temporarily gain exposure to a portion of the market while awaiting purchase of securities or as an efficient means of gaining exposure to a particular asset class. The fund might also purchase shares of another investment company to gain exposure to the securities in the investment companys portfolio at times when the fund may not be able to buy those securities directly. Any investment in another investment company would be consistent with the funds objective and investment program.
The risks of owning another investment company are generally similar to the risks of investing directly in the securities in which that investment company invests. However, an investment company may not achieve its investment objective or execute its investment strategy effectively, which may adversely affect the funds performance. In addition, because closed-end funds and exchange-traded funds trade on a secondary market, their shares may trade at a premium or discount to the actual net asset value of their portfolio securities and their shares may have greater volatility because of the potential lack of liquidity.
As a shareholder of an investment company not sponsored by T. Rowe Price, the fund must pay its pro-rata share of that investment companys fees and expenses. The
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funds investments in non-T. Rowe Price investment companies are subject to the limits that apply to investments in other funds under the Investment Company Act of 1940 or under any applicable exemptive order.
A fund may also invest in certain other T. Rowe Price funds as a means of gaining efficient and cost-effective exposure to certain asset classes, provided the investment is consistent with the funds investment program and policies. Such an investment could allow the fund to obtain the benefits of a more diversified portfolio than might otherwise be available through direct investments in the asset class, and will subject the fund to the risks associated with the particular asset class. Examples of asset classes in which other T. Rowe Price mutual funds concentrate their investments include high yield bonds, floating rate loans, international bonds, emerging market bonds, and emerging market stocks. If the fund invests in another T. Rowe Price fund, the management fee paid by the fund will be reduced to ensure that the fund does not incur duplicate management fees as a result of its investment.
Illiquid Securities
Some fund holdings may be considered illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold in the ordinary course of business within seven days at approximately the prices at which they are valued. The determination of liquidity involves a variety of factors. Illiquid securities may include private placements that are sold directly to a small number of investors, usually institutions. Unlike public offerings, such securities are not registered with the SEC. Although certain of these securities may be readily sold, for example under Rule 144A of the Securities Act of 1933, others may have resale restrictions and can be illiquid. The sale of illiquid securities may involve substantial delays and additional costs, and a fund may only be able to sell such securities at prices substantially less than what it believes they are worth.
Operating policy Fund investments in illiquid securities are limited to 15% of net assets.
Types of Investment Management Practices
Reserve Position
A certain portion of fund assets will be held in reserves. Fund reserve positions can consist of: 1) shares of a T. Rowe Price internal money fund or short-term bond fund; 2) short-term, high-quality U.S. and foreign dollar-denominated money market securities, including repurchase agreements; and 3) U.S. dollar or non-U.S. dollar currencies. For temporary, defensive purposes, there is no limit on a funds holdings in reserves. If a fund has significant holdings in reserves, it could compromise the funds ability to achieve its objectives. The reserve position provides flexibility in meeting redemptions, paying expenses and managing cash flows into a fund, and can serve as a short-term defense during periods of unusual market volatility. Non-U.S. dollar reserves are subject to currency risk.
T. Rowe Price | 38 |
When-Issued Securities and Forwards
A fund may purchase securities on a when-issued or delayed delivery basis or may purchase or sell securities on a forward commitment basis. The price of these securities is fixed at the time of the commitment to buy, but delivery and payment take place after the customary settlement period for that type of security (often a month or more later). During the interim period, the price and yield of the securities can fluctuate, and typically no interest accrues to the purchaser. At the time of delivery, the market value of the securities may be more or less than the purchase or sale price. To the extent the fund remains fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time it purchases these securities, there will be greater fluctuations in the funds net asset value than if the fund did not purchase them.
Borrowing Money and Transferring Assets
A fund may borrow from banks, other persons, and other T. Rowe Price funds for temporary emergency purposes to facilitate redemption requests, or for other purposes consistent with fund policies as set forth in this prospectus. Such borrowings may be collateralized with fund assets, subject to restrictions.
Fundamental policy Borrowings may not exceed 331/3% of total assets.
Operating policy A fund will not transfer portfolio securities as collateral except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 331/3% of total assets. A fund will not purchase additional securities when borrowings exceed 5% of total assets.
Lending of Portfolio Securities
A fund may lend its securities to broker-dealers, other institutions, or other persons to earn additional income. Risks include the potential insolvency of the broker-dealer or other borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform as well as expected.
Fundamental policy The value of loaned securities may not exceed 331/3% of total assets.
Credit Quality Considerations
The credit quality of many fund holdings is evaluated by rating agencies such as Moodys Investors Service, Inc. (Moodys), Standard & Poors Corporation (S&P), and Fitch Ratings (Fitch) on the basis of the issuers ability to meet all required interest and principal payments. The highest ratings are assigned to issuers perceived to have the lowest credit risks. T. Rowe Price research analysts also evaluate fund holdings, including those rated by outside agencies. Other things being equal, lower-rated bonds and other debt obligations have higher yields due to greater credit risk. High-yield bonds, also called junk bonds, are those rated below BBB.
More About the Fund | 39 |
Credit quality ratings are not guarantees. They are estimates of an issuers financial strength and ability to make interest and principal payments as they come due. Ratings can change at any time due to real or perceived changes in an issuers credit or financial fundamentals.
The following table shows the rating scale used by the major rating agencies. T. Rowe Price considers publicly available ratings but emphasizes its own credit analysis when selecting investments.
Ratings of Corporate Debt Securities
Moodys | S & P | Fitch | Definition | |||||||
Long Term | Aaa | AAA | AAA | Highest quality | ||||||
Aa | AA | AA | High quality | |||||||
A | A | A | Upper-medium grade | |||||||
Baa | BBB | BBB | Medium grade | |||||||
Ba | BB | BB | Speculative | |||||||
B | B | B | Highly speculative | |||||||
Caa | CCC | CCC | Vulnerable to default | |||||||
Ca | CC | CC | Default is imminent | |||||||
C | C | C | Probably in default | |||||||
Moodys | S&P | Fitch | ||||||||
Commercial Paper | P-1 | Superior quality | A-1+ A-1 | Extremely strong quality Strong quality | F-1+ F-1 | Exceptionally strong quality Very strong quality | ||||
P-2 | Strong quality | A-2 | Satisfactory quality | F-2 | Good credit quality | |||||
P-3 | Acceptable quality | A-3 B C | Adequate quality Speculative quality Doubtful quality | F-3 | Fair credit quality |
Portfolio Turnover
Turnover is an indication of frequency of trading. A fund will not generally trade in securities for short-term profits, but when circumstances warrant, securities may be purchased and sold without regard to the length of time held. Each time a fund purchases or sells a security, it incurs a cost. This cost is reflected in its net asset value but not in its operating expenses. The higher the turnover rate, the higher the transaction costs and the greater the impact on a funds total return. Higher turnover can also increase the possibility of taxable capital gain distributions. The funds portfolio turnover rate is shown in the Financial Highlights table.
T. Rowe Price | 40 |
Each T. Rowe Price funds portfolio holdings are disclosed on a regular basis in its semiannual and annual shareholder reports, and on Form N-Q, which is filed with the SEC within 60 days of the funds first and third fiscal quarter-end. The money funds also file detailed month-end portfolio holdings information with the SEC each month. Such information will be made available to the public 60 days after the end of the month to which the information pertains. In addition, the funds disclose their calendar quarter-end portfolio holdings on troweprice.com 15 calendar days after each quarter. Under certain conditions, up to 5% of a funds holdings may be included in this portfolio list without being individually identified. Generally, securities would not be individually identified if they are being actively bought or sold and it is determined that the quarter-end disclosure of the holding could be harmful to the fund. A security will not be excluded for these purposes from a funds quarter-end holdings disclosure for more than one year. Money funds also disclose their month-end portfolio holdings on troweprice.com five business days after each month. The quarter-end portfolio holdings will remain on the website for one year and the month-end money fund portfolio holdings will remain on the website for six months. Each fund also discloses its 10 largest holdings on troweprice.com on the seventh business day after each month-end. These holdings are listed in alphabetical order along with the aggregate percentage of the funds total assets that these 10 holdings represent. Each monthly top 10 list will remain on the website for six months. A description of T. Rowe Prices policies and procedures with respect to the disclosure of portfolio information is in the Statement of Additional Information.
The Financial Highlights table, which provides information about the funds Advisor Class financial history, is based on a single share outstanding throughout the periods shown. The classs section of the table is part of the funds financial statements, which are included in its annual report and are incorporated by reference into the Statement of Additional Information (available upon request). The total returns in the table represent the rate that an investor would have earned or lost on an investment in the funds Advisor Class (assuming reinvestment of all dividends and distributions and no payment of any applicable account or redemption fees). The financial statements in the annual report were audited by the funds independent registered public accounting firm, PricewaterhouseCoopers LLP.
More About the Fund | 41 |
Financial Highlights
5/26/11* | Year ended December 31 | |||
2012 | ||||
Net asset value, | $10.00 | $8.88 | ||
Income From Investment Operations | ||||
Net investment incomea | 0.28 | b | 0.48 | b |
Net gains or losses on | (1.12 | ) | 1.06 | |
Total from investment | (0.84 | ) | 1.54 | |
Less Distributions | ||||
Dividends
(from net | (0.15 | ) | (0.29 | ) |
Distributions (from | (0.13 | ) | (0.18 | ) |
Returns of capital | | (0.01 | ) | |
Total distributions | (0.28 | ) | (0.48 | ) |
Net asset value, | $8.88 | $9.94 | ||
Total return | (8.52 | )%b | 17.71 | %b |
Ratios/Supplemental Data | ||||
Net assets, end of period | $259 | $463 | ||
Ratio of
expenses to | 1.20 | %b,c | 1.20 | %b |
Ratio of net income to | 4.85 | %b,c | 5.06 | %b |
Portfolio turnover rate | 49.6 | % | 82.3 | % |
* Inception date.
a Per share amounts calculated using average shares outstanding method.
b Excludes expenses in excess of a 1.20% contractual expense limitation in effect through April 30, 2014.
c Annualized.
Investing With T. Rowe Price | 4 | |
Your fund shares must be purchased through a third-party intermediary, therefore please contact the intermediary for information regarding its policies on purchasing, exchanging, and redeeming fund shares, as well as initial and subsequent investment minimums. |
Tax Identification | The intermediary must provide T. Rowe Price with its certified taxpayer identification number. Otherwise, federal law requires the funds to withhold a percentage of dividends, capital gain distributions, and redemptions and may subject the intermediary or account holder to an Internal Revenue Service fine. If this information is not received within 60 days after the account is established, the account may be redeemed at the funds then-current net asset value. | |
All initial and subsequent
investments by intermediaries should be made by bank wire or electronic payment. For more information,
contact Financial Institution Services by calling |
Important Information About Opening an Account | Opening a New Account | |
Pursuant to federal law, all financial institutions must obtain, verify, and record information that identifies each person or entity that opens an account. |
| When an account is opened, the name, residential street address, date of birth, and Social Security or employer identification number for each account owner and person(s) opening an account on behalf of others (such as custodians, agents, trustees, or other authorized signers) must be provided. Corporate and other institutional accounts require documents showing the existence of the entity (such as articles of incorporation or partnership agreements) to open an |
Investing With T. Rowe Price | 43 |
|
| account. Certain other fiduciary accounts (such as trusts or power of attorney arrangements) require documentation, which may include an original or certified copy of the trust agreement or power of attorney to open an account. For more information, call Financial Institution Services. |
T. Rowe Price will use this information to verify the identity of the person(s)/entity opening the account. An account cannot be opened until all of this information is received. If the identity of the account holder cannot be verified, T. Rowe Price is authorized to take any action permitted by law. (See Rights Reserved by the Funds.) |
Intermediaries should call Financial Institution Services for an account number, assignment to a dedicated service representative, and wire transfer instructions. |
In order to obtain an account number, the intermediary must supply the name, Social Security or employer identification number, and business street address for the account. |
Intermediaries should complete a New Account form and mail it, with proper documentation identifying your firm, to one of the appropriate addresses listed below. Intermediaries must also enter into a separate agreement with the fund or its agent. The funds are generally available only to investors residing in the United States. |
via U.S. Postal Service |
via private carriers/overnight
services |
Note: Please use the correct address to avoid a delay in opening your new account. |
T. Rowe Price | 44 |
$100 minimum per fund for all additional purchases and $1,000 minimum required for Summit Funds (your intermediary may impose different minimums) |
By Wire | Intermediaries should call Financial Institution Services or access troweprice.com for wire transfer instructions. T. Rowe Price must receive the wire by the close of the New York Stock Exchange (normally 4 p.m. ET) to receive that days share price. There is no assurance that the share price for the purchase will be the same day the wire was initiated. | |
Exchange Service | Money can be moved from one account to an existing, identically registered account or a new identically registered account can be opened. Intermediaries should call their Financial Institution Services representative for more information or to place a trade. For exchange policies, please see Transaction Procedures and Special RequirementsExcessive and Short-Term Trading Policy. |
Redemptions | Unless otherwise indicated, redemption proceeds will be wired to the intermediarys designated bank. Intermediaries should contact their Financial Institution Services representative. |
Some of the T. Rowe Price funds may impose a redemption fee. Check the funds prospectus under Contingent Redemption Fee in Pricing Shares and Receiving Sale Proceeds. The fee is paid to the fund. |
If your account has no activity in it for a certain period of time, your intermediary may be required to transfer your account to the appropriate state under its abandoned property laws. |
Investing With T. Rowe Price | 45 |
T. Rowe Price funds and their agents, in their sole discretion, reserve the following rights: (1) to waive or lower investment minimums; (2) to accept initial purchases by telephone; (3) to refuse any purchase or exchange order; (4) to cancel or rescind any purchase or exchange order placed through an intermediary, no later than the business day after the order is received by the intermediary (including, but not limited to, orders deemed to result in excessive trading, market timing, or 5% ownership); (5) to cease offering fund shares at any time to all or certain groups of investors; (6) to freeze any account and suspend account services when notice has been received of a dispute regarding the ownership of the account or a legal claim against an account, or if there is reason to believe a fraudulent transaction may occur; (7) to otherwise modify the conditions of purchase and modify or terminate any services at any time; (8) to waive any wire, small account, maintenance, or fiduciary fees charged to a group of shareholders; (9) to act on instructions reasonably believed to be genuine; (10) to involuntarily redeem an account at the net asset value calculated the day the account is redeemed, in cases of threatening conduct, suspected fraudulent or illegal activity, or if the fund or its agent is unable, through its procedures, to verify the identity of the person(s) or entity opening an account; and (11) for money funds, to suspend redemptions and postpone the payment of proceeds to facilitate an orderly liquidation of the fund. | ||
T. Rowe Price | 46 |
In the course of doing business with T. Rowe Price, you share personal and financial information with us. We treat this information as confidential and recognize the importance of protecting access to it.
You may provide information when communicating or transacting business with us in writing, electronically, or by phone. For instance, information may come from applications, requests for forms or literature, and your transactions and account positions with us. On occasion, such information may come from consumer reporting agencies and those providing services to us.
We do not sell information about current or former customers to any third parties, and we do not disclose it to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law. We may share information within the T. Rowe Price family of companies in the course of providing or offering products and services to best meet your investing needs. We may also share that information with companies that perform administrative or marketing services for T. Rowe Price, with a research firm we have hired, or with a business partner, such as a bank or insurance company with which we are developing or offering investment products. When we enter into such a relationship, our contracts restrict the companies use of our customer information, prohibiting them from sharing or using it for any purposes other than those for which they were hired.
We maintain physical, electronic, and procedural safeguards to protect your personal information. Within T. Rowe Price, access to such information is limited to those who need it to perform their jobs, such as servicing your accounts, resolving problems, or informing you of new products or services. Finally, our Code of Ethics, which applies to all employees, restricts the use of customer information and requires that it be held in strict confidence.
This Privacy Policy applies to the following T. Rowe Price family of companies: T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price Trust Company; and the T. Rowe Price Funds.
A Statement of Additional Information for the T. Rowe Price family of funds, which includes additional information about the funds, has been filed with the SEC and is incorporated by reference into this prospectus. Further information about fund investments, including a review of market conditions and the managers recent investment strategies and their impact on performance during the past fiscal year, is available in the annual and semiannual shareholder reports. To obtain free copies of any of these documents, call your intermediary. These documents are available through troweprice.com.
Fund information and Statements of Additional Information are also available from the Public Reference Room of the SEC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. Fund reports and other fund information are available on the EDGAR Database on the SECs Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Public Reference Room, Washington, D.C. 20549-1520.
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
1940 Act File No. 811-2958 E292-040 5/1/13
PROSPECTUS | |
PAIBX | |
May 1, 2013 | |
T. Rowe Price International Bond FundAdvisor Class | |
A fund seeking high income and capital appreciation through investments primarily in high-quality foreign bonds. This class of shares is sold only through financial intermediaries. | |
The Securities and Exchange Commission (SEC) has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. | |
Table of Contents
1 | Summary | Mutual fund shares are not deposits or obligations of, or guaranteed by, any depository institution. Shares are not insured by the Federal Deposit Insurance Corporation, Federal Reserve, or any other government agency, and are subject to investment risks, including possible loss of the principal amount invested. | |
International Bond FundAdvisor Class 1 | |||
2 | Information
About Accounts | ||
Pricing Shares and Receiving Sale Proceeds 7 Useful Information on Distributions and Taxes 11 Transaction Procedures and Special Requirements 15 Distribution, Shareholder Servicing, and Recordkeeping Fees 19 | |||
3 | More About the Fund | ||
Organization and Management 20 More Information About the Fund and Its Investment Risks 23 Investment Policies and Practices 28 Disclosure of Fund Portfolio Information 40 Financial Highlights 40 | |||
4 | Investing With T. Rowe Price | ||
Account Requirements and Transaction Information 42 Purchasing Additional Shares 44 Exchanging and Redeeming Shares 44 Rights Reserved by the Funds 45 T. Rowe Price Privacy Policy 46 |
SUMMARY
The fund seeks to provide high current income and capital appreciation by investing primarily in high-quality, nondollar-denominated bonds outside the U.S.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold shares of the fund.
