N-14 1 k70810nv14.txt FORM N-14 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 1, 2002 FILE NO. 33-5852 -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM N-14 ------------------------ REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ] PRE-EFFECTIVE AMENDMENT NO. __ POST-EFFECTIVE AMENDMENT NO. __ [ ]
HARBOR FUND (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) ONE SEAGATE, TOLEDO, OHIO 43666 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (419) 247-1940 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) DAVID G. VAN HOOSER ERNEST V. KLEIN, ESQ. HARBOR FUND HALE AND DORR LLP ONE SEAGATE 60 STATE STREET TOLEDO, OHIO 43666 BOSTON, MASSACHUSETTS 02109
(NAME AND ADDRESS OF AGENTS FOR SERVICE) ------------------------ CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933: No filing fee is due because an indefinite number of shares has previously been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940. This Registration Statement relates to shares previously registered on form N-1A (file Nos. 33-5852 and 811-4676). APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: NOVEMBER 1, 2002 It is proposed that this filing will become effective on September 9, 2002 pursuant to Rule 488. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- PROXY STATEMENT AND PROSPECTUS [HARBOR FUND LOGO] SEPTEMBER 9, 2002 ---------------------------------------- HARBOR INTERNATIONAL FUND II HARBOR SMALL CAP GROWTH FUND The Securities and Exchange Commission has not approved nor disapproved shares of Harbor International Fund or Harbor Growth Fund nor determined whether this prospectus is accurate or complete. Any statement to the contrary is a crime. A MESSAGE FROM THE CHAIRMAN Dear Shareholder: The Board of Trustees of Harbor Fund has approved two mergers of existing funds that have very similar strategies. The Board of Trustees has approved the merger of Harbor International Fund II into Harbor International Fund. Also, the Board of Trustees approved the merger of Harbor Small Cap Growth Fund into Harbor Growth Fund which will be renamed the Harbor Small Cap Growth Fund. Both mergers are subject to shareholder approval. The mergers will eliminate any significant overlap in investment strategies within the Harbor Fund family of mutual funds. The simplified fund lineup should also reduce expense ratios for the Harbor International Fund and the renamed Harbor Small Cap Growth Fund following the mergers. Shareholders in the International Fund II and Harbor Small Cap Growth Fund will be contacted in the next four to six weeks and asked to vote on the proposed mergers. If approved by shareholders, both mergers will be effective on October 31, 2002. Shareholders of Harbor International Fund II will be asked to approve a merger into Harbor International Fund. Both funds have been managed in very similar value-oriented styles and own many of the same stocks. Harbor International Fund II began operations in 1996 during a period when Harbor International Fund was closed to new investors. Harbor International Fund was reopened to new investors in May 2000. Hakan Castegren of Northern Cross Investments Limited, the current subadviser of both international funds, will continue to manage the surviving Harbor International Fund. Shareholders of Harbor Small Cap Growth Fund will be asked to approve a merger into Harbor Growth Fund. The surviving fund will be renamed Harbor Small Cap Growth Fund and will be managed by William Muggia of Westfield Capital Management Company LLC, the current subadviser on the existing Harbor Small Cap Growth Fund. Both funds invest in smaller capitalization stocks with favorable prospects for long-term growth. Harbor Small Cap Growth Fund's holdings have been diversified more broadly than those of Harbor Growth Fund, which have become more concentrated in the technology sector. The Board of Trustees believes strongly that these mergers are in the best interest of Harbor Fund shareholders. If you have any questions regarding the mergers and the change in the Harbor Fund lineup, please contact Harbor Fund at 1-800-422-1050 or visit our website at www.harborfund.com. [DAVID G. VAN HOOSER SIG] David G. Van Hooser Chairman -------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND II AND HARBOR SMALL CAP GROWTH FUND (EACH A SERIES OF HARBOR FUND) ONE SEAGATE TOLEDO, OHIO 43666 NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS SCHEDULED FOR OCTOBER 22, 2002 -------------------------------------------------------------------------------- THIS IS THE FORMAL AGENDA FOR A SPECIAL MEETING OF SHAREHOLDERS OF YOUR MUTUAL FUND. IT TELLS YOU WHAT MATTERS WILL BE VOTED ON AND, IN CASE YOU WANT TO ATTEND THIS MEETING IN PERSON, THE TIME AND PLACE OF THE MEETING. To the shareholders of Harbor International Fund II ("HIF2") and Harbor Small Cap Growth Fund ("HSCGF"): A special meeting of HIF2 and HSCGF shareholders will be held at One SeaGate, Toledo, Ohio 43666 on Tuesday, October 22, 2002 at 9:00 a.m., Eastern Time. The following matters will be voted on at the meeting:
PROPOSAL FUND --------------------------------------------------------------- ---------------------------- 1. A proposal to approve an Agreement and Plan of Merger Harbor International Fund II between HIF2 and Harbor International Fund ("HIF"). Under this Agreement HIF2 and HIF would combine their assets into a single fund -- HIF -- with the shareholders of HIF2 becoming shareholders of HIF. HIF would assume HIF2's liabilities and HIF2 Fund would be dissolved. Northern Cross Investments Limited would continue to serve as subadviser to HIF following the merger. YOUR BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. 2. A proposal to approve an Agreement and Plan of Merger Harbor Small Cap Growth Fund between HSCGF and Harbor Growth Fund ("HGF"). Under this Agreement HSCGF and HGF would combine their assets into a single fund -- HGF -- with the shareholders of HSCGF becoming shareholders of HGF. HGF would assume HSCGF's liabilities and HSCGF Fund would be dissolved. Westfield Capital Management Company LLC, the current subadviser to HSCGF, would become subadviser to HGF replacing the existing subadviser and HGF would change its name to Harbor Small Cap Growth Fund. YOUR BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR THIS PROPOSAL. 3. Any other business that may properly come before the Each Fund meeting.
