0001193125-13-005151.txt : 20130107 0001193125-13-005151.hdr.sgml : 20130107 20130107151203 ACCESSION NUMBER: 0001193125-13-005151 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 20121031 FILED AS OF DATE: 20130107 DATE AS OF CHANGE: 20130107 EFFECTIVENESS DATE: 20130107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARDING LOEVNER FUNDS INC CENTRAL INDEX KEY: 0001018170 IRS NUMBER: 000000000 FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-07739 FILM NUMBER: 13515022 BUSINESS ADDRESS: STREET 1: 50 DIVISION STREET STREET 2: SUITE 401 CITY: SOMERVILLE STATE: NJ ZIP: 08876 BUSINESS PHONE: 8774358105 MAIL ADDRESS: STREET 1: 50 SOUTH LASALLE STREET CITY: CHICAGO STATE: IL ZIP: 60603 FORMER COMPANY: FORMER CONFORMED NAME: HLM FUNDS INC/ FA DATE OF NAME CHANGE: 19960705 0001018170 S000004199 Harding Loevner International Equity Portfolio C000011817 Institutional HLMIX C000011818 Investor HLMNX 0001018170 S000004200 Harding Loevner Global Equity Portfolio C000011819 Advisor HLMGX C000079785 Institutional HLMVX 0001018170 S000004201 Harding Loevner Emerging Markets Portfolio C000011821 Advisor HLEMX C000109480 Investor 0001018170 S000004202 Harding Loevner Institutional Emerging Markets Portfolio C000011822 Institutional HLMEX 0001018170 S000016295 Harding Loevner International Small Companies Portfolio C000045116 INSTITUTIONAL HLMRX C000045117 INVESTOR HLMSX 0001018170 S000022393 Harding Loevner Frontier Emerging Markets Portfolio C000064415 Institutional HLFMX C000064416 Investor HLMOX N-CSR 1 d440902dncsr.htm HARDING LOEVNER FUNDS Harding Loevner Funds
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number            811-07739                                       

                                         Harding, Loevner Funds, Inc.                                        

(Exact name of registrant as specified in charter)

400 Crossing Boulevard

Fourth Floor

                  Bridgewater, NJ 08807                  

(Address of principal executive offices) (Zip code)

Owen T. Meacham

The Northern Trust Company

50 South LaSalle Street

Chicago, IL 60603

With a copy to:

Stephen H. Bier, Esq.

Dechert LLP

1095 Avenue of the Americas

                  New York, NY 10036                  

(Name and address of agent for service)

Registrant’s telephone number, including area code: (877) 435-8105

Date of fiscal year end: 10/31

Date of reporting period: 10/31/2012


Table of Contents

Item 1. Reports to Stockholders.


Table of Contents

LOGO


Table of Contents

Harding, Loevner Funds, Inc.

 

Table of Contents

 

 

Expense Example

     2   

Performance Information and Statements of Net Assets

  

Global Equity Portfolio

     3   

International Equity Portfolio

     11   

International Small Companies Portfolio

     19   

Institutional Emerging Markets Portfolio

     28   

Emerging Markets Portfolio

     37   

Frontier Emerging Markets Portfolio

     46   

Statements of Operations

     56   

Statements of Changes in Net Assets

     59   

Financial Highlights

     65   

Notes to Financial Statements

     71   

Report of Independent Registered Public Accounting Firm

     81   

Supplemental Tax Information

     82   

Approval of Investment Advisory Agreement

     83   

Privacy Notice

     89   

Directors and Principal Officers

     90   

Supplemental Information

     95   

For use only when proceeded or accompanied by a prospectus. Read the prospectus carefully before you invest or send money.


Table of Contents

Harding, Loevner Funds, Inc.

 

Expense Example

October 31, 2012 (unaudited)

 

 

As a shareholder of a Harding Loevner Portfolio, you incur ongoing costs, including management fees; to the extent applicable, distribution (12b-1) fees, and/or shareholder services fees and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Portfolio 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 on May 1, 2012 and held for the entire six month period from May 1, 2012 to October 31, 2012.

Actual Expenses

The first line under each Portfolio in the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, 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 in the first line for your Portfolio under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line under each Portfolio in the table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio’s actual return. 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 may use this information to compare the ongoing costs of investing in your Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only. Therefore, the second line under each Portfolio in the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

 

                              
Portfolio   Beginning
Account Value
May 1, 2012
    Ending Account
Value
October 31, 2012
    Annual Expense
Ratio
    Expenses Paid
During Period*
(May 1, 2012 to
October 31,  2012)
 

Global Equity Portfolio—Institutional Class

         

Actual

  $ 1,000.00      $ 983.90        0.95   $ 4.74   

Hypothetical (5% annual return before expenses)

    1,000.00        1,020.36        0.95     4.82   

Global Equity Portfolio—Advisor Class

         

Actual

    1,000.00        982.30        1.25     6.23   

Hypothetical (5% annual return before expenses)

    1,000.00        1,018.85        1.25     6.34   

International Equity Portfolio—Institutional Class

         

Actual

    1,000.00        1,027.10        0.89     4.53   

Hypothetical (5% annual return before expenses)

    1,000.00        1,020.66        0.89     4.52   

International Equity Portfolio—Investor Class

         

Actual

    1,000.00        1,025.10        1.23     6.26   

Hypothetical (5% annual return before expenses)

    1,000.00        1,018.95        1.23     6.24   

International Small Companies Portfolio—Institutional Class

         

Actual

    1,000.00        998.30        1.50     7.53   

Hypothetical (5% annual return before expenses)

    1,000.00        1,017.60        1.50     7.61   

International Small Companies Portfolio—Investor Class

         

Actual

    1,000.00        996.50        1.75     8.78   

Hypothetical (5% annual return before expenses)

    1,000.00        1,016.34        1.75     8.87   

Institutional Emerging Markets Portfolio

         

Actual

    1,000.00        1,022.90        1.30     6.61   

Hypothetical (5% annual return before expenses)

    1,000.00        1,018.60        1.30     6.60   

Emerging Markets Portfolio—Advisor Class

         

Actual

    1,000.00        1,023.40        1.46     7.43   

Hypothetical (5% annual return before expenses)

    1,000.00        1,017.80        1.46     7.41   

Frontier Emerging Markets Portfolio—Institutional Class

         

Actual

    1,000.00        1,040.90        1.97     10.11   

Hypothetical (5% annual return before expenses)

    1,000.00        1,015.23        1.97     9.98   

Frontier Emerging Markets Portfolio—Investor Class

         

Actual

    1,000.00        1,038.10        2.25     11.53   

Hypothetical (5% annual return before expenses)

    1,000.00        1,013.83        2.25     11.39   

* Expenses are calculated using each Portfolio’s annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by the number of days in the period (184 days), and divided by the number of days in the year (366 days).

 

2


Table of Contents

Harding, Loevner Funds, Inc.

 

Global Equity Portfolio (Institutional Class) — Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc. -

Global Equity Portfolio - Institutional Class And The MSCI All Country World Index

(Net Dividends Reinvested)

 

LOGO

 

                 
     Returns for the Year Ended October  31, 2012
     Cumulative Total
Returns
  Average Annualized
Total Return
FUND NAME   Last 12 Months   Inception   Inception

Global Equity Portfolio—
Institutional Class (Inception date 11/03/09)

  8.73%   25.80%   7.97%

MSCI All Country World Index (Net Dividends)

  8.55%   24.12%   7.49%
             

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

3


Table of Contents

Harding, Loevner Funds, Inc.

 

Global Equity Portfolio (Advisor Class) — Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc. -

Global Equity Portfolio - Advisor Class And The MSCI All Country World Index

(Net Dividends Reinvested)

 

LOGO

 

                           
     Returns for the Year Ended October 31, 2012
     Cumulative Total Returns   Average Annualized
Total Return
FUND NAME   Last 12 Months   5 YR   10 YR   5 YR   10 YR

Global Equity Portfolio—
Advisor Class (Inception date 12/01/96)

  8.43%   -0.77%   133.89%   -0.15%   8.87%

MSCI All Country World Index (Net Dividends)

  8.55%   -13.93%   111.27%   -2.96%   7.77%
                     

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

4


Table of Contents

Harding, Loevner Funds, Inc.

 

Global Equity Portfolio - Overview

(unaudited)

October 31, 2012

 

 

The Global Equity Portfolio (the “Portfolio”) Investor Class gained 8.43% and the Institutional Class gained 8.73% (after all fees and expenses) for the fiscal year ended October 31, 2012. In comparison, the Portfolio’s benchmark, the MSCI All Country World Index (the “Index”) rose 8.55%, net of source taxes.

Consistent with its investment objectives and policies, the Portfolio was invested in the securities of global companies that exhibit the fundamental characteristics of durable growth, financial strength, management quality, and sustainable competitive advantage.

The Portfolio performance differed little from that of the Index in the fiscal year. Our stock selection in the Materials sector contributed most to performance. Seed maker Monsanto outperformed with double-digit year-over-year growth in sales and operating profits driven by strong sales in corn and bean seeds. The Consumer Discretionary sector detracted most from performance with Chinese footwear manufacturer Anta Sports Products underperforming as weak demand led to inventory buildups resulting in discounting and reduced profitability.

From a geographic perspective, the Portfolio benefited from positive stock selection in Japan and the European Monetary Union (EMU). In Japan, diaper maker Unicharm outperformed as the company continued to realize strong sales growth in China with consumers trading up from cloth to disposable diapers. In Europe, the Portfolio benefited from Spanish fast retailer Inditex, which grew profits by expanding out of its slowing domestic market into Asia and the Americas. The biggest detractor from performance was our stock selection in the United States. Data integration provider Informatica underperformed as weak European sales overwhelmed modest US and Asian operational improvements.

Past performance does not guarantee future results.

Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Please see the Statement of Net Assets for a complete list of fund holdings.

The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks and differences in accounting methods. It also invests in emerging markets, which involve unique risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investment by the Portfolio in lower rated and non-rated securities presents a greater risk of loss to principal and interest than higher-rated securities.

The MSCI All Country World Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets. The Index consists of 45 developed and emerging market countries. The Index is net of foreign withholding taxes on dividends. You cannot invest directly in this Index.

 

5


Table of Contents

Harding, Loevner Funds, Inc.

 

Global Equity Portfolio

Statement of Net Assets

October 31, 2012

 

 

Industry    Percentage of
Net Assets

Automobiles & Components

       1.0 %

Banks

       12.9  

Capital Goods

       5.7  

Consumer Durables & Apparel

       5.9  

Consumer Services

       1.0  

Diversified Financials

       3.0  

Energy

       6.1  

Food, Beverage & Tobacco

       5.1  

Health Care Equipment & Services

       4.6  

Household & Personal Products

       6.8  

Insurance

       1.0  

Materials

       6.3  

Media

       1.2  

Mutual Funds

       2.5  

Pharmaceuticals, Biotechnology & Life Sciences

       4.1  

Retailing

       4.0  

Semiconductors & Semiconductor Equipment

       1.3  

Software & Services

       15.6  

Technology Hardware & Equipment

       6.7  

Telecommunication Services

       2.8  

Transportation

       1.9  
    

 

 

 

Total Investments

       99.5  

Other Assets Less Liabilities

       0.5  
    

 

 

 

Net Assets

       100.0 %
    

 

 

 

See Notes to Financial Statements

 

6


Table of Contents

Harding, Loevner Funds, Inc.

 

Global Equity Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Common Stocks - 97.0%

     

Australia - 1.4%

     

Cochlear Ltd. (Health Care Equipment & Services)†

     55,778       $ 4,116,115   
     

 

 

 

China - 2.2%

     

Anta Sports Products Ltd. (Consumer Durables & Apparel)†

     1,388,000         1,180,236   

China Merchants Holdings International Co., Ltd. (Transportation)†

     819,441         2,713,081   

Shandong Weigao Group Medical Polymer Co., Ltd., Class H (Health Care Equipment & Services)†

     2,042,000         2,755,393   
     

 

 

 
        6,648,710   
     

 

 

 

France - 4.5%

     

Air Liquide SA (Materials)†

     36,380         4,294,664   

Dassault Systemes SA (Software & Services)†

     56,650         5,970,215   

L’Oreal SA (Household & Personal Products)†

     23,210         2,962,320   
     

 

 

 
        13,227,199   
     

 

 

 

Germany - 1.1%

     

Qiagen NV (Nasdaq Exchange) (Pharmaceuticals, Biotechnology & Life Sciences)*

     192,000         3,350,400   
     

 

 

 

Hong Kong - 0.9%

     

AIA Group Ltd. (Insurance)†

     703,100         2,781,398   
     

 

 

 

India - 2.5%

     

HDFC Bank Ltd. - ADR (Banks)

     96,000         3,589,440   

ICICI Bank Ltd. - Sponsored ADR (Banks)

     94,000         3,689,500   
     

 

 

 
        7,278,940   
     

 

 

 

Indonesia - 1.0%

     

Bank Central Asia Tbk PT (Banks)†

     3,483,500         2,973,598   
     

 

 

 

Japan - 9.3%

     

ABC-Mart Inc. (Retailing)†

     91,800         4,026,235   

FANUC Corp. (Capital Goods)†

     44,100         7,071,818   

Keyence Corp. (Technology Hardware & Equipment)†

     13,696         3,629,060   

M3 Inc. (Health Care Equipment & Services)†

     1,920         3,685,403   

Unicharm Corp. (Household & Personal Products)†

     165,000         8,930,311   
     

 

 

 
        27,342,827   
     

 

 

 

Mexico - 3.0%

     

America Movil SAB de CV, Series L - ADR (Telecommunication Services)

     230,500         5,829,345   

Coca-Cola Femsa SAB de CV - Sponsored ADR (Food, Beverage & Tobacco)

     23,000         2,941,930   
     

 

 

 
        8,771,275   
     

 

 

 

Russia - 0.8%

     

Gazprom OAO - Sponsored ADR (Energy)†

     244,200         2,240,705   
     

 

 

 

See Notes to Financial Statements

 

7


Table of Contents

Harding, Loevner Funds, Inc.

 

Global Equity Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

South Africa - 1.3%

     

Sasol Ltd. (Energy)†

     91,400       $ 3,896,073   
     

 

 

 

Spain - 1.1%

     

Inditex SA (Retailing)†

     26,600         3,391,740   
     

 

 

 

Sweden - 0.8%

     

Millicom International Cellular SA - SDR (Telecommunication Services)†

     28,775         2,485,752   
     

 

 

 

Switzerland - 6.9%

     

Kuehne & Nagel International AG, Reg S (Transportation)†

     25,200         2,945,960   

Lonza Group AG, Reg S (Pharmaceuticals, Biotechnology & Life Sciences)†

     49,300         2,499,260   

Nestle SA - Sponsored ADR, Reg S (Food, Beverage & Tobacco)

     134,800         8,538,232   

Sonova Holding AG, Reg S (Health Care Equipment & Services)†

     30,980         3,117,468   

Swatch Group AG, Bearer (Consumer Durables & Apparel)†

     7,730         3,208,355   
     

 

 

 
        20,309,275   
     

 

 

 

Turkey - 1.5%

     

Turkiye Garanti Bankasi A/S - ADR (Banks)

     912,200         4,378,560   
     

 

 

 

United Kingdom - 5.8%

     

ARM Holdings plc - Sponsored ADR (Semiconductors & Semiconductor Equipment)

     119,400         3,862,590   

Shire plc (Pharmaceuticals, Biotechnology & Life Sciences)†

     105,600         2,969,749   

Standard Chartered plc (Banks)†

     284,700         6,753,578   

WPP plc (Media)†

     263,470         3,409,565   
     

 

 

 
        16,995,482   
     

 

 

 

United States - 52.9%

     

3M Co. (Capital Goods)

     35,500         3,109,800   

Abbott Laboratories (Pharmaceuticals, Biotechnology & Life Sciences)

     50,200         3,289,104   

Amazon.com Inc. (Retailing)*

     18,300         4,260,606   

Apple Inc. (Technology Hardware & Equipment)

     10,100         6,010,510   

BorgWarner Inc. (Automobiles & Components)*

     44,000         2,896,080   

Bunge Ltd. (Food, Beverage & Tobacco)

     51,700         3,672,251   

Citrix Systems Inc. (Software & Services)*

     79,000         4,882,990   

Coach Inc. (Consumer Durables & Apparel)

     92,300         5,173,415   

Cognizant Technology Solutions Corp., Class A (Software & Services)*

     43,200         2,879,280   

Colgate-Palmolive Co. (Household & Personal Products)

     50,300         5,279,488   

eBay Inc. (Software & Services)*

     221,000         10,672,090   

EMC Corp. (Technology Hardware & Equipment)*

     136,100         3,323,562   

Emerson Electric Co. (Capital Goods)

     136,400         6,605,852   

Exxon Mobil Corp. (Energy)

     48,100         4,385,277   

F5 Networks Inc. (Technology Hardware & Equipment)*

     45,700         3,769,336   

First Republic Bank (Banks)

     95,000         3,263,250   

Google Inc., Class A (Software & Services)*

     7,900         5,370,183   

Informatica Corp. (Software & Services)*

     99,736         2,706,835   

JPMorgan Chase & Co. (Diversified Financials)

     133,100         5,547,608   

See Notes to Financial Statements

 

8


Table of Contents

Harding, Loevner Funds, Inc.

 

Global Equity Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

United States - 52.9% - (continued)

     

Lazard Ltd., Class A (Diversified Financials)

     107,700       $ 3,172,842   

McDonald’s Corp. (Consumer Services)

     34,500         2,994,600   

Microsoft Corp. (Software & Services)

     289,400         8,258,029   

Monsanto Co. (Materials)

     52,400         4,510,068   

NIKE Inc., Class B (Consumer Durables & Apparel)

     53,700         4,907,106   

Praxair Inc. (Materials)

     35,500         3,770,455   

Procter & Gamble Co. (Household & Personal Products)

     42,500         2,942,700   

Ralph Lauren Corp. (Consumer Durables & Apparel)

     19,300         2,966,217   

Schlumberger Ltd. (Energy)

     108,900         7,571,817   

Sigma-Aldrich Corp. (Materials)

     86,600         6,074,124   

SVB Financial Group (Banks)*

     48,100         2,721,979   

Teradata Corp. (Software & Services)*

     77,200         5,273,532   

Trimble Navigation Ltd. (Technology Hardware & Equipment)*

     66,600         3,142,188   

Wells Fargo & Co. (Banks)

     315,900         10,642,671   
     

 

 

 
        156,045,845   
     

 

 

 

Total Common Stocks (Cost $240,846,535)

        286,233,894   
     

 

 

 

Cash Equivalent - 2.5%

     

Northern Institutional Funds -
Prime Obligations Portfolio, 0.12% (Mutual Funds)

     7,467,446         7,467,446   
     

 

 

 

Total Cash Equivalent (Cost $7,467,446)

        7,467,446   
     

 

 

 

Total Investments — 99.5%

(Cost $ 248,313,981)

      $ 293,701,340   
     

 

 

 

Summary of Abbreviations

 

ADR American Depository Receipt
SDR Swedish Depository Receipt
Reg S Security sold outside United States without registration under the Securities Act of 1933.
* Non-income producing security.
Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements.

See Notes to Financial Statements

 

9


Table of Contents

Harding, Loevner Funds, Inc.

 

Global Equity Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Value  

Other Assets, Net of Liabilities - 0.5%

  

Dividends and interest receivable

   $ 263,761   

Foreign currency (cost $2,660)

     3,087   

Receivable for Fund shares sold

     5,943,242   

Tax reclaim receivable

     154,331   

Prepaid expenses

     50,040   

Payable to Investment Adviser

     (236,469

Payable for investments purchased

     (4,357,380

Payable for Fund shares redeemed

     (170,989

Other liabilities

     (112,766
  

 

 

 
     1,536,857   
  

 

 

 

Net Assets - 100%

  

Institutional Class

  

Applicable to 9,041,108 outstanding $.001 par value shares (authorized 200,000,000 shares)

   $ 226,489,365   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 25.05   
  

 

 

 

Advisor Class

  

Applicable to 2,748,242 outstanding $.001 par value shares (authorized 200,000,000 shares)

   $ 68,748,832   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 25.02   
  

 

 

 

Components of Net Assets as of October 31, 2012 were as follows:

  

Paid-in capital

   $ 251,196,445   

Accumulated undistributed net investment income

     1,540,991   

Accumulated net realized loss from investment transactions

     (2,887,087

Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies

     45,387,848   
  

 

 

 
   $ 295,238,197   
  

 

 

 

See Notes to Financial Statements

 

10


Table of Contents

Harding, Loevner Funds, Inc.

 

International Equity Portfolio (Institutional Class) — Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc. -

International Equity Portfolio - Institutional Class And The MSCI All Country World ex-US Index

(Net Dividends Reinvested)

 

LOGO

 

       
     Returns for the Year Ended October  31, 2012
     Cumulative Total Returns   Average Annualized
Total Return
FUND NAME   Last 12 Months   5 YR   10 YR   5 YR   10 YR

International Equity Portfolio—
Institutional Class (Inception date 05/11/94)

  9.00%   -1.29%   145.95%   -0.26%   9.42%

MSCI All Country World ex-US Index (Net dividends)

  3.98%   -22.92%   143.74%   -5.07%   9.32%
                     

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

11


Table of Contents

Harding, Loevner Funds, Inc.

 

International Equity Portfolio (Investor Class) — Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc. -

International Equity Portfolio - Investor Class And The MSCI All Country World ex-US Index

(Net Dividends Reinvested)

 

LOGO

 

       
     Returns for the Year Ended October 31, 2012
     Cumulative Total Returns   Average Annualized
Total Return
FUND NAME   Last 12 Months   5 YR   Inception   5 YR   Inception

International Equity Portfolio—
Investor Class (Inception date 09/30/05)

  8.51%   -2.74%   45.78%   -0.55%   5.46%

MSCI All Country World ex-US Index (Net dividends)

  3.98%   -22.92%   26.69%   -5.07%   3.39%
                     

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

12


Table of Contents

Harding, Loevner Funds, Inc.

 

International Equity Portfolio - Overview

(unaudited)

October 31, 2012

 

 

The International Equity Portfolio (the “Portfolio”) Investor Class gained 8.51% and the Institutional Class gained 9.00% (after all fees and expenses) for the fiscal year ended October 31, 2012. In comparison, the Portfolio’s benchmark, the MSCI All Country World ex-US Index (the “Index”) rose 3.98%, net of source taxes.

Consistent with its investment objectives and policies, the Portfolio was invested in the securities of non-US companies that exhibit the fundamental characteristics of durable growth, financial strength, management quality, and sustainable competitive advantage.

The Portfolio outperformed the Index in the fiscal year. Viewed by sector, the Portfolio benefited from good stock selection in Information Technology; here the Portfolio’s stocks returned 20% versus a 2% return for the Index. Six of our seven holdings in the sector were positive, the best performers being Samsung Electronics and Taiwan Semiconductor. Our overweight in Health Care was a big contributor; while our stock selection in the sector was roughly in-line with the Index. Energy and Financials detracted the most from performance. Poor stock selection was the cause of the Energy underperformance: Russian oil producer Gazprom underperformed as it experienced tax hikes and diminished prospects for its gas price formula, as did Petrobras, where shareholders have been subsidizing gasoline prices as the Brazilian government has been slow to boost domestic prices. The Portfolio’s underweight in the relatively strongly performing Financials sectors was the specific cause of that sector’s underperformance.

By geographical region, the Portfolio benefited mostly from strong stock selection, particularly in Japan and the European Monetary Union (EMU). In Japan, the Portfolio’s stocks were up 12%, while the Index was down 3%. Diaper maker Unicharm outperformed as the company continued to realize strong sales growth in China with consumers trading up from cloth to disposable diapers. In Europe EMU the Portfolio’s stocks were +14%, versus a return for the Index of 4%. Software designer Dassault Systemes outperformed as strong demand from existing customers for its V6 product line boosted sales. Europe ex-EMU detracted slightly from performance mostly because of poor stock selection in the United Kingdom, as BG Group and Tesco weighed upon returns.

Past performance does not guarantee future results.

Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Please see the Statement of Net Assets for a complete list of fund holdings.

The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks. It also invests in emerging markets, which involve unique risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investment by the Portfolio in lower-rated and non-rated securities presents a greater risk of loss to principal and interest than higher-rated securities. The portfolio invests in smaller companies which involve additional risks such as limited liquidity and greater volatility.

The MSCI All Country World ex-US Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets, excluding the US. The Index consists of 44 developed and emerging market countries. The Index is net of foreign withholding taxes on dividends. You cannot invest directly in this Index.

 

13


Table of Contents

Harding, Loevner Funds, Inc.

 

International Equity Portfolio

Statement of Net Assets

October 31, 2012

 

 

Industry   

Percentage of

Net Assets

Automobiles & Components

       2.4 %

Banks

       10.5  

Capital Goods

       8.9  

Consumer Durables & Apparel

       2.5  

Energy

       9.0  

Food & Staples Retailing

       1.2  

Food, Beverage & Tobacco

       8.3  

Health Care Equipment & Services

       8.5  

Household & Personal Products

       4.6  

Insurance

       4.9  

Materials

       4.5  

Media

       2.3  

Mutual Funds

       2.3  

Pharmaceuticals, Biotechnology & Life Sciences

       6.1  

Retailing

       2.7  

Semiconductors & Semiconductor Equipment

       7.0  

Software & Services

       6.8  

Technology Hardware & Equipment

       2.6  

Telecommunication Services

       2.8  

Transportation

       1.8  
    

 

 

 

Total Investments

       99.7  

Other Assets Less Liabilities

       0.3  
    

 

 

 

Net Assets

       100.0 %
    

 

 

 

See Notes to Financial Statements

 

14


Table of Contents

Harding, Loevner Funds, Inc.

 

International Equity Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Common Stocks - 94.3%

     

Australia - 3.1%

     

Cochlear Ltd. (Health Care Equipment & Services)†

     438,011       $ 32,322,842   

CSL Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)†

     665,500         32,708,176   
     

 

 

 
        65,031,018   
     

 

 

 

Belgium - 2.1%

     

Anheuser-Busch InBev NV - Sponsored ADR (Food, Beverage & Tobacco)

     524,000         43,911,200   
     

 

 

 

Brazil - 1.1%

     

Petroleo Brasileiro SA - ADR (Energy)

     1,077,458         22,852,884   
     

 

 

 

Canada - 4.8%

     

Canadian National Railway Co. (Transportation)

     428,000         36,970,640   

Imperial Oil Ltd. (Energy)

     726,190         31,879,741   

Potash Corp. of Saskatchewan Inc. (Materials)

     742,700         29,982,799   
     

 

 

 
        98,833,180   
     

 

 

 

Finland - 1.6%

     

Nokian Renkaat oyj (Automobiles & Components)†

     796,400         33,122,463   
     

 

 

 

France - 11.9%

     

Air Liquide SA (Materials)†

     531,170         62,704,687   

Dassault Systemes SA (Software & Services)†

     671,300         70,746,781   

L’Oreal SA (Household & Personal Products)†

     354,670         45,266,962   

LVMH Moet Hennessy Louis Vuitton SA (Consumer Durables & Apparel)†

     151,480         24,622,414   

Schneider Electric SA (Capital Goods)†

     692,800         43,405,014   
     

 

 

 
        246,745,858   
     

 

 

 

Germany - 9.7%

     

Allianz SE, Reg S (Insurance)†

     385,600         47,809,517   

Fresenius SE & Co. KGaA (Health Care Equipment & Services)†

     518,868         59,182,462   

Qiagen NV (Nasdaq Exchange) (Pharmaceuticals, Biotechnology & Life Sciences)*

     1,333,670         23,272,542   

SAP AG - Sponsored ADR (Software & Services)

     972,460         70,892,334   
     

 

 

 
        201,156,855   
     

 

 

 

Hong Kong - 6.0%

     

AIA Group Ltd. (Insurance)†

     13,384,800         52,949,019   

Li & Fung Ltd. (Retailing)†

     33,849,400         56,527,363   

Xinyi Glass Holdings Ltd. (Automobiles & Components)†

     28,334,000         15,824,226   
     

 

 

 
        125,300,608   
     

 

 

 

India - 1.6%

     

ICICI Bank Ltd. - Sponsored ADR (Banks)

     832,200         32,663,850   
     

 

 

 

Japan - 12.8%

     

FANUC Corp. (Capital Goods)†

     355,100         56,943,368   

See Notes to Financial Statements

 

15


Table of Contents

Harding, Loevner Funds, Inc.

