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High Yield Corporate Credit: CASTING A WIDER NET HIGH INCOME BONDS. Mark Vaselkiv May 2015

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(1)

CASTING A WIDER NET –

HIGH INCOME BONDS

Mark Vaselkiv

May 2015

(2)

T. Rowe Price Investment Capabilities:

Experienced Global Resources

1 The combined assets under management of the T. Rowe Price group of companies in Euros. The T. Rowe Price group of companies includes T. Rowe Price

Associates, Inc., T. Rowe Price International Ltd, T. Rowe Price Hong Kong Limited, T. Rowe Price Singapore Private Ltd., and T. Rowe Price (Canada), Inc. Assets under management are calculated in U.S. dollars and converted to Euros using an exchange rate determined by an independent third party.

As of 31 March 2015, figures Shown in GBP

T. ROWE PRICE: A STRONG FIRM WITH DEEP RESOURCES

FIXED INCOME INVESTMENT PROFESSIONALS

Portfolio Managers

25

Portfolio Managers/Analysts

6

Associate Portfolio Managers

5

Credit Analysts

46

Quantitative Analysts

27

Economists

1

Traders

24

Trading Analysts

13

Portfolio Specialists

7

Management

5

Solutions

3

Total Fixed Income Professionals

162

Assets under management: GBP 520.5

1

of

which more than GBP 100 billion in Fixed

Income Assets

Over 75 years of dedicated investment

management and related services within an

independent, highly stable organisation and a

culture that puts client interests first

5,905 employees and 463 investment

professionals in 15 offices across the globe

An experienced team of portfolio managers

with an average firm tenure of 16 years

Firm led by a 7 person Management

Committee with an average tenure of

30 years

(3)

3

5 High Yield and

Bank Loan Traders

13 High Yield

Analysts

4 Senior Portfolio

Managers

About the Manager

Mark J. Vaselkiv

Head of High Yield Investing

Portfolio Manager,

High Yield Strategy

31 years of investment experience

27 years with T. Rowe Price

High Yield Expertise

TOTAL FIRM ASSETS

1

₤520.5 billion

FIXED INCOME ASSETS OVER ₤100 billion

HIGH YIELD ASSETS MORE THAN ₤16 billion

US High Yield

Bank Loans

European High Yield Global High Yield

1 The combined assets under management of the T. Rowe Price group of companies in GBP as of 31 March 2015. The T. Rowe Price group of companies includes

T. Rowe Price Associates, Inc., T. Rowe Price International Ltd, T. Rowe Price Hong Kong Limited, T. Rowe Price Singapore Private Ltd., and T. Rowe Price (Canada), Inc. Assets under management are calculated in U.S. dollars and converted to Euros using an exchange rate determined by an independent third party.

(4)

Today’s U.S. High Yield Market Environment

Permits Less Compensation For Risk

Source: Barclays

0

5

10

15

20

25

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

P

er

ce

n

t

(%

)

Years

BARCLAYS U.S. HIGH YIELD INDEX

Coupon

Yield to Worst

(5)

5

Central Bank Actions are Limiting Supply

in Global Markets

Source: Citi Research, Haver

Note: Federal Reserve, BoJ, ECB interventions included; Assumes €320bn of LTRO repayment in 1Q15 with 100bn re-borrowing, €750bn of QE in 2015, and extension of the BoJ QE at current rate; US & Japan net issuance data based on annualized quarterly data

-$3 tn

-$2 tn

-$1 tn

$0 tn

$1 tn

$2 tn

$3 tn

$4 tn

$5 tn

05

06

07

08

09

10

11

12

13

14

15

Years

CB interventions

Shares

Corp

Gov't

Net

As of 31 March 2015 with estimations through the end of the year

(6)

Expanding Global Opportunity Set From

What Had Traditionally Been A U.S. Market

Sources: BIS and Credit Suisse. Emerging Market Corporate data as of 31 March 2015

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD

2015

Billion

s

($)

MARKET GROWTH—1996 THROUGH MARCH 2015

US High Yield

European High Yield

Emerging Market Corporate Debt

US Leveraged Loans

(7)

7

90

100

110

120

130

140

150

Dec-11

Jun-12

Dec-12

Jun-13

Dec-13

Jun-14

Dec-14

G

ro

w

th

o

f

€100

GROWTH OF €100

U.S. High Yield

European High Yield

Emerging Markets Corporate

Different Regions Produce Divergent Results

As of 31 March 2015

Source: BofA/ML and T. Rowe Price.

