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 | 811-7739 | |||||||
| ||||||||
Harding, Loevner Funds, Inc. | ||||||||
(Exact name of registrant as specified in charter) | ||||||||
| ||||||||
50 Division Street, Somerville, NJ |
| 08876 | ||||||
(Address of principal executive offices) |
| (Zip code) | ||||||
| ||||||||
David R. Loevner, President 50 Division Street, Somerville, NJ 08876 | ||||||||
(Name and address of agent for service) | ||||||||
| ||||||||
Registrant’s telephone number, including area code: | (877) 435-8105 |
| ||||||
| ||||||||
Date of fiscal year end: | 10/31/2007 |
| ||||||
| ||||||||
Date of reporting period: | 10/31/2007 |
| ||||||
Item 1. Reports to Stockholders.
The registrant’s annual reports transmitted to shareholders pursuant to Rule 30c-1 under the Investment Company Act of 1940 are as follows:
Annual Report October 31, 2007
Family of Mutual Funds
Investor Class
n Emerging Markets Portfolio
n International Equity Portfolio
n International Small Companies Portfolio
Harding, Loevner Funds, Inc.
P.O. Box 642, OPS 22
Boston, MA 02117-0642
1.877.435.8105 • www.hardingloevner.com
Harding, Loevner Funds, Inc.
Table of Contents
| Expense Example | 3 | ||||||
| Performance Information and Statements of Net Assets | |||||||
| Emerging Markets Portfolio | 4 | ||||||
| International Equity Portfolio | 11 | ||||||
| International Small Companies Portfolio | 17 | ||||||
| Statements of Operations | 24 | ||||||
| Statements of Changes in Net Assets | 25 | ||||||
| Financial Highlights | 28 | ||||||
| Notes to Financial Statements | 31 | ||||||
| Report of Independent Registered Public Accounting Firm | 38 | ||||||
| Supplemental Tax Information | 39 | ||||||
| Approval of Investment Advisor Agreements | 41 | ||||||
| Directors and Principal Officers | 43 | ||||||
| Supplemental Information | 45 | ||||||
For use only when preceded or accompanied by a prospectus. Read the prospectus carefully before you invest or send money
Harding, Loevner Funds, Inc.
Expense Example
October 31, 2007 (unaudited)
As a shareholder of a Harding Loevner Portfolio, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of fund shares; and (2) ongoing costs, including management fees and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars and cents) of investing in a Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested on May 1, 2007 and held for the entire six month period from May 1, 2007 to October 31, 2007 for the Emerging Markets Portfolio, International Equity Portfolio, Investor Class and International Small Companies Portfolio.
Actual Expenses
The first line under each Porfolio 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 each Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in your Portfolio and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of fund shares. 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. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value May 1, 2007 | Ending Account Value October 31, 2007 | Annualized Expense Ratio | Expenses Paid During Period* (May 1, 2007 to October 31, 2007) | ||||||||||||||||
| Emerging Markets Portfolio | |||||||||||||||||||
| Actual | $ | 1,000.00 | $ | 1,357.40 | 1.63 | % | $ | 9.66 | |||||||||||
| Hypothetical (5% annual return before expenses) | 1,000.00 | 1,017.01 | 1.63 | % | 8.26 | ||||||||||||||
| International Equity Portfolio, Investor Class | |||||||||||||||||||
| Actual | 1,000.00 | 1,112.50 | 1.22 | % | 6.50 | ||||||||||||||
| Hypothetical (5% annual return before expenses) | 1,000.00 | 1,019.05 | 1.22 | % | 6.21 | ||||||||||||||
| International Small Companies Portfolio | |||||||||||||||||||
| Actual | 1,000.00 | 1,104.10 | 1.75 | % | 9.28 | ||||||||||||||
| Hypothetical (5% annual return before expenses) | 1,000.00 | 1,016.38 | 1.75 | % | 8.89 | ||||||||||||||
* Expenses are calculated using each Portfolio's annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by number of days in the period (184 days), and divided by the number of days in the year (365 days).
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio — Overview
(unaudited)
October 31, 2007
| Returns for the Year Ended October 31, 2007 | |||||||||||||||||||||||
| Cumulative Total Returns | Average Annualized Total Return | ||||||||||||||||||||||
| FUND NAME | Last 12 Months | 5 YR | Inception | 5 YR | Inception | ||||||||||||||||||
| Emerging Markets Portfolio (11/9/98) | 57.62 | % | 425.65 | % | 634.38 | % | 39.36 | % | 24.87 | % | |||||||||||||
| MSCI Emerging Markets (Net dividend) | 67.82 | % | 435.07 | % | 449.41 | % | 39.86 | % | 20.90 | % | |||||||||||||
| Lipper Emerging Markets Funds Index | 60.30 | % | 417.54 | % | 434.30 | % | 38.93 | % | 20.52 | % | |||||||||||||
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevner.com.
Investment return reflects voluntary fee waivers in effect. Absence such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.
4
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio — Overview
October 31, 2007
The Harding, Loevner Funds, Inc. Emerging Markets Portfolio returned 57.62% for the fiscal year ending October 31, 2007, as compared to 67.82% for its benchmark, the MSCI Emerging Markets Index.
Consistent with its investment objectives and policies, the Portfolio was invested primarily in the securities of emerging markets companies that exhibited the fundamental characteristics of growth, financial strength, management quality and durable competitive advantage.
The Portfolio lagged its benchmark primarily due to its under-benchmark weightings of Chinese shares and Materials sector shares, as well as instances of stock selection.
Measured against the benchmark from a regional perspective, much of our lagging relative performance came from underweighting of top-performing markets. Our average weight in China was 10% versus 12% for the benchmark, while that market rose 155%. Stock selection was also a drag, and was particularly damaging in South Korea, where smaller capitalization industrial companies significantly outperformed most of our holdings.
Measured from an industrial sector perspective, performance was hurt by both sectoral weightings and individual stock selection. The Portfolio's overweighting of the underperforming Consumer Discretionary and Consumer Staples sectors, along with an underweighting of the strongly performing Materials sector hurt performance. Significant underperformance from Samsung Fire and Marine and Kookmin Bank in the Financials sector, and from Bidvest Group and Container Corp of India in the Industrials sector negatively impacted stock selection.
Past performance does not guarantee future results.
The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. The portfolio invests in smaller companies which involve additional risks such as limited liquidity and greater volatility.
Portfolio holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Please refer to the Schedule of Investments in this report for complete fund holdings.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Index consists of 25 emerging market countries. Net dividends are reinvested.
It is not possible to invest directly in an index.
5
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (unaudited)
| Industry | Percentage of Net Assets | ||||||
| Airlines | 0.6 | % | |||||
| Automotive | 2.0 | ||||||
| Banks | 14.0 | ||||||
| Beverages, Food & Tobacco | 3.3 | ||||||
| Building Materials | 1.1 | ||||||
| Chemicals | 3.5 | ||||||
| Commercial Services & Supplies | 7.9 | ||||||
| Communications | 11.3 | ||||||
| Electric Utilities | 1.6 | ||||||
| Electrical Equipment | 10.9 | ||||||
| Energy Equipment & Services | 2.6 | ||||||
| Financial Services | 3.4 | ||||||
| Forest Products & Paper | 0.9 | ||||||
| Home Construction, Furnishings & Appliances | 2.0 | ||||||
| Insurance | 2.0 | ||||||
| Media | 0.7 | ||||||
| Metals & Mining | 7.8 | ||||||
| Oil & Gas | 13.5 | ||||||
| Pharmaceuticals | 1.5 | ||||||
| Real Estate | 2.3 | ||||||
| Retailers | 1.3 | ||||||
| Transportation | 4.6 | ||||||
| Total Investments | 98.8 | ||||||
| Other Assets Less Liabilities | 1.2 | * | |||||
| Net Assets | 100.0 | % | |||||
* Breakout of other assets and liabilities may be found on page 10.
See Notes to Financial Statements
6
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Common Stocks - 94.8% | |||||||||||
| Brazil - 10.4% | |||||||||||
| Aracruz Celulose SA - Sponsored ADR (Forest Products & Paper) | 291,700 | $ | 22,428,813 | ||||||||
| Brazil Realty SA (Real Estate) | 2,101,992 | 36,558,495 | |||||||||
| Companhia de Bebidas das Americas - Preferred ADR (Beverages, Food & Tobacco) | 283,400 | 23,156,614 | |||||||||
| Companhia Vale do Rio Doce - ADR (Metals & Mining) | 2,730,700 | 102,892,776 | |||||||||
| Petroleo Brasileiro SA - ADR (Oil & Gas) | 780,942 | 74,681,483 | |||||||||
| Wilson Sons Ltd. - GDR (Commercial Services & Supplies)* | 512,506 | 6,396,516 | |||||||||
| 266,114,697 | |||||||||||
| Chile - 1.4% | |||||||||||
| Banco Santander - ADR (Banks) | 363,944 | 19,285,393 | |||||||||
| Lan Airlines SA - Sponsored ADR (Airlines) | 983,500 | 16,365,440 | |||||||||
| 35,650,833 | |||||||||||
| China - 12.3% | |||||||||||
| ASM Pacific Technology Ltd. (Electrical Equipment) | 3,145,000 | 24,852,323 | |||||||||
| China Merchants Holdings International Co., Ltd. (Transportation) | 7,547,600 | 53,513,211 | |||||||||
| China Mobile Ltd. - Sponsored ADR (Communications) | 721,061 | 74,759,604 | |||||||||
| China Overseas Land & Investment Ltd. (Real Estate) | 9,403,333 | 22,530,648 | |||||||||
| China Petroleum & Chemical Corp. - ADR (Oil & Gas) | 199,447 | 33,090,252 | |||||||||
| China Resources Enterprise (Financial Services) | 7,470,000 | 32,773,571 | |||||||||
| China Shenhua Energy Co., Ltd. - Class H (Energy Equipment & Services) | 10,270,500 | 67,508,920 | |||||||||
| Wumart Stores Inc. - Class H (Retailers) | 8,228,000 | 7,484,584 | |||||||||
| 316,513,113 | |||||||||||
| Colombia - 0.7% | |||||||||||
| BanColombia SA - Sponsored ADR (Banks) | 484,200 | 17,794,350 | |||||||||
| Czech Republic - 1.1% | |||||||||||
| CEZ (Electric Utilities) | 179,800 | 13,002,221 | |||||||||
| Zentiva BV (Pharmaceuticals) | 289,800 | 15,686,084 | |||||||||
| 28,688,305 | |||||||||||
| Egypt - 2.1% | |||||||||||
| Orascom Construction Industries (Commercial Services & Supplies) | 296,190 | 54,686,373 | |||||||||
| India - 9.5% | |||||||||||
| Bajaj Auto Ltd. (Automotive) | 395,400 | 25,057,841 | |||||||||
| Bharti Tele-Ventures Ltd. (Communications)* | 2,435,608 | 63,439,320 | |||||||||
| Container Corp. of India Ltd. (Transportation) | 331,760 | 16,771,902 | |||||||||
| HDFC Bank Ltd. - ADR (Banks) | 288,097 | 40,045,483 | |||||||||
| ICICI Bank Ltd. (Banks) | 904,700 | 29,257,362 | |||||||||
| ICICI Bank Ltd. - Sponsored ADR (Banks) | 140,000 | 9,721,600 | |||||||||
| Larsen & Toubro Ltd. (Commercial Services & Supplies) | 294,000 | 32,251,508 | |||||||||
| NTPC Ltd. (Electric Utilities) | 4,562,500 | 28,010,388 | |||||||||
| 244,555,404 | |||||||||||
| Indonesia - 3.2% | |||||||||||
| PT Bank Danamon Indonesia Tbk (Banks) | 26,993,000 | 25,899,568 | |||||||||
| PT Bank Rakyat Indonesia (Banks) | 28,018,000 | 24,116,162 | |||||||||
| PT Telekomunikasi Indonesia - Sponsored ADR (Communications) | 659,050 | 31,799,162 | |||||||||
| 81,814,892 | |||||||||||
| Israel - 2.2% | |||||||||||
| Israel Chemicals Ltd. (Chemicals) | 5,010,800 | 55,669,035 | |||||||||
See Notes to Financial Statements
7
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Luxembourg - 0.6% | |||||||||||
| Millicom International Cellular SA (Communications)* | 123,000 | $ | 14,450,040 | ||||||||
| Malaysia - 3.2% | |||||||||||
| IOI Corp. Berhad (Chemicals) | 15,417,500 | 35,209,671 | |||||||||
| MISC Berhad (Transportation) | 6,017,900 | 17,847,748 | |||||||||
| Sime Darby Berhad (Commercial Services & Supplies)# | 8,713,000 | 28,581,775 | |||||||||
| 81,639,194 | |||||||||||
| Mexico - 5.4% | |||||||||||
| America Movil SA de CV, Series L - ADR (Communications) | 704,200 | 46,047,638 | |||||||||
| Grupo Financiero Banorte SA de CV, Class O (Financial Services) | 6,444,840 | 29,194,445 | |||||||||
| Grupo Modelo SA de CV, Series C (Beverages, Food & Tobacco) | 2,521,100 | 11,763,163 | |||||||||
| Urbi Desarrollos Urbanos SA de CV (Home Construction, Furnishings & Appliances)* | 6,985,700 | 27,123,843 | |||||||||
| Wal-Mart de Mexico SA de CV - ADR (Retailers) | 602,807 | 24,504,105 | |||||||||
| 138,633,194 | |||||||||||
| Philippines - 0.4% | |||||||||||
| Philippine Long Distance Telephone Co. - Sponsored ADR (Communications) | 137,115 | 9,406,089 | |||||||||
| Poland - 3.6% | |||||||||||
| Bank Pekao SA (Banks)# | 143,300 | 15,327,255 | |||||||||
| Central European Distribution Corp. (Commercial Services & Supplies)* | 764,200 | 40,640,156 | |||||||||
| Polski Koncern Naftowy Orlen SA (Oil & Gas)* | 753,500 | 17,439,979 | |||||||||
| TVN SA (Media) | 1,758,807 | 17,595,556 | |||||||||
| 91,002,946 | |||||||||||
| Russia - 10.1% | |||||||||||
| Evraz Group SA, GDR, Reg S (Metals & Mining) | 602,700 | 45,644,639 | |||||||||
| Golden Telecom Inc. (Communications) | 74,561 | 7,713,335 | |||||||||
| Lukoil - Sponsored ADR (Oil & Gas) | 526,702 | 46,797,473 | |||||||||
| Mobile TeleSystems (Communications) | 1,908,000 | 26,139,600 | |||||||||
| OAO Gazprom - Sponsored ADR, Reg S (Oil & Gas) | 1,486,095 | 74,273,366 | |||||||||
| Pyaterochka Holding NV, GDR (Beverages, Food & Tobacco)* | 718,100 | 25,943,968 | |||||||||
| Sberbank of Russia (Banks) | 7,278,000 | 31,295,400 | |||||||||
| 257,807,781 | |||||||||||
| South Africa - 7.1% | |||||||||||
| Impala Platinum Holdings Ltd. (Metals & Mining) | 1,362,616 | 51,458,769 | |||||||||
| Pretoria Portland Cement Co., Ltd. (Building Materials) | 3,815,150 | 27,886,231 | |||||||||
| SABMiller plc (Beverages, Food & Tobacco) | 831,000 | 24,821,439 | |||||||||
| Sasol Ltd. (Oil & Gas) | 815,520 | 42,170,570 | |||||||||
| Standard Bank Group Ltd. (Banks) | 706,069 | 12,822,861 | |||||||||
| Steinhoff International Holdings Ltd. (Home Construction, Furnishings & Appliances) | 7,536,963 | 23,466,698 | |||||||||
| 182,626,568 | |||||||||||
| South Korea - 8.7% | |||||||||||
| Daewoo Shipbuilding & Marine Engineering Co., Ltd. (Commercial Services & Supplies) | 639,100 | 40,980,899 | |||||||||
| Hankook Tire Co., Ltd. (Automotive) | 1,170,000 | 25,114,299 | |||||||||
| Hynix Semiconductor, Inc. (Electrical Equipment)* | 574,500 | 16,208,768 | |||||||||
| Kookmin Bank - ADR (Banks) | 297,728 | 24,321,400 | |||||||||
| Samsung Electronics Co., Ltd., GDR, Reg S (Electrical Equipment) | 56,959 | 13,501,416 | |||||||||
| Samsung Electronics Co., Ltd., GDR, Reg S (Electrical Equipment) | 167,811 | 51,451,523 | |||||||||
| Samsung Fire & Marine Insurance Co., Ltd. (Insurance) | 184,900 | 51,316,846 | |||||||||
| 222,895,151 | |||||||||||
See Notes to Financial Statements
8
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Taiwan - 6.7% | |||||||||||
| Delta Electronics (Electrical Equipment) | 8,990,929 | $ | 36,626,153 | ||||||||
| Hon Hai Precision Industry Co., Ltd. (Electrical Equipment) | 6,719,320 | 51,636,814 | |||||||||
| MediaTek Inc. (Electrical Equipment) | 1,273,000 | 25,255,049 | |||||||||
| Synnex Technology International Corp. (Electrical Equipment) | 8,879,000 | 30,074,061 | |||||||||
| Taiwan Semiconductor Manufacturing Co. (Electrical Equipment) | 14,508,158 | 28,952,380 | |||||||||
| 172,544,457 | |||||||||||
| Thailand - 2.5% | |||||||||||
| PTT Exploration & Production PCL (Oil & Gas) | 6,859,900 | 32,699,832 | |||||||||
| Siam Commercial Bank-Alien (Banks) | 11,405,400 | 31,714,295 | |||||||||
| 64,414,127 | |||||||||||
| Turkey - 2.1% | |||||||||||
| Haci Omer Sabanci Holding AS (Financial Services) | 3,826,400 | 26,300,108 | |||||||||
| Turkiye Is Bankasi (Banks) | 4,122,998 | 28,380,548 | |||||||||
| 54,680,656 | |||||||||||
| United Kingdom - 0.9% | |||||||||||
| Hikma Pharmaceuticals plc (Pharmaceuticals) | 2,101,700 | 21,864,680 | |||||||||
| United States - 0.6% | |||||||||||
| NII Holdings, Inc. (Communications)* | 276,900 | 16,060,200 | |||||||||
| Total Common Stocks (Cost $1,358,684,506) | 2,429,512,085 | ||||||||||
| Preferred Stocks - 4.0% | |||||||||||
| Brazil - 3.0% | |||||||||||
| All America Latina Logistica SA (Transportation) | 1,899,100 | 30,176,668 | |||||||||
| Banco Itau Holding Financeria SA - ADR (Banks) | 1,667,452 | 47,605,754 | |||||||||
| 77,782,422 | |||||||||||
| Russia - 1.0% | |||||||||||
| Transneft (Oil & Gas) | 12,760 | 24,818,200 | |||||||||
| Total Preferred Stocks (Cost $44,670,067) | 102,600,622 | ||||||||||
| Total Investments - 98.8% (Cost $1,403,354,573) | $ | 2,532,112,707 | |||||||||
See Notes to Financial Statements
9
Harding, Loevner Funds, Inc.
Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Value (1) | |||||||
| Liabilities, Net of Other Assets - 1.2% | |||||||
| Cash | $ | 32,817,546 | |||||
| Dividends and interest receivable | 2,778,681 | ||||||
| Foreign currency (cost $13,708,186) | 13,753,372 | ||||||
| Receivable for fund shares sold | 2,399,397 | ||||||
| Tax reclaim receivable | 36,375 | ||||||
| Prepaid expenses | 1,284 | ||||||
| Payable for fund shares redeemed | (1,537,899 | ) | |||||
| Payable to investment advisor | (2,340,504 | ) | |||||
| Payable for securities purchased | (12,565,601 | ) | |||||
| Other liabilities | (4,498,022 | ) | |||||
| 30,844,629 | |||||||
| Net Assets - 100% | |||||||
| Applicable to 40,002,151 outstanding $.001 par value shares (authorized 500,000,000 shares) | $ | 2,562,957,336 | |||||
| Net Asset Value, Offering and Redemption Price Per Share | $ | 64.07 | |||||
| Components of Net Assets as of October 31, 2007 were as follows: | |||||||
| Paid-in capital | $ | 1,306,943,483 | |||||
| Accumulated undistributed net investment income | 4,926,291 | ||||||
| Accumulated undistributed net realized gain on investments and foreign currency-related transactions | 122,489,808 | ||||||
| Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies (Note 4) | 1,128,597,754 | ||||||
| $ | 2,562,957,336 | ||||||
Summary of Abbreviations
ADR American Depository Receipt
GDR Global Depositary Receipt
Reg S Security sold outside United States without registration under the Securities Act of 1933
(1) See Note 2 to Financial Statements
# Security valued at fair value as determined in good faith by or under the direction of the Board of Directors.
* Non-income producing security.
See Notes to Financial Statements
10
Harding, Loevner Funds, Inc.
International Equity Portfolio — Overview
(unaudited)
October 31, 2007
| Returns for the Year Ended October 31, 2007 | |||||||||||||||||||||||
| Cumulative Total Returns | Average Annualized Total Return | ||||||||||||||||||||||
| FUND NAME | Last 12 Months | 5 YR | Inception | 5 YR | Inception | ||||||||||||||||||
| International Equity Investor Class (09/30/05) | 24.95 | % | N/A | 49.88 | % | N/A | 21.39 | % | |||||||||||||||
| MSCI All Country World ex-US (Net dividend) | 32.44 | % | N/A | 64.36 | % | N/A | 26.87 | % | |||||||||||||||
| Lipper International Fund Index | 29.20 | % | N/A | 59.38 | % | N/A | 25.02 | % | |||||||||||||||
Performance data quoted represents past performance and does not guarantee future results. The investment return principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevner.com.
Investment return reflects voluntary fee waivers in effect. Absence such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.
11
Harding, Loevner Funds, Inc.
International Equity Portfolio — Overview
October 31, 2007
The Harding, Loevner Funds, Inc. International Equity Portfolio Investor Class returned 24.95% for the fiscal year ending October 31, 2007, as compared to 32.44% for its benchmark, the MSCI All Country World ex-US Index.
Consistent with its investment objectives and policies, the Portfolio was invested primarily in the securities of non-US companies that exhibited the fundamental characteristics of growth, financial strength, management quality and durable competitive advantage.
The Portfolio lagged its benchmark primarily due to the absence of both mining shares and China-related shares, along with poor stock selection within the Technology sector.
Measured against the benchmark from a regional perspective, much of our lagging relative performance shows up as individual stock selection with the Emerging Markets: our emerging markets holdings returned about 35% in the year—a good result in nominal terms and better than most developed markets—but had a hard time keeping up with the blistering 68% return of the MSCI Emerging Markets sub-Index. Specifically, due largely to valuation concerns, we had no holdings in Brazil, and just one (sold at mid year) in China. Both these markets more than doubled in the year.
Individual stock selection was also net negative for the Portfolio from an industrial sector perspective, as was allocation between sectors. The Portfolio was hurt by its lack of mining shares and low holdings in Materials, while at the same time lagged due to the large allocation to stocks in the underperforming Health Care sector. Poor performance from Japanese holdings Monex Beans and Nomura within Financials, along with Hoya, Hirose, Keyence, and Yokogawa within technology hardware, were the main detractors from stock selection.
Past performance does not guarantee future results.
The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. The portfolio invests in smaller companies which involve additional risks such as limited liquidity and greater volatility.
Portfolio holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Please refer to the Schedule of Investments in this report for complete fund holdings.
The MSCI All Country World ex-US Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets, excluding the US. The Index consists of 48 developed and emerging market countries. Net dividends are reinvested.
The MSCI Emerging Markets sub-Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Index consists of 25 emerging market countries. Net dividends are reinvested.
It is not possible to invest directly in an index.
12
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
October 31, 2007 (unaudited)
| Industry | Percentage of Net Assets | ||||||
| Banks | 13.3 | % | |||||
| Beverages, Food & Tobacco | 12.6 | ||||||
| Chemicals | 5.1 | ||||||
| Commercial Services & Supplies | 10.3 | ||||||
| Communications | 4.3 | ||||||
| Computer Software & Processing | 2.6 | ||||||
| Computers & Information | 0.7 | ||||||
| Electrical Equipment | 13.1 | ||||||
| Financial Services | 3.4 | ||||||
| Health Care Providers & Services | 2.0 | ||||||
| Heavy Machinery | 4.5 | ||||||
| Insurance | 1.5 | ||||||
| Medical Supplies | 5.5 | ||||||
| Oil & Gas | 13.3 | ||||||
| Pharmaceuticals | 2.4 | ||||||
| Real Estate | 1.8 | ||||||
| Retailers | 1.9 | ||||||
| Total Investments | 98.3 | ||||||
| Other Assets Less Liabilities | 1.7 | * | |||||
| Net Assets | 100.0 | % | |||||
* Breakout of other assets and liabilities may be found on page 16.
