Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4676
Harbor Funds
(Exact name of Registrant as specified in charter)
111 South Wacker Drive, 34th Floor
Chicago, Illinois 60606-4302
Chicago, Illinois 60606-4302
(Address of principal executive offices) (Zip code)
Charles F. McCain, Esq. HARBOR FUNDS 111 South Wacker Drive, 34th Floor Chicago, Illinois 60606-4302 | Christopher P. Harvey, Esq. DECHERT LLP One International Place – 40th Floor 100 Oliver Street Boston, MA 02110-2605 |
(Name and address of agent for service)
Registrant’s telephone number, including area code: (312) 443-4400
Date of fiscal year end: October 31
Date of reporting period: April 30, 2018
ITEM 1 – REPORTS TO STOCKHOLDERS
The following are copies of reports transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1):
Table of Contents
Semi-Annual Report
April 30, 2018
Domestic Equity Funds
Institutional Class | Retirement Class | Administrative Class | Investor Class | |
GROWTH FUNDS | ||||
Harbor Capital Appreciation Fund | HACAX | HNACX | HRCAX | HCAIX |
Harbor Strategic Growth Fund | MVSGX | HNGSX | HSRGX | HISWX |
Harbor Mid Cap Growth Fund | HAMGX | HNMGX | HRMGX | HIMGX |
Harbor Small Cap Growth Fund | HASGX | HNSGX | HRSGX | HISGX |
Harbor Small Cap Growth Opportunities Fund | HASOX | HNSOX | HRSOX | HISOX |
VALUE FUNDS | ||||
Harbor Large Cap Value Fund | HAVLX | HNLVX | HRLVX | HILVX |
Harbor Mid Cap Value Fund | HAMVX | HNMVX | HRMVX | HIMVX |
Harbor Small Cap Value Fund | HASCX | HNVRX | HSVRX | HISVX |
Harbor Small Cap Value Opportunities Fund | HSOVX | HSRVX | HSAVX | HSIVX |
Table of Contents
This document must be preceded or accompanied by a Prospectus.
Letter from the Chairman
Charles F. McCain Chairman |
Dear Fellow Shareholder:
U.S. equities generally had positive returns in the fiscal half year ended April 30, 2018. As the period began, equities were continuing their run of strong gains, pushing most major indexes to new highs in the fourth calendar quarter of 2017 and closing out the best calendar-year returns for stocks since 2013. Low unemployment, robust corporate earnings and strong consumer and business spending contributed to positive market sentiment.
The stimulative tax reform bill enacted at the end of 2017 pushed the gas pedal further on an already accelerating global economic outlook. While the tax cuts proved to be a positive tailwind for corporate earnings, the resulting rally was cut short by fears of U.S. Federal Reserve (Fed) rate hikes and concerns over trade relations between the U.S. and China following dueling announcements of new tariffs on imported goods.
Volatility, notably absent from the market’s rally in 2017, returned, as the CBOE Volatility Index (VIX) nearly doubled during the first calendar quarter of 2018. That quarter was the first in more than two years with a negative return for U.S. equities.
The Russell 3000® Index, a measure of the broad U.S. stock market, had a return of 3.79% for the fiscal half year ended April 30, 2018. Growth stocks outperformed value stocks by a significant margin during the period. Both large caps and mid caps posted returns similar to the overall market’s performance, while small caps slightly underperformed.
Comments by the portfolio managers of each Harbor domestic equity fund can be found in the pages preceding each Fund’s portfolio of investments. As always, we recommend that shareholders maintain a long-term perspective in evaluating all of their investments, including Harbor Funds.
Returns For Periods Ended April 30, 2018 | ||||||||||
Unannualized | Annualized | |||||||||
Domestic Equities | 6 Months | 1 Year | 5 Years | 10 Years | 30 Years | |||||
Russell 3000® (entire U.S. stock market) | 3.79% | 13.05% | 12.75% | 9.13% | 10.46% | |||||
S&P 500 (large cap stocks) | 3.82 | 13.27 | 12.96 | 9.02 | 10.44 | |||||
Russell Midcap® (mid cap stocks) | 3.69 | 11.17 | 11.77 | 9.48 | 11.69 | |||||
Russell 2000® (small cap stocks) | 3.27 | 11.54 | 11.74 | 9.49 | 9.76 | |||||
Russell 3000® Growth (growth stocks) | 5.66 | 18.78 | 14.97 | 10.78 | 10.20 | |||||
Russell 3000® Value (value stocks) | 1.86 | 7.42 | 10.50 | 7.39 | 10.36 | |||||
International & Global | ||||||||||
MSCI EAFE (ND)(foreign stocks) | 3.41% | 14.51% | 5.90% | 2.43% | 5.06% | |||||
MSCI EAFE Small Cap (ND)(foreign small cap stocks) | 5.96 | 20.03 | 10.61 | 6.38 | N/A | |||||
MSCI World (ND)(global stocks) | 3.40 | 13.22 | 9.28 | 5.48 | 7.07 | |||||
MSCI All Country World Ex. U.S. (ND)(foreign stocks) | 3.47 | 15.91 | 5.46 | 2.26 | N/A | |||||
MSCI Emerging Markets (ND)(emerging market stocks) | 4.80 | 21.71 | 4.74 | 2.17 | N/A | |||||
Fixed Income | ||||||||||
ICE BofAML U.S. Non-Distressed High Yield (domestic high-yield bonds) | -0.31% | 3.26% | 4.87% | 6.69% | N/A | |||||
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -1.87 | -0.32 | 1.47 | 3.57 | 6.17% | |||||
Bloomberg Barclays U.S. TIPS (domestic inflation-linked bonds) | 0.19 | 0.27 | -0.12 | 3.14 | N/A | |||||
ICE BofAML U.S. 3-Month Treasury Bill (proxy for money market returns) | 0.68 | 1.18 | 0.36 | 0.34 | 3.28 |
1
HOLDING STEADY THROUGH VOLATILE MARKETS
U.S. and global markets saw a significant increase in volatility during the first calendar quarter of 2018, a trend that continued into April. Developments that played a major role in driving investor worries included the prospect of a trade war between the U.S. and China, uncertainty on inflation and a more hawkish Fed policy.
When markets are volatile, investors often wonder whether they should pivot to a more conservative allocation in the short-term to avoid potential losses. What history shows us, however, is that it is very difficult to time the market successfully. While past performance is never a guarantee of future results, many investors have historically achieved their financial objectives by making a long-term plan and staying true to it through market ups and downs.
We encourage all investors to maintain a diversified portfolio of stocks, bonds and cash in an allocation that matches their long-term financial goals and risk tolerance. Harbor Funds offers a variety of equity and fixed income funds to help you achieve your financial goals.
Thank you for investing with Harbor Funds.
June 22, 2018
Charles F. McCain |
Chairman |
2
Harbor Capital Appreciation Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
New York, NY 10017
Portfolio Managers
Spiros “Sig” Segalas
Since 1990
Since 1990
Kathleen A. McCarragher
Since 2013
Since 2013
Jennison has subadvised the Fund since 1990.
Investment Objective
The Fund seeks long-term growth of capital.
Spiros “Sig” Segalas
Kathleen A. McCarragher
Management’s Discussion of
Fund Performance
Fund Performance
MARKET REVIEW
In the six months ended April 30, 2018, investors responded enthusiastically to corporate tax legislation passed in late 2017 on the belief that it would enhance profits and spur repatriation of offshore cash, which could fund increased business investment and capital returns to shareholders. Strong corporate sector financial results and 2018 forecasts added to the positive sentiment, as did consumer confidence, which reached its highest level since the financial crisis. Improved growth prospects in major international economies added to the favorable global growth backdrop. The double-digit advance in equity markets in the first half of the period turned abruptly and turbulently in late January on concerns that White House moves to effectively reset global trade practices with new tariffs and penalties for intellectual property infringement could jeopardize global growth. Fears that the expanding U.S. economy could trigger a rebound in inflation and accelerate the pace of U.S. Federal Reserve interest rate hikes added to the volatility. Markets recovered incrementally as the period closed on the strength of the fundamental backdrop.
PERFORMANCE
The Harbor Capital Appreciation Fund advanced 8.55% (Institutional Class), 8.58% (Retirement Class), 8.42% (Administrative Class), and 8.34% (Investor Class) in the six months ended April 30, 2018, outperforming the Russell 1000®Growth Index, which rose 5.68% and the S&P 500 Index, which rose 3.82%.
In the benchmark, Consumer Discretionary was the only major sector to outperform the overall index. Smaller sectors Utilities, Financials, and Energy also posted double-digit advances. Materials and Real Estate lost ground.
Information Technology positions were strong contributors to the Fund’s return. Adobe Systems, while historically best known for Photoshop, PDF, and Flash, has transformed into a subscription-based provider of digital services in two of the fastest-growing enterprise software markets – content creation and digital marketing. We believe that continued user growth, international expansion, piracy reduction, pricing leverage, and services upsells should support sustainable annual recurring revenue. Payment processors MasterCard and Visa continued to benefit from the long-term shift from cash to electronic credit and debit transactions. We believe that both companies have strong market positions with high barriers to entry, pricing power, and solid operating leverage potential. Microsoft’s installed base benefits from strong account control and minimal competition in two areas shifting to a subscription profile – Office and Windows. We believe the long-term growth outlook for Red Hat, the market-leading vendor of Linux, an open-source computer operating system, is supported by several secular trends, including a shift from UNIX to Linux, open-source virtualization and middleware, and cloud computing. We believe Salesforce.com is positioned to benefit from long-term growth drivers, including the shift to cloud computing, increasing corporate focus on customer-facing applications, the emergence of mobile as a primary user interface into enterprise applications, and the increasing demand for analytical capabilities to optimize business decisions and processes. We believe Splunk, which makes software that allows businesses to mine and analyze digital data, is well positioned to benefit from the emergence of operational intelligence, which has the potential to disrupt traditional information technology spending. We expect long-term growth to be driven by Splunk’s expanding platform and new applications for its products. Tencent continues to perform well, driven by its dominant position and monetization opportunities in China’s online gaming and instant messaging markets, as well as its advertising and payment service efforts.
3
Harbor Capital Appreciation Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor Capital Appreciation Fund | |||||||||||
Institutional Class | 8.55% | 26.80% | 16.99% | 11.45% | |||||||
Retirement Class1 | 8.58 | 26.87 | 17.02 | 11.46 | |||||||
Administrative Class | 8.42 | 26.48 | 16.70 | 11.17 | |||||||
Investor Class | 8.34 | 26.32 | 16.55 | 11.04 | |||||||
Comparative Indices | |||||||||||
Russell 1000® Growth | 5.68% | 18.96% | 15.13% | 10.81% | |||||||
S&P 500 | 3.82 | 13.27 | 12.96 | 9.02 |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.66% (Net) and 0.71% (Gross) (Institutional Class); 0.58% (Net) and 0.63% (Gross) (Retirement Class); 0.91% (Net) and 0.96% (Gross) (Administrative Class); and 1.03% (Net) and 1.08% (Gross) (Investor Class). The net expense ratios reflect a contractual management fee waiver effective through 02/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
In Consumer Discretionary, Netflix continued to raise its competitive barriers with investments in content, resulting in strong subscriber growth and increased pricing and operating leverage. Amazon advanced impressively as strong execution across all business segments led to better-than-expected revenue, gross margin, and operating margin. Cable operator Charter Communications declined as subscriber metrics fell short of expectations and capital expenditures dampened free cash flow. Tesla fell on production challenges, which in part reflect the company’s developing and complex manufacturing infrastructure. A setback in its semi-autonomous driving program also weighed on the stock. We believe Tesla is playing a key role in the transformation of the automotive industry and rapid growth in the adoption of electric autos, which is exemplified by the introduction of its Model 3 that targets the vast mainstream automotive market.
In Industrials, Boeing’s gain reflected 787 Dreamliner commercial jet cash generation, solid cost controls, and ramped-up 737 jet production.
Estée Lauder was a top performer in Consumer Staples. We expect the company’s sales and EPS to accelerate, driven by major investments in inventory management and greater presence in faster-growing distribution channels such as online, Ulta, and Sephora. We also like Estée Lauder’s operational-improvement and margin-expansion opportunities, and capital returns to shareholders.
In Materials, Albemarle fell on supply/demand/pricing issues. Our long-term focus gauges the stock’s valuation in light of what we believe is a secular shift in demand. In our opinion, Albemarle, with the top global share and lowest cost structure in the lithium market, stands to benefit from low-cost, lightweight, and safe lithium-based energy storage, which, among other applications, powers electric vehicles.
Health Care positions negatively impacted performance. Bristol-Myers Squibb fell on signs that its non-small cell lung cancer (NSCLC) program has been eclipsed by Merck’s competing franchise. We believe the company’s broader fundamentals – the value of its other franchises, the possibility that the NSCLC program, which continues to offer value, can ultimately emerge on a smaller scale, and the company’s heightened attractiveness as a possible takeover target – remain positive. Celgene declined on pipeline disappointments. Still largely tied to its leading product Revlimid (an oral therapy for blood disorders), the company is in the early stages of its diversification strategy.
OUTLOOK & STRATEGY
As a fundamental investor, we examine company and industry prospects over the short and long term, working to understand and anticipate how industries and businesses will change over time. Investing in companies with well-above-average long-term growth rates and unique, market-leading products and services remains its focus.
We believe that corporate tax relief, strong business and consumer confidence, robust employment, and a broadly favorable global backdrop presage another year of strong earnings growth that should drive further equity appreciation. We believe the Fund’s current stock valuations remain reasonable.
1 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Jennison Associates LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
4
Harbor Capital Appreciation Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Amazon.com Inc. | 6.0% |
2. Netflix Inc. | 4.1% |
3. Alphabet Inc. | 4.0% |
4. Microsoft Corp. | 4.0% |
5. Alibaba Group Holding Ltd. ADR | 3.8% |
6. Apple Inc. | 3.7% |
7. Facebook Inc. | 3.4% |
8. MasterCard Inc. | 3.3% |
9. Visa Inc. | 3.3% |
10. Tencent Holdings Ltd. | 3.2% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
5
Harbor Capital Appreciation Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—99.2% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—3.1% | |||
2,799,669 | Boeing Co. | $ 933,858 | |
AIR FREIGHT & LOGISTICS—2.0% | |||
2,495,182 | FedEx Corp. | 616,809 | |
AUTOMOBILES—1.2% | |||
1,206,482 | Tesla Inc.* | 354,585 | |
BANKS—3.4% | |||
6,127,497 | JPMorgan Chase & Co. | 666,549 | |
2,468,040 | PNC Financial Services Group Inc. | 359,371 | |
1,025,920 | |||
BEVERAGES—1.6% | |||
780,279 | Constellation Brands Inc. | 181,906 | |
5,388,854 | Monster Beverage Corp.* | 296,387 | |
478,293 | |||
BIOTECHNOLOGY—4.5% | |||
1,950,759 | AbbVie Inc. | 188,346 | |
2,658,164 | Alexion Pharmaceuticals Inc.* | 312,680 | |
3,362,606 | BioMarin Pharmaceutical Inc.* | 280,811 | |
2,740,138 | Celgene Corp.* | 238,666 | |
2,116,329 | Vertex Pharmaceuticals Inc.* | 324,137 | |
1,344,640 | |||
CAPITAL MARKETS—1.7% | |||
2,130,727 | Goldman Sachs Group Inc. | 507,816 | |
CHEMICALS—0.6% | |||
1,977,331 | Albemarle Corp. | 191,722 | |
FOOD & STAPLES RETAILING—1.8% | |||
2,771,636 | Costco Wholesale Corp. | 546,456 | |
HEALTH CARE PROVIDERS & SERVICES—1.6% | |||
1,999,110 | UnitedHealth Group Inc. | 472,590 | |
HOTELS, RESTAURANTS & LEISURE—3.9% | |||
4,540,542 | Marriott International Inc. | 620,601 | |
3,269,920 | McDonald's Corp. | 547,516 | |
1,168,117 | |||
INTERNET & DIRECT MARKETING RETAIL—11.6% | |||
1,157,647 | Amazon.com Inc.* | 1,813,026 | |
201,141 | Booking Holdings Inc.* | 438,085 | |
4,008,459 | Netflix Inc.* | 1,252,483 | |
3,503,594 | |||
INTERNET SOFTWARE & SERVICES—14.3% | |||
6,469,508 | Alibaba Group Holding Ltd. ADR (China)*,1 | 1,155,066 | |
584,833 | Alphabet Inc. Class A* | 595,699 | |
587,636 | Alphabet Inc. Class C* | 597,820 | |
5,885,954 | Facebook Inc.* | 1,012,384 | |
19,691,486 | Tencent Holdings Ltd. (China) | 968,090 | |
4,329,059 | |||
IT SERVICES—10.0% | |||
1,768,210 | FleetCor Technologies Inc.* | 366,514 | |
5,547,998 | MasterCard Inc. | 989,042 | |
6,206,122 | PayPal Holdings Inc.* | 463,039 | |
4,316,881 | Square Inc.* | 204,361 | |
7,757,902 | Visa Inc. | 984,323 | |
3,007,279 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
LIFE SCIENCES TOOLS & SERVICES—1.2% | |||
1,483,925 | Illumina Inc.* | $ 357,522 | |
MACHINERY—2.6% | |||
3,084,937 | Caterpillar Inc. | 445,342 | |
2,130,787 | Parker-Hannifin Corp. | 350,770 | |
796,112 | |||
MEDIA—0.6% | |||
708,351 | Charter Communications Inc.* | 192,168 | |
OIL, GAS & CONSUMABLE FUELS—1.4% | |||
2,604,107 | Concho Resources Inc.* | 409,392 | |
PERSONAL PRODUCTS—1.8% | |||
3,676,485 | Estée Lauder Companies Inc. | 544,451 | |
PHARMACEUTICALS—1.0% | |||
1,676,299 | AstraZeneca plc ADR (United Kingdom)1 | 59,559 | |
4,746,444 | Bristol-Myers Squibb Co. | 247,432 | |
306,991 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—5.1% | |||
2,529,119 | Broadcom Inc. | 580,231 | |
2,754,510 | NVIDIA Corp. | 619,489 | |
3,454,870 | Texas Instruments Inc. | 350,427 | |
1,550,147 | |||
SOFTWARE—15.3% | |||
6,105,663 | Activision Blizzard Inc. | 405,111 | |
3,954,816 | Adobe Systems Inc.* | 876,387 | |
13,078,256 | Microsoft Corp. | 1,223,078 | |
3,395,135 | Red Hat Inc.* | 553,611 | |
7,261,974 | Salesforce.com Inc.* | 878,626 | |
3,274,151 | Splunk Inc.* | 336,092 | |
2,747,638 | Workday Inc.* | 343,015 | |
4,615,920 | |||
SPECIALTY RETAIL—2.0% | |||
3,305,893 | Home Depot Inc. | 610,929 | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—3.7% | |||
6,790,610 | Apple Inc. | 1,122,216 | |
TEXTILES, APPAREL & LUXURY GOODS—3.2% | |||
1,025,731 | Kering SA (France) | 593,381 | |
5,590,714 | NIKE Inc. | 382,349 | |
975,730 | |||
TOTAL COMMON STOCKS | |||
(Cost $16,995,937) | 29,962,316 | ||
6
Harbor Capital Appreciation Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
SHORT-TERM INVESTMENTS—0.5% | |||
(Cost $146,506) | |||
Principal Amount | Value | ||
REPURCHASE AGREEMENTS | |||
$ | 146,506 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $149,440) | $ 146,506 |
TOTAL INVESTMENTS—99.7% | |||
(Cost $17,142,443) | 30,108,822 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.3% | 95,559 | ||
TOTAL NET ASSETS—100.0% | $30,204,381 |
FAIR VALUE MEASUREMENTS
Repurchase Agreements valued at $146,506 and holdings in the Internet Software & Services and Textiles, Apparel & Luxury Goods categories valued at $968,090 and $593,381, respectively, are classified as Level 2. All other holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
* | Non-income producing security |
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. |
The accompanying notes are an integral part of the Financial Statements.
7
Harbor Strategic Growth Fund
Managers Commentary (Unaudited)
Managers Commentary (Unaudited)
Subadviser
Mar Vista Investment Partners, LLC
11150 Santa Monica Boulevard, Suite 320
Los Angeles, CA 90025
Portfolio Managers
Silas A. Myers, CFA
Since 2017
Since 2017
Brian L. Massey, CFA
Since 2017
Since 2017
Joshua J. Honeycutt, CFA
Since 2017
Jeffrey B. Prestine
Since 2017
Since 2017
Mar Vista has subadvised the Fund since 2017.*
Investment Objective
The Fund seeks long-term growth of capital.
Silas A. Myers, CFA
Brian L. Massey, CFA
Joshua J. Honeycutt, CFA
Jeffrey B. Prestine
Management’s Discussion of
Fund Performance
Fund Performance
MARKET REVIEW
For the six months ended April 30, 2018, the Russell 1000® Growth Index was up 5.68%. The synchronized global economic growth and rising corporate profits led to stock prices reaching record highs in January before undergoing an abrupt correction in February. Concerns over rising global trade tensions, social media regulations and interest rates awakened market volatility from its unprecedented calm. Technology platform companies commonly known by the acronym FANG (Facebook, Amazon, Netflix, and Google) led markets higher until privacy issues at Facebook triggered a public crisis over consumer data. Although equity markets have come under pressure recently, we believe that underlying economic fundamentals remain strong with consumer spending healthy and corporate earnings estimated to grow approximately 20 percent in 2018. Despite the robust profit outlook, mounting investor anxiety may stoke too much fear for the stock market’s “Goldilocks environment”- not too hot, not too cold- to continue.
PERFORMANCE
The Harbor Strategic Growth Fund returned 4.52% (Institutional Class), 4.56% (Retirement Class), 4.39% (Administrative Class), and 4.29% (Investor Class) for the six months ended April 30, 2018. Stock selection within the Financials, Health Care and Consumer Discretionary sectors drove the Fund’s underperformance relative to the benchmark. The Fund’s sector underweight in Consumer Discretionary also detracted from performance.
The largest detractors to performance for the six months ended April 30, 2018, included Oracle, Mettler Toledo, U.S. Bancorp and Dollar Tree. Oracle, is transitioning from a legacy client-server software provider to a cloud-based solution. This is a complicated transition, which is taking slightly longer relative to street expectations. Although the first quarter of 2018 was disappointing for Oracle, we believe the company benefits from high switching costs associated with its mission-critical enterprise software solutions and expect its client base to make the transition to the Oracle Cloud over time. Mettler Toledo, a manufacturer and marketer of laboratory and industrial precision instruments, has recently underperformed. After an approximate 80% move over the last 18 months through 01/31/2018, the stock had grown ahead of its intrinsic value; however, there are no changes to our long-term outlook for Mettler Toledo. Dollar Tree, the discount variety store operator, detracted from performance as there was profit taking by some investors after the company’s Q1 2018 earnings announcement. As a significant beneficiary of tax reform (nearly 100% U.S. generated revenues), the market was disappointed in revenue growth as the company reinvested a larger portion of their tax benefit than was expected. The reinvestment was primarily used to improve on employee benefits, which we believe will improve the business over the long run.
Strong contributors to performance included XPO Logistics, whose strong reported numbers, solid future expectations for growth and accretive acquisitions rewarded shareholders; Intuit, Inc., whose most recent quarterly earnings confirmed that cloud-based solutions for small businesses and the do-it-yourself tax markets are expanding as businesses and individuals adopt easy to use cloud based mobile solutions; and, Adobe, the market leader in creative content and digital marketing solutions that continues to expand rapidly in both markets
* | On March 6, 2017, the Fund acquired all of the assets and substantially all of the liabilities of the Mar Vista Strategic Growth Fund (the “Predecessor Fund”). For the period November 1, 2011 (inception of the Predecessor Fund) to January 20, 2015, Mar Vista served as the Predecessor Fund’s subadviser and for the period January 20, 2015 to March 6, 2017, Mar Vista served as investment adviser to the Predecessor Fund. |
8
Harbor Strategic Growth Fund
Managers Commentary—Continued
Managers Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | Life of Class | |||||||||
Harbor Strategic Growth Fund | |||||||||||
Institutional Class1 | 4.52% | 14.55% | 13.19% | 14.48% | |||||||
Retirement Class2 | 4.56 | 14.65 | N/A | 15.14 | |||||||
Administrative Class2 | 4.39 | 14.22 | N/A | 14.77 | |||||||
Investor Class2 | 4.29 | 14.12 | N/A | 14.62 | |||||||
Comparative Index | |||||||||||
Russell 1000® Growth1 | 5.68% | 18.96% | 15.13% | 15.84% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.70% (Net) and 0.89% (Gross) (Institutional Class); 0.62% (Net) and 0.81% (Gross) (Retirement Class); 0.95% (Net) and 1.14% (Gross) (Administrative Class); and 1.07% (Net) and 1.26% (Gross) (Investor Class). The net expense ratios reflect an expense limitation agreement (excluding interest expense, if any) effective through 02/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
as global enterprises are forced to engage customers in new ways as commerce shifts from a linear to a digital world. We believe that Adobe is uniquely positioned to help enterprises migrate to a digital environment as it is the dominant provider of content creation tools and a leading supplier of digital marketing solutions.
OUTLOOK & STRATEGY
We remain optimistic that current economic conditions will bode well for the portfolio. The recent market environment has allowed the Fund to increase its active share relative to the benchmark. In addition, the three traditional growth sectors account for nearly 70% of the Russell 1000® Growth Index: Information Technology (39%), Consumer Discretionary (18%) and Health Care (13%), while they represent only 40% of the Fund. Mar Vista’s portfolio construction process focuses on bottom-up factors, independent of benchmark weights. The resulting sector exposures represent the areas in which our investment team is finding skewed risk-reward opportunities from sustained growth companies, and are not an expressed opinion on the sectors from a macro level.
As we have shared in previous commentary, over time, the expected returns of the Fund should reflect two components: (1) the compounding nature of the Fund’s businesses and (2) the discount we are paying relative to fair value. There will be times when the sentiment pendulum swings towards optimism; Fund returns exceed the underlying intrinsic value growth, and margins of safety contract. Conversely, fear, skepticism and lower stock prices provide opportunities for both higher expected returns and less risk. We remain optimistic with the compounded intrinsic value growth of our portfolio holdings. The volatility of the market has improved our portfolio’s discount to intrinsic value, to 10% from 7% at year-end (2% in January). Nevertheless, this discount continues to be at the low end and well below the 20-35% historical range. We cautiously remind our investors that downside risks have a way of sneaking up on markets during periods of increasing optimism. Although behavioral biases may influence near-term stock performance, business economics matter more over time. We believe that investment bargains are elusive but companies that compound owners’ earnings become increasingly attractive with the passage of time. We will continue to seek to identify these unique franchises and wait patiently for markets to offer them at discounts.
Our investment team claims no special skill in predicting the market’s direction but, in the fullness of time, we believe a patient, high-conviction fund comprised of competitively advantaged growth companies with stock prices that represent an appropriate margin of safety should generate excess risk-adjusted returns. In an environment with growing optimism, our investment team will seek to remain diligent, conservative and patient as we deploy capital.
1 | The “Life of Class” return as shown reflects the period 11/01/2011 through 04/30/2018. |
2 | The “Life of Class” return as shown reflects the period 03/06/2017 through 04/30/2018. |
This report contains the current opinions of Mar Vista Investment Partners, LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
9
Harbor Strategic Growth Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Markel Corp. | 4.8% |
2. Berkshire Hathaway Inc. Class B | 4.7% |
3. American Tower Corp. | 4.3% |
4. Oracle Corp. | 4.1% |
5. XPO Logistics Inc. | 4.1% |
6. Intuit Inc. | 3.9% |
7. Honeywell International Inc. | 3.8% |
8. Alphabet Inc. Class C | 3.7% |
9. Unilever NV | 3.1% |
10. Ecolab Inc. | 3.0% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
10
Harbor Strategic Growth Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—90.7% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—2.0% | |||
4,541 | TransDigm Group Inc.* | $ 1,456 | |
AIR FREIGHT & LOGISTICS—4.1% | |||
30,354 | XPO Logistics Inc.* | 2,949 | |
BANKS—3.5% | |||
9,762 | First Republic Bank | 907 | |
31,856 | U.S. Bancorp. | 1,607 | |
2,514 | |||
BEVERAGES—1.9% | |||
13,518 | PepsiCo Inc. | 1,364 | |
CAPITAL MARKETS—2.5% | |||
10,951 | Moody's Corp. | 1,776 | |
CHEMICALS—4.6% | |||
14,515 | Ecolab Inc. | 2,102 | |
7,614 | Praxair Inc. | 1,161 | |
3,263 | |||
DIVERSIFIED FINANCIAL SERVICES—4.7% | |||
17,189 | Berkshire Hathaway Inc. Class B* | 3,330 | |
ELECTRICAL EQUIPMENT—2.8% | |||
39,355 | Sensata Technologies Holding plc (United Kingdom)* | 1,996 | |
ENERGY EQUIPMENT & SERVICES—4.4% | |||
13,819 | Core Laboratories NV | 1,692 | |
21,412 | Schlumberger Ltd. | 1,468 | |
3,160 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—4.3% | |||
22,489 | American Tower Corp. | 3,067 | |
FOOD PRODUCTS—1.5% | |||
27,795 | Mondelez International Inc. | 1,098 | |
INDUSTRIAL CONGLOMERATES—6.6% | |||
18,819 | Honeywell International Inc. | 2,723 | |
7,482 | Roper Technologies Inc. | 1,976 | |
4,699 | |||
INSURANCE—4.8% | |||
3,018 | Markel Corp.* | 3,410 | |
INTERNET & DIRECT MARKETING RETAIL—2.5% | |||
1,158 | Amazon.com Inc.* | 1,814 | |
INTERNET SOFTWARE & SERVICES—3.7% | |||
2,596 | Alphabet Inc. Class C* | 2,641 | |
IT SERVICES—2.6% | |||
14,824 | Visa Inc. | 1,881 | |
LIFE SCIENCES TOOLS & SERVICES—1.6% | |||
2,058 | Mettler-Toledo International Inc. (Switzerland)* | 1,152 | |
MACHINERY—2.0% | |||
20,538 | Fortive Corp. | 1,444 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
MEDIA—1.7% | |||
11,823 | Walt Disney Co. | $ 1,186 | |
MULTILINE RETAIL—2.0% | |||
15,284 | Dollar Tree Inc.* | 1,466 | |
PERSONAL PRODUCTS—3.1% | |||
38,942 | Unilever NV (Netherlands) | 2,224 | |
PHARMACEUTICALS—3.5% | |||
4,671 | Allergan plc (Ireland) | 718 | |
14,003 | Johnson & Johnson | 1,771 | |
2,489 | |||
ROAD & RAIL—1.2% | |||
7,854 | Kansas City Southern | 837 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—2.5% | |||
21,129 | Microchip Technology Inc. | 1,768 | |
SOFTWARE—10.7% | |||
8,557 | Adobe Systems Inc.* | 1,896 | |
14,996 | Intuit Inc. | 2,771 | |
64,696 | Oracle Corp. | 2,955 | |
7,622 | |||
SPECIALTY RETAIL—3.0% | |||
21,331 | Carmax Inc.* | 1,333 | |
3,143 | O'Reilly Automotive Inc.* | 805 | |
2,138 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—2.9% | |||
12,402 | Apple Inc. | 2,050 | |
TOTAL COMMON STOCKS | |||
(Cost $53,334) | 64,794 | ||
SHORT-TERM INVESTMENTS—9.2% | |||
(Cost $6,544) | |||
Principal Amount | |||
REPURCHASE AGREEMENTS | |||
$ | 6,544 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $6,678) | 6,544 |
TOTAL INVESTMENTS—99.9% | |||
(Cost $59,878) | 71,338 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.1% | 101 | ||
TOTAL NET ASSETS—100.0% | $71,439 |
11
Harbor Strategic Growth Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS
Repurchase Agreements valued at $6,544 are classified as Level 2. All other holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
* | Non-income producing security |
The accompanying notes are an integral part of the Financial Statements.
12
Harbor Mid Cap Growth Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Wellington Management Company LLP
280 Congress Street
Boston, MA 02210
Boston, MA 02210
Portfolio Managers
Stephen C. Mortimer
Since 2010
Since 2010
Michael T. Carmen, CFA, CPA
Since 2005
Mario E. Abularach, CFA, CMT
Since 2006
Since 2006
Wellington Management has subadvised the Fund since 2005.
Investment Objective
The Fund seeks long-term growth of capital.
Stephen C. Mortimer
Michael T. Carmen, CFA
Mario E. Abularach, CFA, CMT
Management’s Discussion of
Fund Performance
Fund Performance
MARKET REVIEW
U.S. equities rose during the six months ended April 30, 2018, driven by positive performance through the end of 2017. Low unemployment, robust corporate earnings, and strong consumer and business spending contributed to positive market sentiment and healthy economic momentum. Tax reform was a key area of focus, culminating with a $1.5 trillion tax reform bill signed into law by President Donald Trump at the end of December 2017. Bullish sentiment was exceptionally strong at the beginning of 2018. However, a sharp decline in equities occurred at the end of January, accompanied by a substantial rise in volatility, which appeared to be triggered by investors’ concerns about lofty equity valuations and the potential upside risks to inflation, bond yields, and U.S. Federal Reserve policy stemming from pro-growth deregulation, tax cuts, and increased government spending. President Trump sparked fears of a global trade war when he imposed tariffs on imported steel and aluminum and announced plans for tariffs on approximately $50 billion worth of Chinese goods in response to concerns about China’s unfair trade practices and alleged theft of U.S. intellectual property. At the end of April 2018, a record-high percentage of companies exceeded first-quarter earnings estimates.
Performance
For the six months ended April 30, 2018, the Harbor Mid Cap Growth Fund outperformed the Russell Midcap® Growth Index. The Fund returned 6.55% (Institutional Class), 6.63% (Retirement Class), 6.43% (Administrative Class), 6.39% (Investor Class) for the period while the index finished up 5.16%.
Relative outperformance was driven by positive security selection, most notably within the Information Technology, Health Care, and Consumer Staples sectors. Unfavorable security selection within Consumer Discretionary and Industrials partially offset positive returns. Sector allocations, a residual of the bottom-up stock selection process, modestly detracted from results. Overweight allocations to Health Care and Consumer Discretionary, as well as an underweight to Financials, detracted most from performance, while underweight allocations to Materials and Real Estate aided returns.
Medical device supplier Insulet was the largest relative contributor during the period. The company specializes in diabetes management and its product offerings include the Omnipod System for insulin infusion. Insulet announced fourth quarter and FY2017 results in mid-February; revenues came in above consensus and the company’s patient base grew over 30% in 2017. Management also released guidance for 2018 that was above street estimates and which we viewed as conservative. Other positive milestones that occurred for Insulet include receiving Medicare coverage (Part D) for Omnipod, submitting their Omnipod Dash Personal Diabetes Manager (PMD) for Food and Drug Administration approval (which allows for improved user experience, smartphone viewing, and remote monitoring), and United Healthcare’s agreement to cover Omnipod in its network. Given these positive developments, we continue to see upside in the stock despite recent strong performance. Other notable contributors during the period were premium pet food company Blue Buffalo (eliminated at the end of the period), cloud based service company ServiceNow, and continuous glucose monitoring systems company DexCom.
Teradyne, a supplier of automated test equipment to semiconductor and industrial companies, was among the top detractors from relative performance during the period. As part of Apple’s supply chain, weakness surrounding iPhone X demand and subsequent weak revenues generated from Apple weighed on the financial results of Teradyne. Although the company recently
13
Harbor Mid Cap Growth Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor Mid Cap Growth Fund | |||||||||||
Institutional Class | 6.55% | 22.33% | 12.89% | 8.60% | |||||||
Retirement Class1 | 6.63 | 22.53 | 12.93 | 8.62 | |||||||
Administrative Class | 6.43 | 22.01 | 12.61 | 8.32 | |||||||
Investor Class | 6.39 | 21.89 | 12.49 | 8.20 | |||||||
Comparative Index | |||||||||||
Russell Midcap® Growth | 5.16% | 16.87% | 12.76% | 9.74% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.89% (Institutional Class); 0.81% (Retirement Class); 1.14% (Administrative Class); and 1.26% (Investor Class). The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
released in-line first quarter results, they delivered second quarter guidance meaningfully below consensus expectations. Nonetheless, we remain confident that the company can grow due to other growth drivers including the success of its Universal Robots division, its core semi test business (including its automotive semi test equipment), and recent memory test equipment market share gains. Other notable detractors during the period were semiconductor company Microchip Technology, architectural and engineering software company Autodesk, and pharmaceutical company Ionis.
OUTLOOK & STRATEGY
Despite the heightened volatility that occurred toward the end the period, we remain broadly positive on the current macro environment in the U.S. and took advantage of the volatility to add to some of our highest conviction ideas. We believe valuations remain reasonable versus underlying growth metrics and company fundamentals. Although we remain cognizant of the potential trade wars that dominated news outlets at the end of March and April, we view this as mostly noise. We continue to see a broad set of opportunities across sectors supported by the recent tax legislation and a strong consumer environment.
Our investment philosophy is based on four key underlying premises. We believe that changes in earnings expectations drive security prices and opportunities arise where our expectations differ significantly from consensus. In addition, we believe that human nature has an anchoring bias that can often miss transformational change, and early identification of this change can lead to excess returns. We view being flexible as a key tenant of our philosophy and recognize that growth exists in unexpected places across sectors of the market. Finally, we believe that our valuation discipline helps control portfolio risk by seeking to balance downside risk with potential upside reward.
We employ this philosophy, together with a bottom-up fundamental analysis and opportunistic investment approach, in managing the Fund. We consider a very broad universe of available stocks within the mid cap market, typically focusing on companies with accelerating operating momentum and earnings growth combined with an upside potential at least two times the downside case.
The Fund is largely constructed without regard to benchmark weightings by sector; however, we typically do not expect to exceed the benchmark weight by more than two times in any given sector. Bottom-up investment decisions resulted in increased exposure to the Consumer Discretionary sector and a decrease in Information Technology. This resulted in Consumer Discretionary becoming the Fund’s largest overweight by the end of the period, followed by Health Care and Information Technology. As of the end of the period, the fund’s largest underweight allocations were to the Financials, Industrials, and Materials sectors.
1 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Wellington Management Company LLP as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Stocks of mid cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
14
Harbor Mid Cap Growth Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. ServiceNow Inc. | 4.5% |
2. Workday Inc. | 4.0% |
3. Dollar Tree Inc. | 3.5% |
4. CoStar Group Inc. | 3.2% |
5. Guidewire Software Inc. | 3.1% |
6. TD Ameritrade Holding Corp. | 3.1% |
7. Insulet Corp. | 3.0% |
8. Microchip Technology Inc. | 3.0% |
9. Hilton Worldwide Holdings Inc. | 2.8% |
10. Exact Sciences Corp. | 2.6% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
15
Harbor Mid Cap Growth Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—97.8% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—1.3% | |||
28,175 | Harris Corp. | $ 4,407 | |
AIRLINES—1.7% | |||
304,059 | JetBlue Airways Corp.* | 5,835 | |
BANKS—1.1% | |||
54,357 | SunTrust Banks Inc. | 3,631 | |
BIOTECHNOLOGY—5.2% | |||
176,679 | Exact Sciences Corp.* | 8,836 | |
78,444 | Ionis Pharmaceuticals Inc.* | 3,375 | |
15,505 | Sage Therapeutics Inc.* | 2,232 | |
36,618 | Seattle Genetics Inc.* | 1,874 | |
17,766 | Spark Therapeutics Inc.* | 1,356 | |
17,673 | |||
CAPITAL MARKETS—3.1% | |||
181,010 | TD Ameritrade Holding Corp. | 10,515 | |
COMMERCIAL SERVICES & SUPPLIES—1.2% | |||
54,791 | Brink's Co. | 4,043 | |
CONSTRUCTION MATERIALS—1.4% | |||
43,317 | Vulcan Materials Co. | 4,838 | |
CONTAINERS & PACKAGING—1.4% | |||
41,601 | Packaging Corp. of America | 4,813 | |
ELECTRICAL EQUIPMENT—2.2% | |||
44,731 | Rockwell Automation Inc. | 7,359 | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—3.7% | |||
95,581 | II-VI Inc.* | 3,642 | |
24,793 | IPG Photonics Corp.* | 5,282 | |
28,209 | Zebra Technologies Corp.* | 3,803 | |
12,727 | |||
FOOD PRODUCTS—1.1% | |||
57,456 | Lamb Weston Holdings Inc. | 3,753 | |
HEALTH CARE EQUIPMENT & SUPPLIES—9.9% | |||
29,630 | Align Technology Inc.* | 7,403 | |
55,654 | Baxter International Inc. | 3,868 | |
72,278 | DexCom Inc.* | 5,289 | |
54,871 | Edwards Lifesciences Corp.* | 6,989 | |
117,304 | Insulet Corp.* | 10,088 | |
33,637 | |||
HEALTH CARE TECHNOLOGY—1.3% | |||
60,868 | Veeva Systems Inc.* | 4,269 | |
HOTELS, RESTAURANTS & LEISURE—11.8% | |||
86,242 | Hilton Grand Vacations Inc.* | 3,708 | |
121,166 | Hilton Worldwide Holdings Inc. | 9,553 | |
32,126 | Marriott Vacations Worldwide Corp. | 3,939 | |
199,430 | Melco Resorts & Entertainment Ltd. ADR (Hong Kong)1 | 6,224 | |
101,302 | MGM Resorts International | 3,183 | |
164,491 | Planet Fitness Inc.* | 6,627 | |
29,469 | Vail Resorts Inc. | 6,758 | |
39,992 | |||
HOUSEHOLD DURABLES—0.8% | |||
12,920 | Mohawk Industries Inc.* | 2,712 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
INTERNET & DIRECT MARKETING RETAIL—3.3% | |||
48,906 | Shutterfly Inc.* | $ 3,957 | |
46,400 | TripAdvisor Inc.* | 1,736 | |
89,048 | Wayfair Inc.* | 5,548 | |
11,241 | |||
INTERNET SOFTWARE & SERVICES—4.1% | |||
43,844 | 2U Inc.* | 3,529 | |
2,600 | Ceridian Hcm Holding Inc.* | 82 | |
59,183 | GoDaddy Inc.* | 3,821 | |
39,900 | Spotify Technology SA (Luxembourg)* | 6,450 | |
13,882 | |||
IT SERVICES—0.5% | |||
16,294 | Global Payments Inc. | 1,842 | |
LEISURE PRODUCTS—1.0% | |||
32,694 | Polaris Industries Inc. | 3,427 | |
MACHINERY—2.4% | |||
35,076 | IDEX Corp. | 4,688 | |
27,789 | Middleby Corp.* | 3,497 | |
8,185 | |||
MEDIA—0.8% | |||
89,491 | Liberty Media Corp.-Liberty Formula One* | 2,642 | |
MULTILINE RETAIL—3.5% | |||
124,305 | Dollar Tree Inc.* | 11,920 | |
OIL, GAS & CONSUMABLE FUELS—1.2% | |||
244,096 | WPX Energy Inc.* | 4,171 | |
PHARMACEUTICALS—1.2% | |||
29,000 | Eisai Co. Ltd. (Japan) | 1,945 | |
9,239 | Nektar Therapeutics* | 773 | |
65,200 | Ono Pharmaceutical Co. Ltd. (Japan) | 1,507 | |
4,225 | |||
PROFESSIONAL SERVICES—3.2% | |||
29,735 | CoStar Group Inc.* | 10,903 | |
REAL ESTATE MANAGEMENT & DEVELOPMENT—1.2% | |||
321,145 | Williams Scotsman Corp.* | 4,111 | |
ROAD & RAIL—1.9% | |||
34,369 | JB Hunt Transport Services Inc. | 4,036 | |
63,019 | Knight-Swift Transportation Holdings Inc. | 2,458 | |
6,494 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—6.9% | |||
409,654 | Advanced Micro Devices Inc.* | 4,457 | |
123,526 | Microchip Technology Inc. | 10,334 | |
106,821 | Micron Technology Inc.* | 4,912 | |
114,970 | Teradyne Inc. | 3,742 | |
23,445 | |||
SOFTWARE—14.3% | |||
42,172 | Autodesk Inc.* | 5,309 | |
22,702 | Fair Isaac Corp.* | 3,932 | |
125,569 | Guidewire Software Inc.* | 10,626 | |
91,871 | ServiceNow Inc.* | 15,263 | |
108,089 | Workday Inc.* | 13,494 | |
48,624 |
16
Harbor Mid Cap Growth Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
SPECIALTY RETAIL—3.0% | |||
112,800 | Floor & Decor Holdings Inc.* | $ 6,271 | |
37,316 | Tiffany & Co. | 3,837 | |
10,108 | |||
TEXTILES, APPAREL & LUXURY GOODS—2.1% | |||
69,991 | Skechers U.S.A. Inc.* | 1,995 | |
174,558 | Under Armour Inc. Class A* | 3,100 | |
130,083 | Under Armour Inc. Class C* | 1,997 | |
7,092 | |||
TOTAL COMMON STOCKS | |||
(Cost $278,499) | 332,516 | ||
SHORT-TERM INVESTMENTS—2.1% | |||
(Cost $7,112) | |||
Principal Amount | Value | ||
REPURCHASE AGREEMENTS—2.1% | |||
$ | 7,112 | Repurchase Agreement with Bank of America dated April 30, 2018 due May 01, 2018 at 1.700% collateralized by U.S. Treasury Notes (value $7,251) | $ 7,112 |
TOTAL INVESTMENTS—99.9% | |||
(Cost $285,611) | 339,628 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.1% | 373 | ||
TOTAL NET ASSETS—100.0% | $340,001 |
RIGHTS/WARRANTS OPEN AT APRIL 30, 2018
Description | No. of Contracts | Strike Price | Expiration Date | Cost (000s) | Value (000s) | |||||
Williams Scotsman Corp. Warrant | 326,045 | $ 11.50 | 11/29/2022 | $ 280 | $473 |
FAIR VALUE MEASUREMENTS
Repurchase Agreements valued at $7,112 and holdings in the Pharmaceuticals category valued at $3,452 are classified as Level 2. All other holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
* | Non-income producing security |
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. |
The accompanying notes are an integral part of the Financial Statements.
17
Harbor Small Cap Growth Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Westfield Capital Management Company, L.P.
One Financial Center
23rd Floor
23rd Floor
Boston, MA 02111
Portfolio Managers
William A. Muggia
Lead Portfolio Manager
Since 2000
Since 2000
Richard D. Lee, CFA
Since 2018
Since 2018
Ethan J. Meyers, CFA
Since 2000
Since 2000
John M. Montgomery
Since 2011
Since 2011
Westfield has subadvised the Fund since 2000.
Investment Objective
The Fund seeks long-term growth of capital.
William A. Muggia
Richard D. Lee, CFA
Ethan J. Meyers, CFA
John M. Montgomery
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
U.S. equity markets finished 2017 much the same way they started the year with strong returns and limited volatility. The momentum carried through to the start of 2018 as well and these gains were supported by continued strength in the underlying economy, robust earnings growth in corporate America, and further propelled by the stimulus of tax reform. However, as the first quarter of 2018 unfolded, volatility returned to the markets as investors grew concerned about the impact of rising inflation and the potential that the U.S. Federal Reserve may alter the course of expected future rate hikes. In addition, the political backdrop did little to quell the gyrations of the markets as escalating trade tensions between the U.S. and China called into question the continuation of the synchronized global growth story.
Performance
Harbor Small Cap Growth Fund returned 9.28% (Institutional Class), 9.34 % (Retirement Class), 9.14% (Administrative Class), and 9.08% (Investor Class) for the six months ended April 30, 2018, outperforming the Russell 2000® Growth Index, which gained 5.46%. Relative strength in the Information Technology, Energy, and Real Estate sectors offset relative weakness in the Financials and Materials sectors.
Information Technology contributed 320 basis points (bps) to relative gains, nearly entirely due to stock selection. Participation was broad-based within the group as nearly all sub-industries provided relative performance gains over the period with the only exception being internet software & services. The sector’s top relative contributor was Zendesk, Inc., a company which offers a high-quality and differentiated customer service platform. The company’s product is able to integrate with social media seamlessly, differentiating Zendesk from older call center and customer service products that are not built to support these next-generation applications. Based on our research, we believe the company’s sales force is strategically focused on providing enterprise solution sales and, as a result of their recent success, average deal sizes have increased. We believe this continued shift toward enterprise customers should be good for Zendesk’s long term prospects, allowing them to achieve substantial growth over the next several years. We added to the position in December and continue to maintain our exposure. Fortinet, Inc., a provider of threat management and network security solutions, was also a top source of relative strength in the sector. Recent quarterly results have been viewed positively by the market and business momentum remains strong, in our opinion. Security continues to be an area of strength in the Information Technology sector, and we view Fortinet as one of the best ways to play the security theme, which is experiencing growth in budgets and awareness.
Energy was responsible for 70 bps of relative performance gains. Strong stock selection within oil & gas exploration & production stocks drove the bulk of the sector’s relative performance contribution. RSP Permian, Inc., which acquires, explores, and develops oil and gas resources in the Permian Basin of West Texas, was the top relative performer. The foundation of our investment in the company is our belief that RSP Permian maintains premier geological exposure and has shown a track record of execution. In late March 2018, news broke that the company had entered into an agreement with Concho Resources, Inc. to be acquired as part of Concho’s strategy to expand their Permian Basin portfolio, resulting in a combined entity that will
18
Harbor Small Cap Growth Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor Small Cap Growth Fund | |||||||||||
Institutional Class | 9.28% | 18.32% | 13.53% | 10.17% | |||||||
Retirement Class1 | 9.34 | 18.37 | 13.57 | 10.20 | |||||||
Administrative Class | 9.14 | 17.61 | 13.18 | 9.88 | |||||||
Investor Class | 9.08 | 17.91 | 13.10 | 9.77 | |||||||
Comparative Index | |||||||||||
Russell 2000® Growth | 5.46% | 16.60% | 13.07% | 10.41% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.87% (Institutional Class); 0.79% (Retirement Class); 1.12% (Administrative Class); and 1.24% (Investor Class). The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
become the biggest operator in the region. As of the end of April, we continue to own shares in RSP Permian based upon our belief that Concho owns high quality geology, has shown a history of executing well, and that the combined entity should be positioned well for the future.
Investments in Real Estate generated 39 bps of relative returns. We remained underweight the sector over the trailing six-month period given our concerns regarding fundamental headwinds facing the group at large such as the current rising rate environment. As we continue to progress through this challenging environment, we are managing our exposure to the sector by selectivity gearing towards those REITs which we expect to experience growth next year despite the current backdrop. To that end, we have taken advantage of recent weakness to modestly increase our exposure, reducing our underweight position to the group.
Financials was the portfolio’s weakest group, detracting 31 bps from the portfolio’s relative returns. MGIC Investment Corporation, a provider of private mortgage insurance in the U.S., was the sector’s top relative underperformer. The shares declined after the company announced that it would cut the price of its main borrower-paid mortgage insurance product, potentially adversely impacting industry profitability. As a result of the development and the corresponding reduction in the stock’s risk/reward profile, we resolved to sell the position in April 2018.
Outlook & Strategy
Our outlook moving forward remains largely unchanged and we believe that risks facing the equity markets currently appear balanced. We expect that continued domestic economic expansion will support growth in corporate earnings and profitability. However, we believe maintaining year-over-year growth rates at this pace will likely prove hard to sustain for long. As the cycle matures, we believe a tight labor market will likely result in upward wage pressure and ultimately inflation running higher than market participants currently expect. While headline data suggests the near term inflation outlook remains muted, we continue to monitor developments closely.
1 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Westfield Capital Management Company, L.P. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Please note that Richard Lee was added to the portfolio management team as of March 1, 2018. Although Mr. Lee is a new portfolio manager for the Fund, he has been a member of Westfield’s Investment Committee since 2004.
Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
19
Harbor Small Cap Growth Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. RSP Permian Inc. | 2.7% |
2. Eldorado Resorts Inc. | 2.6% |
3. Masimo Corp. | 2.2% |
4. Proofpoint Inc. | 2.2% |
5. Berry Global Group Inc. | 2.1% |
6. Integra LifeSciences Holdings Corp. | 2.1% |
7. Zendesk Inc. | 2.1% |
8. KLX Inc. | 2.0% |
9. Nektar Therapeutics | 2.0% |
10. CoStar Group Inc. | 1.9% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
20
Harbor Small Cap Growth Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—95.5% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—4.4% | |||
140,560 | HEICO Corp. | $ 10,141 | |
179,972 | KLX Inc.* | 14,079 | |
36,210 | Teledyne Technologies Inc.* | 6,775 | |
30,995 | |||
BANKS—3.0% | |||
245,980 | Bank of NT Butterfield & Son Ltd. (Bermuda) | 11,672 | |
238,037 | Pacific Premier Bancorp Inc.* | 9,462 | |
21,134 | |||
BIOTECHNOLOGY—2.6% | |||
245,670 | Acceleron Pharma Inc.* | 8,576 | |
149,730 | Clovis Oncology Inc.* | 6,495 | |
189,750 | Fate Therapeutics Inc.* | 1,917 | |
81,430 | Prothena Corp. plc (Ireland)* | 977 | |
17,965 | |||
CAPITAL MARKETS—1.8% | |||
101,293 | Hamilton Lane Inc. | 4,239 | |
134,452 | LPL Financial Holdings Inc. | 8,144 | |
12,383 | |||
CHEMICALS—4.5% | |||
326,340 | Axalta Coating Systems Ltd. (Bermuda)* | 10,084 | |
211,140 | H.B. Fuller Co. | 10,445 | |
151,560 | Trinseo SA (Luxembourg) | 11,056 | |
31,585 | |||
COMMUNICATIONS EQUIPMENT—1.5% | |||
418,620 | Ciena Corp.* | 10,779 | |
CONSTRUCTION MATERIALS—1.3% | |||
334,291 | Summit Materials Inc.* | 9,407 | |
CONSUMER FINANCE—1.5% | |||
87,390 | Green Dot Corp.* | 5,314 | |
267,370 | Santander Consumer USA Holdings Inc. | 4,933 | |
10,247 | |||
CONTAINERS & PACKAGING—2.1% | |||
269,200 | Berry Global Group Inc.* | 14,806 | |
DIVERSIFIED CONSUMER SERVICES—1.5% | |||
81,430 | Bright Horizons Family Solutions Inc.* | 7,726 | |
126,825 | Chegg Inc.* | 2,944 | |
10,670 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.4% | |||
45,839 | Orbotech Ltd. (Israel)* | 2,678 | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—2.4% | |||
91,060 | Camden Property Trust | 7,776 | |
375,324 | Stag Industrial Inc. | 9,222 | |
16,998 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—7.4% | |||
99,918 | Cantel Medical Corp. | 11,198 | |
236,510 | Integra LifeSciences Holdings Corp.* | 14,576 | |
171,421 | Masimo Corp.* | 15,382 | |
161,340 | Novocure Ltd. (Jersey)* | 4,404 | |
346,780 | Wright Medical Group NV (Netherlands)* | 6,800 | |
52,360 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HEALTH CARE TECHNOLOGY—1.0% | |||
160,112 | Omnicell Inc.* | $ 6,901 | |
HOTELS, RESTAURANTS & LEISURE—5.1% | |||
445,112 | Eldorado Resorts Inc.* | 18,027 | |
175,703 | Texas Roadhouse Inc. | 11,259 | |
29,885 | Vail Resorts Inc. | 6,853 | |
36,139 | |||
HOUSEHOLD DURABLES—0.7% | |||
88,312 | Installed Building Products Inc.* | 5,096 | |
INSURANCE—0.1% | |||
13,979 | Kemper Corp. | 944 | |
IT SERVICES—4.6% | |||
149,420 | Interxion Holding NV (Netherlands)* | 9,715 | |
72,422 | WEX Inc.* | 11,727 | |
220,925 | WNS Holdings Ltd. ADR (Jersey)*,1 | 10,810 | |
32,252 | |||
LIFE SCIENCES TOOLS & SERVICES—3.3% | |||
49,040 | BIO-RAD Laboratories Inc.* | 12,442 | |
89,224 | ICON plc (Ireland)* | 10,495 | |
22,937 | |||
MACHINERY—4.5% | |||
244,760 | Flowserve Corp. | 10,870 | |
116,420 | John Bean Technologies Corp. | 12,544 | |
459,260 | Milacron Holdings Corp.* | 8,280 | |
31,694 | |||
MEDIA—4.0% | |||
376,361 | Lions Gate Entertainment Corp. Class B (Canada) | 8,664 | |
47,820 | Madison Square Garden Co.* | 11,621 | |
131,694 | Nexstar Media Group Inc. | 8,198 | |
28,483 | |||
OIL, GAS & CONSUMABLE FUELS—3.7% | |||
384,700 | Centennial Resource Development Inc.* | 7,117 | |
382,870 | RSP Permian Inc.* | 18,994 | |
26,111 | |||
PHARMACEUTICALS—5.9% | |||
239,261 | Aclaris Therapeutics Inc.* | 4,247 | |
1,539,219 | Cardiome Pharma Corp. (Canada)* | 3,617 | |
133,530 | Catalent Inc.* | 5,490 | |
139,030 | Intersect ENT Inc.* | 5,554 | |
274,090 | Medicines Co.* | 8,247 | |
�� | 168,062 | Nektar Therapeutics* | 14,060 |
41,215 | |||
PROFESSIONAL SERVICES—1.9% | |||
36,396 | CoStar Group Inc.* | 13,345 | |
ROAD & RAIL—1.5% | |||
156,750 | Ryder System Inc. | 10,570 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—3.4% | |||
116,730 | Advanced Energy Industries Inc.* | 6,951 | |
241,400 | Integrated Device Technology Inc.* | 6,718 | |
37,894 | Monolithic Power Systems Inc. | 4,438 | |
325,430 | Ultra Clean Holdings Inc.* | 5,698 | |
23,805 |
21
Harbor Small Cap Growth Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
SOFTWARE—13.3% | |||
242,010 | 8x8 Inc.* | $ 4,901 | |
200,452 | Bottomline Technologies de Inc.* | 7,922 | |
150,031 | Commvault Systems Inc.* | 10,495 | |
187,307 | Fortinet Inc.* | 10,369 | |
83,420 | Nice Ltd. ADR (Israel)1 | 7,939 | |
130,479 | Proofpoint Inc.* | 15,389 | |
123,444 | Tableau Software Inc.* | 10,499 | |
46,630 | Ultimate Software Group Inc.* | 11,187 | |
302,810 | Zendesk Inc.* | 14,762 | |
93,463 | |||
SPECIALTY RETAIL—4.0% | |||
530,460 | American Eagle Outfitters Inc. | 10,970 | |
61,720 | Lithia Motors Inc. | 5,916 | |
126,200 | National Vision Holdings Inc.* | 4,200 | |
469,650 | Party City Holdco Inc.* | 7,397 | |
28,483 | |||
TRADING COMPANIES & DISTRIBUTORS—4.1% | |||
16,683 | BMC Stock Holdings Inc.* | 288 | |
283,566 | Rush Enterprises Inc.* | 11,578 | |
352,310 | Univar Inc.* | 9,710 | |
42,935 | Watsco Inc. | 7,188 | |
28,764 | |||
TOTAL COMMON STOCKS | |||
(Cost $535,863) | 672,209 | ||
SHORT-TERM INVESTMENTS—2.0% | |||
(Cost $13,903) | |||
Principal Amount | Value | ||
REPURCHASE AGREEMENTS | |||
$ | 13,903 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $14,183) | $ 13,903 |
TOTAL INVESTMENTS—97.5% | |||
(Cost $549,766) | 686,112 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—2.5% | 17,620 | ||
TOTAL NET ASSETS—100.0% | $703,732 |
FAIR VALUE MEASUREMENTS
Repurchase Agreements valued at $13,903 are classified as Level 2. All other holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
AFFILIATED TRANSACTIONS
Certain of the Fund’s investments are in companies that are considered to be affiliated companies of the Fund because the Fund owned more than 5% of the outstanding voting securities of the company during the period November 1, 2017 through April 30, 2018. Transactions during the period in securities of these companies were as follows:
Security Name | Beginning Balance as of 11/01/2017 (000s) | Purchases (000s) | Sales (000s) | Net Realized Gain/(Loss) (000s) | Change in Unrealized Appreciation/ (Depreciation) (000s) | Net Dividend Income (000s) | Ending Balance as of 04/30/2018 (000s) | |||||||
Cardiome Pharma Corp. (Canada)* | $3,014 | $– | $(240) | $(1,375) | $2,218 | $– | $3,617 |
* | Non-income producing security |
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. |
The accompanying notes are an integral part of the Financial Statements.
22
Harbor Small Cap Growth Opportunities Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Elk Creek Partners, LLC
44 Cook Street
Suite 705
Suite 705
Denver, CO 80206
Portfolio Managers
Cam Philpott, CFA
Since 2014
Since 2014
David Hand, CFA
Since 2014
Since 2014
Hiren Patel, Ph.D.
Since 2014
Since 2014
Sean McGinnis, CFA
Since 2014
Since 2014
Elk Creek has subadvised the Fund since 2014.
Investment Objective
The Fund seeks long-term growth of capital.
Cam Philpott, CFA
David Hand, CFA
Hiren Patel, Ph.D.
Sean McGinnis, CFA
Management’s Discussion of
Fund Performance
Fund Performance
Market REVIEW
Stocks were strong to start the six months ended April 30, 2018. Industrial companies broadly posted better organic revenue growth rates, and Consumer companies were discounting less in the holiday season. In December, investors grew a bit cautious and the month started with significant selling pressure. We noticed some of the weaker stocks during that time were in sectors that had been among the stronger performers for the full calendar year of 2017, which we think suggests investors were anxious to lock in gains.
The market regained its positive direction into year-end as tax legislation moved more convincingly through U.S. Congress and was ultimately signed into law by the U.S. President. With regard to small cap companies, in our view the overall effect should be relatively positive as tax rates drop into the low 20% range. Many small cap companies report tax rates in the mid to upper 30% range; so, broadly speaking, we expect a rather dramatic decrease in small company taxes. Of course, each company must be addressed individually to determine the ultimate effect.
Calendar year 2018 began with a resumption of the positive performance trends from 2017 across all market caps. Fundamentally in January, corporate earnings reports generally met expectations, and investors’ moods were broadly constructive. In early February, volatility returned to the market with a sudden fury. The CBOE Volatility Index (VIX) Index posted a historically massive one-day increase on February 5th, and that increase was correlated with dramatic collateral moves in the financial markets. The effect on the equity markets was a large sell-off across market caps. February was largely negative for equity investors, but stock prices subsequently recovered from the end of February through March and April.
Performance
For the six months ended April 30, 2018, Harbor Small Cap Growth Opportunities Fund returned 7.85% (Institutional Class), 7.84% (Retirement Class), 7.72% (Administrative Class), and 7.72% (Investor Class) outperforming its benchmark, the Russell 2000® Growth Index, which was up 5.46% for the same period.
Outperformance was driven by stock selection across nearly all sectors, led by the Information Technology and Consumer Discretionary sectors, and offset somewhat by negative stock selection in the Industrials sector. Sector weights are typically a result of our individual stock-selection process and not a primary focus of our investment strategy.
Specific stocks that were meaningful to the Fund included Cerus Corp. (CERS), a viral pathogen-inactivation company for blood-based products. Revenues were modestly better than expectations, and Cerus’ products continue to demonstrate growth rates above their respective markets. Additionally, the company had positive developments with new product offerings that could represent a large market opportunity. We modestly trimmed this position in the beginning of 2018.
Biotechnology company, Sarepta Therapeutics, Inc. (SRPT), which is focused on Duchenne’s Muscular Dystrophy, was another positive stock for the Fund. The company’s commercial success in its first year of marketing Exondys 51 was excellent. We continue to be optimistic about this drug’s growth prospects as we believe the market dynamics favor the product.
23
Harbor Small Cap Growth Opportunities Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | 5 Years | Annualized | ||||||||
6 Months | Life of Fund | ||||||||||
Harbor Small Cap Growth Opportunities Fund | |||||||||||
Institutional Class1 | 7.85% | 11.85% | N/A | 8.46% | |||||||
Retirement Class1,2 | 7.84 | 11.92 | N/A | 8.50 | |||||||
Administrative Class1 | 7.72 | 11.63 | N/A | 8.33 | |||||||
Investor Class1 | 7.72 | 11.59 | N/A | 8.07 | |||||||
Comparative Index | |||||||||||
Russell 2000® Growth1 | 5.46% | 16.60% | N/A | 9.60% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.89% (Institutional Class); 0.81% (Retirement Class); 1.14% (Administrative Class); and 1.26% (Investor Class). The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
Additionally, a potentially competitive therapy ran into issues during early clinical development, which caused that trial to be halted. Given the strength in Sarepta’s shares, we significantly reduced this position in the Fund due to price appreciation in early 2018. We remain optimistic about the company’s growth prospects.
WageWorks, Inc., a leading provider of software systems that enable employees to manage benefits, detracted from performance over the period. Investors were slightly disappointed with the company’s organic growth rate, though we believe those concerns to be overdone at current levels. The stock trades at a significant discount to peers, and we believe that employee demand for directed benefit programs, such as Health Savings Accounts, remains intact. As more of the healthcare expense burden shifts from companies to employees, we believe that individuals will seek directed benefit programs to manage their costs. We maintained our position in these shares.
Nutrisystem, Inc., a leading provider of weight management products and services, was a weak stock for the Fund during the period. Despite executing well for many years, the company’s marketing efforts for this year’s diet season performed poorly, and that campaign’s shortfall led to disappointing first quarter results. Other companies in the weight management category performed well, so we believe that the end market remains healthy. We maintained our position in the stock on the initial news, and subsequently added to our position as the shares weakened. Interestingly, third party search data suggested that Nutrisystem’s renewed campaign effort was gaining traction with consumers as search metrics improved. We believe that the company will return operational results to its more typical form.
Outlook & StRategy
The markets sold off dramatically on the first day of the new quarter, and it seems to us the overall tone in the financial media has become more cautious than optimistic. We believe this mood shift is really a question of sentiment regarding growth as few investors seem concerned about current fundamentals.
In our view, the primary concern seems centered around international policy responses to the current U.S. administration’s tariffs, especially from China, that could contract the global economy by ultimately restricting trade. We believe that a secondary concern is whether inflationary pressures could trigger a more aggressive monetary policy response than the markets currently anticipate. Finally, in our opinion, there remains the worry that political headwinds could increase as mid-term elections approach, creating issues for the administration in U.S. Congress, perhaps even Democratic control of one or both chambers.
We do not own stocks in the Fund based on a particular view of market sentiment (where it is or where it might go). Instead, we are committed to our longstanding investment process and remain focused on identifying companies with what we believe to be sustainable growth prospects that have reasonable valuations. Market sentiment will wax and wane, but our underlying belief is that individual company fundamentals will continue to drive long-term stock performance.
1 | The “Life of Fund” return as shown reflects the period 02/01/2014 through 04/30/2018. |
2 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Elk Creek Partners, LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
24
Harbor Small Cap Growth Opportunities Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Interxion Holding NV | 3.2% |
2. MaxLinear Inc. | 2.5% |
3. Evolent Health Inc. | 2.2% |
4. Quotient Technology Inc. | 2.2% |
5. Pacira Pharmaceuticals Inc. | 2.1% |
6. WNS Holdings Ltd. ADR | 2.1% |
7. Vocera Communications Inc. | 2.0% |
8. Cerus Corp. | 1.9% |
9. National General Holdings Corp. | 1.6% |
10. Synchronoss Technologies Inc. | 1.6% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
25
Harbor Small Cap Growth Opportunities Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—95.3% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—1.1% | |||
155,412 | KeyW Holding Corp.* | $ 1,203 | |
51,381 | Maxar Technologies Ltd. (Canada) | 2,328 | |
3,531 | |||
AIR FREIGHT & LOGISTICS—1.9% | |||
54,046 | Atlas Air Worldwide Holdings Inc.* | 3,427 | |
89,909 | Echo Global Logistics Inc.* | 2,454 | |
5,881 | |||
BANKS—2.2% | |||
48,058 | Chemical Financial Corp. | 2,638 | |
53,820 | FB Financial Corp. | 2,143 | |
79,235 | Tristate Capital Holdings Inc.* | 1,981 | |
6,762 | |||
BEVERAGES—0.8% | |||
197,636 | Primo Water Corp.* | 2,577 | |
BIOTECHNOLOGY—6.5% | |||
41,278 | BioSpecifics Technologies Corp.* | 1,751 | |
91,769 | Exact Sciences Corp.* | 4,589 | |
31,821 | Foundation Medicine Inc.* | 2,430 | |
60,078 | Intercept Pharmaceuticals Inc.* | 4,086 | |
17,544 | Ligand Pharmaceuticals Inc.* | 2,717 | |
57,076 | Sarepta Therapeutics Inc.* | 4,358 | |
19,931 | |||
BUILDING PRODUCTS—0.6% | |||
110,201 | NCI Building Systems Inc.* | 1,929 | |
COMMERCIAL SERVICES & SUPPLIES—1.7% | |||
82,797 | Advanced Disposal Services Inc.* | 1,825 | |
292,612 | Hudson Technologies Inc.* | 1,282 | |
46,828 | TETRA Tech Inc. | 2,266 | |
5,373 | |||
COMMUNICATIONS EQUIPMENT—1.7% | |||
295,224 | Infinera Corp.* | 3,460 | |
143,810 | Quantenna Communications Inc.* | 1,822 | |
5,282 | |||
CONSTRUCTION & ENGINEERING—1.3% | |||
39,328 | Dycom Industries Inc.* | 4,085 | |
CONSUMER FINANCE—0.8% | |||
42,805 | Green Dot Corp.* | 2,603 | |
DIVERSIFIED CONSUMER SERVICES—2.1% | |||
55,143 | Adtalem Global Education Inc.* | 2,625 | |
169,941 | Chegg Inc.* | 3,944 | |
6,569 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—1.0% | |||
256,164 | Iridium Communications Inc.* | 3,048 | |
ELECTRICAL EQUIPMENT—1.0% | |||
112,069 | Atkore International Group Inc.* | 1,991 | |
137,280 | Power Solutions International Inc.* | 1,030 | |
3,021 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.6% | |||
65,933 | Methode Electronics Inc. | $ 2,631 | |
44,765 | MTS Systems Corp. | 2,274 | |
4,905 | |||
FOOD & STAPLES RETAILING—0.7% | |||
94,193 | Chefs' Warehouse Inc.* | 2,284 | |
FOOD PRODUCTS—0.8% | |||
117,768 | Freshpet Inc.* | 2,332 | |
HEALTH CARE EQUIPMENT & SUPPLIES—7.0% | |||
1,118,539 | Cerus Corp.* | 5,816 | |
157,940 | Cryolife Inc.* | 3,546 | |
239,156 | Invacare Corp. | 4,353 | |
32,596 | Nevro Corp.* | 2,913 | |
44,414 | Nuvasive Inc.* | 2,363 | |
125,991 | Wright Medical Group NV (Netherlands)* | 2,471 | |
21,462 | |||
HEALTH CARE PROVIDERS & SERVICES—0.8% | |||
161,315 | Surgery Partners Inc.* | 2,581 | |
HEALTH CARE TECHNOLOGY—5.7% | |||
419,207 | Evolent Health Inc.* | 6,917 | |
105,890 | Teladoc Inc.* | 4,553 | |
248,708 | Vocera Communications Inc.* | 6,235 | |
17,705 | |||
HOTELS, RESTAURANTS & LEISURE—5.5% | |||
15,825 | Churchill Downs Inc. | 4,346 | |
46,134 | Dave & Buster's Entertainment Inc.* | 1,960 | |
195,573 | Habit Restaurants Inc.* | 1,975 | |
69,746 | Planet Fitness Inc.* | 2,810 | |
298,777 | Playa Hotels & Resorts NV (Netherlands)* | 3,078 | |
43,659 | Red Robin Gourmet Burgers Inc.* | 2,722 | |
16,891 | |||
HOUSEHOLD DURABLES—1.1% | |||
108,018 | Century Communities Inc.* | 3,322 | |
INSURANCE—2.4% | |||
49,043 | Kinsale Capital Group Inc. | 2,528 | |
190,034 | National General Holdings Corp. | 4,897 | |
7,425 | |||
INTERNET & DIRECT MARKETING RETAIL—0.9% | |||
100,412 | NutriSystem Inc. | 2,912 | |
INTERNET SOFTWARE & SERVICES—6.4% | |||
88,098 | Benefitfocus Inc.* | 2,661 | |
92,389 | Carbonite Inc.* | 2,873 | |
295,238 | Gogo Inc.* | 2,781 | |
93,570 | Hortonworks Inc.* | 1,584 | |
498,747 | Quotient Technology Inc.* | 6,683 | |
75,609 | Twilio Inc.* | 3,192 | |
19,774 | |||
IT SERVICES—5.3% | |||
152,568 | Interxion Holding NV (Netherlands)* | 9,920 | |
128,969 | WNS Holdings Ltd. ADR (India)*,1 | 6,310 | |
16,230 | |||
LIFE SCIENCES TOOLS & SERVICES—0.8% | |||
119,653 | Luminex Corp. | 2,555 |
26
Harbor Small Cap Growth Opportunities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
MACHINERY—5.5% | |||
78,766 | Actuant Corp. | $ 1,855 | |
52,556 | CIRCOR International Inc. | 2,227 | |
158,756 | Kornit Digital Ltd. (Israel)* | 2,310 | |
84,001 | Meritor Inc.* | 1,635 | |
175,050 | NN Inc. | 3,554 | |
141,467 | REV Group Inc. | 2,553 | |
106,831 | Rexnord Corp.* | 2,939 | |
17,073 | |||
MEDIA—1.3% | |||
104,647 | World Wrestling Entertainment Inc. | 4,164 | |
OIL, GAS & CONSUMABLE FUELS—2.6% | |||
191,261 | Callon Petroleum Co.* | 2,660 | |
135,391 | SM Energy Co. | 3,243 | |
185,210 | SRC Energy Inc.* | 2,045 | |
7,948 | |||
PHARMACEUTICALS—3.9% | |||
106,694 | Medicines Co.* | 3,210 | |
197,282 | Pacira Pharmaceuticals Inc.* | 6,530 | |
725,925 | Teligent Inc.* | 2,178 | |
11,918 | |||
PROFESSIONAL SERVICES—2.3% | |||
5,111 | Asgn Inc.* | 412 | |
57,782 | Korn/Ferry International | 3,089 | |
84,117 | WageWorks Inc.* | 3,504 | |
7,005 | |||
ROAD & RAIL—1.5% | |||
239,102 | Daseke Inc.* | 1,980 | |
39,009 | Saia Inc.* | 2,576 | |
4,556 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—4.0% | |||
161,752 | Inphi Corp.* | 4,623 | |
343,507 | MaxLinear Inc.* | 7,670 | |
12,293 | |||
SOFTWARE—3.6% | |||
47,475 | Imperva Inc.* | 2,125 | |
448,567 | Synchronoss Technologies Inc.* | 5,024 | |
245,828 | Vasco Data Security International Inc.* | 3,810 | |
10,959 | |||
SPECIALTY RETAIL—2.2% | |||
103,974 | Camping World Holdings Inc. | 2,977 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
SPECIALTY RETAIL—Continued | |||
63,089 | National Vision Holdings Inc.* | $ 2,100 | |
115,898 | Party City Holdco Inc.* | 1,825 | |
6,902 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—1.5% | |||
168,501 | Electronics for Imaging Inc.* | 4,667 | |
TEXTILES, APPAREL & LUXURY GOODS—0.8% | |||
63,616 | G-III Apparel Group Ltd.* | 2,321 | |
THRIFTS & MORTGAGE FINANCE—1.3% | |||
6,615 | LendingTree Inc.* | 1,577 | |
20,643 | Meta Financial Group Inc. | 2,295 | |
3,872 | |||
TRADING COMPANIES & DISTRIBUTORS—1.7% | |||
55,362 | Beacon Roofing Supply Inc.* | 2,710 | |
177,462 | Foundation Building Materials Inc.* | 2,493 | |
5,203 | |||
WATER UTILITIES—0.8% | |||
160,995 | Aquaventure Holdings Ltd. (Virgin Islands)* | 2,360 | |
WIRELESS TELECOMMUNICATION SERVICES—0.6% | |||
46,841 | Shenandoah Telecommunications Co. | 1,768 | |
TOTAL COMMON STOCKS | |||
(Cost $265,097) | 293,979 | ||
SHORT-TERM INVESTMENTS—4.5% | |||
(Cost $14,029) | |||
Principal Amount | |||
REPURCHASE AGREEMENTS | |||
$ | 14,029 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $14,313) | 14,029 |
TOTAL INVESTMENTS—99.8% | |||
(Cost $279,127) | 308,008 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.2% | 526 | ||
TOTAL NET ASSETS—100.0% | $308,534 |
FAIR VALUE MEASUREMENTS
Repurchase Agreements valued at $14,029 are classified as Level 2. All other holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
* | Non-income producing security |
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. |
The accompanying notes are an integral part of the Financial Statements.
27
Harbor Large Cap Value Fund
Manager’s Commentary (Unaudited)
Manager’s Commentary (Unaudited)
Subadviser
Aristotle Capital Management, LLC
11100 Santa
Monica Boulevard
Suite 1700
Suite 1700
Los Angeles, CA 90025
Portfolio Manager
Howard Gleicher, CFA
Since 2012
Since 2012
Gregory D. Padilla, CFA
Since 2018
Aristotle has subadvised the Fund since 2012.
Investment Objective
The Fund seeks long-term total return.
Howard Gleicher, CFA
Gregory D. Padilla, CFA
Management’s Discussion of
Fund Performance
Fund Performance
Markets Review
After a strong finish to 2017 for U.S. equity markets, thanks in part to a steady macroeconomic backdrop, healthy corporate earnings and fiscal stimulus provided by the Tax Cuts and Job Act of 2017, which passed in December, stocks raced out of the gates in 2018, but stalled in February and March. Stronger-than-expected wage data worried investors that rising inflation could force the U.S. Federal Reserve to raise interest rates faster than previously anticipated and briefly caused stocks to enter correction territory. Just as it appeared that calm had returned to the markets, news in March that President Trump would pursue tariffs on foreign steel and aluminum, along with prospects for greater regulation in the Information Technology sector amid privacy concerns, triggered a tech-led retreat. Volatility, which was notably absent during the rally in 2017, returned in a significant fashion during the first quarter, peaking in February. The S&P 500 Index rose or fell by 1% or more on 23 trading days during the first three months—nearly three times the total number of days with 1% moves, up or down, in all of 2017. Equities concluded the period eking out modest gains in April, while the CBOE Volatility Index (VIX) trended lower, ending the month down 20% and 57% below February peak levels.
Performance
The Harbor Large Cap Value Fund outperformed the benchmark (Russell 1000® Value Index) during the six months ended April 30, 2018. The Fund returned 2.85% (Institutional Class), 2.89% (Retirement Class), 2.63% (Administrative Class), and 2.64% (Investor Class), while the Russell 1000® Value Index rose 1.94%.
Stock selection was strongest in Consumer Staples, Energy and Information Technology, and within each sector, The Kroger Company, Phillips 66 Company and Adobe Systems Incorporated, respectively, were the top contributors to relative return. Relative performance was hurt mostly by stock selection in Materials, Industrials and Financials, and within each sector, Martin Marietta, Oshkosh Corporation and Ameriprise Financial, Inc., respectively, were the main detractors.
Computer software company Adobe was once again a main contributor, reporting solid quarterly results and executing well across its businesses, with steady Creative Cloud renewal rates and increasing penetration of Experience Cloud. Adobe continues to build on the vision of becoming the “Experience System of Record,” bringing together the power of data, content and intelligent services to help companies become an “Experience Business.” Adobe also announced a strategic partnership with company NVIDIA to enhance Adobe Sensei, its artificial intelligence system, which in our view can deliver greater value to its customers through Creative Cloud, Document Cloud and Experience Cloud. We believe this is another example of how the company enhances new tools and technologies to provide an improving experience to its customers.
A large detractor from performance was Oshkosh. During the most recent quarter, the company reported strong orders in its Access Equipment, Defense and Commercial segments and increased its earnings outlook for the year. However, its shares declined with fears that the U.S. administration’s planned tariffs on steel and aluminum could hurt the company’s earnings given that these metals are the main raw materials used by the truck manufacturer. We believe it is too soon to judge the impact of such tariffs on the company’s margins and, ultimately, its earnings. In fact, President Trump has softened his stance on tariffs since announcing them, and now Mexico and Canada are exempt while others could receive passes, too. Rather than trying to determine outcomes based on policies that have yet to be defined, our investment
28
Harbor Large Cap Value Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor Large Cap Value Fund | |||||||||||
Institutional Class | 2.85% | 12.26% | 13.40% | 8.19% | |||||||
Retirement Class1 | 2.89 | 12.42 | 13.43 | 8.21 | |||||||
Administrative Class | 2.63 | 11.93 | 13.11 | 7.90 | |||||||
Investor Class | 2.64 | 11.87 | 12.99 | 7.78 | |||||||
Comparative Index | |||||||||||
Russell 1000® Value | 1.94% | 7.50% | 10.52% | 7.30% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.68% (Net) and 0.72% (Gross) (Institutional Class); 0.60% (Net) and 0.64% (Gross) (Retirement Class); 0.93% (Net) and 0.97% (Gross) (Administrative Class); and 1.05% (Net) and 1.09% (Gross) (Investor Class). The net expense ratios reflect an expense limitation agreement (excluding interest expense, if any) effective through 02/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
team continues to spend its time monitoring what we believe to be Oshkosh’s competitive advantages (e.g., pricing power, large barriers to entry and consistently positive cash flow), and catalysts, such as cost optimization efforts and market share gains, continue to materialize.
During the period, we sold our positions in Baxter International and First Republic Bank to invest in what we consider to be more compelling investment opportunities: global, diversified multi-industrial company Johnson Controls International and East West Bancorp, a leading bank serving the Asian community in the United States and one of only three U.S. banks with a banking license in China.
Outlook & Strategy
Following an extended period of calm, the stock market finally experienced a bout of volatility. In contrast to the panicky narrative that ensued in the media, we believe these corrections are normal, healthy and often provide opportunities. A dispassionate fundamental investor with a long-term investment horizon should not be concerned with understanding the day-to-day gyrations in stock prices. These distractions are best left to those who regard stocks solely as pieces of paper to be traded back and forth.
So while the headlines focus on short-term news, we will continue to direct our time and energy toward understanding the fundamentals of businesses in our investment universe. We firmly believe that a focus on trying to uncover what we view as exceptional businesses trading meaningfully below their intrinsic worth, with catalysts that are in their control, is the best way for a manager to add value. Such thinking helps us identify companies that in our opinion, possess sustainable competitive advantages and can be poised to outperform their peers over a market cycle.
1 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Aristotle Capital Management, LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
29
Harbor Large Cap Value Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Adobe Systems Inc. | 4.7% |
2. Bank of America Corp. | 3.4% |
3. Microsoft Corp. | 3.4% |
4. Home Depot Inc. | 3.3% |
5. Microchip Technology Inc. | 3.1% |
6. Danaher Corp. | 3.0% |
7. Phillips 66 | 3.0% |
8. Ameriprise Financial Inc. | 2.7% |
9. Amgen Inc. | 2.7% |
10. Oshkosh Corp. | 2.7% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
30
Harbor Large Cap Value Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—96.6% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—2.6% | |||
118,000 | General Dynamics Corp. | $ 23,755 | |
BANKS—15.1% | |||
2,660,000 | Banco Bilbao Vizcaya SA ADR (Spain)1 | 21,440 | |
1,023,000 | Bank of America Corp. | 30,608 | |
150,000 | BOK Financial Corp. | 15,102 | |
132,000 | Cullen/Frost Bankers Inc. | 15,107 | |
325,000 | East West Bancorp Inc. | 21,652 | |
163,000 | JPMorgan Chase & Co. | 17,731 | |
2,100,000 | Mitsubishi UFJ Financial Group Inc. ADR (Japan)1 | 14,028 | |
135,668 | |||
BEVERAGES—1.9% | |||
390,000 | Coca-Cola Co. | 16,852 | |
BIOTECHNOLOGY—5.1% | |||
231,000 | AbbVie Inc. | 22,303 | |
137,000 | Amgen Inc. | 23,904 | |
46,207 | |||
BUILDING PRODUCTS—2.2% | |||
584,000 | Johnson Controls International plc | 19,780 | |
CAPITAL MARKETS—2.7% | |||
175,000 | Ameriprise Financial Inc. | 24,537 | |
CHEMICALS—2.5% | |||
215,000 | PPG Industries Inc. | 22,764 | |
CONSTRUCTION MATERIALS—2.5% | |||
113,000 | Martin Marietta Materials Inc. | 22,009 | |
CONSUMER FINANCE—2.3% | |||
230,000 | Capital One Financial Corp. | 20,843 | |
ENERGY EQUIPMENT & SERVICES—1.7% | |||
295,000 | Halliburton Co. | 15,632 | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—1.0% | |||
22,917 | Equity Lifestyle Properties Inc.* | 2,043 | |
76,323 | Sun Communities Inc. | 7,163 | |
9,206 | |||
FOOD & STAPLES RETAILING—3.8% | |||
660,000 | Kroger Co. | 16,625 | |
260,000 | Walgreens Boots Alliance Inc. | 17,277 | |
33,902 | |||
FOOD PRODUCTS—3.4% | |||
330,000 | Archer Daniels Midland Co. | 14,975 | |
390,000 | Mondelez International Inc. | 15,405 | |
30,380 | |||
GAS UTILITIES—1.9% | |||
333,000 | National Fuel Gas Co. | 17,100 | |
HEALTH CARE EQUIPMENT & SUPPLIES—5.5% | |||
267,000 | Danaher Corp. | 26,785 | |
277,000 | Medtronic plc (Ireland) | 22,196 | |
48,981 | |||
HEALTH CARE PROVIDERS & SERVICES—1.6% | |||
416,000 | Acadia Healthcare Co. Inc.* | 14,801 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HOUSEHOLD DURABLES—4.8% | |||
436,000 | Lennar Corp. Class A | $ 23,060 | |
7,120 | Lennar Corp. Class B | 304 | |
422,544 | Sony Corp. ADR (Japan)1 | 19,365 | |
42,729 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—1.5% | |||
1,080,000 | AES Corp. | 13,219 | |
INSURANCE—2.1% | |||
138,000 | Chubb Ltd. (Switzerland) | 18,722 | |
IT SERVICES—2.6% | |||
307,000 | PayPal Holdings Inc.* | 22,905 | |
MACHINERY—2.7% | |||
330,000 | Oshkosh Corp. | 23,813 | |
OIL, GAS & CONSUMABLE FUELS—5.6% | |||
117,429 | EQT Corp. | 5,894 | |
243,000 | Phillips 66 | 27,048 | |
87,000 | Pioneer Natural Resources Co. | 17,535 | |
50,477 | |||
PERSONAL PRODUCTS—2.4% | |||
380,000 | Unilever NV (United Kingdom) | 21,706 | |
PHARMACEUTICALS—2.1% | |||
240,000 | Novartis AG ADR (Switzerland)1 | 18,406 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—3.1% | |||
333,000 | Microchip Technology Inc. | 27,859 | |
SOFTWARE—10.6% | |||
191,000 | Adobe Systems Inc.* | 42,325 | |
139,000 | ANSYS Inc.* | 22,471 | |
327,000 | Microsoft Corp. | 30,581 | |
95,377 | |||
SPECIALTY RETAIL—3.3% | |||
160,000 | Home Depot Inc. | 29,568 | |
TOTAL COMMON STOCKS | |||
(Cost $711,770) | 867,198 | ||
SHORT-TERM INVESTMENTS—4.3% | |||
(Cost $38,523) | |||
Principal Amount | |||
REPURCHASE AGREEMENTS | |||
$ | 38,523 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $39,296) | 38,523 |
TOTAL INVESTMENTS—100.9% | |||
(Cost $750,293) | 905,721 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(0.9)% | (7,930) | ||
TOTAL NET ASSETS—100.0% | $897,791 |
31
Harbor Large Cap Value Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS
Repurchase Agreements valued at $38,523 are classified as Level 2. All other holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
* | Non-income producing security |
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. |
The accompanying notes are an integral part of the Financial Statements.
32
Harbor Mid Cap Value Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
LSV Asset Management
155 North Wacker Dr.
Suite 4600
Suite 4600
Chicago, IL 60606
Portfolio Managers
Josef Lakonishok, Ph.D.
Since 2004
Since 2004
Menno Vermeulen, CFA
Since 2004
Since 2004
Puneet Mansharamani, CFA
Since 2006
Greg Sleight
Since 2014
Since 2014
Guy Lakonishok, CFA
Since 2014
Since 2014
LSV has subadvised the Fund since 2004.
Investment Objective
The Fund seeks long-term total return.
Josef Lakonishok, Ph.D.
Menno Vermeulen, CFA
Puneet Mansharamani, CFA
Greg Sleight
Guy Lakonishok, CFA
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
U.S. equities posted gains over the six months ended April 30, 2018. The S&P 500 Index returned 3.82% while mid cap stocks as measured by the Russell Midcap® Index returned 3.69%. Equity markets began the period with strong gains over the last two months of 2017 and in January 2018. However, volatility returned to equity markets in February and equities surrendered some of the period’s early gains. Equity markets continued to hit new highs early in the period as solid economic data, strong earnings and the benefits of corporate tax reform drove markets higher. However, the prospect of a trade war between the U.S. and China and rising interest rates weighed on markets late in the period. The U.S. Federal Reserve raised rates in December 2017 and once again in March as was expected.
Over the trailing six months, Energy stocks recovered and led all sectors in the Russell Midcap®Value Index advancing nearly 15% as oil prices rallied. Information Technology stocks continued to do well advancing 7.6%. Financial stocks benefitted from the rising interest rate environment and returned 6.7%. Interest rate sensitive sectors including Real Estate and Utilities lagged in the period posting negative returns. Industrials also struggled, declining 2.6%. Value equities continued to lag among mid cap stocks over the period as the Russell Midcap® Value Index was up 2.55% while the Russell Midcap® Growth Index returned 5.16%.
Performance
Harbor Mid Cap Value Fund returned 1.42% (Institutional Class), 1.49% (Retirement Class), 1.33% (Administrative Class), and 1.26% (Investor Class) compared to 2.55% for the Russell Midcap® Value Index for the six months ended April 30, 2018. The Fund started the period with strong absolute and relative performance but as volatility picked up and markets retreated over the last three months the Fund lagged. The underperformance in the period was primarily a result of poor selection among Information Technology, Industrials and Real Estate stocks. The Fund’s sector exposures relative to the benchmark had a positive impact on performance. The Fund’s overweight to Information Technology stocks and underweight to Real Estate and Utilities stocks had a positive impact on performance. This was partially offset by the Fund’s underweight to Energy stocks which rebounded and led the market over the last six months.
Even though the Fund’s underweight to Energy had a negative impact on results, stock selection within Energy continued to add value. The Fund’s exposure to refining stocks Valero Energy and PBF Energy continued to contribute positively. However, stock selection in several sectors was weak. Within the Industrials sector, ManpowerGroup and Briggs & Stratton reported disappointing first quarter results and declined on the news. The Fund held several stocks in the Information Technology sector that underperformed in the period. While the Fund benefitted from an overweight to semiconductor equipment stocks over the last few years, stocks in the semiconductor equipment group reported disappointing first quarter earnings and several of the Fund holdings including LAM Research, Applied Materials and Amkor Technology were punished. Within Financials, Ameriprise Financial, which is one of the largest Fund holdings, was down nearly 10% in the period. In addition, the Fund had exposure to mortgage insurers, specifically MGIC and Radian, which struggled. MGIC reported weaker than expected Q1 2018 earnings and the mortgage insurers were off nearly 30% in the period.
33
Harbor Mid Cap Value Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor Mid Cap Value Fund | |||||||||||
Institutional Class | 1.42% | 4.93% | 11.45% | 9.94% | |||||||
Retirement Class1 | 1.49 | 5.00 | 11.48 | 9.95 | |||||||
Administrative Class | 1.33 | 4.68 | 11.18 | 9.68 | |||||||
Investor Class | 1.26 | 4.54 | 11.05 | 9.55 | |||||||
Comparative Index | |||||||||||
Russell Midcap® Value | 2.55% | 6.83% | 10.97% | 9.22% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.84% (Net) and 0.87% (Gross) (Institutional Class); 0.76% (Net) and 0.79% (Gross) (Retirement Class); 1.09% (Net) and 1.12% (Gross) (Administrative Class); and 1.21% (Net) and 1.24% (Gross) (Investor Class). The net expense ratios reflect a contractual management fee waiver effective through 02/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
Real Estate holdings that struggled included Lexington Realty Trust and Mack-Cali Realty Group. Stocks that contributed positively included HCA Healthcare in Health Care, Seagate Technology and NetApp in Information Technology and Brinker International and Kohl’s Corp in Consumer Discretionary.
Outlook & Strategy
Our portfolio decision making process is strictly quantitative and driven by (1) a proprietary model which ranks securities on fundamental measures of value and indicators of near-term appreciation potential and, (2) a portfolio construction process that controls for risk while maximizing the expected return of the portfolio. The objective of the model is to pick undervalued stocks with high near-term appreciation potential. The process is purely bottom-up with no emphasis placed on macro-economic analysis.
Sector weightings are a residual of our bottom-up stock selection process, subject to minimum and maximum exposures to sectors and industries. As of April 30, 2018, the Fund’s most significant sector exposures on an absolute basis are to the Financials, Industrials, Consumer Discretionary and Information Technology sectors. Relative to its benchmark, the Fund is overweight the Consumer Discretionary, Financials and Information Technology sectors while underweight Energy, Utilities and REITs as of April 30, 2018.
Changes in the Fund tend to be gradual given the Fund’s low turnover and its three-to five-year investment horizon. Over the last six months, we reduced the relative weight to Industrials and Information Technology. Within Industrials, we reduced the weight to several stocks that did well, including Textron and Spirit Aerosystems. In addition, one of the Fund holdings, Orbital ATK, was acquired at a premium in the period. We reduced the overweight to Information Technology, selling Netgear and Teradyne and trimming the weight to Applied Materials as these stocks did well and became candidates for sale given their valuations. We increased the weight to Consumer Discretionary and Consumer Staples in the period. We initiated several new positions in the Consumer Discretionary sector including AutoNation, BorgWarner, Brunswick and Toll Brothers. In the Consumer Staples sector, we initiated a position in Ingredion and added to the Fund’s holdings in Kroger, JM Smucker and Tyson Foods.
We believe the Fund’s holdings trade at attractive valuations and we are still able to find attractively priced stocks across many sectors and industries to build the portfolio. In our view, the companies the Fund holds are generating strong cash flows and good earnings that we believe are attractively valued which is reflected in the Fund’s portfolio characteristics.
1 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of LSV Asset Management as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Stocks of mid cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
34
Harbor Mid Cap Value Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Valero Energy Corp. | 1.9% |
2. Entergy Corp. | 1.6% |
3. Public Service Enterprise Group Inc. | 1.6% |
4. Regions Financial Corp. | 1.6% |
5. Eastman Chemical Co. | 1.5% |
6. FirstEnergy Corp. | 1.5% |
7. Marathon Petroleum Corp. | 1.5% |
8. Ameriprise Financial Inc. | 1.4% |
9. SunTrust Banks Inc. | 1.4% |
10. Cummins Inc. | 1.3% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
35
Harbor Mid Cap Value Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—99.5% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—2.2% | |||
29,700 | Huntington Ingalls Industries Inc. | $ 7,223 | |
40,200 | Moog Inc. | 3,295 | |
136,400 | Spirit AeroSystems Holdings Inc. | 10,963 | |
85,800 | Triumph Group Inc. | 2,029 | |
23,510 | |||
AIR FREIGHT & LOGISTICS—0.4% | |||
74,217 | Atlas Air Worldwide Holdings Inc.* | 4,705 | |
AIRLINES—2.8% | |||
79,057 | Alaska Air Group Inc. | 5,133 | |
175,700 | American Airlines Group Inc. | 7,543 | |
375,200 | JetBlue Airways Corp.* | 7,200 | |
151,000 | United Continental Holdings Inc.* | 10,199 | |
30,075 | |||
AUTO COMPONENTS—2.6% | |||
118,200 | American Axle & Manufacturing Holdings Inc.* | 1,813 | |
76,500 | BorgWarner Inc. | 3,744 | |
32,900 | Cooper-Standard Holdings Inc.* | 4,073 | |
277,200 | Goodyear Tire & Rubber Co. | 6,961 | |
46,300 | Lear Corp. | 8,657 | |
68,500 | Tenneco Inc. | 3,061 | |
28,309 | |||
AUTOMOBILES—0.3% | |||
91,600 | Harley-Davidson Inc. | 3,768 | |
BANKS—7.7% | |||
120,000 | Banco Latinoamericano de Comercio Exterior SA (Panama) | 3,251 | |
134,800 | CIT Group Inc. | 7,138 | |
267,800 | Citizens Financial Group Inc. | 11,111 | |
327,900 | Fifth Third Bancorp | 10,876 | |
495,200 | KeyCorp | 9,864 | |
905,300 | Regions Financial Corp. | 16,929 | |
225,100 | SunTrust Banks Inc. | 15,037 | |
164,900 | Zions Bancorporation | 9,028 | |
83,234 | |||
BIOTECHNOLOGY—0.3% | |||
66,300 | Eagle Pharmaceuticals Inc.* | 3,448 | |
BUILDING PRODUCTS—0.5% | |||
76,600 | Owens Corning | 5,017 | |
CAPITAL MARKETS—3.6% | |||
111,000 | Ameriprise Financial Inc. | 15,563 | |
144,135 | Lazard Ltd. (Bermuda) | 7,844 | |
121,300 | Legg Mason Inc. | 4,816 | |
47,134 | Piper Jaffray Cos. | 3,302 | |
272,148 | Prospect Capital Corp. | 1,725 | |
61,800 | Raymond James Financial Inc. | 5,546 | |
38,796 | |||
CHEMICALS—4.8% | |||
30,602 | A. Schulman Inc. | 1,313 | |
86,000 | Cabot Corp. | 4,804 | |
97,900 | Celanese Corp. | 10,639 | |
98,822 | Chemours Co.* | 4,784 | |
163,800 | Eastman Chemical Co. | 16,721 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
CHEMICALS—Continued | |||
289,700 | Huntsman Corp. | $ 8,624 | |
70,400 | Trinseo SA (Luxembourg) | ��� 5,135 | |
52,020 | |||
COMMERCIAL SERVICES & SUPPLIES—0.4% | |||
20,712 | LSC Communications Inc. | 362 | |
304,900 | Pitney Bowes Inc. | 3,116 | |
55,233 | RR Donnelley & Sons Co. | 467 | |
3,945 | |||
COMMUNICATIONS EQUIPMENT—0.6% | |||
288,400 | Juniper Networks Inc. | 7,092 | |
CONSTRUCTION & ENGINEERING—0.0% | |||
8,900 | Tutor Perini Corp.* | 184 | |
CONSUMER FINANCE—2.1% | |||
136,700 | Ally Financial Inc. | 3,568 | |
176,200 | Discover Financial Services | 12,554 | |
225,200 | Navient Corp. | 2,986 | |
72,275 | Nelnet Inc. | 3,817 | |
22,925 | |||
CONTAINERS & PACKAGING—1.1% | |||
260,946 | Owens-Illinois Inc.* | 5,305 | |
10,300 | Packaging Corp. of America | 1,192 | |
95,900 | WestRock Co. | 5,673 | |
12,170 | |||
DIVERSIFIED FINANCIAL SERVICES—0.6% | |||
120,200 | Voya Financial Inc. | 6,292 | |
ELECTRIC UTILITIES—4.1% | |||
82,400 | Edison International | 5,399 | |
209,600 | Entergy Corp. | 17,101 | |
467,700 | FirstEnergy Corp. | 16,089 | |
205,254 | PPL Corp. | 5,973 | |
44,562 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—2.2% | |||
76,400 | Avnet Inc. | 2,997 | |
235,500 | Corning Inc. | 6,363 | |
267,200 | Flex Ltd. (Singapore)* | 3,474 | |
49,278 | Methode Electronics Inc. | 1,966 | |
41,800 | Tech Data Corp.* | 3,187 | |
196,236 | TTM Technologies Inc.* | 2,736 | |
154,200 | Vishay Intertechnology Inc. | 2,722 | |
23,445 | |||
ENERGY EQUIPMENT & SERVICES—0.4% | |||
629,600 | McDermott International Inc. (Panama)* | 4,155 | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—9.6% | |||
286,300 | CBL & Associates Properties Inc. | 1,197 | |
572,400 | DDR Corp. | 4,150 | |
507,836 | Franklin Street Properties Corp. | 3,951 | |
113,800 | Gaming And Leisure Properties Inc. | 3,900 | |
211,000 | Government Properties Income Trust | 2,635 | |
188,700 | Hersha Hospitality Trust | 3,544 | |
229,600 | Hospitality Properties Trust | 5,713 | |
512,200 | Host Hotels & Resorts Inc. | 10,019 | |
733,500 | Lexington Realty Trust | 5,897 | |
243,500 | Mack-Cali Realty Corp. | 4,181 | |
535,200 | Medical Properties Trust Inc. | 6,840 |
36
Harbor Mid Cap Value Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—Continued | |||
51,459 | National Health Investors Inc. | $ 3,513 | |
251,500 | OMEGA Healthcare Investors Inc. | 6,534 | |
166,038 | Outfront Media Inc. | 3,113 | |
395,500 | Piedmont Office Realty Trust Inc. | 7,087 | |
170,300 | Sabra Health Care REIT Inc. | 3,118 | |
209,812 | Select Income REIT | 3,978 | |
411,114 | Senior Housing Properties Trust | 6,401 | |
550,300 | Spirit Realty Capital Inc. | 4,430 | |
334,600 | Summit Hotel Properties Inc. | 4,845 | |
663,000 | Vereit Inc. | 4,508 | |
244,700 | Xenia Hotels & Resorts Inc. | 5,038 | |
104,592 | |||
FOOD & STAPLES RETAILING—1.2% | |||
62,200 | Ingles Markets Inc. | 2,130 | |
385,500 | Kroger Co. | 9,711 | |
73,814 | Supervalu Inc.* | 1,293 | |
13,134 | |||
FOOD PRODUCTS—2.8% | |||
67,500 | Archer Daniels Midland Co. | 3,063 | |
54,200 | Ingredion Inc. | 6,563 | |
89,800 | JM Smucker Co. | 10,245 | |
143,800 | Tyson Foods Inc. | 10,080 | |
29,951 | |||
HEALTH CARE PROVIDERS & SERVICES—4.0% | |||
94,600 | Cardinal Health Inc. | 6,070 | |
24,800 | CIGNA Corp. | 4,261 | |
97,100 | Davita Inc.* | 6,097 | |
116,600 | HCA Healthcare Inc. | 11,163 | |
41,600 | Laboratory Corp. of America Holdings* | 7,103 | |
61,286 | LifePoint Health Inc.* | 2,936 | |
57,348 | Magellan Health Inc.* | 4,809 | |
73,000 | Owens & Minor Inc. | 1,186 | |
43,625 | |||
HOTELS, RESTAURANTS & LEISURE—1.0% | |||
171,600 | Brinker International Inc. | 7,480 | |
33,600 | Wyndham Worldwide Corp. | 3,837 | |
11,317 | |||
HOUSEHOLD DURABLES—2.2% | |||
101,478 | Ethan Allen Interiors Inc. | 2,238 | |
65,200 | Meritage Homes Corp.* | 2,901 | |
183,453 | PulteGroup Inc. | 5,570 | |
133,500 | Toll Brothers Inc. | 5,628 | |
48,300 | Whirlpool Corp. | 7,484 | |
23,821 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—0.4% | |||
369,800 | AES Corp. | 4,526 | |
INSURANCE—7.5% | |||
130,200 | Aflac Inc. | 5,933 | |
70,800 | Allstate Corp. | 6,926 | |
47,574 | American Financial Group Inc. | 5,386 | |
83,000 | AmTrust Financial Services Inc. | 1,070 | |
43,700 | Assurant Inc. | 4,056 | |
88,400 | Assured Guaranty Ltd. (Bermuda) | 3,208 | |
51,900 | Axis Capital Holdings Ltd. (Bermuda) | 3,046 | |
33,400 | Everest Re Group Ltd. (Bermuda) | 7,771 | |
150,800 | Hartford Financial Services Group Inc. | 8,119 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
INSURANCE—Continued | |||
179,800 | Lincoln National Corp. | $ 12,701 | |
186,500 | Maiden Holdings Ltd. (Bermuda) | 1,427 | |
254,300 | Old Republic International Corp. | 5,188 | |
60,800 | Principal Financial Group Inc. | 3,601 | |
134,600 | Universal Insurance Holdings Inc. | 4,368 | |
139,000 | Unum Group | 6,725 | |
22,648 | Validus Holdings Ltd. (Bermuda) | 1,535 | |
81,060 | |||
IT SERVICES—0.6% | |||
110,756 | Convergys Corp. | 2,587 | |
228,100 | Western Union Co. | 4,505 | |
7,092 | |||
LEISURE PRODUCTS—0.4% | |||
65,300 | Brunswick Corp. | 3,910 | |
MACHINERY—4.1% | |||
42,500 | AGCO Corp. | 2,664 | |
170,200 | Briggs & Stratton Corp. | 3,069 | |
86,600 | Cummins Inc. | 13,844 | |
161,900 | Meritor Inc.* | 3,152 | |
67,100 | Oshkosh Corp. | 4,842 | |
29,300 | Snap-on Inc. | 4,256 | |
64,700 | Timken Co. | 2,766 | |
111,200 | Trinity Industries Inc. | 3,544 | |
327,400 | Wabash National Corp. | 6,567 | |
44,704 | |||
MEDIA—1.2% | |||
115,600 | AMC Networks Inc.* | 6,011 | |
290,841 | Gannett Co. Inc. | 2,813 | |
144,100 | TEGNA Inc. | 1,523 | |
108,800 | Viacom Inc. | 3,281 | |
13,628 | |||
METALS & MINING—0.6% | |||
78,500 | Reliance Steel & Aluminum Co. | 6,902 | |
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—1.6% | |||
624,000 | Annaly Capital Management Inc. | 6,471 | |
29,955 | Granite Point Mortgage Trust Inc. | 499 | |
171,000 | Invesco Mortgage Capital Inc. | 2,775 | |
298,300 | MFA Financial Inc. | 2,243 | |
191,300 | PennyMac Mortgage Investment Trust | 3,365 | |
158,050 | Two Harbors Investment Corp. | 2,412 | |
17,765 | |||
MULTILINE RETAIL—1.6% | |||
50,800 | Dillard's Inc. | 3,787 | |
149,600 | Kohl's Corp. | 9,293 | |
150,600 | Macy's Inc. | 4,679 | |
17,759 | |||
MULTI-UTILITIES—2.1% | |||
340,300 | Public Service Enterprise Group Inc. | 17,747 | |
136,840 | SCANA Corp. | 5,031 | |
22,778 | |||
OIL, GAS & CONSUMABLE FUELS—6.1% | |||
47,100 | Andeavor | 6,515 | |
240,100 | Carrizo Oil & Gas Inc.* | 4,819 | |
357,559 | Laredo Petroleum Inc.* | 3,933 |
37
Harbor Mid Cap Value Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
218,000 | Marathon Petroleum Corp. | $ 16,330 | |
112,800 | Newfield Exploration Co.* | 3,361 | |
163,700 | PBF Energy Inc. | 6,275 | |
474,000 | SRC Energy Inc.* | 5,233 | |
183,400 | Valero Energy Corp. | 20,345 | |
66,811 | |||
PAPER & FOREST PRODUCTS—0.4% | |||
98,600 | Domtar Corp. | 4,329 | |
PHARMACEUTICALS—1.2% | |||
49,900 | Jazz Pharmaceuticals plc (Ireland)* | 7,587 | |
110,150 | Lannett Co. Inc.* | 1,718 | |
84,495 | Mylan NV (Netherlands)* | 3,275 | |
12,580 | |||
PROFESSIONAL SERVICES—0.7% | |||
79,400 | ManpowerGroup Inc. | 7,600 | |
ROAD & RAIL—0.4% | |||
62,800 | Ryder System Inc. | 4,235 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—3.3% | |||
475,000 | Amkor Technology Inc.* | 3,933 | |
123,200 | Applied Materials Inc. | 6,119 | |
84,900 | Cirrus Logic Inc.* | 3,096 | |
74,800 | Lam Research Corp. | 13,843 | |
409,900 | On Semiconductor Corp.* | 9,051 | |
36,042 | |||
SOFTWARE—0.3% | |||
87,700 | CA Inc. | 3,052 | |
SPECIALTY RETAIL—4.4% | |||
121,000 | Autonation Inc.* | 5,589 | |
92,800 | Bed Bath & Beyond Inc. | 1,620 | |
100,700 | Best Buy Co. Inc. | 7,707 | |
116,700 | Dick's Sporting Goods Inc. | 3,862 | |
127,400 | Foot Locker Inc. | 5,488 | |
89,100 | GameStop Corp. | 1,216 | |
170,500 | Gap Inc. | 4,985 | |
73,700 | Group 1 Automotive Inc. | 4,816 | |
61,063 | Murphy USA Inc.* | 3,821 | |
677,800 | Office Depot Inc. | 1,552 | |
76,700 | Penske Automotive Group Inc. | 3,459 | |
26,700 | The Children's Place Retail Stores Inc. | 3,406 | |
47,521 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—3.8% | |||
242,314 | HP Inc. | $ 5,207 | |
197,600 | NCR Corp.* | 6,080 | |
112,600 | NetApp Inc. | 7,497 | |
143,800 | Seagate Technology plc (Ireland) | 8,325 | |
106,200 | Western Digital Corp. | 8,368 | |
189,900 | Xerox Corp. | 5,972 | |
41,449 | |||
TEXTILES, APPAREL & LUXURY GOODS—0.6% | |||
88,500 | Michael Kors Holdings Ltd.* | 6,055 | |
THRIFTS & MORTGAGE FINANCE—0.5% | |||
306,700 | MGIC Investment Corp.* | 3,073 | |
185,900 | Radian Group Inc. | 2,659 | |
5,732 | |||
TRADING COMPANIES & DISTRIBUTORS—0.2% | |||
113,600 | Aircastle Ltd. (Bermuda) | 2,227 | |
TOTAL COMMON STOCKS | |||
(Cost $970,145) | 1,081,849 | ||
SHORT-TERM INVESTMENTS—0.4% | |||
(Cost $4,700) | |||
Principal Amount | |||
REPURCHASE AGREEMENTS | |||
$ | 4,700 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $4,797) | 4,700 |
TOTAL INVESTMENTS—99.9% | |||
(Cost $974,845) | 1,086,549 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.1% | 652 | ||
TOTAL NET ASSETS—100.0% | $1,087,201 |
FAIR VALUE MEASUREMENTS
Repurchase Agreements valued at $4,700 are classified as Level 2. All other holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
* | Non-income producing security |
The accompanying notes are an integral part of the Financial Statements.
38
Harbor Small Cap Value Fund
Manager’s Commentary (Unaudited)
Manager’s Commentary (Unaudited)
Subadviser
EARNEST Partners LLC
1180 Peachtree St. NE
Suite 2300
Suite 2300
Atlanta, GA 30309
Portfolio Manager
Paul Viera
Since 2001
Since 2001
EARNEST Partners has subadvised the Fund since 2001.
Investment Objective
The Fund seeks long-term total return.
Paul Viera
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
During the six months ended April 30, 2018, the U.S. small cap value market ended in positive territory with the Russell 2000® Value Index rising 0.94%. This period includes the end of 2017, which saw very low volatility as well as the beginning of 2018, which saw a resurgence of volatility spurred by uncertainty around trade and the sustainability of the second longest bull market in recent history.
Investors paid close attention to the U.S. Federal Reserve (Fed) during the period in anticipation of rate changes and the Central Bank’s posture under new Chairman Jerome Powell. The Fed unanimously voted to raise short-term interest rates in both the December 2017 and March 2018 meetings. The target range for the federal funds rate is now between 1.50% to 1.75%, the highest level since 2008. Fed officials reiterated their optimistic stance on the U.S. economy, noting that they expect U.S. GDP to expand by 2.7% in 2018 and unemployment to fall to 3.8% in 2018 and 3.6% in 2019. Fed officials signaled continued optimism for economic growth, noting that should the economy continue to meet expectations, rates will continue to rise. The committee stated that it expects inflation to continue to creep up and eventually meet its 2% annual target, and higher rates will prevail over the longer term should economic conditions continue to improve.
During the period, equity markets rallied initially following the passage of tax reform legislation, which lowered U.S. corporate and individual tax rates. However, equities saw a correction in February following fears of rate increases and concerns over trade relations between the U.S. and China. Following the imposition of a 25% tariff on imported steel and a 10% tariff on aluminum, the U.S. Administration proposed tariffs on up to $50 billion of Chinese goods, citing unfair trading practices. In response, China proposed tariffs on $3 billion of imported U.S. goods. During the period, fourth-quarter 2017 GDP growth was revised up to 2.9% from 2.5%, and the unemployment rate stayed at 4.1% in February. The U.S. 10-year Treasury rate hit a psychological milestone, breaking 3.0%, but finished the period at 2.95%. Crude oil, which began the period around $55 per barrel, finished at above $68 per barrel, its highest level since June 2015, following a combination of OPEC production cuts and increased global demand.
Performance
Harbor Small Cap Value Fund rose 0.39% (Institutional Class), 0.46 % (Retirement Class), 0.28% (Administrative Class), and 0.23% (Investor Class) for the six months ended April 30, 2018, slightly underperforming the Russell 2000® Value Index, which returned 0.94%.
Contributing to performance, WesBanco is a bank based in West Virginia that provides banking services through almost 200 branch locations across five states in the Midwest and East. The company offers traditional and commercial banking, brokerage services, mortgage banking and insurance products. During the period, the company reported strong results that were driven by robust growth in commercial lending across all five states’ bank locations, but particularly in Pennsylvania. Pennsylvania now accounts for almost a quarter of the bank’s loan origination and has seen significant developments in local economic activities. Investors responded favorably to the company’s strong results and improving fundamentals driving shares up nearly 10% during the period.
Detracting from performance during the period, South Jersey Industries (SJI) is an energy services holding company based in Folsom, NJ. It is one of the largest wholesale marketers of natural gas from the Marcellus Shale. SJI also sells its natural gas and pipeline transportation capacity on a wholesale basis to various customers on the interstate pipeline system. It currently serves about 380,000 customers in New Jersey. SJI posted sales that increased by more than 50% from the prior period. Despite also beating consensus earnings estimates, the market had a muted response to the company’s results, and the stock finished the period down 7%.
39
Harbor Small Cap Value Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor Small Cap Value Fund | |||||||||||
Institutional Class | 0.39% | 12.23% | 12.89% | 9.33% | |||||||
Retirement Class1 | 0.46 | 12.33 | 12.93 | 9.35 | |||||||
Administrative Class | 0.28 | 11.96 | 12.61 | 9.06 | |||||||
Investor Class | 0.23 | 11.83 | 12.49 | 8.93 | |||||||
Comparative Index | |||||||||||
Russell 2000® Value | 0.94% | 6.53% | 10.36% | 8.46% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.88% (Institutional Class); 0.80% (Retirement Class); 1.13% (Administrative Class); and 1.25% (Investor Class). The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
Management maintained earnings guidance of $1.14 to $1.20 per share. The company expects to have three new supply contracts go into effect this calendar year, which, in our opinion, should allow the company’s growing commodity business to expand market share. In our opinion, the new contracts, combined with steady 1%-2% annual customer growth in the mature New Jersey market, should provide an ample opportunity for future margin expansion.
Outlook & Strategy
As of April 30, 2018, the Fund was overweight in the Industrials, Energy, Health Care, Information Technology, Materials, and Telecommunications sectors and was underweight in Financials, Utilities, Consumer Staples, and Consumer Discretionary. These weightings are an outgrowth of our fundamental, bottom-up stock selection process.
In managing the Fund, we seek companies with share prices that we believe do not fully reflect their earnings growth outlook. Going forward, we will continue to employ our three-step investment methodology: screen the broad universe to identify stocks that are best positioned to outperform; measure and manage downside risk to the benchmark; and perform in-depth, thorough, fundamental research to find what we believe are the best stocks to include in the Fund.
1 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of EARNEST Partners LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
40
Harbor Small Cap Value Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Hexcel Corp. | 3.3% |
2. Entegris Inc. | 3.1% |
3. Firstcash Inc. | 2.9% |
4. Bloomin' Brands Inc. | 2.4% |
5. Teledyne Technologies Inc. | 2.4% |
6. Cabot Microelectronics Corp. | 2.3% |
7. Catalent Inc. | 2.3% |
8. Littelfuse Inc. | 2.1% |
9. EnerSys | 2.0% |
10. Raymond James Financial Inc. | 2.0% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
41
Harbor Small Cap Value Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—96.8% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—7.1% | |||
702,338 | Hexcel Corp. | $ 46,684 | |
230,895 | Moog Inc. | 18,926 | |
176,036 | Teledyne Technologies Inc.* | 32,935 | |
98,545 | |||
BANKS—8.6% | |||
818,965 | Cadence Bancorp | 23,938 | |
236,170 | Enterprise Financial Services Corp. | 12,009 | |
272,649 | Heartland Financial USA Inc. | 14,628 | |
423,250 | Sterling Bancorp | 10,052 | |
635,348 | Trustmark Corp. | 19,893 | |
593,341 | United Bankshares Inc. | 20,144 | |
426,914 | WesBanco Inc. | 18,699 | |
119,363 | |||
CAPITAL MARKETS—4.6% | |||
317,824 | Eaton Vance Corp. | 17,287 | |
310,076 | Raymond James Financial Inc. | 27,829 | |
317,619 | Stifel Financial Corp. | 18,511 | |
63,627 | |||
CHEMICALS—3.0% | |||
348,326 | Cabot Corp. | 19,458 | |
275,007 | Scotts Miracle-Gro Co. | 22,985 | |
42,443 | |||
COMMERCIAL SERVICES & SUPPLIES—0.8% | |||
480,309 | Casella Waste Systems Inc.* | 11,772 | |
CONSUMER FINANCE—2.9% | |||
468,107 | Firstcash Inc. | 40,585 | |
ELECTRICAL EQUIPMENT—2.0% | |||
408,608 | EnerSys | 28,014 | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—10.3% | |||
265,259 | Anixter International Inc.* | 15,624 | |
139,056 | Coherent Inc.* | 23,392 | |
511,350 | FLIR Systems Inc. | 27,383 | |
157,142 | Littelfuse Inc. | 29,373 | |
349,899 | OSI Systems Inc.* | 22,400 | |
871,560 | Sanmina Corp.* | 25,711 | |
143,883 | |||
ENERGY EQUIPMENT & SERVICES—3.3% | |||
192,586 | Core Laboratories NV | 23,582 | |
624,725 | Oil States International Inc.* | 22,459 | |
46,041 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—2.4% | |||
223,661 | EastGroup Properties Inc. | 20,080 | |
1,052,609 | Medical Properties Trust Inc. | 13,453 | |
33,533 | |||
FOOD & STAPLES RETAILING—1.5% | |||
447,475 | United Natural Foods Inc.* | 20,145 | |
FOOD PRODUCTS—1.8% | |||
1,456,350 | Darling Ingredients Inc.* | 24,962 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
GAS UTILITIES—3.2% | |||
577,768 | South Jersey Industries Inc. | $ 17,853 | |
313,126 | WGL Holdings Inc. | 26,647 | |
44,500 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—1.8% | |||
225,383 | Cantel Medical Corp. | 25,259 | |
HEALTH CARE PROVIDERS & SERVICES—2.9% | |||
554,638 | MEDNAX Inc.* | 25,463 | |
182,799 | Molina Healthcare Inc.* | 15,218 | |
40,681 | |||
HOTELS, RESTAURANTS & LEISURE—2.4% | |||
1,414,610 | Bloomin' Brands Inc. | 33,470 | |
HOUSEHOLD DURABLES—1.8% | |||
575,055 | Meritage Homes Corp.* | 25,590 | |
INSURANCE—6.5% | |||
642,696 | American Equity Investment Life Holding Co. | 19,409 | |
379,065 | Horace Mann Educators Corp. | 16,944 | |
171,436 | Reinsurance Group of America Inc. | 25,613 | |
220,512 | State Auto Financial Corp. | 6,887 | |
421,079 | United Fire Group Inc. | 21,176 | |
90,029 | |||
IT SERVICES—1.8% | |||
428,620 | ManTech International Corp. | 25,327 | |
MACHINERY—11.6% | |||
422,245 | Albany International Corp. | 24,976 | |
566,424 | Altra Industrial Motion Corp. | 23,592 | |
618,087 | Franklin Electric Co. Inc. | 25,342 | |
2,229,613 | Mueller Water Products Inc. | 21,828 | |
166,177 | Snap-on Inc. | 24,137 | |
544,074 | Timken Co. | 23,259 | |
935,624 | Welbilt Inc.* | 17,926 | |
161,060 | |||
OIL, GAS & CONSUMABLE FUELS—2.8% | |||
436,425 | PDC Energy Inc.* | 23,366 | |
371,909 | Whiting Petroleum Corp.* | 15,181 | |
38,547 | |||
PHARMACEUTICALS—2.3% | |||
777,237 | Catalent Inc.* | 31,952 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—8.3% | |||
248,418 | Advanced Energy Industries Inc.* | 14,793 | |
318,916 | Cabot Microelectronics Corp. | 32,354 | |
1,318,669 | Entegris Inc. | 42,461 | |
224,641 | Monolithic Power Systems Inc. | 26,306 | |
115,914 | |||
TEXTILES, APPAREL & LUXURY GOODS—1.5% | |||
715,948 | Wolverine World Wide Inc. | 21,450 | |
TRADING COMPANIES & DISTRIBUTORS—1.6% | |||
344,628 | GATX Corp. | 22,483 | |
TOTAL COMMON STOCKS | |||
(Cost $954,116) | 1,349,175 | ||
42
Harbor Small Cap Value Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
SHORT-TERM INVESTMENTS—3.0% | |||
(Cost $42,330) | |||
Principal Amount | Value | ||
REPURCHASE AGREEMENTS | |||
$ | 42,330 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $43,178) | $ 42,330 |
TOTAL INVESTMENTS—99.8% | |||
(Cost $996,446) | 1,391,505 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.2% | 2,294 | ||
TOTAL NET ASSETS—100.0% | $1,393,799 |
FAIR VALUE MEASUREMENTS
Repurchase Agreements valued at $42,330 are classified as Level 2. All other holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
* | Non-income producing security |
The accompanying notes are an integral part of the Financial Statements.
43
Harbor Small Cap Value Opportunities Fund
Manager’s Commentary (Unaudited)
Manager’s Commentary (Unaudited)
Subadviser
Sapience Investments, LLC
520 Newport Center Dr.
Suite 650
Suite 650
Newport Beach, CA
92660
92660
Portfolio Manager
Samir Sikka
Since 2017
Since 2017
Sapience Investments, LLC has subadvised the Fund since 2017.
Investment Objective
The Fund seeks long-term total return.
Samir Sikka
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
During the six months ended April 30, 2018, the U.S. equity markets maintained a few pronounced trends while also providing investors some fresh news. As measured by the Russell U.S. Indices, growth stocks continued their dominance over value across all market cap ranges for the period. In 2017, the broad U.S. equity indices generated positive returns in every month with volatility levels nearing record lows. This seemed a bit paradoxical given that most investors considered equity valuation levels to be quite high. Results during the first few months of 2018 cannot be generalized as there was a bifurcation during the period. For all but the last three trading days of January, the markets continued the prior year’s momentum-oriented path with large caps and high-growth companies trumping other segments. Then the markets corrected with February witnessing overall declines across the board. March and April followed with choppy performance—exhibiting further weakness in the market. Amidst improving global growth stats and strong corporate earnings results, the most commonly stated reason for the market reversal was inflation fears and related rate increases across the curve. Whether this was the reason or whether it related to other meaningful inputs into investor thinking (political risks, quant driven trading programs, and the rapid normalization of U.S. monetary policy), fear and volatility increased.
Performance
For the six months ended April 30, 2018, Harbor Small Cap Value Opportunities Fund outperformed its benchmark, the Russell 2000® Value Index. The Fund returned 1.59% (Institutional Class), 1.62% (Retirement Class), 1.49% (Administrative Class), 1.44% (Investor Class) while the Russell 2000® Value Index rose 0.94%.
Compared with the Russell 2000® Value Index, stock selection was strongest in the Information Technology, Health Care, and Energy sectors, and within each sector, EVERTEC Inc., Amedisys, Inc., and WPX Energy, Inc. were the top contributors to relative performance. An overweight in the strong-performing Energy sector further augmented relative return. On the negative side, security selection in the Consumer Discretionary and Consumer Staples sectors subtracted from relative performance, and within each sector, Signet Jewelers Ltd. and TreeHouse Foods, Inc. were the primary detractors.
Within Information Technology, shares of EVERTEC rebounded during the period as overhanging Puerto Rico concerns began to subside. Electricity has been restored in most areas of Puerto Rico, which was a key factor for EVERTEC and their payment processing business. Along with the stability in electricity, EVERTEC announced a solid fourth quarter and provided guidance for 2018 that was more resilient than expected. Additionally, we believe that Puerto Rico will benefit from the hurricane-related stimulus over the next couple of years. More importantly, we think EVERTEC stands to be a beneficiary of this stimulus as insurance claims will be primarily processed through EVERTEC.
In Consumer Discretionary, Signet Jewelers’ stock price declined after the company reported soft fourth quarter earnings and provided disappointing guidance for the upcoming year. Signet Jewelers continues to struggle with its credit system integration along with merchandising and in-store operational issues at its Kay and Jared banners. We invested in Signet Jewelers, not just as a retail turnaround, but also as a special situation due to the credit outsourcing and reduction of capital that was trapped in the credit portfolio. We believed proceeds from the sale of the credit portfolio would be used for share buybacks, which would lead to an improvement in return on invested capital. While the capital reduction part of our thesis has played out as expected, we clearly underestimated how difficult it would be to operationally outsource the credit function and how stale the merchandising had been at the Kay banner. To counteract the underperformance, CEO Virginia Drosos has implemented changes in merchandising, reducing time to market and taking best practices from Zales and applying it to other banners. In addition, she is working to reduce the company’s brick and mortar
44
Harbor Small Cap Value Opportunities Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | 5 Years | Unannualized | ||||||||
6 Months | Life of Fund | ||||||||||
Harbor Small Cap Value Opportunities Fund | |||||||||||
Institutional Class1 | 1.59% | N/A | N/A | 2.30% | |||||||
Retirement Class1 | 1.62 | N/A | N/A | 2.33 | |||||||
Administrative Class1 | 1.49 | N/A | N/A | 2.10 | |||||||
Investor Class1 | 1.44 | N/A | N/A | 2.05 | |||||||
Comparative Index | |||||||||||
Russell 2000® Value1 | 0.94% | N/A | N/A | 5.57% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.88% (Net) and 1.24% (Gross) (Institutional Class); 0.80% (Net) and 1.16% (Gross) (Retirement Class); 1.13% (Net) and 1.49% (Gross) (Administrative Class); and 1.25% (Net) and 1.61% (Gross) (Investor Class). The net expense ratios reflect an expense limitation agreement effective through 02/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
footprint and accelerating Signet Jewelers’ omni-channel focus. We believe there is significant upside if management can apply learnings from recent improvements in Zales to Kay—reversing the decline in same store sales. Furthermore, we believe a recently initiated cost-restructuring program coupled with meaningful share repurchases should lead to a partial recovery of the company’s historical earnings power. We still believe Signet Jewelers’ business is better than recent performance has demonstrated and that the company has the potential to leverage its scale within the jewelry industry to drive improved performance over the next 12 to 24 months. However, execution by management is critical, in our opinion.
Outlook & Strategy
Volatility has returned to the equity market with a fervor and we believe its return is a move towards normalization. In light of the geopolitical instability in many parts of the globe, to us, the absence of volatility the last one year was more perplexing than the recent resurgence of volatility. The market’s topping process tends to create a high return environment and thus creates a “fear of missing out.” This process can take time and does not reverse on a dime. Market timing or momentum chasing are not pursuits we engage in at Sapience. To us, prospective returns are well below normal for most asset classes, so a careful posture is warranted.
At Sapience, we have a shared belief: stock prices do not outrun their fundamentals for too long. However, in the last couple of years, the market seems extremely comfortable with the notion that with a benign macro environment backdrop, a stock’s prices can appreciate at a rate far greater than the growth in the underlying business’ intrinsic value. These investment decisions are either passive in nature or being driven by a relative return mentality—not with an absolute return mindset or comparing the price paid for assets to their intrinsic value. As the macro tailwinds subside, we believe the increased volatility and dispersion in the markets should present more opportunities for us and valuations should begin to matter yet again. From our perspective, we have started to witness a slightly broader opportunity set in the last two months within our investing landscape. While it is still early days for the tide to turn, we will intently wait for our catch to arrive.
1 | The “Life of Fund” return as shown reflects the period 08/01/2017 through 04/30/2018. |
This report contains the current opinions of Sapience Investments, LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
45
Harbor Small Cap Value Opportunities Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Envision Healthcare Corp. | 4.5% |
2. Aspen Insurance Holdings Ltd. | 3.0% |
3. Forum Energy Technologies Inc. | 3.0% |
4. Syneos Health Inc. | 3.0% |
5. Signet Jewelers Ltd. | 2.7% |
6. Oasis Petroleum Inc. | 2.5% |
7. Sterling Bancorp | 2.5% |
8. Argo Group International Holdings Ltd. | 2.4% |
9. EVERTEC Inc. | 2.4% |
10. Cars.com Inc. | 2.3% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
46
Harbor Small Cap Value Opportunities Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—96.9% | |||
Shares | Value | ||
BANKS—13.8% | |||
10,620 | Bank of NT Butterfield & Son Ltd. (Bermuda) | $ 504 | |
7,900 | Cathay General Bancorp | 316 | |
23,400 | First Hawaiian Inc. | 645 | |
11,000 | Glacier Bancorp Inc. | 407 | |
9,600 | Hancock Holding Co. | 469 | |
9,250 | Popular Inc. (Puerto Rico) | 428 | |
33,400 | Sterling Bancorp | 793 | |
3,610 | Texas Capital Bancshares Inc.* | 356 | |
5,404 | Wintrust Financial Corp. | 484 | |
4,402 | |||
BUILDING PRODUCTS—1.6% | |||
18,000 | Continental Building Products Inc.* | 506 | |
CAPITAL MARKETS—1.2% | |||
11,980 | Artisan Partners Asset Management Inc. | 385 | |
COMMERCIAL SERVICES & SUPPLIES—4.5% | |||
11,980 | Kar Auction Services Inc. | 623 | |
15,200 | Ritchie Bros Auctioneers Inc. (Canada) | 497 | |
23,700 | Steelcase Inc. | 314 | |
1,434 | |||
CONTAINERS & PACKAGING—1.1% | |||
13,100 | Silgan Holdings Inc. | 368 | |
DIVERSIFIED FINANCIAL SERVICES—1.4% | |||
47,350 | FGL Holdings (Cayman Islands)* | 451 | |
ENERGY EQUIPMENT & SERVICES—6.1% | |||
74,910 | Forum Energy Technologies Inc.* | 944 | |
26,600 | NCS Multistage Holdings Inc.* | 484 | |
177,550 | Weatherford International plc (Ireland)* | 524 | |
1,952 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—7.8% | |||
17,650 | Corecivic Inc. | 356 | |
15,000 | Education Realty Trust Inc. | 494 | |
32,450 | Outfront Media Inc. | 608 | |
30,600 | Physicians Realty Trust | 457 | |
16,100 | QTS Realty Trust Inc. | 570 | |
2,485 | |||
FOOD PRODUCTS—3.6% | |||
9,000 | Post Holdings Inc.* | 716 | |
11,334 | TreeHouse Foods Inc.* | 437 | |
1,153 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—1.7% | |||
16,550 | Natus Medical Inc.* | 547 | |
HEALTH CARE PROVIDERS & SERVICES—6.9% | |||
9,343 | Acadia Healthcare Co. Inc.* | 332 | |
7,000 | Amedisys Inc.* | 463 | |
38,320 | Envision Healthcare Corp.* | 1,424 | |
2,219 | |||
HOTELS, RESTAURANTS & LEISURE—1.0% | |||
7,594 | Dave & Buster's Entertainment Inc.* | 323 | |
INSURANCE—7.5% | |||
13,061 | Argo Group International Holdings Ltd. (Bermuda) | 763 | |
22,578 | Aspen Insurance Holdings Ltd. (Bermuda) | 959 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
INSURANCE—Continued | |||
9,950 | Assured Guaranty Ltd. (Bermuda) | $ 361 | |
6,200 | First American Financial Corp. | 317 | |
2,400 | |||
INTERNET SOFTWARE & SERVICES—2.2% | |||
25,400 | Cars.com Inc.* | 723 | |
IT SERVICES—2.4% | |||
41,850 | EVERTEC Inc. (Puerto Rico) | 764 | |
LIFE SCIENCES TOOLS & SERVICES—3.0% | |||
25,155 | Syneos Health Inc.* | 958 | |
MACHINERY—4.1% | |||
10,547 | Altra Industrial Motion Corp. | 439 | |
6,280 | EnPro Industries Inc. | 472 | |
10,730 | Terex Corp. | 392 | |
1,303 | |||
MEDIA—1.2% | |||
20,340 | Liberty Latin America Ltd. Class A (United Kingdom)* | 374 | |
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—1.8% | |||
37,050 | Redwood Trust Inc. | 568 | |
MULTI-UTILITIES—1.9% | |||
11,059 | Northwestern Corp. | 608 | |
OIL, GAS & CONSUMABLE FUELS—4.0% | |||
73,950 | Oasis Petroleum Inc.* | 816 | |
27,445 | WPX Energy Inc.* | 469 | |
1,285 | |||
PROFESSIONAL SERVICES—1.3% | |||
26,650 | Resources Connection Inc. | 417 | |
ROAD & RAIL—2.5% | |||
6,920 | Genesee & Wyoming Inc.* | 493 | |
7,850 | Knight-Swift Transportation Holdings Inc. | 306 | |
799 | |||
SPECIALTY RETAIL—7.6% | |||
287,618 | Ascena Retail Group Inc.* | 639 | |
33,350 | Michaels Cos Inc.* | 621 | |
19,950 | Party City Holdco Inc.* | 314 | |
22,000 | Signet Jewelers Ltd. | 855 | |
2,429 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—1.7% | |||
35,600 | Diebold Nixdorf Inc. | 546 | |
THRIFTS & MORTGAGE FINANCE—3.1% | |||
16,450 | Essent Group Ltd. (Bermuda)* | 542 | |
13,880 | Washington Federal Inc. | 441 | |
983 | |||
TRADING COMPANIES & DISTRIBUTORS—1.9% | |||
9,040 | Air Lease Corp. | 377 | |
4,650 | Beacon Roofing Supply Inc.* | 228 | |
605 | |||
TOTAL COMMON STOCKS | |||
(Cost $30,505) | 30,987 | ||
47
Harbor Small Cap Value Opportunities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
SHORT-TERM INVESTMENTS—3.3% | |||
(Cost $1,058) | |||
Principal Amount | Value | ||
REPURCHASE AGREEMENTS | |||
$ | 1,058 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $1,082) | $ 1,058 |
TOTAL INVESTMENTS—100.2% | |||
(Cost $31,563) | 32,045 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(0.2)% | (56) | ||
TOTAL NET ASSETS—100.0% | $31,989 |
FAIR VALUE MEASUREMENTS
Repurchase Agreements valued at $1,058 are classified as Level 2. All other holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
* | Non-income producing security |
The accompanying notes are an integral part of the Financial Statements.
48
Harbor Domestic Equity Funds
StatementS of Assets and Liabilities—April 30, 2018 (Unaudited)
StatementS of Assets and Liabilities—April 30, 2018 (Unaudited)
(All amounts in thousands, except per share amounts)
Harbor Capital Appreciation Fund | Harbor Strategic Growth Fund | Harbor Mid Cap Growth Fund | Harbor Small Cap Growth Fund | Harbor Small Cap Growth Opportunities Fund | Harbor Large Cap Value Fund | Harbor Mid Cap Value Fund | Harbor Small Cap Value Fund | Harbor Small Cap Value Opportunities Fund | |
ASSETS | |||||||||
Investments, at identified cost* | $17,142,443 | $59,878 | $285,611 | $549,766 | $279,127 | $750,293 | $ 974,845 | $ 996,446 | $31,563 |
Investments, at value | $29,962,316 | $64,794 | $332,516 | $672,209 | $293,979 | $867,198 | $1,081,849 | $1,349,175 | $30,987 |
Repurchase agreements | 146,506 | 6,544 | 7,112 | 13,903 | 14,029 | 38,523 | 4,700 | 42,330 | 1,058 |
Cash | 1 | — | 1 | — | — | 1 | 1 | — | 1 |
Receivables for: | |||||||||
Investments sold | 119,402 | — | — | 19,542 | 1,833 | 5,264 | 935 | 2,589 | — |
Capital shares sold | 23,323 | 102 | 1,195 | 260 | 243 | 1,115 | 525 | 1,811 | — |
Dividends | 12,814 | 22 | 34 | 113 | 17 | 539 | 1,084 | 423 | 6 |
Interest | 1 | — | — | — | — | — | — | — | — |
Purchased options, at value (cost: $0,$0,$280,$0,$0,$0,$0 and $0) | — | — | 473 | — | — | — | — | — | — |
Withholding tax | 1,789 | 1 | — | — | — | 204 | — | — | — |
Prepaid registration fees | 78 | 18 | 25 | 23 | 31 | 36 | 30 | 59 | — |
Prepaid fund insurance | 99 | — | 2 | 3 | 1 | 3 | 4 | 5 | — |
Other assets | 1,800 | 24 | 51 | 54 | 10 | 95 | 38 | 80 | 14 |
Total Assets | 30,268,129 | 71,505 | 341,409 | 706,107 | 310,143 | 912,978 | 1,089,166 | 1,396,472 | 32,066 |
LIABILITIES | |||||||||
Payables for: | |||||||||
Investments purchased | 26,766 | — | 915 | 1,586 | 1,241 | 13,977 | 186 | 530 | — |
Capital shares reacquired | 16,937 | 7 | 151 | 188 | 110 | 612 | 884 | 937 | — |
Accrued expenses: | |||||||||
Management fees | 13,539 | 35 | 212 | 445 | 189 | 438 | 640 | 860 | 20 |
12b-1 fees | 397 | — | 10 | 2 | — | 16 | 31 | 16 | — |
Transfer agent fees | 1,940 | 3 | 17 | 37 | 18 | 54 | 80 | 96 | 2 |
Trustees' fees and expenses | 172 | 7 | 3 | 3 | 1 | 2 | 4 | 4 | — |
Other | 3,997 | 14 | 100 | 114 | 50 | 88 | 140 | 230 | 55 |
Total Liabilities | 63,748 | 66 | 1,408 | 2,375 | 1,609 | 15,187 | 1,965 | 2,673 | 77 |
NET ASSETS | $30,204,381 | $71,439 | $340,001 | $703,732 | $308,534 | $897,791 | $1,087,201 | $1,393,799 | $31,989 |
Net Assets Consist of: | |||||||||
Paid-in capital | $15,508,692 | $59,267 | $233,795 | $498,033 | $260,321 | $730,597 | $ 942,243 | $ 877,757 | $31,370 |
Accumulated undistributed net investment income/(loss) | 11,145 | 65 | (1,048) | (1,480) | (903) | 2,807 | 4,717 | 511 | 42 |
Accumulated net realized gain/(loss) | 1,718,097 | 647 | 53,045 | 70,833 | 20,235 | 8,959 | 28,537 | 120,472 | 95 |
Unrealized appreciation/(depreciation) of investments and translation of assets and liabilities in foreign currencies | 12,966,447 | 11,460 | 54,017 | 136,346 | 28,881 | 155,428 | 111,704 | 395,059 | 482 |
Unrealized appreciation/(depreciation) of other financial instruments | — | — | 192 | — | — | — | — | — | — |
$30,204,381 | $71,439 | $340,001 | $703,732 | $308,534 | $897,791 | $1,087,201 | $1,393,799 | $31,989 | |
The accompanying notes are an integral part of the Financial Statements.