U.S. High Yield represented by the BofA ML U.S. High Yield Index hedged to EUR, European High Yield represented by the BofA ML European Currency High Yield ex. Sub. Fin. 2% Constrained Index hedged to EUR and Emerging Markets Corporate represented by the JP Morgan CEMBI Broad Diversified Index hedged to EUR

(8)

Repair

Recovery

Expansion

Downturn

Macro Environment

 Still-challenging and uncertain outlook

 Moderate but improving  Growth is back but plateauing

 Weak and deteriorating

Credit Availability

 Borrowing (and lending) is weak

 Accelerating credit growth, but still below historical trend

 Renewed confidence drives private sector debt growth

 Credit growth and availability stalls as confidence shaken

Corp. Aggression

 Companies shore up balance sheets; focus on survival

 Leverage and appetite for risk-taking still low, but rising

 Optimism and credit encourages large-scale M&A and capex

 Companies cut back due to high borrowings, and weakening cash flow

Global Credit Cycles are Increasingly

Unsynchronized

Source: T. Rowe Price

India

Indonesia

Euro Zone

Mexico

United Kingdom

United States

Australia

Russia

China

Brazil

(9)

9

Valuations Appear Compelling Within An

Historical Context

Source: Citi Research, NBER and Barclays

1All periods of Treasury market sell-offs are month beginnings

200 bp

250 bp

300 bp

350 bp

400 bp

450 bp

500 bp

550 bp

Feb-98

Feb-06

Mar-15

HIGH YIELD SPREADS 70% THROUGH

THE RECOVERY PERIOD

-400 bp

-300 bp

-200 bp

-100 bp

0 bp

100 bp

200 bp

A

ug

'8

9 - Ma

y

'9

0

O

c

t'93

- D

ec

'9

4

F

eb

'96 - S

ep

'9

6

O

c

t'98

- Fe

b'00

No

v

'01

A

p

r'

0

2

J

un

'0

3 - J

un

'0

4

J

ul

'0

5 - J

ul

'06

J

an

'0

9 - J

an

'1

0

S

ep

'1

0 - A

pr'

11

M

a

y

'1

3

- J

a

n

'1

4

HIGH YIELD SPREADS TIGHTEN WHEN

THE TREASURY MARKET SELLS OFF

1

(10)

While Energy Weakness Was Notable,

Individual

Credit

Selection

Creates

Opportunity

Source: Citi Research

Note: As of month ends; based on index constituents of respective observed months

300 bp

350 bp

400 bp

450 bp

500 bp

550 bp

Jun '14

Dec '14

Mar '15

Basics

Energy

B or Lower

Other

Basics

Energy

B or Lower

Other

THE DRIVERS OF SPREAD CHANGES IN HIGH YIELD, JUNE ’14 TO MARCH ’15

(11)

T. ROWE PRICE FUNDS SICAV

European High Yield Bond Fund

Global Emerging Markets

Corporate Bond Fund

(12)

Not All Parts of the Market Offer Value –

Favor Single Bs in European High Yield

Source: BofA ML European Currency High Yield Constrained Ex Subordinated Financials Index

The securities identified and described above are intended to illustrate the security evaluation process of T. Rowe Price investment professionals and do not represent all of the securities analysed or purchased or sold for the SICAV T. Rowe Price SICAV European High Yield Bond sub-fund. No assumptions should be made that the securities analysed, or other securities analysed, purchased or sold, were or will be profitable. To further illustrate our security selection process, a complete list of securities in the SICAV sub-fund that were purchased or sold during the past year is available on request, subject to applicable law.