See Notes to Financial Statements
13
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Common Stocks - 97.5% | |||||||||||
| Australia - 1.8% | |||||||||||
| Cochlear Ltd. (Medical Supplies) | 111,500 | $ | 7,171,289 | ||||||||
| Austria - 2.0% | |||||||||||
| Erste Bank der Oesterreichischen Sparkassen AG (Banks) | 97,670 | 7,971,773 | |||||||||
| Bermuda - 3.7% | |||||||||||
| Bunge Ltd. (Beverages, Food & Tobacco) | 130,230 | 15,001,194 | |||||||||
| Canada - 5.3% | |||||||||||
| EnCana Corp. (Oil & Gas) | 147,282 | 10,265,555 | |||||||||
| Imperial Oil Ltd. (Oil & Gas) | 208,390 | 11,280,151 | |||||||||
| 21,545,706 | |||||||||||
| France - 10.0% | |||||||||||
| Air Liquide (Chemicals) | 89,884 | 12,410,766 | |||||||||
| Dassault Systemes SA (Computer Software & Processing) | 171,100 | 10,618,413 | |||||||||
| LVMH Moet Hennessy Louis Vuitton SA (Beverages, Food & Tobacco) | 65,400 | 8,445,112 | |||||||||
| Schneider Electric SA (Electrical Equipment) | 66,560 | 9,195,992 | |||||||||
| 40,670,283 | |||||||||||
| Germany - 3.8% | |||||||||||
| Fresenius AG (Health Care Providers & Services) | 62,620 | 4,881,527 | |||||||||
| Qiagen NV (Commercial Services & Supplies)* | 456,250 | 10,777,573 | |||||||||
| 15,659,100 | |||||||||||
| Hong Kong - 3.5% | |||||||||||
| Hutchison Whampoa Ltd. (Commercial Services & Supplies) | 523,000 | 6,591,174 | |||||||||
| Li & Fung Ltd. (Commercial Services & Supplies) | 1,620,200 | 7,671,409 | |||||||||
| 14,262,583 | |||||||||||
| India - 2.1% | |||||||||||
| HDFC Bank Ltd. (Banks) | 196,750 | 8,391,083 | |||||||||
| Indonesia - 1.9% | |||||||||||
| PT Telekomunikasi Indonesia - Sponsored ADR (Communications) | 162,410 | 7,836,283 | |||||||||
| Japan - 16.2% | |||||||||||
| Fanuc Ltd. (Electrical Equipment) | 68,000 | 7,442,868 | |||||||||
| Hirose Electronics Co., Ltd. (Electrical Equipment) | 36,600 | 4,376,446 | |||||||||
| Hoya Corp. (Electrical Equipment) | 179,100 | 6,509,277 | |||||||||
| JSR Corp. (Chemicals) | 326,500 | 8,450,130 | |||||||||
| Keyence Corp. (Electrical Equipment) | 32,865 | 7,568,082 | |||||||||
| Kubota Corp. (Heavy Machinery) | 1,120,300 | 9,420,352 | |||||||||
| Monex Beans Holdings Inc. (Computers & Information) | 3,920 | 2,696,040 | |||||||||
| Nomura Holdings Inc. (Financial Services) | 350,500 | 6,244,762 | |||||||||
| Sumitomo Realty & Development Co., Ltd. (Real Estate) | 208,000 | 7,319,583 | |||||||||
| Yokogawa Electric Corp. (Electrical Equipment) | 468,100 | 5,905,566 | |||||||||
| 65,933,106 | |||||||||||
| Malaysia - 1.8% | |||||||||||
| Sime Darby Berhad (Commercial Services & Supplies)# | 2,248,000 | 7,374,249 | |||||||||
| Mexico - 4.2% | |||||||||||
| America Movil SA de CV, Series L - ADR (Communications) | 145,700 | 9,527,323 | |||||||||
| Wal-Mart de Mexico SA de CV - ADR (Retailers) | 186,480 | 7,580,412 | |||||||||
| 17,107,735 | |||||||||||
See Notes to Financial Statements
14
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Poland - 1.4% | |||||||||||
| Bank Pekao SA - GDR (Banks)# | 54,450 | $ | 5,768,917 | ||||||||
| Russia - 1.6% | |||||||||||
| OAO Gazprom - Sponsored ADR, Reg S (Oil & Gas) | 126,800 | 6,337,322 | |||||||||
| Singapore - 1.2% | |||||||||||
| DBS Group Holdings Ltd. (Banks) | 305,083 | 4,766,357 | |||||||||
| South Africa - 3.3% | |||||||||||
| Sasol Ltd. (Oil & Gas) | 261,700 | 13,532,517 | |||||||||
| South Korea - 1.5% | |||||||||||
| Samsung Electronics Co., Ltd., GDR, Reg S (Electrical Equipment) | 20,630 | 6,325,240 | |||||||||
| Spain - 2.8% | |||||||||||
| Banco Santander Central Hispano SA (Banks) | 527,800 | 11,536,612 | |||||||||
| Sweden - 4.0% | |||||||||||
| Atlas Copco AB - Class A (Heavy Machinery) | 532,800 | 8,928,517 | |||||||||
| Skandinaviska Enskilda Banken AB, Class A (Banks) | 240,700 | 7,406,401 | |||||||||
| 16,334,918 | |||||||||||
| Switzerland - 12.7% | |||||||||||
| Alcon Inc. (Medical Supplies) | 55,050 | 8,379,161 | |||||||||
| Nestle SA - ADR (Beverages, Food & Tobacco) | 111,520 | 12,730,008 | |||||||||
| Nobel Biocare Holding AG (Medical Supplies) | 23,620 | 6,899,187 | |||||||||
| Roche Holding AG - Genusschein (Pharmaceuticals) | 57,490 | 9,827,470 | |||||||||
| Swiss Re - Registered (Insurance) | 67,500 | 6,356,450 | |||||||||
| UBS AG - Registered (Financial Services) | 139,080 | 7,464,508 | |||||||||
| 51,656,784 | |||||||||||
| Taiwan - 1.5% | |||||||||||
| Taiwan Semiconductor Manufacturing Co. (Electrical Equipment) | 3,095,271 | 6,176,902 | |||||||||
| United Kingdom - 11.2% | |||||||||||
| BG Group plc (Oil & Gas) | 684,750 | 12,675,814 | |||||||||
| Standard Chartered plc (Banks) | 219,090 | 8,539,780 | |||||||||
| Tesco plc (Beverages, Food & Tobacco) | 891,370 | 9,067,573 | |||||||||
| Unilever plc (Beverages, Food & Tobacco) | 175,435 | 5,943,386 | |||||||||
| WPP Group plc (Commercial Services & Supplies) | 698,130 | 9,558,543 | |||||||||
| 45,785,096 | |||||||||||
| Total Common Stocks (Cost $216,559,386) | 397,145,049 | ||||||||||
| Preferred Stocks - 0.8% | |||||||||||
| Germany - 0.8% | |||||||||||
| Fresenius AG (Health Care Providers & Services) | 40,100 | 3,183,245 | |||||||||
| Total Preferred Stocks (Cost $2,890,967) | 3,183,245 | ||||||||||
| Total Investments - 98.3% (Cost $219,450,353) | $ | 400,328,294 | |||||||||
See Notes to Financial Statements
15
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Value (1) | |||||||
| Liabilities, Net of Other Assets - 1.7% | |||||||
| Cash | $ | 6,367,331 | |||||
| Receivable for securities sold | 920,666 | ||||||
| Dividends and interest receivable | 503,967 | ||||||
| Receivable for fund shares sold | 6,254 | ||||||
| Tax reclaim receivable | 172,607 | ||||||
| Prepaid expenses | 2,530 | ||||||
| Payable for distribution fees | (9,314 | ) | |||||
| Payable for fund shares redeemed | (23,539 | ) | |||||
| Payable to investment advisor | (270,983 | ) | |||||
| Due to custodian | (540,292 | ) | |||||
| Other liabilities | (161,181 | ) | |||||
| 6,968,046 | |||||||
| Net Assets - 100% | |||||||
| Investor Class | |||||||
| Applicable to 768,115 outstanding $.001 par value shares (authorized 250,000,000 shares) | $ | 16,637,157 | |||||
| Net Asset Value, Offering Price and Redemption Price Per Share | $ | 21.66 | |||||
| Institutional Class | |||||||
| Applicable to 17,994,282 outstanding $.001 par value shares (authorized 250,000,000 shares) | $ | 390,659,183 | |||||
| Net Asset Value, Offering Price and Redemption Price Per Share | $ | 21.71 | |||||
| Components of Net Assets as of October 31, 2007 were as follows: | |||||||
| Paid-in capital | $ | 193,644,531 | |||||
| Accumulated undistributed net investment income | 2,393,120 | ||||||
| Accumulated undistributed net realized gain on investments and foreign currency-related transactions | 30,366,989 | ||||||
| Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies (Note 4) | 180,891,700 | ||||||
| $ | 407,296,340 | ||||||
Summary of Abbreviations
ADR American Depository Receipt
GDR Global Depositary Receipt
Reg S Security sold outside United States without registration under the Securities Act of 1933
(1) See Note 2 to Financial Statements
# Security valued at fair value as determined in good faith by or under the direction of the Board of Directors.
* Non-income producing security.
See Notes to Financial Statements
16
Harding, Loevner Funds, Inc.
International Small Companies Portfolio — Overview
(unaudited)
October 31, 2007
| Returns for the Period from March 26, 2007 (inception) through October 31, 2007 | |||||||
| FUND NAME | Cumulative Total Returns (A) Inception | ||||||
| International Small Companies Investor Class (03/26/07) | 16.70 | % | |||||
| MSCI All Country World ex-US Small Cap | 14.94 | % | |||||
| Lipper International Small Cap Index | 16.05 | % | |||||
(A) The Investor Class shares commenced operations on March 26, 2007.
Performance data quoted represents past performance and does not guarantee future results. The investment return principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevner.com.
Investment return reflects voluntary fee waivers in effect. Absence such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.
17
Harding, Loevner Funds, Inc.
International Small Companies Portfolio — Overview
October 31, 2007
The Harding, Loevner Funds, Inc. International Small Companies Portfolio commenced operations on March 26, 2007. From this date to the end of the fiscal year on October 31, 2007, the Portfolio returned 16.70%, as compared to 14.94% for a comparable index, the MSCI All Country World ex-US Small Cap Index.
Consistent with its investment objectives and policies, the Portfolio was invested primarily in the securities of non-US smaller capitalization companies that exhibited the fundamental characteristics of growth, financial strength, management quality and durable competitive advantage.
The largest contributor to Portfolio returns were the stocks in the Industrials sector, notably Germany's SGL Carbon, heavy equipment supplier Tat Hong Holdings, and Japanese industrial waste management company, Daiseki. Stocks in the Consumer Staples sector also contributed significantly to returns, particularly from agriculture-related producers including Austrian seed supplier Vilmorin, palm and coconut oil producer United Plantation of Malaysia, and Thailand's Khon Kaen Sugar.
Despite our ownership through August of IKB, one of the first European banks to suffer from the fallout of the US subprime crisis, our holdings in the Financials sector were positive contributors overall, led by Canada's Laurentian Bank.
Past performance does not guarantee future results.
The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. The portfolio invests in smaller companies which involve additional risks such as limited liquidity and greater volatility.
Portfolio holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Please refer to the Schedule of Investments in this report for complete fund holdings.
The MSCI All Country World ex-US Small Cap Index is a free-float market capitalization index that is designed to measure small cap developed and emerging market equity performance. The Index consists of 47 developed and emerging markets countries and targeting companies market capitalization range of USD 170—4,200 million in terms of the company's full market capitalization.
It is not possible to invest directly in an index.
18
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Statement of Net Assets
October 31, 2007 (unaudited)
| Industry | Percentage of Net Assets | ||||||
| Aerospace & Defense | 1.0 | % | |||||
| Automotive | 2.9 | ||||||
| Banks | 3.0 | ||||||
| Beverages, Food & Tobacco | 10.8 | ||||||
| Building Materials | 1.5 | ||||||
| Chemicals | 8.0 | ||||||
| Commercial Services & Supplies | 10.5 | ||||||
| Communications | 1.9 | ||||||
| Computers & Information | 0.9 | ||||||
| Cosmetics & Personal Care | 2.7 | ||||||
| Electrical Equipment | 10.9 | ||||||
| Environmental Controls | 2.1 | ||||||
| Financial Services | 3.6 | ||||||
| Forest Products & Paper | 1.5 | ||||||
| Heavy Machinery | 6.4 | ||||||
| Household Products | 0.8 | ||||||
| Industrial - Diversified | 6.4 | ||||||
| Insurance | 1.4 | ||||||
| Media | 1.1 | ||||||
| Medical Supplies | 5.3 | ||||||
| Metals & Mining | 0.8 | ||||||
| Oil & Gas | 0.8 | ||||||
| Pharmaceuticals | 3.9 | ||||||
| Retailers | 2.2 | ||||||
| Textiles & Apparel | 3.7 | ||||||
| Transportation | 1.4 | ||||||
| Total Investments | 95.5 | ||||||
| Other Assets Less Liabilities | 4.5 | * | |||||
| Net Assets | 100.0 | % | |||||
* Breakout of other assets and liabilities may be found on page 23.
See Notes to Financial Statements
19
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Common Stocks - 94.6% | |||||||||||
| Australia - 5.6% | |||||||||||
| Bendigo Bank Ltd. (Banks) | 4,300 | $ | 56,264 | ||||||||
| Coates Hire Ltd. (Commercial Services & Supplies) | 4,645 | 28,285 | |||||||||
| Great Southern Ltd. (Forest Products & Paper) | 36,927 | 76,318 | |||||||||
| K & S Corp., Ltd. (Transportation) | 24,055 | 75,784 | |||||||||
| SAI Global Ltd. (Media) | 19,926 | 55,996 | |||||||||
| 292,647 | |||||||||||
| Austria - 2.2% | |||||||||||
| BWT AG (Environmental Controls) | 750 | 54,430 | |||||||||
| Semperit AG Holding (Industrial - Diversified) | 1,302 | 60,869 | |||||||||
| 115,299 | |||||||||||
| Belgium - 1.3% | |||||||||||
| Sioen Industries NV (Textiles & Apparel) | 4,760 | 67,325 | |||||||||
| Canada - 2.2% | |||||||||||
| GLV, Inc.-Class A (Heavy Machinery)* | 4,500 | 61,928 | |||||||||
| Laurentian Bank of Canada (Banks) | 1,100 | 50,887 | |||||||||
| 112,815 | |||||||||||
| China - 4.9% | |||||||||||
| Changmao Biochemical Engineering Co., Ltd. - Class H (Chemicals) | 132,000 | 57,838 | |||||||||
| Chen Hsong Holdings Ltd. (Heavy Machinery) | 112,000 | 77,357 | |||||||||
| CHT Holdings Ltd. (Household Products) | 117,000 | 42,710 | |||||||||
| Dalian Refrigeration Co., Ltd. (Heavy Machinery) | 76,000 | 76,245 | |||||||||
| 254,150 | |||||||||||
| Denmark - 2.9% | |||||||||||
| NKT Holding A/S (Industrial - Diversified) | 725 | 79,618 | |||||||||
| Topsil Semiconductor Materials (Electrical Equipment)* | 220,000 | 70,858 | |||||||||
| 150,476 | |||||||||||
| Finland - 2.0% | |||||||||||
| Vacon Oyj (Electrical Equipment) | 1,142 | 58,851 | |||||||||
| Vaisala Oyj, Class A (Electrical Equipment) | 790 | 43,099 | |||||||||
| 101,950 | |||||||||||
| France - 5.8% | |||||||||||
| Boiron SA (Pharmaceuticals) | 1,900 | 49,838 | |||||||||
| Robertet SA (Cosmetics & Personal Care) | 340 | 63,039 | |||||||||
| Societe Industrielle D'Aviations Latecoere SA (Aerospace & Defense) | 1,770 | 54,913 | |||||||||
| Toupargel-Agrigel (Beverages, Food & Tobacco) | 1,896 | 78,283 | |||||||||
| Vilmorin & Cie (Beverages, Food & Tobacco) | 390 | 56,680 | |||||||||
| 302,753 | |||||||||||
| Germany - 4.1% | |||||||||||
| Bijou Brigitte Modische Accessoires AG (Retailers) | 289 | 54,107 | |||||||||
| Carl Zeiss Meditec AG (Medical Supplies) | 2,850 | 62,009 | |||||||||
| Drillisch AG (Communications)* | 7,070 | 75,032 | |||||||||
| Muehlbauer Holding AG & Co. (Heavy Machinery) | 520 | 20,386 | |||||||||
| 211,534 | |||||||||||
| Hong Kong - 4.7% | |||||||||||
| Mainland Headwear Holdings Ltd. (Textiles & Apparel) | 156,800 | 44,110 | |||||||||
| Pico Far East Holdings Ltd. (Commercial Services & Supplies) | 130,000 | 41,148 | |||||||||
| Top Form International Ltd. (Textiles & Apparel) | 284,000 | 36,264 | |||||||||
See Notes to Financial Statements
20
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Hong Kong (continued) | |||||||||||
| Wasion Meters Group Ltd. (Electrical Equipment) | 84,000 | $ | 59,914 | ||||||||
| Yip's Chemical Holdings Ltd. (Chemicals) | 100,000 | 65,658 | |||||||||
| 247,094 | |||||||||||
| Ireland - 0.4% | |||||||||||
| United Drug plc (Pharmaceuticals) | 4,200 | 21,053 | |||||||||
| Italy - 6.4% | |||||||||||
| Cembre S.p.A (Electrical Equipment) | 7,580 | 77,425 | |||||||||
| Marazzi Group SpA (Building Materials) | 6,000 | 76,925 | |||||||||
| Marr S.p.A (Commercial Services & Supplies) | 4,800 | 54,999 | |||||||||
| SABAF S.p.A (Electrical Equipment) | 1,212 | 44,767 | |||||||||
| Sirti S.p.A (Communications) | 6,750 | 26,413 | |||||||||
| Sol S.p.A (Chemicals) | 6,457 | 52,428 | |||||||||
| 332,957 | |||||||||||
| Japan - 16.6% | |||||||||||
| AISAN INDUSTRY Co., Ltd. (Automotive) | 3,400 | 44,315 | |||||||||
| Asahi Diamond Industrial Co., Ltd. (Electrical Equipment) | 9,000 | 63,649 | |||||||||
| ASKUL Corp. (Retailers) | 2,400 | 60,597 | |||||||||
| C. Uyemura & Co., Ltd. (Chemicals) | 900 | 54,898 | |||||||||
| Daiseki Co., Ltd. (Commercial Services & Supplies) | 2,280 | 77,754 | |||||||||
| Fidec Corp. (Financial Services) | 50 | 77,413 | |||||||||
| LINTEC Corp. (Chemicals) | 2,700 | 52,987 | |||||||||
| MIURA Co., Ltd. (Heavy Machinery) | 1,500 | 46,785 | |||||||||
| NAKANISHI Inc. (Medical Supplies) | 600 | 75,499 | |||||||||
| Pasona Inc. (Commercial Services & Supplies) | 32 | 41,240 | |||||||||
| PIGEON Corp. (Cosmetics & Personal Care) | 4,600 | 78,847 | |||||||||
| Stella Chemifa Corp (Chemicals) | 2,000 | 56,360 | |||||||||
| TSUMURA & Co. (Pharmaceuticals) | 3,000 | 53,546 | |||||||||
| VIC TOKAI Corp. (Computers & Information) | 7,300 | 45,423 | |||||||||
| Yamatake Corp. (Electrical Equipment) | 1,200 | 37,429 | |||||||||
| 866,742 | |||||||||||
| Malaysia - 5.9% | |||||||||||
| Kotra Industries Berhad (Pharmaceuticals) | 328,300 | 76,559 | |||||||||
| MNRB Holdings Berhad (Insurance) | 50,000 | 74,680 | |||||||||
| Supermax Corp. Bhd (Industrial - Diversified) | 70,000 | 47,745 | |||||||||
| United Plantations Berhad (Beverages, Food & Tobacco) | 18,400 | 70,723 | |||||||||
| YLI Holdings Berhad (Metals & Mining) | 42,000 | 39,711 | |||||||||
| 309,418 | |||||||||||
| Mexico - 1.4% | |||||||||||
| Gruma SA de CV, Class B (Beverages, Food & Tobacco) | 20,800 | 74,617 | |||||||||
| Netherlands - 3.1% | |||||||||||
| Brunel International (Commercial Services & Supplies) | 1,690 | 49,286 | |||||||||
| Grolsch NV (Beverages, Food & Tobacco) | 1,440 | 56,770 | |||||||||
| Kas Bank NV (Financial Services) | 1,500 | 56,727 | |||||||||
| 162,783 | |||||||||||
| New Zealand - 0.9% | |||||||||||
| Sanford Ltd. (Beverages, Food & Tobacco) | 14,400 | 48,397 | |||||||||
See Notes to Financial Statements
21
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Singapore - 3.3% | |||||||||||
| Goodpack Ltd. (Commercial Services & Supplies) | 48,000 | $ | 72,103 | ||||||||
| KS Energy Services Ltd. (Oil & Gas) | 17,000 | 44,752 | |||||||||
| Tat Hong Holdings Ltd. (Commercial Services & Supplies) | 26,000 | 54,436 | |||||||||
| 171,291 | |||||||||||
| South Korea - 1.4% | |||||||||||
| Han Kuk Carbon Co., Ltd. (Chemicals) | 8,100 | 74,827 | |||||||||
| Spain - 1.0% | |||||||||||
| Construcciones y Auxiliar de Ferrocarriles SA (Heavy Machinery) | 120 | 49,768 | |||||||||
| Sweden - 3.3% | |||||||||||
| Cloetta Fazer AB, Class B (Beverages, Food & Tobacco) | 1,450 | 45,708 | |||||||||
| KABE Husvagnar AB, Class B (Industrial - Diversified) | 4,200 | 67,469 | |||||||||
| Mekonomen AB (Automotive) | 2,600 | 58,050 | |||||||||
| 171,227 | |||||||||||
| Switzerland - 2.0% | |||||||||||
| Lem Holding SA (Electrical Equipment) | 170 | 53,041 | |||||||||
| Valiant Holding (Banks) | 325 | 49,663 | |||||||||
| �� | 102,704 | ||||||||||
| Taiwan - 3.5% | |||||||||||
| K Laser Technology, Inc. (Electrical Equipment) | 49,000 | 57,211 | |||||||||
| Nak Sealing Technologies Corp. (Automotive) | 40,000 | 47,700 | |||||||||
| Taiwan Paiho Ltd. (Industrial - Diversified) | 54,900 | 76,423 | |||||||||
| 181,334 | |||||||||||
| Thailand - 0.9% | |||||||||||
| Khon Kaen Sugar Industry plc (Beverages, Food & Tobacco)* | 114,900 | 45,304 | |||||||||
| United Kingdom - 8.8% | |||||||||||
| Alexandra plc (Textiles & Apparel) | 17,415 | 43,634 | |||||||||
| Corin Group plc (Medical Supplies) | 2,947 | 38,323 | |||||||||
| Fonebak plc (Environmental Controls) | 32,600 | 52,998 | |||||||||
| Hamworthy KSE (Commercial Services & Supplies) | 4,600 | 63,648 | |||||||||
| PayPoint plc (Financial Services) | 4,269 | 55,052 | |||||||||
| Robert Wiseman Dairies plc (Beverages, Food & Tobacco) | 8,641 | 84,645 | |||||||||
| RPS Group plc (Commercial Services & Supplies) | 7,820 | 63,635 | |||||||||
| Synergy Healthcare plc (Medical Supplies) | 3,380 | 55,808 | |||||||||
| 457,743 | |||||||||||
| Total Common Stocks (Cost $4,559,254) | 4,926,208 | ||||||||||
| Preferred Stocks - 0.9% | |||||||||||
| Germany - 0.9% | |||||||||||
| Draegerwerk AG (Medical Supplies) | 595 | 46,521 | |||||||||
| Total Preferred Stocks (Cost $55,057) | 46,521 | ||||||||||
| Total Investments - 95.5% (Cost $4,614,311) | $ | 4,972,729 | |||||||||
See Notes to Financial Statements
22
Harding, Loevner Funds, Inc.
International Small Companies Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Value (1) | |||||||
| Liabilities, Net of Other Assets - 4.5% | |||||||
| Cash | $ | 199,526 | |||||
| Receivable for securities sold | 33,177 | ||||||
| Receivable from investment advisor | 30,530 | ||||||
| Dividends and interest receivable | 5,225 | ||||||
| Foreign currency (cost $3,701) | 3,704 | ||||||
| Receivable for fund shares sold | 6,119 | ||||||
| Tax reclaim receivable | 425 | ||||||
| Payable for distribution fees | (3,504 | ) | |||||
| Other liabilities | (43,532 | ) | |||||
| 231,670 | |||||||
| Net Assets - 100% | |||||||
| Investor Class | |||||||
| Applicable to 445,961 outstanding $.001 par value shares (authorized 250,000,000 shares) | $ | 5,204,399 | |||||
| Net Asset Value, Offering Price and Redemption Price Per Share | $ | 11.67 | |||||
| Components of Net Assets as of October 31, 2007 were as follows: | |||||||
| Paid-in capital | $ | 4,803,818 | |||||
| Accumulated undistributed net investment income | 2,463 | ||||||
| Accumulated undistributed net realized gain on investments and foreign currency-related transactions | 39,592 | ||||||
| Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies (Note 4) | 358,526 | ||||||
| $ | 5,204,399 | ||||||
Summary of Abbreviations
(1) See Note 2 to Financial Statements
* Non-income producing security.
See Notes to Financial Statements
23
Harding, Loevner Funds, Inc.
Statements of Operations
Year or Period Ended October 31, 2007
| Emerging Markets Portfolio | International Equity Portfolio | International Small Companies Portfolio | |||||||||||||
| Investment Income | |||||||||||||||
| Interest | $ | 1,061,640 | $ | 378,783 | $ | 2,858 | |||||||||
| Dividends (net of foreign withholding taxes of $3,399,116, $691,423, and $2,772, respectively) | 35,310,542 | 5,926,149 | 30,923 | ||||||||||||
| Securities lending income, net | 322,172 | 82,443 | — | ||||||||||||
| Total investment income | 36,694,354 | 6,387,375 | 33,781 | ||||||||||||
| Expenses | |||||||||||||||
| Investment advisory fees (Note 3) | 23,406,876 | 2,852,574 | 18,274 | ||||||||||||
| Administration fees (Note 3) | 1,049,356 | 223,458 | 8,141 | ||||||||||||
| Distribution fees, Investor Class | — | 33,411 | 3,655 | ||||||||||||
| Custodian and accounting fees (Note 3) | 1,985,909 | 276,077 | 29,091 | ||||||||||||
| Directors' fees and expenses (Note 3) | 89,579 | 18,681 | 56 | ||||||||||||
| Shareholder record keeping fees | 79,270 | 76,879 | 18,261 | ||||||||||||
| Printing and postage fees | 247,317 | 51,688 | 14,536 | ||||||||||||
| State registration filing fees | 102,502 | 34,350 | 22,286 | ||||||||||||
| Professional fees | 225,215 | 73,691 | 22,758 | ||||||||||||
| Sub Transfer Agent fees | 2,550,990 | 61,379 | 181 | ||||||||||||
| Other fees and expenses | 250,740 | 53,710 | 8,059 | ||||||||||||
| Total expenses | 29,987,754 | 3,755,898 | 145,298 | ||||||||||||
| Waiver of investment advisory fee (Note 3) | — | — | (119,714 | ) | |||||||||||
| Less Allocations | — | — | (119,714 | ) | |||||||||||
| Net expenses | 29,987,754 | 3,755,898 | 25,584 | ||||||||||||
| Net investment income | 6,706,600 | 2,631,477 | 8,197 | ||||||||||||
| Realized and Unrealized Gain (Loss) (Note 4) | |||||||||||||||
| Net realized gain (loss) — | |||||||||||||||
| Investment transactions | 139,248,094 | 33,808,010 | 39,642 | ||||||||||||
| Foreign currency transactions | (1,780,309 | ) | (238,466 | ) | (5,733 | ) | |||||||||
| Net realized gain | 137,467,785 | 33,569,544 | 33,909 | ||||||||||||
| Change in unrealized appreciation (depreciation) — | |||||||||||||||
| Investments | 760,557,053 | 50,244,645 | 358,418 | ||||||||||||
| Translation of assets and liabilities denominated in foreign currencies | (169,715 | ) | 15,131 | 108 | |||||||||||
| Net change in unrealized appreciation | 760,387,338 | 50,259,776 | 358,526 | ||||||||||||
| Net realized and unrealized gain | 897,855,123 | 83,829,320 | 392,435 | ||||||||||||
| Net Increase in Net Assets Resulting from Operations | $ | 904,561,723 | $ | 86,460,797 | $ | 400,632 | |||||||||
See Notes to Financial Statements
24
Harding, Loevner Funds, Inc.