49
Harbor Capital Appreciation Fund | Harbor Strategic Growth Fund | Harbor Mid Cap Growth Fund | Harbor Small Cap Growth Fund | Harbor Small Cap Growth Opportunities Fund | Harbor Large Cap Value Fund | Harbor Mid Cap Value Fund | Harbor Small Cap Value Fund | Harbor Small Cap Value Opportunities Fund | ||||||||||
NET ASSET VALUE PER SHARE BY CLASS | ||||||||||||||||||
Institutional Class | ||||||||||||||||||
Net assets | $23,287,427 | $69,509 | $150,483 | $457,339 | $241,400 | $579,679 | $832,039 | $1,172,283 | $25,134 | |||||||||
Shares of beneficial interest1 | 317,395 | 3,600 | 14,035 | 30,616 | 18,853 | 39,088 | 36,503 | 32,946 | 2,472 | |||||||||
Net asset value per share2 | $ 73.37 | $ 19.31 | $ 10.72 | $ 14.94 | $ 12.80 | $ 14.83 | $ 22.79 | $ 35.58 | $ 10.17 | |||||||||
Retirement Class | ||||||||||||||||||
Net assets | $ 4,984,209 | $ 1,626 | $142,584 | $236,989 | $ 64,640 | $240,294 | $107,067 | $ 145,762 | $ 6,336 | |||||||||
Shares of beneficial interest1 | 67,941 | 84 | 13,274 | 15,834 | 5,040 | 16,204 | 4,697 | 4,095 | 623 | |||||||||
Net asset value per share2 | $ 73.36 | $ 19.32 | $ 10.74 | $ 14.97 | $ 12.82 | $ 14.83 | $ 22.79 | $ 35.60 | $ 10.17 | |||||||||
Administrative Class | ||||||||||||||||||
Net assets | $ 487,017 | $ 15 | $ 28,219 | $ 756 | $ 1,372 | $ 16,167 | $ 49,501 | $ 6,198 | $ 255 | |||||||||
Shares of beneficial interest1 | 6,760 | 1 | 2,753 | 54 | 108 | 1,091 | 2,154 | 175 | 25 | |||||||||
Net asset value per share2 | $ 72.05 | $ 19.29 | $ 10.25 | $ 13.95 | $ 12.73 | $ 14.82 | $ 22.97 | $ 35.40 | $ 10.16 | |||||||||
Investor Class | ||||||||||||||||||
Net assets | $ 1,445,728 | $ 289 | $ 18,715 | $ 8,648 | $ 1,122 | $ 61,651 | $ 98,594 | $ 69,556 | $ 264 | |||||||||
Shares of beneficial interest1 | 20,448 | 15 | 1,879 | 649 | 89 | 4,124 | 4,331 | 2,005 | 26 | |||||||||
Net asset value per share2 | $ 70.70 | $ 19.26 | $ 9.96 | $ 13.34 | $ 12.59 | $ 14.95 | $ 22.76 | $ 34.70 | $ 10.16 |
* | Including repurchase agreements and short-term investments. |
1 | Par value $0.01 (unlimited authorizations). |
2 | Per share amounts can be recalculated to the amounts disclosed herein when total net assets and shares of beneficial interest are not rounded to thousands. |
50
Harbor Domestic Equity Funds
StatementS of Operations—Six Months Ended April 30, 2018 (Unaudited)
StatementS of Operations—Six Months Ended April 30, 2018 (Unaudited)
(All amounts in thousands)
Harbor Capital Appreciation Fund | Harbor Strategic Growth Fund | Harbor Mid Cap Growth Fund | Harbor Small Cap Growth Fund | Harbor Small Cap Growth Opportunities Fund | Harbor Large Cap Value Fund | Harbor Mid Cap Value Fund | Harbor Small Cap Value Fund | Harbor Small Cap Value Opportunities Fund | |
Investment Income | |||||||||
Dividends | $ 116,251 | $ 329 | $ 806 | $ 1,565 | $ 382 | $ 7,758 | $ 14,685 | $ 7,222 | $197 |
Interest | 166 | 5 | 74 | 21 | 10 | 33 | 8 | 40 | 1 |
Net securities lending income | 3 | — | — | — | — | — | — | — | — |
Foreign taxes withheld | (295) | (7) | (3) | (5) | (7) | (217) | — | (31) | (1) |
Total Investment Income | 116,125 | 327 | 877 | 1,581 | 385 | 7,574 | 14,693 | 7,231 | 197 |
Operating Expenses | |||||||||
Management fees | 89,370 | 197 | 1,336 | 2,704 | 1,114 | 2,527 | 3,925 | 4,942 | 100 |
12b-1 fees: | |||||||||
Administrative Class | 619 | — | 59 | 1 | 2 | 22 | 63 | 7 | — |
Investor Class | 1,858 | — | 25 | 10 | 2 | 85 | 133 | 75 | — |
Shareholder communications | 134 | 12 | 15 | 6 | 3 | 28 | 98 | — | — |
Custodian fees | 607 | 7 | 14 | 19 | 16 | 13 | 19 | 19 | 9 |
Transfer agent fees: | |||||||||
Institutional Class | 10,703 | 29 | 68 | 226 | 105 | 245 | 356 | 508 | 11 |
Retirement Class | 201 | — | 7 | 11 | 3 | 11 | 5 | 6 | — |
Administrative Class | 223 | — | 21 | — | 1 | 8 | 23 | 3 | — |
Investor Class | 1,561 | — | 21 | 9 | 1 | 71 | 112 | 63 | — |
Professional fees | 408 | 1 | 5 | 10 | 4 | 10 | 15 | 16 | 1 |
Trustees' fees and expenses | 437 | 1 | 5 | 11 | 5 | 11 | 15 | 17 | — |
Registration fees | 97 | 40 | 33 | 31 | 29 | 44 | 41 | 43 | 36 |
Miscellaneous | 142 | 5 | 6 | 8 | 6 | 8 | 10 | 1 | 4 |
Total expenses | 106,360 | 292 | 1,615 | 3,046 | 1,291 | 3,083 | 4,815 | 5,700 | 161 |
Management fees waived | (7,451) | — | — | — | — | — | (167) | — | — |
Transfer agent fees waived | (973) | (3) | (8) | (20) | (9) | (23) | (36) | (45) | (1) |
Other expenses reimbursed | — | (59) | — | — | — | (134) | — | — | (42) |
Net expenses | 97,936 | 230 | 1,607 | 3,026 | 1,282 | 2,926 | 4,612 | 5,655 | 118 |
Net Investment Income/(Loss) | 18,189 | 97 | (730) | (1,445) | (897) | 4,648 | 10,081 | 1,576 | 79 |
Realized and Change in Net Unrealized Gain/(Loss) on Investment Transactions | |||||||||
Net realized gain/(loss) on: | |||||||||
Investments | 1,761,985 | 958 | 56,520 | 76,566 | 24,177 | 10,682 | 25,114 | 120,118 | 95 |
Foreign currency transactions | (26) | — | 4 | — | — | — | — | — | — |
Purchased options | — | — | 16 | — | — | — | — | — | — |
Redemption in-kind | 69,308 | — | — | — | — | — | — | — | — |
Change in net unrealized appreciation/(depreciation) on: | |||||||||
Investments | 557,320 | 1,468 | (33,240) | (12,769) | (916) | 4,793 | (21,463) | (121,822) | 432 |
Purchased options | — | — | 192 | — | — | — | — | — | — |
Translations of assets and liabilities in foreign currencies | 29 | — | (1) | — | — | — | — | — | — |
Net gain/(loss) on investment transactions | 2,388,616 | 2,426 | 23,491 | 63,797 | 23,261 | 15,475 | 3,651 | (1,704) | 527 |
Net Increase/(Decrease) in Net Assets Resulting from Operations | $2,406,805 | $2,523 | $ 22,761 | $ 62,352 | $22,364 | $20,123 | $ 13,732 | $ (128) | $606 |
The accompanying notes are an integral part of the Financial Statements.
51
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52
Harbor Domestic Equity Funds
Statements of Changes In Net Assets
Statements of Changes In Net Assets
(All amounts in thousands)
Harbor Capital Appreciation Fund | Harbor Strategic Growth Fund | Harbor Mid Cap Growth Fund | |||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | July 1, 2017 through October 31, 2017 | July 1, 2016 through June 30, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | |||
INCREASE/(DECREASE) IN NET ASSETS | (Unaudited) | (Unaudited) | (Unaudited) | ||||||
Operations: | |||||||||
Net investment income/(loss) | $ 18,189 | $ 45,592 | $ 97 | $ 42 | $ 205 | $ (730) | $ (787) | ||
Net realized gain/(loss) on investments | 1,831,267 | 3,499,970 | 958 | 144 | 773 | 56,540 | 49,738 | ||
Change in net unrealized appreciation/(depreciation) of investments | 557,349 | 3,868,248 | 1,468 | 2,754 | 3,139 | (33,049) | 50,807 | ||
Net increase/(decrease) in assets resulting from operations | 2,406,805 | 7,413,810 | 2,523 | 2,940 | 4,117 | 22,761 | 99,758 | ||
Distributions to Shareholders | |||||||||
Net investment income: | |||||||||
Institutional Class | (34,252) | (21,322) | (108) | — | (193) | — | — | ||
Retirement Class | (8,121) | (1,881) | (1) | — | — | — | — | ||
Administrative Class | — | — | — | — | — | — | — | ||
Investor Class | — | — | — | — | — | — | — | ||
Net realized gain on investments: | |||||||||
Institutional Class | (2,412,405) | (1,220,935) | (1,077) | — | (205) | (15,890) | — | ||
Retirement Class | (388,447) | (65,872) | (11) | — | — | (14,153) | — | ||
Administrative Class | (51,883) | (30,286) | — | — | — | (3,120) | — | ||
Investor Class | (153,082) | (88,361) | (1) | — | — | (2,301) | — | ||
Total distributions to shareholders | (3,048,190) | (1,428,657) | (1,198) | — | (398) | (35,464) | — | ||
Net Increase/(Decrease) Derived from Capital Share Transactions | 2,030,773 | (1,897,442) | 13,566 | 21,393 | 3,108 | (50,891) | (195,061) | ||
Net increase/(decrease) in net assets | 1,389,388 | 4,087,711 | 14,891 | 24,333 | 6,827 | (63,594) | (95,303) | ||
Net Assets | |||||||||
Beginning of period | 28,814,993 | 24,727,282 | 56,548 | 32,215 | 25,388 | 403,595 | 498,898 | ||
End of period* | $30,204,381 | $28,814,993 | $71,439 | $56,548 | $32,215 | $340,001 | $ 403,595 | ||
* Includes accumulated undistributed net investment income/(loss) of: | $ 11,145 | $ 35,329 | $ 65 | $ 77 | $ 39 | $ (1,048) | $ (318) |
a | Inception |
The accompanying notes are an integral part of the Financial Statements.
53
Harbor Small Cap Growth Fund | Harbor Small Cap Growth Opportunities Fund | Harbor Large Cap Value Fund | Harbor Mid Cap Value Fund | Harbor Small Cap Value Fund | Harbor Small Cap Value Opportunities Fund | |||||||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | August 1, 2017a through October 31, 2017 | |||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||
$ (1,445) | $ (1,992) | $ (897) | $ (1,514) | $ 4,648 | $ 5,465 | $ 10,081 | $ 15,802 | $ 1,576 | $ 2,125 | $ 79 | $ 37 | |||||
76,566 | 88,078 | 24,177 | 24,181 | 10,682 | 26,388 | 25,114 | 27,835 | 120,118 | 29,319 | 95 | 76 | |||||
(12,769) | 68,228 | (916) | 22,607 | 4,793 | 86,165 | (21,463) | 112,584 | (121,822) | 234,567 | 432 | 50 | |||||
62,352 | 154,314 | 22,364 | 45,274 | 20,123 | 118,018 | 13,732 | 156,221 | (128) | 266,011 | 606 | 163 | |||||
— | — | — | — | (1,796) | (3,694) | (9,791) | (10,454) | (897) | (2,998) | (73) | — | |||||
— | — | — | — | (784) | (259) | (1,263) | (270) | (160) | (12) | — | — | |||||
— | — | — | — | — | (277) | (513) | (625) | — | (3) | (1) | — | |||||
— | — | — | — | (124) | (460) | (914) | (2,058) | — | (10) | — | — | |||||
(48,250) | (2,458) | (13,477) | — | (13,953) | (10,933) | (18,690) | (9,256) | (20,141) | — | (74) | — | |||||
(18,208) | (418) | (3,505) | — | (5,558) | (134) | (2,292) | (232) | (1,991) | — | — | — | |||||
(71) | (3) | (71) | — | (368) | (318) | (1,213) | (636) | (105) | — | (1) | — | |||||
(834) | (45) | (71) | — | (2,039) | (2,114) | (2,744) | (2,358) | (963) | — | (1) | — | |||||
(67,363) | (2,924) | (17,124) | — | (24,622) | (18,189) | (37,420) | (25,889) | (24,257) | (3,023) | (150) | — | |||||
706 | (30,962) | (1,675) | 68,733 | 135,584 | 285,851 | 122,922 | 48,486 | 237,566 | 157,261 | 6,342 | 25,028 | |||||
(4,305) | 120,428 | 3,565 | 114,007 | 131,085 | 385,680 | 99,234 | 178,818 | 213,181 | 420,249 | 6,798 | 25,191 | |||||
708,037 | 587,609 | 304,969 | 190,962 | 766,706 | 381,026 | 987,967 | 809,149 | 1,180,618 | 760,369 | 25,191 | — | |||||
$703,732 | $708,037 | $308,534 | $304,969 | $897,791 | $766,706 | $1,087,201 | $987,967 | $1,393,799 | $1,180,618 | $31,989 | $25,191 | |||||
$ (1,480) | $ (35) | $ (903) | $ (6) | $ 2,807 | $ 863 | $ 4,717 | $ 7,117 | $ 511 | $ (8) | $ 42 | $ 37 |
54
Harbor Domestic Equity Funds
Statements of Changes in Net Assets—Capital Stock Activity
Statements of Changes in Net Assets—Capital Stock Activity
(All amounts in thousands)
Harbor Capital Appreciation Fund | Harbor Strategic Growth Fund | Harbor Mid Cap Growth Fund | |||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | July 1, 2017 through October 31, 2017 | July 1, 2016 through June 30, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | |||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||
AMOUNT ($) | |||||||||
Institutional Class | |||||||||
Net proceeds from sale of shares | $ 2,004,633 | $ 3,276,589 | $13,578 | $22,972 | $ 8,515 | $ 21,867 | $ 34,285 | ||
Reinvested distributions | 2,226,227 | 1,106,036 | 1,183 | — | 346 | 11,273 | — | ||
Cost of shares reacquired | (4,221,199) | (7,001,496) | (2,618) | (1,724) | (6,094) | (22,284) | (233,261) | ||
Cost of shares reacquired through redemption in-kind | (118,852) | (107,830) | — | — | — | — | — | ||
Net increase/(decrease) in net assets | $ (109,191) | $(2,726,701) | $12,143 | $21,248 | $ 2,767 | $ 10,856 | $(198,976) | ||
Retirement Class | |||||||||
Net proceeds from sale of shares | $ 2,308,543 | $ 2,162,111 | $ 1,231 | $ 96 | $ 311* | $ 26,062 | $ 119,909 | ||
Reinvested distributions | 378,865 | 66,899 | 12 | — | — | 14,153 | — | ||
Cost of shares reacquired | (499,601) | (901,911) | (43) | (1) | (2)* | (19,631) | (16,239) | ||
Net increase/(decrease) in net assets | $ 2,187,807 | $ 1,327,099 | $ 1,200 | $ 95 | 309* | $ 20,584 | $ 103,670 | ||
Administrative Class | |||||||||
Net proceeds from sale of shares | $ 47,389 | $ 98,518 | $ 3 | $ 1 | 11* | $ 7,102 | $ 55,699 | ||
Reinvested distributions | 50,177 | 29,735 | — | — | — | 3,116 | — | ||
Cost of shares reacquired | (92,426) | (285,429) | — | — | (1)* | (92,104) | (153,126) | ||
Net increase/(decrease) in net assets | $ 5,140 | $ (157,176) | $ 3 | $ 1 | 10* | $(81,886) | $ (97,427) | ||
Investor Class | |||||||||
Net proceeds from sale of shares | $ 187,150 | $ 250,072 | $ 273 | $ 56 | 22* | $ 4,259 | $ 8,536 | ||
Reinvested distributions | 151,393 | 86,039 | 1 | — | — | 2,285 | — | ||
Cost of shares reacquired | (391,526) | (676,775) | (54) | (7) | — | (6,989) | (10,864) | ||
Net increase/(decrease) in net assets | $ (52,983) | $ (340,664) | $ 220 | $ 49 | $ 22* | $ (445) | $ (2,328) |
* | For the period March 6, 2017 (commencement of operations) through June 30, 2017 |
a | Inception |
The accompanying notes are an integral part of the Financial Statements.
55
Harbor Small Cap Growth Fund | Harbor Small Cap Growth Opportunities Fund | Harbor Large Cap Value Fund | Harbor Mid Cap Value Fund | Harbor Small Cap Value Fund | Harbor Small Cap Value Opportunities Fund | |||||||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | August 1, 2017a through October 31, 2017 | |||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||
$ 32,926 | $ 63,756 | $ 54,396 | $ 91,607 | $150,767 | $ 292,174 | $ 190,192 | $ 239,318 | $ 268,155 | $ 345,325 | $ 79 | $24,494 | |||||
47,317 | 2,405 | 13,012 | — | 14,577 | 14,027 | 27,819 | 19,313 | 18,031 | 2,418 | 147 | — | |||||
(129,389) | (199,752) | (84,712) | (46,086) | (80,819) | (191,931) | (106,943) | (216,527) | (175,978) | (253,759) | (1) | — | |||||
— | — | — | — | — | — | — | — | — | — | — | — | |||||
$ (49,146) | $(133,591) | $(17,304) | $ 45,521 | $ 84,525 | $ 114,270 | $ 111,068 | $ 42,104 | $ 110,208 | $ 93,984 | $ 225 | $24,494 | |||||
$ 48,434 | $ 139,351 | $ 13,913 | $ 27,035 | $101,569 | $ 135,337 | $ 23,689 | $ 78,013 | $ 104,465 | $ 51,537 | $6,109 | $ 31 | |||||
17,920 | 418 | 3,505 | — | 6,317 | 393 | 3,555 | 501 | 1,153 | 12 | — | — | |||||
(17,412) | (34,669) | (1,769) | (4,901) | (9,971) | (2,501) | (7,663) | (10,150) | (13,902) | (2,883) | — | — | |||||
$ 48,942 | $ 105,100 | $ 15,649 | $ 22,134 | $ 97,915 | $ 133,229 | $ 19,581 | $ 68,364 | $ 91,716 | $ 48,666 | $6,109 | $ 31 | |||||
$ 600 | $ 986 | $ 354 | $ 1,411 | $ 3,545 | $ 43,445 | $ 6,382 | $ 16,625 | $ 2,640 | $ 2,733 | $ — | $ 250 | |||||
71 | 3 | 71 | — | 367 | 594 | 1,722 | 1,259 | 101 | 3 | 1 | — | |||||
(629) | (1,097) | (387) | (408) | (40,839) | (5,086) | (6,219) | (16,615) | (905) | (280) | — | — | |||||
$ 42 | $ (108) | $ 38 | $ 1,003 | $ (36,927) | $ 38,953 | $ 1,885 | $ 1,269 | $ 1,836 | $ 2,456 | $ 1 | $ 250 | |||||
$ 855 | $ 804 | $ 82 | $ 387 | $ 18,407 | $ 56,096 | $ 8,868 | $ 48,514 | $ 47,688 | $ 42,084 | $ 6 | $ 253 | |||||
832 | 44 | 71 | — | 2,154 | 2,403 | 3,543 | 4,335 | 949 | 10 | 1 | — | |||||
(819) | (3,211) | (211) | (312) | (30,490) | (59,100) | (22,023) | (116,100) | (14,831) | (29,939) | — | — | |||||
$ 868 | $ (2,363) | $ (58) | $ 75 | $ (9,929) | $ (601) | $ (9,612) | $ (63,251) | $ 33,806 | $ 12,155 | $ 7 | $ 253 |
56
Harbor Domestic Equity Funds
Statements of Changes in Net Assets—Capital Stock Activity—Continued
Statements of Changes in Net Assets—Capital Stock Activity—Continued
(All amounts in thousands)
Harbor Capital Appreciation Fund | Harbor Strategic Growth Fund | Harbor Mid Cap Growth Fund | |||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | July 1, 2017 through October 31, 2017 | July 1, 2016 through June 30, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | |||
(Unaudited) | (Unaudited) | (Unaudited) | |||||||
SHARES | |||||||||
Institutional Class | |||||||||
Shares sold | 27,081 | 50,273 | 700 | 1,263 | 525 | 2,019 | 3,495 | ||
Shares issued due to reinvestment of distributions | 31,713 | 19,319 | 62 | — | 22 | 1,086 | — | ||
Shares reacquired | (56,946) | (108,725) | (134) | (95) | (377) | (2,055) | (25,934) | ||
Shares reacquired through redemption in-kind | (1,712) | (1,623) | — | — | — | — | — | ||
Net increase/(decrease) in shares outstanding | 136 | (40,756) | 628 | 1,168 | 170 | 1,050 | (22,439) | ||
Beginning of period | 317,259 | 358,015 | 2,972 | 1,804 | 1,634 | 12,985 | 35,424 | ||
End of period | 317,395 | 317,259 | 3,600 | 2,972 | 1,804 | 14,035 | 12,985 | ||
Retirement Class | |||||||||
Shares sold | 31,004 | 33,211 | 62 | 5 | 18* | 2,369 | 12,594 | ||
Shares issued due to reinvestment of distributions | 5,399 | 1,169 | 1 | — | — | 1,361 | — | ||
Shares reacquired | (6,855) | (12,930) | (2) | — | — | (1,784) | (1,583) | ||
Net increase/(decrease) in shares outstanding | 29,548 | 21,450 | 61 | 5 | 18* | 1,946 | 11,011 | ||
Beginning of period | 38,393 | 16,943 | 23 | 18 | — | 11,328 | 317 | ||
End of period | 67,941 | 38,393 | 84 | 23 | 18* | 13,274 | 11,328 | ||
Administrative Class | |||||||||
Shares sold | 651 | 1,555 | — | — | 1* | 652 | 5,811 | ||
Shares issued due to reinvestment of distributions | 727 | 527 | — | — | — | 314 | — | ||
Shares reacquired | (1,285) | (4,754) | — | — | — | (8,398) | (16,802) | ||
Net increase/(decrease) in shares outstanding | 93 | (2,672) | — | — | 1* | (7,432) | (10,991) | ||
Beginning of period | 6,667 | 9,339 | 1 | 1 | — | 10,185 | 21,176 | ||
End of period | 6,760 | 6,667 | 1 | 1 | 1* | 2,753 | 10,185 | ||
Investor Class | |||||||||
Shares sold | 2,624 | 3,962 | 14 | 3 | 1* | 416 | 905 | ||
Shares issued due to reinvestment of distributions | 2,235 | 1,548 | — | — | — | 237 | — | ||
Shares reacquired | (5,429) | (10,756) | (3) | — | — | (683) | (1,123) | ||
Net increase/(decrease) in shares outstanding | (570) | (5,246) | 11 | 3 | 1* | (30) | (218) | ||
Beginning of period | 21,018 | 26,264 | 4 | 1 | — | 1,909 | 2,127 | ||
End of period | 20,448 | 21,018 | 15 | 4 | 1* | 1,879 | 1,909 |
* | For the period March 6, 2017 (commencement of operations) through June 30, 2017 |
a | Inception |
The accompanying notes are an integral part of the Financial Statements.
57
Harbor Small Cap Growth Fund | Harbor Small Cap Growth Opportunities Fund | Harbor Large Cap Value Fund | Harbor Mid Cap Value Fund | Harbor Small Cap Value Fund | Harbor Small Cap Value Opportunities Fund | |||||||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | August 1, 2017a through October 31, 2017 | |||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||
2,228 | 4,659 | 4,354 | 7,471 | 9,953 | 21,074 | 8,187 | 10,728 | 7,357 | 10,669 | 8 | 2,449 | |||||
3,302 | 186 | 1,061 | — | 979 | 1,088 | 1,178 | 875 | 495 | 79 | 15 | — | |||||
(8,772) | (14,867) | (6,804) | (3,816) | (5,353) | (13,823) | (4,547) | (9,705) | (4,832) | (7,907) | — | — | |||||
— | — | — | — | — | — | — | — | — | — | — | — | |||||
(3,242) | (10,022) | (1,389) | 3,655 | 5,579 | 8,339 | 4,818 | 1,898 | 3,020 | 2,841 | 23 | 2,449 | |||||
33,858 | 43,880 | 20,242 | 16,587 | 33,509 | 25,170 | 31,685 | 29,787 | 29,926 | 27,085 | 2,449 | — | |||||
30,616 | 33,858 | 18,853 | 20,242 | 39,088 | 33,509 | 36,503 | 31,685 | 32,946 | 29,926 | 2,472 | 2,449 | |||||
3,190 | 10,446 | 1,123 | 2,211 | 6,759 | 9,515 | 1,018 | 3,539 | 2,861 | 1,572 | 620 | 3 | |||||
1,249 | 32 | 286 | — | 424 | 30 | 151 | 23 | 31 | — | — | — | |||||
(1,171) | (2,485) | (142) | (414) | (660) | (174) | (326) | (451) | (379) | (83) | — | — | |||||
3,268 | 7,993 | 1,267 | 1,797 | 6,523 | 9,371 | 843 | 3,111 | 2,513 | 1,489 | 620 | 3 | |||||
12,566 | 4,573 | 3,773 | 1,976 | 9,681 | 310 | 3,854 | 743 | 1,582 | 93 | 3 | — | |||||
15,834 | 12,566 | 5,040 | 3,773 | 16,204 | 9,681 | 4,697 | 3,854 | 4,095 | 1,582 | 623 | 3 | |||||
43 | 73 | 29 | 125 | 236 | 3,133 | 265 | 739 | 73 | 83 | — | 25 | |||||
6 | — | 6 | — | 25 | 45 | 72 | 56 | 3 | — | — | — | |||||
(45) | (83) | (31) | (35) | (2,743) | (366) | (262) | (735) | (25) | (9) | — | — | |||||
4 | (10) | 4 | 90 | (2,482) | 2,812 | 75 | 60 | 51 | 74 | — | 25 | |||||
50 | 60 | 104 | 14 | 3,573 | 761 | 2,079 | 2,019 | 124 | 50 | 25 | — | |||||
54 | 50 | 108 | 104 | 1,091 | 3,573 | 2,154 | 2,079 | 175 | 124 | 25 | 25 | |||||
64 | 64 | 6 | 34 | 1,198 | 4,142 | 377 | 2,188 | 1,338 | 1,323 | 1 | 25 | |||||
65 | 4 | 6 | — | 143 | 185 | 150 | 196 | 27 | — | — | — | |||||
(61) | (262) | (17) | (26) | (1,979) | (4,213) | (935) | (5,230) | (424) | (926) | — | — | |||||
68 | (194) | (5) | 8 | (638) | 114 | (408) | (2,846) | 941 | 397 | 1 | 25 | |||||
581 | 775 | 94 | 86 | 4,762 | 4,648 | 4,739 | 7,585 | 1,064 | 667 | 25 | — | |||||
649 | 581 | 89 | 94 | 4,124 | 4,762 | 4,331 | 4,739 | 2,005 | 1,064 | 26 | 25 |
58
Harbor Domestic Equity Funds Financial Highlights
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR CAPITAL APPRECIATION FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 75.32 | $ 60.36 | $ 65.27 | $ 61.97 | $ 54.71 | $ 41.44 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.05 e | 0.13 e | 0.09 e | 0.07 e | 0.06 | 0.16 |
Net realized and unrealized gains/(losses) on investments | 6.03 | 18.38 | (0.84) | 7.05 | 8.98 | 13.28 |
Total from investment operations | 6.08 | 18.51 | (0.75) | 7.12 | 9.04 | 13.44 |
Less Distributions | ||||||
Dividends from net investment income | (0.11) | (0.06) | (0.05) | (0.05) | (0.05) | (0.17) |
Distributions from net realized capital gains1 | (7.92) | (3.49) | (4.11) | (3.77) | (1.73) | — |
Total distributions | (8.03) | (3.55) | (4.16) | (3.82) | (1.78) | (0.17) |
Net asset value end of period | 73.37 | 75.32 | 60.36 | 65.27 | 61.97 | 54.71 |
Net assets end of period (000s) | $23,287,427 | $23,896,840 | $21,608,221 | $24,669,740 | $22,531,379 | $19,366,148 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 8.55% c | 32.52% | (1.23)% | 12.16% | 16.95% | 32.55% |
Ratio of total expenses to average net assets2 | 0.70 d | 0.71 | 0.69 | 0.68 | 0.67 | 0.68 |
Ratio of net expenses to average net assetsa | 0.64 d | 0.65 | 0.64 | 0.64 | 0.65 | 0.65 |
Ratio of net investment income to average net assetsa | 0.14 d | 0.20 | 0.15 | 0.12 | 0.11 | 0.35 |
Portfolio turnover | 19 c | 52 | 34 | 37 | 34 | 48 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 74.08 | $ 59.50 | $ 64.51 | $ 61.39 | $ 54.29 | $ 41.12 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | (0.04) e | (0.04) e | (0.06) e | (0.08) e | (0.11) | 0.02 |
Net realized and unrealized gains/(losses) on investments | 5.93 | 18.11 | (0.84) | 6.97 | 8.94 | 13.21 |
Total from investment operations | 5.89 | 18.07 | (0.90) | 6.89 | 8.83 | 13.23 |
Less Distributions | ||||||
Dividends from net investment income | — | — | — | — | — | (0.06) |
Distributions from net realized capital gains1 | (7.92) | (3.49) | (4.11) | (3.77) | (1.73) | — |
Total distributions | (7.92) | (3.49) | (4.11) | (3.77) | (1.73) | (0.06) |
Net asset value end of period | 72.05 | 74.08 | 59.50 | 64.51 | 61.39 | 54.29 |
Net assets end of period (000s) | $ 487,017 | $ 493,860 | $ 555,665 | $ 620,910 | $ 582,430 | $ 613,413 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 8.42% c | 32.20% | (1.48)% | 11.88% | 16.69% | 32.21% |
Ratio of total expenses to average net assets2 | 0.95 d | 0.96 | 0.94 | 0.93 | 0.92 | 0.93 |
Ratio of net expenses to average net assetsa | 0.89 d | 0.90 | 0.89 | 0.89 | 0.90 | 0.90 |
Ratio of net investment income to average net assetsa | (0.11) d | (0.06) | (0.11) | (0.13) | (0.14) | 0.11 |
Portfolio turnover | 19 c | 52 | 34 | 37 | 34 | 48 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
59
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 75.34 | $ 60.37 | $ 55.79 |
0.07 e | 0.16 e | 0.05 e |
6.04 | 18.40 | 4.53 |
6.11 | 18.56 | 4.58 |
(0.17) | (0.10) | — |
(7.92) | (3.49) | — |
(8.09) | (3.59) | — |
73.36 | 75.34 | 60.37 |
$4,984,209 | $2,892,484 | $1,022,839 |
8.58% c | 32.62% | 8.21% c |
0.62 d | 0.63 | 0.65 d |
0.57 d | 0.59 | 0.59 d |
0.19 d | 0.23 | 0.13 d |
19 c | 52 | 34 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 72.88 | $ 58.66 | $ 63.73 | $ 60.76 | $ 53.82 | $ 40.79 |
(0.08) e | (0.11) e | (0.13) e | (0.16) e | (0.17) | (0.01) |
5.82 | 17.82 | (0.83) | 6.90 | 8.84 | 13.07 |
5.74 | 17.71 | (0.96) | 6.74 | 8.67 | 13.06 |
— | — | — | — | — | (0.03) |
(7.92) | (3.49) | (4.11) | (3.77) | (1.73) | — |
(7.92) | (3.49) | (4.11) | (3.77) | (1.73) | (0.03) |
70.70 | 72.88 | 58.66 | 63.73 | 60.76 | 53.82 |
$1,445,728 | $1,531,809 | $1,540,557 | $2,214,518 | $1,910,930 | $1,780,774 |
8.34% c | 32.04% | (1.60)% | 11.75% | 16.53% | 32.04% |
1.07 d | 1.08 | 1.06 | 1.05 | 1.04 | 1.05 |
1.01 d | 1.02 | 1.01 | 1.01 | 1.02 | 1.02 |
(0.23) d | (0.17) | (0.22) | (0.25) | (0.26) | (0.03) |
19 c | 52 | 34 | 37 | 34 | 48 |
60
Harbor Domestic Equity Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR STRATEGIC GROWTH FUND | |||||||
Institutional Class | |||||||
6-Month Period Ended April 30, 2018 | 4-Month Period Ended October 31, 2017i | Year Ended June 30, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | |||
(Unaudited) | (Unaudited) | ||||||
Net asset value beginning of period | $ 18.85 | $ 17.66 | $ 15.54 | $ 15.39 | $ 15.41 | $ 12.80 | $11.00 |
Income from Investment Operations | |||||||
Net investment income/(loss)a | 0.03 e | 0.03 e | 0.12 e | 0.03 e | 0.04 e | 0.08 e | 0.10 e |
Net realized and unrealized gains/(losses) on investments | 0.82 | 1.16 | 2.22 | 0.63 | 1.11 | 3.35 | 1.92 |
Total from investment operations | 0.85 | 1.19 | 2.34 | 0.66 | 1.15 | 3.43 | 2.02 |
Less Distributions | |||||||
Dividends from net investment income | (0.04) | — | (0.11) | (0.01) | (0.06) | (0.15) | (0.13) |
Distributions from net realized capital gains1 | (0.35) | — | (0.11) | (0.50) | (1.11) | (0.67) | (0.09) |
Total distributions | (0.39) | — | (0.22) | (0.51) | (1.17) | (0.82) | (0.22) |
Proceeds from redemption fees | N/A | N/A | — * | — * | — * | — * | — * |
Net asset value end of period | 19.31 | 18.85 | 17.66 | 15.54 | 15.39 | 15.41 | 12.80 |
Net assets end of period (000s) | $69,509 | $56,026 | $31,866 | $25,388 | $20,540 | $13,678 | $8,665 |
Ratios and Supplemental Data (%) | |||||||
Total returnb | 4.52% c | 6.74 %c | 15.21% | 4.44% | 7.67% | 27.71% | 18.55% |
Ratio of total expenses to average net assets2 | 0.89 d | 1.18 d | 1.48 | 1.74 | 2.23 | 2.79 | 3.99 |
Ratio of net expenses to average net assetsa | 0.70 d | 0.70 d | 0.83 | 0.90 | 0.90 | 0.90 | 0.90 |
Ratio of net investment income to average net assetsa | 0.30 d | 0.29 d | 0.71 | 0.19 | 0.18 | 0.58 | 0.82 |
Portfolio turnover | 8 c | 9 c | 21 | 40 | 33 | 31 | 59 |
Administrative Class | |||
6-Month Period Ended April 30, 2018 | 4-Month Period Ended October 31, 2017i | Year Ended June 30, 2017h | |
(Unaudited) | (Unaudited) | ||
Net asset value beginning of period | $18.82 | $17.65 | $16.76 |
Income from Investment Operations | |||
Net investment income/(loss)a | — *e | 0.01 e | 0.01 e |
Net realized and unrealized gains/(losses) on investments | 0.82 | 1.16 | 0.88 |
Total from investment operations | 0.82 | 1.17 | 0.89 |
Less Distributions | |||
Dividends from net investment income | — | — | — |
Distributions from net realized capital gains1 | (0.35) | — | — |
Total distributions | (0.35) | — | — |
Net asset value end of period | 19.29 | 18.82 | 17.65 |
Net assets end of period (000s) | $ 15 | $ 12 | $ 11 |
Ratios and Supplemental Data (%) | |||
Total returnb | 4.39% c | 6.63 %c | 5.31% c |
Ratio of total expenses to average net assets2 | 1.14 d | 1.43 d | 1.93 d |
Ratio of net expenses to average net assetsa | 0.95 d | 0.95 d | 0.95 d |
Ratio of net investment income to average net assetsa | 0.05 d | 0.10 d | 0.19 d |
Portfolio turnover | 8 c | 9 c | 21 c |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
61
Retirement Class | ||
6-Month Period Ended April 30, 2018 | 4-Month Period Ended October 31, 2017i | Year Ended June 30, 2017h |
(Unaudited) | (Unaudited) | |
$18.86 | $17.67 | $16.76 |
0.03 e | 0.05 e | 0.03 e |
0.82 | 1.14 | 0.88 |
0.85 | 1.19 | 0.91 |
(0.04) | — | — |
(0.35) | — | — |
(0.39) | — | — |
N/A | N/A | N/A |
19.32 | 18.86 | 17.67 |
$1,626 | $ 435 | $ 316 |
4.56% c | 6.73 %c | 5.43% c |
0.81 d | 1.10 d | 1.52 d |
0.62 d | 0.62 d | 0.62 d |
0.33 d | 0.42 d | 0.58 d |
8 c | 9 c | 21 c |
Investor Class | ||
6-Month Period Ended April 30, 2018 | 4-Month Period Ended October 31, 2017i | Year Ended June 30, 2017h |
(Unaudited) | (Unaudited) | |
$18.81 | $17.64 | $16.76 |
(0.01) e | (0.02 )e | (0.01) e |
0.81 | 1.15 | 0.87 |
0.80 | 1.17 | 0.88 |
— | — | — |
(0.35) | — | — |
(0.35) | — | — |
19.26 | 18.81 | 17.64 |
$ 289 | $ 75 | $ 22 |
4.29% c | 6.63 %c | 5.25% c |
1.26 d | 1.55 d | 2.03 d |
1.07 d | 1.07 d | 1.07 d |
(0.11) d | 0.05 d | 0.13 d |
8 c | 9 c | 21 c |
62
Harbor Domestic Equity Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR MID CAP GROWTH FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 11.24 | $ 8.58 | $ 9.76 | $ 11.43 | $ 11.76 | $ 9.22 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | (0.02) e | (0.01) e | (0.03) e | (0.04) e | (0.04) | (0.03) |
Net realized and unrealized gains/(losses) on investments | 0.72 | 2.67 | (0.03) | 0.20 | 1.55 | 2.76 |
Total from investment operations | 0.70 | 2.66 | (0.06) | 0.16 | 1.51 | 2.73 |
Less Distributions | ||||||
Dividends from net investment income | — | — | (0.06) | — | — | — |
Distributions from net realized capital gains1 | (1.22) | — | (1.06) | (1.83) | (1.84) | (0.19) |
Total distributions | (1.22) | — | (1.12) | (1.83) | (1.84) | (0.19) |
Net asset value end of period | 10.72 | 11.24 | 8.58 | 9.76 | 11.43 | 11.76 |
Net assets end of period (000s) | $150,483 | $145,914 | $303,802 | $194,308 | $306,371 | $323,666 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 6.55% c | 31.00% | (0.60)% | 1.55% | 14.45% | 30.13% |
Ratio of total expenses to average net assets2 | 0.88 d | 0.88 | 0.86 | 0.84 | 0.84 | 0.84 |
Ratio of net expenses to average net assetsa | 0.88 d | 0.87 | 0.85 | 0.84 | 0.83 | 0.84 |
Ratio of net investment income to average net assetsa | (0.40) d | (0.14) | (0.31) | (0.35) | (0.34) | (0.27) |
Portfolio turnover | 51 c | 87 | 84 | 82 | 95 | 111 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 10.81 | $ 8.27 | $ 9.45 | $ 11.15 | $ 11.54 | $ 9.08 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | (0.03) e | (0.04) e | (0.05) e | (0.06) e | (0.07) | (0.05) |
Net realized and unrealized gains/(losses) on investments | 0.69 | 2.58 | (0.03) | 0.19 | 1.52 | 2.70 |
Total from investment operations | 0.66 | 2.54 | (0.08) | 0.13 | 1.45 | 2.65 |
Less Distributions | ||||||
Dividends from net investment income | — | — | (0.04) | — | — | — |
Distributions from net realized capital gains1 | (1.22) | — | (1.06) | (1.83) | (1.84) | (0.19) |
Total distributions | (1.22) | — | (1.10) | (1.83) | (1.84) | (0.19) |
Net asset value end of period | 10.25 | 10.81 | 8.27 | 9.45 | 11.15 | 11.54 |
Net assets end of period (000s) | $ 28,219 | $110,114 | $175,211 | $366,121 | $384,511 | $408,494 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 6.43% c | 30.71% | (0.91)% | 1.29% | 14.16% | 29.70% |
Ratio of total expenses to average net assets2 | 1.13 d | 1.13 | 1.10 | 1.09 | 1.09 | 1.09 |
Ratio of net expenses to average net assetsa | 1.13 d | 1.12 | 1.10 | 1.09 | 1.08 | 1.09 |
Ratio of net investment income to average net assetsa | (0.54) d | (0.45) | (0.57) | (0.58) | (0.59) | (0.52) |
Portfolio turnover | 51 c | 87 | 84 | 82 | 95 | 111 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
63
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 11.25 | $ 8.58 | $ 7.76 |
(0.02) e | 0.01 e | (0.03) e |
0.73 | 2.66 | 0.85 |
0.71 | 2.67 | 0.82 |
— | — | — |
(1.22) | — | — |
(1.22) | — | — |
10.74 | 11.25 | 8.58 |
$142,584 | $127,446 | $2,718 |
6.63% c | 31.12% | 10.57% c |
0.80 d | 0.81 | 0.81 d |
0.80 d | 0.81 | 0.80 d |
(0.33) d | 0.07 | (0.45) d |
51 c | 87 | 84 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 10.54 | $ 8.07 | $ 9.24 | $ 10.95 | $ 11.37 | $ 8.96 |
(0.04) e | (0.04) e | (0.05) e | (0.07) e | (0.05) | (0.12) |
0.68 | 2.51 | (0.04) | 0.19 | 1.47 | 2.72 |
0.64 | 2.47 | (0.09) | 0.12 | 1.42 | 2.60 |
— | — | (0.02) | — | — | — |
(1.22) | — | (1.06) | (1.83) | (1.84) | (0.19) |
(1.22) | — | (1.08) | (1.83) | (1.84) | (0.19) |
9.96 | 10.54 | 8.07 | 9.24 | 10.95 | 11.37 |
$18,715 | $20,121 | $17,167 | $24,647 | $37,887 | $35,501 |
6.39% c | 30.61% | (1.05)% | 1.21% | 14.09% | 29.54% |
1.25 d | 1.25 | 1.22 | 1.21 | 1.21 | 1.21 |
1.25 d | 1.24 | 1.22 | 1.21 | 1.20 | 1.21 |
(0.76) d | (0.48) | (0.68) | (0.71) | (0.71) | (0.63) |
51 c | 87 | 84 | 82 | 95 | 111 |
64
Harbor Domestic Equity Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR SMALL CAP GROWTH FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 15.06 | $ 11.94 | $ 13.65 | $ 15.45 | $ 15.72 | $ 11.81 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | (0.03) e | (0.04) e | (0.02) e | (0.03) e | (0.05) | 0.03 |
Net realized and unrealized gains/(losses) on investments | 1.37 | 3.22 | (0.11) | 0.55 | 1.91 | 4.48 |
Total from investment operations | 1.34 | 3.18 | (0.13) | 0.52 | 1.86 | 4.51 |
Less Distributions | ||||||
Dividends from net investment income | — | — | — | — | — | (0.04) |
Distributions from net realized capital gains1 | (1.46) | (0.06) | (1.58) | (2.32) | (2.13) | (0.56) |
Total distributions | (1.46) | (0.06) | (1.58) | (2.32) | (2.13) | (0.60) |
Net asset value end of period | 14.94 | 15.06 | 11.94 | 13.65 | 15.45 | 15.72 |
Net assets end of period (000s) | $457,339 | $509,889 | $523,888 | $587,761 | $603,476 | $601,255 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 9.28% c | 26.72% | (0.99)% | 3.35% | 12.94% | 39.90% |
Ratio of total expenses to average net assets2 | 0.86 d | 0.86 | 0.85 | 0.84 | 0.83 | 0.83 |
Ratio of net expenses to average net assetsa | 0.86 d | 0.85 | 0.85 | 0.83 | 0.83 | 0.83 |
Ratio of net investment income to average net assetsa | (0.42) d | (0.30) | (0.21) | (0.22) | (0.29) | 0.22 |
Portfolio turnover | 41 c | 83 | 89 | 78 | 76 | 73 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 14.17 | $ 11.30 | $ 13.04 | $ 14.89 | $ 15.26 | $ 11.46 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | (0.05) e | (0.07) e | (0.05) e | (0.07) e | 0.54 k | (7.68) k |
Net realized and unrealized gains/(losses) on investments | 1.29 | 3.00 | (0.11) | 0.54 | 1.22 | 12.04 |
Total from investment operations | 1.24 | 2.93 | (0.16) | 0.47 | 1.76 | 4.36 |
Less Distributions | ||||||
Dividends from net investment income | — | — | — | — | — | — |
Distributions from net realized capital gains1 | (1.46) | (0.06) | (1.58) | (2.32) | (2.13) | (0.56) |
Total distributions | (1.46) | (0.06) | (1.58) | (2.32) | (2.13) | (0.56) |
Net asset value end of period | 13.95 | 14.17 | 11.30 | 13.04 | 14.89 | 15.26 |
Net assets end of period (000s) | $ 756 | $ 719 | $ 686 | $ 877 | $ 650 | $ 636 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 9.14% c | 26.02% | (1.29)% | 3.12% | 12.65% | 39.72% |
Ratio of total expenses to average net assets2 | 1.11 d | 1.11 | 1.10 | 1.09 | 1.08 | 1.08 |
Ratio of net expenses to average net assetsa | 1.11 d | 1.10 | 1.10 | 1.08 | 1.08 | 1.08 |
Ratio of net investment income to average net assetsa | (0.66) d | (0.56) | (0.46) | (0.47) | (0.54) | 0.19 |
Portfolio turnover | 41 c | 83 | 89 | 78 | 76 | 73 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
65
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 15.08 | $ 11.95 | $ 10.72 |
(0.03) e | (0.04) e | (0.02) e |
1.38 | 3.23 | 1.25 |
1.35 | 3.19 | 1.23 |
— | — | — |
(1.46) | (0.06) | — |
(1.46) | (0.06) | — |
14.97 | 15.08 | 11.95 |
$236,989 | $189,516 | $54,634 |
9.34% c | 26.78% | 11.47% c |
0.78 d | 0.79 | 0.81 d |
0.78 d | 0.79 | 0.80 d |
(0.34) d | (0.26) | (0.27) d |
41 c | 83 | 89 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$13.62 | $10.84 | $12.59 | $ 14.47 | $ 14.90 | $ 11.22 |
(0.05) e | (0.08) e | (0.06) e | (0.08) e | (0.51) | (0.06) |
1.23 | 2.92 | (0.11) | 0.52 | 2.21 | 4.30 |
1.18 | 2.84 | (0.17) | 0.44 | 1.70 | 4.24 |
— | — | — | — | — | — |
(1.46) | (0.06) | (1.58) | (2.32) | (2.13) | (0.56) |
(1.46) | (0.06) | (1.58) | (2.32) | (2.13) | (0.56) |
13.34 | 13.62 | 10.84 | 12.59 | 14.47 | 14.90 |
$8,648 | $7,913 | $8,401 | $11,660 | $14,266 | $24,249 |
9.08% c | 26.29% | (1.44)% | 2.98% | 12.53% | 39.50% |
1.23 d | 1.23 | 1.22 | 1.21 | 1.20 | 1.20 |
1.23 d | 1.22 | 1.22 | 1.20 | 1.20 | 1.20 |
(0.78) d | (0.67) | (0.58) | (0.59) | (0.66) | (0.16) |
41 c | 83 | 89 | 78 | 76 | 73 |
66
Harbor Domestic Equity Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR SMALL CAP GROWTH OPPORTUNITIES FUND | |||||
Institutional Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 g | ||
(Unaudited) | |||||
Net asset value beginning of period | $ 12.59 | $ 10.23 | $ 10.31 | $ 10.77 | $ 10.00 |
Income from Investment Operations | |||||
Net investment income/(loss)a | (0.04) e | (0.07) e | (0.05) e | (0.06) e | (0.02) |
Net realized and unrealized gains/(losses) on investments | 1.00 | 2.43 | 0.32 | (0.35) | 0.79 |
Total from investment operations | 0.96 | 2.36 | 0.27 | (0.41) | 0.77 |
Less Distributions | |||||
Dividends from net investment income | — | — | — | — | — |
Distributions from net realized capital gains1 | (0.75) | — | (0.35) | (0.05) | — |
Total distributions | (0.75) | — | (0.35) | (0.05) | — |
Net asset value end of period | 12.80 | 12.59 | 10.23 | 10.31 | 10.77 |
Net assets end of period (000s) | $241,400 | $254,925 | $169,718 | $205,007 | $57,779 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 7.85% c | 23.07% | 2.62% | (3.78)% | 7.70% c |
Ratio of total expenses to average net assets2 | 0.88 d | 0.88 | 0.89 | 0.90 | 1.60 d |
Ratio of net expenses to average net assetsa | 0.88 d | 0.88 | 0.89 | 0.90 | 0.90 d |
Ratio of net investment income to average net assetsa | (0.62) d | (0.61) | (0.48) | (0.55) | (0.67) d |
Portfolio turnover | 31 c | 67 | 85 | 103 | 55 c |
Administrative Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 g | ||
(Unaudited) | |||||
Net asset value beginning of period | $ 12.54 | $ 10.22 | $ 10.27 | $ 10.75 | $ 10.00 |
Income from Investment Operations | |||||
Net investment income/(loss)a | (0.05) e | (0.12) e | (0.07) e | (0.09) e | (0.09) |
Net realized and unrealized gains/(losses) on investments | 0.99 | 2.44 | 0.37 | (0.34) | 0.84 |
Total from investment operations | 0.94 | 2.32 | 0.30 | (0.43) | 0.75 |
Less Distributions | |||||
Dividends from net investment income | — | — | — | — | — |
Distributions from net realized capital gains1 | (0.75) | — | (0.35) | (0.05) | — |
Total distributions | (0.75) | — | (0.35) | (0.05) | — |
Net asset value end of period | 12.73 | 12.54 | 10.22 | 10.27 | 10.75 |
Net assets end of period (000s) | $ 1,372 | $ 1,308 | $ 143 | $ 3,006 | $ 269 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 7.72% c | 22.70% | 2.94% | (3.98)% | 7.50% c |
Ratio of total expenses to average net assets2 | 1.13 d | 1.13 | 1.14 | 1.15 | 1.85 d |
Ratio of net expenses to average net assetsa | 1.13 d | 1.13 | 1.13 | 1.15 | 1.15 d |
Ratio of net investment income to average net assetsa | (0.87) d | (0.96) | (0.69) | (0.80) | (0.90) d |
Portfolio turnover | 31 c | 67 | 85 | 103 | 55 c |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
67
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 12.61 | $ 10.24 | $ 9.04 |
(0.03) e | (0.07) e | (0.04) e |
0.99 | 2.44 | 1.24 |
0.96 | 2.37 | 1.20 |
— | — | — |
(0.75) | — | — |
(0.75) | — | — |
12.82 | 12.61 | 10.24 |
$64,640 | $47,569 | $20,230 |
7.84% c | 23.14% | 13.27% c |
0.80 d | 0.81 | 0.85 d |
0.80 d | 0.81 | 0.84 d |
(0.54) d | (0.57) | (0.60) d |
31 c | 67 | 85 c |
Investor Class | ||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||
2017 | 2016 | 2015 | 2014 g | |
(Unaudited) | ||||
$12.41 | $10.12 | $10.24 | $10.74 | $10.00 |
(0.06) e | (0.11) e | (0.09) e | (0.09) e | (0.05) |
0.99 | 2.40 | 0.32 | (0.36) | 0.79 |
0.93 | 2.29 | 0.23 | (0.45) | 0.74 |
— | — | — | — | — |
(0.75) | — | (0.35) | (0.05) | — |
(0.75) | — | (0.35) | (0.05) | — |
12.59 | 12.41 | 10.12 | 10.24 | 10.74 |
$1,122 | $1,167 | $ 871 | $ 599 | $1,809 |
7.72% c | 22.63% | 2.24% | (4.17)% | 7.40% c |
1.25 d | 1.25 | 1.26 | 1.27 | 1.97 d |
1.25 d | 1.25 | 1.26 | 1.27 | 1.27 d |
(0.98) d | (0.99) | (0.87) | (0.86) | (1.03) d |
31 c | 67 | 85 | 103 | 55 c |
68
Harbor Domestic Equity Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR LARGE CAP VALUE FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 14.87 | $ 12.32 | $ 12.16 | $ 12.24 | $ 10.85 | $ 8.52 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.08 e | 0.15 e | 0.16 e | 0.15 e | 0.15 | 0.14 |
Net realized and unrealized gains/(losses) on investments | 0.34 | 2.97 | 0.64 | 0.70 | 1.37 | 2.31 |
Total from investment operations | 0.42 | 3.12 | 0.80 | 0.85 | 1.52 | 2.45 |
Less Distributions | ||||||
Dividends from net investment income | (0.05) | (0.14) | (0.13) | (0.14) | (0.13) | (0.12) |
Distributions from net realized capital gains1 | (0.41) | (0.43) | (0.51) | (0.79) | — | — |
Total distributions | (0.46) | (0.57) | (0.64) | (0.93) | (0.13) | (0.12) |
Net asset value end of period | 14.83 | 14.87 | 12.32 | 12.16 | 12.24 | 10.85 |
Net assets end of period (000s) | $579,679 | $498,360 | $310,127 | $231,033 | $202,596 | $179,382 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 2.85% c | 26.00% | 7.14% | 7.29% | 14.13% | 29.06% |
Ratio of total expenses to average net assets2 | 0.72 d | 0.72 | 0.72 | 0.70 | 0.70 | 0.71 |
Ratio of net expenses to average net assetsa | 0.68 d | 0.68 | 0.68 | 0.68 | 0.68 | 0.68 |
Ratio of net investment income to average net assetsa | 1.12 d | 1.10 | 1.32 | 1.25 | 1.26 | 1.43 |
Portfolio turnover | 8 c | 16 | 34 | 24 | 32 | 26 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 14.84 | $ 12.30 | $ 12.15 | $ 12.23 | $ 10.85 | $ 8.51 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.07 e | 0.10 e | 0.13 e | 0.12 e | 0.15 | 0.16 |
Net realized and unrealized gains/(losses) on investments | 0.32 | 2.99 | 0.63 | 0.70 | 1.34 | 2.27 |
Total from investment operations | 0.39 | 3.09 | 0.76 | 0.82 | 1.49 | 2.43 |
Less Distributions | ||||||
Dividends from net investment income | — | (0.12) | (0.10) | (0.11) | (0.11) | (0.09) |
Distributions from net realized capital gains1 | (0.41) | (0.43) | (0.51) | (0.79) | — | — |
Total distributions | (0.41) | (0.55) | (0.61) | (0.90) | (0.11) | (0.09) |
Net asset value end of period | 14.82 | 14.84 | 12.30 | 12.15 | 12.23 | 10.85 |
Net assets end of period (000s) | $ 16,167 | $ 53,006 | $ 9,361 | $ 24,690 | $ 20,927 | $ 13,453 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 2.63% c | 25.77% | 6.77% | 7.02% | 13.78% | 28.76% |
Ratio of total expenses to average net assets2 | 0.97 d | 0.97 | 0.96 | 0.95 | 0.95 | 0.96 |
Ratio of net expenses to average net assetsa | 0.93 d | 0.93 | 0.93 | 0.93 | 0.93 | 0.93 |
Ratio of net investment income to average net assetsa | 0.94 d | 0.70 | 1.09 | 1.00 | 1.02 | 1.16 |
Portfolio turnover | 8 c | 16 | 34 | 24 | 32 | 26 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
69
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 14.87 | $ 12.32 | $10.94 |
0.09 e | 0.12 e | 0.12 e |
0.34 | 3.00 | 1.33 |
0.43 | 3.12 | 1.45 |
(0.06) | (0.14) | (0.07) |
(0.41) | (0.43) | — |
(0.47) | (0.57) | (0.07) |
14.83 | 14.87 | 12.32 |
$240,294 | $143,966 | $3,822 |
2.89% c | 26.08% | 13.24% c |
0.64 d | 0.64 | 0.67 d |
0.60 d | 0.60 | 0.63 d |
1.18 d | 0.83 | 1.46 d |
8 c | 16 | 34 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 14.99 | $ 12.42 | $ 12.25 | $ 12.33 | $ 10.94 | $ 8.59 |
0.06 e | 0.10 e | 0.11 e | 0.11 e | 0.13 | 0.09 |
0.34 | 2.99 | 0.66 | 0.70 | 1.35 | 2.34 |
0.40 | 3.09 | 0.77 | 0.81 | 1.48 | 2.43 |
(0.03) | (0.09) | (0.09) | (0.10) | (0.09) | (0.08) |
(0.41) | (0.43) | (0.51) | (0.79) | — | — |
(0.44) | (0.52) | (0.60) | (0.89) | (0.09) | (0.08) |
14.95 | 14.99 | 12.42 | 12.25 | 12.33 | 10.94 |
$61,651 | $71,374 | $57,716 | $29,745 | $20,189 | $11,934 |
2.64% c | 25.52% | 6.80% | 6.87% | 13.62% | 28.52% |
1.09 d | 1.09 | 1.09 | 1.07 | 1.07 | 1.08 |
1.05 d | 1.05 | 1.05 | 1.05 | 1.05 | 1.05 |
0.76 d | 0.75 | 0.94 | 0.89 | 0.88 | 1.04 |
8 c | 16 | 34 | 24 | 32 | 26 |
70
Harbor Domestic Equity Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR MID CAP VALUE FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 23.33 | $ 20.17 | $ 20.27 | $ 20.32 | $ 17.50 | $ 12.64 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.23 e | 0.39 e | 0.44 e | 0.34 e | 0.18 | 0.28 |
Net realized and unrealized gains/(losses) on investments | 0.13 | 3.43 | 0.08 | (0.07) | 2.84 | 4.86 |
Total from investment operations | 0.36 | 3.82 | 0.52 | 0.27 | 3.02 | 5.14 |
Less Distributions | ||||||
Dividends from net investment income | (0.31) | (0.35) | (0.27) | (0.19) | (0.20) | (0.28) |
Distributions from net realized capital gains1 | (0.59) | (0.31) | (0.35) | (0.13) | — | — |
Total distributions | (0.90) | (0.66) | (0.62) | (0.32) | (0.20) | (0.28) |
Net asset value end of period | 22.79 | 23.33 | 20.17 | 20.27 | 20.32 | 17.50 |
Net assets end of period (000s) | $832,039 | $739,122 | $600,800 | $484,078 | $195,247 | $82,231 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 1.42% c | 19.16% | 2.81% | 1.32% | 17.39% | 41.48% |
Ratio of total expenses to average net assets2 | 0.88 d | 0.87 | 0.86 | 0.86 | 0.89 | 0.93 |
Ratio of net expenses to average net assetsa | 0.84 d | 0.84 | 0.84 | 0.86 | 0.89 | 0.93 |
Ratio of net investment income to average net assetsa | 1.97 d | 1.76 | 2.28 | 1.66 | 1.40 | 1.87 |
Portfolio turnover | 11 c | 22 | 18 | 12 | 13 | 18 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 23.47 | $ 20.30 | $ 20.40 | $ 20.47 | $ 17.64 | $ 12.74 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.20 e | 0.34 e | 0.40 e | 0.29 e | 0.25 | 0.23 |
Net realized and unrealized gains/(losses) on investments | 0.14 | 3.45 | 0.07 | (0.07) | 2.75 | 4.92 |
Total from investment operations | 0.34 | 3.79 | 0.47 | 0.22 | 3.00 | 5.15 |
Less Distributions | ||||||
Dividends from net investment income | (0.25) | (0.31) | (0.22) | (0.16) | (0.17) | (0.25) |
Distributions from net realized capital gains1 | (0.59) | (0.31) | (0.35) | (0.13) | — | — |
Total distributions | (0.84) | (0.62) | (0.57) | (0.29) | (0.17) | (0.25) |
Net asset value end of period | 22.97 | 23.47 | 20.30 | 20.40 | 20.47 | 17.64 |
Net assets end of period (000s) | $ 49,501 | $ 48,809 | $ 40,992 | $ 28,929 | $ 14,775 | $ 3,479 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 1.33% c | 18.84% | 2.54% | 1.05% | 17.15% | 41.17% |
Ratio of total expenses to average net assets2 | 1.13 d | 1.12 | 1.11 | 1.11 | 1.14 | 1.19 |
Ratio of net expenses to average net assetsa | 1.09 d | 1.09 | 1.09 | 1.11 | 1.14 | 1.18 |
Ratio of net investment income to average net assetsa | 1.72 d | 1.51 | 2.03 | 1.41 | 1.13 | 1.58 |
Portfolio turnover | 11 c | 22 | 18 | 12 | 13 | 18 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
71
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 23.33 | $ 20.17 | $ 18.36 |
0.24 e | 0.40 e | 0.28 e |
0.14 | 3.43 | 1.53 |
0.38 | 3.83 | 1.81 |
(0.33) | (0.36) | — |
(0.59) | (0.31) | — |
(0.92) | (0.67) | — |
22.79 | 23.33 | 20.17 |
$107,067 | $89,942 | $14,999 |
1.49% c | 19.22% | 9.86% c |
0.80 d | 0.80 | 0.82 d |
0.77 d | 0.77 | 0.79 d |
2.02 d | 1.79 | 2.11 d |
11 c | 22 | 18 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 23.23 | $ 20.09 | $ 20.19 | $ 20.27 | $ 17.49 | $ 12.63 |
0.19 e | 0.31 e | 0.37 e | 0.27 e | 0.17 | 0.13 |
0.13 | 3.41 | 0.08 | (0.08) | 2.78 | 4.96 |
0.32 | 3.72 | 0.45 | 0.19 | 2.95 | 5.09 |
(0.20) | (0.27) | (0.20) | (0.14) | (0.17) | (0.23) |
(0.59) | (0.31) | (0.35) | (0.13) | — | — |
(0.79) | (0.58) | (0.55) | (0.27) | (0.17) | (0.23) |
22.76 | 23.23 | 20.09 | 20.19 | 20.27 | 17.49 |
$98,594 | $110,094 | $152,358 | $165,642 | $91,724 | $19,260 |
1.26% c | 18.71% | 2.45% | 0.93% | 16.97% | 40.99% |
1.25 d | 1.24 | 1.23 | 1.23 | 1.26 | 1.31 |
1.21 d | 1.21 | 1.21 | 1.23 | 1.26 | 1.30 |
1.61 d | 1.40 | 1.92 | 1.29 | 1.01 | 1.21 |
11 c | 22 | 18 | 12 | 13 | 18 |
72
Harbor Domestic Equity Funds Financial Highlights���Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR SMALL CAP VALUE FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 36.14 | $ 27.27 | $ 26.21 | $ 27.17 | $ 28.89 | $ 21.41 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.05 e | 0.08 e | 0.12 e | 0.10 e | 0.06 | 0.13 |
Net realized and unrealized gains/(losses) on investments | 0.11 | 8.90 | 1.92 | (0.09) | 2.68 | 7.84 |
Total from investment operations | 0.16 | 8.98 | 2.04 | 0.01 | 2.74 | 7.97 |
Less Distributions | ||||||
Dividends from net investment income | (0.03) | (0.11) | (0.09) | (0.06) | (0.05) | (0.22) |
Distributions from net realized capital gains1 | (0.69) | — | (0.89) | (0.91) | (4.41) | (0.27) |
Total distributions | (0.72) | (0.11) | (0.98) | (0.97) | (4.46) | (0.49) |
Net asset value end of period | 35.58 | 36.14 | 27.27 | 26.21 | 27.17 | 28.89 |
Net assets end of period (000s) | $1,172,283 | $1,081,412 | $738,705 | $827,423 | $709,251 | $519,607 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 0.39% c | 33.00% | 8.18% | 0.01% | 11.03% | 37.91% |
Ratio of total expenses to average net assets2 | 0.85 d | 0.88 | 0.86 | 0.85 | 0.84 | 0.84 |
Ratio of net expenses to average net assetsa | 0.85 d | 0.87 | 0.86 | 0.85 | 0.84 | 0.84 |
Ratio of net investment income to average net assetsa | 0.26 d | 0.24 | 0.48 | 0.38 | 0.33 | 0.45 |
Portfolio turnover | 16 c | 8 | 10 | 17 | 13 | 22 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 35.97 | $ 27.16 | $ 26.07 | $ 27.05 | $ 28.80 | $ 21.34 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | — *e | (0.02) e | 0.05 e | 0.06 e | (0.12) | 0.01 |
Net realized and unrealized gains/(losses) on investments | 0.12 | 8.88 | 1.93 | (0.13) | 2.78 | 7.87 |
Total from investment operations | 0.12 | 8.86 | 1.98 | (0.07) | 2.66 | 7.88 |
Less Distributions | ||||||
Dividends from net investment income | — | (0.05) | — | — | — | (0.15) |
Distributions from net realized capital gains1 | (0.69) | — | (0.89) | (0.91) | (4.41) | (0.27) |
Total distributions | (0.69) | (0.05) | (0.89) | (0.91) | (4.41) | (0.42) |
Net asset value end of period | 35.40 | 35.97 | 27.16 | 26.07 | 27.05 | 28.80 |
Net assets end of period (000s) | $ 6,198 | $ 4,462 | $ 1,360 | $ 1,144 | $ 5,690 | $ 12,171 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 0.28% c | 32.67% | 7.93% | (0.28)% | 10.74% | 37.54% |
Ratio of total expenses to average net assets2 | 1.10 d | 1.13 | 1.11 | 1.10 | 1.09 | 1.09 |
Ratio of net expenses to average net assetsa | 1.10 d | 1.12 | 1.11 | 1.10 | 1.09 | 1.09 |
Ratio of net investment income to average net assetsa | 0.00 d | (0.05) | 0.21 | 0.21 | 0.10 | 0.20 |
Portfolio turnover | 16 c | 8 | 10 | 17 | 13 | 22 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
73
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 36.16 | $ 27.29 | $23.91 |
0.05 e | 0.06 e | 0.05 e |
0.14 | 8.94 | 3.33 |
0.19 | 9.00 | 3.38 |
(0.06) | (0.13) | — |
(0.69) | — | — |
(0.75) | (0.13) | — |
35.60 | 36.16 | 27.29 |
$145,762 | $57,196 | $2,529 |
0.46% c | 33.06% | 14.14% c |
0.77 d | 0.81 | 0.82 d |
0.77 d | 0.81 | 0.81 d |
0.26 d | 0.17 | 0.27 d |
16 c | 8 | 10 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 35.29 | $ 26.65 | $ 25.63 | $ 26.63 | $ 28.45 | $ 21.08 |
(0.02) e | (0.05) e | 0.03 e | 0.01 e | 0.09 | (0.09) |
0.12 | 8.71 | 1.88 | (0.10) | 2.50 | 7.86 |
0.10 | 8.66 | 1.91 | (0.09) | 2.59 | 7.77 |
— | (0.02) | — | — | — | (0.13) |
(0.69) | — | (0.89) | (0.91) | (4.41) | (0.27) |
(0.69) | (0.02) | (0.89) | (0.91) | (4.41) | (0.40) |
34.70 | 35.29 | 26.65 | 25.63 | 26.63 | 28.45 |
$69,556 | $37,548 | $17,775 | $16,797 | $17,265 | $17,330 |
0.23% c | 32.49% | 7.79% | (0.37)% | 10.61% | 37.41% |
1.22 d | 1.25 | 1.23 | 1.22 | 1.21 | 1.21 |
1.22 d | 1.24 | 1.23 | 1.22 | 1.21 | 1.21 |
(0.12) d | (0.16) | 0.10 | 0.02 | (0.04) | 0.07 |
16 c | 8 | 10 | 17 | 13 | 22 |
74
Harbor Domestic Equity Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR SMALL CAP VALUE OPPORTUNITIES FUND | |||||
Institutional Class | Retirement Class | ||||
6-Month Period Ended April 30, 2018 | Period Ended October 31, 2017j | 6-Month Period Ended April 30, 2018 | Period Ended October 31, 2017j | ||
(Unaudited) | (Unaudited) | ||||
Net asset value beginning of period | $ 10.07 | $ 10.00 | $10.07 | $10.00 | |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.03 e | 0.02 e | 0.01 e | 0.01 e | |
Net realized and unrealized gains/(losses) on investments | 0.13 | 0.05 | 0.15 | 0.06 | |
Total from investment operations | 0.16 | 0.07 | 0.16 | 0.07 | |
Less Distributions | |||||
Dividends from net investment income | (0.03) | — | (0.03) | — | |
Distributions from net realized capital gains1 | (0.03) | — | (0.03) | — | |
Total distributions | (0.06) | — | (0.06) | — | |
Net asset value end of period | 10.17 | 10.07 | 10.17 | 10.07 | |
Net assets end of period (000s) | $25,134 | $24,655 | $6,336 | $ 30 | |
Ratios and Supplemental Data (%) | |||||
Total returnb | 1.59% c | 0.70% c | 1.62% c | 0.70% c | |
Ratio of total expenses to average net assets2 | 1.21 d | 3.41 d | 1.13 d | 3.33 d | |
Ratio of net expenses to average net assetsa | 0.88 d | 0.88 d | 0.80 d | 0.80 d | |
Ratio of net investment income to average net assetsa | 0.62 d | 0.60 d | 0.13 d | 0.48 d | |
Portfolio turnover | 35 c | 9 c | 35 c | 9 c |
* | Less than $0.01. |
1 | Includes both short-term and long-term capital gains |
2 | Percentage does not reflect reduction for credit balance arrangements (see Note 2 of the accompanying Notes to Financial Statements) |
a | Reflects the Adviser’s waiver, if any, of its management fees and/or other operating expenses |
b | The total returns would have been lower had certain expenses not been waived during the periods shown. |
c | Unannualized |
d | Annualized |
e | Amounts are allocated based on shares outstanding during the period. |
f | For the period March 1, 2016 (inception) through October 31, 2016 |
g | For the period February 1, 2014 (inception) through October 31, 2014 |
h | For the period March 6, 2017 (commencement of operations) through June 30, 2017 |
i | For the period July 1, 2017 through October 31, 2017 |
j | For the period August 1, 2017 (inception) through October 31, 2017 |
k | The amount shown for a share outstanding does not correspond with the aggregate net investment income (loss) for the period due to the timing of sales and purchases in relation to fluctuating market values of the investments of the Fund. |
The accompanying notes are an integral part of the Financial Statements.
75
Administrative Class | Investor Class | |||
6-Month Period Ended April 30, 2018 | Period Ended October 31, 2017j | 6-Month Period Ended April 30, 2018 | Period Ended October 31, 2017j | |
(Unaudited) | (Unaudited) | |||
$10.06 | $10.00 | $10.06 | $10.00 | |
0.02 e | 0.01 e | 0.01 e | 0.01 e | |
0.13 | 0.05 | 0.13 | 0.05 | |
0.15 | 0.06 | 0.14 | 0.06 | |
(0.02) | — | (0.01) | — | |
(0.03) | — | (0.03) | — | |
(0.05) | — | (0.04) | — | |
10.16 | 10.06 | 10.16 | 10.06 | |
$ 255 | $ 252 | $ 264 | $ 254 | |
1.49% c | 0.60% c | 1.44% c | 0.60% c | |
1.46 d | 3.66 d | 1.58 d | 3.78 d | |
1.13 d | 1.13 d | 1.25 d | 1.25 d | |
0.37 d | 0.35 d | 0.25 d | 0.23 d | |
35 c | 9 c | 35 c | 9 c |
76
Harbor Domestic Equity Funds
Notes to Financial Statements—April 30, 2018 (Unaudited)
Notes to Financial Statements—April 30, 2018 (Unaudited)
Note 1—Organizational Matters
Harbor Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), as an open-end management investment company. As of April 30, 2018, the Trust consists of 31 separate portfolios. The portfolios covered by this report are: Harbor Capital Appreciation Fund, Harbor Strategic Growth Fund, Harbor Mid Cap Growth Fund, Harbor Small Cap Growth Fund, Harbor Small Cap Growth Opportunities Fund, Harbor Large Cap Value Fund, Harbor Mid Cap Value Fund, Harbor Small Cap Value Fund and Harbor Small Cap Value Opportunities Fund (individually or collectively referred to as a “Fund” or the “Funds," respectively). Harbor Capital Advisors, Inc. (the “Adviser” or “Harbor Capital”) is the investment adviser for the Funds.
The Funds currently offer four classes of shares, designated as Institutional Class, Retirement Class, Administrative Class, and Investor Class. The shares of each class represent an interest in the same portfolio of investments of the Funds and have equal rights with respect to voting, redemptions, dividends, and liquidations, except that: (i) certain expenses, subject to the approval of the Trust’s Board of Trustees (the “Board of Trustees”), may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission (“SEC”) and the Internal Revenue Service; and (ii) shareholders of a class that bears distribution and service expenses under terms of a distribution plan have exclusive voting rights as to that distribution plan.
Effective July 1, 2017, the Harbor Strategic Growth Fund began operating on an October 31 fiscal year end.
Note 2—Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. Each Fund follows the investment company reporting requirements under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), which includes the accounting and reporting guidelines under Accounting Standards Topic 946, Financial Services-Investment Companies. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
Security Valuation
The Trust’s valuation procedures permit the Funds to use a variety of valuation methodologies, consider a number of subjective factors, analyze applicable facts and circumstances and, in general, exercise judgment, when valuing Fund investments. The methodology used for a specific type of investment may vary based on the circumstances and relevant considerations, including available market data.
Equity securities (including common stock, preferred stock, and convertible preferred stock), exchange-traded notes and financial derivative instruments (such as futures contracts, options contracts, including rights and warrants and centrally cleared swap agreements) that are traded or cleared on a national securities exchange or system (except securities listed on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) system and United Kingdom securities) are valued at the last sale price on a national exchange or system on which they are principally traded or cleared as of the valuation date. Securities listed on the NASDAQ system or a United Kingdom exchange are valued at the official closing price of those securities. In the case of securities for which there are no sales on the valuation day, (i) securities traded principally on a U.S. exchange, including NASDAQ, are valued at the mean between the closing bid and ask price; and (ii) securities traded principally on a foreign exchange, including United Kingdom securities, are valued at the official bid price determined as of the close of the primary exchange. Securities of open-end registered investment companies that are held by a Fund are valued at net asset value. To the extent these securities are actively traded and fair valuation adjustments are not applied, they are normally categorized as Level 1 in the fair value hierarchy. Equity securities traded on inactive markets or valued by reference to similar instruments are normally categorized as Level 2 in the fair value hierarchy. For more information on the fair value hierarchy, please refer to the Fair Value Measurements and Disclosures section.
Short-term securities with a remaining maturity of less than 60 days at the time of acquisition that are held by a Fund are valued at amortized cost to the extent amortized cost represents fair value. Securities that use similar valuation techniques and inputs as described above are normally categorized as Level 2 in the fair value hierarchy.
77
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
When reliable market quotations or evaluated prices supplied by a pricing vendor are not readily available or are not believed to accurately reflect fair value, securities are priced at their fair value as determined by the Trust’s Valuation Committee (the “Valuation Committee”) pursuant to procedures adopted, and subject to oversight, by the Board of Trustees. The Valuation Committee is comprised of a trustee and officers of the Trust and employees of Harbor Capital with relevant experience or responsibilities. Each security for which the Valuation Committee determines a fair value, including the basis for the fair value decision, is reviewed by the Board of Trustees at its regularly scheduled board meetings.
When a fair valuation method is applied by the Valuation Committee or a Fund’s subadviser, securities will be priced by a method that the Valuation Committee or subadviser believes accurately reflects fair value. Securities valued using fair valuation methods that incorporate significant unobservable inputs are normally categorized as Level 3 in the fair value hierarchy. Examples of possible fair valuation methodologies used in determining the fair value of securities categorized as Level 3 in the fair value hierarchy include, but are not limited to, benchmark pricing and indicative market quotations.
When benchmark pricing is used, the base price of a debt security is set and then subsequently adjusted in proportion to the market value changes of an index or similar security (the “benchmark security”) that trades in an active market or for which other observable inputs are available. The base price may be a broker-dealer quote, transaction price, or an internal value as derived by analysis of market data. The base price of the security may be reset on a periodic basis based on the availability of market data and procedures approved by a Fund’s subadviser. If the benchmark security is categorized as Level 2 in the fair value hierarchy due to the lack of an active market for that security, any security adjusted in proportion to the fair value of the benchmark security may be categorized as Level 3 in the fair value hierarchy. Significant changes in the unobservable inputs of the benchmark pricing process (i.e., the base price) would result in direct and proportional changes in the fair value of the security. The reasonability of the fair value is reviewed by the subadviser on a periodic basis and may be amended as the availability of market data indicates a material change.
If evaluated pricing through a third-party pricing vendor is not available or deemed not to be indicative of fair value, a Fund’s subadviser may elect to obtain indicative market quotations (“broker quotes”) directly from a broker-dealer or passed through from a third-party pricing vendor. Indicative market quotations are typically received from established market participants. In the event that the source of fair value is from a single-sourced broker quote, but the subadviser does not have the transparency to view the underlying inputs that support the market quotation, these securities are categorized as Level 3 in the fair value hierarchy. Significant changes in the broker quote would have direct and proportional changes in the fair value of the security.
A Fund may also use fair value pricing if the value of some or all of the Fund’s securities have been materially affected by events occurring before the Fund’s pricing time but after the close of the primary markets or exchanges on which the security is traded. This most commonly occurs with foreign securities, but may occur with other securities as well. In such cases, the Fund may apply a fair value factor supplied by the pricing vendor to a foreign security’s market close value to reflect changes in value that may have occurred between the close of the primary market or exchange on which the security is traded and the Fund’s pricing time. That factor may be derived using observable inputs such as a comparison of the trading patterns of a foreign security to intraday trading in the U.S. markets that are highly correlated to the foreign security or other information that becomes available after the close of the foreign market on which the security principally traded. When fair value pricing is employed, the prices of securities used by a Fund to calculate its net asset value may differ from market quotations, official closing prices or evaluated prices for the same securities, which means that the Fund may value those securities higher or lower than another given fund that uses market quotations, official closing prices or evaluated prices supplied by a pricing vendor in its calculation of net asset value. Securities valued using observable inputs, such as those described above, are normally categorized as Level 2 of the fair value hierarchy.
78
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Fair Value Measurements and Disclosures
Various inputs may be used to determine the value of each Fund’s investments, which are summarized in three broad categories defined as Level 1, Level 2, and Level 3. The inputs or methodologies used for valuing securities are not necessarily indicative of the risk associated with investing in those securities. The assignment of an investment to Levels 1, 2, or 3 is based on the lowest level of significant inputs used to determine its fair value.
Level 1– | Quoted prices in active markets for identical securities. |
Level 2– | Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
Level 3– | Significant unobservable inputs are used in situations where quoted prices or other observable inputs are not available or are deemed unreliable. Significant unobservable inputs may include each Fund’s own assumptions. |
Transfers between levels, if any, are recognized as of the last day in the fiscal quarter of the period in which the event or change in circumstances that caused the reclassification occurred. For fair valuations using significant unobservable inputs, if any, a reconciliation of the beginning to ending balances for reported fair values is provided that presents changes attributable to realized and unrealized gains and losses and purchases, sales, and transfers in/out of the Level 3 category during the period. A table that includes a categorization of investments into Levels 1, 2, or 3, transfers between levels, if any, and a Level 3 reconciliation, including details of significant unobservable inputs used, when applicable, can be found at the end of each Fund’s Portfolio of Investments schedule.
Each Fund used observable inputs in its valuation methodologies whenever they were available and deemed reliable.
U.S. Government Securities
U.S. government securities include securities issued by U.S. government agencies or government-sponsored enterprises that may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association (“GNMA”), a wholly owned U.S. government corporation, is authorized to guarantee, with the full faith and credit of the U.S. government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors are not backed by the full faith and credit of the U.S. government and include the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Repurchase Agreements
In a repurchase agreement, a Fund buys a security at one price and simultaneously agrees to sell it back at a higher price. Such agreements must be adequately collateralized to cover the counterparty’s obligation to the Fund to close out the repurchase agreement. Each repurchase agreement counterparty must meet the minimum credit quality requirements applicable to the respective Fund and any other appropriate counterparty criteria as determined by the Fund’s subadviser. The minimum credit quality requirements are those applicable to a Fund’s purchase of securities such that if a Fund is permitted to only purchase securities that are rated investment-grade (or the equivalent if unrated), a Fund could only enter into repurchase agreements with counterparties that have debt outstanding that is rated investment-grade (or the equivalent if unrated). The securities are regularly monitored to ensure that the collateral is adequate. A Fund seeks to further mitigate its counterparty risk by entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty’s default, including bankruptcy, the Fund may terminate any repurchase agreements with that counterparty, determine the net amount owned, and sell or retain the collateral up to the net amount owed to the Fund. A counterparty’s default may cause the Fund to suffer losses, including loss of interest on or principal of the securities and costs associated with delay and enforcement of the terms of the master repurchase agreement.
During the period, each Fund entered into repurchase agreements with domestic or foreign banks or with a member firm of the Financial Industry Regulatory Authority, Inc., or an affiliate of a member firm that is a primary dealer in U.S. government securities.
79
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Options
An option, including rights and warrants, is a contract that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Purchased call options tend to increase a Fund’s exposure to the underlying instrument. Purchased put options tend to decrease a Fund’s exposure to the underlying instrument.
When a Fund purchases an option, it pays a premium. If a purchased option expires, a Fund realizes a loss in the amount of the premium. If a Fund enters into a closing sale transaction, it realizes a gain or loss, depending on whether the proceeds from the sale are greater or less than the cost of the option. If a call option is exercised by a Fund, the cost of the securities acquired by exercising the call is increased by the premium paid to buy the call. If a put option is exercised by a Fund, it realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are decreased by the premium originally paid. The risk associated with purchasing options is limited to the premium paid. A Fund’s maximum risk of loss from counterparty credit risk is also limited to the premium paid for the contract.
During the period, Harbor Mid Cap Growth Fund purchased option contracts to manage its exposure to equity prices.
Foreign Currency Spot Contracts
A foreign currency spot contract is an agreement between two parties to buy and sell currencies at the current market rate for settlement within two business days.
The foreign currency spot contract is marked-to-market daily for settlements beyond one day, and any change in fair value is recorded as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value on the open and close date. Risk of losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contract’s terms. The maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened.
During the period, Harbor Capital Appreciation Fund and Harbor Mid Cap Growth Fund used foreign currency spot contracts to facilitate transactions in foreign securities or to convert foreign currency receipts into U.S. dollars.
Foreign Currency Translations
Purchases and sales of securities are translated into U.S. dollars at the current exchange rate on the respective dates of the transactions. Income and withholding taxes are translated at the prevailing exchange rate when accrued or incurred. The accounting records of the Funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency, when applicable, are translated into U.S. dollars based on the current exchange rates at period end.
Reported net realized gains and losses on foreign currency transactions, when applicable, represent net gains and losses from sales and maturities of foreign currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income accrued and tax reclaims receivable and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities, when applicable, are included in the net realized and unrealized gain or loss on investments in the Statement of Operations.
Investment Income
Dividends declared on portfolio securities are accrued on the ex-dividend date. For foreign securities, certain dividends are recorded after the ex-dividend date, but as soon as the respective Fund is notified of such dividends. Interest income is accrued daily as earned. Discounts and premiums on fixed income securities are amortized over the life of the respective securities using the effective yield method. Distributions from real estate investment trust securities are recorded as dividend income, and maybe reclassified as capital gains and/or return of capital, based on the information reported by the issuer, when available.
80
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Securities Transactions
Securities transactions are accounted for on the trade date (the date the order to buy or sell is executed). Realized gains or losses on security transactions are determined on the basis of identified cost.
Proceeds from Litigation
Each Fund may receive proceeds from shareholder litigation settlements involving current and/or previously held portfolio holdings. Any proceeds received from litigation involving portfolio holdings are reflected in the Statements of Operations in realized gain/(loss) if the security has been disposed of by a Fund, or in unrealized gain/(loss) if the security is still held by a Fund.
Distribution to Shareholders
Distributions on Fund shares are recorded on the ex-dividend date.
Expenses
Expenses incurred by the Trust are charged directly to the Fund that incurred such expense whenever possible. With respect to expenses incurred by any two or more Harbor Funds where amounts cannot be identified on a fund by fund basis, such expenses are generally allocated in proportion to the average net assets or the number of shareholders of each Fund.
Custodian
Each Fund has credit balance arrangements with its custodian whereby positive balances in demand deposit accounts used by the transfer and shareholder servicing agent for clearing shareholder transactions in the Fund generate credits that are applied against gross custody expenses. Such custodial expense reductions, if any, are reflected on the respective Fund’s accompanying Statement of Operations.
Class Allocations
Income, common expenses and realized and unrealized gains/(losses) are determined at the Fund level and allocated daily to each class of shares based on the applicable net assets of the respective classes. Distribution and service fees, if any, and transfer agent fees are calculated daily at the class level based on the applicable net assets of each class and the expense rate(s) applicable to each class.
Taxes
Each Fund is treated as a separate entity for federal tax purposes. Each Fund’s policy is to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute to its shareholders all of its taxable income within the prescribed time. It is also the intention of each Fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held or excise taxes on income and capital gains.
Each Fund may be subject to taxes imposed by countries in which they invest. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and unrealized appreciation as such income and/or gains are earned.
Management has analyzed each Fund’s tax positions for all open tax years (in particular, U.S. federal income tax returns for the tax years ended October 31, 2014–2016), including all positions expected to be taken upon filing the 2017 tax return, in all material jurisdictions where each Fund operates, and has concluded that no provision for income tax is required in the Funds’ financial statements. Each Fund will recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations.
81
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—Investment Portfolio Transactions
Investment Portfolio Transactions
Purchases and sales of investments, other than short-term securities, for each Fund for the six-month period ended April 30, 2018 are as follows:
Purchases (000s) | Sales (000s) | ||
GROWTH FUNDS | |||
Harbor Capital Appreciation Fund* | $5,610,554 | $6,840,107 | |
Harbor Strategic Growth Fund | 11,934 | 4,716 | |
Harbor Mid Cap Growth Fund | 177,233 | 247,256 | |
Harbor Small Cap Growth Fund | 284,119 | 363,715 | |
Harbor Small Cap Growth Opportunities Fund | 89,291 | 112,723 | |
VALUE FUNDS | |||
Harbor Large Cap Value Fund | $ 171,807 | $ 63,938 | |
Harbor Mid Cap Value Fund | 219,674 | 118,913 | |
Harbor Small Cap Value Fund | 415,338 | 211,268 | |
Harbor Small Cap Value Opportunities Fund | 15,167 | 9,381 |
* | Sales for this Fund include $117,582 in connection with an in-kind redemption of the Fund’s capital shares. |
In-Kind Redemption Transaction
In accordance with the Trust’s prospectus, the Funds may distribute portfolio securities rather than cash as payment for a redemption of Fund shares. For financial reporting purposes, the Fund recognizes a gain or loss on the securities distributed related to the in-kind redemption. Such gains and losses on in-kind redemptions are not taxable to shareholders. For the six-month period ended April 30, 2018, and the year ended October 31, 2017, Harbor Capital Appreciation Fund realized gains of $69,308,000 and $58,783,000, respectively, upon the disposition of portfolio securities in connection with an in-kind redemption of Fund shares.
Securities Lending
Each Fund may engage in securities lending, whereby a Fund lends its securities to financial institutions in order to increase its income. The Trust has engaged State Street Bank and Trust Company to act as its agent (the “Lending Agent”) with respect to the lending of portfolio securities of the Funds, pursuant to the terms and conditions of a Securities Lending Authorization Agreement (the “SLA Agreement”). Securities loans are required to be secured at all times during the term of the loan by cash collateral that is at least equal to the value of the loaned securities determined at the close of each business day. Any additional collateral that may be required to secure a loan is delivered to the Fund on the next business day. This collateral is recognized as the gross liability for securities loaned in the Statement of Assets and Liabilities. The cash collateral is invested in the State Street Navigator Securities Lending Government Money Market Portfolio (the “Navigator Portfolio”), a money market mutual fund that seeks to provide income while maintaining a stable net asset value of $1.00. There is no assurance that the Navigator Portfolio will maintain a stable net asset value and the Funds are subject to the risk of loss on the cash collateral invested. A portion of the earnings generated by the investment of the cash collateral is rebated to the borrower for the use of the cash collateral and these earnings (less any rebate) are then divided between the Fund and the Lending Agent, as a fee for its services, according to agreed-upon rates. The Lending Agent and a Fund will share in any shortfall in the rebate due to the borrower, according to agreed-upon rates. In addition to receiving a fee from the borrower based on the demand for securities loaned and earning income on the investment of the cash collateral, a Fund receives substitute interest, dividends, or other amounts on the loaned securities, during the term of a loan. Net securities lending income is disclosed as such in the Statement of Operations.
Loans may be terminated at the option of the borrower or the Funds. Upon termination of the loan, the borrower will return to the Fund securities that are identical to the loaned securities. The Funds bear the risk of delay in recovery of, or loss of rights in, the securities loaned and the risk that the value of the collateral falls below the value of the securities on loan. Each Fund seeks to mitigate this risk through the SLA Agreement, which provides that in the event of default, the Lending Agent may apply the proceeds of the cash collateral from the loaned securities toward the purchase of replacement securities. If such proceeds are insufficient or the collateral is unavailable, the Lending Agent will purchase replacement securities at its
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Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—Investment Portfolio Transactions—Continued
sole expense, or if unable to do so, the Lending Agent may credit to the Fund’s account an amount equal to the fair value of the unreturned loaned securities. As the securities loans are subject to termination by the Fund or the borrower at any time, the remaining contractual maturities of each securities lending transaction is considered to be overnight and continuous.
During the period, Harbor Capital Appreciation Fund engaged in securities lending. As of April 30, 2018, Harbor Capital Appreciation Fund had no securities out on loan.
Note 4—FEES AND OTHER Transactions with Affiliates
Investment Adviser
Harbor Capital is a wholly-owned subsidiary of ORIX Corporation (“ORIX”). Harbor Capital is the Funds’ investment adviser and is also responsible for administrative and other services.
Each Fund has a separate advisory agreement with Harbor Capital. The agreements provide for management fees based on an annual percentage rate of average daily net assets as follows:
Contractual Rate | Actual Rate | ||
Growth Funds | |||
Harbor Capital Appreciation Fund | 0.60% a | 0.55% | |
Harbor Strategic Growth Fund | 0.60 | 0.60 | |
Harbor Mid Cap Growth Fund | 0.75 | 0.75 | |
Harbor Small Cap Growth Fund | 0.75 | 0.75 | |
Harbor Small Cap Growth Opportunities Fund | 0.75 | 0.75 | |
Value Funds | |||
Harbor Large Cap Value Fund | 0.60% | 0.60% | |
Harbor Mid Cap Value Fund | 0.75 b | 0.72 | |
Harbor Small Cap Value Fund | 0.75 | 0.75 | |
Harbor Small Cap Value Opportunities Fund | 0.75 | 0.75 |
a | The Adviser has contractually agreed to reduce the management fee to 0.56% on assets between $5 billion and $10 billion, 0.54% on assets between $10 billion and $20 billion and 0.53% on assets over $20 billion through February 28, 2019. |
b | Effective March 1, 2018, the Adviser has contractually agreed to reduce the management fee to 0.70% on assets over $350 million and to 0.65% on assets over $1 billion through February 28, 2019. Prior to March 1, 2018, the Adviser contractually agreed to reduce the management fee to 0.70% on assets over $500 million through February 28, 2018. |
Harbor Capital has from time to time voluntarily or contractually agreed not to impose a portion of its management fees and/or to bear a portion of the expenses incurred in the operation of certain Funds in order to limit Fund expenses. Such waivers, if any, are reflected on the accompanying Statements of Operations. During the period, the following expense limitation agreements were in effect:
Harbor Strategic Growth Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.70%, 0.62%, 0.95% and 1.07% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual expense limitations are effective through February 28, 2019.
Harbor Large Cap Value Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.68%, 0.60%, 0.93%, and 1.05% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual expense limitations are effective through February 28, 2019.
Harbor Small Cap Value Opportunities Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.88%, 0.80%, 1.13%, and 1.25% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual expense limitations are effective through February 28, 2019.
All expense limitation agreements include the transfer agent fee waiver discussed in the Transfer Agent note.
83
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
Distributor
Harbor Funds Distributors, Inc. (“Harbor Funds Distributors” or the “Distributor”), a wholly-owned subsidiary of Harbor Capital, is the distributor for Harbor Funds’ shares. Under the Trust’s current distribution plan pursuant to Rule 12b-1 under the Investment Company Act with respect to each Fund’s Administrative and Investor Class shares (the “12b-1 Plan”) as applicable, each Fund pays the Distributor compensation at the annual rate of 0.25% of the average daily net assets of its Administrative and Investor Class shares. Pursuant to the 12b-1 Plan, the Distributor is compensated for financing any activity that is primarily intended to result in the sale of Administrative and Investor Class shares of each Fund or for recordkeeping services or the servicing of shareholder accounts in the Administrative and Investor Class shares of each Fund. Such activities include, but are not limited to: printing of prospectuses and statements of additional information and reports for prospective shareholders (i.e., other than existing shareholders); preparation and distribution of advertising material and sales literature; expenses of organizing and conducting sales seminars; supplemental payments to dealers or other institutions such as asset-based sales charges, payments of recordkeeping fees under recordkeeping arrangements, or payments of service fees under shareholder service arrangements; and costs of administering the 12b-1 Plan.
Amounts payable by a Fund under the 12b-1 Plan need not be directly related to the expenses actually incurred by the Distributor on behalf of each Fund. The 12b-1 Plan does not obligate each Fund to reimburse the Distributor for the actual expenses the Distributor may incur in fulfilling its obligations under the 12b-1 Plan. Thus, even if the Distributor’s actual expenses exceed the fee payable to the Distributor at any given time, each Fund will not be obligated to pay more than that fee. If the Distributor’s expenses are less than the fee it receives, the Distributor will retain the difference.
The fees attributable to each Fund’s respective class are shown on the accompanying Statements of Operations.
Transfer Agent
Harbor Services Group, Inc. (“Harbor Services Group”), a wholly-owned subsidiary of Harbor Capital, is the transfer and shareholder servicing agent for the Funds. The transfer agency and service agreement is reviewed and approved annually by the Board of Trustees and provides currently for compensation up to the following amounts per class of each Fund:
Transfer Agent Fees | |
Institutional Class | 0.09% of the average daily net assets of all Institutional Class shares |
Retirement Class | 0.01% of the average daily net assets of all Retirement Class shares |
Administrative Class | 0.09% of the average daily net assets of all Administrative Class shares |
Investor Class | 0.21% of the average daily net assets of all Investor Class shares |
Harbor Services Group has voluntarily waived a portion of its transfer agent fees during the six-month period ended April 30, 2018. Fees incurred for these transfer agent services are shown on each Fund’s Statement of Operations. The voluntary waiver may be discontinued at any time.
Affiliated Transactions
The Investment Company Act permits purchase and sale transactions among affiliated investment companies subject to an exemptive rule. Harbor Funds has adopted policies and procedures pursuant to such rule. During the six-month period, the Funds did not enter into any transactions with any other Harbor fund.
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Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
Shareholders
On April 30, 2018, Harbor Capital, and its wholly owned subsidiaries, collectively held the following shares of beneficial interest in each Fund:
Number of Shares Owned by Harbor Capital and Subsidiaries | Percentage of Outstanding Shares | ||||||||||
Institutional Class | Administrative Class | Investor Class | Retirement Class | Total | |||||||
GROWTH FUNDS | |||||||||||
Harbor Capital Appreciation Fund | — | — | — | 38,256 | 38,256 | 0.0% | |||||
Harbor Strategic Growth Fund | 1,122,097 | 614 | 614 | 17,156 | 1,140,481 | 30.9 | |||||
Harbor Mid Cap Growth Fund | — | — | — | 135,632 | 135,632 | 0.4 | |||||
Harbor Small Cap Growth Fund | — | — | — | 75,547 | 75,547 | 0.2 | |||||
Harbor Small Cap Growth Opportunities Fund | — | — | — | 24,354 | 24,354 | 0.1 | |||||
VALUE FUNDS | |||||||||||
Harbor Large Cap Value Fund | — | — | — | 88,811 | 88,811 | 0.1 | |||||
Harbor Mid Cap Value Fund | — | — | — | 56,191 | 56,191 | 0.1 | |||||
Harbor Small Cap Value Fund | — | — | — | 32,033 | 32,033 | 0.1 | |||||
Harbor Small Cap Value Opportunities Fund | 2,463,472 | 25,122 | 25,110 | 5,932 | 2,519,636 | 80.1 |
Independent Trustees
The fees and expenses of the Independent Trustees are shown on each Fund’s Statement of Operations. The Independent Trustees’ remuneration for the Funds totaled $482,000 for the six-month period ended April 30, 2018.
The Board of Trustees has adopted a Deferred Compensation Plan for Independent Trustees (the “Plan”), which enables Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Trust. For purposes of determining the amount owed to a Trustee under the Plan, deferred amounts are treated as though they had been invested in shares of the Fund(s) selected by the Trustee. While not required to do so, each Fund makes an investment equal to the Trustee’s investment election. The deferred compensation liability and the offsetting deferred compensation investment asset are included as a component of “Other accrued expenses” and “Other assets”, respectively, in the Statements of Assets and Liabilities. Such amounts fluctuate with changes in the market value of the selected securities. The deferred compensation and related mark-to-market impact liability and an offsetting investment asset will remain on each Fund’s Statement of Assets and Liabilities until distributed in accordance with the Plan.
Indemnification
Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business the Trust enters into contracts that provide general indemnities to other parties. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
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Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
NOTE 5—TAX INFORMATION
The identified cost for federal income tax purposes of investments owned by each Fund and its respective gross unrealized appreciation and depreciation at April 30, 2018 are as follows:
Identified Cost (000s) | Gross Unrealized | Net Unrealized Appreciation/ (Depreciation) (000s) | |||||
Appreciation (000s) | (Depreciation) (000s) | ||||||
GROWTH FUNDS | |||||||
Harbor Capital Appreciation Fund | $17,142,443 | $13,128,134 | $(161,687) | $12,966,447 | |||
Harbor Strategic Growth Fund | 59,878 | 12,010 | (550) | 11,460 | |||
Harbor Mid Cap Growth Fund | 285,891 | 63,335 | (9,126) | 54,209 | |||
Harbor Small Cap Growth Fund | 549,766 | 161,534 | (25,188) | 136,346 | |||
Harbor Small Cap Growth Opportunities Fund | 279,127 | 52,050 | (23,169) | 28,881 | |||
VALUE FUNDS | |||||||
Harbor Large Cap Value Fund | $ 750,293 | $ 168,926 | $ (13,498) | $ 155,428 | |||
Harbor Mid Cap Value Fund | 974,845 | 188,279 | (76,575) | 111,704 | |||
Harbor Small Cap Value Fund | 996,446 | 409,516 | (14,457) | 395,059 | |||
Harbor Small Cap Value Opportunities Fund | 31,563 | 1,918 | (1,436) | 482 |
Note 6—Derivatives
Each Fund’s derivative holdings do not qualify for hedge accounting treatment and as such are recorded at current fair value. For a discussion of risks related to these investments please refer to the descriptions of each type of derivative instrument in Note 2— Significant Accounting Policies.
Each Fund’s derivative instruments outstanding as of the six-month period ended April 30, 2018, if any, as disclosed in the Portfolios of Investments, and the related amounts of realized and changes in unrealized gains and losses on derivative instruments during the period as disclosed in the Statements of Operations, are indicators of the volume of derivative activity for each Fund.
Derivative Instruments
At April 30, 2018, the fair values of derivatives, by primary risk exposure, were reflected in the Statement of Assets and liabilities as follows:
HARBOR MID CAP GROWTH FUND
Statement of Assets and Liabilities Caption | Equity Contracts (000s) | |
Purchased options (rights/warrants) | $473 |
The change in unrealized appreciation/(depreciation) and realized net gain/(loss) on derivatives, by primary risk exposure, for the six-month period ended April 30, 2018, were:
HARBOR MID CAP GROWTH FUND
Change in Unrealized Appreciation/(Depreciation) on Derivatives | Equity Contracts (000s) | |
Purchased Options (rights/warrants) | $192 |
Net Realized Gain/(Loss) on Derivatives | Equity Contracts (000s) | |
Purchased Options (rights/warrants) | $16 |
86
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 7—Legal Proceedings
Tribune Company
Harbor Mid Cap Value Fund has been named as a defendant and/or as a putative member of a proposed defendant class in Kirschner v. FitzSimons (In re Tribune Co.), No. 12-2652 (S.D.N.Y.) (the “FitzSimons action”); Deutsche Bank v. Ohlson Enterprises, No. 12-0064 (S.D.N.Y.) (the “Deutsche Bank action”); and Niese v. ABN AMRO Clearing Chicago LLC, No. 12-0555 (S.D.N.Y.) (the “Niese action”), as a result of its ownership of shares in the Tribune Company (“Tribune”) in 2007, when Tribune effected a leveraged buyout transaction (“LBO”) by which Tribune converted to a privately-held company. The plaintiffs in these lawsuits have asserted claims for fraudulent conveyance against Harbor Mid Cap Value Fund and other former Tribune shareholders.
All three lawsuits have been consolidated with the majority of the other Tribune-related lawsuits in the multidistrict litigation proceeding In re Tribune Co. Fraudulent Conveyance Litig., No. 11-2296 (S.D.N.Y.) (the “MDL Proceeding”).
On September 23, 2013, the District Court granted the defendants’ omnibus motion to dismiss the Deutsche Bank and Niese actions, on the basis that the plaintiffs lacked standing. The plaintiffs appealed. On March 29, 2016, the U.S. Court of Appeals for the Second Circuit issued its opinion on the appeal, affirming the district court’s dismissal of those lawsuits. The appeals court held that while the plaintiffs have standing under the U.S. Bankruptcy Code, their claims were preempted by Section 546(e) of the Bankruptcy Code—the statutory safe harbor for settlement payments. Plaintiffs sought rehearing en banc, which the Second Circuit denied. On September 9, 2016, the plaintiffs filed a petition for writ of certiorari in the U.S. Supreme Court challenging the Second Circuit’s decision, which the shareholder defendants opposed. On April 3, 2018, Justice Kennedy and Justice Thomas issued a “Statement” related to the petition for certiorari suggesting that the Second Circuit and/or District Court may want to take steps to reexamine the application of the Section 546(e) safe harbor to the previously dismissed state law constructive fraudulent transfer claims based on the Supreme Court’s decision in Merit Management Group LP v. FTI Consulting, Inc. On April 10, 2018, plaintiffs filed in the Second Circuit a motion for that court to recall its mandate, vacate its prior decision, and remand to the district court for further proceedings consistent with Merit Management. On April 20, 2018, the shareholder defendants filed a response to plaintiffs’ motion to recall the mandate. On May 15, 2018, the Second Circuit issued an order recalling the mandate “in anticipation of further panel review.”
On May 23, 2014, the defendants filed motions to dismiss the FitzSimons action, including a global motion to dismiss Count I, which is the claim brought against former Tribune shareholders for intentional fraudulent conveyance under U.S. federal law. On January 6, 2017, the United States District Court for the Southern District of New York granted the shareholder defendants’ motion to dismiss and denied plaintiff’s request to amend the complaint. The Court’s order is not immediately appealable, but the Court issued an order stating that it intends to permit an interlocutory appeal of the dismissal order, but will wait to do so until it has resolved outstanding motions to dismiss filed by other defendants. Accordingly, the timing of the appeal is uncertain. On July 18, 2017, the plaintiff submitted a letter to the District Court seeking leave to amend its complaint to add a constructive fraudulent transfer claim. The Court denied the plaintiff’s request without prejudice to renewal of the request in the event of an intervening change in the law. On March 8, 2018, plaintiff renewed his request for leave to file a motion to amend the complaint to assert a constructive fraudulent transfer claim based on the Supreme Court’s ruling in Merit Management. The shareholder defendants opposed that request. The District Court has not yet ruled on that request.
None of these lawsuits alleges any wrongdoing on the part of Harbor Mid Cap Value Fund. Harbor Mid Cap Value Fund held shares of Tribune and tendered these shares as part of Tribune’s LBO. The value of the proceeds received by Harbor Mid Cap Value Fund was approximately $299,000. Harbor Mid Cap Value Fund’s cost basis in the shares of Tribune was approximately $262,000. At this stage of the proceedings, Harbor Mid Cap Value Fund is not able to make a reliable prediction as to the outcome of these lawsuits or the effect, if any, on the Fund’s net asset value.
Note 8—Subsequent Events
Through the date the financial statements were issued, there were no subsequent events or transactions that would have materially impacted the financial statements or related disclosures as presented herein.
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Harbor Domestic Equity Funds
Fees and Expenses Example (Unaudited)
Fees and Expenses Example (Unaudited)
Example
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including redemption fees (if any) and (2) ongoing costs, including management fees, distribution and service (12b-1) fees (if any), and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period November 1, 2017 through April 30, 2018.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses for each share class. You may use the information in the respective class 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 of the respective class 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 of the table for each share class below provides information about hypothetical account values and hypothetical expenses based on the respective Fund/Class’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the respective Fund/Class’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 a Fund to 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 redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor Capital Appreciation Fund | ||||||||
Institutional Class | 0.64% | |||||||
Actual | $3.31 | $1,000 | $1,085.50 | |||||
Hypothetical (5% return) | 3.21 | 1,000 | 1,021.54 | |||||
Retirement Class | 0.57% | |||||||
Actual | $2.95 | $1,000 | $1,085.80 | |||||
Hypothetical (5% return) | 2.86 | 1,000 | 1,021.90 | |||||
Administrative Class | 0.89% | |||||||
Actual | $4.60 | $1,000 | $1,084.20 | |||||
Hypothetical (5% return) | 4.46 | 1,000 | 1,020.27 | |||||
Investor Class | 1.01% | |||||||
Actual | $5.22 | $1,000 | $1,083.40 | |||||
Hypothetical (5% return) | 5.06 | 1,000 | 1,019.66 |
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Harbor Domestic Equity Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor Strategic Growth Fund | ||||||||
Institutional Class | 0.70% | |||||||
Actual | $3.55 | $1,000 | $1,045.20 | |||||
Hypothetical (5% return) | 3.51 | 1,000 | 1,021.24 | |||||
Retirement Class | 0.62% | |||||||
Actual | $3.14 | $1,000 | $1,045.60 | |||||
Hypothetical (5% return) | 3.11 | 1,000 | 1,021.64 | |||||
Administrative Class | 0.95% | |||||||
Actual | $4.81 | $1,000 | $1,043.90 | |||||
Hypothetical (5% return) | 4.76 | 1,000 | 1,019.97 | |||||
Investor Class | 1.07% | |||||||
Actual | $5.42 | $1,000 | $1,042.90 | |||||
Hypothetical (5% return) | 5.36 | 1,000 | 1,019.36 | |||||
Harbor Mid Cap Growth Fund | ||||||||
Institutional Class | 0.88% | |||||||
Actual | $4.50 | $1,000 | $1,065.50 | |||||
Hypothetical (5% return) | 4.41 | 1,000 | 1,020.32 | |||||
Retirement Class | 0.80% | |||||||
Actual | $4.10 | $1,000 | $1,066.30 | |||||
Hypothetical (5% return) | 4.01 | 1,000 | 1,020.73 | |||||
Administrative Class | 1.13% | |||||||
Actual | $5.78 | $1,000 | $1,064.30 | |||||
Hypothetical (5% return) | 5.66 | 1,000 | 1,019.05 | |||||
Investor Class | 1.25% | |||||||
Actual | $6.40 | $1,000 | $1,063.90 | |||||
Hypothetical (5% return) | 6.26 | 1,000 | 1,018.44 | |||||
Harbor Small Cap Growth Fund | ||||||||
Institutional Class | 0.86% | |||||||
Actual | $4.46 | $1,000 | $1,092.80 | |||||
Hypothetical (5% return) | 4.31 | 1,000 | 1,020.42 | |||||
Retirement Class | 0.78% | |||||||
Actual | $4.05 | $1,000 | $1,093.40 | |||||
Hypothetical (5% return) | 3.91 | 1,000 | 1,020.83 | |||||
Administrative Class | 1.11% | |||||||
Actual | $5.75 | $1,000 | $1,091.40 | |||||
Hypothetical (5% return) | 5.56 | 1,000 | 1,019.15 | |||||
Investor Class | 1.23% | |||||||
Actual | $6.38 | $1,000 | $1,090.80 | |||||
Hypothetical (5% return) | 6.16 | 1,000 | 1,018.54 |
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Harbor Domestic Equity Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor Small Cap Growth Opportunities Fund | ||||||||
Institutional Class | 0.88% | |||||||
Actual | $4.53 | $1,000 | $1,078.50 | |||||
Hypothetical (5% return) | 4.41 | 1,000 | 1,020.32 | |||||
Retirement Class | 0.80% | |||||||
Actual | $4.13 | $1,000 | $1,078.40 | |||||
Hypothetical (5% return) | 4.01 | 1,000 | 1,020.73 | |||||
Administrative Class | 1.13% | |||||||
Actual | $5.82 | $1,000 | $1,077.20 | |||||
Hypothetical (5% return) | 5.66 | 1,000 | 1,019.05 | |||||
Investor Class | 1.25% | |||||||
Actual | $6.44 | $1,000 | $1,077.20 | |||||
Hypothetical (5% return) | 6.26 | 1,000 | 1,018.44 | |||||
Harbor Large Cap Value Fund | ||||||||
Institutional Class | 0.68% | |||||||
Actual | $3.42 | $1,000 | $1,028.50 | |||||
Hypothetical (5% return) | 3.41 | 1,000 | 1,021.34 | |||||
Retirement Class | 0.60% | |||||||
Actual | $3.02 | $1,000 | $1,028.90 | |||||
Hypothetical (5% return) | 3.01 | 1,000 | 1,021.75 | |||||
Administrative Class | 0.93% | |||||||
Actual | $4.67 | $1,000 | $1,026.30 | |||||
Hypothetical (5% return) | 4.66 | 1,000 | 1,020.07 | |||||
Investor Class | 1.05% | |||||||
Actual | $5.28 | $1,000 | $1,026.40 | |||||
Hypothetical (5% return) | 5.26 | 1,000 | 1,019.46 | |||||
Harbor Mid Cap Value Fund | ||||||||
Institutional Class | 0.84% | |||||||
Actual | $4.20 | $1,000 | $1,014.20 | |||||
Hypothetical (5% return) | 4.21 | 1,000 | 1,020.53 | |||||
Retirement Class | 0.77% | |||||||
Actual | $3.85 | $1,000 | $1,014.90 | |||||
Hypothetical (5% return) | 3.86 | 1,000 | 1,020.88 | |||||
Administrative Class | 1.09% | |||||||
Actual | $5.45 | $1,000 | $1,013.30 | |||||
Hypothetical (5% return) | 5.46 | 1,000 | 1,019.26 | |||||
Investor Class | 1.21% | |||||||
Actual | $6.04 | $1,000 | $1,012.60 | |||||
Hypothetical (5% return) | 6.06 | 1,000 | 1,018.65 |
90
Harbor Domestic Equity Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor Small Cap Value Fund | ||||||||
Institutional Class | 0.85% | |||||||
Actual | $4.23 | $1,000 | $1,003.90 | |||||
Hypothetical (5% return) | 4.26 | 1,000 | 1,020.47 | |||||
Retirement Class | 0.77% | |||||||
Actual | $3.83 | $1,000 | $1,004.60 | |||||
Hypothetical (5% return) | 3.86 | 1,000 | 1,020.88 | |||||
Administrative Class | 1.10% | |||||||
Actual | $5.46 | $1,000 | $1,002.80 | |||||
Hypothetical (5% return) | 5.51 | 1,000 | 1,019.20 | |||||
Investor Class | 1.22% | |||||||
Actual | $6.06 | $1,000 | $1,002.30 | |||||
Hypothetical (5% return) | 6.11 | 1,000 | 1,018.59 | |||||
Harbor Small Cap Value Opportunities Fund | ||||||||
Institutional Class | 0.88% | |||||||
Actual | $4.39 | $1,000 | $1,015.90 | |||||
Hypothetical (5% return) | 4.41 | 1,000 | 1,020.32 | |||||
Retirement Class | 0.80% | |||||||
Actual | $4.00 | $1,000 | $1,016.20 | |||||
Hypothetical (5% return) | 4.01 | 1,000 | 1,020.73 | |||||
Administrative Class | 1.13% | |||||||
Actual | $5.64 | $1,000 | $1,014.90 | |||||
Hypothetical (5% return) | 5.66 | 1,000 | 1,019.05 | |||||
Investor Class | 1.25% | |||||||
Actual | $6.24 | $1,000 | $1,014.40 | |||||
Hypothetical (5% return) | 6.26 | 1,000 | 1,018.44 |
* | Reflective of all fee waivers and expense reimbursements |
** | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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Harbor Domestic Equity Funds
Additional Information (Unaudited)
Additional Information (Unaudited)
Proxy Voting
Harbor Funds has adopted Proxy Voting Policies and Procedures under which proxies relating to securities held by the Harbor funds are voted. In addition, Harbor Funds files Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. A description of Harbor Funds’ Proxy Voting Policies and Procedures and the proxy voting records (Form N-PX) are available (i) upon request, by calling Harbor Funds toll-free at 800-422-1050; (ii) on Harbor Funds’ website at harborfunds.com; and (iii) on the SEC’s website at sec.gov.
Householding
Harbor Funds has adopted a policy that allows it to send only one copy of a Fund’s prospectus, proxy materials, annual report and semi-annual report to certain shareholders residing at the same household. This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call the Shareholder Servicing Agent at 800-422-1050. Individual copies will be sent within thirty (30) days after the Shareholder Servicing Agent receives your instructions. Your consent to householding is considered valid until revoked.
Quarterly Portfolio Disclosures
Harbor Funds files a complete portfolio of investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is available (i) without charge, upon request, by calling Harbor Funds toll-free at 800-422-1050, (ii) on Harbor Funds’ website at harborfunds.com, and (iii) on the SEC’s website at sec.gov. The form may also be viewed and copied at the SEC’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may also be obtained by calling 800-SEC-0330.
ADVISORY AGREEMENT APPROVALS
FACTORS CONSIDERED BY THE TRUSTEES IN APPROVING THE INVESTMENT ADVISORY AGREEMENTS AND SUBADVISORY AGREEMENTS OF THE DOMESTIC EQUITY FUNDS
The Investment Company Act requires that the Investment Advisory and Subadvisory Agreement of each Fund be approved initially, and following an initial two-year term, at least annually, by the Trust’s Board of Trustees (the “Board” or the “Trustees”), including a majority of the Independent Trustees voting separately.
At an in-person meeting of the Board held on February 18, 19, and 20, 2018 (the “Meeting”), the Board, including the Independent Trustees voting separately, considered and approved the continuation of each Investment Advisory Agreement with Harbor Capital, the adviser to each Fund, and each Subadvisory Agreement with each Fund’s subadviser (each, a “Subadviser”) with respect to Harbor Capital Appreciation Fund, Harbor Mid Cap Growth Fund, Harbor Small Cap Growth Fund, Harbor Small Cap Growth Opportunities Fund, Harbor Large Cap Value Fund, Harbor Mid Cap Value Fund, and Harbor Small Cap Value Fund.
In evaluating each Investment Advisory Agreement and each Subadvisory Agreement, the Trustees reviewed materials furnished by the Adviser and each Subadviser, including information about their respective affiliates, personnel, and operations, and also relied upon their knowledge of the Adviser and Subadvisers resulting from their quarterly meetings, periodic telephonic meetings and other prior communications. In connection with the Meeting, which had been called for the purpose of considering the continuation of the Investment Advisory Agreements and Subadvisory Agreements, and at prior meetings, the Trustees, including the Independent Trustees, requested and received materials and presentations relating to Fund performance and the services rendered by the Adviser and each Subadviser. The Trustees also discussed with representatives of the Adviser, at the Meeting and at prior meetings, Harbor Funds’ operations and the Adviser’s ability, consistent with the “manager of managers” structure of Harbor Funds, to (i) identify and recommend to the Trustees a subadviser for each Fund, (ii) monitor and oversee the performance and investment capabilities of each Subadviser, and (iii) recommend the replacement of a Subadviser where appropriate.
At the Meeting, the Trustees, including the Independent Trustees voting separately, determined, in the exercise of their business judgment, that the terms of each Investment Advisory Agreement and each Subadvisory Agreement were fair and reasonable and approved the continuation for a one-year period of each such Investment Advisory Agreement and Subadvisory Agreement as being in the best interests of each Fund and its shareholders.
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Harbor Domestic Equity Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
In their deliberations, the Independent Trustees had the opportunity to meet privately without representatives of the Adviser or any Subadviser present and were represented throughout the process by legal counsel to the Independent Trustees and the Funds.
In considering the approval of each Fund’s Investment Advisory Agreement and Subadvisory Agreement, the Board, including the Independent Trustees, evaluated a number of factors it considered relevant to its determination. The Board did not identify any single factor as all-important or controlling, and individual Trustees did not necessarily attribute the same weight or importance to each factor.
Among the factors considered by the Trustees in approving the Investment Advisory Agreements and Subadvisory Agreements were the following:
• | the nature, extent, and quality of the services provided by the Adviser and each Subadviser, including the background, education, expertise and experience of the investment professionals of the Adviser and each Subadviser providing services to the Funds; |
• | the favorable history, reputation, qualifications and background of the Adviser and each Subadviser, as well as the qualifications of their respective personnel; |
• | the profitability of the Adviser with respect to each Fund, including the effect of revenues of Harbor Services Group, Inc. (“Harbor Services Group”), the Funds’ transfer agent, and Harbor Funds Distributors, Inc. (“Harbor Funds Distributors”), the Funds’ principal underwriter, on such profitability; |
• | the fees charged by the Adviser and Subadvisers for investment advisory and subadvisory services, respectively, including, in each case, the portion of the fee to be retained by the Adviser, after payment of the Subadviser’s fee, for the investment advisory and related services, including investment, business, legal, compliance, financial and administrative services, that the Adviser provides; |
• | the extent to which economies of scale might be realized as each Fund grows, and the extent to which each Fund’s advisory fee level reflects any economies of scale for the benefit of Fund investors; |
• | the fees and expense ratios of each Fund relative to the quality of services provided and the fees and expense ratios of similar investment companies; |
• | the short- and long-term investment performance of each Fund in comparison to peer groups and certain relevant benchmark indices and the Adviser’s efforts to address circumstances of underperformance where applicable; |
• | the compensation received by Harbor Services Group and Harbor Funds Distributors in consideration of the services each provides to the Funds; |
• | any “fall out” benefits that might inure to the Adviser and its affiliates as a result of their relationship with the Funds; |
• | information received at regular meetings throughout the year related to Fund performance and services rendered by the Adviser, as well as each of the Subadvisers, and research arrangements with brokers who execute transactions on behalf of each Subadviser; |
• | information contained in materials provided by the Adviser and compiled by Broadridge Inc. (“Broadridge”) as to the investment returns, advisory fees and total expense ratios of the Institutional Class of each Fund (and, in certain cases, total expense ratios of certain other classes) relative to those of other investment companies with similar objectives and strategies managed by other investment advisers, consisting both of a peer group of funds as well as a broader universe of funds compiled by Broadridge; and |
• | information contained in materials compiled by Morningstar, Inc. (“Morningstar”) as to the investment returns of the Institutional Class of each Fund relative to those of other investment companies with similar objectives and strategies managed by other investment advisers. |
Nature, Extent, and Quality of Services
The Trustees separately considered the nature, extent, and quality of the services provided by the Adviser and each Subadviser. In their deliberations as to the approval of each Fund’s Investment Advisory Agreement and Subadvisory Agreement, the Trustees were mindful of the fact that, by choosing to invest in a Fund, the shareholders had entrusted the Adviser with the
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Harbor Domestic Equity Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
responsibility, subject to the approval of the Trustees, for selecting each Fund’s Subadviser, overseeing and monitoring that Subadviser’s performance and replacing the Subadviser if necessary. The Trustees also considered as relevant to their determination the favorable history, reputation, qualifications and background of the Adviser and each Subadviser, as well as the qualifications of their respective personnel.
The Adviser’s Services. The Board evaluated the nature, extent, and quality of the Adviser’s services in light of the Board’s experience with the Adviser, as well as materials provided by the Adviser as part of its comprehensive written response to the 15(c) request letter prepared by legal counsel to the Independent Trustees in consultation with the Independent Trustees concerning the financial and other resources devoted by the Adviser to Harbor Funds, including the breadth and depth of experience and expertise of the investment, accounting, administrative, legal and compliance professionals dedicated to Harbor Funds’ operations. The Trustees determined that the Adviser had the expertise and resources to identify, select, oversee and monitor each Subadviser and to operate effectively as the “manager of managers” for the Funds.
The Subadvisers’ Services. The Trustees’ consideration of the services provided by the Subadvisers included a review of each Subadviser’s portfolio managers, investment philosophy, style and processes and record of consistency therewith, the volatility of its results, its approach to controlling risk, and the quality and extent of its investment capabilities and resources, including the nature and extent of research it receives from broker-dealers (to the extent applicable) and other sources. In their deliberations with respect to each Fund, the Trustees considered the history of Harbor Funds’ relationship with each Subadviser and Harbor Funds’ experience with each Subadviser in this capacity.
The Trustees also considered each Subadviser’s breadth and depth of experience and investment results in managing other accounts similar to the respective Fund. The Trustees received a presentation at the Meeting by investment professionals from the Subadviser for Harbor Capital Appreciation Fund. The Trustees had received presentations by investment professionals from the Subadvisers for Harbor Mid Cap Growth Fund, Harbor Small Cap Growth Fund, Harbor Small Cap Growth Opportunities Fund, Harbor Large Cap Value Fund, Harbor Mid Cap Value Fund, and Harbor Small Cap Value Fund at meetings of the Board of Trustees held in 2017. The Trustees reviewed information concerning each Subadviser’s historical investment results in managing accounts and/or funds, as applicable, in a manner substantially similar to the relevant Fund.
Investment Performance, Advisory Fees and Expense Ratios
In considering each Fund’s performance, advisory fees and expense ratio, the Trustees requested and received from the Adviser data compiled by Broadridge and Morningstar. The Trustees also received information explaining the methodology for compilation of certain of this information and what it was intended to demonstrate. The Trustees analyzed the Institutional Class performance of each Fund, the advisory fees of each Fund, and the Institutional Class expenses of each Fund (after giving effect to waivers and/or reimbursements, if applicable, that reduced the fees or expenses of the Fund or its peer funds) and made certain observations and findings as to each Fund as noted below. The Trustees also identified and reviewed certain Administrative Class, Investor Class, and Retirement Class comparative performance, fee and expense information they considered relevant to their deliberations. In evaluating performance, the Trustees recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results.
Harbor Capital Appreciation Fund. The Trustees considered Harbor Capital Appreciation Fund (inception date December 29, 1987) and its Institutional Class performance in relation to its Broadridge universe and group for the one-, two-, three-, four-, and five-year periods ended December 31, 2017, noting that Harbor Capital Appreciation Fund had outperformed both its universe and group medians according to Broadridge data for the one, two-, three-, four- and five-year periods ended December 31, 2017. The Fund’s one-, three- and five-year rolling returns as of December 31, 2017 ranked in the first quartile, according to Morningstar. The Trustees also considered that the Fund had outperformed its benchmark, the Russell 1000® Growth Index, for the one-, three-, five-, and ten-year periods ended December 31, 2017.
The Trustees considered the expertise of Jennison Associates LLC (“Jennison”) in managing assets generally and specifically with respect to the Fund’s asset class, noting that Jennison managed approximately $59.57 billion in assets in this asset class, out of a firm-wide total of approximately $175.4 billion in assets under management. The Trustees also noted the significant experience of the Fund’s portfolio managers in this asset class, noting that one was a founding member of Jennison.
The Trustees observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $28.83 billion, showed that the Fund’s contractual management fee was above the group median for the Institutional Class. The actual total expense ratio for the Institutional Class of the Fund, however, was below both the group and universe medians. The Trustees also considered that Harbor Capital had agreed to continue the Fund’s existing contractual fee waiver/expense reimbursement arrangement until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in operating the Fund was not excessive.
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Harbor Domestic Equity Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
Harbor Mid Cap Growth Fund. The Trustees considered Harbor Mid Cap Growth Fund (inception date November 1, 2000), noting that, according to the Broadridge report, the Fund’s Institutional Class had outperformed its Broadridge group and universe medians for the one-, two-, three-, four- and five-year periods ended December 31, 2017. The Trustees considered the fact that, in comparison to its universe of other mid cap growth funds, as identified by Morningstar, the Fund’s one-, three- and five-year rolling returns ranked in the first, second and second quartiles, respectively, as of December 31, 2017. The Trustees also considered that the Fund had outperformed its benchmark, the Russell Midcap® Growth Index, for the one- and three -year periods ended December 31, 2017, while underperforming its benchmark index for the five- and ten-year periods ended December 31, 2017.
The Trustees considered the expertise of Wellington Management Company LLP (“Wellington”) in managing assets generally and in the mid cap growth asset class specifically, noting that Wellington managed approximately $2.8 billion in assets in this asset class, out of a firm-wide total of approximately $1.08 trillion in assets under management. The Trustees noted the significant experience of the Fund’s portfolio managers.
The Trustees observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $425 million, showed that the Fund’s contractual management fee was below the group median for the Institutional Class. The Broadridge data also showed that the actual total expense ratio for the Fund’s Institutional Class was below both the group and universe medians. The Trustees noted that Harbor Capital’s profitability in managing the Fund was not excessive.
Harbor Small Cap Growth Fund. The Trustees considered Harbor Small Cap Growth Fund (inception date November 1, 2000), noting that according to the Broadridge report, the Fund’s Institutional Class performance exceeded its group median for the one-, two-, three-, four- and five-year periods ended December 31, 2017 and its universe median for the one-, four- and five-year periods ended December 31, 2017. The Fund underperformed its universe median for the two- and three-year periods ended December 31, 2017. The Morningstar data presented ranked the Fund’s one-, three- and five-year rolling returns as of December 31, 2017 in the second, third and first quartiles, respectively. The Trustees also considered the fact that Harbor Small Cap Growth Fund had outperformed its benchmark, the Russell 2000® Growth Index, for the one- and five-year periods ended December 31, 2017, while underperforming the benchmark index for the three- and ten-year periods ended December 31, 2017.
The Trustees considered the expertise of Westfield Capital Management Company, L.P. (“Westfield”) in managing assets generally and in the small cap growth asset class specifically, noting that Westfield managed approximately $2.14 billion in assets in this asset class, out of a firm-wide total of approximately $13.93 billion in assets under management. The Trustees also discussed the experience of the Fund’s portfolio managers in this asset class.
The Trustees observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $725 million, showed the Fund’s contractual management fee was below the group median for the Institutional Class. The Trustees also noted that the Fund’s actual total expense ratio for the Institutional Class was below the Broadridge group and universe median expense ratios. The Trustees noted that Harbor Capital’s profitability in operating the Fund was not excessive.
Harbor Small Cap Growth Opportunities Fund. The Trustees considered Harbor Small Cap Growth Opportunities Fund (inception date February 1, 2014), noting that according to the Broadridge report, the Fund’s Institutional Class underperformed both its group and universe medians for the one-, two- and three-year and since inception periods ended December 31, 2017. The Morningstar data presented ranked the Fund’s one- and three-year rolling returns as of December 31, 2017 in the third and fourth quartiles, respectively. The Trustees also considered the fact that Harbor Small Cap Growth Opportunities Fund had underperformed its benchmark, the Russell 2000® Growth Index, for the one- and three-year periods ended December 31, 2017.
The Trustees considered the expertise of the Fund’s subadviser, Elk Creek Partners, LLC (“Elk Creek”) in managing assets generally and in the small cap growth asset class specifically, noting that Elk Creek managed approximately $1.2 billion in assets in this asset class, out of a firm-wide total of approximately $1.77 billion in assets under management. The Trustees also discussed the experience of the Fund’s portfolio managers in this asset class, including their experience prior to forming Elk Creek, and the recent departure of a partner and portfolio manager.
The Trustees observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $325 million, showed the Fund’s contractual management fee was below the group median for the Institutional Class. The Trustees also noted that the Fund’s actual total expense ratio for the Institutional Class was below the Broadridge group and universe median expense ratios. The Trustees noted that Harbor Capital’s profitability in operating the Fund was not excessive.
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Harbor Domestic Equity Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
Harbor Large Cap Value Fund. The Trustees considered Harbor Large Cap Value Fund (inception date December 29, 1987), noting the Fund’s Institutional Class outperformance relative to both its group and universe medians for the one-, two-, three-, four- and five-year periods ended December 31, 2017. The Morningstar data presented showed that the Fund’s one-, three- and five-year rolling returns each ranked in the first quartile for the period ended December 31, 2017. The Trustees also noted that the Fund had outperformed its benchmark, the Russell 1000® Value Index, for the one-, three- and five-year periods ended December 31, 2017. The Trustees noted that the Fund had changed subadvisers in May of 2012, engaging Aristotle Capital Management, LLC (“Aristotle”) to manage the Fund.
The Trustees considered the expertise of Aristotle in managing assets generally and in the large cap value asset class specifically, noting that Aristotle managed approximately $13.2 billion in assets in the value equity strategy used by the Fund, out of a firm-wide total of approximately $15.11 billion in assets under management. The Trustees also discussed the significant experience of the Fund’s portfolio manager, including his experience prior to joining Aristotle, and the recent addition of a co-portfolio manager.
The Trustees noted that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $775 million, showed the Fund’s management fee was below the group median for the Institutional Class, and the actual total expense ratio for the Fund’s Institutional Class was below its group and universe median expense ratios. The Trustees also considered that Harbor Capital had agreed to continue the Fund’s existing contractual fee waiver/expense reimbursement arrangement until at least February 28, 2019. The Trustees noted that the Adviser’s profitability in managing the Fund was not excessive.
Harbor Mid Cap Value Fund. The Trustees considered Harbor Mid Cap Value Fund (inception date March 1, 2002), noting the Fund’s Institutional Class performance was above its Broadridge group median for the two-, three-, four- and five-year periods ended December 31, 2017 and below the group median for the one-year period ended December 31, 2017. The Fund’s performance was above its Broadridge universe median for the two-, four- and five-year periods ended December 31, 2017 and below its Broadridge universe median for the one- and three-year periods ended December 31, 2017. The Morningstar data presented showed that the Fund’s one- and three-year rolling returns each ranked in the third quartile for the periods ended December 31, 2017 while the Fund’s five-year rolling returns ranked in the first quartile for the period ended December 31, 2017. The Trustees considered the fact that the Fund had outperformed its benchmark, the Russell Midcap® Value Index, for the five- and ten-year periods ended December 31, 2017, but underperformed its benchmark index for the one- and three-year periods ended December 31, 2017.
The Trustees considered the expertise of LSV Asset Management (“LSV”) in managing assets generally and in the mid cap value asset class specifically, noting that LSV managed approximately $2.99 billion in assets in this asset class, out of a firm-wide total of approximately $118.36 billion in assets under management. The Trustees reviewed the expertise of the Fund’s portfolio managers in this asset class, noting that one of the three portfolio managers was a founding partner of LSV.
The Trustees noted that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $1 billion, showed the Fund’s management fee was slightly above the group median for the Institutional Class. The actual total expense ratio for the Fund’s Institutional Class was below its group and universe median expense ratios. The Trustees also considered that Harbor Capital had agreed to lower the asset level at which the existing voluntary fee waiver applies and apply an additional voluntary waiver of five basis points to the Fund’s advisory fee on assets over $1 billion, so that the advisory fee after the waiver would be 0.75% on the first $350 million in assets, 0.70% on the next $650 million in assets, and 0.65% on assets over $1 billion, until at least February 28, 2019. The Trustees noted that the Adviser’s profitability in managing the Fund was not excessive.
Harbor Small Cap Value Fund. The Trustees considered Harbor Small Cap Value Fund (inception date December 14, 2001), noting the Fund’s outperformance relative to its Broadridge group and universe medians for the one-, two-, three-, four- and five-year periods ended December 31, 2017. According to the Morningstar data presented, the Fund’s one-, three- and five-year rolling returns each ranked in the first quartile for the periods ended December 31, 2017. The Trustees also considered the fact that the Fund outperformed its benchmark, the Russell 2000® Value Index, for the one-, three-, five- and ten-year periods ended December 31, 2017.
The Trustees considered the expertise of EARNEST Partners LLC (“EARNEST”) in managing assets generally and in the small cap value asset class specifically, noting that EARNEST managed approximately $4.23 billion in assets in this asset class out of $22.14 billion firm wide total. The Trustees also noted the experience of the Fund’s portfolio manager in this asset class, noting that he is the founder of EARNEST.
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Harbor Domestic Equity Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
They observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $1.2 billion, showed the Fund’s management fee was equal to the group median for the Institutional Class. The actual total expense ratio for the Fund’s Institutional Class was below the group and universe median expense ratios. The Trustees noted that Harbor Capital’s profitability in operating the Fund was not excessive.
The Trustees also separately considered the allocation between the Adviser and each Subadviser of the relevant Fund’s investment advisory fee (i.e., the amount of the advisory fee retained by the Adviser relative to that paid to the relevant Subadviser as a subadvisory fee). They determined in each case that the allocation was reasonable and the product of arm’s length negotiation between the Adviser and Subadviser.
Profitability
The Trustees also considered the Adviser’s profitability in operating each of the Funds (as well as on a fund complex-wide basis) as presented by the Adviser, and the allocation methodology used by the Adviser to compute such profitability. The Trustees concluded that the methodology was reasonable and that a reasonable level of profitability was important to provide suitable incentives for the Adviser to continue to attract and maintain high-quality personnel and to invest in infrastructure and other resources to support and enhance the Funds’ operations. In considering the Adviser’s profitability generally, the Trustees also reviewed the compensation received by Harbor Services Group and Harbor Funds Distributors in consideration of the transfer agency and distribution services, respectively, that are provided to Harbor Funds and any other benefits enjoyed by the Adviser and its affiliates as a result of their relationship with Harbor Funds.
The Trustees also considered that profitability calculations with respect to advisory, transfer agency and distribution operations vary significantly depending on whether revenues on which the calculation is based are taken gross or net of amounts paid to third parties, such as subadvisory fee expenses and certain transfer agency expenses, and noted that subadvisory fee expenses are a direct expense of the Adviser. The Trustees also noted that the Adviser was, in certain cases, waiving a portion of its advisory fee and/or paying or reimbursing a portion of Fund expenses. The Trustees determined that the Adviser’s profitability in operating each Fund was not excessive.
Economies of Scale
The Trustees also considered the extent to which economies of scale might be realized as each Fund grows, and the extent to which each Fund’s advisory fee level reflects these economies of scale for the benefit of Fund investors. The Trustees specifically considered whether any advisory fee reduction “breakpoints” should be added to the advisory fee payable by any Fund. As noted above, the Trustees concluded that the Adviser’s profitability in each case was not excessive. They concluded that the Funds’ fee structures reflected economies of scale to date and that breakpoints in these fee structures were not required at the present time. The Trustees noted they intend to monitor each Fund’s asset growth in connection with future reviews of each Fund’s Investment Advisory Agreement to determine whether breakpoints may be appropriate at such time.
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Benchmark Descriptions
Bloomberg Barclays U.S. Aggregate Bond Index—The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of investment-grade fixed-rate debt issues with maturities of at least one year. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Bloomberg Barclays U.S. TIPS Index—The Bloomberg Barclays U.S. TIPS Index is an unmanaged market index comprised of all U.S. Treasury Inflation Protected Securities rated investment grade (Baa3 or better), have at least one year to final maturity, and at least $250 million par amount outstanding. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Bloomberg Commodity Index Total ReturnSM—The Bloomberg Commodity Index Total ReturnSM is a broadly diversified index that tracks the commodities markets through commodity futures contracts. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML All U.S. Convertibles Ex Mandatory Index—The BofA Merrill Lynch All U.S. Convertibles Ex Mandatory Index is broadly representative of the U.S. convertible securities market, consisting of publicly traded issues, denominated in U.S. dollars, of all credit qualities, and excluding mandatory (equity-linked) convertibles. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML U.S. Dollar 3-Month LIBOR Constant Maturity Index—The ICE BofAML U.S. Dollar 3-Month LIBOR Constant Maturity Index tracks the performance of a synthetic asset paying Libor to a stated maturity. The index is based on the assumed purchase at par of a synthetic instrument having exactly its stated maturity and with a coupon equal to that day’s fixing rate. That issue is assumed to be sold the following business day (priced at a yield equal to the current day fixing rate) and rolled into a new instrument. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML 3-Month U.S. Treasury Bill Index—The ICE BofAML 3-Month U.S. Treasury Bill Index is comprised of a single U.S. Treasury Bill issue purchased at the beginning of each month and held for a full month, at which time that issue is sold and rolled into a newly selected issue. The issue selected each month is that having a maturity date closest to, but not beyond 90 days from the rebalance date.
ICE BofAML U.S. High Yield Index (H0A0)—The ICE BofAML U.S. High Yield Index (H0A0) is an unmanaged index that tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. All bonds are U.S. dollar denominated and rated Split BBB and below. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML U.S. Non-Distressed High Yield Index—The ICE BofAML U.S. Non-Distressed High Yield Index is a subset of the ICE BofAML U.S. High Yield Index (H0A0) including all securities with an option-adjusted spread less than 1,000 basis points. The unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI All Country World Index—The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI All Country World Ex. U.S. (ND) Index—The MSCI All Country World Ex. U.S.is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global developed and emerging markets, excluding the United States. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI EAFE (ND) Index—The MSCI EAFE (ND) Index is an unmanaged index generally representative of major overseas stock markets. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI EAFE Small Cap (ND) Index—The MSCI EAFE Small Cap (ND) Index is an equity index which captures small cap representation across developed market countries around the world, excluding the U.S. and Canada. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI Emerging Markets (ND) Index—The MSCI Emerging Markets (ND) Index is a market capitalization weighted index of equity securities in more than 20 emerging market economies. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI World (ND) Index—The MSCI World (ND) Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
98
Benchmark Descriptions—Continued
Russell 1000® Index—The Russell 1000® Index is an unmanaged index generally representative of the U.S. market for larger capitalization stocks as it includes the largest 1000 securities in the Russell 3000® Index by market capitalization. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Index and Russell® are trademarks of Frank Russell Company.
Russell 1000® Growth Index—The Russell 1000® Growth Index is an unmanaged index generally representative of the U.S. market for larger capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 1000® Value Index—The Russell 1000® Value Index is an unmanaged index generally representative of the U.S. market for larger capitalization value stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Index—The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000® Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Growth Index—The Russell 2000® Growth Index is an unmanaged index representing the smallest 2,000 stocks with the highest price-to-book ratio and future earnings. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 2000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Value Index—The Russell 2000® Value Index is an unmanaged index representing the smallest 2,000 stocks with the lowest price-to-book ratio and future earnings. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 2000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Index—The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000® Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Growth Index—The Russell 3000® Growth Index measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 3000® companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000® Growth Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad growth market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect growth characteristics. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Value Index—The Russell 3000® Value Index measures the performance of the broad value segment of U.S. equity value universe. It includes those Russell 3000® companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000® Value Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad value market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Index—The Russell Midcap® Index is an unmanaged index generally representative of the U.S. market for medium capitalization stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Growth Index—The Russell Midcap® Growth Index is an unmanaged index generally representative of the U.S. market for medium capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Value Index—The Russell Midcap® Value Index is an unmanaged index generally representative of the U.S. market for medium capitalization value stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Value Index and Russell® are trademarks of Frank Russell Company.
99
Benchmark Descriptions—Continued
S&P 500 Index—The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
100
111 South Wacker Drive, 34th Floor | Chicago, IL 60606-4302 | 800-422-1050 | harborfunds.com |
Trustees & Officers
Charles F. McCain
Chairman, President & Trustee
Chairman, President & Trustee
Scott M. Amero
Trustee
Trustee
Raymond J. Ball
Trustee
Trustee
Donna J. Dean
Trustee
Trustee
Joseph L. Dowling, III
Trustee
Trustee
Randall A. Hack
Trustee
Trustee
Robert Kasdin
Trustee
Trustee
Kathryn L. Quirk
Trustee
Trustee
Ann M. Spruill
Trustee
Trustee
Erik D. Ojala
Chief Compliance Officer
Chief Compliance Officer
Anmarie S. Kolinski
Treasurer
Treasurer
Brian L. Collins
Vice President
Vice President
Charles P. Ragusa
Vice President
Vice President
Diana R. Podgorny
Secretary
Secretary
Jodie L. Crotteau
Assistant Secretary
Assistant Secretary
Lana M. Lewandowski
AML Compliance Officer
& Assistant Secretary
AML Compliance Officer
& Assistant Secretary
Lora A. Kmieciak
Assistant Treasurer
Assistant Treasurer
John M. Paral
Assistant Treasurer
Assistant Treasurer
Investment Adviser
Harbor Capital Advisors, Inc.
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4400
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4400
Distributor
Harbor Funds Distributors, Inc.
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4600
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4600
Shareholder Services
Harbor Services Group, Inc.