 

International Equity Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Japan - 12.8% - (continued)

     

Hoya Corp. (Technology Hardware & Equipment)†

     1,388,500       $ 28,125,664   

JGC Corp. (Capital Goods)†

     827,000         28,457,021   

Keyence Corp. (Technology Hardware & Equipment)†

     100,181         26,545,187   

M3 Inc. (Health Care Equipment & Services)†

     13,893         26,667,345   

MISUMI Group Inc. (Capital Goods)†

     944,100         23,181,313   

Sysmex Corp. (Health Care Equipment & Services)†

     556,900         26,160,234   

Unicharm Corp. (Household & Personal Products)†

     935,400         50,626,747   
     

 

 

 
        266,706,879   
     

 

 

 

Mexico - 1.9%

     

America Movil SAB de CV, Series L - ADR (Telecommunication Services)

     1,529,200         38,673,468   
     

 

 

 

Poland - 1.1%

     

Bank Pekao SA - GDR, Reg S (Banks)#†

     496,550         23,842,593   
     

 

 

 

Russia - 0.7%

     

Gazprom OAO - Sponsored ADR (Energy)†

     1,530,440         14,042,852   
     

 

 

 

Singapore - 0.9%

     

DBS Group Holdings Ltd. (Banks)†

     1,600,083         18,265,973   
     

 

 

 

South Africa - 2.0%

     

MTN Group Ltd. (Telecommunication Services)†

     1,103,300         19,878,128   

Sasol Ltd. (Energy)†

     497,041         21,187,178   
     

 

 

 
        41,065,306   
     

 

 

 

South Korea - 1.3%

     

Samsung Electronics Co., Ltd. - GDR, Reg S (Semiconductors & Semiconductor Equipment)†

     43,590         26,391,854   
     

 

 

 

Sweden - 1.6%

     

Atlas Copco AB, Class A (Capital Goods)†

     1,368,900         33,738,926   
     

 

 

 

Switzerland - 9.7%

     

Lonza Group AG, Reg S (Pharmaceuticals, Biotechnology & Life Sciences)†

     364,700         18,488,443   

Nestle SA - Sponsored ADR, Reg S (Food, Beverage & Tobacco)

     1,162,450         73,629,583   

Roche Holding AG, Genusschein (Pharmaceuticals, Biotechnology & Life Sciences)†

     266,150         51,242,167   

Sonova Holding AG, Reg S (Health Care Equipment & Services)†

     317,800         31,979,705   

Swatch Group AG, Bearer (Consumer Durables & Apparel)†

     64,000         26,563,353   
     

 

 

 
        201,903,251   
     

 

 

 

Taiwan - 1.3%

     

Taiwan Semiconductor Manufacturing Co., Ltd. (Semiconductors & Semiconductor Equipment)†

     8,829,125         26,806,733   
     

 

 

 

Turkey - 2.2%

     

Turkiye Garanti Bankasi A/S - ADR (Banks)

     9,437,300         45,299,040   
     

 

 

 

See Notes to Financial Statements

 

16


Table of Contents

Harding, Loevner Funds, Inc.

 

International Equity Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

United Kingdom - 12.5%

     

ARM Holdings plc (Semiconductors & Semiconductor Equipment)†

     6,432,800       $ 69,261,616   

BG Group plc (Energy)†

     1,944,180         36,071,561   

Standard Chartered plc (Banks)†

     2,402,810         56,998,822   

TESCO plc (Food & Staples Retailing)†

     4,671,610         24,152,208   

Unilever plc (Food, Beverage & Tobacco)†

     652,525         24,335,791   

WPP plc (Media)†

     3,722,020         48,166,649   
     

 

 

 
        258,986,647   
     

 

 

 

United States - 4.4%

     

Bunge Ltd. (Food, Beverage & Tobacco)

     417,080         29,625,192   

Schlumberger Ltd. (Energy)

     881,800         61,311,554   
     

 

 

 
        90,936,746   
     

 

 

 

Total Common Stocks (Cost $1,732,541,490)

        1,956,278,184   
     

 

 

 

Preferred Stocks - 3.1%

     

Brazil - 1.9%

     

Itau Unibanco Holding SA - ADR (Banks)

     2,736,900         39,904,002   
     

 

 

 

South Korea - 1.2%

     

Samsung Electronics Co., Ltd. - GDR, Reg S (Semiconductors & Semiconductor Equipment)†

     64,310         23,655,200   
     

 

 

 

Total Preferred Stocks (Cost $64,569,574)

        63,559,202   
     

 

 

 

Cash Equivalent - 2.3%

     

Northern Institutional Funds -
Prime Obligations Portfolio, 0.12% (Mutual Funds)

     48,113,793         48,113,793   
     

 

 

 

Total Cash Equivalent (Cost $48,113,793)

        48,113,793   
     

 

 

 

Total Investments — 99.7%

(Cost $ 1,845,224,857)

      $ 2,067,951,179   
     

 

 

 

Summary of Abbreviations

 

ADR American Depository Receipt
GDR Global Depository Receipt
Reg  S Security sold outside United States without registration under the Securities Act of 1933.
# Security valued at fair value as determined in good faith under policies and procedures established by and under the supervision of the Portfolio’s Board of Directors.
* Non-income producing security.
Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements.

See Notes to Financial Statements

 

17


Table of Contents

Harding, Loevner Funds, Inc.

 

International Equity Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Value  

Other Assets, Net of Liabilities - 0.3%

  

Dividends and interest receivable

   $ 2,323,698   

Foreign currency (cost $19,349)

     19,760   

Receivable for Fund shares sold

     11,627,330   

Tax reclaim receivable

     2,071,822   

Payable to Investment Adviser

     (1,275,493

Payable for securities purchased

     (6,161,641

Payable for Fund shares redeemed

     (1,365,264

Payable for distribution fees

     (353,364

Other liabilities

     (430,076
  

 

 

 
     6,456,772   
  

 

 

 

Net Assets - 100%

  

Institutional Class

  

Applicable to 118,742,142 outstanding $.001 par value shares (authorized 200,000,000 shares)

   $ 1,798,940,312   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 15.15   
  

 

 

 

Investor Class

  

Applicable to 18,253,071 outstanding $.001 par value shares (authorized 200,000,000 shares)

   $ 275,467,639   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 15.09   
  

 

 

 

Components of Net Assets as of October 31, 2012 were as follows:

  

Paid-in-capital

   $ 1,857,838,405   

Accumulated undistributed net investment income

     18,521,821   

Accumulated net realized loss from investment transactions

     (24,620,899

Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies

     222,668,624   
  

 

 

 
   $ 2,074,407,951   
  

 

 

 

See Notes to Financial Statements

 

18


Table of Contents

Harding, Loevner Funds, Inc.

 

International Small Companies Portfolio (Institutional Class) — Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc.-

International Small Companies Portfolio - Institutional Class And The MSCI All Country World ex-US Small Cap Index

(Net Dividends Reinvested)

 

LOGO

 

                 
     Returns for the Year Ended October 31, 2012
     Cumulative Total Returns   Average Annualized
Total Return
FUND NAME   Last 12 Months   Inception   Inception

International Small Companies Portfolio—
Institutional Class (Inception date 06/30/11)

  9.74%   -5.90%   -4.45%

MSCI All Country World ex-US Small Cap Index

  4.63%   -9.25%   -7.00%
                 

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

19


Table of Contents

Harding, Loevner Funds, Inc.

 

International Small Companies Portfolio (Investor Class) — Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc.-

International Small Companies Portfolio - Investor Class And The MSCI All Country World ex-US Small Cap Index

(Net Dividends Reinvested)

 

LOGO

 

       
     Returns for the Year Ended October  31, 2012
     Cumulative Total Returns   Average Annualized
Total Return
FUND NAME   Last 12 Months   5 YR   Inception   5 YR   Inception

International Small Companies Portfolio—
Investor Class (Inception date 03/26/07)

  9.51%   1.72%   18.71%   0.34%   3.11%

MSCI All Country World ex-US Small Cap Index

  4.63%   -15.39%   -2.76%   -3.29%   -0.50%
                           

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

20


Table of Contents

Harding, Loevner Funds, Inc.

 

International Small Companies Portfolio - Overview

(unaudited)

October 31, 2012

 

 

The International Small Companies Portfolio (the “Portfolio”) Investor Class gained 9.51% and the Institutional Class gained 9.74% (after all fees and expenses) for the fiscal year ended October 31, 2012. In comparison, the Portfolio’s benchmark, the MSCI All Country World ex-US Small Cap Index (the “Index”) rose 4.63%, net of source taxes.

Consistent with its investment objectives and policies, the Portfolio was invested in the securities of non-US smaller capitalization companies that exhibit the fundamental characteristics of durable growth, financial strength, management quality, and sustainable competitive advantage.

The Portfolio outperformed the Index in the fiscal year. The Portfolio enjoyed positive relative performance in five of the nine economic sectors in which we were invested, led by Consumer Staples and Industrials. In Consumer Staples, Singapore-based packaged food maker Super Group benefited from growth in sales of its branded consumer goods in Thailand and the Philippines. In Industrials, specialty payments processor PayPoint outperformed on positive March fiscal-year results. The company reported strong transaction volumes with growth in all of its channels. Financials detracted most from performance due to both weak stock selection (Bank Bukopin in Indonesia) and the Portfolio’s underweight in this outperforming sector.

By region, Emerging Markets and Pacific ex-Japan were the largest contributors. Indonesian engineering group Wijaya Karya outperformed as the pace of infrastructure development in Indonesia remained strong. Super Group boosted performance in Singapore. Meanwhile, Europe ex-EMU detracted most from performance, with Swedish automobile parts supplier Mekonomen hurt by weak demand in the European automobile market.

Past performance does not guarantee future results.

Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Please see the Statement of Net Assets for a complete list of fund holdings.

The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks. It also invests in emerging markets, which involve unique risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. The Portfolio invests in smaller companies which involve additional risks such as limited liquidity and greater volatility.

The MSCI All Country World ex-US Small Cap Index is a free-float market capitalization index that is designed to measure small cap developed and emerging market equity performance. The Index consists of 44 developed and emerging markets countries, targeting companies’ market capitalization range of USD 170-4,200 million in terms of the company’s full market capitalization. The Index is net of foreign withholding taxes on dividends. You cannot invest directly in this Index.

 

21


Table of Contents

Harding, Loevner Funds, Inc.

 

International Small Companies Portfolio

Statement of Net Assets

October 31, 2012

 

 

Industry   

Percentage of

Net Assets

Banks

       5.6 %

Capital Goods

       17.0  

Commercial & Professional Services

       6.7  

Consumer Durables & Apparel

       1.7  

Diversified Financials

       2.6  

Food & Staples Retailing

       2.1  

Food, Beverage & Tobacco

       11.3  

Health Care Equipment & Services

       9.9  

Household & Personal Products

       3.3  

Insurance

       1.5  

Materials

       5.6  

Media

       3.2  

Mutual Funds

       3.5  

Pharmaceuticals, Biotechnology & Life Sciences

       5.2  

Retailing

       1.3  

Semiconductors & Semiconductor Equipment

       1.0  

Software & Services

       3.5  

Technology Hardware & Equipment

       6.8  

Telecommunication Services

       3.9  

Transportation

       2.6  

Utilities

       1.5  
    

 

 

 

Total Investments

       99.8  

Other Assets Less Liabilities

       0.2  
    

 

 

 

Net Assets

       100.0 %
    

 

 

 

See Notes to Financial Statements

 

22


Table of Contents

Harding, Loevner Funds, Inc.

 

International Small Companies Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Common Stocks - 94.8%

     

Australia - 7.2%

     

Bank of Queensland Ltd. (Banks)†

     122,489       $ 960,682   

Bradken Ltd. (Capital Goods)†

     108,200         553,055   

Imdex Ltd. (Materials)†

     641,333         887,900   

SAI Global Ltd. (Commercial & Professional Services)†

     193,897         815,847   

TPG Telecom Ltd. (Telecommunication Services)†

     587,100         1,452,253   
     

 

 

 
        4,669,737   
     

 

 

 

Austria - 1.5%

     

BWT AG (Commercial & Professional Services)†

     17,386         358,417   

Semperit AG Holding (Capital Goods)†

     14,330         603,692   
     

 

 

 
        962,109   
     

 

 

 

Brazil - 1.1%

     

Fleury SA (Health Care Equipment & Services)

     58,200         684,571   
     

 

 

 

Canada - 1.5%

     

Laurentian Bank of Canada (Banks)

     22,100         983,552   
     

 

 

 

China - 4.2%

     

Dalian Refrigeration Co., Ltd., Class B (Capital Goods)†

     644,836         362,529   

Vinda International Holdings Ltd. (Household & Personal Products)†

     694,000         965,658   

Wasion Group Holdings Ltd. (Technology Hardware & Equipment)†

     1,366,000         500,544   

Yip’s Chemical Holdings Ltd. (Materials)†

     1,294,000         872,081   
     

 

 

 
        2,700,812   
     

 

 

 

Denmark - 0.6%

     

NKT Holding A/S (Capital Goods)†

     11,350         379,910   
     

 

 

 

Finland - 1.5%

     

Vacon plc (Capital Goods)†

     12,177         623,444   

Vaisala oyj, Class A (Technology Hardware & Equipment)†

     18,233         378,133   
     

 

 

 
        1,001,577   
     

 

 

 

France - 5.7%

     

Ingenico (Technology Hardware & Equipment)†

     18,000         952,935   

Rubis SCA (Utilities)†

     15,782         963,348   

Touax SA (Transportation)†

     24,300         787,415   

Virbac SA (Pharmaceuticals, Biotechnology & Life Sciences)†

     5,760         1,004,163   
     

 

 

 
        3,707,861   
     

 

 

 

Germany - 8.0%

     

Carl Zeiss Meditec AG - Bearer (Health Care Equipment & Services)†

     40,970         1,123,665   

Drillisch AG (Telecommunication Services)†

     85,321         1,050,573   

Gerresheimer AG (Pharmaceuticals, Biotechnology & Life Sciences)†

     15,620         775,009   

KWS Saat AG (Food, Beverage & Tobacco)†

     5,145         1,477,298   

See Notes to Financial Statements

 

23


Table of Contents

Harding, Loevner Funds, Inc.

 

International Small Companies Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Germany - 8.0% - (continued)

     

Pfeiffer Vacuum Technology AG (Capital Goods)†

     7,690       $ 784,888   
     

 

 

 
        5,211,433   
     

 

 

 

Hong Kong - 3.8%

     

Chong Hing Bank Ltd. (Banks)†

     368,000         668,121   

Pico Far East Holdings Ltd. (Media)†

     3,000,000         734,475   

Vitasoy International Holdings Ltd. (Food, Beverage & Tobacco)†

     1,122,000         1,064,598   
     

 

 

 
        2,467,194   
     

 

 

 

Indonesia - 3.4%

     

Bank Bukopin Tbk PT (Banks)†

     15,705,166         1,046,349   

Wijaya Karya Persero Tbk PT (Capital Goods)†

     8,000,000         1,140,940   
     

 

 

 
        2,187,289   
     

 

 

 

Ireland - 2.7%

     

FBD Holdings plc (Insurance)#†

     78,566         982,700   

Grafton Group plc (Capital Goods)†

     168,000         748,270   
     

 

 

 
        1,730,970   
     

 

 

 

Italy - 1.9%

     

Cembre S.p.A. (Capital Goods)†

     68,617         546,524   

MARR S.p.A. (Food & Staples Retailing)†

     72,063         679,239   
     

 

 

 
        1,225,763   
     

 

 

 

Japan - 11.5%

     

Asahi Diamond Industrial Co., Ltd. (Capital Goods)†

     42,900         378,771   

BML Inc. (Health Care Equipment & Services)†

     21,600         543,315   

C. Uyemura & Co., Ltd. (Materials)†

     11,600         382,033   

GMO internet Inc. (Software & Services)†

     172,000         1,202,847   

Lintec Corp. (Materials)†

     35,200         608,407   

Message Co., Ltd. (Health Care Equipment & Services)†

     240         740,700   

Nakanishi Inc. (Health Care Equipment & Services)†

     7,400         806,502   

Pigeon Corp. (Household & Personal Products)†

     25,800         1,188,774   

Rohto Pharmaceutical Co., Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)†

     75,000         1,032,992   

Tsumura & Co. (Pharmaceuticals, Biotechnology & Life Sciences)†

     18,400         586,962   
     

 

 

 
        7,471,303   
     

 

 

 

Malaysia - 3.7%

     

Coastal Contracts Bhd. (Capital Goods)†

     1,457,666         912,707   

Supermax Corp. Bhd. (Health Care Equipment & Services)†

     1,007,000         667,265   

United Plantations Bhd. (Food, Beverage & Tobacco)†

     95,200         786,072   
     

 

 

 
        2,366,044   
     

 

 

 

Netherlands - 2.5%

     

Brunel International NV (Commercial & Professional Services)†

     21,527         1,037,664   

See Notes to Financial Statements

 

24


Table of Contents

Harding, Loevner Funds, Inc.

 

International Small Companies Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Netherlands - 2.5% - (continued)

     

KAS Bank NV - CVA (Diversified Financials)†

     59,438       $ 597,061   
     

 

 

 
        1,634,725   
     

 

 

 

New Zealand - 0.8%

     

Sanford Ltd. (Food, Beverage & Tobacco)†

     143,153         512,093   
     

 

 

 

Singapore - 5.7%

     

Goodpack Ltd. (Transportation)†

     574,000         911,584   

Super Group Ltd. (Food, Beverage & Tobacco)†

     827,000         1,652,254   

Tat Hong Holdings Ltd. (Capital Goods)†

     1,020,000         1,100,486   
     

 

 

 
        3,664,324   
     

 

 

 

South Korea - 4.0%

     

Cheil Worldwide Inc. (Media)†

     68,940         1,331,371   

Han Kuk Carbon Co., Ltd. (Materials)†

     130,300         846,115   

Samwha Capacitor Co., Ltd. (Technology Hardware & Equipment)†

     72,200         386,092   
     

 

 

 
        2,563,578   
     

 

 

 

Spain - 1.3%

     

Construcciones y Auxiliar de Ferrocarriles SA (Capital Goods)†

     1,722         819,145   
     

 

 

 

Sweden - 3.7%

     

Industrial & Financial Systems, Class B (Software & Services)†

     67,636         1,043,610   

Kabe Husvagnar AB, Class B (Consumer Durables & Apparel)†

     33,900         485,911   

Mekonomen AB (Retailing)†

     30,300         848,320   
     

 

 

 
        2,377,841   
     

 

 

 

Switzerland - 2.5%

     

Huber & Suhner AG, Reg S (Capital Goods)†

     13,200         588,499   

Huegli Holding AG - Bearer (Food, Beverage & Tobacco)†

     510         286,414   

LEM Holding SA, Reg S (Technology Hardware & Equipment)†

     1,536         772,666   
     

 

 

 
        1,647,579   
     

 

 

 

Taiwan - 3.2%

     

Nak Sealing Technologies Corp. (Capital Goods)†

     535,000         863,249   

Taiwan Paiho Ltd. (Consumer Durables & Apparel)†

     1,078,088         587,883   

Youngtek Electronics Corp. (Semiconductors & Semiconductor Equipment)†

     313,973         643,929   
     

 

 

 
        2,095,061   
     

 

 

 

Thailand - 1.1%

     

Khon Kaen Sugar Industry pcl (Food, Beverage & Tobacco)†

     1,650,100         726,750   
     

 

 

 

United Kingdom - 11.7%

     

Britvic plc (Food, Beverage & Tobacco)†

     142,500         827,751   

Domino Printing Sciences plc (Technology Hardware & Equipment)†

     81,100         710,256   

Gooch & Housego plc (Technology Hardware & Equipment)†

     106,600         736,430   

See Notes to Financial Statements

 

25


Table of Contents

Harding, Loevner Funds, Inc.

 

International Small Companies Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

United Kingdom - 11.7% - (continued)

     

Greggs plc (Food & Staples Retailing)†

     89,000       $ 673,884   

Morgan Crucible Co., plc (Capital Goods)†

     137,200         559,723   

PayPoint plc (Commercial & Professional Services)†

     106,205         1,319,708   

Rathbone Brothers plc (Diversified Financials)†

     51,830         1,083,956   

RPS Group plc (Commercial & Professional Services)†

     215,860         815,640   

Synergy Health plc (Health Care Equipment & Services)†

     56,013         840,360   
     

 

 

 
        7,567,708   
     

 

 

 

Total Common Stocks (Cost $58,259,645)

        61,358,929   
     

 

 

 

Preferred Stocks - 1.5%

     

Germany - 1.5%

     

Draegerwerk AG & Co. KGaA (Health Care Equipment & Services)†

     10,117         989,914   
     

 

 

 

Total Preferred Stocks (Cost $874,451)

        989,914   
     

 

 

 

Warrants - 0.0%

     

Malaysia - 0.0%

     

Coastal Contracts Bhd., Expires 7/18/16 (Capital Goods)*

     115,333         12,494   
     

 

 

 

Total Warrants (Cost $ — )

        12,494   
     

 

 

 

Cash Equivalent - 3.5%

     

Northern Institutional Funds -
Prime Obligations Portfolio, 0.12% (Mutual Funds)

     2,273,859         2,273,859   
     

 

 

 

Total Cash Equivalent (Cost $2,273,859)

        2,273,859   
     

 

 

 

Total Investments — 99.8%

(Cost $ 61,407,955)

      $ 64,635,196   
     

 

 

 

Summary of Abbreviations  

Reg S     Security sold outside United States without registration under the Securities Act of 1933.

# Security valued at fair value as determined in good faith under policies and procedures established by and under the supervision of the Portfolio’s Board of Directors.
* Non-income producing security.
Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements.

See Notes to Financial Statements

 

26


Table of Contents

Harding, Loevner Funds, Inc.

 

International Small Companies Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Value  

Other Assets, Net of Liabilities - 0.2%

  

Dividends and interest receivable

   $ 63,730   

Foreign currency (cost $6,791)

     6,891   

Receivable for Fund shares sold

     154,785   

Tax reclaim receivable

     69,238   

Prepaid expenses

     8,957   

Payable to Investment Adviser

     (68,889

Payable for Fund shares redeemed

     (43,116

Payable for distribution fees

     (4,498

Payable for capital gains tax

     (3,667

Other liabilities

     (54,313
  

 

 

 
     129,118   
  

 

 

 

Net Assets - 100%

  

Institutional Class

  

Applicable to 2,927,496 outstanding $.001 par value shares (authorized 200,000,000 shares)

   $ 33,515,012   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 11.45   
  

 

 

 

Investor Class

  

Applicable to 2,734,349 outstanding $.001 par value shares (authorized 200,000,000 shares)

   $ 31,249,302   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 11.43   
  

 

 

 

Components of Net Assets as of October 31, 2012 were as follows:

  

Paid-in capital

   $ 61,727,707   

Accumulated undistributed net investment income

     665,965   

Accumulated net realized loss from investment transactions

     (855,108

Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies

     3,225,750   
  

 

 

 
   $ 64,764,314   
  

 

 

 

See Notes to Financial Statements

 

27


Table of Contents

Harding, Loevner Funds, Inc.

 

Institutional Emerging Markets Portfolio — Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc. -

Institutional Emerging Markets Portfolio And The MSCI Emerging Markets Index

(Net Dividends Reinvested)

 

LOGO

 

                           
     Returns for the Year Ended October  31, 2012
     Cumulative Total Returns   Average Annualized
Total Return
FUND NAME   Last 12 Months   5 YR   Inception   5 YR   Inception

Institutional Emerging Markets Portfolio—
(Inception date 10/17/05)

  11.17%   -13.74%   84.00%   -2.85%   9.05%

MSCI Emerging Markets Index (Net dividend)

  2.63%   -16.20%   88.63%   -3.47%   9.43%
                           

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

28


Table of Contents

Harding, Loevner Funds, Inc.

 

Institutional Emerging Markets Portfolio - Overview

(unaudited)

October 31, 2012

 

 

The Institutional Emerging Markets Portfolio (the “Portfolio”) rose 11.17%, after all fees and expenses, for the fiscal year ended October 31, 2012. In comparison, the Portfolio’s benchmark, the MSCI Emerging Markets Index (the “Index”), rose 2.63%, net of source taxes.

Consistent with its investment objectives and policies, the Portfolio was invested in the securities of emerging markets companies that exhibit the fundamental characteristics of durable growth, financial strength, management quality, and sustainable competitive advantage.

The Portfolio performed well over the last 12 months, outpacing the Index by nearly nine percentage points. Our investments in Materials and Consumer Discretionary contributed most to performance, with the impact of the former split evenly between positive stock selection and a favorable underweight position, and the latter almost entirely due to good stock selection. In Materials, cement maker Semen Gresik outperformed as double-digit growth in Indonesia led to rising revenues for the company. In Consumer Discretionary, white goods manufacturer Arcelik of Turkey has been generating better-than-expected revenues.

Telecom Services detracted most from performance due to poor returns from Latin American cellular provider Millicom International. Stock selection was also weak in Consumer Staples, as Chinese supermarket operator Wumart reported slower-than-anticipated growth due to difficulties integrating the back office and procurement functions of its recently acquired Tianjin business with its core Beijing office.

By region, Latin America and Asia contributed most to performance. Good stock selection in Latin America included Brazilian beverage company Ambev as well as cosmetics manufacturer Natura Cosméticos. Within Asia, relative returns were especially strong in India due to good returns from Ambuja Cements and HDFC Bank. Nigeria’s Zenith Bank contributed markedly to the year’s outperformance as well.

The largest detractor in this period was Africa due to the Portfolio’s relatively light weighting in this region and weak stock selection. South African miner Impala Platinum and Egyptian contractor and cement manufacturer Orascom Construction both underperformed.

Past performance does not guarantee future results.

Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Please see the Statement of Net Assets for a complete list of fund holdings.

The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks and differences in accounting methods. It also invests in emerging markets, which involve unique risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investment by the Portfolio in lower-rated and non-rated securities presents a greater risk of loss to principal and interest than higher-rated securities.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Index consists of 21 emerging market countries. The Index is net of foreign withholding taxes on dividends. You cannot invest directly in this Index.

 

29


Table of Contents

Harding, Loevner Funds, Inc.

 

Institutional Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012

 

 

 

Industry   

Percentage of

Net Assets

Automobiles & Components

       4.2 %

Banks

       19.5  

Capital Goods

       3.2  

Commercial & Professional Services

       1.5  

Consumer Durables & Apparel

       2.6  

Diversified Financials

       1.6  

Energy

       10.8  

Food & Staples Retailing

       0.5  

Food, Beverage & Tobacco

       7.1  

Health Care Equipment & Services

       1.6  

Household & Personal Products

       3.6  

Insurance

       2.8  

Materials

       8.1  

Mutual Funds

       2.6  

Pharmaceuticals, Biotechnology & Life Sciences

       3.2  

Semiconductors & Semiconductor Equipment

       10.0  

Software & Services

       3.5  

Technology Hardware & Equipment

       3.5  

Telecommunication Services

       4.8  

Transportation

       5.1  
    

 

 

 

Total Investments

       99.8  

Other Assets Less Liabilities

       0.2  
    

 

 

 

Net Assets

       100.0 %
    

 

 

 

See Notes to Financial Statements

 

30


Table of Contents

Harding, Loevner Funds, Inc.

 

Institutional Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

 

Common Stocks - 83.9%

     

Brazil - 5.6%

     

Banco Bradesco SA - ADR (Banks)

     427,678       $ 6,697,437   

BM&FBovespa SA (Diversified Financials)

     1,124,600         7,198,149   

Natura Cosmeticos SA (Household & Personal Products)

     114,300         3,047,362   

Odontoprev SA (Health Care Equipment & Services)

     391,000         2,021,368   

Petroleo Brasileiro SA - ADR (Energy)

     147,246         3,123,088   

Vale SA - Sponsored ADR (Materials)

     220,000         4,030,400   
     

 

 

 
        26,117,804   
     

 

 

 

Chile - 2.3%

     

Banco Santander Chile - ADR (Banks)

     167,216         4,546,611   

Sociedad Quimica y Minera de Chile SA - Sponsored ADR (Materials)

     106,500         6,161,025   
     

 

 

 
        10,707,636   
     

 

 

 

China - 12.5%

     

51job Inc. - ADR (Commercial & Professional Services)*

     49,500         2,327,985   

Anhui Conch Cement Co., Ltd., Class H (Materials)†

     798,000         2,755,708   

Baidu Inc. - Sponsored ADR (Software & Services)*

     61,300         6,535,806   

China Merchants Holdings International Co., Ltd. (Transportation)†

     2,499,515         8,275,626   

China Mobile Ltd. - Sponsored ADR (Telecommunication Services)

     120,600         6,680,034   

CNOOC Ltd. - ADR (Energy)

     36,600         7,523,130   

Hengan International Group Co., Ltd. (Household & Personal Products)†

     460,000         4,177,134   

Jiangsu Expressway Co., Ltd., Class H (Transportation)†

     2,370,000         2,041,410   

Shandong Weigao Group Medical Polymer Co., Ltd., Class H (Health Care Equipment & Services)†

     4,107,000         5,541,822   

Tencent Holdings Ltd. (Software & Services)†

     271,100         9,573,750   

Wumart Stores Inc., Class H (Food & Staples Retailing)†

     1,431,000         2,536,799   
     

 

 

 
        57,969,204   
     

 

 

 

Colombia - 2.4%

     

Bancolombia SA - Sponsored ADR (Banks)

     36,320         2,325,207   

Cementos Argos SA - Sponsored ADR (Materials)#†

     61,390         1,467,921   

Ecopetrol SA - Sponsored ADR (Energy)

     127,000         7,519,670   
     

 

 

 
        11,312,798   
     

 

 

 

Czech Republic - 1.1%

     

Komercni Banka A/S (Banks)†

     25,300         5,162,949   
     

 

 

 

Egypt - 0.8%

     

Orascom Construction Industries - GDR (Capital Goods)*†

     87,670         3,590,587   
     

 

 

 

Hong Kong - 2.8%

     

AIA Group Ltd. (Insurance)†

     1,910,000         7,555,782   

ASM Pacific Technology Ltd. (Semiconductors & Semiconductor Equipment)†

     503,400         5,608,517   
     

 

 

 
        13,164,299   
     

 

 

 

See Notes to Financial Statements

 

31


Table of Contents

Harding, Loevner Funds, Inc.

