Emerging Europe Fund TREMX. Emerging Europe Fund I Class TTEEX ANNUAL REPORT

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1 ANNUAL REPORT October 31, 2018 TREMX T. ROWE PRICE Emerging Europe Fund TTEEX Emerging Europe Fund I Class The fund invests in companies in the rapidly growing developing countries of Europe. For more insights from T. Rowe Price investment professionals, go to troweprice.com.

2 HIGHLIGHTS Your fund returned -8.47% but underperformed the MSCI Emerging Markets Europe Index Net and the MSCI Emerging Markets Europe Index in the fiscal year ended October 31, The fund s relative performance was hurt primarily by our stock selection in Russia and, to a lesser extent, by our stock selection in Turkey. Our country allocations generally helped relative performance, especially our out-of-benchmark allocation to Romania and our underweight to Turkey. As of October 31, 58% of the fund s assets were allocated to Russia, but we are underweighting it versus the index. We have eliminated almost all of our holdings in Turkey. In central eastern Europe, Poland is our largest country allocation, and we have some investments in frontier markets, particularly Romania. Emerging markets have struggled broadly this year, but we are maintaining a long-term horizon with our investments, which we believe have strong fundamentals and can generate solid earnings growth over time. We believe stock valuations in emerging Europe are currently compelling. Go Paperless Sign up for e-delivery of your statements, confirmations, and prospectuses or shareholder reports. TO ENROLL: If you invest directly with T. Rowe Price, go to troweprice.com/paperless. If you invest through an investment advisor, a bank, or a brokerage firm, please contact that organization and ask if it can provide electronic documentation. It s fast receive your statements and confirmations faster than U.S. mail. It s convenient access your important account documents whenever you need them. It s secure we protect your online accounts using True Identity to confirm new accounts and make verification faster and more secure. It can save you money where applicable, T. Rowe Price passes on the cost savings to fund holders.* Log in to your account at troweprice.com for more information. * Certain mutual fund accounts that are assessed an annual account service fee can also save money by switching to e-delivery.

3 CIO Market Commentary Dear Shareholder Global financial markets generated widely divergent returns in your fund s fiscal year ended October 31, International equities declined during a volatile period marked by slowing growth in Europe, a growing trade conflict between the U.S. and China, and struggling currencies versus the U.S. dollar. Relatively high interest rates and the stronger U.S. economy resulted in asset flows to the U.S., where equities moved higher, particularly large-cap growth stocks. Both taxable and tax-exempt domestic bonds recorded losses, and non-u.s. bond prices declined considerably. Several factors contributed to the significant performance gap between U.S. stocks and other assets. U.S. equities benefited from the strong domestic economy and the tax cuts passed in late 2017, which helped corporate earnings expand at their fastest pace since the recovery from the financial crisis nearly a decade ago. Less welcome was a sharp rise in long-term interest rates, a result of improved economic conditions and early signs of higher inflation. Bond prices fell as yields rose, leaving only the riskier high yield and asset-backed sectors which are typically more resilient when rates increase with gains for the period. In Europe, slowing growth buffeted equities, while interest rates remained low due to continued monetary accommodation by the European Central Bank. Bank stocks, which make up a significant portion of major indexes, were particularly weak in this environment. Stocks slipped in Japan, but exceptionally aggressive monetary stimulus from the Bank of Japan failed to spark inflation or a convincing rebound in the country s sluggish growth rate. Higher rates and the strengthening U.S. economy bolstered the U.S. dollar versus other currencies but reduced returns of non-u.s. assets in dollar terms. The strong dollar also weighed heavily on emerging market countries with large current account deficits and external financing needs. A broad crisis in emerging markets debt has yet to materialize, however. Chinese stocks dropped sharply, reflecting a manufacturing sector slowdown brought about by efforts to reduce pollution and the government s continued clampdown on financial excesses. New regulations on gaming and online activities also weighed on the widely traded shares of the country s Internet giants. Heightened trade tensions with the U.S. took a further toll on investor sentiment toward China and other markets and may well have drained enthusiasm about healthy corporate profits and economic growth. 1

4 The actual impact of trade tensions on the U.S. economy appears muted to date, although the reprieve may prove temporary. The Chinese yuan has cheapened considerably, largely offsetting the 10% U.S. tariff on many Chinese imports by making them less expensive in dollar terms. If the yuan stabilizes and the Trump administration increases the tariff rate to 25% in 2019, as it has threatened, the U.S. could face meaningfully higher import costs. A continued decline in the yuan, on the other hand, would likely draw the ire of U.S. trade negotiators and further heighten tensions. Other uncertainties await investors in In the U.S., our investment professionals will be assessing the impact of a new era of divided government and keeping a close eye on earnings growth, which will most certainly slow in the coming year as the effect of the corporate tax cut on year-over-year earnings comparisons fades. By late in the year, the impact of fiscal stimulus will have peaked, while the U.S. economy will be without easy money for the first time in this economic cycle assuming the Fed stays on its current path of raising short-term rates gradually. In Europe, the Brexit deadline looms in March, and investors are keeping a close eye on whether populist movements in Italy and elsewhere will challenge the stability of the European Union. Nonetheless, our investment professionals continue to see opportunities for careful and patient investors. For example, sharp declines have created attractive valuations in some emerging markets, and corporate fundamentals in the U.S. generally remain excellent. Many innovative companies around the globe are using technology to seize market share from others, allowing them to continue growing at a healthy pace even if economic growth slows. In the search for these opportunities, your portfolio manager is drawing on the extensive resources of T. Rowe Price s global research platform, and I am confident that our uniquely collaborative culture will continue to serve our shareholders well. Thank you for your continued confidence in T. Rowe Price. Sincerely, Robert Sharps Group Chief Investment Officer 2