Statements of Changes in Net Assets
| Emerging Markets Portfolio | |||||||||||
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||
| Increase in Net Assets From Operations | |||||||||||
| Net investment income | $ | 6,706,600 | $ | 7,901,843 | |||||||
| Net realized gain (loss) on investments and foreign currency transactions | 137,467,785 | (12,967,818 | ) | ||||||||
| Net change in unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies | 760,387,338 | 277,678,965 | |||||||||
| Net increase in net assets resulting from operations | 904,561,723 | 272,612,990 | |||||||||
| Distributions to Shareholders from: | |||||||||||
| Net investment income | (861,705 | ) | (2,386,155 | ) | |||||||
| Net realized gain from investments and foreign currency-related transactions | — | (1,527,250 | ) | ||||||||
| Total distributions to shareholders | (861,705 | ) | (3,913,405 | ) | |||||||
| Transactions in Shares of Common Stock | |||||||||||
| Proceeds from sale of shares | 674,123,901 | 1,071,514,244 | |||||||||
| Net Asset Value of shares issued to shareholders upon reinvestment of dividends | 788,488 | 3,710,264 | |||||||||
| Cost of shares redeemed | (468,511,465 | ) | (583,279,980 | ) | |||||||
| Redemption fees | 388,257 | 856,448 | |||||||||
| Net Increase in Net Assets from Fund Share Transactions | 206,789,181 | 492,800,976 | |||||||||
| Net Increase in Net Assets | 1,110,489,199 | 761,500,561 | |||||||||
| Net Assets | |||||||||||
| At beginning of year | 1,452,468,137 | 690,967,576 | |||||||||
| At end of year | $ | 2,562,957,336 | $ | 1,452,468,137 | |||||||
| Accumulated Undistributed Net Investment Income Included in Net Assets | $ | 4,926,291 | $ | 860,735 | |||||||
See Notes to Financial Statements
25
Harding, Loevner Funds, Inc.
Statements of Changes in Net Assets (continued)
| International Equity Portfolio | |||||||||||
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||
| Increase in Net Assets From Operations | |||||||||||
| Net investment income | $ | 2,631,477 | $ | 2,398,346 | |||||||
| Net realized gain on investments and foreign currency transactions | 33,569,544 | 26,617,595 | |||||||||
| Net change in unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies | 50,259,776 | 48,831,422 | |||||||||
| Net increase in net assets resulting from operations | 86,460,797 | 77,847,363 | |||||||||
| Distributions to Shareholders from: | |||||||||||
| Net investment income | |||||||||||
| Investor Class | (35,003 | ) | (10,374 | ) | |||||||
| Institutional Class | (1,773,831 | ) | (1,514,373 | ) | |||||||
| Net realized gain from investments and foreign currency-related transactions | |||||||||||
| Investor Class | (740,612 | ) | (1,829 | ) | |||||||
| Institutional Class | (24,669,178 | ) | (252,725 | ) | |||||||
| Total distributions to shareholders | (27,218,624 | ) | (1,779,301 | ) | |||||||
| Transactions in Shares of Common Stock | |||||||||||
| Proceeds from sale of shares | |||||||||||
| Investor Class | 7,304,858 | 9,132,750 | |||||||||
| Institutional Class | 21,697,361 | 49,366,216 | |||||||||
| Net Asset Value of shares issued to shareholders upon reinvestment of dividends | |||||||||||
| Investor Class | 723,002 | 10,881 | |||||||||
| Institutional Class | 25,144,499 | 1,601,590 | |||||||||
| Cost of shares redeemed | |||||||||||
| Investor Class | (3,504,036 | ) | (703,793 | ) | |||||||
| Institutional Class | (57,161,618 | ) | (82,366,219 | ) | |||||||
| Redemption fees | |||||||||||
| Investor Class | 482 | 1,097 | |||||||||
| Institutional Class | 265 | 1,286 | |||||||||
| Net Decrease in Net Assets from Fund Share Transactions | (5,795,187 | ) | (22,956,192 | ) | |||||||
| Net Increase in Net Assets | 53,446,986 | 53,111,870 | |||||||||
| Net Assets | |||||||||||
| At beginning of year | 353,849,354 | 300,737,484 | |||||||||
| At end of year | $ | 407,296,340 | $ | 353,849,354 | |||||||
| Accumulated Undistributed Net Investment Income Included in Net Assets | $ | 2,393,120 | $ | 1,808,943 | |||||||
See Notes to Financial Statements
26
Harding, Loevner Funds, Inc.
Statements of Changes in Net Assets (continued)
| International Small Companies Portfolio | |||||||
| For the Period from March 26, 2007 to October 31, 2007(A) | |||||||
| Increase (Decrease) in Net Assets From Operations | |||||||
| Net investment income (loss) | $ | 8,197 | |||||
| Net realized gain (loss) on investments and foreign currency transactions | 33,909 | ||||||
| Net change in unrealized appreciation (depreciation) on investments and translation of assets and liabilities denominated in foreign currencies | 358,526 | ||||||
| Net increase (decrease) in net assets resulting from operations | 400,632 | ||||||
| Transactions in Shares of Common Stock | |||||||
| Proceeds from sale of shares | |||||||
| Investor Class | 4,815,231 | ||||||
| Cost of shares redeemed | |||||||
| Investor Class | (11,464 | ) | |||||
| Net Increase (Decrease) in Net Assets from Fund Share Transactions | 4,803,767 | ||||||
| Net Increase (Decrease) in Net Assets | 5,204,399 | ||||||
| Net Assets | |||||||
| At beginning of period | 0 | ||||||
| At end of period | $ | 5,204,399 | |||||
| Accumulated Undistributed Net Investment Income (Loss) Included in Net Assets | $ | 2,463 | |||||
(A) The Investor Class shares commenced operations on March 26, 2007.
See Notes to Financial Statements
27
Harding, Loevner Funds, Inc.
Financial Highlights
| Emerging Markets Portfolio | |||||||||||||||||||||||
| For the Year Ended Oct. 31, 2007 | For the Year Ended Oct. 31, 2006 | For the Year Ended Oct. 31, 2005 | For the Year Ended Oct. 31, 2004 | For the Year Ended Oct. 31, 2003 | |||||||||||||||||||
| Per Share Data | |||||||||||||||||||||||
| Net Asset Value, Beginning of Year | $ | 40.67 | $ | 30.41 | $ | 22.31 | $ | 18.16 | $ | 12.49 | |||||||||||||
| Increase in Net Assets from Operations | |||||||||||||||||||||||
| Net investment income | 0.16 | 0.22 | 0.11 | 0.07 | 0.07 | ||||||||||||||||||
| Net realized and unrealized gain on investments and foreign currency-related transactions | 23.26 | 10.19 | 8.43 | 4.12 | 5.60 | ||||||||||||||||||
| Net increase from investment operations | 23.42 | 10.41 | 8.54 | 4.19 | 5.67 | ||||||||||||||||||
| Distributions to Shareholders from: | |||||||||||||||||||||||
| Net investment income | (0.02 | ) | (0.09 | ) | (0.02 | ) | (0.04 | ) | — | ||||||||||||||
| Net realized gain from investments and foreign currency-related transactions | — | (0.06 | ) | (0.42 | ) | — | — | ||||||||||||||||
| Total distributions | (0.02 | ) | (0.15 | ) | (0.44 | ) | (0.04 | ) | — | ||||||||||||||
| Net Asset Value, End of Year | $ | 64.07 | $ | 40.67 | $ | 30.41 | $ | 22.31 | $ | 18.16 | |||||||||||||
| Total Return | 57.62 | % | 34.29 | % | 38.76 | % | 23.09 | % | 45.40 | % | |||||||||||||
| Ratios/Supplemental Data: | |||||||||||||||||||||||
| Net assets, end of year (000's) | $ | 2,562,957 | $ | 1,452,468 | $ | 690,968 | $ | 66,805 | $ | 29,657 | |||||||||||||
| Net expenses to average net assets | 1.60 | % | 1.63 | % | 1.68 | % | 1.75 | % | 1.75 | % | |||||||||||||
| Net investment income to average net assets | 0.36 | % | 0.61 | % | 0.87 | % | 0.51 | % | 0.76 | % | |||||||||||||
| Decrease reflected in above expense ratios due to expense reductions | — | — | — | 0.02 | % | 0.08 | % | ||||||||||||||||
| Portfolio turnover rate | 29 | % | 59 | % | 36 | % | 40 | % | 58 | % | |||||||||||||
See Notes to Financial Statements
28
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
| International Equity Portfolio - Investor Class | |||||||||||||||
| For the Year Ended Oct. 31, 2007 | For the Year Ended Oct. 31, 2006 | For the Period Ended Oct. 31, 2005(1) | |||||||||||||
| Per Share Data | |||||||||||||||
| Net Asset Value, Beginning of Period | $ | 18.65 | $ | 14.91 | $ | 15.63 | |||||||||
| Increase (Decrease) in Net Assets from Operations | |||||||||||||||
| Net investment income (loss) | 0.09 | 0.11 | (2) | (0.00 | )* | ||||||||||
| Net realized and unrealized gain (loss) on investments and foreign currency-related transactions | 4.32 | 3.71 | (0.72 | ) | |||||||||||
| Net increase (decrease) from investment operations | 4.41 | 3.82 | (0.72 | ) | |||||||||||
| Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.06 | ) | (0.07 | ) | — | ||||||||||
| Net realized gain from investments and foreign currency-related transactions | (1.34 | ) | (0.01 | ) | — | ||||||||||
| Total distributions | (1.40 | ) | (0.08 | ) | — | ||||||||||
| Net Asset Value, End of Period | $ | 21.66 | $ | 18.65 | $ | 14.91 | |||||||||
| Total Return | 24.95 | % | 25.74 | % | (4.61 | )%(B) | |||||||||
| Ratios/Supplemental Data: | |||||||||||||||
| Net assets, end of period (000's) | $ | 16,637 | $ | 9,884 | $ | 510 | |||||||||
| Net expenses to average net assets | 1.23 | % | 1.25 | % | 1.25 | %(A) | |||||||||
| Net investment income (loss) to average net assets | 0.48 | % | 0.61 | % | (1.25 | )%(A) | |||||||||
| Decrease reflected in above expense ratios due to expense reductions | — | 0.01 | % | 0.08 | %(A) | ||||||||||
| Portfolio turnover rate | 19 | % | 35 | % | 38 | %(B) | |||||||||
(1) For the period September 30, 2005 (commencement of operations) through October 31, 2005.
(2) Computed using average shares outstanding throughout the year.
* Rounds to less than $(0.01).
(A) Annualized.
(B) Not Annualized.
See Notes to Financial Statements
29
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
| International Small Companies Portfolio - Investor Class | |||||||
| For the Period Ended Oct. 31, 2007(1) | |||||||
| Per Share Data | |||||||
| Net Asset Value, Beginning of Period | $ | 10.00 | |||||
| Increase in Net Assets from Operations | |||||||
| Net investment income | 0.02 | ||||||
| Net realized and unrealized gain on investments and foreign currency-related transactions | 1.65 | ||||||
| Net increase from investment operations | 1.67 | ||||||
| Net Asset Value, End of Period | $ | 11.67 | |||||
| Total Return | 16.70 | %(B) | |||||
| Ratios/Supplemental Data: | |||||||
| Net assets, end of period (000's) | $ | 5,204 | |||||
| Net expenses to average net assets | 1.75 | %(A) | |||||
| Net investment income to average net assets | 0.56 | %(A) | |||||
| Decrease reflected in above expense ratios due to expense reductions | 8.19 | %(A) | |||||
| Portfolio turnover rate | 12 | %(B) | |||||
(1) For the period from March 26, 2007 (commencement of operations) through October 31, 2007.
(A) Annualized.
(B) Not Annualized.
See Notes to Financial Statements
30
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2007
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, ("1940 Act"), as an open-end diversified management investment company. The Fund currently has five Portfolios all of which were active as of October 31, 2007: International Equity Portfolio ("International Equity"); Global Equity Portfolio; Institutional Emerging Markets Portfolio, Emerging Markets Portfolio ("Emerging Markets") and International Small Companies Portfolio ("International Small Companies"). Information presented in these financial statements pertains to Emerging Markets, Investor Class shares of International Equity and International Small Companies (individually, "Portfolio"; collectively, "Portfolios"). Information pertaining to Institutional Class shares of International Equity, Institutional Class shares of Global Equity Portfolio and Institutional Emer ging Markets Portfolio are presented in a separate report. The investment objective of each Portfolio is as follows: Emerging Markets - to seek long-term capital appreciation through investments in equity securities of companies based in emerging markets; International Equity - to seek long-term capital appreciation through investments in equity securities of companies based outside the United States; International Small Companies - to seek long-term capital appreciation through investments in equity securities of small companies based outside the United States.
Emerging Markets commenced operations on November 9, 1998. International Equity commenced operations on October 31, 1996 after acquiring the net assets of Harding, Loevner Management, L.P.'s AMT Capital Fund, Inc. Investor Class of International Equity commenced operations on September 30, 2005. Investor Class of International Small Companies commenced operations on March 26, 2007. Institutional Class of International Small Companies has not yet commenced operations.
The Fund is managed by Harding, Loevner Management, L.P. (the "Investment Advisor").
2. Summary of Significant Accounting Policies
The accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States ("GAAP") for investment companies. The following is a summary of the Fund's significant accounting policies:
Indemnifications
Under the Fund's organizational document, its officers and Board of Directors (the "Board") are indemnified against certain liability arising out of the performance of their duties to the Portfolios. In the normal course of business, the Fund may enter into contracts that contain a variety of representations or that provide indemnification for certain liabilities. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
Valuation
The Board of Directors (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 funds and their Directors to determine, in good faith, the fair value of the Portfolios' securities when market quotations are not readily available.
All investments in the Portfolios are valued daily at their market prices, which results in unrealized gains or losses. Securities traded on an exchange are valued at their last sales price on that exchange. Securities for which no sales are reported are valued at the latest bid price obtained from a quotation reporting system or from established market makers. Repurchase agreements are valued at their amortized cost plus accrued interest. Securities for which market quotations are not readily available are fair valued by the Board or its delegate in accordance with the Procedures, although the actual calculations may be done by others. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, availa ble information concerning other securities in similar circumstances. If a significant event occurs after the close of trading but before the calculation of the Portfolio's net asset value and such significant event has a material impact on the Portfolio's net asset value per share (i.e. , more than $0.01 per share), then the security may be fair valued in accordance with the Procedures. As of October 31, 2007, there were two securities in the Portfolios which required valuation by the Board or its delegate. The Fund has implemented additional fair value
31
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
2. Summary of Significant Accounting Policies (continued)
pricing on a daily basis for all foreign equity securities held by the Portfolios. The fair value pricing utilizes quantitative models developed by an independent pricing service unless the Fund determines that use of another additional fair valuation methodology is appropriate.
Securities
All securities transactions are recorded on a trade date basis. Interest income and expenses are recorded on an accrual basis. Dividend income is recorded on the ex-dividend date (except for certain foreign dividends that may be recorded as soon as the Portfolio is informed of such dividends). The Portfolios accrete discount or amortize premium using the effective interest method on a daily basis as adjustments to interest income and the cost of investments. The Portfolios use the specific identification method for determining realized gains or losses from sales of securities.
Income Tax
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.
Expenses
Expenses directly attributed to a specific Portfolio of the Fund are charged to that Portfolio's operations; expenses not directly attributable to a specific Portfolio are allocated among all the Portfolios of the Fund either equitably or based on their average daily net assets.
Dividends to Shareholders
It is the policy of the Portfolios to declare dividends from net investment income annually. Net short-term and long-term capital gains distributions for the Portfolios, if any, normally are distributed on an annual basis.
Dividends from net investment income and distributions from net realized gains from investment transactions have been determined in accordance with income tax regulations and may differ from net investment income and realized gains recorded by the Portfolios for financial reporting purposes. Differences result primarily from foreign currency transactions and timing differences related to recognition of income, and gains and losses from investment transactions. In general, to the extent that any differences which are permanent in nature result in over distributions to shareholders, the amount of the over distribution is reclassified within the capital accounts based on its federal tax basis treatment and may be reported as return of capital. Temporary differences do not require reclassification.
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 Portfolios' securities are translated at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at exchange rates prevailing when accrued. The Portfolios do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Net realized gains and losses from foreign currency-related transactions arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolios' books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currencies arise from changes in the value of assets and liabilities other than investments in securities at the period end, resulting from changes in the exchange rates.
Security Lending
Each Portfolio is authorized to lend securities from its investment portfolio to banks, brokers and other financial institutions if it receives collateral in cash, U.S. Government securities or other liquid investments which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The loans will be terminable at any time by the Fund and the relevant Portfolio will then receive the loaned securities within five days. During the period of such a loan, the Portfolio receives an agreed upon portion of the income on the loaned securities and/or a loan fee and may thereby increase its total return. A Portfolio continues to receive
32
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
2. Summary of Significant Accounting Policies (continued)
interest or dividends on the securities loaned and simultaneously earn either interest on the investment of the cash collateral or fee income if the loan is collateralized with securities rather than cash. However, the Portfolio normally pays lending fees and related expenses from the interest or dividends earned on invested collateral. Although the Fund is indemnified by State Street Bank and Trust, which acts as the lending agent, should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. However, loans are made only to borrowers which are approved by the Board and are deemed by Investment Advisor to be of good financial standing. The Portfolio may invest cash collateral it receives in connection with a loan of securities in securities of the U.S. Government and its agencies and other high quality short-term debt instruments. For purposes of complying with the Portfolios' investment policies and restrictions, collateral received in connection with securities loans will not be deemed an asset of the Portfolio unless otherwise required by law. Net amounts earned from security lending activities are disclosed on the Statement of Operations. Amounts loaned and held as collateral are disclosed on the Statement of Net Assets.
3. Significant Agreements and Transactions with Affiliates
The Board has approved investment advisory agreements (the "Agreements") with the Investment Advisor. The advisory fees are computed daily at an annual rate of 1.25%, 0.75%, and 1.25% of the average daily net assets of Emerging Markets, International Equity, and International Small Companies, respectively.
The Investment Advisor has voluntarily agreed to reduce its fee to the extent that aggregate expenses exceed an annual rate of 1.25% and 1.75%, respectively, of the average daily net assets of International Equity and International Small Companies. For the year ended October 31, 2007, the Investment Advisor voluntarily waived $119,714 in investment advisory fees only from International Small Companies.
Quasar Distributors, LLC serves as the exclusive Distributor of each class of the Fund's shares. The Fund has a distribution plan pursuant to Rule 12b-1 under the 1940 Act with respect to the Investor Class shares of International Equity and International Small Companies. Under the terms of the plan, each Portfolio compensates respectively, the distributor at a rate equal to 0.25% of the average daily net assets of the Portfolio attributable to its Investor Class shares for distribution and related services.
In addition, the Fund has an administration agreement with State Street Bank and Trust, which provides certain accounting, clerical and bookkeeping services, corporate secretarial services, assistance in the preparation and filing of tax returns and reports to shareholders and the SEC, transfer agency services, chief compliance officer services, and the service of some State Street Bank and Trust employees as officers serving the board of directors. Under this agreement, Emerging Markets, International Equity, and International Small Companies incurred $3,291,809, $613,873, and $55,596, respectively for the year ended October 31, 2007.
State Street Bank and Trust serves as transfer agent, dividend disbursing agent and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of the Portfolios.
The Fund has agreements with various financial intermediaries and "mutual fund supermarkets," under which customers of these intermediaries may purchase and hold the Fund's 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 is authorized to pay to each intermediary up to 0.15% of its average daily net assets attributable to that intermediary (subject to the voluntary expense cap). The balance of the intermediaries' fees is paid by the Investment Advisor. Because of voluntary caps on the Portfolio's fees and expenses, the Investment Advisor paid all or a portion of each Portfolio's share of these fees during t he year ended October 31, 2007.
33
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
4. Investment Transactions
Cost of purchases and proceeds from sales of investment securities, other than short-term investments, for the year ended October 31, 2007, were as follows for each Portfolio:
| Portfolio | Purchase Cost of Investment Securities | Proceeds from Sales of Investment Securities | |||||||||
| Emerging Markets | $ | 752,531,410 | $ | 546,981,340 | |||||||
| International Equity | 69,177,981 | 102,104,012 | |||||||||
| International Small Companies | 4,874,171 | 301,461 | |||||||||
The cost of investments for federal income tax purposes and the components of net unrealized appreciation on investments at October 31, 2007, for each of the Portfolios were as follows:
| Portfolio | Unrealized Appreciation | Unrealized Depreciation | Net | Cost | |||||||||||||||
| Emerging Markets | $ | 1,133,151,597 | $ | 9,809,957 | $ | 1,123,341,640 | $ | 1,408,771,067 | |||||||||||
| International Equity | 183,635,781 | 3,203,716 | 180,432,065 | 219,896,229 | |||||||||||||||
| International Small Companies | 441,784 | 83,365 | 358,419 | 4,614,310 | |||||||||||||||
The unrealized appreciation (depreciation) on foreign currency for Emerging Markets, International Equity and International Small Companies was $(160,380) $13,760, and $108, respectively, for the year ended October 31, 2007.
5. Distributions to Shareholders
During the year ended October 31, 2007, the tax character of distributions paid from ordinary income was $861,705 and $3,908,077, respectively for Emerging Markets and International Equity. The tax character of distributions paid from long-term capital gains was $23,310,547 for International Equity.
During the year ended October 31, 2006, the tax character of distribution paid from ordinary income was $2,386,563 and $1,524,829, respectively for Emerging Markets and International Equity. The tax character of distribution paid from long-term capital gains was $1,526,842 and $254,472, respectively for Emerging Markets and International Equity.
As of 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) | ||||||||||||||||||
| Emerging Markets | $ | 20,602,457 | $ | 112,274,523 | $ | (44,388 | ) | $ | 1,123,181,261 | $ | 1,256,013,853 | ||||||||||||
| International Equity | 8,633,841 | 24,572,144 | — | 180,445,824 | 213,651,809 | ||||||||||||||||||
| International Small Companies | 42,055 | — | — | 358,526 | 400,581 | ||||||||||||||||||
* The difference between book basis and tax basis net unrealized appreciation is attributable primarily to the tax deferral of losses on certain sales of securities.
During the year ended October 31, 2007 the Emerging Markets Portfolio utilized $2,000,753 in capital loss carryover.
Primarily as a result of differing book/tax treatment of foreign currency transactions and foreign capital gain tax expenses, the Fund made reclassifications among certain capital accounts. In addition, the Emerging Markets, International Equity and International Small Companies utilized distributions in connection with the redemption of fund shares during the period. The reclassifications have no impact on the net assets of the Fund. As of October 31, 2007, the following reclassifications were made to the Statements of Net Assets.
34
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
5. Distributions to Shareholders (continued)
| Portfolio | Paid-in Capital | Accumulated Undistributed Net Realized Gain/Loss on Investments & Foreign Currency Related Transactions | Accumulated Undistributed Net Investment Income | ||||||||||||
| Emerging Markets | $ | 7,902,806 | $ | (6,123,466 | ) | $ | (1,779,340 | ) | |||||||
| International Equity | 2,631,489 | (2,393,023 | ) | (238,466 | ) | ||||||||||
| International Small Companies | 51 | 5,682 | (5,733 | ) | |||||||||||
6. Foreign Exchange Contracts
The Portfolios, on occasion, enter into forward foreign exchange contracts in order to hedge their exposure to changes in foreign currency exchange rates on their foreign Portfolio holdings. A forward foreign exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the cost of the original contracts and the closing of such contracts is included in net realized gains or losses on foreign currency-related transactions. Fluctuations in the value of forward foreign exchange contracts are recorded for book purposes as unrealized appreciation or depreciation on assets and liabilities denominated in foreign currencies by the Portfolios. The Portfolios are also exposed to credit risk associated with counterparty nonperformance on these forward foreign exchange contracts which is typically limited to the unrealized gain on each open con tract.
The Portfolios enter into foreign currency transactions on the spot markets in order to pay for foreign investment purchases or to convert to dollars the proceeds from foreign investment sales or coupon interest receipts. The Portfolios held no open forward foreign currency exchange contracts on October 31, 2007.
7. Capital Share Transactions
Transactions in capital stock for Emerging Markets were as follows for the periods indicated:
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||
| Shares sold | 14,052,683 | $ | 674,123,901 | 28,942,408 | $ | 1,071,514,244 | |||||||||||||
| Shares issued upon reinvestment of dividends | 17,994 | 788,488 | 107,486 | 3,710,264 | |||||||||||||||
| 14.070.677 | 674,912,389 | 29,049,894 | 1,075,224,508 | ||||||||||||||||
| Shares redeemed | (9,781,911 | ) | (468,511,465 | ) | (16,060,400 | ) | (583,279,980 | ) | |||||||||||
| Net increase | 4,288,766 | $ | 206,400,924 | 12,989,494 | $ | 491,944,528 | |||||||||||||
Transactions in capital stock for International Equity Investor Class were as follows for the periods indicated:
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||
| Shares sold | 377,652 | $ | 7,304,858 | 535,963 | $ | 9,132,750 | |||||||||||||
| Shares issued upon reinvestment of dividends | 39,229 | 723,002 | 671 | 10,881 | |||||||||||||||
| 416,881 | 8,027,860 | 536,634 | 9,143,631 | ||||||||||||||||
| Shares redeemed | (178,817 | ) | (3,504,036 | ) | (40,793 | ) | (703,793 | ) | |||||||||||
| Net increase | 238,064 | $ | 4,523,824 | 495,841 | $ | 8,439,838 | |||||||||||||
35
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
7. Capital Share Transactions (continued)
Transactions in capital stock for International Equity Institutional Class were as follows for the periods indicated:
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||
| Shares sold | 1,121,101 | $ | 21,697,361 | 2,853,706 | $ | 49,366,216 | |||||||||||||
| Shares issued upon reinvestment of dividends | 1,363,585 | 25,144,499 | 98,724 | 1,601,590 | |||||||||||||||
| 2,484,686 | 46,841,860 | 2,952,430 | 50,967,806 | ||||||||||||||||
| Shares redeemed | (2,901,139 | ) | (57,161,618 | ) | (4,686,560 | ) | (82,366,219 | ) | |||||||||||
| Net increase (decrease) | (416,453 | ) | $ | (10,319,758 | ) | (1,734,130 | ) | $ | (31,398,413 | ) | |||||||||
Transactions in capital stock for International Small Companies Investor Class were as follows for the periods indicated:
| Period From March 26, 2007 To October 31, 2007 (A) | |||||||||||
| Shares | Amount | ||||||||||
| Shares sold | 446,970 | $ | 4,815,231 | ||||||||
| Shares issued upon reinvestment of dividends | — | — | |||||||||
| 446,970 | 4,815,231 | ||||||||||
| Shares redeemed | (1,009 | ) | (11,464 | ) | |||||||
| Net increase | 445,961 | $ | 4,803,767 | ||||||||
(A) Investor Class shares commenced operations on March 26, 2007.