P.O. Box 804660
Chicago, IL 60680-4108
800-422-1050
P.O. Box 804660
Chicago, IL 60680-4108
800-422-1050
Custodian
State Street Bank and Trust Company
State Street Financial Center
1 Lincoln Street
Boston, MA 02111-2900
State Street Financial Center
1 Lincoln Street
Boston, MA 02111-2900
FD.SAR.DE.0418
Table of Contents
Semi-Annual Report
April 30, 2018
International & Global Funds
Institutional Class | Retirement Class | Administrative Class | Investor Class | |
Harbor International Fund | HAINX | HNINX | HRINX | HIINX |
Harbor Diversified International All Cap Fund | HAIDX | HNIDX | HRIDX | HIIDX |
Harbor International Growth Fund | HAIGX | HNGFX | HRIGX | HIIGX |
Harbor International Small Cap Fund | HAISX | HNISX | HRISX | HIISX |
Harbor Global Leaders Fund | HGGAX | HNGIX | HRGAX | HGGIX |
Harbor Emerging Markets Equity Fund | HAEMX | HNEMX | HREMX | HIEEX |
Table of Contents
This document must be preceded or accompanied by a Prospectus.
Letter from the Chairman
Charles F. McCain Chairman |
Dear Fellow Shareholder:
International equities in the aggregate posted positive returns in the fiscal half year ended April 30, 2018. The MSCI All Country World Ex U.S. (ND) Index, a measure of the equity markets outside the U.S., had a return of 3.47%.
International stock markets continued to rise toward the end of 2017 and into January 2018, supported by broad-based global economic improvement. Market optimism seemed to fall away in February though, reversing some of the earlier gains. Emerging markets outpaced other international equities for the six-month period, supported by positive earnings revisions, strong net inflows and a weaker dollar.
Global equities had mixed performance during the fiscal half year, starting strong then succumbing to investor worries about trade, inflation, interest rates and the prospect of increased regulation of the U.S. tech sector. Volatility returned to the markets following a two-year period of relative tranquility. Despite the presence of headline risks, economic fundamentals remained strong. The MSCI World (ND) Index, a measure of the global equity markets, posted a gain of 3.40%.
Comments by the portfolio managers of each Harbor international and global equity fund can be found in the pages preceding each Fund’s portfolio of investments. As always, we recommend that shareholders maintain a long-term perspective in evaluating all of their investments, including Harbor Funds.
Returns For Periods Ended April 30, 2018 | ||||||||||
Unannualized | Annualized | |||||||||
International & Global | 6 Months | 1 Year | 5 Years | 10 Years | 30 Years | |||||
MSCI EAFE (ND)(foreign stocks) | 3.41% | 14.51% | 5.90% | 2.43% | 5.06% | |||||
MSCI EAFE Small Cap (ND)(foreign small cap stocks) | 5.96 | 20.03 | 10.61 | 6.38 | N/A | |||||
MSCI World (ND)(global stocks) | 3.40 | 13.22 | 9.28 | 5.48 | 7.07 | |||||
MSCI All Country World Ex. U.S. (ND)(foreign stocks) | 3.47 | 15.91 | 5.46 | 2.26 | N/A | |||||
MSCI Emerging Markets (ND)(emerging market stocks) | 4.80 | 21.71 | 4.74 | 2.17 | N/A | |||||
Domestic Equities | ||||||||||
Russell 3000® (entire U.S. stock market) | 3.79% | 13.05% | 12.75% | 9.13% | 10.46% | |||||
S&P 500 (large cap stocks) | 3.82 | 13.27 | 12.96 | 9.02 | 10.44 | |||||
Russell Midcap® (mid cap stocks) | 3.69 | 11.17 | 11.77 | 9.48 | 11.69 | |||||
Russell 2000® (small cap stocks) | 3.27 | 11.54 | 11.74 | 9.49 | 9.76 | |||||
Russell 3000® Growth (growth stocks) | 5.66 | 18.78 | 14.97 | 10.78 | 10.20 | |||||
Russell 3000® Value (value stocks) | 1.86 | 7.42 | 10.50 | 7.39 | 10.36 | |||||
Fixed Income | ||||||||||
ICE BofAML U.S. Non-Distressed High Yield (domestic high-yield bonds) | -0.31% | 3.26% | 4.87% | 6.69% | N/A | |||||
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -1.87 | -0.32 | 1.47 | 3.57 | 6.17% | |||||
Bloomberg Barclays U.S. TIPS (domestic inflation-linked bonds) | 0.19 | 0.27 | -0.12 | 3.14 | N/A | |||||
ICE BofAML U.S. 3-Month Treasury Bill (proxy for money market returns) | 0.68 | 1.18 | 0.36 | 0.34 | 3.28 |
1
HOLDING STEADY THROUGH VOLATILE MARKETS
U.S. and global markets saw a significant increase in volatility during the first calendar quarter of 2018, a trend that continued into April. Developments that played a major role in driving investor worries included the prospect of a trade war between the U.S. and China, uncertainty on inflation and a more hawkish U.S. Federal Reserve policy.
When markets are volatile, investors may wonder whether they should pivot to a more conservative allocation in the short-term to avoid potential losses. What history shows us, however, is that it is very difficult to time the market successfully. While past performance is never a guarantee of future results, many investors have historically achieved their financial objectives by making a long-term plan and staying true to it through market ups and downs.
We encourage all investors to maintain a diversified portfolio of stocks, bonds and cash in an allocation that matches their long-term financial goals and risk tolerance. Harbor Funds offers a variety of equity and fixed income funds to help you achieve your financial goals.
Thank you for investing with Harbor Funds.
June 22, 2018
Charles F. McCain |
Chairman |
2
Harbor International Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Northern Cross, LLC
125 Summer Street
Suite 1410
Suite 1410
Boston, MA 02110
Portfolio Managers
Howard Appleby, CFA
Since 2009
Since 2009
Jean-Francois Ducrest
Since 2009
Since 2009
James LaTorre, CFA
Since 2009
Since 2009
Northern Cross, LLC has subadvised the Fund since 2009.
Investment Objective
The Fund seeks long-term total return, principally from growth of capital.
Howard Appleby, CFA
Jean-Francois Ducrest
James LaTorre, CFA
Management’s Discussion of
Fund Performance
Fund Performance
MARKET REVIEW
Shares of companies based in developed overseas markets generally posted positive results for the first half of fiscal year 2018, with the MSCI EAFE (ND) Index gaining 3.41% for the six months ended April 30, 2018. (All international and global returns are in U.S. Dollars.)
Foreign, developed-market equities generally advanced, though volatility returned in the latter half of the period. International equity markets continued a lengthy advance through the end of 2017, trading upward on optimism regarding global growth. However, after an initial surge to start 2018, markets fell quite sharply, in response to fears of higher interest rates, rising inflation and upheaval in the large and influential U.S. Information Technology sector.
In this environment, all sectors in the benchmark had positive performance for the period. The Energy sector was by far the strongest performer, posting a double-digit gain fueled by rising oil prices. The Consumer Discretionary and Real Estate sectors also outpaced their sector peers. Conversely, the Telecommunication Services, Consumer Staples and Industrials sectors registered the weakest gains for the period.
From a geographic perspective, Finland, Singapore and Italy all posted double-digit advances in the MSCI EAFE (ND) Index. Conversely, declines in Sweden, Belgium and Denmark were among the benchmark’s largest, though all due to a limited number of individual stocks.
PERFORMANCE
Harbor International Fund returned 2.92% (Institutional Class), 2.96% (Retirement Class), 2.80% (Administrative Class), and 2.74% (Investor Class) for the first half of the 2018 fiscal year, underperforming the 3.41% return of the MSCI EAFE (ND) Index and the 3.47% return of the MSCI All Country World Ex. U.S. (ND).
During the time period, the Fund was negatively impacted by holdings across a range of sectors, including Consumer Staples and Industrials. The negative impact was partially offset by favorable allocation decisions in the Energy and Consumer Discretionary sectors. From a country perspective, the Fund’s relative performance was hurt by its underweight to Japan, a strong performing country within the MSCI EAFE (ND) benchmark, and its allocation to China. The Fund benefitted from its positions in U.S. holdings which are not in the benchmark and performed well. U.S. holdings were the largest contributors to the Fund’s return during the period.
Holdings in Consumer Staples detracted, largely due to stock selection. Reckitt Benckiser, the United Kingdom-based consumer goods company, and Anheuser-Busch InBev, the Belgium-based brewing company, were among the largest detractors for the period. Tobacco stocks also weighed on relative returns, including an overweight to Japan Tobacco.
In Industrials, stock selection dragged on relative performance despite a favorable underweight to the sector. Key detractors included Japan-based automation and robotic technology firm Fanuc, U.K.-based luxury carmaker Rolls-Royce and Sweden-based industrial tooling and mining equipment maker Atlas Copco.
An overweight to Health Care sector holding Bayer, the Germany-based chemical company, also weighed on relative results. Shares lagged during the period due to uncertainty surrounding the completion of its acquisition of Monsanto.
3
Harbor International Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor International Fund | |||||||||||
Institutional Class | 2.92% | 9.90% | 4.12% | 2.20% | |||||||
Retirement Class1 | 2.96 | 9.97 | 4.15 | 2.21 | |||||||
Administrative Class | 2.80 | 9.63 | 3.86 | 1.94 | |||||||
Investor Class | 2.74 | 9.50 | 3.74 | 1.82 | |||||||
Comparative Indices | |||||||||||
MSCI EAFE (ND) | 3.41% | 14.51% | 5.90% | 2.43% | |||||||
MSCI All Country World Ex. U.S. (ND) | 3.47 | 15.91 | 5.46 | 2.26 |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.72% (Net) and 0.81% (Gross) (Institutional Class); 0.64% (Net) and 0.73% (Gross) (Retirement Class); 0.97% (Net) and 1.06% (Gross) (Administrative Class); and 1.09% (Net) and 1.18% (Gross) (Investor Class). The net expense ratios reflect a contractual management fee waiver effective through 02/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
Conversely, the Consumer Discretionary sector was the largest overall relative contributor, bolstered by stock selection. U.S.-based casino operators Las Vegas Sands and Wynn Resorts were key drivers as both benefitted from strength in their Macau gaming operations
The Financials sector also contributed to relative performance, due largely to off-benchmark exposure to Bancolombia, Colombia’s largest bank, and an overweight to Deutsche Boerse. Contributors to relative performance from other sectors included oilfield service provider Schlumberger, which advanced along with rising oil prices, and Israel-based Teva Pharmaceutical Industries.
OUTLOOK & STRATEGY
Volatility returned to global markets after a period of unusually lower economic and market volatility. Global growth continues to appear robust, but we are late in an extended cycle in the U.S. and globally, and there are limited sustainable macroeconomic growth drivers. Rising rates and the risk of an oil price spike could end up being the spark that ignites another recession, but we view the macroeconomic environment to be inherently unpredictable. We believe global interest rates will rise with time, but probably not to levels that would historically have been considered normal. Valuations of most assets are expensive in our view, and as rates rise we think that valuation multiples could start to compress. We believe that forward investment returns globally are likely to be lower than they have been in the past.
We believe that opportunities to beat the market over the long-term still exist. A key element of our investment philosophy is the belief that thorough and patient due diligence provides the best opportunities to invest in companies that will deliver long-term profit-margin expansion. We continue to focus on seeking companies with long-term catalysts, a process that we believe leads to consistency and sustainability of individual stock performance.
1 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Northern Cross, LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Investing in international and emerging markets poses special risks, including potentially greater price volatility due to social, political and economic factors, as well as currency exchange rate fluctuations. These risks are more severe for securities of issuers in emerging market regions. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
4
Harbor International Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Las Vegas Sands Corp. | 5.3% |
2. Schlumberger Ltd. | 4.5% |
3. Vivendi SA | 3.3% |
4. Wynn Resorts Ltd. | 3.1% |
5. Alibaba Group Holding Ltd. ADR | 2.8% |
6. Fanuc Corp. | 2.7% |
7. Bayer AG | 2.5% |
8. British American Tobacco plc | 2.2% |
9. Reckitt Benckiser Group plc | 2.2% |
10. Shire plc | 2.1% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
Europe | 62.1% | |
United Kingdom | 15.7% | |
France | 15.5% | |
Germany | 9.6% | |
Switzerland | 6.5% | |
Netherlands | 4.0% | |
Sweden | 2.7% | |
Italy | 1.9% | |
Belgium | 1.7% | |
Denmark | 1.5% | |
Spain | 1.4% | |
Norway | 1.0% | |
Austria | 0.6% |
North America | 13.6% | |
United States | 13.6% | |
Pacific Basin | 14.8% | |
Japan | 11.9% | |
China | 2.9% | |
Latin America | 7.9% | |
Colombia | 5.7% | |
Mexico | 1.8% | |
Brazil | 0.4% | |
Middle East/Central Asia | 1.6% | |
Israel | 1.6% |
5
Harbor International Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—94.9% | |||
�� Shares | Value | ||
AEROSPACE & DEFENSE—1.6% | |||
37,163,445 | Rolls-Royce Holdings plc (United Kingdom)* | $ 429,206 | |
AUTO COMPONENTS—1.8% | |||
3,338,162 | Cie Generale des Etablissements Michelin (France) | 469,422 | |
BANKS—4.4% | |||
42,844,214 | Banco Bilbao Vizcaya Argentaria SA (Spain) | 346,698 | |
8,616,321 | Bancolombia SA ADR (Colombia)1 | 410,654 | |
2,657,681 | Bawag Group AG (Austria)*,2 | 139,176 | |
24,594,363 | Standard Chartered plc (United Kingdom) | 258,340 | |
1,154,868 | |||
BEVERAGES—7.9% | |||
8,761,000 | AmBev SA (Brazil) | 58,345 | |
8,799,909 | AmBev SA ADR (Brazil)1 | 58,255 | |
4,296,547 | Anheuser-Busch InBev SA (Belgium)3 | 426,791 | |
12,919,929 | Diageo plc (United Kingdom) | 460,914 | |
4,533,513 | Heineken NV (Netherlands) | 477,267 | |
3,152,776 | Pernod Ricard SA (France) | 523,632 | |
2,159,700 | Sapporo Holdings Ltd. (Japan) | 61,794 | |
2,066,998 | |||
BIOTECHNOLOGY—2.1% | |||
10,309,902 | Shire plc (United Kingdom) | 549,001 | |
CAPITAL MARKETS—2.2% | |||
2,392,135 | Deutsche Boerse AG (Germany) | 321,716 | |
14,768,683 | UBS Group AG (Switzerland)* | 247,891 | |
569,607 | |||
CHEMICALS—4.1% | |||
5,530,317 | Bayer AG (Germany) | 660,981 | |
1,823,082 | Linde AG (Germany) | 403,877 | |
1,064,858 | |||
CONSTRUCTION MATERIALS—2.6% | |||
85,152,553 | Cementos Argos SA (Colombia) | 301,025 | |
21,544,814 | Grupo Argos SA (Colombia) | 153,401 | |
4,244,824 | LafargeHolcim Ltd. (Switzerland)* | 235,806 | |
690,232 | |||
DIVERSIFIED FINANCIAL SERVICES—2.3% | |||
14,412,440 | Grupo Aval Acciones y Valores SA ADR (Colombia)1 | 127,694 | |
20,169,521 | Grupo de Inversiones Suramericana SA (Colombia) | 279,893 | |
4,370,459 | Investor AB (Sweden) | 190,264 | |
597,851 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—1.8% | |||
116,669,879 | Telecom Italia RSP (Italy) | 100,199 | |
382,822,633 | Telecom Italia SpA (Italy)* | 377,657 | |
477,856 | |||
ELECTRICAL EQUIPMENT—1.8% | |||
5,058,245 | Schneider Electric SE (France) | 458,501 | |
ENERGY EQUIPMENT & SERVICES—4.5% | |||
17,252,816 | Schlumberger Ltd. (United States) | 1,182,853 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—1.5% | |||
156,678,792 | Fibra Uno Administracion SA de CV (Mexico) | $ 259,455 | |
533,726 | Unibail-Rodamco SE (France) | 128,132 | |
387,587 | |||
FOOD PRODUCTS—1.1% | |||
3,875,457 | Nestlé SA (Switzerland) | 300,232 | |
HEALTH CARE EQUIPMENT & SUPPLIES—5.9% | |||
48,984,541 | ConvaTec Group plc (United Kingdom)2 | 145,827 | |
3,397,381 | Essilor International SA (France) | 464,044 | |
8,266,950 | Hoya Corp. (Japan) | 441,660 | |
13,234,398 | Olympus Corp. (Japan) | 493,518 | |
1,545,049 | |||
HEALTH CARE PROVIDERS & SERVICES—1.3% | |||
4,378,585 | Fresenius SE & Co. KGaA (Germany) | 333,448 | |
HOTELS, RESTAURANTS & LEISURE—8.4% | |||
19,077,419 | Las Vegas Sands Corp. (United States) | 1,398,947 | |
4,350,642 | Wynn Resorts Ltd. (United States) | 810,046 | |
2,208,993 | |||
HOUSEHOLD DURABLES—0.8% | |||
4,403,500 | Sony Corp. (Japan) | 205,670 | |
HOUSEHOLD PRODUCTS—2.2% | |||
7,314,094 | Reckitt Benckiser Group plc (United Kingdom) | 573,776 | |
INSURANCE—4.6% | |||
1,329,949 | Allianz SE (Germany) | 314,565 | |
12,772,652 | AXA SA (France)3 | 365,280 | |
10,930,691 | Tokio Marine Holdings Inc. (Japan) | 515,898 | |
1,195,743 | |||
INTERNET SOFTWARE & SERVICES—2.8% | |||
4,049,356 | Alibaba Group Holding Ltd. ADR (China)*,1 | 722,972 | |
MACHINERY—5.9% | |||
11,857,193 | Atlas Copco AB Class A (Sweden) | 463,692 | |
3,253,492 | Fanuc Corp. (Japan) | 696,932 | |
415,016 | SMC Corp. (Japan) | 157,703 | |
7,867,195 | Weir Group plc (United Kingdom) | 230,208 | |
1,548,535 | |||
MEDIA—6.2% | |||
4,336,477 | Dentsu Inc. (Japan) | 205,431 | |
9,918,949 | Grupo Televisa SAB ADR (Mexico)1 | 177,747 | |
3,259,200 | JCDecaux SA (France) | 116,797 | |
4,226,166 | Liberty Global plc Class A (United Kingdom)* | 127,377 | |
3,865,182 | Liberty Global plc Class C (United Kingdom)* | 112,477 | |
576,544 | Liberty Latin America Ltd. Class A (United Kingdom)* | 10,608 | |
681,954 | Liberty Latin America Ltd. Class C (United Kingdom)* | 12,316 | |
32,748,390 | Vivendi SA (France)3 | 863,632 | |
1,626,385 | |||
OIL, GAS & CONSUMABLE FUELS—3.0% | |||
61,751,330 | BP plc (United Kingdom) | 458,686 | |
10,114,148 | Statoil ASA (Norway) | 258,646 | |
4,861,543 | Transocean Ltd. (Switzerland)* | 60,138 | |
777,470 |
6
Harbor International Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
PERSONAL PRODUCTS—1.7% | |||
1,837,347 | L'Oreal SA (France)3 | $ 442,414 | |
PHARMACEUTICALS—4.6% | |||
5,448,151 | Novartis AG (Switzerland) | 419,367 | |
7,912,400 | Novo Nordisk AS (Denmark) | 372,104 | |
22,579,182 | Teva Pharmaceutical Industries Ltd. ADR (Israel)1 | 405,974 | |
1,197,445 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—2.0% | |||
2,715,332 | ASML Holding NV (Netherlands)3 | 516,955 | |
SOFTWARE—1.4% | |||
3,415,655 | SAP SE (Germany) | 379,498 | |
TEXTILES, APPAREL & LUXURY GOODS—1.5% | |||
4,005,942 | Cie Financiere Richemont SA (Switzerland) | 380,799 | |
TOBACCO—2.9% | |||
10,622,591 | British American Tobacco plc (United Kingdom) | 582,622 | |
7,038,510 | Japan Tobacco Inc. (Japan) | 189,204 | |
771,826 | |||
TOTAL COMMON STOCKS | |||
(Cost $17,683,849) | 24,826,050 | ||
PREFERRED STOCKS—0.5% | |||
AEROSPACE & DEFENSE—0.0% | |||
2,638,604,595 | Rolls-Royce Holdings plc (United Kingdom)* | 3,633 x | |
CONSTRUCTION MATERIALS—0.3% | |||
12,490,019 | Grupo Argos SA (Colombia) | 73,812 | |
DIVERSIFIED FINANCIAL SERVICES—0.2% | |||
4,581,621 | Grupo de Inversiones Suramericana SA (Colombia) | 59,534 | |
TOTAL PREFERRED STOCKS | |||
(Cost $136,442) | 136,979 | ||
SHORT-TERM INVESTMENTS—13.7% | |||
Principal Amount | Value | ||
COMMERCIAL PAPER—2.7% | |||
Exxon Mobil Corp. | |||
$ | 100,000 | 1.721%—05/03/2018 | $ 100,000 |
50,000 | 1.761%—05/07/2018 | 50,000 | |
150,000 | |||
General Electric Co. | |||
100,000 | 1.700%—05/01/2018 | 100,000 | |
450,000 | 1.701%—05/02/2018-05/09/2018 | 450,000 | |
550,000 | |||
700,000 | |||
REPURCHASE AGREEMENTS—1.6% | |||
429,058 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $437,641) | 429,058 | |
Shares | |||
INVESTMENT COMPANY-SECURITIES LENDING INVESTMENT FUND—9.4% | |||
2,448,992,624 | State Street Navigator Securities Lending Government Money Market Portfolio (1-day yield of 2.130%)4 | 2,448,993 | |
TOTAL SHORT-TERM INVESTMENTS | |||
(Cost $3,578,051) | 3,578,051 | ||
TOTAL INVESTMENTS—109.1% | |||
(Cost $21,398,342) | 28,541,080 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(9.1)% | (2,374,732) | ||
TOTAL NET ASSETS—100.0% | $26,166,348 |
RIGHTS/WARRANTS OPEN AT APRIL 30, 2018
Description | No. of Contracts | Strike Price | Expiration Date | Cost (000s) | Value (000s) | |||||
Genting Bhd | 30,633,782 | MYR$ 7.96 | 12/18/2018 | $ 14,434 | $7,183 |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of April 30, 2018 based on the inputs used to value them.
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Investments in Securities | ||||||||
Common Stocks | ||||||||
Europe | $ 322,915 | $15,188,062 | $— | $15,510,977 | ||||
Latin America | 1,826,470 | — | — | 1,826,470 | ||||
Middle East/Central Asia | 405,974 | — | — | 405,974 | ||||
North America | 3,391,846 | — | — | 3,391,846 | ||||
Pacific Basin | 722,972 | 2,967,811 | — | 3,690,783 |
7
Harbor International Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS—Continued
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Preferred Stocks | ||||||||
Europe | $ — | $ — | $3,633 | $ 3,633 | ||||
Latin America | 133,346 | — | — | 133,346 | ||||
Short-Term Investments | ||||||||
Commercial Paper | — | 700,000 | — | 700,000 | ||||
Repurchase Agreements | — | 429,058 | — | 429,058 | ||||
Investment Company-Securities Lending Investment Fund | 2,448,993 | — | — | 2,448,993 | ||||
Total Investments in Securities | $9,252,516 | $19,284,931 | $3,633 | $28,541,080 | ||||
Financial Derivative Instruments - Assets | ||||||||
Rights/Warrants | $ 7,183 | $ — | $ — | $ 7,183 | ||||
Total Investments | $9,259,699 | $19,284,931 | $3,633 | $28,548,263 |
There were no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels used in the table above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
The following is a rollforward of the Fund’s Level 3 investments during the period ended April 30, 2018.
Valuation Description | Balance Beginning as of 11/01/2017 (000s) | Purchases (000s) | Sales (000s) | Discount/ (Premium) (000s) | Total Realized Gain/(Loss)w (000s) | Change in Unrealized Appreciation/ (Depreciation)w (000s) | Transfers In Level 3 (000s) | Transfers Out of Level 3 (000s) | Ending Balance as of 04/30/2018w (000s) | |||||||||
Preferred Stocks | $3,192 | $3,676 | $(3,185) | $— | $— | $(50) | $— | $— | $3,633 |
The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy.
Valuation Descriptions | Ending Balance as of 04/30/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Preferred Stocks | ||||||||
Rolls-Royce Holdings plc (United Kingdom)* | $3,633 | Market Approach | Pre-Traded Price | £ 0.001 |
AFFILIATED TRANSACTIONS
Certain of the Fund’s investments are in companies that are considered to be affiliated companies of the Fund because the Fund owned more than 5% of the outstanding voting securities of the company during the period November 1, 2017 through April 30, 2018. Transactions during the period in securities of these companies were as follows:
Security Name | Beginning Balance as of 11/01/2017 (000s) | Purchases (000s) | Sales (000s) | Net Realized Gain/(Loss) (000s) | Change in Unrealized Appreciation/ (Depreciation) (000s) | Net Dividend Income (000s) | Ending Balance as of 04/30/2018 (000s) | |||||||
Wynn Resorts Ltd. (United States) | $1,033,005 | $– | $(485,144) | $280,521 | $(18,336) | $ 6,051 | $ 810,046 | |||||||
Cementos Argos SA (Colombia) | 310,709 | – | – | – | (9,684) | 3,958 | 301,025 | |||||||
$1,343,714 | $– | $(485,144) | $280,521 | $(28,020) | $10,009 | $1,111,071 |
8
Harbor International Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
* | Non-income producing security | ||
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. | ||
2 | Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. At April 30, 2018, the aggregate value of these securities was $285,003 or 1% of net assets. | ||
3 | All or a portion of this security was out on loan as of April 30, 2018. | ||
4 | Represents the investment of collateral received from securities lending activities. | ||
w | Amounts in this category are included in the “Realized and Change in Unrealized Gain/(Loss) on Investment Transactions” section of the Statement of Operations. The net unrealized appreciation/(depreciation) per investment type is below: | ||
Valuation Description | Unrealized Gain/(Loss) as of 04/30/2018 (000s) | ||
Preferred Stocks | $(43) | ||
x | Fair valued in accordance with Harbor Funds Valuation Procedures using pre-traded price which is a Level 3 input. | ||
£ | British Pound | ||
MYR$ | Malaysian Ringgit |
The accompanying notes are an integral part of the Financial Statements.
9
Harbor Diversified International All Cap Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Marathon Asset Management LLP
Orion House
5 Upper St. Martin’s Lane
London, WC2H 9EA
England
London, WC2H 9EA
England
Portfolio Managers
Neil M. Ostrer
Since 2015
Since 2015
William J. Arah
Since 2015
Since 2015
William MacLeod
Since 2018
Since 2018
Charles Carter
Since 2015
Since 2015
Nick Longhurst
Since 2015
Since 2015
Michael Godfrey, CFA
Since 2015
Since 2015
David Cull, CFA
Since 2015
Since 2015
Robert Anstey, CFA
Since 2015
Since 2015
Simon Somerville
Since 2016
Since 2016
Michael Nickson, CFA
Since 2018
Since 2018
Simon Todd, CFA
Since 2018
Since 2018
Marathon Asset Management LLP (operating as Marathon-London in the U.S.) has subadvised the Fund since 2015.
Investment Objective
The Fund seeks long-term growth of capital.
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
Volatility returned with a vengeance during the six months ended April 30, 2018 after an unusually long period of calm in equity markets, with the MSCI All Country World Ex. U.S. Index (ND) ultimately returning 3.47% (all international and global returns are in U.S. Dollars) over the period. Continuing from the tail end of 2017, the markets saw an initial new-year surge which then faded, and markets fell quite sharply over the subsequent months in response to fears of higher interest rates, rising inflation and upheaval in the large and influential Information Technology sector. With regards to currency, the Euro continued to strengthen against the U.S. Dollar and rose by 3.71% over the period, while the British Pound Sterling strengthened similarly by some 3.72%. This currency strength can be attributed partly to ongoing improved growth in both the Eurozone and in the U.K.
Performance
Harbor Diversified International All Cap Fund returned 2.09% (Institutional Class), 2.08% (Retirement Class), 1.95% (Administrative Class), and 1.91% (Investor Class), underperforming the 3.47% return of the MSCI All Country World Ex. U.S. Index (ND) over the period, with negative contribution from stock selection and regional allocation only partially offset by the positive influence from currency exposure. More specifically, stock selection within Japan was the largest negative contributing factor to relative performance over the period. Stock selection within the Pacific ex-Japan sleeve (particularly Hong Kong) also contributed negatively, as did stock selection within Europe (specifically the U.K.). The Fund’s residual cash remained a detractor during this six-month period as well. Conversely, stock selection in Canada was a notable positive over the period, as was stock selection within emerging markets (particularly China and South Africa). The Fund’s overweight exposure to the stronger British Pound Sterling also contributed positively.
From a sector standpoint, the Fund’s stock specific exposure within the Industrials sector and the aggregate underweight to the outperforming Energy sector were negative contributors. Conversely, stock selection within the Financials and Consumer Staples sectors contributed positively during the six-month period. This was primarily due to not owning the large Australian banks (such as Westpac Banking Corporation and Commonwealth Bank of Australia).
10
Harbor Diversified International All Cap Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | 5 Years | Annualized | ||||||||
6 Months | Life of Fund | ||||||||||
Harbor Diversified International All Cap Fund | |||||||||||
Institutional Class1 | 2.09% | 12.39% | N/A | 8.32% | |||||||
Retirement Class1,2 | 2.08 | 12.48 | N/A | 8.34 | |||||||
Administrative Class1 | 1.95 | 12.05 | N/A | 8.02 | |||||||
Investor Class1 | 1.91 | 11.95 | N/A | 7.92 | |||||||
Comparative Index | |||||||||||
MSCI All Country World Ex. U.S. (ND)1 | 3.47% | 15.91% | N/A | 10.48% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.85% (Net) and 1.07% (Gross) (Institutional Class); 0.77% (Net) and 0.99% (Gross) (Retirement Class); 1.10% (Net) and 1.32% (Gross) (Administrative Class); 1.22% (Net) and 1.44% (Gross) (Investor Class). The net expense ratios reflect an expense limitation agreement (excluding interest expense, if any) effective through 2/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
Outlook & Strategy
With the re-emergence of market volatility, the “synchronized global recovery” that had widely become a consensus view was quickly forgotten as the prospects of a trade war became the new threat to this order. Markets are continually forward discounting mechanisms and with this in mind, there are three areas that remain of concern to us: first, monetary policy is reversing after several years of easing; second, profitability may be peaking after many years of margin expansion with some signs of inflation in certain areas as the economy reaches full employment; and finally, investor positioning is becoming crowded within certain sectors, especially Information Technology. Balancing these concerns, however, underlying revenue and earnings growth are currently healthy and the recent correction has opened up more attractive valuations in certain areas of the markets, in our opinion.
1 | The “Life of Fund” return as shown reflects the period 11/02/2015 through 04/30/2018. |
2 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Marathon Asset Management LLP as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Investing in international and emerging markets poses special risks, including potentially greater price volatility due to social, political and economic factors, as well as currency exchange rate fluctuations. These risks are more severe for securities of issuers in emerging market regions. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
11
Harbor Diversified International All Cap Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Samsung Electronics Co. Ltd. | 1.5% |
2. Fairfax Financial Holdings Ltd. | 1.1% |
3. Taiwan Semiconductor Manufacturing Co. Ltd. | 1.0% |
4. Intertek Group plc | 0.9% |
5. Brookfield Asset Management Inc. | 0.8% |
6. Baidu Inc. ADR | 0.7% |
7. Canadian Natural Resources Ltd. | 0.7% |
8. Fresenius Medical Care AG & Co. KGaA | 0.7% |
9. Rightmove plc | 0.7% |
10. Shinhan Financial Group Co. Ltd. | 0.7% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
Europe | 48.9% | |
United Kingdom | 19.7% | |
Germany | 4.5% | |
France | 3.9% | |
Switzerland | 3.6% | |
Denmark | 3.2% | |
Netherlands | 2.8% | |
Italy | 2.1% | |
Sweden | 1.9% | |
Finland | 1.4% | |
Russia | 1.4% | |
Spain | 1.2% | |
Greece | 0.9% | |
Ireland | 0.4% | |
Norway | 0.5% | |
Turkey | 0.4% | |
Belgium | 0.4% | |
Austria | 0.4% | |
Czech Republic | 0.2% |
Pacific Basin | 35.5% | |
Japan | 16.5% | |
South Korea | 4.9% | |
Australia | 3.7% | |
China | 3.1% | |
Hong Kong | 2.7% | |
Taiwan | 2.4% | |
Singapore | 1.1% | |
Thailand | 0.6% | |
Indonesia | 0.2% | |
New Zealand | 0.2% | |
Philippines | 0.1% | |
North America | 7.0% | |
Canada | 6.6% | |
United States | 0.4% | |
Latin America | 5.3% | |
Brazil | 2.8% | |
Chile | 1.0% | |
Mexico | 0.9% | |
Colombia | 0.4% | |
Peru | 0.2% | |
Africa | 2.2% | |
South Africa | 2.2% | |
Middle East/Central Asia | 1.1% | |
India | 1.1% |
12
Harbor Diversified International All Cap Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—96.6% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—1.6% | |||
23,243 | Airbus SE (France) | $ 2,728 | |
254,876 | BAE Systems plc (United Kingdom) | 2,139 | |
96,529 | Embraer SA (Brazil)* | 610 | |
2,855 | MTU Aero Engines AG (Germany) | 491 | |
184,626 | Rolls-Royce Holdings plc (United Kingdom)* | 2,132 | |
5,638 | Saab AB (Sweden) | 231 | |
9,344 | Thales SA (France) | 1,184 | |
9,515 | |||
AIR FREIGHT & LOGISTICS—0.2% | |||
14,303 | Oesterreichische Post AG (Austria) | 687 | |
27,100 | Yamato Holdings Co. Ltd. (Japan)* | 697 | |
1,384 | |||
AIRLINES—0.2% | |||
47,497 | EasyJet plc (United Kingdom) | 1,035 | |
8,400 | Japan Airlines Co. Ltd. (Japan) | 332 | |
1,367 | |||
AUTO COMPONENTS—0.8% | |||
11,100 | Bridgestone Corp. (Japan) | 464 | |
5,180 | CIE Automotive SA (Spain) | 194 | |
86,025 | Gestamp Automocion SA ADR (Spain)*,1 | 697 | |
5,000 | Koito Manufacturing Co. Ltd. (Japan) | 335 | |
22,843 | Magna International Inc. (Canada) | 1,349 | |
1,240,565 | Nemak SAB de CV (Mexico) | 931 | |
7,609 | Nokian Renkaat OYJ (Finland) | 305 | |
21,900 | Sumitomo Electric Industries Ltd. (Japan) | 335 | |
3,900 | Toyota Industries Corp. (Japan) | 230 | |
4,840 | |||
AUTOMOBILES—1.4% | |||
18,719 | Bayerische Motoren Werke AG (Germany) | 2,081 | |
12,074 | Hyundai Motor Co. (South Korea) | 1,801 | |
302,424 | Piaggio & C. SpA (Italy) | 793 | |
15,300 | Subaru Corp. (Japan) | 514 | |
49,500 | Toyota Motor Corp. (Japan) | 3,246 | |
8,435 | |||
BANKS—9.5% | |||
210,481 | Alpha Bank AE (Greece)* | 556 | |
313,410 | Axis Bank Ltd. (India)* | 2,424 | |
48,957 | Banco Santander SA (Spain) | 316 | |
35,909 | Bancolombia SA ADR (Colombia)1 | 1,711 | |
335,900 | Bangkok Bank PCL (Thailand) | 2,045 | |
221,463 | Bank of Ireland Group plc (Ireland)* | 1,987 | |
325,668 | Bankia SA (Spain) | 1,429 | |
773,108 | Barclays plc (United Kingdom) | 2,204 | |
15,151 | BGEO Group plc (United Kingdom)* | 724 | |
34,514 | BNP Paribas SA (France) | 2,664 | |
23,300 | Chiba Bank Ltd. (Japan) | 188 | |
33,900 | Concordia Financial Group Ltd. (Japan) | 197 | |
10,362 | Danske Bank AS (Denmark) | 361 | |
29,817 | DBS Group Holdings Ltd. (Singapore) | 688 | |
43,270 | DNB ASA (Norway) | 809 | |
254,900 | Equity Group Holdings Ltd. (Kenya) | 126 | |
60,000 | Fukuoka Financial Group Inc. (Japan) | 321 | |
451,671 | Grupo Financiero Inbursa SAB de CV (Mexico) | 752 | |
27,555 | Hana Financial Group Inc. (South Korea) | 1,224 | |
336,042 | HSBC Holdings plc (Hong Kong) | 3,348 | |
132,881 | Intesa Sanpaolo SpA (Italy) | 506 | |
8,723 | Itausa - Investimentos Itau SA (Brazil)* | 34 | |
105,600 | Kasikornbank PCL (Thailand) | 651 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
BANKS—Continued | |||
25,873 | Komercni Banka AS (Czech Republic) | $ 1,116 | |
1,692,512 | Lloyds Banking Group plc (United Kingdom) | 1,501 | |
91,900 | Mitsubishi UFJ Financial Group Inc. (Japan) | 616 | |
506,000 | Mizuho Financial Group Inc. (Japan) | 916 | |
97,218 | Nordea Bank AB (Sweden) | 989 | |
283,300 | Resona Holdings Inc. (Japan) | 1,610 | |
19,478 | Royal Bank of Canada (Canada) | 1,481 | |
33,251 | Sberbank of Russia PJSC ADR (Russia)1 | 491 | |
95,452 | Shinhan Financial Group Co. Ltd. (South Korea) | 4,250 | |
102,453 | Standard Bank Group Ltd. (South Africa) | 1,757 | |
213,151 | Standard Chartered plc (United Kingdom) | 2,239 | |
69,100 | Sumitomo Mitsui Financial Group Inc. (Japan) | 2,880 | |
17,500 | Sumitomo Mitsui Trust Holdings Inc. (Japan) | 742 | |
173,048 | Svenska Handelsbanken AB (Sweden) | 1,930 | |
28,137 | Toronto-Dominion Bank (Canada) | 1,580 | |
860,252 | Turkiye Garanti Bankasi AS (Turkey) | 1,948 | |
120,981 | UniCredit SpA (Italy) | 2,623 | |
67,015 | United Overseas Bank Ltd. (Singapore) | 1,518 | |
55,452 | |||
BEVERAGES—3.9% | |||
24,774 | Anheuser-Busch InBev SA (Belgium) | 2,461 | |
7,000 | Asahi Group Holdings Ltd. (Japan) | 354 | |
21,223 | Britvic plc (United Kingdom) | 210 | |
15,468 | Carlsberg AS (Denmark) | 1,730 | |
282,666 | China Resources Beer Holdings Co. Ltd. (China) | 1,217 | |
146,944 | Cia Cervecerias Unidas SA (Chile) | 2,035 | |
241,565 | Coca-Cola Amatil Ltd. (Australia) | 1,686 | |
114,790 | Davide Campari-Milano SpA (Italy) | 860 | |
82,996 | Diageo plc (United Kingdom) | 2,961 | |
172,734 | East African Breweries Ltd. (Kenya) | 431 | |
30,534 | Heineken NV (Netherlands) | 3,215 | |
35,528 | Hite Jinro Co. Ltd. (South Korea) | 723 | |
101,800 | Kirin Holdings Co. Ltd. (Japan) | 2,857 | |
15,300 | Suntory Beverage & Food Ltd. (Japan) | 753 | |
222,000 | Tsingtao Brewery Co. Ltd. (China) | 1,149 | |
22,642 | |||
BIOTECHNOLOGY—0.2% | |||
33,573 | Abcam plc (United Kingdom) | 563 | |
15,530 | Grifols SA (Spain) | 435 | |
998 | |||
BUILDING PRODUCTS—1.4% | |||
189,268 | Assa Abloy AB Class B (Sweden) | 3,966 | |
33 | Belimo Holding AG (Switzerland) | 136 | |
8,072 | Geberit AG (Switzerland) | 3,445 | |
35,273 | GWA Group Ltd. (Australia) | 102 | |
34,600 | LIXIL Group Corp. (Japan) | 775 | |
8,424 | |||
CAPITAL MARKETS—2.7% | |||
197,063 | 3i Group plc (United Kingdom) | 2,544 | |
75,270 | Banco BTG Pactual SA (Brazil)* | 481 | |
112,411 | Brookfield Asset Management Inc. (Canada) | 4,455 | |
24,526 | Close Brothers Group plc (United Kingdom) | 516 | |
116,923 | IG Group Holdings plc (United Kingdom) | 1,335 | |
13,200 | Japan Exchange Group Inc. (Japan) | 244 | |
106,310 | Jupiter Fund Management plc (United Kingdom) | 665 | |
165,133 | NEX Group plc (United Kingdom) | 2,241 | |
163,900 | Nomura Holdings Inc. (Japan) | 944 |
13
Harbor Diversified International All Cap Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
CAPITAL MARKETS—Continued | |||
60,318 | St. James's Place plc (United Kingdom) | $ 940 | |
98,629 | UBS Group AG (Switzerland)* | 1,656 | |
16,021 | |||
CHEMICALS—2.7% | |||
23,743 | Akzo Nobel NV (Netherlands) | 2,150 | |
26,504 | BASF SE (Germany) | 2,758 | |
1,772 | Croda International plc (United Kingdom) | 108 | |
170,039 | DuluxGroup Ltd. (Australia) | 989 | |
49,344 | Enaex SA (Chile) | 754 | |
22,900 | Nissan Chemical Industries Ltd. (Japan)* | 1,018 | |
4,700 | Nitto Denko Corp. (Japan) | 349 | |
121,960 | Orica Ltd. (Australia) | 1,817 | |
102,684 | PhosAgro PJSC GDR (Russia)2 | 1,481 | |
4,500 | Shin-Etsu Chemical Co. Ltd. (Japan) | 452 | |
12,943 | Symrise AG (Germany) | 1,046 | |
109,348 | Tikkurila OYJ (Finland) | 1,977 | |
91,200 | Toray Industries Inc. (Japan) | 851 | |
15,750 | |||
COMMERCIAL SERVICES & SUPPLIES—2.6% | |||
4,200 | AEON Delight Co. Ltd. (Japan) | 147 | |
1,680,593 | Cleanaway Waste Management Ltd. (Australia) | 1,996 | |
40,513 | Edenred (France) | 1,396 | |
41,421 | Elis SA (France) | 991 | |
525,269 | G4S plc (United Kingdom) | 1,866 | |
244,446 | HomeServe plc (United Kingdom) | 2,485 | |
24,452 | Prosegur Cia de Seguridad SA (Spain) | 185 | |
64,022 | Ritchie Bros Auctioneers Inc. (Canada) | 2,092 | |
10,878 | S-1 Corp. (South Korea) | 997 | |
19,200 | Secom Co. Ltd. (Japan) | 1,440 | |
15,406 | Securitas AB (Sweden)3 | 249 | |
682,199 | Serco Group plc (United Kingdom)* | 901 | |
7,700 | Sohgo Security Services Co. Ltd. (Japan) | 380 | |
15,125 | |||
CONSTRUCTION & ENGINEERING—0.7% | |||
30,707 | Boskalis Westminster NV (Netherlands) | 910 | |
43,600 | Maeda Corp. (Japan) | 538 | |
107,500 | Obayashi Corp. (Japan) | 1,238 | |
91,900 | Shimizu Corp. (Japan) | 909 | |
3,700 | SHO-BOND Holdings Co. Ltd. (Japan) | 280 | |
3,875 | |||
CONSTRUCTION MATERIALS—0.4% | |||
7,691 | CRH plc (Ireland) | 273 | |
1,690 | Heidelbergcement AG (Germany) | 165 | |
4,235 | Imerys SA (France) | 386 | |
5,464 | Vicat SA (France) | 403 | |
46,144 | Wienerberger AG (Austria) | 1,163 | |
2,390 | |||
CONSUMER FINANCE—0.6% | |||
21,200 | AEON Financial Service Co. Ltd. (Japan) | 497 | |
407,832 | Gentera SAB de CV (Mexico)* | 324 | |
201,943 | International Personal Finance plc (United Kingdom) | 676 | |
233,769 | Non-Standard Finance plc (United Kingdom) | 206 | |
98,123 | Provident Financial plc (United Kingdom) | 897 | |
31,751 | Shriram Transport Finance Co. Ltd. (India) | 763 | |
3,363 | |||
CONTAINERS & PACKAGING—0.1% | |||
30,231 | Amcor Ltd. (Australia) | 311 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
CONTAINERS & PACKAGING—Continued | |||
65,221 | Orora Ltd. (Australia) | $ 164 | |
26,900 | Toyo Seikan Group Holdings Ltd. (Japan) | 423 | |
898 | |||
DISTRIBUTORS—0.2% | |||
109,600 | Inchcape plc (United Kingdom) | 1,095 | |
DIVERSIFIED FINANCIAL SERVICES—0.1% | |||
928,000 | First Pacific Co. Ltd. (Hong Kong) | 475 | |
DIVERSIFIED TELECOMMUNICATION SERVICES—2.0% | |||
31,434 | BCE Inc. (Canada) | 1,334 | |
100,593 | Deutsche Telekom AG (Germany) | 1,761 | |
479,364 | Koninklijke KPN NV (Netherlands) | 1,492 | |
101,365 | KT Corp. ADR (South Korea)1 | 1,361 | |
68,200 | Nippon Telegraph & Telephone Corp. (Japan) | 3,236 | |
225,449 | Spark New Zealand Ltd. (New Zealand) | 548 | |
436,192 | Telkom SA SOC Ltd. (South Africa) | 1,992 | |
11,724 | |||
ELECTRIC UTILITIES—0.1% | |||
55,700 | Tohoku Electric Power Co. Inc. (Japan) | 719 | |
ELECTRICAL EQUIPMENT—1.5% | |||
46,928 | Legrand SA (France) | 3,652 | |
1,953,850 | TECO Electric and Machinery Co. Ltd. (Taiwan) | 1,586 | |
18,800 | Ushio Inc. (Japan) | 265 | |
50,102 | Vestas Wind Systems AS (Denmark) | 3,241 | |
8,744 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.9% | |||
9,300 | Azbil Corp. (Japan) | 433 | |
196,000 | Chroma ATE Inc. (Taiwan) | 986 | |
328,735 | Delta Electronics Inc. (Taiwan) | 1,192 | |
1,615 | Hirose Electric Co. Ltd. (Japan)* | 227 | |
8,500 | Hitachi High-Technologies Corp. (Japan) | 396 | |
329,000 | Hitachi Ltd. (Japan) | 2,401 | |
600 | Keyence Corp. (Japan) | 366 | |
31,700 | Kyocera Corp. (Japan) | 2,025 | |
6,600 | Nippon Signal Co. Ltd. (Japan) | 63 | |
13,700 | Omron Corp. (Japan) | 739 | |
11,000 | Shimadzu Corp. (Japan) | 299 | |
37,720 | Spectris plc (United Kingdom) | 1,392 | |
5,700 | TDK Corp. (Japan) | 491 | |
11,010 | |||
ENERGY EQUIPMENT & SERVICES—0.4% | |||
67,627 | John Wood Group plc (United Kingdom) | 527 | |
35,093 | Petrofac Ltd. (United Kingdom) | 291 | |
331,056 | Saipem SpA (Italy)* | 1,264 | |
8,368 | Technipfmc plc (France) | 275 | |
2,357 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—0.4% | |||
200,961 | Grivalia Properties REIC AE (Greece) | 2,207 | |
FOOD & STAPLES RETAILING—2.1% | |||
42,743 | Alimentation Couche-Tard Inc. (Canada) | 1,848 | |
96,375 | Almacenes Exito SA (Colombia) | 582 | |
41,000 | Dairy Farm International Holdings Ltd. (Hong Kong) | 344 | |
67,982 | Koninklijke Ahold Delhaize NV (Netherlands) | 1,640 | |
5,500 | Lawson Inc. (Japan) | 363 | |
51,154 | Loblaw Cos. Ltd. (Canada) | 2,602 | |
11,477 | Magnit PJSC (Russia)* | 891 |
14
Harbor Diversified International All Cap Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
FOOD & STAPLES RETAILING—Continued | |||
10,400 | Matsumotokiyoshi Holdings Co. Ltd. (Japan) | $ 463 | |
277,899 | Metcash Ltd. (Australia)* | 750 | |
47,400 | Seven & I Holdings Co. Ltd. (Japan) | 2,089 | |
5,100 | Sundrug Co. Ltd. (Japan) | 262 | |
249,314 | Tesco plc (United Kingdom) | 808 | |
12,642 | |||
FOOD PRODUCTS—2.5% | |||
163 | Barry Callebaut AG (Switzerland) | 293 | |
585,000 | China Mengniu Dairy Co. Ltd. (China) | 1,886 | |
601,100 | Delfi Ltd. (Singapore) | 653 | |
136,416 | Devro plc (United Kingdom) | 398 | |
618,067 | Grupo Lala SAB de CV (Mexico) | 789 | |
134,889 | Industrias Bachoco SAB de CV (Mexico) | 692 | |
3,900 | Meiji Holdings Co. Ltd. (Japan) | 313 | |
4,200 | NH Foods Ltd. (Japan) | 184 | |
48,100 | Nippon Suisan Kaisha Ltd. (Japan) | 261 | |
24,842 | PGG Wrightson Ltd. (New Zealand) | 11 | |
61,927 | Tiger Brands Ltd. (South Africa) | 1,935 | |
910,255 | Tingyi Cayman Islands Holding Corp. (China) | 1,725 | |
17,800 | Toyo Suisan Kaisha Ltd. (Japan) | 701 | |
121,963 | Ulker Biskuvi Sanayi AS (Turkey)* | 639 | |
19,705 | Viscofan SA (Spain) | 1,306 | |
3,152,000 | Want Want China Holdings Ltd. (China) | 2,785 | |
14,571 | |||
GAS UTILITIES—0.1% | |||
18,700 | Tokyo Gas Co. Ltd. (Japan) | 502 | |
HEALTH CARE EQUIPMENT & SUPPLIES—2.7% | |||
11,937 | Ambu A/S (Denmark) | 277 | |
46,182 | Coloplast AS (Denmark) | 3,912 | |
599,343 | ConvaTec Group plc (United Kingdom) | 1,784 | |
73,521 | GN Store Nord AS (Denmark) | 2,583 | |
10,500 | Hoya Corp. (Japan) | 561 | |
51,081 | Koninklijke Philips NV (Netherlands) | 2,162 | |
7,600 | Olympus Corp. (Japan) | 283 | |
342,955 | Sigma Healthcare Ltd. (Australia) | 199 | |
19,248 | Smith & Nephew plc (United Kingdom) | 369 | |
6,242 | Sonova Holding AG (Switzerland) | 1,029 | |
73,915 | William Demant Holding AS (Denmark)* | 2,881 | |
16,040 | |||
HEALTH CARE PROVIDERS & SERVICES—0.9% | |||
40,300 | Alfresa Holdings Corp. (Japan) | 889 | |
42,113 | Fresenius Medical Care AG & Co. KGaA (Germany) | 4,273 | |
5,162 | |||
HOTELS, RESTAURANTS & LEISURE—3.8% | |||
1,184,000 | Ajisen China Holdings Ltd. (China) | 561 | |
23,816 | Carnival plc (United Kingdom) | 1,548 | |
190,495 | Compass Group plc (United Kingdom) | 4,087 | |
476,900 | GL Ltd. (Singapore) | 291 | |
86,872 | GVC Holdings plc (United Kingdom)* | 1,063 | |
443,712 | Hongkong & Shanghai Hotels Ltd. (Hong Kong) | 672 | |
567,665 | Merlin Entertainments plc (United Kingdom) | 2,872 | |
21,845 | Paddy Power Betfair plc (United Kingdom) | 2,154 | |
42,782 | Playtech plc (United Kingdom) | 477 | |
258,524 | SSP Group plc (United Kingdom) | 2,313 | |
1,041,006 | Thomas Cook Group plc (United Kingdom) | 1,768 | |
266,495 | Tsogo Sun Holdings Ltd. (South Africa) | 487 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HOTELS, RESTAURANTS & LEISURE—Continued | |||
110,518 | TUI AG (United Kingdom) | $ 2,499 | |
37,458 | Yum China Holdings Inc. (United States) | 1,602 | |
22,394 | |||
HOUSEHOLD DURABLES—1.1% | |||
42,195 | Barratt Developments plc (United Kingdom) | 324 | |
51,300 | Casio Computer Co. Ltd. (Japan) | 764 | |
120,095 | GUD Holdings Ltd. (Australia) | 1,141 | |
92,394 | McCarthy & Stone plc (United Kingdom) | 172 | |
447,000 | MRV Engenharia e Participacoes SA (Brazil) | 1,914 | |
36,300 | Nikon Corp. (Japan) | 632 | |
2,500 | Rinnai Corp. (Japan) | 249 | |
32,000 | Sekisui Chemical Co. Ltd. (Japan) | 566 | |
9,900 | Sony Corp. (Japan) | 462 | |
6,224 | |||
HOUSEHOLD PRODUCTS—0.7% | |||
23,200 | Lion Corp. (Japan) | 500 | |
43,457 | Reckitt Benckiser Group plc (United Kingdom) | 3,409 | |
3,909 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—0.0% | |||
2,069,000 | Lopez Holdings Corp. (Philippines) | 172 | |
INDUSTRIAL CONGLOMERATES—2.2% | |||
304,000 | CK Hutchison Holdings Ltd. (Hong Kong) | 3,595 | |
23,426 | DCC plc (United Kingdom) | 2,249 | |
57,400 | Jardine Matheson Holdings Ltd. (Hong Kong) | 3,476 | |
17,954 | LG Corp. (South Korea) | 1,358 | |
712,286 | Quinenco SA (Chile) | 2,333 | |
13,011 | |||
INSURANCE—5.5% | |||
61,312 | Admiral Group plc (United Kingdom) | 1,678 | |
43,772 | AXA SA (France) | 1,252 | |
113,500 | Dai-ichi Life Holdings Inc. (Japan) | 2,253 | |
11,680 | Fairfax Financial Holdings Ltd. (Canada) | 6,466 | |
87,400 | Great Eastern Holdings Ltd. (Singapore) | 2,044 | |
3,649 | Hannover Rueck SE (Germany) | 513 | |
487 | Helvetia Holding AG (Switzerland) | 289 | |
123,800 | Japan Post Holdings Co. Ltd. (Japan) | 1,504 | |
60,000 | MS&AD Insurance Group Holdings Inc. (Japan) | 2,022 | |
264,294 | Old Mutual plc (South Africa) | 919 | |
191,483 | Porto Seguro SA (Brazil) | 2,471 | |
137,154 | QBE Insurance Group Ltd. (Australia) | 1,024 | |
75,863 | Sampo OYJ (Finland) | 4,103 | |
9,868 | Samsung Fire & Marine Insurance Co. Ltd. (South Korea) | 2,464 | |
29,600 | Sompo Holdings Inc. (Japan) | 1,239 | |
16,400 | Sony Financial Holdings Inc. (Japan) | 299 | |
14,300 | T&D Holdings Inc. (Japan) | 243 | |
27,900 | Tokio Marine Holdings Inc. (Japan) | 1,317 | |
32,100 | |||
INTERNET & DIRECT MARKETING RETAIL—0.4% | |||
128,340 | B2W Cia Digital (Brazil)* | 1,059 | |
3,429 | CJ O Shopping Co. Ltd. (South Korea) | 715 | |
3,332 | GS Home Shopping Inc. (South Korea) | 541 | |
796 | Zooplus AG (Germany)* | 165 | |
2,480 | |||
INTERNET SOFTWARE & SERVICES—2.6% | |||
148,654 | Auto Trader Group plc (United Kingdom) | 722 |
15
Harbor Diversified International All Cap Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
INTERNET SOFTWARE & SERVICES—Continued | |||
16,399 | Baidu Inc. ADR (China)*,1 | $ 4,115 | |
105,033 | Carsales.com Ltd. (Australia) | 1,127 | |
177,388 | Domain Holdings Australia Ltd. (Australia)* | 411 | |
141,438 | Just Eat plc (United Kingdom)* | 1,506 | |
134,275 | Moneysupermarket.com Group plc (United Kingdom) | 553 | |
265,520 | PChome Online Inc. (Taiwan)* | 1,230 | |
66,446 | Rightmove plc (United Kingdom) | 4,167 | |
37,624 | Yandex NV (Russia)* | 1,255 | |
36,599 | ZPG plc (United Kingdom) | 181 | |
15,267 | |||
IT SERVICES—0.9% | |||
10,694 | Amadeus IT Group SA (Spain) | 780 | |
14,889 | Genpact Ltd. (United States) | 475 | |
11,400 | ITOCHU Techno-Solutions Corp. (Japan) | 236 | |
5,000 | Nomura Research Institute Ltd. (Japan) | 257 | |
121,900 | NTT Data Corp. (Japan) | 1,314 | |
8,700 | OBIC Co. Ltd. (Japan) | 729 | |
12,600 | SCSK Corp. (Japan) | 539 | |
168,708 | Wipro Ltd. (India) | 700 | |
2,626 | Wirecard AG (Germany) | 355 | |
5,385 | |||
LEISURE PRODUCTS—0.7% | |||
19,571 | Amer Sports OYJ (Finland)* | 599 | |
52,200 | Bandai Namco Holdings Inc. (Japan) | 1,766 | |
168,608 | Giant Manufacturing Co. Ltd. (Taiwan) | 856 | |
598,000 | Goodbaby International Holdings Ltd. (Hong Kong) | 380 | |
2,000 | Shimano Inc. (Japan) | 266 | |
8,470 | Spin Master Corp. (Canada)* | 317 | |
4,184 | |||
LIFE SCIENCES TOOLS & SERVICES—0.5% | |||
4,424 | Eurofins Scientific SE (France) | 2,386 | |
5,986 | Gerresheimer AG (Germany) | 487 | |
726 | Tecan Group AG (Switzerland) | 160 | |
3,033 | |||
MACHINERY—2.7% | |||
7,530 | Andritz AG (Austria) | 405 | |
457 | Bucher Industries AG (Switzerland) | 168 | |
241,394 | CNH Industrial NV (Italy) | 2,970 | |
6,800 | Daifuku Co. Ltd. (Japan) | 364 | |
1,200 | Fanuc Corp. (Japan) | 257 | |
7,041 | GEA Group AG (Germany) | 275 | |
3,300 | Glory Ltd. (Japan) | 114 | |
1,600 | Hirata Corp. (Japan) | 151 | |
7,000 | Hoshizaki Corp. (Japan) | 650 | |
20,635 | Hyundai Elevator Co. Ltd. (South Korea) | 1,994 | |
15,257 | IMI plc (United Kingdom) | 229 | |
3,631 | Kone OYJ (Finland) | 180 | |
21,700 | Kubota Corp. (Japan) | 366 | |
5,900 | Makita Corp. (Japan) | 264 | |
19,200 | Mitsubishi Heavy Industries Ltd. (Japan) | 759 | |
62,411 | Rotork plc (United Kingdom) | 281 | |
103,825 | Sandvik AB (Sweden) | 1,770 | |
709 | Schindler Holding AG (Switzerland) | 142 | |
19,392 | Stabilus SA (Germany)* | 1,743 | |
47,914 | Wartsila OYJ Abp (Finland) | 1,017 | |
1,096,000 | Yungtay Engineering Co. Ltd. (Taiwan) | 1,909 | |
16,008 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
MARINE—0.3% | |||
9,983,696 | Cia Sud Americana de Vapores SA (Chile)* | $ 447 | |
527,168 | Grindrod Ltd. (South Africa)* | 608 | |
114,974 | Irish Continental Group plc (Ireland) | 779 | |
1,834 | |||
MEDIA—3.2% | |||
23,959 | Axel Springer SE (Germany) | 1,963 | |
1,036,500 | BEC World PCL (Thailand) | 339 | |
23,649 | CTS Eventim AG & Co. KGaA (Germany) | 1,106 | |
119,118 | Daily Mail & General Trust plc (United Kingdom) | 1,107 | |
1,214,681 | Fairfax Media Ltd. (Australia) | 650 | |
64,600 | Fuji Media Holdings Inc. (Japan) | 1,059 | |
83,255 | Grupo Televisa SAB ADR (Mexico)1 | 1,492 | |
133,177 | Informa plc (United Kingdom) | 1,352 | |
740,928 | ITV plc (United Kingdom) | 1,541 | |
14,061 | JCDecaux SA (France) | 504 | |
11,458,321 | Media Nusantara Citra TBK PT (Indonesia) | 1,084 | |
42,639 | Mediaset Espana Comunicacion SA (Spain) | 408 | |
21,144 | Modern Times Group Mortgage AB Class B (Sweden) | 831 | |
51,420 | Nippon Television Holdings Inc. (Japan) | 901 | |
17,457 | Schibsted ASA Class A (Norway) | 509 | |
14,752 | Schibsted ASA Class B (Norway) | 397 | |
288,409 | Sky Network Television Ltd. (New Zealand) | 461 | |
35,849 | Sky plc (United Kingdom) | 680 | |
260,000 | Television Broadcasts Ltd. (Hong Kong) | 825 | |
7,300 | Toho Co. Ltd. (Japan) | 244 | |
83,279 | WPP plc (United Kingdom) | 1,429 | |
18,882 | |||
METALS & MINING—3.5% | |||
68,076 | Acerinox SA (Spain) | 956 | |
810,504 | Alumina Ltd. (Australia) | 1,595 | |
29,772 | Anglo American Platinum Ltd. (South Africa)* | 799 | |
68,410 | Anglo American plc (South Africa) | 1,614 | |
91,789 | Antofagasta plc (United Kingdom) | 1,226 | |
41,521 | ArcelorMittal SA (France) | 1,407 | |
112,014 | Barrick Gold Corp. (Canada) | 1,508 | |
32,066 | BHP Billiton Ltd. (Australia) | 748 | |
43,162 | BHP Billiton plc (United Kingdom) | 920 | |
167,222 | BlueScope Steel Ltd. (Australia) | 2,055 | |
55,790 | Cia de Minas Buenaventura SAA ADR (Peru)1 | 890 | |
15,487 | Franco-Nevada Corp. (Canada) | 1,099 | |
405,945 | Glencore plc (United Kingdom)* | 1,955 | |
44,993 | Iluka Resources Ltd. (Australia) | 395 | |
15,100 | JFE Holdings Inc. (Japan) | 310 | |
87,108 | Newcrest Mining Ltd. (Australia) | 1,381 | |
25,879 | Rio Tinto plc (United Kingdom) | 1,411 | |
20,269 | |||
MULTILINE RETAIL—0.5% | |||
46,700 | Isetan Mitsukoshi Holdings Ltd. (Japan) | 520 | |
4,834 | Lotte Shopping Co. Ltd. (South Korea) | 1,152 | |
28,200 | Marui Group Co. Ltd. (Japan) | 585 | |
1,400 | Ryohin Keikaku Co. Ltd. (Japan) | 479 | |
2,736 | |||
MULTI-UTILITIES—0.1% | |||
43,693 | National Grid plc (United Kingdom) | 506 | |
OIL, GAS & CONSUMABLE FUELS—2.8% | |||
521,016 | BP plc (United Kingdom) | 3,870 | |
29,675 | Caltex Australia Ltd. (Australia) | 690 | |
120,170 | Canadian Natural Resources Ltd. (Canada) | 4,335 |
16
Harbor Diversified International All Cap Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
45,800 | INPEX Corp. (Japan) | $ 585 | |
15,248 | Lukoil PJSC ADR (Russia)1 | 1,005 | |
44,726 | PrairieSky Royalty Ltd. (Canada) | 992 | |
86,332 | Royal Dutch Shell plc (United Kingdom) | 3,049 | |
49,820 | Statoil ASA (Norway) | 1,274 | |
13,151 | Total SA (France) | 827 | |
16,627 | |||
PERSONAL PRODUCTS—1.8% | |||
309,651 | Asaleo Care Ltd. (Australia) | 301 | |
164,236 | Hengan International Group Co. Ltd. (China) | 1,461 | |
33,700 | Kao Corp. (Japan) | 2,422 | |
1,600 | Kose Corp. (Japan) | 296 | |
3,500 | Mandom Corp. (Japan) | 126 | |
265,668 | Natura Cosmeticos SA (Brazil) | 2,443 | |
4,600 | Shiseido Co. Ltd. (Japan)* | 298 | |
57,960 | Unilever plc (United Kingdom) | 3,251 | |
10,598 | |||
PHARMACEUTICALS—2.0% | |||
24,000 | Astellas Pharma Inc. (Japan) | 351 | |
12,989 | Dechra Pharmaceuticals plc (United Kingdom) | 488 | |
66,007 | Haw Par Corp. Ltd. (Singapore) | 692 | |
32,147 | Novartis AG (Switzerland) | 2,474 | |
62,899 | Novo Nordisk AS (Denmark) | 2,958 | |
10,800 | Otsuka Holdings Co. Ltd. (Japan)* | 565 | |
16,508 | Roche Holding AG (Switzerland) | 3,668 | |
5,800 | Sawai Pharmaceutical Co. Ltd. (Japan) | 251 | |
17,400 | Sumitomo Dainippon Pharma Co. Ltd. (Japan) | 316 | |
11,763 | |||
PROFESSIONAL SERVICES—3.4% | |||
34,851 | Adecco Group AG (Switzerland) | 2,308 | |
259,618 | ALS Ltd. (Australia) | 1,515 | |
172,907 | Capita plc (United Kingdom) | 455 | |
8,283 | DKSH Holding AG (Switzerland) | 664 | |
93,511 | Experian plc (United Kingdom) | 2,143 | |
614,785 | Hays plc (United Kingdom) | 1,515 | |
77,849 | Intertek Group plc (United Kingdom) | 5,235 | |
101,417 | IPH Ltd. (Australia) | 278 | |
15,200 | Nomura Co. Ltd. (Japan) | 305 | |
48,262 | PageGroup plc (United Kingdom) | 356 | |
21,200 | Persol Holdings Co Ltd. (Japan) | 504 | |
5,184 | Randstad Holding NV (Netherlands) | 334 | |
19,800 | Recruit Holdings Co. Ltd. (Japan) | 456 | |
138,245 | RELX plc (United Kingdom) | 2,955 | |
6,200 | TechnoPro Holdings Inc. (Japan) | 361 | |
5,179 | Teleperformance (France) | 832 | |
20,216 | |||
REAL ESTATE MANAGEMENT & DEVELOPMENT—0.5% | |||
19,500 | CK Asset Holdings Ltd. (Hong Kong) | 168 | |
11,800 | Daiwa House Industry Co. Ltd. (Japan) | 432 | |
295,115 | LPS Brasil Consultoria de Imoveis SA (Brazil)* | 396 | |
53,600 | Mitsubishi Estate Co. Ltd. (Japan) | 980 | |
47,880 | New World Development Co. Ltd. (Hong Kong) | 70 | |
52,900 | NTT Urban Development Corp. (Japan) | 623 | |
65,476 | United Industrial Corp. Ltd. (Singapore) | 161 | |
2,830 | |||
ROAD & RAIL—1.4% | |||
11,484 | Canadian Pacific Railway Ltd. (Canada) | 2,095 | |
3,381 | DSV A/S (Denmark) | 268 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
ROAD & RAIL—Continued | |||
19,500 | East Japan Railway Co. (Japan) | $ 1,873 | |
90,755 | Globaltrans Investment plc GDR (Russia)*,2 | 955 | |
47,827 | National Express Group plc (United Kingdom) | 258 | |
30,300 | Senko Co. Ltd. (Japan) | 233 | |
208,805 | Stagecoach Group plc (United Kingdom) | 446 | |
30,400 | West Japan Railway Co. (Japan) | 2,149 | |
8,277 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—1.8% | |||
1,762 | AMS AG (Switzerland) | 145 | |
4,391 | ASML Holding NV (Netherlands)3 | 836 | |
77,500 | Renesas Electronics Corp. (Japan)* | 809 | |
27,128 | SK Hynix Inc. (South Korea) | 2,133 | |
795,000 | Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 6,056 | |
2,300 | Tokyo Electron Ltd. (Japan) | 442 | |
10,421 | |||
SOFTWARE—0.8% | |||
3,319 | Constellation Software Inc. (Canada) | 2,372 | |
2,900 | Oracle Corp. Japan (Japan) | 239 | |
191,700 | TOTVS SA (Brazil) | 1,751 | |
4,000 | Trend Micro Inc. (Japan) | 239 | |
4,601 | |||
SPECIALTY RETAIL—1.0% | |||
2,900 | ABC-Mart Inc. (Japan) | 191 | |
3,415,500 | Esprit Holdings Ltd. (Hong Kong)* | 1,180 | |
130,961 | Fourlis Holdings SA (Greece)* | 933 | |
50,579 | JUMBO SA (Greece) | 926 | |
162,206 | Pets at Home Group plc (United Kingdom) | 341 | |
17,200 | USS Co. Ltd. (Japan) | 361 | |
50,058 | WH Smith plc (United Kingdom) | 1,342 | |
108,300 | Yamada Denki Co. Ltd. (Japan) | 566 | |
5,840 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—2.3% | |||
6,400 | Canon Inc. (Japan) | 220 | |
45,700 | FUJIFILM Holdings Corp. (Japan) | 1,838 | |
42,922 | Logitech International SA (Switzerland) | 1,586 | |
27,800 | NEC Corp. (Japan) | 762 | |
14,283 | Neopost SA (France) | 385 | |
3,448 | Samsung Electronics Co. Ltd. (South Korea) | 8,546 y | |
13,337 | |||
TEXTILES, APPAREL & LUXURY GOODS—2.4% | |||
8,535 | adidas AG (Germany) | 2,098 | |
30,347 | Cie Financiere Richemont SA (Switzerland) | 2,885 | |
95,082 | Cie Financiere Richemont SA ADR (South Africa)1 | 904 | |
24,006 | Gildan Activewear Inc. (Canada) | 699 | |
338 | Hermes International (France) | 219 | |
2,130,000 | Li Ning Co. Ltd. (China)* | 2,398 | |
49,944 | Luxottica Group SpA (Italy) | 3,116 | |
918 | LVMH Moet Hennessy Louis Vuitton SE (France) | 319 | |
33,600 | Onward Holdings Co. Ltd. (Japan) | 277 | |
819,246 | Stella International Holdings Ltd. (Hong Kong) | 965 | |
86,000 | Texwinca Holdings Ltd. (Hong Kong) | 43 | |
13,923 | |||
TOBACCO—0.4% | |||
8,702 | British American Tobacco plc (United Kingdom) | 477 | |
9,238 | Imperial Brands plc (United Kingdom) | 331 |
17
Harbor Diversified International All Cap Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
TOBACCO—Continued | |||
12,900 | Japan Tobacco Inc. (Japan) | $ 347 | |
21,247 | Swedish Match AB (Sweden) | 953 | |
2,108 | |||
TRADING COMPANIES & DISTRIBUTORS—1.3% | |||
40,997 | Brenntag AG (Germany) | 2,348 | |
108,196 | Bunzl plc (United Kingdom) | 3,137 | |
5,889 | IMCD Group NV (Netherlands) | 362 | |
27,000 | ITOCHU Corp. (Japan) | 540 | |
36,000 | Mitsubishi Corp. (Japan) | 993 | |
7,380 | |||
TRANSPORTATION INFRASTRUCTURE—0.6% | |||
186,087 | China Merchants Port Holdings Co. Ltd. (China) | 416 | |
9,391 | Ferrovial SA (Spain) | 201 | |
91,434 | Getlink SE (France) | 1,290 | |
375,933 | Global Ports Investments plc GDR (Russia)*,2 | 1,293 | |
12,400 | Mitsubishi Logistics Corp. (Japan) | 286 | |
3,486 | |||
WIRELESS TELECOMMUNICATION SERVICES—1.5% | |||
240,596 | Bharti Airtel Ltd. (India) | 1,472 | |
781,627 | Idea Cellular Ltd. (India)* | 808 | |
28,300 | KDDI Corp. (Japan) | 760 | |
11,605 | Millicom International Cellular SA SDR (Sweden)*,2 | 769 | |
106,775 | MTN Group Ltd. (South Africa) | 1,072 | |
23,200 | NTT DoCoMo Inc. (Japan) | 599 | |
23,405 | PLDT Inc. (Philippines) | 655 | |
28,111 | Rogers Communications Inc. (Canada) | 1,327 | |
131,748 | SmarTone Telecommunications Holdings Ltd. (Hong Kong) | 139 | |
6,300 | SoftBank Group Corp. (Japan) | 481 | |
214,308 | Vodafone Group plc (United Kingdom) | 625 | |
8,707 | |||
TOTAL COMMON STOCKS | |||
(Cost $540,646) | 566,235 | ||
PREFERRED STOCKS—1.2% | |||
AEROSPACE & DEFENSE—0.0% | |||
13,108,446 | Rolls-Royce Holdings plc (United Kingdom)* | 18 x |
PREFERRED STOCKS—Continued | |||
Shares | Value | ||
AUTOMOBILES—0.3% | |||
7,870 | Volkswagen AG (Germany) | $ 1,623 | |
BANKS—0.5% | |||
117,391 | Banco Bradesco SA (Brazil)* | 1,158 | |
426,270 | Itausa - Investimentos Itau SA (Brazil) | 1,656 | |
2,814 | |||
TEXTILES, APPAREL & LUXURY GOODS—0.4% | |||
549,754 | Alpargatas SA (Brazil)* | 2,450 | |
TOTAL PREFERRED STOCKS | |||
(Cost $6,271) | 6,905 | ||
SHORT-TERM INVESTMENTS—1.6% | |||
Principal Amount | |||
REPURCHASE AGREEMENTS—1.5% | |||
$ | 8,654 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $8,828) | 8,654 |
Shares | |||
INVESTMENT COMPANY-SECURITIES LENDING INVESTMENT FUND—0.1% | |||
940,684 | State Street Navigator Securities Lending Government Money Market Portfolio (1-day yield of 2.130%)4 | 941 | |
TOTAL SHORT-TERM INVESTMENTS | |||
(Cost $9,595) | 9,595 | ||
TOTAL INVESTMENTS—99.4% | |||
(Cost $556,512) | 582,735 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.6% | 3,238 | ||
TOTAL NET ASSETS—100.0% | $585,973 |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of April 30, 2018 based on the inputs used to value them.
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Common Stocks | ||||||||
Africa | $ — | $ 12,644 | $ — | $ 12,644 | ||||
Europe | 6,481 | 272,356 | — | 278,837 | ||||
Latin America | 19,321 | 5,569 | — | 24,890 | ||||
Middle East/Central Asia | — | 6,167 | — | 6,167 | ||||
North America | 40,028 | — | — | 40,028 | ||||
Pacific Basin | 5,476 | 189,647 | 8,546 | 203,669 | ||||
Preferred Stocks | ||||||||
Europe | — | 1,623 | 18 | 1,641 |
18
Harbor Diversified International All Cap Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS—Continued
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Latin America | $ 5,264 | $ — | $ — | $ 5,264 | ||||
Short-Term Investments | ||||||||
Repurchase Agreements | — | 8,654 | — | 8,654 | ||||
Investment Company-Securities Lending Investment Fund | 941 | — | — | 941 | ||||
Total Investments in Securities | $77,511 | $496,660 | $8,564 | $582,735 |
There were no transfers between Levels 1 and 2 during the period.
For more information on valuation inputs and their aggregation into the levels used in the table above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
The following is a rollforward of the Fund’s Level 3 investments during the period ended April 30, 2018.
Valuation Description | Balance Beginning at 11/01/2017 (000s) | Purchases (000s) | Sales (000s) | Discount/ (Premium) (000s) | Total Realized Gain/(Loss)w (000s) | Change in Unrealized Appreciation/ (Depreciation)w (000s) | Transfers In Level 3h (000s) | Transfers Out of Level 3 (000s) | Ending Balance as of 04/30/2018w (000s) | |||||||||
Common Stocks | $— | $4,245 | $(682) | $— | $250 | $ 10 | $4,723 | $— | $8,546 | |||||||||
Preferred Stocks | 5 | 18 | (5) | — | — | — | — | — | 18 | |||||||||
$ 5 | $4,263 | $(687) | $— | $250 | $ 10 | $4,723 | $— | $8,564 |
The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy.
Valuation Descriptions | Ending Balance as of 04/30/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Common Stocks | ||||||||
Samsung Electronics Co. Ltd. (South Korea) | $ 8,546 | Market Approach | Last Close Price | ₩ 2,650,000 | ||||
Preferred Stocks | ||||||||
Rolls-Royce Holdings plc (United Kingdom)* | 18 | Market Approach | Pre-Traded Price | £ 0.001 | ||||
$ 8,564 |
* | Non-income producing security | ||
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. | ||
2 | GDR after the name of a holding stands for Global Depositary Receipts representing ownership of foreign securities. GDRs are issued by either U.S. or non-U.S. banking institutions. Country specific examples of this type of depositary receipt, if any, are denoted using different abbreviations. SADR after the name of a holding stands for South African Depositary Receipts representing ownership of South African securities listed on the Johannesburg Stock Exchange. SDR after the name of a holding stands for Swedish Depository Receipts representing ownership of foreign securities in Sweden. NVDR after the name of a holding stands for Non-Voting Depositary Receipts representing ownership of a listed security in the Stock Exchange of Thailand. | ||
3 | All or a portion of this security was out on loan as of April 30, 2018. | ||
4 | Represents the investment of collateral received from securities lending activities. | ||
h | Transferred from Level 2 to Level 3 due to unobservable market data for pricing input. | ||
w | Amounts in this category are included in the “Realized and Change in Unrealized Gain/(Loss) on Investment Transactions” section of the Statement of Operations. The net unrealized appreciation/(depreciation) per investment type is below: | ||
Valuation Description | Unrealized Gain/(Loss) as of 04/30/2018 (000s) | ||
Common Stocks | $1,327 | ||
Preferred Stocks | — | ||
$1,327 | |||
x | Fair valued in accordance with Harbor Funds Valuation Procedures using pre-traded price which is a Level 3 input. | ||
y | Fair valued in accordance with Harbor Funds Valuation Procedures using last close price which is a Level 3 input. | ||
£ | British Pound | ||
₩ | South Korean Won |
The accompanying notes are an integral part of the Financial Statements.
19
Harbor International Growth Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Baillie Gifford Overseas Limited
Calton Square
1 Greenside Row
Edinburgh, Scotland
United Kingdom
EH1 3AN
United Kingdom
EH1 3AN
Portfolio Managers
Gerard Callahan
Since 2013
Since 2013
Iain Campbell
Since 2013
Since 2013
Joseph M. Faraday, CFA
Since 2013
Moritz Sitte, CFA
Since 2014
Since 2014
Sophie Earnshaw, CFA
Since 2014
Since 2014
Tom Walsh, CFA
Since 2014
Since 2014
Baillie Gifford Overseas Limited has subadvised the Fund since 2013.
Investment Objective
The Fund seeks long-term growth of capital.
Gerard Callahan
Iain Campbell
Joseph M. Faraday, CFA
Moritz Sitte, CFA
Sophie Earnshaw, CFA
Tom Walsh, CFA
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
Equity markets ended 2017 brightly, and this trend continued into the early part of 2018. However, market optimism began to fall away in February, with corrections and increased volatility in most international and U.S. equity indices. Several explanations for this change in market behavior have been suggested by commentators, including concern over potential inflationary pressures and fears about the prospect of trade wars. To some extent, it may even be a sign of returning market normality as central banks start to scale back quantitative easing and to raise interest rates from historic lows. More broadly, many international economies appear to be in a better position than they have been for several years. The Eurozone seems to be on a steadier course than in the past, maybe partly because of the need to cooperate on Brexit negotiations. Japanese growth and inflation are building, albeit from very low levels. In China, the extension of Xi Jinping’s leadership could be what the county needs to continue its economic growth through the development of a more diverse economy with a growing middle class.
Performance
The Harbor International Growth Fund returned 1.20% (Institutional Class), 1.21 % (Retirement Class), 1.04% (Administrative Class), and 1.01% (Investor Class) for the six months ended April 30, 2018, underperforming the 3.47% return of the MSCI All Country World Ex U.S. (ND) Index.
During the six months ended April 30, 2018, the Fund’s choice of stocks in Europe, the Emerging Markets, and the U.K. detracted from performance, while Developed Asia was a more successful area for stock selection.
Looking at performance from the point of view of the sectors in which the Fund is invested, its holdings in the Consumer Discretionary and Industrials areas detracted from performance, while those in Consumer Staples made a positive contribution.
Focusing on the individual stocks in which the Fund is invested, Mettler-Toledo, Capita, and Suruga made the largest negative contributions to performance during the six months ended April 30, 2018.
Mettler-Toledo is a Swiss-American manufacturer of precision weighing and measurement equipment. The company has performed well operationally, improving its gross margins and earnings over a period of many years. The market is now more concerned about the company’s ability to continue to grow strongly. We remain positive about Mettler-Toledo’s prospects, but will be monitoring the company’s execution in areas that are key to its future success, which include service, the ability to continue gradual price increases, and its culture.
Capita has not been a successful investment for the Fund. Following a series of operational disappointments and senior management turnover, this British outsourcing business appointed a new CEO at the end of 2017. In our view, the company’s new management has a significant task ahead in improving the company’s fortunes. We believe that this will take quite some time to achieve, and the Fund’s holding in Capita was consequently sold during the period.
20
Harbor International Growth Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor International Growth Fund | |||||||||||
Institutional Class | 1.20% | 14.23% | 6.34% | 1.91% | |||||||
Retirement Class1 | 1.21 | 14.30 | 6.38 | 1.93 | |||||||
Administrative Class | 1.04 | 13.91 | 6.08 | 1.65 | |||||||
Investor Class | 1.01 | 13.80 | 5.96 | 1.53 | |||||||
Comparative Index | |||||||||||
MSCI All Country World Ex. U.S. (ND) | 3.47% | 15.91% | 5.46% | 2.26% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.85% (Net) and 0.92% (Gross) (Institutional Class); 0.77% (Net) and 0.84% (Gross) (Retirement Class); 1.10% (Net) and 1.17% (Gross) (Administrative Class); and 1.22% (Net) and 1.29% (Gross) (Investor Class). The net expense ratios reflect an expense limitation agreement (excluding interest expense, if any) effective through 02/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
Suruga is a Japanese retail bank that specializes in making secured loans to areas of the market that many of its peers overlook. Concerns have risen that the company may have exposure to mortgage loans relating to a specific customer base where tenants have failed to make payments to property owners. In addition to this, loan growth has slowed after the Japanese Bankers Association expanded the proof of income requirements for card loans, an area that has been increasingly important to the company’s overall growth. There have also been reports suggesting that some of the company’s employees may have falsified documentation relating to some of its loans. We are monitoring the stock closely in the light of these issues.
The stocks that made the biggest positive contributions during the six months ended April 30, 2018 were Shiseido, Clicks, and United Overseas Bank.
Shiseido, which is listed in Japan, is a global manufacturer of cosmetics and personal care products. The company’s CEO took up his position in 2014 with a mandate to reform the company, and his turnaround plans appear to be making good progress so far. We believe that the company has satisfactorily integrated some recently purchased brands into the broader business, and the company has been making good progress in increasing its profile in the travel retail channel.
Clicks operates a chain of retail stores selling healthcare, beauty, and lifestyle products in South Africa. In our view, the company has the prospect of benefitting from the consolidation of a very fragmented industry and from the leadership of a sensible management team. The company reported encouraging results during the period and appears to have benefited from a rerating among high quality stable growth businesses.
United Overseas Bank is a Singaporean bank that has steadily been expanding its reach across South-East Asia. In our view, the company’s share price has benefitted from a reduction in fears about a Chinese slowdown and from an expectation that interest rates are now more likely to rise. The company has recently received a license to establish a subsidiary bank in Vietnam, which we believe should further establish its presence in Asia.
Outlook & Strategy
The recent increase in volatility and relative weakness in returns is a reminder of the rapidity with which market sentiment can change. We prefer to focus on the long-term fundamentals of businesses rather than paying attention to macroeconomic factors, and intend to continue to seek interesting stock opportunities in a variety of sectors and geographies. Political and economic uncertainties undoubtedly lie ahead. However, we believe that, by adhering to our approach of assessing the potential of companies to grow their earnings more rapidly over the long term than companies around them, superior share price performance should follow.
1 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Baillie Gifford Overseas Limited as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Investing in international and emerging markets poses special risks, including potentially greater price volatility due to social, political and economic factors, as well as currency exchange rate fluctuations. These risks are more severe for securities of issuers in emerging market regions. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
21
Harbor International Growth Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Naspers Ltd. | 2.8% |
2. Alibaba Group Holding Ltd. ADR | 2.6% |
3. Hargreaves Lansdown plc | 2.6% |
4. Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 2.6% |
5. Shiseido Co. Ltd. | 2.4% |
6. Cochlear Ltd. | 2.3% |
7. Atlas Copco AB | 2.1% |
8. United Overseas Bank Ltd. | 2.0% |
9. MS&AD Insurance Group Holdings Inc. | 2.0% |
10. adidas AG | 1.9% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
Pacific Basin | 45.6% | |
Japan | 17.5% | |
China | 8.0% | |
Australia | 6.0% | |
Singapore | 3.6% | |
Taiwan | 3.6% | |
South Korea | 2.9% | |
Hong Kong | 1.9% | |
Malaysia | 1.1% | |
Thailand | 0.6% | |
Philippines | 0.4% |
Europe | 41.2% | |
United Kingdom | 13.3% | |
Germany | 6.9% | |
Sweden | 5.2% | |
Switzerland | 5.0% | |
Denmark | 2.7% | |
Spain | 2.5% | |
France | 1.6% | |
Netherlands | 1.5% | |
Portugal | 1.4% | |
Finland | 1.1% | |
Africa | 4.6% | |
South Africa | 4.6% | |
Middle East/Central Asia | 4.5% | |
India | 4.5% | |
North America | 2.2% | |
Canada | 2.2% | |
Latin America | 1.9% | |
Brazil | 1.3% | |
Mexico | 0.6% |
22
Harbor International Growth Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—97.3% | |||
Shares | Value | ||
AUTO COMPONENTS—0.9% | |||
91,300 | Denso Corp. (Japan) | $ 4,801 | |
AUTOMOBILES—1.3% | |||
537,369 | Mahindra & Mahindra Ltd. GDR (India)1 | 7,023 | |
BANKS—5.0% | |||
989,500 | Public Bank BHD (Malaysia) | 5,988 | |
228,600 | Suruga Bank Ltd. (Japan) | 3,097 | |
621,519 | Svenska Handelsbanken AB (Sweden) | 6,931 | |
519,927 | United Overseas Bank Ltd. (Singapore) | 11,773 | |
27,789 | |||
BEVERAGES—3.1% | |||
5,282,200 | Thai Beverage PCL (Thailand) | 3,396 | |
559,147 | Treasury Wine Estates Ltd. (Australia) | 7,987 | |
1,114,000 | Tsingtao Brewery Co. Ltd. (China) | 5,767 | |
17,150 | |||
CAPITAL MARKETS—3.5% | |||
599,393 | Hargreaves Lansdown plc (United Kingdom) | 14,695 | |
795,871 | Jupiter Fund Management plc (United Kingdom) | 4,977 | |
19,672 | |||
CHEMICALS—4.5% | |||
440,092 | Asian Paints Ltd. (India) | 7,900 | |
160,968 | Johnson Matthey plc (United Kingdom) | 7,275 | |
211,684 | Novozymes AS (Denmark) | 9,952 | |
25,127 | |||
COMMERCIAL SERVICES & SUPPLIES—1.6% | |||
734,370 | Brambles Ltd. (Australia) | 5,434 | |
373,815 | HomeServe plc (United Kingdom) | 3,799 | |
9,233 | |||
DIVERSIFIED FINANCIAL SERVICES—1.3% | |||
171,638 | Investor AB (Sweden) | 7,472 | |
ELECTRICAL EQUIPMENT—2.6% | |||
111,046 | Legrand SA (France) | 8,641 | |
37,500 | Nidec Corp. (Japan) | 5,866 | |
14,507 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.8% | |||
846,036 | Hon Hai Precision Industry Co. Ltd. GDR (Taiwan)1 | 4,735 | |
ENERGY EQUIPMENT & SERVICES—0.5% | |||
335,282 | John Wood Group plc (United Kingdom) | 2,614 | |
FOOD & STAPLES RETAILING—6.6% | |||
559,171 | Clicks Group Ltd. (South Africa) | 9,560 | |
691,569 | Distribuidora Internacional de Alimentacion SA (Spain)2 | 3,205 | |
456,677 | Jeronimo Martins SGPS SA (Portugal) | 8,009 | |
2,574,690 | Puregold Price Club Inc. (Philippines) | 2,354 | |
358,700 | Raia Drogasil SA (Brazil)* | 7,042 | |
56,900 | Sugi Holdings Co. Ltd. (Japan) | 3,313 | |
1,316,000 | Wal-Mart de Mexico SAB de CV (Mexico) | 3,659 | |
37,142 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—3.4% | |||
88,808 | Cochlear Ltd. (Australia) | 12,924 | |
163,300 | Olympus Corp. (Japan) | 6,090 | |
19,014 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HOUSEHOLD PRODUCTS—1.6% | |||
196,000 | Pigeon Corp. (Japan) | $ 9,187 | |
INDUSTRIAL CONGLOMERATES—1.4% | |||
63,400 | Jardine Matheson Holdings Ltd. (Singapore) | 3,839 | |
113,300 | Jardine Strategic Holdings Ltd. (Singapore) | 4,288 | |
8,127 | |||
INSURANCE—6.3% | |||
1,189,000 | AIA Group Ltd. (Hong Kong) | 10,627 | |
11,419 | Fairfax Financial Holdings Ltd. (Canada) | 6,322 | |
335,000 | MS&AD Insurance Group Holdings Inc. (Japan) | 11,288 | |
29,365 | Samsung Fire & Marine Insurance Co. Ltd. (South Korea) | 7,332 | |
35,569 | |||
INTERNET & DIRECT MARKETING RETAIL—6.1% | |||
85,858 | ASOS plc (United Kingdom)* | 6,877 | |
142,800 | Ctrip.com International Ltd. ADR (China)*,3 | 5,840 | |
214,385 | JD.com Inc. ADR (China)*,3 | 7,827 | |
77,096 | MakeMyTrip Ltd. (India)* | 2,845 | |
210,152 | Zalando SE (Germany)*,4 | 10,814 | |
34,203 | |||
INTERNET SOFTWARE & SERVICES—11.0% | |||
81,509 | Alibaba Group Holding Ltd. ADR (China)*,3 | 14,552 | |
1,366,322 | Auto Trader Group plc (United Kingdom)4 | 6,639 | |
42,730 | Baidu Inc. ADR (China)*,3 | 10,721 | |
371,800 | Kakaku.com Inc. (Japan) | 7,088 | |
4,911 | Naver Corp. (South Korea) | 3,275 | |
165,910 | Rightmove plc (United Kingdom) | 10,405 | |
44,913 | Shopify Inc. (Canada)* | 6,002 | |
16,465 | Spotify Technology SA (Sweden)* | 2,659 | |
61,341 | |||
LEISURE PRODUCTS—1.1% | |||
44,300 | Shimano Inc. (Japan) | 5,891 | |
LIFE SCIENCES TOOLS & SERVICES—1.4% | |||
13,578 | Mettler-Toledo International Inc. (Switzerland)* | 7,603 | |
MACHINERY—6.8% | |||
152,473 | Atlas Copco AB Class A (Sweden)* | 5,962 | |
156,158 | Atlas Copco AB Class B (Sweden)* | 5,535 | |
127,629 | Kone OYJ (Finland)2 | 6,339 | |
37,456 | Schindler Holding AG (Switzerland) | 7,734 | |
23,700 | SMC Corp. (Japan) | 9,006 | |
120,336 | Weir Group plc (United Kingdom) | 3,521 | |
38,097 | |||
MEDIA—2.8% | |||
63,885 | Naspers Ltd. (South Africa) | 15,564 | |
PERSONAL PRODUCTS—3.7% | |||
102,800 | Kao Corp. (Japan) | 7,390 | |
204,600 | Shiseido Co. Ltd. (Japan)* | 13,275 | |
20,665 | |||
PHARMACEUTICALS—0.9% | |||
110,725 | Novo Nordisk AS (Denmark) | 5,207 | |
PROFESSIONAL SERVICES—2.4% | |||
103,505 | Intertek Group plc (United Kingdom) | 6,960 | |
435,755 | SEEK Ltd. (Australia) | 6,338 | |
13,298 |
23
Harbor International Growth Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—7.2% | |||
235,900 | Advantest Corp. (Japan) | $ 5,611 | |
44,187 | ASML Holding NV (Netherlands) | 8,412 | |
341,842 | Infineon Technologies AG (Germany) | 8,753 | |
385,842 | Taiwan Semiconductor Manufacturing Co. Ltd. ADR (Taiwan)3 | 14,836 | |
14,113 | U-Blox Holding AG (Switzerland)*,2 | 2,579 | |
40,191 | |||
SPECIALTY RETAIL—1.9% | |||
336,249 | Industria de Diseno Textil SA (Spain)2 | 10,423 | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—1.0% | |||
2,228 | Samsung Electronics Co. Ltd. (South Korea) | 5,522 x | |
TEXTILES, APPAREL & LUXURY GOODS—4.6% | |||
44,171 | adidas AG (Germany) | 10,856 | |
228,286 | Burberry Group plc (United Kingdom) | 5,733 | |
99,549 | Cie Financiere Richemont SA (Switzerland) | 9,463 | |
26,052 | |||
THRIFTS & MORTGAGE FINANCE—1.2% | |||
243,556 | Housing Development Finance Corp. Ltd. (India) | 6,849 | |
WIRELESS TELECOMMUNICATION SERVICES—0.8% | |||
61,100 | SoftBank Group Corp. (Japan) | 4,669 | |
TOTAL COMMON STOCKS | |||
(Cost $476,746) | 544,737 | ||
PREFERRED STOCKS—1.3% | |||
(Cost $5,842) | |||
HEALTH CARE EQUIPMENT & SUPPLIES—1.3% | |||
46,576 | Sartorius AG (Germany) | 7,154 | |
SHORT-TERM INVESTMENTS—3.6% | |||
Principal Amount | Value | ||
REPURCHASE AGREEMENTS—1.3% | |||
$ | 7,241 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $7,390) | $ 7,241 |
Shares | |||
INVESTMENT COMPANY-SECURITIES LENDING INVESTMENT FUND—2.3% | |||
13,196,591 | State Street Navigator Securities Lending Government Money Market Portfolio (1-day yield of 2.130%)5 | 13,197 | |
TOTAL SHORT-TERM INVESTMENTS | |||
(Cost $20,438) | 20,438 | ||
TOTAL INVESTMENTS—102.2% | |||
(Cost $503,026) | 572,329 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(2.2)% | (12,193) | ||
TOTAL NET ASSETS—100.0% | $560,136 |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of April 30, 2018 based on the inputs used to value them.
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Common Stocks | ||||||||
Africa | $ — | $ 25,124 | $ — | $ 25,124 | ||||
Europe | 10,262 | 209,782 | — | 220,044 | ||||
Latin America | 10,701 | — | — | 10,701 | ||||
Middle East/Central Asia | 2,844 | 21,773 | — | 24,617 | ||||
North America | 12,324 | — | — | 12,324 | ||||
Pacific Basin | 53,777 | 192,628 | 5,522 | 251,927 | ||||
Preferred Stocks | ||||||||
Europe | — | 7,154 | — | 7,154 | ||||
Short-Term Investments | ||||||||
Repurchase Agreements | — | 7,241 | — | 7,241 | ||||
Investment Company-Securities Lending Investment Fund | 13,197 | — | — | 13,197 | ||||
Total Investments in Securities | $103,105 | $463,702 | $5,522 | $572,329 |
There were no transfers between levels during the period.
24
Harbor International Growth Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS—Continued
For more information on valuation inputs and their aggregation into the levels used in the table above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
The following is a rollforward of the Fund’s Level 3 investments during the period ended April 30, 2018.
Valuation Description | Balance Beginning at 11/01/2017 (000s) | Purchases (000s) | Sales (000s) | Discount/ (Premium) (000s) | Total Realized Gain/(Loss)w (000s) | Change in Unrealized Appreciation/ (Depreciation)w (000s) | Transfers In Level 3 (000s) | Transfers Out of Level 3 (000s) | Ending Balance as of 04/30/2018w (000s) | |||||||||
Common Stocks | $— | $1,347 | $(4,290) | $— | $2,007 | $(1,662) | $8,120 | $— | $5,522 |
The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy.
Valuation Descriptions | Ending Balance as of 04/30/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Common Stocks | ||||||||
Samsung Electronics Co. Ltd. (South Korea) | $5,522 | Market Approach | Last Close Price | ₩ 2,650,000 |
* | Non-income producing security | ||
1 | GDR after the name of a holding stands for Global Depositary Receipts representing ownership of foreign securities. GDRs are issued by either U.S. or non-U.S. banking institutions. Country specific examples of this type of depositary receipt, if any, are denoted using different abbreviations. SADR after the name of a holding stands for South African Depositary Receipts representing ownership of South African securities listed on the Johannesburg Stock Exchange. SDR after the name of a holding stands for Swedish Depository Receipts representing ownership of foreign securities in Sweden. NVDR after the name of a holding stands for Non-Voting Depositary Receipts representing ownership of a listed security in the Stock Exchange of Thailand. | ||
2 | All or a portion of this security was out on loan as of April 30, 2018. | ||
3 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. | ||
4 | Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. At April 30, 2018, the aggregate value of these securities was $17,453 or 3% of net assets. | ||
5 | Represents the investment of collateral received from securities lending activities. | ||
h | Transferred from Level 2 to Level 3 due to unobservable market data for pricing input. | ||
w | Amounts in this category are included in the “Realized and Change in Unrealized Gain/(Loss) on Investment Transactions” section of the Statement of Operations. The net unrealized appreciation/(depreciation) per investment type is below: | ||
Valuation Description | Unrealized Gain/(Loss) as of 04/30/2018 (000s) | ||
Common Stocks | $1,670 | ||
x | Fair valued in accordance with Harbor Funds Valuation Procedures using last close price which is a Level 3 input. | ||
₩ | South Korean Won |
The accompanying notes are an integral part of the Financial Statements.
25
Harbor International Small Cap Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Baring International Investment Limited
155 Bishopsgate
London, EC2M 3XY
United Kingdom
United Kingdom
Portfolio Managers
Nicholas M. Williams
Since 2016
Since 2016
Colin C. Riddles
Since 2016
Since 2016
Rosemary C. Simmonds, CFA
Since 2016
Since 2016
Barings has subadvised the Fund since 2016.
Investment Objective
The Fund seeks long-term growth of capital.
Nicholas M. Williams
Colin C. Riddles
Rosemary C. Simmonds, CFA
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
Over the six months ended April 30, 2018, international smaller capitalization companies (smaller companies) have performed strongly. From the beginning of November 2017 to the end of April 2018, the MSCI EAFE Small Cap (ND) Index rose 5.96% (all returns are in U.S. Dollars).
The first three months of the period were very strong for smaller companies, supported by increasing confidence in global economic growth prospects and consistently positive economic data releases. Geopolitical and macroeconomic developments, along with concerns around escalating trade tensions and rising interest rates, caused market uncertainty in more recent months. Stock markets have thus proved more volatile in 2018 than last year, reflecting these incipient geopolitical and macroeconomic concerns. This volatility was also partially caused by profit-taking following strong share price gains in 2017.
In this context, portfolio holdings in the Consumer Discretionary sector performed well, supported by wage growth in most EAFE economies. Similarly, companies in France and Hong Kong tended to experience share price performances in excess of that of the Index, while U.K. smaller companies were less strong.
Performance
Harbor International Small Cap Fund returned 3.59% (Institutional Class), 3.64% (Retirement Class), 3.43% (Administrative Class), and 3.40% (Investor Class) over the period. This return was below that of the MSCI EAFE Small Cap (ND) Index, which returned 5.96% over the period.
The relative return of the Fund over the period predominantly reflects the impact of stock selection. The geographic and sector positioning of the Fund had a limited impact on the relative return of the Fund.
During the period, the leading sectors in the MSCI EAFE Small Cap (ND) Index in terms of share price performances were the Real Estate and Consumer Discretionary sectors. The Fund’s allocation to the Consumer Discretionary sector was similar to that of the MSCI EAFE Small Cap (ND) Index; however, stock selection decisions resulted in a stronger relative return from the holdings in this sector. By contrast, the Fund has a much lower weight in Real Estate companies compared to the Index, which detracted from relative returns.
From a geographic perspective, the most significant contributors to Index returns during the period were Japan and the U.K. The Fund’s exposure to these countries is approximately equal to the Index; however overall share price performances for the Japanese companies held in the Fund exceeded the Index, boosting relative performance. By contrast, performance from the Fund’s holdings in U.K. smaller companies lagged the Index, representing the most significant detractor from performance by country. Within the geographic allocation, overweight exposures to France, Italy and Belgium had a positive impact on relative performance given the returns generated by smaller companies in these countries tended to outperform those of the Index.
Over the period the Fund’s worst performing individual holding was Suruga Bank, the Japanese regional bank which released results for the first nine months of their financial year in February. These results were in line with expectations but highlighted concerns about rising credit costs in shared housing loans and indicated a slowdown in consumer loan growth; the Fund’s investment in Suruga has since been disposed. Dignity, the U.K. funeral services company,
26
Harbor International Small Cap Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | 5 Years | Annualized | ||||||||
6 Months | Life of Fund | ||||||||||
Harbor International Small Cap Fund | |||||||||||
Institutional Class1 | 3.59% | 19.69% | N/A | 18.26% | |||||||
Retirement Class1 | 3.64 | 19.75 | N/A | 18.32 | |||||||
Administrative Class1 | 3.43 | 19.35 | N/A | 17.94 | |||||||
Investor Class1 | 3.40 | 19.23 | N/A | 17.82 | |||||||
Comparative Index | |||||||||||
MSCI EAFE Small Cap (ND)1 | 5.96% | 20.03% | N/A | 19.76% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.95% (Net) and 1.42% (Gross) (Institutional Class); 0.87% (Net) and 1.34% (Gross) (Retirement Class); 1.20% (Net) and 1.67% (Gross) (Administrative Class); and 1.32% (Net) and 1.79% (Gross) (Investor Class). The net expense ratios reflect an expense limitation agreement (excluding interest expense, if any) effective through 02/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
also underperformed following their publication of Q3 2017 results in November which were slightly below expectations. As Dignity’s trading performance was weaker than the assumptions in our investment case, the holding was also sold.
Japanese smaller companies were among the best performing individual holdings over the period, including mergers and acquisitions specialist Nihon M&A Center which continued to benefit from strong Q3 2017 results; and childcare products manufacturer Pigeon Corporation, following strong 2017 results driven by continued growth in China and the further development of their range of Lansinoh branded products in the USA. The best performing holding over the period was Xinyi Glass, a Hong Kong-listed Chinese glass producer supplying the automotive and construction industries, which benefited from strong pricing and rising demand as it increased its production capacity.
Outlook & Strategy
Our outlook for smaller companies remains positive with regard to the long-term potential for the asset class, and more importantly, the stock selection opportunities within this diverse and entrepreneurial group of companies.
The short-term outlook for smaller companies, however, remains uncertain. On the positive side, valuations of smaller companies remain attractive and earnings yields are enticing. Most forecasters’ profit growth expectations for smaller companies in 2018 remain strong, with forecasters anticipating mid-teens growth rates in profits, implying further rises in profit margins. At the same time, smaller companies have very strong balance sheets compared to recent historical trends. This supports rising dividends and share buy-back programs, which we believe could result in an increase in M&A activity and corporate investment.
In recent months, however, business confidence has declined slightly across Japan, Europe and the U.K. While survey levels are consistent with economic growth, the 2018 economic expansion is likely to moderate relative to the 2017 recovery. In this context, profit growth forecasts – as evidenced by a slight deterioration in the proportion of upgrades to downgrades of 2018 corporate profitability – may currently be over-optimistic.
Our focus continues to be on corporate profit margin developments: labor costs are rising across the developed economies, raw material prices rose, and currency volatility impacted the overseas earnings and input costs of a number of companies.
With events in the U.S., particularly developments in U.S. Treasury yields and trade negotiations with China, likely to continue to influence global equity markets, smaller companies can expect further volatility, despite the overall supportive economic backdrop.
Our investment approach will remain unchanged – to focus on bottom-up stock selection. We will continue to try to identify, from a wide range of potential opportunities, well-managed companies with strong balance sheets and earnings prospects where the current valuation does not fully reflect these attributes. Our view is that in the long-term this approach should help mitigate the risks of smaller company investment and allow us to identify companies with undiscounted growth opportunities and attractive valuations
1 | The “Life of Fund” return as shown reflects the period 02/01/2016 through 04/30/2018. |
This report contains the current opinions of Baring International Investment Limited as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Investing in international and emerging markets poses special risks, including potentially greater price volatility due to social, political and economic factors, as well as currency exchange rate fluctuations. These risks are more severe for securities of issuers in emerging market regions. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
27
Harbor International Small Cap Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Pigeon Corp. | 1.3% |
2. TechnoPro Holdings Inc. | 1.3% |
3. TGS-NOPEC Geophysical Co. | 1.3% |
4. Beazley plc | 1.2% |
5. Intermediate Capital Group plc | 1.2% |
6. Marui Group Co. Ltd. | 1.2% |
7. SSP Group plc | 1.2% |
8. AAK AB | 1.1% |
9. Carl Zeiss Meditec AG | 1.1% |
10. Dalata Hotel Group plc | 1.1% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
Europe | 60.7% | |
United Kingdom | 16.3% | |
Italy | 6.8% | |
Germany | 6.1% | |
Sweden | 4.6% | |
Netherlands | 4.5% | |
Spain | 4.0% | |
France | 3.7% | |
Belgium | 3.1% | |
Norway | 2.3% | |
Ireland | 2.3% | |
Denmark | 2.0% | |
Luxembourg | 1.9% | |
Switzerland | 1.5% | |
Finland | 1.6% |
Pacific Basin | 37.2% | |
Japan | 29.8% | |
Australia | 6.1% | |
Hong Kong | 1.3% | |
Latin America | 2.1% | |
Cayman Islands | 2.1% |
28
Harbor International Small Cap Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—95.6% | |||
Shares | Value | ||
AUTO COMPONENTS—3.5% | |||
69,764 | Gestamp Automocion SA ADR (Spain)1,2 | $ 565 | |
16,800 | Nifco Inc. (Japan) | 590 | |
26,887 | Saf-Holland SA (Luxembourg) | 501 | |
276,000 | Xinyi Glass Holdings Ltd. (Hong Kong) | 397 | |
2,053 | |||
BANKS—1.1% | |||
121,000 | Fukuoka Financial Group Inc. (Japan) | 648 | |
CAPITAL MARKETS—3.3% | |||
17,633 | Banca Generali SpA (Italy) | 572 | |
9,299 | Euronext NV (Netherlands)2 | 667 | |
48,857 | Intermediate Capital Group plc (United Kingdom) | 728 | |
1,967 | |||
CHEMICALS—6.0% | |||
139,606 | Elementis plc (United Kingdom) | 544 | |
92,355 | Essentra plc (United Kingdom) | 561 | |
209,555 | Incitec Pivot Ltd. (Australia) | 596 | |
90,571 | Nufarm Ltd. (Australia) | 619 | |
58,000 | Okamoto Industries Inc. (Japan) | 580 | |
92,949 | Synthomer plc (United Kingdom) | 631 | |
3,531 | |||
COMMERCIAL SERVICES & SUPPLIES—4.6% | |||
16,300 | AEON Delight Co. Ltd. (Japan) | 570 | |
35,616 | Biffa plc (United Kingdom)2 | 102 | |
62,456 | Bravida Holding AB (Sweden)2 | 447 | |
58,152 | HomeServe plc (United Kingdom) | 591 | |
170,200 | Prosegur Cash SA (Spain)2 | 496 | |
17,600 | Sato Holdings Corp. (Japan) | 494 | |
2,700 | |||
CONSTRUCTION & ENGINEERING—5.8% | |||
25,870 | Arcadis NV (Netherlands) | 509 | |
9,534 | FLSmidth & Co. (Denmark) | 589 | |
22,300 | Kyowa Exeo Corp. (Japan) | 580 | |
14,400 | Kyudenko Corp. (Japan) | 673 | |
96,083 | Maire Tecnimont SpA (Italy) | 488 | |
27,600 | Toshiba Plant Systems & Services Corp. (Japan) | 576 | |
3,415 | |||
CONSUMER FINANCE—2.5% | |||
104,989 | Arrow Global Group plc (United Kingdom) | 534 | |
6,013 | Cembra Money Bank AG (Switzerland) | 509 | |
31,266 | Credit Corp. Group Ltd. (Australia) | 421 | |
1,464 | |||
CONTAINERS & PACKAGING—2.8% | |||
62,139 | DS Smith plc (United Kingdom) | 445 | |
240,696 | Orora Ltd. (Australia) | 604 | |
57,748 | RPC Group plc (United Kingdom) | 626 | |
1,675 | |||
DIVERSIFIED CONSUMER SERVICES—0.7% | |||
442,000 | Fu Shou Yuan International Group Ltd. (Cayman Islands) | 422 | |
DIVERSIFIED FINANCIAL SERVICES—0.9% | |||
8,872 | KBC Ancora (Belgium) | 536 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
DIVERSIFIED TELECOMMUNICATION SERVICES—1.3% | |||
13,390 | DNA OYJ (Finland) | $ 313 | |
57,956 | Infrastrutture Wireless Italiane SpA (Italy)2 | 467 | |
780 | |||
ELECTRICAL EQUIPMENT—0.8% | |||
9,900 | Mabuchi Motor Co. Ltd. (Japan) | 497 | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—2.1% | |||
5,107 | Barco NV (Belgium) | 660 | |
9,000 | Iriso Electronics Co. Ltd. (Japan) | 570 | |
1,230 | |||
ENERGY EQUIPMENT & SERVICES—1.3% | |||
23,836 | TGS-NOPEC Geophysical Co. (Norway) | 752 | |
FOOD & STAPLES RETAILING—1.1% | |||
20,713 | MARR SpA (Italy) | 625 | |
FOOD PRODUCTS—3.9% | |||
7,644 | AAK AB (Sweden) | 675 | |
111,887 | Costa Group Holdings Ltd. (Australia) | 610 | |
10,900 | Ezaki Glico Co. Ltd. (Japan) | 587 | |
58,230 | Tate & Lyle plc (United Kingdom) | 460 | |
2,332 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—2.2% | |||
9,901 | Carl Zeiss Meditec AG (Germany) | 673 | |
6,514 | Diasorin SpA (Italy) | 614 | |
1,287 | |||
HEALTH CARE PROVIDERS & SERVICES—3.9% | |||
34,642 | Amplifon SpA (Italy) | 647 | |
59,673 | Attendo AB (Sweden)2 | 606 | |
9,012 | NMC Health plc (United Kingdom) | 441 | |
49,200 | UDG Healthcare plc (Ireland) | 618 | |
2,312 | |||
HEALTH CARE TECHNOLOGY—0.5% | |||
5,251 | CompuGroup Medical SE (Germany) | 274 | |
HOTELS, RESTAURANTS & LEISURE—3.3% | |||
84,808 | Dalata Hotel Group plc (Ireland)* | 675 | |
56,048 | Scandic Hotels Group AB (Sweden)2 | 552 | |
82,211 | SSP Group plc (United Kingdom) | 735 | |
1,962 | |||
HOUSEHOLD DURABLES—1.0% | |||
35,700 | Sumitomo Forestry Co. Ltd. (Japan) | 592 | |
HOUSEHOLD PRODUCTS—1.2% | |||
15,700 | Pigeon Corp. (Japan) | 736 | |
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—1.2% | |||
286,000 | China Everbright Greentech Ltd. (Cayman Islands)*,2 | 267 | |
59,100 | Erex Co. Ltd. (Japan) | 469 | |
736 | |||
INSURANCE—3.1% | |||
89,364 | Beazley plc (United Kingdom) | 726 | |
66,366 | Storebrand ASA (Norway) | 567 | |
11,820 | Topdanmark AS (Denmark) | 556 | |
1,849 |
29
Harbor International Small Cap Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
IT SERVICES—4.8% | |||
43,938 | Indra Sistemas SA (Spain)* | $ 607 | |
89,323 | Link Administration Holdings Ltd. (Australia) | 556 | |
10,900 | SCSK Corp. (Japan) | 466 | |
2,996 | Sopra Steria Group (France) | 640 | |
11,186 | Worldline SA (France)*,2 | 564 | |
2,833 | |||
LEISURE PRODUCTS—0.5% | |||
13,078 | Thule Group AB (Sweden)2 | 302 | |
LIFE SCIENCES TOOLS & SERVICES—0.9% | |||
6,767 | Gerresheimer AG (Germany) | 550 | |
MACHINERY—7.5% | |||
26,800 | CKD Corp. (Japan) | 562 | |
24,800 | Fuji Machine Manufacturing Co. Ltd. (Japan) | 445 | |
180,000 | Haitian International Holdings Ltd. (Cayman Islands) | 479 | |
124,766 | Morgan Advanced Materials plc (United Kingdom) | 590 | |
8,017 | Norma Group Se (Germany) | 588 | |
26,300 | OSG Corp. (Japan) | 582 | |
17,500 | THK Co. Ltd. (Japan) | 610 | |
28,984 | Valmet OYJ (Finland) | 549 | |
4,405 | |||
MEDIA—2.0% | |||
53,759 | Ascential plc (United Kingdom) | 311 | |
8,322 | Kinepolis Group NV (Belgium) | 581 | |
4,087 | Stroeer Se & Co. KGAA (Germany) | 299 | |
1,191 | |||
MULTILINE RETAIL—2.1% | |||
97,226 | B&M European Value Retail SA (Luxembourg) | 542 | |
32,700 | Marui Group Co. Ltd. (Japan) | 678 | |
1,220 | |||
MULTI-UTILITIES—0.8% | |||
127,030 | Hera SpA (Italy) | 470 | |
OIL, GAS & CONSUMABLE FUELS—0.6% | |||
5,650 | Gaztransport Et Technigaz SA (France) | 350 | |
PROFESSIONAL SERVICES—6.2% | |||
43,478 | Applus Services SA (Spain) | 588 | |
15,001 | Brunel International NV (Netherlands) | 269 | |
4,563 | DKSH Holding AG (Switzerland) | 366 | |
217,905 | Hays plc (United Kingdom) | 537 | |
17,400 | Nihon M&A Center Inc. (Japan) | 508 | |
35,100 | Outsourcing Inc. (Japan) | 588 | |
13,700 | TechnoPro Holdings Inc. (Japan) | 797 | |
3,653 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
REAL ESTATE MANAGEMENT & DEVELOPMENT—1.9% | |||
9,014 | Nexity SA (France) | $ 564 | |
24,000 | Relo Group Inc. (Japan) | 539 | |
1,103 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—0.9% | |||
8,568 | ASM International NV (Netherlands) | 514 | |
SPECIALTY RETAIL—4.9% | |||
9,700 | ABC-Mart Inc. (Japan) | 639 | |
37,200 | BIC Camera Inc. (Japan) | 610 | |
4,000 | Hikari Tsushin Inc. (Japan) | 648 | |
119,537 | JD Sports Fashion plc (United Kingdom) | 641 | |
34,701 | Tom Tailor Holding SE (Germany)* | 374 | |
2,912 | |||
TEXTILES, APPAREL & LUXURY GOODS—0.6% | |||
77,700 | Samsonite International SA (Hong Kong) | 351 | |
THRIFTS & MORTGAGE FINANCE—1.9% | |||
13,450 | Aareal Bank AG (Germany) | 673 | |
31,600 | Aruhi Corp. (Japan) | 424 | |
1,097 | |||
TRADING COMPANIES & DISTRIBUTORS—1.9% | |||
8,743 | IMCD Group NV (Netherlands) | 538 | |
17,800 | Kanamoto Co. Ltd. (Japan) | 608 | |
1,146 | |||
TOTAL COMMON STOCKS | |||
(Cost $49,489) | 56,472 | ||
SHORT-TERM INVESTMENTS—4.4% | |||
(Cost $2,611) | |||
Principal Amount | |||
REPURCHASE AGREEMENTS | |||
$ | 2,611 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $2,665) | 2,611 |
TOTAL INVESTMENTS—100.0% | |||
(Cost $52,100) | 59,083 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | 3 | ||
TOTAL NET ASSETS—100.0% | $59,086 |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of April 30, 2018 based on the inputs used to value them.
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Common Stocks | ||||||||
Europe | $— | $34,284 | $— | $34,284 | ||||
Latin America | — | 1,168 | — | 1,168 |
30
Harbor International Small Cap Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS—Continued
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Pacific Basin | $— | $21,020 | $— | $21,020 | ||||
Short-Term Investments | ||||||||
Repurchase Agreements | — | 2,611 | — | 2,611 | ||||
Total Investments in Securities | $— | $59,083 | $— | $59,083 |
There were no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels used in the table above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
The following is a rollforward of the Fund’s Level 3 investments during the period ended April 30, 2018.
Valuation Description | Balance Beginning at 11/01/2017 (000s) | Purchases (000s) | Sales (000s) | Discount/ (Premium) (000s) | Total Realized Gain/(Loss) (000s) | Change in Unrealized Appreciation/ (Depreciation) (000s) | Transfers In Level 3 (000s) | Transfers Out of Level 3 (000s) | Ending Balance as of 04/30/2018 (000s) | |||||||||
Preferred Stocks | $6 | $— | $(6) | $— | $— | $— | $— | $— | $— |
* | Non-income producing security |
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. |
2 | Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. At April 30, 2018, the aggregate value of these securities was $5,035 or 9% of net assets. |
The accompanying notes are an integral part of the Financial Statements.
31
Harbor Global Leaders Fund
Manager’s Commentary (Unaudited)
Manager’s Commentary (Unaudited)
Subadviser
Sands Capital Management, LLC
1000 Wilson Boulevard
Suite 3000
Suite 3000
Arlington, VA 22209
Portfolio Manager
Sunil H. Thakor, CFA
Since 2017
Since 2017
Sands Capital has subadvised the Fund since 2017.
Investment Objective
The Fund seeks long-term growth of capital.
Sunil H. Thakor, CFA
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
An increasingly strengthening global economy continues to provide a favorable backdrop for shares of faster-growing businesses. Globally, investments are increasing, labor markets are strengthening, and consumer and business confidence remain buoyant. Additionally, the Organisation for Economic Co-operation and Development (OECD) increased GDP growth expectations to 3.9% for both 2018 and 2019 from 3.7%. In the U.S., the economy remains on a steady course with very low unemployment and rising wages, driven by consumer demand. In addition, reduced corporate tax expenses appear to be providing an extra tailwind to business investments across various sectors and industries, including artificial intelligence, autonomous driving, cyber security, e-commerce, and medicine—areas where we focus much of our research.
The strong macro fundamentals in the U.S. allowed for a relatively calm equity market in 2017. The CBOE Volatility Index (VIX) registered nine of its 10 lowest levels, and the series of market highs were accompanied by little market retracements. This low-volatility environment however reversed back to normal levels in the first quarter of 2018, as investor fears around rising interest rates, inflation, and a U.S.-China trade war increased.
In managing the Harbor Global Leaders Fund, we use an investment philosophy that is based on fundamental, bottom-up research, designed to identify leading growth businesses that we expect to generate sustainable above-average earnings growth over the long term, defined as five years or more. We invest in companies that operate in what we believe are promising business spaces, often supported by durable secular tailwinds that are capable of sustaining growth through economic cycles. We expect the strength of individual business fundamentals will be the primary driver of the Fund’s investment results over time. However, we pay attention to the macro environment in which these businesses are operating, and manage the portfolio with a ‘macro-aware’ approach.
Performance
Over the six months ended April 30, 2018, the Fund returned 8.17% (Institutional Class), 8.24% (Retirement Class), 8.04% (Administrative Class), and 7.95% (Investor Class) versus the 3.56% return of the MSCI All Country World (ND) Index. We believe strong business fundamentals were the primary drivers of results, while a supportive macroeconomic backdrop provided additional support. Many of the businesses in the Fund reported results that beat expectations and positive long-term outlooks.
On an absolute basis, the largest contributors to investment results were Zoetis, Adobe Systems, Visa, Verisk, and Ross Stores. Visa’s share price rose over the past year as the company consistently reported solid quarterly business results, and provided positive outlooks on its business. Our long-term view remains that the company should steadily grow earnings as it benefits from its market-leading position in the global secular shift to electronic payments from cash. In addition, we anticipate synergies from the Visa Europe acquisition to augment its growth over the next two years. Visa’s Europe operation was mutually owned by European banks until Visa Inc. acquired it in 2016. We expect the merger to result in cost efficiencies as well as a more robust global product offering that could result in additional revenue opportunities.
The largest detractors on an absolute basis were Taiwan Semiconductor, Inditex, Allergan, Celgene, and Recruit. Celgene shares were pressured after the company reported weak third quarter results and unexpectedly lowered its 2020 revenue guidance, which previously was considered conservative, by 5% to 10%. This report coincided with multiple setbacks in its inflammation franchise, including the Phase 3 trial failure of GED-0301 and an FDA refusal to file for Ozanimod, which treats multiple sclerosis. The series of shocks from an industry bellwether led to a significant derating of the stock, exacerbated by a broader rotation out of the sector amidst a challenging period for large cap pharmaceutical and biotechnology
32
Harbor Global Leaders Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | Life of Fund | |||||||||
Harbor Global Leaders Fund | |||||||||||
Institutional Class1 | 8.17% | 20.72% | 11.64% | 17.39% | |||||||
Retirement Class1,2 | 8.24 | 20.84 | 11.67 | 17.41 | |||||||
Administrative Class1 | 8.04 | 20.43 | 11.35 | 17.10 | |||||||
Investor Class1 | 7.95 | 20.26 | 11.22 | 16.95 | |||||||
Comparative Index | |||||||||||
MSCI All Country World (ND)1 | 3.56% | 14.16% | 8.80% | 13.92% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 0.90% (Net) and 1.21% (Gross) (Institutional Class); 0.82% (Net) and 1.13% (Retirement Class); 1.15% (Net) and 1.46% (Gross) (Administrative Class); and 1.27% (Net) and 1.58% (Gross) (Investor Class). The net expense ratios reflect an expense limitation agreement (excluding interest expense, if any) effective through 02/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
companies with clinical failures across the industry along with continued regulatory focus on drug pricing. We believe the company still has a very deep and broad pipeline with over 50 molecules across 100 indications, along with strong cash flow. The market estimates the company will generate approximately $30 billion in cash flow through 2020, and approximately $50 billion through 2022. Additionally, the company has a clean balance sheet with 0.5 times net debt-to-EBITDA to source growth externally.
Outlook & Strategy
To find the businesses we believe are best fits for the Fund, we use six investment criteria to guide bottom-up research. We seek businesses with: sustainable, above-average earnings growth; leadership positions in promising business spaces; significant competitive advantages; clear missions and value-added focus; financial strength; and rational valuations relative to long-term business prospects. The companies that typically fit this criteria operate in what we believe are promising business spaces, often supported by durable secular tailwinds that are typically more capable of sustaining growth through economic cycles. Therefore, we typically have greater exposure to the Consumer, Information Technology, and Healthcare sectors, where we more often find innovative companies that are creating new markets or are benefiting from secular growth. Conversely, we typically have lower exposure to slower growing and cyclical sectors such as Energy and Utilities, where we find fewer companies that meet our investment criteria.
In our view, the Fund is invested in businesses with resilient competitive advantages. This includes companies that we believe are: operating in industries with naturally limited competition, selling basic goods in structurally high return and defensible categories, and stable business models with high levels of recurring revenue.
We are optimistic about the health and growth of the businesses in the Fund. Regardless of the macroeconomic environment, we believe the businesses in the Fund are capable of producing strong business results and above-average growth over the long-term.
1 | The “Life of Fund” return as shown reflects the period 03/01/2009 through 04/30/2018. |
2 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Sands Capital Management, LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Investing in international and emerging markets poses special risks, including potentially greater price volatility due to social, political and economic factors, as well as currency exchange rate fluctuations. These risks are more severe for securities of issuers in emerging market regions. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
33
Harbor Global Leaders Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Visa Inc. | 5.2% |
2. Safran SA | 4.4% |
3. TransDigm Group Inc. | 4.2% |
4. Alibaba Group Holding Ltd. ADR | 3.8% |
5. HDFC Bank Ltd. ADR | 3.8% |
6. Recruit Holdings Co. Ltd. | 3.7% |
7. Adobe Systems Inc. | 3.6% |
8. Zoetis Inc. | 3.6% |
9. Alimentation Couche-Tard Inc. | 3.4% |
10. Starbucks Corp. | 3.4% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
North America | 59.6% | |
United States | 56.2% | |
Canada | 3.4% |
Pacific Basin | 17.9% | |
Japan | 8.6% | |
China | 6.2% | |
Taiwan | 3.1% | |
Europe | 16.4% | |
France | 9.3% | |
Germany | 2.6% | |
United Kingdom | 1.5% | |
Spain | 1.5% | |
Switzerland | 1.5% | |
Middle East/Central Asia | 3.8% | |
India | 3.8% | |
Latin America | 2.3% | |
Mexico | 2.3% |
34
Harbor Global Leaders Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—99.3% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—8.6% | |||
19,050 | Safran SA (France) | $ 2,234 | |
6,710 | TransDigm Group Inc. (United States)* | 2,151 | |
4,385 | |||
AUTO COMPONENTS—2.1% | |||
12,850 | Aptiv plc (United States) | 1,087 | |
BANKS—3.8% | |||
20,025 | HDFC Bank Ltd. ADR (India)1 | 1,919 | |
BEVERAGES—2.3% | |||
12,270 | Fomento Economico Mexicano SAB de CV ADR (Mexico)1 | 1,186 | |
BIOTECHNOLOGY—1.4% | |||
8,200 | Celgene Corp. (United States)* | 714 | |
CAPITAL MARKETS—4.5% | |||
21,550 | Intercontinental Exchange Inc. (United States) | 1,561 | |
4,350 | Moody's Corp. (United States) | 706 | |
2,267 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—3.0% | |||
2,530 | Keyence Corp. (Japan) | 1,543 | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—2.5% | |||
9,450 | American Tower Corp. (United States) | 1,289 | |
FOOD & STAPLES RETAILING—3.4% | |||
39,375 | Alimentation Couche-Tard Inc. (Canada) | 1,702 | |
HEALTH CARE EQUIPMENT & SUPPLIES—2.3% | |||
8,550 | Essilor International SA (France) | 1,168 | |
HEALTH CARE PROVIDERS & SERVICES—2.6% | |||
13,075 | Fresenius Medical Care AG & Co. KGaA (Germany) | 1,327 | |
HOTELS, RESTAURANTS & LEISURE—5.8% | |||
212,725 | Sands China Ltd. (China) | 1,229 | |
29,820 | Starbucks Corp. (United States) | 1,717 | |
2,946 | |||
INTERNET & DIRECT MARKETING RETAIL—3.0% | |||
690 | Booking Holdings Inc. (United States)* | 1,503 | |
INTERNET SOFTWARE & SERVICES—8.1% | |||
10,825 | Alibaba Group Holding Ltd. ADR (China)*,1 | 1,933 | |
1,405 | Alphabet Inc. Class A (United States)* | 1,431 | |
12,100 | Rightmove plc (United Kingdom) | 759 | |
4,123 | |||
IT SERVICES—5.2% | |||
20,714 | Visa Inc. (United States) | 2,628 | |
MEDIA—1.1% | |||
13,750 | Live Nation Entertainment Inc. (United States)* | 543 | |
MULTILINE RETAIL—4.3% | |||
13,200 | Dollar General Corp. (United States) | 1,274 | |
16,650 | Don Quijote Holdings Co. Ltd. (Japan) | 896 | |
2,170 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
PHARMACEUTICALS—5.3% | |||
5,640 | Allergan plc (United States) | $ 867 | |
21,575 | Zoetis Inc. (United States) | 1,801 | |
2,668 | |||
PROFESSIONAL SERVICES—6.4% | |||
80,250 | Recruit Holdings Co. Ltd. (Japan) | 1,850 | |
13,250 | Verisk Analytics Inc. (United States)* | 1,411 | |
3,261 | |||
ROAD & RAIL—1.9% | |||
7,265 | Union Pacific Corp. (United States) | 971 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—3.1% | |||
40,400 | Taiwan Semiconductor Manufacturing Co. Ltd. ADR (Taiwan)1 | 1,553 | |
SOFTWARE—12.5% | |||
8,340 | Adobe Systems Inc. (United States)* | 1,848 | |
9,770 | Dassault Systemes SE (France) | 1,266 | |
4,750 | Intuit Inc. (United States) | 878 | |
13,350 | Salesforce.com Inc. (United States)* | 1,615 | |
5,850 | Temenos Group AG (Switzerland) | 736 | |
6,343 | |||
SPECIALTY RETAIL—3.8% | |||
24,425 | Industria de Diseno Textil SA (Spain) | 757 | |
14,400 | Ross Stores Inc. (United States) | 1,164 | |
1,921 | |||
TEXTILES, APPAREL & LUXURY GOODS—2.3% | |||
17,300 | NIKE Inc. (United States) | 1,183 | |
TOTAL COMMON STOCKS | |||
(Cost $40,880) | 50,400 | ||
SHORT-TERM INVESTMENTS—0.8% | |||
(Cost $427) | |||
Principal Amount | |||
REPURCHASE AGREEMENTS | |||
$ | 427 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $438) | 427 |
TOTAL INVESTMENTS—100.1% | |||
(Cost $41,307) | 50,827 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(0.1)% | (64) | ||
TOTAL NET ASSETS—100.0% | $50,763 |
35
Harbor Global Leaders Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of April 30, 2018 based on the inputs used to value them.
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Common Stocks | ||||||||
Europe | $ — | $ 8,247 | $— | $ 8,247 | ||||
Latin America | 1,186 | — | — | 1,186 | ||||
Middle East/Central Asia | 1,919 | — | — | 1,919 | ||||
North America | 30,044 | — | — | 30,044 | ||||
Pacific Basin | 3,486 | 5,518 | — | 9,004 | ||||
Short-Term Investments | ||||||||
Repurchase Agreements | — | 427 | — | 427 | ||||
Total Investments in Securities | $36,635 | $14,192 | $— | $50,827 |
There were no Level 3 holdings at April 30, 2018 or October 31, 2017 and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels used in the table above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
* | Non-income producing security |
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. |
The accompanying notes are an integral part of the Financial Statements.
36
Harbor Emerging Markets Equity Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Oaktree Capital Management, L.P.
333 South Grand Avenue
28th Floor
28th Floor
Los Angeles, CA 90071
Portfolio Managers
Frank J. Carroll
Since 2013
Since 2013
Timothy D. Jensen
Since 2013
Since 2013
Oaktree has subadvised the Fund since 2013.
Investment Objective
The Fund seeks long-term growth of capital.
Frank J. Carroll
Timothy D. Jensen
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
Emerging market equities performed well during the six months ended April 30, 2018. Although market volatility increased, the asset class was supported by positive earnings revisions, strong net inflows and some country specific developments.
Volatility returned to global equity markets during the latter part of the period. This represented a regime change after 2017, when equity markets rose continually and any pullbacks were shallow. Emerging market equities started the year in similar strong fashion before experiencing a 10%-plus correction from late January into mid-February 2018, coincident with corrections in the U.S. and most global markets. Equity markets experienced volatility for the rest of the period.
Emerging markets were affected by at least two major issues during the period – tighter monetary policy in the U.S. and China, and protectionist trade measures instigated by the U.S. The U.S. Federal Reserve has raised interest rates six times since this up-cycle commenced and is reducing its balance sheet. This has led to a significant increase in LIBOR and a much flatter Treasury yield curve. The Chinese government has been working to reduce shadow banking credit, and growth in Chinese monetary aggregates has slowed significantly. At some point in any tightening cycle, marginal credits encounter difficulty in rolling over debt. While we believe that most listed emerging markets companies have improved their balance sheets in recent years, it is incumbent on us to be more vigilant during a tightening cycle.
The Trump administration renegotiated a trade deal with South Korea, is renegotiating NAFTA, initiated tariffs on steel and some metals (before rolling back some) and has proposed two sets of punitive tariffs on Chinese imports. Markets have been whipsawed by “The Art of the Deal” negotiating tactics, falling on harsh announcements but rallying when the administration walks back threats. While President Trump believes it is possible to “win a trade war,” it is likely markets will suffer while hostilities are underway. We believe the Chinese leadership does not want a trade war. The Chinese have offered to open up trade in services, reduce tariffs on autos and some other products, and open more of their economy to foreign ownership. Our base case assumes a deal is reached, but negotiations will be most difficult over intellectual property and the Information Technology sector.
Russia performed well for most of the period on strong oil prices, but fell sharply after the U.S. announced a new set of sanctions against some Russian individuals and associated companies. Brazil benefitted from improving economic data and falling interest rates. Greece performed well due to improving economic growth and credit dynamics. Turkey was the largest underperformer during the period as the Lira depreciated significantly. India performed poorly through February and March 2018 following the introduction of a long-term capital gains tax, rising inflation estimates and lower-than-expected earnings, but rebounded in April and ended the period flat. Healthcare and Energy were the best sectors during the period; Consumer Discretionary and Telecommunications lagged. Emerging market currencies appreciated marginally.
Performance
Harbor Emerging Markets Equity Fund returned 5.46% (Institutional Class), 5.43% (Retirement Class), 5.32% (Administrative Class), and 5.30% (Investor Class) for the six months ended April 30, 2018, compared to the 4.80% return of the MSCI Emerging Markets (ND) Index.
Consistent with our bottom-up investment process, stock selection explained the bulk of the Fund’s outperformance. Stock selection in Brazil and South Africa contributed positively, and more than offset negative selection effects in Taiwan and Thailand. Our overweight allocation to Brazil helped drive performance, while our underweight exposure to Malaysia detracted.
37
Harbor Emerging Markets Equity Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | 5 Years | Annualized | ||||||||
6 Months | Life of Fund | ||||||||||
Harbor Emerging Markets Equity Fund | |||||||||||
Institutional Class1 | 5.46% | 20.86% | N/A | 3.61% | |||||||
Retirement Class1,2 | 5.43 | 20.96 | N/A | 3.62 | |||||||
Administrative Class1 | 5.32 | 20.49 | N/A | 3.34 | |||||||
Investor Class1 | 5.30 | 20.50 | N/A | 3.23 | |||||||
Comparative Index | |||||||||||
MSCI Emerging Markets (ND)1 | 4.80% | 21.71% | N/A | 5.01% |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratios were 1.15% (Net) and 1.43% (Gross) (Institutional Class); 1.07% (Net) and 1.35% (Gross) (Retirement Class); 1.40% (Net) and 1.68% (Gross) (Administrative Class); and 1.52% (Net) and 1.80% (Gross) (Investor Class). The net expense ratios reflect an expense limitation agreement (excluding interest expense, if any) effective through 2/28/2019. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
At the sector level, selection among Consumer Discretionary, Materials, Energy and Real Estate stocks had a positive effect. Stock selection among Consumer Staples, Financials and Telecommunications detracted, along with our overweight exposure to Financials.
Outlook & Strategy
Emerging market equities have performed well since early 2016 and the asset class continues to attract inflows. Valuations are not stretched in our opinion, as price-to-book value and price-to-earnings multiples are near the asset class’s long-term averages. They also continue to trade at discounts to developed markets. Earnings revisions have been strong, which we believe is a positive indicator for future company performance. Corporate governance trends have been positive in most markets and capital returns to investors have increased. We remain constructive and continue to conduct vigorous bottom-up research in order to invest the Fund in good companies with solid management and strong balance sheets at appropriate valuations.
There was a major style shift in emerging market equities during the period. Growth stocks outperformed value stocks through the end of 2017. A rotation out of growth and into value occurred during January, which continued for the remainder of the period. The Fund is more exposed to value oriented names, and we believe we are in the early stages of a strong value cycle.
The Fund holds overweight positions in Energy, Financials and Consumer Discretionary. We believe there is significant upside to merging market companies in the Financials sector given low prevailing valuations, improving non-performing loan dynamics and unsynchronized but generally improving economic growth across most of our markets. We continued to decrease our exposure to Information Technology throughout the period, and we think that some Information Technology stocks are now fully valued. At the country level, we remained overweight Brazil, China and Russia, and underweight Taiwan, South Korea and Malaysia.
1 | The “Life of Fund” return as shown reflects the period 11/01/2013 through 04/30/2018. |
2 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Oaktree Capital Management, L.P. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Investing in international and emerging markets poses special risks, including potentially greater price volatility due to social, political and economic factors, as well as currency exchange rate fluctuations. These risks are more severe for securities of issuers in emerging market regions. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
38
Harbor Emerging Markets Equity Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Holdings (% of net assets)
1. Samsung Electronics Co. Ltd. | 7.2% |
2. Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 3.9% |
3. China Construction Bank Corp. | 3.8% |
4. Alibaba Group Holding Ltd. ADR | 3.3% |
5. Petroleo Brasileiro SA ADR | 3.3% |
6. Itau Unibanco Holding SA ADR | 3.0% |
7. Tencent Holdings Ltd. | 2.9% |
8. Lukoil PJSC ADR | 2.6% |
9. ICICI Bank Ltd. ADR | 2.5% |
10. Industrial & Commercial Bank of China Ltd. | 2.5% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
Pacific Basin | 63.3% | |
China | 37.0% | |
South Korea | 13.9% | |
Taiwan | 7.0% | |
Indonesia | 2.4% | |
Thailand | 1.2% | |
Japan | 1.0% | |
Hong Kong | 0.8% |
Latin America | 15.8% | |
Brazil | 13.7% | |
Mexico | 2.1% | |
Middle East/Central Asia | 8.1% | |
India | 7.5% | |
Pakistan | 0.6% | |
Europe | 7.9% | |
Russia | 5.2% | |
Greece | 1.7% | |
Hungary | 1.0% | |
Africa | 4.9% | |
South Africa | 4.9% |
39
Harbor Emerging Markets Equity Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—98.4% | |||
Shares | Value | ||
AIRLINES—1.2% | |||
24,194 | Azul SA ADR (Brazil)*,1 | $ 750 | |
AUTOMOBILES—3.2% | |||
711,500 | Baic Motor Corp. Ltd. (China)2 | 687 | |
278,000 | Brilliance China Automotive Holdings Ltd. (China) | 495 | |
5,938 | Hyundai Motor Co. (South Korea) | 885 | |
2,067 | |||
BANKS—22.1% | |||
404,647 | Alpha Bank AE (Greece)* | 1,069 | |
3,894,800 | Bank Rakyat Indonesia Persero Tbk PT (Indonesia) | 898 | |
2,363,000 | China Construction Bank Corp. (China) | 2,476 | |
147,500 | China Merchants Bank Co. Ltd. (China) | 643 | |
104,037 | Grupo Financiero Banorte SAB de CV (Mexico)* | 651 | |
31,008 | Hana Financial Group Inc. (South Korea) | 1,378 | |
188,565 | ICICI Bank Ltd. ADR (India)1 | 1,605 | |
1,881,000 | Industrial & Commercial Bank of China Ltd. (China) | 1,651 | |
132,017 | Itau Unibanco Holding SA ADR (Brazil)1 | 1,918 | |
13,836 | OTP Bank plc (Hungary) | 603 | |
78,839 | Sberbank of Russia PJSC ADR (Russia)1 | 1,166 | |
160,700 | United Bank Ltd. (Pakistan) | 279 | |
14,337 | |||
BEVERAGES—1.3% | |||
126,741 | AmBev SA ADR (Brazil)*,1 | 839 | |
CHEMICALS—1.5% | |||
322,500 | Alpek SAB de CV (Mexico)* | 461 | |
36,142 | PhosAgro PJSC GDR (Russia)3 | 521 | |
2,684,000 | Tianhe Chemicals Group Ltd. (China)*,2 | — x | |
982 | |||
CONSTRUCTION & ENGINEERING—1.0% | |||
834,000 | China Railway Group Ltd. (China) | 668 | |
CONSTRUCTION MATERIALS—4.3% | |||
153,000 | Anhui Conch Cement Co. Ltd. (China) | 955 | |
804,000 | China National Building Material Co. Ltd. (China) | 939 | |
730,800 | Semen Indonesia Persero TBK PT (Indonesia)* | 505 | |
1,957,800 | West China Cement Ltd. (China)* | 397 | |
2,796 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.5% | |||
3,000 | Largan Precision Co. Ltd. (Taiwan) | 349 | |
4,800 | Murata Manufacturing Co. Ltd. (Japan) | 606 | |
955 | |||
ENERGY EQUIPMENT & SERVICES—1.0% | |||
642,000 | China Oilfield Services Ltd. (China) | 641 | |
FOOD & STAPLES RETAILING—1.1% | |||
35,910 | Shoprite Holdings Ltd. (South Africa) | 714 | |
FOOD PRODUCTS—3.8% | |||
89,445 | BRF SA ADR (Brazil)*,1 | 638 | |
964,600 | Charoen Pokphand Foods PCL (Thailand) | 744 | |
21,419 | Gruma SAB de CV (Mexico) | 262 | |
902,000 | Want Want China Holdings Ltd. (China) | 797 | |
2,441 | |||
HOTELS, RESTAURANTS & LEISURE—3.5% | |||
82,775 | China International Travel Service Corp. Ltd. (China) | 676 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HOTELS, RESTAURANTS & LEISURE—Continued | |||
59,145 | CVC Brasil Operadora e Agencia de Viagens SA (Brazil) | $ 979 | |
107,618 | Sands China Ltd. (China) | 622 | |
2,277 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—2.2% | |||
770,000 | China Longyuan Power Group Corp. Ltd. (China) | 757 | |
1,988,400 | Datang International Power Generation Co. Ltd. (China) | 651 | |
1,408 | |||
INSURANCE—2.0% | |||
297,800 | China Pacific Insurance Group Co. Ltd. (China) | 1,314 | |
INTERNET & DIRECT MARKETING RETAIL—0.7% | |||
11,480 | Ctrip.com International Ltd. ADR (China)*,1 | 470 | |
INTERNET SOFTWARE & SERVICES—6.2% | |||
11,899 | Alibaba Group Holding Ltd. ADR (China)*,1 | 2,124 | |
38,200 | Tencent Holdings Ltd. (China) | 1,878 | |
4,002 | |||
IT SERVICES—2.3% | |||
82,809 | Infosys Ltd. ADR (India)1 | 1,463 | |
MACHINERY—1.1% | |||
104,501 | Samsung Heavy Industries Co. Ltd. (South Korea)* | 714 | |
METALS & MINING—3.0% | |||
75,849 | AngloGold Ashanti Ltd. ADR (South Africa)1 | 681 | |
696,400 | MMG Ltd. (Hong Kong)* | 517 | |
43,907 | Petra Diamonds Ltd. (South Africa)* | 41 | |
48,435 | Vale SA ADR (Brazil)*,1 | 670 | |
1,909 | |||
OIL, GAS & CONSUMABLE FUELS—9.6% | |||
262,000 | China Shenhua Energy Co. Ltd. (China) | 643 | |
5,041 | CNOOC Ltd. ADR (China)1 | 852 | |
25,286 | Lukoil PJSC ADR (Russia)1 | 1,685 | |
162,130 | Petroleo Brasileiro SA ADR (Brazil)*,1 | 2,132 | |
63,972 | Reliance Industries Ltd. (India) | 920 | |
6,232 | |||
PERSONAL PRODUCTS—1.9% | |||
3,822 | Amorepacific Corp. (South Korea) | 1,244 | |
PHARMACEUTICALS—1.0% | |||
149,600 | Sinopharm Group Co. Ltd. (China) | 631 | |
PROFESSIONAL SERVICES—0.1% | |||
3,933 | L&T Technology Services Ltd. (India)*,2 | 78 | |
REAL ESTATE MANAGEMENT & DEVELOPMENT—2.4% | |||
432,800 | Guangzhou R&F Properties Co. Ltd. (China) | 1,029 | |
207,000 | Shimao Property Holdings Ltd. (China) | 548 | |
1,577 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—6.4% | |||
66,243 | Taiwan Semiconductor Manufacturing Co. Ltd. ADR (Taiwan)1 | 2,547 | |
2,952,000 | United Microelectronics Corp. (Taiwan) | 1,592 | |
4,139 | |||
SPECIALTY RETAIL—3.8% | |||
36,767 | Foschini Group Ltd. (South Africa) | 632 |
40
Harbor Emerging Markets Equity Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
SPECIALTY RETAIL—Continued | |||
48,169 | Mr Price Group Ltd. (South Africa) | $ 1,057 | |
121,563 | Petrobras Distribuidora SA (Brazil)* | 797 | |
2,486 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—7.2% | |||
1,892 | Samsung Electronics Co. Ltd. (South Korea) | 4,690 y | |
THRIFTS & MORTGAGE FINANCE—1.1% | |||
37,897 | Indiabulls Housing Finance Ltd. (India) | 739 | |
WIRELESS TELECOMMUNICATION SERVICES—1.9% | |||
110,000 | China Mobile Ltd. (China) | 1,048 | |
660,300 | Sarana Menara Nusantara TBK PT (Indonesia)* | 148 | |
1,196 | |||
TOTAL COMMON STOCKS | |||
(Cost $52,463) | 63,759 | ||
PARTICIPATION (EQUITY LINKED) NOTES—0.2% | |||
Principal Amount | |||
BANKS—0.2% | |||
United Bank Ltd. (Pakistan)*,2 | |||
$ | 57,045 | $0.22—06/19/2019 | 99 |
PARTICIPATION (EQUITY LINKED) NOTES—Continued | |||
Principal Amount | Value | ||
OIL, GAS & CONSUMABLE FUELS—0.0% | |||
Reliance Industries Ltd. (India)* | |||
$ | 34 | $0.01—07/10/2019 | $ 1 |
TOTAL PARTICIPATION (EQUITY LINKED) NOTES | |||
(Cost $95) | 100 | ||
SHORT-TERM INVESTMENTS—1.6% | |||
(Cost $1,045) | |||
REPURCHASE AGREEMENTS | |||
1,045 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $1,068) | 1,045 | |
TOTAL INVESTMENTS—100.2% | |||
(Cost $53,603) | 64,904 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(0.2)% | (99) | ||
TOTAL NET ASSETS—100.0% | $64,805 |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of April 30, 2018 based on the inputs used to value them.