5 Management s Discussion of Fund Performance INVESTMENT OBJECTIVE The fund seeks long-term growth of capital through investments primarily in the common stocks of companies located (or with primary operations) in the emerging market countries of Europe. FUND COMMENTARY How did the fund perform in the past 12 months? Your fund returned -8.47% in the one-year period ended October 31, As shown in the Performance Comparison table, the fund underperformed the MSCI Emerging Markets Europe Index Net and the MSCI Emerging Markets Europe Index. Effective July 1, 2018, the MSCI Emerging Markets Europe Index Net replaced the MSCI Emerging Markets Europe Index as the fund s primary benchmark. The new index assumes the reinvestment of dividends after the deduction of withholding taxes applicable to the country where the dividend is paid; as such, the returns of the new benchmark are more representative of the returns experienced by PERFORMANCE COMPARISON Total Return Periods Ended 10/31/18 6 Months 12 Months Emerging Europe Fund % -8.47% Emerging Europe Fund I Class MSCI Emerging Markets Europe Index Net investors in foreign issuers. (Performance for the I Class shares will vary due to a different fee structure. Past performance cannot guarantee future results.) What factors influenced the fund s performance? The fund s relative MSCI Emerging Markets Europe Index performance was hurt primarily by our stock selection in Russia. The Russian stock market advanced about 12% during our fiscal year, and export-oriented companies were top performers. Energy producers in particular benefited from a weaker ruble and oil prices reaching four-year highs in October, and Novatek and Lukoil were two of our largest contributors. Tatneft also did very well, but because its valuation was high, we sold it in favor of Lukoil, which has a cheaper valuation and higher dividend yield. Unfortunately, lack of exposure to Gazprom limited our gains. Domestic-oriented companies have performed poorly due to the risk of more U.S. sanctions; they are perceived as being more vulnerable than exporters. While food retailers X5 Retail Group and Magnit contributed to our results 3

6 for the full year, their shares weakened significantly in the last six months due to strong competition in the industry. (Please refer to the portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.) The fund s relative performance was hurt to a lesser extent by our stock selection in Turkey. The Turkish market tumbled almost 43% amid currency weakness, elevated inflation (currently at a 25% annual rate), slowing economic growth, and concerns about reduced central bank independence now that President Recep Tayyip Erdogan has the power to appoint central bank officials. We slashed our Turkey allocation in the second half of our fiscal year, and our underweight versus the benchmark contributed to full-year results. SECTOR DIVERSIFICATION Percent of Net Assets 4/30/18 10/31/18 Financials 42.6% 40.7% Energy Communication Services Consumer Discretionary Materials Consumer Staples Health Care Information Technology Industrials and Business Services Real Estate Utilities Our country allocations generally helped relative performance. In addition to our Turkey underweight, our underweight to Poland, whose market fell 17%, was beneficial. Our allocation to Romania, which is not represented in our benchmark, also contributed to our results. Romania is experiencing very strong economic growth, and our stakes in BRD-Groupe Societe Generale and Banca Transilvania were solid contributors. Other and Reserves Total % % How is the fund positioned? As of October 31, 58% of the fund s assets were allocated Historical weightings reflect current industry/sector to Russia. While we have classifications. increased our exposure to the country, we are currently underweighting it versus the index. We are emphasizing domestic-oriented companies, such as banks and Internet companies, and we are underweight the energy sector although within energy, we are overweight Russian oil stocks but underweight Gazprom. 4

7 Our largest holding is Sberbank of Russia, the country s dominant lender. We believe Sberbank features high and sustainable profitability, strong and improving margins, improving loan growth, and good cost controls. Unfortunately, shares did not perform well in recent months, due in part to the potential for new U.S. sanctions. However, we added to our position because its valuation and dividend yield were too attractive to ignore. We eliminated Bank Saint Petersburg, in which we had lower conviction, to fund the purchase. Russian food retailers still have a positive long-term outlook, as the industry is fragmented and likely to consolidate going forward. However, we believe competition is intensifying, as indicated by Magnit s interest in accelerating new store openings, particularly in the Moscow region, where X5 s profitability is high. In response, we eliminated Lenta and slashed our X5 position. Internet company Mail.Ru was one of our largest detractors in the last six months, but we added to our already sizable position, as we believe the company will soon show significant profit margin improvement. We also believe that the market has been widely overestimating Mail.Ru s sanctions risk, and we like Mail.Ru s agreement with Alibaba to form a joint venture in Russia. While we have eliminated almost all holdings in Turkey (2% of assets), we maintained a small position in quality food retailer BIM Birlesik Magazalar and established a new position in Tupras Turkiye Petrol Rafinerileri. This refinery operator is a defensive investment in that it should benefit from a weaker lira. Due to a new maritime regulation that requires a reduced amount of sulfur in fuel oil used in ships, the company s refineries may see increased demand. In central eastern Europe, we continue to favor banks that are benefiting from strong economic growth. In the Czech Republic, where the central bank is proactively raising interest rates, we own Komercni Banka and Moneta Money Bank. Both have attractive dividend yields and reasonable valuations. Hungary s OTP Bank is enjoying healthy loan growth, so we added to our stake on weakness. Poland is our largest country allocation (13% of assets) in central eastern Europe, and while we increased our exposure in the financials sector, we continue to underweight Poland versus the benchmark, as valuations remain at a premium. The economy is growing at a solid pace, but the central bank has been postponing rate increases because core inflation has been surprisingly well behaved. We trimmed positions in a couple of banks in the last six months in favor of Powszechna Kasa Oszczednosci (PKO) Bank Polski. We like its management and believe that its earnings outlook looks strongest among its peers, especially if interest rates rise. 5