Redemptions made within 90 days of purchase maybe subject to a redemption fee equal to 2% of the amount redeemed. For the year ended October 31, 2007, Emerging Markets received $388,257 in redemption fees. For the year ended October 31, 2007, International Equity Investor Class and Institutional Class received $482 and $265 in redemption fees, respectively, related to transactions in shares of common stock as disclosed in the Portfolios' Statements of Changes in Net Assets. For the year ended October 31, 2007, International Small Companies Investor Class did not received any redemption fees.
8. In-Kind Transaction
During the year ended October 31, 2006, the Emerging Markets Portfolio redeemed 168,588 shares of beneficial interest outstanding in exchange for securities and cash valued at $5,371,207 resulting in a realized gain of $1,566,497, with the Institutional Emerging Markets Portfolio.
9. Concentration of Ownership
At October 31, 2007, the percentage of total shares outstanding held by record shareholders each owning 10% or greater of the aggregate total shares outstanding for each Portfolio or for the share classes listed of each Portfolio was as follows:
| No. of Shareholders | % Ownership | ||||||||||
| Emerging Markets Portfolio | 1 | 72 | %* | ||||||||
| International Equity Portfolio, Institutional Class | 2 | 34 | %** | ||||||||
| International Small Companies Portfolio, Investor Class | 2 | 77 | %** | ||||||||
* Represents percentage ownership of Institutional Class only; these two shareholders owned approximately 33% of the Portfolio's net assets as a whole.
** Represents omnibus position of broker-dealer representing numerous shareholder accounts.
Investment activities of these shareholders may have a material effect on the Portfolios.
36
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
10. Repurchase Agreements
Each Portfolio may enter into repurchase agreements under which a bank or securities firm that is a primary or reporting dealer in U.S. Government securities agrees, upon entering into a contract, to sell such securities to a Portfolio and repurchase such securities from such Portfolio at a mutually agreed upon price and date.
Each Portfolio may engage in repurchase transactions with parties selected on the basis of such party's creditworthiness. Securities purchased subject to repurchase agreements must have an aggregate market value greater than or equal to the repurchase price plus accrued interest at all times. If the value of the underlying securities falls below the value of the repurchase price plus accrued interest, the Portfolio will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults on its repurchase obligation, the Portfolio maintains the right to sell the underlying securities at market value and may claim any resulting loss against the seller.
11. 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 Emerging Markets, International Equity and International Small Companies are authorized to invest.
12. Line of Credit
The Fund participates in a $50 million line of credit agreement with State Street Bank and Trust. Borrowings will be made solely to facilitate the handling of redemptions or unusual or unanticipated short-term cash requirements. Because several Portfolios participate there is no assurance that an individual Portfolio will have access to the entire $50 million at any particular time. Borrowings for International Equity are limited to the lesser of the remaining available credit or 25% of net assets. Borrowings for Emerging Markets are limited to the lesser of the remaining available credit or 15% of net assets. Interest is charged to each Portfolio based on its borrowings at an amount above the Federal Funds rate. In addition, a commitment fee computed at an annual rate of 0.10% on the line of credit is allocated among the Portfolios. During the year ended October 31, 2007, International Equity Portfolio and International Small Companies had borrowings on nine days and one day, the maximum balance $4,595,617 and $47,226, at an average weighted interest rate of 5.79% and 5.79%, respectively.
13. Recently Issued Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, "Accounting for Income Taxes." This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Fund is currently evaluating the impact of applying the various provisions of FIN 48.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of Octobe r 31, 2007, the Fund does not believe the adoption of SFAS No. 157 will significantly impact the financial statement amounts; however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements on changes in net assets for the period.
37
Harding, Loevner Funds, Inc.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Harding, Loevner Funds, Inc.
We have audited the accompanying statements of net assets of the Harding, Loevner Funds, Inc. (comprising, the Emerging Markets Portfolio, International Equity Portfolio, and International Small Companies Portfolio), (collectively the "Portfolios") as of October 31, 2007, and the related statements of operations for the year or period then ended, statements of changes in net assets and the financial highlights for each of the two years and periods 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. The financial highlights of the Portfolios for each of the years or periods in the three-year period ended October 31, 2005 and prior were audited by other auditors whose report dated December 6, 2005, expressed an unqualified opinion on those financial highlights.
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, 2007, by correspondence with the custodian and brokers. As to securities purchased or sold but not yet received or delivered, we performed 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, 2007, the results of their operations for the year or period then ended, the changes in their net assets and the financial highlights for each of the two years or periods then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 27, 2007
38
Harding, Loevner Funds, Inc.
Supplemental Tax Information
(unaudited)
Emerging Markets, International Equity and International Small Companies paid qualifying foreign taxes of $3,631,437, $649,707 and $2,526 and earned $38,709,658, $6,617,572 and $33,820 foreign source income during the year ended October 31, 2007, respectively. Pursuant to Section 853 of the Internal Revenue Code, Emerging Markets, International Equity and International Small Companies designated $0.0850, $0.0369 and $0.0062 per share as foreign taxes paid and $0.9677, $0.3527 and $0.0758 per share as income earned from foreign sources for the year ended October 31, 2007, respectively.
Emerging Markets and International Equity had qualifying dividend income of $861,705 and $3,908,077 during the year ended October 31, 2007, respectively.
Pursuant to Section 852 of the Internal Revenue Code, International Equity designated $23,310,547 as long term capital gain dividend for the year ended October 31, 2007.
39
Harding, Loevner Funds, Inc.
Supplemental Tax Information (continued)
(unaudited)
The Emerging Markets, International Equity and International Small Companies Portfolios have elected to pass through the credit for taxes paid in foreign countries during its fiscal year ended October 31, 2007. In accordance with current tax laws, the Foreign Income and Foreign Tax per share (for a share outstanding on October 31, 2007) is as follows:
| Emerging Markets | International Equity | ||||||||||||||||||||||
| Country | Foreign Tax | Gross Foreign Dividends | Country | Foreign Tax | Gross Foreign Dividends | ||||||||||||||||||
| Brazil | 0.0147 | 0.1429 | Australia | 0.0000 | 0.0035 | ||||||||||||||||||
| Cayman Islands | 0.0000 | 0.0245 | Austria | 0.0007 | 0.0047 | ||||||||||||||||||
| Chile | 0.0093 | 0.0333 | Bermuda | 0.0000 | 0.0116 | ||||||||||||||||||
| China | 0.0000 | 0.0478 | Canada | 0.0017 | 0.0097 | ||||||||||||||||||
| Colombia | 0.0000 | 0.0107 | France | 0.0061 | 0.0408 | ||||||||||||||||||
| Egypt | 0.0000 | 0.2107 | Germany | 0.0007 | 0.0044 | ||||||||||||||||||
| Hong Kong | 0.0000 | 0.0785 | Hong Kong | 0.0000 | 0.0064 | ||||||||||||||||||
| India | 0.0000 | 0.0236 | India | 0.0000 | 0.0018 | ||||||||||||||||||
| Indonesia | 0.0071 | 0.0472 | Indonesia | 0.0007 | 0.0049 | ||||||||||||||||||
| Israel | 0.0079 | 0.0408 | Ireland | 0.0000 | 0.0073 | ||||||||||||||||||
| Luxembourg | 0.0059 | 0.0393 | Japan | 0.0031 | 0.0436 | ||||||||||||||||||
| Malaysia | 0.0000 | 0.0050 | Mexico | 0.0000 | 0.0079 | ||||||||||||||||||
| Mexico | 0.0000 | 0.0386 | Netherlands | 0.0003 | 0.0020 | ||||||||||||||||||
| Netherlands | 0.0006 | 0.0037 | Poland | 0.0019 | 0.0095 | ||||||||||||||||||
| Philippine Islands | 0.0027 | 0.0120 | Russia | 0.0003 | 0.0014 | ||||||||||||||||||
| Poland | (0.0004 | ) | (0.0024 | ) | Singapore | 0.0000 | 0.0075 | ||||||||||||||||
| Russia | 0.0014 | 0.0209 | South Africa | 0.0000 | 0.0174 | ||||||||||||||||||
| South Africa | 0.0000 | 0.1350 | South Korea | 0.0006 | 0.0035 | ||||||||||||||||||
| South Korea | 0.0111 | 0.0664 | Spain | 0.0032 | 0.0211 | ||||||||||||||||||
| Taiwan | 0.0162 | 0.0843 | Sweden | 0.0034 | 0.0226 | ||||||||||||||||||
| Thailand | 0.0016 | 0.0235 | Switzerland | 0.0098 | 0.0589 | ||||||||||||||||||
| Turkey | 0.0010 | 0.0104 | Taiwan | 0.0031 | 0.0156 | ||||||||||||||||||
| United Kingdom | 0.0000 | 0.0153 | United Kingdom | 0.0000 | 0.0468 | ||||||||||||||||||
| International Small Companies | |||||||||||||||||||||||
| Country | Foreign Tax | Gross Foreign Dividends | |||||||||||||||||||||
| Australia | 0.0000 | 0.0067 | |||||||||||||||||||||
| Austria | 0.0002 | 0.0015 | |||||||||||||||||||||
| Belgium | 0.0002 | 0.0016 | |||||||||||||||||||||
| Bermuda | 0.0000 | 0.0077 | |||||||||||||||||||||
| Canada | 0.0002 | 0.0016 | |||||||||||||||||||||
| Cayman Islands | 0.0000 | 0.0036 | |||||||||||||||||||||
| China | 0.0000 | 0.0006 | |||||||||||||||||||||
| Denmark | 0.0002 | 0.0010 | |||||||||||||||||||||
| Finland | 0.0002 | 0.0011 | |||||||||||||||||||||
| France | 0.0010 | 0.0066 | |||||||||||||||||||||
| Germany | 0.0007 | 0.0044 | |||||||||||||||||||||
| Ireland | 0.0000 | 0.0003 | |||||||||||||||||||||
| Italy | 0.0005 | 0.0032 | |||||||||||||||||||||
| Japan | 0.0005 | 0.0074 | |||||||||||||||||||||
| Malaysia | 0.0000 | 0.0037 | |||||||||||||||||||||
| Mexico | 0.0000 | 0.0010 | |||||||||||||||||||||
| Netherlands | 0.0006 | 0.0040 | |||||||||||||||||||||
| Singapore | 0.0000 | 0.0028 | |||||||||||||||||||||
| Spain | 0.0001 | 0.0006 | |||||||||||||||||||||
| Sweden | 0.0011 | 0.0071 | |||||||||||||||||||||
| Switzerland | 0.0002 | 0.0019 | |||||||||||||||||||||
| Taiwan | 0.0004 | 0.0021 | |||||||||||||||||||||
| United Kingdom | 0.0000 | 0.0060 | |||||||||||||||||||||
40
Harding, Loevner Funds, Inc.
Approval of Investment Advisor Agreements
October 31, 2007 (unaudited)
The Board of Directors of the Harding, Loevner Funds, Inc. (the "Fund"), and by a separate vote, the Directors of the Fund who are not "interested persons" as defined in the Investment Company Act of 1940, as amended, (the "Independent Directors") approved the continuance of the Investment Advisor Agreements between the Fund (on behalf of each of the International Equity Portfolio and the Emerging Markets Portfolio (each a "Portfolio" and collectively the "Portfolios")) and Harding, Loevner Management, L.P. (the "Advisor") with respect to each Portfolio at a meeting held on September 10, 2007.
As part of its review, the Board carefully considered the following: (i) a memorandum from Dechert, LLP, counsel to the Fund, that explained the Directors' fiduciary duties and obligations under Sections 15 and 36(b) of the 1940 Act as well as the Fund's disclosure requirements; (ii) comparative fee and performance information; (iii) information on soft dollar transactions; (iv) code of ethics compliance reports; and (v) the Advisor's financial statements for the periods ended June 30, 2006 and June 30, 2007.
The Board also considered the following information which provided additional detail about the foregoing: (i) a detailed profitability analysis; (ii) the effect of the fee waivers for the International Equity Portfolio, Global Equity Portfolio and Institutional Emerging Markets Portfolio on net Fund expenses; (iii) the expenses attributable to the Fund, as compared to the expenses of the Advisor's overall business, including the allocation of expenses attributable to the Fund, such as direct and indirect costs, overhead and other expenses; (iv) actual expenses for calendar year 2006 and estimated expenses for calendar year 2007; (v) total expenses before distribution costs, such as communications to third parties and fees paid to intermediaries; (vi) the ownership structure of the Advisor; and (vii) the long-term profit and loss summary for the Advisor.
The Board considered a number of factors in evaluating the Advisor, including: (i) the nature and quality of services provided; (ii) the investment performance of the Portfolios; (iii) the cost of the services provided; (iv) the profitability of the Advisor; (v) the realization of economies of scale; and (vi) comparison of fees and services.
Quality and Nature of the Services
The Directors agreed that the nature and quality of services provided by the Advisor was excellent. They noted the superior management of the organization and specifically discussed the high integrity and forward thinking which has resulted in no significant compliance issues. The Directors also noted the Advisor's consistently prudent approach to expenses. These determinations were not based merely on the materials provided at the present meeting, but on the Board's ongoing dealing with the Advisor. With regard to these areas, the Board was satisfied that the quality and nature of the services provided by the Advisor weighed in favor of renewing the advisory agreements.
The Board considered the investment performance of each of the four Portfolios under consideration. The Board had available to it the qualifications, background and responsibilities of the Portfolios' portfolio management teams and senior management of the Advisor and recognized that these persons report to the Board regularly. The Board had been provided by the Advisor copies of investment performance data obtained from Bloomberg and Morningstar for funds in the Lipper International Funds Index and a number of other international equity funds; funds in the Lipper Global Funds Index and a number of other global equity funds; and funds in the Lipper Emerging Market Funds Index and a number of other emerging market funds (collectively, the "Peer Group Data"). The Peer Group Data included fund management fees, total expense ratios, net assets, calendar year-to-date returns, 1-, 3- and 5- year returns as well as median and average data with rega rd to the foregoing.
Based on their review of the data provided by the Advisor and all other relevant data, the Independent Directors concluded that they were satisfied, both in absolute terms and in comparison to appropriate peer funds and benchmark indices, with the overall performance of the Fund's Portfolios. In sum, the Board was satisfied with the nature and quality of services being provided by the Advisor to shareholders.
Fees and Costs of Providing Services
The Independent Directors considered a number of related factors in assessing the costs proposed by the Advisor to be charged for providing advisory services to the Fund, including: (i) a comparison of advisory and total Portfolio fees with competing fund products; (ii) a review of the Advisor's profitability information; (iii) consideration of whether any benefits or economies of scale are provided to shareholders; and (iv) consideration of whether the Advisor has received any ancillary or "fall-out" benefits in connection with its management of the Portfolios.
The Independent Directors reviewed the Peer Group Data provided by Advisor with respect to advisory fees, net assets and total expenses and concluded that the cost of services was fair and reasonable. The Directors determined that comparable costs across all four Portfolios were appropriate, and that the cost of each Portfolio versus its market peers was equally in line.
41
Harding, Loevner Funds, Inc.
Approval of Investment Advisor Agreements (continued)
October 31, 2007 (unaudited)
The Independent Directors reviewed the financial statements of the Advisor, which showed the net income, the revenues received and the expenses incurred, including those paid for employee salaries. In addition, the Independent Directors reviewed a profitability analysis prepared by the Advisor. The Independent Directors considered any ancillary benefits derived by the Advisor in connection with its management of the Portfolios, and reviewed the soft dollar report. The Independent Directors concluded that the profitability of the Advisor was, on balance, reasonable and noted that the Advisor makes modest profits on the International Equity Portfolio and makes solid profits on the Emerging Markets Portfolio.
Based on the foregoing, the Board concluded that the fees charged by the Advisor are within the range that might be obtained in an arm's length negotiation. The Board based their evaluation on all material factors discussed above, including (1) the terms of the advisory agreements; (2) the nature, quality, cost and extent of the services performed by the Advisor; (3) the reasonableness of the advisory fees in light of the nature and quality of the services provided and any additional benefits received by the Advisor in connection with providing services to the Fund; (4) the expense ratios of the Portfolios as compared to the expense ratios of similar funds; and (5) the overall organization and experience of the Advisor, as well as the Advisor's profitability and financial condition. In arriving at its decision, the Independent Directors did not single out any one factor or group of factors as being more important than other factors, but cons idered all factors together.
After extensive discussion, both in general session and in executive session of the Independent Directors meeting alone, the Board determined that it had received sufficient information to take action on the proposed resolutions regarding continuance of the advisory agreements. Thereafter, upon a motion duly made and seconded, the Board of Directors, and separately, the Independent Directors, unanimously determined to continue the Investment Advisory Agreements for each of the International Equity Portfolio and the Emerging Markets Portfolio. The investment advisor agreement for the International Small Companies Portfolio was initially approved by the Board of Directors and Independent Directors on December 7, 2006 for a two year period.
42
Harding, Loevner Funds, Inc.
Directors and Principal Officers of the Fund
(unaudited)
Disinterested Directors:
| Name, Address and Age | Position with the Fund | Term of Office and Length of Time Served* | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen By Director | Other Directorships Held by Director | ||||||||||||||||||
| R. Kelly Doherty 41 Post Road Bernardsville, NJ 07924 Age, 49 | Director | Indefinite; Director since 2004 | Cayman Partners (private investment vehicles), Managing Partner, 1/99-present | 5 | L.P. Thebault & Co. (commercial printing); The Peck School | ||||||||||||||||||
| Jane A. Freeman 300 Frank Ogawa Plaza Oakland, CA 96412-2040 Age, 54 | Director | Indefinite; Director since 1996; Chairperson of Audit Committee since 2005 | Scientific Learning Corporation (Education Software), Senior Vice President and Chief Financial Officer, 1/00-present; Treasurer and Vice President, Finance & Business Development, 9/99-1/00 | 5 | None | ||||||||||||||||||
| Samuel R. Karetsky The Karetsky Group, LLC 12 East 49th Street, 27th Floor New York, NY 10017 Age, 62 | Director | Indefinite; Director since 1998 | The Karetsky Group, LLC (Advisory Firm), Managing Member, 1/03-present; Wetherby Asset Management, Principal, 2004-present; European Investors Inc., Managing Director, 11/98-12/02 | 5 | None | ||||||||||||||||||
| Raymond J. Clark 66 Greenway Terrace Princeton, NJ 08540 Age, 72 | Director | Indefinite; Director since 2004 | The Woodrow Wilson National Fellowship Foundation, Treasurer, 08/04-present; Wellesley College, Interim Vice President of Finance and Treasurer, 10/03-6/04; Princeton University, Treasurer, 1987-2001. | 5 | Princeton Healthcare System | ||||||||||||||||||
Interested Director:
| David R. Loevner** Harding, Loevner Management, L.P. 50 Division Street, Suite 401 Somerville, NJ 08876 Age, 53 | Director, President and Chairman of the Board | Indefinite; Director, President and Chairman of the Board since 1996 | HLM Holdings, Inc., Harding, Loevner Management, L.P.'s general partner, President, 7/89-present; Parks Tennant Corporation (real estate), President, 1/01-present. | 5 | None | ||||||||||||||||||
* 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 and CEO of Harding, Loevner Management, L.P., the Fund's investment advisor.
43
Harding, Loevner Funds, Inc.
Directors and Principal Officers of the Fund (continued)
(unaudited)
Principal Officers of the Fund
| Name, Address and Age | Position with the Fund | Term of Office and Length of Time Servedt | Principal Occupation(s) During Past Five Years | ||||||||||||
| Richard Reiter Harding, Loevner Management, L.P. 50 Division Street, Suite 401 Somerville, NJ 08876 Age, 41 | Vice President | 1 year; Vice President since 2007 | HLM Holdings, Inc. (general partner of Harding, Loevner Management, L.P.), Director, 4/96-current. | ||||||||||||
| Puran Dulani Harding, Loevner Management, L.P. 50 Division Street, Suite 401 Somerville, NJ 08876 Age, 49 | Chief Financial Officer and Treasurer | 1 year; Chief Financial Officer and Treasurer since 2007 | HLM Holdings, Inc. (general partner of Harding, Loevner Management, L.P.) Chief of Operations and Accounting, 3/02-present. | ||||||||||||
| Ellen Blanchard State Street Bank & Trust Company 200 Clarendon Street Boston, MA 02116 Age, 33 | Anti-Money Laundering Compliance Officer | 1 year; Anti-Money Laundering Compliance Officer since 2007 | State Street Bank and Trust Company (formerly, Investors Bank and Trust Company), Director and Senior Associate Counsel, 1/06-present; Senior Manager and Associate Counsel, 8/04-12/05; Manager and Associate Counsel 8/02-8/04; Product Manager, 8/99-8/02. | ||||||||||||
| Donna M. Rogers State Street Bank & Trust Company 200 Clarendon Street Boston, MA 02116 Age, 41 | Chief Compliance Officer of the Funds | 1 year; Chief Compliance Officer since 2007 | State Street Bank and Trust Company, (formerly, Investors Bank and Trust Company), Senior Director, 2002-present. | ||||||||||||
| Brendan J. O'Neill State Street Bank & Trust Company 200 Clarendon Street Boston, MA 02116 Age, 39 | Assistant Treasurer | 1 year; Assistant Treasurer since 2004 | State Street Bank and Trust Company (formerly, Investors Bank and Trust Company), Unit Director 11/07-present; Director 1/05-10/07; Senior Manager 11/02-12/04; Manager 7/00-10/02. | ||||||||||||
| Rainer L.C. Frost State Street Bank & Trust Company 200 Clarendon Street Boston, MA 02116 Age, 49 | Secretary and Chief Legal Officer | 1 year; Secretary and Chief Legal Officer since 2005 | State Street Bank and Trust Company (formerly, Investors Bank and Trust Company), Director and Counsel 6/05–present; Principal, Clarity Group 6/02-6/05. | ||||||||||||
t 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.
The Fund's Statement of Additional Information contains additional information about the Directors and Officers of the Fund and is available, without charge, upon request, by calling 1-877-435-8105.
44
Harding, Loevner Funds, Inc.
Supplemental Information
(unaudited)
Quarterly Form N-Q Portfolio Schedule
Each Portfolio will file its complete schedule of portfolio holdings with the SEC on Form N-Q for the first and third fiscal quarters within 60 days of the end of the quarter to which it relates. The Portfolios' Form N-Q will be available on the SEC's website at www.sec.gov and may also be reviewed and copied at the SEC's Public Reference Room whose telephone number is 1-800-SEC-0330. Additionally, they are available upon request by calling 1-877-435-8105.
Proxy Voting Record
Information regarding how the Fund voted proxies relating to the Portfolios' securities during the 12-month period ended June 30, 2007 is available on the Fund's website at www.hardingloevner.com and on the SEC's website at www.sec.gov.
Proxy Voting Policies and Procedures
A description of the Fund's proxy voting policies and procedures is located in the Statement of Additional Information and is available without charge, upon request, by calling 1-877-435-8105 or on the SEC's website at www.sec.gov.
45
HARDING, LOEVNER FUNDS, INC.
Officers, Directors and Other Pertinent Information
OFFICERS AND DIRECTORS
Jane A. Freeman
Director of the Funds
Samuel R. Karetsky
Director of the Funds
R. Kelly Doherty
Director of the Funds
Raymond J. Clark
Director of the Funds
David R. Loevner
Director, President and Chairman
of the Board of the Funds
Donna Rogers
Chief Compliance Officer of the Funds
Ellen Blanchard
Anti-Money Laundering
Compliance Officer of the Funds
Richard Reiter
Vice President
Puran Dulani
Chief Financial Officer and
Treasurer of the Funds
Brendan J. O'Neill
Assistant Treasurer of the Funds
Rainer L.C. Frost
Secretary of the Funds
INVESTMENT ADVISOR
Harding, Loevner Management, L.P.
50 Division Street, Suite 401
Somerville, NJ 08876
DISTRIBUTOR
Quasar Distributors, LLC
615 East Michigan Street
Milwaukee, WI 53202
ADMINISTRATOR, CUSTODIAN AND FUND ACCOUNTING AGENT
State Street Bank and Trust Company
P.O. Box 9130
Boston, MA 02117
TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
P.O. Box 642
Boston, MA 02117-0642
LEGAL COUNSEL
Dechert LLP
30 Rockefeller Plaza
New York, NY 10112
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
1601 Market Street
Philadelphia, PA 19103-2499
This report is intended for shareholders of Harding Loevner Funds. It may not be used as sales literature unless preceded or accompanied by the current prospectus, which gives details about charges, expenses, investment objectives, risks and policies of the Portfolios.
HLFSANINV-G
Annual Report October 31, 2007
Family of Mutual Funds
Institutional Class
n Institutional Emerging Markets Portfolio
n International Equity Portfolio
n Global Equity Portfolio
Harding, Loevner Funds, Inc.
P.O. Box 642, OPS 22
Boston, MA 02117-0642
1.877.435.8105 • www.hardingloevner.com
Harding, Loevner Funds, Inc.
Table of Contents
| Expense Example | 3 | ||||||
| Performance Information and Statements of Net Assets | |||||||
| Institutional Emerging Markets Portfolio | 4 | ||||||
| International Equity Portfolio | 11 | ||||||
| Global Equity Portfolio | 18 | ||||||
| Statements of Operations | 24 | ||||||
| Statements of Changes in Net Assets | 25 | ||||||
| Financial Highlights | 28 | ||||||
| Notes to Financial Statements | 31 | ||||||
| Report of Independent Registered Public Accounting Firm | 38 | ||||||
| Supplemental Tax Information | 39 | ||||||
| Approval of Investment Advisor Agreements | 41 | ||||||
| Directors and Principal Officers | 43 | ||||||
| Supplemental Information | 45 | ||||||
For use only when preceded or accompanied by a prospectus. Read the prospectus carefully before you invest or send money.
