T. Rowe Price Institutional Emerging Markets Equity Fund

Transcription

1 October 31, 2017 Annual Report T. Rowe Price Institutional Emerging Markets Equity Fund

2 Highlights Emerging markets stocks rallied during the 12-month period ended October 31, 2017, with U.S.-based investors benefiting from a weaker dollar. The Institutional Emerging Markets Equity Fund gained 28.06% in the reporting period, outperforming its benchmark and its Lipper peer group. Stock selection in China, Taiwan, South Korea, and Brazil contributed most to relative performance but detracted in India and South Africa. The outlook for emerging markets has improved significantly over the past 12 months, and most emerging economies are showing solid growth and tame inflation. The views and opinions in this report were current as of October 31, They are not guarantees of performance or investment results and should not be taken as investment advice. Investment decisions reflect a variety of factors, and the managers reserve the right to change their views about individual stocks, sectors, and the markets at any time. As a result, the views expressed should not be relied upon as a forecast of the fund s future investment intent. The report is certified under the Sarbanes-Oxley Act, which requires mutual funds and other public companies to affirm that, to the best of their knowledge, the information in their financial reports is fairly and accurately stated in all material respects.

3 Manager s Letter T. Rowe Price Institutional Emerging Markets Equity Fund Dear Investor Emerging markets stocks rallied over our fiscal year as risk appetite recovered amid signs of improving global demand, rising corporate earnings, and surprisingly strong growth in China. Against this backdrop, our fund generated solid returns thanks primarily to strong stock selection. Performance Comparison Total Return Periods Ended 10/31/17 6 Months 12 Months Institutional Emerging Markets Equity Fund 17.50% 28.06% MSCI Emerging Markets Index Lipper Emerging Markets Funds Average Performance Review The Institutional Emerging Markets Equity Fund returned 28.06% for the 12 months ended October 31, 2017, outperforming its benchmark, the MSCI Emerging Markets Index, and Lipper peer group average. Stock selection in China, South Korea, Taiwan, and Brazil drove relative performance over the period. India and South Africa hurt relative results. From a sector perspective, stock selection in information technology and financials contributed the most to returns. However, stock selection in the consumer discretionary sector weighed on relative performance, as did our overweight to consumer staples. Latin American markets overcame uncertainty about the future of the North American Free Trade Agreement (NAFTA), Brazil s ongoing corruption scandal, and the growing political prospects in Mexico of the left-leaning populist presidential candidate. Market Performance Periods Ended 10/31/17 Total Return (In U.S. Dollar Terms) 6 Months 12 Months China 28.61% 41.30% South Korea Taiwan India Russia South Africa Brazil Philippines Source: RIMES Online, using MSCI indexes. In emerging Europe, Russian stocks rose about 17% over the year in U.S. dollar terms as the country emerged from a downturn that followed the drop in oil prices and the devaluation of the ruble. South Africa and Turkey also generated double-digit returns despite the weakness in the rand and a failed Turkish military coup. The MSCI Emerging Markets Index rose every month during the fiscal year and hit a six-year high shortly before the reporting period ended. Geographic Diversification Europe 7% Other and Reserves 3% Market Environment Emerging markets stocks fell significantly at the start of the 12-month period amid worries about protectionist rhetoric and inflationary policies under the incoming U.S. administration. But starting in early 2017, unexpectedly strong growth in China and other indicators signaling rising demand restored investor confidence in the asset class. Strong corporate earnings and evidence of financial reform measures also supported investor sentiment. Middle East and Africa 8% Latin America 17% Based on net assets as of 10/31/17. Pacific ex Japan 65% 1