8 We have some investments in frontier markets, mostly in banks. In Romania (7% of assets), BRD-Groupe Societe Generale and Banca Transilvania have some of the most attractive valuations and dividend yields in our opportunity set. The central bank has been raising rates, which enables banks to make more profitable loans, and we believe that loan growth is poised to improve. In Georgia, we own Bank of Georgia Group and Georgia Healthcare Group and added UK-listed Georgia Capital, an investment company that seeks to capitalize on segments of the Georgian economy with good long-term prospects. What is portfolio management s outlook? Emerging markets have struggled broadly this year, but we are maintaining a long-term horizon with our investments, which we believe have strong fundamentals and can generate solid earnings growth over time. We believe stock valuations in emerging Europe are compelling; in fact, the region currently offers the lowest valuations within the asset class. In energy-dependent Russia, we are relatively defensively positioned due in part to the risk of additional sanctions directed toward specific individuals or entities. However, we have confidence in both our domestic- and export-oriented holdings and believe that valuations already reflect much of the risk of new sanctions. We are very cautious about Turkey: Although the government announced measures aimed at stabilizing the currency, and although the central bank raised interest rates significantly in September, the lira remains vulnerable due to a deteriorating inflation outlook and continued U.S. dollar strength. Also, we have doubts about the central bank s ability to raise rates as much as needed to get inflation under control. In addition, the country still needs to go through a difficult process of rebalancing and deleveraging its economy in order to return to a sustainable growth path. The macro picture is very positive in central eastern Europe, where domestic demand in several countries remains very strong and real wages are growing. We are closely monitoring levels of inflation and interest rates. With premium Polish valuations limiting our choice of higher-quality companies with reasonable valuations, we are seeking more interesting opportunities in Hungary and the Czech Republic. Several frontier markets offer long-term growth potential and portfolio diversification opportunities, but we favor Romania, where economic growth has been remarkable. The views expressed reflect the opinions of T. Rowe Price as of the date of this report and are subject to change based on changes in market, economic, or other conditions. These views are not intended to be a forecast of future events and are no guarantee of future results. 6

9 RISKS OF INVESTING IN THE EMERGING EUROPE FUND Stocks generally fluctuate in value more than bonds and may decline significantly over short time periods. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. The value of a stock in which the fund invests may decline due to general weakness in the stock market or because of factors that affect a particular company or industry. Investing in the securities of non-u.s. issuers involves special risks not typically associated with investing in U.S. issuers. International securities tend to be more volatile and less liquid than investments in U.S. securities and may lose value because of adverse local, political, social, or economic developments overseas, or due to changes in the exchange rates between foreign currencies and the U.S. dollar. In addition, international investments are subject to settlement practices and regulatory and financial reporting standards that differ from those of the U.S. 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 less 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 less efficient trading markets. Frontier markets generally have smaller economies and less mature capital markets than emerging markets. As a result, the risks of investing in emerging market countries are magnified in frontier market countries. Because the fund concentrates its investments in a particular geographic region, the fund s performance is closely tied to the social, political, and economic conditions within that region. Political developments and changes in regulatory, tax, or economic policy in particular countries within the region could significantly affect the markets in those countries as well as the entire region. As a result, the fund is likely to be more volatile than more geographically diverse international funds. These are some of the principal risks of investing in this fund. For a more thorough discussion of risks, please see the fund s prospectus. 7

10 BENCHMARK INFORMATION Note: MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. 8

11 PORTFOLIO HIGHLIGHTS TWENTY-FIVE LARGEST HOLDINGS Percent of net Assets 10/31/18 Sberbank of Russia, Russia 13.3% Lukoil, Russia 12.8 Mail.Ru, Russia 7.7 Novatek, Russia 7.0 Rosneft, Russia 6.3 OTP Bank, Hungary 4.6 Yandex, Russia 3.8 PKO Bank Polski, Poland 3.6 BRD-Groupe Societe Generale, Romania 3.4 Halyk Savings Bank of Kazakhstan, Kazakhstan 3.3 MMC Norilsk Nickel, Russia 3.1 AmRest Holdings, Poland 2.8 Banca Transilvania, Romania 2.7 EPAM Systems, United States 2.0 CCC, Poland 1.6 Komercni Banka, Czech Republic 1.6 Moneta Money Bank, Czech Republic 1.5 Dom Development, Poland 1.5 Bank Pekao, Poland 1.3 Magnit, Russia 1.3 Wizz Air Holdings, Hungary 1.3 Santander Bank Polska, Poland 1.3 Alrosa, Russia 1.2 Zagrebacka Banka, Croatia 1.2 MedLife, Romania 1.1 Total 91.3% Note: The information shown does not reflect any exchange-traded funds (ETFs), cash reserves, or collateral for securities lending that may be held in the portfolio. 9