 

Institutional Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Hungary - 0.6%

     

Richter Gedeon Nyrt. (Pharmaceuticals, Biotechnology & Life Sciences)†

     14,000       $ 2,608,961   
     

 

 

 

India - 7.0%

     

Ambuja Cements Ltd. (Materials)†

     2,141,100         8,039,345   

Axis Bank Ltd. (Banks)†

     274,600         5,995,621   

Bajaj Auto Ltd. (Automobiles & Components)†

     118,500         3,987,699   

Dabur India Ltd. (Household & Personal Products)†

     1,767,000         4,081,255   

HDFC Bank Ltd. - ADR (Banks)

     132,800         4,965,392   

Maruti Suzuki India Ltd. (Automobiles & Components)†

     207,000         5,507,347   
     

 

 

 
        32,576,659   
     

 

 

 

Indonesia - 5.0%

     

Astra International Tbk PT (Automobiles & Components)†

     8,088,000         6,777,888   

Bank Rakyat Indonesia Persero Tbk PT (Banks)†

     8,778,000         6,762,134   

Semen Gresik Persero Tbk PT (Materials)†

     4,403,100         6,797,438   

United Tractors Tbk PT (Capital Goods)†

     1,214,500         2,647,809   
     

 

 

 
        22,985,269   
     

 

 

 

Italy - 1.2%

     

Tenaris SA - ADR (Energy)

     144,700         5,443,614   
     

 

 

 

Malaysia - 1.1%

     

Axiata Group Bhd. (Telecommunication Services)†

     2,372,700         5,080,006   
     

 

 

 

Mexico - 7.8%

     

America Movil SAB de CV, Series L - ADR (Telecommunication Services)

     417,654         10,562,470   

Coca-Cola Femsa SAB de CV - Sponsored ADR (Food, Beverage & Tobacco)

     48,400         6,190,844   

Fomento Economico Mexicano SAB de CV - Sponsored ADR (Food, Beverage & Tobacco)

     80,000         7,248,800   

Grupo Aeroportuario del Sureste SAB de CV - ADR (Transportation)

     52,205         5,041,437   

Grupo Financiero Banorte SAB de CV, Class O (Banks)

     1,315,880         7,310,444   
     

 

 

 
        36,353,995   
     

 

 

 

Nigeria - 1.6%

     

Zenith Bank plc (Banks)

     63,596,683         7,296,652   
     

 

 

 

Panama - 1.7%

     

Copa Holdings SA, Class A (Transportation)

     85,000         7,889,700   
     

 

 

 

Peru - 1.2%

     

Credicorp Ltd. (Banks)

     44,300         5,729,762   
     

 

 

 

Poland - 1.4%

     

Bank Pekao SA (Banks)#†

     77,854         3,745,150   

Kernel Holding SA (Food, Beverage & Tobacco)*†

     137,032         2,867,983   
     

 

 

 
        6,613,133   
     

 

 

 

See Notes to Financial Statements

 

32


Table of Contents

Harding, Loevner Funds, Inc.

 

Institutional Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Russia - 4.2%

     

Gazprom OAO - Sponsored ADR (Energy)†

     205,000       $ 1,881,018   

Lukoil OAO - Sponsored ADR (Energy)

     143,900         8,662,780   

Sberbank of Russia (Banks)#†

     624,100         1,826,990   

Sberbank of Russia - Sponsored ADR (Banks)#†

     608,000         7,182,413   
     

 

 

 
        19,553,201   
     

 

 

 

South Africa - 2.5%

     

Aspen Pharmacare Holdings Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)†

     303,900         5,536,308   

Impala Platinum Holdings Ltd. (Materials)†

     156,200         2,807,125   

Standard Bank Group Ltd. (Banks)†

     261,032         3,227,165   
     

 

 

 
        11,570,598   
     

 

 

 

South Korea - 4.4%

     

Amorepacific Corp. (Household & Personal Products)†

     4,680         5,318,335   

Hankook Tire Co., Ltd. (Automobiles & Components)*†

     74,232         3,131,003   

Hankook Tire Worldwide Co., Ltd. (Diversified Financials)†

     16,967         218,931   

Samsung Electronics Co., Ltd. - GDR, Reg S (Semiconductors & Semiconductor Equipment)†

     9,880         5,981,912   

Samsung Fire & Marine Insurance Co., Ltd. (Insurance)†

     25,960         5,671,357   
     

 

 

 
        20,321,538   
     

 

 

 

Taiwan - 7.7%

     

Advantech Co., Ltd. (Technology Hardware & Equipment)†

     716,000         2,472,664   

Delta Electronics Inc. (Technology Hardware & Equipment)†

     1,086,189         3,725,852   

Hiwin Technologies Corp. (Capital Goods)†

     392,700         2,521,802   

Hon Hai Precision Industry Co., Ltd. (Technology Hardware & Equipment)†

     3,343,652         10,045,754   

MediaTek Inc. (Semiconductors & Semiconductor Equipment)†

     510,000         5,656,340   

Taiwan Semiconductor Manufacturing Co., Ltd. (Semiconductors & Semiconductor Equipment)†

     3,752,277         11,392,554   
     

 

 

 
        35,814,966   
     

 

 

 

Thailand - 1.6%

     

Siam Commercial Bank pcl (Banks)†

     1,389,070         7,296,107   
     

 

 

 

Turkey - 3.5%

     

Arcelik A/S (Consumer Durables & Apparel)†

     1,821,660         12,038,187   

Turkiye Garanti Bankasi A/S (Banks)†

     876,800         4,185,674   
     

 

 

 
        16,223,861   
     

 

 

 

United Arab Emirates - 1.0%

     

DP World Ltd. (Transportation)†

     41,300         499,857   

Dragon Oil plc (Energy)†

     448,000         4,012,524   
     

 

 

 
        4,512,381   
     

 

 

 

See Notes to Financial Statements

 

33


Table of Contents

Harding, Loevner Funds, Inc.

 

Institutional Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

United Kingdom - 2.9%

     

Hikma Pharmaceuticals plc (Pharmaceuticals, Biotechnology & Life Sciences)†

     558,820       $ 6,668,759   

SABMiller plc (Food, Beverage & Tobacco)†

     154,800         6,611,884   
     

 

 

 
        13,280,643   
     

 

 

 

Total Common Stocks (Cost $309,626,337)

        389,176,323   
     

 

 

 

Preferred Stocks - 10.1%

     

Brazil - 5.1%

     

Cia de Bebidas das Americas - ADR (Food, Beverage & Tobacco)

     241,000         9,830,390   

Itau Unibanco Holding SA - ADR (Banks)

     157,196         2,291,918   

Petroleo Brasileiro SA - Sponsored ADR (Energy)

     296,200         6,080,986   

Vale SA - Sponsored ADR (Materials)

     308,600         5,489,994   
     

 

 

 
        23,693,288   
     

 

 

 

Russia - 1.2%

     

AK Transneft OAO (Energy)#†

     2,829         5,656,106   
     

 

 

 

South Korea - 3.8%

     

Samsung Electronics Co., Ltd. - GDR, Reg S (Semiconductors & Semiconductor Equipment)†

     47,824         17,591,142   
     

 

 

 

Total Preferred Stocks (Cost $40,291,993)

        46,940,536   
     

 

 

 

Participation Notes - 3.2%

     

Qatar - 2.2%

     

Industries Qatar QSC, Issued by HSBC Bank plc, Maturity Date 2/23/15 (Capital Goods)#^†

     146,000         6,095,113   

Qatar National Bank, Issued by HSBC Bank plc, Maturity Date 9/23/13 (Banks)#^†

     105,870         3,893,487   
     

 

 

 
        9,988,600   
     

 

 

 

Saudi Arabia - 1.0%

     

Jarir Marketing Co., Issued by HSBC Bank plc, Maturity Date 5/4/15 (Commercial & Professional Services)#^†

     109,200         4,571,596   
     

 

 

 

Total Participation Notes (Cost $13,811,542)

        14,560,196   
     

 

 

 

See Notes to Financial Statements

 

34


Table of Contents

Harding, Loevner Funds, Inc.

 

Institutional Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Cash Equivalent - 2.6%

     

Northern Institutional Funds -
Prime Obligations Portfolio, 0.12% (Mutual Funds)

     12,085,038       $ 12,085,038   
     

 

 

 

Total Cash Equivalent (Cost $12,085,038)

        12,085,038   
     

 

 

 

Total Investments — 99.8%

(Cost $ 375,814,910)

      $ 462,762,093   
     

 

 

 

Summary of Abbreviations

 

ADR American Depository Receipt
GDR Global Depository Receipt
Reg S Security traded outside United States without registration under the Securities Act of 1933.
# Security valued at fair value as determined in good faith under policies and procedures established by and under the supervision of the Portfolio’s Board of Directors.
* Non-income producing security.
^ Security exempt from registration pursuant to Rule 144A of the Securities Act of 1933. These securities, which represent 3.2% of net assets as of October 31, 2012, are considered liquid and may be resold in transactions exempt from registration, normally to qualified buyers.
Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements.

See Notes to Financial Statements

 

35


Table of Contents

Harding, Loevner Funds, Inc.

 

Institutional Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Value  

Other Assets, Net of Liabilities - 0.2%

  

Dividends and interest receivable

   $ 597,144   

Foreign currency (cost $12,173)

     12,267   

Receivable for investments sold

     4,268,223   

Receivable for Fund shares sold

     271,052   

Tax reclaim receivable

     12,408   

Prepaid expenses

     51,266   

Payable to Investment Adviser

     (456,066

Payable for investments purchased

     (2,313,033

Payable for Fund shares redeemed

     (760,647

Payable for capital gains tax

     (506,673

Other liabilities

     (146,912
  

 

 

 
     1,029,029   
  

 

 

 

Net Assets - 100%

  

Applicable to 28,003,301 outstanding $.001 par value shares (authorized 450,000,000 shares)

   $ 463,791,122   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 16.56   
  

 

 

 

Components of Net Assets as of October 31, 2012 were as follows:

  

Paid-in capital

   $ 430,972,709   

Accumulated undistributed net investment income

     3,682,733   

Accumulated net realized loss from investment transactions

     (57,496,042

Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies

     86,631,722   
  

 

 

 
   $ 463,791,122   
  

 

 

 

See Notes to Financial Statements

 

36


Table of Contents

Harding, Loevner Funds, Inc.

 

Emerging Markets Portfolio (Advisor Class) — Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc. -

Emerging Markets Portfolio – Advisor Class And The MSCI Emerging Markets Index

(Net Dividends Reinvested)

 

LOGO

 

                                
      Returns for the Year Ended October  31, 2012
      Cumulative Total Returns    Average Annualized
Total Return
FUND NAME    Last 12 Months    5 YR    10 YR    5 YR    10 YR

Emerging Markets Portfolio—
Advisor Class (Inception date 11/09/98)

   10.60%    -13.65%    353.91%    -2.89%    16.33%

MSCI Emerging Markets Index (Net dividend)

   2.63%    -16.20%    348.37%    -3.47%    16.19%
                                

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

37


Table of Contents

Harding, Loevner Funds, Inc.

 

Emerging Markets Portfolio - Overview

(unaudited)

October 31, 2012

 

 

The Emerging Markets Portfolio (the “Portfolio”) Advisor Class rose 10.60%, after all fees and expenses, for the fiscal year ended October 31, 2012. In comparison, the Portfolio’s benchmark, the MSCI Emerging Markets Index (the “Index”), rose 2.63%, net of source taxes.

Consistent with its investment objectives and policies, the Portfolio was invested in the securities of emerging markets companies that exhibit the fundamental characteristics of durable growth, financial strength, management quality, and sustainable competitive advantage.

The Portfolio performed well over the last 12 months, outpacing the Index by about eight percentage points. Our investments in Materials and Energy contributed most to performance, with the impact of the former split evenly between positive stock selection and a favorable underweight position, and the latter almost entirely due to good stock selection. In Materials, cement maker Semen Gresik outperformed as double-digit growth in Indonesia led to rising revenues for the company. Russia’s Transneft and Colombia’s Ecopetrol boosted returns within the Energy sector.

Telecom Services detracted most from performance due to poor returns from Latin American cellular provider Millicom International. Stock selection was also weak in Consumer Staples, as Chinese supermarket operator Wumart reported slower-than-anticipated growth due to difficulties integrating the back office and procurement functions of its recently acquired Tianjin business with its core Beijing office.

By region, Latin America and Asia contributed most to performance. Good stock selection in Latin America included Brazilian beverage company Ambev as well as cosmetics manufacturer Natura Cosméticos. Within Asia, relative returns were especially strong in India due to good returns from Ambuja Cements and HDFC Bank. Nigeria’s Zenith Bank contributed markedly to the year’s outperformance as well.

The largest detractor was Africa due to the Portfolio’s relatively light weighting in this region and weak stock selection. South African miner Impala Platinum and Egyptian contractor and cement manufacturer Orascom Construction both underperformed in this period.

Past performance does not guarantee future results.

Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Please see the Statement of Net Assets for a complete list of fund holdings.

The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks and differences in accounting methods. It also invests in emerging markets, which involve unique risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investment by the Portfolio in lower-rated and non-rated securities presents a greater risk of loss to principal and interest than higher-rated securities.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Index consists of 21 emerging market countries. The Index is net of foreign withholding taxes on dividends. You cannot invest directly in this Index.

 

38


Table of Contents

Harding, Loevner Funds, Inc.

 

Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012

 

 

Industry    Percentage of
Net Assets

Automobiles & Components

       4.2 %

Banks

       19.5  

Capital Goods

       3.3  

Commercial & Professional Services

       1.5  

Consumer Durables & Apparel

       2.5  

Diversified Financials

       1.6  

Energy

       10.8  

Food & Staples Retailing

       0.6  

Food, Beverage & Tobacco

       7.1  

Health Care Equipment & Services

       1.6  

Household & Personal Products

       3.6  

Insurance

       2.8  

Materials

       8.1  

Mutual Funds

       2.3  

Pharmaceuticals, Biotechnology & Life Sciences

       3.2  

Semiconductors & Semiconductor Equipment

       10.1  

Software & Services

       3.4  

Technology Hardware & Equipment

       3.5  

Telecommunication Services

       4.8  

Transportation

       5.1  
    

 

 

 

Total Investments

       99.6  

Other Assets Less Liabilities

       0.4  
    

 

 

 

Net Assets

       100.0 %
    

 

 

 

See Notes to Financial Statements

 

39


Table of Contents

Harding, Loevner Funds, Inc.

 

Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Common Stocks - 85.5%

     

Brazil - 7.4%

     

Banco Bradesco SA - ADR (Banks)

     1,668,202       $ 26,124,043   

BM&FBovespa SA (Diversified Financials)

     4,203,000         26,901,849   

Natura Cosmeticos SA (Household & Personal Products)

     407,400         10,861,727   

Odontoprev SA (Health Care Equipment & Services)

     1,547,000         7,997,587   

Petroleo Brasileiro SA - ADR (Energy)

     1,337,584         28,370,157   

Vale SA - Sponsored ADR (Materials)

     1,464,000         26,820,480   
     

 

 

 
        127,075,843   
     

 

 

 

Chile - 2.3%

     

Banco Santander Chile - ADR (Banks)

     604,901         16,447,248   

Sociedad Quimica y Minera de Chile SA - Sponsored ADR (Materials)

     396,300         22,925,955   
     

 

 

 
        39,373,203   
     

 

 

 

China - 12.3%

     

51job Inc. - ADR (Commercial & Professional Services)*

     191,671         9,014,287   

Anhui Conch Cement Co., Ltd., Class H (Materials)†

     2,982,000         10,297,645   

Baidu Inc. - Sponsored ADR (Software & Services)*

     218,500         23,296,470   

China Merchants Holdings International Co., Ltd. (Transportation)†

     9,158,276         30,322,068   

China Mobile Ltd. - Sponsored ADR (Telecommunication Services)

     441,100         24,432,529   

CNOOC Ltd. - ADR (Energy)

     131,000         26,927,050   

Hengan International Group Co., Ltd. (Household & Personal Products)†

     1,664,500         15,114,869   

Jiangsu Expressway Co., Ltd., Class H (Transportation)†

     8,871,000         7,641,075   

Shandong Weigao Group Medical Polymer Co., Ltd., Class H (Health Care Equipment & Services)†

     14,418,000         19,455,074   

Tencent Holdings Ltd. (Software & Services)†

     986,000         34,820,058   

Wumart Stores Inc., Class H (Food & Staples Retailing)†

     5,452,000         9,665,010   
     

 

 

 
        210,986,135   
     

 

 

 

Colombia - 2.5%

     

Bancolombia SA - Sponsored ADR (Banks)

     136,220         8,720,804   

Cementos Argos SA - Sponsored ADR (Materials)#†

     230,700         5,516,360   

Ecopetrol SA - Sponsored ADR (Energy)

     470,000         27,828,700   
     

 

 

 
        42,065,864   
     

 

 

 

Czech Republic - 1.1%

     

Komercni Banka A/S (Banks)†

     95,300         19,447,788   
     

 

 

 

Egypt - 0.8%

     

Orascom Construction Industries - GDR (Capital Goods)*†

     328,400         13,449,854   
     

 

 

 

Hong Kong - 2.8%

     

AIA Group Ltd. (Insurance)†

     7,090,000         28,047,378   

ASM Pacific Technology Ltd. (Semiconductors & Semiconductor Equipment)†

     1,826,100         20,345,080   
     

 

 

 
        48,392,458   
     

 

 

 

See Notes to Financial Statements

 

40


Table of Contents

Harding, Loevner Funds, Inc.

 

Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Hungary - 0.6%

     

Richter Gedeon Nyrt. (Pharmaceuticals, Biotechnology & Life Sciences)†

     52,300       $ 9,746,334   
     

 

 

 

India - 7.0%

     

Ambuja Cements Ltd. (Materials)†

     7,895,400         29,645,438   

Axis Bank Ltd. (Banks)†

     1,006,400         21,973,756   

Bajaj Auto Ltd. (Automobiles & Components)†

     453,500         15,260,940   

Dabur India Ltd. (Household & Personal Products)†

     6,672,304         15,411,078   

HDFC Bank Ltd. - ADR (Banks)

     499,185         18,664,527   

Maruti Suzuki India Ltd. (Automobiles & Components)†

     750,000         19,954,157   
     

 

 

 
        120,909,896   
     

 

 

 

Indonesia - 5.0%

     

Astra International Tbk PT (Automobiles & Components)†

     30,340,000         25,425,458   

Bank Rakyat Indonesia Persero Tbk PT (Banks)†

     32,362,000         24,930,072   

Semen Gresik Persero Tbk PT (Materials)†

     16,290,600         25,149,178   

United Tractors Tbk PT (Capital Goods)†

     4,593,000         10,013,493   
     

 

 

 
        85,518,201   
     

 

 

 

Italy - 1.1%

     

Tenaris SA - ADR (Energy)

     524,000         19,712,880   
     

 

 

 

Malaysia - 1.1%

     

Axiata Group Bhd. (Telecommunication Services)†

     8,986,000         19,239,235   
     

 

 

 

Mexico - 7.8%

     

America Movil SAB de CV, Series L - ADR (Telecommunication Services)

     1,528,594         38,658,142   

Coca-Cola Femsa SAB de CV - Sponsored ADR (Food, Beverage & Tobacco)

     180,700         23,113,337   

Fomento Economico Mexicano SAB de CV - Sponsored ADR (Food, Beverage & Tobacco)

     298,300         27,028,963   

Grupo Aeroportuario del Sureste SAB de CV - ADR (Transportation)

     195,698         18,898,556   

Grupo Financiero Banorte SAB de CV, Class O (Banks)

     4,798,840         26,660,222   
     

 

 

 
        134,359,220   
     

 

 

 

Nigeria - 1.6%

     

Zenith Bank plc (Banks)

     232,557,120         26,682,028   
     

 

 

 

Panama - 1.7%

     

Copa Holdings SA, Class A (Transportation)

     306,100         28,412,202   
     

 

 

 

Peru - 1.2%

     

Credicorp Ltd. (Banks)

     159,200         20,590,928   
     

 

 

 

Poland - 1.5%

     

Bank Pekao SA (Banks)#†

     293,261         14,107,260   

Kernel Holding SA (Food, Beverage & Tobacco)*†

     529,097         11,073,626   
     

 

 

 
        25,180,886   
     

 

 

 

See Notes to Financial Statements

 

41


Table of Contents

Harding, Loevner Funds, Inc.

 

Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Russia - 4.3%

     

Gazprom OAO - Sponsored ADR (Energy)†

     807,570       $ 7,410,017   

Lukoil OAO - Sponsored ADR (Energy)

     532,794         32,074,199   

Sberbank of Russia - Sponsored ADR (Banks)#†

     2,832,000         33,454,923   
     

 

 

 
        72,939,139   
     

 

 

 

South Africa - 2.5%

     

Aspen Pharmacare Holdings Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)†

     1,125,500         20,503,832   

Impala Platinum Holdings Ltd. (Materials)†

     582,800         10,473,704   

Standard Bank Group Ltd. (Banks)†

     979,034         12,103,896   
     

 

 

 
        43,081,432   
     

 

 

 

South Korea - 4.3%

     

Amorepacific Corp. (Household & Personal Products)†

     17,200         19,546,019   

Hankook Tire Co., Ltd. (Automobiles & Components)*†

     288,138         12,153,262   

Hankook Tire Worldwide Co., Ltd. (Diversified Financials)†

     65,861         849,827   

Samsung Electronics Co., Ltd. - GDR, Reg S (Semiconductors & Semiconductor Equipment)†

     34,680         20,997,236   

Samsung Fire & Marine Insurance Co., Ltd. (Insurance)†

     94,200         20,579,423   
     

 

 

 
        74,125,767   
     

 

 

 

Taiwan - 7.7%

     

Advantech Co., Ltd. (Technology Hardware & Equipment)†

     2,570,000         8,875,344   

Delta Electronics Inc. (Technology Hardware & Equipment)†

     3,951,751         13,555,319   

Hiwin Technologies Corp. (Capital Goods)†

     1,488,900         9,561,270   

Hon Hai Precision Industry Co., Ltd. (Technology Hardware & Equipment)†

     12,436,938         37,365,857   

MediaTek Inc. (Semiconductors & Semiconductor Equipment)†

     1,864,000         20,673,368   

Taiwan Semiconductor Manufacturing Co., Ltd. (Semiconductors & Semiconductor Equipment)†

     13,661,637         41,479,066   
     

 

 

 
        131,510,224   
     

 

 

 

Thailand - 1.5%

     

Siam Commercial Bank pcl (Banks)†

     4,955,300         26,027,773   
     

 

 

 

Turkey - 3.5%

     

Arcelik A/S (Consumer Durables & Apparel)†

     6,611,712         43,692,586   

Turkiye Garanti Bankasi A/S (Banks)†

     3,329,300         15,893,435   
     

 

 

 
        59,586,021   
     

 

 

 

United Arab Emirates - 1.0%

     

DP World Ltd. (Transportation)†

     186,400         2,256,016   

Dragon Oil plc (Energy)†

     1,700,000         15,226,095   
     

 

 

 
        17,482,111   
     

 

 

 

United Kingdom - 2.9%

     

Hikma Pharmaceuticals plc (Pharmaceuticals, Biotechnology & Life Sciences)†

     2,112,353         25,208,069   

SABMiller plc (Food, Beverage & Tobacco)†

     580,600         24,798,834   
     

 

 

 
        50,006,903   
     

 

 

 

See Notes to Financial Statements

 

42


Table of Contents

Harding, Loevner Funds, Inc.

 

Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

United Kingdom - 2.9% - (continued)

     

Total Common Stocks (Cost $1,037,580,737)

      $ 1,465,902,325   
     

 

 

 

Preferred Stocks - 8.6%

     

Brazil - 3.4%

     

Cia de Bebidas das Americas - ADR (Food, Beverage & Tobacco)

     870,500         35,507,695   

Itau Unibanco Holding SA - ADR (Banks)

     588,258         8,576,802   

Petroleo Brasileiro SA - Sponsored ADR (Energy)

     284,400         5,838,732   

Vale SA - Sponsored ADR (Materials)

     450,000         8,005,500   
     

 

 

 
        57,928,729   
     

 

 

 

Russia - 1.2%

     

AK Transneft OAO (Energy)#†

     10,600         21,192,903   
     

 

 

 

South Korea - 4.0%

     

Samsung Electronics Co., Ltd. - GDR, Reg S (Semiconductors & Semiconductor Equipment)†

     187,759         69,063,548   
     

 

 

 

Total Preferred Stocks (Cost $104,091,816)

        148,185,180   
     

 

 

 

Participation Notes - 3.2%

     

Qatar - 2.2%

     

Industries Qatar QSC, Issued by HSBC Bank plc, Maturity Date 2/23/15 (Capital Goods)#^†

     546,000         22,794,051   

Qatar National Bank, Issued by HSBC Bank plc, Maturity Date 9/23/13 (Banks)#^†

     403,200         14,828,130   
     

 

 

 
        37,622,181   
     

 

 

 

Saudi Arabia - 1.0%

     

Jarir Marketing Co., Issued by HSBC Bank plc, Maturity Date 5/4/15 (Commercial & Professional Services)#^†

     409,600         17,147,672   
     

 

 

 

Total Participation Notes (Cost $51,863,269)

        54,769,853   
     

 

 

 

Cash Equivalent - 2.3%

     

Northern Institutional Funds - Prime Obligations Portfolio, 0.12% (Mutual Funds)

     40,187,778         40,187,778   
     

 

 

 

Total Cash Equivalent (Cost $40,187,778)

        40,187,778   
     

 

 

 

Total Investments — 99.6%

(Cost $ 1,233,723,600)

      $ 1,709,045,136   
     

 

 

 

Summary of Abbreviations

 

ADR American Depository Receipt
GDR Global Depository Receipt
Reg  S Security sold outside United States without registration under the Securities Act of 1933.

See Notes to Financial Statements

 

43


Table of Contents

Harding, Loevner Funds, Inc.

 

Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

 

# Security valued at fair value as determined in good faith under policies and procedures established by and under the supervision of the Portfolio’s Board of Directors.
* Non-income producing security.
^ Security exempt from registration pursuant to Rule 144A of the Securities Act of 1933. These securities, which represent 3.2% of net assets as of October 31, 2012, are considered liquid and may be resold in transactions exempt from registration, normally to qualified buyers.
Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements.

See Notes to Financial Statements

 

44


Table of Contents

Harding, Loevner Funds, Inc.

 

Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Value  

Other Assets, Net of Liabilities - 0.4%

  

Dividends and interest receivable

   $ 2,218,231   

Foreign currency (cost $83,428)

     84,240   

Receivable for investments sold

     15,407,672   

Receivable for Fund shares sold

     2,248,597   

Tax reclaim receivable

     71,640   

Prepaid expenses

     19,020   

Payable to Investment Adviser

     (1,685,818

Payable for investments purchased

     (7,704,989

Payable for Fund shares redeemed

     (2,015,480

Payable for capital gains tax

     (1,536,920

Other liabilities

     (1,083,070
  

 

 

 
     6,023,123   
  

 

 

 

Net Assets - 100%

  

Advisor Class

  

Applicable to 34,622,755 outstanding $.001 par value shares (authorized 250,000,000 shares)

   $ 1,715,068,259   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 49.54   
  

 

 

 

Components of Net Assets as of October 31, 2012 were as follows:

  

Paid-in capital

   $ 1,131,091,030   

Accumulated undistributed net investment income

     12,078,855   

Accumulated net realized gain from investment transactions

     96,591,442   

Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies

     475,306,932   
  

 

 

 
   $ 1,715,068,259   
  

 

 

 

See Notes to Financial Statements

 

45


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio (Institutional Class) — Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc. -

Frontier Emerging Markets Portfolio - Institutional Class And The MSCI Frontier Emerging Markets Index

(Net Dividends Reinvested)

 

LOGO

 

                 
     Returns for the Year Ended October  31, 2012
     Cumulative Total Returns   Average Annualized
Total Return
FUND NAME   Last 12 Months   Inception   Inception

Frontier Emerging Markets Portfolio—
Institutional Class (Inception date 05/27/08)

  8.93%   -27.08%   -6.88%

MSCI Frontier Emerging Markets Index (Net dividends)

  9.97%   -30.30%   -7.83%
             

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

46


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio (Investor Class)— Overview

(unaudited)

October 31, 2012

 

 

Hypothetical Comparison Of Changes In Value Of $10,000 Investment In Harding, Loevner Funds, Inc. -

Frontier Emerging Markets Portfolio - Investor Class And The MSCI Frontier Emerging Markets Index

(Net Dividends Reinvested)

 

LOGO

 

                 
     Returns for the Year Ended October 31, 2012
     Cumulative Total Returns   Average Annualized
Total Return
FUND NAME   Last 12 Months   Inception   Inception

Frontier Emerging Markets Portfolio—
Investor Class (Inception date 12/31/10)

  8.49%   -9.36%   -5.22%

MSCI Frontier Emerging Markets Index (Net dividends)

  9.97%   -4.74%   -2.61%
             

Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevnerfunds.com.

Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.

 

47


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio - Overview

(unaudited)

October 31, 2012

 

 

The Frontier Emerging Markets Portfolio (the “Portfolio”) Investor Class rose 8.49%, and the Institutional Class rose 8.93% (after all fees and expenses) for the fiscal year ended October 31, 2012. In comparison, the Portfolio’s benchmark, the MSCI Frontier Emerging Markets Index (the “Index”), rose 9.97%, net of source taxes.

Consistent with its investment objectives and policies, the Portfolio was invested in the securities of companies with strong growth prospects in frontier and smaller emerging markets countries that we regard as both economically stable and as offering attractive long-term investment potential.

The Portfolio benefitted over the last 12 months from strong selection in Financials and Telecom Services. In Financials, both Access Bank Nigeria and First Bank of Nigeria have grown their loan books and their net interest margins remain high. In Telecom Services, Kenya’s Safaricom is enjoying reduced competitive pressures in its home market, allowing the company to raise prices. Meanwhile, Saudi Arabia’s Etihad Etisalat possesses a competitive industry position and strong telecom infrastructure. The company is at the end of its investment cycle and has the potential to generate significant free cash flow in the near future.

Weak stock selection in Consumer Staples and Energy detracted from relative performance. Argentinian branded-foods manufacturer Molinos Rio de La Plata and agricultural commodities company Cresud fell on concerns of increasing regulatory risk in the country. In Energy, Latin America’s Petrominerales had disappointing results from new well exploration activities this period.

Geographically, the Portfolio’s investments in the Gulf States helped relative returns, particularly the light exposure to Kuwait and good stock selection in Qatar. The Portfolio underperformed in Asia, where a small weighting in the outperforming Philippines was the primary detractor.

Past performance does not guarantee future results.

Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Please see the Statement of Net Assets for a complete list of fund holdings.

Foreign investments involve additional risks, including greater volatility and political, economic, and currency risks and differences in accounting methods. Emerging markets countries involve greater risks, such as immature economic structures, national policies restricting investments by foreigners, and different legal systems. Such risks may be magnified with respect to securities of issuers in frontier emerging markets. The Portfolio can have significant concentration in a single industry, and investment opportunities in frontier markets may be concentrated in the banking industry. The Portfolio will be vulnerable to factors affecting an industry in which it is concentrated. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investment in lower-rated and non-rated securities presents a greater risk of loss of principal and interest than higher-rated securities. Mutual fund investing involves risk. Principal loss is possible.

The MSCI Frontier Emerging Markets Index is a free float-adjusted market capitalization index designed to measure equity market performance in all countries from the MSCI Frontier Markets Index and the lower size spectrum of the MSCI Emerging Markets Index. The Index consists of 26 frontier markets and 5 emerging markets. The Index is net of foreign withholding taxes on dividends. You cannot invest directly in this Index.

Free cash flow is revenue less operating expenses including interest expense and maintenance capital spending. It is the discretionary cash that a company has after all expenses and is available for purposes such as dividend payments, investing back into the business or share repurchases.

 

48


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012

 

 

Industry    Percentage of
Net Assets

Automobiles & Components

       0.9 %

Banks

       32.3  

Capital Goods

       9.8  

Commercial & Professional Services

       3.1  

Consumer Durables & Apparel

       1.5  

Diversified Financials

       3.7  

Energy

       6.9  

Food, Beverage & Tobacco

       9.3  

Materials

       10.1  

Media

       1.5  

Mutual Funds

       3.4  

Pharmaceuticals, Biotechnology & Life Sciences

       4.1  

Real Estate

       1.9  

Retailing

       1.5  

Technology Hardware & Equipment

       0.6  

Telecommunication Services

       6.1  

Transportation

       1.5  

Utilities

       1.8  
    

 

 

 

Total Investments

       100.0  

Other Assets Less Liabilities

       0.0  
    

 

 

 

Net Assets

       100.0 %
    

 

 

 

See Notes to Financial Statements

 

49


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Common Stocks - 87.6%

     

Argentina - 0.7%

     

Cresud SACIF y A - Sponsored ADR (Real Estate)

     77,100       $ 617,571   
     

 

 

 

Bangladesh - 2.7%

     

Lafarge Surma Cement Ltd. (Materials)*

     1,396,500         606,912   

Power Grid Co. of Bangladesh Ltd. (Utilities)

     482,400         411,577   

Square Pharmaceuticals Ltd. (Pharmaceuticals, Biotechnology & Life Sciences)

     595,818         1,313,771   
     

 

 

 
        2,332,260   
     

 

 

 

Canada - 0.8%

     

Katanga Mining Ltd. (Materials)*

     634,375         304,874   

Petrominerales Ltd. (Energy)

     43,600         349,665   
     

 

 

 
        654,539   
     

 

 

 

Colombia - 11.1%

     

Bancolombia SA - Sponsored ADR (Banks)

     13,522         865,678   

Cementos Argos SA - Sponsored ADR (Materials)#†

     121,840         2,913,365   

Ecopetrol SA - Sponsored ADR (Energy)

     37,400         2,214,454   

Grupo de Inversiones Suramericana SA - Sponsored ADR (Diversified Financials)#†

     43,900         1,714,045   

Grupo Odinsa SA (Capital Goods)

     171,173         896,157   

Interconexion Electrica SA ESP - ADR (Utilities)#†

     5,700         771,714   
     

 

 

 
        9,375,413   
     

 

 

 

Croatia - 0.5%

     

Ericsson Nikola Tesla (Technology Hardware & Equipment)†

     2,121         469,037   
     

 

 

 

Egypt - 5.4%

     

Commercial International Bank Egypt SAE (Banks)†

     146,500         908,360   

Ghabbour Auto (Automobiles & Components)†

     143,420         734,639   

Orascom Construction Industries - GDR (Capital Goods)*†

     26,450         1,083,278   

Orascom Telecom Holding SAE - GDR, Reg S (Telecommunication Services)*†

     186,069         559,683   

Oriental Weavers (Consumer Durables & Apparel)†

     330,784         1,303,551   
     

 

 

 
        4,589,511   
     

 

 

 

Estonia - 0.5%

     

Tallink Group AS (Transportation)*

     519,120         456,201   
     

 

 

 

Ghana - 0.9%

     

Ghana Commercial Bank Ltd. (Banks)

     746,149         809,187   
     

 

 

 

Indonesia - 1.0%

     

Bank Rakyat Indonesia Persero Tbk PT (Banks)†

     1,084,980         835,815   
     

 

 

 

Isle of Man - 0.9%

     

Zhaikmunai LP - GDR, Reg S (Energy)†

     72,800         781,225   
     

 

 

 

See Notes to Financial Statements

 

50


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Jordan - 1.5%

     

Arab Bank plc (Banks)†

     73,050       $ 727,764   

Arab Potash Co. (Materials)†

     7,924         531,835   
     

 

 

 
        1,259,599   
     

 

 

 

Kazakhstan - 1.8%

     

Halyk Savings Bank of Kazakhstan JSC - GDR, Reg S (Banks)*†

     131,999         938,511   

KazMunaiGas Exploration Production JSC - GDR, Reg S (Energy)†

     32,650         580,064   
     

 

 

 
        1,518,575   
     

 

 

 

Kenya - 4.5%

     

Equity Bank Ltd. (Banks)†

     4,156,200         1,184,573   

Nation Media Group Ltd. (Media)†

     489,740         1,299,638   

Safaricom Ltd. (Telecommunication Services)†

     24,881,400         1,286,469   
     

 

 

 
        3,770,680   
     

 

 

 

Lebanon - 0.6%

     

Banque Audi sal- Audi Saradar Group - GDR, Reg S (Banks)†

     82,890         505,629   
     

 

 

 

Mauritius - 0.4%

     

Mauritius Commercial Bank (Banks)

     68,280         356,340   
     

 

 

 

Morocco - 1.2%

     

Douja Promotion Groupe Addoha SA (Real Estate)†

     137,788         996,425   
     

 

 

 

Nigeria - 12.0%

     

Access Bank plc (Banks)

     53,121,093         3,010,173   

Dangote Cement plc (Materials)

     1,211,000         926,100   

Diamond Bank plc (Banks)*

     38,889,692         1,007,774   

First Bank of Nigeria plc (Banks)

     31,600,000         3,261,403   

Lafarge Cement WAPCO Nigeria plc (Materials)

     1,680,474         599,176   

UAC of Nigeria plc (Capital Goods)

     5,236,598         1,333,655   
     

 

 

 
        10,138,281   
     

 

 

 

Pakistan - 2.5%

     

Engro Corp., Ltd. (Materials)†

     489,692         471,150   

MCB Bank Ltd. (Banks)†

     211,570         416,961   

Pakistan Petroleum Ltd. (Energy)†

     668,298         1,205,844   
     

 

 

 
        2,093,955   
     

 

 

 

Peru - 7.9%

     

Alicorp SA (Food, Beverage & Tobacco)

     943,483         2,675,902   

Credicorp Ltd. (Banks)

     21,800         2,819,612   

Ferreycorp SAA (Capital Goods)

     386,533         320,682   

Union Andina de Cementos SAA (Materials)

     698,880         833,316   
     

 

 

 
        6,649,512   
     

 

 

 

See Notes to Financial Statements

 

51


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Philippines - 6.8%

     

Bank of the Philippine Islands (Banks)†

     900,000       $ 1,768,839   

Philippine Long Distance Telephone Co. - Sponsored ADR (Telecommunication Services)

     21,660         1,376,060   

Universal Robina Corp. (Food, Beverage & Tobacco)†

     1,500,000         2,615,316   
     

 

 

 
        5,760,215   
     

 

 

 

Poland - 0.4%

     

Kernel Holding SA (Food, Beverage & Tobacco)*†

     16,680         349,101   
     

 

 

 

Qatar - 6.6%

     

Commercial Bank of Qatar QSC (Banks)†

     52,630         1,039,441   

Industries Qatar QSC (Capital Goods)†

     52,000         2,170,981   

Qatar Electricity & Water Co. (Utilities)†

     10,050         367,525   

Qatar National Bank SAQ (Banks)†

     54,357         1,998,680   
     

 

 

 
        5,576,627   
     

 

 

 

Senegal - 1.1%

     

Sonatel (Telecommunication Services)

     3,795         899,856   
     

 

 

 

Serbia - 0.2%

     

Energoprojekt Holding ad Beograd (Capital Goods)*

     23,677         149,180   
     

 

 

 

Slovenia - 1.0%

     

Krka dd Novo mesto (Pharmaceuticals, Biotechnology & Life Sciences)†

     13,460         833,504   
     

 

 

 

Sri Lanka - 2.1%

     

Commercial Bank of Ceylon plc (Banks)†

     980,000         789,362   

John Keells Holdings plc (Capital Goods)†

     630,353         992,831   
     

 

 

 
        1,782,193   
     

 

 

 

Thailand - 3.8%

     

Home Product Center pcl (Retailing)†

     3,278,202         1,219,219   

Siam Commercial Bank pcl (Banks)†

     186,300         978,543   

Thai Vegetable Oil pcl (Food, Beverage & Tobacco)†

     1,276,600         1,024,545   
     

 

 

 
        3,222,307   
     

 

 

 

Trinidad & Tobago - 1.4%

     

Neal & Massy Holdings Ltd. (Capital Goods)

     65,422         492,767   

Republic Bank Ltd. (Banks)

     37,452         641,967   

Trinidad Cement Ltd. (Materials)*

     186,210         50,923   
     

 

 

 
        1,185,657   
     

 

 

 

Ukraine - 0.5%

     

Astarta Holding NV (Food, Beverage & Tobacco)*†

     20,720         415,358   
     

 

 

 

See Notes to Financial Statements

 

52


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

United Arab Emirates - 3.7%

     

Arabtec Holding Co. (Capital Goods)†

     1,231,091       $ 861,729   

DP World Ltd. (Transportation)

     70,000         830,200   

Dragon Oil plc (Energy)†

     77,000         689,652   

Dubai Financial Market (Diversified Financials)*†

     2,594,510         712,397   
     

 

 

 
        3,093,978   
     

 

 

 

United Kingdom - 2.2%

     

Ferrexpo plc (Materials)†

     54,630         184,804   

Hikma Pharmaceuticals plc (Pharmaceuticals, Biotechnology & Life Sciences)†

     112,090         1,337,642   

Kazakhmys plc (Materials)†

     29,520         339,229   
     

 

 

 
        1,861,675   
     

 

 

 

Vietnam - 0.9%

     

Petrovietnam Fertilizer & Chemical JSC (Materials)†

     452,000         778,265   
     

 

 

 

Total Common Stocks (Cost $68,632,905)

        74,117,671   
     

 

 

 

Participation Notes - 9.0%

     

Kuwait - 3.7%

     

Kuwait Projects Co. Holdings, Issued by HSBC Bank plc, Maturity Date 1/16/15 (Diversified Financials)#^†

     511,053         708,786   

National Bank of Kuwait, Issued by Deutsche Bank AG, Maturity Date 3/28/18 (Banks)#^†

     709,900         2,423,556   
     

 

 

 
        3,132,342   
     

 

 

 

Saudi Arabia - 5.3%

     

Almarai Co., Ltd., Issued by HSBC Bank plc, Maturity Date 11/24/14 (Food, Beverage & Tobacco)#^†

     44,034         813,118   

Etihad Etisalat Co., Issued by HSBC Bank plc, Maturity Date 12/5/14 (Telecommunication Services)#^†

     53,300         1,030,412   

Jarir Marketing Co., Issued by HSBC Bank plc, Maturity Date 5/4/15 (Commercial & Professional Services)#^†

     62,615         2,621,341   
     

 

 

 
        4,464,871   
     

 

 

 

Total Participation Notes (Cost $7,575,855)

        7,597,213   
     

 

 

 

See Notes to Financial Statements

 

53


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Shares      Value  

Cash Equivalent - 3.4%

     

Northern Institutional Funds - Prime Obligations Portfolio, 0.12% (Mutual Funds)

     2,848,121       $ 2,848,121   
     

 

 

 

Total Cash Equivalent (Cost $2,848,121)

        2,848,121   
     

 

 

 

Total Investments — 100.0%

(Cost $ 79,056,881)

      $ 84,563,005   
     

 

 

 

Summary of Abbreviations

 

ADR American Depository Receipt
GDR Global Depository Receipt
Reg  S Security sold outside United States without registration under the Securities Act of 1933.
# Security valued at fair value as determined in good faith under policies and procedures established by and under the supervision of the Portfolio’s Board of Directors.
* Non-income producing security.
^ Security exempt from registration pursuant to Rule 144A of the Securities Act of 1933. These securities, which represent 9.0% of net assets as of October 31, 2012, are considered liquid and may be resold in transactions exempt from registration, normally to qualified buyers.
Investment categorized as level 2 security as disclosed in Note 2 of the Notes to Financial Statements.

See Notes to Financial Statements

 

54


Table of Contents

Harding, Loevner Funds, Inc.

 

Frontier Emerging Markets Portfolio

Statement of Net Assets

October 31, 2012 (continued)

 

 

      Value  

Other Assets, Net of Liabilities - 0.0%

  

Dividends and interest receivable

   $ 125,177   

Foreign currency (cost $53,880)

     53,474   

Receivable for Fund shares sold

     50,122   

Tax reclaim receivable

     3,800   

Prepaid expenses

     3,216   

Payable to Investment Adviser

     (107,969

Payable for Fund shares redeemed

     (420

Payable for distribution fees

     (340

Payable for capital gains tax

     (33,769

Other liabilities

     (85,642
  

 

 

 
     7,649   
  

 

 

 

Net Assets - 100%

  

Institutional Class

  

Applicable to 11,460,766 outstanding $.001 par value shares (authorized 200,000,000 shares)

   $ 81,567,860   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 7.12   
  

 

 

 

Investor Class

  

Applicable to 423,905 outstanding $.001 par value shares (authorized 200,000,000 shares)

   $ 3,002,794   
  

 

 

 

Net Asset Value, Offering Price and Redemption Price Per Share

   $ 7.08   
  

 

 

 

Components of Net Assets as of October 31, 2012 were as follows:

  

Paid-in capital

   $ 93,723,431   

Accumulated undistributed net investment income

     516,655   

Accumulated net realized loss from investment transactions

     (15,174,633

Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies

     5,505,201   
  

 

 

 
   $ 84,570,654   
  

 

 

 

See Notes to Financial Statements

 

55


Table of Contents

Harding, Loevner Funds, Inc.

 

Statements of Operations

Year Ended October 31, 2012

 

 

     Global
Equity
Portfolio
    International
Equity
Portfolio
 

Investment Income

    

Interest

   $ 11      $ 110   

Dividends (net of foreign withholding taxes of $194,579 and $3,220,481, respectively)

     4,179,154        33,696,449   
  

 

 

   

 

 

 

Total investment income

     4,179,165        33,696,559   
  

 

 

   

 

 

 

Expenses

    

Investment advisory fees (Note 3)

     2,372,592        11,786,537   

Administration fees (Note 3)

     99,003        472,408   

Distribution fees, Investor Class

            582,041   

Custody and accounting fees (Note 3)

     67,091        365,971   

Directors’ fees and expenses (Note 3)

     23,182        146,653   

Transfer agent fees and expenses (Note 3)

     46,617        193,025   

Printing and postage fees

     28,168        199,872   

State registration filing fees

     61,748        140,932   

Professional fees

     54,649        181,011   

Shareholder servicing fees (Note 3)

     142,884        451,882   

Chief compliance and financial officers’ fees and expenses (Note 3)

     22,979        89,223   

Other fees and expenses

     20,999        114,842   
  

 

 

   

 

 

 

Total Expenses

     2,939,912        14,724,397   
  

 

 

   

 

 

 

Less Waiver of investment advisory fee and/or reimbursement of other operating expenses (Note 3)

     (390,287       
  

 

 

   

 

 

 

Net expenses

     2,549,625        14,724,397   
  

 

 

   

 

 

 

Net investment income

     1,629,540        18,972,162   
  

 

 

   

 

 

 

Realized and Unrealized Gain (Loss)

    

Net realized gain (loss) —
Investment transactions

     (780,028     (21,627,502

Foreign currency transactions

     (29,413     (450,352
  

 

 

   

 

 

 

Net realized loss

     (809,441     (22,077,854
  

 

 

   

 

 

 

Change in unrealized appreciation (depreciation) —
Investments

     19,722,947        152,184,129   

Translation of assets and liabilities denominated in foreign currencies

     (5,535     (53,617
  

 

 

   

 

 

 

Net change in unrealized appreciation

     19,717,412        152,130,512   
  

 

 

   

 

 

 

Net realized and unrealized gain

     18,907,971        130,052,658   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 20,537,511      $ 149,024,820   
  

 

 

   

 

 

 

See Notes to Financial Statements

 

56


Table of Contents

Harding, Loevner Funds, Inc.

 

Statements of Operations (continued)

Year Ended October 31, 2012

 

 

     International
Small
Companies
Portfolio
    Institutional
Emerging
Markets
Portfolio
 

Investment Income

    

Interest

   $      $ 96   

Dividends (net of foreign withholding taxes of $172,239, and $854,340, respectively)

     1,594,610        8,860,295   
  

 

 

   

 

 

 

Total investment income

     1,594,610        8,860,391   
  

 

 

   

 

 

 

Expenses

    

Investment advisory fees (Note 3)

     688,165        4,502,436   

Administration fees (Note 3)

     22,021        143,830   

Distribution fees, Investor Class

     71,679          

Custody and accounting fees (Note 3)

     28,165        191,311   

Directors’ fees and expenses (Note 3)

     5,063        36,506   

Transfer agent fees and expenses (Note 3)

     42,761        40,133   

Printing and postage fees

     8,937        48,367   

State registration filing fees

     44,691        28,299   

Professional fees

     35,692        87,744   

Shareholder servicing fees (Note 3)

     43,569        89,103   

Chief compliance and financial officers’ fees and expenses (Note 3)

     13,236        29,689   

Other fees and expenses

     8,251        30,623   
  

 

 

   

 

 

 

Total Expenses

     1,012,230        5,228,041   
  

 

 

   

 

 

 

Less Waiver of investment advisory fee and/or reimbursement of other operating expenses (Note 3)

     (114,752     (225,402
  

 

 

   

 

 

 

Net expenses

     897,478        5,002,639   
  

 

 

   

 

 

 

Net investment income

     697,132        3,857,752   
  

 

 

   

 

 

 

Realized and Unrealized Gain (Loss)

    

Net realized gain (loss) —
Investment transactions (net of foreign taxes of $- and $1,183, repectively)

     (654,220     (2,956,384

Foreign currency transactions

     (22,073     (175,010
  

 

 

   

 

 

 

Net realized loss

     (676,293     (3,131,394
  

 

 

   

 

 

 

Change in unrealized appreciation (depreciation) —
Investments (net of increase in deferred foreign taxes of $- and $226,572, respectively)

     5,309,003        42,306,727   

Translation of assets and liabilities denominated in foreign currencies

     (1,347     (4,709
  

 

 

   

 

 

 

Net change in unrealized appreciation

     5,307,656        42,302,018   
  

 

 

   

 

 

 

Net realized and unrealized gain

     4,631,363        39,170,624   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 5,328,495      $ 43,028,376   
  

 

 

   

 

 

 

See Notes to Financial Statements

 

57


Table of Contents

Harding, Loevner Funds, Inc.

 

Statements of Operations (continued)

Year Ended October 31, 2012

 

 

     Emerging
Markets
Portfolio
    Frontier
Emerging
Markets
Portfolio
 

Investment Income

    

Interest

   $ 276      $   

Dividends (net of foreign withholding taxes of $3,622,986, and $149,034, respectively)

     36,976,835        2,352,174   
  

 

 

   

 

 

 

Total investment income

     36,977,111        2,352,174   
  

 

 

   

 

 

 

Expenses

    

Investment advisory fees (Note 3)

     18,752,432        1,179,508   

Administration fees (Note 3)

     481,734        31,454   

Distribution fees, Investor Class

            4,673   

Custody and accounting fees (Note 3)

     594,430        164,965   

Directors’ fees and expenses (Note 3)

     151,912        7,441   

Transfer agent fees and expenses (Note 3)

     118,826        42,603   

Printing and postage fees

     331,014        13,243   

State registration filing fees

     44,556        50,442   

Professional fees

     221,010        48,948   

Shareholder servicing fees (Note 3)

     3,185,485        11,971   

Chief compliance and financial officers’ fees and expenses (Note 3)

     91,770        14,468   

Other fees and expenses

     120,971        12,037   
  

 

 

   

 

 

 

Total Expenses

     24,094,140        1,581,753   
  

 

 

   

 

 

 

Less Waiver of investment advisory fee and/or reimbursement of other operating expenses (Note 3)

            (45,880
  

 

 

   

 

 

 

Net expenses

     24,094,140        1,535,873   
  

 

 

   

 

 

 

Net investment income

     12,882,971        816,301   
  

 

 

   

 

 

 

Realized and Unrealized Gain (Loss)

    

Net realized gain (loss) —
Investment transactions

     116,161,792        (8,692,956

Foreign currency transactions

     (804,004     (126,134
  

 

 

   

 

 

 

Net realized gain (loss)

     115,357,788        (8,819,090
  

 

 

   

 

 

 

Change in unrealized appreciation (depreciation) —
Investments

     29,598,061        13,935,106   

Translation of assets and liabilities denominated in foreign currencies

     (31,947     5,809   
  

 

 

   

 

 

 

Net change in unrealized appreciation

     29,566,114        13,940,915   
  

 

 

   

 

 

 

Net realized and unrealized gain

     144,923,902        5,121,825   
  

 

 

   

 

 

 

Net increase in net assets resulting from operations

   $ 157,806,873      $ 5,938,126   
  

 

 

   

 

 

 

See Notes to Financial Statements

 

58


Table of Contents

Harding, Loevner Funds, Inc.

 

Statements of Changes in Net Assets

      

 

 

     Global Equity Portfolio  
     Year Ended
October 31,
2012
    Year Ended
October 31,
2011
 

Increase (Decrease) in Net Assets from Operations

    

Net investment income

   $ 1,629,540      $ 777,945   

Net realized gain (loss) on investments and foreign currency transactions

     (809,441     1,157,896   

Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies

     19,717,412        (3,080,013
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     20,537,511        (1,144,172
  

 

 

   

 

 

 

Distributions to Shareholders from:

    

Net investment income

    

Institutional Class

     (684,027     (276,121

Advisor Class

     (113,542     (13,880

Net realized gain from investments and foreign-currency related transactions

    

Institutional Class

     (1,537,528     (728,148

Advisor Class

     (545,744     (323,990
  

 

 

   

 

 

 

Total distributions to shareholders

     (2,880,841     (1,342,139
  

 

 

   

 

 

 

Transactions in Shares of Common Stock(1)

    

Proceeds from sale of shares

    

Institutional Class

     91,670,031        57,666,639   

Advisor Class

     20,087,287        35,483,876   

Net Asset Value of shares issued to shareholders upon reinvestment of dividends

    

Institutional Class

     1,833,323        757,810   

Advisor Class

     642,691        319,667   

Cost of shares redeemed

    

Institutional Class

     (27,697,196     (14,433,357

Advisor Class

     (14,405,854     (22,627,479

Redemption fees

    

Institutional Class

     18,098        1,922   

Advisor Class

     4,602        20,283   
  

 

 

   

 

 

 

Net increase in net assets from portfolio share transactions

     72,152,982        57,189,361   
  

 

 

   

 

 

 

Net Increase in Net Assets

     89,809,652        54,703,050   

Net Assets

    

At beginning of year

     205,428,545        150,725,495   
  

 

 

   

 

 

 

At end of year

   $ 295,238,197      $ 205,428,545   
  

 

 

   

 

 

 

Accumulated Undistributed Net Investment Income Included in Net Assets

   $ 1,540,991      $ 738,434   
  

 

 

   

 

 

 

(1) Capital Share Transactions:

    

Institutional Class:

    

Shares sold

     3,808,905        2,418,120   

Shares issued upon reinvestment of dividends

     85,389        31,276   

Shares redeemed

     (1,144,945     (590,237
  

 

 

   

 

 

 

Net increase

     2,749,349        1,859,159   
  

 

 

   

 

 

 

Advisor Class

    

Shares sold

     821,759        1,435,477   

Shares issued upon reinvestment of dividends

     29,907        13,193   

Shares redeemed

     (599,801     (930,560
  

 

 

   

 

 

 

Net increase

     251,865        518,110   
  

 

 

   

 

 

 

See Notes to Financial Statements

 

59


Table of Contents

Harding, Loevner Funds, Inc.

 

Statements of Changes in Net Assets (continued)

      

 

 

     International Equity Portfolio  
     Year Ended
October 31,
2012
    Year Ended
October 31,
2011
 

Increase (Decrease) in Net Assets from Operations

    

Net investment income

   $ 18,972,162      $ 10,081,566   

Net realized gain (loss) on investments and foreign currency transactions

     (22,077,854     3,738,022   

Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies

     152,130,512        (67,252,727
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     149,024,820        (53,433,139
  

 

 

   

 

 

 

Distributions to Shareholders from:

    

Net investment income

    

Institutional Class

     (8,435,017     (2,289,138

Investor Class

     (893,072     (210,939

Net realized gain from investments and foreign-currency related transactions

    

Institutional Class

     (2,613,516       

Investor Class

     (520,125       
  

 

 

   

 

 

 

Total distributions to shareholders

     (12,461,730     (2,500,077
  

 

 

   

 

 

 

Transactions in Shares of Common Stock(1)

    

Proceeds from sale of shares

    

Institutional Class

     939,709,934        599,634,622   

Investor Class

     138,691,379        201,027,494   

Net Asset Value of shares issued to shareholders upon reinvestment of dividends

    

Institutional Class

     9,656,302        1,793,340   

Investor Class

     1,342,486        198,416   

Cost of shares redeemed

    

Institutional Class

     (240,252,076     (84,673,697

Investor Class

     (118,142,336     (65,395,019

Redemption fees

    

Institutional Class

     152,620        109,344   

Investor Class

     54,231        56,300   
  

 

 

   

 

 

 

Net increase in net assets from portfolio share transactions

     731,212,540        652,750,800   
  

 

 

   

 

 

 

Net Increase in Net Assets

     867,775,630        596,817,584   

Net Assets

    

At beginning of year

     1,206,632,321        609,814,737   
  

 

 

   

 

 

 

At end of year

   $ 2,074,407,951      $ 1,206,632,321   
  

 

 

   

 

 

 

Accumulated Undistributed Net Investment Income Included in Net Assets

   $ 18,521,821      $ 9,328,100   
  

 

 

   

 

 

 

(1)Capital Share Transactions:

    

Institutional Class:

    

Shares sold

     65,948,571        40,523,413   

Shares issued upon reinvestment of dividends

     756,763        121,911   

Shares redeemed

     (16,871,394     (5,748,378
  

 

 

   

 

 

 

Net increase

     49,833,940        34,896,946   
  

 

 

   

 

 

 

Investor Class

    

Shares sold

     9,719,567        13,439,479   

Shares issued upon reinvestment of dividends

     105,293        13,495   

Shares redeemed

     (8,527,692     (4,547,245
  

 

 

   

 

 

 

Net increase

     1,297,168        8,905,729   
  

 

 

   

 

 

 

See Notes to Financial Statements

 

60


Table of Contents

Harding, Loevner Funds, Inc.

 

Statements of Changes in Net Assets (continued)

      

 

 

     International Small Companies Portfolio  
     Year Ended
October 31,

2012
    Year Ended
October 31,

2011
 

Increase (Decrease) in Net Assets from Operations

    

Net investment income

   $ 697,132      $ 366,374   

Net realized gain (loss) on investments and foreign currency transactions

     (676,293     362,866   

Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies

     5,307,656        (4,168,855
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     5,328,495        (3,439,615
  

 

 

   

 

 

 

Distributions to Shareholders from:

    

Net investment income

    

Institutional Class

     (161,662       

Investor Class

     (173,171     (47,000
  

 

 

   

 

 

 

Total distributions to shareholders

     (334,833     (47,000
  

 

 

   

 

 

 

Transactions in Shares of Common Stock(1)

    

Proceeds from sale of shares

    

Institutional Class

     17,978,898        15,339,181 (2) 

Investor Class

     9,292,966        31,885,145   

Net Asset Value of shares issued to shareholders upon reinvestment of dividends

    

Institutional Class

     130,766          

Investor Class

     160,271        43,816   

Cost of shares redeemed

    

Institutional Class

     (1,391,951     (708,630 )(2) 

Investor Class

     (10,558,037     (12,905,747

Redemption fees

    

Institutional Class

     14,028        1,933 (2) 

Investor Class

     2,439        7,507   
  

 

 

   

 

 

 

Net increase in net assets from portfolio share transactions

     15,629,380        33,663,205   
  

 

 

   

 

 

 

Net Increase in Net Assets

     20,623,042        30,176,590   

Net Assets

    

At beginning of year

     44,141,272        13,964,682   
  

 

 

   

 

 

 

At end of year

   $ 64,764,314      $ 44,141,272   
  

 

 

   

 

 

 

Accumulated Undistributed Net Investment Income Included in Net Assets

   $ 665,965      $ 325,737   
  

 

 

   

 

 

 

(1) Capital Share Transactions:

    

Institutional Class:

    

Shares sold

     1,709,827        1,398,064 (2) 

Shares issued upon reinvestment of dividends

     13,956          

Shares redeemed

     (126,321     (68,030 )(2) 
  

 

 

   

 

 

 

Net increase

     1,597,462        1,330,034   
  

 

 

   

 

 

 

Investor Class

    

Shares sold

     865,151        2,720,512   

Shares issued upon reinvestment of dividends

     17,086        3,951   

Shares redeemed

     (1,014,994     (1,147,689
  

 

 

   

 

 

 

Net increase (decrease)

     (132,757     1,576,774   
  

 

 

   

 

 

 

 

(2) For the period from June 30, 2011 (commencement of class operations) through October 31, 2011.