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Common Stocks | ||||||||
Africa | $ 681 | $ 2,445 | $ — | $ 3,126 | ||||
Europe | — | 5,045 | — | 5,045 | ||||
Latin America | 10,096 | — | — | 10,096 | ||||
Middle East/Central Asia | 3,068 | 2,016 | — | 5,084 | ||||
Pacific Basin | 5,993 | 29,725 | 4,690 | 40,408 | ||||
Participation (Equity Linked) Notes | ||||||||
Middle East/Central Asia | — | 100 | — | 100 | ||||
Short-Term Investments | ||||||||
Repurchase Agreements | — | 1,045 | — | 1,045 | ||||
Total Investments in Securities | $19,838 | $40,376 | $4,690 | $64,904 |
There were no transfers between Levels 1 and 2 during the period.
For more information on valuation inputs and their aggregation into the levels used in the table above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
41
Harbor Emerging Markets Equity Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS—Continued
The following is a rollforward of the Fund’s Level 3 investments during the period ended April 30, 2018.
Valuation Description | Balance Beginning at 11/01/2017 (000s) | Purchases (000s) | Sales (000s) | Discount/ (Premium) (000s) | Total Realized Gain/(Loss)w (000s) | Change in Unrealized Appreciation/ (Depreciation)w (000s) | Transfers In Level 3h (000s) | Transfers Out of Level 3 (000s) | Ending Balance as of 04/30/2018w (000s) | |||||||||
Common Stocks | $151 | $826 | $(143) | $— | $70 | $(126) | $3,912 | $— | $4,690 |
The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy.
Valuation Descriptions | Ending Balance as of 04/30/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Common Stocks | ||||||||
Samsung Electronics Co. Ltd. (South Korea) | $ 4,690 | Market Approach | Last Close Price | ₩ 2,650,000 | ||||
Tianhe Chemicals Group Ltd. (China)* | — | Market Approach | Liquidity Discount | HK$ 0.70 | ||||
$ 4,690 |
* | Non-income producing security | ||
1 | ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. | ||
2 | Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. At April 30, 2018, the aggregate value of these securities was $864 or 1% of net assets. | ||
3 | GDR after the name of a holding stands for Global Depositary Receipts representing ownership of foreign securities. GDRs are issued by either U.S. or non-U.S. banking institutions. Country specific examples of this type of depositary receipt, if any, are denoted using different abbreviations. SADR after the name of a holding stands for South African Depositary Receipts representing ownership of South African securities listed on the Johannesburg Stock Exchange. SDR after the name of a holding stands for Swedish Depository Receipts representing ownership of foreign securities in Sweden. NVDR after the name of a holding stands for Non-Voting Depositary Receipts representing ownership of a listed security in the Stock Exchange of Thailand. | ||
h | Transferred from Level 2 to Level 3 due to unobservable market data for pricing input. | ||
w | Amounts in this category are included in the “Realized and Change in Unrealized Gain/(Loss) on Investment Transactions” section of the Statement of Operations. The net appreciation/(depreciation) per investment type is below: | ||
Valuation Description | Unrealized Gain/(Loss) as of 04/30/2018 (000s) | ||
Common Stocks | $1,297 | ||
x | Fair valued in accordance with Harbor Funds Valuation Procedures using liquidity discount which is a Level 3 input. | ||
y | Fair valued in accordance with Harbor Funds Valuation Procedures using last close price which is a Level 3 input. | ||
HK$ | Hong Kong Dollar | ||
₩ | South Korean Won |
The accompanying notes are an integral part of the Financial Statements.
42
Harbor International & Global Funds
StatementS of Assets and Liabilities—April 30, 2018 (Unaudited)
StatementS of Assets and Liabilities—April 30, 2018 (Unaudited)
(All amounts in thousands, except per share amounts)
Harbor International Fund | Harbor Diversified International All Cap Fund | Harbor International Growth Fund | Harbor International Small Cap Fund | Harbor Global Leaders Fund | Harbor Emerging Markets Equity Fund | |
ASSETS | ||||||
Investments, at identified cost* | $21,398,342 | $556,512 | $503,026 | $52,100 | $41,307 | $53,603 |
Investments, at value(Including securities loaned of ($2,333,714, $884, $12,659, $0, $0, and $0) | $28,112,022 | $574,081 | $565,088 | $56,472 | $50,400 | $63,859 |
Repurchase agreements | 429,058 | 8,654 | 7,241 | 2,611 | 427 | 1,045 |
Cash | 1 | 1 | 1 | 1 | — | — |
Foreign currency, at value (cost: $5,336, $2,020, $43, $15, $13, and $111) | 5,336 | 2,007 | 43 | 15 | 13 | 111 |
Receivables for: | ||||||
Investments sold | — | 410 | 2,477 | 557 | — | 65 |
Foreign currency spot contracts | — | — | — | 2 | — | — |
Capital shares sold | 5,836 | 97 | 85 | — | 9 | 2 |
Dividends | 83,472 | 2,644 | 1,538 | 186 | 23 | 87 |
Interest | 137 | — | — | — | — | — |
Securities lending income | 709 | 6 | 1 | 2 | — | — |
Purchased options, at value (cost: $14,434, $0, $0, $0, $0, and $0) | 7,183 | — | — | — | — | — |
Withholding tax | 42,215 | 269 | 297 | 28 | 21 | — |
Prepaid registration fees | 20 | 30 | 25 | 28 | 25 | 28 |
Prepaid fund insurance | 107 | 1 | 2 | — | — | — |
Other assets | 3,412 | 70 | 88 | 25 | 18 | 16 |
Total Assets | 28,689,508 | 588,270 | 576,886 | 59,927 | 50,936 | 65,213 |
LIABILITIES | ||||||
Payables for: | ||||||
Investments purchased | 3,633 | 451 | 2,659 | 726 | — | 202 |
Foreign currency spot contracts | — | — | — | 2 | — | — |
Capital shares reacquired | 37,788 | 69 | 107 | — | 97 | 1 |
Collateral for securities loaned | 2,448,993 | 941 | 13,197 | — | — | — |
Accrued expenses: | ||||||
Management fees | 13,321 | 350 | 346 | 41 | 31 | 51 |
12b-1 fees | 365 | 2 | 8 | — | 3 | 1 |
Transfer agent fees | 1,698 | 21 | 37 | 3 | 5 | 4 |
Trustees' fees and expenses | 242 | 3 | 1 | — | — | — |
Other | 17,120 | 460 | 395 | 69 | 37 | 149 |
Total Liabilities | 2,523,160 | 2,297 | 16,750 | 841 | 173 | 408 |
NET ASSETS | $26,166,348 | $585,973 | $560,136 | $59,086 | $50,763 | $64,805 |
Net Assets Consist of: | ||||||
Paid-in capital | $16,394,917 | $546,416 | $494,286 | $49,910 | $39,873 | $57,455 |
Accumulated undistributed net investment income/(loss) | (125,387) | 2,729 | 274 | 44 | (61) | (120) |
Accumulated net realized gain/(loss) | 2,761,419 | 10,667 | (3,647) | 2,150 | 1,431 | (3,751) |
Unrealized appreciation/(depreciation) of investments and translation of assets and liabilities in foreign currencies | 7,142,650 | 26,161 | 69,223 | 6,982 | 9,520 | 11,221 |
Unrealized appreciation/(depreciation) of other financial instruments | (7,251) | — | — | — | — | — |
$26,166,348 | $585,973 | $560,136 | $59,086 | $50,763 | $64,805 | |
The accompanying notes are an integral part of the Financial Statements.
43
Harbor International Fund | Harbor Diversified International All Cap Fund | Harbor International Growth Fund | Harbor International Small Cap Fund | Harbor Global Leaders Fund | Harbor Emerging Markets Equity Fund | |||||||
NET ASSET VALUE PER SHARE BY CLASS | ||||||||||||
Institutional Class | ||||||||||||
Net assets | $19,413,162 | $251,780 | $418,936 | $44,685 | $32,117 | $58,412 | ||||||
Shares of beneficial interest1 | 286,893 | 21,656 | 26,682 | 3,145 | 1,280 | 5,166 | ||||||
Net asset value per share2 | $ 67.67 | $ 11.63 | $ 15.70 | $ 14.21 | $ 25.09 | $ 11.31 | ||||||
Retirement Class | ||||||||||||
Net assets | $ 5,013,778 | $322,240 | $100,974 | $13,395 | $ 5,405 | $ 4,966 | ||||||
Shares of beneficial interest1 | 74,122 | 27,726 | 6,427 | 943 | 215 | 439 | ||||||
Net asset value per share2 | $ 67.64 | $ 11.62 | $ 15.71 | $ 14.21 | $ 25.11 | $ 11.30 | ||||||
Administrative Class | ||||||||||||
Net assets | $ 270,651 | $ 6,095 | $ 392 | $ 374 | $ 1,300 | $ 674 | ||||||
Shares of beneficial interest1 | 4,010 | 525 | 25 | 26 | 52 | 60 | ||||||
Net asset value per share2 | $ 67.49 | $ 11.61 | $ 15.69 | $ 14.19 | $ 24.70 | $ 11.29 | ||||||
Investor Class | ||||||||||||
Net assets | $ 1,468,757 | $ 5,858 | $ 39,834 | $ 632 | $11,941 | $ 753 | ||||||
Shares of beneficial interest1 | 21,907 | 507 | 2,551 | 45 | 489 | 67 | ||||||
Net asset value per share2 | $ 67.05 | $ 11.56 | $ 15.61 | $ 14.19 | $ 24.41 | $ 11.28 |
* | Including repurchase agreements and short-term investments. |
1 | Par value $0.01 (unlimited authorizations). |
2 | Per share amounts can be recalculated to the amounts disclosed herein when total net assets and shares of beneficial interest are not rounded to thousands. |
44
Harbor International & Global Funds
StatementS of Operations—Six Months Ended April 30, 2018 (Unaudited)
StatementS of Operations—Six Months Ended April 30, 2018 (Unaudited)
(All amounts in thousands)
Harbor International Fund | Harbor Diversified International All Cap Fund | Harbor International Growth Fund | Harbor International Small Cap Fund | Harbor Global Leaders Fund | Harbor Emerging Markets Equity Fund | |
Investment Income | ||||||
Dividends | $ 295,050 | $ 7,268 | $ 4,494 | $ 513 | $ 191 | $ 428 |
Interest | 3,025 | 13 | 9 | 3 | 1 | 2 |
Net securities lending income | 1,765 | 25 | 54 | 3 | — | — |
Foreign taxes withheld | (25,007) | (696) | (417) | (49) | (7) | (58) |
Total Investment Income | 274,833 | 6,610 | 4,140 | 470 | 185 | 372 |
Operating Expenses | ||||||
Management fees | 101,859 | 1,778 | 1,781 | 234 | 185 | 293 |
12b-1 fees: | ||||||
Administrative Class | 391 | 4 | 1 | — | 2 | — |
Investor Class | 2,050 | 7 | 30 | 1 | 15 | 1 |
Shareholder communications | — | 1 | 9 | 4 | 2 | 1 |
Custodian fees | 2,953 | 155 | 61 | 23 | 12 | 28 |
Transfer agent fees: | ||||||
Institutional Class | 10,388 | 101 | 173 | 19 | 14 | 25 |
Administrative Class | 141 | 1 | — | — | 1 | — |
Investor Class | 1,722 | 6 | 25 | 1 | 13 | 1 |
Retirement Class | 224 | 12 | 3 | 1 | — | — |
Professional fees | 281 | 17 | 7 | 5 | 3 | 5 |
Trustees' fees and expenses | 509 | 8 | 6 | 1 | 1 | 1 |
Registration fees | 115 | 30 | 31 | 28 | 32 | 30 |
Miscellaneous | — | 7 | 7 | 5 | 5 | 6 |
Total expenses | 120,633 | 2,127 | 2,134 | 322 | 285 | 391 |
Management fees waived | (11,598) | — | — | — | — | — |
Transfer agent fees waived | (974) | (8) | (15) | (1) | (2) | (2) |
Other expenses reimbursed | — | (187) | (81) | (62) | (38) | (34) |
Net expenses | 108,061 | 1,932 | 2,038 | 259 | 245 | 355 |
Net Investment Income/(Loss) | 166,772 | 4,678 | 2,102 | 211 | (60) | 17 |
Realized and Change in Net Unrealized Gain/(Loss) on Investment Transactions | ||||||
Net realized gain/(loss) on: | ||||||
Investments(net of foreign capital gains tax: $0, $0, $2, $0, $0 and $11) | 2,941,754 | 13,193 | (2,880) | 2,133 | 1,536 | 2,913 |
Foreign currency transactions | (5,442) | 171 | (40) | 5 | (2) | (20) |
Purchased options | — | — | — | 13 | — | — |
Change in net unrealized appreciation/(depreciation) on: | ||||||
Investments(net of foreign capital gains tax accrual: $0, $4, $71, $0, $0, and $78) | (2,124,321) | (9,475) | 2,371 | (534) | 2,276 | (56) |
Purchased options | (3,816) | (8) | — | — | — | — |
Translations of assets and liabilities in foreign currencies | (231) | (49) | 2 | (1) | — | (2) |
Net gain/(loss) on investment transactions | 807,944 | 3,832 | (547) | 1,616 | 3,810 | 2,835 |
Net Increase/(Decrease) in Net Assets Resulting from Operations | $ 974,716 | $ 8,510 | $ 1,555 | $1,827 | $3,750 | $2,852 |
The accompanying notes are an integral part of the Financial Statements.
45
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46
Harbor International & Global Funds
Statements of Changes In Net Assets
Statements of Changes In Net Assets
(All amounts in thousands)
Harbor International Fund | Harbor Diversified International All Cap Fund | Harbor International Growth Fund | ||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | |||
INCREASE/(DECREASE) IN NET ASSETS | (Unaudited) | (Unaudited) | (Unaudited) | |||||
Operations: | ||||||||
Net investment income/(loss) | $ 166,772 | $ 507,821 | $ 4,678 | $ 3,530 | $ 2,102 | $ 3,122 | ||
Net realized gain/(loss) on investments | 2,936,312 | 1,958,450 | 13,364 | 12,594 | (2,920) | 7,604 | ||
Change in net unrealized appreciation/(depreciation) of investments | (2,128,368) | 3,304,314 | (9,532) | 30,614 | 2,373 | 63,001 | ||
Net increase/(decrease) in assets resulting from operations | 974,716 | 5,770,585 | 8,510 | 46,738 | 1,555 | 73,727 | ||
Distributions to Shareholders | ||||||||
Net investment income: | ||||||||
Institutional Class | (427,401) | (621,061) | (2,071) | (2,150) | (3,975) | (3,507) | ||
Retirement Class | (91,555) | (16,825) | (2,250) | (24) | (483) | (32) | ||
Administrative Class | (4,695) | (7,902) | (2) | (3) | (4) | (3) | ||
Investor Class | (23,742) | (31,061) | (38) | (23) | (105) | (119) | ||
Net realized gain on investments: | ||||||||
Institutional Class | (1,032,938) | — | (5,107) | — | — | — | ||
Retirement Class | (210,356) | — | (5,157) | — | — | — | ||
Administrative Class | (14,020) | — | (7) | — | — | — | ||
Investor Class | (74,234) | — | (131) | — | — | — | ||
Total distributions to shareholders | (1,878,941) | (676,849) | (14,763) | (2,200) | (4,567) | (3,661) | ||
Net Increase/(Decrease) Derived from Capital Share Transactions | (5,185,534) | (9,478,305) | 268,806 | 126,258 | 160,862 | 38,423 | ||
Net increase/(decrease) in net assets | (6,089,759) | (4,384,569) | 262,553 | 170,796 | 157,850 | 108,489 | ||
Net Assets | ||||||||
Beginning of period | 32,256,107 | 36,640,676 | 323,420 | 152,624 | 402,286 | 293,797 | ||
End of period* | $26,166,348 | $32,256,107 | $585,973 | $323,420 | $560,136 | $402,286 | ||
* Includes accumulated undistributed net investment income/(loss) of: | $ (125,387) | $ 255,234 | $ 2,729 | $ 2,412 | $ 274 | $ 2,739 |
The accompanying notes are an integral part of the Financial Statements.
47
Harbor International Small Cap Fund | Harbor Global Leaders Fund | Harbor Emerging Markets Equity Fund | |||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | ||
(Unaudited) | (Unaudited) | (Unaudited) | |||||
$ 211 | $ 205 | $ (60) | $ 22 | $ 17 | $ 558 | ||
2,151 | 797 | 1,534 | 6,966 | 2,893 | 2,343 | ||
(535) | 6,183 | 2,276 | 1,807 | (58) | 8,546 | ||
1,827 | 7,185 | 3,750 | 8,795 | 2,852 | 11,447 | ||
(235) | (197) | (11) | — | (499) | (397) | ||
(78) | (7) | (5) | — | (46) | (16) | ||
(1) | (2) | — | — | (2) | (2) | ||
(2) | (2) | — | — | (4) | (4) | ||
(301) | — | (2,536) | — | — | — | ||
(91) | — | (390) | — | — | — | ||
(3) | — | (102) | — | — | — | ||
(4) | — | (1,035) | — | — | — | ||
(715) | (208) | (4,079) | – | (551) | (419) | ||
10,574 | 21,735 | 5,114 | (1,913) | 5,448 | 7,604 | ||
11,686 | 28,712 | 4,785 | 6,882 | 7,749 | 18,632 | ||
47,400 | 18,688 | 45,978 | 39,096 | 57,056 | 38,424 | ||
$59,086 | $47,400 | $50,763 | $45,978 | $64,805 | $57,056 | ||
$ 44 | $ 149 | $ (61) | $ 15 | $ (120) | $ 414 |
48
Harbor International & Global Funds
Statements of Changes in Net Assets—Capital Stock Activity
Statements of Changes in Net Assets—Capital Stock Activity
(All amounts in thousands)
Harbor International Fund | Harbor Diversified International All Cap Fund | Harbor International Growth Fund | ||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | |||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
AMOUNT ($) | ||||||||
Institutional Class | ||||||||
Net proceeds from sale of shares | $ 1,170,378 | $ 3,763,185 | $ 91,158 | $ 174,975 | $101,436 | $ 71,320 | ||
Reinvested distributions | 1,264,571 | 537,811 | 7,160 | 2,114 | 3,875 | 3,417 | ||
Cost of shares reacquired | (9,748,113) | (14,157,214) | (69,590) | (141,031) | (46,540) | (53,734) | ||
Cost of shares reacquired through redemption in-kind | — | (451,183) | — | — | — | — | ||
Net increase/(decrease) in net assets | $(7,313,164) | $(10,307,401) | $ 28,728 | $ 36,058 | $ 58,771 | $ 21,003 | ||
Retirement Class | ||||||||
Net proceeds from sale of shares | $ 3,245,271 | $ 2,467,439 | $272,755 | $ 87,798 | $ 79,947 | $ 20,877 | ||
Reinvested distributions | 289,406 | 16,825 | 7,256 | 23 | 483 | 32 | ||
Cost of shares reacquired | (1,005,262) | (795,107) | (46,375) | (1,773) | (4,111) | (2,156) | ||
Net increase/(decrease) in net assets | $ 2,529,415 | $ 1,689,157 | $233,636 | $ 86,048 | $ 76,319 | $ 18,753 | ||
Administrative Class | ||||||||
Net proceeds from sale of shares | $ 27,196 | $ 141,969 | $ 5,993 | $ 10 | $ 41 | $ 480 | ||
Reinvested distributions | 18,354 | 7,713 | 9 | 3 | 4 | 3 | ||
Cost of shares reacquired | (164,916) | (327,979) | (288) | — | (119) | (431) | ||
Net increase/(decrease) in net assets | $ (119,366) | $ (178,297) | $ 5,714 | $ 13 | $ (74) | $ 52 | ||
Investor Class | ||||||||
Net proceeds from sale of shares | $ 74,547 | $ 230,111 | $ 824 | $ 4,689 | $ 28,987 | $ 2,335 | ||
Reinvested distributions | 96,300 | 30,486 | 169 | 23 | 103 | 117 | ||
Cost of shares reacquired | (453,266) | (942,361) | (265) | (574) | (3,244) | (3,837) | ||
Net increase/(decrease) in net assets | $ (282,419) | $ (681,764) | $ 728 | $ 4,138 | $ 25,846 | $ (1,385) |
The accompanying notes are an integral part of the Financial Statements.
49
Harbor International Small Cap Fund | Harbor Global Leaders Fund | Harbor Emerging Markets Equity Fund | |||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | ||
(Unaudited) | (Unaudited) | (Unaudited) | |||||
$5,007 | $16,678 | $ 1,838 | $ 2,658 | $ 6,953 | $12,422 | ||
536 | 197 | 2,455 | — | 499 | 397 | ||
(520) | (1,932) | (1,048) | (5,092) | (2,956) | (7,659) | ||
— | — | — | — | — | — | ||
$5,023 | $14,943 | $ 3,245 | $(2,434) | $ 4,496 | $ 5,160 | ||
$5,426 | $ 6,743 | $ 1,096 | $ 2,512 | $ 844 | $ 2,375 | ||
169 | 7 | 395 | — | 46 | 15 | ||
(117) | (123) | (435) | (396) | (349) | (23) | ||
$5,478 | $ 6,627 | $ 1,056 | $ 2,116 | $ 541 | $ 2,367 | ||
$ — | $ 27 | $ 80 | $ 142 | $ 400 | $ — | ||
4 | 2 | 102 | — | 2 | 2 | ||
(10) | — | (79) | (450) | — | — | ||
$ (6) | $ 29 | $ 103 | $ (308) | $ 402 | $ 2 | ||
$ 124 | $ 135 | $ 1,510 | $ 2,647 | $ 712 | $ 637 | ||
5 | 2 | 1,035 | — | 4 | 4 | ||
(50) | (1) | (1,835) | (3,934) | (707) | (566) | ||
$ 79 | $ 136 | $ 710 | $(1,287) | $ 9 | $ 75 |
50
Harbor International & Global Funds
Statements of Changes in Net Assets—Capital Stock Activity—Continued
Statements of Changes in Net Assets—Capital Stock Activity—Continued
(All amounts in thousands)
Harbor International Fund | Harbor Diversified International All Cap Fund | Harbor International Growth Fund | ||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | |||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||
SHARES | ||||||||
Institutional Class | ||||||||
Shares sold | 17,018 | 58,718 | 7,794 | 16,414 | 6,269 | 5,171 | ||
Shares issued due to reinvestment of distributions | 18,840 | 9,241 | 626 | 220 | 248 | 282 | ||
Shares reacquired | (141,000) | (219,793) | (5,893) | (12,889) | (2,904) | (3,920) | ||
Shares reacquired through redemption in-kind | — | (6,735) | — | — | — | — | ||
Net increase/(decrease) in shares outstanding | (105,142) | (158,569) | 2,527 | 3,745 | 3,613 | 1,533 | ||
Beginning of period | 392,035 | 550,604 | 19,129 | 15,384 | 23,069 | 21,536 | ||
End of period | 286,893 | 392,035 | 21,656 | 19,129 | 26,682 | 23,069 | ||
Retirement Class | ||||||||
Shares sold | 46,497 | 37,073 | 23,212 | 7,818 | 5,072 | 1,542 | ||
Shares issued due to reinvestment of distributions | 4,314 | 289 | 635 | 2 | 31 | 2 | ||
Shares reacquired | (14,701) | (11,616) | (3,963) | (161) | (259) | (144) | ||
Net increase/(decrease) in shares outstanding | 36,110 | 25,746 | 19,884 | 7,659 | 4,844 | 1,400 | ||
Beginning of period | 38,012 | 12,266 | 7,842 | 183 | 1,583 | 183 | ||
End of period | 74,122 | 38,012 | 27,726 | 7,842 | 6,427 | 1,583 | ||
Administrative Class | ||||||||
Shares sold | 394 | 2,183 | 522 | 1 | 3 | 34 | ||
Shares issued due to reinvestment of distributions | 274 | 133 | 1 | — | — | — | ||
Shares reacquired | (2,387) | (5,098) | (24) | — | (8) | (30) | ||
Net increase/(decrease) in shares outstanding | (1,719) | (2,782) | 499 | 1 | (5) | 4 | ||
Beginning of period | 5,729 | 8,511 | 26 | 25 | 30 | 26 | ||
End of period | 4,010 | 5,729 | 525 | 26 | 25 | 30 | ||
Investor Class | ||||||||
Shares sold | 1,088 | 3,644 | 71 | 462 | 1,793 | 169 | ||
Shares issued due to reinvestment of distributions | 1,446 | 528 | 15 | 3 | 6 | 10 | ||
Shares reacquired | (6,636) | (14,877) | (23) | (55) | (206) | (274) | ||
Net increase/(decrease) in shares outstanding | (4,102) | (10,705) | 63 | 410 | 1,593 | (95) | ||
Beginning of period | 26,009 | 36,714 | 444 | 34 | 958 | 1,053 | ||
End of period | 21,907 | 26,009 | 507 | 444 | 2,551 | 958 |
The accompanying notes are an integral part of the Financial Statements.
51
Harbor International Small Cap Fund | Harbor Global Leaders Fund | Harbor Emerging Markets Equity Fund | |||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | ||
(Unaudited) | (Unaudited) | (Unaudited) | |||||
349 | 1,303 | 74 | 120 | 594 | 1,328 | ||
38 | 19 | 101 | — | 47 | 48 | ||
(35) | (155) | (42) | (228) | (263) | (823) | ||
— | — | — | — | — | — | ||
352 | 1,167 | 133 | (108) | 378 | 553 | ||
2,793 | 1,626 | 1,147 | 1,255 | 4,788 | 4,235 | ||
3,145 | 2,793 | 1,280 | 1,147 | 5,166 | 4,788 | ||
387 | 504 | 44 | 106 | 76 | 237 | ||
12 | 1 | 16 | — | 4 | 2 | ||
(8) | (11) | (18) | (17) | (32) | (3) | ||
391 | 494 | 42 | 89 | 48 | 236 | ||
552 | 58 | 173 | 84 | 391 | 155 | ||
943 | 552 | 215 | 173 | 439 | 391 | ||
— | 2 | 3 | 6 | 34 | — | ||
— | — | 4 | — | 1 | — | ||
(1) | — | (3) | (20) | — | — | ||
(1) | 2 | 4 | (14) | 35 | — | ||
27 | 25 | 48 | 62 | 25 | 25 | ||
26 | 27 | 52 | 48 | 60 | 25 | ||
9 | 12 | 61 | 111 | 63 | 64 | ||
— | — | 43 | — | — | 1 | ||
(3) | — | (75) | (187) | (61) | (56) | ||
6 | 12 | 29 | (76) | 2 | 9 | ||
39 | 27 | 460 | 536 | 65 | 56 | ||
45 | 39 | 489 | 460 | 67 | 65 |
52
Harbor International & Global Funds Financial Highlights
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR INTERNATIONAL FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 69.90 | $ 60.30 | $ 65.67 | $ 68.09 | $ 70.79 | $ 59.12 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.38 e | 0.97 e | 0.99 e | 1.22 e | 1.25 | 1.24 |
Net realized and unrealized gains/(losses) on investments | 1.63 | 9.79 | (3.51) | (2.22) | (2.45) | 11.69 |
Total from investment operations | 2.01 | 10.76 | (2.52) | (1.00) | (1.20) | 12.93 |
Less Distributions | ||||||
Dividends from net investment income | (1.24) | (1.16) | (1.08) | (1.42) | (1.50) | (1.26) |
Distributions from net realized capital gains1 | (3.00) | — | (1.77) | — | — | — |
Total distributions | (4.24) | (1.16) | (2.85) | (1.42) | (1.50) | (1.26) |
Proceeds from redemption fees | — | — | — | — | — | — * |
Net asset value end of period | 67.67 | 69.90 | 60.30 | 65.67 | 68.09 | 70.79 |
Net assets end of period (000s) | $19,413,162 | $27,401,853 | $33,201,899 | $41,195,827 | $43,385,100 | $39,828,959 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 2.92% c | 18.24% | (3.74)% | (1.48)% | (1.69)% | 22.19% |
Ratio of total expenses to average net assets2 | 0.81 d | 0.81 | 0.79 | 0.76 | 0.76 | 0.76 |
Ratio of net expenses to average net assetsa | 0.72 d | 0.80 | 0.77 | 0.74 | 0.73 | 0.74 |
Ratio of net investment income to average net assetsa | 1.10 d | 1.51 | 1.66 | 1.80 | 1.78 | 1.96 |
Portfolio turnover | 7 c | 13 | 14 | 25 | 11 | 10 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 69.57 | $ 59.99 | $ 65.32 | $ 67.48 | $ 70.18 | $ 58.63 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.29 e | 0.79 e | 0.79 e | 1.04 e | 1.91 i | 1.03 |
Net realized and unrealized gains/(losses) on investments | 1.63 | 9.77 | (3.44) | (2.20) | (3.27) | 11.63 |
Total from investment operations | 1.92 | 10.56 | (2.65) | (1.16) | (1.36) | 12.66 |
Less Distributions | ||||||
Dividends from net investment income | (1.00) | (0.98) | (0.91) | (1.00) | (1.34) | (1.11) |
Distributions from net realized capital gains1 | (3.00) | — | (1.77) | — | — | — |
Total distributions | (4.00) | (0.98) | (2.68) | (1.00) | (1.34) | (1.11) |
Proceeds from redemption fees | — | — | — | — | — | — * |
Net asset value end of period | 67.49 | 69.57 | 59.99 | 65.32 | 67.48 | 70.18 |
Net assets end of period (000s) | $ 270,651 | $ 398,584 | $ 510,575 | $ 831,967 | $ 961,478 | $ 2,896,387 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 2.80% c | 17.93% | (3.97)% | (1.73)% | (1.93)% | 21.87% |
Ratio of total expenses to average net assets2 | 1.06 d | 1.06 | 1.04 | 1.01 | 1.01 | 1.01 |
Ratio of net expenses to average net assetsa | 0.97 d | 1.05 | 1.02 | 0.99 | 0.98 | 0.99 |
Ratio of net investment income to average net assetsa | 0.86 d | 1.22 | 1.33 | 1.54 | 1.85 | 1.66 |
Portfolio turnover | 7 c | 13 | 14 | 25 | 11 | 10 |
See page 65 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
53
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 69.91 | $ 60.32 | $ 57.14 |
0.49 e | 0.94 e | 0.68 e |
1.54 | 9.85 | 2.50 |
2.03 | 10.79 | 3.18 |
(1.30) | (1.20) | — |
(3.00) | — | — |
(4.30) | (1.20) | — |
— | — | — |
67.64 | 69.91 | 60.32 |
$5,013,778 | $2,657,442 | $739,842 |
2.96% c | 18.30% | 5.57% c |
0.73 d | 0.74 | 0.75 d |
0.64 d | 0.73 | 0.72 d |
1.43 d | 1.42 | 1.68 d |
7 c | 13 | 14 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 69.14 | $ 59.61 | $ 64.86 | $ 67.23 | $ 69.92 | $ 58.42 |
0.27 e | 0.72 e | 0.73 e | 0.96 e | 1.07 | 1.01 |
1.60 | 9.71 | (3.43) | (2.19) | (2.51) | 11.54 |
1.87 | 10.43 | (2.70) | (1.23) | (1.44) | 12.55 |
(0.96) | (0.90) | (0.78) | (1.14) | (1.25) | (1.05) |
(3.00) | — | (1.77) | — | — | — |
(3.96) | (0.90) | (2.55) | (1.14) | (1.25) | (1.05) |
— | — | — | — | — | — * |
67.05 | 69.14 | 59.61 | 64.86 | 67.23 | 69.92 |
$1,468,757 | $1,798,228 | $2,188,360 | $3,756,852 | $4,786,270 | $5,279,866 |
2.74% c | 17.79% | (4.09)% | (1.84)% | (2.05)% | 21.76% |
1.18 d | 1.18 | 1.16 | 1.13 | 1.13 | 1.13 |
1.09 d | 1.17 | 1.14 | 1.11 | 1.10 | 1.11 |
0.79 d | 1.13 | 1.23 | 1.43 | 1.46 | 1.60 |
7 c | 13 | 14 | 25 | 11 | 10 |
54
Harbor International & Global Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR DIVERSIFIED INTERNATIONAL ALL CAP FUND | |||
Institutional Class | |||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||
2017 | 2016 g | ||
(Unaudited) | |||
Net asset value beginning of period | $ 11.79 | $ 9.77 | $ 10.00 |
Income from Investment Operations | |||
Net investment income/(loss)a | 0.10 e | 0.17 e | 0.20 e |
Net realized and unrealized gains/(losses) on investments | 0.14 | 1.98 | (0.42) |
Total from investment operations | 0.24 | 2.15 | (0.22) |
Less Distributions | |||
Dividends from net investment income | (0.12) | (0.13) | (0.01) |
Distributions from net realized capital gains1 | (0.28) | — | — |
Total distributions | (0.40) | (0.13) | (0.01) |
Net asset value end of period | 11.63 | 11.79 | 9.77 |
Net assets end of period (000s) | $251,780 | $225,473 | $150,263 |
Ratios and Supplemental Data (%) | |||
Total returnb | 2.09% c | 22.29% | (2.25)% c |
Ratio of total expenses to average net assets2 | 0.93 d | 1.07 | 1.22 d |
Ratio of net expenses to average net assetsa | 0.85 d | 0.85 | 0.85 d |
Ratio of net investment income to average net assetsa | 1.78 d | 1.59 | 2.13 d |
Portfolio turnover | 21 c | 46 | 68 c |
Administrative Class | |||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||
2017 | 2016 g | ||
(Unaudited) | |||
Net asset value beginning of period | $ 11.76 | $ 9.75 | $ 10.00 |
Income from Investment Operations | |||
Net investment income/(loss)a | 0.18 e | 0.14 e | 0.13 e |
Net realized and unrealized gains/(losses) on investments | 0.04 | 1.97 | (0.38) |
Total from investment operations | 0.22 | 2.11 | (0.25) |
Less Distributions | |||
Dividends from net investment income | (0.09) | (0.10) | — * |
Distributions from net realized capital gains1 | (0.28) | — | — |
Total distributions | (0.37) | (0.10) | — * |
Net asset value end of period | 11.61 | 11.76 | 9.75 |
Net assets end of period (000s) | $ 6,095 | $ 310 | $ 246 |
Ratios and Supplemental Data (%) | |||
Total returnb | 1.95% c | 21.91% | (2.49)% c |
Ratio of total expenses to average net assets2 | 1.18 d | 1.32 | 1.46 d |
Ratio of net expenses to average net assetsa | 1.10 d | 1.10 | 1.10 d |
Ratio of net investment income to average net assetsa | 3.18 d | 1.29 | 1.39 d |
Portfolio turnover | 21 c | 46 | 68 c |
See page 65 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
55
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 11.79 | $ 9.77 | $ 9.21 |
0.13 e | 0.14 e | 0.06 e |
0.10 | 2.01 | 0.50 |
0.23 | 2.15 | 0.56 |
(0.12) | (0.13) | — |
(0.28) | — | — |
(0.40) | (0.13) | — |
11.62 | 11.79 | 9.77 |
$322,240 | $92,442 | $1,786 |
2.08% c | 22.35% | 6.08% c |
0.85 d | 0.99 | 1.17 d |
0.77 d | 0.77 | 0.80 d |
2.15 d | 1.27 | 0.97 d |
21 c | 46 | 68 c |
Investor Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 g | |
(Unaudited) | ||
$ 11.71 | $ 9.74 | $10.00 |
0.08 e | 0.14 e | 0.12 e |
0.13 | 1.96 | (0.38) |
0.21 | 2.10 | (0.26) |
(0.08) | (0.13) | — |
(0.28) | — | — |
(0.36) | (0.13) | — |
11.56 | 11.71 | 9.74 |
$ 5,858 | $ 5,195 | $ 329 |
1.91% c | 21.82% | (2.60)% c |
1.30 d | 1.44 | 1.59 d |
1.22 d | 1.22 | 1.22 d |
1.41 d | 1.31 | 1.28 d |
21 c | 46 | 68 c |
56
Harbor International & Global Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR INTERNATIONAL GROWTH FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 j | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 15.69 | $ 12.89 | $ 12.71 | $ 12.75 | $ 13.01 | $ 11.60 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.06 e | 0.13 e | 0.17 e | 0.15 e | 0.16 | 0.44 |
Net realized and unrealized gains/(losses) on investments | 0.13 | 2.84 | 0.14 | — * | (0.23) | 1.67 |
Total from investment operations | 0.19 | 2.97 | 0.31 | 0.15 | (0.07) | 2.11 |
Less Distributions | ||||||
Dividends from net investment income | (0.18) | (0.17) | (0.13) | (0.19) | (0.19) | (0.70) |
Distributions from net realized capital gains1 | — | — | — | — | — | — |
Total distributions | (0.18) | (0.17) | (0.13) | (0.19) | (0.19) | (0.70) |
Proceeds from redemption fees | — | — | — | — | — | — * |
Net asset value end of period | 15.70 | 15.69 | 12.89 | 12.71 | 12.75 | 13.01 |
Net assets end of period (000s) | $418,936 | $362,035 | $277,638 | $254,461 | $196,062 | $196,412 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 1.20% c | 23.38% | 2.46% | 1.22% | (0.54)% | 19.09% |
Ratio of total expenses to average net assets2 | 0.89 d | 0.91 | 0.90 | 0.89 | 0.88 | 0.93 |
Ratio of net expenses to average net assetsa | 0.85 d | 0.85 | 0.85 | 0.85 | 0.85 | 0.89 |
Ratio of net investment income to average net assetsa | 0.81 d | 0.92 | 1.36 | 1.19 | 1.23 | 1.38 |
Portfolio turnover | 14 c | 13 | 19 | 20 | 30 | 166 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 j | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 15.67 | $ 12.87 | $ 12.63 | $ 12.66 | $ 12.93 | $ 11.52 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.03 e | 0.09 e | 0.16 e | 0.15 e | (0.08) | 0.01 |
Net realized and unrealized gains/(losses) on investments | 0.13 | 2.84 | 0.12 | (0.03) | (0.03) | 2.07 |
Total from investment operations | 0.16 | 2.93 | 0.28 | 0.12 | (0.11) | 2.08 |
Less Distributions | ||||||
Dividends from net investment income | (0.14) | (0.13) | (0.04) | (0.15) | (0.16) | (0.67) |
Distributions from net realized capital gains1 | — | — | — | — | — | — |
Total distributions | (0.14) | (0.13) | (0.04) | (0.15) | (0.16) | (0.67) |
Proceeds from redemption fees | — | — | — | — | — | — * |
Net asset value end of period | 15.69 | 15.67 | 12.87 | 12.63 | 12.66 | 12.93 |
Net assets end of period (000s) | $ 392 | $ 466 | $ 333 | $ 329 | $ 675 | $ 919 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 1.04% c | 23.08% | 2.21% | 0.96% | (0.83)% | 18.89% |
Ratio of total expenses to average net assets2 | 1.14 d | 1.16 | 1.15 | 1.14 | 1.13 | 1.18 |
Ratio of net expenses to average net assetsa | 1.10 d | 1.10 | 1.10 | 1.10 | 1.10 | 1.14 |
Ratio of net investment income to average net assetsa | 0.42 d | 0.66 | 1.25 | 1.20 | 1.08 | 1.09 |
Portfolio turnover | 14 c | 13 | 19 | 20 | 30 | 166 |
See page 65 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
57
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 15.71 | $ 12.90 | $11.76 |
0.10 e | 0.17 e | 0.09 e |
0.09 | 2.81 | 1.05 |
0.19 | 2.98 | 1.14 |
(0.19) | (0.17) | — |
— | — | — |
(0.19) | (0.17) | — |
— | — | — |
15.71 | 15.71 | 12.90 |
$100,974 | $24,872 | $2,360 |
1.21% c | 23.52% | 9.69% c |
0.81 d | 0.84 | 0.86 d |
0.77 d | 0.77 | 0.80 d |
1.31 d | 1.19 | 1.06 d |
14 c | 13 | 19 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 j | |
(Unaudited) | |||||
$ 15.57 | $ 12.79 | $ 12.60 | $ 12.64 | $ 12.89 | $ 11.50 |
0.08 e | 0.07 e | 0.12 e | 0.10 e | — * | 0.06 |
0.08 | 2.82 | 0.15 | — * | (0.11) | 1.99 |
0.16 | 2.89 | 0.27 | 0.10 | (0.11) | 2.05 |
(0.12) | (0.11) | (0.08) | (0.14) | (0.14) | (0.66) |
— | — | — | — | — | — |
(0.12) | (0.11) | (0.08) | (0.14) | (0.14) | (0.66) |
— | — | — | — | — | — * |
15.61 | 15.57 | 12.79 | 12.60 | 12.64 | 12.89 |
$39,834 | $14,913 | $13,466 | $15,978 | $17,429 | $20,458 |
1.01% c | 22.89% | 2.15% | 0.81% | (0.85)% | 18.60% |
1.26 d | 1.28 | 1.27 | 1.26 | 1.25 | 1.30 |
1.22 d | 1.22 | 1.22 | 1.22 | 1.22 | 1.26 |
0.98 d | 0.54 | 0.99 | 0.79 | 0.87 | 0.98 |
14 c | 13 | 19 | 20 | 30 | 166 |
58
Harbor International & Global Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR INTERNATIONAL SMALL CAP FUND | |||
Institutional Class | |||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||
2017 | 2016 h | ||
(Unaudited) | |||
Net asset value beginning of period | $ 13.90 | $ 10.77 | $ 10.00 |
Income from Investment Operations | |||
Net investment income/(loss)a | 0.05 e | 0.10 e | 0.11 e |
Net realized and unrealized gains/(losses) on investments | 0.44 | 3.15 | 0.66 |
Total from investment operations | 0.49 | 3.25 | 0.77 |
Less Distributions | |||
Dividends from net investment income | (0.08) | (0.12) | — |
Distributions from net realized capital gains1 | (0.10) | — | — |
Total distributions | (0.18) | (0.12) | — |
Net asset value end of period | 14.21 | 13.90 | 10.77 |
Net assets end of period (000s) | $44,685 | $38,818 | $17,509 |
Ratios and Supplemental Data (%) | |||
Total returnb | 3.59% c | 30.59% | 7.70% c |
Ratio of total expenses to average net assets2 | 1.18 d | 1.42 | 2.55 d |
Ratio of net expenses to average net assetsa | 0.95 d | 0.95 | 0.95 d |
Ratio of net investment income to average net assetsa | 0.74 d | 0.81 | 1.40 d |
Portfolio turnover | 21 c | 44 | 35 c |
Administrative Class | |||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||
2017 | 2016 h | ||
(Unaudited) | |||
Net asset value beginning of period | $ 13.87 | $ 10.75 | $ 10.00 |
Income from Investment Operations | |||
Net investment income/(loss)a | 0.03 e | 0.07 e | 0.09 e |
Net realized and unrealized gains/(losses) on investments | 0.44 | 3.15 | 0.66 |
Total from investment operations | 0.47 | 3.22 | 0.75 |
Less Distributions | |||
Dividends from net investment income | (0.05) | (0.10) | — |
Distributions from net realized capital gains1 | (0.10) | — | — |
Total distributions | (0.15) | (0.10) | — |
Net asset value end of period | 14.19 | 13.87 | 10.75 |
Net assets end of period (000s) | $ 374 | $ 371 | $ 263 |
Ratios and Supplemental Data (%) | |||
Total returnb | 3.43% c | 30.25% | 7.50% c |
Ratio of total expenses to average net assets2 | 1.43 d | 1.67 | 2.80 d |
Ratio of net expenses to average net assetsa | 1.20 d | 1.20 | 1.20 d |
Ratio of net investment income to average net assetsa | 0.44 d | 0.59 | 1.16 d |
Portfolio turnover | 21 c | 44 | 35 c |
See page 65 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
59
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 h | |
(Unaudited) | ||
$ 13.90 | $10.77 | $10.00 |
0.06 e | 0.08 e | 0.06 e |
0.44 | 3.18 | 0.71 |
0.50 | 3.26 | 0.77 |
(0.09) | (0.13) | — |
(0.10) | — | — |
(0.19) | (0.13) | — |
14.21 | 13.90 | 10.77 |
$13,395 | $7,671 | $ 629 |
3.64% c | 30.67% | 7.70% c |
1.10 d | 1.35 | 2.50 d |
0.87 d | 0.87 | 0.90 d |
0.87 d | 0.60 | 0.73 d |
21 c | 44 | 35 c |
Investor Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 h | |
(Unaudited) | ||
$ 13.86 | $10.74 | $10.00 |
0.03 e | 0.06 e | 0.10 e |
0.44 | 3.14 | 0.64 |
0.47 | 3.20 | 0.74 |
(0.04) | (0.08) | — |
(0.10) | — | — |
(0.14) | (0.08) | — |
14.19 | 13.86 | 10.74 |
$ 632 | $ 540 | $ 287 |
3.40% c | 30.10% | 7.40% c |
1.55 d | 1.79 | 2.92 d |
1.32 d | 1.32 | 1.32 d |
0.37 d | 0.53 | 1.33 d |
21 c | 44 | 35 c |
60
Harbor International & Global Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR GLOBAL LEADERS FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 k | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 25.31 | $ 20.29 | $ 21.83 | $ 23.79 | $ 23.78 | $ 17.99 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | (0.02) e | 0.03 e | 0.01 e | (0.01) e | 0.05 | 0.08 |
Net realized and unrealized gains/(losses) on investments | 2.01 | 4.99 | (0.83) | 0.65 | 2.18 | 6.26 |
Total from investment operations | 1.99 | 5.02 | (0.82) | 0.64 | 2.23 | 6.34 |
Less Distributions | ||||||
Dividends from net investment income | (0.01) | — | — | (0.03) | (0.07) | (0.06) |
Distributions from net realized capital gains1 | (2.20) | — | (0.72) | (2.57) | (2.15) | (0.49) |
Total distributions | (2.21) | — | (0.72) | (2.60) | (2.22) | (0.55) |
Proceeds from redemption fees | — | — | — | — | — | — * |
Net asset value end of period | 25.09 | 25.31 | 20.29 | 21.83 | 23.79 | 23.78 |
Net assets end of period (000s) | $32,117 | $29,034 | $25,471 | $34,402 | $26,601 | $24,734 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 8.17% c | 24.74% | (3.90)% | 2.97% | 10.08% | 36.24% |
Ratio of total expenses to average net assets2 | 1.06 d | 1.21 | 1.04 | 1.01 | 1.08 | 1.24 |
Ratio of net expenses to average net assetsa | 0.90 d | 0.90 | 0.90 | 0.90 | 0.90 | 0.90 |
Ratio of net investment income to average net assetsa | (0.15) d | 0.14 | 0.04 | (0.06) | 0.22 | 0.44 |
Portfolio turnover | 11 c | 123 | 76 | 106 | 141 | 110 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 k | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 24.97 | $ 20.06 | $ 21.65 | $ 23.63 | $ 23.65 | $ 17.90 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | (0.05) e | (0.04) e | (0.05) e | (0.07) e | 0.01 | 0.04 |
Net realized and unrealized gains/(losses) on investments | 1.98 | 4.95 | (0.82) | 0.66 | 2.14 | 6.22 |
Total from investment operations | 1.93 | 4.91 | (0.87) | 0.59 | 2.15 | 6.26 |
Less Distributions | ||||||
Dividends from net investment income | — | — | — | — | (0.02) | (0.02) |
Distributions from net realized capital gains1 | (2.20) | — | (0.72) | (2.57) | (2.15) | (0.49) |
Total distributions | (2.20) | — | (0.72) | (2.57) | (2.17) | (0.51) |
Proceeds from redemption fees | — | — | — | — | — | — * |
Net asset value end of period | 24.70 | 24.97 | 20.06 | 21.65 | 23.63 | 23.65 |
Net assets end of period (000s) | $ 1,300 | $ 1,204 | $ 1,253 | $ 1,198 | $ 802 | $ 562 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 8.04% c | 24.48% | (4.17)% | 2.74% | 9.77% | 35.89% |
Ratio of total expenses to average net assets2 | 1.31 d | 1.46 | 1.29 | 1.26 | 1.33 | 1.49 |
Ratio of net expenses to average net assetsa | 1.15 d | 1.15 | 1.15 | 1.15 | 1.15 | 1.15 |
Ratio of net investment income to average net assetsa | (0.40) d | (0.13) | (0.23) | (0.31) | (0.01) | 0.17 |
Portfolio turnover | 11 c | 123 | 76 | 106 | 141 | 110 |
See page 65 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
61
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 k | 2016 f | |
(Unaudited) | ||
$25.33 | $20.29 | $19.79 |
(0.01) e | 0.08 e | (0.03) e |
2.02 | 4.96 | 0.53 |
2.01 | 5.04 | 0.50 |
(0.03) | — | — |
(2.20) | — | — |
(2.23) | — | — |
— | — | — |
25.11 | 25.33 | 20.29 |
$5,405 | $4,376 | $1,713 |
8.24% c | 24.84% | 2.53% c |
0.98 d | 1.13 | 1.00 d |
0.82 d | 0.83 | 0.85 d |
(0.07) d | 0.32 | (0.18) d |
11 c | 123 | 76 |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 k | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 24.72 | $ 19.89 | $ 21.49 | $ 23.51 | $23.54 | $17.83 |
(0.06) e | (0.06) e | (0.07) e | (0.10) e | (0.03) | 0.01 |
1.95 | 4.89 | (0.81) | 0.65 | 2.15 | 6.20 |
1.89 | 4.83 | (0.88) | 0.55 | 2.12 | 6.21 |
— | — | — | — | — * | (0.01) |
(2.20) | — | (0.72) | (2.57) | (2.15) | (0.49) |
(2.20) | — | (0.72) | (2.57) | (2.15) | (0.50) |
— | — | — | — | — | — * |
24.41 | 24.72 | 19.89 | 21.49 | 23.51 | 23.54 |
$11,941 | $11,364 | $10,659 | $13,693 | $8,584 | $5,988 |
7.95% c | 24.28% | (4.25)% | 2.57% | 9.68% | 35.76% |
1.43 d | 1.58 | 1.41 | 1.38 | 1.45 | 1.61 |
1.27 d | 1.27 | 1.27 | 1.27 | 1.27 | 1.27 |
(0.52) d | (0.25) | (0.35) | (0.44) | (0.17) | 0.04 |
11 c | 123 | 76 | 106 | 141 | 110 |
62
Harbor International & Global Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR EMERGING MARKETS EQUITY FUND | |||||
Institutional Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | ||
(Unaudited) | |||||
Net asset value beginning of period | $ 10.83 | $ 8.59 | $ 7.89 | $ 10.05 | $ 10.00 |
Income from Investment Operations | |||||
Net investment income/(loss)a | — *,e | 0.11 e | 0.07 e | 0.08 e | 0.05 |
Net realized and unrealized gains/(losses) on investments | 0.58 | 2.22 | 0.71 | (2.19) | — * |
Total from investment operations | 0.58 | 2.33 | 0.78 | (2.11) | 0.05 |
Less Distributions | |||||
Dividends from net investment income | (0.10) | (0.09) | (0.08) | (0.05) | — |
Distributions from net realized capital gains1 | — | — | — | — | — |
Total distributions | (0.10) | (0.09) | (0.08) | (0.05) | — |
Net asset value end of period | 11.31 | 10.83 | 8.59 | 7.89 | 10.05 |
Net assets end of period (000s) | $58,412 | $51,849 | $36,390 | $41,927 | $27,294 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 5.46% c | 27.54% | 9.99% | (21.10)% | 0.50% |
Ratio of total expenses to average net assets2 | 1.27 d | 1.43 | 1.49 | 1.47 | 2.34 d |
Ratio of net expenses to average net assetsa | 1.15 d | 1.15 | 1.15 | 1.17 | 1.25 d |
Ratio of net investment income to average net assetsa | 0.02 d | 1.13 | 0.93 | 0.90 | 0.78 d |
Portfolio turnover | 31 c | 59 | 49 | 58 | 50 c |
Administrative Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | ||
(Unaudited) | |||||
Net asset value beginning of period | $ 10.80 | $ 8.58 | $ 7.87 | $ 10.03 | $ 10.00 |
Income from Investment Operations | |||||
Net investment income/(loss)a | (0.02) e | 0.08 e | 0.05 e | 0.04 e | 0.05 |
Net realized and unrealized gains/(losses) on investments | 0.59 | 2.22 | 0.71 | (2.18) | (0.02) |
Total from investment operations | 0.57 | 2.30 | 0.76 | (2.14) | 0.03 |
Less Distributions | |||||
Dividends from net investment income | (0.08) | (0.08) | (0.05) | (0.02) | — |
Distributions from net realized capital gains1 | — | — | — | — | — |
Total distributions | (0.08) | (0.08) | (0.05) | (0.02) | — |
Net asset value end of period | 11.29 | 10.80 | 8.58 | 7.87 | 10.03 |
Net assets end of period (000s) | $ 674 | $ 275 | $ 217 | $ 197 | $ 250 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 5.32% c | 27.04% | 9.81% | (21.36)% | 0.30% |
Ratio of total expenses to average net assets2 | 1.52 d | 1.68 | 1.74 | 1.72 | 2.59 d |
Ratio of net expenses to average net assetsa | 1.40 d | 1.40 | 1.40 | 1.43 | 1.50 d |
Ratio of net investment income to average net assetsa | (0.31) d | 0.85 | 0.69 | 0.49 | 0.47 d |
Portfolio turnover | 31 c | 59 | 49 | 58 | 50 c |
See page 65 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
63
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$10.83 | $ 8.59 | $ 6.90 |
0.01 e | 0.13 e | 0.05 e |
0.57 | 2.21 | 1.64 |
0.58 | 2.34 | 1.69 |
(0.11) | (0.10) | — |
— | — | — |
(0.11) | (0.10) | — |
11.30 | 10.83 | 8.59 |
$4,966 | $4,232 | $1,335 |
5.43% c | 27.62% | 24.49% c |
1.19 d | 1.35 | 1.45 d |
1.07 d | 1.08 | 1.10 d |
0.10 d | 1.32 | 0.95 d |
31 c | 59 | 49 c |
Investor Class | ||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||
2017 | 2016 | 2015 | 2014 | |
(Unaudited) | ||||
$10.78 | $ 8.56 | $ 7.85 | $ 10.01 | $10.00 |
(0.02) e | 0.07 e | 0.05 e | 0.04 e | 0.03 |
0.59 | 2.22 | 0.70 | (2.18) | (0.02) |
0.57 | 2.29 | 0.75 | (2.14) | 0.01 |
(0.07) | (0.07) | (0.04) | (0.02) | — |
— | — | — | — | — |
(0.07) | (0.07) | (0.04) | (0.02) | — |
11.28 | 10.78 | 8.56 | 7.85 | 10.01 |
$ 753 | $ 700 | $ 482 | $ 406 | $ 454 |
5.30% c | 27.00% | 9.69% | (21.45)% | 0.10% |
1.64 d | 1.80 | 1.86 | 1.84 | 2.71 d |
1.52 d | 1.52 | 1.52 | 1.55 | 1.62 d |
(0.40) d | 0.75 | 0.69 | 0.40 | 0.45 d |
31 c | 59 | 49 | 58 | 50 c |
64
Harbor International & Global Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
* | Less than $0.01 |
1 | Includes both short-term and long-term capital gains |
2 | Percentage does not reflect reduction for credit balance arrangements (see Note 2 of the accompanying Notes to Financial Statements) |
a | Reflects the Adviser’s waiver, if any, of its management fees and/or other operating expenses |
b | The total returns would have been lower had certain expenses not been waived during the periods shown. |
c | Unannualized |
d | Annualized |
e | Amounts are allocated based on average shares outstanding during the period. |
f | For the period March 1, 2016 (inception) through October 31, 2016 |
g | For the period November 2, 2015 (inception) through October 31, 2016 |
h | For the period February 1, 2016 (inception) through October 31, 2016 |
i | The amount shown for a share outstanding does not correspond with the aggregate net investment income/(loss) for the period due to the timing of the sales and purchases of shares in relation to fluctuating market values of the investments of the Fund. |
j | Effective May 21, 2013, Harbor International Growth Fund appointed Baillie Gifford Overseas Limited as its subadviser. |
k | Effective March 1, 2017, Harbor Global Leaders Fund appointed Sands Capital Management, LLC as its subadviser. |
The accompanying notes are an integral part of the Financial Statements.
65
Harbor International & Global Funds
Notes to Financial Statements—April 30, 2018 (Unaudited)
Notes to Financial Statements—April 30, 2018 (Unaudited)
Note 1—Organizational Matters
Harbor Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), as an open-end management investment company. As of April 30, 2018, the Trust consists of 31 separate portfolios. The portfolios covered by this report are: Harbor International Fund, Harbor Diversified International All Cap Fund, Harbor International Growth Fund, Harbor International Small Cap Fund, Harbor Global Leaders Fund and Harbor Emerging Markets Equity Fund (individually or collectively referred to as a “Fund” or the “Funds," respectively). Harbor Capital Advisors, Inc. (the “Adviser” or “Harbor Capital”) is the investment adviser for the Funds.
The Funds currently offer four classes of shares, designated as Institutional Class, Retirement Class, Administrative Class, and Investor Class. The shares of each class represent an interest in the same portfolio of investments of the Funds and have equal rights with respect to voting, redemptions, dividends, and liquidations, except that: (i) certain expenses, subject to the approval of the Trust’s Board of Trustees (the “Board of Trustees”), may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission (“SEC”) and the Internal Revenue Service; and (ii) shareholders of a class that bears distribution and service expenses under terms of a distribution plan have exclusive voting rights as to that distribution plan.
Note 2—Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. Each Fund follows the investment company reporting requirements under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), which includes the accounting and reporting guidelines under Accounting Standards Topic 946, Financial Services-Investment Companies. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
Security Valuation
The Trust’s valuation procedures permit the Funds to use a variety of valuation methodologies, consider a number of subjective factors, analyze applicable facts and circumstances and, in general, exercise judgment, when valuing Fund investments. The methodology used for a specific type of investment may vary based on the circumstances and relevant considerations, including available market data.
Equity securities (including common stock, preferred stock, and convertible preferred stock), exchange-traded notes and financial derivative instruments (such as futures contracts, options contracts, including rights and warrants and centrally cleared swap agreements) that are traded or cleared on a national securities exchange or system (except securities listed on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) system and United Kingdom securities) are valued at the last sale price on a national exchange or system on which they are principally traded or cleared as of the valuation date. Securities listed on the NASDAQ system or a United Kingdom exchange are valued at the official closing price of those securities. In the case of securities for which there are no sales on the valuation day, (i) securities traded principally on a U.S. exchange, including NASDAQ, are valued at the mean between the closing bid and ask price; and (ii) securities traded principally on a foreign exchange, including United Kingdom securities, are valued at the official bid price determined as of the close of the primary exchange. Securities of open-end registered investment companies that are held by a Fund are valued at net asset value. To the extent these securities are actively traded and fair valuation adjustments are not applied, they are normally categorized as Level 1 in the fair value hierarchy. Equity securities traded on inactive markets or valued by reference to similar instruments are normally categorized as Level 2 in the fair value hierarchy. For more information on the fair value hierarchy, please refer to the Fair Value Measurements and Disclosures section.
Participation notes are valued at the last sale price of the underlying local shares on the national exchange on which they trade. Such securities are normally categorized as Level 2 in the fair value hierarchy.
Short-term securities with a remaining maturity of less than 60 days at the time of acquisition that are held by a Fund are valued at amortized cost to the extent amortized cost represents fair value. Securities that use similar valuation techniques and inputs as described above are normally categorized as Level 2 in the fair value hierarchy.
66
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Over-the-counter (“OTC”) financial derivative instruments, such as forward currency contracts, options contracts, and swap agreements, derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. These instruments are valued using evaluated prices furnished by a pricing vendor selected by the Board of Trustees. In certain cases, when a valuation is not readily available from a pricing vendor, the Fund’s subadviser provides a valuation, typically using its own proprietary models. Depending on the instrument and the terms of the transaction, the value of the derivative instrument can be determined by a pricing vendor or subadviser using a series of techniques, including simulation pricing models. The pricing models use inputs, such as issuer details, indices, spreads, interest rates, yield curves, dividends and exchange rates, that are observed from actively quoted markets. Derivative instruments that use valuation techniques and inputs similar to those described above are normally categorized as Level 2 in the fair value hierarchy.
When reliable market quotations or evaluated prices supplied by a pricing vendor are not readily available or are not believed to accurately reflect fair value, securities are priced at their fair value as determined by the Trust’s Valuation Committee (the “Valuation Committee”) pursuant to procedures adopted, and subject to oversight, by the Board of Trustees. The Valuation Committee is comprised of a trustee and officers of the Trust and employees of Harbor Capital with relevant experience or responsibilities. Each security for which the Valuation Committee determines a fair value, including the basis for the fair value decision, is reviewed by the Board of Trustees at its regularly scheduled board meetings.
When a fair valuation method is applied by the Valuation Committee or a Fund’s subadviser, securities will be priced by a method that the Valuation Committee or subadviser believes accurately reflects fair value. Securities valued using fair valuation methods that incorporate significant unobservable inputs are normally categorized as Level 3 in the fair value hierarchy. Examples of possible fair valuation methodologies used in determining the fair value of securities categorized as Level 3 in the fair value hierarchy include, but are not limited to, benchmark pricing and indicative market quotations.
When benchmark pricing is used, the base price of a debt security is set and then subsequently adjusted in proportion to the market value changes of an index or similar security (the “benchmark security”) that trades in an active market or for which other observable inputs are available. The base price may be a broker-dealer quote, transaction price, or an internal value as derived by analysis of market data. The base price of the security may be reset on a periodic basis based on the availability of market data and procedures approved by a Fund’s subadviser. If the benchmark security is categorized as Level 2 in the fair value hierarchy due to the lack of an active market for that security, any security adjusted in proportion to the fair value of the benchmark security may be categorized as Level 3 in the fair value hierarchy. Significant changes in the unobservable inputs of the benchmark pricing process (i.e., the base price) would result in direct and proportional changes in the fair value of the security. The reasonability of the fair value is reviewed by the subadviser on a periodic basis and may be amended as the availability of market data indicates a material change.
If evaluated pricing through a third-party pricing vendor is not available or deemed not to be indicative of fair value, a Fund’s subadviser may elect to obtain indicative market quotations (“broker quotes”) directly from a broker-dealer or passed through from a third-party pricing vendor. Indicative market quotations are typically received from established market participants. In the event that the source of fair value is from a single-sourced broker quote, but the subadviser does not have the transparency to view the underlying inputs that support the market quotation, these securities are categorized as Level 3 in the fair value hierarchy. Significant changes in the broker quote would have direct and proportional changes in the fair value of the security.
A Fund may also use fair value pricing if the value of some or all of the Fund’s securities have been materially affected by events occurring before the Fund’s pricing time but after the close of the primary markets or exchanges on which the security is traded. This most commonly occurs with foreign securities, but may occur with other securities as well. In such cases, the Fund may apply a fair value factor supplied by the pricing vendor to a foreign security’s market close value to reflect changes in value that may have occurred between the close of the primary market or exchange on which the security is traded and the Fund’s pricing time. That factor may be derived using observable inputs such as a comparison of the trading patterns of a foreign security to intraday trading in the U.S. markets that are highly correlated to the foreign security or other information that becomes available after the close of the foreign market on which the security principally traded. When fair value pricing is employed, the prices of securities used by a Fund to calculate its net asset value may differ from market quotations, official closing prices or evaluated prices for the same securities, which means that the Fund may value those securities higher or lower than another given fund that uses market quotations, official closing prices or evaluated prices supplied by a pricing vendor in its calculation of net asset value. Securities valued using observable inputs, such as those described above, are normally categorized as Level 2 of the fair value hierarchy.
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Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Fair Value Measurements and Disclosures
Various inputs may be used to determine the value of each Fund’s investments, which are summarized in three broad categories defined as Level 1, Level 2, and Level 3. The inputs or methodologies used for valuing securities are not necessarily indicative of the risk associated with investing in those securities. The assignment of an investment to Levels 1, 2, or 3 is based on the lowest level of significant inputs used to determine its fair value.
Level 1– | Quoted prices in active markets for identical securities. |
Level 2– | Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
Level 3– | Significant unobservable inputs are used in situations where quoted prices or other observable inputs are not available or are deemed unreliable. Significant unobservable inputs may include each Fund’s own assumptions. |
Transfers between levels, if any, are recognized as of the last day in the fiscal quarter of the period in which the event or change in circumstances that caused the reclassification occurred. For fair valuations using significant unobservable inputs, if any, a reconciliation of the beginning to ending balances for reported fair values is provided that presents changes attributable to realized and unrealized gains and losses and purchases, sales, and transfers in/out of the Level 3 category during the period. A table that includes a categorization of investments into Levels 1, 2, or 3, transfers between levels, if any, and a Level 3 reconciliation, including details of significant unobservable inputs used, when applicable, can be found at the end of each Fund’s Portfolio of Investments schedule.
Each Fund used observable inputs in its valuation methodologies whenever they were available and deemed reliable.
U.S. Government Securities
U.S. government securities include securities issued by U.S. government agencies or government-sponsored enterprises that may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association (“GNMA”), a wholly owned U.S. government corporation, is authorized to guarantee, with the full faith and credit of the U.S. government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors are not backed by the full faith and credit of the U.S. government and include the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
Repurchase Agreements
In a repurchase agreement, a Fund buys a security at one price and simultaneously agrees to sell it back at a higher price. Such agreements must be adequately collateralized to cover the counterparty’s obligation to the Fund to close out the repurchase agreement. Each repurchase agreement counterparty must meet the minimum credit quality requirements applicable to the respective Fund and any other appropriate counterparty criteria as determined by the Fund’s subadviser. The minimum credit quality requirements are those applicable to a Fund’s purchase of securities such that if a Fund is permitted to only purchase securities that are rated investment-grade (or the equivalent if unrated), a Fund could only enter into repurchase agreements with counterparties that have debt outstanding that is rated investment-grade (or the equivalent if unrated). The securities are regularly monitored to ensure that the collateral is adequate. A Fund seeks to further mitigate its counterparty risk by entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty’s default, including bankruptcy, the Fund may terminate any repurchase agreements with that counterparty, determine the net amount owned, and sell or retain the collateral up to the net amount owed to the Fund. A counterparty’s default may cause the Fund to suffer losses, including loss of interest on or principal of the securities and costs associated with delay and enforcement of the terms of the master repurchase agreement.
During the period, each Fund entered into repurchase agreements with domestic or foreign banks or with a member firm of the Financial Industry Regulatory Authority, Inc., or an affiliate of a member firm that is a primary dealer in U.S. government securities.
68
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Options
An option, including rights and warrants, is a contract that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Purchased call options tend to increase a Fund’s exposure to the underlying instrument. Purchased put options tend to decrease a Fund’s exposure to the underlying instrument.
When a Fund purchases an option, it pays a premium. If a purchased option expires, a Fund realizes a loss in the amount of the premium. If a Fund enters into a closing sale transaction, it realizes a gain or loss, depending on whether the proceeds from the sale are greater or less than the cost of the option. If a call option is exercised by a Fund, the cost of the securities acquired by exercising the call is increased by the premium paid to buy the call. If a put option is exercised by a Fund, it realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are decreased by the premium originally paid. The risk associated with purchasing options is limited to the premium paid. A Fund’s maximum risk of loss from counterparty credit risk is also limited to the premium paid for the contract.
During the period, Harbor International Fund, Harbor Diversified International All Cap Fund, and Harbor International Small Cap Fund purchased option contracts to manage their exposure to equity prices.
Participation Notes
Participation notes are equity-linked securities which can be used to gain exposure to emerging markets. These instruments represent interests in securities listed on certain foreign exchanges and thus present similar risks to investing directly in such equity securities. These instruments are issued by a broker-dealer evidencing ownership of shares listed on a foreign stock exchange. Accordingly, the participation notes also expose investors to counterparty risk which is the risk that the entity issuing the note may not be able to honor its financial commitments. A Fund’s participation notes are not subject to any master netting agreements. Participation notes may be more volatile and less liquid than holding the underlying security directly. A Participation note is intended to reflect the performance of the underlying equity securities on a one-to-one basis. A Fund is entitled to receive dividends or other distributions paid on the underlying securities from the broker-dealer. A Fund however is not entitled to the same rights as an owner of the underlying securities, such as voting rights.
During the period, Harbor Emerging Markets Equity Fund invested in participation notes to gain exposure to certain foreign markets.
Foreign Currency Spot Contracts
A foreign currency spot contract is an agreement between two parties to buy and sell currencies at the current market rate for settlement within two business days.
The foreign currency spot contract is marked-to-market daily for settlements beyond one day, and any change in fair value is recorded as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value on the open and close date. Risk of losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contract’s terms. The maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened.
During the period, each Fund used foreign currency spot contracts to facilitate transactions in foreign securities or to convert foreign currency receipts into U.S. dollars.
Foreign Currency Translations
Purchases and sales of securities are translated into U.S. dollars at the current exchange rate on the respective dates of the transactions. Income and withholding taxes are translated at the prevailing exchange rate when accrued or incurred. The accounting records of the Funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency, when applicable, are translated into U.S. dollars based on the current exchange rates at period end.
69
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Reported net realized gains and losses on foreign currency transactions, when applicable, represent net gains and losses from sales and maturities of foreign currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income accrued and tax reclaims receivable and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities, when applicable, are included in the net realized and unrealized gain or loss on investments in the Statement of Operations.
Investment Income
Dividends declared on portfolio securities are accrued on the ex-dividend date. For foreign securities, certain dividends are recorded after the ex-dividend date, but as soon as the respective Fund is notified of such dividends. Interest income is accrued daily as earned. Discounts and premiums on fixed income securities are amortized over the life of the respective securities using the effective yield method. Distributions from real estate investment trust securities are recorded as dividend income, and maybe reclassified as capital gains and/or return of capital, based on the information reported by the issuer, when available.
Securities Transactions
Securities transactions are accounted for on the trade date (the date the order to buy or sell is executed). Realized gains or losses on security transactions are determined on the basis of identified cost.
Proceeds from Litigation
Each Fund may receive proceeds from shareholder litigation settlements involving current and/or previously held portfolio holdings. Any proceeds received from litigation involving portfolio holdings are reflected in the Statements of Operations in realized gain/(loss) if the security has been disposed of by a Fund, or in unrealized gain/(loss) if the security is still held by a Fund.
Distribution to Shareholders
Distributions on Fund shares are recorded on the ex-dividend date.
Expenses
Expenses incurred by the Trust are charged directly to the Fund that incurred such expense whenever possible. With respect to expenses incurred by any two or more Harbor Funds where amounts cannot be identified on a fund by fund basis, such expenses are generally allocated in proportion to the average net assets or the number of shareholders of each Fund.
Custodian
Each Fund has credit balance arrangements with its custodian whereby positive balances in demand deposit accounts used by the transfer and shareholder servicing agent for clearing shareholder transactions in the Fund generate credits that are applied against gross custody expenses. Such custodial expense reductions, if any, are reflected on the respective Fund’s accompanying Statement of Operations.
Class Allocations
Income, common expenses and realized and unrealized gains/(losses) are determined at the Fund level and allocated daily to each class of shares based on the applicable net assets of the respective classes. Distribution and service fees, if any, and transfer agent fees are calculated daily at the class level based on the applicable net assets of each class and the expense rate(s) applicable to each class.
70
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Taxes
Each Fund is treated as a separate entity for federal tax purposes. Each Fund’s policy is to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute to its shareholders all of its taxable income within the prescribed time. It is also the intention of each Fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held or excise taxes on income and capital gains.
Each Fund may be subject to taxes imposed by countries in which they invest. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and unrealized appreciation as such income and/or gains are earned.
Management has analyzed each Fund’s tax positions for all open tax years (in particular, U.S. federal income tax returns for the tax years ended October 31, 2014–2016), including all positions expected to be taken upon filing the 2017 tax return, in all material jurisdictions where each Fund operates, and has concluded that no provision for income tax is required in the Funds’ financial statements. Each Fund will recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations.
Note 3—Investment Portfolio Transactions
Investment Portfolio Transactions
Purchases and sales of investments, other than short-term securities, for each Fund for the six-month period ended April 30, 2018 are as follows:
Purchases (000s) | Sales (000s) | ||
Harbor International Fund | $1,972,858 | $9,219,723 | |
Harbor Diversified International All Cap Fund | 356,695 | 101,206 | |
Harbor International Growth Fund | 219,621 | 68,300 | |
Harbor International Small Cap Fund | 19,823 | 11,188 | |
Harbor Global Leaders Fund | 6,296 | 5,312 | |
Harbor Emerging Markets Equity Fund | 23,640 | 18,841 |
In-Kind Redemption Transaction
In accordance with the Trust’s prospectus, the Funds may distribute portfolio securities rather than cash as payment for a redemption of Fund shares. For financial reporting purposes, the Fund recognizes a gain or loss on the securities distributed related to the in-kind redemption. Such gains and losses on in-kind redemptions are not taxable to shareholders. For the six-month period ended April 30, 2018, there were no in-kind redemptions by the Funds. For the year ended October 31, 2017, Harbor International Fund realized gains of $174,061,000 upon the disposition of portfolio securities in connection with an in-kind redemption of Fund shares.
Securities Lending
Each Fund may engage in securities lending, whereby a Fund lends its securities to financial institutions in order to increase its income. The Trust has engaged State Street Bank and Trust Company to act as its agent (the “Lending Agent”) with respect to the lending of portfolio securities of the Funds, pursuant to the terms and conditions of a Securities Lending Authorization Agreement (the “SLA Agreement”). Securities loans are required to be secured at all times during the term of the loan by cash collateral that is at least equal to the value of the loaned securities determined at the close of each business day. Any additional collateral that may be required to secure a loan is delivered to the Fund on the next business day. This collateral is recognized as the gross liability for securities loaned in the Statement of Assets and Liabilities. The cash collateral is invested in the State Street Navigator Securities Lending Government Money Market Portfolio (the “Navigator Portfolio”), a money market mutual fund that seeks to provide income while maintaining a stable net asset value of $1.00. There is no assurance that the Navigator Portfolio will maintain a stable net asset value and the Funds are subject to the risk of loss on the cash collateral invested. A portion of the earnings generated by the investment of the cash collateral is rebated to the borrower for the use of the cash
71
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—Investment Portfolio Transactions—Continued
collateral and these earnings (less any rebate) are then divided between the Fund and the Lending Agent, as a fee for its services, according to agreed-upon rates. The Lending Agent and a Fund will share in any shortfall in the rebate due to the borrower, according to agreed-upon rates. In addition to receiving a fee from the borrower based on the demand for securities loaned and earning income on the investment of the cash collateral, a Fund receives substitute interest, dividends, or other amounts on the loaned securities, during the term of a loan. Net securities lending income is disclosed as such in the Statement of Operations.
Loans may be terminated at the option of the borrower or the Funds. Upon termination of the loan, the borrower will return to the Fund securities that are identical to the loaned securities. The Funds bear the risk of delay in recovery of, or loss of rights in, the securities loaned and the risk that the value of the collateral falls below the value of the securities on loan. Each Fund seeks to mitigate this risk through the SLA Agreement, which provides that in the event of default, the Lending Agent may apply the proceeds of the cash collateral from the loaned securities toward the purchase of replacement securities. If such proceeds are insufficient or the collateral is unavailable, the Lending Agent will purchase replacement securities at its sole expense, or if unable to do so, the Lending Agent may credit to the Fund’s account an amount equal to the fair value of the unreturned loaned securities. As the securities loaned are subject to termination by the Fund or the borrower at any time, the remaining contractual maturities of each securities lending transaction is considered to be overnight and continuous.
During the period, Harbor International Fund, Harbor Diversified International All Cap Fund, Harbor International Growth Fund and Harbor International Small Cap Fund engaged in securities lending. The value at April 30, 2018 of equity securities loaned and related cash collateral for Harbor International Fund was $2,333,714,000 and $2,448,993,000, respectively. The value at April 30, 2018 of securities loaned and related collateral for Harbor Diversified International All Cap Fund was $884,000 and $941,000, respectively. The value at April 30, 2018 of equity securities loaned and related cash collateral for Harbor International Growth Fund was $12,659,000 and $13,197,000, respectively. As of April 30, 2018, Harbor International Small Cap Fund had no securities out on loan.
Note 4—FEES AND OTHER Transactions with Affiliates
Investment Adviser
Harbor Capital is a wholly-owned subsidiary of ORIX Corporation (“ORIX”). Harbor Capital is the Funds’ investment adviser and is also responsible for administrative and other services.
Each Fund has a separate advisory agreement with Harbor Capital. The agreements provide for management fees based on an annual percentage rate of average daily net assets as follows:
Contractual Rate | Actual Rate | ||
Harbor International Fund | 0.75%, 0.65%a | 0.61% | |
Harbor Diversified International All Cap Fund | 0.75 | 0.75 | |
Harbor International Growth Fund | 0.75 | 0.75 | |
Harbor International Small Cap Fund | 0.85 | 0.85 | |
Harbor Global Leaders Fund | 0.75 | 0.75 | |
Harbor Emerging Markets Equity Fund | 0.95 | 0.95 |
a | The management fee rate is 0.75% on assets up to $12 billion and 0.65% on assets in excess of $12 billion. The Adviser contractually agreed to reduce the management fee to 0.63% on assets between $24 billion and $36 billion, 0.58% on assets between $36 billion and $48 billion, and 0.57% on assets over $48 billion through February 28, 2019. |
Harbor Capital has from time to time voluntarily or contractually agreed not to impose a portion of its management fees and/or to bear a portion of the expenses incurred in the operation of certain Funds in order to limit Fund expenses. Such waivers, if any, are reflected on the accompanying Statements of Operations. During the period, the following expense limitation agreements were in effect:
Harbor International Fund. For the period November 19, 2017 through April 30, 2018, Harbor Capital contractually agreed to further waive a portion of its management fee such that the Fund’s operating expenses, excluding interest expense (if any), are limited to 0.72%, 0.64%, 0.97%, and 1.09% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual fee waivers are effective through February 28, 2019.
Harbor Diversified International All Cap Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital
72
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.85%, 0.77%, 1.10%, and 1.22% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual expense limitations are effective through February 28, 2019.
Harbor International Growth Fund. For the period November 1, 2017 through April 30 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.85%, 0.77%, 1.10%, and 1.22% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual expense limitations are effective through February 28, 2019.
Harbor International Small Cap Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.95%, 0.87%, 1.20%, and 1.32% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual expense limitations are effective through February 28, 2019.
Harbor Global Leaders Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.90%, 0.82%, 1.15%, and 1.27% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual expense limitations are effective through February 28, 2019.
Harbor Emerging Markets Equity Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 1.15%, 1.07%, 1.40%, and 1.52% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual expense limitations are effective through February 28, 2019.
All expense limitation agreements include the transfer agent fee waiver discussed in the Transfer Agent note.
Distributor
Harbor Funds Distributors, Inc. (“Harbor Funds Distributors” or the “Distributor”), a wholly-owned subsidiary of Harbor Capital, is the distributor for Harbor Funds’ shares. Under the Trust’s current distribution plan pursuant to Rule 12b-1 under the Investment Company Act with respect to each Fund’s Administrative and Investor Class shares (the “12b-1 Plan”) as applicable, each Fund pays the Distributor compensation at the annual rate of 0.25% of the average daily net assets of its Administrative and Investor Class shares. Pursuant to the 12b-1 Plan, the Distributor is compensated for financing any activity that is primarily intended to result in the sale of Administrative and Investor Class shares of each Fund or for recordkeeping services or the servicing of shareholder accounts in the Administrative and Investor Class shares of each Fund. Such activities include, but are not limited to: printing of prospectuses and statements of additional information and reports for prospective shareholders (i.e., other than existing shareholders); preparation and distribution of advertising material and sales literature; expenses of organizing and conducting sales seminars; supplemental payments to dealers or other institutions such as asset-based sales charges, payments of recordkeeping fees under recordkeeping arrangements, or payments of service fees under shareholder service arrangements; and costs of administering the 12b-1 Plan.
Amounts payable by a Fund under the 12b-1 Plan need not be directly related to the expenses actually incurred by the Distributor on behalf of each Fund. The 12b-1 Plan does not obligate each Fund to reimburse the Distributor for the actual expenses the Distributor may incur in fulfilling its obligations under the 12b-1 Plan. Thus, even if the Distributor’s actual expenses exceed the fee payable to the Distributor at any given time, each Fund will not be obligated to pay more than that fee. If the Distributor’s expenses are less than the fee it receives, the Distributor will retain the difference.
The fees attributable to each Fund’s respective class are shown on the accompanying Statements of Operations.
73
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
Transfer Agent
Harbor Services Group, Inc. (“Harbor Services Group”), a wholly-owned subsidiary of Harbor Capital, is the transfer and shareholder servicing agent for the Funds. The transfer agency and service agreement is reviewed and approved annually by the Board of Trustees and provides currently for compensation up to the following amounts per class of each Fund:
Transfer Agent Fees | |
Institutional Class | 0.09% of the average daily net assets of all Institutional Class shares |
Retirement Class | 0.01% of the average daily net assets of all Retirement Class shares |
Administrative Class | 0.09% of the average daily net assets of all Administrative Class shares |
Investor Class | 0.21% of the average daily net assets of all Investor Class shares |
Harbor Services Group has voluntarily waived a portion of its transfer agent fees during the six-month period ended April 30, 2018. Fees incurred for these transfer agent services are shown on each Fund’s Statement of Operations. The voluntary waiver may be discontinued at any time.
Affiliated Transactions
The Investment Company Act permits purchase and sale transactions among affiliated investment companies subject to an exemptive rule. Harbor Funds has adopted policies and procedures pursuant to such rule. During the six-month period, the Funds did not enter into any transactions with any other Harbor fund.
Shareholders
On April 30, 2018, Harbor Capital, and its wholly owned subsidiaries, collectively held the following shares of beneficial interest in each Fund:
Number of Shares Owned by Harbor Capital and Subsidiaries | Percentage of Outstanding Shares | ||||||||||
Institutional Class | Administrative Class | Investor Class | Retirement Class | Total | |||||||
Harbor International Fund | — | — | — | 20,235 | 20,235 | 0.0% | |||||
Harbor Diversified International All Cap Fund | 4,145,085 | 26,098 | 26,151 | 81,859 | 4,279,193 | 8.5 | |||||
Harbor International Growth Fund | — | — | — | 75,886 | 75,886 | 0.2 | |||||
Harbor International Small Cap Fund | 1,486,686 | 25,004 | 24,946 | 51,744 | 1,588,380 | 38.2 | |||||
Harbor Global Leaders Fund | 467,863 | 25,807 | 25,818 | 33,269 | 552,757 | 27.1 | |||||
Harbor Emerging Markets Equity Fund | 1,296,418 | 25,663 | 25,564 | 91,169 | 1,438,814 | 25.1 |
Independent Trustees
The fees and expenses of the Independent Trustees are shown on each Fund’s Statement of Operations. The Independent Trustees’ remuneration for the Funds totaled $505,000 for the six-month period ended April 30, 2018.
The Board of Trustees has adopted a Deferred Compensation Plan for Independent Trustees (the “Plan”), which enables Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Trust. For purposes of determining the amount owed to a Trustee under the Plan, deferred amounts are treated as though they had been invested in shares of the Fund(s) selected by the Trustee. While not required to do so, each Fund makes an investment equal to the Trustee’s investment election. The deferred compensation liability and the offsetting deferred compensation investment asset are included as a component of “Other accrued expenses” and “Other assets”, respectively, in the Statements of Assets and Liabilities. Such amounts fluctuate with changes in the market value of the selected securities. The deferred compensation and related mark-to-market impact liability and an offsetting investment asset will remain on each Fund’s Statement of Assets and Liabilities until distributed in accordance with the Plan.
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Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
Indemnification
Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business the Trust enters into contracts that provide general indemnities to other parties. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
NOTE 5—TAX INFORMATION
The identified cost for federal income tax purposes of investments owned by each Fund and its respective gross unrealized appreciation and depreciation at April 30, 2018 are as follows:
Identified Cost (000s) | Gross Unrealized | Net Unrealized Appreciation/ (Depreciation) (000s) | |||||
Appreciation (000s) | (Depreciation) (000s) | ||||||
Harbor International Fund | $21,418,112 | $7,950,347 | $(814,948) | $7,135,399 | |||
Harbor Diversified International All Cap Fund | 558,532 | 40,017 | (13,856) | 26,161 | |||
Harbor International Growth Fund | 503,069 | 83,289 | (14,066) | 69,223 | |||
Harbor International Small Cap Fund | 52,115 | 7,976 | (994) | 6,982 | |||
Harbor Global Leaders Fund | 41,320 | 10,758 | (1,238) | 9,520 | |||
Harbor Emerging Markets Equity Fund* | 53,714 | 13,265 | (2,044) | 11,221 |
* | Capital loss carryforwards are available, which may reduce taxable income from future net realized gain on investments. |
Note 6—Derivatives
Each Fund’s derivative holdings do not qualify for hedge accounting treatment and as such are recorded at current fair value. For a discussion of risks related to these investments please refer to the descriptions of each type of derivative instrument in Note 2— Significant Accounting Policies.
Each Fund’s derivative instruments outstanding as of the six-month period ended April 30, 2018, if any, as disclosed in the Portfolios of Investments, and the related amounts of realized and changes in unrealized gains and losses on derivative instruments during the period as disclosed in the Statements of Operations, are indicators of the volume of derivative activity for each Fund.
Derivative Instruments
At April 30, 2018, the fair values of derivatives, by primary risk exposure, were reflected in the Statement of Assets and Liabilities as follows:
HARBOR INTERNATIONAL FUND
Statement of Assets and Liabilities Caption | Equity Contracts (000s) | |
Purchased options (rights/warrants) | $7,183 |
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Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 6—Derivatives—Continued
The change in unrealized apprceciation/(depreciation) and realized net gain/(loss) on derivatives, by primary risk exposure, for the six-month period ended April 30, 2018, were:
HARBOR INTERNATIONAL FUND
Change in Unrealized Appreciation/(Depreciation) on Derivatives | Equity Contracts (000s) | |
Purchased options (rights/warrants) | $(3,816) |
HARBOR DIVERSIFIED INTERNATIONAL ALL CAP FUND
Change in Unrealized Appreciation/(Depreciation) on Derivatives | Equity Contracts (000s) | |
Purchased options (rights/warrants) | $(8) |
HARBOR INTERNATIONAL SMALL CAP FUND
Net Realized Gain/(Loss) on Derivatives | Equity Contracts (000s) | |
Purchased options (rights/warrants) | $13 |
Note 7—Subsequent Events
Through the date the financial statements were issued, there were no subsequent events or transactions that would have materially impacted the financial statements or related disclosures as presented herein.
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Harbor International & Global Funds
Fees and Expenses Example (Unaudited)
Fees and Expenses Example (Unaudited)
Example
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including redemption fees (if any) and (2) ongoing costs, including management fees, distribution and service (12b-1) fees (if any), and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period November 1, 2017 through April 30, 2018.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses for each share class. You may use the information in the respective class 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 of the respective class 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 of the table for each share class below provides information about hypothetical account values and hypothetical expenses based on the respective Fund/Class’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the respective Fund/Class’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 a Fund to 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 redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor International Fund | ||||||||
Institutional Class | 0.72% | |||||||
Actual | $3.62 | $1,000 | $1,029.20 | |||||
Hypothetical (5% return) | 3.61 | 1,000 | 1,021.14 | |||||
Retirement Class | 0.64% | |||||||
Actual | $3.22 | $1,000 | $1,029.60 | |||||
Hypothetical (5% return) | 3.21 | 1,000 | 1,021.54 | |||||
Administrative Class | 0.97% | |||||||
Actual | $4.88 | $1,000 | $1,028.00 | |||||
Hypothetical (5% return) | 4.86 | 1,000 | 1,019.87 | |||||
Investor Class | 1.09% | |||||||
Actual | $5.48 | $1,000 | $1,027.40 | |||||
Hypothetical (5% return) | 5.46 | 1,000 | 1,019.26 |
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Harbor International & Global Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor Diversified International All Cap Fund | ||||||||
Institutional Class | 0.85% | |||||||
Actual | $4.26 | $1,000 | $1,020.90 | |||||
Hypothetical (5% return) | 4.26 | 1,000 | 1,020.47 | |||||
Retirement Class | 0.77% | |||||||
Actual | $3.86 | $1,000 | $1,020.80 | |||||
Hypothetical (5% return) | 3.86 | 1,000 | 1,020.88 | |||||
Administrative Class | 1.10% | |||||||
Actual | $5.50 | $1,000 | $1,019.50 | |||||
Hypothetical (5% return) | 5.51 | 1,000 | 1,019.20 | |||||
Investor Class | 1.22% | |||||||
Actual | $6.11 | $1,000 | $1,019.10 | |||||
Hypothetical (5% return) | 6.11 | 1,000 | 1,018.59 | |||||
Harbor International Growth Fund | ||||||||
Institutional Class | 0.85% | |||||||
Actual | $4.25 | $1,000 | $1,012.00 | |||||
Hypothetical (5% return) | 4.26 | 1,000 | 1,020.47 | |||||
Retirement Class | 0.77% | |||||||
Actual | $3.84 | $1,000 | $1,012.10 | |||||
Hypothetical (5% return) | 3.86 | 1,000 | 1,020.88 | |||||
Administrative Class | 1.10% | |||||||
Actual | $5.48 | $1,000 | $1,010.40 | |||||
Hypothetical (5% return) | 5.51 | 1,000 | 1,019.20 | |||||
Investor Class | 1.22% | |||||||
Actual | $6.08 | $1,000 | $1,010.10 | |||||
Hypothetical (5% return) | 6.11 | 1,000 | 1,018.59 | |||||
Harbor International Small Cap Fund | ||||||||
Institutional Class | 0.95% | |||||||
Actual | $4.79 | $1,000 | $1,035.90 | |||||
Hypothetical (5% return) | 4.76 | 1,000 | 1,019.97 | |||||
Retirement Class | 0.87% | |||||||
Actual | $4.39 | $1,000 | $1,036.40 | |||||
Hypothetical (5% return) | 4.36 | 1,000 | 1,020.37 | |||||
Administrative Class | 1.20% | |||||||
Actual | $6.05 | $1,000 | $1,034.30 | |||||
Hypothetical (5% return) | 6.01 | 1,000 | 1,018.70 | |||||
Investor Class | 1.32% | |||||||
Actual | $6.66 | $1,000 | $1,034.00 | |||||
Hypothetical (5% return) | 6.60 | 1,000 | 1,018.09 |
78
Harbor International & Global Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor Global Leaders Fund | ||||||||
Institutional Class | 0.90% | |||||||
Actual | $4.64 | $1,000 | $1,081.70 | |||||
Hypothetical (5% return) | 4.51 | 1,000 | 1,020.22 | |||||
Retirement Class | 0.82% | |||||||
Actual | $4.24 | $1,000 | $1,082.40 | |||||
Hypothetical (5% return) | 4.11 | 1,000 | 1,020.63 | |||||
Administrative Class | 1.15% | |||||||
Actual | $5.93 | $1,000 | $1,080.40 | |||||
Hypothetical (5% return) | 5.76 | 1,000 | 1,018.95 | |||||
Investor Class | 1.27% | |||||||
Actual | $6.55 | $1,000 | $1,079.50 | |||||
Hypothetical (5% return) | 6.36 | 1,000 | 1,018.34 | |||||
Harbor Emerging Markets Equity Fund | ||||||||
Institutional Class | 1.15% | |||||||
Actual | $5.86 | $1,000 | $1,054.60 | |||||
Hypothetical (5% return) | 5.76 | 1,000 | 1,018.95 | |||||
Retirement Class | 1.07% | |||||||
Actual | $5.45 | $1,000 | $1,054.30 | |||||
Hypothetical (5% return) | 5.36 | 1,000 | 1,019.36 | |||||
Administrative Class | 1.40% | |||||||
Actual | $7.12 | $1,000 | $1,053.20 | |||||
Hypothetical (5% return) | 7.00 | 1,000 | 1,017.68 | |||||
Investor Class | 1.52% | |||||||
Actual | $7.74 | $1,000 | $1,053.00 | |||||
Hypothetical (5% return) | 7.60 | 1,000 | 1,017.07 |
* | Reflective of all fee waivers and expense reimbursements |
** | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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Harbor International & Global Funds
Additional Information (Unaudited)
Additional Information (Unaudited)
Proxy Voting
Harbor Funds has adopted Proxy Voting Policies and Procedures under which proxies relating to securities held by the Harbor funds are voted. In addition, Harbor Funds files Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. A description of Harbor Funds’ Proxy Voting Policies and Procedures and the proxy voting records (Form N-PX) are available (i) upon request, by calling Harbor Funds toll-free at 800-422-1050; (ii) on Harbor Funds’ website at harborfunds.com; and (iii) on the SEC’s website at sec.gov.
Householding
Harbor Funds has adopted a policy that allows it to send only one copy of a Fund’s prospectus, proxy materials, annual report and semi-annual report to certain shareholders residing at the same household. This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call the Shareholder Servicing Agent at 800-422-1050. Individual copies will be sent within thirty (30) days after the Shareholder Servicing Agent receives your instructions. Your consent to householding is considered valid until revoked.
Quarterly Portfolio Disclosures
Harbor Funds files a complete portfolio of investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is available (i) without charge, upon request, by calling Harbor Funds toll-free at 800-422-1050, (ii) on Harbor Funds’ website at harborfunds.com, and (iii) on the SEC’s website at sec.gov. The form may also be viewed and copied at the SEC’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may also be obtained by calling 800-SEC-0330.
ADVISORY AGREEMENT APPROVALS
FACTORS CONSIDERED BY THE TRUSTEES IN APPROVING THE INVESTMENT ADVISORY AGREEMENTS AND SUBADVISORY AGREEMENTS OF THE INTERNATIONAL & GLOBAL FUNDS
The Investment Company Act requires that the Investment Advisory and Subadvisory Agreement of each Fund be approved initially, and following an initial two-year term, at least annually, by the Trust’s Board of Trustees (the “Board” or the “Trustees”), including a majority of the Independent Trustees voting separately.
At an in-person meeting of the Board held on February 18, 19, and 20, 2018 (the “Meeting”), the Board, including the Independent Trustees voting separately, considered and approved the continuation of each Investment Advisory Agreement with Harbor Capital, the adviser to each Fund, and each Subadvisory Agreement with each Fund’s subadviser (each, a “Subadviser”) with respect to Harbor International Fund, Harbor Diversified International All Cap Fund, Harbor International Growth Fund, Harbor International Small Cap Fund, Harbor Global Leaders Fund (Investment Advisory Agreement only), and Harbor Emerging Markets Equity Fund. The Board noted that the Subadvisory Agreement with Sands Capital Management, LLC (“Sands Capital”) with respect to Harbor Global Leaders Fund was approved for an initial two-year term by the Board at an in-person meeting held on February 12, 13 and 14, 2017 and will remain in effect until March 1, 2019.
In evaluating each Investment Advisory Agreement and each Subadvisory Agreement, the Trustees reviewed materials furnished by the Adviser and each Subadviser, including information about their respective affiliates, personnel, and operations, and also relied upon their knowledge of the Adviser and Subadvisers resulting from their quarterly meetings, periodic telephonic meetings and other prior communications. In connection with the Meeting, which had been called for the purpose of considering the continuation of the Investment Advisory Agreements and Subadvisory Agreements, and at prior meetings, the Trustees, including the Independent Trustees, requested and received materials and presentations relating to Fund performance and the services rendered by the Adviser and each Subadviser. The Trustees also discussed with representatives of the Adviser, at the Meeting and at prior meetings, Harbor Funds’ operations and the Adviser’s ability, consistent with the “manager of managers” structure of Harbor Funds, to (i) identify and recommend to the Trustees a subadviser for each Fund, (ii) monitor and oversee the performance and investment capabilities of each Subadviser, and (iii) recommend the replacement of a Subadviser where appropriate.
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
At the Meeting, the Trustees, including the Independent Trustees voting separately, determined, in the exercise of their business judgment, that the terms of each Investment Advisory Agreement and each Subadvisory Agreement were fair and reasonable and approved the continuation for a one-year period of each such Investment Advisory Agreement and Subadvisory Agreement as being in the best interests of each Fund and its shareholders.
In their deliberations, the Independent Trustees had the opportunity to meet privately without representatives of the Adviser or any Subadviser present and were represented throughout the process by legal counsel to the Independent Trustees and the Funds.
In considering the approval of each Fund’s Investment Advisory Agreement and Subadvisory Agreement, as applicable, the Board, including the Independent Trustees, evaluated a number of factors it considered relevant to its determination. The Board did not identify any single factor as all-important or controlling, and individual Trustees did not necessarily attribute the same weight or importance to each factor.
Among the factors considered by the Trustees in approving the Investment Advisory Agreements and Subadvisory Agreements were the following:
• | the nature, extent, and quality of the services provided by the Adviser and each Subadviser, including the background, education, expertise and experience of the investment professionals of the Adviser and each Subadviser providing services to the Funds; |
• | the favorable history, reputation, qualifications and background of the Adviser and each Subadviser, as well as the qualifications of their respective personnel; |
• | the profitability of the Adviser with respect to each Fund, including the effect of revenues of Harbor Services Group, Inc. (“Harbor Services Group”), the Funds’ transfer agent, and Harbor Funds Distributors, Inc. (“Harbor Funds Distributors”), the Funds’ principal underwriter, on such profitability; |
• | the fees charged by the Adviser and Subadvisers for investment advisory and subadvisory services, respectively, including, in each case, the portion of the fee to be retained by the Adviser, after payment of the Subadviser’s fee, for the investment advisory and related services, including investment, business, legal, compliance, financial and administrative services, that the Adviser provides; |
• | the extent to which economies of scale might be realized as each Fund grows, and the extent to which each Fund’s advisory fee level reflects any economies of scale for the benefit of Fund investors; |
• | the fees and expense ratios of each Fund relative to the quality of services provided and the fees and expense ratios of similar investment companies; |
• | the short- and long-term investment performance of each Fund in comparison to peer groups and certain relevant benchmark indices and the Adviser’s efforts to address circumstances of underperformance where applicable; |
• | the compensation received by Harbor Services Group and Harbor Funds Distributors in consideration of the services each provides to the Funds; |
• | any “fall out” benefits that might inure to the Adviser and its affiliates as a result of their relationship with the Funds; |
• | information received at regular meetings throughout the year related to Fund performance and services rendered by the Adviser, as well as each of the Subadvisers, and research arrangements with brokers who execute transactions on behalf of each Subadviser; |
• | information contained in materials provided by the Adviser and compiled by Broadridge Inc. (“Broadridge”) as to the investment returns, advisory fees and total expense ratios of the Institutional Class of each Fund (and, in certain cases, total expense ratios of certain other classes) relative to those of other investment companies with similar objectives and strategies managed by other investment advisers, consisting both of a peer group of funds as well as a broader universe of funds compiled by Broadridge; and |
• | information contained in materials compiled by Morningstar, Inc. (“Morningstar”) as to the investment returns of the Institutional Class of each Fund relative to those of other investment companies with similar objectives and strategies managed by other investment advisers. |
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
Nature, Extent, and Quality of Services
The Trustees separately considered the nature, extent, and quality of the services provided by the Adviser and each Subadviser. In their deliberations as to the approval of each Fund’s Investment Advisory Agreement and Subadvisory Agreement, the Trustees were mindful of the fact that, by choosing to invest in a Fund, the shareholders had entrusted the Adviser with the responsibility, subject to the approval of the Trustees, for selecting each Fund’s Subadviser, overseeing and monitoring that Subadviser’s performance and replacing the Subadviser if necessary. The Trustees also considered as relevant to their determination the favorable history, reputation, qualifications and background of the Adviser and each Subadviser, as well as the qualifications of their respective personnel.
The Adviser’s Services. The Board evaluated the nature, extent, and quality of the Adviser’s services in light of the Board’s experience with the Adviser, as well as materials provided by the Adviser as part of its comprehensive written response to the 15(c) request letter prepared by legal counsel to the Independent Trustees in consultation with the Independent Trustees concerning the financial and other resources devoted by the Adviser to Harbor Funds, including the breadth and depth of experience and expertise of the investment, accounting, administrative, legal and compliance professionals dedicated to Harbor Funds’ operations. The Trustees determined that the Adviser had the expertise and resources to identify, select, oversee and monitor each Subadviser and to operate effectively as the “manager of managers” for the Funds.
The Subadvisers’ Services. The Trustees’ consideration of the services provided by the Subadvisers included a review of each Subadviser’s portfolio managers, investment philosophy, style and processes and record of consistency therewith, the volatility of its results, its approach to controlling risk, and the quality and extent of its investment capabilities and resources, including the nature and extent of research it receives from broker-dealers (to the extent applicable) and other sources. In their deliberations with respect to each Fund, the Trustees considered the history of Harbor Funds’ relationship with each Subadviser and Harbor Funds’ experience with each Subadviser in this capacity.
The Trustees also considered each Subadviser’s breadth and depth of experience and investment results in managing other accounts similar to the respective Fund. The Trustees received a presentation at the Meeting by investment professionals from the Subadviser for Harbor International Fund and Harbor Emerging Markets Equity Fund. The Trustees had received presentations by investment professionals from the Subadvisers for Harbor Diversified International All Cap Fund, Harbor International Growth Fund, Harbor International Small Cap Fund, and Harbor Global Leaders Fund at meetings of the Board of Trustees held in 2017. The Trustees reviewed information concerning each Subadviser’s historical investment results in managing accounts and/or funds, as applicable, in a manner substantially similar to the relevant Fund.
Investment Performance, Advisory Fees, and Expense Ratios
In considering each Fund’s performance, advisory fees and expense ratio, the Trustees requested and received from the Adviser data compiled by Broadridge and Morningstar. The Trustees also received information explaining the methodology for compilation of certain of this information and what it was intended to demonstrate. The Trustees analyzed the Institutional Class performance of each Fund, the advisory fees of each Fund, and the Institutional Class expenses of each Fund (after giving effect to waivers and/or reimbursements, if applicable, that reduced the fees or expenses of the Fund or its peer funds) and made certain observations and findings as to each Fund as noted below. The Trustees also identified and reviewed certain Administrative Class, Investor Class, and Retirement Class comparative performance, fee and expense information they considered relevant to their deliberations. In evaluating performance, the Trustees recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results.
Harbor International Fund. The Trustees considered Harbor International Fund (inception date December 29, 1987), noting its underperformance relative to each of its Broadridge group and universe medians for the one-, two-, three-, four- and five-year periods ended December 31, 2017. The Morningstar data presented showed that the Fund’s one-, three- and five-year rolling returns as of December 31, 2017 each ranked in the fourth quartile. The Trustees also considered the longer-term record showing the Fund had outperformed its benchmark, the MSCI EAFE® (ND) Index, for the ten-year and since inception periods ended December 31, 2017. The Fund underperformed its benchmark for the one-, three- and five-year periods ended December 31, 2017.
The Trustees considered the expertise of Northern Cross, LLC (“Northern Cross”) in managing assets, noting that it manages assets only in the international asset class. The Fund represents $31.01 billion of Northern Cross’s total firm assets under management of $33.2 billion. The Trustees noted that the three principals of Northern Cross who serve as co-portfolio managers of the Fund also have considerable experience with foreign markets and had each worked with Mr. Hakan Castegren, the Fund’s former portfolio manager, for a number of years.
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
They observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $32.28 billion, showed the Fund’s management fee was above the group median for the Institutional Class. The actual total expense ratio for the Institutional Class was at the group median and below the universe median expense ratios. The Trustees observed that the advisory fee schedule included a contractual breakpoint reducing the fee rate from 75 basis points to 65 basis points on assets over $12 billion. The Trustees noted the voluntary breakpoints, reducing the fee rate to 63 basis points on assets between $24 billion and $36 billion, to 58 basis points on assets between $36 billion and $48 billion, and to 57 basis points on assets above $48 billion. The Trustees also noted the additional voluntary advisory fee waiver limiting the Fund’s expense ratio to 72 basis points. The Trustees also considered the fact that Harbor Capital had agreed to continue all of the fee waiver/expense reimbursement arrangements until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in operating the Fund was not excessive.
Harbor Diversified International All Cap Fund. The Trustees considered Harbor Diversified International All Cap Fund (inception date November 2, 2015), noting that its Institutional Class performance was below its Broadridge group and universe medians for the one-, two- and since inception periods ended December 31, 2017. The Morningstar data presented showed that the Fund’s one-year rolling returns as of December 31, 2017 ranked in the third quartile. The Trustees noted that the Fund had underperformed its benchmark, the MSCI ACWI ex. U.S. (ND) Index, for the one-year and since inception periods ended December 31, 2017. The Trustees noted that the short time period since the Fund’s inception did not support drawing any significant conclusions about the Fund’s performance.
The Trustees considered the expertise of Marathon Asset Management LLP (“Marathon”) in managing assets generally and in the international asset class specifically, noting that Marathon managed approximately $5.36 billion in assets in this strategy, out of a firm-wide total of approximately $63.01 billion in assets under management. The Trustees also noted the experience of the Fund’s portfolio managers in this asset class.
The Trustees noted that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $325 million, showed the Fund’s management fee was below the group median for the Institutional Class. The actual total expense ratio for the Fund’s Institutional Class was below the group and universe median expense ratios. The Trustees also considered that Harbor Capital had agreed to continue the Fund’s existing contractual fee waiver/expense reimbursement arrangement until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in operating the Fund was negative.
Harbor International Growth Fund. The Trustees considered Harbor International Growth Fund (inception date November 1, 1993), and observed that its Institutional Class performance exceeded its Broadridge group medians for the two-, three- and four-year periods ended December 31, 2017, was at its group median for the five-year period ended December 31, 2017 and was below its group median for the one-year period ended December 31, 2017. The Fund outperformed its Broadridge universe medians for the one-, two-, three- and four-year periods ended December 31, 2017 and underperformed its universe median for the five-year period ended December 31, 2017. The Morningstar data presented showed that the Fund’s one-, three- and five-year rolling returns as of December 31, 2017 ranked in the third, second and third quartiles, respectively. The Trustees noted that the Fund had outperformed its benchmark, the MSCI ACWI ex. U.S. (ND) Index, for the one-, three- and five-year periods ended December 31, 2017. The Trustees noted that the Fund had changed subadvisers in May of 2013, engaging Baillie Gifford Overseas Limited (“Baillie Gifford”) to manage the Fund.
The Trustees considered the expertise of Baillie Gifford Overseas Limited (“Baillie Gifford”) in managing assets generally and in the ACWI ex-US Focus strategy specifically, noting that Baillie Gifford managed approximately $10.91 billion in assets in this strategy, out of a firm-wide total of approximately $242.96 billion in assets under management. The Trustees also noted the experience of the Fund’s portfolio managers in this asset class.
The Trustees noted that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $425 million, showed the Fund’s management fee was below the group median for the Institutional Class. The actual total expense ratio for the Fund’s Institutional Class was below the group and universe median expense ratios. The Trustees also considered that Harbor Capital had agreed to continue the Fund’s existing contractual fee waiver/expense reimbursement arrangement until at least February 28, 2019. The Trustees noted that the Adviser’s profitability in managing the Fund was not excessive.
Harbor International Small Cap Fund. The Trustees considered Harbor International Small Cap Fund (inception date February 1, 2016), and observed that its Institutional Class performance was above its Broadridge group and universe medians for the one-year and since inception periods ended December 31, 2017. The Morningstar data presented ranked the Fund’s one-year rolling return as of December 31, 2017 in the second quartile. The Trustees noted that the Fund had outperformed its benchmark,
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
the MSCI EAFE Small Cap (NR) Index, for the one-year period and underperformed its benchmark for the since inception period ended December 31, 2017. The Trustees noted that the short time period since the Fund’s inception did not support making any significant conclusions about the Fund’s performance.
The Trustees considered the expertise of Baring International Investment Limited (“BIIL”) in managing assets generally and in the international small cap asset class specifically, noting that BIIL managed approximately $380 million in assets in this strategy (including assets across the combined Barings group), out of a firm-wide total of approximately $304.56 billion in assets under management. The Trustees also noted the experience of the Fund’s portfolio managers in this asset class.
The Trustees noted that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $50 million, showed the Fund’s management fee was below the group median for the Institutional Class. The actual total expense ratio for the Fund’s Institutional Class was below the group and universe median expense ratios. The Trustees also considered that Harbor Capital had agreed to continue the Fund’s existing contractual fee waiver/expense reimbursement arrangement until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in operating the Fund was negative.
Harbor Global Leaders Fund. The Trustees considered Harbor Global Leaders Fund (inception date March 1, 2009), and observed that its Institutional Class performance was above its Broadridge group median for the one-year period ended December 31, 2017, at the group median for the five-year period ended December 31, 2017, and below the group median for the two-, three- and four-year periods ended December 31, 2017. The Fund’s Institutional Class performance was above its Broadridge universe for the one- and five-year periods ended December 31, 2017, and below the universe median for the two-, three- and four-year periods ended December 31, 2017. The Morningstar data presented showed that the Fund’s one-, three- and five-year rolling returns ranked in the first, third and first quartiles, respectively, for the periods ended December 31, 2017. The Trustees noted that the Fund had outperformed its benchmark, the MSCI All Country World (ND) Index, for the one- and five-year periods ended December 31, 2017 and underperformed its benchmark for the three-year period ended December 31, 2017. The Trustees noted the fact that Sands Capital had recently been appointed as the Fund’s subadviser and that the current subadvisory agreement for the Fund was considered and approved for an initial two-year term by the Trustees at an in-person meeting held on February 12-14, 2017.
The Trustees considered the expertise of Sands Capital in managing assets generally and in the international equity asset class specifically, noting that Sands Capital managed approximately $261 million in assets in this asset class, out of a firm-wide total of approximately $41.3 billion in assets under management. The Trustees also noted the significant experience of the Fund’s portfolio manager in this asset class.
The Trustees noted that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $50 million, showed the Fund’s management fee was below the group median for the Institutional Class. The actual total expense ratio for the Fund’s Institutional Class was below the group and universe median expense ratios. The Trustees also considered that Harbor Capital had agreed to continue the Fund’s existing contractual fee waiver/expense reimbursement arrangement until at least February 28, 2019. They noted that the Adviser’s profitability in managing the Fund was not excessive.
Harbor Emerging Markets Equity Fund. The Trustees considered Harbor Emerging Markets Equity Fund (inception date November 1, 2013), noting that according to the Broadridge report, the Fund’s Institutional Class performance was at the group median for the one-year period ended December 31, 2017, above the group median for the two-year period ended December 31, 2017, and below the group median for the three- and four-year and since-inception periods ended December 31, 2017. The Trustees noted that the Fund’s Institutional class performance exceeded its universe median for the two-year period ended December 31, 2017 and was below the universe medians for the one-, three- and four-year and since inception periods ended December 31, 2017. The Morningstar data presented ranked the Fund’s one-year and three-year rolling returns as of December 31, 2017 in the third and fourth quartiles, respectively. The Trustees also considered the fact that Harbor Emerging Markets Equity Fund had underperformed its benchmark, the MSCI Emerging Markets Index, for the one- and three-year and since inception periods ended December 31, 2017.
The Trustees considered the expertise of the Fund’s subadviser, Oaktree Capital Management, L.P. (“Oaktree Capital”), in managing assets generally and in the emerging markets equity asset class specifically, noting that Oaktree Capital managed approximately $3.75 billion in assets in this asset class, out of a firm-wide total of approximately $99.52 billion in assets under management as of September 30, 2017. The Trustees also discussed the experience of the Fund’s portfolio managers in this asset class, including their experience prior to joining Oaktree Capital.
The Trustees observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $75 million, showed the Fund’s contractual management fee was below the group median for the Institutional Class. The Trustees also noted that the Fund’s actual total expense ratio for the Institutional Class was below the Broadridge
84
Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
group and universe median expense ratios. The Trustees also considered that Harbor Capital had agreed to continue the Fund’s existing contractual fee waiver/expense reimbursement arrangement until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in operating the Fund was negative.
The Trustees also separately considered the allocation between the Adviser and each Subadviser of the relevant Fund’s investment advisory fee (i.e., the amount of the advisory fee retained by the Adviser relative to that paid to the relevant Subadviser as a subadvisory fee). They determined in each case that the allocation was reasonable and the product of arm’s length negotiation between the Adviser and Subadviser.
Profitability
The Trustees also considered the Adviser’s profitability in operating each of the Funds (as well as on a fund complex-wide basis) as presented by the Adviser, and the allocation methodology used by the Adviser to compute such profitability. The Trustees concluded that the methodology was reasonable and that a reasonable level of profitability was important to provide suitable incentives for the Adviser to continue to attract and maintain high-quality personnel and to invest in infrastructure and other resources to support and enhance the Funds’ operations. In considering the Adviser’s profitability generally, the Trustees also reviewed the compensation received by Harbor Services Group and Harbor Funds Distributors in consideration of the transfer agency and distribution services, respectively, that are provided to Harbor Funds and any other benefits enjoyed by the Adviser and its affiliates as a result of their relationship with Harbor Funds.
The Trustees also considered that profitability calculations with respect to advisory, transfer agency and distribution operations vary significantly depending on whether revenues on which the calculation is based are taken gross or net of amounts paid to third parties, such as subadvisory fee expenses and certain transfer agency expenses, and noted that subadvisory fee expenses are a direct expense of the Adviser. The Trustees also noted that the Adviser was, in all cases, waiving a portion of its advisory fee and/or paying or reimbursing a portion of Fund expenses. The Trustees determined that the Adviser’s profitability in operating each Fund was not excessive.
Economies of Scale
The Trustees also considered the extent to which economies of scale might be realized as each Fund grows, and the extent to which each Fund’s advisory fee level reflects these economies of scale for the benefit of Fund investors. The Trustees specifically considered whether any advisory fee reduction “breakpoints” should be added to the advisory fee payable by any Fund. As noted above, the Trustees concluded that the Adviser’s profitability in each case was not excessive. They concluded that the Funds’ fee structures reflected economies of scale to date and that breakpoints in these fee structures were not required at the present time. The Trustees noted they intend to monitor each Fund’s asset growth in connection with future reviews of each Fund’s Investment Advisory Agreement to determine whether breakpoints may be appropriate at such time.
Approval of Amended Subadvisory Agreement for Harbor International Fund
At a meeting of the Board held on November 19 and 20, 2017, the Board, including the Independent Trustees voting separately, approved an amended Subadvisory Agreement with Northern Cross (the “Amended Agreement”) that reduced the contractual subadvisory fee rate payable by Harbor Capital to Northern Cross. In determining to approve the Amended Agreement, the Trustees considered that the Fund’s shareholders would receive the full benefit of the subadvisory fee reduction through Harbor Capital’s voluntary waiver of its advisory fee in an amount equal to the reduction in subadvisory fees paid. The Trustees noted that, although they were being asked to approve the Amended Agreement in order to implement the subadvisory fee reduction, they would have the opportunity to perform a full review of the Investment Advisory Agreement and Subadvisory Agreement for the Fund in connection with the Meeting. As described above, at that time the Trustees considered the nature, extent and quality of services provided by Harbor Capital and Northern Cross; investment performance, advisory fees and expense ratios; profitability; and economies of scale.
85
Benchmark Descriptions
Benchmark Descriptions
Bloomberg Barclays U.S. Aggregate Bond Index—The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of investment-grade fixed-rate debt issues with maturities of at least one year. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Bloomberg Barclays U.S. TIPS Index—The Bloomberg Barclays U.S. TIPS Index is an unmanaged market index comprised of all U.S. Treasury Inflation Protected Securities rated investment grade (Baa3 or better), have at least one year to final maturity, and at least $250 million par amount outstanding. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Bloomberg Commodity Index Total ReturnSM—The Bloomberg Commodity Index Total ReturnSM is a broadly diversified index that tracks the commodities markets through commodity futures contracts. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML All U.S. Convertibles Ex Mandatory Index—The BofA Merrill Lynch All U.S. Convertibles Ex Mandatory Index is broadly representative of the U.S. convertible securities market, consisting of publicly traded issues, denominated in U.S. dollars, of all credit qualities, and excluding mandatory (equity-linked) convertibles. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML U.S. Dollar 3-Month LIBOR Constant Maturity Index—The ICE BofAML U.S. Dollar 3-Month LIBOR Constant Maturity Index tracks the performance of a synthetic asset paying Libor to a stated maturity. The index is based on the assumed purchase at par of a synthetic instrument having exactly its stated maturity and with a coupon equal to that day’s fixing rate. That issue is assumed to be sold the following business day (priced at a yield equal to the current day fixing rate) and rolled into a new instrument. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML 3-Month U.S. Treasury Bill Index—The ICE BofAML 3-Month U.S. Treasury Bill Index is comprised of a single U.S. Treasury Bill issue purchased at the beginning of each month and held for a full month, at which time that issue is sold and rolled into a newly selected issue. The issue selected each month is that having a maturity date closest to, but not beyond 90 days from the rebalance date.
ICE BofAML U.S. High Yield Index (H0A0)—The ICE BofAML U.S. High Yield Index (H0A0) is an unmanaged index that tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. All bonds are U.S. dollar denominated and rated Split BBB and below. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML U.S. Non-Distressed High Yield Index—The ICE BofAML U.S. Non-Distressed High Yield Index is a subset of the ICE BofAML U.S. High Yield Index (H0A0) including all securities with an option-adjusted spread less than 1,000 basis points. The unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI All Country World Index—The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI All Country World Ex. U.S. (ND) Index—The MSCI All Country World Ex. U.S.is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global developed and emerging markets, excluding the United States. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI EAFE (ND) Index—The MSCI EAFE (ND) Index is an unmanaged index generally representative of major overseas stock markets. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI EAFE Small Cap (ND) Index—The MSCI EAFE Small Cap (ND) Index is an equity index which captures small cap representation across developed market countries around the world, excluding the U.S. and Canada. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI Emerging Markets (ND) Index—The MSCI Emerging Markets (ND) Index is a market capitalization weighted index of equity securities in more than 20 emerging market economies. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI World (ND) Index—The MSCI World (ND) Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
86
Benchmark Descriptions—Continued
Benchmark Descriptions—Continued
Russell 1000® Index—The Russell 1000® Index is an unmanaged index generally representative of the U.S. market for larger capitalization stocks as it includes the largest 1000 securities in the Russell 3000® Index by market capitalization. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Index and Russell® are trademarks of Frank Russell Company.
Russell 1000® Growth Index—The Russell 1000® Growth Index is an unmanaged index generally representative of the U.S. market for larger capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 1000® Value Index—The Russell 1000® Value Index is an unmanaged index generally representative of the U.S. market for larger capitalization value stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Index—The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000® Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Growth Index—The Russell 2000® Growth Index is an unmanaged index representing the smallest 2,000 stocks with the highest price-to-book ratio and future earnings. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 2000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Value Index—The Russell 2000® Value Index is an unmanaged index representing the smallest 2,000 stocks with the lowest price-to-book ratio and future earnings. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 2000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Index—The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000® Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Growth Index—The Russell 3000® Growth Index measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 3000® companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000® Growth Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad growth market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect growth characteristics. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Value Index—The Russell 3000® Value Index measures the performance of the broad value segment of U.S. equity value universe. It includes those Russell 3000® companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000® Value Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad value market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Index—The Russell Midcap® Index is an unmanaged index generally representative of the U.S. market for medium capitalization stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Growth Index—The Russell Midcap® Growth Index is an unmanaged index generally representative of the U.S. market for medium capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Growth Index and Russell® are trademarks of Frank Russell Company.
87
Benchmark Descriptions—Continued
Benchmark Descriptions—Continued
Russell Midcap® Value Index—The Russell Midcap® Value Index is an unmanaged index generally representative of the U.S. market for medium capitalization value stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Value Index and Russell® are trademarks of Frank Russell Company.
S&P 500 Index—The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
88
111 South Wacker Drive, 34th Floor | Chicago, IL 60606-4302 | 800-422-1050 | harborfunds.com |
Trustees & Officers
Charles F. McCain
Chairman, President & Trustee
Chairman, President & Trustee
Scott M. Amero
Trustee
Trustee
Raymond J. Ball
Trustee
Trustee
Donna J. Dean
Trustee
Trustee
Joseph L. Dowling, III
Trustee
Trustee
Randall A. Hack
Trustee
Trustee
Robert Kasdin
Trustee
Trustee
Kathryn L. Quirk
Trustee
Trustee
Ann M. Spruill
Trustee
Trustee
Erik D. Ojala
Chief Compliance Officer
Chief Compliance Officer
Anmarie S. Kolinski
Treasurer
Treasurer
Brian L. Collins
Vice President
Vice President
Charles P. Ragusa
Vice President
Vice President
Diana R. Podgorny
Secretary
Secretary
Jodie L. Crotteau
Assistant Secretary
Assistant Secretary
Lana M. Lewandowski
AML Compliance Officer
& Assistant Secretary
AML Compliance Officer
& Assistant Secretary
Lora A. Kmieciak
Assistant Treasurer
Assistant Treasurer
John M. Paral
Assistant Treasurer
Assistant Treasurer
Investment Adviser
Harbor Capital Advisors, Inc.
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4400
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4400
Distributor
Harbor Funds Distributors, Inc.
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4600
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4600
Shareholder Services
Harbor Services Group, Inc.
P.O. Box 804660
Chicago, IL 60680-4108
800-422-1050
P.O. Box 804660
Chicago, IL 60680-4108
800-422-1050
Custodian
State Street Bank and Trust Company
State Street Financial Center
1 Lincoln Street
Boston, MA 02111-2900
State Street Financial Center
1 Lincoln Street
Boston, MA 02111-2900
FD.SAR.IG.0418
Table of Contents
Semi-Annual Report
April 30, 2018
Fixed Income Funds
Institutional Class | Retirement Class | Administrative Class | Investor Class | |
Harbor Convertible Securities Fund | HACSX | HNCVX | HRCSX | HICSX |
Harbor High-Yield Bond Fund | HYFAX | HNHYX | HYFRX | HYFIX |
Harbor High-Yield Opportunities Fund | HHYNX | HHYRX | HHYAX | HHYVX |
Harbor Bond Fund | HABDX | – | HRBDX | – |
Harbor Real Return Fund | HARRX | – | HRRRX | – |
Harbor Money Market Fund | HARXX | – | HRMXX | – |
Table of Contents
1 | |
Fixed Income Funds | |
Harbor Convertible Securities Fund | |
3 | |
5 | |
6 | |
Harbor High-Yield Bond Fund | |
9 | |
11 | |
12 | |
Harbor High-Yield Opportunities Fund | |
22 | |
24 | |
25 | |
Harbor Bond Fund | |
30 | |
33 | |
34 | |
Harbor Real Return Fund | |
53 | |
56 | |
57 | |
Harbor Money Market Fund | |
69 | |
71 | |
72 | |
Financial Statements | |
73 | |
75 | |
77 | |
83 | |
85 | |
95 | |
115 | |
Additional Information | |
117 | |
117 | |
117 | |
117 | |
122 |
This document must be preceded or accompanied by a Prospectus.
Letter from the Chairman
Charles F. McCain Chairman |
Dear Fellow Shareholder:
Domestic long-term fixed income markets were generally down for the fiscal half year ended April 30, 2018, though some bond market segments delivered modestly positive returns. The Bloomberg Barclays U.S. Aggregate Bond Index, a diversified benchmark of investment-grade bonds, generated a return of -1.87% for the six-month period.
After a year of low volatility and strong risk asset returns, the start to 2018 was highlighted by the return of volatility. Solid growth data kept central banks on track, but rising interest rates and geopolitical concerns contributed to more challenged performance across equities and fixed income during the first few months of 2018. Expectations for higher inflation, increased Treasury supply and more U.S. Federal Reserve (Fed) hikes all contributed to higher interest rates.
U.S. Treasury Inflation- Protected Securities (TIPS) returned 0.19% for the fiscal half year, as measured by the Bloomberg Barclays U.S. TIPS Index, trailing conventional U.S. Treasury bonds.
High yield bonds declined, as the ICE BofAML U.S. Non-Distressed High Yield Index returned -0.31%. Following a robust opening to 2018, the high yield market faced headwinds toward the end of the period due to trade fears, mounting volatility and sizable mutual fund outflows.
Comments by the portfolio managers of each Harbor fixed income fund can be found in the pages preceding each Fund’s portfolio of investments. As always, we recommend that shareholders maintain a long-term perspective in evaluating all of their investments, including Harbor Funds.
Returns For Periods Ended April 30, 2018 | ||||||||||
Unannualized | Annualized | |||||||||
Fixed Income | 6 Months | 1 Year | 5 Years | 10 Years | 30 Years | |||||
ICE BofAML U.S. Non-Distressed High Yield (domestic high-yield bonds) | -0.31% | 3.26% | 4.87% | 6.69% | N/A | |||||
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -1.87 | -0.32 | 1.47 | 3.57 | 6.17% | |||||
Bloomberg Barclays U.S. TIPS (domestic inflation-linked bonds) | 0.19 | 0.27 | -0.12 | 3.14 | N/A | |||||
ICE BofAML U.S. 3-Month Treasury Bill (proxy for money market returns) | 0.68 | 1.18 | 0.36 | 0.34 | 3.28 | |||||
Domestic Equities | ||||||||||
Russell 3000® (entire U.S. stock market) | 3.79% | 13.05% | 12.75% | 9.13% | 10.46% | |||||
S&P 500 (large cap stocks) | 3.82 | 13.27 | 12.96 | 9.02 | 10.44 | |||||
Russell Midcap® (mid cap stocks) | 3.69 | 11.17 | 11.77 | 9.48 | 11.69 | |||||
Russell 2000® (small cap stocks) | 3.27 | 11.54 | 11.74 | 9.49 | 9.76 | |||||
Russell 3000® Growth (growth stocks) | 5.66 | 18.78 | 14.97 | 10.78 | 10.20 | |||||
Russell 3000® Value (value stocks) | 1.86 | 7.42 | 10.50 | 7.39 | 10.36 | |||||
International & Global | ||||||||||
MSCI EAFE (ND)(foreign stocks) | 3.41% | 14.51% | 5.90% | 2.43% | 5.06% | |||||
MSCI EAFE Small Cap (ND)(foreign small cap stocks) | 5.96 | 20.03 | 10.61 | 6.38 | N/A | |||||
MSCI World (ND)(global stocks) | 3.40 | 13.22 | 9.28 | 5.48 | 7.07 | |||||
MSCI All Country World Ex. U.S. (ND)(foreign stocks) | 3.47 | 15.91 | 5.46 | 2.26 | N/A | |||||
MSCI Emerging Markets (ND)(emerging market stocks) | 4.80 | 21.71 | 4.74 | 2.17 | N/A |
1
HOLDING STEADY THROUGH VOLATILE MARKETS
U.S. and global markets saw a significant increase in volatility during the first calendar quarter of 2018, a trend that continued into April. Developments that played a major role in driving investor worries included the prospect of a trade war between the U.S. and China, uncertainty on inflation and a more hawkish Fed policy.
When markets are volatile, investors may wonder whether they should pivot to a more conservative allocation in the short-term to avoid potential losses. What history shows us, however, is that it is very difficult to time the market successfully. While past performance is never a guarantee of future results, many investors have historically achieved their financial objectives by making a long-term plan and staying true to it through market ups and downs.
We encourage all investors to maintain a diversified portfolio of stocks, bonds and cash in an allocation that matches their long-term financial goals and risk tolerance. Harbor Funds offers a variety of equity and fixed income funds to help you achieve your financial goals. Thank you for investing with Harbor Funds.
June 22, 2018
Charles F. McCain |
Chairman |
2
Harbor Convertible Securities Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Shenkman Capital Management, Inc.
461 Fifth Avenue
22nd Floor
22nd Floor
New York, NY 10017
Portfolio Managers
Mark R. Shenkman
Since 2011
Since 2011
Justin W. Slatky
Since 2017
Since 2017
Raymond F. Condon
Since 2011
Since 2011
Jordan N. Barrow, CFA
Since 2016
Since 2016
Shenkman Capital has subadvised the Fund since 2011.
Investment Objective
The Fund seeks to maximize total returns (i.e., current income and capital appreciation).
Mark R. Shenkman
Justin W. Slatky
Raymond F. Condon
Jordan N. Barrow, CFA
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
The market momentum engendered by the passage of the much anticipated corporate tax reform legislation failed to carry through from January 2018 into the succeeding months. Faced with sudden uncertainty concerning the pace of rising interest rates, a tightening labor market, internet data security and trade war concerns, the S&P 500 Index witnessed several bouts of volatility starting with the strong January labor report. The S&P 500 Index closed April at 2,648.05, after setting an all-time high of 2,872.87 on January 26, 2018. Harbor Convertible Securities Fund’s benchmark, the ICE BofAML All U.S. Convertible Ex Mandatory Index, returned 2.34% for the six months ended April 30, 2018 with underlying equities returning 2.70% for the same period. It is notable that the market’s two largest sectors, Information Technology and Healthcare, combined to contribute more than 80% of the benchmark’s total return.
With equities trading near record highs, the convertible new issue market, despite the recent spate of volatility, had an encouraging first half of the fiscal year with 70 deals totaling $21.2 billion. This compared favorably to the same period last year, which had 57 transactions totaling $19.4 billion. Most notably, there was a decided shift from repeat to first-time issuers. Fiscal year-to-date, repeat issuers represented less than 20% of notional value versus the 40%-50% levels seen during the preceding three years 2015-2017. Redemptions totaled $27.6 billion, with scheduled maturities and debt repurchases accounting for the majority of these redemptions. We continue to expect strong convertible new issue activity, as issuers look to take advantage of the opportunity to raise growth capital by selling into an apparent supply/demand imbalance. We believe that a continued improvement in underlying equity prices as well as the potential for higher interest rates will be additional catalysts for convertible new issue activity.
Performance
Harbor Convertible Securities Fund returned 2.03% (Institutional Class), 2.07% (Retirement Class), 1.90% (Administrative Class), and 1.84% (Investor Class) for the six months ended April 30, 2018, compared with the 2.34% return of the benchmark. Given the recent uptick in intermittent volatility, the convertible market performance profile has begun to shift from more equity-sensitive securities, which the Fund tends to underweight, to a more balanced risk/reward profile that is more consistent with the Fund’s style. We expect this positive trend to continue to accelerate with the continued buildup of the new issue calendar.
Information Technology, including software, internet software and services, and IT services, were respectively the largest sector and industry contributors to the Fund’s performance for the first six months of the fiscal year. In software, the Fund benefitted from its position in ServiceNow, which provides cloud services for IT service management. In internet software and services, the Fund benefitted primarily from its position in the internet conglomerate IAC/Interactive Corp., the owner of multiple brands such as HomeAdvisor, Citysearch and Match.com. In IT services, the Fund continued to benefit from its position in Square, a leading provider of mobile payment solutions for small and medium-size businesses.
The three largest detractors from the Fund’s performance from an industry point of view were media, semiconductors and automobiles. In media, Dish Network, a provider of satellite subscription television, underperformed due to concerns related to its ability to monetize recently purchased spectrum rights. We continue to be constructive on the firm’s long-term
3
Harbor Convertible Securities Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | Life of Fund | |||||||||
Harbor Convertible Securities Fund | |||||||||||
Institutional Class1 | 2.03% | 5.76% | 5.11% | 4.93% | |||||||
Retirement Class1,2 | 2.07 | 5.85 | 5.14 | 4.96 | |||||||
Administrative Class1 | 1.90 | 5.49 | 4.83 | 4.66 | |||||||
Investor Class1 | 1.84 | 5.39 | 4.71 | 4.54 | |||||||
Comparative Index | |||||||||||
ICE BofAML U.S. Convertible Ex Mandatory1 | 2.34% | 11.00% | 9.96% | 8.85% |
As stated in the Fund’s prospectus dated June 1, 2018, the expense ratios were 0.75% (Net) and 0.80% (Gross) (Institutional Class); 0.67% (Net) and 0.72% (Gross) (Retirement Class); 1.00% (Net) and 1.05% (Gross) (Administrative Class); and 1.12% (Net) and 1.17% (Gross) (Investor Class). The net expense ratios reflect a contractual management fee waiver effective through 02/29/2020. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. The Fund charges a redemption fee of 1% on redemption of Fund shares that are held for less than 90 days.
prospects. In semiconductors, the primary contributor to weakness was the Fund’s position in Microchip, a supplier of semiconductors to the auto industry. Uncertainty surrounding regulatory approval of the company’s pending acquisition of Microsemi Corp. has resulted in equity volatility. We believe the company’s fundamentals remain strong and we remain confident long term. In automobiles, Tesla, a leading manufacturer of high performance electric vehicles, has encountered delays in meeting expanded production targets for its Model 3, resulting in episodic bouts of volatility.
Outlook & Strategy
Spurred by the recent resurgence of the new issue calendar, we believe that the convertible market has begun to present many new opportunities for credit-oriented convertible managers who seek to adhere to a balanced style. While we believe that several existing in-the-money issues have continued to move in an equity-like fashion, recently-issued convertibles have included both new companies as well as existing issuers. This development has allowed us to diversify the Fund’s positions into new businesses that meet our credit criteria, as well as maintain exposure to repeat issuers by purchasing new issues closer to their bond floors. We believe this trend favors our investment style, as we generally focus first on investment creditworthiness, with an emphasis on positive risk/reward characteristics.
Looking forward, we believe that the market transition from monetary to fiscal stimulus will likely enhance opportunities in the convertible securities market. We believe these opportunities will be further supported by a growth-oriented equity environment, positive overall credit conditions, and increased new issue activity.
As we enter a period of potentially higher interest rates with associated periods of market volatility, we expect that the market is likely to place a premium on securities with attractive risk/reward characteristics, which we believe is consistent with the style that we seek to incorporate in the Fund.