12 GROWTH OF $10,000 This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which include a broad-based market index and may also include a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes. EMERGING EUROPE FUND $26,000 22,000 18,000 14,000 10,000 6,000 10/08 10/09 10/10 10/11 10/12 10/13 10/14 10/15 10/16 10/17 10/18 Emerging Europe Fund MSCI Emerging Markets Europe Index Net MSCI Emerging Markets Europe Index As of 10/31/18 Note: Performance for the I Class will vary due to its differing fee structure. See returns table below. $14,103 12,961 13,735 AVERAGE ANNUAL COMPOUND TOTAL RETURN Since Inception Periods Ended 10/31/18 1 Year 5 Years 10 Years Inception Date Emerging Europe Fund -8.47% -6.09% 3.50% Emerging Europe Fund I Class % 3/6/17 This table shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. Past performance cannot guarantee future results. 10

13 EXPENSE RATIO Emerging Europe Fund 1.63% Emerging Europe Fund I Class 1.28 The expense ratio shown is as of the fund s fiscal year ended 10/31/17. This number may vary from the expense ratio shown elsewhere in this report because it is based on a different time period and, if applicable, includes acquired fund fees and expenses but does not include fee or expense waivers. FUND EXPENSE EXAMPLE As a mutual fund shareholder, you may incur two types of costs: (1) transaction costs, such as redemption fees or sales loads, and (2) ongoing costs, including management fees, distribution and service (12b-1) fees, and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars) of investing in the fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the most recent six-month period and held for the entire period. Please note that the fund has two share classes: The original share class (Investor Class) charges no distribution and service (12b-1) fee, and the I Class shares are also available to institutionally oriented clients and impose no 12b-1 or administrative fee payment. Each share class is presented separately in the table. Actual Expenses The first line of the following table (Actual) provides information about actual account values and expenses based on the fund s actual returns. You may use the information on this line, together with your account balance, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number on the first line under the heading Expenses Paid During Period to estimate the expenses you paid on your account during this period. Hypothetical Example for Comparison Purposes The information on the second line of the table (Hypothetical) is based on hypothetical account values and expenses derived from the fund s actual expense ratio and an assumed 5% per year rate of return before expenses (not the fund s actual return). You may compare the ongoing costs of investing in the fund with other funds by contrasting this 5% hypothetical example and the 5% hypothetical examples that appear in the shareholder reports of the other funds. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. 11

14 FUND EXPENSE EXAMPLE (CONTINUED) Note: T. Rowe Price charges an annual account service fee of $20, generally for accounts with less than $10,000. The fee is waived for any investor whose T. Rowe Price mutual fund accounts total $50,000 or more; accounts electing to receive electronic delivery of account statements, transaction confirmations, prospectuses, and shareholder reports; or accounts of an investor who is a T. Rowe Price Personal Services or Enhanced Personal Services client (enrollment in these programs generally requires T. Rowe Price assets of at least $250,000). This fee is not included in the accompanying table. If you are subject to the fee, keep it in mind when you are estimating the ongoing expenses of investing in the fund and when comparing the expenses of this fund with other funds. You should also be aware that the expenses shown in the table highlight only your ongoing costs and do not reflect any transaction costs, such as redemption fees or sales loads. Therefore, the second line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. To the extent a fund charges transaction costs, however, the total cost of owning that fund is higher. EMERGING EUROPE FUND Beginning Ending Expenses Paid Account Value Account Value During Period* 5/1/18 10/31/18 5/1/18 to 10/31/18 Investor Class Actual $1, $ $6.79 Hypothetical (assumes 5% return before expenses) 1, , I Class Actual 1, Hypothetical (assumes 5% return before expenses) 1, , * Expenses are equal to the fund s annualized expense ratio for the 6-month period, multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half year (184), and divided by the days in the year (365) to reflect the half-year period. The annualized expense ratio of the Investor Class was 1.42%, and the I Class was 1.09%. 12

15 QUARTER-END RETURNS Since Inception Periods Ended 9/30/18 1 Year 5 Years 10 Years Inception Date Emerging Europe Fund -4.65% -4.26% -0.83% Emerging Europe Fund I Class % 3/6/17 The fund s performance information represents only past performance and is not necessarily an indication of future results. Current performance may be lower or higher than the performance data cited. Share price, principal value, and return will vary, and you may have a gain or loss when you sell your shares. For the most recent month-end performance, please visit our website (troweprice.com) or contact a T. Rowe Price representative at or, for I Class shares, The performance information shown does not reflect the deduction of a 2% redemption fee on shares held for 90 days or less. If it did, the performance would be lower. This table provides returns through the most recent calendar quarter-end rather than through the end of the fund s fiscal period. It shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. Average annual total return figures include changes in principal value, reinvested dividends, and capital gain distributions. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. When assessing performance, investors should consider both short- and long-term returns. 13

