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)
Registrants telephone number, including area code: (877) 435-8105
Date of fiscal year end: 10/31
Date of reporting period: 10/31/2014
Item 1. Reports to Stockholders.
About the Adviser
Harding Loevner Funds
Global equity investing for institutions is Harding Loevners exclusive focus. Through Harding Loevner Funds it offers five distinct global strategies based on its quality-and-growth investment philosophy. It seeks to purchase shares of growing, financially strong, well-managed companies at favorable prices. Harding Loevner manages each of the Funds Portfolios according to a disciplined, research-based investment process. It identifies companies with sustainable competitive advantages and assesses the durability of their earnings growth by conducting in-depth fundamental research into global industries. In constructing portfolios, Harding Loevner diversifies carefully to limit risk.
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Table of Contents
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Harding, Loevner Funds, Inc. c/o Northern Trust Attn: Funds Center C5S 801 South Canal Street Chicago, IL 60607
Phone: (877) 435-8105 Fax: (312) 267-3657 www.hardingloevnerfunds.com |
Must be preceded or accompanied by a current Prospectus.
Quasar Distributors, LLC, Distributor |
1
Institutional Class HLMVX
Advisor Class HLMGX
Performance | ||||||||||||||||||||||||||||||||||||||||||||
Average Annualized Total Returns (%) | ||||||||||||||||||||||||||||||||||||||||||||
at September 30, 2014 | at October 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||
Inception Date |
1 year | 3 years | 5 years | 10 years | Since Inception* |
1 year | 3 years | 5 years | 10 years | Since Inception* |
||||||||||||||||||||||||||||||||||
Global Equity Portfolio Inst. Class |
11/3/09 | 12.15 | 16.00 | | | 10.64 | 11.47 | 13.22 | | | 10.94 | |||||||||||||||||||||||||||||||||
Global Equity Portfolio Advisor Class |
12/1/96 | 11.87 | 15.68 | 10.10 | 9.19 | 6.72 | 11.19 | 12.90 | 10.85 | 9.08 | 6.82 | |||||||||||||||||||||||||||||||||
MSCI All Country World Index |
11.33 | 16.62 | 10.08 | 7.28 | 10.58 | 7.78 | 12.99 | 10.57 | 7.09 | 10.55 |
*The since inception return of the MSCI All Country World Index is since 11/3/09; The inception date of the Index is 1/1/01.
Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877) 435-8105 or visiting www.hardingloevnerfunds.com. The Portfolio imposes a 2% redemption fee on shares held 90 days or less. Performance data does not reflect the redemption fee. If reflected, total returns would be reduced.
The charts below illustrate the hypothetical return of an investment made in the corresponding share classes. Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided in the table above and charts below do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares.
2
Global Equity Portfolio continued
3
Institutional Class HLMVX
Advisor Class HLMGX
4
International Equity Portfolio
5
Institutional Class HLMIX
Investor Class HLMNX
Performance | ||||||||||||||||||||||||||||||||||||||||||||
Average Annualized Total Returns (%) | ||||||||||||||||||||||||||||||||||||||||||||
at September 30, 2014 | at October 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||
Inception Date |
1 year | 3 years | 5 years | 10 years | Since Inception* |
1 year | 3 years | 5 years | 10 years | Since Inception* |
||||||||||||||||||||||||||||||||||
Intl Equity Portfolio Institutional Class |
5/11/94 | 4.34 | 13.20 | 9.05 | 8.89 | 6.22 | 2.65 | 10.21 | 9.61 | 8.72 | 6.28 | |||||||||||||||||||||||||||||||||
Intl Equity Portfolio Investor Class |
9/30/05 | 4.05 | 12.81 | 8.69 | | 6.40 | 2.36 | 9.82 | 9.26 | | 6.55 | |||||||||||||||||||||||||||||||||
MSCI ACW ex-US Index |
4.76 | 11.79 | 6.04 | 7.07 | 4.92 | 0.05 | 7.77 | 6.09 | 6.60 | 4.75 |
*The since inception return of the MSCI ACW ex-US Index is since 9/30/05. The inception date of the Index is 1/1/01.
Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877) 435-8105 or visiting www.hardingloevnerfunds.com. The Portfolio imposes a 2% redemption fee on shares held 90 days or less. Performance data does not reflect the redemption fee. If reflected, total returns would be reduced.
The charts below illustrate the hypothetical return of an investment made in the corresponding share classes. Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided in the table above and charts below do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares.
6
International Equity Portfolio continued
7
Institutional Class HLMIX
Investor Class HLMNX
8
International Small Companies Portfolio
9
Institutional Class HLMRX
Investor Class HLMSX
Performance | ||||||||||||||||||||||||||||||||||||
Average Annualized Total Returns (%) | ||||||||||||||||||||||||||||||||||||
at September 30, 2014 | at October 31, 2014 | |||||||||||||||||||||||||||||||||||
Inception Date |
1 year | 3 years | 5 years | Since Inception* |
1 year | 3 years | 5 years | Since Inception* |
||||||||||||||||||||||||||||
Intl Small Companies Portfolio Institutional Class |
6/30/11 | 5.72 | 16.16 | | 6.76 | 2.28 | 12.80 | | 6.42 | |||||||||||||||||||||||||||
Intl Small Companies Portfolio Investor Class |
3/26/07 | 5.48 | 15.89 | 11.33 | 6.04 | 1.97 | 12.54 | 11.10 | 5.89 | |||||||||||||||||||||||||||
MSCI ACW ex-US Small Cap Index |
4.54 | 12.48 | 8.32 | 4.06 | -0.99 | 8.61 | 8.03 | 3.21 |
* The since inception return of the MSCI ACW ex-US Small Cap Index is since 6/30/11. The inception date of the Index is 6/1/07.
Performance data quoted represent past performance; past performance does not predict future results. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877) 435-8105 or visiting www.hardingloevnerfunds.com. The Portfolio imposes a 2% redemption fee on shares held 90 days or less. Performance data does not reflect the redemption fee. If reflected, total returns would be reduced.
The charts below illustrate the hypothetical return of an investment made in the corresponding share classes. Investment return reflects voluntary fee waivers in effect. Absent such waivers, total return would be reduced. The performance provided in the table above and charts below do not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares.
10
International Small Companies Portfolio continued
11
Institutional Class HLMRX
Investor Class HLMSX
12
13
Institutional Emerging Markets Portfolio Class I HLMEX and Class II HLEEX
Emerging Markets Portfolio Advisor Class HLEMX
Performance | ||||||||||||||||||||||||||||||||||||||||||||
Average Annualized Total Returns (%) | ||||||||||||||||||||||||||||||||||||||||||||
at September 30, 2014 | at October 31, 2014 | |||||||||||||||||||||||||||||||||||||||||||
Inception Date |
1 year | 3 years | 5 years | 10 years | Since Inception* |
1 year | 3 years | 5 years | 10 years | Since Inception* |
||||||||||||||||||||||||||||||||||
Inst. Emerging Markets Portfolio Class I |
10/17/05 | 7.12 | 11.84 | 6.87 | | 8.39 | 3.80 | 8.23 | 7.73 | | 8.54 | |||||||||||||||||||||||||||||||||
Inst. Emerging Markets Portfolio Class II |
3/5/14 | | | | | 4.90 | | | | | 7.00 | |||||||||||||||||||||||||||||||||
Emerging Markets Portfolio Advisor Class |
11/9/98 | 7.01 | 11.67 | 6.83 | 11.23 | 13.12 | 3.79 | 8.06 | 7.68 | 11.21 | 13.19 | |||||||||||||||||||||||||||||||||
MSCI Emerging Markets Index |
4.30 | 7.18 | 4.41 | 10.67 | 8.04 | 0.64 | 3.23 | 4.63 | 10.53 | 8.10 |
*The since inception return of the Institutional Emerging Markets Portfolio Class II is cumulative. The since inception return of the MSCI Emerging Markets Index is since 10/17/05. The inception date of the Index is 1/1/01.
Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Current performance of each Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877) 435-8105 or visiting www.hardingloevnerfunds.com. Each Portfolio imposes a 2% redemption fee on shares held 90 days or less. Performance data does not reflect the redemption fee. If reflected, total returns would be reduced.
14
Emerging Markets continued
Top Ten Holdings at October 31, 2014 | CSR Corporation (formerly China Southern Rail) stands apart as an SOE that meets our investment criteria. CSR competes within Chinas rail equipment market, the worlds largest and among the fastest-growing, in a near duopoly with China Northern Rail. CSR is the worlds second-largest rail equipment manufacturer by revenue, producing locomotives, high-speed rail units, and mass-transit rail units. While demand for CSRs products continues to grow domestically as both central and local governments invest in improving transportation infrastructure, in recent years CSR has also gained traction abroad, winning large contracts in South Africa, Turkey, and Malaysia. CSR is also incorporating its expertise in electrical equipment into manufacturing new products, such as wind turbines, power converters/inverters, and electric buses. | |||||||||||||
Company | Sector | Country | |
Institutional HLMEX / HLEEX |
|
|
Advisor HLEMX |
|
||||||
Taiwan Semiconductor |
Info Technology | Taiwan | 3.3 | 3.3 | ||||||||||
Samsung Electronics |
Info Technology | South Korea | 3.1 | 3.1 | ||||||||||
AIA Group |
Financials | Hong Kong | 2.4 | 2.3 | ||||||||||
Aspen Pharmacare |
Health Care | South Africa | 2.3 | 2.3 | ||||||||||
Axis Bank |
Financials | India | 2.1 | 2.1 | ||||||||||
SABMiller |
Cons Staples | UK | 2.0 | 2.0 | ||||||||||
Banco Bradesco |
Financials | Brazil | 1.9 | 1.9 | ||||||||||
Maruti Suzuki |
Cons Discretionary | India | 1.9 | 1.9 | ||||||||||
Siam Commercial Bank |
Financials | Thailand | 1.7 | 1.7 | ||||||||||
Sun Pharmaceutical |
Health Care | India | 1.7 | 1.7 | ||||||||||
Research Trip to Europe, the
Middle East, and
Africa (EMEA)
Scott Crawshaw
15
Institutional Emerging Markets Portfolio Class I HLMEX and Class II HLEEX
Emerging Markets Portfolio Advisor Class HLEMX
16
Frontier Emerging Markets Portfolio
17
Institutional Class HLFMX
Investor Class HLMOX
Performance | ||||||||||||||||||||||||||||||||||||
Average Annualized Total Returns (%) | ||||||||||||||||||||||||||||||||||||
at September 30, 2014 | at October 31, 2014 | |||||||||||||||||||||||||||||||||||
Inception Date |
1 year | 3 years | 5 years | Since Inception* |
1 year | 3 years | 5 years | Since Inception* |
||||||||||||||||||||||||||||
Frontier Emerging Markets Portfolio Institutional Class |
5/27/08 | 19.46 | 17.09 | 9.75 | 0.35 | 12.60 | 13.81 | 9.36 | -0.20 | |||||||||||||||||||||||||||
Frontier Emerging Markets Portfolio Investor Class |
12/31/10 | 19.04 | 16.68 | | 6.41 | 12.15 | 13.39 | | 5.28 | |||||||||||||||||||||||||||
MSCI Frontier Emerging Markets Index |
21.53 | 14.81 | 8.46 | 5.99 | 13.59 | 11.57 | 8.31 | 4.94 |
*The since inception return of the MSCI Frontier Emerging Markets Index is since 12/31/10. The inception date of the Index is 12/2/08.
Performance data quoted represent past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investors shares, when redeemed, may be worth more or less than their original cost. Current performance of the Portfolio may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling (877) 435-8105 or visiting www.hardingloevnerfunds.com. The Portfolio imposes a 2% redemption fee on shares held 90 days or less. Performance data does not reflect the redemption fee. If reflected, total returns would be reduced.
18
Frontier Emerging Markets Portfolio continued
19
Institutional Class HLFMX
Investor Class HLMOX
20
Commentary Disclosures
21
Annual Report
October 31, 2014
Global Equity Portfolio
International Equity Portfolio
International Small Companies Portfolio
Institutional Emerging Markets Portfolio
Emerging Markets Portfolio
Frontier Emerging Markets Portfolio
Harding, Loevner Funds, Inc.
c/o Northern Trust
Attn: Funds Center C5S
801 South Canal Street
Chicago, IL 60607
(877) 435-8105
www.hardingloevnerfunds.com
Harding, Loevner Funds, Inc.
Table of Contents
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For use only when preceded or accompanied by a prospectus. Read the prospectus carefully before you invest or send money.
Harding, Loevner Funds, Inc.
October 31, 2014 (unaudited)
As a shareholder of a Harding Loevner Portfolio, you incur ongoing costs, including management fees; and 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 examples are based on an investment of $1,000 invested at the beginning of a six month period and held through the period ended October 31, 2014.