See Notes to Financial Statements

 

61


Table of Contents

Harding, Loevner Funds, Inc.

 

Statements of Changes in Net Assets (continued)

 

 

 

     Institutional Emerging Markets Portfolio  
     Year Ended
October 31,

2012
    Year Ended
October 31,

2011
 

Increase (Decrease) in Net Assets from Operations

    

Net investment income

   $ 3,857,752      $ 4,056,302   

Net realized loss on investments and foreign currency transactions

     (3,131,394     (2,109,246

Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies

     42,302,018        (48,022,367
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     43,028,376        (46,075,311
  

 

 

   

 

 

 

Distributions to Shareholders from:

    

Net investment income

     (3,430,979     (1,078,916
  

 

 

   

 

 

 

Total distributions to shareholders

     (3,430,979     (1,078,916
  

 

 

   

 

 

 

Transactions in Shares of Common Stock(1)

    

Proceeds from sale of shares

     207,655,743        171,526,601   

Net Asset Value of shares issued to shareholders upon reinvestment of dividends

     2,570,787        870,785   

Cost of shares redeemed

     (114,789,511     (171,940,753

Redemption fees

     44,109        36,537   
  

 

 

   

 

 

 

Net increase in net assets from portfolio share transactions

     95,481,128        493,170   
  

 

 

   

 

 

 

Net Increase (Decrease) in Net Assets

     135,078,525        (46,661,057

Net Assets

    

At beginning of year

     328,712,597        375,373,654   
  

 

 

   

 

 

 

At end of year

   $ 463,791,122      $ 328,712,597   
  

 

 

   

 

 

 

Accumulated Undistributed Net Investment Income Included in Net Assets

   $ 3,682,733      $ 3,430,970   
  

 

 

   

 

 

 

(1) Capital Share Transactions:

    

     Institutional Class:

    

Shares sold

     13,500,583        10,378,951   

Shares issued upon reinvestment of dividends

     187,375        51,925   

Shares redeemed

     (7,495,123     (11,094,796
  

 

 

   

 

 

 

Net increase (decrease)

     6,192,835        (663,920
  

 

 

   

 

 

 

See Notes to Financial Statements

 

62


Table of Contents

Harding, Loevner Funds, Inc.

 

Statements of Changes in Net Assets (continued)

 

 

 

     Emerging Markets Portfolio  
     Year Ended
October 31,

2012
    Year Ended
October 31,

2011
 

Increase (Decrease) in Net Assets from Operations

    

Net investment income

   $ 12,882,971      $ 12,592,512   

Net realized gain on investments and foreign currency transactions

     115,357,788        36,132,718   

Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies

     29,566,114        (242,222,294
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     157,806,873        (193,497,064
  

 

 

   

 

 

 

Distributions to Shareholders from:

    

Net investment income

     (12,198,687     (8,430,123
  

 

 

   

 

 

 

Total distributions to shareholders

     (12,198,687     (8,430,123
  

 

 

   

 

 

 

Transactions in Shares of Common Stock(1)

    

Proceeds from sale of Advisor Class shares

     316,743,964        513,900,199   

Net Asset Value of Advisor Class shares issued to shareholders upon reinvestment of dividends

     11,171,687        7,482,325   

Cost of Advisor Class shares redeemed

     (452,237,000     (688,295,547

Redemption fees

     130,937        236,079   
  

 

 

   

 

 

 

Net decrease in net assets from portfolio share transactions

     (124,190,412     (166,676,944
  

 

 

   

 

 

 

Net Increase (Decrease) in Net Assets

     21,417,774        (368,604,131

Net Assets

    

At beginning of year

     1,693,650,485        2,062,254,616   
  

 

 

   

 

 

 

At end of year

   $ 1,715,068,259      $ 1,693,650,485   
  

 

 

   

 

 

 

Accumulated Undistributed Net Investment Income Included in Net Assets

   $ 12,078,855      $ 12,198,578   
  

 

 

   

 

 

 

(1) Capital Share Transactions:

    

Advisor Class:

    

Shares sold

     6,805,184        10,415,119   

Shares issued upon reinvestment of dividends

     272,549        148,894   

Shares redeemed

     (9,945,806     (14,243,856
  

 

 

   

 

 

 

Net decrease

     (2,868,073     (3,679,843
  

 

 

   

 

 

 

See Notes to Financial Statements

 

63


Table of Contents

Harding, Loevner Funds, Inc.

 

Statements of Changes in Net Assets (continued)

 

 

 

     Frontier Emerging Markets Portfolio  
     Year Ended
October 31,
2012
    Year Ended
October 31,
2011
 

Increase (Decrease) in Net Assets from Operations

    

Net investment income

   $ 816,301      $ 960,775   

Net realized loss on investments and foreign currency transactions

     (8,819,090     (5,439,936

Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies

     13,940,915        (15,959,551
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     5,938,126        (20,438,712
  

 

 

   

 

 

 

Distributions to Shareholders from:

    

Net investment income

    

Institutional Class

     (485,460     (146,644

Investor Class

     (4,494       
  

 

 

   

 

 

 

Total distributions to shareholders

     (489,954     (146,644
  

 

 

   

 

 

 

Transactions in Shares of Common Stock(1)

    

Proceeds from sale of shares

    

Institutional Class

     33,921,678        84,190,248   

Investor Class

     2,377,451        1,441,038 (2) 

Net Asset Value of shares issued to shareholders upon reinvestment of dividends

    

Institutional Class

     413,499        113,054   

Investor Class

     4,370          

Cost of shares redeemed

    

Institutional Class

     (59,804,613     (32,853,959

Investor Class

     (757,747     (73,004 )(2) 

Redemption fees

    

Institutional Class

     76,924        13,350   

Investor Class

     7        595 (2) 
  

 

 

   

 

 

 

Net increase (decrease) in net assets from portfolio share transactions

     (23,768,431     52,831,322   
  

 

 

   

 

 

 

Net Increase (Decrease) in Net Assets

     (18,320,259     32,245,966   

Net Assets

    

At beginning of year

     102,890,913        70,644,947   
  

 

 

   

 

 

 

At end of year

   $ 84,570,654      $ 102,890,913   
  

 

 

   

 

 

 

Accumulated Undistributed Net Investment Income Included in Net Assets

   $ 516,655      $ 316,442   
  

 

 

   

 

 

 

(1) Capital Share Transactions:

    

Institutional Class:

    

Shares sold

     5,166,058        11,007,881   

Shares issued upon reinvestment of dividends

     67,787        14,576   

Shares redeemed

     (9,250,325     (4,506,525
  

 

 

   

 

 

 

Net increase (decrease)

     (4,016,480     6,515,932   
  

 

 

   

 

 

 

Investor Class

    

Shares sold

     353,056        197,456 (2) 

Shares issued upon reinvestment of dividends

     719          

Shares redeemed

     (116,978     (10,348 )(2) 
  

 

 

   

 

 

 

Net increase

     236,797        187,108   
  

 

 

   

 

 

 

(2) For the period from December 31, 2010 (commencement of class operations) through October 31, 2011.

  

See Notes to Financial Statements

 

64


Table of Contents

Harding, Loevner Funds, Inc.

 

Financial Highlights

 

 

     Global Equity Portfolio - Institutional Class  
     For the  Year
Ended

Oct. 31, 2012
    For the  Year
Ended

Oct. 31, 2011
    For the  Period
Ended

Oct. 31, 2010(1)
 

Per Share Data

      

Net asset value, beginning of period

   $ 23.38      $ 23.52      $ 20.43   
  

 

 

   

 

 

   

 

 

 

Increase in Net Assets from Operations

      

Net investment income

     0.18 (2)      0.12 (2)      0.10   

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     1.81        (0.04     3.04   
  

 

 

   

 

 

   

 

 

 

Net increase from investment operations

     1.99        0.08        3.14   
  

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

      

Net investment income

     (0.10     (0.06     (0.05

Net realized gain from investments

     (0.22     (0.16       
  

 

 

   

 

 

   

 

 

 

Total distributions

     (0.32     (0.22     (0.05
  

 

 

   

 

 

   

 

 

 

Net asset value, end of period

   $ 25.05      $ 23.38      $ 23.52   
  

 

 

   

 

 

   

 

 

 

Total Return

     8.73     0.27     15.39 %(A) 

Ratios/Supplemental Data:

      

Net assets, end of period (000’s)

   $ 226,489      $ 147,108      $ 104,276   

Expenses to average net assets

     1.12     1.16     1.27 %(B) 

Expenses to average net assets (net of fees waived/reimbursed)

     0.95     1.00     1.00 %(B) 

Net investment income to average net assets

     0.72     0.48     0.43 %(B) 

Portfolio turnover rate

     32     40     35 %(A) 

 

(1) For the period from November 3, 2009 (commencement of class operations) through October 31, 2010.
(2) Net investment income per share was calculated using the average shares outstanding method.
(A) Not Annualized.
(B) Annualized.

 

     Global Equity Portfolio - Advisor Class  
     For the  Year
Ended

Oct. 31, 2012
    For the  Year
Ended

Oct. 31, 2011
    For the  Year
Ended

Oct. 31, 2010
    For the  Year
Ended

Oct. 31, 2009
    For the  Year
Ended

Oct. 31, 2008
 

Per Share Data

          

Net asset value, beginning of year

   $ 23.36      $ 23.48      $ 20.27      $ 15.92      $ 28.03   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (Decrease) in Net Assets from Operations

          

Net investment income

     0.11 (1)      0.07 (1)      0.10        0.06        0.12   

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     1.82        (0.02     3.15        4.38        (10.15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

     1.93        0.05        3.25        4.44        (10.03
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

          

Net investment income

     (0.05     (0.01     (0.04     (0.09     (0.08

Net realized gain from investments

     (0.22     (0.16     —          —          (2.00
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions

     (0.27     (0.17     (0.04     (0.09     (2.08
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

   $ 25.02      $ 23.36      $ 23.48      $ 20.27      $ 15.92   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Return

     8.43     0.18     16.07     28.05     (38.54 )% 

Ratios/Supplemental Data:

          

Net assets, end of year (000’s)

   $ 68,749      $ 58,320      $ 46,450      $ 66,810      $ 26,208   

Expenses to average net assets

     1.35     1.30     1.41     1.63     1.45

Expenses to average net assets (net of fees waived/reimbursed)

     1.23     1.18     1.17     1.25     1.25

Net investment income to average net assets

     0.45     0.31     0.31     0.43     0.51

Portfolio turnover rate

     32     40     35     31     38

(1) Net investment income per share was calculated using the average shares outstanding method.

See Notes to Financial Statements

 

65


Table of Contents

Harding, Loevner Funds, Inc.

 

Financial Highlights

(continued)

 

 

     International Equity Portfolio - Institutional Class  
     For the Year
Ended
Oct. 31, 2012
    For the Year
Ended
Oct. 31, 2011
    For the Year
Ended
Oct. 31, 2010
    For the Year
Ended
Oct. 31, 2009
    For the Year
Ended
Oct. 31, 2008
 

Per Share Data

          

Net asset value, beginning of year

   $ 14.06      $ 14.51      $ 12.04      $ 11.44      $ 21.71   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (Decrease) in Net Assets from Operations

          

Net investment income

     0.18 (1)      0.17 (1)      0.08        0.13        0.20   

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     1.06        (0.56     2.49        2.86        (8.63
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

     1.24        (0.39     2.57        2.99        (8.43
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

          

Net investment income

     (0.11     (0.06     (0.10     (0.19     (0.15

Net realized gain from investments

     (0.04     —          —          (2.20     (1.69
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions

     (0.15     (0.06     (0.10     (2.39     (1.84
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

   $ 15.15      $ 14.06      $ 14.51      $ 12.04      $ 11.44   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Return

     9.00     (2.72 )%      21.50     32.77     (42.33 )% 

Ratios/Supplemental Data:

          

Net assets, end of year (000’s)

   $ 1,798,940      $ 969,139      $ 493,350      $ 259,450      $ 191,450   

Expenses to average net assets

     0.87     0.86     0.93     1.04     0.98

Expenses to average net assets (net of fees waived/reimbursed)

     0.87     0.86     0.93     1.00     0.98

Net investment income to average net assets

     1.26     1.13     0.91     1.31     1.05

Portfolio turnover rate

     14     15     33     22     18

 

(1) Net investment income per share was calculated using the average shares outstanding method.

 

     International Equity Portfolio - Investor Class  
     For the  Year
Ended

Oct. 31, 2012
    For the  Year
Ended

Oct. 31, 2011
    For the  Year
Ended

Oct. 31, 2010
    For the  Year
Ended

Oct. 31, 2009
    For the  Year
Ended

Oct. 31, 2008
 

Per Share Data

          

Net asset value, beginning of year

   $ 14.01      $ 14.47      $ 12.02      $ 11.41      $ 21.66   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (Decrease) in Net Assets from Operations

          

Net investment income

     0.12 (1)      0.12 (1)      0.09        0.13        0.13   

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     1.06        (0.56     2.44        2.83        (8.58
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

     1.18        (0.44     2.53        2.96        (8.45
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

          

Net investment income

     (0.06     (0.02     (0.08     (0.15     (0.11

Net realized gain from investments

     (0.04     —          —          (2.20     (1.69
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions

     (0.10     (0.02     (0.08     (2.35     (1.80
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

   $ 15.09      $ 14.01      $ 14.47      $ 12.02      $ 11.41   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Return

     8.51     (3.02 )%      21.18     32.48     (42.46 )% 

Ratios/Supplemental Data:

          

Net assets, end of year (000’s)

   $ 275,468      $ 237,494      $ 116,465      $ 38,134      $ 12,122   

Expenses to average net assets

     1.24     1.26     1.32     1.39     1.23

Expenses to average net assets (net of fees waived/reimbursed)

     1.24     1.25     1.25     1.25     1.23

Net investment income to average net assets

     0.87     0.79     0.69     1.03     0.81

Portfolio turnover rate

     14     15     33     22     18

 

(1) Net investment income per share was calculated using the average shares outstanding method.

See Notes to Financial Statements

 

66


Table of Contents

Harding, Loevner Funds, Inc.

 

Financial Highlights

(continued)

 

 

     International Small Companies Portfolio - Institutional  Class  
     For the Year
Ended
Oct. 31, 2012
    For the  Period
Ended
Oct. 31, 2011(1)
 

Per Share Data

    

Net asset value, beginning of period

   $ 10.53      $ 12.28   
  

 

 

   

 

 

 

Increase (Decrease) in Net Assets from Operations

    

Net investment income

     0.16 (2)      0.03 (2) 

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     0.85        (1.78
  

 

 

   

 

 

 

Net increase (decrease) from investment operations

     1.01        (1.75
  

 

 

   

 

 

 

Distributions to Shareholders from:

    

Net investment income

     (0.09       
  

 

 

   

 

 

 

Total distributions

     (0.09       
  

 

 

   

 

 

 

Net asset value, end of period

   $ 11.45      $ 10.53   
  

 

 

   

 

 

 

Total Return

     9.74     (14.25 )%(A) 

Ratios/Supplemental Data:

    

Net assets, end of period (000’s)

   $ 33,515      $ 14,000   

Expenses to average net assets

     1.64     2.70 %(B) 

Expenses to average net assets (net of fees waived/reimbursed)

     1.50     1.50 %(B) 

Net investment income to average net assets

     1.49     0.89 %(B) 

Portfolio turnover rate

     10     12 %(A) 

 

(1) For the period from June 30, 2011 (commencement of class operations) through October 31, 2011.
(2) Net investment income per share was calculated using the average shares outstanding method.
(A) Not Annualized.
(B) Annualized.

 

     International Small Companies Portfolio - Investor Class  
     For the  Year
Ended

Oct. 31, 2012
    For the Year
Ended
Oct. 31, 2011
    For the Year
Ended
Oct. 31, 2010
    For the Year
Ended
Oct. 31, 2009
    For the Year
Ended
Oct. 31, 2008
 

Per Share Data

          

Net asset value, beginning of year

   $ 10.51      $ 10.82      $ 8.92      $ 5.53      $ 11.67   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (Decrease) in Net Assets from Operations

          

Net investment income

     0.11 (1)      0.15 (1)      0.05        0.06        0.11   

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     0.88        (0.43     1.90        3.40        (6.15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

     0.99        (0.28     1.95        3.46        (6.04
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

          

Net investment income

     (0.07     (0.03     (0.05     (0.07     (0.03

Net realized gain from investments

                                 (0.07
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions

     (0.07     (0.03     (0.05     (0.07     (0.10
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

   $ 11.43      $ 10.51      $ 10.82      $ 8.92      $ 5.53   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Return

     9.51     (2.67 )%      21.93     63.47     (52.17 )% 

Ratios/Supplemental Data:

          

Net assets, end of year (000’s)

   $ 31,249      $ 30,142      $ 13,972      $ 6,215      $ 2,776   

Expenses to average net assets

     2.02     2.15     3.14     5.21     4.22

Expenses to average net assets (net of fees waived/reimbursed)

     1.75     1.75     1.75     1.75     1.75

Net investment income to average net assets

     1.07     1.29     0.76     1.04     1.22

Portfolio turnover rate

     10     12     11     24     26

 

(1) Net investment income per share was calculated using the average shares outstanding method.

See Notes to Financial Statements

 

67


Table of Contents

Harding, Loevner Funds, Inc.

 

Financial Highlights

(continued)

 

 

     Institutional Emerging Markets Portfolio  
     For the  Year
Ended

Oct. 31, 2012
    For the  Year
Ended

Oct. 31, 2011
    For the  Year
Ended

Oct. 31, 2010
    For the  Year
Ended

Oct. 31, 2009
    For the  Year
Ended

Oct. 31, 2008
 

Per Share Data

          

Net asset value, beginning of year

   $ 15.07      $ 16.70      $ 13.29      $ 9.29      $ 21.20   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (Decrease) in Net Assets from Operations

          

Net investment income

     0.16 (1)      0.15 (1)      0.09        0.10        0.44   

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     1.49        (1.74     3.41        4.27        (11.53
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

     1.65        (1.59     3.50        4.37        (11.09
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

          

Net investment income

     (0.16     (0.04     (0.09     (0.37     (0.09

Net realized gain from investments

                                 (0.73
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions

     (0.16     (0.04     (0.09     (0.37     (0.82
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

   $ 16.56      $ 15.07      $ 16.70      $ 13.29      $ 9.29   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Return

     11.17     (9.58 )%      26.50     48.92     (54.33 )% 

Ratios/Supplemental Data:

          

Net assets, end of year (000’s)

   $ 463,791      $ 328,713      $ 375,374      $ 203,548      $ 132,037   

Expenses to average net assets

     1.36     1.39     1.48     1.55     1.52

Expenses to average net assets (net of fees waived/reimbursed)

     1.30     1.30     1.30     1.30     1.30

Net investment income to average net assets

     1.00     0.93     0.74     0.93     2.56

Portfolio turnover rate

     42     53     34     57     51

 

(1) Net investment income per share was calculated using the average shares outstanding method.

See Notes to Financial Statements

 

68


Table of Contents

Harding, Loevner Funds, Inc.

 

Financial Highlights

(continued)

 

 

     Emerging Markets Portfolio - Advisor Class  
     For the Year
Ended
Oct. 31, 2012
    For the Year
Ended
Oct. 31, 2011
    For the Year
Ended
Oct. 31, 2010
    For the Year
Ended
Oct. 31, 2009
    For the Year
Ended
Oct. 31, 2008
 

Per Share Data

          

Net asset value, beginning of year

   $ 45.18      $ 50.09      $ 39.64      $ 27.73      $ 64.07   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (Decrease) in Net Assets from Operations

          

Net investment income

     0.37 (1)      0.31 (1)      0.25        0.26        1.12   

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     4.34        (5.02     10.33        12.68        (34.06
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

     4.71        (4.71     10.58        12.94        (32.94
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

          

Net investment income

     (0.35     (0.20     (0.13     (1.03     (0.12

Net realized gain from investments

                                 (3.28
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions

     (0.35     (0.20     (0.13     (1.03     (3.40
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of year

   $ 49.54      $ 45.18      $ 50.09      $ 39.64      $ 27.73   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Return

     10.60     (9.48 )%      26.77     48.44     (54.17 )% 

Ratios/Supplemental Data:

          

Net assets, end of year (000’s)

   $ 1,715,068      $ 1,693,650      $ 2,062,255      $ 1,540,822      $ 1,086,124   

Expenses to average net assets

     1.49     1.50     1.58     1.64     1.61

Net investment income to average net assets

     0.80     0.63     0.60     0.56     2.10

Portfolio turnover rate

     36     33     25     48     46

 

(1) Net investment income per share was calculated using the average shares outstanding method.

See Notes to Financial Statements

 

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Harding, Loevner Funds, Inc.

 

Financial Highlights

(continued)

 

 

     Frontier Emerging Markets Portfolio - Institutional Class  
     For the  Year
Ended

Oct. 31, 2012
    For the  Year
Ended

Oct. 31, 2011
    For the  Year
Ended

Oct. 31, 2010
    For the  Year
Ended

Oct. 31, 2009
    For the  Period
Ended

Oct. 31, 2008 (1)
 

Per Share Data

          

Net asset value, beginning of period

   $ 6.57      $ 7.88      $ 6.29      $ 4.98      $ 10.00   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Increase (Decrease) in Net Assets from Operations

          

Net investment income

     0.07 (2)      0.07 (2)      0.03        0.07        0.01   

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     0.51        (1.37     1.65        1.26        (5.03
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) from investment operations

     0.58        (1.30     1.68        1.33        (5.02
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Distributions to Shareholders from:

          

Net investment income

     (0.03     (0.01     (0.09     (0.02       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions

     (0.03     (0.01     (0.09     (0.02       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

   $ 7.12      $ 6.57      $ 7.88      $ 6.29      $ 4.98   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Return

     8.93     (16.49 )%      27.04     26.71     (50.20 )%(A) 

Ratios/Supplemental Data:

          

Net assets, end of period (000’s)

   $ 81,568      $ 101,666      $ 70,645      $ 9,071      $ 4,875   

Expenses to average net assets

     1.95     1.87     2.37     4.08     8.92 %(B) 

Expenses to average net assets (net of fees waived/reimbursed)

     1.95     1.87     2.00     2.00     2.00 %(B) 

Net investment income to average net assets

     1.03     0.89     (0.08 )%      1.39     0.42 %(B) 

Portfolio turnover rate

     72     23     17     55     1 %(A) 

 

(1) For the period from May 27, 2008 (commencement of class operations) through October 31, 2008.
(2) Net investment income per share was calculated using the average shares outstanding method.
(A) Not Annualized.
(B) Annualized.

 

     Frontier Emerging Markets
Portfolio- Investor Class
 
     For the  Year
Ended

Oct. 31, 2012
    For the  Period
Ended

Oct. 31, 2011(1)
 

Per Share Data

    

Net asset value, beginning of period

   $ 6.55      $ 7.84   
  

 

 

   

 

 

 

Increase (Decrease) in Net Assets from Operations

    

Net investment income

     0.10 (2)      0.04 (2) 

Net realized and unrealized gain (loss) on investments and foreign currency-related transactions

     0.45        (1.33
  

 

 

   

 

 

 

Net increase (decrease) from investment operations

     0.55        (1.29
  

 

 

   

 

 

 

Distributions to Shareholders from:

    

Net investment income

     (0.02       
  

 

 

   

 

 

 

Total Distributions

     (0.02       
  

 

 

   

 

 

 

Net asset value, end of period

   $ 7.08      $ 6.55   
  

 

 

   

 

 

 

Total Return

     8.49     (16.45 )%(A) 

Ratios/Supplemental Data:

    

Net assets, end of period (000’s)

   $ 3,003      $ 1,225   

Expenses to average net assets

     4.71     9.06 %(B) 

Expenses to average net assets (net of fees waived/reimbursed)

     2.25     2.25 %(B) 

Net investment income to average net assets

     1.47     0.75 %(B) 

Portfolio turnover rate

     72     23 %(A) 

 

(1) For the period from December 31, 2010 (commencement of class operations) through October 31, 2011.
(2) Net investment income per share was calculated using the average shares outstanding method.
(A) Not Annualized.
(B) Annualized.

See Notes to Financial Statements

 

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Harding, Loevner Funds, Inc.

 

Notes to Financial Statements

October 31, 2012

 

 

1. Organization

Harding, Loevner Funds, Inc. (the “Fund”) was organized as a Maryland corporation on July 31, 1996, and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end diversified management investment company. The Fund currently has six Portfolios, all of which were active as of October 31, 2012 (individually, a “Portfolio”, collectively, the “Portfolios”). The Fund is managed by Harding Loevner LP (the “Investment Adviser”).

 

Portfolio

  

Inception Date

  

Investment Objective

Global Equity Portfolio

   Institutional Class: November 3, 2009    to seek long-term capital appreciation

(“Global Equity”)

   Advisor Class: December 1, 1996    through investments in equity securities
        of companies based both inside and
          outside the United States

International Equity Portfolio

   Institutional Class: May 11, 1994*    to seek long-term capital appreciation

(“International Equity”)

   Investor Class: September 30, 2005    through investments in equity securities
        of companies based outside the United
          States

International Small Companies Portfolio

   Institutional Class: June 30, 2011    to seek long-term capital appreciation

(“International Small Companies”)

   Investor Class: March 26, 2007    through investments in equity securities
        of small companies based outside the
          United States

Institutional Emerging Markets Portfolio

   October 17, 2005    to seek long-term capital appreciation

(“Institutional Emerging Markets”)

      through investments in equity securities
        of companies based in emerging
          markets

Emerging Markets Portfolio

   Advisor Class: November 9, 1998    to seek long-term capital appreciation

(“Emerging Markets”)

      through investments in equity securities
        of companies based in emerging
          markets

Frontier Emerging Markets Portfolio

   Institutional Class: May 27, 2008    to seek long-term capital appreciation

(“Frontier Emerging Markets”)

   Investor Class: December 31, 2010    through investments in equity securities
        of companies based in frontier and
          smaller emerging markets

* International Equity is the successor to the HLM International Equity Portfolio of AMT Capital Fund, Inc., pursuant to a reorganization that took place on October 31, 1996. Information for periods prior to October 31, 1996 is historical information for the predecessor portfolio.

2. Summary of Significant Accounting Policies

The accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States (“GAAP”) for investment companies. The following is a summary of the Fund’s significant accounting policies:

Indemnifications

Under the Fund’s organizational document, its officers and Board of Directors (“Board”) are indemnified against certain liability arising out of the performance of their duties to the Portfolios. In the normal course of business, the Fund may enter into contracts that contain a variety of representations or that provide indemnification for certain liabilities. The Fund’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

 

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Harding, Loevner Funds, Inc.

 

Notes to Financial Statements

October 31, 2012

 

 

2. Summary of Significant Accounting Policies (continued)

 

Valuation

The Board has adopted procedures (“Procedures”) to govern the valuation of the securities held by each Portfolio of the Fund in accordance with the 1940 Act. The Procedures incorporate principles set forth in relevant pronouncements of the Securities and Exchange Commission (“SEC”) and its staff, including guidance on the obligations of the Portfolios and their Directors to determine, in good faith, the fair value of the Portfolios’ securities when market quotations are not readily available.

In determining a Portfolio’s net asset value (“NAV”), each equity security traded on a securities exchange, including the NASDAQ Stock Market, and over-the-counter securities, are first valued at the closing price on the exchange or market designated by the Fund’s accounting agent as the principal exchange (each, a “principal exchange”). The closing price provided by the Fund’s accounting agent for a principal exchange may differ from the price quoted elsewhere and may represent information such as last sales price, an official closing price, a closing auction price or other information, depending on exchange or market convention. Shares of open-end mutual funds are valued at NAV. Such securities are typically categorized as “Level 1” pursuant to the hierarchy described below.

Participation notes are valued based upon the closing or last traded price of their underlying local shares. Such securities are typically categorized as “Level 2” pursuant to the hierarchy described below.

Since trading in many foreign securities is normally completed before the time at which a Portfolio calculates its NAV, the effect on the value of such securities held by a Portfolio of events that occur between the close of trading in the security and the time at which the Portfolio prices its securities would not be reflected in the Portfolio’s calculation of its NAV if foreign securities were generally valued at their closing prices.

To address this issue, the Board has approved daily fair value pricing of certain foreign equity securities. The fair value pricing utilizes quantitative models developed by an independent pricing service, which may provide an adjustment to the closing prices described above. Use of fair value pricing could cause a Portfolio to value a security higher, lower or equal to its closing market price, which in turn could cause the Portfolio’s NAV per share to differ significantly from that which would have been calculated using closing market prices. The use of fair value pricing is also intended to decrease the opportunities for persons to engage in ‘‘time zone arbitrage,’’ i.e., trading intended to take advantage of stale closing prices in foreign markets that could affect the NAV of the Portfolios. Securities priced in this manner are not specifically designated on the Portfolios’ Statements of Net Assets as being “fair valued”; however, absent the use of significant unobservable inputs into their valuation, securities priced higher or lower than their closing market price would be categorized as “Level 2” pursuant to the hierarchy described below.

Any securities for which market quotations are not readily available or for which available prices are deemed unreliable are priced by the Investment Adviser at “fair value”, in accordance with the Procedures. Such securities are identified on the Portfolios’ Statements of Net Assets as securities valued at “fair value” and absent the use of significant unobservable inputs into their valuation, such securities would be categorized as “Level 2” pursuant to the hierarchy described below.