16 FINANCIAL HIGHLIGHTS For a share outstanding throughout each period Investor Class Year Ended 10/31/18 10/31/17 10/31/16 10/31/15 10/31/14 NET ASSET VALUE Beginning of period $ $ $ $ $ Investment activities Net investment income (1) (2) Net realized and unrealized gain/loss (1.65) (4.30) (4.17) Total from investment activities (1.27) (4.09) (4.00) Distributions Net investment income (0.21) (0.14) (0.20) (0.19) (0.39) Net realized gain (0.01) (0.07) Total distributions (0.22) (0.21) (0.20) (0.19) (0.39) NET ASSET VALUE End of period $ $ $ $ $ Ratios/Supplemental Data Total return (2) (3) (8.47)% 21.99% 9.34% (25.34)% (19.85)% Ratios to average net assets: (2) Gross expenses before waivers/payments by Price Associates 1.62% 1.63% 1.75% 1.76% 1.51% Net expenses after waivers/payments by Price Associates 1.42% 1.49% 1.75% 1.76% 1.51% Net investment income 2.52% 1.41% 1.18% 1.65% 0.95% 14

17 FINANCIAL HIGHLIGHTS For a share outstanding throughout each period Year Ended 10/31/18 10/31/17 10/31/16 10/31/15 10/31/14 Ratios/Supplemental Data (continued) Portfolio turnover rate 41.7% 40.2% 47.5% 63.9% 31.7% Net assets, end of period (in thousands) $ 144,426 $ 178,648 $ 164,240 $ 160,293 $ 246,097 (1) (2) (3) Per share amounts calculated using average shares outstanding method. See Note 6 for details of expense-related arrangements with Price Associates. Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions and payment of no redemption or account fees. The accompanying notes are an integral part of these financial statements. 15

18 FINANCIAL HIGHLIGHTS For a share outstanding throughout each period I Class Year Ended 10/31/18 3/6/17 (1) Through 10/31/17 NET ASSET VALUE Beginning of period $ $ Investment activities Net investment income (2) (3) Net realized and unrealized gain/loss (1.69) 2.02 Total from investment activities (1.22) 2.06 Distributions Net investment income (0.24) Net realized gain (0.01) Total distributions (0.25) NET ASSET VALUE End of period $ $ Ratios/Supplemental Data Total return (3) (4) (8.15)% 15.58% Ratios to average net assets: (3) Gross expenses before waivers/payments by Price Associates 1.30% 1.30% (5) Net expenses after waivers/payments by Price Associates 1.09% 1.11% (5) Net investment income 3.08% 0.43% (5) 16

19 FINANCIAL HIGHLIGHTS For a share outstanding throughout each period Ratios/Supplemental Data (continued) Year Ended 10/31/18 3/6/17 (1) Through 10/31/17 Portfolio turnover rate 41.7% 40.2% Net assets, end of period (in thousands) $ 5,987 $ 5,326 (1) (2) (3) (4) (5) Inception date Per share amounts calculated using average shares outstanding method. See Note 6 for details of expense-related arrangements with Price Associates. Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming reinvestment of all distributions and payment of no redemption or account fees. Total return is not annualized for periods less than one year. Annualized The accompanying notes are an integral part of these financial statements. 17

20 October 31, 2018 PORTFOLIO OF INVESTMENTS (Cost and value in $000s) CROATIA 1.2% Shares $ Value Common Stocks 1.2% Zagrebacka Banka 189,747 1,733 Total Croatia (Cost $1,748) 1,733 CZECH REPUBLIC 3.1% Common Stocks 3.1% Komercni banka 62,125 2,358 Moneta Money Bank (1) 701,242 2,325 Total Czech Republic (Cost $5,108) 4,683 GEORGIA 1.9% Common Stocks 1.9% Bank of Georgia Group (GBP) 57,680 1,151 Georgia Healthcare Group (GBP)(1)(2) 548,301 1,684 Total Georgia (Cost $2,670) 2,835 GREECE 0.8% Common Stocks 0.8% JUMBO 84,427 1,229 Total Greece (Cost $1,434) 1,229 HUNGARY 5.8% Common Stocks 5.8% OTP Bank 191,422 6,877 Wizz Air Holdings (GBP)(1)(2) 57,841 1,897 Total Hungary (Cost $6,866) 8,774 18

21 (Cost and value in $000s) KAZAKHSTAN 3.6% Shares $ Value Common Stocks 3.6% Halyk Savings Bank of Kazakhstan, GDR (USD) 437,230 4,979 Kazakhstan Kagazy, GDR (USD)(1)(2)(3)(4) 327, Total Kazakhstan (Cost $22,759) 5,424 LITHUANIA 0.3% Common Stocks 0.3% Siauliu Bankas 839, Total Lithuania (Cost $541) 415 POLAND 13.0% Common Stocks 13.0% AmRest Holdings (2) 405,362 4,186 Bank Pekao 74,296 2,026 CCC 55,136 2,398 Dom Development 125,250 2,208 PKO Bank Polski 520,453 5,405 Powszechny Zaklad Ubezpieczen 144,120 1,469 Santander Bank Polska 21,251 1,883 Total Poland (Cost $21,045) 19,575 ROMANIA 7.2% Common Stocks 7.2% Banca Transilvania 7,232,535 4,075 BRD-Groupe Societe Generale 1,599,596 5,059 MED Life (2) 257,719 1,688 Total Romania (Cost $10,449) 10,822 RUSSIA 58.3% Common Stocks 58.3% Alrosa (USD) 1,231,600 1,872 Etalon Group, GDR (USD) 404,

