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: October 31, 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
Annual Report
October 31, 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 |
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website (harborfunds.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from a Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with Harbor Funds, by calling 800-422-1050.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary (such as a broker-dealer or bank), you can contact your financial intermediary to request that you continue to receive paper copies of the Funds’ shareholder reports. If you invest directly, you can call 800-422-1050 to request that you continue to receive paper copies of the Funds’ shareholder reports. Your election to receive reports in paper will apply to all Harbor Funds held in your account.
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 for the fiscal year ended October 31, 2018. Results were mixed in the first half of the period, which started with a continued run of strong gains from U.S. equities to end 2017. The U.S. equity market rallied through much of 2018, as strong economic data and corporate earnings growth offset concerns about an escalation in trade tensions.
In October, market volatility rose again, and U.S. equity markets were battered by rising U.S. Treasury yields and concerns that a slowdown in global growth could affect corporate profits. Growth stocks declined steeply, eclipsing more modest losses for value stocks.
The Russell 3000® Index, a measure of the broad U.S. stock market, had a return of 6.60% for the fiscal year ended October 31, 2018. Despite their October drop, growth stocks outperformed value stocks by a significant margin for the fiscal year. Large cap stocks were the best performing capitalization segment, outperforming the broader market, while small and mid cap stocks had more modest gains.
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 those in Harbor Funds.
Returns For Periods Ended October 31, 2018 | ||||||||
Annualized | ||||||||
Domestic Equities | 1 Year | 5 Years | 10 Years | 30 Years | ||||
Russell 3000® (entire U.S. stock market) | 6.60% | 10.81% | 13.35% | 10.28% | ||||
S&P 500 (large cap stocks) | 7.35 | 11.34 | 13.24 | 10.25 | ||||
Russell Midcap® (mid cap stocks) | 2.79 | 8.97 | 14.20 | 11.44 | ||||
Russell 2000® (small cap stocks) | 1.85 | 8.01 | 12.44 | 9.64 | ||||
Russell 3000® Growth (growth stocks) | 10.20 | 13.06 | 15.34 | 10.13 | ||||
Russell 3000® Value (value stocks) | 2.78 | 8.50 | 11.28 | 10.05 | ||||
International & Global | ||||||||
MSCI EAFE (ND) (foreign stocks) | -6.85% | 2.02% | 6.89% | 4.59% | ||||
MSCI EAFE Small Cap (ND) (foreign small cap stocks) | -7.81 | 5.16 | 11.56 | N/A | ||||
MSCI World (ND) (global stocks) | 1.16 | 6.81 | 10.02 | 6.83 | ||||
MSCI All Country World Ex. U.S. (ND) (foreign stocks) | -8.24 | 1.63 | 6.92 | N/A | ||||
MSCI Emerging Markets (ND) (emerging market stocks) | -12.52 | 0.78 | 7.84 | N/A | ||||
Fixed Income | ||||||||
ICE BofAML U.S. Non-Distressed High Yield (domestic high-yield bonds) | 0.76% | 4.79% | 9.32% | N/A | ||||
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -2.05 | 1.83 | 3.94 | 5.97% | ||||
Bloomberg Barclays U.S. TIPS (domestic inflation-linked bonds) | -1.24 | 0.97 | 4.11 | N/A | ||||
ICE BofAML U.S. 3-Month Treasury Bill (proxy for money market returns) | 1.68 | 0.55 | 0.35 | 3.18 |
assessing your long-term investment plan
As the end of the calendar year approaches, it may be a good time to evaluate your financial goals and your investments. We always encourage shareholders to take a long-term perspective with all of their investments. While past performance is never a guarantee of future results, over the long term, the returns of equities and debt securities have historically helped many investors achieve their financial objectives. We encourage all investors to maintain a diversified portfolio of equities, debt and cash in an allocation consistent with their long-term financial goals and comfort with risk.
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.
December 19, 2018
Charles F. McCain |
Chairman |
1
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
U.S. equity markets advanced over the past twelve months ended October 31, 2018, extending gains that stretch back to the aftermath of the credit crisis of 2008. The macroeconomic backdrop was solid. Domestic GDP grew at a healthy pace, employment gains were robust, corporate profit growth showed continued strength, and business and consumer confidence rose. Corporations used lower tax rates to increase capital spending and repurchase shares. Wage growth and low unemployment spurred increased consumer spending. The U.S. Federal Reserve raised the federal funds rate incrementally to a still-low range of 2.00%-2.25%.
Global growth, however, was more mixed. In Europe, Brexit negotiations between the U.K. and E.U. remained contentious, compounding uncertainty about the final outcome. In China, a slowdown in the rate of economic expansion was amplified toward the end of the period by trade discord.
A decline in markets early in the period reflected uncertainty about the administration’s policy initiatives and concerns that as U.S. economic growth gained traction, inflation expectations would rise and monetary tightening would ensue. A deeper decline in October was linked to the administration’s continuing moves to reset global trade practices with new tariffs and penalties for intellectual property infringement. Initially, the Chinese stock market suffered the brunt of the pain, while the U.S. economy, dominated by its services segments, felt little impact. In October, the tone of the rhetoric, aggressiveness of the brinkmanship, and unpredictability of the outcomes unsettled domestic markets, as well.
The economic slowdown in China constricted prices of many commodities and fueled concerns that moderating expansion in the world’s second-largest economy will have global growth ramifications. Tremors rippled widely across other emerging markets, where weaker sentiment and the effect of higher U.S. interest rates on local U.S.-Dollar-denominated debt added to the toll.
PERFORMANCE
The Harbor Capital Appreciation Fund advanced 9.44% (Institutional Class), 9.50% (Retirement Class), 9.16% (Administrative Class), and 9.03% (Investor Class) in the fiscal year, while the Russell 1000® Growth Index rose 10.71%, and the broader market, as represented by the S&P 500 Index, climbed 7.35%. Gains in the Russell 1000® Growth Index were led by select Information Technology and Consumer companies. Sectors with sensitivity to commodities prices and cyclical growth, including Materials, Energy, and Industrials, were weak.
Information Technology positions were strong contributors to Fund performance. We believe that as penetration of Apple’s hardware products mature, growth in unit sales is slowing. However, the company continued to drive revenue growth across its huge and loyal installed base with product updates and rapid growth in high-margin and recurring-revenue services businesses (apps, music). Digital transformation of the enterprise has become a strategic imperative across many industries and companies. Cloudware, therefore, is no longer primarily a tool to reduce infrastructure costs. In our opinion, Salesforce.com, Microsoft, Adobe, and Red Hat offer mission-critical applications and services that are creating fundamental changes in the way businesses operate.
Payments companies continue to benefit from the long-term shift from cash to electronic credit and debit transactions. Both MasterCard and Visa have, in our view, strong market positions with high barriers to entry, pricing power, and solid operating leverage potential. We believe Square and PayPal offer innovative low-cost, high-security, easy-to-use digital payment options, in particular for mobile and online transactions.
2
Harbor Capital Appreciation Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the Russell 1000® Growth Index and the S&P 500 Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor Capital Appreciation Fund | ||||||||
Institutional Class | 9.44% | 13.45% | 15.41% | |||||
Retirement Class1 | 9.50 | 13.48 | 15.43 | |||||
Administrative Class | 9.16 | 13.17 | 15.12 | |||||
Investor Class | 9.03 | 13.03 | 14.98 | |||||
Comparative Indices | ||||||||
Russell 1000® Growth | 10.71% | 13.43% | 15.45% | |||||
S&P 500 | 7.35 | 11.34 | 13.24 |
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.
The Fund’s long-term holdings in U.S. internet companies continued to contribute meaningfully to performance. Amazon benefited from its market position, scale, and execution. Netflix continued to raise its competitive barriers with investments in content, resulting in strong subscriber growth and increased pricing and operating leverage.
Chinese internet companies fared less well. While the various business segments of Alibaba are providing significant revenue growth, the company’s stock declined on high business investment spending and Chinese government efforts to tighten control of internet and non-traditional financial companies. Tencent was negatively affected by new restrictions on video game approvals implemented by Chinese authorities. We expect these restrictions will be lessened in the coming year.
Ongoing concern about data breaches, user-data usage, and increased government scrutiny, coupled with maturation of user engagement, continued to loom over Alphabet and Facebook. However, both companies have significant scale benefits and untapped monetization opportunities that we believe should drive better-than-average growth even with higher costs and restriction in data usage.
Boeing was a top performer in Industrials. Its gain reflected 787 Dreamliner commercial jet cash generation, solid cost controls, and ramped-up 737 jet production. The company’s extensive order backlog reflects strong global demand.
Performance of the Fund’s Healthcare positions improved over the year, as the “hot button” issue of drug pricing subsided. We expect the issue will re-emerge as political winds change once again. Advances in systems for analyzing genetic variation and function continue to broaden the understanding of the clinical significance of the genome. We believe Illumina is at the forefront of this technology. Some biopharmaceutical positions experienced setbacks. Bristol-Myers Squibb fell on signs that its non-small cell lung cancer program has been eclipsed by a competing franchise. However, the likely broad adoption of immuno-oncology therapy in multiple settings points to avenues of future growth for the company.
OUTLOOK & STRATEGY
Given that the benefits of corporate tax cuts will wane, we anticipate that U.S. growth will slow, but we do not expect a recession. Employment and income growth is strong, and moderately rising interest rates are still low. With the U.S. administration’s stance on trade and tariffs, however, uncertainty remains elevated.
We continue to focus on companies that, in our view, have unique business models that build sustainable competitive advantages, catalysts that drive above-average growth rates, superior financial characteristics, and attractive long-term valuations. Against this backdrop, we believe the Fund is well positioned with companies whose growth prospects remain robust and well above average.
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.
3
Harbor Capital Appreciation Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Amazon.com Inc. | 5.7% |
❷ | Alphabet Inc. | 5.4% |
❸ | Microsoft Corp. | 5.0% |
❹ | Apple Inc. | 4.8% |
❺ | MasterCard Inc. | 3.9% |
❻ | Netflix Inc. | 3.6% |
❼ | Salesforce.com Inc. | 3.5% |
❽ | Boeing Co. | 3.4% |
❾ | Visa Inc. | 3.4% |
❿ | Facebook Inc. | 3.1% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
4
Harbor Capital Appreciation Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—99.3% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—4.4% | |||
2,810,487 | Boeing Co. | $ 997,329 | |
2,370,437 | Safran SA (France) | 306,327 | |
1,303,656 | |||
AUTOMOBILES—2.0% | |||
1,786,315 | Tesla Inc.* | 602,560 | |
BANKS—1.9% | |||
5,094,144 | JPMorgan Chase & Co. | 555,364 | |
BIOTECHNOLOGY—4.3% | |||
3,390,302 | Alexion Pharmaceuticals Inc.* | 379,951 | |
3,504,830 | BioMarin Pharmaceutical Inc.* | 323,040 | |
2,296,477 | Celgene Corp.* | 164,428 | |
2,388,769 | Vertex Pharmaceuticals Inc.* | 404,801 | |
1,272,220 | |||
CAPITAL MARKETS—2.0% | |||
1,534,626 | Goldman Sachs Group Inc. | 345,859 | |
1,354,927 | S&P Global Inc. | 247,030 | |
592,889 | |||
CHEMICALS—1.1% | |||
3,231,799 | Albemarle Corp. | 320,659 | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—0.6% | |||
1,700,615 | Crown Castle International Corp. | 184,925 | |
FOOD & STAPLES RETAILING—2.1% | |||
2,656,090 | Costco Wholesale Corp. | 607,262 | |
HEALTH CARE EQUIPMENT & SUPPLIES—1.4% | |||
776,766 | Edwards Lifesciences Corp.* | 114,651 | |
584,599 | Intuitive Surgical Inc.* | 304,681 | |
419,332 | |||
HEALTH CARE PROVIDERS & SERVICES—1.8% | |||
2,092,579 | UnitedHealth Group Inc. | 546,896 | |
HOTELS, RESTAURANTS & LEISURE—3.6% | |||
459,242 | Chipotle Mexican Grill Inc.* | 211,403 | |
4,305,955 | Marriott International Inc. | 503,323 | |
1,978,595 | McDonald's Corp. | 350,013 | |
1,064,739 | |||
INTERACTIVE MEDIA & SERVICES—11.1% | |||
726,528 | Alphabet Inc. Class A* | 792,337 | |
736,265 | Alphabet Inc. Class C* | 792,788 | |
5,942,992 | Facebook Inc.* | 902,086 | |
22,944,710 | Tencent Holdings Ltd. (China) | 786,069 | |
3,273,280 | |||
INTERNET & DIRECT MARKETING RETAIL—13.2% | |||
5,629,745 | Alibaba Group Holding Ltd. ADR (China)*,1 | 801,000 | |
1,045,013 | Amazon.com Inc.* | 1,669,941 | |
172,950 | Booking Holdings Inc.* | 324,209 | |
2,417,654 | Farfetch Ltd. (United Kingdom)* | 49,659 | |
3,477,086 | Netflix Inc.* | 1,049,315 | |
3,894,124 | |||
IT SERVICES—10.6% | |||
374,215 | Adyen NV (Netherlands)*,2 | 241,937 | |
2,127,871 | FleetCor Technologies Inc.* | 425,638 | |
5,811,153 | MasterCard Inc. | 1,148,691 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
IT SERVICES—Continued | |||
1,734,795 | PayPal Holdings Inc.* | $ 146,052 | |
2,152,634 | Square Inc.* | 158,111 | |
7,269,106 | Visa Inc. | 1,002,046 | |
3,122,475 | |||
LIFE SCIENCES TOOLS & SERVICES—1.9% | |||
1,768,564 | Illumina Inc.* | 550,289 | |
MACHINERY—0.5% | |||
1,272,698 | Caterpillar Inc. | 154,404 | |
OIL, GAS & CONSUMABLE FUELS—1.1% | |||
2,244,734 | Concho Resources Inc.* | 312,220 | |
PERSONAL PRODUCTS—1.3% | |||
2,907,453 | Estée Lauder Companies Inc. | 399,600 | |
PHARMACEUTICALS—3.5% | |||
15,440,819 | AstraZeneca plc ADR (United Kingdom)1 | 598,795 | |
2,928,834 | Bristol-Myers Squibb Co. | 148,023 | |
3,906,019 | Merck & Co. Inc. | 287,522 | |
1,034,340 | |||
ROAD & RAIL—0.7% | |||
1,374,594 | Union Pacific Corp. | 200,993 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—4.4% | |||
1,539,893 | Broadcom Inc. | 344,151 | |
3,697,597 | NVIDIA Corp. | 779,564 | |
1,865,210 | Texas Instruments Inc. | 173,147 | |
1,296,862 | |||
SOFTWARE—16.8% | |||
5,657,221 | Activision Blizzard Inc. | 390,631 | |
3,568,397 | Adobe Systems Inc.* | 876,969 | |
13,901,214 | Microsoft Corp. | 1,484,789 | |
2,007,794 | Red Hat Inc.* | 344,618 | |
7,583,513 | Salesforce.com Inc.* | 1,040,761 | |
994,952 | ServiceNow Inc.* | 180,126 | |
2,972,291 | Splunk Inc.* | 296,753 | |
2,567,483 | Workday Inc.* | 341,527 | |
4,956,174 | |||
SPECIALTY RETAIL—1.8% | |||
2,507,702 | Home Depot Inc. | 441,055 | |
721,492 | Tiffany & Co. | 80,302 | |
521,357 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—4.8% | |||
6,461,231 | Apple Inc. | 1,414,105 | |
TEXTILES, APPAREL & LUXURY GOODS—2.4% | |||
673,960 | Kering SA (France) | 299,567 | |
5,663,020 | NIKE Inc. | 424,953 | |
724,520 | |||
TOTAL COMMON STOCKS | |||
(Cost $17,659,564) | 29,325,245 | ||
TOTAL INVESTMENTS—99.3% | |||
(Cost $17,659,564) | 29,325,245 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.7% | 210,675 | ||
TOTAL NET ASSETS—100.0% | $29,535,920 |
5
Harbor Capital Appreciation Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of October 31, 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 | ||||||||
Aerospace & Defense | $ 997,329 | $ 306,327 | $— | $ 1,303,656 | ||||
Automobiles | 602,560 | — | — | 602,560 | ||||
Banks | 555,364 | — | — | 555,364 | ||||
Biotechnology | 1,272,220 | — | — | 1,272,220 | ||||
Capital Markets | 592,889 | — | — | 592,889 | ||||
Chemicals | 320,659 | — | — | 320,659 | ||||
Equity Real Estate Investment Trusts (REITs) | 184,925 | — | — | 184,925 | ||||
Food & Staples Retailing | 607,262 | — | — | 607,262 | ||||
Health Care Equipment & Supplies | 419,332 | — | — | 419,332 | ||||
Health Care Providers & Services | 546,896 | — | — | 546,896 | ||||
Hotels, Restaurants & Leisure | 1,064,739 | — | — | 1,064,739 | ||||
Interactive Media & Services | 2,487,211 | 786,069 | — | 3,273,280 | ||||
Internet & Direct Marketing Retail | 3,894,124 | — | — | 3,894,124 | ||||
IT Services | 2,880,538 | 241,937 | — | 3,122,475 | ||||
Life Sciences Tools & Services | 550,289 | — | — | 550,289 | ||||
Machinery | 154,404 | — | — | 154,404 | ||||
Oil, Gas & Consumable Fuels | 312,220 | — | — | 312,220 | ||||
Personal Products | 399,600 | — | — | 399,600 | ||||
Pharmaceuticals | 1,034,340 | — | — | 1,034,340 | ||||
Road & Rail | 200,993 | — | — | 200,993 | ||||
Semiconductors & Semiconductor Equipment | 1,296,862 | — | — | 1,296,862 | ||||
Software | 4,956,174 | — | — | 4,956,174 | ||||
Specialty Retail | 521,357 | — | — | 521,357 | ||||
Technology Hardware, Storage & Peripherals | 1,414,105 | — | — | 1,414,105 | ||||
Textiles, Apparel & Luxury Goods | 424,953 | 299,567 | — | 724,520 | ||||
Total Investments in Securities | $27,691,345 | $1,633,900 | $— | $29,325,245 |
There were no Level 3 holdings at October 31, 2018 or 2017.
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. |
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 October 31, 2018, the aggregate value of these securities was $241,937 or 1% of net assets. |
The accompanying notes are an integral part of the Financial Statements.
6
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 12-month period ended October 31, 2018, the Russell 1000® Growth Index (the “Index”) was up 10.71%. Monthly returns in October were the worst posted for the Index since October 2008 due to a cocktail of pressures including rising interest rates, increasing input costs, trade wars and political division. Prior to the onslaught of downside volatility evidence in October, strong corporate earnings growth, low inflation and interest rates fueled the longest-running bull market in modern financial history. Equity markets achieved several milestones over the period including Apple and Amazon.com eclipsing the $1 trillion market capitalization mark for the first time.
A somewhat narrow group of stocks from the Consumer Discretionary and Information Technology sectors continued to lead the market with a contribution of close to 80% of the Index return. These two sectors in combination with the newly created Communication Services sector account for 60% of the Index by market capitalization. Moreover, as of October 31, 2018, the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google), plus Microsoft represented 26.5% of the Index market capitalization and contributed nearly half of the return of the Index, with an average return of 21% for the 12-month period ended October 31, 2018.
PERFORMANCE
The Harbor Strategic Growth Fund returned 6.26% (Institutional Class), 6.34% (Retirement Class), 5.96% (Administrative Class), and 5.80% (Investor Class) for the 12-month period ended October 31, 2018. Stock selection within the Health Care, Financial and Consumer Staples sectors as well as the Fund’s underweight in Information Technology drove the underperformance relative to the benchmark.
Performance detractors included Microchip Technology, Oracle, Dollar Tree, Mettler-Toledo and Unilever. Microchip Technology has languished as the company works through inventory in its distribution channel. We believe this is a transitory, cyclical issue and the secular drivers for Microchip Technology’s business remain intact. Oracle is transitioning its business to a cloud-centric architecture from a traditional on-premises model. The transition from a legacy software architecture to a cloud-based solution can be lumpy, which pressured Oracle’s stock earlier in the year. We believe the company will successfully shift its installed base of customers to a cloud centric architecture. We trimmed our position in Dollar Tree earlier in the calendar year after its stock price quickly rose to our estimate of intrinsic value. More recently, execution concerns over the integration of the Family Dollar acquisition and the inflationary impact of U.S. tariffs on China on Dollar Tree’s inventory led to a sale of the remaining position in the stock. After contributing in the prior fiscal year, Microchip underperformed in fiscal year 2018. Our fundamental outlook for Microchip remains intact. Unilever saw a decrease to its stock value as pro-growth policy reforms caused a market rotation away from companies less dependent on the macro economy.
Strong contributors to performance included Intuit, XPO Logistics, Ecolab, Adobe and O’Reilly Auto Parts. Intuit’s cloud-based solutions for small businesses and do-it-yourself tax is expanding its market, which drove growth and market share gains. XPO Logistics reported low double-digit Q2 revenue growth, outpacing guidance and consensus estimates by a healthy margin. Ecolab, a global provider of water, hygiene and energy technologies, continues to see its business improve. Strong sales along with cost efficiencies helped increase earnings at a low double-digit rate. Adobe is the market leader in creative content and digital marketing solutions. Both
* | 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. |
7
Harbor Strategic Growth Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2011 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the Russell 1000® Growth Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | Life of Class | |||||||
Harbor Strategic Growth Fund | ||||||||
Institutional Class1 | 6.26% | 11.21% | 13.64% | |||||
Retirement Class2 | 6.34 | N/A | 11.44 | |||||
Administrative Class2 | 5.96 | N/A | 11.06 | |||||
Investor Class2 | 5.80 | N/A | 10.92 | |||||
Comparative Index | ||||||||
Russell 1000® Growth1 | 10.71% | 13.43% | 15.39% |
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.
markets are expanding rapidly as global enterprises engage customers in new ways and commerce shifts from a linear to a digital world. In our view, Adobe’s advantaged position helps enterprises migrate to a digital environment. O’Reilly Auto Parts rebounded strongly over period after the perceived threat of Amazon hurt the stock in 2017. We believe the company is being viewed as having an advantage over Amazon and its peers in fast delivery to professional repair shops and is better positioned to benefit from the growth in the number of vehicles that are 6 to 10 years old.
The Fund’s largest underweight and overweight sector exposures versus the benchmark remained the same throughout the period. The largest over-weights were Financials and Industrials, while the largest under-weights were in the traditional growth sectors of Information Technology, Consumer Discretionary and Health Care. Our portfolio construction process focuses on bottom-up factors independent of benchmark weights. The resulting sector exposures represent the areas in which we are finding skewed risk-reward opportunities in growth companies, and are not an expressed opinion on the sectors from a macro level.
OUTLOOK & STRATEGY
As we have shared in the past, 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 its 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. Judged by the Fund’s relatively narrow average margin of safety, or discount to intrinsic value, we think the pendulum sits on the more optimistic side of the scale. The Fund’s average discount to intrinsic value is currently 15%. This is lower than the typical discount we receive when investing in new companies. As a result, we expect future returns to correlate closely with our companies’ abilities to compound their intrinsic values. We believe our investment emphasis on owning compounding business models has the potential to do well in volatile periods. We will continue to allocate capital to what we believe to be competitively advantaged businesses when they trade below our estimates of intrinsic value.
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 portfolio 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 within our wide-moat universe.
1 | The “Life of Class” return as shown reflects the period 11/01/2011 through 10/31/2018. |
2 | The “Life of Class” return as shown reflects the period 03/06/2017 through 10/31/2018. |
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.
8
Harbor Strategic Growth Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | American Tower Corp. | 5.0% |
❷ | Berkshire Hathaway Inc. Class B | 5.0% |
❸ | Markel Corp. | 4.7% |
❹ | Alphabet Inc. Class C | 4.0% |
❺ | Apple Inc. | 3.9% |
❻ | Honeywell International Inc. | 3.9% |
❼ | XPO Logistics Inc. | 3.9% |
❽ | Intuit Inc. | 3.5% |
❾ | Ecolab Inc. | 3.2% |
❿ | Oracle Corp. | 3.2% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
9
Harbor Strategic Growth Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—93.2% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—2.1% | |||
4,541 | TransDigm Group Inc.* | $ 1,500 | |
AIR FREIGHT & LOGISTICS—3.9% | |||
30,354 | XPO Logistics Inc.* | 2,713 | |
AUTO COMPONENTS—0.0% | |||
614 | Garrett Motion Inc.* | 9 | |
BANKS—3.6% | |||
9,762 | First Republic Bank | 888 | |
31,856 | U.S. Bancorp. | 1,665 | |
2,553 | |||
BEVERAGES—2.2% | |||
13,518 | PepsiCo Inc. | 1,519 | |
CAPITAL MARKETS—2.3% | |||
10,951 | Moody's Corp. | 1,593 | |
CHEMICALS—5.0% | |||
14,515 | Ecolab Inc. | 2,223 | |
7,614 | Linde plc (Ireland) | 1,260 | |
3,483 | |||
DIVERSIFIED FINANCIAL SERVICES—5.0% | |||
17,189 | Berkshire Hathaway Inc. Class B* | 3,529 | |
ELECTRICAL EQUIPMENT—2.7% | |||
3,137 | Resideo Technologies Inc.* | 66 | |
39,355 | Sensata Technologies Holding plc (United Kingdom)* | 1,846 | |
1,912 | |||
ENERGY EQUIPMENT & SERVICES—2.3% | |||
5,838 | Core Laboratories NV (Netherlands) | 497 | |
21,412 | Schlumberger Ltd. | 1,099 | |
1,596 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—5.0% | |||
22,489 | American Tower Corp. | 3,504 | |
FOOD PRODUCTS—1.7% | |||
27,795 | Mondelez International Inc. | 1,167 | |
HEALTH CARE EQUIPMENT & SUPPLIES—2.9% | |||
8,493 | Teleflex Inc. | 2,045 | |
INDUSTRIAL CONGLOMERATES—6.9% | |||
18,819 | Honeywell International Inc. | 2,725 | |
7,482 | Roper Technologies Inc. | 2,117 | |
4,842 | |||
INSURANCE—4.7% | |||
3,018 | Markel Corp.* | 3,299 | |
INTERACTIVE MEDIA & SERVICES—5.7% | |||
2,596 | Alphabet Inc. Class C* | 2,795 | |
7,953 | Facebook Inc.* | 1,207 | |
4,002 | |||
INTERNET & DIRECT MARKETING RETAIL—2.6% | |||
1,158 | Amazon.com Inc.* | 1,851 | |
IT SERVICES—2.9% | |||
14,824 | Visa Inc. | 2,044 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
LIFE SCIENCES TOOLS & SERVICES—1.6% | |||
2,058 | Mettler-Toledo International Inc.* | $ 1,125 | |
MACHINERY—2.2% | |||
20,538 | Fortive Corp. | 1,525 | |
PERSONAL PRODUCTS—3.0% | |||
38,942 | Unilever NV (Netherlands) | 2,094 | |
PHARMACEUTICALS—3.9% | |||
4,671 | Allergan plc (Ireland) | 738 | |
14,003 | Johnson & Johnson | 1,960 | |
2,698 | |||
ROAD & RAIL—1.1% | |||
7,854 | Kansas City Southern | 801 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—2.8% | |||
30,225 | Microchip Technology Inc. | 1,988 | |
SOFTWARE—9.7% | |||
8,557 | Adobe Systems Inc.* | 2,103 | |
11,675 | Intuit Inc. | 2,464 | |
45,336 | Oracle Corp. | 2,214 | |
6,781 | |||
SPECIALTY RETAIL—3.5% | |||
21,331 | Carmax Inc.* | 1,449 | |
3,143 | O'Reilly Automotive Inc.* | 1,008 | |
2,457 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—3.9% | |||
12,402 | Apple Inc. | 2,714 | |
TOTAL COMMON STOCKS | |||
(Cost $53,663) | 65,344 | ||
TOTAL INVESTMENTS—93.2% | |||
(Cost $53,663) | 65,344 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—6.8% | 4,775 | ||
TOTAL NET ASSETS—100.0% | $70,119 |
10
Harbor Strategic Growth Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
* | Non-income producing security |
The accompanying notes are an integral part of the Financial Statements.
11
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, CPA
CFA, CPA
Mario E. Abularach,
CFA, CMT
CFA, CMT
Management’s Discussion of
Fund Performance
Fund Performance
MARKET REVIEW
U.S. equities posted positive results over the trailing 12-month period ended October 31, 2018, as measured by the S&P 500 Index. In line with expectations, the U.S. Federal Reserve raised its benchmark interest rate by 25 basis points four times during the year. Despite continued White House turmoil and heightened U.S. tensions with Russia and North Korea, strong employment data and corporate earnings helped propel the market to a series of new highs during the first half of the period. In December, tax reform was a key area of focus, culminating with a $1.5 trillion tax reform bill signed into law by President Trump. Entering 2018, bullish sentiment was exceptionally strong as better-than-expected corporate profits helped drive U.S. equities higher. Signs of inflation entered the market in February and led to heightened levels of volatility. By the summer of 2018, talk of tariffs and trade wars had progressed to implementation, raising concerns in an otherwise strong economy. Nonetheless, positive sentiment persisted for much of the summer, fueled by robust earnings growth, fiscal stimulus, the announcement of a preliminary trade deal between the U.S. and Mexico, and expectations for stronger U.S. economic growth relative to other regions of the world. This all changed in the final month of the period, as U.S. equities saw their worst performance in recent years in October. Concerns surrounding slowing global growth, rich valuations, and volatile trade relations with China weighed heavily on sentiment into the end of the period.
Performance
For the 12-month period ended October 31, 2018, the Harbor Mid Cap Growth Fund outperformed the Russell Midcap® Growth Index. The Fund returned 7.94% (Institutional Class), 8.02% (Retirement Class), 7.68% (Administrative Class), and 7.57% (Investor Class), while the benchmark finished up 6.14%.
Relative outperformance was driven by positive security selection, most notably within the Health Care, Information Technology, and Consumer Staples sectors. Unfavorable security selection within Consumer Discretionary, Communication Services, and Industrials partially offset positive returns. Sector allocation, a residual of the bottom-up stock selection process, also contributed to results, with an underweight allocation to Materials and Financials contributing most to relative performance. This was partially offset by the Fund’s average overweight to the Consumer Discretionary sector during the period.
DexCom, a provider of continuous glucose monitoring systems for diabetes patients, was the largest contributor to relative performance for the period. DexCom’s next generation product (G6) does not require finger pricks to check glucose levels and can be tracked continuously on a mobile device. We believe that the market does not yet appreciate the strength of their product lineup. DexCom’s stock price rallied during the period, most notably after the second quarter earnings announcement at the end of July, driven by higher than expected revenue growth. Although there is increased competition compared to their past two launches, we believe that strong demand will continue.
Flooring and related accessory retailer Floor & Décor, a stock in which we initiated a position during the period, was the most notable relative detractor. The company’s shares sold off after announcing second quarter earnings in August, which included softer than expected sales growth and lower same-store-sales. Third quarter guidance was below consensus expectations. Hurricane-related benefits from rebuilding efforts in the U.S. in late 2017 (notably in the Houston area after Hurricane Harvey) made year-over-year comparisons tough to beat. Still in its early phases of growth, we believe investors were focused on top line improvement
12
Harbor Mid Cap Growth Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the Russell Midcap® Growth Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor Mid Cap Growth Fund | ||||||||
Institutional Class | 7.94% | 10.31% | 13.28% | |||||
Retirement Class1 | 8.02 | 10.35 | 13.30 | |||||
Administrative Class | 7.68 | 10.03 | 13.01 | |||||
Investor Class | 7.57 | 9.93 | 12.89 | |||||
Comparative Index | ||||||||
Russell Midcap® Growth | 6.14% | 10.10% | 15.10% |
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.
and these results were a cause for worry. Additionally, Floor & Décor imports many of its materials from China, and with trade tensions front of mind for many investors, the share price continued to fall in the back half of the third quarter. We believe in the company’s long-term growth prospects and continue to hold the stock as of the end of the period.
OUTLOOK & STRATEGY
While we remain optimistic in our outlook for continued economic growth in the U.S., we are becoming more cautious around macroeconomic uncertainties including the impacts of trade tensions between the U.S. and China. We are still identifying a wide array of differentiated ideas in the Fund, and while we generally believe valuations are not as attractive as they have been over the past year, we are finding a number of companies that we view as mispriced based on our expectations for continued economic growth. We have not made any wholesale changes to the Fund, but our transactions have become more defensive than in recent quarters.
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, in our opinion, 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 Health Care sector and a decrease in Information Technology. This resulted in Health Care becoming the Fund’s largest overweight by the end of the period, followed by Consumer Staples and Consumer Discretionary. As of the end of the period, the Fund’s largest underweight allocations were to the Industrials, Financials, and Real Estate 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.
13
Harbor Mid Cap Growth Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Exact Sciences Corp. | 4.4% |
❷ | Workday Inc. | 3.9% |
❸ | ServiceNow Inc. | 3.4% |
❹ | Guidewire Software Inc. | 3.2% |
❺ | Spotify Technology SA | 3.2% |
❻ | Wayfair Inc. | 3.2% |
❼ | CoStar Group Inc. | 3.1% |
❽ | Monster Beverage Corp. | 2.8% |
❾ | DexCom Inc. | 2.7% |
❿ | Align Technology Inc. | 2.7% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
14
Harbor Mid Cap Growth Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—93.6% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—2.1% | |||
49,212 | Harris Corp. | $ 7,318 | |
AIRLINES—1.5% | |||
301,715 | JetBlue Airways Corp.* | 5,048 | |
AUTOMOBILES—1.4% | |||
40,066 | Ferrari NV (Netherlands) | 4,692 | |
BEVERAGES—2.8% | |||
181,126 | Monster Beverage Corp.* | 9,573 | |
BIOTECHNOLOGY—8.3% | |||
6,906 | Bluebird Bio Inc.* | 792 | |
215,637 | Exact Sciences Corp.* | 15,321 | |
31,126 | Galapagos NV (Belgium)* | 3,198 | |
4,700 | Galapagos NV ADR (Belgium)*,1 | 483 | |
77,839 | Ionis Pharmaceuticals Inc.* | 3,857 | |
23,340 | Sage Therapeutics Inc.* | 3,003 | |
36,336 | Seattle Genetics Inc.* | 2,039 | |
28,693 | |||
CAPITAL MARKETS—2.7% | |||
179,615 | TD Ameritrade Holding Corp. | 9,290 | |
COMMERCIAL SERVICES & SUPPLIES—1.0% | |||
54,369 | Brink's Co. | 3,606 | |
CONSTRUCTION MATERIALS—1.8% | |||
62,564 | Vulcan Materials Co. | 6,328 | |
DIVERSIFIED CONSUMER SERVICES—1.3% | |||
36,801 | Grand Canyon Education Inc.* | 4,589 | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—3.0% | |||
94,844 | II-VI Inc.* | 3,531 | |
42,074 | Zebra Technologies Corp.* | 6,997 | |
10,528 | |||
ENTERTAINMENT—3.3% | |||
75,221 | Spotify Technology SA (Sweden)* | 11,260 | |
FOOD PRODUCTS—2.1% | |||
93,731 | Lamb Weston Holdings Inc. | 7,326 | |
HEALTH CARE EQUIPMENT & SUPPLIES—14.2% | |||
42,237 | Align Technology Inc.* | 9,343 | |
82,304 | Baxter International Inc. | 5,145 | |
71,721 | DexCom Inc.* | 9,522 | |
54,871 | Edwards Lifesciences Corp.* | 8,099 | |
65,324 | Haemonetics Corp.* | 6,824 | |
76,077 | Insulet Corp.* | 6,711 | |
26,350 | Penumbra Inc.* | 3,584 | |
49,228 | |||
HEALTH CARE TECHNOLOGY—1.6% | |||
60,399 | Veeva Systems Inc.* | 5,517 | |
HOTELS, RESTAURANTS & LEISURE—6.3% | |||
85,577 | Hilton Grand Vacations Inc.* | 2,299 | |
31,878 | Marriott Vacations Worldwide Corp. | 2,821 | |
197,893 | Melco Resorts & Entertainment Ltd. ADR (Hong Kong)1 | 3,291 | |
78,125 | Norwegian Cruise Line Holdings Ltd. (Bermuda)* | 3,443 | |
86,742 | Planet Fitness Inc.* | 4,258 | |
23,116 | Vail Resorts Inc. | 5,810 | |
21,922 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
INDUSTRIAL CONGLOMERATES—1.2% | |||
14,634 | Roper Technologies Inc. | $ 4,140 | |
INTERNET & DIRECT MARKETING RETAIL—5.0% | |||
48,529 | Shutterfly Inc.* | 2,426 | |
73,695 | TripAdvisor Inc.* | 3,843 | |
100,162 | Wayfair Inc.* | 11,047 | |
17,316 | |||
IT SERVICES—2.7% | |||
73,933 | GoDaddy Inc.* | 5,410 | |
28,357 | Shopify Inc. Class A (Canada)* | 3,917 | |
9,327 | |||
LEISURE PRODUCTS—1.1% | |||
44,702 | Polaris Industries Inc. | 3,978 | |
MACHINERY—1.3% | |||
34,806 | IDEX Corp. | 4,414 | |
OIL, GAS & CONSUMABLE FUELS—1.6% | |||
15,992 | Diamondback Energy Inc. | 1,797 | |
242,215 | WPX Energy Inc.* | 3,885 | |
5,682 | |||
PHARMACEUTICALS—0.1% | |||
7,200 | Elanco Animal Health Inc.* | 219 | |
PROFESSIONAL SERVICES—3.1% | |||
29,735 | CoStar Group Inc.* | 10,747 | |
3,200 | Upwork Inc.* | 61 | |
10,808 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—4.6% | |||
400,632 | Advanced Micro Devices Inc.* | 7,296 | |
190,211 | Teradyne Inc. | 6,553 | |
17,302 | Universal Display Corp. | 2,128 | |
15,977 | |||
SOFTWARE—15.9% | |||
74,366 | 2U Inc.* | 4,678 | |
41,847 | Autodesk Inc.* | 5,409 | |
22,527 | Fair Isaac Corp.* | 4,341 | |
125,569 | Guidewire Software Inc.* | 11,172 | |
211,000 | Pivotal Software Inc.* | 4,304 | |
65,477 | ServiceNow Inc.* | 11,854 | |
101,541 | Workday Inc.* | 13,507 | |
55,265 | |||
SPECIALTY RETAIL—1.2% | |||
165,638 | Floor & Decor Holdings Inc.* | 4,237 | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—0.9% | |||
87,285 | Logitech International SA (Switzerland) | 3,231 | |
TEXTILES, APPAREL & LUXURY GOODS—1.5% | |||
57,616 | Under Armour Inc. Class A* | 1,274 | |
196,884 | Under Armour Inc. Class C* | 3,904 | |
5,178 | |||
TOTAL COMMON STOCKS | |||
(Cost $281,763) | 324,690 | ||
15
Harbor Mid Cap Growth Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
SHORT-TERM INVESTMENTS—8.2% | |||
(Cost $28,395) | |||
Principal Amount | Value | ||
Repurchase Agreement with Bank of America dated October 31, 2018 due November 01, 2018 at 2.180% collateralized by U.S. Treasury Notes (value $29,261) | |||
$ | 28,395 | $ 28,395 | |
TOTAL INVESTMENTS—101.8% | |||
(Cost $310,158) | 353,085 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(1.8)% | (6,403) | ||
TOTAL NET ASSETS—100.0% | $346,682 |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of October 31, 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 | ||||||||
Aerospace & Defense | $ 7,318 | $ — | $— | $ 7,318 | ||||
Airlines | 5,048 | — | — | 5,048 | ||||
Automobiles | 4,692 | — | — | 4,692 | ||||
Beverages | 9,573 | — | — | 9,573 | ||||
Biotechnology | 28,370 | 323 | — | 28,693 | ||||
Capital Markets | 9,290 | — | — | 9,290 | ||||
Commercial Services & Supplies | 3,606 | — | — | 3,606 | ||||
Construction Materials | 6,328 | — | — | 6,328 | ||||
Diversified Consumer Services | 4,589 | — | — | 4,589 | ||||
Electronic Equipment, Instruments & Components | 10,528 | — | — | 10,528 | ||||
Entertainment | 11,260 | — | — | 11,260 | ||||
Food Products | 7,326 | — | — | 7,326 | ||||
Health Care Equipment & Supplies | 49,228 | — | — | 49,228 | ||||
Health Care Technology | 5,517 | — | — | 5,517 | ||||
Hotels, Restaurants & Leisure | 21,922 | — | — | 21,922 | ||||
Industrial Conglomerates | 4,140 | — | — | 4,140 | ||||
Internet & Direct Marketing Retail | 17,316 | — | — | 17,316 | ||||
IT Services | 9,327 | — | — | 9,327 | ||||
Leisure Products | 3,978 | — | — | 3,978 | ||||
Machinery | 4,414 | — | — | 4,414 | ||||
Oil, Gas & Consumable Fuels | 5,682 | — | — | 5,682 | ||||
Pharmaceuticals | 219 | — | — | 219 | ||||
Professional Services | 10,808 | — | — | 10,808 | ||||
Semiconductors & Semiconductor Equipment | 15,977 | — | — | 15,977 | ||||
Software | 55,265 | — | — | 55,265 | ||||
Specialty Retail | 4,237 | — | — | 4,237 | ||||
Technology Hardware, Storage & Peripherals | 148 | 3,083 | — | 3,231 | ||||
Textiles, Apparel & Luxury Goods | 5,178 | — | — | 5,178 | ||||
Short-Term Investments | ||||||||
Repurchase Agreements | — | 28,395 | — | 28,395 | ||||
Total Investments in Securities | $321,284 | $31,801 | $— | $353,085 |
There were no Level 3 holdings at October 31, 2018 or 2017.
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.
16
Harbor Mid Cap Growth 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. |
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 advanced with determination throughout much of the year, only to give back a substantial portion of those gains in October. While stocks had shrugged off increasingly loud political rhetoric concerning matters of trade between the U.S. and its biggest trading partners, fears of an economic slowdown have become more tangible as pockets of weakness have surfaced and signs of de-escalating trade tensions remain absent. We are closely watching developments with regard to growth, inflation, and credit for signs of a potential harbinger of things to come, but no signals currently reflect a changing trajectory. As always, we endeavor to identify those companies with the best fundamental prospects based on rigorous, bottom-up research as we believe they will offer the highest rewards over a complete market cycle.
Performance
Harbor Small Cap Growth Fund returned 4.97% (Institutional Class), 5.11% (Retirement Class), 4.76% (Administrative Class), and 4.58% (Investor Class) for the 12-month period ended October 31, 2018, outperforming the Russell 2000® Growth Index, which advanced 4.13%. Investments in Information Technology, Consumer Discretionary, and Energy offset relative weakness in Materials and Health Care.
Information Technology contributed 364 basis points (bps) to relative returns during the period, nearly entirely via stock selection. Zendesk, Inc., which offers a high-quality and differentiated customer service platform, was the sector’s top relative performer. 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, the company’s sales force is strategically focused on providing enterprise solution sales and, as a result, average deal sizes are increasing. 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. Ultimate Software Group, Inc., a developer of web-based payroll and workforce management software solutions, also drove the sector’s relative outperformance. We met with the company at a human resources technology industry trade show and walked away feeling positive about both the broader industry as well as the company itself, which is gaining market share. The company recently delivered high-quality quarterly results with record bookings and incremental upside from acquisitions, and raised its forward guidance for the third quarter as well as for the entire fiscal year. Incremental details around a recently-announced acquisition released in mid-October should be supportive of our bullish thesis, which centers around the company’s open-ended growth story.
Consumer Discretionary was another top driver of the Fund’s relative returns. Eldorado Resorts Inc., an operator of hotels, resorts, and casinos, was the sector’s top relative performer. The company announced in early September that it had entered into a sports betting partnership which should enable it to benefit from growth in this market as it becomes increasingly legalized. Importantly, we believe the partnership is unlike the typical joint ventures that have been formed by other casino operators in that it should offer Eldorado substantially higher upside. We remain excited about our investment given healthy underlying regional gaming trends and the company’s diverse and stable asset base. Also, positively impacting the sector’s relative performance was the Fund’s position in specialty apparel retailer American Eagle Outfitters, Inc. We purchased the stock in January on the premise that the company was facing favorable same-store margin comparisons and continued attractive growth prospects for its young adult
18
Harbor Small Cap Growth Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the Russell 2000® Growth Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor Small Cap Growth Fund | ||||||||
Institutional Class | 4.97% | 8.98% | 13.99% | |||||
Retirement Class1 | 5.11 | 9.04 | 14.02 | |||||
Administrative Class | 4.76 | 8.64 | 13.69 | |||||
Investor Class | 4.58 | 8.57 | 13.57 | |||||
Comparative Index | ||||||||
Russell 2000® Growth | 4.13% | 8.75% | 13.89% |
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.
loungewear concept in addition to tax reform tailwinds. The brand stands out to us as one which has demonstrated greater consistency of sales and profitability, with strong brand identity and recognized leadership in the denim product category, which we believe is one of the most important within the apparel industry.
Energy was also a top source of strength in terms of relative performance. RSP Permian, Inc., which acquires, explores, and develops oil and gas resources in the Permian Basin of West Texas, was the sector’s top relative performer. The foundation of our investment in the company was our belief that RSP Permian maintains premier geological exposure and has shown a track record of execution. In late March, 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 its Permian Basin portfolio, resulting in a combined entity that will become the biggest operator in the region. We have since sold the shares in Concho given the company’s current market capitalization.
Partially offsetting some of the Fund’s relative outperformance during the year was weakness in Materials, where a combination of an overweight position in the sector as well as stock-specific weakness within the group delivered 104 bps of relative losses. Supplier of construction materials and infrastructure services Summit Materials, Inc. was the sector’s largest detractor from performance. The shares have languished in light of Wall Street estimate cuts which materialized on the heels of extremely wet weather in September and October. Furthermore, investors punished the shares given the company’s high leverage as, in our opinion, investors sought to de-risk their portfolios.
The Health Care sector was also an area of underperformance, where investments cost the Fund 80 bps in relative gains. Clovis Oncology, Inc., a developer of innovative anti-cancer agents, was the Fund’s largest detractor in the sector. We resolved to sell the stock after the company presented initial clinical trial results in October that showed its anti-cancer agent Rubraca had limited activity in treating prostate cancer. We had initially been invested in the shares given our expectations for the company’s market potential and the fact that Clovis represented a possible acquisition target, but determined that its risk/reward profile had changed. Also negatively impacting the sector’s relative returns was the Fund’s position in Prothena Corp. Plc, a biotechnology company focused on the discovery and development of novel antibodies. The stock traded down sharply in April after the company announced that it would discontinue its development of NEO001, a compound targeted as a treatment of AL amyloidosis (a condition where an abnormal protein builds up in one’s organs). We had managed the position size heading into the event, and sold the position in its entirety in May.
Outlook & Strategy
Going forward, we are closely monitoring undercurrents within the market as well as our own risk measures to assess the best areas to commit capital. In our opinion, the U.S. economy remains strong, but as the recent market performance has shown, fears of slowing growth are rising and certain pockets of the market warrant more careful consideration. That said, we believe the traditional warning signals of an impending recession remain largely absent today, despite the market rout experienced in October.
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. |
19
Harbor Small Cap Growth Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
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.
20
Harbor Small Cap Growth Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | ICON plc | 2.6% |
❷ | BIO-RAD Laboratories Inc. | 2.4% |
❸ | Ultimate Software Group Inc. | 2.4% |
❹ | Ascendis Pharma A/S ADR | 2.2% |
❺ | Integra LifeSciences Holdings Corp. | 2.2% |
❻ | LPL Financial Holdings Inc. | 2.2% |
❼ | Madison Square Garden Co. | 2.2% |
❽ | American Eagle Outfitters Inc. | 2.1% |
❾ | Dave & Buster’s Entertainment Inc. | 2.0% |
❿ | Teledyne Technologies Inc. | 2.0% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
21
Harbor Small Cap Growth Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—97.6% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—3.8% | |||
187,555 | HEICO Corp. | $ 12,502 | |
65,885 | Teledyne Technologies Inc.* | 14,579 | |
27,081 | |||
BANKS—1.5% | |||
262,940 | Bank of NT Butterfield & Son Ltd. (Bermuda) | 10,594 | |
BIOTECHNOLOGY—8.2% | |||
241,852 | Acceleron Pharma Inc.* | 12,279 | |
234,391 | Apellis Pharmaceuticals Inc.* | 3,279 | |
246,230 | Ascendis Pharma A/S ADR (Denmark)*,1 | 15,830 | |
108,356 | Blueprint Medicines Corp.* | 6,585 | |
317,000 | Fate Therapeutics Inc.* | 3,950 | |
83,620 | Fibrogen Inc.* | 3,585 | |
735,209 | Ironwood Pharmaceuticals Inc.* | 9,631 | |
262,650 | Momenta Pharmaceuticals Inc.* | 3,285 | |
58,424 | |||
CAPITAL MARKETS—3.3% | |||
215,320 | Hamilton Lane Inc. | 8,264 | |
253,342 | LPL Financial Holdings Inc. | 15,606 | |
23,870 | |||
CHEMICALS—3.0% | |||
143,060 | Ingevity Corp.* | 13,030 | |
156,710 | Trinseo SA (Luxembourg) | 8,443 | |
21,473 | |||
COMMERCIAL SERVICES & SUPPLIES—1.9% | |||
127,270 | MSA Safety Inc. | 13,292 | |
COMMUNICATIONS EQUIPMENT—1.9% | |||
210,550 | Acacia Communications Inc.* | 7,257 | |
522,355 | Viavi Solutions Inc.* | 6,023 | |
13,280 | |||
CONSTRUCTION MATERIALS—0.8% | |||
429,841 | Summit Materials Inc.* | 5,803 | |
CONSUMER FINANCE—1.0% | |||
97,718 | Green Dot Corp.* | 7,401 | |
CONTAINERS & PACKAGING—1.8% | |||
288,130 | Berry Global Group Inc.* | 12,568 | |
DIVERSIFIED CONSUMER SERVICES—4.4% | |||
93,190 | Bright Horizons Family Solutions Inc.* | 10,709 | |
284,707 | Frontdoor Inc.* | 9,694 | |
250,725 | Servicemaster Global Holdings Inc.* | 10,751 | |
31,154 | |||
ENTERTAINMENT—3.2% | |||
373,651 | Lions Gate Entertainment Corp. Class B (Canada) | 6,647 | |
57,749 | Madison Square Garden Co.* | 15,975 | |
22,622 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—7.3% | |||
85,713 | Cantel Medical Corp. | 6,784 | |
93,050 | Haemonetics Corp.* | 9,721 | |
288,920 | Integra LifeSciences Holdings Corp.* | 15,478 | |
83,981 | Masimo Corp.* | 9,708 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HEALTH CARE EQUIPMENT & SUPPLIES—Continued | |||
129,790 | Novocure Ltd. (Jersey)* | $ 4,301 | |
220,100 | Wright Medical Group NV (Netherlands)* | 5,938 | |
51,930 | |||
HEALTH CARE TECHNOLOGY—1.4% | |||
165,920 | Evolent Health Inc.* | 3,684 | |
89,142 | Omnicell Inc.* | 6,302 | |
9,986 | |||
HOTELS, RESTAURANTS & LEISURE—3.2% | |||
235,910 | Dave & Buster's Entertainment Inc. | 14,048 | |
245,092 | Eldorado Resorts Inc.* | 8,946 | |
22,994 | |||
INSURANCE—1.4% | |||
130,627 | Kemper Corp. | 9,822 | |
IT SERVICES—4.2% | |||
218,890 | Interxion Holding NV (Netherlands)* | 12,886 | |
51,547 | WEX Inc.* | 9,070 | |
162,195 | WNS Holdings Ltd. ADR (Jersey)*,1 | 8,141 | |
30,097 | |||
LIFE SCIENCES TOOLS & SERVICES—5.0% | |||
62,615 | BIO-RAD Laboratories Inc.* | 17,085 | |
135,444 | ICON plc (Ireland)* | 18,702 | |
35,787 | |||
MACHINERY—3.8% | |||
261,260 | Flowserve Corp. | 11,992 | |
107,140 | Lincoln Electric Holdings Inc. | 8,669 | |
281,080 | Milacron Holdings Corp.* | 3,935 | |
253,180 | NN Inc. | 2,937 | |
27,533 | |||
MARINE—0.5% | |||
105,010 | Matson Inc. | 3,684 | |
MEDIA—1.5% | |||
144,014 | Nexstar Media Group Inc. | 10,785 | |
OIL, GAS & CONSUMABLE FUELS—5.3% | |||
608,820 | Centennial Resource Development Inc.* | 11,665 | |
299,030 | PBF Energy Inc. | 12,515 | |
864,160 | WPX Energy Inc.* | 13,861 | |
38,041 | |||
PHARMACEUTICALS—5.8% | |||
146,811 | Catalent Inc.* | 5,922 | |
1,845,279 | Correvio Pharma Corp. (Canada)* | 6,237 | |
359,990 | Cymabay Therapeutics Inc.* | 3,798 | |
267,405 | Intersect ENT Inc.* | 7,503 | |
431,660 | Medicines Co.* | 10,041 | |
189,960 | Zogenix Inc.* | 7,933 | |
41,434 | |||
REAL ESTATE MANAGEMENT & DEVELOPMENT—1.1% | |||
216,585 | HFF Inc.* | 7,959 | |
ROAD & RAIL—1.3% | |||
167,910 | Ryder System Inc. | 9,287 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—3.4% | |||
152,460 | Advanced Energy Industries Inc.* | 6,560 |
22
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 | ||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—Continued | |||
126,530 | Inphi Corp.* | $ 4,049 | |
80,280 | Monolithic Power Systems Inc. | 9,483 | |
402,285 | Ultra Clean Holdings Inc.* | 4,232 | |
24,324 | |||
SOFTWARE—10.0% | |||
148,644 | Alarm.com Holdings Inc.* | 6,612 | |
61,131 | Commvault Systems Inc.* | 3,559 | |
89,490 | Nice Ltd. ADR (Israel)*,1 | 9,480 | |
740,270 | Nuance Communications Inc.* | 12,873 | |
114,284 | Proofpoint Inc.* | 10,394 | |
112,164 | Tableau Software Inc.* | 11,966 | |
62,956 | Ultimate Software Group Inc.* | 16,786 | |
71,670 | |||
SPECIALTY RETAIL—4.3% | |||
663,740 | American Eagle Outfitters Inc. | 15,306 | |
143,010 | National Vision Holdings Inc.* | 5,925 | |
897,980 | Party City Holdco Inc.* | 9,402 | |
30,633 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
TRADING COMPANIES & DISTRIBUTORS—3.3% | |||
343,926 | Rush Enterprises Inc. | $ 12,172 | |
452,000 | Univar Inc.* | 11,128 | |
23,300 | |||
TOTAL COMMON STOCKS | |||
(Cost $678,811) | 696,828 | ||
TOTAL INVESTMENTS—97.6% | |||
(Cost $678,811) | 696,828 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—2.4% | 17,432 | ||
TOTAL NET ASSETS—100.0% | $714,260 |
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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 October 31, 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 10/31/2018 (000s) | |||||||
Correvio Pharma Corp. (Canada)2 | $3,014 | $1,236 | $(240) | $(1,375) | $3,602 | $– | $6,237 |
* | 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 | Previously known as Cardiome Pharma Corp. |
The accompanying notes are an integral part of the Financial Statements.
23
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 for much of the fiscal year due in part to tax legislation that moved through Congress and was ultimately signed into law by President Trump near the end of 2017. Regarding small cap companies, we expect the overall effect should be relatively positive as tax rates drop from the mid-to-upper 30% into the low 20% range. Of course, each company must be addressed individually to determine the ultimate effect.
In early February, volatility returned to the market with a sudden fury. The CBOE Volatility Index posted a historically massive one-day increase on February 5th, and that increase was correlated with dramatic collateral moves in the financial markets. Stock prices subsequently recovered from the end of February through the spring and summer. October then saw another large sell-off that seemed to start based on valuation concerns in sectors of the market that had previously been in market favor, then gained momentum on growth concerns through the end of the month.
Performance
For the 12-month period ended October 31, 2018, Harbor Small Cap Growth Opportunities Fund returned 10.55% (Institutional Class), 10.53% (Retirement Class), 10.26% (Administrative Class), and 10.12% (Investor Class), outperforming its benchmark, the Russell 2000® Growth Index, which was up 4.13% for the same period.
Small cap stocks have underperformed large cap stocks over the period, as represented by the Russell 1000® Index return of 6.98% and the Russell 2000® Index return of 1.85%. Within small cap stocks, growth has outperformed value with the Russell 2000® Growth Index posting a return of 4.13% versus the Russell 2000® Value return of -0.59%, in the same period.
Performance of the Fund has been driven primarily by stock selection, which is consistent with our team’s investment process and reflected in our longer-term track record. The sector in which stock selection most helped the Fund was Health Care. Stock selection in the Industrials sector detracted from performance over the last fiscal year. Sector allocation is not a primary focus of our investment strategy.
Cerus Corp., a viral pathogen-inactivation company for blood-based products, was a strong contributor for the Fund over the fiscal year. Cerus’ products continue to demonstrate growth rates above their respective markets, and the company had positive European data from a pivotal trial that could lead to a new product application overseas, opening a large market opportunity.
Biotechnology company, Sarepta Therapeutics, Inc., focused on Duchenne’s Muscular Dystrophy, was another positive performer for the Fund. The company experienced commercial success in its first year of marketing Exondys 51, and we continue to be optimistic about this drug’s growth prospects as we believe the market dynamics favor the product. Also, a potentially competitive therapy, using a genetic approach, ran into issues during early clinical development, which caused that trial to be halted. Meanwhile Sarepta’s genetic trials showed promising improvement, though the data is still far from finishing clinical trials. We sold this position because its market capitalization appreciated outside of our universe during the period.
World Wrestling Entertainment, a global professional wrestling, integrated media, and entertainment company, was another contributor. Operationally, the company has delivered better than expected results recently, and it also finalized significantly better financial terms for the company’s upcoming broadcast contract renewal.
24
Harbor Small Cap Growth Opportunities Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 02/01/2014 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the Russell 2000® Growth Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | 5 Years | Annualized | ||||||
Life of Fund | ||||||||
Harbor Small Cap Growth Opportunities Fund | ||||||||
Institutional Class1 | 10.55% | N/A | 8.09% | |||||
Retirement Class1,2 | 10.53 | N/A | 8.12 | |||||
Administrative Class1 | 10.26 | N/A | 7.94 | |||||
Investor Class1 | 10.12 | N/A | 7.68 | |||||
Comparative Index | ||||||||
Russell 2000® Growth1 | 4.13% | N/A | 8.25% |
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.
MaxLinear, Inc., an analog and mixed-signal semiconductor company, was a detractor for the Fund. Between a delay in Chinese optical orders and the short-lived U.S. ban on Chinese telecom company, ZTE, investors were concerned about MaxLinear’s near-term revenues. We believe that these concerns were overly magnified, leading to a disproportionate decline in the stock compared to the relative potential impact of these issues.
Software company, Synchronoss Technologies, Inc., that provides solutions for mobile devices, was a poor performer after delaying filing financial statements, resulting in a suspension from the NASDAQ. This development created a short-term imbalance in the shareholder base independent of the company’s fundamentals. The company did eventually file financial statements and resolved outstanding issues with NASDAQ resulting in its reinstatement on the exchange.
Shares of NN, Inc., a diversified machining company, declined despite posting solid operational results. Industrial stocks, as a sector, were weak later in the fiscal year relative to their respective benchmarks as investor concerns over trade and global economic growth have intensified. NN, Inc. has underperformed its peer group because it has relatively higher debt compared to other industrial companies. Given NN Inc.’s higher exposure to healthcare end-markets, we are comfortable with the company’s balance sheet and remain patient with this investment.
Outlook & StRategy
Equities performed well for much of 2018, providing investors with a boost of optimism. It remains to be seen if October’s sell off in equities will continue into the end of the calendar year or beyond. We are looking to quarterly results reported in November to give us the next clues as to whether or not the growth concerns driving the market’s downturn are well founded.
In this environment, it is important to reiterate that we continue to stay disciplined and committed to our longstanding investment style and process. Over the past several months, consistent with our typical behavior, we reduced some positions due to price appreciation, and some positions were exited entirely upon achieving price targets. We remain optimistic about the fundamentals of the holdings in the portfolio, and we look forward to upcoming earnings reports in the weeks to come.
1 | The “Life of Fund” return as shown reflects the period 02/01/2014 through 10/31/2018. |
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.
25
Harbor Small Cap Growth Opportunities Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Interxion Holding NV | 2.7% |
❷ | Quotient Technology Inc. | 2.7% |
❸ | MaxLinear Inc. | 2.6% |
❹ | Evolent Health Inc. | 2.4% |
❺ | Cerus Corp. | 2.2% |
❻ | Pacira Pharmaceuticals Inc. | 2.1% |
❼ | Electronics for Imaging Inc. | 1.8% |
❽ | Inphi Corp. | 1.6% |
❾ | Iridium Communications Inc. | 1.6% |
❿ | Surgery Partners Inc. | 1.6% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
26
Harbor Small Cap Growth Opportunities Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—97.5% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—1.0% | |||
192,633 | Maxar Technologies Ltd. (Canada) | $ 2,872 | |
AIR FREIGHT & LOGISTICS—1.6% | |||
40,950 | Atlas Air Worldwide Holdings Inc.* | 2,114 | |
91,477 | Echo Global Logistics Inc.* | 2,352 | |
4,466 | |||
BANKS—2.3% | |||
53,693 | Chemical Financial Corp. | 2,516 | |
56,978 | FB Financial Corp. | 2,079 | |
77,695 | Tristate Capital Holdings Inc.* | 1,959 | |
6,554 | |||
BEVERAGES—0.9% | |||
162,536 | Primo Water Corp.* | 2,709 | |
BIOTECHNOLOGY—6.5% | |||
28,649 | BioSpecifics Technologies Corp.* | 1,755 | |
140,542 | Halozyme Therapeutics Inc.* | 2,183 | |
41,654 | Intercept Pharmaceuticals Inc.* | 3,999 | |
15,838 | Ligand Pharmaceuticals Inc.* | 2,610 | |
100,943 | PTC Therapeutics Inc.* | 3,888 | |
37,238 | Spark Therapeutics Inc.* | 1,676 | |
86,500 | Tesaro Inc.* | 2,498 | |
18,609 | |||
COMMERCIAL SERVICES & SUPPLIES—2.4% | |||
114,922 | Advanced Disposal Services Inc.* | 3,113 | |
89,677 | Healthcare Services Group Inc. | 3,640 | |
6,753 | |||
COMMUNICATIONS EQUIPMENT—3.2% | |||
225,347 | Casa Systems Inc.* | 3,245 | |
574,285 | Infinera Corp.* | 3,181 | |
149,379 | Quantenna Communications Inc.* | 2,683 | |
9,109 | |||
CONSTRUCTION & ENGINEERING—1.5% | |||
96,130 | Mastec Inc.* | 4,183 | |
CONSUMER FINANCE—1.0% | |||
38,612 | Green Dot Corp.* | 2,924 | |
DIVERSIFIED CONSUMER SERVICES—1.9% | |||
68,340 | Adtalem Global Education Inc.* | 3,460 | |
76,234 | Chegg Inc.* | 2,080 | |
5,540 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—1.6% | |||
226,023 | Iridium Communications Inc.* | 4,478 | |
ELECTRICAL EQUIPMENT—0.5% | |||
123,032 | Power Solutions International Inc.* | 1,476 | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.4% | |||
63,112 | Methode Electronics Inc. | 1,868 | |
43,513 | MTS Systems Corp. | 2,060 | |
3,928 | |||
FOOD & STAPLES RETAILING—0.4% | |||
33,357 | Chefs' Warehouse Inc.* | 1,122 | |
FOOD PRODUCTS—1.1% | |||
83,071 | Freshpet Inc.* | 3,165 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HEALTH CARE EQUIPMENT & SUPPLIES—5.8% | |||
928,406 | Cerus Corp.* | $ 6,220 | |
74,091 | Cryolife Inc.* | 2,296 | |
339,220 | Invacare Corp. | 4,383 | |
132,291 | Wright Medical Group NV (Netherlands)* | 3,569 | |
16,468 | |||
HEALTH CARE PROVIDERS & SERVICES—2.5% | |||
336,863 | R1 RCM Inc.* | 2,853 | |
326,125 | Surgery Partners Inc.* | 4,432 | |
7,285 | |||
HEALTH CARE TECHNOLOGY—5.5% | |||
310,014 | Evolent Health Inc.* | 6,882 | |
164,544 | Nextgen Healthcare Inc.* | 2,430 | |
27,900 | Omnicell Inc.* | 1,973 | |
25,910 | Teladoc Inc.* | 1,797 | |
77,510 | Vocera Communications Inc.* | 2,690 | |
15,772 | |||
HOTELS, RESTAURANTS & LEISURE—3.7% | |||
11,642 | Churchill Downs Inc. | 2,906 | |
54,537 | Dave & Buster's Entertainment Inc. | 3,248 | |
324,716 | Playa Hotels & Resorts NV (Netherlands)* | 2,789 | |
52,432 | Red Robin Gourmet Burgers Inc.* | 1,583 | |
10,526 | |||
INSURANCE—2.4% | |||
44,239 | Kinsale Capital Group Inc. | 2,641 | |
154,256 | National General Holdings Corp. | 4,298 | |
6,939 | |||
INTERNET & DIRECT MARKETING RETAIL—4.1% | |||
110,965 | NutriSystem Inc. | 3,946 | |
592,530 | Quotient Technology Inc.* | 7,626 | |
11,572 | |||
IT SERVICES—6.5% | |||
83,876 | Carbonite Inc.* | 2,869 | |
56,419 | Cardtronics plc (United Kingdom)* | 1,532 | |
72,895 | EVO Payments Inc.* | 1,731 | |
70,180 | GTT Communications Inc.* | 2,519 | |
131,843 | InterXion Holding NV (Netherlands)* | 7,762 | |
43,453 | WNS Holdings Ltd. ADR (India)*,1 | 2,181 | |
18,594 | |||
LEISURE PRODUCTS—0.7% | |||
173,314 | Nautilus Inc.* | 2,120 | |
MACHINERY—6.1% | |||
95,896 | Actuant Corp. | 2,287 | |
75,509 | CIRCOR International Inc. | 2,455 | |
136,922 | Kornit Digital Ltd. (Israel)* | 2,528 | |
109,193 | Meritor Inc.* | 1,855 | |
284,239 | NN Inc. | 3,297 | |
162,056 | REV Group Inc. | 1,768 | |
117,026 | Rexnord Corp.* | 3,137 | |
17,327 | |||
MEDIA—1.0% | |||
39,645 | World Wrestling Entertainment Inc. | 2,878 | |
OIL, GAS & CONSUMABLE FUELS—3.2% | |||
292,420 | Callon Petroleum Co.* | 2,915 |
27
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 | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
81,529 | Carrizo Oil & Gas Inc.* | $ 1,485 | |
89,321 | Matador Resources Co.* | 2,576 | |
32,603 | SM Energy Co. | 794 | |
208,635 | SRC Energy Inc.* | 1,477 | |
9,247 | |||
PHARMACEUTICALS—3.9% | |||
112,324 | Medicines Co.* | 2,613 | |
123,028 | Pacira Pharmaceuticals Inc.* | 6,015 | |
817,785 | Teligent Inc.* | 2,625 | |
11,253 | |||
PROFESSIONAL SERVICES—1.4% | |||
100,610 | WageWorks Inc.* | 4,005 | |
ROAD & RAIL—1.3% | |||
246,752 | Daseke Inc.* | 1,500 | |
35,251 | Saia Inc.* | 2,216 | |
3,716 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—4.2% | |||
145,911 | Inphi Corp.* | 4,669 | |
380,922 | MaxLinear Inc.* | 7,394 | |
12,063 | |||
SOFTWARE—5.3% | |||
91,880 | Benefitfocus Inc.* | 3,265 | |
26,924 | Imperva Inc.* | 1,490 | |
34,961 | LogMeIn Inc. | 3,011 | |
249,083 | Onespan Inc.* | 3,655 | |
645,406 | Synchronoss Technologies Inc.* | 3,821 | |
15,242 | |||
SPECIALTY RETAIL—4.5% | |||
118,506 | Boot Barn Holdings Inc.* | 2,925 | |
147,120 | Camping World Holdings Inc. | 2,523 | |
101,401 | Guess? Inc. | 2,154 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
SPECIALTY RETAIL—Continued | |||
75,452 | National Vision Holdings Inc.* | $ 3,126 | |
190,565 | Party City Holdco Inc.* | 1,995 | |
12,723 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—1.8% | |||
165,639 | Electronics for Imaging Inc.* | 5,044 | |
TEXTILES, APPAREL & LUXURY GOODS—1.1% | |||
75,803 | G-III Apparel Group Ltd.* | 3,022 | |
THRIFTS & MORTGAGE FINANCE—1.5% | |||
63,712 | Essent Group Ltd. (Bermuda)* | 2,512 | |
68,070 | Meta Financial Group Inc. | 1,718 | |
4,230 | |||
TRADING COMPANIES & DISTRIBUTORS—1.1% | |||
75,908 | Beacon Roofing Supply Inc.* | 2,118 | |
111,317 | Foundation Building Materials Inc.* | 1,061 | |
3,179 | |||
WATER UTILITIES—0.9% | |||
155,552 | Aquaventure Holdings Ltd. (Virgin Islands)* | 2,605 | |
WIRELESS TELECOMMUNICATION SERVICES—1.7% | |||
577,995 | Gogo Inc.* | 3,306 | |
41,451 | Shenandoah Telecommunications Co. | 1,576 | |
4,882 | |||
TOTAL COMMON STOCKS | |||
(Cost $272,448) | 278,580 | ||
TOTAL INVESTMENTS—97.5% | |||
(Cost $272,448) | 278,580 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—2.5% | 7,182 | ||
TOTAL NET ASSETS—100.0% | $285,762 |
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
28
Harbor Large Cap Value Fund
Managers' Commentary (Unaudited)
Managers' 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
A strong U.S. economy, labor market strength and robust corporate profits, which received a boost in December when Congress passed the Tax Cuts and Jobs Act of 2017, provided a steady macroeconomic backdrop for equities during much of the period. Markets finished 2017 strong and continued their historic run in January, as the S&P 500 Index had its best month since March 2016. However, volatility, notably absent during the U.S. market’s rally in 2017, began to build in February, causing equity markets to suffer their first quarterly loss in over two years. Stronger-than-expected wage growth ignited fears that rising inflation would force the U.S. Federal Reserve (Fed) to raise interest rates faster than previously anticipated and caused U.S. stocks to briefly fall into correction territory. After equity markets regained their poise, they retested quarterly lows in March on news that President Trump would pursue tariffs on foreign steel and aluminum.
Markets shrugged off escalating trade tensions during the second quarter on momentum set by earnings and U.S. economic data. According to FactSet, first quarter earnings per share for companies in the S&P 500 Index grew 24% year over year, the highest growth since 2010. Strong quarterly profits were boosted in roughly equal parts by improving business fundamentals and the newly lowered corporate tax rate. Equity markets continued their rally in the third quarter, with the S&P 500 Index rising 7.71%, its best quarter since 2013. GDP data released over the summer showed the U.S. economy accelerated 4.2% on an annualized basis during the second quarter, its fastest pace in nearly four years. Consumer spending, buoyed by lower taxes, job growth and rising wages, was the key driver behind the pickup in growth. A jump in exports ahead of the scheduled implementation of new tariffs also helped. Meanwhile, according to FactSet, approximately 80% of S&P 500 companies reported earnings per share above mean estimates, the highest percentage since it began tracking the data.
U.S. equity markets retreated in October. A number of macroeconomic headwinds, including worse-than-expected quarterly results from some of the largest technology companies, tightening by the Fed as it attempts to normalize monetary policy, continued fears of trade wars and their effect on corporate profits, and worries about slowing growth outside of the U.S., were key drivers in the market’s decline. Until a feverish rally in the last couple of trading sessions, the sell-off briefly wiped out all of the year-to-date gains for the S&P 500 Index. Despite the decline—the 6.84% fall for the S&P 500 Index was its worst monthly drop since September 2011—news on the macroeconomic front was still generally positive. While the economy’s growth rate dipped from the second quarter, the economy still grew at a 3.5% annual rate during the third quarter on strong consumer and business spending.
Performance
For the fiscal year ended October 31, 2018, Harbor Large Cap Value Fund generated a total return of 0.11% (Institutional Class), 0.18% (Retirement Class), -0.23% (Administrative Class), and -0.27% (Investor Class). These returns underperformed the 3.03% return of the Russell 1000® Value Index.
The majority of the underperformance was attributable to security selection, but sector allocation also detracted. The primary detractors from relative return were stock selection in the Financials, Industrials and Energy sectors. Meanwhile, the primary contributor was security selection in Consumer Staples. Also adding value was stock selection in, as well as an overweight to, Information Technology.
Petroleum and natural gas exploration company EQT was a top detractor to relative return. During the first calendar quarter of 2018, EQT’s stock price was down in line with peers due to negative sentiment toward natural gas. Also during the quarter, the company revealed
29
Harbor Large Cap Value Fund
Managers' Commentary—Continued
Managers' Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the Russell 1000® Value Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor Large Cap Value Fund | ||||||||
Institutional Class | 0.11% | 10.60% | 11.57% | |||||
Retirement Class1 | 0.18 | 10.64 | 11.59 | |||||
Administrative Class | -0.23 | 10.29 | 11.26 | |||||
Investor Class | -0.27 | 10.18 | 11.14 | |||||
Comparative Index | ||||||||
Russell 1000® Value | 3.03% | 8.61% | 11.30% |
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.
that Steven Schlotterbeck resigned as CEO, effective immediately. As such, we put the company on hold and conducted a sale review. The conclusion of such a review was that, if we did not own EQT, we would wait to invest until we studied the go-forward business model and changes to leadership.
On one hand, in a relatively short time (we first invested in the company during the third quarter of 2016), EQT fulfilled our expectations of major catalysts, including prior acquisitions that were used to extend lateral drilling capabilities and the company’s decision to spin off its midstream business in order to better realize shareholder value. But uncertainties arose, as the large acquisition of Rice Energy is somewhat controversial; also, the Rice acquisition was spearheaded by Mr. Schlotterbeck, who abruptly resigned over disputes with the board, prompting the sale of our investment in the company during 2018’s third calendar quarter.
Computer software company Adobe Systems was a top contributor to relative return, reporting solid financial 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 in March to enhance Adobe Sensei, its artificial intelligence system, which can deliver greater value to its customers through Creative Cloud, Document Cloud and Experience Cloud. This is another example of how the company enhances new tools and technologies to provide an improving experience to its customers.
Outlook & Strategy
While the headlines focus on interest rates, politics, trade war rhetoric and other 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 exceptional businesses trading meaningfully below our estimate of their intrinsic worth, with catalysts that are in their control, is the best way for a manager to add value. In our view such thinking helps us identify companies that can possess sustainable competitive advantages and appear 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.
30
Harbor Large Cap Value Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Adobe Systems Inc. | 4.7% |
❷ | Microsoft Corp. | 3.9% |
❸ | Bank of America Corp. | 3.1% |
❹ | Danaher Corp. | 3.1% |
❺ | Amgen Inc. | 3.0% |
❻ | PayPal Holdings Inc. | 2.9% |
❼ | Coca-Cola Co. | 2.8% |
❽ | Medtronic plc | 2.7% |
❾ | Phillips 66 | 2.6% |
❿ | ANSYS Inc. | 2.5% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
31
Harbor Large Cap Value Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—96.0% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—2.4% | |||
139,000 | General Dynamics Corp. | $ 23,989 | |
BANKS—13.1% | |||
3,070,000 | Banco Bilbao Vizcaya SA ADR (Spain)1 | 16,793 | |
1,105,000 | Bank of America Corp. | 30,387 | |
168,000 | BOK Financial Corp. | 14,403 | |
150,000 | Cullen/Frost Bankers Inc. | 14,688 | |
351,000 | East West Bancorp Inc. | 18,406 | |
180,000 | JPMorgan Chase & Co. | 19,624 | |
2,400,000 | Mitsubishi UFJ Financial Group Inc. ADR (Japan)1 | 14,448 | |
128,749 | |||
BEVERAGES—2.8% | |||
565,000 | Coca-Cola Co. | 27,052 | |
BIOTECHNOLOGY—4.4% | |||
183,600 | AbbVie Inc. | 14,293 | |
150,000 | Amgen Inc. | 28,919 | |
43,212 | |||
BUILDING PRODUCTS—2.0% | |||
610,000 | Johnson Controls International plc (Ireland) | 19,502 | |
CAPITAL MARKETS—2.5% | |||
190,000 | Ameriprise Financial Inc. | 24,176 | |
CHEMICALS—2.5% | |||
230,000 | PPG Industries Inc. | 24,171 | |
CONSTRUCTION MATERIALS—2.3% | |||
130,000 | Martin Marietta Materials Inc. | 22,266 | |
CONSUMER FINANCE—2.4% | |||
264,000 | Capital One Financial Corp. | 23,575 | |
ENERGY EQUIPMENT & SERVICES—2.0% | |||
560,000 | Halliburton Co. | 19,421 | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—2.7% | |||
137,600 | Equity Lifestyle Properties Inc. | 13,029 | |
131,000 | Sun Communities Inc. | 13,162 | |
26,191 | |||
FOOD & STAPLES RETAILING—4.5% | |||
690,000 | Kroger Co. | 20,534 | |
292,000 | Walgreens Boots Alliance Inc. | 23,293 | |
43,827 | |||
FOOD PRODUCTS—1.8% | |||
415,000 | Mondelez International Inc. | 17,422 | |
GAS UTILITIES—2.1% | |||
375,000 | National Fuel Gas Co. | 20,359 | |
HEALTH CARE EQUIPMENT & SUPPLIES—5.7% | |||
303,000 | Danaher Corp. | 30,118 | |
290,000 | Medtronic plc (Ireland) | 26,048 | |
56,166 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HEALTH CARE PROVIDERS & SERVICES—2.0% | |||
470,000 | Acadia Healthcare Co. Inc.* | $ 19,505 | |
HOUSEHOLD DURABLES—4.6% | |||
500,000 | Lennar Corp. Class A | 21,490 | |
7,120 | Lennar Corp. Class B | 255 | |
440,000 | Sony Corp. ADR (Japan)1 | 23,817 | |
45,562 | |||
INSURANCE—1.9% | |||
152,000 | Chubb Ltd. (Switzerland) | 18,986 | |
INTERACTIVE MEDIA & SERVICES—2.3% | |||
650,000 | Twitter Inc.* | 22,587 | |
IT SERVICES—2.9% | |||
338,000 | PayPal Holdings Inc.* | 28,456 | |
MACHINERY—4.4% | |||
370,000 | Oshkosh Corp. | 20,772 | |
147,300 | Parker-Hannifin Corp. | 22,335 | |
43,107 | |||
OIL, GAS & CONSUMABLE FUELS—4.3% | |||
250,000 | Phillips 66 | 25,705 | |
109,000 | Pioneer Natural Resources Co. | 16,052 | |
41,757 | |||
PERSONAL PRODUCTS—2.2% | |||
402,000 | Unilever NV (United Kingdom) | 21,619 | |
PHARMACEUTICALS—2.2% | |||
247,000 | Novartis AG ADR (Switzerland)1 | 21,603 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—2.3% | |||
350,000 | Microchip Technology Inc. | 23,023 | |
SOFTWARE—11.2% | |||
188,000 | Adobe Systems Inc.* | 46,203 | |
166,000 | ANSYS Inc.* | 24,825 | |
361,000 | Microsoft Corp. | 38,559 | |
109,587 | |||
SPECIALTY RETAIL—2.5% | |||
137,800 | Home Depot Inc. | 24,236 | |
TOTAL COMMON STOCKS | |||
(Cost $828,736) | 940,106 | ||
TOTAL INVESTMENTS—96.0% | |||
(Cost $828,736) | 940,106 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—4.0% | 39,663 | ||
TOTAL NET ASSETS—100.0% | $979,769 |
32
Harbor Large Cap Value Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
33
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
The broad U.S. equity market as measured by the S&P 500 Index finished up 7.35% for the twelve months ended October 31, 2018. Equities continued their strong run in the beginning of the period as the S&P 500 Index advanced over 10% for the first three months of the period. However, volatility returned to the market in 2018, although U.S. equities still finished the period in positive territory. Large cap stocks as measured by the Russell 1000® Index which was up 6.98% held up better than small caps which gained just 1.85% as measured by the Russell 2000® Index. The Russell Midcap® Index finished up 2.79% for the twelve months ended October 31, 2018. Growth stocks significantly outperformed value stocks across all market capitalization segments. The Russell Midcap® Growth Index gained 6.14% while the Russell Midcap® Value Index was up just 0.16%.
While economic data continued to provide a positive backdrop for stocks, rising interest rates, trade tensions with China and the long bull market weighed on equity markets in 2018. The unemployment rate dropped to 3.7%, its lowest reading in almost 50 years and wages grew at the fastest rate since 2009. GDP growth surged recording gains of 4.2% in the second quarter of 2018 and 3.5% in the third quarter. Corporate earnings continued to show robust growth and consumer confidence reached near record highs. While there was some progress on trade with Mexico and Canada as well as the European Union, the trade tensions with China weighed on markets. Interest rates rose in the period as the U.S. Federal Reserve continued its gradual series of interest rate increases with four 25 basis point rate hikes in December, March, June and September. The 10-year U.S. Treasury yield reached 3.2% in October 2018 up from 2.35% at the beginning of the period.
From a sector perspective, Information Technology stocks led the way among mid cap value stocks over the past twelve months, advancing nearly 10%. Energy stocks also performed well returning 6% while Materials and Industrial stocks, which were negatively impacted by trade tensions lagged.
Performance
Harbor Mid Cap Value Fund returned -4.85% (Institutional Class), -4.75% (Retirement Class), -5.06% (Administrative Class), and -5.20% (Investor Class) compared to a slight gain of 0.16% for the Russell Midcap® Value Index for the fiscal year ended October 31, 2018. The most significant contributor to the underperformance in the period was the difficult environment for value stocks. Over the last several years value benchmarks have underperformed significantly. Up until this year, however, our comprehensive definition of value contributed to the strong results relative to the value benchmark. We define value stocks as those that are cheap on multiple measures of valuation including cash flow, earnings, book value and dividend yield. However, in 2018 stocks that we favor that are cheap on earnings yield and cash flow yield measures have struggled, contributing to the recent underperformance of the Fund.
The performance of the Fund’s holdings in the Information Technology and Industrials sectors negatively impacted results in the period. Our holdings in the semiconductor equipment industry struggled including Lam Research, Applied Materials and Amkor Technology. These stocks have been long term holdings that have done well over time but struggled over the last six months as semiconductor equipment stocks have come under pressure due to concerns of a down cycle in the chip industry. However, these stocks trade at very attractive multiples of earnings and cash flow and we remain overweight these stocks. Industrials have been negatively impacted by the tariff concerns and holdings ManpowerGroup, Wabash National Corp, Oshkosh Corp and Briggs & Stratton were all down 30%-40% over the last 12 months.
34
Harbor Mid Cap Value Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the Russell Midcap® Value Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor Mid Cap Value Fund | ||||||||
Institutional Class | -4.85% | 6.75% | 13.56% | |||||
Retirement Class1 | -4.75 | 6.79 | 13.58 | |||||
Administrative Class | -5.06 | 6.49 | 13.29 | |||||
Investor Class | -5.20 | 6.36 | 13.14 | |||||
Comparative Index | ||||||||
Russell Midcap® Value | 0.16% | 8.11% | 13.35% |
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.
Fund holdings that did well in the period included HCA Healthcare which advanced nearly 80% as the company reported better than expected earnings this year. Refiners Valero Energy and PBF Energy continued to do well and also contributed positively. Our exposure to department stores including Kohl’s Corp and Macy’s added value as department stores rebounded after struggling in 2017. Other contributors included NetApp in the Information Technology sector, Kroger in Consumer Staples and Universal Insurance Holdings in Financials.
Outlook & Strategy
Our portfolio decision making process is quantitative and driven by a proprietary model which ranks securities on fundamental measures of value and indicators of near-term appreciation potential and 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. At October 31, 2018, the Fund’s most significant sector exposures on an absolute basis are to Financials, Industrials, Information Technology and Consumer Discretionary stocks. Relative to the value benchmark, the Fund is overweight the Financial, Consumer Discretionary and Technology sectors. The Fund is underweight the Utilities, Real Estate and Health Care sectors.
The most significant changes in sector weights over the last 12 months were decreases in the relative exposure to Information Technology and Industrial stocks. While the weight to Information Technology stocks in the benchmark increased as a result of the annual Russell Index reconstitution, we sold or reduced the weight to several Information Technology stocks that did well including Applied Materials, Corning, Flex, NetApp, Netgear and Teradyne. Within Industrials we also sold or reduced the weight to Huntington Ingalls, Textron, Trinity Industries and Orbital ATK, which was acquired.
The most significant increase in relative sector weights was an increase to the Consumer Discretionary sector which is now overweight by nearly 5%. We initiated positions in Autonation, Big Lots, Borg Warner and Toll Brothers and added to Whirlpool, Dick’s Sporting Goods and several retailers including Kohl’s Corp, Macy’s and Dillards.
Given the recent pullback in the markets coupled with the continued strong cash flow and earnings of the Fund’s holdings, we believe the Fund’s holdings trade at attractive valuations. In our view, the companies the Fund holds are generating strong earnings and cash flows but 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.
35
Harbor Mid Cap Value Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Entergy Corp. | 1.9% |
❷ | FirstEnergy Corp. | 1.8% |
❸ | Eastman Chemical Co. | 1.4% |
❹ | HCA Healthcare Inc. | 1.4% |
❺ | Kroger Co. | 1.4% |
❻ | Cummins Inc. | 1.3% |
❼ | Juniper Networks Inc. | 1.3% |
❽ | Lam Research Corp. | 1.3% |
❾ | Regions Financial Corp. | 1.3% |
❿ | SunTrust Banks Inc. | 1.3% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
36
Harbor Mid Cap Value Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—99.7% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—1.9% | |||
29,700 | Huntington Ingalls Industries Inc. | $ 6,489 | |
136,400 | Spirit AeroSystems Holdings Inc. | 11,459 | |
17,948 | |||
AIR FREIGHT & LOGISTICS—0.4% | |||
74,217 | Atlas Air Worldwide Holdings Inc.* | 3,831 | |
AIRLINES—3.0% | |||
79,057 | Alaska Air Group Inc. | 4,856 | |
175,700 | American Airlines Group Inc. | 6,163 | |
375,200 | JetBlue Airways Corp.* | 6,277 | |
134,800 | United Continental Holdings Inc.* | 11,527 | |
28,823 | |||
AUTO COMPONENTS—2.3% | |||
118,200 | American Axle & Manufacturing Holdings Inc.* | 1,793 | |
76,500 | BorgWarner Inc. | 3,015 | |
32,900 | Cooper-Standard Holdings Inc.* | 3,048 | |
277,200 | Goodyear Tire & Rubber Co. | 5,838 | |
46,300 | Lear Corp. | 6,153 | |
68,500 | Tenneco Inc. | 2,359 | |
22,206 | |||
AUTOMOBILES—0.4% | |||
91,600 | Harley-Davidson Inc. | 3,501 | |
BANKS—7.1% | |||
134,800 | CIT Group Inc. | 6,387 | |
267,800 | Citizens Financial Group Inc. | 10,002 | |
327,900 | Fifth Third Bancorp | 8,850 | |
495,200 | KeyCorp | 8,993 | |
739,400 | Regions Financial Corp. | 12,548 | |
195,300 | SunTrust Banks Inc. | 12,237 | |
164,900 | Zions Bancorporation | 7,759 | |
66,776 | |||
BEVERAGES—0.7% | |||
110,500 | Molson Coors Brewing Co. | 7,072 | |
BUILDING PRODUCTS—0.4% | |||
76,600 | Owens Corning | 3,621 | |
CAPITAL MARKETS—2.8% | |||
91,900 | Ameriprise Financial Inc. | 11,693 | |
144,135 | Lazard Ltd. (Bermuda) | 5,728 | |
121,300 | Legg Mason Inc. | 3,423 | |
329,374 | Prospect Capital Corp. | 2,237 | |
45,400 | Raymond James Financial Inc. | 3,482 | |
26,563 | |||
CHEMICALS—4.2% | |||
9,746 | A. Schulman Inc. (Contingent Value Rights)* | 19 x | |
69,000 | Cabot Corp. | 3,359 | |
97,900 | Celanese Corp. | 9,490 | |
112,122 | Chemours Co. | 3,701 | |
163,800 | Eastman Chemical Co. | 12,834 | |
289,700 | Huntsman Corp. | 6,339 | |
70,400 | Trinseo SA (Luxembourg) | 3,793 | |
39,535 | |||
COMMERCIAL SERVICES & SUPPLIES—0.3% | |||
20,712 | LSC Communications Inc. | 195 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
COMMERCIAL SERVICES & SUPPLIES—Continued | |||
304,900 | Pitney Bowes Inc. | $ 2,019 | |
55,233 | RR Donnelley & Sons Co. | 324 | |
2,538 | |||
COMMUNICATIONS EQUIPMENT—1.3% | |||
405,100 | Juniper Networks Inc. | 11,857 | |
CONSUMER FINANCE—2.2% | |||
136,700 | Ally Financial Inc. | 3,474 | |
150,200 | Discover Financial Services | 10,464 | |
225,200 | Navient Corp. | 2,608 | |
69,255 | Nelnet Inc. | 3,898 | |
20,444 | |||
CONTAINERS & PACKAGING—0.9% | |||
260,946 | Owens-Illinois Inc.* | 4,089 | |
95,900 | WestRock Co. | 4,121 | |
8,210 | |||
DIVERSIFIED FINANCIAL SERVICES—0.8% | |||
120,000 | Banco Latinoamericano de Comercio Exterior SA (Panama) | 2,059 | |
120,200 | Voya Financial Inc. | 5,260 | |
7,319 | |||
ELECTRIC UTILITIES—5.0% | |||
82,400 | Edison International | 5,718 | |
209,600 | Entergy Corp. | 17,596 | |
467,700 | FirstEnergy Corp. | 17,436 | |
205,254 | PPL Corp. | 6,239 | |
46,989 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—2.1% | |||
76,400 | Avnet Inc. | 3,061 | |
162,600 | Corning Inc. | 5,195 | |
79,185 | Methode Electronics Inc. | 2,344 | |
13,988 | Synnex Corp. | 1,086 | |
41,800 | Tech Data Corp.* | 2,953 | |
196,236 | TTM Technologies Inc.* | 2,296 | |
154,200 | Vishay Intertechnology Inc. | 2,822 | |
19,757 | |||
ENERGY EQUIPMENT & SERVICES—0.2% | |||
209,866 | McDermott International Inc. (Panama)* | 1,622 | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—10.9% | |||
205,100 | Brixmor Property Group Inc. | 3,323 | |
286,300 | CBL & Associates Properties Inc. | 945 | |
507,836 | Franklin Street Properties Corp. | 3,535 | |
113,800 | Gaming And Leisure Properties Inc. | 3,834 | |
211,000 | Government Properties Income Trust | 1,863 | |
188,700 | Hersha Hospitality Trust | 3,314 | |
197,597 | Hospitality Properties Trust | 5,062 | |
371,000 | Host Hotels & Resorts Inc. | 7,090 | |
733,500 | Lexington Realty Trust | 5,699 | |
243,500 | Mack-Cali Realty Corp. | 4,943 | |
535,200 | Medical Properties Trust Inc. | 7,953 | |
54,748 | National Health Investors Inc. | 4,022 | |
251,500 | OMEGA Healthcare Investors Inc. | 8,387 | |
166,038 | Outfront Media Inc. | 2,942 | |
395,500 | Piedmont Office Realty Trust Inc. | 7,127 | |
28,620 | Retail Value Inc.* | 802 | |
170,300 | Sabra Health Care REIT Inc. | 3,687 |
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 | ||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—Continued | |||
411,114 | Senior Housing Properties Trust | $ 6,607 | |
286,200 | Site Centers Corp. | 3,557 | |
55,030 | Spirit MTA REIT | 589 | |
550,300 | Spirit Realty Capital Inc. | 4,303 | |
277,300 | Summit Hotel Properties Inc. | 3,194 | |
663,000 | Vereit Inc. | 4,860 | |
244,700 | Xenia Hotels & Resorts Inc. | 5,029 | |
102,667 | |||
FOOD & STAPLES RETAILING—1.6% | |||
62,200 | Ingles Markets Inc. | 2,049 | |
446,600 | Kroger Co. | 13,291 | |
15,340 | |||
FOOD PRODUCTS—3.5% | |||
67,500 | Archer Daniels Midland Co. | 3,189 | |
152,800 | General Mills Inc. | 6,693 | |
54,200 | Ingredion Inc. | 5,484 | |
80,300 | JM Smucker Co. | 8,698 | |
143,800 | Tyson Foods Inc. | 8,617 | |
32,681 | |||
HEALTH CARE PROVIDERS & SERVICES—3.0% | |||
94,600 | Cardinal Health Inc. | 4,787 | |
80,100 | Davita Inc.* | 5,394 | |
101,300 | HCA Healthcare Inc. | 13,526 | |
57,348 | Magellan Health Inc.* | 3,731 | |
73,000 | Owens & Minor Inc. | 577 | |
28,015 | |||
HOTELS, RESTAURANTS & LEISURE—0.8% | |||
171,600 | Brinker International Inc. | 7,439 | |
15,250 | Wyndham Destinations Inc. | 547 | |
7,986 | |||
HOUSEHOLD DURABLES—2.1% | |||
101,478 | Ethan Allen Interiors Inc. | 1,942 | |
65,200 | Meritage Homes Corp.* | 2,429 | |
183,453 | PulteGroup Inc. | 4,507 | |
133,500 | Toll Brothers Inc. | 4,494 | |
59,600 | Whirlpool Corp. | 6,542 | |
19,914 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—0.6% | |||
369,800 | AES Corp. | 5,392 | |
INSURANCE—7.5% | |||
130,200 | Aflac Inc. | 5,608 | |
70,800 | Allstate Corp. | 6,777 | |
41,674 | American Financial Group Inc. | 4,169 | |
29,000 | Assurant Inc. | 2,819 | |
88,400 | Assured Guaranty Ltd. (Bermuda) | 3,534 | |
51,900 | Axis Capital Holdings Ltd. (Bermuda) | 2,895 | |
33,400 | Everest Re Group Ltd. (Bermuda) | 7,277 | |
150,800 | Hartford Financial Services Group Inc. | 6,849 | |
179,800 | Lincoln National Corp. | 10,822 | |
251,000 | Maiden Holdings Ltd. (Bermuda) | 881 | |
254,300 | Old Republic International Corp. | 5,607 | |
79,000 | Principal Financial Group Inc. | 3,719 | |
107,500 | Universal Insurance Holdings Inc. | 4,513 | |
139,000 | Unum Group | 5,040 | |
70,510 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
IT SERVICES—1.3% | |||
77,600 | DXC Technology Co. | $ 5,652 | |
178,809 | Travelport Worldwide Ltd. (Bermuda) | 2,675 | |
228,100 | Western Union Co. | 4,115 | |
12,442 | |||
LEISURE PRODUCTS—0.4% | |||
65,300 | Brunswick Corp. | 3,395 | |
MACHINERY—4.2% | |||
42,500 | AGCO Corp. | 2,382 | |
100,600 | Allison Transmission Holdings Inc. | 4,434 | |
170,200 | Briggs & Stratton Corp. | 2,473 | |
86,600 | Cummins Inc. | 11,837 | |
161,900 | Meritor Inc.* | 2,751 | |
67,100 | Oshkosh Corp. | 3,767 | |
29,300 | Snap-on Inc. | 4,510 | |
64,700 | Timken Co. | 2,559 | |
327,400 | Wabash National Corp. | 4,944 | |
39,657 | |||
MEDIA—1.6% | |||
115,600 | AMC Networks Inc.* | 6,772 | |
290,841 | Gannett Co. Inc. | 2,821 | |
144,100 | TEGNA Inc. | 1,663 | |
108,800 | Viacom Inc. | 3,479 | |
14,735 | |||
METALS & MINING—0.6% | |||
78,500 | Reliance Steel & Aluminum Co. | 6,195 | |
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—1.8% | |||
624,000 | Annaly Capital Management Inc. | 6,159 | |
29,955 | Granite Point Mortgage Trust Inc. | 557 | |
171,000 | Invesco Mortgage Capital Inc. | 2,579 | |
298,300 | MFA Financial Inc. | 2,067 | |
191,300 | PennyMac Mortgage Investment Trust | 3,694 | |
158,050 | Two Harbors Investment Corp. | 2,322 | |
17,378 | |||
MULTILINE RETAIL—2.5% | |||
91,600 | Big Lots Inc. | 3,803 | |
50,800 | Dillard's Inc. | 3,578 | |
149,600 | Kohl's Corp. | 11,329 | |
150,600 | Macy's Inc. | 5,164 | |
23,874 | |||
MULTI-UTILITIES—1.2% | |||
108,700 | Public Service Enterprise Group Inc. | 5,808 | |
136,840 | SCANA Corp. | 5,480 | |
11,288 | |||
OIL, GAS & CONSUMABLE FUELS—4.6% | |||
240,100 | Carrizo Oil & Gas Inc.* | 4,372 | |
355,616 | Gulfport Energy Corp.* | 3,240 | |
357,559 | Laredo Petroleum Inc.* | 1,874 | |
145,700 | Marathon Petroleum Corp. | 10,264 | |
199,700 | Newfield Exploration Co.* | 4,034 | |
163,700 | PBF Energy Inc. | 6,851 | |
474,000 | SRC Energy Inc.* | 3,356 | |
108,100 | Valero Energy Corp. | 9,847 | |
43,838 |
38
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 | ||
PAPER & FOREST PRODUCTS—0.5% | |||
98,600 | Domtar Corp. | $ 4,566 | |
PHARMACEUTICALS—1.2% | |||
49,900 | Jazz Pharmaceuticals plc (Ireland)* | 7,925 | |
110,150 | Lannett Co. Inc.* | 403 | |
108,500 | Mylan NV (Netherlands)* | 3,391 | |
11,719 | |||
PROFESSIONAL SERVICES—0.6% | |||
79,400 | ManpowerGroup Inc. | 6,057 | |
ROAD & RAIL—0.4% | |||
62,800 | Ryder System Inc. | 3,473 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—3.1% | |||
475,000 | Amkor Technology Inc.* | 3,396 | |
123,200 | Applied Materials Inc. | 4,051 | |
84,900 | Cirrus Logic Inc.* | 3,179 | |
83,200 | Lam Research Corp. | 11,792 | |
409,900 | On Semiconductor Corp.* | 6,968 | |
29,386 | |||
SPECIALTY RETAIL—4.6% | |||
121,000 | Autonation Inc.* | 4,898 | |
92,800 | Bed Bath & Beyond Inc. | 1,275 | |
100,700 | Best Buy Co. Inc. | 7,065 | |
116,700 | Dick's Sporting Goods Inc. | 4,128 | |
127,400 | Foot Locker Inc. | 6,006 | |
89,100 | GameStop Corp. | 1,301 | |
170,500 | Gap Inc. | 4,655 | |
73,700 | Group 1 Automotive Inc. | 4,255 | |
61,063 | Murphy USA Inc.* | 4,923 | |
677,800 | Office Depot Inc. | 1,735 | |
76,700 | Penske Automotive Group Inc. | 3,404 | |
43,645 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—3.4% | |||
242,314 | HP Inc. | $ 5,849 | |
197,600 | NCR Corp.* | 5,306 | |
72,900 | NetApp Inc. | 5,722 | |
143,800 | Seagate Technology plc (Ireland) | 5,785 | |
106,200 | Western Digital Corp. | 4,574 | |
189,900 | Xerox Corp. | 5,293 | |
32,529 | |||
TEXTILES, APPAREL & LUXURY GOODS—0.4% | |||
60,900 | Michael Kors Holdings Ltd.* | 3,374 | |
THRIFTS & MORTGAGE FINANCE—0.8% | |||
306,700 | MGIC Investment Corp.* | 3,745 | |
185,900 | Radian Group Inc. | 3,567 | |
7,312 | |||
TRADING COMPANIES & DISTRIBUTORS—0.5% | |||
113,600 | Aircastle Ltd. (Bermuda) | 2,207 | |
65,642 | Triton International Ltd. (Bermuda)* | 2,112 | |
4,319 | |||
TOTAL COMMON STOCKS | |||
(Cost $932,575) | 940,299 | ||
TOTAL INVESTMENTS—99.7% | |||
(Cost $932,575) | 940,299 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.3% | 2,658 | ||
TOTAL NET ASSETS—100.0% | $942,957 |
FAIR VALUE MEASUREMENTS
At October 31, 2018, the investment in A. Schulman Inc. (Contingent Value Rights)* (as disclosed in the preceding Portfolio of Investments) was classified as Level 3 and all other investments were classified as Level 1.
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 year ended October 31, 2018. Transfers into Level 3 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.
Valuation Description | Balance Beginning at 11/01/2017 (000s) | Purchases (000s) | Sales (000s) | Discount/ (Premium) (000s) | Total Realized Gain/(Loss) (000s)w | Change in Unrealized Appreciation/ (Depreciation) (000s)w | Transfers In Level 3 (000s)h | Transfers Out of Level 3 (000s) | Ending Balance as of 10/31/2018w (000s) | |||||||||
Common Stocks | ||||||||||||||||||
Chemicals | $— | $— | $— | $— | $— | $— | $19 | $— | $19 |
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.
39
Harbor Mid Cap Value Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS—Continued
Valuation Descriptions | Ending Balance as of 10/31/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Common Stocks | ||||||||
Chemicals | ||||||||
A. Schulman Inc. (Contingent Value Rights)* | $19 | Market Approach | Estimated Recovery Value | $ 1.91 |
* | Non-income producing security | ||
h | Transferred from Level 1 to Level 3 due to unobservable market data for pricing unit. | ||
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 as below: | ||
Valuation Description | Unrealized Gain/(Loss) as of 10/31/2018 (000s) | ||
Common Stocks | $– | ||
x | Fair valued in accordance with Harbor Funds Valuation Procedures. |
The accompanying notes are an integral part of the Financial Statements.
40
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
The U.S. equity markets, represented by the S&P 500 Index were positive during the 12-month period ended October 31, 2018. However, the U.S. small cap market, represented by the Russell 2000® Value Index, ended the period in negative territory, losing 0.59% in the period. The international equity markets fared worse than U.S. stocks. Developed countries, represented by the MSCI EAFE (ND) Index, finished the period down 6.85%, while the MSCI Emerging Markets (ND) Index lost 12.52% during the same period.
Investors continued to monitor the U.S. Federal Reserve (Fed) during the period in anticipation of rate changes and the Fed’s posture under new Chairman Jerome Powell. Most recently, in September, the Fed again unanimously voted to raise short-term interest rates by another 0.25% to the range of 2.00% to 2.25%, the eighth rate increase since the Fed began raising rates in 2015. In its statement, Fed officials noted that they expect to have one more rate hike in 2018 and three in 2019. Of note, the Fed’s statement no longer described its stance as “accommodative”, something that has been included in its statements since the financial crisis, in a sign that interest rates are approaching a neutral level after a decade of easy monetary policies to stimulate growth. International trade policy continued to be a major focus of equity markets as investors analyzed the impact of both pending and potential tariffs between the U.S. and its trade partners. Imposed earlier in 2018, 25% tariffs on approximately $50 billion of Chinese imports, the U.S. imposed a further 10% tariff on $200 billion of Chinese goods, to rise to 25% at the end of the year. The U.S. administration also stated that if China retaliates, it will impose further tariffs on an additional $267 billion of imports. In calendar year 2017 the U.S. imported just over $500 billion of goods from China while China imported about $130 billion of goods from the U.S. The period ended with the worst monthly performance for U.S. stocks since 2010, as October alone shed nearly 9% off the Russell 2000 Value® Index, which pushed the small cap stocks into negative territory for the 12-month period ended October 31, 2018.
Performance
Harbor Small Cap Value Fund returned -5.28% (Institutional Class), -5.18% (Retirement Class), -5.50% (Administrative Class), and -5.60% (Investor Class) for the 12-month period ended October 31, 2018. The Fund underperformed the benchmark, Russell 2000® Value Index, during the period which returned -0.59%. While stock selection continued to be positive in the Fund’s largest sectors, Industrials and Financials, allocation headwinds detracted from performance for the period. The Fund’s underweight to the Consumer Discretionary sector, which was up 8% in the period, was one of the largest detractors. Also, the Fund’s relative overweight to the Information Technology sector cost the Fund a full percentage point of relative returns in the period.
Contributing to performance, Wolverine World Wide, Inc. (“Wolverine”) is one of the world’s leading marketers of branded casual, active lifestyle, work, outdoor sport, athletic, children’s and uniform footwear and apparel. The company’s portfolio of brands includes: Merrell®, Sperry®, Hush Puppies®, Saucony®, Wolverine®, Keds® and more. During the period, Wolverine’s results were driven by strong performance within the Merrell®, Sperry®, and Saucony® brands, and overall margin improvement ahead of expectations. The most recent quarter marked an inflection for the Sperry® brand, and high single-digit growth of Merrell® reflects the impact of company investments in its accelerated product innovation. As a result of these strong developments, the stock was up 37% for the 12-month period ended October 31, 2018.
Detracting from performance, United Natural Foods (“UNFI”) is a leading distributor of natural, organic foods, food service supplies and personal care items in the United States and Canada serving more than 43,000 customer locations. Customers include conventional grocers, super-naturals and gourmet specialty stores. During the period, UNFI changed the
41
Harbor Small Cap Value Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the Russell 2000® Value Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor Small Cap Value Fund | ||||||||
Institutional Class | -5.28% | 8.64% | 12.64% | |||||
Retirement Class1 | -5.18 | 8.69 | 12.66 | |||||
Administrative Class | -5.50 | 8.37 | 12.36 | |||||
Investor Class | -5.60 | 8.24 | 12.22 | |||||
Comparative Index | ||||||||
Russell 2000® Value | -0.59% | 7.18% | 10.95% |
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.
way it estimates liabilities associated with inventory purchases which drew short-term concerns over its gross margins. The stock was down 44% in the period. UNFI was the first Certified Organic Food Distributor in the United States and has built a strong reputation in the industry. This standing, along with the high single digit expected growth rate of the organic and specialty food industry overall over the next few years, in our opinion, should further assist the company in expanding its margins as well as its footprint both domestically and abroad. Looking forward, the natural food industry is expected to sustain its growth at a much higher rate than conventional food service industries. Given UNFI’s scale, we believe the company is well-positioned to take full advantage of that trend to drive attractive earnings growth.
Outlook & Strategy
As of October 31, 2018, the Fund had an overweight in the Industrials, Materials, Health Care, Information Technology, and Telecommunications sectors and an underweight in Financials, Real Estate, Consumer Staples, Consumer Discretionary, and Utilities. The Fund had a market weight to Energy. The Fund’s relative overweight and underweight positions are an outgrowth of where we are finding good individual investment opportunities.
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.
42
Harbor Small Cap Value Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Hexcel Corp. | 3.1% |
❷ | Firstcash Inc. | 2.9% |
❸ | Teledyne Technologies Inc. | 2.9% |
❹ | EnerSys | 2.5% |
❺ | Cabot Microelectronics Corp. | 2.4% |
❻ | Catalent Inc. | 2.4% |
❼ | Albany International Corp. | 2.3% |
❽ | Darling Ingredients Inc. | 2.3% |
❾ | Reinsurance Group of America Inc. | 2.3% |
❿ | Littelfuse Inc. | 2.2% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
43
Harbor Small Cap Value Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—98.3% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—7.6% | |||
742,442 | Hexcel Corp. | $ 43,448 | |
244,077 | Moog Inc. | 17,464 | |
180,710 | Teledyne Technologies Inc.* | 39,987 | |
262,720 | Triumph Group Inc. | 4,795 | |
105,694 | |||
BANKS—9.6% | |||
1,087,926 | Cadence Bancorp | 23,999 | |
328,184 | Enterprise Financial Services Corp. | 14,259 | |
418,079 | Heartland Financial USA Inc. | 22,217 | |
530,967 | Sterling Bancorp | 9,547 | |
671,615 | Trustmark Corp. | 20,686 | |
627,219 | United Bankshares Inc. | 20,805 | |
514,743 | WesBanco Inc. | 20,641 | |
132,154 | |||
CAPITAL MARKETS—3.9% | |||
335,967 | Eaton Vance Corp. | 15,135 | |
310,076 | Raymond James Financial Inc. | 23,780 | |
335,748 | Stifel Financial Corp. | 15,350 | |
54,265 | |||
CHEMICALS—2.7% | |||
368,204 | Cabot Corp. | 17,924 | |
290,704 | Scotts Miracle-Gro Co. | 19,402 | |
37,326 | |||
COMMERCIAL SERVICES & SUPPLIES—3.0% | |||
732,297 | Casella Waste Systems Inc.* | 23,843 | |
1,081,919 | Steelcase Inc. | 17,960 | |
41,803 | |||
CONSUMER FINANCE—2.9% | |||
495,737 | Firstcash Inc. | 39,857 | |
ELECTRICAL EQUIPMENT—2.5% | |||
431,930 | EnerSys | 34,369 | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—10.1% | |||
280,409 | Anixter International Inc.* | 18,420 | |
147,005 | Coherent Inc.* | 18,102 | |
524,964 | FLIR Systems Inc. | 24,311 | |
166,111 | Littelfuse Inc. | 30,093 | |
369,868 | OSI Systems Inc.* | 25,580 | |
921,322 | Sanmina Corp.* | 23,309 | |
139,815 | |||
ENERGY EQUIPMENT & SERVICES—2.3% | |||
203,576 | Core Laboratories NV (Netherlands) | 17,353 | |
660,403 | Oil States International Inc.* | 14,707 | |
32,060 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—4.9% | |||
281,943 | EastGroup Properties Inc. | 27,007 | |
1,112,708 | Medical Properties Trust Inc. | 16,535 | |
705,301 | Pebblebrook Hotel Trust | 23,776 | |
67,318 | |||
FOOD & STAPLES RETAILING—0.8% | |||
473,020 | United Natural Foods Inc.* | 10,279 | |
FOOD PRODUCTS—2.3% | |||
1,539,506 | Darling Ingredients Inc.* | 31,806 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
GAS UTILITIES—1.3% | |||
610,763 | South Jersey Industries Inc. | $ 18,042 | |
HEALTH CARE EQUIPMENT & SUPPLIES—0.9% | |||
162,072 | Cantel Medical Corp. | 12,828 | |
HEALTH CARE PROVIDERS & SERVICES—3.5% | |||
586,302 | MEDNAX Inc.* | 24,208 | |
187,666 | Molina Healthcare Inc.* | 23,791 | |
47,999 | |||
HOUSEHOLD DURABLES—1.6% | |||
607,881 | Meritage Homes Corp.* | 22,644 | |
INSURANCE—7.2% | |||
679,402 | American Equity Investment Life Holding Co. | 21,211 | |
400,718 | Horace Mann Educators Corp. | 15,740 | |
222,388 | Reinsurance Group of America Inc. | 31,661 | |
233,096 | State Auto Financial Corp. | 7,410 | |
445,122 | United Fire Group Inc. | 23,961 | |
99,983 | |||
IT SERVICES—1.9% | |||
453,094 | ManTech International Corp. | 25,953 | |
MACHINERY—12.4% | |||
446,351 | Albany International Corp. | 31,236 | |
598,762 | Altra Industrial Motion Corp. | 19,322 | |
653,376 | Franklin Electric Co. Inc. | 27,716 | |
2,356,925 | Mueller Water Products Inc. | 24,182 | |
183,854 | Snap-on Inc. | 28,303 | |
575,128 | Timken Co. | 22,746 | |
989,055 | Welbilt Inc.* | 18,515 | |
172,020 | |||
OIL, GAS & CONSUMABLE FUELS—2.5% | |||
461,350 | PDC Energy Inc.* | 19,584 | |
393,136 | Whiting Petroleum Corp.* | 14,664 | |
34,248 | |||
PHARMACEUTICALS—2.4% | |||
821,614 | Catalent Inc.* | 33,144 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—8.1% | |||
262,594 | Advanced Energy Industries Inc.* | 11,299 | |
337,119 | Cabot Microelectronics Corp. | 32,910 | |
839,649 | Entegris Inc. | 22,284 | |
1,439,117 | FormFactor Inc.* | 17,615 | |
237,477 | Monolithic Power Systems Inc. | 28,051 | |
112,159 | |||
TEXTILES, APPAREL & LUXURY GOODS—1.9% | |||
756,832 | Wolverine World Wide Inc. | 26,618 | |
TRADING COMPANIES & DISTRIBUTORS—2.0% | |||
364,309 | GATX Corp. | 27,298 | |
TOTAL COMMON STOCKS | |||
(Cost $1,090,944) | 1,359,682 | ||
TOTAL INVESTMENTS—98.3% | |||
(Cost $1,090,944) | 1,359,682 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—1.7% | 23,283 | ||
TOTAL NET ASSETS—100.0% | $1,382,965 |
44
Harbor Small Cap Value Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
45
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
In our opinion, discerning between the ‘news’ and the ‘noise’ is essential to successful long-term investing. We are constantly barraged by monthly data releases, short-term oriented sell-side research, and an often over-wrought financial media. Through the summer, headlines heralding a full-on U.S.-Chinese trade war, stunning crises in the emerging markets, a surge in the price of oil on heightened Middle East tensions, and general ongoing political chaos naturally led to escalating fears that U.S. asset markets might soon correct. However, most major U.S. stock indices closed the 12-month period ended October 31, 2018 in positive territory. Scanning down the cap size spectrum, the broad Russell Indices’ returns were similar to a sliding scale with large caps yielding the highest return and small caps the lowest. Regarding style, growth outperformed value for the year ended October 31, 2018.
Performance
Harbor Small Cap Value Opportunities Fund returned -0.31% (Institutional Class), -0.18% (Retirement Class), -0.51% (Administrative Class), and -0.66% (Investor Class) for the 12-month period ended October 31, 2018. With the exception of the Investor Class, the Fund outperformed its benchmark, the Russell 2000® Value Index (the “Index”), which returned -0.59%.
Due to the extremely wide variation in performance by sector, relative sector weighting had a larger impact on performance versus the Index than is characteristic of our bottom-up, company focused approach. From a relative perspective, sector weights accounted for all of the Fund’s outperformance relative to the Index during the period. More specifically, compared with the Index, stock selection and overweights in the Health Care and Consumer Discretionary sectors enhanced relative performance. In the Health Care sector, Amedisys, Inc. added the most value to relative performance. Shares of Amedisys consistently rose during the period as management continued to execute well. We sold the Fund’s position in Amedisys during the third quarter as its stock price approached our target price. Within Consumer Discretionary, Ascena Retail Group, Inc. was the largest contributor to relative performance. During the period, Ascena’s shares posted a dramatic rally—benefiting from both a general lift in sentiment across the retail sector as well as quarterly results that were better than recent prior quarters. Results by brand and segment continue to be mixed with strong performance at Justice, some improvement in the Loft and Plus segments, significant deterioration in its Value segment (Dressbarn and Maurices), and some weakness in Ann Taylor. However, Ascena’s management team also noted that current quarter sales are running at an improved cadence. We believe that management is executing its turnaround with a sense of urgency and, if successful, significant upside remains.
Conversely, security selection in the Industrials sector detracted from relative performance. In Industrials, Beacon Roofing Supply, Inc. subtracted the most value from relative return. Beacon’s shares have been under pressure since the beginning of the year and continued to decline through October. Many factors have been impacting Beacon’s stock price during the period. First, although only 20% to 25% of roofing revenues are driven by new construction, the market has grouped Beacon with the housing-related stocks that have come under pressure. Second, earlier in the year, Beacon was behind in realizing the necessary price increases to offset the rising material costs from manufacturers. Beacon was able to raise prices above these material cost increases by mid-year with a slight impact to volumes. Third, there has been almost no storm activity in 2018, creating a difficult year-over-year comparison versus 2017, which had significant storm related demand from hurricanes Harvey and Irma. Finally, Beacon has high leverage due to its acquisition of Allied Building Products Corp. in January 2018. While Beacon generates attractive free cash flows, we believe these are being improperly valued. At the current share price, Beacon provides a highly attractive free cash flow yield
46
Harbor Small Cap Value Opportunities Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 08/01/2017 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the Russell 2000® Value Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | 5 Years | Annualized | ||||||
Life of Fund | ||||||||
Harbor Small Cap Value Opportunities Fund | ||||||||
Institutional Class1 | -0.31% | N/A | 0.31% | |||||
Retirement Class1 | -0.18 | N/A | 0.42 | |||||
Administrative Class1 | -0.51 | N/A | 0.07 | |||||
Investor Class1 | -0.66 | N/A | -0.05 | |||||
Comparative Index | ||||||||
Russell 2000® Value1 | -0.59% | N/A | 3.16% |
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.
(above 10%). Strong free cash flows should allow the company to quickly bring down leverage and continue to pursue tuck-in acquisitions. We believe Beacon will also continue to benefit from a sizable cost synergy opportunity from its Allied acquisition.
Outlook & Strategy
As we assess the outlook, the most important fundamental economic ‘news’ to watch this year has been the remarkably strong U.S. economy. Corporate tax cuts, broad-based deregulation, and accommodative monetary policy have extended the aging economic expansion. The underlying fundamentals driving the expansion remain intact, as the second round effects of the fiscal stimulus kick-in, credit growth to both households and businesses continues unabated, and pent-up demand remains un-satiated, specifically for fixed capital and consumer durable goods.
While our baseline scenario shares the optimism of conventional wisdom, risks to this sanguine view are mounting. First, financial conditions are tightening. Short-term interest rate hikes by the U.S. Federal Reserve have translated into higher bond yields, raising the cost of capital. Second, market participants are too complacent about building inflationary pressures. According to the Organization for Economic Cooperation and Development, the U.S. output gap—the difference between actual and potential GDP—has moved into positive territory for the first time in this expansion. Historically, this has eventually been associated with accelerating inflationary outcomes. Third, the rest of the world remains a source of concern and we believe the global recovery has become increasingly tilted towards and dependent upon the U.S.
In sum, U.S. equity investors have climbed the proverbial “wall of worry” so far this year. Shifting metaphors, we believe the liquidity tide is flowing out. In our view, assets that have benefited from ample liquidity and cheap capital should inevitably reverse and de-rate. Mindful of this, we have focused our attention on identifying quality companies at somewhat reasonable valuation and “self-help” stories that we believe should sustain in likely more volatile markets. In equities, growth and momentum strategies have vastly outperformed value strategies in the last two to three years. In early October, the rise in interest rates is bringing the duration and convexity within the equity markets into play and causing a reversal in the growth versus value outperformance. We have been patiently waiting for this normalization to occur and we believe this shift could be the beginning of this unwind.
1 | The “Life of Fund” return as shown reflects the period 08/01/2017 through 10/31/2018. |
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.