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 Portfolios actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolios 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, 2014 |
Ending Account Value October 31, 2014 |
Annualized Expense Ratio |
Expenses Paid During Period* (May 1, 2014 to October 31, 2014) |
||||||||||||
Global Equity PortfolioInstitutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,064.90 | 0.95 | % | $ | 4.94 | ||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,020.42 | 0.95 | % | 4.84 | |||||||||||
Global Equity PortfolioAdvisor Class |
||||||||||||||||
Actual |
1,000.00 | 1,063.70 | 1.19 | % | 6.19 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,019.21 | 1.19 | % | 6.06 | |||||||||||
International Equity PortfolioInstitutional Class |
||||||||||||||||
Actual |
1,000.00 | 1,009.90 | 0.88 | % | 4.46 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,020.77 | 0.88 | % | 4.48 | |||||||||||
International Equity PortfolioInvestor Class |
||||||||||||||||
Actual |
1,000.00 | 1,008.30 | 1.16 | % | 5.87 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,019.36 | 1.16 | % | 5.90 | |||||||||||
International Small Companies PortfolioInstitutional Class |
||||||||||||||||
Actual |
1,000.00 | 951.90 | 1.30 | % | 6.40 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,018.65 | 1.30 | % | 6.61 | |||||||||||
International Small Companies PortfolioInvestor Class |
||||||||||||||||
Actual |
1,000.00 | 950.40 | 1.55 | % | 7.62 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,017.39 | 1.55 | % | 7.88 | |||||||||||
Institutional Emerging Markets PortfolioClass I |
||||||||||||||||
Actual |
1,000.00 | 1,027.10 | 1.30 | % | 6.64 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,018.65 | 1.30 | % | 6.61 | |||||||||||
Institutional Emerging Markets PortfolioClass II |
||||||||||||||||
Actual |
1,000.00 | 1,028.90 | 1.14 | % | 5.83 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,019.46 | 1.14 | % | 5.80 | |||||||||||
Emerging Markets PortfolioAdvisor Class |
||||||||||||||||
Actual |
1,000.00 | 1,028.50 | 1.46 | % | 7.46 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,017.85 | 1.46 | % | 7.43 | |||||||||||
Frontier Emerging Markets PortfolioInstitutional Class |
||||||||||||||||
Actual |
1,000.00 | 993.70 | 1.79 | % | 9.00 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,016.18 | 1.79 | % | 9.10 | |||||||||||
Frontier Emerging Markets PortfolioInvestor Class |
||||||||||||||||
Actual |
1,000.00 | 992.60 | 2.22 | % | 11.15 | |||||||||||
Hypothetical (5% annual return before expenses) |
1,000.00 | 1,014.01 | 2.22 | % | 11.27 |
* Expenses are calculated using each Portfolios 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 (365 days). Expense ratios for the most recent half year may differ from expense ratios based on one-year data in the Financial Highlights.
2
Harding, Loevner Funds, Inc.
Portfolio of Investments
October 31, 2014
See Notes to Financial Statements
3
Harding, Loevner Funds, Inc.
Global Equity Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
4
Harding, Loevner Funds, Inc.
Global Equity Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
5
Harding, Loevner Funds, Inc.
International Equity Portfolio
Portfolio of Investments
October 31, 2014
See Notes to Financial Statements
6
Harding, Loevner Funds, Inc.
International Equity Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
7
Harding, Loevner Funds, Inc.
International Equity Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
8
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Portfolio of Investments
October 31, 2014
See Notes to Financial Statements
9
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
10
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
11
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
12
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014
See Notes to Financial Statements
13
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
14
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
15
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
16
Harding, Loevner Funds, Inc.
Portfolio of Investments
October 31, 2014
See Notes to Financial Statements
17
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
18
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
19
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
20
Harding, Loevner Funds, Inc.
Frontier Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014
See Notes to Financial Statements
21
Harding, Loevner Funds, Inc.
Frontier Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
22
Harding, Loevner Funds, Inc.
Frontier Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
23
Harding, Loevner Funds, Inc.
Frontier Emerging Markets Portfolio
Portfolio of Investments
October 31, 2014 (continued)
See Notes to Financial Statements
24
Harding, Loevner Funds, Inc.
Statements of Assets and Liabilities
October 31, 2014
Global Equity Portfolio |
International Equity Portfolio |
International Small Companies Portfolio |
||||||||||
ASSETS: |
||||||||||||
Investments (cost $642,873,710, $3,424,338,671 and $77,481,841, respectively) |
$821,975,636 | $4,254,578,687 | $92,091,468 | |||||||||
Dividends and interest receivable |
769,914 | 2,770,229 | 74,643 | |||||||||
Foreign currency (cost $2,660, $17,093 and $23,626, respectively) |
2,965 | 16,935 | 23,598 | |||||||||
Receivable for investments sold |
7,396,102 | 6,994,799 | 457,634 | |||||||||
Receivable for Fund shares sold |
1,888,609 | 3,249,758 | 133,901 | |||||||||
Tax reclaim receivable |
394,988 | 5,436,348 | 109,421 | |||||||||
Prepaid expenses |
27,023 | 26,730 | 40,376 | |||||||||
Total Assets |
832,455,237 | 4,273,073,486 | 92,931,041 | |||||||||
LIABILITIES: |
||||||||||||
Payable to Investment Adviser |
(561,226 | ) | (2,555,403 | ) | (95,710 | ) | ||||||
Payable for investments purchased |
(18,176,723 | ) | (2,609,397 | ) | (1,154,677 | ) | ||||||
Payable for Fund shares redeemed |
(35,078 | ) | (3,459,570 | ) | (33,095 | ) | ||||||
Payable for distribution fees |
| (352,949 | ) | (9,942 | ) | |||||||
Other liabilities |
(278,540 | ) | (1,576,525 | ) | (97,899 | ) | ||||||
Total Liabilities |
(19,051,567 | ) | (10,553,844 | ) | (1,391,323 | ) | ||||||
Net Assets |
$813,403,670 | $4,262,519,642 | $91,539,718 | |||||||||
ANALYSIS OF NET ASSETS: |
||||||||||||
Paid in capital |
$604,816,502 | $3,433,380,109 | $76,020,285 | |||||||||
Accumulated undistributed net investment income |
2,968,726 | 39,836,437 | 229,486 | |||||||||
Accumulated net realized gain (loss) from investment transactions |
26,501,526 | (40,601,349 | ) | 686,382 | ||||||||
Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies |
179,116,916 | 829,904,445 | 14,603,565 | |||||||||
Net Assets |
$813,403,670 | $4,262,519,642 | $91,539,718 | |||||||||
Net Assets: |
||||||||||||
Institutional Class |
$731,896,517 | $3,819,490,907 | $28,711,232 | |||||||||
Investor Class |
| 443,028,735 | 62,828,486 | |||||||||
Advisor Class |
81,507,153 | | | |||||||||
Total Shares Outstanding: |
||||||||||||
Institutional Class (400,000,000, 400,000,000 and 400,000,000, respectively, $.001 par value shares authorized) |
22,188,950 | 208,686,260 | 2,073,626 | |||||||||
Investor Class ( , 400,000,000 and 400,000,000, respectively, $.001 par value shares authorized) |
| 24,295,849 | 4,553,366 | |||||||||
Advisor Class (400,000,000, and , respectively, $.001 par value shares authorized) |
2,476,047 | | | |||||||||
Net Asset Value, Offering Price and Redemption Price Per Share: |
||||||||||||
Institutional Class |
$32.98 | $18.30 | $13.85 | |||||||||
Investor Class |
| 18.23 | 13.80 | |||||||||
Advisor Class |
32.92 | | |
See Notes to Financial Statements
25
Harding, Loevner Funds, Inc.
Statements of Assets and Liabilities (continued)
October 31, 2014
Institutional Emerging Markets Portfolio |
Emerging Markets Portfolio |
Frontier Emerging Markets Portfolio |
||||||||||
ASSETS: |
||||||||||||
Investments (cost $1,530,934,266, $1,988,243,989 and $504,119,324, respectively) |
$1,703,498,823 | $2,536,671,867 | $549,456,081 | |||||||||
Dividends and interest receivable |
1,489,566 | 2,199,580 | 794,310 | |||||||||
Foreign currency (cost $1,167,314, $3,484,238 and $4,227,159, respectively) |
1,166,148 | 3,480,270 | 4,219,628 | |||||||||
Receivable for investments sold |
8,378,403 | 12,466,916 | 5,372,296 | |||||||||
Receivable for Fund shares sold |
8,870,176 | 4,342,458 | 2,494,964 | |||||||||
Tax reclaim receivable |
296,565 | 346,392 | 16,886 | |||||||||
Prepaid expenses |
152,993 | 15,176 | 2,925 | |||||||||
Total Assets |
1,723,852,674 | 2,559,522,659 | 562,357,090 | |||||||||
LIABILITIES: |
||||||||||||
Payable to Investment Adviser |
(1,601,523 | ) | (2,366,588 | ) | (704,269 | ) | ||||||
Payable for investments purchased |
(1,722,044 | ) | (5,458,290 | ) | (6,431,437 | ) | ||||||
Payable for Fund shares redeemed |
(435,514 | ) | (2,246,150 | ) | (863,848 | ) | ||||||
Payable for distribution fees |
| | (37,402 | ) | ||||||||
Deferred capital gains tax |
(3,722,158 | ) | (2,122,755 | ) | (376,751 | ) | ||||||
Other liabilities |
(700,731 | ) | (1,811,815 | ) | (392,985 | ) | ||||||
Total Liabilities |
(8,181,970 | ) | (14,005,598 | ) | (8,806,692 | ) | ||||||
Net Assets |
$1,715,670,704 | $2,545,517,061 | $553,550,398 | |||||||||
ANALYSIS OF NET ASSETS: |
||||||||||||
Paid in capital |
$1,575,287,022 | $1,887,696,311 | $501,606,676 | |||||||||
Accumulated undistributed net investment income |
13,439,341 | 19,306,098 | 2,252,912 | |||||||||
Accumulated net realized gain (loss) from investment transactions |
(41,887,587 | ) | 92,212,950 | 4,739,645 | ||||||||
Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies |
168,831,928 | 546,301,702 | 44,951,165 | |||||||||
Net Assets |
$1,715,670,704 | $2,545,517,061 | $553,550,398 | |||||||||
Net Assets: |
||||||||||||
Institutional Class |
$ | $ | $474,838,184 | |||||||||
Class I |
1,521,193,978 | | | |||||||||
Class II |
194,476,726 | | | |||||||||
Investor Class |
| | 78,712,214 | |||||||||
Advisor Class |
| 2,545,517,061 | | |||||||||
Total Shares Outstanding: |
||||||||||||
Institutional Class ( , and 400,000,000, respectively, $.001 par value shares authorized) |
| | 49,985,400 | |||||||||
Class I (500,000,000, and respectively, $.001 par value shares authorized) |
81,789,816 | | | |||||||||
Class II (400,000,000, and respectively, $.001 par value shares authorized) |
18,181,475 | | | |||||||||
Investor Class ( , and 400,000,000 , respectively, $.001 par value shares authorized) |
| | 8,366,028 | |||||||||
Advisor Class ( , 500,000,000 and , respectively, $.001 par value shares authorized) |
| 50,030,518 | | |||||||||
Net Asset Value, Offering Price and Redemption Price Per Share: |
||||||||||||
Institutional Class |
$ | $ | $9.50 | |||||||||
Class I |
18.60 | | | |||||||||
Class II |
10.70 | | | |||||||||
Investor Class |
| | 9.41 | |||||||||
Advisor Class |
| 50.88 | |
See Notes to Financial Statements
26
Harding, Loevner Funds, Inc.
For the Fiscal Year Ended October 31, 2014
Global Equity Portfolio |
International Equity Portfolio |
International Small Companies Portfolio |
||||||||||
INVESTMENT INCOME |
||||||||||||
Interest |
$10 | $118 | $ | |||||||||
Dividends (net of foreign withholding taxes of $500,890, $8,736,902 and $154,837, respectively) |
10,177,102 | 76,973,344 | 1,715,751 | |||||||||
Total investment income |
10,177,112 | 76,973,462 | 1,715,751 | |||||||||
EXPENSES |
||||||||||||
Investment advisory fees (Note 3) |
6,276,497 | 30,019,866 | 1,144,085 | |||||||||
Administration fees (Note 3) |
246,812 | 1,037,813 | 36,611 | |||||||||
Distribution fees, Investor Class |
| 1,067,125 | 151,022 | |||||||||
Custody and accounting fees (Note 3) |
168,011 | 868,826 | 53,660 | |||||||||
Directors fees and expenses (Note 3) |
38,949 | 216,006 | 4,816 | |||||||||
Transfer agent fees and expenses (Note 3) |
50,830 | 610,386 | 42,995 | |||||||||
Printing and postage fees |
38,014 | 410,320 | 11,285 | |||||||||
State registration filing fees |
86,620 | 290,929 | 47,408 | |||||||||
Professional fees |
55,186 | 164,201 | 33,100 | |||||||||
Shareholder servicing fees (Note 3) |
307,166 | 1,967,546 | 89,496 | |||||||||
Compliance officers fees and expenses (Note 3) |
17,734 | 64,374 | 8,770 | |||||||||
Other fees and expenses |
33,805 | 155,993 | 8,944 | |||||||||
Total Expenses |
7,319,624 | 36,873,385 | 1,632,192 | |||||||||
Less Waiver of investment advisory fee and/or reimbursement of other operating expenses (Note 3) |
(99,169 | ) | | (291,321 | ) | |||||||
Net expenses |
7,220,455 | 36,873,385 | 1,340,871 | |||||||||
Net investment income |
2,956,657 | 40,100,077 | 374,880 | |||||||||
REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
Net realized gain (loss) |
||||||||||||
Investment transactions |
29,575,234 | (8,140,570 | ) | 1,395,273 | ||||||||
Foreign currency transactions |
(34,658 | ) | (221,332 | ) | (145,401 | ) | ||||||
Net realized gain (loss) |
29,540,576 | (8,361,902 | ) | 1,249,872 | ||||||||
Change in unrealized appreciation (depreciation) |
||||||||||||
Investments |
48,693,182 | 78,658,202 | (531,703 | ) | ||||||||
Translation of assets and liabilities denominated in foreign currencies |
5,416 | (397,664 | ) | (8,169 | ) | |||||||
Net change in unrealized appreciation (depreciation) |
48,698,598 | 78,260,538 | (539,872 | ) | ||||||||
Net realized and unrealized gain |
78,239,174 | 69,898,636 | 710,000 | |||||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$81,195,831 | $109,998,713 | $1,084,880 |
See Notes to Financial Statements
27
Harding, Loevner Funds, Inc.