EURO HIGH YIELD MARKET –

YIELD TO MATURITY (%) PER RATING

As of 31 March 2015, figures Shown in Euros

Average

Rating to Maturity (%) Yield of the Market (%) Proportion

BB 3.2% 61.4% B 6.0% 31.3% CCC and Lower 13.6% 6.7% Index 4.7% 100% Media 14.1% Automotive 13.9% Services 13.8% Basic Industry 12.1% Healthcare 7.4% Retail 7.0% Consumer Goods 6.7% Telecom-munications 5.3% Capital Goods 4.5% Leisure 4.4% Utility 2.5% Financial Services 2.4% Transportation 2.3% Technology 1.4% Others 2.0%

EURO HIGH YIELD SINGLE B –

SECTOR BREAKDOWN

(13)

13

Not All Parts of the Market Offer Value –

Double Bs in Emerging Markets Corporates

Source: JP Morgan CEMBI Broad Diversified Index

The securities identified and described above are intended to illustrate the security evaluation process of T. Rowe Price investment professionals and do not represent all of the securities analysed or purchased or sold for the T. Rowe Price SICAV Global Emerging Markets Corporate Bond sub-fund. No assumptions should be made that the securities analysed, or other securities analysed, purchased or sold, were or will be profitable. To further illustrate our security selection process, a complete list of securities in the SICAV sub-fund that were purchased or sold during the past year is available on request, subject to applicable law.

EMERGING MARKET CORPORATES MARKET–

YIELD TO MATURITY (%) PER HIGH YIELD RATING

As of 31 March 2015

Average

Rating to Maturity (%) Yield of the Market (%) Proportion

BB 7.0% 16.3%

B 8.6% 9.1%

CCC and Lower 14.2% 2.8%

Index 5.4% 100%

EMERGING MARKET CORPORATE DEBT

DOUBLE B – SECTOR BREAKDOWN

Financial 29.7%

TMT 18.2% Oil & Gas

13.7% Consumer 12.1% Metals & Mining 10.9% Industrial 5.6% Utilities 3.3% Real Estate 3.0%

Pulp & Paper 2.7% Others

(14)

Year

SICAV Global

High Yield Bond Fund

J.P. Morgan 12

Month Default Rate

1995

%

2.82%

1996

1.64

1997

1.45

1998

1.73

1999

4.10

2000

5.03

2001

0.00

9.13

2002

0.00

7.98

2003

0.00

3.32

2004

0.68

1.11

2005

0.25

2.80

2006

0.00

0.87

2007

0.00

0.38

2008

0.34

2.25

2009

0.51

10.27

2010

0.00

0.80

2011

0.00

1.73

2012

0.03

1.26

2013

0.16

0.68

2014

0.60

2.96

2015 (through 31/03/15)

0.17

3.00

1

Average

0.18%

3.88%

2

Avoiding Bankruptcies Protects Our High

Yield Investors

HIGH YIELD ANNUAL DEFAULT RATES –

BASED ON PAR AMOUNT

As of 31 March 2015

(15)

15

A Tenured High Yield Investment Team

Delivers Durable Performance

Annualised In USD YTD* 1 Year 3 Year 5 Year 10

Year

T. Rowe Price SICAV Global High Yield

Bond Fund (I-class)

2.97

1.73

7.26

8.00

7.36

JP Morgan Global High Yield Index

2.45

1.16

7.09

8.60

8.20

Morningstar US OE High Yield Bond Category

2.25

0.75

6.35

7.45

6.74

Morningstar EAA

1

OE Global High Yield

Bond Category

0.79

-2.49

5.29

6.27

6.26

Source for performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of the investment will vary and is not guaranteed. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures.

Please note that no management fees are charged to the Z, S and J share classes. No administration agent fees are charged to the J Class. No expenses or any other fees are charged to the Z class. Fee arrangements for the Z, S and J share classes are made directly with the investment manager. Please see the prospectus for further information.

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Hedged share classes (denoted by ‘h’) utilize investment techniques to mitigate currency risk between the underlying investment currency(ies) of the fund and the currency of the hedged share class. The costs of doing so will be borne by the share class and there is no guarantee that such hedging will be effective.