Fees and Expenses of the Funds Advisor Class
Shareholder fees (fees paid directly from your investment) | |
Redemption fee (as a percentage of amount redeemed on shares held for 90 days or less) | 2.00% |
Annual
fund operating expenses | |
Management fees | 0.65% |
Distribution and service (12b-1) fees | 0.25% |
Other expenses | 0.23% |
Total annual fund operating expenses | 1.13% |
Example This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the funds operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 year | 3 years | 5 years | 10 years |
$115 | $359 | $622 | $1,375 |
Portfolio Turnover The fund pays transaction costs, such as commissions, when it buys and sells securities (or turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example, affect the funds performance. During the most recent fiscal year, the funds portfolio turnover rate was 52.2% of the average value of its portfolio.
Investments, Risks, and Performance
Principal Investment Strategies Normally, the fund will invest at least 80% of its net assets (including any borrowings for investment purposes) in foreign bonds and 65% of its net assets in foreign bonds that are rated within the three highest credit categories (i.e., A- or equivalent, or better), as determined by at least one major credit
T. Rowe Price | 2 |
rating agency or, if unrated, deemed to be of comparable quality by T. Rowe Price. If a bond is split-rated (i.e., assigned different ratings by different credit rating agencies), the higher rating will be used. The fund may invest up to 20% of its total assets in junk bonds that have received a below investment-grade rating (i.e., BB or equivalent, or lower) from each of the rating agencies that has assigned a rating to the bond (or, if unrated, deemed to be below investment-grade quality by T. Rowe Price), including those in default or with the lowest rating. Up to 20% of total assets may be invested in U.S. dollar-denominated foreign bonds, such as Brady bonds and other emerging markets bonds.
Although the fund expects to maintain an intermediate- to long-term weighted average maturity, there are no maturity restrictions on the overall portfolio or on individual securities. The fund has wide flexibility to purchase and sell currencies and engage in hedging transactions. However, we normally do not attempt to cushion the impact of foreign currency fluctuations on the U.S. dollar. Therefore, the fund is likely to be heavily exposed to the risk of bonds denominated in foreign currencies.
Investment decisions are based on fundamental market factors, such as yield and credit quality differences among bonds as well as supply and demand trends and currency values. The fund generally invests in securities where the combination of fixed-income returns and currency exchange rates appears attractive or, if the currency trend is unfavorable, where we believe the currency risk can be minimized through hedging. The fund sells holdings for a variety of reasons, such as to adjust the portfolios average maturity or credit quality, to shift assets into and out of higher-yielding securities, or to alter geographic or currency exposure.
The fund is nondiversified, meaning it may invest a greater portion of its assets in fewer issuers than is permissible for a diversified fund.
While most assets will be invested in bonds, the fund may enter into forward currency exchange contracts in keeping with the funds objectives. Forward currency exchange contracts would primarily be used to help protect the funds holdings from unfavorable changes in foreign currency exchange rates, although other currency hedging techniques may be used from time to time.
Principal Risks As with any mutual fund, there is no guarantee that the fund will achieve its objective. The funds share price fluctuates, which means you could lose money by investing in the fund. The principal risks of investing in this fund are summarized as follows:
Active management risk The fund is subject to the risk that the investment advisers judgments about the attractiveness, value, or potential appreciation of the funds investments may prove to be incorrect. If the securities selected and strategies employed by the fund fail to produce the intended results, the fund could underperform other funds with similar objectives and investment strategies.
Summary | 3 |
International investing risk Investing in the securities of non-U.S. issuers involves special risks not typically associated with investing in U.S. securities. International securities tend to be more volatile and less liquid than investments in U.S. securities and may lose value because of adverse political, social, or economic developments overseas. In addition, international investments may be subject to regulatory and accounting standards that differ from those of the U.S.
Emerging markets risk The risks of international investing are heightened for securities of issuers in emerging market countries. Emerging market countries tend to have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries. In addition to all of the risks of investing in international developed markets, emerging markets are more susceptible to governmental interference, local taxes being imposed on international investments, restrictions on gaining access to sales proceeds, and less liquid and efficient trading markets.
Currency risk Because the fund generally invests in securities issued in foreign currencies, the fund is subject to the risk that it could experience losses based solely on the weakness of foreign currencies versus the U.S. dollar and changes in the exchange rates between such currencies and the U.S. dollar. Any attempts at currency hedging may not be successful and could cause the fund to lose money.
Credit risk This is the risk that an issuer of a debt security could suffer an adverse change in financial condition that results in a payment default, security downgrade, or inability to meet a financial obligation. The funds overall credit risk is increased to the extent the fund invests in emerging markets bonds or bonds rated below investment-grade. Such investments carry a higher risk of default and should be considered speculative.
Interest rate risk This risk refers to the chance that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Generally, securities with longer maturities and funds with longer weighted average maturities carry greater interest rate risk.
Liquidity risk This is the risk that the fund may not be able to sell a holding in a timely manner at a desired price.
Nondiversification risk As a nondiversified fund, the fund has the ability to invest a larger percentage of its assets in the securities of a smaller number of issuers than a diversified fund. As a result, poor performance by a single issuer could adversely affect fund performance more than if the fund were invested in a larger number of issuers. The funds share price can be expected to fluctuate more than that of a comparable diversified fund.
Derivatives risk To the extent the fund uses forward currency exchange contracts, it is exposed to greater volatility and losses in comparison to investing directly in foreign bonds. Forward currency exchange contracts are also subject to the risks that
T. Rowe Price | 4 |
anticipated currency movements will not be accurately predicted, a counterparty will fail to perform in accordance with the terms of the agreement, and the chance that potential government regulation could negatively affect the funds investments in such instruments.
Performance The bar chart showing calendar year returns and the average annual total returns table indicate risk by illustrating how much returns can differ from one year to the next and how fund performance compares with that of a comparable market index. The funds past performance (before and after taxes) is not necessarily an indication of future performance.
The fund can also experience short-term performance swings, as shown by the best and worst calendar quarter returns during the years depicted.
In addition, the average annual total returns table shows hypothetical after-tax returns to suggest how taxes paid by a shareholder may influence returns. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investors tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements, such as a 401(k) account or individual retirement account.
Summary | 5 |
Average Annual Total Returns | |||||||||||
|
|
| Periods ended | ||||||||
| December 31, 2012 | ||||||||||
| 1 Year | 5 Years | 10 Years | ||||||||
| International Bond Fund-Advisor Class | ||||||||||
| Returns before taxes | 5.90 | % |
| 4.52 | % |
| 5.92 | % |
| |
| Returns after taxes on distributions | 5.16 |
|
| 2.95 |
|
| 4.29 |
|
| |
| Returns after taxes on distributions |
|
|
|
|
|
|
|
|
| |
| and sale of fund shares | 3.82 |
|
| 2.93 |
|
| 4.19 |
|
| |
| Barclays Global Aggregate ex USD Bond Index (reflects no deduction for fees, expenses, or taxes) | 4.09 |
|
| 5.06 |
|
| 6.55 |
|
| |
| Lipper International Income Funds Average | 7.38 |
|
| 5.99 |
|
| 6.33 |
|
|
Updated performance information is available through troweprice.com or may be obtained by calling 1-800-638-8790.
Management
Investment Adviser T. Rowe Price Associates, Inc. (T. Rowe Price)
Investment Sub-adviser T. Rowe Price International Ltd (T. Rowe Price International)
Portfolio Manager | Title | Managed Fund Since | Joined Investment |
Ian D. Kelson | Co-Chairman of | 2001 | 2000 |
Christopher J. Rothery | Co-Chairman of | 2012 | 1994 |
Purchase and Sale of Fund Shares
For retirement plan accounts and Uniform Gifts to Minors Act or Uniform Transfers to Minors Act accounts, generally the funds minimum initial investment requirement is $1,000 and, for all other accounts, generally the funds minimum initial investment requirement is $2,500. The funds minimum subsequent investment requirement is $100. Your financial intermediary may impose different investment minimums.
You may purchase, redeem, or exchange shares of the fund on any day the New York Stock Exchange is open for business. You must purchase, redeem, and exchange shares through your financial intermediary.
T. Rowe Price | 6 |
Tax Information
The fund declares dividends daily and pays them on the first business day of each month. Any capital gains are declared and paid annually, usually in December. Distributions by the fund, whether or not you reinvest these amounts in additional fund shares, may be taxed as ordinary income or capital gains unless you invest through a tax-deferred account. A redemption or exchange of fund shares may be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related companies may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
Information About Accounts in T. Rowe Price Funds | 2 | |
As a T. Rowe Price shareholder, you will want to know about the following policies and procedures that apply to Advisor Class accounts in the T. Rowe Price family of funds.
How and When Shares Are Priced
The share price, also called the net asset value, for each class of shares is calculated at the close of the New York Stock Exchange (normally 4 p.m. ET) each day that the exchange is open for business. To calculate the net asset value, the funds assets are valued and totaled; liabilities are subtracted; and each classs proportionate share of the balance, called net assets, is divided by the number of shares outstanding of that class. Market values are used to price portfolio holdings for which market quotations are readily available. Market values represent the prices at which securities actually trade or evaluations based on the judgment of the funds pricing services. If a market value for a security is not available or normal valuation procedures are deemed to be inappropriate, the fund will make a good faith effort to assign a fair value to the security by taking into account various factors that have been approved by the funds Board of Directors/Trustees. This value may differ from the value the fund receives upon sale of the securities. Amortized cost is used to price securities held by money funds and certain other debt securities held by a fund. Investments in other mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation.
Non-U.S. equity securities are valued on the basis of their most recent closing market prices at 4 p.m. ET except under the circumstances described below. Most foreign markets close before 4 p.m. ET. For securities primarily traded in the Far East, for example, the most recent closing prices may be as much as 15 hours old at 4 p.m. ET. If a fund determines that developments between the close of a foreign market and the close of the New York Stock Exchange will, in its judgment, materially affect the value of some or all of the funds securities, the fund will adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of 4 p.m. ET. In deciding whether to make these adjustments, the fund reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. The fund may also fair value certain securities or a group of securities in other situationsfor example, when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with closing market prices and information used for adjusting those prices and to value most fixed income
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securities. The fund cannot predict how often it will use closing prices and how often it will adjust those prices. As a means of evaluating its fair value process, the fund routinely compares closing market prices, the next days opening prices in the same markets, and adjusted prices. The fund also evaluates a variety of factors when assigning fair values to private placements and other restricted securities. Other mutual funds may adjust the prices of their securities by different amounts or assign different fair values than the fair value that the fund assigns to the same security.
How Your Purchase, Sale, or Exchange Price Is Determined
Advisor Class shares are intended for purchase through various third-party intermediaries, including brokers, banks, insurance companies, retirement plan recordkeepers, and others. Contact your intermediary to find out how to purchase, sell, or exchange your shares; trade deadlines; and other applicable procedures for these transactions. The intermediary may charge a fee for its services.
The fund may have an agreement with your intermediary that permits the intermediary to accept orders on behalf of the fund until the close of the New York Stock Exchange (normally 4 p.m. ET). In such cases, if your order is received by the intermediary in correct form by the close of the New York Stock Exchange and is transmitted to T. Rowe Price and paid for in accordance with the agreement, the transaction will be priced at the next net asset value computed after the intermediary received your order. If the fund does not have an agreement with your intermediary, T. Rowe Price must receive the request in correct form from your intermediary by the close of the New York Stock Exchange in order for your transaction to be priced at that business days net asset value.
When authorized by the fund, certain financial institutions or retirement plans purchasing fund shares on behalf of customers or plan participants through T. Rowe Price Financial Institution Services or T. Rowe Price Retirement Plan Services may place a purchase order unaccompanied by payment. Payment for these shares must be received by the time designated by the fund (not to exceed the period established for settlement under applicable regulations). If payment is not received by this time, the order may be canceled. The financial institution or retirement plan is responsible for any costs or losses incurred by the fund or T. Rowe Price if payment is delayed or not received.
Note: The time at which transactions and shares are priced and the time until which orders are accepted by the fund or an intermediary may be changed in case of an emergency or if the New York Stock Exchange closes at a time other than 4 p.m. ET. In the event of an emergency closing, a funds shareholders will receive the next share price calculated by the fund. There may be times when you are unable to contact us by telephone or access your account online due to extreme market activity, the unavailability of the T. Rowe Price website, or other circumstances. Should this occur, your order must still be placed and accepted by T. Rowe Price prior to the
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time the New York Stock Exchange closes to be priced at that business days net asset value.
How Proceeds Are Received
Normally, the fund transmits proceeds to intermediaries for redemption orders received in correct form on either the next or third business day after receipt, depending on the arrangement with the intermediary. Under certain circumstances, and when deemed to be in a funds best interests, proceeds may not be sent to intermediaries for up to seven calendar days after receipt of the redemption order. You must contact your intermediary about procedures for receiving your redemption proceeds.
Contingent Redemption Fee
Short-term trading can disrupt a funds investment program and create additional costs for long-term shareholders. For these reasons, certain T. Rowe Price funds, listed in the following table, assess a fee on redemptions (including exchanges out of a fund), which reduces the proceeds from such redemptions by the amounts indicated:
T. Rowe Price Advisor Class Funds With Redemption Fees | ||
Fund | Redemption fee | Holding period |
Emerging Markets Corporate BondAdvisor Class | 2% | 90 days or less |
Emerging Markets Local Currency BondAdvisor Class | 2% | 90 days or less |
Floating RateAdvisor Class | 2% | 90 days or less |
Global InfrastructureAdvisor Class | 2% | 90 days or less |
Global Large-Cap StockAdvisor Class | 2% | 90 days or less |
Global Real EstateAdvisor Class | 2% | 90 days or less |
Global StockAdvisor Class | 2% | 90 days or less |
High YieldAdvisor Class | 2% | 90 days or less |
International BondAdvisor Class | 2% | 90 days or less |
International Growth & IncomeAdvisor Class | 2% | 90 days or less |
International StockAdvisor Class | 2% | 90 days or less |
Real EstateAdvisor Class | 1% | 90 days or less |
Small-Cap ValueAdvisor Class | 1% | 90 days or less |
Tax-Free High YieldAdvisor Class | 2% | 90 days or less |
Redemption fees are paid to a fund to deter short-term trading, offset costs, and protect the funds long-term shareholders. Subject to the exceptions described on the following pages, all persons holding shares of a T. Rowe Price fund that imposes a redemption fee are subject to the fee, whether the person is holding shares directly with a T. Rowe Price fund; through a retirement plan for which T. Rowe Price serves
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as recordkeeper; or indirectly through an intermediary (such as a broker, bank, or investment adviser), recordkeeper for retirement plan participants, or other third party.
Computation of Holding Period
When an investor sells shares of a fund that assesses a redemption fee, T. Rowe Price will use the first-in, first-out method to determine the holding period for the shares sold. Under this method, the date of redemption or exchange will be compared with the earliest purchase date of shares held in the account. The day after the date of your purchase is considered Day 1 for purposes of computing the holding period. A redemption fee will be charged on shares sold on or before the end of the required holding period. For example, if you redeem your shares on or before the 90th day after the date of purchase, you will be assessed the redemption fee. If you purchase shares through an intermediary, consult your intermediary to determine how the holding period will be applied.
Transactions Not Subject to Redemption Fees
The T. Rowe Price funds will not assess a redemption fee with respect to certain transactions. As of the date of this prospectus, the following shares of T. Rowe Price funds will not be subject to redemption fees:
· Shares redeemed through an automated, systematic withdrawal plan;
· Shares redeemed through or used to establish certain rebalancing, asset allocation, wrap, and advisory programs, as well as non-T. Rowe Price fund-of-funds products, if approved in writing by T. Rowe Price;
· Shares purchased through the reinvestment of dividends or capital gain distributions; *
· Shares converted from one share class to another share class of the same fund;*
· Shares redeemed automatically by a fund to pay fund fees or shareholder account fees (e.g., for failure to meet account minimums);
· Shares purchased by rollover or changes of account registration within the same fund; *
· Shares redeemed to return an excess contribution from a retirement account;
· Shares of T. Rowe Price funds purchased by another T. Rowe Price fund and shares purchased by discretionary accounts managed by T. Rowe Price or one of its affiliates (please note that other shareholders of the investing T. Rowe Price fund are still subject to the policy);
· Shares that are redeemed in-kind;
· Shares transferred to T. Rowe Price or a third-party intermediary acting as a service provider when the age of the shares cannot be determined systematically; * and
· Shares redeemed in retirement plans or other products that restrict trading to no more frequently than once per quarter, if approved in writing by T. Rowe Price.
* Subsequent exchanges of these shares into funds that assess redemption fees will subject such shares to the fee.
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Redemption Fees on Shares Held in Retirement Plans
If shares are held in a retirement plan, redemption fees generally will be assessed on shares redeemed by exchange only if they were originally purchased by exchange. However, redemption fees may apply to transactions other than exchanges depending on how shares of the plan are held at T. Rowe Price or how the fees are applied by your plans recordkeeper. To determine which of your transactions are subject to redemption fees, you should contact T. Rowe Price or your plan recordkeeper.
Omnibus Accounts
If your shares are held through an intermediary in an omnibus account, T. Rowe Price relies on the intermediary to assess the redemption fee on underlying shareholder accounts. T. Rowe Price seeks to identify intermediaries establishing omnibus accounts and to enter into agreements requiring the intermediary to assess the redemption fees. There are no assurances that T. Rowe Price will be successful in identifying all intermediaries or that the intermediaries will properly assess the fees.
Certain intermediaries may not apply the exemptions previously listed to the redemption fee policy; all redemptions by persons trading through such intermediaries may be subject to the fee. Certain intermediaries may exempt transactions not listed from redemption fees, if approved by T. Rowe Price. Persons redeeming shares through an intermediary should check with their respective intermediary to determine which transactions are subject to the fees.