Statements of Operations (continued)
For the Fiscal Year Ended October 31, 2014
Institutional Emerging Markets Portfolio |
Emerging Markets Portfolio |
Frontier Emerging Markets Portfolio |
||||||||||
INVESTMENT INCOME |
||||||||||||
Interest |
$509 | $371 | $ | |||||||||
Dividends (net of foreign withholding taxes of $2,956,055, $4,904,942 and $875,353, respectively) |
33,014,871 | 55,570,785 | 11,748,179 | |||||||||
Total investment income |
33,015,380 | 55,571,156 | 11,748,179 | |||||||||
EXPENSES |
||||||||||||
Investment advisory fees (Note 3) |
15,573,138 | 26,005,663 | 6,375,470 | |||||||||
Administration fees (Note 3) |
414,773 | 632,562 | 156,335 | |||||||||
Distribution fees, Investor Class |
| | 119,036 | |||||||||
Custody and accounting fees (Note 3) |
733,095 | 1,054,942 | 665,819 | |||||||||
Directors fees and expenses (Note 3) |
71,613 | 120,614 | 22,344 | |||||||||
Transfer agent fees and expenses (Note 3) |
38,904 | 77,818 | 52,938 | |||||||||
Printing and postage fees |
100,725 | 262,856 | 36,824 | |||||||||
State registration filing fees |
136,723 | 108,778 | 86,363 | |||||||||
Professional fees |
86,966 | 119,249 | 65,113 | |||||||||
Shareholder servicing fees (Note 3) |
640,280 | 4,603,449 | 118,392 | |||||||||
Compliance officers fees and expenses (Note 3) |
26,241 | 39,184 | 13,398 | |||||||||
Other fees and expenses |
54,712 | 90,849 | 19,397 | |||||||||
Total Expenses |
17,877,170 | 33,115,964 | 7,731,429 | |||||||||
Less Waiver of investment advisory fee and/or reimbursement of other operating expenses (Note 3) |
(331,984 | ) | | | ||||||||
Net expenses |
17,545,186 | 33,115,964 | 7,731,429 | |||||||||
Net investment income |
15,470,194 | 22,455,192 | 4,016,750 | |||||||||
REALIZED AND UNREALIZED GAIN (LOSS) |
||||||||||||
Net realized gain (loss) |
||||||||||||
Investment transactions |
11,079,739 | 101,714,608 | 18,576,290 | |||||||||
Foreign currency transactions |
(666,116 | ) | (1,042,475 | ) | (927,437 | ) | ||||||
Net realized gain |
10,413,623 | 100,672,133 | 17,648,853 | |||||||||
Change in unrealized appreciation (depreciation) |
||||||||||||
Investments (net of increase in deferred foreign taxes of $3,455,032, $2,163,185 and $205,095, respectively) |
18,623,929 | (40,120,066 | ) | 17,576,743 | ||||||||
Translation of assets and liabilities denominated in foreign currencies |
63,871 | 35,067 | (3,045 | ) | ||||||||
Net change in unrealized appreciation (depreciation) |
18,687,800 | (40,084,999 | ) | 17,573,698 | ||||||||
Net realized and unrealized gain |
29,101,423 | 60,587,134 | 35,222,551 | |||||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |
$44,571,617 | $83,042,326 | $39,239,301 |
See Notes to Financial Statements
28
Harding, Loevner Funds, Inc.
Statements of Changes in Net Assets
For the Fiscal Years Ended October 31
Global Equity Portfolio |
International Equity Portfolio |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
||||||||||||||||
Net investment income |
$2,956,657 | $2,892,011 | $40,100,077 | $30,398,220 | ||||||||||||
Net realized gain (loss) on investments and foreign currency transactions |
29,540,576 | 2,553,207 | (8,361,902 | ) | (8,531,270 | ) | ||||||||||
Net change in unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies |
48,698,598 | 85,030,470 | 78,260,538 | 528,975,283 | ||||||||||||
Net increase in net assets resulting from operations |
81,195,831 | 90,475,688 | 109,998,713 | 550,842,233 | ||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||
Net investment income |
||||||||||||||||
Institutional Class |
(2,478,096 | ) | (1,591,084 | ) | (27,911,956 | ) | (16,845,737 | ) | ||||||||
Investor Class |
| | (1,837,137 | ) | (1,676,084 | ) | ||||||||||
Advisor Class |
(210,054 | ) | (131,246 | ) | | | ||||||||||
Net realized gain from investments and foreign-currency related transactions |
||||||||||||||||
Institutional Class |
(2,347,678 | ) | | | | |||||||||||
Advisor Class |
(367,945 | ) | | | | |||||||||||
Total distributions to shareholders |
(5,403,773 | ) | (1,722,330 | ) | (29,749,093 | ) | (18,521,821 | ) | ||||||||
TRANSACTIONS IN SHARES OF COMMON STOCK(1) |
||||||||||||||||
Proceeds from sale of shares |
||||||||||||||||
Institutional Class |
194,571,247 | 316,739,231 | 1,013,583,093 | 1,562,569,374 | ||||||||||||
Investor Class |
| | 114,060,149 | 179,403,001 | ||||||||||||
Advisor Class |
14,896,685 | 30,063,834 | | | ||||||||||||
Net Asset Value of shares issued to shareholders upon reinvestment of dividends |
||||||||||||||||
Institutional Class |
4,590,321 | 1,242,112 | 23,823,998 | 14,398,899 | ||||||||||||
Investor Class |
| | 1,631,420 | 1,574,749 | ||||||||||||
Advisor Class |
565,236 | 127,851 | | | ||||||||||||
Cost of shares redeemed |
||||||||||||||||
Institutional Class |
(78,234,287 | ) | (76,276,493 | ) | (756,833,391 | ) | (380,238,872 | ) | ||||||||
Investor Class |
| | (91,523,163 | ) | (106,907,598 | ) | ||||||||||
Advisor Class |
(28,952,896 | ) | (25,712,784 | ) | | | ||||||||||
Net increase in net assets from portfolio share transactions |
107,436,306 | 246,183,751 | 304,742,106 | 1,270,799,553 | ||||||||||||
NET INCREASE IN NET ASSETS |
183,228,364 | 334,937,109 | 384,991,726 | 1,803,119,965 | ||||||||||||
NET ASSETS |
||||||||||||||||
At beginning of year |
630,175,306 | 295,238,197 | 3,877,527,916 | 2,074,407,951 | ||||||||||||
At end of year |
$ | 813,403,670 | $ | 630,175,306 | $ | 4,262,519,642 | $ | 3,877,527,916 | ||||||||
Accumulated Undistributed Net Investment Income Included in Net Assets |
$2,968,726 | $2,688,130 | $39,836,437 | $29,706,785 | ||||||||||||
(1) CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
INSTITUTIONAL CLASS: |
||||||||||||||||
Shares sold |
6,335,104 | 11,930,709 | 56,472,269 | 96,482,008 | ||||||||||||
Shares issued upon reinvestment of dividends |
151,246 | 47,536 | 1,349,802 | 900,485 | ||||||||||||
Shares redeemed |
(2,503,164 | ) | (2,813,589 | ) | (42,119,099 | ) | (23,141,347 | ) | ||||||||
Net increase |
3,983,186 | 9,164,656 | 15,702,972 | 74,241,146 | ||||||||||||
INVESTOR CLASS: |
||||||||||||||||
Shares sold |
| | 6,400,291 | 11,060,209 | ||||||||||||
Shares issued upon reinvestment of dividends |
| | 92,536 | 98,609 | ||||||||||||
Shares redeemed |
| | (5,097,694 | ) | (6,511,173 | ) | ||||||||||
Net increase |
| | 1,395,133 | 4,647,645 | ||||||||||||
ADVISOR CLASS: |
||||||||||||||||
Shares sold |
480,502 | 1,104,091 | | | ||||||||||||
Shares issued upon reinvestment of dividends |
18,618 | 4,889 | | | ||||||||||||
Shares redeemed |
(938,861 | ) | (941,434 | ) | | | ||||||||||
Net increase (decrease) |
(439,741 | ) | 167,546 | | |
See Notes to Financial Statements
29
Harding, Loevner Funds, Inc.
Statements of Changes in Net Assets (continued)
For the Fiscal Years Ended October 31
International Small Companies Portfolio |
Institutional Emerging Markets Portfolio |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
||||||||||||||||
Net investment income |
$374,880 | $391,145 | $15,470,194 | $7,839,258 | ||||||||||||
Net realized gain on investments and foreign currency transactions |
1,249,872 | 4,927,371 | 10,413,623 | 4,325,397 | ||||||||||||
Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies |
(539,872 | ) | 11,917,687 | 18,687,800 | 63,512,406 | |||||||||||
Net increase in net assets resulting from operations |
1,084,880 | 17,236,203 | 44,571,617 | 75,677,061 | ||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||
Net investment income |
||||||||||||||||
Institutional Class |
(122,479 | ) | (431,876 | ) | | | ||||||||||
Class I |
| | (8,999,751 | ) | (3,683,658 | ) | ||||||||||
Investor Class |
(189,439 | ) | (308,126 | ) | | | ||||||||||
Net realized gain from investments and foreign-currency related transactions |
||||||||||||||||
Institutional Class |
(1,655,159 | ) | | | | |||||||||||
Investor Class |
(3,131,178 | ) | | | | |||||||||||
Total distributions to shareholders |
(5,098,255 | ) | (740,002 | ) | (8,999,751 | ) | (3,683,658 | ) | ||||||||
TRANSACTIONS IN SHARES OF COMMON STOCK(1) |
||||||||||||||||
Proceeds from sale of shares |
||||||||||||||||
Institutional Class |
14,836,762 | 19,148,813 | | | ||||||||||||
Class I |
| | 677,867,908 | 592,090,064 | ||||||||||||
Class II* |
| | 192,807,410 | | ||||||||||||
Investor Class |
29,466,501 | 28,307,070 | | | ||||||||||||
Net Asset Value of shares issued to shareholders upon reinvestment of dividends |
||||||||||||||||
Institutional Class |
1,490,116 | 365,536 | | | ||||||||||||
Class I |
| | 7,692,156 | 2,741,282 | ||||||||||||
Investor Class |
3,275,875 | 289,745 | | | ||||||||||||
Cost of shares redeemed |
||||||||||||||||
Institutional Class |
(12,511,817 | ) | (33,508,188 | ) | | | ||||||||||
Class I |
| | (241,309,959 | ) | (87,574,548 | ) | ||||||||||
Investor Class |
(20,069,633 | ) | (16,798,202 | ) | | | ||||||||||
Net increase (decrease) in net assets from portfolio share transactions |
16,487,804 | (2,195,226 | ) | 637,057,515 | 507,256,798 | |||||||||||
NET INCREASE IN NET ASSETS |
12,474,429 | 14,300,975 | 672,629,381 | 579,250,201 | ||||||||||||
NET ASSETS |
||||||||||||||||
At beginning of year |
79,065,289 | 64,764,314 | 1,043,041,323 | 463,791,122 | ||||||||||||
At end of year |
$ | 91,539,718 | $ | 79,065,289 | $ | 1,715,670,704 | $ | 1,043,041,323 | ||||||||
Accumulated Undistributed Net Investment Income Included in Net Assets |
$229,486 | $311,925 | $13,439,341 | $7,649,054 | ||||||||||||
(1) CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
INSTITUTIONAL CLASS: |
||||||||||||||||
Shares sold |
1,039,529 | 1,481,881 | | | ||||||||||||
Shares issued upon reinvestment of dividends |
109,487 | 30,847 | | | ||||||||||||
Shares redeemed |
(887,997 | ) | (2,627,617 | ) | | | ||||||||||
Net increase (decrease) |
261,019 | (1,114,889 | ) | | | |||||||||||
CLASS I: |
||||||||||||||||
Shares sold |
| | 37,002,702 | 34,724,731 | ||||||||||||
Shares issued upon reinvestment of dividends |
| | 440,055 | 160,028 | ||||||||||||
Shares redeemed |
| | (13,376,119 | ) | (5,164,882 | ) | ||||||||||
Net increase |
| | 24,066,638 | 29,719,877 | ||||||||||||
CLASS II:* |
||||||||||||||||
Shares sold |
| | 18,181,475 | | ||||||||||||
Shares issued upon reinvestment of dividends |
| | | | ||||||||||||
Shares redeemed |
| | | | ||||||||||||
Net increase |
| | 18,181,475 | | ||||||||||||
INVESTOR CLASS: |
||||||||||||||||
Shares sold |
2,066,286 | 2,186,667 | | | ||||||||||||
Shares issued upon reinvestment of dividends |
240,873 | 24,430 | | | ||||||||||||
Shares redeemed |
(1,410,437 | ) | (1,288,802 | ) | | | ||||||||||
Net increase |
896,722 | 922,295 | | |
* | For the period from March 5, 2014 (commencement of class operations) through October 31, 2014. |
See Notes to Financial Statements
30
Harding, Loevner Funds, Inc.