4 Portfolio Review Our investments in high-quality companies with strong growth potential, proven management teams, solid franchises, and supportive fundamentals paid off as economic conditions in many emerging markets countries improved and government reforms progressed. Asia China represents our largest country allocation and is our greatest underweight because we have little exposure to its manufacturing and banking segments, which we believe have less-exciting growth prospects. However, stock selection, especially in Internet and technology names, more than offset the detraction from our country underweight. We have positioned the portfolio to take advantage of rising disposable incomes. China s dominant online social media platform, Tencent Holdings, was the fund s top contributor to absolute and relative returns. E-commerce company Alibaba Group Holding beat earnings expectations and could benefit from an acceleration in transactions. During the period, we initiated a position in Ctrip.com International, which controls about 90% of China s fast-growing online travel market. (Please refer to the portfolio of investments for a complete list of holdings and the amount each represents in the portfolio.) We trimmed Sunny Optical Technology, following the company s strong performance. Sunny makes optical scientific instruments and lenses for smartphones. We have significant overweights in high-quality consumer companies that feature strong management teams and product innovation, among them Hengan International, a leading consumer paper company, and China Mengniu Dairy, in mainland China. South Korea s stock market rallied more than 40% despite the ongoing tensions with North Korea. Much of the gains came as technology names rose. Samsung Electronics was one of the fund s top contributors. Samsung s stock recovered during the period after weakness that followed the company s scrapping of its Galaxy Note 7 smartphone following numerous reports of the devices catching fire. We increased our position at that time, believing the problem was temporary and that strong trends from its semiconductor and components businesses would boost overall earnings. We trimmed Hyundai Motor because growth prospects dimmed, even for some if its new models. LG Household & Health Care sold off as sales growth slowed, particularly within duty-free shops. China clamped down on tourism to South Korea when the country installed a new missile defense system in response to North Korean missile testing. Even so, we believe this is one of the best-managed companies in South Korea. We expect its earnings will continue to grow, driven in large part by its cosmetic business, which we believe will continue to benefit from rising demand from Chinese consumers once geopolitical concerns are allayed. We believe that many of Taiwan s technology companies are innovative and adept at generating steady earnings growth and have demonstrated a willingness to use cash flows to boost dividends. We added to longtime holding Taiwan Semiconductor Manufacturing amid tailwinds from an increasing number of applications, including artificial intelligence. Also in Taiwan, we added to Largan Precision, which we believe can take advantage of growing demand for more sophisticated mobile phone camera lenses. We trimmed our exposure to India and reduced our position in Infosys, India s leading IT company, after the chief executive resigned. We also sold our position in Glenmark Pharmaceutical after disappointing earnings. We have an overweight to Indian financial companies, including mortgage company Housing Development Finance; ICICI Bank, India s largest private sector bank; and Axis Bank, a private bank that is benefiting from retail lending. Latin America In Brazil, lower interest rates helped bolster corporate balance sheets, and President Michel Temer, while weakened by the country s corruption scandal, began to implement reforms. Temer has managed to survive two corruption charges thanks to a congressional vote against pursuing the charges. He has not yet been able to get Brazil s Congress to approve the most important pension and social security reforms. Nonetheless, in the context of an improved macroeconomic outlook and more favorable global environment, markets seem to have looked past these challenges and rallied. Stock selection in Brazil was a primary contributor to our relative performance. Brazil has a highly consolidated and, generally, well-capitalized banking system. We favor the high-quality private banks, including Itau Unibanco and Banco Bradesco, which benefited from improving economic conditions, strong earnings, and efforts to improve asset quality. Brazil s long-term growth characteristics remain favorable for consumption-driven areas of the economy. We maintain a position in apparel retailer Lojas Renner, 2