GAAP includes a topic which establishes a hierarchy for NAV determination purposes in which various inputs are used in determining the value of each Portfolio’s assets or liabilities. This topic defines fair value as the price that the Portfolio would receive upon selling an investment in a timely transaction to an independent buyer in the principal or most advantageous market of the investment. This topic establishes a three-tier hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability including assumptions about risk. Such risks include the inherent risk in a particular valuation technique which is used to measure fair value. This may include the pricing model and/or the inputs to the pricing model used in the valuation technique. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.

 

Level 1

  

unadjusted quoted prices in active markets for identical investments

Level 2

   other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.).

Level 3

   significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments)

 

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Harding, Loevner Funds, Inc.

 

Notes to Financial Statements

October 31, 2012

 

 

2. Summary of Significant Accounting Policies (continued)

 

The Portfolios disclose all transfers between levels based on valuations at the end of each reporting period. At October 31, 2012, Frontier Emerging Markets had transfers from Level 2 to Level 1 of $641,967 in Banking industry, $492,767 in Capital Goods industry, and $50,923 in Materials industry, based on Levels assigned to securities on October 31, 2011, due to the daily fair value pricing of certain foreign equity securities as described above. GAAP provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased as well as guidance on identifying circumstances that indicate when a transaction is not orderly.

The following is a summary of the inputs used as of October 31, 2012 in valuing the Portfolios’ investments. Please refer to each Portfolio’s Statement of Net Assets to view individual securities classified by industry type and country.

 

Global Equity

      

ASSET VALUATION INPUT

                                 

Description

    
 

 
 
 
 

Unadjusted
Quoted Prices

in Active
Markets for
Identical Assets
(Level 1)

  
  

  
  
  
  

    
 
 
 

 

Other
Significant
Observable
Inputs

(Level 2)

  
  
  
  

  

   
 
 

 

Significant
Unobservable
Inputs

(Level 3)

  
  
  

  

    Total   

Common Stocks

     $192,225,842         $94,008,052        $—        $286,233,894   

Cash Equivalents

     7,467,446                       7,467,446   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total Investments

     $199,693,288         $94,008,052        $—        $293,701,340   
  

 

 

    

 

 

   

 

 

   

 

 

 
International Equity       

ASSET VALUATION INPUT

                                 

Description

    
 
 
 
 
 
Unadjusted
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
  
  
  
  
  
    
 
 
 
 
Other
Significant
Observable
Inputs
(Level 2)
  
  
  
  
  
   
 
 
 
Significant
Unobservable
Inputs
(Level 3)
  
  
  
  
    Total   

Common Stocks

     $540,964,827         $1,415,313,357        $—        $1,956,278,184   

Preferred Stocks

     39,904,002         23,655,200               63,559,202   

Cash Equivalents

     48,113,793                       48,113,793   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total Investments

     $628,982,622         $1,438,968,557        $—        $2,067,951,179   
  

 

 

    

 

 

   

 

 

   

 

 

 

International Small Companies

      

ASSET VALUATION INPUT

                                 

Description

    
 
 
 
 
 
Unadjusted
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
  
  
  
  
  
    
 
 
 
 
Other
Significant
Observable
Inputs
(Level 2)
  
  
  
  
  
   
 
 
 
Significant
Unobservable
Inputs
(Level 3)
  
  
  
  
    Total   

Common Stocks

     $1,668,123         $59,690,806        $—        $61,358,929   

Preferred Stocks

             989,914               989,914   

Warrants

     12,494                       12,494   

Cash Equivalents

     2,273,859                       2,273,859   
  

 

 

    

 

 

   

 

 

   

 

 

 

Total Investments

     $3,954,476         $60,680,720        $—        $64,635,196   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

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Harding, Loevner Funds, Inc.

 

Notes to Financial Statements

October 31, 2012

 

 

2. Summary of Significant Accounting Policies (continued)

 

Institutional Emerging Markets

        

ASSET VALUATION INPUT

                                   

Description

    
 
 
 
 
 
Unadjusted
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
  
  
  
  
  
    
 
 
 

 

Other
Significant
Observable
Inputs

(Level 2)

  
  
  
  

  

    
 
 

 

Significant
Unobservable
Inputs

(Level 3)

  
  
  

  

     Total   

Common Stocks

     $146,079,167         $243,097,156         $—         $389,176,323   

Preferred Stocks

     23,693,288         23,247,248                 46,940,536   

Participation Notes

             14,560,196                 14,560,196   

Cash Equivalents

     12,085,038                         12,085,038   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

     $181,857,493         $280,904,600         $—         $462,762,093   
  

 

 

    

 

 

    

 

 

    

 

 

 

Emerging Markets

        

ASSET VALUATION INPUT

                                   

Description

    
 
 
 
 
 
Unadjusted
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
  
  
  
  
  
    
 
 
 

 

Other
Significant
Observable
Inputs

(Level 2)

  
  
  
  

  

    
 
 

 

Significant
Unobservable
Inputs

(Level 3)

  
  
  

  

     Total   

Common Stocks

     $567,164,870         $898,737,455         $—         $1,465,902,325   

Preferred Stocks

     57,928,729         90,256,451                 148,185,180   

Participation Notes

             54,769,853                 54,769,853   

Cash Equivalents

     40,187,778                         40,187,778   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

     $665,281,377         $1,043,763,759         $—         $1,709,045,136   
  

 

 

    

 

 

    

 

 

    

 

 

 

Frontier Emerging Markets

ASSET VALUATION INPUT

                          

Description

    
 
 
 
 
 
Unadjusted
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  
  
  
  
  
  
    
 
 
 

 

Other
Significant
Observable
Inputs

(Level 2)

  
  
  
  

  

    
 
 

 

Significant
Unobservable
Inputs

(Level 3)

  
  
  

  

     Total   

Common Stocks

     $30,431,133         $43,686,538         $—         $74,117,671   

Participation Notes

             7,597,213                 7,597,213   

Cash Equivalents

     2,848,121                         2,848,121   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments

     $33,279,254         $51,283,751         $—         $84,563,005   
  

 

 

    

 

 

    

 

 

    

 

 

 

Securities

All securities transactions are recorded on a trade date basis. Interest income and expenses are recorded on an accrual basis. Dividend income is recorded on the ex-dividend date (except for certain foreign dividends that may be recorded as soon as the Portfolio is informed of such dividends). The Portfolios use the specific identification method for determining realized gains or losses from sales of securities.

Dividends to Shareholders

It is the policy of the Portfolios to declare dividends from net investment income annually. Net short-term and long-term capital gains distributions for the Portfolios, if any, normally are distributed on an annual basis.

Dividends from net investment income and distributions from net realized gains from investment transactions have been determined in accordance with income tax regulations and may differ from net investment income and realized gains recorded by the Portfolios for financial reporting purposes. Differences result primarily from foreign currency transactions and timing differences related to recognition of income, and gains and losses from investment transactions. In general, to the extent that any differences which are permanent in nature result in over distributions to shareholders, the amount of the over distribution is reclassified within the capital accounts based on its federal tax basis treatment and may be reported as return of capital. Temporary differences do not require reclassification.

 

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Harding, Loevner Funds, Inc.

 

Notes to Financial Statements

October 31, 2012

 

 

2. Summary of Significant Accounting Policies (continued)

 

Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward foreign currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and asked prices of such currencies against the U.S. dollar. Purchases and sales of the Portfolios’ securities are translated at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at exchange rates prevailing when accrued. The Portfolios do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Net realized gains and losses from foreign currency-related transactions arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolios’ books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currencies arise from changes in the value of assets and liabilities other than investments in securities at the period end, resulting from changes in the exchange rates.

Redemption Fees

Redemptions made within 90 days of purchase may be subject to a redemption fee equal to 2% of the amount redeemed. For the years ended October 31, 2012 and October 31, 2011, the Portfolios received redemption fees related to transactions in shares of common stock as disclosed in the Portfolios’ Statements of Changes in Net Assets.

3. Significant Agreements and Transactions with Affiliates

The Board has approved an investment advisory agreement (the “Agreement”) with the Investment Adviser. Advisory fees are computed daily and paid monthly based on the average daily net assets of each Portfolio. The Investment Adviser has contractually agreed to reduce its fee and/or reimburse the Portfolios for other operating expenses to the extent that aggregate expenses, excluding certain non-operating expenses, exceed certain annual rates of the average daily net assets of each class.

Beginning November 1, 2011 and through December 31, 2012, the following annualized advisory fees and contractual expense limits are in effect:

 

Portfolio

 

Advisory Fees on 

assets up to $1 billion

 

Advisory Fees on 

assets over $1 billion

 

Contractual Expense

Limit*

Global Equity – Institutional Class

    0.95%     0.93%     0.95%

Global Equity – Advisor Class

    0.95%     0.93%     1.25%

International Equity – Institutional Class

    0.75%     0.73%     1.00%

International Equity – Investor Class

    0.75%     0.73%     1.25%

International Small Companies – Institutional Class

    1.25%     1.23%     1.50%

International Small Companies – Investor Class

    1.25%     1.23%     1.75%

Institutional Emerging Markets

    1.17%     1.15%     1.30%

Emerging Markets – Advisor Class

    1.17%     1.15%     1.75%

Frontier Emerging Markets – Institutional Class

    1.50%     1.48%     2.00%

Frontier Emerging Markets – Investor Class

    1.50%     1.48%     2.25%

* On December 18, 2012, the Board voted to extend the contractual expense limits listed above through February 28, 2014.

 

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Harding, Loevner Funds, Inc.

 

Notes to Financial Statements

October 31, 2012

 

 

3. Significant Agreements and Transactions with Affiliates (continued)

 

For the year ended October 31, 2012, the Investment Adviser waived and/or reimbursed the following amounts pursuant to the contractual expense limits described above:

 

Portfolio

  

Fees waived and/or reimbursed by the Investment Adviser

Global Equity – Institutional Class

   $316,335

Global Equity – Advisor Class

   73,952

International Small Companies – Institutional Class

   38,220

International Small Companies – Investor Class

   76,532

Institutional Emerging Markets

   225,402

Frontier Emerging Markets – Investor Class

   45,880

The Fund has an administration agreement with The Northern Trust Company (“Northern Trust”), which provides certain accounting, clerical and bookkeeping services, Blue Sky, corporate secretarial services and assistance in the preparation and filing of tax returns and reports to shareholders and the SEC.

Northern Trust also serves as custodian of each Portfolio’s securities and cash, transfer agent, dividend disbursing agent and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of the Portfolios.

Foreside Compliance Services, LLC (“FCS”) provides an individual to serve as chief compliance officer of the Fund. Foreside Management Services, LLC (“FMS”) provides an individual to serve as chief financial officer and treasurer of the Fund. Fees paid to FCS and FMS are shown as “Chief compliance and financial officers’ fees and expenses” on the Statements of Operations.

The Fund has adopted an Amended Plan of Distribution pursuant to Rule 12b-1 under the 1940 Act (“Distribution Plan”). Under the Distribution Plan, the Investor Class of each of the International Equity, International Small Companies and Frontier Emerging Markets Portfolios may pay underwriters, distributors, dealers or brokers a fee at an annual rate of up to 0.25% of the average daily net assets of the Portfolio’s Investor Class shares for services or expenses arising in connection with activities primarily intended to result in the sale of Investor Class shares of the Portfolios.

The Fund, on behalf of the Portfolios, has agreements with various financial intermediaries and “mutual fund supermarkets”, under which customers of these intermediaries may purchase and hold Portfolio shares. These intermediaries assess fees in consideration for providing certain distribution, account maintenance, record keeping and transactional services. In recognition of the savings of expenses to the Fund arising from the intermediaries’ assumption of functions that the Fund would otherwise perform, such as providing sub-accounting and related shareholder services, each Portfolio or class is authorized, pursuant to a Shareholder Servicing Plan, to pay to each intermediary an annual rate of up to 0.25% of its average daily net assets attributable to that intermediary (subject to the contractual expense limits described above). With respect to Investor Class shares, the balance of the intermediaries’ fees, after payments made pursuant to the Distribution Plan, if applicable, is paid by the Investment Adviser. Because of the contractual expense limits on certain Portfolios’ fees and expenses, the Investment Adviser paid a portion of the Portfolios’ share of these fees during the year ended October 31, 2012.

4. Class Specific Expenses

Most expenses of the Fund can be directly attributed to a particular Portfolio. Expenses which cannot be directly attributed are apportioned among the Portfolios based upon relative net assets or other appropriate measures. If an expense is incurred at the Portfolio level, it is generally apportioned among the classes of that Portfolio based upon relative net assets of each respective class. Certain expenses are incurred at the class level and charged only to that particular class of shares. These expenses may be class specific (i.e., Distribution fees charged only to a particular share class) or they may be identifiable to a particular class (i.e., the costs related to printing and mailing shareholder reports to shareholders of a particular class). Class specific expenses for Portfolios with multiple active classes of shares are shown in the table below.

 

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Notes to Financial Statements

October 31, 2012

 

 

4. Class Specific Expenses (continued)

 

Portfolio    Distribution
Fees
     State Registration
and Filing Fees
     Printing and
Postage Fees
     Transfer Agent
Fees and Expenses
     Shareholder
Servicing Fees
 

Global Equity – Institutional Class

   $ -           $ 39,396       $ 17,141       $ 22,302       $ 21,813   

Global Equity – Advisor Class

     -             22,352         11,027         24,315         121,071   

International Equity – Institutional Class

     -             100,967         128,925         109,081         272,341   

International Equity – Investor Class

     582,041         39,965         70,947         83,944         179,541   

International Small Companies – Institutional Class

     -             23,474         3,448         19,005         5,086   

International Small Companies – Investor Class

     71,679         21,217         5,489         23,756         38,483   

Frontier Emerging Markets – Institutional Class

     -             28,592         10,929         21,785         8,559   

Frontier Emerging Markets – Investor Class

     4,673         21,850         2,314         20,818         3,412   

5. Investment Transactions

Cost of purchases and proceeds from sales of investment securities, other than short-term investments, for the year ended October 31, 2012, were as follows for each Portfolio:

 

Portfolio

   Purchase Cost  of
Investment Securities
           Proceeds from Sales  of
Investment Securities
       

Global Equity

   $ 148,322,824          $ 77,379,005      

International Equity

     927,442,702            217,930,144      

International Small Companies

     20,154,206            5,245,464      

Institutional Emerging Markets

     246,968,050            159,359,357      

Emerging Markets

     566,134,810            694,156,248      

Frontier Emerging Markets

     56,396,678            79,915,834      

6. Income Tax

The cost of investments for federal income tax purposes and the components of net unrealized appreciation / (depreciation) on investments at October 31, 2012, for each of the Portfolios were as follows:

 

Portfolio

   Gross
Unrealized
Appreciation
     Gross
Unrealized
Depreciation
    Net
Unrealized
Appreciation /
(Depreciation)
     Cost  

Global Equity

   $ 48,246,822       $ (5,367,756   $ 42,879,066       $ 250,822,274   

International Equity

     266,782,229         (49,229,922     217,552,307         1,850,398,872   

International Small Companies

     7,485,927         (4,383,245     3,102,682         61,532,514   

Institutional Emerging Markets

     90,433,310         (14,206,558     76,226,752         386,535,341   

Emerging Markets

     497,578,602         (32,057,846     465,520,756         1,243,524,380   

Frontier Emerging Markets

     8,120,000         (4,858,542     3,261,458         81,301,547   

The unrealized appreciation (depreciation) on foreign currency for Global Equity, International Equity, International Small Companies, Institutional Emerging Markets, Emerging Markets and Frontier Emerging Markets was $489, $(57,698), $(1,491), $4,183, $(14,604) and $(923), respectively, at October 31, 2012.

It is the policy of each Portfolio of the Fund to qualify as a regulated investment company by complying with the applicable provisions of the Internal Revenue Code, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes; therefore, no federal income tax provision is required.

 

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Notes to Financial Statements

October 31, 2012

 

 

6. Income Tax (continued)

 

Management has performed an analysis of each Portfolio’s tax positions for the open tax years as of October 31, 2012 and has concluded that no provisions for income tax are required. The Portfolios’ federal tax returns for the prior three fiscal years (open tax years: October 31, 2009; October 31, 2010; October 31, 2011) remain subject to examination by the Portfolios’ major tax jurisdictions, which include the United States, the State of New Jersey and the State of Maryland. Management is not aware of any events that are reasonably possible to occur in the next twelve months that would result in the amounts of any unrecognized tax benefits significantly increasing or decreasing for the Portfolios. However, management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, new tax laws and accounting regulations and interpretations thereof.

During the year ended October 31, 2012, distributions paid from ordinary income on a tax basis were $797,569, $9,328,089, $334,833, $3,430,979, $12,198,687 and $489,954 for Global Equity, International Equity, International Small Companies, Institutional Emerging Markets, Emerging Markets, and Frontier Emerging Markets, respectively.

During the year ended October 31, 2011, distributions paid from ordinary income on a tax basis were $290,000, $2,500,077, $47,000, $1,078,916, $8,430,123 and $146,644 for Global Equity, International Equity, International Small Companies, Institutional Emerging Markets, Emerging Markets, and Frontier Emerging Markets, respectively.

During the year ended October 31, 2012, distributions paid from long-term capital gains on a tax basis were $2,083,272 and $3,133,641, for Global Equity and International Equity, respectively.

During the year ended October 31, 2011, distributions paid from long-term capital gains on a tax basis were $1,052,137, for Global Equity.

As of October 31, 2012, the components of accumulated earnings /(deficit) on a tax basis were as follows:

 

Portfolio

   Undistributed
Ordinary
Income
     Undistributed
Long-Term
Capital Gains
     Accumulated
Capital and
Other Losses
    Unrealized
Appreciation
(Depreciation)*
     Total
Accumulated
Earnings/(Deficit)
 

Global Equity

   $ 1,540,977       $ -           $ (378,792   $ 42,879,567       $ 44,041,752   

International Equity

     18,521,821         -             (19,446,883     217,494,608         216,569,546   

International Small Companies

     665,965         -             (730,550     3,101,192         3,036,607   

Institutional Emerging Markets

     3,683,658         -             (46,776,141     75,910,896         32,818,413   

Emerging Markets

     12,078,855         106,392,227         -            465,506,147         583,977,229   

Frontier Emerging Markets

     991,108         -             (13,404,420     3,260,535         (9,152,777

* The difference between book basis and tax basis net unrealized appreciation is attributable primarily to the tax deferral of losses on certain sales of securities.

On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Act”) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes are generally effective for taxable years beginning after the date of enactment. One of the more prominent changes addresses capital loss carryforwards. Under the Act, each fund will be permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.

Short-term capital losses incurred that will be carried forward under provisions of the Act are $378,792, $10,514,138, $293,995, $3,553,019, and $4,653,779 for Global Equity, International Equity, International Small Companies, Institutional Emerging Markets, and Frontier Emerging Markets, respectively. Long-term capital losses incurred that will be carried forward under provisions of the Act are $8,932,745, $239,458, $1,017,015, and $3,260,942 for International Equity, International Small Companies, Institutional Emerging Markets, and Frontier Emerging Markets, respectively.

At October 31, 2012, Institutional Emerging Markets had $8,577,340 available as pre-enactment capital loss carryforwards which expire in 2016. Institutional Emerging Markets and Frontier Emerging Markets had $29,793,794 and $1,252,470, respectively, available as pre-enactment capital loss carryforwards which expire in 2017. International Small Companies had $197,097 available as pre-enactment capital loss carryforwards which expire in 2018. Institutional Emerging Markets and Frontier Emerging Markets had $3,834,973 and $4,237,229, respectively, available as pre-enactment capital loss carryforwards which expire in 2019.

Primarily as a result of differing book/tax treatment of foreign currency transactions and foreign capital gain tax expenses, the Fund made reclassifications among certain capital accounts. The reclassifications have no impact on the net assets of the Portfolios. As of October 31, 2012, the following reclassifications were made to the Statement of Net Assets:

 

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Notes to Financial Statements

October 31, 2012

 

 

6. Income Tax (continued)

 

Portfolio

   Paid-in Capital      Accumulated  Undistributed
Net Realized Gain/Loss on
Investment & Foreign
Currency Related
Transactions
     Accumulated
Undistributed  Net
Investment Income
 

Global Equity

   $ -           $ 29,414       $ (29,414

International Equity

     -             450,352         (450,352

International Small Companies

     -             22,071         (22,071

Institutional Emerging Markets

     -             175,010         (175,010

Emerging Markets

     -             804,007         (804,007

Frontier Emerging Markets

     -             126,134         (126,134

7. Foreign Exchange Contracts

The Portfolios, on occasion, enter into forward foreign exchange contracts in order to hedge their exposure to changes in foreign currency exchange rates on their foreign portfolio holdings. A forward foreign exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the cost of the original contracts and the closing of such contracts is included in net realized gains or losses on foreign currency-related transactions. Fluctuations in the value of forward foreign exchange contracts are recorded for book purposes as unrealized appreciation or depreciation on assets and liabilities denominated in foreign currencies by the Portfolios. The Portfolios are also exposed to credit risk associated with counterparty nonperformance on these forward foreign exchange contracts which is typically limited to the unrealized gain on each open contract.

The Portfolios enter into foreign currency transactions on the spot markets in order to pay for foreign investment purchases or to convert to dollars the proceeds from foreign investment sales or coupon interest receipts. The Portfolios held no open forward foreign currency exchange contracts on October 31, 2012.

8. Participation Notes

Each Portfolio may invest in participation notes. Participation notes are promissory notes that are designed to offer a return linked to the performance of a particular underlying equity security or market. Participation notes are issued by banks or broker-dealers and allow a Portfolio to gain exposure to common stocks in markets where direct investment may not be allowed. Participation notes are generally traded over-the-counter and are subject to the risk that the broker-dealer or bank that issues them will not fulfill its contractual obligation to complete the transaction with a Portfolio. Participation notes constitute general unsecured contractual obligations of the banks or broker-dealers that issue them, and a Portfolio investing in participation notes would be relying on the creditworthiness of such banks or broker-dealers and would have no rights under a participation note against the issuer of the underlying assets. Participation notes may be more volatile and less liquid than other investments held by the Portfolios.

9. Concentration of Ownership

At October 31, 2012, the percentage of total shares outstanding held by record shareholders each owning 10% or greater of the aggregate shares outstanding of each Portfolio were as follows:

 

      No. of
Shareholders
           %
Ownership
      

Global Equity

     3            56.11 %*   

International Equity

     3            50.72 %*   

International Small Companies

     2            59.11 %*   

Institutional Emerging Markets

     2            52.96 %*   

Emerging Markets

     3            82.07 %*   

Frontier Emerging Markets

     3            58.90 %*   

* Includes omnibus positions of broker-dealers representing numerous shareholder accounts.

Investment activities of these shareholders may have a material effect on the Portfolios.

 

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Notes to Financial Statements

October 31, 2012

 

 

10. Concentration of Risk

Investing in securities of foreign issuers and currency transactions may involve certain considerations and risks not typically associated with investments in U.S. issuers. These risks include revaluation of currencies, adverse fluctuations in foreign currency values and possible adverse political, social and economic developments, including those particular to a specific industry, country or region, which could cause the securities and their markets to be less liquid and prices more volatile than those of comparable U.S. companies and U.S. government securities. These risks are greater with respect to securities of issuers located in emerging market countries in which the Portfolios are authorized to invest.

Frontier Emerging Markets is permitted to invest up to 35% of its net assets in companies in the same industry, if, at the time of investment, that industry represents 20% or more of the Portfolio’s benchmark index. During periods when the Portfolio has invested more than 25% of its net assets in companies in the same industry, it will operate as a concentrated portfolio and be subject to additional risks and greater volatility. At October 31, 2012, the Portfolio’s investment in the Banking industry amounted to 32.3% of net assets.

11. Line of Credit

The Fund has a $100 million line of credit agreement with Northern Trust ($50 million prior to March 9, 2012). Borrowings would be made solely to facilitate the handling of redemptions or unusual or unanticipated short-term cash requirements. Because several Portfolios participate, and collateral requirements apply, there is no assurance that an individual Portfolio will have access to the entire $100 million at any particular time. Interest is charged to each Portfolio based on its borrowings at an amount above the Federal Funds rate, subject to a minimum rate. In addition, a facility fee is computed at an annual rate of 0.10% on the line of credit and is allocated among the Portfolios. For the year ended October 31, 2012, Institutional Emerging Markets Portfolio had an outstanding balance on four days with a maximum balance of $1,600,000 at an average weighted interest rate of 1.75%, Emerging Markets Portfolio had an outstanding balance on four days with a maximum balance of $2,500,000 at an average weighted interest rate of 1.75% and Frontier Emerging Markets Portfolio had an outstanding balance on twenty-six days with a maximum balance of $10,000,000 at an average weighted interest rate of 1.75%.

12. Recently Issued Accounting Pronouncements

In December 2011, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). These disclosure requirements are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a company’s financial position. They also improve transparency in the reporting of how companies mitigate credit risk, including disclosure of related collateral pledged or received. In addition, ASU 2011-11 facilitates comparison between those reporting entities that prepare their financial statements on the basis of U.S. GAAP and those reporting entities that prepare their financial statements on the basis of International Financial Reporting Standards. Specifically, ASU 2011-11 requires reporting entities to disclose 1) both gross and net information about both instruments and transactions eligible for offset in the financial statements and 2) instruments and transactions subject to an agreement similar to a master netting arrangement. The effective date of ASU 2011-11 is for interim and annual periods beginning on or after January 1, 2013. At this time, management is evaluating the implications of this requirement and the impact it will have on the Fund’s financial statement disclosures.

13. Subsequent Events

Subsequent events occurring after the date of this report have been evaluated for potential impact, for purposes of recognition or disclosure in the financial statements, through the date the report was issued.

 

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Report of Independent Registered Public Accounting Firm

 

 

 

The Shareholders and Board of Directors of Harding, Loevner Funds, Inc.:

We have audited the accompanying statements of net assets of the Harding, Loevner Funds, Inc. (comprising the Global Equity Portfolio, International Equity Portfolio, International Small Companies Portfolio, Institutional Emerging Markets Portfolio, Emerging Markets Portfolio, and Frontier Emerging Markets Portfolio) (collectively, the “Portfolios”) as of October 31, 2012, and the related statements of operations for the year then ended, statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Portfolios’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2012, by correspondence with the custodian and brokers or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the aforementioned Portfolios of the Harding, Loevner Funds, Inc. as of October 31, 2012, the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

 

/s/ KPMG
Chicago, Illinois
December 18, 2012

 

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Supplemental Tax Information

(unaudited)

 

 

International Equity, International Small Companies, Institutional Emerging Markets, Emerging Markets, and Frontier Emerging Markets paid qualifying foreign taxes of $2,855,152, $141,292, $594,248, $2,491,605, and $103,258, and earned $22,000,274, $869,371, $4,573,832, $16,029,001, and $965,335 from foreign source income during the year ended October 31, 2012, respectively. Pursuant to Section 853 of the Internal Revenue Code, International Equity, International Small Companies, Institutional Emerging Markets, Emerging Markets, and Frontier Emerging Markets designated $0.0208, $0.0250, $0.0212, $0.0720, and $0.0087 per share as foreign taxes paid and $0.1606, $0.1535, $0.1633, $0.4630, and $0.0812 as income earned from foreign sources for the year ended October 31, 2012, respectively.

Global Equity, International Equity, International Small Companies, Institutional Emerging Markets, Emerging Markets, and Frontier Emerging Markets had qualifying dividend income of $3,863,261, $32,564,600, $1,335,778, $7,491,494, $31,792,533, and $1,298,690, respectively, during the year ended October 31, 2012.

During the year ended October 31, 2012, Global Equity designated 98% of the distributions from net investment income as qualifying for the 70% corporate dividend received deduction.

Pursuant to Section 852 of the Internal Revenue Code, Emerging Markets Portfolio designated $106,392,227 as a long term capital gain dividend for the year ended October 31, 2012.

 

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Approval of Investment Advisory Agreement

(unaudited)

 

 

Approval of Investment Advisory Agreement

At an in-person meeting of the board of directors (the “Board”) of Harding, Loevner Funds, Inc. (the “Fund”) held on June 6, 2012 (the “June Meeting”), the Board, including a majority of those directors who are not “interested persons” of the Fund, as defined in the Investment Company Act of 1940, as amended (the “Independent Directors”), considered and approved the continuation of the investment advisory agreement (the “Advisory Agreement”) between the Fund on behalf of each of its series, the International Equity Portfolio, the Global Equity Portfolio, the Emerging Markets Portfolio, the Institutional Emerging Markets Portfolio, the International Small Companies Portfolio and the Frontier Emerging Markets Portfolio (each, a “Portfolio” and collectively, the “Portfolios”), and Harding Loevner LP (the “Adviser”).

Overview of the Review Process

Prior to the June Meeting, the Board requested, and the Adviser furnished, materials that the Board believed necessary to evaluate the terms of the Advisory Agreement, including information on, among other things: (i) the investment performance, expenses and advisory fees of each Portfolio relative to other mutual funds and benchmark indices, as set forth in reports prepared by Strategic Insight, a third party fund tracking organization engaged as part of the contract review process (the “Strategic Insight Reports”); (ii) the Adviser’s profitability and costs; (iii) the qualifications of the Adviser and portfolio management personnel with respect to services provided to the Portfolios; and (iv) the Adviser’s investment research capabilities and resources.

The Board established a sub-committee comprised of three Independent Directors (the “Committee”) to conduct a preliminary review of these materials, to assist the Board in its deliberations, and to liaise with the Adviser. The Committee reviewed the materials; discussed the materials during telephonic and in-person meetings with representatives of the Adviser; and requested and received supplemental information and analysis from the Adviser. Following the Committee’s review, the Adviser distributed revised and supplemental materials in final form to the full Board. The Board also received and considered a memorandum regarding the Board’s responsibilities in connection with renewal of the Advisory Agreement prepared by the legal counsel to the Independent Directors (“Independent Counsel”). Independent Counsel assisted the Independent Directors throughout the preparation, review and approval process.