Statements of Changes in Net Assets (continued)
For the Fiscal Years Ended October 31
Emerging Markets Portfolio |
Frontier Emerging Markets Portfolio |
|||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
||||||||||||||||
Net investment income |
$22,455,192 | $15,455,410 | $4,016,750 | $1,296,072 | ||||||||||||
Net realized gain on investments and foreign currency transactions |
100,672,133 | 53,925,044 | 17,648,853 | 485,757 | ||||||||||||
Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies |
(40,084,999 | ) | 111,079,769 | 17,573,698 | 21,872,266 | |||||||||||
Net increase in net assets resulting from operations |
83,042,326 | 180,460,223 | 39,239,301 | 23,654,095 | ||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||
Net investment income |
||||||||||||||||
Institutional Class |
| | (777,464 | ) | (962,492 | ) | ||||||||||
Investor Class |
| | (28,324 | ) | (28,617 | ) | ||||||||||
Advisor Class |
(16,977,080 | ) | (12,078,855 | ) | | | ||||||||||
Net realized gain from investments and foreign-currency related transactions |
||||||||||||||||
Advisor Class |
(54,210,866 | ) | (106,392,227 | ) | | | ||||||||||
Total distributions to shareholders |
(71,187,946 | ) | (118,471,082 | ) | (805,788 | ) | (991,109 | ) | ||||||||
TRANSACTIONS IN SHARES OF COMMON STOCK(1) |
||||||||||||||||
Proceeds from sale of shares |
||||||||||||||||
Institutional Class |
| | 233,577,907 | 181,207,514 | ||||||||||||
Investor Class |
| | 76,061,236 | 20,443,912 | ||||||||||||
Advisor Class |
838,375,319 | 725,399,472 | | | ||||||||||||
Net Asset Value of shares issued to shareholders upon reinvestment of dividends |
||||||||||||||||
Institutional Class |
| | 442,478 | 764,097 | ||||||||||||
Investor Class |
| | 27,636 | 27,866 | ||||||||||||
Advisor Class |
63,185,505 | 108,806,723 | | | ||||||||||||
Cost of shares redeemed |
||||||||||||||||
Institutional Class |
| | (66,783,481 | ) | (13,347,232 | ) | ||||||||||
Investor Class |
| | (21,700,564 | ) | (2,838,124 | ) | ||||||||||
Advisor Class |
(480,444,492 | ) | (498,717,246 | ) | | | ||||||||||
Net increase in net assets from portfolio share transactions |
421,116,332 | 335,488,949 | 221,625,212 | 186,258,033 | ||||||||||||
NET INCREASE IN NET ASSETS |
432,970,712 | 397,478,090 | 260,058,725 | 208,921,019 | ||||||||||||
NET ASSETS |
||||||||||||||||
At beginning of year |
2,112,546,349 | 1,715,068,259 | 293,491,673 | 84,570,654 | ||||||||||||
At end of year |
$ | 2,545,517,061 | $ | 2,112,546,349 | $ | 553,550,398 | $ | 293,491,673 | ||||||||
Accumulated Undistributed Net Investment Income Included in Net Assets |
$19,306,098 | $14,910,876 | $2,252,912 | $343,686 | ||||||||||||
(1) CAPITAL SHARE TRANSACTIONS: |
||||||||||||||||
INSTITUTIONAL CLASS: |
||||||||||||||||
Shares sold |
| | 24,968,772 | 22,269,797 | ||||||||||||
Shares issued upon reinvestment of dividends |
| | 52,426 | 104,958 | ||||||||||||
Shares redeemed |
| | (7,168,264 | ) | (1,703,055 | ) | ||||||||||
Net increase |
| | 17,852,934 | 20,671,700 | ||||||||||||
INVESTOR CLASS: |
||||||||||||||||
Shares sold |
| | 8,083,195 | 2,531,639 | ||||||||||||
Shares issued upon reinvestment of dividends |
| | 3,294 | 3,843 | ||||||||||||
Shares redeemed |
| | (2,312,389 | ) | (367,459 | ) | ||||||||||
Net increase |
| | 5,774,100 | 2,168,023 | ||||||||||||
ADVISOR CLASS: |
||||||||||||||||
Shares sold |
16,822,043 | 15,073,331 | | | ||||||||||||
Shares issued upon reinvestment of dividends |
1,324,366 | 2,261,619 | | | ||||||||||||
Shares redeemed |
(9,737,841 | ) | (10,335,755 | ) | | | ||||||||||
Net increase |
8,408,568 | 6,999,195 | | |
See Notes to Financial Statements
31
Harding, Loevner Funds, Inc.
Global Equity Portfolio Institutional Class | ||||||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Year Ended Oct. 31, 2011 |
For the Period Ended Oct. 31, 2010(1) |
|||||||||||||||
Net asset value, beginning of period |
$29.84 | $25.05 | $23.38 | $23.52 | $20.43 | |||||||||||||||
INCREASE IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||||||
Net investment income |
0.13 | (2) | 0.17 | (2) | 0.18 | (2) | 0.12 | (2) | 0.10 | |||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
3.27 | 4.74 | 1.81 | (0.04 | ) | 3.04 | ||||||||||||||
Net increase from investment operations |
3.40 | 4.91 | 1.99 | 0.08 | 3.14 | |||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||||||
Net investment income |
(0.13 | ) | (0.12 | ) | (0.10 | ) | (0.06 | ) | (0.05 | ) | ||||||||||
Net realized gain from investments |
(0.13 | ) | | (0.22 | ) | (0.16 | ) | | ||||||||||||
Total distributions |
(0.26 | ) | (0.12 | ) | (0.32 | ) | (0.22 | ) | (0.05 | ) | ||||||||||
Net asset value, end of period |
$32.98 | $29.84 | $25.05 | $23.38 | $23.52 | |||||||||||||||
Total Return |
11.47 | % | 19.66 | % | 8.73 | % | 0.27 | % | 15.39 | %(A) | ||||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||||||
Net assets, end of period (000s) |
$731,897 | $543,293 | $226,489 | $147,108 | $104,276 | |||||||||||||||
Expenses to average net assets |
0.97 | % | 0.99 | % | 1.12 | % | 1.16 | % | 1.27 | %(B) | ||||||||||
Expenses to average net assets (net of fees waived/reimbursed) |
0.95 | % | 0.95 | % | 0.95 | % | 1.00 | % | 1.00 | %(B) | ||||||||||
Net investment income to average net assets |
0.43 | % | 0.62 | % | 0.72 | % | 0.48 | % | 0.43 | %(B) | ||||||||||
Portfolio turnover rate |
30 | % | 13 | % | 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 | ||||||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Year Ended Oct. 31, 2011 |
For the Year Ended Oct. 31, 2010 |
|||||||||||||||
Net asset value, beginning of year |
$29.80 | $25.02 | $23.36 | $23.48 | $20.27 | |||||||||||||||
INCREASE IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||||||
Net investment income |
0.05 | (1) | 0.09 | (1) | 0.11 | (1) | 0.07 | (1) | 0.10 | |||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
3.27 | 4.74 | 1.82 | (0.02 | ) | 3.15 | ||||||||||||||
Net increase from investment operations |
3.32 | 4.83 | 1.93 | 0.05 | 3.25 | |||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||||||
Net investment income |
(0.07 | ) | (0.05 | ) | (0.05 | ) | (0.01 | ) | (0.04 | ) | ||||||||||
Net realized gain from investments |
(0.13 | ) | | (0.22 | ) | (0.16 | ) | | ||||||||||||
Total distributions |
(0.20 | ) | (0.05 | ) | (0.27 | ) | (0.17 | ) | (0.04 | ) | ||||||||||
Net asset value, end of year |
$32.92 | $29.80 | $25.02 | $23.36 | $23.48 | |||||||||||||||
Total Return |
11.19 | % | 19.33 | % | 8.43 | % | 0.18 | % | 16.07 | % | ||||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||||||
Net assets, end of year (000s) |
$81,507 | $86,882 | $68,749 | $58,320 | $46,450 | |||||||||||||||
Expenses to average net assets |
1.20 | % | 1.25 | % | 1.35 | % | 1.30 | % | 1.41 | % | ||||||||||
Expenses to average net assets (net of fees waived/reimbursed) |
1.20 | % | 1.24 | % | 1.23 | % | 1.18 | % | 1.17 | % | ||||||||||
Net investment income to average net assets |
0.16 | % | 0.32 | % | 0.45 | % | 0.31 | % | 0.31 | % | ||||||||||
Portfolio turnover rate |
30 | % | 13 | % | 32 | % | 40 | % | 35 | % |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
See Notes to Financial Statements
32
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
International Equity Portfolio Institutional Class | ||||||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Year Ended Oct. 31, 2011 |
For the Year Ended Oct. 31, 2010 |
|||||||||||||||
Net asset value, beginning of year |
$17.97 | $15.15 | $14.06 | $14.51 | $12.04 | |||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||||||
Net investment income |
0.18 | (1) | 0.17 | (1) | 0.18 | (1) | 0.17 | (1) | 0.08 | |||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
0.29 | 2.78 | 1.06 | (0.56 | ) | 2.49 | ||||||||||||||
Net increase (decrease) from investment operations |
0.47 | 2.95 | 1.24 | (0.39 | ) | 2.57 | ||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||||||
Net investment income |
(0.14 | ) | (0.13 | ) | (0.11 | ) | (0.06 | ) | (0.10 | ) | ||||||||||
Net realized gain from investments |
| | (0.04 | ) | | | ||||||||||||||
Total distributions |
(0.14 | ) | (0.13 | ) | (0.15 | ) | (0.06 | ) | (0.10 | ) | ||||||||||
Net asset value, end of year |
$18.30 | $17.97 | $15.15 | $14.06 | $14.51 | |||||||||||||||
Total Return |
2.65 | % | 19.58 | % | 9.00 | % | (2.72 | )% | 21.50 | % | ||||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||||||
Net assets, end of year (000s) |
$3,819,491 | $3,467,793 | $1,798,940 | $969,139 | $493,350 | |||||||||||||||
Expenses to average net assets |
0.87 | % | 0.87 | % | 0.87 | % | 0.86 | % | 0.93 | % | ||||||||||
Expenses to average net assets (net of fees waived/reimbursed) |
0.87 | % | 0.87 | % | 0.87 | % | 0.86 | % | 0.93 | % | ||||||||||
Net investment income to average net assets |
1.01 | % | 1.06 | % | 1.26 | % | 1.13 | % | 0.91 | % | ||||||||||
Portfolio turnover rate |
10 | % | 20 | % | 14 | % | 15 | % | 33 | % |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
International Equity Portfolio Investor Class | ||||||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Year Ended Oct. 31, 2011 |
For the Year Ended Oct. 31, 2010 |
|||||||||||||||
Net asset value, beginning of year |
$17.89 | $15.09 | $14.01 | $14.47 | $12.02 | |||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||||||
Net investment income |
0.13 | (1) | 0.12 | (1) | 0.12 | (1) | 0.12 | (1) | 0.09 | |||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
0.29 | 2.77 | 1.06 | (0.56 | ) | 2.44 | ||||||||||||||
Net increase (decrease) from investment operations |
0.42 | 2.89 | 1.18 | (0.44 | ) | 2.53 | ||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||||||
Net investment income |
(0.08 | ) | (0.09 | ) | (0.06 | ) | (0.02 | ) | (0.08 | ) | ||||||||||
Net realized gain from investments |
| | (0.04 | ) | | | ||||||||||||||
Total distributions |
(0.08 | ) | (0.09 | ) | (0.10 | ) | (0.02 | ) | (0.08 | ) | ||||||||||
Net asset value, end of year |
$18.23 | $17.89 | $15.09 | $14.01 | $14.47 | |||||||||||||||
Total Return |
2.36 | % | 19.19 | % | 8.51 | % | (3.02 | )% | 21.18 | % | ||||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||||||
Net assets, end of year (000s) |
$443,029 | $409,735 | $275,468 | $237,494 | $116,465 | |||||||||||||||
Expenses to average net assets |
1.17 | % | 1.20 | % | 1.24 | % | 1.26 | % | 1.32 | % | ||||||||||
Expenses to average net assets (net of fees waived/reimbursed) |
1.17 | % | 1.20 | % | 1.24 | % | 1.25 | % | 1.25 | % | ||||||||||
Net investment income to average net assets |
0.72 | % | 0.76 | % | 0.87 | % | 0.79 | % | 0.69 | % | ||||||||||
Portfolio turnover rate |
10 | % | 20 | % | 14 | % | 15 | % | 33 | % |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
See Notes to Financial Statements
33
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
International Small Companies Portfolio Institutional Class | ||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Period Ended Oct. 31, 2011(1) |
||||||||||||
Net asset value, beginning of period |
$14.47 | $11.45 | $10.53 | $12.28 | ||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||
Net investment income |
0.08 | (2) | 0.07 | (2) | 0.16 | (2) | 0.03 | (2) | ||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
0.23 | 3.09 | 0.85 | (1.78 | ) | |||||||||||
Net increase (decrease) from investment operations |
0.31 | 3.16 | 1.01 | (1.75 | ) | |||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||
Net investment income |
(0.06 | ) | (0.14 | ) | (0.09 | ) | | |||||||||
Net realized gain from investments |
(0.87 | ) | | | | |||||||||||
Total distributions |
(0.93 | ) | (0.14 | ) | (0.09 | ) | | |||||||||
Net asset value, end of period |
$13.85 | $14.47 | $11.45 | $10.53 | ||||||||||||
Total Return |
2.28 | % | 27.88 | % | 9.74 | % | (14.25 | )%(A) | ||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||
Net assets, end of period (000s) |
$28,711 | $26,236 | $33,515 | $14,000 | ||||||||||||
Expenses to average net assets |
1.59 | % | 1.68 | % | 1.64 | % | 2.70 | %(B) | ||||||||
Expenses to average net assets (net of fees waived/reimbursed) |
1.30 | % | 1.39 | % | 1.50 | % | 1.50 | %(B) | ||||||||
Net investment income to average net assets |
0.58 | % | 0.57 | % | 1.49 | % | 0.89 | %(B) | ||||||||
Portfolio turnover rate |
36 | % | 97 | % | 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 | ||||||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Year Ended Oct. 31, 2011 |
For the Year Ended Oct. 31, 2010 |
|||||||||||||||
Net asset value, beginning of year |
$14.45 | $11.43 | $10.51 | $10.82 | $8.92 | |||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||||||
Net investment income |
0.05 | (1) | 0.08 | (1) | 0.11 | (1) | 0.15 | (1) | 0.05 | |||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
0.22 | 3.05 | 0.88 | (0.43 | ) | 1.90 | ||||||||||||||
Net increase (decrease) from investment operations |
0.27 | 3.13 | 0.99 | (0.28 | ) | 1.95 | ||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||||||
Net investment income |
(0.05 | ) | (0.11 | ) | (0.07 | ) | (0.03 | ) | (0.05 | ) | ||||||||||
Net realized gain from investments |
(0.87 | ) | | | | | ||||||||||||||
Total distributions |
(0.92 | ) | (0.11 | ) | (0.07 | ) | (0.03 | ) | (0.05 | ) | ||||||||||
Net asset value, end of year |
$13.80 | $14.45 | $11.43 | $10.51 | $10.82 | |||||||||||||||
Total Return |
1.97 | % | 27.63 | % | 9.51 | % | (2.67 | )% | 21.93 | % | ||||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||||||
Net assets, end of year (000s) |
$62,828 | $52,830 | $31,249 | $30,142 | $13,972 | |||||||||||||||
Expenses to average net assets |
1.88 | % | 1.99 | % | 2.02 | % | 2.15 | % | 3.14 | % | ||||||||||
Expenses to average net assets (net of fees waived/reimbursed) |
1.55 | % | 1.60 | % | 1.75 | % | 1.75 | % | 1.75 | % | ||||||||||
Net investment income to average net assets |
0.32 | % | 0.60 | % | 1.07 | % | 1.29 | % | 0.76 | % | ||||||||||
Portfolio turnover rate |
36 | % | 97 | % | 10 | % | 12 | % | 11 | % |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
See Notes to Financial Statements
34
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
Institutional Emerging Markets Portfolio Class I | ||||||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Year Ended Oct. 31, 2011 |