5 which was able to gain market share even during difficult economic times thanks to its superior value proposition and improved merchandising. However, we trimmed our position following the company s strong performance. Drugstore retailer Raia Drogasil is another large position. It continues to expand its store base in what is a very fragmented market. Mexico s market rose less than 3% in U.S. dollar terms, far less than most other countries, amid intensifying concerns about the future of NAFTA. The weakening economy appeared to also boost political prospects of left-leaning populist presidential candidate and former Mexico City Mayor Andres Manuel Lopez Obrador (AMLO). We took a more cautious position in the country, where growth is slowing, and reduced our holdings in banking firm Grupo Financiero Santander Mexico as loan growth forecasts softened. Sector Diversification Percent of Net Assets 4/30/17 10/31/17 Information Technology 32.8% 36.6% Financials Consumer Staples Consumer Discretionary Industrials and Business Services Materials Health Care Utilities Real Estate Energy Telecommunication Services Other and Reserves Total 100.0% 100.0% Historical weightings reflect current industry/sector classifications. Europe, Middle East, and Africa (EMEA) In emerging Europe, Russian stocks rose almost 20% over the year in U.S. dollar terms. We have a large position in Sberbank of Russia, Russia s dominant bank, which was a solid contributor. We believe Sberbank is well run, has a solid management team, and has an efficient cost structure. It has gained market share in loans and deposits while maintaining a relatively strong capital position. Yet it remains one of the more attractively valued banks in the emerging markets universe and could benefit from the improving economy. Outlook We expect food retailer Magnit to grow over the next few years as it benefits from its focus on low-cost neighborhood stores in Russia where competition remains relatively low. However, as the company continued to struggle with its product and promotional mix, we reduced our position somewhat and bought X5 Retail Group, another leading food retailer, which has been a strong operator. We also purchased Mail.Ru, a Russian social media site that is just beginning to monetize its growing user base. In the Middle East and Africa, we have found attractive opportunities in consumer-focused sectors. In South Africa, stock selection weighed on relative returns. However, we own several well-run companies that are positioned to benefit from the fast-growing smaller markets in sub-saharan Africa. Leading food retailer Shoprite has delivered decent results, although currency headwinds in its African markets hindered returns. After meeting with the company s new chief executive, we remain confident in its growth prospects. We expect emerging markets growth will continue to outpace that of developed markets. While valuations are not as low as they were prior to the rally, they remain at a slight discount relative to their history and to their developed market peers. We expect to see a greater performance divergence among countries and among stocks. We will remain focused on quality companies that we believe can weather challenging economic environments and improve their positioning. Near-term risks include an escalation of tensions with North Korea, which could spark a wave of risk aversion. A shift toward protectionism in the U.S. could restrain global trade and investment flows, although we think that pragmatism will prevail. A worse-than-expected slowdown in China or a breakdown in its financial system could also weigh on growth, particularly within Asia. However, Chinese policymakers have the tools necessary to manage the country s slowdown, in our opinion. Similarly, we are encouraged by the growing number of reform governments in emerging markets, which should foster improved growth. We continue to believe that rigorous fundamental research, careful stock selection, and a disciplined investment approach will allow us to find and invest in high-quality companies with strong growth prospects 3

6 selling at attractive valuations. We are confident that our active investment strategy will deliver risk-aware returns for our shareholders over the long term. Thank you for investing with T. Rowe Price. Respectfully submitted, Gonzalo Pángaro Portfolio manager and chairman of the fund s Investment Advisory Committee November 22, 2017 The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund s investment program. 4

7 Risks of International Investing Funds that invest overseas generally carry more risk than funds that invest strictly in U.S. assets. Funds investing in a single country or in a limited geographic region tend to be riskier than more diversified funds. Risks can result from varying stages of economic and political development; differing regulatory environments, trading days, and accounting standards; and higher transaction costs of non-u.s. markets. Non-U.S. investments are also subject to currency risk, or a decline in the value of a foreign currency versus the U.S. dollar, which reduces the dollar value of securities denominated in that currency. Glossary Lipper averages: The averages of available mutual fund performance returns for specified time periods in categories defined by Lipper Inc. MSCI Emerging Markets Index: A capitalizationweighted index of stocks from 26 emerging markets but only includes securities that may be traded by foreign investors. 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. Portfolio Highlights Twenty-Five Largest Holdings Percent of Net Assets Company Country 10/31/17 Tencent Holdings China 7.2% Samsung Electronics South Korea 6.8 Alibaba Group Holding China 5.5 Taiwan Semiconductor Manufacturing Taiwan 5.2 Itau Unibanco Holding Brazil 3.5 Sberbank of Russia Russia 2.9 LG Household & Health Care South Korea 2.5 Largan Precision Taiwan 2.4 Lojas Renner Brazil 2.4 AIA Group Hong Kong 2.3 Baidu China 2.2 Raia Drogasil Brazil 2.2 Ping An Insurance China 2.0 CP ALL Thailand 1.8 Housing Development Finance India 1.6 Bank Central Asia Indonesia 1.4 Catcher Technology Taiwan 1.3 SM Investments Philippines 1.3 Hengan International Group China 1.3 NAVER South Korea 1.2 Wal-Mart de Mexico Mexico 1.2 FirstRand South Africa 1.1 Banco Santander Chile Chile 1.1 China Mengniu Dairy China 1.1 Shoprite Holdings South Africa 1.0 Total 62.5% 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. 5