Shareholders of record of each fund as of the close of business on August 23, 2002 are entitled to vote on their fund's respective proposal at the meeting and any related follow-up meetings regarding their fund. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY CARD. IF SHAREHOLDERS DO NOT RETURN THEIR PROXIES IN SUFFICIENT NUMBERS, HIF2 AND HSCGF WILL INCUR ADDITIONAL COSTS TO SOLICIT PROXIES. By Order of the Board of Trustees, Karen B. Wasil, Secretary Toledo, Ohio September 9, 2002 -------------------------------------------------------------------------------- PROXY STATEMENT OF: HARBOR INTERNATIONAL FUND II AND HARBOR SMALL CAP GROWTH FUND (EACH A SERIES OF HARBOR FUND) --------------------------------------------------------- PROSPECTUS FOR INSTITUTIONAL SHARES OF: HARBOR INTERNATIONAL FUND AND HARBOR GROWTH FUND (EACH A SERIES OF HARBOR FUND) -------------------------------------------------------------------------------- This proxy statement and prospectus contains information you should know before voting on the proposed mergers of Harbor International Fund II, One SeaGate, Toledo, Ohio 43666 ("HIF2") into Harbor International Fund, One SeaGate, Toledo, Ohio 43666 ("HIF") and of Harbor Small Cap Growth Fund, One SeaGate, Toledo, Ohio 43666 ("HSCGF") into Harbor Growth Fund, One SeaGate, Toledo, Ohio 43666 ("HGF"). Please read it carefully and retain it for future reference. This combined proxy statement and prospectus is also intended to provide shareholders of HIF2 with the information about the change in subadvisers for their fund that would otherwise need to be provided to them in the form of an information statement. HIF and HIF2 are each an open-end mutual fund investing in equity securities of foreign companies, including those located in emerging market countries. The investment objective of both HIF and HIF2 is long-term total return, principally from growth of capital. HGF and HSCGF are each an open-end mutual fund investing in equity securities of smaller domestic companies. The investment objective of both HGF and HSCGF is long-term growth of capital. HOW THE MERGERS WILL WORK - HIF2 will transfer all of its assets to HIF. HIF will assume HIF2's liabilities. - HSCGF will transfer all of its assets to HGF. HGF will assume HSCGF's liabilities. - HIF will issue Institutional shares to HIF2 in an amount equal to the value of the assets it receives, less the liabilities it assumes, in the merger. These Institutional shares will be distributed to HIF2's shareholders in proportion to their holdings in HIF2 on the merger date. - HGF will issue Institutional shares to HSCGF in an amount equal to the value of the assets it receives, less the liabilities it assumes, in the merger. These Institutional shares will be distributed to HSCGF's shareholders in proportion to their holdings in HSCGF on the merger date. - The mergers will be tax-free for federal income tax purposes. - HIF2 will be liquidated and terminated and you will be a shareholder of HIF Institutional class. - HSCGF will be liquidated and terminated and you will be a shareholder of HGF Institutional class. - Immediately following the merger, Westfield Capital Management Company LLC ("Westfield"), the current subadviser to HSCGF, will become the subadviser to HGF and HGF will change its name to "Harbor Small Cap Growth Fund". It is expected that Westfield will manage HGF's assets following the merger in substantially the same manner as it manages the assets of HSCGF currently. An investment in HIF or HGF is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. 2
-------------------------------------------------------------------------------------------- WHERE TO GET MORE INFORMATION -------------------------------------------------------------------------------------------- Harbor Fund Prospectus dated March 1, 2002. Provided in the same envelope as this proxy It contains additional information about statement and prospectus and incorporated by each fund. reference into this proxy statement and prospectus. -------------------------------------------------------------------------------------------- Harbor Fund's annual and semi-annual reports Provided in the same envelope as this proxy to shareholders. statement and prospectus and incorporated by reference into this proxy statement and prospectus. It is also on file with the Securities and Exchange Commission ("SEC") and available at no charge by calling 1-800-422-1050, visiting our web site at www.harborfund.com, or writing to us at the address shown below. -------------------------------------------------------------------------------------------- Harbor Fund's statement of additional Incorporated by reference into this proxy information dated March 1, 2002. It contains statement and prospectus. The SEC now has a additional information about each fund. web site at http://www.sec.gov that contains free access to these documents. These documents are also available for a fee from the Public Reference Room of the SEC. Call 1-202-942-8090 for information on the operation of the Public Reference Room. -------------------------------------------------------------------------------------------- To ask questions about this proxy statement Call our toll-free telephone number: and prospectus. 1-800-422-1050 or write to us at Harbor Fund, One SeaGate, Toledo, Ohio 43666. --------------------------------------------------------------------------------------------
The date of this proxy statement and prospectus is September 9, 2002. 3 -------------------------------------------------------------------------------- TABLE OF CONTENTS --------------------------------------------------------------------------------
PAGE ---- INTRODUCTION 4 SUMMARY 5 PROPOSAL 1 5 The Merger 10 Capitalization 12 Boards' Evaluation and Recommendation 13 Voting Rights and Required Vote 13 INFORMATION REGARDING CHANGE IN PORTFOLIO MANAGER 13 Information Concerning Northern Cross Investments Limited 13 Management of Similar Funds 13 Terms of the Prior and New Subadvisory Agreements 14 Other Provisions Under the Prior and New Subadvisory Agreements 15 Miscellaneous 15 Information Concerning Harbor Capital Advisors, Inc. 15 Terms of the Advisory Agreement 16 PROPOSAL 2 17 The Merger 22 Capitalization 26 Boards' Evaluation and Recommendation 26 Voting Rights and Required Vote 26 INFORMATION CONCERNING THE MEETING 27 OWNERSHIP OF SHARES OF THE FUNDS 29 EXPERTS 30 AVAILABLE INFORMATION 30
-------------------------------------------------------------------------------- EXHIBITS -------------------------------------------------------------------------------- A. Agreement and Plan of Reorganization between Harbor International Fund and Harbor International Fund II (attached to this proxy statement and prospectus) B. Agreement and Plan of Reorganization between Harbor Growth Fund and Harbor Small Cap Growth Fund (attached to this proxy statement and prospectus) C. Form of subadvisory agreement between Northern Cross Investments Limited, Harbor Capital Advisors, and Harbor International Fund II D. Annual report to shareholders dated October 31, 2001 and semi-annual report to shareholders dated April 30, 2002 of Harbor Fund E. Prospectus dated March 1, 2002 of Harbor Fund -------------------------------------------------------------------------------- INTRODUCTION -------------------------------------------------------------------------------- This proxy statement and prospectus is being used by the board of trustees of HIF2 and HSCGF to solicit proxies to be voted at a special meeting of shareholders of HIF2 and HSCGF. This meeting will be held at One SeaGate, Toledo, Ohio 43666 on Tuesday, October 22, 2002 at 9:00 a.m., Eastern Time. The purpose of the meeting is to consider: (1) a proposal to approve an Agreement and Plan of Merger providing for the merger of HIF2 with HIF; and (2) a proposal to approve an Agreement and Plan 4 of Merger providing for the merger of HSCGF with HGF. This proxy statement and prospectus is being mailed to HIF2 and HSCGF shareholders on or about September 9, 2002. WHO IS ELIGIBLE TO VOTE? HIF2 and HSCGF shareholders of record on August 23, 2002 are entitled to attend and vote at the meeting or any adjourned meeting. Each share of HIF2 and HSCGF outstanding on August 23, 2002 is entitled to one vote. Shares represented by properly executed proxies, unless revoked before or at the meeting, will be voted according to shareholders' instructions. If you sign a proxy card, but do not fill in a vote, your shares will be voted to approve the Agreement and Plan of Merger. If any other business comes before the meeting, your shares will be voted at the discretion of the persons named as proxies. -------------------------------------------------------------------------------- SUMMARY -------------------------------------------------------------------------------- The following is a summary. More complete information appears later in this proxy statement. You should read the entire proxy statement and the enclosed exhibits carefully because they contain details that are not in the summary. The materials in the exhibits and the statement of additional information dated March 1, 2002 for each fund are hereby incorporated by reference into this proxy statement and prospectus. -------------------------------------------------------------------------------- PROPOSAL 1 TO APPROVE AN AGREEMENT AND PLAN OF MERGER BETWEEN HARBOR INTERNATIONAL FUND II AND HARBOR INTERNATIONAL FUND -------------------------------------------------------------------------------- COMPARISON OF HIF TO HIF2
----------------------------------------------------------------------------------------------------- HIF HIF2 ----------------------------------------------------------------------------------------------------- GENERAL A diversified series of Harbor Fund. Harbor Fund is an open-end investment company organized as a Delaware business trust. ----------------------------------------------------------------------------------------------------- INVESTMENT STRUCTURE HIF invests directly in HIF2 invests directly in securities, as described below. securities, as described below. ----------------------------------------------------------------------------------------------------- NET ASSETS AS OF AUGUST 23, 2002 ----------------------------------------------------------------------------------------------------- INVESTMENT ADVISER AND Harbor Capital Advisors, Inc. ("Harbor Capital") is HIF's and SUBADVISER HIF2's investment adviser. Northern Cross Investments Limited ("Northern Cross") is the subadviser to HIF and HIF 2. ----------------------------------------------------------------------------------------------------- CONTROL OF INVESTMENT ADVISER Harbor Capital is a wholly owned subsidiary of Robeco Groep N.V. AND SUBADVISERS Founded in 1929, Robeco Groep N.V. is one of the world's oldest asset management organizations. Northern Cross, incorporated on September 29, 1992 as a Bermuda corporation, is located at Clarendon House, 2 Church Street, Hamilton, Bermuda HMDX. Hakan Castegren is the sole shareholder. -----------------------------------------------------------------------------------------------------