For the Year Ended Oct. 31, 2010 |
|||||||||||||||
Net asset value, beginning of year |
$18.07 | $16.56 | $15.07 | $16.70 | $13.29 | |||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||||||
Net investment income |
0.20 | (1) | 0.18 | (1) | 0.16 | (1) | 0.15 | (1) | 0.09 | |||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
0.48 | 1.45 | 1.49 | (1.74 | ) | 3.41 | ||||||||||||||
Net increase (decrease) from investment operations |
0.68 | 1.63 | 1.65 | (1.59 | ) | 3.50 | ||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||||||
Net investment income |
(0.15 | ) | (0.12 | ) | (0.16 | ) | (0.04 | ) | (0.09 | ) | ||||||||||
Total distributions |
(0.15 | ) | (0.12 | ) | (0.16 | ) | (0.04 | ) | (0.09 | ) | ||||||||||
Net asset value, end of year |
$18.60 | $18.07 | $16.56 | $15.07 | $16.70 | |||||||||||||||
Total Return |
3.80 | % | 9.85 | % | 11.17 | % | (9.58 | )% | 26.50 | % | ||||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||||||
Net assets, end of year (000s) |
$1,521,194 | $1,043,041 | $463,791 | $328,713 | $375,374 | |||||||||||||||
Expenses to average net assets |
1.31 | % | 1.33 | % | 1.36 | % | 1.39 | % | 1.48 | % | ||||||||||
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 |
1.12 | % | 1.06 | % | 1.00 | % | 0.93 | % | 0.74 | % | ||||||||||
Portfolio turnover rate |
26 | % | 18 | % | 42 | % | 53 | % | 34 | % |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
Institutional Emerging Markets Portfolio Class II | ||||
Per Share Data | For the Period Ended Oct. 31, 2014(1) |
|||
Net asset value, beginning of period |
$10.00 | |||
INCREASE IN NET ASSETS FROM OPERATIONS: |
||||
Net investment income |
0.10 | (2) | ||
Net realized and unrealized gain on investments and foreign currency-related transactions |
0.60 | |||
Net increase from investment operations |
0.70 | |||
Net asset value, end of period |
$10.70 | |||
Total Return |
7.00 | %(A) | ||
RATIOS/SUPPLEMENTAL DATA: |
||||
Net assets, end of period (000s) |
$194,477 | |||
Expenses to average net assets |
1.30 | %(B) | ||
Expenses to average net assets (net of fees waived/reimbursed) |
1.14 | %(B) | ||
Net investment income to average net assets |
1.36 | %(B) | ||
Portfolio turnover rate |
26 | %(A) |
(1) | For the period from March 5, 2014 (commencement of class operations) through October 31, 2014. |
(2) | Net investment income per share was calculated using the average shares outstanding method. |
(A) | Not Annualized. |
(B) | Annualized. |
See Notes to Financial Statements
35
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
Emerging Markets Portfolio Advisor Class | ||||||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Year Ended Oct. 31, 2011 |
For the Year Ended Oct. 31, 2010 |
|||||||||||||||
Net asset value, beginning of year |
$50.76 | $49.54 | $45.18 | $50.09 | $39.64 | |||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||||||
Net investment income |
0.49 | (1) | 0.40 | (1) | 0.37 | (1) | 0.31 | (1) | 0.25 | |||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
1.32 | 4.33 | 4.34 | (5.02 | ) | 10.33 | ||||||||||||||
Net increase (decrease) from investment operations |
1.81 | 4.73 | 4.71 | (4.71 | ) | 10.58 | ||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||||||
Net investment income |
(0.40 | ) | (0.36 | ) | (0.35 | ) | (0.20 | ) | (0.13 | ) | ||||||||||
Net realized gain from investments |
(1.29 | ) | (3.15 | ) | | | | |||||||||||||
Total distributions |
(1.69 | ) | (3.51 | ) | (0.35 | ) | (0.20 | ) | (0.13 | ) | ||||||||||
Net asset value, end of year |
$50.88 | $50.76 | $49.54 | $45.18 | $50.09 | |||||||||||||||
Total Return |
3.79 | % | 9.93 | % | 10.60 | % | (9.48 | )% | 26.77 | % | ||||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||||||
Net assets, end of year (000s) |
$2,545,517 | $2,112,546 | $1,715,068 | $1,693,650 | $2,062,255 | |||||||||||||||
Expenses to average net assets |
1.45 | % | 1.47 | % | 1.49 | % | 1.50 | % | 1.58 | % | ||||||||||
Net investment income to average net assets |
0.98 | % | 0.83 | % | 0.80 | % | 0.63 | % | 0.60 | % | ||||||||||
Portfolio turnover rate |
28 | % | 26 | % | 36 | % | 33 | % | 25 | % |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
See Notes to Financial Statements
36
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
Frontier Emerging Markets Portfolio Institutional Class | ||||||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Year Ended Oct. 31, 2011 |
For the Year Ended Oct. 31, 2010 |
|||||||||||||||
Net asset value, beginning of year |
$8.46 | $7.12 | $6.57 | $7.88 | $6.29 | |||||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||||||
Net investment income |
0.09 | (1) | 0.07 | (1) | 0.07 | (1) | 0.07 | (1) | 0.03 | |||||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
0.97 | 1.35 | 0.51 | (1.37 | ) | 1.65 | ||||||||||||||
Net increase (decrease) from investment operations |
1.06 | 1.42 | 0.58 | (1.30 | ) | 1.68 | ||||||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||||||
Net investment income |
(0.02 | ) | (0.08 | ) | (0.03 | ) | (0.01 | ) | (0.09 | ) | ||||||||||
Total distributions |
(0.02 | ) | (0.08 | ) | (0.03 | ) | (0.01 | ) | (0.09 | ) | ||||||||||
Net asset value, end of year |
$9.50 | $8.46 | $7.12 | $6.57 | $7.88 | |||||||||||||||
Total Return |
12.60 | % | 20.20 | % | 8.93 | % | (16.49 | )% | 27.04 | % | ||||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||||||
Net assets, end of year (000s) |
$474,838 | $271,728 | $81,568 | $101,666 | $70,645 | |||||||||||||||
Expenses to average net assets |
1.77 | % | 1.80 | % | 1.95 | % | 1.87 | % | 2.37 | % | ||||||||||
Expenses to average net assets (net of fees waived/reimbursed) |
1.77 | % | 1.80 | % | 1.95 | % | 1.87 | % | 2.00 | % | ||||||||||
Net investment income (loss) to average net assets |
1.01 | % | 0.94 | % | 1.03 | % | 0.89 | % | (0.08 | %) | ||||||||||
Portfolio turnover rate |
37 | % | 24 | % | 72 | % | 23 | % | 17 | % |
(1) | Net investment income per share was calculated using the average shares outstanding method. |
Frontier Emerging Markets Portfolio Investor Class | ||||||||||||||||
Per Share Data | For the Year Ended Oct. 31, 2014 |
For the Year Ended Oct. 31, 2013 |
For the Year Ended Oct. 31, 2012 |
For the Period Ended Oct. 31, 2011(1) |
||||||||||||
Net asset value, beginning of period |
$8.40 | $7.08 | $6.55 | $7.84 | ||||||||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: |
||||||||||||||||
Net investment income |
0.04 | (2) | 0.05 | (2) | 0.10 | (2) | 0.04 | (2) | ||||||||
Net realized and unrealized gain (loss) on investments and foreign currency-related transactions |
0.98 | 1.34 | 0.45 | (1.33 | ) | |||||||||||
Net increase (decrease) from investment operations |
1.02 | 1.39 | 0.55 | (1.29 | ) | |||||||||||
DISTRIBUTIONS TO SHAREHOLDERS FROM: |
||||||||||||||||
Net investment income |
(0.01 | ) | (0.07 | ) | (0.02 | ) | | |||||||||
Total Distributions |
(0.01 | ) | (0.07 | ) | (0.02 | ) | | |||||||||
Net asset value, end of period |
$9.41 | $8.40 | $7.08 | $6.55 | ||||||||||||
Total Return |
12.15 | % | 19.83 | % | 8.49 | % | (16.45 | )%(A) | ||||||||
RATIOS/SUPPLEMENTAL DATA: |
||||||||||||||||
Net assets, end of period (000s) |
$78,712 | $21,763 | $3,003 | $1,225 | ||||||||||||
Expenses to average net assets |
2.22 | % | 2.64 | % | 4.71 | % | 9.06 | %(B) | ||||||||
Expenses to average net assets (net of fees waived/reimbursed) |
2.22 | % | 2.25 | % | 2.25 | % | 2.25 | %(B) | ||||||||
Net investment income to average net assets |
0.38 | % | 0.66 | % | 1.47 | % | 0.75 | %(B) | ||||||||
Portfolio turnover rate |
37 | % | 24 | % | 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
37
Harding, Loevner Funds, Inc.
October 31, 2014
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 management investment company. The Fund currently has six separate diversified Portfolios, all of which were active as of October 31, 2014 (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** |
Class I: October 17, 2005 | to seek long-term capital appreciation | ||
(Institutional Emerging Markets) |
Class II: March 5, 2014 | 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.
** Prior to the inception of Class II, shares of Institutional Emerging Markets Portfolio did not carry a specific class name. All shares of the Portfolio issued prior to March 5, 2014 have been re-designated as Class I shares.
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. As an investment company (as defined in Financial Accounting Standards Board (FASB) Accounting Standards Update 2013-08), the Fund follows accounting and reporting guidance under FASB Accounting Standards Codification Topic 946, Financial ServicesInvestment Companies. The following is a summary of the Funds significant accounting policies:
Indemnifications
Under the Funds 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 Funds 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.
38
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2014
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 Portfolios 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 Funds accounting agent as the principal exchange (each, a principal exchange). The closing price provided by the Funds 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 including money market 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 Portfolios calculation of its NAV if foreign securities were generally valued at their closing prices.
To address this issue, the Board has approved the daily use of independently provided quantitative models that may adjust the closing prices of certain foreign equity securities based on information that becomes available after the foreign market closes, through the application of an adjustment factor to such securities closing price. Adjustment factors may be greater than, less than, or equal to 1. Thus, use of these quantitative models could cause a Portfolio to value a security higher, lower or equal to its closing market price, which in turn could cause the Portfolios NAV per share to differ significantly from that which would have been calculated using closing market prices. The use of these quantitative models 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 subjected to an adjustment factor due to the use of these quantitative models are not specifically designated on the Portfolios Portfolio of Investments as being fair valued. Securities with an adjustment factor greater than or less than 1, which are absent the use of significant unobservable inputs into their valuation, are categorized as Level 2 and securities with an adjustment factor equal to 1, which are absent the use of significant unobservable inputs into their valuation, are categorized as Level 1 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 as determined in good faith, in accordance with the Procedures. Such securities are identified on the Portfolios Portfolio of Investments as securities valued at fair value as determined in good faith 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 Portfolios 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 quantitative models and/or the inputs to the quantitative models used in the valuation technique described above. 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 entitys 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 Portfolios own assumptions in determining the fair value of investments) |
39
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2014
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, 2014, the Portfolios below had transfers from Level 2 to Level 1, based on levels assigned to the securities on October 31, 2013. Prior to October 31, 2014, all securities subject to an adjustment factor were typically categorized as Level 2, even when the adjustment factor was equal to 1 (and thus did not impact the securitys valuation). Effective October 31, 2014, securities with an adjustment factor equal to 1 are now typically categorized as Level 1.
International Small Companies |
Institutional Emerging Markets |
Emerging Markets | Frontier Emerging Markets |
|||||||||||||
Common Stock |
||||||||||||||||
Banks |
$830,769 | $46,674,718 | $69,439,435 | $24,181,726 | ||||||||||||
Capital Goods |
547,480 | | | 1,081,180 | ||||||||||||
Commercial & Professional Services |
1,072,401 | | | | ||||||||||||
Diversified Financials |
1,310,249 | 18,343,355 | 26,920,304 | | ||||||||||||
Food, Beverage & Tobacco |
973,230 | | | 4,242,217 | ||||||||||||
Materials |
| | | 2,636,466 | ||||||||||||
Retailing |
| | | 4,015,389 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$4,734,129 | $65,018,073 | $96,359,739 | $36,156,978 | ||||||||||||
|
|
|
|
|
|
|
|
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 Portfolios investments classified by Level 1, Level 2 and Level 3 and security type as of October 31, 2014. Please refer to each Portfolios Portfolio of Investments to view individual securities classified by industry type and country.
Portfolio | Unadjusted Quoted Prices in Active Markets for Identical Assets (Level 1) |
Other Significant Observable Inputs (Level 2) |
Total | |||||||||||||||||||||||||
Common Stocks |
Preferred Stocks |
Cash Equivalents |
Common Stocks |
Preferred Stocks |
Participation Notes |
Investment Securities |
||||||||||||||||||||||
Global Equity |
$530,600,901 | $4,246,800 | $29,584,782 | $257,543,153 | $ | $ | $821,975,636 | |||||||||||||||||||||
International Equity |
975,836,096 | 84,902,133 | 96,261,218 | 3,018,704,014 | 78,875,226 | | 4,254,578,687 | |||||||||||||||||||||
International Small Companies |
6,215,557 | | 3,674,814 | 80,929,110 | | 1,271,987 | 92,091,468 | |||||||||||||||||||||
Institutional Emerging Markets |
352,344,979 | 75,580,128 | 45,012,326 | 1,142,970,106 | 11,391,703 | 76,199,581 | 1,703,498,823 | |||||||||||||||||||||
Emerging Markets |
525,064,582 | 111,596,250 | 69,360,416 | 1,700,522,877 | 16,790,180 | 113,337,562 | 2,536,671,867 | |||||||||||||||||||||
Frontier Emerging Markets |
149,438,712 | 8,542,070 | 5,565,674 | 332,835,322 | | 53,074,303 | 549,456,081 |
As of October 31, 2014, there were no Level 3 investments held within the Portfolios.