8 Performance and Expenses T. Rowe Price Institutional Emerging Markets Equity Fund Growth of $1 Million This chart shows the value of a hypothetical $1 million 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 may include a broad-based market index and 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. Institutional Emerging Markets Equity Fund $1,400,000 1,200,000 1,000, , , ,000 Institutional Emerging Markets Equity Fund MSCI Emerging Markets Index As of 10/31/17 $1,050,653 $1,097,007 10/07 10/08 10/09 10/10 10/11 10/12 10/13 10/14 10/15 10/16 10/17 Average Annual Compound Total Return Periods Ended 10/31/17 1 Year 5 Years 10 Years Institutional Emerging Markets Equity Fund 28.06% 6.81% 0.50% 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 distributions or the redemption of shares. Past performance cannot guarantee future results. 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. Actual Expenses The first line of the following table (Actual) provides information about actual account values and actual expenses. 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. 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. Institutional Emerging Markets Equity Fund Expenses Beginning Ending Paid During Account Account Period* Value Value 5/1/17 to 5/1/17 10/31/17 10/31/17 Actual $1, $1, $6.03 Hypothetical (assumes 5% return before expenses) 1, , * Expenses are equal to the fund s annualized expense ratio for the 6-month period (1.10%), 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. 6

9 Quarter-End Returns Periods Ended 9/30/17 1 Year 5 Years 10 Years Institutional Emerging Markets Equity Fund 23.99% 6.32% 1.41% Current performance may be higher or lower than the quoted past performance, which cannot guarantee future results. 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 contact a T. Rowe Price representative at 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 quarterend 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. Expense Ratio Institutional Emerging Markets Equity Fund 1.10% The expense ratio shown is as of the fund s fiscal year ended 10/31/16. 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. 7

10 Financial Highlights T. Rowe Price Institutional Emerging Markets Equity Fund For a share outstanding throughout each period Year Ended 10/31/17 10/31/16 10/31/15 10/31/14 10/31/13 NET ASSET VALUE Beginning of period $ $ $ $ $ Investment activities Net investment income (1) Net realized and unrealized gain / loss (4.27) Total from investment activities (4.08) Distributions Net investment income (0.20) (0.18) (0.24) (0.25) (0.18) Net realized gain (0.04) (0.09) (0.01) Total distributions (0.24) (0.18) (0.33) (0.25) (0.19) NET ASSET VALUE End of period $ $ $ $ $ Ratios/Supplemental Data Total return (2) 28.06% 14.46% (12.89)% 4.30% 4.39% Ratio of total expenses to average net assets 1.10% 1.10% 1.10% 1.10% 1.10% Ratio of net investment income to average net assets 0.69% 0.70% 0.65% 0.71% 0.88% Portfolio turnover rate 19.7% 35.6% 21.1% 23.8% 36.4% Net assets, end of period (in millions) $ 1,603 $ 974 $ 997 $ 983 $ 1,095 (1) Per share amounts calculated using average shares outstanding method. (2) 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. 8

11 Portfolio of Investments T. Rowe Price Institutional Emerging Markets Equity Fund October 31, 2017 (Cost and value in $000s) Shares $ Value (Cost and value in $000s) Shares $ Value ARGENTINA 1.0% CHINA 24.9% Common Stocks 1.0% MercadoLibre (USD) 43,500 10,453 Tenaris, ADR (USD) 216,500 5,900 Total Argentina (Cost $13,882) 16,353 BELGIUM 0.4% Common Stocks 0.4% Anheuser-Busch InBev 51,935 6,368 Total Belgium (Cost $6,165) 6,368 BRAZIL 10.5% Common Stocks 6.0% BR Malls Participacoes 2,082,505 8,098 BRF (1) 491,598 6,660 Lojas Renner 3,648,434 38,455 Multiplan Empreendimentos 357,104 7,815 Raia Drogasil 1,450,883 34,914 95,942 Preferred Stocks 4.5% Banco Bradesco (2) 1,522,654 16,142 Itau Unibanco Holding (2) 4,305,162 55,550 71,692 Total Brazil (Cost $127,228) 167,634 CHILE 1.8% Common Stocks 1.8% Banco Santander Chile ADR (USD) 558,542 17,471 SACI Falabella 1,153,013 11,051 Total Chile (Cost $22,029) 28,522 Common Stocks 23.6% 58.com, ADR (USD)(1) 103,900 6,979 Alibaba Group Holding ADR (USD)(1) 475,084 87,838 Anhui Conch Cement H Shares (HKD) 2,757,500 11,812 Baidu, ADR (USD)(1) 145,900 35,591 China Longyuan Power H Shares (HKD) 7,124,000 5,283 China Mengniu Dairy (HKD) 6,110,000 16,932 CSPC Pharmaceutical (HKD) 6,610,000 11,500 Ctrip.com International ADR (USD)(1) 223,400 10,699 Hengan International Group (HKD) 2,105,500 20,763 Huaneng Renewables H Shares (HKD) 16,196,000 5,570 Ping An Insurance H Shares (HKD) 3,686,500 32,397 Sunny Optical Technology (HKD) 812,000 11,910 TAL Education, ADR (USD) 115,500 3,176 Tencent Holdings (HKD) 2,551, ,682 Tencent Holdings Rights, 11/19/17 (1) 2,031 Vipshop Holdings, ADR (USD) (1) 483,600 3, ,952 Common Stocks - China A shares 1.3% Anhui Conch Cement (3) 456,260 1,800 Hangzhou Hikvision Digital Technology (3) 1,300,162 7,712 Kweichow Moutai (3) 93,013 8,678 Kweichow Moutai (CNH) 19,871 1,854 20,044 Total China (Cost $232,440) 398,996 9