Each fund intends to qualify to be treated each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. In order to qualify, a fund must satisfy certain income, diversification, and distribution requirements. A regulated investment company is not subject to U.S. federal income tax at the portfolio level on income and gains from investments that are distributed to shareholders. However, if a fund were to fail to qualify as a regulated investment company, and was ineligible to or otherwise did not cure such failure, the result would be fund-level taxation and, consequently, a reduction in income available for distribution to the funds shareholders.
To the extent possible, all net investment income and realized capital gains are distributed to shareholders.
Dividends and Other Distributions
Dividend and capital gain distributions are reinvested in additional fund shares in your account unless you select another option. Reinvesting distributions results in compounding, which allows you to receive dividends and capital gain distributions on an increasing number of shares.
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Interest will not accrue on amounts represented by uncashed distributions or redemption checks.
The following table provides details on dividend payments:
Dividend Payment Schedule | |
Fund | Dividends |
Bond funds | · Shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price. · Declared daily and paid on the first business day of each month. |
These stock funds only: · Dividend GrowthAdvisor Class · Equity IncomeAdvisor Class · Global Real EstateAdvisor Class · Real EstateAdvisor Class | · Declared and paid quarterly, if any, in March, June, September, and December. · Must be a shareholder on the dividend record date. |
Other stock funds | · Declared and paid annually, if any, generally in December. · Must be a shareholder on the dividend record date. |
Retirement Funds: | |
· Retirement IncomeAdvisor Class | · Shares normally begin to earn dividends on the business day after payment is received by T. Rowe Price. · Declared daily and paid on the first business day of each month. |
· All others | · Declared and paid annually, if any, generally in December. · Must be a shareholder on the dividend record date. |
Bond fund shares will earn dividends through the date of redemption. Shares redeemed on a Friday or prior to a holiday will continue to earn dividends until the next business day. Generally, if you redeem all of your bond fund shares at any time during the month, you will also receive all dividends earned through the date of redemption in the same check. When you redeem only a portion of your bond fund shares, all dividends accrued on those shares will be reinvested, or paid in cash, on the next dividend payment date. The funds do not pay dividends in fractional cents. Any dividend amount earned for a particular day on all shares held that is one-half of one cent or greater (for example, $0.016) will be rounded up to the next whole cent ($0.02), and any amount that is less than one-half of one cent (for example, $0.014) will be rounded down to the nearest whole cent ($0.01). Please note that, if the dividend payable on all shares held is less than one-half of one cent for a particular day, no dividend will be earned for that day.
If you purchase and sell your shares through an intermediary, consult your intermediary to determine when your shares begin and stop accruing dividends; the information previously described may vary.
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Capital Gain Payments
A capital gain or loss is the difference between the purchase and sale price of a security. If a fund has net capital gains for the year (after subtracting any capital losses), they are usually declared and paid in December to shareholders of record on a specified date that month. If a second distribution is necessary, it is paid the following year.
Tax Information
You should contact your intermediary for the tax information that will be sent to you and reported to the Internal Revenue Service.
If you invest in the fund through a tax-deferred account, such as an individual retirement account, you will not be subject to tax on dividends and distributions from the fund or the sale of fund shares if those amounts remain in the tax-deferred account. You may receive a Form 1099-R or other Internal Revenue Service forms, as applicable, if any portion of the account is distributed to you.
If you invest in the fund through a taxable account, you generally will be subject to tax when:
· You sell fund shares, including an exchange from one fund to another.
· The fund makes dividend or capital gain distributions.
For individual shareholders, a portion of ordinary dividends representing qualified dividend income received by the fund may be subject to tax at the lower rates applicable to long-term capital gains rather than ordinary income. You may report it as qualified dividend income in computing your taxes, provided you have held the fund shares on which the dividend was paid for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Ordinary dividends that do not qualify for this lower rate are generally taxable at the investors marginal income tax rate. This includes the portion of ordinary dividends derived from interest, short-term capital gains, distributions from nonqualified foreign corporations, and dividends received by the fund from stocks that were on loan. Little, if any, of the ordinary dividends paid by the Global Real Estate FundAdvisor Class, Real Estate FundAdvisor Class, or the bond fund Advisor Classes is expected to qualify for this lower rate.
For corporate shareholders, a portion of ordinary dividends may be eligible for the 70% deduction for dividends received by corporations to the extent the funds income consists of dividends paid by U.S. corporations. Little, if any, of the ordinary dividends paid by the international stock or bond fund Advisor Classes is expected to qualify for this deduction.
Regular monthly dividends from the Summit Municipal Income FundAdvisor Class, Summit Municipal Intermediate FundAdvisor Class, Tax-Free High Yield FundAdvisor Class, Tax-Free Income FundAdvisor Class, and the Tax-Free Short-Intermediate FundAdvisor Class are expected to be exempt from federal income
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taxes. Exemption is not guaranteed since the fund has the right under certain conditions to invest in nonexempt securities. You must report your total tax-free income on Internal Revenue Service Form 1040. The Internal Revenue Service uses this information to help determine the tax status of any Social Security payments you may have received during the year. Tax-exempt dividends paid to Social Security recipients may increase the portion of benefits that is subject to tax.
Beginning in 2013, a 3.8% net investment income tax is imposed on net investment income, including interest, dividends, and capital gains, of U.S. individuals with income exceeding $200,000 (or $250,000 if married filing jointly) and of estates and trusts.
Taxes on Fund Redemptions
When you sell shares in any fund, you may realize a gain or loss. An exchange from one fund to another in a taxable account is also a sale for tax purposes.
Taxes on Fund Distributions
The tax treatment of a capital
gain distribution is determined by how long the fund held the portfolio securities, not how long you
held the shares in the fund.
Short-term (one year or less) capital gain distributions are taxable
at the same rate as ordinary income, and gains on securities held more than one year are taxed at the
lower rates applicable to long-term capital gains. If you realized a loss on the sale or exchange of
fund shares that you held six months or less, your short-term capital loss must be reclassified as a
long-term capital loss to the extent of any long-term capital gain distributions received during the
period you held the shares. For funds investing in foreign securities, distributions resulting from the
sale of certain foreign currencies, currency contracts, and the foreign currency portion of gains on
debt securities are taxed as ordinary income. Net foreign currency losses may cause monthly or quarterly
dividends to be reclassified as returns of capital.
If the fund qualifies and elects to pass through nonrefundable foreign income taxes paid to foreign governments during the year, your portion of such taxes will be reported to you as taxable income. However, you may be able to claim an offsetting credit or deduction on your tax return for those amounts. There can be no assurance that a fund will meet the requirements to pass through foreign income taxes paid.
If a fund holds Build America Bonds or other qualified tax credit bonds and elects to pass through the corresponding interest income and any available tax credits, you will need to report both the interest income and any such tax credits as taxable income. You may be able to claim the tax credits on your federal tax return as an offset to your income tax (including alternative minimum tax) liability, but the tax credits generally are not refundable. There is no assurance, however, that a fund will elect to pass through the income and credits.
For the tax-free bond fund Advisor Classes, gains realized on the sale of market discount bonds with maturities beyond one year may be treated as ordinary income
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and cannot be offset by other capital losses, and payments received or gains realized on certain derivative transactions may result in taxable ordinary income or capital gain. To the extent the fund invests in these securities, the likelihood of a taxable gain distribution will be increased.
For the Retirement Funds, distributions by the underlying funds and changes in asset allocations may result in taxable distributions of ordinary income or capital gains.
Taxable distributions are subject to tax whether reinvested in additional shares or received in cash.
Tax Consequences of Hedging
Entering into certain transactions involving options, futures, swaps, and forward currency exchange contracts may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in a fund being required to distribute gains on such transactions even though it did not close the contracts during the year or receive cash to pay such distributions. The fund may not be able to reduce its distributions for losses on such transactions to the extent of unrealized gains in offsetting positions.
Tax Effect of Buying Shares Before an Income Dividend or Capital Gain Distribution
If you buy shares shortly before or on the record datethe date that establishes you as the person to receive the upcoming distributionyou may receive a portion of the money you just invested in the form of a taxable distribution. Therefore, you may wish to find out a funds record date before investing. In addition, a funds share price may, at any time, reflect undistributed capital gains or income and unrealized appreciation, which may result in future taxable distributions. Such distributions can occur even in a year when the fund has a negative return.
The Advisor Class is a share class of its respective T. Rowe Price fund and is not a separate mutual fund. The funds Advisor Class shares are intended for purchase through various third-party intermediaries, including brokers, banks, insurance companies, retirement plan recordkeepers, and other financial intermediaries that provide various distribution and administrative services.
The Advisor Class is designed for use by investors investing through intermediaries and requires an agreement between the intermediary and T. Rowe Price to be executed prior to investment. Purchases of Advisor Class shares for which the required agreement with T. Rowe Price has not been executed, or that are not made through an eligible intermediary, are subject to rejection or cancellation without prior notice to the intermediary or investor. Existing investments in the Advisor Class shares that are not held through an eligible intermediary may be transferred by
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T. Rowe Price to another class (with lower expenses) in the same fund following notice to the intermediary or shareholder.
Purchase Conditions for Intermediaries
Nonpayment If the fund does not receive payment for an order in a timely manner, your purchase may be canceled. The intermediary will be responsible for any losses or expenses incurred by the fund or transfer agent. The funds and their agents have the right to reject or cancel any purchase, exchange, or redemption due to nonpayment.
U.S. Dollars All purchases must be paid for in U.S. dollars; checks must be drawn on U.S. banks.
Sale (Redemption) Conditions
Holds on Immediate Redemptions: 10-Day Hold If an intermediary sells shares that it just purchased and paid for by check or Automated Clearing House transfer, the fund will process the redemption but generally will delay sending the proceeds for up to 10 calendar days to allow the check or transfer to clear. (The 10-day hold does not apply to purchases paid for by bank wire.)
Large Redemptions Large redemptions can adversely affect a portfolio managers ability to implement a funds investment strategy by causing the premature sale of securities. Therefore, the fund reserves the right (without prior notice) to pay all or part of redemption proceeds with securities from the funds portfolio rather than in cash (redemption in-kind). If this occurs, the securities will be selected by the fund in its absolute discretion, and the redeeming shareholder or account will be responsible for disposing of the securities and bearing any associated costs.
Excessive and Short-Term Trading Policy
Excessive transactions and short-term trading can be harmful to fund shareholders in various ways, such as disrupting a funds portfolio management strategies, increasing a funds trading costs, and negatively affecting its performance. Short-term traders in funds that invest in foreign securities may seek to take advantage of developments overseas that could lead to an anticipated difference between the price of the funds shares and price movements in foreign markets. While there is no assurance that T. Rowe Price can prevent all excessive and short-term trading, the Boards of Directors/Trustees of the T. Rowe Price funds have adopted the following trading limits that are designed to deter such activity and protect the funds shareholders. The funds may revise their trading limits and procedures at any time as the Boards of Directors/Trustees deem necessary or appropriate to better detect short-term trading that may adversely affect the funds, to comply with applicable regulatory requirements, or to impose additional or alternative restrictions.
Subject to certain exceptions, each T. Rowe Price fund restricts a shareholders purchases (including through exchanges) into a fund account for a period of 30 calendar days after the shareholder has redeemed or exchanged out of that same
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fund account (the 30-Day Purchase Block). The calendar day after the date of redemption is considered Day 1 for purposes of computing the period before another purchase may be made.
General Exceptions As of the date of this prospectus, the following types of transactions generally are not subject to the 30-Day Purchase Block:
· Shares purchased or redeemed in money funds;
· Shares purchased or redeemed through a systematic purchase or withdrawal plan;
· Checkwriting redemptions from bond and money funds;
· Shares purchased through the reinvestment of dividends or capital gain distributions;
· Shares redeemed automatically by a fund to pay fund fees or shareholder account fees;
· Transfers and changes of account registration within the same fund;
· Shares purchased by asset transfer or direct rollover;
· Shares purchased or redeemed through IRA conversions and recharacterizations;
· Shares redeemed to return an excess contribution from a retirement account;
· Transactions in Section 529 college savings plans;
· Shares converted from one share class to another share class in the same fund; and
· Shares of T. Rowe Price funds that are purchased by another T. Rowe Price fund, including shares purchased by T. Rowe Price fund-of-funds products, and shares purchased by discretionary accounts managed by T. Rowe Price or one of its affiliates (please note that shareholders of the investing T. Rowe Price fund are still subject to the policy).
Transactions in certain rebalancing, asset allocation, wrap programs, and other advisory programs, as well as non-T. Rowe Price fund-of-funds products, may also be exempt from the 30-Day Purchase Block, subject to prior written approval by T. Rowe Price.
In addition to restricting transactions in accordance with the 30-Day Purchase Block, T. Rowe Price may, in its discretion, reject (or instruct an intermediary to reject) any purchase or exchange into a fund from a person (which includes individuals and entities) whose trading activity could disrupt the management of the fund or dilute the value of the funds shares, including trading by persons acting collectively (e.g., following the advice of a newsletter). Such persons may be barred, without prior notice, from further purchases of T. Rowe Price funds for a period longer than 30 calendar days or permanently.
Intermediary Accounts If you invest in T. Rowe Price funds through an intermediary, you should review the intermediarys materials carefully or consult with the intermediary directly to determine the trading policy that will apply to your trades in the funds as well as any other rules or conditions on transactions that may apply. If T. Rowe Price is unable to identify a transaction placed through an intermediary as exempt from the excessive trading policy, the 30-Day Purchase Block may apply.
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Intermediaries may maintain their underlying accounts directly with the fund, although they often establish an omnibus account (one account with the fund that represents multiple underlying shareholder accounts) on behalf of their customers. When intermediaries establish omnibus accounts in the T. Rowe Price funds, T. Rowe Price is not able to monitor the trading activity of the underlying shareholders. However, T. Rowe Price monitors aggregate trading activity at the intermediary (omnibus account) level in an attempt to identify activity that indicates potential excessive or short-term trading. If it detects suspicious trading activity, T. Rowe Price contacts the intermediary and may request personal identifying information and transaction histories for some or all underlying shareholders (including plan participants, if applicable). If T. Rowe Price believes that excessive or short-term trading has occurred, it will instruct the intermediary to impose restrictions to discourage such practices and take appropriate action with respect to the underlying shareholder, including restricting purchases for 30 calendar days or longer. There is no assurance that T. Rowe Price will be able to properly enforce its excessive trading policies for omnibus accounts. Because T. Rowe Price generally relies on intermediaries to provide information and impose restrictions for omnibus accounts, its ability to monitor and deter excessive trading will be dependent upon the intermediaries timely performance of their responsibilities.
T. Rowe Price may allow an intermediary or other third party to maintain restrictions on trading in the T. Rowe Price funds that differ from the 30-Day Purchase Block. An alternative excessive trading policy would be acceptable to T. Rowe Price if it believes that the policy would provide sufficient protection to the T. Rowe Price funds and their shareholders that is consistent with the excessive trading policy adopted by the funds Boards of Directors/Trustees.
Retirement Plan Accounts If
shares are held in a retirement plan, generally the
30-Day Purchase Block applies only to shares redeemed
by a participant-directed exchange to another fund. However, the 30-Day Purchase Block may apply to transactions
other than exchanges depending on how shares of the plan are held at T. Rowe Price or the excessive
trading policy applied by your plans recordkeeper. An alternative excessive trading policy may
apply to the T. Rowe Price funds where a retirement plan has its own policy deemed acceptable to
T. Rowe Price. You should contact T. Rowe Price or your plan recordkeeper to determine which
of your transactions are subject to the funds 30-Day Purchase Block or an alternative policy.
There is no guarantee that T. Rowe Price will be able to identify or prevent all excessive or short-term trades or trading practices.
Signature Guarantees
An intermediary may need to obtain a signature
guarantee in certain situations,
such as:
· Written requests to redeem over $5 million and wire the redemption proceeds to a bank account not on file;
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· Remitting redemption proceeds to any person, address, or bank account not on record; or
· Changing the account registration or broker-dealer of record for an account.
Intermediaries should consult their T. Rowe Price Financial Institution Services representative for specific requirements.
The signature guarantee must be obtained from a financial institution that is a participant in a Medallion signature guarantee program. You can obtain a Medallion signature guarantee from most banks, savings institutions, broker-dealers, and other guarantors acceptable to T. Rowe Price. When obtaining a Medallion signature guarantee, please discuss with the guarantor the dollar amount of your proposed transaction. It is important that the level of coverage provided by the guarantors stamp covers the dollar amount of the transaction or it may be rejected. We cannot accept guarantees from notaries public or organizations that do not provide reimbursement in the case of fraud.
The Advisor Class has adopted a 12b-1 plan under which it pays a fee at a rate of up to 0.25% of its average daily net assets per year to various unaffiliated intermediaries, such as brokers, banks, insurance companies, and retirement plan recordkeepers for distribution and/or shareholder servicing of the Advisor Class shares. Distribution payments may include payments to intermediaries for making the Advisor Class shares available to their customers (e.g., providing the fund with shelf space or inclusion on a preferred list or supermarket platform). Shareholder servicing payments may include payments to intermediaries for providing shareholder support services to existing shareholders of the Advisor Class. These payments may be more or less than the costs incurred by the intermediaries. Because the fees are paid from the Advisor Class net assets on an ongoing basis, they will increase the cost of your investment and, over time, could result in your paying more than with other types of sales charges. The Advisor Class may also separately compensate intermediaries at a rate of up to 0.15% of average daily net assets per year for various recordkeeping and transfer agent services they perform. These services include maintaining separate records for each customer, transmitting net purchase and redemption orders, mailing shareholder confirmations and periodic statements, and providing telephone and Internet support to respond to questions regarding the customers account.
Payment of these fees may influence your financial advisors recommendation of the fund or of any particular share class of the fund.
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How is the fund organized?
T. Rowe Price International Funds, Inc. (the corporation) was incorporated in Maryland in 1979. Currently, the corporation consists of 18 series, each representing a separate pool of assets with different objectives and investment policies. Each is an open-end management investment company, or mutual fund. Mutual funds pool money received from shareholders of each class into a single portfolio and invest it to try to achieve specified objectives. In 2000, the International Bond Fund issued a separate class of shares known as the Advisor Class.