1 | The “Life of Fund” return as shown reflects the period 05/01/2011 through 04/30/2018. |
2 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Shenkman Capital Management, Inc. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Convertible securities tend to be of lower credit quality, and the value of a convertible security generally increases and decreases with the value of the underlying common stock, but may also be sensitive to changes in interest rates. A rise in interest rates will likely cause a decrease in the value of convertible securities. Such an event would likely have an adverse effect on the Harbor Convertible Securities Fund. High-yield investing poses additional credit risk related to lower-rated bonds. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
4
Harbor Convertible Securities Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Issuers (% of net assets)
1. Liberty Media Corp. | 2.7% |
2. Microchip Technology Inc. | 2.3% |
3. BioMarin Pharmaceutical Inc. | 2.1% |
4. Workday Inc. | 2.1% |
5. Citrix Systems Inc. | 2.0% |
6. Extra Space Storage LP | 2.0% |
7. Royal Gold Inc. | 2.0% |
8. Ctrip.com International Ltd. | 1.9% |
9. Tesla Motors Inc. | 1.9% |
10. Servicenow Inc. | 1.8% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
Maturity Profile
5
Harbor Convertible Securities Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
CONVERTIBLE BONDS—98.4% | |||
Principal Amount | Value | ||
AUTO COMPONENTS—0.5% | |||
Valeo SA MTN1 | |||
$ | 600 | 0.000%—06/16/20212 | $ 619 |
AUTOMOBILES—1.9% | |||
Tesla Motors Inc. | |||
1,546 | 1.250%—03/01/2021 | 1,593 | |
488 | 2.375%—03/15/2022 | 538 | |
2,131 | |||
BIOTECHNOLOGY—4.7% | |||
BioMarin Pharmaceutical Inc. | |||
1,352 | 0.599%—08/01/2024 | 1,304 | |
1,005 | 1.500%—10/15/2020 | 1,133 | |
2,437 | |||
Clovis Oncology Inc. | |||
592 | 1.250%—05/01/2025 | 536 | |
Exact Sciences Corp. | |||
1,361 | 1.000%—01/15/2025 | 1,330 | |
Ionis Pharmaceuticals Inc. | |||
248 | 1.000%—11/15/2021 | 248 | |
Neurocrine Biosciences Inc. | |||
693 | 2.250%—05/15/20243 | 898 | |
5,449 | |||
CAPITAL MARKETS—1.6% | |||
Ares Capital Corp. | |||
1,337 | 3.750%—02/01/2022 | 1,375 | |
Deutsche Bank AG London | |||
476 | 1.000%—05/01/2023 | 478 | |
1,853 | |||
COMMUNICATIONS EQUIPMENT—1.9% | |||
Ciena Corp. | |||
249 | 3.750%—10/15/2018 | 326 | |
Finisar Corp. | |||
626 | 0.500%—12/15/2036 | 565 | |
InterDigital Inc. | |||
495 | 1.500%—03/01/2020 | 579 | |
Lumentum Holdings Inc. | |||
673 | 0.250%—03/15/2024 | 751 | |
2,221 | |||
CONSTRUCTION & ENGINEERING—2.3% | |||
Dycom Industries Inc. | |||
446 | 0.750%—09/15/2021 | 550 | |
Tutor Perini Corp. | |||
995 | 2.875%—06/15/2021 | 1,028 | |
Vinci SA | |||
1,000 | 0.375%—02/16/2022 | 1,108 | |
2,686 | |||
DIVERSIFIED CONSUMER SERVICES—0.4% | |||
Chegg Inc. | |||
450 | 0.250%—05/15/20233 | 490 | |
DIVERSIFIED TELECOMMUNICATION SERVICES—0.7% | |||
Inmarsat plc | |||
800 | 3.875%—09/09/2023 | 837 | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.8% | |||
OSI Systems Inc. | |||
965 | 1.250%—09/01/2022 | 876 |
CONVERTIBLE BONDS—Continued | |||
Principal Amount | Value | ||
ENERGY EQUIPMENT & SERVICES—1.3% | |||
Ensco Jersey Finance Ltd. | |||
$ | 355 | 3.000%—01/31/2024 | $ 303 |
Nabors Industries Inc. | |||
382 | 0.750%—01/15/2024 | 300 | |
Oil States International Inc. | |||
597 | 1.500%—02/15/20233 | 664 | |
Weatherford International Ltd. | |||
296 | 5.875%—07/01/2021 | 282 | |
1,549 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—5.3% | |||
Empire State Realty OP LP | |||
845 | 2.625%—08/15/20193 | 873 | |
Extra Space Storage LP | |||
2,095 | 3.125%—10/01/20353 | 2,339 | |
IH Merger Sub LLC | |||
1,534 | 3.500%—01/15/2022 | 1,744 | |
National Health Investors Inc. | |||
488 | 3.250%—04/01/2021 | 534 | |
Spirit Realty Capital Inc. | |||
581 | 2.875%—05/15/2019 | 579 | |
6,069 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—4.2% | |||
Dexcom Inc. | |||
1,087 | 0.750%—05/15/20223 | 1,117 | |
Insulet Corp. | |||
497 | 1.375%—11/15/20243 | 564 | |
Nuvasive Inc. | |||
1,564 | 2.250%—03/15/2021 | 1,729 | |
Wright Medical Group Inc. | |||
1,347 | 2.000%—02/15/2020 | 1,361 | |
4,771 | |||
HEALTH CARE PROVIDERS & SERVICES—0.5% | |||
Molina Healthcare Inc. | |||
250 | 1.125%—01/15/2020 | 522 | |
HEALTH CARE TECHNOLOGY—2.3% | |||
Allscripts Healthcare Solutions Inc. | |||
1,708 | 1.250%—07/01/2020 | 1,702 | |
Medidata Solutions Inc. | |||
752 | 1.000%—08/01/2018 | 930 | |
2,632 | |||
HOTELS, RESTAURANTS & LEISURE—2.0% | |||
Caesars Entertainment Corp. | |||
150 | 5.000%—10/01/2024 | 264 | |
China Lodging Group Ltd. | |||
867 | 0.375%—11/01/20223 | 936 | |
Marriott Vacations Worldwide Corp. | |||
1,044 | 1.500%—09/15/20223 | 1,102 | |
2,302 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—1.9% | |||
Nextera Energy Partners LP | |||
1,799 | 1.500%—09/15/20203 | 1,792 | |
NRG Yield Inc. | |||
361 | 3.500%—02/01/20193 | 361 | |
2,153 |
6
Harbor Convertible Securities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CONVERTIBLE BONDS—Continued | |||
Principal Amount | Value | ||
INDUSTRIAL CONGLOMERATES—1.2% | |||
Siemens Financieringsmaatschappij NV | |||
$ | 1,250 | 1.650%—08/16/2019 | $ 1,395 |
INTERNET & DIRECT MARKETING RETAIL—5.7% | |||
Ctrip.com International Ltd. | |||
1,101 | 1.250%—09/15/2022 | 1,114 | |
995 | 1.990%—07/01/2025 | 1,091 | |
2,205 | |||
Liberty Expedia Holdings Inc. | |||
1,471 | 1.000%—06/30/20473 | 1,442 | |
Priceline Group Inc. | |||
1,058 | 0.350%—06/15/2020 | 1,772 | |
Wayfair Inc. | |||
1,213 | 0.375%—09/01/20223 | 1,129 | |
6,548 | |||
INTERNET SOFTWARE & SERVICES—8.9% | |||
Akamai Technologies Inc. | |||
1,718 | 0.000%—02/15/20192 | 1,756 | |
Altaba Inc. | |||
621 | 0.000%—12/01/20182 | 821 | |
Envestnet Inc. | |||
790 | 1.750%—12/15/2019 | 848 | |
Gogo Inc. | |||
633 | 3.750%—03/01/2020 | 583 | |
IAC Financeco Inc. | |||
1,207 | 0.875%—10/01/20223 | 1,481 | |
Nutanix Inc. | |||
472 | 0.000%—01/15/20232,3 | 585 | |
Okta Inc. | |||
1,040 | 0.250%—02/15/20233 | 1,195 | |
Q2 Holdings Inc. | |||
550 | 0.750%—02/15/20233 | 587 | |
Weibo Corp. | |||
1,005 | 1.250%—11/15/20223 | 1,141 | |
Zillow Group Inc. | |||
1,078 | 2.000%—12/01/2021 | 1,256 | |
10,253 | |||
IT SERVICES—0.7% | |||
Euronet Worldwide Inc. | |||
454 | 1.500%—10/01/2044 | 540 | |
Square Inc. | |||
133 | 0.375%—03/01/2022 | 282 | |
822 | |||
LIFE SCIENCES TOOLS & SERVICES—1.3% | |||
Illumina Inc. | |||
438 | 0.500%—06/15/2021 | 549 | |
Qiagen NV | |||
800 | 0.375%—03/19/2019 | 955 | |
1,504 | |||
MACHINERY—3.8% | |||
Chart Industries Inc. | |||
561 | 1.000%—11/15/20243 | 648 | |
Greenbrier Cos. Inc. | |||
755 | 2.875%—02/01/2024 | 817 | |
Meritor Inc. | |||
1,755 | 3.250%—10/15/20373 | 1,747 |
CONVERTIBLE BONDS—Continued | |||
Principal Amount | Value | ||
MACHINERY—Continued | |||
Navistar International Corp. | |||
$ | 1,070 | 4.750%—04/15/2019 | $ 1,103 |
4,315 | |||
MEDIA—6.6% | |||
Dish Network Corp. | |||
2,089 | 3.375%—08/15/2026 | 1,901 | |
Liberty Interactive LLC | |||
756 | 1.750%—09/30/20463 | 795 | |
Liberty Media Corp. | |||
492 | 1.000%—01/30/2023 | 513 | |
242 | 1.375%—10/15/2023 | 279 | |
1,820 | 2.125%—03/31/20483 | 1,803 | |
547 | 2.250%—09/30/2046 | 576 | |
3,171 | |||
Live Nation Entertainment Inc. | |||
1,780 | 2.500%—03/15/20233 | 1,761 | |
7,628 | |||
METALS & MINING—2.0% | |||
Royal Gold Inc. | |||
2,161 | 2.875%—06/15/2019 | 2,318 | |
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—3.5% | |||
Blackstone Mortgage Trust Inc. | |||
1,305 | 4.750%—03/15/2023 | 1,279 | |
Starwood Property Trust Inc. | |||
1,114 | 4.375%—04/01/2023 | 1,121 | |
Two Harbors Investment Corp. | |||
1,592 | 6.250%—01/15/2022 | 1,649 | |
4,049 | |||
OIL, GAS & CONSUMABLE FUELS—2.9% | |||
Chesapeake Energy Corp. | |||
658 | 5.500%—09/15/2026 | 578 | |
Oasis Petroleum Inc. | |||
843 | 2.625%—09/15/2023 | 995 | |
PDC Energy Inc. | |||
300 | 1.125%—09/15/2021 | 302 | |
SM Energy Co. | |||
309 | 1.500%—07/01/2021 | 318 | |
Total SA MTN1 | |||
1,000 | 0.500%—12/02/2022 | 1,113 | |
3,306 | |||
PHARMACEUTICALS—1.7% | |||
Jazz Investments I Ltd. | |||
1,640 | 1.875%—08/15/2021 | 1,717 | |
Supernus Pharmaceuticals Inc. | |||
225 | 0.625%—04/01/20233 | 245 | |
1,962 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—10.2% | |||
Advanced Micro Devices Inc. | |||
598 | 2.125%—09/01/2026 | 929 | |
Cypress Semiconductor Corp. | |||
728 | 2.000%—02/01/20233 | 754 | |
Integrated Device Technology Inc. | |||
1,189 | 0.875%—11/15/2022 | 1,286 | |
Intel Corp. | |||
358 | 3.250%—08/01/2039 | 890 |
7
Harbor Convertible Securities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CONVERTIBLE BONDS—Continued | |||
Principal Amount | Value | ||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—Continued | |||
Microchip Technology Inc. | |||
$ | 2,307 | 1.625%—02/15/2027 | $ 2,608 |
Micron Technology Inc. | |||
158 | 3.000%—11/15/2043 | 251 | |
Novellus Systems Inc. | |||
44 | 2.625%—05/15/2041 | 243 | |
ON Semiconductor Corp. | |||
1,486 | 1.000%—12/01/2020 | 1,972 | |
Silicon Laboratories Inc. | |||
995 | 1.375%—03/01/2022 | 1,182 | |
STMicroelectronics NV | |||
1,000 | 0.250%—07/03/2024 | 1,216 | |
Teradyne Inc. | |||
287 | 1.250%—12/15/2023 | 351 | |
11,682 | |||
SOFTWARE—15.0% | |||
Atlassian Inc. | |||
1,105 | 0.625%—05/01/20233 | 1,109 | |
Citrix Systems Inc. | |||
1,592 | 0.500%—04/15/2019 | 2,289 | |
Hubspot Inc. | |||
653 | 0.250%—06/01/20223 | 833 | |
Nice Systems Inc. | |||
457 | 1.250%—01/15/2024 | 574 | |
Nuance Communications Inc. | |||
617 | 1.000%—12/15/2035 | 577 | |
1,073 | 1.250%—04/01/2025 | 1,060 | |
1,637 | |||
Proofpoint Inc. | |||
1,144 | 0.750%—06/15/2020 | 1,732 | |
Red Hat Inc. | |||
285 | 0.250%—10/01/2019 | 633 | |
Ringcentral Inc. | |||
819 | 0.000%—03/15/20232,3 | 857 | |
Rovi Corp. | |||
713 | 0.500%—03/01/2020 | 690 | |
ServiceNow Inc. | |||
1,512 | 0.000%—06/01/20222,3 | 2,032 | |
Verint Systems Inc. | |||
1,741 | 1.500%—06/01/2021 | 1,695 |
CONVERTIBLE BONDS—Continued | |||
Principal Amount | Value | ||
SOFTWARE—Continued | |||
Workday Inc. | |||
$ | 1,867 | 0.250%—10/01/20223 | $ 2,019 |
193 | 1.500%—07/15/2020 | 309 | |
2,328 | |||
Zendesk Inc. | |||
842 | 0.250%—03/15/20233 | 874 | |
17,283 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—1.8% | |||
Pure Storage Inc. | |||
465 | 0.125%—04/15/20233 | 483 | |
Western Digital Corp. | |||
1,490 | 1.500%—02/01/20243 | 1,559 | |
2,042 | |||
THRIFTS & MORTGAGE FINANCE—0.3% | |||
Lendingtree Inc. | |||
227 | 0.625%—06/01/20223 | 298 | |
TRANSPORTATION INFRASTRUCTURE—0.5% | |||
Macquarie Infrastructure Corp. | |||
545 | 2.875%—07/15/2019 | 544 | |
TOTAL CONVERTIBLE BONDS | |||
(Cost $111,014) | 113,109 | ||
SHORT-TERM INVESTMENTS—1.7% | |||
(Cost $1,939) | |||
REPURCHASE AGREEMENTS | |||
1,939 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $1,982) | 1,939 | |
TOTAL INVESTMENTS—100.1% | |||
(Cost $112,953) | 115,048 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(0.1)% | (117) | ||
TOTAL NET ASSETS—100.0% | $114,931 |
FAIR VALUE MEASUREMENTS
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 2. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
1 | MTN after the name of a security stands for Medium Term Note. |
2 | Zero coupon bond. |
3 | Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. At April 30, 2018, the aggregate value of these securities was $36,513 or 32% of net assets. |
The accompanying notes are an integral part of the Financial Statements.
8
Harbor High-Yield Bond Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Shenkman Capital Management, Inc.
461 Fifth Avenue
22nd Floor
22nd Floor
New York, NY 10017
Portfolio Managers
Mark R. Shenkman
Since 2002
Since 2002
Justin W. Slatky
Since 2012
Since 2012
Eric Dobbin
Since 2012
Since 2012
Steven N. Schweitzer
Since 2012
Since 2012
Robert S. Kricheff
Since 2015
Since 2015
Neil Wechsler, CFA
Since 2017
Since 2017
Shenkman Capital has subadvised the Fund since 2002.
Investment Objective
The Fund seeks total returns (i.e., current income and capital appreciation).
Mark R. Shenkman
Justin W. Slatky
Eric Dobbin
Steven N. Schweitzer
Robert S. Kricheff
Neil Wechsler, CFA
Management’s Discussion of
Fund Performance
Fund Performance
Market review
Volatility increased significantly within U.S. financial markets during the six months ended April 30, 2018. Following a robust opening to 2018, driven by strengthening U.S. and global economies, a solid corporate earnings season, climbing crude oil prices, and rising equity markets, high yield bonds faced headwinds as the period progressed due to the threat of an escalating trade war between the U.S. and China, mounting equity market volatility, sizable mutual fund outflows, and further shuffling of senior leadership in the Trump administration. The ICE BofAML U.S. Non-Distressed High Yield Index dropped by -0.31% for the period, its toughest stretch since falling oil prices adversely impacted the final quarter of 2015. With U.S. Treasury yields rising amid increased inflationary nervousness and U.S. Federal Reserve Chairman Powell’s perceived hawkish commentary, double-B rated bonds, which tend to be more rate sensitive, were the worst performing rating category with a loss of -1.44%. Single-B rated bonds fared better with a gain of 0.37%, while triple-C rated bonds outperformed and returned 2.20% for the period. Although bonds experienced $17.4 billion of defaults in the first quarter of 2018, the sixth highest U.S. Dollar total in history, iHeart Communications and Claire’s Stores represented approximately 64% of the defaults. Both companies were pre-crisis leverage buyouts with very high debt levels, whose bonds were trading at deep discounts and whose demise were widely anticipated by the market. According to JPMorgan, the twelve-month trailing default rate through April stood at 2.26%, up from 1.27% at the end of 2017, but below the long-term historical average and down significantly from 3.60% at the beginning of 2017. New high-yield bond issuance over the period was below historical levels as markets dealt with sporadic stretches of volatility and rate fluctuations. During the period, refinancing accounted for the majority of new issue volume and ratings quality remained healthy in mostly single-B or higher rated bonds.
performance
Harbor High-Yield Bond Fund returned -0.28% (Institutional Class), -0.34% (Retirement Class), -0.49% (Administrative Class), and -0.57% (Investor Class) during the six months ended April 30, 2018, compared to the ICE BofAML U.S. Non-Distressed High Yield Index, which returned -0.31% and the ICE BofAML High Yield Index, which returned -0.23%. The Fund’s relative performance benefitted from strong selection and an underweight in Telecommunications, wireline/wireless, as well as positive selection and an overweight in printing/publishing. Detracting from performance was negative selection in non-food & drug retailers and automotive. From a ratings perspective, an underweight in BB-rated bonds and positive selection in B-rated credits contributed to the Fund’s outperformance. The Fund’s 4% allocation to senior secured loans also contributed to performance.
The Fund remained active during the period, pruning out underperforming credits while seeking new investments in improving issuers. We remain focused on relative-value trades within the biggest sectors such as Healthcare, Oil & Gas, and Telecommunications where we believe our research process can create an advantage. While market trading volumes and new issuance are lower, we believe that we have been able to access adequate liquidity to fully execute the Fund’s strategies in a timely fashion.
9
Harbor High-Yield Bond Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor High-Yield Bond Fund | |||||||||||
Institutional Class | -0.28% | 2.71% | 3.68% | 6.21% | |||||||
Retirement Class1 | -0.34 | 2.68 | 3.71 | 6.23 | |||||||
Administrative Class | -0.49 | 2.45 | 3.43 | 5.95 | |||||||
Investor Class | -0.57 | 2.25 | 3.30 | 5.82 | |||||||
Comparative Indices | |||||||||||
ICE BofAML U.S. Non-Distressed High Yield | -0.31% | 3.26% | 4.87% | 6.69% | |||||||
ICE BofAML U.S. High Yield (H0A0) | -0.23 | 3.25 | 4.76 | 7.75 |
As stated in the Fund’s prospectus dated June 1, 2018, the expense ratios were 0.63% (Net) and 0.72% (Gross) (Institutional Class); 0.55% (Net) and 0.64% (Gross) (Retirement Class); 0.88% (Net) and 0.97% (Gross) (Administrative Class); and 1.00% (Net) and 1.09% (Gross) (Investor Class). The net expense ratios reflect a contractual management fee waiver effective through 02/29/2020. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. The Fund charges a redemption fee of 1% on redemption of Fund shares that are held for less than 90 days.
Outlook & Strategy
With fears of a trade war mostly subsiding, cautious optimism around the potential for denuclearization on the Korean Peninsula, and the U.S. Federal Reserve signaling that future rate increases will continue to be measured and well-telegraphed, volatility may simmer down. We are mindful that a key concern for many investors is the risk that climbing inflation could lead to rising long-term rates; however, even though input cost pressures are trending higher, they are by no means spiking from our perspective. Additionally, we believe a 10-year U.S. Treasury yield in the 3% range could be just strong enough to signal confidence in the outlook for the U.S. economy, but still low historically and not so high that it suppresses growth. We believe the end result would currently represent a positive fundamental and technical backdrop for high yield bonds: an economy that is on firm footing, a corporate earnings environment that is benefitting from the recently enacted tax reform legislation, declining new issuance, and expectations that the current benign default conditions will persist. Although there are spotty instances of late cycle behavior and periodic occurrences of idiosyncratic risk, we believe those risks are limited.
1 | Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses. |
This report contains the current opinions of Shenkman Capital Management, Inc. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Fixed income investments are affected by interest rate changes and the creditworthiness of the issues held by the Fund. A rise in interest rates will cause a decrease in the value of fixed income securities. Such an event would have an adverse effect on the Harbor High-Yield Opportunities Fund. High-yield investing poses additional credit risk related to lower-rated bonds. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
10
Harbor High-Yield Bond Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Issuers (% of net assets)
1. CCO Holdings LLC | 1.4% |
2. Ally Financial Inc. | 1.1% |
3. Navient Corp. | 1.1% |
4. Sprint Corp. | 1.1% |
5. T-Mobile USA Inc. | 1.1% |
6. Cascades Inc. | 1.0% |
7. Anixter Inc. | 0.9% |
8. Century Link Inc. | 0.9% |
9. DISH DBS Corp. | 0.9% |
10. Tribune Media Co. | 0.9% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
Maturity Profile
11
Harbor High-Yield Bond Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
BANK LOAN OBLIGATIONS—4.3% | |||
Principal Amount | Value | ||
CHEMICALS—0.5% | |||
Solenis International LP | |||
Second-Lien Term Loan | |||
$ | 5,000 | 8.734% (3 Month USD Libor + 6.750) 07/31/20221 | $ 4,844 |
COMMERCIAL SERVICES & SUPPLIES—0.4% | |||
Granite Acquisition Inc. | |||
Term Loan C | |||
82 | 5.802% (3 Month USD Libor + 3.500) 12/17/20211 | 82 | |
Term Loan B | |||
3,562 | 5.808% (3 Month USD Libor + 3.500) 12/17/20211 | 3,614 | |
3,696 | |||
CONTAINERS & PACKAGING—0.2% | |||
Titan Acquisition Ltd. | |||
Term Loan B | |||
1,790 | 5.056% (2 Month USD Libor + 3.000) 03/28/20251 | 1,795 | |
ELECTRICAL EQUIPMENT—0.4% | |||
Cortes NP Acquisition Corp. | |||
Term Loan B | |||
4,137 | 5.887% (1 Month USD Libor + 4.000) 11/30/20231 | 4,145 | |
FOOD & STAPLES RETAILING—0.2% | |||
Clover Merger Sub Inc. | |||
Initial Term Loans | |||
2,235 | 9.651% (1 Month USD Libor + 7.750) 09/26/20251 | 1,782 | |
HOTELS, RESTAURANTS & LEISURE—0.3% | |||
Stars Group Holdings BV | |||
Term Loan B | |||
2,673 | 5.325% (3 Month USD Libor + 3.000) 04/06/20251 | 2,689 | |
INTERNET SOFTWARE & SERVICES—0.1% | |||
Ancestry.com Inc. | |||
Term Loan B | |||
1,159 | 5.150% (1 Month USD Libor + 3.250) 10/19/20231 | 1,166 | |
MACHINERY—0.1% | |||
Navistar Inc. | |||
Term Loan B | |||
1,291 | 5.400% (1 Month USD Libor + 3.500) 11/06/20241 | 1,302 | |
MEDIA—0.0% | |||
Liberty Cablevision of Puerto Rico | |||
First-Lien Term Loan | |||
460 | 5.848% (3 Month USD Libor + 3.500) 01/07/20221 | 447 | |
OIL, GAS & CONSUMABLE FUELS—0.5% | |||
California Resources Corp. | |||
First-Lien Term Loan | |||
1,545 | 6.647% (1 Month USD Libor + 4.750) 12/31/20221 | 1,576 | |
Term Loan | |||
3,050 | 12.273% (1 Month USD Libor + 10.380) 12/31/20211 | 3,431 | |
5,007 | |||
SOFTWARE—0.4% | |||
Greeneden US Holdings II LLC | |||
Term Loan B | |||
4,000 | 5.802% (3 Month USD Libor + 3.500) 12/01/20231 | 4,030 | |
SPECIALTY RETAIL—1.2% | |||
Ascena Retail Group Inc. | |||
Term Loan B | |||
6,153 | 6.438% (1 Month USD Libor + 4.500) 08/21/20221 | 5,394 |
BANK LOAN OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
SPECIALTY RETAIL—Continued | |||
Bass Pro Group LLC | |||
Term Loan B | |||
$ | 6,119 | 6.901% (1 Month USD Libor + 5.000) 09/25/20241 | $ 6,161 |
11,555 | |||
TOTAL BANK LOAN OBLIGATIONS | |||
(Cost $42,780) | 42,458 | ||
CORPORATE BONDS & NOTES—93.2% | |||
AEROSPACE & DEFENSE—1.7% | |||
BBA US Holdings Inc. | |||
1,300 | 5.375%—05/01/20262 | 1,311 | |
Bombardier Inc. | |||
4,135 | 6.000%—10/15/20222 | 4,135 | |
2,000 | 6.125%—01/15/20232 | 2,023 | |
6,158 | |||
KLX Inc. | |||
725 | 5.875%—12/01/20222 | 759 | |
Orbital ATK Inc. | |||
1,053 | 5.500%—10/01/2023 | 1,108 | |
TransDigm Inc. | |||
3,000 | 6.500%—07/15/2024 | 3,058 | |
Triumph Group Inc. | |||
3,945 | 5.250%—06/01/2022 | 3,837 | |
345 | 7.750%—08/15/2025 | 354 | |
4,191 | |||
16,585 | |||
AIR FREIGHT & LOGISTICS—0.1% | |||
XPO Logistics Inc. | |||
500 | 6.500%—06/15/20222 | 518 | |
AUTO COMPONENTS—1.2% | |||
American Axle & Manufacturing Inc. | |||
1,685 | 6.250%—03/15/2026 | 1,672 | |
925 | 6.500%—04/01/2027 | 924 | |
3,000 | 6.625%—10/15/2022 | 3,105 | |
5,701 | |||
American Tire Distributors Inc. | |||
2,700 | 10.250%—03/01/20222 | 1,438 | |
Goodyear Tire & Rubber Co. | |||
1,630 | 4.875%—03/15/2027 | 1,530 | |
1,400 | 5.125%—11/15/2023 | 1,397 | |
2,927 | |||
Tenneco Inc. | |||
2,250 | 5.000%—07/15/2026 | 2,109 | |
12,175 | |||
AUTOMOBILES—0.5% | |||
Jaguar Land Rover Automotive plc | |||
2,020 | 4.500%—10/01/20272 | 1,828 | |
Tesla Inc. | |||
3,615 | 5.300%—08/15/20252 | 3,213 | |
5,041 | |||
BANKS—0.8% | |||
CIT Group Inc. | |||
1,000 | 6.125%—03/09/2028 | 1,036 |
12
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
BANKS—Continued | |||
Royal Bank of Scotland Group plc | |||
$ | 3,500 | 5.125%—05/28/2024 | $ 3,558 |
3,320 | 6.000%—12/19/2023 | 3,529 | |
7,087 | |||
8,123 | |||
BEVERAGES—0.3% | |||
Cott Holdings Inc. | |||
2,500 | 5.500%—04/01/20252 | 2,487 | |
BIOTECHNOLOGY—0.3% | |||
Avantor Inc. | |||
2,500 | 6.000%—10/01/20242 | 2,519 | |
BUILDING PRODUCTS—1.7% | |||
American Woodmark Corp. | |||
825 | 4.875%—03/15/20262 | 798 | |
Griffon Corp. | |||
5,800 | 5.250%—03/01/2022 | 5,826 | |
Jeld-Wen Inc. | |||
1,000 | 4.625%—12/15/20252 | 962 | |
New Enterprise Stone & Lime Co. Inc. | |||
1,975 | 6.250%—03/15/20262 | 2,005 | |
Standard Industries Inc. | |||
1,702 | 4.750%—01/15/20282 | 1,596 | |
3,000 | 5.500%—02/15/20232 | 3,104 | |
4,700 | |||
Summit Materials LLC | |||
2,000 | 6.125%—07/15/2023 | 2,045 | |
310 | 8.500%—04/15/2022 | 336 | |
2,381 | |||
16,672 | |||
CAPITAL MARKETS—0.1% | |||
Deutsche Bank AG | |||
1,585 | 4.875%—12/01/20321 | 1,461 | |
CHEMICALS—2.2% | |||
Consolidated Energy Finance SA | |||
965 | 6.750%—10/15/20192 | 984 | |
GCP Applied Technologies Inc. | |||
1,555 | 5.500%—04/15/20262 | 1,549 | |
NOVA Chemicals Corp. | |||
3,100 | 4.875%—06/01/20242 | 3,019 | |
3,000 | 5.250%—08/01/20232 | 3,011 | |
6,030 | |||
OCI NV | |||
1,775 | 6.625%—04/15/20232 | 1,807 | |
Platform Specialty Products Corp. | |||
2,000 | 5.875%—12/01/20252 | 1,952 | |
PQ Corp. | |||
4,000 | 6.750%—11/15/20222 | 4,245 | |
Trinseo LLC | |||
1,290 | 5.375%—09/01/20252 | 1,274 | |
Tronox Inc. | |||
4,320 | 6.500%—04/15/20262 | 4,309 | |
22,150 | |||
COMMERCIAL SERVICES & SUPPLIES—3.7% | |||
Brand Energy & Infrastructure Services Inc. | |||
2,200 | 8.500%—07/15/20252 | 2,277 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
COMMERCIAL SERVICES & SUPPLIES—Continued | |||
Brink's Co. | |||
$ | 2,985 | 4.625%—10/15/20272 | $ 2,754 |
Clean Harbors Inc. | |||
5,000 | 5.125%—06/01/2021 | 5,044 | |
Covanta Holding Corp. | |||
1,025 | 5.875%—07/01/2025 | 999 | |
3,500 | 6.375%—10/01/2022 | 3,583 | |
4,582 | |||
�� | Garda World Security Corp. | ||
2,000 | 7.250%—11/15/20212 | 2,040 | |
GFL Environmental Inc. | |||
1,500 | 5.375%—03/01/20232 | 1,489 | |
2,000 | 5.625%—05/01/20222 | 2,012 | |
3,501 | |||
GW Honos Security Corp. | |||
2,270 | 8.750%—05/15/20252 | 2,377 | |
Harland Clarke Holdings Corp. | |||
1,415 | 8.375%—08/15/20222 | 1,454 | |
LSC Communications Inc. | |||
2,235 | 8.750%—10/15/20232 | 2,305 | |
NuStar Logistics LP | |||
2,000 | 6.750%—02/01/2021 | 2,080 | |
RR Donnelley & Sons Co. | |||
3,275 | 6.000%—04/01/2024 | 3,222 | |
1,250 | 6.500%—11/15/2023 | 1,268 | |
4,490 | |||
Waste Pro USA Inc. | |||
1,000 | 5.500%—02/15/20262 | 992 | |
Williams Scotsman International Inc. | |||
2,990 | 7.875%—12/15/20222 | 3,117 | |
37,013 | |||
COMMUNICATIONS EQUIPMENT—1.1% | |||
Commscope Inc. | |||
400 | 5.000%—06/15/20212 | 404 | |
Hughes Satellite Systems Corp. | |||
1,500 | 6.500%—06/15/2019 | 1,551 | |
800 | 6.625%—08/01/2026 | 796 | |
4,250 | 7.625%—06/15/2021 | 4,574 | |
6,921 | |||
Viasat Inc. | |||
3,250 | 5.625%—09/15/20252 | 3,120 | |
10,445 | |||
CONSTRUCTION & ENGINEERING—0.3% | |||
AECOM | |||
2,650 | 5.125%—03/15/2027 | 2,553 | |
CONSUMER FINANCE—2.7% | |||
Ally Financial Inc. | |||
800 | 4.125%—03/30/2020 | 806 | |
2,500 | 4.625%—05/19/2022 | 2,522 | |
750 | 4.750%—09/10/2018 | 756 | |
1,000 | 5.750%—11/20/2025 | 1,035 | |
3,000 | 7.500%—09/15/2020 | 3,255 | |
1,883 | 8.000%—11/01/2031 | 2,297 | |
10,671 | |||
Navient Corp. | |||
2,500 | 5.000%—10/26/2020 | 2,519 |
13
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CONSUMER FINANCE—Continued | |||
Navient Corp. MTN3 | |||
$ | 2,655 | 5.500%—01/25/2023 | $ 2,624 |
5,005 | 7.250%—01/25/2022 | 5,312 | |
7,936 | |||
Springleaf Finance Corp. | |||
500 | 5.625%—03/15/2023 | 496 | |
1,000 | 6.000%—06/01/2020 | 1,042 | |
1,000 | 6.875%—03/15/2025 | 1,013 | |
3,000 | 7.750%—10/01/2021 | 3,278 | |
5,829 | |||
26,955 | |||
CONTAINERS & PACKAGING—2.4% | |||
ARD Finance SA | |||
3,925 | 7.125%—09/15/2023 | 4,023 | |
Ardagh Packaging Finance plc | |||
1,970 | 6.000%—06/30/2021-02/15/20252 | 2,003 | |
BWAY Holding Co. | |||
2,250 | 5.500%—04/15/20242 | 2,271 | |
1,500 | 7.250%—04/15/20252 | 1,544 | |
3,815 | |||
Cascades Inc. | |||
5,500 | 5.500%—07/15/20222 | 5,555 | |
4,050 | 5.750%—07/15/20232 | 4,040 | |
9,595 | |||
Flex Acquisition Co. Inc. | |||
3,000 | 6.875%—01/15/20252 | 3,021 | |
OI European Group BV | |||
925 | 4.000%—03/15/20232 | 881 | |
Reynolds Group Issuer Inc. | |||
24 | 5.750%—10/15/2020 | 25 | |
Titan Acquisition Ltd. | |||
660 | 7.750%—04/15/20262 | 659 | |
24,022 | |||
DIVERSIFIED CONSUMER SERVICES—0.1% | |||
Service Corp. International | |||
870 | 4.625%—12/15/2027 | 853 | |
DIVERSIFIED FINANCIAL SERVICES—1.1% | |||
Compass Group Diversified Holdings LLC | |||
1,070 | 8.000%—05/01/20262 | 1,065 | |
DAE Funding LLC | |||
470 | 4.000%—08/01/20202 | 468 | |
4,260 | 5.000%—08/01/20242 | 4,116 | |
4,584 | |||
Fidelity & Guaranty Life Holdings Inc. | |||
1,390 | 5.500%—05/01/20252 | 1,386 | |
Virtu Financial | |||
2,455 | 6.750%—06/15/20222 | 2,552 | |
WeWork Cos. Inc. | |||
1,310 | 7.875%—05/01/20252 | 1,271 | |
10,858 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—3.7% | |||
Altice Financing SA | |||
2,100 | 7.500%—05/15/20262 | 2,069 | |
CenturyLink Inc. | |||
4,000 | 5.625%—04/01/2020 | 4,070 | |
2,150 | 5.800%—03/15/2022 | 2,150 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
DIVERSIFIED TELECOMMUNICATION SERVICES—Continued | |||
$ | 1,000 | 6.450%—06/15/2021 | $ 1,027 |
1,675 | 7.500%—04/01/2024 | 1,713 | |
8,960 | |||
Frontier Communications Corp. | |||
3,725 | 7.125%—01/15/2023 | 2,682 | |
210 | 7.625%—04/15/2024 | 139 | |
1,575 | 8.500%—04/01/20262 | 1,536 | |
685 | 8.750%—04/15/2022 | 574 | |
1,170 | 10.500%—09/15/2022 | 1,034 | |
745 | 11.000%—09/15/2025 | 575 | |
6,540 | |||
Inmarsat Finance plc | |||
4,000 | 4.875%—05/15/20222 | 3,880 | |
Intelsat Jackson Holdings SA | |||
750 | 5.500%—08/01/2023 | 631 | |
1,625 | 7.250%—10/15/2020 | 1,594 | |
5,010 | 7.500%—04/01/2021 | 4,766 | |
6,991 | |||
Level 3 Communications Inc. | |||
1,925 | 5.750%—12/01/2022 | 1,944 | |
Level 3 Financing Inc. | |||
1,000 | 6.125%—01/15/2021 | 1,014 | |
Telecom Italia Capital SA | |||
625 | 6.000%—09/30/2034 | 650 | |
775 | 6.375%—11/15/2033 | 846 | |
1,496 | |||
Telecom Italia SpA | |||
2,875 | 5.303%—05/30/20242 | 2,939 | |
Wind Tre SpA | |||
1,035 | 5.000%—01/20/20262 | 875 | |
36,708 | |||
ELECTRIC UTILITIES—0.3% | |||
Talen Energy Supply LLC | |||
660 | 6.500%—06/01/2025 | 485 | |
2,000 | 9.500%—07/15/20222 | 1,906 | |
1,125 | 10.500%—01/15/20262 | 975 | |
3,366 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.0% | |||
Anixter Inc. | |||
8,000 | 5.125%—10/01/2021 | 8,240 | |
750 | 5.500%—03/01/2023 | 781 | |
9,021 | |||
Sensata Technologies BV | |||
935 | 5.000%—10/01/20252 | 937 | |
9,958 | |||
ENERGY EQUIPMENT & SERVICES—2.9% | |||
Archrock Partners LP | |||
3,000 | 6.000%—04/01/2021-10/01/2022 | 3,012 | |
CSI Compressco LP | |||
1,770 | 7.500%—04/01/20252 | 1,783 | |
Ensco plc | |||
1,325 | 7.750%—02/01/2026 | 1,250 | |
Nabors Industries Inc. | |||
2,325 | 5.750%—02/01/20252 | 2,206 | |
Oceaneering International Inc. | |||
705 | 6.000%—02/01/2028 | 703 |
14
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
ENERGY EQUIPMENT & SERVICES—Continued | |||
Precision Drilling Corp. | |||
$ | 1,015 | 7.125%—01/15/20262 | $ 1,028 |
Pride International LLC | |||
1,000 | 7.875%—08/15/2040 | 878 | |
Transocean Inc. | |||
1,565 | 6.800%—03/15/2038 | 1,322 | |
1,335 | 7.500%—01/15/20262 | 1,352 | |
2,674 | |||
Trinidad Drilling Ltd. | |||
2,375 | 6.625%—02/15/20252 | 2,289 | |
Unit Corp. | |||
4,900 | 6.625%—05/15/2021 | 4,925 | |
USA Compression Partners LP | |||
1,195 | 6.875%—04/01/20262 | 1,223 | |
Weatherford International LLC | |||
1,135 | 9.875%—03/01/20252 | 1,090 | |
Weatherford International Ltd. | |||
1,075 | 6.750%—09/15/2040 | 828 | |
2,000 | 7.750%—06/15/2021 | 1,977 | |
1,085 | 8.250%—06/15/2023 | 1,023 | |
2,500 | 9.875%—02/15/2024 | 2,431 | |
6,259 | |||
29,320 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—3.6% | |||
CoreCivic Inc. | |||
2,250 | 4.750%—10/15/2027 | 2,109 | |
CyrusOne LP | |||
2,230 | 5.000%—03/15/2024 | 2,241 | |
1,000 | 5.375%—03/15/2027 | 1,003 | |
3,244 | |||
Equinix Inc. | |||
2,000 | 5.375%—05/15/2027 | 2,040 | |
FelCor Lodging LP | |||
1,000 | 6.000%—06/01/2025 | 1,027 | |
GEO Group Inc. | |||
2,650 | 5.875%—01/15/2022 | 2,733 | |
Iron Mountain Inc. | |||
1,345 | 4.875%—09/15/20272 | 1,273 | |
2,000 | 5.250%—03/15/20282 | 1,893 | |
1,000 | 5.750%—08/15/2024 | 992 | |
4,158 | |||
Kennedy-Wilson Inc. | |||
5,000 | 5.875%—04/01/2024 | 4,950 | |
Ladder Capital Finance Corp. | |||
2,510 | 5.250%—10/01/20252 | 2,397 | |
460 | 5.875%—08/01/20212 | 470 | |
2,867 | |||
MPT Operating Partnership LP | |||
1,275 | 5.000%—10/15/2027 | 1,211 | |
1,500 | 6.375%—03/01/2024 | 1,583 | |
2,794 | |||
RHP Hotel Properties LP | |||
3,500 | 5.000%—04/15/2021-04/15/2023 | 3,539 | |
Sabra Health Care LP | |||
2,500 | 5.500%—02/01/2021 | 2,558 | |
SBA Communications Corp. | |||
1,745 | 4.000%—10/01/20222 | 1,671 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—Continued | |||
Uniti Group Inc. | |||
$ | 1,243 | 6.000%—04/15/20232 | $ 1,215 |
1,035 | 7.125%—12/15/20242 | 960 | |
2,175 | |||
35,865 | |||
FOOD & STAPLES RETAILING—0.9% | |||
Albertsons Companies LLC | |||
7,000 | 5.750%—03/15/2025 | 6,134 | |
Rite Aid Corp. | |||
2,500 | 6.125%—04/01/20232 | 2,556 | |
8,690 | |||
FOOD PRODUCTS—0.8% | |||
B&G Foods Inc. | |||
3,000 | 5.250%—04/01/2025 | 2,753 | |
Dean Foods Co. | |||
775 | 6.500%—03/15/20232 | 745 | |
Dole Food Co. Inc. | |||
2,400 | 7.250%—06/15/20252 | 2,430 | |
Post Holdings Inc. | |||
1,000 | 5.500%—03/01/20252 | 985 | |
1,100 | 5.750%—03/01/20272 | 1,076 | |
2,061 | |||
7,989 | |||
GAS UTILITIES—1.0% | |||
AmeriGas Partners LP | |||
950 | 5.500%—05/20/2025 | 938 | |
2,850 | 5.750%—05/20/2027 | 2,757 | |
3,695 | |||
DCP Midstream Operating LP | |||
1,000 | 6.750%—09/15/20372 | 1,088 | |
Ferrellgas LP | |||
287 | 6.500%—05/01/2021 | 276 | |
4,005 | 6.750%—06/15/2023 | 3,640 | |
3,916 | |||
Suburban Propane Partners LP | |||
1,600 | 5.875%—03/01/2027 | 1,524 | |
10,223 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—0.2% | |||
Hologic Inc. | |||
1,000 | 4.375%—10/15/20252 | 965 | |
Teleflex Inc. | |||
1,480 | 4.625%—11/15/2027 | 1,426 | |
2,391 | |||
HEALTH CARE PROVIDERS & SERVICES—7.8% | |||
Acadia Healthcare Co. Inc. | |||
1,000 | 5.125%—07/01/2022 | 1,005 | |
1,500 | 5.625%—02/15/2023 | 1,523 | |
2,528 | |||
Air Medical Merger Sub Corp. | |||
4,330 | 6.375%—05/15/20232 | 4,168 | |
Centene Corp. | |||
7,750 | 5.625%—02/15/2021 | 7,998 | |
Community Health Systems Inc. | |||
2,820 | 6.250%—03/31/2023 | 2,579 |
15
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
HEALTH CARE PROVIDERS & SERVICES—Continued | |||
DaVita Inc. | |||
$ | 3,425 | 5.000%—05/01/2025 | $ 3,255 |
3,055 | 5.750%—08/15/2022 | 3,131 | |
6,386 | |||
Envision Healthcare Corp. | |||
5,000 | 5.125%—07/01/20222 | 4,963 | |
HCA Healthcare Inc. | |||
2,500 | 6.250%—02/15/2021 | 2,634 | |
HCA Inc. | |||
1,000 | 4.750%—05/01/2023 | 1,010 | |
4,335 | 5.500%—06/15/2047 | 4,107 | |
900 | 5.875%—02/15/2026 | 913 | |
2,350 | 6.500%—02/15/2020 | 2,462 | |
8,492 | |||
LifePoint Health Inc. | |||
1,000 | 5.500%—12/01/2021 | 1,006 | |
Molina Healthcare Inc. | |||
2,500 | 4.875%—06/15/20252 | 2,388 | |
2,000 | 5.375%—11/15/2022 | 2,010 | |
4,398 | |||
NVA Holdings Inc. | |||
2,000 | 6.875%—04/01/20262 | 2,020 | |
Polaris Intermediate Corp. | |||
7,390 | 8.500%—12/01/20222 | 7,519 | |
RegionalCare Hospital Partners Holdings Inc. | |||
6,400 | 8.250%—05/01/20232 | 6,752 | |
Sotera Health Topco Inc. | |||
3,000 | 8.125%—11/01/20212 | 3,030 | |
Team Health Holdings Inc. | |||
3,205 | 6.375%—02/01/20252 | 2,804 | |
Tenet Healthcare Corp. | |||
750 | 4.375%—10/01/2021 | 743 | |
5,876 | 4.625%—07/15/20242 | 5,706 | |
1,390 | 6.875%—11/15/2031 | 1,279 | |
1,000 | 8.125%—04/01/2022 | 1,045 | |
8,773 | |||
THC Escrow Corp. III | |||
550 | 5.125%—05/01/20252 | 538 | |
West Street Merger Sub Inc. | |||
1,500 | 6.375%—09/01/20252 | 1,481 | |
78,069 | |||
HOTELS, RESTAURANTS & LEISURE—2.5% | |||
Brinker International Inc. | |||
2,500 | 3.875%—05/15/2023 | 2,369 | |
1,075 | 5.000%—10/01/20242 | 1,056 | |
3,425 | |||
Eldorado Resorts Inc. | |||
1,005 | 6.000%—04/01/2025 | 1,001 | |
ESH Hospitality Inc. | |||
4,250 | 5.250%—05/01/20252 | 4,165 | |
Hilton Domestic Operating Co. Inc. | |||
1,555 | 5.125%—05/01/20262 | 1,563 | |
IRB Holding Corp. | |||
2,690 | 6.750%—02/15/20262 | 2,602 | |
MGM Growth Properties Operating Partnership LP | |||
695 | 4.500%—01/15/2028 | 643 | |
New Red Finance Inc. | |||
4,000 | 5.000%—10/15/20252 | 3,869 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
HOTELS, RESTAURANTS & LEISURE—Continued | |||
Scientific Games International Inc. | |||
$ | 500 | 6.250%—09/01/2020 | $ 503 |
2,000 | 6.625%—05/15/2021 | 2,050 | |
2,553 | |||
Viking Cruises Ltd. | |||
3,000 | 5.875%—09/15/20272 | 2,902 | |
VOC Escrow Ltd. | |||
1,685 | 5.000%—02/15/20282 | 1,639 | |
Wyndham Worldwide Corp. | |||
450 | 4.500%—04/01/2027 | 446 | |
24,808 | |||
HOUSEHOLD DURABLES—1.7% | |||
Kronos Acquisition Holdings Inc. | |||
6,050 | 9.000%—08/15/20232 | 5,793 | |
Lennar Corp. | |||
500 | 4.125%—12/01/2018 | 501 | |
2,725 | 4.500%—04/30/2024 | 2,664 | |
1,075 | 5.000%—06/15/20272 | 1,043 | |
475 | 5.250%—06/01/20262 | 469 | |
400 | 5.875%—11/15/20242 | 415 | |
1,270 | 8.375%—05/15/20182 | 1,273 | |
6,365 | |||
M/I Homes Inc. | |||
1,205 | 5.625%—08/01/2025 | 1,166 | |
Toll Brothers Finance Corp. | |||
710 | 4.350%—02/15/2028 | 660 | |
Tri Pointe Group Inc. | |||
1,400 | 4.875%—07/01/2021 | 1,417 | |
2,000 | 5.250%—06/01/2027 | 1,903 | |
3,320 | |||
17,304 | |||
HOUSEHOLD PRODUCTS—1.8% | |||
Energizer Holdings Inc. | |||
4,000 | 5.500%—06/15/20252 | 3,980 | |
First Quality Finance Co. Inc. | |||
8,000 | 4.625%—05/15/20212 | 7,940 | |
Prestige Brands Inc. | |||
4,650 | 5.375%—12/15/20212 | 4,679 | |
1,000 | 6.375%—03/01/20242 | 1,010 | |
5,689 | |||
17,609 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—2.2% | |||
AES Corp. | |||
565 | 4.000%—03/15/2021 | 569 | |
585 | 4.500%—03/15/2023 | 589 | |
4,141 | 5.500%—04/15/2025 | 4,255 | |
300 | 6.000%—05/15/2026 | 315 | |
5,728 | |||
Calpine Corp. | |||
1,115 | 5.250%—06/01/20262 | 1,071 | |
1,670 | 5.500%—02/01/2024 | 1,539 | |
1,600 | 5.750%—01/15/2025 | 1,468 | |
4,078 |
16
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—Continued | |||
Nextera Energy Operating Partners LP | |||
$ | 795 | 4.250%—09/15/20242 | $ 769 |
870 | 4.500%—09/15/20272 | 815 | |
1,584 | |||
NRG Energy Inc. | |||
550 | 5.750%—01/15/20282 | 546 | |
3,100 | 6.250%—07/15/2022-05/01/2024 | 3,219 | |
1,475 | 6.625%—01/15/2027 | 1,527 | |
5,292 | |||
Terraform Power Operating LLC | |||
1,980 | 5.000%—01/31/20282 | 1,861 | |
Vistra Energy Corp. | |||
2,000 | 7.375%—11/01/2022 | 2,112 | |
1,000 | 8.000%—01/15/20252 | 1,089 | |
3,201 | |||
21,744 | |||
INSURANCE—0.7% | |||
Acrisure Finance Inc. | |||
2,830 | 7.000%—11/15/20252 | 2,682 | |
Hub International Ltd. | |||
1,620 | 7.000%—05/01/20262 | 1,628 | |
NFP Corp. | |||
3,000 | 6.875%—07/15/20252 | 2,955 | |
7,265 | |||
INTERNET & DIRECT MARKETING RETAIL—1.1% | |||
GCI Inc. | |||
7,000 | 6.750%—06/01/2021 | 7,079 | |
NetFlix Inc. | |||
2,470 | 4.875%—04/15/20282 | 2,337 | |
1,090 | 5.875%—11/15/20282 | 1,093 | |
3,430 | |||
10,509 | |||
IT SERVICES—1.8% | |||
Alliance Data Systems Corp. | |||
2,500 | 5.375%—08/01/20222 | 2,525 | |
Alliance Data Systems Corp. MTN3 | |||
3,175 | 5.875%—11/01/20212 | 3,239 | |
First Data Corp. | |||
1,995 | 5.375%—08/15/20232 | 2,039 | |
1,850 | 5.750%—01/15/20242 | 1,883 | |
3,922 | |||
WEX Inc. | |||
7,805 | 4.750%—02/01/20232 | 7,878 | |
17,564 | |||
LEISURE PRODUCTS—0.1% | |||
Vista Outdoor Inc. | |||
1,500 | 5.875%—10/01/2023 | 1,406 | |
LIFE SCIENCES TOOLS & SERVICES—0.6% | |||
Eagle Holding Co. II LLC | |||
3,000 | 7.625%—05/15/20222 | 3,045 | |
inVentiv Group Holdings Inc. | |||
745 | 7.500%—10/01/20242 | 795 | |
IQVIA Inc. | |||
2,050 | 4.875%—05/15/20232 | 2,086 | |
5,926 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
MACHINERY—0.4% | |||
Allison Transmission Inc. | |||
$ | 1,200 | 4.750%—10/01/20272 | $ 1,132 |
EnPro Industries Inc. | |||
1,000 | 5.875%—09/15/2022 | 1,035 | |
Navistar International Corp. | |||
2,000 | 6.625%—11/01/20252 | 2,085 | |
4,252 | |||
MEDIA—12.6% | |||
Altice Luxembourg SA | |||
200 | 7.625%—02/15/20252 | 181 | |
2,000 | 7.750%—05/15/20222 | 1,917 | |
2,098 | |||
AMC Entertainment Holdings Inc. | |||
1,125 | 5.750%—06/15/2025 | 1,096 | |
1,925 | 5.875%—11/15/2026 | 1,879 | |
2,975 | |||
AMC Networks Inc. | |||
4,998 | 4.750%—08/01/2025 | 4,736 | |
Block Communications Inc. | |||
2,550 | 6.875%—02/15/20252 | 2,575 | |
Cable One Inc. | |||
2,885 | 5.750%—06/15/20222 | 2,957 | |
Cablevision Systems Corp. | |||
5,000 | 8.000%—04/15/2020 | 5,312 | |
CCO Holdings LLC | |||
2,000 | 5.000%—02/01/20282 | 1,857 | |
3,000 | 5.125%—05/01/20272 | 2,819 | |
5,250 | 5.250%—03/15/2021-09/30/2022 | 5,348 | |
3,500 | 5.875%—04/01/20242 | 3,561 | |
13,585 | |||
CSC Holdings LLC | |||
2,000 | 5.250%—06/01/2024 | 1,885 | |
1,250 | 5.375%—02/01/20282 | 1,172 | |
3,057 | |||
DISH DBS Corp. | |||
5,000 | 5.000%—03/15/2023 | 4,331 | |
6,330 | 5.875%—11/15/2024 | 5,436 | |
9,767 | |||
EW Scripps Co. | |||
2,250 | 5.125%—05/15/20252 | 2,098 | |
Lin Television Corp. | |||
500 | 5.875%—11/15/2022 | 516 | |
MDC Partners Inc. | |||
1,525 | 6.500%—05/01/20242 | 1,508 | |
Mediacom Broadband LLC | |||
2,800 | 5.500%—04/15/2021 | 2,842 | |
Meredith Corp. | |||
1,660 | 6.875%—02/01/20262 | 1,685 | |
Midcontinent Finance Corp. | |||
4,000 | 6.875%—08/15/20232 | 4,220 | |
Outfront Media Capital LLC | |||
1,400 | 5.875%—03/15/2025 | 1,440 | |
Radiate HoldCo LLC | |||
5,300 | 6.625%—02/15/20252 | 4,929 | |
665 | 6.875%—02/15/20232 | 647 | |
5,576 | |||
SFR Group SA | |||
3,000 | 6.000%—05/15/20222 | 2,970 |
17
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
MEDIA—Continued | |||
$ | 1,265 | 6.250%—05/15/20242 | $ 1,210 |
4,250 | 7.375%—05/01/20262 | 4,138 | |
8,318 | |||
Sinclair Television Group Inc. | |||
4,000 | 6.125%—10/01/2022 | 4,124 | |
Sirius XM Radio Inc. | |||
7,500 | 6.000%—07/15/20242 | 7,724 | |
Telenet Finance Luxembourg Notes Sarl | |||
4,400 | 5.500%—03/01/20282 | 4,224 | |
Townsquare Media Inc. | |||
5,000 | 6.500%—04/01/20232 | 4,688 | |
Tribune Media Co. | |||
9,000 | 5.875%—07/15/2022 | 9,158 | |
Univision Communications Inc. | |||
4,000 | 5.125%—02/15/20252 | 3,704 | |
1,509 | 6.750%—09/15/20222 | 1,550 | |
5,254 | |||
UPCB Finance IV Ltd. | |||
7,500 | 5.375%—01/15/20252 | 7,369 | |
Virgin Media Finance plc | |||
1,225 | 6.000%—10/15/20242 | 1,205 | |
Virgin Media Secured Finance plc | |||
880 | 5.250%—01/15/2021 | 903 | |
250 | 5.500%—08/15/20262 | 241 | |
1,144 | |||
WMG Acquisition Corp. | |||
1,700 | 5.625%—04/15/20222 | 1,745 | |
Ziggo Bond Finance BV | |||
3,255 | 5.875%—01/15/20252 | 3,092 | |
1,000 | 6.000%—01/15/20272 | 939 | |
4,031 | |||
125,931 | |||
METALS & MINING—3.5% | |||
AK Steel Corp. | |||
1,936 | 6.375%—10/15/2025 | 1,824 | |
945 | 7.000%—03/15/2027 | 921 | |
2,745 | |||
Alcoa Nederland Holding BV | |||
2,000 | 6.750%—09/30/20242 | 2,155 | |
975 | 7.000%—09/30/20262 | 1,068 | |
3,223 | |||
Alliance Resource Operating Partners | |||
2,825 | 7.500%—05/01/20252 | 2,991 | |
Arcelormittal | |||
1,195 | 7.250%—10/15/2039 | 1,422 | |
BlueScope Steel Finance Ltd. | |||
1,350 | 6.500%—05/15/20212 | 1,397 | |
Commercial Metals Co. | |||
1,070 | 5.375%—07/15/2027 | 1,046 | |
Constellium NV | |||
2,000 | 5.750%—05/15/20242 | 1,975 | |
2,000 | 6.625%—03/01/20252 | 2,032 | |
4,007 | |||
FMG Resources August 2006 Pty Ltd. | |||
3,810 | 4.750%—05/15/20222 | 3,792 | |
5,095 | 5.125%—03/15/2023-05/15/20242 | 5,063 | |
8,855 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
METALS & MINING—Continued | |||
Freeport-McMoRan Inc. | |||
$ | 2,430 | 5.400%—11/14/2034 | $ 2,254 |
1,435 | 5.450%—03/15/2043 | 1,313 | |
3,567 | |||
Novelis Corp. | |||
1,500 | 6.250%—08/15/20242 | 1,532 | |
Steel Dynamics Inc. | |||
1,800 | 5.125%—10/01/2021 | 1,838 | |
546 | 5.250%—04/15/2023 | 556 | |
2,394 | |||
Teck Resources Ltd. | |||
1,415 | 5.200%—03/01/2042 | 1,334 | |
34,513 | |||
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—0.5% | |||
Starwood Property Trust Inc. | |||
1,385 | 3.625%—02/01/20212 | 1,364 | |
1,465 | 4.750%—03/15/20252 | 1,414 | |
2,000 | 5.000%—12/15/2021 | 2,029 | |
4,807 | |||
OIL, GAS & CONSUMABLE FUELS—9.5% | |||
Ascent Resources Utica Holdings LLC | |||
1,950 | 10.000%—04/01/20222 | 2,106 | |
Baytex Energy Corp. | |||
550 | 5.125%—06/01/20212 | 523 | |
6,025 | 5.625%—06/01/20242 | 5,392 | |
5,915 | |||
Berry Petroleum Co. LLC | |||
715 | 7.000%—02/15/20262 | 735 | |
Cheniere Corpus Christi Holdings LLC | |||
1,215 | 5.125%—06/30/2027 | 1,189 | |
Cheniere Energy Partners LP | |||
3,485 | 5.250%—10/01/20252 | 3,415 | |
Chesapeake Energy Corp. | |||
5,355 | 8.000%—06/15/20272 | 5,168 | |
CNX Midstream Partners LP | |||
1,190 | 6.500%—03/15/20262 | 1,166 | |
Consol Mining Corp. | |||
1,800 | 11.000%—11/15/20252 | 1,895 | |
Continental Resources Inc. | |||
600 | 4.900%—06/01/2044 | 588 | |
Crownrock Finance Inc. | |||
1,920 | 5.625%—10/15/20252 | 1,901 | |
Energy Transfer Equity LP | |||
1,630 | 4.250%—03/15/2023 | 1,577 | |
1,000 | 7.500%—10/15/2020 | 1,074 | |
2,651 | |||
Extraction Oil & Gas Inc. | |||
1,800 | 5.625%—02/01/20262 | 1,748 | |
1,085 | 7.375%—05/15/20242 | 1,140 | |
2,888 | |||
Genesis Energy LP | |||
750 | 6.000%—05/15/2023 | 737 | |
455 | 6.500%—10/01/2025 | 449 | |
2,000 | 6.750%—08/01/2022 | 2,040 | |
3,226 | |||
Global Partners LP | |||
1,450 | 7.000%—06/15/2023 | 1,472 |
18
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
Great Western Petroleum LLC | |||
$ | 1,000 | 9.000%—09/30/20212 | $ 1,040 |
Gulfport Energy Corp. | |||
1,500 | 6.000%—10/15/2024 | 1,433 | |
1,205 | 6.375%—01/15/2026 | 1,160 | |
2,593 | |||
Indigo Natural Resources LLC | |||
1,555 | 6.875%—02/15/20262 | 1,501 | |
Jagged Peak Energy LLC | |||
1,125 | 5.875%—05/01/20262 | 1,131 | |
Jonah Energy LLC | |||
1,000 | 7.250%—10/15/20252 | 805 | |
Jupiter Resources Inc. | |||
2,494 | 8.500%—10/01/20222 | 1,097 | |
Murphy Oil Corp. | |||
1,900 | 5.875%—12/01/2042 | 1,729 | |
NGL Energy Partners LP | |||
2,535 | 5.125%—07/15/2019 | 2,541 | |
1,215 | 6.875%—10/15/2021 | 1,221 | |
2,800 | 7.500%—11/01/2023 | 2,804 | |
6,566 | |||
NGPL Pipeco LLC | |||
555 | 4.375%—08/15/20222 | 554 | |
2,085 | 4.875%—08/15/20272 | 2,035 | |
100 | 7.768%—12/15/20372 | 121 | |
2,710 | |||
Oasis Petroleum Inc. | |||
3,890 | 6.875%—03/15/2022-01/15/2023 | 4,008 | |
Parkland Fuel Corp. | |||
1,730 | 6.000%—04/01/20262 | 1,734 | |
PDC Energy Inc. | |||
1,650 | 5.750%—05/15/20262 | 1,664 | |
QEP Resources Inc. | |||
50 | 5.250%—05/01/2023 | 49 | |
500 | 5.625%—03/01/2026 | 481 | |
500 | 6.875%—03/01/2021 | 540 | |
1,070 | |||
Range Resources Corp. | |||
4,415 | 5.875%—07/01/2022 | 4,492 | |
Rockies Express Pipeline LLC | |||
2,830 | 6.000%—01/15/20192 | 2,894 | |
2,040 | 6.875%—04/15/20402 | 2,361 | |
5,255 | |||
Rose Rock Midstream LP | |||
2,500 | 5.625%—07/15/2022 | 2,431 | |
Sanchez Energy Corp. | |||
200 | 6.125%—01/15/2023 | 145 | |
7,000 | 7.750%—06/15/2021 | 6,528 | |
6,673 | |||
SemGroup Corp. | |||
2,750 | 6.375%—03/15/2025 | 2,633 | |
SM Energy Co. | |||
350 | 6.125%—11/15/2022 | 355 | |
Southwestern Energy Co. | |||
1,025 | 7.500%—04/01/2026 | 1,058 | |
875 | 7.750%—10/01/2027 | 906 | |
1,964 | |||
Summit Midstream Holdings LLC | |||
2,150 | 5.750%—04/15/2025 | 2,062 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
Sunoco LP | |||
$ | 1,085 | 4.875%—01/15/20232 | $ 1,071 |
695 | 5.500%—02/15/20262 | 672 | |
1,743 | |||
Targa Resources Partners LP | |||
660 | 5.000%—01/15/20282 | 612 | |
970 | 5.875%—04/15/20262 | 967 | |
1,579 | |||
Whiting Petroleum Corp. | |||
95 | 6.625%—01/15/20262 | 97 | |
Wildhorse Resource Development Corp. | |||
2,000 | 6.875%—02/01/2025 | 2,040 | |
860 | 6.875%—02/01/20252 | 877 | |
2,917 | |||
Williams Cos. Inc. | |||
670 | 8.750%—03/15/2032 | 884 | |
95,048 | |||
PHARMACEUTICALS—1.6% | |||
Endo Finance LLC | |||
2,500 | 5.375%—01/15/20232 | 1,822 | |
500 | 7.250%—01/15/20222 | 427 | |
2,249 | |||
Mallinckrodt International Finance SA | |||
995 | 4.750%—04/15/2023 | 713 | |
1,000 | 5.625%—10/15/20232 | 788 | |
800 | 5.750%—08/01/20222 | 674 | |
2,175 | |||
Teva Pharmaceutical Finance Netherlands III BV | |||
2,000 | 2.200%—07/21/2021 | 1,805 | |
2,575 | 6.000%—04/15/20242 | 2,501 | |
1,475 | 6.750%—03/01/20282 | 1,458 | |
5,764 | |||
Valeant Pharmaceuticals International Inc. | |||
2,250 | 5.500%—11/01/20252 | 2,247 | |
2,300 | 5.625%—12/01/20212 | 2,234 | |
550 | 6.750%—08/15/20212 | 556 | |
660 | 7.250%—07/15/20222 | 668 | |
5,705 | |||
15,893 | |||
PROFESSIONAL SERVICES—0.5% | |||
Nielsen Finance LLC. | |||
1,500 | 4.500%—10/01/2020 | 1,502 | |
1,850 | 5.000%—04/15/20222 | 1,869 | |
3,371 | |||
Tempo Acquisition LLC | |||
1,940 | 6.750%—06/01/20252 | 1,925 | |
5,296 | |||
REAL ESTATE MANAGEMENT & DEVELOPMENT—1.1% | |||
Freedom Mortgage Corp. | |||
1,170 | 8.125%—11/15/20242 | 1,173 | |
1,005 | 8.250%—04/15/20252 | 1,008 | |
2,181 | |||
Greystar Real Estate Partners LLC | |||
1,310 | 5.750%—12/01/20252 | 1,300 |
19
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
REAL ESTATE MANAGEMENT & DEVELOPMENT—Continued | |||
Realogy Group LLC | |||
$ | 2,000 | 4.875%—06/01/20232 | $ 1,943 |
5,500 | 5.250%—12/01/20212 | 5,562 | |
7,505 | |||
10,986 | |||
ROAD & RAIL—0.8% | |||
Avis Budget Car Rental LLC | |||
1,000 | 5.125%—06/01/20222 | 999 | |
1,000 | 5.250%—03/15/20252 | 966 | |
1,000 | 5.500%—04/01/2023 | 994 | |
2,959 | |||
Herc Rentals Inc. | |||
2,340 | 7.500%—06/01/20222 | 2,492 | |
Hertz Corp. | |||
2,750 | 7.625%—06/01/20222 | 2,805 | |
8,256 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—0.4% | |||
Advanced Micro Devices Inc. | |||
2,000 | 7.000%—07/01/2024 | 2,120 | |
1,500 | 7.500%—08/15/2022 | 1,646 | |
3,766 | |||
Micron Technology Inc. | |||
125 | 5.500%—02/01/2025 | 131 | |
3,897 | |||
SOFTWARE—1.1% | |||
CDK Global Inc. | |||
500 | 3.800%—10/15/2019 | 503 | |
Infor Software Parent LLC | |||
3,000 | 7.125%—05/01/20212 | 3,034 | |
Informatica LLC | |||
1,500 | 7.125%—07/15/20232 | 1,508 | |
Nuance Communications Inc. | |||
28 | 5.375%—08/15/20202 | 28 | |
2,275 | 5.625%—12/15/2026 | 2,284 | |
3,000 | 6.000%—07/01/2024 | 3,082 | |
5,394 | |||
Symantec Corp. | |||
315 | 5.000%—04/15/20252 | 317 | |
10,756 | |||
SPECIALTY RETAIL—1.1% | |||
Asbury Automotive Group Inc. | |||
500 | 6.000%—12/15/2024 | 499 | |
L Brands Inc. | |||
1,190 | 5.250%—02/01/2028 | 1,116 | |
500 | 5.625%—02/15/2022 | 521 | |
1,480 | 6.875%—11/01/2035 | 1,406 | |
3,043 | |||
Penske Automotive Group Inc. | |||
4,860 | 5.750%—10/01/2022 | 4,991 | |
PetSmart Inc. | |||
2,000 | 5.875%—06/01/20252 | 1,450 | |
908 | 7.125%—03/15/20232 | 533 | |
1,983 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
SPECIALTY RETAIL—Continued | |||
Sonic Automotive Inc. | |||
$ | 600 | 5.000%—05/15/2023 | $ 581 |
11,097 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—1.1% | |||
Diamond 1 Finance Corp. | |||
1,500 | 5.875%—06/15/20212 | 1,547 | |
850 | 7.125%—06/15/20242 | 906 | |
2,453 | |||
EMC Corp. | |||
345 | 2.650%—06/01/2020 | 336 | |
750 | 3.375%—06/01/2023 | 701 | |
1,037 | |||
NCR Corp. | |||
3,500 | 5.875%—12/15/2021 | 3,579 | |
Seagate HDD Cayman | |||
2,000 | 4.875%—03/01/2024 | 1,975 | |
Western Digital Corp. | |||
1,875 | 4.750%—02/15/2026 | 1,851 | |
10,895 | |||
THRIFTS & MORTGAGE FINANCE—0.7% | |||
Nationstar Mortgage LLC | |||
3,750 | 6.500%—07/01/2021 | 3,806 | |
Quicken Loans Inc. | |||
3,400 | 5.250%—01/15/20282 | 3,115 | |
6,921 | |||
TRADING COMPANIES & DISTRIBUTORS—0.5% | |||
United Rentals North America Inc. | |||
495 | 4.625%—10/15/2025 | 481 | |
1,500 | 4.875%—01/15/2028 | 1,425 | |
1,325 | 5.500%—05/15/2027 | 1,325 | |
2,000 | 5.750%—11/15/2024 | 2,078 | |
5,309 | |||
WIRELESS TELECOMMUNICATION SERVICES—2.8% | |||
Sprint Capital Corp. | |||
3,165 | 6.875%—11/15/2028 | 3,236 | |
Sprint Communications Inc. | |||
3,400 | 6.000%—11/15/2022 | 3,481 | |
Sprint Corp. | |||
3,500 | 7.125%—06/15/2024 | 3,613 | |
4,250 | 7.250%—09/15/2021 | 4,515 | |
1,000 | 7.625%—02/15/2025 | 1,055 | |
1,000 | 7.875%—09/15/2023 | 1,075 | |
10,258 | |||
T-Mobile USA Inc. | |||
600 | 4.000%—04/15/2022 | 601 | |
500 | 4.500%—02/01/2026 | 482 | |
1,380 | 4.750%—02/01/2028 | 1,330 | |
850 | 5.125%—04/15/2025 | 858 | |
850 | 5.375%—04/15/2027 | 862 |
20
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
WIRELESS TELECOMMUNICATION SERVICES—Continued | |||
$ | 1,000 | 6.000%—03/01/2023 | $ 1,039 |
5,500 | 6.500%—01/15/2024-01/15/2026 | 5,835 | |
11,007 | |||
27,982 | |||
TOTAL CORPORATE BONDS & NOTES | |||
(Cost $937,710) | 928,983 | ||
SHORT-TERM INVESTMENTS—0.6% | |||
(Cost $6,084) | |||
REPURCHASE AGREEMENTS | |||
6,084 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $6,206) | 6,084 | |
TOTAL INVESTMENTS—98.1% | |||
(Cost $986,574) | 977,525 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—1.9% | 18,615 | ||
TOTAL NET ASSETS—100.0% | $996,140 |
FAIR VALUE MEASUREMENTS
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 2. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Portfolios of Investments.
1 | Variable rate security, the stated rate represents the rate in effect at April 30, 2018. |
2 | Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. These securities are priced by an independent pricing service in accordance with Harbor Funds Valuation Procedures. At April 30, 2018, the aggregate value of these securities was $477,136 or 48% of net assets. |
3 | MTN after the name of a security stands for Medium Term Note. |
The accompanying notes are an integral part of the Financial Statements.
21
Harbor High-Yield Opportunities Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Crescent Capital Group LP
11100 Santa Monica Blvd
Suite 2000
Los Angeles, CA 90025
Portfolio Managers
John A. Fekete
Since 2017
Since 2017
Conrad E. Chen
Since 2017
Since 2017
Ross M. Slusser
Since 2017
Since 2017
Scott K. Fukumoto
Since 2017
Since 2017
Crescent Capital has subadvised the Fund since 2017.
Investment Objective
The Fund seeks total return.
John A. Fekete
Conrad E. Chen
Ross M. Slusser
Scott K. Fukumoto
Management’s Discussion of
Fund Performance
Fund Performance
MARKET REVIEW
The U.S. high-yield market was slightly negative for the six months ended April 30, 2018 with a return of -0.23% as measured by the ICE BofAML U.S. High Yield Index (the “Index”). Other credit markets, such as U.S. corporates, European high-yield and U.S. bank loans had mixed returns for the period. At the end of 2017, there was little volatility and high-yield bonds were supported by steadily increasing oil prices, rising global equities and healthy economic growth. However, the successful passage of tax reform and a 25 basis point (0.25%) interest-rate hike in December by the U.S. Federal Reserve (Fed) triggered 5-year U.S. Treasury bond yields to increase to 2.25%, which was nearly a seven-year high at that time. The sentiment quickly changed and volatility returned to the market in the first four months of 2018 on the backdrop of global equity weakness, inflation and rate concerns, and an escalating trade war between the U.S. and China. The Federal Open Market Committee (FOMC), with the newly appointed Fed Chairman Jerome Powell, continued the tightening policy by passing another 25 basis point (0.25%) interest-rate hike with the expectation of two additional rate hikes for the remainder of 2018. Crude oil prices reached a four-year peak; however, high-yield Energy bonds continued to lag the broader high-yield market in both February and March. In April, the high-yield market showed some signs of recovery and posted a positive return recouping a portion of the losses sustained during the period. U.S. Treasury yields rose over the period; the 5-year increased 78 basis points (0.78%) and the 10-year rose 58 basis points (0.58%) to end April at 2.80% and 2.95%, respectively. New issuance was approximately in line with last year’s volume (down ~7%) and stands at $93.5 billion for the year-to-date ended April 30, 2018. The trailing 12-month default rate, according to Moody’s, was 3.4% as of April 30, 2018.
PERFORMANCE
Harbor High-Yield Opportunities Fund was incepted in November 2017 and returned -1.05% (Institutional Class), -1.02% (Retirement Class), -1.15% (Administrative Class), and -1.20% (Investor Class), underperforming the Index, which returned -0.23% for the six months ended April 30, 2018. The Fund was adversely impacted by one-time effects associated with ramping up the Fund’s assets. In terms of positions impacting performance, the Fund benefitted from an underweight to the banking industry, which was one of the worst performing areas during the period. Additionally, positive factors contributing to return were strong security selection in the automotive industry led by Navistar International Corp, Aston Martin and Tesla, the Services sector led by Travelport and Cardtronics, and finally, Consumer Goods sector led by Kronos Acquisition and B&G Foods. Conversely, much of the relative underperformance attributable to security selection was in the Media and Telecommunications sectors as these market segments continued to face secular pressures. From a ratings standpoint, the Fund’s overweight to longer duration BB-rated credits contributed to the relative underperformance from credit quality allocation, as longer-dated bonds came under pressure from rising interest rates. Lastly, the Fund maintained underweight position to the CCC-rated credit tier based on our view that there would be a flight to quality; however, this did not materialize during the period as CCC-rated credits beat the market and outperformed both B and BB-rated credit tiers.
22
Harbor High-Yield Opportunities Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | 5 Years | Unannualized | ||||||||
6 Months | Life of Fund | ||||||||||
Harbor High-Yield Opportunities Fund | |||||||||||
Institutional Class1 | -1.05% | N/A | N/A | -1.05% | |||||||
Retirement Class1 | -1.02 | N/A | N/A | -1.02 | |||||||
Administrative Class1 | -1.15 | N/A | N/A | -1.15 | |||||||
Investor Class1 | -1.20 | N/A | N/A | -1.20 | |||||||
Comparative Index | |||||||||||
ICE BofAML U.S. High Yield (H0A0)1 | -0.23% | N/A | N/A | -0.23% |
As stated in the Fund’s prospectus dated June 1, 2018, the expense ratios were 0.73% (Net) and 1.08% (Gross) (Institutional Class); 0.65% (Net) and 1.00% (Gross) (Retirement Class); 0.98% (Net) and 1.33% (Gross) (Administrative Class); and 1.10% (Net) and 1.45% (Gross) (Investor Class). The net expense ratios reflect an expense limitation agreement (excluding interest expense, if any) effective through 02/29/2020. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. The Fund charges a redemption fee of 1% on redemption of Fund shares that are held for less than 90 days.
OUTLOOK & STRATEGY
We maintain a cautious outlook on below investment grade corporate credit: strong earnings growth in most sectors and improving issuer fundamentals are tempered by weakened technical factors such as consistent high-yield fund outflows and concerns surrounding rising interest rates. We expect defaults to remain low, which are projected to come in well below the historical average of 3.0-3.5%. In our view, company balance sheets are getting stronger and leverage ratios are declining among non-investment grade companies.
We believe that concerns around inflation and escalating trade wars between the U.S. and China are still present. While we do not foresee any major fundamental concerns for the asset class, FOMC rate actions, oil price volatility, and rising risks of a global trade war deserve close monitoring. At present, we believe a continuation of the status quo for the U.S. economy seems most likely. With GDP growth of 2.0-3.0% per annum, we are currently not concerned about a recession nor overheating in the near-term.
1 | The “Life of Fund” return as shown reflects the period 11/01/2017 through 04/30/2018. |
This report contains the current opinions of Crescent Capital Group LP as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Fixed income investments are affected by interest rate changes and the creditworthiness of the issues held by the Fund. A rise in interest rates will cause a decrease in the value of fixed income securities. Such an event would have an adverse effect on the Harbor High-Yield Opportunities Fund. High-yield investing poses additional credit risk related to lower-rated bonds. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
23
Harbor High-Yield Opportunities Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Issuers (% of net assets)
1. Valeant Pharmaceuticals International Inc. | 1.8% |
2. Sprint Corp | 1.7% |
3. HCA Inc. | 1.5% |
4. Ardagh Packaging Finance plc | 1.2% |
5. Murphy Oil Corp. | 1.2% |
6. Icahn Enterprises Finance Corp. | 1.1% |
7. Standard Industries Inc. | 1.1% |
8. DISH DBS Corp. | 1.0% |
9. Hertz Corp. | 1.0% |
10. Match Group Inc. | 1.0% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
Maturity Profile
24
Harbor High-Yield Opportunities Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—94.8% | |||
Principal Amount | Value | ||
AEROSPACE & DEFENSE—1.4% | |||
BBA US Holdings Inc. | |||
$ | 275 | 5.375%—05/01/20261 | $ 277 |
Bombardier Inc. | |||
475 | 6.000%—10/15/20221 | 475 | |
TransDigm Inc. | |||
250 | 6.375%—06/15/2026 | 252 | |
1,004 | |||
AIRLINES—0.9% | |||
Intrepid Aviation Group Holdings LLC | |||
550 | 6.875%—02/15/20191 | 545 | |
US Airways 2012-2 Class B Pass-Through Trust | |||
116 | 6.750%—12/03/2022 | 123 | |
668 | |||
AUTO COMPONENTS—0.6% | |||
Dana Financing Luxembourg Sarl | |||
400 | 5.750%—04/15/20251 | 407 | |
AUTOMOBILES—1.5% | |||
Aston Martin Capital Holdings Ltd. | |||
350 | 6.500%—04/15/20221 | 365 | |
Fiat DaimlerChrysler Automobiles NV | |||
225 | 5.250%—04/15/2023 | 234 | |
McLaren Finance plc | |||
475 | 5.750%—08/01/20221 | 478 | |
1,077 | |||
BANKS—2.4% | |||
Commerzbank AG MTN2 | |||
200 | 8.125%—09/19/20231 | 232 | |
Intesa Sanpaolo SpA MTN2 | |||
500 | 5.017%—06/26/20241 | 490 | |
Oxford Finance LLC | |||
500 | 6.375%—12/15/20221 | 511 | |
Royal Bank of Scotland Group plc | |||
175 | 5.125%—05/28/2024 | 178 | |
Unicredit SpA | |||
300 | 5.861% (US Treasury Yield Curve Rate T Note 1 Year CMT + 3.650) 06/19/20321,3 | 301 | |
1,712 | |||
BEVERAGES—0.3% | |||
Cott Holdings Inc. | |||
250 | 5.500%—04/01/20251 | 249 | |
BUILDING PRODUCTS—1.1% | |||
Standard Industries Inc. | |||
750 | 5.375%—11/15/20241 | 761 | |
CAPITAL MARKETS—1.5% | |||
Icahn Enterprises Finance Corp. | |||
400 | 5.875%—02/01/2022 | 405 | |
350 | 6.250%—02/01/2022 | 358 | |
763 | |||
LPL Holdings Inc. | |||
300 | 5.750%—09/15/20251 | 292 | |
1,055 | |||
CHEMICALS—4.3% | |||
CF Industries Inc. | |||
425 | 5.150%—03/15/2034 | 390 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CHEMICALS—Continued | |||
Chemours Co. | |||
$ | 600 | 5.375%—05/15/2027 | $ 595 |
Cornerstone Chemical Co. | |||
400 | 6.750%—08/15/20241 | 396 | |
Hexion Inc. | |||
375 | 6.625%—04/15/2020 | 353 | |
INEOS Group Holdings SA | |||
400 | 5.625%—08/01/20241 | 405 | |
NOVA Chemicals Corp. | |||
125 | 4.875%—06/01/20241 | 122 | |
200 | 5.250%—06/01/20271 | 193 | |
315 | |||
Nufarm Australia Ltd. | |||
300 | 6.375%—10/15/20191 | 306 | |
Venator Materials Corp. | |||
375 | 5.750%—07/15/20251 | 375 | |
3,135 | |||
COMMERCIAL SERVICES & SUPPLIES—0.9% | |||
Novelis Corp. | |||
375 | 5.875%—09/30/20261 | 373 | |
Prime Security Services Borrower LLC | |||
250 | 9.250%—05/15/20231 | 269 | |
642 | |||
COMMUNICATIONS EQUIPMENT—1.0% | |||
Nokia OYJ | |||
350 | 5.375%—05/15/2019 | 358 | |
Plantronics Inc. | |||
400 | 5.500%—05/31/20231 | 401 | |
759 | |||
CONSTRUCTION & ENGINEERING—0.8% | |||
MDC Holdings Inc. | |||
300 | 5.500%—01/15/2024 | 307 | |
Meritage Homes Corp. | |||
250 | 5.125%—06/06/2027 | 238 | |
545 | |||
CONSTRUCTION MATERIALS—1.2% | |||
Cemex SAB de CV | |||
325 | 7.750%—04/16/20261 | 357 | |
New Enterprise Stone & Lime Co. Inc. | |||
500 | 6.250%—03/15/20261 | 508 | |
865 | |||
CONSUMER FINANCE—2.5% | |||
Credit Acceptance Corp. | |||
650 | 7.375%—03/15/2023 | 683 | |
Navient Corp. MTN2 | |||
175 | 5.625%—08/01/2033 | 151 | |
300 | 6.125%—03/25/2024 | 302 | |
453 | |||
Springleaf Finance Corp. | |||
500 | 5.625%—03/15/2023 | 496 | |
150 | 6.875%—03/15/2025 | 152 | |
648 | |||
1,784 |
25
Harbor High-Yield Opportunities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CONTAINERS & PACKAGING—1.8% | |||
Ard Finance SA | |||
$ | 125 | 7.125%—09/15/2023 | $ 128 |
Ardagh Packaging Finance plc | |||
825 | 7.250%—05/15/20241 | 876 | |
Reynolds Group Issuer Inc. | |||
325 | 5.125%—07/15/20231 | 327 | |
1,331 | |||
DIVERSIFIED FINANCIAL SERVICES—0.2% | |||
Gogo Intermediate Holdings LLC | |||
150 | 12.500%—07/01/20221 | 167 | |
DIVERSIFIED TELECOMMUNICATION SERVICES—5.3% | |||
Altice Financing SA | |||
175 | 6.625%—02/15/20231 | 176 | |
Altice Luxembourg SA | |||
100 | 7.750%—05/15/20221 | 96 | |
CCO Holdings LLC | |||
150 | 5.875%—04/01/20241 | 153 | |
CenturyLink Inc. | |||
125 | 7.500%—04/01/2024 | 128 | |
CSC Holdings LLC | |||
475 | 5.500%—04/15/20271 | 457 | |
Frontier Communications Corp. | |||
250 | 8.500%—04/01/20261 | 244 | |
175 | 9.000%—08/15/2031 | 108 | |
�� | 150 | 10.500%—09/15/2022 | 133 |
200 | 11.000%—09/15/2025 | 154 | |
639 | |||
Hughes Satellite Systems Corp. | |||
300 | 5.250%—08/01/2026 | 294 | |
Qwest Corp. | |||
400 | 6.875%—09/15/2033 | 380 | |
SFR Group SA | |||
250 | 7.375%—05/01/20261 | 243 | |
Telecom Italia SpA | |||
275 | 5.303%—05/30/20241 | 281 | |
UPC Holding BV | |||
425 | 5.500%—01/15/20281 | 397 | |
Videotron Ltd. | |||
225 | 5.125%—04/15/20271 | 221 | |
Virgin Media Secured Finance plc | |||
375 | 5.500%—08/15/20261 | 362 | |
3,827 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.7% | |||
Ingram Micro Inc. | |||
500 | 5.450%—12/15/2024 | 486 | |
ENERGY EQUIPMENT & SERVICES—3.8% | |||
Archrock Partners LP | |||
250 | 6.000%—04/01/2021 | 251 | |
Calfrac Holdings LP | |||
375 | 7.500%—12/01/20201 | 372 | |
Ensco plc | |||
275 | 5.750%—10/01/2044 | 192 | |
Oceaneering International Inc. | |||
350 | 4.650%—11/15/2024 | 336 | |
Parker Drilling Co. | |||
300 | 6.750%—07/15/2022 | 228 | |
Pioneer Energy Services Corp. | |||
125 | 6.125%—03/15/2022 | 113 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
ENERGY EQUIPMENT & SERVICES—Continued | |||
SESI LLC | |||
$ | 300 | 7.125%—12/15/2021 | $ 306 |
Sunoco LP | |||
350 | 4.875%—01/15/20231 | 345 | |
USA Compression Partners LP | |||
200 | 6.875%—04/01/20261 | 205 | |
Weatherford International Ltd. | |||
425 | 4.500%—04/15/2022 | 378 | |
50 | 6.500%—08/01/2036 | 38 | |
416 | |||
2,764 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—1.1% | |||
CBL & Associates LP | |||
75 | 5.250%—12/01/2023 | 63 | |
CyrusOne LP | |||
225 | 5.375%—03/15/2027 | 226 | |
Greystar Real Estate Partners LLC | |||
100 | 5.750%—12/01/20251 | 99 | |
MPT Operating Partnership LP | |||
450 | 5.000%—10/15/2027 | 427 | |
815 | |||
FOOD PRODUCTS—1.0% | |||
Dean Foods Co. | |||
400 | 6.500%—03/15/20231 | 384 | |
Post Holdings Inc. | |||
350 | 5.750%—03/01/20271 | 343 | |
727 | |||
HEALTH CARE PROVIDERS & SERVICES—4.6% | |||
Community Health Systems Inc. | |||
175 | 5.125%—08/01/2021 | 162 | |
300 | 8.000%—11/15/2019 | 274 | |
436 | |||
HCA Inc. | |||
100 | 4.750%—05/01/2023 | 101 | |
250 | 5.000%—03/15/2024 | 254 | |
250 | 5.250%—06/15/2026 | 252 | |
400 | 5.375%—02/01/2025 | 399 | |
75 | 5.875%—05/01/2023 | 78 | |
1,084 | |||
Healthsouth Corp. | |||
300 | 5.750%—11/01/2024 | 306 | |
LifePoint Health Inc. | |||
350 | 5.875%—12/01/2023 | 347 | |
NVA Holdings Inc. | |||
300 | 6.875%—04/01/20261 | 303 | |
Tenet Healthcare Corp. | |||
200 | 4.625%—07/15/20241 | 194 | |
275 | 6.750%—06/15/2023 | 272 | |
466 | |||
Universal Hospital Services Inc. | |||
375 | 7.625%—08/15/2020 | 380 | |
3,322 | |||
HOTELS, RESTAURANTS & LEISURE—5.4% | |||
GLP Financing II Inc. | |||
225 | 5.375%—04/15/2026 | 227 |
26
Harbor High-Yield Opportunities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
HOTELS, RESTAURANTS & LEISURE—Continued | |||
Golden Nugget Inc. | |||
$ | 425 | 6.750%—10/15/20241 | $ 432 |
International Game Technology plc | |||
400 | 6.500%—02/15/20251 | 428 | |
Melco Resorts Finance Ltd. | |||
400 | 4.875%—06/06/20251 | 375 | |
PF Chang's China Bistro Inc. | |||
350 | 10.250%—06/30/20201 | 291 | |
Pinnacle Entertainment Inc. | |||
250 | 5.625%—05/01/2024 | 263 | |
Scientific Games International Inc. | |||
75 | 5.000%—10/15/20251 | 73 | |
450 | 10.000%—12/01/2022 | 486 | |
559 | |||
Silversea Cruise Finance Ltd. | |||
500 | 7.250%—02/01/20251 | 529 | |
Viking Cruises Ltd. | |||
500 | 5.875%—09/15/20271 | 484 | |
Wynn Las Vegas LLC | |||
350 | 5.500%—03/01/20251 | 349 | |
3,937 | |||
HOUSEHOLD DURABLES—1.5% | |||
AV Homes Inc. | |||
250 | 6.625%—05/15/2022 | 256 | |
M/I Homes Inc. | |||
250 | 5.625%—08/01/2025 | 242 | |
Tempur Sealy International Inc. | |||
550 | 5.625%—10/15/2023 | 556 | |
1,054 | |||
HOUSEHOLD PRODUCTS—0.7% | |||
Energizer Holdings Inc. | |||
225 | 5.500%—06/15/20251 | 224 | |
Kronos Acquisition Holdings Inc. | |||
325 | 9.000%—08/15/20231 | 311 | |
535 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—2.6% | |||
Calpine Corp. | |||
350 | 5.250%—06/01/20261 | 336 | |
250 | 5.875%—01/15/20241 | 253 | |
589 | |||
Talen Energy Supply LLC | |||
650 | 9.500%—07/15/20221 | 619 | |
Vistra Energy Corp. | |||
625 | 7.375%—11/01/2022 | 660 | |
1,868 | |||
INSURANCE—0.5% | |||
Acrisure Finance Inc. | |||
363 | 7.000%—11/15/20251 | 344 | |
INTERNET & DIRECT MARKETING RETAIL—0.9% | |||
Travelport Corporate Finance plc | |||
650 | 6.000%—03/15/20261 | 666 | |
INTERNET SOFTWARE & SERVICES—2.4% | |||
EIG Investors Corp. | |||
200 | 10.875%—02/01/2024 | 218 | |
J2 Cloud Services LLC | |||
475 | 6.000%—07/15/20251 | 492 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
INTERNET SOFTWARE & SERVICES—Continued | |||
Match Group Inc. | |||
$ | 675 | 6.375%—06/01/2024 | $ 715 |
Rackspace Hosting Inc. | |||
300 | 8.625%—11/15/20241 | 305 | |
1,730 | |||
IT SERVICES—1.9% | |||
Cardtronics Inc. | |||
625 | 5.125%—08/01/2022 | 609 | |
100 | 5.500%—05/01/20251 | 93 | |
702 | |||
First Data Corp. | |||
250 | 5.750%—01/15/20241 | 254 | |
400 | 7.000%—12/01/20231 | 420 | |
674 | |||
1,376 | |||
MACHINERY—0.7% | |||
Navistar International Corp. | |||
500 | 6.625%—11/01/20251 | 521 | |
MEDIA—6.6% | |||
AMC Networks Inc. | |||
700 | 5.000%—04/01/2024 | 686 | |
Block Communications Inc. | |||
650 | 6.875%—02/15/20251 | 656 | |
CCO Holdings LLC | |||
475 | 5.500%—05/01/20261 | 464 | |
DISH DBS Corp. | |||
400 | 5.875%—11/15/2024 | 344 | |
400 | 7.750%—07/01/2026 | 364 | |
708 | |||
Intelsat Jackson Holdings SA | |||
350 | 7.250%—10/15/2020 | 343 | |
100 | 8.000%—02/15/20241 | 106 | |
125 | 9.750%—07/15/20251 | 123 | |
572 | |||
Lamar Media Corp. | |||
225 | 5.750%—02/01/2026 | 233 | |
Nexstar Escrow Corp. | |||
350 | 5.625%—08/01/20241 | 346 | |
Sinclair Television Group Inc. | |||
250 | 5.625%—08/01/20241 | 248 | |
Sirius XM Radio Inc. | |||
375 | 6.000%—07/15/20241 | 386 | |
Univision Communications Inc. | |||
525 | 5.125%—05/15/2023-02/15/20251 | 490 | |
4,789 | |||
METALS & MINING—4.3% | |||
AK Steel Corp. | |||
250 | 6.375%—10/15/2025 | 235 | |
300 | 7.625%—10/01/2021 | 308 | |
543 | |||
Alcoa Nederland Holding BV | |||
350 | 6.750%—09/30/20241 | 377 | |
150 | 7.000%—09/30/20261 | 164 | |
541 |
27
Harbor High-Yield Opportunities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
METALS & MINING—Continued | |||
ArcelorMittal SA | |||
$ | 250 | 7.250%—10/15/2039 | $ 298 |
Freeport-McMoRan Inc. | |||
500 | 4.550%—11/14/2024 | 485 | |
Grinding Media Inc. | |||
500 | 7.375%—12/15/20231 | 529 | |
New Gold Inc. | |||
525 | 6.250%—11/15/20221 | 537 | |
Teck Resources Ltd. | |||
150 | 6.250%—07/15/2041 | 160 | |
3,093 | |||
OIL, GAS & CONSUMABLE FUELS—11.4% | |||
Antero Resources Corp. | |||
500 | 5.125%—12/01/2022 | 505 | |
Berry Petroleum Co. LLC | |||
175 | 7.000%—02/15/20261 | 180 | |
California Resources Corp. | |||
125 | 8.000%—12/15/20221 | 108 | |
Carrizo Oil & Gas Inc. | |||
54 | 7.500%—09/15/2020 | 55 | |
Cheniere Energy Partners LP | |||
250 | 5.250%—10/01/20251 | 245 | |
Chesapeake Energy Corp. | |||
450 | 8.000%—12/15/2022-06/15/20271 | 455 | |
Continental Resources Co. | |||
225 | 3.800%—06/01/2024 | 220 | |
Crestwood Midstream Partners LP | |||
300 | 6.250%—04/01/2023 | 307 | |
Diamond Offshore Drilling Inc. | |||
250 | 4.875%—11/01/2043 | 181 | |
Energy Transfer Equity LP | |||
175 | 5.875%—01/15/2024 | 179 | |
Everest Acquisition Finance Inc. | |||
275 | 9.375%—05/01/2020 | 263 | |
Gulfport Energy Corp. | |||
450 | 6.375%—01/15/2026 | 433 | |
Hilcorp Finance Co. | |||
250 | 5.000%—12/01/20241 | 244 | |
Jones Energy Holdings LLC | |||
300 | 6.750%—04/01/2022 | 187 | |
Meg Energy Corp. | |||
350 | 6.375%—01/30/20231 | 317 | |
Murphy Oil Corp. | |||
350 | 5.750%—08/15/2025 | 350 | |
500 | 6.875%—08/15/2024 | 531 | |
881 | |||
Murphy Oil USA Inc. | |||
350 | 5.625%—05/01/2027 | 350 | |
250 | 6.000%—08/15/2023 | 259 | |
609 | |||
Nabors Industries Inc. | |||
250 | 5.500%—01/15/2023 | 246 | |
Newfield Exploration Co. | |||
400 | 5.375%—01/01/2026 | 415 | |
Noble Holding International Ltd. | |||
211 | 7.750%—01/15/2024 | 199 | |
Oasis Petroleum Inc. | |||
250 | 6.875%—03/15/2022 | 258 | |
QEP Resources Inc. | |||
250 | 5.625%—03/01/2026 | 240 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
Rose Rock Midstream LP | |||
$ | 250 | 5.625%—07/15/2022 | $ 243 |
Sanchez Energy Corp. | |||
225 | 6.125%—01/15/2023 | 164 | |
SM Energy Co. | |||
250 | 5.625%—06/01/2025 | 244 | |
Targa Resources Partners Finance Corp. | |||
225 | 6.750%—03/15/2024 | 236 | |
Transocean Inc. | |||
325 | 5.800%—10/15/2022 | 320 | |
Welltec A/S | |||
350 | 9.500%—12/01/20221 | 356 | |
8,290 | |||
PHARMACEUTICALS—3.2% | |||
Endo Finance LLC | |||
175 | 5.875%—10/15/20241 | 165 | |
150 | 6.000%—07/15/20231 | 110 | |
275 | |||
Horizon Pharma Inc. | |||
300 | 6.625%—05/01/2023 | 301 | |
Mallinckrodt International Finance SA | |||
275 | 5.625%—10/15/20231 | 217 | |
Teva Pharmaceutical Finance Netherlands III BV | |||
375 | 3.150%—10/01/2026 | 299 | |
Valeant Pharmaceuticals International Inc. | |||
150 | 5.500%—03/01/20231 | 137 | |
150 | 6.125%—04/15/20251 | 136 | |
600 | 7.000%—03/15/20241 | 635 | |
325 | 9.250%—04/01/20261 | 332 | |
1,240 | |||
2,332 | |||
ROAD & RAIL—1.0% | |||
Hertz Corp. | |||
750 | 5.875%—10/15/2020 | 744 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—0.7% | |||
Advanced Micro Devices Inc. | |||
325 | 7.000%—07/01/2024 | 344 | |
Micron Technology Inc. | |||
175 | 5.500%—02/01/2025 | 183 | |
527 | |||
SOFTWARE—1.6% | |||
BMC Software Finance Inc. | |||
300 | 8.125%—07/15/20211 | 301 | |
Infor Software Parent LLC | |||
325 | 7.125%—05/01/20211 | 329 | |
Open Text Corp. | |||
250 | 5.875%—06/01/20261 | 260 | |
Solera LLC | |||
250 | 10.500%—03/01/20241 | 279 | |
1,169 | |||
SPECIALTY RETAIL—1.2% | |||
Asbury Automotive Group Inc. | |||
300 | 6.000%—12/15/2024 | 299 | |
First Quality Finance Co. Inc. | |||
225 | 5.000%—07/01/20251 | 216 | |
Neiman Marcus Group Ltd. LLC | |||
345 | 8.000%—10/15/20211 | 237 |
28
Harbor High-Yield Opportunities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
SPECIALTY RETAIL—Continued | |||
Rent-A-Center Inc. | |||
$ | 100 | 4.750%—05/01/2021 | $ 94 |
846 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—1.8% | |||
Diamond 1 Finance Corp. | |||
300 | 6.020%—06/15/20261 | 318 | |
EMC Corp. | |||
250 | 2.650%—06/01/2020 | 244 | |
100 | 3.375%—06/01/2023 | 93 | |
337 | |||
Seagate HDD Cayman | |||
250 | 4.875%—06/01/2027 | 235 | |
Western Digital Corp. | |||
425 | 4.750%—02/15/2026 | 420 | |
1,310 | |||
TOBACCO—0.8% | |||
Vector Group Ltd. | |||
575 | 6.125%—02/01/20251 | 572 | |
TRADING COMPANIES & DISTRIBUTORS—1.4% | |||
Fly Leasing Ltd. | |||
300 | 6.375%—10/15/2021 | 313 | |
Suburban Propane Partners LP | |||
200 | 5.500%—06/01/2024 | 194 | |
United Rentals North America Inc. | |||
500 | 5.750%—11/15/2024 | 519 | |
1,026 | |||
TRANSPORTATION INFRASTRUCTURE—1.7% | |||
DAE Funding LLC | |||
525 | 5.000%—08/01/20241 | 507 | |
Park Aerospace Holdings Co. | |||
600 | 5.250%—08/15/20221 | 599 | |
100 | 5.500%—02/15/20241 | 97 | |
696 | |||
1,203 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
WIRELESS TELECOMMUNICATION SERVICES—3.6% | |||
C&W Senior Financing DAC | |||
$ | 200 | 6.875%—09/15/20271 | $ 199 |
SFR Group SA | |||
150 | 6.000%—05/15/20221 | 148 | |
Sprint Capital Corp. | |||
250 | 6.875%—11/15/2028 | 255 | |
Sprint Corp. | |||
800 | 7.125%—06/15/2024 | 826 | |
400 | 7.875%—09/15/2023 | 430 | |
1,256 | |||
T-Mobile USA Inc. | |||
250 | 5.375%—04/15/2027 | 254 | |
175 | 6.375%—03/01/2025 | 184 | |
438 | |||
Wind Tre SpA | |||
400 | 5.000%—01/20/20261 | 338 | |
2,634 | |||
TOTAL CORPORATE BONDS & NOTES | |||
(Cost $70,490) | 68,668 | ||
SHORT-TERM INVESTMENTS—3.1% | |||
(Cost $2,280) | |||
REPURCHASE AGREEMENTS | |||
2,280 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $2,328) | 2,280 | |
TOTAL INVESTMENTS—97.9% | |||
(Cost $72,770) | 70,948 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—2.1% | 1,488 | ||
TOTAL NET ASSETS—100.0% | $72,436 |
FAIR VALUE MEASUREMENTS
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 2. There were no Level 3 holdings at April 30, 2018 or November 1, 2017, and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Portfolios of Investments.
1 | Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. At April 30, 2018, the aggregate value of these securities was $35,595 or 49% of net assets. |
2 | MTN after the name of a security stands for Medium Term Note. |
3 | Variable rate security, the stated rate represents the rate in effect at April 30, 2018. |
The accompanying notes are an integral part of the Financial Statements.
29
Harbor Bond Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Pacific Investment Management Company LLC (PIMCO)
650 Newport Center Dr.
Newport Beach, CA
92660
Newport Beach, CA
92660
Portfolio Managers
Scott A. Mather
Since 2014
Since 2014
Mark R. Kiesel
Since 2014
Since 2014
Mihir P. Worah, Ph.D.
Since 2014
Since 2014
PIMCO has subadvised the Fund since 1987.
Investment Objective
The Fund seeks total return.
Scott A. Mather
Mark R. Kiesel
Mihir P. Worah, Ph.D.
Management’s Discussion of
Fund Performance
Fund Performance
MARKET REVIEW
Over the six months ended April 30, 2018, after months of subdued volatility and strong risk asset returns, the start to 2018 was highlighted by the return of volatility. Solid growth data kept central banks on track, but rising interest rates and geopolitical concerns contributed to more challenged performance across equities and credit.
Risk assets remained well supported by synchronized global growth and optimism about fiscal stimulus at the end of 2017 despite a slew of geopolitical concerns. Most developed market central banks indicated a shift toward reduced accommodation, contributing to flatter yield curves. Geopolitics continued to capture headlines – from elections in the U.S., Europe and Japan to China’s 19th Party Congress to turmoil in the Middle East – but markets were broadly resilient. Anticipation for – and passage of – fiscal stimulus in the U.S. as well as an uptick in growth momentum contributed to tighter credit spreads and allowed U.S. equities to finish the year out strong. In fact, the S&P 500 Index delivered positive returns every month of 2017, a first since the inception of the total return index. Volatility remained low and emerging market assets broadly strengthened, finishing a strong year of performance in 2017 on the back of healthier fundamentals, a weaker dollar, and rising oil prices.
The supportive market conditions continued into 2018 as risk asset returns started higher as global stocks surged nearly 6% in January, but reversed on concerns about rising rates. Expectations for higher inflation, increased Treasury supply and more U.S. Federal Reserve (Fed) hikes all contributed to higher rates. Volatility rose as measures like the CBOE Volatility Index (VIX) had its single largest one-day rise in its history (back to 1990). Fears of a global trade war exacerbated the extent of swings in risk markets. Tariff announcements from the U.S. administration first on steel and aluminum imports, then on certain Chinese goods, resulted in retaliatory measures from China. Equities ended the first quarter of 2018 lower with credit spreads wider and the U.S. Dollar weaker. Interest rates still ended the quarter higher, but lower than earlier in the quarter.
Finally, central banks remained on course for diminished monetary support as the fundamental backdrop remained solid. In the U.S., the Fed raised its policy rate in March and the “dot plot” (graphical representation of where each Fed member expects rates to go in the next 2 years) indicated a slightly steeper path for rates in 2019-2020. The European Central Bank (ECB) removed its commitment to more quantitative easing if necessary, and the People’s Bank of China (BoC) raised rates for the third time.
PERFORMANCE
Harbor Bond Fund underperformed the Bloomberg Barclays U.S. Aggregate Bond Index for the six months ended April 30, 2018. The Fund returned -2.04% (Institutional Class) and -2.16% (Administrative Class) for the six-month period, compared with the benchmark’s return of -1.87%.
The following strategies helped Fund returns for the six months ended April 30, 2018:
• | A modest allocation to non-Agency mortgages as non-Agency Mortgage-Backed Securities performed well amid continued favorable market technicals and stable residential real estate fundamentals |
• | An allocation to non-investment grade corporate issues, which provided an attractive source of yield |
30
Harbor Bond Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor Bond Fund | |||||||||||
Institutional Class | -2.04% | 0.35% | 1.52% | 4.29% | |||||||
Administrative Class | -2.16 | 0.01 | 1.26 | 4.03 | |||||||
Comparative Index | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.57% |
As stated in the Fund’s prospectus dated June 1, 2018, the expense ratios were 0.51% (Net) and 0.63% (Gross) (Institutional Class); and 0.76% (Net) and 0.88% (Gross) (Administrative Class). The net expense ratios reflect a contractual management fee waiver and an expense limitation agreement (excluding interest expense) effective through 02/29/2020. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
• | Exposure to local and U.S. Dollar-denominated emerging market securities, particularly in Latin America, as rates continued to recover over the period. |
The following strategies were negative or neutral for returns for the six months ended April 30, 2018:
• | U.S. interest rate strategies, including duration and yield curve positioning, particularly an overweight to the intermediate portion of the U.S. Treasury curve, as rates rose over the period, |
• | An underweight to investment grade credit, as spreads for the sector continued to compress |
• | Currency positioning, specifically long U.S. Dollar positions versus a basket of Asian emerging market currencies and the Japanese Yen, as those currencies appreciated relative to the U.S. Dollar. |
OUTLOOK & STRATEGY
PIMCO expects world GDP growth to remain above-trend at 3.0%‒3.5% in 2018, in a “Goldilocks” environment of synchronized global growth and low but gently rising inflation. Still favorable financial conditions and fiscal support suggest that the Goldilocks environment will continue in 2018. Compared with our December forecast, we now anticipate marginally higher 2018 GDP growth in the U.S., Eurozone, U.K. and China, while we lowered our estimates for Mexico and India. The causes of the stronger expansion are more uncertain ‒ favorable shorter-term financial conditions versus a possible longer-term increase in productivity ‒ and these could affect its durability beyond 2018. Our inflation forecasts for 2018 have also risen slightly since our December forecast in response to a higher oil price trajectory.
In the U.S., we expect above-consensus growth of 2.25%–2.75% in 2018. Household and corporate tax cuts should boost growth by 0.3 percentage points in 2018, with another 0.3 percentage points coming from higher federal government spending resulting from the two-year budget deal. With our view that unemployment will likely drop below 4%, we expect some upward pressure on wages and consumer prices, and core inflation to rise above 2% over the course of 2018. Under new leadership, we expect the Fed to continue tightening gradually; we expect three rate hikes this year, with a fourth likely if economic and financial conditions remain favorable.
For the Eurozone, we expect growth will be in a range of 2.25%‒2.75% for 2018, about the same pace as 2017. The expansion is now broad-based across the region, with growth momentum strong and financial conditions favorable in our view. We believe core inflation will remain very low, creeping only marginally above 1% this year due to low wage pressures and the appreciation of the Euro in 2017. We expect the European Central Bank to end its bond purchase program in September or, after a short taper, by December, though maturing bonds will be reinvested for some time. We do not foresee the first rate increase until mid-2019.
Within emerging markets, we expect growth to collectively rise to 4% in 2018 in Brazil, Russia, India and Mexico. From our perspective, emerging markets are catching up to the recovery in developed markets, with improving fundamentals and greater differentiation among countries. In our view, this recovery is likely to be shallower and slower than others; however, emerging markets potential growth has fallen, and key political events are likely to keep investors cautious. Finally, in China, we expect a controlled deceleration in growth to 6.0%–7.0% this year, and inflation to accelerate to 2.5% on stronger core inflation and higher oil prices, inducing the BoC to tighten policy by raising official interest rates, versus the consensus expectation of no hikes.