At the June Meeting, the Board considered and discussed the materials and additional information presented by the Adviser. During the presentation, the Adviser expanded on those materials and responded to specific questions from the Board. Following the presentation, the Independent Directors met in executive session with Independent Counsel to further review and discuss the information presented during the meeting.

In its consideration of the continuance of the Advisory Agreement with respect to each Portfolio, the Board considered various factors discussed below. The following discussion is not intended to be all-inclusive, as the Board reviewed a variety of factors and considered a significant amount of information. The Board’s approval determinations were made on the basis of each director’s business judgment after consideration of all the information presented. Individual directors may have given different weights to certain factors and assigned various degrees of materiality to information received in connection with the approval process.

Nature, Extent and Quality of Services

The Board evaluated such information as it deemed necessary to assess the nature, extent and quality of investment advisory services provided to the Portfolios by the Adviser. The Board also considered the nature, extent and quality of certain non-advisory services provided to the Portfolios by the Adviser, including administrative, distribution, shareholder servicing, trading and the resources devoted to, and the record of compliance with, each Portfolio’s compliance policies and procedures. The Board noted that it received information at regular meetings throughout the year regarding the services rendered by the Adviser concerning the management of each Portfolio’s affairs and the Adviser’s role in coordinating providers of other services to the Portfolios. The Board’s evaluation of the services provided by the Adviser took into account the Board’s historical knowledge and familiarity with the scope and quality of the Adviser’s investment management and other capabilities and the quality of its administrative and other services.

The Adviser presented and discussed with the Board the qualifications, backgrounds and responsibilities of the Adviser’s management team and information regarding the portfolio managers for each Portfolio. The Board evaluated the ability of the Adviser to attract and retain qualified investment advisory and non-advisory personnel and engaged in a discussion with the Adviser regarding its recruitment, retention and professional development programs and strategies.

 

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Approval of Investment Advisory Agreement (continued)

(unaudited)

 

 

Nature, Extent and Quality of Services (continued)

 

The Board also considered the adequacy of the financial and operational resources committed to each Portfolio by the Adviser, and how well the Adviser utilizes those resources to meet the Portfolio’s investment needs; to implement asset growth strategies; and to satisfy compliance requirements. Among other things, the Board recognized the technology enhancements implemented by the Adviser as of March 31, 2012 to improve operational efficiency and its capabilities in performance measurement, records management, proxy voting and trade cost management and additional enhancements scheduled for future implementation. The Board also recognized that the Adviser reports to the Board regularly and that at each regular meeting the Board receives a detailed report on each Portfolio’s performance, asset levels and asset flows. It was also noted that the Adviser had approximately $19.7 billion in assets under management as of March 31, 2012, and that it was an affiliate of Affiliated Managers Group, Inc., an established global asset management company.

The Board considered annual and periodic reports of the Chief Compliance Officer of the Fund (the “CCO”) with respect to the effectiveness and adequacy of the Adviser’s compliance program. The Board noted the CCO’s determination that the Adviser’s compliance program is reasonably designed to prevent violations of the federal securities laws. The Board also noted the actions taken by the Adviser in response to the CCO’s periodic recommendations for adding personnel, enhancing procedures and systems designed to ensure compliance with applicable laws and regulations.

Based on these considerations, the Board concluded that it was satisfied with the nature, extent and quality of services historically provided and to be provided to each Portfolio under the Advisory Agreement.

Performance of the Adviser

For each Portfolio, the Board considered, among other things, the historical performance year to date as of March 31, 2012 and for the one-year, three-year, five-year and ten-year periods (or shorter for newer Portfolios) included in the Strategic Insight Report, including comparisons against each Portfolio’s Morningstar Category and benchmark indices. In reviewing each Portfolio’s performance information, the Board took into consideration the extraordinary market volatility over the past several years, the effects of the volatility on each Portfolio’s performance, as well as the market conditions in which the Adviser’s investment strategies may underperform. The Board’s specific considerations with respect to each Portfolio’s performance are discussed under “Portfolio Specific Considerations” below.

In addition, the Board reviewed the Investment Adviser’s investment philosophy and its influence on the management of the Portfolios. The Board noted the Adviser’s bottom-up, business-focused approach based on a study of individual companies and the competitive dynamics of the global industries in which those companies participate. In evaluating the investment performance of the Portfolios, the Board acknowledged that the relatively longer holding periods associated with the Adviser’s investment style may result in underperformance during periods of short term volatility, but often produces outperformance over longer time periods.

Based on these considerations, the Board concluded that each Portfolio’s performance was reasonable.

Costs of the Services and Profitability of the Adviser

The Board considered information regarding the Adviser’s costs to provide investment management services to the Portfolios and the profitability to the Adviser from managing the Portfolios. In evaluating the Adviser’s profitability, the Board considered the Adviser’s profitability analysis for calendar years 2010 and 2011; each Portfolio’s expense ratio; and the Adviser’s contractual fee waivers and expense reimbursements with respect to each Portfolio. The Board also considered profitability on a Portfolio-by-Portfolio basis, focusing on the Adviser’s profit without taking into account those costs borne by the Adviser with respect to its efforts to expand the Portfolios’ shareholder base. The Board noted that the Adviser did not earn a profit on the International Small Companies Portfolio and Frontier Emerging Markets Portfolio for calendar year 2010 and did not earn a profit on the International Small Companies Portfolio for calendar year 2011. The Board considered the asset-based breakpoints adopted by the Fund beginning with fiscal 2012 and noted that the management fees for both Emerging Markets and Institutional Emerging Markets Portfolios were each reduced by 8 basis points, from 125 basis points to 117 basis points. The Board noted that the breakpoints offer actual savings for the Emerging Markets Portfolio and the International Equity Portfolio and meaningful potential savings for the Portfolios whose assets have not yet reached their first breakpoint level. The Board took note of the Adviser’s expectation that it would incur additional costs relating to current and planned increases in personnel and office space, and investment in new information systems intended to assure the continued delivery of high-quality services to its clients, including the Portfolios. The Board also noted that future profitability to the Adviser would depend on the growth of assets under management.

 

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Approval of Investment Advisory Agreement (continued)

(unaudited)

 

 

Costs of the Services and Profitability of the Adviser (continued)

 

Based upon these considerations, the Board concluded that the profits historically realized by the Adviser and, that the profits the Adviser anticipates will be realized from its continued relationship with the Portfolios are not excessive in light of the nature, extent and quality of the services provided to the Portfolios.

Comparison of Fees and Services Provided by the Adviser

The Board considered the contractual advisory fees that are payable by the Portfolios to the Adviser. The Board also reviewed and considered actual investment advisory fees realized by the Adviser taking into account the fee waiver and/or expense reimbursement arrangements for each Portfolio. In addition, the Board considered the Strategic Insight Report, which included information comparing each Portfolio’s management fee and overall expenses with those of funds in a group of peer funds selected by Strategic Insight (the “Expense Group”).

The Board noted that, in general, the operating expenses of each Portfolio, with the exception of International Small Companies Portfolio, were below the median of their respective Expense Groups and Morningstar Category-derived universe (the “Expense Universe”). The Board also noted that each Portfolio’s total expense ratio, after waiver of advisory fees and reimbursement of expenses, was at or below its respective Expense Group median calculated by Strategic Insight, and each Portfolio’s advisory fees after waivers was within the range of those of the funds in its peer group, as calculated by Strategic Insight. A discussion of the Board’s considerations with respect to each Portfolio’s fees is set forth below under “Portfolio Specific Considerations”.

At the Board’s request, the Adviser also provided information on the fees charged and services provided to the Portfolios compared with private accounts with similar investment strategies managed by the Adviser. The Board took note of the fact that no current shareholder could achieve a lower net advisory fee if it opened a separate account with the Adviser. The Board noted that the Adviser’s private account clients require fewer services from the Adviser. The Board acknowledged that unlike the Portfolios, private account clients do not require the Adviser to participate in internal corporate governance matters, deliver services to potential end-clients, supervise third-party vendors, or devote its own resources toward expanding the shareholder base, nor do they require the same degree of compliance monitoring due to their differing regulatory framework. Further, the Board noted that the Adviser incurs no out-of-pocket expenses or business risk in connection with services provided to the private accounts, unlike the Portfolios. The Board additionally noted that institutional investors familiar with the competitive marketplace have invested in the Portfolios as a result of request-for-proposal processes and have by their investing in the Portfolios demonstrated that they perceive the advisory fees charged by the Adviser to be reasonable.

Based on these considerations, the Board concluded that each Portfolio’s expense ratio is reasonable.

Economies of Scale

The Board considered the extent to which economies of scale would be realized as the Portfolios’ assets grow; whether there is potential for realization of any further economies of scale for the Portfolios; and whether economies of scale are being passed along to the shareholders. The Board noted that to the extent a Portfolio’s assets have increased over time, it has realized economies of scale as certain expenses become a smaller percentage of overall assets. The Board also noted that, due to market weakness and asset outflows, the economies of scale realized by certain Portfolios had diminished since the prior year. The Board further noted that each Portfolio's contractual advisory fee contained breakpoints. The Board also noted that as of March 31, 2012, the asset levels of the Emerging Markets Portfolio and the International Equity Portfolio exceeded at least the first breakpoint. Accordingly, the Board determined that actual economies of scale existed for the Emerging Markets Portfolio and the International Equity Portfolio and potential economies of scale existed for those Portfolios whose assets had not yet reached their first breakpoint level.

The Board considered that other aspects of the Portfolios’ investment strategies may limit the realization of economies of scale, including a particular strategy’s universe of issuers, applicable trading volumes or markets, or the Adviser’s selection criteria. The Board also took note of the Adviser’s plans for marketing and distributing the various Portfolios and to pay for the associated expenses out of its own profits, through revenue sharing payments.

Based on these considerations, the Board concluded that it was satisfied with the extent to which economies of scale currently are and will be shared for the benefit of the Portfolios’ shareholders.

 

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Approval of Investment Advisory Agreement (continued)

(unaudited)

 

 

Other Benefits

The Board considered other benefits derived or to be derived by the Adviser from the relationship with the Portfolios. In this regard, the Board considered that the Adviser may benefit from its relationship with the Portfolios in the following ways: (i) separately managed account clients may view the additional assets under management resulting from managing the Portfolios as a positive attribute; (ii) the Adviser may obtain increased reputational prestige from managing a nationally recognized mutual fund family that shares the Adviser’s name; and (iii) the Adviser’s ability to market to shareholders other financial products offered by the Adviser may be enhanced. The Board also considered that the Adviser benefits from the receipt of research services obtained through “soft dollars” in connection with Portfolio brokerage transactions. The Board also considered the extent to which the Adviser and its other clients, as well as the Portfolios, benefitted from receipt of these research products and services. In light of the costs of providing investment management, administrative and other services to the Portfolios and the Adviser’s ongoing commitment to the Portfolios, the profits and other ancillary benefits that the Adviser may receive were considered reasonable.

Portfolio Specific Considerations

In considering whether to approve the renewal of the Advisory Agreement for each Portfolio, the Board considered the following data included in the Strategic Insight Report.

Global Equity Portfolio

Portfolio Performance. The Global Equity Portfolio outperformed its MSCI All-Country World Index benchmark and Morningstar Category (World Stock) year–to-date, as of March 31, 2012, and for the three-, five- and ten-year periods. The Portfolio has performed in the first or second quartile of its Morningstar Category (World Stock) for the three-, five- and ten-year periods.

Management Fees and Expense Ratio. In considering the fees payable under the Advisory Agreement by the Portfolio, the Board took into account the factors described above and also considered the pricing structure (including the expense ratio to be borne by shareholders) of the Portfolio, as compared to its Expense Group, including that the net management fee is slightly above median of the Expense Group and slightly above median of the Expense Universe; and the net operating expenses are below median for both the Expense Group and Expense Universe. The Board noted that the contractual advisory fee to be paid by the Portfolio was reduced by five basis points beginning with the Portfolio’s 2012 fiscal year.

International Equity Portfolio

Portfolio Performance. The International Equity Portfolio outperformed its MSCI All-Country World ex-US benchmark year-to-date, as of March 31, 2012, and for the one-, three- and five-year periods. The Portfolio outperformed its Morningstar Category (Foreign Large Growth) for the one-, three-, five- and ten-year periods. The Portfolio has performed in the first or second quartile of its Morningstar Category (Foreign Large Growth) for the three-, five- and ten-year periods.

Management Fees and Expense Ratio. In considering the fees payable by the Portfolio under the Advisory Agreement, the Board took into account the factors described above and also considered the pricing structure (including the expense ratio to be borne by shareholders) of the Portfolio, as compared to its Expense Group, including that the net advisory fee and net operating expense are below median for both the Expense Group and Expense Universe. The Board noted that the Portfolio had reached its first asset-based breakpoint level resulting in a two basis point reduction in the contractual advisory fee beginning with the Portfolio’s 2012 fiscal year.

International Small Companies Portfolio

Portfolio Performance. The International Small Companies Portfolio outperformed its MSCI All-Country World ex-US Small Cap Index benchmark and its Morningstar Category year-to-date, as of March 31, 2012, and for the one-year, three-year and five-year periods. The Portfolio has performed in the first or second quartile of its Morningstar Category (Foreign Small/Mid Growth) for the three-year and five year periods. The Board noted that the Portfolio does not yet have a ten-year performance record.

 

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Harding, Loevner Funds, Inc.

 

Approval of Investment Advisory Agreement (continued)

(unaudited)

 

 

Portfolio Specific Considerations (continued)

 

Management Fees and Expense Ratio. In considering the fees payable by the Portfolio under the Advisory Agreement, the Board took into account the factors described above and also considered the pricing structure (including the expense ratio to be borne by shareholders) of the Portfolio, as compared to its Expense Group. The Board also considered that net operating expenses are above median for the Expense Group and the Expense Universe.

Emerging Markets Portfolio

Portfolio Performance. The Emerging Markets Portfolio has outperformed its MSCI Emerging Markets benchmark year-to-date, as of March 31, 2012, and for the one- and three-year periods. The Portfolio outperformed its Morningstar Category (Diversified Emerging Markets) year-to-date, as of March 31, 2012, and for the one-, three-, five-year and ten-year periods. The Board noted the Adviser’s statement that the Portfolio’s underperformance relative to its benchmark for the five- and ten-year periods was due to underperformance in 2009, which the Adviser appears to have addressed. The Portfolio has performed in the first or second quartile of its Morningstar Category (Diversified Emerging Markets) for the three-year period.

Management Fees and Expense Ratio. In considering the fees payable by the Portfolio under the Advisory Agreement, the Board took into account the factors described above and also considered the pricing structure (including the expense ratio to be borne by shareholders) of the Portfolio, as compared to its Expense Group, including that the Portfolio’s net advisory fee is above the median for the Expense Group, but below median for the Expense Universe; and that the net operating expenses for the Portfolio are well below median for the Expense Group and Expense Universe. The Board noted that the contractual advisory fee to be paid by the Portfolio was reduced by eight basis points beginning with the Portfolio’s 2012 fiscal year. The Board further noted that the Portfolio had reached its first asset-based breakpoint level resulting in a two basis point reduction in the contractual advisory fee beginning with the Portfolio’s 2012 fiscal year.

Institutional Emerging Markets Portfolio

Portfolio Performance. The Adviser advised the Board that the Institutional Emerging Markets Portfolio is managed to the same model as the Emerging Markets Portfolio and therefore its performance has tracked closely that of the Emerging Markets Portfolio. The Portfolio is measured against the same benchmark and Morningstar Category as the Emerging Markets Portfolio; however, the Portfolio does not yet have a ten-year performance record.

Management Fees and Expense Ratio. In considering the fees payable by the Portfolio under the Advisory Agreement, the Board took into account the factors described above and also considered the pricing structure (including the expense ratio to be borne by shareholders) of the Portfolio, as compared to its Expense Group, including that the net advisory fee is above the median for the Expense Group and Expense Universe, and that the net operating expenses are well below the median for the Expense Group and Expense Universe. The Board noted that the contractual advisory fee to be paid by the Portfolio was reduced by eight basis points beginning with the Portfolio’s 2012 fiscal year.

Frontier Emerging Markets Portfolio

Portfolio Performance. The Frontier Emerging Markets Portfolio underperformed its MSCI Frontier Markets benchmark year-to-date, as of March 31, 2012, and for the one-year period. The Board noted that the Portfolio does not yet have a five-year performance record. The Board further noted the Adviser’s statement that the Portfolio does not have a relevant peer group for performance comparison purposes because there is currently no Morningstar category of funds that invest primarily in frontier markets or the smallest emerging markets. The Board therefore took into account that the Strategic Insight Report was of limited utility for evaluating performance.

Management Fees and Expense Ratio. In considering the fees payable by the Portfolio under the Advisory Agreement, the Board took into account the factors described above and also considered the pricing structure (including the expense ratio to be borne by shareholders) of the Portfolio, as compared to its Expense Group, including that the Portfolio’s net advisory fee is above median for the Expense Group and Expense Universe, and that net operating expenses are also below median for the Expense Group. The Board noted that the above median ranking for the net advisory fee is due to the Portfolio’s small asset size and the substantial additional expenses associated with this type of specialty offering that are not common to emerging market funds generally. The Board further noted that the above median ranking for net total expense ratio was due, in part, to the Portfolio’s investment in a wider range of frontier stock markets than other funds.

 

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Harding, Loevner Funds, Inc.

 

Approval of Investment Advisory Agreement (continued)

(unaudited)

 

 

Conclusion

Following extensive discussion, both in general session and in executive session of the Independent Directors meeting alone with Independent Counsel, the Board determined that it had received sufficient information to take action on the proposed resolutions regarding continuance of the Advisory Agreement. The Board, including a majority of the Independent Directors, concluded with respect to each Portfolio that the fees to be paid by the Portfolio were reasonable in light of the nature, extent and quality of the services to be provided by the Adviser to each Portfolio, the Adviser’s costs, and each Portfolio’s current and reasonably foreseeable asset levels.

In light of all the foregoing, the Board, and separately, a majority of the Independent Directors, approved the continuance of the Advisory Agreement for each Portfolio. The Board’s decision was based on all of the above-mentioned factors and their related conclusions, with no single factor or conclusion being determinative and with each director not necessarily attributing the same weight to each factor.

 

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Harding, Loevner Funds, Inc.

 

Privacy Notice

(unaudited)

 

 

HARDING, LOEVNER FUNDS, INC. (THE “FUND”)

PRIVACY NOTICE

The Fund collects nonpublic personal information about you from the following sources:

 

   

Information, such as your name, address, social security number, assets and income, submitted by you on applications, forms, or in other written or verbal customer communications. This information may also be provided by a consultant or intermediary acting on your behalf.

   

Information that results from any transaction performed by us for you.

The Fund will not disclose any nonpublic personal information about you or its former customers to anyone except as permitted or required by law.

If you decide to close your account(s) or become an inactive customer, the Fund will adhere to the privacy policies and practices as described in this notice.

The Fund restricts access to your personal and account information to only those employees who need to know that information to provide products or services to you. The Fund maintains physical, administrative and technical safeguards to protect your nonpublic personal information.

 

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Harding, Loevner Funds, Inc.

 

 

Directors and Principal Officers

(unaudited)

 

 

Disinterested Directors:

 

Name, Address and Age

  

Position with

the Fund

  

Term of

Office and

Length of

Time Served*

  

Principal Occupation

During Past Five Years

  

Number of

Portfolios in

Fund Complex

Overseen By

Director

  

Other Directorships

William E. Chapman, II

c/o Harding Loevner LP

400 Crossing Boulevard Fourth Floor

Bridgewater, NJ 08807

Age, 71

   Director    Indefinite; Director since 2008; Chairperson of the Audit Committee since 2009   

President and Owner, Longboat Retirement Planning Solutions

(1998-present); Trustee

of Bowdoin College

(2002 – present); Hewitt Associates, LLC (part time) (provider of retirement and

investment education

seminars) (2000 – 2009).

   6   

Trustee of Third Avenue Trust (5 portfolios); Trustee of Third Avenue Variable Trust (1 portfolio); Trustee of Aston Funds (26 Portfolios); Trustee

of The Managers Funds,

Managers AMG Funds,

Managers Trust I and

Managers Trust II (33

portfolios); Director,

Mutual Fund Directors

Forum , Inc.; Director,

Sarasota Memorial

Healthcare Foundation,

Inc.

R. Kelly Doherty

c/o Harding Loevner LP

400 Crossing Boulevard Fourth Floor

Bridgewater, NJ 08807

Age, 54

   Director    Indefinite; Director since 2004    Cayman Partners (private investment vehicles), Managing Partner, 1999 – present.    6   

Morristown Memorial

Hospital; The Peck

School

Charles Freeman

c/o Harding Loevner LP

400 Crossing Boulevard Fourth Floor

Bridgewater, NJ 08807

Age, 48

   Director    Indefinite; Director since 2008   

PepsiCo, Vice President Global Public Policy and Government Relations, 2011 - present; Center for Strategic and

International Studies, Freeman Chair in China Studies, 2007 – 2011; China Alliance (legal and government relations group), Managing Director, 2005 – 2007.

   6   

None

Jane A. Freeman

c/o Harding Loevner LP

400 Crossing Boulevard Fourth Floor

Bridgewater, NJ 08807

Age, 59

   Director    Indefinite; Director since 1996; Lead Independent Director since 2008; Member of the Audit Committee since 2010   

Scientific Learning Corporation

(Education Software), Chief

Financial Officer, 2012 –

present, Executive Vice

President and Chief Financial

Officer, 1999 – 2008;

Consultant, 2008 – 2012.

   6   

Taproot Foundation (Non-Profit), Director, 2010-present

 

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Harding, Loevner Funds, Inc.

 

 

Directors and Principal Officers (continued)

(unaudited)

 

 

Disinterested Directors (continued):

 

Name, Address and Age

  

Position with

the Fund

  

Term of

Office and

Length of

Time Served*

  

Principal Occupation
During Past Five Years

  

Number of
Portfolios in
Fund Complex
Overseen By
Director

  

Other Directorships

Samuel R. Karetsky

c/o Harding Loevner LP

400 Crossing Boulevard Fourth Floor

Bridgewater,

NJ 08807 Age, 67

   Director   

Indefinite; Director since

1998; Member of the Audit Committee since 1998

  

The Karetsky Group

LLC (Advisory Firm), Managing Member, 2003

- present; Wetherby

Asset Management, Wealth Manager, 2004

– present;

European Investors Inc., Managing Director, 1998 – 2002.

   6    None

Eric Rakowski

c/o Harding Loevner LP

400 Crossing Boulevard Fourth Floor

Bridgewater, NJ 08807

Age, 54

   Director    Indefinite; Director since 2008   

University of California

at Berkeley School of Law, Professor, 1990 – present.

   6    Trustee of Third Avenue Trust (5 portfolios); Trustee of Third Avenue Variable Trust (1 portfolio); Trustee of The Managers Funds, Managers AMG Funds, Managers Trust I and Managers Trust II (33 portfolios)

 

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Harding, Loevner Funds, Inc.

 

 

Directors and Principal Officers (continued)

(unaudited)

 

 

Interested Directors:

 

Name, Address and Age

  

Position with
the Fund

  

Term of
Office and
Length of
Time Served*

  

Principal Occupation

During Past Five Years

  

Number of
Portfolios in
Fund Complex
Overseen By
Director

  

Other Directorships

David R. Loevner** Harding Loevner LP 400 Crossing Boulevard Fourth Floor Bridgewater, NJ 08807 Age, 58    Director and Chairman of the Board of Directors    Indefinite; Director and Chairman of the Board since 1996    Harding Loevner LP, President and Chief Executive Officer 1989 – present; Parks Tenn Corp. (real estate), President, 2001 - present.    6    Director, Harding, Loevner Funds, plc (4 portfolios)
Jennifer M. Borggaard** Affiliated Managers Group, Inc. 600 Hale Street Prides Crossing, MA 01965 Age, 43    Director    Indefinite; Director since 2008    Affiliated Managers Group, Inc. (“AMG”) (asset management firm), Senior Vice President, 2007 – present, Vice President, 2004 – 2007, Director and Senior Counsel, 2001 – 2004.    6   

Beautel, Goodman & Company LTD; Genesis Asset Managers, LLP- Member of the Governing Board; Montrusco Bolton Investments Inc.; Arrow Bidco Ltd.

 

 

 

* Each director is elected to serve in accordance with the Articles of Incorporation and By-Laws of the Fund until his or her successor is duly elected and qualified.

**David R. Loevner is considered an “interested person” of the Fund as defined in the Investment Company Act of 1940, as amended, because he serves as President of Harding Loevner LP, the Fund’s investment advisor. Jennifer M. Borggaard is an interested person of the Fund because she is an officer of AMG.

The Funds’ Statement of Additional Information contains additional information about the Directors and is available upon request and without charge by calling (877) 435-8105.

 

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Harding, Loevner Funds, Inc.

 

 

Directors and Principal Officers (continued)

(unaudited)

 

 

Principal Officers of the Fund:

 

Name, Address and Age

  Position with
the Fund
   Term of Office
and Length of
Time Served*
  

Principal Occupation

During Past Five Years

Richard Reiter

Harding Loevner LP

400 Crossing Boulevard

Fourth Floor Bridgewater, NJ 08807

Age, 46

  President    1 year; since 2011    Harding Loevner LP, Chief Operating Officer, 1996 – present.

Susan Mosher

Foreside Compliance Services, LLC

Three Canal Plaza, Suite 100

Portland, ME 04101

Age, 57

  Chief Compliance
Officer of the
Funds
   1 year; since 2010    Foreside Compliance Services, LLC, Head of Compliance Services, 2009 – present; Coast Asset Management, LLC, Chief Compliance Officer, 2007 – 2009; Harding, Loevner Funds, Inc., Anti-Money Laundering Officer, 2005 – 2007; Harding, Loevner Funds, Inc., Chief Compliance Officer, 2004 – 2007; Investors Bank & Trust Company, Senior Director and Chief Counsel/Director, 1995 – 2007.

Charles S. Todd

Foreside Management Services, LLC

Three Canal Plaza, Suite 100

Portland, ME 04101

Age, 41

  Chief Financial
Officer and
Treasurer
   1 year; since 2010    Foreside Management Services, LLC, Director/Treasurer and Principal Financial Officer, 2008 – Present; JPMorgan Investor Services Co., Vice President within the Fund Administration Department, formerly serving as Assistant Vice President, 2000 – 2008.

Patrick Keniston

Foreside Compliance Services, LLC

Three Canal Plaza, Suite 100

Portland, ME 04101

Age, 48

  Anti-Money
Laundering
Compliance
Officer
   1 year; since 2010    Foreside Compliance Services, LLC, Director, 2008 – present; Citi Fund Services Ohio, Inc., Vice President, 2005 – 2008; Citigroup Global Transaction Services, Attorney, 2001 - 2005.

Aaron Bellish

Harding Loevner LP

400 Crossing Boulevard

Fourth Floor Bridgewater, NJ 08807

Age, 33

  Assistant Treasurer    1 year; since 2012    Harding Loevner LP, Chief Financial Officer, 2012 – present; Mount Kellett Capital Management, Chief Financial Officer, formerly serving as Controller, 2008-2012; Lehman Brothers, Inc., Vice President, 2007-2008; PricewaterhouseCoopers LLP, Manager within Investment Management Group, 2002-2007; Arthur Andersen, LLP, Auditor, 2001-2002

Thomas A. Dula

The Northern Trust Company

50 South LaSalle Street

Chicago, IL 60603

Age, 38

  Assistant Treasurer    1 year; since 2010    The Northern Trust Company, Vice President and Client Service Delivery Manager, 2010 – present, Relationship Manager, 2009 – 2010, and Institutional Trust Account Administrator, 2004 - 2009.

 

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Harding, Loevner Funds, Inc.

 

Directors and Principal Officers (continued)

(unaudited)

 

 

Principal Officers of the Fund (continued):

 

Name, Address and Age

  Position with
the Fund
   Term of Office
and Length of
Time Served*
  

Principal Occupation

During Past Five Years

Owen T. Meacham

The Northern Trust Company

50 South LaSalle Street

Chicago, IL 60603

Age, 41

  Secretary    1 year; since 2010    The Northern Trust Company, Vice President and Senior Regulatory Administration Attorney, 2007 - present; ABN AMRO Asset Management, Product Strategy and Development Manager, 2005 – 2007.

Lori M. Renzulli

Harding Loevner LP

400 Crossing Boulevard

Fourth Floor

Bridgewater, NJ 08807

Age, 46

  Assistant Secretary    1 year; since 2008    Harding Loevner LP, Chief Counsel and Chief Compliance Officer, 2006 – present.

Marcia Y. Lucas

The Northern Trust Company

50 South LaSalle Street

Chicago, IL 60603

Age, 45

  Assistant Secretary    1 year; since 2011    Vice President, The Northern Trust Company (2010-Present); Partner, Michael Best & Friedrich LLP (2005-2010).

* Officers are elected to hold such office until their successor is elected and qualified to carry out the duties and responsibilities of their office, or until he or she resigns or is removed from office.

 

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Harding, Loevner Funds, Inc.

 

Supplemental Information

(unaudited)

 

 

Quarterly Form N-Q Portfolio Schedule

Each Portfolio will file its complete schedule of investments with the SEC on Form N-Q at the end of the first and third fiscal quarters within 60 days of the end of the quarter to which it relates. The Portfolios’ Form N-Q will be available on the SEC’s website at www.sec.gov and may also be reviewed and copied at the SEC’s Public Reference Room whose telephone number is (800) SEC-0330. Additionally, they are available upon request by calling (877) 435-8105.