What is meant by shares?
As with all mutual funds, investors purchase shares when they put money in a fund. These shares are part of a funds authorized capital stock, but share certificates are not issued.
Each share and fractional share entitles the shareholder to:
· Receive a proportional interest in income and capital gain distributions of the class. The income dividends for Advisor Class shares will generally differ from those of other classes to the extent that the expense ratios of the classes differ.
· Cast one vote per share on certain fund matters, including the election of fund directors/trustees, changes in fundamental policies, or approval of changes in the funds management contract. Shareholders of each class have exclusive voting rights on matters affecting only that class.
Do T. Rowe Price funds have annual shareholder meetings?
The funds are not required to hold annual meetings and, to avoid unnecessary costs to fund shareholders, do not do so except when certain matters, such as a change in fundamental policies, must be decided. In addition, shareholders representing at least 10% of all eligible votes may call a special meeting for the purpose of voting on the removal of any fund director or trustee. If a meeting is held and you cannot attend, you can vote by proxy. Before the meeting, the fund will send or make available to you proxy materials that explain the issues to be decided and include instructions on voting by mail or telephone or on the Internet.
Who runs the fund?
General Oversight
The fund is governed by a Board of Directors that meets regularly to review fund investments, performance, expenses, and other business affairs. The Board elects the
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funds officers. At least 75% of Board members are independent of T. Rowe Price and its affiliates (the Firm).
All decisions regarding the purchase and sale of fund investments are made by T. Rowe Price or an affiliated investment adviserspecifically by the funds portfolio managers.
Investment Adviser
T. Rowe Price is the funds investment adviser and oversees the selection of the funds investments and management of the funds portfolio. T. Rowe Price is a SEC-registered investment adviser that provides investment management services to individual and institutional investors, and sponsors and serves as adviser and sub-adviser to registered investment companies, institutional separate accounts, and common trust funds. The address for T. Rowe Price is 100 East Pratt Street, Baltimore, Maryland 21202. As of December 31, 2012, the Firm managed approximately $577 billion for more than 10 million individual and institutional investor accounts.
T. Rowe Price has entered into a sub-advisory agreement with T. Rowe Price International under which T. Rowe Price International is authorized to trade securities and make discretionary investment decisions on behalf of the fund. T. Rowe Price International is an investment adviser registered or licensed with the SEC, United Kingdom Financial Conduct Authority, Financial Services Agency of Japan, and other non-U.S. regulatory authorities. T. Rowe Price International sponsors and serves as adviser to foreign collective investment schemes and provides investment management services to investment companies and other institutional investors. T. Rowe Price International is headquartered in London and has several branch offices around the world. T. Rowe Price International is a direct subsidiary of T. Rowe Price and its address is 60 Queen Victoria Street, London EC4N 4TZ, United Kingdom.
Portfolio Management
T. Rowe Price has established an Investment Advisory Committee with respect to the fund. The committee chairmen have day-to-day responsibility for managing the funds portfolio and work with the committee in developing and executing the funds investment program. The members of the committee are as follows: Ian D. Kelson and Christopher J. Rothery, Co-chairmen, Brian J. Brennan, Michael J. Conelius, Michael Della Vedova, Andrew J. Keirle, Kenneth A. Orchard, David Stanley, Ju Yen Tan, and J. Howard Woodward. The following information provides the year that the chairmen first joined the Firm and their specific business experience during the past five years (although the chairmen may have had portfolio management responsibilities for a longer period). Mr. Kelson has been chairman of the committee since 2001. He joined the Firm in 2000 and his investment experience dates from 1981. He has served as a portfolio manager with the Firm throughout the past five years. Mr. Rothery became co-chairman of the committee in 2012. Mr. Rothery joined the Firm in 1994 and his investment experience dates from 1986. During the
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past five years, he has served as a portfolio manager for various global fixed income strategies managed by the Firm. The Statement of Additional Information provides additional information about the portfolio managers compensation, other accounts managed by the portfolio managers, and the portfolio managers ownership of fund shares.
The Management Fee
This fee has two partsan individual fund fee, which reflects a funds particular characteristics, and a group fee. The group fee, which is designed to reflect the benefits of the shared resources of the T. Rowe Price investment management complex, is calculated daily based on the combined net assets of all T. Rowe Price funds (except the Spectrum Funds, Retirement Funds, TRP Reserve Investment Funds, and any index or private label mutual funds). The group fee schedule (in the following table) is graduated, declining as the asset total rises, so shareholders benefit from the overall growth in mutual fund assets.
Group Fee Schedule
0.334%* | First $50 billion |
0.305% | Next $30 billion |
0.300% | Next $40 billion |
0.295% | Next $40 billion |
0.290% | Next $60 billion |
0.285% | Next $80 billion |
0.280% | Next $100 billion |
0.275% | Thereafter |
* Represents a blended group fee rate containing various breakpoints.
The funds group fee is determined by applying the group fee rate to the funds average daily net assets. On December 31, 2012, the annual group fee rate was 0.30%. The individual fund fee, also applied to the funds average daily net assets, is 0.35%.
The expenses shown in the fee table in Section 1 are generally based on a funds prior fiscal year. In periods of market volatility, assets may decline significantly, causing total annual fund operating expenses to become higher than the numbers shown in the fee table.
A discussion about the factors considered by the Board and its conclusions in approving the funds investment management contract with T. Rowe Price appears in the funds semiannual report to shareholders for the period ended June 30.
Fund Operations and Shareholder Services
T. Rowe Price provides accounting services to the T. Rowe Price funds. T. Rowe Price Services, Inc. acts as the transfer and dividend disbursing agent and provides shareholder and administrative services to the funds. These companies receive compensation from the funds for their services. The funds may also pay third-party
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intermediaries for performing shareholder and administrative services for underlying shareholders in omnibus accounts.
Consider your investment goals, your time horizon for achieving them, and your tolerance for risk. If you are investing through an intermediary and are willing to accept the special risks associated with international investing and the general risks of investing in bonds to achieve current income and potential capital growth, this fund could be appropriate for you.
The fund should not represent your complete investment program or be used for short-term purposes.
Buying foreign bonds can be difficult and costly for the individual investor, and gaining access to many foreign markets can be complicated. Few investors have the time, the expertise, or the resources to evaluate foreign markets effectively on their own. The professional management, broad diversification, and relative simplicity of mutual funds make them an attractive, low-cost vehicle for this type of investing.
Interest rates vary from country to country depending on local economic conditions and monetary and fiscal policies. By investing in foreign bond markets, investors can benefit from potentially higher yields than U.S. bond markets provide. Therefore, diversifying internationally across various countries can help reduce portfolio volatility and smooth out returns.
The fund ordinarily invests in the securities of at least three countries; however, it may invest in the securities of one country, including the U.S., for temporary defensive purposes.
The fund focuses its investments in non-U.S. dollar-denominated, investment-grade bonds of issuers in developed markets. Investments in bonds issued in foreign currencies may afford investors a potential hedge against weakness in the U.S. dollar, although investments by the fund will be significantly affected by changes in the exchange rates between the U.S. dollar and the currencies in which the funds holdings are denominated and traded. The fund may enter into forward currency exchange contracts in an effort to hedge against an expected decline in the value of currencies in which portfolio holdings are denominated, to increase exposure to a particular foreign currency or to shift the funds foreign currency exposure from one country to another, or to enhance the funds returns.
Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. The risk profiles of foreign bond funds vary with the types of bonds they purchase, their degree of currency exposure, and whether they invest in developed markets, emerging markets, or both.
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As with any mutual fund, there is no guarantee the fund will achieve its objective. The funds share price fluctuates, which means you could lose money when you sell your shares of the fund. Some particular risks affecting the fund include the following:
Currency risk This is the risk of a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that foreign currency. The overall impact on a funds holdings can be significant and long-lasting depending on the currencies represented in the portfolio, how each currency appreciates or depreciates in relation to the U.S. dollar, and whether currency positions are hedged. Foreign currency exchange rates may fluctuate significantly over short periods of time, particularly with respect to emerging markets currencies. Currency exchange rates can also be affected unpredictably by intervention by U.S. or foreign governments or central banks, or by currency controls or political developments. Because the fund is normally heavily exposed to foreign currencies and does not attempt to hedge the impact of these currencies on the U.S. dollar, changes in currency exchange rates are likely to have a significant effect on the funds performance. Currency trends are unpredictable, and to the extent the fund purchases and sells currencies, it will also be subject to the risk that its trading strategies, including efforts at hedging, will not succeed. Furthermore, hedging and trading costs can be significant and reduce fund net asset value, and many emerging market currencies cannot be effectively hedged.
Other risks of foreign investing Risks can result from varying stages of economic and political development, differing regulatory environments, trading days and accounting standards, uncertain tax laws, and higher transaction costs of non-U.S. markets. Investments outside the U.S. could be subject to governmental actions such as capital or currency controls, nationalization of a company or industry, expropriation of assets, or imposition of high taxes. A trading market may close without warning for extended time periods, preventing a fund from buying or selling securities in that market.
Emerging market risk Investments in emerging markets, which generally include Africa, parts of Europe and much of Asia, the Middle East, and Central and South America, are subject to the risk of abrupt and severe price declines. The economic and political structures of emerging market countries, in most cases, do not compare favorably with the U.S. or other developed countries in terms of wealth and stability, and their financial markets often lack liquidity. These economies are less developed and can be overly reliant on particular industries and more vulnerable to the ebb and flow of international trade, trade barriers, and other protectionist or retaliatory measures. Certain countries have legacies and periodic episodes of hyperinflation and currency devaluations, particularly Russia and many Latin American nations, and more recently many Asian countries. Governments in many emerging market countries participate to a significant degree in their economies and securities markets. Foreign investments may be restricted and subject to greater government control,
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including repatriation of sales proceeds. Some countries have histories of instability and upheaval that could cause their governments to act in a detrimental or hostile manner toward private enterprise or foreign investment. Investments in countries or regions that have recently begun moving away from central planning and state-owned industries toward free markets should be regarded as speculative.
While some countries have made progress in economic growth, liberalization, fiscal discipline, and political and social stability, there is no assurance these trends will continue. Significant risks, such as war and terrorism, currently affect some emerging market countries. Fund performance will likely be hurt by exposure to nations in the midst of hyperinflation, currency devaluation, trade disagreements, sudden political upheaval, or interventionist government policies. The volatility of emerging markets may be heightened by the actions (such as significant buying or selling) of a few major investors. For example, substantial decreases in cash flows of mutual funds investing in these markets could significantly affect local securities prices and, therefore, cause fund share prices to decline.
All of these factors make investing in such countries significantly riskier than in other countries and any one of these could cause a funds share price to decline.
Credit risk This is the risk that an issuer of a debt security or counterparty to an over-the-counter derivative held by a fund will default (fail to make scheduled payments), potentially reducing the funds income and share price. This risk is increased when a portfolio security is downgraded or the perceived creditworthiness of an issuer or counterparty deteriorates. The risk of default is much greater for emerging market bonds and securities rated as below investment-grade.
Companies and governments issuing lower-rated bonds are not as strong financially as those with higher credit ratings, and their bonds are often viewed as speculative investments. Such issuers are more vulnerable to real or perceived business setbacks and to changes in the economy, such as a recession, that might impair their ability to make timely interest and principal payments. Certain emerging markets governments and corporations have in the past defaulted on payment of interest and principal on debt they have issued. As a result, your portfolio managers rely heavily on proprietary T. Rowe Price and T. Rowe Price International research when selecting these investments.
Liquidity risk This is the risk that a fund may not be able to sell a holding in a timely manner at a desired price. Sectors of the bond market can experience sudden downturns in trading activity. During periods of reduced market liquidity, the spread between the price at which a security can be bought and the price at which it can be sold can widen, and the fund may not be able to sell a holding readily at a price that reflects what the fund believes it should be worth. Less liquid securities can also become more difficult to value.
Emerging market bonds are generally less liquid than higher-quality bonds issued by companies and governments in developed countries. Consequently, large purchases
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or sales of certain high-yield, emerging market debt issues may cause significant changes in their prices. Because many of these bonds do not trade frequently, when they do trade, their prices may be substantially higher or lower than had been expected. A lack of liquidity also means that more subjectivity will be used in establishing the fair value of the securities.
Interest rate risk This is the risk that interest rates will increase, causing a decline in bond prices. (Bond prices and interest rates usually move in opposite directions.) Prices fall because the bonds and notes in the funds portfolio become less attractive to other investors when securities with higher yields become available. Generally, the longer the maturity of a security or the longer a bond funds weighted average maturity, the greater its interest rate risk. Because the fund expects to maintain an intermediate- to long-term weighted average maturity, it carries more interest rate risk than a fund that invests in shorter-term securities.
Other factors The major factor influencing prices of high-quality bonds is changes in interest rate levels; but this is only one of several factors affecting prices of lower-quality bonds. Because the credit quality of the issuer is lower, such bonds are more sensitive to developments affecting the issuers underlying fundamentals (for example, changes in financial condition or a particular countrys general economy). In addition, the entire bond market in an emerging market can experience sudden and sharp price swings due to a variety of factors, including changes in economic forecasts, stock market activity, large or sustained sales by institutional investors, a high-profile default, a political upheaval of some kind, or just a change in the markets psychology. This type of volatility is usually associated more with stocks than bonds, but investors in lower-quality bonds should also anticipate it.
Since mutual funds can be a major source of demand in certain markets, substantial cash flows into and out of these funds can affect high-yield and emerging market bond prices. If, for example, a significant number of funds were to sell bonds to meet shareholder redemptions, both bond prices and a funds share price could fall more than underlying fundamentals might justify.
Nondiversification risk Because the fund is nondiversified, the fund can invest more of its assets in a smaller number of issuers than diversified funds. Concentrating investments could result in greater potential losses than for funds investing in a broader variety of issuers.
Derivatives risk To the extent a fund uses forward currency exchange contracts, it is exposed to additional volatility and losses in excess of the funds initial investment, the risk that anticipated currency movements will not be accurately predicted, and the risk that the other party to the transaction will not fulfill its contractual obligation. If currency values and exchange rates move in a direction not predicted by the investment adviser, the fund could be in a worse position than if it had not entered into such transactions. Any attempts at hedging currencies may not be
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successful and could cause the fund to lose money or fail to get the benefit of a gain on a hedged position.
Efforts to reduce risk Consistent with the funds objective, the portfolio manager uses various tools to try to reduce risk and increase total return, including:
· Thorough credit research by our own analysts.
· Adjusting fund duration to try to reduce the drop in the funds price when interest rates rise or to benefit from the rise in price when rates fall.
· Management of the impact of foreign currency changes on the funds portfolio.
Other strategies may be employed that are not considered part of a funds principal investment strategies. For instance, the fund may also use futures and swaps, although the fund would primarily use such instruments to manage interest rate exposure, adjust portfolio duration, or as a tool to help manage cash flows into and out of the fund. The fund may also use credit default swaps in an effort to manage overall credit quality or to protect the value of certain portfolio holdings. To the extent a fund invests in futures, swaps, or credit default swaps, it could be exposed to additional volatility and the risk that anticipated changes in interest rates or the creditworthiness of an issuer, or the likelihood of a particular credit event, will not be accurately predicted. From time to time, the fund may use other derivatives that are consistent with its investment program.
A derivative involves risks different from, and possibly greater than, the risks associated with investing directly in the assets on which the derivative is based. Derivatives can be highly volatile, illiquid, and difficult to value, and changes in the value of a derivative may not properly correlate with changes in the value of the underlying asset, reference rate, or index. A fund could be exposed to significant losses if it is unable to close a derivatives position due to the lack of a liquid secondary trading market. Derivatives involve the risk that a counterparty to the derivatives agreement will fail to make required payments or comply with the terms of the agreement. There is also the possibility that limitations or trading restrictions may be imposed by an exchange or government regulation, which could adversely impact the value and liquidity of a derivatives contract subject to such regulation.
Recent legislation calls for a new regulatory framework for the derivatives markets. The full extent and impact of new regulations are not certain at this time. New regulations have made the use of derivatives by funds more costly, may limit the availability of certain types of derivatives, and may otherwise adversely affect the value or performance of derivatives used by funds.
The Statement of Additional Information contains more detailed information about the fund and its investments, operations, and expenses.
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This section takes a detailed look at some of the types of fund securities and the various kinds of investment practices that may be used in day-to-day portfolio management. Fund investments are subject to further restrictions and risks described in the Statement of Additional Information.
Shareholder approval is required to substantively change fund objectives. Shareholder approval is also required to change certain investment restrictions noted in the following section as fundamental policies. Portfolio managers also follow certain operating policies that can be changed without shareholder approval. Shareholders will receive at least 60 days prior notice of a change in the funds policy requiring it to normally invest at least 80% of net assets in foreign bonds.
Fund holdings of certain kinds of investments cannot exceed maximum percentages of total assets, which are set forth in this prospectus. For instance, fund investments in certain derivatives are limited to 10% of total assets. While these restrictions provide a useful level of detail about fund investments, investors should not view them as an accurate gauge of the potential risk of such investments. For example, in a given period, a 5% investment in derivatives could have significantly more of an impact on a funds share price than its weighting in the portfolio. The net effect of a particular investment depends on its volatility and the size of its overall return in relation to the performance of all other fund investments.
Certain investment restrictions, such as a required minimum or maximum investment in a particular type of security, are measured at the time a fund purchases a security. The status, market value, maturity, credit quality, or other characteristics of a funds securities may change after they are purchased, and this may cause the amount of a funds assets invested in such securities to exceed the stated maximum restriction or fall below the stated minimum restriction. If any of these changes occur, it would not be considered a violation of the investment restriction and will not require the sale of an investment if it was proper at the time it was made (this exception does not apply to a funds borrowing policy). However, purchases by a fund during the time it is above or below the stated percentage restriction would be made in compliance with applicable restrictions.