With respect to portfolio strategy, we plan to:
• | Be modestly underweight duration overall relative to the benchmark. An overweight in the U.S. is more than offset by short duration positions in other developed regions, including Japan and U.K. whose yield curves, we believe, have the potential to normalize closer to U.S. levels. In the U.S., we moderated the Fund’s positioning at the front-end of the yield curve given the move in front-end yields post-election. The Fund is overweight the intermediate part of the curve as we believe rates are likely to be range bound in the near-term. The Fund is underweight the long end as longer-term rates may drift higher with the potential for rising inflation and higher term premiums. |
31
Harbor Bond Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
• | Be underweight investment grade corporate credit and instead maintain a more diversified, broader credit mix. We seek to find attractive opportunities in specific credits that benefit from U.S. growth and a resurgent housing sector, and we remain opportunistic by looking to add exposure during market dislocations. We see value in banks and select financial companies, housing-related and mortgage credits, select high yield issues and taxable municipals (primarily Build-America Bonds). |
• | Remain selective in allocations to emerging markets debt, given our view that dispersion in the pace of economic growth will continue to increase. |
• | We remain tactical with the Fund’s long-U.S. Dollar positioning; while we expect to maintain a long-U.S. Dollar bias, the composition of relative value exposures may change tactically given the market environment. We maintain a long-U.S. Dollar bias against a basket of emerging market Asian currencies, specifically those of China’s largest regional trading partners. |
This report contains the current opinions of Pacific Investment Management Company LLC (PIMCO) as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Fixed income investments are affected by interest rate changes and the creditworthiness of the issues held by the Fund. A rise in interest rates will cause a decrease in the value of fixed income securities. Such an event would have an adverse effect on the Fund. The use of derivative instruments may add additional risk. There may be a greater risk that the Fund could lose money due to prepayment and extension risks because the Fund invests heavily at times in mortgage-related securities. The Fund may engage in active and frequent trading to achieve its principal investment strategies. References to securities that are backed by the full faith and credit of the U.S. Government do not apply to the shares of the Fund. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
32
Harbor Bond Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Issuers (% of net assets)
1. Federal National Mortgage Association TBA | 35.8% |
2. U.S. Treasury | 21.1% |
3. Japan Treasury Discount Bill | 16.8% |
4. Nykredit Realkredit AS | 4.2% |
5. Brazil Letras Do Tesouro Nacional | 3.8% |
6. Federal National Mortgage Association REMIC | 3.5% |
7. Federal Home Loan Mortgage Corp. TBA | 3.2% |
8. Federal National Mortgage Association | 2.8% |
9. Government National Mortgage Association TBA | 2.4% |
10. Nordea Kredit Realkreditaktieselskab | 1.9% |
Total INvestments (% of net assets)
(Excludes net cash, short-term investments and derivative positions of -54.4%)
Maturity Profile
33
Harbor Bond Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, Notional and Principal Amounts in Thousands
ASSET-BACKED SECURITIES—10.8% | |||
Principal Amount | Value | ||
Allegro CLO I Ltd.1 | |||
Series 2013 Cl. 1A | |||
$ | 6,500 | 3.579% (3 Month USD Libor + 1.220) 01/30/20262,3 | $ 6,495 |
Apidos CLO XVIII1 | |||
Series 2014 Cl. 18A | |||
4,000 | 3.482% (3 Month USD Libor + 1.120) 07/22/20262,3 | 4,005 | |
Arbor Realty Commercial Real Estate Notes Ltd. | |||
Series 2017-FL1 Cl. A | |||
6,800 | 3.197% (1 Month USD Libor + 1.300) 04/15/20272,3 | 6,853 | |
Argent Securities Inc. | |||
Series 2006-W4 Cl. A2C | |||
6,658 | 2.057% (1 Month USD Libor + 0.160) 05/25/20362 | 2,578 | |
Series 2005-W2 Cl. A2C | |||
2,376 | 2.257% (1 Month USD Libor + 0.360) 10/25/20352 | 2,385 | |
Series 2004-W11 Cl. M3 | |||
939 | 3.022% (1 Month USD Libor + 0.750) 11/25/20342 | 930 | |
5,893 | |||
Asset Backed Securities Corp. Home Equity Loan Trust | |||
Series 2003-HE4 Cl. M1 | |||
5,768 | 3.142% (1 Month USD Libor + 0.830) 08/15/20332 | 5,808 | |
Bayview Opportunity Master Fund IIIA Trust | |||
Series 2017-RN8 Cl. A1 | |||
3,633 | 3.352%—11/28/20323,4 | 3,624 | |
Capital One Multi Asset Execut Comet | |||
Series 2016-A1 Cl. A1 | |||
6,400 | 2.347% (1 Month USD Libor + 0.450) 02/15/20222 | 6,422 | |
Capital One Multi-Asset Execution Trust | |||
Series 2014-A4 Cl. A4 | |||
6,400 | 2.257% (1 Month USD Libor + 0.360) 06/15/20222 | 6,420 | |
Series 2014-A3 Cl. A3 | |||
3,600 | 2.277% (1 Month USD Libor + 0.380) 01/18/20222 | 3,608 | |
10,028 | |||
Cent CLO 21 Ltd.1 | |||
Series 2014 Cl. A1BR | |||
5,700 | 3.576% (3 Month USD Libor + 1.210) 07/27/20262,3 | 5,711 | |
Countrywide Asset-Backed Certificates | |||
Series 2006-21 Cl. 2A3 | |||
2,098 | 2.047% (1 Month USD Libor + 0.150) 05/25/20372 | 2,076 | |
Series 2006-ABC1 Cl. A3 | |||
4,566 | 2.137% (1 Month USD Libor + 0.240) 05/25/20362 | 3,264 | |
Series 2006-2 Cl. M1 | |||
1,200 | 2.297% (1 Month USD Libor + 0.400) 06/25/20362 | 1,180 | |
Series 2001-BC3 Cl. A | |||
161 | 2.377% (1 Month USD Libor + 0.240) 12/25/20312 | 149 | |
6,669 |
ASSET-BACKED SECURITIES—Continued | |||
Principal Amount | Value | ||
Dryden XXV Senior Loan Fund | |||
Series 2012-25A Cl. APR | |||
$ | 5,500 | 3.248% (3 Month USD Libor + 0.900) 10/15/20272,3 | $ 5,510 |
ECMC Group Student Loan Trust 2018-1 | |||
Series 2018-1A Cl. A | |||
4,578 | 2.647% (1 Month USD Libor + 0.800) 02/27/20682,3 | 4,581 | |
First Franklin Mortgage Loan Trust | |||
Series 2006-FF10 Cl. A4 | |||
511 | 2.047% (1 Month USD Libor + 0.150) 07/25/20362 | 511 | |
Flagship VII Ltd. | |||
Series 2013 Cl. 7A | |||
3,942 | 3.479% (3 Month USD Libor + 1.120) 01/20/20262,3 | 3,946 | |
Ford Credit Auto Lease Trust | |||
Series 2017-A Cl. A2A | |||
1,903 | 1.560%—11/15/2019 | 1,897 | |
Series 2017-A Cl. A2B | |||
2,652 | 2.037% (1 Month USD Libor + 0.140) 11/15/20192 | 2,652 | |
4,549 | |||
GM Financial Consumer Automobiles Receivables Trust | |||
Series 2017-1A Cl. A2A | |||
3,189 | 1.510%—03/16/20203 | 3,178 | |
GSAA Trust | |||
Series 2006-20 Cl. 1A2 | |||
4,938 | 2.077% (1 Month USD Libor + 0.180) 12/25/20462 | 2,873 | |
Series 2007-9 Cl. A1A | |||
1,863 | 6.000%—08/25/2047 | 1,736 | |
4,609 | |||
GSAMP Trust | |||
Series 2007-FM1 Cl. 2A2 | |||
120 | 1.967% (1 Month USD Libor + 0.070) 12/25/20362 | 63 | |
Home Equity Asset Trust | |||
Series 2005-2 Cl. M4 | |||
2,052 | 2.947% (1 Month USD Libor + 0.700) 07/25/20352 | 2,066 | |
HSI Asset Securitization Corp. Trust | |||
Series 2006-HE2 Cl. 2A3 | |||
5,521 | 2.067% (1 Month USD Libor + 0.170) 12/25/20362 | 2,289 | |
IXIS Real Estate Capital Trust | |||
Series 2005-HE1 Cl. M4 | |||
2,883 | 2.947% (1 Month USD Libor + 1.050) 06/25/20352 | 2,709 | |
JPMorgan Mortgage Acquisition Corp. | |||
Series 2006-HE1 Cl.A4 | |||
3,112 | 2.477% (1 Month USD Libor + 0.290) 01/25/20362 | 3,077 | |
JPMorgan Mortgage Acquisition Trust | |||
Series 2007-HE1 Cl. AF3 | |||
1,006 | 4.382%—05/25/20354 | 738 | |
MASTR Asset Backed Securities Trust | |||
Series 2006-HE2 Cl. A4 | |||
6,000 | 2.137% (1 Month USD Libor + 0.240) 06/25/20362 | 3,575 | |
Mid-State Trust | |||
Series 2004-1 Cl. A | |||
1,256 | 6.005%—08/15/2037 | 1,364 |
34
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
ASSET-BACKED SECURITIES—Continued | |||
Principal Amount | Value | ||
Monarch Grove CLO 18-11 | |||
Series 2018-1A Cl. A1 | |||
$ | 4,300 | 2.443% (3 Month USD Libor + 0.880) 01/25/20282,3 | $ 4,302 |
Morgan Stanley ABS Capital I Inc. Trust | |||
Series 2006-HE8 Cl. A1 | |||
2,098 | 2.027% (1 Month USD Libor + 0.130) 10/25/20362 | 1,990 | |
Series 2007-HE1 Cl. A2C | |||
2,325 | 2.047% (1 Month USD Libor + 0.150) 11/25/20362 | 1,609 | |
3,599 | |||
Morgan Stanley Dean Witter Capital I | |||
Series 2002-HE1 Cl. M1 | |||
1,145 | 2.797% (1 Month USD Libor + 0.600) 07/25/20322 | 1,154 | |
Navient Student Loan Trust | |||
Series 2017-3A Cl. A1 | |||
3,874 | 2.197% (1 Month USD Libor + 0.300) 07/26/20662,3 | 3,877 | |
Nelder Grove CLO Ltd.1 | |||
Series 2014-A1R Cl. 1A | |||
1,500 | 3.284% (3 Month USD Libor + 1.300) 08/28/20262,3 | 1,502 | |
Nissan Master Owner Trust Receivables | |||
Series 2016-A Cl. A1 | |||
6,500 | 2.537% (1 Month USD Libor + 0.640) 06/15/20212 | 6,533 | |
Novastar Mortgage Funding Trust | |||
Series 2007-2 Cl. A2C | |||
6,105 | 2.077% (1 Month USD Libor + 0.180) 09/25/20372 | 5,136 | |
OneMain Financial Issuance Trust | |||
Series 2017-1A Cl. A1 | |||
5,500 | 2.370%—09/14/20323 | 5,399 | |
Option One Mortgage Loan Trust | |||
Series 2007-6 Cl. 2A4 | |||
4,816 | 2.147% (1 Month USD Libor + 0.250) 07/25/20372 | 3,376 | |
Park Place Securities Inc. | |||
Series 2005-WCW3 Cl. M1 | |||
7,222 | 2.377% (1 Month USD Libor + 0.480) 08/25/20352 | 7,213 | |
People's Financial Realty Mortgage Securities Trust | |||
Series 2006-1 Cl. 1A2 | |||
4,826 | 2.027% (1 Month USD Libor + 0.130) 09/25/20362 | 1,550 | |
RAMP Trust | |||
Series 2004-RS8 Cl. MII1 | |||
607 | 2.797% (1 Month USD Libor + 0.600) 08/25/20342 | 609 | |
RASC Trust | |||
Series 2005-EMX3 Cl. M5 | |||
3,400 | 2.547% (1 Month USD Libor + 0.650) 09/25/20352 | 3,328 | |
Securitized Asset Backed Receivables LLC Trust | |||
Series 2005-FR5 Cl. M1 | |||
11,363 | 2.557% (1 Month USD Libor + 0.440) 08/25/20352 | 7,349 | |
SG Mortgage Securities Trust | |||
Series 2006-OPT2 Cl. A3D | |||
6,900 | 2.107% (1 Month USD Libor + 0.210) 10/25/20362 | 4,901 |
ASSET-BACKED SECURITIES—Continued | |||
Principal Amount | Value | ||
Small Business Administration Participation Certificates | |||
Series 2003-20I Cl. 1 | |||
$ | 57 | 5.130%—09/01/2023 | $ 59 |
Series 2009-20A Cl. 1 | |||
2,516 | 5.720%—01/01/2029 | 2,695 | |
Series 2008-20H Cl. 1 | |||
5,200 | 6.020%—08/01/2028 | 5,594 | |
Series 2001-20A Cl. 1 | |||
68 | 6.290%—01/01/2021 | 70 | |
8,418 | |||
Sofi Professional Loan Program 2018-B Trust | |||
Series 2018-A1FX Cl. B | |||
6,339 | 2.640%—08/25/20473 | 6,310 | |
Soundview Home Loan Trust | |||
Series 2006-WF2 Cl. A1 | |||
1,083 | 2.027% (1 Month USD Libor + 0.130) 12/25/20362 | 1,083 | |
Specialty Underwriting & Residential Finance Trust | |||
Series 2006-BC4 Cl. A2B | |||
3,213 | 2.007% (1 Month USD Libor + 0.110) 09/25/20372 | 1,672 | |
Structured Asset Securities Co. | |||
Series 2007-MN1A Cl. A1 | |||
24,153 | 2.127% (1 Month USD Libor + 0.230) 01/25/20372,3 | 17,172 | |
Student Loan Marketing Association | |||
Series 2013-B Cl. A2A | |||
4,520 | 1.850%—06/17/20303 | 4,485 | |
Telos CLO Ltd.1 | |||
Series 2014 Cl. 6A | |||
6,900 | 3.623% (3 Month USD Libor + 1.270) 01/17/20272,3 | 6,915 | |
Trillium Credit Card Trust II | |||
Series 2018-1A Cl. A | |||
8,100 | 2.148%—02/27/20233,5 | 8,102 | |
Venture XVI CLO Ltd.1 | |||
Series 2014-16A Cl. ARR | |||
5,400 | 3.198% (3 Month USD Libor + 0.850) 01/15/20282,3 | 5,400 | |
Volt LXI LLC | |||
Series 2017-NPL8 Cl. A1 | |||
4,035 | 3.125%—06/25/20473,4 | 4,019 | |
TOTAL ASSET-BACKED SECURITIES | |||
(Cost $217,625) | 227,677 | ||
COLLATERALIZED MORTGAGE OBLIGATIONS—7.5% | |||
Adjustable Rate Mortgage Trust | |||
Series 2006-3 Cl. 4A2 | |||
3,236 | 2.017% (1 Month USD Libor + 0.120) 08/25/20362 | 2,009 | |
Alba plc | |||
Series 2007-1 Cl. A3 | |||
£ | 2,930 | 0.784% (3 Month GBP Libor + 0.170) 03/17/20392 | 3,876 |
Alternative Loan Trust | |||
Series 2005-38 Cl. A1 | |||
$ | 1,335 | 2.878% (Fed 12 Month Treasury Average CMT + 1.500) 09/25/20352 | 1,306 |
35
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
COLLATERALIZED MORTGAGE OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
Banc of America Funding Corp. | |||
Series 2007-C Cl. 7A5 | |||
$ | 1,224 | 2.197% (1 Month USD Libor + 0.300) 05/20/20472 | $ 1,144 |
BCAP LLC Trust | |||
Series 2007-AA2 Cl. 12A1 | |||
8,261 | 2.107% (1 Month USD Libor + 0.210) 05/25/20472 | 7,649 | |
Series 2011-RR5 Cl. 12A1 | |||
605 | 4.962%—03/26/20373,4 | 604 | |
Series 2011-RR4 Cl. 8A1 | |||
2,521 | 5.250%—02/26/20362,3 | 2,060 | |
Series 2011-RR5 Cl. 5A1 | |||
2,718 | 5.250%—08/26/20372,3 | 2,795 | |
13,108 | |||
Bear Stearns Adjustable Rate Mortgage Trust | |||
Series 2000-2 Cl. A1 | |||
19 | 2.782%—11/25/20302 | 18 | |
Series 2004-10 Cl. 12A3 | |||
39 | 3.576%—01/25/20352 | 39 | |
Series 2004-1 Cl. 12A5 | |||
370 | 3.857%—04/25/20345 | 373 | |
Series 2006-4 Cl. 1A1 | |||
592 | 3.910%—10/25/20362 | 575 | |
1,005 | |||
Bear Stearns Alt-A Trust | |||
Series 2005-4 Cl. 1A1 | |||
233 | 2.337% (1 Month USD Libor + 0.220) 07/25/20352 | 234 | |
BX Trust | |||
Series 2017 Cl. A | |||
6,800 | 2.817%—07/15/20343,5 | 6,813 | |
Chase Mortgage Finance Corp. | |||
Series 2006-A1 Cl. 4A1 | |||
2,149 | 3.541%—09/25/20362 | 2,121 | |
Countrywide Alternative Loan Trust | |||
Series 2005-59 Cl. 1A1 | |||
7,738 | 2.227% (1 Month USD Libor + 0.330) 11/20/20352 | 7,561 | |
Series 2006-6BC Cl. 1A2 | |||
4,060 | 2.297% (1 Month USD Libor + 0.400) 05/25/20362 | 3,540 | |
Series 2005-84 Cl. 1A1 | |||
3,083 | 3.305%—02/25/20362 | 2,652 | |
Series 2005-20CB Cl. 2A5 | |||
2,602 | 5.500%—07/25/2035 | 2,393 | |
Series 2006-36T2 Cl. 1A4 | |||
1,362 | 5.750%—12/25/2036 | 989 | |
Series 2006-39CB Cl. 1A20 | |||
5,418 | 6.000%—01/25/2037 | 5,317 | |
22,452 | |||
Countrywide Home Loan Mortgage Pass Through Trust | |||
Series 2007-HY5 Cl. 1A1 | |||
1,192 | 3.815%—09/25/20472 | 1,162 | |
Credit Suisse First Boston Mortgage Securities Corp. | |||
Series 2006-C2 Cl. A3 | |||
406 | 6.000%—11/25/2035 | 343 |
COLLATERALIZED MORTGAGE OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
Deutsche Alt-A Securities Inc. Mortgage Loan Trust | |||
Series 2007-AR2 Cl. A1 | |||
$ | 6,030 | 2.047% (1 Month USD Libor + 0.150) 03/25/20372 | $ 5,509 |
DSLA Mortgage Loan Trust | |||
Series 2006-AR1 Cl. 1A1A | |||
2,709 | 2.298% (Fed 12 Month Treasury Average CMT + 0.920) 03/19/20462 | 2,461 | |
Eurohome UK Mortgages plc | |||
Series 2007-1 Cl. A | |||
£ | 2,628 | 0.756% (3 Month GBP Libor + 0.150) 06/15/20442 | 3,542 |
First Horizon Asset Securities Inc. | |||
Series 2005-AR6 Cl. 4A1 | |||
$ | 1,325 | 3.718%—02/25/20362 | 1,268 |
First Nationwide Trust | |||
Series 2001-3 Cl. 1A1 | |||
6.750%—08/21/2031 | 1 | ||
GS Mortgage Securities Corp. Trust | |||
Series 2016-RENT Cl. A | |||
6,900 | 3.203%—02/10/20293 | 6,891 | |
GSMPS Mortgage Loan Trust | |||
Series 2006-RP2 Cl. 1AF1 | |||
5,905 | 2.297% (1 Month USD Libor + 0.400) 04/25/20362,3 | 4,913 | |
GSR Mortgage Loan Trust | |||
Series 2005-AR7 Cl. 6A1 | |||
418 | 3.660%—11/25/20352 | 422 | |
Series 2005-AR3 Cl. 3A1 | |||
718 | 3.861%—05/25/20352 | 678 | |
Series 2006-2F Cl. 2A13 | |||
2,020 | 5.750%—02/25/2036 | 1,967 | |
3,067 | |||
HarborView Mortgage Loan Trust | |||
Series 2004-8 Cl. 2A3 | |||
907 | 2.716% (1 Month USD Libor + 0.410) 11/19/20342 | 810 | |
HomeBanc Mortgage Trust | |||
Series 2006-H2 Cl. A2 | |||
4,870 | 2.077% (1 Month USD Libor + 0.180) 12/25/20362 | 4,785 | |
Homestar Mortgage Acceptance Corp. | |||
Series 2004-5 Cl. M3 | |||
1,532 | 3.622% (1 Month USD Libor + 1.150) 10/25/20342 | 1,535 | |
IndyMac ARM Trust | |||
Series 2001-H2 Cl. A2 | |||
6 | 2.779%—01/25/20322 | 6 | |
IndyMac IMSC Mortgage Loan Trust | |||
Series 2007-F2 Cl. 2A1 | |||
2,968 | 6.500%—07/25/2037 | 1,933 | |
IndyMac INDX Mortgage Loan Trust | |||
Series 2007-AR13 Cl. 4A1 | |||
15,039 | 3.307%—07/25/20372 | 12,672 | |
Series 2005-AR31 Cl. 1A1 | |||
1,447 | 3.476%—01/25/20362 | 1,316 | |
13,988 | |||
JP Morgan Chase Commercial Mortgage Securities Corp. | |||
Series 2016-WPT Cl. A | |||
5,000 | 3.347% (1 Month USD Libor + 1.450) 10/15/20332,3 | 5,009 |
36
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
COLLATERALIZED MORTGAGE OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
JP Morgan Mortgage Trust | |||
Series 2006-A6 Cl. 1A4L | |||
$ | 3,351 | 3.624%—10/25/20362 | $ 3,209 |
Series 2006-S1 Cl. 3A1 | |||
886 | 5.500%—04/25/2036 | 914 | |
4,123 | |||
JP Morgan Re-REMIC6 | |||
Series 2009-7 Cl. 11A1 | |||
71 | 3.666%—09/27/20362,3 | 73 | |
Mansard Mortgages plc | |||
Series 2007-2X Cl. A1 | |||
£ | 1,226 | 1.256% (3 Month GBP Libor + 0.650) 12/15/20492 | 1,670 |
Merrill Lynch Alternative Note Asset Trust | |||
Series 2007-F1 Cl. 2A6 | |||
$ | 665 | 6.000%—03/25/2037 | 533 |
Merrill Lynch Mortgage Investors Inc. | |||
Series 2005-3 Cl. 4A | |||
41 | 2.147% (1 Month USD Libor + 0.250) 11/25/20352 | 40 | |
Morgan Stanley Bank of America Merrill Lynch Trust | |||
Series 2015-C22 Cl. ASB | |||
6,000 | 3.040%—04/15/2048 | 5,936 | |
Provident Funding Mortgage Loan Trust | |||
Series 2005-2 Cl. 3A | |||
3,469 | 3.701%—10/25/20352 | 3,485 | |
Residential Accredit Loans Inc. | |||
Series 2006-QA7 Cl. 2A1 | |||
4,867 | 2.082% (1 Month USD Libor + 0.185) 08/25/20362 | 4,481 | |
Series 2007-QS4 Cl. 3A9 | |||
2,355 | 6.000%—03/25/2037 | 2,192 | |
6,673 | |||
Residential Asset Securitization Trust | |||
Series 2007-A8 Cl. 2A1 | |||
19,110 | 6.250%—08/25/2037 | 9,526 | |
Residential Funding Mortgage Securities I | |||
Series 2007-SA1 Cl. 2A2 | |||
317 | 4.191%—02/25/20372 | 253 | |
Series 2006-SA1 Cl. 2A1 | |||
342 | 4.537%—02/25/20362 | 313 | |
566 | |||
RMAC Securities plc | |||
Series 2006-NS4X Cl. A3A | |||
£ | 1,921 | 0.772% (3 Month GBP Libor + 0.170) 06/12/20442 | 2,583 |
Structured Adjustable Rate Mortgage Loan Trust | |||
Series 2007-1 Cl. 1A1 | |||
$ | 2,552 | 2.047% (1 Month USD Libor + 0.150) 02/25/20372 | 2,688 |
Series 2001-21A Cl. 3A1 | |||
697 | 3.910%—04/25/20352 | 697 | |
3,385 | |||
Structured Asset Mortgage Investments Inc. | |||
Series 2005-AR5 Cl. A2 | |||
496 | 2.146% (1 Month USD Libor + 0.250) 07/19/20352 | 487 | |
Suntrust Adjustable Rate Mortgage Loan Trust | |||
Series 2007-S1 Cl. 1A | |||
839 | 3.829%—01/25/20372 | 797 |
COLLATERALIZED MORTGAGE OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
Washington Mutual Mortgage Pass Through Certificates Trust | |||
Series 2005-AR13 Cl. A1A1 | |||
$ | 258 | 2.187% (1 Month USD Libor + 0.290) 10/25/20452 | $ 259 |
Series 2006-AR11 Cl. 3A1A | |||
2,392 | 2.298% (Fed 12 Month Treasury Average CMT + 0.920) 09/25/20462 | 2,217 | |
Series 2005-AR6 Cl. 2A1A | |||
528 | 2.357% (1 Month USD Libor + 0.230) 04/25/20452 | 520 | |
2,996 | |||
Wells Fargo Mortgage Backed Securities Trust | |||
Series 2006-AR10 Cl. 1A1 | |||
3,430 | 3.724%—07/25/20362 | 3,361 | |
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS | |||
(Cost $142,146) | 157,525 | ||
CORPORATE BONDS & NOTES—37.1% | |||
AIRLINES—0.2% | |||
American Airlines 2013-1 Class A Pass-Through Trust | |||
1,008 | 4.000%—01/15/2027 | 1,010 | |
Delta Air Lines Inc. | |||
3,000 | 3.400%—04/19/2021 | 2,992 | |
700 | 3.625%—03/15/2022 | 694 | |
3,686 | |||
4,696 | |||
AUTO COMPONENTS—0.2% | |||
ZF North America Capital Inc. | |||
3,300 | 4.500%—04/29/20223 | 3,380 | |
AUTOMOBILES—2.2% | |||
Ford Motor Credit Co. LLC | |||
2,600 | 2.425%—06/12/2020 | 2,552 | |
5,000 | 2.551%—10/05/2018 | 5,001 | |
1,550 | 3.200%—01/15/2021 | 1,537 | |
5,200 | 4.140%—02/15/2023 | 5,200 | |
10,050 | 8.125%—01/15/2020 | 10,846 | |
25,136 | |||
General Motors Financial Co. Inc. | |||
7,700 | 2.329% (3 Month USD Libor + 0.540) 11/06/20202 | 7,693 | |
6,600 | 2.450%—11/06/2020 | 6,456 | |
2,800 | 3.150%—01/15/2020 | 2,798 | |
1,200 | 3.200%—07/13/2020 | 1,197 | |
1,400 | 6.750%—06/01/2018 | 1,405 | |
19,549 | |||
Volkswagen Group of America Finance LLC | |||
1,700 | 1.650%—05/22/20183 | 1,699 | |
46,384 | |||
BANKS—16.6% | |||
AmSouth Bancorp | |||
2,700 | 6.750%—11/01/2025 | 3,058 |
37
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
BANKS—Continued | |||
Banco Bilbao Vizcaya Argentaria SA | |||
€ | 2,400 | 6.750% (EUR 5 Year Swaps Curve + 6.604) 02/18/20202,7 | $ 3,133 |
3,400 | 7.000% (EUR 5 Year Swaps Curve + 6.155) 02/19/20202,7 | 4,276 | |
7,409 | |||
Banco Do Nordeste Do Brasil SA | |||
$ | 3,300 | 4.375%—05/03/2019 | 3,325 |
Banco Espirito Santo SA MTN8 | |||
€ | 3,500 | 0.000%—01/15/2049* | 1,247 |
Banco Santander SA | |||
3,100 | 6.250% (EUR 5 Year Swaps Curve + 5.640) 09/11/20212,7 | 4,150 | |
Bank of America Corp. | |||
$ | 5,300 | 5.875% (3 Month USD Libor + 2.931) 03/15/20282,7 | 5,300 |
Bank of America Corp. MTN8 | |||
4,960 | 2.815% (3 Month USD Libor + 0.790) 03/05/20242 | 4,959 | |
4,030 | 5.650%—05/01/2018 | 4,030 | |
8,989 | |||
Barclays Bank plc | |||
£ | 3,800 | 14.000% (3 Month GBP Libor + 13.400) 06/15/20192,7 | 5,875 |
Barclays plc | |||
$ | 5,200 | 3.684%—01/10/2023 | 5,134 |
6,300 | 3.921% (3 Month USD Libor + 2.110) 08/10/20212 | 6,585 | |
€ | 2,300 | 6.500% (EUR 5 Year Swap Curve + 5.875) 09/15/20192,7 | 2,958 |
£ | 2,400 | 7.000% (GBP Swap 5 Year + 5.084) 09/15/20192,7 | 3,473 |
18,150 | |||
BB&T Corp. MTN8 | |||
$ | 19,500 | 2.985% (3 Month USD Libor + 0.860) 06/15/20182 | 19,505 |
BBVA Bancomer SA | |||
1,200 | 6.500%—03/10/20213 | 1,271 | |
CIT Group Inc. | |||
300 | 3.875%—02/19/2019 | 301 | |
100 | 5.375%—05/15/2020 | 104 | |
405 | |||
Citigroup Inc. | |||
3,000 | 2.350%—08/02/2021 | 2,912 | |
6,800 | 2.750%—04/25/2022 | 6,615 | |
4,000 | 3.436% (3 Month USD Libor + 1.430) 09/01/20232 | 4,107 | |
13,634 | |||
Deutsche Bank AG/New York NY | |||
5,500 | 2.700%—07/13/2020 | 5,396 | |
3,800 | 3.950%—02/27/2023 | 3,747 | |
9,143 | |||
HSBC Bank plc | |||
4,300 | 4.125%—08/12/20203 | 4,391 | |
ING Bank NV | |||
5,600 | 2.450%—03/16/20203 | 5,529 | |
JP Morgan Chase & Co. | |||
5,500 | 2.400%—06/07/2021 | 5,359 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
BANKS—Continued | |||
$ | 4,500 | 2.550%—03/01/2021 | $ 4,419 |
5,000 | 2.750%—06/23/2020 | 4,970 | |
14,748 | |||
JPMorgan Chase Bank NA | |||
6,400 | 2.070% (3 Month USD Libor + 0.250) 02/13/20202 | 6,406 | |
10,000 | 2.702% (3 Month USD Libor + 0.340) 04/26/20212 | 10,008 | |
16,414 | |||
Lloyds Bank plc | |||
7,300 | 12.000% (3 Month USD Libor + 11.756) 12/16/20242,3,7 | 9,293 | |
Lloyds Banking Group plc | |||
£ | 4,200 | 7.000% (GBP Swap 5 Year + 5.060) 06/27/20192,7 | 6,057 |
1,600 | 7.875% (GBP Swap 5 Year + 4.830) 06/27/20292,7 | 2,671 | |
8,728 | |||
Mitsubishi UFJ Financial Group Inc. | |||
$ | 3,900 | 3.455%—03/02/2023 | 3,872 |
MUFG Bank Ltd. | |||
6,700 | 2.350%—09/08/20193 | 6,642 | |
National Australia Bank Ltd. | |||
950 | 2.250%—03/16/20213 | 927 | |
Nordea Kredit Realkreditaktieselskab | |||
DKK$ | 239,648 | 1.000%—10/01/2018 | 39,093 |
Nykredit Realkredit AS | |||
521,800 | 1.000%—07/01/2018-10/01/2018 | 84,947 | |
24,300 | 2.000%—10/01/2018 | 3,981 | |
88,928 | |||
Royal Bank of Canada | |||
$ | 4,300 | 2.300%—03/22/2021 | 4,202 |
Royal Bank of Scotland Group plc | |||
1,000 | 8.625% (USD Swap Semi 30/360 5Y + 7.598) 08/15/20212,7 | 1,098 | |
Sumitomo Mitsui Banking Corp. | |||
5,400 | 2.514%—01/17/2020 | 5,345 | |
Sumitomo Mitsui Financial Group Inc. | |||
6,900 | 3.737% (3 Month USD Libor + 1.680) 03/09/20212 | 7,149 | |
Sumitomo Mitsui Trust Bank Ltd. | |||
8,100 | 2.618% (1 Month USD Libor + 0.440) 09/19/20192,3 | 8,111 | |
UBS AG/London | |||
3,400 | 2.450%—12/01/20203 | 3,331 | |
2,700 | 2.486% (3 Month USD Libor + 0.480) 12/01/20202,3 | 2,704 | |
6,035 | |||
US Bank NA/Cincinnati OH | |||
6,300 | 3.150%—04/26/2021 | 6,309 | |
Wells Fargo & Co. | |||
3,100 | 3.589% (3 Month USD Libor + 1.230) 10/31/20232 | 3,169 | |
8,200 | 5.895% (3 Month USD Libor + 3.770) 03/15/20192,7 | 8,302 | |
11,471 | |||
349,746 |
38
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
BEVERAGES—0.2% | |||
Bacardi Ltd. | |||
$ | 4,200 | 4.450%—05/15/20253 | $ 4,183 |
BIOTECHNOLOGY—0.3% | |||
Baxalta Inc. | |||
5,200 | 2.875%—06/23/2020 | 5,149 | |
BUILDING PRODUCTS—0.3% | |||
CRH America Finance Inc. | |||
3,200 | 3.950%—04/04/20283 | 3,127 | |
3,200 | 4.500%—04/04/20483 | 3,077 | |
6,204 | |||
Owens Corning | |||
300 | 4.200%—12/01/2024 | 299 | |
6,503 | |||
CAPITAL MARKETS—5.9% | |||
AXA Equitable Holdings Inc. | |||
3,200 | 3.900%—04/20/20233 | 3,189 | |
Blackstone CQP Holdco LP | |||
4,000 | 6.000%—08/18/20213 | 4,030 | |
8,000 | 6.500%—03/20/20213 | 8,080 | |
12,110 | |||
BM & FBOVESPA SA | |||
1,300 | 5.500%—07/16/2020 | 1,341 | |
Credit Agricole SA/London MTN8 | |||
5,400 | 3.750%—04/24/20233 | 5,348 | |
Credit Suisse Group AG | |||
5,100 | 2.997% (3 Month USD Libor + 1.200) 12/14/20232,3 | 4,905 | |
Credit Suisse Group Funding Guernsey Ltd. | |||
8,900 | 3.750%—03/26/2025 | 8,623 | |
4,845 | 3.800%—09/15/2022 | 4,848 | |
13,471 | |||
Deutsche Bank | |||
6,000 | 3.150%—01/22/2021 | 5,894 | |
Deutsche Bank AG | |||
3,500 | 3.312% (3 Month USD Libor + 0.970) 07/13/20202 | 3,516 | |
Deutsche Bank AG MTN8 | |||
13,700 | 2.850%—05/10/2019 | 13,673 | |
E*Trade Financial Corp. | |||
5,100 | 2.950%—08/24/2022 | 4,945 | |
Goldman Sachs Group Inc. | |||
7,700 | 3.139% (3 Month USD Libor + 0.780) 10/31/20222 | 7,733 | |
5,500 | 3.200%—02/23/2023 | 5,382 | |
800 | 5.750%—01/24/2022 | 861 | |
13,976 | |||
Moody's Corp. | |||
300 | 2.625%—01/15/2023 | 288 | |
462 | 4.500%—09/01/2022 | 479 | |
767 | |||
Morgan Stanley | |||
5,200 | 3.539% (3 Month USD Libor + 1.180) 01/20/20222 | 5,280 | |
Morgan Stanley MTN8 | |||
8,508 | 5.625%—09/23/2019 | 8,811 | |
Piper Jaffray Cos. | |||
2,000 | 5.060%—10/09/20183 | 2,015 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CAPITAL MARKETS—Continued | |||
UBS AG | |||
$ | 8,000 | 2.627% (3 Month USD Libor + 0.580) 06/08/20202,3 | $ 8,034 |
UBS AG MTN8 | |||
6,800 | 2.355% (3 Month USD Libor + 0.320) 12/07/20182,3 | 6,807 | |
1,800 | 2.856% (3 Month USD Libor + 0.850) 06/01/20202 | 1,819 | |
8,626 | |||
UBS Group Funding Jersey Ltd. | |||
8,500 | 3.000%—04/15/20213 | 8,392 | |
124,293 | |||
CONSUMER FINANCE—1.5% | |||
Ally Financial Inc. | |||
200 | 4.125%—03/30/2020 | 201 | |
200 | 7.500%—09/15/2020 | 217 | |
418 | |||
American Express Co. | |||
6,400 | 3.400%—02/27/2023 | 6,355 | |
Capital One Financial Corp. | |||
5,400 | 2.400%—10/30/2020 | 5,280 | |
5,500 | 2.809% (3 Month USD Libor + 0.450) 10/30/20202 | 5,487 | |
10,767 | |||
Daimler Finance North America LLC | |||
5,300 | 3.350%—05/04/20213 | 5,294 | |
5,300 | 3.700%—05/04/20233 | 5,290 | |
10,584 | |||
Discover Bank | |||
2,900 | 2.600%—11/13/2018 | 2,899 | |
Navient Corp. MTN8 | |||
100 | 8.000%—03/25/2020 | 107 | |
OneMain Financial Holdings Inc. | |||
750 | 7.250%—12/15/20213 | 777 | |
31,907 | |||
DIVERSIFIED FINANCIAL SERVICES—1.7% | |||
Cantor Fitzgerald LP | |||
5,400 | 6.500%—06/17/20223 | 5,834 | |
Depository Trust & Clearing Corp. | |||
3,000 | 4.875% (3 Month USD Libor + 3.167) 06/15/20202,3,7 | 3,045 | |
Guardian Life Global Funding | |||
4,000 | 3.400%—04/25/20233 | 3,986 | |
Imperial Brands Finance plc | |||
2,100 | 3.750%—07/21/20223 | 2,103 | |
Leaseplan Corp. NV | |||
7,300 | 2.875%—01/22/20193 | 7,283 | |
National Rural Utilities Cooperative Finance Corp. MTN8 | |||
4,500 | 2.900%—03/15/2021 | 4,465 | |
Rio Oil Finance Trust | |||
1,703 | 9.250%—07/06/20243 | 1,870 | |
6,483 | 9.750%—01/06/20273 | 7,172 | |
9,042 | |||
35,758 |
39
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
DIVERSIFIED TELECOMMUNICATION SERVICES—1.0% | |||
Altice Financing SA | |||
$ | 2,200 | 6.625%—02/15/20233 | $ 2,206 |
Deutsche Telekom International Finance BV | |||
4,980 | 2.820%—01/19/20223 | 4,865 | |
Telefonica Emisiones Sau | |||
1,800 | 5.134%—04/27/2020 | 1,871 | |
Verizon Communications Inc. | |||
12,695 | 3.376%—02/15/2025 | 12,342 | |
21,284 | |||
ELECTRIC UTILITIES—0.5% | |||
American Electric Power Co. Inc. | |||
1,000 | 2.150%—11/13/2020 | 974 | |
Nextera Energy Capital Holdings Inc. | |||
8,600 | 2.372% (3 Month USD Libor + 0.315) 09/03/20192 | 8,620 | |
9,594 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.1% | |||
Tech Data Corp. | |||
1,700 | 3.700%—02/15/2022 | 1,675 | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—1.0% | |||
American Tower Corp. | |||
2,100 | 3.300%—02/15/2021 | 2,093 | |
AvalonBay Communities Inc. MTN8 | |||
4,400 | 3.450%—06/01/2025 | 4,284 | |
CBL & Associates LP | |||
2,700 | 4.600%—10/15/2024 | 2,149 | |
6,600 | 5.950%—12/15/2026 | 5,296 | |
7,445 | |||
EPR Properties | |||
2,200 | 4.500%—06/01/2027 | 2,089 | |
Washington Prime Group LP | |||
5,800 | 5.950%—08/15/2024 | 5,451 | |
21,362 | |||
FOOD & STAPLES RETAILING—0.4% | |||
CVS Health Corp. | |||
5,300 | 3.125%—03/09/2020 | 5,302 | |
CVS Pass-Through Trust | |||
570 | 6.943%—01/10/2030 | 640 | |
Viterra Inc. | |||
200 | 5.950%—08/01/20203 | 211 | |
Walgreens Boots Alliance Inc. | |||
1,600 | 3.300%—11/18/2021 | 1,595 | |
7,748 | |||
FOOD PRODUCTS—0.1% | |||
Kraft Heinz Foods Co. | |||
2,800 | 5.375%—02/10/2020 | 2,909 | |
HEALTH CARE EQUIPMENT & SUPPLIES—0.5% | |||
Boston Scientific Corp. | |||
4,900 | 2.850%—05/15/2020 | 4,857 | |
Zimmer Biomet Holdings Inc. | |||
4,900 | 2.700%—04/01/2020 | 4,855 | |
9,712 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
HOTELS, RESTAURANTS & LEISURE—0.5% | |||
Wynn Las Vegas LLC | |||
$ | 5,200 | 4.250%—05/30/20233 | $ 4,998 |
5,300 | 5.500%—03/01/20253 | 5,289 | |
10,287 | |||
INDUSTRIAL CONGLOMERATES—0.2% | |||
General Electric Co. | |||
4,400 | 5.000% (3 Month USD Libor + 3.330) 01/21/20212,7 | 4,361 | |
MACHINERY—0.1% | |||
CNH Industrial Capital LLC | |||
500 | 3.875%—10/15/2021 | 503 | |
2,200 | 4.375%—11/06/2020 | 2,249 | |
2,752 | |||
MEDIA—0.2% | |||
Charter Communications Operating LLC | |||
300 | 3.579%—07/23/2020 | 301 | |
Discovery Communications LLC | |||
4,000 | 2.200%—09/20/2019 | 3,954 | |
4,255 | |||
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—0.5% | |||
ERP Operating LP | |||
5,500 | 3.375%—06/01/2025 | 5,361 | |
Simon Property Group LP | |||
6,000 | 2.500%—09/01/2020 | 5,921 | |
11,282 | |||
OIL, GAS & CONSUMABLE FUELS—0.8% | |||
Enbridge Inc. | |||
2,900 | 2.737% (3 Month USD Libor + 0.400) 01/10/20202 | 2,901 | |
Energy Transfer Partners LP | |||
1,100 | 4.150%—10/01/2020 | 1,115 | |
Genesis Energy LP | |||
2,100 | 5.625%—06/15/2024 | 2,011 | |
MPLX LP | |||
3,700 | 4.900%—04/15/2058 | 3,383 | |
Odebrecht Drilling Norbe VIII/IX Ltd. | |||
1,936 | 6.350%—12/01/20213 | 1,898 | |
3,100 | 7.350%—12/01/20263 | 1,658 | |
3,556 | |||
Odebrecht Offshore Drilling Finance Ltd. | |||
1,009 | 6.720%—12/01/20223 | 974 | |
3,044 | 7.720%—12/01/20263 | 913 | |
1,887 | |||
Odebrecht Oil & Gas Finance Ltd. | |||
2,183 | 0.000%—12/31/20493,7,9 | 54 | |
Rio Oil Finance Trust Series 2014-1 | |||
2,594 | 9.250%—07/06/2024 | 2,847 | |
17,754 | |||
PHARMACEUTICALS—0.6% | |||
Abbvie Inc. | |||
1,000 | 3.200%—11/06/2022 | 984 | |
Allergan Funding SCS | |||
6,700 | 3.000%—03/12/2020 | 6,657 | |
2,700 | 3.450%—03/15/2022 | 2,657 | |
9,314 |
40
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
PHARMACEUTICALS—Continued | |||
Teva Pharmaceutical Finance Netherlands III BV | |||
$ | 3,000 | 6.750%—03/01/20283,10 | $ 2,966 |
13,264 | |||
REAL ESTATE MANAGEMENT & DEVELOPMENT—0.2% | |||
Tesco Property Finance 5 plc | |||
£ | 2,265 | 5.661%—10/13/2041 | 3,666 |
ROAD & RAIL—0.0% | |||
TTX Co. MTN8 | |||
$ | 250 | 2.600%—06/15/20203 | 247 |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—0.2% | |||
Broadcom Corp. | |||
3,800 | 3.875%—01/15/2027 | 3,631 | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—0.3% | |||
Dell International LLC | |||
4,000 | 5.450%—06/15/20233 | 4,210 | |
EMC Corp. | |||
1,900 | 2.650%—06/01/2020 | 1,852 | |
6,062 | |||
TOBACCO—0.4% | |||
BAT Capital Corp | |||
1,500 | 2.423% (3 Month USD Libor + 0.590) 08/14/20202,3 | 1,508 | |
4,640 | 2.719% (3 Month USD Libor + 0.880) 08/15/20222,3 | 4,697 | |
3,060 | 2.764%—08/15/20223 | 2,940 | |
9,145 | |||
TRADING COMPANIES & DISTRIBUTORS—0.3% | |||
Aviation Capital Group LLC | |||
5,300 | 3.875%—05/01/20233 | 5,289 | |
Mitsubishi Corp. MTN8 | |||
400 | 2.625%—07/14/2022 | 388 | |
5,677 | |||
WIRELESS TELECOMMUNICATION SERVICES—0.1% | |||
Sprint Capital Corp. | |||
2,900 | 6.900%—05/01/2019 | 2,994 | |
TOTAL CORPORATE BONDS & NOTES | |||
(Cost $784,494) | 781,660 | ||
ESCROW— 0.0% | |||
(Cost $15) | |||
Shares | |||
AUTOMOBILES—0.0% | |||
36,000 | General Motors Co. Escrow | — x | |
FOREIGN GOVERNMENT OBLIGATIONS—26.6% | |||
Principal Amount | Value | ||
FOREIGN GOVERNMENT OBLIGATIONS—26.6% | |||
Argentina Bonar Bonds | |||
ARG$ | 129,200 | 24.938% (Argentina Deposit Rates Badlar Private Banks ARS 30 to 35 Days + 2.000) 04/03/20222 | $ 6,490 |
Argentina Treasury Bill | |||
$ | 33,300 | 0.000%—08/10/2018-02/22/20199 | 32,345 |
ARG$ | 100,260 | 0.000%—09/14/20189 | 4,448 |
36,793 | |||
Brazil Letras Do Tesouro Nacional | |||
R$ | 284,900 | 0.000%—07/01/2018-10/01/20189 | 80,061 |
Hellenic Republic Government Bond | |||
€ | 3,500 | 4.750%—04/17/20193 | 4,382 |
Hellenic Republic Treasury Bill | |||
21,700 | 0.000%—06/08/2018-03/15/20199 | 26,017 | |
Japan Bank For International Cooperation | |||
$ | 6,800 | 2.375%—07/21/2022 | 6,585 |
Japan Finance Organization For Municipalities MTN8 | |||
6,800 | 2.625%—04/20/20223 | 6,633 | |
Japan International Cooperation Agency | |||
6,900 | 2.750%—04/27/2027 | 6,561 | |
Japan Treasury Discount Bill | |||
¥ | 38,710,000 | 0.000%—05/01/2018-07/30/20189 | 354,164 |
Nigeria Omo Bill | |||
₦ | 500,000 | 14.250%—10/25/2018 | 1,261 |
Province of Ontario Canada | |||
$ | 6,100 | 1.650%—09/27/2019 | 6,018 |
CAD$ | 5,600 | 3.150%—06/02/2022 | 4,476 |
$ | 3,800 | 4.000%—10/07/2019 | 3,872 |
2,300 | 4.400%—04/14/2020 | 2,371 | |
16,737 | |||
Province of Quebec Canada | |||
CAD$ | 4,700 | 3.500%—07/29/2020-12/01/2022 | 4,001 |
13,900 | 4.250%—12/01/2021 | 11,527 | |
15,528 | |||
TOTAL FOREIGN GOVERNMENT OBLIGATIONS | |||
(Cost $579,608) | 561,212 | ||
MORTGAGE PASS-THROUGH—50.5% | |||
Federal Home Loan Mortgage Corp. | |||
$ | 43 | 3.373% (US Treasury Yield Curve Rate T Note 1 Year CMT + 2.250) 08/01/20352 | 46 |
7 | 3.539% (US Treasury Yield Curve Rate T Note 1 Year CMT + 2.209) 06/01/20242 | 7 | |
364 | 4.500%—12/01/2040-09/01/2041 | 381 | |
1,130 | 5.500%—02/01/2038-07/01/2038 | 1,242 | |
4,313 | 6.000%—01/01/2029-05/01/2040 | 4,800 | |
6,476 | |||
Federal Home Loan Mortgage Corp. Multifamily Structured Pass Through Certificates | |||
18,900 | 1.396%—08/25/20222 | 847 | |
Federal Home Loan Mortgage Corp. REMIC6 | |||
6,369 | 2.297% (1 Month USD Libor + 0.400) 06/15/20412 | 6,406 | |
26 | 2.347% (1 Month USD Libor + 0.450) 11/15/20302 | 26 | |
52 | 8.000%—08/15/2022 | 56 | |
6 | 9.000%—12/15/2020 | 6 | |
6,494 |
41
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
MORTGAGE PASS-THROUGH—Continued | |||
Principal Amount | Value | ||
Federal Home Loan Mortgage Corp. Structured Pass Through Securities | |||
Series T-63 Cl. 1A1 | |||
$ | 119 | 2.263% (Fed 12 Month Treasury Average CMT + 1.200) 02/25/20452 | $ 120 |
Series E3 Cl. A | |||
77 | 3.487%—08/15/20322 | 80 | |
200 | |||
Federal Home Loan Mortgage Corp. TBA11 | |||
38,000 | 3.500%—05/14/2048-06/13/2048 | 37,678 | |
14,000 | 4.000%—06/13/2048 | 14,233 | |
15,000 | 4.500%—06/12/2044 | 15,587 | |
67,498 | |||
Federal Housing Authority Project | |||
1 | 7.400%—02/01/2021 | 1 y | |
Federal National Mortgage Association | |||
5,300 | 2.310%—08/01/2022 | 5,124 | |
231 | 2.777% (Fed 12 Month Treasury Average CMT + 1.400) 10/01/20402 | 231 | |
6,000 | 2.870%—09/01/2027 | 5,749 | |
938 | 3.000%—02/01/2021-11/01/2025 | 937 | |
440 | 3.330%—11/01/2021 | 444 | |
58 | 3.428% (12 Month USD Libor + 1.674) 05/01/20352 | 61 | |
1,062 | 3.449% (12 Month USD Libor + 1.693) 08/01/20352 | 1,117 | |
150 | 3.500%—03/01/2026-05/01/2027 | 152 | |
1,070 | 3.628% (12 Month USD Libor + 1.715) 06/01/20352 | 1,127 | |
9,667 | 4.000%—07/01/2018-10/01/2031 | 9,930 | |
9,675 | 4.500%—06/01/2019-10/01/2042 | 10,038 | |
5,837 | 5.000%—12/01/2022-06/01/2044 | 6,226 | |
32,122 | 5.500%—02/01/2023-09/01/2041 | 35,087 | |
9,741 | 6.000%—03/01/2023-06/01/2040 | 10,849 | |
87,072 | |||
Federal National Mortgage Association REMIC6 | |||
Series 2015-38 Cl. DF | |||
6,749 | 1.974% (1 Month USD Libor + 0.310) 06/25/20552 | 6,753 | |
Series 2011-98 Cl. ZL | |||
70,253 | 3.500%—10/25/2041 | 67,050 | |
Series 2006-5 Cl. 3A2 | |||
89 | 3.532%—05/25/20355 | 93 | |
Series 2003-25 Cl. KP | |||
580 | 5.000%—04/25/2033 | 615 | |
Series 2003-W1 Cl. 1A1 | |||
189 | 5.438%—12/25/20422 | 198 | |
74,709 | |||
Federal National Mortgage Association TBA11 | |||
211,000 | 3.000%—06/13/2048 | 203,126 | |
276,000 | 3.500%—05/17/2033-06/13/2048 | 274,049 | |
219,000 | 4.000%—05/14/2048-06/13/2048 | 222,678 | |
53,000 | 4.500%—06/13/2047 | 55,086 | |
500 | 5.500%—05/14/2048 | 541 | |
755,480 | |||
Government National Mortgage Association | |||
4,368 | 5.000%—08/15/2033-06/15/2041 | 4,670 | |
Government National Mortgage Association II | |||
25 | 2.625% (US Treasury Yield Curve Rate T Note 1 Year CMT + 1.500) 05/20/20242 | 25 | |
141 | 2.750% (US Treasury Yield Curve Rate T Note 1 Year CMT + 7.500) 08/20/2022-07/20/20272 | 145 |
MORTGAGE PASS-THROUGH—Continued | |||
Principal Amount | Value | ||
$ | 133 | 3.125% (US Treasury Yield Curve Rate T Note 1 Year CMT + 9.000) 12/20/2024-11/20/20292 | $ 137 |
329 | 3.375% (US Treasury Yield Curve Rate T Note 1 Year CMT + 3.000) 01/20/2025-02/20/20322 | 338 | |
645 | |||
Government National Mortgage Association II TBA11 | |||
9,000 | 3.500%—05/21/2048 | 9,006 | |
Government National Mortgage Association TBA11 | |||
2,000 | 3.000%—05/21/2048 | 1,950 | |
24,000 | 4.000%—05/21/2048 | 24,536 | |
23,500 | 5.000%—05/21/2048 | 24,669 | |
51,155 | |||
TOTAL MORTGAGE PASS-THROUGH | |||
(Cost $1,067,499) | 1,064,253 | ||
MUNICIPAL BONDS—1.1% | |||
Chicago Transit Authority | |||
170 | 6.300%—12/01/2021 | 180 | |
City of Chicago, IL | |||
4,800 | 7.750%—01/01/2042 | 5,125 | |
Clark County, NV | |||
4,000 | 6.350%—07/01/2029 | 4,173 | |
University of California | |||
12,270 | 4.858%—05/15/2112 | 12,956 | |
TOTAL MUNICIPAL BONDS | |||
(Cost $21,113) | 22,434 | ||
U.S. GOVERNMENT OBLIGATIONS—20.8% | |||
U.S. Treasury Bonds | |||
14,000 | 2.250%—08/15/2046 | 11,727 | |
34,200 | 2.500%—02/15/2045-02/15/204610 | 30,398 | |
16,800 | 2.875%—05/15/2043 | 16,149 | |
20,300 | 3.000%—05/15/2042-02/15/2048 | 19,926 | |
17,100 | 3.125%—02/15/2042-02/15/2043 | 17,217 | |
52,700 | 3.125%—08/15/204410 | 52,885 | |
1,800 | 3.625%—02/15/2044 | 1,966 | |
4,200 | 4.250%—05/15/2039 | 4,991 | |
10,500 | 4.375%—05/15/2040 | 12,716 | |
12,000 | 4.625%—02/15/2040 | 15,002 | |
182,977 | |||
U.S. Treasury Notes | |||
16,800 | 1.375%—03/31/202010 | 16,454 | |
21,000 | 1.750%—09/30/202210 | 20,120 | |
25,100 | 1.875%—07/31/202210 | 24,220 | |
94,000 | 2.000%—08/31/2021-12/31/202110 | 91,812 | |
6,300 | 2.125%—09/30/202410 | 6,019 | |
17,700 | 2.250%—11/15/202410 | 17,022 | |
50,500 | 2.250%—08/15/2027 | 47,648 | |
33,300 | 2.375%—05/15/202710 | 31,801 | |
255,096 | |||
TOTAL U.S. GOVERNMENT OBLIGATIONS | |||
(Cost $462,894) | 438,073 | ||
42
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
SHORT-TERM INVESTMENTS—2.6% | |||
Principal Amount | Value | ||
CERTIFICATES OF DEPOSIT—1.6% | |||
Barclays plc | |||
$ | 28,800 | 1.940%—09/04/2018 | $ 28,745 |
Credit Suisse NY | |||
6,400 | 2.521% (1 Month USD Libor + 0.620) 09/28/20182 | 6,400 | |
35,145 | |||
COMMERCIAL PAPER—1.0% | |||
ING US Funding LLC | |||
5,100 | 2.088% (1 Month USD Libor + 0.190) 07/23/20182 | 5,100 | |
Qualcomm Inc. | |||
6,400 | 2.250%—05/30/2018 | 6,389 | |
Sempra Energy Holding | |||
5,000 | 2.500%—05/10/2018 | 4,997 |
SHORT-TERM INVESTMENTS—Continued | |||
Principal Amount | Value | ||
COMMERCIAL PAPER—Continued | |||
Viacom Inc. | |||
$ | 4,000 | 2.930%—06/15/2018 | $ 3,985 |
20,471 | |||
TOTAL SHORT-TERM INVESTMENTS | |||
(Cost $55,670) | 55,616 | ||
TOTAL INVESTMENTS—157.0% | |||
(Cost $3,331,064) | 3,308,450 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(57.0)% | (1,200,836) | ||
TOTAL NET ASSETS—100.0% | $ 2,107,614 |
FUTURES CONTRACTS OPEN AT APRIL 30, 2018
Description | Number of Contracts | Expiration Date | Current Notional Value (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||
Australian Government Bond Futures 10 year (Short) | 341 | 06/15/2018 | AUD$ 43,612 | $ 29 | ||||
Canadian Government Bond Futures 10 year (Short) | 307 | 06/20/2018 | CAD$ 40,355 | (152) | ||||
Euro-BTP Futures (Short) | 352 | 06/07/2018 | € 48,932 | (1,231) | ||||
Euro-Bund Futures (Long) | 776 | 06/07/2018 | 123,182 | 446 | ||||
Euro-BUXL Bond Futures 30 year (Short) | 137 | 06/07/2018 | 22,405 | 248 | ||||
Euro-OAT Futures (Short) | 1,094 | 06/07/2018 | 168,268 | (2,627) | ||||
Japanese Government Bond Futures 10 year (Long) | 5 | 06/13/2018 | ¥ 753,200 | (3) | ||||
Eurodollar Futures-CME 90 day (Short) | 379 | 06/15/2020 | $ 91,907 | 100 | ||||
Eurodollar Futures-CME 90 day (Short) | 281 | 09/14/2020 | 68,135 | 74 | ||||
U.S. Treasury Bond Futures 30 year (Short) | 493 | 06/20/2018 | 70,915 | (365) | ||||
U.S. Treasury Note Futures 5 year (Long) | 6,109 | 06/29/2018 | 693,419 | (2,879) | ||||
U.S. Treasury Note Futures 10 year (Long) | 1,142 | 06/20/2018 | 136,612 | (818) | ||||
Total Futures Contracts | $(7,178) |
PURCHASED OPTIONS OPEN AT APRIL 30, 2018
PURCHASED OPTIONS THAT REQUIRE PERIODIC SETTLEMENT OF VARIATION MARGIN
Description | Exchange | Strike Price | Expiration Date | Number of Contracts/ Notional | Premiums Paid (000s) | Value (000s) | ||||||
Euro-Bund Option Futures (Put) | Eurex | € 140.00 | 05/25/2018 | 400 | $ 5 | $ 5 | ||||||
Euro-Bund Option Futures (Put) | Eurex | 141.00 | 05/25/2018 | 300 | 4 | 4 | ||||||
Euro-Bund Option Futures (Put) | Eurex | 152.50 | 05/25/2018 | 300 | 4 | 3 | ||||||
Euro-OAT Option Futures (Call) | Eurex | 168.50 | 05/25/2018 | 578 | 8 | 7 | ||||||
Euro-OAT Option Futures (Call) | Eurex | 170.00 | 05/25/2018 | 516 | 7 | 6 | ||||||
Total Purchased Options that Require Periodic Settlement of Variation Margin | $28 | $25 |
PURCHASED OPTIONS NOT SETTLED THROUGH VARIATION MARGIN
Description | Counterparty/Exchange | Strike Price | Expiration Date | Number of Contracts/ Notional | Premiums Paid (000s) | Value (000s) | ||||||
Canadian Government Bond Futures 10 year (Call) | Montreal Stock Exchange | CAD$ 150.00 | 05/18/2018 | 200 | $ 2 | $ 1 | ||||||
Federal National Mortgage Association Future 30 year (Put) | Credit Suisse International | $ 76.00 | 05/07/2018 | 75,000,000 | 3 | — | ||||||
Federal National Mortgage Association Future 30 year (Put) | JP Morgan Chase Bank NA | 69.00 | 05/07/2018 | 32,900,000 | 1 | — | ||||||
Federal National Mortgage Association Future 30 year (Put) | JP Morgan Chase Bank NA | 70.00 | 06/06/2018 | 10,000,000 | 1 | — | ||||||
U.S. Treasury Bond Futures 30 year (Call) | Chicago Board of Trade | 180.00 | 05/25/2018 | 27 | — | — | ||||||
U.S. Treasury Notes 5 year Future (Put) | Chicago Board of Trade | 105.25 | 05/25/2018 | 196 | 2 | — |
43
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
PURCHASED OPTIONS—Continued
PURCHASED OPTIONS NOT SETTLED THROUGH VARIATION MARGIN—Continued
Description | Counterparty/Exchange | Strike Price | Expiration Date | Number of Contracts/ Notional | Premiums Paid (000s) | Value (000s) | ||||||
U.S. Treasury Notes 5 year Future (Put) | Chicago Board of Trade | $ 105.50 | 05/25/2018 | 2,098 | $ 18 | $ 2 | ||||||
U.S. Treasury Notes 5 year Future (Put) | Chicago Board of Trade | 106.00 | 05/25/2018 | 3,200 | 27 | 3 | ||||||
U.S. Treasury Notes 10 year Future (Put) | Chicago Board of Trade | 108.00 | 05/25/2018 | 926 | 8 | 1 | ||||||
U.S. Treasury Notes 10 year Future (Put) | Chicago Board of Trade | 108.50 | 05/25/2018 | 130 | 1 | — | ||||||
U.S. Treasury Notes 10 year Future (Put) | Chicago Board of Trade | 110.50 | 05/25/2018 | 9 | — | — | ||||||
U.S. Treasury Notes 10 year Future (Put) | Chicago Board of Trade | 111.50 | 05/25/2018 | 90 | 1 | — | ||||||
Total Purchased Options Not Settled Through Variation Margin | $ 64 | $ 7 |
PURCHASED SWAP OPTIONS NOT SETTLED THROUGH VARIATION MARGIN
Description | Counterparty | Floating Rate Index | Pay/Receive Floating Rate | Strike Rate | Expiration Date | Number of Contracts/ Notional | Premiums Paid (000s) | Value (000s) | ||||||||
Credit Default Swap Option (Put) | JP Morgan Chase Bank NA | Markit iTraxx Europe | Receive | 1.300% | 05/16/2018 | 20,000,000 | $ 3 | $ — | ||||||||
Interest Rate Swap Option 30 year (Put) | Goldman Sachs Bank USA | 3-Month USD-LIBOR | Receive | 2.930 | 08/20/2018 | 6,000,000 | 636 | 254 | ||||||||
Interest Rate Swap Option 30 year (Put) | Goldman Sachs Bank USA | 3-Month USD-LIBOR | Receive | 2.940 | 08/20/2018 | 5,300,000 | 518 | 201 | ||||||||
Interest Rate Swap Option 30 year (Put) | Goldman Sachs Bank USA | 3-Month USD-LIBOR | Receive | 2.943 | 12/12/2019 | 1,800,000 | 87 | 138 | ||||||||
Interest Rate Swap Option 30 year (Put) | Morgan Stanley Capital Services LLC | 3-Month USD-LIBOR | Receive | 2.905 | 08/20/2018 | 16,600,000 | 1,637 | 707 | ||||||||
Total Purchased Swap Options Not Settled Through Variation Margin | $2,881 | $1,300 | ||||||||||||||
Total Purchased Options | $2,973 | $1,332 |
WRITTEN OPTIONS OPEN AT APRIL 30, 2018
WRITTEN OPTIONS THAT REQUIRE PERIODIC SETTLEMENT OF VARIATION MARGIN
Description | Exchange | Strike Price | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||
Euro-Bund Futures (Call) | Eurex | € 158.50 | 05/25/2018 | 297 | $126 | $(244) | ||||||
Euro-Bund Futures (Call) | Eurex | 159.00 | 05/25/2018 | 508 | 260 | (251) | ||||||
Euro-Bund Futures (Call) | Eurex | 159.50 | 05/25/2018 | 139 | 52 | (37) | ||||||
Euro-Bund Futures (Put) | Eurex | 158.00 | 05/25/2018 | 300 | 118 | (105) | ||||||
Total Written Options that Require Periodic Settlement of Variation Margin | $556 | $(637) |
WRITTEN OPTIONS NOT SETTLED THROUGH VARIATION MARGIN
Description | Counterparty/Exchange | Strike Index/Price | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Citibank NA | 215.95 j | 03/12/2020 | 14,100,000 | $ 119 | $ — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Citibank NA | 216.69 j | 04/07/2020 | 33,900,000 | 302 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Citibank NA | 217.96 j | 09/29/2020 | 15,100,000 | 195 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Deutsche Bank AG | 215.95 j | 03/10/2020 | 5,100,000 | 38 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Deutsche Bank AG | 218.01 j | 10/13/2020 | 15,600,000 | 153 | — | ||||||
Currency Option Euro vs. U.S. Dollar (Call) | BNP Paribas SA | € 1.26 | 06/21/2018 | 7,200,000 | 36 | (11) | ||||||
Currency Option U.S. Dollar vs. Canadian Dollar (Put) | Goldman Sachs Bank USA | $ 1.25 | 06/22/2018 | 9,300,000 | 39 | (18) | ||||||
Currency Option U.S. Dollar vs. Mexican Peso (Call) | HSBC Bank USA NA | 19.93 | 06/25/2018 | 7,900,000 | 67 | (38) | ||||||
Currency Option U.S. Dollar vs. Mexican Peso (Call) | JP Morgan Chase Bank NA | 19.50 | 08/21/2018 | 9,400,000 | 155 | (204) | ||||||
Currency Option U.S. Dollar vs. Mexican Peso (Call) | NatWest Markets Plc | 19.25 | 07/19/2018 | 9,400,000 | 139 | (181) | ||||||
Currency Option U.S. Dollar vs. Russian Ruble (Call) | Citibank NA | 64.70 | 06/22/2018 | 8,100,000 | 72 | (106) | ||||||
Currency Option U.S. Dollar vs. Russian Ruble (Call) | Citibank NA | 65.51 | 06/15/2018 | 6,100,000 | 61 | (54) | ||||||
Currency Option U.S. Dollar vs. Russian Ruble (Call) | Goldman Sachs Bank USA | 64.78 | 06/22/2018 | 5,600,000 | 51 | (72) | ||||||
Currency Option U.S. Dollar vs. Russian Ruble (Call) | HSBC Bank USA NA | 64.48 | 05/17/2018 | 7,600,000 | 58 | (38) | ||||||
Currency Option U.S. Dollar vs. Russian Ruble (Call) | HSBC Bank USA NA | 65.10 | 06/22/2018 | 5,600,000 | 51 | (64) |
44
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
WRITTEN OPTIONS—Continued
WRITTEN OPTIONS NOT SETTLED THROUGH VARIATION MARGIN—Continued
Description | Counterparty/Exchange | Strike Index/Price | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||
Federal National Mortgage Association Future 30 year (Call) | Goldman Sachs & Co. LLC | $ 100.23 | 05/07/2018 | 10,000,000 | $ 33 | $ — | ||||||
Federal National Mortgage Association Future 30 year (Call) | Goldman Sachs & Co. LLC | 100.45 | 05/07/2018 | 20,000,000 | 52 | — | ||||||
Federal National Mortgage Association Future 30 year (Call) | JP Morgan Chase Bank NA | 100.43 | 05/07/2018 | 8,000,000 | 22 | — | ||||||
U.S. Treasury Notes 10 year Future (Call) | Chicago Board of Trade | 120.00 | 05/25/2018 | 300 | 65 | (84) | ||||||
Total Written Options Not Settled Through Variation Margin | $1,708 | $(870) |
WRITTEN SWAP OPTIONS NOT SETTLED THROUGH VARIATION MARGIN
Description | Counterparty | Floating Rate Index | Pay/Receive Floating Rate | Strike Rate | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||||
Credit Default Swap Option (Put) | BNP Paribas SA | Markit iTraxx Europe | Pay | 1.00% | 06/20/2018 | 23,100,000 | $ 39 | $ (13) | ||||||||
Credit Default Swap Option (Put) | Citibank NA | Markit iTraxx Europe | Pay | 1.00 | 06/20/2018 | 1,400,000 | 2 | — | ||||||||
Credit Default Swap Option (Put) | Citibank NA | Markit iTraxx Europe | Pay | 1.00 | 07/18/2018 | 4,600,000 | 5 | (4) | ||||||||
Credit Default Swap Option (Put) | Credit Suisse International | Markit iTraxx Europe | Pay | 1.00 | 05/16/2018 | 4,700,000 | 6 | — | ||||||||
Credit Default Swap Option (Put) | Deutsche Bank AG | Markit iTraxx Europe | Pay | 1.00 | 07/18/2018 | 5,300,000 | 9 | (3) | ||||||||
Credit Default Swap Option (Put) | JP Morgan Chase Bank NA | Markit iTraxx Europe | Pay | 1.00 | 06/20/2018 | 5,700,000 | 7 | (2) | ||||||||
Interest Rate Swap Option 5 year (Put) | Goldman Sachs Bank USA | 3-Month USD-LIBOR | Pay | 2.75 | 12/12/2019 | 7,800,000 | 85 | (180) | ||||||||
Interest Rate Swap Option 5 year (Put) | Goldman Sachs Bank USA | 3-Month USD-LIBOR | Pay | 2.80 | 08/20/2018 | 49,600,000 | 1,155 | (507) | ||||||||
Interest Rate Swap Option 5 year (Put) | Morgan Stanley Capital Services LLC | 3-Month USD-LIBOR | Pay | 2.80 | 08/20/2018 | 72,800,000 | 1,624 | (744) | ||||||||
Total Written Swap Options Not Settled Through Variation Margin | $2,932 | $(1,453) | ||||||||||||||
Total Written Options | $5,196 | $(2,960) |
FORWARD CURRENCY CONTRACTS OPEN AT APRIL 30, 2018
Counterparty | Amount to be Delivered (000s) | Amount to be Received (000s) | Settlement Date | Unrealized Appreciation/ (Depreciation) (000s) | ||||
JP Morgan Chase Bank NA | $ 1,298 | AUD$ 1,719 | 05/03/2018 | $ (4) | ||||
JP Morgan Chase Bank NA | AUD$ 436 | $ 1,321 | 05/03/2018 | 26 | ||||
JP Morgan Chase Bank NA | AUD$ 1,719 | $ 1,298 | 06/04/2018 | 4 | ||||
BNP Paribas SA | $ 3,495 | R$ 12,167 | 05/03/2018 | (23) | ||||
BNP Paribas SA | $ 4,245 | R$ 14,000 | 07/03/2018 | (274) | ||||
JP Morgan Chase Bank | $ 1,453 | R$ 12,167 | 05/03/2018 | (142) | ||||
BNP Paribas SA | R$ 12,168 | $ 3,725 | 05/03/2018 | 252 | ||||
Citibank NA | R$ 83,900 | $ 24,960 | 07/03/2018 | 1,159 | ||||
Goldman Sachs Bank USA | R$ 54,500 | $ 16,225 | 07/03/2018 | 764 | ||||
Goldman Sachs Bank USA | R$ 5,000 | $ 1,493 | 10/02/2018 | 84 | ||||
JP Morgan Chase Bank | R$ 12,167 | $ 3,495 | 05/03/2018 | 23 | ||||
JP Morgan Chase Bank | R$ 3,162 | $ 931 | 06/04/2018 | 31 | ||||
JP Morgan Chase Bank | R$ 56,700 | $ 16,862 | 07/03/2018 | 778 | ||||
JP Morgan Chase Bank | R$ 11,200 | $ 29,312 | 10/02/2018 | 1,481 | ||||
Barclays Bank plc | $ 1,219 | £ 875 | 05/15/2018 | (14) | ||||
Citibank NA | $ 24,354 | £ 20,215 | 05/15/2018 | (190) | ||||
JP Morgan Chase Bank NA | $ 5,329 | £ 5,559 | 05/15/2018 | (185) | ||||
Citibank NA | £ 6,135 | $ 8,664 | 05/15/2018 | 212 | ||||
Goldman Sachs Bank USA | £ 26,239 | $ 36,540 | 05/15/2018 | 392 | ||||
JP Morgan Chase Bank NA | £ 4,887 | $ 26,963 | 05/15/2018 | 232 | ||||
BNP Paribas SA | $ 6,554 | CAD$ 8,392 | 12/19/2018 | 14 | ||||
Citibank NA | $ 6,756 | CAD$��� 14,304 | 05/03/2018 | (165) | ||||
Goldman Sachs Bank USA | $ 7,360 | CAD$ 9,483 | 05/03/2018 | 27 | ||||
Goldman Sachs Bank USA | $ 11,690 | CAD$ 14,998 | 06/04/2018 | — | ||||
JP Morgan Chase Bank NA | $ 11,800 | CAD$ 15,221 | 05/03/2018 | 55 | ||||
JP Morgan Chase Bank NA | $ 5,976 | CAD$ 18,103 | 05/03/2018 | (281) | ||||
Goldman Sachs Bank USA | CAD$ 14,998 | $ 11,683 | 05/03/2018 | 1 | ||||
JP Morgan Chase Bank NA | CAD$ 7,411 | $ 5,778 | 05/03/2018 | 6 | ||||
JP Morgan Chase Bank NA | CAD$ 34,702 | $ 26,974 | 05/03/2018 | (55) | ||||
BNP Paribas SA | DKK$ 31,994 | $ 5,161 | 10/01/2018 | (90) | ||||
Goldman Sachs Bank USA | DKK$ 81,978 | $ 13,413 | 07/02/2018 | 59 | ||||
Goldman Sachs Bank USA | DKK$ 12,005 | $ 1,971 | 10/01/2018 | 1 |
45
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FORWARD CURRENCY CONTRACTS—Continued
Counterparty | Amount to be Delivered (000s) | Amount to be Received (000s) | Settlement Date | Unrealized Appreciation/ (Depreciation) (000s) | ||||
Société Générale | DKK$ 139,535 | $ 22,482 | 07/02/2018 | $ (247) | ||||
Société Générale | DKK$ 433,352 | $ 71,330 | 10/01/2018 | 208 | ||||
UBS AG | DKK$ 70,933 | $ 11,465 | 07/02/2018 | (89) | ||||
UBS AG | DKK$ 25,415 | $ 4,100 | 10/01/2018 | (71) | ||||
Citibank NA | $ 5,225 | € 4,229 | 05/15/2018 | (112) | ||||
Goldman Sachs Bank USA | $ 10,936 | € 13,116 | 05/15/2018 | (519) | ||||
JP Morgan Chase Bank NA | $ 4,695 | € 6,087 | 05/15/2018 | (181) | ||||
Barclays Bank plc | € 1,900 | $ 2,389 | 08/03/2018 | 78 | ||||
Citibank NA | € 4,059 | $ 5,046 | 05/15/2018 | 139 | ||||
Goldman Sachs Bank USA | € 13,444 | $ 16,600 | 05/15/2018 | 347 | ||||
HSBC Bank USA | € 803 | $ 994 | 05/15/2018 | 23 | ||||
HSBC Bank USA | € 6,100 | $ 7,414 | 07/06/2018 | 9 | ||||
HSBC Bank USA | € 1,600 | $ 6,004 | 03/15/2019 | 173 | ||||
JP Morgan Chase Bank NA | € 4,099 | $ 11,548 | 05/15/2018 | 403 | ||||
JP Morgan Chase Bank NA | € 3,800 | $ 4,715 | 06/08/2018 | 113 | ||||
JP Morgan Chase Bank NA | € 3,400 | $ 4,208 | 08/31/2018 | 62 | ||||
Royal Bank of Scotland plc | € 1,800 | $ 2,223 | 08/31/2018 | 28 | ||||
UBS AG | € 3,631 | $ 14,661 | 05/15/2018 | 225 | ||||
UBS AG | $ 330 | ₹ 21,478 | 06/20/2018 | (9) | ||||
Citibank NA | $ 10,550 | ¥ 1,105,300 | 05/15/2018 | (429) | ||||
Credit Suisse International | $ 43,582 | ¥ 6,438,100 | 05/15/2018 | (2,152) | ||||
JP Morgan Chase Bank NA | $ 9,676 | ¥ 2,483,000 | 05/15/2018 | (574) | ||||
UBS AG | $ 12,319 | ¥ 1,304,800 | 05/15/2018 | (372) | ||||
BNP Paribas SA | ¥ 448,500 | $ 4,244 | 05/15/2018 | 137 | ||||
BNP Paribas SA | ¥ 270,000 | $ 2,547 | 06/04/2018 | 72 | ||||
Citibank NA | ¥ 1,210,000 | $ 42,587 | 05/01/2018 | 231 | ||||
Citibank NA | ¥ 1,410,000 | $�� 12,968 | 05/07/2018 | 65 | ||||
Citibank NA | ¥ 8,870,000 | $ 81,601 | 05/14/2018 | 387 | ||||
Citibank NA | ¥ 1,400,000 | $ 13,201 | 05/21/2018 | 376 | ||||
Citibank NA | ¥ 200,000 | $ 1,886 | 06/04/2018 | 52 | ||||
Citibank NA | ¥ 3,460,000 | $ 32,389 | 07/23/2018 | 552 | ||||
Credit Suisse International | ¥ 1,345,000 | $ 12,614 | 05/15/2018 | 299 | ||||
Deutsche Bank AG | ¥ 1,124,700 | $ 10,736 | 05/15/2018 | 437 | ||||
Goldman Sachs Bank USA | ¥ 351,800 | $ 15,574 | 05/15/2018 | 378 | ||||
JP Morgan Chase Bank NA | ¥ 421,500 | $ 13,162 | 05/15/2018 | 464 | ||||
JP Morgan Chase Bank NA | ¥ 240,000 | $ 2,265 | 06/04/2018 | 65 | ||||
JP Morgan Chase Bank NA | ¥ 3,660,000 | $ 53,362 | 07/30/2018 | (34) | ||||
UBS AG | ¥ 1,170,000 | $ 10,748 | 05/01/2018 | 45 | ||||
UBS AG | ¥ 532,600 | $ 5,027 | 05/15/2018 | 150 | ||||
UBS AG | ¥ 4,860,000 | $ 45,327 | 05/21/2018 | 806 | ||||
UBS AG | ¥ 250,000 | $ 4,808 | 06/04/2018 | 131 | ||||
UBS AG | ¥ 5,890,000 | $ 55,408 | 07/09/2018 | 1,266 | ||||
Citibank NA | $ 4,571 | MEX$ 85,143 | 05/10/2018 | (25) | ||||
HSBC Bank USA | $ 1,994 | MEX$ 37,824 | 05/10/2018 | 25 | ||||
UBS AG | $ 3,789 | MEX$ 72,938 | 08/27/2018 | 39 | ||||
Citibank NA | MEX$ 50,029 | $ 2,659 | 05/10/2018 | (11) | ||||
JP Morgan Chase Bank NA | MEX$ 42,041 | $ 2,256 | 08/23/2018 | 48 | ||||
Royal Bank of Scotland plc | MEX$ 44,487 | $ 2,406 | 07/23/2018 | 59 | ||||
UBS AG | MEX$ 72,938 | $ 3,854 | 05/10/2018 | (40) | ||||
JP Morgan Chase Bank NA | NZD$ 826 | $ 599 | 05/03/2018 | 17 | ||||
JP Morgan Chase Bank | ₦ 470,563 | $ 1,250 | 10/25/2018 | (68) | ||||
Deutsche Bank AG | $ 5,814 | NOK$ 45,190 | 05/15/2018 | (178) | ||||
JP Morgan Chase Bank NA | $ 3,212 | NOK$ 24,990 | 05/15/2018 | (95) | ||||
Barclays Bank plc | NOK$ 8,745 | $ 1,137 | 05/15/2018 | 46 | ||||
JP Morgan Chase Bank NA | NOK$ 15,815 | $ 8,020 | 05/15/2018 | 304 | ||||
Barclays Bank plc | $ 20,112 | RUS$ 1,145,687 | 06/07/2018 | (2,003) | ||||
Citibank NA | $ 5,994 | RUS$ 403,615 | 05/21/2018 | (215) | ||||
Citibank NA | $ 5,342 | RUS$ 310,676 | 05/25/2018 | (425) | ||||
Citibank NA | $ 1,344 | RUS$ 83,234 | 06/25/2018 | (31) | ||||
Goldman Sachs Bank USA | $ 349 | RUS$ 21,495 | 05/21/2018 | (9) | ||||
Goldman Sachs Bank USA | $ 8,228 | RUS$ 593,950 | 06/07/2018 | (987) | ||||
Goldman Sachs Bank USA | $ 1,083 | RUS$ 67,547 | 06/25/2018 | (18) | ||||
Goldman Sachs Bank USA | $ 3,591 | RUS$ 208,964 | 07/10/2018 | (301) | ||||
HSBC Bank USA | $ 4,626 | RUS$ 267,300 | 06/07/2018 | (401) | ||||
JP Morgan Chase Bank | $ 1,368 | RUS$ 84,811 | 05/18/2018 | (24) | ||||
JP Morgan Chase Bank | $ 1,477 | RUS$ 90,831 | 05/21/2018 | (38) |
46
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FORWARD CURRENCY CONTRACTS—Continued
Counterparty | Amount to be Delivered (000s) | Amount to be Received (000s) | Settlement Date | Unrealized Appreciation/ (Depreciation) (000s) | ||||
JP Morgan Chase Bank | $ 574 | RUS$ 33,250 | 05/25/2018 | $ (48) | ||||
JP Morgan Chase Bank | $ 2,431 | RUS$ 138,735 | 06/07/2018 | (238) | ||||
JP Morgan Chase Bank | $ 1,118 | RUS$ 69,580 | 06/18/2018 | (20) | ||||
Citibank NA | RUS$ 69,764 | $ 1,118 | 06/18/2018 | 17 | ||||
Goldman Sachs Bank USA | RUS$ 289,468 | $ 4,674 | 05/11/2018 | 83 | ||||
Goldman Sachs Bank USA | RUS$ 83,231 | $ 1,344 | 06/25/2018 | 31 | ||||
HSBC Bank USA | RUS$ 85,062 | $ 1,368 | 05/18/2018 | 20 | ||||
HSBC Bank USA | RUS$ 360,474 | $ 26,130 | 05/25/2018 | 2,098 | ||||
HSBC Bank USA | RUS$ 67,547 | $ 1,083 | 06/25/2018 | 18 | ||||
JP Morgan Chase Bank | RUS$ 450,976 | $ 7,833 | 05/25/2018 | 694 | ||||
JP Morgan Chase Bank | RUS$ 98,026 | $ 7,485 | 06/07/2018 | 671 | ||||
Barclays Bank plc | $ 1,057 | ₩ 1,121,371 | 06/20/2018 | (9) | ||||
Citibank NA | $ 3,569 | ₩ 3,793,954 | 06/20/2018 | (22) | ||||
Credit Suisse International | $ 4,148 | ₩ 4,503,484 | 06/20/2018 | 62 | ||||
Credit Suisse International | $ 4,820 | ₩ 5,153,279 | 06/20/2018 | (2) | ||||
Goldman Sachs Bank USA | $ 3,849 | ₩ 4,084,559 | 06/20/2018 | (30) | ||||
HSBC Bank USA | $ 20,929 | ₩ 49,621,746 | 06/20/2018 | 461 | ||||
UBS AG | ₩ 68,345,128 | $ 64,568 | 06/20/2018 | 674 | ||||
Citibank NA | $ 2,956 | kr 24,205 | 05/15/2018 | (189) | ||||
Deutsche Bank AG | $ 10,058 | kr 229,120 | 05/15/2018 | (1,499) | ||||
JP Morgan Chase Bank NA | $ 9,078 | kr 187,450 | 05/15/2018 | (1,354) | ||||
Barclays Bank plc | kr 35,720 | $ 4,384 | 05/15/2018 | 300 | ||||
Deutsche Bank AG | kr 29,055 | $ 3,561 | 05/15/2018 | 239 | ||||
JP Morgan Chase Bank NA | kr 12,595 | $ 5,711 | 05/15/2018 | 385 | ||||
BNP Paribas SA | $ 3,236 | TWD$ 104,813 | 06/20/2018 | (72) | ||||
Citibank NA | $ 5,015 | TWD$ 144,989 | 06/20/2018 | (100) | ||||
Deutsche Bank AG | $ 6,718 | TWD$ 194,632 | 06/20/2018 | (120) | ||||
Goldman Sachs Bank USA | $ 3,987 | TWD$ 115,224 | 06/20/2018 | (81) | ||||
HSBC Bank USA | $ 4,634 | TWD$ 133,627 | 06/20/2018 | (104) | ||||
BNP Paribas SA | TWD$ 693,673 | $ 24,000 | 06/20/2018 | 485 | ||||
Total Forward Currency Contracts | $ 5,129 |
INTEREST RATE SWAP AGREEMENTS OPEN AT APRIL 30, 2018
CENTRALLY CLEARED SWAP AGREEMENTS
INTEREST RATE SWAPS
Counterparty | Floating Rate Index | Pay/Receive Floating Rate | Fixed Rate | Payment Frequency | Expiration Date | Notional Amount (000s) | Value (000s) | Upfront Premiums (Received)/Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||||||||
CME Group | Canada Bankers Acceptances-CDOR 3-Month | Receive | 2.700% | Semi-annual | 12/19/2024 | CAD$ 6,500 | $ (64) | $ (535) | $ 471 | |||||||||
CME Group | Canada Bankers Acceptances-CDOR 3-Month | Receive | 1.750 | Semi-annual | 12/16/2046 | 1,900 | 310 | (25) | 335 | |||||||||
LCH Group | EUR-EURIBOR-Act/ 360-Bloomberg 6-Month | Pay | 1.501 | Annual | 07/04/2042 | € 19,600 | (136) | — | (136) | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.500 | Semi-annual | 09/19/2023 | £ 39,300 | (205) | (25) | (180) | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.500 | Semi-annual | 06/20/2028 | 7,800 | 84 | 253 | (169) | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.500 | Semi-annual | 09/19/2028 | 7,700 | 111 | 185 | (74) | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.500 | Semi-annual | 06/20/2048 | 9,500 | 522 | 334 | 188 | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.750 | Semi-annual | 09/19/2048 | 10,500 | (293) | (552) | 259 |
47
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
INTEREST RATE SWAP AGREEMENTS—Continued
CENTRALLY CLEARED SWAP AGREEMENTS—Continued
INTEREST RATE SWAPS—Continued
Counterparty | Floating Rate Index | Pay/Receive Floating Rate | Fixed Rate | Payment Frequency | Expiration Date | Notional Amount (000s) | Value (000s) | Upfront Premiums (Received)/Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||||||||
CME Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300% | Semi-annual | 03/18/2026 | ¥ 12,590,000 | $ (726) | $ (718) | $ (8) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300 | Semi-annual | 03/18/2026 | 10,220,000 | (571) | (626) | 55 | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300 | Semi-annual | 09/20/2027 | 2,180,000 | (28) | (114) | 86 | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.354 | Semi-annual | 01/18/2028 | 40,000 | (2) | 1 | (3) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.285 | Semi-annual | 01/25/2028 | 400,000 | 4 | 28 | (24) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.351 | Semi-annual | 02/08/2028 | 60,000 | (3) | — | (3) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.301 | Semi-annual | 02/13/2028 | 100,000 | — | 7 | (7) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.354 | Semi-annual | 02/16/2028 | 110,000 | (5) | — | (5) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300 | Semi-annual | 03/20/2028 | 1,020,000 | 7 | 73 | (66) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.380 | Semi-annual | 06/18/2028 | 60,000 | (3) | 1 | (4) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.399 | Semi-annual | 06/18/2028 | 770,000 | (51) | — | (51) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.000 | Semi-annual | 12/16/2019 | $ 28,000 | 164 | (744) | 908 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 1.250 | Semi-annual | 06/21/2020 | 73,300 | 2,159 | 1,701 | 458 | |||||||||
LCH Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.250 | Semi-annual | 06/20/2028 | 51,400 | 3,275 | 2,890 | 385 | |||||||||
Interest Rate Swaps | $2,415 |
CREDIT DEFAULT SWAP AGREEMENTS OPEN AT APRIL 30, 2018
CENTRALLY CLEARED SWAP AGREEMENTS
CREDIT DEFAULT SWAPS
Counterparty | Reference Entity | Buy/ Sellb,c | Pay/Receive Fixed Rate | Expiration Date | Implied Credit Spreadd | Payment Frequency | Notional Amounte (000s) | Value f (000s) | Upfront Premiums (Received)/Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||||||||
ICE Group | TESCO PLC 6.000% due 12/14/2029 | Sell | 1.000% | 06/20/2022 | 1.320% | Quarterly | € 5,000 | $ 82 | $ (243) | $325 | ||||||||||
ICE Group | Markit CDX North America High Yield Index Series 30 | Sell | 5.000 | 06/20/2023 | 0.000 | Quarterly | $ 9,900 | 741 | 595 | 146 | ||||||||||
ICE Group | Markit CDX North America Investment Grade Index Series 29 | Sell | 1.000 | 12/20/2022 | 0.000 | Quarterly | 56,300 | 1,208 | 1,139 | 69 |
48
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
CREDIT DEFAULT SWAP AGREEMENTS —Continued
CENTRALLY CLEARED SWAP AGREEMENTS—Continued
CREDIT DEFAULT SWAPS—Continued
Counterparty | Reference Entity | Buy/ Sellb,c | Pay/Receive Fixed Rate | Expiration Date | Implied Credit Spreadd | Payment Frequency | Notional Amounte (000s) | Value f (000s) | Upfront Premiums (Received)/Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||||||||
ICE Group | Markit CDX North America Investment Grade Index Series 30 | Sell | 1.000% | 06/20/2023 | 0.000% | Quarterly | $ 108,500 | $2,135 | $1,855 | $ 280 | ||||||||||
ICE Group | MBIA Inc. 6.625% due 10/01/2028 | Sell | 5.000 | 12/20/2019 | 0.000 | Quarterly | 7,000 | 117 | (238) | 355 | ||||||||||
ICE Group | MetLife, Inc. 4.750% due 02/08/2021 | Sell | 1.000 | 06/20/2021 | 0.400 | Quarterly | 2,100 | 47 | 12 | 35 | ||||||||||
ICE Group | MetLife, Inc. 4.750% due 02/08/2021 | Sell | 1.000 | 12/20/2021 | 0.486 | Quarterly | 6,900 | 160 | 2 | 158 | ||||||||||
ICE Group | The Goldman Sachs Group, Inc. 5.950% due 01/18/2018 | Sell | 1.000 | 09/20/2020 | 0.439 | Quarterly | 8,000 | 134 | 127 | 7 | ||||||||||
Centrally Cleared Credit Default Swaps | $1,375 |
OVER-THE-COUNTER (OTC) SWAP AGREEMENTS
CREDIT DEFAULT SWAPS
Counterparty | Reference Entity | Buy/ Sellb,c | Pay/Receive Fixed Rate | Expiration Date | Implied Credit Spreadd | Payment Frequency | Notional Amounte (000s) | Value f (000s) | Upfront Premiums (Received)/Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||||||||
BNP Paribas SA | Petroleo Brasileiro SA Petrobras 8.375% due 12/10/2018 | Sell | 1.000% | 06/20/2018 | 0.721% | Quarterly | $ 900 | $2 | $(130) | $ 132 | ||||||||||
Goldman Sachs International | Petroleo Brasileiro SA Petrobras 8.375% due 12/10/2018 | Sell | 1.000 | 12/20/2019 | 1.407 | Quarterly | 400 | 2 | (42) | 44 | ||||||||||
HSBC Bank USA NA | Petroleo Brasileiro SA Petrobras 8.375% due 12/10/2018 | Sell | 1.000 | 03/20/2020 | 1.528 | Quarterly | 200 | 1 | (36) | 37 | ||||||||||
JP Morgan Chase Bank NA | Petroleo Brasileiro SA Petrobras 4.750% due 12/10/2018 | Sell | 1.000 | 12/20/2019 | 1.407 | Quarterly | 2,100 | 9 | (238) | 247 | ||||||||||
Over-the-Counter Credit Default Swaps | 460 | |||||||||||||||||||
Credit Default Swaps | $1,835 | |||||||||||||||||||
Total Swaps | $4,250 |
FIXED INCOME INVESTMENTS SOLD SHORT AT APRIL 30, 2018 — (1.1)%
Principal Amount (000s) | Security | Proceeds (000s) | Value (000s) | |||
$ 21,500 | Federal National Mortgage Association TBA11 6.000%—05/14/2048 | $23,915 | $(23,810) |
Reverse Repurchase Agreements AT APRIL 30, 2018 – (4.9)%
Counterparty | Borrowing Rate | Borrowing Date | Maturity Date | Proceeds (000s) | Value (000s) | |||||
Barclays | (1.250)% | 04/06/2018 | 04/05/2020 | $ 2,665 | $ (2,665) | |||||
Bank of Montreal | 1.840 | 04/16/2018 | 05/16/2018 | 2,069 | (2,069) | |||||
Royal Bank of Canada | 1.820 | 04/11/2018 | 05/11/2018 | 30,947 | (30,947) | |||||
RBS Securities | 1.690–1.850 | 04/19//2018 | 05/03/2018 – 05/16/2018 | 67,249 | (67,249) | |||||
$ (102,930) |
49
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
SALE-BUYBACK TRANSACTIONS AT APRIL 30, 2018 – (6.8)%
Counterparty | Borrowing Rate | Borrowing Date | Maturity Date | Proceeds (000s) | Value (000s) | |||||
Barclays Capital Inc. | 2.000% - 3.000% | 04/13/2018 - 04/23/2018 | 05/02/2018 - 05/07/2018 | $50,091 | $ (49,763) | |||||
BNP Paribas | 1.875% - 2.375% | 04/18/2018 - 04/19/2018 | 05/02/2018 - 05/03/2018 | 51.965 | (51,744) | |||||
UBS Securities LLC | 2.250% | 04/27/2018 | 05/30/2018 | 43,201 | (42,513) | |||||
$(144,020) |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of April 30, 2018 based on the inputs used to value them.
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Investments in Securities | ||||||||
Asset-Backed Securities | $ — | $ 227,677 | $— | $ 227,677 | ||||
Collateralized Mortgage Obligations | — | 157,525 | — | 157,525 | ||||
Corporate Bonds & Notes | — | 781,660 | — | 781,660 | ||||
Escrow | — | — | — | — | ||||
Foreign Government Obligations | — | 561,212 | — | 561,212 | ||||
Mortgage Pass-Through | — | 1,064,252 | 1 | 1,064,253 | ||||
Municipal Bonds | — | 22,434 | — | 22,434 | ||||
U.S. Government Obligations | — | 438,073 | — | 438,073 | ||||
Short-Term Investments | ||||||||
Certificates Of Deposit | — | 35,145 | — | 35,145 | ||||
Commercial Paper | — | 20,471 | — | 20,471 | ||||
Total Investments in Securities | $ — | $3,308,449 | $ 1 | $3,308,450 | ||||
Financial Derivative Instruments - Assets | ||||||||
Forward Currency Contracts | $ — | $ 20,098 | $— | $ 20,098 | ||||
Futures Contracts | 897 | — | — | 897 | ||||
Purchased Options | 33 | 1,299 | — | 1,332 | ||||
Swap Agreements | — | 4,980 | — | 4,980 | ||||
Total Financial Derivative Instruments - Assets | $ 930 | $ 26,377 | $— | $ 27,307 | ||||
Liability Category | ||||||||
Fixed Income Investments Sold Short | $ — | $ (23,810) | $— | $ (23,810) | ||||
Reverse Repurchase Agreements | — | (102,930) | — | (102,930) | ||||
Sale-Buyback Transactions | — | (144,020) | — | (144,020) | ||||
Total Short Term Liabilities | $ — | $ (270,760) | $— | $ (270,760) | ||||
Financial Derivative Instruments - Liabilities | ||||||||
Forward Currency Contracts | $ — | $ (14,969) | $— | $ (14,969) | ||||
Futures Contracts | (8,075) | — | — | (8,075) | ||||
Swap Agreements | — | (730) | — | (730) | ||||
Written Options | (721) | (2,239) | — | (2,960) | ||||
Total Financial Derivative Instruments - Liabilities | $(8,796) | $ (17,938) | $— | $ (26,734) | ||||
Total Investments | $(7,866) | $3,046,128 | $ 1 | $3,038,263 |
There were no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels used in the table above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Portfolios of Investments.
50
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS—Continued
The following is a rollforward of the Fund’s Level 3 investments during the period ended April 30, 2018.
Valuation Description | Balance Beginning as of 11/01/2017 (000s) | Purchases (000s) | Sales (000s) | Discount/ (Premium) (000s) | Total Realized Gain/(Loss)w (000s) | Change in Unrealized Appreciation/ (Depreciation)w (000s) | Transfers In Level 3 (000s) | Transfers Out of Level 3 (000s) | Ending Balance as of 04/30/2018w (000s) | |||||||||
Escrow | $— | $— | $— | $— | $— | $— | $— | $— | $— | |||||||||
Mortgage Pass-Through | 1 | — | — | — | — | — | — | — | 1 | |||||||||
$ 1 | $— | $— | $— | $— | $— | $— | $— | $ 1 |
The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy.
Valuation Descriptions | Ending Balance as of 04/30/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Escrow | ||||||||
General Motors Co. Escrow | $ — | Cash Available in Relation to Claims | Estimated Recovery Value | $ 0.00 | ||||
Mortgage Pass-Through | ||||||||
Federal Housing Authority Project | $ 1 | Income Approach | Evaluated Yield | 85.08 | ||||
$ 1 |
The following is a summary of the remaining contractual maturities of transfers accounted for as secured borrowings, by collateral type, as of April 30, 2018.
Overnight and Continuous (000s) | Up to 30 days (000s) | 31-90 days (000s) | Greater Than 90 days (000s) | Total (000s) | |||||
Reverse Repurchase Agreements | |||||||||
U.S. Treasury Obligations | $— | $100,265 | $— | $2,665 | $102,930 | ||||
Total | $— | $100,265 | $— | $2,665 | $102,930 | ||||
Sale-Buyback Transactions | |||||||||
U.S. Treasury Obligations | $— | $144,020 | $— | $ — | $144,020 | ||||
Total | $— | $144,020 | $— | $ — | $144,020 | ||||
Total Borrowings | $— | $244,285 | $— | $2,665 | $246,950 | ||||
Payable for reverse repurchase agreements and sale-buyback financing transactions | $246,950 |
51
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
* | Security in Default. | ||
1 | CLO after the name of a security stands for Collateralized Loan Obligation. | ||
2 | Variable rate security, the stated rate represents the rate in effect at April 30, 2018. | ||
3 | Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. At April 30, 2018, the aggregate value of these securities was $351,586 or 17% of net assets. | ||
4 | Step coupon security, the stated rate represents the rate in effect at April 30, 2018. | ||
5 | Floating rate security, the stated rate represents the rate in effect at April 30, 2018. | ||
6 | REMICs are CMOs which can hold mortgages secured by any type of real property and issue multiple-class securities backed by those mortgages. | ||
7 | Perpetuity bond, the maturity date represents the next callable date. | ||
8 | MTN after the name of a security stands for Medium Term Note. | ||
9 | Zero coupon bond. | ||
10 | At April 30, 2018, a portion of securities held by the Fund were pledged to cover margin requirements for open future contracts, written options on futures contracts and swap options (see Note 2 of the accompanying Notes to Financial Statements). The securities pledged had an aggregate value of $136,544 or 6% of net assets. | ||
11 | TBAs are mortgage-backed securities traded under delayed delivery commitments, settling after April 30, 2018. Although the unit price for the trades has been established, the principal value has not been finalized. However, the amount of the commitments will not fluctuate more than 2% from the principal amount. Income on TBAs is not earned until settlement date (see Note 2 of the accompanying Notes to Financial Statements). | ||
b | If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. | ||
c | If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. | ||
d | Implied credit spreads, represented in absolute terms, utilized in determining the value of credit default swap agreements on corporate issues or sovereign issues of an emerging country as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity or obligation. | ||
e | The maximum potential amount the Fund could be required to make as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement. | ||
f | The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement be closed/sold as of the period end. Increasing values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. | ||
j | Amount represents Index Value. | ||
w | Amounts in this category are included in the “Realized and Change in Unrealized Gain/(Loss) on Investment Transactions” section of the Statement of Operations. The net unrealized appreciation/(depreciation) per investment type is below: | ||
Valuation Description | Unrealized Gain/(Loss) as of 04/30/2018 (000s) | ||
Escrow | $(15) | ||
Mortgage Pass-Through | – | ||
$(15) | |||
x | Fair Valued in accordance with Harbor Funds Valuation Procedures using estimated recovery value which is a Level 3 input. | ||
y | Fair Valued by subadviser in accordance with Harbor Funds Valuation Procedures using quoted prices from other actively traded securities with similar terms which is a Level 3 input. | ||
ARG$ | Argentine Peso | ||
AUD$ | Australian Dollar | ||
R$ | Brazilian Real | ||
£ | British Pound | ||
CAD$ | Canadian Dollar | ||
¥ | Chinese Yuan | ||
DKK$ | Denmark Krone | ||
€ | Euro | ||
₹ | Indian Rupee | ||
MEX$ | Mexican Peso | ||
NZD$ | New Zealand Dollar | ||
₦ | Nigerian Naira | ||
NOK$ | Norwegian Krone | ||
RUS$ | Russian Ruble | ||
kr | Swedish Krona | ||
₩ | South Korean Won |
The accompanying notes are an integral part of the Financial Statements.
52
Harbor Real Return Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Pacific Investment Management Company LLC (PIMCO)
650 Newport Center Dr.
Newport Beach, CA
92660
Newport Beach, CA
92660
Portfolio Managers
Mihir P. Worah, Ph.D.
Since 2007
Since 2007
Jeremie Banet
Since 2015
Since 2015
PIMCO has subadvised the Fund since 2005.
Investment Objective
The Fund seeks maximum real return, consistent with preservation of real capital.
Mihir P. Worah, Ph.D.
Jeremie Banet
Management’s Discussion of
Fund Performance
Fund Performance
MARKET REVIEW
Over the six months ended April 30, 2018, after months of subdued volatility and strong risk asset returns, the start to 2018 was highlighted by the return of volatility. Solid growth data kept central banks on track, but rising interest rates and geopolitical concerns contributed to more challenged performance across equities and credit.
Risk assets remained well supported by synchronized global growth and optimism about fiscal stimulus at the end of 2017 despite a slew of geopolitical concerns. Most developed market central banks indicated a shift toward reduced accommodation, contributing to flatter yield curves. Geopolitics continued to capture headlines – from elections in the U.S., Europe and Japan to China’s 19th Party Congress to turmoil in the Middle East – but markets were broadly resilient. Anticipation for – and passage of – fiscal stimulus in the U.S. as well as an uptick in growth momentum contributed to tighter credit spreads and allowed U.S. equities to finish the year out strong. In fact, the S&P 500 Index delivered positive returns every month of 2017, a first since the inception of the total return index. Volatility remained low and emerging market assets broadly strengthened, finishing a strong year of performance in 2017 on the back of healthier fundamentals, a weaker dollar, and rising oil prices.
The supportive market conditions continued into 2018 as risk asset returns started higher as global stocks surged nearly 6% in January, but reversed on concerns about rising rates. Expectations for higher inflation, increased Treasury supply and more U.S. Federal Reserve (Fed) hikes all contributed to higher rates. Volatility rose as measures like the CBOE Volatility Index (VIX) had its single largest one-day rise in its history (back to 1990). Fears of a global trade war exacerbated the extent of swings in risk markets. Tariff announcements from the U.S. administration first on steel and aluminum imports, then on certain Chinese goods, resulted in retaliatory measures from China. Equities ended the first quarter of 2018 lower with credit spreads wider and the U.S. Dollar weaker. Interest rates still ended the quarter higher, but lower than earlier in the quarter.
Finally, central banks remained on course for diminished monetary support as the fundamental backdrop remained solid. In the U.S., the Fed raised its policy rate in March and the “dot plot” (graphical representation of where each Fed member expects rates to go in the next 2 years) indicated a slightly steeper path for rates in 2019-2020. The European Central Bank (ECB) removed its commitment to more quantitative easing if necessary, and the People’s Bank of China (BoC) raised rates for the third time.
PERFORMANCE
Harbor Real Return Fund underperformed the Bloomberg Barclays U.S. TIPS Index for the six months ended April 30, 2018. The Fund returned 0.12% (Institutional Class) and -0.06% (Administrative Class) for the six-month period, compared with the benchmark’s return of 0.19%.
The following strategies helped the Fund returns for the six months ended April 30, 2018:
• | Overweight breakevens in the U.S. as breakeven inflation expectations ended the period higher. Breakeven inflation levels are a measure of the market’s expectation of future inflation, as expressed by the yield spread between U.S. TIPS and like-duration U.S. Treasuries |
• | An underweight to U.S. nominal duration added as U.S. rates moved higher across the curve. |
The following strategies were negative or neutral for returns for the six months ended April 30, 2018:
• | Positioning within U.S. real duration detracted as real yields followed nominal yields higher |
53
Harbor Real Return Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor Real Return Fund | |||||||||||
Institutional Class | 0.12% | 0.57% | -0.53% | 3.06% | |||||||
Administrative Class | -0.06 | 0.30 | -0.78 | 2.79 | |||||||
Comparative Index | |||||||||||
Bloomberg Barclays U.S. TIPS | 0.19% | 0.27% | -0.12% | 3.14% |
As stated in the Fund’s prospectus dated June 1, 2018, the expense ratios were 0.52% (Net) and 1.03% (Gross) (Institutional Class); and 0.77% (Net) and 1.28% (Gross) (Administrative Class). The net expense ratios reflect an expense limitation agreement (excluding interest expense) effective through 02/29/2020. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
• | Within spread sectors, a modest allocation to select investment grade and high yield corporate credits detracted as spreads widened over the period. |
OUTLOOK & STRATEGY
PIMCO expects world GDP growth to remain above-trend at 3.0%‒3.5% in 2018, in a “Goldilocks” environment of synchronized global growth and low but gently rising inflation. Still favorable financial conditions and fiscal support suggest that the Goldilocks environment will continue in 2018. Compared with our December forecast, we now anticipate marginally higher 2018 GDP growth in the U.S., Eurozone, U.K. and China, while we lowered our estimates for Mexico and India. The causes of the stronger expansion are more uncertain ‒ favorable shorter-term financial conditions versus a possible longer-term increase in productivity ‒ and these could affect its durability beyond 2018. Our inflation forecasts for 2018 have also risen slightly since our December forecast in response to a higher oil price trajectory.
In the U.S., we look for above-consensus growth of 2.25%–2.75% in 2018. Household and corporate tax cuts should boost growth by 0.3 percentage points in 2018, with another 0.3 percentage points coming from higher federal government spending resulting from the two-year budget deal. With our view that unemployment will likely drop below 4%, we expect some upward pressure on wages and consumer prices, and core inflation to rise above 2% over the course of 2018. Under new leadership, we expect the Fed to continue tightening gradually; we expect three rate hikes this year, with a fourth likely if economic and financial conditions remain favorable.
For the Eurozone, we expect growth will be in a range of 2.25%‒2.75% for 2018, about the same pace as 2017. The expansion is now broad-based across the region, with growth momentum strong and financial conditions favorable in our view. We believe core inflation will remain very low, creeping only marginally above 1% this year due to low wage pressures and the appreciation of the Euro in 2017. We expect the ECB to end its bond purchase program in September or, after a short taper, by December, though maturing bonds will be reinvested for some time. We do not foresee the first rate increase until mid-2019.
Within emerging markets, we expect growth to collectively rise to 4% in 2018 in Brazil, Russia, India and Mexico. From our perspective, emerging markets are catching up to the recovery in developed markets, with improving fundamentals and greater differentiation among countries. In our view, this recovery is likely to be shallower and slower than others; however, emerging markets potential growth has fallen, and key political events are likely to keep investors cautious. Finally, in China, we expect a controlled deceleration in growth to 6.0%–7.0% this year, and inflation to accelerate to 2.5% on stronger core inflation and higher oil prices, inducing the BoC to tighten policy by raising official interest rates, versus the consensus expectation of no hikes.
With respect to portfolio strategy, we plan to:
• | Maintain an underweight duration position overall relative to the benchmark, sourced primarily within Japanese rates as we believe yields there have the potential to normalize. |
• | Remain overweight breakeven inflation in the U.S. given expectations that remain below levels we feel are justified given strong core inflation dynamics and upside risks stemming from President Trump’s proposed policies. |
• | Within TIPS, we look to be tactical in terms of curve positioning based on relative value and roll-down opportunities. We favor intermediate maturities versus the short-end as we feel that front-end breakevens have richened significantly post-election and we think the move is overdone at this point. We also feel that intermediate maturities offer much more attractive breakeven levels, positive real yields, and benefit from roll-down given the relatively steep curve. |
• | Continue to seek opportunities outside the U.S. Given structural pension fund buying, U.K. long-dated breakevens appear to us to be rich while yields remain anchored well below zero; we look to express this opportunity by going long U.S. versus short U.K. breakevens. We look to have modest exposure to Japan inflation linked bonds, concentrated at the 10-year point where inflation expectations appear to us to be depressed relative to fundamentals. We also favor rate exposure in countries offering higher real yields including inflation-linked bonds in New Zealand. |
54
Harbor Real Return Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
• | Within currency, we look to be overweight select higher-yielding emerging market currencies which we believe offer attractive income-generating potential. |
This report contains the current opinions of Pacific Investment Management Company LLC (PIMCO) as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Fixed income securities are affected by interest rate changes and the creditworthiness of the issues held by the Fund. A rise in interest rates will cause a decrease in the value of fixed income securities. Such an event would have an adverse effect on the Fund. The use of derivative instruments may add additional risk. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
55
Harbor Real Return Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Issuers (% of net assets)
1. U.S. Treasury | 112.8% |
2. Federal National Mortgage Association TBA | 13.0% |
3. Japan Treasury Discount Bill | 6.1% |
4. U.K. Gilt Inflation Linked | 2.0% |
5. New Zealand Government Bond | 1.3% |
6. Hellenic Republic Treasury Bill | 1.0% |
7. Lavender Trust | 1.0% |
8. Japan Government CPI Linked Bond | 0.9% |
9. Navient Corp. | 0.9% |
10. Long Beach Mortgage Loan Trust | 0.8% |
Total INvestments (% of net assets)
(Excludes net cash, short-term investments and derivative positions of -52.3%)
Maturity Profile
56
Harbor Real Return Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, Notional and Principal Amounts in Thousands
ASSET-BACKED SECURITIES—3.8% | |||
Principal Amount | Value | ||
Countrywide Asset-Backed Certificates | |||
Series 2007 | |||
$ | 54 | 2.037% (1 Month USD Libor + 0.140) 07/25/20371 | $ 50 |
Series 2006-19 Cl. 2A3 | |||
100 | 2.147% (1 Month USD Libor + 0.250) 03/25/20371 | 92 | |
142 | |||
Fremont Home Loan Trust | |||
Series 2006-C Cl. 1A1 | |||
26 | 2.032% (1 Month USD Libor + 0.135) 10/25/20361 | 24 | |
GSAMP Trust | |||
Series 2004-WF Cl. M2 | |||
110 | 3.547% (1 Month USD Libor + 1.100) 10/25/20341 | 107 | |
Home Equity Mortgage Loan Asset-Backed Trust Series Inabs 2007-A | |||
33 | 2.117% (1 Month USD Libor + 0.220) 04/25/20371 | 27 | |
JMP Credit Advisors CLO IIIR Ltd.2 | |||
Series 2014-1RA Cl. A | |||
250 | 2.567% (3 Month USD Libor + 0.850) 01/17/20281,3 | 250 | |
Long Beach Mortgage Loan Trust | |||
Series 2006-WL3 Cl. 2A4 | |||
289 | 2.197% (1 Month USD Libor + 0.300) 01/25/20361 | 261 | |
Series 2005-WL2 Cl. M2 | |||
433 | 2.387% (1 Month USD Libor + 0.490) 08/25/20351 | 434 | |
695 | |||
MASTR Asset Backed Securities Trust | |||
Series 2006-HE2 Cl. A4 | |||
189 | 2.137% (1 Month USD Libor + 0.240) 06/25/20361 | 113 | |
Morgan Stanley ABS Capital I Inc. Trust | |||
Series 2006-HE8 Cl. A2FP | |||
101 | 1.967% (1 Month USD Libor + 0.070) 10/25/20361 | 61 | |
Morgan Stanley Mortgage Loan Trust | |||
Series 2006-15XS Cl. A6A | |||
113 | 5.910%—11/25/20364 | 56 | |
Mountain View CLO X Ltd.2 | |||
Series 2015-10A Cl. AR | |||
200 | 3.162% (3 Month USD Libor + 0.820) 10/13/20271,3 | 200 | |
Navient Student Loan Trust | |||
Series 2016-7A Cl.A | |||
165 | 3.047% (1 Month USD Libor + 1.150) 03/25/20661,3 | 169 | |
Octagon Investment Partners XXIII Ltd. | |||
Series 2015-A1R Cl. 1A | |||
260 | 3.111% (3 Month USD Libor + 0.855) 07/15/20271,3 | 260 | |
Saxon Asset Securities Trust | |||
Series 2003-1 Cl. AF7 | |||
67 | 4.034%—06/25/20334 | 69 | |
Soundview Home Loan Trust | |||
Series 2006-OPT2 Cl. A4 | |||
200 | 2.177% (1 Month USD Libor + 0.280) 05/25/20361 | 192 | |
TICP CLO III-2 Ltd.2 | |||
Series 2018-3R Cl. A | |||
250 | 3.199% (3 Month USD Libor + 0.840) 04/20/20281,3 | 250 | |
Venture XII CLO Ltd.2 | |||
Series 2012-12A Cl. ARP | |||
250 | 2.784% (3 Month USD Libor + 0.800) 02/28/20261,3 | 250 | |
Venture XVI CLO Ltd.2 | |||
Series 2014-16A Cl. ARR | |||
400 | 3.198% (3 Month USD Libor + 0.850) 01/15/20281,3 | 400 | |
Volt LXII LLC | |||
Series 2017-NPL9 Cl. A1 | |||
85 | 3.125%—09/25/20473,4 | 84 |
ASSET-BACKED SECURITIES—Continued | |||
Principal Amount | Value | ||
WhiteHorse VI Ltd | |||
Series 2012 1A Cl. A1R | |||
$ | 179 | 3.563% (3 Month USD Libor + 1.200) 02/03/20251,3 | $ 180 |
TOTAL ASSET-BACKED SECURITIES | |||
(Cost $3,319) | 3,529 | ||
COLLATERALIZED MORTGAGE OBLIGATIONS—1.7% | |||
Alliance Bancorp Trust | |||
Series 2007 Cl. OA1 | |||
68 | 2.137% (1 Month USD Libor + 0.240) 07/25/20371 | 59 | |
Bear Stearns Adjustable Rate Mortgage Trust | |||
Series 2005-12 Cl. 23A1 | |||
48 | 3.553%—02/25/20361 | 47 | |
Series 2006-2 Cl. 3A2 | |||
25 | 3.717%—07/25/20361 | 24 | |
71 | |||
Citigroup Mortgage Loan Trust Inc. | |||
Series 2005-12 Cl. 2A1 | |||
332 | 2.672% (1 Month USD Libor + 0.800) 08/25/20351,3 | 314 | |
Countrywide Home Loan Mortgage Pass Through Trust | |||
Series 2004-HYB5 Cl. 2A1 | |||
17 | 3.492%—04/20/20351 | 17 | |
First Horizon Alternative Mortgage Securities Trust | |||
Series 2006-FA8 Cl. 1A7 | |||
11 | 6.000%—02/25/2037 | 9 | |
Lavender Trust | |||
Series 2010-RR2A Cl. A4 | |||
1,127 | 6.250%—10/26/20363 | 934 | |
Morgan Stanley Mortgage Loan Trust | |||
Series 2006-8AR Cl. 6A1 | |||
95 | 3.384%—06/25/20361 | 97 | |
Residential Asset Securitization Trust | |||
Series 2006-R1 Cl. A2 | |||
50 | 2.297% (1 Month USD Libor + 0.400) 01/25/20461 | 26 | |
Washington Mutual Mortgage Pass Through Certificates Trust | |||
Series 2003-AR9 Cl. 2A | |||
20 | 3.367%—09/25/20331 | 20 | |
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS | |||
(Cost $1,365) | 1,547 | ||
CORPORATE BONDS & NOTES—6.0% | |||
AUTOMOBILES—0.1% | |||
American Honda Finance Corp. MTN5 | |||
100 | 2.137% (3 Month USD Libor + 0.350) 11/05/20211 | 100 | |
BANKS—0.4% | |||
Bank of America Corp. | |||
60 | 5.875% (3 Month USD Libor + 2.931) 03/15/20281,6 | 60 | |
ING Bank NV MTN5 | |||
100 | 2.625%—12/05/20223 | 98 | |
Toronto Dominion Bank | |||
200 | 2.250%—03/15/20213 | 195 | |
353 | |||
CAPITAL MARKETS—1.9% | |||
Deutsche Bank AG | |||
500 | 4.250%—10/14/2021 | 505 |
57
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CAPITAL MARKETS—Continued | |||
Goldman Sachs Group Inc. | |||
$ | 100 | 2.876% (3 Month USD Libor + 0.821) 10/31/20221 | $ 98 |
500 | 3.325% (3 Month USD Libor + 1.200) 09/15/20201 | 509 | |
607 | |||
UBS AG | |||
300 | 2.627% (3 Month USD Libor + 0.580) 06/08/20201,3 | 301 | |
UBS AG MTN5 | |||
300 | 2.355% (3 Month USD Libor + 0.320) 12/07/20181,3 | 301 | |
1,714 | |||
CONSUMER FINANCE—1.4% | |||
Ally Financial Inc. | |||
100 | 3.500%—01/27/2019 | 100 | |
300 | 3.600%—05/21/2018 | 299 | |
100 | 4.750%—09/10/2018 | 101 | |
500 | |||
Navient Corp. MTN5 | |||
740 | 4.321% (US CPI Urban Consumers YoY + 2.250) 05/03/20191,7 | 737 | |
100 | 5.500%—01/15/2019 | 102 | |
839 | |||
1,339 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—0.1% | |||
AT&T Inc. | |||
100 | 5.150%—02/15/20503 | 98 | |
ELECTRIC UTILITIES—0.2% | |||
Nextera Energy Capital Holdings Inc. | |||
160 | 2.372% (3 Month USD Libor + 0.315) 09/03/20191 | 160 | |
GAS UTILITIES—0.1% | |||
Sempra Energy | |||
100 | 2.575% (3 Month USD Libor + 0.450) 03/15/20211 | 100 | |
HEALTH CARE EQUIPMENT & SUPPLIES—0.2% | |||
Boston Scientific Corp. | |||
200 | 2.850%—05/15/2020 | 198 | |
INTERNET SOFTWARE & SERVICES—0.1% | |||
eBay Inc. | |||
100 | 2.750%—01/30/2023 | 96 | |
OIL, GAS & CONSUMABLE FUELS—0.8% | |||
Enbridge Inc. | |||
100 | 2.737% (3 Month USD Libor + 0.400) 01/10/20201 | 100 | |
Petrobras Global Finance BV | |||
425 | 5.299%—01/27/20253 | 419 | |
200 | 7.375%—01/17/2027 | 214 | |
633 | |||
733 | |||
THRIFTS & MORTGAGE FINANCE—0.3% | |||
Nationwide Building Society MTN5 | |||
£ | 200 | 6.875% (GBP Swap 5 Year + 4.880) 12/29/20491,6 | 288 |
TOBACCO—0.1% | |||
BAT Capital Corp | |||
$ | 100 | 2.423% (3 Month USD Libor + 0.590) 08/14/20201,3 | 100 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
TRADING COMPANIES & DISTRIBUTORS—0.3% | |||
AerCap Ireland Capital Ltd. | |||
$ | 300 | 4.625%—10/30/2020 | $ 308 |
TOTAL CORPORATE BONDS & NOTES | |||
(Cost $5,536) | 5,587 | ||
FOREIGN GOVERNMENT OBLIGATIONS—14.7% | |||
Argentina Bonar Bonds | |||
ARG$ | 418 | 24.935% (Argentina Deposit Rates Badlar Private Banks ARS 30 to 35 Days + 2.000) 04/03/20221 | 21 |
Argentina Pom Politica Monetaria | |||
3,724 | 27.935%—06/21/20208 | 195 | |
Argentina Treasury Bill | |||
700 | 0.000%—09/14/20189 | 29 | |
Argentine Republic Government International Bond | |||
$ | 100 | 5.875%—01/11/2028 | 92 |
300 | 6.875%—01/26/2027 | 298 | |
390 | |||
Australia Government Bond | |||
AUD$ | 360 | 3.000%—09/20/20257 | 379 |
Canadian Government RRB Bonds | |||
CAD$ | 302 | 4.250%—12/01/20267 | 309 |
Cyprus Government International Bond MTN5 | |||
€ | 30 | 3.750%—07/26/2023 | 40 |
40 | 3.875%—05/06/2022 | 53 | |
50 | 4.250%—11/04/2025 | 68 | |
161 | |||
France Government Bond OAT | |||
109 | 1.850%—07/25/20277 | 166 | |
French Republic Government Bond OAT | |||
193 | 0.100%—03/01/20257 | 252 | |
31 | 0.250%—07/25/20247 | 41 | |
293 | |||
Hellenic Republic Treasury Bill | |||
780 | 0.000%—08/31/20189 | 936 | |
Italy Buoni Ordinari del Tesoro Bot | |||
62 | 0.000%—05/14/20189 | 75 | |
Italy Buoni Poliennali del Tesoro | |||
270 | 0.100%—05/15/20237 | 339 | |
100 | 0.250%—05/15/2018 | 121 | |
460 | |||
Italy Buoni Poliennali Del Tesoro | |||
163 | 2.350%—09/15/20243,7 | 231 | |
55 | 2.550%—09/15/20417 | 85 | |
316 | |||
Japan Government CPI Linked Bond7 | |||
¥ | 90,661 | 0.100%—03/10/2027 | 880 |
Japan Treasury Discount Bill | |||
620,800 | 0.000%—05/01/2018-07/30/20189 | 5,680 | |
Mexican Bonos | |||
MEX$ | 2,386 | 7.750%—05/29/2031 | 129 |
New Zealand Government Bond | |||
NZD$ | 1,600 | 2.000%—09/20/20257 | 1,245 |
U.K. Gilt | |||
£ | 100 | 4.250%—12/07/2027 | 173 |
58
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, Notional and Principal Amounts in Thousands
FOREIGN GOVERNMENT OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
U.K. Gilt Inflation Linked7 | |||
£ | 1,118 | 0.125%—03/22/2026-11/22/2065 | $ 1,903 |
TOTAL FOREIGN GOVERNMENT OBLIGATIONS | |||
(Cost $13,928) | 13,740 | ||
MORTGAGE PASS-THROUGH—13.5% | |||
Federal Home Loan Mortgage Corp. REMIC10 | |||
$ | 196 | 2.497% (1 Month USD Libor + 0.600) 12/15/20371 | 197 |
Federal National Mortgage Association REMIC10 | |||
35 | 2.247% (1 Month USD Libor + 0.350) 07/25/20371 | 35 | |
61 | 2.277% (1 Month USD Libor + 0.380) 07/25/20371 | 61 | |
30 | 2.337% (1 Month USD Libor + 0.440) 05/25/20361 | 30 | |
158 | 2.577% (1 Month USD Libor + 0.680) 02/25/20411 | 162 | |
288 | |||
Federal National Mortgage Association TBA11 | |||
6,120 | 3.500%—06/13/2048 | 6,064 | |
6,000 | 4.000%—06/13/2048 | 6,099 | |
12,163 | |||
TOTAL MORTGAGE PASS-THROUGH | |||
(Cost $12,706) | 12,648 | ||
U.S. GOVERNMENT OBLIGATIONS—112.6% | |||
U.S. Treasury Inflation Indexed Bonds7 | |||
1,084 | 0.125%—04/15/201912 | 1,079 | |
8,944 | 0.125%—04/15/2020-07/15/2024 | 8,796 | |
3,687 | 0.250%—01/15/2025 | 3,575 | |
4,970 | 0.375%—07/15/2023-01/15/2027 | 4,885 | |
1,778 | 0.500%—01/15/202812 | 1,733 | |
13,726 | 0.625%—07/15/2021-02/15/2043 | 13,672 | |
2,046 | 0.750%—02/15/2042-02/15/2045 | 1,978 | |
2,130 | 0.875%—02/15/2047 | 2,104 | |
661 | 1.000%—02/15/2046-02/15/2048 | 675 | |
457 | 1.250%—07/15/2020 | 466 | |
6,730 | 1.375%—02/15/2044 | 7,447 | |
147 | 1.750%—01/15/2028 | 161 | |
12,243 | 1.875%—07/15/201912 | 12,514 | |
1,133 | 2.000%—01/15/2026 | 1,241 | |
822 | 2.125%—02/15/2040-02/15/2041 | 1,036 | |
30,985 | 2.375%—01/15/202512 | 34,384 | |
3,136 | 2.375%—01/15/2027 | 3,565 | |
3,541 | 2.500%—01/15/2029 | 4,161 |
U.S. GOVERNMENT OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
$ | 377 | 3.375%—04/15/2032 | $ 503 |
386 | 3.625%—04/15/2028 | 491 | |
320 | 3.875%—04/15/2029 | 422 | |
104,888 | |||
U.S. Treasury Notes | |||
300 | 2.750%—02/15/2024 | 298 | |
TOTAL U.S. GOVERNMENT OBLIGATIONS | |||
(Cost $107,596) | 105,186 | ||
SHORT-TERM INVESTMENTS—3.7% | |||
BANKER'S ACCEPTANCES—2.7% | |||
Bank of Montreal | |||
300 | 1.000%—05/11/2018 | 234 | |
Bank of Nova Scotia | |||
2,460 | 1.000%—05/11/2018-05/23/2018 | 1,914 | |
C.I.B.C. | |||
300 | 1.000%—05/11/2018 | 233 | |
HSBC Bank Canada. | |||
200 | 1.000%—05/11/2018 | 156 | |
2,537 | |||
CERTIFICATES OF DEPOSIT—0.5% | |||
Barclays plc | |||
300 | 1.940%—09/04/2018 | 300 | |
200 | 2.355% (3 Month USD Libor + 0.470) 05/17/20181 | 200 | |
500 | |||
REPURCHASE AGREEMENTS—0.5% | |||
446 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $457) | 446 | |
TOTAL SHORT-TERM INVESTMENTS | |||
(Cost $3,499) | 3,483 | ||
TOTAL INVESTMENTS—156.0% | |||
(Cost $147,949) | 145,720 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(56.0)% | (52,326) | ||
TOTAL NET ASSETS—100.0% | $ 93,394 |
FUTURES CONTRACTS OPEN AT APRIL 30, 2018
Description | Number of Contracts | Expiration Date | Current Notional Value (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||
Australian Government Bond Futures 10 year (Short) | 2 | 06/15/2018 | AUD$ 256 | $ (1) | ||||
Euro-BTP Futures (Short) | 3 | 06/07/2018 | € 417 | (2) | ||||
Euro-Bund Futures (Long) | 6 | 06/07/2018 | 952 | 15 | ||||
Euro-OAT Futures (Short) | 14 | 06/07/2018 | 2,153 | (32) | ||||
Short Euro-BTP Futures (Short) | 2 | 06/07/2018 | 226 | — | ||||
United Kingdom GILT Futures 90 day (Short) | 21 | 06/27/2018 | £ 2,567 | (49) | ||||
Japanese Government Bond Futures 10 year (Short) | 1 | 06/13/2018 | ¥ 150,640 | — | ||||
U.S. Treasury Bond Futures 30 year (Short) | 14 | 06/20/2018 | $ 2,014 | (30) | ||||
U.S. Treasury Note Futures 5 year (Short) | 4 | 06/29/2018 | 454 | 3 | ||||
U.S. Treasury Note Futures 10 year (Long) | 1 | 06/20/2018 | 120 | — |
59
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FUTURES CONTRACTS—Continued
Description | Number of Contracts | Expiration Date | Current Notional Value (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||
Ultra U.S. Treasury Note Futures 10 year (Short) | 19 | 06/20/2018 | $ 2,430 | $ (13) | ||||
Total Futures Contracts | $(109) |
PURCHASED OPTIONS OPEN AT APRIL 30, 2018
PURCHASED OPTIONS NOT SETTLED THROUGH VARIATION MARGIN
Description | Counterparty/Exchange | Strike Index/Rate | Expiration Date | Number of Contracts/ Notional | Premiums Paid (000s) | Value (000s) | ||||||
USD ICE Swap Rate Index 10 year - Cap (Put) | Morgan Stanley Capital Services LLC | 0.174 j | 06/11/2018 | 3,300,000 | $1 | $— | ||||||
Total Purchased Options Not Settled Through Variation Margin | $1 | $— |
PURCHASED SWAP OPTIONS NOT SETTLED THROUGH VARIATION MARGIN
Description | Counterparty | Floating Rate Index | Pay/Receive Floating Rate | Strike Index/Rate | Expiration Date | Number of Contracts/ Notional | Premiums Paid (000s) | Value (000s) | ||||||||
Interest Rate Swap Option 10 year (Put) | Morgan Stanley Capital Services LLC | 3-Month USD-LIBOR | Receive | 2.765% | 07/16/2018 | 1,350,000 | $16 | $ 35 | ||||||||
Interest Rate Swap Option 30 year (Call) | Deutsche Bank AG | 3-Month USD-LIBOR | Pay | 2.150 | 06/15/2018 | 350,000 | 35 | — | ||||||||
Interest Rate Swap Option 30 year (Put) | Deutsche Bank AG | 3-Month USD-LIBOR | Receive | 2.150 | 06/15/2018 | 350,000 | 35 | 65 | ||||||||
Total Purchased Swap Options Not Settled Through Variation Margin | $86 | $100 | ||||||||||||||
Total Purchased Options | $87 | $100 |
WRITTEN OPTIONS OPEN AT APRIL 30, 2018
WRITTEN OPTIONS THAT REQUIRE PERIODIC SETTLEMENT OF VARIATION MARGIN
Description | Exchange | Strike Price | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||
Euro-BOBL Option Futures (Put) | Eurex | € 129.00 | 05/25/2018 | 5 | $2 | $— | ||||||
Euro-BOBL Option Futures (Put) | Eurex | 130.00 | 05/25/2018 | 5 | 2 | — | ||||||
Total Written Options that Require Periodic Settlement of Variation Margin | $4 | $— |
WRITTEN OPTIONS NOT SETTLED THROUGH VARIATION MARGIN
Description | Counterparty/Exchange | Strike Index/Price | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Cap (Call) | JP Morgan Chase Bank NA | 243.27 j | 04/22/2024 | 4,000,000 | $ 29 | $ (1) | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Cap (Call) | JP Morgan Chase Bank NA | 244.17 j | 05/16/2024 | 300,000 | 2 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Citibank NA | 216.69 j | 04/07/2020 | 3,600,000 | 32 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Citibank NA | 217.96 j | 09/29/2020 | 500,000 | 7 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | JP Morgan Chase Bank NA | 234.81 j | 03/24/2020 | 1,700,000 | 19 | (2) | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | JP Morgan Chase Bank NA | 238.64 j | 10/02/2020 | 1,000,000 | 19 | (2) | ||||||
Eurozone HICP Ex. Tobacco Index - Cap (Call) | Goldman Sachs Bank USA | 120.72 j | 06/22/2035 | 400,000 | 18 | (2) | ||||||
Federal National Mortgage Association Future 30 year (Call) | JP Morgan Chase Bank NA | $ 99.88 | 05/07/2018 | 1,100,000 | 5 | — | ||||||
Federal National Mortgage Association Future 30 year (Put) | JP Morgan Chase Bank NA | 98.88 | 05/07/2018 | 1,100,000 | 5 | (1) | ||||||
USD ICE Swap Rate Index 30 year - Cap (Put) | Morgan Stanley Capital Services LLC | 1.000 j | 06/11/2018 | 3,300,000 | 1 | — | ||||||
USD ICE Swap Rate Index 30 year - Floor (Call) | Morgan Stanley Capital Services LLC | 1.000 j | 01/02/2020 | 7,500,000 | 6 | (10) | ||||||
U.S. Treasury Bond Futures 30 year (Call) | Chicago Board of Trade | $ 144.00 | 05/25/2018 | 3 | 2 | (3) |
60
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
WRITTEN OPTIONS—Continued
WRITTEN OPTIONS NOT SETTLED THROUGH VARIATION MARGIN—Continued
Description | Counterparty/Exchange | Strike Index/Price | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||
U.S. Treasury Bond Futures 30 year (Call) | Chicago Board of Trade | $ 144.50 | 05/25/2018 | 2 | $ 1 | $ (1) | ||||||
U.S. Treasury Bond Futures 30 year (Call) | Chicago Board of Trade | 145.00 | 05/25/2018 | 2 | 1 | (1) | ||||||
U.S. Treasury Bond Futures 30 year (Put) | Chicago Board of Trade | 142.00 | 05/25/2018 | 3 | 2 | (1) | ||||||
U.S. Treasury Bond Futures 30 year (Put) | Chicago Board of Trade | 143.00 | 05/25/2018 | 6 | 4 | (4) | ||||||
U.S. Treasury Bond Futures 30 year (Put) | Chicago Board of Trade | 144.00 | 05/25/2018 | 2 | 2 | (2) | ||||||
U.S. Treasury Notes 10 year Future (Put) | Chicago Board of Trade | 120.00 | 05/25/2018 | 3 | 1 | (2) | ||||||
Total Written Options Not Settled Through Variation Margin | $156 | $(32) |
WRITTEN SWAP OPTIONS NOT SETTLED THROUGH VARIATION MARGIN
Description | Counterparty | Floating Rate Index | Pay/Receive Floating Rate | Strike Rate | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||||
Credit Default Swap Option (Call) | Barclays Bank plc | Markit iTraxx Europe | Receive | 1.00% | 06/20/2018 | 1,100,000 | $ 1 | $ (1) | ||||||||
Credit Default Swap Option (Put) | Barclays Bank plc | Markit iTraxx Europe | Pay | 1.00 | 06/20/2018 | 1,100,000 | 2 | (1) | ||||||||
Credit Default Swap Option (Put) | Barclays Bank plc | Markit iTraxx Europe | Pay | 1.00 | 07/18/2018 | 100,000 | — | — | ||||||||
Credit Default Swap Option (Put) | BNP Paribas SA | Markit iTraxx Europe | Pay | 1.00 | 06/20/2018 | 600,000 | 1 | — | ||||||||
Credit Default Swap Option (Put) | Citibank NA | Markit iTraxx Europe | Pay | 1.00 | 06/20/2018 | 200,000 | — | — | ||||||||
Credit Default Swap Option (Put) | Citibank NA | Markit iTraxx Europe | Pay | 1.00 | 07/18/2018 | 200,000 | — | — | ||||||||
Credit Default Swap Option (Put) | Credit Suisse International | Markit iTraxx Europe | Pay | 1.00 | 05/16/2018 | 200,000 | — | — | ||||||||
Credit Default Swap Option (Put) | Deutsche Bank AG | Markit iTraxx Europe | Pay | 1.00 | 07/18/2018 | 200,000 | — | — | ||||||||
Credit Default Swap Option (Put) | Goldman Sachs International | Markit iTraxx Europe | Pay | 1.00 | 06/20/2018 | 300,000 | 1 | — | ||||||||
Credit Default Swap Option (Put) | JP Morgan Chase Bank NA | Markit iTraxx Europe | Pay | 1.00 | 06/20/2018 | 400,000 | 1 | — | ||||||||
Total Written Swap Options Not Settled Through Variation Margin | $ 6 | $ (2) | ||||||||||||||
Total Written Options | $166 | $(34) |
FORWARD CURRENCY CONTRACTS OPEN AT APRIL 30, 2018
Counterparty | Amount to be Delivered (000s) | Amount to be Received (000s) | Settlement Date | Unrealized Appreciation/ (Depreciation) (000s) | ||||
BNP Paribas SA | $ 104 | ARG$ 2,133 | 05/02/2018 | $ — | ||||
BNP Paribas SA | $ 12 | ARG$ 259 | 05/16/2018 | — | ||||
BNP Paribas SA | $ 112 | ARG$ 2,343 | 05/23/2018 | — | ||||
BNP Paribas SA | $ 21 | ARG$ 423 | 05/30/2018 | (1) | ||||
BNP Paribas SA | $ 5 | ARG$ 105 | 06/21/2018 | — | ||||
BNP Paribas SA | $ 102 | ARG$ 2,133 | 06/26/2018 | (3) | ||||
HSBC Bank USA | $ 104 | ARG$ 2,133 | 05/02/2018 | — | ||||
Société Générale | $ 8 | ARG$ 159 | 08/22/2018 | (1) | ||||
BNP Paribas SA | ARG$ 2,133 | $ 105 | 05/02/2018 | 1 | ||||
BNP Paribas SA | ARG$ 547 | $ 26 | 06/04/2018 | — | ||||
Citibank NA | ARG$ 259 | $ 12 | 05/16/2018 | — | ||||
HSBC Bank USA | ARG$ 2,133 | $ 104 | 05/02/2018 | — | ||||
JP Morgan Chase Bank NA | AUD$ 977 | $ 751 | 05/03/2018 | 15 | ||||
Citibank NA | $ 2,455 | £ 1,776 | 05/03/2018 | (9) | ||||
Citibank NA | £ 1,776 | $ 2,458 | 06/04/2018 | 9 | ||||
HSBC Bank USA | £ 1,632 | $ 2,318 | 05/03/2018 | 70 | ||||
JP Morgan Chase Bank NA | £ 144 | $ 201 | 05/03/2018 | 3 | ||||
JP Morgan Chase Bank NA | CAD$ 880 | $ 683 | 05/03/2018 | (2) | ||||
JP Morgan Chase Bank NA | CAD$ 1,100 | $ 873 | 05/11/2018 | 16 | ||||
JP Morgan Chase Bank NA | CAD$ 100 | $ 79 | 05/14/2018 | 2 | ||||
JP Morgan Chase Bank NA | CAD$ 2,060 | $ 1,601 | 05/23/2018 | (4) | ||||
JP Morgan Chase Bank | CNY$ 3,014 | $ 478 | 06/20/2018 | 2 | ||||
Goldman Sachs Bank USA | $ 161 | COL$ 463,234 | 07/17/2018 | 4 | ||||
Citibank NA | $ 775 | € 630 | 05/03/2018 | (14) | ||||
Deutsche Bank AG | $ 1,344 | € 1,103 | 05/03/2018 | (12) | ||||
Deutsche Bank AG | € 100 | $ 124 | 05/15/2018 | 3 | ||||
Deutsche Bank AG | € 1,103 | $ 1,347 | 06/04/2018 | 11 | ||||
Goldman Sachs Bank USA | € 264 | $ 322 | 05/03/2018 | 4 | ||||
Goldman Sachs Bank USA | € 62 | $ 77 | 05/14/2018 | 2 | ||||
HSBC Bank USA | € 40 | $ 50 | 08/31/2018 | 1 | ||||
JP Morgan Chase Bank NA | € 427 | $ 525 | 05/03/2018 | 9 | ||||
UBS AG | € 1,042 | $ 1,293 | 05/03/2018 | 35 |
61
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FORWARD CURRENCY CONTRACTS—Continued
Counterparty | Amount to be Delivered (000s) | Amount to be Received (000s) | Settlement Date | Unrealized Appreciation/ (Depreciation) (000s) | ||||
UBS AG | € 740 | $ 916 | 08/31/2018 | $ 13 | ||||
UBS AG | $ 350 | ₹ 22,829 | 06/20/2018 | (9) | ||||
Citibank NA | ₹ 5,749 | $ 87 | 06/20/2018 | 1 | ||||
HSBC Bank USA | $ 153 | Rp 2,112,375 | 06/20/2018 | (2) | ||||
Royal Bank of Scotland plc | $ 258 | ¥ 27,600 | 05/02/2018 | (5) | ||||
Citibank NA | ¥ 140,000 | $ 1,288 | 05/01/2018 | 7 | ||||
Citibank NA | ¥ 1,000 | $ 10 | 05/07/2018 | — | ||||
Citibank NA | ¥ 60,000 | $ 552 | 05/14/2018 | 3 | ||||
Citibank NA | ¥ 150,000 | $ 1,414 | 05/21/2018 | 40 | ||||
Goldman Sachs Bank USA | ¥ 28,200 | $ 266 | 05/21/2018 | 7 | ||||
JP Morgan Chase Bank NA | ¥ 21,600 | $ 203 | 05/21/2018 | 5 | ||||
JP Morgan Chase Bank NA | ¥ 180,000 | $ 1,656 | 07/30/2018 | (1) | ||||
UBS AG | ¥ 40,000 | $ 367 | 05/01/2018 | 2 | ||||
UBS AG | ¥ 69,900 | $ 667 | 05/02/2018 | 27 | ||||
Citibank NA | $ 75 | MEX$ 1,413 | 05/10/2018 | 1 | ||||
Citibank NA | MEX$ 1,412 | $ 74 | 08/27/2018 | (1) | ||||
HSBC Bank USA | MEX$ 1,412 | $ 74 | 05/10/2018 | (1) | ||||
HSBC Bank USA | $ 1,217 | NZD$ 1,722 | 05/03/2018 | (5) | ||||
HSBC Bank USA | NZD$ 1,722 | $ 1,217 | 06/05/2018 | 5 | ||||
UBS AG | NZD$ 1,722 | $ 1,255 | 05/03/2018 | 44 | ||||
Credit Suisse International | $ 106 | RUS$ 5,985 | 05/25/2018 | (11) | ||||
HSBC Bank USA | $ 232 | RUS$ 13,489 | 05/25/2018 | (19) | ||||
Société Générale | RUS$ 19,194 | $ 329 | 06/07/2018 | 26 | ||||
Citibank NA | $ 114 | R 1,373 | 05/08/2018 | (4) | ||||
Goldman Sachs Bank USA | R 1,404 | $ 116 | 05/08/2018 | 4 | ||||
HSBC Bank USA | $ 67 | ₩ 72,789 | 06/20/2018 | 1 | ||||
UBS AG | ₩ 290,307 | $ 274 | 06/20/2018 | 3 | ||||
Total Forward Currency Contracts | $272 |
INTEREST RATE SWAP AGREEMENTS OPEN AT APRIL 30, 2018
CENTRALLY CLEARED SWAP AGREEMENTS
INTEREST RATE SWAPS
Counterparty | Floating Rate Index | Pay/ Receive Floating Rate | Fixed Rate | Payment Frequency | Expiration Date | Notional Amount (000s) | Value (000s) | Upfront Premiums (Received)/ Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||||||||
LCH Group | EUR-EONIA-OIS- Compound-Bloomberg | Pay | 0.050% | Annual | 09/19/2021 | € 300 | $ 1 | $ — | $ 1 | |||||||||
LCH Group | Eurostat Eurozone HICP Ex Tobacco NSA | Receive | 1.295 | At maturity | 03/15/2021 | 300 | 1 | — | 1 | |||||||||
LCH Group | Eurostat Eurozone HICP Ex Tobacco NSA | Receive | 1.165 | At maturity | 12/15/2021 | 140 | 2 | — | 2 | |||||||||
LCH Group | Eurostat Eurozone HICP Ex Tobacco NSA | Receive | 1.385 | At maturity | 12/15/2026 | 330 | (6) | — | (6) | |||||||||
LCH Group | Eurostat Eurozone HICP Ex Tobacco NSA | Pay | 1.360 | At maturity | 06/15/2027 | 400 | (9) | (6) | (3) | |||||||||
LCH Group | Eurostat Eurozone HICP Ex Tobacco NSA | Pay | 1.520 | At maturity | 11/15/2027 | 600 | (3) | (1) | (2) | |||||||||
LCH Group | Eurostat Eurozone HICP Ex Tobacco NSA | Pay | 1.535 | At maturity | 03/15/2028 | 300 | (1) | — | (1) | |||||||||
LCH Group | French Consumer Price Index Ex Tobacco Index | Receive | 1.165 | At maturity | 03/15/2020 | 330 | — | — | — | |||||||||
LCH Group | French Consumer Price Index Ex Tobacco Index | Pay | 1.575 | At maturity | 01/15/2028 | 160 | — | — | — | |||||||||
LCH Group | French Consumer Price Index Ex Tobacco Index | Pay | 1.606 | At maturity | 02/15/2028 | 510 | 2 | — | 2 | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.750 | Semi-annual | 09/19/2048 | £ 380 | (11) | (23) | 12 | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.350 | At maturity | 05/15/2030 | 610 | 21 | (7) | 28 | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.400 | At maturity | 06/15/2030 | 600 | 26 | 9 | 17 |
62
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
INTEREST RATE SWAP AGREEMENTS—Continued
CENTRALLY CLEARED SWAP AGREEMENTS—Continued
INTEREST RATE SWAPS—Continued
Counterparty | Floating Rate Index | Pay/ Receive Floating Rate | Fixed Rate | Payment Frequency | Expiration Date | Notional Amount (000s) | Value (000s) | Upfront Premiums (Received)/ Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.100% | At maturity | 06/15/2031 | £ 300 | $ (25) | $(37) | $ 12 | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.470 | At maturity | 09/15/2032 | 1,290 | 32 | — | 32 | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.358 | At maturity | 04/15/2035 | 200 | 5 | (4) | 9 | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Receive | 3.585 | At maturity | 10/15/2046 | 240 | (31) | (15) | (16) | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Receive | 3.428 | At maturity | 03/15/2047 | 370 | — | 22 | (22) | |||||||||
CME Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 1.000 | Semi-annual | 09/18/2023 | ¥ 40,000 | (17) | (15) | (2) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300 | Semi-annual | 09/20/2027 | 130,000 | (3) | (2) | (1) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300 | Semi-annual | 03/20/2028 | 10,000 | — | — | — | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.450 | Semi-annual | 03/20/2029 | 230,000 | (14) | (13) | (1) | |||||||||
CME Group | New Zeland 90 Day Bank Bill Futures Rate Agreement | Receive | 3.250 | Semi-annual | 03/21/2028 | NZD$ 600 | (1) | 2 | (3) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 1.250 | Semi-annual | 06/15/2018 | $ 1,000 | 1 | 5 | (4) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 1.750 | Semi-annual | 06/20/2020 | 4,700 | 96 | 92 | 4 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.250 | Semi-annual | 12/20/2022 | 3,100 | (72) | 4 | (76) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.000 | Semi-annual | 06/20/2023 | 500 | (22) | (19) | (3) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.678 | Semi-annual | 10/25/2023 | 1,000 | (14) | — | (14) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.670 | Semi-annual | 11/19/2023 | 1,000 | (15) | — | (15) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.681 | Semi-annual | 12/12/2023 | 1,000 | (15) | — | (15) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.500 | Semi-annual | 12/19/2023 | 800 | (18) | (6) | (12) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.400 | Semi-annual | 03/16/2026 | 700 | 20 | — | 20 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.300 | Semi-annual | 04/21/2026 | 1,700 | 56 | (9) | 65 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.300 | Semi-annual | 04/27/2026 | 2,000 | 66 | (7) | 73 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 1.850 | Semi-annual | 07/27/2026 | 600 | 31 | (2) | 33 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.000 | Semi-annual | 07/27/2026 | 3,500 | 160 | 54 | 106 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.400 | Semi-annual | 12/07/2026 | 100 | 3 | 1 | 2 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.500 | Semi-annual | 12/20/2027 | 200 | 7 | (2) | 9 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 3.100 | Semi-annual | 04/17/2028 | 110 | — | (1) | 1 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.750 | Semi-annual | 12/20/2047 | 330 | 17 | 15 | 2 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.500 | Semi-annual | 06/20/2048 | 770 | 85 | 92 | (7) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.969 | Semi-annual | 10/25/2048 | 200 | 3 | — | 3 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.951 | Semi-annual | 11/19/2048 | 100 | 2 | — | 2 | |||||||||
LCH Group | British Bankers' Association LIBOR USD 3-Month | Receive | 1.750 | Semi-annual | 12/21/2026 | 1,570 | 140 | (46) | 186 |
63
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
INTEREST RATE SWAP AGREEMENTS—Continued
CENTRALLY CLEARED SWAP AGREEMENTS—Continued
INTEREST RATE SWAPS—Continued
Counterparty | Floating Rate Index | Pay/ Receive Floating Rate | Fixed Rate | Payment Frequency | Expiration Date | Notional Amount (000s) | Value (000s) | Upfront Premiums (Received)/ Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||||||||
LCH Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.250% | Semi-annual | 06/20/2028 | $ 1,400 | $ 89 | $ 77 | $ 12 | |||||||||
LCH Group | Federal Funds Effective Rate US | Receive | 2.000 | Annual | 12/15/2047 | 300 | 32 | — | 32 | |||||||||
LCH Group | Federal Funds Effective Rate US | Receive | 2.428 | Annual | 12/20/2047 | 100 | 2 | — | 2 | |||||||||
LCH Group | Federal Funds Effective Rate US | Receive | 2.478 | Annual | 12/20/2047 | 223 | 1 | — | 1 | |||||||||
LCH Group | Federal Funds Effective Rate US | Receive | 2.499 | Annual | 12/20/2047 | 60 | — | — | — | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 2.078 | At maturity | 03/29/2019 | 3,020 | — | — | — | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Receive | 2.023 | At maturity | 11/23/2020 | 500 | 4 | (1) | 5 | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Receive | 2.021 | At maturity | 11/25/2020 | 400 | 4 | — | 4 | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Receive | 1.550 | At maturity | 07/26/2021 | 300 | 10 | 10 | — | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Receive | 1.603 | At maturity | 09/12/2021 | 310 | 10 | 10 | — | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 2.063 | At maturity | 05/12/2025 | 100 | (2) | (1) | (1) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 1.730 | At maturity | 07/26/2026 | 300 | (18) | (16) | (2) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 1.805 | At maturity | 09/12/2026 | 710 | (36) | (25) | (11) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 1.780 | At maturity | 09/15/2026 | 200 | (11) | (10) | (1) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 2.180 | At maturity | 09/20/2027 | 170 | (4) | — | (4) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 2.150 | At maturity | 09/25/2027 | 200 | (5) | — | (5) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 2.156 | At maturity | 10/17/2027 | 400 | (10) | — | (10) | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Pay | 2.143 | At maturity | 04/25/2020 | 50 | — | — | — | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Pay | 2.069 | At maturity | 07/15/2022 | 200 | 3 | — | 3 | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Receive | 2.210 | At maturity | 02/05/2023 | 950 | 5 | — | 5 | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Receive | 2.263 | At maturity | 04/27/2023 | 130 | — | — | — | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Pay | 2.335 | At maturity | 02/05/2028 | 480 | (2) | 1 | (3) | |||||||||
Centrally Cleared Interest Rate Swaps | $446 |
OVER-THE-COUNTER (OTC) SWAP AGREEMENTS
INTEREST RATE SWAPS
Counterparty | Floating Rate Index | Pay/Receive Floating Rate | Fixed Rate | Payment Frequency | Expiration Date | Notional Amount (000s) | Value (000s) | Upfront Premiums (Received)/ Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||||||||
Deutsche Bank AG | US Consumer Price Index Urban Consumers NSA | Receive | 2.500% | At maturity | 07/15/2022 | $ 300 | $(23) | $ 7 | $ (30) | |||||||||
Morgan Stanley Capital Services LLC | US Consumer Price Index Urban Consumers NSA | Pay | 1.788 | At maturity | 07/18/2026 | 1,200 | (65) | — | (65) | |||||||||
Morgan Stanley Capital Services LLC | US Consumer Price Index Urban Consumers NSA | Pay | 1.800 | At maturity | 07/20/2026 | 1,200 | (64) | (1) | (63) |
64
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
INTEREST RATE SWAP AGREEMENTS—Continued
OVER-THE-COUNTER (OTC) SWAP AGREEMENTS—Continued
INTEREST RATE SWAPS—Continued
Counterparty | Floating Rate Index | Pay/Receive Floating Rate | Fixed Rate | Payment Frequency | Expiration Date | Notional Amount (000s) | Value (000s) | Upfront Premiums (Received)/ Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||||||||
Morgan Stanley Capital Services LLC | US Consumer Price Index Urban Consumers NSA | Pay | 1.805% | At maturity | 09/20/2026 | $ 100 | $ (5) | $— | $ (5) | |||||||||
Over-the-Counter Interest Rate Swaps | (163) | |||||||||||||||||
Interest Rate Swaps | $ 283 |
CREDIT DEFAULT SWAP AGREEMENTS OPEN AT APRIL 30, 2018
CENTRALLY CLEARED SWAP AGREEMENTS
CREDIT DEFAULT SWAPS
Counterparty | Reference Entity | Buy/ Sellb,c | Pay/Receive Fixed Rate | Expiration Date | Implied Credit Spreadd | Payment Frequency | Notional Amounte (000s) | Value f (000s) | Upfront Premiums (Received)/Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||||||||
ICE Group | Daimler AG 0.625% due 03/05/2020 | Sell | 1.000% | 12/20/2020 | —% | Quarterly | € 30 | $ 1 | $ 1 | $ — | ||||||||||
ICE Group | iTraxx Europe Series 28 Version 1 | Sell | 1.000 | 12/20/2022 | 0.500 | Quarterly | 1,500 | (48) | (42) | (6) | ||||||||||
ICE Group | Markit iTraxx Europe Indices Series 26 Version 1 | Buy | 1.000 | 12/20/2021 | 0.360 | Quarterly | 500 | (16) | (8) | (8) | ||||||||||
ICE Group | Markit CDX North America High Yield Index Series 30 | Sell | 5.000 | 06/20/2023 | — | Quarterly | $ 1,105 | (83) | (71) | (12) | ||||||||||
Centrally Cleared Credit Default Swaps | $(26) |
OVER-THE-COUNTER (OTC) SWAP AGREEMENTS
CREDIT DEFAULT SWAPS
Counterparty | Reference Entity | Buy/ Sellb,c | Pay/Receive Fixed Rate | Expiration Date | Implied Credit Spreadd | Payment Frequency | Notional Amounte (000s) | Value f (000s) | Upfront Premiums (Received)/Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||||||||
Credit Suisse International | Federative Republic of Brazil 4.250% due 01/07/2025 | Sell | 1.000% | 06/20/2021 | 1.160% | Quarterly | $ 200 | $— | $(14) | $ 14 | ||||||||||
Deutsche Bank AG | Federative Republic of Brazil 4.250% due 01/07/2025 | Sell | 1.000 | 06/20/2021 | 1.160 | Quarterly | 100 | — | (8) | 8 | ||||||||||
HSBC Bank USA NA | Federative Republic of Brazil 4.250% due 01/07/2025 | Sell | 1.000 | 06/20/2022 | 1.527 | Quarterly | 100 | (1) | (6) | 5 | ||||||||||
JP Morgan Chase Bank NA | Federative Republic of Brazil 4.250% due 01/07/2025 | Sell | 1.000 | 06/20/2021 | 1.160 | Quarterly | 100 | — | (7) | 7 | ||||||||||
Goldman Sachs International | Markit CMBX North America AAA Indices | Sell | 0.500 | 10/17/2057 | — | Monthly | 100 | — | (5) | 5 | ||||||||||
Goldman Sachs International | Markit CMBX North America AAA Indices | Sell | 0.500 | 09/17/2058 | — | Monthly | 100 | — | (6) | 6 | ||||||||||
Over-the-Counter Credit Default Swaps | 45 | |||||||||||||||||||
Credit Default Swaps | $ 19 | |||||||||||||||||||
Total Swaps | $302 |
FIXED INCOME INVESTMENTS SOLD SHORT AT APRIL 30, 2018 — (2.1)%
Principal Amount (000s) | Security | Proceeds (000s) | Value (000s) | |||
$ 2,000 | Federal National Mortgage Association TBA11 3.000%—06/13/2048 | $1,938 | $(1,925) |
65
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Reverse Repurchase Agreements AT APRIL 30, 2018 – (38.1)%
Counterparty | Borrowing Rate | Borrowing Date | Maturity Date | Proceeds (000s) | Value (000s) | |||||
RBS Securities | 1.750-1.950% | 04/23/2018 – 04/26/2018 | 05/03/2018 – 07/23/2018 | $ 2,907 | $ (2,907) | |||||
Scotia Capital | 1.820-1.910 | 04/02/2018 – 04/13/2018 | 05/02/2018 – 07/12/2018 | 31,643 | (31,643) | |||||
Société Générale | 1.860 | 04/26/2018 | 05/03/2018 | 2,499 | (2,499) | |||||
$ (37,049) |
SALE-BUYBACK TRANSACTIONS AT APRIL 30, 2018 – (3.0)%
Counterparty | Borrowing Rate | Borrowing Date | Maturity Date | Proceeds (000s) | Value (000s) | |||||
Barclays Capital Inc. | 2.375% | 04/23/2018 | 05/01/2018 | $ 449 | $ (442) | |||||
BNP Paribas | 1.375% - 2.375% | 04/19/2018 - 04/30/2018 | 05/02/2018 | 2,183 | (2,101) | |||||
UBS Securities LLC | 2.750% | 04/06/2018 | 05/10/2018 | 300 | (303) | |||||
$(2,846) |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of April 30, 2018 based on the inputs used to value them.
Asset Category | Quoted Prices Level 1 (000s) | Other Significant Observable Inputs Level 2 (000s) | Significant Unobservable Inputs Level 3 (000s) | Total (000s) | ||||
Investments in Securities | ||||||||
Asset-Backed Securities | $ — | $ 3,529 | $— | $ 3,529 | ||||
Collateralized Mortgage Obligations | — | 1,547 | — | 1,547 | ||||
Corporate Bonds & Notes | — | 5,587 | — | 5,587 | ||||
Foreign Government Obligations | — | 13,740 | — | 13,740 | ||||
Mortgage Pass-Through | — | 12,648 | — | 12,648 | ||||
U.S. Government Obligations | — | 105,186 | — | 105,186 | ||||
Short-Term Investments | ||||||||
Banker’s Acceptances | — | 2,537 | — | 2,537 | ||||
Certificates Of Deposit | — | 500 | — | 500 | ||||
Repurchase Agreements | — | 446 | — | 446 | ||||
Total Investments in Securities | $ — | $145,720 | $— | $145,720 | ||||
Financial Derivative Instruments - Assets | ||||||||
Forward Currency Contracts | $ — | $ 376 | $— | $ 376 | ||||
Futures Contracts | 18 | — | — | 18 | ||||
Purchased Options | — | 100 | — | 100 | ||||
Swap Agreements | — | 731 | — | 731 | ||||
Total Financial Derivative Instruments - Assets | $ 18 | $ 1,207 | $— | $ 1,225 | ||||
Liability Category | ||||||||
Fixed Income Investments Sold Short | $ — | $ (1,925) | $— | $ (1,925) | ||||
Reverse Repurchase Agreements | — | (37,049) | — | (37,049) | ||||
Sale-Buyback Transactions | — | (2,846) | — | (2,846) | ||||
Total Short Term Liabilities | $ — | $ (41,820) | $— | $ (41,820) | ||||
Financial Derivative Instruments - Liabilities | ||||||||
Forward Currency Contracts | $ — | $ (104) | $— | $ (104) | ||||
Futures Contracts | (127) | — | — | (127) | ||||
Swap Agreements | — | (429) | — | (429) | ||||
Written Options | $ (14) | $ (20) | $— | $ (34) | ||||
Total Financial Derivative Instruments - Liabilities | $(141) | $ (553) | $— | $ (694) | ||||
Total Investments | $(123) | $104,554 | $— | $104,431 |
There were no transfers between levels during the period.
66
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS—Continued
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
The following is a summary of the remaining contractual maturities of transfers accounted for as secured borrowings, by collateral type, as of April 30, 2018.
Overnight and Continuous (000s) | Up to 30 days (000s) | 31-90 days (000s) | Greater Than 90 days (000s) | Total (000s) | |||||
Reverse Repurchase Agreements | |||||||||
U.S. Treasury Obligations | $ — | $27,127 | $9,922 | $— | $37,049 | ||||
Total | $ — | $27,127 | $9,922 | $— | $37,049 | ||||
Sale-Buyback Transactions | |||||||||
U.S. Treasury Obligations | $442 | $ 2,404 | $ — | $— | $ 2,846 | ||||
Total | $442 | $ 2,404 | $ — | $— | $ 2,846 | ||||
Total Borrowings | $442 | $29,531 | $9,922 | $— | $39,895 | ||||
Payable for reverse repurchase agreements and sale-buyback financing transactions | $39,895 |
67
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
1 | Variable rate security, the stated rate represents the rate in effect at April 30, 2018. |
2 | CLO after the name of a security stands for Collateralized Loan Obligation. |
3 | Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. At April 30, 2018, the aggregate value of these securities was $5,034 or 6% of net assets. |
4 | Step coupon security, the stated rate represents the rate in effect at April 30, 2018. |
5 | MTN after the name of a security stands for Medium Term Note. |
6 | Perpetuity bond, the maturity date represents the next callable date. |
7 | Inflation-protected securities (“IPS”) are securities in which the principal amount is adjusted for inflation and interest payments are applied to the inflation-adjusted principal. |
8 | Floating rate security, the stated rate represents the rate in effect at April 30, 2018. |
9 | Zero coupon bond. |
10 | REMICs are CMOs which can hold mortgages secured by any type of real property and issue multiple-class securities backed by those mortgages. |
11 | TBAs are mortgage-backed securities traded under delayed delivery commitments, settling after April 30, 2018. Although the unit price for the trades has been established, the principal value has not been finalized. However, the amount of the commitments will not fluctuate more than 2% from the principal amount. Income on TBAs is not earned until settlement date (see Note 2 of the accompanying Notes to Financial Statements). |
12 | At April 30, 2018, a portion of securities held by the Fund were pledged to cover margin requirements for open future contracts, written options on futures contracts and swap options (see Note 2 of the accompanying Notes to Financial Statements). The securities pledged had an aggregate value of $37,590 or 40% of net assets. |
b | If the Fund is a buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) receive from the seller of protection an amount equal to the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index or (ii) receive a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
c | If the Fund is a seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will either (i) pay to the buyer of protection an amount equal to the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index or (ii) pay a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation or underlying securities comprising the referenced index. |
d | Implied credit spreads, represented in absolute terms, utilized in determining the value of credit default swap agreements on corporate issues or sovereign issues of an emerging country as of period end serve as an indicator of the current status of the payment/performance risk and represent the likelihood or risk of default for the credit derivative. The implied credit spread of a particular referenced entity reflects the cost of buying/selling protection and may include upfront payments required to be made to enter into the agreement. Wider credit spreads represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced entity or obligation. |
e | The maximum potential amount the Fund could be required to make as a seller of credit protection or receive as a buyer of credit protection if a credit event occurs as defined under the terms of that particular swap agreement. |
f | The quoted market prices and resulting values for credit default swap agreements on asset-backed securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative should the notional amount of the swap agreement be closed/sold as of the period end. Increasing values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the referenced entity’s credit soundness and a greater likelihood or risk of default or other credit event occurring as defined under the terms of the agreement. |
j | Amount represents Index Value. |
ARG$ | Argentine Peso |
AUD$ | Australian Dollar |
£ | British Pound |
CAD$ | Canadian Dollar |
COL$ | Colombian Peso |
€ | Euro |
₹ | Indian Rupee |
Rp | Indonesian Rupiah |
¥ | Japanese Yen |
MEX$ | Mexican Peso |
NZD$ | New Zealand Dollar |
RUS$ | Russian Ruble |
R | South African Rand |
₩ | South Korean Won |
The accompanying notes are an integral part of the Financial Statements.
68
Harbor Money Market Fund
Manager’s Commentary (Unaudited)
Manager’s Commentary (Unaudited)
Subadviser
BNP Paribas Asset Management USA, Inc.
200 Park Avenue
New York, NY 10166
Portfolio Manager
Kenneth J. O’Donnell, CFA
Since 2003
Since 2003
BNP has subadvised the Fund since 1987.
Investment Objective
The Fund seeks to provide current income while maintaining liquidity and a stable share price of $1.
Kenneth J. O’Donnell, CFA
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
Global economic growth rebounded in the six months ended April 30, 2018 with advances in both emerging and advanced economies. The U.S. economy expanded at an above trend pace, while Europe and Japan experienced a rebound in growth coupled with a decline in deflationary pressures. This pattern of improving global growth trends was a welcome sign for many central banks as they look to unwind post crisis-era stimulus measures. We believe that the stimulus burden will shift from monetary to fiscal policy across advanced economies as the impact of non-traditional central bank policy measures wanes.
In late 2017, the U.S. Federal Reserve (Fed) tightened monetary policy for the fifth time in the cycle. Volatility increased as markets discounted the future path of interest rates. The persistent rally in risk assets stalled midway through the first quarter of 2018 with equity markets correcting by 10% and credit spreads widening across most sectors. New fiscal policies from the Trump administration and abrupt inflationary concerns also contributed to the uncertainty in markets. Jerome Powell assumed the role of U.S. Federal Reserve Chair in early February following a formal nomination from President Trump. Mr. Powell asserted that the economy was strengthening and that tightening will continue to be warranted at a gradual pace. An additional rate hike followed at the March Federal Open Market Committee (FOMC) meeting, consistent with market expectations. Currently, markets are forecasting the next increase in short term interest rates to occur in June 2018.
Short-term U.S. Treasury Note yields increased dramatically during the period as markets discounted a more rapid pace of policy normalization. In contrast to the front-end, intermediate yields remained in a tight range flattening the slope of the yield curve. Money market yields climbed throughout the period, remaining closely anchored to monetary policy rates. The steady increase in money market yields has been welcomed by investors who have endured low interest rates for nearly a decade. We believe that money market yields will likely increase steadily in the coming year as short-term markets continue to incorporate future expectations for the path of monetary policy.
Performance
In the current rising interest rate environment, Harbor Money Market Fund provided competitive returns. For the six months ended April 30, 2018, the Fund returned 0.60% (Institutional and Administrative Classes). The return was similar to the 0.68% return for the Fund’s benchmark, the ICE BofAML 3-Month U.S. Treasury Bill Index. The duration of the portfolio, a measure of its sensitivity to changes in interest rates, was maintained at approximately 40 days with some variability throughout the period.
69
Harbor Money Market Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
TOTAL RETURNS
For the periods ended 04/30/2018
Unannualized | 1 Year | Annualized | |||||||||
6 Months | 5 Years | 10 Years | |||||||||
Harbor Money Market Fund | |||||||||||
Institutional Class | 0.60% | 1.07% | 0.36% | 0.38% | |||||||
Administrative Class | 0.60 | 1.07 | 0.36 | 0.35 | |||||||
Comparative Index | |||||||||||
ICE BofAML U.S. 3-Month Treasury Bill | 0.68% | 1.18% | 0.36% | 0.34% |
Current 7-day subsidizeda SEC yield for period ended 04/30/2018: | Institutional Class: 1.43% | Administrative Class: 1.43% |
Current 7-day unsubsidizedb SEC yield for period ended 04/30/2018: | Institutional Class: 1.33% | Administrative Class: 1.08% |
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. Voluntary waivers and reimbursements may be discontinued at any time without notice. Current yield excludes gains and losses as defined by the Securities and Exchange Commission. The current yield more closely reflects the current earnings of the Fund than the total return.
Outlook & Strategy
Looking ahead, we expect monetary policy to become less accommodative throughout 2018 as interest rate policy normalizes. We expect that real, or inflation-adjusted, economic growth in the U.S. will average approximately 2.75% and that wage pressures will emerge throughout the year as incremental gains in the labor sector push the economy well through estimates of full employment. We also believe that fiscal stimulus will drive an increase in business investment with positive implications for domestic growth.
In our opinion, the Fed may become increasingly challenged in defending their policy stance given improvement in labor and inflation data. While, by most measures, the Fed has achieved both of its dual mandate goals, we believe the FOMC will likely continue on the slow path to policy normalization in the coming year. We expect the next tightening to occur in June followed by two additional steps in the third and fourth quarters. Rising growth rates and improving inflation data have supported asset valuations despite recent market volatility. We do not expect any changes in the tools used to manage short-term interest rates, i.e., interest paid on banking reserves and the overnight fixed-rate reserve purchase agreement program, or reverse repo facility. We also do not expect the Fed to alter the prescribed path of balance sheet reduction as detailed earlier in the year. We believe that the portfolio will continue to benefit from policy tightening and that the transparency of the FOMC will provide us with opportunities to tactically adjust the Fund’s duration profile if, as expected, short-term interest rates continue to rise.
a | Reflects reimbursement or waivers currently in effect |
b | Does not reflect reimbursements or waivers currently in effect |
This report contains the current opinions of BNP Paribas Asset Management USA, Inc. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
You could lose money by investing in Harbor Money Market Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the FDIC or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund and you should not expect the sponsor to provide financial support to the Fund at any time. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
70
Harbor Money Market Fund
Fund Summary—April 30, 2018 (Unaudited)
Fund Summary—April 30, 2018 (Unaudited)
TOP Issuers (% of net assets)
1. U.S. Treasury | 56.3% |
2. Federal Home Loan Bank | 28.6% |
3. Federal National Mortgage Association | 8.5% |
4. Federal Home Loan Mortgage Corp. | 6.5% |
Total INvestments (% of net assets)
71
Harbor Money Market Fund
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value, Cost, and Principal Amounts in Thousands
GOVERNMENT AGENCY DEBT—43.6%† | |||
Principal Amount | Value | ||
Federal Home Loan Bank Discount Notes | |||
$ | 6,400 | 1.605%—05/16/2018 | $ 6,396 |
5,000 | 1.620%—05/18/2018 | 4,996 | |
6,000 | 1.645%—05/21/2018 | 5,995 | |
5,000 | 1.710%—06/13/2018 | 4,990 | |
3,300 | 1.735%—07/02/2018 | 3,290 | |
6,250 | 1.750%—05/29/2018 | 6,241 | |
5,300 | 1.761%—07/06/2018 | 5,283 | |
37,191 | |||
Federal Home Loan Mortgage Corp. Discount Notes | |||
3,000 | 1.630%—06/25/2018 | 2,992 | |
5,500 | 1.665%—06/14/2018 | 5,489 | |
8,481 | |||
Federal National Mortgage Association Discount Notes | |||
4,500 | 1.580%—05/18/2018 | 4,497 | |
3,000 | 1.740%—07/13/2018 | 2,989 | |
3,500 | 1.750%—06/06/2018 | 3,494 | |
10,980 | |||
TOTAL GOVERNMENT AGENCY DEBT | |||
(Cost $56,652) | 56,652 | ||
TREASURY DEBT—56.3%† | |||
U.S. Treasury Bills | |||
4,000 | 1.585%—05/10/2018 | 3,998 |
TREASURY DEBT—Continued | |||
Principal Amount | Value | ||
$ | 6,400 | 1.598%—05/17/2018 | $ 6,396 |
10,000 | 1.630%—06/07/2018 | 9,983 | |
10,000 | 1.636%—05/31/2018 | 9,986 | |
7,700 | 1.648%—06/28/2018 | 7,680 | |
10,000 | 1.653%—06/14/2018 | 9,980 | |
10,000 | 1.657%—05/24/2018 | 9,989 | |
10,000 | 1.709%—07/05/2018 | 9,969 | |
5,225 | 1.752%—07/12/2018 | 5,207 | |
TOTAL TREASURY DEBT | |||
(Cost $73,188) | 73,188 | ||
REPURCHASE AGREEMENTS—0.1% | |||
(Cost $153) | |||
153 | Repurchase Agreement with Fixed Income Clearing Corp. dated April 30, 2018 due May 01, 2018 at 0.280% collateralized by U.S. Treasury Notes (value $158) | 153 | |
TOTAL INVESTMENTS—100.0% | |||
(Cost $129,993) | 129,993 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | (11) | ||
TOTAL NET ASSETS—100.0% | $129,982 |
FAIR VALUE MEASUREMENTS
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 2. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Portfolios of Investments.
† | Coupon represents yield to maturity |
The accompanying notes are an integral part of the Financial Statements.
72
Harbor Fixed Income Funds
StatementS of Assets and Liabilities—April 30, 2018 (Unaudited)
StatementS of Assets and Liabilities—April 30, 2018 (Unaudited)
(All amounts in thousands, except per share amounts)
Harbor Convertible Securities Fund | Harbor High-Yield Bond Fund | Harbor High-Yield Opportunities Fund | Harbor Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | |
ASSETS | ||||||
Investments, at identified cost* | $112,953 | $ 986,574 | $72,770 | $3,331,064 | $147,949 | $129,993 |
Investments, at value | $113,109 | $ 971,441 | $68,668 | $3,308,450 | $145,274 | $129,840 |
Repurchase agreements | 1,939 | 6,084 | 2,280 | — | 446 | 153 |
Cash-restricted | — | — | — | 5,515 | 646 | — |
Cash | 1 | — | 27 | 1,385 | — | — |
Foreign currency, at value (cost: $0,$0,$0,$7,413,$264 and $0) | — | — | — | 7,277 | 258 | — |
Receivables for: | ||||||
Investments sold | — | 10,469 | 579 | 854,373 | 16,142 | — |
Foreign currency spot contracts | — | — | — | 26 | 1 | — |
Capital shares sold | 134 | 208 | 3 | 792 | 5 | 65 |
Interest | 374 | 15,489 | 1,151 | 12,508 | 504 | — |
Unrealized appreciation on open forward currency contracts | — | — | — | 20,098 | 376 | — |
Unrealized appreciation on OTC swap agreements | — | — | — | 460 | 45 | — |
Variation margin on options and futures contracts | — | — | — | 8,646 | 123 | — |
Variation margin on centrally cleared swap agreements | — | — | — | 2,211 | 29 | — |
Purchased options not settled through variation margin, at value (cost: $0,$0,$0,$2,945,$86 and $0) | — | — | — | 1,307 | 100 | — |
Options sold | — | — | — | — | 25 | — |
Withholding tax | — | 10 | 10 | — | — | — |
Prepaid registration fees | 27 | 28 | 35 | 18 | 16 | 14 |
Prepaid fund insurance | — | 5 | — | 8 | 1 | 1 |
Other assets | 18 | 129 | 65 | 544 | 49 | 21 |
Total Assets | 115,602 | 1,003,863 | 72,818 | 4,223,618 | 164,040 | 130,094 |
LIABILITIES | ||||||
Payables for: | ||||||
Due to broker | — | — | — | 6,881 | 70 | — |
Due to custodian | — | 87 | — | — | 1 | — |
Investments purchased | 338 | 4,808 | 333 | 1,810,218 | 28,050 | — |
Capital shares reacquired | 197 | 2,027 | 8 | 1,277 | 62 | 26 |
Interest on reverse repurchase agreements | — | — | — | 94 | 44 | — |
Investments sold short, at value (proceeds: $0,$0,$0,$23,915,$1,938 and $0) | — | — | — | 23,810 | 1,925 | — |
Written options not settled through variation margin, at value (premiums received: $0,$0,$0,$4,640,$162 and $0) | — | — | — | 2,323 | 34 | — |
Swap premiums received | — | — | — | 446 | 40 | — |
Unrealized depreciation on OTC swap agreements | — | — | — | — | 163 | — |
Reverse repurchase agreements | — | — | — | 102,930 | 37,049 | — |
Sale-buyback financing transactions | — | — | — | 144,020 | 2,846 | — |
Variation margin on options and futures contracts | — | — | — | 7,274 | 106 | — |
Unrealized depreciation on open forward currency contracts | — | — | — | 14,969 | 104 | — |
Accrued expenses: | ||||||
Management fees | 56 | 420 | 36 | 792 | 37 | 21 |
12b-1 fees | 1 | 7 | — | 6 | — | 1 |
Transfer agent fees | 7 | 64 | 5 | 148 | 7 | 10 |
Trustees' fees and expenses | 2 | 15 | — | 17 | 1 | 1 |
Other | 70 | 295 | — | 799 | 107 | 53 |
Total Liabilities | 671 | 7,723 | 382 | 2,116,004 | 70,646 | 112 |
NET ASSETS | $114,931 | $ 996,140 | $72,436 | $2,107,614 | $ 93,394 | $129,982 |
Net Assets Consist of: | ||||||
Paid-in capital | $109,920 | $1,063,522 | $74,255 | $2,216,981 | $125,571 | $129,948 |
Accumulated undistributed net investment income/(loss) | (45) | 5,371 | 377 | 8,708 | 632 | 34 |
Accumulated net realized gain/(loss) | 2,961 | (63,704) | (374) | (98,248) | (31,197) | — |
Unrealized appreciation/(depreciation) of investments and translation of assets and liabilities in foreign currencies | 2,095 | (9,049) | (1,822) | (22,624) | (2,221) | — |
Unrealized appreciation/(depreciation) of other financial instruments | — | — | — | 2,797 | 609 | — |
$114,931 | $ 996,140 | $72,436 | $2,107,614 | $ 93,394 | $129,982 | |
The accompanying notes are an integral part of the Financial Statements.