12 (Cost and value in $000s) COLOMBIA 0.4% Shares $ Value Common Stocks 0.4% Grupo Aval Acciones y Valores, ADR (USD) 649,397 5,403 Total Colombia (Cost $7,311) 5,403 HONG KONG 2.3% Common Stocks 2.3% AIA Group 4,931,800 37,164 Total Hong Kong (Cost $26,709) 37,164 HUNGARY 0.2% Common Stocks 0.2% OTP Bank 83,955 3,385 Total Hungary (Cost $3,386) 3,385 INDIA 8.1% Common Stocks 8.1% Axis Bank 1,853,522 15,043 HDFC Bank 379,849 10,631 Housing Development Finance 977,509 25,682 ICICI Bank 2,730,283 12,795 Infosys 710,067 10,112 Maruti Suzuki India 100,250 12,731 NTPC Limited 2,026,765 5,651 Power Grid Corporation of India 2,343,053 7,666 Tata Consultancy 147,366 5,961 Tata Motors (1) 1,811,968 11,999 Yes Bank 2,491,246 12,123 Total India (Cost $99,697) 130,394 INDONESIA 2.5% Common Stocks 2.5% Astra International 25,090,600 14,800 Bank Central Asia 14,337,300 22,086 (Cost and value in $000s) Shares $ Value Matahari Department Store 4,303,100 2,728 Total Indonesia (Cost $35,193) 39,614 MEXICO 2.3% Common Stocks 2.3% Fresnillo (GBP) 575,555 9,954 Grupo Aeroportuario del Sureste, ADR (USD) 16,400 2,932 Grupo Financiero Santander Mexico, Class B ADR (USD) 631,536 5,317 Wal-Mart de Mexico 8,457,010 18,933 Total Mexico (Cost $40,157) 37,136 PERU 1.0% Common Stocks 1.0% Credicorp (USD) 52,600 11,017 Southern Copper (USD) 99,000 4,252 Total Peru (Cost $13,305) 15,269 PHILIPPINES 2.9% Common Stocks 2.9% BDO Unibank 2,817,937 7,509 GT Capital Holdings 256,735 5,874 SM Investments 1,126,787 20,868 Universal Robina 4,264,580 11,803 Total Philippines (Cost $38,977) 46,054 RUSSIA 5.1% Common Stocks 5.1% Magnit, GDR (USD) 500,064 14,152 Mail.Ru, GDR (USD)(1) 220,406 7,162 Sberbank of Russia, ADR (USD) 3,265,512 46,867 X5 Retail Group, GDR (USD)(1) 148,011 6,084 10