For purposes of determining whether a particular country is considered a developed market or an emerging market, the fund considers a country to be an emerging market if it is either included in a JP Morgan emerging market bond index or not included in the International Monetary Funds listing of advanced economies. For purposes of determining whether the fund invests at least 80% of its net assets in a particular type of security, the fund uses the country assigned to a security by Bloomberg or another unaffiliated third-party data provider.
Changes in fund holdings, fund performance, and the contribution of various investments to fund performance are discussed in the shareholder reports.
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Portfolio managers have considerable discretion in choosing investment strategies and selecting securities they believe will help achieve fund objectives.
Types of Portfolio Securities
In seeking to meet its investment objective, fund investments may be made in any type of security or instrument (including certain potentially high-risk derivatives described in this section) whose investment characteristics are consistent with its investment program. The following pages describe various types of fund holdings and investment management practices.
Nondiversified Status
The fund is registered as a nondiversified mutual fund. Therefore, the fund is able to invest more than 5% of its assets in the securities of individual foreign governments and may invest a greater portion of its assets in a single issuer than a diversified fund. Since the fund is a nondiversified investment company and is permitted to invest a greater proportion of its assets in the securities of a smaller number of issuers, the fund may be subject to greater credit risk with respect to its portfolio securities and greater volatility with respect to its share price than an investment company that is more broadly diversified.
However, the fund intends to qualify as a regulated investment company for purposes of the Internal Revenue Code. This requires the fund to limit its investments so that, at the end of each fiscal quarter, with respect to 50% of its total assets, no more than 5% of its assets is invested in the securities of a single issuer, and not more than 10% of the voting securities of any issuer are held by the fund. With respect to the remaining 50% of fund assets, no more than 25% may be invested in a single issuer.
Debt Securities
The funds investments may be in fixed-rate and floating rate debt securities and may include, but shall not be limited to: (1) debt obligations issued or guaranteed by: (a) a foreign sovereign government or one of its agencies, authorities, instrumentalities, or political subdivisions, including a foreign state, province, or municipality, and (b) supranational organizations such as the World Bank, Asian Development Bank, European Investment Bank, and European Economic Community; (2) debt obligations: (a) of foreign banks and bank holding companies, and (b) of domestic banks and corporations issued in non-U.S. dollar denominations; and (3) foreign corporate debt securities, asset-backed securities, and commercial paper. Such securities may take a variety of forms including those issued in the local currency of the issuer, U.S. dollar-denominated bonds, Eurobonds, and Euro-denominated bonds. Normally, the fund will only purchase non-U.S. dollardenominated bonds (other than Brady and other emerging market bonds). The fund may from time to time purchase securities on a when-issued basis, invest in repurchase agreements, and purchase bonds convertible into equities.
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The fund generally will not invest more than 5% of its assets in any individual corporate issuer, provided that (1) the fund may place assets in bank deposits or other short-term bank instruments with a maturity of up to 30 days provided that (a) the bank has a short-term credit rating of A1+ (or, if unrated, the equivalent as determined by T. Rowe Price or T. Rowe Price International) and (b) a fund will not maintain more than 10% of its total assets with any single bank; and (2) a fund may maintain more than 5% of its total assets, including cash and currencies, in custodial accounts or deposits of the funds custodian or sub-custodians.
Brady Bonds Brady bonds, named after former U.S. Secretary of the Treasury Nicholas Brady, are used as a means of restructuring the external debt burden of a government in certain emerging markets. A Brady bond is created when an outstanding commercial bank loan to a government or private entity is exchanged for a new bond in connection with a debt restructuring plan. Brady bonds may be collateralized or uncollateralized and issued in various currencies (although typically in the U.S. dollar). They are often fully collateralized as to principal in U.S. Treasury zero coupon bonds. However, even with this collateralization feature, Brady bonds are often considered speculative, below investment-grade investments because the timely payment of interest is the responsibility of the issuing party (for example, a Latin American country) and the value of the bonds can fluctuate significantly based on the issuers ability or perceived ability to make these payments. Finally, some Brady bonds may be structured with floating rate or low fixed-rate coupons.
Below Investment-Grade Bonds The price and yield of lower-quality (high yield, high-risk) bonds, commonly referred to as junk bonds and below investment-grade emerging market bonds, can be expected to fluctuate more than the price and yield of higher-quality bonds. Investment-grade bonds are those rated from the highest quality (AAA or equivalent) to medium quality (BBB or equivalent), and below investment-grade bonds are those rated BB (or equivalent) and lower. Below investment-grade bonds are considered speculative with respect to the issuers continuing ability to meet principal and interest payments since their issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers. Even BBB rated bonds may have speculative elements as well. The values of below investment-grade bonds often fluctuate more in response to political, regulatory, or economic developments than higher quality bonds. Successful investment in lower-medium- and low-quality bonds involves greater investment risk and is highly dependent on careful credit analysis.
Operating policy The fund may invest up to 20% of total assets in below investment-grade (junk) bonds.
While the fund intends to invest primarily in debt securities, it may invest in convertible bonds or equity securities. While some countries or companies may be regarded as favorable investments, pure bond opportunities may be unattractive or limited due to insufficient supply, or legal or technical restrictions. In such cases, the
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fund may consider equity securities or convertible bonds to gain exposure to such markets.
Preferred Stocks
Stocks represent shares of ownership in a company. Generally, preferred stock has a specified dividend and ranks after bonds and before common stocks in its claim on income for dividend payments and on assets should the company be liquidated. After other claims are satisfied, common stockholders participate in company profits on a pro-rata basis; profits may be paid out in dividends or reinvested in the company to help it grow. Increases and decreases in earnings are usually reflected in a companys stock price, so common stocks generally have the greatest appreciation and depreciation potential of all corporate securities. Unlike common stock, preferred stock does not ordinarily carry voting rights. While most preferred stocks pay a dividend, a fund may decide to purchase preferred stock where the issuer has omitted, or is in danger of omitting, payment of its dividend.
Convertible Securities and Warrants
Investments may be made in debt or preferred equity securities that are convertible into, or exchangeable for, equity securities at specified times in the future and according to a certain exchange ratio. Convertible bonds are typically callable by the issuer, which could in effect force conversion before the holder would otherwise choose. Traditionally, convertible securities have paid dividends or interest at rates higher than common stocks but lower than nonconvertible securities. They generally participate in the appreciation or depreciation of the underlying stock into which they are convertible, but to a lesser degree than common stock. Some convertible securities combine higher or lower current income with options and other features. Warrants are options to buy, directly from the issuer, a stated number of shares of common stock at a specified price anytime during the life of the warrants (generally, two or more years). Warrants can be highly volatile, have no voting rights, and pay no dividends.
Operating policy The fund may invest up to 5% of total assets in preferred stocks and securities that are convertible into, or which carry warrants for, common stocks or other equity securities. Under normal conditions, the fund does not expect to directly purchase common stocks. Any shares of common stock that are received through a reorganization, restructuring, exercise, exchange, conversion, or similar action will be sold within a reasonable timeframe taking into consideration market conditions and any legal restrictions.
Loan Participations and Assignments
Large loans to corporations or governments, including governments of less developed countries, may be shared or syndicated among several lenders, usually banks. The fund could participate in such syndicates, or could buy part of a loan, becoming a direct lender. The fund may acquire loans as an assignment from another lender that holds a direct interest in the loan or as a participation interest in another lenders
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portion of the loan. Participations and assignments involve special types of risk, including limited marketability and the risks of being considered a lender. If the fund purchases a participation, it may only be able to enforce its rights through the lender, and it may assume the credit risk of the lender in addition to the borrower. With assignments, the funds rights against the borrower may be more limited than those held by the original lender. The fund may also make investments in a company through the purchase or execution of a privately negotiated note representing the equivalent of a loan.
Operating policy The fund may not invest more than 5% of total assets in loan participations and assignments.
Derivatives and Leverage
A derivative is a financial instrument whose value is derived from an underlying security such as a stock or bond or from a market benchmark, such as an interest rate index. Many types of investments representing a wide range of risks and potential rewards may be considered derivatives, including conventional instruments such as futures and options, as well as other potentially more complex investments such as swaps and structured notes. The use of derivatives can involve leverage. Leverage has the effect of magnifying returns, positively or negatively. The effect on returns will depend on the extent to which an investment is leveraged. For example, an investment of $1, leveraged at 2 to 1, would have the effect of an investment of $2. Leverage ratios can be higher or lower with a corresponding effect on returns. The fund may use derivatives in certain situations to help accomplish any or all of the following: to hedge against a decline in principal value, to increase yield, to manage exposure to changes in interest or currency exchange rates, to invest in eligible asset classes with greater efficiency and at a lower cost than is possible through direct investment, or to adjust portfolio duration or credit risk exposure.
Derivatives that may be used include the following as well as others that combine the risk characteristics and features of futures, options, and swaps:
Futures and Options Futures, a type of potentially high-risk derivative, are often used to manage or hedge risk because they enable the investor to buy or sell an asset in the future at an agreed-upon price. Options, another type of potentially high-risk derivative, give the investor the right (when the investor purchases the option), or the obligation (when the investor writes or sells the option), to buy or sell an asset at a predetermined price in the future. Futures and options contracts may be bought or sold for any number of reasons, including to manage exposure to changes in interest rates, bond prices, foreign currencies, and credit quality; as an efficient means of increasing or decreasing a funds exposure to certain markets; in an effort to enhance income; to protect the value of portfolio securities; and to serve as a cash management tool. Call or put options may be purchased or sold on securities, futures, financial indexes, and foreign currencies. A fund may choose to continue a futures contract by rolling over an expiring futures contract into an identical
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contract with a later maturity date. This could increase the funds transaction costs and portfolio turnover rate.
Futures contracts and options may not always be successful hedges; their prices can be highly volatile; using them could lower a funds total return; and the potential loss from the use of futures can exceed a funds initial investment in such contracts.
Operating policies Initial margin deposits on futures and premiums on options used for non-hedging purposes will not exceed 5% of a funds net asset value. The total market value of securities covering call or put options may not exceed 25% of total assets. No more than 5% of total assets will be committed to premiums when purchasing call or put options.
Swaps Fund investments may be made in interest rate, index, total return, credit default, and other types of swap agreements, as well as options on swaps, commonly referred to as swaptions, and interest rate swap futures, which are instruments that provide a way to gain swap exposure and the benefits of futures in one contract. All of these agreements are considered derivatives and, in certain cases, high-risk derivatives. Interest rate, index, and total return swaps are two-party contracts under which a fund and a counterparty, such as a broker or dealer, agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined investments or indexes. Credit default swaps are agreements where one party (the protection buyer) will make periodic payments to another party (the protection seller) in exchange for protection against specified credit events, such as defaults and bankruptcies related to an issuer or underlying credit instrument. Swap futures are futures contracts on interest rate swaps that enable purchasers to cash settle at a future date at the price determined by a specific benchmark rate at the end of a fixed period. Swaps, swaptions, and swap futures can be used for a variety of purposes, including to manage a funds overall exposure to changes in interest or foreign currency exchange rates and credit quality; as an efficient means of adjusting a funds exposure to certain markets; in an effort to enhance income or total return or protect the value of portfolio securities; to serve as a cash management tool; and to adjust portfolio duration or credit risk exposure.
There are risks in the use of swaps and related instruments. Swaps could result in losses if interest or foreign currency exchange rates or credit quality changes are not correctly anticipated by a fund. Total return swaps could result in losses if the reference index, security, or investments do not perform as anticipated. Credit default swaps can increase a funds exposure to credit risk and could result in losses if evaluation of the creditworthiness of the counterparty, or of the company or government on which the credit default swap is based, is incorrect. The use of swaps, swaptions, and swap futures may not always be successful. Using them could lower a funds total return, their prices can be highly volatile, and the potential loss from the use of swaps can exceed a funds initial investment in such instruments. Also, the other party to a swap agreement could default on its obligations or refuse to cash out a funds investment at a reasonable price, which could turn an expected gain into a
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loss. Although there should not be any counterparty risk associated with investments in interest rate swap futures, a fund could experience delays and/or losses associated with the bankruptcy of a broker through which the fund engaged in the transaction.
Operating policies A swap agreement with any single counterparty will not be entered into if the net amount owed or to be received under existing contracts with that party would exceed 5% of total assets or if the net amount owed or to be received by the fund under all outstanding swap agreements will exceed 10% of total assets. For swaptions, the total market value of securities covering call or put options may not exceed 25% of total assets. No more than 5% of total assets will be committed to premiums when purchasing call or put swaptions.
Hybrid Instruments These instruments (a type of potentially high-risk derivative) can combine the characteristics of securities, futures, and options. For example, the principal amount or interest rate of a hybrid could be tied (positively or negatively) to the price of some commodity, currency, security, or securities index or another interest rate (each a benchmark). Hybrids can be used as an efficient means of pursuing a variety of investment goals, including currency hedging, and increased total return. Hybrids may or may not bear interest or pay dividends. The value of a hybrid or its interest rate may be a multiple of a benchmark and, as a result, may be leveraged and move (up or down) more steeply and rapidly than the benchmark. These benchmarks may be sensitive to economic and political events, such as commodity shortages and currency devaluations, which cannot be readily foreseen by the purchaser of a hybrid. Under certain conditions, the redemption value of a hybrid could be zero. Thus, an investment in a hybrid may entail significant market risks that are not associated with a similar investment in a traditional, U.S. dollar-denominated bond that has a fixed principal amount and pays a fixed rate or floating rate of interest. The purchase of hybrids also exposes the fund to the credit risk of the issuer of the hybrid. These risks may cause significant fluctuations in the net asset value of the fund.
Hybrids can have volatile prices and limited liquidity, and their use may not be successful.
Operating policy Fund investments in hybrid instruments are limited to 10% of total assets.
Currency Derivatives The fund may engage in foreign currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market at the time or through forward currency exchange contracts, which are contracts between two counterparties to exchange one currency for another on a future date at a specified exchange rate. In addition to foreign currency forwards, futures, swaps, and options on foreign currencies may also be used to protect a funds foreign securities from adverse currency movements relative to the U.S. dollar, as well as to gain exposure to currencies and markets expected to increase or decrease in value relative to other currencies or securities.
More About the Fund | 35 |
The fund may attempt to hedge its exposure to potentially unfavorable currency changes. Forward currency contracts will be used primarily to adjust the foreign exchange exposure of the fund with a view to protecting the portfolio from adverse currency movements, based on T. Rowe Prices outlook. However, forward currency contracts can also be used in an effort to benefit from a currency believed to be appreciating in value versus other currencies. The fund may invest in foreign currencies directly without holding any foreign securities denominated in those currencies.
Forward currency contracts involve special risks, including, but not limited to, the potential for significant volatility in currency markets, and the risk that in certain markets, particularly emerging markets, it is not possible to engage in effective foreign currency hedging. In addition, such transactions involve the risk that currency movements will not occur as anticipated by T. Rowe Price, which could reduce a funds total return. The fund might enter into foreign currency transactions under the following circumstances:
Lock In When the fund desires to lock in the U.S. dollar price on the purchase or sale of a security denominated in a foreign currency.
Cross Hedge If a particular currency is expected to decrease in value relative to another currency, the fund may sell the currency expected to decrease and purchase a currency that is expected to increase against the currency sold. The funds cross hedging transactions may involve currencies in which the funds holdings are denominated. However, the fund is not required to own securities in the particular currency being purchased or sold.
Operating policy The fund does not normally commit more than 50% of its assets to cross-hedging.
Direct Hedge If the fund seeks to eliminate substantially all of the risk of owning a particular currency or believes the portfolio could benefit from price appreciation in a given countrys bonds but did not want to hold the currency, it could employ a direct hedge back into the U.S. dollar. In either case, a fund would enter into a forward contract to sell the currency in which a portfolio security is denominated and purchase U.S. dollars at an exchange rate established at the time it initiated the contract. The cost of the direct hedge transaction may offset most, if not all, of the yield advantage offered by the foreign security, but the fund would hope to benefit from an increase (if any) in the value of the bond.
Proxy Hedge In certain circumstances, a different currency may be substituted for the currency in which the investment is denominated, as part of a strategy known as proxy hedging. In this case, the fund, having purchased a security, will sell a currency whose value is believed to be closely linked to the currency in which the security is denominated. This type of hedging entails greater risk than a direct hedge because it is dependent on a stable relationship between the two currencies paired as proxies, and that relationship may not always be maintained. The fund may also use
T. Rowe Price | 36 |
these instruments to create a synthetic bond, which is issued in one currency with the currency component transformed into another currency.
Generally, the fund seeks to maintain little net exposure to the U.S. dollar. Thus, any U.S. dollar investments, including any hedges into the U.S. dollar, will normally be offset by hedges out of the U.S. dollar.
Costs of Hedging When the fund purchases a foreign bond with a higher interest rate than is available on U.S. bonds of a similar maturity, the additional yield on the foreign bond could be substantially lessened if the fund were to enter into a direct hedge by selling the foreign currency and purchasing the U.S. dollar. This is what is known as the cost of hedging. A proxy hedge, which is less costly than a direct hedge, may attempt to reduce this cost through an indirect hedge back to the U.S. dollar.
It is important to note that hedging costs are treated as capital transactions and are not, therefore, deducted from a funds dividend distribution and are not reflected in its yield. Instead, such costs will, over time, be reflected in a funds net asset value per share and total return. Hedging may result in the application of the mark-to-market and straddle provisions of the Internal Revenue Code. These provisions could result in an increase (or decrease) in the amount of taxable dividends paid by the funds and could affect whether dividends paid by the funds are classified as capital gains or ordinary income.
Investments in Other Investment Companies
A fund may invest in other investment companies, including open-end funds, closed-end funds, and exchange-traded funds.
A fund may purchase the securities of another investment company to temporarily gain exposure to a portion of the market while awaiting purchase of securities or as an efficient means of gaining exposure to a particular asset class. The fund might also purchase shares of another investment company to gain exposure to the securities in the investment companys portfolio at times when the fund may not be able to buy those securities directly. Any investment in another investment company would be consistent with the funds objective and investment program.