73
Harbor Convertible Securities Fund | Harbor High-Yield Bond Fund | Harbor High-Yield Opportunities Fund | Harbor Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | |||||||
NET ASSET VALUE PER SHARE BY CLASS | ||||||||||||
Institutional Class | ||||||||||||
Net assets | $86,618 | $580,910 | $72,112 | $2,078,981 | $92,264 | $127,579 | ||||||
Shares of beneficial interest1 | 8,296 | 58,788 | 7,411 | 184,930 | 9,989 | 127,579 | ||||||
Net asset value per share2 | $ 10.44 | $ 9.88 | $ 9.73 | $ 11.24 | $ 9.24 | $ 1.00 | ||||||
Retirement Class | ||||||||||||
Net assets | $25,540 | $379,366 | $ 226 | N/A | N/A | N/A | ||||||
Shares of beneficial interest1 | 2,448 | 38,379 | 23 | N/A | N/A | N/A | ||||||
Net asset value per share2 | $ 10.44 | $ 9.88 | $ 9.73 | N/A | N/A | N/A | ||||||
Administrative Class | ||||||||||||
Net assets | $ 397 | $ 1,737 | $ 49 | $ 28,633 | $ 1,130 | $ 2,403 | ||||||
Shares of beneficial interest1 | 38 | 175 | 5 | 2,545 | 122 | 2,403 | ||||||
Net asset value per share2 | $ 10.43 | $ 9.91 | $ 9.73 | $ 11.25 | $ 9.23 | $ 1.00 | ||||||
Investor Class | ||||||||||||
Net assets | $ 2,376 | $ 34,127 | $ 49 | N/A | N/A | N/A | ||||||
Shares of beneficial interest1 | 228 | 3,446 | 5 | N/A | N/A | N/A | ||||||
Net asset value per share2 | $ 10.42 | $ 9.90 | $ 9.73 | N/A | N/A | N/A |
* | Including repurchase agreements and short-term investments. |
1 | Par value $0.01 (unlimited authorizations). |
2 | Per share amounts can be recalculated to the amounts disclosed herein when total net assets and shares of beneficial interest are not rounded to thousands. |
74
Harbor Fixed Income Funds
StatementS of Operations—Six Months Ended April 30, 2018 (Unaudited)
StatementS of Operations—Six Months Ended April 30, 2018 (Unaudited)
(All amounts in thousands)
Harbor Convertible Securities Fund | Harbor High-Yield Bond Fund | Harbor High-Yield Opportunities Fund | Harbor Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | |
Investment Income | ||||||
Interest | $ 964 | $ 36,571 | $ 1,744 | $ 35,413 | $ 2,064 | $ 922 |
Consent fee income | — | 32 | 1 | 270 | — | — |
Total Investment Income | 964 | 36,603 | 1,745 | 35,683 | 2,064 | 922 |
Operating Expenses | ||||||
Management fees | 366 | 3,629 | 190 | 5,132 | 233 | 139 |
12b-1 fees: | ||||||
Administrative Class | 1 | 2 | — | 37 | 2 | 3 |
Investor Class | 3 | 45 | — | N/A | N/A | N/A |
Shareholder communications | — | — | 4 | 47 | 9 | 4 |
Custodian fees | 20 | 27 | 27 | 149 | 41 | 12 |
Transfer agent fees: | ||||||
Institutional Class | 38 | 493 | 28 | 949 | 43 | 62 |
Retirement Class | 1 | 4 | — | N/A | N/A | N/A |
Administrative Class | — | 1 | — | 13 | 1 | 1 |
Investor Class | 2 | 38 | — | N/A | N/A | N/A |
Professional fees | 2 | 21 | 34 | 32 | 1 | 3 |
Trustees' fees and expenses | 2 | 23 | 1 | 34 | 2 | 2 |
Registration fees | 26 | 36 | 38 | 30 | 17 | 21 |
Miscellaneous | — | 12 | 5 | 13 | 3 | 3 |
Expenses before interest expense | 461 | 4,331 | 327 | 6,436 | 352 | 250 |
Interest expense | — | — | — | 1,649 | 279 | — |
Total expenses | 461 | 4,331 | 327 | 8,085 | 631 | 250 |
Management fees waived | (28) | (330) | — | (287) | — | (64) |
Transfer agent fees waived | (4) | (45) | (2) | (81) | (4) | (53) |
12b-1 fees waived | — | — | — | — | — | (3) |
Other expenses reimbursed | — | — | (94) | (578) | (87) | (45) |
Net expenses | 429 | 3,956 | 231 | 7,139 | 540 | 85 |
Net Investment Income/(Loss) | 535 | 32,647 | 1,514 | 28,544 | 1,524 | 837 |
Realized and Change in Net Unrealized Gain/(Loss) on Investment Transactions | ||||||
Net realized gain/(loss) on: | ||||||
Investments | 3,729 | 12,922 | (374) | (13,546) | (302) | — |
Foreign currency transactions | — | — | — | (16,074) | (220) | — |
Investments sold short | — | — | — | (228) | 93 | — |
Swap agreements | — | — | — | 8,401 | 234 | — |
Futures contracts | — | — | — | (14,344) | 434 | — |
Purchased options | — | — | — | 85 | 2 | — |
Written options | — | — | — | 2,204 | 89 | — |
Change in net unrealized appreciation/(depreciation) on: | ||||||
Investments | (2,090) | (50,279) | (1,822) | (29,122) | (1,568) | — |
Forwards currency contracts | — | — | — | (4,189) | 103 | — |
Investments sold short | — | — | — | 46 | 9 | — |
Swap agreements | — | — | — | 603 | 66 | — |
Futures contracts | — | — | — | (1,724) | (290) | — |
Purchased options | — | — | — | 552 | 47 | — |
Written options | — | — | — | (1,633) | (18) | — |
Translations of assets and liabilities in foreign currencies | — | — | — | (2,529) | (90) | — |
Net gain/(loss) on investment transactions | 1,639 | (37,357) | (2,196) | (71,498) | (1,411) | — |
Net Increase/(Decrease) in Net Assets Resulting from Operations | $ 2,174 | $ (4,710) | $ (682) | $(42,954) | $ 113 | $ 837 |
The accompanying notes are an integral part of the Financial Statements.
75
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76
Harbor Fixed Income Funds
Statements of Changes In Net Assets
Statements of Changes In Net Assets
(All amounts in thousands)
Harbor Convertible Securities Fund | Harbor High-Yield Bond Fund | Harbor High-Yield Opportunities Fund | |||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017a through April 30, 2018 | |||
INCREASE/(DECREASE) IN NET ASSETS | (Unaudited) | (Unaudited) | (Unaudited) | ||||
Operations: | |||||||
Net investment income/(loss) | $ 535 | $ 3,756 | $ 32,647 | $ 91,178 | $ 1,514 | ||
Net realized gain/(loss) on investments | 3,729 | 26,914 | 12,922 | 31,901 | (374) | ||
Change in net unrealized appreciation/(depreciation) of investments | (2,090) | (3,408) | (50,279) | 8,088 | (1,822) | ||
Net increase/(decrease) in assets resulting from operations | 2,174 | 27,262 | (4,710) | 131,167 | (682) | ||
Distributions to Shareholders | |||||||
Net investment income: | |||||||
Institutional Class | (322) | (5,060) | (33,197) | (88,164) | (1,132) | ||
Retirement Class | (106) | (173) | (1,815) | (1,550) | (3) | ||
Administrative Class | (1) | (5) | (49) | (210) | (1) | ||
Investor Class | (4) | (30) | (1,025) | (3,528) | (1) | ||
Net realized gain on investments: | |||||||
Institutional Class | (7,455) | — | — | — | — | ||
Retirement Class | (2,250) | — | — | — | — | ||
Administrative Class | (35) | — | — | — | — | ||
Investor Class | (178) | — | — | — | — | ||
Total distributions to shareholders | (10,351) | (5,268) | (36,086) | (93,452) | (1,137) | ||
Net Increase/(Decrease) Derived from Capital Share Transactions | 8,722 | (333,925) | (436,758) | (475,537) | 74,255 | ||
Net increase/(decrease) in net assets | 545 | (311,931) | (477,554) | (437,822) | 72,436 | ||
Net Assets | |||||||
Beginning of period | 114,386 | 426,317 | 1,473,694 | 1,911,516 | — | ||
End of period* | $114,931 | $ 114,386 | $ 996,140 | $1,473,694 | $72,436 | ||
* Includes accumulated undistributed net investment income/(loss) of: | $ (45) | $ (147) | $ 5,371 | $ 8,810 | $ 377 |
a | Inception |
The accompanying notes are an integral part of the Financial Statements.
77
Harbor Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | |||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | ||
(Unaudited) | (Unaudited) | (Unaudited) | |||||
$ 28,544 | $ 71,625 | $ 1,524 | $ 2,542 | $ 837 | $ 1,089 | ||
(33,502) | (13,862) | 330 | (19) | — | — | ||
(37,996) | 936 | (1,741) | (1,744) | — | — | ||
(42,954) | 58,699 | 113 | 779 | 837 | 1,089 | ||
(38,015) | (66,863) | (2,006) | (1,578) | (824) | (1,099) | ||
— | — | — | — | — | — | ||
(497) | (931) | (30) | (16) | (13) | (11) | ||
— | — | — | — | — | — | ||
— | (33,573) | — | — | — | — | ||
— | — | — | — | — | — | ||
— | (538) | — | — | — | — | ||
— | — | — | — | — | — | ||
(38,512) | (101,905) | (2,036) | (1,594) | (837) | (1,110) | ||
(686) | (243,730) | (6,073) | (9,177) | (41,200) | 31,950 | ||
(82,152) | (286,936) | (7,996) | (9,992) | (41,200) | 31,929 | ||
2,189,766 | 2,476,702 | 101,390 | 111,382 | 171,182 | 139,253 | ||
$2,107,614 | $2,189,766 | $ 93,394 | $101,390 | $129,982 | $171,182 | ||
$ 8,708 | $ 18,676 | $ 632 | $ 1,144 | $ 34 | $ 34 |
78
Harbor Fixed Income Funds
Statements of Changes in Net Assets—Capital Stock Activity
Statements of Changes in Net Assets—Capital Stock Activity
(All amounts in thousands)
Harbor Convertible Securities Fund | Harbor High-Yield Bond Fund | Harbor High-Yield Opportunities Fund | |||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017a through April 30, 2018 | |||
(Unaudited) | (Unaudited) | (Unaudited) | |||||
AMOUNT ($) | |||||||
Institutional Class | |||||||
Net proceeds from sale of shares | $ 18,950 | $ 118,396 | $ 76,934 | $ 298,904 | $73,238 | ||
Net proceeds from redemption fees | — | 5 | 292 | 32 | — | ||
Reinvested distributions | 7,629 | 1,599 | 24,313 | 46,533 | 1,132 | ||
Cost of shares reacquired | (21,185) | (475,619) | (872,407) | (811,755) | (447) | ||
Net increase/(decrease) in net assets | $ 5,394 | $(355,619) | $(770,868) | $(466,286) | $73,923 | ||
Retirement Class | |||||||
Net proceeds from sale of shares | $ 1,045 | $ 22,088 | $ 386,118 | $ 42,380 | $ 228 | ||
Net proceeds from redemption fees | — | 1 | 12 | 1 | — | ||
Reinvested distributions | 2,356 | 173 | 1,254 | 1,501 | 2 | ||
Cost of shares reacquired | (615) | (348) | (45,912) | (3,925) | — | ||
Net increase/(decrease) in net assets | $ 2,786 | $ 21,914 | $ 341,472 | $ 39,957 | $ 230 | ||
Administrative Class | |||||||
Net proceeds from sale of shares | $ — | $ 50 | $ 122 | $ 817 | $ 50 | ||
Net proceeds from redemption fees | — | — | 1 | — | — | ||
Reinvested distributions | 36 | 5 | 39 | 203 | 1 | ||
Cost of shares reacquired | (5) | (81) | (121) | (3,992) | — | ||
Net increase/(decrease) in net assets | $ 31 | $ (26) | $ 41 | $ (2,972) | $ 51 | ||
Investor Class | |||||||
Net proceeds from sale of shares | $ 554 | $ 2,678 | $ 4,498 | $ 22,940 | $ 50 | ||
Net proceeds from redemption fees | — | — | 10 | 1 | — | ||
Reinvested distributions | 182 | 30 | 1,012 | 3,502 | 1 | ||
Cost of shares reacquired | (225) | (2,902) | (12,923) | (72,679) | — | ||
Net increase/(decrease) in net assets | $ 511 | $ (194) | $ (7,403) | $ (46,236) | $ 51 |
a | Inception |
The accompanying notes are an integral part of the Financial Statements.
79
Harbor Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | |||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | ||
(Unaudited) | (Unaudited) | (Unaudited) | |||||
$ 170,791 | $ 297,400 | $ 4,978 | $ 13,033 | $ 292,050 | $ 632,718 | ||
— | — | — | — | — | — | ||
36,478 | 96,574 | 1,962 | 1,531 | 821 | 1,095 | ||
(207,338) | (630,922) | (12,717) | (22,733) | (334,929) | (601,142) | ||
$ (69) | $(236,948) | $ (5,777) | $ (8,169) | $ (42,058) | $ 32,671 | ||
N/A | N/A | N/A | N/A | N/A | N/A | ||
$ 2,984 | $ 7,619 | $ 247 | $ 172 | $ 1,590 | $ 2,553 | ||
— | — | — | — | — | — | ||
497 | 1,464 | 29 | 16 | 12 | 11 | ||
(4,098) | (15,865) | (572) | (1,196) | (744) | (3,285) | ||
$ (617) | $ (6,782) | $ (296) | $ (1,008) | $ 858 | $ (721) | ||
N/A | N/A | N/A | N/A | N/A | N/A | ||
80
Harbor Fixed Income Funds
Statements of Changes in Net Assets—Capital Stock Activity—Continued
Statements of Changes in Net Assets—Capital Stock Activity—Continued
(All amounts in thousands)
Harbor Convertible Securities Fund | Harbor High-Yield Bond Fund | Harbor High-Yield Opportunities Fund | |||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017a through April 30, 2018 | |||
(Unaudited) | (Unaudited) | (Unaudited) | |||||
SHARES | |||||||
Institutional Class | |||||||
Shares sold | 1,795 | 10,860 | 7,660 | 29,512 | 7,341 | ||
Shares issued due to reinvestment of distributions | 741 | 148 | 2,451 | 4,624 | 116 | ||
Shares reacquired | (1,994) | (43,282) | (87,129) | (80,242) | (46) | ||
Net increase/(decrease) in shares outstanding | 542 | (32,274) | (77,018) | (46,106) | 7,411 | ||
Beginning of period | 7,754 | 40,028 | 135,806 | 181,912 | — | ||
End of period | 8,296 | 7,754 | 58,788 | 135,806 | 7,411 | ||
Retirement Class | |||||||
Shares sold | 94 | 1,988 | 38,739 | 4,160 | 23 | ||
Shares issued due to reinvestment of distributions | 229 | 16 | 126 | 149 | — | ||
Shares reacquired | (57) | (32) | (4,592) | (386) | — | ||
Net increase/(decrease) in shares outstanding | 266 | 1,972 | 34,273 | 3,923 | 23 | ||
Beginning of period | 2,182 | 210 | 4,106 | 183 | — | ||
End of period | 2,448 | 2,182 | 38,379 | 4,106 | 23 | ||
Administrative Class | |||||||
Shares sold | — | 5 | 12 | 80 | 5 | ||
Shares issued due to reinvestment of distributions | 3 | — | 4 | 20 | — | ||
Shares reacquired | — | (7) | (12) | (392) | — | ||
Net increase/(decrease) in shares outstanding | 3 | (2) | 4 | (292) | 5 | ||
Beginning of period | 35 | 37 | 171 | 463 | — | ||
End of period | 38 | 35 | 175 | 171 | 5 | ||
Investor Class | |||||||
Shares sold | 52 | 244 | 444 | 2,260 | 5 | ||
Shares issued due to reinvestment of distributions | 18 | 3 | 102 | 348 | — | ||
Shares reacquired | (21) | (262) | (1,275) | (7,139) | — | ||
Net increase/(decrease) in shares outstanding | 49 | (15) | (729) | (4,531) | 5 | ||
Beginning of period | 179 | 194 | 4,175 | 8,706 | — | ||
End of period | 228 | 179 | 3,446 | 4,175 | 5 |
a | Inception |
The accompanying notes are an integral part of the Financial Statements.
81
Harbor Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | |||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | ||
(Unaudited) | (Unaudited) | (Unaudited) | |||||
14,940 | 25,632 | 538 | 1,389 | 292,050 | 632,718 | ||
3,186 | 8,483 | 211 | 164 | 821 | 1,095 | ||
(18,138) | (54,503) | (1,372) | (2,424) | (334,929) | (601,142) | ||
(12) | (20,388) | (623) | (871) | 42,058 | 32,671 | ||
184,942 | 205,330 | 10,612 | 11,483 | 169,637 | 136,966 | ||
184,930 | 184,942 | 9,989 | 10,612 | 127,579 | 169,637 | ||
N/A | N/A | N/A | N/A | N/A | N/A | ||
260 | 659 | 27 | 18 | 1,590 | 2,553 | ||
44 | 129 | 3 | 2 | 12 | 11 | ||
(358) | (1,376) | (63) | (128) | (744) | (3,285) | ||
(54) | (588) | (33) | (108) | 858 | (721) | ||
2,599 | 3,187 | 155 | 263 | 1,545 | 2,266 | ||
2,545 | 2,599 | 122 | 155 | 2,403 | 1,545 | ||
N/A | N/A | N/A | N/A | N/A | N/A | ||
82
Harbor Fixed Income Funds
Statement of Cash Flows— Six-Months Ended April 30, 2018 (Unaudited)
Statement of Cash Flows— Six-Months Ended April 30, 2018 (Unaudited)
(All amounts in thousands)
Harbor Real Return Fund | |
Cash flows from operating activities: | |
Net increase in net assets resulting from operations | $ 113 |
Adjustments to reconcile net decrease in net assets from operations to net cash provided by operating activities: | |
Purchases of long-term securities | (343,562) |
Proceeds from sales of long-term securities | 345,804 |
Proceeds from short-term portfolio investments, net | (2,573) |
Decrease in receivable for investments sold | 3,225 |
Increase in foreign spot contracts receivable | (1) |
Decrease in interest receivable | 58 |
Increase in variation margin on options and futures contracts | (108) |
Increase in variation margin on swap agreements | (26) |
Increase in options sold | (2) |
Decrease in prepaid registration fees | 9 |
Increase in prepaid fund insurance | (1) |
Increase in other assets | (11) |
Increase in payable for investments purchased | 3,777 |
Increase in interest on reverse repurchase agreements | 44 |
Decrease in interest on Investments sold short | (1) |
Decrease in investments sold short | (2,172) |
Decrease in premiums from written options not settled through variation margin | (16) |
Increase in swap premiums received | 1 |
Increase in variation margin on options and futures contracts | 105 |
Decrease in management fees payable | (4) |
Increase in other liabilities | 33 |
Net change in unrealized appreciation/(depreciation) on investments | 1,559 |
Net change in unrealized appreciation/(depreciation) on forwards | (103) |
Net change in unrealized appreciation/(depreciation) on OTC swaps | 49 |
Net change in unrealized appreciation/(depreciation) on purchased options not settled through variation margin | (45) |
Net change in unrealized appreciation/(depreciation) on written options not settled through variation margin | 20 |
Net realized loss on investments | 209 |
Net realized gain on purchased options | (2) |
Net amortization and earned inflation component | 455 |
Net cash provided by operating activities | 6,834 |
Cash flows from financing activities: | |
Proceeds from shares sold | 5,288 |
Payment on shares redeemed | (13,571) |
Cash dividends paid | (45) |
Increase in reverse repurchase agreement transactions | 37,049 |
Decrease in sale-buyback financing transactions | (35,634) |
Increase in due to broker | 70 |
Decrease in cash-restricted | 35 |
Increase in due to custodian | 1 |
Net cash used for financing activities | (6,807) |
Net Increase in cash and foreign currency | 27 |
Cash and foreign currency | |
Beginning of period | $ 231 |
End of period | 258 |
Reinvestment of dividends | $ 1,991 |
Supplemental disclosure of cash flow information: | |
Interest paid during the period | $ 236 |
The accompanying notes are an integral part of the Financial Statements.
83
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84
Harbor Fixed Income Funds Financial Highlights
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR CONVERTIBLE SECURITIES FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 11.27 | $ 10.53 | $ 10.63 | $ 11.20 | $ 10.95 | $ 10.01 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.05 e | 0.13 e | 0.12 e | 0.15 e | 0.19 | 0.20 |
Net realized and unrealized gains/(losses) on investments | 0.16 | 0.78 | 0.19 | (0.08) | 0.38 | 0.96 |
Total from investment operations | 0.21 | 0.91 | 0.31 | 0.07 | 0.57 | 1.16 |
Less Distributions | ||||||
Dividends from net investment income | (0.04) | (0.17) | (0.22) | (0.22) | (0.21) | (0.22) |
Distributions from net realized capital gains1 | (1.00) | — | (0.19) | (0.42) | (0.11) | — |
Total distributions | (1.04) | (0.17) | (0.41) | (0.64) | (0.32) | (0.22) |
Proceeds from redemption fees | — * | — * | — * | — * | — * | — * |
Net asset value end of period | 10.44 | 11.27 | 10.53 | 10.63 | 11.20 | 10.95 |
Net assets end of period (000s) | $86,618 | $87,391 | $421,671 | $373,421 | $353,370 | $267,251 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 2.03% c | 8.74% | 3.12% | 0.72% | 5.23% | 11.80% |
Ratio of total expenses to average net assets2 | 0.83 d | 0.79 | 0.77 | 0.75 | 0.74 | 0.79 |
Ratio of net expenses to average net assetsa | 0.77 d | 0.76 | 0.76 | 0.75 | 0.74 | 0.79 |
Ratio of net investment income to average net assetsa | 0.94 d | 1.18 | 1.15 | 1.37 | 1.58 | 1.82 |
Portfolio turnover | 49 c | 102 | 102 | 81 | 54 | 45 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 11.26 | $ 10.53 | $ 10.62 | $ 11.19 | $ 10.94 | $ 10.00 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.04 e | 0.10 e | 0.09 e | 0.12 e | 0.13 | 0.16 |
Net realized and unrealized gains/(losses) on investments | 0.16 | 0.77 | 0.20 | (0.08) | 0.41 | 0.98 |
Total from investment operations | 0.20 | 0.87 | 0.29 | 0.04 | 0.54 | 1.14 |
Less Distributions | ||||||
Dividends from net investment income | (0.03) | (0.14) | (0.19) | (0.19) | (0.18) | (0.20) |
Distributions from net realized capital gains1 | (1.00) | — | (0.19) | (0.42) | (0.11) | — |
Total distributions | (1.03) | (0.14) | (0.38) | (0.61) | (0.29) | (0.20) |
Proceeds from redemption fees | — * | — * | — * | — * | — * | — * |
Net asset value end of period | 10.43 | 11.26 | 10.53 | 10.62 | 11.19 | 10.94 |
Net assets end of period (000s) | $ 397 | $ 395 | $ 392 | $ 376 | $ 306 | $ 427 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 1.90% c | 8.37% | 2.96% | 0.47% | 4.97% | 11.55% |
Ratio of total expenses to average net assets2 | 1.08 d | 1.04 | 1.02 | 1.00 | 0.99 | 1.04 |
Ratio of net expenses to average net assetsa | 1.02 d | 1.00 | 1.01 | 1.00 | 0.99 | 1.04 |
Ratio of net investment income to average net assetsa | 0.69 d | 0.93 | 0.90 | 1.11 | 1.35 | 1.61 |
Portfolio turnover | 49 c | 102 | 102 | 81 | 54 | 45 |
See page 93 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
85
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 11.27 | $ 10.53 | $ 9.78 |
0.05 e | 0.14 e | 0.08 e |
0.17 | 0.78 | 0.75 |
0.22 | 0.92 | 0.83 |
(0.05) | (0.18) | (0.08) |
(1.00) | — | — |
(1.05) | (0.18) | (0.08) |
— * | — * | — |
10.44 | 11.27 | 10.53 |
$25,540 | $24,585 | $2,215 |
2.07% c | 8.81% | 8.51% c |
0.75 d | 0.72 | 0.73 d |
0.70 d | 0.67 | 0.71 d |
1.01 d | 1.24 | 1.13 d |
49 c | 102 | 102 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$11.25 | $10.52 | $10.61 | $11.18 | $10.94 | $10.00 |
0.03 e | 0.09 e | 0.08 e | 0.11 e | 0.11 | 0.16 |
0.16 | 0.77 | 0.20 | (0.08) | 0.40 | 0.97 |
0.19 | 0.86 | 0.28 | 0.03 | 0.51 | 1.13 |
(0.02) | (0.13) | (0.18) | (0.18) | (0.16) | (0.19) |
(1.00) | — | (0.19) | (0.42) | (0.11) | — |
(1.02) | (0.13) | (0.37) | (0.60) | (0.27) | (0.19) |
— * | — * | — * | — * | — * | — * |
10.42 | 11.25 | 10.52 | 10.61 | 11.18 | 10.94 |
$2,376 | $2,015 | $2,039 | $1,861 | $1,941 | $2,452 |
1.84% c | 8.26% | 2.85% | 0.35% | 4.76% | 11.41% |
1.20 d | 1.16 | 1.14 | 1.12 | 1.11 | 1.16 |
1.14 d | 1.12 | 1.13 | 1.12 | 1.11 | 1.16 |
0.57 d | 0.81 | 0.77 | 1.00 | 1.24 | 1.49 |
49 c | 102 | 102 | 81 | 54 | 45 |
86
Harbor Fixed Income Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR HIGH-YIELD BOND FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 10.21 | $ 9.99 | $ 10.00 | $ 10.85 | $ 11.19 | $ 11.15 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.27 e | 0.55 e | 0.53 e | 0.57 e | 0.60 | 0.64 |
Net realized and unrealized gains/(losses) on investments | (0.30) | 0.24 | (0.02) | (0.66) | (0.05) | 0.06 |
Total from investment operations | (0.03) | 0.79 | 0.51 | (0.09) | 0.55 | 0.70 |
Less Distributions | ||||||
Dividends from net investment income | (0.30) | (0.57) | (0.52) | (0.54) | (0.62) | (0.64) |
Distributions from net realized capital gains1 | — | — | — | (0.22) | (0.27) | (0.02) |
Total distributions | (0.30) | (0.57) | (0.52) | (0.76) | (0.89) | (0.66) |
Proceeds from redemption fees | — * | — * | — * | — * | — * | — * |
Net asset value end of period | 9.88 | 10.21 | 9.99 | 10.00 | 10.85 | 11.19 |
Net assets end of period (000s) | $580,910 | $1,387,213 | $1,817,902 | $1,460,808 | $1,707,788 | $1,880,044 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | (0.28)% c | 8.16% | 5.46% | (0.79)% | 5.10% | 6.55% |
Ratio of total expenses to average net assets2 | 0.69 d | 0.72 | 0.70 | 0.69 | 0.68 | 0.68 |
Ratio of net expenses to average net assetsa | 0.63 d | 0.67 | 0.66 | 0.65 | 0.64 | 0.64 |
Ratio of net investment income to average net assetsa | 5.40 d | 5.43 | 5.43 | 5.51 | 5.43 | 5.56 |
Portfolio turnover | 26 c | 56 | 58 | 49 | 48 | 57 |
Administrative Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 10.25 | $ 10.01 | $ 10.02 | $ 10.87 | $ 11.21 | $ 11.16 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.26 e | 0.53 e | 0.51 e | 0.55 e | 0.60 | 0.70 |
Net realized and unrealized gains/(losses) on investments | (0.31) | 0.25 | (0.02) | (0.67) | (0.08) | (0.02) |
Total from investment operations | (0.05) | 0.78 | 0.49 | (0.12) | 0.52 | 0.68 |
Less Distributions | ||||||
Dividends from net investment income | (0.29) | (0.54) | (0.50) | (0.51) | (0.59) | (0.61) |
Distributions from net realized capital gains1 | — | — | — | (0.22) | (0.27) | (0.02) |
Total distributions | (0.29) | (0.54) | (0.50) | (0.73) | (0.86) | (0.63) |
Proceeds from redemption fees | — * | — * | — * | — * | — * | — * |
Net asset value end of period | 9.91 | 10.25 | 10.01 | 10.02 | 10.87 | 11.21 |
Net assets end of period (000s) | $ 1,737 | $ 1,753 | $ 4,631 | $ 4,314 | $ 4,773 | $ 5,519 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | (0.49)% c | 7.98% | 5.18% | (1.03)% | 4.82% | 6.33% |
Ratio of total expenses to average net assets2 | 0.94 d | 0.97 | 0.95 | 0.94 | 0.93 | 0.93 |
Ratio of net expenses to average net assetsa | 0.87 d | 0.92 | 0.91 | 0.90 | 0.89 | 0.89 |
Ratio of net investment income to average net assetsa | 5.18 d | 5.20 | 5.20 | 5.26 | 5.18 | 5.32 |
Portfolio turnover | 26 c | 56 | 58 | 49 | 48 | 57 |
See page 93 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
87
Retirement Class | ||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |
2017 | 2016 f | |
(Unaudited) | ||
$ 10.22 | $ 10.00 | $ 9.40 |
0.27 e | 0.55 e | 0.36 e |
(0.30) | 0.25 | 0.61 |
(0.03) | 0.80 | 0.97 |
(0.31) | (0.58) | (0.37) |
— | — | — |
(0.31) | (0.58) | (0.37) |
— * | — * | — * |
9.88 | 10.22 | 10.00 |
$379,366 | $41,975 | $1,828 |
(0.34)% c | 8.23% | 10.49% c |
0.61 d | 0.65 | 0.66 d |
0.54 d | 0.61 | 0.61 d |
5.50 d | 5.44 | 5.38 d |
26 c | 56 | 58 c |
Investor Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 10.24 | $ 10.01 | $ 10.02 | $ 10.87 | $ 11.21 | $ 11.16 |
0.25 e | 0.52 e | 0.49 e | 0.53 e | 0.59 | 0.66 |
(0.31) | 0.24 | (0.02) | (0.66) | (0.08) | 0.01 |
(0.06) | 0.76 | 0.47 | (0.13) | 0.51 | 0.67 |
(0.28) | (0.53) | (0.48) | (0.50) | (0.58) | (0.60) |
— | — | — | (0.22) | (0.27) | (0.02) |
(0.28) | (0.53) | (0.48) | (0.72) | (0.85) | (0.62) |
— * | — * | — * | — * | — * | — * |
9.90 | 10.24 | 10.01 | 10.02 | 10.87 | 11.21 |
$34,127 | $42,753 | $87,155 | $96,957 | $100,194 | $114,564 |
(0.57)% c | 7.79% | 5.02% | (1.15)% | 4.70% | 6.22% |
1.06 d | 1.09 | 1.07 | 1.06 | 1.05 | 1.05 |
0.99 d | 1.04 | 1.03 | 1.02 | 1.01 | 1.01 |
5.05 d | 5.08 | 5.09 | 5.14 | 5.06 | 5.19 |
26 c | 56 | 58 | 49 | 48 | 57 |
88
Harbor Fixed Income Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR HIGH-YIELD OPPORTUNITIES FUND | |||||||
Institutional Class | Retirement Class | Administrative Class | Investor Class | ||||
6-Month Period Ended April 30, 2018g | 6-Month Period Ended April 30, 2018g | 6-Month Period Ended April 30, 2018g | 6-Month Period Ended April 30, 2018g | ||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||
Net asset value beginning of period | $ 10.00 | $10.00 | $10.00 | $10.00 | |||
Income from Investment Operations | |||||||
Net investment income/(loss)a | 0.23 e | 0.24 e | 0.22 e | 0.22 e | |||
Net realized and unrealized gains/(losses) on investments | (0.33) | (0.34) | (0.34) | (0.34) | |||
Total from investment operations | (0.10) | (0.10) | (0.12) | (0.12) | |||
Less Distributions | |||||||
Dividends from net investment income | (0.17) | (0.17) | (0.15) | (0.15) | |||
Distributions from net realized capital gains1 | — | — | — | — | |||
Total distributions | (0.17) | (0.17) | (0.15) | (0.15) | |||
Net asset value end of period | 9.73 | 9.73 | 9.73 | 9.73 | |||
Net assets end of period (000s) | $72,112 | $ 226 | $ 49 | $ 49 | |||
Ratios and Supplemental Data (%) | |||||||
Total returnb | (1.05)% c | (1.02)% c | (1.15)% c | (1.20)% c | |||
Ratio of total expenses to average net assets2 | 1.03 d | 0.95 d | 1.28 d | 1.40 d | |||
Ratio of net expenses to average net assetsa | 0.73 d | 0.65 d | 0.98 d | 1.10 d | |||
Ratio of net investment income to average net assetsa | 4.79 d | 4.96 d | 4.52 d | 4.40 d | |||
Portfolio turnover | 23 c | 23 c | 23 c | 23 c |
See page 93 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
89
[THIS PAGE INTENTIONALLY LEFT BLANK]
90
Harbor Fixed Income Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR BOND FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 11.68 | $ 11.88 | $ 11.92 | $ 12.28 | $ 12.22 | $ 13.03 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.15 e | 0.36 e | 0.37 e | 0.34 e | 0.25 | 0.30 |
Net realized and unrealized gains/(losses) on investments | (0.38) | (0.04) | 0.16 | (0.18) | 0.16 | (0.30) |
Total from investment operations | (0.23) | 0.32 | 0.53 | 0.16 | 0.41 | — * |
Less Distributions | ||||||
Dividends from net investment income | (0.21) | (0.35) | (0.48) | (0.41) | (0.35) | (0.30) |
Distributions from net realized capital gains1 | — | (0.17) | (0.09) | (0.11) | — | (0.51) |
Total distributions | (0.21) | (0.52) | (0.57) | (0.52) | (0.35) | (0.81) |
Net asset value end of period | 11.24 | 11.68 | 11.88 | 11.92 | 12.28 | 12.22 |
Net assets end of period (000s) | $2,078,981 | $2,159,390 | $2,438,815 | $2,874,705 | $4,125,889 | $6,626,361 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | (2.04)% c | 2.82% | 4.70% | 1.32% | 3.40% | (0.05)% |
Ratio of total expenses to average net assets2 | 0.75 d | 0.63 | 0.60 | 0.58 | 0.56 | 0.56 |
Ratio of net expenses to average net assetsa | 0.66 d | 0.54 | 0.53 | 0.52 | 0.54 | 0.53 |
Ratio of net expenses excluding interest expense to average net assetsa | 0.51 d | 0.51 | 0.51 | 0.52 | 0.54 | 0.53 |
Ratio of net investment income to average net assetsa | 2.67 d | 3.15 | 3.16 | 2.80 | 1.90 | 2.36 |
Portfolio turnover | 389 c | 654 | 592 | 586 | 439 | 446 |
HARBOR REAL RETURN FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 9.42 | $ 9.48 | $ 9.15 | $ 10.18 | $ 10.41 | $ 11.54 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.15 e | 0.23 e | 0.15 e | 0.10 e | 0.40 | 0.10 |
Net realized and unrealized gains/(losses) on investments | (0.14) | (0.14) | 0.35 | (0.43) | (0.20) | (0.84) |
Total from investment operations | 0.01 | 0.09 | 0.50 | (0.33) | 0.20 | (0.74) |
Less Distributions | ||||||
Dividends from net investment income | (0.19) | (0.15) | (0.17) | (0.70) | (0.03) | (0.18) |
Distributions from net realized capital gains1 | — | — | — | — | (0.40) | (0.21) |
Total distributions | (0.19) | (0.15) | (0.17) | (0.70) | (0.43) | (0.39) |
Net asset value end of period | 9.24 | 9.42 | 9.48 | 9.15 | 10.18 | 10.41 |
Net assets end of period (000s) | $ 92,264 | $ 99,929 | $ 108,890 | $ 130,467 | $ 169,969 | $ 404,689 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 0.12% c | 0.92% | 5.55% | (3.32)% | 2.07% | (6.67)% |
Ratio of total expenses to average net assets2 | 1.30 d | 1.03 | 0.87 | 0.77 | 0.63 | 0.61 |
Ratio of net expenses to average net assetsa | 1.11 d | 0.87 | 0.73 | 0.68 | 0.62 | 0.61 |
Ratio of net expenses excluding interest expense to average net assetsa | 0.53 d | 0.54 | 0.55 | 0.58 | 0.60 | 0.59 |
Ratio of net investment income to average net assetsa | 3.16 d | 2.42 | 1.63 | 1.06 | 1.91 | 0.92 |
Portfolio turnover | 311 c | 758 | 611 | 531 | 427 | 285 |
See page 93 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
91
Administrative Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 11.69 | $ 11.89 | $ 11.93 | $ 12.28 | $ 12.23 | $ 13.03 |
0.14 e | 0.34 e | 0.34 e | 0.30 e | 0.22 | 0.27 |
(0.39) | (0.05) | 0.16 | (0.16) | 0.15 | (0.29) |
(0.25) | 0.29 | 0.50 | 0.14 | 0.37 | (0.02) |
(0.19) | (0.32) | (0.45) | (0.38) | (0.32) | (0.27) |
— | (0.17) | (0.09) | (0.11) | — | (0.51) |
(0.19) | (0.49) | (0.54) | (0.49) | (0.32) | (0.78) |
11.25 | 11.69 | 11.89 | 11.93 | 12.28 | 12.23 |
$28,633 | $30,376 | $37,887 | $57,874 | $102,591 | $138,575 |
(2.16)% c | 2.56% | 4.42% | 1.13% | 3.05% | (0.23)% |
1.00 d | 0.88 | 0.85 | 0.83 | 0.81 | 0.81 |
0.91 d | 0.79 | 0.78 | 0.77 | 0.79 | 0.78 |
0.76 d | 0.76 | 0.76 | 0.77 | 0.79 | 0.78 |
2.42 d | 2.90 | 2.89 | 2.47 | 1.66 | 2.11 |
389 c | 654 | 592 | 586 | 439 | 446 |
Administrative Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 9.42 | $ 9.46 | $ 9.15 | $ 10.17 | $ 10.41 | $ 11.55 |
0.12 e | 0.21 e | 0.13 e | 0.08 e | 0.21 | 0.06 |
(0.12) | (0.15) | 0.34 | (0.42) | (0.03) | (0.84) |
— * | 0.06 | 0.47 | (0.34) | 0.18 | (0.78) |
(0.19) | (0.10) | (0.16) | (0.68) | (0.02) | (0.15) |
— | — | — | — | (0.40) | (0.21) |
(0.19) | (0.10) | (0.16) | (0.68) | (0.42) | (0.36) |
9.23 | 9.42 | 9.46 | 9.15 | 10.17 | 10.41 |
$ 1,130 | $ 1,461 | $ 2,492 | $ 3,174 | $ 3,481 | $ 3,542 |
(0.06)% c | 0.62% | 5.26% | (3.47)% | 1.81% | (6.94)% |
1.55 d | 1.26 | 1.12 | 1.02 | 0.88 | 0.86 |
1.36 d | 1.10 | 0.98 | 0.93 | 0.87 | 0.86 |
0.79 d | 0.77 | 0.80 | 0.83 | 0.85 | 0.84 |
2.58 d | 2.19 | 1.38 | 0.90 | 2.08 | 0.69 |
311 c | 758 | 611 | 531 | 427 | 285 |
92
Harbor Fixed Income Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR MONEY MARKET FUND | ||||||
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 |
Income from Investment Operations | ||||||
Net investment income/(loss)a | 0.01 e | 0.01 e | — *,e | — *,e | — * | — * |
Net realized and unrealized gains/(losses) on investments | — | — | — | — | — | — |
Total from investment operations | 0.01 | 0.01 | — * | — * | — * | — * |
Less Distributions | ||||||
Dividends from net investment income | (0.01) | (0.01) | — * | — * | — * | — * |
Distributions from net realized capital gains1 | — | — | — | — | — | — |
Total distributions | (0.01) | (0.01) | — * | — * | — * | — * |
Net asset value end of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Net assets end of period (000s) | $127,579 | $169,637 | $136,986 | $176,781 | $157,801 | $137,042 |
Ratios and Supplemental Data (%) | ||||||
Total returnb | 0.60% c | 0.73% | 0.30% | 0.08% | 0.06% | 0.09% |
Ratio of total expenses to average net assets2 | 0.35 d | 0.35 | 0.36 | 0.32 | 0.30 | 0.31 |
Ratio of net expenses to average net assetsa | 0.12 d | — | — | — | — | — |
Ratio of net investment income to average net assetsa | 1.20 d | 0.72 | 0.27 | 0.08 | 0.06 | 0.09 |
* | Less than $0.01 |
1 | Includes both short-term and long-term capital gains |
2 | Percentage does not reflect reduction for credit balance arrangements (see Note 2 of the accompanying Notes to Financial Statements) |
a | Reflects the Adviser’s waiver, if any, of its management fees and/or other operating expenses |
b | The total returns would have been lower had certain expenses not been waived during the periods shown. |
c | Unannualized |
d | Annualized |
e | Amounts are allocated based on average shares outstanding during the period. |
f | For the period March 1, 2016 (inception) through October 31, 2016 |
g | For the period November 1, 2017 (inception) through April 30, 2018 |
The accompanying notes are an integral part of the Financial Statements.
93
Administrative Class | |||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | ||||
2017 | 2016 | 2015 | 2014 | 2013 | |
(Unaudited) | |||||
$ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $ 1.00 | $1.00 |
0.01 e | 0.01 e | — *,e | — *,e | — * | — * |
— | — | — | — | — | — |
0.01 | 0.01 | — * | — * | — * | — * |
(0.01) | (0.01) | — * | — * | — * | — * |
— | — | — | — | — | — |
(0.01) | (0.01) | — * | — * | — * | — * |
1.00 | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
$2,403 | $1,545 | $2,267 | $1,727 | $2,177 | $ 376 |
0.60% c | 0.73% | 0.30% | 0.08% | 0.06% | 0.09% |
0.60 d | 0.60 | 0.61 | 0.57 | 0.55 | 0.56 |
0.12 d | — | — | — | — | — |
1.20 d | 0.70 | 0.28 | 0.07 | 0.06 | 0.09 |
94
Harbor Fixed Income Funds
Notes to Financial Statements—April 30, 2018 (Unaudited)
Notes to Financial Statements—April 30, 2018 (Unaudited)
Note 1—Organizational Matters
Harbor Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), as an open-end management investment company. As of April 30, 2018, the Trust consists of 31 separate portfolios. The portfolios covered by this report are: Harbor Convertible Securities Fund, Harbor High-Yield Bond Fund, Harbor High-Yield Opportunities Fund, Harbor Bond Fund, Harbor Real Return Fund, and Harbor Money Market Fund (individually or collectively referred to as a “Fund” or the “Funds," respectively). Harbor Capital Advisors, Inc. (the “Adviser” or “Harbor Capital”) is the investment adviser for the Funds.
The Funds currently offer up to four classes of shares, designated as Institutional Class, Retirement Class, Administrative Class, and Investor Class. The shares of each class represent an interest in the same portfolio of investments of the Funds and have equal rights with respect to voting, redemptions, dividends, and liquidations, except that: (i) certain expenses, subject to the approval of the Trust’s Board of Trustees (the “Board of Trustees”), may be applied differently to each class of shares in accordance with current regulations of the Securities and Exchange Commission (“SEC”) and the Internal Revenue Service; and (ii) shareholders of a class that bears distribution and service expenses under terms of a distribution plan have exclusive voting rights as to that distribution plan.
Note 2—Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. Each Fund follows the investment company reporting requirements under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), which includes the accounting and reporting guidelines under Accounting Standards Topic 946, Financial Services-Investment Companies. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
Security Valuation
The Trust’s valuation procedures permit the Funds to use a variety of valuation methodologies, consider a number of subjective factors, analyze applicable facts and circumstances and, in general, exercise judgment, when valuing Fund investments. The methodology used for a specific type of investment may vary based on the circumstances and relevant considerations, including available market data.
Equity securities (including common stock, preferred stock, and convertible preferred stock), exchange-traded notes and financial derivative instruments (such as futures contracts, options contracts, including rights and warrants and centrally cleared swap agreements) that are traded or cleared on a national securities exchange or system (except securities listed on the National Association of Securities Dealers Automated Quotation (“NASDAQ”) system and United Kingdom securities) are valued at the last sale price on a national exchange or system on which they are principally traded or cleared as of the valuation date. Securities listed on the NASDAQ system or a United Kingdom exchange are valued at the official closing price of those securities. In the case of securities for which there are no sales on the valuation day, (i) securities traded principally on a U.S. exchange, including NASDAQ, are valued at the mean between the closing bid and ask price; and (ii) securities traded principally on a foreign exchange, including United Kingdom securities, are valued at the official bid price determined as of the close of the primary exchange. Securities of open-end registered investment companies that are held by a Fund are valued at net asset value. To the extent these securities are actively traded and fair valuation adjustments are not applied, they are normally categorized as Level 1 in the fair value hierarchy. Equity securities traded on inactive markets or valued by reference to similar instruments are normally categorized as Level 2 in the fair value hierarchy. For more information on the fair value hierarchy, please refer to the Fair Value Measurements and Disclosures section.
Debt securities (including corporate bonds, municipal bonds and notes, U.S. government agencies, U.S. treasury obligations, mortgage-backed and asset-backed securities, foreign government obligations, bank loans, and convertible securities other than short-term securities with a remaining maturity of less than 60 days at the time of acquisition), are valued using evaluated prices furnished by a pricing vendor selected by the Board of Trustees. An evaluated price represents an assessment by the pricing vendor using various market inputs of what the pricing vendor believes is the fair value of a security at a particular point in time. The pricing vendor determines evaluated prices for debt securities that would be transacted at institutional-size quantities using inputs including, but not limited to, (i) recent transaction prices and dealer quotes, (ii) transaction prices for what the pricing vendor believes are securities with similar characteristics, (iii) the pricing vendor’s assessment of the risk
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inherent in the security taking into account criteria such as credit quality, payment history, liquidity and market conditions, and (iv) various correlations and relationships between security price movements and other factors, such as interest rate changes, which are recognized by institutional traders. In the case of mortgage-backed and asset-backed securities, the inputs used by the pricing vendor may also include information about cash flows, prepayment rates, default rates, delinquency and loss assumption, collateral characteristics, credit enhancements and other specific information about the particular offering. Because many debt securities trade infrequently, the pricing vendor will often not have current transaction price information available as an input in determining an evaluated price for a particular security. When current transaction price information is available, it is one input into the pricing vendor’s evaluation process, which means that the evaluated price supplied by the pricing vendor will frequently differ from that transaction price. Securities held by Harbor Money Market Fund are valued at amortized cost, which the Adviser has determined, pursuant to the Board of Trustees’ authorization, approximates fair value. Under this method, investments purchased at a discount or premium are valued by accreting or amortizing the difference between the original purchase price and the maturity value of the issue over the period to effective maturity.
Short-term securities with a remaining maturity of less than 60 days at the time of acquisition that are held by a Fund are valued at amortized cost to the extent amortized cost represents fair value. Securities that use similar valuation techniques and inputs as described above are normally categorized as Level 2 in the fair value hierarchy.
Over-the-counter (“OTC”) financial derivative instruments, such as forward currency contracts, options contracts, and swap agreements, derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. These instruments are valued using evaluated prices furnished by a pricing vendor selected by the Board of Trustees. In certain cases, when a valuation is not readily available from a pricing vendor, the Fund’s subadviser provides a valuation, typically using its own proprietary models. Depending on the instrument and the terms of the transaction, the value of the derivative instrument can be determined by a pricing vendor or subadviser using a series of techniques, including simulation pricing models. The pricing models use inputs, such as issuer details, indices, spreads, interest rates, yield curves, dividends and exchange rates, that are observed from actively quoted markets. Derivative instruments that use valuation techniques and inputs similar to those described above are normally categorized as Level 2 in the fair value hierarchy.
When reliable market quotations or evaluated prices supplied by a pricing vendor are not readily available or are not believed to accurately reflect fair value, securities are priced at their fair value as determined by the Trust’s Valuation Committee (the “Valuation Committee”) pursuant to procedures adopted, and subject to oversight, by the Board of Trustees. The Valuation Committee is comprised of a trustee and officers of the Trust and employees of Harbor Capital with relevant experience or responsibilities. Each security for which the Valuation Committee determines a fair value, including the basis for the fair value decision, is reviewed by the Board of Trustees at its regularly scheduled board meetings.
When a fair valuation method is applied by the Valuation Committee or a Fund’s subadviser, securities will be priced by a method that the Valuation Committee or subadviser believes accurately reflects fair value. Securities valued using fair valuation methods that incorporate significant unobservable inputs are normally categorized as Level 3 in the fair value hierarchy. Examples of possible fair valuation methodologies used in determining the fair value of securities categorized as Level 3 in the fair value hierarchy include, but are not limited to, benchmark pricing and indicative market quotations.
When benchmark pricing is used, the base price of a debt security is set and then subsequently adjusted in proportion to the market value changes of an index or similar security (the “benchmark security”) that trades in an active market or for which other observable inputs are available. The base price may be a broker-dealer quote, transaction price, or an internal value as derived by analysis of market data. The base price of the security may be reset on a periodic basis based on the availability of market data and procedures approved by a Fund’s subadviser. If the benchmark security is categorized as Level 2 in the fair value hierarchy due to the lack of an active market for that security, any security adjusted in proportion to the fair value of the benchmark security may be categorized as Level 3 in the fair value hierarchy. Significant changes in the unobservable inputs of the benchmark pricing process (i.e., the base price) would result in direct and proportional changes in the fair value of the security. The reasonability of the fair value is reviewed by the subadviser on a periodic basis and may be amended as the availability of market data indicates a material change.
If evaluated pricing through a third-party pricing vendor is not available or deemed not to be indicative of fair value, a Fund’s subadviser may elect to obtain indicative market quotations (“broker quotes”) directly from a broker-dealer or passed through from a third-party pricing vendor. Indicative market quotations are typically received from established market participants.
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In the event that the source of fair value is from a single-sourced broker quote, but the subadviser does not have the transparency to view the underlying inputs that support the market quotation, these securities are categorized as Level 3 in the fair value hierarchy. Significant changes in the broker quote would have direct and proportional changes in the fair value of the security.
A Fund may also use fair value pricing if the value of some or all of the Fund’s securities have been materially affected by events occurring before the Fund’s pricing time but after the close of the primary markets or exchanges on which the security is traded. This most commonly occurs with foreign securities, but may occur with other securities as well. In such cases, the Fund may apply a fair value factor supplied by the pricing vendor to a foreign security’s market close value to reflect changes in value that may have occurred between the close of the primary market or exchange on which the security is traded and the Fund’s pricing time. That factor may be derived using observable inputs such as a comparison of the trading patterns of a foreign security to intraday trading in the U.S. markets that are highly correlated to the foreign security or other information that becomes available after the close of the foreign market on which the security principally traded. When fair value pricing is employed, the prices of securities used by a Fund to calculate its net asset value may differ from market quotations, official closing prices or evaluated prices for the same securities, which means that the Fund may value those securities higher or lower than another given fund that uses market quotations, official closing prices or evaluated prices supplied by a pricing vendor in its calculation of net asset value. Securities valued using observable inputs, such as those described above, are normally categorized as Level 2 of the fair value hierarchy.
Fair Value Measurements and Disclosures
Various inputs may be used to determine the value of each Fund’s investments, which are summarized in three broad categories defined as Level 1, Level 2, and Level 3. The inputs or methodologies used for valuing securities are not necessarily indicative of the risk associated with investing in those securities. The assignment of an investment to Levels 1, 2, or 3 is based on the lowest level of significant inputs used to determine its fair value.
Level 1– | Quoted prices in active markets for identical securities. |
Level 2– | Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
Level 3– | Significant unobservable inputs are used in situations where quoted prices or other observable inputs are not available or are deemed unreliable. Significant unobservable inputs may include each Fund’s own assumptions. |
Transfers between levels, if any, are recognized as of the last day in the fiscal quarter of the period in which the event or change in circumstances that caused the reclassification occurred. For fair valuations using significant unobservable inputs, if any, a reconciliation of the beginning to ending balances for reported fair values is provided that presents changes attributable to realized and unrealized gains and losses and purchases, sales, and transfers in/out of the Level 3 category during the period. A table that includes a categorization of investments into Levels 1, 2, or 3, transfers between levels, if any, and a Level 3 reconciliation, including details of significant unobservable inputs used, when applicable, can be found at the end of each Fund’s Portfolio of Investments schedule.
Each Fund used observable inputs in its valuation methodologies whenever they were available and deemed reliable.
Loan Participations and Assignments
Loan participations and loan assignments are direct debt instruments, which are interests in amounts owed by corporate, governmental, or other borrowers to lenders or lending syndicates. A Fund’s investments in loans may be in the form of participation in loans or assignments of all or a portion of loans from third parties. A loan is often administered by a bank or other financial institution (the “agent”) that acts as agent for all holders. The agent administers the terms of the loan, as specified in the loan agreement. When investing in a loan participation, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled, only from the agent selling the loan agreement and only upon receipt by the agent of payments from the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the agent that is selling the loan agreement. When the Fund purchases assignments from the agent, it acquires direct rights against the borrower on the loan.
During the period, Harbor High-Yield Bond Fund, Harbor Bond Fund, and Harbor Real Return Fund invested in loan participations and assignments.
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Harbor High-Yield Bond Fund entered into unfunded loan commitments during the period, which are contractual obligations for future funding. Unfunded loan commitments may include revolving credit facilities, which may obligate the Fund to supply additional cash to the borrower on demand. Unfunded loan commitments represent a future obligation in full, even though a percentage of the notional loan amounts will never be utilized by the borrower. The funded portion of these credit agreements are presented on the Portfolio of Investments. Unfunded loan commitments are marked to market daily and any unrealized appreciation or depreciation is included in the Statement of Assets and Liabilities and the Statement of Operations.
Harbor High-Yield Bond Fund may receive a commitment fee based on the undrawn portion of the underlying line of credit portion of an unfunded loan commitment. In certain circumstances, a Fund that has entered into an unfunded loan commitment may receive a prepayment penalty fee upon the prepayment of a loan by a borrower. Fees earned are recorded as a component of interest income on the Statement of Operations.
As of April 30, 2018, Harbor High-Yield Bond Fund did not have unfunded loan commitments outstanding.
Inflation-Indexed Bonds
Inflation-indexed bonds are fixed-income securities whose principal value is periodically adjusted based on the rate of inflation. The interest rate on these bonds is generally fixed at issuance at a rate lower than typical bonds. Over the life of an inflation-indexed bond, however, interest will be paid based on a principal value that is adjusted for inflation. Any increase in the principal amount of an inflation-indexed bond will be included as interest income even though investors do not receive the principal until maturity.
During the period, Harbor Bond Fund and Harbor Real Return Fund invested in inflation-indexed bonds.
Mortgage-Related and Other Asset-Backed Securities
Mortgage-backed or asset-backed securities include mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial mortgage-backed securities, CMO residuals, stripped mortgage- backed securities (“SMBSs”) and other securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. The value of some mortgage- or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose a Fund to a lower rate of return upon reinvestment of principal. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgage-related securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations.
During the period, Harbor Bond Fund and Harbor Real Return Fund invested in mortgage- or other asset-backed securities.
U.S. Government Securities
U.S. government securities include securities issued by U.S. government agencies or government-sponsored enterprises that may not be guaranteed by the U.S. Treasury. The Government National Mortgage Association (“GNMA”), a wholly owned U.S. government corporation, is authorized to guarantee, with the full faith and credit of the U.S. government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs. Government-related guarantors are not backed by the full faith and credit of the U.S. government and include the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
During the period, Harbor Bond Fund, Harbor Real Return Fund and Harbor Money Market Fund invested in U.S. government securities.
Forward Commitments and When-Issued Securities
Purchasing securities on a when-issued or forward commitment basis involves a risk of loss if the value of the security to be purchased declines prior to the settlement date. Although a Fund would generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring securities for its portfolio, a Fund may dispose of a when-issued
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security or forward commitment prior to settlement if a subadviser deems it appropriate to do so. Each Fund may enter into a forward commitment sale to hedge its portfolio positions or to sell securities it owned under a delayed delivery arrangement. Sale proceeds are not received until the contractual settlement date. A Fund may realize short-term gains or losses upon such purchases and sales. These transactions involve a commitment by a Fund to purchase or sell securities at a future date (ordinarily one or two months later). The price of the underlying securities (usually expressed in terms of yield) and the date when the securities will be delivered and paid for (the settlement date) are fixed at the time the transaction is negotiated. When-issued purchase and forward commitment transactions are negotiated directly with the other party, and such commitments are not traded on exchanges.
The value of securities purchased on a when-issued or forward commitment basis and any subsequent fluctuations in their value are reflected in the computation of a Fund’s net asset value starting on the date of the agreement to purchase the securities. A Fund does not earn interest on the securities it has committed to purchase until they are paid for and delivered on the settlement date. When a Fund makes a forward commitment to sell securities it owns, the proceeds to be received upon settlement are included in the Fund’s assets. Fluctuations in the fair value of the underlying securities are not reflected in a Fund’s net asset value as long as the commitment to sell remains in effect. Settlement of when-issued purchase and forward commitment transactions generally takes place within two months after the date of the transaction, but a Fund may agree to a longer settlement period.
A Fund will purchase securities on a when-issued basis, or purchase or sell securities on a forward commitment basis, only with the intention of completing the transaction and actually purchasing or selling the securities. If deemed advisable as a matter of investment strategy, however, a Fund may dispose of or renegotiate a commitment after it is entered into. A Fund also may sell securities it has committed to purchase before those securities are delivered to a Fund on the settlement date. A Fund may realize a capital gain or loss in connection with these transactions. When a Fund purchases securities on a when-issued or forward commitment basis, the Fund will maintain in a segregated account with the Fund’s custodian, or set aside or restrict in the subadviser’s records or systems relating to the Fund, cash or liquid assets having a value (determined daily) at least equal to the amount of the Fund’s purchase commitments. In the case of a forward commitment to sell portfolio securities, portfolio holdings will be held in a segregated account with the Fund’s custodian, or set aside or restricted on the subadviser’s records or systems relating to the Fund, while the commitment is outstanding.
During the period, Harbor Bond Fund and Harbor Real Return Fund purchased and sold securities on a forward commitment basis, including “TBA” (to be announced) purchase and sale commitments.
Repurchase Agreements
In a repurchase agreement, a Fund buys a security at one price and simultaneously agrees to sell it back at a higher price. Such agreements must be adequately collateralized to cover the counterparty’s obligation to the Fund to close out the repurchase agreement. Each repurchase agreement counterparty must meet the minimum credit quality requirements applicable to the respective Fund and any other appropriate counterparty criteria as determined by the Fund’s subadviser. The minimum credit quality requirements are those applicable to a Fund’s purchase of securities such that if a Fund is permitted to only purchase securities that are rated investment-grade (or the equivalent if unrated), a Fund could only enter into repurchase agreements with counterparties that have debt outstanding that is rated investment-grade (or the equivalent if unrated). The securities are regularly monitored to ensure that the collateral is adequate. A Fund seeks to further mitigate its counterparty risk by entering into master repurchase agreements with its counterparties. The master repurchase agreements provide that, in the event of a counterparty’s default, including bankruptcy, the Fund may terminate any repurchase agreements with that counterparty, determine the net amount owned, and sell or retain the collateral up to the net amount owed to the Fund. A counterparty’s default may cause the Fund to suffer losses, including loss of interest on or principal of the securities and costs associated with delay and enforcement of the terms of the master repurchase agreement.
During the period, each Fund entered into repurchase agreements with domestic or foreign banks or with a member firm of the Financial Industry Regulatory Authority, Inc., or an affiliate of a member firm that is a primary dealer in U.S. government securities.
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Reverse Repurchase Agreements
A reverse repurchase agreement involves the delivery of a portfolio security in exchange for cash by a Fund, coupled with an agreement to repurchase the same or substantially the same security at a specified time and price. Until the security is repurchased, the Fund is obligated to pay interest, based upon market rates of the time of issuance, on the value of the repurchase agreement. While a reverse repurchase agreement is outstanding, the Fund continues to receive principal and interest payments on the underlying security. Cash received in exchange for securities delivered plus accrued interest payments to be made by the Fund to counterparties is reflected as a liability on the Statement of Assets and Liabilities. Interest payments based upon the reverse repurchase agreement term made by the Fund to counterparties are recorded as a component of interest expense on the Statement of Operations. To cover its obligations under reverse repurchase agreements, a Fund will segregate cash or liquid securities, which are marked-to-market daily, with the Fund’s custodian, or set aside or restrict assets in the subadviser’s records or systems relating to the Fund, in an amount not less than the repurchase price, including accrued interest, of the underlying security. Reverse repurchase agreements involve the risk that the fair value of the securities sold by a Fund may decline below the repurchase price of the securities and, if the proceeds from the reverse repurchase agreement are invested in securities, that the fair value of the securities purchased may decline below the repurchase price of the securities sold. In periods of increased demand for the security, the Fund may receive a fee for use of the security by the counterparty, which may result in interest income to the Fund.
During the six-month period, Harbor Bond Fund and Harbor Real Return Fund entered into reverse repurchase agreements. The average amount of borrowings outstanding during the six-month period ended April 30, 2018 was $36,258,000 at a weighted average interest rate of 1.310% for the Harbor Bond Fund and $10,580,000 at a weighted average interest rate of 1.740% for the Harbor Real Return Fund. Average debt outstanding and average interest rate during the period is calculated based on calendar days.
A table that includes the remaining maturity period for outstanding reverse repurchase agreements and the type of investment collateral pledged, if any, can be found within each Fund’s Portfolio of Investments schedule.
Sale-Buybacks
A “sale-buyback” financing transaction consists of a sale of a portfolio security by a Fund to a financial institution (the counterparty) with a simultaneous agreement to repurchase the same or substantially the same security at an agreed-upon price and date. The Fund is not entitled to receive principal and interest payments, if any, made on the security sold to the counterparty during the term of the agreement.
The agreed-upon proceeds for securities to be repurchased by the Fund are reflected as a liability on the Statement of Assets and Liabilities. The Fund will recognize net income represented by the price differential between the price received for the transferred security and the agreed-upon repurchase price. This is commonly referred to as the “price drop.” A price drop consists of two components: (i) the foregone interest and inflationary income adjustments, if any, the Fund would have otherwise received had the security not been sold, and (ii) the negotiated financing terms between the Fund and counterparty. Foregone interest and inflationary income adjustments, if any, are recorded as components of interest income on the Statement of Operations. Interest payments based upon negotiated financing terms made by the Fund to counterparties are recorded as a component of interest expense on the Statement of Operations. To cover its obligations under sale-buyback transactions, a Fund will segregate cash or liquid securities, which are marked-to-market daily, with the Fund’s custodian, or set aside or restrict assets in the subadviser’s records or systems relating to the Fund, in an amount not less than the repurchase price, including accrued interest, of the underlying security. Sale-buyback transactions involve the risk that the fair value of the securities sold by a Fund may decline below the repurchase price of the securities and, if the proceeds from the sale-buyback transaction are invested in securities, that the fair value of the securities purchased may decline below the repurchase price of the securities sold. In periods of increased demand for a security, the Fund may receive a fee for use of the security by the counterparty, which may result in additional interest income to the Fund.
During the period, Harbor Bond Fund and Harbor Real Return Fund entered into such financing transactions referred to as sale-buybacks.
The average amount of borrowings outstanding during the six-month period ended April 30, 2018 was $156,612,000 at a weighted average interest rate of 1.463% for Harbor Bond Fund and $18,340,000 at a weighted average interest rate of 1.469% for Harbor Real Return Fund.
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A table that includes the remaining maturity period for outstanding sale-buyback transactions and the type of investment collateral pledged can be found at the end of each Fund’s Portfolio of Investments schedule.
Short Sales
Short-selling obligates a Fund to replace a borrowed security by purchasing it at the market price at the time of replacement. Until the security is replaced, such Fund is required to pay any accrued interest or dividends to the lender and also may be required to pay a premium. A Fund would realize a gain if the security declines in price between the date of the short sale and the date on which such Fund replaces the borrowed security. A Fund would incur a loss as a result of the short sale if the price of the security increases between those dates. Until a Fund replaces the borrowed security, subject to pre-arranged exposure levels, it will maintain cash or liquid securities sufficient to cover its short position in a segregated account with the Fund’s custodian or set aside or restricted in the subadviser’s records or systems relating to the Fund. Short sales involve the risk of an unlimited increase in the market price of the borrowed security.
During the period, Harbor Bond Fund and Harbor Real Return Fund engaged in short-selling.
Futures Contracts
A futures contract is an agreement between two parties to buy or sell a specified financial instrument at a set price on a future date. Futures contracts tend to increase or decrease a Fund’s exposure to the underlying instrument or can be used to hedge other Fund investments.
Upon entering into a futures contract, a Fund is required to pledge to the broker an amount of cash, U.S. government securities or other liquid securities equal to the minimum “initial margin” requirements of the exchange. Pursuant to the contract, a Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract referred to as “variation margin.” Such receipts or payments are recorded by a Fund as unrealized gains or losses. When the contract is closed or expires, a Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. A Fund may suffer losses if it is unable to close out its position because of an illiquid secondary market. There is no assurance that a Fund will be able to close out its position when the Fund considers it appropriate or desirable to do so. In the event of adverse price movements, a Fund may be required to continue making daily cash payments to maintain its required margin. If a Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when the Fund would not otherwise elect to do so. In addition, a Fund may be required to deliver or take delivery of instruments. The maximum potential loss on a long futures contract is the U.S. dollar value of the notional amount at the time the contract is opened. The potential loss on a short futures contract is unlimited. There is minimal counterparty risk with futures contracts as they are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures contracts against default.
During the period, Harbor Bond Fund and Harbor Real Return Fund used futures contracts to gain exposure to the fixed income asset class with greater efficiency and lower cost than was possible through direct investment, to add value when these securities were attractively priced, or to adjust the portfolio’s sensitivity to changes in interest rates or currency exchange rates.
Options
An option, including rights and warrants, is a contract that offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date). Purchased call options tend to increase a Fund’s exposure to the underlying instrument. Purchased put options tend to decrease a Fund’s exposure to the underlying instrument.
When a Fund purchases an option, it pays a premium. If a purchased option expires, a Fund realizes a loss in the amount of the premium. If a Fund enters into a closing sale transaction, it realizes a gain or loss, depending on whether the proceeds from the sale are greater or less than the cost of the option. If a call option is exercised by a Fund, the cost of the securities acquired by exercising the call is increased by the premium paid to buy the call. If a put option is exercised by a Fund, it
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realizes a gain or loss from the sale of the underlying security and the proceeds from such sale are decreased by the premium originally paid. The risk associated with purchasing options is limited to the premium paid. A Fund’s maximum risk of loss from counterparty credit risk is also limited to the premium paid for the contract.
When a Fund writes an option, it receives a premium. If a written option expires on its stipulated expiration date, or if a Fund enters into a closing purchase transaction, the Fund realizes a gain (or loss, if the cost of a closing purchase transaction exceeds the premium received when the option was written) without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is extinguished. If a written call option is exercised, a Fund realizes a gain or loss from the sale of the underlying security, and the proceeds of the sale are increased by the premium originally received. If a written put option is exercised, the amount of the premium originally received reduces the cost of the security that a Fund purchases upon exercise of the option.
The risk in writing a call option is that a Fund relinquishes the opportunity to profit if the fair value of the underlying security increases and the option is exercised. In writing a put option, a Fund assumes the risk of incurring a loss if the fair value of the underlying security decreases and the option is exercised. In addition, there is a risk that a Fund may not be able to enter into a closing transaction because of an illiquid secondary market or if the counterparty does not perform under the contract’s terms.
Options on exchange-traded futures contracts are an option contract in which the underlying instrument is a single futures contract. A Fund may write or purchase options on exchange-traded futures contracts in which a Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract referred to as “variation margin.” Such receipts or payments are recorded by a Fund as unrealized gains or losses. When the contract is closed or expires, a Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
During the period, Harbor Bond Fund and Harbor Real Return Fund purchased and wrote (sold) option contracts to manage their respective exposure to the bond markets and to fluctuations in interest rates and currency values.
Swap Agreements
A swap is a contract between two parties to exchange future cash flows at specified intervals (payment dates) based upon a notional principal amount during the agreed-upon life of the contract. Swaps are marked-to-market daily and changes in value are recorded as unrealized appreciation or depreciation.
Upon entering a swap agreement, any payments received or made at the beginning of the measurement period are reflected as such on the Statements of Assets and Liabilities and represent a reconciling value to compensate for differences between the stated terms of the swap agreement and prevailing market conditions (such as credit spreads, currency exchange rates, interest rates, and other relevant factors). These upfront payments are recorded as realized gains or losses on the Statements of Operations upon termination or maturity of the swap. If a liquidation payment is received or made at the termination of the swap, it is recorded as realized gain or loss on the Statements of Operations. Net periodic payments received or paid by the Fund are included as part of realized gains or losses on the Statements of Operations. A Fund will only enter into swap agreements with counterparties that meet the minimum credit quality requirements applicable to the Fund and any other appropriate counterparty criteria as determined by the Fund’s subadviser. The minimum credit quality requirements are similar to those applicable to a Fund’s purchase of securities, such that if the Fund is permitted to only purchase securities that are rated investment-grade (or the equivalent if unrated), the Fund could only enter into one of the below referenced transactions with counterparties that have debt outstanding that is rated investment-grade (or the equivalent if unrated). Entering into swap agreements involves, to varying degrees, elements of credit risk, market risk and interest rate risk in excess of the amount recognized in the Statements of Assets and Liabilities. Such risks include the possibility that there is not a liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform, or that there may be unfavorable changes in market conditions or interest rates. The Fund’s maximum risk of loss from counterparty credit risk is the discounted value of the net cash flows to be received from the counterparty over the contract’s remaining life or the value of the contract. This risk is typically mitigated by entering into swap agreements with highly-rated counterparties, the existence of a master netting arrangement between the Fund and the counterparty, and the posting of collateral by the counterparty.
102
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Interest Rate Swaps are agreements between counterparties to exchange cash flows or an exchange of commitments to pay or receive interest with respect to the notional amount of principal. Changes in interest rates can have an effect on the value of bond holdings, the amount of interest income earned and the value of the interest rate swaps held.
During the period, Harbor Bond Fund and Harbor Real Return Fund used interest rate swap agreements to manage their respective exposure to interest rate changes.
Credit Default Swaps are agreements between counterparties to buy or sell protection on a debt security, a basket of securities, or an index of obligations against a defined credit event. Under the terms of a credit default swap, the buyer of protection receives credit protection in exchange for making periodic payments to the seller of protection based on a given percentage applied to a notional principal amount. In return for these payments, the seller acts as the guarantor of the creditworthiness of a reference entity, obligation or index. An issuer may represent either a single issuer, a “basket” of issuers, or a credit index. A credit index is a basket of credit instruments or exposures designed to be representative of some part of the credit market as a whole.
During the period, Harbor Bond Fund and Harbor Real Return Fund used credit default swap agreements as a seller to gain credit exposure to an issuer or to simulate investments in long bond positions that were either unavailable or less attractively priced in the bond market; the Funds used credit default swap agreements as a buyer to provide a measure of protection against defaults of an issuer.
The buyer in a credit default contract is obligated to pay the seller a periodic stream of payments over the term of the contract provided that no credit event occurs. Credit events may include bankruptcy, failure to pay principal, maturity extension, rating downgrade, or write-down. As a seller, if an underlying credit event occurs, a Fund will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the reference obligation (or underlying securities comprising an index), or pay a net settlement amount of cash equal to the notional amount of the swap less the recovery value of the reference obligation (or underlying securities comprising an index). As a buyer, if an underlying credit event occurs, a Fund will either receive from the seller an amount equal to the notional amount of the swap and deliver the reference obligation (or underlying securities comprising an index) or receive a net settlement. The maximum exposure to loss of the notional value as the seller of credit default swaps outstanding at April 30, 2018 for Harbor Bond Fund and Harbor Real Return Fund was $208,340,000 and $3,653,000, respectively.
Variance Swaps are agreements between counterparties to exchange cash flows based upon the measured variance (or the square of volatility) of a specified underlying asset. One party agrees to exchange a strike price (“Fixed Rate”) for the realized price variance (“Floating Rate”) on the underlying asset with respect to the notional amount.
When a variance swap agreement is originated, the strike price is generally set such that the fair value of the swap is zero. At the maturity date, a net cash flow is exchanged where the payoff amount is equal to the difference between the final market price of the asset and the strike price multiplied by the notional amount. As a receiver of the Floating Rate, a Fund receives the payoff amount when the final market price is greater than the strike price and owes the payoff amount when the final market price is less than the strike price. As a payer of the Floating Rate, a Fund owes the payoff amount when the final market price is greater than the strike price, and receives the payoff amount when the final market price is less than the strike price.
During the six-month period, Harbor Bond Fund used variance swap agreements to gain or mitigate exposure to underlying reference assets or securities.
When a variance swap agreement is originated, the strike price is generally set such that the fair value of the swap is zero. At the maturity date, a net cash flow is exchanged where the payoff amount is equal to the difference between the final market price of the asset and the strike price multiplied by the notional amount. As a receiver of the Floating Rate, a Fund receives the payoff amount when the final market price is greater than the strike price and owes the payoff amount when the final market price is less than the strike price. As a payer of the Floating Rate, a Fund owes the payoff amount when the final market price is greater than the strike price, and receives the payoff amount when the final market price is less than the strike price.
During the six-month period, Harbor Bond Fund used variance swap agreements to gain or mitigate exposure to underlying reference assets or securities.
Forward Currency Contracts
A forward currency contract is an agreement between two parties to buy and sell currencies at a set price on a future date.
The forward currency contract is marked-to-market daily and the change in fair value is recorded as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value on the open and close date. Risk of losses may arise from changes in the value of the foreign currency, or if the counterparties do not perform under the contract’s terms. The maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened.
103
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
During the period, Harbor Bond Fund and Harbor Real Return Fund used forward currency contracts to manage their respective exposure to changes in exchange rates or as a hedge against foreign exchange risk related to specific transactions or portfolio positions. Each Fund entered into collateral agreements with certain counterparties to mitigate counterparty risk associated with forward currency contracts.
Foreign Currency Spot Contracts
A foreign currency spot contract is an agreement between two parties to buy and sell currencies at the current market rate for settlement within two business days.
The foreign currency spot contract is marked-to-market daily for settlements beyond one day, and any change in fair value is recorded as an unrealized gain or loss. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value on the open and close date. Risk of losses may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contract’s terms. The maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened.
During the period, Harbor Bond Fund and Harbor Real Return Fund used foreign currency spot contracts to facilitate transactions in foreign securities or to convert foreign currency receipts into U.S. dollars.
Foreign Currency Translations
Purchases and sales of securities are translated into U.S. dollars at the current exchange rate on the respective dates of the transactions. Income and withholding taxes are translated at the prevailing exchange rate when accrued or incurred. The accounting records of the Funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency, when applicable, are translated into U.S. dollars based on the current exchange rates at period end.
Reported net realized gains and losses on foreign currency transactions, when applicable, represent net gains and losses from sales and maturities of foreign currency contracts, disposition of foreign currencies, currency gains and losses realized between the trade and settlement dates on securities transactions, and the difference between the amount of investment income accrued and tax reclaims receivable and the U.S. dollar amount actually received. The effects of changes in foreign currency exchange rates on investments in securities, when applicable, are included in the net realized and unrealized gain or loss on investments in the Statement of Operations.
Investment Income
Dividends declared on portfolio securities are accrued on the ex-dividend date. For foreign securities held, certain dividends are recorded after the ex-dividend date, but as soon as the respective Fund is notified of such dividends. Interest income is accrued daily as earned. Discounts and premiums on fixed income securities purchased are amortized over the life of the respective securities using the effective yield method. Paydown gains and losses on mortgage-backed and asset-backed securities are recognized as a component of interest income. Consent fees relating to corporate actions from investments held are recorded as income upon receipt.
Securities Transactions
Securities transactions are accounted for on the trade date (the date the order to buy or sell is executed). Realized gains or losses on security transactions are determined on the basis of identified cost.
Proceeds from Litigation
Each Fund may receive proceeds from shareholder litigation settlements involving current and/or previously held portfolio holdings. Any proceeds received from litigation involving portfolio holdings are reflected in the Statements of Operations in realized gain/(loss) if the security has been disposed of by a Fund, or in unrealized gain/(loss) if the security is still held by a Fund.
104
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Distribution to Shareholders
Distributions on Fund shares are recorded on the ex-dividend date.
Expenses
Expenses incurred by the Trust are charged directly to the Fund that incurred such expense whenever possible. With respect to expenses incurred by any two or more Harbor Funds where amounts cannot be identified on a fund by fund basis, such expenses are generally allocated in proportion to the average net assets or the number of shareholders of each Fund.
Custodian
Each Fund has credit balance arrangements with its custodian whereby positive balances in demand deposit accounts used by the transfer and shareholder servicing agent for clearing shareholder transactions in the Fund generate credits that are applied against gross custody expenses. Such custodial expense reductions, if any, are reflected on the respective Fund’s accompanying Statement of Operations.
Class Allocations
Income, common expenses and realized and unrealized gains/(losses) are determined at the Fund level and allocated daily to each class of shares based on the applicable net assets of the respective classes. Distribution and service fees, if any, and transfer agent fees are calculated daily at the class level based on the applicable net assets of each class and the expense rate(s) applicable to each class.
Taxes
Each Fund is treated as a separate entity for federal tax purposes. Each Fund’s policy is to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute to its shareholders all of its taxable income within the prescribed time. It is also the intention of each Fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held or excise taxes on income and capital gains.
Each Fund may be subject to taxes imposed by countries in which they invest. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and unrealized appreciation as such income and/or gains are earned.
Management has analyzed each Fund’s tax positions for all open tax years (in particular, U.S. federal income tax returns for the tax years ended October 31, 2014–2016), including all positions expected to be taken upon filing the 2017 tax return, in all material jurisdictions where each Fund operates, and has concluded that no provision for income tax is required in the Funds’ financial statements. Each Fund will recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations.
Statement of Cash Flows
U.S. GAAP requires entities providing financial statements that report both a statement of assets and liabilities and a statement of operations to also provide a statement of cash flows for each period for which results of operations are provided. Investment companies that meet certain conditions are exempted from this requirement. One of the conditions that must be satisfied is that the fund have little or no debt outstanding during the period.
Harbor Bond Fund and Harbor Real Return Fund entered into financing transactions referred to as sale-buybacks which resulted in debt being recorded on each Fund’s Statement of Assets and Liabilities. Management has determined that the average level of debt outstanding during the period for Harbor Real Return Fund requires the Fund to present a Statement of Cash Flows.
105
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
New Accounting Pronouncement
In November 2016, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2016-18, Restricted Cash, which amends the Accounting Standards Codification (“ASC”) 230, Statement of Cash Flows, to provide guidance on the classification and presentation of changes in restricted cash and restricted cash equivalents on the Statement of Cash Flows. The ASU is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. At this time, management is evaluating the implications of these changes on the financial statements.
In March 2017, the FASB issued ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities, which provides guidance related to the amortization period for certain purchased callable debt securities held at a premium. The ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. At this time, management is evaluating the implications of these changes on the financial statements.
Note 3—Investment Portfolio Transactions
Investment Portfolio Transactions
Purchases and sales of investments, other than short-term securities, for each Fund for the six-month period ended April 30, 2018 are as follows:
Purchases (000s) | Sales (000s) | ||||||
U.S. Government | Other | U.S. Government | Other | ||||
Harbor Covertible Securities Fund | $ — | $ 55,290 | $ — | $ 56,659 | |||
Harbor High-Yield Bond Fund | — | 310,021 | — | 734,972 | |||
Harbor High-Yield Opportunities Fund | — | 85,770 | — | 14,520 | |||
Harbor Bond Fund | 9,706,836 | 568,314 | 9,817,439 | 689,751 | |||
Harbor Real Return Fund | 332,665 | 10,897 | 337,161 | 8,643 |
Note 4—FEES AND OTHER Transactions with Affiliates
Investment Adviser
Harbor Capital is a wholly-owned subsidiary of ORIX Corporation (“ORIX”). Harbor Capital is the Funds’ investment adviser and is also responsible for administrative and other services.
Each Fund has a separate advisory agreement with Harbor Capital. The agreements provide for management fees based on an annual percentage rate of average daily net assets as follows:
Contractual Rate | Actual Rate | ||
Harbor Convertible Securities Fund | 0.65% a | 0.60% | |
Harbor High-Yield Bond Fund | 0.60 b | 0.55 | |
Harbor High-Yield Opportunities Fund | 0.60 | 0.60 | |
Harbor Bond Fund | 0.48 c | 0.45 | |
Harbor Real Return Fund | 0.48 | 0.48 | |
Harbor Money Market Fund | 0.20 d | 0.11 |
a | The Adviser has contractually agreed to reduce the management fee to 0.60% through February 29, 2020. |
b | The Adviser has contractually agreed to reduce the management fee to 0.508% through February 29, 2020. Prior to March 1, 2018, the Adviser contractually agreed to reduce the management fee to 0.56% through February 28, 2018. |
c | The Adviser has contractually agreed to reduce the management fee to 0.43% on assets between $1 billion and $3 billion and to 0.405% on assets over $3 billion through February 29, 2020. |
d | The Adviser has contractually agreed to reduce the management fee to 0.18% through February 29, 2020. |
106
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
Harbor Capital has from time to time voluntarily or contractually agreed not to impose a portion of its management fees and/or to bear a portion of the expenses incurred in the operation of certain Funds in order to limit Fund expenses. Such waivers, if any, are reflected on the accompanying Statements of Operations. During the period, the following expense limitation agreements were in effect:
Harbor High-Yield Opportunities Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.73%, 0.65%, 0.98%, and 1.10% for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual expense limitations are effective through February 29, 2020.
Harbor Bond Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.51% and 0.76% for the Institutional Class and Administrative Class, respectively. These contractual expense limitations are effective through February 29, 2020.
Harbor Real Return Fund. For the period November 1, 2017 through February 28, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.54% and 0.79% for the Institutional Class and Administrative Class, respectively. For the period March 1, 2018 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.52% and 0.77% for the Institutional Class and Administrative Class, respectively. These contractual expense limitations are effective through February 29, 2020.
Harbor Money Market Fund. For the period November 1, 2017 through April 30, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.28% and 0.53% for the Institutional Class and Administrative Class, respectively. These contractual expense limitations are effective through February 29, 2020. For the period December 9, 2009 through November 30, 2017, Harbor Capital voluntarily reimbursed all expenses of Harbor Money Market Fund. Effective December 1, 2017, Harbor Capital began reducing the voluntary expense waiver for Harbor Money Market Fund resulting in actual expense ratios for the six-month period ended April 30, 2018 of 0.12% and 0.12% for the Institutional Class and Administrative Class, respectively.
All expense limitation agreements include the transfer agent fee waiver discussed in the Transfer Agent note.
Distributor
Harbor Funds Distributors, Inc. (“Harbor Funds Distributors” or the “Distributor”), a wholly-owned subsidiary of Harbor Capital, is the distributor for Harbor Funds’ shares. Under the Trust’s current distribution plan pursuant to Rule 12b-1 under the Investment Company Act with respect to each Fund’s Administrative and Investor Class shares (the “12b-1 Plan”) as applicable, each Fund pays the Distributor compensation at the annual rate of 0.25% of the average daily net assets of its Administrative and Investor Class shares. Pursuant to the 12b-1 Plan, the Distributor is compensated for financing any activity that is primarily intended to result in the sale of Administrative and Investor Class shares of each Fund or for recordkeeping services or the servicing of shareholder accounts in the Administrative and Investor Class shares of each Fund. Such activities include, but are not limited to: printing of prospectuses and statements of additional information and reports for prospective shareholders (i.e., other than existing shareholders); preparation and distribution of advertising material and sales literature; expenses of organizing and conducting sales seminars; supplemental payments to dealers or other institutions such as asset-based sales charges, payments of recordkeeping fees under recordkeeping arrangements, or payments of service fees under shareholder service arrangements; and costs of administering the 12b-1 Plan.
Amounts payable by a Fund under the 12b-1 Plan need not be directly related to the expenses actually incurred by the Distributor on behalf of each Fund. The 12b-1 Plan does not obligate each Fund to reimburse the Distributor for the actual expenses the Distributor may incur in fulfilling its obligations under the 12b-1 Plan. Thus, even if the Distributor’s actual expenses exceed the fee payable to the Distributor at any given time, each Fund will not be obligated to pay more than that fee. If the Distributor’s expenses are less than the fee it receives, the Distributor will retain the difference.
The fees attributable to each Fund’s respective class are shown on the accompanying Statements of Operations.
107
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
Transfer Agent
Harbor Services Group, Inc. (“Harbor Services Group”), a wholly-owned subsidiary of Harbor Capital, is the transfer and shareholder servicing agent for the Funds. The transfer agency and service agreement is reviewed and approved annually by the Board of Trustees and provides currently for compensation up to the following amounts per class of each Fund:
Transfer Agent Fees | |
Institutional Class | 0.09% of the average daily net assets of all Institutional Class shares |
Retirement Class | 0.01% of the average daily net assets of all Retirement Class shares |
Administrative Class | 0.09% of the average daily net assets of all Administrative Class shares |
Investor Class | 0.21% of the average daily net assets of all Investor Class shares |
Harbor Services Group has voluntarily waived a portion of its transfer agent fees during the six-month period ended April 30, 2018. Fees incurred for these transfer agent services are shown on each Fund’s Statement of Operations. The voluntary waiver may be discontinued at any time.
Affiliated Transactions
The Investment Company Act permits purchase and sale transactions among affiliated investment companies subject to an exemptive rule. Harbor Funds has adopted policies and procedures pursuant to such rule. During the six-month period, the Funds did not enter into any transactions with any other Harbor fund.
Shareholders
On April 30, 2018, Harbor Capital, and its wholly owned subsidiaries, collectively held the following shares of beneficial interest in each Fund:
Number of Shares Owned by Harbor Capital and Subsidiaries | Percentage of Outstanding Shares | ||||||||||
Institutional Class | Administrative Class | Investor Class | Retirement Class | Total | |||||||
Harbor Convertible Securities Fund | — | 32,978 | 32,739 | 133,699 | 199,416 | 1.8% | |||||
Harbor High-Yield Bond Fund | — | — | — | 55,948 | 55,948 | 0.1 | |||||
Harbor High-Yield Opportunities Fund | 5,073,856 | 5,080 | 5,077 | 12,555 | 5,096,568 | 68.5 | |||||
Harbor Bond Fund | 40,948 | — | N/A | N/A | 40,948 | 0.0 | |||||
Harbor Real Return Fund | 13,249 | — | N/A | N/A | 13,249 | 0.1 | |||||
Harbor Money Market Fund | 57,609,975 | 25,592 | N/A | N/A | 57,635,567 | 44.3 |
Independent Trustees
The fees and expenses of the Independent Trustees are shown on each Fund’s Statement of Operations. The Independent Trustees’ remuneration for the Funds totaled $61,000 for the six-month period ended April 30, 2018.
The Board of Trustees has adopted a Deferred Compensation Plan for Independent Trustees (the “Plan”), which enables Trustees to elect to defer receipt of all or a portion of the annual compensation they are entitled to receive from the Trust. For purposes of determining the amount owed to a Trustee under the Plan, deferred amounts are treated as though they had been invested in shares of the Fund(s) selected by the Trustee. While not required to do so, each Fund makes an investment equal to the Trustee’s investment election. The deferred compensation liability and the offsetting deferred compensation investment asset are included as a component of “Other accrued expenses” and “Other assets”, respectively, in the Statements of Assets and Liabilities. Such amounts fluctuate with changes in the market value of the selected securities. The deferred compensation and related mark-to-market impact liability and an offsetting investment asset will remain on each Fund’s Statement of Assets and Liabilities until distributed in accordance with the Plan.
108
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
Indemnification
Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business the Trust enters into contracts that provide general indemnities to other parties. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
Redemption Fee
A 1% redemption fee is charged on shares of Harbor Convertible Securities Fund, Harbor High-Yield Bond Fund, and Harbor High-Yield Opportunities Fund that are redeemed within 90 days from their date of purchase. All redemption fees are recorded by the Fund as paid-in capital. For the six-month period ended April 30, 2018 redemption fee proceeds are as follows:
Amount (000s) | |
Harbor Convertible Securities Fund | $ — |
Harbor High-Yield Bond Fund | 315 |
Harbor High-Yield Opportunities Fund | — |
NOTE 5—TAX INFORMATION
The identified cost for federal income tax purposes of investments owned by each Fund and its respective gross unrealized appreciation and depreciation at April 30, 2018 are as follows:
Identified Cost (000s) | Gross Unrealized | Net Unrealized Appreciation/ (Depreciation) (000s) | |||||
Appreciation (000s) | (Depreciation) (000s) | ||||||
Harbor Convertible Securities Fund | $ 112,953 | $ 4,542 | $ (2,447) | $ 2,095 | |||
Harbor High-Yield Bond Fund* | 986,574 | 14,474 | (23,523) | (9,049) | |||
Harbor High-Yield Opportunities Fund | 72,770 | 188 | (2,010) | (1,822) | |||
Harbor Bond Fund* | 3,350,653 | 74,034 | (93,861) | (19,827) | |||
Harbor Real Return Fund* | 148,702 | 2,001 | (3,613) | (1,612) | |||
Harbor Money Market Fund | 129,993 | — | — | — |
* | Capital loss carryforwards are available, which may reduce taxable income from future net realized gain on investments. |
Note 6—Derivatives
Each Fund’s derivative holdings do not qualify for hedge accounting treatment and as such are recorded at current fair value. For a discussion of risks related to these investments please refer to the descriptions of each type of derivative instrument in Note 2— Significant Accounting Policies.
Each Fund’s derivative instruments outstanding as of the six-month period ended April 30, 2018, if any, as disclosed in the Portfolios of Investments, and the related amounts of realized and changes in unrealized gains and losses on derivative instruments during the period as disclosed in the Statements of Operations, are indicators of the volume of derivative activity for each Fund.
109
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 6—Derivatives—Continued
Derivative Instruments
At April 30, 2018, the fair values of derivatives, by primary risk exposure, were reflected in the Statement of Assets and Liabilities as follows:
HARBOR BOND FUND
Statement of Assets and Liabilities Caption | Interest Rate Contracts (000s) | Foreign Exchange Contracts (000s) | Credit Contracts (000s) | Total (000s) | ||||||||
Assets | ||||||||||||
Unrealized appreciation on open forward currency contracts | $ — | $ 20,098 | $ — | $ 20,098 | ||||||||
Unrealized appreciation on OTC swap agreementsb | — | — | 460 | 460 | ||||||||
Variation margin on centrally cleared swap agreementsa,b | 3,145 | — | 1,375 | 4,520 | ||||||||
Variation margin on options and futures contracts (futures)a | 897 | — | — | 897 | ||||||||
Variation margin on options and futures contracts (options)a | 25 | — | — | 25 | ||||||||
Purchased options, at value | 1,307 | — | — | 1,307 | ||||||||
Liabilities | ||||||||||||
Unrealized depreciation on open forward currency contracts | $ — | $(14,969) | $ — | $(14,969) | ||||||||
Unrealized depreciation on OTC swap agreementsb | — | — | — | — | ||||||||
Variation margin on centrally cleared swap agreementsa,b | (730) | — | — | (730) | ||||||||
Variation margin on options and futures contracts (futures)a | (8,075) | — | — | (8,075) | ||||||||
Variation margin on options and futures contracts (options)a | (637) | — | — | (637) | ||||||||
Written options, at value | (1,515) | (786) | (22) | (2,323) |
HARBOR REAL RETURN FUND
Statement of Assets and Liabilities Caption | Interest Rate Contracts (000s) | Foreign Exchange Contracts (000s) | Credit Contracts (000s) | Total (000s) | ||||||||
Assets | ||||||||||||
Unrealized appreciation on open forward currency contracts | $ — | $ 376 | $ — | $ 376 | ||||||||
Unrealized appreciation on OTC swap agreementsb | — | 45 | 45 | |||||||||
Variation margin on centrally cleared swap agreementsa,b | 686 | — | — | 686 | ||||||||
Variation margin on options and futures contracts (futures)a | 18 | — | — | 18 | ||||||||
Variation margin on options and futures contracts (options)a | — | — | — | — | ||||||||
Purchased options, at value | 100 | — | — | 100 | ||||||||
Liabilities | ||||||||||||
Unrealized depreciation on open forward currency contracts | $ — | $(104) | $ — | $(104) | ||||||||
Unrealized depreciation on OTC swap agreementsb | (163) | — | — | (163) | ||||||||
Variation margin on centrally cleared swap agreementsa,b | (240) | — | (26) | (266) | ||||||||
Variation margin on options and futures contracts (futures)a | (127) | — | — | (127) | ||||||||
Variation margin on options and futures contracts (options)a | — | — | — | — | ||||||||
Written options, at value | (34) | — | — | (34) |
a | Includes cumulative appreciation/depreciation of contracts as reported in the Portfolio of Investments. Only current day’s variation margin is reported within the Statement of Assets and Liabilities. |
b | Net of premiums received of $446,000 and $40,000 for Harbor Bond Fund and Harbor Real Return Fund, respectively. |
110
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 6—Derivatives—Continued
Realized net gain/(loss) and the change in unrealized appreciation/(depreciation) on derivatives, by primary risk exposure, for the six-month period ended April 30, 2018, were:
HARBOR BOND FUND
Net Realized Gain/(Loss) on Derivatives | Interest Rate Contracts (000s) | Foreign Exchange Contracts (000s) | Credit Contracts (000s) | Total (000s) | ||||
Forward currency contracts | $ — | $(16,235) | $ — | $(16,235) | ||||
Futures contracts | (14,344) | — | — | (14,344) | ||||
Purchased options | 88 | (3) | — | 85 | ||||
Written options | 470 | 1,734 | — | 2,204 | ||||
Swaps agreements | 8,929 | — | (528) | 8,401 | ||||
Net realized gain/(loss) on derivatives | $ (4,857) | $(14,504) | $(528) | $(19,889) |
Change in Unrealized Appreciation/(Depreciation) on Derivatives | Interest Rate Contracts (000s) | Foreign Exchange Contracts (000s) | Credit Contracts (000s) | Total (000s) | ||||
Forward currency contracts | $ — | $(4,189) | $ — | $(4,189) | ||||
Futures contracts | (1,724) | — | — | (1,724) | ||||
Purchased options | 552 | — | — | 552 | ||||
Written options | (1,112) | (567) | 46 | (1,633) | ||||
Swaps agreements | (252) | — | 855 | 603 | ||||
Change in unrealized appreciation/(depreciation) on derivatives | $(2,536) | $(4,756) | $901 | $(6,391) |
HARBOR REAL RETURN FUND
Net Realized Gain/(Loss) on Derivatives | Interest Rate Contracts (000s) | Foreign Exchange Contracts (000s) | Credit Contracts (000s) | Total (000s) | ||||
Forward currency contracts | $ — | $(254) | $ — | $(254) | ||||
Futures contracts | 434 | — | — | 434 | ||||
Purchased options | — | 2 | — | 2 | ||||
Written options | 87 | 2 | — | 89 | ||||
Swaps agreements | 279 | — | (45) | 234 | ||||
Net realized gain/(loss) on derivatives | $800 | $(250) | $(45) | $ 505 |
Change in Unrealized Appreciation/(Depreciation) on Derivatives | Interest Rate Contracts (000s) | Foreign Exchange Contracts (000s) | Credit Contracts (000s) | Total (000s) | ||||
Forward currency contracts | $ — | $103 | $— | $ 103 | ||||
Futures contracts | (290) | — | — | (290) | ||||
Purchased options | 47 | — | — | 47 | ||||
Written options | (22) | — | 4 | (18) | ||||
Swaps agreements | 60 | — | 6 | 66 | ||||
Change in unrealized appreciation/(depreciation) on derivatives | $(205) | $103 | $ 10 | $(92) |
Note 7—OFFSETTING ASSETS AND LIABILITIES
Master Netting Arrangements
As described in further detail below, each Fund may enter into Master Netting Arrangements that govern the terms of certain transactions. Master Netting Arrangements are designed to reduce the counterparty risk associated with relevant transactions by establishing credit protection mechanisms and providing standardization as a means of improving legal certainty. As Master Netting Arrangements are specific to the unique operations of different asset types, they allow a Fund to close out and net its
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Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 7—OFFSETTING ASSETS AND LIABILITIES—Continued
total exposure to a counterparty in the event of a default with respect to all of the transactions governed under a single agreement with that counterparty. Master Netting Arrangements can also help reduce counterparty risk by specifying collateral posting requirements at pre-arranged exposure levels. Securities and cash pledged as collateral are reflected as assets in the Statement of Assets and Liabilities as either a component of investments at value (securities) or cash-restricted. Cash collateral received is not typically held in a segregated account and, as such, is reflected as a liability in the Statement of Assets and Liabilities as due to broker. The fair value of any securities received as collateral is not reflected as a component of net asset value.
For the six-month period ended April 30, 2018, the following Master Netting Arrangements have been entered into by one or more of the Funds:
Master Repurchase Agreements and Global Master Repurchase Agreements, which govern repurchase and reverse repurchase transactions between the Fund and select counterparties. As of April 30, 2018, each Fund had investment exposures subject to the terms of these agreements.
Master Securities Forward Transaction Agreements, which govern the considerations and factors surrounding the settlement of certain forward settling transactions, such as delayed-delivery or sale-buyback transactions by and between the Fund and select counterparties. As of April 30, 2018, Harbor Bond Fund and Harbor Real Return Fund had investment exposures subject to the terms of these agreements.
International Swaps and Derivatives Association, Inc. Master Agreements and Credit Support Annexes, which govern over-the-counter market traded financial derivative transactions entered into by the Fund and select counterparties. As of April 30, 2018, Harbor Bond Fund and Harbor Real Return Fund had investment exposures subject to the terms of these agreements.
The following is a summary by counterparty of the gross value of material Borrowings and Other Financing Transactions and collateral (received)/pledged as of April 30, 2018:
HARBOR BOND FUND
Counterparty | Repurchase Agreement Proceeds to be Received (000s) | Payable for Reverse Repurchase Agreements (000s) | Payable for Sale-Buyback Transactions (000s) | Payable for Short Sale (000s) | Total Borrowings and Other Financing Transactions (000s) | Collateral (Received)/ Pledged (000s) | Net Exposure (000s) | ||||||||||||||
Global/Master Repurchase Agreement | |||||||||||||||||||||
Barclays | $— | $ (2,665) | $ — | $ — | $ (2,665) | $ 2,665 | $ — | ||||||||||||||
Bank of Montreal | — | (2,069) | — | — | (2,069) | 2,069 | — | ||||||||||||||
Royal Bank of Canada | — | (30,947) | — | — | (30,947) | 30,947 | — | ||||||||||||||
RBS Securities | — | (67,249) | — | — | (67,249) | 67,249 | — | ||||||||||||||
Master Securities Forward Transactions Agreements | |||||||||||||||||||||
Barclays Capital Inc. | — | — | (49,763) | — | (49,763) | 391 | (49,372) | ||||||||||||||
BNP Paribas NY | — | — | (51,744) | — | (51,744) | — | (51,744) | ||||||||||||||
Credit Suisse Securities LLC | — | — | — | (23,810) | (23,810) | — | (23,810) | ||||||||||||||
UBS Securities LLC | — | — | (42,513) | — | (42,513) | 12 | (42,501) | ||||||||||||||
Total Borrowings and Other Financing Transactions | $— | $(102,930) | $(144,020) | $(23,810) |
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Notes to Financial Statements—Continued
Note 7—OFFSETTING ASSETS AND LIABILITIES—Continued
HARBOR REAL RETURN FUND
Counterparty | Repurchase Agreement Proceeds to be Received (000s) | Payable for Reverse Repurchase Agreements (000s) | Payable for Sale-Buyback Transactions (000s) | Payable for Short Sale (000s) | Total Borrowings and Other Financing Transactions (000s) | Collateral (Received)/ Pledged (000s) | Net Exposure (000s) | ||||||||||||||
Global/Master Repurchase Agreement | |||||||||||||||||||||
Fixed Income Clearing Corp. | $446 | $ — | $ — | $ — | $ 446 | $ (446) | $ — | ||||||||||||||
RBS Securities | — | (2,907) | — | — | (2,907) | 2,907 | — | ||||||||||||||
Scotia Capital | — | (31,643) | — | — | (31,643) | 31,643 | — | ||||||||||||||
Société Générale | — | (2,499) | — | — | (2,499) | 2,499 | — | ||||||||||||||
Master Securities Forward Transactions Agreements | |||||||||||||||||||||
Barclays Capital Inc. | — | — | (442) | (442) | — | (442) | |||||||||||||||
BNP Paribas NY | — | — | (2,101) | — | (2,101) | — | (2,101) | ||||||||||||||
Credit Suisse Securities LLC | — | — | — | (1,925) | (1,925) | — | (1,925) | ||||||||||||||
UBS Securities LLC | — | — | (303) | — | (303) | — | (303) | ||||||||||||||
Total Borrowings and Other Financing Transactions | $446 | $(37,049) | $(2,846) | $(1,925) |
The following is a summary by counterparty of the value of OTC financial derivative instruments and collateral (received)/pledged as governed by International Swaps and Derivatives Association, Inc. master agreements as of April 30, 2018.
HARBOR BOND FUND
Financial Derivative Assets | Financial Derivative Liabilities | Net Value of OTC Derivatives (000s) | Collateral (Received)/ Pledged* (000s) | Net Exposure (000s) | ||||||||||||||||||
Counterparty | Forward Currency Contracts (000s) | Purchased Options (000s) | Swap Agreements (000s) | Total Over-the- Counter (000s) | Forward Currency Contracts (000s) | Written Options (000s) | Swap Agreements (000s) | Total Over-the- Counter (000s) | ||||||||||||||
Barclays Bank plc | $ 424 | $ — | $ — | $ 424 | $ (2,026) | $ — | $— | $ (2,026) | $(1,602) | $1,577 | $ (25) | |||||||||||
BNP Paribas SA | 960 | — | 132 | 1,092 | (459) | (24) | — | (483) | 609 | — | 609 | |||||||||||
Citibank NA | 3,190 | — | — | 3,190 | (1,914) | (164) | — | (2,078) | 1,112 | — | 1,112 | |||||||||||
Credit Suisse International | 361 | — | — | 361 | (2,154) | — | — | (2,154) | (1,793) | 1,751 | (42) | |||||||||||
Deutsche Bank AG | 676 | — | — | 676 | (1,797) | (3) | — | (1,800) | (1,124) | 792 | (332) | |||||||||||
Goldman Sachs Bank USA | 2,167 | 593 | — | 2,760 | (1,945) | (777) | — | (2,722) | 38 | — | 38 | |||||||||||
Goldman Sachs International | — | — | 44 | 44 | — | — | — | — | 44 | — | 44 | |||||||||||
HSBC Bank USA | 2,827 | — | — | 2,827 | (505) | — | — | (505) | 2,322 | — | 2,322 | |||||||||||
HSBC Bank USA NA | — | — | 37 | 37 | — | (140) | — | (140) | (103) | — | (103) | |||||||||||
JP Morgan Chase Bank | 3,678 | — | — | 3,678 | (578) | — | — | (578) | 3,100 | — | 3,100 | |||||||||||
JP Morgan Chase Bank NA | 2,184 | — | 247 | 2,431 | (2,763) | (206) | — | (2,969) | (538) | — | (538) | |||||||||||
Morgan Stanley Capital Services LLC | — | 707 | — | 707 | — | (744) | — | (744) | (37) | — | (37) | |||||||||||
NatWest Markets Plc | — | — | — | — | — | (181) | — | (181) | (181) | — | (181) | |||||||||||
Royal Bank of Scotland plc | 87 | — | — | 87 | — | — | — | — | 87 | — | 87 | |||||||||||
Société Générale | 208 | — | — | 208 | (247) | — | — | (247) | (39) | 39 | — | |||||||||||
UBS AG | 3,336 | — | — | 3,336 | (581) | — | — | (581) | 2,755 | — | 2,755 | |||||||||||
Total Over-the-Counter Exposure | $20,098 | $1,300 | $460 | $21,858 | $(14,969) | $(2,239) | $— | $(17,208) |
* | Of the total collateral received and/or pledged listed in the table above, no cash has been received as collateral. |
HARBOR REAL RETURN FUND
Financial Derivative Assets | Financial Derivative Liabilities | Net Value of OTC Derivatives (000s) | Collateral (Received)/ Pledged* (000s) | Net Exposure (000s) | ||||||||||||||||||
Counterparty | Forward Currency Contracts (000s) | Purchased Options (000s) | Swap Agreements (000s) | Total Over-the- Counter (000s) | Forward Currency Contracts (000s) | Written Options (000s) | Swap Agreements (000s) | Total Over-the- Counter (000s) | ||||||||||||||
Barclays Bank plc | $ — | $ — | $— | $ — | $ — | $ (2) | $ — | $ (2) | $ (2) | $— | $ (2) |
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Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 7—OFFSETTING ASSETS AND LIABILITIES—Continued
HARBOR REAL RETURN FUND—Continued
HARBOR REAL RETURN FUND—Continued
Financial Derivative Assets | Financial Derivative Liabilities | Net Value of OTC Derivatives (000s) | Collateral (Received)/ Pledged* (000s) | Net Exposure (000s) | ||||||||||||||||||
Counterparty | Forward Currency Contracts (000s) | Purchased Options (000s) | Swap Agreements (000s) | Total Over-the- Counter (000s) | Forward Currency Contracts (000s) | Written Options (000s) | Swap Agreements (000s) | Total Over-the- Counter (000s) | ||||||||||||||
BNP Paribas SA | $ 1 | $ — | $— | $ 1 | $ (4) | $ — | $ — | $ (4) | $ (3) | $— | $ (3) | |||||||||||
Citibank NA | 61 | — | — | 61 | (28) | — | — | (28) | 33 | — | 33 | |||||||||||
Credit Suisse International | — | — | 14 | 14 | (11) | — | — | (11) | 3 | — | 3 | |||||||||||
Deutsche Bank AG | 14 | 65 | 8 | 87 | (12) | — | (30) | (42) | 45 | — | 45 | |||||||||||
Goldman Sachs Bank USA | 21 | — | — | 21 | — | (2) | — | (2) | 19 | — | 19 | |||||||||||
Goldman Sachs International | — | — | 11 | 11 | — | — | — | — | 11 | — | 11 | |||||||||||
HSBC Bank USA | 77 | — | — | 77 | (27) | — | — | (27) | 50 | — | 50 | |||||||||||
HSBC Bank USA NA | — | — | 5 | 5 | — | — | — | — | 5 | — | 5 | |||||||||||
JP Morgan Chase Bank | 2 | — | — | 2 | — | — | — | — | 2 | — | 2 | |||||||||||
JP Morgan Chase Bank NA | 50 | — | 7 | 57 | (7) | (6) | — | (13) | 44 | — | 44 | |||||||||||
Morgan Stanley Capital Services LLC | — | 35 | — | 35 | — | (10) | (133) | (143) | (108) | — | (108) | |||||||||||
Royal Bank of Scotland plc | — | — | — | — | (5) | — | — | (5) | (5) | — | (5) | |||||||||||
Société Générale | 26 | — | — | 26 | (1) | — | — | (1) | 25 | — | 25 | |||||||||||
UBS AG | 124 | — | — | 124 | (9) | — | — | (9) | 115 | — | 115 | |||||||||||
Total Over-the-Counter Exposure | $376 | $100 | $ 45 | $521 | $(104) | $(20) | $(163) | $(287) |
* | Of the total collateral received and/or pledged listed in the table above, no cash has been received as collateral. |
Exchange traded and centrally cleared derivatives are not subject to master netting or similar arrangements.
Note 8—Subsequent Events
Effective June 1, 2018, Harbor Bond Fund and Harbor Real Return Fund began offering Retirement Class shares.
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Harbor Fixed Income Funds
Fees and Expenses Example (Unaudited)
Fees and Expenses Example (Unaudited)
Example
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including redemption fees (if any) and (2) ongoing costs, including management fees, distribution and service (12b-1) fees (if any), and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period November 1, 2017 through April 30, 2018.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses for each share class. You may use the information in the respective class 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 of the respective class 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 of the table for each share class below provides information about hypothetical account values and hypothetical expenses based on the respective Fund/Class’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the respective Fund/Class’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 a Fund to 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 redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor Convertible Securities Fund | ||||||||
Institutional Class | 0.77% | |||||||
Actual | $3.86 | $1,000 | $1,020.30 | |||||
Hypothetical (5% return) | 3.86 | 1,000 | 1,020.88 | |||||
Retirement Class | 0.70% | |||||||
Actual | $3.51 | $1,000 | $1,020.70 | |||||
Hypothetical (5% return) | 3.51 | 1,000 | 1,021.24 | |||||
Administrative Class | 1.02% | |||||||
Actual | $5.11 | $1,000 | $1,019.00 | |||||
Hypothetical (5% return) | 5.11 | 1,000 | 1,019.61 | |||||
Investor Class | 1.14% | |||||||
Actual | $5.70 | $1,000 | $1,018.40 | |||||
Hypothetical (5% return) | 5.71 | 1,000 | 1,019.00 |
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Harbor Fixed Income Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor High-Yield Bond Fund | ||||||||
Institutional Class | 0.63% | |||||||
Actual | $3.12 | $1,000 | $ 997.20 | |||||
Hypothetical (5% return) | 3.16 | 1,000 | 1,021.59 | |||||
Retirement Class | 0.54% | |||||||
Actual | $2.68 | $1,000 | $ 996.60 | |||||
Hypothetical (5% return) | 2.71 | 1,000 | 1,022.05 | |||||
Administrative Class | 0.87% | |||||||
Actual | $4.30 | $1,000 | $ 995.10 | |||||
Hypothetical (5% return) | 4.36 | 1,000 | 1,020.37 | |||||
Investor Class | 0.99% | |||||||
Actual | $4.90 | $1,000 | $ 994.30 | |||||
Hypothetical (5% return) | 4.96 | 1,000 | 1,019.76 | |||||
Harbor High-Yield Opportunities Fund | ||||||||
Institutional Class | 0.73% | |||||||
Actual | $3.10 | $1,000 | $ 989.50 | |||||
Hypothetical (5% return) | 3.16 | 1,000 | 1,021.59 | |||||
Retirement Class | 0.65% | |||||||
Actual | $2.67 | $1,000 | $ 989.80 | |||||
Hypothetical (5% return) | 2.71 | 1,000 | 1,022.05 | |||||
Administrative Class | 0.98% | |||||||
Actual | $4.30 | $1,000 | $ 988.50 | |||||
Hypothetical (5% return) | 4.36 | 1,000 | 1,020.37 | |||||
Investor Class | 1.10% | |||||||
Actual | $4.88 | $1,000 | $ 988.00 | |||||
Hypothetical (5% return) | 4.96 | 1,000 | 1,019.75 | |||||
Harbor Bond Fund | ||||||||
Institutional Class | 0.66% | |||||||
Actual | $3.24 | $1,000 | $ 979.60 | |||||
Hypothetical (5% return) | 3.31 | 1,000 | 1,021.44 | |||||
Administrative Class | 0.91% | |||||||
Actual | $4.46 | $1,000 | $ 978.40 | |||||
Hypothetical (5% return) | 4.56 | 1,000 | 1,020.17 | |||||
Harbor Real Return Fund | ||||||||
Institutional Class | 1.11% | |||||||
Actual | $5.50 | $1,000 | $1,001.20 | |||||
Hypothetical (5% return) | 5.56 | 1,000 | 1,019.15 | |||||
Administrative Class | 1.36% | |||||||
Actual | $6.74 | $1,000 | $ 999.40 | |||||
Hypothetical (5% return) | 6.80 | 1,000 | 1,017.88 | |||||
Harbor Money Market Fund | ||||||||
Institutional Class | 0.12% | |||||||
Actual | $0.60 | $1,000 | $1,006.00 | |||||
Hypothetical (5% return) | 0.60 | 1,000 | 1,024.18 | |||||
Administrative Class | 0.12% | |||||||
Actual | $0.60 | $1,000 | $1,006.00 | |||||
Hypothetical (5% return) | 0.60 | 1,000 | 1,024.18 |
* | Reflective of all fee waivers and expense reimbursements |
** | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
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Harbor Fixed Income Funds
Additional Information (Unaudited)
Additional Information (Unaudited)
Proxy Voting
Harbor Funds has adopted Proxy Voting Policies and Procedures under which proxies relating to securities held by the Harbor funds are voted. In addition, Harbor Funds files Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. A description of Harbor Funds’ Proxy Voting Policies and Procedures and the proxy voting records (Form N-PX) are available (i) upon request, by calling Harbor Funds toll-free at 800-422-1050; (ii) on Harbor Funds’ website at harborfunds.com; and (iii) on the SEC’s website at sec.gov.
Householding
Harbor Funds has adopted a policy that allows it to send only one copy of a Fund’s prospectus, proxy materials, annual report and semi-annual report to certain shareholders residing at the same household. This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call the Shareholder Servicing Agent at 800-422-1050. Individual copies will be sent within thirty (30) days after the Shareholder Servicing Agent receives your instructions. Your consent to householding is considered valid until revoked.
Quarterly Portfolio Disclosures
Harbor Funds files a complete portfolio of investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is available (i) without charge, upon request, by calling Harbor Funds toll-free at 800-422-1050, (ii) on Harbor Funds’ website at harborfunds.com, and (iii) on the SEC’s website at sec.gov. The form may also be viewed and copied at the SEC’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may also be obtained by calling 800-SEC-0330.
ADVISORY AGREEMENT APPROVALS
FACTORS CONSIDERED BY THE TRUSTEES IN APPROVING THE INVESTMENT ADVISORY AGREEMENTS AND SUBADVISORY AGREEMENTS OF THE FIXED INCOME FUNDS
The Investment Company Act requires that the Investment Advisory and Subadvisory Agreement of each Fund be approved initially, and following an initial two-year term, at least annually, by the Trust’s Board of Trustees (the “Board” or the “Trustees”), including a majority of the Independent Trustees voting separately.
At an in-person meeting of the Board held on February 18, 19, and 20, 2018 (the “Meeting”), the Board, including the Independent Trustees voting separately, considered and approved the continuation of each Investment Advisory Agreement with Harbor Capital, the adviser to each Fund, and each Subadvisory Agreement with each Fund’s subadviser (each, a “Subadviser”) with respect to Harbor Convertible Securities Fund, Harbor High-Yield Bond Fund, Harbor Bond Fund, Harbor Real Return Fund and Harbor Money Market Fund.
In evaluating each Investment Advisory Agreement and each Subadvisory Agreement, the Trustees reviewed materials furnished by the Adviser and each Subadviser, including information about their respective affiliates, personnel, and operations, and also relied upon their knowledge of the Adviser and Subadvisers resulting from their quarterly meetings, periodic telephonic meetings and other prior communications. In connection with the Meeting, which had been called for the purpose of considering the continuation of the Investment Advisory Agreements and Subadvisory Agreements, and at prior meetings, the Trustees, including the Independent Trustees, requested and received materials and presentations relating to Fund performance and the services rendered by the Adviser and each Subadviser. The Trustees also discussed with representatives of the Adviser, at the Meeting and at prior meetings, Harbor Funds’ operations and the Adviser’s ability, consistent with the “manager of managers” structure of Harbor Funds, to (i) identify and recommend to the Trustees a subadviser for each Fund, (ii) monitor and oversee the performance and investment capabilities of each Subadviser, and (iii) recommend the replacement of a Subadviser where appropriate.
At the Meeting, the Trustees, including the Independent Trustees voting separately, determined, in the exercise of their business judgment, that the terms of each Investment Advisory Agreement and each Subadvisory Agreement were fair and reasonable and approved the continuation for a one-year period of each such Investment Advisory Agreement and Subadvisory Agreement as being in the best interests of each Fund and its shareholders.
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Harbor Fixed Income Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
In their deliberations, the Independent Trustees had the opportunity to meet privately without representatives of the Adviser or any Subadviser present and were represented throughout the process by legal counsel to the Independent Trustees and the Funds.
In considering the approval of each Fund’s Investment Advisory Agreement and Subadvisory Agreement, the Board, including the Independent Trustees, evaluated a number of factors it considered relevant to its determination. The Board did not identify any single factor as all-important or controlling, and individual Trustees did not necessarily attribute the same weight or importance to each factor.
Among the factors considered by the Trustees in approving the Investment Advisory Agreements and Subadvisory Agreements were the following:
• | the nature, extent, and quality of the services provided by the Adviser and each Subadviser, including the background, education, expertise and experience of the investment professionals of the Adviser and each Subadviser providing services to the Funds; |
• | the favorable history, reputation, qualifications and background of the Adviser and each Subadviser, as well as the qualifications of their respective personnel; |
• | the profitability of the Adviser with respect to each Fund, including the effect of revenues of Harbor Services Group, Inc. (“Harbor Services Group”), the Funds’ transfer agent, and Harbor Funds Distributors, Inc. (“Harbor Funds Distributors”), the Funds’ principal underwriter, on such profitability; |
• | the fees charged by the Adviser and Subadvisers for investment advisory and subadvisory services, respectively, including, in each case, the portion of the fee to be retained by the Adviser, after payment of the Subadviser’s fee, for the investment advisory and related services, including investment, business, legal, compliance, financial and administrative services, that the Adviser provides; |
• | the extent to which economies of scale might be realized as each Fund grows, and the extent to which each Fund’s advisory fee level reflects any economies of scale for the benefit of Fund investors; |
• | the fees and expense ratios of each Fund relative to the quality of services provided and the fees and expense ratios of similar investment companies; |
• | the short- and long-term investment performance of each Fund in comparison to peer groups and certain relevant benchmark indices and the Adviser’s efforts to address circumstances of underperformance where applicable; |
• | the compensation received by Harbor Services Group and Harbor Funds Distributors in consideration of the services each provides to the Funds; |
• | any “fall out” benefits that might inure to the Adviser and its affiliates as a result of their relationship with the Funds; |
• | information received at regular meetings throughout the year related to Fund performance and services rendered by the Adviser, as well as each of the Subadvisers, and research arrangements with brokers who execute transactions on behalf of each Subadviser; |
• | information contained in materials provided by the Adviser and compiled by Broadridge Inc. (“Broadridge”) as to the investment returns, advisory fees and total expense ratios of the Institutional Class of each Fund (and, in certain cases, total expense ratios of certain other classes) relative to those of other investment companies with similar objectives and strategies managed by other investment advisers, consisting both of a peer group of funds as well as a broader universe of funds compiled by Broadridge; and |
• | information contained in materials compiled by Morningstar, Inc. (“Morningstar”) as to the investment returns of the Institutional Class of each Fund relative to those of other investment companies with similar objectives and strategies managed by other investment advisers. |
Nature, Extent, and Quality of Services
The Trustees separately considered the nature, extent, and quality of the services provided by the Adviser and each Subadviser. In their deliberations as to the approval of each Fund’s Investment Advisory Agreement and Subadvisory Agreement, the Trustees were mindful of the fact that, by choosing to invest in a Fund, the shareholders had entrusted the Adviser with the
118
Harbor Fixed Income Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
responsibility, subject to the approval of the Trustees, for selecting each Fund’s Subadviser, overseeing and monitoring that Subadviser’s performance and replacing the Subadviser if necessary. The Trustees also considered as relevant to their determination the favorable history, reputation, qualifications and background of the Adviser and each Subadviser, as well as the qualifications of their respective personnel.
The Adviser’s Services. The Board evaluated the nature, extent, and quality of the Adviser’s services in light of the Board’s experience with the Adviser, as well as materials provided by the Adviser as part of its comprehensive written response to the 15(c) request letter prepared by legal counsel to the Independent Trustees in consultation with the Independent Trustees concerning the financial and other resources devoted by the Adviser to Harbor Funds, including the breadth and depth of experience and expertise of the investment, accounting, administrative, legal and compliance professionals dedicated to Harbor Funds’ operations. The Trustees determined that the Adviser had the expertise and resources to identify, select, oversee and monitor each Subadviser and to operate effectively as the “manager of managers” for the Funds.
The Subadvisers’ Services. The Trustees’ consideration of the services provided by the Subadvisers included a review of each Subadviser’s portfolio managers, investment philosophy, style and processes and record of consistency therewith, the volatility of its results, its approach to controlling risk, and the quality and extent of its investment capabilities and resources, including the nature and extent of research it receives from broker-dealers (to the extent applicable) and other sources. In their deliberations with respect to each Fund, the Trustees considered the history of Harbor Funds’ relationship with each Subadviser and Harbor Funds’ experience with each Subadviser in this capacity.
The Trustees also considered each Subadviser’s breadth and depth of experience and investment results in managing other accounts similar to the respective Fund. The Trustees received a presentation at the Meeting by investment professionals from the Subadvisers for Harbor Convertible Securities Fund, Harbor High-Yield Bond Fund, Harbor Bond Fund and Harbor Real Return Fund. The Trustees had received a presentation by investment professionals from the Subadviser for Harbor Money Market Fund at a meeting of the Board of Trustees held in 2017. The Trustees reviewed information concerning each Subadviser’s historical investment results in managing accounts and/or funds, as applicable, in a manner substantially similar to the relevant Fund.
Investment Performance, Advisory Fees and Expense Ratios
In considering each Fund’s performance, advisory fees and expense ratio, the Trustees requested and received from the Adviser data compiled by Broadridge and Morningstar. The Trustees also received information explaining the methodology for compilation of certain of this information and what it was intended to demonstrate. The Trustees analyzed the Institutional Class performance of each Fund, the advisory fees of each Fund, and the Institutional Class expenses of each Fund (after giving effect to waivers and/or reimbursements, if applicable, that reduced the fees or expenses of the Fund or its peer funds) and made certain observations and findings as to each Fund as noted below. The Trustees also identified and reviewed certain Administrative Class, Investor Class, and Retirement Class comparative performance, fee and expense information they considered relevant to their deliberations. In evaluating performance, the Trustees recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results.
Harbor Convertible Securities Fund. The Trustees considered Harbor Convertible Securities Fund (inception date May 1, 2011), noting its underperformance relative to its Broadridge group and universe medians for the one-, two-, three-, four- and five-year periods ended December 31, 2017. The Fund’s one-, three- and five-year rolling returns as of December 31, 2017 each ranked in the fourth quartile, according to Morningstar data. The Trustees also considered the fact that the Fund had underperformed its benchmark, the Bank of America (“BofA”) Merrill Lynch All US Convertibles Ex Mandatory Index, for the one-, three-, and five-year periods ended December 31, 2017.
The Trustees considered the expertise of Shenkman Capital Management, Inc. (“Shenkman Capital”) in managing assets generally and in the convertible securities asset class specifically, noting that Shenkman Capital managed approximately $755 million in assets in this asset class, out of a firm-wide total of $26.5 billion in assets under management. The Trustees also noted the significant experience of the Fund’s portfolio managers in this asset class, including the lead portfolio manager’s experience prior to joining Shenkman Capital.
The Trustees observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $125 million, showed the Fund’s management fee was above the group median for the Institutional Class. The actual total expense ratio of the Fund’s Institutional Class was slightly above the group median but below the universe median. The Trustees also considered that Harbor Capital had agreed to continue the voluntary advisory fee waiver for the Fund until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in operating the Fund was not excessive.
119
Harbor Fixed Income Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
Harbor High-Yield Bond Fund. The Trustees considered Harbor High-Yield Bond Fund (inception date December 1, 2002), noting its underperformance relative to its Broadridge group and universe medians for each of the one-, two-, three-, four- and five-year periods ended December 31, 2017. The Fund’s one-, three- and five-year rolling returns as of December 31, 2017 ranked in the third, third and fourth quartiles, respectively, according to Morningstar data. The Trustees also considered the fact that the Fund had underperformed its benchmarks, the BofA Merrill Lynch U.S. High Yield Index and the BofA Merrill Lynch U.S. Non-Distressed High Yield Index, for the one-, three-, five-, and ten-year periods ended December 31, 2017. The Trustees considered that the Fund’s subadviser, Shenkman Capital, utilizes a more conservative high yield bond investment strategy that often underperforms in periods when high-yield bonds are generally performing well.
The Trustees considered the expertise of Shenkman Capital in managing assets generally and in the high-yield asset class specifically, noting that Shenkman Capital managed approximately $6.6 billion in assets in this asset class, out of a firm-wide total of $26.5 billion in assets under management. The Trustees also noted the significant experience of the Fund’s portfolio managers in this asset class, one of whom is the founder of the firm.
The Trustees observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $1.475 billion, showed the Fund’s management fee was above the group median for the Institutional Class. The actual total expense ratio of the Fund’s Institutional Class was below the group and universe medians. The Trustees also considered that Harbor Capital was currently voluntarily waiving four basis points of its advisory fee, and had agreed to an additional voluntary advisory fee waiver of approximately five basis points until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in operating the Fund was not excessive.
Harbor Bond Fund. The Trustees considered Harbor Bond Fund (inception date December 29, 1987), noting the Fund’s underperformance relative to its Broadridge group and universe medians for the two-, three-, and four-year periods ended December 31, 2017, its underperformance relative to the Broadridge group median for the one- and five-year periods ended December 31, 2017, its outperformance relative to the Broadridge universe median for the one-year period ended December 31, 2017, and its performance at the Broadridge universe median for the five-year period ended December 31, 2017. The Fund’s one-, three- and five-year rolling returns as of December 31, 2017 ranked in the second, second and third quartiles, respectively, according to Morningstar data. The Trustees also considered the fact that Harbor Bond Fund had outperformed its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index, for the one-, three-, five- and ten-year periods ended December 31, 2017.
The Trustees considered the expertise of Pacific Investment Management Company LLC (“PIMCO”) in managing assets generally and in the bond asset class specifically, noting that PIMCO managed approximately $154.8 billion in “total return” assets, out of a firm-wide total of approximately $1.75 trillion in assets under management. The Trustees also noted that the Fund’s co-portfolio managers each had significant experience in the bond markets.
The Trustees observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $2.2 billion, showed the Fund’s management fee was above the group median for the Institutional Class. The actual total expense ratio of the Fund’s Institutional Class was above both the Broadridge group and universe medians. The Trustees also considered that Harbor Capital had agreed to continue the Fund’s existing contractual fee waiver/expense reimbursement arrangement until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in operating the Fund was not excessive.
Harbor Real Return Fund. The Trustees considered Harbor Real Return Fund (inception date December 1, 2005), noting its performance at its Broadridge group medians for the one-, two-, three-, four- and five-year periods ended December 31, 2017. The Fund outperformed its Broadridge universe medians for the one-, two-, three-, and four-year periods ended December 31, 2017 and underperformed its universe median for the five-year period ended December 31, 2017. According to the Morningstar data presented, the Fund’s one-, three- and five-year rolling returns as of December 31, 2017 were ranked in the first, first and third quartiles, respectively. The Trustees also considered the fact that the Fund outperformed its benchmark, the Bloomberg Barclays U.S. TIPS Index, for the one- and three-year periods ended December 31, 2017 and the Fund underperformed its benchmark for the five-year and since inception periods ended December 31, 2017.
The Trustees considered the expertise of PIMCO in managing assets generally and in the inflation-protection asset class specifically, noting that PIMCO managed approximately $47.7 billion in “real return” assets, out of a firm-wide total of approximately $1.75 trillion in assets under management. The Trustees also noted that the Fund’s portfolio managers had significant experience in the inflation protection/TIPS market.
The Trustees observed that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $125 million, showed the Fund’s management fee was at the group median for the Institutional Class. The actual total expense ratio of the Fund’s Institutional Class was equal to the Broadridge universe and group medians. The Trustees also considered that Harbor Capital was currently capping expenses and had agreed to lower the cap by two basis points until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in operating this Fund was not excessive.
120
Harbor Fixed Income Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
Harbor Money Market Fund. The Trustees considered Harbor Money Market Fund (inception date December 29, 1987), noting the Fund’s outperformance relative to its group and universe medians for each of the one-, two-, three-, four- and five-year periods ended December 31, 2017, according to Broadridge. According to the Morningstar data presented, the Fund’s one-, three- and five-year rolling returns as of December 31, 2017 were each ranked in the first quartile. The Trustees considered the Fund’s performance record relative to its benchmark, the BofA Merrill Lynch 3-Month U.S. Treasury Bill Index, noting that the Fund had outperformed the benchmark for the three-, five- and ten-year periods ended December 31, 2017 and had underperformed the benchmark for the one-year period ended December 31, 2017.
The Trustees noted the fact that the Fund does not have asset levels comparable to many of its Broadridge peers, some of which are very large institutional-oriented money market funds. The Trustees also noted that the Fund operates as a “government money market fund,” as defined in Rule 2a-7 under the Investment Company Act.
The Trustees considered the expertise of BNP Paribas Asset Management USA, Inc. (f/k/a Fischer Francis Trees & Watts, Inc.) (“BNPP AM US”) in managing assets generally and in the short duration fixed income asset class specifically, noting that BNPP AM US managed approximately $9.88 billion of short duration assets, out of a firm-wide total of approximately $674.44 billion in assets under management (reflecting the assets of BNP Paribas Asset Management). The Trustees also noted the experience of the Fund’s portfolio manager in this asset class both with BNPP AM US and at prior advisory firms.
The Trustees considered that the Broadridge comparison of contractual management fees for the Fund’s expense group, assuming an asset level of $175 million, showed that the Fund’s management fee was below the group median for the Institutional Class. The actual total expense ratio of the Fund’s Institutional Class was below the group and universe medians. The Trustees also considered the extent to which Harbor Capital was waiving its fees and/or reimbursing the Fund’s expenses and that Harbor Capital had agreed to continue the Fund’s existing contractual fee waiver/expense reimbursement arrangement until at least February 28, 2019. The Trustees noted that Harbor Capital’s profitability in managing the Fund was negative.
The Trustees also separately considered the allocation between the Adviser and each Subadviser of the relevant Fund’s investment advisory fee (i.e., the amount of the advisory fee retained by the Adviser relative to that paid to the relevant Subadviser as a subadvisory fee). They determined in each case that the allocation was reasonable and the product of arm’s length negotiation between the Adviser and Subadviser.
Profitability
The Trustees also considered the Adviser’s profitability in operating each of the Funds (as well as on a fund complex-wide basis) as presented by the Adviser, and the allocation methodology used by the Adviser to compute such profitability. The Trustees concluded that the methodology was reasonable and that a reasonable level of profitability was important to provide suitable incentives for the Adviser to continue to attract and maintain high-quality personnel and to invest in infrastructure and other resources to support and enhance the Funds’ operations. In considering the Adviser’s profitability generally, the Trustees also reviewed the compensation received by Harbor Services Group and Harbor Funds Distributors in consideration of the transfer agency and distribution services, respectively, that are provided to Harbor Funds and any other benefits enjoyed by the Adviser and its affiliates as a result of their relationship with Harbor Funds.
The Trustees also considered that profitability calculations with respect to advisory, transfer agency and distribution operations vary significantly depending on whether revenues on which the calculation is based are taken gross or net of amounts paid to third parties, such as subadvisory fee expenses and certain transfer agency expenses, and noted that subadvisory fee expenses are a direct expense of the Adviser. The Trustees also noted that the Adviser was, in all cases, waiving a portion of its advisory fee and/or paying or reimbursing a portion of Fund expenses. The Trustees determined that the Adviser’s profitability in operating each Fund was not excessive.
Economies of Scale
The Trustees also considered the extent to which economies of scale might be realized as each Fund grows, and the extent to which each Fund’s advisory fee level reflects these economies of scale for the benefit of Fund investors. The Trustees specifically considered whether any advisory fee reduction “breakpoints” should be added to the advisory fee payable by any Fund. As noted above, the Trustees concluded that the Adviser’s profitability in each case was not excessive. They concluded that the Funds’ fee structures reflected economies of scale to date and that breakpoints in these fee structures were not required at the present time. The Trustees noted they intend to monitor each Fund’s asset growth in connection with future reviews of each Fund’s Investment Advisory Agreement to determine whether breakpoints may be appropriate at such time.
121
Benchmark Descriptions
Benchmark Descriptions
Bloomberg Barclays U.S. Aggregate Bond Index—The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of investment-grade fixed-rate debt issues with maturities of at least one year. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Bloomberg Barclays U.S. TIPS Index—The Bloomberg Barclays U.S. TIPS Index is an unmanaged market index comprised of all U.S. Treasury Inflation Protected Securities rated investment grade (Baa3 or better), have at least one year to final maturity, and at least $250 million par amount outstanding. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Bloomberg Commodity Index Total ReturnSM—The Bloomberg Commodity Index Total ReturnSM is a broadly diversified index that tracks the commodities markets through commodity futures contracts. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML All U.S. Convertibles Ex Mandatory Index—The BofA Merrill Lynch All U.S. Convertibles Ex Mandatory Index is broadly representative of the U.S. convertible securities market, consisting of publicly traded issues, denominated in U.S. dollars, of all credit qualities, and excluding mandatory (equity-linked) convertibles. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML U.S. Dollar 3-Month LIBOR Constant Maturity Index—The ICE BofAML U.S. Dollar 3-Month LIBOR Constant Maturity Index tracks the performance of a synthetic asset paying Libor to a stated maturity. The index is based on the assumed purchase at par of a synthetic instrument having exactly its stated maturity and with a coupon equal to that day’s fixing rate. That issue is assumed to be sold the following business day (priced at a yield equal to the current day fixing rate) and rolled into a new instrument. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML 3-Month U.S. Treasury Bill Index—The ICE BofAML 3-Month U.S. Treasury Bill Index is comprised of a single U.S. Treasury Bill issue purchased at the beginning of each month and held for a full month, at which time that issue is sold and rolled into a newly selected issue. The issue selected each month is that having a maturity date closest to, but not beyond 90 days from the rebalance date.
ICE BofAML U.S. High Yield Index (H0A0)—The ICE BofAML U.S. High Yield Index (H0A0) is an unmanaged index that tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. All bonds are U.S. dollar denominated and rated Split BBB and below. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML U.S. Non-Distressed High Yield Index—The ICE BofAML U.S. Non-Distressed High Yield Index is a subset of the ICE BofAML U.S. High Yield Index (H0A0) including all securities with an option-adjusted spread less than 1,000 basis points. The unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI All Country World Index—The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI All Country World Ex. U.S. (ND) Index—The MSCI All Country World Ex. U.S.is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global developed and emerging markets, excluding the United States. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI EAFE (ND) Index—The MSCI EAFE (ND) Index is an unmanaged index generally representative of major overseas stock markets. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI EAFE Small Cap (ND) Index—The MSCI EAFE Small Cap (ND) Index is an equity index which captures small cap representation across developed market countries around the world, excluding the U.S. and Canada. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI Emerging Markets (ND) Index—The MSCI Emerging Markets (ND) Index is a market capitalization weighted index of equity securities in more than 20 emerging market economies. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI World (ND) Index—The MSCI World (ND) Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
122
Benchmark Descriptions—Continued
Benchmark Descriptions—Continued
Russell 1000® Index—The Russell 1000® Index is an unmanaged index generally representative of the U.S. market for larger capitalization stocks as it includes the largest 1000 securities in the Russell 3000® Index by market capitalization. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Index and Russell® are trademarks of Frank Russell Company.
Russell 1000® Growth Index—The Russell 1000® Growth Index is an unmanaged index generally representative of the U.S. market for larger capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 1000® Value Index—The Russell 1000® Value Index is an unmanaged index generally representative of the U.S. market for larger capitalization value stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Index—The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000® Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Growth Index—The Russell 2000® Growth Index is an unmanaged index representing the smallest 2,000 stocks with the highest price-to-book ratio and future earnings. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 2000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Value Index—The Russell 2000® Value Index is an unmanaged index representing the smallest 2,000 stocks with the lowest price-to-book ratio and future earnings. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 2000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Index—The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000® Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Growth Index—The Russell 3000® Growth Index measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 3000® companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000® Growth Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad growth market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect growth characteristics. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Value Index—The Russell 3000® Value Index measures the performance of the broad value segment of U.S. equity value universe. It includes those Russell 3000® companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000® Value Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad value market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Index—The Russell Midcap® Index is an unmanaged index generally representative of the U.S. market for medium capitalization stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Growth Index—The Russell Midcap® Growth Index is an unmanaged index generally representative of the U.S. market for medium capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Growth Index and Russell® are trademarks of Frank Russell Company.
123
Benchmark Descriptions—Continued
Benchmark Descriptions—Continued
Russell Midcap® Value Index—The Russell Midcap® Value Index is an unmanaged index generally representative of the U.S. market for medium capitalization value stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Value Index and Russell® are trademarks of Frank Russell Company.
S&P 500 Index—The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
124
111 South Wacker Drive, 34th Floor | Chicago, IL 60606-4302 | 800-422-1050 | harborfunds.com |
Trustees & Officers
Charles F. McCain
Chairman, President & Trustee
Chairman, President & Trustee
Scott M. Amero
Trustee
Trustee
Raymond J. Ball
Trustee
Trustee
Donna J. Dean
Trustee
Trustee
Joseph L. Dowling, III
Trustee
Trustee
Randall A. Hack
Trustee
Trustee
Robert Kasdin
Trustee
Trustee
Kathryn L. Quirk
Trustee
Trustee
Ann M. Spruill
Trustee
Trustee
Erik D. Ojala
Chief Compliance Officer
Chief Compliance Officer
Anmarie S. Kolinski
Treasurer
Treasurer
Brian L. Collins
Vice President
Vice President
Charles P. Ragusa
Vice President
Vice President
Diana R. Podgorny
Secretary
Secretary
Jodie L. Crotteau
Assistant Secretary
Assistant Secretary
Lana M. Lewandowski
AML Compliance Officer
& Assistant Secretary
AML Compliance Officer
& Assistant Secretary
Lora A. Kmieciak
Assistant Treasurer
Assistant Treasurer
John M. Paral
Assistant Treasurer
Assistant Treasurer
Investment Adviser
Harbor Capital Advisors, Inc.
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4400
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4400
Distributor
Harbor Funds Distributors, Inc.
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4600
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4600
Shareholder Services
Harbor Services Group, Inc.
P.O. Box 804660
Chicago, IL 60680-4108
800-422-1050
P.O. Box 804660
Chicago, IL 60680-4108
800-422-1050
Custodian
State Street Bank and Trust Company
State Street Financial Center
1 Lincoln Street
Boston, MA 02111-2900
State Street Financial Center
1 Lincoln Street
Boston, MA 02111-2900
FD.SAR.FI.0418
Table of Contents
Semi-Annual Report
April 30, 2018
Target Retirement Funds
Institutional Class | |
Harbor Target Retirement Income | HARAX |
Harbor Target Retirement 2015 Fund | HARGX |
Harbor Target Retirement 2020 Fund | HARJX |
Harbor Target Retirement 2025 Fund | HARMX |
Harbor Target Retirement 2030 Fund | HARPX |
Harbor Target Retirement 2035 Fund | HARUX |
Harbor Target Retirement 2040 Fund | HARYX |
Harbor Target Retirement 2045 Fund | HACCX |
Harbor Target Retirement 2050 Fund | HAFFX |
Harbor Target Retirement 2055 Fund | HATRX |
Table of Contents
This document must be preceded or accompanied by a Prospectus.
Letter from the Chairman
Charles F. McCain Chairman |
Dear Fellow Shareholder:
The Harbor Target Retirement Funds invest in a diversified portfolio of Harbor equity and fixed income funds. In the fiscal half year ended April 30, 2018, most equity funds posted positive returns while most fixed income funds had negative returns.
Strong gains for U.S. equities in the early part of the fiscal half year were tempered by increased volatility from February through April. Low unemployment, robust corporate earnings and solid consumer and business spending contributed to positive market sentiment initially, but negative sentiment took hold on fears of U.S. Federal Reserve (Fed) rate hikes and concerns over trade relations between the U.S. and China. The Russell 3000® Index, a measure of the broad U.S. stock market, had a return of 3.79% for the fiscal half year.
International stock markets posted strong gains in the early part of the fiscal half year, supported by broad-based global economic improvement. Market optimism seemed to fall away in February, however, amid increased volatility. Emerging markets outperformed their developed market peers. The MSCI All Country World Ex. U.S. (ND) Index, a measure of the equity markets outside the U.S., had a return of 3.47%.
Fixed income markets faced a more challenging environment during the six-month period, as expectations for higher inflation, increased Treasury supply and more Fed hikes all contributed to a rise in interest rates. The Bloomberg Barclays U.S. Aggregate Bond Index (a diversified benchmark of U.S. investment grade bonds) returned -1.87% for the fiscal half year, whereas the ICE BofAML U.S. Non-Distressed High Yield Index had a return of -0.31%.
Comments by the portfolio managers of the Harbor Target Retirement Funds can be found in the pages preceding each Fund’s portfolio of investments. As always, we recommend that shareholders maintain a long-term perspective in evaluating all of their investments, including Harbor Funds.