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----------------------------------------------------------------------------------------------------- HIF HIF2 ----------------------------------------------------------------------------------------------------- PRINCIPAL STRATEGIES In general, each fund stays fully invested in stocks and does not try to time the market. The subadviser uses an analysis of economic and market data, as well as its knowledge of each country's culture, to determine country and industry allocations. Before selecting a country for investment, the subadviser analyzes the stability of a country's currency and its political, social and economic culture. Subject to these allocations, the subadviser uses a value oriented, bottom up approach, researching and evaluating individual companies, to select stocks for the respective fund's portfolio. This research includes visiting companies around the world and meeting with company management. The subadviser has contact with a worldwide network of senior brokers and analysts. ------------------------------------------------------------------- In selecting stocks for each fund's portfolio, the subadviser also looks for companies with the following characteristics: - Businesses that the subadviser believes offer value - Low price/earnings multiples relative to other stocks in each country/ industry - Above average, long term earnings expectation not reflected in the price ----------------------------------------------------------------------------------------------------- OTHER INVESTMENTS Each fund may invest up to 15% of its net assets in illiquid Illiquid securities securities. ----------------------------------------------------------------------------------------------------- Investment companies Each fund may invest in other investment companies to the extent permitted by the Investment Company Act of 1940. ----------------------------------------------------------------------------------------------------- Derivatives - Each fund may, for temporary defensive or hedging purposes, purchase options on foreign currencies, enter into forward foreign currency exchange contracts and contracts for the future delivery of foreign currencies, and purchase options on such futures contracts. - Each fund may buy and sell options contracts, financial futures contracts and options on futures contracts. - Each fund may purchase and sell options and futures based on securities, indices, or currencies, including options and futures traded on foreign exchanges and options not traded on any exchange. - Each fund may write covered put and call options and purchase put and call options to enhance total return, as a substitute for the purchase or sale of securities or currency, or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired. - Neither fund is authorized to enter into futures contracts on currencies or engage in options transactions with respect to futures contracts for speculative purposes. - To seek to increase total return or hedge against changes in interest rates, securities prices or currency exchange rates, each fund may purchase and sell various kinds of futures contracts, and purchase and write call and put options on these futures contracts. Each fund may also enter into closing purchase and sale transactions with respect to any of these contracts and options. -----------------------------------------------------------------------------------------------------
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----------------------------------------------------------------------------------------------------- HIF HIF2 ----------------------------------------------------------------------------------------------------- PORTFOLIO MANAGERS Hakan Castegren of Northern Cross has managed HIF since its inception in 1987 and has managed HIF2 since August 1, 2002. Mr. Castegren is the president of Northern Cross and was previously associated with Boston Overseas Investors as a portfolio manager. ----------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES ----------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVES Long-term total return, principally from growth of capital. ----------------------------------------------------------------------------------------------------- PRINCIPAL STYLE International large cap value oriented stocks. CHARACTERISTICS ----------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENTS The funds invest primarily in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of foreign companies, including those located in emerging market countries. Under normal circumstances, the funds must invest in a minimum of three countries. In the past, the funds have invested in as many as 20 or more countries at a time. The funds focus on companies located in Europe, the Pacific Basin and emerging industrialized countries whose economies and political regimes appear more stable and are believed to provide some protection to foreign shareholders. Companies in the fund's portfolio generally have market capitalizations in excess of $1 billion. The subadviser chooses approximately 70-90 stocks for the portfolio from a select universe of stocks. ----------------------------------------------------------------------------------------------------- Equity securities Equity securities include exchange-traded and over-the-counter common and preferred stocks, warrants, rights, investment grade convertible securities, depositary receipts and shares, trust certificates, limited partnership interests, shares of other investment companies, real estate investment trusts and equity participations. ----------------------------------------------------------------------------------------------------- Derivatives HIF may not engage in options HIF2 may also purchase options transactions on currencies for on foreign currencies to seek to speculative purposes. increase the total return of the fund, provided that the aggregate premium of the options purchased represent no more than 5% of the fund's net assets. HIF2 may not write options on currencies for speculative purposes. ----------------------------------------------------------------------------------------------------- Forward Commitments and Each fund may purchase securities on a when-issued basis or When-Issued Securities purchase or sell securities on a forward commitment basis including TBA (to be announced) purchase and sale commitments. ----------------------------------------------------------------------------------------------------- Repurchase Agreements Each fund may enter into repurchase agreements. -----------------------------------------------------------------------------------------------------
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----------------------------------------------------------------------------------------------------- HIF HIF2 ----------------------------------------------------------------------------------------------------- Foreign Currency Transactions Each fund may purchase securities denominated in foreign currencies. ----------------------------------------------------------------------------------------------------- TEMPORARY DEFENSIVE POSITIONS Each fund may depart from its principal investment strategies in order to take a temporary defensive position by investing up to 100% of its assets in equity securities of U.S. issuers or in investment grade corporate debt securities rated Baa or higher by Moody's or BBB by S&P. ----------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT RISKS ----------------------------------------------------------------------------------------------------- GENERAL You could lose money on your investment in either fund. There is no guarantee that either fund will achieve its investment objective. ----------------------------------------------------------------------------------------------------- STOCK MARKET RISK Stocks do fluctuate in price and the value of your investment in the funds may go down. This means that you could lose money on your investment in the funds or the funds may not perform as well as other possible investments if any of the following occurs: - A drop in foreign stock markets. - The market favors growth stocks over value stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgment about the attractiveness, value and potential appreciation of particular companies' stocks proves to be incorrect. ----------------------------------------------------------------------------------------------------- FOREIGN COUNTRY RISKS Investing in securities of foreign companies creates a greater risk that the funds' share price will fluctuate more than if the funds invested in domestic issuers. Prices of foreign securities may go down if any of the following occurs: - Unfavorable foreign government actions, political, economic or market instability or the absence of accurate information about foreign companies. - A decline in the value of foreign currencies relative to the U.S. dollar will reduce the unhedged value of securities denominated in those currencies. - Foreign securities are sometimes less liquid and harder to value than securities of U.S. issuers. These risks are more severe for securities of issuers in emerging market countries such as Eastern Europe, Latin America and the Pacific Basin. Foreign brokerage and custodian fees may be higher than in the U.S. ----------------------------------------------------------------------------------------------------- Derivatives used for hedging may not fully offset the underlying DERIVATIVES RISKS positions. Derivatives transactions may not have the intended effects and may result in losses or missed opportunities. Derivatives that involve leverage may magnify losses from adverse market developments. In addition, there is the risk that a counterparty will fail to honor a contract's terms, which would deprive a fund of the hedging and other benefits of the contract. Some derivatives, especially those not traded on an exchange, may become illiquid and difficult to value accurately. -----------------------------------------------------------------------------------------------------
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---------------------------------------------------------------------------------------------------- BUYING, EXCHANGING AND REDEEMING SHARES ---------------------------------------------------------------------------------------------------- NET ASSET VALUE Each fund calculates its net asset value per share (NAV) at the close of regular trading on the New York Stock Exchange (NYSE) (normally 4:00 p.m. Eastern time) on each business day. Each fund's portfolio securities are valued either based on market quotations or, if market quotations are unavailable, at fair value, which involves estimating a security's value based on information other than market quotations. ---------------------------------------------------------------------------------------------------- CLASSES OF SHARES HIF currently offers only one HIF2 currently offers only one class of shares. Effective class of shares. Effective October 1, 2002, HIF will be October 1, 2002, these shares offering three classes of will be referred to as shares: Institutional shares, Institutional shares. Retirement shares, and Investor shares. Only Institutional shares are being offered to HIF2 shareholders in this proxy statement and prospectus. ---------------------------------------------------------------------------------------------------- RULE 12B-1 AND SERVICE FEES HIF and HIF2 current and Institutional shares are not subject to any Rule 12b-1 or service fee. ---------------------------------------------------------------------------------------------------- BUYING AND SELLING SHARES Investors may purchase and redeem shares through brokers or directly from Harbor Fund. ---------------------------------------------------------------------------------------------------- Minimum Investment Amounts $500 minimum subsequent investments $1,000 minimum initial investment ---------------------------------------------------------------------------------------------------- Exchanging Shares You may exchange your shares for shares of the same class of another Harbor Fund. ----------------------------------------------------------------------------------------------------
HIF will waive the minimum investment amount for any HIF2 account that, after the merger, contains less than the minimum investment amount required for HIF. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Institutional shares of HIF or Institutional shares of HIF2. The table also shows pro forma expenses of Institutional shares of HIF following the proposed merger.