13 (Cost and value in $000s) Shares $ Value Yandex, Class A (USD)(1) 212,600 7,192 Total Russia (Cost $69,795) 81,457 SOUTH AFRICA 6.0% Common Stocks 6.0% Aspen Pharmacare Holdings 570,608 12,893 Bid 300,109 6,599 Clicks Group 535,520 5,998 FirstRand 4,858,461 17,635 Mr Price 595,520 7,381 Naspers, N Shares 60,115 14,646 Sanlam 2,433,573 12,181 Shoprite Holdings 1,148,956 16,448 Woolworths Holdings 741,307 2,957 Total South Africa (Cost $102,390) 96,738 SOUTH KOREA 11.0% Common Stocks 10.0% AmorePacific 61,231 7,852 LG Household & Health Care 38,871 40,853 NAVER 23,814 19,034 Samsung Electronics 37,871 93, ,095 Preferred Stocks 1.0% Samsung Electronics (2) 7,806 15,634 15,634 Total South Korea (Cost $96,588) 176,729 TAIWAN 11.0% (Cost and value in $000s) Shares $ Value Taiwan Semiconductor Manufacturing 10,404,219 84,111 Uni-President Enterprises 5,218,470 10,903 Total Taiwan (Cost $125,347) 176,816 THAILAND 2.5% Common Stocks 2.5% Airports of Thailand 6,369,500 11,408 CP ALL 13,631,800 28,725 Total Thailand (Cost $29,120) 40,133 TURKEY 0.9% Common Stocks 0.9% BIM Birlesik Magazalar 734,449 14,988 Total Turkey (Cost $12,190) 14,988 UNITED ARAB EMIRATES 1.8% Common Stocks 1.8% DP World (USD) 358,609 8,513 Emaar Malls 7,150,134 4,488 National Bank of Abu Dhabi 5,665,606 15,952 Total United Arab Emirates (Cost $28,359) 28,953 SHORT-TERM INVESTMENTS 3.9% Money Market Funds 3.9% T. Rowe Price Government Reserve Fund, 1.09% (4)(5) 62,852,991 62,853 Total Short-Term Investments (Cost $62,853) 62,853 Common Stocks 11.0% Catcher Technology 2,015,000 21,445 Delta Electronics 868,731 4,180 Largan Precision 207,000 39,239 President Chain Store 1,422,000 12,787 Quanta Computer 1,762,000 4,151 11

14 $ Value (Cost and value in $000s) Total Investments in Securities 100.5% of Net Assets (Cost $1,193,121) $ 1,610,959 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) Non-income producing (2) Preferred stocks are shares that carry certain preferential rights. The dividend rate may not be consistent each pay period and could be zero for a particular year. (3) China A shares held through the QFII are subject to certain restrictions. See Note 3. (4) Seven-day yield (5) Affiliated Company ADR American Depositary Receipts CNH Offshore China Renminbi GBP British Pound GDR Global Depositary Receipts HKD Hong Kong Dollar USD U.S. Dollar 12

15 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 T. Rowe Price Government Reserve Fund $ $ $ 351 Totals $ # $ $ 351+ Supplementary Investment Schedule Affiliate Value 10/31/16 Purchase Cost Sales Cost Value 10/31/17 T. Rowe Price Government Reserve Fund $ 19,475 62,853 $ 62,853^ # Capital gain/loss distributions from mutual funds represented $0 of the net realized gain(loss). + Investment income comprised $351 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 $62,853. The accompanying notes are an integral part of these financial statements. 13

16 Statement of Assets and Liabilities T. Rowe Price Institutional Emerging Markets Equity Fund October 31, 2017 ($000s, except shares and per share amounts) Assets Investments in securities, at value (cost $1,193,121) $ 1,610,959 Receivable for investment securities sold 2,258 Foreign currency (cost $1,492) 1,470 Dividends receivable 1,284 Receivable for shares sold 1,226 Cash 25 Other assets 1,641 Total assets 1,618,863 Liabilities Payable for investment securities purchased 6,717 Payable for shares redeemed 6,477 Investment management and administrative fees payable 1,678 Other liabilities 544 Total liabilities 15,416 NET ASSETS $ 1,603,447 Net Assets Consist of: Undistributed net investment income $ 8,041 Accumulated undistributed net realized loss (16,345) Net unrealized gain 417,807 Paid-in capital applicable to 40,613,803 shares of $0.01 par value capital stock outstanding; 1,000,000,000 shares of the Corporation authorized 1,193,944 NET ASSETS $ 1,603,447 NET ASSET VALUE PER SHARE $ The accompanying notes are an integral part of these financial statements. 14