Securities
For financial reporting purposes, all securities transactions are recorded on a trade date basis, as of the last business day in the reporting period. Throughout the reporting period, securities transactions are typically accounted for on a trade date plus one business day 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.
40
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2014
2. Summary of Significant Accounting Policies (continued)
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.
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 gain (loss) from investments and Change in unrealized appreciation (depreciation) from investments on the Statements of Operations.
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, 2014 and October 31, 2013, the Portfolios received the following redemption fees related to transactions in shares of common stock. These amounts are included as a component of Cost of shares redeemed in the Portfolios Statements of Changes in Net Assets.
Institutional Class | Class I | Class II | Investor Class | Advisor Class | ||||||||||||||||||||||||||||||||
Portfolio | 2014 | 2013 | 2014 | 2013 | 2014 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||||||
Global Equity |
$ | 297 | $ | 741 | $ | | $ | | $ | | $ | | $ | | $ | 2,772 | $ | 13,746 | ||||||||||||||||||
International Equity |
202,246 | 234,492 | | | | 40,158 | 70,744 | | | |||||||||||||||||||||||||||
International Small Companies |
1,536 | 67,590 | | | | 14,171 | 6,416 | | | |||||||||||||||||||||||||||
Institutional Emerging Markets |
| | 73,653 | 46,807 | | | | | | |||||||||||||||||||||||||||
Emerging Markets |
| | | | | | | 272,857 | 231,312 | |||||||||||||||||||||||||||
Frontier Emerging Markets |
60,989 | 19,043 | | | | 24,222 | 5,786 | | |
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.
41
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2014
3. Significant Agreements and Transactions with Affiliates (continued)
The following annualized advisory fees and contractual expense limits were in effect for the year ended October 31, 2014. The advisory fees are charged at the Portfolio level as a whole and expense limitations are at the class specific level. On December 19, 2014, the Board voted to extend the contractual expense limits listed below through February 29, 2016.
Portfolio |
Advisory Fees on assets up to $1 billion |
Advisory Fees on assets over $1 billion |
Contractual Expense Limit | |||
Global Equity Institutional Class |
0.85% |
0.83% |
0.95% | |||
Global Equity Advisor Class |
0.85% |
0.83% |
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% |
1.30% | |||
International Small Companies Investor Class |
1.25% |
1.23% |
1.55% | |||
Institutional Emerging Markets Class I |
1.15% |
1.13% |
1.30% | |||
Institutional Emerging Markets Class II |
1.15% |
1.13% |
1.15%* | |||
Emerging Markets Advisor Class |
1.15% |
1.13% |
1.75% | |||
Frontier Emerging Markets Institutional Class |
1.50% |
1.48% |
2.00% | |||
Frontier Emerging Markets Investor Class |
1.50% |
1.48% |
2.25% |
* The Investment Adviser has contractually agreed to waive a portion of its management fee and/or reimburse the Class II of the Portfolio for its other operating expenses to the extent Total Annual Portfolio Operating Expenses, as a percentage of average daily net assets, exceed the applicable contractual management fee, inclusive of breakpoints on assets, through February 28, 2015.
Effective November 1, 2014, the Investment Advisory Fee schedule was amended as follows:
Portfolio | First $1 billion of assets |
Next $1 billion of assets |
Next $1 billion of assets |
Over $3 billion of assets | ||||
Global Equity |
0.80% | 0.78% | 0.76% | 0.74% | ||||
International Equity |
0.75% | 0.73% | 0.71% | 0.69% | ||||
International Small Companies |
1.25% | 1.23% | 1.23% | 1.23% | ||||
Institutional Emerging Markets |
1.15% | 1.13% | 1.11% | 1.09% | ||||
Emerging Markets |
1.15% | 1.13% | 1.11% | 1.09% | ||||
Frontier Emerging Markets |
1.50% | 1.48% | 1.48% | 1.48% |
For the year ended October 31, 2014, 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 |
$99,169 | |
International Small Companies Institutional Class |
91,775 | |
International Small Companies Investor Class |
199,546 | |
Institutional Emerging Markets Class I |
185,303 | |
Institutional Emerging Markets Class II |
146,681 |
42
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2014
3. Significant Agreements and Transactions with Affiliates (continued)
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 Portfolios 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.
During the year ended October 31, 2014, Foreside Compliance Services, LLC (FCS) provided individuals to serve as chief compliance and anti-money laundering officers of the Fund. Fees paid to FCS are shown as Compliance officers fees and expenses on the Statements of Operations. Effective November 1, 2014, Alaric Compliance Services, LLC provides individuals to serve in those capacities.
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 Portfolios 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). 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, 2014.
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. These expenses may be class specific (i.e., Distribution fees charged only to a particular 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 are shown in the table below.
Portfolio | Distribution Fees |
State Registration Filing Fees |
Printing and Postage Fees |
Transfer Agent Fees and Expenses |
Shareholder Servicing Fees |
|||||||||||||||
Global Equity Institutional Class |
$ | | $ | 63,078 | $ | 30,349 | $ | 24,351 | $ | 139,177 | ||||||||||
Global Equity Advisor Class |
| 23,542 | 7,665 | 26,479 | 167,989 | |||||||||||||||
International Equity Institutional Class |
| 249,213 | 340,686 | 494,366 | 1,677,337 | |||||||||||||||
International Equity Investor Class |
1,067,125 | 41,716 | 69,634 | 116,020 | 290,209 | |||||||||||||||
International Small Companies Institutional Class |
| 22,371 | 2,705 | 20,710 | 12,183 | |||||||||||||||
International Small Companies Investor Class |
151,022 | 25,037 | 8,580 | 22,285 | 77,313 | |||||||||||||||
Institutional Emerging Markets Class I |
| 112,000 | 94,645 | 21,308 | 640,280 | |||||||||||||||
Institutional Emerging Markets Class II |
| 24,723 | 6,080 | 17,596 | | |||||||||||||||
Frontier Emerging Markets Institutional Class |
| 55,710 | 27,122 | 24,237 | 74,652 | |||||||||||||||
Frontier Emerging Markets Investor Class |
119,036 | 30,653 | 9,702 | 28,701 | 43,740 |
43
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2014
5. Investment Transactions
Cost of purchases and proceeds from sales of investment securities, other than short-term investments, for the year ended October 31, 2014, were as follows for each Portfolio:
Portfolio | Purchase Cost of Investment Securities |
Proceeds from Sales of Investment Securities |
||||||||||
Global Equity |
$ | 316,422,227 | $ | 215,933,913 | ||||||||
International Equity |
751,624,584 | 408,893,086 | ||||||||||
International Small Companies |
41,234,287 | 31,744,277 | ||||||||||
Institutional Emerging Markets |
940,474,454 | 340,901,450 | ||||||||||
Emerging Markets |
945,631,922 | 621,728,094 | ||||||||||
Frontier Emerging Markets |
379,304,240 | 154,299,766 |
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, 2014, for each of the Portfolios were as follows:
Portfolio | Gross Unrealized Appreciation |
Gross Unrealized Depreciation |
Net Unrealized Appreciation / (Depreciation) |
Cost | ||||||||||||
Global Equity |
$ | 182,680,666 | $ | (6,780,863 | ) | $ | 175,899,803 | $ | 646,075,833 | |||||||
International Equity |
887,727,840 | (62,333,030 | ) | 825,394,810 | 3,429,183,877 | |||||||||||
International Small Companies |
16,405,233 | (2,749,683 | ) | 13,655,550 | 78,435,918 | |||||||||||
Institutional Emerging Markets |
239,746,514 | (76,551,349 | ) | 163,195,165 | 1,540,303,658 | |||||||||||
Emerging Markets |
625,024,556 | (80,809,942 | ) | 544,214,614 | 1,992,457,253 | |||||||||||
Frontier Emerging Markets |
71,389,452 | (27,844,425 | ) | 43,545,027 | 505,911,054 |
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.
Management has performed an analysis of each Portfolios tax positions for the open tax years as of October 31, 2014 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, 2011; October 31, 2012; October 31, 2013) 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, managements 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.
The tax character of distributions paid during the fiscal years ended October 31, 2014 and 2013 were as follows:
Distributions From | ||||||||||||||||
Portfolio | Ordinary Income 2014 |
Long-Term Capital Gains 2014 |
Ordinary Income 2013 |
Long-Term Capital Gains 2013 |
||||||||||||
Global Equity |
$ | 2,737,949 | $ | 2,665,824 | $ | 1,722,330 | $ | | ||||||||
International Equity |
29,749,093 | | 18,521,821 | | ||||||||||||
International Small Companies |
1,780,824 | 3,317,431 | 740,002 | | ||||||||||||
Institutional Emerging Markets |
8,999,751 | | 3,683,658 | | ||||||||||||
Emerging Markets |
16,977,080 | 54,210,866 | 12,078,855 | 106,392,227 | ||||||||||||
Frontier Emerging Markets |
805,788 | | 991,109 | |
44
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2014
6. Income Tax (continued)
As of October 31, 2014, 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 |
$ | 2,635,352 | $ | 30,011,126 | $ | | $ | 175,940,690 | $ | 208,587,168 | ||||||||||
International Equity |
39,836,436 | | (35,756,142 | ) | 825,059,239 | 829,139,533 | ||||||||||||||
International Small Companies |
532,198 | 1,337,745 | | 13,649,490 | 15,519,433 | |||||||||||||||
Institutional Emerging Markets |
13,408,345 | | (32,502,629 | ) | 159,477,966 | 140,383,682 | ||||||||||||||
Emerging Markets |
19,237,520 | 96,450,985 | | 542,132,245 | 657,820,750 | |||||||||||||||
Frontier Emerging Markets |
2,692,966 | 6,091,324 | | 43,159,432 | 51,943,722 |
* The difference between book basis and tax basis net unrealized appreciation is attributable primarily to the tax deferral of losses on certain sale of securities. Unrealized Appreciation (Depreciation) includes amounts related to foreign currency and currency translations.
The Regulated Investment Company Modernization Act of 2010 (the Act) changed various technical rules governing the tax treatment of regulated investment companies and became effective for the Portfolios for the fiscal year ended October 31, 2012. Under the Act, each Portfolio is 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 post-enactment years are 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.
Capital losses incurred that will be carried forward indefinitely under provisions of the Act are as follows:
Portfolio | Short-Term Capital Loss Carryforward |
Long-Term Capital Loss Carryforward |
||||||||||
International Equity |
$ | 16,579,888 | $ | 19,176,254 |
At October 31, 2014, the pre-enactment capital loss carryforwards and their respective years of expiration were as follows:
Portfolio | October 31, 2017 |
October 31, 2019 |
||||||||||
Institutional Emerging Markets |
$ | 28,667,656 | $ | 3,834,973 |
45
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2014
6. Income Tax (continued)
Primarily as a result of differing book/tax treatment of foreign currency transactions and foreign capital gain tax expenses, the Portfolios made reclassifications among certain capital accounts. The reclassifications have no impact on the net assets of the Portfolios. As of October 31, 2014, the following reclassifications were made to the Statements of Assets and Liabilities:
Portfolio | Paid-in Capital | Accumulated Undistributed Net Investment Income |
Accumulated Net Realized Gain (Loss) from Investment Transactions |
|||||||||
Global Equity |
$ | | $ | 12,089 | $ | (12,089 | ) | |||||
International Equity |
| (221,332 | ) | 221,332 | ||||||||
International Small Companies |
| (145,401 | ) | 145,401 | ||||||||
Institutional Emerging Markets |
| (680,156 | ) | 680,156 | ||||||||
Emerging Markets |
| (1,082,890 | ) | 1,082,890 | ||||||||
Frontier Emerging Markets |
| (1,301,736 | ) | 1,301,736 |
7. Foreign Exchange Contracts
The Portfolios do not generally hedge foreign currency exposure, however, the Portfolios may enter into forward foreign exchange contracts in order to hedge their exposure to changes in foreign currency exchange rates on their foreign portfolio holdings. Each Portfolio will conduct its currency transactions either on a spot (cash) basis at the rate prevailing in the currency exchange market, or by entering into forward contracts to purchase or sell currency. Foreign currency transactions entered into on the spot markets serve to pay for foreign investment purchases or to convert to dollars, the proceeds from foreign investment sales or dividend and interest receipts. The Portfolios will disclose open forward currency contracts, if any, on the Portfolios of Investments. The Portfolios do not separately disclose open spot market transactions on the Portfolios of Investments. Such realized gain (loss) and unrealized appreciation (depreciation) on spot market transactions is included in net realized gain (loss) on foreign currency transactions and change in unrealized appreciation (depreciation) on translation of assets and liabilities denominated in foreign currencies, respectively, on the Portfolios Statements of Operations. The Portfolios held no open forward currency contracts on October 31, 2014.
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, 2014, 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 | 52.25 | %* | |||||||||
International Equity |
2 | 54.62 | %* | |||||||||
International Small Companies |
3 | 73.61 | %* | |||||||||
Institutional Emerging Markets |
2 | 54.44 | %* | |||||||||
Emerging Markets |
3 | 76.32 | %* | |||||||||
Frontier Emerging Markets |
4 | 67.77 | %* |
* Includes omnibus positions of broker-dealers representing numerous shareholder accounts.
Investment activities of these shareholders may have a material effect on the Portfolios.
46
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2014
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 total assets in companies in the same industry, if, at the time of investment, that industry represents 20% or more of the Portfolios benchmark index. During periods when the Portfolio has invested more than 25% of its total 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, 2014, the Portfolios investment in the Banking industry amounted to 32.11% of its total assets.
11. Line of Credit
The Fund has a $100 million line of credit agreement with Northern Trust. Borrowings are 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 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, 2014, Frontier Emerging Markets had an outstanding balance on six days with a maximum balance of $2,600,000 at an average weighted interest rate of 1.75%.
12. 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.
47
Harding, Loevner Funds, Inc.