-------------------------------------------------------------------------------------------------- HIF HIF2 HIF INSTITUTIONAL INSTITUTIONAL FOR THE PERIOD ENDED APRIL 30, 2002 (PRO FORMA) SHARES SHARES -------------------------------------------------------------------------------------------------- SHAREHOLDER FEES None None None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets) Management fees 0.75% 0.75% 0.75% Distribution and service (12b-1) fees None None None Other expenses 0.11% 0.17% 0.26% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES 0.86% 0.92% 1.01% ===== ===== ===== --------------------------------------------------------------------------------------------------
9 THE MERGER TERMS OF THE MERGER The funds' trustees have approved an Agreement and Plan of Reorganization, a copy of which is attached as Exhibit A. The Agreement provides for a merger on the following terms: - The merger is scheduled to occur at 5:00 p.m., Eastern Time, on October 31, 2002, but may occur on any later date before December 31, 2002. - In the merger, HIF2 will transfer all of its assets to HIF, and in exchange HIF will assume HIF2's liabilities and issue shares as described below. - HIF will issue Institutional shares to HIF2 in an amount equal to the value of the assets received by HIF, less the liabilities assumed by HIF, in the transaction. These shares will immediately be distributed by HIF2 to HIF2's shareholders in proportion to their holdings in HIF2 on the merger date. As a result, shareholders of HIF2 will become Institutional shareholders of HIF. - The net asset value of both funds will be computed as of 4:00 p.m., Eastern Time, on the merger date. - After the merger is over, HIF2 will cease to exist. - The following diagram shows how the merger will be carried out. [DIAGRAM] HIF2 TRANSFERS ITS HIF RECEIVES HIF HIF2 RECEIVES HIF2 ASSETS AND ASSETS FROM AND INSTITUTIONAL THESE SHARES AND SHAREHOLDERS LIABILITIES TO HIF ASSUMES SHARES ARE DISTRIBUTES THE RECEIVE HIF LIABILITIES OF ISSUED SHARES TO ITS INSTITUTIONAL HIF2 SHAREHOLDERS SHARES
TAX STATUS OF THE MERGER The merger will be tax-free for federal income tax purposes and will not take place unless HIF2 and HIF receive from the law firm of Hale and Dorr LLP, a satisfactory opinion that the transaction constitutes a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986 (the "Code") as such: - No gain or loss will be recognized by HIF2 upon (1) the transfer of all of its assets to HIF as described above or (2) the distribution by HIF2 of HIF Institutional shares to HIF2's shareholders; - No gain or loss will be recognized by HIF upon the receipt of HIF2's assets solely in exchange for the issuance of HIF Institutional shares to HIF2 and the assumption of all of HIF2's liabilities by HIF; - The basis of the assets of HIF2 acquired by HIF will be, in each instance, the same as the basis of those assets in the hands of HIF2 immediately before the transfer; - The tax holding period of the assets of HIF2 in the hands of HIF will include HIF2's tax holding period for those assets; - The shareholders of HIF2 will not recognize gain or loss upon the exchange of all their shares of HIF2 solely for HIF Institutional shares as part of the transaction; - The basis of HIF Institutional shares received by HIF2's shareholders in the transaction will be the same as the basis of the shares of HIF2 surrendered in exchange; and Shareholders should consult their tax adviser for the particular tax consequences to them resulting from the merger, including the applicability of any state, local, or foreign tax laws. 10 - The tax holding period of the HIF Institutional shares received by HIF2's shareholders will include, for each shareholder, the tax holding period of the shares of HIF2 surrendered in exchange, provided that the HIF Institutional shares were held as capital assets on the date of the exchange. REASONS FOR THE PROPOSED MERGER The board of trustees of HIF2 believes that the proposed merger will be advantageous to the shareholders of HIF2 for several reasons. The board of trustees considered the following matters, among others, in approving the merger in a meeting held on June 13-14, 2002. Overlapping Investment Strategy and Market Niche. HIF2 and HIF both have essentially identical investment objectives, investing primarily in the equity securities of foreign companies, including those located in emerging market countries. Due to the reopening of HIF on May 15, 2000, both funds are now available to new investors. It is believed that offering each fund may hinder the other fund's potential for asset growth because each dual offering may be confusing to investors. Therefore, the trustees concluded that it is not advantageous to operate and market HIF2 separately from HIF. Investment Performance. HIF shares received in the merger will provide HIF2's shareholders with substantially the same investment advantages as they currently have at a comparable level of risk. The HIF2 board of trustees also considered the performance history of each fund, which is shown in the table below. The trustees noted that HIF has outperformed HIF2 since the fund's inception, so that the merger would result in one fund with a significant asset base and strong prior performance.
----------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS ----------------------------------------------------------------------------------------------- HIF HIF2 INSTITUTIONAL SHARES INSTITUTIONAL SHARES (INCEPTION 12/29/1987) (INCEPTION 06/01/1996) ----------------------------------------------------------------------------------------------- 1 year ended 06/30/2002 1.65% -7.31% 5 years ended 06/30/2002 3.24% 0.26% 10 years ended 06/30/2002 10.74% N/A Inception through 06/30/2002 13.35% 4.72% Year to date (06/30/2002) 6.07% -2.17% -----------------------------------------------------------------------------------------------
Possibility of Reduced Expenses. A combined fund offers economies of scale and may lead to the spreading of fixed costs over a larger asset base which is advantageous, particularly for HIF2 and its shareholders. Both funds incur substantial costs for accounting, legal, transfer agency services, insurance, and custodial and administrative services. As shown in the fee table in the Summary, the overall expense ratio of HIF Institutional shares is lower than those of HIF2. Additional Benefits of HIF. The board of trustees of HIF considered that the merger presents an excellent opportunity for HIF to acquire investment assets without the obligation to pay commissions or other transaction costs that are normally associated with the purchase of portfolio securities. This is particularly true when both Funds hold overlapping portfolio securities. This opportunity provides an economic benefit to HIF and its shareholders. Benefits to Advisers and Other Service Providers. The board of trustees of both funds considered that the funds' adviser and distributor may also benefit from the merger. For example, the adviser might realize time savings from a consolidated portfolio management effort and from the need to prepare fewer prospectuses, reports and regulatory filings. The trustees believe, however, that these savings will not amount to a significant economic benefit. 11 ADDITIONAL TERMS OF AGREEMENT AND PLAN OF MERGER Conditions to Closing the Merger. The obligation of HIF2 to consummate the merger is subject to the satisfaction of certain conditions, including the performance by HIF of all its obligations under the Agreement and the receipt of an officers' certificate and an opinion of counsel from HIF (see Agreement, paragraph 7). The obligation of HIF to consummate the merger is subject to the satisfaction of certain conditions, including HIF2's performance of all of its obligations under the Agreement and the receipt of certain financial and tax information, an officers' certificate and an opinion of counsel from HIF2 (see Agreement, paragraph 6). The obligations of both funds are subject to the approval of the Agreement by the necessary vote of the outstanding shares of HIF2, in accordance with the provisions of HIF2's declaration of trust and by-laws. The funds' obligations are also subject to several other conditions, including the receipt of all consents, orders and permits necessary to consummate the merger and the receipt of a favorable opinion of counsel to each fund as to the federal income tax consequences of the merger. (see Agreement, paragraph 8). Termination of Agreement. HIF2 or HIF may mutually agree to terminate the Agreement (even if the shareholders of HIF2 have already approved it) at any time before the merger date. Either fund may also terminate the Agreement if the other fund has breached any representation, warranty or agreement contained in the Agreement or if any condition to closing the merger cannot or will not be met. Expenses of the Merger. Each fund shall bear its own expenses in connection with the merger. These liquidation and termination fees are expected to be approximately $91,000. CAPITALIZATION The following table sets forth the capitalization of each fund as of April 30, 2002, and the pro forma combined capitalization of both funds as if the merger had occurred on that date. The table reflects pro forma exchange ratios of approximately 0.352 HIF Institutional shares being issued for each share of HIF2. If the merger is consummated, the actual exchange ratios on the merger date may vary from the exchange ratios indicated due to changes in any of the following: - The market value of the portfolio securities of both HIF and HIF2 between April 30, 2002 and the merger date. - Changes in the amount of undistributed net investment income and net realized capital gains of HIF and HIF2 during that period resulting from income and distributions. - Changes in the accrued liabilities of HIF and HIF2 during the same period.