Harding, Loevner Funds, Inc.
Expense Example
October 31, 2007 (unaudited)
As a shareholder of a Harding Loevner Portfolio, you incur two types of costs: (1) transaction costs, including brokerage commissions on purchases and sales of fund shares; and (2) ongoing costs, including management fees and other fund expenses. The following example is intended to help you understand your ongoing costs (in dollars and cents) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested on May 1, 2007 and held for the entire six month period from May 1, 2007 to October 31, 2007 for the International Equity Portfolio, Institutional Class, Institutional Emerging Markets Portfolio and Global Equity Portfolio, Institutional Class.
Actual Expenses
The first line under the 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 the Portfolio under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line under each Portfolio in the table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Portfolio's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the 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 and do not reflect any transactional costs, such as brokerage commissions paid on purchases and sales of fund shares. Therefore, the second line under the 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. In addition, if these transactional costs were included, your costs would have been higher.
| Beginning Account Value May 1, 2007 | Ending Account Value October 31, 2007 | Annualized Expense Ratio | Expenses Paid During Period* (May 1, 2007 to October 31, 2007) | ||||||||||||||||
| Institutional Emerging Markets Portfolio | |||||||||||||||||||
| Actual | $ | 1,000.00 | $ | 1,359.80 | 1.30 | % | $ | 7.73 | |||||||||||
| Hypothetical (5% annual return before expenses) | 1,000.00 | 1,018.65 | 1.30 | % | 6.61 | ||||||||||||||
| International Equity Portfolio, Institutional Class | |||||||||||||||||||
| Actual | 1,000.00 | 1,113.90 | 0.97 | % | 5.17 | ||||||||||||||
| Hypothetical (5% annual return before expenses) | 1,000.00 | 1,020.31 | 0.97 | % | 4.94 | ||||||||||||||
| Global Equity Portfolio, Institutional Class | |||||||||||||||||||
| Actual | 1,000.00 | 1,128.00 | 1.25 | % | 6.70 | ||||||||||||||
| Hypothetical (5% annual return before expenses) | 1,000.00 | 1,018.90 | 1.25 | % | 6.36 | ||||||||||||||
* Expenses are calculated using each Portfolio's annualized expense ratio (as disclosed in the table), multiplied by the average account value for the period, multiplied by number of days in the period (184 days), and divided by the number of days in the year (365 days).
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio — Overview
(unaudited)
October 31, 2007
| Returns for the Year Ended October 31, 2007 | |||||||||||||||||||||||
| Cumulative Total Returns | Average Annualized Total Return | ||||||||||||||||||||||
| FUND NAME | Last 12 Months | 5 YR | Inception | 5 YR | Inception | ||||||||||||||||||
| Institutional Emerging Markets Portfolio (Inception date 10/17/05) | 58.18 | % | N/A | 112.64 | % | N/A | 44.72 | % | |||||||||||||||
| MSCI Emerging Markets (Net dividend) | 67.82 | % | N/A | 125.11 | % | N/A | 48.82 | % | |||||||||||||||
| Lipper Emerging Markets Funds Index | 60.30 | % | N/A | 115.40 | % | N/A | 45.64 | % | |||||||||||||||
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevner.com.
Investment return reflects voluntary fee waivers in effect. Absence such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.
4
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio — Overview
October 31, 2007
The Harding, Loevner Funds, Inc. Institutional Emerging Markets Portfolio returned 58.18% for the fiscal year ending October 31, 2007, as compared to 67.82% for its benchmark, the MSCI Emerging Markets Index.
Consistent with its investment objectives and policies, the Portfolio was invested primarily in the securities of emerging markets companies that exhibited the fundamental characteristics of growth, financial strength, management quality and durable competitive advantage.
The Portfolio lagged its benchmark primarily due to its under-benchmark weightings of Chinese shares and Materials sector shares, as well as instances of stock selection.
Measured against the benchmark from a regional perspective, much of our lagging relative performance came from underweighting of top-performing markets. Our average weight in China was 10% versus 12% for the benchmark, while that market rose 155%. Stock selection was also a drag, and was particularly damaging in South Korea, where smaller capitalization industrial companies significantly outperformed most of our holdings.
Measured from an industrial sector perspective, performance was hurt by both sectoral weightings and individual stock selection. The Portfolio's overweighting of the underperforming Consumer Discretionary and Consumer Staples sectors, along with an underweighting of the strongly performing Materials sector hurt performance. Significant underperformance from Samsung Fire and Marine and Kookmin Bank in the Financials sector, and from Bidvest Group and Container Corp of India in the Industrials sector negatively impacted stock selection.
Past performance does not guarantee future results.
The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. The portfolio invests in smaller companies which involve additional risks such as limited liquidity and greater volatility.
Portfolio holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Please refer to the Schedule of Investments in this report for complete fund holdings.
The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Index consists of 25 emerging market countries. Net dividends are reinvested.
It is not possible to invest directly in an index.
5
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (unaudited)
| Industry | Percentage of Net Assets | ||||||
| Airlines | 0.6 | % | |||||
| Automotive | 1.9 | ||||||
| Banks | 13.9 | ||||||
| Beverages, Food & Tobacco | 3.3 | ||||||
| Building Materials | 1.1 | ||||||
| Chemicals | 3.5 | ||||||
| Commercial Services & Supplies | 7.9 | ||||||
| Communications | 11.3 | ||||||
| Electric Utilities | 1.6 | ||||||
| Electrical Equipment | 10.9 | ||||||
| Energy Equipment & Services | 2.6 | ||||||
| Financial Services | 3.5 | ||||||
| Forest Products & Paper | 0.9 | ||||||
| Home Construction, Furnishings & Appliances | 2.1 | ||||||
| Insurance | 2.0 | ||||||
| Media | 0.7 | ||||||
| Metals & Mining | 7.9 | ||||||
| Oil & Gas | 13.5 | ||||||
| Pharmaceuticals | 1.5 | ||||||
| Real Estate | 2.3 | ||||||
| Retailers | 1.2 | ||||||
| Transportation | 4.6 | ||||||
| Total Investments | 98.8 | ||||||
| Other Assets Less Liabilities | 1.2 | * | |||||
| Net Assets | 100.0 | % | |||||
* Breakout of other assets and liabilities may be found on page 10.
See Notes to Financial Statements
6
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Common Stocks - 94.9% | |||||||||||
| Brazil - 10.4% | |||||||||||
| Aracruz Celulose SA - Sponsored ADR (Forest Products & Paper) | 27,400 | $ | 2,106,786 | ||||||||
| Brazil Realty SA (Real Estate) | 203,198 | 3,534,082 | |||||||||
| Companhia de Bebidas das Americas - Preferred ADR (Beverages, Food & Tobacco) | 27,000 | 2,206,170 | |||||||||
| Companhia Vale do Rio Doce - ADR (Metals & Mining) | 264,840 | 9,979,171 | |||||||||
| Petroleo Brasileiro SA - ADR (Oil & Gas) | 74,798 | 7,152,933 | |||||||||
| Wilson Sons Ltd. - GDR (Commercial Services & Supplies)* | 45,948 | 573,471 | |||||||||
| 25,552,613 | |||||||||||
| Chile - 1.4% | |||||||||||
| Banco Santander - ADR (Banks) | 35,636 | 1,888,352 | |||||||||
| Lan Airlines SA - Sponsored ADR (Airlines) | 95,000 | 1,580,800 | |||||||||
| 3,469,152 | |||||||||||
| China - 12.4% | |||||||||||
| ASM Pacific Technology Ltd. (Electrical Equipment) | 303,500 | 2,398,308 | |||||||||
| China Merchants Holdings International Co., Ltd. (Transportation) | 723,000 | 5,126,140 | |||||||||
| China Mobile Ltd. - Sponsored ADR (Communications) | 70,349 | 7,293,784 | |||||||||
| China Overseas Land & Investment Ltd. (Real Estate) | 914,333 | 2,190,767 | |||||||||
| China Petroleum & Chemical Corp. - ADR (Oil & Gas) | 19,274 | 3,197,749 | |||||||||
| China Resources Enterprise (Financial Services) | 712,000 | 3,123,800 | |||||||||
| China Shenhua Energy Co., Ltd. - Class H (Energy Equipment & Services) | 985,000 | 6,474,494 | |||||||||
| Wumart Stores Inc. - Class H (Retailers) | 723,200 | 657,858 | |||||||||
| 30,462,900 | |||||||||||
| Colombia - 0.7% | |||||||||||
| BanColombia SA - Sponsored ADR (Banks) | 47,270 | 1,737,172 | |||||||||
| Czech Republic - 1.1% | |||||||||||
| CEZ (Electric Utilities) | 17,300 | 1,251,048 | |||||||||
| Zentiva BV (Pharmaceuticals) | 27,550 | 1,491,206 | |||||||||
| 2,742,254 | |||||||||||
| Egypt - 2.1% | |||||||||||
| Orascom Construction Industries (Commercial Services & Supplies) | 28,420 | 5,247,263 | |||||||||
| India - 9.5% | |||||||||||
| Bajaj Auto Ltd. (Automotive) | 36,880 | 2,337,211 | |||||||||
| Bharti Tele-Ventures Ltd. (Communications)* | 232,450 | 6,054,533 | |||||||||
| Container Corp. of India Ltd. (Transportation) | 30,410 | 1,537,357 | |||||||||
| HDFC Bank Ltd. - ADR (Banks) | 27,493 | 3,821,527 | |||||||||
| ICICI Bank Ltd. (Banks) | 112,900 | 3,651,107 | |||||||||
| Larsen & Toubro Ltd. (Commercial Services & Supplies) | 28,600 | 3,137,392 | |||||||||
| NTPC Ltd. (Electric Utilities) | 442,500 | 2,716,624 | |||||||||
| 23,255,751 | |||||||||||
| Indonesia - 3.2% | |||||||||||
| PT Bank Danamon Indonesia Tbk (Banks) | 2,622,500 | 2,516,268 | |||||||||
| PT Bank Rakyat Indonesia (Banks) | 2,631,000 | 2,264,602 | |||||||||
| PT Telekomunikasi Indonesia - Sponsored ADR (Communications) | 63,030 | 3,041,197 | |||||||||
| 7,822,067 | |||||||||||
| Israel - 2.2% | |||||||||||
| Israel Chemicals Ltd. (Chemicals) | 478,630 | 5,317,488 | |||||||||
See Notes to Financial Statements
7
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Luxembourg - 0.5% | |||||||||||
| Millicom International Cellular SA (Communications)* | 11,000 | $ | 1,292,280 | ||||||||
| Malaysia - 3.2% | |||||||||||
| IOI Corp. Berhad (Chemicals) | 1,457,815 | 3,329,281 | |||||||||
| MISC Berhad (Transportation) | 582,000 | 1,726,082 | |||||||||
| Sime Darby Berhad (Commercial Services & Supplies)# | 813,000 | 2,666,933 | |||||||||
| 7,722,296 | |||||||||||
| Mexico - 5.5% | |||||||||||
| America Movil SA de CV, Series L - ADR (Communications) | 67,850 | 4,436,711 | |||||||||
| Grupo Financiero Banorte SA de CV, Class O (Financial Services) | 626,880 | 2,839,700 | |||||||||
| Grupo Modelo SA de CV, Series C (Beverages, Food & Tobacco) | 242,100 | 1,129,611 | |||||||||
| Urbi Desarrollos Urbanos SA de CV (Home Construction, Furnishings & Appliances)* | 674,000 | 2,616,985 | |||||||||
| Wal-Mart de Mexico SA de CV - ADR (Retailers) | 58,265 | 2,368,472 | |||||||||
| 13,391,479 | |||||||||||
| Philippines - 0.4% | |||||||||||
| Philippine Long Distance Telephone Co. - Sponsored ADR (Communications) | 13,555 | 929,873 | |||||||||
| Poland - 3.5% | |||||||||||
| Bank Pekao SA (Banks)# | 13,810 | 1,477,107 | |||||||||
| Central European Distribution Corp. (Commercial Services & Supplies)* | 72,950 | 3,879,481 | |||||||||
| Polski Koncern Naftowy Orlen SA (Oil & Gas)* | 68,440 | 1,584,064 | |||||||||
| TVN SA (Media) | 169,554 | 1,696,262 | |||||||||
| 8,636,914 | |||||||||||
| Russia - 10.0% | |||||||||||
| Evraz Group SA, GDR, Reg S (Metals & Mining) | 57,600 | 4,362,255 | |||||||||
| Golden Telecom Inc. (Communications) | 7,193 | 744,116 | |||||||||
| Lukoil - Sponsored ADR (Oil & Gas) | 50,328 | 4,471,643 | |||||||||
| Mobile TeleSystems (Communications) | 176,000 | 2,411,200 | |||||||||
| OAO Gazprom - Sponsored ADR, Reg S (Oil & Gas) | 140,650 | 7,029,530 | |||||||||
| Pyaterochka Holding NV, GDR (Beverages, Food & Tobacco)* | 69,620 | 2,515,275 | |||||||||
| Sberbank of Russia (Banks) | 694,900 | 2,988,070 | |||||||||
| 24,522,089 | |||||||||||
| South Africa - 7.2% | |||||||||||
| Impala Platinum Holdings Ltd. (Metals & Mining) | 131,824 | 4,978,292 | |||||||||
| Pretoria Portland Cement Co., Ltd. (Building Materials) | 356,650 | 2,606,876 | |||||||||
| SABMiller plc (Beverages, Food & Tobacco) | 78,900 | 2,356,693 | |||||||||
| Sasol Ltd. (Oil & Gas) | 79,180 | 4,094,401 | |||||||||
| Standard Bank Group Ltd. (Banks) | 64,270 | 1,167,202 | |||||||||
| Steinhoff International Holdings Ltd. (Home Construction, Furnishings & Appliances) | 775,067 | 2,413,208 | |||||||||
| 17,616,672 | |||||||||||
| South Korea - 8.7% | |||||||||||
| Daewoo Shipbuilding & Marine Engineering Co., Ltd. (Commercial Services & Supplies) | 59,830 | 3,836,469 | |||||||||
| Hankook Tire Co., Ltd. (Automotive) | 113,800 | 2,442,741 | |||||||||
| Hynix Semiconductor, Inc. (Electrical Equipment)* | 55,230 | 1,558,242 | |||||||||
| Kookmin Bank - ADR (Banks) | 28,673 | 2,342,297 | |||||||||
| Samsung Electronics Co., Ltd., GDR, Reg S (Electrical Equipment) | 5,141 | 1,218,610 | |||||||||
| Samsung Electronics Co., Ltd., GDR, Reg S (Electrical Equipment) | 16,080 | 4,930,192 | |||||||||
| Samsung Fire & Marine Insurance Co., Ltd. (Insurance) | 17,600 | 4,884,676 | |||||||||
| 21,213,227 | |||||||||||
See Notes to Financial Statements
8
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Taiwan - 6.8% | |||||||||||
| Delta Electronics (Electrical Equipment) | 852,280 | $ | 3,471,915 | ||||||||
| Hon Hai Precision Industry Co., Ltd. (Electrical Equipment) | 633,680 | 4,869,721 | |||||||||
| MediaTek Inc. (Electrical Equipment) | 123,000 | 2,440,197 | |||||||||
| Synnex Technology International Corp. (Electrical Equipment) | 917,000 | 3,105,971 | |||||||||
| Taiwan Semiconductor Manufacturing Co. (Electrical Equipment) | 1,378,086 | 2,750,099 | |||||||||
| 16,637,903 | |||||||||||
| Thailand - 2.5% | |||||||||||
| PTT Exploration & Production PCL (Oil & Gas) | 650,800 | 3,102,239 | |||||||||
| Siam Commercial Bank-Alien (Banks) | 1,102,270 | 3,065,014 | |||||||||
| 6,167,253 | |||||||||||
| Turkey - 2.1% | |||||||||||
| Haci Omer Sabanci Holding AS (Financial Services) | 369,900 | 2,542,445 | |||||||||
| Turkiye Is Bankasi (Banks) | 394,671 | 2,716,707 | |||||||||
| 5,259,152 | |||||||||||
| United Kingdom - 0.9% | |||||||||||
| Hikma Pharmaceuticals plc (Pharmaceuticals) | 199,620 | 2,076,713 | |||||||||
| United States - 0.6% | |||||||||||
| NII Holdings, Inc. (Communications)* | 25,090 | 1,455,220 | |||||||||
| Total Common Stocks (Cost $152,641,863) | 232,527,731 | ||||||||||
| Preferred Stocks - 3.9% | |||||||||||
| Brazil - 3.0% | |||||||||||
| All America Latina Logistica SA (Transportation) | 180,100 | 2,861,786 | |||||||||
| Banco Itau Holding Financeria SA - ADR (Banks) | 156,388 | 4,464,877 | |||||||||
| 7,326,663 | |||||||||||
| Russia - 0.9% | |||||||||||
| Transneft (Oil & Gas) | 1,204 | 2,341,780 | |||||||||
| Total Preferred Stocks (Cost $6,433,920) | 9,668,443 | ||||||||||
| Total Investments - 98.8% (Cost $159,075,783) | $ | 242,196,174 | |||||||||
See Notes to Financial Statements
9
Harding, Loevner Funds, Inc.
Institutional Emerging Markets Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Value (1) | |||||||
| Liabilities, Net of Other Assets - 1.2% | |||||||
| Cash | $ | 2,980,396 | |||||
| Receivable for securities sold | 126,304 | ||||||
| Dividends and interest receivable | 262,312 | ||||||
| Foreign currency (cost $106,503) | 105,193 | ||||||
| Tax reclaim receivable | 1,720 | ||||||
| Payable to investment advisor | (221,394 | ) | |||||
| Other liabilities | (390,171 | ) | |||||
| 2,864,360 | |||||||
| Net Assets - 100% | |||||||
| Applicable to 11,559,189 outstanding $.001 par value shares (authorized 500,000,000 shares) | $ | 245,060,534 | |||||
| Net Asset Value, Offering and Redemption Price Per Share | $ | 21.20 | |||||
| Components of Net Assets as of October 31, 2007 were as follows: | |||||||
| Paid-in capital | $ | 153,752,880 | |||||
| Accumulated undistributed net investment income | 927,515 | ||||||
| Accumulated undistributed net realized gain on investments and foreign currency-related transactions | 7,259,712 | ||||||
| Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies (Note 4) | 83,120,427 | ||||||
| $ | 245,060,534 | ||||||
Summary of Abbreviations
ADR American Depository Receipt
GDR Global Depositary Receipt
Reg S Security sold outside United States without registration under the Securities Act of 1933
(1) See Note 2 to Financial Statements
# Security valued at fair value as determined in good faith by or under the direction of the Board of Directors.
* Non-income producing security.
See Notes to Financial Statements
10
Harding, Loevner Funds, Inc.
International Equity Portfolio — Overview
(unaudited)
October 31, 2007
| Returns for the Year Ended October 31, 2007 | |||||||||||||||||||||||
| Cumulative Total Returns | Average Annualized Total Return | ||||||||||||||||||||||
| FUND NAME | Last 12 Months | 5 YR | 10 YR | 5 YR | 10 YR | ||||||||||||||||||
| International Equity Institutional Class (Inception date 11/1/94) | 25.24 | % | 149.17 | % | 135.56 | % | 20.03 | % | 8.95 | % | |||||||||||||
| MSCI All Country World ex-US (Net dividend) | 32.44 | % | 216.21 | % | 170.46 | % | 25.89 | % | 10.46 | % | |||||||||||||
| Lipper International Fund Index | 29.20 | % | 188.37 | % | 161.62 | % | 23.59 | % | 10.09 | % | |||||||||||||
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevner.com.
Investment return reflects voluntary fee waivers in effect. Absence such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.
11
Harding, Loevner Funds, Inc.
International Equity Portfolio — Overview
October 31, 2007
The Harding, Loevner Funds, Inc. International Equity Portfolio Institutional Class returned 25.24% for the fiscal year ending October 31, 2007, as compared to 32.44% for its benchmark, the MSCI All Country World ex-US Index.
Consistent with its investment objectives and policies, the Portfolio was invested primarily in the securities of non-US companies that exhibited the fundamental characteristics of growth, financial strength, management quality and durable competitive advantage.
The Portfolio lagged its benchmark primarily due to the absence of both mining shares and China-related shares, along with poor stock selection within the Information Technology sector.
Measured against the benchmark from a regional perspective, much of our lagging relative performance shows up as individual stock selection within the Emerging Markets: our emerging markets holdings returned about 35% in the year—a good result in nominal terms and better than most developed markets—but had a hard time keeping up with the blistering 68% return of the MSCI Emerging Markets sub-Index. Specifically, due largely to valuation concerns, we had no holdings in Brazil, and just one (sold at mid year) in China. Both these markets more than doubled in the year.
Individual stock selection was also net negative for the Portfolio from an industrial sector perspective, as was allocation between sectors. The Portfolio was hurt by its lack of mining shares and low holdings in Materials, while at the same time lagged due to the large allocation to stocks in the underperforming Health Care sector. Poor performance from Japanese holdings Monex Beans and Nomura within Financials, along with Hoya, Hirose, Keyence, and Yokogawa within technology hardware, were the main detractors from stock selection.
Past performance does not guarantee future results.
The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. The portfolio invests in smaller companies which involve additional risks such as limited liquidity and greater volatility.
Portfolio holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Please refer to the Schedule of Investments in this report for complete fund holdings.
The MSCI All Country World ex-US Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets, excluding the US. The Index consists of 48 developed and emerging market countries. Net dividends are reinvested.
The MSCI Emerging Markets sub-Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The Index consists of 25 emerging market countries. Net dividends are reinvested.
It is not possible to invest directly in an index.
12
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
October 31, 2007 (unaudited)
| Industry | Percentage of Net Assets | ||||||
| Banks | 13.3 | % | |||||
| Beverages, Food & Tobacco | 12.6 | ||||||
| Chemicals | 5.1 | ||||||
| Commercial Services & Supplies | 10.3 | ||||||
| Communications | 4.3 | ||||||
| Computer Software & Processing | 2.6 | ||||||
| Computers & Information | 0.7 | ||||||
| Electrical Equipment | 13.1 | ||||||
| Financial Services | 3.4 | ||||||
| Health Care Providers & Services | 2.0 | ||||||
| Heavy Machinery | 4.5 | ||||||
| Insurance | 1.5 | ||||||
| Medical Supplies | 5.5 | ||||||
| Oil & Gas | 13.3 | ||||||
| Pharmaceuticals | 2.4 | ||||||
| Real Estate | 1.8 | ||||||
| Retailers | 1.9 | ||||||
| Total Investments | 98.3 | ||||||
| Other Assets Less Liabilities | 1.7 | * | |||||
| Net Assets | 100.0 | % | |||||
* Breakout of other assets and liabilities may be found on page 17.