22 (Cost and value in $000s) Shares $ Value LUKOIL 256,855 19,256 Magnit 35,099 1,914 Magnit, GDR (USD) 6, Mail.Ru Group, GDR (USD)(2)(5) 436,755 11,576 MD Medical Group Investments, GDR (USD) 90, MMC Norilsk Nickel 27,590 4,610 Novatek, GDR (USD) 62,446 10,532 Rosneft Oil 1,350,700 9,419 Sberbank of Russia 5,814,810 16,713 Sberbank of Russia, ADR (USD) 279,409 3,288 X5 Retail Group, GDR (USD) 55,458 1,302 Yandex, Class A (USD)(2) 190,100 5,728 Total Russia (Cost $74,801) 87,759 TURKEY 1.8% Common Stocks 1.8% BIM Birlesik Magazalar 76,549 1,088 Tupras Turkiye Petrol Rafinerileri 65,311 1,541 Total Turkey (Cost $2,073) 2,629 UNITED KINGDOM 1.1% Common Stocks 1.1% DP Eurasia (1)(2) 120, Georgia Capital (2) 102,017 1,525 Total United Kingdom (Cost $1,490) 1,704 UNITED STATES 2.1% Common Stocks 2.1% EPAM Systems (2) 25,800 3,082 Total United States (Cost $1,891) 3,082 20

23 (Cost and value in $000s) SHORT-TERM INVESTMENTS 0.1% Money Market Funds 0.1% Shares $ Value T. Rowe Price Government Reserve Fund, 2.19% (4)(6) 177, Total Short-Term Investments (Cost $178) 178 SECURITIES LENDING COLLATERAL 3.0% Investments in a Pooled Account through Securities Lending Program with JPMorgan Chase Bank 3.0% Short-Term Funds 3.0% T. Rowe Price Short-Term Fund, 2.18% (4)(6) 458,194 4,582 Total Investments in a Pooled Account through Securities Lending Program with JPMorgan Chase Bank 4,582 Total Securities Lending Collateral (Cost $4,582) 4,582 Total Investments in Securities 103.3% of Net Assets (Cost $157,635) $ 155,424 Country classifications are generally based on MSCI categories or another unaffiliated third party data provider; Shares are denominated in the currency of the country presented unless otherwise noted. (1) Security was purchased pursuant to Rule 144A under the Securities Act of 1933 and may be resold in transactions exempt from registration only to qualified institutional buyers -- total value of such securities at period-end amounts to $6,530 and represents 4.3% of net assets. (2) Non-income producing (3) Level 3 in fair value hierarchy. See Note 2. (4) Affiliated Company (5) All or a portion of this security is on loan at October 31, See Note 3. (6) Seven-day yield ADR American Depositary Receipts GBP British Pound GDR Global Depositary Receipts USD U.S. Dollar 21

24 AFFILIATED COMPANIES ($000s) The fund may invest in certain securities that are considered affiliated companies. As defined by the 1940 Act, an affiliated company is one in which the fund owns 5% or more of the outstanding voting securities, or a company that is under common ownership or control. The following securities were considered affiliated companies for all or some portion of the year ended October 31, Net realized gain (loss), investment income, change in net unrealized gain/loss, and purchase and sales cost reflect all activity for the period then ended. Affiliate Net Realized Gain (Loss) Change in Net Unrealized Gain/Loss Investment Income Kazakhstan Kagazy $ $ 154 $ T. Rowe Price Government Reserve Fund 25 T. Rowe Price Short-Term Fund ++ Totals $ # $ 154 $ 25+ Supplementary Investment Schedule Value Affiliate 10/31/17 Purchase Cost Sales Cost Value 10/31/18 Kazakhstan Kagazy $ 291 $ $ $ 445 T. Rowe Price Government Reserve Fund T. Rowe Price Short-Term Fund 151 4,582 $ 5,205^ # Capital gain distributions from mutual funds represented $0 of the net realized gain (loss). ++ Excludes earnings on securities lending collateral, which are subject to rebates and fees as described in Note 3. + Investment income comprised $25 of dividend income and $0 of interest income. Purchase and sale information not shown for cash management funds. ^ The cost basis of investments in affiliated companies was $21,381. The accompanying notes are an integral part of these financial statements. 22

25 October 31, 2018 STATEMENT OF ASSETS AND LIABILITIES ($000s, except shares and per share amounts) Assets Investments in securities, at value (cost $157,635) $ 155,424 Foreign currency (cost $107) 107 Receivable for investment securities sold 91 Dividends receivable 72 Receivable for shares sold 38 Other assets 66 Total assets 155,798 Liabilities Obligation to return securities lending collateral 4,582 Payable for investment securities purchased 442 Investment management fees payable 135 Payable for shares redeemed 104 Due to affiliates 38 Other liabilities 84 Total liabilities 5,385 N E T A S S E T S $ 1 5 0,