HIF CAPITALIZATION AS OF APRIL 30, 2002 HIF2 HIF PRO FORMA COMBINED(1) ----------------------------------- ------- ---------- --------------------- Net Assets (000s) $74,204 $3,869,129 $3,944,418 Net Asset Value Per Share $11.09 $31.49 $31.49 Shares Outstanding (000s) 6,692 122,869 125,259
------------------------- (1) If the merger had taken place on April 30, 2002, HIF2 would have received 2,356 Institutional shares (000s) of HIF, which would have been available for distribution to the shareholders of HIF2. It is impossible to predict how many Institutional shares of HIF will actually be received and distributed by HIF2 on the merger date. The table should not be relied upon to determine the amount of HIF Institutional shares that will actually be received and distributed. 12 BOARDS' EVALUATION AND RECOMMENDATION For the reasons described above, the board of trustees of HIF2, including the trustees who are not "interested persons" of either fund or any of their advisers ("independent trustees"), approved the merger at a meeting held on June 13-14, 2002. In particular, the board determined that the merger was in the best interests of HIF2 and that the interests of HIF2's shareholders would not be diluted as a result of the merger. Similarly, the board of trustees of HIF, including the independent trustees, approved the merger at a meeting held on June 13-14, 2002. The board also determined that the merger was in the best interests of HIF and that the interests of HIF's shareholders would not be diluted as a result of the merger. THE BOARD OF TRUSTEES OF HIF2 RECOMMENDS THAT THE SHAREHOLDERS OF HIF2 VOTE FOR THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER. VOTING RIGHTS AND REQUIRED VOTE Each share of HIF2 outstanding on the record date is entitled to one vote. As provided under the Investment Company Act, approval of the merger will require the vote of a majority of the voting securities of HIF2 present in person or by proxy at the shareholder meeting at which a quorum is present with respect to HIF2. If the required approval of shareholders is not obtained, HIF2 will continue to engage in business as a separate mutual fund and the board of trustees will consider what further action may be appropriate. -------------------------------------------------------------------------------- INFORMATION REGARDING CHANGE IN PORTFOLIO MANAGER -------------------------------------------------------------------------------- INFORMATION CONCERNING NORTHERN CROSS INVESTMENTS LIMITED ("NORTHERN CROSS") Northern Cross, a registered investment adviser under the Advisers Act since 1993, currently serves as the subadviser to HIF2 pursuant to the new subadvisory agreement dated August 1, 2002. Northern Cross, incorporated on September 29, 1992 as a Bermuda corporation, is located at Clarendon House, 2 Church Street, Hamilton, Bermuda HMDX. Northern Cross focuses on identifying value oriented, non-US equity securities of companies that have long-term positive prospects and managed approximately $5.2 billion in assets as of June 30, 2002. Hakan Castegren is the sole shareholder and President, Nicolas G. Trollope is the Vice President, Clarance G. Hall is the Secretary and Graham Collis is the Director. MANAGEMENT OF SIMILAR FUNDS The following table lists each fund currently managed or subadvised by Northern Cross with an investment objective that is similar to the Harbor International Fund II, as well as the size of each fund and the fee rate payable to Northern Cross.
--------------------------------------------------------------------------------------------------- FUND ASSETS FEE RATE FUND (AS OF JUNE 30, 2002) (AS A PERCENTAGE OF DAILY NET ASSETS) --------------------------------------------------------------------------------------------------- Harbor International Fund $3.96 billion 0.55% on the first $1 billion 0.50% on the next $1 billion 0.45% on the next $1 billion 0.40% thereafter ---------------------------------------------------------------------------------------------------
13 TERMS OF THE PRIOR AND NEW SUBADVISORY AGREEMENTS The new subadvisory agreement is substantially similar to the prior subadvisory agreement with Summit except for the dates of execution, effectiveness and termination and rates of subadvisory fees payable. The form of new subadvisory agreement is attached hereto as Exhibit C and the following discussion of the terms of the new subadvisory agreement is qualified in its entirety by reference to Exhibit C. Subadvisory Services. The subadvisory services to be provided by Northern Cross under the new subadvisory agreement are identical to those provided by Summit under the prior subadvisory agreement. Pursuant to the terms of the new subadvisory agreement, Northern Cross will be authorized to buy and sell securities for that portion of the Fund's portfolio which Harbor Capital allocates to Northern Cross and to designate brokers to carry out such transactions. Northern Cross may not make any purchase in which the cost would exceed the Fund's available liquid assets and may not make any purchase which would violate any fundamental policy or restriction in the Fund's prospectus or statement of additional information as then in effect. Northern Cross will also keep certain of the records required by the Investment Company Act of 1940, as amended (the "Investment Company Act"), and the Investment Advisers Act of 1940 (the "Advisers Act") to be maintained on behalf of the Fund, and assist Harbor Capital in maintaining the Fund's compliance with the requirements of the Investment Company Act. Northern Cross will also provide in-person reports on the Fund's performance to the Trustees on a regular basis. Subadvisory Fees. For its services, Northern Cross would be entitled to a subadvisory fee from Harbor Capital. The Fund has no responsibility to pay any fee to Northern Cross. Harbor Capital would pay Northern Cross a fee at an annual rate based upon the assets in the Fund allocated to Northern Cross, expressed as a percentage of the Fund's average daily net assets. The fee is computed and accrued monthly and paid quarterly in arrears. For purposes of determining the amount of assets allocated to a Northern Cross and whether a fee rate breakpoint has been reached, both the prior and the new subadvisory agreements take into account the assets of the Harbor Group Trust for Defined Benefit Plans which have been allocated to the subadviser. Under the prior subadvisory agreements, Harbor Capital, out of its own assets, paid a subadvisory fee to Summit at the following rates:
NET ASSET VALUE ANNUAL RATE --------------- ----------- First $1.5 billion 0.50% Next $1 billion 0.45% Amounts over $2.5 billion 0.40%
Under the new subadvisory agreement, Harbor Capital, out of its own assets, would pay a subadvisory fee to Northern Cross at the following rates:
NET ASSET VALUE ANNUAL RATE --------------- ----------- First $1 billion 0.55% Next $1 billion 0.50% Next $1 billion 0.45% Amounts over $3 billion 0.40%
The following table shows the amount of subadvisory fees paid to Summit for the period November 1, 2000 through October 31, 2001, the advisory fees that would have been paid to Northern Cross had the 14 new subadvisory agreement been in effect during that year, and the percentage difference between those amounts:
------------------------------------------------------------------------------- AMOUNT OF SUBADVISORY FEES THAT WOULD HAVE DIFFERENCE AS A BEEN PAID UNDER THE PERCENTAGE OF THE AGGREGATE AMOUNT OF NEW SUBADVISORY AGGREGATE AMOUNT PAID SUBADVISORY FEES PAID TO SUMMIT AGREEMENT TO SUMMIT ------------------------------- --------------------- --------------------- ------------------------------------------------------------------------------- $516,915 $477,746 7.76% -------------------------------------------------------------------------------
Implementation of the new subadvisory agreement has not resulted in any change in rate of advisory fees payable by the Fund's shareholders to Harbor Capital under the investment advisory agreement. OTHER PROVISIONS UNDER THE PRIOR AND NEW SUBADVISORY AGREEMENTS Standard of Care. Under the new subadvisory agreement, Northern Cross shall not be liable for any error of judgment, mistake of law or for any loss sustained in connection with the provision of subadvisory services pursuant to the agreement; but nothing contained in the subadvisory agreement shall protect Northern Cross against any liability to Harbor Capital, the Fund or its shareholders by reason of willful misfeasance, bad faith or gross negligence on the part of Northern Cross in the performance of its duties, or by reason of its reckless disregard of its obligations and duties under the subadvisory agreement. The prior subadvisory agreements included the same provisions. Subadviser's Authority. The new subadvisory agreement provides that Northern Cross shall have full discretion to act for the Fund in connection with the purchase and sale of portfolio securities for that portion of the Fund's portfolio allocated to it, subject only to the declaration of trust, by-laws, currently effective registration statements under the Investment Company Act and the Securities Act of 1933, investment objectives, policies and restrictions of the Fund in effect from time to time, and specific policies and instructions established from time to time by the Trustees. The prior subadvisory agreements included the same provisions. Payment of Expenses. Northern Cross bears its own costs of providing subadvisory services under the new subadvisory agreement. The prior subadvisory agreements included the same provision. MISCELLANEOUS The new subadvisory agreement will remain in effect, unless earlier terminated, until August 1, 2004, and from year to year thereafter, provided that the agreement is specifically approved at least annually in the manner prescribed in the Investment Company Act and the rules and regulations thereunder, subject however, to such exemptions as may be granted by the Commission by any rule, regulation or order. The new subadvisory agreement may, on 30 days' written notice, be terminated at any time without penalties charged to the Fund, by the Board of Trustees, by vote of a majority of the outstanding voting securities of the Fund, by the Adviser, or by Northern Cross. The new subadvisory agreement will terminate immediately upon the assignment of the investment advisory agreement between the Adviser and the Fund. INFORMATION CONCERNING HARBOR CAPITAL ADVISORS, INC. Harbor Capital serves as the investment adviser to all fourteen series of the Trust, including HIF2. Harbor Capital is a Delaware corporation and is registered as an investment adviser with the Securities and Exchange Commission. Harbor Capital also serves as the investment adviser to separate accounts for the Harbor Capital Group Trust for Defined Benefit Plans. Harbor Capital is located at One SeaGate, Toledo, Ohio 43666. Harbor Capital manages approximately $14.3 billion in assets as of June 30, 2002, with the vast majority of those assets in the Trust. 15 Harbor Capital is wholly owned by Robeco Harbor Holding, Inc., a holding company whose offices are located at One SeaGate, Toledo, OH 43666. Robeco Harbor Holding, Inc. is a wholly owned subsidiary of the Robeco Groep, N.V., which is a Dutch limited liability company located at Coolsingel 120, 3011 AG Rotterdam, The Netherlands. The principal executive officers and directors of Harbor Capital and their principal occupations are listed in the table below. The business address of each person is One SeaGate, Toledo, Ohio 43666.