Source & Copyright: Citywire. The Fund manager is rated by Citywire based on the manager’s 3 year risk adjusted performance for the period ending 31 March 2015. 2015 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed: and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. As of 31 March 2015

(16)

Established Track Record in European

High Yield and Emerging Markets

Corporate Strategies

Annualised

In Euro YTD 1 Year 3 Year Since

Inception1

T. Rowe Price SICAV European High Yield

Bond Fund(I-class)

4.07

6.05

11.46

4.07

BofA ML European Currency High Yield Constrained

Ex Subordinated Financials Index (hedged to EUR)

3.02

5.03

9.67

12.28

Morningstar EAA OE Europe High Yield Bond Category

4.06

5.13

9.05

-

As of 31 March 2015

Annualised

In USD YTD 1 Year 3 Year Since

Inception2

T. Rowe Price SICAV Global Emerging Markets

Corporate Bond Fund (I-class)

1.36

2.67

4.99

4.67

JP Morgan Corporate Emerging Markets Bond Index Broad Diversified

2.36

4.52

5.37

5.12

Morningstar EAA OE Emerging Mkts Corporate Bond Category

0.85

0.08

3.80

-

Source for performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of the investment will vary and is not guaranteed. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures.

Please note that no management fees are charged to the Z, S and J share classes. No administration agent fees are charged to the J Class. No expenses or any other fees are charged to the Z class. Fee arrangements for the Z, S and J share classes are made directly with the investment manager. Please see the prospectus for further information.

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

Hedged share classes (denoted by ‘h’) utilize investment techniques to mitigate currency risk between the underlying investment currency(ies) of the fund and the currency of the hedged share class. The costs of doing so will be borne by the share class and there is no guarantee that such hedging will be effective.

Source & Copyright: Citywire. The Fund manager is rated by Citywire based on the manager’s 3 year risk adjusted performance for the period ending 31 March 2015. 2015 Morningstar. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar; (2) may not be copied or distributed: and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

1T. Rowe Price SICAV European High Yield inception date 20 September 2011.

(17)

GLOBAL HIGH INCOME BOND

STRATEGY

(18)

Why Global High Income Bond?

Evolution of the High Yield Fixed Income Asset Class

Long-term sustainable demand for income oriented credit strategies

in a low interest rate world

Overvalued U.S. credit markets caused by an influx of new

investors and limited supply of quality issuers

Expanding international opportunity set from the maturation of

leveraged loan, European high yield and emerging markets

corporate asset classes

Meaningful potential to profit from dislocations and volatility driven

by economic and geopolitical uncertainties

(19)

19

Why T. Rowe Price? A Commitment to

Proprietary Research that Spans the Globe

162 Fixed Income Professionals

301 Equity Professionals

Count does not include Administration or Open positions As of 31 March 2015

334

Fixed Income and Equity

Professionals

UNITED STATES

84

Fixed Income and Equity Professionals UNITED KINGDOM

5

Equity Professionals SINGAPORE

6

Equity Professionals JAPAN

26

Fixed Income and Equity

Professionals HONG KONG

8

Equity Professionals AUSTRALIA  Fixed Income  Equity 76 94 130 204 2003 1Q15 27 57 25 9 2003 1Q15 21 5 7 6 2 5 2 8 2003 1Q15 2003 1Q15 2003 1Q15 2003 1Q15 0

Global reach allows us to build critical

local knowledge and broaden capabilities

(20)

T. Rowe Price Global High Income Bond Process

Asset

Allocation

Portfolio

Construction

Sector

Allocation &

Themes

Credit Selection

10%

20%

20%

50%

Top

Down

Bottom

Up

Firm-wide global insights across equity and fixed

income asset classes including:

- Stocks v. Bonds - Global Equities v. Real Assets - Developed v. Emerging - High Yield v. Investment Grade

Sovereign and relative value quantitative and

qualitative inputs to establish:

- Country/Regional allocations - Interest rate/Duration themes

- Credit quality weights - Risk mgmt. tools/Performance attribution - Fixed Rate v. Floating Rate

Global research collaboration to develop

sector and industry weightings including:

- Media Telecommunications - Financials

- Energy - Services

Detailed credit analysis to identify

improving credits by focusing on:

- Credit statistics and liquidity

- Free cash flow generation - Quality of managements - Strategic value of companies - Security structure and priority

(21)

21

T. Rowe Price Global High Income Bond

Strategy Investment Philosophy

The views from:

We seek to generate higher total returns than U.S. based credit

strategies through:

3,000 metres

Superior credit selection driven by a world class fundamental

research platform of 200 fixed income and equity analysts

stationed across the globe

6,000 metres

Intense collaboration across investment strategies that have

identified and exploited major long-term industry themes

9,000 metres

Sophisticated portfolio construction processes led by highly

tenured and experienced management teams

12,000 metres

Consistent and relevant asset allocation insights developed

by T. Rowe Price’s successful asset allocation and sector

strategy committees

A diversified global high yield bond strategy that leverages

T

. Rowe Price’s strength in core high yield bond investing

(22)

A Strategy with a True Global Composition

United States/Canada

Europe

Emerging Market

Source: Bank of America/Merrill Lynch.