See Notes to Financial Statements
13
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Common Stocks - 97.5% | |||||||||||
| Australia - 1.8% | |||||||||||
| Cochlear Ltd. (Medical Supplies) | 111,500 | $ | 7,171,289 | ||||||||
| Austria - 2.0% | |||||||||||
| Erste Bank der Oesterreichischen Sparkassen AG (Banks) | 97,670 | 7,971,773 | |||||||||
| Bermuda - 3.7% | |||||||||||
| Bunge Ltd. (Beverages, Food & Tobacco) | 130,230 | 15,001,194 | |||||||||
| Canada - 5.3% | |||||||||||
| EnCana Corp. (Oil & Gas) | 147,282 | 10,265,555 | |||||||||
| Imperial Oil Ltd. (Oil & Gas) | 208,390 | 11,280,151 | |||||||||
| 21,545,706 | |||||||||||
| France - 10.0% | |||||||||||
| Air Liquide (Chemicals) | 89,884 | 12,410,766 | |||||||||
| Dassault Systemes SA (Computer Software & Processing) | 171,100 | 10,618,413 | |||||||||
| LVMH Moet Hennessy Louis Vuitton SA (Beverages, Food & Tobacco) | 65,400 | 8,445,112 | |||||||||
| Schneider Electric SA (Electrical Equipment) | 66,560 | 9,195,992 | |||||||||
| 40,670,283 | |||||||||||
| Germany - 3.8% | |||||||||||
| Fresenius AG (Health Care Providers & Services) | 62,620 | 4,881,527 | |||||||||
| Qiagen NV (Commercial Services & Supplies)* | 456,250 | 10,777,573 | |||||||||
| 15,659,100 | |||||||||||
| Hong Kong - 3.5% | |||||||||||
| Hutchison Whampoa Ltd. (Commercial Services & Supplies) | 523,000 | 6,591,174 | |||||||||
| Li & Fung Ltd. (Commercial Services & Supplies) | 1,620,200 | 7,671,409 | |||||||||
| 14,262,583 | |||||||||||
| India - 2.1% | |||||||||||
| HDFC Bank Ltd. (Banks) | 196,750 | 8,391,083 | |||||||||
| Indonesia - 1.9% | |||||||||||
| PT Telekomunikasi Indonesia - Sponsored ADR (Communications) | 162,410 | 7,836,283 | |||||||||
| Japan - 16.2% | |||||||||||
| Fanuc Ltd. (Electrical Equipment) | 68,000 | 7,442,868 | |||||||||
| Hirose Electronics Co., Ltd. (Electrical Equipment) | 36,600 | 4,376,446 | |||||||||
| Hoya Corp. (Electrical Equipment) | 179,100 | 6,509,277 | |||||||||
| JSR Corp. (Chemicals) | 326,500 | 8,450,130 | |||||||||
| Keyence Corp. (Electrical Equipment) | 32,865 | 7,568,082 | |||||||||
| Kubota Corp. (Heavy Machinery) | 1,120,300 | 9,420,352 | |||||||||
| Monex Beans Holdings Inc. (Computers & Information) | 3,920 | 2,696,040 | |||||||||
| Nomura Holdings Inc. (Financial Services) | 350,500 | 6,244,762 | |||||||||
| Sumitomo Realty & Development Co., Ltd. (Real Estate) | 208,000 | 7,319,583 | |||||||||
| Yokogawa Electric Corp. (Electrical Equipment) | 468,100 | 5,905,566 | |||||||||
| 65,933,106 | |||||||||||
| Malaysia - 1.8% | |||||||||||
| Sime Darby Berhad (Commercial Services & Supplies)# | 2,248,000 | 7,374,249 | |||||||||
See Notes to Financial Statements
14
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Mexico - 4.2% | |||||||||||
| America Movil SA de CV, Series L - ADR (Communications) | 145,700 | $ | 9,527,323 | ||||||||
| Wal-Mart de Mexico SA de CV - ADR (Retailers) | 186,480 | 7,580,412 | |||||||||
| 17,107,735 | |||||||||||
| Poland - 1.4% | |||||||||||
| Bank Pekao SA - GDR (Banks)# | 54,450 | 5,768,917 | |||||||||
| Russia - 1.6% | |||||||||||
| OAO Gazprom - Sponsored ADR, Reg S (Oil & Gas) | 126,800 | 6,337,322 | |||||||||
| Singapore - 1.2% | |||||||||||
| DBS Group Holdings Ltd. (Banks) | 305,083 | 4,766,357 | |||||||||
| South Africa - 3.3% | |||||||||||
| Sasol Ltd. (Oil & Gas) | 261,700 | 13,532,517 | |||||||||
| South Korea - 1.5% | |||||||||||
| Samsung Electronics Co., Ltd., GDR, Reg S (Electrical Equipment) | 20,630 | 6,325,240 | |||||||||
| Spain - 2.8% | |||||||||||
| Banco Santander Central Hispano SA (Banks) | 527,800 | 11,536,612 | |||||||||
| Sweden - 4.0% | |||||||||||
| Atlas Copco AB - Class A (Heavy Machinery) | 532,800 | 8,928,517 | |||||||||
| Skandinaviska Enskilda Banken AB, Class A (Banks) | 240,700 | 7,406,401 | |||||||||
| 16,334,918 | |||||||||||
| Switzerland - 12.7% | |||||||||||
| Alcon Inc. (Medical Supplies) | 55,050 | 8,379,161 | |||||||||
| Nestle SA - ADR (Beverages, Food & Tobacco) | 111,520 | 12,730,008 | |||||||||
| Nobel Biocare Holding AG (Medical Supplies) | 23,620 | 6,899,187 | |||||||||
| Roche Holding AG - Genusschein (Pharmaceuticals) | 57,490 | 9,827,470 | |||||||||
| Swiss Re - Registered (Insurance) | 67,500 | 6,356,450 | |||||||||
| UBS AG - Registered (Financial Services) | 139,080 | 7,464,508 | |||||||||
| 51,656,784 | |||||||||||
| Taiwan - 1.5% | |||||||||||
| Taiwan Semiconductor Manufacturing Co. (Electrical Equipment) | 3,095,271 | 6,176,902 | |||||||||
| United Kingdom - 11.2% | |||||||||||
| BG Group plc (Oil & Gas) | 684,750 | 12,675,814 | |||||||||
| Standard Chartered plc (Banks) | 219,090 | 8,539,780 | |||||||||
| Tesco plc (Beverages, Food & Tobacco) | 891,370 | 9,067,573 | |||||||||
| Unilever plc (Beverages, Food & Tobacco) | 175,435 | 5,943,386 | |||||||||
| WPP Group plc (Commercial Services & Supplies) | 698,130 | 9,558,543 | |||||||||
| 45,785,096 | |||||||||||
| Total Common Stocks (Cost $216,559,386) | 397,145,049 | ||||||||||
See Notes to Financial Statements
15
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Preferred Stocks - 0.8% | |||||||||||
| Germany - 0.8% | |||||||||||
| Fresenius AG (Health Care Providers & Services) | 40,100 | $ | 3,183,245 | ||||||||
| Total Preferred Stocks (Cost $2,890,967) | 3,183,245 | ||||||||||
| Total Investments - 98.3% (Cost $219,450,353) | $ | 400,328,294 | |||||||||
See Notes to Financial Statements
16
Harding, Loevner Funds, Inc.
International Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Value (1) | |||||||
| Liabilities, Net of Other Assets - 1.7% | |||||||
| Cash | $ | 6,367,331 | |||||
| Receivable for securities sold | 920,666 | ||||||
| Dividends and interest receivable | 503,967 | ||||||
| Receivable for fund shares sold | 6,254 | ||||||
| Tax reclaim receivable | 172,607 | ||||||
| Prepaid expenses | 2,530 | ||||||
| Payable for distribution fees | (9,314 | ) | |||||
| Payable for fund shares redeemed | (23,539 | ) | |||||
| Payable to investment advisor | (270,983 | ) | |||||
| Due to custodian | (540,292 | ) | |||||
| Other liabilities | (161,181 | ) | |||||
| 6,968,046 | |||||||
| Net Assets - 100% | |||||||
| Investor Class | |||||||
| Applicable to 768,115 outstanding $.001 par value shares (authorized 250,000,000 shares) | $ | 16,637,157 | |||||
| Net Asset Value, Offering Price and Redemption Price Per Share | $ | 21.66 | |||||
| Institutional Class | |||||||
| Applicable to 17,994,282 outstanding $.001 par value shares (authorized 250,000,000 shares) | $ | 390,659,183 | |||||
| Net Asset Value, Offering Price and Redemption Price Per Share | $ | 21.71 | |||||
| Components of Net Assets as of October 31, 2007 were as follows: | |||||||
| Paid-in capital | $ | 193,644,531 | |||||
| Accumulated undistributed net investment income | 2,393,120 | ||||||
| Accumulated undistributed net realized gain on investments and foreign currency-related transactions | 30,366,989 | ||||||
| Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies (Note 4) | 180,891,700 | ||||||
| $ | 407,296,340 | ||||||
Summary of Abbreviations
ADR American Depository Receipt
GDR Global Depositary Receipt
Reg S Security sold outside United States without registration under the Securities Act of 1933
(1) See Note 2 to Financial Statements
# Security valued at fair value as determined in good faith by or under the direction of the Board of Directors.
* Non-income producing security.
See Notes to Financial Statements
17
Harding, Loevner Funds, Inc.
Global Equity Portfolio — Overview
(unaudited)
October 31, 2007
| Returns for the Year Ended October 31, 2007 | |||||||||||||||||||||||
| Cumulative Total Returns | Average Annualized Total Return | ||||||||||||||||||||||
| FUND NAME | Last 12 Months | 5 YR | 10 YR | 5 YR | 10 YR | ||||||||||||||||||
| Global Equity Portfolio (Inception date 12/1/96) | 26.01 | % | 135.70 | % | 132.49 | % | 18.71 | % | 8.80 | % | |||||||||||||
| MSCI All Country World Index (Net dividend) | 24.18 | % | 145.47 | % | 126.41 | % | 19.67 | % | 8.51 | % | |||||||||||||
| Lipper Global Equity Fund Index | 21.24 | % | 133.09 | % | 126.19 | % | 18.44 | % | 8.50 | % | |||||||||||||
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance current to the most recent month end may be lower or higher than the performance quoted and may be obtained by visiting the website at www.hardingloevner.com.
Investment return reflects voluntary fee waivers in effect. Absence such waivers, total return would be reduced. The performance provided does not reflect the deduction of taxes that a shareholder would pay on Portfolio distributions.
18
Harding, Loevner Funds, Inc.
Global Equity Portfolio — Overview
October 31, 2007
The Harding, Loevner Funds, Inc. Global Equity Portfolio returned 26.01% for the fiscal year ending October 31, 2007, as compared to 24.18% for its benchmark, the MSCI All Country World Index.
Consistent with its investment objectives and policies, the Portfolio was invested primarily in the securities of global companies that exhibited the fundamental characteristics of growth, financial strength, management quality and durable competitive advantage.
Measured against the benchmark from a regional perspective, substantially all of our good relative performance came from individual stock selection within the US market: our holdings there returned more than 21% in the year, versus less than 15% for the MSCI US sub-Index. With the US holdings accounting for nearly half the Portfolio, that strong performance carried over into the overall relative performance. Returns were boosted by strong returns from a number of industry groups, including Schlumberger in energy, Cisco Systems in technology hardware, Medco Health Solution s in health care equipment and services, Emerson Electric in capital goods, and Praxair in materials. Stock selection was less successful this year in Emerging Markets, where Portfolio stocks returned more than 57%, but had a hard time keeping up with the blistering 68% return of the Emerging Markets sub-Index.
Individual stock selection was also a net positive for the Portfolio from an Industrials sector perspective, but benefited somewhat from allocation between sectors. The Portfolio carried a much smaller weight in the Financials and Consumer Discretionary sectors than the Index, which boosted relative performance; large holdings of Industrials, Information Technology, and Materials also were beneficial but large holding of Health Care companies detracted from relative performance.
Past performance does not guarantee future results.
The Portfolio invests in foreign securities, which will involve greater volatility and political, economic, and currency risks, such as exposure to economies less diverse and mature than the U.S. or other more established foreign markets. Economic and political instability may cause larger price changes in emerging markets securities than other foreign securities. The portfolio invests in smaller companies which involve additional risks such as limited liquidity and greater volatility.
Portfolio holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. Please refer to the Schedule of Investments in this report for complete fund holdings.
The MSCI All Country World Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global developed and emerging markets. The Index consists of 47 developed and emerging market countries. Net dividends are reinvested.
It is not possible to invest directly in an index.
19
Harding, Loevner Funds, Inc.
Global Equity Portfolio
Statement of Net Assets
October 31, 2007 (unaudited)
| Industry | Percentage of Net Assets | ||||||
| Banks | 5.4 | % | |||||
| Beverages, Food & Tobacco | 5.5 | ||||||
| Chemicals | 5.8 | ||||||
| Commercial Services & Supplies | 6.0 | ||||||
| Communications | 7.4 | ||||||
| Computer Software & Processing | 4.6 | ||||||
| Computers & Information | 2.9 | ||||||
| Cosmetics & Personal Care | 3.6 | ||||||
| Electrical Equipment | 8.3 | ||||||
| Financial Services | 2.6 | ||||||
| Heavy Machinery | 2.2 | ||||||
| Industrial - Diversified | 4.9 | ||||||
| Insurance | 3.0 | ||||||
| Media | 3.4 | ||||||
| Medical Supplies | 5.5 | ||||||
| Metals & Mining | 3.3 | ||||||
| Oil & Gas | 10.6 | ||||||
| Pharmaceuticals | 6.4 | ||||||
| Real Estate | 1.4 | ||||||
| Retailers | 1.8 | ||||||
| Transportation | 3.7 | ||||||
| Total Investments | 98.3 | ||||||
| Other Assets Less Liabilities | 1.7 | * | |||||
| Net Assets | 100.0 | % | |||||
* Breakout of other assets and liabilities may be found on page 23.
See Notes to Financial Statements
20
Harding, Loevner Funds, Inc.
Global Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Common Stocks - 98.3% | |||||||||||
| Australia - 4.8% | |||||||||||
| Cochlear Ltd. (Medical Supplies) | 9,000 | $ | 578,848 | ||||||||
| Rio Tinto Ltd. (Metals & Mining) | 12,680 | 1,316,964 | |||||||||
| 1,895,812 | |||||||||||
| Austria - 1.3% | |||||||||||
| Erste Bank der Oesterreichischen Sparkassen AG (Banks) | 6,320 | 515,835 | |||||||||
| Canada - 2.2% | |||||||||||
| EnCana Corp. (Oil & Gas) | 12,850 | 895,645 | |||||||||
| China - 3.7% | |||||||||||
| China Merchants Holdings International Co., Ltd. (Transportation) | 208,000 | 1,474,740 | |||||||||
| France - 9.8% | |||||||||||
| Air Liquide (Chemicals) | 3,810 | 526,067 | |||||||||
| Dassault Systemes SA (Computer Software & Processing) | 10,650 | 660,936 | |||||||||
| L'Oreal SA (Cosmetics & Personal Care) | 6,920 | 910,801 | |||||||||
| LVMH Moet Hennessy Louis Vuitton SA (Beverages, Food & Tobacco) | 3,314 | 427,937 | |||||||||
| Schlumberger Ltd. (Oil & Gas) | 14,180 | 1,369,363 | |||||||||
| 3,895,104 | |||||||||||
| Germany - 2.6% | |||||||||||
| Qiagen NV (Commercial Services & Supplies)* | 43,900 | 1,037,009 | |||||||||
| Hong Kong - 2.4% | |||||||||||
| Li & Fung Ltd. (Commercial Services & Supplies) | 201,800 | 955,493 | |||||||||
| Indonesia - 1.4% | |||||||||||
| PT Telekomunikasi Indonesia - Sponsored ADR (Communications) | 11,500 | 554,875 | |||||||||
| Japan - 9.4% | |||||||||||
| Fanuc Ltd. (Electrical Equipment) | 3,100 | 339,307 | |||||||||
| JSR Corp. (Chemicals) | 28,800 | 745,371 | |||||||||
| Keyence Corp. (Electrical Equipment) | 4,160 | 957,956 | |||||||||
| Monex Beans Holdings Inc. (Computers & Information) | 370 | 254,473 | |||||||||
| Nomura Holdings Inc. (Financial Services) | 33,900 | 603,987 | |||||||||
| Sumitomo Realty & Development Co., Ltd. (Real Estate) | 16,000 | 563,045 | |||||||||
| Yokogawa Electric Corp. (Electrical Equipment) | 23,000 | 290,169 | |||||||||
| 3,754,308 | |||||||||||
| Malaysia - 1.0% | |||||||||||
| Sime Darby Berhad (Commercial Services & Supplies)# | 120,000 | 393,643 | |||||||||
| Mexico - 1.8% | |||||||||||
| America Movil SA de CV, Series L - ADR (Communications) | 10,700 | 699,673 | |||||||||
| Singapore - 1.2% | |||||||||||
| Olam International Ltd. (Beverages, Food & Tobacco) | 191,000 | 469,415 | |||||||||
| South Africa - 1.6% | |||||||||||
| Sasol Ltd. (Oil & Gas) | 12,440 | 643,273 | |||||||||
See Notes to Financial Statements
21
Harding, Loevner Funds, Inc.
Global Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Shares | Value (1) | ||||||||||
| Switzerland - 7.3% | |||||||||||
| Alcon Inc. (Medical Supplies) | 3,900 | $ | 593,619 | ||||||||
| Nestle SA - ADR (Beverages, Food & Tobacco) | 6,820 | 778,503 | |||||||||
| Novartis AG - Registered (Pharmaceuticals) | 6,920 | 368,669 | |||||||||
| Roche Holding AG - Genusschein (Pharmaceuticals) | 2,200 | 376,073 | |||||||||
| Swiss Re - Registered (Insurance) | 4,700 | 442,597 | |||||||||
| Synthes Inc. (Medical Supplies) | 2,800 | 350,150 | |||||||||
| 2,909,611 | |||||||||||
| Taiwan - 0.8% | |||||||||||
| Advantech Co., Ltd. (Computers & Information) | 118,657 | 323,859 | |||||||||
| United Kingdom - 3.9% | |||||||||||
| Pearson plc (Media) | 28,800 | 478,804 | |||||||||
| Standard Chartered plc (Banks) | 27,700 | 1,079,702 | |||||||||
| 1,558,506 | |||||||||||
| United States - 43.1% | |||||||||||
| 3M Co. (Industrial - Diversified) | 11,780 | 1,017,321 | |||||||||
| Abbott Laboratories (Pharmaceuticals) | 13,100 | 715,522 | |||||||||
| Air Products & Chemicals Inc. (Chemicals) | 4,750 | 464,787 | |||||||||
| American International Group (Insurance) | 12,100 | 763,752 | |||||||||
| Analog Devices (Electrical Equipment) | 17,400 | 582,204 | |||||||||
| Automatic Data Processing Inc. (Computer Software & Processing) | 7,720 | 382,603 | |||||||||
| Caterpillar Inc. (Heavy Machinery) | 12,000 | 895,320 | |||||||||
| Cisco Systems Inc. (Communications)* | 36,700 | 1,213,302 | |||||||||
| Colgate-Palmolive Co. (Cosmetics & Personal Care) | 6,850 | 522,449 | |||||||||
| eBay Inc. (Computers & Information)* | 16,050 | 579,405 | |||||||||
| Electronic Arts Inc. (Computer Software & Processing)* | 12,600 | 770,112 | |||||||||
| Emerson Electric Co. (Electrical Equipment) | 21,500 | 1,123,805 | |||||||||
| Exxon Mobil Corp. (Oil & Gas) | 14,050 | 1,292,460 | |||||||||
| Fortress Investment Group LLC - Class A (Financial Services) | 19,000 | 418,950 | |||||||||
| Genentech Inc. (Pharmaceuticals)* | 3,600 | 266,868 | |||||||||
| General Electric Co. (Industrial - Diversified) | 22,700 | 934,332 | |||||||||
| Medco Health Solutions Inc. (Pharmaceuticals)* | 8,639 | 815,349 | |||||||||
| Medtronic Inc. (Medical Supplies) | 14,450 | 685,508 | |||||||||
| Praxair Inc. (Chemicals) | 6,600 | 564,168 | |||||||||
| Qualcomm Inc. (Communications) | 11,600 | 495,668 | |||||||||
| The Coca-Cola Company (Beverages, Food & Tobacco) | 8,130 | 502,109 | |||||||||
| Viacom Inc., Class B (Media)* | 20,875 | 861,929 | |||||||||
| Walgreen Co. (Retailers) | 18,350 | 727,578 | |||||||||
| Wells Fargo & Co. (Banks) | 16,000 | 544,160 | |||||||||
| 17,139,661 | |||||||||||
| Total Common Stocks (Cost $24,439,303) | 39,116,462 | ||||||||||
| Total Investments - 98.3% (Cost $24,439,303) | $ | 39,116,462 | |||||||||
See Notes to Financial Statements
22
Harding, Loevner Funds, Inc.
Global Equity Portfolio
Statement of Net Assets
October 31, 2007 (continued)
| Value (1) | |||||||
| Liabilities, Net of Other Assets - 1.7% | |||||||
| Cash | $ | 215,334 | |||||
| Dividends and interest receivable | 34,129 | ||||||
| Foreign currency (cost $2,847) | 2,877 | ||||||
| Receivable for fund shares sold | 506,063 | ||||||
| Tax reclaim receivable | 7,140 | ||||||
| Prepaid expenses | 223 | ||||||
| Payable to investment advisor | (25,749 | ) | |||||
| Other liabilities | (54,628 | ) | |||||
| 685,389 | |||||||
| Net Assets - 100% | |||||||
| Institutional Class | |||||||
| Applicable to 1,420,099 outstanding $.001 par value shares (authorized 500,000,000 shares) | $ | 39,801,851 | |||||
| Net Asset Value, Offering and Redemption Price Per Share | $ | 28.03 | |||||
| Components of Net Assets as of October 31, 2007 were as follows: | |||||||
| Paid-in capital | $ | 22,245,269 | |||||
| Accumulated undistributed net investment income | 104,971 | ||||||
| Accumulated undistributed net realized gain on investments and foreign currency-related transactions | 2,774,124 | ||||||
| Net unrealized appreciation on investments and on assets and liabilities denominated in foreign currencies (Note 4) | 14,677,487 | ||||||
| $ | 39,801,851 | ||||||
Summary of Abbreviations
ADR American Depository Receipt
(1) See Note 2 to Financial Statements
# Security valued at fair value as determined in good faith by or under the direction of the Board of Directors.
* Non-income producing security.
See Notes to Financial Statements
23
Harding, Loevner Funds, Inc.
Statements of Operations
Year Ended October 31, 2007
| Institutional Emerging Markets Portfolio | International Equity Portfolio | Global Equity Portfolio | |||||||||||||
| Investment Income | |||||||||||||||
| Interest | $ | 109,922 | $ | 378,783 | $ | 27,444 | |||||||||
| Dividends (net of foreign withholding taxes of $299,221, $691,423, and $26,934, respectively) | 3,251,021 | 5,926,149 | 512,780 | ||||||||||||
| Securities lending income, net | 17,623 | 82,443 | 9,514 | ||||||||||||
| Total investment income | 3,378,566 | 6,387,375 | 549,738 | ||||||||||||
| Expenses | |||||||||||||||
| Investment advisory fees (Note 3) | 2,085,618 | 2,852,574 | 345,991 | ||||||||||||
| Administration fees (Note 3) | 102,993 | 223,458 | 29,639 | ||||||||||||
| Distribution fees, Investor Class | — | 33,411 | — | ||||||||||||
| Custodian and accounting fees (Note 3) | 261,376 | 276,077 | 38,381 | ||||||||||||
| Directors' fees and expenses (Note 3) | 7,873 | 18,681 | 1,690 | ||||||||||||
| Shareholder record keeping fees | 28,039 | 76,879 | 31,452 | ||||||||||||
| Printing and postage fees | 7,130 | 51,688 | 5,273 | ||||||||||||
| State registration filing fees | 10,973 | 34,350 | 6,000 | ||||||||||||
| Professional fees | 61,232 | 73,691 | 30,783 | ||||||||||||
| Sub Transfer Agent fees | 30 | 61,379 | — | ||||||||||||
| Other fees and expenses | 21,506 | 53,710 | 5,664 | ||||||||||||
| Total expenses | 2,586,770 | 3,755,898 | 494,873 | ||||||||||||
| Waiver of investment advisory fee (Note 3) | (417,728 | ) | — | (62,384 | ) | ||||||||||
| Less Allocations | (417,728 | ) | — | (62,384 | ) | ||||||||||
| Net expenses | 2,169,042 | 3,755,898 | 432,489 | ||||||||||||
| Net investment income | 1,209,524 | 2,631,477 | 117,249 | ||||||||||||
| Realized and Unrealized Gain (Loss) (Note 4) | |||||||||||||||
| Net realized gain (loss) — | |||||||||||||||
| Investment transactions | 8,146,235 | 33,808,010 | 2,827,663 | ||||||||||||
| Foreign currency transactions | (240,340 | ) | (238,466 | ) | (12,261 | ) | |||||||||
| Net realized gain | 7,905,895 | 33,569,544 | 2,815,402 | ||||||||||||
| Change in unrealized appreciation (depreciation) — | |||||||||||||||
| Investments | 74,297,799 | 50,244,645 | 5,173,711 | ||||||||||||
| Translation of assets and liabilities denominated in foreign currencies | 66 | 15,131 | 338 | ||||||||||||
| Net change in unrealized appreciation | 74,297,865 | 50,259,776 | 5,174,049 | ||||||||||||
| Net realized and unrealized gain | 82,203,760 | 83,829,320 | 7,989,451 | ||||||||||||
| Net Increase in Net Assets Resulting from Operations | $ | 83,413,284 | $ | 86,460,797 | $ | 8,106,700 | |||||||||
See Notes to Financial Statements
24
Harding, Loevner Funds, Inc.
Statement of Changes in Net Assets
| Institutional Emerging | Markets Portfolio | ||||||||||
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||
| Increase in Net Assets From Operations | |||||||||||
| Net investment income | $ | 1,209,524 | $ | 383,821 | |||||||
| Net realized gain (loss) on investments and foreign currency transactions | 7,905,895 | (1,009,149 | ) | ||||||||
| Net change in unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies | 74,297,865 | 8,847,776 | |||||||||
| Net increase in net assets resulting from operations | 83,413,284 | 8,222,448 | |||||||||
| Distributions to Shareholders from: | |||||||||||
| Net investment income | (168,859 | ) | (47,807 | ) | |||||||
| Total distributions to shareholders | (168,859 | ) | (47,807 | ) | |||||||
| Transactions in Shares of Common Stock | |||||||||||
| Proceeds from sale of shares | 80,189,884 | 72,745,861 | |||||||||
| Net Asset Value of shares issued to shareholders upon reinvestment of dividends | 129,641 | 47,807 | |||||||||
| Cost of shares redeemed | (4,433,400 | ) | — | ||||||||
| Net Increase in Net Assets from Fund Share Transactions | 75,886,125 | 72,793,668 | |||||||||
| Net Increase in Net Assets | 159,130,550 | 80,968,309 | |||||||||
| Net Assets | |||||||||||
| At beginning of year | 85,929,984 | 4,961,675 | |||||||||
| At end of year | $ | 245,060,534 | $ | 85,929,984 | |||||||
| Accumulated Undistributed Net Investment Income Included in Net Assets | $ | 927,515 | $ | 127,190 | |||||||
See Notes to Financial Statements
25
Harding, Loevner Funds, Inc.
Statement of Changes in Net Assets (continued)
| International Equity Portfolio | |||||||||||
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||
| Increase in Net Assets From Operations | |||||||||||
| Net investment income | $ | 2,631,477 | $ | 2,398,346 | |||||||
| Net realized gain on investments and foreign currency transactions | 33,569,544 | 26,617,595 | |||||||||
| Net change in unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies | 50,259,776 | 48,831,422 | |||||||||
| Net increase in net assets resulting from operations | 86,460,797 | 77,847,363 | |||||||||
| Distributions to Shareholders from: | |||||||||||
| Net investment income | |||||||||||
| Investor Class | (35,003 | ) | (10,374 | ) | |||||||
| Institutional Class | (1,773,831 | ) | (1,514,373 | ) | |||||||
| Net realized gain from investments and foreign currency-related transactions | |||||||||||
| Investor Class | (740,612 | ) | (1,829 | ) | |||||||
| Institutional Class | (24,669,178 | ) | (252,725 | ) | |||||||
| Total distributions to shareholders | (27,218,624 | ) | (1,779,301 | ) | |||||||
| Transactions in Shares of Common Stock | |||||||||||
| Proceeds from sale of shares | |||||||||||
| Investor Class | 7,304,858 | 9,132,750 | |||||||||
| Institutional Class | 21,697,361 | 49,366,216 | |||||||||
| Net Asset Value of shares issued to shareholders upon reinvestment of dividends | |||||||||||
| Investor Class | 723,002 | 10,881 | |||||||||
| Institutional Class | 25,144,499 | 1,601,590 | |||||||||
| Cost of shares redeemed | |||||||||||
| Investor Class | (3,504,036 | ) | (703,793 | ) | |||||||
| Institutional Class | (57,161,618 | ) | (82,366,219 | ) | |||||||
| Redemption fees | |||||||||||
| Investor Class | 482 | 1,097 | |||||||||
| Institutional Class | 265 | 1,286 | |||||||||
| Net Decrease in Net Assets from Fund Share Transactions | (5,795,187 | ) | (22,956,192 | ) | |||||||
| Net Increase in Net Assets | 53,446,986 | 53,111,870 | |||||||||
| Net Assets | |||||||||||
| At beginning of year | 353,849,354 | 300,737,484 | |||||||||
| At end of year | $ | 407,296,340 | $ | 353,849,354 | |||||||
| Accumulated Undistributed Net Investment Income Included in Net Assets | $ | 2,393,120 | $ | 1,808,943 | |||||||
See Notes to Financial Statements
26
Harding, Loevner Funds, Inc.