-------------------------------------------------------------------------------------------- NAME AND POSITION WITH THE TRUST PRINCIPAL OCCUPATION -------------------------------------------------------------------------------------------- David G. Van Hooser Director and Chairman of the Board, Harbor Chairman of the Board and Trustee Capital; Director, HCA Securities; and Director, Harbor Transfer. James M. Williams Director and President, Harbor Capital; President Director and President, HCA Securities; Director, Harbor Transfer. Constance L. Souders Senior Vice President, Secretary, Director Vice President and Treasurer of Administration and Director, Harbor Capital; President and Director, Harbor Transfer; and Vice President, Secretary and Director, HCA Securities. Karen B. Wasil Assistant Secretary and Regulatory and Legal Secretary Compliance Manager, Harbor Capital; and Secretary, Harbor Transfer; --------------------------------------------------------------------------------------------
TERMS OF THE ADVISORY AGREEMENT Harbor Capital is responsible for the overall management of HIF2 pursuant to a separate advisory agreement between HIF2 and Harbor Capital. Under the terms of the advisory agreement, Harbor Capital furnishes HIF2 with investment research, advice and supervision and an investment program for HIF2 consistent with the investment objectives and policies of HIF2. The advisory agreement expressly provides that Harbor Capital may engage a subadviser to make the daily investment decisions for HIF2. Harbor Capital will retain the responsibility under the agreement to both oversee the subadviser which it selects and to recommend to the Trust's Board of Trustees the hiring, termination and replacement of the subadviser. Harbor Capital also overseas the management of HIF2 by its subadviser and administers HIF2's business affairs and, in connection therewith, furnishes HIF2 with office facilities and is responsible for clerical, record keeping and bookkeeping service and for the financial and accounting records required to be maintained by HIF2, other than those maintained by HIF2's custodian and shareholder servicing agent. For its services under the advisory agreement, Harbor Capital receives a fee, paid monthly, equal to the sum of 0.75% per annum of the average daily net assets of HIF2. For the fiscal year ended October 31, 2001, HIF2 paid approximately $682,000 to Harbor Capital as compensation for advisory services. 16 -------------------------------------------------------------------------------- PROPOSAL 2 TO APPROVE AN AGREEMENT AND PLAN OF MERGER BETWEEN HARBOR SMALL CAP GROWTH FUND AND HARBOR GROWTH FUND -------------------------------------------------------------------------------- COMPARISON OF HGF TO HSCGF
---------------------------------------------------------------------------------------------------- HGF HSCGF ---------------------------------------------------------------------------------------------------- GENERAL A diversified series of Harbor Fund. Harbor Fund is an open-end management investment company organized as a Delaware business trust. ---------------------------------------------------------------------------------------------------- INVESTMENT STRUCTURE HGF invests directly in HSCGF invests directly in securities, as described below. securities, as described below. ---------------------------------------------------------------------------------------------------- NET ASSETS AS OF AUGUST 23, 2002 ---------------------------------------------------------------------------------------------------- INVESTMENT ADVISER AND Harbor Capital Advisors, Inc. ("Harbor Capital") is HSCGF's and SUBADVISER HGF's investment adviser. -------------------------------------------------------------------- Emerging Growth Advisors, Inc. Westfield Capital Management ("Emerging Growth") is the Company LLC ("Westfield") is the subadviser to HGF. subadviser to HSCGF. ---------------------------------------------------------------------------------------------------- CONTROL OF INVESTMENT Harbor Capital is a wholly owned subsidiary of Robeco Groep N.V. ADVISER AND SUBADVISERS Founded in 1929, Robeco Groep N.V. is one of the world's oldest asset management organizations. -------------------------------------------------------------------- Emerging Growth, a Delaware "S" In October 1997, Westfield corporation is located at 401 E. merged with Boston Private Pratt Street, Suite 211, Investment Management, Inc, a Baltimore, MD 21202. Peter wholly-owned subsidiary of Welles is the sole shareholder. Boston Private Financial Holdings, Inc. (publicly traded over-the-counter under BPFH and parent company to Boston Private Bank & Trust Company). Westfield operates as an autonomous investment management unit. ----------------------------------------------------------------------------------------------------
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---------------------------------------------------------------------------------------------------- HGF HSCGF ---------------------------------------------------------------------------------------------------- PORTFOLIO MANAGERS Peter Welles of Emerging Growth William Muggia of Westfield has has managed HGF since May 1997. managed HSCGF since its Mr. Welles has been the inception in 2000. Mr. Muggia is president of Emerging Growth the president, chief investment since 1993 and before that was a officer, and a member of the general partner of Emerging board of directors of Westfield. Growth Partners, L.P. Prior to joining Westfield in 1994, he worked in the Technology Investment Banking Group at Alex, Brown & Sons. ---------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES ---------------------------------------------------------------------------------------------------- INVESTMENT OBJECTIVES Long-term growth of capital. ---------------------------------------------------------------------------------------------------- PRINCIPAL STYLE Small to mid cap growth stocks Small cap growth stocks CHARACTERISTICS with high volatility. demonstrating consistent or accelerating earnings growth. ---------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENTS HGF invests in equity HSCGF invests in equity securities, principally common securities, principally common stocks, preferred stocks, rights stocks, preferred stocks, rights and depositary receipts, of and depositary receipts, of companies with estimated companies with market revenues of $500 million or less capitalizations in the at the time of initial approximate range of $100 investment. million to $1.5 billion at the time of initial investment. Under normal circumstances, the fund intends to invest Under normal circumstances, the substantially all, but must fund intends to invest invest at least 65% of its net substantially all, but must assets in a diversified invest at least 80% of its net portfolio of equity securities. assets, plus borrowings for investment purposes, in a The fund expects to invest in diversified portfolio of small approximately 40-60 companies. cap equity securities. The fund invests primarily in both small and mid cap companies The fund expects to invest in with market capitalization that about 50 companies. range from $100 million to $10 billion. ---------------------------------------------------------------------------------------------------- Equity securities Equity securities include exchange-traded and over-the-counter common and preferred stocks, warrants, rights, investment grade convertible securities, depositary receipts and shares, trust certificates, limited partnership interests, shares of other investment companies, real estate investment trusts and equity participations. ----------------------------------------------------------------------------------------------------
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---------------------------------------------------------------------------------------------------- HGF HSCGF ---------------------------------------------------------------------------------------------------- PRINCIPAL STRATEGIES In general, HGF stays fully In general, HSCGF stays fully invested in stocks and does not invested in stocks and does not try to time the market. The try to time the market. The subadviser uses a bottom up subadviser uses a bottom up approach, researching and approach by, first, identifying evaluating individual companies, companies that meet strict for potential investment in the fundamental criteria and then fund's portfolio. Individual performing a qualitative review stock selection will determine on each identified company to industries in which the fund select those companies for invests. The subadviser's investment in the fund's research includes initial portfolio. This means that personal interviews and individual stock selections continuing contacts with top primarily determine the fund's management of a company. sector weightings. The In selecting stocks for the subadviser's research also fund's portfolio, the subadviser includes initial personal looks for companies with the interviews and continuing following characteristics: contacts with company - Capable and accessible management. management committed to above average earnings growth In selecting stocks for the - Dominant, unrecognized or fund's portfolio, the