47
Harbor Small Cap Value Opportunities Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Michaels Cos Inc. | 3.9% |
❷ | Beacon Roofing Supply Inc. | 2.8% |
❸ | Diebold Nixdorf Inc. | 2.8% |
❹ | Cars.com Inc. | 2.5% |
❺ | QTS Realty Trust Inc. | 2.3% |
❻ | Sterling Bancorp | 2.3% |
❼ | Ascena Retail Group Inc. | 2.2% |
❽ | Kar Auction Services Inc. | 2.2% |
❾ | Argo Group International Holdings Ltd. | 2.1% |
❿ | Syneos Health Inc. | 2.1% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
48
Harbor Small Cap Value Opportunities Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—92.3% | |||
Shares | Value | ||
AUTO COMPONENTS—1.2% | |||
12,500 | Adient plc (Ireland) | $ 380 | |
BANKS—13.6% | |||
14,520 | Bank of NT Butterfield & Son Ltd. (Bermuda) | 585 | |
12,650 | Bank OZK | 346 | |
7,900 | Cathay General Bancorp | 297 | |
23,400 | First Hawaiian Inc. | 580 | |
11,000 | Glacier Bancorp Inc. | 466 | |
9,600 | Hancock Holding Co. | 403 | |
7,550 | Popular Inc. (Puerto Rico) | 393 | |
40,900 | Sterling Bancorp | 735 | |
6,404 | Wintrust Financial Corp. | 488 | |
4,293 | |||
BUILDING PRODUCTS—1.3% | |||
14,400 | Continental Building Products Inc.* | 400 | |
CAPITAL MARKETS—1.0% | |||
11,980 | Artisan Partners Asset Management Inc. | 328 | |
CHEMICALS—1.6% | |||
24,900 | Valvoline Inc. | 496 | |
COMMERCIAL SERVICES & SUPPLIES—4.8% | |||
11,980 | KAR Auction Services Inc. | 682 | |
15,200 | Ritchie Bros Auctioneers Inc. (Canada) | 511 | |
18,750 | Steelcase Inc. | 311 | |
1,504 | |||
CONTAINERS & PACKAGING—1.5% | |||
19,650 | Silgan Holdings Inc. | 472 | |
DIVERSIFIED FINANCIAL SERVICES—1.4% | |||
56,900 | FGL Holdings (Cayman Islands)* | 450 | |
ENERGY EQUIPMENT & SERVICES—5.9% | |||
8,800 | Cactus Inc.* | 294 | |
68,860 | Forum Energy Technologies Inc.* | 617 | |
36,400 | Hunting plc ADR (United Kingdom)1 | 314 | |
21,390 | NCS Multistage Holdings Inc.* | 242 | |
286,312 | Weatherford International plc (Ireland)* | 387 | |
1,854 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—7.1% | |||
17,650 | Corecivic Inc. | 396 | |
35,600 | Outfront Media Inc. | 631 | |
30,600 | Physicians Realty Trust | 507 | |
18,600 | QTS Realty Trust Inc. | 713 | |
2,247 | |||
FOOD PRODUCTS—3.0% | |||
3,640 | Post Holdings Inc.* | 322 | |
13,590 | TreeHouse Foods Inc.* | 619 | |
941 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—1.6% | |||
16,550 | Natus Medical Inc.* | 495 | |
HEALTH CARE PROVIDERS & SERVICES—1.0% | |||
7,590 | Acadia Healthcare Co. Inc.* | 315 | |
HOTELS, RESTAURANTS & LEISURE—1.5% | |||
8,200 | Dave & Buster's Entertainment Inc. | 488 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
INSURANCE—3.1% | |||
10,761 | Argo Group International Holdings Ltd. (Bermuda) | $ 663 | |
8,000 | Assured Guaranty Ltd. (Bermuda) | 320 | |
983 | |||
INTERACTIVE MEDIA & SERVICES—2.5% | |||
30,450 | Cars.com Inc.* | 795 | |
INTERNET & DIRECT MARKETING RETAIL—1.6% | |||
30,950 | Despegar.com Corp. (Virgin Islands)* | 497 | |
IT SERVICES—1.3% | |||
15,900 | Evertec Inc. (Puerto Rico) | 415 | |
LIFE SCIENCES TOOLS & SERVICES—2.1% | |||
14,455 | Syneos Health Inc.* | 660 | |
MACHINERY—4.1% | |||
14,550 | Altra Industrial Motion Corp. | 470 | |
7,280 | EnPro Industries Inc. | 453 | |
10,730 | Terex Corp. | 358 | |
1,281 | |||
MEDIA—1.2% | |||
20,340 | Liberty Latin America Ltd. (Bermuda)* | 366 | |
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—1.9% | |||
37,050 | Redwood Trust Inc. | 608 | |
MULTI-UTILITIES—1.4% | |||
7,709 | Northwestern Corp. | 453 | |
OIL, GAS & CONSUMABLE FUELS—2.8% | |||
38,450 | Oasis Petroleum Inc.* | 387 | |
30,495 | WPX Energy Inc.* | 489 | |
876 | |||
PERSONAL PRODUCTS—1.3% | |||
38,062 | e.l.f. Beauty Inc.* | 404 | |
PROFESSIONAL SERVICES—1.4% | |||
26,650 | Resources Connection Inc. | 435 | |
ROAD & RAIL—2.9% | |||
5,720 | Genesee & Wyoming Inc.* | 453 | |
14,297 | Knight-Swift Transportation Holdings Inc. | 458 | |
911 | |||
SPECIALTY RETAIL—8.6% | |||
178,960 | Ascena Retail Group Inc.* | 689 | |
77,690 | Michaels Cos Inc.* | 1,231 | |
28,200 | Party City Holdco Inc.* | 295 | |
8,650 | Signet Jewelers Ltd. (Bermuda) | 485 | |
2,700 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—2.8% | |||
228,220 | Diebold Nixdorf Inc. | 890 | |
THRIFTS & MORTGAGE FINANCE—2.7% | |||
11,950 | Essent Group Ltd. (Bermuda)* | 471 | |
13,880 | Washington Federal Inc. | 391 | |
862 |
49
Harbor Small Cap Value Opportunities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
TRADING COMPANIES & DISTRIBUTORS—4.1% | |||
11,140 | Air Lease Corp. | $ 425 | |
31,250 | Beacon Roofing Supply Inc.* | 872 | |
1,297 | |||
TOTAL COMMON STOCKS | |||
(Cost $31,047) | 29,096 | ||
TOTAL INVESTMENTS—92.3% | |||
(Cost $31,047) | 29,096 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—7.7% | 2,430 | ||
TOTAL NET ASSETS—100.0% | $31,526 |
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
50
Harbor Domestic Equity Funds
StatementS of Assets and Liabilities—October 31, 2018
StatementS of Assets and Liabilities—October 31, 2018
(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 | $17,659,564 | $53,663 | $310,158* | $678,811 | $272,448 | $828,736 | $932,575 | $1,090,944 | $31,047 | |||||||||
Investments, at value | $29,325,245 | $65,344 | $ 324,690 | $696,828 | $278,580 | $940,106 | $940,299 | $1,359,682 | $29,096 | |||||||||
Repurchase agreements | — | — | 28,395 | — | — | — | — | — | — | |||||||||
Cash | 208,167 | 4,808 | — | 13,017 | 8,193 | 39,958 | 1,613 | 24,790 | 2,433 | |||||||||
Receivables for: | ||||||||||||||||||
Investments sold | 104,019 | — | — | 4,897 | 1,522 | — | 765 | — | 116 | |||||||||
Capital shares sold | 21,234 | 40 | 99 | 203 | 20 | 1,274 | 1,141 | 1,432 | — | |||||||||
Dividends | 7,963 | 7 | 13 | 42 | 15 | 406 | 1,116 | 427 | 3 | |||||||||
Interest | 30 | 1 | 2 | 1 | 2 | 11 | 1 | 6 | 1 | |||||||||
Withholding tax | 1,744 | 1 | 11 | — | — | 154 | — | — | — | |||||||||
Prepaid registration fees | 31 | 1 | 26 | 21 | 1 | 24 | 16 | 20 | 5 | |||||||||
Other assets | 2,005 | 1 | 54 | 58 | 12 | 105 | 45 | 91 | — | |||||||||
Total Assets | 29,670,438 | 70,203 | 353,290 | 715,067 | 288,345 | 982,038 | 944,996 | 1,386,448 | 31,654 | |||||||||
LIABILITIES | ||||||||||||||||||
Payables for: | ||||||||||||||||||
Due to custodian | — | — | 1 | — | — | — | — | — | — | |||||||||
Investments purchased | 91,160 | — | 5,964 | — | 2,110 | — | — | 379 | 65 | |||||||||
Capital shares reacquired | 23,055 | 1 | 305 | 184 | 234 | 1,589 | 1,194 | 1,813 | — | |||||||||
Accrued expenses: | ||||||||||||||||||
Management fees | 14,211 | 36 | 229 | 483 | 189 | 510 | 597 | 917 | 21 | |||||||||
12b-1 fees | 394 | — | 10 | 2 | 1 | 13 | 28 | 17 | — | |||||||||
Transfer agent fees | 1,884 | 2 | 17 | 33 | 18 | 54 | 69 | 95 | 2 | |||||||||
Trustees' fees and expenses | 2,255 | 3 | 57 | 64 | 14 | 47 | 53 | 103 | 1 | |||||||||
Other | 1,559 | 42 | 25 | 41 | 17 | 56 | 98 | 159 | 39 | |||||||||
Total Liabilities | 134,518 | 84 | 6,608 | 807 | 2,583 | 2,269 | 2,039 | 3,483 | 128 | |||||||||
NET ASSETS | $29,535,920 | $70,119 | $ 346,682 | $714,260 | $285,762 | $979,769 | $942,957 | $1,382,965 | $31,526 | |||||||||
Net Assets Consist of: | ||||||||||||||||||
Paid-in capital | $15,252,191 | $56,895 | $ 249,467 | $563,001 | $235,694 | $852,120 | $869,185 | $ 998,040 | $31,520 | |||||||||
Total distributable earnings/(loss) | 14,283,729 | 13,224 | 97,215 | 151,259 | 50,068 | 127,649 | 73,772 | 384,925 | 6 | |||||||||
$29,535,920 | $70,119 | $ 346,682 | $714,260 | $285,762 | $979,769 | $942,957 | $1,382,965 | $31,526 | ||||||||||
NET ASSET VALUE PER SHARE BY CLASS | ||||||||||||||||||
Institutional Class | ||||||||||||||||||
Net assets | $22,366,214 | $66,197 | $ 158,680 | $400,389 | $244,140 | $605,040 | $714,309 | $1,149,857 | $24,685 | |||||||||
Shares of beneficial interest1 | 302,380 | 3,373 | 14,615 | 27,895 | 18,606 | 42,111 | 33,403 | 34,250 | 2,474 | |||||||||
Net asset value per share2 | $ 73.97 | $ 19.63 | $ 10.86 | $ 14.35 | $ 13.12 | $ 14.37 | $ 21.38 | $ 33.57 | $ 9.98 | |||||||||
Retirement Class | ||||||||||||||||||
Net assets | $ 5,393,675 | $ 3,584 | $ 144,137 | $306,026 | $ 39,139 | $313,721 | $103,552 | $ 155,036 | $ 6,329 | |||||||||
Shares of beneficial interest1 | 72,903 | 183 | 13,246 | 21,272 | 2,978 | 21,835 | 4,841 | 4,614 | 634 | |||||||||
Net asset value per share2 | $ 73.98 | $ 19.65 | $ 10.88 | $ 14.39 | $ 13.14 | $ 14.37 | $ 21.39 | $ 33.60 | $ 9.99 | |||||||||
Administrative Class | ||||||||||||||||||
Net assets | $ 448,241 | $ 16 | $ 26,936 | $ 769 | $ 1,792 | $ 15,460 | $ 42,557 | $ 7,253 | $ 250 | |||||||||
Shares of beneficial interest1 | 6,179 | 1 | 2,599 | 57 | 137 | 1,076 | 1,977 | 217 | 25 | |||||||||
Net asset value per share2 | $ 72.54 | $ 19.58 | $ 10.37 | $ 13.39 | $ 13.03 | $ 14.36 | $ 21.52 | $ 33.36 | $ 9.96 | |||||||||
Investor Class | ||||||||||||||||||
Net assets | $ 1,327,790 | $ 322 | $ 16,929 | $ 7,076 | $ 691 | $ 45,548 | $ 82,539 | $ 70,819 | $ 262 | |||||||||
Shares of beneficial interest1 | 18,663 | 16 | 1,682 | 553 | 54 | 3,144 | 3,873 | 2,167 | 26 | |||||||||
Net asset value per share2 | $ 71.15 | $ 19.54 | $ 10.07 | $ 12.79 | $ 12.87 | $ 14.49 | $ 21.31 | $ 32.68 | $ 9.95 |
* | Including repurchase agreements |
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.
51
Harbor Domestic Equity Funds
StatementS of Operations—Year Ended October 31, 2018
StatementS of Operations—Year Ended October 31, 2018
(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 | $ 278,367 | $ 684 | $ 1,668 | $ 3,370 | $ 763 | $ 16,188 | $ 31,311 | $ 17,765 | $ 436 |
Interest | 621 | 13 | 265 | 71 | 31 | 111 | 23 | 126 | 6 |
Net securities lending income | 382 | — | — | — | — | — | — | — | — |
Foreign taxes withheld | (7,575) | (14) | (14) | (17) | (16) | (366) | — | (64) | (2) |
Total Investment Income | 271,795 | 683 | 1,919 | 3,424 | 778 | 15,933 | 31,334 | 17,827 | 440 |
Operating Expenses | |||||||||
Management fees | 185,647 | 419 | 2,755 | 5,611 | 2,324 | 5,524 | 8,050 | 10,652 | 231 |
12b-1 fees: | |||||||||
Administrative Class | 1,249 | — | 97 | 2 | 3 | 43 | 123 | 17 | 1 |
Investor Class | 3,738 | 1 | 50 | 21 | 3 | 157 | 256 | 171 | 1 |
Shareholder communications | 552 | 13 | 21 | 16 | 8 | 59 | 157 | 74 | 1 |
Custodian fees | 1,266 | 6 | 31 | 50 | 26 | 32 | 38 | 52 | 7 |
Transfer agent fees: | |||||||||
Institutional Class | 21,795 | 61 | 144 | 434 | 225 | 527 | 734 | 1,080 | 23 |
Retirement Class | 473 | — | 15 | 25 | 6 | 25 | 11 | 15 | — |
Administrative Class | 450 | — | 35 | 1 | 1 | 15 | 44 | 6 | — |
Investor Class | 3,140 | — | 42 | 18 | 2 | 132 | 215 | 143 | 1 |
Professional fees | 998 | 19 | 11 | 26 | 12 | 32 | 35 | 47 | 2 |
Trustees' fees and expenses | 1,027 | 2 | 11 | 26 | 11 | 33 | 37 | 50 | 1 |
Registration fees | 272 | 59 | 61 | 63 | 61 | 103 | 77 | 124 | 41 |
Miscellaneous | 281 | 7 | 11 | 13 | 10 | 14 | 16 | 18 | 8 |
Total expenses | 220,888 | 587 | 3,284 | 6,306 | 2,692 | 6,696 | 9,793 | 12,449 | 317 |
Management fees waived | (15,658) | — | — | — | — | — | (378) | — | — |
Transfer agent fees waived | (2,082) | (5) | (18) | (39) | (20) | (53) | (76) | (101) | (2) |
Other expenses reimbursed | — | (94) | — | — | — | (311) | — | — | (46) |
Custodian fees reductions | (24) | — | — | (1) | — | (1) | (1) | (2) | — |
Net expenses | 203,124 | 488 | 3,266 | 6,266 | 2,672 | 6,331 | 9,338 | 12,346 | 269 |
Net Investment Income/(Loss) | 68,671 | 195 | (1,347) | (2,842) | (1,894) | 9,602 | 21,996 | 5,481 | 171 |
Realized and Change in Net Unrealized Gain/(Loss) on Investment Transactions | |||||||||
Net realized gain/(loss) on: | |||||||||
Investments | 3,215,093 | 1,922 | 71,608 | 163,740 | 57,856 | 18,268 | 56,222 | 154,899 | 1,824 |
Foreign currency transactions | 29 | — | 4 | — | — | — | — | — | — |
Purchased options | — | — | 615 | — | — | — | — | — | — |
Redemption in-kind | 174,277 | — | — | — | — | — | — | — | — |
Change in net unrealized appreciation/(depreciation) on: | |||||||||
Investments | (743,378) | 1,689 | (44,332) | (131,098) | (23,665) | (39,265) | (125,443) | (248,143) | (2,001) |
Translations of assets and liabilities in foreign currencies | (15) | — | — | — | — | — | — | — | — |
Net gain/(loss) on investment transactions | 2,646,006 | 3,611 | 27,895 | 32,642 | 34,191 | (20,997) | (69,221) | (93,244) | (177) |
Net Increase/(Decrease) in Net Assets Resulting from Operations | $2,714,677 | $3,806 | $ 26,548 | $ 29,800 | $ 32,297 | $(11,395) | $ (47,225) | $ (87,763) | $ (6) |
The accompanying notes are an integral part of the Financial Statements.
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | July 1, 2017 through October 31, 2017 | July 1, 2016 through June 30, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||
INCREASE/(DECREASE) IN NET ASSETS | |||||||||
Operations: | |||||||||
Net investment income/(loss) | $ 68,671 | $ 45,592 | $ 195 | $ 42 | $ 205 | $ (1,347) | $ (787) | ||
Net realized gain/(loss) on investments | 3,389,399 | 3,499,970 | 1,922 | 144 | 773 | 72,227 | 49,738 | ||
Change in net unrealized appreciation/(depreciation) of investments | (743,393) | 3,868,248 | 1,689 | 2,754 | 3,139 | (44,332) | 50,807 | ||
Net increase/(decrease) in assets resulting from operations | 2,714,677 | 7,413,810 | 3,806 | 2,940 | 4,117 | 26,548 | 99,758 | ||
Distributions to Shareholdersa | |||||||||
Institutional Class | (2,446,657) | — | (1,185) | — | — | (15,890) | — | ||
Retirement Class | (396,568) | — | (13) | — | — | (14,153) | — | ||
Administrative Class | (51,883) | — | — | — | — | (3,120) | — | ||
Investor Class | (153,082) | — | (1) | — | — | (2,301) | — | ||
Net investment income: | |||||||||
Institutional Class | N/A | (21,322) | N/A | — | (193) | N/A | — | ||
Retirement Class | N/A | (1,881) | N/A | — | — | N/A | — | ||
Administrative Class | N/A | — | N/A | — | — | N/A | — | ||
Investor Class | N/A | — | N/A | — | — | N/A | — | ||
Net realized gain on investments: | |||||||||
Institutional Class | N/A | (1,220,935) | N/A | — | (205) | N/A | — | ||
Retirement Class | N/A | (65,872) | N/A | — | — | N/A | — | ||
Administrative Class | N/A | (30,286) | N/A | — | — | N/A | — | ||
Investor Class | N/A | (88,361) | N/A | — | — | N/A | — | ||
Total distributions to shareholders | (3,048,190) | (1,428,657) | (1,199) | — | (398) | (35,464) | — | ||
Net Increase/(Decrease) Derived from Capital Share Transactions | 1,054,440 | (1,897,442) | 10,964 | 21,393 | 3,108 | (47,997) | (195,061) | ||
Net increase/(decrease) in net assets | 720,927 | 4,087,711 | 13,571 | 24,333 | 6,827 | (56,913) | (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* | $29,535,920 | $28,814,993 | $70,119 | $56,548 | $32,215 | $346,682 | $ 403,595 | ||
*,a Includes accumulated undistributed net investment income/(loss) of: | N/A | $ 35,329 | N/A | $ 77 | $ 39 | N/A | $ (318) |
a | The presentation of Distributions to Shareholders and accumulated undistributed net investment income/(loss) have been updated to reflect the changes prescribed in amendments to Regulation S-X as disclosed in New Accounting Pronouncements in Note 2 to the Financial Statements. There is no impact to prior years’ presentation. |
b | 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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | August 1, 2017b through October 31, 2017 | |||||
$ (2,842) | $ (1,992) | $ (1,894) | $ (1,514) | $ 9,602 | $ 5,465 | $ 21,996 | $ 15,802 | $ 5,481 | $ 2,125 | $ 171 | $ 37 | |||||
163,740 | 88,078 | 57,856 | 24,181 | 18,268 | 26,388 | 56,222 | 27,835 | 154,899 | 29,319 | 1,824 | 76 | |||||
(131,098) | 68,228 | (23,665) | 22,607 | (39,265) | 86,165 | (125,443) | 112,584 | (248,143) | 234,567 | (2,001) | 50 | |||||
29,800 | 154,314 | 32,297 | 45,274 | (11,395) | 118,018 | (47,225) | 156,221 | (87,763) | 266,011 | (6) | 163 | |||||
(48,249) | — | (13,477) | — | (18,431) | — | (28,481) | — | (21,038) | — | (147) | — | |||||
(18,209) | — | (3,505) | — | (7,627) | — | (3,555) | — | (2,150) | — | (1) | — | |||||
(71) | — | (71) | — | (421) | — | (1,726) | — | (105) | — | (1) | — | |||||
(834) | — | (71) | — | (2,316) | — | (3,658) | — | (963) | — | (1) | — | |||||
N/A | — | N/A | — | N/A | (3,694) | N/A | (10,454) | N/A | (2,998) | N/A | — | |||||
N/A | — | N/A | — | N/A | (259) | N/A | (270) | N/A | (12) | N/A | — | |||||
N/A | — | N/A | — | N/A | (277) | N/A | (625) | N/A | (3) | N/A | — | |||||
N/A | — | N/A | — | N/A | (460) | N/A | (2,058) | N/A | (10) | N/A | — | |||||
N/A | (2,458) | N/A | — | N/A | (10,933) | N/A | (9,256) | N/A | — | N/A | — | |||||
N/A | (418) | N/A | — | N/A | (134) | N/A | (232) | N/A | — | N/A | — | |||||
N/A | (3) | N/A | — | N/A | (318) | N/A | (636) | N/A | — | N/A | — | |||||
N/A | (45) | N/A | — | N/A | (2,114) | N/A | (2,358) | N/A | — | N/A | — | |||||
(67,363) | (2,924) | (17,124) | — | (28,795) | (18,189) | (37,420) | (25,889) | (24,256) | (3,023) | (150) | — | |||||
43,786 | (30,962) | (34,380) | 68,733 | 253,253 | 285,851 | 39,635 | 48,486 | 314,366 | 157,261 | 6,491 | 25,028 | |||||
6,223 | 120,428 | (19,207) | 114,007 | 213,063 | 385,680 | (45,010) | 178,818 | 202,347 | 420,249 | 6,335 | 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 | — | |||||
$ 714,260 | $708,037 | $285,762 | $304,969 | $979,769 | $766,706 | $ 942,957 | $987,967 | $1,382,965 | $1,180,618 | $31,526 | $25,191 | |||||
N/A | $ (35) | N/A | $ (6) | N/A | $ 863 | N/A | $ 7,117 | N/A | $ (8) | N/A | $ 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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | July 1, 2017 through October 31, 2017 | July 1, 2016 through June 30, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||
AMOUNT ($) | |||||||||
Institutional Class | |||||||||
Net proceeds from sale of shares | $ 3,646,684 | $ 3,276,589 | $ 17,159 | $22,972 | $ 8,515 | $ 49,030 | $ 34,285 | ||
Reinvested distributions | 2,226,227 | 1,106,036 | 1,183 | — | 346 | 11,273 | — | ||
Cost of shares reacquired | (6,874,710) | (7,001,496) | (10,834) | (1,724) | (6,094) | (42,659) | (233,261) | ||
Cost of shares reacquired through redemption in-kind | (291,425) | (107,830) | — | — | — | — | — | ||
Net increase/(decrease) in net assets | $(1,293,224) | $(2,726,701) | $ 7,508 | $21,248 | $ 2,767 | $ 17,644 | $(198,976) | ||
Retirement Class | |||||||||
Net proceeds from sale of shares | $ 3,554,254 | $ 2,162,111 | $ 3,374 | $ 96 | $ 311a | $ 46,562 | $ 119,909 | ||
Reinvested distributions | 378,865 | 66,899 | 12 | — | — | 14,153 | — | ||
Cost of shares reacquired | (1,359,223) | (901,911) | (182) | (1) | (2) a | (40,095) | (16,239) | ||
Net increase/(decrease) in net assets | $ 2,573,896 | $ 1,327,099 | $ 3,204 | $ 95 | $ 309a | $ 20,620 | $ 103,670 | ||
Administrative Class | |||||||||
Net proceeds from sale of shares | $ 90,994 | $ 98,518 | $ 3 | $ 1 | $ 11a | $ 9,158 | $ 55,699 | ||
Reinvested distributions | 50,177 | 29,735 | — | — | — | 3,116 | — | ||
Cost of shares reacquired | (180,144) | (285,429) | — | — | (1) a | (95,899) | (153,126) | ||
Net increase/(decrease) in net assets | $ (38,973) | $ (157,176) | $ 3 | $ 1 | 10 a | $(83,625) | $ (97,427) | ||
Investor Class | |||||||||
Net proceeds from sale of shares | $ 340,918 | $ 250,072 | $ 337 | $ 56 | $ 22a | $ 9,964 | $ 8,536 | ||
Reinvested distributions | 151,394 | 86,039 | 1 | — | — | 2,285 | — | ||
Cost of shares reacquired | (679,571) | (676,775) | (89) | (7) | — | (14,885) | (10,864) | ||
Net increase/(decrease) in net assets | $ (187,259) | $ (340,664) | $ 249 | $ 49 | $ 22a | $ (2,636) | $ (2,328) |
a | For the period March 6, 2017 (commencement of operations) through June 30, 2017 |
b | 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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | August 1, 2017b through October 31, 2017 | |||||
$ 65,821 | $ 63,756 | $ 81,888 | $ 91,607 | $ 288,719 | $ 292,174 | $ 263,531 | $ 239,318 | $ 478,010 | $ 345,325 | $ 106 | $24,494 | |||||
47,317 | 2,405 | 13,012 | — | 17,031 | 14,027 | 27,819 | 19,313 | 18,030 | 2,418 | 147 | — | |||||
(204,931) | (199,752) | (116,301) | (46,086) | (174,554) | (191,931) | (252,177) | (216,527) | (335,507) | (253,759) | (3) | — | |||||
— | — | — | — | — | — | — | — | — | — | — | — | |||||
$ (91,793) | $(133,591) | $ (21,401) | $ 45,521 | $ 131,196 | $ 114,270 | $ 39,173 | $ 42,104 | $ 160,533 | $ 93,984 | $ 250 | $24,494 | |||||
$ 158,138 | $ 139,351 | $ 19,490 | $ 27,035 | $ 200,477 | $ 135,337 | $ 36,005 | $ 78,013 | $ 143,113 | $ 51,537 | $6,231 | $ 31 | |||||
17,919 | 418 | 3,505 | — | 7,588 | 393 | 3,555 | 501 | 1,153 | 12 | 1 | — | |||||
(40,086) | (34,669) | (35,883) | (4,901) | (23,708) | (2,501) | (16,551) | (10,150) | (33,113) | (2,883) | (3) | — | |||||
$ 135,971 | $ 105,100 | $ (12,888) | $ 22,134 | $ 184,357 | $ 133,229 | $ 23,009 | $ 68,364 | $ 111,153 | $ 48,666 | $6,229 | $ 31 | |||||
$ 703 | $ 986 | $ 988 | $ 1,411 | $ 3,946 | $ 43,445 | $ 10,291 | $ 16,625 | $ 5,226 | $ 2,733 | $ — | $ 250 | |||||
71 | 3 | 71 | — | 421 | 594 | 1,722 | 1,259 | 101 | 3 | 1 | — | |||||
(684) | (1,097) | (612) | (408) | (41,507) | (5,086) | (14,356) | (16,615) | (1,926) | (280) | — | — | |||||
$ 90 | $ (108) | $ 447 | $ 1,003 | $ (37,140) | $ 38,953 | $ (2,343) | $ 1,269 | $ 3,401 | $ 2,456 | $ 1 | $ 250 | |||||
$ 1,819 | $ 804 | $ 479 | $ 387 | $ 25,671 | $ 56,096 | $ 18,261 | $ 48,514 | $ 71,109 | $ 42,084 | $ 10 | $ 253 | |||||
832 | 44 | 71 | — | 2,305 | 2,403 | 3,543 | 4,335 | 948 | 10 | 1 | — | |||||
(3,133) | (3,211) | (1,088) | (312) | (53,136) | (59,100) | (42,008) | (116,100) | (32,778) | (29,939) | — | — | |||||
$ (482) | $ (2,363) | $ (538) | $ 75 | $ (25,160) | $ (601) | $ (20,204) | $ (63,251) | $ 39,279 | $ 12,155 | $ 11 | $ 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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | July 1, 2017 through October 31, 2017 | July 1, 2016 through June 30, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||
SHARES | |||||||||
Institutional Class | |||||||||
Shares sold | 48,030 | 50,273 | 876 | 1,263 | 525 | 4,324 | 3,495 | ||
Shares issued due to reinvestment of distributions | 31,713 | 19,319 | 62 | — | 22 | 1,086 | — | ||
Shares reacquired | (90,775) | (108,725) | (537) | (95) | (377) | (3,780) | (25,934) | ||
Shares reacquired through redemption in-kind | (3,847) | (1,623) | — | — | — | — | — | ||
Net increase/(decrease) in shares outstanding | (14,879) | (40,756) | 401 | 1,168 | 170 | 1,630 | (22,439) | ||
Beginning of period | 317,259 | 358,015 | 2,972 | 1,804 | 1,634 | 12,985 | 35,424 | ||
End of period | 302,380 | 317,259 | 3,373 | 2,972 | 1,804 | 14,615 | 12,985 | ||
Retirement Class | |||||||||
Shares sold | 46,871 | 33,211 | 168 | 5 | 18 a | 4,092 | 12,594 | ||
Shares issued due to reinvestment of distributions | 5,399 | 1,169 | 1 | — | — | 1,361 | — | ||
Shares reacquired | (17,760) | (12,930) | (9) | — | — | (3,535) | (1,583) | ||
Net increase/(decrease) in shares outstanding | 34,510 | 21,450 | 160 | 5 | 18 a | 1,918 | 11,011 | ||
Beginning of period | 38,393 | 16,943 | 23 | 18 | — | 11,328 | 317 | ||
End of period | 72,903 | 38,393 | 183 | 23 | 18 a | 13,246 | 11,328 | ||
Administrative Class | |||||||||
Shares sold | 1,216 | 1,555 | — | — | 1 a | 834 | 5,811 | ||
Shares issued due to reinvestment of distributions | 727 | 527 | — | — | — | 314 | — | ||
Shares reacquired | (2,431) | (4,754) | — | — | — | (8,734) | (16,802) | ||
Net increase/(decrease) in shares outstanding | (488) | (2,672) | — | — | 1 a | (7,586) | (10,991) | ||
Beginning of period | 6,667 | 9,339 | 1 | 1 | — | 10,185 | 21,176 | ||
End of period | 6,179 | 6,667 | 1 | 1 | 1 a | 2,599 | 10,185 | ||
Investor Class | |||||||||
Shares sold | 4,662 | 3,962 | 17 | 3 | 1 a | 938 | 905 | ||
Shares issued due to reinvestment of distributions | 2,235 | 1,548 | — | — | — | 237 | — | ||
Shares reacquired | (9,252) | (10,756) | (5) | — | — | (1,402) | (1,123) | ||
Net increase/(decrease) in shares outstanding | (2,355) | (5,246) | 12 | 3 | 1 a | (227) | (218) | ||
Beginning of period | 21,018 | 26,264 | 4 | 1 | — | 1,909 | 2,127 | ||
End of period | 18,663 | 21,018 | 16 | 4 | 1 a | 1,682 | 1,909 |
a | For the period March 6, 2017 (commencement of operations) through June 30, 2017 |
b | 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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | August 1, 2017b through October 31, 2017 | |||||
4,304 | 4,659 | 6,310 | 7,471 | 18,999 | 21,074 | 11,325 | 10,728 | 12,954 | 10,669 | 10 | 2,449 | |||||
3,302 | 186 | 1,061 | — | 1,143 | 1,088 | 1,178 | 875 | 496 | 79 | 15 | — | |||||
(13,569) | (14,867) | (9,007) | (3,816) | (11,540) | (13,823) | (10,785) | (9,705) | (9,126) | (7,907) | — | — | |||||
— | — | — | — | — | — | — | — | — | — | — | — | |||||
(5,963) | (10,022) | (1,636) | 3,655 | 8,602 | 8,339 | 1,718 | 1,898 | 4,324 | 2,841 | 25 | 2,449 | |||||
33,858 | 43,880 | 20,242 | 16,587 | 33,509 | 25,170 | 31,685 | 29,787 | 29,926 | 27,085 | 2,449 | — | |||||
27,895 | 33,858 | 18,606 | 20,242 | 42,111 | 33,509 | 33,403 | 31,685 | 34,250 | 29,926 | 2,474 | 2,449 | |||||
10,053 | 10,446 | 1,517 | 2,211 | 13,207 | 9,515 | 1,544 | 3,539 | 3,898 | 1,572 | 631 | 3 | |||||
1,249 | 32 | 286 | — | 509 | 30 | 151 | 23 | 31 | — | — | — | |||||
(2,596) | (2,485) | (2,598) | (414) | (1,562) | (174) | (708) | (451) | (897) | (83) | — | — | |||||
8,706 | 7,993 | (795) | 1,797 | 12,154 | 9,371 | 987 | 3,111 | 3,032 | 1,489 | 631 | 3 | |||||
12,566 | 4,573 | 3,773 | 1,976 | 9,681 | 310 | 3,854 | 743 | 1,582 | 93 | 3 | — | |||||
21,272 | 12,566 | 2,978 | 3,773 | 21,835 | 9,681 | 4,841 | 3,854 | 4,614 | 1,582 | 634 | 3 | |||||
50 | 73 | 74 | 125 | 262 | 3,133 | 432 | 739 | 143 | 83 | — | 25 | |||||
6 | — | 6 | — | 28 | 45 | 72 | 56 | 3 | — | — | — | |||||
(49) | (83) | (47) | (35) | (2,787) | (366) | (606) | (735) | (53) | (9) | — | — | |||||
7 | (10) | 33 | 90 | (2,497) | 2,812 | (102) | 60 | 93 | 74 | — | 25 | |||||
50 | 60 | 104 | 14 | 3,573 | 761 | 2,079 | 2,019 | 124 | 50 | 25 | — | |||||
57 | 50 | 137 | 104 | 1,076 | 3,573 | 1,977 | 2,079 | 217 | 124 | 25 | 25 | |||||
131 | 64 | 34 | 34 | 1,673 | 4,142 | 779 | 2,188 | 1,993 | 1,323 | 1 | 25 | |||||
65 | 4 | 6 | — | 153 | 185 | 150 | 196 | 27 | — | — | — | |||||
(224) | (262) | (80) | (26) | (3,444) | (4,213) | (1,795) | (5,230) | (917) | (926) | — | — | |||||
(28) | (194) | (40) | 8 | (1,618) | 114 | (866) | (2,846) | 1,103 | 397 | 1 | 25 | |||||
581 | 775 | 94 | 86 | 4,762 | 4,648 | 4,739 | 7,585 | 1,064 | 667 | 25 | — | |||||
553 | 581 | 54 | 94 | 3,144 | 4,762 | 3,873 | 4,739 | 2,167 | 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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 75.32 | $ 60.36 | $ 65.27 | $ 61.97 | $ 54.71 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.18 e | 0.13 e | 0.09 e | 0.07 e | 0.06 |
Net realized and unrealized gains/(losses) on investments | 6.50 | 18.38 | (0.84) | 7.05 | 8.98 |
Total from investment operations | 6.68 | 18.51 | (0.75) | 7.12 | 9.04 |
Less Distributions | |||||
Dividends from net investment income | (0.11) | (0.06) | (0.05) | (0.05) | (0.05) |
Distributions from net realized capital gains | (7.92) | (3.49) | (4.11) | (3.77) | (1.73) |
Total distributions | (8.03) | (3.55) | (4.16) | (3.82) | (1.78) |
Net asset value end of period | 73.97 | 75.32 | 60.36 | 65.27 | 61.97 |
Net assets end of period (000s) | $22,366,214 | $23,896,840 | $21,608,221 | $24,669,740 | $22,531,379 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 9.44% | 32.52% | (1.23)% | 12.16% | 16.95% |
Ratio of total expenses to average net assets^ | 0.70 | 0.71 | 0.69 | 0.68 | 0.67 |
Ratio of net expenses to average net assetsa | 0.65 | 0.65 | 0.64 | 0.64 | 0.65 |
Ratio of net investment income to average net assetsa | 0.23 | 0.20 | 0.15 | 0.12 | 0.11 |
Portfolio turnover | 40 | 52 | 34 | 37 | 34 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 74.08 | $ 59.50 | $ 64.51 | $ 61.39 | $ 54.29 |
Income from Investment Operations | |||||
Net investment income/(loss)a | (0.01) e | (0.04) e | (0.06) e | (0.08) e | (0.11) |
Net realized and unrealized gains/(losses) on investments | 6.39 | 18.11 | (0.84) | 6.97 | 8.94 |
Total from investment operations | 6.38 | 18.07 | (0.90) | 6.89 | 8.83 |
Less Distributions | |||||
Dividends from net investment income | — | — | — | — | — |
Distributions from net realized capital gains | (7.92) | (3.49) | (4.11) | (3.77) | (1.73) |
Total distributions | (7.92) | (3.49) | (4.11) | (3.77) | (1.73) |
Net asset value end of period | 72.54 | 74.08 | 59.50 | 64.51 | 61.39 |
Net assets end of period (000s) | $ 448,241 | $ 493,860 | $ 555,665 | $ 620,910 | $ 582,430 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 9.16% | 32.20% | (1.48)% | 11.88% | 16.69% |
Ratio of total expenses to average net assets^ | 0.95 | 0.96 | 0.94 | 0.93 | 0.92 |
Ratio of net expenses to average net assetsa | 0.90 | 0.90 | 0.89 | 0.89 | 0.90 |
Ratio of net investment income to average net assetsa | (0.01) | (0.06) | (0.11) | (0.13) | (0.14) |
Portfolio turnover | 40 | 52 | 34 | 37 | 34 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
59
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 75.34 | $ 60.37 | $ 55.79 |
0.23 e | 0.16 e | 0.05 e |
6.50 | 18.40 | 4.53 |
6.73 | 18.56 | 4.58 |
(0.17) | (0.10) | — |
(7.92) | (3.49) | — |
(8.09) | (3.59) | — |
73.98 | 75.34 | 60.37 |
$5,393,675 | $2,892,484 | $1,022,839 |
9.50% | 32.62% | 8.21% c |
0.62 | 0.63 | 0.65 d |
0.57 | 0.59 | 0.59 d |
0.30 | 0.23 | 0.13 d |
40 | 52 | 34 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$ 72.88 | $ 58.66 | $ 63.73 | $ 60.76 | $ 53.82 |
(0.10) e | (0.11) e | (0.13) e | (0.16) e | (0.17) |
6.29 | 17.82 | (0.83) | 6.90 | 8.84 |
6.19 | 17.71 | (0.96) | 6.74 | 8.67 |
— | — | — | — | — |
(7.92) | (3.49) | (4.11) | (3.77) | (1.73) |
(7.92) | (3.49) | (4.11) | (3.77) | (1.73) |
71.15 | 72.88 | 58.66 | 63.73 | 60.76 |
$1,327,790 | $1,531,809 | $1,540,557 | $2,214,518 | $1,910,930 |
9.03% | 32.04% | (1.60)% | 11.75% | 16.53% |
1.07 | 1.08 | 1.06 | 1.05 | 1.04 |
1.02 | 1.02 | 1.01 | 1.01 | 1.02 |
(0.13) | (0.17) | (0.22) | (0.25) | (0.26) |
40 | 52 | 34 | 37 | 34 |
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 | |||||||
Year Ended October 31, | Year Ended June 30, | ||||||
2018 | 2017 i | 2017 | 2016 | 2015 | 2014 | ||
Net asset value beginning of period | $ 18.85 | $ 17.66 | $ 15.54 | $ 15.39 | $ 15.41 | $ 12.80 | |
Income from Investment Operations | |||||||
Net investment income/(loss)a | 0.06 e | 0.03 e | 0.12 e | 0.03 e | 0.04 e | 0.08 e | |
Net realized and unrealized gains/(losses) on investments | 1.11 | 1.16 | 2.22 | 0.63 | 1.11 | 3.35 | |
Total from investment operations | 1.17 | 1.19 | 2.34 | 0.66 | 1.15 | 3.43 | |
Less Distributions | |||||||
Dividends from net investment income | (0.04) | — | (0.11) | (0.01) | (0.06) | (0.15) | |
Distributions from net realized capital gains | (0.35) | — | (0.11) | (0.50) | (1.11) | (0.67) | |
Total distributions | (0.39) | — | (0.22) | (0.51) | (1.17) | (0.82) | |
Proceeds from redemption fees | N/A | N/A | — * | — * | — * | — * | |
Net asset value end of period | 19.63 | 18.85 | 17.66 | 15.54 | 15.39 | 15.41 | |
Net assets end of period (000s) | $66,197 | $56,026 | $31,866 | $25,388 | $20,540 | $13,678 | |
Ratios and Supplemental Data (%) | |||||||
Total returnb | 6.26% | 6.74% c | 15.21% | 4.44% | 7.67% | 27.71% | |
Ratio of total expenses to average net assets^ | 0.84 | 1.18 d | 1.48 | 1.74 | 2.23 | 2.79 | |
Ratio of net expenses to average net assetsa | 0.70 | 0.70 d | 0.83 | 0.90 | 0.90 | 0.90 | |
Ratio of net investment income to average net assetsa | 0.28 | 0.29 d | 0.71 | 0.19 | 0.18 | 0.58 | |
Portfolio turnover | 15 | 9 c | 21 | 40 | 33 | 31 |
Administrative Class | ||||
Year Ended October 31, | Year Ended June 30, | |||
2018 | 2017 i | 2017 h | ||
Net asset value beginning of period | $18.82 | $17.65 | $16.76 | |
Income from Investment Operations | ||||
Net investment income/(loss)a | 0.01 e | 0.01 e | 0.01 e | |
Net realized and unrealized gains/(losses) on investments | 1.10 | 1.16 | 0.88 | |
Total from investment operations | 1.11 | 1.17 | 0.89 | |
Less Distributions | ||||
Dividends from net investment income | — | — | — | |
Distributions from net realized capital gains | (0.35) | — | — | |
Total distributions | (0.35) | — | — | |
Net asset value end of period | 19.58 | 18.82 | 17.65 | |
Net assets end of period (000s) | $ 16 | $ 12 | $ 11 | |
Ratios and Supplemental Data (%) | ||||
Total returnb | 5.96% | 6.63% c | 5.31% c | |
Ratio of total expenses to average net assets | 1.09 | 1.43 d | 1.93 d | |
Ratio of net expenses to average net assets^ | 0.95 | 0.95 d | 0.95 d | |
Ratio of net investment income to average net assetsa | 0.03 | 0.10 d | 0.19 d | |
Portfolio turnover | 15 | 9 c | 21 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
61
Retirement Class | |||
Year Ended October 31, | Year Ended June 30, | ||
2018 | 2017 i | 2017 h | |
$18.86 | $17.67 | $16.76 | |
0.07 e | 0.05 e | 0.03 e | |
1.11 | 1.14 | 0.88 | |
1.18 | 1.19 | 0.91 | |
(0.04) | — | — | |
(0.35) | — | — | |
(0.39) | — | — | |
N/A | N/A | N/A | |
19.65 | 18.86 | 17.67 | |
$3,584 | $ 435 | $ 316 | |
6.34% | 6.73% c | 5.43% c | |
0.76 | 1.10 d | 1.52 d | |
0.62 | 0.62 d | 0.62 d | |
0.33 | 0.42 d | 0.58 d | |
15 | 9 c | 21 |
Investor Class | |||
Year Ended October 31, | Year Ended June 30, | ||
2018 | 2017 i | 2017 h | |
$18.81 | $17.64 | $16.76 | |
(0.02) e | 0.02 e | 0.01 e | |
1.10 | 1.15 | 0.87 | |
1.08 | 1.17 | 0.88 | |
— | — | — | |
(0.35) | — | — | |
(0.35) | — | — | |
19.54 | 18.81 | 17.64 | |
$ 322 | $ 75 | $ 22 | |
5.80% | 6.63% c | 5.25% c | |
1.21 | 1.55 d | 2.03 d | |
1.07 | 1.07 d | 1.07 d | |
(0.11) | 0.05 d | 0.13 d | |
15 | 9 c | 21 |
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 11.24 | $ 8.58 | $ 9.76 | $ 11.43 | $ 11.76 |
Income from Investment Operations | |||||
Net investment income/(loss)a | (0.04) e | (0.01) e | (0.03) e | (0.04) e | (0.04) |
Net realized and unrealized gains/(losses) on investments | 0.88 | 2.67 | (0.03) | 0.20 | 1.55 |
Total from investment operations | 0.84 | 2.66 | (0.06) | 0.16 | 1.51 |
Less Distributions | |||||
Dividends from net investment income | — | — | (0.06) | — | — |
Distributions from net realized capital gains | (1.22) | — | (1.06) | (1.83) | (1.84) |
Total distributions | (1.22) | — | (1.12) | (1.83) | (1.84) |
Net asset value end of period | 10.86 | 11.24 | 8.58 | 9.76 | 11.43 |
Net assets end of period (000s) | $158,680 | $145,914 | $303,802 | $194,308 | $306,371 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 7.94% | 31.00% | (0.60)% | 1.55% | 14.45% |
Ratio of total expenses to average net assets^ | 0.88 | 0.88 | 0.86 | 0.84 | 0.84 |
Ratio of net expenses to average net assetsa | 0.87 | 0.87 | 0.85 | 0.84 | 0.83 |
Ratio of net investment income to average net assetsa | (0.36) | (0.14) | (0.31) | (0.35) | (0.34) |
Portfolio turnover | 85 | 87 | 84 | 82 | 95 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 10.81 | $ 8.27 | $ 9.45 | $ 11.15 | $ 11.54 |
Income from Investment Operations | |||||
Net investment income/(loss)a | (0.06) e | (0.04) e | (0.05) e | (0.06) e | (0.07) |
Net realized and unrealized gains/(losses) on investments | 0.84 | 2.58 | (0.03) | 0.19 | 1.52 |
Total from investment operations | 0.78 | 2.54 | (0.08) | 0.13 | 1.45 |
Less Distributions | |||||
Dividends from net investment income | — | — | (0.04) | — | — |
Distributions from net realized capital gains | (1.22) | — | (1.06) | (1.83) | (1.84) |
Total distributions | (1.22) | — | (1.10) | (1.83) | (1.84) |
Net asset value end of period | 10.37 | 10.81 | 8.27 | 9.45 | 11.15 |
Net assets end of period (000s) | $ 26,936 | $110,114 | $175,211 | $366,121 | $384,511 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 7.68% | 30.71% | (0.91)% | 1.29% | 14.16% |
Ratio of total expenses to average net assets^ | 1.13 | 1.13 | 1.10 | 1.09 | 1.09 |
Ratio of net expenses to average net assetsa | 1.12 | 1.12 | 1.10 | 1.09 | 1.08 |
Ratio of net investment income to average net assetsa | (0.55) | (0.45) | (0.57) | (0.58) | (0.59) |
Portfolio turnover | 85 | 87 | 84 | 82 | 95 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
63
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 11.25 | $ 8.58 | $ 7.76 |
(0.03) e | (0.01) e | (0.03) |
0.88 | 2.66 | 0.85 |
0.85 | 2.67 | 0.82 |
— | — | — |
(1.22) | — | — |
(1.22) | — | — |
10.88 | 11.25 | 8.58 |
$144,137 | $127,446 | $2,718 |
8.02% | 31.12% | 10.57% c |
0.80 | 0.81 | 0.81 d |
0.80 | 0.81 | 0.80 d |
(0.28) | 0.07 | (0.45) d |
85 | 87 | 84 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$ 10.54 | $ 8.07 | $ 9.24 | $ 10.95 | $ 11.37 |
(0.08) e | (0.04) e | (0.05) e | (0.07) e | (0.05) |
0.83 | 2.51 | (0.04) | 0.19 | 1.47 |
0.75 | 2.47 | (0.09) | 0.12 | 1.42 |
— | — | (0.02) | — | — |
(1.22) | — | (1.06) | (1.83) | (1.84) |
(1.22) | — | (1.08) | (1.83) | (1.84) |
10.07 | 10.54 | 8.07 | 9.24 | 10.95 |
$16,929 | $20,121 | $17,167 | $24,647 | $37,887 |
7.57% | 30.61% | (1.05)% | 1.21% | 14.09% |
1.25 | 1.25 | 1.22 | 1.21 | 1.21 |
1.24 | 1.24 | 1.22 | 1.21 | 1.20 |
(0.72) | (0.48) | (0.68) | (0.71) | (0.71) |
85 | 87 | 84 | 82 | 95 |
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 15.06 | $ 11.94 | $ 13.65 | $ 15.45 | $ 15.72 |
Income from Investment Operations | |||||
Net investment income/(loss)a | (0.06) e | (0.04) e | (0.02) e | (0.03) e | (0.05) |
Net realized and unrealized gains/(losses) on investments | 0.81 | 3.22 | (0.11) | 0.55 | 1.91 |
Total from investment operations | 0.75 | 3.18 | (0.13) | 0.52 | 1.86 |
Less Distributions | |||||
Dividends from net investment income | — | — | — | — | — |
Distributions from net realized capital gains | (1.46) | (0.06) | (1.58) | (2.32) | (2.13) |
Total distributions | (1.46) | (0.06) | (1.58) | (2.32) | (2.13) |
Net asset value end of period | 14.35 | 15.06 | 11.94 | 13.65 | 15.45 |
Net assets end of period (000s) | $400,389 | $509,889 | $523,888 | $587,761 | $603,476 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 4.97% | 26.72% | (0.99)% | 3.35% | 12.94% |
Ratio of total expenses to average net assets^ | 0.87 | 0.86 | 0.85 | 0.84 | 0.83 |
Ratio of net expenses to average net assetsa | 0.86 | 0.85 | 0.85 | 0.83 | 0.83 |
Ratio of net investment income to average net assetsa | (0.40) | (0.30) | (0.21) | (0.22) | (0.29) |
Portfolio turnover | 99 | 83 | 89 | 78 | 76 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 14.17 | $ 11.30 | $ 13.04 | $ 14.89 | $ 15.26 |
Income from Investment Operations | |||||
Net investment income/(loss)a | (0.09) e | (0.07) e | (0.05) e | (0.07) e | 0.54 k |
Net realized and unrealized gains/(losses) on investments | 0.77 | 3.00 | (0.11) | 0.54 | 1.22 |
Total from investment operations | 0.68 | 2.93 | (0.16) | 0.47 | 1.76 |
Less Distributions | |||||
Dividends from net investment income | — | — | — | — | — |
Distributions from net realized capital gains | (1.46) | (0.06) | (1.58) | (2.32) | (2.13) |
Total distributions | (1.46) | (0.06) | (1.58) | (2.32) | (2.13) |
Net asset value end of period | 13.39 | 14.17 | 11.30 | 13.04 | 14.89 |
Net assets end of period (000s) | $ 769 | $ 719 | $ 686 | $ 877 | $ 650 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 4.76% | 26.02% | (1.29)% | 3.12% | 12.65% |
Ratio of total expenses to average net assets^ | 1.12 | 1.11 | 1.10 | 1.09 | 1.08 |
Ratio of net expenses to average net assetsa | 1.11 | 1.10 | 1.10 | 1.08 | 1.08 |
Ratio of net investment income to average net assetsa | (0.65) | (0.56) | (0.46) | (0.47) | (0.54) |
Portfolio turnover | 99 | 83 | 89 | 78 | 76 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
65
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 15.08 | $ 11.95 | $ 10.72 |
(0.05) e | (0.04) e | (0.02) e |
0.82 | 3.23 | 1.25 |
0.77 | 3.19 | 1.23 |
— | — | — |
(1.46) | (0.06) | — |
(1.46) | (0.06) | — |
14.39 | 15.08 | 11.95 |
$306,026 | $189,516 | $54,634 |
5.11% | 26.78% | 11.47% c |
0.79 | 0.79 | 0.81 d |
0.79 | 0.79 | 0.80 d |
(0.33) | (0.26) | (0.27) d |
99 | 83 | 89 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$13.62 | $10.84 | $12.59 | $ 14.47 | $ 14.90 |
(0.11) e | (0.08) e | (0.06) e | (0.08) e | (0.51) |
0.74 | 2.92 | (0.11) | 0.52 | 2.21 |
0.63 | 2.84 | (0.17) | 0.44 | 1.70 |
— | — | — | — | — |
(1.46) | (0.06) | (1.58) | (2.32) | (2.13) |
(1.46) | (0.06) | (1.58) | (2.32) | (2.13) |
12.79 | 13.62 | 10.84 | 12.59 | 14.47 |
$7,076 | $7,913 | $8,401 | $11,660 | $14,266 |
4.58% | 26.29% | (1.44)% | 2.98% | 12.53% |
1.24 | 1.23 | 1.22 | 1.21 | 1.20 |
1.23 | 1.22 | 1.22 | 1.20 | 1.20 |
(0.77) | (0.67) | (0.58) | (0.59) | (0.66) |
99 | 83 | 89 | 78 | 76 |
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 g |
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 | (0.08) e | (0.07) e | (0.05) e | (0.06) e | (0.02) |
Net realized and unrealized gains/(losses) on investments | 1.36 | 2.43 | 0.32 | (0.35) | 0.79 |
Total from investment operations | 1.28 | 2.36 | 0.27 | (0.41) | 0.77 |
Less Distributions | |||||
Dividends from net investment income | — | — | — | — | — |
Distributions from net realized capital gains | (0.75) | — | (0.35) | (0.05) | — |
Total distributions | (0.75) | — | (0.35) | (0.05) | — |
Net asset value end of period | 13.12 | 12.59 | 10.23 | 10.31 | 10.77 |
Net assets end of period (000s) | $244,140 | $254,925 | $169,718 | $205,007 | $57,779 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 10.55% | 23.07% | 2.62% | (3.78)% | 7.70% c |
Ratio of total expenses to average net assets^ | 0.88 | 0.88 | 0.89 | 0.90 | 1.60 d |
Ratio of net expenses to average net assetsa | 0.87 | 0.88 | 0.89 | 0.90 | 0.90 d |
Ratio of net investment income to average net assetsa | (0.62) | (0.61) | (0.48) | (0.55) | (0.67) d |
Portfolio turnover | 71 | 67 | 85 | 103 | 55 c |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 g |
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 | (0.11) e | (0.12) e | (0.07) e | (0.09) e | (0.09) |
Net realized and unrealized gains/(losses) on investments | 1.35 | 2.44 | 0.37 | (0.34) | 0.84 |
Total from investment operations | 1.24 | 2.32 | 0.30 | (0.43) | 0.75 |
Less Distributions | |||||
Dividends from net investment income | — | — | — | — | — |
Distributions from net realized capital gains | (0.75) | — | (0.35) | (0.05) | — |
Total distributions | (0.75) | — | (0.35) | (0.05) | — |
Net asset value end of period | 13.03 | 12.54 | 10.22 | 10.27 | 10.75 |
Net assets end of period (000s) | $ 1,792 | $ 1,308 | $ 143 | $ 3,006 | $ 269 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 10.26% | 22.70% | 2.94% | (3.98)% | 7.50% c |
Ratio of total expenses to average net assets^ | 1.12 | 1.13 | 1.14 | 1.15 | 1.85 d |
Ratio of net expenses to average net assetsa | 1.11 | 1.13 | 1.13 | 1.15 | 1.15 d |
Ratio of net investment income to average net assetsa | (0.86) | (0.96) | (0.69) | (0.80) | (0.90) d |
Portfolio turnover | 71 | 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 | ||
2018 | 2017 | 2016 f |
$ 12.61 | $ 10.24 | $ 9.04 |
(0.07) e | (0.07) e | (0.04) e |
1.35 | 2.44 | 1.24 |
1.28 | 2.37 | 1.20 |
— | — | — |
(0.75) | — | — |
(0.75) | — | — |
13.14 | 12.61 | 10.24 |
$39,139 | $47,569 | $20,230 |
10.53% | 23.14% | 13.27% c |
0.80 | 0.81 | 0.85 d |
0.80 | 0.81 | 0.84 d |
(0.55) | (0.57) | (0.60) d |
71 | 67 | 85 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 g |
$12.41 | $10.12 | $10.24 | $10.74 | $10.00 |
(0.13) e | (0.11) e | (0.09) e | (0.09) e | (0.05) |
1.34 | 2.40 | 0.32 | (0.36) | 0.79 |
1.21 | 2.29 | 0.23 | (0.45) | 0.74 |
— | — | — | — | — |
(0.75) | — | (0.35) | (0.05) | — |
(0.75) | — | (0.35) | (0.05) | — |
12.87 | 12.41 | 10.12 | 10.24 | 10.74 |
$ 691 | $1,167 | $ 871 | $ 599 | $1,809 |
10.12% | 22.63% | 2.24% | (4.17)% | 7.40% c |
1.25 | 1.25 | 1.26 | 1.27 | 1.97 d |
1.24 | 1.25 | 1.26 | 1.27 | 1.27 d |
(0.99) | (0.99) | (0.87) | (0.86) | (1.03) d |
71 | 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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 14.87 | $ 12.32 | $ 12.16 | $ 12.24 | $ 10.85 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.16 e | 0.15 e | 0.16 e | 0.15 e | 0.15 |
Net realized and unrealized gains/(losses) on investments | (0.13) | 2.97 | 0.64 | 0.70 | 1.37 |
Total from investment operations | 0.03 | 3.12 | 0.80 | 0.85 | 1.52 |
Less Distributions | |||||
Dividends from net investment income | (0.12) | (0.14) | (0.13) | (0.14) | (0.13) |
Distributions from net realized capital gains | (0.41) | (0.43) | (0.51) | (0.79) | — |
Total distributions | (0.53) | (0.57) | (0.64) | (0.93) | (0.13) |
Net asset value end of period | 14.37 | 14.87 | 12.32 | 12.16 | 12.24 |
Net assets end of period (000s) | $605,040 | $498,360 | $310,127 | $231,033 | $202,596 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 0.11% | 26.00% | 7.14% | 7.29% | 14.13% |
Ratio of total expenses to average net assets^ | 0.72 | 0.72 | 0.72 | 0.70 | 0.70 |
Ratio of net expenses to average net assetsa | 0.68 | 0.68 | 0.68 | 0.68 | 0.68 |
Ratio of net investment income to average net assetsa | 1.05 | 1.10 | 1.32 | 1.25 | 1.26 |
Portfolio turnover | 15 | 16 | 34 | 24 | 32 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 14.84 | $ 12.30 | $ 12.15 | $ 12.23 | $ 10.85 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.13 e | 0.10 e | 0.13 e | 0.12 e | 0.15 |
Net realized and unrealized gains/(losses) on investments | (0.15) | 2.99 | 0.63 | 0.70 | 1.34 |
Total from investment operations | (0.02) | 3.09 | 0.76 | 0.82 | 1.49 |
Less Distributions | |||||
Dividends from net investment income | (0.05) | (0.12) | (0.10) | (0.11) | (0.11) |
Distributions from net realized capital gains | (0.41) | (0.43) | (0.51) | (0.79) | — |
Total distributions | (0.46) | (0.55) | (0.61) | (0.90) | (0.11) |
Net asset value end of period | 14.36 | 14.84 | 12.30 | 12.15 | 12.23 |
Net assets end of period (000s) | $ 15,460 | $ 53,006 | $ 9,361 | $ 24,690 | $ 20,927 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (0.23)% | 25.77% | 6.77% | 7.02% | 13.78% |
Ratio of total expenses to average net assets^ | 0.97 | 0.97 | 0.96 | 0.95 | 0.95 |
Ratio of net expenses to average net assetsa | 0.93 | 0.93 | 0.93 | 0.93 | 0.93 |
Ratio of net investment income to average net assetsa | 0.84 | 0.70 | 1.09 | 1.00 | 1.02 |
Portfolio turnover | 15 | 16 | 34 | 24 | 32 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
69
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 14.87 | $ 12.32 | $10.94 |
0.17 e | 0.12 e | 0.12 e |
(0.13) | 3.00 | 1.33 |
0.04 | 3.12 | 1.45 |
(0.13) | (0.14) | (0.07) |
(0.41) | (0.43) | — |
(0.54) | (0.57) | (0.07) |
14.37 | 14.87 | 12.32 |
$313,721 | $143,966 | $3,822 |
0.18% | 26.08% | 13.24% c |
0.64 | 0.64 | 0.67 d |
0.60 | 0.60 | 0.63 d |
1.12 | 0.83 | 1.46 d |
15 | 16 | 34 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$ 14.99 | $ 12.42 | $ 12.25 | $ 12.33 | $ 10.94 |
0.11 e | 0.10 e | 0.11 e | 0.11 e | 0.13 |
(0.14) | 2.99 | 0.66 | 0.70 | 1.35 |
(0.03) | 3.09 | 0.77 | 0.81 | 1.48 |
(0.06) | (0.09) | (0.09) | (0.10) | (0.09) |
(0.41) | (0.43) | (0.51) | (0.79) | — |
(0.47) | (0.52) | (0.60) | (0.89) | (0.09) |
14.49 | 14.99 | 12.42 | 12.25 | 12.33 |
$45,548 | $71,374 | $57,716 | $29,745 | $20,189 |
(0.27)% | 25.52% | 6.80% | 6.87% | 13.62% |
1.09 | 1.09 | 1.09 | 1.07 | 1.07 |
1.05 | 1.05 | 1.05 | 1.05 | 1.05 |
0.70 | 0.75 | 0.94 | 0.89 | 0.88 |
15 | 16 | 34 | 24 | 32 |
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 23.33 | $ 20.17 | $ 20.27 | $ 20.32 | $ 17.50 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.49 e | 0.39 e | 0.44 e | 0.34 e | 0.18 |
Net realized and unrealized gains/(losses) on investments | (1.54) | 3.43 | 0.08 | (0.07) | 2.84 |
Total from investment operations | (1.05) | 3.82 | 0.52 | 0.27 | 3.02 |
Less Distributions | |||||
Dividends from net investment income | (0.31) | (0.35) | (0.27) | (0.19) | (0.20) |
Distributions from net realized capital gains | (0.59) | (0.31) | (0.35) | (0.13) | — |
Total distributions | (0.90) | (0.66) | (0.62) | (0.32) | (0.20) |
Net asset value end of period | 21.38 | 23.33 | 20.17 | 20.27 | 20.32 |
Net assets end of period (000s) | $714,309 | $739,122 | $600,800 | $484,078 | $195,247 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (4.85)% | 19.16% | 2.81% | 1.32% | 17.39% |
Ratio of total expenses to average net assets^ | 0.87 | 0.87 | 0.86 | 0.86 | 0.89 |
Ratio of net expenses to average net assetsa | 0.83 | 0.84 | 0.84 | 0.86 | 0.89 |
Ratio of net investment income to average net assetsa | 2.09 | 1.76 | 2.28 | 1.66 | 1.40 |
Portfolio turnover | 24 | 22 | 18 | 12 | 13 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 23.47 | $ 20.30 | $ 20.40 | $ 20.47 | $ 17.64 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.43 e | 0.34 e | 0.40 e | 0.29 e | 0.25 |
Net realized and unrealized gains/(losses) on investments | (1.54) | 3.45 | 0.07 | (0.07) | 2.75 |
Total from investment operations | (1.11) | 3.79 | 0.47 | 0.22 | 3.00 |
Less Distributions | |||||
Dividends from net investment income | (0.25) | (0.31) | (0.22) | (0.16) | (0.17) |
Distributions from net realized capital gains | (0.59) | (0.31) | (0.35) | (0.13) | — |
Total distributions | (0.84) | (0.62) | (0.57) | (0.29) | (0.17) |
Net asset value end of period | 21.52 | 23.47 | 20.30 | 20.40 | 20.47 |
Net assets end of period (000s) | $ 42,557 | $ 48,809 | $ 40,992 | $ 28,929 | $ 14,775 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (5.06)% | 18.84% | 2.54% | 1.05% | 17.15% |
Ratio of total expenses to average net assets^ | 1.12 | 1.12 | 1.11 | 1.11 | 1.14 |
Ratio of net expenses to average net assetsa | 1.08 | 1.09 | 1.09 | 1.11 | 1.14 |
Ratio of net investment income to average net assetsa | 1.83 | 1.51 | 2.03 | 1.41 | 1.13 |
Portfolio turnover | 24 | 22 | 18 | 12 | 13 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
71
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 23.33 | $ 20.17 | $ 18.36 |
0.50 e | 0.40 e | 0.28 e |
(1.52) | 3.43 | 1.53 |
(1.02) | 3.83 | 1.81 |
(0.33) | (0.36) | — |
(0.59) | (0.31) | — |
(0.92) | (0.67) | — |
21.39 | 23.33 | 20.17 |
$103,552 | $89,942 | $14,999 |
(4.75)% | 19.22% | 9.86% c |
0.79 | 0.80 | 0.82 d |
0.76 | 0.77 | 0.79 d |
2.15 | 1.79 | 2.11 d |
24 | 22 | 18 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$ 23.23 | $ 20.09 | $ 20.19 | $ 20.27 | $ 17.49 |
0.40 e | 0.31 e | 0.37 e | 0.27 e | 0.17 |
(1.53) | 3.41 | 0.08 | (0.08) | 2.78 |
(1.13) | 3.72 | 0.45 | 0.19 | 2.95 |
(0.20) | (0.27) | (0.20) | (0.14) | (0.17) |
(0.59) | (0.31) | (0.35) | (0.13) | — |
(0.79) | (0.58) | (0.55) | (0.27) | (0.17) |
21.31 | 23.23 | 20.09 | 20.19 | 20.27 |
$82,539 | $110,094 | $152,358 | $165,642 | $91,724 |
(5.20)% | 18.71% | 2.45% | 0.93% | 16.97% |
1.24 | 1.24 | 1.23 | 1.23 | 1.26 |
1.20 | 1.21 | 1.21 | 1.23 | 1.26 |
1.71 | 1.40 | 1.92 | 1.29 | 1.01 |
24 | 22 | 18 | 12 | 13 |
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 36.14 | $ 27.27 | $ 26.21 | $ 27.17 | $ 28.89 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.15 e | 0.08 e | 0.12 e | 0.10 e | 0.06 |
Net realized and unrealized gains/(losses) on investments | (2.00) | 8.90 | 1.92 | (0.09) | 2.68 |
Total from investment operations | (1.85) | 8.98 | 2.04 | 0.01 | 2.74 |
Less Distributions | |||||
Dividends from net investment income | (0.03) | (0.11) | (0.09) | (0.06) | (0.05) |
Distributions from net realized capital gains | (0.69) | — | (0.89) | (0.91) | (4.41) |
Total distributions | (0.72) | (0.11) | (0.98) | (0.97) | (4.46) |
Net asset value end of period | 33.57 | 36.14 | 27.27 | 26.21 | 27.17 |
Net assets end of period (000s) | $1,149,857 | $1,081,412 | $738,705 | $827,423 | $709,251 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (5.28)% | 33.00% | 8.18% | 0.01% | 11.03% |
Ratio of total expenses to average net assets^ | 0.87 | 0.88 | 0.86 | 0.85 | 0.84 |
Ratio of net expenses to average net assetsa | 0.86 | 0.87 | 0.86 | 0.85 | 0.84 |
Ratio of net investment income to average net assetsa | 0.40 | 0.24 | 0.48 | 0.38 | 0.33 |
Portfolio turnover | 22 | 8 | 10 | 17 | 13 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 35.97 | $ 27.16 | $ 26.07 | $ 27.05 | $ 28.80 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.06 e | (0.02) e | 0.05 e | 0.06 e | (0.12) |
Net realized and unrealized gains/(losses) on investments | (1.98) | 8.88 | 1.93 | (0.13) | 2.78 |
Total from investment operations | (1.92) | 8.86 | 1.98 | (0.07) | 2.66 |
Less Distributions | |||||
Dividends from net investment income | — | (0.05) | — | — | — |
Distributions from net realized capital gains | (0.69) | — | (0.89) | (0.91) | (4.41) |
Total distributions | (0.69) | (0.05) | (0.89) | (0.91) | (4.41) |
Net asset value end of period | 33.36 | 35.97 | 27.16 | 26.07 | 27.05 |
Net assets end of period (000s) | $ 7,253 | $ 4,462 | $ 1,360 | $ 1,144 | $ 5,690 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (5.50)% | 32.67% | 7.93% | (0.28)% | 10.74% |
Ratio of total expenses to average net assets^ | 1.12 | 1.13 | 1.11 | 1.10 | 1.09 |
Ratio of net expenses to average net assetsa | 1.11 | 1.12 | 1.11 | 1.10 | 1.09 |
Ratio of net investment income to average net assetsa | 0.16 | (0.05) | 0.21 | 0.21 | 0.10 |
Portfolio turnover | 22 | 8 | 10 | 17 | 13 |
See page 75 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
73
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 36.16 | $ 27.29 | $23.91 |
0.17 e | 0.06 e | 0.05 e |
(1.98) | 8.94 | 3.33 |
(1.81) | 9.00 | 3.38 |
(0.06) | (0.13) | — |
(0.69) | — | — |
(0.75) | (0.13) | — |
33.60 | 36.16 | 27.29 |
$155,036 | $57,196 | $2,529 |
(5.18)% | 33.06% | 14.14% c |
0.79 | 0.81 | 0.82 d |
0.79 | 0.81 | 0.81 d |
0.45 | 0.17 | 0.27 d |
22 | 8 | 10 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$ 35.29 | $ 26.65 | $ 25.63 | $ 26.63 | $ 28.45 |
0.01 e | (0.05) e | 0.03 e | 0.01 e | 0.09 |
(1.93) | 8.71 | 1.88 | (0.10) | 2.50 |
(1.92) | 8.66 | 1.91 | (0.09) | 2.59 |
— | (0.02) | — | — | — |
(0.69) | — | (0.89) | (0.91) | (4.41) |
(0.69) | (0.02) | (0.89) | (0.91) | (4.41) |
32.68 | 35.29 | 26.65 | 25.63 | 26.63 |
$70,819 | $37,548 | $17,775 | $16,797 | $17,265 |
(5.60)% | 32.49% | 7.79% | (0.37)% | 10.61% |
1.24 | 1.25 | 1.23 | 1.22 | 1.21 |
1.23 | 1.24 | 1.23 | 1.22 | 1.21 |
0.03 | (0.16) | 0.10 | 0.02 | (0.04) |
22 | 8 | 10 | 17 | 13 |
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 | ||||
Year Ended October 31, | 2018 | 2017 j | 2018 | 2017 j | |
Net asset value beginning of period | $ 10.07 | $ 10.00 | $10.07 | $10.00 | |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.06 e | 0.02 e | 0.06 e | 0.01 e | |
Net realized and unrealized gains/(losses) on investments | (0.09) | 0.05 | (0.08) | 0.06 | |
Total from investment operations | (0.03) | 0.07 | (0.02) | 0.07 | |
Less Distributions | |||||
Dividends from net investment income | (0.03) | — | (0.03) | — | |
Distributions from net realized capital gains | (0.03) | — | (0.03) | — | |
Total distributions | (0.06) | — | (0.06) | — | |
Net asset value end of period | 9.98 | 10.07 | 9.99 | 10.07 | |
Net assets end of period (000s) | $24,685 | $24,655 | $6,329 | $ 30 | |
Ratios and Supplemental Data (%) | |||||
Total returnb | (0.31)% | 0.70% c | (0.18)% | 0.70% c | |
Ratio of total expenses to average net assets^ | 1.04 | 3.41 d | 0.96 | 3.33 d | |
Ratio of net expenses to average net assetsa | 0.88 | 0.88 d | 0.80 | 0.80 d | |
Ratio of net investment income to average net assetsa | 0.56 | 0.60 d | 0.56 | 0.48 d | |
Portfolio turnover | 73 | 9 c | 73 | 9 c |
* | Less than $0.01. |
^ | Percentage does not reflect reduction for credit balance arrangements (see the “Custodian” section 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 based on average 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 | |||
2018 | 2017 j | 2018 | 2017 j | |
$10.06 | $10.00 | $10.06 | $10.00 | |
0.03 e | 0.01 e | 0.02 e | 0.01 e | |
(0.08) | 0.05 | (0.09) | 0.05 | |
(0.05) | 0.06 | (0.07) | 0.06 | |
(0.02) | — | (0.01) | — | |
(0.03) | — | (0.03) | — | |
(0.05) | — | (0.04) | — | |
9.96 | 10.06 | 9.95 | 10.06 | |
$ 250 | $ 252 | $ 262 | $ 254 | |
(0.51)% | 0.60% c | (0.66)% | 0.60% c | |
1.29 | 3.66 d | 1.41 | 3.78 d | |
1.13 | 1.13 d | 1.25 | 1.25 d | |
0.31 | 0.35 d | 0.19 | 0.23 d | |
73 | 9 c | 73 | 9 c |
76
Harbor Domestic Equity Funds
Notes to Financial Statements—October 31, 2018
Notes to Financial Statements—October 31, 2018
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 October 31, 2018, the Trust consists of 32 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. |
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 year. A table that includes a categorization of investments into Levels 1, 2, or 3, and a summary of significant unobservable inputs used for Level 3 investments, 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.
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 a 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 a 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, a 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 a Fund. A counterparty’s default may cause a 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 year, 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.
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.
79
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
During the year, 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 year, Harbor Capital Appreciation Fund, Harbor Mid Cap Growth Fund, and Harbor Small Cap Growth Opportunities 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 year 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 Statements 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.
Distribution to Shareholders
Distributions on Fund shares are recorded on the ex-dividend date.
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.
80
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
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, 2015–2017), including all positions expected to be taken upon filing the 2018 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.
New Accounting Pronouncements
In August 2018, the Securities and Exchange Commission (“SEC”) issued a final rule on Disclosure Update and Simplification (the “Rule”). The Rule contains amendments to certain financial statements presentation, particularly the presentation of components of net assets in the Statements of Assets and Liabilities and distributions on the Statements of Changes in Net Assets, and eliminates the requirement to disclose accumulated undistributed net investment income or loss on the Statements of Changes in Net Assets. These amendments are part of the SEC’s overall project to improve disclosure effectiveness and are intended to simplify compliance without significantly altering the total mix of information provided to investors. The amended rules are effective for interim and annual reports filed with the SEC on or after November 5, 2018 (the Rule effective date). As of October 31, 2018, the Funds have adopted this Rule.
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update 2018-13 (“ASU 2018-13”), Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends public and private company fair value disclosure requirements. The guidance is the result of the FASB’s test of the principles developed in its disclosure effectiveness project, which is designed to improve the effectiveness
81
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
of disclosures in the notes to the financial statements. This ASU is effective for all entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, however, an entity is permitted to early adopt any removed or modified disclosure and delay adoption of the additional disclosures until their effective date. As of October 31, 2018, the Funds have early adopted ASU 2018-13.
Note 3—Investment Portfolio Transactions
Investment Portfolio Transactions
Purchases and sales of investments, other than short-term securities, for each Fund for the year ended October 31, 2018 are as follows:
Purchases (000s) | Sales (000s) | ||
GROWTH FUNDS | |||
Harbor Capital Appreciation Fund* | $12,123,394 | $14,246,819 | |
Harbor Strategic Growth Fund | 17,458 | 9,786 | |
Harbor Mid Cap Growth Fund | 299,083 | 375,496 | |
Harbor Small Cap Growth Fund | 716,078 | 739,798 | |
Harbor Small Cap Growth Opportunities Fund | 210,853 | 260,594 | |
VALUE FUNDS | |||
Harbor Large Cap Value Fund | $ 349,165 | $ 131,906 | |
Harbor Mid Cap Value Fund | 281,028 | 248,892 | |
Harbor Small Cap Value Fund | 608,922 | 302,798 | |
Harbor Small Cap Value Opportunities Fund | 25,834 | 21,211 |
* | Sales for this Fund include $284,176 in connection with an in-kind redemption of the Fund’s capital shares. |
In-Kind Redemption Transactions
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 years ended October 31, 2018, and 2017, Harbor Capital Appreciation Fund realized gains of $174,277,000 and $58,783,000, respectively, upon the disposition of portfolio securities in connection with in-kind redemptions 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 collateral that is at least equal to the value of the loaned securities determined at the close of each business day. Collateral may consist of cash and/or securities issued by the U.S. Treasury or the Government National Mortgage Association. During the period, all such collateral consisted of cash. 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 Statements of Assets and Liabilities. 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 Statements of Operations.
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Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—Investment Portfolio Transactions—Continued
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 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 year, Harbor Capital Appreciation Fund engaged in securities lending. As of October 31, 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 | 0.71 | |
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 between $350 million and $1 billion and 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 year, the following expense limitation agreements were in effect:
• | Harbor Strategic Growth Fund. For the period November 1, 2017 through October 31, 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 October 31, 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. |
83
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
• | Harbor Small Cap Value Opportunities Fund. For the period November 1, 2017 through October 31, 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.
Distributor
Harbor Funds Distributors, Inc. (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 year ended October 31, 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 year, 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 October 31, 2018, Harbor Capital, and its wholly owned subsidiaries, collectively held the following shares of beneficial interest in each of the following Funds:
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 | — | — | — | 39,200 | 39,200 | 0.0% | |||||
Harbor Strategic Growth Fund | 1,122,097 | 614 | 614 | 21,805 | 1,145,130 | 32.1 | |||||
Harbor Mid Cap Growth Fund | — | — | — | 139,783 | 139,783 | 0.4 | |||||
Harbor Small Cap Growth Fund | — | — | — | 77,754 | 77,754 | 0.2 | |||||
Harbor Small Cap Growth Opportunities Fund | — | — | — | 25,876 | 25,876 | 0.1 | |||||
VALUE FUNDS | |||||||||||
Harbor Large Cap Value Fund | — | — | — | 96,639 | 96,639 | 0.1 | |||||
Harbor Mid Cap Value Fund | — | — | — | 61,185 | 61,185 | 0.1 | |||||
Harbor Small Cap Value Fund | — | — | — | 34,850 | 34,850 | 0.1 | |||||
Harbor Small Cap Value Opportunities Fund | 2,463,473 | 25,122 | 25,110 | 8,815 | 2,522,520 | 79.8 |
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 $1,149,000 for the year ended October 31, 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 “Accrued expenses – Trustees’ fees and 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.
NOTE 5—TAX INFORMATION
The amount and character of income and net realized gains to be distributed are determined in accordance with income tax rules and regulations, which may differ from U.S. GAAP. These differences are attributable to permanent book and tax accounting differences that were primarily due to tax treatment of redemption in-kind distribution and use of equalization. Reclassifications are made to each Fund’s capital account to reflect income and net realized gains available for distribution (or available capital loss carryovers) under income tax rules and regulations. The amounts reclassified on the Statements of Assets and Liabilities for the year ended October 31, 2018 are as follows:
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Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
NOTE 5—TAX INFORMATION—Continued
Total Distributable Earnings/(Loss) (000s) | Paid in Capital (000s) | ||
GROWTH FUNDS | |||
Harbor Capital Appreciation Fund | $(719,832) | $719,832 | |
Harbor Strategic Growth Fund | (230) | 230 | |
Harbor Mid Cap Growth Fund | (12,778) | 12,778 | |
Harbor Small Cap Growth Fund | (21,888) | 21,888 | |
Harbor Small Cap Growth Opportunities Fund | (8,078) | 8,078 | |
VALUE FUNDS | |||
Harbor Large Cap Value Fund | $ (3,854) | $ 3,854 | |
Harbor Mid Cap Value Fund | (10,229) | 10,229 | |
Harbor Small Cap Value Fund | (43,483) | 43,483 | |
Harbor Small Cap Value Opportunities Fund | (1) | 1 |
The tax composition of each Fund’s distributions is as follows:
As of October 31, 2018 | As of October 31, 2017 | ||||||||||
Ordinary Income (000s) | Long-Term Capital Gains (000s) | Total (000s) | Ordinary Income (000s) | Long-Term Capital Gains (000s) | Total (000s) | ||||||
GROWTH FUNDS | |||||||||||
Harbor Capital Appreciation Fund | $42,373 | $3,005,817 | $3,048,190 | $23,203 | $1,405,454 | $1,428,657 | |||||
Harbor Strategic Growth Fund | 165 | 1,034 | 1,199 | — | — | — | |||||
Harbor Mid Cap Growth Fund | 10,055 | 25,409 | 35,464 | — | — | — | |||||
Harbor Small Cap Growth Fund | 10,089 | 57,274 | 67,363 | — | 2,924 | 2,924 | |||||
Harbor Small Cap Growth Opportunities Fund | 2,422 | 14,702 | 17,124 | — | — | — | |||||
VALUE FUNDS | |||||||||||
Harbor Large Cap Value Fund | $ 7,595 | $ 21,200 | $ 28,795 | $ 4,885 | $ 13,304 | $ 18,189 | |||||
Harbor Mid Cap Value Fund | 20,087 | 17,333 | 37,420 | 16,082 | 9,807 | 25,889 | |||||
Harbor Small Cap Value Fund | 1,056 | 23,200 | 24,256 | 3,023 | — | 3,023 | |||||
Harbor Small Cap Value Opportunities Fund | 150 | — | 150 | — | — | — |
As of October 31, 2018, the components of each Fund’s distributable earnings on a tax basis are as follows:
Undistributed Ordinary Income (000s) | Undistributed Long-Term Capital Gains (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||
GROWTH FUNDS | |||||
Harbor Capital Appreciation Fund | $51,872 | $2,639,525 | $11,594,033 | ||
Harbor Strategic Growth Fund | 448 | 1,405 | 11,373 | ||
Harbor Mid Cap Growth Fund | 7,945 | 48,790 | 40,521 | ||
Harbor Small Cap Growth Fund | 20,137 | 116,403 | 14,766 | ||
Harbor Small Cap Growth Opportunities Fund | 12,681 | 39,344 | (1,945) | ||
VALUE FUNDS | |||||
Harbor Large Cap Value Fund | $ 3,534 | $ 14,806 | $ 109,342 | ||
Harbor Mid Cap Value Fund | 16,224 | 44,612 | 12,979 | ||
Harbor Small Cap Value Fund | 7,329 | 109,008 | 268,658 | ||
Harbor Small Cap Value Opportunities Fund | 1,447 | 512 | (1,953) |
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Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
NOTE 5—TAX INFORMATION—Continued
The identified cost for federal income tax purposes of investments owned by each Fund and its respective gross unrealized appreciation and depreciation at October 31, 2018 are as follows:
Identified Cost (000s) | Gross Unrealized | Net Unrealized Appreciation/ (Depreciation) (000s) | |||||
Appreciation (000s) | (Depreciation) (000s) | ||||||
GROWTH FUNDS | |||||||
Harbor Capital Appreciation Fund | $17,731,235 | $11,882,382 | $(288,349) | $11,594,033 | |||
Harbor Strategic Growth Fund | 53,971 | 13,247 | (1,874) | 11,373 | |||
Harbor Mid Cap Growth Fund | 312,564 | 61,850 | (21,329) | 40,521 | |||
Harbor Small Cap Growth Fund | 682,062 | 80,295 | (65,529) | 14,766 | |||
Harbor Small Cap Growth Opportunities Fund | 280,525 | 35,621 | (37,566) | (1,945) | |||
VALUE FUNDS | |||||||
Harbor Large Cap Value Fund | $ 830,764 | $ 138,108 | $ (28,766) | $ 109,342 | |||
Harbor Mid Cap Value Fund | 927,320 | 126,740 | (113,761) | 12,979 | |||
Harbor Small Cap Value Fund | 1,091,024 | 321,305 | (52,647) | 268,658 | |||
Harbor Small Cap Value Opportunities Fund | 31,049 | 2,166 | (4,119) | (1,953) |
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 year ended October 31, 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 year as disclosed in the Statements of Operations, are indicators of the volume of derivative activity for each Fund.
Derivative Instruments
Realized net gain/(loss) on derivatives, by primary risk exposure, for the year ended October 31, 2018, were:
HARBOR MID CAP GROWTH FUND
Net Realized Gain/(Loss) on Derivatives | Equity Contracts (000s) | |
Purchased Options (rights/warrants) | $615 |
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”).
87
Harbor Domestic Equity Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 7—Legal Proceedings—Continued
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. On June 18, 2018, the District Court ordered that the request would be stayed from pending further action by the Second Circuit in the still pending appeal, discussed above.
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.
88
Harbor Domestic Equity Funds
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
Harbor Funds
Harbor Funds
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of 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 (collectively referred to as the “Funds”), (nine of the funds constituting Harbor Funds (the “Trust”)), including the portfolios of investments, as of October 31, 2018, and the related statements of operations and changes in net assets, and the financial highlights for each of the periods indicated in the table below and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds (nine of the funds constituting Harbor Funds) at October 31, 2018, the results of their operations, changes in net assets and financial highlights for each of the periods indicated in the table below, in conformity with U.S. generally accepted accounting principles.
Individual fund comprising the Harbor Funds | Statement of operations | Statement of changes in net assets | Financial highlights |
Harbor Capital Appreciation Fund Harbor Mid Cap Growth Fund Harbor Small Cap Growth Fund Harbor Large Cap Value Fund Harbor Mid Cap Value Fund Harbor Small Cap Value Fund | For the year ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 | For each of the five years in the period ended October 31, 2018 |
Harbor Strategic Growth Fund | For the year ended October 31, 2018 | For the year ended October 31, 2018, the period from July 1, 2017 through October 31, 2017, and the period from July 1, 2016 to June 30, 2017* | |
Harbor Small Cap Growth Opportunities Fund | For the year ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 | For each of the four years in the period ended October 31, 2018 and the period from February 1, 2014 (inception) through October 31, 2014 |
Harbor Small Cap Value Opportunities Fund | For the year ended October 31, 2018 | For the year ended October 31, 2018 and the period from August 1, 2017 (inception) through October 31, 2017 |
* | The statement of changes in net assets and the financial highlights for the Harbor Strategic Growth Fund for the periods presented through June 30, 2016, were audited by other auditors whose report dated August 26, 2016, expressed an unqualified opinion on that statement and those financial highlights. |
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on each of the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
89
Harbor Domestic Equity Funds
Report of Independent Registered Public Accounting Firm—Continued
Report of Independent Registered Public Accounting Firm—Continued
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Harbor Funds investment companies since 2000.
Chicago, Illinois
December 19, 2018
December 19, 2018
90
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 May 1, 2018 through October 31, 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 May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Capital Appreciation Fund | ||||||||
Institutional Class | 0.65% | |||||||
Actual | $3.29 | $1,000 | $1,008.18 | |||||
Hypothetical (5% return) | 3.31 | 1,000 | 1,021.85 | |||||
Retirement Class | 0.57% | |||||||
Actual | $2.88 | $1,000 | $1,008.45 | |||||
Hypothetical (5% return) | 2.91 | 1,000 | 1,022.26 | |||||
Administrative Class | 0.90% | |||||||
Actual | $4.56 | $1,000 | $1,006.80 | |||||
Hypothetical (5% return) | 4.58 | 1,000 | 1,020.55 | |||||
Investor Class | 1.02% | |||||||
Actual | $5.16 | $1,000 | $1,006.36 | |||||
Hypothetical (5% return) | 5.19 | 1,000 | 1,019.93 |
91
Harbor Domestic Equity Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Strategic Growth Fund | ||||||||
Institutional Class | 0.70% | |||||||
Actual | $3.56 | $1,000 | $1,016.57 | |||||
Hypothetical (5% return) | 3.57 | 1,000 | 1,021.59 | |||||
Retirement Class | 0.62% | |||||||
Actual | $3.16 | $1,000 | $1,017.08 | |||||
Hypothetical (5% return) | 3.16 | 1,000 | 1,022.00 | |||||
Administrative Class | 0.95% | |||||||
Actual | $4.83 | $1,000 | $1,015.03 | |||||
Hypothetical (5% return) | 4.84 | 1,000 | 1,020.30 | |||||
Investor Class | 1.07% | |||||||
Actual | $5.43 | $1,000 | $1,014.54 | |||||
Hypothetical (5% return) | 5.45 | 1,000 | 1,019.68 | |||||
Harbor Mid Cap Growth Fund | ||||||||
Institutional Class | 0.87% | |||||||
Actual | $4.42 | $1,000 | $1,013.06 | |||||
Hypothetical (5% return) | 4.43 | 1,000 | 1,020.71 | |||||
Retirement Class | 0.80% | |||||||
Actual | $4.06 | $1,000 | $1,013.04 | |||||
Hypothetical (5% return) | 4.08 | 1,000 | 1,021.07 | |||||
Administrative Class | 1.12% | |||||||
Actual | $5.68 | $1,000 | $1,011.71 | |||||
Hypothetical (5% return) | 5.70 | 1,000 | 1,019.42 | |||||
Investor Class | 1.24% | |||||||
Actual | $6.28 | $1,000 | $1,011.04 | |||||
Hypothetical (5% return) | 6.31 | 1,000 | 1,018.80 | |||||
Harbor Small Cap Growth Fund | ||||||||
Institutional Class | 0.86% | |||||||
Actual | $4.25 | $1,000 | $ 960.51 | |||||
Hypothetical (5% return) | 4.38 | 1,000 | 1,020.76 | |||||
Retirement Class | 0.79% | |||||||
Actual | $3.90 | $1,000 | $ 961.26 | |||||
Hypothetical (5% return) | 4.02 | 1,000 | 1,021.12 | |||||
Administrative Class | 1.11% | |||||||
Actual | $5.49 | $1,000 | $ 959.86 | |||||
Hypothetical (5% return) | 5.65 | 1,000 | 1,019.47 | |||||
Investor Class | 1.23% | |||||||
Actual | $6.07 | $1,000 | $ 958.77 | |||||
Hypothetical (5% return) | 6.26 | 1,000 | 1,018.85 |
92
Harbor Domestic Equity Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Small Cap Growth Opportunities Fund | ||||||||
Institutional Class | 0.87% | |||||||
Actual | $4.44 | $1,000 | $1,025.00 | |||||
Hypothetical (5% return) | 4.43 | 1,000 | 1,020.71 | |||||
Retirement Class | 0.80% | |||||||
Actual | $4.08 | $1,000 | $1,024.96 | |||||
Hypothetical (5% return) | 4.08 | 1,000 | 1,021.07 | |||||
Administrative Class | 1.11% | |||||||
Actual | $5.67 | $1,000 | $1,023.57 | |||||
Hypothetical (5% return) | 5.65 | 1,000 | 1,019.42 | |||||
Investor Class | 1.24% | |||||||
Actual | $6.32 | $1,000 | $1,022.24 | |||||
Hypothetical (5% return) | 6.31 | 1,000 | 1,018.80 | |||||
Harbor Large Cap Value Fund | ||||||||
Institutional Class | 0.68% | |||||||
Actual | $3.38 | $1,000 | $ 973.37 | |||||
Hypothetical (5% return) | 3.47 | 1,000 | 1,021.69 | |||||
Retirement Class | 0.60% | |||||||
Actual | $2.98 | $1,000 | $ 973.72 | |||||
Hypothetical (5% return) | 3.06 | 1,000 | 1,022.10 | |||||
Administrative Class | 0.93% | |||||||
Actual | $4.62 | $1,000 | $ 972.14 | |||||
Hypothetical (5% return) | 4.74 | 1,000 | 1,020.40 | |||||
Investor Class | 1.05% | |||||||
Actual | $5.22 | $1,000 | $ 971.67 | |||||
Hypothetical (5% return) | 5.35 | 1,000 | 1,019.78 | |||||
Harbor Mid Cap Value Fund | ||||||||
Institutional Class | 0.83% | |||||||
Actual | $4.05 | $1,000 | $ 938.13 | |||||
Hypothetical (5% return) | 4.23 | 1,000 | 1,020.92 | |||||
Retirement Class | 0.76% | |||||||
Actual | $3.71 | $1,000 | $ 938.57 | |||||
Hypothetical (5% return) | 3.87 | 1,000 | 1,021.28 | |||||
Administrative Class | 1.08% | |||||||
Actual | $5.27 | $1,000 | $ 936.87 | |||||
Hypothetical (5% return) | 5.50 | 1,000 | 1,019.62 | |||||
Investor Class | 1.20% | |||||||
Actual | $5.86 | $1,000 | $ 936.29 | |||||
Hypothetical (5% return) | 6.11 | 1,000 | 1,019.00 |
93
Harbor Domestic Equity Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Small Cap Value Fund | ||||||||
Institutional Class | 0.86% | |||||||
Actual | $4.22 | $1,000 | $ 943.51 | |||||
Hypothetical (5% return) | 4.38 | 1,000 | 1,020.76 | |||||
Retirement Class | 0.79% | |||||||
Actual | $3.87 | $1,000 | $ 943.82 | |||||
Hypothetical (5% return) | 4.02 | 1,000 | 1,021.12 | |||||
Administrative Class | 1.11% | |||||||
Actual | $5.44 | $1,000 | $ 942.37 | |||||
Hypothetical (5% return) | 5.65 | 1,000 | 1,019.47 | |||||
Investor Class | 1.23% | |||||||
Actual | $6.02 | $1,000 | $ 941.79 | |||||
Hypothetical (5% return) | 6.26 | 1,000 | 1,018.85 | |||||
Harbor Small Cap Value Opportunities Fund | ||||||||
Institutional Class | 0.88% | |||||||
Actual | $4.40 | $1,000 | $ 981.32 | |||||
Hypothetical (5% return) | 4.48 | 1,000 | 1,020.66 | |||||
Retirement Class | 0.80% | |||||||
Actual | $3.99 | $1,000 | $ 982.30 | |||||
Hypothetical (5% return) | 4.08 | 1,000 | 1,021.07 | |||||
Administrative Class | 1.13% | |||||||
Actual | $5.64 | $1,000 | $ 980.31 | |||||
Hypothetical (5% return) | 5.75 | 1,000 | 1,019.37 | |||||
Investor Class | 1.25% | |||||||
Actual | $6.23 | $1,000 | $ 979.33 | |||||
Hypothetical (5% return) | 6.36 | 1,000 | 1,018.75 |
* | 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 184/365 (to reflect the one-half year period). |
94
Harbor Domestic Equity Funds
Additional Information (Unaudited)
Additional Information (Unaudited)
Additional Tax Information
The Funds designate the following portions of their distributions from investment company taxable income for the fiscal year ended October 31, 2018 as qualifying for the dividends received deduction for corporate shareholders.
Percentage of Distribution | |
GROWTH FUNDS | |
Harbor Capital Appreciation Fund | 100% |
Harbor Strategic Growth Fund | 87 |
Harbor Mid Cap Growth Fund | 14 |
Harbor Small Cap Growth Fund | 9 |
Harbor Small Cap Growth Opportunities Fund | 5 |
VALUE FUNDS | |
Harbor Large Cap Value Fund | 100% |
Harbor Mid Cap Value Fund | 74 |
Harbor Small Cap Value Fund | 100 |
Harbor Small Cap Value Opportunities Fund | 13 |
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the following capital gain dividends for the fiscal year ended October 31, 2018:
Amount (000s) | |
GROWTH FUNDS | |
Harbor Capital Appreciation Fund | $3,540,025 |
Harbor Strategic Growth Fund | 1,202 |
Harbor Mid Cap Growth Fund | 36,355 |
Harbor Small Cap Growth Fund | 75,934 |
Harbor Small Cap Growth Opportunities Fund | 20,811 |
VALUE FUNDS | |
Harbor Large Cap Value Fund | $ 23,545 |
Harbor Mid Cap Value Fund | 24,305 |
Harbor Small Cap Value Fund | 63,592 |
Harbor Small Cap Value Opportunities Fund | — |
For the fiscal year ended October 31, 2018, the Funds designate up to the maximum amount of such dividends allowable pursuant to the Internal Revenue Code as qualified dividend income eligible for reduced tax rates. These lower rates range from 0% to 20% depending on an individual’s tax bracket. If the Funds pay a distribution during calendar year 2018, complete information will be reported in conjunction with Form 1099-DIV.
Shareholders who own shares through a taxable Harbor Funds account and that received distributions from a Fund during calendar year 2018 will receive a Form 1099-DIV in January 2019 that will show the tax character of those distributions.
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) 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.
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.
95
Harbor Domestic Equity Funds
Additional Information—Continued
Additional Information—Continued
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.
96
Harbor Domestic Equity Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers
As of December 2018
The business and affairs of the Trust shall be managed by or under the direction of the Trustees, and they shall have all powers necessary or desirable to carry out that responsibility. The Trustees shall have full power and authority to take or refrain from taking any action and to execute any contracts and instruments that they may consider necessary or desirable in the management of the Trust. Any determination made by the Trustees in good faith as to what is in the interests of the Trust shall be conclusive. Information pertaining to the Trustees and Officers of Harbor Funds is set forth below. The address of each Trustee and Officer is: [Name of Trustee or Officer] c/o Harbor Funds, 111 South Wacker Drive, 34th Floor, Chicago, IL 60606-4302.
Harbor Funds' Statement of Additional Information includes additional information about the Trust’s Trustees and is available without charge by calling 800-422-1050 or at the Trust’s website at harborfunds.com.
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Number of Portfolios In Fund Complex Overseen By Trustee | Other Directorships Of Public Companies and Other Registered Investment Companies Held by Trustee During Past Five Years |
INDEPENDENT TRUSTEES | ||||
Scott M. Amero (55) Trustee | Since 2014 | Chairman (2015-Present) and Trustee (2011-2015), Rare (conservation nonprofit); Trustee, Berkshire School (2014-Present); Vice Chairman and Global Chief Investment Officer, Fixed Income (2010), Vice Chairman and Global Chief Investment Officer, Fixed Income, and Co-Head, Fixed Income Portfolio Management (2007-2010), BlackRock, Inc., (publicly traded investment management firm). | 32 | None |
Raymond J. Ball (74) Trustee | Since 2006 | Sidney Davidson Distinguished Service Professor of Accounting, University of Chicago Booth School of Business (2000-Present); Academic Affiliate, Analysis Group (litigation consulting firm) (2000-Present); Financial Reporting Faculty Advisory Group of the Institute of Chartered Accountants in England and Wales (2008-Present); and Advisory Board of the Center for Accounting Research & Education at University of Notre Dame (2006-Present). | 32 | None |
Donna J. Dean (67) Trustee | Since 2010 | Chief Investment Officer of the Rockefeller Foundation (a private foundation) (1995-Present). | 32 | None |
Joseph L. Dowling III (54) Trustee | Since 2017 | Chief Investment Officer, Brown University (2013-Present); Advisory Board Member, Stage Point Capital (private mortgage specialist) (2016-2017); Advisory Board Member, Harbor Funds (2016-2017); and Founder and Managing Member, Narragansett Asset Management (private investment management firm) (1998-2013). | 32 | Director of Integrated Electrical Services (2011-Present). |
Randall A. Hack (71) Trustee | Since 2010 | Founder and Senior Managing Director of Capstone Capital LLC (private investment firm) (2003-Present); Director of Tower Development Corporation (cell tower developer) (2009-2016); Advisory Director of Berkshire Partners (private equity firm) (2002-2013); Founder and Senior Managing Director of Nassau Capital, LLC (private investment firm, investing solely on behalf of the Princeton Endowment) (1995-2001); and President of The Princeton University Investment Company (1990-1994). | 32 | None |
Robert Kasdin (60) Trustee | Since 2014 | Senior Vice President and Chief Operating Officer (2015-Present) and Chief Financial Officer (2018-Present), Johns Hopkins Medicine; Senior Executive Vice President, Columbia University (2002-2015); Trustee and Member of the Finance Committee, National September 11 Memorial & Museum at the World Trade Center (2005-Present); Director, Apollo Commercial Real Estate Finance, Inc. (2014-Present); Director and Executive Committee Member, The Y in Central Maryland (2018-Present); and Director, Noranda Aluminum Holdings Corp. (2007-2014). | 32 | Director of Noranda Aluminum Holdings Corporation (2007-2014); and Director of Apollo Commercial Real Estate Finance, Inc. (2014-Present). |
97
Harbor Domestic Equity Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers—Continued
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Number of Portfolios In Fund Complex Overseen By Trustee | Other Directorships Of Public Companies and Other Registered Investment Companies Held by Trustee During Past Five Years |
INDEPENDENT TRUSTEES—Continued | ||||
Kathryn L. Quirk (66) Trustee | Since 2017 | Retired; Vice President, Senior Compliance Officer and Head, U.S. Regulatory Compliance, Goldman Sachs Asset Management (2013-2017); Deputy Chief Legal Officer, Asset Management, and Vice President and Corporate Counsel, Prudential Insurance Company of America (2010-2012); Co-Chief Legal Officer, Prudential Investment Management, Inc., and Chief Legal Officer, Prudential Investments and Prudential Mutual Funds (2008-2012); Vice President and Corporate Counsel and Chief Legal Officer, Mutual Funds, Prudential Insurance Company of America, and Chief Legal Officer, Prudential Investments (2005-2008); Vice President and Corporate Counsel and Chief Legal Officer, Mutual Funds, Prudential Insurance Company of America (2004-2005); Member, Management Committee (2000-2002), General Counsel and Chief Compliance Officer, Zurich Scudder Investments, Inc. (1997-2002). | 32 | None |
Ann M. Spruill (64) Trustee | Since 2014 | Partner (1993-2008), member of Executive Committee (1996-2008), Member Board of Directors (2002-2008), Grantham, Mayo, Van Otterloo & Co, LLC (private investment management firm) (with the firm since 1990); Member Investment Committee and Chair of Global Equities, Museum of Fine Arts, Boston (2000-Present); and Trustee, Financial Accounting Foundation (2014-Present). | 32 | None |
INTERESTED TRUSTEE | ||||
Charles F. McCain (49)* Chairman, Trustee and President | Since 2017 | Chief Executive Officer (2017-Present), Director (2007-Present), President and Chief Operating Officer (2017), Executive Vice President and General Counsel (2004-2017), and Chief Compliance Officer (2004-2014), Harbor Capital Advisors, Inc.; Director (2007-Present) and Chief Compliance Officer (2004-2017), Harbor Services Group, Inc.; and Chief Executive Officer (2017-Present), Director (2007-Present), Chief Compliance Officer and Executive Vice President (2007-2017), Harbor Funds Distributors, Inc. | 32 | None |
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years |
FUND OFFICERS NOT LISTED ABOVE** | ||
Erik D. Ojala (43) Chief Compliance Officer | Since 2017 | Executive Vice President and General Counsel (2017-Present) and Secretary (2010-Present); Senior Vice President and Associate General Counsel (2007-2017), Harbor Capital Advisors, Inc.; Director, Executive Vice President and Chief Compliance Officer (2017-Present), Harbor Funds Distributors, Inc.; and Director (2017-Present) and Assistant Secretary (2014-Present), Harbor Services Group, Inc. |
Anmarie S. Kolinski (47) Treasurer | Since 2007 | Executive Vice President and Chief Financial Officer (2007-Present), Harbor Capital Advisors, Inc.; Chief Financial Officer (2007-Present), Harbor Services Group, Inc.; and Chief Financial Officer (2015-Present) and Treasurer (2012-Present), Harbor Funds Distributors, Inc. |
Brian L. Collins (50) Vice President | Since 2005 | Executive Vice President and Chief Investment Officer (2004-Present), Harbor Capital Advisors, Inc. |
Charles P. Ragusa (59) Vice President | Since 2007 | Executive Vice President (2007-Present), Harbor Capital Advisors, Inc.; President (2007-Present), Harbor Services Group, Inc.; and Executive Vice President and AML Compliance Officer (2007-Present) and OFAC Officer (2015-Present), Harbor Funds Distributors, Inc. |
Diana R. Podgorny (39) Secretary | Since 2018 | Vice President and Assistant General Counsel, Harbor Capital Advisors, Inc. (2017-Present); Vice President and Counsel, AMG Funds LLC (2016-2017); and Vice President and Counsel, Aston Asset Management, LLC (2010-2016). |
98
Harbor Domestic Equity Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers—Continued
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years |
FUND OFFICERS NOT LISTED ABOVE**—Continued | ||
Jodie L. Crotteau (46) Assistant Secretary | Since 2014 | Senior Vice President and Chief Compliance Officer, Harbor Capital Advisors, Inc. (2014-Present); Chief Compliance Officer and Secretary (2017-present) and Assistant Secretary (2015-2016), Harbor Services Group, Inc.; Assistant Secretary (2016-present), Harbor Funds Distributors, Inc.; Vice President and Chief Compliance Officer, Grosvenor Registered Funds (2011-2014); and Vice President, Grosvenor Capital Management, L.P. (2010-2014). |
Lana M. Lewandowski (39) AML Compliance Officer and Assistant Secretary | Since 2017 | Legal & Compliance Manager (2016-Present) and Legal Specialist (2012-2015), Harbor Capital Advisors, Inc. |
Lora A. Kmieciak (54) Assistant Treasurer | Since 2017 | Senior Vice President – Fund Administration and Analysis (2017-Present) and Senior Vice President - Business Analysis (2015-2017), Harbor Capital Advisors, Inc.; and Assurance Executive Director (1999-2015), Ernst & Young LLP. |
John M. Paral (50) Assistant Treasurer | Since 2013 | Director of Fund Administration and Analysis (2017-Present), Vice President (2012-Present) and Financial Reporting Manager (2007-2017), Harbor Capital Advisors, Inc. |
1 | Each Trustee serves for an indefinite term, until his successor is elected. Each Officer is elected annually. |
* | Mr. McCain is deemed an “Interested Trustee” due to his affiliation with the Adviser and Distributor of Harbor Funds. |
** | Officers of the Funds are “interested persons” as defined in the Investment Company Act. |
99
This privacy statement is not part of this report
Harbor’s Privacy Statement
The following privacy statement (“Privacy Statement”) is issued by Harbor Funds and each series of Harbor Funds and its affiliates, Harbor Capital Advisors, Inc., Harbor Services Group, Inc. and Harbor Funds Distributors, Inc. (collectively, “Harbor” “we” or “us”). The measures described in this Privacy Statement reflect the commitments we make to protect the privacy of your personal information. We appreciate the confidence you have shown by entrusting us with your assets.
Personal Information
In the course of providing products and services, we collect personal information about you from the following sources: applications, forms, our website (including any information captured through our use of “cookies”), through mobile applications, by telephone and in correspondence and transactions with us, our affiliates or other parties, including when you contact Shareholder Services or establish an account with us. This Privacy Statement applies to personal information we collect from those sources unless we inform you otherwise.
The personal information collected may include name, address, e-mail address, telephone/fax numbers, account number, social security or taxpayer identification number, investment activity, bank account information, location data (depending on your app settings and device permissions), and other information voluntarily provided by you.
We may also collect certain information automatically when you visit us through our website or a mobile application. For example, we may collect technical and navigational information, such as computer browser type, device type, device ID, Internet protocol address, pages visited average time spent on our website and searches performed on our website. We may use this information to alert you to software compatibility issues; to provide you with or improve or websites, applications, products or services; or to provide you with content that may be of interest to you. We use your IP address to help diagnose problems with our server and to administer our website. Your IP address is also used to gather broad demographic information. This information will be used for internal purposes only. We also collect information in the form of log files that record website and app activity and gather statistics about your browsing habits. These entries are generated automatically, and help us to troubleshoot errors, improve performance and maintain the security of our sites and apps. We use “cookies” and similar files that may be placed on your computer or device for security purposes, to facilitate site navigation and to personalize the appearance of our site. We provide more information regarding cookies and other tracking technologies below.
In addition, we may receive personal information about you that you authorize third parties to provide to us. We also may obtain personal information from third-party service providers to verify your identity, to prevent fraud, or to help us identify products and services that may be of interest to you.
The personal information we collect about you may be transferred to or stored by us or our service providers in the United States or elsewhere, as permitted by law.
If you do not wish to provide personal information to us, we may be unable to provide certain products or services to you.
Information Sharing
We disclose personal information with affiliated and non-affiliated parties: (1) as permitted or required by law or regulation; (2) if we believe that is necessary to: comply with applicable laws, regulations, or industry requirements; respond to requests from a legal, regulatory, or governmental authority; enforce legal terms; detect and resolve any fraud or security concerns, and protect the rights, property, and safety of us, our users, or others; (3) in the event of a merger, acquisition or sale of all or substantially all of our assets; or (4) as otherwise described in this Privacy Statement.
Personal information we collect may be shared with non-affiliated companies that perform support services on our behalf or to other firms that assist us in providing you with products and services (including, without limitation, completing transactions), such as custodians, transfer agents, broker-dealers and marketing service firms (to support our marketing to you), as well as with other financial institutions. We may also share information with affiliates that are engaged in a variety of financial services in order to better service your account(s).
When information is shared with third parties, they are not permitted to use the information for any purpose other than those purposes described in this Privacy Statement or as permitted by law.
If you close your account(s) or if we lose contact with you, we will continue to share information in accordance with our current privacy policy and practices.
If you close your account(s) or if we lose contact with you, we will continue to share information in accordance with our current privacy policy and practices.
100
Harbor’s Privacy Statement—Continued
Security
We maintain physical, electronic and procedural safeguards designed to protect your personal information; however, please be aware that no data security measures can guarantee 100% security.
For shareholders accessing information through our website or a mobile application, various forms of Internet security, such as data encryption firewall barriers, user names and passwords, two-factor authentication, and other tools are used. For additional information regarding our security measures, visit the terms and conditions of use on our website at .
Linking to
Third Parties
Third Parties
When you visit our website and leave to go to another linked site, we are not responsible for the content or availability of the linked site. Please be advised that if you enter into a transaction on the third-party site, we do not represent either the third party or you. Further, the privacy and security policies of the linked site may differ from those practiced by us.
Cookies and Other Technologies
A cookie is a small text file that is stored on your computer, tablet, or device when you visit a website or a mobile application. Cookies usually store small bits of information about you and what you do on that site or application, which are then used to improve your browsing experience. Some cookies are only used during a single visit, while others are saved on your device until your next visit. Harbor Funds and our third-party providers use both types of cookies to make your visits more productive.
If you are concerned about cookies, they can be blocked from your device, or you can set your browser to notify you when they are being used. Use the Help feature of your browser to learn how.
Our website, mobile application, and e-mails may use a web beacon. A web beacon helps to measure usage and activity and reports that activity back to the system providers. In some cases, a web beacon triggers the placement of a cookie on your device.
We and our service providers use web beacons and cookies to determine things like if and when you open our e-mails, what type of device, operating system, e-mail program, or web browser you are using, your IP address, and what links you click within our site or e-mail. These things enable us to gauge the effectiveness, relevance, and value of our content and communications.
We use Google Analytics (which uses a web beacon) to collect information about use of our website and mobile application. For more information on opting out of being tracked by Google Analytics, visit https://tools.google.com/dlpage/gaoptout. We also use Lucky Orange to collect information about how visitors interact with the content on our public website and mobile application pages. Lucky Orange does not track actions or behavior within the password-protected online account access systems. For more information about Lucky Orange, including how to opt out, please visit: https://www.luckyorange.com/privacy.php.
Do Not Track
Our third-party vendors may collect information about users across our website. We do not currently have the capability to respond to a web browser that does not track signals or other mechanisms that provide you with the ability to exercise choice regarding the collection of this information.
Changes to this
Privacy Statement
Privacy Statement
We reserve the right to change or revise this Privacy Statement at any time to reflect changes in the law or our data collection and use practices. New updates to the Privacy Statement will be posted to our website and are include in Harbor Funds’ annual reports to shareholders. Privacy Statement changes will apply to the information collected from the date we post our revised Privacy Statement, as well as to existing information we hold.
Contact Us
If you have any questions or concerns about how we maintain the privacy of your personal information or if you would like to update your personal information on file, please contact us at 800-422-1050 Monday through Friday, between the hours of 8:00 a.m. and 6:00 p.m. Eastern time. You may also write to us at the following postal address:
Harbor Funds
c/o Harbor Services Group, Inc.
PO Box 804660
Chicago, IL 60680-4108
c/o Harbor Services Group, Inc.
PO Box 804660
Chicago, IL 60680-4108
We recommend that you read and retain this notice for your personal files.
Last Updated: December 2018
101
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.
ICE BofAML U.S. Convertible Ex Mandatory Index—The ICE BofAML U.S. Convertible 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. 3-Month Treasury Bill Index—The ICE BofAML U.S. 3-Month 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 (ND) Index—The MSCI All Country World (ND) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of global 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. (ND) Index 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 developed markets, excluding the U.S. and Canada. 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® 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
102
Benchmark Descriptions—Continued
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.
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.
103
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.AR.DE.1018
Table of Contents
Annual Report
October 31, 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 |
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website (harborfunds.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from a Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with Harbor Funds, by calling 800-422-1050.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary (such as a broker-dealer or bank), you can contact your financial intermediary to request that you continue to receive paper copies of the Funds’ shareholder reports. If you invest directly, you can call 800-422-1050 to request that you continue to receive paper copies of the Funds’ shareholder reports. Your election to receive reports in paper will apply to all Harbor Funds held in your account.
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 negative returns in the fiscal year ended October 31, 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 -8.24%. All international and global returns are in U.S. Dollars.
International stock markets rose early in the fiscal year, supported by strong global economic data, before falling quite sharply in response to fears of higher interest rates, rising inflation, and a significant drop in price of stocks in the Information Technology sector. As the fiscal year progressed, the U.S. Dollar strengthened against other currencies, including the Euro, the Japanese Yen and the British Pound, which pressured international equity market performance. Emerging markets were particularly hard hit by concerns of slowing regional growth, the prospects for an extended trade war between the U.S. and China, and U.S. Dollar strength.
The story of global equities for the fiscal year was marked by a stark divergence between U.S. and international equities. Buoyed by continued gains in the U.S., the MSCI World (ND) Index, a measure of the global equity markets, posted a gain of 1.16% for the fiscal year. Toward the end of the fiscal year, global equity markets benefited from the boost provided by a strong U.S. economy. In October, however, heightened volatility drove steep declines in equity markets around the world.
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 those in Harbor Funds.
Returns For Periods Ended October 31, 2018 | ||||||||
Annualized | ||||||||
International & Global | 1 Year | 5 Years | 10 Years | 30 Years | ||||
MSCI EAFE (ND) (foreign stocks) | -6.85% | 2.02% | 6.89% | 4.59% | ||||
MSCI EAFE Small Cap (ND) (foreign small cap stocks) | -7.81 | 5.16 | 11.56 | N/A | ||||
MSCI World (ND) (global stocks) | 1.16 | 6.81 | 10.02 | 6.83 | ||||
MSCI All Country World Ex. U.S. (ND) (foreign stocks) | -8.24 | 1.63 | 6.92 | N/A | ||||
MSCI Emerging Markets (ND) (emerging market stocks) | -12.52 | 0.78 | 7.84 | N/A | ||||
Domestic Equities | ||||||||
Russell 3000® (entire U.S. stock market) | 6.60% | 10.81% | 13.35% | 10.28% | ||||
S&P 500 (large cap stocks) | 7.35 | 11.34 | 13.24 | 10.25 | ||||
Russell Midcap® (mid cap stocks) | 2.79 | 8.97 | 14.20 | 11.44 | ||||
Russell 2000® (small cap stocks) | 1.85 | 8.01 | 12.44 | 9.64 | ||||
Russell 3000® Growth (growth stocks) | 10.20 | 13.06 | 15.34 | 10.13 | ||||
Russell 3000® Value (value stocks) | 2.78 | 8.50 | 11.28 | 10.05 | ||||
Fixed Income | ||||||||
ICE BofAML U.S. Non-Distressed High Yield (domestic high-yield bonds) | 0.76% | 4.79% | 9.32% | N/A | ||||
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -2.05 | 1.83 | 3.94 | 5.97% | ||||
Bloomberg Barclays U.S. TIPS (domestic inflation-linked bonds) | -1.24 | 0.97 | 4.11 | N/A | ||||
ICE BofAML U.S. 3-Month Treasury Bill (proxy for money market returns) | 1.68 | 0.55 | 0.35 | 3.18 |
assessing your long-term investment plan
As the end of the calendar year approaches, it may be a good time to evaluate your financial goals and your investments. We always encourage shareholders to take a long-term perspective with all of their investments. While past performance is never a guarantee of future results, over the long term, the returns of equities and debt securities have historically helped many investors achieve their financial objectives. We encourage all investors to maintain a diversified portfolio of equities, debt and cash in an allocation consistent with their long-term financial goals and comfort with risk.
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.
December 19, 2018
Charles F. McCain |
Chairman |
1
Harbor International 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 2018
Since 2018
Charles Carter
Since 2018
Since 2018
Nick Longhurst
Since 2018
Since 2018
William J. Arah
Since 2018
Since 2018
Simon Somerville
Since 2018
Since 2018
Simon Todd, CFA
Since 2018
Since 2018
Michael Nickson, CFA
Since 2018
Since 2018
Michael Godfrey, CFA
Since 2018
Since 2018
David Cull, CFA
Since 2018
Since 2018
Marathon Asset Management LLP (Marathon-London) has subadvised the Fund since 2018.
Investment Objective
The Fund seeks long-term total return, principally from growth of capital.
Management’s Discussion of
Fund Performance
Fund Performance
MARKET REVIEW
International equity markets significantly underperformed U.S. stocks during the fiscal year ended October 31, 2018. Developed market stocks, as represented by the MSCI EAFE (ND) Index (the “Index”), fell 6.85% (all international and global returns are in U.S. Dollars), while emerging market equities experienced an even more pronounced selloff, with the MSCI Emerging Markets (ND) Index falling 12.52%. These results stand in sharp contrast to the robust conditions in U.S. equity markets, as illustrated by the 7.35% gain for the S&P 500 Index over the same period.
The fiscal year got off to a positive start with both U.S. and international stocks rallying broadly in the last two months of 2017. However, a host of worries weighed on international stocks throughout much of 2018, among them escalating trade tensions, concerns about slowing global growth, the ongoing winddown of accommodative monetary policies, the impact of a strong U.S. Dollar, and Brexit. These concerns culminated in the month of October with a sharp downturn and spike in volatility across global markets.
PERFORMANCE
On August 22, 2018, Marathon Asset Management LLP (“Marathon-London”) was appointed as subadviser to the Fund, replacing Northern Cross, LLC. While Marathon-London’s investment approach differs from the previous subadviser, the Fund continues to provide diversified core exposure to foreign stocks across a broad range of countries and sectors. Marathon-London’s “capital cycle” investment philosophy is centered on the study of capital flows and competitive dynamics within industries. It is grounded in the premise that high returns at the top of a capital cycle attract excessive capital (and increased competition), which sows the seeds of a cyclical downturn. Conversely, low returns at the bottom of a cycle discourage new capital (and competition), clearing the way for the strongest, most effectively managed companies to survive and ultimately excel. Marathon-London’s assessment of how management responds to the forces of the capital cycle through capital allocation decisions, coupled with how they are incentivized, are both critical to investment decisions.
Harbor International Fund returned -11.31% (Institutional Class), -11.24% (Retirement Class), -11.53% (Administrative Class), and -11.65% (Investor Class) for the fiscal year, significantly lagging the Index, which returned -6.85%. For most of the fiscal year, the Fund maintained a meaningful off-benchmark allocation to Colombian stocks, which was a key detractor over the period. The Fund held a handful of U.S. stocks, which also detracted slightly from returns relative to the Index. The vast majority of these off-benchmark exposures were sold after the subadviser change. From a sector perspective, the Fund benefited from an underweight and strong security selection in Financials. However, that was more than offset by poor security selection in Consumer Staples (Anheuser-Busch InBev, British American Tobacco), Health Care (Bayer) and Industrials (Fanuc, Atlas Copco, SMC, and Rolls-Royce). Most of the key detractors were legacy holdings that were sold over the course of the last two months of the fiscal year.
Since August 22, 2018, Marathon-London has worked toward transitioning the Fund by selling legacy holdings and purchasing the stocks we intend to hold over the long term. Substantial effort was made to limit the market impact associated with the sales and purchases of portfolio securities throughout this transition. During the transition, Marathon-London also managed to keep cash at modest levels, averaging around 3.9% from the transition date through October 31, 2018.
2
Harbor International Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the MSCI EAFE (ND) Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor International Fund | ||||||||
Institutional Class | -11.31% | -0.45% | 6.38% | |||||
Retirement Class1 | -11.24 | -0.42 | 6.40 | |||||
Administrative Class | -11.53 | -0.70 | 6.11 | |||||
Investor Class | -11.65 | -0.82 | 5.99 | |||||
Comparative Index | ||||||||
MSCI EAFE (ND) | -6.85% | 2.02% | 6.89% |
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.
OUTLOOK & STRATEGY
At the end of the fiscal year, the transition of the Fund’s holdings was almost complete. Accordingly, the performance of the Fund going forward will be driven by Marathon-London’s investment decisions, which are based on analyses of industry capital cycle characteristics along with in-depth research regarding the company management’s motivation, incentivization and skill at responding to the forces of the cycle.
As of October 31, 2018, the Fund had meaningful overweights to the Industrials and Communication Services sectors. Notable underweights were to the Financials and Energy sectors, areas where Marathon-London sees unfavorable capital cycle conditions. Going forward, the Fund is expected to be broadly diversified across 350 to 450 stocks, with regional allocations approximately benchmark neutral, with a modest out-of-benchmark allocation to emerging markets.
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 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.