Statement of Changes in Net Assets (continued)
| Global Equity Portfolio | |||||||||||
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||
| Increase in Net Assets From Operations | |||||||||||
| Net investment income | $ | 117,249 | $ | 105,817 | |||||||
| Net realized gain on investments and foreign currency transactions | 2,815,402 | 2,324,640 | |||||||||
| Net change in unrealized appreciation on investments and translation of assets and liabilities denominated in foreign currencies | 5,174,049 | 2,940,154 | |||||||||
| Net increase in net assets resulting from operations | 8,106,700 | 5,370,611 | |||||||||
| Distributions to Shareholders from: | |||||||||||
| Net investment income | |||||||||||
| Institutional Class | (99,025 | ) | (76,411 | ) | |||||||
| Net realized gain from investments and foreign currency-related transactions Institutional Class | (2,322,308 | ) | (601,908 | ) | |||||||
| Total distributions to shareholders | (2,421,333 | ) | (678,319 | ) | |||||||
| Transactions in Shares of Common Stock | |||||||||||
| Proceeds from sale of shares | |||||||||||
| Institutional Class | 929,416 | 621,542 | |||||||||
| Net Asset Value of shares issued to shareholders upon reinvestment of dividends | |||||||||||
| Institutional Class | 2,374,390 | 641,785 | |||||||||
| Cost of shares redeemed | |||||||||||
| Institutional Class | (292,946 | ) | (167,212 | ) | |||||||
| Net Increase in Net Assets from Fund Share Transactions | 3,010,860 | 1,096,115 | |||||||||
| Net Increase in Net Assets | 8,696,227 | 5,788,407 | |||||||||
| Net Assets | |||||||||||
| At beginning of year | 31,105,624 | 25,317,217 | |||||||||
| At end of year | $ | 39,801,851 | $ | 31,105,624 | |||||||
| Accumulated Undistributed Net Investment Income Included in Net Assets | $ | 104,971 | $ | 99,008 | |||||||
See Notes to Financial Statements
27
Harding, Loevner Funds, Inc.
Financial Highlights
| Institutional Emerging Markets Portfolio | |||||||||||||||
| For the Year Ended Oct. 31, 2007 | For the Year Ended Oct. 31, 2006 | For the Period Ended Oct. 31, 2005(1) | |||||||||||||
| Per Share Data | |||||||||||||||
| Net Asset Value, Beginning of Period | $ | 13.42 | $ | 9.92 | $ | 10.00 | |||||||||
| Increase (Decrease) in Net Assets from Operations | |||||||||||||||
| Net investment income (loss) | 0.10 | 0.07 | (0.00 | )* | |||||||||||
| Net realized and unrealized gain (loss) on investments and foreign currency-related transactions | 7.70 | 3.45 | (0.08 | ) | |||||||||||
| Net increase (decrease) from investment operations | 7.80 | 3.52 | (0.08 | ) | |||||||||||
| Distributions to Shareholders from: | |||||||||||||||
| Net investment income | (0.02 | ) | (0.02 | ) | — | ||||||||||
| Total distributions | (0.02 | ) | (0.02 | ) | — | ||||||||||
| Net Asset Value, End of Period | $ | 21.20 | $ | 13.42 | $ | 9.92 | |||||||||
| Total Return | 58.18 | % | 35.38 | % | (0.70 | )%(B) | |||||||||
| Ratios/Supplemental Data: | |||||||||||||||
| Net assets, end of period (000's) | $ | 245,061 | $ | 85,930 | $ | 4,962 | |||||||||
| Net expenses to average net assets | 1.30 | % | 1.30 | % | 1.30 | %(A) | |||||||||
| Net investment income (loss) to average net assets | 0.72 | % | 0.88 | % | (0.19 | )%(A) | |||||||||
| Decrease reflected in above expense ratios due to expense reductions | 0.25 | % | 0.51 | % | 20.02 | %(A) | |||||||||
| Portfolio turnover rate | 32 | % | 38 | % | 1 | %(B) | |||||||||
(1) For the period from October 17, 2005 (commencement of operations) through October 31, 2005.
* Rounds to less than 0.01%.
(A) Annualized.
(B) Not Annualized.
See Notes to Financial Statements
28
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
| International Equity Portfolio - Institutional Class | |||||||||||||||||||||||
| For the Year Ended Oct. 31, 2007 | For the Year Ended Oct. 31, 2006 | For the Year Ended Oct. 31, 2005 | For the Year Ended Oct. 31, 2004 | For the Year Ended Oct. 31, 2003 | |||||||||||||||||||
| Per Share Data | |||||||||||||||||||||||
| Net Asset Value, Beginning of Year | $ | 18.68 | $ | 14.90 | $ | 12.41 | $ | 11.30 | $ | 9.58 | |||||||||||||
| Increase (Decrease) in Net Assets from Operations Increase in Net Assets from Operations | |||||||||||||||||||||||
| Net investment income | 0.14 | 0.12 | (1) | 0.13 | 0.11 | 0.11 | |||||||||||||||||
| Net realized and unrealized gain on investments and foreign currency-related transactions | 4.33 | 3.75 | 2.42 | 1.07 | 1.65 | ||||||||||||||||||
| Net increase (decrease) from investment operations | 4.47 | 3.87 | 2.55 | 1.18 | 1.76 | ||||||||||||||||||
| Distributions to Shareholders from: | |||||||||||||||||||||||
| Net investment income | (0.10 | ) | (0.08 | ) | (0.06 | ) | (0.07 | ) | (0.04 | ) | |||||||||||||
| Net realized gain from investments and foreign currency-related transactions | (1.34 | ) | (0.01 | ) | — | — | — | ||||||||||||||||
| Total distributions | (1.44 | ) | (0.09 | ) | (0.06 | ) | (0.07 | ) | (0.04 | ) | |||||||||||||
| Net Asset Value, End of Year | $ | 21.71 | $ | 18.68 | $ | 14.90 | $ | 12.41 | $ | 11.30 | |||||||||||||
| Total Return | 25.24 | % | 26.06 | % | 20.58 | % | 10.46 | % | 18.49 | % | |||||||||||||
| Ratios/Supplemental Data: | |||||||||||||||||||||||
| Net assets, end of year (000's) | $ | 390,659 | $ | 343,965 | $ | 300,227 | $ | 315,420 | $ | 350,020 | |||||||||||||
| Net expenses to average net assets | 0.98 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | |||||||||||||
| Net investment income to average net assets | 0.70 | % | 0.69 | % | 0.77 | % | 0.81 | % | 1.10 | % | |||||||||||||
| Decrease reflected in above expense ratios due to expense reductions | — | 0.01 | % | 0.05 | % | 0.09 | % | 0.06 | % | ||||||||||||||
| Portfolio turnover rate | 19 | % | 35 | % | 38 | % | 37 | % | 58 | % | |||||||||||||
(1) Computed using average shares outstanding throughout the year.
See Notes to Financial Statements
29
Harding, Loevner Funds, Inc.
Financial Highlights (continued)
| Global Equity Portfolio - Institutional Class | |||||||||||||||||||||||
| For the Year Ended Oct. 31, 2007 | For the Year Ended Oct. 31, 2006 | For the Year Ended Oct. 31, 2005 | For the Year Ended Oct. 31, 2004 | For the Year Ended Oct. 31, 2003 | |||||||||||||||||||
| Per Share Data | |||||||||||||||||||||||
| Net Asset Value, Beginning of Year | $ | 24.04 | $ | 20.36 | $ | 17.17 | $ | 16.45 | $ | 13.28 | |||||||||||||
| Increase in Net Assets from Operations | |||||||||||||||||||||||
| Net investment income | 0.09 | 0.08 | 0.09 | 0.05 | 0.09 | ||||||||||||||||||
| Net realized and unrealized gain on investments and foreign currency-related transactions | 5.78 | 4.14 | 3.12 | 0.74 | 3.11 | ||||||||||||||||||
| Net increase from investment operations | 5.87 | 4.22 | 3.21 | 0.79 | 3.20 | ||||||||||||||||||
| Distributions to Shareholders from: | |||||||||||||||||||||||
| Net investment income | (0.08 | ) | (0.06 | ) | (0.02 | ) | (0.07 | ) | (0.03 | ) | |||||||||||||
| Net realized gain from investments and foreign currency-related transactions | (1.80 | ) | (0.48 | ) | — | — | — | ||||||||||||||||
| Total distributions | (1.88 | ) | (0.54 | ) | (0.02 | ) | (0.07 | ) | (0.03 | ) | |||||||||||||
| Net Asset Value, End of Year | $ | 28.03 | $ | 24.04 | $ | 20.36 | $ | 17.17 | $ | 16.45 | |||||||||||||
| Total Return | 26.01 | % | 21.08 | % | 18.72 | % | 4.78 | % | 24.19 | % | |||||||||||||
| Ratios/Supplemental Data: | |||||||||||||||||||||||
| Net assets, end of year (000's) | $ | 39,802 | $ | 31,106 | $ | 25,317 | $ | 25,770 | $ | 26,568 | |||||||||||||
| Net expenses to average net assets | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | 1.25 | % | |||||||||||||
| Net investment income to average net assets | 0.34 | % | 0.37 | % | 0.44 | % | 0.27 | % | 0.70 | % | |||||||||||||
| Decrease reflected in above expense ratios due to expense reductions | 0.18 | % | 0.35 | % | 0.36 | % | 0.18 | % | 0.12 | % | |||||||||||||
| Portfolio turnover rate | 16 | % | 27 | % | 35 | % | 29 | % | 68 | % | |||||||||||||
See Notes to Financial Statements
30
Harding, Loevner Funds, Inc.
Notes to Financial Statements
October 31, 2007
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 ("the 1940 Act"), as amended, as an open-end diversified management investment company. The Fund currently has five Portfolios, all of which were active as of October 31, 2007: International Equity Portfolio ("International Equity"); Emerging Markets Portfolio ("Emerging Markets"); Institutional Emerging Markets Portfolio ("Institutional Emerging Markets"); Global Equity Portfolio ("Global Equity") and International Small Companies Portfolio ("International Small Companies"). Information presented in these financial statements pertains to Institutional Class shares of International Equity, Institutional Emerging Markets and Institutional Class Shares of Global Equity (individually, "Portfolio"; collectively, "Portfolios"). Information pertaining to Investor Class Shares of International Equity and Emerging Markets are presented in a separate report. The investment objective of each Portfolio is as follows: Institutional Emerging Markets—to seek long-term capital appreciation through investments in equity securities of companies based in emerging markets; International Equity—to seek long-term capital appreciation through investments in equity securities of companies based outside the United States; Global Equity—to seek long-term capital appreciation through investments in equity securities of companies based both inside and outside the United States.
Institutional Emerging Markets commenced operations on October 17, 2005. International Equity commenced operations on October 31, 1996 after acquiring the net assets of Harding, Loevner Management, L.P.'s AMT Capital Fund, Inc. Effective August 5, 2005, International Equity converted existing shareholders to the Institutional Class. Institutional Emerging Markets commenced operations on October 17, 2005. Global Equity commenced operations on December 1, 1996 following the acquisition of net assets of Harding, Loevner Management, L.P.'s Global Equity L.P., a limited partnership, in a tax-free reorganization. Effective August 5, 2005, Global Equity launched the Investor Class shares and converted existing shareholders to the Institutional Class. Investor Class of Global Equity has not yet commenced operations.
The Fund is managed by Harding, Loevner Management, L.P. (the "Investment Advisor").
2. Summary of Significant Accounting Policies
The accounting policies of the Fund are in conformity with accounting principles generally accepted in the United States ("GAAP") for investment companies. The following is a summary of the Fund's significant accounting policies:
Indemnifications
Under the Fund's organizational document, its officers and Board of Directors ("Board") are indemnified against certain liability arising out of the performance of their duties to the Portfolios. In the normal course of business, the Fund may enter into contracts that contain a variety of representations or that provide indemnification for certain liabilities. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund that have not yet occurred. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.
Valuation
The Board of Directors (the "Board") of the Fund 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 Portfolios and their Directors to determine, in good faith, the fair value of the Portfolios' securities when market quotations are not readily available.
All investments in the Portfolios are valued daily at their market prices, which results in unrealized gains or losses. Securities traded on an exchange are valued at their last sales price on that exchange. Securities for which no sales are reported are valued at the latest bid price obtained from a quotation reporting system or from established market makers. Repurchase agreements are valued at their amortized cost plus accrued interest. Securities for which market quotations are not readily available are fair valued by the Board or its delegate in accordance with the Procedures, although the actual calculations may be done by others. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, or the appropriate stock exchange (for exchange-traded securities), analysis of the issuer's financial statements or other available documents and, if necessary, availa ble information concerning other securities in similar circumstances. If a significant event occurs after the close of trading but before the calculation of the Portfolio's net asset value and such significant event has a material impact on the Portfolio's net asset value per share
31
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
2. Summary of Significant Accounting Policies (continued)
(i.e. more than $0.01 per share), then the security may be fair valued in accordance with the Procedures. As of October 31, 2007, there were two securities in the Portfolios which required valuation by the Board or its delegate. The Fund has implemented additional fair value pricing on a daily basis for all foreign equity securities held by the Portfolios. The fair value pricing utilizes quantitative models developed by an independent pricing service unless the Fund determines that use of another additional fair valuation methodology is appropriate.
Securities
All securities transactions are recorded on a trade date basis. Interest income and expenses are recorded on an accrual basis. Dividend income is recorded on the ex-dividend date (except for certain foreign dividends that may be recorded as soon as the Portfolio is informed of such dividends). The Portfolios accrete discount or amortize premium using the effective interest method on a daily basis as adjustments to interest income and the cost of investments. The Portfolios use the specific identification method for determining realized gains or losses from sales of securities.
Income Tax
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.
Expenses
Expenses directly attributed to a specific Portfolio are charged to that Portfolio's operations; expenses not directly attributable to a specific Portfolio are allocated among all the Portfolios of the Fund either equitably or based on their average daily net assets.
Dividends to Shareholders
It is the policy of the Portfolios to declare dividends from net investment income annually. Net short-term and long-term capital gains distributions for the Portfolios, if any, normally are distributed on an annual basis.
Dividends from net investment income and distributions from net realized gains from investment transactions have been determined in accordance with income tax regulations and may differ from net investment income and realized gains recorded by the Portfolios for financial reporting purposes. Differences result primarily from foreign currency transactions and timing differences related to recognition of income, and gains and losses from investment transactions. In general, to the extent that any differences which are permanent in nature result in over distributions to shareholders, the amount of the over distribution is reclassified within the capital accounts based on its federal tax basis treatment and may be reported as return of capital. Temporary differences do not require reclassification.
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 portfolio securities are translated at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated at exchange rates prevailing when accrued. The Portfolios do not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.
Net realized gains and losses from foreign currency-related transactions arise from sales of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolios' books, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currencies arise from changes in the value of assets and liabilities other than investments in securities at the period end, resulting from changes in the exchange rates.
Security Lending
Each Portfolio is authorized to lend securities from its investment portfolio to banks, brokers and other financial institutions if it receives collateral in cash, U.S. Government securities or other liquid investments which will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The loans will be terminable at any time by the Fund and the relevant
32
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
2. Summary of Significant Accounting Policies (continued)
Portfolio will then receive the loaned securities within five days. During the period of such a loan, the Portfolio receives an agreed upon portion of the income on the loaned securities and/or a loan fee and may thereby increase its total return. A Portfolio continues to receive interest or dividends on the securities loaned and simultaneously earns either interest on the investment of the cash collateral or fee income if the loan is collateralized with securities rather than cash. However, the Portfolio normally pays lending fees and related expenses from the interest or dividends earned on invested collateral. Although the fund is indemnified by State Street Bank and Trust, which acts as the lending agent, should the borrower of the securities fail financially, there is a risk of delay in recovery of the securities or loss of rights in the collateral. However, loans are made only to borrowers which are approved by the Board and are deemed by the Investment Advisor to be of good financial standing. The Portfolio may invest cash collateral it receives in connection with a loan of securities in securities of the U.S. Government and its agencies and other high quality short-term debt instruments. For purposes of complying with the Portfolios' investment policies and restrictions, collateral received in connection with securities loans will not be deemed an asset of the Portfolio unless otherwise required by law. Net amounts earned from security lending activities are disclosed on the Statement of Operations. Amounts loaned and held as collateral are disclosed on the Statement of Net Assets.
3. Significant Agreements and Transactions with Affiliates
The Board has approved investment advisory agreements (the "Agreements") with the Investment Advisor. The advisory fees are computed daily at an annual rate of 1.25% 0.75%, and 1.00% of the average daily net assets of Institutional Emerging Markets, International Equity, and Global Equity.
The Investment Advisor has voluntarily agreed to reduce its fee to the extent that aggregate expenses exceed an annual rate of 1.30%, 1.00% and 1.25%, respectively, of the average daily net assets of Institutional Emerging Markets, Institutional Class shares of International Equity, and Institutional Class shares of Global Equity. For the year ended October 31, 2007, the Investment Advisor voluntarily waived $0, $417,728 and $62,384, respectively, of the International Equity, Institutional Emerging Markets, and Global Equity in investment advisory fees from the Portfolios.
In addition, the Fund has an administration agreement with State Street Bank and Trust, which provides certain accounting, clerical and bookkeeping services, corporate secretarial services, assistance in the preparation and filing of tax returns and reports to shareholders and the SEC, transfer agency services, chief compliance officer services, and the service of some State Street Bank and Trust employees as officers serving the board of directors. Under this agreement, the Institutional Emerging Markets, International Equity and Global Equity incurred $407,650, $613,873, and $102,847, respectively, for the year ended October 31, 2007.
State Street Bank and Trust serves as transfer agent, dividend disbursing agent and agent in connection with any accumulation, open-account or similar plans provided to the shareholders of the Portfolios.
The Fund has agreements with various financial intermediaries and "mutual fund supermarkets," under which customers of these intermediaries may purchase and hold Funds' 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 is authorized to pay to each intermediary up to 0.15% of its average daily net assets attributable to that intermediary (subject to the voluntary expense cap). The balance of the intermediaries' fees is paid by the Investment Advisor. Because of voluntary caps on the Portfolio's fees and expenses, the Investment Advisor paid all or a portion of the Portfolio's share of these fees during the ye ar ended October 31, 2007.
4. Investment Transactions
Cost of purchases and proceeds from sales of investment securities, other than short-term investments, for the year ended October 31, 2007, were as follows for each Portfolio:
| Portfolio | Purchase Cost of Investment Securities | Proceeds from Sales of Investment Securities | |||||||||
| Institutional Emerging Markets | $ | 127,584,548 | $ | 52,486,100 | |||||||
| International Equity | 69,177,981 | 102,104,012 | |||||||||
| Global Equity | 5,830,620 | 5,520,612 | |||||||||
33
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
4. Investment Transactions (continued)
The cost of investments for federal income tax purposes and the components of net unrealized appreciation on investments at October 31, 2007, for each of the Portfolios were as follows:
| Portfolio | Unrealized Appreciation | Unrealized Depreciation | Net | Cost | |||||||||||||||
| Institutional Emerging Markets | $ | 84,234,505 | $ | 1,513,850 | $ | 82,720,655 | $ | 159,475,519 | |||||||||||
| International Equity | 183,635,781 | 3,203,716 | 180,432,065 | 219,896,229 | |||||||||||||||
| Global Equity | 15,101,611 | 470,196 | 14,631,415 | 24,485,047 | |||||||||||||||
The unrealized appreciation (depreciation) on foreign currency for Institutional Emerging Markets, International Equity, and Global Equity was $34, $13,760 and $328, respectively, for the year and period ended October 31, 2007.
5. Distribution to Shareholders
During the year ended October 31, 2007, the tax character of distributions paid from ordinary income was $168,859, $3,908,077, $99,025 for Institutional Emerging Markets, International Equity, and Global Equity, respectively. The tax character of distributions paid from Long Term Capital Gains was $23,310,547 and $2,322,308 for International Equity and Global Equity, respectively.
During the year ended October 31, 2006, the tax character of distributions paid from ordinary income was $47,807, $1,524,829, $76,409 for Institutional Emerging Markets, International Equity and Global Equity, respectively. The tax character of distributions paid from Long Term Capital Gains was $254,472 and $601,910 for International Equity and Global Equity, respectively.
As of 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) | ||||||||||||||||||
| Institutional Emerging Markets | $ | 3,628,610 | $ | 4,958,355 | $ | — | $ | 82,720,689 | $ | 91,307,654 | |||||||||||||
| International Equity | 8,633,841 | 24,572,144 | — | 180,445,824 | 213,651,809 | ||||||||||||||||||
| Global Equity | 187,668 | 2,737,172 | — | 14,631,742 | 17,556,582 | ||||||||||||||||||
* The difference between book basis and tax basis net unrealized appreciation of investment is attributable primarily to the tax deferral of losses on certain sales of securities.
During the year ended October 31, 2007 the Institutional Emerging Markets Portfolio utilized $626,203 in capital loss carryover.
Primarily as a result of differing book/tax treatment of foreign currency transactions and foreign capital gain tax expenses, the Fund made reclassifications among certain capital accounts. In addition, the Institutional Emerging Markets, International Equity and Global Equity utilized distributions in connection with the redemption of fund shares during the period. The reclassifications have no impact on the net assets of the Fund. As of October 31, 2007, the following reclassifications were made to the Statement of Net Assets.
| Portfolio | Paid-in Capital | Accumulated Undistributed Net Realized Gain/Loss on Investments & Foreign Currency Related Transactions | Accumulated Undistributed Net Investment Income | ||||||||||||
| Institutional Emerging Markets | $ | 82,890 | $ | 157,450 | $ | (240,340 | ) | ||||||||
| International Equity | 2,631,489 | (2,393,023 | ) | (238,466 | ) | ||||||||||
| Global Equity | 7,732 | 4,529 | (12,261 | ) | |||||||||||
34
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
6. Foreign Exchange Contracts (continued)
The Portfolios, on occasion, enter into forward foreign exchange contracts in order to hedge their exposure to changes in foreign currency exchange rates on their foreign portfolio holdings. A forward foreign exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the cost of the original contracts and the closing of such contracts is included in net realized gains or losses on foreign currency-related transactions. Fluctuations in the value of forward foreign exchange contracts are recorded for book purposes as unrealized appreciation or depreciation on assets and liabilities denominated in foreign currencies by the Portfolios. The Portfolios are also exposed to credit risk associated with counterparty nonperformance on these forward foreign exchange contracts which is typically limited to the unrealized gain on each open con tract.
The Portfolios enter into foreign currency transactions on the spot markets in order to pay for foreign investment purchases or to convert to dollars the proceeds from foreign investment sales or coupon interest receipts. The Portfolios held no open forward foreign currency exchange contracts on October 31, 2007.
7. Capital Share Transactions
Transactions in capital stock for Institutional Emerging Markets were as follows for the periods indicated:
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||
| Shares sold | 5,404,809 | $ | 80,189,884 | 5,897,077 | $ | 72,745,861 | |||||||||||||
| Shares issued upon reinvestment of dividends | 8,965 | 129,641 | 4,242 | 47,807 | |||||||||||||||
| 5,413,774 | 80,319,525 | 5,901,319 | 72,793,668 | ||||||||||||||||
| Shares redeemed | (255,904 | ) | (4,433,400 | ) | — | — | |||||||||||||
| Net increase | 5,157,870 | $ | 75,886,125 | 5,901,319 | $ | 72,793,668 | |||||||||||||
Transactions in capital stock for International Equity Investor Class were as follows for the periods indicated:
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||
| Shares sold | 377,652 | $ | 7,304,858 | 535,963 | $ | 9,132,750 | |||||||||||||
| Shares issued upon reinvestment of dividends | 39,229 | 723,002 | 671 | 10,881 | |||||||||||||||
| 416,881 | 8,027,860 | 536,634 | 9,143,631 | ||||||||||||||||
| Shares redeemed | (178,817 | ) | (3,504,036 | ) | (40,793 | ) | (703,793 | ) | |||||||||||
| Net increase | 238,064 | $ | 4,523,824 | 495,841 | $ | 8,439,838 | |||||||||||||
Transactions in capital stock for International Equity Institutional Class were as follows for the periods indicated:
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||
| Shares sold | 1,121,101 | $ | 21,697,361 | 2,853,706 | $ | 49,366,216 | |||||||||||||
| Shares issued upon reinvestment of dividends | 1,363,585 | 25,144,499 | 98,724 | 1,601,590 | |||||||||||||||
| 2,484,686 | 46,841,860 | 2,952,430 | 50,967,806 | ||||||||||||||||
| Shares redeemed | (2,901,139 | ) | (57,161,618 | ) | (4,686,560 | ) | (82,366,219 | ) | |||||||||||
| Net increase (decrease) | (416,453 | ) | $ | (10,319,758 | ) | (1,734,130 | ) | $ | (31,398,413 | ) | |||||||||
35
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
7. Capital Share Transactions (continued)
Transactions in capital stock for Global Equity Institutional Class were as follows for the periods indicated:
| Year Ended October 31, 2007 | Year Ended October 31, 2006 | ||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||
| Shares sold | 35,387 | $ | 929,416 | 27,790 | $ | 621,542 | |||||||||||||
| Shares issued upon reinvestment of dividends | 102,344 | 2,374,390 | 30,099 | 641,785 | |||||||||||||||
| 137,731 | 3,303,806 | 57,889 | 1,263,327 | ||||||||||||||||
| Shares redeemed | (11,604 | ) | (292,946 | ) | (7,657 | ) | (167,212 | ) | |||||||||||
| Net increase | 126,127 | $ | 3,010,860 | 50,232 | $ | 1,096,115 | |||||||||||||
Redemptions made within 90 days of purchase maybe subject to a redemption fee equal to 2% of the amount redeemed. For the year ended October 31, 2007, International Equity Investor Class and Institutional Class received $482 and $265 in redemption fees related to transactions in shares of common stock as disclosed in the Portfolios' Statements of Changes in Net Assets.
8. In-Kind Transaction
During the year ended October 31, 2006, the Institutional Emerging Markets Portfolio issued 515,966 shares of beneficial interest in exchange for investor assets valued at $5,371,207, with the Emerging Markets Portfolio.