Returns For Periods Ended April 30, 2018 | ||||||||||
Unannualized | Annualized | |||||||||
Domestic Equities | 6 Months | 1 Year | 5 Years | 10 Years | 30 Years | |||||
Russell 3000® (entire U.S. stock market) | 3.79% | 13.05% | 12.75% | 9.13% | 10.46% | |||||
S&P 500 (large cap stocks) | 3.82 | 13.27 | 12.96 | 9.02 | 10.44 | |||||
Russell Midcap® (mid cap stocks) | 3.69 | 11.17 | 11.77 | 9.48 | 11.69 | |||||
Russell 2000® (small cap stocks) | 3.27 | 11.54 | 11.74 | 9.49 | 9.76 | |||||
Russell 3000® Growth (growth stocks) | 5.66 | 18.78 | 14.97 | 10.78 | 10.20 | |||||
Russell 3000® Value (value stocks) | 1.86 | 7.42 | 10.50 | 7.39 | 10.36 | |||||
International & Global | ||||||||||
MSCI EAFE (ND)(foreign stocks) | 3.41% | 14.51% | 5.90% | 2.43% | 5.06% | |||||
MSCI EAFE Small Cap (ND)(foreign small cap stocks) | 5.96 | 20.03 | 10.61 | 6.38 | N/A | |||||
MSCI World (ND)(global stocks) | 3.40 | 13.22 | 9.28 | 5.48 | 7.07 | |||||
MSCI All Country World Ex. U.S. (ND)(foreign stocks) | 3.47 | 15.91 | 5.46 | 2.26 | N/A | |||||
MSCI Emerging Markets (ND)(emerging market stocks) | 4.80 | 21.71 | 4.74 | 2.17 | N/A | |||||
Fixed Income | ||||||||||
ICE BofAML U.S. Non-Distressed High Yield (domestic high-yield bonds) | -0.31% | 3.26% | 4.87% | 6.69% | N/A | |||||
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -1.87 | -0.32 | 1.47 | 3.57 | 6.17% | |||||
Bloomberg Barclays U.S. TIPS (domestic inflation-linked bonds) | 0.19 | 0.27 | -0.12 | 3.14 | N/A | |||||
ICE BofAML U.S. 3-Month Treasury Bill (proxy for money market returns) | 0.68 | 1.18 | 0.36 | 0.34 | 3.28 |
1
HOLDING STEADY THROUGH VOLATILE MARKETS
U.S. and global markets saw a significant increase in volatility during the first calendar quarter of 2018, a trend that continued into April. Developments that played a major role in driving investor worries included the prospect of a trade war between the U.S. and China, uncertainty on inflation and a more hawkish Fed policy.
When markets are volatile, investors may wonder whether they should pivot to a more conservative allocation in the short-term to avoid potential losses. What history shows us, however, is that it is very difficult to time the market successfully. While past performance is never a guarantee of future results, many investors have historically achieved their financial objectives by making a long-term plan and staying true to it through market ups and downs.
We encourage all investors to maintain a diversified portfolio of stocks, bonds and cash in an allocation that matches their long-term financial goals and risk tolerance. Harbor Funds offers a variety of equity and fixed income funds to help you achieve your financial goals.
Thank you for investing with Harbor Funds.
June 22, 2018
Charles F. McCain |
Chairman |
2
Harbor Target Retirement Funds
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Adviser
Harbor Capital Advisors, Inc.
111 South Wacker Dr. 34th Floor
Chicago, IL 60606
Portfolio Managers
Brian L. Collins, CFA
Since Inception
Since Inception
Paul C. Herbert, CFA, CAIA
Since Inception
Linda M. Molenda
Since Inception
Since Inception
Harbor Capital has managed the Funds since inception.
Market Review
The tranquil market conditions that prevailed for much of 2017 and the beginning of fiscal year 2018 subsided in late January 2018. Stock markets treated many investors to small absolute gains and doses of volatility during the six months ended April 30, 2018, while bond markets skidded to losses.
The Russell 3000®Index, which we consider to be a measure of the performance of the entire U.S. stock market, climbed 3.79% from November 1, 2017 to the end of the period. Among U.S. equities, growth continued its outperformance versus value, while we found the differences among large-, mid-, and small-cap stock performance to be minimal. There was quite a bit of difference among the returns of the 11 economic sectors of the S&P 500 Index for the period, which measures the performance of U.S. large-cap stocks. Seven sectors posted gains, led by the Consumer Discretionary sector’s 13.54% rise. Strong showings from online platform Amazon.com, Inc. and streaming entertainment company Netflix, Inc. paced the group. Meanwhile, the Consumer Staples and Utilities sectors delivered declines of more than -4% apiece. These sectors, home to high-yielding stocks with more interest-rate sensitivity, largely declined as U.S. interest rates climbed on central-bank activity and higher inflation expectations during the period.
Non-U.S. stocks, which have generally been outperformed by their U.S. competition in recent years, held their own during the period. The MSCI EAFE (ND) Index, which measures developed non-U.S. market performance, rose by 3.41%. Each of the index’s 11 economic sectors posted a gain for the period, with the Energy sector standing out for its 14.92% return. Stocks in the sector were buoyed by the strong rise in the price of oil during the period, which was a surprise to many investors. Country-by-country results varied greatly, with Pacific Rim markets generally faring better than European ones. Japan, the index’s largest single-country weighting, gained 5.46%. Emerging market stocks outpaced U.S. and non-U.S. developed markets, as the MSCI Emerging Markets (ND) Index climbed 4.80%.
Fixed income markets declined during the period, as the Bloomberg Barclays U.S. Aggregate Bond Index, a barometer of U.S. investment grade bond performance, fell by -1.87%. Across the maturity spectrum, U.S. Treasury bond yields rose. As briefly mentioned above, the U.S. Federal Reserve raised short-term rates in December 2017 and March 2018 and projected higher policy rates in the future than it had previously and investors’ inflation expectations climbed. The ICE BofAML U.S. High Yield Bond Index, representing performance of below-investment grade corporate bonds, fared comparatively better, declining by 23 basis points (-0.23%) for the period. Inflation-protected bonds were bolstered by higher inflation expectations, with the Bloomberg Barclays U.S. TIPS Index finishing the period slightly in the black with a return of 19 basis points (0.19%).
Performance
The Harbor Target Retirement Funds, which provide exposure to equity, fixed-income, and short-term investments markets, delivered positive returns for the fiscal half year. Consistent with the market performance results discussed in the previous section, the Target Retirement Funds with larger equity fund weightings, which are designed for investors planning to retire decades into the future, delivered higher absolute returns than those with greater fixed-income and short-term fund allocations, intended for investors with expected retirement dates in the near to intermediate term. Please see the table on the following page for each of the Target Retirement Funds’ returns for the six months ended April 30, 2018.
The Target Retirement Funds’ performance is also measured against the results of the Composite Indices. During the period, four of the Target Retirement Funds (2040 through 2055) outperformed their respective Composite Indices, while the remaining six Target Retirement Funds (Income through 2035) underperformed their respective Composite Indices. Please see the table on the following page for the performance of the Composite Indices for the six months ended April 30, 2018. A broad discussion on performance of the Funds relative to the Composite Indices follows.
The longer-dated Target Retirement Funds’ heavier reliance on strong-performing equity funds paid off for relative performance during the period. Some of these components fared very well relative to their respective benchmarks. For example, Harbor Capital Appreciation Fund,
3
Harbor Target Retirement Funds
Managers’ Commentary—Continued
Managers’ Commentary—Continued
one of the largest fund holdings in the Target Retirement Funds, gained 8.55% and outperformed the Russell 1000® Growth Index by 2.87%. (All returns in this section are for the respective underlying fund’s Institutional Class shares.) Strong stock selection within Information Technology and Consumer Discretionary sectors drove results for the Funds, with strong showings from open-source software firm Red Hat, Inc. and Netflix, Inc. leading the way. Harbor Large Cap Value Fund, another meaningful position for each Target Retirement Fund, climbed 2.85%, outperforming the Russell 1000® Value Index by 0.91%. Stock picking in Consumer Staples, headlined by grocer Kroger, Inc. and in Information Technology, with creative software provider Adobe Systems, Inc. setting the pace, guided the Harbor Large Cap Value Fund passed its benchmark. Finally, Harbor Global Leaders Fund, while a smaller allocation, rose by 8.17%, ahead of the MSCI All-Country World Index’s 3.56% gain. Selections including pet health care firm Zoetis, Inc. and Adobe Systems, Inc. were top contributors to the Harbor Global Leaders Fund’s relative performance.
An emphasis on fixed-income funds worked against the results of the shorter-dated Target Retirement Funds for the period, as these holdings failed to match their benchmarks’ performance. Harbor Bond Fund, the Target Retirement Funds’ largest fixed-income fund holding, underperformed the Bloomberg Barclays U.S. Aggregate Bond Index by 17 basis points (-0.17%). Strategies favoring the intermediate-term portion of the U.S. Treasury curve, maintaining an underweight position in the investment-grade corporate sector, and positioning for the U.S. Dollar to appreciate against certain Asian currencies detracted from the Harbor Bond Fund’s results. Harbor High-Yield Opportunities Fund, a new position in the Target Retirement Funds during the period, lagged the ICE BofAML U.S. High Yield Index during the period of its inclusion. The Harbor High-Yield Opportunities Fund took a stance that assumed more interest-rate risk than the benchmark for much of the period, which hurt performance as rates rose, and the Harbor High-Yield Opportunities Fund’s overweight position in the Energy sector of the high-yield market, which generally did not benefit as the price of oil recovered, also worked against it.
Despite uneven performance relative to the Composite Indices for the six months ended April 30, 2018, each of the Target Retirement Funds outperformed its Composite Index for the trailing 1-year and since inception periods.
HARBOR TARGET RETIREMENT FUNDS | Unannualized Total Return 6 Months Ended April 30, 2018 |
Harbor Target Retirement Income Fund | 0.07% |
Harbor Target Retirement 2015 Fund | 0.21 |
Harbor Target Retirement 2020 Fund | 0.68 |
Harbor Target Retirement 2025 Fund | 0.87 |
Harbor Target Retirement 2030 Fund | 1.32 |
Harbor Target Retirement 2035 Fund | 1.82 |
Harbor Target Retirement 2040 Fund | 2.38 |
Harbor Target Retirement 2045 Fund | 2.78 |
Harbor Target Retirement 2050 Fund | 3.24 |
Harbor Target Retirement 2055 Fund | 3.52 |
COMMONLY USED MARKET INDICES | Unannualized Total Return 6 Months Ended April 30, 2018 |
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -1.87% |
MSCI EAFE (ND) (foreign stocks) | 3.41 |
Russell 3000® (entire U.S. stock market) | 3.79 |
HARBOR TARGET RETIREMENT FUND INDICES | Unannualized Total Return 6 Months Ended April 30, 2018 |
Composite Index Income | 0.09% |
Composite Index 2015 | 0.36 |
Composite Index 2020 | 0.72 |
Composite Index 2025 | 0.95 |
Composite Index 2030 | 1.34 |
Composite Index 2035 | 1.80 |
Composite Index 2040 | 2.19 |
Composite Index 2045 | 2.64 |
Composite Index 2050 | 3.09 |
Composite Index 2055 | 3.29 |
4
Harbor Target Retirement Funds
Managers’ Commentary—Continued
Managers’ Commentary—Continued
Underlying Harbor Funds Performance (Institutional Class Shares)
Total Return for the Period Ended April 30, 2018 | |||||||||||||||||||
EQUITY | 6 Monthsb | One Year | Five Yearsa | Ten Yearsa | Since Inceptiona | Current 7-Day SEC Yield | Inception Date | Expense Ratios*,a | |||||||||||
Subsidized c | Unsubsidized d | Net | Gross | ||||||||||||||||
Harbor Capital Appreciation Fund | 8.55% | 26.80% | 16.99% | 11.45% | 11.83% | N/A | N/A | 12/29/1987 | 0.66% e | 0.71% | |||||||||
Harbor Strategic Growth Fund | 4.52 | 14.55 | 13.19 | N/A | 14.48 | N/A | N/A | 11/01/2011 | 0.70 f | 0.89 | |||||||||
Harbor Mid Cap Growth Fund | 6.55 | 22.33 | 12.89 | 8.60 | 4.85 | N/A | N/A | 11/01/2000 | 0.89 | 0.89 | |||||||||
Harbor Small Cap Growth Fund | 9.28 | 18.32 | 13.53 | 10.17 | 8.99 | N/A | N/A | 11/01/2000 | 0.87 | 0.87 | |||||||||
Harbor Small Cap Growth Opportunities Fund | 7.85 | 11.85 | N/A | N/A | 8.46 | N/A | N/A | 02/01/2014 | 0.89 | 0.89 | |||||||||
Harbor Large Cap Value Fund | 2.85 | 12.26 | 13.40 | 8.19 | 10.14 | N/A | N/A | 12/29/1987 | 0.68 f | 0.72 | |||||||||
Harbor Mid Cap Value Fund | 1.42 | 4.93 | 11.45 | 9.94 | 8.17 | N/A | N/A | 03/01/2002 | 0.84 e | 0.87 | |||||||||
Harbor Small Cap Value Fund | 0.39 | 12.23 | 12.89 | 9.33 | 10.79 | N/A | N/A | 12/14/2001 | 0.88 | 0.88 | |||||||||
Harbor Small Cap Value Opportunities Fund | 1.59 | N/A | N/A | N/A | 2.30 | N/A | N/A | 08/01/2017 | 0.88 f | 1.24 | |||||||||
Harbor International Fund | 2.92 | 9.90 | 4.12 | 2.20 | 10.69 | N/A | N/A | 12/29/1987 | 0.72 e | 0.81 | |||||||||
Harbor Diversified International All Cap Fund | 2.09 | 12.39 | N/A | N/A | 8.32 | N/A | N/A | 11/02/2015 | 0.85 f | 1.07 | |||||||||
Harbor International Growth Fund | 1.20 | 14.23 | 6.34 | 1.91 | 3.99 | N/A | N/A | 11/01/1993 | 0.85 f | 0.92 | |||||||||
Harbor International Small Cap Fund | 3.59 | 19.69 | N/A | N/A | 18.26 | N/A | N/A | 02/01/2016 | 0.95 f | 1.42 | |||||||||
Harbor Global Leaders Fund | 8.17 | 20.72 | 11.64 | N/A | 17.39 | N/A | N/A | 03/01/2009 | 0.90 f | 1.21 | |||||||||
Harbor Emerging Markets Equity Fund | 5.46 | 20.86 | N/A | N/A | 3.61 | N/A | N/A | 11/01/2013 | 1.15 f | 1.43 | |||||||||
FIXED INCOME | |||||||||||||||||||
Harbor Convertible Securities Fund | 2.03% | 5.76% | 5.11% | N/A | 4.93% | N/A | N/A | 05/01/2011 | 0.75% g | 0.80% | |||||||||
Harbor High-Yield Bond Fund | -0.28 | 2.71 | 3.68 | 6.21% | 6.89 | N/A | N/A | 12/01/2002 | 0.63 g | 0.72 | |||||||||
Harbor High-Yield Opportunities Fund | -1.05 | N/A | N/A | N/A | -1.05 | N/A | N/A | 11/01/2017 | 0.73 g | 1.08 | |||||||||
Harbor Bond Fund | -2.04 | 0.35 | 1.52 | 4.29 | 6.89 | N/A | N/A | 12/29/1987 | 0.51 g,h | 0.63 | |||||||||
Harbor Real Return Fund | 0.12 | 0.57 | -0.53 | 3.06 | 3.72 | N/A | N/A | 12/01/2005 | 0.52 h | 1.03 | |||||||||
SHORT-TERM | |||||||||||||||||||
Harbor Money Market Fund | 0.60% | 1.07% | 0.36% | 0.38% | 3.17% | 1.43% | 1.33% | 12/29/1987 | 0.28% g,h | 0.35% |
Outlook
As indicated in the Market Review section, after many years of strong performance across markets, a more cautious tone seemed to take hold early in 2018. As one data point, the S&P 500 Index declined by 2% or more in a day on seven occasions in the first four months of calendar year 2018, after avoiding posting such a loss on any day in 2017. In our opinion, Explanations for these sell-offs that we believe are sensible include that on certain measures stock market valuations may have appeared extended and it seemed likely that central banks, and perhaps in particular the U.S. Federal Reserve would continue to remove accommodative policy measures, even amid a change in Chairman.
Regardless of the reasons, these losses, and the associated pickup in volatility, may provide a good opportunity for investors to review their portfolio positioning and its appropriateness for their risk tolerance and time horizon. Diversifying across assets and styles that exhibit different behaviors, and keeping a long-term perspective may be expected to help tilt the odds in favor of investors meeting long-term objectives.
5
Harbor Target Retirement Funds
Managers’ Commentary—Continued
Managers’ Commentary—Continued
This report contains the current opinions of Harbor Capital Advisors, Inc. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or on the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate and when redeemed may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
The Funds invest in a variety of underlying Harbor funds that are subject to risks associated with their particular investment strategies. By investing in several underlying funds, the Funds have partial exposure to the risks of many different areas of the market. Investments in the Funds are not guaranteed. An investor may experience losses. There is no guarantee that the Funds will provide adequate income through retirement. For information on the different share classes and the risks associated with an investment in the Funds, please refer to the current prospectus.
* | All mutual funds have expense ratios which represent what shareholders pay for operating expenses and management fees. Expense ratios are expressed as an annualized percentage of a fund’s average net assets paid out in expenses. Net expense ratios reflect adjustments due to voluntary or contractual fee waivers or expense reimbursements. Expense ratio information is as of the fund’s current prospectus, as revised and supplemented to date. |
a | Annualized |
b | Unannualized |
c | Reflects reimbursements or waivers in effect during the period |
d | Does not reflect reimbursements or waivers currently in effect |
e | Reflects a contractual management fee waiver effective through February 28, 2019 |
f | Reflects an expense limitation agreement (excluding interest expense, if any) effective through February 28, 2019 |
g | Reflects a contractual management fee waiver effective through February 29, 2020 |
h | Reflects an expense limitation agreement (excluding interest expense, if any) effective through February 29, 2020 |
6
Harbor Target Retirement Funds
Asset Allocation Framework (Unaudited)
Asset Allocation Framework (Unaudited)
Target Asset Allocation (glide path)
Harbor Target Retirement Funds - Target Asset Allocation
Over time, the allocation to asset classes and underlying Harbor funds will change in a predetermined manner as shown in the glide path above. The glide path shows the shifting of the asset allocations over time and illustrates how each Target Retirement Fund’s (except Harbor Target Retirement Income Fund) asset mix becomes more conservative as time elapses.
The principal value of the Funds is not guaranteed at any time, including the target retirement date.
Investment Styles
The Harbor Target Retirement Funds are constructed based on Harbor Capital Advisors’ investment experience that, over the long term, stocks generally provide greater growth opportunities and greater risk than bonds, and bonds generally provide more income and lower volatility than stocks. The year in the Fund name refers to the approximate year (the target date) when an investor in the Fund would leave the work force and enter retirement and likely stop making new investments in the Fund. The Harbor Target Retirement Income Fund is designed for investors currently in retirement. The year-specific Target Retirement Funds strive to produce more income and lower volatility as the target year approaches.
Harbor Capital Advisors allocates each Fund’s assets among the underlying Harbor funds based on the Fund’s investment objectives and policies. The asset allocation for each Fund (other than the Harbor Target Retirement Income Fund) will change over time as the target date indicated in the Fund’s name draws closer.
HARBOR TARGET RETIREMENT FUNDS - ACTUAL ALLOCATION AS OF April 30, 2018 | |||||||||||||||||||
2055 Fund | 2050 Fund | 2045 Fund | 2040 Fund | 2035 Fund | 2030 Fund | 2025 Fund | 2020 Fund | 2015 Fund | Income Fund | ||||||||||
Equity | |||||||||||||||||||
Harbor Capital Appreciation Fund | 8% | 7% | 6% | 6% | 5% | 4% | 2% | 2% | 1% | 1% | |||||||||
Harbor Strategic Growth Fund | 4 | 4 | 3 | 3 | 2 | 2 | 2 | 2 | 1 | 1 | |||||||||
Harbor Mid Cap Growth Fund | 6 | 6 | 5 | 5 | 4 | 3 | 3 | 2 | 2 | 1 | |||||||||
Harbor Small Cap Growth Fund | 5 | 5 | 5 | 4 | 4 | 3 | 2 | 2 | 1 | 1 | |||||||||
Harbor Large Cap Value Fund | 14 | 13 | 11 | 10 | 8 | 7 | 6 | 5 | 3 | 3 | |||||||||
Harbor Mid Cap Value Fund | 9 | 8 | 7 | 7 | 6 | 4 | 4 | 3 | 2 | 2 | |||||||||
Harbor Small Cap Value Fund | 6 | 6 | 5 | 5 | 4 | 3 | 3 | 3 | 2 | 1 | |||||||||
Harbor International Fund | 12 | 11 | 10 | 8 | 7 | 6 | 5 | 4 | 3 | 3 | |||||||||
Harbor Diversified International All Cap Fund | 12 | 11 | 10 | 8 | 7 | 6 | 5 | 4 | 3 | 3 | |||||||||
Harbor International Growth Fund | 12 | 11 | 10 | 8 | 7 | 6 | 5 | 4 | 3 | 3 | |||||||||
Harbor Global Leaders Fund | 5 | 4 | 4 | 3 | 3 | 2 | 2 | 2 | 1 | 1 | |||||||||
Total Equity | 93 | 86 | 76 | 67 | 57 | 46 | 39 | 33 | 22 | 20 | |||||||||
Fixed Income | |||||||||||||||||||
Harbor Bond Fund | 4% | 8% | 14% | 20% | 22% | 27% | 31% | 33% | 38% | 39% | |||||||||
Harbor High-Yield Bond Fund | 0 | 0 | 6 | 8 | 10 | 12 | 12 | 10 | 8 | 8 | |||||||||
Harbor High-Yield Opportunities Fund | 3 | 6 | 4 | 5 | 7 | 8 | 8 | 6 | 5 | 5 | |||||||||
Harbor Real Return Fund | 0 | 0 | 1 | 2 | 4 | 7 | 10 | 12 | 15 | 18 | |||||||||
Total Fixed Income | 7 | 14 | 24 | 33 | 43 | 54 | 61 | 61 | 68 | 70 | |||||||||
Short-Term | |||||||||||||||||||
Harbor Money Market Fund | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 6% | 10% | 10% | |||||||||
Total Short-Term | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 6 | 10 | 10 | |||||||||
100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |
7
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8
Harbor Target Retirement Income Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 20.2% | |
Harbor Large Cap Value Fund | 3.0% | |
Harbor Diversified International All Cap Fund | 2.5% | |
Harbor International Fund | 2.5% | |
Harbor International Growth Fund | 2.5% | |
Harbor Mid Cap Value Fund | 2.0% | |
Harbor Small Cap Value Fund | 1.5% | |
Harbor Capital Appreciation Fund | 1.3% | |
Harbor Mid Cap Growth Fund | 1.3% | |
Harbor Strategic Growth Fund | 1.3% | |
Harbor Small Cap Growth Fund | 1.2% | |
Harbor Global Leaders Fund | 1.1% |
Fixed Income Funds | 69.8% | |
Harbor Bond Fund | 39.0% | |
Harbor Real Return Fund | 17.6% | |
Harbor High-Yield Bond Fund | 7.9% | |
Harbor High-Yield Opportunities Fund | 5.3% | |
Short-Term Investments | 10.0% | |
Harbor Money Market Fund | 10.0% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | Annualized | Inception Date | ||||||||||
6 Months | 5 Years | Life of Fund | ||||||||||||
Harbor Target Retirement Income Fund | ||||||||||||||
Institutional Class | 0.07% | 3.62% | 3.08% | 5.85% | 01/02/2009 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.49% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | 5.90 | 8.59 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | 12.75 | 14.83 | — | |||||||||
Composite Index Income | 0.09 | 3.11 | 3.11 | 5.53 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.64%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
9
Harbor Target Retirement Income Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—20.2% | |||
Shares | Value | ||
2,342 | Harbor Capital Appreciation Fund | $ 172 | |
8,708 | Harbor Strategic Growth Fund | 168 | |
15,947 | Harbor Mid Cap Growth Fund | 171 | |
10,418 | Harbor Small Cap Growth Fund | 156 | |
26,936 | Harbor Large Cap Value Fund | 399 | |
11,286 | Harbor Mid Cap Value Fund | 257 | |
5,342 | Harbor Small Cap Value Fund | 190 | |
4,929 | Harbor International Fund | 334 | |
28,639 | Harbor Diversified International All Cap Fund | 333 | |
21,113 | Harbor International Growth Fund | 332 | |
5,699 | Harbor Global Leaders Fund | 143 | |
TOTAL EQUITY FUNDS | |||
(Cost $2,288) | 2,655 | ||
FIXED INCOME FUNDS—69.8% | |||
104,620 | Harbor High-Yield Bond Fund | 1,033 |
FIXED INCOME FUNDS—Continued | |||
| Shares | Value | |
70,994 | Harbor High-Yield Opportunities Fund | $ 691 | |
456,479 | Harbor Bond Fund | 5,131 | |
250,401 | Harbor Real Return Fund | 2,314 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $9,571) | 9,169 | ||
SHORT-TERM INVESTMENTS—10.0% | |||
(Cost $1,314) | |||
1,314,261 | Harbor Money Market Fund | 1,314 | |
TOTAL INVESTMENTS—100.0% | |||
(Cost $13,173) | 13,138 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | 1 | ||
TOTAL NET ASSETS—100.0% | $13,139 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement Income Fund is investing in Institutional Class shares of Harbor funds. |
The accompanying notes are an integral part of the Financial Statements.
10
Harbor Target Retirement 2015 Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 22.2% | |
Harbor Large Cap Value Fund | 3.3% | |
Harbor Diversified International All Cap Fund | 2.8% | |
Harbor International Fund | 2.8% | |
Harbor International Growth Fund | 2.8% | |
Harbor Mid Cap Value Fund | 2.2% | |
Harbor Small Cap Value Fund | 1.6% | |
Harbor Capital Appreciation Fund | 1.4% | |
Harbor Mid Cap Growth Fund | 1.4% | |
Harbor Strategic Growth Fund | 1.4% | |
Harbor Small Cap Growth Fund | 1.3% | |
Harbor Global Leaders Fund | 1.2% |
Fixed Income Funds | 68.3% | |
Harbor Bond Fund | 38.2% | |
Harbor Real Return Fund | 16.7% | |
Harbor High-Yield Bond Fund | 8.0% | |
Harbor High-Yield Opportunities Fund | 5.4% | |
Short-Term Investments | 9.5% | |
Harbor Money Market Fund | 9.5% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | Annualized | Inception Date | ||||||||||
6 Months | 5 Years | Life of Fund | ||||||||||||
Harbor Target Retirement 2015 Fund | ||||||||||||||
Institutional Class | 0.21% | 4.28% | 3.67% | 7.04% | 01/02/2009 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.49% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | 5.90 | 8.59 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | 12.75 | 14.83 | — | |||||||||
Composite Index 2015 | 0.36 | 3.83 | 3.70 | 6.74 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.64%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
11
Harbor Target Retirement 2015 Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—22.2% | |||
Shares | Value | ||
970 | Harbor Capital Appreciation Fund | $ 71 | |
3,664 | Harbor Strategic Growth Fund | 71 | |
6,784 | Harbor Mid Cap Growth Fund | 73 | |
4,420 | Harbor Small Cap Growth Fund | 66 | |
11,293 | Harbor Large Cap Value Fund | 168 | |
4,794 | Harbor Mid Cap Value Fund | 109 | |
2,258 | Harbor Small Cap Value Fund | 80 | |
2,089 | Harbor International Fund | 141 | |
12,243 | Harbor Diversified International All Cap Fund | 142 | |
9,045 | Harbor International Growth Fund | 142 | |
2,371 | Harbor Global Leaders Fund | 60 | |
TOTAL EQUITY FUNDS | |||
(Cost $981) | 1,123 | ||
FIXED INCOME FUNDS—68.3% | |||
41,112 | Harbor High-Yield Bond Fund | 406 |
FIXED INCOME FUNDS—Continued | |||
| Shares | Value | |
27,847 | Harbor High-Yield Opportunities Fund | $ 271 | |
171,934 | Harbor Bond Fund | 1,932 | |
90,982 | Harbor Real Return Fund | 841 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $3,548) | 3,450 | ||
SHORT-TERM INVESTMENTS—9.5% | |||
(Cost $478) | |||
478,108 | Harbor Money Market Fund | 478 | |
TOTAL INVESTMENTS—100.0% | |||
(Cost $5,007) | 5,051 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | 1 | ||
TOTAL NET ASSETS—100.0% | $5,052 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement 2015 Fund is investing in Institutional Class shares of Harbor funds. |
The accompanying notes are an integral part of the Financial Statements.
12
Harbor Target Retirement 2020 Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 33.1% | |
Harbor Large Cap Value Fund | 4.8% | |
Harbor Diversified International All Cap Fund | 4.2% | |
Harbor International Fund | 4.2% | |
Harbor International Growth Fund | 4.2% | |
Harbor Mid Cap Value Fund | 3.2% | |
Harbor Small Cap Value Fund | 2.4% | |
Harbor Mid Cap Growth Fund | 2.2% | |
Harbor Capital Appreciation Fund | 2.1% | |
Harbor Strategic Growth Fund | 2.1% | |
Harbor Small Cap Growth Fund | 2.0% | |
Harbor Global Leaders Fund | 1.7% |
Fixed Income Funds | 61.3% | |
Harbor Bond Fund | 33.3% | |
Harbor Real Return Fund | 12.1% | |
Harbor High-Yield Bond Fund | 9.5% | |
Harbor High-Yield Opportunities Fund | 6.4% | |
Short-Term Investments | 5.6% | |
Harbor Money Market Fund | 5.6% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | Annualized | Inception Date | ||||||||||
6 Months | 5 Years | Life of Fund | ||||||||||||
Harbor Target Retirement 2020 Fund | ||||||||||||||
Institutional Class | 0.68% | 5.70% | 4.46% | 7.79% | 01/02/2009 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.49% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | 5.90 | 8.59 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | 12.75 | 14.83 | — | |||||||||
Composite Index 2020 | 0.72 | 5.14 | 4.47 | 7.50 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.67%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
13
Harbor Target Retirement 2020 Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—33.1% | |||
Shares | Value | ||
7,632 | Harbor Capital Appreciation Fund | $ 560 | |
28,888 | Harbor Strategic Growth Fund | 558 | |
55,770 | Harbor Mid Cap Growth Fund | 598 | |
36,451 | Harbor Small Cap Growth Fund | 545 | |
88,098 | Harbor Large Cap Value Fund | 1,307 | |
38,054 | Harbor Mid Cap Value Fund | 867 | |
18,304 | Harbor Small Cap Value Fund | 651 | |
16,676 | Harbor International Fund | 1,128 | |
97,024 | Harbor Diversified International All Cap Fund | 1,128 | |
71,930 | Harbor International Growth Fund | 1,129 | |
17,862 | Harbor Global Leaders Fund | 448 | |
TOTAL EQUITY FUNDS | |||
(Cost $7,705) | 8,919 | ||
FIXED INCOME FUNDS—61.3% | |||
259,950 | Harbor High-Yield Bond Fund | 2,568 |
FIXED INCOME FUNDS—Continued | |||
| Shares | Value | |
175,990 | Harbor High-Yield Opportunities Fund | $ 1,713 | |
797,621 | Harbor Bond Fund | 8,965 | |
352,307 | Harbor Real Return Fund | 3,255 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $17,033) | 16,501 | ||
SHORT-TERM INVESTMENTS—5.6% | |||
(Cost $1,510) | |||
1,509,668 | Harbor Money Market Fund | 1,510 | |
TOTAL INVESTMENTS—100.0% | |||
(Cost $26,248) | 26,930 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | 2 | ||
TOTAL NET ASSETS—100.0% | $26,932 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement 2020 Fund is investing in Institutional Class shares of Harbor funds. |
The accompanying notes are an integral part of the Financial Statements.
14
Harbor Target Retirement 2025 Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 39.1% | |
Harbor Large Cap Value Fund | 5.7% | |
Harbor International Fund | 5.0% | |
Harbor International Growth Fund | 5.0% | |
Harbor Diversified International All Cap Fund | 4.9% | |
Harbor Mid Cap Value Fund | 3.8% | |
Harbor Small Cap Value Fund | 2.9% | |
Harbor Mid Cap Growth Fund | 2.6% | |
Harbor Capital Appreciation Fund | 2.5% | |
Harbor Small Cap Growth Fund | 2.4% | |
Harbor Strategic Growth Fund | 2.4% | |
Harbor Global Leaders Fund | 1.9% |
Fixed Income Funds | 60.9% | |
Harbor Bond Fund | 30.5% | |
Harbor High-Yield Bond Fund | 12.2% | |
Harbor Real Return Fund | 10.1% | |
Harbor High-Yield Opportunities Fund | 8.1% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | Annualized | Inception Date | ||||||||||
6 Months | 5 Years | Life of Fund | ||||||||||||
Harbor Target Retirement 2025 Fund | ||||||||||||||
Institutional Class | 0.87% | 6.46% | 4.98% | 8.37% | 01/02/2009 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.49% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | 5.90 | 8.59 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | 12.75 | 14.83 | — | |||||||||
Composite Index 2025 | 0.95 | 6.00 | 5.02 | 8.20 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.70%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
15
Harbor Target Retirement 2025 Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—39.1% | |||
Shares | Value | ||
6,786 | Harbor Capital Appreciation Fund | $ 498 | |
25,654 | Harbor Strategic Growth Fund | 495 | |
50,169 | Harbor Mid Cap Growth Fund | 538 | |
32,887 | Harbor Small Cap Growth Fund | 491 | |
78,129 | Harbor Large Cap Value Fund | 1,159 | |
33,926 | Harbor Mid Cap Value Fund | 773 | |
16,406 | Harbor Small Cap Value Fund | 584 | |
14,909 | Harbor International Fund | 1,009 | |
86,520 | Harbor Diversified International All Cap Fund | 1,006 | |
64,233 | Harbor International Growth Fund | 1,008 | |
15,659 | Harbor Global Leaders Fund | 393 | |
TOTAL EQUITY FUNDS | |||
(Cost $7,096) | 7,954 | ||
FIXED INCOME FUNDS—60.9% | |||
| Shares | Value | |
251,293 | Harbor High-Yield Bond Fund | $ 2,483 | |
170,112 | Harbor High-Yield Opportunities Fund | 1,655 | |
551,761 | Harbor Bond Fund | 6,202 | |
223,181 | Harbor Real Return Fund | 2,062 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $12,739) | 12,402 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $19,835) | 20,356 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $20,356 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement 2025 Fund is investing in Institutional Class shares of Harbor funds. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
16
Harbor Target Retirement 2030 Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 46.1% | |
Harbor Large Cap Value Fund | 6.7% | |
Harbor Diversified International All Cap Fund | 5.8% | |
Harbor International Fund | 5.8% | |
Harbor International Growth Fund | 5.8% | |
Harbor Mid Cap Value Fund | 4.5% | |
Harbor Capital Appreciation Fund | 3.9% | |
Harbor Small Cap Value Fund | 3.4% | |
Harbor Mid Cap Growth Fund | 3.1% | |
Harbor Small Cap Growth Fund | 2.9% | |
Harbor Global Leaders Fund | 2.3% | |
Harbor Strategic Growth Fund | 1.9% |
Fixed Income Funds | 53.9% | |
Harbor Bond Fund | 26.8% | |
Harbor High-Yield Bond Fund | 11.8% | |
Harbor High-Yield Opportunities Fund | 7.9% | |
Harbor Real Return Fund | 7.4% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | Annualized | Inception Date | ||||||||||
6 Months | 5 Years | Life of Fund | ||||||||||||
Harbor Target Retirement 2030 Fund | ||||||||||||||
Institutional Class | 1.32% | 7.61% | 5.71% | 9.09% | 01/02/2009 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.49% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | 5.90 | 8.59 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | 12.75 | 14.83 | — | |||||||||
Composite Index 2030 | 1.34 | 7.07 | 5.64 | 8.94 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.71%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
17
Harbor Target Retirement 2030 Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—46.1% | |||
Shares | Value | ||
15,608 | Harbor Capital Appreciation Fund | $ 1,145 | |
29,296 | Harbor Strategic Growth Fund | 566 | |
86,611 | Harbor Mid Cap Growth Fund | 929 | |
56,892 | Harbor Small Cap Growth Fund | 850 | |
134,082 | Harbor Large Cap Value Fund | 1,988 | |
58,330 | Harbor Mid Cap Value Fund | 1,329 | |
28,396 | Harbor Small Cap Value Fund | 1,010 | |
25,624 | Harbor International Fund | 1,734 | |
149,031 | Harbor Diversified International All Cap Fund | 1,733 | |
110,608 | Harbor International Growth Fund | 1,737 | |
26,686 | Harbor Global Leaders Fund | 670 | |
TOTAL EQUITY FUNDS | |||
(Cost $11,805) | 13,691 | ||
FIXED INCOME FUNDS—53.9% | |||
| Shares | Value | |
355,103 | Harbor High-Yield Bond Fund | $ 3,508 | |
240,410 | Harbor High-Yield Opportunities Fund | 2,339 | |
707,714 | Harbor Bond Fund | 7,955 | |
238,584 | Harbor Real Return Fund | 2,205 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $16,448) | 16,007 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $28,253) | 29,698 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $29,698 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement 2030 Fund is investing in Institutional Class shares of Harbor funds. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
18
Harbor Target Retirement 2035 Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 57.1% | |
Harbor Large Cap Value Fund | 8.3% | |
Harbor Diversified International All Cap Fund | 7.2% | |
Harbor International Fund | 7.2% | |
Harbor International Growth Fund | 7.2% | |
Harbor Mid Cap Value Fund | 5.5% | |
Harbor Capital Appreciation Fund | 4.8% | |
Harbor Small Cap Value Fund | 4.2% | |
Harbor Mid Cap Growth Fund | 3.9% | |
Harbor Small Cap Growth Fund | 3.6% | |
Harbor Global Leaders Fund | 2.8% | |
Harbor Strategic Growth Fund | 2.4% |
Fixed Income Funds | 42.9% | |
Harbor Bond Fund | 22.0% | |
Harbor High-Yield Bond Fund | 10.0% | |
Harbor High-Yield Opportunities Fund | 6.6% | |
Harbor Real Return Fund | 4.3% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | Annualized | Inception Date | ||||||||||
6 Months | 5 Years | Life of Fund | ||||||||||||
Harbor Target Retirement 2035 Fund | ||||||||||||||
Institutional Class | 1.82% | 9.08% | 6.60% | 9.80% | 01/02/2009 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.49% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | 5.90 | 8.59 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | 12.75 | 14.83 | — | |||||||||
Composite Index 2035 | 1.80 | 8.40 | 6.37 | 9.66 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.72%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
19
Harbor Target Retirement 2035 Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—57.1% | |||
Shares | Value | ||
10,070 | Harbor Capital Appreciation Fund | $ 739 | |
18,843 | Harbor Strategic Growth Fund | 364 | |
55,297 | Harbor Mid Cap Growth Fund | 593 | |
36,640 | Harbor Small Cap Growth Fund | 547 | |
86,615 | Harbor Large Cap Value Fund | 1,284 | |
37,505 | Harbor Mid Cap Value Fund | 855 | |
18,283 | Harbor Small Cap Value Fund | 650 | |
16,447 | Harbor International Fund | 1,113 | |
95,630 | Harbor Diversified International All Cap Fund | 1,112 | |
70,610 | Harbor International Growth Fund | 1,109 | |
17,220 | Harbor Global Leaders Fund | 432 | |
TOTAL EQUITY FUNDS | |||
(Cost $7,679) | 8,798 | ||
FIXED INCOME FUNDS—42.9% | |||
| Shares | Value | |
155,231 | Harbor High-Yield Bond Fund | $ 1,534 | |
105,174 | Harbor High-Yield Opportunities Fund | 1,023 | |
302,266 | Harbor Bond Fund | 3,398 | |
71,766 | Harbor Real Return Fund | 663 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $6,805) | 6,618 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $14,484) | 15,416 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $15,416 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement 2035 Fund is investing in Institutional Class shares of Harbor funds. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
20
Harbor Target Retirement 2040 Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 66.7% | |
Harbor Large Cap Value Fund | 9.8% | |
Harbor Diversified International All Cap Fund | 8.4% | |
Harbor International Fund | 8.4% | |
Harbor International Growth Fund | 8.4% | |
Harbor Mid Cap Value Fund | 6.5% | |
Harbor Capital Appreciation Fund | 5.6% | |
Harbor Small Cap Value Fund | 4.9% | |
Harbor Mid Cap Growth Fund | 4.5% | |
Harbor Small Cap Growth Fund | 4.1% | |
Harbor Global Leaders Fund | 3.3% | |
Harbor Strategic Growth Fund | 2.8% |
Fixed Income Funds | 33.3% | |
Harbor Bond Fund | 19.5% | |
Harbor High-Yield Bond Fund | 8.3% | |
Harbor High-Yield Opportunities Fund | 5.5% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | Annualized | Inception Date | ||||||||||
6 Months | 5 Years | Life of Fund | ||||||||||||
Harbor Target Retirement 2040 Fund | ||||||||||||||
Institutional Class | 2.38% | 10.46% | 7.55% | 10.46% | 01/02/2009 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.49% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | 5.90 | 8.59 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | 12.75 | 14.83 | — | |||||||||
Composite Index 2040 | 2.19 | 9.54 | 7.16 | 10.37 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.73%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
21
Harbor Target Retirement 2040 Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—66.7% | |||
Shares | Value | ||
19,759 | Harbor Capital Appreciation Fund | $ 1,450 | |
37,084 | Harbor Strategic Growth Fund | 716 | |
107,717 | Harbor Mid Cap Growth Fund | 1,155 | |
70,588 | Harbor Small Cap Growth Fund | 1,055 | |
170,279 | Harbor Large Cap Value Fund | 2,525 | |
73,614 | Harbor Mid Cap Value Fund | 1,678 | |
35,422 | Harbor Small Cap Value Fund | 1,260 | |
32,171 | Harbor International Fund | 2,177 | |
187,907 | Harbor Diversified International All Cap Fund | 2,185 | |
139,056 | Harbor International Growth Fund | 2,183 | |
34,450 | Harbor Global Leaders Fund | 864 | |
TOTAL EQUITY FUNDS | |||
(Cost $14,622) | 17,248 | ||
FIXED INCOME FUNDS—33.3% | |||
| Shares | Value | |
216,088 | Harbor High-Yield Bond Fund | $ 2,135 | |
145,287 | Harbor High-Yield Opportunities Fund | 1,414 | |
449,801 | Harbor Bond Fund | 5,056 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $8,844) | 8,605 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $23,466) | 25,853 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $25,853 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement 2040 Fund is investing in Institutional Class shares of Harbor funds. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
22
Harbor Target Retirement 2045 Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 76.0% | |
Harbor Large Cap Value Fund | 11.2% | |
Harbor Diversified International All Cap Fund | 9.6% | |
Harbor International Fund | 9.6% | |
Harbor International Growth Fund | 9.6% | |
Harbor Mid Cap Value Fund | 7.4% | |
Harbor Capital Appreciation Fund | 6.3% | |
Harbor Small Cap Value Fund | 5.5% | |
Harbor Mid Cap Growth Fund | 5.1% | |
Harbor Small Cap Growth Fund | 4.6% | |
Harbor Global Leaders Fund | 3.9% | |
Harbor Strategic Growth Fund | 3.2% |
Fixed Income Funds | 24.0% | |
Harbor Bond Fund | 14.0% | |
Harbor High-Yield Bond Fund | 6.0% | |
Harbor High-Yield Opportunities Fund | 4.0% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | Annualized | Inception Date | ||||||||||
6 Months | 5 Years | Life of Fund | ||||||||||||
Harbor Target Retirement 2045 Fund | ||||||||||||||
Institutional Class | 2.78% | 11.76% | 8.37% | 10.99% | 01/02/2009 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.49% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | 5.90 | 8.59 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | 12.75 | 14.83 | — | |||||||||
Composite Index 2045 | 2.64 | 10.74 | 7.87 | 10.97 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.75%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
23
Harbor Target Retirement 2045 Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—76.0% | |||
Shares | Value | ||
10,733 | Harbor Capital Appreciation Fund | $ 787 | |
20,362 | Harbor Strategic Growth Fund | 393 | |
58,666 | Harbor Mid Cap Growth Fund | 629 | |
38,217 | Harbor Small Cap Growth Fund | 571 | |
93,589 | Harbor Large Cap Value Fund | 1,388 | |
40,307 | Harbor Mid Cap Value Fund | 918 | |
19,304 | Harbor Small Cap Value Fund | 687 | |
17,521 | Harbor International Fund | 1,186 | |
101,946 | Harbor Diversified International All Cap Fund | 1,186 | |
75,518 | Harbor International Growth Fund | 1,186 | |
19,051 | Harbor Global Leaders Fund | 478 | |
TOTAL EQUITY FUNDS | |||
(Cost $8,455) | 9,409 | ||
FIXED INCOME FUNDS—24.0% | |||
| Shares | Value | |
75,646 | Harbor High-Yield Bond Fund | $ 747 | |
50,843 | Harbor High-Yield Opportunities Fund | 495 | |
153,836 | Harbor Bond Fund | 1,729 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $3,043) | 2,971 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $11,498) | 12,380 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $12,380 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement 2045 Fund is investing in Institutional Class shares of Harbor funds. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
24
Harbor Target Retirement 2050 Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 85.8% | |
Harbor Large Cap Value Fund | 12.7% | |
Harbor Diversified International All Cap Fund | 10.8% | |
Harbor International Fund | 10.8% | |
Harbor International Growth Fund | 10.8% | |
Harbor Mid Cap Value Fund | 8.3% | |
Harbor Capital Appreciation Fund | 7.3% | |
Harbor Small Cap Value Fund | 6.2% | |
Harbor Mid Cap Growth Fund | 5.7% | |
Harbor Small Cap Growth Fund | 5.2% | |
Harbor Global Leaders Fund | 4.4% | |
Harbor Strategic Growth Fund | 3.6% |
Fixed Income Funds | 14.2% | |
Harbor Bond Fund | 7.8% | |
Harbor High-Yield Opportunities Fund | 6.4% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | Annualized | Inception Date | ||||||||||
6 Months | 5 Years | Life of Fund | ||||||||||||
Harbor Target Retirement 2050 Fund | ||||||||||||||
Institutional Class | 3.24% | 13.11% | 9.21% | 11.50% | 01/02/2009 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | 1.47% | 3.49% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | 5.90 | 8.59 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | 12.75 | 14.83 | — | |||||||||
Composite Index 2050 | 3.09 | 11.98 | 8.58 | 11.46 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.77%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
25
Harbor Target Retirement 2050 Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—85.8% | |||
Shares | Value | ||
24,016 | Harbor Capital Appreciation Fund | $ 1,762 | |
45,100 | Harbor Strategic Growth Fund | 871 | |
128,358 | Harbor Mid Cap Growth Fund | 1,376 | |
83,936 | Harbor Small Cap Growth Fund | 1,254 | |
207,622 | Harbor Large Cap Value Fund | 3,079 | |
88,756 | Harbor Mid Cap Value Fund | 2,023 | |
42,332 | Harbor Small Cap Value Fund | 1,506 | |
38,893 | Harbor International Fund | 2,632 | |
226,441 | Harbor Diversified International All Cap Fund | 2,634 | |
167,787 | Harbor International Growth Fund | 2,634 | |
42,904 | Harbor Global Leaders Fund | 1,076 | |
TOTAL EQUITY FUNDS | |||
(Cost $17,910) | 20,847 | ||
FIXED INCOME FUNDS—14.2% | |||
| Shares | Value | |
160,147 | Harbor High-Yield Opportunities Fund | $ 1,558 | |
169,372 | Harbor Bond Fund | 1,904 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $3,546) | 3,462 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $21,456) | 24,309 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $24,309 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement 2050 Fund is investing in Institutional Class shares of Harbor funds. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
26
Harbor Target Retirement 2055 Fund
Fund Summary —April 30, 2018 (Unaudited)
Fund Summary —April 30, 2018 (Unaudited)
Asset Allocation (% of investments)
Equity Funds | 93.0% | |
Harbor Large Cap Value Fund | 13.7% | |
Harbor International Fund | 11.8% | |
Harbor International Growth Fund | 11.8% | |
Harbor Diversified International All Cap Fund | 11.7% | |
Harbor Mid Cap Value Fund | 9.0% | |
Harbor Capital Appreciation Fund | 7.9% | |
Harbor Small Cap Value Fund | 6.7% | |
Harbor Mid Cap Growth Fund | 6.1% | |
Harbor Small Cap Growth Fund | 5.5% | |
Harbor Global Leaders Fund | 4.9% | |
Harbor Strategic Growth Fund | 3.9% |
Fixed Income Funds | 7.0% | |
Harbor Bond Fund | 3.8% | |
Harbor High-Yield Opportunities Fund | 3.2% |
FUND PERFORMANCE
TOTAL RETURNS For the periods ended 04/30/2018 | Unannualized | 1 Year | 5 Years | Annualized | Inception Date | |||||||||
6 Months | Life of Fund | |||||||||||||
Harbor Target Retirement 2055 Fund | ||||||||||||||
Institutional Class | 3.52% | 13.79% | N/A | 8.36% | 11/01/2014 | |||||||||
Comparative Indices | ||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -1.87% | -0.32% | N/A | 1.51% | — | |||||||||
MSCI EAFE (ND) | 3.41 | 14.51 | N/A | 6.21 | — | |||||||||
Russell 3000® | 3.79 | 13.05 | N/A | 10.14 | — | |||||||||
Composite Index 2055 | 3.29 | 12.59 | N/A | 7.70 | — |
As stated in the Fund’s prospectus dated March 1, 2018, the expense ratio was 0.78%. The Adviser has contractually agreed to limit the Fund’s operating expenses to: (i) the amount of the acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items. The expense ratio in the prospectus may differ from the actual expense ratio for the period disclosed within this report. The expense ratio shown in the prospectus is based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions, but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050. See the Benchmark Descriptions at the end of this report for a description of the Composite Index.
27
Harbor Target Retirement 2055 Fund†
Portfolio of Investments—April 30, 2018 (Unaudited)
Portfolio of Investments—April 30, 2018 (Unaudited)
Value and Cost in Thousands
EQUITY FUNDS—93.0% | |||
Shares | Value | ||
3,552 | Harbor Capital Appreciation Fund | $ 261 | |
6,690 | Harbor Strategic Growth Fund | 129 | |
18,946 | Harbor Mid Cap Growth Fund | 203 | |
12,310 | Harbor Small Cap Growth Fund | 184 | |
30,787 | Harbor Large Cap Value Fund | 456 | |
13,132 | Harbor Mid Cap Value Fund | 299 | |
6,241 | Harbor Small Cap Value Fund | 222 | |
5,758 | Harbor International Fund | 390 | |
33,433 | Harbor Diversified International All Cap Fund | 389 | |
24,822 | Harbor International Growth Fund | 390 | |
6,402 | Harbor Global Leaders Fund | 161 | |
TOTAL EQUITY FUNDS | |||
(Cost $2,899) | 3,084 | ||
FIXED INCOME FUNDS—7.0% | |||
| Shares | Value | |
10,790 | Harbor High-Yield Opportunities Fund | $ 105 | |
11,417 | Harbor Bond Fund | 128 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $239) | 233 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $3,138) | 3,317 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $3,317 |
Fair Value Measurements
All holdings at April 30, 2018 (as disclosed in the preceding Portfolio of Investments) are classified as Level 1. There were no Level 3 holdings at April 30, 2018 or October 31, 2017, and no transfers between levels during the six-month period.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
† | The Harbor Target Retirement 2055 Fund is investing in Institutional Class shares of Harbor funds. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
28
Harbor Target Retirement Funds
StatementS of Assets and Liabilities—April 30, 2018 (Unaudited)
StatementS of Assets and Liabilities—April 30, 2018 (Unaudited)
(All amounts in thousands, except per share amounts)
Harbor Target Retirement Income Fund | Harbor Target Retirement 2015 Fund | Harbor Target Retirement 2020 Fund | Harbor Target Retirement 2025 Fund | Harbor Target Retirement 2030 Fund | Harbor Target Retirement 2035 Fund | Harbor Target Retirement 2040 Fund | Harbor Target Retirement 2045 Fund | Harbor Target Retirement 2050 Fund | Harbor Target Retirement 2055 Fund | |||||||||||
ASSETS | ||||||||||||||||||||
Investments, at identified cost | $13,173 | $5,007 | $26,248 | $19,835 | $28,253 | $14,484 | $23,466 | $11,498 | $21,456 | $3,138 | ||||||||||
Investments in affiliated funds, at value | $13,138 | $5,051 | $26,930 | $20,356 | $29,698 | $15,416 | $25,853 | $12,380 | $24,309 | $3,317 | ||||||||||
Receivables for: | ||||||||||||||||||||
Investments in affiliated funds sold | — | — | 74 | — | 5 | 5 | 10 | — | 7 | — | ||||||||||
Capital shares sold | — | — | 1 | — | — | 1 | 3 | 131 | 1 | 1 | ||||||||||
Distributions from affiliated funds | 1 | 1 | 2 | — | — | — | — | — | — | — | ||||||||||
Total Assets | 13,139 | 5,052 | 27,007 | 20,356 | 29,703 | 15,422 | 25,866 | 12,511 | 24,317 | 3,318 | ||||||||||
LIABILITIES | ||||||||||||||||||||
Payables for: | ||||||||||||||||||||
Investments in affiliated funds purchased | — | — | — | — | — | — | — | 130 | — | — | ||||||||||
Capital shares reacquired | — | — | 75 | — | 5 | 6 | 13 | 1 | 8 | 1 | ||||||||||
Total Liabilities | — | — | 75 | — | 5 | 6 | 13 | 131 | 8 | 1 | ||||||||||
NET ASSETS | $13,139 | $5,052 | $26,932 | $20,356 | $29,698 | $15,416 | $25,853 | $12,380 | $24,309 | $3,317 | ||||||||||
Net Assets Consist of: | ||||||||||||||||||||
Paid-in capital | $13,517 | $5,251 | $26,582 | $19,497 | $27,801 | $14,193 | $22,508 | $11,061 | $20,269 | $2,946 | ||||||||||
Accumulated undistributed net investment income/(loss) | (7) | 12 | 37 | 27 | 31 | 3 | (14) | (14) | (56) | (9) | ||||||||||
Accumulated net realized gain/(loss) | (336) | (255) | (369) | 311 | 421 | 288 | 972 | 451 | 1,243 | 201 | ||||||||||
Unrealized appreciation/(depreciation) of investments | (35) | 44 | 682 | 521 | 1,445 | 932 | 2,387 | 882 | 2,853 | 179 | ||||||||||
$13,139 | $5,052 | $26,932 | $20,356 | $29,698 | $15,416 | $25,853 | $12,380 | $24,309 | $3,317 | |||||||||||
NET ASSET VALUE PER SHARE BY CLASS | ||||||||||||||||||||
Institutional Class | ||||||||||||||||||||
Net assets | $13,139 | $5,052 | $26,932 | $20,356 | $29,698 | $15,416 | $25,853 | $12,380 | $24,309 | $3,317 | ||||||||||
Shares of beneficial interest1 | 1,456 | 471 | 2,780 | 1,626 | 3,265 | 1,073 | 2,802 | 805 | 2,351 | 275 | ||||||||||
Net asset value per share2 | $ 9.03 | $10.72 | $ 9.69 | $ 12.52 | $ 9.10 | $ 14.37 | $ 9.23 | $ 15.38 | $ 10.34 | $12.07 |
1 | Par value $0.01 (unlimited authorizations). |
2 | Per share amounts can be recalculated to the amounts disclosed herein when total net assets and shares of beneficial interest are not rounded to thousands. |
The accompanying notes are an integral part of the Financial Statements.
29
Harbor Target Retirement Funds
StatementS of Operations—Six Months Ended April 30, 2018 (Unaudited)
StatementS of Operations—Six Months Ended April 30, 2018 (Unaudited)
(All amounts in thousands)
Harbor Target Retirement Income Fund | Harbor Target Retirement 2015 Fund | Harbor Target Retirement 2020 Fund | Harbor Target Retirement 2025 Fund | Harbor Target Retirement 2030 Fund | Harbor Target Retirement 2035 Fund | Harbor Target Retirement 2040 Fund | Harbor Target Retirement 2045 Fund | Harbor Target Retirement 2050 Fund | Harbor Target Retirement 2055 Fund | |
Investment Income | ||||||||||
Dividends from affiliated funds | $ 222 | $ 95 | $ 428 | $ 333 | $ 428 | $ 203 | $ 302 | $ 110 | $ 207 | $ 23 |
Total Investment Income | 222 | 95 | 428 | 333 | 428 | 203 | 302 | 110 | 207 | 23 |
Net Investment Income/(Loss) | 222 | 95 | 428 | 333 | 428 | 203 | 302 | 110 | 207 | 23 |
Realized and Change in Net Unrealized Gain/(Loss) on Investment Transactions | ||||||||||
Net realized gain/(loss) on: | ||||||||||
Sale of affiliated funds | 4 | 105 | 209 | 308 | 284 | 231 | 427 | 186 | 476 | 115 |
Distributions received from affiliated funds | 126 | 69 | 444 | 402 | 647 | 418 | 802 | 367 | 946 | 124 |
Change in net unrealized appreciation/(depreciation) on: | ||||||||||
Affiliated funds | (346) | (247) | (903) | (853) | (997) | (580) | (964) | (393) | (892) | (170) |
Net gain/(loss) on investment transactions | (216) | (73) | (250) | (143) | (66) | 69 | 265 | 160 | 530 | 69 |
Net Increase/(Decrease) in Net Assets Resulting from Operations | $ 6 | $ 22 | $ 178 | $ 190 | $ 362 | $ 272 | $ 567 | $ 270 | $ 737 | $ 92 |
The accompanying notes are an integral part of the Financial Statements.
30
Harbor Target Retirement Funds
Statements of Changes In Net Assets
Statements of Changes In Net Assets
(All amounts in thousands)
Harbor Target Retirement Income Fund | Harbor Target Retirement 2015 Fund | Harbor Target Retirement 2020 Fund | Harbor Target Retirement 2025 Fund | ||||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | ||||
INCREASE/(DECREASE) IN NET ASSETS | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||
Operations: | |||||||||||
Net investment income/(loss) | $ 222 | $ 337 | $ 95 | $ 155 | $ 428 | $ 646 | $ 333 | $ 427 | |||
Net realized gain/(loss) on sale of affiliated funds | 4 | (91) | 105 | (22) | 209 | (64) | 308 | (18) | |||
Realized gain distributions received from affiliated funds | 126 | 115 | 69 | 59 | 444 | 235 | 402 | 131 | |||
Change in net unrealized appreciation/(depreciation) on affiliated funds | (346) | 583 | (247) | 325 | (903) | 1,887 | (853) | 1,534 | |||
Net increase/(decrease) in assets resulting from operations | 6 | 944 | 22 | 517 | 178 | 2,704 | 190 | 2,074 | |||
Distributions to Shareholders | |||||||||||
Net investment income: | |||||||||||
Institutional Class | (249) | (410) | (177) | (179) | (775) | (682) | (585) | (349) | |||
Administrative Class | — | — | — | — | — | — | — | (1) | |||
Investor Class | — | — | — | — | — | — | — | (1) | |||
Net realized gain on investments: | |||||||||||
Institutional Class | (88) | (51) | — | — | — | (304) | — | (180) | |||
Administrative Class | — | — | — | — | — | — | — | — | |||
Investor Class | — | — | — | — | — | — | — | — | |||
Total distributions to shareholders | (337) | (461) | (177) | (179) | (775) | (986) | (585) | (531) | |||
Net Increase/(Decrease) Derived from Capital Share Transactions | (276) | (574) | (1,081) | (659) | (213) | 569 | (467) | 5,344 | |||
Net increase/(decrease) in net assets | (607) | (91) | (1,236) | (321) | (810) | 2,287 | (862) | 6,887 | |||
Net Assets | |||||||||||
Beginning of period | 13,746 | 13,837 | 6,288 | 6,609 | 27,742 | 25,455 | 21,218 | 14,331 | |||
End of period* | $13,139 | $13,746 | $ 5,052 | $6,288 | $26,932 | $27,742 | $20,356 | $21,218 | |||
* Includes accumulated undistributed net investment income/(loss) of: | $ (7) | $ 20 | $ 12 | $ 94 | $ 37 | $ 384 | $ 27 | $ 279 |
The accompanying notes are an integral part of the Financial Statements.
31
Harbor Target Retirement 2030 Fund | Harbor Target Retirement 2035 Fund | Harbor Target Retirement 2040 Fund | Harbor Target Retirement 2045 Fund | Harbor Target Retirement 2050 Fund | Harbor Target Retirement 2055 Fund | |||||||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | |||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||
$ 428 | $ 631 | $ 203 | $ 271 | $ 302 | $ 396 | $ 110 | $ 133 | $ 207 | $ 264 | $ 23 | $ 19 | |||||
284 | 233 | 231 | (83) | 427 | 301 | 186 | 104 | 476 | 555 | 115 | 19 | |||||
647 | 242 | 418 | 128 | 802 | 228 | 367 | 93 | 946 | 244 | 124 | 18 | |||||
(997) | 2,527 | (580) | 1,668 | (964) | 2,796 | (393) | 1,292 | (892) | 3,142 | (170) | 356 | |||||
362 | 3,633 | 272 | 1,984 | 567 | 3,721 | 270 | 1,622 | 737 | 4,205 | 92 | 412 | |||||
(776) | (590) | (350) | (255) | (514) | (386) | (181) | (121) | (351) | (260) | (37) | (18) | |||||
— | (1) | — | (1) | — | (1) | — | — | — | — | — | — | |||||
— | — | — | (1) | — | (1) | — | — | — | — | — | — | |||||
(68) | (855) | — | (224) | (266) | (930) | (130) | (272) | (562) | (1,219) | (38) | (28) | |||||
— | (1) | — | — | — | (1) | — | (1) | — | (2) | — | — | |||||
— | (1) | — | — | — | (1) | — | (1) | — | (1) | — | — | |||||
(844) | (1,448) | (350) | (481) | (780) | (1,320) | (311) | (395) | (913) | (1,482) | (75) | (46) | |||||
1,562 | 1,760 | 489 | 1,966 | 1,126 | 3,049 | 2,558 | 1,383 | 1,664 | 1,326 | 572 | 1,102 | |||||
1,080 | 3,945 | 411 | 3,469 | 913 | 5,450 | 2,517 | 2,610 | 1,488 | 4,049 | 589 | 1,468 | |||||
28,618 | 24,673 | 15,005 | 11,536 | 24,940 | 19,490 | 9,863 | 7,253 | 22,821 | 18,772 | 2,728 | 1,260 | |||||
$29,698 | $28,618 | $15,416 | $15,005 | $25,853 | $24,940 | $12,380 | $9,863 | $24,309 | $22,821 | $3,317 | $2,728 | |||||
$ 31 | $ 379 | $ 3 | $ 150 | $ (14) | $ 198 | $ (14) | $ 57 | $ (56) | $ 88 | $ (9) | $ 5 |
32
Harbor Target Retirement Funds
Statements of Changes in Net Assets—Capital Stock Activity
Statements of Changes in Net Assets—Capital Stock Activity
(All amounts in thousands)
Harbor Target Retirement Income Fund | Harbor Target Retirement 2015 Fund | Harbor Target Retirement 2020 Fund | Harbor Target Retirement 2025 Fund | ||||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | ||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||
AMOUNT ($) | |||||||||||
Institutional Class | |||||||||||
Net proceeds from sale of shares | $ 900 | $ 1,411 | $ 306 | $ 1,101 | $ 1,172 | $ 5,095 | $ 1,981 | $ 7,504 | |||
Reinvested distributions | 337 | 460 | 177 | 178 | 775 | 985 | 585 | 529 | |||
Cost of shares reacquired | (1,513) | (2,413) | (1,564) | (1,902) | (2,160) | (5,473) | (3,033) | (2,649) | |||
Net increase/(decrease) in net assets | $ (276) | $ (542) | $(1,081) | $ (623) | $ (213) | $ 607 | $ (467) | $ 5,384 | |||
Administrative Class | |||||||||||
Net proceeds from sale of shares | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | |||
Reinvested distributions | — | — | — | — | — | — | — | 1 | |||
Cost of shares reacquired | — | (16) | — | (18) | — | (19) | — | (21) | |||
Net increase/(decrease) in net assets | $ — | $ (16) | $ — | $ (18) | $ — | $ (19) | $ — | $ (20) | |||
Investor Class | |||||||||||
Net proceeds from sale of shares | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | |||
Reinvested distributions | — | — | — | — | — | — | — | 1 | |||
Cost of shares reacquired | — | (16) | — | (18) | — | (19) | — | (21) | |||
Net increase/(decrease) in net assets | $ — | $ (16) | $ — | $ (18) | $ — | $ (19) | $ — | $ (20) | |||
SHARES | |||||||||||
Institutional Class | |||||||||||
Shares sold | 98 | 156 | 28 | 103 | 119 | 537 | 156 | 623 | |||
Shares issued due to reinvestment of distributions | 37 | 52 | 16 | 18 | 80 | 110 | 47 | 46 | |||
Shares reacquired | (165) | (268) | (144) | (179) | (221) | (581) | (240) | (220) | |||
Net increase/(decrease) in shares outstanding | (30) | (60) | (100) | (58) | (22) | 66 | (37) | 449 | |||
Beginning of period | 1,486 | 1,546 | 571 | 629 | 2,802 | 2,736 | 1,663 | 1,214 | |||
End of period | 1,456 | 1,486 | 471 | 571 | 2,780 | 2,802 | 1,626 | 1,663 | |||
Administrative Class | |||||||||||
Shares sold | — | — | — | — | — | — | — | — | |||
Shares reacquired | — | (2) | — | (2) | — | (2) | — | (2) | |||
Net increase/(decrease) in shares outstanding | — | (2) | — | (2) | — | (2) | — | (2) | |||
Beginning of period | — | 2 | — | 2 | — | 2 | — | 2 | |||
End of period | — | — | — | — | — | — | — | — | |||
Investor Class | |||||||||||
Shares sold | — | — | — | — | — | — | — | — | |||
Shares reacquired | — | (2) | — | (2) | — | (2) | — | (2) | |||
Net increase/(decrease) in shares outstanding | — | (2) | — | (2) | — | (2) | — | (2) | |||
Beginning of period | — | 2 | — | 2 | — | 2 | — | 2 | |||
End of period | — | — | — | — | — | — | — | — |
The accompanying notes are an integral part of the Financial Statements.
33
Harbor Target Retirement 2030 Fund | Harbor Target Retirement 2035 Fund | Harbor Target Retirement 2040 Fund | Harbor Target Retirement 2045 Fund | Harbor Target Retirement 2050 Fund | Harbor Target Retirement 2055 Fund | |||||||||||
November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through April 30, 2018 | November 1, 2016 through October 31, 2017 | |||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||
$ 2,655 | $ 6,126 | $ 1,795 | $ 3,780 | $ 2,467 | $ 4,661 | $3,020 | $ 3,106 | $ 2,260 | $ 4,814 | $1,097 | $1,585 | |||||
844 | 1,445 | 350 | 479 | 780 | 1,316 | 311 | 393 | 913 | 1,479 | 75 | 45 | |||||
(1,937) | (5,769) | (1,656) | (2,249) | (2,121) | (2,882) | (773) | (2,068) | (1,509) | (4,917) | (600) | (504) | |||||
$ 1,562 | $ 1,802 | $ 489 | $ 2,010 | $ 1,126 | $ 3,095 | $2,558 | $ 1,431 | $ 1,664 | $ 1,376 | $ 572 | $1,126 | |||||
$ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | |||||
— | 1 | — | 1 | — | 1 | — | 1 | — | 2 | — | — | |||||
— | (22) | — | (23) | — | (24) | — | (25) | — | (27) | — | (12) | |||||
$ — | $ (21) | $ — | $ (22) | $ — | $ (23) | $ — | $ (24) | $ — | $ (25) | $ — | $ (12) | |||||
$ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | $ — | |||||
— | 1 | — | 1 | — | 1 | — | 1 | — | 1 | — | — | |||||
— | (22) | — | (23) | — | (24) | — | (25) | — | (26) | — | (12) | |||||
$ — | $ (21) | $ — | $ (22) | $ — | $ (23) | $ — | $ (24) | $ — | $ (25) | $ — | $ (12) | |||||
289 | 700 | 124 | 280 | 265 | 539 | 195 | 219 | 216 | 503 | 90 | 145 | |||||
93 | 176 | 24 | 38 | 85 | 164 | 21 | 30 | 89 | 169 | 6 | 5 | |||||
(210) | (647) | (114) | (168) | (229) | (332) | (50) | (143) | (145) | (511) | (49) | (46) | |||||
172 | 229 | 34 | 150 | 121 | 371 | 166 | 106 | 160 | 161 | 47 | 104 | |||||
3,093 | 2,864 | 1,039 | 889 | 2,681 | 2,310 | 639 | 533 | 2,191 | 2,030 | 228 | 124 | |||||
3,265 | 3,093 | 1,073 | 1,039 | 2,802 | 2,681 | 805 | 639 | 2,351 | 2,191 | 275 | 228 | |||||
— | — | — | — | — | — | — | — | — | — | — | — | |||||
— | (2) | — | (2) | — | (2) | — | (2) | — | (2) | — | (1) | |||||
— | (2) | — | (2) | — | (2) | — | (2) | — | (2) | — | (1) | |||||
— | 2 | — | 2 | — | 2 | — | 2 | — | 2 | — | 1 | |||||
— | — | — | — | — | — | — | — | — | — | — | — | |||||
— | — | — | — | — | — | — | — | — | — | — | — | |||||
— | (2) | — | (2) | — | (2) | — | (2) | — | (2) | — | (1) | |||||
— | (2) | — | (2) | — | (2) | — | (2) | — | (2) | — | (1) | |||||
— | 2 | — | 2 | — | 2 | — | 2 | — | 2 | — | 1 | |||||
— | — | — | — | — | — | — | — | — | — | — | — |
34
Harbor Target Retirement Funds Financial Highlights
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR TARGET RETIREMENT INCOME FUND
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 9.25 | $ 8.93 | $ 9.19 | $ 9.75 | $ 9.83 | $ 9.95 |
Income from Investment Operations | ||||||
Net investment income/(loss) | 0.15 a | 0.22 a | 0.25 a | 0.34 a | 0.22 | 0.23 |
Net realized and unrealized gains/(losses) on investments | (0.14) | 0.40 | 0.08 | (0.30) | 0.19 | 0.20 |
Total from investment operations | 0.01 | 0.62 | 0.33 | 0.04 | 0.41 | 0.43 |
Less Distributions | ||||||
Dividends from net investment income | (0.17) | (0.27) | (0.29) | (0.35) | (0.28) | (0.38) |
Distributions from net realized capital gains1 | (0.06) | (0.03) | (0.30) | (0.25) | (0.21) | (0.17) |
Total distributions | (0.23) | (0.30) | (0.59) | (0.60) | (0.49) | (0.55) |
Net asset value end of period | 9.03 | 9.25 | 8.93 | 9.19 | 9.75 | 9.83 |
Net assets end of period (000s) | $13,139 | $13,746 | $13,805 | $15,124 | $17,410 | $15,510 |
Ratios and Supplemental Data (%) | ||||||
Total return | 0.07% b | 7.17% | 3.91% | 0.46% | 4.32% | 4.49% |
Ratio of total expenses to average net assets2 | — | — | — | — | — | — |
Ratio of net investment income to average net assets2 | 3.27 c | 2.46 | 2.87 | 3.57 | 2.14 | 2.36 |
Portfolio turnover3 | 17 b | 16 | 26 | 24 | 20 | 28 |
HARBOR TARGET RETIREMENT 2015 FUND
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $11.02 | $10.45 | $10.77 | $11.68 | $ 11.87 | $ 11.52 |
Income from Investment Operations | ||||||
Net investment income/(loss) | 0.17 a | 0.26 a | 0.29 a | 0.36 a | 0.24 | 0.28 |
Net realized and unrealized gains/(losses) on investments | (0.15) | 0.60 | 0.05 | (0.35) | 0.29 | 0.60 |
Total from investment operations | 0.02 | 0.86 | 0.34 | 0.01 | 0.53 | 0.88 |
Less Distributions | ||||||
Dividends from net investment income | (0.32) | (0.29) | (0.36) | (0.39) | (0.31) | (0.44) |
Distributions from net realized capital gains1 | — | — | (0.30) | (0.53) | (0.41) | (0.09) |
Total distributions | (0.32) | (0.29) | (0.66) | (0.92) | (0.72) | (0.53) |
Net asset value end of period | 10.72 | 11.02 | 10.45 | 10.77 | 11.68 | 11.87 |
Net assets end of period (000s) | $5,052 | $6,288 | $6,574 | $7,778 | $11,200 | $10,654 |
Ratios and Supplemental Data (%) | ||||||
Total return | 0.21% b | 8.43% | 3.59% | 0.13% | 4.73% | 7.89% |
Ratio of total expenses to average net assets2 | — | — | — | — | — | — |
Ratio of net investment income to average net assets2 | 3.23 c | 2.43 | 2.82 | 3.26 | 2.08 | 2.43 |
Portfolio turnover3 | 19 b | 22 | 32 | 26 | 38 | 48 |
See page 39 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
35
HARBOR TARGET RETIREMENT 2020 FUND
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 9.90 | $ 9.29 | $ 9.94 | $ 10.63 | $ 10.78 | $ 10.43 |
Income from Investment Operations | ||||||
Net investment income/(loss) | 0.15 a | 0.23 a | 0.26 a | 0.32 a | 0.23 | 0.26 |
Net realized and unrealized gains/(losses) on investments | (0.08) | 0.73 | 0.04 | (0.30) | 0.29 | 0.68 |
Total from investment operations | 0.07 | 0.96 | 0.30 | 0.02 | 0.52 | 0.94 |
Less Distributions | ||||||
Dividends from net investment income | (0.28) | (0.24) | (0.32) | (0.34) | (0.30) | (0.40) |
Distributions from net realized capital gains1 | — | (0.11) | (0.63) | (0.37) | (0.37) | (0.19) |
Total distributions | (0.28) | (0.35) | (0.95) | (0.71) | (0.67) | (0.59) |
Net asset value end of period | 9.69 | 9.90 | 9.29 | 9.94 | 10.63 | 10.78 |
Net assets end of period (000s) | $26,932 | $27,742 | $25,419 | $27,290 | $31,124 | $27,397 |
Ratios and Supplemental Data (%) | ||||||
Total return | 0.68% b | 10.77% | 3.56% | 0.30% | 5.06% | 9.43% |
Ratio of total expenses to average net assets2 | — | — | — | — | — | — |
Ratio of net investment income to average net assets2 | 3.13 c | 2.44 | 2.83 | 3.19 | 2.18 | 2.56 |
Portfolio turnover3 | 19 b | 29 | 33 | 28 | 19 | 36 |
HARBOR TARGET RETIREMENT 2025 FUND
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 12.76 | $ 11.78 | $ 12.32 | $ 13.48 | $ 13.44 | $12.69 |
Income from Investment Operations | ||||||
Net investment income/(loss) | 0.20 a | 0.29 a | 0.31 a | 0.37 a | 0.29 | 0.34 |
Net realized and unrealized gains/(losses) on investments | (0.09) | 1.12 | 0.05 | (0.36) | 0.40 | 1.04 |
Total from investment operations | 0.11 | 1.41 | 0.36 | 0.01 | 0.69 | 1.38 |
Less Distributions | ||||||
Dividends from net investment income | (0.35) | (0.28) | (0.37) | (0.41) | (0.36) | (0.45) |
Distributions from net realized capital gains1 | — | (0.15) | (0.53) | (0.76) | (0.29) | (0.18) |
Total distributions | (0.35) | (0.43) | (0.90) | (1.17) | (0.65) | (0.63) |
Net asset value end of period | 12.52 | 12.76 | 11.78 | 12.32 | 13.48 | 13.44 |
Net assets end of period (000s) | $20,356 | $21,218 | $14,293 | $11,487 | $10,612 | $8,728 |
Ratios and Supplemental Data (%) | ||||||
Total return | 0.87% b | 12.38% | 3.39% | 0.11% | 5.37% | 11.33% |
Ratio of total expenses to average net assets2 | — | — | — | — | — | — |
Ratio of net investment income to average net assets2 | 3.24 c | 2.42 | 2.69 | 2.91 | 2.06 | 2.44 |
Portfolio turnover3 | 25 b | 24 | 25 | 25 | 33 | 32 |
The accompanying notes are an integral part of the Financial Statements.
36
Harbor Target Retirement Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR TARGET RETIREMENT 2030 FUND
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 9.25 | $ 8.60 | $ 9.19 | $ 10.04 | $ 10.22 | $ 9.56 |
Income from Investment Operations | ||||||
Net investment income/(loss) | 0.13 a | 0.20 a | 0.21 a | 0.24 a | 0.21 | 0.25 |
Net realized and unrealized gains/(losses) on investments | (0.01) | 0.96 | 0.01 | (0.23) | 0.35 | 1.04 |
Total from investment operations | 0.12 | 1.16 | 0.22 | 0.01 | 0.56 | 1.29 |
Less Distributions | ||||||
Dividends from net investment income | (0.25) | (0.21) | (0.26) | (0.28) | (0.27) | (0.33) |
Distributions from net realized capital gains1 | (0.02) | (0.30) | (0.55) | (0.58) | (0.47) | (0.30) |
Total distributions | (0.27) | (0.51) | (0.81) | (0.86) | (0.74) | (0.63) |
Net asset value end of period | 9.10 | 9.25 | 8.60 | 9.19 | 10.04 | 10.22 |
Net assets end of period (000s) | $29,698 | $28,618 | $24,634 | $25,084 | $24,727 | $23,994 |
Ratios and Supplemental Data (%) | ||||||
Total return | 1.32% b | 14.18% | 2.96% | 0.13% | 5.79% | 14.19% |
Ratio of total expenses to average net assets2 | — | — | — | — | — | — |
Ratio of net investment income to average net assets2 | 2.94 c | 2.30 | 2.54 | 2.55 | 1.99 | 2.42 |
Portfolio turnover3 | 17 b | 29 | 31 | 24 | 22 | 31 |
HARBOR TARGET RETIREMENT 2035 FUND
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 14.44 | $ 12.93 | $ 13.56 | $14.92 | $14.52 | $13.01 |
Income from Investment Operations | ||||||
Net investment income/(loss) | 0.19 a | 0.28 a | 0.27 a | 0.30 a | 0.29 | 0.33 |
Net realized and unrealized gains/(losses) on investments | 0.07 | 1.75 | 0.04 | (0.26) | 0.58 | 1.85 |
Total from investment operations | 0.26 | 2.03 | 0.31 | 0.04 | 0.87 | 2.18 |
Less Distributions | ||||||
Dividends from net investment income | (0.33) | (0.28) | (0.35) | (0.36) | (0.33) | (0.40) |
Distributions from net realized capital gains1 | — | (0.24) | (0.59) | (1.04) | (0.14) | (0.27) |
Total distributions | (0.33) | (0.52) | (0.94) | (1.40) | (0.47) | (0.67) |
Net asset value end of period | 14.37 | 14.44 | 12.93 | 13.56 | 14.92 | 14.52 |
Net assets end of period (000s) | $15,416 | $15,005 | $11,496 | $9,007 | $7,708 | $5,397 |
Ratios and Supplemental Data (%) | ||||||
Total return | 1.82% b | 16.31% | 2.70% | 0.34% | 6.19% | 17.43% |
Ratio of total expenses to average net assets2 | — | — | — | — | — | — |
Ratio of net investment income to average net assets2 | 2.64 c | 2.06 | 2.17 | 2.17 | 1.64 | 2.08 |
Portfolio turnover3 | 19 b | 26 | 26 | 22 | 39 | 12 |
See page 39 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
37
HARBOR TARGET RETIREMENT 2040 FUND
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 9.30 | $ 8.42 | $ 9.05 | $ 9.84 | $ 10.01 | $ 9.19 |
Income from Investment Operations | ||||||
Net investment income/(loss) | 0.11 a | 0.15 a | 0.17 a | 0.18 a | 0.17 | 0.22 |
Net realized and unrealized gains/(losses) on investments | 0.11 | 1.30 | (0.01) | (0.10) | 0.46 | 1.52 |
Total from investment operations | 0.22 | 1.45 | 0.16 | 0.08 | 0.63 | 1.74 |
Less Distributions | ||||||
Dividends from net investment income | (0.19) | (0.17) | (0.20) | (0.22) | (0.23) | (0.26) |
Distributions from net realized capital gains1 | (0.10) | (0.40) | (0.59) | (0.65) | (0.57) | (0.66) |
Total distributions | (0.29) | (0.57) | (0.79) | (0.87) | (0.80) | (0.92) |
Net asset value end of period | 9.23 | 9.30 | 8.42 | 9.05 | 9.84 | 10.01 |
Net assets end of period (000s) | $25,853 | $24,940 | $19,448 | $19,805 | $18,933 | $17,963 |
Ratios and Supplemental Data (%) | ||||||
Total return | 2.38% b | 18.26% | 2.36% | 0.94% | 6.77% | 20.63% |
Ratio of total expenses to average net assets2 | — | — | — | — | — | — |
Ratio of net investment income to average net assets2 | 2.36 c | 1.78 | 2.03 | 1.96 | 1.59 | 2.24 |
Portfolio turnover3 | 16 b | 21 | 30 | 18 | 22 | 22 |
HARBOR TARGET RETIREMENT 2045 FUND
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 15.43 | $13.51 | $14.25 | $15.17 | $14.85 | $12.42 |
Income from Investment Operations | ||||||
Net investment income/(loss) | 0.15 a | 0.21 a | 0.21 a | 0.23 a | 0.23 | 0.29 |
Net realized and unrealized gains/(losses) on investments | 0.28 | 2.42 | 0.01 | (0.06) | 0.80 | 2.58 |
Total from investment operations | 0.43 | 2.63 | 0.22 | 0.17 | 1.03 | 2.87 |
Less Distributions | ||||||
Dividends from net investment income | (0.28) | (0.22) | (0.27) | (0.29) | (0.31) | (0.31) |
Distributions from net realized capital gains1 | (0.20) | (0.49) | (0.69) | (0.80) | (0.40) | (0.13) |
Total distributions | (0.48) | (0.71) | (0.96) | (1.09) | (0.71) | (0.44) |
Net asset value end of period | 15.38 | 15.43 | 13.51 | 14.25 | 15.17 | 14.85 |
Net assets end of period (000s) | $12,380 | $9,863 | $7,211 | $5,523 | $4,239 | $3,340 |
Ratios and Supplemental Data (%) | ||||||
Total return | 2.78% b | 20.37% | 1.91% | 1.23% | 7.17% | 23.75% |
Ratio of total expenses to average net assets2 | — | — | — | — | — | — |
Ratio of net investment income to average net assets2 | 1.93 c | 1.50 | 1.58 | 1.56 | 1.37 | 1.82 |
Portfolio turnover3 | 14 b | 32 | 24 | 15 | 21 | 20 |
The accompanying notes are an integral part of the Financial Statements.
38
Harbor Target Retirement Funds Financial Highlights—Continued
Selected Data for a Share Outstanding for the Periods Presented
Selected Data for a Share Outstanding for the Periods Presented
HARBOR TARGET RETIREMENT 2050 FUND
Institutional Class | ||||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||||
2017 | 2016 | 2015 | 2014 | 2013 | ||
(Unaudited) | ||||||
Net asset value beginning of period | $ 10.42 | $ 9.23 | $ 10.39 | $ 11.40 | $ 11.46 | $ 10.17 |
Income from Investment Operations | ||||||
Net investment income/(loss) | 0.09 a | 0.12 a | 0.12 a | 0.14 a | 0.15 | 0.22 |
Net realized and unrealized gains/(losses) on investments | 0.24 | 1.81 | (0.03) | 0.05 | 0.67 | 2.20 |
Total from investment operations | 0.33 | 1.93 | 0.09 | 0.19 | 0.82 | 2.42 |
Less Distributions | ||||||
Dividends from net investment income | (0.16) | (0.13) | (0.17) | (0.19) | (0.23) | (0.24) |
Distributions from net realized capital gains1 | (0.25) | (0.61) | (1.08) | (1.01) | (0.65) | (0.89) |
Total distributions | (0.41) | (0.74) | (1.25) | (1.20) | (0.88) | (1.13) |
Net asset value end of period | 10.34 | 10.42 | 9.23 | 10.39 | 11.40 | 11.46 |
Net assets end of period (000s) | $24,309 | $22,821 | $18,728 | $19,221 | $20,434 | $19,170 |
Ratios and Supplemental Data (%) | ||||||
Total return | 3.24% b | 22.40% | 1.51% | 1.83% | 7.61% | 26.12% |
Ratio of total expenses to average net assets2 | — | — | — | — | — | — |
Ratio of net investment income to average net assets2 | 1.73 c | 1.27 | 1.34 | 1.35 | 1.17 | 1.88 |
Portfolio turnover3 | 16 b | 33 | 24 | 24 | 23 | 17 |
HARBOR TARGET RETIREMENT 2055 FUND
Institutional Class | ||||
6-Month Period Ended April 30, 2018 | Year Ended October 31, | |||
2017 | 2016 | 2015 | ||
(Unaudited) | ||||
Net asset value beginning of period | $11.97 | $10.02 | $10.08 | $10.00 |
Income from Investment Operations | ||||
Net investment income/(loss) | 0.09 a | 0.10 a | 0.11 a | 0.05 a |
Net realized and unrealized gains/(losses) on investments | 0.33 | 2.17 | 0.01 | 0.18 |
Total from investment operations | 0.42 | 2.27 | 0.12 | 0.23 |
Less Distributions | ||||
Dividends from net investment income | (0.16) | (0.12) | (0.14) | (0.15) |
Distributions from net realized capital gains1 | (0.16) | (0.20) | (0.04) | — |
Total distributions | (0.32) | (0.32) | (0.18) | (0.15) |
Net asset value end of period | 12.07 | 11.97 | 10.02 | 10.08 |
Net assets end of period (000s) | $3,317 | $2,728 | $1,240 | $ 762 |
Ratios and Supplemental Data (%) | ||||
Total return | 3.52% b | 23.34% | 1.38% | 2.28% b |
Ratio of total expenses to average net assets2 | — | — | — | — |
Ratio of net investment income to average net assets2 | 1.52 c | 0.95 | 1.13 | 0.52 c |
Portfolio turnover3 | 23 b | 32 | 33 | 15 b |
1 | Includes both short-term and long-term capital gains |
2 | Ratios of income and expenses to average net assets represents the expenses paid by the Fund but does not include the acquired fund fees and expenses from underlying funds. |
3 | Amounts do not include the activity of the underlying funds. |
a | Amounts are allocated based upon average shares outstanding during the period. |
b | Unannualized |
c | Annualized |
The accompanying notes are an integral part of the Financial Statements.
39
Harbor Target Retirement Funds
Notes to Financial Statements—April 30, 2018 (Unaudited)
Notes to Financial Statements—April 30, 2018 (Unaudited)
Note 1—Organizational Matters
Harbor Funds (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “Investment Company Act”), as an open-end management investment company. As of April 30, 2018, the Trust consists of 31 separate portfolios. The portfolios covered by this report are: Harbor Target Retirement Income Fund, Harbor Target Retirement 2015 Fund, Harbor Target Retirement 2020 Fund, Harbor Target Retirement 2025 Fund, Harbor Target Retirement 2030 Fund, Harbor Target Retirement 2035 Fund, Harbor Target Retirement 2040 Fund, Harbor Target Retirement 2045 Fund, Harbor Target Retirement 2050 Fund and Harbor Target Retirement 2055 Fund (individually referred to as a “Fund” and collectively referred to as the “Funds” or “Target Retirement Funds”). The Funds invest in a combination of other Harbor funds of the Trust (the “Underlying Funds”). Harbor Capital Advisors, Inc. (the “Adviser” or “Harbor Capital”) is the investment adviser for the Funds and the Underlying Funds. The Underlying Funds are managed by subadvisers, none of which is affiliated with the Adviser.
The Funds currently offer one class of shares, designated as Institutional Class. The Funds previously offered two additional classes of shares, the Administrative Class and Investor Class, each class representing an interest in the same portfolio of investments of the respective Fund. As of October 31, 2017, all shares of the Administrative Class and Investor Class shares had been fully redeemed and therefore no shares of either of those classes remained outstanding. The Funds do not currently intend to continue to offer those classes of shares.
Note 2—Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements. Each Fund follows the investment company reporting requirements under U.S. Generally Accepted Accounting Principles (“U.S. GAAP”), which includes the accounting and reporting guidelines under Accounting Standards Topic 946, Financial Services-Investment Companies. The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.
Security Valuation
The holdings of each Target Retirement Fund consist entirely of Institutional Class shares of the Underlying Funds, which are valued at their respective net asset values each business day and are categorized as Level 1 in the fair value hierarchy. For more information on the fair value hierarchy, please refer to the following Fair Value Measurements and Disclosures section.
Fair Value Measurements and Disclosures
Various inputs may be used to determine the value of each Fund’s investments, which are summarized in three broad categories defined as Level 1, Level 2, and Level 3. The inputs or methodologies used for valuing securities are not necessarily indicative of the risk associated with investing in those securities. The assignment of an investment to Levels 1, 2, or 3 is based on the lowest level of significant inputs used to determine its fair value.
Level 1– | Quoted prices in active markets for identical securities. |
Level 2– | Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). |
Level 3– | Significant unobservable inputs are used in situations where quoted prices or other observable inputs are not available or are deemed unreliable. Significant unobservable inputs may include each Fund’s own assumptions. |
Transfers between levels, if any, are recognized as of the last day in the fiscal quarter of the period in which the event or change in circumstances that caused the reclassification occurred. For fair valuations using significant unobservable inputs, if any, a reconciliation of the beginning to ending balances for reported fair values is provided that presents changes attributable to realized and unrealized gains and losses and purchases, sales, and transfers in/out of the Level 3 category during the period. A table that includes a categorization of investments into Levels 1, 2, or 3, transfers between levels, if any, and a Level 3 reconciliation, including details of significant unobservable inputs used, when applicable, can be found at the end of each Fund’s Portfolio of Investments schedule.
Each Fund used observable inputs in its valuation methodologies whenever they were available and deemed reliable.
40
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Description of the Underlying Funds
In pursuing its investment objectives and strategies, each of the Underlying Funds is permitted to engage in a wide range of investment practices. Further information about the Underlying Funds is contained in the Target Retirement Funds’ prospectus and statement of additional information, as well as the prospectus of each of the Underlying Funds. The accounting policies of each of the Underlying Funds are disclosed in each Underlying Fund’s respective shareholder report. Because each Fund invests in the Underlying Funds, shareholders of each Fund will be affected by the investment practices of the Underlying Funds in direct proportion to the amount of assets each Fund allocates to the Underlying Funds.
Investment Transactions and Income
Securities transactions are accounted for on the trade date (the date the order to buy or sell is executed). Income and capital gain distributions received from the Underlying Funds are recorded on the ex-dividend date. Gains and losses on securities sold are determined on the basis of identified cost.
Distribution to Shareholders
Distributions on Fund shares are recorded on the ex-dividend date.
Expenses
Expenses incurred by the Trust are charged directly to the Fund that incurred such expense whenever possible. With respect to expenses incurred by any two or more Harbor Funds where amounts cannot be identified on a fund by fund basis, such expenses are generally allocated in proportion to the average net assets or the number of shareholders of each Fund.
Taxes
Each Fund is treated as a separate entity for federal tax purposes. Each Fund’s policy is to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to distribute to its shareholders all of its taxable income within the prescribed time. It is also the intention of each Fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation of securities held or excise taxes on income and capital gains.
All investment transactions for the Funds are in Underlying Funds. The Underlying Funds may be subject to taxes imposed by countries in which they invest. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and unrealized appreciation as such income and/or gains are earned.
Management has analyzed each Fund’s tax positions for all open tax years (in particular, U.S. federal income tax returns for the tax years ended October 31, 2014–2016), including all positions expected to be taken upon filing the 2017 tax return, in all material jurisdictions where the Funds operate, and has concluded that no provision for income tax is required in any Fund’s financial statements. The Funds will recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statements of Operations.
Related Parties
The Funds do not invest in the Underlying Funds for the purpose of exercising management or control; however, investments by the Funds may represent a significant portion of an Underlying Fund’s net assets. At April 30, 2018, each Fund held 10% or fewer of the outstanding shares of any Underlying Fund. In aggregate, the Funds held 16% of Harbor High-Yield Opportunities Fund and 12% of Harbor Real Return Fund.
41
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—FEES AND OTHER Transactions with Affiliates
Investment Adviser
Harbor Capital is a wholly-owned subsidiary of ORIX Corporation (“ORIX”). Harbor Capital is the Funds’ investment adviser and is also responsible for administrative and other services. The Funds do not pay any fees for the services of Harbor Capital.
Each Fund has a separate advisory agreement with Harbor Capital. Pursuant to this agreement, Harbor Capital pays all expenses of each Fund, excluding: (i) the amount of acquired funds’ fees and expenses; (ii) compensation of the Independent Trustees; and (iii) certain other expenses such as extraordinary items.
Distributor
Harbor Funds Distributors, Inc. (“Harbor Funds Distributors” or the “Distributor”), a wholly-owned subsidiary of Harbor Capital, is the distributor for Harbor Funds’ shares. The Funds do not pay any fees for the services of the Distributor.
Transfer Agent
Harbor Services Group, Inc. (“Harbor Services Group”), a wholly-owned subsidiary of Harbor Capital, is the transfer and shareholder servicing agent for the Funds. The Funds do not pay any fees for the services of Harbor Services Group.
Shareholders
On April 30, 2018, Harbor Capital, and its wholly owned subsidiaries, collectively held the following shares of beneficial interest in each Fund:
Number of Shares Owned by Harbor Capital and Subsidiaries | Percentage of Outstanding Shares | |||
Institutional Class | ||||
Harbor Target Retirement 2025 Fund | 13,985 | 0.9% | ||
Harbor Target Retirement 2030 Fund | 33,054 | 1.0 | ||
Harbor Target Retirement 2035 Fund | 23,252 | 2.2 | ||
Harbor Target Retirement 2040 Fund | 682 | 0.0 | ||
Harbor Target Retirement 2045 Fund | 62,835 | 7.9 | ||
Harbor Target Retirement 2050 Fund | 12,608 | 0.5 | ||
Harbor Target Retirement 2055 Fund | 6,379 | 2.3 |
Independent Trustees
The Independent Trustees’ received no remuneration from the Target Retirement Funds for the six-month period ended April 30, 2018.
Indemnification
Under the Trust’s organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust. In addition, in the normal course of business the Trust enters into contracts that provide general indemnities to other parties. The Trust’s maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. The risk of material loss as a result of such indemnification claims is considered remote.
42
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—FEES AND OTHER Transactions with Affiliates—Continued
Investment Portfolio Transactions
Purchases and sales of investments, investment income, realized and unrealized gains or losses for each Fund for the six-month period ended April 30, 2018 are as follows:
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement Income Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 70 | $ 244 | $ 1 | $ (60) | $ 36 | $ 50 | |||||
Harbor Strategic Growth Fund | 187 | 20 | — | 1 | — | — | |||||
Harbor Mid Cap Growth Fund | 40 | 44 | — | (13) | 19 | 6 | |||||
Harbor Small Cap Growth Fund | 33 | 38 | — | (4) | 15 | 4 | |||||
Harbor Large Cap Value Fund | 77 | 90 | 1 | (19) | 11 | 20 | |||||
Harbor Mid Cap Value Fund | 57 | 62 | 4 | (15) | 6 | 10 | |||||
Harbor Small Cap Value Fund | 38 | 41 | — | (13) | 4 | 12 | |||||
Harbor International Fund | 77 | 80 | 6 | (21) | 15 | 12 | |||||
Harbor Diversified International Fund | 57 | 67 | 3 | (14) | 8 | 10 | |||||
Harbor International Growth Fund | 55 | 73 | 4 | (15) | — | 16 | |||||
Harbor Global Leaders Fund | 33 | 38 | — | (4) | 12 | 5 | |||||
Harbor High-Yield Bond Fund | 158 | 871 | 43 | 7 | — | (53) | |||||
Harbor High-Yield Opportunities Fund | 741 | 39 | 7 | (11) | — | — | |||||
Harbor Bond Fund | 479 | 543 | 96 | (158) | — | (48) | |||||
Harbor Real Return Fund | 195 | 254 | 49 | (7) | — | (40) | |||||
Harbor Money Market Fund | 88 | 146 | 8 | — | — | — | |||||
Total | $2,385 | $2,650 | $222 | $(346) | $126 | $ 4 |
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement 2015 Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 40 | $ 160 | $— | $ (42) | $ 19 | $ 34 | |||||
Harbor Strategic Growth Fund | 90 | 21 | — | — | — | 1 | |||||
Harbor Mid Cap Growth Fund | 23 | 51 | — | (15) | 11 | 12 | |||||
Harbor Small Cap Growth Fund | 16 | 44 | — | (10) | 8 | 10 | |||||
Harbor Large Cap Value Fund | 34 | 99 | 1 | (22) | 6 | 23 | |||||
Harbor Mid Cap Value Fund | 23 | 64 | 2 | (12) | 4 | 10 | |||||
Harbor Small Cap Value Fund | 16 | 48 | — | (15) | 2 | 14 | |||||
Harbor International Fund | 34 | 86 | 3 | (20) | 8 | 16 | |||||
Harbor Diversified International All Cap Fund | 22 | 75 | 2 | (12) | 5 | 11 | |||||
Harbor International Growth Fund | 24 | 80 | 2 | (20) | — | 21 | |||||
Harbor Global Leaders Fund | 14 | 35 | — | (6) | 6 | 6 | |||||
Harbor High-Yield Bond Fund | 49 | 486 | 20 | (12) | — | (9) | |||||
Harbor High-Yield Opportunities Fund | 335 | 59 | 3 | (4) | — | (1) | |||||
Harbor Bond Fund | 210 | 523 | 40 | (48) | — | (35) | |||||
Harbor Real Return Fund | 118 | 236 | 19 | (9) | — | (8) | |||||
Harbor Money Market Fund | 59 | 134 | 3 | — | — | — | |||||
Total | $1,107 | $2,201 | $ 95 | $(247) | $ 69 | $105 |
43
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—FEES AND OTHER Transactions with Affiliates—Continued
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement 2020 Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 214 | $ 817 | $ 2 | $(202) | $124 | $ 161 | |||||
Harbor Strategic Growth Fund | 602 | 48 | — | 4 | — | 1 | |||||
Harbor Mid Cap Growth Fund | 121 | 149 | — | (42) | 69 | 16 | |||||
Harbor Small Cap Growth Fund | 90 | 132 | — | (11) | 55 | 9 | |||||
Harbor Large Cap Value Fund | 174 | 262 | 5 | (57) | 39 | 58 | |||||
Harbor Mid Cap Value Fund | 120 | 159 | 12 | (50) | 23 | 31 | |||||
Harbor Small Cap Value Fund | 83 | 125 | — | (44) | 13 | 35 | |||||
Harbor International Fund | 170 | 217 | 21 | (60) | 51 | 26 | |||||
Harbor Diversified International All Cap Fund | 101 | 168 | 12 | (37) | 29 | 23 | |||||
Harbor International Growth Fund | 101 | 185 | 13 | (38) | — | 42 | |||||
Harbor Global Leaders Fund | 67 | 94 | — | (13) | 41 | 11 | |||||
Harbor High-Yield Bond Fund | 217 | 2,228 | 111 | 44 | — | (162) | |||||
Harbor High-Yield Opportunities Fund | 1,809 | 69 | 18 | (27) | — | (1) | |||||
Harbor Bond Fund | 677 | 428 | 160 | (319) | — | (29) | |||||
Harbor Real Return Fund | 269 | 198 | 66 | (51) | — | (12) | |||||
Harbor Money Market Fund | 433 | 86 | 8 | — | — | — | |||||
Total | $5,248 | $5,365 | $428 | $(903) | $444 | $ 209 |
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement 2025 Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 227 | $ 766 | $ 2 | $(179) | $113 | $140 | |||||
Harbor Strategic Growth Fund | 527 | 35 | — | 3 | — | 1 | |||||
Harbor Mid Cap Growth Fund | 130 | 157 | — | (43) | 63 | 19 | |||||
Harbor Small Cap Growth Fund | 94 | 134 | — | (14) | 50 | 11 | |||||
Harbor Large Cap Value Fund | 185 | 272 | 4 | (60) | 34 | 60 | |||||
Harbor Mid Cap Value Fund | 129 | 172 | 11 | (41) | 21 | 25 | |||||
Harbor Small Cap Value Fund | 100 | 141 | 1 | (46) | 12 | 38 | |||||
Harbor International Fund | 177 | 225 | 19 | (65) | 46 | 33 | |||||
Harbor Diversified International All Cap Fund | 115 | 182 | 11 | (38) | 27 | 25 | |||||
Harbor International Growth Fund | 136 | 218 | 12 | (43) | — | 46 | |||||
Harbor Global Leaders Fund | 70 | 97 | — | (13) | 36 | 10 | |||||
Harbor High-Yield Bond Fund | 358 | 2,056 | 103 | (68) | — | (42) | |||||
Harbor High-Yield Opportunities Fund | 1,738 | 56 | 17 | (26) | — | — | |||||
Harbor Bond Fund | 827 | 686 | 112 | (199) | — | (40) | |||||
Harbor Real Return Fund | 306 | 238 | 41 | (21) | — | (18) | |||||
Total | $5,119 | $5,435 | $333 | $(853) | $402 | $308 |
44
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—FEES AND OTHER Transactions with Affiliates—Continued
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement 2030 Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 321 | $ 852 | $ 3 | $(207) | $179 | $ 157 | |||||
Harbor Strategic Growth Fund | 585 | 24 | — | 4 | — | — | |||||
Harbor Mid Cap Growth Fund | 172 | 156 | — | (49) | 101 | 10 | |||||
Harbor Small Cap Growth Fund | 124 | 134 | — | (13) | 82 | 9 | |||||
Harbor Large Cap Value Fund | 222 | 246 | 7 | (97) | 56 | 96 | |||||
Harbor Mid Cap Value Fund | 153 | 145 | 18 | (90) | 34 | 59 | |||||
Harbor Small Cap Value Fund | 125 | 125 | 1 | (54) | 19 | 40 | |||||
Harbor International Fund | 236 | 204 | 31 | (63) | 75 | 12 | |||||
Harbor Diversified International All Cap Fund | 181 | 180 | 17 | (46) | 43 | 26 | |||||
Harbor International Growth Fund | 184 | 203 | 20 | (42) | — | 48 | |||||
Harbor Global Leaders Fund | 94 | 96 | — | (15) | 58 | 11 | |||||
Harbor High-Yield Bond Fund | 473 | 2,278 | 135 | 8 | — | (153) | |||||
Harbor High-Yield Opportunities Fund | 2,417 | 40 | 24 | (37) | — | — | |||||
Harbor Bond Fund | 1,108 | 234 | 132 | (267) | — | (24) | |||||
Harbor Real Return Fund | 388 | 73 | 40 | (29) | — | (7) | |||||
Total | $6,783 | $4,990 | $428 | $(997) | $647 | $ 284 |
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement 2035 Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 209 | $ 562 | $ 2 | $(139) | $116 | $107 | |||||
Harbor Strategic Growth Fund | 385 | 24 | — | 3 | — | — | |||||
Harbor Mid Cap Growth Fund | 110 | 102 | — | (35) | 65 | 10 | |||||
Harbor Small Cap Growth Fund | 87 | 87 | — | (6) | 52 | 4 | |||||
Harbor Large Cap Value Fund | 156 | 154 | 5 | (31) | 36 | 31 | |||||
Harbor Mid Cap Value Fund | 117 | 100 | 11 | (36) | 22 | 16 | |||||
Harbor Small Cap Value Fund | 97 | 89 | 1 | (35) | 13 | 26 | |||||
Harbor International Fund | 164 | 138 | 20 | (45) | 49 | 12 | |||||
Harbor Diversified International All Cap Fund | 124 | 120 | 11 | (30) | 28 | 17 | |||||
Harbor International Growth Fund | 113 | 130 | 13 | (27) | — | 31 | |||||
Harbor Global Leaders Fund | 63 | 65 | — | (10) | 37 | 7 | |||||
Harbor High-Yield Bond Fund | 268 | 1,026 | 60 | (48) | — | (15) | |||||
Harbor High-Yield Opportunities Fund | 1,083 | 43 | 10 | (16) | — | — | |||||
Harbor Bond Fund | 506 | 179 | 58 | (114) | — | (14) | |||||
Harbor Real Return Fund | 134 | 37 | 12 | (11) | — | (1) | |||||
Total | $3,616 | $2,856 | $203 | $(580) | $418 | $231 |
45
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—FEES AND OTHER Transactions with Affiliates—Continued
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement 2040 Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 320 | $1,014 | $ 3 | $(274) | $224 | $242 | |||||
Harbor Strategic Growth Fund | 755 | 19 | — | (20) | — | — | |||||
Harbor Mid Cap Growth Fund | 186 | 153 | — | (53) | 124 | 8 | |||||
Harbor Small Cap Growth Fund | 137 | 130 | — | (8) | 100 | 5 | |||||
Harbor Large Cap Value Fund | 230 | 197 | 9 | (101) | 69 | 101 | |||||
Harbor Mid Cap Value Fund | 167 | 107 | 22 | (97) | 42 | 59 | |||||
Harbor Small Cap Value Fund | 123 | 97 | 1 | (45) | 24 | 27 | |||||
Harbor International Fund | 271 | 188 | 38 | (73) | 93 | 9 | |||||
Harbor Diversified International All Cap Fund | 158 | 111 | 22 | (43) | 53 | 16 | |||||
Harbor International Growth Fund | 138 | 125 | 25 | (23) | — | 29 | |||||
Harbor Global Leaders Fund | 96 | 86 | — | (30) | 73 | 27 | |||||
Harbor High-Yield Bond Fund | 317 | 1,086 | 77 | (10) | — | (71) | |||||
Harbor High-Yield Opportunities Fund | 1,487 | 48 | 15 | (25) | — | (1) | |||||
Harbor Bond Fund | 1,213 | 229 | 78 | (158) | — | (14) | |||||
Harbor Real Return Fund | 52 | 610 | 12 | (4) | — | (10) | |||||
Total | $5,650 | $4,200 | $302 | $(964) | $802 | $427 |
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement 2045 Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 302 | $ 487 | $ 1 | $(108) | $103 | $ 99 | |||||
Harbor Strategic Growth Fund | 412 | 8 | — | (10) | — | — | |||||
Harbor Mid Cap Growth Fund | 190 | 61 | — | (25) | 56 | 6 | |||||
Harbor Small Cap Growth Fund | 153 | 49 | — | (3) | 45 | 4 | |||||
Harbor Large Cap Value Fund | 339 | 74 | 4 | (25) | 32 | 22 | |||||
Harbor Mid Cap Value Fund | 247 | 51 | 10 | (32) | 19 | 10 | |||||
Harbor Small Cap Value Fund | 187 | 47 | 1 | (24) | 11 | 14 | |||||
Harbor International Fund | 311 | 67 | 18 | (38) | 43 | 8 | |||||
Harbor Diversified International All Cap Fund | 275 | 49 | 10 | (20) | 24 | 7 | |||||
Harbor International Growth Fund | 271 | 57 | 11 | (12) | — | 13 | |||||
Harbor Global Leaders Fund | 115 | 29 | — | (3) | 34 | 2 | |||||
Harbor High-Yield Bond Fund | 287 | 373 | 25 | (35) | — | 9 | |||||
Harbor High-Yield Opportunities Fund | 521 | 17 | 5 | (9) | — | — | |||||
Harbor Bond Fund | 697 | 81 | 22 | (48) | — | (5) | |||||
Harbor Real Return Fund | 40 | 173 | 3 | (1) | — | (3) | |||||
Total | $4,347 | $1,623 | $110 | $(393) | $367 | $186 |
46
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—FEES AND OTHER Transactions with Affiliates—Continued
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement 2050 Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 383 | $1,135 | $ 4 | $(295) | $265 | $258 | |||||
Harbor Strategic Growth Fund | 908 | 13 | — | (24) | — | — | |||||
Harbor Mid Cap Growth Fund | 222 | 133 | — | (58) | 145 | 4 | |||||
Harbor Small Cap Growth Fund | 167 | 115 | — | (7) | 115 | 4 | |||||
Harbor Large Cap Value Fund | 287 | 142 | 11 | (79) | 82 | 74 | |||||
Harbor Mid Cap Value Fund | 228 | 93 | 26 | (99) | 49 | 51 | |||||
Harbor Small Cap Value Fund | 167 | 84 | 1 | (46) | 28 | 22 | |||||
Harbor International Fund | 324 | 137 | 45 | (82) | 110 | 5 | |||||
Harbor Diversified International All Cap Fund | 255 | 108 | 26 | (48) | 63 | 15 | |||||
Harbor International Growth Fund | 226 | 116 | 29 | (22) | — | 26 | |||||
Harbor Global Leaders Fund | 124 | 70 | — | (19) | 89 | 14 | |||||
Harbor High-Yield Bond Fund | 156 | 1,404 | 20 | (30) | — | 13 | |||||
Harbor High-Yield Opportunities Fund | 1,653 | 66 | 16 | (28) | — | (1) | |||||
Harbor Bond Fund | 533 | 114 | 29 | (55) | — | (9) | |||||
Total | $5,633 | $3,730 | $207 | $(892) | $946 | $476 |
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Unrealized Gain/(Loss) from Affiliated Funds (000s) | Net Realized Gain/(Loss) | |||||||
Harbor Target Retirement 2055 Fund | Distributions Received from Affiliated Funds (000s) | Sale of Affiliated Funds (000s) | |||||||||
Underlying Funds | |||||||||||
Harbor Capital Appreciation Fund | $ 123 | $179 | $ 1 | $ (43) | $ 35 | $ 38 | |||||
Harbor Strategic Growth Fund | 142 | 9 | — | (3) | — | — | |||||
Harbor Mid Cap Growth Fund | 76 | 34 | — | (17) | 19 | 9 | |||||
Harbor Small Cap Growth Fund | 59 | 27 | — | (7) | 15 | 6 | |||||
Harbor Large Cap Value Fund | 150 | 65 | 1 | (19) | 11 | 16 | |||||
Harbor Mid Cap Value Fund | 100 | 39 | 3 | (15) | 6 | 7 | |||||
Harbor Small Cap Value Fund | 73 | 30 | — | (13) | 4 | 9 | |||||
Harbor International Fund | 129 | 49 | 6 | (17) | 14 | 7 | |||||
Harbor Diversified International All Cap Fund | 124 | 50 | 3 | (11) | 8 | 7 | |||||
Harbor International Growth Fund | 121 | 51 | 4 | (13) | — | 12 | |||||
Harbor Global Leaders Fund | 51 | 21 | — | (4) | 12 | 4 | |||||
Harbor High-Yield Bond Fund | 21 | 106 | 2 | (2) | — | 1 | |||||
Harbor High-Yield Opportunities Fund | 117 | 10 | 1 | (2) | — | — | |||||
Harbor Bond Fund | 52 | 24 | 2 | (4) | — | (1) | |||||
Total | $1,338 | $694 | $ 23 | $(170) | $124 | $115 |
47
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
NOTE 4—TAX INFORMATION
The identified cost for federal income tax purposes of investments owned by each Fund and its respective gross unrealized appreciation and depreciation at April 30, 2018 are as follows:
Identified Cost (000s) | Gross Unrealized | Net Unrealized Appreciation/ (Depreciation) (000s) | |||||
Appreciation (000s) | (Depreciation) (000s) | ||||||
Harbor Target Retirement Income Fund | $13,173 | $ 369 | $(404) | $ (35) | |||
Harbor Target Retirement 2015 Fund* | 5,007 | 142 | (98) | 44 | |||
Harbor Target Retirement 2020 Fund* | 26,248 | 1,214 | (532) | 682 | |||
Harbor Target Retirement 2025 Fund* | 19,835 | 858 | (337) | 521 | |||
Harbor Target Retirement 2030 Fund | 28,253 | 1,885 | (440) | 1,445 | |||
Harbor Target Retirement 2035 Fund* | 14,484 | 1,119 | (187) | 932 | |||
Harbor Target Retirement 2040 Fund | 23,466 | 2,646 | (259) | 2,387 | |||
Harbor Target Retirement 2045 Fund | 11,498 | 964 | (82) | 882 | |||
Harbor Target Retirement 2050 Fund | 21,456 | 2,961 | (108) | 2,853 | |||
Harbor Target Retirement 2055 Fund | 3,138 | 187 | (8) | 179 |
* | Capital loss carryforwards are available, which may reduce taxable income from future net realized gain on investments. |
Note 5—Subsequent Events
Through the date the financial statements were issued, there were no subsequent events or transactions that would have materially impacted the financial statements or related disclosures as presented herein.
48
Harbor Target Retirement Funds
Fees and Expenses Example (Unaudited)
Fees and Expenses Example (Unaudited)
Example
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including redemption fees (if any) and (2) ongoing costs, including management fees, distribution and service (12b-1) fees (if any), and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in a Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The expense ratios reflected below do not include the acquired fund fees and expenses from Underlying Funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period November 1, 2017 through April 30, 2018.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses for each share class. You may use the information in the respective class 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 of the respective class 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 of the table for each share class below provides information about hypothetical account values and hypothetical expenses based on the respective Fund/Class’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the respective Fund/Class’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 a Fund to 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 redemption fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Annualized Expense Ratios | Expenses Paid During Period* | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor Target Retirement Income Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,000.70 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 | |||||
Harbor Target Retirement 2015 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,002.10 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 | |||||
Harbor Target Retirement 2020 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,006.80 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 | |||||
Harbor Target Retirement 2025 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,008.70 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 | |||||
Harbor Target Retirement 2030 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,013.20 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 |
49
Harbor Target Retirement Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios | Expenses Paid During Period* | Beginning Account Value November 1, 2017 | Ending Account Value April 30, 2018 | |||||
Harbor Target Retirement 2035 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,018.20 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 | |||||
Harbor Target Retirement 2040 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,023.80 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 | |||||
Harbor Target Retirement 2045 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,027.80 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 | |||||
Harbor Target Retirement 2050 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,032.40 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 | |||||
Harbor Target Retirement 2055 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $1,035.20 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,024.79 |
* | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
50
Harbor Target Retirement Funds
Additional Information (Unaudited)
Additional Information (Unaudited)
Proxy Voting
Harbor Funds has adopted Proxy Voting Policies and Procedures under which proxies relating to securities held by the Harbor funds are voted. In addition, Harbor Funds files Form N-PX, with its complete proxy voting record for the 12 months ended June 30th, no later than August 31st of each year. A description of Harbor Funds’ Proxy Voting Policies and Procedures and the proxy voting records (Form N-PX) are available (i) upon request, by calling Harbor Funds toll-free at 800-422-1050; (ii) on Harbor Funds’ website at harborfunds.com; and (iii) on the SEC’s website at sec.gov.
Householding
Harbor Funds has adopted a policy that allows it to send only one copy of a Fund’s prospectus, proxy materials, annual report and semi-annual report to certain shareholders residing at the same household. This reduces Fund expenses, which benefits you and other shareholders. If you need additional copies or do not want your mailings to be “householded,” please call the Shareholder Servicing Agent at 800-422-1050. Individual copies will be sent within thirty (30) days after the Shareholder Servicing Agent receives your instructions. Your consent to householding is considered valid until revoked.
Quarterly Portfolio Disclosures
Harbor Funds files a complete portfolio of investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Form N-Q is available (i) without charge, upon request, by calling Harbor Funds toll-free at 800-422-1050, (ii) on Harbor Funds’ website at harborfunds.com, and (iii) on the SEC’s website at sec.gov. The form may also be viewed and copied at the SEC’s Public Reference Room in Washington, DC. Information regarding the operations of the Public Reference Room may also be obtained by calling 800-SEC-0330.
ADVISORY AGREEMENT APPROVALS
FACTORS CONSIDERED BY THE TRUSTEES IN APPROVING THE INVESTMENT ADVISORY AGREEMENTS OF THE TARGET RETIREMENT FUNDS
The Investment Company Act requires that the Investment Advisory Agreement of each Fund be approved initially, and following an initial two-year term, at least annually, by the Trust’s Board of Trustees (the “Board” or the “Trustees”), including a majority of the Independent Trustees voting separately.
At an in-person meeting of the Board held on February 18, 19 and 20, 2018 (the “Meeting”), the Board, including the Independent Trustees voting separately, considered and approved the continuation of an Investment Advisory Agreement with Harbor Capital, the adviser to each Fund, with respect to Harbor Target Retirement Income Fund, Harbor Target Retirement 2015 Fund, Harbor Target Retirement 2020 Fund, Harbor Target Retirement 2025 Fund, Harbor Target Retirement 2030 Fund, Harbor Target Retirement 2035 Fund, Harbor Target Retirement 2040 Fund, Harbor Target Retirement 2045 Fund, Harbor Target Retirement 2050 Fund, and Harbor Target Retirement 2055 Fund (each, a “Target Retirement Fund” and collectively, the “Target Retirement Funds”), each a series of the Harbor Funds.
In evaluating the Target Retirement Funds’ Investment Advisory Agreement, the Trustees reviewed materials furnished by the Adviser, including information about its affiliates, personnel, and operations, and also relied upon their knowledge of the Adviser resulting from their quarterly meetings, periodic telephonic meetings and other prior communications. In connection with the Meeting, which had been called for the purpose of considering the continuation of the Investment Advisory Agreement, and at prior meetings, the Trustees, including the Independent Trustees, requested and received materials and presentations relating to Fund performance and the services rendered by the Adviser.
At the Meeting, the Trustees, including the Independent Trustees voting separately, determined, in the exercise of their business judgment, that the terms of the Investment Advisory Agreement were fair and reasonable and approved the continuation for a one-year period of the Investment Advisory Agreement as being in the best interests of each Target Retirement Fund and its shareholders.
In their deliberations, the Independent Trustees had the opportunity to meet privately without representatives of the Adviser present and were represented throughout the process by legal counsel to the Independent Trustees and the Funds.
51
Harbor Target Retirement Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
In considering the approval of the Target Retirement Funds’ Investment Advisory Agreement, the Board, including the Independent Trustees, evaluated a number of factors it considered relevant to its determination. The Board did not identify any single factor as all-important or controlling, and individual Trustees did not necessarily attribute the same weight or importance to each factor.
Among the factors considered by the Trustees in approving the Investment Advisory Agreement were the following:
• | the nature, extent, and quality of the services provided by the Adviser, including the background, education, expertise and experience of the investment professionals of the Adviser providing services to the Target Retirement Funds; |
• | the favorable history, reputation, qualifications and background of the Adviser, as well as the qualifications of its personnel; |
• | the profitability of the Adviser with respect to each Target Retirement Fund; |
• | while no fees were proposed to be charged by the Adviser for investment advisory services, the Adviser would benefit from assets invested in the Target Retirement Funds in the form of increased advisory fees from the underlying Harbor Funds attributable to assets invested in such Funds by the Target Retirement Funds; |
• | the fees and expense ratios of each Target Retirement Fund relative to the quality of services provided and the fees and expense ratios of similar investment companies; |
• | the short- and long-term investment performance of each Target Retirement Fund in comparison to peer funds and the impact of the Target Retirement Funds’ glidepaths on relative performance; |
• | any “fall out” benefits that might inure to the Adviser and its affiliates as a result of their relationship with the Target Retirement Funds; |
• | information received at regular meetings throughout the year related to Target Retirement Funds’ performance and services rendered by the Adviser; and |
• | information contained in materials provided by the Adviser and compiled by Broadridge Inc. (“Broadridge”), as to the investment returns, advisory fees and total expense ratios of the Institutional Class of each Target Retirement Fund relative to those of other investment companies with similar objectives and strategies managed by other investment advisers, consisting both of a peer group of funds as well as a broader universe of funds compiled by Broadridge. |
Nature, Extent, and Quality of Services
The Board evaluated the nature, extent, and quality of the Adviser’s services in light of the Board’s experience with the Adviser, as well as materials provided by the Adviser as part of its comprehensive written response to the 15(c) request letter prepared by legal counsel to the Independent Trustees in consultation with the Independent Trustees concerning the financial and other resources devoted by the Adviser to Harbor Funds, including the breadth and depth of experience and expertise of the investment, accounting, administrative, legal and compliance professionals dedicated to Harbor Funds’ operations. The Trustees determined that the Adviser has the expertise and resources to manage and operate effectively each Target Retirement Fund.
Investment Performance, Advisory Fees, and Expense Ratios
In considering each Target Retirement Fund’s performance, advisory fees and expense ratio, the Trustees requested and received from the Adviser data compiled by Broadridge. The Trustees also received information explaining the methodology for compilation of certain of this information and what it was intended to demonstrate. In evaluating performance, the Trustees recognized that the performance data reflects a snapshot of a period as of a particular date and that selecting a different performance period could produce significantly different results.
Harbor Target Retirement Funds. In consideration of the Investment Advisory Agreement for each Target Retirement Fund (inception date of January 2, 2009 for each Target Retirement Fund except the Target Retirement 2055 Fund which had an inception date of November 1, 2014), the Trustees noted that Broadridge had selected 14 peer complexes’ target date funds as peers for the Harbor Target Retirement Funds that Broadridge believes are the most comparable to the Target Retirement Funds. These 14 peer complexes are: American Century One Choice Portfolios, Fidelity Advisor Freedom Funds, Franklin LifeSmart Retirement Target Funds, Invesco Balanced-Risk Retirement Funds, John Hancock Multimanager Lifetime Portfolios, MainStay Retirement Funds, MFS Lifetime Funds, PIMCO RealPath Funds, Principal Lifetime Portfolios, Putnam RetirementReady Portfolios, Schwab Target Funds, T. Rowe Price Retirement Funds, TIAA-CREF Lifecycle Portfolios and USAA Target Retirement Funds. The Trustees further noted that the performance analysis conducted by Broadridge included these 14 selected peers, as applicable, as the performance group and all target date funds as the performance universe.
52
Harbor Target Retirement Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
The Trustees considered the expertise of Harbor Capital in managing assets generally and in the target retirement asset class specifically, noting that Harbor Capital had maintained risk-based asset allocation options for retirement plans sponsored by Owens-Illinois and other clients for more than 15 years prior to the 2009 launch of these funds. The Trustees noted that the Target Retirement Funds totaled $176.96 million in assets, out of a firm-wide total of approximately $69.69 billion in assets under management as of December 31, 2017.
The Trustees considered the fact that the Target Retirement Funds had been in operation for a shorter period than many of their peers. They also noted that the glidepaths for the Target Retirement Funds are generally more conservative compared to the peer funds in that the equity exposure for the Target Retirement Funds declines more steeply than it does in other target date fund families. The Trustees considered how periods of strong equity market performance would negatively impact the performance of the Target Retirement Funds relative to their more aggressively positioned peer funds. The Trustees also considered the fact that Harbor Capital charged no management fee to the Funds and that Harbor Capital pays the expenses of each Target Retirement Fund with limited exceptions. The Trustees noted that Harbor Capital’s profitability in managing the Target Retirement Funds was negative.
Harbor Target Retirement Income Fund. The Trustees noted the Fund’s outperformance relative to its universe median for the three-year period ended December 31, 2017 and its underperformance relative to its universe median for the one-, two-, four- and five-year periods ended December 31, 2017, according to Broadridge. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were below the peer group median. They also noted that the Fund’s underlying fund expenses caused the Fund to rank in the top half of its peer group. The actual total expense ratio of the Fund’s Institutional Class was below the peer group and peer universe medians.
Harbor Target Retirement 2015 Fund. The Trustees noted the Fund’s underperformance relative to its universe medians for each of the one-, two-, three-, four- and five-year periods ended December 31, 2017, according to Broadridge. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were equal to the peer group median. They also noted that the Fund’s underlying fund expenses caused the Fund to rank just below the top half of its peer group. The actual total expense ratio of the Fund’s Institutional Class was below the peer group and peer universe medians.
Harbor Target Retirement 2020 Fund. The Trustees noted the Fund’s underperformance relative to its universe medians for the one-, two-, three-, four- and five-year periods ended December 31, 2017, according to Broadridge. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were equal to the peer group median. They also noted that the Fund’s underlying fund expenses caused the Fund to rank just below the top half of its peer group. The actual total expense ratio of the Fund’s Institutional Class was below the peer group and peer universe medians.
Harbor Target Retirement 2025 Fund. The Trustees noted the Fund’s underperformance relative to its universe medians for each of the one-, two-, three-, four- and five-year periods ended December 31, 2017, according to Broadridge. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were above the peer group median. They also noted that the Fund’s underlying fund expenses were in the bottom half of its peer group. The actual total expense ratio of the Fund’s Institutional Class was equal to the peer group median but above the peer universe median.
Harbor Target Retirement 2030 Fund. The Trustees noted the Fund’s underperformance relative to its universe medians for each of the one-, two-, three-, four- and five-year periods ended December 31, 2017, according to Broadridge. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were slightly above the peer group median. They also noted that the Fund’s underlying fund expenses were in the fourth quintile of its peer group. The actual total expense ratio of the Fund’s Institutional Class was below the peer group median but above the peer universe median.
Harbor Target Retirement 2035 Fund. The Trustees noted the Fund’s underperformance relative to its universe medians for the one-, two-, three-, four- and five-year periods ended December 31, 2017, according to Broadridge. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were above the peer group median. They also noted that the Fund’s underlying fund expenses were in the bottom third of its peer group. The actual total expense ratio of the Fund’s Institutional Class was below the peer group median but above the peer universe median.
53
Harbor Target Retirement Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
Harbor Target Retirement 2040 Fund. The Trustees noted the Fund’s underperformance relative to its universe medians for the one-, two-, three-, four- and five-year periods ended December 31, 2017, according to Broadridge. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were above the peer group median. They also noted that the Fund’s underlying fund expenses were in the fourth quintile of its peer group. The actual total expense ratio of the Fund’s Institutional Class was below the peer group median but above the peer universe median.
Harbor Target Retirement 2045 Fund. The Trustees noted the Fund’s outperformance relative to its universe median for the one-year period ended December 31, 2017 and the Fund’s underperformance relative to its universe medians for the two-, three-, four- and five-year periods ended December 31, 2017, according to Broadridge. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were above the peer group median. They also noted that the Fund’s underlying fund expenses caused the Fund to rank in the fourth quartile of its peer group. The actual total expense ratio of the Fund’s Institutional Class was above the peer group and peer universe medians.
Harbor Target Retirement 2050 Fund. The Trustees noted the Fund’s outperformance relative to its Broadridge universe median for the one-, two-, three- and five-year periods ended December 31, 2017 and the Fund’s underperformance relative to its Broadridge universe median for the four-year period ended December 31, 2017. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were above the peer group median. They also noted that the Fund’s underlying fund expenses caused the Fund to rank in the fifth quintile of its peer group. The actual total expense ratio of the Fund’s Institutional Class was above the peer group and peer universe medians.
Harbor Target Retirement 2055 Fund. The Trustees noted the Fund’s outperformance relative to its Broadridge universe median for the one-, two- and three-year and since inception periods ended December 31, 2017. The Trustees also considered the Broadridge comparison of underlying fund expenses showing that the Fund’s underlying fund expenses were above the peer group median. They also noted that the Fund’s underlying fund expenses caused the Fund to rank at the bottom of its peer group. The actual total expense ratio of the Fund’s Institutional Class was above the peer group and peer universe medians.
Adviser Fees and Profitability
The Trustees noted that the Adviser receives no fee from any of the Target Retirement Funds for the Adviser’s services in allocating the Target Retirement Funds’ assets among shares of the other Harbor Funds. They also noted that the Adviser benefits indirectly from assets invested in the Target Retirement Funds in the form of increased advisory and other fees from the underlying Harbor Funds attributable to assets invested in such funds by the Target Retirement Funds and that the Board considers the issue of the Adviser’s profitability in operating these underlying funds at least annually as part of its annual investment advisory contract review process with respect to all of the Harbor Funds. The Board also noted that the Adviser pays the expenses of each Target Retirement Fund with limited exceptions and that the Adviser was incurring a loss in operating the Target Retirement Funds.
Economies of Scale
As the Adviser does not receive a fee from any of the Target Retirement Funds for the Adviser’s services, the Trustees determined that it was unnecessary to consider economies of scale in this context. However, given that the Adviser benefits from assets invested in the Target Retirement Funds in the form of increased advisory fees from the underlying Harbor Funds, the Board noted that it considers the issue of breakpoints in the Harbor Funds’ fee schedules at least annually as part of its annual investment contract review process for all of the underlying Harbor Funds.
54
Benchmark Descriptions
Composite Index Income—The Composite Index Income is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index, ICE BofAML U.S. Non-Distressed High Yield Index (prior to March 31, 2015, the ICE BofAML U.S. High Yield Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index, ICE BofAML 3-Month U.S. Treasury Bill Index. The weights of the Composite Index Income match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Composite Index 2015—The Composite Index 2015 is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index, ICE BofAML U.S. Non-Distressed High Yield Index (prior to March 31, 2015, the ICE BofAML U.S. High Yield Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index, ICE BofAML 3-Month U.S. Treasury Bill Index. The weights of the Composite Index 2015 match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Composite Index 2020—The Composite Index 2020 is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, , ICE BofAML U.S. High Yield Index, ICE BofAML U.S. Non-Distressed High Yield Index (prior to March 31, 2015, the ICE BofAML U.S. High Yield Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index, ICE BofAML 3-Month U.S. Treasury Bill Index. The weights of the Composite Index 2020 match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Composite Index 2025—The Composite Index 2025 is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index, ICE BofAML U.S. Non-Distressed High Yield Index (prior to March 31, 2015, the ICE BofAML U.S. High Yield Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index. The weights of the Composite Index 2025 match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Composite Index 2030—The Composite Index 2030 is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index, ICE BofAML U.S. Non-Distressed High Yield Index (prior to March 31, 2015, the ICE BofAML U.S. High Yield Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index. The weights of the Composite Index 2030 match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Composite Index 2035—The Composite Index 2035 is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index, ICE BofAML U.S. Non-Distressed High Yield Index (prior to March 31, 2015, the ICE BofAML U.S. High Yield Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S.
55
Benchmark Descriptions—Continued
TIPS Index. The weights of the Composite Index 2035 match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Composite Index 2040—The Composite Index 2040 is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index, ICE BofAML U.S. Non-Distressed High Yield Index (prior to March 31, 2015, the ICE BofAML U.S. High Yield Index), Bloomberg Barclays U.S. Aggregate Bond Index. The weights of the Composite Index 2040 match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Composite Index 2045—The Composite Index 2045 is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index, ICE BofAML U.S. Non-Distressed High Yield Index (prior to March 31, 2015, the ICE BofAML U.S. High Yield Index), Bloomberg Barclays U.S. Aggregate Bond Index. The weights of the Composite Index 2045 match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Composite Index 2050—The Composite Index 2050 is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index, Bloomberg Barclays U.S. Aggregate Bond Index. The weights of the Composite Index 2050 match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Composite Index 2055—The Composite Index 2055 is derived by applying the Fund’s target asset allocation to the results of the underlying funds’ benchmarks: Russell 1000® Growth Index, Russell Midcap® Growth Index, Russell 2000® Growth Index, Russell 1000® Value Index, Russell Midcap® Value Index, Russell 2000® Value Index, MSCI EAFE (ND) Index, MSCI All Country World Ex. U.S. (ND) Index (prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index, Bloomberg Barclays U.S. Aggregate Bond Index. The weights of the Composite Index 2055 match the Fund’s historical target asset allocation and are adjusted as changes are made to this asset allocation. Refer to the Target Retirement Funds Prospectus for the Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Bloomberg Barclays U.S. Aggregate Bond Index—The Bloomberg Barclays U.S. Aggregate Bond Index is an unmanaged index of investment-grade fixed-rate debt issues with maturities of at least one year. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Bloomberg Barclays U.S. TIPS Index—The Bloomberg Barclays U.S. TIPS Index is an unmanaged market index comprised of all U.S. Treasury Inflation Protected Securities rated investment grade (Baa3 or better), have at least one year to final maturity, and at least $250 million par amount outstanding. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Bloomberg Commodity Index Total ReturnSM—The Bloomberg Commodity Index Total ReturnSM is a broadly diversified index that tracks the commodities markets through commodity futures contracts. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML All U.S. Convertibles Ex Mandatory Index—The BofA Merrill Lynch All U.S. Convertibles Ex Mandatory Index is broadly representative of the U.S. convertible securities market, consisting of publicly traded issues, denominated in U.S. dollars, of all credit qualities, and excluding mandatory (equity-linked) convertibles. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
56
Benchmark Descriptions—Continued
ICE BofAML U.S. Dollar 3-Month LIBOR Constant Maturity Index—The ICE BofAML U.S. Dollar 3-Month LIBOR Constant Maturity Index tracks the performance of a synthetic asset paying Libor to a stated maturity. The index is based on the assumed purchase at par of a synthetic instrument having exactly its stated maturity and with a coupon equal to that day’s fixing rate. That issue is assumed to be sold the following business day (priced at a yield equal to the current day fixing rate) and rolled into a new instrument. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML 3-Month U.S. Treasury Bill Index—The ICE BofAML 3-Month U.S. Treasury Bill Index is comprised of a single U.S. Treasury Bill issue purchased at the beginning of each month and held for a full month, at which time that issue is sold and rolled into a newly selected issue. The issue selected each month is that having a maturity date closest to, but not beyond 90 days from the rebalance date.
ICE BofAML U.S. High Yield Index (H0A0)—The ICE BofAML U.S. High Yield Index (H0A0) is an unmanaged index that tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market. All bonds are U.S. dollar denominated and rated Split BBB and below. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
ICE BofAML U.S. Non-Distressed High Yield Index—The ICE BofAML U.S. Non-Distressed High Yield Index is a subset of the ICE BofAML U.S. High Yield Index (H0A0) including all securities with an option-adjusted spread less than 1,000 basis points. The unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI All Country World Index—The MSCI All Country World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI All Country World Ex. U.S. (ND) Index—The MSCI All Country World Ex. U.S.is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance in the global developed and emerging markets, excluding the United States. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI EAFE (ND) Index—The MSCI EAFE (ND) Index is an unmanaged index generally representative of major overseas stock markets. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI EAFE Small Cap (ND) Index—The MSCI EAFE Small Cap (ND) Index is an equity index which captures small cap representation across developed market countries around the world, excluding the U.S. and Canada. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI Emerging Markets (ND) Index—The MSCI Emerging Markets (ND) Index is a market capitalization weighted index of equity securities in more than 20 emerging market economies. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
MSCI World (ND) Index—The MSCI World (ND) Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
Russell 1000® Index—The Russell 1000® Index is an unmanaged index generally representative of the U.S. market for larger capitalization stocks as it includes the largest 1000 securities in the Russell 3000® Index by market capitalization. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Index and Russell® are trademarks of Frank Russell Company.
Russell 1000® Growth Index—The Russell 1000® Growth Index is an unmanaged index generally representative of the U.S. market for larger capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 1000® Value Index—The Russell 1000® Value Index is an unmanaged index generally representative of the U.S. market for larger capitalization value stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 1000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Index—The Russell 2000® Index measures the performance of the small-cap segment of the U.S. equity universe. The Russell 2000® Index is a subset of the Russell 3000® Index representing approximately 10% of the total market capitalization of that index. It includes approximately 2,000 of the smallest securities based on a combination of their market cap and current index membership. The Russell 2000® Index is constructed to provide a comprehensive and unbiased small-cap barometer and is completely reconstituted annually to ensure larger stocks do not distort the performance and characteristics of the true small-cap opportunity set. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Index and Russell® are trademarks of Frank Russell Company.
57
Benchmark Descriptions—Continued
Russell 2000® Growth Index—The Russell 2000® Growth Index is an unmanaged index representing the smallest 2,000 stocks with the highest price-to-book ratio and future earnings. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 2000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 2000® Value Index—The Russell 2000® Value Index is an unmanaged index representing the smallest 2,000 stocks with the lowest price-to-book ratio and future earnings. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 2000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Index—The Russell 3000® Index measures the performance of the largest 3,000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000® Index is constructed to provide a comprehensive, unbiased and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Growth Index—The Russell 3000® Growth Index measures the performance of the broad growth segment of the U.S. equity universe. It includes those Russell 3000® companies with higher price-to-book ratios and higher forecasted growth values. The Russell 3000® Growth Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad growth market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect growth characteristics. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell 3000® Value Index—The Russell 3000® Value Index measures the performance of the broad value segment of U.S. equity value universe. It includes those Russell 3000® companies with lower price-to-book ratios and lower forecasted growth values. The Russell 3000® Value Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad value market. The index is completely reconstituted annually to ensure new and growing equities are included and that the represented companies continue to reflect value characteristics. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell 3000® Value Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Index—The Russell Midcap® Index is an unmanaged index generally representative of the U.S. market for medium capitalization stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Growth Index—The Russell Midcap® Growth Index is an unmanaged index generally representative of the U.S. market for medium capitalization growth stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Growth Index and Russell® are trademarks of Frank Russell Company.
Russell Midcap® Value Index—The Russell Midcap® Value Index is an unmanaged index generally representative of the U.S. market for medium capitalization value stocks. This unmanaged index does not reflect fees and expenses and is not available for direct investment. The Russell Midcap® Value Index and Russell® are trademarks of Frank Russell Company.
S&P 500 Index—The S&P 500 Index is an unmanaged index generally representative of the U.S. stock market. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
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59
111 South Wacker Drive, 34th Floor | Chicago, IL 60606-4302 | 800-422-1050 | harborfunds.com |
Trustees & Officers
Charles F. McCain
Chairman, President & Trustee
Chairman, President & Trustee
Scott M. Amero
Trustee
Trustee
Raymond J. Ball
Trustee
Trustee
Donna J. Dean
Trustee
Trustee
Joseph L. Dowling, III
Trustee
Trustee
Randall A. Hack
Trustee
Trustee
Robert Kasdin
Trustee
Trustee
Kathryn L. Quirk
Trustee
Trustee
Ann M. Spruill
Trustee
Trustee
Erik D. Ojala
Chief Compliance Officer
Chief Compliance Officer
Anmarie S. Kolinski
Treasurer
Treasurer
Brian L. Collins
Vice President
Vice President
Charles P. Ragusa
Vice President
Vice President
Diana R. Podgorny
Secretary
Secretary
Jodie L. Crotteau
Assistant Secretary
Assistant Secretary
Lana M. Lewandowski
AML Compliance Officer
& Assistant Secretary
AML Compliance Officer
& Assistant Secretary
Lora A. Kmieciak
Assistant Treasurer
Assistant Treasurer
John M. Paral
Assistant Treasurer
Assistant Treasurer
Investment Adviser
Harbor Capital Advisors, Inc.
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4400
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4400
Distributor
Harbor Funds Distributors, Inc.
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4600
111 South Wacker Drive, 34th Floor
Chicago, IL 60606-4302
312-443-4600
Shareholder Services
Harbor Services Group, Inc.
P.O. Box 804660
Chicago, IL 60680-4108
800-422-1050
P.O. Box 804660
Chicago, IL 60680-4108
800-422-1050
Custodian
State Street Bank and Trust Company
State Street Financial Center
1 Lincoln Street
Boston, MA 02111-2900
State Street Financial Center
1 Lincoln Street
Boston, MA 02111-2900
FD.SAR.TR.0418
Table of Contents
ITEM 2 – CODE OF ETHICS
Not applicable.
ITEM 3 – AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable.
ITEM 4 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable.
ITEM 5 – AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6 – INVESTMENTS
(a) | The Registrant has elected to include the schedule of investments in securities of unaffiliated issuers as part of the report to shareholders filed under Item 1 of this report on Form N-CSR. |
(b) | Not applicable. |
ITEM 7 – DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 8 – PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 9 – PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS
Not applicable.
ITEM 10 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees since the date of the Registrant’s prior report on Form N-CSR.
ITEM 11 – CONTROLS AND PROCEDURES
(a) | The Registrant’s Principal Executive and Principal Financial Officers concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act) are effective, based on the evaluation of these disclosure controls and procedures as of a date within 90 days of the filing of this report. |
(b) | There was no change 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) | A separate certification for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)) is attached hereto. |
(b) | Certification as required by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) is attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed this 22 day of June, 2018 on its behalf by the undersigned, thereunto duly authorized.
HARBOR FUNDS
By: /s/ Charles F. McCain
Charles F. McCain, Esq.
Chairman, President and Trustee
(Principal Executive Officer)
Chairman, President and Trustee
(Principal Executive Officer)
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/ Charles F. McCain Charles F. McCain, Esq. | Chairman, President and Trustee (Principal Executive Officer) | June 22, 2018 |
By: | /s/ Anmarie S. Kolinski Anmarie S. Kolinski | Treasurer (Principal Financial and Accounting Officer) | June 22, 2018 |
Exhibit Index
Number | Description | |
99.CERT1 | Certification for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)). | |
99.CERT2 | Certification for each principal executive officer and principal financial officer of the Registrant as required by Rule 30a-2(a) under the 1940 Act (17 CFR 270.30a-2(a)). | |
99.906CERT | Certification as required by Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350). |