3
Harbor International Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Cementos Argos SA | 1.4% |
❷ | Olympus Corp. | 1.3% |
❸ | Intertek Group plc | 1.2% |
❹ | Roche Holding AG | 1.1% |
❺ | Assa Abloy AB Class B | 1.0% |
❻ | BP plc | 1.0% |
❼ | Coloplast AS | 1.0% |
❽ | Compass Group plc | 1.0% |
❾ | Reckitt Benckiser Group plc | 1.0% |
❿ | Sampo OYJ | 0.9% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
4
Harbor International Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—93.6% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—2.2% | |||
690,590 | Airbus SE (France) | $ 76,320 | |
8,500,685 | BAE Systems plc (United Kingdom) | 56,999 | |
65,524 | MTU Aero Engines AG (Germany) | 13,913 | |
6,752,880 | Rolls-Royce Holdings plc (United Kingdom)* | 72,419 | |
111,175 | Saab AB (Sweden) | 4,359 | |
335,236 | Thales SA (France) | 42,816 | |
266,826 | |||
AIR FREIGHT & LOGISTICS—0.3% | |||
322,652 | Oesterreichische Post AG (Austria) | 13,098 | |
682,300 | Yamato Holdings Co. Ltd. (Japan) | 18,653 | |
31,751 | |||
AIRLINES—0.3% | |||
1,887,053 | EasyJet plc (United Kingdom) | 28,909 | |
255,000 | Japan Airlines Co. Ltd. (Japan) | 9,050 | |
37,959 | |||
AUTO COMPONENTS—0.6% | |||
787,600 | Bridgestone Corp. (Japan) | 30,369 | |
187,930 | CIE Automotive SA (Spain) | 4,974 | |
849,736 | Gestamp Automocion SA ADR (Spain)*,1,2 | 5,388 | |
548,886 | GUD Holdings Ltd. (Australia) | 4,812 | |
182,700 | Koito Manufacturing Co. Ltd. (Japan) | 8,698 | |
747,700 | Sumitomo Electric Industries Ltd. (Japan) | 10,197 | |
143,700 | Toyota Industries Corp. (Japan) | 7,059 | |
71,497 | |||
AUTOMOBILES—1.5% | |||
679,231 | Bayerische Motoren Werke AG (Germany) | 58,489 | |
153,497 | Hyundai Motor Co. (South Korea) | 14,377 | |
502,500 | Subaru Corp. (Japan) | 13,555 | |
1,760,000 | Toyota Motor Corp. (Japan) | 103,102 | |
189,523 | |||
BANKS—7.3% | |||
3,420,239 | Axis Bank Ltd. (India)* | 26,792 | |
1,631,538 | Banco Santander SA (Spain) | 7,763 | |
3,110,300 | Bangkok Bank PCL (Thailand) | 19,440 | |
6,539,171 | Bank of Ireland Group plc (Ireland)* | 46,203 | |
11,694,225 | Bankia SA (Spain) | 36,732 | |
26,055,189 | Barclays plc (United Kingdom) | 57,408 | |
1,175,038 | BNP Paribas SA (France) | 61,236 | |
743,700 | Chiba Bank Ltd. (Japan) | 4,705 | |
1,275,900 | Concordia Financial Group Ltd. (Japan) | 5,839 | |
513,690 | Danske Bank AS (Denmark) | 9,831 | |
1,500,481 | DNB ASA (Norway) | 27,108 | |
455,200 | Fukuoka Financial Group Inc. (Japan) | 11,185 | |
294,545 | Hana Financial Group Inc. (South Korea) | 9,922 | |
5,178,400 | HSBC Holdings plc (Hong Kong) | 42,553 | |
6,289,158 | Intesa Sanpaolo SpA (Italy) | 13,931 | |
1,787,500 | Kasikornbank PCL (Thailand) | 10,760 | |
58,872,495 | Lloyds Banking Group plc (United Kingdom) | 42,962 | |
2,017,700 | Mitsubishi UFJ Financial Group Inc. (Japan) | 12,212 | |
18,501,700 | Mizuho Financial Group Inc. (Japan) | 31,774 | |
4,127,243 | Nordea Bank ABP (Sweden) | 35,869 | |
10,215,200 | Resona Holdings Inc. (Japan) | 53,732 | |
1,230,015 | Shinhan Financial Group Co. Ltd. (South Korea) | 45,813 | |
4,991,238 | Standard Chartered plc (United Kingdom) | 34,982 | |
2,450,200 | Sumitomo Mitsui Financial Group Inc. (Japan) | 95,399 | |
517,900 | Sumitomo Mitsui Trust Holdings Inc. (Japan) | 20,578 | |
5,582,605 | Svenska Handelsbanken AB (Sweden) | 60,682 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
BANKS—Continued | |||
4,143,136 | UniCredit SpA (Italy) | $ 52,971 | |
923,900 | United Overseas Bank Ltd. (Singapore) | 16,335 | |
894,717 | |||
BEVERAGES—3.9% | |||
783,471 | Anheuser-Busch InBev SA (Belgium) | 57,947 | |
234,500 | Asahi Group Holdings Ltd. (Japan) | 10,305 | |
481,234 | Britvic plc (United Kingdom) | 4,858 | |
396,030 | Carlsberg AS (Denmark) | 43,689 | |
3,970,786 | Coca-Cola Amatil Ltd. (Australia) | 27,945 | |
3,391,302 | Davide Campari-Milano SpA (Italy) | 26,100 | |
2,669,632 | Diageo plc (United Kingdom) | 92,293 | |
1,036,924 | Heineken NV (Netherlands) | 93,289 | |
107,020 | Hite Jinro Co. Ltd. (South Korea) | 1,483 | |
3,355,700 | Kirin Holdings Co. Ltd. (Japan) | 80,075 | |
349,000 | Sapporo Holdings Ltd. (Japan) | 6,474 | |
490,800 | Suntory Beverage & Food Ltd. (Japan) | 20,003 | |
2,970,000 | Tsingtao Brewery Co. Ltd. (China) | 11,745 | |
476,206 | |||
BIOTECHNOLOGY—0.2% | |||
1,147,408 | Abcam plc (United Kingdom) | 17,589 | |
391,717 | Grifols SA (Spain) | 11,160 | |
28,749 | |||
BUILDING PRODUCTS—2.0% | |||
6,160,867 | Assa Abloy AB Class B (Sweden) | 122,545 | |
675 | Belimo Holding AG (Switzerland) | 3,019 | |
256,037 | Geberit AG (Switzerland) | 100,248 | |
351,868 | GWA Group Ltd. (Australia) | 688 | |
1,164,400 | LIXIL Group Corp. (Japan) | 18,305 | |
244,805 | |||
CAPITAL MARKETS—2.0% | |||
5,669,988 | 3i Group plc (United Kingdom) | 63,488 | |
957,378 | Close Brothers Group plc (United Kingdom) | 17,981 | |
4,525,042 | IG Group Holdings plc (United Kingdom) | 34,934 | |
430,900 | Japan Exchange Group Inc. (Japan) | 7,718 | |
3,896,059 | Jupiter Fund Management plc (United Kingdom) | 16,769 | |
4,810,900 | Nomura Holdings Inc. (Japan) | 23,102 | |
218,550 | Rathbone Brothers plc (United Kingdom) | 6,430 | |
2,005,601 | St. James's Place plc (United Kingdom) | 25,919 | |
3,638,177 | UBS Group AG (Switzerland)* | 50,851 | |
247,192 | |||
CHEMICALS—2.3% | |||
775,824 | Akzo Nobel NV (Netherlands) | 65,142 | |
909,446 | BASF SE (Germany) | 69,790 | |
1,586,663 | DuluxGroup Ltd. (Australia) | 8,340 | |
712,100 | Nissan Chemical Industries Ltd. (Japan) | 33,576 | |
168,000 | Nitto Denko Corp. (Japan) | 10,496 | |
2,107,753 | Orica Ltd. (Australia) | 25,681 | |
148,400 | Shin-Etsu Chemical Co. Ltd. (Japan) | 12,400 | |
428,061 | Symrise AG (Germany) | 35,857 | |
3,670,900 | Toray Industries Inc. (Japan) | 26,039 | |
287,321 | |||
COMMERCIAL SERVICES & SUPPLIES—2.9% | |||
119,300 | AEON Delight Co. Ltd. (Japan) | 3,983 | |
2,966,177 | Brambles Ltd. (Australia) | 22,344 | |
18,177,103 | Cleanaway Waste Management Ltd. (Australia) | 23,237 | |
1,579,360 | Edenred SA (France) | 59,910 | |
823,298 | Elis SA (France) | 16,601 |
5
Harbor International Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
COMMERCIAL SERVICES & SUPPLIES—Continued | |||
16,889,518 | G4S plc (United Kingdom) | $ 46,351 | |
7,279,388 | HomeServe plc (United Kingdom) | 88,366 | |
444,758 | Prosegur Cia de Seguridad SA (Spain) | 2,470 | |
96,606 | S-1 Corp. (South Korea) | 8,181 | |
505,200 | Secom Co. Ltd. (Japan) | 41,362 | |
258,832 | Securitas AB (Sweden) | 4,436 | |
21,775,236 | Serco Group plc (United Kingdom)* | 26,722 | |
240,400 | Sohgo Security Services Co. Ltd. (Japan) | 10,708 | |
354,671 | |||
CONSTRUCTION & ENGINEERING—0.9% | |||
733,445 | Boskalis Westminster NV (Netherlands) | 21,089 | |
482,279 | Ferrovial SA (Spain) | 9,656 | |
1,453,800 | Maeda Corp. (Japan) | 16,427 | |
3,560,800 | Obayashi Corp. (Japan) | 31,435 | |
2,958,100 | Shimizu Corp. (Japan) | 24,012 | |
130,400 | SHO-BOND Holdings Co. Ltd. (Japan) | 9,278 | |
111,897 | |||
CONSTRUCTION MATERIALS—1.9% | |||
78,508,442 | Cementos Argos SA (Colombia) | 171,185 | |
348,926 | CRH plc (Ireland) | 10,419 | |
148,001 | Imerys SA (France) | 9,123 | |
166,830 | Vicat SA (France) | 8,966 | |
1,514,338 | Wienerberger AG (Austria) | 34,831 | |
234,524 | |||
CONSUMER FINANCE—0.5% | |||
737,200 | AEON Financial Service Co. Ltd. (Japan) | 14,428 | |
5,924,649 | International Personal Finance plc (United Kingdom) | 13,502 | |
7,662,014 | Non-Standard Finance plc (United Kingdom)2 | 6,480 | |
3,038,961 | Provident Financial plc (United Kingdom)* | 19,810 | |
416,695 | Shriram Transport Finance Co. Ltd. (India) | 6,510 | |
60,730 | |||
CONTAINERS & PACKAGING—0.4% | |||
5,824,107 | DS Smith plc (United Kingdom) | 29,223 | |
944,300 | Toyo Seikan Group Holdings Ltd. (Japan) | 19,265 | |
48,488 | |||
DISTRIBUTORS—0.2% | |||
2,812,511 | Inchcape plc (United Kingdom) | 19,425 | |
DIVERSIFIED FINANCIAL SERVICES—0.0% | |||
10,510,000 | First Pacific Co. Ltd. (Hong Kong) | 4,703 | |
DIVERSIFIED TELECOMMUNICATION SERVICES—1.8% | |||
3,319,118 | Deutsche Telekom AG (Germany) | 54,439 | |
15,765,832 | Koninklijke KPN NV (Netherlands) | 41,599 | |
1,357,204 | KT Corp. ADR (South Korea)1 | 18,784 | |
2,292,400 | Nippon Telegraph & Telephone Corp. (Japan) | 94,535 | |
3,130,274 | Spark New Zealand Ltd. (New Zealand) | 8,084 | |
217,441 | |||
ELECTRIC UTILITIES—0.2% | |||
411,400 | Kansai Electric Power Co. (Japan) | 6,296 | |
1,750,100 | Tohoku Electric Power Co. Inc. (Japan) | 22,112 | |
28,408 | |||
ELECTRICAL EQUIPMENT—1.7% | |||
1,471,696 | Legrand SA (France) | 96,103 | |
8,107,000 | TECO Electric and Machinery Co. Ltd. (Taiwan) | 4,665 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
ELECTRICAL EQUIPMENT—Continued | |||
570,500 | Ushio Inc. (Japan) | $ 6,883 | |
1,576,875 | Vestas Wind Systems AS (Denmark) | 98,886 | |
206,537 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—2.4% | |||
611,700 | Azbil Corp. (Japan) | 11,394 | |
4,681,000 | Chroma ATE Inc. (Taiwan) | 16,490 | |
5,765,000 | Delta Electronics Inc. (Taiwan) | 24,266 | |
64,000 | Hirose Electric Co. Ltd. (Japan) | 6,100 | |
273,600 | Hitachi High-Technologies Corp. (Japan) | 10,268 | |
2,473,600 | Hitachi Ltd. (Japan) | 75,618 | |
18,300 | Keyence Corp. (Japan) | 8,940 | |
1,211,800 | Kyocera Corp. (Japan) | 65,586 | |
542,200 | Omron Corp. (Japan) | 21,951 | |
265,800 | Shimadzu Corp. (Japan) | 6,718 | |
1,261,969 | Spectris plc (United Kingdom) | 34,527 | |
179,600 | TDK Corp. (Japan) | 15,487 | |
297,345 | |||
ENERGY EQUIPMENT & SERVICES—0.9% | |||
2,664,817 | John Wood Group plc (United Kingdom) | 24,288 | |
1,101,155 | Petrofac Ltd. (United Kingdom) | 8,097 | |
13,393,677 | Saipem SpA (Italy)* | 73,247 | |
385,188 | TechnipFMC plc (France) | 10,218 | |
115,850 | |||
ENTERTAINMENT—0.2% | |||
547,575 | CTS Eventim AG & Co. KGaA (Germany) | 20,529 | |
257,300 | Toho Co. Ltd. (Japan) | 8,394 | |
28,923 | |||
FOOD & STAPLES RETAILING—1.7% | |||
1,092,400 | Dairy Farm International Holdings Ltd. (Hong Kong) | 9,869 | |
2,467,544 | Koninklijke Ahold Delhaize NV (Netherlands) | 56,483 | |
196,000 | Lawson Inc. (Japan) | 12,442 | |
289,600 | Matsumotokiyoshi Holdings Co. Ltd. (Japan) | 10,470 | |
6,547,968 | Metcash Ltd. (Australia)* | 12,798 | |
1,608,600 | Seven & I Holdings Co. Ltd. (Japan) | 69,652 | |
211,400 | Sundrug Co. Ltd. (Japan) | 7,682 | |
8,607,410 | Tesco plc (United Kingdom) | 23,442 | |
202,838 | |||
FOOD PRODUCTS—1.3% | |||
5,898 | Barry Callebaut AG (Switzerland) | 11,528 | |
7,505,000 | China Mengniu Dairy Co. Ltd. (China) | 22,206 | |
4,585,464 | Devro plc (United Kingdom) | 9,619 | |
129,600 | Meiji Holdings Co. Ltd. (Japan) | 8,599 | |
1,608,100 | Nippon Suisan Kaisha Ltd. (Japan) | 10,272 | |
11,390,000 | Tingyi Cayman Islands Holding Corp. (China) | 16,876 | |
686,500 | Toyo Suisan Kaisha Ltd. (Japan) | 23,598 | |
573,771 | Viscofan SA (Spain) | 34,321 | |
28,316,000 | Want Want China Holdings Ltd. (China)* | 20,258 | |
157,277 | |||
GAS UTILITIES—0.1% | |||
537,800 | Tokyo Gas Co. Ltd. (Japan) | 13,226 | |
HEALTH CARE EQUIPMENT & SUPPLIES—5.9% | |||
1,340,098 | Coloplast AS (Denmark) | 125,049 | |
22,550,969 | ConvaTec Group plc (United Kingdom)2 | 46,613 | |
742,381 | EssilorLuxottica SA (France) | 101,393 | |
2,293,538 | GN Store Nord AS (Denmark) | 97,289 | |
325,200 | Hoya Corp. (Japan) | 18,399 |
6
Harbor International Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
HEALTH CARE EQUIPMENT & SUPPLIES—Continued | |||
1,530,982 | Koninklijke Philips NV (Netherlands) | $ 57,099 | |
4,775,998 | Olympus Corp. (Japan) | 159,193 | |
813,058 | Smith & Nephew plc (United Kingdom) | 13,216 | |
194,496 | Sonova Holding AG (Switzerland) | 31,719 | |
2,302,044 | William Demant Holding AS (Denmark)* | 75,672 | |
725,642 | |||
HEALTH CARE PROVIDERS & SERVICES—1.1% | |||
1,174,700 | Alfresa Holdings Corp. (Japan)* | 31,331 | |
1,323,807 | Fresenius Medical Care AG & Co. KGaA (Germany) | 103,941 | |
176,000 | MediPAL Holdings Corp. (Japan) | 3,767 | |
139,039 | |||
HOTELS, RESTAURANTS & LEISURE—3.9% | |||
545,000 | Ajisen China Holdings Ltd. (China) | 182 | |
838,940 | Carnival plc (United Kingdom) | 45,727 | |
6,061,261 | Compass Group plc (United Kingdom) | 119,218 | |
122,000 | GL Ltd. (Singapore) | 64 | |
3,277,445 | GVC Holdings plc (United Kingdom)* | 39,258 | |
867,000 | Hongkong & Shanghai Hotels Ltd. (Hong Kong) | 1,196 | |
14,776,715 | Merlin Entertainments plc (United Kingdom)2 | 61,025 | |
797,978 | Paddy Power Betfair plc (United Kingdom) | 68,431 | |
1,688,952 | Playtech plc (United Kingdom) | 10,328 | |
5,495,898 | SSP Group plc (United Kingdom) | 46,857 | |
35,825,693 | Thomas Cook Group plc (United Kingdom) | 20,606 | |
2,513,325 | TUI AG (Germany) | 41,538 | |
572,994 | Yum China Holdings Inc. (China) | 20,674 | |
475,104 | |||
HOUSEHOLD DURABLES—0.7% | |||
1,847,940 | Barratt Developments plc (United Kingdom) | 12,120 | |
1,634,500 | Casio Computer Co. Ltd. (Japan) | 24,670 | |
2,175,292 | McCarthy & Stone plc (United Kingdom)2 | 3,756 | |
120,500 | Rinnai Corp. (Japan) | 8,754 | |
1,153,200 | Sekisui Chemical Co. Ltd. (Japan) | 18,135 | |
321,800 | Sony Corp. (Japan) | 17,415 | |
84,850 | |||
HOUSEHOLD PRODUCTS—1.1% | |||
811,300 | Lion Corp. (Japan) | 15,253 | |
1,521,931 | Reckitt Benckiser Group plc (United Kingdom) | 123,070 | |
138,323 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—0.0% | |||
2,796,100 | Lopez Holdings Corp. (Philippines) | 221 | |
INDUSTRIAL CONGLOMERATES—1.3% | |||
4,749,000 | CK Hutchison Holdings Ltd. (Hong Kong) | 47,833 | |
770,464 | DCC plc (United Kingdom) | 66,037 | |
599,900 | Jardine Matheson Holdings Ltd. (Hong Kong) | 34,640 | |
249,009 | LG Corp. (South Korea) | 14,508 | |
163,018 | |||
INSURANCE—4.7% | |||
1,961,161 | Admiral Group plc (United Kingdom) | 50,414 | |
1,529,838 | AXA SA (France) | 38,287 | |
3,753,600 | Dai-ichi Life Holdings Inc. (Japan) | 70,437 | |
15,500 | Great Eastern Holdings Ltd. (Singapore) | 286 | |
129,873 | Hannover Rueck SE (Germany) | 17,465 | |
19,873 | Helvetia Holding AG (Switzerland) | 12,173 | |
4,933,200 | Japan Post Holdings Co. Ltd. (Japan) | 58,500 | |
2,062,200 | MS&AD Insurance Group Holdings Inc. (Japan) | 61,943 | |
3,253,694 | QBE Insurance Group Ltd. (Australia) | 26,142 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
INSURANCE—Continued | |||
2,373,916 | Sampo OYJ (Finland) | $ 109,169 | |
116,159 | Samsung Fire & Marine Insurance Co. Ltd. (South Korea) | 28,423 | |
1,006,700 | Sompo Holdings Inc. (Japan) | 41,522 | |
542,300 | Sony Financial Holdings Inc. (Japan) | 12,511 | |
508,700 | T&D Holdings Inc. (Japan) | 8,132 | |
939,900 | Tokio Marine Holdings Inc. (Japan) | 44,281 | |
579,685 | |||
INTERACTIVE MEDIA & SERVICES—1.6% | |||
5,351,561 | Auto Trader Group plc (United Kingdom)2 | 27,964 | |
200,289 | Baidu Inc. ADR (China)*,1 | 38,067 | |
2,017,232 | Carsales.com Ltd. (Australia) | 17,484 | |
3,156,368 | Domain Holdings Australia Ltd. (Australia)* | 5,553 | |
17,690,847 | Rightmove plc (United Kingdom) | 102,122 | |
191,190 | |||
INTERNET & DIRECT MARKETING RETAIL—0.5% | |||
32,687 | GS Home Shopping Inc. (South Korea) | 5,580 | |
4,436,370 | Just Eat plc (United Kingdom)* | 34,415 | |
2,432,576 | MoneySuperMarket.com Group plc (United Kingdom) | 9,118 | |
593,000 | PChome Online Inc. (Taiwan)* | 2,712 | |
62,381 | Takeaway.com NV (Netherlands)*,2 | 3,669 | |
23,877 | Zooplus AG (Germany)* | 3,951 | |
59,445 | |||
IT SERVICES—1.2% | |||
349,805 | Alten SA (France) | 33,711 | |
27,047 | Amadeus IT Group SA (Spain) | 2,178 | |
370,900 | ITOCHU Techno-Solutions Corp. (Japan) | 7,034 | |
129,700 | Nomura Research Institute Ltd. (Japan) | 5,750 | |
4,066,100 | NTT Data Corp. (Japan) | 52,202 | |
234,300 | OBIC Co. Ltd. (Japan) | 21,331 | |
178,400 | Otsuka Corp. (Japan) | 5,917 | |
388,100 | SCSK Corp. (Japan) | 16,446 | |
1,811,974 | Wipro Ltd. (India) | 8,131 | |
152,700 | |||
LEISURE PRODUCTS—0.9% | |||
654,518 | Amer Sports OYJ (Finland)* | 24,330 | |
1,619,800 | Bandai Namco Holdings Inc. (Japan) | 57,624 | |
2,193,000 | Giant Manufacturing Co. Ltd. (Taiwan) | 8,393 | |
3,054,000 | Goodbaby International Holdings Ltd. (Hong Kong) | 948 | |
907,500 | Sega Sammy Holdings Inc. (Japan) | 11,652 | |
60,800 | Shimano Inc. (Japan) | 8,304 | |
111,251 | |||
LIFE SCIENCES TOOLS & SERVICES—0.7% | |||
124,148 | Eurofins Scientific SE (France) | 62,564 | |
182,179 | Gerresheimer AG (Germany) | 12,839 | |
27,613 | Tecan Group AG (Switzerland) | 6,229 | |
81,632 | |||
MACHINERY—2.7% | |||
275,638 | Andritz AG (Austria) | 14,281 | |
15,678 | Bucher Industries AG (Switzerland) | 4,324 | |
8,274,260 | CNH Industrial NV (Italy) | 86,014 | |
264,700 | Daifuku Co. Ltd. (Japan) | 11,368 | |
40,700 | Fanuc Corp. (Japan) | 7,081 | |
272,349 | GEA Group AG (Germany) | 8,276 | |
114,500 | Glory Ltd. (Japan) | 2,666 | |
77,300 | Hirata Corp. (Japan) | 4,766 |
7
Harbor International Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
MACHINERY—Continued | |||
223,900 | Hoshizaki Corp. (Japan) | $ 18,073 | |
125,313 | Hyundai Elevator Co. Ltd. (South Korea) | 8,824 | |
643,883 | IMI plc (United Kingdom) | 8,163 | |
223,500 | Makita Corp. (Japan) | 7,727 | |
358,000 | Mitsubishi Heavy Industries Ltd. (Japan) | 12,620 | |
2,392,142 | Rotork plc (United Kingdom) | 9,160 | |
3,632,730 | Sandvik AB (Sweden) | 57,429 | |
38,094 | Schindler Holding AG (Switzerland) | 7,911 | |
568,522 | Stabilus SA (Germany)* | 38,099 | |
1,521,795 | Wartsila OYJ Abp (Finland) | 25,894 | |
1,036,000 | Yungtay Engineering Co. Ltd. (Taiwan) | 1,893 | |
334,569 | |||
MARINE—0.1% | |||
1,296,719 | Irish Continental Group plc (Ireland) | 7,640 | |
2,007,810 | Wan HAI Lines Ltd. (Taiwan) | 982 | |
8,622 | |||
MEDIA—3.0% | |||
750,519 | Axel Springer SE (Germany) | 49,840 | |
10,717,900 | BEC World PCL (Thailand)* | 1,978 | |
2,146,879 | Daily Mail & General Trust plc (United Kingdom) | 19,167 | |
17,298,704 | Fairfax Media Ltd. (Australia) | 7,873 | |
1,705,000 | Fuji Media Holdings Inc. (Japan) | 27,672 | |
4,616,556 | Informa plc (United Kingdom) | 42,129 | |
31,143,401 | ITV plc (United Kingdom) | 59,119 | |
798,693 | JCDecaux SA (France) | 26,219 | |
69,970,400 | Media Nusantara Citra TBK PT (Indonesia) | 3,600 | |
874,548 | Mediaset Espana Comunicacion SA (Spain) | 5,947 | |
773,604 | Modern Times Group Mortgage AB Class B (Sweden) | 28,556 | |
1,036,400 | Nippon Television Holdings Inc. (Japan) | 16,536 | |
492,121 | Schibsted ASA Class A (Norway) | 17,032 | |
475,530 | Schibsted ASA Class B (Norway) | 15,048 | |
2,558,567 | Sky Network Television Ltd. (New Zealand) | 3,752 | |
637,700 | Television Broadcasts Ltd. (Hong Kong)* | 1,346 | |
3,817,721 | WPP plc (United Kingdom) | 43,200 | |
369,014 | |||
METALS & MINING—2.2% | |||
1,765,482 | Acerinox SA (Spain) | 19,727 | |
9,991,758 | Alumina Ltd. (Australia) | 18,133 | |
1,261,666 | ArcelorMittal SA (France) | 31,482 | |
693,851 | BHP Billiton Ltd. (Australia) | 16,010 | |
1,429,727 | BHP Billiton plc (United Kingdom) | 28,521 | |
1,602,315 | BlueScope Steel Ltd. (Australia) | 16,425 | |
18,599,098 | Glencore plc (United Kingdom)* | 75,692 | |
1,427,748 | Newcrest Mining Ltd. (Australia) | 20,900 | |
956,378 | Rio Tinto plc (United Kingdom) | 46,433 | |
273,323 | |||
MULTILINE RETAIL—0.5% | |||
1,604,800 | Isetan Mitsukoshi Holdings Ltd. (Japan) | 18,756 | |
54,780 | Lotte Shopping Co. Ltd. (South Korea) | 9,352 | |
862,200 | Marui Group Co. Ltd. (Japan) | 18,565 | |
43,800 | Ryohin Keikaku Co. Ltd. (Japan) | 11,577 | |
58,250 | |||
MULTI-UTILITIES—0.1% | |||
1,571,263 | National Grid plc (United Kingdom) | 16,599 | |
OIL, GAS & CONSUMABLE FUELS—2.8% | |||
17,387,646 | BP plc (United Kingdom) | 125,603 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
433,201 | Caltex Australia Ltd. (Australia) | $ 8,668 | |
1,723,306 | Equinor ASA (Norway) | 44,576 | |
2,538,900 | INPEX Corp. (Japan) | 28,909 | |
3,182,062 | Royal Dutch Shell plc (United Kingdom) | 102,340 | |
494,383 | Total SA (France) | 29,008 | |
339,104 | |||
PERSONAL PRODUCTS—1.6% | |||
4,842,456 | Asaleo Care Ltd. (Australia) | 2,402 | |
1,917,500 | Hengan International Group Co. Ltd. (China) | 15,243 | |
1,123,800 | Kao Corp. (Japan) | 74,758 | |
122,000 | Mandom Corp. (Japan) | 3,385 | |
1,987,661 | Unilever plc (United Kingdom) | 105,286 | |
201,074 | |||
PHARMACEUTICALS—3.2% | |||
803,400 | Astellas Pharma Inc. (Japan) | 12,413 | |
249,081 | Dechra Pharmaceuticals plc (United Kingdom) | 7,278 | |
106,100 | Haw Par Corp. Ltd. (Singapore) | 985 | |
1,038,585 | Novartis AG (Switzerland) | 90,951 | |
2,048,591 | Novo Nordisk AS (Denmark) | 88,472 | |
596,100 | Otsuka Holdings Co. Ltd. (Japan)* | 28,510 | |
563,258 | Roche Holding AG (Switzerland) | 137,076 | |
210,300 | Sawai Pharmaceutical Co. Ltd. (Japan) | 10,660 | |
518,400 | Sumitomo Dainippon Pharma Co. Ltd. (Japan) | 10,831 | |
387,176 | |||
PROFESSIONAL SERVICES—4.4% | |||
1,370,879 | Adecco Group AG (Switzerland) | 67,132 | |
3,087,123 | ALS Ltd. (Australia) | 17,903 | |
13,482,911 | Capita plc (United Kingdom)* | 22,082 | |
117,097 | DKSH Holding AG (Switzerland) | 7,895 | |
2,829,963 | Experian plc (United Kingdom) | 65,087 | |
19,307,315 | Hays plc (United Kingdom) | 40,432 | |
2,380,824 | Intertek Group plc (United Kingdom) | 142,650 | |
2,219,469 | IPH Ltd. (Australia) | 8,520 | |
333,000 | Nomura Co. Ltd. (Japan) | 7,563 | |
1,506,211 | PageGroup plc (United Kingdom) | 9,655 | |
778,100 | Persol Holdings Co. Ltd. (Japan) | 14,762 | |
240,327 | Randstad Holding NV (Netherlands) | 12,091 | |
4,344,056 | RELX plc (United Kingdom) | 85,911 | |
169,000 | TechnoPro Holdings Inc. (Japan) | 8,804 | |
168,990 | Teleperformance (France) | 27,831 | |
538,318 | |||
REAL ESTATE MANAGEMENT & DEVELOPMENT—0.5% | |||
519,200 | Daiwa House Industry Co. Ltd. (Japan) | 15,677 | |
1,946,300 | Mitsubishi Estate Co. Ltd. (Japan) | 31,105 | |
1,167,000 | NTT Urban Development Corp. (Japan) | 17,344 | |
64,126 | |||
ROAD & RAIL—1.1% | |||
650,900 | East Japan Railway Co. (Japan) | 56,848 | |
762,382 | National Express Group plc (United Kingdom) | 3,895 | |
1,035,400 | Senko Co. Ltd. (Japan) | 8,047 | |
1,021,100 | West Japan Railway Co. (Japan) | 68,677 | |
137,467 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—0.8% | |||
127,087 | ASML Holding NV (Netherlands) | 21,890 | |
2,826,300 | Renesas Electronics Corp. (Japan)* | 14,889 | |
287,532 | SK Hynix Inc. (South Korea) | 17,317 |
8
Harbor International Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—Continued | |||
5,218,000 | Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | $ 39,174 | |
68,000 | Tokyo Electron Ltd. (Japan) | 9,176 | |
102,446 | |||
SOFTWARE—0.1% | |||
104,100 | Oracle Corp. Japan (Japan) | 7,046 | |
99,600 | Trend Micro Inc. (Japan) | 5,734 | |
12,780 | |||
SPECIALTY RETAIL—0.6% | |||
91,300 | ABC-Mart Inc. (Japan) | 5,338 | |
1,607,500 | Esprit Holdings Ltd. (Hong Kong)* | 366 | |
522,250 | L'Occitane International SA (Hong Kong) | 978 | |
1,500,639 | Pets at Home Group plc (United Kingdom) | 2,107 | |
615,900 | USS Co. Ltd. (Japan) | 11,106 | |
1,363,902 | WH Smith plc (United Kingdom) | 33,903 | |
3,553,200 | Yamada Denki Co. Ltd. (Japan) | 16,755 | |
70,553 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—1.6% | |||
239,500 | Canon Inc. (Japan) | 6,822 | |
990,400 | FUJIFILM Holdings Corp. (Japan) | 42,835 | |
1,403,046 | Logitech International SA (Switzerland) | 51,947 | |
761,600 | NEC Corp. (Japan) | 21,862 | |
137,349 | Neopost SA (France) | 4,414 | |
1,687,176 | Samsung Electronics Co. Ltd. (South Korea) | 63,161 | |
191,041 | |||
TEXTILES, APPAREL & LUXURY GOODS—1.7% | |||
345,746 | adidas AG (Germany) | 81,307 | |
967,047 | Cie Financiere Richemont SA (Switzerland) | 70,682 | |
1,032,497 | Cie Financiere Richemont SA ADR (South Africa)1 | 7,528 | |
25,004,000 | Li Ning Co. Ltd. (China)* | 23,521 | |
1,042,200 | Onward Holdings Co. Ltd. (Japan) | 6,283 | |
969,965 | Shenzhou International Group Holdings Ltd. (China) | 10,753 | |
4,176,500 | Stella International Holdings Ltd. (Hong Kong) | 4,178 | |
204,252 | |||
TOBACCO—0.5% | |||
341,478 | British American Tobacco plc (United Kingdom) | 14,803 | |
435,200 | Japan Tobacco Inc. (Japan) | 11,183 | |
690,995 | Swedish Match AB (Sweden) | 35,198 | |
61,184 | |||
TRADING COMPANIES & DISTRIBUTORS—1.6% | |||
982,888 | Brenntag AG (Germany) | 51,331 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
TRADING COMPANIES & DISTRIBUTORS—Continued | |||
2,713,264 | Bunzl plc (United Kingdom) | $ 80,041 | |
164,365 | IMCD Group NV (Netherlands) | 11,146 | |
881,400 | ITOCHU Corp. (Japan) | 16,346 | |
1,361,700 | Mitsubishi Corp. (Japan) | 38,326 | |
197,190 | |||
TRANSPORTATION INFRASTRUCTURE—0.5% | |||
2,924,000 | China Merchants Port Holdings Co. Ltd. (China) | 4,981 | |
3,512,425 | Getlink SE (France) | 44,180 | |
439,000 | Mitsubishi Logistics Corp. (Japan) | 10,064 | |
59,225 | |||
WIRELESS TELECOMMUNICATION SERVICES—0.6% | |||
1,799,655 | Bharti Airtel Ltd. (India)* | 7,099 | |
949,800 | KDDI Corp. (Japan) | 22,985 | |
812,200 | NTT DoCoMo Inc. (Japan) | 20,142 | |
154,355 | PLDT Inc. (Philippines) | 3,983 | |
14,600 | SoftBank Group Corp. (Japan) | 1,155 | |
7,755,678 | Vodafone Group plc (United Kingdom) | 14,585 | |
16,550,587 | Vodafone Idea Ltd. (India)* | 8,653 | |
78,602 | |||
TOTAL COMMON STOCKS | |||
(Cost $12,363,422) | 11,485,844 | ||
PREFERRED STOCKS—0.8% | |||
AEROSPACE & DEFENSE—0.0% | |||
529,583,326 | Rolls Royce Holdings plc C Shares (United Kingdom)* | 677 x | |
AUTOMOBILES—0.5% | |||
337,649 | Volkswagen AG (Germany) | 56,726 | |
DIVERSIFIED FINANCIAL SERVICES—0.3% | |||
3,971,153 | Grupo de Inversiones Suramericana SA (Colombia) | 36,264 | |
TOTAL PREFERRED STOCKS | |||
(Cost $109,941) | 93,667 | ||
TOTAL INVESTMENTS—94.4% | |||
(Cost $12,473,363) | 11,579,511 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—5.6% | 686,716 | ||
TOTAL NET ASSETS—100.0% | $12,266,227 |
RIGHTS/WARRANTS OPEN AT OCTOBER 31, 2018
Description | No. of Contracts | Strike Price | Expiration Date | Cost (000s) | Value (000s) | |||||
Banco Santander SA | 1,772,178 | EUR —3 | 11/13/2018 | $ 71 | $ 69 | |||||
Genting Bhd | 23,349,082 | MYR 8.75 | 12/18/2018 | 11,002 | 139 | |||||
Total Rights/Warrants | $208 |
9
Harbor International Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of October 31, 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 | ||||||||
Africa | $ — | $ 7,528 | $ — | $ 7,528 | ||||
Europe | — | 7,235,213 | — | 7,235,213 | ||||
Latin America | 171,185 | — | — | 171,185 | ||||
Middle East/Central Asia | — | 57,185 | — | 57,185 | ||||
Pacific Basin | 77,525 | 3,937,208 | — | 4,014,733 | ||||
Preferred Stocks | ||||||||
Europe | — | 56,726 | 677 | 57,403 | ||||
Latin America | 36,264 | — | — | 36,264 | ||||
Total Investments in Securities | $284,974 | $11,293,860 | $677 | $11,579,511 | ||||
Financial Derivative Instruments - Assets | ||||||||
Rights/Warrants | $ 208 | $ — | $ — | $ 208 | ||||
Total Financial Derivative Instruments - Assets | $ 208 | $ — | $ — | $ 208 | ||||
Total Investments | $285,182 | $11,293,860 | $677 | $11,579,719 |
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 year ended October 31, 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 10/31/2018w (000s) | |||||||||
Preferred Stocks | $3,192 | $683 | $(3,185) | $— | $— | $(13) | $— | $— | $677 |
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 10/31/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Preferred Stocks | ||||||||
Rolls Royce Holdings plc C Shares (United Kingdom)* | $677 | Market Approach | Pre-Traded Price | GBP 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 October 31, 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 10/31/2018 (000s) | |||||||
Cementos Argos SA (Colombia) | $ 310,709 | $ – | $ (17,493) | $ (893) | $(121,138) | $ 7,109 | $171,185 | |||||||
Wynn Resorts Ltd. (United States) | 1,033,005 | 26,190 | (1,126,913) | 580,249 | (512,531) | 12,342 | – | |||||||
$1,343,714 | $26,190 | $(1,144,406) | $579,356 | $(633,669) | $19,451 | $171,185 |
10
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 October 31, 2018, the aggregate value of these securities was $154,895 or 1% of net assets. | ||
3 | Rights are redeemable for 1 ordinary share per 123 rights. | ||
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 10/31/2018 (000s) | ||
Preferred Stocks | $(5) | ||
x | Fair valued in accordance with Harbor Funds Valuation Procedures. | ||
EUR | Euro | ||
GBP | British Pound | ||
MYR | Malaysian Ringgit |
The accompanying notes are an integral part of the Financial Statements.
11
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
Charles Carter
Since 2015
Since 2015
Nick Longhurst
Since 2015
Since 2015
William J. Arah
Since 2015
Since 2015
Simon Somerville
Since 2016
Since 2016
Simon Todd, CFA
Since 2018
Since 2018
Michael Nickson, CFA
Since 2018
Since 2018
Michael Godfrey, CFA
Since 2015
Since 2015
David Cull, CFA
Since 2015
Since 2015
Robert Anstey, CFA
Since 2015
Since 2015
Marathon Asset Management LLP (Marathon-London) 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
Non-U.S. equity markets performed poorly over the 12-month period ended October 31, 2018, with the MSCI All Country World Ex. U.S. Index (ND) returning -8.24% (all international and global returns are in U.S. Dollars). Global emerging markets, which constituted 24.96% of the Index on average over the period, led the fall (returning -13.29%) as countries such as Turkey, Korea and China suffered the most. European markets, which constituted 43.46% of the Index on average over the period, also fell over the period, returning -8.43%. The Japanese equity market outperformed the overall index on a relative basis helped by a stronger Japanese Yen but nonetheless also contributed negatively, returning -4.42% in USD terms.
Performance
Harbor Diversified International All Cap Fund returned -8.62% (Institutional Class), -8.55% (Retirement Class), -8.76% (Administrative Class), and -8.93% (Investor Class), marginally underperforming the MSCI All Country World Ex. U.S. (ND) Index for the 12-month period ended October 31, 2018, with a positive contribution from stock selection and (to a lesser extent) regional allocation. More specifically, the largest positive influence came from stock selection within the emerging markets. Stock selection within Europe (in particular Germany and Denmark) was also a notable positive and the Fund’s residual cash exposure further benefited relative returns. In contrast, stock selection within the developed Asia Pacific markets (particularly Hong Kong) exerted a negative influence on relative returns, as did the overweight to the weaker British pound.
From a sector standpoint, stock selection within the Financials and Information Technology sectors provided the largest positive contribution to relative performance. Stock selection within the Consumer Discretionary sector also exerted a positive influence. Conversely, the Fund’s underweight exposure to the Energy sector and stock selection within that sector contributed negatively during the period.
12
Harbor Diversified International All Cap Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/02/2015 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the MSCI All Country World Ex. U.S. (ND) Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | 5 Years | Annualized | ||||||
Life of Fund | ||||||||
Harbor Diversified International All Cap Fund | ||||||||
Institutional Class1 | -8.62% | N/A | 2.99% | |||||
Retirement Class1,2 | -8.55 | N/A | 3.04 | |||||
Administrative Class1 | -8.76 | N/A | 2.75 | |||||
Investor Class1 | -8.93 | N/A | 2.62 | |||||
Comparative Index | ||||||||
MSCI All Country World Ex. U.S. (ND)1 | -8.24% | N/A | 4.38% |
As stated in the Fund’s prospectus dated March 1, 2018, as supplemented effective August 22, 2018, the expense ratios were 0.80% (Net) and 0.93% (Gross) (Institutional Class); 0.72% (Net) and 0.85% (Gross) (Retirement Class); 1.05% (Net) and 1.18% (Gross) (Administrative Class); 1.17% (Net) and 1.30% (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.
Outlook & Strategy
Global economic expansion has continued, however the downside risks have heightened over the course of the year due to growing protectionism, as well as a shift in central bank policy in many countries. Tightening global liquidity, a strengthening U.S. Dollar and geopolitical risks have continued to unsettle investors. The stronger U.S. Dollar in particular has placed strain on more vulnerable emerging market economies (especially those with a large amount of U.S. Dollar-denominated debt) and caused a wave of currency sell-offs. In addition, we believe the valuation levels for a number of Information Technology stocks across the world are at very high absolute levels and with uncertainty around economic growth, steadily increasing interest rates may eventually start to exert a gravitational pull on their multiples. Cyclical sectors have already seen their multiples compress this year as investors believe it is late in the business cycle and have chosen to rotate into more defensive areas of the market. Despite the risks, through the multi-manager model and careful stock selection, we believe the Fund remains well diversified.
1 | The “Life of Fund” return as shown reflects the period 11/02/2015 through 10/31/2018. |
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.
13
Harbor Diversified International All Cap Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Samsung Electronics Co. Ltd. | 1.2% |
❷ | Fairfax Financial Holdings Ltd. | 1.1% |
❸ | Taiwan Semiconductor Manufacturing Co. Ltd. | 1.1% |
❹ | Intertek Group plc | 0.9% |
❺ | Coloplast AS | 0.8% |
❻ | Roche Holding AG | 0.8% |
❼ | Assa Abloy AB Class B | 0.7% |
❽ | Baidu Inc. ADR | 0.7% |
❾ | BP plc | 0.7% |
❿ | Brookfield Asset Management Inc. | 0.7% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
14
Harbor Diversified International All Cap Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—96.3% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—1.5% | |||
25,985 | Airbus SE (France) | $ 2,872 | |
299,539 | BAE Systems plc (United Kingdom) | 2,008 | |
118,020 | Embraer SA (Brazil)* | 664 | |
2,089 | MTU Aero Engines AG (Germany) | 444 | |
208,533 | Rolls-Royce Holdings plc (United Kingdom)* | 2,236 | |
1,329 | Saab AB (Sweden) | 52 | |
13,848 | Thales SA (France) | 1,769 | |
10,045 | |||
AIR FREIGHT & LOGISTICS—0.2% | |||
22,556 | Oesterreichische Post AG (Austria) | 915 | |
23,400 | Yamato Holdings Co. Ltd. (Japan) | 640 | |
1,555 | |||
AIRLINES—0.2% | |||
78,018 | EasyJet plc (United Kingdom) | 1,195 | |
9,500 | Japan Airlines Co. Ltd. (Japan) | 337 | |
1,532 | |||
AUTO COMPONENTS—1.1% | |||
32,200 | Bridgestone Corp. (Japan) | 1,242 | |
151,896 | Gestamp Automocion SA ADR (Spain)*,1,2 | 963 | |
135,924 | GUD Holdings Ltd. (Australia) | 1,192 | |
8,400 | Koito Manufacturing Co. Ltd. (Japan) | 400 | |
29,170 | Magna International Inc. (Canada) | 1,436 | |
2,225,407 | Nemak SAB de CV (Mexico)2 | 1,607 | |
6,865 | Nokian Renkaat OYJ (Finland) | 218 | |
27,900 | Sumitomo Electric Industries Ltd. (Japan) | 380 | |
5,100 | Toyota Industries Corp. (Japan) | 251 | |
7,689 | |||
AUTOMOBILES—1.4% | |||
26,805 | Bayerische Motoren Werke AG (Germany) | 2,308 | |
14,789 | Hyundai Motor Co. (South Korea) | 1,385 | |
264,010 | Piaggio & C. SpA (Italy) | 565 | |
18,400 | Subaru Corp. (Japan) | 497 | |
73,200 | Toyota Motor Corp. (Japan) | 4,288 | |
9,043 | |||
BANKS—8.6% | |||
271,358 | Alpha Bank AE (Greece)* | 410 | |
393,548 | Axis Bank Ltd. (India)* | 3,083 | |
59,174 | Banco Santander SA (Spain) | 282 | |
52,057 | Bancolombia SA ADR (Colombia)1 | 1,923 | |
310,100 | Bangkok Bank PCL (Thailand) | 1,938 | |
302,149 | Bank of Ireland Group plc (Ireland)* | 2,135 | |
482,921 | Bankia SA (Spain) | 1,517 | |
1,025,398 | Barclays plc (United Kingdom) | 2,259 | |
46,638 | BNP Paribas SA (France) | 2,430 | |
33,500 | Chiba Bank Ltd. (Japan) | 212 | |
48,500 | Concordia Financial Group Ltd. (Japan) | 222 | |
20,945 | Danske Bank AS (Denmark) | 401 | |
37,117 | DBS Group Holdings Ltd. (Singapore) | 630 | |
58,271 | DNB ASA (Norway) | 1,053 | |
16,900 | Fukuoka Financial Group Inc. (Japan) | 415 | |
761,159 | Grupo Financiero Inbursa SAB de CV (Mexico) | 992 | |
31,944 | Hana Financial Group Inc. (South Korea) | 1,076 | |
397,022 | HSBC Holdings plc (Hong Kong) | 3,262 | |
253,708 | Intesa Sanpaolo SpA (Italy) | 562 | |
169,500 | Kasikornbank PCL (Thailand) | 1,020 | |
32,121 | Komercni Banka AS (Czech Republic) | 1,219 | |
2,277,311 | Lloyds Banking Group plc (United Kingdom) | 1,662 | |
77,000 | Mitsubishi UFJ Financial Group Inc. (Japan) | 466 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
BANKS—Continued | |||
709,800 | Mizuho Financial Group Inc. (Japan) | $ 1,219 | |
10,525 | Nedbank Group Ltd. (South Africa) | 178 | |
169,721 | Nordea Bank ABP (Sweden) | 1,475 | |
430,100 | Resona Holdings Inc. (Japan) | 2,262 | |
24,878 | Royal Bank of Canada (Canada) | 1,813 | |
43,658 | Sberbank of Russia PJSC ADR (Russia)1 | 510 | |
116,760 | Shinhan Financial Group Co. Ltd. (South Korea) | 4,349 | |
322,467 | Standard Chartered plc (United Kingdom) | 2,260 | |
96,400 | Sumitomo Mitsui Financial Group Inc. (Japan) | 3,753 | |
18,800 | Sumitomo Mitsui Trust Holdings Inc. (Japan) | 747 | |
217,589 | Svenska Handelsbanken AB (Sweden) | 2,365 | |
35,935 | Toronto-Dominion Bank (Canada) | 1,993 | |
1,478,270 | Turkiye Garanti Bankasi AS (Turkey) | 1,860 | |
160,272 | UniCredit SpA (Italy) | 2,049 | |
78,282 | United Overseas Bank Ltd. (Singapore) | 1,384 | |
57,386 | |||
BEVERAGES—3.4% | |||
30,510 | Anheuser-Busch InBev SA (Belgium) | 2,256 | |
9,900 | Asahi Group Holdings Ltd. (Japan) | 435 | |
17,736 | Britvic plc (United Kingdom) | 179 | |
17,220 | Carlsberg AS (Denmark) | 1,900 | |
145,068 | Cia Cervecerias Unidas SA (Chile) | 1,807 | |
301,689 | Coca-Cola Amatil Ltd. (Australia) | 2,123 | |
122,075 | Davide Campari-Milano SpA (Italy) | 939 | |
104,470 | Diageo plc (United Kingdom) | 3,612 | |
671,534 | East African Breweries Ltd. (Kenya) | 1,145 | |
41,112 | Heineken NV (Netherlands) | 3,699 | |
128,400 | Kirin Holdings Co. Ltd. (Japan) | 3,064 | |
19,700 | Suntory Beverage & Food Ltd. (Japan) | 803 | |
286,000 | Tsingtao Brewery Co. Ltd. (China) | 1,131 | |
23,093 | |||
BIOTECHNOLOGY—0.1% | |||
38,121 | Abcam plc (United Kingdom) | 584 | |
7,014 | Grifols SA (Spain) | 200 | |
784 | |||
BUILDING PRODUCTS—1.5% | |||
244,179 | Assa Abloy AB Class B (Sweden) | 4,857 | |
63 | Belimo Holding AG (Switzerland) | 282 | |
10,235 | Geberit AG (Switzerland) | 4,007 | |
149,380 | GWA Group Ltd. (Australia) | 292 | |
44,800 | LIXIL Group Corp. (Japan) | 704 | |
10,142 | |||
CAPITAL MARKETS—2.3% | |||
276,228 | 3i Group plc (United Kingdom) | 3,093 | |
118,676 | Brookfield Asset Management Inc. (Canada) | 4,843 | |
28,319 | Close Brothers Group plc (United Kingdom) | 532 | |
47,481 | Georgia Capital plc (United Kingdom)* | 709 | |
149,395 | IG Group Holdings plc (United Kingdom) | 1,153 | |
18,800 | Japan Exchange Group Inc. (Japan) | 337 | |
189,020 | Jupiter Fund Management plc (United Kingdom) | 814 | |
181,500 | Nomura Holdings Inc. (Japan) | 872 | |
8,040 | Rathbone Brothers plc (United Kingdom) | 236 | |
77,081 | St. James's Place plc (United Kingdom) | 996 | |
143,208 | UBS Group AG (Switzerland)* | 2,002 | |
15,587 | |||
CHEMICALS—2.4% | |||
29,683 | Akzo Nobel NV (Netherlands) | 2,492 | |
35,916 | BASF SE (Germany) | 2,756 |
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 | ||
CHEMICALS—Continued | |||
203,383 | DuluxGroup Ltd. (Australia) | $ 1,069 | |
57,696 | Enaex SA (Chile) | 717 | |
17,200 | Nissan Chemical Industries Ltd. (Japan) | 811 | |
6,800 | Nitto Denko Corp. (Japan) | 425 | |
175,278 | Orica Ltd. (Australia) | 2,136 | |
134,824 | PhosAgro PJSC GDR (Russia)3 | 1,766 | |
6,300 | Shin-Etsu Chemical Co. Ltd. (Japan) | 526 | |
16,714 | Symrise AG (Germany) | 1,400 | |
97,396 | Tikkurila OYJ (Finland) | 1,326 | |
138,100 | Toray Industries Inc. (Japan) | 980 | |
16,404 | |||
COMMERCIAL SERVICES & SUPPLIES—3.1% | |||
5,700 | AEON Delight Co. Ltd. (Japan) | 190 | |
247,913 | Brambles Ltd. (Australia) | 1,868 | |
2,010,635 | Cleanaway Waste Management Ltd. (Australia) | 2,570 | |
62,961 | Edenred SA (France) | 2,388 | |
51,233 | Elis SA (France) | 1,033 | |
649,024 | G4S plc (United Kingdom) | 1,781 | |
299,202 | HomeServe plc (United Kingdom) | 3,632 | |
16,225 | Prosegur Cia de Seguridad SA (Spain) | 90 | |
81,770 | Ritchie Bros Auctioneers Inc. (Canada) | 2,751 | |
13,017 | S-1 Corp. (South Korea) | 1,102 | |
18,500 | Secom Co. Ltd. (Japan) | 1,515 | |
9,969 | Securitas AB (Sweden) | 171 | |
903,589 | Serco Group plc (United Kingdom)* | 1,109 | |
9,700 | Sohgo Security Services Co. Ltd. (Japan) | 432 | |
20,632 | |||
CONSTRUCTION & ENGINEERING—0.8% | |||
44,027 | Boskalis Westminster NV (Netherlands) | 1,266 | |
19,063 | Ferrovial SA (Spain) | 382 | |
54,300 | Maeda Corp. (Japan) | 614 | |
137,900 | Obayashi Corp. (Japan) | 1,217 | |
462,037 | Raubex Group Ltd. (South Africa) | 594 | |
112,900 | Shimizu Corp. (Japan) | 916 | |
4,500 | SHO-BOND Holdings Co. Ltd. (Japan) | 320 | |
5,309 | |||
CONSTRUCTION MATERIALS—0.4% | |||
15,438 | CRH plc (Ireland) | 461 | |
4,991 | Imerys SA (France) | 308 | |
7,257 | Vicat SA (France) | 390 | |
61,340 | Wienerberger AG (Austria) | 1,411 | |
2,570 | |||
CONSUMER FINANCE—0.8% | |||
28,400 | AEON Financial Service Co. Ltd. (Japan) | 556 | |
2,397,137 | Gentera SAB de CV (Mexico)* | 1,942 | |
295,779 | International Personal Finance plc (United Kingdom) | 674 | |
286,848 | Non-Standard Finance plc (United Kingdom)2 | 243 | |
138,801 | Provident Financial plc (United Kingdom)* | 905 | |
58,093 | Shriram Transport Finance Co. Ltd. (India) | 907 | |
5,227 | |||
CONTAINERS & PACKAGING—0.3% | |||
39,194 | Amcor Ltd. (Australia) | 370 | |
229,619 | DS Smith plc (United Kingdom) | 1,152 | |
34,900 | Toyo Seikan Group Holdings Ltd. (Japan) | 712 | |
2,234 | |||
DISTRIBUTORS—0.2% | |||
150,015 | Inchcape plc (United Kingdom) | 1,036 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
DIVERSIFIED FINANCIAL SERVICES—0.1% | |||
1,182,000 | First Pacific Co. Ltd. (Hong Kong) | $ 529 | |
DIVERSIFIED TELECOMMUNICATION SERVICES—2.1% | |||
40,150 | BCE Inc. (Canada) | 1,554 | |
126,387 | Deutsche Telekom AG (Germany) | 2,073 | |
599,954 | Koninklijke KPN NV (Netherlands) | 1,583 | |
172,950 | KT Corp. ADR (South Korea)1 | 2,394 | |
88,100 | Nippon Telegraph & Telephone Corp. (Japan) | 3,633 | |
256,317 | Spark New Zealand Ltd. (New Zealand) | 662 | |
629,813 | Telkom SA SOC Ltd. (South Africa) | 2,292 | |
14,191 | |||
ELECTRIC UTILITIES—0.2% | |||
19,700 | Kansai Electric Power Co. (Japan) | 302 | |
71,100 | Tohoku Electric Power Co. Inc. (Japan) | 898 | |
1,200 | |||
ELECTRICAL EQUIPMENT—1.5% | |||
58,139 | Legrand SA (France) | 3,797 | |
2,520,850 | TECO Electric and Machinery Co. Ltd. (Taiwan) | 1,450 | |
25,900 | Ushio Inc. (Japan) | 312 | |
69,191 | Vestas Wind Systems AS (Denmark) | 4,339 | |
9,898 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—2.0% | |||
24,000 | Azbil Corp. (Japan) | 447 | |
254,000 | Chroma ATE Inc. (Taiwan) | 895 | |
582,735 | Delta Electronics Inc. (Taiwan) | 2,453 | |
2,315 | Hirose Electric Co. Ltd. (Japan) | 221 | |
11,900 | Hitachi High-Technologies Corp. (Japan) | 446 | |
98,100 | Hitachi Ltd. (Japan) | 2,999 | |
700 | Keyence Corp. (Japan) | 342 | |
47,400 | Kyocera Corp. (Japan) | 2,565 | |
20,800 | Omron Corp. (Japan) | 842 | |
9,600 | Shimadzu Corp. (Japan) | 242 | |
50,319 | Spectris plc (United Kingdom) | 1,377 | |
6,700 | TDK Corp. (Japan) | 578 | |
13,407 | |||
ENERGY EQUIPMENT & SERVICES—0.7% | |||
112,208 | John Wood Group plc (United Kingdom) | 1,023 | |
43,012 | Petrofac Ltd. (United Kingdom) | 316 | |
535,212 | Saipem SpA (Italy)* | 2,927 | |
16,698 | TechnipFMC plc (France) | 443 | |
4,709 | |||
ENTERTAINMENT—0.2% | |||
30,243 | CTS Eventim AG & Co. KGaA (Germany) | 1,134 | |
10,400 | Toho Co. Ltd. (Japan) | 339 | |
1,473 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—0.4% | |||
276,546 | Grivalia Properties REIC AE (Greece) | 2,376 | |
FOOD & STAPLES RETAILING—2.4% | |||
54,592 | Alimentation Couche-Tard Inc. (Canada) | 2,607 | |
49,700 | Dairy Farm International Holdings Ltd. (Hong Kong) | 449 | |
164,638 | Eurocash SA (Poland) | 876 | |
98,216 | Koninklijke Ahold Delhaize NV (Netherlands) | 2,248 | |
7,900 | Lawson Inc. (Japan) | 501 | |
65,336 | Loblaw Cos. Ltd. (Canada) | 3,268 | |
15,069 | Magnit PJSC (Russia)* | 824 | |
11,800 | Matsumotokiyoshi Holdings Co. Ltd. (Japan) | 427 |
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 | ||
FOOD & STAPLES RETAILING—Continued | |||
347,079 | Metcash Ltd. (Australia)* | $ 678 | |
64,400 | Seven & I Holdings Co. Ltd. (Japan) | 2,788 | |
8,500 | Sundrug Co. Ltd. (Japan) | 309 | |
341,041 | Tesco plc (United Kingdom) | 929 | |
15,904 | |||
FOOD PRODUCTS—2.6% | |||
147 | Barry Callebaut AG (Switzerland) | 287 | |
630,000 | China Mengniu Dairy Co. Ltd. (China) | 1,864 | |
1,957,100 | Delfi Ltd. (Singapore) | 1,806 | |
179,200 | Devro plc (United Kingdom) | 376 | |
1,453,508 | Grupo Lala SAB de CV (Mexico) | 1,277 | |
170,377 | Industrias Bachoco SAB de CV (Mexico) | 623 | |
5,700 | Meiji Holdings Co. Ltd. (Japan) | 378 | |
60,700 | Nippon Suisan Kaisha Ltd. (Japan) | 388 | |
145,824 | Tiger Brands Ltd. (South Africa) | 2,612 | |
1,118,255 | Tingyi Cayman Islands Holding Corp. (China) | 1,657 | |
30,400 | Toyo Suisan Kaisha Ltd. (Japan) | 1,045 | |
226,734 | Ulker Biskuvi Sanayi AS (Turkey) | 600 | |
27,287 | Viscofan SA (Spain) | 1,632 | |
3,912,000 | Want Want China Holdings Ltd. (China)* | 2,799 | |
17,344 | |||
GAS UTILITIES—0.1% | |||
20,700 | Tokyo Gas Co. Ltd. (Japan) | 509 | |
HEALTH CARE EQUIPMENT & SUPPLIES—2.9% | |||
58,783 | Coloplast AS (Denmark) | 5,485 | |
672,775 | ConvaTec Group plc (United Kingdom)2 | 1,391 | |
99,906 | GN Store Nord AS (Denmark) | 4,238 | |
13,000 | Hoya Corp. (Japan) | 736 | |
55,418 | Koninklijke Philips NV (Netherlands) | 2,067 | |
10,800 | Olympus Corp. (Japan) | 360 | |
38,571 | Smith & Nephew plc (United Kingdom) | 627 | |
7,036 | Sonova Holding AG (Switzerland) | 1,147 | |
94,186 | William Demant Holding AS (Denmark)* | 3,096 | |
19,147 | |||
HEALTH CARE PROVIDERS & SERVICES—0.9% | |||
50,400 | Alfresa Holdings Corp. (Japan)* | 1,344 | |
53,232 | Fresenius Medical Care AG & Co. KGaA (Germany) | 4,180 | |
7,900 | MediPAL Holdings Corp. (Japan) | 169 | |
429,960 | Sigma Healthcare Ltd. (Australia) | 159 | |
5,852 | |||
HOTELS, RESTAURANTS & LEISURE—3.6% | |||
1,393,000 | Ajisen China Holdings Ltd. (China) | 464 | |
33,228 | Carnival plc (United Kingdom) | 1,811 | |
243,801 | Compass Group plc (United Kingdom) | 4,795 | |
586,800 | GL Ltd. (Singapore) | 310 | |
141,013 | GVC Holdings plc (United Kingdom)* | 1,689 | |
548,141 | Hongkong & Shanghai Hotels Ltd. (Hong Kong) | 757 | |
723,833 | Merlin Entertainments plc (United Kingdom)2 | 2,989 | |
30,714 | Paddy Power Betfair plc (United Kingdom) | 2,634 | |
68,687 | Playtech plc (United Kingdom) | 420 | |
316,458 | SSP Group plc (United Kingdom) | 2,698 | |
1,500,297 | Thomas Cook Group plc (United Kingdom) | 863 | |
345,040 | Tsogo Sun Holdings Ltd. (South Africa) | 473 | |
147,479 | TUI AG (Germany) | 2,438 | |
56,961 | Yum China Holdings Inc. (China) | 2,055 | |
24,396 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HOUSEHOLD DURABLES—0.8% | |||
84,012 | Barratt Developments plc (United Kingdom) | $ 551 | |
66,400 | Casio Computer Co. Ltd. (Japan) | 1,002 | |
121,628 | McCarthy & Stone plc (United Kingdom)2 | 210 | |
549,300 | MRV Engenharia e Participacoes SA (Brazil) | 1,866 | |
4,600 | Rinnai Corp. (Japan) | 334 | |
43,200 | Sekisui Chemical Co. Ltd. (Japan) | 680 | |
13,400 | Sony Corp. (Japan) | 725 | |
5,368 | |||
HOUSEHOLD PRODUCTS—0.8% | |||
32,600 | Lion Corp. (Japan) | 613 | |
56,597 | Reckitt Benckiser Group plc (United Kingdom) | 4,577 | |
5,190 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—0.0% | |||
2,630,400 | Lopez Holdings Corp. (Philippines) | 208 | |
INDUSTRIAL CONGLOMERATES—2.2% | |||
374,500 | CK Hutchison Holdings Ltd. (Hong Kong) | 3,772 | |
31,885 | DCC plc (United Kingdom) | 2,733 | |
69,600 | Jardine Matheson Holdings Ltd. (Hong Kong) | 4,019 | |
35,210 | LG Corp. (South Korea) | 2,051 | |
883,913 | Quinenco SA (Chile) | 2,321 | |
14,896 | |||
INSURANCE—5.8% | |||
79,032 | Admiral Group plc (United Kingdom) | 2,032 | |
59,561 | AXA SA (France) | 1,491 | |
144,900 | Dai-ichi Life Holdings Inc. (Japan) | 2,719 | |
14,920 | Fairfax Financial Holdings Ltd. (Canada) | 7,250 | |
111,100 | Great Eastern Holdings Ltd. (Singapore) | 2,053 | |
5,442 | Hannover Rueck SE (Germany) | 732 | |
825 | Helvetia Holding AG (Switzerland) | 505 | |
192,700 | Japan Post Holdings Co. Ltd. (Japan) | 2,285 | |
80,700 | MS&AD Insurance Group Holdings Inc. (Japan) | 2,424 | |
338,451 | Old Mutual Ltd. (South Africa) | 520 | |
202,976 | Porto Seguro SA (Brazil) | 2,966 | |
218,714 | QBE Insurance Group Ltd. (Australia) | 1,757 | |
102,506 | Sampo OYJ (Finland) | 4,714 | |
13,686 | Samsung Fire & Marine Insurance Co. Ltd. (South Korea) | 3,349 | |
40,600 | Sompo Holdings Inc. (Japan) | 1,674 | |
21,100 | Sony Financial Holdings Inc. (Japan) | 487 | |
20,400 | T&D Holdings Inc. (Japan) | 326 | |
37,400 | Tokio Marine Holdings Inc. (Japan) | 1,762 | |
39,046 | |||
INTERACTIVE MEDIA & SERVICES—2.1% | |||
230,364 | Auto Trader Group plc (United Kingdom)2 | 1,204 | |
25,373 | Baidu Inc. ADR (China)*,1 | 4,822 | |
127,719 | Carsales.com Ltd. (Australia) | 1,107 | |
224,863 | Domain Holdings Australia Ltd. (Australia)* | 396 | |
817,341 | Rightmove plc (United Kingdom) | 4,718 | |
49,535 | Yandex NV (Russia)* | 1,492 | |
13,739 | |||
INTERNET & DIRECT MARKETING RETAIL—0.6% | |||
4,203 | GS Home Shopping Inc. (South Korea) | 718 | |
165,796 | Just Eat plc (United Kingdom)* | 1,286 | |
38,760 | MoneySuperMarket.com Group plc (United Kingdom) | 145 | |
339,520 | PChome Online Inc. (Taiwan)* | 1,553 |
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 | ||
INTERNET & DIRECT MARKETING RETAIL—Continued | |||
541 | Takeaway.com NV (Netherlands)*,2 | $ 32 | |
879 | Zooplus AG (Germany)* | 145 | |
3,879 | |||
IT SERVICES—0.9% | |||
13,276 | Alten SA (France) | 1,279 | |
999 | Amadeus IT Group SA (Spain) | 81 | |
13,434 | Genpact Ltd. (United States) | 368 | |
16,200 | ITOCHU Techno-Solutions Corp. (Japan) | 307 | |
4,600 | Nomura Research Institute Ltd. (Japan) | 204 | |
156,400 | NTT Data Corp. (Japan) | 2,008 | |
8,600 | OBIC Co. Ltd. (Japan) | 783 | |
6,700 | Otsuka Corp. (Japan) | 222 | |
14,200 | SCSK Corp. (Japan) | 602 | |
5,854 | |||
LEISURE PRODUCTS—0.9% | |||
24,956 | Amer Sports OYJ (Finland)* | 928 | |
64,900 | Bandai Namco Holdings Inc. (Japan) | 2,309 | |
273,386 | Giant Manufacturing Co. Ltd. (Taiwan) | 1,046 | |
750,000 | Goodbaby International Holdings Ltd. (Hong Kong) | 233 | |
36,800 | Sega Sammy Holdings Inc. (Japan) | 473 | |
2,500 | Shimano Inc. (Japan) | 341 | |
13,100 | Spin Master Corp. (Canada)*,2 | 466 | |
5,796 | |||
LIFE SCIENCES TOOLS & SERVICES—0.5% | |||
5,253 | Eurofins Scientific SE (France) | 2,647 | |
7,017 | Gerresheimer AG (Germany) | 495 | |
1,101 | Tecan Group AG (Switzerland) | 248 | |
3,390 | |||
MACHINERY—2.4% | |||
12,045 | Andritz AG (Austria) | 624 | |
583 | Bucher Industries AG (Switzerland) | 161 | |
350,752 | CNH Industrial NV (Italy) | 3,646 | |
10,700 | Daifuku Co. Ltd. (Japan) | 460 | |
1,500 | Fanuc Corp. (Japan) | 261 | |
14,401 | GEA Group AG (Germany) | 438 | |
4,200 | Glory Ltd. (Japan) | 98 | |
2,500 | Hirata Corp. (Japan) | 154 | |
7,800 | Hoshizaki Corp. (Japan) | 630 | |
30,532 | IMI plc (United Kingdom) | 387 | |
8,400 | Makita Corp. (Japan) | 290 | |
10,000 | Mitsubishi Heavy Industries Ltd. (Japan) | 352 | |
125,284 | Rotork plc (United Kingdom) | 480 | |
141,632 | Sandvik AB (Sweden) | 2,239 | |
1,339 | Schindler Holding AG (Switzerland) | 278 | |
25,405 | Stabilus SA (Germany)* | 1,702 | |
59,354 | Wartsila OYJ Abp (Finland) | 1,010 | |
1,418,000 | Yungtay Engineering Co. Ltd. (Taiwan) | 2,591 | |
15,801 | |||
MARINE—0.3% | |||
36,800,716 | Cia Sud Americana de Vapores SA (Chile)* | 1,099 | |
150,398 | Irish Continental Group plc (Ireland) | 886 | |
1,985 | |||
MEDIA—2.9% | |||
29,999 | Axel Springer SE (Germany) | 1,992 | |
1,341,500 | BEC World PCL (Thailand)* | 248 | |
106,167 | Daily Mail & General Trust plc (United Kingdom) | 948 | |
1,531,608 | Fairfax Media Ltd. (Australia) | 697 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
MEDIA—Continued | |||
82,800 | Fuji Media Holdings Inc. (Japan) | $ 1,344 | |
109,314 | Grupo Televisa SAB ADR (Mexico)1 | 1,572 | |
189,287 | Informa plc (United Kingdom) | 1,727 | |
1,277,156 | ITV plc (United Kingdom) | 2,424 | |
27,839 | JCDecaux SA (France) | 914 | |
13,448,521 | Media Nusantara Citra TBK PT (Indonesia) | 692 | |
38,347 | Mediaset Espana Comunicacion SA (Spain) | 261 | |
32,644 | Modern Times Group Mortgage AB Class B (Sweden) | 1,205 | |
66,820 | Nippon Television Holdings Inc. (Japan) | 1,066 | |
22,260 | Schibsted ASA Class A (Norway) | 770 | |
18,811 | Schibsted ASA Class B (Norway) | 595 | |
330,146 | Sky Network Television Ltd. (New Zealand) | 484 | |
309,900 | Television Broadcasts Ltd. (Hong Kong)* | 654 | |
149,398 | WPP plc (United Kingdom) | 1,691 | |
19,284 | |||
METALS & MINING—3.6% | |||
80,356 | Acerinox SA (Spain) | 898 | |
944,771 | Alumina Ltd. (Australia) | 1,714 | |
70,613 | Anglo American Platinum Ltd. (South Africa)* | 2,299 | |
62,742 | Anglo American plc (South Africa) | 1,340 | |
121,648 | Antofagasta plc (United Kingdom) | 1,218 | |
50,089 | ArcelorMittal SA (France) | 1,250 | |
193,948 | Barrick Gold Corp. (Canada) | 2,429 | |
47,415 | BHP Billiton Ltd. (Australia) | 1,094 | |
55,036 | BHP Billiton plc (United Kingdom) | 1,098 | |
178,210 | BlueScope Steel Ltd. (Australia) | 1,827 | |
71,721 | Cia de Minas Buenaventura SAA ADR (Peru)1 | 993 | |
19,779 | Franco-Nevada Corp. (Canada) | 1,235 | |
726,017 | Glencore plc (United Kingdom)* | 2,955 | |
110,716 | Newcrest Mining Ltd. (Australia) | 1,621 | |
37,200 | Rio Tinto plc (United Kingdom) | 1,806 | |
23,777 | |||
MULTILINE RETAIL—0.4% | |||
60,500 | Isetan Mitsukoshi Holdings Ltd. (Japan) | 707 | |
5,923 | Lotte Shopping Co. Ltd. (South Korea) | 1,011 | |
32,600 | Marui Group Co. Ltd. (Japan) | 702 | |
1,600 | Ryohin Keikaku Co. Ltd. (Japan) | 423 | |
2,843 | |||
MULTI-UTILITIES—0.1% | |||
58,835 | National Grid plc (United Kingdom) | 622 | |
OIL, GAS & CONSUMABLE FUELS—3.2% | |||
684,697 | BP plc (United Kingdom) | 4,946 | |
34,936 | Caltex Australia Ltd. (Australia) | 699 | |
153,487 | Canadian Natural Resources Ltd. (Canada) | 4,211 | |
67,486 | Equinor ASA (Norway) | 1,746 | |
105,000 | INPEX Corp. (Japan) | 1,195 | |
48,894 | Inter Pipeline Ltd. (Canada) | 793 | |
19,599 | Lukoil PJSC ADR (Russia)1 | 1,463 | |
57,123 | PrairieSky Royalty Ltd. (Canada) | 868 | |
124,767 | Royal Dutch Shell plc (United Kingdom) | 4,013 | |
20,277 | Total SA (France) | 1,190 | |
21,124 | |||
PERSONAL PRODUCTS—1.8% | |||
654,359 | Asaleo Care Ltd. (Australia) | 325 | |
209,236 | Hengan International Group Co. Ltd. (China) | 1,663 | |
42,200 | Kao Corp. (Japan) | 2,807 | |
4,600 | Mandom Corp. (Japan) | 128 |
18
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 | ||
PERSONAL PRODUCTS—Continued | |||
334,368 | Natura Cosmeticos SA (Brazil) | $ 2,928 | |
77,678 | Unilever plc (United Kingdom) | 4,115 | |
11,966 | |||
PHARMACEUTICALS—2.7% | |||
33,600 | Astellas Pharma Inc. (Japan) | 519 | |
5,214 | Dechra Pharmaceuticals plc (United Kingdom) | 152 | |
3,734,004 | Genomma Lab Internacional SAB de CV (Mexico)* | 2,375 | |
76,007 | Haw Par Corp. Ltd. (Singapore) | 706 | |
40,916 | Novartis AG (Switzerland) | 3,583 | |
82,550 | Novo Nordisk AS (Denmark) | 3,565 | |
24,000 | Otsuka Holdings Co. Ltd. (Japan)* | 1,148 | |
22,125 | Roche Holding AG (Switzerland) | 5,385 | |
7,500 | Sawai Pharmaceutical Co. Ltd. (Japan) | 380 | |
19,400 | Sumitomo Dainippon Pharma Co. Ltd. (Japan) | 405 | |
18,218 | |||
PROFESSIONAL SERVICES—3.5% | |||
53,382 | Adecco Group AG (Switzerland) | 2,614 | |
311,785 | ALS Ltd. (Australia) | 1,808 | |
637,117 | Capita plc (United Kingdom)* | 1,044 | |
10,955 | DKSH Holding AG (Switzerland) | 739 | |
104,737 | Experian plc (United Kingdom) | 2,409 | |
804,827 | Hays plc (United Kingdom) | 1,686 | |
98,492 | Intertek Group plc (United Kingdom) | 5,901 | |
157,870 | IPH Ltd. (Australia) | 606 | |
21,500 | Nomura Co. Ltd. (Japan) | 488 | |
81,636 | PageGroup plc (United Kingdom) | 523 | |
29,800 | Persol Holdings Co. Ltd. (Japan) | 565 | |
10,320 | Randstad Holding NV (Netherlands) | 519 | |
160,246 | RELX plc (United Kingdom) | 3,169 | |
6,800 | TechnoPro Holdings Inc. (Japan) | 354 | |
6,460 | Teleperformance (France) | 1,064 | |
23,489 | |||
REAL ESTATE MANAGEMENT & DEVELOPMENT—0.5% | |||
19,400 | Daiwa House Industry Co. Ltd. (Japan) | 586 | |
351,315 | LPS Brasil Consultoria de Imoveis SA (Brazil)* | 358 | |
85,400 | Mitsubishi Estate Co. Ltd. (Japan) | 1,365 | |
60,419 | New World Development Co. Ltd. (Hong Kong) | 77 | |
75,400 | NTT Urban Development Corp. (Japan) | 1,120 | |
82,176 | United Industrial Corp. Ltd. (Singapore) | 166 | |
3,672 | |||
ROAD & RAIL—1.4% | |||
14,666 | Canadian Pacific Railway Ltd. (Canada) | 3,008 | |
24,800 | East Japan Railway Co. (Japan) | 2,166 | |
84,503 | Globaltrans Investment plc GDR (Russia)3 | 828 | |
81,233 | National Express Group plc (United Kingdom) | 415 | |
38,100 | Senko Co. Ltd. (Japan) | 296 | |
78,833 | Stagecoach Group plc (United Kingdom) | 154 | |
39,100 | West Japan Railway Co. (Japan) | 2,630 | |
9,497 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—1.6% | |||
5,201 | ASML Holding NV (Netherlands) | 896 | |
109,100 | Renesas Electronics Corp. (Japan)* | 575 | |
27,873 | SK Hynix Inc. (South Korea) | 1,679 | |
1,008,000 | Taiwan Semiconductor Manufacturing Co. Ltd. (Taiwan) | 7,567 | |
2,300 | Tokyo Electron Ltd. (Japan) | 310 | |
11,027 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
SOFTWARE—0.9% | |||
4,240 | Constellation Software Inc. (Canada) | $ 2,918 | |
4,000 | Oracle Corp. Japan (Japan) | 271 | |
390,700 | TOTVS SA (Brazil) | 2,635 | |
3,800 | Trend Micro Inc. (Japan) | 219 | |
6,043 | |||
SPECIALTY RETAIL—0.9% | |||
4,200 | ABC-Mart Inc. (Japan) | 245 | |
4,074,900 | Esprit Holdings Ltd. (Hong Kong)* | 928 | |
160,408 | Fourlis Holdings SA (Greece)* | 788 | |
64,458 | JUMBO SA (Greece) | 938 | |
192,671 | L'Occitane International SA (Hong Kong) | 361 | |
203,461 | Pets at Home Group plc (United Kingdom) | 286 | |
23,700 | USS Co. Ltd. (Japan) | 427 | |
65,203 | WH Smith plc (United Kingdom) | 1,621 | |
139,800 | Yamada Denki Co. Ltd. (Japan) | 659 | |
6,253 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—2.0% | |||
9,100 | Canon Inc. (Japan) | 259 | |
34,800 | FUJIFILM Holdings Corp. (Japan) | 1,505 | |
53,705 | Logitech International SA (Switzerland) | 1,988 | |
29,500 | NEC Corp. (Japan) | 847 | |
17,882 | Neopost SA (France) | 575 | |
215,346 | Samsung Electronics Co. Ltd. (South Korea) | 8,062 | |
13,236 | |||
TEXTILES, APPAREL & LUXURY GOODS—2.2% | |||
13,921 | adidas AG (Germany) | 3,274 | |
38,251 | Cie Financiere Richemont SA (Switzerland) | 2,796 | |
122,233 | Cie Financiere Richemont SA ADR (South Africa)1 | 891 | |
30,660 | Gildan Activewear Inc. (Canada) | 916 | |
1,784,000 | Li Ning Co. Ltd. (China)* | 1,678 | |
62,024 | Luxottica Group SpA (Italy) | 3,895 | |
41,100 | Onward Holdings Co. Ltd. (Japan) | 248 | |
1,202,246 | Stella International Holdings Ltd. (Hong Kong) | 1,203 | |
106,000 | Texwinca Holdings Ltd. (Hong Kong) | 36 | |
14,937 | |||
TOBACCO—0.3% | |||
13,668 | British American Tobacco plc (United Kingdom) | 592 | |
18,400 | Japan Tobacco Inc. (Japan) | 473 | |
23,944 | Swedish Match AB (Sweden) | 1,220 | |
2,285 | |||
TRADING COMPANIES & DISTRIBUTORS—1.3% | |||
45,657 | Brenntag AG (Germany) | 2,385 | |
125,407 | Bunzl plc (United Kingdom) | 3,700 | |
7,246 | IMCD Group NV (Netherlands) | 491 | |
33,600 | ITOCHU Corp. (Japan) | 623 | |
52,200 | Mitsubishi Corp. (Japan) | 1,469 | |
8,668 | |||
TRANSPORTATION INFRASTRUCTURE—0.5% | |||
104,379 | Getlink SE (France) | 1,313 | |
480,094 | Global Ports Investments plc GDR (Russia)*,3 | 1,191 | |
1,453,047 | Grindrod Ltd. (South Africa)* | 653 | |
15,600 | Mitsubishi Logistics Corp. (Japan) | 358 | |
3,515 | |||
WIRELESS TELECOMMUNICATION SERVICES—1.2% | |||
288,780 | Bharti Airtel Ltd. (India)* | 1,139 |
19
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 | ||
WIRELESS TELECOMMUNICATION SERVICES—Continued | |||
39,200 | KDDI Corp. (Japan) | $ 949 | |
14,924 | Millicom International Cellular SA SDR (Sweden)*,3 | 842 | |
33,100 | NTT DoCoMo Inc. (Japan) | 821 | |
29,880 | PLDT Inc. (Philippines) | 771 | |
35,904 | Rogers Communications Inc. (Canada) | 1,849 | |
165,248 | SmarTone Telecommunications Holdings Ltd. (Hong Kong) | 230 | |
287,397 | Vodafone Group plc (United Kingdom) | 540 | |
1,903,481 | Vodafone Idea Ltd. (India)* | 995 | |
8,136 | |||
TOTAL COMMON STOCKS | |||
(Cost $698,461) | 644,947 | ||
PREFERRED STOCKS—1.5% | |||
AEROSPACE & DEFENSE—0.0% | |||
10,435,008 | Rolls Royce Holdings plc C Shares (United Kingdom)* | 13 x | |
AUTOMOBILES—0.4% | |||
13,916 | Volkswagen AG (Germany) | 2,338 | |
BANKS—0.6% | |||
144,491 | Banco Bradesco SA (Brazil)* | 1,332 |
PREFERRED STOCKS—Continued | |||
Shares | Value | ||
BANKS—Continued | |||
1,742,802 | Grupo Aval Acciones y Valores SA (Colombia) | $ 612 | |
595,742 | Itausa - Investimentos Itau SA (Brazil) | 1,799 | |
3,743 | |||
TEXTILES, APPAREL & LUXURY GOODS—0.5% | |||
868,454 | Alpargatas SA (Brazil)* | 3,545 | |
TOTAL PREFERRED STOCKS | |||
(Cost $9,607) | 9,639 | ||
SHORT TERM INVESTMENTS—0.4% | |||
(Cost $2,785) | |||
INVESTMENT COMPANY - SECURITIES LENDING INVESTMENT FUND —0.4% | |||
2,785,435 | State Street Navigator Securities Lending Government Money Market Portfolio (1 day yield of 2.190%) | 2,785 | |
TOTAL INVESTMENTS—98.2% | |||
(Cost $710,853) | 657,371 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—1.8% | 12,345 | ||
TOTAL NET ASSETS—100.0% | $669,716 |
RIGHTS/WARRANTS OPEN AT OCTOBER 31, 2018
Description | No. of Contracts | Strike Price | Expiration Date | Cost (000s) | Value (000s) | |||||
Banco Santander SA | 60,640 | EUR — 4 | 11/13/2018 | $ 3 | $2 |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of October 31, 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 | ||||||||
Africa | $ — | $ 12,997 | $— | $ 12,997 | ||||
Europe | 8,074 | 310,894 | — | 318,968 | ||||
Latin America | 24,721 | 5,944 | — | 30,665 | ||||
Middle East/Central Asia | — | 6,124 | — | 6,124 | ||||
North America | 46,576 | — | — | 46,576 | ||||
Pacific Basin | 9,271 | 220,346 | — | 229,617 | ||||
Preferred Stocks | ||||||||
Europe | — | 2,338 | 13 | 2,351 | ||||
Latin America | 7,288 | — | — | 7,288 | ||||
Short-Term Investments | ||||||||
Investment Company-Securities Lending Investment Fund | 2,785 | — | — | 2,785 | ||||
Total Investments in Securities | $98,715 | $558,643 | $ 13 | $657,371 | ||||
Financial Derivative Instruments - Assets | ||||||||
Rights/Warrants | $ 2 | $ — | $— | $ 2 | ||||
Total Investments | $98,717 | $558,643 | $ 13 | $657,373 |
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.
20
Harbor Diversified International All Cap 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 year ended October 31, 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 10/31/2018w (000s) | |||||||||
Preferred Stocks | $5 | $13 | $(5) | $— | $— | $— | $— | $— | $13 |
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 10/31/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Preferred Stocks | ||||||||
Rolls Royce Holdings plc C Shares (United Kingdom)* | $13 | Market Approach | Pre-Traded Price | GBP 0.001 |
* | 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 October 31, 2018, the aggregate value of these securities was $9,105 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. SDR after the name of a holding stands for Swedish Depository Receipts representing ownership of foreign securities in Sweden. | ||
4 | Rights are redeemable for 1 ordinary share per 123 rights. | ||
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 10/31/2018 (000s) | ||
Preferred Stocks | $– | ||
x | Fair valued in accordance with Harbor Funds Valuation Procedures. | ||
EUR | Euro | ||
GBP | British Pound |
The accompanying notes are an integral part of the Financial Statements.
21
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
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
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
In equity markets, the last twelve months have been characterized by a great deal of uncertainty, and the period ended with particular weakness in October. Global influences on the markets during the period have included concern over the path of U.S. interest rate rises, the trade disputes between the U.S. and China, and continued uncertainty over Brexit. The period has also seen weakness in some of the emerging markets, including Turkey, Brazil, and Argentina, and some countries within the Eurozone have seen populist governments garnering increasing support, most recently in Italy.
Performance
Harbor International Growth Fund returned –11.75% (Institutional Class), –11.74% (Retirement Class), -12.03% (Administrative Class), and –12.12% (Investor Class) for the 12-month period ended October 31, 2018, underperforming the -8.24% return of the MSCI All Country World Ex. U.S. (ND) Index (all international and global returns are in U.S. Dollars).
We remain focused on the bottom-up analysis of company fundamentals rather than on wider economic or market-related issues. We try not to become distracted by short-term news, preferring to focus on finding good quality stocks that will outperform over the long term. The Fund’s performance over the period was primarily driven by stock selection.
At a regional level, our approach resulted in the Fund having overweight positions relative to the benchmark in developed Asia, the U.K. and Emerging Markets. The Fund was underweight in Canada and Continental Europe. Developed Asia, particularly Japan, was the largest equity contributor to relative performance, while Continental Europe was the largest detractor.
In terms of sectoral exposures, the Fund was most overweight in Consumer Discretionary, Information Technology, and Consumer Staples stocks. The main underweight sectors for the period were Energy, Financials and Materials. Stock selection in Financials and Consumer Staples helped relative performance. The largest detracting sectors were Consumer Discretionary and Energy; again, this was because of stock selection.
Our regional and sectoral positions are outputs of our bottom-up investment process. Given this fundamental approach, it is particularly appropriate to look at the individual companies which impacted performance. Among the largest performance detractors during the period at the stock level were Suruga Bank, JD.com and Capita. Shiseido, Hargreaves Lansdown, and Pigeon were a few of the larger contributors to performance during period.
Suruga Bank is a bank based in Japan. In mid-2018, allegations surfaced of malpractice in the bank’s lending. As more information became available it was clear that this malpractice was widespread and undermined the case for investing in Suruga Bank. We decided to sell the holding in its entirety. JD.com, the Chinese online retailer remains a holding in the Fund. The recent past has seen serious allegations emerge against the CEO. It is not yet clear whether these accusations have any substance. Therefore, we are monitoring the situation closely. The British outsourcing company Capita was sold during the period. This company encountered a series of operational difficulties, made worse by changes to its management structure. Following a review of the investment case and conversations with management, we concluded that, in our view, the issues facing the company were considerable and that they would be challenging to remedy.
22
Harbor International Growth Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the MSCI All Country World Ex. U.S. (ND) Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor International Growth Fund | ||||||||
Institutional Class | -11.75% | 2.35% | 7.00% | |||||
Retirement Class1 | -11.74 | 2.39 | 7.02 | |||||
Administrative Class | -12.03 | 2.07 | 6.72 | |||||
Investor Class | -12.12 | 1.97 | 6.59 | |||||
Comparative Index | ||||||||
MSCI All Country World Ex. U.S. (ND)1 | -8.24% | 1.63% | 6.92% |
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.
Shiseido is a leading Japanese manufacturer of cosmetics products. The company has focused on China, and was rewarded by higher sales in the country. The cosmetics industry in general was an area of growth in the emerging markets. Shiseido has been able to ride this wave while also improving operationally, increasing its profitability. Hargreaves Lansdown, the UK online investment platform, continued to perform well over the period. This company is the dominant player in the market for individual investors in the U.K. and has been able to solidify its position through a strong brand, and ease of use for its customers. We are pleased to see Hargreaves Lansdown maintain its strong presence in the U.K. Defined Contribution market. Pigeon manufactures and sells baby feeding bottles, pacifiers and other baby products. Though the company is based in Japan, its largest market by profits is China, where it dominates the high-end segment. The company has seen sales and profits rise considerably over the period and is continuing to take share in the vast Chinese market.
Outlook & Strategy
The last twelve months have been quite eventful in economic and political terms. That said, our focus remains on finding quality companies that we believe can grow in the long term. We try not to be unnecessarily swayed by short-term news, but rather we focus on continuing to find interesting ideas for the Fund. We believe that exciting opportunities will continue to be available, and that our bottom-up approach will continue to serve investors well over the long term.
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.
23
Harbor International Growth Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 3.1% |
❷ | Hargreaves Lansdown plc | 2.6% |
❸ | Alibaba Group Holding Ltd. ADR | 2.4% |
❹ | Cochlear Ltd. | 2.3% |
❺ | Naspers Ltd. | 2.3% |
❻ | Shiseido Co. Ltd. | 2.3% |
❼ | Novozymes AS | 2.1% |
❽ | adidas AG | 2.0% |
❾ | MS&AD Insurance Group Holdings Inc. | 2.0% |
❿ | United Overseas Bank Ltd. | 1.9% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
24
Harbor International Growth Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—96.3% | |||
Shares | Value | ||
AUTO COMPONENTS—0.8% | |||
96,800 | Denso Corp. (Japan) | $ 4,318 | |
AUTOMOBILES—1.1% | |||
567,009 | Mahindra & Mahindra Ltd. GDR (India)1 | 5,854 | |
BANKS—4.5% | |||
1,064,700 | Public Bank BHD (Malaysia) | 6,263 | |
668,315 | Svenska Handelsbanken AB (Sweden) | 7,265 | |
566,627 | United Overseas Bank Ltd. (Singapore) | 10,018 | |
23,546 | |||
BEVERAGES—2.9% | |||
5,282,200 | Thai Beverage PCL (Thailand) | 2,386 | |
590,381 | Treasury Wine Estates Ltd. (Australia) | 6,355 | |
1,622,000 | Tsingtao Brewery Co. Ltd. (China) | 6,414 | |
15,155 | |||
BUILDING PRODUCTS—1.0% | |||
126,267 | Kingspan Group plc (Ireland) | 5,486 | |
CAPITAL MARKETS—3.3% | |||
578,375 | Hargreaves Lansdown plc (United Kingdom) | 13,788 | |
837,302 | Jupiter Fund Management plc (United Kingdom) | 3,604 | |
17,392 | |||
CHEMICALS—4.8% | |||
468,585 | Asian Paints Ltd. (India) | 7,799 | |
173,738 | Johnson Matthey plc (United Kingdom) | 6,587 | |
225,453 | Novozymes AS (Denmark) | 11,134 | |
25,520 | |||
COMMERCIAL SERVICES & SUPPLIES—0.9% | |||
389,836 | HomeServe plc (United Kingdom) | 4,732 | |
DIVERSIFIED FINANCIAL SERVICES—1.5% | |||
180,484 | Investor AB Class B (Sweden) | 7,820 | |
ELECTRICAL EQUIPMENT—2.4% | |||
117,428 | Legrand SA (France) | 7,668 | |
38,800 | Nidec Corp. (Japan) | 4,984 | |
12,652 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.7% | |||
738,191 | Hon Hai Precision Industry Co. Ltd. GDR (Taiwan)*,1 | 3,868 | |
10,600 | Keyence Corp. (Japan) | 5,178 | |
9,046 | |||
ENERGY EQUIPMENT & SERVICES—1.1% | |||
650,690 | John Wood Group plc (United Kingdom) | 5,930 | |
ENTERTAINMENT—1.4% | |||
48,935 | Spotify Technology SA (Sweden)* | 7,325 | |
FOOD & STAPLES RETAILING—5.3% | |||
602,436 | Clicks Group Ltd. (South Africa) | 7,674 | |
472,629 | Jeronimo Martins SGPS SA (Portugal) | 5,801 | |
2,757,990 | Puregold Price Club Inc. (Philippines) | 2,095 | |
385,000 | Raia Drogasil SA (Brazil)* | 6,499 | |
56,900 | Sugi Holdings Co. Ltd. (Japan) | 2,605 | |
1,316,000 | Wal-Mart de Mexico SAB de CV (Mexico) | 3,365 | |
28,039 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HEALTH CARE EQUIPMENT & SUPPLIES—3.4% | |||
95,617 | Cochlear Ltd. (Australia) | $ 12,049 | |
174,500 | Olympus Corp. (Japan) | 5,816 | |
17,865 | |||
HOUSEHOLD PRODUCTS—1.6% | |||
201,800 | Pigeon Corp. (Japan) | 8,535 | |
INDUSTRIAL CONGLOMERATES—1.6% | |||
63,400 | Jardine Matheson Holdings Ltd. (Singapore) | 3,661 | |
138,100 | Jardine Strategic Holdings Ltd. (Singapore) | 4,639 | |
8,300 | |||
INSURANCE—6.4% | |||
1,268,800 | AIA Group Ltd. (Hong Kong) | 9,652 | |
11,860 | Fairfax Financial Holdings Ltd. (Canada) | 5,763 | |
355,700 | MS&AD Insurance Group Holdings Inc. (Japan) | 10,684 | |
31,843 | Samsung Fire & Marine Insurance Co. Ltd. (South Korea) | 7,792 | |
33,891 | |||
INTERACTIVE MEDIA & SERVICES—6.5% | |||
1,458,036 | Auto Trader Group plc (United Kingdom)2 | 7,619 | |
41,919 | Baidu Inc. ADR (China)*,3 | 7,967 | |
332,800 | Kakaku.com Inc. (Japan) | 6,027 | |
24,555 | Naver Corp. (South Korea) | 2,473 | |
1,729,180 | Rightmove plc (United Kingdom) | 9,982 | |
34,068 | |||
INTERNET & DIRECT MARKETING RETAIL—7.6% | |||
89,597 | Alibaba Group Holding Ltd. ADR (China)*,3 | 12,748 | |
81,887 | ASOS plc (United Kingdom)* | 5,705 | |
148,503 | Ctrip.com International Ltd. ADR (China)*,3 | 4,942 | |
263,620 | JD.com Inc. ADR (China)*,3 | 6,200 | |
77,096 | MakeMyTrip Ltd. (India)* | 1,911 | |
224,513 | Zalando SE (Germany)*,2 | 8,679 | |
40,185 | |||
IT SERVICES—1.3% | |||
48,400 | Shopify Inc. Class A (Canada)* | 6,686 | |
LEISURE PRODUCTS—1.2% | |||
47,000 | Shimano Inc. (Japan) | 6,419 | |
LIFE SCIENCES TOOLS & SERVICES—1.5% | |||
14,562 | Mettler-Toledo International Inc. (Switzerland)* | 7,963 | |
MACHINERY—7.4% | |||
187,584 | Atlas Copco AB Class A (Sweden)* | 4,637 | |
156,158 | Atlas Copco AB Class B (Sweden)* | 3,577 | |
167,244 | Epiroc AB Class A (Sweden)* | 1,468 | |
425,397 | Epiroc AB Class B (Sweden)* | 3,500 | |
132,600 | Kone OYJ (Finland) | 6,454 | |
40,099 | Schindler Holding AG (Switzerland) | 8,456 | |
25,400 | SMC Corp. (Japan) | 8,096 | |
130,129 | Weir Group plc (United Kingdom) | 2,633 | |
38,821 | |||
MEDIA—2.3% | |||
70,247 | Naspers Ltd. (South Africa) | 12,321 | |
PERSONAL PRODUCTS—3.3% | |||
83,900 | Kao Corp. (Japan) | 5,581 | |
187,900 | Shiseido Co. Ltd. (Japan) | 11,856 | |
17,437 |
25
Harbor International Growth Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—Continued | |||
Shares | Value | ||
PHARMACEUTICALS—1.0% | |||
116,499 | Novo Nordisk AS (Denmark) | $ 5,031 | |
PROFESSIONAL SERVICES—2.3% | |||
107,497 | Intertek Group plc (United Kingdom) | 6,441 | |
450,694 | SEEK Ltd. (Australia) | 5,726 | |
12,167 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—7.2% | |||
246,600 | Advantest Corp. (Japan) | 4,552 | |
46,443 | ASML Holding NV (Netherlands) | 8,000 | |
361,720 | Infineon Technologies AG (Germany) | 7,248 | |
422,015 | Taiwan Semiconductor Manufacturing Co. Ltd. ADR (Taiwan)3 | 16,079 | |
14,113 | U-Blox Holding AG (Switzerland) | 1,768 | |
37,647 | |||
SPECIALTY RETAIL—1.9% | |||
352,926 | Industria de Diseno Textil SA (Spain) | 9,947 | |
TEXTILES, APPAREL & LUXURY GOODS—4.9% | |||
45,284 | adidas AG (Germany) | 10,649 | |
247,583 | Burberry Group plc (United Kingdom) | 5,729 | |
125,484 | Cie Financiere Richemont SA (Switzerland) | 9,172 | |
25,550 | |||
THRIFTS & MORTGAGE FINANCE—1.2% | |||
252,836 | Housing Development Finance Corp. Ltd. (India) | 6,042 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
WIRELESS TELECOMMUNICATION SERVICES—1.0% | |||
65,300 | SoftBank Group Corp. (Japan) | $ 5,168 | |
TOTAL COMMON STOCKS | |||
(Cost $513,735) | 506,858 | ||
PREFERRED STOCKS—1.6% | |||
(Cost $7,631) | |||
HEALTH CARE EQUIPMENT & SUPPLIES—1.6% | |||
58,193 | Sartorius AG (Germany) | 8,417 | |
SHORT TERM INVESTMENTS—2.3% | |||
(Cost $12,218) | |||
INVESTMENT COMPANY - SECURITIES LENDING INVESTMENT FUND —2.3% | |||
12,218,270 | State Street Navigator Securities Lending Government Money Market Portfolio (1 day yield of 2.190%) | 12,218 | |
TOTAL INVESTMENTS—100.2% | |||
(Cost $533,584) | 527,493 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(0.2)% | (1,212) | ||
TOTAL NET ASSETS—100.0% | $526,281 |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of October 31, 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 | $ — | $ 19,995 | $— | $ 19,995 | ||||
Europe | 15,288 | 206,510 | — | 221,798 | ||||
Latin America | 9,864 | — | — | 9,864 | ||||
Middle East/Central Asia | 1,911 | 19,695 | — | 21,606 | ||||
North America | 12,449 | — | — | 12,449 | ||||
Pacific Basin | 51,804 | 169,342 | — | 221,146 | ||||
Preferred Stocks | ||||||||
Europe | — | 8,417 | — | 8,417 | ||||
Short-Term Investments | ||||||||
Investment Company-Securities Lending Investment Fund | 12,218 | — | — | 12,218 | ||||
Total Investments in Securities | $103,534 | $423,959 | $— | $527,493 |
There were no Level 3 holdings at October 31, 2018 or 2017.
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.
26
Harbor International Growth Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
* | 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. SDR after the name of a holding stands for Swedish Depository Receipts representing ownership of foreign securities in Sweden. |
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 October 31, 2018, the aggregate value of these securities was $16,298 or 3% of net assets. |
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. |
The accompanying notes are an integral part of the Financial Statements.
27
Harbor International Small Cap Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Baring International Investment Limited
20 Old Bailey
London, EC4M 7BF
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
During the fiscal year ended October 31, 2018 the MSCI EAFE Small Cap (ND) Index fell 7.81% (all international and global returns are in U.S. Dollars). For much of the fiscal year, the fear of trade and tariff wars, particularly between the U.S. and China, led to uncertainty and increased volatility in equity markets. More recently, global equity markets experienced a broad sell-off in October, as continuing concerns surrounding ongoing trade tensions were amplified by weakness in U.S. Treasury bonds, resulting in bond yields rising. The result was widespread profit-taking across asset classes, stocks and sectors which had previously been performing strongly.
In this context the returns from the countries and sectors that constitute the MSCI EAFE Small Cap (ND) Index were generally negative, reflecting a broader trend of volatility and widespread profit-taking driven by macroeconomic and geopolitical uncertainty. Energy stocks were a key outlier to this trend, as companies benefitted from a higher oil price and increasing capex in the industry.
Performance
Harbor International Small Cap Fund underperformed the return of the MSCI EAFE Small Cap (ND) Index during the period. The Fund returned -9.83% (Institutional Class), -9.71% (Retirement Class), -10.06% (Administrative Class), and -10.08% (Investor Class) compared to the MSCI EAFE Small Cap (ND) Index return of -7.81%.
The relative return over the period was not as strong as we would hope and primarily reflects stock selection decisions in the U.K. and the Netherlands, while more broadly Continental Europe contributed positively to returns. Country and sector weightings within the Fund, which are the result of stock selection decisions, had a limited impact on the relative performance over the period.
Our investment strategy is to focus on bottom up stock selection, using a quality growth at a reasonable price analysis framework. In other words, we look to identify companies with quality characteristics such as strong balance sheets and high levels of profitability and earnings growth potential, where the current valuation does not fully reflect these attributes. The region and sector positioning of the Fund will be dictated by these individual stock selection decisions rather than by asset allocation decisions.
The largest detractors to Fund performance were Arrow Global, a U.K.-based debt management company, and Besi, a Dutch semiconductor company. Weak performance from Arrow reflected concerns around the increasing levels of debt within the company, increasing purchase prices for acquired debt portfolios and the short-term cash impact of a newly announced cost efficiency program; the holding was subsequently sold. Underperformance from Besi reflected widespread profit-taking in companies exposed to the semiconductor sector amid fears that growth in demand for components from the smartphone industry has stalled, as smartphone companies struggle to develop exciting new products.
Norwegian oil services company TGS was the most significant contributor to returns as the company indicated that demand for their seismic surveys from oil companies appeared stronger than had been expected. More broadly, the Fund experienced positive performance from several Japanese companies, including retail space manager Marui and office equipment distributor Hikari Tsushin.
28
Harbor International Small Cap Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 02/01/2016 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the MSCI EAFE Small Cap (ND) Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | 5 Years | Annualized | ||||||
Life of Fund | ||||||||
Harbor International Small Cap Fund | ||||||||
Institutional Class1 | -9.83% | N/A | 9.03% | |||||
Retirement Class1 | -9.71 | N/A | 9.11 | |||||
Administrative Class1 | -10.06 | N/A | 8.75 | |||||
Investor Class1 | -10.08 | N/A | 8.66 | |||||
Comparative Index | ||||||||
MSCI EAFE Small Cap (ND)1 | -7.81% | N/A | 10.14% |
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.
Geographic and sector allocations within the Fund are dependent on bottom-up stock selection. In this context, therefore, the Fund changes during the year reflect profit-taking and actively disposing of holdings which had disappointed our expectations, with reinvestments being made in companies in whose prospects we see greater potential. As a result of these investments the Fund’s exposure to the Financials and Health Care sectors has increased. The Fund remains over-weight relative to the index in the Industrials sector companies, although this over-weight position has declined slightly.
Japanese stock selection made a positive contribution during the year and we continue to be enthusiastic about the outlook for the Japanese stocks in the Fund. However, as is part of our ongoing ‘review’ process, a number of investment cases were reappraised during the year and we decided to sell positions where we were no longer comfortable that our investment case was materializing as expected. During the year, we sold our holdings in automotive supplier Mabuchi Motor, electricity supplier E-Rex, and specialist printing group Sato. Other Japanese companies were also sold to lock in profits, such as high precision engineering company MinebeaMitsumi, temporary employment group Persol, and Hikari Tsushin, mentioned above. These moves contributed to the fall in the weight of our Japanese holdings relative to the index over the course of the year.
We continue to purchase new holdings in companies which we believe are attractively valued and whose strategic positioning and competitive strengths can drive sustained improvements in their profitability and returns. Companies purchased in recent months have typically been either very domestically focused, such as Chiba Bank in Japan, or Cranswick in the U.K., or have significant domestic regional exposure and American operations, such as Fagron, the Belgian pharmaceutical compounding business, or Loomis, the Swedish cash-handling group.
Outlook & Strategy
Across international smaller companies, we continued to see economic expansion in 2018, albeit more modest than in 2017. Short-term market movements towards the end of the fiscal year have been severe, and certainly political and macro-level developments such as political tensions and ongoing trade disputes retain the capacity to upset equity markets; however, we believe international smaller companies remain reasonably valued relative to larger companies, and relative to other asset classes. Consequently, we continue to take a positive view on the stock selection opportunities within the asset class.
Looking forward, therefore, we maintain our quality growth at a reasonable price investment approach, and aim to identify those companies whose valuations do not reflect their underlying competitive and balance sheet strengths, and their potential to generate profit growth through further improvements in their returns and business models. Our view is that in the long term this approach should help mitigate the potential risks of investing in smaller companies and allow us to identify companies with undiscounted growth opportunities and attractive valuations. A continuing area of focus, particularly for the companies held in the Fund, will be the resilience of their profit margins given the input cost pressure challenges posed by higher raw material prices, and the likelihood of rising labor costs.
1 | The “Life of Fund” return as shown reflects the period 02/01/2016 through 10/31/2018. |
29
Harbor International Small Cap Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
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.
30
Harbor International Small Cap Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | ABC-Mart Inc. | 1.3% |
❷ | HomeServe plc | 1.2% |
❸ | Topdanmark AS | 1.2% |
❹ | Applus Services SA | 1.1% |
❺ | B&M European Value Retail SA | 1.1% |
❻ | Chiba Bank Ltd. | 1.1% |
❼ | Euronext NV | 1.1% |
❽ | JD Sports Fashion plc | 1.1% |
❾ | Kyowa Exeo Corp. | 1.1% |
❿ | Sanwa Holdings Corp. | 1.1% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
31
Harbor International Small Cap Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—94.5% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—1.0% | |||
170,767 | Senior plc (United Kingdom) | $ 595 | |
AUTO COMPONENTS—0.6% | |||
16,800 | Nifco Inc. (Japan) | 383 | |
BANKS—3.6% | |||
10,476 | Bawag Group AG (Austria)*,1 | 452 | |
105,800 | Chiba Bank Ltd. (Japan) | 669 | |
24,200 | Fukuoka Financial Group Inc. (Japan) | 595 | |
353,740 | Unicaja Banco SA (Spain)*,1 | 453 | |
2,169 | |||
BUILDING PRODUCTS—1.1% | |||
56,500 | Sanwa Holdings Corp. (Japan) | 663 | |
CAPITAL MARKETS—2.2% | |||
10,766 | Euronext NV (Netherlands)1 | 662 | |
52,016 | Intermediate Capital Group plc (United Kingdom) | 632 | |
1,294 | |||
CHEMICALS—5.3% | |||
102,627 | Essentra plc (United Kingdom) | 500 | |
63,510 | Hexpol AB (Sweden) | 588 | |
209,555 | Incitec Pivot Ltd. (Australia) | 581 | |
19,000 | NOF Corp. (Japan) | 538 | |
12,800 | Okamoto Industries Inc. (Japan) | 577 | |
65,804 | Synthomer plc (United Kingdom) | 373 | |
3,157 | |||
COMMERCIAL SERVICES & SUPPLIES—5.9% | |||
18,100 | AEON Delight Co. Ltd. (Japan) | 604 | |
6,285 | Befesa SA (Luxembourg)*,1 | 279 | |
96,770 | Biffa plc (United Kingdom)1 | 290 | |
8,562 | Bilfinger SE (Germany) | 373 | |
477,194 | Cleanaway Waste Management Ltd. (Australia) | 610 | |
58,152 | HomeServe plc (United Kingdom) | 706 | |
20,778 | Loomis AB (Sweden) | 643 | |
3,505 | |||
CONSTRUCTION & ENGINEERING—4.9% | |||
22,900 | COMSYS Holdings Corp. (Japan) | 637 | |
10,610 | FLSmidth & Co. A/S (Denmark) | 557 | |
24,700 | Kyowa Exeo Corp. (Japan) | 666 | |
96,083 | Maire Tecnimont SpA (Italy) | 420 | |
30,500 | Toshiba Plant Systems & Services Corp. (Japan) | 623 | |
2,903 | |||
CONSTRUCTION MATERIALS—1.1% | |||
113,461 | Marshalls plc (United Kingdom) | 624 | |
CONSUMER FINANCE—1.0% | |||
7,231 | Cembra Money Bank AG (Switzerland) | 606 | |
CONTAINERS & PACKAGING—3.0% | |||
114,782 | DS Smith plc (United Kingdom) | 576 | |
240,696 | Orora Ltd. (Australia) | 573 | |
63,395 | RPC Group plc (United Kingdom) | 618 | |
1,767 | |||
DIVERSIFIED CONSUMER SERVICES—0.8% | |||
626,000 | Fu Shou Yuan International Group Ltd. (China) | 481 | |
DIVERSIFIED FINANCIAL SERVICES—0.7% | |||
8,872 | KBC Ancora NV (Belgium) | 410 |
COMMON STOCKS—Continued | |||
��� Shares | Value | ||
DIVERSIFIED TELECOMMUNICATION SERVICES—1.0% | |||
29,940 | DNA OYJ (Finland) | $ 587 | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.0% | |||
5,333 | Barco NV (Belgium) | 607 | |
ENERGY EQUIPMENT & SERVICES—2.0% | |||
65,935 | Hunting plc (United Kingdom) | 566 | |
18,246 | TGS-NOPEC Geophysical Co. (Norway) | 609 | |
1,175 | |||
ENTERTAINMENT—0.8% | |||
9,331 | Kinepolis Group NV (Belgium) | 501 | |
FOOD & STAPLES RETAILING—2.0% | |||
3,000 | Cosmos Pharmaceutical Corp. (Japan) | 613 | |
23,379 | MARR SpA (Italy) | 566 | |
1,179 | |||
FOOD PRODUCTS—5.9% | |||
37,302 | AAK AB (Sweden) | 562 | |
17,200 | Calbee Inc. (Japan) | 571 | |
135,356 | Costa Group Holdings Ltd. (Australia) | 587 | |
16,151 | Cranswick plc (United Kingdom) | 596 | |
10,900 | Ezaki Glico Co. Ltd. (Japan) | 543 | |
73,157 | Tate & Lyle plc (United Kingdom) | 629 | |
3,488 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—1.8% | |||
5,702 | Carl Zeiss Meditec AG (Germany) | 467 | |
6,514 | Diasorin SpA (Italy) | 618 | |
1,085 | |||
HEALTH CARE PROVIDERS & SERVICES—3.3% | |||
23,354 | Amplifon SpA (Italy) | 413 | |
68,864 | Attendo AB (Sweden)1 | 623 | |
22,055 | Fagron NV (Belgium) | 359 | |
70,764 | UDG Healthcare plc (Ireland) | 571 | |
1,966 | |||
HEALTH CARE TECHNOLOGY—1.0% | |||
11,006 | CompuGroup Medical SE (Germany) | 622 | |
HOTELS, RESTAURANTS & LEISURE—3.2% | |||
14,949 | Corporate Travel Management Ltd. (Australia) | 213 | |
84,808 | Dalata Hotel Group plc (Ireland)* | 524 | |
63,844 | Scandic Hotels Group AB (Sweden)1 | 584 | |
71,201 | SSP Group plc (United Kingdom) | 607 | |
1,928 | |||
HOUSEHOLD DURABLES—1.0% | |||
41,000 | Sumitomo Forestry Co. Ltd. (Japan) | 608 | |
HOUSEHOLD PRODUCTS—0.9% | |||
12,900 | Pigeon Corp. (Japan) | 546 | |
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—0.4% | |||
286,000 | China Everbright Greentech Ltd. (Hong Kong)*,1 | 206 | |
INSURANCE—3.2% | |||
87,965 | Beazley plc (United Kingdom) | 591 | |
74,382 | Storebrand ASA (Norway) | 618 | |
14,826 | Topdanmark AS (Denmark) | 705 | |
1,914 |
32
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—3.8% | |||
59,758 | Indra Sistemas SA (Spain)* | $ 591 | |
112,302 | Link Administration Holdings Ltd. (Australia) | 598 | |
22,000 | Net One Systems Co. Ltd. (Japan) | 461 | |
14,100 | SCSK Corp. (Japan) | 597 | |
2,247 | |||
LEISURE PRODUCTS—1.0% | |||
51,608 | Technogym SpA (Italy)*,1 | 564 | |
LIFE SCIENCES TOOLS & SERVICES—1.6% | |||
8,005 | Gerresheimer AG (Germany) | 564 | |
1,788 | Tecan Group AG (Switzerland) | 404 | |
968 | |||
MACHINERY—7.7% | |||
2,148 | Bucher Industries AG (Switzerland) | 592 | |
334,000 | CIMC Enric Holdings Ltd. (Hong Kong) | 257 | |
39,300 | Fuji Corp./Aichi (Japan)* | 548 | |
180,000 | Haitian International Holdings Ltd. (China) | 354 | |
138,385 | Morgan Advanced Materials plc (United Kingdom) | 487 | |
11,977 | Norma Group SE (Germany) | 647 | |
29,100 | OSG Corp. (Japan) | 600 | |
23,300 | THK Co. Ltd. (Japan) | 515 | |
25,440 | Valmet OYJ (Finland) | 579 | |
4,579 | |||
MEDIA—0.6% | |||
6,961 | Stroeer SE & Co. KGAA (Germany) | 364 | |
MULTILINE RETAIL—2.1% | |||
122,332 | B&M European Value Retail SA (United Kingdom) | 651 | |
28,400 | Marui Group Co. Ltd. (Japan) | 611 | |
1,262 | |||
MULTI-UTILITIES—0.9% | |||
199,793 | Hera SpA (Italy) | 551 | |
OIL, GAS & CONSUMABLE FUELS—1.9% | |||
7,136 | Gaztransport Et Technigaz SA (France) | 527 | |
12,946 | Koninklijke Vopak NV (Netherlands) | 586 | |
1,113 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
PROFESSIONAL SERVICES—4.9% | |||
25,286 | AF AB (Sweden) | $ 542 | |
48,067 | Applus Services SA (Spain) | 653 | |
295,617 | Hays plc (United Kingdom) | 619 | |
24,000 | Nihon M&A Center Inc. (Japan) | 575 | |
9,800 | TechnoPro Holdings Inc. (Japan) | 511 | |
2,900 | |||
REAL ESTATE MANAGEMENT & DEVELOPMENT—2.1% | |||
11,500 | Katitas Co. Ltd. (Japan) | 279 | |
9,014 | Nexity SA (France) | 431 | |
24,000 | Relo Group Inc. (Japan) | 566 | |
1,276 | |||
SPECIALTY RETAIL—4.0% | |||
12,900 | ABC-Mart Inc. (Japan) | 754 | |
47,300 | BIC Camera Inc. (Japan) | 625 | |
12,811 | Grandvision NV (Netherlands)1 | 323 | |
129,176 | JD Sports Fashion plc (United Kingdom) | 673 | |
2,375 | |||
THRIFTS & MORTGAGE FINANCE—2.7% | |||
14,998 | Aareal Bank AG (Germany) | 558 | |
27,100 | Aruhi Corp. (Japan) | 462 | |
107,189 | Paragon Banking Group plc (United Kingdom) | 583 | |
1,603 | |||
TRADING COMPANIES & DISTRIBUTORS—2.5% | |||
8,516 | IMCD Group NV (Netherlands) | 577 | |
12,499 | Indutrade AB (Sweden) | 300 | |
17,800 | Kanamoto Co. Ltd. (Japan) | 595 | |
1,472 | |||
TOTAL COMMON STOCKS | |||
(Cost $58,026) | 56,243 | ||
TOTAL INVESTMENTS—94.5% | |||
(Cost $58,026) | 56,243 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—5.5% | 3,256 | ||
TOTAL NET ASSETS—100.0% | $59,499 |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of October 31, 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 | $— | $35,248 | $— | $35,248 | ||||
Pacific Basin | — | 20,995 | — | 20,995 | ||||
Total Investments in Securities | $— | $56,243 | $— | $56,243 |
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.
33
Harbor International Small Cap 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 year ended October 31, 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 10/31/2018 (000s) | |||||||||
Preferred Stocks | $6 | $— | $(6) | $— | $— | $— | $— | $— | $— |
* | Non-income producing security |
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 October 31, 2018, the aggregate value of these securities was $4,436 or 7% of net assets. |
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 accompanying notes are an integral part of the Financial Statements.
34
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
Emerging market volatility combined with the recent U.S. sell-off led to a steep decline in the MSCI All Country World (ND) Index (the “Index”) in October, erasing over 10 percentage points from the Index’s positive return through September 30th. Emerging markets officially entered a bear market, with the MSCI Emerging Markets (ND) Index falling 20 percent since January. A number of factors weighed on sentiment, including slowing regional growth, trade pressures, and a strong U.S. dollar. Within the U.S., healthy economic fundamentals have largely continued, fueled by strong corporate earnings growth and expectations for robust GDP growth. Overall, the U.S. economy appears sound, as strength in consumer spending, the labor market, and manufacturing and business investments, are expected to continue, albeit at a slowing rate over time. Despite healthy economic fundamentals and robust corporate earnings growth, which saw earnings jump 24 percent in the second quarter, we have seen a broad-based sell-off, as concerns about increasing trade tensions, valuations, and the economic cycle dampened stock returns.
In our view, the global volatility we witnessed over the past month has obscured the long-term wealth creation opportunity of the relatively few resilient businesses that are poised to produce above-average earnings growth across economic cycles. As business-focused investors with long investment horizons, we believe it is imperative to look past external factors and short-term stock price movements not explained by fundamentals. Market and macro environments change, and it is impossible to predict which sectors and countries will lead or lag on a short-term basis. Rather, we continue to believe that investing in leading franchises capable of generating above-average earnings growth across economic cycles is the most prudent way to add value for clients over time.
Performance
Over the 12-month period ending October 31, 2018, Harbor Global Leaders Fund returned 9.90% (Institutional Class), 10.01% (Retirement Class), 9.61% (Administrative Class), and 9.50% (Investor Class) versus the -0.52% return for the Index (all international and global returns are in U.S. Dollars). We believe that strong fundamentals were the primary drivers of investment results, as many businesses within the Fund surpassed consensus expectations for revenue and earnings growth.
On an absolute basis, the largest contributors to the Fund’s performance were Zoetis, Adobe, Visa, Ross Stores, and Safran. Visa continued to benefit from the long-term secular shift of paper-based payments to electronic forms, with around 80 percent of worldwide transactions still completed in cash. Payments volumes and processed transactions are growing in the low double-digits, driving Visa’s earnings growth in the high-teens to 20 percent range. Looking ahead over the next couple of years, we anticipate a few additional percentage points of growth to come from synergies resulting from the Visa Europe acquisition. Visa’s European operations had been mutually owned by European banks until Visa Inc. acquired them 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. We also believe that opportunities exist for Visa to extend its growth by addressing the largely paper-based business-to-business payments market, which is just as large as the consumer payments business. Through innovative debit and commercial credit card offerings, in our opinion, taking even a small percentage of this market should help Visa maintain its above-average growth for many years to come.
On an absolute basis, the largest detractors from the Fund’s performance were Alibaba, Inditex, Keyence, Fresenius Medical Care and Celgene. Alibaba’s business performed well over the latest fiscal year, but its share price has steadily declined since the end of the second quarter.
35
Harbor Global Leaders Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 03/01/2009 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the MSCI All Country World (ND) Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | Life of Fund | |||||||
Harbor Global Leaders Fund | ||||||||
Institutional Class1 | 9.90% | 8.35% | 16.60% | |||||
Retirement Class1,2 | 10.01 | 8.39 | 16.62 | |||||
Administrative Class1 | 9.61 | 8.08 | 16.31 | |||||
Investor Class1 | 9.50 | 7.95 | 16.17 | |||||
Comparative Index | ||||||||
MSCI All Country World (ND)1 | -0.52% | 6.15% | 12.68% |
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.
In terms of business results, the company continues to gain share in business-to-consumer ecommerce in China, maintain high margins in core commerce, and grow its leadership position in new, large opportunities such as grocery and cloud computing.
The ongoing strength in the business was not reflected in the stock price, primarily because of fears of a macroeconomic slowdown in China, which caused a broad-based sell-off in the Chinese internet space, and secondarily due to concerns about the impact on earnings growth from increasing investments in food delivery & hyperlocal logistics. While we have been hearing negative anecdotes about China’s economy, we believe they are shortsighted in nature, and that the impact on Alibaba will be relatively minor. Alibaba is benefiting from secular trends and increasing its monetization rate, so we believe it should grow well above the economic rate of China.
On food delivery & hyperlocal logistics, we are supportive of Alibaba’s investments, despite their expected drag on earnings growth for the next two quarters. We believe that, over time, the food delivery & hyperlocal logistics segment will become a large, highly profitable category that naturally consolidates to a monopoly or duopoly in major countries around the world. Alibaba has a natural advantage with its large volume of physical goods ecommerce orders generated over its network, which we believe should enable it to compete more effectively with its main competitor, Meituan.
Furthermore, while investments in the space could create an earnings headwind for the next couple of quarters, we believe profit growth from core ecommerce will be too large to be overshadowed by incremental investments in food delivery for long, and that Alibaba remains well positioned to deliver above-average earnings growth over both the medium and long term.
Outlook & Strategy
Looking ahead, we believe that businesses invested in by the Fund have potential to become much larger over the next five years, as their earnings growth compounds. We will accept their short-term share price volatility in order to potentially benefit from their long-term wealth creation opportunity. Our conviction in the Fund is a consequence of selecting businesses that we believe maintain resilient competitive advantages in promising business spaces, and as a result, can in our view deliver sustainable, above-average earnings growth over the long term.
Today, we believe we own leading businesses with substantial growth prospects that are independent of the economic environment. Therefore, we expect them to produce attractive earnings growth over the next five to ten years. If they deliver the earnings growth we expect, we believe share prices should follow.
1 | The “Life of Fund” return as shown reflects the period 03/01/2009 through 10/31/2018. |
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. |
36
Harbor Global Leaders Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
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.
37
Harbor Global Leaders Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Visa Inc. | 4.9% |
❷ | Safran SA | 4.7% |
❸ | Alimentation Couche-Tard Inc. | 4.5% |
❹ | Recruit Holdings Co. Ltd. | 4.1% |
❺ | Adobe Systems Inc. | 3.9% |
❻ | TransDigm Group Inc. | 3.9% |
❼ | Zoetis Inc. | 3.7% |
❽ | Salesforce.com Inc. | 3.5% |
❾ | HDFC Bank Ltd. ADR | 3.4% |
❿ | Starbucks Corp. | 3.3% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
REGION BREAKDOWN (% of investments)
(Excludes cash and short-term investments)
38
Harbor Global Leaders Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—99.2% | |||
Shares | Value | ||
AEROSPACE & DEFENSE—8.6% | |||
19,615 | Safran SA (France) | $ 2,535 | |
6,450 | TransDigm Group Inc. (United States)* | 2,130 | |
4,665 | |||
AUTO COMPONENTS—1.9% | |||
13,175 | Aptiv plc (United States) | 1,012 | |
BANKS—3.4% | |||
20,650 | HDFC Bank Ltd. ADR (India)1 | 1,836 | |
BEVERAGES—2.0% | |||
12,595 | Fomento Economico Mexicano SAB de CV ADR (Mexico)1 | 1,072 | |
BIOTECHNOLOGY—1.5% | |||
6,150 | CSL Ltd. (Australia) | 821 | |
CAPITAL MARKETS—4.4% | |||
22,225 | Intercontinental Exchange Inc. (United States) | 1,712 | |
4,525 | Moody's Corp. (United States) | 659 | |
2,371 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—3.3% | |||
3,630 | Keyence Corp. (Japan) | 1,773 | |
ENTERTAINMENT—1.4% | |||
14,100 | Live Nation Entertainment Inc. (United States)* | 737 | |
FOOD & STAPLES RETAILING—4.5% | |||
50,375 | Alimentation Couche-Tard Inc. (Canada) | 2,406 | |
HEALTH CARE EQUIPMENT & SUPPLIES—2.2% | |||
8,875 | EssilorLuxottica SA (France) | 1,212 | |
HEALTH CARE PROVIDERS & SERVICES—3.5% | |||
13,425 | Fresenius Medical Care AG & Co. KGaA (Germany) | 1,054 | |
3,175 | UnitedHealth Group Inc. (United States) | 830 | |
1,884 | |||
HOTELS, RESTAURANTS & LEISURE—4.9% | |||
219,325 | Sands China Ltd. (China) | 867 | |
30,770 | Starbucks Corp. (United States) | 1,793 | |
2,660 | |||
INSURANCE—2.0% | |||
138,800 | AIA Group Ltd. (Hong Kong) | 1,056 | |
INTERACTIVE MEDIA & SERVICES—4.3% | |||
1,450 | Alphabet Inc. Class A (United States)* | 1,581 | |
124,500 | Rightmove plc (United Kingdom) | 719 | |
2,300 | |||
INTERNET & DIRECT MARKETING RETAIL—4.9% | |||
11,125 | Alibaba Group Holding Ltd. ADR (China)*,1 | 1,583 | |
580 | Booking Holdings Inc. (United States)* | 1,087 | |
2,670 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
IT SERVICES—4.9% | |||
19,239 | Visa Inc. (United States) | $ 2,652 | |
MULTILINE RETAIL—4.7% | |||
13,575 | Dollar General Corp. (United States) | 1,512 | |
17,150 | Don Quijote Holdings Co. Ltd. (Japan) | 1,025 | |
2,537 | |||
PHARMACEUTICALS—3.7% | |||
22,275 | Zoetis Inc. (United States) | 2,008 | |
PROFESSIONAL SERVICES—7.1% | |||
82,750 | Recruit Holdings Co. Ltd. (Japan) | 2,221 | |
13,585 | Verisk Analytics Inc. (United States)* | 1,628 | |
3,849 | |||
ROAD & RAIL—2.1% | |||
7,565 | Union Pacific Corp. (United States) | 1,106 | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—2.9% | |||
41,600 | Taiwan Semiconductor Manufacturing Co. Ltd. ADR (Taiwan)1 | 1,585 | |
SOFTWARE—13.6% | |||
8,625 | Adobe Systems Inc. (United States)* | 2,120 | |
7,220 | Dassault Systemes SE (France) | 904 | |
6,225 | Intuit Inc. (United States) | 1,313 | |
13,825 | Salesforce.com Inc. (United States)* | 1,897 | |
7,850 | Temenos Group AG (Switzerland) | 1,079 | |
7,313 | |||
SPECIALTY RETAIL—4.9% | |||
42,025 | Industria de Diseno Textil SA (Spain) | 1,184 | |
14,875 | Ross Stores Inc. (United States) | 1,473 | |
2,657 | |||
TEXTILES, APPAREL & LUXURY GOODS—2.5% | |||
17,800 | NIKE Inc. (United States) | 1,336 | |
TOTAL COMMON STOCKS | |||
(Cost $43,308) | 53,518 | ||
SHORT TERM INVESTMENTS—2.3% | |||
(Cost $1,260) | |||
INVESTMENT COMPANY - SECURITIES LENDING INVESTMENT FUND —2.3% | |||
1,260,390 | State Street Navigator Securities Lending Government Money Market Portfolio (1 day yield of 2.190%) | 1,260 | |
TOTAL INVESTMENTS—101.5% | |||
(Cost $44,568) | 54,778 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(1.5)% | (831) | ||
TOTAL NET ASSETS—100.0% | $53,947 |
39
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 October 31, 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 | $ — | $ 8,687 | $— | $ 8,687 | ||||
Latin America | 1,072 | — | — | 1,072 | ||||
Middle East/Central Asia | 1,836 | — | — | 1,836 | ||||
North America | 30,992 | — | — | 30,992 | ||||
Pacific Basin | 3,168 | 7,763 | — | 10,931 | ||||
Short-Term Investments | ||||||||
Investment Company Securities Lending Investment Fund | 1,260 | — | — | 1,260 | ||||
Total Investments in Securities | $38,328 | $16,450 | $— | $54,778 |
There were no Level 3 holdings at October 31, 2018 or 2017.
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.
40
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
The performance of emerging markets equities was very volatile during the twelve months ending October 31, 2018. The first few months were marked by positive earnings revisions, strong capital inflows and exceptional performance. Growth stocks outperformed value stocks through the end of 2017 and technology led the index. Much of this tech rally was driven by Chinese internet/e-commerce and semiconductor names. A rotation out of growth and into value began in January and strengthened later in the period.
Volatility spiked in February and equity markets became increasingly macro-driven. The U.S. announced a new set of Russian sanctions in April, and a ten day Brazilian truckers’ strike weighed on markets in May. The next few months were marked by weakness in the Chinese currency and stock market, as the imminent trade war with the U.S. had a much bigger impact on Chinese investors’ confidence than on risk appetite in the U.S. We believe the trade tensions have had the strongest negative impact since the U.S. imposed the first batch of tariffs in June. Tightening global liquidity and renewed U.S. Dollar strength also provided a headwind for emerging markets during the second half of the period.
Russia performed well and received significant positive earnings revisions during the period, despite noise around U.S. sanctions. High oil prices, strong export earnings, improving corporate governance and strong monetary policy management by the Central Bank of Russia helped offset some of the volatility. China posted solid performance until the trade tensions hit the equity and currency market after the U.S. implemented tariffs in June. Brazil’s performance was mixed during the period; returns were strong through the first half of the period, but slipped amidst the truckers’ strike and heightened political uncertainty. A rebound occurred in October when the market-friendly presidential candidate was elected. Turkey was the worst performing country due to its large current account deficit and a depreciating Lira.
Performance
Harbor Emerging Markets Equity Fund returned -10.77% (Institutional Class), -10.71% (Retirement Class), -10.91% (Administrative Class), and -11.03% (Investor Class) during the 12-month period ended October 31, 2018, compared to the -12.52% return of the MSCI Emerging Markets (ND) Index (all international and global returns are in U.S. Dollars).
Consistent with our bottom-up process, the majority of our relative performance was driven by stock selection, however our allocation decisions also had a significant impact during the period. The Fund’s relative outperformance was driven by stock selection in India, Brazil and China, along with our overweight allocations to Brazil and Russia. Stock selection in Korea and Taiwan detracted. By sector, stock selection among Information Technology, Consumer Discretionary, Energy and Industrials stocks contributed positively, while stock selection among Consumer Staples and Financials had a negative effect. Our overweight allocation to Energy helped drive relative performance, along with our underweight exposures to Communication Services and to Chinese internet names.
Outlook & Strategy
Value stocks performed well relative to growth stocks during the period. Given the value bias of the Fund, we were happy with this development. In our view, the valuation spread between growth and value remains extremely wide. This creates an opportunity for value to enjoy a lengthy relative run. Value in emerging markets is heavily weighted towards cyclicals, including Energy, Materials and Financials, and the Fund is overweight these sectors. We believe rising oil prices have been a significant tailwind for operating cash flow for the Energy
41
Harbor Emerging Markets Equity Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2013 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the MSCI Emerging Markets (ND) Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | Life of Fund | |||||||
Harbor Emerging Markets Equity Fund | ||||||||
Institutional Class1 | -10.77% | -0.15% | -0.15% | |||||
Retirement Class1,2 | -10.71 | -0.12 | -0.12 | |||||
Administrative Class1 | -10.91 | -0.40 | -0.40 | |||||
Investor Class1 | -11.03 | -0.52 | -0.52 | |||||
Comparative Index | ||||||||
MSCI Emerging Markets (ND)1 | -12.52% | 0.78% | 0.78% |
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 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.
sector, but disciplined capital budgets have allowed this cash flow to repay debt or increase distributions to shareholders. The Fund’s Materials exposure mainly consists of cement and metals stocks that have also benefitted from capital discipline, and we believe Chinese fiscal stimulus will support demand going forward. The Fund’s Financials performance has been a little more mixed this year, as macro influences such as weak currencies have sometimes overwhelmed excellent operating performance. Sberbank is a great example of a stock where macro influences have swamped the company’s strong results. However, we like the country diversification and the attractive valuations of the Financials we hold, and we believe they offer significant upside.