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 assets and liabilities 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, 2014, the portfolios of investments 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, 2014, 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, 2014, 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 19, 2014
48
Harding, Loevner Funds, Inc.
(unaudited)
International Equity, International Small Companies, Institutional Emerging Markets, Emerging Markets, and Frontier Emerging Markets paid qualifying foreign taxes of $8,087,094, $144,049, $2,100,798, $3,508,246, and $1,072,185, and earned $47,830,399, $528,437, $17,934,025, $26,634,929, and $4,897,229 from foreign source income during the fiscal year ended October 31, 2014, 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 $0.0347, $0.0217, $0.0210, $0.0701, and $0.0184 per share as foreign taxes paid and $0.2053, $0.0797, $0.1794, $0.5324, and $0.0839 as income earned from foreign sources for the fiscal year ended October 31, 2014, respectively.
Global Equity, International Equity, International Small Companies, Institutional Emerging Markets, Emerging Markets, and Frontier Emerging Markets had qualifying dividend income of $9,803,358, $71,618,693, $1,442,823, $20,884,187, $35,057,084, and $5,462,244, respectively, during the year ended October 31, 2014.
During the year ended October 31, 2014, Global Equity designated 100% 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 $96,450,985, as a long term capital gain dividend for the year ended October 31, 2014.
Pursuant to Section 852 of the Internal Revenue Code, Global Equity Portfolio designated $30,011,126 as a long term capital gain dividend for the year ended October 31, 2014.
Pursuant to Section 852 of the Internal Revenue Code, International Small Companies Portfolio designated $1,337,745 as a long term capital gain dividend for the year ended October 31, 2014.
Pursuant to Section 852 of the Internal Revenue Code, Frontier Emerging Markets Portfolio designated $6,091,324 as a long term capital gain dividend for the year ended October 31, 2014.
49
Harding, Loevner Funds, Inc.
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, 2014 (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 Global Equity Portfolio, the International Equity Portfolio, the International Small Companies Portfolio, the Institutional Emerging Markets Portfolio, the Emerging Markets 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 Advisers profitability and costs; (iii) the qualifications of the Adviser and portfolio management personnel with respect to services provided to the Portfolios; and (iv) the Advisers 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 a telephonic meeting with representatives of the Adviser; and requested and received supplemental information and analysis from the Adviser. Following the Committees 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 Boards 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 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 review and discuss further 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 Boards approval determinations were made on the basis of each directors business judgment after consideration of all the information presented. No single factor was determinative. 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 the 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 nonadvisory 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 Portfolios 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 Portfolios affairs and the Advisers role in coordinating providers of other services to the Portfolios. The Boards evaluation of the services provided by the Adviser took into account the Boards historical knowledge and familiarity with the scope and quality of the Advisers investment management and other capabilities and the quality of its administrative and other services.
50
Harding, Loevner Funds, Inc.
Approval of Investment Advisory Agreement (continued)
(unaudited)
The Adviser presented and discussed with the Board the qualifications, backgrounds and responsibilities of the Advisers 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.
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 Portfolios 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 since the last Advisory Agreement renewal and the Advisers investments to improve operational efficiency and its capabilities in trade order management, compliance monitoring, corporate action monitoring and business continuity planning as well as efforts to increase transparency of Portfolio investments made through clearing platforms. 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 Portfolios performance, asset levels and asset flows. It was also noted that the Adviser had approximately $36.9 billion in assets under management as of March 31, 2014, 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 Advisers compliance program. The Board noted the CCOs determination that the Advisers 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 CCOs periodic recommendations designed to ensure continued 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, 2014 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 Portfolios Morningstar Category and benchmark indices. The Board considered the Portfolios risk adjusted performance and high active share (low correlation to benchmark indices) in implementing its investment process. The Boards specific considerations with respect to each Portfolios performance are discussed under Portfolio Specific Considerations below.
In addition, the Board reviewed the Advisers investment philosophy and its influence on the management of the Portfolios. The Board noted the Advisers 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. The Board considered the Advisers disciplined adherence to its investment process and its ongoing efforts to enhance its process. In evaluating the investment performance of the Portfolios, the Board acknowledged that the Advisers investment style may result in periods of underperformance, but has generally produced outperformance over longer time periods. The Board also considered the Advisers ongoing efforts to identify the causes of any underperformance and its efforts to address it.
Based on these considerations, the Board concluded that each Portfolios performance was reasonable.
Costs of the Services and Profitability of the Adviser
The Board considered information regarding the Advisers costs to provide investment management services to the Portfolios and the profitability to the Adviser from managing the Portfolios. In evaluating the Advisers profitability, the Board considered the Advisers profitability analysis for calendar years 2012 and 2013; each Portfolios expense ratio; and the Advisers 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 Advisers profit both with and 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 for calendar year 2013, and did not earn a profit on the International Small Companies or Frontier Emerging Markets Portfolios for calendar year 2012. The Board considered the fact that the Advisers overall profitability was positively impacted by asset growth outside the Portfolios and that this benefitted the Portfolios by increasing resources that were available to Fund shareholders. The Board further considered steps taken by the Adviser beginning in March 2013 to reduce the total expense ratio of select Portfolios,
51
Harding, Loevner Funds, Inc.
Approval of Investment Advisory Agreement (continued)
(unaudited)
including: (i) reducing the expense caps for the Institutional and Investor Classes of the International Small Companies Portfolio by 20 basis points; (ii) reducing the contractual advisory fees for the Global Equity Portfolio by ten basis points; (iii) reducing the contractual advisory fees for the Institutional Emerging Markets Portfolio and Emerging Markets Portfolio by two basis points. In addition, the Board considered the Advisers proposal to further reduce the total expense ratio of select Portfolios, beginning in November 1, 2014, including: (i) reducing the expense cap for the Institutional and Investor Classes of the Global Equity Portfolio by five basis points; and (ii) adding two breakpoint levels that would reduce the contractual advisory fee by two basis points for assets over $2 billion and $3 billion, respectively for each of the Portfolios which currently meet, or have the potential to reach, the relevant asset levels, namely the International Equity Portfolio, Global Equity Portfolio, Emerging Markets Portfolio and Institutional Emerging Markets Portfolio.
The Board took note of the Advisers expectation that it would incur additional costs relating to current and planned increases in personnel and office space, investment in new information systems and strategic international expansion of office locations 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 from managing the Portfolios would depend on the level of assets in the Portfolios as well as the total assets under management of the Adviser.
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. The Board also considered the fact that the Advisers waiver/expense reimbursement arrangements are not subject to recapture and that the proposed fee reductions and breakpoints were contractual in nature. In addition, the Board considered the Strategic Insight Reports, which included information comparing each Portfolios 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 were below the median of their respective Expense Groups, with the exception of the International Small Companies Portfolio; and were below the median of their respective Morningstar Category-derived universe (the Expense Universe), with the exception of the Frontier Emerging Markets and International Small Companies Portfolios. The Board also noted that, with the exception of the International Small Companies Portfolio and the Frontier Emerging Markets Portfolio, which were above their respective Expense Group medians, each class of the Portfolios 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 Portfolios advisory fees after waivers were within the range of those of the funds in its peer group, as calculated by Strategic Insight. A discussion of the Boards considerations with respect to each Portfolios fees is set forth under Portfolio Specific Considerations below.
At the Boards request, the Adviser also provided information on the fees charged and services provided to the Portfolios compared with non-US funds, collective investment trusts and separate accounts with similar investment strategies managed by the Adviser and that the non-US funds had similar fee levels as the Portfolios. The Board noted that the Advisers separate account and collective trust clients require fewer services from the Adviser. The Board acknowledged that unlike the Portfolios, separate 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 for 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 separate accounts, unlike the Portfolios. The Board additionally noted the Advisers efforts to increase institutional account minimums and direct more institutional investors into pooled vehicles, including the Portfolios. Further, the Board took note that a number of institutional investors familiar with the competitive marketplace invested in the Portfolios, often as the result of a request for proposal process, which further indicated that the advisory fees charged by the Adviser are reasonable.
Based on these considerations, the Board concluded that each Portfolios expense ratio is reasonable.
52
Harding, Loevner Funds, Inc.
Approval of Investment Advisory Agreement (continued)
(unaudited)
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 shared with shareholders. The Board noted that the Portfolios have benefitted both from asset growth in the Portfolios as well as the Advisers overall growth, both of which have resulted in certain economies of scale as certain expenses become a smaller percentage of overall assets. The Board noted that, due to the level of asset net inflows for the Global Equity, International Equity, Emerging Markets, Institutional Emerging Markets and Frontier Emerging Markets Portfolios, the economies of scale realized by those Portfolios had been enhanced since the prior year. The Board also considered the increased resources that the Adviser could devote to managing the Portfolios as a result of asset growth at the Portfolio and firm level.
The Board considered that other aspects of the Portfolios investment strategies may limit the realization of economies of scale, including a particular strategys universe of issuers, applicable trading volumes or markets, or the Advisers selection criteria. The Board also took note of the Advisers plans for marketing and distributing the various Portfolios and paying 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 realized for the benefit of the Portfolios shareholders.
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 Advisers name; and (iii) the Advisers ability to market to Portfolio 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 Advisers ongoing commitment to the Portfolios, the 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 Institutional Class of the Global Equity Portfolio underperformed its MSCI All-Country World Index benchmark and Morningstar Category (World Stock) year-to-date, as of March 31, 2014, and for the one- and three-year periods. The Institutional Class of the Portfolio has performed in the third quartile of its Morningstar Category (World Stock) for the one- and three-year periods.
The Advisor Class of the Global Equity Portfolio underperformed its MSCI All-Country World Index benchmark and Morningstar Category (World Stock) year-to-date, as of March 31, 2014, and for the one-, three-, and five-year periods, and outperformed its benchmark and Morningstar Category (World Stock) for the ten-year period. The Advisor Class of the Portfolio has performed in the fourth quartile of its Morningstar Category (World Stock) for the one-year period, in the third quartile for the three- and five-year periods, and in the second quartile for the ten-year period.
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, with respect to both the Advisor and Institutional Classes of the Portfolio, the net management fee is above the median of the Expense Group and Expense Universe; and the net operating expenses are below the median of the Expense Group and Expense
53
Harding, Loevner Funds, Inc.
Approval of Investment Advisory Agreement (continued)
(unaudited)
Universe. The Board also took into account the Advisers agreement to contractually reduce its advisory fee from 0.85% to 0.80% of average daily net assets and the potential impact of the additional contractual breakpoints at higher asset levels.
International Equity Portfolio
Portfolio Performance. The Institutional Class of the International Equity Portfolio underperformed its MSCI All-Country World ex-US Index benchmark and Morningstar Category (Foreign Large Growth) year-to-date, as of March 31, 2014, and for the one-year period. The Institutional Class of the Portfolio outperformed its benchmark and underperformed its Morningstar Category (Foreign Large Growth) for the three-year period, and outperformed both its benchmark and Morningstar Category (Foreign Large Growth) for the five- and ten-year periods. The Institutional Class of the Portfolio has performed in the third quartile of its Morningstar Category (Foreign Large Growth) for the one- and three-year periods, in the second quartile for the five-year period, and in the first quartile for the ten-year period.
The Investor Class of the International Equity Portfolio underperformed its MSCI All-Country World ex-US Index benchmark and Morningstar Category (Foreign Large Growth) year-to-date, as of March 31, 2014, and for the one-year period. The Investor Class of the Portfolio outperformed its benchmark and underperformed its Morningstar Category (Foreign Large Growth) for the three-year period, and outperformed both its benchmark and Morningstar Category (Foreign Large Growth) for the five-year period. The Investor Class of the Portfolio has performed in the third quartile of its Morningstar Category (Foreign Large Growth) for the one- and three-year periods and in the second quartile for the five-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 net management fee and net operating expenses of both the Institutional and Investor Classes of the Portfolio are below median for both the Expense Group and Expense Universe. The Board also considered the Advisers agreement to add contractual fee reductions in the form of breakpoints at the $2 billion and $3 billion asset levels, taking note that Portfolio shareholders would benefit from these reductions at current asset levels.
International Small Companies Portfolio
Portfolio Performance. The Institutional Class of the International Small Companies Portfolio outperformed its MSCI All-Country World ex-US Small Cap benchmark and Morningstar Category (Foreign Small/Mid Blend) year-to-date, as of March 31, 2014. The Institutional Class of the Portfolio outperformed its benchmark and underperformed its Morningstar Category (Foreign Small/Mid Blend) for the one-year period. The Institutional Class of the Portfolio has performed in the fourth quartile of its Morningstar Category (Foreign Small/Mid Blend) for the one-year period.
The Investor Class of the Portfolio outperformed its MSCI All-Country World ex- US Small Cap benchmark and Morningstar Category (Foreign Small/Mid Blend) year-to-date, as of March 31, 2014. The Investor Class of the Portfolio outperformed its benchmark and underperformed its Morningstar Category (Foreign Small/Mid Blend) for the one-year period, and outperformed both its benchmark and Morningstar Category (Foreign Small/Mid Blend) for the three- and five-year periods. The Investor Class of the Portfolio has performed in the fourth quartile of its Morningstar Category (Foreign Small/Mid Blend) for the one-year period, in the second quartile for the three-year period, and in the first quartile for the five-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, the Portfolios small asset size which has resulted in the Adviser subsidizing Portfolio operations since inception, and they 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 and net operating expenses of the Institutional Class of the Portfolio are above median for both the Expense Group and Expense Universe. With respect to the Investor Class of the Portfolio, the net management fee is above median for both the Expense Group and Expense Universe; and the net operating expenses are below median for both the Expense Group and Expense Universe.
54
Harding, Loevner Funds, Inc.