Proxy Voting Record

The Fund’s proxy voting record relating to the Portfolios’ securities during the most recent 12-month period ended June 30 is available on the Fund’s website at www.hardingloevnerfunds.com and on the SEC’s website at www.sec.gov, on Form N-PX.

Proxy Voting Policies and Procedures

A description of the Fund proxy voting policies and procedures are located in the Statement of Additional Information and is available without charge, upon request, by calling (877) 435-8105 or on the SEC’s website at www.sec.gov.

Additional Information

The Adviser updates Fact Sheets for the Portfolios each calendar quarter, which are posted to the Fund’s website - www.hardingloevnerfunds.com. This information, along with the Adviser’s commentaries on its various strategies, is available without charge, upon request, by calling (877) 435-8105.

 

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LOGO


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LOGO


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Item 2. Code of Ethics.

As of October 31, 2012, the Registrant has adopted a code of ethics that applies to the Registrant’s President/Chief Executive Officer and Treasurer/Chief Financial Officer. For the fiscal year ended October 31, 2012, there were no amendments to a provision of its code of ethics, nor were there any waivers granted from a provision of the code of ethics. A copy of its code of ethics is filed with this Form N-CSR under Item 12(a)(1).

Item 3. Audit Committee Financial Expert.

The Registrant’s Board of Directors has determined that the following members of the Audit Committee are audit committee financial experts and independent: William Chapman and Jane Freeman.

Item 4. Principal Accountant Fees and Services.

(a) Audit Fees: The aggregate fees billed for each of the last two fiscal years for professional services rendered by KPMG LLP for the audit of the registrant annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $138,770 in 2012 and $136,030 in 2011.

(b) Audit-Related Fees: The aggregate fees billed in each of the last two fiscal years for assurance and related services by KPMG LLP that are reasonably related to the performance of the audit of the registrant financial statements and are not reported under paragraph (a) of this Item are NONE.

(c) Tax Fees: The aggregate fees billed in each of the last two fiscal years for professional services rendered by KPMG LLP for the review of domestic tax returns were $43,200 in 2012 and $42,000 in 2011.

(d) All Other Fees: The aggregate fees billed in each of the last two fiscal years for products and services provided by KPMG LLP, other than the services reported in paragraphs (a) through (c) of this Item are NONE.

(e)(1) Disclose the audit committee pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.

A copy of the Audit Committee’s Pre-Approval Policies and Procedures is filed with this Form N-CSR under Item 12(c).

(e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:

Paragraph (b) Audit-Related Fees: Not applicable

Paragraph (c) Tax Fees: 100%

Paragraph (d): All Other Fees: Not applicable

(f) Not applicable.

(g) Not applicable.

(h) Not applicable.


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Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Investments.

 

(a) Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this report on Form N-CSR.

 

(b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.

Not applicable to this registrant.

Item 8. Portfolio Managers of Closed-End Management Investment Companies.

Not applicable to this registrant.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.

Not applicable to this registrant.

Item 10. Submission of Matters to a Vote of Security Holders.

Not applicable.

Item 11. Controls and Procedures.

 

(a) The Registrant’s Principal Executive Officer and Principal Financial Officer have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) were effective as of a date within 90 days prior to the filing date of this report, based on their evaluation of the effectiveness of the Registrant’s disclosure controls and procedures as of the evaluation date.

 

(b) There were no significant changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 12. Exhibits.

(a)(1) Code of Ethics for Senior Officers Pursuant to the Sarbanes-Oxley Act of 2002 is attached.

(a)(2) Section 302 Certifications are attached.

(b) Section 906 Certifications are attached.

(c) Audit Committee Pre-Approval Policies and Procedures are attached.


Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Harding, Loevner Funds, Inc.   
By   

/s/ Richard T. Reiter

  
   Richard T. Reiter, President   
Date: January 7, 2013   
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By   

/s/ Richard T. Reiter

  
   Richard T. Reiter, President   
Date: January 7, 2013   
By   

/s/ Charles S. Todd

  
   Charles S. Todd, Treasurer and Chief Financial Officer   
Date: January 7, 2013   
EX-99.12.A 2 d440902dex9912a.htm CODE OF ETHICS Code of Ethics

Exh. 12(a)

HARDING, LOEVNER FUNDS, INC.

CODE OF ETHICS FOR SENIOR OFFICERS

PURSUANT TO THE SARBANES-OXLEY ACT OF 2002

INTRODUCTION

Section 406 of the Sarbanes-Oxley Act of 2002 directed the Securities and Exchange Commission (the “SEC”) to adopt rules requiring companies to disclose whether or not they have adopted a code of ethics for senior financial officers, and if not, why not. The SEC has adopted rules requiring registered investment companies to make such disclosures. These rules extend coverage to chief executive officers as well as senior financial officers, and require disclosure of waivers or substantive changes in any code. This Code of Ethics (this “Code”) addresses these new requirements, and is different in nature and scope from the code of ethics that was previously adopted as required under Section 17(j) of the Investment Company Act of 1940, as amended (the “Investment Company Act”) and Rule 17j-1 thereunder, which focuses on personal trading activities.

POLICY STATEMENT

It is the policy of Harding, Loevner Funds, Inc. (the “Fund”) to conduct its affairs in accordance with all applicable laws and governmental rules and regulations. This Code has been adopted by the Fund’s Board of Directors (the “Board”) and applies to the persons appointed by the Board as Chief Executive Officer, President, Chief Financial Officer, Treasurer and any persons performing similar functions, all as identified in Exhibit A, as modified from time to time (“Covered Officers”). Each Covered Officer is personally responsible for adhering to the standards and restrictions imposed by applicable laws, rules and regulations, including those relating to affiliated transactions, accounting and auditing matters. This Code is designed to deter wrongdoing and promote:

 

   

honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

 

   

full, fair, accurate, timely and understandable disclosure in the reports and documents the Fund files with, or submits to, the SEC and in other public communications made by the Fund;

 

   

compliance with applicable governmental laws, rules and regulations;

 

   

prompt internal reporting to the appropriate person of violations of this Code; and

 

   

accountability for adherence to this Code.


This Code covers a wide range of business practices and procedures. It does not cover every issue that may arise, but it sets out basic principles to guide Covered Officers. In this regard, each Covered Officer must:

 

   

act with integrity, including being honest and candid while still maintaining the confidentiality of information where required by law or the Fund’s policies;

 

   

observe both the form and spirit of laws and governmental rules and regulations, and accounting standards;

 

   

adhere to high standards of business ethics; and

 

   

place the interests of the Fund and its shareholders before the Covered Officer’s own personal interests.

All activities of Covered Officers should be guided by and adhere to these fiduciary standards. Covered Officers should not hesitate to use available resources whenever it is desirable to seek clarification. Covered Officers are encouraged to consult with the designated senior compliance officer of the Fund’s investment adviser (“Adviser”) or the Fund’s administrator (the “Compliance Officer”), or other appropriate resources, when in doubt about the best course of action in a particular situation.

CONFLICTS OF INTEREST

Covered Officers should handle ethically actual and apparent conflicts of interest. A “conflict of interest” occurs when an individual’s personal interests actually or potentially interfere with the interests of the Fund or its shareholders. A conflict of interest can arise when a Covered Officer takes actions or has interests that may make it difficult to perform his duties as a Fund officer objectively and effectively. Service to the Fund should never be subordinated to either a direct or indirect personal gain or advantage.

Certain conflicts of interests arise out of the relationships between Covered Officers and the Fund that already are subject to conflict of interest provisions in the Investment Company Act and the Investment Advisers Act of 1940. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as “affiliated persons” of the Fund. The compliance programs and procedures of the Fund and the Adviser are designed to prevent, or identify and correct, violations of these provisions. This Code does not, and is not intended to, repeat or replace these programs and procedures, and such conflicts fall outside of the parameters of this Code.

Actual or apparent conflicts may arise from, or as a result of, the contractual relationship between the Fund and the Adviser (or other service provider, e.g., administrator) of which the Covered Officers are also officers or employees. It is recognized by the Board that the Covered Officers will, in the normal course of their duties, be involved in establishing policies and implementing decisions that will have different effects on the Adviser and the Fund. The Board recognizes that the participation of the Covered Officers in such activities is inherent in the

 

2


contractual relationship between the Fund and the Adviser, and is consistent with the Board’s understanding of the performance by the Covered Officers of their duties as officers of the Fund. Nonetheless, each Covered Officer recognizes that, as an Officer of the Fund, he or she has a duty to act in the best interests of the Fund and its shareholders.

If a Covered Officer believes that his or her responsibilities as an officer or employee of the Adviser (or other service provider) are likely to materially compromise his or her objectivity or ability to perform the duties of his role as an officer of the Fund, he or she should consult with the Compliance Officer. A Covered Officer should also consider whether to present the matter to the Board or an appropriate committee thereof.

In addition, each Covered Officer must:

 

   

avoid conflicts of interest wherever possible;

 

   

not use his or her personal influence or personal relationships to influence investment decisions or financial reporting by the Fund whereby the Covered Officer would benefit personally to the detriment of the Fund;

 

   

not engage in personal, business or professional relationships or dealings which would impair his or her independence of judgment or adversely affect the performance of his or her duties in the best interests of the Fund and its shareholders; and

 

   

not cause the Fund to take action, or fail to take action, for the personal benefit of the Covered Officer rather than the benefit the Fund.

Conflicts of interest may not always be evident and Covered Officers should consult with the Compliance Officer if they are uncertain about any situation. Examples of possible conflicts of interest include:

 

3


Personal Business Transactions. A Covered Officer may not cause the Fund to engage in any business transaction with his or her immediate family members or utilize the Covered Officer’s relationship with the Fund to cause any third party to engage in any business transaction with his or her immediate family members. This provision is not intended, however, to restrict Covered Officers and their immediate family members from purchasing or redeeming shares of the Fund as long as such purchases or redemptions are made in accordance with the procedures, limitations and restrictions set forth in the Fund’s registration statement. For the purposes of this code, the term “immediate family” means a Covered Officer’s spouse, sibling, child, parent, brother or sister in law, or a spouse, sibling, child or parent of any of the foregoing.

Use of Nonpublic or Confidential Information. A Covered Officer may not use, or disclose to a third party, non-public or confidential information about the Fund or its activities or any of the Fund’s service providers for the purpose of personal gain by the Covered Officer or his or her immediate family members (including, but not limited to, securities transactions based on such information).

Outside Employment or Activities. A Covered Officer may not engage in any outside employment or activity that interferes with his or her duties and responsibilities with respect to the Fund or is otherwise in conflict with or prejudicial to the Fund. A Covered Officer must disclose to the Compliance Officer any outside employment or activity that may constitute, or appear to constitute, a conflict of interest and obtain the requisite approval before engaging in such employment or activity. Any such employment or activity is permissible only if it would not be inconsistent with the best interests of the Fund and its shareholders.

Gifts. A Covered Officer may not accept any gift, entertainment, favor, or loan from any person or entity that does or seeks to do business with the Fund which goes beyond the courtesies generally associated with accepted business practice. Non-cash gifts of a de minimis nature are considered to be within accepted business practices. Cash gifts of any amount are strictly prohibited. Entertainment (in the form of meals, tickets to events or otherwise) must be reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety.

Corporate Opportunities. A Covered Officer may not exploit, for his or her own personal gain or the personal gain of immediate family members, opportunities that are discovered through the use of Fund property, information, or the Covered Officer’s position unless the opportunity is fully disclosed, in writing, to the Fund’s Board and the Board declines to pursue such opportunity on behalf of the Fund.

Other Situations. Because other conflicts of interest may arise, it is not practical to list in this Code all possible situations that could result in a conflict of interest. If a proposed transaction, interest, personal activity, or investment raises any questions, concerns or doubts, a Covered Officer should consult with the Compliance Officer before engaging in the transaction, making the investment or pursuing the interest or activity.

 

4


ACCURACY OF REPORTS, RECORDS AND ACCOUNTS

All Covered Officers are responsible for the accuracy of the records and reports that they are responsible for maintaining to enable the Fund to provide full, fair and accurate financial information and other disclosure to regulators and Fund shareholders. Accurate information is essential to the Fund’s ability to meet legal and regulatory obligations. The books and records of the Fund shall accurately reflect the true nature of the transactions they record in accordance with applicable law, generally accepted accounting principles and Fund policies. The Covered Officers must not create false or misleading documents or accounting, financial or electronic records for any purpose, and must not direct any other person to do so. If a Covered Officer becomes aware that information filed with the SEC, or state regulatory authority, or made available to the public contains any false or misleading information or omits to disclose necessary information, he shall promptly report it to the Compliance Officer for a determination as to what, if any, corrective action is necessary or appropriate.

No undisclosed or unrecorded account or fund shall be established for any purpose. No false or misleading entries shall be made in the Fund’s books or records for any reason. No disbursement of Fund assets shall be made without adequate supporting documentation or for any purpose other than as described in the Fund’s documents or contracts.

FUNDS DISCLOSURE CONTROLS AND PROCEDURES

Each Covered Officer is required to be familiar, and comply, with the Fund’s disclosure controls and procedures. In addition, each Covered Officer having direct or supervisory authority regarding SEC filings or the Fund’s other public communications should, to the extent appropriate within his area of responsibility, consult with other Fund officers and take other appropriate steps regarding these disclosures with the goal of making full, fair, accurate, timely and understandable disclosure.

Each Covered Officer must:

 

   

familiarize himself or herself with the disclosure requirements applicable to the Fund as well as the business and financial operations of the Fund;

 

   

ensure that reasonable steps are taken within his or her areas of responsibility to promote full, fair, accurate, timely and understable disclosure in all regulatory filings, as well as when communicating with the Fund’s shareholders or the general public, in accordance with applicable law;

 

   

consistent with his or her responsibilities, exercise appropriate supervision over and assist relevant Fund service providers in developing financial information and other disclosure that complies with relevant law and presents information in a clear, comprehensible and complete manner; and

 

   

not knowingly misrepresent, conceal or omit required disclosures of, or cause others to do the same, facts about the Fund, whether to persons within or outside the Fund, including to outside counsel, independent auditors and governmental regulators.

 

5


CONFIDENTIAL INFORMATION

Covered Officers who have access to confidential information are not permitted to use or share that information for their personal benefit or for any other purpose except the conduct of the Fund’s business. Covered Officers should maintain the confidentiality of information entrusted to them by the Fund or its shareholders, except when disclosure is authorized or legally mandated. Confidential information includes all non-public information, including information that might be of use to competitors, or harmful to the Fund or its shareholders if disclosed.

All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly by the Fund. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board and the Fund’s outside counsel.

COMPLIANCE, REPORTING AND RECORDKEEPING

Compliance

Any Covered Officer who violates the provisions of this Code will be subject to disciplinary action and appropriate sanctions, up to and including termination. Sanctions shall be imposed by the Fund’s Qualified Legal Compliance Committee (“QLCC”), subject to review by the full Board, in their sole discretion. Depending on the nature and severity of the violation, the Fund may refer such violation to appropriate authorities for civil action or criminal prosecution.

Reporting

Each Covered Officer shall:

 

   

upon receipt of the Code or upon becoming a Covered Officer, sign and submit an Initial Acknowledgement (form attached) confirming that he/she has received, read and understands the Code;

 

   

annually, sign and submit an Annual Acknowledgement (form attached) confirming that he or she has complied with the requirements of the Code;

 

   

not retaliate against any Covered Officer or other person for making reports of violations in good faith; and

 

   

notify the Compliance Officer of any actual or potential violation of this Code, whether the violation or potential violation was committed by the Covered Officer personally or by another Covered Officer. Failure to do so is itself a violation of this Code. The Fund will not retaliate against any Covered Officer for making reports of violations in good faith, but will not be precluded from taking appropriate disciplinary action for the violations themselves.

Except as described otherwise below, the Compliance Officer is authorized to apply this Code to situations presented to it and has the authority to interpret this Code in any particular situation. The Compliance Officer shall take all action it considers appropriate to investigate any

 

6


actual or potential violations reported to it, and the Compliance Officer is authorized and encouraged to consult, as appropriate, with the QLCC. The Fund’s QLCC is responsible for granting waivers from the terms and provisions of this Code, as it deems appropriate.

Recordkeeping

The Fund will maintain and preserve for a period of not less than six (6) years from the date such action is taken, the first two (2) years in an easily accessible place, a copy of the information or materials supplied to the QLCC and/or Board: (i) that provided the basis for any amendment or waiver to this Code, and (ii) relating to any violation of the Code and sanctions imposed for such violation, together with a written record of the approval or action taken by the QLCC and/or Board.

WAIVERS OF PROVISIONS OF THE CODE

A waiver of any provision of the Code shall be requested whenever there is a reasonable likelihood that a contemplated action will violate the Code. A “waiver” is defined as the approval by the Fund of a material departure from any provision of the Code.

The process of requesting a waiver shall consist of the following steps:

 

   

The Covered Officer shall set forth a request for waiver in writing. The request shall describe the conduct, activity or transaction for which the Covered Officer seeks a waiver, and shall briefly explain the reason for engaging in the conduct, activity or transaction.

 

   

The determination with respect to the waiver shall be made in a timely fashion by the Compliance Officer, in consultation with the Fund’s outside counsel, and submitted to the Board’s QLCC for review and approval.1

 

   

The decision with respect to the waiver requested shall be documented and kept in the Fund’s records for the appropriate period mandated by applicable law or regulation.

To the extent required by applicable law, waivers (including “implicit waivers”) shall be publicly disclosed on a timely basis. An “implicit waiver” is defined as the Fund’s failure to take action within a reasonable period of time regarding a material departure from a provision of the Code that has been made known to an “executive officer” of the Fund. For this purpose, an “executive officer” is the Fund’s President or Chief Executive Officer, Vice President (who is in charge of a principal policymaking function), or any other person who performs similar policymaking functions for the Fund. If a material departure from a provision of this Code is known only by the Covered Person that has caused the material departure from the Code, the material departure from the Code will not be considered to have been made known to an executive officer of the Fund for purposes of deciding whether there has been an implicit waiver.

 

 

1 

If the Covered Officer requesting a waiver is the Compliance Officer, then the determination with respect to the waiver shall be made by the Fund’s Chief Executive Officer, in consultation with the Fund’s outside counsel, and submitted to the QLCC for review and approval.

 

7


DISCLOSURE

The Fund must disclose this Code, any substantive amendments and any waivers or implicit waivers by: (i) filing with the SEC a copy of the Code, any such amendments and waivers or implicit waivers in the Fund’s annual report on Form N-CSR; or (ii) posting the text of the Code, any such amendments and waivers or implicit waivers on the Fund’s Internet website and disclosing in each report on Form N-CSR, its Internet address and the fact that it has posted the Code on the website; or (iii) undertaking in each report on Form N-CSR to provide to any person without charge, upon request, a copy of this Code, any such amendments and waivers or implicit waivers and explain the manner in which such request may be made.

AMENDMENTS TO THE CODE

Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Board. The Covered Officers and the Compliance Officer are encouraged to recommend improvements to this Code for the consideration and approval of the Board.

Adopted: September 11, 2003

 

8


EXHIBIT A

“Covered Officers” covered by this Code of Ethics for Senior Officers:

Richard T. Reiter, President and Chief Executive Officer

Charles S. Todd, Chief Financial Officer and Treasurer

Current as of: December 2011

 

A-1


INITIAL ACKNOWLEDGEMENT

I acknowledge that I have received and read a copy of the Code of Ethics for Senior Officers (the “Code”) and that I understand it. I further acknowledge that I am responsible for understanding and complying with the policies set forth in the Code during my tenure as a Covered Officer, as defined in the Code.

I also acknowledge my responsibility to report any violation of the Code to the Compliance Officer, as defined in the Code.

I further acknowledge that the policies contained in the Code are not intended to create any contractual rights or obligations, express or implied. I also understand that, consistent with applicable law, the Fund has the right to amend, interpret, modify or withdraw any of the provisions of the Code at any time in its sole discretion, with or without notice.

 

Covered Officer Name and Title:

 
  (please print)
 

Signature

  Date

Please return this completed form to                                  within one week from the date of your receipt of a request to review these documents. Thank you!

 

1


ANNUAL ACKNOWLEDGEMENT

I acknowledge that I have received and read a copy of the Code of Ethics for Senior Officers (the “Code”) and that I understand it. I further acknowledge that I am responsible for understanding and complying with the policies set forth in the Code during my tenure as a Covered Officer, as defined in the Code.

I also acknowledge that I have fully complied with the terms and provisions of the Code during the period of time since the most recent Initial or Annual Acknowledgement provided by me.

I further acknowledge that the policies contained in the Code are not intended to create any contractual rights or obligations, express or implied. I also understand that, consistent with applicable law, the Fund has the right to amend, interpret, modify or withdraw any of the provisions of the Code at any time in its sole discretion, with or without notice.

 

Covered Officer Name and Title:

 
  (please print)
 

Signature

  Date

Please return this completed form to                                  within one week from the date of your receipt of a request to complete and return it. Thank you!

 

1

EX-99.12.C 3 d440902dex9912c.htm PRE-APPROVAL POLICIES AND PROCEDURES Pre-Approval Policies and Procedures

Exh. 12(c)

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

PRE-APPROVAL POLICIES AND PROCEDURES

as adopted by the

AUDIT COMMITTEE

of

HARDING, LOEVNER FUNDS, INC. (the “Fund”)

The Sarbanes-Oxley Act of 2002 (“Act”)1 and rules adopted by the Securities and Exchange Commission (“SEC”) (“Rules”)2 require that the Fund’s Audit Committee (the “Committee”) pre-approve all audit services and non-audit services provided to the Fund by its independent accountant ( the “Auditor”), as well as all non-audit services provided by the Auditor to (1) the Fund’s investment adviser and (2) affiliates of the adviser that provide ongoing services to the Fund (collectively, the “Service Affiliates”) if the services directly impact the Fund’s operations and financial reporting.

The following policies and procedures govern the ways in which the Committee will pre-approve audit and various categories of non-audit services that the Auditor provides to the Fund and to Service Affiliates. These policies and procedures do not apply in the case of audit services that the Auditor provides to Service Affiliates, nor do they apply to services that an audit firm other than the Auditor provides to such entities.

These policies and procedures comply with the requirements for pre-approval, but also provide a mechanism by which Fund Management may request and secure pre-approval of audit and non-audit services in an orderly manner with minimal disruption to normal business operations. Pre-approval of non-audit services may be achieved through a combination of the procedures described in Sections C and D below.

A. General

 

  1. The Committee must pre-approve all audit services and non-audit services that the Auditor provides to the Fund.

 

  2. The Committee must pre-approve any engagement of the Auditor to provide non-audit services to any Service Affiliate during the period of the Auditor’s engagement to provide audit services to the Fund, if the non-audit services to the Service Affiliate directly impact the Fund’s operations and financial reporting.

 

 

 

1 

Pub. L. 107-204, 116 Stat. 745 (2002).

 

2 

Sec. Act Rel. No. 8183 (Mar. 20, 2003).


B. Pre-Approval of Audit Services to the Fund

 

  1. The Committee shall approve the engagement of an auditor to certify the Fund’s financial statements for each fiscal year (the “Engagement”). The approval of the Engagement shall not be delegated to a Designated Member. (See Section D below.) In approving the Engagement, the Committee shall obtain, review and consider sufficient information concerning the proposed Auditor to enable the Committee to make a reasonable evaluation of the Auditor’s qualifications and independence. The Committee also shall consider the Auditor’s proposed fees for the engagement, in light of the scope and nature of the audit services that the Fund will receive.

 

  2. The Committee shall report to the Board of Directors (the “Board”) regarding its approval of the Engagement and of the proposed fees for the Engagement, and the basis for such approval.

 

  3. Unless otherwise in accordance with applicable law, the Engagement, in any event, shall require that the Auditor be selected by the vote, cast in person, of a majority of the members of the Fund’s Board who are not interested persons of the Fund (as defined in Section 2(a)(19) of the Investment Company Act of 1940) (“Independent Directors”).

C. Pre-Approval of Non-Audit Services to the Fund and to Service Affiliates – by Types of Services

 

  1. The Committee may pre-approve types of non-audit services to the Fund and its Service Affiliates pursuant to this Section C.

 

  2. Annually, at such time as the Committee considers the Engagement of the Auditor, Fund Management, in consultation with the Auditor, may provide to the Committee, for its consideration and action, the following: (a) a list of those types of non-audit services, if any, that the Fund may request from the Auditor during the fiscal year; and (b) a list of those types of non-audit services directly impacting the Fund’s operations and financial reporting that Service Affiliates may request from the Auditor during the fiscal year.

 

  3. The lists submitted to the Committee shall describe the types of non-audit services in reasonable detail and shall include an estimated budget (or budgeted range) of fees where possible and such other information as the Committee may request.

 

  4. The Committee’s pre-approval of the types of non-audit services submitted pursuant to this Section C shall constitute authorization for Fund Management to utilize the Auditor for the types of non-audit services so pre-approved, if needed or desired during the fiscal year.


  5. A list of the types of non-audit services pre-approved by the Committee pursuant to this Section C will be distributed to management of the Service Affiliates and the appropriate partners of the Auditor. Periodically, the Auditor will discuss with the Committee those non-audit services that have been or are being provided pursuant to this Section C.

D. Pre-Approval of Non-Audit Services to the Fund and to Service Affiliates – Project-by-Project Basis

 

  1. The Committee also may pre-approve non-audit services on a project-by-project basis pursuant to this Section D.

 

  2. Fund Management, in consultation with the Auditor, may submit either to the Committee or to the Designated Member, as provided in this Section D, for their consideration and action, a pre-approval request identifying one or more non-audit service projects. The request so submitted shall describe the project or projects in reasonable detail and shall include an estimated budget (or budgeted range) of fees and such other information as the Committee or Designated Member shall request.

 

  3. The Committee, from time to time, may designate one or more of its members who are Independent Directors (each a “Designated Member”) to consider, on the Committee’s behalf, any non-audit services, whether to the Fund or to any Service Affiliate, that have not been pre-approved by the Committee. The Designated Member also shall review, on the Committee’s behalf, any proposed material change in the nature or extent of any non-audit services previously approved. Fund Management, in consultation with the Auditor, shall explain why such non-audit services or material change in non-audit services are necessary and appropriate and the anticipated costs thereof.

 

  4. The Designated Member will review the requested non-audit services or proposed material change in such services and will either:

 

  a. pre-approve, pre-approve subject to conditions, or disapprove any such requested services, or any proposed material change in services, whether to the Fund or to a Service Affiliate; or

 

  b. refer such matter to the full Committee for its consideration and action.

In considering any requested non-audit services or proposed material change in such services, the Designated Member shall take into account any restrictions placed by the Committee on his or her pre-approval authority.

 

  5.

The Designated Member’s pre-approval (or pre-approval subject to conditions) of the requested non-audit service or proposed material change in service pursuant to this Section D shall constitute authorization for Fund Management or the Service Affiliate, as the case may be, to utilize the Auditor for the non-audit services so pre-approved. Any action by the Designated Member in approving a requested non-audit service shall be presented for ratification by the Committee not later than at


  its next scheduled meeting. If the Designated Member does not approve the Auditor providing the requested non-audit service, the matter may be presented to the full Committee for its consideration and action.

E. Amendment; Annual Review

 

  1. The Committee may amend these procedures from time to time.

 

  2. These procedures shall be reviewed annually by the Committee.

F. Recordkeeping

 

  1. The Fund shall maintain a written record of all decisions made by the Committee or by a Designated Member pursuant to these procedures, together with appropriate supporting material.

 

  2.

In connection with the approval of any non-audit service pursuant to the de minimis exception3 provided in the Rules, a record shall be made indicating that each of the conditions for this exception, as set forth in the Rule, have been satisfied.

 

  3. A copy of these Procedures and of any amendments to these Procedures shall be maintained and preserved permanently in an easily accessible place. The written records referred to in paragraph 1 and 2 of this Section F shall be maintained and preserved for six years from the end of the fiscal year in which the actions recorded were taken, for at least the first two years in an easily accessible location.

Adopted: December 7, 2006

 

 

 

3 

This exception applies if: (1) the aggregate amount of the non-audit services is not more than five percent of the total amount of fees paid by the Fund to the Auditors during the fiscal year in which the non-audit services are provided; (2) at the time of the engagement, the Fund did not recognize the services to be non audit services; and (3) the services are approved by the Committee prior to the completion of the audit.

EX-99.CERT 4 d440902dex99cert.htm CERTIFICATIONS Certifications

N-CSR Exhibit for Item 12(a)(2): SECTION 302 CERTIFICATIONS

     EX-99.CERT       

I, Richard T. Reiter, certify that:

 

  1. I have reviewed this report on Form N-CSR of Harding, Loevner Funds, Inc.

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:     January 7, 2013  

/s/ Richard T. Reiter

  Richard T. Reiter, President

 


N-CSR Exhibit for Item 12(a)(2): SECTION 302 CERTIFICATIONS

     EX-99.CERT       

I, Charles S. Todd, certify that:

 

  1. I have reviewed this report on Form N-CSR of Harding, Loevner Funds, Inc.

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer(s) and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:     January 7, 2013  

/s/ Charles S. Todd

  Charles S. Todd, Treasurer and Chief Financial Officer

 

EX-99.906.CERT 5 d440902dex99906cert.htm SECTION 906 CERTIFICATION Section 906 Certification
N-CSR Exhibit for Item 12(b): SECTION 906 CERTIFICATIONS      EX-99.906.CERT   

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Certified Shareholder Report of Harding, Loevner Funds, Inc. (the “Registrant”) on Form N-CSR for the period ended October 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby certifies that:

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

 

 

Date:     January 7, 2013

 

/s/ Richard T. Reiter

 

Richard T. Reiter, President

 

 

Date:     January 7, 2013

 

/s/ Charles S. Todd

 

Charles S. Todd, Treasurer and Chief Financial Officer

 

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the “Commission”) or its staff upon request.

This certification is being furnished to the Commission solely pursuant to Rule 30a.2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR with the Commission.

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