subadviser innovative products or looks for companies with the services with long-term growth following characteristics: potential - Accelerating earnings momentum - Favorable potential financial - Strong earnings growth strength and growth rates - Strong balance sheet - Attractive valuation as measured by price/earnings to growth ratio In addition, the subadviser prefers companies with the following qualitative characteristics: - Superior company management - Significant insider ownership - Unique market position and broad market opportunities - Solid financial controls and accounting ---------------------------------------------------------------------------------------------------- OTHER INVESTMENTS Illiquid Securities Each fund may invest up to 15% of its net assets in illiquid securities. ---------------------------------------------------------------------------------------------------- Foreign Securities Each fund may invest in foreign securities in the form of ADRs, EDRs, GDRs, IDRs, and other securities representing ownership of securities of foreign issuers. ---------------------------------------------------------------------------------------------------- Short Selling Each fund may engage in short sales of up to 25% of its total assets. ---------------------------------------------------------------------------------------------------- Investment Companies Each fund may invest in other investment companies to the extent permitted by the Investment Company Act of 1940. ----------------------------------------------------------------------------------------------------
19
---------------------------------------------------------------------------------------------------- HGF HSCGF ---------------------------------------------------------------------------------------------------- Derivatives - Each fund may, for temporary defensive or hedging purposes, purchase options on foreign currencies, enter into forward foreign currency exchange contracts and contracts for the future delivery of foreign currencies, and purchase options on such futures contracts. - Each fund may buy and sell options contracts, financial futures contracts and options on futures contracts. - Each fund may purchase and sell options and futures based on securities, indices, or currencies, including options and futures traded on foreign exchanges and options not traded on any exchange. - Each fund may write covered put and call options and purchase put and call options to enhance total return, as a substitute for the purchase or sale of securities or currency, or to protect against declines in the value of portfolio securities and against increases in the cost of securities to be acquired. - To seek to increase total return or hedge against changes in interest rates, securities prices or currency exchange rates, each fund may purchase and sell various kinds of futures contracts, and purchase and write call and put options on these futures contracts. Each fund may also enter into closing purchase and sale transactions with respect to any of these contracts and options. ---------------------------------------------------------------------------------------------------- Forward Commitments and Each fund may purchase securities on a when-issued basis or purchase When-Issued Securities or sell securities on a forward commitment basis including TBA (to be announced) purchase and sale commitments. ---------------------------------------------------------------------------------------------------- Repurchase Agreements Each fund may enter into repurchase agreements. ---------------------------------------------------------------------------------------------------- Foreign Currency Each fund may purchase securities denominated in foreign currencies. Transactions ---------------------------------------------------------------------------------------------------- PRINCIPAL INVESTMENT RISKS ---------------------------------------------------------------------------------------------------- GENERAL You could lose money on your investment in either fund. There is no guarantee that either fund will achieve its investment objective. ---------------------------------------------------------------------------------------------------- STOCK MARKET RISK Stocks do fluctuate in price and the value of your investment in the funds may go down. This means that you could lose money on your investment in the funds or the funds may not perform as well as other possible investments if any of the following occurs: - A drop in the stock markets. - The market favors value stocks over growth stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgment about the attractiveness, value and potential appreciation of particular companies' stocks proves to be incorrect. - The market favors larger cap stocks over smaller cap stocks. ----------------------------------------------------------------------------------------------------
20
---------------------------------------------------------------------------------------------------- HGF HSCGF ---------------------------------------------------------------------------------------------------- SMALL COMPANIES The funds' performance may be more volatile because it invests primarily in smaller cap stocks. Small companies may have limited product lines, markets and financial resources. They may also have shorter operating histories and more volatile businesses. Smaller cap stocks tend to trade in a wider price range than larger cap stocks. In addition, it may be harder to sell these stocks, particularly in large blocks, which can reduce their selling price. ---------------------------------------------------------------------------------------------------- LIMITED # OF HOLDINGS Because the fund typically Because the fund typically invests in approximately 40-60 invests in about 50 companies, companies, an adverse event an adverse event affecting a affecting a particular company particular company may hurt the may hurt the fund's performance fund's performance more than if more than if it had invested in it had invested in a larger a larger number of companies. number of companies. ---------------------------------------------------------------------------------------------------- DERIVATIVES RISKS Derivatives used for hedging may not fully offset the underlying positions. Derivative transactions may not have the intended effects and may result in losses or missed opportunities. Derivatives that involve leverage may magnify losses from adverse market developments. In addition, there is the risk that a counterparty will fail to honor a contract's terms, which would deprive a fund of the hedging and other benefits of the contract. Some derivatives, especially those not traded on an exchange, may become illiquid and difficult to value accurately. ---------------------------------------------------------------------------------------------------- BUYING, EXCHANGING AND REDEEMING SHARES ---------------------------------------------------------------------------------------------------- NET ASSET VALUE Each fund calculates its net asset value per share (NAV) at the close of regular trading on the New York Stock Exchange (NYSE) (normally 4:00 p.m. Eastern time) on each business day. Each fund's portfolio securities are valued either based on market quotations or if market quotations are unavailable, at fair value, which involves estimating a security's value based on information other than market quotations. ---------------------------------------------------------------------------------------------------- CLASSES OF SHARES HGF currently offers only one HSCGF currently offers only one class of shares. Effective class of shares. Effective October 1, 2002, HGF will be October 1, 2002, these shares offering three classes of will be referred to as shares: Institutional shares, Institutional shares. Retirement shares, and Investor shares. Only Institutional shares are being offered to HSCGF shareholders in this proxy statement and prospectus. ---------------------------------------------------------------------------------------------------- RULE 12B-1 AND SERVICE FEES HGF and HSCGF current and Institutional shares are not subject to any Rule 12b-1 or service fee. ---------------------------------------------------------------------------------------------------- BUYING AND SELLING SHARES Investors may purchase and redeem shares through brokers or directly from Harbor Fund. ---------------------------------------------------------------------------------------------------- Minimum Investment Amounts $500 minimum subsequent investments $1,000 minimum initial investment ---------------------------------------------------------------------------------------------------- Exchanging Shares You may exchange your shares for shares of the same class of another Harbor Fund. ----------------------------------------------------------------------------------------------------
21 HGF will waive the minimum investment amount for any HSCGF account that, after the merger, contains less than the minimum investment amount required for HGF. FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold Institutional shares of HGF or Institutional shares of HSCGF. The table also shows pro forma expenses of Institutional shares of HGF following the proposed merger.