26 October 31, 2018 STATEMENT OF ASSETS AND LIABILITIES ($000s, except shares and per share amounts) Net Assets Consist of: Undistributed net investment income $ 4,419 Accumulated undistributed net realized loss (24,384) Net unrealized loss (2,215) Paid-in capital applicable to 10,921,958 shares of $0.01 par value capital stock outstanding; 18,000,000,000 shares of the Corporation authorized 172,593 N E T A S S E T S $ 1 5 0, NET ASSET VALUE PER SHARE Investor Class ($144,426,198 / 10,488,485 shares outstanding) $ I Class ($5,986,524 / 433,473 shares outstanding) $ The accompanying notes are an integral part of these financial statements. 24

27 STATEMENT OF OPERATIONS ($000s) Year Ended 10/31/18 Investment Income (Loss) Income Dividend (net of foreign taxes of $926) $ 7,102 Securities lending 3 Total income 7,105 Expenses Investment management 1,872 Shareholder servicing Investor Class 538 Prospectus and shareholder reports Investor Class 32 Custody and accounting 218 Registration 58 Proxy and annual meeting 54 Legal and audit 42 Directors 1 Miscellaneous 81 Waived / paid by Price Associates (362) Total expenses 2,534 Net investment income 4,571 Realized and Unrealized Gain / Loss Net realized gain (loss) Securities 12,792 Foreign currency transactions (55) Net realized gain 12,737 Change in net unrealized gain / loss Securities (33,039) Other assets and liabilities denominated in foreign currencies (7) Change in net unrealized gain / loss (33,046) Net realized and unrealized gain / loss (20,309) DECREASE IN NET ASSETS FROM OPERATIONS $ (15,738) The accompanying notes are an integral part of these financial statements. 25

28 STATEMENT OF CHANGES IN NET ASSETS ($000s) Year Ended 10/31/18 10/31/17 Increase (Decrease) in Net Assets Operations Net investment income $ 4,571 $ 2,446 Net realized gain 12,737 9,868 Change in net unrealized gain / loss (33,046) 21,843 Increase (decrease) in net assets from operations (15,738) 34,157 Distributions to shareholders Net investment income Investor Class (2,433) (1,792) I Class (83) Net realized gain Investor Class (116) (895) I Class (3) Decrease in net assets from distributions (2,635) (2,687) Capital share transactions* Shares sold Investor Class 28,820 26,589 I Class 2,060 5,261 Distributions reinvested Investor Class 2,461 2,594 I Class 82 Shares redeemed Investor Class (47,813) (46,046) I Class (855) (153) Redemption fees received Decrease in net assets from capital share transactions (15,188) (11,736) 26

29 STATEMENT OF CHANGES IN NET ASSETS ($000s) Year Ended 10/31/18 10/31/17 Net Assets Increase (decrease) during period (33,561) 19,734 Beginning of period 183, ,240 E n d o f p e r i o d $ 1 5 0, $ 1 8 3, Undistributed net investment income 4,419 2,397 *Share information Shares sold Investor Class 1,793 1,929 I Class Distributions reinvested Investor Class I Class 6 Shares redeemed Investor Class (3,173) (3,342) I Class (56) (10) Decrease in shares outstanding (1,134) (866) The accompanying notes are an integral part of these financial statements. 27

30 NOTES TO FINANCIAL STATEMENTS Funds, Inc. (the corporation) is registered under the Investment Company Act of 1940 (the 1940 Act). The Emerging Europe Fund (the fund) is a nondiversified, open-end management investment company established by the corporation. The fund seeks long-term growth of capital through investments primarily in the common stocks of companies located (or with primary operations) in the emerging market countries of Europe. The fund has two classes of shares: the Emerging Europe Fund (Investor Class) and the Emerging Europe Fund I Class (I Class). I Class shares generally are available only to investors meeting a $1,000,000 minimum investment, although the minimum is generally waived for certain client accounts. Each class has exclusive voting rights on matters related solely to that class; separate voting rights on matters that relate to both classes; and, in all other respects, the same rights and obligations as the other class. NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES Basis of Preparation The fund is an investment company and follows accounting and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 (ASC 946). The accompanying financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), including, but not limited to, ASC 946. GAAP requires the use of estimates made by management. Management believes that estimates and valuations are appropriate; however, actual results may differ from those estimates, and the valuations reflected in the accompanying financial statements may differ from the value ultimately realized upon sale or maturity. Investment Transactions, Investment Income, and Distributions Investment transactions are accounted for on the trade date basis. Income and expenses are recorded on the accrual basis. Realized gains and losses are reported on the identified cost basis. Income tax-related interest and penalties, if incurred, are recorded as income tax expense. Dividends received from mutual fund investments are reflected as dividend income; capital gain distributions are reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Distributions to shareholders are recorded on the ex-dividend date. Income distributions, if any, are declared and paid by each class annually. A capital gain distribution may also be declared and paid by the fund annually. 28