During the last few months, we believe some of the growth-oriented stocks have started to correct. For example, Chinese internets are much lower now than six months ago, and valuations appear less stretched. However, we are not in a rush to buy them until we see reduced funding of competing unique companies, a stabilization of earnings estimates, a relaxation of regulatory pressure, and lower valuation multiples. Similarly, we are studying ideas in India but think the market remains expensive given the current account deficit, the negative impact of rising prices, and the volatility normally associated with national elections, which are due next year.
We acknowledge that there is significant macro uncertainty given protectionism and tighter monetary policy, but we believe emerging markets have already absorbed extensive selling. Sentiment has become negative, valuations are more attractive in absolute terms, and discounts to developed market valuations have widened significantly. We believe uncertainty is creating opportunity. On a longer term view, 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 what we believe to be good companies with solid management and strong balance sheets at attractive valuations.
1 | The “Life of Fund” return as shown reflects the period 11/01/2013 through 10/31/2018. |
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.
42
Harbor Emerging Markets Equity Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Holdings (% of net assets)
❶ | Samsung Electronics Co. Ltd. | 7.1% |
❷ | Taiwan Semiconductor Manufacturing Co. Ltd. ADR | 5.0% |
❸ | China Construction Bank Corp. | 3.7% |
❹ | Tencent Holdings Ltd. | 3.6% |
❺ | ICICI Bank Ltd. ADR | 3.3% |
❻ | Lukoil PJSC ADR | 3.1% |
❼ | Petroleo Brasileiro SA ADR | 2.8% |
❽ | Sberbank of Russia PJSC ADR | 2.7% |
❾ | Itau Unibanco Holding SA ADR | 2.6% |
❿ | 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)
43
Harbor Emerging Markets Equity Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
COMMON STOCKS—96.9% | |||
Shares | Value | ||
AIRLINES—1.3% | |||
37,628 | Azul SA ADR (Brazil)*,1 | $ 917 | |
AUTOMOBILES—1.4% | |||
435,000 | Baic Motor Corp. Ltd. (China)2 | 246 | |
8,451 | Hyundai Motor Co. (South Korea) | 791 | |
1,037 | |||
BANKS—24.6% | |||
554,220 | Alpha Bank AE (Greece)* | 836 | |
99,240 | Banco Bradesco SA ADR (Brazil)*,1 | 910 | |
5,541,700 | Bank Rakyat Indonesia Persero Tbk PT (Indonesia) | 1,150 | |
3,364,000 | China Construction Bank Corp. (China) | 2,670 | |
209,500 | China Merchants Bank Co. Ltd. (China) | 809 | |
148,037 | Grupo Financiero Banorte SAB de CV (Mexico)* | 816 | |
44,118 | Hana Financial Group Inc. (South Korea) | 1,486 | |
245,566 | ICICI Bank Ltd. ADR (India)1 | 2,331 | |
2,676,000 | Industrial & Commercial Bank of China Ltd. (China) | 1,816 | |
142,276 | Itau Unibanco Holding SA ADR (Brazil)1 | 1,874 | |
19,685 | OTP Bank plc (Hungary) | 707 | |
162,276 | Sberbank of Russia PJSC ADR (Russia)1 | 1,909 | |
189,700 | United Bank Ltd. (Pakistan) | 215 | |
17,529 | |||
BEVERAGES—0.8% | |||
86,100 | Wuliangye Yibin Co. Ltd. (China) | 598 | |
BIOTECHNOLOGY—0.2% | |||
181,774 | Ascletis Pharma Inc. (China)*,2 | 133 | |
CHEMICALS—0.8% | |||
194,177 | Alpek SAB de CV (Mexico)* | 258 | |
23,364 | PhosAgro PJSC GDR (Russia)3 | 305 | |
2,684,000 | Tianhe Chemicals Group Ltd. (China)*,2 | — x | |
563 | |||
CONSTRUCTION & ENGINEERING—1.3% | |||
1,054,000 | China Railway Group Ltd. (China) | 942 | |
CONSTRUCTION MATERIALS—4.2% | |||
142,500 | Anhui Conch Cement Co. Ltd. (China) | 739 | |
149,348 | Cemex SAB de CV ADR (Mexico)*,1 | 753 | |
1,140,000 | China National Building Material Co. Ltd. (China) | 820 | |
1,007,100 | Semen Indonesia Persero TBK PT (Indonesia) | 597 | |
435,100 | West China Cement Ltd. (China)* | 64 | |
2,973 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.8% | |||
238,200 | Hon Hai Precision Industry Co. Ltd. (Taiwan)* | 606 | |
ENERGY EQUIPMENT & SERVICES—1.3% | |||
1,004,000 | China Oilfield Services Ltd. (China) | 937 | |
FOOD & STAPLES RETAILING—1.0% | |||
61,411 | Shoprite Holdings Ltd. (South Africa) | 750 | |
FOOD PRODUCTS—4.5% | |||
140,723 | BRF SA ADR (Brazil)*,1 | 833 | |
1,372,300 | Charoen Pokphand Foods PCL (Thailand) | 1,046 | |
39,285 | Gruma SAB de CV (Mexico) | 411 | |
1,285,000 | Want Want China Holdings Ltd. (China)* | 919 | |
3,209 | |||
HEALTH CARE PROVIDERS & SERVICES—1.3% | |||
196,800 | Sinopharm Group Co. Ltd. (China) | 953 |
COMMON STOCKS—Continued | |||
Shares | Value | ||
HOTELS, RESTAURANTS & LEISURE—4.2% | |||
93,075 | China International Travel Service Corp. Ltd. (China) | $ 721 | |
46,481 | CVC Brasil Operadora e Agencia de Viagens SA (Brazil) | 707 | |
127,000 | Galaxy Entertainment Group Ltd. (China)* | 689 | |
23,438 | Yum China Holdings Inc. (China) | 846 | |
2,963 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—1.5% | |||
1,024,400 | China Longyuan Power Group Corp. Ltd. (China) | 780 | |
1,300,800 | Datang International Power Generation Co. Ltd. (China) | 291 | |
1,071 | |||
INSURANCE—2.9% | |||
203,000 | China Pacific Insurance Group Co. Ltd. (China) | 758 | |
138,000 | Ping An Insurance Group Co. of China Ltd. (China) | 1,305 | |
2,063 | |||
INTERACTIVE MEDIA & SERVICES—5.1% | |||
74,400 | Tencent Holdings Ltd. (China) | 2,549 | |
11,200 | Weibo Corp. ADR (China)*,1 | 661 | |
13,096 | Yandex NV (Russia)* | 394 | |
3,604 | |||
INTERNET & DIRECT MARKETING RETAIL—0.8% | |||
16,334 | Ctrip.com International Ltd. ADR (China)*,1 | 544 | |
IT SERVICES—1.1% | |||
83,316 | Infosys Ltd. ADR (India)1 | 789 | |
MACHINERY—1.3% | |||
148,688 | Samsung Heavy Industries Co. Ltd. (South Korea)* | 912 | |
METALS & MINING—4.5% | |||
107,919 | AngloGold Ashanti Ltd. ADR (South Africa)1 | 1,015 | |
266,714 | Jiangxi Ganfeng Lithium Co. Ltd. (China)*,2 | 430 | |
1,160,400 | MMG Ltd. (China)* | 437 | |
376,269 | Petra Diamonds Ltd. (South Africa)* | 189 | |
77,471 | Vale SA ADR (Brazil)1 | 1,170 | |
3,241 | |||
OIL, GAS & CONSUMABLE FUELS—11.6% | |||
407,500 | China Shenhua Energy Co. Ltd. (China) | 922 | |
8,304 | CNOOC Ltd. ADR (China)1 | 1,406 | |
29,258 | Lukoil PJSC ADR (Russia)1 | 2,181 | |
135,281 | Petroleo Brasileiro SA ADR (Brazil)*,1 | 2,005 | |
64,612 | Reliance Industries Ltd. (India) | 925 | |
3,641 | S-Oil Corp. (South Korea) | 397 | |
165,000 | Thai Oil PCL (Thailand) | 422 | |
8,258 | |||
PERSONAL PRODUCTS—1.0% | |||
5,090 | Amorepacific Corp. (South Korea) | 688 | |
REAL ESTATE MANAGEMENT & DEVELOPMENT—2.0% | |||
652,800 | Guangzhou R&F Properties Co. Ltd. (China) | 1,031 | |
197,000 | Shimao Property Holdings Ltd. (China) | 388 | |
1,419 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—7.4% | |||
4,700 | NXP Semiconductors NV (China) | 352 | |
94,254 | Taiwan Semiconductor Manufacturing Co. Ltd. ADR (Taiwan)1 | 3,591 | |
3,503,000 | United Microelectronics Corp. (Taiwan) | 1,335 | |
5,278 |
44
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—2.0% | |||
63,946 | Foschini Group Ltd. (South Africa) | $ 700 | |
109,765 | Petrobras Distribuidora SA (Brazil)* | 707 | |
1,407 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—7.1% | |||
134,601 | Samsung Electronics Co. Ltd. (South Korea) | 5,039 | |
THRIFTS & MORTGAGE FINANCE—0.8% | |||
53,922 | Indiabulls Housing Finance Ltd. (India) | 606 | |
WIRELESS TELECOMMUNICATION SERVICES—0.1% | |||
1,768,430 | Sarana Menara Nusantara TBK PT (Indonesia)* | 56 | |
TOTAL COMMON STOCKS | |||
(Cost $71,063) | 69,085 | ||
PARTICIPATION (EQUITY LINKED) NOTES—0.1% | |||
(Cost $94) | |||
Principal Amount | |||
BANKS—0.1% | |||
United Bank Ltd. (Pakistan)*,2 | |||
$ | 57,045 | $0.01––06/19/2019 | 65 |
TOTAL INVESTMENTS—97.0% | |||
(Cost $71,157) | 69,150 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—3.0% | 2,130 | ||
TOTAL NET ASSETS—100.0% | $71,280 |
45
Harbor Emerging Markets Equity Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of October 31, 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 | $ 1,015 | $ 1,639 | $— | $ 2,654 | ||||
Europe | 394 | 5,938 | — | 6,332 | ||||
Latin America | 11,361 | — | — | 11,361 | ||||
Middle East/Central Asia | 3,120 | 1,746 | — | 4,866 | ||||
Pacific Basin | 7,830 | 36,042 | — | 43,872 | ||||
Participation (Equity Linked) Notes | ||||||||
Middle East/Central Asia | — | 65 | — | 65 | ||||
Total Investments in Securities | $23,720 | $45,430 | $— | $69,150 |
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 year ended October 31, 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 10/31/2018 (000s) | |||||||||
Common Stocks | $151 | $— | $— | $— | $— | $(151) | $— | $— | $— |
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 10/31/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Common Stocks | ||||||||
Tianhe Chemicals Group Ltd. (China)* | $— | Market Approach | Estimated Recovery Value | HKD 0.00 |
* | 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 October 31, 2018, the aggregate value of these securities was $874 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. | ||
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 10/31/2018 (000s) | ||
Common Stocks | $(512) | ||
x | Fair valued in accordance with Harbor Funds Valuation Procedures. | ||
HKD | Hong Kong Dollar |
The accompanying notes are an integral part of the Financial Statements.
46
Harbor International & Global Funds
StatementS of Assets and Liabilities—October 31, 2018
StatementS of Assets and Liabilities—October 31, 2018
(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 | $12,473,363 | $710,853 | $533,584 | $58,026 | $44,568 | $71,157 | ||||||
Investments, at value(Including securities loaned of $0, $2,664, $11,583, $0, $1,185 and $0) | $11,579,511 | $657,371 | $527,493 | $56,243 | $54,778 | $69,150 | ||||||
Cash | 326,116 | 16,610 | 9,431 | 3,114 | 426 | 1,993 | ||||||
Foreign currency, at value (cost: $7,152, $2,006, $256, $594, $0 and $25) | 7,140 | 2,003 | 254 | 591 | — | 25 | ||||||
Receivables for: | ||||||||||||
Investments sold | 379,910 | 3,664 | — | 291 | — | 151 | ||||||
Foreign currency spot contracts | 41 | 5 | — | — | — | — | ||||||
Capital shares sold | 2,441 | 359 | 702 | 1 | 34 | 1 | ||||||
Dividends | 45,649 | 1,447 | 864 | 181 | 32 | 54 | ||||||
Interest | 10 | 3 | 2 | 2 | — | 1 | ||||||
Securities lending income | — | 1 | 2 | — | — | — | ||||||
Purchased options, at value (cost: $11,073, $3, $0, $0, $0 and $0) | 208 | 2 | — | — | — | — | ||||||
Withholding tax | 46,779 | 300 | 340 | 32 | 22 | — | ||||||
Prepaid registration fees | 28 | 34 | 23 | 1 | 1 | 26 | ||||||
Other assets | 5,354 | 284 | 83 | 12 | 7 | 33 | ||||||
Total Assets | 12,393,187 | 682,083 | 539,194 | 60,468 | 55,300 | 71,434 | ||||||
LIABILITIES | ||||||||||||
Payables for: | ||||||||||||
Investments purchased | 30,965 | 8,589 | — | 883 | — | — | ||||||
Foreign currency spot contracts | 6 | — | — | — | — | — | ||||||
Capital shares reacquired | 76,547 | 338 | 100 | 2 | 30 | 45 | ||||||
Collateral for securities loaned | — | 2,785 | 12,218 | — | 1,260 | — | ||||||
Accrued expenses: | ||||||||||||
Management fees | 8,605 | 390 | 345 | 43 | 35 | 56 | ||||||
12b-1 fees | 238 | 2 | 7 | — | 3 | — | ||||||
Transfer agent fees | 857 | 21 | 35 | 2 | 5 | 4 | ||||||
Trustees' fees and expenses | 3,558 | 16 | 70 | 2 | 3 | 3 | ||||||
Other | 6,184 | 226 | 138 | 37 | 17 | 46 | ||||||
Total Liabilities | 126,960 | 12,367 | 12,913 | 969 | 1,353 | 154 | ||||||
NET ASSETS | $12,266,227 | $669,716 | $526,281 | $59,499 | $53,947 | $71,280 | ||||||
Net Assets Consist of: | ||||||||||||
Paid-in capital | $ 8,470,149 | $708,173 | $538,025 | $59,126 | $42,556 | $74,792 | ||||||
Total distributable earnings/(loss) | 3,796,078 | (38,457) | (11,744) | 373 | 11,391 | (3,512) | ||||||
$12,266,227 | $669,716 | $526,281 | $59,499 | $53,947 | $71,280 | |||||||
NET ASSET VALUE PER SHARE BY CLASS | ||||||||||||
Institutional Class | ||||||||||||
Net assets | $ 8,577,147 | $238,470 | $399,911 | $50,358 | $33,574 | $58,271 | ||||||
Shares of beneficial interest1 | 147,108 | 22,906 | 29,220 | 4,069 | 1,317 | 6,087 | ||||||
Net asset value per share2 | $ 58.31 | $ 10.41 | $ 13.69 | $ 12.37 | $ 25.49 | $ 9.57 | ||||||
Retirement Class | ||||||||||||
Net assets | $ 2,703,360 | $420,056 | $ 93,815 | $ 8,213 | $ 6,846 | $12,146 | ||||||
Shares of beneficial interest1 | 46,364 | 40,353 | 6,848 | 663 | 268 | 1,269 | ||||||
Net asset value per share2 | $ 58.31 | $ 10.41 | $ 13.70 | $ 12.38 | $ 25.52 | $ 9.57 | ||||||
Administrative Class | ||||||||||||
Net assets | $ 90,009 | $ 5,734 | $ 330 | $ 309 | $ 1,111 | $ 249 | ||||||
Shares of beneficial interest1 | 1,550 | 552 | 24 | 25 | 44 | 26 | ||||||
Net asset value per share2 | $ 58.08 | $ 10.39 | $ 13.66 | $ 12.34 | $ 25.06 | $ 9.55 | ||||||
Investor Class | ||||||||||||
Net assets | $ 895,711 | $ 5,456 | $ 32,225 | $ 619 | $12,416 | $ 614 | ||||||
Shares of beneficial interest1 | 15,534 | 528 | 2,373 | 50 | 502 | 64 | ||||||
Net asset value per share2 | $ 57.66 | $ 10.33 | $ 13.58 | $ 12.34 | $ 24.76 | $ 9.53 |
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.
47
Harbor International & Global Funds
StatementS of Operations—Year Ended October 31, 2018
StatementS of Operations—Year Ended October 31, 2018
(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 | $ 621,865 | $ 14,962 | $ 9,837 | $ 1,281 | $ 512 | $ 1,724 |
Interest | 5,648 | 39 | 29 | 10 | 2 | 5 |
Net securities lending income | 5,062 | 43 | 72 | 5 | — | — |
Foreign taxes withheld | (53,087) | (1,259) | (858) | (113) | (32) | (200) |
Total Investment Income | 579,488 | 13,785 | 9,080 | 1,183 | 482 | 1,529 |
Operating Expenses | ||||||
Management fees | 176,426 | 4,000 | 3,947 | 499 | 391 | 598 |
12b-1 fees: | ||||||
Administrative Class | 671 | 11 | 1 | 1 | 3 | 1 |
Investor Class | 3,615 | 14 | 77 | 2 | 31 | 2 |
Shareholder communications | 78 | 23 | 28 | 6 | 6 | 4 |
Custodian fees | 5,608 | 593 | 122 | 44 | 17 | 87 |
Transfer agent fees: | ||||||
Institutional Class | 17,302 | 203 | 367 | 41 | 29 | 50 |
Retirement Class | 436 | 30 | 9 | 1 | 1 | 1 |
Administrative Class | 242 | 4 | — | — | 1 | — |
Investor Class | 3,036 | 12 | 65 | 2 | 26 | 2 |
Professional fees | 1,110 | 60 | 26 | 7 | 14 | 25 |
Trustees' fees and expenses | 832 | 18 | 18 | 2 | 2 | 2 |
Registration fees | 181 | 68 | 62 | 58 | 59 | 61 |
Miscellaneous | 312 | 11 | 12 | 6 | 8 | 8 |
Total expenses | 209,849 | 5,047 | 4,734 | 669 | 588 | 841 |
Management fees waived | (23,301) | (507) | — | — | — | — |
Transfer agent fees waived | (1,648) | (19) | (34) | (4) | (3) | (4) |
Other expenses reimbursed | — | (357) | (181) | (113) | (71) | (114) |
Custodian fees reductions | (44) | (1) | — | — | — | — |
Net expenses | 184,856 | 4,163 | 4,519 | 552 | 514 | 723 |
Net Investment Income/(Loss) | 394,632 | 9,622 | 4,561 | 631 | (32) | 806 |
Realized and Change in Net Unrealized Gain/(Loss) on Investment Transactions | ||||||
Net realized gain/(loss) on: | ||||||
Investments(net of foreign capital gains tax: $0,$8,$2,$0,$0 and $12) | 8,207,879 | 15,295 | (7,450) | 2,152 | 1,456 | 4,514 |
Foreign currency transactions | (14,768) | (57) | (97) | (16) | (4) | (43) |
Purchased options | (3,370) | — | — | 43 | — | — |
Change in net unrealized appreciation/(depreciation) on: | ||||||
Investments | (10,160,911) | (89,177) | (72,953) | (9,301) | 2,965 | (13,286) |
Purchased options | (7,430) | (8) | — | — | — | — |
Translations of assets and liabilities in foreign currencies | (622) | (7) | 2 | (1) | — | (1) |
Net gain/(loss) on investment transactions | (1,979,222) | (73,954) | (80,498) | (7,123) | 4,417 | (8,816) |
Net Increase/(Decrease) in Net Assets Resulting from Operations | $ (1,584,590) | $(64,332) | $(75,937) | $(6,492) | $4,385 | $ (8,010) |
The accompanying notes are an integral part of the Financial Statements.
48
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||
INCREASE/(DECREASE) IN NET ASSETS | ||||||||
Operations: | ||||||||
Net investment income/(loss) | $ 394,632 | $ 507,821 | $ 9,622 | $ 3,530 | $ 4,561 | $ 3,122 | ||
Net realized gain/(loss) on investments | 8,189,741 | 1,958,450 | 15,238 | 12,594 | (7,547) | 7,604 | ||
Change in net unrealized appreciation/(depreciation) of investments | (10,168,963) | 3,304,314 | (89,192) | 30,614 | (72,951) | 63,001 | ||
Net increase/(decrease) in assets resulting from operations | (1,584,590) | 5,770,585 | (64,332) | 46,738 | (75,937) | 73,727 | ||
Distributions to Shareholdersa | ||||||||
Institutional Class | (1,460,339) | — | (7,178) | — | (3,975) | — | ||
Retirement Class | (301,911) | — | (7,408) | — | (483) | — | ||
Administrative Class | (18,715) | — | (10) | — | (4) | — | ||
Investor Class | (97,976) | — | (170) | — | (105) | — | ||
Net investment income: | ||||||||
Institutional Class | N/A | (621,061) | N/A | (2,150) | N/A | (3,507) | ||
Retirement Class | N/A | (16,825) | N/A | (24) | N/A | (32) | ||
Administrative Class | N/A | (7,902) | N/A | (3) | N/A | (3) | ||
Investor Class | N/A | (31,061) | N/A | (23) | N/A | (119) | ||
Net realized gain on investments: | ||||||||
Institutional Class | N/A | — | N/A | — | N/A | — | ||
Retirement Class | N/A | — | N/A | — | N/A | — | ||
Administrative Class | N/A | — | N/A | — | N/A | — | ||
Investor Class | N/A | — | N/A | — | N/A | — | ||
Total distributions to shareholders | (1,878,941) | (676,849) | (14,766) | (2,200) | (4,567) | (3,661) | ||
Net Increase/(Decrease) Derived from Capital Share Transactions | (16,526,349) | (9,478,305) | 425,394 | 126,258 | 204,499 | 38,423 | ||
Net increase/(decrease) in net assets | (19,989,880) | (4,384,569) | 346,296 | 170,796 | 123,995 | 108,489 | ||
Net Assets | ||||||||
Beginning of period | 32,256,107 | 36,640,676 | 323,420 | 152,624 | 402,286 | 293,797 | ||
End of period* | $ 12,266,227 | $32,256,107 | $669,716 | $323,420 | $526,281 | $402,286 | ||
*,a Includes accumulated undistributed net investment income/(loss) of: | N/A | $ 255,234 | N/A | $ 2,412 | N/A | $ 2,739 |
a | The presentation of Distributions to Shareholders and accumulated undistributed net investment income/(loss) have been updated to reflect the changes prescribed in amendments to Regulation S-X as disclosed in New Accounting Pronouncements in Note 2 to the Financial Statements. There is no impact to October 31, 2017 presentation. |
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | ||
$ 631 | $ 205 | $ (32) | $ 22 | $ 806 | $ 558 | ||
2,179 | 797 | 1,452 | 6,966 | 4,471 | 2,343 | ||
(9,302) | 6,183 | 2,965 | 1,807 | (13,287) | 8,546 | ||
(6,492) | 7,185 | 4,385 | 8,795 | (8,010) | 11,447 | ||
(536) | — | (2,548) | — | (499) | — | ||
(169) | — | (395) | — | (46) | — | ||
(4) | — | (102) | — | (2) | — | ||
(6) | — | (1,035) | — | (4) | — | ||
N/A | (197) | N/A | — | N/A | (397) | ||
N/A | (7) | N/A | — | N/A | (16) | ||
N/A | (2) | N/A | — | N/A | (2) | ||
N/A | (2) | N/A | — | N/A | (4) | ||
N/A | — | N/A | — | N/A | — | ||
N/A | — | N/A | — | N/A | — | ||
N/A | — | N/A | — | N/A | — | ||
N/A | — | N/A | — | N/A | — | ||
(715) | (208) | (4,080) | – | (551) | (419) | ||
19,306 | 21,735 | 7,664 | (1,913) | 22,785 | 7,604 | ||
12,099 | 28,712 | 7,969 | 6,882 | 14,224 | 18,632 | ||
47,400 | 18,688 | 45,978 | 39,096 | 57,056 | 38,424 | ||
$59,499 | $47,400 | $53,947 | $45,978 | $ 71,280 | $57,056 | ||
N/A | $ 149 | N/A | $ 15 | N/A | $ 414 |
50
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||
AMOUNT ($) | ||||||||
Institutional Class | ||||||||
Net proceeds from sale of shares | $ 1,638,830 | $ 3,763,185 | $ 204,761 | $ 174,975 | $163,918 | $ 71,320 | ||
Reinvested distributions | 1,264,571 | 537,811 | 7,160 | 2,114 | 3,876 | 3,417 | ||
Cost of shares reacquired | (19,210,292) | (14,157,214) | (170,087) | (141,031) | (69,370) | (53,734) | ||
Cost of shares reacquired through redemption in-kind | — | (451,183) | — | — | — | — | ||
Net increase/(decrease) in net assets | $(16,306,891) | $(10,307,401) | $ 41,834 | $ 36,058 | $ 98,424 | $ 21,003 | ||
Retirement Class | ||||||||
Net proceeds from sale of shares | $ 3,779,787 | $ 2,467,439 | $ 442,635 | $ 87,798 | $ 91,332 | $ 20,877 | ||
Reinvested distributions | 289,406 | 16,825 | 7,256 | 23 | 483 | 32 | ||
Cost of shares reacquired | (3,327,599) | (795,107) | (73,305) | (1,773) | (8,663) | (2,156) | ||
Net increase/(decrease) in net assets | $ 741,594 | $ 1,689,157 | $ 376,586 | $ 86,048 | $ 83,152 | $ 18,753 | ||
Administrative Class | ||||||||
Net proceeds from sale of shares | $ 80,793 | $ 141,969 | $ 6,598 | $ 10 | $ 117 | $ 480 | ||
Reinvested distributions | 18,354 | 7,713 | 10 | 3 | 4 | 3 | ||
Cost of shares reacquired | (368,808) | (327,979) | (592) | — | (205) | (431) | ||
Net increase/(decrease) in net assets | $ (269,661) | $ (178,297) | $ 6,016 | $ 13 | $ (84) | $ 52 | ||
Investor Class | ||||||||
Net proceeds from sale of shares | $ 125,886 | $ 230,111 | $ 1,632 | $ 4,689 | $ 31,908 | $ 2,335 | ||
Reinvested distributions | 96,300 | 30,486 | 169 | 23 | 103 | 117 | ||
Cost of shares reacquired | (913,577) | (942,361) | (843) | (574) | (9,004) | (3,837) | ||
Net increase/(decrease) in net assets | $ (691,391) | $ (681,764) | $ 958 | $ 4,138 | $ 23,007 | $ (1,385) |
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | ||
$19,220 | $16,678 | $ 5,826 | $ 2,658 | $22,433 | $12,422 | ||
536 | 197 | 2,455 | — | 498 | 397 | ||
(2,166) | (1,932) | (4,003) | (5,092) | (9,292) | (7,659) | ||
— | — | — | — | — | — | ||
$17,590 | $14,943 | $ 4,278 | $(2,434) | $13,639 | $ 5,160 | ||
$ 7,003 | $ 6,743 | $ 2,712 | $ 2,512 | $ 9,727 | $ 2,375 | ||
169 | 7 | 395 | — | 46 | 15 | ||
(5,596) | (123) | (670) | (396) | (641) | (23) | ||
$ 1,576 | $ 6,627 | $ 2,437 | $ 2,116 | $ 9,132 | $ 2,367 | ||
$ — | $ 27 | $ 105 | $ 142 | $ 404 | $ — | ||
4 | 2 | 102 | — | 2 | 2 | ||
(29) | — | (312) | (450) | (378) | — | ||
$ (25) | $ 29 | $ (105) | $ (308) | $ 28 | $ 2 | ||
$ 309 | $ 135 | $ 2,754 | $ 2,647 | $ 733 | $ 637 | ||
6 | 2 | 1,035 | — | 4 | 4 | ||
(150) | (1) | (2,735) | (3,934) | (751) | (566) | ||
$ 165 | $ 136 | $ 1,054 | $(1,287) | $ (14) | $ 75 |
52
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||
SHARES | ||||||||
Institutional Class | ||||||||
Shares sold | 24,128 | 58,718 | 17,970 | 16,414 | 10,292 | 5,171 | ||
Shares issued due to reinvestment of distributions | 18,841 | 9,241 | 626 | 220 | 248 | 282 | ||
Shares reacquired | (287,896) | (219,793) | (14,819) | (12,889) | (4,389) | (3,920) | ||
Shares reacquired through redemption in-kind | — | (6,735) | — | — | — | — | ||
Net increase/(decrease) in shares outstanding | (244,927) | (158,569) | 3,777 | 3,745 | 6,151 | 1,533 | ||
Beginning of period | 392,035 | 550,604 | 19,129 | 15,384 | 23,069 | 21,536 | ||
End of period | 147,108 | 392,035 | 22,906 | 19,129 | 29,220 | 23,069 | ||
Retirement Class | ||||||||
Shares sold | 54,607 | 37,073 | 38,235 | 7,818 | 5,787 | 1,542 | ||
Shares issued due to reinvestment of distributions | 4,314 | 289 | 635 | 2 | 31 | 2 | ||
Shares reacquired | (50,569) | (11,616) | (6,359) | (161) | (553) | (144) | ||
Net increase/(decrease) in shares outstanding | 8,352 | 25,746 | 32,511 | 7,659 | 5,265 | 1,400 | ||
Beginning of period | 38,012 | 12,266 | 7,842 | 183 | 1,583 | 183 | ||
End of period | 46,364 | 38,012 | 40,353 | 7,842 | 6,848 | 1,583 | ||
Administrative Class | ||||||||
Shares sold | 1,212 | 2,183 | 576 | 1 | 7 | 34 | ||
Shares issued due to reinvestment of distributions | 274 | 133 | 1 | — | — | — | ||
Shares reacquired | (5,665) | (5,098) | (51) | — | (13) | (30) | ||
Net increase/(decrease) in shares outstanding | (4,179) | (2,782) | 526 | 1 | (6) | 4 | ||
Beginning of period | 5,729 | 8,511 | 26 | 25 | 30 | 26 | ||
End of period | 1,550 | 5,729 | 552 | 26 | 24 | 30 | ||
Investor Class | ||||||||
Shares sold | 1,886 | 3,644 | 143 | 462 | 1,982 | 169 | ||
Shares issued due to reinvestment of distributions | 1,446 | 528 | 15 | 3 | 7 | 10 | ||
Shares reacquired | (13,807) | (14,877) | (74) | (55) | (574) | (274) | ||
Net increase/(decrease) in shares outstanding | (10,475) | (10,705) | 84 | 410 | 1,415 | (95) | ||
Beginning of period | 26,009 | 36,714 | 444 | 34 | 958 | 1,053 | ||
End of period | 15,534 | 26,009 | 528 | 444 | 2,373 | 958 |
The accompanying notes are an integral part of the Financial Statements.
53
Harbor International Small Cap Fund | Harbor Global Leaders Fund | Harbor Emerging Markets Equity Fund | |||||
November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | ||
1,394 | 1,303 | 223 | 120 | 2,127 | 1,328 | ||
38 | 19 | 101 | — | 47 | 48 | ||
(156) | (155) | (154) | (228) | (875) | (823) | ||
— | — | — | — | — | — | ||
1,276 | 1,167 | 170 | (108) | 1,299 | 553 | ||
2,793 | 1,626 | 1,147 | 1,255 | 4,788 | 4,235 | ||
4,069 | 2,793 | 1,317 | 1,147 | 6,087 | 4,788 | ||
502 | 504 | 105 | 106 | 934 | 237 | ||
12 | 1 | 16 | — | 4 | 2 | ||
(403) | (11) | (26) | (17) | (60) | (3) | ||
111 | 494 | 95 | 89 | 878 | 236 | ||
552 | 58 | 173 | 84 | 391 | 155 | ||
663 | 552 | 268 | 173 | 1,269 | 391 | ||
— | 2 | 4 | 6 | 35 | — | ||
— | — | 4 | — | — | — | ||
(2) | — | (12) | (20) | (34) | — | ||
(2) | 2 | (4) | (14) | 1 | — | ||
27 | 25 | 48 | 62 | 25 | 25 | ||
25 | 27 | 44 | 48 | 26 | 25 | ||
22 | 12 | 109 | 111 | 65 | 64 | ||
— | — | 44 | — | — | 1 | ||
(11) | — | (111) | (187) | (66) | (56) | ||
11 | 12 | 42 | (76) | (1) | 9 | ||
39 | 27 | 460 | 536 | 65 | 56 | ||
50 | 39 | 502 | 460 | 64 | 65 |
54
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 | |||||
Year Ended October 31, | 2018 k | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 69.90 | $ 60.30 | $ 65.67 | $ 68.09 | $ 70.79 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 1.04 e | 0.97 e | 0.99 e | 1.22 e | 1.25 |
Net realized and unrealized gains/(losses) on investments | (8.39) | 9.79 | (3.51) | (2.22) | (2.45) |
Total from investment operations | (7.35) | 10.76 | (2.52) | (1.00) | (1.20) |
Less Distributions | |||||
Dividends from net investment income | (1.24) | (1.16) | (1.08) | (1.42) | (1.50) |
Distributions from net realized capital gains | (3.00) | — | (1.77) | — | — |
Total distributions | (4.24) | (1.16) | (2.85) | (1.42) | (1.50) |
Net asset value end of period | 58.31 | 69.90 | 60.30 | 65.67 | 68.09 |
Net assets end of period (000s) | $8,577,147 | $27,401,853 | $33,201,899 | $41,195,827 | $43,385,100 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (11.31)% | 18.24% | (3.74)% | (1.48)% | (1.69)% |
Ratio of total expenses to average net assets^ | 0.82 | 0.81 | 0.79 | 0.76 | 0.76 |
Ratio of net expenses to average net assetsa | 0.72 | 0.80 | 0.77 | 0.74 | 0.73 |
Ratio of net investment income to average net assetsa | 1.53 | 1.51 | 1.66 | 1.80 | 1.78 |
Portfolio turnover | 64 | 13 | 14 | 25 | 11 |
Administrative Class | |||||
Year Ended October 31, | 2018 k | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 69.57 | $ 59.99 | $ 65.32 | $ 67.48 | $ 70.18 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.88 e | 0.79 e | 0.79 e | 1.04 e | 1.91 i |
Net realized and unrealized gains/(losses) on investments | (8.37) | 9.77 | (3.44) | (2.20) | (3.27) |
Total from investment operations | (7.49) | 10.56 | (2.65) | (1.16) | (1.36) |
Less Distributions | |||||
Dividends from net investment income | (1.00) | (0.98) | (0.91) | (1.00) | (1.34) |
Distributions from net realized capital gains | (3.00) | — | (1.77) | — | — |
Total distributions | (4.00) | (0.98) | (2.68) | (1.00) | (1.34) |
Net asset value end of period | 58.08 | 69.57 | 59.99 | 65.32 | 67.48 |
Net assets end of period (000s) | $ 90,009 | $ 398,584 | $ 510,575 | $ 831,967 | $ 961,478 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (11.53)% | 17.93% | (3.97)% | (1.73)% | (1.93)% |
Ratio of total expenses to average net assets^ | 1.07 | 1.06 | 1.04 | 1.01 | 1.01 |
Ratio of net expenses to average net assetsa | 0.97 | 1.05 | 1.02 | 0.99 | 0.98 |
Ratio of net investment income to average net assetsa | 1.30 | 1.22 | 1.33 | 1.54 | 1.85 |
Portfolio turnover | 64 | 13 | 14 | 25 | 11 |
See page 67 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
55
Retirement Class | ||
2018 k | 2017 | 2016 f |
$ 69.91 | $ 60.32 | $ 57.14 |
1.21 e | 0.94 e | 0.68 e |
(8.51) | 9.85 | 2.50 |
(7.30) | 10.79 | 3.18 |
(1.30) | (1.20) | — |
(3.00) | — | — |
(4.30) | (1.20) | — |
58.31 | 69.91 | 60.32 |
$2,703,360 | $2,657,442 | $739,842 |
(11.24)% | 18.30% | 5.57% c |
0.74 | 0.74 | 0.75 d |
0.64 | 0.73 | 0.72 d |
1.80 | 1.42 | 1.68 d |
64 | 13 | 14 |
Investor Class | ||||
2018 k | 2017 | 2016 | 2015 | 2014 |
$ 69.14 | $ 59.61 | $ 64.86 | $ 67.23 | $ 69.92 |
0.81 e | 0.72 e | 0.73 e | 0.96 e | 1.07 |
(8.33) | 9.71 | (3.43) | (2.19) | (2.51) |
(7.52) | 10.43 | (2.70) | (1.23) | (1.44) |
(0.96) | (0.90) | (0.78) | (1.14) | (1.25) |
(3.00) | — | (1.77) | — | — |
(3.96) | (0.90) | (2.55) | (1.14) | (1.25) |
57.66 | 69.14 | 59.61 | 64.86 | 67.23 |
$895,711 | $1,798,228 | $2,188,360 | $3,756,852 | $4,786,270 |
(11.65)% | 17.79% | (4.09)% | (1.84)% | (2.05)% |
1.19 | 1.18 | 1.16 | 1.13 | 1.13 |
1.09 | 1.17 | 1.14 | 1.11 | 1.10 |
1.21 | 1.13 | 1.23 | 1.43 | 1.46 |
64 | 13 | 14 | 25 | 11 |
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 DIVERSIFIED INTERNATIONAL ALL CAP FUND | |||
Institutional Class | |||
Year Ended October 31, | 2018 | 2017 | 2016 g |
Net asset value beginning of period | $ 11.79 | $ 9.77 | $ 10.00 |
Income from Investment Operations | |||
Net investment income/(loss)a | 0.20 e | 0.17 e | 0.20 e |
Net realized and unrealized gains/(losses) on investments | (1.18) | 1.98 | (0.42) |
Total from investment operations | (0.98) | 2.15 | (0.22) |
Less Distributions | |||
Dividends from net investment income | (0.12) | (0.13) | (0.01) |
Distributions from net realized capital gains | (0.28) | — | — |
Total distributions | (0.40) | (0.13) | (0.01) |
Net asset value end of period | 10.41 | 11.79 | 9.77 |
Net assets end of period (000s) | $238,470 | $225,473 | $150,263 |
Ratios and Supplemental Data (%) | |||
Total returnb | (8.62)% | 22.29% | (2.25)% c |
Ratio of total expenses to average net assets^ | 0.98 | 1.07 | 1.22 d |
Ratio of net expenses to average net assetsa | 0.82 | 0.85 | 0.85 d |
Ratio of net investment income to average net assetsa | 1.72 | 1.59 | 2.13 d |
Portfolio turnover | 42 | 46 | 68 c |
Administrative Class | |||
Year Ended October 31, | 2018 | 2017 | 2016 g |
Net asset value beginning of period | $ 11.76 | $ 9.75 | $ 10.00 |
Income from Investment Operations | |||
Net investment income/(loss)a | 0.22 e | 0.14 e | 0.13 e |
Net realized and unrealized gains/(losses) on investments | (1.22) | 1.97 | (0.38) |
Total from investment operations | (1.00) | 2.11 | (0.25) |
Less Distributions | |||
Dividends from net investment income | (0.09) | (0.10) | — * |
Distributions from net realized capital gains | (0.28) | — | — |
Total distributions | (0.37) | (0.10) | — * |
Net asset value end of period | 10.39 | 11.76 | 9.75 |
Net assets end of period (000s) | $ 5,734 | $ 310 | $ 246 |
Ratios and Supplemental Data (%) | |||
Total returnb | (8.76)% | 21.91% | (2.49)% c |
Ratio of total expenses to average net assets^ | 1.23 | 1.32 | 1.46 d |
Ratio of net expenses to average net assetsa | 1.06 | 1.10 | 1.10 d |
Ratio of net investment income to average net assetsa | 1.96 | 1.29 | 1.39 d |
Portfolio turnover | 42 | 46 | 68 c |
See page 67 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
57
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 11.79 | $ 9.77 | $ 9.21 |
0.21 e | 0.14 e | 0.06 e |
(1.19) | 2.01 | 0.50 |
(0.98) | 2.15 | 0.56 |
(0.12) | (0.13) | — |
(0.28) | — | — |
(0.40) | (0.13) | — |
10.41 | 11.79 | 9.77 |
$420,056 | $92,442 | $1,786 |
(8.55)% | 22.35% | 6.08% c |
0.90 | 0.99 | 1.17 d |
0.74 | 0.77 | 0.80 d |
1.87 | 1.27 | 0.97 d |
42 | 46 | 68 c |
Investor Class | ||
2018 | 2017 | 2016 g |
$ 11.71 | $ 9.74 | $10.00 |
0.15 e | 0.14 e | 0.12 e |
(1.17) | 1.96 | (0.38) |
(1.02) | 2.10 | (0.26) |
(0.08) | (0.13) | — |
(0.28) | — | — |
(0.36) | (0.13) | — |
10.33 | 11.71 | 9.74 |
$ 5,456 | $ 5,195 | $ 329 |
(8.93)% | 21.82% | (2.60)% c |
1.35 | 1.44 | 1.59 d |
1.19 | 1.22 | 1.22 d |
1.34 | 1.31 | 1.28 d |
42 | 46 | 68 c |
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 GROWTH FUND | |||||
Institutional Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 15.69 | $ 12.89 | $ 12.71 | $ 12.75 | $ 13.01 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.13 e | 0.13 e | 0.17 e | 0.15 e | 0.16 |
Net realized and unrealized gains/(losses) on investments | (1.95) | 2.84 | 0.14 | — * | (0.23) |
Total from investment operations | (1.82) | 2.97 | 0.31 | 0.15 | (0.07) |
Less Distributions | |||||
Dividends from net investment income | (0.18) | (0.17) | (0.13) | (0.19) | (0.19) |
Distributions from net realized capital gains | — | — | — | — | — |
Total distributions | (0.18) | (0.17) | (0.13) | (0.19) | (0.19) |
Net asset value end of period | 13.69 | 15.69 | 12.89 | 12.71 | 12.75 |
Net assets end of period (000s) | $399,911 | $362,035 | $277,638 | $254,461 | $196,062 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (11.75)% | 23.38% | 2.46% | 1.22% | (0.54)% |
Ratio of total expenses to average net assets^ | 0.89 | 0.91 | 0.90 | 0.89 | 0.88 |
Ratio of net expenses to average net assetsa | 0.85 | 0.85 | 0.85 | 0.85 | 0.85 |
Ratio of net investment income to average net assetsa | 0.84 | 0.92 | 1.36 | 1.19 | 1.23 |
Portfolio turnover | 17 | 13 | 19 | 20 | 30 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 15.67 | $ 12.87 | $ 12.63 | $ 12.66 | $ 12.93 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.08 e | 0.09 e | 0.16 e | 0.15 e | (0.08) |
Net realized and unrealized gains/(losses) on investments | (1.95) | 2.84 | 0.12 | (0.03) | (0.03) |
Total from investment operations | (1.87) | 2.93 | 0.28 | 0.12 | (0.11) |
Less Distributions | |||||
Dividends from net investment income | (0.14) | (0.13) | (0.04) | (0.15) | (0.16) |
Distributions from net realized capital gains | — | — | — | — | — |
Total distributions | (0.14) | (0.13) | (0.04) | (0.15) | (0.16) |
Net asset value end of period | 13.66 | 15.67 | 12.87 | 12.63 | 12.66 |
Net assets end of period (000s) | $ 330 | $ 466 | $ 333 | $ 329 | $ 675 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (12.03)% | 23.08% | 2.21% | 0.96% | (0.83)% |
Ratio of total expenses to average net assets^ | 1.14 | 1.16 | 1.15 | 1.14 | 1.13 |
Ratio of net expenses to average net assetsa | 1.10 | 1.10 | 1.10 | 1.10 | 1.10 |
Ratio of net investment income to average net assetsa | 0.51 | 0.66 | 1.25 | 1.20 | 1.08 |
Portfolio turnover | 17 | 13 | 19 | 20 | 30 |
See page 67 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
59
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 15.71 | $ 12.90 | $11.76 |
0.17 e | 0.17 e | 0.09 e |
(1.99) | 2.81 | 1.05 |
(1.82) | 2.98 | 1.14 |
(0.19) | (0.17) | — |
— | — | — |
(0.19) | (0.17) | — |
13.70 | 15.71 | 12.90 |
$93,815 | $24,872 | $2,360 |
(11.74)% | 23.52% | 9.69% c |
0.81 | 0.84 | 0.86 d |
0.77 | 0.77 | 0.80 d |
1.07 | 1.19 | 1.06 d |
17 | 13 | 19 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$ 15.57 | $ 12.79 | $ 12.60 | $ 12.64 | $ 12.89 |
0.11 e | 0.07 e | 0.12 e | 0.10 e | — * |
(1.98) | 2.82 | 0.15 | — * | (0.11) |
(1.87) | 2.89 | 0.27 | 0.10 | (0.11) |
(0.12) | (0.11) | (0.08) | (0.14) | (0.14) |
— | — | — | — | — |
(0.12) | (0.11) | (0.08) | (0.14) | (0.14) |
13.58 | 15.57 | 12.79 | 12.60 | 12.64 |
$32,225 | $14,913 | $13,466 | $15,978 | $17,429 |
(12.12)% | 22.89% | 2.15% | 0.81% | (0.85)% |
1.26 | 1.28 | 1.27 | 1.26 | 1.25 |
1.22 | 1.22 | 1.22 | 1.22 | 1.22 |
0.69 | 0.54 | 0.99 | 0.79 | 0.87 |
17 | 13 | 19 | 20 | 30 |
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 INTERNATIONAL SMALL CAP FUND | |||
Institutional Class | |||
Year Ended October 31, | 2018 | 2017 | 2016 h |
Net asset value beginning of period | $ 13.90 | $ 10.77 | $ 10.00 |
Income from Investment Operations | |||
Net investment income/(loss)a | 0.15 e | 0.10 e | 0.11 e |
Net realized and unrealized gains/(losses) on investments | (1.50) | 3.15 | 0.66 |
Total from investment operations | (1.35) | 3.25 | 0.77 |
Less Distributions | |||
Dividends from net investment income | (0.08) | (0.12) | — |
Distributions from net realized capital gains | (0.10) | — | — |
Total distributions | (0.18) | (0.12) | — |
Net asset value end of period | 12.37 | 13.90 | 10.77 |
Net assets end of period (000s) | $50,358 | $38,818 | $17,509 |
Ratios and Supplemental Data (%) | |||
Total returnb | (9.83)% | 30.59% | 7.70% c |
Ratio of total expenses to average net assets^ | 1.15 | 1.42 | 2.55 d |
Ratio of net expenses to average net assetsa | 0.95 | 0.95 | 0.95 d |
Ratio of net investment income to average net assetsa | 1.05 | 0.81 | 1.40 d |
Portfolio turnover | 53 | 44 | 35 c |
Administrative Class | |||
Year Ended October 31, | 2018 | 2017 | 2016 h |
Net asset value beginning of period | $ 13.87 | $ 10.75 | $ 10.00 |
Income from Investment Operations | |||
Net investment income/(loss)a | 0.11 e | 0.07 e | 0.09 e |
Net realized and unrealized gains/(losses) on investments | (1.49) | 3.15 | 0.66 |
Total from investment operations | (1.38) | 3.22 | 0.75 |
Less Distributions | |||
Dividends from net investment income | (0.05) | (0.10) | — |
Distributions from net realized capital gains | (0.10) | — | — |
Total distributions | (0.15) | (0.10) | — |
Net asset value end of period | 12.34 | 13.87 | 10.75 |
Net assets end of period (000s) | $ 309 | $ 371 | $ 263 |
Ratios and Supplemental Data (%) | |||
Total returnb | (10.06)% | 30.25% | 7.50% c |
Ratio of total expenses to average net assets^ | 1.40 | 1.67 | 2.80 d |
Ratio of net expenses to average net assetsa | 1.20 | 1.20 | 1.20 d |
Ratio of net investment income to average net assetsa | 0.76 | 0.59 | 1.16 d |
Portfolio turnover | 53 | 44 | 35 c |
See page 67 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
61
Retirement Class | ||
2018 | 2017 | 2016 h |
$13.90 | $10.77 | $10.00 |
0.17 e | 0.08 e | 0.06 e |
(1.50) | 3.18 | 0.71 |
(1.33) | 3.26 | 0.77 |
(0.09) | (0.13) | — |
(0.10) | — | — |
(0.19) | (0.13) | — |
12.38 | 13.90 | 10.77 |
$8,213 | $7,671 | $ 629 |
(9.71)% | 30.67% | 7.70% c |
1.07 | 1.35 | 2.50 d |
0.87 | 0.87 | 0.90 d |
1.19 | 0.60 | 0.73 d |
53 | 44 | 35 c |
Investor Class | ||
2018 | 2017 | 2016 h |
$ 13.86 | $10.74 | $10.00 |
0.10 e | 0.06 e | 0.10 e |
(1.48) | 3.14 | 0.64 |
(1.38) | 3.20 | 0.74 |
(0.04) | (0.08) | — |
(0.10) | — | — |
(0.14) | (0.08) | — |
12.34 | 13.86 | 10.74 |
$ 619 | $ 540 | $ 287 |
(10.08)% | 30.10% | 7.40% c |
1.52 | 1.79 | 2.92 d |
1.32 | 1.32 | 1.32 d |
0.73 | 0.53 | 1.33 d |
53 | 44 | 35 c |
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 GLOBAL LEADERS FUND | |||||
Institutional Class | |||||
Year Ended October 31, | 2018 | 2017 j | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 25.31 | $ 20.29 | $ 21.83 | $ 23.79 | $ 23.78 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.01 e | 0.03 e | 0.01 e | (0.01) e | 0.05 |
Net realized and unrealized gains/(losses) on investments | 2.38 | 4.99 | (0.83) | 0.65 | 2.18 |
Total from investment operations | 2.39 | 5.02 | (0.82) | 0.64 | 2.23 |
Less Distributions | |||||
Dividends from net investment income | (0.01) | — | — | (0.03) | (0.07) |
Distributions from net realized capital gains | (2.20) | — | (0.72) | (2.57) | (2.15) |
Total distributions | (2.21) | — | (0.72) | (2.60) | (2.22) |
Net asset value end of period | 25.49 | 25.31 | 20.29 | 21.83 | 23.79 |
Net assets end of period (000s) | $33,574 | $29,034 | $25,471 | $34,402 | $26,601 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 9.90% | 24.74% | (3.90)% | 2.97% | 10.08% |
Ratio of total expenses to average net assets^ | 1.04 | 1.21 | 1.04 | 1.01 | 1.08 |
Ratio of net expenses to average net assetsa | 0.90 | 0.90 | 0.90 | 0.90 | 0.90 |
Ratio of net investment income to average net assetsa | 0.03 | 0.14 | 0.04 | (0.06) | 0.22 |
Portfolio turnover | 20 | 123 | 76 | 106 | 141 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 j | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 24.97 | $ 20.06 | $ 21.65 | $ 23.63 | $ 23.65 |
Income from Investment Operations | |||||
Net investment income/(loss)a | (0.05) e | (0.04) e | (0.05) e | (0.07) e | 0.01 |
Net realized and unrealized gains/(losses) on investments | 2.34 | 4.95 | (0.82) | 0.66 | 2.14 |
Total from investment operations | 2.29 | 4.91 | (0.87) | 0.59 | 2.15 |
Less Distributions | |||||
Dividends from net investment income | — | — | — | — | (0.02) |
Distributions from net realized capital gains | (2.20) | — | (0.72) | (2.57) | (2.15) |
Total distributions | (2.20) | — | (0.72) | (2.57) | (2.17) |
Net asset value end of period | 25.06 | 24.97 | 20.06 | 21.65 | 23.63 |
Net assets end of period (000s) | $ 1,111 | $ 1,204 | $ 1,253 | $ 1,198 | $ 802 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 9.61% | 24.48% | (4.17)% | 2.74% | 9.77% |
Ratio of total expenses to average net assets^ | 1.29 | 1.46 | 1.29 | 1.26 | 1.33 |
Ratio of net expenses to average net assetsa | 1.15 | 1.15 | 1.15 | 1.15 | 1.15 |
Ratio of net investment income to average net assetsa | (0.21) | (0.13) | (0.23) | (0.31) | (0.01) |
Portfolio turnover | 20 | 123 | 76 | 106 | 141 |
See page 67 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
63
Retirement Class | ||
2018 | 2017 j | 2016 f |
$25.33 | $20.29 | $19.79 |
0.02 e | 0.08 e | (0.03) e |
2.40 | 4.96 | 0.53 |
2.42 | 5.04 | 0.50 |
(0.03) | — | — |
(2.20) | — | — |
(2.23) | — | — |
25.52 | 25.33 | 20.29 |
$6,846 | $4,376 | $1,713 |
10.01% | 24.84% | 2.53% c |
0.96 | 1.13 | 1.00 d |
0.82 | 0.83 | 0.85 d |
0.09 | 0.32 | (0.18) d |
20 | 123 | 76 |
Investor Class | ||||
2018 | 2017 j | 2016 | 2015 | 2014 |
$ 24.72 | $ 19.89 | $ 21.49 | $ 23.51 | $23.54 |
(0.09) e | (0.06) e | (0.07) e | (0.10) e | (0.03) |
2.33 | 4.89 | (0.81) | 0.65 | 2.15 |
2.24 | 4.83 | (0.88) | 0.55 | 2.12 |
— | — | — | — | — * |
(2.20) | — | (0.72) | (2.57) | (2.15) |
(2.20) | — | (0.72) | (2.57) | (2.15) |
24.76 | 24.72 | 19.89 | 21.49 | 23.51 |
$12,416 | $11,364 | $10,659 | $13,693 | $8,584 |
9.50% | 24.28% | (4.25)% | 2.57% | 9.68% |
1.41 | 1.58 | 1.41 | 1.38 | 1.45 |
1.27 | 1.27 | 1.27 | 1.27 | 1.27 |
(0.35) | (0.25) | (0.35) | (0.44) | (0.17) |
20 | 123 | 76 | 106 | 141 |
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
HARBOR EMERGING MARKETS EQUITY FUND | |||||
Institutional Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
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 | 0.14 e | 0.11 e | 0.07 e | 0.08 e | 0.05 |
Net realized and unrealized gains/(losses) on investments | (1.30) | 2.22 | 0.71 | (2.19) | — * |
Total from investment operations | (1.16) | 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 gains | — | — | — | — | — |
Total distributions | (0.10) | (0.09) | (0.08) | (0.05) | — |
Net asset value end of period | 9.57 | 10.83 | 8.59 | 7.89 | 10.05 |
Net assets end of period (000s) | $58,271 | $51,849 | $36,390 | $41,927 | $27,294 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (10.77)% | 27.54% | 9.99% | (21.10)% | 0.50% |
Ratio of total expenses to average net assets^ | 1.34 | 1.43 | 1.49 | 1.47 | 2.34 |
Ratio of net expenses to average net assetsa | 1.15 | 1.15 | 1.15 | 1.17 | 1.25 |
Ratio of net investment income to average net assetsa | 1.28 | 1.13 | 0.93 | 0.90 | 0.78 |
Portfolio turnover | 56 | 59 | 49 | 58 | 50 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
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 | 0.08 e | 0.08 e | 0.05 e | 0.04 e | 0.05 |
Net realized and unrealized gains/(losses) on investments | (1.25) | 2.22 | 0.71 | (2.18) | (0.02) |
Total from investment operations | (1.17) | 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 gains | — | — | — | — | — |
Total distributions | (0.08) | (0.08) | (0.05) | (0.02) | — |
Net asset value end of period | 9.55 | 10.80 | 8.58 | 7.87 | 10.03 |
Net assets end of period (000s) | $ 249 | $ 275 | $ 217 | $ 197 | $ 250 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (10.91)% | 27.04% | 9.81% | (21.36)% | 0.30% |
Ratio of total expenses to average net assets^ | 1.59 | 1.68 | 1.74 | 1.72 | 2.59 |
Ratio of net expenses to average net assetsa | 1.40 | 1.40 | 1.40 | 1.43 | 1.50 |
Ratio of net investment income to average net assetsa | 0.77 | 0.85 | 0.69 | 0.49 | 0.47 |
Portfolio turnover | 56 | 59 | 49 | 58 | 50 |
See page 67 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
65
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 10.83 | $ 8.59 | $ 6.90 |
0.12 e | 0.13 e | 0.05 e |
(1.27) | 2.21 | 1.64 |
(1.15) | 2.34 | 1.69 |
(0.11) | (0.10) | — |
— | — | — |
(0.11) | (0.10) | — |
9.57 | 10.83 | 8.59 |
$12,146 | $4,232 | $1,335 |
(10.71)% | 27.62% | 24.49% c |
1.26 | 1.35 | 1.45 d |
1.07 | 1.08 | 1.10 d |
1.16 | 1.32 | 0.95 d |
56 | 59 | 49 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$ 10.78 | $ 8.56 | $ 7.85 | $ 10.01 | $10.00 |
0.09 e | 0.07 e | 0.05 e | 0.04 e | 0.03 |
(1.27) | 2.22 | 0.70 | (2.18) | (0.02) |
(1.18) | 2.29 | 0.75 | (2.14) | 0.01 |
(0.07) | (0.07) | (0.04) | (0.02) | — |
— | — | — | — | — |
(0.07) | (0.07) | (0.04) | (0.02) | — |
9.53 | 10.78 | 8.56 | 7.85 | 10.01 |
$ 614 | $ 700 | $ 482 | $ 406 | $ 454 |
(11.03)% | 27.00% | 9.69% | (21.45)% | 0.10% |
1.71 | 1.80 | 1.86 | 1.84 | 2.71 |
1.52 | 1.52 | 1.52 | 1.55 | 1.62 |
0.82 | 0.75 | 0.69 | 0.40 | 0.45 |
56 | 59 | 49 | 58 | 50 |
66
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 |
^ | Percentage does not reflect reduction for credit balance arrangements (see the “Custodian” section in 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 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 investment of the Fund. |
j | Effective March 1, 2017, the Board of Trustees appointed Sands Capital Management, LLC as subadviser to Harbor Global Leaders Fund. |
k | Effective August 22, 2018, the Board of Trustees appointed Marathon Asset Management LLP as subadviser to Harbor International Fund. |
The accompanying notes are an integral part of the Financial Statements.
67
Harbor International & Global Funds
Notes to Financial Statements—October 31, 2018
Notes to Financial Statements—October 31, 2018
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 October 31, 2018, the Trust consists of 32 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.
68
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.
69
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. |
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 year. A table that includes a categorization of investments into Levels 1, 2, or 3, and a summary of significant unobservable inputs used for Level 3 investments, 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.
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 a 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 a 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, a 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 a Fund. A counterparty’s default may cause a 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 year, 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.
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.
70
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
During the year, 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 year, 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 year, 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 year 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 Statements 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.
71
Harbor International & Global 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.
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.
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, 2015–2017), including all positions expected to be taken upon filing the 2018 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.
72
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
New Accounting Pronouncements
In August 2018, the Securities and Exchange Commission (“SEC”) issued a final rule on Disclosure Update and Simplification (the “Rule”). The Rule contains amendments to certain financial statements presentation, particularly the presentation of components of net assets in the Statements of Assets and Liabilities and distributions on the Statements of Changes in Net Assets, and eliminates the requirement to disclose accumulated undistributed net investment income or loss on the Statements of Changes in Net Assets. These amendments are part of the SEC’s overall project to improve disclosure effectiveness and are intended to simplify compliance without significantly altering the total mix of information provided to investors. The amended rules are effective for interim and annual reports filed with the SEC on or after November 5, 2018 (the Rule effective date). As of October 31, 2018, the Funds have adopted this Rule.
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update 2018-13 (“ASU 2018-13”), Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends public and private company fair value disclosure requirements. The guidance is the result of the FASB’s test of the principles developed in its disclosure effectiveness project, which is designed to improve the effectiveness of disclosures in the notes to the financial statements. This ASU is effective for all entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, however, an entity is permitted to early adopt any removed or modified disclosure and delay adoption of the additional disclosures until their effective date. As of October 31, 2018, the Funds have early adopted ASU 2018-13.
Note 3—Investment Portfolio Transactions
Investment Portfolio Transactions
Purchases and sales of investments, other than short-term securities, for each Fund for the year ended October 31, 2018 are as follows:
Purchases (000s) | Sales (000s) | ||
Harbor International Fund | $15,490,650 | $33,350,337 | |
Harbor Diversified International All Cap Fund | 630,479 | 216,667 | |
Harbor International Growth Fund | 283,470 | 88,629 | |
Harbor International Small Cap Fund | 46,806 | 29,683 | |
Harbor Global Leaders Fund | 13,898 | 10,401 | |
Harbor Emerging Markets Equity Fund | 56,669 | 34,927 |
In-Kind Redemption Transactions
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 year ended October 31, 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 collateral that is at least equal to the value of the loaned securities determined at the close of each business day. Collateral may consist of cash and/or securities issued by the U.S. Treasury or the Government National Mortgage Association. During the period, all such collateral consisted of cash. 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 Statements of Assets and Liabilities. Cash collateral is invested in the State Street Navigator Securities Lending Government Money Market
73
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—Investment Portfolio Transactions—Continued
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 Statements 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 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 year, Harbor International Fund, Harbor Diversified International All Cap Fund, Harbor International Growth Fund, Harbor International Small Cap Fund, and Harbor Global Leaders Fund engaged in securities lending. The following table summarizes the value of equity securities loaned and related cash collateral at October 31, 2018.
Market Value of Securities on Loan (000s) | Cash Collateral (000s) | ||
Harbor International Fund | $ — | $ — | |
Harbor Diversified International All Cap Fund | 2,664 | 2,785 | |
Harbor International Growth Fund | 11,583 | 12,218 | |
Harbor International Small Cap Fund | — | — | |
Harbor Global Leaders Fund | 1,185 | 1,260 |
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 | 0.66 | |
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. |
74
Harbor International & Global 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 year, the following expense limitation agreements were in effect:
• | Harbor International Fund. For the period November 19, 2017 through October 31, 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 August 22, 2018 through October 31, 2018, Harbor Capital contractually agreed to waive a portion of its management fee such that the Fund’s operating expenses, excluding interest expense (if any), are limited to 0.80%, 0.72%, 1.05%, and 1.17%, for the Institutional Class, Retirement Class, Administrative Class, and Investor Class, respectively. These contractual fee waivers are effective through February 29, 2020. In addition to the contractual fees waived, for the period August 22, 2018 through October 31, 2018, Harbor Capital voluntarily waived a portion of its management fee. For the period November 1, 2017 through August 21, 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. |
• | Harbor International Growth Fund. For the year November 1, 2017 through October 31 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 year November 1, 2017 through October 31, 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 year November 1, 2017 through October 31, 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 year November 1, 2017 through October 31, 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. (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.
75
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
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 year ended October 31, 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 year, the Funds did not enter into any transactions with any other Harbor fund.
Shareholders
On October 31, 2018, Harbor Capital, and its wholly owned subsidiaries, collectively held the following shares of beneficial interest in each of the following Funds:
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 | — | — | — | 20,516 | 20,516 | 0.0% | |||||
Harbor Diversified International All Cap Fund | — | — | — | 82,871 | 82,871 | 0.1 | |||||
Harbor International Growth Fund | — | — | — | 80,050 | 80,050 | 0.2 | |||||
Harbor International Small Cap Fund | 1,486,686 | 25,004 | 24,946 | 55,058 | 1,591,693 | 33.1 | |||||
Harbor Global Leaders Fund | 467,863 | 25,807 | 25,818 | 34,968 | 554,456 | 26.0 | |||||
Harbor Emerging Markets Equity Fund | 1,296,418 | 25,663 | 25,564 | 95,314 | 1,442,959 | 19.4 |
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 $837,000 for the year ended October 31, 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
76
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
are included as a component of “Accrued expenses – Trustees’ fees and 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.
NOTE 5—TAX INFORMATION
The amount and character of income and net realized gains to be distributed are determined in accordance with income tax rules and regulations, which may differ from U.S. GAAP. These differences are attributable to permanent book and tax accounting differences that were primarily due to tax treatment of net investment losses and use of equalization. Reclassifications, if any, are made to each Fund’s capital account to reflect income and net realized gains available for distribution (or available capital loss carryovers) under income tax rules and regulations. The amounts reclassified on the Statements of Assets and Liabilities for the year ended October 31, 2018 are as follows:
Total Distributable Earnings/(Loss) (000s) | Paid in Capital (000s) | ||
Harbor International Fund | $(3,416,047) | $3,416,047 | |
Harbor Diversified International All Cap Fund | (5,169) | 5,169 | |
Harbor International Growth Fund | (102) | 102 | |
Harbor International Small Cap Fund | (484) | 484 | |
Harbor Global Leaders Fund | (133) | 133 | |
Harbor Emerging Markets Equity Fund | — | — |
The tax composition of each Fund’s distributions is as follows:
As of October 31, 2018 | As of October 31, 2017 | ||||||||||
Ordinary Income (000s) | Long-Term Capital Gains (000s) | Total (000s) | Ordinary Income (000s) | Long-Term Capital Gains (000s) | Total (000s) | ||||||
Harbor International Fund | $547,393 | $1,331,548 | $1,878,941 | $676,849 | $— | $676,849 | |||||
Harbor Diversified International All Cap Fund | 4,413 | 10,353 | 14,766 | 2,200 | — | 2,200 | |||||
Harbor International Growth Fund | 4,567 | — | 4,567 | 3,661 | — | 3,661 | |||||
Harbor International Small Cap Fund | 315 | 400 | 715 | 208 | — | 208 | |||||
Harbor Global Leaders Fund | 16 | 4,064 | 4,080 | — | — | — | |||||
Harbor Emerging Markets Equity Fund | 551 | — | 551 | 419 | — | 419 |
77
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
NOTE 5—TAX INFORMATION—Continued
As of October 31, 2018, the components of each Fund’s distributable earnings on a tax basis are as follows:
Undistributed Ordinary Income (000s) | Undistributed Long-Term Capital Gains (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||
Harbor International Fund | $193,750 | $4,523,123 | $(914,411) | ||
Harbor Diversified International All Cap Fund | 8,461 | 18,132 | (64,917) | ||
Harbor International Growth Fund | 3,624 | — | (7,846) | ||
Harbor International Small Cap Fund | 431 | 1,819 | (1,860) | ||
Harbor Global Leaders Fund | — | 1,317 | 10,094 | ||
Harbor Emerging Markets Equity Fund | 624 | — | (2,801) |
At October 31, 2018, for Federal income tax purposes, the following Fund has a qualified late year loss deferral to offset fiscal year 2019 ordinary income:
Qualified Late Year Ordinary Loss Deferral (000s) | |
Harbor Global Leaders Fund | $18 |
At October 31, 2018, the Fund in the following table had capital loss carryforwards for federal tax purposes which will reduce the Fund’s taxable income arising from future net realized gains on investment to the extent permitted by the Internal Revenue Code. Use of the capital loss carryforwards will reduce the amount of the distribution to shareholders which would otherwise be necessary to relieve the Fund of any federal tax liability. The capital loss carryforwards do not expire.
Capital Loss Carryforward | |||||
Short-Term (000s) | Long-Term (000s) | Total (000s) | |||
Harbor International Growth Fund | $1,872 | $5,521 | $7,393 | ||
Harbor Emerging Markets Equity Fund | 1,326 | — | 1,326 |
The identified cost for federal income tax purposes of investments owned by each Fund and its respective gross unrealized appreciation and depreciation at October 31, 2018 are as follows:
Identified Cost (000s) | Gross Unrealized | Net Unrealized Appreciation/ (Depreciation) (000s) | |||||
Appreciation (000s) | (Depreciation) (000s) | ||||||
Harbor International Fund | $12,826,918 | $341,128 | $(1,255,539) | $(914,411) | |||
Harbor Diversified International All Cap Fund | 724,281 | 10,756 | (75,673) | (64,917) | |||
Harbor International Growth Fund* | 535,584 | 34,569 | (42,415) | (7,846) | |||
Harbor International Small Cap Fund | 58,695 | 3,024 | (4,884) | (1,860) | |||
Harbor Global Leaders Fund | 44,683 | 10,740 | (646) | 10,094 | |||
Harbor Emerging Markets Equity Fund* | 71,975 | 5,069 | (7,870) | (2,801) |
* | 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 year ended October 31, 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 year as disclosed in the Statements of Operations, are indicators of the volume of derivative activity for each Fund.
78
Harbor International & Global Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 6—Derivatives—Continued
Derivative Instruments
At October 31, 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) | $208 |
HARBOR DIVERSIFIED INTERNATIONAL ALL CAP FUND
Statement of Assets and Liabilities Caption | Equity Contracts (000s) | |
Purchased options (rights/warrants) | $2 |
The change in unrealized appreciation/(depreciation) and realized net gain/(loss) on derivatives, by primary risk exposure, for the year ended October 31, 2018, were:
HARBOR INTERNATIONAL FUND
Change in Unrealized Appreciation/(Depreciation) on Derivatives | Equity Contracts (000s) | |
Purchased options (rights/warrants) | $(7,430) |
Net Realized Gain/(Loss) on Derivatives | Equity Contracts (000s) | |
Purchased options (rights/warrants) | $(3,370) |
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) | $43 |
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.
79
Harbor International & Global Funds
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
Harbor Funds
Harbor Funds
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities of 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 (collectively referred to as the “Funds”), (six of the funds constituting Harbor Funds (the “Trust”)), including the portfolios of investments, as of October 31, 2018, and the related statements of operations and changes in net assets, and the financial highlights for each of the periods indicated in the table below and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds (six of the funds constituting Harbor Funds), at October 31, 2018, the results of their operations, changes in net assets and financial highlights for each of the periods indicated in the table below, in conformity with U.S. generally accepted accounting principles.
Individual fund comprising the Harbor Funds | Statement of operations | Statement of changes in net assets | Financial highlights |
Harbor International Fund Harbor International Growth Fund Harbor Global Leaders Fund Harbor Emerging Markets Equity Fund | For the year ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 | For each of the five years in the period ended October 31, 2018 |
Harbor Diversified International All Cap Fund | For the year ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 and the period from November 2, 2015 (inception) through October 31, 2016 |
Harbor International Small Cap Fund | For the year ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 and the period from February 1, 2016 (inception) through October 31, 2016 |
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on each of the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Harbor Funds investment companies since 2000.
Chicago, Illinois
December 19, 2018
December 19, 2018
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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 May 1, 2018 through October 31, 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 May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor International Fund | ||||||||
Institutional Class | 0.72% | |||||||
Actual | $3.38 | $1,000 | $ 861.68 | |||||
Hypothetical (5% return) | 3.67 | 1,000 | 1,021.48 | |||||
Retirement Class | 0.64% | |||||||
Actual | $3.01 | $1,000 | $ 862.06 | |||||
Hypothetical (5% return) | 3.26 | 1,000 | 1,021.90 | |||||
Administrative Class | 0.97% | |||||||
Actual | $4.55 | $1,000 | $ 860.57 | |||||
Hypothetical (5% return) | 4.94 | 1,000 | 1,020.19 | |||||
Investor Class | 1.09% | |||||||
Actual | $5.11 | $1,000 | $ 859.96 | |||||
Hypothetical (5% return) | 5.55 | 1,000 | 1,019.57 |
81
Harbor International & Global Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Diversified International All Cap Fund | ||||||||
Institutional Class | 0.82% | |||||||
Actual | $3.91 | $1,000 | $ 895.10 | |||||
Hypothetical (5% return) | 4.18 | 1,000 | 1,020.97 | |||||
Retirement Class | 0.74% | |||||||
Actual | $3.54 | $1,000 | $ 895.87 | |||||
Hypothetical (5% return) | 3.77 | 1,000 | 1,021.38 | |||||
Administrative Class | 1.06% | |||||||
Actual | $5.06 | $1,000 | $ 894.92 | |||||
Hypothetical (5% return) | 5.40 | 1,000 | 1,019.73 | |||||
Investor Class | 1.19% | |||||||
Actual | $5.68 | $1,000 | $ 893.60 | |||||
Hypothetical (5% return) | 6.06 | 1,000 | 1,019.06 | |||||
Harbor International Growth Fund | ||||||||
Institutional Class | 0.85% | |||||||
Actual | $4.01 | $1,000 | $ 871.97 | |||||
Hypothetical (5% return) | 4.33 | 1,000 | 1,020.81 | |||||
Retirement Class | 0.77% | |||||||
Actual | $3.63 | $1,000 | $ 872.06 | |||||
Hypothetical (5% return) | 3.92 | 1,000 | 1,021.23 | |||||
Administrative Class | 1.10% | |||||||
Actual | $5.19 | $1,000 | $ 870.62 | |||||
Hypothetical (5% return) | 5.60 | 1,000 | 1,019.52 | |||||
Investor Class | 1.22% | |||||||
Actual | $5.75 | $1,000 | $ 869.96 | |||||
Hypothetical (5% return) | 6.21 | 1,000 | 1,018.90 | |||||
Harbor International Small Cap Fund | ||||||||
Institutional Class | 0.95% | |||||||
Actual | $4.48 | $1,000 | $ 870.51 | |||||
Hypothetical (5% return) | 4.84 | 1,000 | 1,020.30 | |||||
Retirement Class | 0.87% | |||||||
Actual | $4.11 | $1,000 | $ 871.22 | |||||
Hypothetical (5% return) | 4.43 | 1,000 | 1,020.71 | |||||
Administrative Class | 1.20% | |||||||
Actual | $5.66 | $1,000 | $ 869.63 | |||||
Hypothetical (5% return) | 6.11 | 1,000 | 1,019.00 | |||||
Investor Class | 1.32% | |||||||
Actual | $6.21 | $1,000 | $ 869.63 | |||||
Hypothetical (5% return) | 6.72 | 1,000 | 1,018.38 |
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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 May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Global Leaders Fund | ||||||||
Institutional Class | 0.90% | |||||||
Actual | $4.58 | $1,000 | $1,015.94 | |||||
Hypothetical (5% return) | 4.58 | 1,000 | 1,020.55 | |||||
Retirement Class | 0.82% | |||||||
Actual | $4.16 | $1,000 | $1,016.33 | |||||
Hypothetical (5% return) | 4.18 | 1,000 | 1,020.97 | |||||
Administrative Class | 1.15% | |||||||
Actual | $5.84 | $1,000 | $1,014.57 | |||||
Hypothetical (5% return) | 5.85 | 1,000 | 1,019.26 | |||||
Investor Class | 1.27% | |||||||
Actual | $6.45 | $1,000 | $1,014.34 | |||||
Hypothetical (5% return) | 6.46 | 1,000 | 1,018.64 | |||||
Harbor Emerging Markets Equity Fund | ||||||||
Institutional Class | 1.15% | |||||||
Actual | $5.35 | $1,000 | $ 846.15 | |||||
Hypothetical (5% return) | 5.85 | 1,000 | 1,019.26 | |||||
Retirement Class | 1.07% | |||||||
Actual | $4.98 | $1,000 | $ 846.90 | |||||
Hypothetical (5% return) | 5.45 | 1,000 | 1,019.68 | |||||
Administrative Class | 1.40% | |||||||
Actual | $6.52 | $1,000 | $ 845.88 | |||||
Hypothetical (5% return) | 7.12 | 1,000 | 1,017.97 | |||||
Investor Class | 1.52% | |||||||
Actual | $7.07 | $1,000 | $ 844.86 | |||||
Hypothetical (5% return) | 7.73 | 1,000 | 1,017.35 |
* | 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 184/365 (to reflect the one-half year period). |
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Harbor International & Global Funds
Additional Information (Unaudited)
Additional Information (Unaudited)
Additional Tax Information
The Funds designate the following portions of their distributions from investment company taxable income for the fiscal year ended October 31, 2018 as qualifying for the dividends received deduction for corporate shareholders.
Percentage of Distribution | |
Harbor International Fund | 18% |
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the following capital gain dividends for the fiscal year ended October 31, 2018:
Amount (000s) | |
Harbor International Fund | $4,581,137 |
Harbor Diversified International All Cap Fund | 13,656 |
Harbor International Small Cap Fund | 775 |
Harbor Global Leaders Fund | 4,214 |
For the fiscal year ended October 31, 2018, the Funds designate up to the maximum amount of such dividends allowable pursuant to the Internal Revenue Code as qualified dividend income eligible for reduced tax rates. These lower rates range from 0% to 20% depending on an individual’s tax bracket. If the Funds pay a distribution during calendar year 2018, complete information will be reported in conjunction with Form 1099-DIV.
The Funds designate the following for Federal income tax purposes:
Foreign Taxes Paid (000s) | Foreign Source Earned Income (000s) | ||
Harbor International Fund | $36,851 | $447,077 | |
Harbor Diversified International All Cap Fund | 1,120 | 14,238 | |
Harbor International Growth Fund | 682 | 8,435 | |
Harbor International Small Cap Fund | 95 | 1,234 | |
Harbor Emerging Markets Equity Fund | 282 | 1,804 |
Shareholders who own shares through a taxable Harbor Funds account and that received distributions from a Fund during calendar year 2018 will receive a Form 1099-DIV in January 2019 that will show the tax character of those distributions.
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) 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.
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.
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS
FACTORS CONSIDERED BY THE TRUSTEES IN APPROVING THE SUBADVISORY AGREEMENT OF Harbor INTERNATIONAL FUND
Background
The Investment Company Act of 1940, as amended, requires that the subadvisory agreement be approved initially, and following an initial two-year term, at least annually, by the Harbor Funds 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 August 14-15, 2018, the Board, including the Independent Trustees voting separately, unanimously determined, in the exercise of their business judgment, that it was in the best interests of Harbor International Fund (the “Fund”) and its shareholders that Northern Cross, LLC (“Northern Cross”) be replaced by Marathon Asset Management LLP (“Marathon-London”) as subadviser to the Fund and that the terms of the new subadvisory agreement among Harbor Funds, on behalf of the Fund, Harbor Capital and Marathon-London were fair and reasonable. Accordingly, the Trustees approved the new subadvisory agreement for an initial two-year term. In their deliberations, the Independent Trustees had the opportunity to meet privately without representatives of Harbor Capital or Marathon-London present and were represented throughout the process by legal counsel to the Independent Trustees and the Fund.
The Trustees held meetings over several months where they received presentations by Harbor Capital concerning Harbor Capital’s ongoing, comprehensive assessment of the Fund’s performance, Northern Cross and its investment process, and regular and continued discussions with Northern Cross, as well as Harbor Capital’s search for a potential replacement subadviser, which had resulted in several candidates. The Trustees were apprised of Harbor Capital’s continued discussions with Northern Cross and potential replacement subadvisers and considerations related to the potential transition of the Fund’s portfolio to a different subadviser at regular meetings of the Board and through periodic conference calls. The Trustees also met with Northern Cross regarding its investment process and with certain of the finalists resulting from Harbor Capital’s search. At meetings held on May 6-7, 2018 and August 14-15, 2018, the Trustees received presentations by Marathon-London regarding the firm and its experience, investment philosophy and process, operational and trading capabilities, and proposed approach to managing the Fund’s assets in connection with the subadviser change, among other things.
In determining whether to approve the new subadvisory agreement, the Trustees reviewed materials furnished by Harbor Capital and Marathon-London, including information regarding the performance of the Fund over various periods, information regarding the performance of similar funds over the same periods, information regarding the flow of assets into and out of the Fund and information regarding Marathon-London, its investment philosophy and strategies, past performance, financial condition, operational capabilities, and personnel. The Trustees also took into account their knowledge of Harbor Capital and Marathon-London resulting from their quarterly meetings and other discussions throughout the year, and they considered Harbor Capital’s rationale for its recommendation to appoint Marathon-London to succeed Northern Cross as the Fund’s subadviser.
The Trustees considered that, in recommending Marathon-London, Harbor Capital had conducted an extensive search for an international equity investment adviser and that Harbor Capital believed that Marathon-London had the potential to add value for the Fund’s shareholders. The Trustees further understood that Harbor Capital had taken into account its experience with Marathon-London as subadviser to Harbor Diversified International All Cap Fund (the “Diversified International All Cap Fund”), which since 2015 has been managed by Marathon-London using its international equity strategy that is benchmarked to the MSCI ACWI Ex U.S. Index, and as investment adviser to the Marathon-London Global Ex U.S. Fund of the Marathon-London Group Trust for Employee Benefit Plans, a private fund managed by Marathon-London using a similar international equity strategy in which the Harbor Capital Group Trust for Defined Benefit Plans (the “Group Trust”) has invested since 2016.
Specific Factors
In considering the approval of the new subadvisory agreement, the Board, including the Independent Trustees, evaluated a number of factors relevant to their determination. They 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 new subadvisory agreement were the following:
• | the nature, extent, and quality of the services proposed to be provided by Marathon-London, including the background, education, expertise and experience of the investment professionals of Marathon-London who would provide investment management services to the Fund; |
• | the favorable history, reputation, qualifications and background of Marathon-London, as well as the qualifications of Marathon-London’s personnel; |
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
• | the proposed fee to be charged by Marathon-London to Harbor Capital for subadvisory services, including the impact of any differences between the current and proposed subadvisory fees on the portion of the advisory fee to be retained by Harbor Capital, after payment of Marathon-London’s fee, for the subadviser oversight, administration and manager of managers services Harbor Capital provides; |
• | the investment performance of Marathon-London in managing other accounts in a style similar to the style to be utilized in managing the Fund relative to the performance of a benchmark index and the performance of the Fund under Northern Cross; |
• | the expected impact of the implementation of the subadvisory agreement on the profitability of Harbor Capital with respect to the Fund; and |
• | any “fall out” benefits that might inure to Harbor Capital, Marathon-London and their affiliates as a result of the implementation of the new subadvisory agreement. |
The Trustees considered the nature, extent and quality of the services proposed to be provided by Marathon-London in relation to the services provided by Northern Cross since February 12, 2009. In their deliberations, the Trustees were mindful of the fact that, by choosing to invest in the Fund, the Fund’s shareholders entrusted Harbor Capital with the responsibility, subject to the approval of the Trustees, for selecting the 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 depth, knowledge and experience level of the investment team, the quality of the investment process and the culture of Marathon-London.
The Board discussed the presentations by Marathon-London and the merits of appointing Marathon-London as subadviser to the Fund. The Board reviewed the historical performance record of Marathon-London’s international equity strategy, noting that it was extensive and that it had outperformed its benchmark index, the MSCI EAFE Index, on an annualized basis for the one-, three-, five-, ten-year and since inception periods ended June 30, 2018, and that on a calendar year-to-year basis since inception, the strategy had outperformed its benchmark index in some years and underperformed its benchmark index in others. The Board also considered that the performance compared favorably to the performance of the Fund under Northern Cross for the one-, three-, five- and ten-year periods ended June 30, 2018. The Board also considered the track record of the investment strategy used by Marathon-London in managing the Diversified International All Cap Fund, believing it relevant in the assessment of the potential of the international strategy for the Fund going forward. The Trustees indicated that they believed one of the competitive advantages of Marathon-London is the breadth and depth of the investment group and that the Fund could benefit from Marathon-London’s broadly diversified exposure across the market capitalization spectrum and geographic regions. The Board also discussed the performance of Northern Cross and its tenure in managing the Fund, noting the Fund’s underperformance relative to its benchmark and peer group for certain periods.
The Board considered the potential tax and financial impacts of liquidating portfolio holdings and realizing gains and incurring brokerage costs, both in transitioning the portfolio and in responding to significant redemptions that could be expected to follow an announcement of a subadviser change, and potential options for mitigating the tax consequences to Fund shareholders. It was noted that the tax ramifications of a subadviser change may be significant given the level of net realized and unrealized gains in the portfolio and that counsel to the Fund and the Independent Trustees, as well as the Fund’s tax advisor, have provided their views with respect to the potential options for mitigating the tax consequences to Fund shareholders. The Board considered the portion of portfolio holdings that would likely be replaced as a result of the proposed engagement of Marathon-London. The Board noted that portfolio transition would be handled by Marathon-London.
The Trustees also discussed other potential replacement subadvisers and other potential options, including employing a multi-manager structure for the Fund.
Subadvisory Fee. In considering the proposed subadvisory fee payable to Marathon-London pursuant to the new subadvisory agreement, the Trustees compared the proposed fee to the fee payable to Northern Cross under the prior subadvisory agreement. The Trustees noted that, based on the Fund’s assets as of June 30, 2018, the effective annual fee rate for the Fund under the prior subadvisory agreement with Northern Cross was lower than the effective annual fee rate to be paid by the Adviser under the new subadvisory agreement with Marathon-London. The Trustees discussed that Marathon-London also provides subadvisory services to the Diversified International All Cap Fund and the Group Trust, and that the fee schedules for these portfolios would be the same as the proposed subadvisory fee schedule for the Fund, and that all the assets managed by Marathon-London would be aggregated for purposes of applying breakpoints in the subadvisory fee schedule.
As a result of these deliberations, the Trustees agreed that the prior subadvisory agreement should be terminated and voted to approve the new subadvisory agreement with Marathon-London.
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
FACTORS CONSIDERED BY THE TRUSTEES IN APPROVING THE AMENDED SUBADVISORY AGREEMENT OF HARBOR DIVERSIFED INTERNATIONAL All Cap FUND
At a meeting of the Board held on August 14-15, 2018, the Board, including the Independent Trustees voting separately, approved an amended Subadvisory Agreement with Marathon-London (the “Amended Agreement”) that reduced the contractual subadvisory fee rate payable by Harbor Capital to Marathon-London for the advisory services it provides to the Diversified International All Cap Fund. In determining to approve the Amended Agreement, the Trustees considered that the Diversified International All Cap Fund’s shareholders would receive the full benefit of the subadvisory fee reduction through Harbor Capital’s expense limitation and voluntary waiver of its advisory fee in an amount equal to the reduction in subadvisory fees paid. The Trustees noted that they were being asked to approve the Amended Agreement in connection with the appointment of Marathon-London to serve as replacement subadviser to Harbor International Fund and that the fee schedule for the Diversified International All Cap Fund would be identical to those of Harbor International Fund and the Group Trust and all the assets managed by Marathon-London would be aggregated for purposes of applying breakpoints in the subadvisory fee schedule. 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 Diversified International All Cap Fund in connection with their annual review of investment advisory and subadvisory agreements, at which time the Trustees would consider the nature, extent and quality of services provided by Harbor Capital and Marathon-London; investment performance, advisory fees and expense ratios; profitability; any “fall out” benefits; and economies of scale.
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers
As of December 2018
The business and affairs of the Trust shall be managed by or under the direction of the Trustees, and they shall have all powers necessary or desirable to carry out that responsibility. The Trustees shall have full power and authority to take or refrain from taking any action and to execute any contracts and instruments that they may consider necessary or desirable in the management of the Trust. Any determination made by the Trustees in good faith as to what is in the interests of the Trust shall be conclusive. Information pertaining to the Trustees and Officers of Harbor Funds is set forth below. The address of each Trustee and Officer is: [Name of Trustee or Officer] c/o Harbor Funds, 111 South Wacker Drive, 34th Floor, Chicago, IL 60606-4302.
Harbor Funds' Statement of Additional Information includes additional information about the Trust’s Trustees and is available without charge by calling 800-422-1050 or at the Trust’s website at harborfunds.com.
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Number of Portfolios In Fund Complex Overseen By Trustee | Other Directorships Of Public Companies and Other Registered Investment Companies Held by Trustee During Past Five Years |
INDEPENDENT TRUSTEES | ||||
Scott M. Amero (55) Trustee | Since 2014 | Chairman (2015-Present) and Trustee (2011-2015), Rare (conservation nonprofit); Trustee, Berkshire School (2014-Present); Vice Chairman and Global Chief Investment Officer, Fixed Income (2010), Vice Chairman and Global Chief Investment Officer, Fixed Income, and Co-Head, Fixed Income Portfolio Management (2007-2010), BlackRock, Inc., (publicly traded investment management firm). | 32 | None |
Raymond J. Ball (74) Trustee | Since 2006 | Sidney Davidson Distinguished Service Professor of Accounting, University of Chicago Booth School of Business (2000-Present); Academic Affiliate, Analysis Group (litigation consulting firm) (2000-Present); Financial Reporting Faculty Advisory Group of the Institute of Chartered Accountants in England and Wales (2008-Present); and Advisory Board of the Center for Accounting Research & Education at University of Notre Dame (2006-Present). | 32 | None |
Donna J. Dean (67) Trustee | Since 2010 | Chief Investment Officer of the Rockefeller Foundation (a private foundation) (1995-Present). | 32 | None |
Joseph L. Dowling III (54) Trustee | Since 2017 | Chief Investment Officer, Brown University (2013-Present); Advisory Board Member, Stage Point Capital (private mortgage specialist) (2016-2017); Advisory Board Member, Harbor Funds (2016-2017); and Founder and Managing Member, Narragansett Asset Management (private investment management firm) (1998-2013). | 32 | Director of Integrated Electrical Services (2011-Present). |
Randall A. Hack (71) Trustee | Since 2010 | Founder and Senior Managing Director of Capstone Capital LLC (private investment firm) (2003-Present); Director of Tower Development Corporation (cell tower developer) (2009-2016); Advisory Director of Berkshire Partners (private equity firm) (2002-2013); Founder and Senior Managing Director of Nassau Capital, LLC (private investment firm, investing solely on behalf of the Princeton Endowment) (1995-2001); and President of The Princeton University Investment Company (1990-1994). | 32 | None |
Robert Kasdin (60) Trustee | Since 2014 | Senior Vice President and Chief Operating Officer (2015-Present) and Chief Financial Officer (2018-Present), Johns Hopkins Medicine; Senior Executive Vice President, Columbia University (2002-2015); Trustee and Member of the Finance Committee, National September 11 Memorial & Museum at the World Trade Center (2005-Present); Director, Apollo Commercial Real Estate Finance, Inc. (2014-Present); Director and Executive Committee Member, The Y in Central Maryland (2018-Present); and Director, Noranda Aluminum Holdings Corp. (2007-2014). | 32 | Director of Noranda Aluminum Holdings Corporation (2007-2014); and Director of Apollo Commercial Real Estate Finance, Inc. (2014-Present). |
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers—Continued
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Number of Portfolios In Fund Complex Overseen By Trustee | Other Directorships Of Public Companies and Other Registered Investment Companies Held by Trustee During Past Five Years |
INDEPENDENT TRUSTEES—Continued | ||||
Kathryn L. Quirk (66) Trustee | Since 2017 | Retired; Vice President, Senior Compliance Officer and Head, U.S. Regulatory Compliance, Goldman Sachs Asset Management (2013-2017); Deputy Chief Legal Officer, Asset Management, and Vice President and Corporate Counsel, Prudential Insurance Company of America (2010-2012); Co-Chief Legal Officer, Prudential Investment Management, Inc., and Chief Legal Officer, Prudential Investments and Prudential Mutual Funds (2008-2012); Vice President and Corporate Counsel and Chief Legal Officer, Mutual Funds, Prudential Insurance Company of America, and Chief Legal Officer, Prudential Investments (2005-2008); Vice President and Corporate Counsel and Chief Legal Officer, Mutual Funds, Prudential Insurance Company of America (2004-2005); Member, Management Committee (2000-2002), General Counsel and Chief Compliance Officer, Zurich Scudder Investments, Inc. (1997-2002). | 32 | None |
Ann M. Spruill (64) Trustee | Since 2014 | Partner (1993-2008), member of Executive Committee (1996-2008), Member Board of Directors (2002-2008), Grantham, Mayo, Van Otterloo & Co, LLC (private investment management firm) (with the firm since 1990); Member Investment Committee and Chair of Global Equities, Museum of Fine Arts, Boston (2000-Present); and Trustee, Financial Accounting Foundation (2014-Present). | 32 | None |
INTERESTED TRUSTEE | ||||
Charles F. McCain (49)* Chairman, Trustee and President | Since 2017 | Chief Executive Officer (2017-Present), Director (2007-Present), President and Chief Operating Officer (2017), Executive Vice President and General Counsel (2004-2017), and Chief Compliance Officer (2004-2014), Harbor Capital Advisors, Inc.; Director (2007-Present) and Chief Compliance Officer (2004-2017), Harbor Services Group, Inc.; and Chief Executive Officer (2017-Present), Director (2007-Present), Chief Compliance Officer and Executive Vice President (2007-2017), Harbor Funds Distributors, Inc. | 32 | None |
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years |
FUND OFFICERS NOT LISTED ABOVE** | ||
Erik D. Ojala (43) Chief Compliance Officer | Since 2017 | Executive Vice President and General Counsel (2017-Present) and Secretary (2010-Present); Senior Vice President and Associate General Counsel (2007-2017), Harbor Capital Advisors, Inc.; Director, Executive Vice President and Chief Compliance Officer (2017-Present), Harbor Funds Distributors, Inc.; and Director (2017-Present) and Assistant Secretary (2014-Present), Harbor Services Group, Inc. |
Anmarie S. Kolinski (47) Treasurer | Since 2007 | Executive Vice President and Chief Financial Officer (2007-Present), Harbor Capital Advisors, Inc.; Chief Financial Officer (2007-Present), Harbor Services Group, Inc.; and Chief Financial Officer (2015-Present) and Treasurer (2012-Present), Harbor Funds Distributors, Inc. |
Brian L. Collins (50) Vice President | Since 2005 | Executive Vice President and Chief Investment Officer (2004-Present), Harbor Capital Advisors, Inc. |
Charles P. Ragusa (59) Vice President | Since 2007 | Executive Vice President (2007-Present), Harbor Capital Advisors, Inc.; President (2007-Present), Harbor Services Group, Inc.; and Executive Vice President and AML Compliance Officer (2007-Present) and OFAC Officer (2015-Present), Harbor Funds Distributors, Inc. |
Diana R. Podgorny (39) Secretary | Since 2018 | Vice President and Assistant General Counsel, Harbor Capital Advisors, Inc. (2017-Present); Vice President and Counsel, AMG Funds LLC (2016-2017); and Vice President and Counsel, Aston Asset Management, LLC (2010-2016). |
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Harbor International & Global Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers—Continued
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years |
FUND OFFICERS NOT LISTED ABOVE**—Continued | ||
Jodie L. Crotteau (46) Assistant Secretary | Since 2014 | Senior Vice President and Chief Compliance Officer, Harbor Capital Advisors, Inc. (2014-Present); Chief Compliance Officer and Secretary (2017-present) and Assistant Secretary (2015-2016), Harbor Services Group, Inc.; Assistant Secretary (2016-present), Harbor Funds Distributors, Inc.; Vice President and Chief Compliance Officer, Grosvenor Registered Funds (2011-2014); and Vice President, Grosvenor Capital Management, L.P. (2010-2014). |
Lana M. Lewandowski (39) AML Compliance Officer and Assistant Secretary | Since 2017 | Legal & Compliance Manager (2016-Present) and Legal Specialist (2012-2015), Harbor Capital Advisors, Inc. |
Lora A. Kmieciak (54) Assistant Treasurer | Since 2017 | Senior Vice President – Fund Administration and Analysis (2017-Present) and Senior Vice President - Business Analysis (2015-2017), Harbor Capital Advisors, Inc.; and Assurance Executive Director (1999-2015), Ernst & Young LLP. |
John M. Paral (50) Assistant Treasurer | Since 2013 | Director of Fund Administration and Analysis (2017-Present), Vice President (2012-Present) and Financial Reporting Manager (2007-2017), Harbor Capital Advisors, Inc. |
1 | Each Trustee serves for an indefinite term, until his successor is elected. Each Officer is elected annually. |
* | Mr. McCain is deemed an “Interested Trustee” due to his affiliation with the Adviser and Distributor of Harbor Funds. |
** | Officers of the Funds are “interested persons” as defined in the Investment Company Act. |
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This privacy statement is not part of this report
Harbor’s Privacy Statement
The following privacy statement (“Privacy Statement”) is issued by Harbor Funds and each series of Harbor Funds and its affiliates, Harbor Capital Advisors, Inc., Harbor Services Group, Inc. and Harbor Funds Distributors, Inc. (collectively, “Harbor” “we” or “us”). The measures described in this Privacy Statement reflect the commitments we make to protect the privacy of your personal information. We appreciate the confidence you have shown by entrusting us with your assets.
Personal Information
In the course of providing products and services, we collect personal information about you from the following sources: applications, forms, our website (including any information captured through our use of “cookies”), through mobile applications, by telephone and in correspondence and transactions with us, our affiliates or other parties, including when you contact Shareholder Services or establish an account with us. This Privacy Statement applies to personal information we collect from those sources unless we inform you otherwise.
The personal information collected may include name, address, e-mail address, telephone/fax numbers, account number, social security or taxpayer identification number, investment activity, bank account information, location data (depending on your app settings and device permissions), and other information voluntarily provided by you.
We may also collect certain information automatically when you visit us through our website or a mobile application. For example, we may collect technical and navigational information, such as computer browser type, device type, device ID, Internet protocol address, pages visited average time spent on our website and searches performed on our website. We may use this information to alert you to software compatibility issues; to provide you with or improve or websites, applications, products or services; or to provide you with content that may be of interest to you. We use your IP address to help diagnose problems with our server and to administer our website. Your IP address is also used to gather broad demographic information. This information will be used for internal purposes only. We also collect information in the form of log files that record website and app activity and gather statistics about your browsing habits. These entries are generated automatically, and help us to troubleshoot errors, improve performance and maintain the security of our sites and apps. We use “cookies” and similar files that may be placed on your computer or device for security purposes, to facilitate site navigation and to personalize the appearance of our site. We provide more information regarding cookies and other tracking technologies below.
In addition, we may receive personal information about you that you authorize third parties to provide to us. We also may obtain personal information from third-party service providers to verify your identity, to prevent fraud, or to help us identify products and services that may be of interest to you.
The personal information we collect about you may be transferred to or stored by us or our service providers in the United States or elsewhere, as permitted by law.
If you do not wish to provide personal information to us, we may be unable to provide certain products or services to you.
Information Sharing
We disclose personal information with affiliated and non-affiliated parties: (1) as permitted or required by law or regulation; (2) if we believe that is necessary to: comply with applicable laws, regulations, or industry requirements; respond to requests from a legal, regulatory, or governmental authority; enforce legal terms; detect and resolve any fraud or security concerns, and protect the rights, property, and safety of us, our users, or others; (3) in the event of a merger, acquisition or sale of all or substantially all of our assets; or (4) as otherwise described in this Privacy Statement.
Personal information we collect may be shared with non-affiliated companies that perform support services on our behalf or to other firms that assist us in providing you with products and services (including, without limitation, completing transactions), such as custodians, transfer agents, broker-dealers and marketing service firms (to support our marketing to you), as well as with other financial institutions. We may also share information with affiliates that are engaged in a variety of financial services in order to better service your account(s).
When information is shared with third parties, they are not permitted to use the information for any purpose other than those purposes described in this Privacy Statement or as permitted by law.
If you close your account(s) or if we lose contact with you, we will continue to share information in accordance with our current privacy policy and practices.
If you close your account(s) or if we lose contact with you, we will continue to share information in accordance with our current privacy policy and practices.
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Harbor’s Privacy Statement—Continued
Security
We maintain physical, electronic and procedural safeguards designed to protect your personal information; however, please be aware that no data security measures can guarantee 100% security.
For shareholders accessing information through our website or a mobile application, various forms of Internet security, such as data encryption firewall barriers, user names and passwords, two-factor authentication, and other tools are used. For additional information regarding our security measures, visit the terms and conditions of use on our website at .
Linking to
Third Parties
Third Parties
When you visit our website and leave to go to another linked site, we are not responsible for the content or availability of the linked site. Please be advised that if you enter into a transaction on the third-party site, we do not represent either the third party or you. Further, the privacy and security policies of the linked site may differ from those practiced by us.
Cookies and Other Technologies
A cookie is a small text file that is stored on your computer, tablet, or device when you visit a website or a mobile application. Cookies usually store small bits of information about you and what you do on that site or application, which are then used to improve your browsing experience. Some cookies are only used during a single visit, while others are saved on your device until your next visit. Harbor Funds and our third-party providers use both types of cookies to make your visits more productive.
If you are concerned about cookies, they can be blocked from your device, or you can set your browser to notify you when they are being used. Use the Help feature of your browser to learn how.
Our website, mobile application, and e-mails may use a web beacon. A web beacon helps to measure usage and activity and reports that activity back to the system providers. In some cases, a web beacon triggers the placement of a cookie on your device.
We and our service providers use web beacons and cookies to determine things like if and when you open our e-mails, what type of device, operating system, e-mail program, or web browser you are using, your IP address, and what links you click within our site or e-mail. These things enable us to gauge the effectiveness, relevance, and value of our content and communications.
We use Google Analytics (which uses a web beacon) to collect information about use of our website and mobile application. For more information on opting out of being tracked by Google Analytics, visit https://tools.google.com/dlpage/gaoptout. We also use Lucky Orange to collect information about how visitors interact with the content on our public website and mobile application pages. Lucky Orange does not track actions or behavior within the password-protected online account access systems. For more information about Lucky Orange, including how to opt out, please visit: https://www.luckyorange.com/privacy.php.
Do Not Track
Our third-party vendors may collect information about users across our website. We do not currently have the capability to respond to a web browser that does not track signals or other mechanisms that provide you with the ability to exercise choice regarding the collection of this information.
Changes to this
Privacy Statement
Privacy Statement
We reserve the right to change or revise this Privacy Statement at any time to reflect changes in the law or our data collection and use practices. New updates to the Privacy Statement will be posted to our website and are include in Harbor Funds’ annual reports to shareholders. Privacy Statement changes will apply to the information collected from the date we post our revised Privacy Statement, as well as to existing information we hold.
Contact Us
If you have any questions or concerns about how we maintain the privacy of your personal information or if you would like to update your personal information on file, please contact us at 800-422-1050 Monday through Friday, between the hours of 8:00 a.m. and 6:00 p.m. Eastern time. You may also write to us at the following postal address:
Harbor Funds
c/o Harbor Services Group, Inc.
PO Box 804660
Chicago, IL 60680-4108
c/o Harbor Services Group, Inc.
PO Box 804660
Chicago, IL 60680-4108
We recommend that you read and retain this notice for your personal files.
Last Updated: December 2018
92
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.
ICE BofAML U.S. Convertible Ex Mandatory Index—The ICE BofAML U.S. Convertible 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. 3-Month Treasury Bill Index—The ICE BofAML U.S. 3-Month 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 (ND) Index—The MSCI All Country World (ND) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of global 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. (ND) Index 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 developed markets, excluding the U.S. and Canada. 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® 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
93
Benchmark Descriptions—Continued
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.
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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95
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.AR.IG.1018
Table of Contents
Annual Report
October 31, 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 | HBFRX | HRBDX | – |
Harbor Core Bond Fund | HACBX | HCBRX | – | – |
Harbor Real Return Fund | HARRX | HRRNX | HRRRX | – |
Harbor Money Market Fund | HARXX | – | HRMXX | – |
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website (harborfunds.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from a Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with Harbor Funds, by calling 800-422-1050.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary (such as a broker-dealer or bank), you can contact your financial intermediary to request that you continue to receive paper copies of the Funds’ shareholder reports. If you invest directly, you can call 800-422-1050 to request that you continue to receive paper copies of the Funds’ shareholder reports. Your election to receive reports in paper will apply to all Harbor Funds held in your account.
Table of Contents
1 | |
Fixed Income Funds | |
Harbor Convertible Securities Fund | |
2 | |
4 | |
5 | |
Harbor High-Yield Bond Fund | |
9 | |
12 | |
13 | |
Harbor High-Yield Opportunities Fund | |
24 | |
26 | |
27 | |
Harbor Bond Fund | |
32 | |
35 | |
36 | |
Harbor Core Bond Fund | |
56 | |
58 | |
59 | |
Harbor Real Return Fund | |
62 | |
65 | |
66 | |
Harbor Money Market Fund | |
78 | |
80 | |
81 | |
Financial Statements | |
83 | |
85 | |
87 | |
93 | |
95 | |
109 | |
131 | |
132 | |
Additional Information | |
135 | |
135 | |
135 | |
135 | |
135 | |
138 | |
141 | |
143 |
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 year ended October 31, 2018, though some bond market segments delivered positive returns. The Bloomberg Barclays U.S. Aggregate Bond Index, a diversified benchmark of investment-grade bonds, posted a return of -2.05% for the fiscal year.
At the beginning of the fiscal year, solid fundamental data and higher inflation kept the U.S. Federal Reserve (Fed) on track with policy normalization. Rising interest rates and geopolitical concerns contributed to more challenged performance across fixed income markets during the first few months of 2018. The Fed has raised rates three times thus far in 2018, including a September hike that boosted the federal funds rate range to 2.00%-2.25%.
U.S. Treasury Inflation Protected Securities (TIPS) returned -1.24% for the fiscal year, as measured by the Bloomberg Barclays U.S. TIPS Index, trailing conventional U.S. Treasury bonds.
High-yield bonds bucked the broader trend, as the ICE BofAML U.S. Non-Distressed High Yield Index returned 0.76%. In March 2018, the high-yield market faced headwinds due to trade fears, mounting volatility and sizable mutual fund outflows. The ensuing months were much more constructive, as investor appetite for risk assets drove gains for high-yield bonds. However, continuing trade war concerns and increased volatility led to a monthly decline for high-yield in October.
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 those in Harbor Funds.
Returns For Periods Ended October 31, 2018 | ||||||||
Annualized | ||||||||
Fixed Income | 1 Year | 5 Years | 10 Years | 30 Years | ||||
ICE BofAML U.S. Non-Distressed High Yield (domestic high-yield bonds) | 0.76% | 4.79% | 9.32% | N/A | ||||
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -2.05 | 1.83 | 3.94 | 5.97% | ||||
Bloomberg Barclays U.S. TIPS (domestic inflation-linked bonds) | -1.24 | 0.97 | 4.11 | N/A | ||||
ICE BofAML U.S. 3-Month Treasury Bill (proxy for money market returns) | 1.68 | 0.55 | 0.35 | 3.18 | ||||
Domestic Equities | ||||||||
Russell 3000® (entire U.S. stock market) | 6.60% | 10.81% | 13.35% | 10.28% | ||||
S&P 500 (large cap stocks) | 7.35 | 11.34 | 13.24 | 10.25 | ||||
Russell Midcap® (mid cap stocks) | 2.79 | 8.97 | 14.20 | 11.44 | ||||
Russell 2000® (small cap stocks) | 1.85 | 8.01 | 12.44 | 9.64 | ||||
Russell 3000® Growth (growth stocks) | 10.20 | 13.06 | 15.34 | 10.13 | ||||
Russell 3000® Value (value stocks) | 2.78 | 8.50 | 11.28 | 10.05 | ||||
International & Global | ||||||||
MSCI EAFE (ND) (foreign stocks) | -6.85% | 2.02% | 6.89% | 4.59% | ||||
MSCI EAFE Small Cap (ND) (foreign small cap stocks) | -7.81 | 5.16 | 11.56 | N/A | ||||
MSCI World (ND) (global stocks) | 1.16 | 6.81 | 10.02 | 6.83 | ||||
MSCI All Country World Ex. U.S. (ND) (foreign stocks) | -8.24 | 1.63 | 6.92 | N/A | ||||
MSCI Emerging Markets (ND) (emerging market stocks) | -12.52 | 0.78 | 7.84 | N/A |
assessing your long-term investment plan
As the end of the calendar year approaches, it may be a good time to evaluate your financial goals and your investments. We always encourage shareholders to take a long-term perspective with all of their investments. While past performance is never a guarantee of future results, over the long term, the returns of equities and debt securities have historically helped many investors achieve their financial objectives. We encourage all investors to maintain a diversified portfolio of equities, debt and cash in an allocation consistent with their long-term financial goals and comfort with risk.
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.
December 19, 2018
Charles F. McCain |
Chairman |
1
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 early in the fiscal year failed to carry through from January into the succeeding months. Faced with uncertainty concerning the pace of rising interest rates, a tightening labor market, intensification of trade war concerns and the resulting impact on the sustainability of corporate earnings growth, the S&P 500 Index witnessed several bouts of volatility. The S&P 500 Index closed October 2018 at 2,711.74, a 7.35% total return since November 1, 2017, after setting an all-time high of 2,930.75 on September 20, 2018. The Fund’s benchmark, the ICE BofAML U.S. Convertible Ex Mandatory Index (the “Index”), returned 4.05% for the fiscal year ended October 31, 2018 with underlying equities returning 4.86% for the same period. It is notable that the market’s two largest sectors, Information Technology and Health Care, combined to contribute more than 77% of the Index’s total return.
With equities trading just below record highs, the resurgence of the convertible new-issue market, despite the recent spate of volatility, has been encouraging with 147 deals raising $52.2 billion for the fiscal year. This compares favorably with the preceding fiscal year’s total of 105 deals raising $39.0 billion. Another encouraging sign for the growth of the market is that first-time issuers represent approximately 65% of the notional new issue value raised during the fiscal year. Throughout the fiscal year, the continued strength and variety in new-issue activity has provided ample opportunity to further diversify the Fund through selective purchases.
Performance
Harbor Convertible Securities Fund returned 2.82% (Institutional Class), 2.80% (Retirement Class), 2.27% (Administrative Class), and 2.35% (Investor Class) for the fiscal year ended October 31, 2018, compared with the 4.05% return of the Index during the same period. Generally, the Fund benefitted most on an absolute and relative basis from continued strength in the underlying equities of the convertible securities held by the Fund and the market’s two largest sectors, Information Technology and Health Care. Negative attribution is most attributable to security selection in the Industrials and Energy sectors. The Fund stylistically tends to underweight/sell the most equity like names in the market (those with a 100% investment premium or more). During the fiscal year, the Fund’s average weighting in the greater than 100% investment premium category was 4.57% compared to the 19.84% weight in the Index. This underweight detracted from relative performance over the fiscal year; however, this was partially offset by positive security selection in this segment.
Software was the top contributing industry to the Fund’s performance. Industry performance was led by ServiceNow, a leading cloud provider of IT management software platforms; Citrix Systems, a cloud software aggregator of applications and data utilized in the workplace; and Proofpoint, a provider of security protection for e-mails, instant messages and other communications. IT services was the second best contributing industry. Similar to fiscal year 2017, we continue to benefit from the Fund’s position in Square, a leading provider of mobile payment solutions for small and medium size businesses. The third industry was health care equipment, led by Dexcom, a medical device company focused on the development of implantable continuous glucose monitoring systems.
The industries that detracted the most from Fund performance were construction and engineering, hotels and leisure, and technology hardware. In construction and engineering, weakness in the Fund’s two core holdings, Tutor Perini and Vinci, reflects the slow adoption of the
2
Harbor Convertible Securities Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 05/01/2011 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the ICE BofAML U.S. Convertible Ex Mandatory Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | Life of Fund | |||||||
Harbor Convertible Securities Fund | ||||||||
Institutional Class1 | 2.82% | 4.09% | 4.70% | |||||
Retirement Class1,2 | 2.80 | 4.11 | 4.71 | |||||
Administrative Class1 | 2.27 | 3.77 | 4.39 | |||||
Investor Class1 | 2.35 | 3.68 | 4.30 | |||||
Comparative Index | ||||||||
ICE BofAML U.S. Convertible Ex Mandatory1 | 4.05% | 8.26% | 8.47% |
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.
infrastructure rebuild cycle. In hotels and leisure, Marriott Vacations, a developer of timeshare resorts, has been slow to realize the synergies inherent from their recent acquisition of competitor ILG; we remain constructive on the security long term. In technology hardware, Western Digital continues to see pricing pressure and as a result a lower earnings outlook. We have reduced the size of the Fund’s position.
Outlook & Strategy
Looking forward, we believe that the overall prospects for convertible securities remain positive. We believe the prospects include: a growth-oriented equity environment; positive overall credit conditions; and increased new-issue activity combined with a historical non-correlation to rising U.S. Treasury rates.
Also, the recent resurgence of the convertible new-issue calendar has begun to present many new opportunities. Recently issued convertibles have included both new companies as well as existing issuers. This development has allowed us to diversify 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 focus first on investment creditworthiness, with an emphasis on positive risk/reward characteristics.
As we enter a period of potentially higher interest rates, with associated periods of intermittent volatility, we expect that the market is likely to favor more balanced convertible securities with a positive credit profile.
1 | The “Life of Fund” return as shown reflects the period 05/01/2011 through 10/31/2018. |
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.
3
Harbor Convertible Securities Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Issuers (% of net assets)
❶ | Liberty Media Corp. | 2.4% |
❷ | Live Nation Entertainment Inc. | 2.2% |
❸ | BioMarin Pharmaceutical Inc. | 2.1% |
❹ | Blackstone Mortgage Trust Inc. | 2.0% |
❺ | Nextera Energy Partners LP | 2.0% |
❻ | Extra Space Storage LP | 1.9% |
❼ | Meritor Inc. | 1.9% |
❽ | Royal Gold Inc. | 1.9% |
❾ | Tesla Motors Inc. | 1.9% |
❿ | Liberty Expedia Holdings Inc. | 1.8% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
Maturity Profile (% of investments)
4
Harbor Convertible Securities Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
CONVERTIBLE BONDS—97.1% | |||
Principal Amount | Value | ||
AEROSPACE & DEFENSE—0.5% | |||
RTI International Metals Inc. | |||
$ | 640 | 1.625%—10/15/2019 | $ 644 |
AUTO COMPONENTS—1.4% | |||
CIE Generale DES Etablissements Michelin SCA | |||
600 | 0.000%—01/10/20221 | 559 | |
Valeo SA MTN2 | |||
1,200 | 0.000%—06/16/20211 | 1,079 | |
1,638 | |||
AUTOMOBILES—1.9% | |||
Tesla Inc. | |||
1,546 | 1.250%—03/01/2021 | 1,737 | |
488 | 2.375%—03/15/2022 | 596 | |
2,333 | |||
BANKS—0.5% | |||
BofA Finance LLC MTN2 | |||
604 | 0.250%—05/01/2023 | 545 | |
BIOTECHNOLOGY—5.0% | |||
BioMarin Pharmaceutical Inc. | |||
2,237 | 0.599%—08/01/2024 | 2,328 | |
243 | 1.500%—10/15/2020 | 287 | |
2,615 | |||
Exact Sciences Corp. | |||
1,152 | 1.000%—01/15/2025 | 1,348 | |
Ionis Pharmaceuticals Inc. | |||
616 | 1.000%—11/15/2021 | 644 | |
Ligand Pharmaceuticals Inc. | |||
905 | 0.750%—05/15/20233 | 867 | |
Neurocrine Biosciences Inc. | |||
369 | 2.250%—05/15/2024 | 570 | |
6,044 | |||
CAPITAL MARKETS—1.5% | |||
Ares Capital Corp. | |||
1,837 | 3.750%—02/01/2022 | 1,859 | |
COMMUNICATIONS EQUIPMENT—2.5% | |||
Finisar Corp. | |||
673 | 0.500%—12/15/2036 | 600 | |
InterDigital Inc. | |||
242 | 1.500%—03/01/2020 | 265 | |
Lumentum Holdings Inc. | |||
602 | 0.250%—03/15/2024 | 686 | |
Palo Alto Networks Inc. | |||
1,432 | 0.750%—07/01/20233 | 1,398 | |
2,949 | |||
CONSTRUCTION & ENGINEERING—3.3% | |||
Dycom Industries Inc. | |||
1,057 | 0.750%—09/15/2021 | 1,070 | |
Tutor Perini Corp. | |||
1,508 | 2.875%—06/15/2021 | 1,447 | |
Vinci SA | |||
1,400 | 0.375%—02/16/2022 | 1,487 | |
4,004 | |||
DIVERSIFIED CONSUMER SERVICES—0.4% | |||
Chegg Inc. | |||
450 | 0.250%—05/15/20233 | 532 |
CONVERTIBLE BONDS—Continued | |||
Principal Amount | Value | ||
DIVERSIFIED TELECOMMUNICATION SERVICES—3.0% | |||
Inmarsat plc | |||
$ | 600 | 3.875%—09/09/2023 | $ 669 |
Liberty Media Corp. | |||
540 | 1.000%—01/30/2023 | 584 | |
242 | 1.375%—10/15/2023 | 280 | |
1,820 | 2.125%—03/31/20483 | 1,784 | |
545 | 2.250%—09/30/2046 | 285 | |
2,933 | |||
3,602 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.5% | |||
OSI Systems Inc. | |||
665 | 1.250%—09/01/2022 | 611 | |
ENERGY EQUIPMENT & SERVICES—1.9% | |||
Ensco Jersey Finance Ltd. | |||
355 | 3.000%—01/31/2024 | 325 | |
Nabors Industries Inc. | |||
792 | 0.750%—01/15/2024 | 594 | |
Oil States International Inc. | |||
562 | 1.500%—02/15/20233 | 514 | |
Transocean Inc. | |||
478 | 0.500%—01/30/2023 | 596 | |
Weatherford International Ltd. | |||
296 | 5.875%—07/01/2021 | 228 | |
2,257 | |||
ENTERTAINMENT—2.7% | |||
Live Nation Entertainment Inc. | |||
2,454 | 2.500%—03/15/20233 | 2,627 | |
Pandora Media Inc. | |||
548 | 1.750%—12/01/2023 | 589 | |
3,216 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—5.0% | |||
Empire State Realty OP LP | |||
890 | 2.625%—08/15/20193 | 887 | |
Extra Space Storage LP | |||
2,101 | 3.125%—10/01/20353 | 2,269 | |
IH Merger Sub LLC | |||
1,077 | 3.500%—01/15/2022 | 1,157 | |
National Health Investors Inc. | |||
488 | 3.250%—04/01/2021 | 538 | |
Spirit Realty Capital Inc. | |||
619 | 2.875%—05/15/2019 | 616 | |
595 | 3.750%—05/15/2021 | 590 | |
1,206 | |||
6,057 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—3.4% | |||
Dexcom Inc. | |||
511 | 0.750%—05/15/2022 | 740 | |
Insulet Corp. | |||
876 | 1.375%—11/15/20243 | 991 | |
Nuvasive Inc. | |||
1,011 | 2.250%—03/15/2021 | 1,132 | |
Wright Medical Group Inc. | |||
1,223 | 1.625%—06/15/20233 | 1,244 | |
4,107 |
5
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 | ||
HEALTH CARE PROVIDERS & SERVICES—0.3% | |||
Molina Healthcare Inc. | |||
$ | 129 | 1.125%—01/15/2020 | $ 402 |
HEALTH CARE TECHNOLOGY—2.0% | |||
Allscripts Healthcare Solutions Inc. | |||
2,085 | 1.250%—07/01/2020 | 2,075 | |
Evolent Health Inc. | |||
390 | 1.500%—10/15/20253 | 377 | |
2,452 | |||
HOTELS, RESTAURANTS & LEISURE—2.7% | |||
Caesars Entertainment Corp. | |||
190 | 5.000%—10/01/2024 | 272 | |
Huazhu Group Ltd. | |||
912 | 0.375%—11/01/20223 | 863 | |
Marriott Vacations Worldwide Corp. | |||
2,221 | 1.500%—09/15/2022 | 2,091 | |
3,226 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—2.3% | |||
Clearway Energy Inc. | |||
361 | 3.250%—06/01/20203 | 362 | |
Nextera Energy Partners LP | |||
2,369 | 1.500%—09/15/20203 | 2,376 | |
2,738 | |||
INDUSTRIAL CONGLOMERATES—0.4% | |||
Siemens Financieringsmaatschappij NV | |||
500 | 1.650%—08/16/2019 | 532 | |
INTERACTIVE MEDIA & SERVICES—3.8% | |||
IAC Financeco Inc. | |||
657 | 0.875%—10/01/20223 | 920 | |
Twitter Inc. | |||
1,125 | 0.250%—06/15/20243 | 1,058 | |
Weibo Corp. | |||
1,240 | 1.250%—11/15/20223 | 1,106 | |
Zillow Group Inc. | |||
873 | 1.500%—07/01/2023 | 798 | |
633 | 2.000%—12/01/2021 | 670 | |
1,468 | |||
4,552 | |||
INTERNET & DIRECT MARKETING RETAIL—5.0% | |||
Booking Holdings Inc. | |||
782 | 0.350%—06/15/2020 | 1,131 | |
Ctrip.com International Ltd. | |||
2,165 | 1.990%—07/01/2025 | 2,154 | |
Liberty Expedia Holdings Inc. | |||
2,179 | 1.000%—06/30/20473 | 2,172 | |
Mercadolibre Inc. | |||
155 | 2.000%—08/15/20283 | 150 | |
Wayfair Inc. | |||
379 | 0.375%—09/01/2022 | 469 | |
6,076 | |||
IT SERVICES—4.4% | |||
Akamai Technologies Inc. | |||
1,713 | 0.125%—05/01/20253 | 1,676 | |
Euronet Worldwide Inc. | |||
124 | 1.500%—10/01/2044 | 190 | |
Okta Inc. | |||
245 | 0.250%—02/15/20233 | 334 |
CONVERTIBLE BONDS—Continued | |||
Principal Amount | Value | ||
IT SERVICES—Continued | |||
Square Inc. | |||
$ | 695 | 0.500%—05/15/20233 | $ 834 |
Twilio Inc. | |||
778 | 0.250%—06/01/20233 | 972 | |
Wix.com Ltd. | |||
1,270 | 0.000%—07/01/20231,3 | 1,259 | |
5,265 | |||
LIFE SCIENCES TOOLS & SERVICES—1.7% | |||
Illumina Inc. | |||
1,205 | 0.000%—08/15/20231,3 | 1,268 | |
219 | 0.500%—06/15/2021 | 296 | |
1,564 | |||
Qiagen NV | |||
400 | 0.875%—03/19/2021 | 530 | |
2,094 | |||
MACHINERY—4.0% | |||
Chart Industries Inc. | |||
425 | 1.000%—11/15/20243 | 549 | |
Greenbrier Cos. Inc. | |||
861 | 2.875%—02/01/2024 | 909 | |
Meritor Inc. | |||
2,427 | 3.250%—10/15/2037 | 2,245 | |
Navistar International Corp. | |||
1,158 | 4.750%—04/15/2019 | 1,162 | |
4,865 | |||
MEDIA—2.4% | |||
Dish Network Corp. | |||
2,269 | 3.375%—08/15/2026 | 2,027 | |
Liberty Interactive LLC | |||
756 | 1.750%—09/30/20463 | 847 | |
2,874 | |||
METALS & MINING—1.9% | |||
Royal Gold Inc. | |||
2,296 | 2.875%—06/15/2019 | 2,320 | |
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—3.7% | |||
Blackstone Mortgage Trust Inc. | |||
2,468 | 4.750%—03/15/2023 | 2,437 | |
Starwood Property Trust Inc. | |||
884 | 4.375%—04/01/2023 | 885 | |
Two Harbors Investment Corp. | |||
1,098 | 6.250%—01/15/2022 | 1,123 | |
4,445 | |||
OIL, GAS & CONSUMABLE FUELS—2.8% | |||
Chesapeake Energy Corp. | |||
658 | 5.500%—09/15/2026 | 620 | |
Oasis Petroleum Inc. | |||
541 | 2.625%—09/15/2023 | 611 | |
PDC Energy Inc. | |||
300 | 1.125%—09/15/2021 | 283 | |
SM Energy Co. | |||
309 | 1.500%—07/01/2021 | 313 | |
Total SA MTN2 | |||
1,400 | 0.500%—12/02/2022 | 1,524 | |
3,351 |
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 | ||
PHARMACEUTICALS—2.3% | |||
Jazz Investments I Ltd. | |||
$ | 573 | 1.500%—08/15/2024 | $ 573 |
1,231 | 1.875%—08/15/2021 | 1,298 | |
1,871 | |||
Supernus Pharmaceuticals Inc. | |||
820 | 0.625%—04/01/20233 | 890 | |
2,761 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—7.6% | |||
Advanced Micro Devices Inc. | |||
126 | 2.125%—09/01/2026 | 300 | |
Cypress Semiconductor Corp. | |||
728 | 2.000%—02/01/20233 | 693 | |
Intel Corp. | |||
502 | 3.250%—08/01/2039 | ��� 1,140 | |
Microchip Technology Inc. | |||
1,932 | 1.625%—02/15/2027 | 1,836 | |
Micron Technology Inc. | |||
208 | 3.000%—11/15/2043 | 272 | |
NXP Semiconductors NV | |||
616 | 1.000%—12/01/2019 | 624 | |
ON Semiconductor Corp. | |||
1,530 | 1.000%—12/01/2020 | 1,719 | |
Silicon Laboratories Inc. | |||
1,145 | 1.375%—03/01/2022 | 1,238 | |
STMicroelectronics NV | |||
800 | 0.250%—07/03/2024 | 827 | |
Teradyne Inc. | |||
445 | 1.250%—12/15/2023 | 560 | |
9,209 | |||
SOFTWARE—13.7% | |||
Atlassian Inc. | |||
1,049 | 0.625%—05/01/20233 | 1,204 | |
Citrix Systems Inc. | |||
418 | 0.500%—04/15/2019 | 593 | |
Docusign Inc. | |||
335 | 0.500%—09/15/20233 | 316 | |
Envestnet Inc. | |||
1,146 | 1.750%—06/01/20233 | 1,155 | |
FireEye Inc. | |||
615 | 0.875%—06/01/20243 | 649 | |
Five9 Inc. | |||
247 | 0.125%—05/01/20233 | 283 | |
Hubspot Inc. | |||
194 | 0.250%—06/01/2022 | 295 | |
New Relic Inc. | |||
599 | 0.500%—05/01/20233 | 630 | |
Nice Systems Inc. | |||
434 | 1.250%—01/15/2024 | 588 |
CONVERTIBLE BONDS—Continued | |||
Principal Amount | Value | ||
SOFTWARE—Continued | |||
Nuance Communications Inc. | |||
$ | 320 | 1.000%—12/15/2035 | $ 302 |
1,239 | 1.250%—04/01/2025 | 1,248 | |
1,550 | |||
Nutanix Inc. | |||
311 | 0.000%—01/15/20231,3 | 343 | |
Q2 Holdings Inc. | |||
256 | 0.750%—02/15/20233 | 282 | |
Rapid7 Inc. | |||
360 | 1.250%—08/01/20233 | 394 | |
Ringcentral Inc. | |||
797 | 0.000%—03/15/20231,3 | 905 | |
Servicenow Inc. | |||
787 | 0.000%—06/01/20221 | 1,115 | |
Splunk Inc. | |||
1,180 | 0.500%—09/15/20233 | 1,135 | |
235 | 1.125%—09/15/20253 | 223 | |
1,358 | |||
Verint Systems Inc. | |||
1,806 | 1.500%—06/01/2021 | 1,801 | |
Workday Inc. | |||
1,705 | 0.250%—10/01/2022 | 1,902 | |
Zendesk Inc. | |||
1,067 | 0.250%—03/15/20233 | 1,174 | |
16,537 | |||
SPECIALTY RETAIL—0.5% | |||
RH | |||
690 | 0.000%—06/15/20231,3 | 609 | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—2.0% | |||
Pure Storage Inc. | |||
847 | 0.125%—04/15/20233 | 868 | |
Western Digital Corp. | |||
1,762 | 1.500%—02/01/20243 | 1,490 | |
2,358 | |||
TRANSPORTATION INFRASTRUCTURE—0.1% | |||
Macquarie Infrastructure Corp. | |||
148 | 2.875%—07/15/2019 | 147 | |
TOTAL CONVERTIBLE BONDS | |||
(Cost $118,770) | 117,211 | ||
TOTAL INVESTMENTS—97.1% | |||
(Cost $118,770) | 117,211 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—2.9% | 3,539 | ||
TOTAL NET ASSETS—100.0% | $120,750 |
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 2. There were no Level 3 investments at October 31, 2018 or 2017.