The risks of owning another investment company are generally similar to the risks of investing directly in the securities in which that investment company invests. However, an investment company may not achieve its investment objective or execute its investment strategy effectively, which may adversely affect the funds performance. In addition, because closed-end funds and exchange-traded funds trade on a secondary market, their shares may trade at a premium or discount to the actual net asset value of their portfolio securities and their shares may have greater volatility because of the potential lack of liquidity.
As a shareholder of an investment company not sponsored by T. Rowe Price, the fund must pay its pro-rata share of that investment companys fees and expenses. The
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funds investments in non-T. Rowe Price investment companies are subject to the limits that apply to investments in other funds under the Investment Company Act of 1940 or under any applicable exemptive order.
A fund may also invest in certain other T. Rowe Price funds as a means of gaining efficient and cost-effective exposure to certain asset classes, provided the investment is consistent with the funds investment program and policies. Such an investment could allow the fund to obtain the benefits of a more diversified portfolio than might otherwise be available through direct investments in the asset class, and will subject the fund to the risks associated with the particular asset class. Examples of asset classes in which other T. Rowe Price mutual funds concentrate their investments include high yield bonds, floating rate loans, international bonds, emerging market bonds, and emerging market stocks. If the fund invests in another T. Rowe Price fund, the management fee paid by the fund will be reduced to ensure that the fund does not incur duplicate management fees as a result of its investment.
Illiquid Securities
Some fund holdings may be considered illiquid because they are subject to legal or contractual restrictions on resale or because they cannot be sold in the ordinary course of business within seven days at approximately the prices at which they are valued. The determination of liquidity involves a variety of factors. Illiquid securities may include private placements that are sold directly to a small number of investors, usually institutions. Unlike public offerings, such securities are not registered with the SEC. Although certain of these securities may be readily sold, for example under Rule 144A of the Securities Act of 1933, others may have resale restrictions and can be illiquid. The sale of illiquid securities may involve substantial delays and additional costs, and a fund may only be able to sell such securities at prices substantially less than what it believes they are worth.
Operating policy Fund investments in illiquid securities are limited to 15% of net assets.
Types of Investment Management Practices
Reserve Position
A certain portion of fund assets will be held in reserves. Fund reserve positions can consist of: 1) shares of a T. Rowe Price internal money fund or short-term bond fund; 2) short-term, high-quality U.S. and foreign dollar-denominated money market securities, including repurchase agreements; and 3) U.S. dollar or non-U.S. dollar currencies. For temporary, defensive purposes, there is no limit on a funds holdings in reserves. If a fund has significant holdings in reserves, it could compromise the funds ability to achieve its objectives. The reserve position provides flexibility in meeting redemptions, paying expenses and managing cash flows into a fund, and can serve as a short-term defense during periods of unusual market volatility. Non-U.S. dollar reserves are subject to currency risk.
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When-Issued Securities and Forwards
A fund may purchase securities on a when-issued or delayed delivery basis or may purchase or sell securities on a forward commitment basis. The price of these securities is fixed at the time of the commitment to buy, but delivery and payment take place after the customary settlement period for that type of security (often a month or more later). During the interim period, the price and yield of the securities can fluctuate, and typically no interest accrues to the purchaser. At the time of delivery, the market value of the securities may be more or less than the purchase or sale price. To the extent the fund remains fully or almost fully invested (in securities with a remaining maturity of more than one year) at the same time it purchases these securities, there will be greater fluctuations in the funds net asset value than if the fund did not purchase them.
Borrowing Money and Transferring Assets
A fund may borrow from banks, other persons, and other T. Rowe Price funds for temporary emergency purposes to facilitate redemption requests, or for other purposes consistent with fund policies as set forth in this prospectus. Such borrowings may be collateralized with fund assets, subject to restrictions.
Fundamental policy Borrowings may not exceed 331/3% of total assets.
Operating policy A fund will not transfer portfolio securities as collateral except as necessary in connection with permissible borrowings or investments, and then such transfers may not exceed 331/3% of total assets. A fund will not purchase additional securities when borrowings exceed 5% of total assets.
Lending of Portfolio Securities
A fund may lend its securities to broker-dealers, other institutions, or other persons to earn additional income. Risks include the potential insolvency of the broker-dealer or other borrower that could result in delays in recovering securities and capital losses. Additionally, losses could result from the reinvestment of collateral received on loaned securities in investments that default or do not perform as well as expected.
Fundamental policy The value of loaned securities may not exceed 331/3% of total assets.
Credit Quality Considerations
The credit quality of many fund holdings is evaluated by rating agencies such as Moodys Investors Service, Inc. (Moodys), Standard & Poors Corporation (S&P), and Fitch Ratings (Fitch) on the basis of the issuers ability to meet all required interest and principal payments. The highest ratings are assigned to issuers perceived to have the lowest credit risks. T. Rowe Price research analysts also evaluate fund holdings, including those rated by outside agencies. Other things being equal, lower-rated bonds and other debt obligations have higher yields due to greater credit risk. High-yield bonds, also called junk bonds, are those rated below BBB.
More About the Fund | 39 |
Credit quality ratings are not guarantees. They are estimates of an issuers financial strength and ability to make interest and principal payments as they come due. Ratings can change at any time due to real or perceived changes in an issuers credit or financial fundamentals.
The following table shows the rating scale used by the major rating agencies. T. Rowe Price considers publicly available ratings but emphasizes its own credit analysis when selecting investments.
Ratings of Corporate Debt Securities
Moodys | S & P | Fitch | Definition | |||||||
Long Term | Aaa | AAA | AAA | Highest quality | ||||||
Aa | AA | AA | High quality | |||||||
A | A | A | Upper-medium grade | |||||||
Baa | BBB | BBB | Medium grade | |||||||
Ba | BB | BB | Speculative | |||||||
B | B | B | Highly speculative | |||||||
Caa | CCC | CCC | Vulnerable to default | |||||||
Ca | CC | CC | Default is imminent | |||||||
C | C | C | Probably in default | |||||||
Moodys | S&P | Fitch | ||||||||
Commercial Paper | P-1 | Superior quality | A-1+ A-1 | Extremely strong quality Strong quality | F-1+ F-1 | Exceptionally strong quality Very strong quality | ||||
P-2 | Strong quality | A-2 | Satisfactory quality | F-2 | Good credit quality | |||||
P-3 | Acceptable quality | A-3 B C | Adequate quality Speculative quality Doubtful quality | F-3 | Fair credit quality |
Portfolio Turnover
Turnover is an indication of frequency of trading. A fund will not generally trade in securities for short-term profits, but when circumstances warrant, securities may be purchased and sold without regard to the length of time held. Each time a fund purchases or sells a security, it incurs a cost. This cost is reflected in its net asset value but not in its operating expenses. The higher the turnover rate, the higher the transaction costs and the greater the impact on a funds total return. Higher turnover can also increase the possibility of taxable capital gain distributions. The funds portfolio turnover rates are shown in the Financial Highlights table.
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Each T. Rowe Price funds portfolio holdings are disclosed on a regular basis in its semiannual and annual shareholder reports, and on Form N-Q, which is filed with the SEC within 60 days of the funds first and third fiscal quarter-end. The money funds also file detailed month-end portfolio holdings information with the SEC each month. Such information will be made available to the public 60 days after the end of the month to which the information pertains. In addition, the funds disclose their calendar quarter-end portfolio holdings on troweprice.com 15 calendar days after each quarter. Under certain conditions, up to 5% of a funds holdings may be included in this portfolio list without being individually identified. Generally, securities would not be individually identified if they are being actively bought or sold and it is determined that the quarter-end disclosure of the holding could be harmful to the fund. A security will not be excluded for these purposes from a funds quarter-end holdings disclosure for more than one year. Money funds also disclose their month-end portfolio holdings on troweprice.com five business days after each month. The quarter-end portfolio holdings will remain on the website for one year and the month-end money fund portfolio holdings will remain on the website for six months. Each fund also discloses its 10 largest holdings on troweprice.com on the seventh business day after each month-end. These holdings are listed in alphabetical order along with the aggregate percentage of the funds total assets that these 10 holdings represent. Each monthly top 10 list will remain on the website for six months. A description of T. Rowe Prices policies and procedures with respect to the disclosure of portfolio information is in the Statement of Additional Information.
The Financial Highlights table, which provides information about the funds Advisor class financial history, is based on a single share outstanding throughout the periods shown. The classs section of the table is part of the funds financial statements, which are included in its annual report and are incorporated by reference into the Statement of Additional Information (available upon request). The total returns in the table represent the rate that an investor would have earned or lost on an investment in the fund (assuming reinvestment of all dividends and distributions and no payment of any applicable account or redemption fees). The financial statements in the annual reports were audited by the funds independent registered public accounting firm, PricewaterhouseCoopers LLP.
More About the Fund | 41 |
Financial Highlights
Year ended December 31 | ||||||||||
2008 | 2009 | 2010 | 2011 | 2012 | ||||||
Net asset
value, | $10.07 | $9.56 | $9.85 | $9.93 | $9.74 | |||||
Income From Investment Operations | ||||||||||
Net investment income* | 0.34 | 0.24 | 0.21 | 0.23 | 0.20 | |||||
Net gains or losses on | (0.18 | ) | 0.48 | 0.25 | 0.02 | 0.36 | ||||
Total from investment | 0.16 | 0.72 | 0.46 | 0.25 | 0.56 | |||||
Less Distributions | ||||||||||
Dividends
(from net | (0.34 | ) | (0.24 | ) | (0.21 | ) | (0.23 | ) | (0.20 | ) |
Distributions (from | (0.33 | ) | (0.19 | ) | (0.17 | ) | (0.21 | ) | | |
Returns of capital | | | | | 0.01 | |||||
Total distributions | (0.67 | ) | (0.43 | ) | (0.38 | ) | (0.44 | ) | (0.20 | ) |
Net asset value, | $9.56 | $9.85 | $9.93 | $9.74 | $10.11 | |||||
Total return | 1.57 | % | 7.93 | % | 4.85 | % | 2.50 | % | 5.90 | % |
Ratios/Supplemental Data | ||||||||||
Net assets,
end of period | $431,987 | $485,163 | $529,400 | $404,634 | $283,273 | |||||
Ratio of expenses to | 1.13 | % | 1.15 | % | 1.13 | % | 1.16 | % | 1.13 | % |
Ratio of
net income to | 3.40 | % | 2.53 | % | 2.19 | % | 2.26 | % | 2.02 | % |
Portfolio turnover rate | 69.2 | % | 57.6 | % | 61.5 | % | 35.7 | % | 52.2 | % |
* Per share amounts calculated using average shares outstanding method.
Investing With T. Rowe Price | 4 | |
Your fund shares must be purchased
through a third-party intermediary, therefore please contact the intermediary |
Tax Identification | The intermediary must provide T. Rowe Price with its certified taxpayer identification number. Otherwise, federal law requires the funds to withhold a percentage of dividends, capital gain distributions, and redemptions and may subject the intermediary or account holder to an Internal Revenue Service fine. If this information is not received within 60 days after the account is established, the account may be redeemed at the funds then-current net asset value. | |
All initial and subsequent
investments by intermediaries should be made by bank wire or electronic payment. For more information,
contact Financial Institution Services by calling |
Important Information About Opening an Account | Opening a New Account | |
Pursuant to federal law, all financial institutions must obtain, verify, and record information that identifies each person or entity that opens an account. |
| When an account is opened, the name, residential street address, date of birth, and Social Security or employer identification number for each account owner and person(s) opening an account on behalf of others (such as custodians, agents, trustees, or other authorized signers) must be provided. Corporate and other institutional accounts require documents showing the existence of the entity (such as articles of incorporation or partnership agreements) to open an |
Investing With T. Rowe Price | 43 |
|
| account. Certain other fiduciary accounts (such as trusts or power of attorney arrangements) require documentation, which may include an original or certified copy of the trust agreement or power of attorney to open an account. For more information, call Financial Institution Services. |
T. Rowe Price will use this information to verify the identity of the person(s)/entity opening the account. An account cannot be opened until all of this information is received. If the identity of the account holder cannot be verified, T. Rowe Price is authorized to take any action permitted by law. (See Rights Reserved by the Funds.) |
Intermediaries should call Financial Institution Services for an account number, assignment to a dedicated service representative, and wire transfer instructions. |
In order to obtain an account number, the intermediary must supply the name, Social Security or employer identification number, and business street address for the account. |
Intermediaries should complete a New Account form and mail it, with proper documentation identifying your firm, to one of the appropriate addresses listed below. Intermediaries must also enter into a separate agreement with the fund or its agent. The funds are generally available only to investors residing in the United States. |
via U.S. Postal Service |
via private carriers/overnight
services |
Note: Please use the correct address to avoid a delay in opening your new account. |
T. Rowe Price | 44 |
$100 minimum per fund for all additional purchases and $1,000 minimum required for Summit Funds (your intermediary may impose different minimums) |
By Wire | Intermediaries should call Financial Institution Services or access troweprice.com for wire transfer instructions. T. Rowe Price must receive the wire by the close of the New York Stock Exchange (normally 4 p.m. ET) to receive that days share price. There is no assurance that the share price for the purchase will be the same day the wire was initiated. | |
Exchange Service | Money can be moved from one account to an existing, identically registered account or a new identically registered account can be opened. Intermediaries should call their Financial Institution Services representative for more information or to place a trade. For exchange policies, please see Transaction Procedures and Special RequirementsExcessive and Short-Term Trading Policy. |
Redemptions | Unless otherwise indicated, redemption proceeds will be wired to the intermediarys designated bank. Intermediaries should contact their Financial Institution Services representative. |
Some of the T. Rowe Price funds may impose a redemption fee. Check the funds prospectus under Contingent Redemption Fee in Pricing Shares and Receiving Sale Proceeds. The fee is paid to the fund. |
If your account has no activity in it for a certain period of time, your intermediary may be required to transfer your account to the appropriate state under its abandoned property laws. |
Investing With T. Rowe Price | 45 |
T. Rowe Price funds and their agents, in their sole discretion, reserve the following rights: (1) to waive or lower investment minimums; (2) to accept initial purchases by telephone; (3) to refuse any purchase or exchange order; (4) to cancel or rescind any purchase or exchange order placed through an intermediary, no later than the business day after the order is received by the intermediary (including, but not limited to, orders deemed to result in excessive trading, market timing, or 5% ownership); (5) to cease offering fund shares at any time to all or certain groups of investors; (6) to freeze any account and suspend account services when notice has been received of a dispute regarding the ownership of the account or a legal claim against an account, or if there is reason to believe a fraudulent transaction may occur; (7) to otherwise modify the conditions of purchase and modify or terminate any services at any time; (8) to waive any wire, small account, maintenance, or fiduciary fees charged to a group of shareholders; (9) to act on instructions reasonably believed to be genuine; (10) to involuntarily redeem an account at the net asset value calculated the day the account is redeemed, in cases of threatening conduct, suspected fraudulent or illegal activity, or if the fund or its agent is unable, through its procedures, to verify the identity of the person(s) or entity opening an account; and (11) for money funds, to suspend redemptions and postpone the payment of proceeds to facilitate an orderly liquidation of the fund. | ||
T. Rowe Price | 46 |
In the course of doing business with T. Rowe Price, you share personal and financial information with us. We treat this information as confidential and recognize the importance of protecting access to it.
You may provide information when communicating or transacting business with us in writing, electronically, or by phone. For instance, information may come from applications, requests for forms or literature, and your transactions and account positions with us. On occasion, such information may come from consumer reporting agencies and those providing services to us.
We do not sell information about current or former customers to any third parties, and we do not disclose it to third parties unless necessary to process a transaction, service an account, or as otherwise permitted by law. We may share information within the T. Rowe Price family of companies in the course of providing or offering products and services to best meet your investing needs. We may also share that information with companies that perform administrative or marketing services for T. Rowe Price, with a research firm we have hired, or with a business partner, such as a bank or insurance company with which we are developing or offering investment products. When we enter into such a relationship, our contracts restrict the companies use of our customer information, prohibiting them from sharing or using it for any purposes other than those for which they were hired.
We maintain physical, electronic, and procedural safeguards to protect your personal information. Within T. Rowe Price, access to such information is limited to those who need it to perform their jobs, such as servicing your accounts, resolving problems, or informing you of new products or services. Finally, our Code of Ethics, which applies to all employees, restricts the use of customer information and requires that it be held in strict confidence.
This Privacy Policy applies to the following T. Rowe Price family of companies: T. Rowe Price Associates, Inc.; T. Rowe Price Advisory Services, Inc.; T. Rowe Price Investment Services, Inc.; T. Rowe Price Savings Bank; T. Rowe Price Trust Company; and the T. Rowe Price Funds.
Investing With T. Rowe Price | 47 |
A Statement of Additional Information for the T. Rowe Price family of funds, which includes additional information about the funds, has been filed with the SEC and is incorporated by reference into this prospectus. Further information about fund investments, including a review of market conditions and the managers recent investment strategies and their impact on performance during the past fiscal year, is available in the annual and semiannual shareholder reports. To obtain free copies of any of these documents, call your intermediary. These documents are available through troweprice.com.
Fund information and Statements of Additional Information are also available from the Public Reference Room of the SEC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. Fund reports and other fund information are available on the EDGAR Database on the SECs Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic request at publicinfo@sec.gov, or by writing the Public Reference Room, Washington, D.C. 20549-1520.
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
1940 Act File No. 811-2958 E276-040 5/1/13
STATEMENT OF ADDITIONAL INFORMATION |
This is the Statement of Additional Information for all of the funds listed below. It is divided into two parts (Part I and Part II). Part I generally contains information that is particular to each fund, while Part II contains information that generally applies to all of the funds in the T. Rowe Price family of funds (Price Funds).
The date of this Statement of Additional Information (SAI) is May 1, 2013.