17 Statement of Operations T. Rowe Price Institutional Emerging Markets Equity Fund ($000s) Investment Income (Loss) Year Ended 10/31/17 Income Dividend (net of foreign taxes of $3,049) $ 22,344 Interest 8 Total income 22,352 Investment management and administrative expense 13,757 Net investment income 8,595 Realized and Unrealized Gain / Loss Net realized gain (loss) Securities 35,487 Foreign currency transactions (127) Net realized gain 35,360 Change in net unrealized gain / loss Securities 290,086 Other assets and liabilities denominated in foreign currencies (4) Change in net unrealized gain / loss 290,082 Net realized and unrealized gain / loss 325,442 INCREASE IN NET ASSETS FROM OPERATIONS $ 334,037 The accompanying notes are an integral part of these financial statements. 15

18 Statement of Changes in Net Assets T. Rowe Price Institutional Emerging Markets Equity Fund ($000s) Year Ended 10/31/17 10/31/16 Increase (Decrease) in Net Assets Operations Net investment income $ 8,595 $ 6,638 Net realized gain 35, ,879 Change in net unrealized gain / loss 290,082 22,881 Increase in net assets from operations 334, ,398 Distributions to shareholders Net investment income (6,413) (6,569) Net realized gain (1,283) Decrease in net assets from distributions (7,696) (6,569) Capital share transactions* Shares sold 478, ,976 Distributions reinvested 5,084 4,729 Shares redeemed (180,472) (474,981) Redemption fees received Increase (decrease) in net assets from capital share transactions 303,229 (148,044) Net Assets Increase (decrease) during period 629,570 (23,215) Beginning of period 973, ,092 End of period $ 1,603,447 $ 973,877 Undistributed net investment income 8,041 5,946 *Share information Shares sold 14,533 11,900 Distributions reinvested Shares redeemed (5,418) (17,217) Increase (decrease) in shares outstanding 9,293 (5,136) The accompanying notes are an integral part of these financial statements. 16

19 Notes to Financial Statements T. Rowe Price Institutional Emerging Markets Equity Fund October 31, 2017 T. Rowe Price Institutional International Funds, Inc. (the corporation), is registered under the Investment Company Act of 1940 (the 1940 Act). The Institutional Emerging Markets Equity Fund (the fund) is a diversified, 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 emerging markets. 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. 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. Income tax-related interest and penalties, if incurred, are recorded as income tax expense. Income distributions are declared declared and paid annually. Distributions to shareholders are recorded on the ex-dividend date. A capital gain distribution may also be declared and paid by the fund annually. 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 portion of the results of operations attributable to changes in foreign exchange rates on investments is not bifurcated from the portion attributable to changes in market prices. The effect of changes in foreign currency exchange rates on realized and unrealized security gains and losses is reflected as a component of security gains and losses. 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. In-Kind Redemptions In accordance with guidelines described in the fund s prospectus, and when considered to be in the best interest of all shareholders, the fund may distribute portfolio securities rather than cash as payment for a redemption of fund shares (in-kind redemption). Gains and losses realized on in-kind redemptions are not recognized for tax purposes and are reclassified from undistributed realized gain (loss) to paid-in capital. During the year ended October 31, 2017, the fund realized $4,130,000 of net gain on $9,944,000 of in-kind redemptions. 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. On August 1, 2017, the fund implemented amendments to Regulation S-X, issued by the Securities and Exchange Commission, which require standardized, enhanced disclosures, particularly related to derivatives, in investment company financial statements. Adoption had 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. 17

20 Note 2 - VALUATION The fund s financial instruments are valued and its 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. 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. 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. 18