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.
7
Harbor Convertible Securities Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
1 | Zero coupon bond |
2 | MTN after the name of a security stands for Medium Term Note. |
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 October 31, 2018, the aggregate value of these securities was $43,479 or 36% 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
A difficult year for fixed income assets continued through fiscal year ended October 31, 2018, with the yield on the ten-year U.S. Treasury bond trading over 3% for most of the third quarter. Investment grade and government bonds generated negative returns for the period while the return for high-yield bonds was marginally positive. Performance was strongest among lower rated CCC bonds which rallied 4.12%, while more rate-sensitive BB bonds lagged at -0.82%, per the ICE BofAML Non-Distressed High Yield Index. Strong equity markets over most of the period supported higher enterprise values which served to embolden high-yield investors when combined with solid earnings momentum and favorable financing markets. Additionally, historically low levels of distressed credits and a very high level of mergers and acquisitions activity have, in our opinion, further increased investor confidence that difficult capital structures can be favorably refinanced.
Spreads within the high-yield market remained within a range of 350-400 basis points over relevant U.S. Treasury bonds most of the year. Investment flows were moderate through the year for the asset class, while an approximate 30% year-over-year decline in new issues resulted in a balanced tone to the market despite the pressure coming from higher U.S. Treasury bond yields. The index ended October at a yield-to-worst of 6.44% and a spread-to-worst of 344 basis points. While covenant protections have weakened somewhat over the last few years, credit quality remains generally intact and ratings upgrades in the market have outpaced ratings declines.
Investors have faced potential worries during the past year including U.S. Federal Reserve (Fed) rate hikes, trade and tariff negotiations, divisive elections, and nascent concerns that rising energy and labor costs may begin to push inflation higher. Offsetting these concerns has been solid economic growth combined with benign inflation data. Within this environment, the Fed raised interest rates in a controlled fashion with sufficient signaling to help investors manage their portfolios effectively. High-yield bonds have historically performed comparatively well in rising rate environments given their large coupons and rising rates typically occur during periods of stronger economic growth, which benefits the balance sheets of levered companies.
performance
Harbor High-Yield Bond Fund returned 0.45% (Institutional Class), 0.54% (Retirement Class), 0.10% (Administrative Class), and 0.08% (Investor Class) for the 12-month period ended October 31, 2018. During the same period the ICE BofAML U.S. Non-Distressed High Yield Index returned 0.76% and the ICE BofAML U.S. High Yield Index (H0A0) returned 0.86%. The Fund’s relative performance benefitted from strong security selection and an underweight in the banking industry and in the wireline and wireless industry. Detracting from performance was negative security selection in oil and gas and automotive. From a ratings perspective, negative security selection in CCC-rated credits detracted from performance, while an underweight and positive security selection in BB-rated credits and positive security selection in B-rated credits contributed to the Fund’s performance. The Fund’s modest allocation
9
Harbor High-Yield Bond Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $50,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $50,000 investment in the Institutional Class shares of the Fund with the performance of the ICE BofAML U.S. Non-Distressed High Yield Index and the ICE BofAML U.S. High Yield Index (H0A0). The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor High-Yield Bond Fund | ||||||||
Institutional Class | 0.45% | 3.62% | 8.11% | |||||
Retirement Class1 | 0.54 | 3.68 | 8.14 | |||||
Administrative Class | 0.10 | 3.35 | 7.85 | |||||
Investor Class | 0.08 | 3.23 | 7.72 | |||||
Comparative Indices | ||||||||
ICE BofAML U.S. Non-Distressed High Yield | 0.76% | 4.79% | 9.32% | |||||
ICE BofAML U.S. High Yield (H0A0)1 | 0.86 | 4.69 | 11.16 |
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.
to senior-secured loans also contributed to performance. The Fund ended the period invested in 309 different issuers across 37 industries, had a yield-to-worst of 6.40%, a weighted average credit rating of B+/B1, and a duration-to-worst of 3.70 years.
The Fund remained active during the period, pruning out over-levered issuers, staying focused on Health Care, which is the Fund’s largest sector, and slightly increasing oil and gas holdings in the higher quality names as this industry has improved over the period. We have also become more selective in new issuance with our participation rate lower than it has historically been in past years.
Outlook & Strategy
Although high-yield experienced some decay in October, we do not believe there were any indications of panic selling. In our opinion, the sell-off was orderly and may ultimately prove to be a temporary repricing of risk following a summer rally that pushed spreads into the low 300 basis points range. We are cognizant that GDP and corporate earnings could decelerate a bit as we think the “sugar high” of tax reform fades, the dollar strengthens, and margin pressure from higher wages and rising raw material costs works its way through the system. However, we believe the U.S. economy should continue to grow fueled by low unemployment, wage growth, and higher defense spending. Moreover, we believe the backdrop of relatively low inflation gives the Fed little urgency to accelerate its measured pace of interest rate increases, and the current 2.00-2.25% Fed Funds rate is still a fair distance from so-called neutral. With new issuance continuing to be lackluster, projected default rates expected to remain near historical lows, and our belief of a low probability of recession in the near term, we think a yield-to-worst that is nearing 7% may prove to be a good way to escape oscillating equity markets while simultaneously collecting a steady income stream.
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. |
10
Harbor High-Yield Bond Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
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 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.
11
Harbor High-Yield Bond Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Issuers (% of net assets)
❶ | Bausch Health Cos. Inc. | 1.6% |
❷ | CCO Holdings LLC | 1.6% |
❸ | HCA Inc. | 1.6% |
❹ | T-Mobile USA Inc. | 1.4% |
❺ | CenturyLink Inc. | 1.3% |
❻ | Sprint Corp. | 1.2% |
❼ | Tenet Healthcare Corp. | 1.2% |
❽ | Centene Corp. | 1.0% |
❾ | DISH DBS Corp. | 1.0% |
❿ | Anixter Inc. | 0.9% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
Maturity Profile (% of investments)
12
Harbor High-Yield Bond Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
BANK LOAN OBLIGATIONS—3.3% | |||
Principal Amount | Value | ||
CHEMICALS—0.3% | |||
Schenectady International Group Inc. | |||
First-Lien Term Loan | |||
$ | 1,890 | 7.186% (3 Month USD Libor + 4.750) 10/15/20251 | $ 1,884 |
Solenis International LP | |||
Term Loan | |||
623 | 6.311%—12/26/20232 | 625 | |
2,509 | |||
COMMERCIAL SERVICES & SUPPLIES—0.3% | |||
Granite Acquisition Inc. | |||
Term Loan C | |||
67 | 5.886% (3 Month USD Libor + 3.500) 12/17/20211 | 67 | |
Term Loan B | |||
2,659 | 5.896% (3 Month USD Libor + 3.500) 12/17/20211 | 2,673 | |
2,740 | |||
CONSTRUCTION & ENGINEERING—0.1% | |||
Brookfield WEC Holdings Inc. | |||
Term Loan | |||
1,055 | 6.052%—08/01/20252 | 1,063 | |
CONTAINERS & PACKAGING—0.2% | |||
Titan Acquisition Ltd. | |||
Term Loan B | |||
1,582 | 5.302% (1 Month USD Libor + 3.000) 03/28/20251 | 1,493 | |
ELECTRICAL EQUIPMENT—0.1% | |||
Cortes NP Acquisition Corp. | |||
Term Loan B | |||
1,137 | 6.313% (1 Month USD Libor + 4.000) 11/30/20231 | 1,125 | |
FOOD & STAPLES RETAILING—0.2% | |||
Clover Merger Sub Inc. | |||
Initial Term Loans | |||
2,035 | 10.052% (1 Month USD Libor + 7.750) 09/26/20251 | 1,824 | |
HEALTH CARE PROVIDERS & SERVICES—0.4% | |||
AHP Health Partners Inc. | |||
Term Loan B | |||
1,227 | 6.802%—06/30/20252 | 1,237 | |
Envision Healthcare Corp. | |||
Term Loan | |||
2,070 | 6.052%—10/10/20252 | 2,031 | |
3,268 | |||
HEALTH CARE TECHNOLOGY—0.1% | |||
Verscend Holding Corp. | |||
Term Loan | |||
946 | 6.802% (1 Month USD Libor + 4.500) 08/27/20251 | 954 | |
HOTELS, RESTAURANTS & LEISURE—0.1% | |||
Stars Group Holdings BV | |||
Incremental Term Loan | |||
850 | 5.886% (3 Month USD Libor + 3.500) 07/10/20251 | 854 | |
INTERACTIVE MEDIA & SERVICES—0.2% | |||
Ancestry.com Inc. | |||
Term Loan B | |||
1,153 | 5.550% (1 Month USD Libor + 3.250) 10/19/20231 | 1,158 | |
MACHINERY—0.1% | |||
Navistar Inc. | |||
Term Loan B | |||
1,085 | 5.780% (1 Month USD Libor + 3.500) 11/06/20241 | 1,088 |
BANK LOAN OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
MEDIA—0.1% | |||
Liberty Cablevision of Puerto Rico LLC | |||
First-Lien Term Loan | |||
$ | 460 | 5.936% (3 Month USD Libor + 3.500) 01/07/20221 | $ 453 |
SOFTWARE—0.4% | |||
Greeneden US Holdings II LLC | |||
Term Loan B | |||
2,780 | 5.802% (1 Month USD Libor + 3.500) 12/01/20231 | 2,789 | |
SPECIALTY RETAIL—0.7% | |||
Ascena Retail Group Inc. | |||
Term Loan B | |||
1,949 | 6.813% (1 Month USD Libor + 4.500) 08/21/20221 | 1,896 | |
Bass Pro Group LLC | |||
Term Loan B | |||
3,836 | 7.302% (1 Month USD Libor + 5.000) 09/25/20241 | 3,842 | |
5,738 | |||
TOTAL BANK LOAN OBLIGATIONS | |||
(Cost $27,040) | 27,056 | ||
CORPORATE BONDS & NOTES—94.4% | |||
AEROSPACE & DEFENSE—1.6% | |||
Arconic Inc. | |||
1,611 | 5.400%—04/15/2021 | 1,633 | |
Bombardier Inc. | |||
4,135 | 6.000%—10/15/20223 | 4,078 | |
600 | 6.125%—01/15/20233 | 596 | |
4,674 | |||
TransDigm Inc. | |||
3,000 | 6.500%—07/15/2024 | 3,040 | |
Triumph Group Inc. | |||
3,265 | 5.250%—06/01/2022 | 3,020 | |
345 | 7.750%—08/15/2025 | 325 | |
3,345 | |||
12,692 | |||
AIR FREIGHT & LOGISTICS—0.3% | |||
XPO Logistics Inc. | |||
1,522 | 6.125%—09/01/20233 | 1,564 | |
1,171 | 6.500%—06/15/20223 | 1,205 | |
2,769 | |||
AUTO COMPONENTS—1.1% | |||
Adient Global Holdings Ltd. | |||
931 | 4.875%—08/15/20263 | 803 | |
American Axle & Manufacturing Inc. | |||
925 | 6.500%—04/01/2027 | 883 | |
2,455 | 6.625%—10/15/2022 | 2,495 | |
3,378 | |||
Delphi Jersey Holdings plc | |||
680 | 5.000%—10/01/20253 | 616 | |
Goodyear Tire & Rubber Co. | |||
1,630 | 4.875%—03/15/2027 | 1,463 | |
825 | 5.125%—11/15/2023 | 811 | |
2,274 | |||
Tenneco Inc. | |||
2,250 | 5.000%—07/15/2026 | 1,879 | |
8,950 |
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 | ||
AUTOMOBILES—0.6% | |||
Jaguar Land Rover Automotive plc | |||
$ | 2,500 | 4.500%—10/01/20273 | $ 1,997 |
Tesla Inc. | |||
3,300 | 5.300%—08/15/20253 | 2,945 | |
4,942 | |||
BANKS—0.1% | |||
CIT Group Inc. | |||
500 | 5.000%—08/15/2022 | 505 | |
300 | 6.125%—03/09/2028 | 312 | |
817 | |||
BEVERAGES—0.4% | |||
Cott Holdings Inc. | |||
3,125 | 5.500%—04/01/20253 | 2,984 | |
BIOTECHNOLOGY—0.3% | |||
Avantor Inc. | |||
2,600 | 6.000%—10/01/20243 | 2,600 | |
BUILDING PRODUCTS—2.0% | |||
American Builders & Contractors Supply Co. Inc. | |||
815 | 5.875%—05/15/20263 | 793 | |
Griffon Corp. | |||
3,725 | 5.250%—03/01/2022 | 3,497 | |
Jeld-Wen Inc. | |||
1,900 | 4.625%—12/15/20253 | 1,712 | |
Masonite International Corp. | |||
800 | 5.625%—03/15/20233 | 798 | |
830 | 5.750%—09/15/20263 | 791 | |
1,589 | |||
New Enterprise Stone & Lime Co. Inc. | |||
1,975 | 6.250%—03/15/20263 | 1,931 | |
Standard Industries Inc. | |||
1,702 | 4.750%—01/15/20283 | 1,527 | |
2,750 | 5.500%—02/15/20233 | 2,702 | |
4,229 | |||
Summit Materials LLC | |||
2,000 | 6.125%—07/15/2023 | 1,945 | |
310 | 8.500%—04/15/2022 | 328 | |
2,273 | |||
16,024 | |||
CAPITAL MARKETS—0.4% | |||
Deutsche Bank AG | |||
1,585 | 4.875%—12/01/20321 | 1,352 | |
Refinitiv US Holdings Inc. | |||
1,955 | 6.250%—05/15/20263 | 1,948 | |
3,300 | |||
CHEMICALS—2.3% | |||
Blue Cube Spinco LLC | |||
975 | 9.750%—10/15/2023 | 1,087 | |
987 | 10.000%—10/15/2025 | 1,123 | |
2,210 | |||
GCP Applied Technologies Inc. | |||
1,555 | 5.500%—04/15/20263 | 1,506 | |
NOVA Chemicals Corp. | |||
1,500 | 4.875%—06/01/20243 | 1,383 | |
2,500 | 5.250%—08/01/20233 | 2,422 | |
3,805 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CHEMICALS—Continued | |||
OCI NV | |||
$ | 1,775 | 6.625%—04/15/20233 | $ 1,826 |
Platform Specialty Products Corp. | |||
485 | 6.500%—02/01/20223 | 493 | |
PQ Corp. | |||
4,000 | 6.750%—11/15/20223 | 4,135 | |
Trinseo LLC | |||
1,290 | 5.375%—09/01/20253 | 1,203 | |
Tronox Inc. | |||
2,670 | 6.500%—04/15/20263 | 2,450 | |
Venator Materials Corp. | |||
850 | 5.750%—07/15/20253 | 729 | |
18,357 | |||
COMMERCIAL SERVICES & SUPPLIES—3.1% | |||
Brink's Co. | |||
2,985 | 4.625%—10/15/20273 | 2,754 | |
Clean Harbors Inc. | |||
5,000 | 5.125%—06/01/2021 | 5,012 | |
Covanta Holding Corp. | |||
1,025 | 5.875%—07/01/2025 | 997 | |
GFL Environmental Inc. | |||
1,775 | 5.375%—03/01/20233 | 1,633 | |
1,000 | 5.625%—05/01/20223 | 955 | |
2,588 | |||
Harland Clarke Holdings Corp. | |||
995 | 8.375%—08/15/20223 | 903 | |
Hulk Finance Corp. | |||
1,500 | 7.000%—06/01/20263 | 1,384 | |
LSC Communications Inc. | |||
1,195 | 8.750%—10/15/20233 | 1,285 | |
NuStar Logistics LP | |||
2,000 | 6.750%—02/01/2021 | 2,085 | |
RR Donnelley & Sons Co. | |||
2,934 | 6.000%—04/01/2024 | 2,839 | |
485 | 6.500%—11/15/2023 | 468 | |
3,307 | |||
Waste Pro USA Inc. | |||
1,450 | 5.500%—02/15/20263 | 1,377 | |
Williams Scotsman International Inc. | |||
480 | 6.875%—08/15/20233 | 477 | |
2,990 | 7.875%—12/15/20223 | 3,080 | |
3,557 | |||
25,249 | |||
COMMUNICATIONS EQUIPMENT—1.4% | |||
Anixter Inc. | |||
970 | 6.000%—12/01/20253 | 975 | |
Commscope Inc. | |||
500 | 5.000%—06/15/20213 | 500 | |
Hughes Satellite Systems Corp. | |||
1,500 | 6.500%—06/15/2019 | 1,524 | |
800 | 6.625%—08/01/2026 | 764 | |
4,000 | 7.625%—06/15/2021 | 4,252 | |
6,540 | |||
Viasat Inc. | |||
3,250 | 5.625%—09/15/20253 | 3,026 | |
11,041 |
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 | ||
CONSTRUCTION & ENGINEERING—0.3% | |||
AECOM | |||
$ | 2,650 | 5.125%—03/15/2027 | $ 2,478 |
CONSUMER FINANCE—2.2% | |||
Ally Financial Inc. | |||
800 | 4.125%—03/30/2020 | 801 | |
1,000 | 4.625%—05/19/2022 | 1,003 | |
500 | 5.750%—11/20/2025 | 514 | |
3,000 | 7.500%—09/15/2020 | 3,187 | |
1,005 | 8.000%—11/01/2031 | 1,213 | |
6,718 | |||
Navient Corp. | |||
1,000 | 5.000%—10/26/2020 | 1,008 | |
350 | 6.750%—06/15/2026 | 335 | |
1,343 | |||
Navient Corp. MTN4 | |||
2,655 | 5.500%—01/25/2023 | 2,617 | |
2,000 | 7.250%—01/25/2022 | 2,088 | |
4,705 | |||
Springleaf Finance Corp. | |||
500 | 5.625%—03/15/2023 | 487 | |
1,000 | 6.000%—06/01/2020 | 1,025 | |
1,000 | 6.875%—03/15/2025 | 960 | |
2,675 | 7.750%—10/01/2021 | 2,839 | |
5,311 | |||
18,077 | |||
CONTAINERS & PACKAGING—2.6% | |||
ARD Finance SA | |||
1,744 | 7.125%—09/15/2023 | 1,701 | |
Ardagh Packaging Finance plc | |||
300 | 4.625%—05/15/20233 | 292 | |
2,006 | 6.000%—02/15/20253 | 1,886 | |
2,178 | |||
Berry Global Inc. | |||
1,000 | 6.000%—10/15/2022 | 1,024 | |
Berry Plastics Corp. | |||
1,625 | 5.125%—07/15/2023 | 1,623 | |
BWAY Holding Co. | |||
3,000 | 5.500%—04/15/20243 | 2,887 | |
1,350 | 7.250%—04/15/20253 | 1,283 | |
4,170 | |||
Cascades Inc. | |||
1,890 | 5.500%—07/15/20223 | 1,885 | |
2,000 | 5.750%—07/15/20233 | 1,980 | |
3,865 | |||
Crown Americas LLC | |||
1,000 | 4.750%—02/01/20263 | 946 | |
Flex Acquisition Co. Inc. | |||
2,000 | 6.875%—01/15/20253 | 1,880 | |
320 | 7.875%—07/15/20263 | 310 | |
2,190 | |||
OI European Group BV | |||
925 | 4.000%—03/15/20233 | 868 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CONTAINERS & PACKAGING—Continued | |||
Reynolds Group Issuer Inc. | |||
$ | 750 | 5.125%—07/15/20233 | $ 735 |
1,696 | 5.750%—10/15/2020 | 1,698 | |
2,433 | |||
20,998 | |||
DISTRIBUTORS—0.1% | |||
LKQ Corp. | |||
750 | 4.750%—05/15/2023 | 728 | |
DIVERSIFIED CONSUMER SERVICES—0.1% | |||
Frontdoor Inc. | |||
645 | 6.750%—08/15/20263 | 660 | |
Service Corp. International | |||
200 | 4.625%—12/15/2027 | 188 | |
848 | |||
DIVERSIFIED FINANCIAL SERVICES—1.4% | |||
Avolon Holdings Funding Ltd. | |||
1,615 | 5.125%—10/01/20233 | 1,589 | |
Compass Group Diversified Holdings LLC | |||
1,070 | 8.000%—05/01/20263 | 1,097 | |
DAE Funding LLC | |||
470 | 4.000%—08/01/20203 | 466 | |
2,000 | 5.000%—08/01/20243 | 1,955 | |
2,421 | |||
Fidelity & Guaranty Life Holdings Inc. | |||
1,620 | 5.500%—05/01/20253 | 1,614 | |
Park Aerospace Holdings Ltd. | |||
615 | 5.250%—08/15/20223 | 613 | |
Virtu Financial Inc. | |||
2,455 | 6.750%—06/15/20223 | 2,510 | |
WeWork Cos. Inc. | |||
1,310 | 7.875%—05/01/20253 | 1,208 | |
11,052 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—4.6% | |||
Altice Financing SA | |||
2,100 | 7.500%—05/15/20263 | 1,979 | |
Altice Luxembourg SA | |||
200 | 7.625%—02/15/20253 | 171 | |
2,000 | 7.750%—05/15/20223 | 1,858 | |
2,029 | |||
CenturyLink Inc. | |||
5,000 | 5.625%—04/01/2020 | 5,081 | |
2,150 | 5.800%—03/15/2022 | 2,153 | |
1,000 | 6.450%—06/15/2021 | 1,026 | |
585 | 6.750%—12/01/2023 | 598 | |
1,650 | 7.500%—04/01/2024 | 1,737 | |
10,595 | |||
Frontier Communications Corp. | |||
3,000 | 7.125%—01/15/2023 | 2,010 | |
210 | 7.625%—04/15/2024 | 127 | |
270 | 8.500%—04/01/20263 | 252 | |
685 | 8.750%—04/15/2022 | 536 | |
500 | 11.000%—09/15/2025 | 369 | |
3,294 | |||
GCI Inc. | |||
4,000 | 6.750%—06/01/2021 | 4,039 |
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 | ||
DIVERSIFIED TELECOMMUNICATION SERVICES—Continued | |||
Inmarsat Finance plc | |||
$ | 4,000 | 4.875%—05/15/20223 | $ 3,938 |
Intelsat Connect Finance SA | |||
1,275 | 9.500%—02/15/20233 | 1,227 | |
Intelsat Jackson Holdings SA | |||
750 | 5.500%—08/01/2023 | 673 | |
8 | 7.500%—04/01/2021 | 8 | |
3,580 | 8.500%—10/15/20243 | 3,522 | |
4,203 | |||
Level 3 Communications Inc. | |||
1,925 | 5.750%—12/01/2022 | 1,925 | |
Telecom Italia Capital SA | |||
625 | 6.000%—09/30/2034 | 567 | |
775 | 6.375%—11/15/2033 | 713 | |
1,280 | |||
Telecom Italia SpA | |||
2,000 | 5.303%—05/30/20243 | 1,893 | |
Wind Tre SpA | |||
1,035 | 5.000%—01/20/20263 | 886 | |
37,288 | |||
ELECTRIC UTILITIES—0.6% | |||
Talen Energy Supply LLC | |||
660 | 6.500%—06/01/2025 | 495 | |
1,340 | 9.500%—07/15/20223 | 1,367 | |
1,862 | |||
Vistra Energy Corp. | |||
3,000 | 7.375%—11/01/2022 | 3,120 | |
4,982 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.8% | |||
Anixter Inc. | |||
6,000 | 5.125%—10/01/2021 | 6,060 | |
ENERGY EQUIPMENT & SERVICES—3.0% | |||
Archrock Partners LP | |||
2,000 | 6.000%—04/01/2021-10/01/2022 | 1,990 | |
CSI Compressco LP | |||
1,770 | 7.500%—04/01/20253 | 1,783 | |
Ensco plc | |||
1,325 | 7.750%—02/01/2026 | 1,241 | |
Oceaneering International Inc. | |||
285 | 6.000%—02/01/2028 | 278 | |
Precision Drilling Corp. | |||
1,015 | 7.125%—01/15/20263 | 1,010 | |
Pride International LLC | |||
1,000 | 7.875%—08/15/2040 | 900 | |
Transocean Guardian Ltd. | |||
1,035 | 5.875%—01/15/20243 | 1,029 | |
Transocean Inc. | |||
1,565 | 6.800%—03/15/2038 | 1,266 | |
1,160 | 7.250%—11/01/20253 | 1,131 | |
1,335 | 7.500%—01/15/20263 | 1,315 | |
3,712 | |||
Transocean Pontus Ltd. | |||
815 | 6.125%—08/01/20253 | 812 | |
Trinidad Drilling Ltd. | |||
2,375 | 6.625%—02/15/20253 | 2,387 | |
Unit Corp. | |||
5,000 | 6.625%—05/15/2021 | 4,987 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
ENERGY EQUIPMENT & SERVICES—Continued | |||
USA Compression Partners LP | |||
$ | 1,195 | 6.875%—04/01/20263 | $ 1,220 |
Weatherford International LLC | |||
500 | 9.875%—03/01/20253 | 390 | |
Weatherford International Ltd. | |||
1,075 | 6.750%—09/15/2040 | 731 | |
1,500 | 7.750%—06/15/2021 | 1,247 | |
1,085 | 8.250%—06/15/2023 | 835 | |
2,813 | |||
24,552 | |||
ENTERTAINMENT—1.3% | |||
AMC Entertainment Holdings Inc. | |||
1,125 | 5.750%—06/15/2025 | 1,045 | |
1,925 | 5.875%—11/15/2026 | 1,771 | |
2,816 | |||
Cinemark USA Inc. | |||
1,840 | 5.125%—12/15/2022 | 1,854 | |
Meredith Corp. | |||
1,850 | 6.875%—02/01/20263 | 1,854 | |
NetFlix Inc. | |||
1,500 | 4.875%—04/15/20283 | 1,378 | |
350 | 5.500%—02/15/2022 | 359 | |
600 | 6.375%—05/15/20293 | 601 | |
2,338 | |||
WMG Acquisition Corp. | |||
1,518 | 5.625%—04/15/20223 | 1,541 | |
10,403 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—4.0% | |||
CoreCivic Inc. | |||
2,250 | 4.750%—10/15/2027 | 1,927 | |
CyrusOne LP | |||
1,000 | 5.000%—03/15/2024 | 1,003 | |
Equinix Inc. | |||
1,854 | 5.375%—01/01/2022-05/15/2027 | 1,869 | |
FelCor Lodging LP | |||
1,000 | 6.000%—06/01/2025 | 1,039 | |
GEO Group Inc. | |||
500 | 5.125%—04/01/2023 | 471 | |
2,650 | 5.875%—01/15/2022 | 2,630 | |
3,101 | |||
Iron Mountain Inc. | |||
1,345 | 4.875%—09/15/20273 | 1,204 | |
2,925 | 5.250%—03/15/20283 | 2,640 | |
500 | 5.750%—08/15/2024 | 492 | |
2,232 | 6.000%—08/15/2023 | 2,290 | |
6,626 | |||
Kennedy-Wilson Inc. | |||
3,250 | 5.875%—04/01/2024 | 3,136 | |
Ladder Capital Finance Corp. | |||
2,250 | 5.250%—10/01/20253 | 2,093 | |
460 | 5.875%—08/01/20213 | 466 | |
2,559 | |||
MPT Operating Partnership LP | |||
1,050 | 5.000%—10/15/2027 | 989 | |
1,000 | 6.375%—03/01/2024 | 1,040 | |
2,029 |
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 | ||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—Continued | |||
RHP Hotel Properties LP | |||
$ | 4,000 | 5.000%—04/15/2021-04/15/2023 | $ 4,006 |
Sabra Health Care LP | |||
2,500 | 5.500%—02/01/2021 | 2,534 | |
SBA Communications Corp. | |||
1,745 | 4.000%—10/01/2022 | 1,680 | |
Uniti Group Inc. | |||
1,048 | 6.000%—04/15/20233 | 1,009 | |
100 | 7.125%—12/15/20243 | 89 | |
1,098 | |||
32,607 | |||
FOOD & STAPLES RETAILING—0.7% | |||
Albertsons Companies LLC | |||
3,390 | 5.750%—03/15/2025 | 3,000 | |
1,005 | 6.625%—06/15/2024 | 955 | |
3,955 | |||
Rite Aid Corp. | |||
1,905 | 6.125%—04/01/20233 | 1,628 | |
5,583 | |||
FOOD PRODUCTS—0.8% | |||
B&G Foods Inc. | |||
3,000 | 5.250%—04/01/2025 | 2,869 | |
Dean Foods Co. | |||
775 | 6.500%—03/15/20233 | 716 | |
Post Holdings Inc. | |||
2,149 | 5.500%—03/01/20253 | 2,086 | |
1,000 | 5.750%—03/01/20273 | 958 | |
3,044 | |||
6,629 | |||
GAS UTILITIES—0.6% | |||
AmeriGas Partners LP | |||
1,000 | 5.750%—05/20/2027 | 932 | |
DCP Midstream Operating LP | |||
1,000 | 6.750%—09/15/20373 | 1,045 | |
Ferrellgas LP | |||
1,800 | 6.750%—06/15/2023 | 1,562 | |
Suburban Propane Partners LP | |||
1,600 | 5.875%—03/01/2027 | 1,468 | |
5,007 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—0.3% | |||
Hologic Inc. | |||
1,000 | 4.375%—10/15/20253 | 942 | |
Teleflex Inc. | |||
1,480 | 4.625%—11/15/2027 | 1,386 | |
2,328 | |||
HEALTH CARE PROVIDERS & SERVICES—7.9% | |||
Acadia Healthcare Co. Inc. | |||
1,000 | 5.125%—07/01/2022 | 1,002 | |
1,840 | 5.625%—02/15/2023 | 1,851 | |
2,853 | |||
Air Medical Merger Sub Corp. | |||
2,510 | 6.375%—05/15/20233 | 2,268 | |
AMN Healthcare Inc. | |||
375 | 5.125%—10/01/20243 | 362 | |
Centene Corp. | |||
7,750 | 5.625%—02/15/2021 | 7,876 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
HEALTH CARE PROVIDERS & SERVICES—Continued | |||
DaVita Inc. | |||
$ | 1,710 | 5.000%—05/01/2025 | $ 1,616 |
580 | 5.125%—07/15/2024 | 555 | |
3,500 | 5.750%—08/15/2022 | 3,538 | |
5,709 | |||
Envision Healthcare Corp. | |||
1,625 | 8.750% (1 Month USD Libor + 3.750) 10/15/20261,3 | 1,580 | |
HCA Healthcare Inc. | |||
2,500 | 6.250%—02/15/2021 | 2,603 | |
HCA Inc. | |||
3,500 | 4.750%—05/01/2023 | 3,544 | |
1,450 | 5.375%—02/01/2025-09/01/2026 | 1,446 | |
1,500 | 5.500%—06/15/2047 | 1,480 | |
1,900 | 5.625%—09/01/2028 | 1,886 | |
3,000 | 5.875%—03/15/2022-02/15/2026 | 3,128 | |
2,350 | 6.500%—02/15/2020 | 2,432 | |
13,916 | |||
LifePoint Health Inc. | |||
1,000 | 5.500%—12/01/2021 | 1,014 | |
Molina Healthcare Inc. | |||
2,000 | 5.375%—11/15/2022 | 2,010 | |
MPH Acquisition Holdings LLC | |||
805 | 7.125%—06/01/20243 | 820 | |
NVA Holdings Inc. | |||
1,250 | 6.875%—04/01/20263 | 1,241 | |
Polaris Intermediate Corp. | |||
4,750 | 8.500%—12/01/20223 | 4,887 | |
RegionalCare Hospital Partners Holdings Inc. | |||
3,335 | 8.250%—05/01/20233 | 3,539 | |
Sotera Health Topco Inc. | |||
2,000 | 8.125%—11/01/20213 | 1,970 | |
Team Health Holdings Inc. | |||
1,395 | 6.375%—02/01/20253 | 1,207 | |
Tenet Healthcare Corp. | |||
850 | 4.375%—10/01/2021 | 845 | |
3,915 | 4.625%—07/15/2024 | 3,783 | |
2,000 | 6.000%—10/01/2020 | 2,053 | |
1,390 | 6.875%—11/15/2031 | 1,237 | |
500 | 8.125%—04/01/2022 | 523 | |
8,441 | |||
Vizient Inc. | |||
515 | 10.375%—03/01/20243 | 564 | |
West Street Merger Sub Inc. | |||
1,000 | 6.375%—09/01/20253 | 943 | |
63,803 | |||
HEALTH CARE TECHNOLOGY—0.2% | |||
Change Healthcare Holdings LLC | |||
1,405 | 5.750%—03/01/20253 | 1,379 | |
HOTELS, RESTAURANTS & LEISURE—3.3% | |||
Boyd Gaming Corp. | |||
750 | 6.000%—08/15/2026 | 727 | |
Brinker International Inc. | |||
2,500 | 3.875%—05/15/2023 | 2,350 | |
500 | 5.000%—10/01/20243 | 472 | |
2,822 | |||
Delta Merger Sub Inc. | |||
1,000 | 6.000%—09/15/20263 | 984 | |
ESH Hospitality Inc. | |||
3,750 | 5.250%—05/01/20253 | 3,558 |
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 | ||
HOTELS, RESTAURANTS & LEISURE—Continued | |||
Hilton Domestic Operating Co. Inc. | |||
$ | 1,200 | 5.125%—05/01/20263 | $ 1,176 |
International Game Technology plc | |||
2,090 | 6.250%—02/15/2022-01/15/20273 | 2,116 | |
IRB Holding Corp. | |||
2,500 | 6.750%—02/15/20263 | 2,400 | |
Marriott Ownership Resorts Inc. | |||
750 | 6.500%—09/15/20263 | 759 | |
Merlin Entertainments plc | |||
205 | 5.750%—06/15/20263 | 206 | |
MGM Resorts International | |||
1,000 | 5.750%—06/15/2025 | 980 | |
630 | 6.625%—12/15/2021 | 661 | |
1,500 | 7.750%—03/15/2022 | 1,615 | |
3,256 | |||
New Red Finance Inc. | |||
500 | 4.625%—01/15/20223 | 497 | |
1,945 | 5.000%—10/15/20253 | 1,828 | |
2,325 | |||
Scientific Games International Inc. | |||
2,000 | 6.625%—05/15/2021 | 1,945 | |
SIX Flags Entertainment Corp. | |||
305 | 4.875%—07/31/20243 | 289 | |
Stars Group Holdings BV / Stars Group US Co.-Borrower LLC | |||
1,620 | 7.000%—07/15/20263 | 1,648 | |
Vici Properties Inc. | |||
155 | 8.000%—10/15/2023 | 171 | |
Viking Cruises Ltd. | |||
1,600 | 5.875%—09/15/20273 | 1,528 | |
VOC Escrow Ltd. | |||
860 | 5.000%—02/15/20283 | 813 | |
26,723 | |||
HOUSEHOLD DURABLES—1.2% | |||
Lennar Corp. | |||
2,725 | 4.500%—04/30/2024 | 2,611 | |
500 | 4.750%—04/01/2021 | 504 | |
1,000 | 4.875%—12/15/2023 | 980 | |
475 | 5.250%—06/01/2026 | 455 | |
400 | 5.875%—11/15/2024 | 405 | |
4,955 | |||
M/I Homes Inc. | |||
1,205 | 5.625%—08/01/2025 | 1,115 | |
Toll Brothers Finance Corp. | |||
710 | 4.350%—02/15/2028 | 630 | |
Tri Pointe Group Inc. | |||
1,400 | 4.875%—07/01/2021 | 1,389 | |
2,000 | 5.250%—06/01/2027 | 1,710 | |
3,099 | |||
9,799 | |||
HOUSEHOLD PRODUCTS—1.3% | |||
Central Garden & Pet Co. | |||
750 | 6.125%—11/15/2023 | 767 | |
Energizer Holdings Inc. | |||
1,970 | 5.500%—06/15/20253 | 1,921 | |
First Quality Finance Co. Inc. | |||
4,425 | 4.625%—05/15/20213 | 4,369 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
HOUSEHOLD PRODUCTS—Continued | |||
Prestige Brands Inc. | |||
$ | 2,720 | 5.375%—12/15/20213 | $ 2,696 |
815 | 6.375%—03/01/20243 | 809 | |
3,505 | |||
10,562 | |||
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—1.6% | |||
AES Corp. | |||
1,065 | 4.000%—03/15/2021 | 1,057 | |
585 | 4.500%—03/15/2023 | 578 | |
1,000 | 5.500%—04/15/2025 | 1,008 | |
300 | 6.000%—05/15/2026 | 308 | |
2,951 | |||
Calpine Corp. | |||
505 | 5.250%—06/01/20263 | 466 | |
1,000 | 5.500%—02/01/2024 | 911 | |
1,500 | 5.750%—01/15/2025 | 1,346 | |
2,723 | |||
Clearway Energy Operating LLC | |||
1,485 | 5.750%—10/15/20253 | 1,466 | |
NRG Energy Inc. | |||
550 | 5.750%—01/15/2028 | 550 | |
3,350 | 6.250%—05/01/2024 | 3,437 | |
3,987 | |||
Terraform Power Operating LLC | |||
583 | 4.250%—01/31/20233 | 554 | |
1,020 | 5.000%—01/31/20283 | 915 | |
1,469 | |||
12,596 | |||
INSURANCE—0.8% | |||
Acrisure Finance Inc. | |||
2,830 | 7.000%—11/15/20253 | 2,540 | |
Hub International Ltd. | |||
1,620 | 7.000%—05/01/20263 | 1,585 | |
NFP Corp. | |||
2,395 | 6.875%—07/15/20253 | 2,329 | |
6,454 | |||
INTERACTIVE MEDIA & SERVICES—0.2% | |||
Match Group Inc. | |||
1,380 | 6.375%—06/01/2024 | 1,440 | |
IT SERVICES—1.4% | |||
Alliance Data Systems Corp. MTN4 | |||
2,500 | 5.875%—11/01/20213 | 2,550 | |
First Data Corp. | |||
2,515 | 5.375%—08/15/20233 | 2,543 | |
1,500 | 5.750%—01/15/20243 | 1,515 | |
4,058 | |||
Rackspace Hosting Inc. | |||
355 | 8.625%—11/15/20243 | 335 | |
Sabre GLBL Inc. | |||
220 | 5.250%—11/15/20233 | 218 | |
WEX Inc. | |||
4,000 | 4.750%—02/01/20233 | 4,010 | |
11,171 |
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 | ||
LEISURE PRODUCTS—0.4% | |||
NCL Corp. Ltd. | |||
$ | 500 | 4.750%—12/15/20213 | $ 501 |
Wyndham Destinations Inc. | |||
1,400 | 3.900%—03/01/2023 | 1,302 | |
195 | 5.400%—04/01/2024 | 189 | |
1,350 | 5.750%—04/01/2027 | 1,257 | |
2,748 | |||
3,249 | |||
LIFE SCIENCES TOOLS & SERVICES—0.6% | |||
Eagle Holding Co. II LLC | |||
3,000 | 7.625%—05/15/20223 | 3,023 | |
IQVIA Inc. | |||
1,750 | 4.875%—05/15/20233 | 1,739 | |
4,762 | |||
MACHINERY—0.3% | |||
Allison Transmission Inc. | |||
1,200 | 4.750%—10/01/20273 | 1,105 | |
EnPro Industries Inc. | |||
1,455 | 5.750%—10/15/20263 | 1,441 | |
2,546 | |||
MEDIA—11.1% | |||
Altice France SA | |||
1,265 | 6.250%—05/15/20243 | 1,219 | |
3,000 | 7.375%—05/01/20263 | 2,891 | |
4,110 | |||
AMC Networks Inc. | |||
4,998 | 4.750%—08/01/2025 | 4,659 | |
Block Communications Inc. | |||
2,515 | 6.875%—02/15/20253 | 2,562 | |
Cable One Inc. | |||
2,885 | 5.750%—06/15/20223 | 2,935 | |
Cablevision Systems Corp. | |||
5,000 | 8.000%—04/15/2020 | 5,231 | |
CCO Holdings LLC | |||
1,500 | 5.000%—02/01/20283 | 1,404 | |
2,500 | 5.125%—05/01/20273 | 2,360 | |
5,500 | 5.250%—03/15/2021-09/30/2022 | 5,537 | |
3,000 | 5.875%—04/01/20243 | 3,034 | |
12,335 | |||
Cequel Communications Holdings I LLC / Cequel Capital Corp. | |||
2,000 | 5.125%—12/15/20213 | 2,000 | |
CSC Holdings LLC | |||
2,000 | 5.250%—06/01/2024 | 1,932 | |
1,000 | 5.375%—02/01/20283 | 945 | |
2,090 | 10.875%—10/15/20253 | 2,417 | |
5,294 | |||
DISH DBS Corp. | |||
5,000 | 5.000%—03/15/2023 | 4,393 | |
5,000 | 5.875%—11/15/2024 | 4,269 | |
8,662 | |||
EW Scripps Co. | |||
2,250 | 5.125%—05/15/20253 | 2,121 | |
Graham Holdings Co. | |||
945 | 5.750%—06/01/20263 | 954 | |
Lamar Media Corp. | |||
500 | 5.000%—05/01/2023 | 502 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
MEDIA—Continued | |||
Lin Television Corp. | |||
$ | 550 | 5.875%—11/15/2022 | $ 560 |
Mediacom Broadband LLC | |||
1,000 | 5.500%—04/15/2021 | 1,008 | |
Midcontinent Finance Corp. | |||
2,000 | 6.875%—08/15/20233 | 2,090 | |
Outfront Media Capital LLC | |||
1,400 | 5.875%—03/15/2025 | 1,409 | |
Quebecor Media Inc. | |||
600 | 5.750%—01/15/2023 | 604 | |
Radiate HoldCo LLC | |||
2,000 | 6.625%—02/15/20253 | 1,875 | |
310 | 6.875%—02/15/20233 | 299 | |
2,174 | |||
Sable International Finance Ltd. | |||
735 | 6.875%—08/01/20223 | 769 | |
Sinclair Television Group Inc. | |||
4,158 | 6.125%—10/01/2022 | 4,210 | |
Sirius XM Radio Inc. | |||
1,294 | 5.000%—08/01/20273 | 1,223 | |
4,000 | 6.000%—07/15/20243 | 4,099 | |
5,322 | |||
TEGNA Inc. | |||
190 | 4.875%—09/15/20213 | 189 | |
750 | 6.375%—10/15/2023 | 770 | |
959 | |||
Telenet Finance Luxembourg Notes Sarl | |||
3,600 | 5.500%—03/01/20283 | 3,369 | |
Townsquare Media Inc. | |||
2,235 | 6.500%—04/01/20233 | 2,065 | |
Tribune Media Co. | |||
3,000 | 5.875%—07/15/2022 | 3,053 | |
Univision Communications Inc. | |||
1,000 | 5.125%—02/15/20253 | 916 | |
74 | 6.750%—09/15/20223 | 76 | |
992 | |||
UPCB Finance IV Ltd. | |||
3,500 | 5.375%—01/15/20253 | 3,414 | |
Virgin Media Finance plc | |||
500 | 5.750%—01/15/20253 | 484 | |
1,225 | 6.000%—10/15/20243 | 1,200 | |
1,684 | |||
Virgin Media Secured Finance plc | |||
880 | 5.250%—01/15/2021 | 893 | |
250 | 5.500%—08/15/20263 | 236 | |
1,129 | |||
Ziggo Bond Finance BV | |||
2,405 | 5.875%—01/15/20253 | 2,213 | |
1,000 | 6.000%—01/15/20273 | 892 | |
3,105 | |||
89,281 | |||
METALS & MINING—3.3% | |||
AK Steel Corp. | |||
945 | 7.000%—03/15/2027 | 841 | |
Alcoa Nederland Holding BV | |||
1,140 | 6.125%—05/15/20283 | 1,140 | |
Alliance Resource Operating Partners | |||
2,000 | 7.500%—05/01/20253 | 2,082 |
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 | ||
METALS & MINING—Continued | |||
Commercial Metals Co. | |||
$ | 1,475 | 5.375%—07/15/2027 | $ 1,370 |
Constellium NV | |||
804 | 5.750%—05/15/20243 | 769 | |
1,950 | 6.625%—03/01/20253 | 1,916 | |
2,685 | |||
FMG Resources August 2006 Pty Ltd. | |||
2,500 | 4.750%—05/15/20223 | 2,409 | |
2,000 | 5.125%—03/15/20233 | 1,935 | |
4,344 | |||
Freeport-McMoRan Inc. | |||
1,750 | 3.550%—03/01/2022 | 1,660 | |
2,785 | 3.875%—03/15/2023 | 2,583 | |
1,223 | 5.400%—11/14/2034 | 1,076 | |
1,000 | 5.450%—03/15/2043 | 853 | |
234 | 6.875%—02/15/2023 | 246 | |
6,418 | |||
Grinding Media Inc. | |||
1,000 | 7.375%—12/15/20233 | 1,030 | |
Novelis Corp. | |||
500 | 5.875%—09/30/20263 | 473 | |
2,770 | 6.250%—08/15/20243 | 2,749 | |
3,222 | |||
Steel Dynamics Inc. | |||
1,800 | 5.125%—10/01/2021 | 1,816 | |
546 | 5.250%—04/15/2023 | 549 | |
2,365 | |||
Teck Resources Ltd. | |||
840 | 5.200%—03/01/2042 | 750 | |
334 | 8.500%—06/01/20243 | 363 | |
1,113 | |||
26,610 | |||
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—0.5% | |||
Starwood Property Trust Inc. | |||
1,385 | 3.625%—02/01/20213 | 1,349 | |
821 | 4.750%—03/15/2025 | 784 | |
2,000 | 5.000%—12/15/2021 | 1,995 | |
4,128 | |||
OIL, GAS & CONSUMABLE FUELS—10.0% | |||
Ascent Resources Utica Holdings LLC | |||
650 | 7.000%—11/01/20263 | 632 | |
650 | 10.000%—04/01/20223 | 719 | |
1,351 | |||
Baytex Energy Corp. | |||
550 | 5.125%—06/01/20213 | 538 | |
3,000 | 5.625%—06/01/20243 | 2,707 | |
3,245 | |||
Berry Petroleum Co. LLC | |||
715 | 7.000%—02/15/20263 | 712 | |
Blue Racer Midstream LLC | |||
765 | 6.125%—11/15/20223 | 784 | |
Bruin E&P Partners LLC | |||
1,335 | 8.875%—08/01/20233 | 1,317 | |
Callon Petroleum Co. | |||
1,080 | 6.375%—07/01/2026 | 1,077 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
Cheniere Energy Partners LP | |||
$ | 1,000 | 5.250%—10/01/2025 | $ 984 |
1,100 | 5.625%—10/01/20263 | 1,086 | |
2,070 | |||
Chesapeake Energy Corp. | |||
3,000 | 8.000%—06/15/2027 | 2,989 | |
CNX Midstream Partners LP | |||
1,190 | 6.500%—03/15/20263 | 1,163 | |
Crownrock Finance Inc. | |||
2,750 | 5.625%—10/15/20253 | 2,623 | |
Energy Transfer Equity LP | |||
1,000 | 7.500%—10/15/2020 | 1,061 | |
Enlink Midstream Partners LP | |||
770 | 4.150%—06/01/2025 | 717 | |
755 | 4.850%—07/15/2026 | 716 | |
1,433 | |||
Extraction Oil & Gas Inc. | |||
1,800 | 5.625%—02/01/20263 | 1,530 | |
1,085 | 7.375%—05/15/20243 | 1,023 | |
2,553 | |||
Genesis Energy LP | |||
500 | 6.000%—05/15/2023 | 474 | |
2,250 | 6.750%—08/01/2022 | 2,272 | |
2,746 | |||
Global Partners LP | |||
1,450 | 7.000%—06/15/2023 | 1,450 | |
Great Western Petroleum LLC | |||
1,000 | 9.000%—09/30/20213 | 955 | |
Gulfport Energy Corp. | |||
1,500 | 6.000%—10/15/2024 | 1,414 | |
1,205 | 6.375%—01/15/2026 | 1,126 | |
2,540 | |||
Indigo Natural Resources LLC | |||
2,000 | 6.875%—02/15/20263 | 1,900 | |
Jagged Peak Energy LLC | |||
1,500 | 5.875%—05/01/20263 | 1,466 | |
Jonah Energy LLC | |||
1,000 | 7.250%—10/15/20253 | 800 | |
Magnolia Oil & Gas Operating LLC / Magnolia Oil & Gas Finance Corp. | |||
1,635 | 6.000%—08/01/20263 | 1,619 | |
Matador Resources Co. | |||
1,015 | 5.875%—09/15/20263 | 995 | |
Murphy Oil Corp. | |||
1,900 | 5.875%—12/01/2042 | 1,710 | |
Nabors Industries Inc. | |||
2,325 | 5.750%—02/01/2025 | 2,152 | |
NGL Energy Partners LP | |||
2,535 | 5.125%—07/15/2019 | 2,551 | |
1,600 | 7.500%—11/01/2023 | 1,578 | |
4,129 | |||
NGPL Pipeco LLC | |||
555 | 4.375%—08/15/20223 | 551 | |
1,705 | 4.875%—08/15/20273 | 1,647 | |
2,198 | |||
Oasis Petroleum Inc. | |||
3,865 | 6.875%—03/15/2022-01/15/2023 | 3,903 | |
Parkland Fuel Corp. | |||
1,730 | 6.000%—04/01/20263 | 1,695 |
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 | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
PDC Energy Inc. | |||
$ | 1,650 | 5.750%—05/15/2026 | $ 1,520 |
500 | 6.125%—09/15/2024 | 479 | |
1,999 | |||
QEP Resources Inc. | |||
50 | 5.250%—05/01/2023 | 48 | |
500 | 5.625%—03/01/2026 | 473 | |
500 | 6.875%—03/01/2021 | 522 | |
1,043 | |||
Range Resources Corp. | |||
4,415 | 5.875%—07/01/2022 | 4,459 | |
Rockies Express Pipeline LLC | |||
2,830 | 6.000%—01/15/20193 | 2,844 | |
1,060 | 6.875%—04/15/20403 | 1,158 | |
4,002 | |||
Rose Rock Midstream LP | |||
2,500 | 5.625%—07/15/2022 | 2,413 | |
Sanchez Energy Corp. | |||
200 | 6.125%—01/15/2023 | 76 | |
7,000 | 7.750%—06/15/2021 | 3,535 | |
3,611 | |||
SM Energy Co. | |||
262 | 6.125%—11/15/2022 | 266 | |
390 | 6.625%—01/15/2027 | 394 | |
660 | |||
Southwestern Energy Co. | |||
1,025 | 7.500%—04/01/2026 | 1,048 | |
Summit Midstream Holdings LLC | |||
2,150 | 5.750%—04/15/2025 | 2,069 | |
Sunoco LP | |||
1,840 | 4.875%—01/15/20233 | 1,778 | |
695 | 5.500%—02/15/20263 | 664 | |
2,442 | |||
Tallgrass Energy Finance Corp. | |||
785 | 4.750%—10/01/20233 | 779 | |
1,000 | 5.500%—09/15/20243 | 1,011 | |
1,790 | |||
Targa Resources Partners LP | |||
660 | 5.000%—01/15/2028 | 628 | |
Whiting Petroleum Corp. | |||
95 | 6.625%—01/15/2026 | 95 | |
Wildhorse Resource Development Corp. | |||
1,360 | 6.875%—02/01/2025 | 1,360 | |
80,255 | |||
PHARMACEUTICALS—2.4% | |||
Bausch Health Cos. Inc. | |||
2,250 | 5.500%—11/01/20253 | 2,214 | |
2,300 | 5.625%—12/01/20213 | 2,274 | |
2,250 | 6.125%—04/15/20253 | 2,075 | |
4,959 | 7.500%—07/15/20213 | 5,046 | |
920 | 8.500%—01/31/20273 | 938 | |
12,547 | |||
Endo Finance LLC | |||
500 | 7.250%—01/15/20223 | 476 | |
Mallinckrodt International Finance SA | |||
725 | 4.750%—04/15/2023 | 598 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
PHARMACEUTICALS—Continued | |||
$ | 200 | 5.625%—10/15/20233 | $ 173 |
800 | 5.750%—08/01/20223 | 718 | |
1,489 | |||
Teva Pharmaceutical Finance Netherlands III BV | |||
2,000 | 2.200%—07/21/2021 | 1,869 | |
2,575 | 6.000%—04/15/2024 | 2,565 | |
4,434 | |||
18,946 | |||
PROFESSIONAL SERVICES—0.7% | |||
Nielsen Finance LLC. | |||
1,500 | 4.500%—10/01/2020 | 1,500 | |
2,725 | 5.000%—04/15/20223 | 2,660 | |
4,160 | |||
Tempo Acquisition LLC | |||
1,420 | 6.750%—06/01/20253 | 1,356 | |
5,516 | |||
REAL ESTATE MANAGEMENT & DEVELOPMENT—0.7% | |||
Freedom Mortgage Corp. | |||
280 | 8.125%—11/15/20243 | 261 | |
480 | 8.250%—04/15/20253 | 446 | |
707 | |||
Greystar Real Estate Partners LLC | |||
500 | 5.750%—12/01/20253 | 486 | |
Realogy Group LLC | |||
1,000 | 4.875%—06/01/20233 | 910 | |
3,500 | 5.250%—12/01/20213 | 3,443 | |
4,353 | |||
5,546 | |||
ROAD & RAIL—0.4% | |||
Avis Budget Car Rental LLC | |||
1,000 | 5.500%—04/01/2023 | 976 | |
Herc Rentals Inc. | |||
2,048 | 7.500%—06/01/20223 | 2,140 | |
Hertz Corp. | |||
319 | 7.625%—06/01/20223 | 307 | |
3,423 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—0.5% | |||
Advanced Micro Devices Inc. | |||
837 | 7.000%—07/01/2024 | 876 | |
1,500 | 7.500%—08/15/2022 | 1,648 | |
2,524 | |||
Entegris Inc. | |||
1,298 | 4.625%—02/10/20263 | 1,212 | |
3,736 | |||
SOFTWARE—1.2% | |||
ACI Worldwide Inc. | |||
1,086 | 5.750%—08/15/20263 | 1,090 | |
Banff Merger Sub Inc. | |||
685 | 9.750%—09/01/20263 | 664 | |
CDK Global Inc. | |||
500 | 3.800%—10/15/2019 | 500 | |
Infor Software Parent LLC | |||
2,014 | 7.125%—05/01/20213 | 2,034 |
21
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 | ||
SOFTWARE—Continued | |||
Infor US Inc. | |||
$ | 485 | 5.750%—08/15/20203 | $ 491 |
Informatica LLC | |||
1,500 | 7.125%—07/15/20233 | 1,538 | |
Nuance Communications Inc. | |||
19 | 5.375%—08/15/20203 | 19 | |
3,000 | 6.000%—07/01/2024 | 3,049 | |
3,068 | |||
Open Text Corp. | |||
270 | 5.625%—01/15/20233 | 273 | |
9,658 | |||
SPECIALTY RETAIL—1.2% | |||
Asbury Automotive Group Inc. | |||
247 | 6.000%—12/15/2024 | 244 | |
L Brands Inc. | |||
1,190 | 5.250%—02/01/2028 | 1,016 | |
500 | 5.625%—02/15/2022 | 509 | |
1,480 | 6.875%—11/01/2035 | 1,266 | |
2,791 | |||
Party City Holdings Inc. | |||
1,156 | 6.625%—08/01/20263 | 1,127 | |
Penske Automotive Group Inc. | |||
3,000 | 5.750%—10/01/2022 | 3,043 | |
PetSmart Inc. | |||
2,100 | 5.875%—06/01/20253 | 1,654 | |
Sonic Automotive Inc. | |||
1,250 | 5.000%—05/15/2023 | 1,169 | |
10,028 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—1.0% | |||
Diamond 1 Finance Corp. | |||
2,000 | 5.875%—06/15/20213 | 2,033 | |
850 | 7.125%—06/15/20243 | 900 | |
2,933 | |||
EMC Corp. | |||
345 | 2.650%—06/01/2020 | 336 | |
750 | 3.375%—06/01/2023 | 699 | |
1,035 | |||
NCR Corp. | |||
3,320 | 5.875%—12/15/2021 | 3,337 | |
Seagate HDD Cayman | |||
889 | 4.875%—03/01/2024 | 842 | |
8,147 | |||
THRIFTS & MORTGAGE FINANCE—1.1% | |||
Nationstar Mortgage LLC | |||
3,750 | 6.500%—07/01/2021 | 3,757 | |
Quicken Loans Inc. | |||
3,400 | 5.250%—01/15/20283 | 3,030 | |
750 | 5.750%—05/01/20253 | 727 | |
3,757 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
THRIFTS & MORTGAGE FINANCE—Continued | |||
Wand Merger Corp. | |||
$ | 1,230 | 8.125%—07/15/20233 | $ 1,255 |
8,769 | |||
TRADING COMPANIES & DISTRIBUTORS—0.6% | |||
United Rentals North America Inc. | |||
495 | 4.625%—10/15/2025 | 460 | |
2,000 | 4.875%—01/15/2028 | 1,807 | |
850 | 5.500%—05/15/2027 | 810 | |
2,000 | 5.750%—11/15/2024 | 2,012 | |
5,089 | |||
WIRELESS TELECOMMUNICATION SERVICES—3.5% | |||
C&W Senior Financing DAC | |||
1,470 | 7.500%—10/15/20263 | 1,477 | |
Sprint Capital Corp. | |||
2,750 | 6.875%—11/15/2028 | 2,709 | |
590 | 8.750%—03/15/2032 | 643 | |
3,352 | |||
Sprint Communications Inc. | |||
3,400 | 6.000%—11/15/2022 | 3,440 | |
Sprint Corp. | |||
2,875 | 7.125%—06/15/2024 | 2,947 | |
4,250 | 7.250%—09/15/2021 | 4,446 | |
670 | 7.625%—02/15/2025 | 698 | |
1,000 | 7.875%—09/15/2023 | 1,070 | |
9,161 | |||
T-Mobile USA Inc. | |||
600 | 4.000%—04/15/2022 | 594 | |
500 | 4.500%—02/01/2026 | 469 | |
1,380 | 4.750%—02/01/2028 | 1,280 | |
850 | 5.125%—04/15/2025 | 840 | |
850 | 5.375%—04/15/2027 | 833 | |
1,300 | 6.000%—03/01/2023-04/15/2024 | 1,333 | |
5,500 | 6.500%—01/15/2024-01/15/2026 | 5,786 | |
11,135 | |||
28,565 | |||
TOTAL CORPORATE BONDS & NOTES | |||
(Cost $782,256) | 761,526 | ||
TOTAL INVESTMENTS—97.7% | |||
(Cost $809,296) | 788,582 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—2.3% | 18,172 | ||
TOTAL NET ASSETS—100.0% | $806,754 |
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 2. There were no Level 3 investments at October 31, 2018 or 2017.
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.
22
Harbor High-Yield Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
1 | Variable rate security, the stated rate represents the rate in effect at October 31, 2018. |
2 | Floating rate security, the stated rate represents the rate in effect at October 31, 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 October 31, 2018, the aggregate value of these securities was $365,443 or 45% of net assets. |
4 | MTN after the name of a security stands for Medium Term Note. |
The accompanying notes are an integral part of the Financial Statements.
23
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 generated positive returns for the 12 months ended October 31, 2018, returning 0.86% as measured by the ICE BofAML U.S. High Yield Index (H0A0) (the “Index”). 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 interest rate hike in December by the U.S. Federal Reserve (Fed) triggered 5-year U.S. Treasury yields to spike to a month-end close of 2.2%, which was nearly a 7-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. Crude oil prices reached a 4-year peak; nevertheless, high-yield Energy bonds continued to lag the broader high-yield market in both February and March. The collective concerns of the market caused total return losses across most asset classes in the first quarter of 2018 as investors gravitated towards less risky assets or those less sensitive to rising interest rates. After a weak first quarter performance, U.S. high-yield recovered in the second and third quarters, posting positive returns and recouping all of the losses sustained earlier in the year. The Fed continued its tightening policy by hiking rates three times in 2018, with the expectation of one additional rate hike for 2018 in December.
In October, the market sold off as investors faced multiple worries including continued trade-war tensions between the U.S. and China, an underwhelming start to third quarter earnings, geopolitical risks surrounding Saudi Arabia, Brexit and Italy’s budget concerns, and a sharp decline in the S&P 500 Index. Despite these worries, U.S. high-yield outperformed European high-yield, U.S. Treasuries, U.S. investment grade bonds and emerging markets debt, all of which have posted negative returns for the 12 months ended October 31, 2018. It is also noteworthy that the yield to maturity on the Index stood at 7.01% at the end of October, a two-year high.
U.S. Treasury yields ended the fiscal year higher; the 5-year U.S. Treasury was up 96 basis points and the 10-year U.S. Treasury was up 76 basis points to end at 2.98% and 3.14%, respectively. According to J.P. Morgan, gross new issuance for the high-yield market was $179.3 billion over the period, which is down 36% over the same period last year. The trailing 12-month default rate according to Moody’s was 3.1% at the end of October.
PERFORMANCE
Harbor High-Yield Opportunities Fund returned -0.59% (Institutional Class), -0.53% (Retirement Class), -0.82% (Administrative Class), and -0.92% (Investor Class) for the 12-month period ended October 31, 2018, while the Index returned 0.86. The Fund was adversely impacted by one-time effects associated with ramping up the Fund’s assets. Additionally, the Fund underperformed meaningfully in the first quarter of 2018, when the duration profile of the Fund was longer than the benchmark. Throughout 2017, U.S. Treasury rates were largely range bound and a longer duration bias produced superior carry that year. During the first quarter of 2018, the 10-year U.S. Treasury rate broke higher out of its former range and adversely impacted performance. Given the breakout in U.S. Treasury rates, we made the decision to reduce duration in the Fund to below benchmark and that decision proved beneficial for second and third quarter performance.
24
Harbor High-Yield Opportunities Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $10,000 INVESTMENT
For the 11/01/2017 through 10/31/2018
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the ICE BofAML U.S. High Yield Index (H0A0). The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | 5 Years | Annualized | ||||||
Life of Fund | ||||||||
Harbor High-Yield Opportunities Fund | ||||||||
Institutional Class1 | -0.59% | N/A | -0.59% | |||||
Retirement Class1 | -0.53 | N/A | -0.53 | |||||
Administrative Class1 | -0.82 | N/A | -0.82 | |||||
Investor Class1 | -0.92 | N/A | -0.92 | |||||
Comparative Index | ||||||||
ICE BofAML U.S. High Yield (H0A0)1 | 0.86% | N/A | 0.86% |
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.
In terms of industries, the Fund benefitted from strong security selection in the services industry led by issuers Engility Corporation and Travelport Corporate and in the retail industry led by Wok Acquisition and Golden Nugget. The Fund also exhibited strong security selection in several other industries such as utilities, technology and electronics, and automotive. Specifically, in the automotive industry, the Fund benefitted from not owning ATD Finance Corp, which defaulted in October. Conversely, weak security selection in the Energy sector detracted from performance, specifically led by Sanchez Energy and Jones Energy, which were pressured by the volatility in both oil prices and equity markets. Lastly, weak security selection in the media industry also detracted from performance led by Altice SA and DISH DBS Corporation. From a credit quality perspective, the Fund benefitted from strong security selection in the BB-rated credit tier, but this was offset by weak security selection in the B-rated and CCC-rated credit tiers.
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 weak technical factors such as consistent high-yield fund outflows and concerns surrounding rising interest rates. We expect defaults to remain low and project defaults to be at 3.0% in 2018, well below the historical average of 4.1%. In our view, company balance sheets are getting stronger and leverage ratios are declining among non-investment grade companies. Specifically, in the second quarter of 2018, aggregate revenues of high-yield issuers in the Index increased by 13% year-over-year with EBITDA growth reaching 20% while debt growth remains muted at 3%. Net leverage among U.S. high-yield issuers declined for nine consecutive quarters.
We do not foresee any major fundamental concerns for the high-yield class; however, we recognize the asset class remains out of favor with many investors for technical reasons. Fed rate actions, oil price volatility, and rising risks of a global trade war deserve close monitoring. In the current state, we believe a continuation of the status quo for the U.S. economy seems most likely. With annual GDP growth of 2.5-3.0%, 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 10/31/2018. |
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 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.
25
Harbor High-Yield Opportunities Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Issuers (% of net assets)
❶ | HCA Inc. | 2.3% |
❷ | Bausch Health Cos. Inc. | 1.9% |
❸ | Sprint Corp. | 1.7% |
❹ | CCO Holdings LLC | 1.3% |
❺ | Tenet Healthcare Corp. | 1.3% |
❻ | Murphy Oil Corp. | 1.2% |
❼ | Block Communications Inc. | 1.1% |
❽ | DISH DBS Corp. | 1.1% |
❾ | Frontier Communications Corp. | 1.1% |
❿ | goeasy Ltd. | 1.1% |
Sector Allocation (% of investments)
(Excludes cash and short-term investments)
Maturity Profile (% of investments)
26
Harbor High-Yield Opportunities Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
ASSET-BACKED SECURITIES—0.2% | |||
(Cost $122) | |||
Principal Amount | Value | ||
US Airways 2012-2 Class B Pass-Through Trust | |||
$ | 112 | 6.750%—12/03/2022 | $ 118 |
CORPORATE BONDS & NOTES—95.9% | |||
AEROSPACE & DEFENSE—2.6% | |||
Arconic Inc. | |||
250 | 5.125%—10/01/2024 | 246 | |
BBA US Holdings Inc. | |||
275 | 5.375%—05/01/20261 | 273 | |
Bombardier Inc. | |||
475 | 6.000%—10/15/20221 | 468 | |
Engility Corp. | |||
475 | 8.875%—09/01/2024 | 515 | |
TransDigm Inc. | |||
150 | 6.000%—07/15/2022 | 151 | |
250 | 6.375%—06/15/2026 | 246 | |
397 | |||
1,899 | |||
AUTO COMPONENTS—0.5% | |||
KGA Escrow LLC | |||
375 | 7.500%—08/15/20231 | 386 | |
AUTOMOBILES—1.4% | |||
Aston Martin Capital Holdings Ltd. | |||
400 | 6.500%—04/15/20221 | 394 | |
McLaren Finance plc | |||
675 | 5.750%—08/01/20221 | 642 | |
1,036 | |||
BANKS—1.3% | |||
Intesa Sanpaolo SpA MTN2 | |||
250 | 5.017%—06/26/20241 | 221 | |
Oxford Finance LLC | |||
500 | 6.375%—12/15/20221 | 505 | |
Unicredit SpA | |||
250 | 5.861% (US Treasury Yield Curve Rate T Note 1 Year CMT + 3.650) 06/19/20321,3,4 | 214 | |
940 | |||
BEVERAGES—0.3% | |||
Cott Holdings Inc. | |||
250 | 5.500%—04/01/20251 | 239 | |
BUILDING PRODUCTS—0.8% | |||
Builders FirstSource Inc. | |||
250 | 5.625%—09/01/20241 | 234 | |
Standard Industries Inc. | |||
350 | 5.375%—11/15/20241 | 339 | |
573 | |||
CAPITAL MARKETS—1.2% | |||
Icahn Enterprises Finance Corp. | |||
200 | 5.875%—02/01/2022 | 201 | |
350 | 6.250%—02/01/2022 | 354 | |
555 | |||
LPL Holdings Inc. | |||
300 | 5.750%—09/15/20251 | 292 | |
847 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CHEMICALS—2.2% | |||
CF Industries Inc. | |||
$ | 350 | 5.150%—03/15/2034 | $ 323 |
Cornerstone Chemical Co. | |||
400 | 6.750%—08/15/20241 | 389 | |
INEOS Group Holdings SA | |||
300 | 5.625%—08/01/20241 | 287 | |
NOVA Chemicals Corp. | |||
125 | 4.875%—06/01/20241 | 115 | |
325 | 5.250%—06/01/20271 | 294 | |
409 | |||
Starfruit Finco BV | |||
150 | 8.000%—10/01/20261 | 146 | |
1,554 | |||
COMMERCIAL SERVICES & SUPPLIES—0.4% | |||
Prime Security Services Borrower LLC | |||
250 | 9.250%—05/15/20231 | 265 | |
COMMUNICATIONS EQUIPMENT—0.8% | |||
Plantronics Inc. | |||
400 | 5.500%—05/31/20231 | 391 | |
Riverbed Technology Inc. | |||
200 | 8.875%—03/01/20231 | 184 | |
575 | |||
CONSTRUCTION & ENGINEERING—0.3% | |||
MDC Holdings Inc. | |||
200 | 5.500%—01/15/2024 | 196 | |
CONSTRUCTION MATERIALS—1.2% | |||
Cemex SAB de CV | |||
325 | 7.750%—04/16/20261 | 345 | |
New Enterprise Stone & Lime Co. Inc. | |||
500 | 6.250%—03/15/20261 | 489 | |
834 | |||
CONSUMER FINANCE—3.1% | |||
Ally Financial Inc. | |||
150 | 4.625%—05/19/2022 | 150 | |
300 | 5.125%—09/30/2024 | 306 | |
456 | |||
Credit Acceptance Corp. | |||
650 | 7.375%—03/15/2023 | 673 | |
Navient Corp. | |||
175 | 5.875%—10/25/2024 | 166 | |
Navient Corp. MTN2 | |||
300 | 6.125%—03/25/2024 | 294 | |
Springleaf Finance Corp. | |||
500 | 5.625%—03/15/2023 | 487 | |
150 | 6.875%—03/15/2025 | 144 | |
631 | |||
2,220 | |||
CONTAINERS & PACKAGING—1.5% | |||
ARD Finance SA | |||
125 | 7.125%—09/15/2023 | 122 | |
Ardagh Packaging Finance plc | |||
425 | 7.250%—05/15/20241 | 429 | |
BWAY Holding Co. | |||
250 | 5.500%—04/15/20241 | 241 |
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 | ||
CONTAINERS & PACKAGING—Continued | |||
Reynolds Group Issuer Inc. | |||
$ | 325 | 5.125%—07/15/20231 | $ 318 |
1,110 | |||
DIVERSIFIED FINANCIAL SERVICES—2.0% | |||
goeasy Ltd. | |||
750 | 7.875%—11/01/20221 | 775 | |
Jefferies Finance LLC | |||
350 | 7.375%—04/01/20201 | 355 | |
UPCB Finance IV Ltd. | |||
325 | 5.375%—01/15/20251 | 317 | |
1,447 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—6.7% | |||
Altice Financing SA | |||
325 | 6.625%—02/15/20231 | 323 | |
Altice France SA | |||
325 | 7.375%—05/01/20261 | 313 | |
Altice Luxembourg SA | |||
375 | 7.750%—05/15/20221 | 348 | |
CenturyLink Inc. | |||
375 | 7.500%—04/01/2024 | 395 | |
CSC Holdings LLC | |||
375 | 5.500%—04/15/20271 | 361 | |
Frontier Communications Corp. | |||
250 | 8.500%—04/01/20261 | 233 | |
150 | 10.500%—09/15/2022 | 125 | |
550 | 11.000%—09/15/2025 | 406 | |
764 | |||
Hughes Satellite Systems Corp. | |||
300 | 5.250%—08/01/2026 | 286 | |
Intelsat Connect Finance SA | |||
150 | 9.500%—02/15/20231 | 144 | |
Level 3 Financing Inc. | |||
600 | 5.375%—01/15/2024 | 596 | |
Qwest Corp. | |||
325 | 6.875%—09/15/2033 | 315 | |
Sable International Finance Ltd. | |||
250 | 6.875%—08/01/20221 | 262 | |
Telecom Italia SpA | |||
275 | 5.303%—05/30/20241 | 260 | |
Virgin Media Secured Finance plc | |||
375 | 5.500%—08/15/20261 | 354 | |
Windstream Corp. | |||
150 | 7.750%—10/15/2020 | 108 | |
4,829 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.7% | |||
Ingram Micro Inc. | |||
500 | 5.450%—12/15/2024 | 488 | |
ENERGY EQUIPMENT & SERVICES—4.0% | |||
Archrock Partners LP | |||
250 | 6.000%—04/01/2021 | 249 | |
Ensco plc | |||
275 | 5.750%—10/01/2044 | 193 | |
150 | 8.000%—01/31/2024 | 149 | |
342 | |||
Hi-Crush Partners LP | |||
175 | 9.500%—08/01/20261 | 140 | |
Oceaneering International Inc. | |||
350 | 4.650%—11/15/2024 | 325 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
ENERGY EQUIPMENT & SERVICES—Continued | |||
Parker Drilling Co. | |||
$ | 300 | 6.750%—07/15/2022 | $ 205 |
Pioneer Energy Services Corp. | |||
125 | 6.125%—03/15/2022 | 107 | |
SESI LLC | |||
300 | 7.125%—12/15/2021 | 299 | |
Sunoco LP | |||
600 | 4.875%—01/15/20231 | 580 | |
USA Compression Partners LP | |||
200 | 6.875%—04/01/20261 | 204 | |
Weatherford International Ltd. | |||
525 | 4.500%—04/15/2022 | 396 | |
50 | 6.500%—08/01/2036 | 34 | |
430 | |||
2,881 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—0.5% | |||
MPT Operating Partnership LP | |||
250 | 5.000%—10/15/2027 | 236 | |
100 | 5.250%—08/01/2026 | 97 | |
333 | |||
FOOD PRODUCTS—0.4% | |||
Dean Foods Co. | |||
300 | 6.500%—03/15/20231 | 277 | |
HEALTH CARE EQUIPMENT & SUPPLIES—0.3% | |||
DJO Finance LLC / DJO Finance Corp. | |||
200 | 10.750%—04/15/2020 | 198 | |
HEALTH CARE PROVIDERS & SERVICES—6.1% | |||
Centene Corp. | |||
75 | 4.750%—01/15/2025 | 74 | |
Community Health Systems Inc. | |||
275 | 5.125%—08/01/2021 | 262 | |
100 | 6.250%—03/31/2023 | 93 | |
300 | 8.000%—11/15/2019 | 290 | |
645 | |||
Encompass Health Group | |||
300 | 5.750%—11/01/2024 | 301 | |
HCA Inc. | |||
100 | 4.750%—05/01/2023 | 101 | |
250 | 5.000%—03/15/2024 | 254 | |
500 | 5.250%—06/15/2026 | 510 | |
700 | 5.375%—02/01/2025-09/01/2026 | 699 | |
75 | 5.875%—05/01/2023 | 78 | |
1,642 | |||
NVA Holdings Inc. | |||
500 | 6.875%—04/01/20261 | 496 | |
Tenet Healthcare Corp. | |||
200 | 4.625%—07/15/2024 | 193 | |
400 | 6.750%—06/15/2023 | 400 | |
250 | 7.000%—08/01/2025 | 246 | |
100 | 8.125%—04/01/2022 | 105 | |
944 | |||
Wellcare Health Plans Inc. | |||
250 | 5.375%—08/15/20261 | 250 | |
4,352 |
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 | ||
HOTELS, RESTAURANTS & LEISURE—5.5% | |||
Golden Nugget Inc. | |||
$ | 425 | 6.750%—10/15/20241 | $ 425 |
International Game Technology plc | |||
400 | 6.500%—02/15/20251 | 407 | |
Melco Resorts Finance Ltd. | |||
300 | 4.875%—06/06/20251 | 276 | |
PF Chang's China Bistro Inc. | |||
400 | 10.250%—06/30/20201 | 382 | |
Sabre GLBL Inc. | |||
125 | 5.250%—11/15/20231 | 124 | |
375 | 5.375%—04/15/20231 | 377 | |
501 | |||
Scientific Games International Inc. | |||
450 | 10.000%—12/01/2022 | 472 | |
Silversea Cruise Finance Ltd. | |||
500 | 7.250%—02/01/20251 | 541 | |
Studio City Finance Ltd. | |||
250 | 8.500%—12/01/20201 | 251 | |
Viking Cruises Ltd. | |||
500 | 5.875%—09/15/20271 | 477 | |
Wynn Las Vegas LLC | |||
250 | 5.500%—03/01/20251 | 238 | |
3,970 | |||
HOUSEHOLD DURABLES—2.1% | |||
First Quality Finance Co. Inc. | |||
425 | 4.625%—05/15/20211 | 420 | |
M/I Homes Inc. | |||
250 | 5.625%—08/01/2025 | 231 | |
Resideo Funding Inc. | |||
50 | 6.125%—11/01/20261 | 50 | |
Taylor Morrison Communities Inc. | |||
250 | 6.625%—05/15/2022 | 252 | |
Tempur Sealy International Inc. | |||
550 | 5.625%—10/15/2023 | 536 | |
1,489 | |||
HOUSEHOLD PRODUCTS—0.5% | |||
Kronos Acquisition Holdings Inc. | |||
425 | 9.000%—08/15/20231 | 373 | |
INDEPENDENT POWER & RENEWABLE ELECTRICITY PRODUCERS—1.6% | |||
Calpine Corp. | |||
250 | 5.875%—01/15/20241 | 251 | |
NRG Energy Inc. | |||
250 | 7.250%—05/15/2026 | 267 | |
Talen Energy Supply LLC | |||
650 | 9.500%—07/15/20221 | 663 | |
1,181 | |||
INTERACTIVE MEDIA & SERVICES—0.5% | |||
Match Group Inc. | |||
350 | 6.375%—06/01/2024 | 365 | |
INTERNET & DIRECT MARKETING RETAIL—0.9% | |||
Travelport Corporate Finance plc | |||
650 | 6.000%—03/15/20261 | 653 | |
INTERNET SERVICES & INFRASTRUCTURE—1.9% | |||
EIG Investors Corp. | |||
400 | 10.875%—02/01/2024 | 434 | |
J2 Cloud Services LLC | |||
475 | 6.000%—07/15/20251 | 472 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
INTERNET SERVICES & INFRASTRUCTURE—Continued | |||
Rackspace Hosting Inc. | |||
$ | 475 | 8.625%—11/15/20241 | $ 448 |
1,354 | |||
IT SERVICES—1.8% | |||
Cardtronics Inc. | |||
625 | 5.125%—08/01/2022 | 603 | |
First Data Corp. | |||
250 | 5.750%—01/15/20241 | 253 | |
400 | 7.000%—12/01/20231 | 415 | |
668 | |||
1,271 | |||
MACHINERY—0.3% | |||
Navistar International Corp. | |||
200 | 6.625%—11/01/20251 | 205 | |
MEDIA—7.9% | |||
AMC Networks Inc. | |||
350 | 5.000%—04/01/2024 | 336 | |
Block Communications Inc. | |||
750 | 6.875%—02/15/20251 | 764 | |
Cablevision Systems Corp. | |||
175 | 5.875%—09/15/2022 | 176 | |
CCO Holdings LLC | |||
675 | 5.500%—05/01/20261 | 659 | |
150 | 5.750%—01/15/2024 | 152 | |
150 | 5.875%—04/01/20241 | 152 | |
963 | |||
Clear Channel Worldwide Holdings Inc. | |||
500 | 6.500%—11/15/2022 | 510 | |
DISH DBS Corp. | |||
175 | 5.000%—03/15/2023 | 154 | |
400 | 5.875%—11/15/2024 | 341 | |
300 | 7.750%—07/01/2026 | 270 | |
765 | |||
Intelsat Jackson Holdings SA | |||
150 | 5.500%—08/01/2023 | 135 | |
350 | 8.500%—10/15/20241 | 344 | |
125 | 9.750%—07/15/20251 | 131 | |
610 | |||
Nexstar Escrow Corp. | |||
350 | 5.625%—08/01/20241 | 335 | |
Salem Media Group Inc. | |||
525 | 6.750%—06/01/20241 | 472 | |
Sinclair Television Group Inc. | |||
250 | 5.625%—08/01/20241 | 240 | |
Sirius XM Radio Inc. | |||
375 | 6.000%—07/15/20241 | 384 | |
UniVision Communications Inc. | |||
150 | 5.125%—05/15/20231 | 142 | |
5,697 | |||
METALS & MINING—2.2% | |||
Alcoa Nederland Holding BV | |||
350 | 6.750%—09/30/20241 | 369 | |
Freeport-McMoRan Inc. | |||
500 | 4.550%—11/14/2024 | 464 | |
Grinding Media Inc. | |||
500 | 7.375%—12/15/20231 | 515 |
29
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 | |||
New Gold Inc. | |||
$ | 225 | 6.250%—11/15/20221 | $ 197 |
1,545 | |||
OIL, GAS & CONSUMABLE FUELS—15.6% | |||
Antero Resources Corp. | |||
500 | 5.125%—12/01/2022 | 498 | |
Berry Petroleum Co. LLC | |||
175 | 7.000%—02/15/20261 | 174 | |
Calfrac Holdings LP | |||
375 | 8.500%—06/15/20261 | 339 | |
California Resources Corp. | |||
350 | 8.000%—12/15/20221 | 312 | |
Calumet Specialty Products Partners LP / Calumet Finance Corp. | |||
500 | 6.500%—04/15/2021 | 482 | |
Carrizo Oil & Gas Inc. | |||
54 | 7.500%—09/15/2020 | 54 | |
Cheniere Energy Partners LP | |||
250 | 5.250%—10/01/2025 | 246 | |
Chesapeake Energy Corp. | |||
200 | 8.000%—12/15/20221 | 209 | |
300 | 8.000%—01/15/2025-06/15/2027 | 302 | |
511 | |||
Citgo Holding Inc. | |||
425 | 10.750%—02/15/20201 | 444 | |
Crestwood Midstream Partners LP | |||
500 | 6.250%—04/01/2023 | 512 | |
Denbury Resources Inc. | |||
125 | 7.500%—02/15/20241 | 123 | |
Diamond Offshore Drilling Inc. | |||
250 | 4.875%—11/01/2043 | 171 | |
Energy Transfer Equity LP | |||
175 | 5.875%—01/15/2024 | 184 | |
Enlink Midstream Partners LP | |||
200 | 4.150%—06/01/2025 | 186 | |
Everest Acquisition Finance Inc. | |||
275 | 9.375%—05/01/2020 | 270 | |
Gulfport Energy Corp. | |||
550 | 6.375%—01/15/2026 | 514 | |
Hilcorp Finance Co. | |||
250 | 5.000%—12/01/20241 | 237 | |
Jones Energy Holdings LLC | |||
300 | 6.750%—04/01/2022 | 151 | |
MEG Energy Corp. | |||
250 | 6.375%—01/30/20231 | 242 | |
Murphy Oil Corp. | |||
350 | 5.750%—08/15/2025 | 349 | |
500 | 6.875%—08/15/2024 | 524 | |
873 | |||
Murphy Oil USA Inc. | |||
350 | 5.625%—05/01/2027 | 342 | |
350 | 6.000%—08/15/2023 | 359 | |
701 | |||
Nabors Industries Inc. | |||
425 | 5.500%—01/15/2023 | 402 | |
Newfield Exploration Co. | |||
400 | 5.375%—01/01/2026 | 406 | |
Noble Holding International Ltd. | |||
461 | 7.750%—01/15/2024 | 433 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
OIL, GAS & CONSUMABLE FUELS—Continued | |||
Oasis Petroleum Inc. | |||
$ | 237 | 6.875%—03/15/2022 | $ 239 |
Pacific Drilling First Lien Escrow Issuer Ltd. | |||
75 | 8.375%—10/01/20231 | 76 | |
QEP Resources Inc. | |||
350 | 5.625%—03/01/2026 | 331 | |
Rose Rock Midstream LP | |||
500 | 5.625%—07/15/2022 | 482 | |
Sanchez Energy Corp. | |||
500 | 6.125%—01/15/2023 | 189 | |
150 | 7.750%—06/15/2021 | 75 | |
264 | |||
SM Energy Co. | |||
250 | 5.625%—06/01/2025 | 242 | |
Targa Resources Partners Finance Corp. | |||
225 | 6.750%—03/15/2024 | 237 | |
Transocean Inc. | |||
325 | 5.800%—10/15/2022 | 317 | |
Welltec A/S | |||
500 | 9.500%—12/01/20221 | 518 | |
11,171 | |||
PAPER & FOREST PRODUCTS—0.4% | |||
Schweitzer-Mauduit International Inc. | |||
250 | 6.875%—10/01/20261 | 254 | |
PERSONAL PRODUCTS—0.1% | |||
HLF Financing Sarl LLC / Herbalife International Inc. | |||
100 | 7.250%—08/15/20261 | 101 | |
PHARMACEUTICALS—4.0% | |||
Bausch Health Cos. Inc. | |||
350 | 5.500%—03/01/20231 | 333 | |
600 | 7.000%—03/15/20241 | 630 | |
325 | 9.250%—04/01/20261 | 341 | |
1,304 | |||
Endo Finance LLC | |||
175 | 5.875%—10/15/20241 | 177 | |
250 | 7.250%—01/15/20221 | 238 | |
415 | |||
Horizon Pharma Inc. | |||
300 | 6.625%—05/01/2023 | 304 | |
Mallinckrodt International Finance SA | |||
175 | 4.875%—04/15/20201 | 173 | |
275 | 5.625%—10/15/20231 | 237 | |
410 | |||
Teva Pharmaceutical Finance Netherlands III BV | |||
575 | 3.150%—10/01/2026 | 469 | |
2,902 | |||
ROAD & RAIL—1.0% | |||
Hertz Corp. | |||
375 | 5.875%—10/15/2020 | 366 | |
375 | 7.625%—06/01/20221 | 360 | |
726 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—0.5% | |||
Advanced Micro Devices Inc. | |||
325 | 7.000%—07/01/2024 | 340 |
30
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 | ||
SOFTWARE—1.9% | |||
Infor Software Parent LLC | |||
$ | 550 | 7.125%—05/01/20211 | $ 555 |
Open Text Corp. | |||
250 | 5.875%—06/01/20261 | 252 | |
Solera LLC | |||
500 | 10.500%—03/01/20241 | 545 | |
1,352 | |||
SPECIALTY RETAIL—1.0% | |||
Asbury Automotive Group Inc. | |||
100 | 6.000%—12/15/2024 | 99 | |
Carvana Co. | |||
250 | 8.875%—10/01/20231 | 237 | |
Neiman Marcus Group Ltd. LLC | |||
295 | 8.000%—10/15/20211 | 178 | |
PetSmart Inc. | |||
100 | 5.875%—06/01/20251 | 79 | |
125 | 7.125%—03/15/20231 | 88 | |
167 | |||
681 | |||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—0.5% | |||
EMC Corp. | |||
400 | 3.375%—06/01/2023 | 373 | |
TEXTILES, APPAREL & LUXURY GOODS—0.3% | |||
Hanesbrands Inc. | |||
200 | 4.625%—05/15/20241 | 193 | |
TOBACCO—0.6% | |||
Vector Group Ltd. | |||
475 | 6.125%—02/01/20251 | 435 | |
TRADING COMPANIES & DISTRIBUTORS—1.9% | |||
Fly Leasing Ltd. | |||
300 | 6.375%—10/15/2021 | 307 | |
Fortress Transportation & Infrastructure Investors LLC | |||
350 | 6.500%—10/01/20251 | 345 | |
Suburban Propane Partners LP | |||
200 | 5.500%—06/01/2024 | 191 | |
United Rentals North America Inc. | |||
500 | 5.750%—11/15/2024 | 503 | |
1,346 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
TRANSPORTATION INFRASTRUCTURE—1.5% | |||
DAE Funding LLC | |||
$ | 525 | 5.000%—08/01/20241 | $ 513 |
Park Aerospace Holdings Co. | |||
600 | 5.250%—08/15/20221 | 598 | |
1,111 | |||
WIRELESS TELECOMMUNICATION SERVICES—3.1% | |||
Altice France SA | |||
100 | 6.250%—05/15/20241 | 96 | |
C&W Senior Financing DAC | |||
100 | 7.500%—10/15/20261 | 101 | |
Sprint Capital Corp. | |||
100 | 6.875%—11/15/2028 | 99 | |
Sprint Corp. | |||
800 | 7.125%—06/15/2024 | 820 | |
400 | 7.875%—09/15/2023 | 428 | |
1,248 | |||
T-Mobile USA Inc. | |||
175 | 5.375%—04/15/2027 | 171 | |
350 | 6.375%—03/01/2025 | 362 | |
533 | |||
Wind Tre SpA | |||
175 | 5.000%—01/20/20261 | 150 | |
2,227 | |||
TOTAL CORPORATE BONDS & NOTES | |||
(Cost $71,406) | 68,794 | ||
TOTAL INVESTMENTS—96.1% | |||
(Cost $71,528) | 68,912 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—3.9% | 2,802 | ||
TOTAL NET ASSETS—100.0% | $71,714 |
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 2. There were no Level 3 investments at October 31, 2018 or November 1, 2017.
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 | 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 October 31, 2018, the aggregate value of these securities was $36,380 or 50% 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 October 31, 2018. |
4 | CMT denotes Constant Maturity Treasury. |
The accompanying notes are an integral part of the Financial Statements.
31
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
The coordinated efforts of global central banks to normalize policy continued to be a focus for fixed income markets for the fiscal year ended October 31, 2018. Overall, markets were more challenged in light of continued reduction in global central bank accommodation as well as a myriad of geopolitical events, with volatility rising well above recent averages.
To start the fiscal year, 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 2017 calendar year out strong. Underlying the risk-on sentiment, the fundamental backdrop remained intact as data showed acceleration in growth trends in the U.S., Europe, and Japan, although inflation remained subdued. Volatility remained low and emerging market assets broadly strengthened on the back of healthier fundamentals, a weaker U.S. Dollar, and rising oil prices.
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 global central banks on track, but rising interest rates and geopolitical concerns contributed to more challenged performance across equities and credit. Expectations for higher inflation, increased U.S. Treasury supply and more U.S. Federal Reserve (Fed) hikes all contributed to higher rates. Volatility rose as the CBOE Volatility Index 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.
Over the second half of the fiscal year, geopolitical developments – including escalating trade tensions between the U.S. and China, political uncertainty in Italy, and turmoil in certain emerging market countries dominated news headlines and contributed to bouts of volatility. Solid fundamental data and higher inflation kept the Fed on track with policy normalization even as other global central banks like the European Central Bank (ECB) softened rhetoric. With divergence in both growth trends and central bank activity, the U.S. Dollar strengthened against virtually all currencies.
Despite a slew of geopolitical headlines and several developed market central banks shifting toward reduced accommodation, the strong fundamental backdrop in the U.S. persisted. Global central banks remained on course for diminished monetary support, helping push developed market yields higher. The Fed and Bank of England (BoE) both hiked policy rates, the ECB confirmed plans to cease asset purchases by the end of 2018, and the Bank of Japan (BoJ) adjusted its yield curve control policy. Higher developed market yields – in conjunction with the stronger U.S. Dollar and ongoing trade concerns – contributed to the less supportive external backdrop and challenging performance for emerging markets.
In the final month of the fiscal year, risk assets saw a dramatic reversal of fortune from the preceding months. Equities sold off, credit spreads widened, and volatility spiked as market participants digested the continued reduction in global central bank accommodation, among other factors.
PERFORMANCE
Harbor Bond Fund outperformed the Bloomberg Barclays U.S. Aggregate Bond Index for the 12 months ended October 31, 2018. The Fund returned -1.63% (Institutional Class), -1.68% (Retirement Class1), and -1.88% (Administrative Class) for the fiscal year, compared with the benchmark’s return of -2.05%.
32
Harbor Bond Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $10,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor Bond Fund | ||||||||
Institutional Class | -1.63% | 2.10% | 4.89% | |||||
Retirement Class1 | -1.68 | 2.09 | 4.88 | |||||
Administrative Class | -1.88 | 1.83 | 4.63 | |||||
Comparative Index | ||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.94% |
As stated in the Fund’s prospectus dated June 1, 2018, the expense ratios were 0.51% (Net) and 0.63% (Gross) (Institutional Class); 0.43% (Net) and 0.55% (Gross) (Retirement 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.
The following strategies helped Fund returns for fiscal year 2018:
• | Holdings of non-agency mortgage-backed securities, which continued to provide attractive yields and solid defensive characteristics amid strong investor demand and a recovery in the housing sector. |
• | An allocation to U.S. Dollar-denominated emerging market debt as select issues outperformed over the period. |
• | Tactical exposure to select emerging markets currencies, including the Turkish Lira and the Mexican Peso. |
• | Duration positioning in the Eurozone and select emerging markets, namely Brazil. |
• | An allocation to high-yield bonds, as the sector outperformed over the fiscal year. |
The following strategies were negative or neutral for Fund returns:
• | An overweight to U.S. duration as U.S. rates rose over the fiscal year. |
• | Tactical exposure to a basket of developed market currencies, particularly the Japanese Yen and the Swedish Krona. |
OUTLOOK & STRATEGY
We expect world GDP growth to slow somewhat but remain above-trend at 2.75%‒3.25% in 2019. With tighter global financial conditions, increased political and economic uncertainties, and U.S. fiscal stimulus starting to fade in 2019, we think the economic divergence of 2018 – the U.S. accelerating and other regions slowing – will give way to a more synchronized deceleration, with the U.S., the Eurozone and China all seeing lower growth than this year. We expect inflation globally to remain essentially unchanged from 2018 at 2.0%‒2.5%.
In the U.S., after an expansion of about 3% in 2018, we look for growth to slow to a below-consensus 2.0%–2.5% range in 2019. The drop reflects less support from fiscal stimulus, the ongoing removal of monetary accommodation, a stronger U.S. Dollar and a less favorable trade and foreign environment. With economic growth still above potential, though, we expect unemployment to decline further toward 3.6%. We expect inflation to peak at around 2.5% in response to tariff increases before moderating somewhat. We forecast three more increases in the Fed Funds rate by the end of 2019.
For the Eurozone, we expect growth in a range of 1.5%‒2.0% over the next year, down significantly from 2.5% in 2017 but still above potential output growth. We interpret recent purchasing managers indexes as pointing toward a growing divergence within the Eurozone, with Italy falling behind, which bears watching given the government’s anti-Euro leanings. Core inflation is expected to pick up to 1.25%‒1.75% from 1% as unemployment keeps falling, wage growth continues rising, and the Euro is no longer appreciating. We expect the ECB to end net asset purchases by the end of 2018, and we expect a first rate hike in the second half of 2019.
In the U.K., we expect above-consensus real growth in the range of 1.5%–2.0% in the next year based on our expectation that Brexit negotiations will progress and a hard Brexit will be avoided. We believe this should help domestic demand in 2019.
1 | Retirement Class shares commenced operations on June 1, 2018. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to June 1, 2018 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. |
33
Harbor Bond Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
Our below-consensus inflation forecast calls for inflation to fall back to 1.75%‒ 2.25%, slipping below the 2% target over the next year as import price pressures fade and weak wage growth keeps service sector inflation subdued. We forecast two more rate hikes from the BoE over the next year.
We expect Japan’s GDP growth to remain steady at 1.0%–1.5% in 2019, supported by a tight labor market and accommodative fiscal stance. With inflation expectations low and improving labor productivity keeping unit wage costs in check, we expect core inflation to creep up only slightly to 0.5%‒1.0%, well below the 2% target. While we don’t expect the BoJ to raise interest rates, we anticipate further tapering of bond purchases and further steepening of the yield curve.
In China, we expect 2019 growth roughly in the middle of a 5.5%‒6.5% range that reflects large uncertainties caused by trade tensions with the U.S. and an economic policy with partially conflicting targets (growth and unemployment versus financial stability and deleveraging). Our baseline assumes only the recently announced tariff increases and fiscal expansion worth about 1% of GDP. We project a moderate rebound in U.S. Consumer Price Index inflation to 2.0%‒3.0% on rising energy and food prices and expect the People’s Bank of China to keep interest rates and reserve ratios unchanged. We expect only moderate depreciation of the Chinese Yuan against the U.S. Dollar, barring a full trade-war scenario.
With respect to portfolio strategy for the Fund:
• | We are underweight duration overall. We have a preference for U.S. duration against rate exposure in other developed regions, including the U.K. and Japan. |
• | The intermediate portion of the curve continues to offer attractive characteristics while longer- term rates may rise as the Fed continues to reduce accommodation and the yields on longer-term bonds rises. |
• | We remain underweight investment grade corporates but have more diversified credit exposures in other sectors and are more focused on security selection over generic beta exposure, while holding positions in mortgage credit and select high-yield issues. |
• | We remain tactical with currency positioning, particularly given less conviction in the overall direction of the U.S. Dollar. Select currencies of emerging market countries with higher local interest rates may be attractive as diversifying risk exposures. |
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.