T. ROWE PRICE BALANCED FUND, INC. (RPBAX)
T. ROWE PRICE BLUE CHIP GROWTH FUND, INC. (TRBCX)
T. Rowe Price Blue Chip Growth FundAdvisor Class (PABGX)
T. Rowe Price Blue Chip Growth FundR Class (RRBGX)
T. ROWE PRICE CALIFORNIA TAX-FREE INCOME TRUST
California Tax-Free Bond Fund (PRXCX)
California Tax-Free Money Fund (PCTXX)
T. ROWE PRICE CAPITAL APPRECIATION FUND (PRWCX)
T. Rowe Price Capital Appreciation FundAdvisor Class (PACLX)
T. ROWE PRICE CAPITAL OPPORTUNITY FUND, INC. (PRCOX)
T. Rowe Price Capital Opportunity FundAdvisor Class (PACOX)
T. Rowe Price Capital Opportunity FundR Class (RRCOX)
T. ROWE PRICE CORPORATE INCOME FUND, INC. (PRPIX)
T. ROWE PRICE DIVERSIFIED MID-CAP GROWTH FUND, INC. (PRDMX)
T. ROWE PRICE DIVERSIFIED SMALL-CAP GROWTH FUND, INC. (PRDSX)
T. ROWE PRICE DIVIDEND GROWTH FUND, INC. (PRDGX)
T. Rowe Price Dividend Growth FundAdvisor Class (TADGX)
T. ROWE PRICE EQUITY INCOME FUND (PRFDX)
T. Rowe Price Equity Income FundAdvisor Class (PAFDX)
T. Rowe Price Equity Income FundR Class (RRFDX)
T. ROWE PRICE FINANCIAL SERVICES FUND, INC. (PRISX)
T. ROWE PRICE FLOATING RATE FUND, INC. (PRFRX)
T. Rowe Price Floating Rate FundAdvisor Class (PAFRX)
T. ROWE PRICE GLOBAL REAL ESTATE FUND, INC. (TRGRX)
T. Rowe Price Global Real Estate FundAdvisor Class (PAGEX)
T. ROWE PRICE GLOBAL TECHNOLOGY FUND, INC. (PRGTX)
T. ROWE PRICE GNMA FUND (PRGMX)
T. ROWE PRICE GROWTH & INCOME FUND, INC. (PRGIX)
T. ROWE PRICE GROWTH STOCK FUND, INC. (PRGFX)
T. Rowe Price Growth Stock FundAdvisor Class (TRSAX)
T. Rowe Price Growth Stock FundR Class (RRGSX)
T. ROWE PRICE HEALTH SCIENCES FUND, INC. (PRHSX)
T. ROWE PRICE HIGH YIELD FUND, INC. (PRHYX)
T. Rowe Price High Yield FundAdvisor Class (PAHIX)
T. ROWE PRICE INDEX TRUST, INC.
T. Rowe Price Equity Index 500 Fund (PREIX)
T. Rowe Price Extended Equity Market Index Fund (PEXMX)
T. Rowe Price Total Equity Market Index Fund (POMIX)
T. ROWE PRICE INFLATION FOCUSED BOND FUND, INC.
T. ROWE PRICE INFLATION PROTECTED BOND FUND, INC. (PRIPX)
T. ROWE PRICE INSTITUTIONAL EQUITY FUNDS, INC. (Institutional Equity Funds)
T. Rowe Price Institutional Large-Cap Core Growth Fund (TPLGX)
T. Rowe Price Institutional Large-Cap Growth Fund (TRLGX)
T. Rowe Price Institutional Large-Cap Value Fund (TILCX)
T. Rowe Price Institutional Mid-Cap Equity Growth Fund (PMEGX)
T. Rowe Price Institutional Small-Cap Stock Fund (TRSSX)
T. Rowe Price Institutional U.S. Structured Research Fund (TRISX)
C00-042 5/1/13
T. ROWE PRICE INSTITUTIONAL INCOME FUNDS, INC.
T. Rowe Price Institutional Core Plus Fund (TICPX)
T. Rowe Price Institutional Core Plus FundF Class (PFCPX)
T. Rowe Price Institutional Floating Rate Fund (RPIFX)
T. Rowe Price Institutional Floating Rate FundF Class (PFFRX)
T. Rowe Price Institutional High Yield Fund (TRHYX)
T. ROWE PRICE INSTITUTIONAL INTERNATIONAL FUNDS, INC.
T. Rowe Price Institutional Africa & Middle East Fund (TRIAX)
T. Rowe Price Institutional Concentrated International Equity Fund (RPICX)
T. Rowe Price Institutional Emerging Markets Bond Fund (TREBX)
T. Rowe Price Institutional Emerging Markets Equity Fund (IEMFX)
T. Rowe Price Institutional International Core Equity Fund (TRCEX)
T. Rowe Price Institutional International Growth Equity Fund (PRFEX)
T. Rowe Price Institutional Global Equity Fund TRGSX)
T. Rowe Price Institutional Global Large-Cap Equity Fund (RPIGX)
T. Rowe Price Institutional Global Value Equity Fund (PRIGX)
T. Rowe Price Institutional International Bond Fund (RPIIX)
T. ROWE PRICE INTERNATIONAL FUNDS, INC.
T. Rowe Price Africa & Middle East Fund (TRAMX)
T. Rowe Price Emerging Europe Fund (TREMX)
T. Rowe Price Emerging Markets Bond Fund (PREMX)
T. Rowe Price Emerging Markets Corporate Bond Fund (TRECX)
T. Rowe Price Emerging Markets Corporate Bond FundAdvisor Class (PACEX)
T. Rowe Price Emerging Markets Local Currency Bond Fund (PRELX)
T. Rowe Price Emerging Markets Local Currency Bond FundAdvisor Class (PAELX)
T. Rowe Price Emerging Markets Stock Fund (PRMSX)
T. Rowe Price European Stock Fund (PRESX)
T. Rowe Price Global Infrastructure Fund (TRGFX)
T. Rowe Price Global Infrastructure FundAdvisor Class (PAGFX)
T. Rowe Price Global Large-Cap Stock Fund (RPGEX)
T. Rowe Price Global Large-Cap Stock FundAdvisor Class (PAGLX)
T. Rowe Price Global Stock Fund (PRGSX)
T. Rowe Price Global Stock FundAdvisor Class (PAGSX)
T. Rowe Price International Bond Fund® (RPIBX)
T. Rowe Price International Bond FundAdvisor Class (PAIBX)
T. Rowe Price International Discovery Fund (PRIDX)
T. Rowe Price International Growth & Income Fund (TRIGX)
T. Rowe Price International Growth & Income FundAdvisor Class (PAIGX)
T. Rowe Price International Growth & Income FundR Class (RRIGX)
T. Rowe Price International Stock Fund (PRITX)
T. Rowe Price International Stock FundAdvisor Class (PAITX)
T. Rowe Price International Stock FundR Class (RRITX)
T. Rowe Price Japan Fund (PRJPX)
T. Rowe Price Latin America Fund (PRLAX)
T. Rowe Price New Asia Fund (PRASX)
T. Rowe Price Overseas Stock Fund (TROSX)
T. ROWE PRICE INTERNATIONAL INDEX FUND, INC.
T. Rowe Price International Equity Index Fund (PIEQX)
T. ROWE PRICE MEDIA & TELECOMMUNICATIONS FUND, INC. (PRMTX)
T. ROWE PRICE MID-CAP GROWTH FUND, INC. (RPMGX)
T. Rowe Price Mid-Cap Growth FundAdvisor Class (PAMCX)
T. Rowe Price Mid-Cap Growth FundR Class (RRMGX)
T. ROWE PRICE MID-CAP VALUE FUND, INC. (TRMCX)
T. Rowe Price Mid-Cap Value FundAdvisor Class (TAMVX)
T. Rowe Price Mid-Cap Value FundR Class (RRMVX)
2
T. ROWE PRICE MULTI-SECTOR ACCOUNT PORTFOLIOS, INC. (Multi-Sector Account Portfolios)
T. Rowe Price Emerging Markets Bond Multi-Sector Account Portfolio
T. Rowe Price Emerging Markets Local Multi-Sector Account Portfolio
T. Rowe Price Floating Rate Multi-Sector Account Portfolio
T. Rowe Price High Yield Multi-Sector Account Portfolio
T. Rowe Price Investment-Grade Corporate Multi-Sector Account Portfolio
T. Rowe Price Mortgage-Backed Securities Multi-Sector Account Portfolio
T. ROWE PRICE NEW AMERICA GROWTH FUND (PRWAX)
T. Rowe Price New America Growth FundAdvisor Class (PAWAX)
T. ROWE PRICE NEW ERA FUND, INC. (PRNEX)
T. ROWE PRICE NEW HORIZONS FUND, INC. (PRNHX)
T. ROWE PRICE NEW INCOME FUND, INC. (PRCIX)
T. Rowe Price New Income FundAdvisor Class (PANIX)
T. Rowe Price New Income FundR Class (RRNIX)
T. ROWE PRICE PERSONAL STRATEGY FUNDS, INC. (Personal Strategy Funds)
T. Rowe Price Personal Strategy Balanced Fund (TRPBX)
T. Rowe Price Personal Strategy Growth Fund (TRSGX)
T. Rowe Price Personal Strategy Income Fund (PRSIX)
T. ROWE PRICE PRIME RESERVE FUND, INC. (PRRXX)
T. ROWE PRICE REAL ASSETS FUND, INC. (PRAFX)
T. ROWE PRICE REAL ESTATE FUND, INC. (TRREX)
T. Rowe Price Real Estate FundAdvisor Class (PAREX)
T. ROWE PRICE RESERVE INVESTMENT FUNDS, INC. (TRP Reserve Funds)
T. Rowe Price Government Reserve Investment Fund
(TRP Government Reserve
Investment Fund)
T. Rowe Price Reserve Investment Fund (TRP Reserve Investment Fund)
T. Rowe Price Short-Term Government Reserve Fund
T. Rowe Price Short-Term Reserve Fund
T. ROWE PRICE RETIREMENT FUNDS, INC. (Retirement Funds)
T. Rowe Price Retirement 2005 Fund (TRRFX)
T. Rowe Price Retirement 2005 FundAdvisor Class (PARGX)
T. Rowe Price Retirement 2005 FundR Class (RRTLX)
T. Rowe Price Retirement 2010 Fund (TRRAX)
T. Rowe Price Retirement 2010 FundAdvisor Class (PARAX)
T. Rowe Price Retirement 2010 FundR Class (RRTAX)
T. Rowe Price Retirement 2015 Fund (TRRGX)
T. Rowe Price Retirement 2015 FundAdvisor Class (PARHX)
T. Rowe Price Retirement 2015 FundR Class (RRTMX)
T. Rowe Price Retirement 2020 Fund (TRRBX)
T. Rowe Price Retirement 2020 FundAdvisor Class (PARBX)
T. Rowe Price Retirement 2020 FundR Class (RRTBX)
T. Rowe Price Retirement 2025 Fund (TRRHX)
T. Rowe Price Retirement 2025 FundAdvisor Class (PARJX)
T. Rowe Price Retirement 2025 FundR Class (RRTNX)
T. Rowe Price Retirement 2030 Fund (TRRCX)
T. Rowe Price Retirement 2030 FundAdvisor Class (PARCX)
T. Rowe Price Retirement 2030 FundR Class (RRTCX)
T. Rowe Price Retirement 2035 Fund (TRRJX)
T. Rowe Price Retirement 2035 FundAdvisor Class (PARKX)
T. Rowe Price Retirement 2035 FundR Class (RRTPX)
T. Rowe Price Retirement 2040 Fund (TRRDX)
T. Rowe Price Retirement 2040 FundAdvisor Class (PARDX)
T. Rowe Price Retirement 2040 FundR Class (RRTDX)
T. Rowe Price Retirement 2045 Fund (TRRKX)
T. Rowe Price Retirement 2045 FundAdvisor Class (PARLX)
T. Rowe Price Retirement 2045 FundR Class (RRTRX)
T. Rowe Price Retirement 2050 Fund (TRRMX)
T. Rowe Price Retirement 2050 FundAdvisor Class (PARFX)
T. Rowe Price Retirement 2050 FundR Class (RRTFX)
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T. Rowe Price Retirement 2055 Fund (TRRNX)
T. Rowe Price Retirement 2055 FundAdvisor Class (PAROX)
T. Rowe Price Retirement 2055 FundR Class RRTVX)
T. Rowe Price Retirement Income Fund (TRRIX)
T. Rowe Price Retirement Income FundAdvisor Class (PARIX)
T. Rowe Price Retirement Income FundR Class (RRTIX)
T. ROWE PRICE SCIENCE & TECHNOLOGY FUND, INC. (PRSCX)
T. Rowe Price Science & Technology FundAdvisor Class (PASTX)
T. ROWE PRICE SHORT-TERM BOND FUND, INC. (PRWBX)
T. Rowe Price Short-Term Bond FundAdvisor Class (PASHX)
T. Rowe Price Ultra Short-Term Bond Fund (TRBUX)
T. ROWE PRICE SMALL-CAP STOCK FUND, INC. (OTCFX)
T. Rowe Price Small-Cap Stock FundAdvisor Class (PASSX)
T. ROWE PRICE SMALL-CAP VALUE FUND, INC. (PRSVX)
T. Rowe Price Small-Cap Value FundAdvisor Class (PASVX)
T. ROWE PRICE SPECTRUM FUND, INC. (Spectrum Funds)
Spectrum Growth Fund (PRSGX)
Spectrum Income Fund (RPSIX)
Spectrum International Fund (PSILX)
T. ROWE PRICE STATE TAX-FREE INCOME TRUST
Georgia Tax-Free Bond Fund (GTFBX)
Maryland Short-Term Tax-Free Bond Fund (PRMDX)
Maryland Tax-Free Bond Fund (MDXBX)
Maryland Tax-Free Money Fund (TMDXX)
New Jersey Tax-Free Bond Fund (NJTFX)
New York Tax-Free Bond Fund (PRNYX)
New York Tax-Free Money Fund (NYTXX)
Virginia Tax-Free Bond Fund (PRVAX)
T. ROWE PRICE STRATEGIC INCOME FUND, INC. (PRSNX)
T. Rowe Price Strategic Income FundAdvisor Class (PRSAX)
T. ROWE PRICE SUMMIT FUNDS, INC. (Summit Income Funds)
T. Rowe Price Summit Cash Reserves Fund (TSCXX)
T. Rowe Price Summit GNMA Fund (PRSUX)
T. ROWE PRICE SUMMIT MUNICIPAL FUNDS, INC. (Summit Municipal Funds)
T. Rowe Price Summit Municipal Money Market Fund (TRSXX)
T. Rowe Price Summit Municipal Intermediate Fund (PRSMX)
T. Rowe Price Summit Municipal Intermediate FundAdvisor Class (PAIFX)
T. Rowe Price Summit Municipal Income Fund (PRINX)
T. Rowe Price Summit Municipal Income FundAdvisor Class (PAIMX)
T. ROWE PRICE TAX-EFFICIENT FUNDS, INC. (Tax-Efficient Funds)
T. Rowe Price Tax-Efficient Equity Fund (PREFX)
T. ROWE PRICE TAX-EXEMPT MONEY FUND, INC. (PTEXX)
T. ROWE PRICE TAX-FREE HIGH YIELD FUND, INC. (PRFHX)
T. Rowe Price Tax-Free High Yield FundAdvisor Class (PATFX)
T. ROWE PRICE TAX-FREE INCOME FUND, INC. (PRTAX)
T. Rowe Price Tax-Free Income FundAdvisor Class (PATAX)
T. ROWE PRICE TAX-FREE SHORT-INTERMEDIATE FUND, INC. (PRFSX)
T. Rowe Price Tax-Free Short-Intermediate FundAdvisor Class (PATIX)
T. Rowe Price Tax-Free Ultra Short-Term Bond Fund (PRTUX)
T. ROWE PRICE U.S. BOND ENHANCED INDEX FUND, INC. (formerly T. Rowe Price
U.S. Bond Index Fund, Inc.) (PBDIX)
T. ROWE PRICE U.S. LARGE-CAP CORE FUND, INC. (TRULX)
T. Rowe Price U.S. Large-Cap Core FundAdvisor Class (PAULX)
T. ROWE PRICE U.S. TREASURY FUNDS, INC. (U.S. Treasury Funds)
U.S. Treasury Intermediate Fund (PRTIX)
U.S. Treasury Long-Term Fund (PRULX)
U.S. Treasury Money Fund (PRTXX)
T. ROWE PRICE VALUE FUND, INC. (TRVLX)
T. Rowe Price Value FundAdvisor Class (PAVLX)
4
Mailing Address:
T. Rowe Price Investment Services, Inc.
100
East Pratt Street
Baltimore, Maryland 21202
1-800-638-5660
This SAI is not a prospectus but should be read in conjunction with the appropriate current fund prospectus, which may be obtained from T. Rowe Price Investment Services, Inc. (Investment Services).
Each funds financial statements for its most recent fiscal period and the Report of Independent Registered Public Accounting Firm are included in each funds annual or semiannual report and incorporated by reference into this SAI. The Short-Term Government Reserve Fund, Short-Term Reserve Fund, Tax-Free High Yield FundAdvisor Class, Tax-Free Short-Intermediate FundAdvisor Class, Tax-Free Ultra Short-Term Bond Fund, and Ultra Short-Term Bond Fund have not been in existence long enough to have complete financial statements.
If you would like a prospectus or an annual or semiannual shareholder report for a fund of which you are not a shareholder, please call 1-800-638-5660 and it will be sent to you at no charge. Please read this material carefully.
5
PART I TABLE OF CONTENTS
Page
Management of the Funds | |
Principal Holders of Securities | |
Investment Management Agreements | |
Third Party Arrangements |
Page
Distributor for the Funds | |
Portfolio Transactions | |
Independent Registered Public | |
Accounting Firm | |
Part II |
References to the following are as indicated:
Internal Revenue Code of 1986, as amended (Code)
Investment Company Act of 1940, as amended (1940 Act)
Moodys Investors Service, Inc. (Moodys)
Securities Act of 1933, as amended (1933 Act)
Securities and Exchange Commission (SEC)
Securities Exchange Act of 1934, as amended (1934 Act)
Standard & Poors Corporation (S&P)
T. Rowe Price Associates, Inc. (T. Rowe Price)
T. Rowe Price Hong Kong Limited (Price Hong Kong)
T. Rowe Price International Ltd (T. Rowe Price International)
T. Rowe Price Singapore Private Ltd. (Price Singapore)
Advisor Class
The Advisor Class is a share class of its respective T. Rowe Price fund and is not a separate mutual fund. The Advisor Class shares are designed to be sold only through brokers, dealers, banks, insurance companies, and other financial intermediaries that provide various distribution and administrative services.