21 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 shortterm receivables and payables, are carried at cost, or estimated realizable value, if less, which approximates fair value. Thinly traded financial instruments and those for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by the Valuation Committee. The objective of any fair value pricing determination is to arrive at a price that could reasonably be expected from a current sale. Financial instruments fair valued by the Valuation Committee are primarily private placements, restricted securities, warrants, rights, and other securities that are not publicly traded. Subject to oversight by the Board, the Valuation Committee regularly makes good faith judgments to establish and adjust the fair valuations of certain securities as events occur and circumstances warrant. For instance, in determining the fair value of an equity investment with limited market activity, such as a private placement or a thinly traded public company stock, the Valuation Committee considers a variety of factors, which may include, but are not limited to, the issuer s business prospects, its financial standing and performance, recent investment transactions in the issuer, new rounds of financing, negotiated transactions of significant size between other investors in the company, relevant market valuations of peer companies, strategic events affecting the company, market liquidity for the issuer, and general economic conditions and events. In consultation with the investment and pricing teams, the Valuation Committee will determine an appropriate valuation technique based on available information, which may include both observable and unobservable inputs. The Valuation Committee typically will afford greatest weight to actual prices in arm s length transactions, to the extent they represent orderly transactions between market participants, transaction information can be reliably obtained, and prices are deemed representative of fair value. However, the Valuation Committee may also consider other valuation methods such as market-based valuation multiples; a discount or premium from market value of a similar, freely traded security of the same issuer; or some combination. Fair value determinations are reviewed on a regular basis and updated as information becomes available, including actual purchase and sale transactions of the issue. Because any fair value determination involves a significant amount of judgment, there is a degree of subjectivity inherent in such pricing decisions, and fair value prices determined by the Valuation Committee could differ from those of other market participants. Depending on the relative significance of unobservable inputs, including the valuation technique(s) used, fair valued securities may be categorized in Level 2 or 3 of the fair value hierarchy. 19

22 Valuation Inputs The following table summarizes the fund s financial instruments, based on the inputs used to determine their fair values on October 31, 2017: ($000s) Level 1 Level 2 Level 3 Total Value Significant Significant Quoted Observable Unobservable Prices Inputs Inputs Investments in Securities, except: $ $ 964,970 $ $ 964,970 Argentina 16,353 16,353 Chile 17,471 11,051 28,522 China 148, , ,996 Colombia 5,403 5,403 Mexico 8,249 28,887 37,136 Peru 15,269 15,269 Russia 7,192 74,265 81,457 Short-Term Investments 62,853 62,853 Total $ 280,893 $ 1,330,066 $ $ 1,610,959 There were no material transfers between Levels 1 and 2 during the year ended October 31, Note 3 - OTHER Investment Transactions Consistent with its investment objective, the fund engages in the following practices to manage exposure to certain risks and/or to enhance performance. The investment objective, policies, program, and risk factors of the fund are described more fully in the fund s prospectus and Statement of Additional Information. Emerging and Frontier Markets The fund may invest, either directly or through investments in T. Rowe Price institutional funds, in securities of companies located in, issued by governments of, or denominated in or linked to the currencies of emerging and frontier market countries; at period-end, approximately 93% of the fund s net assets were invested in emerging markets and 1% in frontier markets. Emerging markets, and to a greater extend frontier markets, generally have economic structures that are less diverse and mature, and political systems that are less stable, than developed countries. These markets may be subject to greater political, economic, and social uncertainty and differing regulatory environments that may potentially impact the fund s ability to buy or sell certain securities or repatriate proceeds to U.S. dollars. Such securities are often subject to greater price volatility, less liquidity, and higher rates of inflation than U.S. securities. Investing in frontier markets is significantly riskier than investing in other countries, including emerging markets. China A Shares The fund invests in certain Chinese equity securities (A shares) that have limited availability to investors outside of China. The fund gains access to the A share market through the Shanghai-Hong Kong Stock Connect program (Shanghai Stock Connect), through the Shenzhen-Hong Kong Stock Connect program (Shenzhen Stock Connect), or through a wholly owned subsidiary of Price Associates, which serves as the registered Qualified Foreign Institutional Investor (QFII) for all participating T. Rowe Price-sponsored products (each a participating account). Related to A shares held through the QFII, investment decisions are specific to each participating account, and each account bears the economic consequences of its holdings and transactions in A shares. Further, the fund s ability to repatriate cash associated with its A shares held through the QFII is subject to certain restrictions and administrative processes involving the Chinese government; consequently, the fund may experience substantial delays in gaining access to its assets or incur a loss of value in the event of noncompliance with governmental requirements. A shares acquired through the QFII are valued using the onshore renminbi exchange rate (CNY), and those acquired through the Shanghai Stock Connect and the Shenzhen Stock Connect are valued using the offshore renminbi exchange rate (CNH). CNY and CNH exchange rates may differ; accordingly, A shares of the same issue purchased through different channels may not have the same U.S. dollar value. Generally, the fund is not subject to capital gains tax related to its A share investments. 20