34
Harbor Bond Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Issuers (% of net assets)
❶ | Federal National Mortgage Association TBA | 34.5% |
❷ | U.S. Treasury | 22.0% |
❸ | Federal National Mortgage Association | 17.8% |
❹ | Japan Treasury Discount Bill | 13.4% |
❺ | Federal Home Loan Mortgage Corp. TBA | 4.3% |
❻ | Federal National Mortgage Association REMIC | 3.8% |
❼ | Government National Mortgage Association TBA | 1.9% |
❽ | Brazil Letras Do Tesouro Nacional | 1.6% |
❾ | Argentina Treasury Bill | 1.5% |
❿ | Government National Mortgage Association | 1.4% |
Total Investments (% of net assets)
(Excludes net cash, short-term investments and derivative positions of -75.9%)
Maturity Profile (% of investments)
35
Harbor Bond Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
ASSET-BACKED SECURITIES—11.7% | |||
Principal Amount | Value | ||
Allegro CLO I Ltd.1 | |||
Series 2013 Cl. 1A | |||
$ | 3,547 | 3.740% (3 Month USD Libor + 1.220) 01/30/20262,3 | $ 3,551 |
Ally Auto Receivables Trust | |||
Series 2018-3 Cl. A2 | |||
6,300 | 2.720%—05/17/2021 | 6,292 | |
AmeriCredit Automobile Receivables Trust | |||
Series 2018-1 Cl. A1 | |||
10 | 2.450%—05/20/2019 | 10 | |
Series 2018-1 Cl. A2B | |||
3,600 | 2.517%—07/19/20214 | 3,602 | |
3,612 | |||
Arbor Realty Commercial Real Estate Notes Ltd. | |||
Series 2017-FL1 Cl. A | |||
6,800 | 3.580% (1 Month USD Libor + 1.300) 04/15/20272,3 | 6,821 | |
Argent Securities Inc. | |||
Series 2006-W4 Cl. A2C | |||
6,521 | 2.441% (1 Month USD Libor + 0.160) 05/25/20362 | 2,416 | |
Series 2005-W2 Cl. A2C | |||
2,031 | 2.641% (1 Month USD Libor + 0.360) 10/25/20352 | 2,039 | |
Series 2004-W11 Cl. M3 | |||
939 | 3.406% (1 Month USD Libor + 0.750) 11/25/20342 | 937 | |
5,392 | |||
Asset Backed Securities Corp. Home Equity Loan Trust | |||
Series 2003-HE4 Cl. M1 | |||
5,379 | 3.525% (1 Month USD Libor + 0.830) 08/15/20332 | 5,413 | |
Atlas Senior Loan Fund IV Ltd. | |||
Series 2013-2A Cl. A1RR | |||
2,849 | 2.994% (3 Month USD Libor + 0.680) 02/17/20262,3 | 2,847 | |
Bayview Opportunity Master Fund IIIA Trust | |||
Series 2017-RN8 Cl. A1 | |||
1,146 | 3.352%—11/28/20323,5 | 1,142 | |
Capital One Multi Asset Execution Trust | |||
Series 2016-A1 Cl. A1 | |||
6,400 | 2.730% (1 Month USD Libor + 0.450) 02/15/20222 | 6,410 | |
Capital One Multi-Asset Execution Trust | |||
Series 2014-A4 Cl. A4 | |||
6,400 | 2.640% (1 Month USD Libor + 0.360) 06/15/20222 | 6,412 | |
Series 2014-A3 Cl. A3 | |||
3,600 | 2.660% (1 Month USD Libor + 0.380) 01/18/20222 | 3,604 | |
10,016 | |||
Cent CLO Ltd.1 | |||
Series 2015-24A Cl. A1R | |||
5,200 | 3.506% (3 Month USD Libor + 1.070) 10/15/20262,3 | 5,201 | |
Countrywide Asset-Backed Certificates | |||
Series 2006-21 Cl. 2A3 | |||
1,817 | 2.431% (1 Month USD Libor + 0.150) 05/25/20372 | 1,799 | |
Series 2006-ABC1 Cl. A3 | |||
4,558 | 2.521% (1 Month USD Libor + 0.240) 05/25/20362 | 3,290 |
ASSET-BACKED SECURITIES—Continued | |||
Principal Amount | Value | ||
Series 2006-2 Cl. M1 | |||
$ | 1,200 | 2.681% (1 Month USD Libor + 0.400) 06/25/20362 | $ 1,184 |
6,273 | |||
Credit Acceptance Auto Loan Trust | |||
Series 2018-2A Cl. A | |||
6,300 | 3.470%—05/17/20273 | 6,293 | |
Crown Point CLO Ltd.1 | |||
Series 2018-5A Cl. A | |||
5,700 | 3.389% (3 Month USD Libor + 0.940) 07/17/20282,3 | 5,700 | |
Dryden XXV Senior Loan Fund | |||
Series 2012-25A Cl. APR | |||
5,500 | 3.336% (3 Month USD Libor + 0.900) 10/15/20272,3 | 5,501 | |
First Franklin Mortgage Loan Trust | |||
Series 2006-FF10 Cl. A4 | |||
337 | 2.431% (1 Month USD Libor + 0.150) 07/25/20362 | 337 | |
Flagship VII Ltd. | |||
Series 2013 Cl. 7A | |||
2,080 | 3.589% (3 Month USD Libor + 1.120) 01/20/20262,3 | 2,082 | |
Ford Credit Auto Lease Trust | |||
Series 2017-A Cl. A2A | |||
255 | 1.560%—11/15/2019 | 255 | |
Series 2017-A Cl. A2B | |||
356 | 2.420% (1 Month USD Libor + 0.140) 11/15/20192 | 355 | |
610 | |||
GM Financial Consumer Automobiles Receivables Trust | |||
Series 2017-1A Cl. A2A | |||
897 | 1.510%—03/16/20203 | 896 | |
GSAA Trust | |||
Series 2006-20 Cl. 1A2 | |||
4,710 | 2.461% (1 Month USD Libor + 0.180) 12/25/20462 | 2,612 | |
Series 2007-9 Cl. A1A | |||
1,725 | 6.000%—08/25/2047 | 1,644 | |
4,256 | |||
GSAMP Trust | |||
Series 2007-FM1 Cl. 2A2 | |||
118 | 2.351% (1 Month USD Libor + 0.070) 12/25/20362 | 72 | |
Home Equity Asset Trust | |||
Series 2005-2 Cl. M4 | |||
957 | 3.266% (1 Month USD Libor + 0.700) 07/25/20352 | 962 | |
HSI Asset Securitization Corp. Trust | |||
Series 2006-HE2 Cl. 2A3 | |||
5,411 | 2.451% (1 Month USD Libor + 0.170) 12/25/20362 | 2,072 | |
IXIS Real Estate Capital Trust | |||
Series 2005-HE1 Cl. M4 | |||
2,723 | 3.331% (1 Month USD Libor + 1.050) 06/25/20352 | 2,565 | |
JPMorgan Mortgage Acquisition Corp. | |||
Series 2006-HE1 Cl.A4 | |||
2,784 | 2.861% (1 Month USD Libor + 0.290) 01/25/20362 | 2,757 | |
JPMorgan Mortgage Acquisition Trust | |||
Series 2007-HE1 Cl. AF3 | |||
934 | 4.263%—05/25/20355 | 673 |
36
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
ASSET-BACKED SECURITIES—Continued | |||
Principal Amount | Value | ||
Loancore Ltd. | |||
Series 2018-CRE1 Cl. A | |||
$ | 5,200 | 3.410% (1 Month USD Libor + 1.130) 05/15/20282,3 | $ 5,212 |
MASTR Asset Backed Securities Trust | |||
Series 2006-HE2 Cl. A4 | |||
5,861 | 2.521% (1 Month USD Libor + 0.240) 06/25/20362 | 3,427 | |
Mid-State Trust | |||
Series 2004-1 Cl. A | |||
1,163 | 6.005%—08/15/2037 | 1,261 | |
Monarch Grove CLO1 | |||
Series 2018-1A Cl. A1 | |||
4,300 | 3.370% (3 Month USD Libor + 0.880) 01/25/20282,3 | 4,286 | |
Morgan Stanley ABS Capital I Inc. Trust | |||
Series 2007-HE1 Cl. A2C | |||
2,238 | 2.431% (1 Month USD Libor + 0.150) 11/25/20362 | 1,559 | |
Morgan Stanley Dean Witter Capital I | |||
Series 2002-HE1 Cl. M1 | |||
725 | 3.181% (1 Month USD Libor + 0.600) 07/25/20322 | 730 | |
Mountain View CLO Ltd.1 | |||
Series 2014-1A Cl. ARR | |||
6,300 | 3.236% (3 Month USD Libor + 0.800) 10/15/20262,3 | 6,295 | |
Navient Student Loan Trust | |||
Series 2017-3A Cl. A1 | |||
2,588 | 2.581% (1 Month USD Libor + 0.300) 07/26/20662,3 | 2,589 | |
Nissan Master Owner Trust Receivables | |||
Series 2016-A Cl. A1 | |||
6,500 | 2.920% (1 Month USD Libor + 0.640) 06/15/20212 | 6,521 | |
OneMain Financial Issuance Trust | |||
Series 2017-1A Cl. A1 | |||
5,500 | 2.370%—09/14/20323 | 5,403 | |
Option One Mortgage Loan Trust | |||
Series 2007-6 Cl. 2A4 | |||
4,675 | 2.531% (1 Month USD Libor + 0.250) 07/25/20372 | 3,240 | |
Park Place Securities Inc. | |||
Series 2005-WCW3 Cl. M1 | |||
6,589 | 2.761% (1 Month USD Libor + 0.480) 08/25/20352 | 6,610 | |
People's Financial Realty Mortgage Securities Trust | |||
Series 2006-1 Cl. 1A2 | |||
4,767 | 2.411% (1 Month USD Libor + 0.130) 09/25/20362 | 1,463 | |
RAMP Trust | |||
Series 2004-RS8 Cl. MII1 | |||
500 | 3.181% (1 Month USD Libor + 0.600) 08/25/20342 | 500 | |
Securitized Asset Backed Receivables LLC Trust | |||
Series 2005-FR5 Cl. M1 | |||
9,896 | 2.941% (1 Month USD Libor + 0.440) 08/25/20352 | 6,809 | |
Small Business Administration Participation Certificates | |||
Series 2003-20I Cl. 1 | |||
51 | 5.130%—09/01/2023 | 52 | |
Series 2009-20A Cl. 1 | |||
2,324 | 5.720%—01/01/2029 | 2,445 |
ASSET-BACKED SECURITIES—Continued | |||
Principal Amount | Value | ||
Series 2008-20H Cl. 1 | |||
$ | 4,316 | 6.020%—08/01/2028 | $ 4,546 |
Series 2001-20A Cl. 1 | |||
49 | 6.290%—01/01/2021 | 50 | |
7,093 | |||
Sofi Professional Loan Program Trust | |||
Series 2018-A1FX Cl. B | |||
5,240 | 2.640%—08/25/20473 | 5,203 | |
Soundview Home Loan Trust | |||
Series 2006-WF2 Cl. A1 | |||
677 | 2.411% (1 Month USD Libor + 0.130) 12/25/20362 | 677 | |
Specialty Underwriting & Residential Finance Trust | |||
Series 2006-BC4 Cl. A2B | |||
3,119 | 2.391% (1 Month USD Libor + 0.110) 09/25/20372 | 1,584 | |
Structured Asset Securities Co. | |||
Series 2007-MN1A Cl. A1 | |||
21,939 | 2.511% (1 Month USD Libor + 0.230) 01/25/20372,3 | 15,519 | |
Student Loan Marketing Association | |||
Series 2013-B Cl. A2A | |||
2,873 | 1.850%—06/17/20303 | 2,856 | |
Telos CLO Ltd.1 | |||
Series 2014 Cl. 6A | |||
6,900 | 3.719% (3 Month USD Libor + 1.270) 01/17/20272,3 | 6,911 | |
Tralee CLO V Ltd.1 | |||
Series 2018-5A Cl. A1 | |||
5,900 | 3.869% (3 Month USD Libor + 1.110) 10/20/20282,3 | 5,900 | |
Trillium Credit Card Trust II | |||
Series 2018-1A Cl. A | |||
8,100 | 2.544%—02/27/20233,4 | 8,100 | |
Venture XVI CLO Ltd.1 | |||
Series 2014-16A Cl. ARR | |||
5,400 | 3.286% (3 Month USD Libor + 0.850) 01/15/20282,3 | 5,398 | |
Volt LXI LLC | |||
Series 2017-NPL8 Cl. A1 | |||
3,301 | 3.125%—06/25/20473,5 | 3,277 | |
Westlake Automobile Receivables Trust | |||
Series 2018-A1 Cl. 3A | |||
2,809 | 2.530%—09/16/20193 | 2,807 | |
Series 2018-A2A Cl. 3A | |||
7,100 | 2.980%—01/18/20223 | 7,091 | |
9,898 | |||
TOTAL ASSET-BACKED SECURITIES | |||
(Cost $221,765) | 226,067 | ||
BANK LOAN OBLIGATIONS—0.3% | |||
(Cost $5,174) | |||
CONSUMER FINANCE—0.3% | |||
Toyota Motor Credit Corporation | |||
2018 Term Loan | |||
5,200 | 2.966% (3 Month USD Libor + 0.580) 09/28/20202 | 5,185 x | |
37
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COLLATERALIZED MORTGAGE OBLIGATIONS—6.3% | |||
Principal Amount | Value | ||
Adjustable Rate Mortgage Trust | |||
Series 2006-3 Cl. 4A2 | |||
$ | 3,041 | 2.401% (1 Month USD Libor + 0.120) 08/25/20362 | $ 1,815 |
Alba plc | |||
Series 2007-1 Cl. A3 | |||
GBP | 2,788 | 0.967% (3 Month GBP Libor + 0.170) 03/17/20392 | 3,383 |
Banc of America Funding Corp. | |||
Series 2007-C Cl. 7A5 | |||
$ | 1,061 | 2.580% (1 Month USD Libor + 0.300) 05/20/20472 | 987 |
BCAP LLC Trust | |||
Series 2007-AA2 Cl. 12A1 | |||
7,231 | 2.491% (1 Month USD Libor + 0.210) 05/25/20472 | 6,722 | |
Series 2011-RR5 Cl. 12A1 | |||
552 | 4.926%—03/26/20373,5 | 553 | |
Series 2011-RR4 Cl. 8A1 | |||
2,289 | 5.250%—02/26/20362,3 | 1,787 | |
Series 2011-RR5 Cl. 5A1 | |||
2,221 | 5.250%—08/26/20372,3 | 2,277 | |
11,339 | |||
Bear Stearns Adjustable Rate Mortgage Trust | |||
Series 2000-2 Cl. A1 | |||
18 | 2.782%—11/25/20302 | 17 | |
Series 2004-10 Cl. 12A3 | |||
32 | 3.771%—01/25/20352 | 33 | |
Series 2004-1 Cl. 12A5 | |||
350 | 3.962%—04/25/20344 | 353 | |
Series 2006-4 Cl. 1A1 | |||
555 | 4.485%—10/25/20362 | 537 | |
940 | |||
Bear Stearns Alt-A Trust | |||
Series 2005-4 Cl. 1A1 | |||
177 | 2.721% (1 Month USD Libor + 0.220) 07/25/20352 | 178 | |
BX Trust | |||
Series 2017 Cl. A | |||
5,993 | 3.200%—07/15/20343,4 | 5,992 | |
Chase Mortgage Finance Corp. | |||
Series 2006-A1 Cl. 4A1 | |||
1,903 | 4.222%—09/25/20362 | 1,778 | |
Countrywide Alternative Loan Trust | |||
Series 2006-6BC Cl. 1A2 | |||
3,699 | 2.681% (1 Month USD Libor + 0.400) 05/25/20362 | 3,221 | |
Series 2005-84 Cl. 1A1 | |||
2,905 | 3.412%—02/25/20362 | 2,506 | |
Series 2005-20CB Cl. 2A5 | |||
2,413 | 5.500%—07/25/2035 | 2,218 | |
Series 2006-36T2 Cl. 1A4 | |||
1,283 | 5.750%—12/25/2036 | 909 | |
8,854 | |||
Countrywide Home Loan Mortgage Pass Through Trust | |||
Series 2007-HY5 Cl. 1A1 | |||
993 | 4.510%—09/25/20472 | 970 | |
Credit Suisse First Boston Mortgage Securities Corp. | |||
Series 2006-C2 Cl. A3 | |||
354 | 6.000%—11/25/2035 | 294 |
COLLATERALIZED MORTGAGE OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
Deutsche Alt-A Securities Inc. Mortgage Loan Trust | |||
Series 2007-AR2 Cl. A1 | |||
$ | 5,570 | 2.431% (1 Month USD Libor + 0.150) 03/25/20372 | $ 5,089 |
DSLA Mortgage Loan Trust | |||
Series 2006-AR1 Cl. 1A1A | |||
2,461 | 2.866% (Fed 12 Month Treasury Average CMT + 0.920) 03/19/20462,12 | 2,359 | |
Eurohome UK Mortgages plc | |||
Series 2007-1 Cl. A | |||
GBP | 2,456 | 0.947% (3 Month GBP Libor + 0.150) 06/15/20442 | 3,034 |
First Horizon Asset Securities Inc. | |||
Series 2005-AR6 Cl. 4A1 | |||
$ | 1,215 | 3.717%—02/25/20362 | 1,167 |
First Nationwide Trust | |||
Series 2001-3 Cl. 1A1 | |||
$ | 6.750%—08/21/2031 | — | |
GPT 2018-GPP Mortgage Trust | |||
Series 2018-GPP Cl. A | |||
5,200 | 3.292% (1 Month USD Libor + 1.013) 06/15/20352,3 | 5,203 | |
GS Mortgage Securities Corp. Trust | |||
Series 2016-RENT Cl. A | |||
6,900 | 3.203%—02/10/20293 | 6,852 | |
GSMPS Mortgage Loan Trust | |||
Series 2006-RP2 Cl. 1AF1 | |||
5,533 | 2.681% (1 Month USD Libor + 0.400) 04/25/20362,3 | 4,716 | |
GSR Mortgage Loan Trust | |||
Series 2005-AR3 Cl. 3A1 | |||
593 | 4.080%—05/25/20352 | 559 | |
Series 2005-AR7 Cl. 6A1 | |||
331 | 4.440%—11/25/20352 | 335 | |
894 | |||
HarborView Mortgage Loan Trust | |||
Series 2004-8 Cl. 2A3 | |||
783 | 3.102% (1 Month USD Libor + 0.410) 11/19/20342 | 726 | |
HomeBanc Mortgage Trust | |||
Series 2006-H2 Cl. A2 | |||
4,185 | 2.461% (1 Month USD Libor + 0.180) 12/25/20362 | 4,121 | |
IndyMac ARM Trust | |||
Series 2001-H2 Cl. A2 | |||
6 | 3.502%—01/25/20322 | 6 | |
IndyMac IMSC Mortgage Loan Trust | |||
Series 2007-F2 Cl. 2A1 | |||
2,971 | 6.500%—07/25/2037 | 1,892 | |
IndyMac INDX Mortgage Loan Trust | |||
Series 2007-AR13 Cl. 4A1 | |||
14,385 | 3.517%—07/25/20372 | 12,109 | |
Series 2005-AR31 Cl. 1A1 | |||
1,237 | 3.809%—01/25/20362 | 1,122 | |
13,231 | |||
JP Morgan Mortgage Trust | |||
Series 2006-A6 Cl. 1A4L | |||
2,835 | 4.225%—10/25/20362 | 2,569 | |
Series 2006-S1 Cl. 3A1 | |||
771 | 5.500%—04/25/2036 | 786 | |
3,355 |
38
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
COLLATERALIZED MORTGAGE OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
JP Morgan Re-REMIC6 | |||
Series 2009-7 Cl. 11A1 | |||
$ | 52 | 4.150%—09/27/20362,3 | $ 53 |
Mansard Mortgages plc | |||
Series 2007-2X Cl. A1 | |||
GBP | 1,132 | 1.447% (3 Month GBP Libor + 0.650) 12/15/20492 | 1,426 |
Merrill Lynch Alternative Note Asset Trust | |||
Series 2007-F1 Cl. 2A6 | |||
$ | 635 | 6.000%—03/25/2037 | 490 |
Merrill Lynch Mortgage Investors Inc. | |||
Series 2005-3 Cl. 4A | |||
32 | 2.531% (1 Month USD Libor + 0.250) 11/25/20352 | 31 | |
Morgan Stanley Bank of America Merrill Lynch Trust | |||
Series 2015-C22 Cl. ASB | |||
6,000 | 3.040%—04/15/2048 | 5,890 | |
Provident Funding Mortgage Loan Trust | |||
Series 2005-2 Cl. 3A | |||
2,752 | 4.405%—10/25/20352 | 2,771 | |
Residential Accredit Loans Inc. | |||
Series 2007-QS4 Cl. 3A9 | |||
2,167 | 6.000%—03/25/2037 | 2,005 | |
Residential Asset Securitization Trust | |||
Series 2007-A8 Cl. 2A1 | |||
18,842 | 6.250%—08/25/2037 | 8,812 | |
Residential Funding Mortgage Securities I | |||
Series 2007-SA1 Cl. 2A2 | |||
293 | 4.345%—02/25/20372 | 230 | |
Series 2006-SA1 Cl. 2A1 | |||
316 | 4.796%—02/25/20362 | 289 | |
519 | |||
RMAC Securities plc | |||
Series 2006-NS4X Cl. A3A | |||
GBP | 1,832 | 0.971% (3 Month GBP Libor + 0.170) 06/12/20442 | 2,247 |
Structured Adjustable Rate Mortgage Loan Trust | |||
Series 2007-1 Cl. 1A1 | |||
$ | 2,284 | 2.431% (1 Month USD Libor + 0.150) 02/25/20372 | 2,129 |
Series 2001-21A Cl. 3A1 | |||
565 | 4.329%—04/25/20352 | 564 | |
2,693 | |||
Structured Asset Mortgage Investments Inc. | |||
Series 2005-AR5 Cl. A2 | |||
437 | 2.532% (1 Month USD Libor + 0.250) 07/19/20352 | 428 | |
Suntrust Adjustable Rate Mortgage Loan Trust | |||
Series 2007-S1 Cl. 1A | |||
713 | 4.327%—01/25/20372 | 672 | |
Washington Mutual Mortgage Pass Through Certificates Trust | |||
Series 2005-AR13 Cl. A1A1 | |||
231 | 2.571% (1 Month USD Libor + 0.290) 10/25/20452 | 230 | |
Series 2005-AR6 Cl. 2A1A | |||
476 | 2.741% (1 Month USD Libor + 0.230) 04/25/20452 | 480 | |
Series 2006-AR11 Cl. 3A1A | |||
2,231 | 2.866% (Fed 12 Month Treasury Average CMT + 0.920) 09/25/20462,12 | 2,108 | |
2,818 |
COLLATERALIZED MORTGAGE OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
Wells Fargo Mortgage Backed Securities Trust | |||
Series 2006-AR10 Cl. 1A1 | |||
$ | 2,925 | 4.283%—07/25/20362 | $ 2,874 |
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS | |||
(Cost $115,163) | 122,904 | ||
CORPORATE BONDS & NOTES—49.3% | |||
AEROSPACE & DEFENSE—0.3% | |||
Rockwell Collins Inc. | |||
5,500 | 2.800%—03/15/2022 | 5,335 | |
AIRLINES—0.2% | |||
Delta Air Lines Inc. | |||
3,000 | 3.400%—04/19/2021 | 2,972 | |
700 | 3.625%—03/15/2022 | 689 | |
3,661 | |||
AUTO COMPONENTS—0.3% | |||
ZF North America Capital Inc. | |||
5,800 | 4.500%—04/29/20223 | 5,814 | |
AUTOMOBILES—2.1% | |||
Ford Motor Credit Co. LLC | |||
5,400 | 2.343%—11/02/2020 | 5,213 | |
3,400 | 2.425%—06/12/2020 | 3,318 | |
1,300 | 2.459%—03/27/2020 | 1,274 | |
1,550 | 3.200%—01/15/2021 | 1,513 | |
10,050 | 8.125%—01/15/2020 | 10,536 | |
21,854 | |||
General Motors Financial Co. Inc. | |||
6,600 | 2.450%—11/06/2020 | 6,425 | |
7,700 | 2.881% (3 Month USD Libor + 0.540) 11/06/20202 | 7,678 | |
2,800 | 3.150%—01/15/2020 | 2,787 | |
2,600 | 3.200%—07/13/2020 | 2,578 | |
19,468 | |||
41,322 | |||
BANKS—15.4% | |||
AmSouth Bancorp | |||
2,700 | 6.750%—11/01/2025 | 3,033 | |
Australia & New Zealand Banking Group Ltd. | |||
5,100 | 2.772% (3 Month USD Libor + 0.460) 05/17/20212,3 | 5,104 | |
5,200 | 3.300%—05/17/2021 | 5,170 | |
10,274 | |||
Banco Bilbao Vizcaya Argentaria SA | |||
EUR | 2,400 | 6.750% (EUR 5 Year Swap Curve + 6.604) 02/18/20202,7 | 2,793 |
3,400 | 7.000% (EUR 5 Year Swap Curve + 6.155) 02/19/20202,7 | 3,895 | |
6,688 | |||
Banco Do Nordeste Do Brasil SA | |||
$ | 3,300 | 4.375%—05/03/2019 | 3,305 |
Banco Espirito Santo SA MTN8 | |||
EUR | 3,500 | 0.000%—01/15/204911 | 1,175 |
39
Harbor 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 | |||
Bank of America Corp. MTN8 | |||
$ | 1,300 | 2.151%—11/09/2020 | $ 1,269 |
4,960 | 3.106% (3 Month USD Libor + 0.790) 03/05/20242 | 4,928 | |
6,197 | |||
Banque Federative DU Credit Mutuel SA | |||
6,300 | 3.750%—07/20/20233 | 6,244 | |
Barclays Bank plc | |||
GBP | 3,800 | 14.000% (3 Month GBP Libor + 13.400) 06/15/20192,7 | 5,210 |
Barclays plc | |||
$ | 5,200 | 3.684%—01/10/2023 | 5,039 |
6,300 | 4.451% (3 Month USD Libor + 2.110) 08/10/20212 | 6,518 | |
EUR | 2,300 | 6.500% (EUR 5 Year Swap Curve + 5.875) 09/15/20192,7 | 2,685 |
GBP | 2,400 | 7.000% (GBP Swap 5 Year + 5.084) 09/15/20192,7 | 3,085 |
EUR | 900 | 8.000% (EUR 5 Year Swap Curve + 6.750) 12/15/20202,7 | 1,117 |
18,444 | |||
BBVA Bancomer SA | |||
$ | 1,200 | 6.500%—03/10/20213 | 1,241 |
CIT Group Inc. | |||
100 | 5.375%—05/15/2020 | 103 | |
Citibank NA | |||
5,400 | 3.400%—07/23/2021 | 5,379 | |
Citigroup Inc. | |||
3,000 | 2.350%—08/02/2021 | 2,900 | |
6,800 | 2.750%—04/25/2022 | 6,574 | |
3,900 | 2.876% (3 Month USD Libor + 0.950) 07/24/20232 | 3,754 | |
5,200 | 3.344% (3 Month USD Libor + 1.023) 06/01/20242 | 5,219 | |
4,000 | 3.751% (3 Month USD Libor + 1.430) 09/01/20232 | 4,086 | |
22,533 | |||
Deutsche Bank AG/New York | |||
5,500 | 2.700%—07/13/2020 | 5,376 | |
3,800 | 3.950%—02/27/2023 | 3,652 | |
3,200 | 4.250%—10/14/2021 | 3,177 | |
12,205 | |||
HSBC Bank plc | |||
4,300 | 4.125%—08/12/20203 | 4,361 | |
ING Bank NV | |||
5,600 | 2.450%—03/16/20203 | 5,528 | |
JPMorgan Chase & Co. | |||
5,500 | 2.400%—06/07/2021 | 5,360 | |
5,000 | 2.750%—06/23/2020 | 4,954 | |
5,700 | 3.514% (3 Month USD Libor + 0.610) 06/18/20222 | 5,693 | |
16,007 | |||
JPMorgan Chase Bank NA | |||
6,400 | 2.588% (3 Month USD Libor + 0.250) 02/13/20202 | 6,402 | |
10,000 | 2.848% (3 Month USD Libor + 0.340) 04/26/20212 | 10,004 | |
4,500 | 3.086% (3 Month USD Libor + 0.350) 04/26/20212 | 4,484 | |
20,890 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
BANKS—Continued | |||
Lloyds Bank plc | |||
$ | 4,900 | 3.300%—05/07/2021 | $ 4,867 |
7,300 | 12.000% (3 Month USD Libor + 11.756) 12/16/20242,3,7 | 8,792 | |
13,659 | |||
Lloyds Banking Group plc | |||
5,300 | 4.450%—05/08/2025 | 5,280 | |
GBP | 4,200 | 7.000% (GBP Swap 5 Year + 5.060) 06/27/20192,7 | 5,469 |
$ | 3,000 | 7.500% (USD Swap Semi 30/360 5Y + 4.496) 09/27/20252,7 | 3,022 |
13,771 | |||
Mitsubishi UFJ Financial Group Inc. | |||
3,900 | 3.455%—03/02/2023 | 3,848 | |
Mizuho Financial Group Inc. | |||
6,000 | 3.922% (3 Month USD Libor + 1.000) 09/11/20242 | 5,976 | |
National Australia Bank Ltd. | |||
950 | 2.250%—03/16/20213 | 927 | |
Nordea Bank Abp | |||
2,500 | 3.750%—08/30/20233 | 2,455 | |
Oversea-Chinese Banking Corp. Ltd. | |||
4,200 | 2.762% (3 Month USD Libor + 0.450) 05/17/20212,3 | 4,221 | |
Royal Bank of Canada | |||
4,300 | 2.300%—03/22/2021 | 4,206 | |
Royal Bank of Scotland Group plc | |||
700 | 3.784% (3 Month USD Libor + 1.470) 05/15/20232 | 704 | |
4,200 | 4.892% (3 Month USD Libor + 1.754) 05/18/20292 | 4,099 | |
1,000 | 8.625% (USD Swap Semi 30/360 5Y + 7.598) 08/15/20212,7 | 1,054 | |
5,857 | |||
Skandinaviska Enskilda Banken AB | |||
5,300 | 2.742% (3 Month USD Libor + 0.430) 05/17/20212,3 | 5,298 | |
5,300 | 3.250%—05/17/20213 | 5,266 | |
10,564 | |||
Societe Generale SA MTN8 | |||
4,900 | 4.250%—09/14/20233 | 4,866 | |
Standard Chartered plc | |||
5,000 | 4.247% (3 Month USD Libor + 1.150) 01/20/20232,3 | 4,999 | |
Sumitomo Mitsui Banking Corp. | |||
5,400 | 2.514%—01/17/2020 | 5,353 | |
Sumitomo Mitsui Financial Group Inc. | |||
6,900 | 4.007% (3 Month USD Libor + 1.680) 03/09/20212 | 7,097 | |
Sumitomo Mitsui Trust Bank Ltd. | |||
8,100 | 2.779% (1 Month USD Libor + 0.440) 09/19/20192,3 | 8,117 | |
Svenska Handelsbanken AB MTN8 | |||
5,500 | 3.350%—05/24/2021 | 5,470 | |
Synchrony Bank | |||
5,500 | 3.650%—05/24/2021 | 5,454 | |
Toronto-Dominion Bank | |||
5,900 | 3.350%—10/22/20213 | 5,899 |
40
Harbor 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 | |||
UBS AG/London | |||
$ | 3,400 | 2.450%—12/01/20203 | $ 3,330 |
2,700 | 2.801% (3 Month USD Libor + 0.480) 12/01/20202,3 | 2,704 | |
6,034 | |||
US Bank NA | |||
6,300 | 3.150%—04/26/2021 | 6,277 | |
Volkswagen Bank GMBH MTN8 | |||
EUR | 2,000 | 0.101% (3 Month EUR Libor + 0.420) 06/15/20212 | 2,253 |
Wells Fargo & Co. | |||
$ | 3,100 | 3.757% (3 Month USD Libor + 1.230) 10/31/20232 | 3,145 |
8,200 | 6.104% (3 Month USD Libor + 3.770) 12/15/20182,7 | 8,272 | |
11,417 | |||
Wells Fargo Bank NA | |||
5,900 | 3.625%—10/22/2021 | 5,900 | |
Westpac Banking Corp. | |||
5,400 | 3.050%—05/15/2020 | 5,383 | |
298,820 | |||
BEVERAGES—0.4% | |||
Bacardi Ltd. | |||
4,200 | 4.450%—05/15/20253 | 4,135 | |
Pernod Ricard SA | |||
4,200 | 4.450%—01/15/20223 | 4,282 | |
8,417 | |||
BIOTECHNOLOGY—0.1% | |||
Baxalta Inc. | |||
1,548 | 2.875%—06/23/2020 | 1,531 | |
BUILDING PRODUCTS—0.3% | |||
CRH America Finance Inc. | |||
3,200 | 3.950%—04/04/20283 | 3,035 | |
3,200 | 4.500%—04/04/20483 | 2,836 | |
5,871 | |||
Owens Corning | |||
300 | 4.200%—12/01/2024 | 296 | |
6,167 | |||
CAPITAL MARKETS—6.9% | |||
AXA Equitable Holdings Inc. | |||
3,200 | 3.900%—04/20/20233 | 3,166 | |
BGC Partners Inc. | |||
6,300 | 5.375%—07/24/2023 | 6,297 | |
Blackstone CQP Holdco LP | |||
4,000 | 6.000%—08/18/20213 | 4,015 | |
8,000 | 6.500%—03/20/20213 | 8,058 | |
12,073 | |||
BM & FBOVESPA SA | |||
1,300 | 5.500%—07/16/2020 | 1,329 | |
Credit Agricole SA/London MTN8 | |||
5,400 | 3.750%—04/24/20233 | 5,281 | |
Credit Suisse Group AG | |||
5,100 | 2.997% (3 Month USD Libor + 1.200) 12/14/20232,3 | 4,854 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CAPITAL MARKETS—Continued | |||
Credit Suisse Group Funding Guernsey Ltd. | |||
$ | 8,900 | 3.750%—03/26/2025 | $ 8,532 |
4,845 | 3.800%—09/15/2022 | 4,796 | |
13,328 | |||
Deutsche Bank AG MTN8 | |||
13,700 | 2.850%—05/10/2019 | 13,654 | |
Deutsche Bank AG/New York | |||
6,000 | 3.150%—01/22/2021 | 5,850 | |
3,500 | 3.406% (3 Month USD Libor + 0.970) 07/13/20202 | 3,479 | |
9,329 | |||
E*Trade Financial Corp. | |||
5,100 | 2.950%—08/24/2022 | 4,920 | |
Goldman Sachs Group Inc. | |||
5,500 | 3.200%—02/23/2023 | 5,347 | |
7,700 | 3.307% (3 Month USD Libor + 0.780) 10/31/20222 | 7,730 | |
5,000 | 3.484% (3 Month USD Libor + 1.170) 05/15/20262 | 4,988 | |
800 | 5.750%—01/24/2022 | 846 | |
18,911 | |||
Goldman Sachs Group Inc. MTN8 | |||
5,000 | 4.000%—03/03/2024 | 4,971 | |
Moody's Corp. | |||
300 | 2.625%—01/15/2023 | 287 | |
462 | 4.500%—09/01/2022 | 475 | |
762 | |||
Morgan Stanley | |||
5,200 | 3.649% (3 Month USD Libor + 1.180) 01/20/20222 | 5,260 | |
Morgan Stanley MTN8 | |||
8,508 | 5.625%—09/23/2019 | 8,690 | |
Platin 1426 GMBH | |||
EUR | 2,700 | 6.875%—06/15/20233 | 3,058 |
UBS AG | |||
$ | 8,000 | 2.907% (3 Month USD Libor + 0.580) 06/08/20202,3 | 8,031 |
UBS AG MTN8 | |||
1,800 | 3.171% (3 Month USD Libor + 0.850) 06/01/20202 | 1,817 | |
UBS Group Funding Jersey Ltd. | |||
8,500 | 3.000%—04/15/20213 | 8,369 | |
134,100 | |||
CHEMICALS—0.2% | |||
Sasol Financing USA LLC | |||
3,900 | 5.875%—03/27/2024 | 3,929 | |
CONSUMER FINANCE—2.9% | |||
Ally Financial Inc. | |||
200 | 4.125%—03/30/2020 | 200 | |
200 | 7.500%—09/15/2020 | 213 | |
413 | |||
American Express Co. | |||
5,200 | 3.375%—05/17/2021 | 5,192 | |
6,400 | 3.400%—02/27/2023 | 6,276 | |
5,200 | 3.700%—08/03/2023 | 5,151 | |
16,619 |
41
Harbor 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 | |||
Capital One Financial Corp. | |||
$ | 5,400 | 2.400%—10/30/2020 | $ 5,278 |
5,500 | 2.970% (3 Month USD Libor + 0.450) 10/30/20202 | 5,497 | |
10,775 | |||
Daimler Finance North America LLC | |||
5,300 | 3.350%—05/04/20213 | 5,262 | |
5,300 | 3.700%—05/04/20233 | 5,244 | |
10,506 | |||
Discover Bank | |||
7,500 | 2.600%—11/13/2018 | 7,499 | |
Harley-Davidson Financial Services Inc. | |||
5,300 | 3.550%—05/21/20213 | 5,264 | |
Navient Corp. MTN8 | |||
1,100 | 5.500%—01/15/2019 | 1,105 | |
100 | 8.000%—03/25/2020 | 105 | |
1,210 | |||
Springleaf Finance Corp. | |||
700 | 5.250%—12/15/2019 | 709 | |
Toyota Motor Credit Corp. MTN8 | |||
2,600 | 2.712% (3 Month USD Libor + 0.400) 05/17/20222 | 2,606 | |
55,601 | |||
DIVERSIFIED FINANCIAL SERVICES—2.4% | |||
Cantor Fitzgerald LP | |||
5,400 | 6.500%—06/17/20223 | 5,682 | |
Depository Trust & Clearing Corp. | |||
3,000 | 4.875% (3 Month USD Libor + 3.167) 06/15/20202,3,7 | 3,011 | |
Guardian Life Global Funding | |||
4,000 | 3.400%—04/25/20233 | 3,949 | |
HSBC Holdings plc | |||
5,100 | 3.322% (3 Month USD Libor + 1.000) 05/18/20242 | 5,090 | |
GBP | 3,000 | 5.875% (GBP Swap 5 Year + 4.276) 09/28/20262,7 | 3,820 |
8,910 | |||
Imperial Brands Finance plc | |||
$ | 2,100 | 3.750%—07/21/20223 | 2,078 |
Leaseplan Corp. NV | |||
7,300 | 2.875%—01/22/20193 | 7,295 | |
Reckitt Benckiser Treasury Services plc | |||
3,400 | 2.375%—06/24/20223 | 3,251 | |
Rio Oil Finance Trust | |||
1,626 | 9.250%—07/06/20243 | 1,744 | |
6,350 | 9.750%—01/06/20273 | 6,881 | |
8,625 | |||
Syngenta Finance NV | |||
4,500 | 3.933%—04/23/20213 | 4,480 | |
47,281 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—2.4% | |||
Altice Financing SA | |||
2,200 | 6.625%—02/15/20233 | 2,183 | |
Altice France SA | |||
1,000 | 7.375%—05/01/20263 | 964 | |
AT&T Inc. | |||
5,000 | 3.000%—06/30/2022 | 4,855 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
DIVERSIFIED TELECOMMUNICATION SERVICES—Continued | |||
$ | 6,200 | 3.071% (3 Month USD Libor + 0.750) 06/01/20212 | $ 6,250 |
5,200 | 3.086% (3 Month USD Libor + 0.650) 01/15/20202 | 5,220 | |
5,000 | 3.514% (3 Month USD Libor + 1.180) 06/12/20242 | 5,018 | |
21,343 | |||
Deutsche Telekom International Finance BV | |||
6,080 | 2.820%—01/19/20223 | 5,917 | |
Telefonica Emisiones SAU | |||
1,800 | 5.134%—04/27/2020 | 1,843 | |
Verizon Communications Inc. | |||
12,695 | 3.376%—02/15/2025 | 12,275 | |
1,600 | 3.414% (3 Month USD Libor + 1.100) 05/15/20252 | 1,610 | |
13,885 | |||
46,135 | |||
ELECTRIC UTILITIES—1.4% | |||
American Electric Power Co. Inc. | |||
1,000 | 2.150%—11/13/2020 | 975 | |
Duke Energy Corp. | |||
5,300 | 2.819% (3 Month USD Libor + 0.500) 05/14/20212,3 | 5,316 | |
4,536 | 3.750%—04/15/2024 | 4,501 | |
9,817 | |||
FirstEnergy Corp. | |||
1,100 | 2.850%—07/15/2022 | 1,061 | |
Nextera Energy Capital Holdings Inc. | |||
8,600 | 2.636% (3 Month USD Libor + 0.315) 09/03/20192 | 8,611 | |
Southern Co. | |||
6,100 | 2.802% (3 Month USD Libor + 0.490) 02/14/20202,3 | 6,102 | |
26,566 | |||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—0.2% | |||
Arrow Electronics Inc. | |||
1,400 | 3.500%—04/01/2022 | 1,375 | |
Tech Data Corp. | |||
1,700 | 3.700%—02/15/2022 | 1,665 | |
3,040 | |||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—1.9% | |||
American Tower Corp. | |||
2,099 | 3.300%—02/15/2021 | 2,083 | |
AvalonBay Communities Inc. MTN8 | |||
4,400 | 3.450%—06/01/2025 | 4,270 | |
CBL & Associates LP | |||
2,700 | 4.600%—10/15/2024 | 2,153 | |
6,600 | 5.950%—12/15/2026 | 5,512 | |
7,665 | |||
Crown Castle International Corp. | |||
5,500 | 3.700%—06/15/2026 | 5,204 | |
Digital Realty Trust LP | |||
5,500 | 4.450%—07/15/2028 | 5,417 | |
EPR Properties | |||
3,400 | 4.500%—06/01/2027 | 3,225 | |
600 | 4.950%—04/15/2028 | 581 | |
3,806 |
42
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—Continued | |||
OMEGA Healthcare Investors Inc. | |||
$ | 3,800 | 4.375%—08/01/2023 | $ 3,762 |
Washington Prime Group LP | |||
5,800 | 5.950%—08/15/2024 | 5,360 | |
37,567 | |||
FOOD & STAPLES RETAILING—0.1% | |||
CVS Pass-Through Trust | |||
554 | 6.943%—01/10/2030 | 620 | |
Viterra Inc. | |||
200 | 5.950%—08/01/20203 | 207 | |
Walgreens Boots Alliance Inc. | |||
1,600 | 3.300%—11/18/2021 | 1,582 | |
2,409 | |||
FOOD PRODUCTS—0.7% | |||
Kraft Heinz Foods Co. | |||
2,800 | 5.375%—02/10/2020 | 2,874 | |
McCormick & Co. Inc. | |||
4,400 | 2.700%—08/15/2022 | 4,236 | |
Mondelez International Inc. | |||
5,000 | 3.000%—05/07/2020 | 4,982 | |
Tyson Foods Inc. | |||
1,100 | 2.250%—08/23/2021 | 1,059 | |
13,151 | |||
HEALTH CARE EQUIPMENT & SUPPLIES—0.5% | |||
Boston Scientific Corp. | |||
4,900 | 2.850%—05/15/2020 | 4,861 | |
Zimmer Biomet Holdings Inc. | |||
4,900 | 2.700%—04/01/2020 | 4,847 | |
9,708 | |||
HEALTH CARE PROVIDERS & SERVICES—0.4% | |||
Centene Corp. | |||
4,200 | 5.375%—06/01/20263 | 4,273 | |
HCA Inc. | |||
4,000 | 5.375%—09/01/2026 | 3,980 | |
200 | 6.500%—02/15/2020 | 207 | |
4,187 | |||
8,460 | |||
HOTELS, RESTAURANTS & LEISURE—0.8% | |||
Sands China Ltd. | |||
5,300 | 5.125%—08/08/20253 | 5,208 | |
Wynn Las Vegas LLC | |||
5,200 | 4.250%—05/30/20233 | 4,959 | |
5,300 | 5.500%—03/01/20253 | 5,055 | |
10,014 | |||
15,222 | |||
INDUSTRIAL CONGLOMERATES—0.2% | |||
General Electric Co. | |||
4,400 | 5.000% (3 Month USD Libor + 3.330) 01/21/20212,7 | 4,064 | |
INSURANCE—1.0% | |||
AIA Group Ltd. | |||
5,900 | 2.858% (3 Month USD Libor + 0.520) 09/20/20212,3 | 5,911 | |
AIG Global Funding | |||
6,400 | 3.350%—06/25/20213 | 6,368 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
INSURANCE—Continued | |||
AMBAC LSNI LLC | |||
$ | 914 | 7.396% (3 Month USD Libor + 5.000) 02/12/20232,3 | $ 928 |
Jackson National Life Global Funding | |||
6,300 | 3.300%—06/11/20213 | 6,275 | |
19,482 | |||
LIFE SCIENCES TOOLS & SERVICES—0.3% | |||
Thermo Fisher Scientific Inc. | |||
5,300 | 3.300%—02/15/2022 | 5,252 | |
MACHINERY—0.4% | |||
CNH Industrial Capital LLC | |||
500 | 3.875%—10/15/2021 | 499 | |
2,200 | 4.375%—11/06/2020 | 2,229 | |
2,728 | |||
John Deere Capital Corp. MTN8 | |||
5,600 | 2.867% (3 Month USD Libor + 0.550) 06/07/20232 | 5,621 | |
8,349 | |||
MEDIA—0.8% | |||
Charter Communications Operating LLC | |||
1,800 | 3.579%—07/23/2020 | 1,798 | |
COX Communications Inc. | |||
4,700 | 3.250%—12/15/20223 | 4,563 | |
Discovery Communications LLC | |||
4,000 | 2.200%—09/20/2019 | 3,965 | |
Virgin Media Receivables Financing Notes I DAC | |||
GBP | 4,130 | 5.500%—09/15/2024 | 5,262 |
15,588 | |||
MORTGAGE REAL ESTATE INVESTMENT TRUSTS (REITs)—0.6% | |||
ERP Operating LP | |||
$ | 5,500 | 3.375%—06/01/2025 | 5,319 |
Simon Property Group LP | |||
6,000 | 2.500%—09/01/2020 | 5,918 | |
11,237 | |||
MULTI-UTILITIES—0.3% | |||
Sempra Energy | |||
5,200 | 2.784% (3 Month USD Libor + 0.450) 03/15/20212 | 5,198 | |
OIL, GAS & CONSUMABLE FUELS—1.2% | |||
Enbridge Inc. | |||
2,900 | 2.814% (3 Month USD Libor + 0.400) 01/10/20202 | 2,896 | |
Energy Transfer Partners LP | |||
1,100 | 4.150%—10/01/2020 | 1,110 | |
Equities Midstream Partners LP | |||
4,700 | 4.750%—07/15/2023 | 4,744 | |
Genesis Energy LP | |||
2,700 | 5.625%—06/15/2024 | 2,457 | |
MPLX LP | |||
3,700 | 4.900%—04/15/2058 | 3,242 | |
Odebrecht Drilling Norbe VIII/IX Ltd. | |||
1,665 | 6.350%—12/01/20213 | 1,648 | |
3,199 | 7.350%—12/01/20263 | 1,949 | |
3,597 |
43
Harbor 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 | |||
Odebrecht Offshore Drilling Finance Ltd. | |||
$ | 910 | 6.720%—12/01/20223 | $ 880 |
3,147 | 7.720%—12/01/20263 | 976 | |
1,856 | |||
Odebrecht Oil & Gas Finance Ltd. | |||
2,183 | 0.000%—12/7/20183,7,9 | 49 | |
Rio Oil Finance Trust Series 2014-1 | |||
2,476 | 9.250%—07/06/2024 | 2,655 | |
Southern California Gas Co. | |||
900 | 3.200%—06/15/2025 | 872 | |
23,478 | |||
PHARMACEUTICALS—1.1% | |||
Abbvie Inc. | |||
1,000 | 3.200%—11/06/2022 | 978 | |
Allergan Funding SCS | |||
6,700 | 3.000%—03/12/2020 | 6,673 | |
2,700 | 3.450%—03/15/2022 | 2,658 | |
9,331 | |||
Bayer US Finance II LLC | |||
6,300 | 3.875%—12/15/20233 | 6,212 | |
2,800 | 4.250%—12/15/20253 | 2,753 | |
8,965 | |||
Teva Pharmaceutical Finance Netherlands III BV | |||
3,000 | 6.750%—03/01/202813 | 3,073 | |
22,347 | |||
REAL ESTATE MANAGEMENT & DEVELOPMENT—0.2% | |||
Tesco Property Finance 5 plc | |||
GBP | 2,263 | 5.661%—10/13/2041 | 3,397 |
ROAD & RAIL—0.3% | |||
ERAC USA Finance LLC | |||
$ | 2,600 | 3.300%—10/15/20223 | 2,546 |
Penske Truck Leasing Co. LP / PTL Finance Corp. | |||
3,800 | 2.700%—03/14/20233 | 3,593 | |
TTX Co. MTN8 | |||
250 | 2.600%—06/15/20203 | 246 | |
6,385 | |||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—0.2% | |||
Broadcom Corp. | |||
3,800 | 3.875%—01/15/2027 | 3,491 | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—0.7% | |||
Dell International LLC | |||
4,000 | 5.450%—06/15/20233 | 4,147 | |
EMC Corp. | |||
3,600 | 2.650%—06/01/2020 | 3,508 | |
Hewlett Packard Enterprise Co. | |||
5,900 | 3.059% (3 Month USD Libor + 0.720) 10/05/20212 | 5,903 | |
13,558 | |||
THRIFTS & MORTGAGE FINANCE—0.3% | |||
Nationwide Building Society | |||
5,300 | 4.363% (3 Month USD Libor + 1.392) 08/01/20242,3 | 5,262 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
TOBACCO—0.6% | |||
BAT Capital Corp | |||
$ | 5,060 | 2.764%—08/15/20223 | $ 4,848 |
1,500 | 2.909% (3 Month USD Libor + 0.590) 08/14/20202,3 | 1,505 | |
4,640 | 3.194% (3 Month USD Libor + 0.880) 08/15/20222,3 | 4,663 | |
11,016 | |||
Japan Tobacco Inc. MTN8 | |||
800 | 2.000%—04/13/2021 | 772 | |
11,788 | |||
TRADING COMPANIES & DISTRIBUTORS—0.7% | |||
Aercap Ireland Capital DAC | |||
2,000 | 3.500%—05/26/2022 | 1,951 | |
Aviation Capital Group LLC | |||
5,300 | 3.875%—05/01/20233 | 5,243 | |
6,300 | 4.125%—08/01/20253 | 6,169 | |
11,412 | |||
Mitsubishi Corp. MTN8 | |||
400 | 2.625%—07/14/2022 | 386 | |
13,749 | |||
WIRELESS TELECOMMUNICATION SERVICES—0.5% | |||
Sprint Capital Corp. | |||
3,500 | 6.900%—05/01/2019 | 3,555 | |
Sprint Communications Inc. | |||
1,400 | 7.000%—08/15/2020 | 1,452 | |
3,900 | 9.000%—11/15/20183 | 3,913 | |
5,365 | |||
8,920 | |||
TOTAL CORPORATE BONDS & NOTES | |||
(Cost $969,224) | 955,781 | ||
ESCROW— 0.0% | |||
(Cost $15) | |||
Shares | |||
AUTOMOBILES—0.0% | |||
36,000 | General Motors Co. Escrow | — x | |
FOREIGN GOVERNMENT OBLIGATIONS—19.9% | |||
Principal Amount | |||
Argentina Bonar Bonds | |||
ARS | 129,200 | 37.717% (Argentina Deposit Rates Badlar Private Banks ARS 30 to 35 Days + 2.000) 04/03/20222 | 3,707 |
Argentina Treasury Bill | |||
109,065 | 0.000%—12/28/2018-03/29/20199 | 30,381 | |
Brazil Letras Do Tesouro Nacional | |||
BRL | 114,000 | 0.000%—01/01/20199 | 30,323 |
Hellenic Republic Government Bond | |||
EUR | 3,500 | 4.750%—04/17/20193 | 4,033 |
Hellenic Republic Treasury Bill | |||
5,800 | 0.000%—11/02/2018-03/15/20199 | 6,549 |
44
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
FOREIGN GOVERNMENT OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
Japan Bank For International Cooperation | |||
$ | 6,800 | 2.375%—07/21/2022 | $ 6,566 |
Japan Finance Organization For Municipalities MTN8 | |||
6,800 | 2.625%—04/20/20223 | 6,610 | |
Japan International Cooperation Agency | |||
6,900 | 2.750%—04/27/2027 | 6,489 | |
Japan Treasury Discount Bill | |||
JPY | 29,180,000 | 0.000%—11/05/2018-02/04/20199 | 258,721 |
Province of Ontario Canada | |||
$ | 6,100 | 1.650%—09/27/2019 | 6,031 |
CAD | 5,600 | 3.150%—06/02/2022 | 4,310 |
$ | 3,800 | 4.000%—10/07/2019 | 3,838 |
2,300 | 4.400%—04/14/2020 | 2,344 | |
16,523 | |||
Province of Quebec Canada | |||
4,700 | 3.500%—07/29/2020-12/01/2022 | 3,873 | |
CAD | 13,900 | 4.250%—12/01/2021 | 11,059 |
14,932 | |||
TOTAL FOREIGN GOVERNMENT OBLIGATIONS | |||
(Cost $399,021) | 384,834 | ||
MORTGAGE PASS-THROUGH—65.8% | |||
Bancorp Commercial Mortgage 2018 CRE4 Trust | |||
$ | 4,791 | 3.180% (1 Month USD Libor + 0.900) 09/15/20352,3 | 4,791 |
Federal Home Loan Mortgage Corp. | |||
6 | 3.998% (US Treasury Yield Curve Rate T Note 1 Year CMT + 2.209) 06/01/20242,12 | 6 | |
36 | 4.436% (US Treasury Yield Curve Rate T Note 1 Year CMT + 2.250) 08/01/20352,12 | 38 | |
348 | 4.500%—12/01/2040-09/01/2041 | 359 | |
1,031 | 5.500%—02/01/2038-07/01/2038 | 1,112 | |
3,800 | 6.000%—01/01/2029-05/01/2040 | 4,169 | |
5,684 | |||
Federal Home Loan Mortgage Corp. Multifamily Structured Pass Through Certificates | |||
18,656 | 1.262%—08/25/20222 | 734 | |
Federal Home Loan Mortgage Corp. REMIC6 | |||
5,709 | 2.680% (1 Month USD Libor + 0.400) 06/15/20412 | 5,742 | |
22 | 2.730% (1 Month USD Libor + 0.450) 11/15/20302 | 22 | |
44 | 8.000%—08/15/2022 | 46 | |
4 | 9.000%—12/15/2020 | 4 | |
5,814 | |||
Federal Home Loan Mortgage Corp. Structured Pass Through Securities | |||
Series T-63 Cl. 1A1 | |||
108 | 2.913% (Fed 12 Month Treasury Average CMT + 1.200) 02/25/20452,12 | 108 | |
Series E3 Cl. A | |||
53 | 3.797%—08/15/20322 | 54 | |
162 | |||
Federal Home Loan Mortgage Corp. TBA10 | |||
38,000 | 3.500%—11/13/2048-12/13/2048 | 36,981 | |
30,000 | 4.000%—12/13/2048 | 29,966 | |
15,000 | 4.500%—11/13/2048 | 15,364 | |
82,311 |
MORTGAGE PASS-THROUGH—Continued | |||
Principal Amount | Value | ||
Federal Housing Authority Project | |||
$ | 1 | 7.400%—02/01/2021 | $ 1x |
Federal National Mortgage Association | |||
5,300 | 2.310%—08/01/2022 | 5,120 | |
6,000 | 2.870%—09/01/2027 | 5,621 | |
708 | 3.000%—02/01/2021-11/01/2025 | 697 | |
435 | 3.330%—11/01/2021 | 437 | |
221 | 3.346% (Fed 12 Month Treasury Average CMT + 1.400) 10/01/20402,12 | 220 | |
131 | 3.500%—03/01/2026-05/01/2027 | 131 | |
302,759 | 4.000%—09/01/2023-12/13/204813 | 302,565 | |
57 | 4.303% (12 Month USD Libor + 1.674) 05/01/20352 | 59 | |
861 | 4.389% (12 Month USD Libor + 1.715) 06/01/20352 | 903 | |
745 | 4.433% (12 Month USD Libor + 1.693) 08/01/20352 | 779 | |
8,551 | 4.500%—06/01/2019-10/01/204213 | 8,777 | |
5,282 | 5.000%—12/01/2022-06/01/2044 | 5,537 | |
29,355 | 5.500%—01/01/2025-12/13/204813 | 31,415 | |
8,783 | 6.000%—07/01/2023-06/01/204013 | 9,545 | |
371,806 | |||
Federal National Mortgage Association REMIC6 | |||
Series 2015-38 Cl. DF | |||
5,691 | 2.414% (1 Month USD Libor + 0.310) 06/25/20552 | 5,687 | |
Series 2011-98 Cl. ZL | |||
71,492 | 3.500%—10/25/2041 | 67,099 | |
Series 2006-5 Cl. 3A2 | |||
71 | 3.955%—05/25/20354 | 74 | |
Series 2003-25 Cl. KP | |||
534 | 5.000%—04/25/2033 | 561 | |
Series 2003-W1 Cl. 1A1 | |||
176 | 5.394%—12/25/20422 | 182 | |
73,603 | |||
Federal National Mortgage Association TBA10 | |||
201,000 | 3.000%—12/13/2048-01/14/2049 | 189,893 | |
325,000 | 3.500%—11/15/2033-12/13/2048 | 316,330 | |
107,085 | 4.000%—01/14/2049 | 106,838 | |
53,000 | 4.500%—12/13/2048 | 54,189 | |
667,250 | |||
Government National Mortgage Association | |||
27,416 | 5.000%—08/15/2033-11/19/2048 | 28,543 | |
Government National Mortgage Association II | |||
119 | 3.125% (US Treasury Yield Curve Rate T Note 1 Year CMT + 9.000) 12/20/2024-11/20/20292,12 | 122 | |
302 | 3.375% (US Treasury Yield Curve Rate T Note 1 Year CMT + 3.000) 01/20/2025-02/20/20322,12 | 312 | |
24 | 3.625% (US Treasury Yield Curve Rate T Note 1 Year CMT + 1.500) 05/20/20242,12 | 23 | |
125 | 3.750% (US Treasury Yield Curve Rate T Note 1 Year CMT + 7.500) 08/20/2022-07/20/20272,12 | 129 | |
586 | |||
Government National Mortgage Association TBA10 | |||
2,000 | 3.000%—11/19/2048 | 1,914 |
45
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
MORTGAGE PASS-THROUGH—Continued | |||
Principal Amount | Value | ||
$ | 9,000 | 3.500%—11/19/2048 | $ 8,841 |
24,000 | 4.000%—12/19/2048 | 24,122 | |
34,877 | |||
TOTAL MORTGAGE PASS-THROUGH | |||
(Cost $1,284,071) | 1,276,162 | ||
MUNICIPAL BONDS—0.5% | |||
Chicago Transit Authority | |||
130 | 6.300%—12/01/2021 | 136 | |
City of Chicago, IL | |||
4,800 | 7.750%—01/01/2042 | 5,096 | |
Clark County, NV | |||
4,000 | 6.350%—07/01/2029 | 4,083 | |
TOTAL MUNICIPAL BONDS | |||
(Cost $8,815) | 9,315 | ||
U.S. GOVERNMENT OBLIGATIONS—22.1% | |||
Principal Amount | |||
U.S. Treasury Bonds | |||
$ | 14,000 | 2.250%—08/15/204613 | 11,125 |
34,200 | 2.500%—02/15/2045-02/15/204613 | 28,900 | |
16,800 | 2.875%—05/15/204313 | 15,366 | |
20,300 | 3.000%—05/15/2042-02/15/204813 | 18,941 | |
69,800 | 3.125%—02/15/2042-08/15/204413 | 66,739 | |
1,800 | 3.625%—02/15/204413 | 1,873 | |
4,200 | 4.250%—05/15/2039 | 4,786 |
U.S. GOVERNMENT OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
$ | 10,500 | 4.375%—05/15/204013 | $ 12,173 |
12,000 | 4.625%—02/15/204013 | 14,361 | |
174,264 | |||
U.S. Treasury Notes | |||
16,800 | 1.375%—03/31/202013 | 16,466 | |
21,000 | 1.750%—09/30/202213 | 20,062 | |
25,100 | 1.875%—07/31/202213 | 24,140 | |
94,000 | 2.000%—08/31/2021-12/31/202113 | 91,508 | |
6,300 | 2.125%—09/30/202413 | 5,992 | |
68,200 | 2.250%—11/15/2024-08/15/202713 | 64,022 | |
33,300 | 2.375%—05/15/202713 | 31,455 | |
253,645 | |||
TOTAL U.S. GOVERNMENT OBLIGATIONS | |||
(Cost $462,956) | 427,909 | ||
SHORT-TERM INVESTMENTS—0.5% | |||
(Cost $9,800) | |||
CERTIFICATES OF DEPOSIT—0.5% | |||
Barclays | |||
9,800 | 2.890% (3 Month USD Libor + 0.400) 10/25/20192 | 9,800 | |
TOTAL INVESTMENTS—176.4% | |||
(Cost $3,476,004) | 3,417,957 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(76.4)% | (1,480,245) | ||
TOTAL NET ASSETS—100.0% | $ 1,937,712 |
FUTURES CONTRACTS OPEN AT OCTOBER 31, 2018
Description | Number of Contracts | Expiration Date | Current Notional Value (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||
Australian Government Bond Futures 10 year (Short) | 708 | 12/17/2018 | AUD 91,624 | $ 242 | ||||
Canadian Government Bond Futures 10 year (Short) | 189 | 12/18/2018 | CAD 24,976 | 316 | ||||
Euro-BTP Futures (Short) | 1,012 | 12/06/2018 | EUR 123,100 | 879 | ||||
Euro-Bund Futures (Long) | 471 | 12/06/2018 | 75,483 | 272 | ||||
Euro-BUXL Bond Futures 30 year (Short) | 122 | 12/06/2018 | 21,582 | 46 | ||||
Euro-OAT Futures (Short) | 871 | 12/06/2018 | 132,357 | 233 | ||||
Eurodollar Futures-CME 90 day (Long) | 88 | 03/18/2019 | $ 21,363 | (25) | ||||
Eurodollar Futures-CME 90 day (Long) | 111 | 09/16/2019 | 26,880 | (50) | ||||
Eurodollar Futures-CME 90 day (Short) | 41 | 06/15/2020 | 9,921 | 34 | ||||
Eurodollar Futures-CME 90 day (Short) | 71 | 12/14/2020 | 17,181 | 20 | ||||
U.S Treasury Bond Futures 30 year (Short) | 810 | 12/19/2018 | 111,881 | 4,721 | ||||
U.S. Treasury Note Futures 5 year (Long) | 4,909 | 12/31/2018 | 551,687 | (5,087) | ||||
U.S. Treasury Note Futures 10 year (Short) | 927 | 12/19/2018 | 109,792 | 1,031 | ||||
Total Futures Contracts | $ 2,632 |
PURCHASED OPTIONS OPEN AT OCTOBER 31, 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-BTP Futures Option (Call) | Eurex | EUR 157.00 | 11/23/2018 | 354 | $ 4 | $ 4 |
46
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
PURCHASED OPTIONS—Continued
PURCHASED OPTIONS THAT REQUIRE PERIODIC SETTLEMENT OF VARIATION MARGIN—Continued
Description | Exchange | Strike Price | Expiration Date | Number of Contracts/ Notional | Premiums Paid (000s) | Value (000s) | ||||||
Euro-BTP Futures Option (Call) | Eurex | 160.00 | 11/23/2018 | 50 | $ 1 | $ 1 | ||||||
Euro-BTP Futures Option (Call) | Eurex | 165.00 | 11/23/2018 | 74 | 1 | 1 | ||||||
Euro-Bund Futures Option (Put) | Eurex | 145.00 | 11/23/2018 | 309 | 4 | 4 | ||||||
Euro-OAT Futures Option (Call) | Eurex | 159.00 | 11/23/2018 | 830 | 10 | 9 | ||||||
Total Purchased Options that Require Periodic Settlement of Variation Margin | $20 | $19 |
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 158.00 | 11/16/2018 | 66 | $— | $— | ||||||
Canadian Government Bond Futures 10 year (Call) | Montreal Stock Exchange | 159.00 | 11/16/2018 | 126 | 1 | 1 | ||||||
Federal National Mortgage Association Future 30 year (Put) | Goldman Sachs & Co. LLC | $ 82.00 | 11/06/2018 | 117,000,000 | 9 | — | ||||||
Federal National Mortgage Association Future 30 year (Put) | JP Morgan Chase Bank NA | 70.00 | 11/06/2018 | 134,000,000 | 5 | — | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | 157.00 | 11/23/2018 | 8 | — | — | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | 158.00 | 11/23/2018 | 1 | — | — | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | 160.00 | 11/23/2018 | 53 | 1 | — | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | 173.00 | 11/23/2018 | 8 | — | — | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | 175.00 | 11/23/2018 | 56 | 1 | — | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | 178.00 | 11/23/2018 | 257 | 2 | — | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | 180.00 | 11/23/2018 | 414 | 4 | 1 | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | 184.00 | 11/23/2018 | 13 | — | — | ||||||
U.S. Treasury Note Option 5 year (Put) | Chicago Board of Trade | 106.75 | 11/23/2018 | 111 | 1 | — | ||||||
U.S. Treasury Note Option 5 year (Put) | Chicago Board of Trade | 107.00 | 11/23/2018 | 1,875 | 16 | 2 | ||||||
U.S. Treasury Note Option 5 year (Put) | Chicago Board of Trade | 107.25 | 11/23/2018 | 2,986 | 26 | 3 | ||||||
U.S. Treasury Note Option 5 year (Put) | Chicago Board of Trade | 107.50 | 11/23/2018 | 147 | 1 | — | ||||||
U.S. Treasury Note Option 10 year (Call) | Chicago Board of Trade | 133.50 | 11/23/2018 | 9 | — | — | ||||||
U.S. Treasury Note Option 10 year (Call) | Chicago Board of Trade | 134.00 | 11/23/2018 | 326 | 3 | — | ||||||
Total Purchased Options Not Settled Through Variation Margin | $ 70 | $ 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) | ||||||||
Interest Rate Swap Option 30 year (Put) | Goldman Sachs Bank USA | 3-Month USD-LIBOR | Receive | 2.94% | 12/12/2019 | 1,800,000 | $ 86 | $178 | ||||||||
Total Purchased Options | $176 | $204 |
WRITTEN OPTIONS OPEN AT OCTOBER 31, 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 Option (Call) | Eurex | EUR 160.00 | 11/23/2018 | 108 | $53 | $(105) |
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 | 215.949 j | 03/12/2020 | 14,100,000 | $ 119 | $ — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Citibank NA | 216.687 j | 04/07/2020 | 33,900,000 | 302 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Citibank NA | 217.965 j | 09/29/2020 | 15,100,000 | 195 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Deutsche Bank AG | 215.949 j | 03/10/2020 | 5,100,000 | 38 | — |
47
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) | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Deutsche Bank AG | 218.011 j | 10/13/2020 | 15,600,000 | $ 153 | $ — | ||||||
Currency Option Australian Dollar vs. U.S. Dollar (Call) | Goldman Sachs Bank USA | AUD 0.73 | 11/09/2018 | 19,400,000 | 93 | (2) | ||||||
Currency Option Australian Dollar vs. U.S. Dollar (Put) | Goldman Sachs Bank USA | 0.69 | 11/09/2018 | 19,400,000 | 71 | (6) | ||||||
Currency Option U.S. Dollar vs. Mexican Peso (Call) | Goldman Sachs Bank USA | $ 19.91 | 12/06/2018 | 4,300,000 | 47 | (137) | ||||||
Currency Option U.S. Dollar vs. Mexican Peso (Call) | Goldman Sachs Bank USA | 20.75 | 12/11/2018 | 11,700,000 | 118 | (164) | ||||||
Currency Option U.S. Dollar vs. Mexican Peso (Call) | Goldman Sachs Bank USA | 20.89 | 12/04/2018 | 8,800,000 | 88 | (93) | ||||||
Currency Option U.S. Dollar vs. Mexican Peso (Call) | Goldman Sachs Bank USA | 21.00 | 12/18/2018 | 7,800,000 | 92 | (98) | ||||||
Currency Option U.S. Dollar vs. Mexican Peso (Call) | HSBC Bank USA NA | 20.65 | 12/07/2018 | 9,700,000 | 106 | (141) | ||||||
Currency Option U.S. Dollar vs. Turkish Lira (Call) | HSBC Bank USA NA | 7.40 | 11/19/2018 | 5,000,000 | 158 | (1) | ||||||
Currency Option U.S. Dollar vs. Turkish Lira (Call) | HSBC Bank USA NA | 7.70 | 12/10/2018 | 4,900,000 | 150 | (3) | ||||||
U.S. Treasury Note Option 10 year (Call) | Chicago Board of Trade | 119.00 | 11/23/2018 | 175 | 60 | (46) | ||||||
U.S. Treasury Note Option 10 year (Call) | Chicago Board of Trade | 119.50 | 11/23/2018 | 283 | 68 | (40) | ||||||
Total Written Options Not Settled Through Variation Margin | $1,858 | $(731) |
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) | ||||||||
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 | $ (210) | ||||||||
Total Written Options | $1,996 | $(1,046) |
FORWARD CURRENCY CONTRACTS OPEN AT OCTOBER 31, 2018
Counterparty | Amount to be Delivered (000s) | Amount to be Received (000s) | Settlement Date | Unrealized Appreciation/ (Depreciation) (000s) | ||||
Citibank NA | $ 11 | ARS 2,638 | 12/28/2018 | $ 2 | ||||
HSBC Bank USA | $ 13 | ARS 19,567 | 12/28/2018 | 37 | ||||
BNP Paribas SA | ARS 22,204 | $ 557 | 12/28/2018 | (18) | ||||
HSBC Bank USA | $ 716 | AUD 1,010 | 11/02/2018 | (1) | ||||
Goldman Sachs Bank USA | AUD 1,010 | $ 716 | 11/02/2018 | 1 | ||||
HSBC Bank USA | AUD 1,010 | $ 717 | 12/04/2018 | 1 | ||||
Deutsche Bank AG | $ 1,182 | BRL 6,572 | 11/05/2018 | 56 | ||||
Goldman Sachs Bank USA | $ 591 | BRL 2,197 | 11/05/2018 | (1) | ||||
Goldman Sachs Bank USA | $ 3,664 | BRL 13,800 | 01/03/2019 | 24 | ||||
Citibank NA | BRL 10,300 | $ 2,709 | 01/03/2019 | (43) | ||||
Deutsche Bank AG | BRL 4,375 | $ 1,169 | 11/05/2018 | (6) | ||||
Deutsche Bank AG | BRL 2,197 | $ 591 | 11/05/2018 | 1 | ||||
Deutsche Bank AG | BRL 4,411 | $ 1,179 | 12/04/2018 | (3) | ||||
Goldman Sachs Bank USA | BRL 2,197 | $ 545 | 11/05/2018 | (45) | ||||
JP Morgan Chase Bank | BRL 117,500 | $ 31,821 | 01/03/2019 | 422 | ||||
Citibank NA | $ 2,220 | GBP 6,204 | 11/15/2018 | (200) | ||||
JP Morgan Chase Bank NA | $ 5,021 | GBP 3,813 | 11/15/2018 | (144) | ||||
Société Générale | $ 7,407 | GBP 5,790 | 11/15/2018 | (2) | ||||
UBS AG | $ 4,140 | GBP 3,247 | 11/15/2018 | 13 | ||||
Barclays Bank plc | GBP 1,600 | $ 5,573 | 11/15/2018 | 154 | ||||
BNP Paribas SA | GBP 2,618 | $ 3,404 | 11/15/2018 | 55 | ||||
Citibank NA | GBP 7,243 | $ 9,459 | 11/15/2018 | 195 | ||||
JP Morgan Chase Bank NA | GBP 2,973 | $ 3,847 | 11/15/2018 | 44 | ||||
NatWest Markets Plc | GBP 1,331 | $ 1,742 | 11/15/2018 | 40 | ||||
Société Générale | GBP 31,066 | $ 39,781 | 11/15/2018 | 46 | ||||
BNP Paribas SA | $ 6,554 | CAD 8,392 | 12/19/2018 | (172) | ||||
HSBC Bank USA | $ 25,826 | CAD 33,910 | 11/02/2018 | (67) | ||||
Citibank NA | CAD 3,952 | $ 4,182 | 11/02/2018 | 56 | ||||
Goldman Sachs Bank USA | CAD 367 | $ 280 | 11/02/2018 | 1 | ||||
HSBC Bank USA | CAD 22,655 | $ 17,485 | 11/02/2018 | 275 | ||||
HSBC Bank USA | CAD 33,910 | $ 25,840 | 12/04/2018 | 65 | ||||
JP Morgan Chase Bank NA | CAD 5,824 | $ 4,549 | 11/02/2018 | 125 | ||||
Barclays Bank plc | $ 1,577 | EUR 1,392 | 11/15/2018 | 2 | ||||
Barclays Bank plc | $ 5,513 | EUR 15,175 | 11/15/2018 | (460) | ||||
BNP Paribas SA | $ 11,325 | EUR 9,592 | 11/02/2018 | (459) |
48
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) | ||||
BNP Paribas SA | $ 1,666 | EUR 2,724 | 11/15/2018 | $ (36) | ||||
BNP Paribas SA | $ 9,692 | EUR 8,492 | 12/04/2018 | (47) | ||||
Citibank NA | $ 25,445 | EUR 27,667 | 11/15/2018 | (385) | ||||
Goldman Sachs Bank USA | $ 7,201 | EUR 6,126 | 11/15/2018 | (254) | ||||
JP Morgan Chase Bank NA | $ 1,951 | EUR 1,651 | 11/15/2018 | (78) | ||||
Société Générale | $ 3,429 | EUR 2,976 | 11/15/2018 | (55) | ||||
Barclays Bank plc | EUR 9,635 | $ 11,224 | 11/15/2018 | 298 | ||||
BNP Paribas SA | EUR 8,492 | $ 9,668 | 11/02/2018 | 48 | ||||
BNP Paribas SA | EUR 3,540 | $ 35,038 | 11/15/2018 | 804 | ||||
Citibank NA | EUR 937 | $ 43,448 | 11/15/2018 | 946 | ||||
Deutsche Bank AG | EUR 1,100 | $ 1,335 | 11/02/2018 | 89 | ||||
Goldman Sachs Bank USA | EUR 1,139 | $ 1,294 | 11/15/2018 | 2 | ||||
HSBC Bank USA | EUR 1,600 | $ 6,004 | 03/15/2019 | 614 | ||||
JP Morgan Chase Bank NA | EUR 963 | $ 10,544 | 11/15/2018 | 254 | ||||
Société Générale | EUR 1,709 | $ 1,943 | 11/15/2018 | 5 | ||||
BNP Paribas SA | $ 10,781 | INR 814,038 | 12/19/2018 | (162) | ||||
Citibank NA | $ 4,853 | INR 356,276 | 12/19/2018 | (73) | ||||
Goldman Sachs Bank USA | $ 698 | INR 51,747 | 11/13/2018 | — | ||||
HSBC Bank USA | $ 818 | INR 60,208 | 11/15/2018 | (6) | ||||
Barclays Bank plc | INR 219,259 | $ 2,935 | 12/19/2018 | (7) | ||||
Citibank NA | INR 34,421 | $ 462 | 11/13/2018 | (2) | ||||
Deutsche Bank AG | INR 60,208 | $ 808 | 11/15/2018 | (4) | ||||
Goldman Sachs Bank USA | INR 51,747 | $ 694 | 12/19/2018 | — | ||||
HSBC Bank USA | INR 17,326 | $ 232 | 11/13/2018 | (2) | ||||
HSBC Bank USA | INR 60,208 | $ 813 | 12/19/2018 | 6 | ||||
JP Morgan Chase Bank | INR 300,624 | $ 11,041 | 12/19/2018 | (83) | ||||
JP Morgan Chase Bank NA | $ 32,888 | JPY 3,720,400 | 11/15/2018 | 119 | ||||
JP Morgan Chase Bank NA | $ 5,479 | JPY 7,776,700 | 11/15/2018 | (373) | ||||
UBS AG | $ 38,449 | JPY 4,236,400 | 11/15/2018 | (863) | ||||
Barclays Bank plc | JPY 1,220,900 | $ 38,007 | 11/15/2018 | 141 | ||||
Barclays Bank plc | JPY 6,460,000 | $ 58,631 | 11/19/2018 | 1,301 | ||||
Barclays Bank plc | JPY 430,000 | $ 3,883 | 11/26/2018 | 65 | ||||
Barclays Bank plc | JPY 8,610,000 | $ 77,352 | 02/04/2019 | 393 | ||||
BNP Paribas SA | JPY 1,060,000 | $ 9,547 | 11/05/2018 | 149 | ||||
BNP Paribas SA | JPY 160,000 | $ 1,446 | 11/26/2018 | 25 | ||||
BNP Paribas SA | JPY 4,180,000 | $ 36,965 | 01/15/2019 | (338) | ||||
Citibank NA | JPY 1,060,000 | $ 29,996 | 11/05/2018 | 474 | ||||
Citibank NA | JPY 598,600 | $ 5,431 | 11/15/2018 | 120 | ||||
Citibank NA | JPY 3,460,000 | $ 31,049 | 01/28/2019 | 138 | ||||
Goldman Sachs Bank USA | JPY 1,451,900 | $ 12,882 | 11/15/2018 | 1 | ||||
JP Morgan Chase Bank NA | JPY 1,434,400 | $ 41,623 | 11/15/2018 | 976 | ||||
JP Morgan Chase Bank NA | JPY 990,800 | $ 12,264 | 11/15/2018 | (19) | ||||
UBS AG | JPY 1,060,000 | $ 9,548 | 11/05/2018 | 150 | ||||
UBS AG | JPY 430,000 | $ 3,884 | 11/26/2018 | 66 | ||||
Citibank NA | $ 4,926 | MXN 96,729 | 11/14/2018 | (176) | ||||
Goldman Sachs Bank USA | $ 11,269 | MXN 220,084 | 11/14/2018 | (461) | ||||
HSBC Bank USA | $ 5,372 | MXN 104,436 | 11/14/2018 | (243) | ||||
HSBC Bank USA | $ 4,814 | MXN 92,767 | 01/25/2019 | (312) | ||||
Société Générale | $ 5,169 | MXN 99,718 | 11/14/2018 | (272) | ||||
BNP Paribas SA | MXN 7,307 | $ 382 | 11/14/2018 | 24 | ||||
Goldman Sachs Bank USA | MXN 52,451 | $ 9,781 | 11/14/2018 | 566 | ||||
HSBC Bank USA | MXN 28,586 | $ 12,986 | 11/14/2018 | 911 | ||||
JP Morgan Chase Bank NA | MXN 113,769 | $ 14,679 | 11/14/2018 | 891 | ||||
Barclays Bank plc | $ 6,752 | RUB 444,853 | 11/16/2018 | (13) | ||||
Barclays Bank plc | $ 685 | RUB 45,107 | 11/19/2018 | (2) | ||||
Barclays Bank plc | $ 4,388 | RUB 290,312 | 12/14/2018 | (6) | ||||
BNP Paribas SA | $ 2,802 | RUB 183,955 | 11/16/2018 | (15) | ||||
Citibank NA | $ 9,866 | RUB 675,961 | 11/15/2018 | 375 | ||||
Goldman Sachs Bank USA | $ 628 | RUB 42,189 | 11/06/2018 | 12 | ||||
Goldman Sachs Bank USA | $ 7,802 | RUB 516,290 | 12/14/2018 | (10) | ||||
Goldman Sachs Bank USA | $ 1,915 | RUB 126,828 | 01/30/2019 | (9) | ||||
HSBC Bank USA | $ 3,144 | RUB 212,270 | 11/15/2018 | 72 | ||||
HSBC Bank USA | $ 8,193 | RUB 562,539 | 12/14/2018 | 298 | ||||
HSBC Bank USA | $ 661 | RUB 43,912 | 01/30/2019 | (1) | ||||
JP Morgan Chase Bank | $ 1,261 | RUB 84,639 | 11/06/2018 | 23 | ||||
JP Morgan Chase Bank | $ 1,264 | RUB 82,959 | 11/15/2018 | (7) |
49
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 | $ 12,380 | RUB 780,852 | 11/15/2018 | $ (550) | ||||
UBS AG | $ 7,692 | RUB 493,604 | 11/15/2018 | (213) | ||||
Barclays Bank plc | RUB 290,312 | $ 11,154 | 11/15/2018 | 16 | ||||
Barclays Bank plc | RUB 45,107 | $ 9,595 | 12/14/2018 | 22 | ||||
BNP Paribas SA | RUB 114,034 | $ 1,713 | 11/15/2018 | (15) | ||||
Goldman Sachs Bank USA | RUB 126,829 | $ 1,931 | 11/06/2018 | 7 | ||||
Goldman Sachs Bank USA | RUB 11,659 | $ 174 | 11/15/2018 | (2) | ||||
Goldman Sachs Bank USA | RUB 516,290 | $ 7,829 | 11/15/2018 | 7 | ||||
HSBC Bank USA | RUB 444,853 | $ 6,772 | 11/16/2018 | 33 | ||||
HSBC Bank USA | RUB 45,107 | $ 687 | 11/19/2018 | 4 | ||||
JP Morgan Chase Bank | RUB 272,880 | $ 11,174 | 11/15/2018 | 39 | ||||
JP Morgan Chase Bank | RUB 133,483 | $ 2,004 | 11/15/2018 | (18) | ||||
JP Morgan Chase Bank | RUB 189,866 | $ 16,291 | 12/14/2018 | 70 | ||||
Citibank NA | $ 1,082 | ZAR 16,428 | 11/02/2018 | 32 | ||||
Citibank NA | ZAR 16,235 | $ 1,131 | 11/02/2018 | 30 | ||||
Citibank NA | $ 31,060 | SEK 292,210 | 11/15/2018 | (462) | ||||
Barclays Bank plc | SEK 42,050 | $ 4,640 | 11/15/2018 | 39 | ||||
Citibank NA | SEK 12,615 | $ 1,390 | 11/15/2018 | 10 | ||||
Goldman Sachs Bank USA | SEK 37,090 | $ 4,219 | 11/15/2018 | 161 | ||||
JP Morgan Chase Bank NA | SEK 49,270 | $ 22,559 | 11/15/2018 | 724 | ||||
Barclays Bank plc | $ 5,975 | TRY 39,543 | 11/15/2018 | 1,032 | ||||
BNP Paribas SA | $ 449 | TRY 2,723 | 11/08/2018 | 36 | ||||
Goldman Sachs Bank USA | $ 1,671 | TRY 10,588 | 11/29/2018 | 188 | ||||
JP Morgan Chase Bank | $ 1,190 | TRY 7,569 | 11/15/2018 | 152 | ||||
JP Morgan Chase Bank | $ 3,770 | TRY 59,201 | 11/29/2018 | 1,240 | ||||
UBS AG | $ 3,020 | TRY 19,884 | 01/15/2019 | 377 | ||||
BNP Paribas SA | TRY 9,568 | $ 1,699 | 11/15/2018 | 4 | ||||
Citibank NA | TRY 10,016 | $ 1,699 | 11/15/2018 | (76) | ||||
Deutsche Bank AG | TRY 39,092 | $ 6,637 | 11/15/2018 | (291) | ||||
Goldman Sachs Bank USA | TRY 7,169 | $ 1,175 | 11/08/2018 | (101) | ||||
Goldman Sachs Bank USA | TRY 34,184 | $ 5,901 | 11/15/2018 | (157) | ||||
HSBC Bank USA | TRY 13,499 | $ 2,297 | 11/15/2018 | (96) | ||||
JP Morgan Chase Bank | TRY 12,633 | $ 2,224 | 11/15/2018 | (15) | ||||
UBS AG | TRY 11,615 | $ 2,018 | 11/15/2018 | (41) | ||||
Total Forward Currency Contracts | $8,222 |
INTEREST RATE SWAP AGREEMENTS OPEN AT OCTOBER 31, 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 | 1.750% | Semi-annual | 12/16/2046 | CAD 1,900 | $ 361 | $ (25) | $ 386 | |||||||||
LCH Group | EUR-EURIBOR-Act/360-Bloomberg 6-Month | Pay | 1.250 | Annual | 12/19/2028 | EUR 15,400 | 452 | 264 | 188 | |||||||||
LCH Group | EUR-EURIBOR-Act/360-Bloomberg 6-Month | Pay | 1.000 | Annual | 03/20/2029 | 91,900 | (400) | (408) | 8 | |||||||||
LCH Group | EUR-EURIBOR-Act/360-Bloomberg 6-Month | Pay | 1.501 | Annual | 07/04/2042 | 19,600 | 150 | — | 150 | |||||||||
LCH Group | EUR-EURIBOR-Act/360-Bloomberg 6-Month | Pay | 1.500 | Annual | 03/20/2049 | 7,200 | (68) | (144) | 76 | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.500 | Semi-annual | 03/20/2024 | GBP 39,300 | (147) | (36) | (111) | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.500 | Semi-annual | 12/19/2028 | 7,800 | 98 | 131 | (33) | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.500 | Semi-annual | 03/20/2029 | 7,700 | 120 | 124 | (4) | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.500 | Semi-annual | 12/19/2048 | 9,500 | 611 | 44 | 567 |
50
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) | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.750% | Semi-annual | 03/20/2049 | GBP 10,500 | $ (120) | $ (64) | $ (56) | |||||||||
CME Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300 | Semi-annual | 03/18/2026 | JPY 12,590,000 | (751) | (718) | (33) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300 | Semi-annual | 03/18/2026 | 10,220,000 | (551) | (626) | 75 | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300 | Semi-annual | 09/20/2027 | 2,180,000 | (25) | (114) | 89 | |||||||||
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 | Pay | 0.380 | Semi-annual | 06/18/2028 | 4,090,000 | 247 | 132 | 115 | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.399 | Semi-annual | 06/18/2028 | 770,000 | (59) | — | (59) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Pay | 0.372 | Semi-annual | 10/22/2028 | 410,000 | 12 | — | 12 | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Pay | 0.309 | Semi-annual | 10/31/2028 | 1,250,000 | (35) | (19) | (16) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.450 | Semi-annual | 03/20/2029 | 670,000 | (46) | (49) | 3 | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.750 | Semi-annual | 03/20/2038 | 2,120,000 | (30) | 44 | (74) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.800 | Semi-annual | 10/22/2038 | 220,000 | (14) | — | (14) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.705 | Semi-annual | 10/31/2038 | 640,000 | 66 | 41 | 25 | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.750 | Semi-annual | 12/20/2038 | 2,085,000 | 89 | 142 | (53) | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 1.000 | Semi-annual | 03/21/2048 | 240,000 | (29) | (8) | (21) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.800 | Semi-annual | 08/22/2023 | $ 122,400 | (1,782) | (2,780) | 998 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.905 | Semi-annual | 08/22/2048 | 16,600 | 1,366 | 1,638 | (272) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.930 | Semi-annual | 08/22/2048 | 6,000 | 464 | 637 | (173) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.940 | Semi-annual | 08/22/2048 | 5,300 | 399 | 518 | (119) | |||||||||
LCH Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.250 | Semi-annual | 06/20/2028 | 51,400 | 3,873 | 2,891 | 982 | |||||||||
Centrally Cleared Interest Rate Swaps | 2,570 | |||||||||||||||||
Interest Rate Swaps | $2,570 |
CREDIT DEFAULT SWAP AGREEMENTS OPEN AT OCTOBER 31, 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 Amount (000s)e | Value (000s)f | Upfront Premiums (Received)/ Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||||||||
ICE Group | Carrefour 1.750% due 05/22/2019 | Sell | 1.000% | 06/20/2023 | 0.683% | Quarterly | EUR 2,600 | $ 46 | $ 17 | $ 29 | ||||||||||
ICE Group | iTraxx Europe Series 29 Version 1 0.001% | Buy | 1.000 | 06/20/2023 | 0.643 | Quarterly | EUR 60,400 | (1,200) | (1,070) | (130) | ||||||||||
ICE Group | TESCO PLC 6.000% due 12/14/2029 | Sell | 1.000 | 06/20/2022 | 0.111 | Quarterly | EUR 5,000 | 81 | (244) | 325 |
51
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 Amount (000s)e | Value (000s)f | Upfront Premiums (Received)/ Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||||||||
ICE Group | Markit CDX North American High Yield Index Series 30 0.001% | Sell | 5.000% | 06/20/2023 | 3.466% | Quarterly | $ 5,400 | $ 356 | $ 323 | $ 33 | ||||||||||
ICE Group | Markit CDX North American High Yield Index Series 31 0.001% | Sell | 5.000 | 12/20/2023 | 3.748 | Quarterly | 4,200 | 246 | 209 | 37 | ||||||||||
ICE Group | Markit CDX North American Investment Grade Index Series 30 0.001% | Buy | 1.000 | 06/20/2023 | 0.628 | Quarterly | 70,100 | (1,196) | (1,217) | 21 | ||||||||||
ICE Group | Ford Motor Company 4.346% due 12/08/2026 | Sell | 5.000 | 06/20/2023 | 1.227 | Quarterly | 2,100 | 296 | 313 | (17) | ||||||||||
ICE Group | MBIA Inc. 6.625% due 10/01/2028 | Sell | 5.000 | 12/20/2019 | 0.420 | Quarterly | 7,000 | 391 | (237) | 628 | ||||||||||
ICE Group | MetLife, Inc. 4.750% due 02/08/2021 | Sell | 1.000 | 06/20/2021 | 0.089 | Quarterly | 2,100 | 41 | 12 | 29 | ||||||||||
ICE Group | MetLife, Inc. 4.750% due 02/08/2021 | Sell | 1.000 | 12/20/2021 | 0.085 | Quarterly | 6,900 | 141 | 1 | 140 | ||||||||||
ICE Group | The Goldman Sachs Group, Inc. 5.950% due 01/18/2018 | Sell | 1.000 | 09/20/2020 | 0.341 | Quarterly | 8,000 | 107 | 128 | (21) | ||||||||||
Centrally Cleared Credit Default Swaps | $1,074 |
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 Amount (000s)e | Value (000s)f | Upfront Premiums (Received)/ Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||||||||
Citibank NA | Axa Equitable Holdings Inc. 3.900% due 04/20/2023 | Sell | 1.000% | 06/20/2023 | 1.350% | Quarterly | $ 4,200 | $(57) | $(114) | $ 57 | ||||||||||
Goldman Sachs International | Petroleo Brasileiro SA Petrobras 8.375% due 12/10/2018 | Sell | 1.000 | 12/20/2019 | 1.025 | Quarterly | 400 | — | (43) | 43 | ||||||||||
HSBC Bank USA NA | Petroleo Brasileiro SA Petrobras 8.375% due 12/10/2018 | Sell | 1.000 | 03/20/2020 | 1.179 | Quarterly | 200 | — | (36) | 36 | ||||||||||
JP Morgan Chase Bank NA | Petroleo Brasileiro SA Petrobras 8.375% due 12/10/2018 | Sell | 1.000 | 12/20/2019 | 1.025 | Quarterly | 2,100 | 2 | (237) | 239 | ||||||||||
Over-the-Counter Credit Default Swaps | 375 | |||||||||||||||||||
Credit Default Swaps | $1,449 | |||||||||||||||||||
Total Swaps | $4,019 |
FIXED INCOME INVESTMENTS SOLD SHORT AT OCTOBER 31, 2018 — (0.5)%
Principal Amount (000s) | Security | Proceeds (000s) | Value (000s) | |||
$ 9,000 | Federal National Mortgage Association TBA10 6.000%—12/13/2048 | $9,653 | $(9,665) |
52
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
REVERSE REPURCHASE AGREEMENTS AT OCTOBER 31, 2018 — (19.0)%
Counterparty | Borrowing Rate | Borrowing Date | Maturity Date | Proceeds (000s) | Value (000s) | |||||
Bank of America | 2.180% - 2.320% | 08/07/2018 - 10/23/2018 | 11/1/2018 - 11/08/2018 | $ 21,111 | $ (21,111) | |||||
Bank of Nova Scotia | 2.370% | 10/08/2018 | 01/09/2019 | 75,873 | (75,873) | |||||
Barclays | (0.500)% | 06/06/2018 | 06/06/2020 | 2,795 | (2,795) | |||||
Deutsche Bank | 2.510% | 10/31/2018 | 02/01/2019 | 17,751 | (17,751) | |||||
Royal Bank of Canada | 2.230 - 2.480% | 08/16/2018 - 10/25/2018 | 11/16/2018 - 11/19/2019 | 151,610 | (151,610) | |||||
Royal Bank of Scotland | 2.200- 2.460% | 08/09/2018 - 10/26/2018 | 11/05/2018 - 01/22/2019 | 98,074 | (98,074) | |||||
Total Reverse Repurchase Agreements | $367,214 | $(367,214) |
SALE-BUYBACK TRANSACTIONS AT OCTOBER 31, 2018 — (2.0)%
Counterparty | Borrowing Rate | Borrowing Date | Maturity Date | Proceeds (000s) | Value (000s) | |||||
Barclays Capital Inc. | 2.250 - 2.500% | 10/29/2018 - 10/30/2018 | 11/02/2018 - 11/05/2018 | $ 4,799 | $ (4,730) | |||||
UBS Securities LLC | 2.250% | 10/29/2018 | 01/30/2019 | 33,677 | (33,768) | |||||
Total Sale-Buyback Transactions | $38,476 | $(38,498) |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of October 31, 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 | $ — | $ 226,067 | $ — | $ 226,067 | ||||
Bank Loan Obligations | — | — | 5,185 | 5,185 | ||||
Collateralized Mortgage Obligations | — | 122,904 | — | 122,904 | ||||
Corporate Bonds & Notes | — | 955,781 | — | 955,781 | ||||
Escrow | — | — | — | — | ||||
Foreign Government Obligations | — | 384,834 | — | 384,834 | ||||
Mortgage Pass-Through | — | 1,276,161 | 1 | 1,276,162 | ||||
Municipal Bonds | — | 9,315 | — | 9,315 | ||||
U.S. Government Obligations | — | 427,909 | — | 427,909 | ||||
Short-Term Investments | ||||||||
Certificates Of Deposit | — | 9,800 | — | 9,800 | ||||
Total Investments in Securities | $ — | $3,412,771 | $5,186 | $3,417,957 | ||||
Financial Derivative Instruments - Assets | ||||||||
Forward Currency Contracts | $ — | $ 16,194 | $ — | $ 16,194 | ||||
Futures Contracts | 7,794 | — | — | 7,794 | ||||
Purchased Options | 26 | 178 | — | 204 | ||||
Swap Agreements | — | 5,291 | — | 5,291 | ||||
Total Financial Derivative Instruments - Assets | $ 7,820 | $ 21,663 | $ — | $ 29,483 | ||||
Liability Category | ||||||||
Fixed Income Investments Sold Short | $ — | $ (9,665) | $ — | $ (9,665) | ||||
Reverse Repurchase Agreements | — | (367,214) | — | (367,214) | ||||
Sale-Buyback Transactions | — | (38,498) | — | (38,498) | ||||
Total Investments Sold Short and Secured Borrowings | $ — | $ (415,377) | $ — | $ (415,377) | ||||
Financial Derivative Instruments - Liabilities | ||||||||
Forward Currency Contracts | $ — | $ (7,972) | $ — | $ (7,972) | ||||
Futures Contracts | (5,162) | — | — | (5,162) | ||||
Swap Agreements | — | (1,272) | — | (1,272) | ||||
Written Options | (191) | (855) | — | (1,046) | ||||
Total Financial Derivative Instruments - Liabilities | $(5,353) | $ (10,099) | $ — | $ (15,452) | ||||
Total Investments | $ 2,467 | $3,008,958 | $5,186 | $3,016,611 |
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.
53
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 year ended October 31, 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 10/31/2018w (000s) | |||||||||
Bank Loan Obligations | $— | $5,174 | $— | $— | $— | $ 11 | $— | $— | $5,185 | |||||||||
Escrow | — | — | — | — | — | — | — | — | — | |||||||||
Mortgage Pass-Through | 1 | ��� | — | — | — | — | — | — | 1 | |||||||||
$ 1 | $5,174 | $— | $— | $— | $ 11 | $— | $— | $5,186 |
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 10/31/2018 (000s) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||
Investments in Securities | ||||||||
Bank Loan Obligations | ||||||||
Toyota Motor Credit Corporation | $ 5,185 | Benchmark Pricing | Base Price Plus Spread | $ 99.71 | ||||
Escrow | ||||||||
General Motors Co. Escrow | $ — | Cash Available in Relation to Claims | Estimated Recovery Value | $ 0.00 | ||||
Mortgage Pass-Through | ||||||||
Federal Housing Authority Project | $ 1 | Benchmark Pricing | Base Price | $ 100.09 | ||||
$ 5,186 |
REMAINING CONTRACTUAL MATURITY OF TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS
The following is a summary of the remaining contractual maturities of transfers accounted for as secured borrowings, by collateral type, as of October 31, 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 | $19,581 | $134,505 | $148,086 | $65,042 | $367,214 | ||||
Sale-Buyback Transactions | |||||||||
U.S. Treasury Obligations | $ — | $ 4,730 | $ — | $33,768 | $ 38,498 | ||||
Total Secured Borrowings | $19,581 | $139,235 | $148,086 | $98,810 | $405,712 |
54
Harbor Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
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 October 31, 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 October 31, 2018, the aggregate value of these securities was $489,006 or 25% of net assets. | ||
4 | Floating rate security, the stated rate represents the rate in effect at October 31, 2018. | ||
5 | Step coupon security, the stated rate represents the rate in effect at October 31, 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 | TBAs are mortgage-backed securities traded under delayed delivery commitments, settling after October 31, 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). | ||
11 | Security in Default | ||
12 | CMT denotes Constant Maturity Treasury. | ||
13 | At October 31, 2018, a portion of securities held by the Fund were pledged as collateral for exchange traded and centrally cleared derivatives, over-the-counter (OTC) derivatives, forward commitments, and secured borrowings (see Note 2 of the accompanying Notes to FInancial Statements). The securities had an aggregate value of $415,637 or 21% 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 | ||
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 10/31/2018 (000s) | ||
Bank Loan Obligations | $ 11 | ||
Escrow | $(15) | ||
Mortgage Pass-Through | – | ||
$ (4) | |||
x | Fair valued in accordance with Harbor Funds Valuation Procedures. | ||
ARS | Argentine Peso | ||
AUD | Australian Dollar | ||
BRL | Brazilian Real | ||
GBP | British Pound | ||
CAD | Canadian Dollar | ||
EUR | Euro | ||
INR | Indian Rupee | ||
JPY | Japanese Yen | ||
MXN | Mexican Peso | ||
RUB | Russian Ruble | ||
ZAR | South African Rand | ||
SEK | Swedish Krona | ||
TRY | Turkish Lira |
The accompanying notes are an integral part of the Financial Statements.
55
Harbor Core Bond Fund
Managers’ Commentary (Unaudited)
Managers’ Commentary (Unaudited)
Subadviser
Income Research + Management
100 Federal Street
30th Floor
30th Floor
Boston, MA 02110
Portfolio Managers
William A. O’Malley, CFA
Since 2018
James E. Gubitosi, CFA
Since 2018
Since 2018
Sarah Kilpatrick
Since 2018
Since 2018
IR+M has subadvised the Fund since 2018.
Investment Objective
The Fund seeks total return.
William A. O’Malley, CFA
James E. Gubitosi, CFA
Sarah Kilpatrick
Management’s Discussion of
Fund Performance
Fund Performance
Market Review
U.S. Treasury yields have climbed across maturities with the 10-year U.S. Treasury jumping 26 basis points for the five-month period ended October 31, 2018, to close at 3.15%. 30-year U.S. Treasury yields jumped 18 basis points during the month of October to close the month at 3.39%, only one basis point away from the multi-year high of 3.40% from July 2014. The yield curve is at a historically flat level, with the difference between 10- and 30-year U.S. Treasury yields, known as the 10s30s spread, closing the month of October at 25 basis points and close to its narrowest in more than a decade.
In the corporate market, credit fundamentals remained healthy, with third quarter estimated earnings growth of 19.3%, according to FactSet. This estimate was revised downward from 20.4% due to anticipated earnings growth declines in the Energy and Consumer Staples sectors. The third quarter U.S. GDP growth came in strong at an annualized rate of 3.5%, which beat expectations for 3.3% and was primarily driven by a 4.0% increase in consumer spending. Inflation data remained solid, as both the U.S. Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) registered gains of 2% or more, which may be supportive of future U.S. Federal Reserve (Fed) rate hikes. A robust labor market has supported inflation, and the September unemployment rate showed continued strength at 3.7%.
Corporate bond spreads have experienced some volatility during the time period, bouncing around a bit, but ultimately widening out in October to close at 118 bps, according to Bloomberg Barclays.
Securitized asset classes have generated positive excess returns relative to U.S. Treasuries, but lagged corporates. Commercial mortgage-backed securities (CMBS) outperformed due to strong demand. While asset-backed securities (ABS) and mortgage-backed securities (MBS) outperformed U.S. Treasuries, the latter, in particular, underperformed corporates as the Fed balance sheet unwind and market expectations for higher supply through year-end weighed on returns.
For the third quarter, investment grade new issuance exceeded $271 billion, according to Citigroup, which was down 14% versus third quarter 2017. In October, supply was lighter than the market expected, as investment grade corporate issuers priced approximately $82 billion, below estimates that ranged from $100-110 billion. Risk-market volatility and a heavy earnings calendar kept many issuers on the sidelines, and expectations call for November supply in the range of $85-90 billion; this year’s pace now stands roughly 8% behind last year’s.
For 2018, nearly 70% of total investment-grade issuance has been derived from companies rated BBB. The sector breakdown of issuance has changed in some notable ways, with technology accounting for just 2% of supply in 2018 versus 10% in 2017. Consumer non-cyclicals has represented 19% of issuance in 2018 compared to 11% in 2017.
At its September meeting, the Fed raised interest rates, boosting the Fed Funds target range to 2.00-2.25% – the highest since October 2008. This marked the third rate hike in 2018 and eighth since December 2015, which started the current rate hike cycle. Based on market-implied probabilities, there is a 70% chance that the Fed will raise rates in December 2018. In its most recent statement, the Fed again cited the continued strengthening of the labor market and solid economic activity. Job gains have remained robust, and unemployment has been persistently low. Overall, inflation measured around 2%.
56
Harbor Core Bond Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $10,000 INVESTMENT
For the period 06/01/2018 through 10/31/2018
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | 5 Years | Unannualized | ||||||
Life of Fund | ||||||||
Harbor Core Bond Fund | ||||||||
Institutional Class1 | N/A | N/A | -0.75% | |||||
Retirement Class1 | N/A | N/A | -0.73 | |||||
Comparative Index | ||||||||
Bloomberg Barclays U.S. Aggregate Bond1 | N/A | N/A | -0.89% |
As stated in the Fund’s prospectus dated June 1, 2018, the expense ratios were 0.45% (Net) and 0.68% (Gross) (Institutional Class) and 0.37% (Net) and 0.60% (Gross) (Retirement 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 estimates for the current fiscal year.
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.
Performance
Since the inception of Harbor Core Bond Fund on June 1, 2018 to the period ended October 31, 2018, the Fund returned -0.75% (Institutional Class) and -0.73% (Retirement Class), which outperformed the return of the Bloomberg Barclays U.S. Aggregate Bond Index of -0.89% during the same period. Careful security selection in the Communications, Energy, and Information Technology sectors contributed most to relative outperformance. The Fund’s overweight to both Financials and ABS also helped performance. Detractors from performance included the Fund’s overweight and security selection within Utilities, as well as the underweight to the non-corporate sector (which mainly consists of foreign securities issued in U.S. Dollars), which was one of the better performing areas in the Index during the period. Agency MBS also experienced some weakness during the period, and while the Fund’s underweight helped, security selection detracted from performance.
Outlook & Strategy
Entering the fourth quarter, we believe the U.S. economic outlook remains strong, supported by a robust labor market that is driving consumer spending. The core inflation rate continues to hover around the Fed’s 2% inflation rate target. In our opinion, the potential for an inverted yield curve still exists, but that may not deter the Fed from future tightening. The consensus view is that the Fed will raise rates again in December 2018, and three additional times in 2019. In our view, while the new Chinese tariffs have yet to significantly affect the economy, we think the Fed could suspend its rate hikes if trade wars remain a concern. We believe that it is time to lean on our years of experience, security selection skills, and conviction in well-balanced Fund construction, with prudent risk and liquidity management.
1 | The “Life of Fund” return as shown reflects the period 06/01/2018 through 10/31/2018. |
This report contains the current opinions of Income Research + 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.
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. 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.
57
Harbor Core Bond Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Issuers (% of net assets)
❶ | U.S. Treasury | 20.8% |
❷ | Federal National Mortgage Association | 12.7% |
❸ | Federal Home Loan Mortgage Corp. | 8.7% |
❹ | U.S. Small Business Administration | 4.6% |
❺ | Government National Mortgage Association | 2.5% |
❻ | JPMorgan Mortgage Trust | 1.8% |
❼ | CNH Equipment Trust | 1.6% |
❽ | JPMBB Commercial Mortgage Securities Trust | 1.2% |
❾ | WF RBS Commercial Mortgage Trust | 1.2% |
❿ | United Airlines 2014-1 Class A Pass-Through Trust | 1.1% |
Total Investments (% of net assets)
(Excludes net cash of 0.9%)
Maturity Profile (% of investments)
58
Harbor Core Bond Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost and Principal Amounts in Thousands
ASSET-BACKED SECURITIES—10.9% | |||
Principal Amount | Value | ||
American Airlines 2013-2 Class A Pass-Through Trust | |||
$ | 133 | 4.950%—07/15/2024 | $ 136 |
American Airlines 2015-1 Class A Pass-Through Trust | |||
444 | 3.375%—11/01/2028 | 426 | |
CNH Equipment Trust | |||
Series 2018-A Cl. A3 | |||
590 | 3.120%—07/17/2023 | 589 | |
Series 2018-B Cl. A3 | |||
271 | 3.190%—11/15/2023 | 271 | |
860 | |||
DB Master Finance LLC | |||
Series 2017-1A Cl. A2I | |||
248 | 3.629%—11/20/20471 | 241 | |
Delta Air Lines 2015-1 Class AA Pass-Through Trust | |||
313 | 3.625%—01/30/2029 | 308 | |
DLL Securitization Trust | |||
Series 2017-A Cl. A3 | |||
253 | 2.140%—12/15/20211 | 249 | |
Domino's Pizza Master Issuer LLC | |||
Series 2017-1A Cl. A2I | |||
247 | 3.740% (3 Month USD Libor + 1.250) 07/25/20471,2 | 248 | |
Ford Credit Floorplan Master Owner Trust | |||
Series 2016-5 Cl. A1 | |||
492 | 1.950%—11/15/2021 | 486 | |
GMF Floorplan Owner Revolving Trust | |||
Series 2017-1 Cl. A1 | |||
524 | 2.220%—01/18/20221 | 519 | |
Progress Residential Trust | |||
Series 2018-SFR3 Cl. A | |||
433 | 3.880%—10/17/20351 | 433 | |
Store Master Funding LLC | |||
348 | 3.960%—10/20/20481 | 349 | |
United Airlines 2014-1 Class A Pass-Through Trust | |||
592 | 4.000%—10/11/2027 | 593 | |
Verizon Owner Trust | |||
Series 2018-A Cl. A1A | |||
501 | 3.230%—04/20/2023 | 501 | |
Wheels SPV LLC | |||
Series 2017-1A Cl. A2 | |||
200 | 3.060%—04/20/20271 | 199 | |
World Omni Auto Receivables Trust | |||
Series 2017-B Cl. A3 | |||
500 | 1.950%—02/15/2023 | 490 | |
TOTAL ASSET-BACKED SECURITIES | |||
(Cost $6,054) | 6,038 | ||
COLLATERALIZED MORTGAGE OBLIGATIONS—7.5% | |||
Commercial Mortgage Pass-Through Certificates | |||
Series 2014-CR14 Cl. A2 | |||
559 | 3.147%—02/10/2047 | 559 | |
Flagstar Mortgage Trust | |||
Series 2018-1 Cl. A5 | |||
235 | 3.500%—03/25/20481 | 231 | |
GS Mortgage Securities Trust | |||
Series 2012-GCJ7 Cl. A4 | |||
462 | 3.377%—05/10/2045 | 461 | |
JPMBB Commercial Mortgage Securities Trust | |||
Series 2015-C32 Cl. A2 | |||
511 | 2.816%—11/15/2048 | 506 | |
Series 2013-C14 Cl. A2 | |||
190 | 3.019%—08/15/2046 | 190 | |
696 |
COLLATERALIZED MORTGAGE OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
JPMorgan Mortgage Trust | |||
Series 2016-4 Cl. A5 | |||
$ | 237 | 3.500%—10/25/20461 | $ 234 |
Series 2018-4 Cl. A5 | |||
414 | 3.500%—10/25/20481 | 407 | |
Series 2018-6 Cl. 1A4 | |||
364 | 3.500%—12/25/2048 | 362 | |
1,003 | |||
UBS Commercial Mortgage Trust | |||
Series 2018-C10 Cl. A4 | |||
543 | 4.313%—05/15/2051 | 555 | |
WF RBS Commercial Mortgage Trust | |||
Series 2012-C10 Cl. A3 | |||
244 | 2.875%—12/15/2045 | 238 | |
Series 2011-C4 Cl. A4 | |||
400 | 4.902%—06/15/20441 | 413 | |
651 | |||
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS | |||
(Cost $4,184) | 4,156 | ||
CORPORATE BONDS & NOTES—29.5% | |||
AEROSPACE & DEFENSE—0.8% | |||
BAE Systems Holdings Inc. | |||
300 | 3.800%—10/07/20241 | 295 | |
Lockheed Martin Corp. | �� | ||
150 | 4.700%—05/15/2046 | 153 | |
448 | |||
AUTOMOBILES—0.5% | |||
Daimler Finance North America LLC | |||
300 | 2.200%—05/05/20201 | 294 | |
BANKS—3.0% | |||
Bank of America Corp. MTN3 | |||
276 | 3.500%—04/19/2026 | 263 | |
Citigroup Inc. | |||
404 | 3.400%—05/01/2026 | 380 | |
155 | 4.650%—07/23/2048 | 150 | |
530 | |||
JPMorgan Chase & Co. | |||
300 | 3.200%—01/25/2023 | 294 | |
191 | 4.203%—07/23/2029 | 188 | |
482 | |||
Morgan Stanley MTN3 | |||
159 | 4.300%—01/27/2045 | 147 | |
PNC Bank NA | |||
250 | 3.500%—06/08/2023 | 249 | |
1,671 | |||
BEVERAGES—0.7% | |||
Anheuser-Busch InBev Finance Inc. | |||
414 | 4.900%—02/01/2046 | 392 | |
BIOTECHNOLOGY—1.4% | |||
AbbVie Inc. | |||
400 | 2.500%—05/14/2020 | 395 | |
Celgene Corp. | |||
400 | 2.875%—08/15/2020 | 396 | |
791 |
59
Harbor Core Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
CAPITAL MARKETS—4.3% | |||
Apollo Management Holdings LP | |||
$ | 250 | 4.000%—05/30/20241 | $ 247 |
Goldman Sachs Group Inc. | |||
420 | 5.750%—01/24/2022 | 444 | |
KKR Group Finance Co. II LLC | |||
300 | 5.500%—02/01/20431 | 303 | |
Macquarie Group Ltd. MTN3 | |||
250 | 4.150%—03/27/20241 | 248 | |
Moody's Corp. | |||
407 | 3.250%—06/07/2021 | 405 | |
Morgan Stanley MTN3 | |||
450 | 3.875%—01/27/2026 | 436 | |
UBS Group Funding Switzerland AG | |||
300 | 4.125%—04/15/20261 | 295 | |
2,378 | |||
COMMUNICATIONS EQUIPMENT—0.5% | |||
Juniper Networks Inc. | |||
250 | 4.500%—03/15/2024 | 253 | |
CONSUMER FINANCE—2.8% | |||
American Express Co. | |||
250 | 3.375%—05/17/2021 | 250 | |
Capital One Financial Corp. | |||
250 | 3.200%—01/30/2023 | 242 | |
GE Capital International Funding Co. Unlimited Co. | |||
375 | 4.418%—11/15/2035 | 325 | |
General Motors Financial Co. Inc. | |||
344 | 4.150%—06/19/2023 | 338 | |
Nissan Motor Acceptance Corp. MTN3 | |||
400 | 2.150%—09/28/20201 | 390 | |
1,545 | |||
DIVERSIFIED FINANCIAL SERVICES—0.9% | |||
Siemens Financieringsmaatschappij NV | |||
300 | 2.150%—05/27/20201 | 295 | |
Voya Financial Inc. | |||
200 | 3.125%—07/15/2024 | 189 | |
484 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—1.4% | |||
AT&T Inc. | |||
305 | 3.400%—05/15/2025 | 287 | |
300 | 3.514% (3 Month USD Libor + 1.180) 06/12/20242 | 301 | |
588 | |||
Verizon Communications Inc. | |||
172 | 4.522%—09/15/2048 | 157 | |
745 | |||
ELECTRIC UTILITIES—2.9% | |||
Berkshire Hathaway Energy Co. | |||
365 | 6.125%—04/01/2036 | 431 | |
Duke Energy Corp. | |||
350 | 3.750%—04/15/2024 | 347 | |
Eversource Energy | |||
260 | 2.750%—03/15/2022 | 255 | |
Southern Co. | |||
305 | 3.250%—07/01/2026 | 283 | |
Virginia Electric & Power Co. | |||
305 | 3.150%—01/15/2026 | 294 | |
1,610 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—1.6% | |||
Digital Realty Trust LP | |||
$ | 300 | 3.700%—08/15/2027 | $ 281 |
Ventas Realty LP | |||
250 | 4.125%—01/15/2026 | 244 | |
Wea Finance LLC / Westfield UK & Europe Finance plc | |||
350 | 2.700%—09/17/20191 | 349 | |
874 | |||
HEALTH CARE PROVIDERS & SERVICES—1.5% | |||
CVS Pass-Through Trust | |||
401 | 8.353%—07/10/20311 | 481 | |
Express Scripts Holding Co. | |||
360 | 3.400%—03/01/2027 | 331 | |
812 | |||
INSURANCE—1.0% | |||
American International Group Inc. | |||
300 | 4.125%—02/15/2024 | 298 | |
Five Corners Funding Trust | |||
250 | 4.419%—11/15/20231 | 256 | |
554 | |||
MEDIA—2.0% | |||
Charter Communications Operating LLC / Charter Communications Operating Capital | |||
375 | 6.384%—10/23/2035 | 388 | |
Comcast Corp. | |||
470 | 3.000%—02/01/2024 | 453 | |
COX Communications Inc. | |||
300 | 2.950%—06/30/20231 | 286 | |
1,127 | |||
OIL, GAS & CONSUMABLE FUELS—1.4% | |||
Anadarko Petroleum Corp. | |||
1,000 | 0.000%—10/10/20364 | 416 | |
Concho Resources Inc. | |||
155 | 4.300%—08/15/2028 | 152 | |
Sunoco Logistics Partners Operations LP | |||
210 | 3.900%—07/15/2026 | 195 | |
763 | |||
ROAD & RAIL—0.9% | |||
Norfolk Southern Corp. | |||
200 | 4.837%—10/01/2041 | 203 | |
Penske Truck Leasing Co. LP / PTL Finance Corp. | |||
300 | 3.900%—02/01/20241 | 295 | |
498 | |||
SOFTWARE—0.3% | |||
Microsoft Corp. | |||
150 | 4.250%—02/06/2047 | 151 | |
TRADING COMPANIES & DISTRIBUTORS—1.6% | |||
AerCap Ireland Capital DAC / AerCap Global Aviation Trust | |||
272 | 4.125%—07/03/2023 | 269 | |
Air Lease Corp. | |||
374 | 3.875%—07/03/2023 | 369 |
60
Harbor Core Bond Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost and Principal Amounts in Thousands
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
TRADING COMPANIES & DISTRIBUTORS—Continued | |||
Ferguson Finance plc | |||
$ | 266 | 4.500%—10/24/20281 | $ 262 |
900 | |||
TOTAL CORPORATE BONDS & NOTES | |||
(Cost $16,560) | 16,290 | ||
MORTGAGE PASS-THROUGH—23.9% | |||
Federal Home Loan Mortgage Corp. | |||
1,676 | 3.000%—11/01/2043-10/01/2046 | 1,596 | |
938 | 3.500%—07/01/2046 | 921 | |
1,934 | 4.000%—02/01/2046-03/01/2048 | 1,941 | |
299 | 5.000%—12/01/2044 | 317 | |
4,775 | |||
Federal National Mortgage Association | |||
2,321 | 3.500%—10/01/2037-09/01/2046 | 2,290 | |
1,259 | 4.000%—02/01/2047 | 1,262 | |
1,488 | 4.500%—05/01/2046-11/01/2047 | 1,532 | |
1,840 | 5.000%—09/01/2033-05/01/2042 | 1,949 | |
7,033 | |||
Government National Mortgage Association | |||
1,338 | 4.500%—01/15/2042-08/20/2047 | 1,381 | |
TOTAL MORTGAGE PASS-THROUGH | |||
(Cost $13,402) | 13,189 | ||
MUNICIPAL BONDS—1.9% | |||
Metropolitan Transportation Authority | |||
140 | 5.871%—11/15/2039 | 164 | |
Metropolitan Water Reclamation District of Greater Chicago | |||
145 | 5.720%—12/01/2038 | 172 | |
New York State Urban Development Corp. | |||
265 | 5.770%—03/15/2039 | 301 | |
State of California | |||
300 | 7.500%—04/01/2034 | 410 | |
TOTAL MUNICIPAL BONDS | |||
(Cost $1,078) | 1,047 | ||
U.S. GOVERNMENT OBLIGATIONS—25.4% | |||
Principal Amount | Value | ||
U.S. Small Business Administration | |||
Series 2012-20C Cl. 1 | |||
$ | 210 | 2.510%—03/01/2032 | $ 202 |
Series 2015-20H Cl. 1 | |||
479 | 2.820%—08/01/2035 | 467 | |
Series 2017-20J Cl. 1 | |||
308 | 2.850%—10/01/2037 | 295 | |
Series 2018-20B Cl. 1 | |||
345 | 3.220%—02/01/2038 | 336 | |
Series 2018-20G Cl. 1 | |||
522 | 3.540%—07/01/2038 | 519 | |
Series 2018-20F Cl. 1 | |||
761 | 3.600%—06/01/2038 | 759 | |
2,578 | |||
U.S. Treasury Bonds | |||
2,693 | 3.000%—02/15/2048-08/15/2048 | 2,498 | |
2,023 | 4.500%—05/15/2038 | 2,378 | |
4,876 | |||
U.S. Treasury Notes | |||
1,107 | 1.375%—04/30/2020 | 1,083 | |
2,455 | 2.625%—05/15/2021 | 2,438 | |
888 | 2.750%—07/31/2023 | 879 | |
2,227 | 2.875%—09/30/2023-08/15/2028 | 2,211 | |
6,611 | |||
TOTAL U.S. GOVERNMENT OBLIGATIONS | |||
(Cost $14,339) | 14,065 | ||
TOTAL INVESTMENTS—99.1% | |||
(Cost $55,617) | 54,785 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.9% | 525 | ||
TOTAL NET ASSETS—100.0% | $55,310 |
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 2. There were no Level 3 investments at October 31, 2018 or June 1, 2018 (inception).
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 | 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 October 31, 2018, the aggregate value of these securities was $7,819 or 14% of net assets. |
2 | Variable rate security, the stated rate represents the rate in effect at October 31, 2018. |
3 | MTN after the name of a security stands for Medium Term Note. |
4 | Zero coupon bond |
The accompanying notes are an integral part of the Financial Statements.
61
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
The coordinated efforts of global central banks to normalize policy continued to be a focus for fixed income markets for the fiscal year ended October 31, 2018. Overall, markets were more challenged in light of continued reduction in global central bank accommodation as well as a myriad of geopolitical events with volatility rising well above recent averages.
To start the fiscal year, 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 2017 calendar year out strong. Underlying the risk-on sentiment, the fundamental backdrop remained intact as data showed acceleration in growth trends in the U.S., Europe, and Japan, although inflation remained subdued. Volatility remained low and emerging market assets broadly strengthened on the back of healthier fundamentals, a weaker U.S. Dollar, and rising oil prices.
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 global central banks on track, but rising interest rates and geopolitical concerns contributed to more challenged performance across equities and credit. Expectations for higher inflation, increased U.S. Treasury supply and more U.S. Federal Reserve (Fed) hikes all contributed to higher rates. Volatility rose as the CBOE Volatility Index 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.
Over the second half of the fiscal year, geopolitical developments – including escalating trade tensions between the U.S. and China, political uncertainty in Italy, and turmoil in certain emerging market countries dominated news headlines and contributed to bouts of volatility. Solid fundamental data and higher inflation kept the Fed on track with policy normalization even as other global central banks like the European Central Bank (ECB) softened rhetoric. With divergence in both growth trends and central bank activity, the U.S. Dollar strengthened against virtually all currencies.
Despite a slew of geopolitical headlines and several developed market central banks shifting toward reduced accommodation, the strong fundamental backdrop in the U.S. persisted. Global central banks remained on course for diminished monetary support, helping push developed market yields higher. The Fed and Bank of England (BoE) both hiked policy rates, the ECB confirmed plans to cease asset purchased by the end of 2018, and the Bank of Japan (BoJ) adjusted its yield curve control policy. Higher developed market yields – in conjunction with the stronger U.S. Dollar and ongoing trade concerns – contributed to the less supportive external backdrop and challenging performance for emerging markets.
In the final month of the fiscal year, risk assets saw a dramatic reversal of fortune from the preceding months. Equities sold off, credit spreads widened, and volatility spiked as market participants digested the continued reduction in global central bank accommodation, among other factors.
PEFORMANCE
Harbor Real Return Fund returned -1.57% (Institutional Class), -1.63% (Retirement Class1), and -1.86% (Administrative Class) for the fiscal year ended October 31, 2018, compared with the -1.24% return of the Bloomberg Barclays U.S. TIPS Index.
The following strategies helped Fund returns:
• | Nominal interest rate strategies in the U.S., particularly an underweight to U.S. duration as rates rose over the fiscal year. |
62
Harbor Real Return Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
CHANGE IN A $10,000 INVESTMENT
For the period 11/01/2008 through 10/31/2018
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the Bloomberg Barclays U.S. TIPS Index. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor Real Return Fund | ||||||||
Institutional Class | -1.57% | 0.68% | 4.26% | |||||
Retirement Class1 | -1.63 | 0.67 | 4.26 | |||||
Administrative Class | -1.86 | 0.43 | 3.99 | |||||
Comparative Index | ||||||||
Bloomberg Barclays U.S. TIPS | -1.24% | 0.97% | 4.11% |
As stated in the Fund’s prospectus dated June 1, 2018, the expense ratios were 0.52% (Net) and 1.03% (Gross) (Institutional Class); 0.44% (Net) and 0.95% (Gross) (Retirement 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.
The following strategies were negative or neutral for Fund returns:
• | Real interest rate strategies in the U.S. as U.S. breakeven inflation expectations remained capped amid oil price volatility and mixed inflation data. |
• | An allocation to U.S. Dollar-denominated emerging market debt, as select issues underperformed over the period. |
• | Tactical exposure to select emerging markets currencies, including the Argentine Peso. |
OUTLOOK & STRATEGY
We expect world GDP growth to slow somewhat but remain above-trend at 2.75%‒3.25% in 2019. With tighter global financial conditions, increased political and economic uncertainties, and U.S. fiscal stimulus starting to fade in 2019, we think the economic divergence of 2018 – the U.S. accelerating and other regions slowing – will give way to a more synchronized deceleration, with the U.S., the Eurozone and China all seeing lower growth than this year. We expect inflation globally to remain essentially unchanged from 2018 at 2.0%‒2.5%.
In the U.S., after an expansion of about 3% in 2018, we look for growth to slow to a below-consensus 2.0%–2.5% range in 2019. The drop reflects less support from fiscal stimulus, the ongoing removal of monetary accommodation, a stronger U.S. Dollar and a less favorable trade and foreign environment. With economic growth still above potential, though, we expect unemployment to decline further toward 3.6%. We expect inflation to peak at around 2.5% in response to tariff increases before moderating somewhat. We forecast three more increases in the Fed Funds rate by the end of 2019.
For the Eurozone, we expect growth in a range of 1.5%‒2.0% over the next year, down significantly from 2.5% in 2017 but still above potential output growth. We interpret recent purchasing managers indexes as pointing toward a growing divergence within the Eurozone, with Italy falling behind, which bears watching given the government’s anti-Euro leanings. Core inflation is expected to pick up to 1.25%‒1.75% from 1% as unemployment keeps falling, wage growth continues rising, and the Euro is no longer appreciating. We expect the ECB to end net asset purchases by the end of 2018, and we expect a first rate hike in the second half of 2019.
In the U.K., we expect above-consensus real growth in the range of 1.5%–2.0% in the next year based on our expectation that Brexit negotiations will progress and a hard Brexit will be avoided. We believe this should help domestic demand in 2019. Our below-consensus inflation forecast calls for inflation to fall back to 1.75%‒ 2.25%, slipping below the 2% target over the next year as import price pressures fade and weak wage growth keeps service sector inflation subdued. We forecast two more rate hikes from the BoE over the next year.
We expect Japan’s GDP growth to remain steady at 1.0%–1.5% in 2019, supported by a tight labor market and accommodative fiscal stance. With inflation expectations low and improving labor productivity keeping unit wage costs in check, we expect core inflation to creep up only slightly to 0.5%‒1.0%, well below the 2% target. While we don’t expect the BoJ to raise interest rates, we anticipate further tapering of bond purchases and further steepening of the yield curve.
1 | Retirement Class shares commenced operations on June 1, 2018. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to June 1, 2018 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. |
63
Harbor Real Return Fund
Managers’ Commentary—Continued
Managers’ Commentary—Continued
In China, we expect 2019 growth roughly in the middle of a 5.5%‒6.5% range that reflects large uncertainties caused by trade tensions with the U.S. and an economic policy with partially conflicting targets (growth and unemployment versus financial stability and deleveraging). Our baseline assumes only the recently announced tariff increases and fiscal expansion worth about 1% of GDP. We project a moderate rebound in U.S. Consumer Price Index (CPI) inflation to 2.0%‒3.0% on rising energy and food prices and expect the People’s Bank of China to keep interest rates and reserve ratios unchanged. We expect only moderate depreciation of the Chinese Yuan against the U.S. Dollar, barring a full trade-war scenario.
With respect to portfolio strategy for the Fund:
• | We maintain an underweight to duration position overall, sourced primarily in Japanese and U.K. rates. We are tactical in terms of curve positioning based on relative value and roll-down opportunities and currently favor U.S. rates with a steepening bias. |
• | We continue to emphasize long U.S. breakevens, as we see additional upside potential for U.S. expectations as CPI firms and on the possible reemergence of inflation risk premia. We favor 10- and 30-year breakeven inflation versus the front-end given curve flatness. |
• | We view inflation valuations in the U.K. and Europe as generally rich on a breakeven basis and prefer a short bias overall while exploiting relative value opportunities across countries and real and breakeven curves. |
• | We maintain select spread sector positions, particularly in mortgage-backed securities. |
• | We are tactical in currency positioning with emphasis on the currencies of emerging market countries with higher local interest rates as diversifying risk exposures. |
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.
64
Harbor Real Return Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Issuers (% of net assets)
❶ | U.S. Treasury | 111.6% |
❷ | Federal National Mortgage Association | 8.6% |
❸ | Federal National Mortgage Association TBA | 7.3% |
❹ | Japan Treasury Discount Bill | 1.9% |
❺ | New Zealand Government Bond | 1.4% |
❻ | Lavender Trust | 1.1% |
❼ | Navient Corp. | 1.0% |
❽ | Australia Government Bond | 0.8% |
❾ | Long Beach Mortgage Loan Trust | 0.7% |
❿ | U.K. Gilt Inflation Linked | 0.7% |
Total Investments (% of net assets)
(Excludes net cash, short-term investments and derivative positions of -49.0%)
Maturity Profile (% of investments)
65
Harbor Real Return Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
ASSET-BACKED SECURITIES—4.4% | |||
Principal Amount | Value | ||
Countrywide Asset-Backed Certificates | |||
Series 2007-1A Cl. 1 | |||
$ | 51 | 2.421% (1 Month USD Libor + 0.140) 07/25/20371 | $ 47 |
Series 2006-19 Cl. 2A3 | |||
100 | 2.531% (1 Month USD Libor + 0.250) 03/25/20371 | 94 | |
141 | |||
Crown Point CLO Ltd.2 | |||
Series 2018-5A Cl. A | |||
300 | 3.389% (3 Month USD Libor + 0.940) 07/17/20281,3 | 300 | |
Evans Grove CLO Ltd.2 | |||
Series 2018-1A Cl. A1 | |||
200 | 3.231% (3 Month USD Libor + 0.920) 05/28/20281,3 | 200 | |
Figueroa CLO Ltd.2 | |||
Series 2013-2A Cl. A1RR | |||
100 | 3.188% (3 Month USD Libor + 0.850) 06/20/20271,3 | 100 | |
Fremont Home Loan Trust | |||
Series 2006-C Cl. 1A1 | |||
24 | 2.416% (1 Month USD Libor + 0.135) 10/25/20361 | 23 | |
GSAMP Trust | |||
Series 2004-WF Cl. M2 | |||
88 | 3.931% (1 Month USD Libor + 1.100) 10/25/20341 | 85 | |
Home Equity Mortgage Loan Asset-Backed Trust | |||
Series 2007-A Cl. 1A | |||
32 | 2.501% (1 Month USD Libor + 0.220) 04/25/20371 | 26 | |
JMP Credit Advisors CLO IIIR Ltd.2 | |||
Series 2014-1RA Cl. A | |||
250 | 3.286% (3 Month USD Libor + 0.850) 01/17/20281,3 | 250 | |
Long Beach Mortgage Loan Trust | |||
Series 2006-WL3 Cl. 2A4 | |||
274 | 2.581% (1 Month USD Libor + 0.300) 01/25/20361 | 247 | |
Series 2005-WL2 Cl. M2 | |||
377 | 3.016% (1 Month USD Libor + 0.490) 08/25/20351 | 379 | |
626 | |||
MASTR Asset Backed Securities Trust | |||
Series 2006-HE2 Cl. A4 | |||
185 | 2.521% (1 Month USD Libor + 0.240) 06/25/20361 | 108 | |
Morgan Stanley ABS Capital I Inc. Trust | |||
Series 2006-HE8 Cl. A2FP | |||
98 | 2.351% (1 Month USD Libor + 0.070) 10/25/20361 | 60 | |
Morgan Stanley Mortgage Loan Trust | |||
Series 2006-15XS Cl. A6A | |||
111 | 5.910%—11/25/20364 | 54 | |
Mountain View CLO X Ltd.2 | |||
Series 2015-10A Cl. AR | |||
200 | 3.256% (3 Month USD Libor + 0.820) 10/13/20271,3 | 199 | |
Navient Student Loan Trust | |||
Series 2016-7A Cl. A | |||
153 | 3.437% (1 Month USD Libor + 1.150) 03/25/20661,3 | 156 | |
Octagon Investment Partners XXIII Ltd. | |||
Series 2015-A1R Cl. 1A | |||
260 | 3.286% (3 Month USD Libor + 0.855) 07/15/20271,3 | 260 | |
Saxon Asset Securities Trust | |||
Series 2003-1 Cl. AF7 | |||
60 | 4.034%—06/25/20334 | 61 | |
Soundview Home Loan Trust | |||
Series 2006-OPT2 Cl. A4 | |||
200 | 2.561% (1 Month USD Libor + 0.280) 05/25/20361 | 196 | |
TICP CLO III-2 Ltd.2 | |||
Series 2018-3R Cl. A | |||
250 | 3.309% (3 Month USD Libor + 0.840) 04/20/20281,3 | 249 | |
Venture XII CLO Ltd.2 | |||
Series 2012-12A Cl. ARP | |||
250 | 3.111% (3 Month USD Libor + 0.800) 02/28/20261,3 | 250 |
ASSET-BACKED SECURITIES—Continued | |||
Principal Amount | Value | ||
Venture XVI CLO Ltd.2 | |||
Series 2014-16A Cl. ARR | |||
$ | 400 | 3.286% (3 Month USD Libor + 0.850) 01/15/20281,3 | $ 400 |
Volt LXII LLC | |||
Series 2017-NPL9 Cl. A1 | |||
73 | 3.125%—09/25/20473,4 | 73 | |
TOTAL ASSET-BACKED SECURITIES | |||
(Cost $3,630) | 3,817 | ||
COLLATERALIZED MORTGAGE OBLIGATIONS—1.7% | |||
Alliance Bancorp Trust | |||
Series 2007 Cl. OA1 | |||
67 | 2.521% (1 Month USD Libor + 0.240) 07/25/20371 | 60 | |
Bear Stearns Adjustable Rate Mortgage Trust | |||
Series 2006-2 Cl. 3A2 | |||
21 | 4.144%—07/25/20361 | 20 | |
Series 2005-12 Cl. 23A1 | |||
43 | 4.169%—02/25/20361 | 41 | |
61 | |||
Citigroup Mortgage Loan Trust Inc. | |||
Series 2005-12 Cl. 2A1 | |||
288 | 3.016% (1 Month USD Libor + 0.800) 08/25/20351,3 | 272 | |
Countrywide Home Loan Mortgage Pass Through Trust | |||
Series 2004-HYB5 Cl. 2A1 | |||
13 | 4.307%—04/20/20351 | 13 | |
First Horizon Alternative Mortgage Securities Trust | |||
Series 2006-FA8 Cl. 1A7 | |||
10 | 6.000%—02/25/2037 | 8 | |
Lavender Trust | |||
Series 2010-RR2A Cl. A4 | |||
1,123 | 6.250%—10/26/20363 | 905 | |
Morgan Stanley Mortgage Loan Trust | |||
Series 2006-8AR Cl. 6A1 | |||
85 | 4.235%—06/25/20361 | 87 | |
Residential Asset Securitization Trust | |||
Series 2006-R1 Cl. A2 | |||
49 | 2.681% (1 Month USD Libor + 0.400) 01/25/20461 | 25 | |
Washington Mutual Mortgage Pass Through Certificates Trust | |||
Series 2003-AR9 Cl. 2A | |||
15 | 4.409%—09/25/20331 | 15 | |
TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS | |||
(Cost $1,299) | 1,446 | ||
CORPORATE BONDS & NOTES—8.2% | |||
AUTOMOBILES—0.5% | |||
Ford Motor Credit Co. LLC MTN5 | |||
EUR | 400 | 0.111% (3 Month EUR Libor + 0.430) 05/14/20211 | 441 |
BANKS—1.0% | |||
Bank of America Corp. | |||
$ | 60 | 5.875% (3 Month USD Libor + 2.931) 03/15/20281,6 | 58 |
Deutsche Bank AG/New York | |||
500 | 4.250%—10/14/2021 | 497 | |
ING Bank NV MTN5 | |||
100 | 2.625%—12/05/20223 | 97 |
66
Harbor Real Return 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 | |||
Toronto Dominion Bank | |||
$ | 200 | 2.250%—03/15/20213 | $ 195 |
847 | |||
CAPITAL MARKETS—1.3% | |||
Goldman Sachs Group Inc. | |||
500 | 3.534% (3 Month USD Libor + 1.200) 09/15/20201 | 507 | |
UBS AG | |||
300 | 2.907% (3 Month USD Libor + 0.580) 06/08/20201,3 | 301 | |
UBS AG MTN5 | |||
300 | 2.637% (3 Month USD Libor + 0.320) 12/07/20181,3 | 300 | |
1,108 | |||
CONSUMER FINANCE—1.1% | |||
Ally Financial Inc. | |||
100 | 3.500%—01/27/2019 | 100 | |
Navient Corp. MTN5 | |||
740 | 4.949% (US CPI Urban Consumers YoY + 2.250) 05/03/20191,7 | 750 | |
100 | 5.500%—01/15/2019 | 101 | |
851 | |||
951 | |||
DIVERSIFIED TELECOMMUNICATION SERVICES—0.2% | |||
AT&T Inc. | |||
100 | 3.071% (3 Month USD Libor + 0.750) 06/01/20211 | 101 | |
100 | 5.150%—02/15/20503 | 90 | |
191 | |||
ELECTRIC UTILITIES—0.2% | |||
Nextera Energy Capital Holdings Inc. | |||
160 | 2.636% (3 Month USD Libor + 0.315) 09/03/20191 | 160 | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—0.6% | |||
American Tower Corp. | |||
500 | 5.050%—09/01/2020 | 513 | |
GAS UTILITIES—0.1% | |||
Sempra Energy | |||
100 | 2.784% (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 | |
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS—0.2% | |||
Emera US Finance LP | |||
200 | 2.700%—06/15/2021 | 194 | |
INTERACTIVE MEDIA & SERVICES—0.1% | |||
eBay Inc. | |||
100 | 2.750%—01/30/2023 | 96 | |
OIL, GAS & CONSUMABLE FUELS—0.9% | |||
Dominion Energy Gas Holdings LLC | |||
100 | 2.934% (3 Month USD Libor + 0.600) 06/15/20211 | 100 | |
Enbridge Inc. | |||
100 | 2.814% (3 Month USD Libor + 0.400) 01/10/20201 | 100 | |
Petrobras Global Finance BV | |||
425 | 5.299%—01/27/2025 | 406 | |
200 | 7.375%—01/17/2027 | 207 | |
613 | |||
813 |
CORPORATE BONDS & NOTES—Continued | |||
Principal Amount | Value | ||
THRIFTS & MORTGAGE FINANCE—0.3% | |||
Nationwide Building Society MTN5 | |||
GBP | 200 | 6.875% (GBP Swap 5 Year + 4.880) 6/20/20191,6 | $ 260 |
TOBACCO—0.1% | |||
BAT Capital Corp | |||
$ | 100 | 2.909% (3 Month USD Libor + 0.590) 08/14/20201,3 | 100 |
TRADING COMPANIES & DISTRIBUTORS—1.0% | |||
AerCap Ireland Capital Ltd. | |||
300 | 4.625%—10/30/2020 | 305 | |
Aircastle Ltd. | |||
500 | 5.125%—03/15/2021 | 510 | |
815 | |||
WIRELESS TELECOMMUNICATION SERVICES—0.4% | |||
Sprint Corp. | |||
300 | 7.250%—09/15/2021 | 314 | |
TOTAL CORPORATE BONDS & NOTES | |||
(Cost $7,136) | 7,101 | ||
FOREIGN GOVERNMENT OBLIGATIONS—6.7% | |||
Argentina Bonar Bonds | |||
ARS | 418 | 37.717% (Argentina Deposit Rates Badlar Private Banks ARS 30 to 35 Days + 2.000) 04/03/20221 | 12 |
Argentina Pom Politica Monetaria | |||
3,724 | 42.819%—06/21/20208 | 125 | |
Argentina Treasury Bill | |||
2,293 | 0.000%—12/28/2018-04/30/20199 | 43 | |
Argentine Republic Government International Bond | |||
$ | 80 | 5.875%—01/11/2028 | 62 |
210 | 6.875%—01/26/2027 | 176 | |
238 | |||
Australia Government Bond | |||
AUD | 400 | 1.250%—02/21/20227 | 330 |
360 | 3.000%—09/20/20257 | 360 | |
690 | |||
Canadian Government Real Return Bond | |||
CAD | 306 | 4.250%—12/01/20267 | 296 |
Cyprus Government International Bond MTN5 | |||
EUR | 10 | 3.750%—07/26/2023 | 13 |
10 | 3.875%—05/06/2022 | 12 | |
25 | |||
Italy Buoni Poliennali del Tesoro | |||
166 | 2.350%—09/15/20243,7 | 194 | |
Italy Buoni Poliennali Del Tesoro | |||
224 | 2.100%—09/15/20217 | 263 | |
Japan Treasury Discount Bill | |||
JPY | 180,000 | 0.000%—02/04/20199 | 1,596 |
Mexican Bonos | |||
MXN | 2,386 | 7.750%—05/29/2031 | 107 |
New Zealand Government Bond | |||
NZD | 1,600 | 2.000%—09/20/20257 | 1,189 |
U.K. Gilt | |||
GBP | 120 | 1.750%—09/07/2037 | 152 |
100 | 4.250%—12/07/2027 | 160 | |
312 |
67
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
Value, Cost, and Principal Amounts in Thousands
FOREIGN GOVERNMENT OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
U.K. Gilt Inflation Linked7 | |||
GBP | 324 | 0.125%—03/22/2026-11/22/2065 | $ 587 |
41 | 0.750%—11/22/2047 | 97 | |
684 | |||
TOTAL FOREIGN GOVERNMENT OBLIGATIONS | |||
(Cost $6,237) | 5,774 | ||
MORTGAGE PASS-THROUGH—16.4% | |||
Federal Home Loan Mortgage Corp. REMIC10 | |||
$ | 160 | 2.880% (1 Month USD Libor + 0.600) 12/15/20371 | 161 |
Federal National Mortgage Association | |||
7,400 | 4.000%—12/13/2048 | 7,391 | |
Federal National Mortgage Association REMIC10 | |||
33 | 2.631% (1 Month USD Libor + 0.350) 07/25/20371 | 33 | |
55 | 2.661% (1 Month USD Libor + 0.380) 07/25/20371 | 55 | |
23 | 2.721% (1 Month USD Libor + 0.440) 05/25/20361 | 23 | |
144 | 2.961% (1 Month USD Libor + 0.680) 02/25/20411 | 147 | |
258 | |||
Federal National Mortgage Association TBA11 | |||
6,520 | 3.500%—12/13/2048 | 6,341 | |
TOTAL MORTGAGE PASS-THROUGH | |||
(Cost $14,171) | 14,151 | ||
U.S. GOVERNMENT OBLIGATIONS—111.6% | |||
U.S. Treasury Inflation Indexed Bonds7 | |||
4,551 | 0.125%—04/15/2019-07/15/202413 | 4,396 | |
3,521 | 0.250%—01/15/2025 | 3,347 | |
3,462 | 0.375%—07/15/2023-01/15/2027 | 3,320 | |
2,584 | 0.500%—01/15/2028 | 2,443 | |
13,211 | 0.625%—07/15/2021-02/15/2043 | 12,880 | |
2,073 | 0.750%—02/15/2042-02/15/2045 | 1,838 | |
1,906 | 0.875%—02/15/2047 | 1,713 | |
1,414 | 1.000%—02/15/2046-02/15/2048 | 1,312 |
U.S. GOVERNMENT OBLIGATIONS—Continued | |||
Principal Amount | Value | ||
$ | 462 | 1.250%—07/15/2020 | $ 465 |
6,924 | 1.375%—02/15/2044 | 7,032 | |
149 | 1.750%—01/15/2028 | 157 | |
12,400 | 1.875%—07/15/2019 | 12,494 | |
1,147 | 2.000%—01/15/2026 | 1,218 | |
821 | 2.125%—02/15/2040-02/15/2041 | 953 | |
34,557 | 2.375%—01/15/2025-01/15/202713 | 37,311 | |
3,587 | 2.500%—01/15/2029 | 4,054 | |
396 | 3.375%—04/15/2032 | 504 | |
492 | 3.875%—04/15/2029 | 623 | |
96,060 | |||
U.S. Treasury Notes | |||
300 | 2.750%—02/15/202413 | 297 | |
TOTAL U.S. GOVERNMENT OBLIGATIONS | |||
(Cost $101,283) | 96,357 | ||
SHORT-TERM INVESTMENTS—1.0% | |||
(Cost $844) | |||
BANKER'S ACCEPTANCES—1.0% | |||
Bank of Montreal | |||
300 | 0.000%—11/01/2018-12/03/2018 | 228 | |
HSBC Bank Canada. | |||
600 | 0.000%—11/02/2018-11/28/2018 | 455 | |
Royal Bank of Canada | |||
100 | 0.000%—11/30/2018 | 76 | |
Toronto Dominion Bank | |||
100 | 0.000%—11/05/2018 | 76 | |
835 | |||
TOTAL INVESTMENTS—150.0% | |||
(Cost $134,599) | 129,481 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(50.0)% | (43,155) | ||
TOTAL NET ASSETS—100.0% | $ 86,326 |
FUTURES CONTRACTS OPEN AT OCTOBER 31, 2018
Description | Number of Contracts | Expiration Date | Current Notional Value (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||
Australian Government Bond Futures 3 year (Short) | 5 | 12/17/2018 | AUD 557 | $ — | ||||
Australian Government Bond Futures 10 year (Short) | 2 | 12/17/2018 | 259 | — | ||||
Euro-BTP Futures (Short) | 2 | 12/06/2018 | EUR 243 | 13 | ||||
Euro-Bund Futures (Long) | 12 | 12/06/2018 | 1,923 | 11 | ||||
Euro-OAT Futures (Short) | 20 | 12/06/2018 | 3,039 | 3 | ||||
United Kingdom GILT Futures 90 day (Short) | 39 | 12/27/2018 | GBP 4,774 | (17) | ||||
Japanese Government Bond Futures 10 year (Long) | 1 | 12/13/2018 | JPY 150,630 | 4 | ||||
Eurodollar Futures-CME 90 day (Long) | 17 | 06/17/2019 | $ 4,121 | (2) | ||||
Eurodollar Futures-CME 90 day (Short) | 17 | 06/15/2020 | 4,114 | 3 | ||||
U.S. Treasury Bond Futures 30 year (Short) | 13 | 12/19/2018 | 1,796 | 87 | ||||
U.S. Treasury Note Futures 5 year (Short) | 3 | 12/31/2018 | 337 | 3 | ||||
U.S. Treasury Note Futures 10 year (Long) | 30 | 12/19/2018 | 3,553 | (32) | ||||
Ultra U.S. Treasury Bond Futures 10 year (Short) | 32 | 12/19/2018 | 4,003 | 103 | ||||
Total Futures Contracts | $176 |
68
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
WRITTEN OPTIONS OPEN AT OCTOBER 31, 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 Option (Call) | Eurex | EUR 161.00 | 11/23/2018 | 5 | $2 | $(1) | ||||||
Euro-Bund Futures Option (Call) | Eurex | 161.50 | 11/23/2018 | 2 | 1 | (1) | ||||||
Total Written Options that Require Periodic Settlement of Variation Margin | $3 | $(2) |
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 | 243.273 j | 04/22/2024 | 4,000,000 | $ 29 | $ — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Cap (Call) | JP Morgan Chase Bank NA | 244.172 j | 05/16/2024 | 300,000 | 2 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Citibank NA | 216.687 j | 04/07/2020 | 3,600,000 | 32 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | Citibank NA | 217.965 j | 09/29/2020 | 500,000 | 7 | — | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | JP Morgan Chase Bank NA | 234.812 j | 10/02/2020 | 1,000,000 | 19 | (1) | ||||||
Consumer Price All Urban Non-Seasonally Adjusted Index - Floor (Put) | JP Morgan Chase Bank NA | 238.643 j | 03/24/2020 | 1,700,000 | 19 | (1) | ||||||
Eurozone HICP Ex. Tobacco Index - Cap (Call) | Goldman Sachs Bank USA | 120.716 j | 06/22/2035 | 400,000 | 18 | (2) | ||||||
USD ICE Swap Rate Index 30 year - Floor (Call) | Morgan Stanley Capital Services LLC | 1.000 j | 01/02/2020 | 7,500,000 | 6 | (9) | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | $ 139.00 | 11/23/2018 | 2 | 3 | (1) | ||||||
U.S. Treasury Bond Option 30 year (Call) | Chicago Board of Trade | 140.00 | 11/23/2018 | 2 | 1 | (1) | ||||||
U.S. Treasury Note Option 10 year (Call) | Chicago Board of Trade | 119.25 | 11/23/2018 | 4 | 2 | (1) | ||||||
Total Written Options Not Settled Through Variation Margin | $138 | $(16) |
WRITTEN SWAP OPTIONS NOT SETTLED THROUGH VARIATION MARGIN
Description | Counterparty | Floating Rate Index | Buy/Sell Credit Protection Pay/Receive Floating Rate | Strike Rate | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||||
Credit Default Swap Option (Put) | Barclays Bank plc | Markit CDX North America Investment Grade | Sell | 1.000% | 12/19/2018 | 200,000 | $ — | $ — | ||||||||
Credit Default Swap Option (Put) | Barclays Bank plc | Markit iTraxx Europe | Sell | 1.000 | 11/21/2018 | 500,000 | 1 | — | ||||||||
Credit Default Swap Option (Put) | Barclays Bank plc | Markit CDX North America Investment Grade | Sell | 1.000 | 01/16/2019 | 200,000 | — | — | ||||||||
Credit Default Swap Option (Put) | BNP Paribas SA | Markit CDX North America Investment Grade | Sell | 1.000 | 12/19/2018 | 200,000 | — | — | ||||||||
Credit Default Swap Option (Put) | Citibank NA | Markit CDX North America Investment Grade | Sell | 1.000 | 01/16/2019 | 200,000 | — | — | ||||||||
Credit Default Swap Option (Put) | Citibank NA | Markit CDX North America Investment Grade | Sell | 1.000 | 01/16/2019 | 800,000 | 1 | (1) | ||||||||
Credit Default Swap Option (Put) | Citibank NA | Markit CDX North America Investment Grade | Sell | 1.000 | 03/20/2019 | 200,000 | — | — | ||||||||
Credit Default Swap Option (Put) | Citibank NA | Markit CDX North America Investment Grade | Sell | 1.000 | 02/20/2019 | 400,000 | 1 | (1) | ||||||||
Credit Default Swap Option (Put) | Goldman Sachs International | Markit CDX North America Investment Grade | Sell | 1.000 | 01/16/2019 | 300,000 | — | — | ||||||||
Credit Default Swap Option (Put) | Goldman Sachs International | Markit CDX North America Investment Grade | Sell | 1.000 | 12/19/2018 | 100,000 | — | — | ||||||||
Credit Default Swap Option (Put) | Morgan Stanley Capital Services LLC | Markit CDX North America Investment Grade | Sell | 1.000 | 01/16/2019 | 200,000 | — | — |
69
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
WRITTEN OPTIONS—Continued
WRITTEN SWAP OPTIONS NOT SETTLED THROUGH VARIATION MARGIN—Continued
Description | Counterparty | Floating Rate Index | Buy/Sell Credit Protection Pay/Receive Floating Rate | Strike Rate | Expiration Date | Number of Contracts/ Notional | Premiums Received (000s) | Value (000s) | ||||||||
Interest Rate Swap Option (Put) | Citibank NA | Markit iTraxx Europe | Pay | 3.250% | 12/04/2018 | 900,000 | $ 5 | $ (6) | ||||||||
Total Written Swap Options Not Settled Through Variation Margin | $ 8 | $ (8) | ||||||||||||||
Total Written Options | $149 | $(26) |
FORWARD CURRENCY CONTRACTS OPEN AT OCTOBER 31, 2018
Counterparty | Amount to be Delivered (000s) | Amount to be Received (000s) | Settlement Date | Unrealized Appreciation/ (Depreciation) (000s) | ||||
Barclays Bank plc | $ 45 | ARS 1,790 | 11/13/2018 | $ 3 | ||||
Citibank NA | $ 84 | ARS 3,084 | 11/01/2018 | 2 | ||||
Citibank NA | $ 47 | ARS 1,916 | 11/26/2018 | 5 | ||||
Citibank NA | ARS 3,084 | $ 73 | 11/01/2018 | (13) | ||||
Citibank NA | ARS 3,084 | $ 76 | 01/16/2019 | (2) | ||||
HSBC Bank USA | $ 1,160 | AUD 1,636 | 11/02/2018 | (1) | ||||
Citibank NA | AUD 1,636 | $ 1,181 | 11/02/2018 | 21 | ||||
HSBC Bank USA | AUD 1,636 | $ 1,161 | 12/04/2018 | 1 | ||||
Citibank NA | $ — | BRL 174 | 11/05/2018 | 2 | ||||
Deutsche Bank AG | $ 46 | BRL 173 | 11/05/2018 | — | ||||
Citibank NA | BRL 174 | $ 45 | 11/05/2018 | (2) | ||||
Deutsche Bank AG | BRL 173 | $ 42 | 11/05/2018 | (4) | ||||
Deutsche Bank AG | BRL — | $ — | 11/05/2018 | — | ||||
Deutsche Bank AG | BRL 173 | $ 46 | 12/04/2018 | — | ||||
BNP Paribas SA | $ 87 | GBP 68 | 11/02/2018 | — | ||||
Citibank NA | $ 163 | GBP 125 | 11/02/2018 | (3) | ||||
HSBC Bank USA | $ 273 | GBP 209 | 11/02/2018 | (6) | ||||
Société Générale | $ 1,438 | GBP 1,120 | 11/02/2018 | (7) | ||||
Citibank NA | GBP 70 | $ 244 | 11/02/2018 | 2 | ||||
JP Morgan Chase Bank NA | GBP 1,333 | $ 1,758 | 11/02/2018 | 55 | ||||
Société Générale | GBP 1,120 | $ 1,440 | 12/04/2018 | 7 | ||||
BNP Paribas SA | CAD 200 | $ 156 | 11/01/2018 | 4 | ||||
Citibank NA | CAD 100 | $ 77 | 11/02/2018 | 1 | ||||
Citibank NA | CAD 100 | $ 78 | 11/05/2018 | 2 | ||||
Citibank NA | CAD 400 | $ 306 | 11/21/2018 | 1 | ||||
Citibank NA | CAD 100 | $ 76 | 11/28/2018 | — | ||||
JP Morgan Chase Bank NA | CAD 864 | $ 675 | 11/02/2018 | 17 | ||||
JP Morgan Chase Bank NA | CAD 100 | $ 76 | 11/30/2018 | — | ||||
JP Morgan Chase Bank NA | CAD 100 | $ 76 | 12/03/2018 | — | ||||
Credit Suisse International | $ 218 | CNY 1,522 | 12/19/2018 | — | ||||
Credit Suisse International | CNY 1,522 | $ 217 | 04/15/2019 | — | ||||
HSBC Bank USA | CNY 1,522 | $ 223 | 12/19/2018 | 5 | ||||
Citibank NA | $ 149 | COP 463,234 | 12/17/2018 | (5) | ||||
BNP Paribas SA | $ 1,421 | EUR 1,248 | 11/02/2018 | (7) | ||||
Citibank NA | $ 75 | EUR 65 | 11/02/2018 | (2) | ||||
HSBC Bank USA | $ 47 | EUR 41 | 11/02/2018 | — | ||||
BNP Paribas SA | EUR 771 | $ 897 | 11/02/2018 | 23 | ||||
BNP Paribas SA | EUR 1,248 | $ 1,424 | 12/04/2018 | 7 | ||||
Citibank NA | EUR 204 | $ 234 | 11/02/2018 | 3 | ||||
HSBC Bank USA | EUR 379 | $ 435 | 11/02/2018 | 5 | ||||
Citibank NA | $ 141 | IDR 2,112,375 | 12/19/2018 | (3) | ||||
Barclays Bank plc | $ 511 | JPY 57,500 | 12/04/2018 | — | ||||
JP Morgan Chase Bank NA | $ 511 | JPY 57,500 | 11/02/2018 | (1) | ||||
Barclays Bank plc | JPY 57,500 | $ 510 | 11/02/2018 | — | ||||
JP Morgan Chase Bank NA | JPY 180,000 | $ 1,615 | 11/29/2018 | 17 | ||||
HSBC Bank USA | MXN 1,412 | $ 73 | 01/25/2019 | 4 | ||||
HSBC Bank USA | $ 1,127 | NZD 1,722 | 11/02/2018 | (2) | ||||
HSBC Bank USA | NZD 1,722 | $ 1,146 | 11/02/2018 | 22 | ||||
HSBC Bank USA | NZD 1,722 | $ 1,127 | 12/04/2018 | 2 | ||||
Société Générale | $ 179 | RUB 11,860 | 01/30/2019 | — | ||||
UBS AG | $ 185 | RUB 11,860 | 11/15/2018 | (5) | ||||
Société Générale | RUB 11,860 | $ 180 | 11/15/2018 | — |
70
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) | ||||
Credit Suisse International | SGD 123 | $ 90 | 12/19/2018 | $ 1 | ||||
BNP Paribas SA | KRW 213,345 | $ 191 | 12/19/2018 | 4 | ||||
BNP Paribas SA | TWD 2,737 | $ 90 | 12/19/2018 | 1 | ||||
Total Forward Currency Contracts | $154 |
INTEREST RATE SWAP AGREEMENTS OPEN AT OCTOBER 31, 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 | Eurostat Eurozone HICP Ex Tobacco NSA | Pay | 1.535% | At maturity | 06/15/2023 | EUR 760 | $ — | $ — | $ — | |||||||||
LCH Group | Eurostat Eurozone HICP Ex Tobacco NSA | Pay | 1.620 | At maturity | 05/15/2028 | 350 | 2 | — | 2 | |||||||||
LCH Group | French Consumer Price Index Ex Tobacco Index | Receive | 1.160 | At maturity | 08/15/2020 | 20 | — | — | — | |||||||||
LCH Group | French Consumer Price Index Ex Tobacco Index | Receive | 1.345 | At maturity | 06/15/2021 | 200 | — | — | — | |||||||||
LCH Group | French Consumer Price Index Ex Tobacco Index | Pay | 1.575 | At maturity | 01/15/2028 | 160 | 1 | — | 1 | |||||||||
LCH Group | French Consumer Price Index Ex Tobacco Index | Pay | 1.590 | At maturity | 02/15/2028 | 440 | 3 | — | 3 | |||||||||
LCH Group | French Consumer Price Index Ex Tobacco Index | Pay | 1.606 | At maturity | 02/15/2028 | 70 | 1 | — | 1 | |||||||||
LCH Group | French Consumer Price Index Ex Tobacco Index | Pay | 1.621 | At maturity | 07/15/2028 | 550 | 5 | — | 5 | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.500 | Semi-annual | 03/20/2029 | GBP 360 | 6 | 6 | — | |||||||||
LCH Group | British Bankers' Association LIBOR GBP 6-Month | Receive | 1.750 | Semi-annual | 03/20/2049 | 270 | (3) | (2) | (1) | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 2.753 | Quarterly | 03/20/2019 | 18,000 | — | — | — | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.513 | At maturity | 09/15/2028 | 200 | (1) | — | (1) | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.350 | At maturity | 05/15/2030 | 610 | (7) | (7) | — | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.400 | At maturity | 06/15/2030 | 600 | (2) | 9 | (11) | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.100 | At maturity | 06/15/2031 | 300 | (36) | (36) | — | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.470 | At maturity | 09/15/2032 | 1,290 | (33) | 1 | (34) | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 2.500 | At maturity | 09/15/2033 | 40 | (1) | — | (1) | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.579 | At maturity | 10/15/2033 | 20 | — | — | — | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Pay | 3.358 | At maturity | 04/15/2035 | 200 | (7) | (4) | (3) | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Receive | 3.585 | At maturity | 10/15/2046 | 240 | — | (15) | 15 | |||||||||
LCH Group | UK Retail Prices Index All Items NSA | Receive | 3.428 | At maturity | 03/15/2047 | 370 | 44 | 22 | 22 | |||||||||
CME Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 1.000 | Semi-annual | 09/18/2023 | JPY 40,000 | (16) | (16) | — | |||||||||
LCH Group | British Bankers' Association LIBOR JPY 6-Month | Receive | 0.300 | Semi-annual | 03/20/2028 | 10,000 | — | — | — |
71
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 JPY 6-Month | Receive | 0.450% | Semi-annual | 03/20/2029 | JPY 230,000 | $ (16) | $(13) | $ (3) | |||||||||
CME Group | New Zealand 90 Day Bank Bill Futures Rate Agreement | Receive | 3.250 | Semi-annual | 03/21/2028 | NZD 600 | (16) | 2 | (18) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 1.750 | Semi-annual | 06/20/2020 | $ 4,700 | 79 | 88 | (9) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.250 | Semi-annual | 12/20/2022 | 3,100 | (89) | 4 | (93) | |||||||||
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 | (22) | — | (22) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.670 | Semi-annual | 11/19/2023 | 1,000 | (23) | — | (23) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.681 | Semi-annual | 12/12/2023 | 1,000 | (22) | — | (22) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Pay | 2.500 | Semi-annual | 12/19/2023 | 800 | (25) | (7) | (18) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.400 | Semi-annual | 03/16/2026 | 700 | 26 | 1 | 25 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.300 | Semi-annual | 04/21/2026 | 1,700 | 69 | (10) | 79 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.300 | Semi-annual | 04/27/2026 | 2,000 | 82 | (7) | 89 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 1.850 | Semi-annual | 07/27/2026 | 600 | 36 | (2) | 38 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.000 | Semi-annual | 07/27/2026 | 3,500 | 188 | 54 | 134 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.400 | Semi-annual | 12/07/2026 | 100 | 4 | 1 | 3 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 3.100 | Semi-annual | 04/17/2028 | 2,010 | 20 | (6) | 26 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.765 | Semi-annual | 07/18/2028 | 1,350 | 45 | 16 | 29 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 3.134 | Semi-annual | 09/13/2028 | 1,900 | 18 | — | 18 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.750 | Semi-annual | 12/20/2047 | 70 | 7 | 3 | 4 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.500 | Semi-annual | 06/20/2048 | 90 | 14 | 11 | 3 | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.951 | Semi-annual | 11/19/2048 | 100 | 7 | — | 7 |
72
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) | |||||||||
CME Group | British Bankers' Association LIBOR USD 3-Month | Receive | 3.000% | Semi-annual | 12/19/2048 | $ 400 | $ 26 | $ 24 | $ 2 | |||||||||
LCH Group | British Bankers' Association LIBOR USD 3-Month | Receive | 2.250 | Semi-annual | 06/20/2028 | 1,330 | 100 | 73 | 27 | |||||||||
LCH Group | Federal Funds Effective Rate US | Receive | 2.390 | Annual | 03/20/2019 | 18,000 | — | — | — | |||||||||
LCH Group | Federal Funds Effective Rate US | Receive | 2.000 | Annual | 12/15/2047 | 300 | 53 | (1) | 54 | |||||||||
LCH Group | Federal Funds Effective Rate US | Receive | 2.428 | Annual | 12/20/2047 | 100 | 9 | — | 9 | |||||||||
LCH Group | Federal Funds Effective Rate US | Receive | 2.478 | Annual | 12/20/2047 | 223 | 19 | 1 | 18 | |||||||||
LCH Group | Federal Funds Effective Rate US | Receive | 2.499 | Annual | 12/20/2047 | 60 | 5 | — | 5 | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Receive | 2.027 | At maturity | 11/23/2020 | 500 | 3 | — | 3 | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Receive | 2.021 | At maturity | 11/25/2020 | 400 | 3 | — | 3 | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Receive | 1.550 | At maturity | 07/26/2021 | 300 | 9 | 10 | (1) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Receive | 1.603 | At maturity | 09/12/2021 | 310 | 9 | 10 | (1) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 1.730 | At maturity | 07/26/2026 | 300 | (15) | (17) | 2 | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 1.800 | At maturity | 09/12/2026 | 200 | (8) | (2) | (6) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 1.801 | At maturity | 09/12/2026 | 310 | (13) | (15) | 2 | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 1.805 | At maturity | 09/12/2026 | 200 | (8) | (9) | 1 | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 1.780 | At maturity | 09/15/2026 | 200 | (9) | (10) | 1 | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 2.180 | At maturity | 09/20/2027 | 170 | (2) | — | (2) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 2.150 | At maturity | 09/25/2027 | 200 | (3) | — | (3) | |||||||||
LCH Group | US Consumer Price Index Urban Consumers NSA | Pay | 2.156 | At maturity | 10/17/2027 | 400 | (6) | — | (6) | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Receive | 2.069 | At maturity | 07/15/2022 | 200 | 2 | — | 2 | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Receive | 2.210 | At maturity | 02/05/2023 | 950 | (1) | — | (1) | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Receive | 2.263 | At maturity | 04/27/2023 | 270 | (2) | — | (2) | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Receive | 2.263 | At maturity | 05/09/2023 | 140 | (1) | — | (1) | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Receive | 2.281 | At maturity | 05/10/2023 | 220 | (2) | — | (2) | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Pay | 2.335 | At maturity | 02/05/2028 | 480 | 3 | 1 | 2 | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Pay | 2.353 | At maturity | 05/09/2028 | 140 | 1 | — | 1 | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Pay | 2.360 | At maturity | 05/09/2028 | 210 | 2 | — | 2 | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Pay | 2.364 | At maturity | 05/10/2028 | 220 | 2 | — | 2 | |||||||||
LCH Group | US Consumers Price Index Urban Consumers NSA | Pay | 2.370 | At maturity | 06/06/2028 | 200 | 2 | — | 2 | |||||||||
Centrally Cleared Interest Rate Swaps | $355 |
73
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
INTEREST RATE SWAP AGREEMENTS—Continued
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 | $(25) | $ 7 | $ (32) | |||||||||
Morgan Stanley Capital Services LLC | US Consumer Price Index Urban Consumers NSA | Pay | 1.788 | At maturity | 07/18/2026 | 1,100 | (48) | — | (48) | |||||||||
Morgan Stanley Capital Services LLC | US Consumer Price Index Urban Consumers NSA | Pay | 1.000 | At maturity | 07/20/2026 | 1,200 | (51) | — | (51) | |||||||||
Morgan Stanley Capital Services LLC | US Consumer Price Index Urban Consumers NSA | Pay | 1.805 | At maturity | 09/20/2026 | 100 | (4) | — | (4) | |||||||||
Over-the-Counter Interest Rate Swaps | (135) | |||||||||||||||||
Interest Rate Swaps | $ 220 |
CREDIT DEFAULT SWAP AGREEMENTS OPEN AT OCTOBER 31, 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 Amount (000s)e | Value (000s)f | 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 | 0.342% | Quarterly | EUR 30 | $ 1 | $ 1 | $— | ||||||||||
ICE Group | iTraxx Europe Series 28 Version 1 0.001% | Buy | 1.000 | 12/20/2022 | 0.543 | Quarterly | EUR 1,500 | (34) | (42) | 8 | ||||||||||
ICE Group | Markit iTraxx Europe Indices Series 26 Version 1 | Buy | 1.000 | 12/20/2021 | 0.373 | Quarterly | EUR 500 | (12) | (8) | (4) | ||||||||||
ICE Group | Markit CDX North American High Yield Index Series 31 0.001% | Buy | 5.000 | 12/20/2023 | 3.748 | Quarterly | $ 100 | (6) | (7) | 1 | ||||||||||
Centrally Cleared Credit Default Swaps | $ 5 |
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 Amount (000s)e | Value (000s)f | Upfront Premiums (Received)/Paid (000s) | Unrealized Appreciation/ (Depreciation) (000s) | ||||||||||
Goldman Sachs International | Markit CMBX North America AAA Indices 0.001% | Sell | 0.500% | 10/17/2057 | 0.000% | Monthly | $ 100 | $ 1 | $(4) | $ 5 | ||||||||||
Goldman Sachs International | Markit CMBX North America AAA Indices 0.001% | Sell | 0.500 | 09/17/2058 | 0.000 | Monthly | 100 | — | (7) | 7 | ||||||||||
Over-the-Counter Credit Default Swaps | 12 | |||||||||||||||||||
Credit Default Swaps | $ 17 | |||||||||||||||||||
Total Swaps | $237 |
74
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
FIXED INCOME INVESTMENTS SOLD SHORT AT OCTOBER 31, 2018 — (4.4)%
Principal Amount (000s) | Security | Proceeds (000s) | Value (000s) | |||
$ 4,000 | Federal National Mortgage Association TBA11 3.000%—11/13/2048-12/13/2048 | $3,796 | $(3,790) |
REVERSE REPURCHASE AGREEMENTS AT OCTOBER 31, 2018 — (26.8)%
Counterparty | Borrowing Rate | Borrowing Date | Maturity Date | Proceeds (000s) | Value (000s) | |||||
Royal Bank of Canada | 2.330 - 2.470% | 10/15/2018 - 10/19/2018 | 11/16/2018 - 01/22/2019 | $ 9,471 | $ (9,471) | |||||
Royal Bank of Scotland | 2.200% | 08/09/2018 | 11/13/2018 | 13,703 | (13,703) | |||||
Total Reverse Repurchase Agreements | $23,174 | $(23,174) |
SALE-BUYBACK TRANSACTIONS AT OCTOBER 31, 2018 — (5.7)%
Counterparty | Borrowing Rate | Borrowing Date | Maturity Date | Proceeds (000s) | Value (000s) | |||||
Barclays Capital Inc. | 1.875% | 10/29/2018 - 10/31/2018 | 11/02/2018 - 11/06/2018 | $3,098 | $(3,114) | |||||
BNP Paribas | 1.875% | 10/25/2018 | 11/01/2018 | 1,787 | (1,797) | |||||
Total Sale-Buyback Transactions | $ 4,885 | $ (4,911) |
FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of October 31, 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 | $ — | $ 3,817 | $— | $ 3,817 | ||||
Collateralized Mortgage Obligations | — | 1,446 | — | 1,446 | ||||
Corporate Bonds & Notes | — | 7,101 | — | 7,101 | ||||
Foreign Government Obligations | — | 5,774 | — | 5,774 | ||||
Mortgage Pass-Through | — | 14,151 | — | 14,151 | ||||
U.S. Government Obligations | — | 96,357 | — | 96,357 | ||||
Short-Term Investments | ||||||||
Banker’s Acceptances | — | 835 | — | 835 | ||||
Total Investments in Securities | $ — | $129,481 | $— | $129,481 | ||||
Financial Derivative Instruments - Assets | ||||||||
Forward Currency Contracts | $ — | $ 217 | $— | $ 217 | ||||
Futures Contracts | 227 | — | — | 227 | ||||
Swap Agreements | — | 663 | — | 663 | ||||
Total Financial Derivative Instruments - Assets | $227 | $ 880 | $— | $ 1,107 | ||||
Liability Category | ||||||||
Fixed Income Investments Sold Short | $ — | $ (3,790) | $— | $ (3,790) | ||||
Reverse Repurchase Agreements | — | (23,174) | — | (23,174) | ||||
Sale-Buyback Transactions | — | (4,911) | (4,911) | |||||
Total Investments Sold Short and Secured Borrowings | $ — | $ (31,875) | $— | $ (31,875) | ||||
Financial Derivative Instruments - Liabilities | ||||||||
Forward Currency Contracts | $ — | $ (63) | $— | $ (63) | ||||
Futures Contracts | (51) | — | — | (51) | ||||
Swap Agreements | — | (426) | — | (426) | ||||
Written Options | (5) | (21) | — | (26) | ||||
Total Financial Derivative Instruments - Liabilities | $ (56) | $ (510) | $— | $ (566) | ||||
Total Investments | $171 | $ 97,976 | $— | $ 98,147 |
There were no Level 3 holdings at October 31, 2018 or 2017.