Approval of Investment Advisory Agreement (continued)
(unaudited)
Emerging Markets Portfolio
Portfolio Performance. The Advisor Class of the Emerging Markets Portfolio outperformed its MSCI Emerging Markets Index benchmark and its Morningstar Category (Diversified Emerging Markets) year-to-date, as of March 31, 2014, and for the one-, three-, five- and ten-year periods. The Advisor Class of the Portfolio has performed in the first quartile of its Morningstar Category (Diversified Emerging Markets) for the one-, 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 management fee of the Advisor Class of the Portfolio is above the median for both the Expense Group and Expense Universe; and that the net operating expenses for the Advisor Class of the Portfolio are well below median for the Expense Group and Expense Universe. The Board also considered the Advisers agreement to add contractual fee reductions in the form of breakpoints at the $2 billion and $3 billion asset levels, the first of which would benefit shareholders at current Portfolio asset levels.
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. In March 2014, the Adviser launched a second share class of the Portfolio designated Class II and redesignated the Portfolios already operational share class as Class I.
Class I of the Portfolio has outperformed its MSCI Emerging Markets Index benchmark and Morningstar Category (Diversified Emerging Markets) year-to-date, as of March 31, 2014, and for the one-, three- and five-year periods. The Portfolio has performed in the first quartile of its Morningstar Category (Diversified Emerging Markets) for the one-, three- and five-year periods. Class II of the Portfolio has not yet completed its first fiscal year.
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 management fee of Class I of the Portfolio is above the median for both the Expense Group and Expense Universe, and that the net operating expenses are well below the median for the Expense Group and Expense Universe. With respect to Class II of the Portfolio, the Board noted that while the peer comparison was incomplete due to Class IIs short history, the total expenses were significantly below the median for both the Expense Group and Expense Universe. The Board also considered the Advisers agreement to add contractual fee reductions in the form of breakpoints at the $2 billion and $3 billion asset levels.
Frontier Emerging Markets Portfolio
Portfolio Performance. The Institutional Class of the Frontier Emerging Markets Portfolio underperformed its MSCI Frontier Emerging Markets Index benchmark and outperformed its Morningstar Category (Diversified Emerging Markets) year-to-date, as of March 31, 2014. The Institutional Class of the Portfolio outperformed both its MSCI Frontier Emerging Markets Index benchmark and Morningstar Category (Diversified Emerging Markets) for the one-, three- and five-year periods. The Institutional Class of the Portfolio has performed in the first quartile of its Morningstar Category (Diversified Emerging Markets) for the one-, three- and five-year periods.
The Investor Class of the Frontier Emerging Markets Portfolio underperformed its MSCI Frontier Emerging Markets Index benchmark and outperformed its Morningstar Category (Diversified Emerging Markets) year-to-date, as of March 31, 2014. The Investor Class of the Portfolio outperformed both its MSCI Frontier Emerging Markets Index benchmark and Morningstar Category (Diversified Emerging Markets) for the one- and three-year periods. The Investor Class of the Portfolio has performed in the first quartile of its Morningstar Category (Diversified Emerging Markets) for the one- and three-year periods.
55
Harding, Loevner Funds, Inc.
Approval of Investment Advisory Agreement (continued)
(unaudited)
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 management fee of the Institutional Class of the Portfolio is significantly above median for both the Expense Group and Expense Universe; and the net operating expenses are below median for both the Expense Group and Expense Universe. With respect to the Investor Class of the Portfolio, the Board noted that the net management fee and net operating expenses are significantly above median for both the Expense Group and Expense Universe. The Board noted that the above median ranking for the net advisory fee is due to the Portfolios 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 Portfolios above median ranking for net total expense ratio was due, in part, to the lack of a Morningstar category of funds that invest primarily in frontier markets or the smallest emerging markets. The Board also took into account the decline in the Portfolios total expense ratio over both the past year as well as the trend over time as the Portfolios asset levels have increased and the Advisers expectation that the Portfolios assets will continue to grow.
The Board considered the Advisers explanation regarding the lack of a relevant peer group for Portfolio performance and expense comparison purposes, which included the fact that 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 relative performance and total expenses.
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 Advisers costs, and each Portfolios 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 Boards 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.
56
Harding, Loevner Funds, Inc.
(unaudited)
HARDING, LOEVNER FUNDS, INC.
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.
57
Harding, Loevner Funds, Inc.
Directors and Principal Officers
(unaudited)
Disinterested Directors:
Name, Address and Age |
Position with |
Term of Office and Length of Time Served* |
Principal Occupation During Past Five Years |
Number of |
Other Directorships | |||||
William E. Chapman, II c/o Harding Loevner LP 400 Crossing Boulevard Fourth Floor Bridgewater, NJ 08807 Age, 73 |
Director | Indefinite; Director since 2008; Chairperson of the Audit Committee since 2009 | Longboat Retirement Planning Solutions, President and Owner, 1998 present; Bowdoin College, Trustee, 2002 2013; Mutual Fund Directors Forum, Inc., Director and Treasurer, 2010 present; Sarasota Memorial Healthcare Foundation, Inc., Director, 2011 present; Hewitt Associates, LLC (part time employee) (provider of retirement and investment education seminars), 2000 2009. | 6 | Third Avenue Trust (5 portfolios); Third Avenue Variable Trust (1 portfolio); Aston Funds (25 Portfolios); AMG Funds (43 portfolios). | |||||
R. Kelly Doherty c/o Harding Loevner LP 400 Crossing Boulevard Fourth Floor Bridgewater, NJ 08807 Age, 56 |
Director | Indefinite; Director since 2004; Lead Independent Director since 2014 | Cayman Advisors (private investment vehicles), Managing Partner, 1999 present. | 6 | None. | |||||
Charles Freeman, III c/o Harding Loevner LP 400 Crossing Boulevard Fourth Floor Bridgewater, NJ 08807 Age, 50 |
Director | Indefinite; Director since 2008 | Forbes-Tate, LLC, International Principal, 2014 present; Rock Creek Global Advisors, LLC, Vice President, 2013 2014; PepsiCo, Vice President Global Public Policy and Government Relations, 2011 2013; National Committee on US-China Relations (non-profit), Board Member, 2007 2009 and 2010 present; Center for Strategic and International Studies, Freeman Chair in China Studies, 2007 2011. | 6 | None. |
58
Harding, Loevner Funds, Inc.
Directors and Principal Officers (continued)
(unaudited)
Disinterested Directors (continued):
Name, Address and Age |
Position with |
Term of Office and Length of Time Served* |
Principal Occupation During Past Five Years |
Number of |
Other Directorships | |||||
Samuel R. Karetsky c/o Harding Loevner LP 400 Crossing Boulevard Fourth Floor Bridgewater, NJ 08807 Age, 69 |
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. | 6 | None. | |||||
Eric Rakowski c/o Harding Loevner LP 400 Crossing Boulevard Fourth Floor Bridgewater, NJ 08807 Age, 56 |
Director | Indefinite; Director since 2008 | University of California at Berkeley School of Law, Professor, 1990 present. | 6 | Third Avenue Trust (5 portfolios); Third Avenue Variable Trust (1 portfolio); Aston Funds (25 portfolios); AMG Funds (43 portfolios); AMG Pantheon Private Equity Fund (1 portfolio); AMG Pantheon Private Equity Master Fund (1 portfolio). |
59
Harding, Loevner Funds, Inc.
Directors and Principal Officers (continued)
(unaudited)
Interested Directors:
Name, Address and Age |
Position with |
Term of Office and Length of Time Served* |
Principal Occupation During Past Five Years |
Number of |
Other Directorships | |||||
David R. Loevner** Harding Loevner LP 400 Crossing Boulevard Fourth Floor Bridgewater, NJ 08807 Age, 60 |
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; Harding Loevner Funds, plc, Director, 2007 present. | 6 | None. | |||||
Jennifer M. Borggaard** Affiliated Managers Group, Inc. 600 Hale Street Prides Crossing, MA 01965 Age, 45 |
Director | Indefinite; Director since 2008 | Affiliated Managers Group, Inc. (AMG) (asset management firm), Senior Vice President, 2007 present; Shore Country Day School, 2013 present. | 6 | Beutel, Goodman & Company LTD; Genesis Asset Managers, LLP; 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 Funds 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.
60
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, 48 |
President | 1 year; since 2011 | Harding Loevner LP, Chief Operating Officer, 1996 present. | |||
Susan Mosher c/o Alaric Compliance Services 150 Broadway New York, New York 10038 Age, 59 |
Chief Compliance Officer and Anti-Money Laundering Compliance Officer | 1 year; since 2010 | Managing Member, Carol Consulting Group, LLC, October 2014 to present; Foreside Compliance Services, LLC, Head of Compliance Services, 2009 July 2013, Managing Director Compliance Services, July 2013 to October 2014. | |||
Charles S. Todd Foreside Management Services, LLC Three Canal Plaza, Suite 100 Portland, ME 04101 Age, 43 |
Chief Financial Officer and Treasurer | 1 year; since 2010 | Foreside Management Services, LLC, Business Head, Treasurer Services, 2012 Present; Director, 2008 2012. | |||
Aaron Bellish Harding Loevner LP 400 Crossing Boulevard Fourth Floor Bridgewater, NJ 08807 Age, 35 |
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. | |||
Derek Jewusiak The Northern Trust Company 50 South LaSalle Street Chicago, IL 60603 Age, 42 |
Assistant Treasurer | 1 year; since 2013 | The Northern Trust Company, Vice President, 2012 present, Second Vice President, 2008 2012. |
61
Harding, Loevner Funds, Inc.
Directors and Principal Officers (continued)
(unaudited)
Principal Officers of the Fund (continued):
Name, Address and Age |
Position with |
Term of Office |
Principal Occupation During Past Five Years | |||
Owen T. Meacham The Northern Trust Company 50 South LaSalle Street Chicago, IL 60603 Age, 43 |
Secretary | 1 year; since 2010 | The Northern Trust Company, Senior Vice President and Managing Attorney, 2012 present, Senior Vice President and Senior Corporate Attorney, 2011 2012, Vice President and Senior Corporate Attorney, 2007 2012. | |||
Lori M. Renzulli Harding Loevner LP 400 Crossing Boulevard Fourth Floor Bridgewater, NJ 08807 Age, 48 |
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, 47 |
Assistant Secretary | 1 year; since 2011 | The Northern Trust Company, Vice President, 2011 present, Second Vice President, 2010; Michael Best & Friedrich LLP, Partner, 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.
62
Harding, Loevner Funds, Inc.
(unaudited)
Quarterly Form N-Q Portfolio Schedule
Each Portfolio will file its complete portfolio 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 SECs website at www.sec.gov and may also be reviewed and copied at the SECs 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 Funds proxy voting record relating to the Portfolios securities during the most recent 12-month period ended June 30 is available on the Funds website at www.hardingloevnerfunds.com and on the SECs 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 SECs website at www.sec.gov.
Additional Information
The Adviser updates Fact Sheets for the Portfolios each calendar quarter, which are posted to the Funds website www.hardingloevnerfunds.com. This information, along with the Advisers commentaries on its various strategies, is available without charge, upon request, by calling (877) 435-8105.
63
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Item 2. Code of Ethics.
(a) | As of October 31, 2014, the Registrant has adopted a code of ethics that applies to the Registrants President/Chief Executive Officer and Treasurer/Chief Financial Officer (the Code of Ethics). |
(c) | For the fiscal year ended October 31, 2014, there were no amendments to a provision of the Registrants Code of Ethics. |
(d) | For the fiscal year ended October 31, 2014, there were no waivers granted from a provision of the Registrants Code of Ethics. |
Item 3. Audit Committee Financial Expert.
The Registrants Board of Directors has determined that the following members of the Audit Committee are audit committee financial experts and independent: William Chapman II.
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, the Registrants principal accountant, for the audit of the Registrants annual financial statements in connection with statutory and regulatory filings or engagements for those fiscal years are $147,300 in 2014 and $143,000 in 2013.
(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 U.S. state and federal tax returns, review of projected amount of required distributions for fiscal and calendar years, and for the fiscal year 2014 only, providing assistance with interpretation of and compliance with tax rules in certain foreign jurisdictions, were $59,650 in 2014 and $43,800 in 2013.
(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 Committees 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.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments.
(a) | Schedule I 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.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11. Controls and Procedures.
(a) | The Registrants Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, have concluded that the Registrants 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 Registrants disclosure controls and procedures as of the evaluation date. |
(b) | There were no significant changes in the Registrants 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 Registrants internal control over financial reporting. |
Item 12. Exhibits.
(a)(1) Exhibit 99.12.A: Incorporated by reference to Exhibit 12(a)(1) to the report filed on Form N-CSR on January 7, 2013 (Accession No. 0001193125-13-005151).
(a)(2) Exhibit 99.CERT: Certifications pursuant to Rule 30a-2(a) of the Act are attached.
(a)(3) Not applicable.
(b) Exhibit 99.906: Certifications pursuant to Rule 30a-2(b) of the Act are attached hereto.
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 | ||||
(Principal Executive Officer) | ||||
Date: January 6, 2015 | ||||
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 | ||||
(Principal Executive Officer) | ||||
Date: January 6, 2015 | ||||
By | /s/ Charles S. Todd |
|||
Charles S. Todd | ||||
(Principal Financial Officer) | ||||
Date: January 6, 2015 |
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 Registrants 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 Registrants 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 Registrants 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 Registrants internal control over financial reporting; and |
5. | The Registrants other certifying officer(s) and I have disclosed to the Registrants auditors and the audit committee of the Registrants 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 Registrants 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 Registrants internal control over financial reporting. |
Date: January 6, 2015 | /s/ Richard T. Reiter | |
Richard T. Reiter | ||
President | ||
(Principal Executive Officer) |
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 Registrants 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 Registrants 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 Registrants 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 Registrants internal control over financial reporting; and |
5. | The Registrants other certifying officer(s) and I have disclosed to the Registrants auditors and the audit committee of the Registrants 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 Registrants 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 Registrants internal control over financial reporting. |
Date: January 6, 2015 | /s/ Charles S. Todd | |
Charles S. Todd | ||
Chief Financial Officer and Treasurer | ||
(Principal Financial Officer) |
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, 2014, 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 6, 2015 | /s/ Richard T. Reiter | |
Richard T. Reiter President | ||
(Principal Executive Officer) |
Date: January 6, 2015 | /s/ Charles S. Todd | |
Charles S. Todd Chief Financial Officer and Treasurer | ||
(Principal 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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