The representative portfolio is an account in the composite we believe most closely reflects current portfolio management style for the strategy. Performance is not a consideration in the selection of the representative portfolio. Information regarding the representative portfolio and, where applicable, the other accounts in the composite is available upon request. Please see the GIPS® Disclosure page for additional information on the composite. Supplemental information.

As of 31 March 2015

GEOGRAPHICAL PROFILE

BofA Merrill Lynch Global High

Yield Hedged to USD Index

A collaborative effort across credit, sovereign, macro and equity research analysts

provides a holistic view of a company’s capital structure, taking into consideration

the market environment unique to each country and region where invested

Global High Income Bond

Representative Portfolio

(23)

23

Sector Allocations Based on Top-Down and

Bottom-up Inputs

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Manufacturing

Building Products

Automotives

Building & Real Estate

Healthcare

Container

Chemicals

Food & Tobacco

Service

Retail

Metals & Mining

Wireless Communications

Financial

Energy

Cable Operators

Global High Income Bond Representative Portfolio

BofA Merrill Lynch Global High Yield Hedged to USD Index

As of 31 March 2015

15 LARGEST INDUSTRIES IN THE GLOBAL HIGH INCOME BOND

REPRESENTATIVE PORTFOLIO

Source: Bank of America/Merrill Lynch.

The representative portfolio is an account in the composite we believe most closely reflects current portfolio management style for the strategy. Performance is not a consideration in the selection of the representative portfolio. Information regarding the representative portfolio and, where applicable, the other accounts in the composite is available upon request. Please see the GIPS® Disclosure page for additional information on the composite. Supplemental information.

Our global research and portfolio management teams identify improving issuers

with reliable management teams to exploit long-term industry themes

(24)
(25)

25

Total Return Performance

Global High Income Bond Hedged to USD Composite

Period Ended March 31, 2015 Figures Shown in U.S. dollar

(26)

GIPS

®

Disclosure

Global High Income Bond Hedged to USD Composite

Period Ended March 31, 2015 Figures Shown in U.S. dollar

(27)

27

Global High Income Fee Schedule

Global High Income Bond Hedged to USD Composite

As of Current Quarter-End Figures Shown in U.S. Dollars

(28)

Global High Yield Fee Schedule

(SICAV)

T. Rowe Price Funds SICAV — Global High Yield Bond Fund

(29)

29

European High Yield Fee Schedule

(SICAV)

T. Rowe Price Funds SICAV — European High Yield Bond Fund

(30)

Global Emerging Markets Corporate Bond

Fee Schedule (SICAV)

T. Rowe Price Funds SICAV - Global Emerging Markets Corporate Bond Fund

(31)

31

Additional Information

This marketing communication is directed at professional investors only. It is not intended for distribution to retail investors in any jurisdiction.

The Fund is a sub-fund of the T. Rowe Price Funds SICAV, a Luxembourg investment company with variable capital which qualifies as an undertaking for collective investment in transferable securities (“UCITS”). The Fund is offered on the basis of the Key Investor Information Document, the prospectus and the annual and semi-annual reports (together “Fund Documents”).

This document does not constitute investment advice - investors should ensure they understand the legal, regulatory and tax consequences of an investment in the Fund.

Issued and approved by T. Rowe Price International Ltd (“TRPIL”), 60 Queen Victoria Street, London, EC4N 4TZ. TRPIL is authorised and regulated by the Financial Conduct Authority.

T. ROWE PRICE, INVEST WITH CONFIDENCE and the Bighorn Sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc. in the United States, European Union, and other countries. This material is intended for use only in select countries.

2015-GL-1905 C16J4OF1S

(32)

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