F Class
The F Class is a share class of its respective T. Rowe Price fund and is not a separate mutual fund. The F Class shares are designed to be sold only through financial advisors and certain third-party intermediaries, including brokers, banks, insurance companies, retirement plan recordkeepers, and other financial intermediaries that provide various distribution and administrative services. F Class shares are not intended to be offered by intermediaries through a mutual fund supermarket platform.
R Class
The R Class is a share class of its respective T. Rowe Price fund and is not a separate mutual fund. The R Class shares are designed to be sold only through various third-party intermediaries that offer employer-sponsored defined contribution retirement plans and certain other accounts, including brokers, dealers, banks, insurance companies, retirement plan recordkeepers, and others.
Inflation Focused Bond Fund, Multi-Sector Account Portfolios, and TRP Reserve Funds
These funds are not available for direct purchase by members of the public. Shares of these funds may only be purchased by or on behalf of mutual funds, section 529 college savings plans, or certain institutional client accounts for which T. Rowe Price or one of its affiliates has discretionary investment authority.
Institutional Funds
The Institutional Funds have a $1,000,000 initial investment minimum (except for their F Class shares) and are designed for institutional investors. Institutional investors typically include banks, pension plans, and trust and investment companies.
6
Below is a table showing the prospectus and shareholder report dates for each fund. The table also lists each funds category, which should be used to identify groups of funds that are referenced throughout this SAI.
Fund | Fund Category | Fiscal Year End | Annual Report Date | Semiannual Report Date | Prospectus Date |
Africa & Middle East | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Balanced | Blended | Dec 31 | Dec 31 | June 30 | May 1 |
Blue Chip Growth | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Blue Chip Growth FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Blue Chip Growth FundR Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
California Tax-Free Bond | State Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
California Tax-Free Money | State Tax-Free Money | Feb 28 | Feb 28 | Aug 30 | July 1 |
Capital Appreciation | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Capital Appreciation FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Capital Opportunity | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Capital Opportunity FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Capital Opportunity FundR Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Corporate Income | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Diversified Mid-Cap Growth | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Diversified Small-Cap Growth | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Dividend Growth | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Dividend Growth FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Emerging Europe | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Emerging Markets Bond | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
Emerging Markets Corporate Bond | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
Emerging Markets Corporate BondAdvisor Class | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
Emerging Markets Bond Multi-Sector Account Portfolio | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
Emerging Markets Local Currency Bond | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
Emerging Markets Local Currency Bond FundAdvisor Class | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
Emerging Markets Local Multi-Sector Account Portfolio | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
Emerging Markets Stock | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Equity Income | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Equity Income FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Equity Income FundR Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Equity Index 500 | Index Equity | Dec 31 | Dec 31 | June 30 | May 1 |
7
Fund | Fund Category | Fiscal Year End | Annual Report Date | Semiannual Report Date | Prospectus Date |
European Stock | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Extended Equity Market Index | Index Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Financial Services | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Floating Rate | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Floating Rate FundAdvisor Class | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Floating Rate Multi-Sector Account Portfolio | Taxable Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Georgia Tax-Free Bond | State Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Global Infrastructure | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Global Infrastructure FundAdvisor Class | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Global Large-Cap Stock | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Global Large-Cap Stock FundAdvisor Class | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Global Real Estate | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Global Real Estate FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Global Stock | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Global Stock FundAdvisor Class | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Global Technology | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
GNMA | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
TRP Government Reserve Investment | Taxable Money | May 31 | May 31 | Nov 30 | Oct 1 |
Growth & Income | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Growth Stock | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Growth Stock FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Growth Stock FundR Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Health Sciences | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
High Yield | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
High Yield FundAdvisor Class | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
High Yield Multi-Sector Account Portfolio | Taxable Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Inflation Focused Bond | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Inflation Protected Bond | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Institutional Africa & Middle East | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Institutional Concentrated International Equity | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Institutional Core Plus | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Institutional Core Plus-F Class | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Institutional Emerging Markets Bond | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
Institutional Emerging Markets Equity | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Institutional Floating Rate | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Institutional Floating Rate-F Class | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Institutional Global Equity | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
8
Fund | Fund Category | Fiscal Year End | Annual Report Date | Semiannual Report Date | Prospectus Date |
Institutional Global Large-Cap Equity | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Institutional Global Value Equity | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Institutional High Yield | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Institutional International Bond | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
Institutional International Core Equity | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Institutional International Growth Equity | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Institutional Large-Cap Core Growth | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Institutional Large-Cap Growth | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Institutional Large-Cap Value | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Institutional Mid-Cap Equity Growth | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Institutional Small-Cap Stock | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Institutional U.S. Structured Research | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
International Bond | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
International Bond FundAdvisor Class | International Bond | Dec 31 | Dec 31 | June 30 | May 1 |
International Discovery | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
International Equity Index | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
International Growth & Income | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
International Growth & Income FundAdvisor Class | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
International Growth & Income FundR Class | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
International Stock | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
International Stock FundAdvisor Class | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
International Stock FundR Class | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Investment-Grade Corporate Multi-Sector Account Portfolio | Taxable Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Japan | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Latin America | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Maryland Short-Term Tax-Free Bond | State Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Maryland Tax-Free Bond | State Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Maryland Tax-Free Money | State Tax-Free Money | Feb 28 | Feb 28 | Aug 30 | July 1 |
Media & Telecommunications | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Mid-Cap Growth | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Mid-Cap Growth FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Mid-Cap Growth FundR Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
9
Fund | Fund Category | Fiscal Year End | Annual Report Date | Semiannual Report Date | Prospectus Date |
Mid-Cap Value | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Mid-Cap Value FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Mid-Cap Value FundR Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Mortgage-Backed Securities Multi-Sector Account Portfolio | Taxable Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
New America Growth | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
New America Growth FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
New Asia | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
New Era | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
New Horizons | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
New Income | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
New Income FundAdvisor Class | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
New Income FundR Class | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
New Jersey Tax-Free Bond | State Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
New York Tax-Free Bond | State Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
New York Tax-Free Money | State Tax-Free Money | Feb 28 | Feb 28 | Aug 30 | July 1 |
Overseas Stock | International Equity | Oct 31 | Oct 31 | Apr 30 | March 1 |
Personal Strategy Balanced | Blended | May 31 | May 31 | Nov 30 | Oct 1 |
Personal Strategy Growth | Blended | May 31 | May 31 | Nov 30 | Oct 1 |
Personal Strategy Income | Blended | May 31 | May 31 | Nov 30 | Oct 1 |
Prime Reserve | Taxable Money | May 31 | May 31 | Nov 30 | Oct 1 |
Real Assets Fund | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Real Estate | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Real Estate FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
TRP Reserve Investment | Taxable Money | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2005 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2005 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2005 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2010 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2010 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2010 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2015 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2015 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2015 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2020 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2020 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2020 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2025 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
10
Fund | Fund Category | Fiscal Year End | Annual Report Date | Semiannual Report Date | Prospectus Date |
Retirement 2025 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2025 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2030 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2030 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2030 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2035 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2035 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2035 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2040 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2040 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2040 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2045 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2045 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2045 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2050 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2050 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2050 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2055 | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2055 FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement 2055 FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement Income | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement Income FundAdvisor Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Retirement Income FundR Class | Fund-of-Funds | May 31 | May 31 | Nov 30 | Oct 1 |
Science & Technology | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Science & Technology FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Short-Term Bond | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Short-Term Bond FundAdvisor Class | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Short-Term Government Reserve | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Short-Term Reserve | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Small-Cap Stock | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Small-Cap Stock FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Small-Cap Value | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Small-Cap Value FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
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Fund | Fund Category | Fiscal Year End | Annual Report Date | Semiannual Report Date | Prospectus Date |
Spectrum Growth | Fund-of-Funds | Dec 31 | Dec 31 | June 30 | May 1 |
Spectrum Income | Fund-of-Funds | Dec 31 | Dec 31 | June 30 | May 1 |
Spectrum International | Fund-of-Funds | Dec 31 | Dec 31 | June 30 | May 1 |
Strategic Income | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Strategic Income FundAdvisor Class | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Summit Cash Reserves | Taxable Money | Oct 31 | Oct 31 | Apr 30 | March 1 |
Summit GNMA | Taxable Bond | Oct 31 | Oct 31 | Apr 30 | March 1 |
Summit Municipal Income | Tax-Free Bond | Oct 31 | Oct 31 | Apr 30 | March 1 |
Summit Municipal IncomeAdvisor Class | Tax-Free Bond | Oct 31 | Oct 31 | Apr 30 | March 1 |
Summit Municipal Intermediate | Tax-Free Bond | Oct 31 | Oct 31 | Apr 30 | March 1 |
Summit Municipal IntermediateAdvisor Class | Tax-Free Bond | Oct 31 | Oct 31 | Apr 30 | March 1 |
Summit Municipal Money Market | Tax-Free Money | Oct 31 | Oct 31 | Apr 30 | March 1 |
Tax-Efficient Equity | Equity | Feb 28 | Feb 28 | Aug 30 | July 1 |
Tax-Exempt Money | Tax-Free Money | Feb 28 | Feb 28 | Aug 30 | July 1 |
Tax-Free High Yield | Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Tax-Free High YieldAdvisor Class | Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Tax-Free Income | Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Tax-Free Income FundAdvisor Class | Tax Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Tax-Free Short-Intermediate | Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Tax-Free Short-IntermediateAdvisor Class | Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Tax-Free Ultra Short-Term Bond | Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
Total Equity Market Index | Index Equity | Dec 31 | Dec 31 | June 30 | May 1 |
U.S. Bond Enhanced Index | Index Bond | Oct 31 | Oct 31 | Apr 30 | March 1 |
U.S. Large-Cap Core | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
U.S. Large-Cap Core FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
U.S. Treasury Intermediate | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
U.S. Treasury Long-Term | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
U.S. Treasury Money | Taxable Money | May 31 | May 31 | Nov 30 | Oct 1 |
Ultra Short-Term Bond | Taxable Bond | May 31 | May 31 | Nov 30 | Oct 1 |
Value | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Value FundAdvisor Class | Equity | Dec 31 | Dec 31 | June 30 | May 1 |
Virginia Tax-Free Bond | State Tax-Free Bond | Feb 28 | Feb 28 | Aug 30 | July 1 |
The officers and directors (the term director is used to refer to directors or trustees, as applicable) of the Price Funds are listed below. Unless otherwise noted, the address of each is 100 East Pratt Street, Baltimore, Maryland 21202.
Each fund is overseen by a Board of Directors/Trustees (Board) that meets regularly to review a wide variety of matters affecting the funds, including performance, investment programs, compliance matters, advisory fees and expenses, service providers, and other business affairs. The Boards elect the funds officers and are
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responsible for performing various duties imposed on them by the 1940 Act, the laws of Maryland or Massachusetts, and other laws. At least 75% of the Boards members are independent of T. Rowe Price and its affiliates. Each of the independent directors currently serves on the Board of each Price Fund. The directors who are also employees or officers of T. Rowe Price are referred to as inside or interested directors. Each inside director and officer (except as indicated) has been an employee of T. Rowe Price or its affiliates for five or more years. Each Board currently has three standing committees, a Committee of Independent Directors, a Joint Audit Committee, and an Executive Committee, each as described in the following paragraphs.
Edward C. Bernard, an inside director, is the Chairman of the Board of each fund. The independent directors of each fund have designated a Lead Independent Director, who functions as a liaison between the Chairman of the Board and the other independent directors. The Lead Independent Director presides at all executive sessions of the independent directors, reviews and provides input on Board meeting agendas and materials, and typically represents the independent directors in discussions with T. Rowe Price management. Anthony W. Deering currently serves as Lead Independent Director. Each funds Board has determined that its leadership and committee structure is appropriate because the Board believes that it sets the proper tone for the relationship between the fund, on the one hand, and T. Rowe Price or its affiliates and the funds other principal service providers, on the other, and facilitates the exercise of the Boards independent judgment in evaluating and managing the relationships. In addition, the structure efficiently allocates responsibility among committees and the full Board.
Like other mutual funds, the funds are subject to risks, including investment, compliance, operational and valuation risks, among others. The Board oversees risk as part of its oversight of the funds. Risk oversight is addressed as part of various Board and committee activities. The Board, directly or through its committees, interacts with and reviews reports from, among others, the investment adviser or its affiliates, the funds Chief Compliance Officer, the funds independent registered public accounting firm, legal counsel, and internal auditors for T. Rowe Price or its affiliates, as appropriate, regarding risks faced by the funds and the risk management programs of the investment adviser and certain other service providers. Also, the Joint Audit Committee receives periodic reports from members of the advisers Risk Management Oversight Committee on the significant risks inherent to the advisers business, including aggregate investment risks, reputational risk, business continuity risk, and operational risk. The actual day-to-day risk management functions with respect to the funds are subsumed within the responsibilities of the investment advisers and other service providers (depending on the nature of the risk), who carry out the funds investment management and business affairs. Although the risk management policies of T. Rowe Price, and its affiliates and the funds other service providers are reasonably designed to be effective, those policies and their implementation vary among service providers over time, and there is no guarantee that they will be effective. Not all risks that may affect the funds can be identified. Processes and controls developed may not eliminate or mitigate the occurrence or effects of all risks, and some risks may be simply beyond any control of the funds, T. Rowe Price or its affiliates or other service providers.
The Committee of Independent Directors, which consists of all of the independent directors of the funds, is responsible for selecting candidates for election as independent directors to fill vacancies on each funds Board. The committee will consider written recommendations from shareholders for possible nominees. Shareholders should submit their recommendations to the secretary of the funds. The committee held five formal meetings in 2012. The committee is chaired by the Lead Independent Director.
The Joint Audit Committee is composed of Anthony W. Deering, Robert J. Gerrard, Jr., John G. Schreiber, and Mark R. Tercek, all independent directors. Mark R. Tercek currently serves as chairman of the Joint Audit Committee. The Joint Audit Committee holds two regular meetings during each fiscal year, at which time it meets with the independent registered public accounting firm of the Price Funds to review: (1) the services provided; (2) the findings of the most recent audits; (3) managements response to the findings of the most recent audits; (4) the scope of the audits to be performed; (5) the accountants fees; and (6) any accounting questions relating to particular areas of the Price Funds operations or the operations of parties dealing with the Price Funds, as circumstances indicate. The Joint Audit Committee met three times in 2012.
The funds Executive Committee, consisting of the funds interested director(s), has been authorized by its respective Board to exercise all powers of the Boards to manage the funds in the intervals between meetings of
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the Boards, except the powers prohibited by statute from being delegated. All actions of the Executive Committee must be approved in advance by one independent director and reviewed after the fact by the full Board. The Executive Committee for each fund does not hold regularly scheduled meetings. The Executive Committee did not need to take any action on behalf of any funds during 2012.
In addition to the Boards and the three standing committees, the directors have established an Advisory Board with respect to the domestic fixed income Price Funds. The Advisory Board is composed of Robert J. Gerrard, Jr. and Cecilia E. Rouse. Advisory Board members serve in a consultative capacity to the Board of each of the domestic fixed income Price Funds and, in doing so, participate in Board discussions and review Board materials relating to the domestic fixed income Price Funds. However, Advisory Board members are not be eligible to vote on any matter presented to the Boards of the domestic fixed income Price Funds and have no power to act on behalf of or bind the Board or any committee of the Board.
Each Board has concluded that, based on each directors experience, qualifications, attributes or skills on an individual basis and in combination with those of the other directors, each director should serve on the Board. Attributes common to all directors include their ability to review critically, evaluate, question and discuss information provided to them, to interact effectively with the various service providers to the funds, and to exercise reasonable business judgment in the performance of their duties as directors. In addition, the Board has taken into account the actual service and commitment of the directors during their tenure in concluding that each should continue to serve. A directors ability to perform his or her duties effectively may have been attained through his or her educational background or professional training; business, consulting, public service or academic positions; experience from service as a director of the Price Funds, public companies, or non-profit entities or other organizations; or other experiences. Set forth below is a brief discussion of the specific experience, qualifications, attributes, or skills of each director that led the Board to conclude that he or she should serve as a director.
Messrs. Deering, Dick and Schreiber have each served as a director of the Price Funds for more than 20 years, and Mr. Rodgers and Ms. Horn have each served as a director of the Price Funds for more than 7 years, including in each case as members and/or Chairs of Board committees. Mr. Tercek has been a director of the Price Funds since 2009. He has approximately 25 years of experience in the financial services industry and has been the chief executive officer of a non-profit entity since 2008. Dr. Brody has been a director of the Price Funds since 2009. He has substantial experience in the public health and research fields, as well as academia, and brings a diverse perspective to the Boards. Mr. Gerrard and Dr. Rouse became directors of the Price Funds (other than the domestic fixed income Price Funds) in May 2012, and each brings additional diverse perspectives to the Boards. Mr. Gerrard has substantial experience in the industries relating to communications and interactive data services, and Dr. Rouse has extensive experience in the fields of education and economic research and has served as a director of certain non-profit entities. In addition, specific experience and qualifications of the independent directors with respect to their occupations and directorships of public companies and other investment companies are set forth in the following table.
Independent Directors(a)
Name, Year of Birth, and Number | Principal
Occupation(s) | Directorships |
William R. Brody 1944 142 portfolios | President and Trustee, Salk Institute for Biological Studies (2009 to present); President and Trustee, Johns Hopkins University (1996 to 2009); Chairman of Executive Committee and Trustee, John Hopkins Health System (1996 to 2009) | Novartis, Inc. (2009 to present); IBM (2007 to present) |
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Name, Year of Birth, and Number |