9. Concentration of Ownership
At October 31, 2007, the percentage of total shares outstanding held by record shareholders each owning 10% or greater of the aggregate total shares outstanding for each Portfolio or for the share classes listed of each Portfolio was as follows:
| No. of Shareholders | % Ownership | ||||||||||
| Institutional Emerging Markets Portfolio | 4 | 56 | %* | ||||||||
| International Equity Portfolio | 2 | 34 | %** | ||||||||
| Global Equity Portfolio, Institutional Class | 4 | 74 | %** | ||||||||
* Represents percentage ownership of Institutional Class only; these two shareholders owned approximately 33% of the portfolio's net assets as a whole.
** Represents omnibus position of broker-dealer representing numerous shareholder accounts.
Investment activities of these shareholders may have a material effect on the Portfolios.
10. Repurchase Agreements
Each Portfolio may enter into repurchase agreements under which a bank or securities firm that is a primary or reporting dealer in U.S. Government securities agrees, upon entering into a contract, to sell such securities to a Portfolio and repurchase such securities from such Portfolio at a mutually agreed upon price and date.
Each Portfolio may engage in repurchase transactions with parties selected on the basis of such party's creditworthiness. Securities purchased subject to repurchase agreements must have an aggregate market value greater than or equal to the repurchase price plus accrued interest at all times. If the value of the underlying securities falls below the value of the repurchase price plus accrued interest, the Portfolio will require the seller to deposit additional collateral by the next business day. If the request for additional collateral is not met, or the seller defaults on its repurchase obligation, the Portfolio maintains the right to sell the underlying securities at market value and may claim any resulting loss against the seller.
36
Harding, Loevner Funds, Inc.
Notes to Financial Statements (continued)
October 31, 2007
11. 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 Institutional Emerging Markets, International Equity, and Global Equity are authorized to invest.
12. Line of Credit
The Fund participates in a $50 million line of credit agreement with State Street Bank and Trust. Borrowings will be made solely to facilitate the handling of redemptions or unusual or unanticipated short-term cash requirements. Because several Portfolios participate there is no assurance that an individual Portfolio will have access to the entire $50 million at any particular time. Borrowings for International Equity and Global Equity are limited to the lesser of the remaining available credit or 25% of net assets. Borrowings for Institutional Emerging Markets are limited to the lesser of the remaining available credit or 15% of net assets. Interest is charged to each portfolio based on its borrowings at an amount above the Federal Funds rate. In addition, a commitment fee computed at an annual rate of 0.10% on the line of credit is allocated among the Portfolios. During the year ended October 31, 2007, International Equity Portfolio and Gl obal Equity Portfolio had borrowings on nine days and one day, the maximum balance being $4,595,617 and $51,096, at an average weighted interest rate of 5.79% and 5.79%, respectively.
13. Recently Issued Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, "Accounting for Income Taxes." This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Fund is currently evaluating the impact of applying the various provisions of FIN 48.
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement on Financial Accounting Standards (SFAS) No. 157, "Fair Value Measurements." This standard establishes a single authoritative definition of fair value, sets out a framework for measuring fair value and requires additional disclosures about fair value measurements. SFAS No. 157 applies to fair value measurements already required or permitted by existing standards. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The changes to current generally accepted accounting principles from the application of this Statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. As of October 31, 2007, the Fund does not believe the adoption of SFAS No. 157 will significantly impact t he financial statement amounts; however, additional disclosures may be required about the inputs used to develop the measurements and the effect of certain of the measurements on changes in net assets for the period.
37
Harding, Loevner Funds, Inc.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Harding, Loevner Funds, Inc.
We have audited the accompanying statements of net assets of the Harding, Loevner Funds, Inc. (comprising, the Institutional Emerging Markets Portfolio, International Equity Portfolio, and Global Equity Portfolio), (collectively the "Portfolios") as of October 31, 2007, and the related statements of operations for the year then ended, statements of changes in net assets and the financial highlights for each of the years in the two-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. The financial highlights of the Portfolios for each of the years or periods in the three-year period ended October 31, 2005 were audited by other auditors whose report dated December 6, 2005, expressed an unqualified opinion on those financial highlights.
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, 2007, by correspondence with the custodian and brokers. As to securities purchased or sold but not yet received or delivered, we performed 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, 2007, the results of their operations for the year then ended, the changes in their net assets and the financial highlights for each of the years in the two-year period then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 27, 2007
38
Harding, Loevner Funds, Inc.
Supplemental Tax Information
(unaudited)
The Global Equity Portfolio has designated 100% of distributions from net investment income as qualifying for the dividend received deduction for corporations.
Institutional Emerging Markets, International Equity and Global Equity paid qualifying foreign taxes of $306,634, $649,707, and $25,722, and earned $3,550,242, 6,617,572, and $539,714 foreign source income during the year ended October 31, 2007, respectively. Pursuant to Section 853 of the Internal Revenue Code, Institutional Emerging Markets, International Equity and Global Equity designated $0.0259, $0.0369, and $0.0190 per share as foreign taxes paid and $0.3071, $0.3527, and $0.3801 per share as income earned from foreign sources for the year ended October 31, 2007, respectively.
Institutional Emerging Markets, International Equity and Global Equity had qualifying dividend income of $168,859, $3,908,077, and $99,025 during the year ended October 31, 2007, respectively.
Pursuant to Section 852 of the Internal Revenue Code, International Equity and Global Equity designated $23,310,547 and $2,322,308, respectively, as long term capital gain dividends for the year ended October 31, 2007.
39
Harding, Loevner Funds, Inc.
Supplemental Tax Information (continued)
(unaudited)
Institutional Emerging Markets, International Equity and Global Equity have elected to pass through the credit for taxes paid in foreign countries during its fiscal year ended October 31, 2007. In accordance with current tax laws, the Foreign Income and Foreign Tax per share (for a share outstanding on October 31, 2007) is as follows:
| Institutional Emerging Markets | International Equity | ||||||||||||||||||||||
| Country | Foreign Tax | Gross Foreign Dividends | Country | Foreign Tax | Gross Foreign Dividends | ||||||||||||||||||
| Brazil | 0.0043 | 0.0436 | Australia | 0.0000 | 0.0035 | ||||||||||||||||||
| Cayman Island | 0.0000 | 0.0079 | Austria | 0.0007 | 0.0047 | ||||||||||||||||||
| Chile | 0.0029 | 0.0103 | Bermuda | 0.0000 | 0.0116 | ||||||||||||||||||
| China | 0.0000 | 0.0153 | Canada | 0.0017 | 0.0097 | ||||||||||||||||||
| Columbia | 0.0000 | 0.0033 | France | 0.0061 | 0.0408 | ||||||||||||||||||
| Egypt | 0.0000 | 0.0069 | Germany | 0.0007 | 0.0044 | ||||||||||||||||||
| Hong Kong | 0.0000 | 0.0247 | Hong Kong | 0.0000 | 0.0064 | ||||||||||||||||||
| India | 0.0000 | 0.0076 | India | 0.0000 | 0.0018 | ||||||||||||||||||
| Indonesia | 0.0023 | 0.0150 | Indonesia | 0.0007 | 0.0049 | ||||||||||||||||||
| Israel | 0.0026 | 0.0133 | Ireland | 0.0000 | 0.0073 | ||||||||||||||||||
| Korea | 0.0032 | 0.0189 | Japan | 0.0031 | 0.0436 | ||||||||||||||||||
| Luxembourg | 0.0019 | 0.0130 | Mexico | 0.0000 | 0.0079 | ||||||||||||||||||
| Malaysia | 0.0000 | 0.0162 | Netherlands | 0.0003 | 0.0020 | ||||||||||||||||||
| Mexico | 0.0000 | 0.0120 | Poland | 0.0019 | 0.0095 | ||||||||||||||||||
| Netherlands | 0.0002 | 0.0012 | Russia | 0.0003 | 0.0014 | ||||||||||||||||||
| Poland | 0.0005 | 0.0034 | Singapore | 0.0000 | 0.0075 | ||||||||||||||||||
| Russia | 0.0003 | 0.0067 | South Africa | 0.0000 | 0.0174 | ||||||||||||||||||
| South Africa | 0.0000 | 0.0410 | South Korea | 0.0006 | 0.0035 | ||||||||||||||||||
| Taiwan | 0.0052 | 0.0272 | Spain | 0.0032 | 0.0211 | ||||||||||||||||||
| Thailand | 0.0005 | 0.0076 | Sweden | 0.0034 | 0.0226 | ||||||||||||||||||
| Turkey | 0.0004 | 0.0033 | Switzerland | 0.0098 | 0.0589 | ||||||||||||||||||
| United Kingdom | 0.0000 | 0.0046 | Taiwan | 0.0031 | 0.0156 | ||||||||||||||||||
| United Kingdom | 0.0000 | 0.0468 | |||||||||||||||||||||
| Global Equity | |||||||||||||||||||||||
| Country | Foreign Tax | Gross Foreign Dividends | |||||||||||||||||||||
| Australia | 0.0000 | 0.0159 | |||||||||||||||||||||
| Austria | 0.0005 | 0.0030 | |||||||||||||||||||||
| Bermuda | 0.0000 | 0.0109 | |||||||||||||||||||||
| Canada | 0.0010 | 0.0068 | |||||||||||||||||||||
| Egypt | 0.0000 | 0.0022 | |||||||||||||||||||||
| France | 0.0036 | 0.0240 | |||||||||||||||||||||
| Hong | 0.0000 | 0.0105 | |||||||||||||||||||||
| Indonesia | 0.0013 | 0.0088 | |||||||||||||||||||||
| Japan | 0.0022 | 0.0309 | |||||||||||||||||||||
| Mexico | 0.0000 | 0.0035 | |||||||||||||||||||||
| Netherlands | 0.0000 | 0.0074 | |||||||||||||||||||||
| South Africa | 0.0000 | 0.0113 | |||||||||||||||||||||
| South Korea | 0.0021 | 0.0126 | |||||||||||||||||||||
| Spain | 0.0008 | 0.0052 | |||||||||||||||||||||
| Switzerland | 0.0054 | 0.0347 | |||||||||||||||||||||
| Taiwan | 0.0019 | 0.0097 | |||||||||||||||||||||
| United Kingdom | 0.0000 | 0.0259 | |||||||||||||||||||||
| United States | 0.0000 | 0.1568 | |||||||||||||||||||||
Shareholders will receive more detailed information along with their Form 1099-DIV in January, 2008.
40
Harding, Loevner Funds, Inc.
Approval of Investment Advisor Agreements
October 31, 2007 (unaudited)
The Board of Directors of the Harding, Loevner Funds, Inc. (the "Fund"), and by a separate vote, the Directors of the Fund who are not "interested persons" as defined in the Investment Company Act of 1940, as amended (the "Independent Directors"), approved the continuance of the Investment Advisor Agreements between the Fund (on behalf of each of the International Equity Portfolio, the Global Equity Portfolio and the Institutional Emerging Markets Portfolio (each a "Portfolio" and collectively the "Portfolios")) and Harding, Loevner Management, L.P. (the "Advisor") with respect to each Portfolio at a meeting held on September 10, 2007.
As part of its review, the Board carefully considered the following: (i) a memorandum from Dechert, LLP, counsel to the Fund, that explained the Directors' fiduciary duties and obligations under Sections 15 and 36(b) of the 1940 Act as well as the Fund's disclosure requirements; (ii) comparative fee and performance information; (iii) information on soft dollar transactions; (iv) code of ethics compliance reports; and (v) the Advisor's financial statements for the periods ended June 30, 2006 and June 30, 2007.
The Board also considered the following information which provided additional detail about the foregoing: (i) a detailed profitability analysis; (ii) the effect of the fee waivers for the International Equity Portfolio, Global Equity Portfolio and Institutional Emerging Markets Portfolio on net Fund expenses; (iii) the expenses attributable to the Fund, as compared to the expenses of the Advisor's overall business, including the allocation of expenses attributable to the Fund, such as direct and indirect costs, overhead and other expenses; (iv) actual expenses for calendar year 2006 and estimated expenses for calendar year 2007; (v) total expenses before distribution costs, such as communications to third parties and fees paid to intermediaries; (vi) the ownership structure of the Advisor; and (vii) the long-term profit and loss summary for the Advisor.
The Board considered a number of factors in evaluating the Advisor, including: (i) the nature and quality of services provided; (ii) the investment performance of the Portfolios; (iii) the cost of the services provided; (iv) the profitability of the Advisor; (v) the realization of economies of scale; and (vi) comparison of fees and services.
Quality and Nature of the Services
The Directors agreed that the nature and quality of services provided by the Advisor was excellent. They noted the superior management of the organization and specifically discussed the high integrity and forward thinking which has resulted in no significant compliance issues. The Directors also noted the Advisor's consistently prudent approach to expenses. These determinations were not based merely on the materials provided at the present meeting, but on the Board's ongoing dealing with the Advisor. With regard to these areas, the Board was satisfied that the quality and nature of the services provided by the Advisor weighed in favor of renewing the advisory agreements.
The Board considered the investment performance of each of the four Portfolios under consideration. The Board had available to it the qualifications, background and responsibilities of the Portfolios' portfolio management teams and senior management of the Advisor and recognized that these persons report to the Board regularly. The Board had been provided by the Advisor copies of investment performance data obtained from Bloomberg and Morningstar for funds in the Lipper International Funds Index and a number of other international equity funds; funds in the Lipper Global Funds Index and a number of other global equity funds; and funds in the Lipper Emerging Market Funds Index and a number of other emerging market funds (collectively, the "Peer Group Data"). The Peer Group Data included fund management fees, total expense ratios, net assets, calendar year-to-date returns, 1-, 3- and 5 - year returns as well as median and average data with reg ard to the foregoing.
Based on their review of the data provided by the Advisor and all other relevant data, the Independent Directors concluded that they were satisfied, both in absolute terms and in comparison to appropriate peer funds and benchmark indices, with the overall performance of the Fund's Portfolios. In sum, the Board was satisfied with the nature and quality of services being provided by the Advisor to shareholders.
Fees and Costs of Providing Services
The Independent Directors considered a number of related factors in assessing the costs proposed by the Advisor to be charged for providing advisory services to the Fund, including: (i) a comparison of advisory and total Portfolio fees with competing fund products; (ii) a review of the Advisor's profitability information; (iii) consideration of whether any benefits or economies of scale are provided to shareholders; and (iv) consideration of whether the Advisor has received any ancillary or "fall-out" benefits in connection with its management of the Portfolios.
The Independent Directors reviewed the Peer Group Data provided by Advisor with respect to advisory fees, net assets and total expenses and concluded that the cost of services was fair and reasonable. The Directors determined that comparable costs across all four Portfolios were appropriate, and that the cost of each Portfolio versus its market peers was equally in line.
41
Harding, Loevner Funds, Inc.
Approval of Investment Advisor Agreements (continued)
October 31, 2007 (unaudited)
The Independent Directors reviewed the financial statements of the Advisor, which showed the net income, the revenues received and the expenses incurred, including those paid for employee salaries. In addition, the Independent Directors reviewed a profitability analysis prepared by the Advisor. The Independent Directors considered any ancillary benefits derived by the Advisor in connection with its management of the Portfolios, and reviewed the soft dollar report. The Independent Directors concluded that the profitability of the Advisor was, on balance, reasonable and noted that the Advisor loses money on the Global Equity Portfolio and Institutional Emerging Markets Portfolio and makes modest profits on the International Equity Portfolio.
Based on the foregoing, the Board concluded that the fees charged by the Advisor are within the range that might be obtained in an arm's length negotiation. The Board based their evaluation on all material factors discussed above, including (1) the terms of the advisory agreements; (2) the nature, quality, cost and extent of the services performed by the Advisor; (3) the reasonableness of the advisory fees in light of the nature and quality of the services provided and any additional benefits received by the Advisor in connection with providing services to the Fund; (4) the expense ratios of the Portfolios as compared to the expense ratios of similar funds; and (5) the overall organization and experience of the Advisor, as well as the Advisor's profitability and financial condition. In arriving at its decision, the Independent Directors did not single out any one factor or group of factors as being more important than other factors, but cons idered all factors together.
After extensive discussion, both in general session and in executive session of the Independent Directors meeting alone, the Board determined that it had received sufficient information to take action on the proposed resolutions regarding continuance of the advisory agreements. Thereafter, upon a motion duly made and seconded, the Board of Directors, and separately, the Independent Directors, unanimously determined to continue the Investment Advisory Agreements for each of the International Equity Portfolio, Global Equity Portfolio and the Institutional Emerging Markets Portfolio.
42
Harding, Loevner Funds, Inc.
Directors and Principal Officers of the Fund
(unaudited)
Disinterested Directors:
| Name, Address and Age | Position with the Fund | Term of Office and Length of Time Served* | Principal Occupation(s) During Past Five Years | Number of Portfolios in Fund Complex Overseen By Director | Other Directorships Held by Director | ||||||||||||||||||
| R. Kelly Doherty 41 Post Road Bernardsville, NJ 07924 Age, 49 | Director | Indefinite; Director since 2004 | Cayman Partners (private investment vehicles), Managing Partner, 1/99-present | 5 | L.P. Thebault & Co. (commercial printing); The Peck School | ||||||||||||||||||
| Jane A. Freeman 300 Frank Ogawa Plaza Oakland, CA 96412-2040 Age, 54 | Director | Indefinite; Director since 1996; Chairperson of Audit Committee since 2005 | Scientific Learning Corporation (Education Software), Senior Vice President and Chief Financial Officer, 1/00-present; Treasurer and Vice President, Finance & Business Development, 9/99-1/00 | 5 | None | ||||||||||||||||||
| Samuel R. Karetsky The Karetsky Group, LLC 12 East 49th Street, 27th Floor New York, NY 10017 Age, 62 | Director | Indefinite; Director since 1998 | The Karetsky Group, LLC (Advisory Firm), Managing Member, 1/03-present; Wetherby Asset Management, Principal, 2004-present; European Investors Inc., Managing Director, 11/98-12/02 | 5 | None | ||||||||||||||||||
| Raymond J. Clark 66 Greenway Terrace Princeton, NJ 08540 Age, 72 | Director | Indefinite; Director since 2004 | The Woodrow Wilson National Fellowship Foundation, Treasurer, 08/04-present; Wellesley College, Interim Vice President of Finance and Treasurer, 10/03-6/04; Princeton University, Treasurer, 1987-2001. | 5 | Princeton Healthcare System | ||||||||||||||||||
Interested Director:
| David R. Loevner** Harding, Loevner Management, L.P. 50 Division Street, Suite 401 Somerville, NJ 08876 Age, 53 | Director, President and Chairman of the Board | Indefinite; Director, President and Chairman of the Board since 1996 | HLM Holdings, Inc., Harding, Loevner Management, L.P.'s general partner, President, 7/89-present; Parks Tennant Corporation (real estate), President, 1/01-present. | 5 | None | ||||||||||||||||||
* 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 and CEO of Harding, Loevner Management, L.P., the Fund's investment advisor.
43
Harding, Loevner Funds, Inc.
Directors and Principal Officers of the Fund (continued)
(unaudited)
Principal Officers of the Fund
| Name, Address and Age | Position with the Fund | Term of Office and Length of Time Servedt | Principal Occupation(s) During Past Five Years | ||||||||||||
| Richard Reiter Harding, Loevner Management, L.P. 50 Division Street, Suite 401 Somerville, NJ 08876 Age, 41 | Vice President | 1 year; Vice President since 2007 | HLM Holdings, Inc. (general partner of Harding, Loevner Management, L.P.), Director, 4/96-current. | ||||||||||||
| Puran Dulani Harding, Loevner Management, L.P. 50 Division Street, Suite 401 Somerville, NJ 08876 Age, 49 | Chief Financial Officer and Treasurer | 1 year; Chief Financial Officer and Treasurer since 2007 | HLM Holdings, Inc. (general partner of Harding, Loevner Management, L.P.), Chief of Operations and Accounting, 3/02-present. | ||||||||||||
| Ellen Blanchard State Street Bank & Trust Company 200 Clarendon Street Boston, MA 02116 Age, 33 | Anti-Money Laundering Compliance Officer | 1 year; Anti-Money Laundering Compliance Officer since 2007 | State Street Bank and Trust Company (formerly, Investors Bank and Trust Company), Director and Senior Associate Counsel, 1/06-present; Senior Manager and Associate Counsel, 8/04-12/05; Manager and Associate Counsel 8/02-8/04; Product Manager, 8/99-8/02. | ||||||||||||
| Donna M. Rogers State Street Bank & Trust Company 200 Clarendon Street Boston, MA 02116 Age, 41 | Chief Compliance Officer of the Funds | 1 year; Chief Compliance Officer since 2007 | State Street Bank and Trust Company, (formerly, Investors Bank and Trust Company), Senior Director, 2002-present. | ||||||||||||
| Brendan J. O'Neill State Street Bank & Trust Company 200 Clarendon Street Boston, MA 02116 Age, 39 | Assistant Treasurer | 1 year; Assistant Treasurer since 2004 | State Street Bank and Trust Company (formerly, Investors Bank and Trust Company), Unit Director 11/07-present; Director 1/05-10/07; Senior Manager 11/02-12/04; Manager 7/00-10/02. | ||||||||||||
| Rainer L.C. Frost State Street Bank & Trust Company 200 Clarendon Street Boston, MA 02116 Age, 49 | Secretary and Chief Legal Officer | 1 year; Secretary and Chief Legal Officer since 2005 | State Street Bank and Trust Company (formerly, Investors Bank and Trust Company), Director and Counsel 6/05-present; Principal, Clarity Group 6/02-6/05. | ||||||||||||
t 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.
The Fund's Statement of Additional Information contains additional information about the Directors and Officers of the Fund and is available, without charge, upon request, by calling 1-877-435-8105.
44
Harding, Loevner Funds, Inc.
Supplemental Information
(unaudited)
Quarterly Form N-Q Portfolio Schedule
Each Portfolio will file its complete schedule of portfolio holdings with the SEC on Form N-Q for the first and third fiscal quarters within 60 days of the end of the quarter to which it relates. The Portfolios' Form N-Q will be available on the SEC's website at www.sec.gov and may also be reviewed and copied at the SEC's Public Reference Room whose telephone number is 1-800-SEC-0330. Additionally, they are available upon request by calling 1-877-435-8105.
Proxy Voting Record
Information regarding how the Fund voted proxies relating to the Portfolios' securities during the 12-month period ended June 30, 2007 is available on the Fund's website at www.hardingloevner.com and on the SEC's website at www.sec.gov.
Proxy Voting Policies and Procedures
A description of the Fund's proxy voting policies and procedures is located in the Statement of Additional Information and is available without charge, upon request, by calling 1-877-435-8105 or on the SEC's website at www.sec.gov.
45
HARDING, LOEVNER FUNDS, INC.
Officers, Directors and Other Pertinent Information
OFFICERS AND DIRECTORS
Jane A. Freeman
Director of the Funds
Samuel R. Karetsky
Director of the Funds
R. Kelly Doherty
Director of the Funds
Raymond J. Clark
Director of the Funds
David R. Loevner
Director, President and Chairman
of the Board of the Funds
Donna Rogers
Chief Compliance Officer of the Funds
Ellen Blanchard
Anti-Money Laundering
Compliance Officer of the Funds
Richard Reiter
Vice President
Puran Dulani
Chief Financial Officer and
Treasurer of the Funds
Brendan J. O'Neill
Assistant Treasurer of the Funds
Rainer L.C. Frost
Secretary of the Funds
INVESTMENT ADVISOR
Harding, Loevner Management, L.P.
50 Division Street, Suite 401
Somerville, NJ 08876
DISTRIBUTOR
Quasar Distributors, LLC
615 East Michigan Street
Milwaukee, WI 53202
ADMINISTRATOR, CUSTODIAN AND FUND ACCOUNTING AGENT
State Street Bank and Trust Company
P.O. Box 9130
Boston, MA 02117
TRANSFER AND DIVIDEND DISBURSING AGENT
State Street Bank and Trust Company
P.O. Box 642
Boston, MA 02117-0642
LEGAL COUNSEL
Dechert LLP
30 Rockefeller Plaza
New York, NY 10112
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP
1601 Market Street
Philadelphia, PA 19103-2499
This report is intended for shareholders of Harding Loevner Funds. It may not be used as sales literature unless preceded or accompanied by the current prospectus, which gives details about charges, expenses, investment objectives, risks and policies of the Portfolios.
HLFSANINST-G
Item 2. Code of Ethics.
As of October 31, 2007, the Registrant has adopted a code of ethics that applies to the Registrant’s President/Chief Executive Officer and Treasurer/Chief Financial Officer. For the year ended October 31, 2007, the code of ethics was amended to note a change in the covered officers listed in Exhibit A. There were no waivers granted from a provision of the code of ethics. A copy of its code of ethics is filed with this Form N-CSR under Item 12(a)(1).
Item 3. Audit Committee Financial Expert.
The Registrant’s Board of Directors has determined that the Registrant has more than one audit committee financial expert serving on its audit committee. The audit committee financial experts serving on the Registrant’s audit committee are Jane Freeman and Raymond Clark, both of whom are independent.
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 for the audit of the registrant annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $100,600 in 2007 and $78,500 in 2006.
(b) AUDIT-RELATED FEES: The aggregate fees billed in each of the last two fiscal years for assurance and related services by KPMG 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 for the review of domestic tax returns was NONE in 2007 and $14,000 in 2006.
(d) ALL OTHER FEES: The aggregate fees billed in each of the last two fiscal years for products and services provided by KPMG, other than the services reported in paragraphs (a) through (c) of this Item are NONE.
(e)(1) Disclose the audit committee pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
A copy of the Audit Committee’s Pre-Approval Policies and Procedures is filed with this Form N-CSR under Item 12(c).
(e)(2) The percentage of services described in each of paragraphs (b) through (d) of this Item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are as follows:
(b) Not applicable
(c) 100%
(d) Not applicable
(f) Not applicable.
(g) Not applicable.
(h) Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
Included as Part of the Reports to Shareholders filed as Item 1 herewith.
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 Registrant’s Principal Executive Officer and Principal Financial Officer concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) were effective as of a date within 90 days prior to the filing date of this report, based on their evaluation of the effectiveness of the Registrant’s disclosure controls and procedures as of the Evaluation Date.
(b) There were no significant changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Sox Code of Ethics is attached.
(a)(2) Section 302 Certification letters are attached.
(b) Section 906 Certifications are attached.
(c) Audit Committee Pre-Approval Policies and Procedures are attached.
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/ David R. Loevner |
| ||
| David R. Loevner, President | |||
| Date: December 27, 2007 | |||
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/ David R. Loevner |
|
| David R. Loevner, President | |
| Date: December 27, 2007 | |
| By: /s/ Puran Dulani |
|
| Puran Dulani, Treasurer and Chief Financial Officer | |
| Date: December 27, 2007 | |