31 Currency Translation Assets, including investments, and liabilities denominated in foreign currencies are translated into U.S. dollar values each day at the prevailing exchange rate, using the mean of the bid and asked prices of such currencies against U.S. dollars as quoted by a major bank. Purchases and sales of securities, income, and expenses are translated into U.S. dollars at the prevailing exchange rate on the respective date of such transaction. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is not bifurcated from the portion attributable to changes in market prices. Class Accounting Shareholder servicing, prospectus, and shareholder report expenses incurred by each class are charged directly to the class to which they relate. Expenses common to both classes, investment income, and realized and unrealized gains and losses are allocated to the classes based upon the relative daily net assets of each class. To the extent any expenses are waived or reimbursed in accordance with an expense limitation (see Note 6), the waiver or reimbursement is charged to the applicable class or allocated across the classes in the same manner as the related expense. Redemption Fees A 2% fee is assessed on redemptions of fund shares held for 90 days or less to deter short-term trading and to protect the interests of long-term shareholders. Redemption fees are withheld from proceeds that shareholders receive from the sale or exchange of fund shares. The fees are paid to the fund and are recorded as an increase to paid-in capital. The fees may cause the redemption price per share to differ from the net asset value per share. New Accounting Guidance In March 2017, the FASB issued amended guidance to shorten the amortization period for certain callable debt securities held at a premium. The guidance is effective for fiscal years and interim periods beginning after December 15, Adoption will have no effect on the fund s net assets or results of operations. Indemnification In the normal course of business, the fund may provide indemnification in connection with its officers and directors, service providers, and/or private company investments. The fund s maximum exposure under these arrangements is unknown; however, the risk of material loss is currently considered to be remote. NOTE 2 - VALUATION The fund s financial instruments are valued and each class s net asset value (NAV) per share is computed at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day the NYSE is open for business. However, the NAV per share may be calculated at a time other than the normal close of the NYSE if trading on the NYSE is restricted, if the NYSE closes earlier, or as may be permitted by the SEC. 29

32 Fair Value The fund s financial instruments are reported at fair value, which GAAP defines as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The T. Rowe Price Valuation Committee (the Valuation Committee) is an internal committee that has been delegated certain responsibilities by the fund s Board of Directors (the Board) to ensure that financial instruments are appropriately priced at fair value in accordance with GAAP and the 1940 Act. Subject to oversight by the Board, the Valuation Committee develops and oversees pricing-related policies and procedures and approves all fair value determinations. Specifically, the Valuation Committee establishes procedures to value securities; determines pricing techniques, sources, and persons eligible to effect fair value pricing actions; oversees the selection, services, and performance of pricing vendors; oversees valuation-related business continuity practices; and provides guidance on internal controls and valuation-related matters. The Valuation Committee reports to the Board and has representation from legal, portfolio management and trading, operations, risk management, and the fund s treasurer. Various valuation techniques and inputs are used to determine the fair value of financial instruments. GAAP establishes the following fair value hierarchy that categorizes the inputs used to measure fair value: Level 1 quoted prices (unadjusted) in active markets for identical financial instruments that the fund can access at the reporting date Level 2 inputs other than Level 1 quoted prices that are observable, either directly or indirectly (including, but not limited to, quoted prices for similar financial instruments in active markets, quoted prices for identical or similar financial instruments in inactive markets, interest rates and yield curves, implied volatilities, and credit spreads) Level 3 unobservable inputs Observable inputs are developed using market data, such as publicly available information about actual events or transactions, and reflect the assumptions that market participants would use to price the financial instrument. Unobservable inputs are those for which market data are not available and are developed using the best information available about the assumptions that market participants would use to price the financial instrument. GAAP requires valuation techniques to maximize the use of relevant observable inputs and minimize the use of unobservable inputs. When multiple inputs are used to derive fair value, the financial instrument is assigned to the level within the fair value hierarchy based on the lowest-level input that is significant to the fair value of the financial instrument. Input levels are not necessarily an indication of the risk or liquidity associated with financial instruments at that level but rather the degree of judgment used in determining those values. 30

33 Valuation Techniques Equity securities listed or regularly traded on a securities exchange or in the over-the-counter (OTC) market are valued at the last quoted sale price or, for certain markets, the official closing price at the time the valuations are made. OTC Bulletin Board securities are valued at the mean of the closing bid and asked prices. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day are valued at the mean of the closing bid and asked prices for domestic securities and the last quoted sale or closing price for international securities. For valuation purposes, the last quoted prices of non-u.s. equity securities may be adjusted to reflect the fair value of such securities at the close of the NYSE. If the fund determines that developments between the close of a foreign market and the close of the NYSE will affect the value of some or all of its portfolio securities, the fund will adjust the previous quoted prices to reflect what it believes to be the fair value of the securities as of the close of the NYSE. In deciding whether it is necessary to adjust quoted prices to reflect fair value, 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 securities in other situations, such as when a particular foreign market is closed but the fund is open. The fund uses outside pricing services to provide it with quoted prices and information to evaluate or adjust those prices. The fund cannot predict how often it will use quoted prices and how often it will determine it necessary to adjust those prices to reflect fair value. As a means of evaluating its security valuation process, the fund routinely compares quoted prices, the next day s opening prices in the same markets, and adjusted prices. Actively traded equity securities listed on a domestic exchange generally are categorized in Level 1 of the fair value hierarchy. Non-U.S. equity securities generally are categorized in Level 2 of the fair value hierarchy despite the availability of quoted prices because, as described above, the fund evaluates and determines whether those quoted prices reflect fair value at the close of the NYSE or require adjustment. OTC Bulletin Board securities, certain preferred securities, and equity securities traded in inactive markets generally are categorized in Level 2 of the fair value hierarchy. Investments in mutual funds are valued at the mutual fund s closing NAV per share on the day of valuation and are categorized in Level 1 of the fair value hierarchy. Assets and liabilities other than financial instruments, including short-term receivables and payables, are carried at cost, or estimated realizable value, if less, which approximates fair value. 31