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.
75
Harbor Real Return Fund
Portfolio of Investments—Continued
Portfolio of Investments—Continued
REMAINING CONTRACTUAL MATURITY OF TRANSFERS ACCOUNTED FOR AS SECURED BORROWINGS
The following is a summary of the remaining contractual maturities of transfers accounted for as secured borrowings, by collateral type, as of October 31, 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 | $ — | $22,877 | $297 | $— | $23,174 | ||||
Sale-Buyback Transactions | |||||||||
U.S. Treasury Obligations | $1,797 | $ 3,114 | $ — | $— | $ 4,911 | ||||
Total Secured Borrowings | $1,797 | $25,991 | $297 | $— | $28,085 |
76
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 October 31, 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 October 31, 2018, the aggregate value of these securities was $4,891 or 6% of net assets. |
4 | Step coupon security, the stated rate represents the rate in effect at October 31, 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 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 October 31, 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 October 31, 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 | CMT denotes Constant Maturity Treasury. |
13 | At October 31, 2018, a portion of securities held by the Fund were pledged as collateral for exchange traded and centrally cleared derivatives, over-the-counter (OTC) derivatives, forward commitments, and secured borrowings (see Note 2 of the accompanying Notes to Financial Statements). The securities had an aggregate value of $26,152 or 30% 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 |
ARS | Argentine Peso |
AUD | Australian Dollar |
BRL | Brazilian Real |
CNY | Chinese Yuan Renminbi |
GBP | British Pound |
CAD | Canadian Dollar |
COP | Colombian Peso |
EUR | Euro |
IDR | Indonesian Rupiah |
JPY | Japanese Yen |
KRW | South Korean Won |
MXN | Mexican Peso |
NZD | New Zealand Dollar |
RUB | Russian Ruble |
SGD | Singapore Dollar |
TWD | Taiwan Dollar |
The accompanying notes are an integral part of the Financial Statements.
77
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
Growth diverged across advanced economies in the twelve months ended October 31, 2018 despite advances in some economies. The U.S. economy expanded at an above trend pace while European growth decelerated albeit from a strong pace in the prior year. Japan experienced a more stable growth trajectory with declining deflationary pressures. The shift in growth trends was a troubling sign for major central banks as they looked to unwind post crisis-era stimulus measures. The U.S. Federal Reserve (Fed), which has led the global policy normalization during this cycle, added four quarterly tightening steps during the year. Volatility increased as markets attempted to predict the cycle terminal rate of monetary policy. Currently, markets expect the next increase in short term interest rates to occur in December 2018 followed by three additional increases in 2019. Fed Chair Jerome Powell continued to assert that the U.S. economy is strong and that a gradual pace of monetary policy tightening is warranted. Short-term U.S. Treasury Note yields climbed during the fiscal year as markets discounted the path of Fed policy. 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 year while remaining anchored to monetary policy rates. Short term interest rates are now competitive with longer term inflation expectations, providing increased purchasing power preservation for risk averse investors.
PerformancE
During this rising interest rate environment, Harbor Money Market Fund returned 1.44% (Institutional Class) and 1.36% (Administrative Classes) for the 12-month period ended October 31, 2018. The Fund lagged the return of the Fund’s benchmark, the ICE BofAML U.S. 3-Month Treasury Bill Index, which returned 1.68%. The duration of the portfolio, a measure of its sensitivity to changes in interest rates, was maintained at approximately 42 days with some variability throughout the 12-month period.
78
Harbor Money Market Fund
Manager’s Commentary—Continued
Manager’s Commentary—Continued
TOTAL RETURNS
For the periods ended 10/31/2018
1 Year | Annualized | |||||||
5 Years | 10 Years | |||||||
Harbor Money Market Fund | ||||||||
Institutional Class | 1.44% | 0.52% | 0.34% | |||||
Administrative Class | 1.36 | 0.51 | 0.33 | |||||
Comparative Index | ||||||||
ICE BofAML U.S. 3-Month Treasury Bill | 1.68% | 0.55% | 0.35% |
Current 7-day subsidizeda SEC yield for period ended 10/31/2018: | Institutional Class: 1.91% | Administrative Class: 1.66% |
Current 7-day unsubsidizedb SEC yield for period ended 10/31/2018: | Institutional Class: 1.72% | Administrative Class: 1.47% |
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 restrictive in 2019 as interest rates continue to normalize. We believe that the decline in monetary stimulus will be partially offset by fiscal policy as the Fed measures become contractionary. We expect that real, or inflation-adjusted, economic growth in the U.S. will average approximately 2.7% 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 business investment will increase providing additional support for domestic growth.
The Fed’s policy stance will depend on the evolution of global financial conditions. In our opinion, the Fed will likely continue on the gradual path of policy normalization with the target Fed Funds rate serving as the primary metric. We expect the next tightening to occur late in December 2018 followed by three additional steps in the following calendar year. 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 the reverse repurchase agreement facility; however, the Fed may need to end balance sheet reduction earlier than scheduled as balance sheet assets approach currency in circulation. We believe that the Fund will continue to benefit from policy tightening as money market yields increase steadily while incorporating future expectations for the path of monetary policy.
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.
79
Harbor Money Market Fund
Fund Summary—October 31, 2018 (Unaudited)
Fund Summary—October 31, 2018 (Unaudited)
TOP Issuers (% of net assets)
❶ | U.S. Treasury | 48.2% |
❷ | Federal Home Loan Bank | 32.0% |
❸ | Federal Home Loan Mortgage Corp. | 11.2% |
❹ | Federal National Mortgage Association | 8.7% |
Total Investments (% of net assets)
(Excludes net cash of -0.1%)
80
Harbor Money Market Fund
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value, Cost, and Principal Amounts in Thousands
GOVERNMENT AGENCY DEBT—52.1%† | |||
Principal Amount | Value | ||
Federal Home Loan Bank Discount Notes | |||
$ | 6,100 | 2.087%—11/23/2018 | $ 6,092 |
5,002 | 2.090%—11/21/2018 | 4,996 | |
5,000 | 2.105%—11/30/2018 | 4,992 | |
6,000 | 2.127%—11/16/2018 | 5,995 | |
3,950 | 2.140%—12/05/2018 | 3,942 | |
5,150 | 2.154%—12/04/2018 | 5,140 | |
4,100 | 2.193%—12/19/2018 | 4,088 | |
3,450 | 2.275%—01/11/2019 | 3,435 | |
3,600 | 2.295%—01/25/2019 | 3,580 | |
42,260 | |||
Federal Home Loan Mortgage Corp. Discount Notes | |||
6,000 | 2.090%—11/20/2018 | 5,993 | |
2,500 | 2.190%—12/21/2018 | 2,492 | |
3,350 | 2.265%—01/22/2019 | 3,333 | |
3,078 | 2.280%—01/18/2019 | 3,063 | |
14,881 | |||
Federal National Mortgage Association Discount Notes | |||
4,000 | 2.140%—12/03/2018 | 3,993 | |
3,200 | 2.166%—12/17/2018 | 3,191 | |
4,350 | 2.170%—12/24/2018 | 4,336 | |
11,520 | |||
TOTAL GOVERNMENT AGENCY DEBT | |||
(Cost $68,661) | 68,661 | ||
TREASURY DEBT—48.0%† | |||
Principal Amount | Value | ||
U.S. Treasury Bills | |||
$ | 2,000 | 2.109%—11/15/2018 | $ 1,998 |
5,000 | 2.118%—12/06/2018 | 4,990 | |
8,200 | 2.121%—12/13/2018 | 8,180 | |
10,000 | 2.146%—12/20/2018 | 9,971 | |
5,000 | 2.181%—12/27/2018 | 4,983 | |
10,600 | 2.197%—01/03/2019 | 10,559 | |
6,190 | 2.229%—01/10/2019 | 6,163 | |
11,600 | 2.256%—01/17/2019 | 11,544 | |
5,000 | 2.282%—01/31/2019 | 4,971 | |
TOTAL TREASURY DEBT | |||
(Cost $63,359) | 63,359 | ||
TOTAL INVESTMENTS—100.1% | |||
(Cost $132,020) | 132,020 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—(0.1)% | (108) | ||
TOTAL NET ASSETS—100.0% | $131,912 |
FAIR VALUE MEASUREMENTS
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 2. There were no Level 3 investments at October 31, 2018 or 2017.
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.
† | Coupon represents yield to maturity. |
The accompanying notes are an integral part of the Financial Statements.
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82
Harbor Fixed Income Funds
StatementS of Assets and Liabilities—October 31, 2018
StatementS of Assets and Liabilities—October 31, 2018
(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 Core Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | |
ASSETS | |||||||
Investments, at identified cost | $118,770 | $809,296 | $71,528 | $3,476,004 | $55,617 | $134,599 | $132,020 |
Investments, at value | $117,211 | $788,582 | $68,912 | $3,417,957 | $54,785 | $129,481 | $132,020 |
Due from broker | — | — | — | 2,060 | — | 520 | — |
Cash | 3,186 | 4,224 | 1,676 | 5,598 | 1,124 | 635 | 156 |
Foreign currency, at value (cost: $0,$0,$0,$7,453,$0,$229 and $0) | — | — | — | 7,479 | — | 223 | — |
Receivables for: | |||||||
Investments sold | 814 | 10,374 | 100 | 1,747,299 | — | 38,109 | — |
Foreign currency spot contracts | — | — | — | 1,321 | — | — | — |
Capital shares sold | 160 | 223 | 1 | 713 | — | 9 | 125 |
Interest | 418 | 12,320 | 1,175 | 14,636 | 366 | 508 | — |
Unrealized appreciation on open forward currency contracts | — | — | — | 16,194 | — | 217 | — |
Unrealized appreciation on OTC swap agreements | — | — | — | 375 | — | 12 | — |
Variation margin on options and futures contracts | — | — | — | 2,198 | — | 100 | — |
Variation margin on centrally cleared swap agreements | — | — | — | 2,098 | — | 117 | — |
Purchased options not settled through variation margin, at value (cost: $0,$0,$0,$156,$0,$0 and $0) | — | — | — | 185 | — | — | — |
Options sold | — | — | — | 404 | — | 23 | — |
Withholding tax | — | 6 | 6 | — | — | — | — |
Prepaid registration fees | 1 | 27 | 33 | 17 | — | 20 | 13 |
Other assets | 18 | 133 | 20 | 523 | — | 2 | 18 |
Total Assets | 121,808 | 815,889 | 71,923 | 5,219,057 | 56,275 | 169,976 | 132,332 |
LIABILITIES | |||||||
Payables for: | |||||||
Due to broker | — | — | — | 11,837 | — | 4,499 | — |
Investments purchased | 932 | 6,405 | 150 | 2,840,486 | 925 | 46,823 | — |
Capital shares reacquired | 15 | 2,120 | — | 2,175 | — | 53 | 355 |
Interest on reverse repurchase agreements | — | — | — | 585 | — | 79 | — |
Investments sold short, at value (proceeds: $0,$0,$0,$9,653,$0,$3,796 and $0) | — | — | — | 9,665 | — | 3,790 | — |
Written options not settled through variation margin, at value (premiums received: $0,$0,$0,$1,943,$0,$146 and $0) | — | — | — | 941 | — | 24 | — |
Swap premiums received on OTC swap agreements | — | — | — | 430 | — | 4 | — |
Unrealized depreciation on OTC swap agreements | — | — | — | — | — | 135 | — |
Reverse repurchase agreements | — | — | — | 367,214 | — | 23,174 | — |
Sale-buyback financing transactions | — | — | — | 38,498 | — | 4,911 | — |
Variation margin on options and futures contracts | — | — | — | — | — | 17 | — |
Unrealized depreciation on open forward currency contracts | — | — | — | 7,972 | — | 63 | — |
Accrued expenses: | |||||||
Management fees | 62 | 367 | 37 | 754 | 16 | 36 | 21 |
12b-1 fees | 1 | 7 | — | 7 | — | — | 1 |
Transfer agent fees | 7 | 42 | 5 | 132 | 3 | 6 | 9 |
Trustees' fees and expenses | 19 | 139 | 1 | 440 | 1 | 20 | 12 |
Other | 22 | 55 | 16 | 209 | 20 | 16 | 22 |
Total Liabilities | 1,058 | 9,135 | 209 | 3,281,345 | 965 | 83,650 | 420 |
NET ASSETS | $120,750 | $806,754 | $71,714 | $1,937,712 | $55,310 | $ 86,326 | $131,912 |
Net Assets Consist of: | |||||||
Paid-in capital | $116,248 | $891,323 | $75,001 | $2,072,392 | $56,193 | $122,022 | $131,878 |
Total distributable earnings/(loss) | 4,502 | (84,569) | (3,287) | (134,680) | (883) | (35,696) | 34 |
$120,750 | $806,754 | $71,714 | $1,937,712 | $55,310 | $ 86,326 | $131,912 | |
The accompanying notes are an integral part of the Financial Statements.
83
Harbor Convertible Securities Fund | Harbor High-Yield Bond Fund | Harbor High-Yield Opportunities Fund | Harbor Bond Fund | Harbor Core Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | ||||||||
NET ASSET VALUE PER SHARE BY CLASS | ||||||||||||||
Institutional Class | ||||||||||||||
Net assets | $93,424 | $470,204 | $71,361 | $1,899,680 | $52,249 | $85,316 | $129,826 | |||||||
Shares of beneficial interest1 | 8,919 | 48,558 | 7,485 | 171,189 | 5,309 | 9,611 | 129,826 | |||||||
Net asset value per share2 | $ 10.48 | $ 9.68 | $ 9.53 | $ 11.10 | $ 9.84 | $ 8.88 | $ 1.00 | |||||||
Retirement Class | ||||||||||||||
Net assets | $25,412 | $303,627 | $ 250 | $ 6,921 | $ 3,061 | $ 322 | N/A | |||||||
Shares of beneficial interest1 | 2,427 | 31,346 | 26 | 624 | 311 | 36 | N/A | |||||||
Net asset value per share2 | $ 10.47 | $ 9.69 | $ 9.53 | $ 11.09 | $ 9.84 | $ 8.87 | N/A | |||||||
Administrative Class | ||||||||||||||
Net assets | $ 53 | $ 1,374 | $ 50 | $ 31,111 | N/A | $ 688 | $ 2,086 | |||||||
Shares of beneficial interest1 | 5 | 141 | 5 | 2,801 | N/A | 77 | 2,086 | |||||||
Net asset value per share2 | $ 10.44 | $ 9.71 | $ 9.53 | $ 11.11 | N/A | $ 8.88 | $ 1.00 | |||||||
Investor Class | ||||||||||||||
Net assets | $ 1,861 | $ 31,549 | $ 53 | N/A | N/A | N/A | N/A | |||||||
Shares of beneficial interest1 | 178 | 3,250 | 6 | N/A | N/A | N/A | N/A | |||||||
Net asset value per share2 | $ 10.45 | $ 9.71 | $ 9.53 | N/A | N/A | N/A | N/A |
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. |
84
Harbor Fixed Income Funds
StatementS of Operations—Year Ended October 31, 2018
StatementS of Operations—Year Ended October 31, 2018
(All amounts in thousands)
Harbor Convertible Securities Fund | Harbor High-Yield Bond Fund | Harbor High-Yield Opportunities Fund | Harbor Bond Fund | Harbor Core Bond Funda | Harbor Real Return Fund | Harbor Money Market Fund | |
Investment Income | |||||||
Interest | $ 1,928 | $ 64,391 | $ 3,990 | $ 77,960 | $ 747 | $ 3,983 | $2,320 |
Consent fee income | — | 300 | 15 | 271 | — | — | |
Foreign taxes withheld | — | — | — | (8) | — | — | — |
Total Investment Income | 1,928 | 64,691 | 4,005 | 78,223 | 747 | 3,983 | 2,320 |
Operating Expenses | |||||||
Management fees | 762 | 6,422 | 411 | 10,062 | 77 | 453 | 285 |
12b-1 fees: | |||||||
Administrative Class | 1 | 4 | — | 75 | N/A | 3 | 6 |
Investor Class | 6 | 87 | — | N/A | N/A | N/A | N/A |
Shareholder communications | — | — | 7 | 122 | 1 | 15 | 7 |
Custodian fees | 17 | 43 | 14 | 363 | 7 | 70 | 22 |
Transfer agent fees: | |||||||
Institutional Class | 80 | 737 | 61 | 1,857 | 19 | 84 | 126 |
Retirement Class | 3 | 21 | — | — | — | — | N/A |
Administrative Class | — | 1 | — | 27 | N/A | 1 | 2 |
Investor Class | 5 | 73 | — | N/A | N/A | N/A | N/A |
Professional fees | 6 | 35 | 105 | 74 | 38 | 3 | 8 |
Trustees' fees and expenses | 3 | 32 | 2 | 67 | 1 | 3 | 4 |
Registration fees | 59 | 66 | 74 | 75 | 43 | 49 | 41 |
Miscellaneous | 8 | 21 | 9 | 27 | 5 | 6 | 7 |
Expenses before interest expense | 950 | 7,542 | 683 | 12,749 | 191 | 687 | 508 |
Interest expense | — | — | — | 6,153 | — | 595 | — |
Total expenses | 950 | 7,542 | 683 | 18,902 | 191 | 1,282 | 508 |
Management fees waived | (59) | (759) | — | (548) | — | — | (79) |
Transfer agent fees waived | (7) | (69) | (6) | (166) | (2) | (8) | (58) |
12b-1 fees waived | — | — | — | — | — | — | (4) |
Other expenses reimbursed | — | — | (178) | (1,270) | (88) | (179) | (75) |
Custodian fees reductions | — | (2) | — | (1) | — | — | (1) |
Net expenses | 884 | 6,712 | 499 | 16,917 | 101 | 1,095 | 291 |
Net Investment Income/(Loss) | 1,044 | 57,979 | 3,506 | 61,306 | 646 | 2,888 | 2,029 |
Realized and Change in Net Unrealized Gain/(Loss) on Investment Transactions | |||||||
Net realized gain/(loss) on: | |||||||
Investments | 7,491 | 7,393 | (1,192) | (44,624) | (228) | (1,093) | — |
Foreign currency transactions | — | — | — | 10,715 | — | 475 | — |
Investments sold short | — | — | — | 155 | — | 101 | — |
Swap agreements | — | — | — | 13,756 | — | 466 | — |
Futures contracts | — | — | — | (20,303) | — | 248 | — |
Purchased options | — | — | — | (43) | — | (35) | — |
Written options | — | — | — | 4,883 | — | 149 | — |
Change in net unrealized appreciation/(depreciation) on: | |||||||
Investments | (5,744) | (61,944) | (2,616) | (68,270) | (832) | (4,551) | — |
Forwards currency contracts | — | — | — | (1,097) | — | (15) | — |
Investments sold short | — | — | — | (59) | — | 3 | — |
Swap agreements | — | — | — | 371 | — | 2 | — |
Futures contracts | — | — | — | 8,086 | — | (5) | — |
Purchased options | — | — | — | 2,221 | — | 34 | — |
Written options | — | — | — | (2,919) | — | (27) | — |
Translations of assets and liabilities in foreign currencies | — | — | — | 1,238 | — | (2) | — |
Net gain/(loss) on investment transactions | 1,747 | (54,551) | (3,808) | (95,890) | (1,060) | (4,250) | — |
Net Increase/(Decrease) in Net Assets Resulting from Operations | $ 2,791 | $ 3,428 | $ (302) | $(34,584) | $ (414) | $(1,362) | $2,029 |
a | For the period June 1, 2018 (inception) through October 31, 2018 |
The accompanying notes are an integral part of the Financial Statements.
85
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86
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017b through October 31, 2018 | |||
INCREASE/(DECREASE) IN NET ASSETS | |||||||
Operations: | |||||||
Net investment income/(loss) | $ 1,044 | $ 3,756 | $ 57,979 | $ 91,178 | $ 3,506 | ||
Net realized gain/(loss) on investments | 7,491 | 26,914 | 7,393 | 31,901 | (1,192) | ||
Change in net unrealized appreciation/(depreciation) of investments | (5,744) | (3,408) | (61,944) | 8,088 | (2,616) | ||
Net increase/(decrease) in assets resulting from operations | 2,791 | 27,262 | 3,428 | 131,167 | (302) | ||
Distributions to Shareholdersa | |||||||
Institutional Class | (8,137) | — | (47,842) | — | (2,970) | ||
Retirement Class | (2,467) | — | (11,614) | — | (9) | ||
Administrative Class | (37) | — | (86) | — | (2) | ||
Investor Class | (187) | — | (1,869) | — | (2) | ||
Net investment income: | |||||||
Institutional Class | N/A | (5,060) | N/A | (88,164) | N/A | ||
Retirement Class | N/A | (173) | N/A | (1,550) | N/A | ||
Administrative Class | N/A | (5) | N/A | (210) | N/A | ||
Investor Class | N/A | (30) | N/A | (3,528) | N/A | ||
Net realized gain on investments: | |||||||
Institutional Class | N/A | — | N/A | — | N/A | ||
Retirement Class | N/A | — | N/A | — | N/A | ||
Administrative Class | N/A | — | N/A | — | N/A | ||
Investor Class | N/A | — | N/A | — | N/A | ||
Total distributions to shareholders | (10,828) | (5,268) | (61,411) | (93,452) | (2,983) | ||
Net Increase/(Decrease) Derived from Capital Share Transactions | 14,401 | (333,925) | (608,957) | (475,537) | 74,999 | ||
Net increase/(decrease) in net assets | 6,364 | (311,931) | (666,940) | (437,822) | 71,714 | ||
Net Assets | |||||||
Beginning of period | 114,386 | 426,317 | 1,473,694 | 1,911,516 | — | ||
End of period* | $120,750 | $ 114,386 | $ 806,754 | $1,473,694 | $71,714 | ||
*,a Includes accumulated undistributed net investment income/(loss) of: | N/A | $ (147) | N/A | $ 8,810 | N/A |
a | The presentation of Distributions to Shareholders and accumulated undistributed net investment income/(loss) have been updated to reflect the changes prescribed in amendments to Regulation S-X as disclosed in New Accounting Pronouncements in notes 2 to financial statements. There is no impact to October 31, 2017 presentation. |
b | Inception |
The accompanying notes are an integral part of the Financial Statements.
87
Harbor Bond Fund | Harbor Core Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | ||||||
November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | June 1, 2018b through October 31, 2018 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||
$ 61,306 | $ 71,625 | $ 646 | $ 2,888 | $ 2,542 | $ 2,029 | $ 1,089 | |||
(35,461) | (13,862) | (228) | 311 | (19) | — | — | |||
(60,429) | 936 | (832) | (4,561) | (1,744) | — | — | |||
(34,584) | 58,699 | (414) | (1,362) | 779 | 2,029 | 1,089 | |||
(71,173) | — | (445) | (4,024) | — | (1,999) | — | |||
(69) | N/A | (18) | (9) | N/A | N/A | N/A | |||
(953) | — | N/A | (47) | — | (30) | — | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | (66,863) | N/A | N/A | (1,578) | N/A | (1,099) | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | (931) | N/A | N/A | (16) | N/A | (11) | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | (33,573) | N/A | N/A | — | N/A | — | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | (538) | N/A | N/A | — | N/A | — | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
(72,195) | (101,905) | (463) | (4,080) | (1,594) | (2,029) | (1,110) | |||
(145,275) | (243,730) | 56,187 | (9,622) | (9,177) | (39,270) | 31,950 | |||
(252,054) | (286,936) | 55,310 | (15,064) | (9,992) | (39,270) | 31,929 | |||
2,189,766 | 2,476,702 | — | 101,390 | 111,382 | 171,182 | 139,253 | |||
$1,937,712 | $2,189,766 | $55,310 | $ 86,326 | $101,390 | $131,912 | $171,182 | |||
N/A | $ 18,676 | N/A | N/A | $ 1,144 | N/A | $ 34 |
88
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017a through October 31, 2018 | |||
AMOUNT ($) | |||||||
Institutional Class | |||||||
Net proceeds from sale of shares | $ 32,066 | $ 118,396 | $ 106,617 | $ 298,904 | $73,824 | ||
Net proceeds from redemption fees | 1 | 5 | 293 | 32 | — | ||
Reinvested distributions | 7,984 | 1,599 | 38,689 | 46,533 | 2,970 | ||
Cost of shares reacquired | (27,880) | (475,619) | (1,017,400) | (811,755) | (2,162) | ||
Net increase/(decrease) in net assets | $ 12,171 | $(355,619) | $ (871,801) | $(466,286) | $74,632 | ||
Retirement Class | |||||||
Net proceeds from sale of shares | $ 1,150 | $ 22,088 | $ 389,532 | $ 42,380 | $ 253 | ||
Net proceeds from redemption fees | — | 1 | 12 | 1 | — | ||
Reinvested distributions | 2,467 | 173 | 10,972 | 1,501 | 9 | ||
Cost of shares reacquired | (1,044) | (348) | (128,042) | (3,925) | (3) | ||
Net increase/(decrease) in net assets | $ 2,573 | $ 21,914 | $ 272,474 | $ 39,957 | $ 259 | ||
Administrative Class | |||||||
Net proceeds from sale of shares | $ — | $ 50 | $ 173 | $ 817 | $ 50 | ||
Net proceeds from redemption fees | — | — | 1 | — | — | ||
Reinvested distributions | 37 | 5 | 73 | 203 | 2 | ||
Cost of shares reacquired | (358) | (81) | (542) | (3,992) | — | ||
Net increase/(decrease) in net assets | $ (321) | $ (26) | $ (295) | $ (2,972) | $ 52 | ||
Investor Class | |||||||
Net proceeds from sale of shares | $ 768 | $ 2,678 | $ 7,271 | $ 22,940 | $ 54 | ||
Net proceeds from redemption fees | — | — | 9 | 1 | — | ||
Reinvested distributions | 187 | 30 | 1,847 | 3,502 | 2 | ||
Cost of shares reacquired | (977) | (2,902) | (18,462) | (72,679) | — | ||
Net increase/(decrease) in net assets | $ (22) | $ (194) | $ (9,335) | $ (46,236) | $ 56 |
a | Inception |
The accompanying notes are an integral part of the Financial Statements.
89
Harbor Bond Fund | Harbor Core Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | ||||||
November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | June 1, 2018a through October 31, 2018 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||
$ 305,904 | $ 297,400 | $54,477 | $ 9,213 | $ 13,033 | $ 550,663 | $ 632,718 | |||
— | — | — | — | — | — | — | |||
67,995 | 96,574 | 445 | 3,895 | 1,531 | 1,988 | 1,095 | |||
(528,432) | (630,922) | (1,822) | (22,355) | (22,733) | (592,462) | (601,142) | |||
$(154,533) | $(236,948) | $53,100 | $ (9,247) | $ (8,169) | $ (39,811) | $ 32,671 | |||
$ 7,107 | N/A | $ 3,069 | $ 397 | N/A | N/A | N/A | |||
— | N/A | — | — | N/A | N/A | N/A | |||
69 | N/A | 18 | 8 | N/A | N/A | N/A | |||
(185) | N/A | — | (68) | N/A | N/A | N/A | |||
$ 6,991 | N/A | $ 3,087 | $ 337 | N/A | N/A | N/A | |||
$ 9,690 | $ 7,619 | N/A | $ 275 | $ 172 | $ 2,601 | $ 2,553 | |||
— | — | N/A | — | — | — | — | |||
952 | 1,464 | N/A | 47 | 16 | 30 | 11 | |||
(8,375) | (15,865) | N/A | (1,034) | (1,196) | (2,090) | (3,285) | |||
$ 2,267 | $ (6,782) | N/A | $ (712) | $ (1,008) | $ 541 | $ (721) | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A |
90
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017a through October 31, 2018 | |||
SHARES | |||||||
Institutional Class | |||||||
Shares sold | 3,011 | 10,860 | 10,670 | 29,512 | 7,401 | ||
Shares issued due to reinvestment of distributions | 773 | 148 | 3,920 | 4,624 | 306 | ||
Shares reacquired | (2,619) | (43,282) | (101,838) | (80,242) | (222) | ||
Net increase/(decrease) in shares outstanding | 1,165 | (32,274) | (87,248) | (46,106) | 7,485 | ||
Beginning of period | 7,754 | 40,028 | 135,806 | 181,912 | — | ||
End of period | 8,919 | 7,754 | 48,558 | 135,806 | 7,485 | ||
Retirement Class | |||||||
Shares sold | 103 | 1,988 | 39,085 | 4,160 | 25 | ||
Shares issued due to reinvestment of distributions | 239 | 16 | 1,119 | 149 | 1 | ||
Shares reacquired | (97) | (32) | (12,964) | (386) | — | ||
Net increase/(decrease) in shares outstanding | 245 | 1,972 | 27,240 | 3,923 | 26 | ||
Beginning of period | 2,182 | 210 | 4,106 | 183 | — | ||
End of period | 2,427 | 2,182 | 31,346 | 4,106 | 26 | ||
Administrative Class | |||||||
Shares sold | — | 5 | 17 | 80 | 5 | ||
Shares issued due to reinvestment of distributions | 4 | — | 7 | 20 | — | ||
Shares reacquired | (34) | (7) | (54) | (392) | — | ||
Net increase/(decrease) in shares outstanding | (30) | (2) | (30) | (292) | 5 | ||
Beginning of period | 35 | 37 | 171 | 463 | — | ||
End of period | 5 | 35 | 141 | 171 | 5 | ||
Investor Class | |||||||
Shares sold | 73 | 244 | 725 | 2,260 | 6 | ||
Shares issued due to reinvestment of distributions | 18 | 3 | 186 | 348 | — | ||
Shares reacquired | (92) | (262) | (1,836) | (7,139) | — | ||
Net increase/(decrease) in shares outstanding | (1) | (15) | (925) | (4,531) | 6 | ||
Beginning of period | 179 | 194 | 4,175 | 8,706 | — | ||
End of period | 178 | 179 | 3,250 | 4,175 | 6 |
a | Inception |
The accompanying notes are an integral part of the Financial Statements.
91
Harbor Bond Fund | Harbor Core Bond Fund | Harbor Real Return Fund | Harbor Money Market Fund | ||||||
November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | June 1, 2018a through October 31, 2018 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||
26,978 | 25,632 | 5,447 | 1,000 | 1,389 | 550,663 | 632,718 | |||
6,008 | 8,483 | 45 | 424 | 164 | 1,988 | 1,095 | |||
(46,739) | (54,503) | (183) | (2,425) | (2,424) | (592,462) | (601,142) | |||
(13,753) | (20,388) | 5,309 | (1,001) | (871) | (39,811) | 32,671 | |||
184,942 | 205,330 | — | 10,612 | 11,483 | 169,637 | 136,966 | |||
171,189 | 184,942 | 5,309 | 9,611 | 10,612 | 129,826 | 169,637 | |||
635 | N/A | 309 | 43 | N/A | N/A | N/A | |||
6 | N/A | 2 | 1 | N/A | N/A | N/A | |||
(17) | N/A | — | (8) | N/A | N/A | N/A | |||
624 | N/A | 311 | 36 | N/A | N/A | N/A | |||
— | N/A | — | — | N/A | N/A | N/A | |||
624 | N/A | 311 | 36 | N/A | N/A | N/A | |||
857 | 659 | N/A | 30 | 18 | 2,601 | 2,553 | |||
84 | 129 | N/A | 5 | 2 | 30 | 11 | |||
(739) | (1,376) | N/A | (113) | (128) | (2,090) | (3,285) | |||
202 | (588) | N/A | (78) | (108) | 541 | (721) | |||
2,599 | 3,187 | N/A | 155 | 263 | 1,545 | 2,266 | |||
2,801 | 2,599 | N/A | 77 | 155 | 2,086 | 1,545 | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A | |||
N/A | N/A | N/A | N/A | N/A | N/A | N/A |
92
Harbor Fixed Income Funds
Statement of Cash Flows— Year Ended October 31, 2018
Statement of Cash Flows— Year Ended October 31, 2018
(All amounts in thousands)
Harbor Real Return Fund | |
Cash flows from operating activities: | |
Net decrease in net assets resulting from operations | $ (1,362) |
Adjustments to reconcile net decrease in net assets resulting from operations to net cash from operating activities: | |
Purchases of long-term securities | (618,650) |
Proceeds from sales of long-term securities | 630,368 |
Proceeds from short-term portfolio investments, net | 65 |
Increase in receivable for investments sold | (18,742) |
Decrease in interest receivable | 54 |
Increase in variation margin on options and futures contracts | (69) |
Increase in variation margin on swap agreements | (114) |
Increase in due to broker | 4,499 |
Decrease in due from broker | 161 |
Decrease in prepaid registration fees | 5 |
Decrease in other assets | 36 |
Increase in payable for investments purchased | 22,550 |
Increase in interest on reverse repurchase agreements | 79 |
Decrease in Interest on investments sold short | (1) |
Decrease in investments sold short | (314) |
Decrease in premiums from options written | (32) |
Decrease in swap premiums received on OTC swap agreements | (35) |
Decrease in management fees payable | (5) |
Decrease in transfer agent fees payable | (1) |
Increase in trustees' fees payable | 19 |
Decrease in other liabilities | (58) |
Net change in unrealized appreciation/(depreciation) on investments | 4,548 |
Net change in unrealized appreciation/(depreciation) on forwards | 15 |
Net change in unrealized appreciation/(depreciation) on OTC swaps | 54 |
Net change in unrealized appreciation/(depreciation) on purchased options not settled through variation margin | (32) |
Net change in unrealized appreciation/(depreciation) on written options not settled through variation margin | 26 |
Net realized loss on investments | 992 |
Net realized loss on purchased options | 35 |
Net amortization and earned inflation component | 865 |
Net cash provided by operating activities | 24,956 |
Cash flows from financing activities: | |
Proceeds from shares sold | 9,944 |
Payment on shares redeemed | (23,748) |
Cash dividends paid | (130) |
Proceeds from reverse repurchase agreement transactions | 267,806 |
Payments on reverse repurchase agreement transactions | (244,632) |
Proceeds from sale-buyback financing transactions | 368,269 |
Payments on sale-buyback financing transactions | (401,838) |
Net cash used for financing activities | (24,329) |
Net increase in cash and foreign currency | 627 |
Cash and foreign currency: | |
Beginning of period | $ 231 |
End of period | 858 |
Reinvestment of dividends | $ 3,950 |
Supplemental disclosure of cash flow information: | |
Interest paid during the year | $ 516 |
The accompanying notes are an integral part of the Financial Statements.
93
[THIS PAGE INTENTIONALLY LEFT BLANK]
94
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 11.27 | $ 10.53 | $ 10.63 | $ 11.20 | $ 10.95 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.09 e | 0.13 e | 0.12 e | 0.15 e | 0.19 |
Net realized and unrealized gains/(losses) on investments | 0.20 | 0.78 | 0.19 | (0.08) | 0.38 |
Total from investment operations | 0.29 | 0.91 | 0.31 | 0.07 | 0.57 |
Less Distributions | |||||
Dividends from net investment income | (0.08) | (0.17) | (0.22) | (0.22) | (0.21) |
Distributions from net realized capital gains | (1.00) | — | (0.19) | (0.42) | (0.11) |
Total distributions | (1.08) | (0.17) | (0.41) | (0.64) | (0.32) |
Proceeds from redemption fees | — * | — * | — * | — * | — * |
Net asset value end of period | 10.48 | 11.27 | 10.53 | 10.63 | 11.20 |
Net assets end of period (000s) | $93,424 | $87,391 | $421,671 | $373,421 | $353,370 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 2.82% | 8.74% | 3.12% | 0.72% | 5.23% |
Ratio of total expenses to average net assets^ | 0.82 | 0.79 | 0.77 | 0.75 | 0.74 |
Ratio of net expenses to average net assetsa | 0.76 | 0.76 | 0.76 | 0.75 | 0.74 |
Ratio of net investment income to average net assetsa | 0.88 | 1.18 | 1.15 | 1.37 | 1.58 |
Portfolio turnover | 94 | 102 | 102 | 81 | 54 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 11.26 | $ 10.53 | $ 10.62 | $ 11.19 | $ 10.94 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.07 e | 0.10 e | 0.09 e | 0.12 e | 0.13 |
Net realized and unrealized gains/(losses) on investments | 0.17 | 0.77 | 0.20 | (0.08) | 0.41 |
Total from investment operations | 0.24 | 0.87 | 0.29 | 0.04 | 0.54 |
Less Distributions | |||||
Dividends from net investment income | (0.06) | (0.14) | (0.19) | (0.19) | (0.18) |
Distributions from net realized capital gains | (1.00) | — | (0.19) | (0.42) | (0.11) |
Total distributions | (1.06) | (0.14) | (0.38) | (0.61) | (0.29) |
Proceeds from redemption fees | — * | — * | — * | — * | — * |
Net asset value end of period | 10.44 | 11.26 | 10.53 | 10.62 | 11.19 |
Net assets end of period (000s) | $ 53 | $ 395 | $ 392 | $ 376 | $ 306 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 2.27% | 8.37% | 2.96% | 0.47% | 4.97% |
Ratio of total expenses to average net assets^ | 1.07 | 1.04 | 1.02 | 1.00 | 0.99 |
Ratio of net expenses to average net assetsa | 1.01 | 1.00 | 1.01 | 1.00 | 0.99 |
Ratio of net investment income to average net assetsa | 0.63 | 0.93 | 0.90 | 1.11 | 1.35 |
Portfolio turnover | 94 | 102 | 102 | 81 | 54 |
See page 107 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
95
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 11.27 | $ 10.53 | $ 9.78 |
0.10 e | 0.14 e | 0.08 e |
0.19 | 0.78 | 0.75 |
0.29 | 0.92 | 0.83 |
(0.09) | (0.18) | (0.08) |
(1.00) | — | — |
(1.09) | (0.18) | (0.08) |
— * | — * | — |
10.47 | 11.27 | 10.53 |
$25,412 | $24,585 | $2,215 |
2.80% | 8.81% | 8.51% c |
0.74 | 0.72 | 0.73 d |
0.69 | 0.67 | 0.71 d |
0.95 | 1.24 | 1.13 d |
94 | 102 | 102 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$11.25 | $10.52 | $10.61 | $11.18 | $10.94 |
0.05 e | 0.09 e | 0.08 e | 0.11 e | 0.11 |
0.19 | 0.77 | 0.20 | (0.08) | 0.40 |
0.24 | 0.86 | 0.28 | 0.03 | 0.51 |
(0.04) | (0.13) | (0.18) | (0.18) | (0.16) |
(1.00) | — | (0.19) | (0.42) | (0.11) |
(1.04) | (0.13) | (0.37) | (0.60) | (0.27) |
— * | — * | — * | — * | — * |
10.45 | 11.25 | 10.52 | 10.61 | 11.18 |
$1,861 | $2,015 | $2,039 | $1,861 | $1,941 |
2.35% | 8.26% | 2.85% | 0.35% | 4.76% |
1.19 | 1.16 | 1.14 | 1.12 | 1.11 |
1.13 | 1.12 | 1.13 | 1.12 | 1.11 |
0.51 | 0.81 | 0.77 | 1.00 | 1.24 |
94 | 102 | 102 | 81 | 54 |
96
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 10.21 | $ 9.99 | $ 10.00 | $ 10.85 | $ 11.19 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.54 e | 0.55 e | 0.53 e | 0.57 e | 0.60 |
Net realized and unrealized gains/(losses) on investments | (0.51) | 0.24 | (0.02) | (0.66) | (0.05) |
Total from investment operations | 0.03 | 0.79 | 0.51 | (0.09) | 0.55 |
Less Distributions | |||||
Dividends from net investment income | (0.57) | (0.57) | (0.52) | (0.54) | (0.62) |
Distributions from net realized capital gains | — | — | — | (0.22) | (0.27) |
Total distributions | (0.57) | (0.57) | (0.52) | (0.76) | (0.89) |
Proceeds from redemption fees | 0.01 | — * | — * | — * | — * |
Net asset value end of period | 9.68 | 10.21 | 9.99 | 10.00 | 10.85 |
Net assets end of period (000s) | $470,204 | $1,387,213 | $1,817,902 | $1,460,808 | $1,707,788 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 0.45% | 8.16% | 5.46% | (0.79)% | 5.10% |
Ratio of total expenses to average net assets^ | 0.69 | 0.72 | 0.70 | 0.69 | 0.68 |
Ratio of net expenses to average net assetsa | 0.62 | 0.67 | 0.66 | 0.65 | 0.64 |
Ratio of net investment income to average net assetsa | 5.40 | 5.43 | 5.43 | 5.51 | 5.43 |
Portfolio turnover | 53 | 56 | 58 | 49 | 48 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 10.25 | $ 10.01 | $ 10.02 | $ 10.87 | $ 11.21 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.52 e | 0.53 e | 0.51 e | 0.55 e | 0.60 |
Net realized and unrealized gains/(losses) on investments | (0.51) | 0.25 | (0.02) | (0.67) | (0.08) |
Total from investment operations | 0.01 | 0.78 | 0.49 | (0.12) | 0.52 |
Less Distributions | |||||
Dividends from net investment income | (0.55) | (0.54) | (0.50) | (0.51) | (0.59) |
Distributions from net realized capital gains | — | — | — | (0.22) | (0.27) |
Total distributions | (0.55) | (0.54) | (0.50) | (0.73) | (0.86) |
Proceeds from redemption fees | — * | — * | — * | — * | — * |
Net asset value end of period | 9.71 | 10.25 | 10.01 | 10.02 | 10.87 |
Net assets end of period (000s) | $ 1,374 | $ 1,753 | $ 4,631 | $ 4,314 | $ 4,773 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 0.10% | 7.98% | 5.18% | (1.03)% | 4.82% |
Ratio of total expenses to average net assets^ | 0.94 | 0.97 | 0.95 | 0.94 | 0.93 |
Ratio of net expenses to average net assetsa | 0.86 | 0.92 | 0.91 | 0.90 | 0.89 |
Ratio of net investment income to average net assetsa | 5.18 | 5.20 | 5.20 | 5.26 | 5.18 |
Portfolio turnover | 53 | 56 | 58 | 49 | 48 |
See page 107 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
97
Retirement Class | ||
2018 | 2017 | 2016 f |
$ 10.22 | $ 10.00 | $ 9.40 |
0.54 e | 0.55 e | 0.36 e |
(0.49) | 0.25 | 0.61 |
0.05 | 0.80 | 0.97 |
(0.58) | (0.58) | (0.37) |
— | — | — |
(0.58) | (0.58) | (0.37) |
— * | — * | — * |
9.69 | 10.22 | 10.00 |
$303,627 | $41,975 | $1,828 |
0.54% | 8.23% | 10.49% c |
0.61 | 0.65 | 0.66 d |
0.53 | 0.61 | 0.61 d |
5.50 | 5.44 | 5.38 d |
53 | 56 | 58 |
Investor Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$ 10.24 | $ 10.01 | $ 10.02 | $ 10.87 | $ 11.21 |
0.50 e | 0.52 e | 0.49 e | 0.53 e | 0.59 |
(0.49) | 0.24 | (0.02) | (0.66) | (0.08) |
0.01 | 0.76 | 0.47 | (0.13) | 0.51 |
(0.54) | (0.53) | (0.48) | (0.50) | (0.58) |
— | — | — | (0.22) | (0.27) |
(0.54) | (0.53) | (0.48) | (0.72) | (0.85) |
— * | — * | — * | — * | — * |
9.71 | 10.24 | 10.01 | 10.02 | 10.87 |
$31,549 | $42,753 | $87,155 | $96,957 | $100,194 |
0.08% | 7.79% | 5.02% | (1.15)% | 4.70% |
1.06 | 1.09 | 1.07 | 1.06 | 1.05 |
0.98 | 1.04 | 1.03 | 1.02 | 1.01 |
5.05 | 5.08 | 5.09 | 5.14 | 5.06 |
53 | 56 | 58 | 49 | 48 |
98
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 | ||||
2018 h | 2018 h | 2018 h | 2018 h | ||||
Net asset value beginning of period | $ 10.00 | $10.00 | $10.00 | $10.00 | |||
Income from Investment Operations | |||||||
Net investment income/(loss)a | 0.50 e | 0.52 e | 0.47 e | 0.46 e | |||
Net realized and unrealized gains/(losses) on investments | (0.56) | (0.57) | (0.55) | (0.55) | |||
Total from investment operations | (0.06) | (0.05) | (0.08) | (0.09) | |||
Less Distributions | |||||||
Dividends from net investment income | (0.41) | (0.42) | (0.39) | (0.38) | |||
Distributions from net realized capital gains | — | — | — | — | |||
Total distributions | (0.41) | (0.42) | (0.39) | (0.38) | |||
Proceeds from redemption fees | — * | — * | — * | — * | |||
Net asset value end of period | 9.53 | 9.53 | 9.53 | 9.53 | |||
Net assets end of period (000s) | $71,361 | $ 250 | $ 50 | $ 53 | |||
Ratios and Supplemental Data (%) | |||||||
Total returnb | (0.59)% | (0.53)% | (0.82)% | (0.92)% | |||
Ratio of total expenses to average net assets^ | 1.00 | 0.92 | 1.25 | 1.37 | |||
Ratio of net expenses to average net assetsa | 0.73 | 0.65 | 0.98 | 1.10 | |||
Ratio of net investment income to average net assetsa | 5.12 | 5.29 | 4.84 | 4.73 | |||
Portfolio turnover | 56 | 56 | 56 | 56 |
See page 107 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
99
[THIS PAGE INTENTIONALLY LEFT BLANK]
100
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 11.68 | $ 11.88 | $ 11.92 | $ 12.28 | $ 12.22 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.33 e | 0.36 e | 0.37 e | 0.34 e | 0.25 |
Net realized and unrealized gains/(losses) on investments | (0.52) | (0.04) | 0.16 | (0.18) | 0.16 |
Total from investment operations | (0.19) | 0.32 | 0.53 | 0.16 | 0.41 |
Less Distributions | |||||
Dividends from net investment income | (0.39) | (0.35) | (0.48) | (0.41) | (0.35) |
Distributions from net realized capital gains | — | (0.17) | (0.09) | (0.11) | — |
Total distributions | (0.39) | (0.52) | (0.57) | (0.52) | (0.35) |
Net asset value end of period | 11.10 | 11.68 | 11.88 | 11.92 | 12.28 |
Net assets end of period (000s) | $1,899,680 | $2,159,390 | $2,438,815 | $2,874,705 | $4,125,889 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (1.63)% | 2.82% | 4.70% | 1.32% | 3.40% |
Ratio of total expenses to average net assets^ | 0.90 | 0.63 | 0.60 | 0.58 | 0.56 |
Ratio of net expenses to average net assetsa | 0.80 | 0.54 | 0.53 | 0.52 | 0.54 |
Ratio of net expenses excluding interest expense to average net assetsa | 0.51 | 0.51 | 0.51 | 0.52 | 0.54 |
Ratio of net investment income to average net assetsa | 2.93 | 3.15 | 3.16 | 2.80 | 1.90 |
Portfolio turnover | 674 | 654 | 592 | 586 | 439 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 11.69 | $ 11.89 | $ 11.93 | $ 12.28 | $ 12.23 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.31 e | 0.34 e | 0.34 e | 0.30 e | 0.22 |
Net realized and unrealized gains/(losses) on investments | (0.53) | (0.05) | 0.16 | (0.16) | 0.15 |
Total from investment operations | (0.22) | 0.29 | 0.50 | 0.14 | 0.37 |
Less Distributions | |||||
Dividends from net investment income | (0.36) | (0.32) | (0.45) | (0.38) | (0.32) |
Distributions from net realized capital gains | — | (0.17) | (0.09) | (0.11) | — |
Total distributions | (0.36) | (0.49) | (0.54) | (0.49) | (0.32) |
Net asset value end of period | 11.11 | 11.69 | 11.89 | 11.93 | 12.28 |
Net assets end of period (000s) | $ 31,111 | $ 30,376 | $ 37,887 | $ 57,874 | $ 102,591 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (1.88)% | 2.56% | 4.42% | 1.13% | 3.05% |
Ratio of total expenses to average net assets^ | 1.16 | 0.88 | 0.85 | 0.83 | 0.81 |
Ratio of net expenses to average net assetsa | 1.06 | 0.79 | 0.78 | 0.77 | 0.79 |
Ratio of net expenses excluding interest expense to average net assetsa | 0.76 | 0.76 | 0.76 | 0.77 | 0.79 |
Ratio of net investment income to average net assetsa | 2.69 | 2.90 | 2.89 | 2.47 | 1.66 |
Portfolio turnover | 674 | 654 | 592 | 586 | 439 |
See page 107 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
101
Retirement Class |
2018 g |
$11.28 |
0.16 e |
(0.16) |
— * |
(0.19) |
— |
(0.19) |
11.09 |
$6,921 |
0.01% c |
1.16 d |
1.06 d |
0.43 d |
3.44 d |
674 |
102
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 CORE BOND FUND | |||
Institutional Class | Retirement Class | ||
2018 g | 2018 g | ||
Net asset value beginning of period | $ 10.00 | $10.00 | |
Income from Investment Operations | |||
Net investment income/(loss)a | 0.12 e | 0.12 e | |
Net realized and unrealized gains/(losses) on investments | (0.19) | (0.19) | |
Total from investment operations | (0.07) | (0.07) | |
Less Distributions | |||
Dividends from net investment income | (0.09) | (0.09) | |
Distributions from net realized capital gains | — | — | |
Total distributions | (0.09) | (0.09) | |
Net asset value end of period | 9.84 | 9.84 | |
Net assets end of period (000s) | $52,249 | $3,061 | |
Ratios and Supplemental Data (%) | |||
Total returnb | (0.75)% c | (0.73)% c | |
Ratio of total expenses to average net assets^ | 0.85 d | 0.77 d | |
Ratio of net expenses to average net assetsa | 0.45 d | 0.37 d | |
Ratio of net investment income to average net assetsa | 2.86 d | 2.98 d | |
Portfolio turnover | 97 c | 97 c |
See page 107 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
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104
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 REAL RETURN FUND | |||||
Institutional Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 9.42 | $ 9.48 | $ 9.15 | $ 10.18 | $ 10.41 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.28 e | 0.23 e | 0.15 e | 0.10 e | 0.40 |
Net realized and unrealized gains/(losses) on investments | (0.42) | (0.14) | 0.35 | (0.43) | (0.20) |
Total from investment operations | (0.14) | 0.09 | 0.50 | (0.33) | 0.20 |
Less Distributions | |||||
Dividends from net investment income | (0.40) | (0.15) | (0.17) | (0.70) | (0.03) |
Distributions from net realized capital gains | — | — | — | — | (0.40) |
Total distributions | (0.40) | (0.15) | (0.17) | (0.70) | (0.43) |
Net asset value end of period | 8.88 | 9.42 | 9.48 | 9.15 | 10.18 |
Net assets end of period (000s) | $85,316 | $99,929 | $108,890 | $130,467 | $169,969 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (1.57)% | 0.92% | 5.55% | (3.32)% | 2.07% |
Ratio of total expenses to average net assets^ | 1.36 | 1.03 | 0.87 | 0.77 | 0.63 |
Ratio of net expenses to average net assetsa | 1.16 | 0.87 | 0.73 | 0.68 | 0.62 |
Ratio of net expenses excluding interest expense to average net assetsa | 0.53 | 0.54 | 0.55 | 0.58 | 0.60 |
Ratio of net investment income to average net assetsa | 3.07 | 2.42 | 1.63 | 1.06 | 1.91 |
Portfolio turnover | 519 | 758 | 611 | 531 | 427 |
Administrative Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 9.42 | $ 9.46 | $ 9.15 | $ 10.17 | $ 10.41 |
Income from Investment Operations | |||||
Net investment income/(loss)a | 0.25 e | 0.21 e | 0.13 e | 0.08 e | 0.21 |
Net realized and unrealized gains/(losses) on investments | (0.42) | (0.15) | 0.34 | (0.42) | (0.03) |
Total from investment operations | (0.17) | 0.06 | 0.47 | (0.34) | 0.18 |
Less Distributions | |||||
Dividends from net investment income | (0.37) | (0.10) | (0.16) | (0.68) | (0.02) |
Distributions from net realized capital gains | — | — | — | — | (0.40) |
Total distributions | (0.37) | (0.10) | (0.16) | (0.68) | (0.42) |
Net asset value end of period | 8.88 | 9.42 | 9.46 | 9.15 | 10.17 |
Net assets end of period (000s) | $ 688 | $ 1,461 | $ 2,492 | $ 3,174 | $ 3,481 |
Ratios and Supplemental Data (%) | |||||
Total returnb | (1.86)% | 0.62% | 5.26% | (3.47)% | 1.81% |
Ratio of total expenses to average net assets^ | 1.56 | 1.26 | 1.12 | 1.02 | 0.88 |
Ratio of net expenses to average net assetsa | 1.37 | 1.10 | 0.98 | 0.93 | 0.87 |
Ratio of net expenses excluding interest expense to average net assetsa | 0.78 | 0.77 | 0.80 | 0.83 | 0.85 |
Ratio of net investment income to average net assetsa | 2.73 | 2.19 | 1.38 | 0.90 | 2.08 |
Portfolio turnover | 519 | 758 | 611 | 531 | 427 |
See page 107 for notes to the Financial Highlights.
The accompanying notes are an integral part of the Financial Statements.
105
Retirement Class |
2018 g |
$ 9.23 |
0.13 e |
(0.28) |
(0.15) |
(0.21) |
— |
(0.21) |
8.87 |
$ 322 |
(1.64)% c |
1.16 d |
0.96 d |
0.44 d |
3.45 d |
519 |
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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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 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 gains | — | — | — | — | — |
Total distributions | (0.01) | (0.01) | — * | — * | — * |
Net asset value end of period | 1.00 | 1.00 | 1.00 | 1.00 | 1.00 |
Net assets end of period (000s) | $129,826 | $169,637 | $136,986 | $176,781 | $157,801 |
Ratios and Supplemental Data (%) | |||||
Total returnb | 1.44% | 0.73% | 0.30% | 0.08% | 0.06% |
Ratio of total expenses to average net assets^ | 0.35 | 0.35 | 0.36 | 0.32 | 0.30 |
Ratio of net expenses to average net assetsa | 0.20 | — | — | — | — |
Ratio of net investment income to average net assetsa | 1.42 | 0.72 | 0.27 | 0.08 | 0.06 |
* | Less than $0.01. |
^ | Percentage does not reflect reduction for credit balance arrangements (see the “Custodian” section in 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 based on average shares outstanding during the period. |
f | For the period March 1, 2016 (inception) through October 31, 2016 |
g | For the period June 1, 2018 (inception) through October 31, 2018 |
h | For the period November 1, 2017 (inception) through October 31, 2018 |
The accompanying notes are an integral part of the Financial Statements.
107
Administrative Class | ||||
2018 | 2017 | 2016 | 2015 | 2014 |
$ 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 |
$2,086 | $1,545 | $2,267 | $1,727 | $2,177 |
1.36% | 0.73% | 0.30% | 0.08% | 0.06% |
0.60 | 0.60 | 0.61 | 0.57 | 0.55 |
0.29 | — | — | — | — |
1.36 | 0.70 | 0.28 | 0.07 | 0.06 |
108
Harbor Fixed Income Funds
Notes to Financial Statements—October 31, 2018
Notes to Financial Statements—October 31, 2018
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 October 31, 2018, the Trust consists of 32 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 Core 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.
Effective June 1, 2018, Harbor Bond Fund and Harbor Real Return Fund began offering Retirement Class 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 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
109
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
what the pricing vendor believes are securities with similar characteristics, (iii) the pricing vendor’s assessment of the risk 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.
110
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
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. |
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 year. A table that includes a categorization of investments into Levels 1, 2, or 3, and a summary of significant unobservable inputs used for Level 3 investments, 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 year, Harbor High-Yield Bond Fund, Harbor Bond Fund, and Harbor Real Return Fund invested in loan participations and assignments.
111
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
Harbor High-Yield Bond Fund entered into unfunded loan commitments during the year, 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 October 31, 2018, Harbor High-Yield Bond Fund had no 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 year, 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 year, Harbor Bond Fund, Harbor Core Bond Fund, and Harbor Real Return Fund invested in mortgage-related 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 year, Harbor Bond Fund, Harbor Core Bond Fund, Harbor Real Return Fund, and Harbor Money Market Fund invested in U.S. government securities.
112
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
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 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. 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 year, 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 a 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 a 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, a 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 a Fund. A counterparty’s default may cause a 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 year, 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.
113
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
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, a 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, a 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 a Fund to counterparties is reflected as a liability on the Statements of Assets and Liabilities. Interest payments based upon the reverse repurchase agreement term made by a Fund to counterparties are recorded as a component of interest expense on the Statements 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 a Fund’s custodian, or set aside or restrict assets in the subadviser’s records or systems relating to a 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, a Fund may receive a fee for use of the security by the counterparty, which may result in interest income to a Fund.
During the year, Harbor Bond Fund and Harbor Real Return Fund entered into reverse repurchase agreements. The average amount of borrowings outstanding during the year ended October 31, 2018 was $274,974,000 at a weighted average interest rate of 1.840% for the Harbor Bond Fund and $23,073,000 at a weighted average interest rate of 1.950% for the Harbor Real Return Fund. Average debt outstanding and average interest rate during the year 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 subsequent to 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. A 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 a Fund are reflected as a liability on the Statements of Assets and Liabilities. A 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, a Fund would have otherwise received had the security not been sold, and (ii) the negotiated financing terms between a Fund and counterparty. Foregone interest and inflationary income adjustments, if any, are recorded as components of interest income on the Statements of Operations. Interest payments based upon negotiated financing terms made by a Fund to counterparties are recorded as a component of interest expense on the Statements 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 a Fund’s custodian, or set aside or restrict assets in the subadviser’s records or systems relating to a 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, a Fund may receive a fee for use of the security by the counterparty, which may result in additional interest income to a Fund.
During the year, 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 year ended October 31, 2018 was $121,119,000 at a weighted average interest rate of 1.688% for the Harbor Bond Fund and $10,848,000 at a weighted average interest rate of 1.570% for the Harbor Real Return Fund. Average debt outstanding and average interest rate during the year is calculated based on calendar days.
114
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
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 year, 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 traded on an exchange and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees the futures contracts against default.
During the year, 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 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.
115
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
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 year, 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 a 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 a Fund and any other appropriate counterparty criteria as determined by a Fund’s subadviser. The minimum credit quality requirements are similar to 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 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. A 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 a Fund and the counterparty, and the posting of collateral by the counterparty.
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.
116
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
During the year, 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.
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.
During the year, 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 maximum exposure to loss of the notional value as the seller of credit default swaps outstanding at October 31, 2018 for Harbor Bond Fund and Harbor Real Return Fund was $51,208,000 and $234,000, 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 year, Harbor Real Return 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.
During the year, 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. Harbor Bond Fund and Harbor Real Return Fund entered into collateral agreements with certain counterparties to mitigate counterparty risk associated with forward currency contracts.
117
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
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 year, 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 year 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 Statements 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.
Distribution to Shareholders
Distributions on Fund shares are recorded on the ex-dividend date.
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.
118
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
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, 2015–2017), including all positions expected to be taken upon filing the 2018 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 year.
Harbor Bond Fund and Harbor Real Return Fund entered into secured financing transactions 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 year for Harbor Real Return Fund requires the Fund to present a Statement of Cash Flows.
New Accounting Pronouncements
In August 2018, the Securities and Exchange Commission (“SEC”) issued a final rule on Disclosure Update and Simplification (the “Rule”). The Rule contains amendments to certain financial statements presentation, particularly the presentation of components of net assets in the Statements of Assets and Liabilities and distributions on the Statements of Changes in Net Assets, and eliminates the requirement to disclose accumulated undistributed net investment income or loss on the Statements of Changes
119
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
in Net Assets. These amendments are part of the SEC’s overall project to improve disclosure effectiveness and are intended to simplify compliance without significantly altering the total mix of information provided to investors. The amended rules are effective for interim and annual reports filed with the SEC on or after November 5, 2018 (the Rule effective date). As of October 31, 2018, the Funds have adopted this Rule.
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update 2018-13 (“ASU 2018-13”), Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends public and private company fair value disclosure requirements. The guidance is the result of the FASB’s test of the principles developed in its disclosure effectiveness project, which is designed to improve the effectiveness of disclosures in the notes to the financial statements. This ASU is effective for all entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, however, an entity is permitted to early adopt any removed or modified disclosure and delay adoption of the additional disclosures until their effective date. As of October 31, 2018, the Funds have early adopted ASU 2018-13.
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. This ASU is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods, however, early adoption is permitted. The amendments in this ASU should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. 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 year ended October 31, 2018 are as follows:
Purchases (000s) | Sales (000s) | ||||||
U.S. Government | Other | U.S. Government | Other | ||||
Harbor Convertible Securities Fund | $ — | $125,945 | $ — | $ 107,721 | |||
Harbor High-Yield Bond Fund | — | 562,758 | — | 1,112,253 | |||
Harbor High-Yield Opportunities Fund | — | 110,010 | — | 36,855 | |||
Harbor Bond Fund | 20,268,923 | 932,122 | 20,170,438 | 1,093,622 | |||
Harbor Core Bond Fund | 78,333 | 30,823 | 49,742 | 2,420 | |||
Harbor Real Return Fund | 602,225 | 16,425 | 614,243 | 16,125 |
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.
120
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
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 | 0.53 | |
Harbor High-Yield Opportunities Fund | 0.60 | 0.60 | |
Harbor Bond Fund | 0.48 c | 0.45 | |
Harbor Core Bond Fund | 0.34 | 0.34 | |
Harbor Real Return Fund | 0.48 | 0.48 | |
Harbor Money Market Fund | 0.20 d | 0.14 |
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. |
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 year, the following expense limitation agreements were in effect:
• | Harbor High-Yield Opportunities Fund. For the year November 1, 2017 through October 31, 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 June 1, 2018 through October 31, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.51%, 0.43%, and 0.76% for the Institutional Class, Retirement Class, and Administrative Class, respectively. These contractual expense limitations are effective through February 29, 2020. For the period November 1, 2017 through May 31, 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. |
• | Harbor Core Bond Fund. For the period June 1, 2018 through October 31, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.45% and 0.37% for the Institutional Class and Retirement Class, respectively. These contractual expense limitations are effective through February 29, 2020. |
• | Harbor Real Return Fund. For the period June 1, 2018 through October 31, 2018, Harbor Capital contractually agreed to limit the operating expenses, excluding interest expense (if any), to 0.52%, 0.44%, and 0.77% for the Institutional Class, Retirement Class, and Administrative Class. These contractual expense limitations are effective through February 29, 2020. For the period March 1, 2018 through May 31, 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. 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. |
• | Harbor Money Market Fund. For the year November 1, 2017 through October 31, 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 annualized expense ratios for the period ended October 31, 2018 of 0.20% and 0.29% for the Institutional Class and Administrative Class, respectively. |
All expense limitation agreements include the transfer agent fee waiver discussed in the Transfer Agent note.
121
Harbor Fixed Income 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. (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 year ended October 31, 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 year, the Funds did not enter into any transactions with any other Harbor fund.
122
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 4—FEES AND OTHER Transactions with Affiliates—Continued
Shareholders
On October 31, 2018, Harbor Capital, and its wholly owned subsidiaries, collectively held the following shares of beneficial interest in each of the following Funds:
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 | — | — | — | 135,236 | 135,236 | 1.2% | |||||
Harbor High-Yield Bond Fund | — | — | — | 59,508 | 59,508 | 0.1 | |||||
Harbor High-Yield Opportunities Fund | 5,204,191 | 5,204 | 5,198 | 14,135 | 5,228,728 | 69.5 | |||||
Harbor Bond Fund | — | — | — | 43,007 | 43,007 | 0.0 | |||||
Harbor Core Bond Fund | 4,942,130 | N/A | N/A | 103,183 | 5,045,314 | 89.8 | |||||
Harbor Real Return Fund | — | — | — | 14,145 | 14,145 | 0.1 | |||||
Harbor Money Market Fund | 59,841,866 | 25,752 | N/A | N/A | 59,867,618 | 45.3 |
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 $108,000 for the year ended October 31, 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 “Accrued expenses – Trustees’ fees and 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.
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 year ended October 31, 2018 redemption fee proceeds are as follows:
Amount (000s) | |
Harbor Convertible Securities Fund | $ 1 |
Harbor High-Yield Bond Fund | 315 |
Harbor High-Yield Opportunities Fund | — |
123
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
NOTE 5—TAX INFORMATION
The amount and character of income and net realized gains to be distributed are determined in accordance with income tax rules and regulations, which may differ from U.S. GAAP. These differences are attributable to permanent book and tax accounting differences that were primarily due to use of equalization. Reclassifications, if any, are made to each Fund’s capital account to reflect income and net realized gains available for distribution (or available capital loss carryovers) under income tax rules and regulations. The amounts reclassified on the Statements of Assets and Liabilities for the year ended October 31, 2018 are as follows:
Total Distributable Earnings/(Loss) (000s) | Paid-In Capital (000s) | ||
Harbor Convertible Securities Fund | $(649) | $649 | |
Harbor High-Yield Bond Fund | — | — | |
Harbor High-Yield Opportunities Fund | (2) | 2 | |
Harbor Bond Fund | — | — | |
Harbor Core Bond Fund | (6) | 6 | |
Harbor Real Return Fund | — | — | |
Harbor Money Market Fund | — | — |
The tax composition of each Fund’s distributions is as follows:
As of October 31, 2018 | As of October 31, 2017 | ||||||||||
Ordinary Income (000s) | Long-Term Capital Gains (000s) | Total (000s) | Ordinary Income (000s) | Long-Term Capital Gains (000s) | Total (000s) | ||||||
Harbor Convertible Securities Fund | $10,828 | $— | $10,828 | $ 5,268 | $— | $ 5,268 | |||||
Harbor High-Yield Bond Fund | 61,411 | — | 61,411 | 93,452 | — | 93,452 | |||||
Harbor High-Yield Opportunities Fund | 2,983 | — | 2,983 | — | — | — | |||||
Harbor Bond Fund | 72,195 | — | 72,195 | 101,905 | — | 101,905 | |||||
Harbor Core Bond Fund | 463 | — | 463 | — | — | — | |||||
Harbor Real Return Fund | 4,080 | — | 4,080 | 1,594 | — | 1,594 | |||||
Harbor Money Market Fund | 2,029 | — | 2,029 | 1,110 | — | 1,110 |
As of October 31, 2018, the components of each Fund’s distributable earnings on a tax basis are as follows:
Undistributed Ordinary Income (000s) | Undistributed Long-Term Capital Gains (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||
Harbor Convertible Securities Fund | $ 5,152 | $1,520 | $ (2,150) | ||
Harbor High-Yield Bond Fund | 5,483 | — | (20,763) | ||
Harbor High-Yield Opportunities Fund | 523 | — | (2,623) | ||
Harbor Bond Fund | 12,840 | — | (88,536) | ||
Harbor Core Bond Fund | 197 | — | (841) | ||
Harbor Real Return Fund | 806 | — | (8,228) | ||
Harbor Money Market Fund | 44 | — | — |
124
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
NOTE 5—TAX INFORMATION—Continued
At October 31, 2018, the Funds in the following table had capital loss carryforwards for federal tax purposes which will reduce each Fund’s taxable income arising from future net realized gains on investments to the extent permitted by the Internal Revenue Code. Use of the capital loss carryforwards will reduce the amount of the distribution to shareholders which would otherwise be necessary to relieve each Fund of any federal tax liability. The capital loss carryforwards do not expire.
Capital Loss Carryforward | |||||
Short-Term (000s) | Long- Term (000s) | Total (000s) | |||
Harbor High-Yield Bond Fund | $ 1,561 | $67,624 | $69,185 | ||
Harbor High-Yield Opportunities Fund | 1,185 | — | 1,185 | ||
Harbor Bond Fund | 35,008 | 23,853 | 58,861 | ||
Harbor Core Bond Fund | 238 | — | 238 | ||
Harbor Real Return Fund | 4,809 | 23,459 | 28,268 |
The identified cost for federal income tax purposes of investments owned by each Fund and its respective gross unrealized appreciation and depreciation at October 31, 2018 are as follows:
Identified Cost (000s) | Gross Unrealized | Net Unrealized Appreciation/ (Depreciation) (000s) | |||||
Appreciation (000s) | (Depreciation) (000s) | ||||||
Harbor Convertible Securities Fund | $ 119,361 | $ 3,153 | $ (5,303) | $ (2,150) | |||
Harbor High-Yield Bond Fund* | 809,345 | 6,448 | (27,211) | (20,763) | |||
Harbor High-Yield Opportunities Fund* | 71,535 | 197 | (2,820) | (2,623) | |||
Harbor Bond Fund* | 3,524,873 | 16,730 | (105,266) | (88,536) | |||
Harbor Core Bond Fund* | 55,626 | 10 | (851) | (841) | |||
Harbor Real Return Fund* | 138,589 | 1,316 | (9,544) | (8,228) | |||
Harbor Money Market Fund | 132,020 | — | — | — |
* | 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 year ended October 31, 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 year as disclosed in the Statements of Operations, are indicators of the volume of derivative activity for each Fund.
125
Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 6—Derivatives—Continued
Derivative Instruments
At October 31, 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 | $ — | $16,194 | $ — | $16,194 | ||||||||
Unrealized appreciation on OTC swap agreementsb | — | — | 375 | 375 | ||||||||
Variation margin on centrally cleared swap agreementsa,b | 3,674 | — | 1,242 | 4,916 | ||||||||
Variation margin on options and futures contracts (futures)a | 7,794 | — | — | 7,794 | ||||||||
Variation margin on options and futures contracts (options)a | 19 | — | — | 19 | ||||||||
Purchased options, at value | 185 | — | — | 185 | ||||||||
Liabilities | ||||||||||||
Unrealized depreciation on open forward currency contracts | $ — | $ (7,972) | $ — | $ (7,972) | ||||||||
Variation margin on centrally cleared swap agreementsa,b | (1,104) | — | (168) | (1,272) | ||||||||
Variation margin on options and futures contracts (futures)a | (5,162) | — | — | (5,162) | ||||||||
Variation margin on options and futures contracts (options)a | (105) | — | — | (105) | ||||||||
Written options, at value | (296) | (645) | — | (941) |
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 | $ — | $217 | $— | $ 217 | ||||||||
Unrealized appreciation on OTC swap agreementsb | — | — | 12 | 12 | ||||||||
Variation margin on centrally cleared swap agreementsa,b | 642 | — | 9 | 651 | ||||||||
Variation margin on options and futures contracts (futures)a | 227 | — | — | 227 | ||||||||
Liabilities | ||||||||||||
Unrealized depreciation on open forward currency contracts | $ — | $ (63) | $— | $ (63) | ||||||||
Unrealized depreciation on OTC swap agreementsb | (135) | — | — | (135) | ||||||||
Variation margin on centrally cleared swap agreementsa,b | (287) | — | (4) | (291) | ||||||||
Variation margin on options and futures contracts (futures)a | (51) | — | — | (51) | ||||||||
Variation margin on options and futures contracts (options)a | (2) | — | — | (2) | ||||||||
Written options, at value | (22) | — | (2) | (24) |
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 $430,000 and $4,000 for Harbor Bond Fund and Harbor Real Return Fund, respectively. |
126
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 year ended October 31, 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 | $ — | $10,714 | $ — | $ 10,714 | ||||
Futures contracts | (20,303) | — | — | (20,303) | ||||
Purchased options | (33) | (5) | (5) | (43) | ||||
Written options | 752 | 4,016 | 115 | 4,883 | ||||
Swaps agreements | 13,942 | — | (186) | 13,756 | ||||
Net realized gain/(loss) on derivatives | $ (5,642) | $14,725 | $ (76) | $ 9,007 |
Change in Unrealized Appreciation/(Depreciation) on Derivatives | Interest Rate Contracts (000s) | Foreign Exchange Contracts (000s) | Credit Contracts (000s) | Total (000s) | ||||
Forward currency contracts | $ — | $(1,097) | $ — | $(1,097) | ||||
Futures contracts | 8,086 | — | — | 8,086 | ||||
Purchased options | 2,221 | — | — | 2,221 | ||||
Written options | (2,687) | (232) | — | (2,919) | ||||
Swaps agreements | (97) | — | 468 | 371 | ||||
Change in unrealized appreciation/(depreciation) on derivatives | $ 7,523 | $(1,329) | $468 | $ 6,662 |
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 | $ — | $515 | $ — | $ 515 | ||||
Futures contracts | 248 | — | — | 248 | ||||
Purchased options | (36) | 1 | — | (35) | ||||
Written options | 133 | 9 | 7 | 149 | ||||
Swaps agreements | 524 | — | (58) | 466 | ||||
Net realized gain/(loss) on derivatives | $869 | $525 | $(51) | $1,343 |
Change in Unrealized Appreciation/(Depreciation) on Derivatives | Interest Rate Contracts (000s) | Foreign Exchange Contracts (000s) | Credit Contracts (000s) | Total (000s) | ||||
Forward currency contracts | $ — | $(15) | $— | $(15) | ||||
Futures contracts | (5) | — | — | (5) | ||||
Purchased options | 34 | — | — | 34 | ||||
Written options | (27) | — | — | (27) | ||||
Swaps agreements | (2) | — | 4 | 2 | ||||
Change in unrealized appreciation/(depreciation) on derivatives | $ — | $(15) | $ 4 | $(11) |
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
127
Harbor Fixed Income Funds
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 Statements of Assets and Liabilities as either a component of investments at value (securities) or due from broker. Cash collateral received is not typically held in a segregated account and, as such, is reflected as a liability in the Statements 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 year ended October 31, 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 October 31, 2018, Harbor Bond Fund and Harbor Real Return 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 October 31, 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 October 31, 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 October 31, 2018:
HARBOR BOND FUND
Counterparty | 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 | ||||||||||||||||||
Bank of America | $ (21,111) | $ — | $ — | $ (21,111) | $ 21,111 | $ — | ||||||||||||
Bank of Nova Scotia | (75,873) | — | — | (75,873) | 75,873 | — | ||||||||||||
Barclays | (2,795) | — | — | (2,795) | 2,795 | — | ||||||||||||
Deutsche Bank | (17,751) | — | — | (17,751) | 17,751 | — | ||||||||||||
Royal Bank of Canada | (151,610) | — | — | (151,610) | 151,610 | — | ||||||||||||
Royal Bank of Scotland | (98,074) | — | — | (98,074) | 98,074 | — | ||||||||||||
Master Securities Forward Transactions Agreements | ||||||||||||||||||
Credit Suisse AG | — | — | (9,665) | (9,665) | — | (9,665) | ||||||||||||
Barclays Capital Inc. | — | (4,730) | — | (4,730) | — | (4,730) | ||||||||||||
UBS Securities LLC | — | (33,768) | — | (33,768) | — | (33,768) | ||||||||||||
Total Borrowings and Other Financing Transactions | $(367,214) | $(38,498) | $(9,665) |
HARBOR REAL RETURN FUND
Counterparty | 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 | ||||||||||||||||||
Royal Bank of Canada | $ (9,471) | $ — | $ — | $ (9,471) | $ 9,471 | $ — | ||||||||||||
Royal Bank of Scotland | (13,703) | — | — | (13,703) | 13,703 | — |
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Harbor Fixed Income Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 7—OFFSETTING ASSETS AND LIABILITIES—Continued
HARBOR REAL RETURN FUND—Continued
Counterparty | 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) | ||||||||||||
Master Securities Forward Transactions Agreements | ||||||||||||||||||
Goldman Sachs and Co. LLC | $ — | $ — | $(3,790) | $ (3,790) | $ — | $(3,790) | ||||||||||||
Barclays Capital Inc. | — | (3,114) | (3,114) | — | (3,114) | |||||||||||||
BNP Paribas | — | (1,797) | — | (1,797) | — | (1,797) | ||||||||||||
Total Borrowings and Other Financing Transactions | $(23,174) | $(4,911) | $(3,790) |
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 October 31, 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 | $ 3,463 | $ — | $ — | $ 3,463 | $ (488) | $ — | $— | $ (488) | $2,975 | $ — | $2,975 | |||||||||||
BNP Paribas SA | 1,145 | — | — | 1,145 | (1,262) | — | — | (1,262) | (117) | — | (117) | |||||||||||
Citibank NA | 2,378 | — | 57 | 2,435 | (1,417) | — | — | (1,417) | 1,018 | (980) | 38 | |||||||||||
Deutsche Bank AG | 146 | — | — | 146 | (304) | — | — | (304) | (158) | 158 | — | |||||||||||
Goldman Sachs Bank USA | 970 | 178 | — | 1,148 | (1,040) | (710) | — | (1,750) | (602) | — | (602) | |||||||||||
Goldman Sachs International | — | — | 43 | 43 | — | — | — | — | 43 | — | 43 | |||||||||||
HSBC Bank USA | 2,316 | — | — | 2,316 | (728) | — | — | (728) | 1,588 | — | 1,588 | |||||||||||
HSBC Bank USA NA | — | — | 36 | 36 | — | (145) | — | (145) | (109) | — | (109) | |||||||||||
JP Morgan Chase Bank | 1,946 | — | — | 1,946 | (123) | — | — | (123) | 1,823 | — | 1,823 | |||||||||||
JP Morgan Chase Bank NA | 3,133 | — | 239 | 3,372 | (614) | — | — | (614) | 2,758 | — | 2,758 | |||||||||||
NatWest Markets Plc | 40 | — | — | 40 | — | — | — | — | 40 | — | 40 | |||||||||||
Société Générale | 51 | — | — | 51 | (879) | — | — | (879) | (828) | 561 | (267) | |||||||||||
UBS AG | 606 | — | — | 606 | (1,117) | — | — | (1,117) | (511) | 511 | — | |||||||||||
Total Over-the-Counter Exposure | $16,194 | $178 | $375 | $16,747 | $(7,972) | $(855) | $— | $(8,827) |
* | 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 | $ 3 | $— | $— | $ 3 | $ — | $ — | $ — | $ — | $ 3 | $— | $ 3 | |||||||||||
BNP Paribas SA | 39 | — | — | 39 | (7) | — | — | (7) | 32 | — | 32 | |||||||||||
Citibank NA | 39 | — | — | 39 | (30) | (8) | — | (38) | 1 | — | 1 | |||||||||||
Credit Suisse International | 1 | — | — | 1 | — | — | — | — | 1 | — | 1 | |||||||||||
Deutsche Bank AG | — | — | — | — | (4) | — | (32) | (36) | (36) | — | (36) | |||||||||||
Goldman Sachs Bank USA | — | — | — | — | — | (2) | — | (2) | (2) | — | (2) | |||||||||||
Goldman Sachs International | — | — | 12 | 12 | — | — | — | — | 12 | — | 12 | |||||||||||
HSBC Bank USA | 39 | — | — | 39 | (9) | — | — | (9) | 30 | — | 30 | |||||||||||
JP Morgan Chase Bank NA | 89 | — | — | 89 | (1) | (2) | — | (3) | 86 | — | 86 |
129
Harbor Fixed Income Funds
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) | ||||||||||||||
Morgan Stanley Capital Services LLC | $ — | $— | $— | $ — | $ — | $ (9) | $(103) | $(112) | $(112) | $— | $(112) | |||||||||||
Société Générale | 7 | — | — | 7 | (7) | — | — | (7) | — | — | — | |||||||||||
UBS AG | — | — | — | — | (5) | — | — | (5) | (5) | — | (5) | |||||||||||
Total Over-the-Counter Exposure | $217 | $— | $ 12 | $229 | $(63) | $(21) | $(135) | $(219) |
* | 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
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.
130
Harbor Fixed Income Funds
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
Harbor Funds
Harbor Funds
Opinions on the Financial Statements
We have audited the accompanying statements of assets and liabilities of Harbor Convertible Securities Fund, Harbor High-Yield Bond Fund, Harbor High-Yield Opportunities Fund, Harbor Bond Fund, Harbor Core Bond Fund, Harbor Real Return Fund and Harbor Money Market Fund (collectively referred to as the “Funds”), (seven of the funds constituting the Harbor Funds (the “Trust”)), including the portfolios of investments, as of October 31, 2018, and the related statements of operations, cash flows (Harbor Real Return Fund only) and changes in net assets, and the financial highlights for each of the periods indicated in the table below and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds, (seven of the funds constituting the Harbor Funds), at October 31, 2018, the results of their operations, changes in net assets and financial highlights for each of the periods indicated in the table below, in conformity with U.S. generally accepted accounting principles.
Individual fund comprising the Harbor Funds | Statement of operations | Statement of changes in net assets | Financial highlights |
Harbor Convertible Securities Fund Harbor High-Yield Bond Fund Harbor Bond Fund Harbor Real Return Fund Harbor Money Market Fund | For the year ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 | For each of the five years in the period ended October 31, 2018 |
Harbor High-Yield Opportunities Fund | For the period from November 1, 2017 (inception) through October 31, 2018 | ||
Harbor Core Bond Fund | For the period from June 1, 2018 (inception) through October 31, 2018 |
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on each of the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Harbor Funds investment companies since 2000.
Chicago, Illinois
December 19, 2018
December 19, 2018
131
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 May 1, 2018 through October 31, 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 May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Convertible Securities Fund | ||||||||
Institutional Class | 0.76% | |||||||
Actual | $3.84 | $1,000 | $1,007.73 | |||||
Hypothetical (5% return) | 3.87 | 1,000 | 1,021.28 | |||||
Retirement Class | 0.69% | |||||||
Actual | $3.49 | $1,000 | $1,007.13 | |||||
Hypothetical (5% return) | 3.52 | 1,000 | 1,021.64 | |||||
Administrative Class | 1.01% | |||||||
Actual | $5.10 | $1,000 | $1,003.60 | |||||
Hypothetical (5% return) | 5.14 | 1,000 | 1,019.99 | |||||
Investor Class | 1.13% | |||||||
Actual | $5.71 | $1,000 | $1,004.96 | |||||
Hypothetical (5% return) | 5.75 | 1,000 | 1,019.37 |
132
Harbor Fixed Income Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor High-Yield Bond Fund | ||||||||
Institutional Class | 0.62% | |||||||
Actual | $3.14 | $1,000 | $1,007.29 | |||||
Hypothetical (5% return) | 3.16 | 1,000 | 1,022.00 | |||||
Retirement Class | 0.53% | |||||||
Actual | $2.68 | $1,000 | $1,008.75 | |||||
Hypothetical (5% return) | 2.70 | 1,000 | 1,022.47 | |||||
Administrative Class | 0.86% | |||||||
Actual | $4.35 | $1,000 | $1,005.88 | |||||
Hypothetical (5% return) | 4.38 | 1,000 | 1,020.76 | |||||
Investor Class | 0.98% | |||||||
Actual | $4.96 | $1,000 | $1,006.46 | |||||
Hypothetical (5% return) | 4.99 | 1,000 | 1,020.14 | |||||
Harbor High-Yield Opportunities Fund | ||||||||
Institutional Class | 0.73% | |||||||
Actual | $3.69 | $1,000 | $1,004.60 | |||||
Hypothetical (5% return) | 3.72 | 1,000 | 1,021.43 | |||||
Retirement Class | 0.65% | |||||||
Actual | $3.29 | $1,000 | $1,004.97 | |||||
Hypothetical (5% return) | 3.31 | 1,000 | 1,021.85 | |||||
Administrative Class | 0.98% | |||||||
Actual | $4.35 | $1,000 | $1,003.35 | |||||
Hypothetical (5% return) | 4.99 | 1,000 | 1,020.14 | |||||
Investor Class | 1.10% | |||||||
Actual | $5.56 | $1,000 | $1,002.82 | |||||
Hypothetical (5% return) | 5.60 | 1,000 | 1,019.52 | |||||
Harbor Bond Fund | ||||||||
Institutional Class | 0.80% | |||||||
Actual | $4.04 | $1,000 | $1,004.11 | |||||
Hypothetical (5% return) | 4.08 | 1,000 | 1,021.07 | |||||
Retirement Class | 1.06% | |||||||
Actual*** | $4.45 | $1,000 | $1,003.62 | |||||
Hypothetical (5% return) | 5.40 | 1,000 | 1,014.33 | |||||
Administrative Class | 1.06% | |||||||
Actual | $5.35 | $1,000 | $1,002.84 | |||||
Hypothetical (5% return) | 5.40 | 1,000 | 1,019.73 | |||||
Harbor Core Bond Fund | ||||||||
Institutional Class | 0.45% | |||||||
Actual*** | $1.88 | $1,000 | $ 992.46 | |||||
Hypothetical (5% return) | 2.29 | 1,000 | 1,022.88 | |||||
Retirement Class | 0.37% | |||||||
Actual*** | $1.54 | $1,000 | $ 992.69 | |||||
Hypothetical (5% return) | 1.89 | 1,000 | 1,023.29 |
133
Harbor Fixed Income Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios* | Expenses Paid During Period** | Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Real Return Fund | ||||||||
Institutional Class | 1.16% | |||||||
Actual | $5.80 | $1,000 | $ 983.09 | |||||
Hypothetical (5% return) | 5.90 | 1,000 | 1,019.21 | |||||
Retirement Class | 0.96% | |||||||
Actual*** | $3.98 | $1,000 | $ 982.57 | |||||
Hypothetical (5% return) | 4.89 | 1,000 | 1,015.36 | |||||
Administrative Class | 1.37% | |||||||
Actual | $6.85 | $1,000 | $ 981.96 | |||||
Hypothetical (5% return) | 6.97 | 1,000 | 1,018.13 | |||||
Harbor Money Market Fund | ||||||||
Institutional Class | 0.20% | |||||||
Actual | $1.01 | $1,000 | $1,008.33 | |||||
Hypothetical (5% return) | 1.02 | 1,000 | 1,024.17 | |||||
Administrative Class | 0.29% | |||||||
Actual | $1.47 | $1,000 | $1,007.61 | |||||
Hypothetical (5% return) | 1.48 | 1,000 | 1,023.71 |
* | 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 184/365 (to reflect the one-half year period). |
*** | Class has less than six months of operating history. Expenses are equal to the Class' annualized net expense ratio, multiplied by the average account value over the period, multiplied by 153/365 (to reflect the period since the commencement of operations). The expense amounts reported under Hypothetical (5% return) are not comparable to the amounts reported using actual fund return. |
134
Harbor Fixed Income Funds
Additional Information (Unaudited)
Additional Information (Unaudited)
Additional Tax Information
The Funds designate the following portions of their distributions from investment company taxable income for the fiscal year ended October 31, 2018 as qualifying for the dividends received deduction for corporate shareholders.
Percentage of Distribution | |
Harbor Convertible Securities Fund | 4% |
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the following capital gain dividends for the fiscal year ended October 31, 2018:
Amount (000s) | |
Harbor Convertible Securities Fund | $130 |
For the fiscal year ended October 31, 2018, the Funds designate up to the maximum amount of such dividends allowable pursuant to the Internal Revenue Code as qualified dividend income eligible for reduced tax rates. These lower rates range from 0% to 20% depending on an individual’s tax bracket. If the Funds pay a distribution during calendar year 2018, complete information will be reported in conjunction with Form 1099-DIV.
Shareholders who own shares through a taxable Harbor Funds account and that received distributions from a Fund during calendar year 2018 will receive a Form 1099-DIV in January 2019 that will show the tax character of those distributions.
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) 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.
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.
ADVISORY AGREEMENT APPROVALS
FACTORS CONSIDERED BY THE TRUSTEES IN APPROVING THE INVESTMENT ADVISORY AGREEMENT AND SUBADVISORY AGREEMENT OF HARBOR COre bond fund
Background
The Investment Company Act of 1940, as amended, 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 Harbor Funds Board of Trustees (the “Board” or the “Trustees”), including a majority of the Independent Trustees voting separately.
135
Harbor Fixed Income Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
At an in-person meeting of the Board of Trustees held on February 18, 19 and 20, 2018 (the “Meeting”), the Board, including the Independent Trustees voting separately, considered and approved an Investment Advisory Agreement with Harbor Capital Advisors, Inc., the adviser to the series of Harbor Funds (the “Adviser”), and a Subadvisory Agreement with Income Research + Management (“IR+M” or the “Subadviser”) with respect to Harbor Core Bond Fund (the “Fund”), a newly formed series of Harbor Funds.
In evaluating the Investment Advisory Agreement and the Subadvisory Agreement, the Trustees reviewed materials furnished by the Adviser and the Subadviser, including information about their respective 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 Investment Advisory Agreement and Subadvisory Agreement, the Trustees, including the Independent Trustees, requested and received materials and presentations relating to the services to be rendered by the Adviser and 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 the Fund, (ii) monitor and oversee the performance and investment capabilities of the 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 the Investment Advisory Agreement and the Subadvisory Agreement with respect to Harbor Core Bond Fund were fair and reasonable and approved the Investment Advisory Agreement and the Subadvisory Agreement for an initial two-year term as being in the best interests of the Fund and its future shareholders.
In their deliberations, the Independent Trustees had the opportunity to meet privately without representatives of the Adviser or the Subadviser present and were represented throughout the process by legal counsel to the Independent Trustees and the Harbor Funds.
Specific Factors
In considering the approval of the Fund’s proposed 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 new Investment Advisory Agreement and Subadvisory Agreement were the following:
• | the nature, extent, and quality of the services expected to be provided by the Adviser and IR+M, including the background, education, expertise and experience of the investment professionals of the Adviser and IR+M to provide services to the Fund; |
• | the favorable history, reputation, qualifications and background of the Adviser and IR+M, as well as the qualifications of their personnel; |
• | the fees proposed to be charged by the Adviser and IR+M for investment advisory and subadvisory services, respectively, including the portion of the fee to be retained by the Adviser, after payment of IR+M’s fee, for investment advisory and related services’ including investment, business, legal, compliance, financial and administrative services, that the Adviser would provide; |
• | the proposed fees and expense ratios of the Fund relative to the fees and expense ratios of similar investment companies; |
• | the investment performance of IR+M in managing other accounts in a style similar to the style to be utilized in managing the Fund relative to the performance of a benchmark index; |
• | information received at regular meetings throughout the year related to services rendered by the Adviser; |
• | the compensation to be received by Harbor Services Group Inc. (“Harbor Services Group”), the Fund’s transfer agent, in consideration of the services it would provide to the Fund; |
• | any “fall out” benefits that might inure to the Adviser and its affiliates as a result of their relationship with the Fund; |
• | information received at regular meetings throughout the year related to the Adviser’s profitability; |
• | the expected profitability of the Adviser with respect to the Fund, including the effect of revenues of Harbor Services Group on such profitability; and |
136
Harbor Fixed Income Funds
Additional Information—Continued
Additional Information—Continued
ADVISORY AGREEMENT APPROVALS—Continued
• | the extent to which economies of scale might be realized as the Fund grows, and the extent to which the Fund’s proposed advisory fee level reflects any economies of scale for the benefit of fund investors. |
Nature, Extent, and Quality of Services
In discussing the nature, extent, and quality of the services to be provided by the Adviser, the reasonableness of the overall compensation provided under the proposed Investment Advisory Agreement and other considerations, the Trustees considered the Adviser’s ability, consistent with the manager-of-managers structure of Harbor Funds, to identify and recommend to the Trustees quality subadvisers for the Funds, to monitor and oversee the performance and investment capabilities of each subadviser, and to recommend the replacement of a subadviser when appropriate. The Trustees specifically considered the Adviser’s history as a manager-of-managers, including its history of replacing subadvisers for particular Funds in circumstances in which the Board and the Adviser had determined that a change in subadviser was in the best interests of a Fund and its shareholders, whether as a result of (i) long-term underperformance not explained by market conditions or market cycles relative to the subadviser’s investment style, (ii) prolonged style inconsistency, (iii) material adverse changes in management or personnel, or (iv) other factors, such as if the Adviser were to identify another subadviser believed to better serve the shareholders than the existing subadviser.
The Board evaluated the nature, extent, and quality of the Adviser’s proposed services in light of the Board’s actual experience with the Adviser, as well as materials provided by the Adviser concerning the financial and other resources devoted by the Adviser to the Funds generally, including the breadth and depth of experience and expertise of the investment, administrative, legal and compliance professionals dedicated to the Funds’ operations. The Trustees determined that the Adviser has the expertise and resources to identify, select, oversee and monitor subadvisers and to operate effectively as the manager-of-managers for the Fund.
In discussing the nature and quality of the services to be provided by IR+M, the Trustees considered the collective expertise and experience of the professionals at IR+M and the favorable record they had generated in the intermediate-term fixed income asset class. The Trustees also noted the experience of the proposed portfolio managers of the Fund in this asset class and the favorable record generated by them at IR+M. In considering IR+M’s performance, the Trustees noted that IR+M’s record in its core bond strategy was favorable compared to its benchmark and peers.
Advisory Fees and Expense Ratios
The Trustees observed that the data available concerning comparative fees and expense ratios showed that the Fund’s proposed advisory fee was below the median and average management fees of the peer group of funds presented to the Board for comparison purposes using Morningstar data. The Trustees also reviewed and determined to be reasonable, in relation to the services provided by each party, the split between the advisory fee paid to Harbor Capital and the subadvisory fee paid to IR+M and specifically the net advisory fee retained by the Adviser at various asset levels.
It was further noted that the Fund’s proposed Retirement Class and Institutional Class net expense ratios were below the average and median expense ratios of the peer group of funds presented to the Board for comparison purposes using Morningstar data. The Trustees observed that the differential in expenses of the Retirement Class would be comprised solely of lower transfer agent service fees which would be at a low level given the more limited shareholder base that can invest in this share class and the fact that this share class permits shareholders to invest only through intermediaries unless a shareholder has an individual account with a value of $1 million or greater.
Profitability
The Trustees also noted that the Adviser expected to operate the Fund initially at a loss (and had agreed to reduce or waive a portion of its advisory fee and/or absorb fund expenses while paying IR+M its fee and/or paying or reimbursing fund expenses).
Economies of Scale
The Trustees also concluded that breakpoints in the Fund’s advisory fee were not necessary at the present time in light of, among other things, the Adviser’s forward-looking approach to setting the contractual advisory fee, its absorbing fund expenses during the initial period of the Fund’s operations while paying IR+M its full subadvisory fee and the uncertainty surrounding the aspects of the Fund’s future asset growth. It was agreed, however, that the Board would consider the issue of breakpoints in the Fund’s advisory fee schedule at least annually after the initial two-year contract term as part of its annual investment contract review process for all of the Funds.
137
Harbor Fixed Income Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers
As of December 2018
The business and affairs of the Trust shall be managed by or under the direction of the Trustees, and they shall have all powers necessary or desirable to carry out that responsibility. The Trustees shall have full power and authority to take or refrain from taking any action and to execute any contracts and instruments that they may consider necessary or desirable in the management of the Trust. Any determination made by the Trustees in good faith as to what is in the interests of the Trust shall be conclusive. Information pertaining to the Trustees and Officers of Harbor Funds is set forth below. The address of each Trustee and Officer is: [Name of Trustee or Officer] c/o Harbor Funds, 111 South Wacker Drive, 34th Floor, Chicago, IL 60606-4302.
Harbor Funds' Statement of Additional Information includes additional information about the Trust’s Trustees and is available without charge by calling 800-422-1050 or at the Trust’s website at harborfunds.com.
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Number of Portfolios In Fund Complex Overseen By Trustee | Other Directorships Of Public Companies and Other Registered Investment Companies Held by Trustee During Past Five Years |
INDEPENDENT TRUSTEES | ||||
Scott M. Amero (55) Trustee | Since 2014 | Chairman (2015-Present) and Trustee (2011-2015), Rare (conservation nonprofit); Trustee, Berkshire School (2014-Present); Vice Chairman and Global Chief Investment Officer, Fixed Income (2010), Vice Chairman and Global Chief Investment Officer, Fixed Income, and Co-Head, Fixed Income Portfolio Management (2007-2010), BlackRock, Inc., (publicly traded investment management firm). | 32 | None |
Raymond J. Ball (74) Trustee | Since 2006 | Sidney Davidson Distinguished Service Professor of Accounting, University of Chicago Booth School of Business (2000-Present); Academic Affiliate, Analysis Group (litigation consulting firm) (2000-Present); Financial Reporting Faculty Advisory Group of the Institute of Chartered Accountants in England and Wales (2008-Present); and Advisory Board of the Center for Accounting Research & Education at University of Notre Dame (2006-Present). | 32 | None |
Donna J. Dean (67) Trustee | Since 2010 | Chief Investment Officer of the Rockefeller Foundation (a private foundation) (1995-Present). | 32 | None |
Joseph L. Dowling III (54) Trustee | Since 2017 | Chief Investment Officer, Brown University (2013-Present); Advisory Board Member, Stage Point Capital (private mortgage specialist) (2016-2017); Advisory Board Member, Harbor Funds (2016-2017); and Founder and Managing Member, Narragansett Asset Management (private investment management firm) (1998-2013). | 32 | Director of Integrated Electrical Services (2011-Present). |
Randall A. Hack (71) Trustee | Since 2010 | Founder and Senior Managing Director of Capstone Capital LLC (private investment firm) (2003-Present); Director of Tower Development Corporation (cell tower developer) (2009-2016); Advisory Director of Berkshire Partners (private equity firm) (2002-2013); Founder and Senior Managing Director of Nassau Capital, LLC (private investment firm, investing solely on behalf of the Princeton Endowment) (1995-2001); and President of The Princeton University Investment Company (1990-1994). | 32 | None |
Robert Kasdin (60) Trustee | Since 2014 | Senior Vice President and Chief Operating Officer (2015-Present) and Chief Financial Officer (2018-Present), Johns Hopkins Medicine; Senior Executive Vice President, Columbia University (2002-2015); Trustee and Member of the Finance Committee, National September 11 Memorial & Museum at the World Trade Center (2005-Present); Director, Apollo Commercial Real Estate Finance, Inc. (2014-Present); Director and Executive Committee Member, The Y in Central Maryland (2018-Present); and Director, Noranda Aluminum Holdings Corp. (2007-2014). | 32 | Director of Noranda Aluminum Holdings Corporation (2007-2014); and Director of Apollo Commercial Real Estate Finance, Inc. (2014-Present). |
138
Harbor Fixed Income Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers—Continued
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Number of Portfolios In Fund Complex Overseen By Trustee | Other Directorships Of Public Companies and Other Registered Investment Companies Held by Trustee During Past Five Years |
INDEPENDENT TRUSTEES—Continued | ||||
Kathryn L. Quirk (66) Trustee | Since 2017 | Retired; Vice President, Senior Compliance Officer and Head, U.S. Regulatory Compliance, Goldman Sachs Asset Management (2013-2017); Deputy Chief Legal Officer, Asset Management, and Vice President and Corporate Counsel, Prudential Insurance Company of America (2010-2012); Co-Chief Legal Officer, Prudential Investment Management, Inc., and Chief Legal Officer, Prudential Investments and Prudential Mutual Funds (2008-2012); Vice President and Corporate Counsel and Chief Legal Officer, Mutual Funds, Prudential Insurance Company of America, and Chief Legal Officer, Prudential Investments (2005-2008); Vice President and Corporate Counsel and Chief Legal Officer, Mutual Funds, Prudential Insurance Company of America (2004-2005); Member, Management Committee (2000-2002), General Counsel and Chief Compliance Officer, Zurich Scudder Investments, Inc. (1997-2002). | 32 | None |
Ann M. Spruill (64) Trustee | Since 2014 | Partner (1993-2008), member of Executive Committee (1996-2008), Member Board of Directors (2002-2008), Grantham, Mayo, Van Otterloo & Co, LLC (private investment management firm) (with the firm since 1990); Member Investment Committee and Chair of Global Equities, Museum of Fine Arts, Boston (2000-Present); and Trustee, Financial Accounting Foundation (2014-Present). | 32 | None |
INTERESTED TRUSTEE | ||||
Charles F. McCain (49)* Chairman, Trustee and President | Since 2017 | Chief Executive Officer (2017-Present), Director (2007-Present), President and Chief Operating Officer (2017), Executive Vice President and General Counsel (2004-2017), and Chief Compliance Officer (2004-2014), Harbor Capital Advisors, Inc.; Director (2007-Present) and Chief Compliance Officer (2004-2017), Harbor Services Group, Inc.; and Chief Executive Officer (2017-Present), Director (2007-Present), Chief Compliance Officer and Executive Vice President (2007-2017), Harbor Funds Distributors, Inc. | 32 | None |
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years |
FUND OFFICERS NOT LISTED ABOVE** | ||
Erik D. Ojala (43) Chief Compliance Officer | Since 2017 | Executive Vice President and General Counsel (2017-Present) and Secretary (2010-Present); Senior Vice President and Associate General Counsel (2007-2017), Harbor Capital Advisors, Inc.; Director, Executive Vice President and Chief Compliance Officer (2017-Present), Harbor Funds Distributors, Inc.; and Director (2017-Present) and Assistant Secretary (2014-Present), Harbor Services Group, Inc. |
Anmarie S. Kolinski (47) Treasurer | Since 2007 | Executive Vice President and Chief Financial Officer (2007-Present), Harbor Capital Advisors, Inc.; Chief Financial Officer (2007-Present), Harbor Services Group, Inc.; and Chief Financial Officer (2015-Present) and Treasurer (2012-Present), Harbor Funds Distributors, Inc. |
Brian L. Collins (50) Vice President | Since 2005 | Executive Vice President and Chief Investment Officer (2004-Present), Harbor Capital Advisors, Inc. |
Charles P. Ragusa (59) Vice President | Since 2007 | Executive Vice President (2007-Present), Harbor Capital Advisors, Inc.; President (2007-Present), Harbor Services Group, Inc.; and Executive Vice President and AML Compliance Officer (2007-Present) and OFAC Officer (2015-Present), Harbor Funds Distributors, Inc. |
Diana R. Podgorny (39) Secretary | Since 2018 | Vice President and Assistant General Counsel, Harbor Capital Advisors, Inc. (2017-Present); Vice President and Counsel, AMG Funds LLC (2016-2017); and Vice President and Counsel, Aston Asset Management, LLC (2010-2016). |
139
Harbor Fixed Income Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers—Continued
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years |
FUND OFFICERS NOT LISTED ABOVE**—Continued | ||
Jodie L. Crotteau (46) Assistant Secretary | Since 2014 | Senior Vice President and Chief Compliance Officer, Harbor Capital Advisors, Inc. (2014-Present); Chief Compliance Officer and Secretary (2017-present) and Assistant Secretary (2015-2016), Harbor Services Group, Inc.; Assistant Secretary (2016-present), Harbor Funds Distributors, Inc.; Vice President and Chief Compliance Officer, Grosvenor Registered Funds (2011-2014); and Vice President, Grosvenor Capital Management, L.P. (2010-2014). |
Lana M. Lewandowski (39) AML Compliance Officer and Assistant Secretary | Since 2017 | Legal & Compliance Manager (2016-Present) and Legal Specialist (2012-2015), Harbor Capital Advisors, Inc. |
Lora A. Kmieciak (54) Assistant Treasurer | Since 2017 | Senior Vice President – Fund Administration and Analysis (2017-Present) and Senior Vice President - Business Analysis (2015-2017), Harbor Capital Advisors, Inc.; and Assurance Executive Director (1999-2015), Ernst & Young LLP. |
John M. Paral (50) Assistant Treasurer | Since 2013 | Director of Fund Administration and Analysis (2017-Present), Vice President (2012-Present) and Financial Reporting Manager (2007-2017), Harbor Capital Advisors, Inc. |
1 | Each Trustee serves for an indefinite term, until his successor is elected. Each Officer is elected annually. |
* | Mr. McCain is deemed an “Interested Trustee” due to his affiliation with the Adviser and Distributor of Harbor Funds. |
** | Officers of the Funds are “interested persons” as defined in the Investment Company Act. |
140
This privacy statement is not part of this report
Harbor’s Privacy Statement
The following privacy statement (“Privacy Statement”) is issued by Harbor Funds and each series of Harbor Funds and its affiliates, Harbor Capital Advisors, Inc., Harbor Services Group, Inc. and Harbor Funds Distributors, Inc. (collectively, “Harbor” “we” or “us”). The measures described in this Privacy Statement reflect the commitments we make to protect the privacy of your personal information. We appreciate the confidence you have shown by entrusting us with your assets.
Personal Information
In the course of providing products and services, we collect personal information about you from the following sources: applications, forms, our website (including any information captured through our use of “cookies”), through mobile applications, by telephone and in correspondence and transactions with us, our affiliates or other parties, including when you contact Shareholder Services or establish an account with us. This Privacy Statement applies to personal information we collect from those sources unless we inform you otherwise.
The personal information collected may include name, address, e-mail address, telephone/fax numbers, account number, social security or taxpayer identification number, investment activity, bank account information, location data (depending on your app settings and device permissions), and other information voluntarily provided by you.
We may also collect certain information automatically when you visit us through our website or a mobile application. For example, we may collect technical and navigational information, such as computer browser type, device type, device ID, Internet protocol address, pages visited average time spent on our website and searches performed on our website. We may use this information to alert you to software compatibility issues; to provide you with or improve or websites, applications, products or services; or to provide you with content that may be of interest to you. We use your IP address to help diagnose problems with our server and to administer our website. Your IP address is also used to gather broad demographic information. This information will be used for internal purposes only. We also collect information in the form of log files that record website and app activity and gather statistics about your browsing habits. These entries are generated automatically, and help us to troubleshoot errors, improve performance and maintain the security of our sites and apps. We use “cookies” and similar files that may be placed on your computer or device for security purposes, to facilitate site navigation and to personalize the appearance of our site. We provide more information regarding cookies and other tracking technologies below.
In addition, we may receive personal information about you that you authorize third parties to provide to us. We also may obtain personal information from third-party service providers to verify your identity, to prevent fraud, or to help us identify products and services that may be of interest to you.
The personal information we collect about you may be transferred to or stored by us or our service providers in the United States or elsewhere, as permitted by law.
If you do not wish to provide personal information to us, we may be unable to provide certain products or services to you.
Information Sharing
We disclose personal information with affiliated and non-affiliated parties: (1) as permitted or required by law or regulation; (2) if we believe that is necessary to: comply with applicable laws, regulations, or industry requirements; respond to requests from a legal, regulatory, or governmental authority; enforce legal terms; detect and resolve any fraud or security concerns, and protect the rights, property, and safety of us, our users, or others; (3) in the event of a merger, acquisition or sale of all or substantially all of our assets; or (4) as otherwise described in this Privacy Statement.
Personal information we collect may be shared with non-affiliated companies that perform support services on our behalf or to other firms that assist us in providing you with products and services (including, without limitation, completing transactions), such as custodians, transfer agents, broker-dealers and marketing service firms (to support our marketing to you), as well as with other financial institutions. We may also share information with affiliates that are engaged in a variety of financial services in order to better service your account(s).
When information is shared with third parties, they are not permitted to use the information for any purpose other than those purposes described in this Privacy Statement or as permitted by law.
If you close your account(s) or if we lose contact with you, we will continue to share information in accordance with our current privacy policy and practices.
If you close your account(s) or if we lose contact with you, we will continue to share information in accordance with our current privacy policy and practices.
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Harbor’s Privacy Statement—Continued
Security
We maintain physical, electronic and procedural safeguards designed to protect your personal information; however, please be aware that no data security measures can guarantee 100% security.
For shareholders accessing information through our website or a mobile application, various forms of Internet security, such as data encryption firewall barriers, user names and passwords, two-factor authentication, and other tools are used. For additional information regarding our security measures, visit the terms and conditions of use on our website at .
Linking to
Third Parties
Third Parties
When you visit our website and leave to go to another linked site, we are not responsible for the content or availability of the linked site. Please be advised that if you enter into a transaction on the third-party site, we do not represent either the third party or you. Further, the privacy and security policies of the linked site may differ from those practiced by us.
Cookies and Other Technologies
A cookie is a small text file that is stored on your computer, tablet, or device when you visit a website or a mobile application. Cookies usually store small bits of information about you and what you do on that site or application, which are then used to improve your browsing experience. Some cookies are only used during a single visit, while others are saved on your device until your next visit. Harbor Funds and our third-party providers use both types of cookies to make your visits more productive.
If you are concerned about cookies, they can be blocked from your device, or you can set your browser to notify you when they are being used. Use the Help feature of your browser to learn how.
Our website, mobile application, and e-mails may use a web beacon. A web beacon helps to measure usage and activity and reports that activity back to the system providers. In some cases, a web beacon triggers the placement of a cookie on your device.
We and our service providers use web beacons and cookies to determine things like if and when you open our e-mails, what type of device, operating system, e-mail program, or web browser you are using, your IP address, and what links you click within our site or e-mail. These things enable us to gauge the effectiveness, relevance, and value of our content and communications.
We use Google Analytics (which uses a web beacon) to collect information about use of our website and mobile application. For more information on opting out of being tracked by Google Analytics, visit https://tools.google.com/dlpage/gaoptout. We also use Lucky Orange to collect information about how visitors interact with the content on our public website and mobile application pages. Lucky Orange does not track actions or behavior within the password-protected online account access systems. For more information about Lucky Orange, including how to opt out, please visit: https://www.luckyorange.com/privacy.php.
Do Not Track
Our third-party vendors may collect information about users across our website. We do not currently have the capability to respond to a web browser that does not track signals or other mechanisms that provide you with the ability to exercise choice regarding the collection of this information.
Changes to this
Privacy Statement
Privacy Statement
We reserve the right to change or revise this Privacy Statement at any time to reflect changes in the law or our data collection and use practices. New updates to the Privacy Statement will be posted to our website and are include in Harbor Funds’ annual reports to shareholders. Privacy Statement changes will apply to the information collected from the date we post our revised Privacy Statement, as well as to existing information we hold.
Contact Us
If you have any questions or concerns about how we maintain the privacy of your personal information or if you would like to update your personal information on file, please contact us at 800-422-1050 Monday through Friday, between the hours of 8:00 a.m. and 6:00 p.m. Eastern time. You may also write to us at the following postal address:
Harbor Funds
c/o Harbor Services Group, Inc.
PO Box 804660
Chicago, IL 60680-4108
c/o Harbor Services Group, Inc.
PO Box 804660
Chicago, IL 60680-4108
We recommend that you read and retain this notice for your personal files.
Last Updated: December 2018
142
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.
ICE BofAML U.S. Convertible Ex Mandatory Index—The ICE BofAML U.S. Convertible 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. 3-Month Treasury Bill Index—The ICE BofAML U.S. 3-Month 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 (ND) Index—The MSCI All Country World (ND) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of global 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. (ND) Index 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 developed markets, excluding the U.S. and Canada. 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® 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
143
Benchmark Descriptions—Continued
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.
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.
144
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.AR.FI.1018
Table of Contents
Annual Report
October 31, 2018
Target Retirement Funds
Institutional Class | |
Harbor Target Retirement Income Fund | 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 |
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website (harborfunds.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from a Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with Harbor Funds, by calling 800-422-1050.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary (such as a broker-dealer or bank), you can contact your financial intermediary to request that you continue to receive paper copies of the Funds’ shareholder reports. If you invest directly, you can call 800-422-1050 to request that you continue to receive paper copies of the Funds’ shareholder reports. Your election to receive reports in paper will apply to all Harbor Funds held in your account.
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 year ended October 31, 2018, most equity funds posted positive returns while most fixed income funds had negative returns.
Although an escalation in global trade tensions unsettled U.S. equity markets early in the fiscal year, the positive momentum set by corporate earnings and encouraging economic data proved strong enough to offset such concerns. In the third calendar quarter of 2018, U.S. companies reported the eighth consecutive quarter of earnings growth across all S&P 500 sectors, propelling broad U.S. equity indexes to multiple all-time highs. In October, the U.S. stock market experienced a pullback amid increased volatility, offsetting some of the fiscal year’s gains. The Russell 3000® Index, a measure of the broad U.S. stock market, had a return of 6.60% for the fiscal year ended October 31, 2018.
International stock markets rose early in the fiscal year, supported by strong global economic data, before falling quite sharply in response to fears of higher interest rates, rising inflation, and a significant drop in price of stocks in the Information Technology sector. As the fiscal year progressed, the U.S. Dollar strengthened against other currencies, including the Euro, the Japanese Yen and the British Pound, which pressured international equity market performance. The MSCI All Country World Ex. U.S. (ND) Index, a measure of the equity markets outside the U.S., had a return of -8.24%.
Fixed income markets in the aggregate posted modest declines for the fiscal year, in an environment of rising interest rates and increased volatility in financial markets generally. The Bloomberg Barclays U.S. Aggregate Bond Index, a diversified benchmark of U.S. investment grade bonds, returned -2.05% for the fiscal year, whereas the ICE BofAML U.S. Non-Distressed High Yield Index had a return of 0.76%.
Comments by the portfolio managers of the Harbor Target Retirement Funds can be found in the Managers’ Commentary section of this report. As always, we recommend that shareholders maintain a long-term perspective in evaluating all of their investments, including those in Harbor Funds.
Returns For Periods Ended October 31, 2018 | ||||||||
Annualized | ||||||||
Domestic Equities | 1 Year | 5 Years | 10 Years | 30 Years | ||||
Russell 3000® (entire U.S. stock market) | 6.60% | 10.81% | 13.35% | 10.28% | ||||
S&P 500 (large cap stocks) | 7.35 | 11.34 | 13.24 | 10.25 | ||||
Russell Midcap® (mid cap stocks) | 2.79 | 8.97 | 14.20 | 11.44 | ||||
Russell 2000® (small cap stocks) | 1.85 | 8.01 | 12.44 | 9.64 | ||||
Russell 3000® Growth (growth stocks) | 10.20 | 13.06 | 15.34 | 10.13 | ||||
Russell 3000® Value (value stocks) | 2.78 | 8.50 | 11.28 | 10.05 | ||||
International & Global | ||||||||
MSCI EAFE (ND) (foreign stocks) | -6.85% | 2.02% | 6.89% | 4.59% | ||||
MSCI EAFE Small Cap (ND) (foreign small cap stocks) | -7.81 | 5.16 | 11.56 | N/A | ||||
MSCI World (ND) (global stocks) | 1.16 | 6.81 | 10.02 | 6.83 | ||||
MSCI All Country World Ex. U.S. (ND) (foreign stocks) | -8.24 | 1.63 | 6.92 | N/A | ||||
MSCI Emerging Markets (ND) (emerging market stocks) | -12.52 | 0.78 | 7.84 | N/A | ||||
Fixed Income | ||||||||
ICE BofAML U.S. Non-Distressed High Yield (domestic high-yield bonds) | 0.76% | 4.79% | 9.32% | N/A | ||||
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -2.05 | 1.83 | 3.94 | 5.97% | ||||
Bloomberg Barclays U.S. TIPS (domestic inflation-linked bonds) | -1.24 | 0.97 | 4.11 | N/A | ||||
ICE BofAML U.S. 3-Month Treasury Bill (proxy for money market returns) | 1.68 | 0.55 | 0.35 | 3.18 |
assessing your long-term investment plan
As the end of the calendar year approaches, it may be a good time to evaluate your financial goals and your investments. We always encourage shareholders to take a long-term perspective with all of their investments. While past performance is never a guarantee of future results, over the long term, the returns of equities and debt securities have historically helped many investors achieve their financial objectives. We encourage all investors to maintain a diversified portfolio of equities, debt and cash in an allocation consistent with their long-term financial goals and comfort with risk.
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.
December 19, 2018
Charles F. McCain |
Chairman |
1
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
Fiscal year 2018 featured challenging market conditions. U.S. equity markets finished the 12-month period ended October 31, 2018 comfortably higher, but not without bouts of heightened volatility and pronounced drawdowns during the year. Non-U.S. equity markets continued to lag their U.S. counterparts, declining for the year. Fixed-income market segments delivered small absolute returns or losses.
As mentioned, stocks of U.S. companies were bright spots during the fiscal period. The Russell 3000® Index, measuring U.S. equity performance, gained 6.60%. Within the S&P 500 Index, a broad gauge of U.S. large-cap equity performance, nine of 11 economic sectors delivered positive returns over the 12-month period. Information Technology and Consumer Discretionary stocks registered the highest returns (16.77% and 15.69%, respectively). The Materials sector was the worst performer, declining by 9.35%. Communication Services, a new sector as of September 2018, made up of former Consumer Discretionary, Information Technology, and Telecommunications Services names, gained 6.20%. More broadly within U.S. markets, large-cap stocks led small-cap stocks and growth stocks continued to outperform value stocks.
The picture was less rosy outside of U.S. equities. The MSCI EAFE (ND) Index, a benchmark of large- and mid-cap stocks from across 21 developed markets, declined by 6.85% for the fiscal year ended October 31, 2018. Within the MSCI EAFE (ND) Index, nine economic sectors declined during the period. Financials (-12.17%) and Communications Services (-10.02%) lost the most, while Energy (10.67%) was a standout in the positive direction. Four of the five largest countries in the MSCI EAFE (ND) Index—Japan, the United Kingdom, France, and Germany—also ended the period in the red. Emerging markets stocks performed more poorly, with the MSCI Emerging Markets (ND) Index dropping in value by 12.52%.
Bonds also slumped during the fiscal year. The Bloomberg Barclays U.S. Aggregate Bond Index, an index of investment grade bonds, fell by 2.05%. Each of the Bloomberg Barclays U.S. Aggregate Bond Index’s broad sectors—Government, Credit, and Securitized—declined in value during the 12-month period. The ICE BofAML U.S. High Yield Index (H0A0), an index of below-investment-grade bonds, finished the year with a relatively better showing of 0.86%.
Short-term investments posted small absolute gains. The ICE BofAML U.S. 3-Month Treasury Bill Index gained 1.68%.
Performance
The Harbor Target Retirement Funds, which provide exposure to equity, fixed income, and short-term investments markets, delivered small losses for the 12-month period ended October 31, 2018. On an absolute basis, the Funds with larger weightings in fixed-income and short-term investments, such as Harbor Target Retirement Income Fund, Harbor Target Retirement 2015 Fund, and Harbor Target Retirement 2020 Fund, had narrower declines, while the Funds with heavier equity weightings dropped by greater amounts. The Funds’ returns for the 12-month period appear in an accompanying table.
The Funds’ performance is also compared to their respective Composite Indices. Though the nearer dated Funds have outperformed their respective Composite Indices since inception, each of the 10 Funds underperformed its respective Composite Index during the fiscal year. The returns for these Composite Indices also appear in a separate table, while details on the drivers of the Funds’ results relative to the Composite Indices are addressed below.
During the 12 months ended October 31, 2018, performance for the Harbor Target Retirement Funds intended for investors with more time to retirement was pressured due to exposure to weak-performing non-U.S. equity Funds. For example, Harbor International Fund lost 11.31%, trailing its benchmark, the MSCI EAFE (ND) Index, by 448 basis points. (All returns in this section are for the respective underlying Funds’ Institutional share classes.) Harbor International Fund’s results for the period were hurt by stock selection decisions, such as negative stock picking in the Consumer Staples sector. Marathon Asset Management LLP (“Marathon-London’) was appointed subadviser to Harbor International Fund as of August 22, 2018, replacing the previous subadviser. Harbor International Fund’s performance results for the period November 1, 2018 to August 21, 2018 reflect the results of the investment
2
Harbor Target Retirement Funds
Managers' Commentary—Continued
Managers' Commentary—Continued
decisions of the former subadviser and for the period from August 22, 2018 to October 31, 2018, the results of Marathon-London. Harbor International Growth Fund declined by 11.75%, lagging the MSCI All Country World Ex. U.S. (ND) Index by 351 basis points. On the positive side, Harbor Global Leaders Fund gained 9.90% for the period, outperforming the MSCI All Country World (ND) Index by 10.42 percentage points.
The fortunes of the nearer-dated Funds were more tied to the results of the underlying Funds focused on fixed-income and short-term investments markets. For instance, Harbor Bond Fund, which has the largest absolute weight in these funds, declined in value by 1.63%. Harbor Bond Fund’s performance was hampered by rising interest rates during the period. However, Harbor Bond Fund outperformed its index, the Bloomberg Barclays U.S. Aggregate Bond Index, by 42 basis points due to its interest-rate positioning as well as its allocations to select emerging-markets, non-agency mortgage backed, and high-yield corporate bonds. Harbor High-Yield Bond Fund, which focuses on below-investment-grade corporate bonds, gained 0.45% during the fiscal year, but did not keep up with its benchmark, the ICE BofAML U.S. Non-Distressed High Yield Index, which rose by 0.76%. Harbor High-Yield Bond Fund trailed the index due to negative issue selection among oil and gas and automotive bonds as well as among bonds rated CCC.
HARBOR TARGET RETIREMENT FUNDS | Total Return Year Ended October 31, 2018 |
Harbor Target Retirement Income Fund | -1.14% |
Harbor Target Retirement 2015 Fund | -1.10 |
Harbor Target Retirement 2020 Fund | -1.29 |
Harbor Target Retirement 2025 Fund | -1.63 |
Harbor Target Retirement 2030 Fund | -1.57 |
Harbor Target Retirement 2035 Fund | -1.79 |
Harbor Target Retirement 2040 Fund | -1.84 |
Harbor Target Retirement 2045 Fund | -1.83 |
Harbor Target Retirement 2050 Fund | -2.06 |
Harbor Target Retirement 2055 Fund | -2.31 |
COMMONLY USED MARKET INDICES | Total Return Year Ended October 31, 2018 |
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds) | -2.05% |
MSCI EAFE (ND) (foreign stocks) | -6.85 |
Russell 3000® (entire U.S. stock market) | 6.60 |
HARBOR TARGET RETIREMENT FUND COMPOSITE INDICES | Total Return Year Ended October 31, 2018 |
Composite Index Income | -0.75% |
Composite Index 2015 | -0.56 |
Composite Index 2020 | -0.56 |
Composite Index 2025 | -0.74 |
Composite Index 2030 | -0.60 |
Composite Index 2035 | -0.56 |
Composite Index 2040 | -0.55 |
Composite Index 2045 | -0.32 |
Composite Index 2050 | -0.32 |
Composite Index 2055 | -0.46 |
3
Harbor Target Retirement Funds
Managers' Commentary—Continued
Managers' Commentary—Continued
Underlying Harbor Funds Performance (Institutional Class Shares)
Total Return for the Year Ended October 31, 2018 | |||||||||||||||||
EQUITY | One Year | Five Yearsa | Ten Yearsa | Since Inceptiona | Current 7-Day SEC Yield | Inception Date | Expense Ratios* | ||||||||||
Subsidized b | Unsubsidized c | Net | Gross | ||||||||||||||
Harbor Capital Appreciation Fund | 9.44% | 13.45% | 15.41% | 11.66% | N/A | N/A | 12/29/1987 | 0.66% d | 0.71% | ||||||||
Harbor Strategic Growth Fund | 6.26 | 11.21 | N/A | 13.64 | N/A | N/A | 11/01/2011 e | 0.70 f | 0.89 | ||||||||
Harbor Mid Cap Growth Fund | 7.94 | 10.31 | 13.28 | 4.79 | N/A | N/A | 11/01/2000 | 0.89 | 0.89 | ||||||||
Harbor Small Cap Growth Fund | 4.97 | 8.98 | 13.99 | 8.49 | N/A | N/A | 11/01/2000 | 0.87 | 0.87 | ||||||||
Harbor Large Cap Value Fund | 0.11 | 10.60 | 11.57 | 9.87 | N/A | N/A | 12/29/1987 | 0.68 f | 0.72 | ||||||||
Harbor Mid Cap Value Fund | -4.85 | 6.75 | 13.56 | 7.50 | N/A | N/A | 03/01/2002 | 0.84 d | 0.87 | ||||||||
Harbor Small Cap Value Fund | -5.28 | 8.64 | 12.64 | 10.07 | N/A | N/A | 12/14/2001 | 0.88 | 0.88 | ||||||||
Harbor International Fund | -11.31 | -0.45 | 6.38 | 9.98 | N/A | N/A | 12/29/1987 | 0.72 d,f | 0.81 | ||||||||
Harbor Diversified International All Cap Fund | -8.62 | N/A | N/A | 2.99 | N/A | N/A | 11/02/2015 | 0.80 h | 0.93 | ||||||||
Harbor International Growth Fund | -11.75 | 2.35 | 7.00 | 3.34 | N/A | N/A | 11/01/1993 | 0.85 f | 0.92 | ||||||||
Harbor Global Leaders Fund | 9.90 | 8.35 | N/A | 16.60 | N/A | N/A | 03/01/2009 | 0.90 f | 1.21 | ||||||||
FIXED INCOME | |||||||||||||||||
Harbor High-Yield Bond Fund | 0.45% | 3.62% | 8.11% | 6.71% | N/A | N/A | 12/01/2002 | 0.63% g | 0.72% | ||||||||
Harbor High-Yield Opportunities Fund | -0.59 | N/A | N/A | -0.59 | N/A | N/A | 11/01/2017 | 0.73 h | 1.08 | ||||||||
Harbor Bond Fund | -1.63 | 2.10 | 4.89 | 6.79 | N/A | N/A | 12/29/1987 | 0.51 g,h | 0.63 | ||||||||
Harbor Real Return Fund | -1.57 | 0.68 | 4.26 | 3.44 | N/A | N/A | 12/01/2005 | 0.52 h | 1.03 | ||||||||
SHORT-TERM | |||||||||||||||||
Harbor Money Market Fund | 1.44% | 0.52% | 0.34% | 3.15% | 1.90% | 1.71% | 12/29/1987 | 0.28% g,h | 0.35% |
Outlook
The period’s somewhat weaker results, particularly for certain segments of global markets, and higher volatility have provided a good reminder of the risks involved with investing in the market. We firmly believe it is prudent in the face of difficult markets to remain committed to a long-term investing plan involving diversification across multiple areas, as doing so is in our view a sound policy for reducing exposure to specific risks and benefitting from the markets’ long-term ability to generate attractive returns.
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.
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.
* | 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 | Reflects reimbursements or waivers in effect during the period |
c | Does not reflect reimbursements or waivers currently in effect |
d | Reflects a contractual management fee waiver effective through February 28, 2019 |
e | For the period November 1, 2011 (inception of the Predecessor Fund) to January 20, 2015, Mar Vista Investment Partners, LLC served as the Predecessor Fund’s subadviser and for the period January 20, 2015 to March 6, 2017, Mar Vista Investment Partners, LLC served as investment adviser to the Predecessor Fund. |
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 |
4
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 October 31, 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% | 3% | 2% | 2% | 1% | |||||||||
Harbor Strategic Growth Fund | 4 | 4 | 3 | 3 | 2 | 2 | 3 | 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 | 4 | 4 | 4 | 3 | 3 | 2 | 1 | 1 | |||||||||
Harbor Large Cap Value Fund | 14 | 13 | 11 | 10 | 9 | 7 | 6 | 5 | 3 | 3 | |||||||||
Harbor Mid Cap Value Fund | 9 | 8 | 7 | 7 | 6 | 5 | 4 | 4 | 2 | 2 | |||||||||
Harbor Small Cap Value Fund | 7 | 6 | 6 | 5 | 4 | 4 | 3 | 3 | 2 | 1 | |||||||||
Harbor International Fund | 12 | 11 | 10 | 9 | 7 | 6 | 5 | 4 | 3 | 3 | |||||||||
Harbor Diversified International All Cap Fund | 11 | 11 | 10 | 9 | 8 | 6 | 5 | 4 | 3 | 3 | |||||||||
Harbor International Growth Fund | 12 | 11 | 10 | 9 | 8 | 6 | 5 | 4 | 3 | 3 | |||||||||
Harbor Global Leaders Fund | 5 | 4 | 4 | 3 | 3 | 3 | 2 | 2 | 1 | 1 | |||||||||
Total Equity | 93 | 86 | 76 | 70 | 60 | 49 | 42 | 34 | 23 | 20 | |||||||||
Fixed Income | |||||||||||||||||||
Harbor High-Yield Bond Fund | 0% | 0% | 6% | 7% | 9% | 11% | 12% | 9% | 8% | 8% | |||||||||
Harbor High-Yield Opportunities Fund | 3 | 6 | 4 | 5 | 6 | 8 | 8 | 6 | 5 | 5 | |||||||||
Harbor Bond Fund | 4 | 8 | 14 | 18 | 21 | 25 | 29 | 33 | 38 | 39 | |||||||||
Harbor Real Return Fund | 0 | 0 | 0 | 0 | 4 | 7 | 9 | 12 | 17 | 18 | |||||||||
Total Fixed Income | 7 | 14 | 24 | 30 | 40 | 51 | 58 | 60 | 68 | 70 | |||||||||
Short-Term | |||||||||||||||||||
Harbor Money Market Fund | 0% | 0% | 0% | 0% | 0% | 0% | 0% | 6% | 9% | 10% | |||||||||
Total Short-Term | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 6 | 9 | 10 | |||||||||
100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% | 100% |
5
Harbor Target Retirement Income Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 01/02/2009 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | Annualized | Inception Date | ||||||||
5 Years | Life of Fund | ||||||||||
Harbor Target Retirement Income Fund | |||||||||||
Institutional Class | -1.14% | 2.90% | 5.41% | 01/02/2009 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.28% | — | |||||||
MSCI EAFE (ND) | -6.85 | 2.02 | 6.98 | — | |||||||
Russell 3000® | 6.60 | 10.81 | 14.33 | — | |||||||
Composite Index Income | -0.75 | 2.97 | 5.15 | — |
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.
6
Harbor Target Retirement Income Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—20.4% | ||||
Shares | Value | |||
2,209 | Harbor Capital Appreciation Fund | $ 164 | ||
8,252 | Harbor Strategic Growth Fund | 162 | ||
15,531 | Harbor Mid Cap Growth Fund | 169 | ||
10,330 | Harbor Small Cap Growth Fund | 148 | ||
26,811 | Harbor Large Cap Value Fund | 385 | ||
11,732 | Harbor Mid Cap Value Fund | 251 | ||
5,461 | Harbor Small Cap Value Fund | 183 | ||
5,475 | Harbor International Fund | 319 | ||
30,659 | Harbor Diversified International All Cap Fund | 319 | ||
23,552 | Harbor International Growth Fund | 323 | ||
5,385 | Harbor Global Leaders Fund | 137 | ||
TOTAL EQUITY FUNDS | ||||
(Cost $2,421) | 2,560 | |||
FIXED INCOME FUNDS—69.6% | |||
| Shares | Value | |
101,537 | Harbor High-Yield Bond Fund | $ 983 | |
68,689 | Harbor High-Yield Opportunities Fund | 655 | |
442,601 | Harbor Bond Fund | 4,913 | |
247,141 | Harbor Real Return Fund | 2,194 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $9,260) | 8,745 | ||
SHORT-TERM INVESTMENTS—10.0% | |||
(Cost $1,256) | |||
1,255,593 | Harbor Money Market Fund | 1,256 | |
TOTAL INVESTMENTS—100.0% | |||
(Cost $12,937) | 12,561 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $12,561 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
7
Harbor Target Retirement 2015 Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 01/02/2009 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | Annualized | Inception Date | ||||||||
5 Years | Life of Fund | ||||||||||
Harbor Target Retirement 2015 Fund | |||||||||||
Institutional Class | -1.10% | 3.10% | 6.53% | 01/02/2009 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.28% | — | |||||||
MSCI EAFE (ND) | -6.85 | 2.02 | 6.98 | — | |||||||
Russell 3000® | 6.60 | 10.81 | 14.33 | — | |||||||
Composite Index 2015 | -0.56 | 3.20 | 6.28 | — |
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.
8
Harbor Target Retirement 2015 Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—22.8% | ||||
Shares | Value | |||
943 | Harbor Capital Appreciation Fund | $ 70 | ||
3,499 | Harbor Strategic Growth Fund | 69 | ||
6,640 | Harbor Mid Cap Growth Fund | 72 | ||
4,471 | Harbor Small Cap Growth Fund | 64 | ||
11,429 | Harbor Large Cap Value Fund | 164 | ||
4,989 | Harbor Mid Cap Value Fund | 107 | ||
2,360 | Harbor Small Cap Value Fund | 79 | ||
2,334 | Harbor International Fund | 136 | ||
13,068 | Harbor Diversified International All Cap Fund | 136 | ||
10,066 | Harbor International Growth Fund | 138 | ||
2,256 | Harbor Global Leaders Fund | 57 | ||
TOTAL EQUITY FUNDS | ||||
(Cost $1,053) | 1,092 | |||
FIXED INCOME FUNDS—67.8% | |||
| Shares | Value | |
39,704 | Harbor High-Yield Bond Fund | $ 384 | |
26,878 | Harbor High-Yield Opportunities Fund | 257 | |
164,081 | Harbor Bond Fund | 1,821 | |
88,782 | Harbor Real Return Fund | 789 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $3,397) | 3,251 | ||
SHORT-TERM INVESTMENTS—9.4% | |||
(Cost $449) | |||
449,371 | Harbor Money Market Fund | 449 | |
TOTAL INVESTMENTS—100.0% | |||
(Cost $4,899) | 4,792 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $4,792 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
9
Harbor Target Retirement 2020 Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 01/02/2009 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | Annualized | Inception Date | ||||||||
5 Years | Life of Fund | ||||||||||
Harbor Target Retirement 2020 Fund | |||||||||||
Institutional Class | -1.29% | 3.60% | 7.16% | 01/02/2009 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.28% | — | |||||||
MSCI EAFE (ND) | -6.85 | 2.02 | 6.98 | — | |||||||
Russell 3000® | 6.60 | 10.81 | 14.33 | — | |||||||
Composite Index 2020 | -0.56 | 3.75 | 6.96 | — |
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.
10
Harbor Target Retirement 2020 Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—33.7% | ||||
Shares | Value | |||
7,345 | Harbor Capital Appreciation Fund | $ 543 | ||
27,357 | Harbor Strategic Growth Fund | 537 | ||
53,794 | Harbor Mid Cap Growth Fund | 584 | ||
36,416 | Harbor Small Cap Growth Fund | 523 | ||
88,661 | Harbor Large Cap Value Fund | 1,274 | ||
39,450 | Harbor Mid Cap Value Fund | 843 | ||
18,995 | Harbor Small Cap Value Fund | 638 | ||
18,514 | Harbor International Fund | 1,079 | ||
103,668 | Harbor Diversified International All Cap Fund | 1,079 | ||
79,676 | Harbor International Growth Fund | 1,091 | ||
16,889 | Harbor Global Leaders Fund | 431 | ||
TOTAL EQUITY FUNDS | ||||
(Cost $8,198) | 8,622 | |||
FIXED INCOME FUNDS—60.7% | |||
| Shares | Value | |
249,722 | Harbor High-Yield Bond Fund | $ 2,417 | |
168,841 | Harbor High-Yield Opportunities Fund | 1,611 | |
759,042 | Harbor Bond Fund | 8,426 | |
343,673 | Harbor Real Return Fund | 3,052 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $16,214) | 15,506 | ||
SHORT-TERM INVESTMENTS—5.6% | |||
(Cost $1,426) | |||
1,426,315 | Harbor Money Market Fund | 1,426 | |
TOTAL INVESTMENTS—100.0% | |||
(Cost $25,838) | 25,554 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $25,554 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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. |
a | Rounds to less than $1,000 |
The accompanying notes are an integral part of the Financial Statements.
11
Harbor Target Retirement 2025 Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 01/02/2009 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | Annualized | Inception Date | ||||||||
5 Years | Life of Fund | ||||||||||
Harbor Target Retirement 2025 Fund | |||||||||||
Institutional Class | -1.63% | 3.81% | 7.65% | 01/02/2009 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.28% | — | |||||||
MSCI EAFE (ND) | -6.85 | 2.02 | 6.98 | — | |||||||
Russell 3000® | 6.60 | 10.81 | 14.33 | — | |||||||
Composite Index 2025 | -0.74 | 4.03 | 7.57 | — |
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.
12
Harbor Target Retirement 2025 Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—42.4% | |||
Shares | Value | ||
6,367 | Harbor Capital Appreciation Fund | $ 471 | |
23,633 | Harbor Strategic Growth Fund | 464 | |
47,017 | Harbor Mid Cap Growth Fund | 511 | |
31,943 | Harbor Small Cap Growth Fund | 458 | |
76,582 | Harbor Large Cap Value Fund | 1,100 | |
34,219 | Harbor Mid Cap Value Fund | 732 | |
16,556 | Harbor Small Cap Value Fund | 556 | |
16,041 | Harbor International Fund | 935 | |
89,818 | Harbor Diversified International All Cap Fund | 935 | |
69,176 | Harbor International Growth Fund | 947 | |
14,400 | Harbor Global Leaders Fund | 367 | |
TOTAL EQUITY FUNDS | |||
(Cost $7,372) | 7,476 | ||
FIXED INCOME FUNDS—57.6% | |||
| Shares | Value | |
210,707 | Harbor High-Yield Bond Fund | $ 2,040 | |
142,452 | Harbor High-Yield Opportunities Fund | 1,359 | |
458,567 | Harbor Bond Fund | 5,090 | |
189,896 | Harbor Real Return Fund | 1,686 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $10,604) | 10,175 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $17,976) | 17,651 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $17,651 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
13
Harbor Target Retirement 2030 Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 01/02/2009 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | Annualized | Inception Date | ||||||||
5 Years | Life of Fund | ||||||||||
Harbor Target Retirement 2030 Fund | |||||||||||
Institutional Class | -1.57% | 4.15% | 8.29% | 01/02/2009 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.28% | — | |||||||
MSCI EAFE (ND) | -6.85 | 2.02 | 6.98 | — | |||||||
Russell 3000® | 6.60 | 10.81 | 14.33 | — | |||||||
Composite Index 2030 | -0.60 | 4.33 | 8.25 | — |
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.
14
Harbor Target Retirement 2030 Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—49.1% | |||
Shares | Value | ||
15,546 | Harbor Capital Appreciation Fund | $ 1,150 | |
28,928 | Harbor Strategic Growth Fund | 568 | |
86,777 | Harbor Mid Cap Growth Fund | 942 | |
58,986 | Harbor Small Cap Growth Fund | 847 | |
139,744 | Harbor Large Cap Value Fund | 2,008 | |
62,763 | Harbor Mid Cap Value Fund | 1,342 | |
30,419 | Harbor Small Cap Value Fund | 1,021 | |
29,602 | Harbor International Fund | 1,726 | |
165,730 | Harbor Diversified International All Cap Fund | 1,725 | |
127,472 | Harbor International Growth Fund | 1,745 | |
26,256 | Harbor Global Leaders Fund | 669 | |
TOTAL EQUITY FUNDS | |||
(Cost $13,051) | 13,743 | ||
FIXED INCOME FUNDS—50.9% | |||
| Shares | Value | |
321,929 | Harbor High-Yield Bond Fund | $ 3,116 | |
217,656 | Harbor High-Yield Opportunities Fund | 2,076 | |
637,877 | Harbor Bond Fund | 7,081 | |
220,376 | Harbor Real Return Fund | 1,957 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $14,858) | 14,230 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $27,909) | 27,973 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $27,973 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
15
Harbor Target Retirement 2035 Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 01/02/2009 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | Annualized | Inception Date | ||||||||
5 Years | Life of Fund | ||||||||||
Harbor Target Retirement 2035 Fund | |||||||||||
Institutional Class | -1.79% | 4.56% | 8.87% | 01/02/2009 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.28% | — | |||||||
MSCI EAFE (ND) | -6.85 | 2.02 | 6.98 | — | |||||||
Russell 3000® | 6.60 | 10.81 | 14.33 | — | |||||||
Composite Index 2035 | -0.56 | 4.69 | 8.89 | — |
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.
16
Harbor Target Retirement 2035 Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—60.0% | |||
Shares | Value | ||
10,254 | Harbor Capital Appreciation Fund | $ 758 | |
19,141 | Harbor Strategic Growth Fund | 376 | |
57,627 | Harbor Mid Cap Growth Fund | 626 | |
38,561 | Harbor Small Cap Growth Fund | 553 | |
92,295 | Harbor Large Cap Value Fund | 1,326 | |
41,578 | Harbor Mid Cap Value Fund | 889 | |
19,900 | Harbor Small Cap Value Fund | 668 | |
19,540 | Harbor International Fund | 1,139 | |
109,461 | Harbor Diversified International All Cap Fund | 1,140 | |
83,970 | Harbor International Growth Fund | 1,150 | |
17,430 | Harbor Global Leaders Fund | 444 | |
TOTAL EQUITY FUNDS | |||
(Cost $8,665) | 9,069 | ||
FIXED INCOME FUNDS—40.0% | |||
| Shares | Value | |
144,951 | Harbor High-Yield Bond Fund | $ 1,403 | |
98,052 | Harbor High-Yield Opportunities Fund | 936 | |
280,430 | Harbor Bond Fund | 3,113 | |
67,928 | Harbor Real Return Fund | 603 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $6,304) | 6,055 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $14,969) | 15,124 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $15,124 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
17
Harbor Target Retirement 2040 Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 01/02/2009 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | Annualized | Inception Date | ||||||||
5 Years | Life of Fund | ||||||||||
Harbor Target Retirement 2040 Fund | |||||||||||
Institutional Class | -1.84% | 5.07% | 9.43% | 01/02/2009 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.28% | — | |||||||
MSCI EAFE (ND) | -6.85 | 2.02 | 6.98 | — | |||||||
Russell 3000® | 6.60 | 10.81 | 14.33 | — | |||||||
Composite Index 2040 | -0.55 | 5.12 | 9.51 | — |
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.
18
Harbor Target Retirement 2040 Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—69.9% | |||
Shares | Value | ||
19,229 | Harbor Capital Appreciation Fund | $ 1,422 | |
35,628 | Harbor Strategic Growth Fund | 699 | |
106,728 | Harbor Mid Cap Growth Fund | 1,159 | |
71,798 | Harbor Small Cap Growth Fund | 1,030 | |
171,125 | Harbor Large Cap Value Fund | 2,459 | |
76,395 | Harbor Mid Cap Value Fund | 1,633 | |
36,742 | Harbor Small Cap Value Fund | 1,234 | |
35,979 | Harbor International Fund | 2,098 | |
201,733 | Harbor Diversified International All Cap Fund | 2,100 | |
155,855 | Harbor International Growth Fund | 2,134 | |
33,030 | Harbor Global Leaders Fund | 842 | |
TOTAL EQUITY FUNDS | |||
(Cost $15,693) | 16,810 | ||
FIXED INCOME FUNDS—30.1% | |||
| Shares | Value | |
185,887 | Harbor High-Yield Bond Fund | $ 1,799 | |
124,807 | Harbor High-Yield Opportunities Fund | 1,191 | |
382,899 | Harbor Bond Fund | 4,250 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $7,508) | 7,240 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $23,201) | 24,050 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $24,050 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
19
Harbor Target Retirement 2045 Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 01/02/2009 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | Annualized | Inception Date | ||||||||
5 Years | Life of Fund | ||||||||||
Harbor Target Retirement 2045 Fund | |||||||||||
Institutional Class | -1.83% | 5.49% | 9.89% | 01/02/2009 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.28% | — | |||||||
MSCI EAFE (ND) | -6.85 | 2.02 | 6.98 | — | |||||||
Russell 3000® | 6.60 | 10.81 | 14.33 | — | |||||||
Composite Index 2045 | -0.32 | 5.52 | 10.05 | — |
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.
20
Harbor Target Retirement 2045 Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—75.7% | |||
Shares | Value | ||
10,720 | Harbor Capital Appreciation Fund | $ 793 | |
20,057 | Harbor Strategic Growth Fund | 394 | |
58,138 | Harbor Mid Cap Growth Fund | 631 | |
38,756 | Harbor Small Cap Growth Fund | 556 | |
96,900 | Harbor Large Cap Value Fund | 1,392 | |
42,919 | Harbor Mid Cap Value Fund | 918 | |
20,299 | Harbor Small Cap Value Fund | 681 | |
20,202 | Harbor International Fund | 1,178 | |
113,527 | Harbor Diversified International All Cap Fund | 1,182 | |
86,794 | Harbor International Growth Fund | 1,188 | |
18,910 | Harbor Global Leaders Fund | 482 | |
TOTAL EQUITY FUNDS | |||
(Cost $9,189) | 9,395 | ||
FIXED INCOME FUNDS—24.3% | |||
| Shares | Value | |
78,015 | Harbor High-Yield Bond Fund | $ 755 | |
52,331 | Harbor High-Yield Opportunities Fund | 499 | |
158,590 | Harbor Bond Fund | 1,761 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $3,126) | 3,015 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $12,315) | 12,410 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $12,410 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
21
Harbor Target Retirement 2050 Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 01/02/2009 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | Annualized | Inception Date | ||||||||
5 Years | Life of Fund | ||||||||||
Harbor Target Retirement 2050 Fund | |||||||||||
Institutional Class | -2.06% | 5.93% | 10.29% | 01/02/2009 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | 1.83% | 3.28% | — | |||||||
MSCI EAFE (ND) | -6.85 | 2.02 | 6.98 | — | |||||||
Russell 3000® | 6.60 | 10.81 | 14.33 | — | |||||||
Composite Index 2050 | -0.32 | 5.93 | 10.46 | — |
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.
22
Harbor Target Retirement 2050 Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—85.6% | |||
Shares | Value | ||
23,022 | Harbor Capital Appreciation Fund | $ 1,703 | |
43,071 | Harbor Strategic Growth Fund | 845 | |
123,496 | Harbor Mid Cap Growth Fund | 1,341 | |
81,711 | Harbor Small Cap Growth Fund | 1,173 | |
206,916 | Harbor Large Cap Value Fund | 2,973 | |
90,942 | Harbor Mid Cap Value Fund | 1,944 | |
42,747 | Harbor Small Cap Value Fund | 1,435 | |
43,040 | Harbor International Fund | 2,509 | |
242,435 | Harbor Diversified International All Cap Fund | 2,524 | |
184,705 | Harbor International Growth Fund | 2,529 | |
40,939 | Harbor Global Leaders Fund | 1,044 | |
TOTAL EQUITY FUNDS | |||
(Cost $18,683) | 20,020 | ||
FIXED INCOME FUNDS—14.4% | |||
| Shares | Value | |
158,384 | Harbor High-Yield Opportunities Fund | $ 1,511 | |
167,607 | Harbor Bond Fund | 1,860 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $3,493) | 3,371 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $22,176) | 23,391 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $23,391 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
23
Harbor Target Retirement 2055 Fund
Fund Summary —October 31, 2018 (Unaudited)
Fund Summary —October 31, 2018 (Unaudited)
Asset Allocation (% of investments)
FUND PERFORMANCE
The graph compares a $10,000 investment in the Institutional Class shares of the Fund with the performance of the broad based market indices. The Fund’s performance assumes the reinvestment of all dividend and capital gain distributions.
CHANGE IN A $10,000 INVESTMENT
For the period 11/01/2014 through 10/31/2018
TOTAL RETURNS For the periods ended 10/31/2018 | 1 Year | 5 Years | Annualized | Inception Date | |||||||
Life of Fund | |||||||||||
Harbor Target Retirement 2055 Fund | |||||||||||
Institutional Class | -2.31% | N/A | 5.73% | 11/01/2014 | |||||||
Comparative Indices | |||||||||||
Bloomberg Barclays U.S. Aggregate Bond | -2.05% | N/A | 1.27% | — | |||||||
MSCI EAFE (ND) | -6.85 | N/A | 2.69 | — | |||||||
Russell 3000® | 6.60 | N/A | 9.54 | — | |||||||
Composite Index 2055 | -0.46 | N/A | 5.71 | — |
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.
24
Harbor Target Retirement 2055 Fund†
Portfolio of Investments—October 31, 2018
Portfolio of Investments—October 31, 2018
Value and Cost in Thousands
EQUITY FUNDS—93.0% | |||
Shares | Value | ||
4,006 | Harbor Capital Appreciation Fund | $ 296 | |
7,464 | Harbor Strategic Growth Fund | 147 | |
21,411 | Harbor Mid Cap Growth Fund | 233 | |
14,568 | Harbor Small Cap Growth Fund | 209 | |
36,032 | Harbor Large Cap Value Fund | 518 | |
15,797 | Harbor Mid Cap Value Fund | 338 | |
7,517 | Harbor Small Cap Value Fund | 252 | |
7,529 | Harbor International Fund | 439 | |
42,111 | Harbor Diversified International All Cap Fund | 438 | |
32,275 | Harbor International Growth Fund | 442 | |
7,146 | Harbor Global Leaders Fund | 182 | |
TOTAL EQUITY FUNDS | |||
(Cost $3,596) | 3,494 | ||
FIXED INCOME FUNDS—7.0% | |||
| Shares | Value | |
12,304 | Harbor High-Yield Opportunities Fund | $ 117 | |
13,021 | Harbor Bond Fund | 145 | |
TOTAL FIXED INCOME FUNDS | |||
(Cost $270) | 262 | ||
TOTAL INVESTMENTS—100.0% | |||
(Cost $3,866) | 3,756 | ||
CASH AND OTHER ASSETS, LESS LIABILITIES—0.0% | — a | ||
TOTAL NET ASSETS—100.0% | $3,756 |
Fair Value Measurements
All investments at October 31, 2018 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at October 31, 2018 or 2017.
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.
25
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26
Harbor Target Retirement Funds
StatementS of Assets and Liabilities—October 31, 2018
StatementS of Assets and Liabilities—October 31, 2018
(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 | $12,937 | $4,899 | $25,838 | $17,976 | $27,909 | $14,969 | $23,201 | $12,315 | $22,176 | $3,866 | ||||||||||
Investments in affiliated funds, at value | $12,561 | $4,792 | $25,554 | $17,651 | $27,973 | $15,124 | $24,050 | $12,410 | $23,391 | $3,756 | ||||||||||
Receivables for: | ||||||||||||||||||||
Investments in affiliated funds sold | — | — | 13 | — | — | 15 | — | — | 1 | 7 | ||||||||||
Capital shares sold | — | — | — | — | — | — | 5 | — | — | — | ||||||||||
Distributions from affiliated funds | 2 | 1 | 2 | — | — | — | — | — | — | — | ||||||||||
Total Assets | 12,563 | 4,793 | 25,569 | 17,651 | 27,973 | 15,139 | 24,055 | 12,410 | 23,392 | 3,763 | ||||||||||
LIABILITIES | ||||||||||||||||||||
Payables for: | ||||||||||||||||||||
Investments in affiliated funds purchased | 2 | 1 | 2 | — | — | — | 5 | — | — | — | ||||||||||
Capital shares reacquired | — | — | 13 | — | — | 15 | — | — | 1 | 7 | ||||||||||
Total Liabilities | 2 | 1 | 15 | — | — | 15 | 5 | — | 1 | 7 | ||||||||||
NET ASSETS | $12,561 | $4,792 | $25,554 | $17,651 | $27,973 | $15,124 | $24,050 | $12,410 | $23,391 | $3,756 | ||||||||||
Net Assets Consist of: | ||||||||||||||||||||
Paid-in capital | $13,246 | $5,051 | $25,700 | $17,219 | $26,874 | $14,480 | $21,698 | $11,679 | $20,626 | $3,621 | ||||||||||
Total distributable earnings/(loss) | (685) | (259) | (146) | 432 | 1,099 | 644 | 2,352 | 731 | 2,765 | 135 | ||||||||||
$12,561 | $4,792 | $25,554 | $17,651 | $27,973 | $15,124 | $24,050 | $12,410 | $23,391 | $3,756 | |||||||||||
NET ASSET VALUE PER SHARE BY CLASS | ||||||||||||||||||||
Institutional Class | ||||||||||||||||||||
Net assets | $12,561 | $4,792 | $25,554 | $17,651 | $27,973 | $15,124 | $24,050 | $12,410 | $23,391 | $3,756 | ||||||||||
Shares of beneficial interest1 | 1,427 | 453 | 2,689 | 1,446 | 3,166 | 1,091 | 2,717 | 845 | 2,385 | 330 | ||||||||||
Net asset value per share2 | $ 8.80 | $10.58 | $ 9.50 | $ 12.21 | $ 8.84 | $ 13.86 | $ 8.85 | $ 14.69 | $ 9.81 | $11.39 |
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.
27
Harbor Target Retirement Funds
StatementS of Operations—Year Ended October 31, 2018
StatementS of Operations—Year Ended October 31, 2018
(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 | $ 417 | $ 167 | $ 780 | $ 588 | $ 770 | $ 356 | $ 494 | $ 181 | $ 294 | $ 31 |
Total Investment Income | 417 | 167 | 780 | 588 | 770 | 356 | 494 | 181 | 294 | 31 |
Net Investment Income/(Loss) | 417 | 167 | 780 | 588 | 770 | 356 | 494 | 181 | 294 | 31 |
Realized and Change in Net Unrealized Gain/(Loss) on Investment Transactions | ||||||||||
Net realized gain/(loss) on: | ||||||||||
Sale of affiliated funds | 17 | 124 | 327 | 472 | 525 | 276 | 779 | 313 | 752 | 161 |
Distributions received from affiliated funds | 127 | 70 | 444 | 402 | 647 | 418 | 803 | 368 | 946 | 124 |
Change in net unrealized appreciation/(depreciation) on: | ||||||||||
Affiliated funds | (687) | (398) | (1,869) | (1,699) | (2,378) | (1,357) | (2,502) | (1,180) | (2,530) | (459) |
Net gain/(loss) on investment transactions | (543) | (204) | (1,098) | (825) | (1,206) | (663) | (920) | (499) | (832) | (174) |
Net Increase/(Decrease) in Net Assets Resulting from Operations | $(126) | $ (37) | $ (318) | $ (237) | $ (436) | $ (307) | $ (426) | $ (318) | $ (538) | $(143) |
The accompanying notes are an integral part of the Financial Statements.
28
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | ||||
INCREASE/(DECREASE) IN NET ASSETS | |||||||||||
Operations: | |||||||||||
Net investment income/(loss) | $ 417 | $ 337 | $ 167 | $ 155 | $ 780 | $ 646 | $ 588 | $ 427 | |||
Net realized gain/(loss) on sale of affiliated funds | 17 | (91) | 124 | (22) | 327 | (64) | 472 | (18) | |||
Realized gain distributions received from affiliated funds | 127 | 115 | 70 | 59 | 444 | 235 | 402 | 131 | |||
Change in net unrealized appreciation/(depreciation) on affiliated funds | (687) | 583 | (398) | 325 | (1,869) | 1,887 | (1,699) | 1,534 | |||
Net increase/(decrease) in assets resulting from operations | (126) | 944 | (37) | 517 | (318) | 2,704 | (237) | 2,074 | |||
Distributions to Shareholdersa | |||||||||||
Institutional Class | (512) | — | (178) | — | (775) | — | (585) | — | |||
Net investment income: | |||||||||||
Institutional Class | N/A | (410) | N/A | (179) | N/A | (682) | N/A | (349) | |||
Administrative Class | N/A | — | N/A | — | N/A | — | N/A | (1) | |||
Investor Class | N/A | — | N/A | — | N/A | — | N/A | (1) | |||
Net realized gain on investments: | |||||||||||
Institutional Class | N/A | (51) | N/A | — | N/A | (304) | N/A | (180) | |||
Administrative Class | N/A | — | N/A | — | N/A | — | N/A | — | |||
Investor Class | N/A | — | N/A | — | N/A | — | N/A | — | |||
Total distributions to shareholders | (512) | (461) | (178) | (179) | (775) | (986) | (585) | (531) | |||
Net Increase/(Decrease) Derived from Capital Share Transactions | (547) | (574) | (1,281) | (659) | (1,095) | 569 | (2,745) | 5,344 | |||
Net increase/(decrease) in net assets | (1,185) | (91) | (1,496) | (321) | (2,188) | 2,287 | (3,567) | 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* | $12,561 | $13,746 | $ 4,792 | $6,288 | $25,554 | $27,742 | $17,651 | $21,218 | |||
*,a Includes accumulated undistributed net investment income/(loss) of: | N/A | $ 20 | N/A | $ 94 | N/A | $ 384 | N/A | $ 279 |
a | The presentation of Distributions to Shareholders and accumulated undistributed net investment income/(loss) have been updated to reflect the changes prescribed in amendments to Regulation S-X as disclosed in New Accounting Pronouncements in Note 2 to the Financial Statements. There is no impact to October 31, 2017 presentation. |
The accompanying notes are an integral part of the Financial Statements.
29
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||||
$ 770 | $ 631 | $ 356 | $ 271 | $ 494 | $ 396 | $ 181 | $ 133 | $ 294 | $ 264 | $ 31 | $ 19 | |||||
525 | 233 | 276 | (83) | 779 | 301 | 313 | 104 | 752 | 555 | 161 | 19 | |||||
647 | 242 | 418 | 128 | 803 | 228 | 368 | 93 | 946 | 244 | 124 | 18 | |||||
(2,378) | 2,527 | (1,357) | 1,668 | (2,502) | 2,796 | (1,180) | 1,292 | (2,530) | 3,142 | (459) | 356 | |||||
(436) | 3,633 | (307) | 1,984 | (426) | 3,721 | (318) | 1,622 | (538) | 4,205 | (143) | 412 | |||||
(844) | — | (350) | — | (780) | — | (311) | — | (913) | — | (76) | — | |||||
N/A | (590) | N/A | (255) | N/A | (386) | N/A | (121) | N/A | (260) | N/A | (18) | |||||
N/A | (1) | N/A | (1) | N/A | (1) | N/A | — | N/A | — | N/A | — | |||||
N/A | — | N/A | (1) | N/A | (1) | N/A | — | N/A | — | N/A | — | |||||
N/A | (855) | N/A | (224) | N/A | (930) | N/A | (272) | N/A | (1,219) | N/A | (28) | |||||
N/A | (1) | N/A | — | N/A | (1) | N/A | (1) | N/A | (2) | N/A | — | |||||
N/A | (1) | N/A | — | N/A | (1) | N/A | (1) | N/A | (1) | N/A | — | |||||
(844) | (1,448) | (350) | (481) | (780) | (1,320) | (311) | (395) | (913) | (1,482) | (76) | (46) | |||||
635 | 1,760 | 776 | 1,966 | 316 | 3,049 | 3,176 | 1,383 | 2,021 | 1,326 | 1,247 | 1,102 | |||||
(645) | 3,945 | 119 | 3,469 | (890) | 5,450 | 2,547 | 2,610 | 570 | 4,049 | 1,028 | 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 | |||||
$27,973 | $28,618 | $15,124 | $15,005 | $24,050 | $24,940 | $12,410 | $9,863 | $23,391 | $22,821 | $3,756 | $2,728 | |||||
N/A | $ 379 | N/A | $ 150 | N/A | $ 198 | N/A | $ 57 | N/A | $ 88 | N/A | $ 5 |
30
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | ||||
AMOUNT ($) | |||||||||||
Institutional Class | |||||||||||
Net proceeds from sale of shares | $ 1,484 | $ 1,411 | $ 512 | $ 1,101 | $ 3,554 | $ 5,095 | $ 3,363 | $ 7,504 | |||
Reinvested distributions | 512 | 460 | 178 | 178 | 775 | 985 | 585 | 529 | |||
Cost of shares reacquired | (2,543) | (2,413) | (1,971) | (1,902) | (5,424) | (5,473) | (6,693) | (2,649) | |||
Net increase/(decrease) in net assets | $ (547) | $ (542) | $(1,281) | $ (623) | $(1,095) | $ 607 | $(2,745) | $ 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) |
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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||||
$ 4,732 | $ 6,126 | $ 3,194 | $ 3,780 | $ 4,380 | $ 4,661 | $ 4,685 | $ 3,106 | $ 4,395 | $ 4,814 | $2,096 | $1,585 | |||||
844 | 1,445 | 350 | 479 | 780 | 1,316 | 311 | 393 | 913 | 1,479 | 75 | 45 | |||||
(4,941) | (5,769) | (2,768) | (2,249) | (4,844) | (2,882) | (1,820) | (2,068) | (3,287) | (4,917) | (924) | (504) | |||||
$ 635 | $ 1,802 | $ 776 | $ 2,010 | $ 316 | $ 3,095 | $ 3,176 | $ 1,431 | $ 2,021 | $ 1,376 | $1,247 | $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) |
32
Harbor Target Retirement 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 Target Retirement Income Fund | Harbor Target Retirement 2015 Fund | Harbor Target Retirement 2020 Fund | Harbor Target Retirement 2025 Fund | ||||||||
November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | ||||
SHARES | |||||||||||
Institutional Class | |||||||||||
Shares sold | 164 | 156 | 47 | 103 | 361 | 537 | 265 | 623 | |||
Shares issued due to reinvestment of distributions | 56 | 52 | 17 | 18 | 80 | 110 | 47 | 46 | |||
Shares reacquired | (279) | (268) | (182) | (179) | (554) | (581) | (529) | (220) | |||
Net increase/(decrease) in shares outstanding | (59) | (60) | (118) | (58) | (113) | 66 | (217) | 449 | |||
Beginning of period | 1,486 | 1,546 | 571 | 629 | 2,802 | 2,736 | 1,663 | 1,214 | |||
End of period | 1,427 | 1,486 | 453 | 571 | 2,689 | 2,802 | 1,446 | 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 October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | November 1, 2017 through October 31, 2018 | November 1, 2016 through October 31, 2017 | |||||
515 | 700 | 220 | 280 | 468 | 539 | 301 | 219 | 418 | 503 | 171 | 145 | |||||
93 | 176 | 24 | 38 | 85 | 164 | 21 | 30 | 89 | 169 | 6 | 5 | |||||
(535) | (647) | (192) | (168) | (517) | (332) | (116) | (143) | (313) | (511) | (75) | (46) | |||||
73 | 229 | 52 | 150 | 36 | 371 | 206 | 106 | 194 | 161 | 102 | 104 | |||||
3,093 | 2,864 | 1,039 | 889 | 2,681 | 2,310 | 639 | 533 | 2,191 | 2,030 | 228 | 124 | |||||
3,166 | 3,093 | 1,091 | 1,039 | 2,717 | 2,681 | 845 | 639 | 2,385 | 2,191 | 330 | 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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 9.25 | $ 8.93 | $ 9.19 | $ 9.75 | $ 9.83 |
Income from Investment Operations | |||||
Net investment income/(loss) | 0.28 a | 0.22 a | 0.25 a | 0.34 a | 0.22 |
Net realized and unrealized gains/(losses) on investments | (0.38) | 0.40 | 0.08 | (0.30) | 0.19 |
Total from investment operations | (0.10) | 0.62 | 0.33 | 0.04 | 0.41 |
Less Distributions | |||||
Dividends from net investment income | (0.29) | (0.27) | (0.29) | (0.35) | (0.28) |
Distributions from net realized capital gains | (0.06) | (0.03) | (0.30) | (0.25) | (0.21) |
Total distributions | (0.35) | (0.30) | (0.59) | (0.60) | (0.49) |
Net asset value end of period | 8.80 | 9.25 | 8.93 | 9.19 | 9.75 |
Net assets end of period (000s) | $12,561 | $13,746 | $13,805 | $15,124 | $17,410 |
Ratios and Supplemental Data (%) | |||||
Total return | (1.14)% | 7.17% | 3.91% | 0.46% | 4.32% |
Ratio of total expenses to average net assetsb | — | — | — | — | — |
Ratio of net investment income to average net assetsb | 3.13 | 2.46 | 2.87 | 3.57 | 2.14 |
Portfolio turnoverc | 28 | 16 | 26 | 24 | 20 |
HARBOR TARGET RETIREMENT 2015 FUND
Institutional Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $11.02 | $10.45 | $10.77 | $11.68 | $ 11.87 |
Income from Investment Operations | |||||
Net investment income/(loss) | 0.33 a | 0.26 a | 0.29 a | 0.36 a | 0.24 |
Net realized and unrealized gains/(losses) on investments | (0.45) | 0.60 | 0.05 | (0.35) | 0.29 |
Total from investment operations | (0.12) | 0.86 | 0.34 | 0.01 | 0.53 |
Less Distributions | |||||
Dividends from net investment income | (0.32) | (0.29) | (0.36) | (0.39) | (0.31) |
Distributions from net realized capital gains | — | — | (0.30) | (0.53) | (0.41) |
Total distributions | (0.32) | (0.29) | (0.66) | (0.92) | (0.72) |
Net asset value end of period | 10.58 | 11.02 | 10.45 | 10.77 | 11.68 |
Net assets end of period (000s) | $4,792 | $6,288 | $6,574 | $7,778 | $11,200 |
Ratios and Supplemental Data (%) | |||||
Total return | (1.10)% | 8.43% | 3.59% | 0.13% | 4.73% |
Ratio of total expenses to average net assetsb | — | — | — | — | — |
Ratio of net investment income to average net assetsb | 3.07 | 2.43 | 2.82 | 3.26 | 2.08 |
Portfolio turnoverc | 29 | 22 | 32 | 26 | 38 |
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 9.90 | $ 9.29 | $ 9.94 | $ 10.63 | $ 10.78 |
Income from Investment Operations | |||||
Net investment income/(loss) | 0.28 a | 0.23 a | 0.26 a | 0.32 a | 0.23 |
Net realized and unrealized gains/(losses) on investments | (0.40) | 0.73 | 0.04 | (0.30) | 0.29 |
Total from investment operations | (0.12) | 0.96 | 0.30 | 0.02 | 0.52 |
Less Distributions | |||||
Dividends from net investment income | (0.28) | (0.24) | (0.32) | (0.34) | (0.30) |
Distributions from net realized capital gains | — | (0.11) | (0.63) | (0.37) | (0.37) |
Total distributions | (0.28) | (0.35) | (0.95) | (0.71) | (0.67) |
Net asset value end of period | 9.50 | 9.90 | 9.29 | 9.94 | 10.63 |
Net assets end of period (000s) | $25,554 | $27,742 | $25,419 | $27,290 | $31,124 |
Ratios and Supplemental Data (%) | |||||
Total return | (1.29)% | 10.77% | 3.56% | 0.30% | 5.06% |
Ratio of total expenses to average net assetsb | — | — | — | — | — |
Ratio of net investment income to average net assetsb | 2.89 | 2.44 | 2.83 | 3.19 | 2.18 |
Portfolio turnoverc | 31 | 29 | 33 | 28 | 19 |
HARBOR TARGET RETIREMENT 2025 FUND
Institutional Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 12.76 | $ 11.78 | $ 12.32 | $ 13.48 | $ 13.44 |
Income from Investment Operations | |||||
Net investment income/(loss) | 0.37 a | 0.29 a | 0.31 a | 0.37 a | 0.29 |
Net realized and unrealized gains/(losses) on investments | (0.57) | 1.12 | 0.05 | (0.36) | 0.40 |
Total from investment operations | (0.20) | 1.41 | 0.36 | 0.01 | 0.69 |
Less Distributions | |||||
Dividends from net investment income | (0.35) | (0.28) | (0.37) | (0.41) | (0.36) |
Distributions from net realized capital gains | — | (0.15) | (0.53) | (0.76) | (0.29) |
Total distributions | (0.35) | (0.43) | (0.90) | (1.17) | (0.65) |
Net asset value end of period | 12.21 | 12.76 | 11.78 | 12.32 | 13.48 |
Net assets end of period (000s) | $17,651 | $21,218 | $14,293 | $11,487 | $10,612 |
Ratios and Supplemental Data (%) | |||||
Total return | (1.63)% | 12.38% | 3.39% | 0.11% | 5.37% |
Ratio of total expenses to average net assetsb | — | — | — | — | — |
Ratio of net investment income to average net assetsb | 2.92 | 2.42 | 2.69 | 2.91 | 2.06 |
Portfolio turnoverc | 36 | 24 | 25 | 25 | 33 |
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 9.25 | $ 8.60 | $ 9.19 | $ 10.04 | $ 10.22 |
Income from Investment Operations | |||||
Net investment income/(loss) | 0.24 a | 0.20 a | 0.21 a | 0.24 a | 0.21 |
Net realized and unrealized gains/(losses) on investments | (0.38) | 0.96 | 0.01 | (0.23) | 0.35 |
Total from investment operations | (0.14) | 1.16 | 0.22 | 0.01 | 0.56 |
Less Distributions | |||||
Dividends from net investment income | (0.25) | (0.21) | (0.26) | (0.28) | (0.27) |
Distributions from net realized capital gains | (0.02) | (0.30) | (0.55) | (0.58) | (0.47) |
Total distributions | (0.27) | (0.51) | (0.81) | (0.86) | (0.74) |
Net asset value end of period | 8.84 | 9.25 | 8.60 | 9.19 | 10.04 |
Net assets end of period (000s) | $27,973 | $28,618 | $24,634 | $25,084 | $24,727 |
Ratios and Supplemental Data (%) | |||||
Total return | (1.57)% | 14.18% | 2.96% | 0.13% | 5.79% |
Ratio of total expenses to average net assetsb | — | — | — | — | — |
Ratio of net investment income to average net assetsb | 2.62 | 2.30 | 2.54 | 2.55 | 1.99 |
Portfolio turnoverc | 31 | 29 | 31 | 24 | 22 |
HARBOR TARGET RETIREMENT 2035 FUND
Institutional Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 14.44 | $ 12.93 | $ 13.56 | $14.92 | $14.52 |
Income from Investment Operations | |||||
Net investment income/(loss) | 0.33 a | 0.28 a | 0.27 a | 0.30 a | 0.29 |
Net realized and unrealized gains/(losses) on investments | (0.58) | 1.75 | 0.04 | (0.26) | 0.58 |
Total from investment operations | (0.25) | 2.03 | 0.31 | 0.04 | 0.87 |
Less Distributions | |||||
Dividends from net investment income | (0.33) | (0.28) | (0.35) | (0.36) | (0.33) |
Distributions from net realized capital gains | — | (0.24) | (0.59) | (1.04) | (0.14) |
Total distributions | (0.33) | (0.52) | (0.94) | (1.40) | (0.47) |
Net asset value end of period | 13.86 | 14.44 | 12.93 | 13.56 | 14.92 |
Net assets end of period (000s) | $15,124 | $15,005 | $11,496 | $9,007 | $7,708 |
Ratios and Supplemental Data (%) | |||||
Total return | (1.79)% | 16.31% | 2.70% | 0.34% | 6.19% |
Ratio of total expenses to average net assetsb | — | — | — | — | — |
Ratio of net investment income to average net assetsb | 2.26 | 2.06 | 2.17 | 2.17 | 1.64 |
Portfolio turnoverc | 29 | 26 | 26 | 22 | 39 |
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 9.30 | $ 8.42 | $ 9.05 | $ 9.84 | $ 10.01 |
Income from Investment Operations | |||||
Net investment income/(loss) | 0.18 a | 0.15 a | 0.17 a | 0.18 a | 0.17 |
Net realized and unrealized gains/(losses) on investments | (0.34) | 1.30 | (0.01) | (0.10) | 0.46 |
Total from investment operations | (0.16) | 1.45 | 0.16 | 0.08 | 0.63 |
Less Distributions | |||||
Dividends from net investment income | (0.19) | (0.17) | (0.20) | (0.22) | (0.23) |
Distributions from net realized capital gains | (0.10) | (0.40) | (0.59) | (0.65) | (0.57) |
Total distributions | (0.29) | (0.57) | (0.79) | (0.87) | (0.80) |
Net asset value end of period | 8.85 | 9.30 | 8.42 | 9.05 | 9.84 |
Net assets end of period (000s) | $24,050 | $24,940 | $19,448 | $19,805 | $18,933 |
Ratios and Supplemental Data (%) | |||||
Total return | (1.84)% | 18.26% | 2.36% | 0.94% | 6.77% |
Ratio of total expenses to average net assetsb | — | — | — | — | — |
Ratio of net investment income to average net assetsb | 1.90 | 1.78 | 2.03 | 1.96 | 1.59 |
Portfolio turnoverc | 30 | 21 | 30 | 18 | 22 |
HARBOR TARGET RETIREMENT 2045 FUND
Institutional Class | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 15.43 | $13.51 | $14.25 | $15.17 | $14.85 |
Income from Investment Operations | |||||
Net investment income/(loss) | 0.23 a | 0.21 a | 0.21 a | 0.23 a | 0.23 |
Net realized and unrealized gains/(losses) on investments | (0.49) | 2.42 | 0.01 | (0.06) | 0.80 |
Total from investment operations | (0.26) | 2.63 | 0.22 | 0.17 | 1.03 |
Less Distributions | |||||
Dividends from net investment income | (0.28) | (0.22) | (0.27) | (0.29) | (0.31) |
Distributions from net realized capital gains | (0.20) | (0.49) | (0.69) | (0.80) | (0.40) |
Total distributions | (0.48) | (0.71) | (0.96) | (1.09) | (0.71) |
Net asset value end of period | 14.69 | 15.43 | 13.51 | 14.25 | 15.17 |
Net assets end of period (000s) | $12,410 | $9,863 | $7,211 | $5,523 | $4,239 |
Ratios and Supplemental Data (%) | |||||
Total return | (1.83)% | 20.37% | 1.91% | 1.23% | 7.17% |
Ratio of total expenses to average net assetsb | — | — | — | — | — |
Ratio of net investment income to average net assetsb | 1.49 | 1.50 | 1.58 | 1.56 | 1.37 |
Portfolio turnoverc | 22 | 32 | 24 | 15 | 21 |
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 | |||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 | 2014 |
Net asset value beginning of period | $ 10.42 | $ 9.23 | $ 10.39 | $ 11.40 | $ 11.46 |
Income from Investment Operations | |||||
Net investment income/(loss) | 0.13 a | 0.12 a | 0.12 a | 0.14 a | 0.15 |
Net realized and unrealized gains/(losses) on investments | (0.33) | 1.81 | (0.03) | 0.05 | 0.67 |
Total from investment operations | (0.20) | 1.93 | 0.09 | 0.19 | 0.82 |
Less Distributions | |||||
Dividends from net investment income | (0.16) | (0.13) | (0.17) | (0.19) | (0.23) |
Distributions from net realized capital gains | (0.25) | (0.61) | (1.08) | (1.01) | (0.65) |
Total distributions | (0.41) | (0.74) | (1.25) | (1.20) | (0.88) |
Net asset value end of period | 9.81 | 10.42 | 9.23 | 10.39 | 11.40 |
Net assets end of period (000s) | $23,391 | $22,821 | $18,728 | $19,221 | $20,434 |
Ratios and Supplemental Data (%) | |||||
Total return | (2.06)% | 22.40% | 1.51% | 1.83% | 7.61% |
Ratio of total expenses to average net assetsb | — | — | — | — | — |
Ratio of net investment income to average net assetsb | 1.20 | 1.27 | 1.34 | 1.35 | 1.17 |
Portfolio turnoverc | 22 | 33 | 24 | 24 | 23 |
HARBOR TARGET RETIREMENT 2055 FUND
Institutional Class | ||||
Year Ended October 31, | 2018 | 2017 | 2016 | 2015 d |
Net asset value beginning of period | $11.97 | $10.02 | $10.08 | $10.00 |
Income from Investment Operations | ||||
Net investment income/(loss) | 0.11 a | 0.10 a | 0.11 a | 0.05 a |
Net realized and unrealized gains/(losses) on investments | (0.37) | 2.17 | 0.01 | 0.18 |
Total from investment operations | (0.26) | 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 gains | (0.16) | (0.20) | (0.04) | — |
Total distributions | (0.32) | (0.32) | (0.18) | (0.15) |
Net asset value end of period | 11.39 | 11.97 | 10.02 | 10.08 |
Net assets end of period (000s) | $3,756 | $2,728 | $1,240 | $ 762 |
Ratios and Supplemental Data (%) | ||||
Total return | (2.31)% | 23.34% | 1.38% | 2.28% |
Ratio of total expenses to average net assetsb | — | — | — | — |
Ratio of net investment income to average net assetsb | 0.91 | 0.95 | 1.13 | 0.52 |
Portfolio turnoverc | 29 | 32 | 33 | 15 |
a | Amounts are based on average shares outstanding during the period. |
b | 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. |
c | Amounts do not include the activity of the underlying funds. |
d | Fund inception was November 1, 2014. |
The accompanying notes are an integral part of the Financial Statements.
39
Harbor Target Retirement Funds
Notes to Financial Statements—October 31, 2018
Notes to Financial Statements—October 31, 2018
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 October 31, 2018, the Trust consists of 32 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. |
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 year. A table that includes a categorization of investments into Levels 1, 2, or 3, and a summary of significant unobservable inputs used for Level 3 investments, 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.
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, 2015–2017), including all positions expected to be taken upon filing the 2018 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 October 31, 2018, the Funds individually and in aggregate held less than 25% of the outstanding shares of any Underlying Fund.
New Accounting Pronouncements
In August 2018, the Securities and Exchange Commission (“SEC”) issued a final rule on Disclosure Update and Simplification (the “Rule”). The Rule contains amendments to certain financial statements presentation, particularly the presentation of components of net assets in the Statements of Assets and Liabilities and distributions on the Statements of Changes in Net Assets, and eliminates the requirement to disclose accumulated undistributed net investment income or loss on the Statements of Changes in Net Assets. These amendments are part of the SEC’s overall project to improve disclosure effectiveness and are intended to simplify compliance without significantly altering the total mix of information provided to investors. The amended rules are effective for interim and annual reports filed with the SEC on or after November 5, 2018 (the Rule effective date). As of October 31, 2018, the Funds have adopted this Rule.
41
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 2—Significant Accounting Policies—Continued
In August 2018, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update 2018-13 (“ASU 2018-13”), Fair Value Measurement: Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which amends public and private company fair value disclosure requirements. The guidance is the result of the FASB’s test of the principles developed in its disclosure effectiveness project, which is designed to improve the effectiveness of disclosures in the notes to the financial statements. This ASU is effective for all entities for fiscal years and interim periods within those fiscal years beginning after December 15, 2019, however, an entity is permitted to early adopt any removed or modified disclosure and delay adoption of the additional disclosures until their effective date. As of October 31, 2018, the Funds have early adopted ASU 2018-13.
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. (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 October 31, 2018, Harbor Capital, and its wholly owned subsidiaries, collectively held the following shares of beneficial interest in each of the following Funds:
Number of Shares Owned by Harbor Capital and Subsidiaries | Percentage of Outstanding Shares | ||
Institutional Class | |||
Harbor Target Retirement 2025 Fund | 17,692 | 1.2% | |
Harbor Target Retirement 2030 Fund | 33,789 | 1.1 | |
Harbor Target Retirement 2035 Fund | 23,252 | 2.1 | |
Harbor Target Retirement 2040 Fund | 1,288 | 0.0 | |
Harbor Target Retirement 2045 Fund | 64,930 | 7.7 | |
Harbor Target Retirement 2050 Fund | 12,608 | 0.5 | |
Harbor Target Retirement 2055 Fund | 6,434 | 2.0 |
Independent Trustees
The Independent Trustees’ received no remuneration from the Target Retirement Funds for the year ended October 31, 2018.
42
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
Note 3—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.
Investment Portfolio Transactions
Purchases and sales of investments, investment income, realized and unrealized gains or losses for each Fund for the year ended October 31, 2018 are as follows:
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Net 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 | $ 98 | $ 284 | $ 1 | $ (68) | $ 36 | $ 61 | |||||
Harbor Strategic Growth Fund | 204 | 48 | — | 3 | — | 3 | |||||
Harbor Mid Cap Growth Fund | 74 | 85 | — | (20) | 19 | 18 | |||||
Harbor Small Cap Growth Fund | 57 | 66 | — | (14) | 15 | 11 | |||||
Harbor Large Cap Value Fund | 130 | 148 | 3 | (43) | 11 | 35 | |||||
Harbor Mid Cap Value Fund | 91 | 88 | 3 | (32) | 7 | 13 | |||||
Harbor Small Cap Value Fund | 67 | 69 | 1 | (31) | 4 | 20 | |||||
Harbor International Fund | 148 | 120 | 6 | (74) | 15 | 19 | |||||
Harbor Diversified International Fund | 118 | 107 | 3 | (53) | 8 | 15 | |||||
Harbor International Growth Fund | 132 | 118 | 4 | (67) | — | 27 | |||||
Harbor Global Leaders Fund | 50 | 64 | — | (7) | 12 | 10 | |||||
Harbor High-Yield Bond Fund | 224 | 968 | 71 | (13) | — | (52) | |||||
Harbor High-Yield Opportunities Fund | 784 | 104 | 24 | (169) | — | (2) | |||||
Harbor Bond Fund | 834 | 1,052 | 181 | (23) | — | (101) | |||||
Harbor Real Return Fund | 361 | 449 | 101 | (76) | — | (60) | |||||
Harbor Money Market Fund | 166 | 283 | 19 | — | — | — | |||||
Total | $3,538 | $4,053 | $417 | $(687) | $127 | $ 17 |
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 Net 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 | $ 52 | $ 174 | $ — | $ (43) | $ 19 | $ 38 | |||||
Harbor Strategic Growth Fund | 97 | 31 | — | 1 | — | 1 | |||||
Harbor Mid Cap Growth Fund | 36 | 67 | — | (20) | 11 | 19 | |||||
Harbor Small Cap Growth Fund | 26 | 54 | — | (16) | 8 | 14 | |||||
Harbor Large Cap Value Fund | 56 | 120 | 2 | (32) | 6 | 29 | |||||
Harbor Mid Cap Value Fund | 38 | 76 | 2 | (22) | 4 | 14 | |||||
Harbor Small Cap Value Fund | 28 | 57 | — | (23) | 2 | 18 | |||||
Harbor International Fund | 62 | 98 | 3 | (42) | 8 | 17 | |||||
Harbor Diversified International All Cap Fund | 44 | 88 | 2 | (29) | 5 | 12 | |||||
Harbor International Growth Fund | 56 | 99 | 2 | (43) | — | 26 | |||||
Harbor Global Leaders Fund | 20 | 45 | — | (7) | 7 | 9 | |||||
Harbor High-Yield Bond Fund | 72 | 524 | 30 | (20) | — | (8) | |||||
Harbor High-Yield Opportunities Fund | 351 | 84 | 10 | (9) | — | (1) | |||||
Harbor Bond Fund | 324 | 726 | 71 | (54) | — | (53) | |||||
Harbor Real Return Fund | 174 | 311 | 38 | (39) | — | (11) | |||||
Harbor Money Market Fund | 79 | 183 | 7 | — | — | — | |||||
Total | $1,515 | $2,737 | $167 | $(398) | $ 70 | $124 |
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Net 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 | $ 299 | $ 925 | $ 2 | $ (221) | $124 | $ 187 | |||||
Harbor Strategic Growth Fund | 668 | 146 | — | 9 | — | 6 | |||||
Harbor Mid Cap Growth Fund | 234 | 288 | — | (65) | 69 | 52 | |||||
Harbor Small Cap Growth Fund | 178 | 223 | — | (49) | 55 | 28 | |||||
Harbor Large Cap Value Fund | 379 | 463 | 11 | (141) | 39 | 106 | |||||
Harbor Mid Cap Value Fund | 269 | 281 | 12 | (120) | 23 | 49 | |||||
Harbor Small Cap Value Fund | 218 | 240 | 1 | (111) | 13 | 69 | |||||
Harbor International Fund | 405 | 342 | 21 | (239) | 51 | 46 | |||||
Harbor Diversified International All Cap Fund | 295 | 292 | 12 | (171) | 29 | 38 | |||||
Harbor International Growth Fund | 364 | 341 | 14 | (212) | — | 71 | |||||
Harbor Global Leaders Fund | 118 | 172 | — | (19) | 41 | 25 | |||||
Harbor High-Yield Bond Fund | 452 | 2,563 | 180 | (16) | — | (154) | |||||
Harbor High-Yield Opportunities Fund | 1,968 | 295 | 60 | (56) | — | (6) | |||||
Harbor Bond Fund | 1,465 | 1,645 | 308 | (327) | — | (132) | |||||
Harbor Real Return Fund | 582 | 588 | 139 | (131) | — | (58) | |||||
Harbor Money Market Fund | 554 | 290 | 20 | — | — | — | |||||
Total | $8,448 | $9,094 | $780 | $(1,869) | $444 | $ 327 |
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 Net 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 | $ 306 | $ 879 | $ 2 | $ (200) | $113 | $ 168 | |||||
Harbor Strategic Growth Fund | 580 | 130 | — | 6 | — | 7 | |||||
Harbor Mid Cap Growth Fund | 234 | 300 | — | (79) | 63 | 66 | |||||
Harbor Small Cap Growth Fund | 181 | 239 | — | (63) | 50 | 46 | |||||
Harbor Large Cap Value Fund | 357 | 472 | 9 | (139) | 34 | 108 | |||||
Harbor Mid Cap Value Fund | 259 | 299 | 11 | (111) | 21 | 49 | |||||
Harbor Small Cap Value Fund | 205 | 246 | 1 | (113) | 12 | 76 | |||||
Harbor International Fund | 358 | 337 | 19 | (218) | 46 | 44 | |||||
Harbor Diversified International All Cap Fund | 267 | 298 | 11 | (158) | 27 | 38 | |||||
Harbor International Growth Fund | 324 | 337 | 12 | (199) | — | 74 | |||||
Harbor Global Leaders Fund | 110 | 170 | — | (20) | 36 | 25 | |||||
Harbor High-Yield Bond Fund | 532 | 2,630 | 168 | (102) | — | (51) | |||||
Harbor High-Yield Opportunities Fund | 1,852 | 439 | 57 | (46) | — | (8) | |||||
Harbor Bond Fund | 1,285 | 2,181 | 212 | (166) | — | (146) | |||||
Harbor Real Return Fund | 476 | 709 | 86 | (91) | — | (24) | |||||
Total | $7,326 | $9,666 | $588 | $(1,699) | $402 | $ 472 |
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Net 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 | $ 513 | $1,052 | $ 2 | $ (258) | $179 | $ 220 | |||||
Harbor Strategic Growth Fund | 652 | 98 | — | 9 | — | 5 | |||||
Harbor Mid Cap Growth Fund | 373 | 359 | — | (70) | 101 | 48 | |||||
Harbor Small Cap Growth Fund | 277 | 259 | — | (59) | 82 | 25 | |||||
Harbor Large Cap Value Fund | 519 | 465 | 16 | (227) | 56 | 167 | |||||
Harbor Mid Cap Value Fund | 400 | 298 | 18 | (212) | 34 | 100 | |||||
Harbor Small Cap Value Fund | 310 | 244 | 1 | (147) | 19 | 78 | |||||
Harbor International Fund | 611 | 332 | 31 | (314) | 75 | 7 | |||||
Harbor Diversified International All Cap Fund | 509 | 326 | 17 | (254) | 43 | 43 | |||||
Harbor International Growth Fund | 599 | 377 | 20 | (314) | — | 88 | |||||
Harbor Global Leaders Fund | 179 | 193 | — | (20) | 58 | 27 | |||||
Harbor High-Yield Bond Fund | 673 | 2,805 | 231 | (73) | — | (137) | |||||
Harbor High-Yield Opportunities Fund | 2,543 | 388 | 82 | (72) | — | (7) | |||||
Harbor Bond Fund | 1,484 | 1,389 | 263 | (270) | — | (116) | |||||
Harbor Real Return Fund | 530 | 379 | 89 | (97) | — | (23) | |||||
Total | $10,172 | $8,964 | $770 | $(2,378) | $647 | $ 525 |
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 Net 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 | $ 316 | $ 656 | $ 2 | $ (157) | $116 | $131 | |||||
Harbor Strategic Growth Fund | 422 | 55 | — | 6 | — | 2 | |||||
Harbor Mid Cap Growth Fund | 226 | 194 | — | (46) | 65 | 30 | |||||
Harbor Small Cap Growth Fund | 157 | 128 | — | (37) | 52 | 11 | |||||
Harbor Large Cap Value Fund | 306 | 217 | 10 | (92) | 36 | 46 | |||||
Harbor Mid Cap Value Fund | 247 | 137 | 11 | (101) | 22 | 22 | |||||
Harbor Small Cap Value Fund | 197 | 130 | 1 | (89) | 13 | 38 | |||||
Harbor International Fund | 390 | 162 | 20 | (222) | 49 | 14 | |||||
Harbor Diversified International All Cap Fund | 317 | 155 | 11 | (163) | 28 | 19 | |||||
Harbor International Growth Fund | 349 | 164 | 13 | (194) | — | 37 | |||||
Harbor Global Leaders Fund | 109 | 104 | — | (10) | 37 | 14 | |||||
Harbor High-Yield Bond Fund | 415 | 1,272 | 104 | (80) | — | (14) | |||||
Harbor High-Yield Opportunities Fund | 1,177 | 205 | 38 | (32) | — | (4) | |||||
Harbor Bond Fund | 860 | 773 | 118 | (103) | — | (69) | |||||
Harbor Real Return Fund | 213 | 149 | 28 | (37) | — | (1) | |||||
Total | $5,701 | $4,501 | $356 | $(1,357) | $418 | $276 |
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Net 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 | $ 515 | $1,259 | $ 3 | $ (308) | $224 | $ 298 | |||||
Harbor Strategic Growth Fund | 814 | 109 | — | (9) | — | 4 | |||||
Harbor Mid Cap Growth Fund | 440 | 431 | — | (71) | 125 | 54 | |||||
Harbor Small Cap Growth Fund | 305 | 288 | — | (63) | 100 | 26 | |||||
Harbor Large Cap Value Fund | 474 | 432 | 20 | (300) | 69 | 224 | |||||
Harbor Mid Cap Value Fund | 365 | 246 | 22 | (273) | 42 | 131 | |||||
Harbor Small Cap Value Fund | 298 | 231 | 1 | (160) | 24 | 74 | |||||
Harbor International Fund | 607 | 279 | 38 | (397) | 93 | 8 | |||||
Harbor Diversified International All Cap Fund | 447 | 243 | 22 | (299) | 53 | 30 | |||||
Harbor International Growth Fund | 541 | 286 | 25 | (349) | — | 63 | |||||
Harbor Global Leaders Fund | 176 | 205 | — | (46) | 73 | 59 | |||||
Harbor High-Yield Bond Fund | 465 | 1,529 | 137 | (59) | — | (62) | |||||
Harbor High-Yield Opportunities Fund | 1,581 | 339 | 51 | (43) | — | (7) | |||||
Harbor Bond Fund | 1,554 | 1,314 | 163 | (121) | — | (113) | |||||
Harbor Real Return Fund | 52 | 610 | 12 | (4) | — | (10) | |||||
Total | $8,634 | $7,801 | $494 | $(2,502) | $803 | $ 779 |
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 Net 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 | $ 398 | $ 587 | $ 1 | $ (125) | $103 | $126 | |||||
Harbor Strategic Growth Fund | 438 | 41 | — | (5) | — | 1 | |||||
Harbor Mid Cap Growth Fund | 298 | 179 | — | (34) | 57 | 28 | |||||
Harbor Small Cap Growth Fund | 225 | 115 | — | (30) | 45 | 10 | |||||
Harbor Large Cap Value Fund | 488 | 173 | 11 | (91) | 32 | 43 | |||||
Harbor Mid Cap Value Fund | 372 | 117 | 10 | (102) | 19 | 18 | |||||
Harbor Small Cap Value Fund | 284 | 109 | — | (83) | 11 | 32 | |||||
Harbor International Fund | 524 | 107 | 18 | (226) | 43 | 14 | |||||
Harbor Diversified International All Cap Fund | 449 | 91 | 10 | (159) | 24 | 12 | |||||
Harbor International Growth Fund | 517 | 135 | 11 | (190) | — | 26 | |||||
Harbor Global Leaders Fund | 154 | 72 | — | (2) | 34 | 11 | |||||
Harbor High-Yield Bond Fund | 383 | 445 | 46 | (50) | — | 8 | |||||
Harbor High-Yield Opportunities Fund | 583 | 65 | 18 | (18) | — | (1) | |||||
Harbor Bond Fund | 923 | 253 | 53 | (64) | — | (12) | |||||
Harbor Real Return Fund | 40 | 173 | 3 | (1) | — | (3) | |||||
Total | $6,076 | $2,662 | $181 | $(1,180) | $368 | $313 |
Purchases of Affiliated Funds (000s) | Sales of Affiliated Funds (000s) | Investment Income from Affiliated Funds (000s) | Change in Net 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 | $ 491 | $1,324 | $ 4 | $ (312) | $265 | $298 | |||||
Harbor Strategic Growth Fund | 924 | 71 | — | (9) | — | 2 | |||||
Harbor Mid Cap Growth Fund | 371 | 346 | — | (56) | 145 | 32 | |||||
Harbor Small Cap Growth Fund | 247 | 235 | — | (61) | 115 | 15 | |||||
Harbor Large Cap Value Fund | 442 | 309 | 25 | (257) | 82 | 159 | |||||
Harbor Mid Cap Value Fund | 391 | 207 | 26 | (282) | 49 | 105 | |||||
Harbor Small Cap Value Fund | 275 | 179 | 1 | (163) | 28 | 55 | |||||
Harbor International Fund | 671 | 210 | 45 | (476) | 110 | 3 | |||||
Harbor Diversified International All Cap Fund | 542 | 212 | 25 | (351) | 63 | 25 | |||||
Harbor International Growth Fund | 569 | 205 | 29 | (398) | — | 44 | |||||
Harbor Global Leaders Fund | 148 | 147 | — | (13) | 89 | 28 | |||||
Harbor High-Yield Bond Fund | 155 | 1,404 | 20 | (30) | — | 13 | |||||
Harbor High-Yield Opportunities Fund | 1,788 | 218 | 57 | (55) | — | (4) | |||||
Harbor Bond Fund | 721 | 320 | 62 | (67) | — | (23) | |||||
Total | $7,735 | $5,387 | $294 | $(2,530) | $946 | $752 |
47
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 Net 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 | $ 188 | $209 | $ 1 | $ (49) | $ 35 | $ 45 | |||||
Harbor Strategic Growth Fund | 166 | 18 | — | (2) | — | — | |||||
Harbor Mid Cap Growth Fund | 135 | 65 | — | (24) | 19 | 17 | |||||
Harbor Small Cap Growth Fund | 113 | 46 | — | (21) | 15 | 11 | |||||
Harbor Large Cap Value Fund | 254 | 89 | 4 | (43) | 11 | 22 | |||||
Harbor Mid Cap Value Fund | 179 | 55 | 3 | (42) | 6 | 10 | |||||
Harbor Small Cap Value Fund | 138 | 48 | — | (35) | 4 | 15 | |||||
Harbor International Fund | 269 | 74 | 6 | (85) | 14 | 8 | |||||
Harbor Diversified International All Cap Fund | 250 | 78 | 3 | (63) | 8 | 10 | |||||
Harbor International Growth Fund | 260 | 76 | 4 | (80) | — | 17 | |||||
Harbor Global Leaders Fund | 82 | 33 | — | (5) | 12 | 7 | |||||
Harbor High-Yield Bond Fund | 21 | 106 | 2 | (2) | — | 1 | |||||
Harbor High-Yield Opportunities Fund | 146 | 24 | 4 | (4) | — | — | |||||
Harbor Bond Fund | 89 | 43 | 4 | (4) | — | (2) | |||||
Total | $2,290 | $964 | $ 31 | $(459) | $124 | $161 |
NOTE 4—TAX INFORMATION
The amount and character of income and net realized gains to be distributed are determined in accordance with income tax rules and regulations, which may differ from U.S. GAAP. Reclassifications, if any, are made to each Fund’s capital account to reflect income and net realized gains available for distribution (or available capital loss carryovers) under income tax rules and regulations. There were no reclassification amounts on the Statements of Assets and Liabilities between total distributable earnings/(loss) and paid-in capital for the year ended October 31, 2018.
The tax composition of each Fund’s distributions is as follows:
As of October 31, 2018 | As of October 31, 2017 | ||||||||||
Ordinary Income (000s) | Long-Term Capital Gains (000s) | Total (000s) | Ordinary Income (000s) | Long-Term Capital Gains (000s) | Total (000s) | ||||||
Harbor Target Retirement Income Fund | $430 | $ 82 | $512 | $410 | $ 51 | $ 461 | |||||
Harbor Target Retirement 2015 Fund | 178 | — | 178 | 179 | — | 179 | |||||
Harbor Target Retirement 2020 Fund | 775 | — | 775 | 682 | 304 | 986 | |||||
Harbor Target Retirement 2025 Fund | 585 | — | 585 | 351 | 180 | 531 | |||||
Harbor Target Retirement 2030 Fund | 806 | 38 | 844 | 591 | 857 | 1,448 | |||||
Harbor Target Retirement 2035 Fund | 350 | — | 350 | 257 | 224 | 481 | |||||
Harbor Target Retirement 2040 Fund | $528 | $252 | 780 | 388 | 932 | 1,320 | |||||
Harbor Target Retirement 2045 Fund | 198 | 113 | 311 | 121 | 274 | 395 | |||||
Harbor Target Retirement 2050 Fund | 376 | 537 | 913 | 260 | 1,222 | 1,482 | |||||
Harbor Target Retirement 2055 Fund | 42 | 34 | 76 | 18 | 28 | 46 |
48
Harbor Target Retirement Funds
Notes to Financial Statements—Continued
Notes to Financial Statements—Continued
NOTE 4—TAX INFORMATION—Continued
As of October 31, 2018, the components of each Fund’s distributable earnings on a tax basis are as follows:
Undistributed Ordinary Income (000s) | Undistributed Long-Term Capital Gains (000s) | Unrealized Appreciation/ (Depreciation) (000s) | |||
Harbor Target Retirement Income Fund | $ 33 | $ 224 | $ (940) | ||
Harbor Target Retirement 2015 Fund | 92 | 54 | (405) | ||
Harbor Target Retirement 2020 Fund | 441 | 718 | (1,303) | ||
Harbor Target Retirement 2025 Fund | 336 | 767 | (670) | ||
Harbor Target Retirement 2030 Fund | 440 | 1,139 | (481) | ||
Harbor Target Retirement 2035 Fund | 197 | 557 | (108) | ||
Harbor Target Retirement 2040 Fund | 246 | 1,523 | 587 | ||
Harbor Target Retirement 2045 Fund | 90 | 644 | (1) | ||
Harbor Target Retirement 2050 Fund | 109 | 1,586 | 1,073 | ||
Harbor Target Retirement 2055 Fund | 11 | 252 | (128) |
The identified cost for federal income tax purposes of investments owned by each Fund and its respective gross unrealized appreciation and depreciation at October 31, 2018 are as follows:
Identified Cost (000s) | Gross Unrealized | Net Unrealized Appreciation/ (Depreciation) (000s) | |||||
Appreciation (000s) | (Depreciation) (000s) | ||||||
Harbor Target Retirement Income Fund | $13,501 | $ 158 | $(1,098) | $ (940) | |||
Harbor Target Retirement 2015 Fund | 5,197 | 51 | (456) | (405) | |||
Harbor Target Retirement 2020 Fund | 26,857 | 487 | (1,790) | (1,303) | |||
Harbor Target Retirement 2025 Fund | 18,321 | 216 | (886) | (670) | |||
Harbor Target Retirement 2030 Fund | 28,454 | 262 | (743) | (481) | |||
Harbor Target Retirement 2035 Fund | 15,232 | 228 | (336) | (108) | |||
Harbor Target Retirement 2040 Fund | 23,463 | 1,038 | (451) | 587 | |||
Harbor Target Retirement 2045 Fund | 12,411 | 280 | (281) | (1) | |||
Harbor Target Retirement 2050 Fund | 22,318 | 1,432 | (359) | 1,073 | |||
Harbor Target Retirement 2055 Fund | 3,884 | 34 | (162) | (128) |
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.
49
Harbor Target Retirement Funds
Report of Independent Registered Public Accounting Firm
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
Harbor Funds
Harbor Funds
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of 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 (collectively referred to as the “Funds”), (ten of the funds constituting Harbor Funds (the “Trust”)), including the portfolios of investments, as of October 31, 2018, and the related statements of operations and changes in net assets, and the financial highlights for each of the periods indicated in the table below and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds (ten of the funds constituting Harbor Funds), at October 31, 2018, the results of their operations, changes in net assets and financial highlights for each of the periods indicated in the table below, in conformity with U.S. generally accepted accounting principles.
Individual fund constituting the Harbor Funds | Statement of operations | Statement of changes in net assets | Financial highlights |
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 | For the year ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 | For each of the five years in the period ended October 31, 2018 |
Harbor Target Retirement 2055 Fund | For the year ended October 31, 2018 | For each of the two years in the period ended October 31, 2018 | For the three years in the period ended October 31, 2018 and the period from November 1, 2014 (inception) through October 31, 2015 |
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on each of the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and the shareholder servicing agent. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Harbor Funds investment companies since 2000.
Chicago, Illinois
December 19, 2018
December 19, 2018
50
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 May 1, 2018 through October 31, 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 May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Target Retirement Income Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 987.90 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 | |||||
Harbor Target Retirement 2015 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 986.94 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 | |||||
Harbor Target Retirement 2020 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 980.39 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 | |||||
Harbor Target Retirement 2025 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 975.24 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 | |||||
Harbor Target Retirement 2030 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 971.43 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 |
51
Harbor Target Retirement Funds
Fees and Expenses Example—Continued
Fees and Expenses Example—Continued
Annualized Expense Ratios | Expenses Paid During Period* | Beginning Account Value May 1, 2018 | Ending Account Value October 31, 2018 | |||||
Harbor Target Retirement 2035 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 964.51 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 | |||||
Harbor Target Retirement 2040 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 958.83 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 | |||||
Harbor Target Retirement 2045 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 955.14 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 | |||||
Harbor Target Retirement 2050 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 948.74 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 | |||||
Harbor Target Retirement 2055 Fund | ||||||||
Institutional Class | 0.00% | |||||||
Actual | $0.00 | $1,000 | $ 943.66 | |||||
Hypothetical (5% return) | 0.00 | 1,000 | 1,025.21 |
* | Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
52
Harbor Target Retirement Funds
Additional Information (Unaudited)
Additional Information (Unaudited)
Additional Tax Information
Pursuant to Section 852 of the Internal Revenue Code, the Funds designate the following capital gain dividends for the year ended October 31, 2018:
Amount (000s) | |
Harbor Target Retirement Income Fund | $ 81 |
Harbor Target Retirement 2030 Fund | 38 |
Harbor Target Retirement 2040 Fund | 252 |
Harbor Target Retirement 2045 Fund | 113 |
Harbor Target Retirement 2050 Fund | 537 |
Harbor Target Retirement 2055 Fund | 33 |
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) 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.
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.
53
Harbor Target Retirement Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers
As of December 2018
The business and affairs of the Trust shall be managed by or under the direction of the Trustees, and they shall have all powers necessary or desirable to carry out that responsibility. The Trustees shall have full power and authority to take or refrain from taking any action and to execute any contracts and instruments that they may consider necessary or desirable in the management of the Trust. Any determination made by the Trustees in good faith as to what is in the interests of the Trust shall be conclusive. Information pertaining to the Trustees and Officers of Harbor Funds is set forth below. The address of each Trustee and Officer is: [Name of Trustee or Officer] c/o Harbor Funds, 111 South Wacker Drive, 34th Floor, Chicago, IL 60606-4302.
Harbor Funds' Statement of Additional Information includes additional information about the Trust’s Trustees and is available without charge by calling 800-422-1050 or at the Trust’s website at harborfunds.com.
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Number of Portfolios In Fund Complex Overseen By Trustee | Other Directorships Of Public Companies and Other Registered Investment Companies Held by Trustee During Past Five Years |
INDEPENDENT TRUSTEES | ||||
Scott M. Amero (55) Trustee | Since 2014 | Chairman (2015-Present) and Trustee (2011-2015), Rare (conservation nonprofit); Trustee, Berkshire School (2014-Present); Vice Chairman and Global Chief Investment Officer, Fixed Income (2010), Vice Chairman and Global Chief Investment Officer, Fixed Income, and Co-Head, Fixed Income Portfolio Management (2007-2010), BlackRock, Inc., (publicly traded investment management firm). | 32 | None |
Raymond J. Ball (74) Trustee | Since 2006 | Sidney Davidson Distinguished Service Professor of Accounting, University of Chicago Booth School of Business (2000-Present); Academic Affiliate, Analysis Group (litigation consulting firm) (2000-Present); Financial Reporting Faculty Advisory Group of the Institute of Chartered Accountants in England and Wales (2008-Present); and Advisory Board of the Center for Accounting Research & Education at University of Notre Dame (2006-Present). | 32 | None |
Donna J. Dean (67) Trustee | Since 2010 | Chief Investment Officer of the Rockefeller Foundation (a private foundation) (1995-Present). | 32 | None |
Joseph L. Dowling III (54) Trustee | Since 2017 | Chief Investment Officer, Brown University (2013-Present); Advisory Board Member, Stage Point Capital (private mortgage specialist) (2016-2017); Advisory Board Member, Harbor Funds (2016-2017); and Founder and Managing Member, Narragansett Asset Management (private investment management firm) (1998-2013). | 32 | Director of Integrated Electrical Services (2011-Present). |
Randall A. Hack (71) Trustee | Since 2010 | Founder and Senior Managing Director of Capstone Capital LLC (private investment firm) (2003-Present); Director of Tower Development Corporation (cell tower developer) (2009-2016); Advisory Director of Berkshire Partners (private equity firm) (2002-2013); Founder and Senior Managing Director of Nassau Capital, LLC (private investment firm, investing solely on behalf of the Princeton Endowment) (1995-2001); and President of The Princeton University Investment Company (1990-1994). | 32 | None |
Robert Kasdin (60) Trustee | Since 2014 | Senior Vice President and Chief Operating Officer (2015-Present) and Chief Financial Officer (2018-Present), Johns Hopkins Medicine; Senior Executive Vice President, Columbia University (2002-2015); Trustee and Member of the Finance Committee, National September 11 Memorial & Museum at the World Trade Center (2005-Present); Director, Apollo Commercial Real Estate Finance, Inc. (2014-Present); Director and Executive Committee Member, The Y in Central Maryland (2018-Present); and Director, Noranda Aluminum Holdings Corp. (2007-2014). | 32 | Director of Noranda Aluminum Holdings Corporation (2007-2014); and Director of Apollo Commercial Real Estate Finance, Inc. (2014-Present). |
54
Harbor Target Retirement Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers—Continued
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years | Number of Portfolios In Fund Complex Overseen By Trustee | Other Directorships Of Public Companies and Other Registered Investment Companies Held by Trustee During Past Five Years |
INDEPENDENT TRUSTEES—Continued | ||||
Kathryn L. Quirk (66) Trustee | Since 2017 | Retired; Vice President, Senior Compliance Officer and Head, U.S. Regulatory Compliance, Goldman Sachs Asset Management (2013-2017); Deputy Chief Legal Officer, Asset Management, and Vice President and Corporate Counsel, Prudential Insurance Company of America (2010-2012); Co-Chief Legal Officer, Prudential Investment Management, Inc., and Chief Legal Officer, Prudential Investments and Prudential Mutual Funds (2008-2012); Vice President and Corporate Counsel and Chief Legal Officer, Mutual Funds, Prudential Insurance Company of America, and Chief Legal Officer, Prudential Investments (2005-2008); Vice President and Corporate Counsel and Chief Legal Officer, Mutual Funds, Prudential Insurance Company of America (2004-2005); Member, Management Committee (2000-2002), General Counsel and Chief Compliance Officer, Zurich Scudder Investments, Inc. (1997-2002). | 32 | None |
Ann M. Spruill (64) Trustee | Since 2014 | Partner (1993-2008), member of Executive Committee (1996-2008), Member Board of Directors (2002-2008), Grantham, Mayo, Van Otterloo & Co, LLC (private investment management firm) (with the firm since 1990); Member Investment Committee and Chair of Global Equities, Museum of Fine Arts, Boston (2000-Present); and Trustee, Financial Accounting Foundation (2014-Present). | 32 | None |
INTERESTED TRUSTEE | ||||
Charles F. McCain (49)* Chairman, Trustee and President | Since 2017 | Chief Executive Officer (2017-Present), Director (2007-Present), President and Chief Operating Officer (2017), Executive Vice President and General Counsel (2004-2017), and Chief Compliance Officer (2004-2014), Harbor Capital Advisors, Inc.; Director (2007-Present) and Chief Compliance Officer (2004-2017), Harbor Services Group, Inc.; and Chief Executive Officer (2017-Present), Director (2007-Present), Chief Compliance Officer and Executive Vice President (2007-2017), Harbor Funds Distributors, Inc. | 32 | None |
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years |
FUND OFFICERS NOT LISTED ABOVE** | ||
Erik D. Ojala (43) Chief Compliance Officer | Since 2017 | Executive Vice President and General Counsel (2017-Present) and Secretary (2010-Present); Senior Vice President and Associate General Counsel (2007-2017), Harbor Capital Advisors, Inc.; Director, Executive Vice President and Chief Compliance Officer (2017-Present), Harbor Funds Distributors, Inc.; and Director (2017-Present) and Assistant Secretary (2014-Present), Harbor Services Group, Inc. |
Anmarie S. Kolinski (47) Treasurer | Since 2007 | Executive Vice President and Chief Financial Officer (2007-Present), Harbor Capital Advisors, Inc.; Chief Financial Officer (2007-Present), Harbor Services Group, Inc.; and Chief Financial Officer (2015-Present) and Treasurer (2012-Present), Harbor Funds Distributors, Inc. |
Brian L. Collins (50) Vice President | Since 2005 | Executive Vice President and Chief Investment Officer (2004-Present), Harbor Capital Advisors, Inc. |
Charles P. Ragusa (59) Vice President | Since 2007 | Executive Vice President (2007-Present), Harbor Capital Advisors, Inc.; President (2007-Present), Harbor Services Group, Inc.; and Executive Vice President and AML Compliance Officer (2007-Present) and OFAC Officer (2015-Present), Harbor Funds Distributors, Inc. |
Diana R. Podgorny (39) Secretary | Since 2018 | Vice President and Assistant General Counsel, Harbor Capital Advisors, Inc. (2017-Present); Vice President and Counsel, AMG Funds LLC (2016-2017); and Vice President and Counsel, Aston Asset Management, LLC (2010-2016). |
55
Harbor Target Retirement Funds
Additional Information—Continued
Additional Information—Continued
Trustees and Officers—Continued
Name (Age) Position(s) with Fund | Term of Office and Length of Time Served1 | Principal Occupation(s) During Past Five Years |
FUND OFFICERS NOT LISTED ABOVE**—Continued | ||
Jodie L. Crotteau (46) Assistant Secretary | Since 2014 | Senior Vice President and Chief Compliance Officer, Harbor Capital Advisors, Inc. (2014-Present); Chief Compliance Officer and Secretary (2017-present) and Assistant Secretary (2015-2016), Harbor Services Group, Inc.; Assistant Secretary (2016-present), Harbor Funds Distributors, Inc.; Vice President and Chief Compliance Officer, Grosvenor Registered Funds (2011-2014); and Vice President, Grosvenor Capital Management, L.P. (2010-2014). |
Lana M. Lewandowski (39) AML Compliance Officer and Assistant Secretary | Since 2017 | Legal & Compliance Manager (2016-Present) and Legal Specialist (2012-2015), Harbor Capital Advisors, Inc. |
Lora A. Kmieciak (54) Assistant Treasurer | Since 2017 | Senior Vice President – Fund Administration and Analysis (2017-Present) and Senior Vice President - Business Analysis (2015-2017), Harbor Capital Advisors, Inc.; and Assurance Executive Director (1999-2015), Ernst & Young LLP. |
John M. Paral (50) Assistant Treasurer | Since 2013 | Director of Fund Administration and Analysis (2017-Present), Vice President (2012-Present) and Financial Reporting Manager (2007-2017), Harbor Capital Advisors, Inc. |
1 | Each Trustee serves for an indefinite term, until his successor is elected. Each Officer is elected annually. |
* | Mr. McCain is deemed an “Interested Trustee” due to his affiliation with the Adviser and Distributor of Harbor Funds. |
** | Officers of the Funds are “interested persons” as defined in the Investment Company Act. |
56
This privacy statement is not part of this report
Harbor’s Privacy Statement
The following privacy statement (“Privacy Statement”) is issued by Harbor Funds and each series of Harbor Funds and its affiliates, Harbor Capital Advisors, Inc., Harbor Services Group, Inc. and Harbor Funds Distributors, Inc. (collectively, “Harbor” “we” or “us”). The measures described in this Privacy Statement reflect the commitments we make to protect the privacy of your personal information. We appreciate the confidence you have shown by entrusting us with your assets.
Personal Information
In the course of providing products and services, we collect personal information about you from the following sources: applications, forms, our website (including any information captured through our use of “cookies”), through mobile applications, by telephone and in correspondence and transactions with us, our affiliates or other parties, including when you contact Shareholder Services or establish an account with us. This Privacy Statement applies to personal information we collect from those sources unless we inform you otherwise.
The personal information collected may include name, address, e-mail address, telephone/fax numbers, account number, social security or taxpayer identification number, investment activity, bank account information, location data (depending on your app settings and device permissions), and other information voluntarily provided by you.
We may also collect certain information automatically when you visit us through our website or a mobile application. For example, we may collect technical and navigational information, such as computer browser type, device type, device ID, Internet protocol address, pages visited average time spent on our website and searches performed on our website. We may use this information to alert you to software compatibility issues; to provide you with or improve or websites, applications, products or services; or to provide you with content that may be of interest to you. We use your IP address to help diagnose problems with our server and to administer our website. Your IP address is also used to gather broad demographic information. This information will be used for internal purposes only. We also collect information in the form of log files that record website and app activity and gather statistics about your browsing habits. These entries are generated automatically, and help us to troubleshoot errors, improve performance and maintain the security of our sites and apps. We use “cookies” and similar files that may be placed on your computer or device for security purposes, to facilitate site navigation and to personalize the appearance of our site. We provide more information regarding cookies and other tracking technologies below.
In addition, we may receive personal information about you that you authorize third parties to provide to us. We also may obtain personal information from third-party service providers to verify your identity, to prevent fraud, or to help us identify products and services that may be of interest to you.
The personal information we collect about you may be transferred to or stored by us or our service providers in the United States or elsewhere, as permitted by law.
If you do not wish to provide personal information to us, we may be unable to provide certain products or services to you.
Information Sharing
We disclose personal information with affiliated and non-affiliated parties: (1) as permitted or required by law or regulation; (2) if we believe that is necessary to: comply with applicable laws, regulations, or industry requirements; respond to requests from a legal, regulatory, or governmental authority; enforce legal terms; detect and resolve any fraud or security concerns, and protect the rights, property, and safety of us, our users, or others; (3) in the event of a merger, acquisition or sale of all or substantially all of our assets; or (4) as otherwise described in this Privacy Statement.
Personal information we collect may be shared with non-affiliated companies that perform support services on our behalf or to other firms that assist us in providing you with products and services (including, without limitation, completing transactions), such as custodians, transfer agents, broker-dealers and marketing service firms (to support our marketing to you), as well as with other financial institutions. We may also share information with affiliates that are engaged in a variety of financial services in order to better service your account(s).
When information is shared with third parties, they are not permitted to use the information for any purpose other than those purposes described in this Privacy Statement or as permitted by law.
If you close your account(s) or if we lose contact with you, we will continue to share information in accordance with our current privacy policy and practices.
If you close your account(s) or if we lose contact with you, we will continue to share information in accordance with our current privacy policy and practices.
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Harbor’s Privacy Statement—Continued
Security
We maintain physical, electronic and procedural safeguards designed to protect your personal information; however, please be aware that no data security measures can guarantee 100% security.
For shareholders accessing information through our website or a mobile application, various forms of Internet security, such as data encryption firewall barriers, user names and passwords, two-factor authentication, and other tools are used. For additional information regarding our security measures, visit the terms and conditions of use on our website at .
Linking to
Third Parties
Third Parties
When you visit our website and leave to go to another linked site, we are not responsible for the content or availability of the linked site. Please be advised that if you enter into a transaction on the third-party site, we do not represent either the third party or you. Further, the privacy and security policies of the linked site may differ from those practiced by us.
Cookies and Other Technologies
A cookie is a small text file that is stored on your computer, tablet, or device when you visit a website or a mobile application. Cookies usually store small bits of information about you and what you do on that site or application, which are then used to improve your browsing experience. Some cookies are only used during a single visit, while others are saved on your device until your next visit. Harbor Funds and our third-party providers use both types of cookies to make your visits more productive.
If you are concerned about cookies, they can be blocked from your device, or you can set your browser to notify you when they are being used. Use the Help feature of your browser to learn how.
Our website, mobile application, and e-mails may use a web beacon. A web beacon helps to measure usage and activity and reports that activity back to the system providers. In some cases, a web beacon triggers the placement of a cookie on your device.
We and our service providers use web beacons and cookies to determine things like if and when you open our e-mails, what type of device, operating system, e-mail program, or web browser you are using, your IP address, and what links you click within our site or e-mail. These things enable us to gauge the effectiveness, relevance, and value of our content and communications.
We use Google Analytics (which uses a web beacon) to collect information about use of our website and mobile application. For more information on opting out of being tracked by Google Analytics, visit https://tools.google.com/dlpage/gaoptout. We also use Lucky Orange to collect information about how visitors interact with the content on our public website and mobile application pages. Lucky Orange does not track actions or behavior within the password-protected online account access systems. For more information about Lucky Orange, including how to opt out, please visit: https://www.luckyorange.com/privacy.php.
Do Not Track
Our third-party vendors may collect information about users across our website. We do not currently have the capability to respond to a web browser that does not track signals or other mechanisms that provide you with the ability to exercise choice regarding the collection of this information.
Changes to this
Privacy Statement
Privacy Statement
We reserve the right to change or revise this Privacy Statement at any time to reflect changes in the law or our data collection and use practices. New updates to the Privacy Statement will be posted to our website and are include in Harbor Funds’ annual reports to shareholders. Privacy Statement changes will apply to the information collected from the date we post our revised Privacy Statement, as well as to existing information we hold.
Contact Us
If you have any questions or concerns about how we maintain the privacy of your personal information or if you would like to update your personal information on file, please contact us at 800-422-1050 Monday through Friday, between the hours of 8:00 a.m. and 6:00 p.m. Eastern time. You may also write to us at the following postal address:
Harbor Funds
c/o Harbor Services Group, Inc.
PO Box 804660
Chicago, IL 60680-4108
c/o Harbor Services Group, Inc.
PO Box 804660
Chicago, IL 60680-4108
We recommend that you read and retain this notice for your personal files.
Last Updated: December 2018
58
Benchmark Descriptions
Composite Index Income—The Composite Index Income is derived by applying the Harbor Target Retirement Fund’s (the “Income Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), ICE BofAML U.S. Non-Distressed High Yield Index (with respect to the Harbor High-Yield Bond Fund; prior to March 31, 2015, the ICE BofAML U.S. High Yield Index (H0A0) was this fund’s benchmark and a component of the Composite Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index, ICE BofAML U.S. 3-Month Treasury Bill Index. The weights of the Composite Index Income match the Income 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 Income 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 Harbor Target Retirement 2015 Fund’s (the “2015 Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), ICE BofAML U.S. Non-Distressed High Yield Index (with respect to the Harbor High-Yield Bond Fund; prior to March 31, 2015, the ICE BofAML U.S. High Yield Index (H0A0) was this fund’s benchmark and a component of the Composite Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index, ICE BofAML U.S. 3-Month Treasury Bill Index. The weights of the Composite Index 2015 match the 2015 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 2015 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 Harbor Target Retirement 2020 Fund’s (the “2020 Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), ICE BofAML U.S. Non-Distressed High Yield Index (with respect to the Harbor High-Yield Bond Fund; prior to March 31, 2015, the ICE BofAML U.S. High Yield Index (H0A0) was this fund’s benchmark and a component of the Composite Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index, ICE BofAML U.S. 3-Month Treasury Bill Index. The weights of the Composite Index 2020 match the 2020 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 2020 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 Harbor Target Retirement 2025 Fund’s (the “2025 Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), ICE BofAML U.S. Non-Distressed High Yield Index (with respect to the Harbor High-Yield Bond Fund; prior to March 31, 2015, the ICE BofAML U.S. High Yield Index (H0A0) was this fund’s benchmark and a component of the Composite Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index. The weights of the Composite Index 2025 match the 2025 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 2025 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 Harbor Target Retirement 2030 Fund’s (the “2030 Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), ICE BofAML U.S. Non-Distressed High Yield Index (with respect to the Harbor High-Yield Bond Fund; prior to March 31, 2015, the ICE BofAML U.S. High Yield Index (H0A0) was this fund’s benchmark and a component of the Composite Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS
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Benchmark Descriptions—Continued
Index. The weights of the Composite Index 2030 match the 2030 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 2030 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 Harbor Target Retirement 2035 Fund’s (the “2035 Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), ICE BofAML U.S. Non-Distressed High Yield Index (with respect to the Harbor High-Yield Bond Fund; prior to March 31, 2015, the ICE BofAML U.S. High Yield Index (H0A0) was this fund’s benchmark and a component of the Composite Index), Bloomberg Barclays U.S. Aggregate Bond Index, Bloomberg Barclays U.S. TIPS Index. The weights of the Composite Index 2035 match the 2035 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 2035 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 Harbor Target Retirement 2040 Fund’s (the “2040 Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), ICE BofAML U.S. Non-Distressed High Yield Index (with respect to the Harbor High-Yield Bond Fund; prior to March 31, 2015, the ICE BofAML U.S. High Yield Index (H0A0) was this fund’s benchmark and a component of the Composite Index), Bloomberg Barclays U.S. Aggregate Bond Index. The weights of the Composite Index 2040 match the 2040 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 2040 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 Harbor Target Retirement 2045 Fund’s (the “2045 Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), ICE BofAML U.S. Non-Distressed High Yield Index (with respect to the Harbor High-Yield Bond Fund; prior to March 31, 2015, the ICE BofAML U.S. High Yield Index (H0A0) was this fund’s benchmark and a component of the Composite Index), Bloomberg Barclays U.S. Aggregate Bond Index. The weights of the Composite Index 2045 match the 2045 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 2045 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 Harbor Target Retirement 2050 Fund’s (the “2050 Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), Bloomberg Barclays U.S. Aggregate Bond Index. The weights of the Composite Index 2050 match the 2050 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 2050 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 Harbor Target Retirement 2055 Fund’s (the “2055 Fund”) 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 (with respect to Harbor International Growth Fund weightings, prior to May 28, 2013, the MSCI EAFE Growth (ND) Index), MSCI All Country World (ND) Index, ICE BofAML U.S. High Yield Index (H0A0), Bloomberg Barclays U.S. Aggregate Bond Index. The weights of the Composite Index 2055 match the 2055 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 2055 Fund’s target asset allocation. This unmanaged index does not reflect fees and expenses and is not available for direct investment.
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Benchmark Descriptions—Continued
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.
ICE BofAML U.S. Convertible Ex Mandatory Index—The ICE BofAML U.S. Convertible 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. 3-Month Treasury Bill Index—The ICE BofAML U.S. 3-Month 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 (ND) Index—The MSCI All Country World (ND) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of global 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. (ND) Index 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 developed markets, excluding the U.S. and Canada. 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® 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
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Benchmark Descriptions—Continued
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.
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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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.AR.TR.1018
Table of Contents
ITEM 2 – CODE OF ETHICS
(a) | The Registrant has adopted a code of ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Registrant or a third party (the “Code of Ethics”). |
(c) | The Registrant has not amended its Code of Ethics during the period covered by this report. |
(d) | The Registrant has not granted any waivers, including an implicit waiver, from any provisions of its Code of Ethics during the period covered by this report. |
ITEM 3 – AUDIT COMMITTEE FINANCIAL EXPERT
The Registrant’s Board has determined that Raymond J. Ball, a member of the Audit Committee of the Board of Trustees, is an audit committee financial expert as defined by the Securities and Exchange Commission (the “SEC”). Mr. Ball is the Sidney Davidson Distinguished Service Professor of Accounting at the University of Chicago Booth School of Business and a frequent lecturer and researcher on accounting, financial market and related business matters. Mr. Ball is deemed “independent” as defined by the SEC for purposes of audit committee financial expert determinations.
ITEM 4 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
Items 4(a)—4(d): Audit, Audit-Related, Tax and All Other Fees
Fees billed by Ernst & Young:
Fiscal Year Ended October 31, 2018 | Fiscal Year Ended October 31, 2017 | ||||||||||
All fees and services to the Trust that were pre-approved | All fees and services to service affiliates that were pre-approved | All other fees and services to service affiliates that did not require pre-approval | All fees and services to the Trust that were pre-approved | All fees and services to service affiliates that were pre-approved | All other fees and services to service affiliates that did not require pre-approval | ||||||
(a) Audit Fees. | $816,992 | N/A | N/A | $770,169 | N/A | N/A | |||||
(b) Audit-Related Fees. | $ 6,0001 | $52,800 2 | N/A | $ 3,0001 | $51,250 2 | N/A | |||||
(c) Tax Fees. | $417,404 3 | $ — | N/A | $345,618 3 | $ — | N/A | |||||
(d) All Other Fees. | $ 61,0004 | $ 2,7555 | N/A | $ 16,8504 | $ 2,5505 | N/A |
1 | Includes fees related to the issuance of consents for N-1A filings. |
2 | Includes fees related to the procedures performed for Harbor Services Group, Inc. required by Rule 17Ad-13(a)(3) of the Securities Exchange Act of 1934. |
3 | Includes fees related to tax compliance, including foreign tax reclaim filings and tax research and equalization. |
4 | Includes fees billed in connection with the Registrant’s subscription to the Ernst & Young PFIC Analyzer, a database used to determine whether foreign equity securities are passive foreign investment companies. |
5 | Includes fees billed in connection with the Adviser’s subscription to Ernst & Young Online, a database of accounting rules and regulations. |
(e) | (1) | Pre-Approval Policies. |
The policy of the Registrant’s Audit Committee is to consider and, if appropriate, approve before the principal accountant is engaged for such services, all specific audit, review and non-audit services (other than certain de minimis non-audit services) provided to the Registrant. In making a determination, the Audit Committee considers whether the services are consistent with maintaining the principal accountant’s independence.
In the event of a contingency situation in which the principal accountant is needed to provide services in between scheduled Audit Committee meetings, the Audit Committee is authorized to delegate one or more members of the Committee the responsibility for considering and, if appropriate, pre-approving audit or permitted non-audit services in an amount sufficient to complete services and to determine if such services would be consistent with maintaining the accountant’s independence. Such member(s) are required to report to the full Audit Committee as to the nature and amount of such services and fees pre-approved at the next scheduled Audit Committee meeting. The Audit Committee would again consider whether such services and fees are consistent with maintaining the principal accountant’s independence.
The Registrant’s Audit Committee is informed at least annually of all audit and non-audit services provided by the principal accountant to the Registrant.
(2) | None of the principal accountant’s fees or services rendered to the Registrant, the Adviser or Harbor Services Group, Inc. were approved pursuant to the waiver provision of paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X. |
(f) | Not applicable. |
(g) | Aggregate Non-Audit Fees. |
Aggregate Non-Audit Fees of the Registrant | |
Fiscal Year Ended October 31, 2018: $484,404 | |
Fiscal Year Ended October 31, 2017: $365,468 | |
Aggregate Non-Audit Fees of Other Entities Required to be Pre-approved Pursuant to Paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X | |
Fiscal Year Ended October 31, 2018: $55,555 | |
Fiscal Year Ended October 31, 2017: $53,800 | |
(h) | For the most recent fiscal year, the Audit Committee has determined that the provision of all non-audit services to service affiliates was compatible with maintaining the principal accountant’s independence. |
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 – DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
ITEM 13 – EXHIBITS
(a)(1) | Code of Ethics referred to in Item 2 is attached hereto. |
(a)(2) | 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 December 21, 2018 on its behalf by the undersigned, thereunto duly authorized.
HARBOR FUNDS
By: /s/ Charles F. McCain
Charles F. McCain
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 | Chairman, President and Trustee (Principal Executive Officer) | December 21, 2018 |
By: | /s/ Anmarie S. Kolinski Anmarie S. Kolinski | Treasurer (Principal Financial and Accounting Officer) | December 21, 2018 |
Exhibit Index
Number | Description | |
99.CODE ETH | Code of Business Conduct and Ethics. | |
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). |