-------------------------------------------------------------------------------------------------- HGF HSCGF HGF INSTITUTIONAL INSTITUTIONAL FOR THE PERIOD ENDED APRIL 30, 2002 (PRO FORMA) SHARES SHARES -------------------------------------------------------------------------------------------------- SHAREHOLDER FEES None None None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES (expenses deducted from fund assets) Management fees 0.75% 0.75% 0.75% Distribution and service (12b-1) fees None None None Other expenses 0.17% 0.22% 0.32% ----- ----- ----- TOTAL ANNUAL FUND OPERATING EXPENSES 0.93% 0.99% 1.07% ===== ===== ===== --------------------------------------------------------------------------------------------------
THE MERGER TERMS OF THE MERGER The funds' trustees have approved an Agreement and Plan of Reorganization, a copy of which is attached as Exhibit B. The Agreement provides for a merger on the following terms: - The merger is scheduled to occur at 5:00 p.m., Eastern Time, on October 31, 2002, but may occur on any later date before December 31, 2002. - In the merger, HSCGF will transfer all of its assets to HGF, and in exchange HGF will assume HSCGF's liabilities and issue shares as described below. - HGF will issue Institutional shares to HSCGF in an amount equal to the value of the assets received by HSCGF, less the liabilities assumed by HGF, in the transaction. These shares will immediately be distributed by HSCGF to HSCGF's shareholders in proportion to their holdings in HSCGF on the merger date. As a result, shareholders of HSCGF will become Institutional shareholders of HGF. - The net asset value of both funds will be computed as of 4:00 p.m., Eastern Time, on the merger date. - Immediately following the merger, Westfield Capital Management LLC ("Westfield"), the current subadviser to HSCGF, will become the subadviser to HGF replacing the existing subadviser and HGF will change its name to "Harbor Small Cap Growth Fund". It is expected that Westfield will manage HGF's assets following the merger in substantially the same manner as it manages the assets of HSCGF currently. - The current HSCGF will then cease to exist. 22 The following diagram shows how the merger will be carried out. [DIAGRAM] WESTFIELD APPOINTED SUBADVISOR TO HGF RECEIVES HGF CHANGES HSCGF THESE SHARES HGF AND HGF HGF RECEIVES AND SHAREHOLDERS CHANGES TRANSFERS ITS ASSETS FROM HSCGF DISTRIBUTES RECEIVE ITS NAME TO ASSETS AND AND ASSUMES INSTITUTIONAL THE HSCFG HARBOR SMALL LIABILITIES TO LIABILITIES OF SHARES ARE SHARES TO ITS INSTITUTIONAL CAP GROWTH HSCGF HGF ISSUED SHAREHOLDERS SHARES FUND
TAX STATUS OF THE MERGER The merger will be tax-free for federal income tax purposes and will not take place unless HSCGF and HGF receive from the law firm of Hale and Dorr LLP, a satisfactory opinion that the transaction constitutes a reorganization within the meaning of Section 368(a) of the Code as such: - No gain or loss will be recognized by HSCGF upon (1) the transfer of all of its assets to HGF as described above or (2) the distribution by HSCGF of HGF Institutional shares to HSCGF's shareholders; - No gain or loss will be recognized by HGF upon the receipt of HSCGF's assets solely in exchange for the issuance of HGF Institutional shares to HSCGF and the assumption of all of HSCGF's liabilities by HGF; - The basis of the assets of HSCGF acquired by HGF will be, in each instance, the same as the basis of those assets in the hands of HSCGF immediately before the transfer; - The tax holding period of the assets of HSCGF in the hands of HGF will include HSCGF's tax holding period for those assets; - The shareholders of HSCGF will not recognize gain or loss upon the exchange of all their shares of HSCGF solely for HGF Institutional shares as part of the transaction; - The basis of HGF Institutional shares received by HSCGF's shareholders in the transaction will be the same as the basis of the shares of HSCGF surrendered in exchange; and - The tax holding period of the HGF Institutional shares received by HSCGF's shareholders will include, for each shareholder, the tax holding period of the shares of HSCGF surrendered in exchange, provided that the HGF Institutional shares were held as capital assets on the date of the exchange. Shareholders should consult their tax adviser for the particular tax consequences to them resulting from the merger, including the applicability of any state, local, or foreign tax laws. EFFECT OF THE MERGER ON HGF It is important that shareholders of HSCGF understand how the merger would affect the character of HGF because shareholders of HSCGF will become shareholders of HGF following the merger. Immediately following the merger, the subadviser of HGF will be replaced with Westfield so that HGF will then have the same adviser, Harbor Capital, and subadviser, Westfield, as HSCGF currently has. In addition, it is expected that Westfield will manage the assets of HGF after the merger in substantially the same manner using the same investment strategies and according to the same investment policies as Westfield currently does in managing the assets of HSCGF. Further, the name of HGF will be changed to Harbor Small Cap Growth Fund. Thus, while HGF will be the legal survivor of the merger, it will be almost identical to HSCGF after the merger, although the fund will have more assets. Accordingly, shareholders of HSCGF should understand that in approving the merger they will not become shareholders of HGF in its current form. Instead, the shareholders of HSCGF will become shareholders of a fund that is anticipated to look and act exactly like their current fund, only it will be a different legal entity. 23 The reason that the merger is structured in this manner is to ensure that the merger will be tax-free for federal income tax purposes. In order for the merger to be tax-free for federal income tax purposes, the surviving fund must satisfy a number of requirements, including the continuity of business enterprise requirement. When the merger is structured with HGF as the legal survivor, Westfield would have the flexibility to manage the surviving fund's assets after the merger without any constraints on the management of assets imposed by the continuity of business enterprise requirement with respect to the retention of the former assets of HGF. If the merger were structured with HSCGF as the legal survivor instead of HGF, Westfield could be constrained in its management of the assets of the surviving fund, in particular with respect to its ability to dispose of former assets of HGF. The board of trustees of Harbor Fund determined that it would be in the best interests of the surviving fund's shareholders that Westfield be given as much flexibility in managing the assets of the fund (within the context of the surviving fund's investment objective, policies and restrictions) as possible. REASONS FOR THE PROPOSED MERGER The board of trustees of Harbor Fund believes that the proposed merger will be advantageous to the shareholders of HSCGF and HGF for several reasons. The board of trustees considered the following matters, among others, in approving the merger in a meeting held on July 29, 2002. Possibility of Reduced Expenses. A combined fund offers economies of scale and may lead to better control over expenses than is currently possible. Both funds, as of the date of the merger, are expected to be approximately equal in net assets. Each fund also incurs substantial costs for accounting, legal, transfer agency services, insurance, and custodial and administrative services. Currently, the overall expense ratio of HGF Institutional shares is lower than that of HSCGF. It is anticipated, however, that if the merger takes place, the total expense ratio of HGF will drop to approximately 0.93%, which would make the total expense ratio of HGF Institutional shares after the merger, approximately 0.14% lower than that of HSCGF. Diversification. The trustees concluded that combining assets under management into one larger fund would provide greater aggregate portfolio diversification opportunities among industry sectors, which may lower the risk of loss to each of HSCGF's and HGF's investors. Substantially the Same Investment Advantages. HGF Institutional shares received in the merger by HSCGF shareholders will have substantially the same investment characteristics and advantages as HSCGF shareholders currently have. Immediately after the merger, Westfield will be appointed subadviser to HGF replacing its current subadviser. The investment policies and strategies of HGF will be amended to mirror HSCGF's current investment policies and strategies and HGF's name will be changed to "Harbor Small Cap Growth Fund". It is expected that Westfield will manage the assets of HGF after the merger in substantially the same manner as it currently manages the assets of HSCGF. Investment Performance. The board of trustees considered the performance history of each fund, which is shown in the table below. The trustees noted that HSCGF has a shorter operating history than does HGF, but that it has outperformed HGF since its inception. The trustees also reviewed and considered the consistently strong long-term performance of HSCGF's subadviser, Westfield, prior to the inception of HSCGF. The trustees also were impressed that HSCGF has generated strong relative performance during a period which has proven to be unusually difficult for growth-oriented funds. For these reasons, the trustees determined that Westfield should replace the existing subadviser to HGF immediately after the merger and that the investment strategies and policies of HGF be reformulated to reflect the strategies and policies of HSCGF. Because the investment characteristics of HGF after the merger will most closely resemble HSCGF's investment characteristics, HSCGF is expected to be the accounting survivor of the combination. Additional Benefits to Surviving Fund. In addition to the reduction in expenses, the board of trustees considered that the merger presents an excellent opportunity for HGF to acquire investment assets without the obligation to pay commissions or other transaction costs that are normally associated with the purchase of portfolio securities. The board of trustees also considered the fact that HGF 24 shareholders would have the opportunity to remain shareholders of a fund which the board believes may become a more attractive investment opportunity following the merger as a result of the reformulation of the fund and the appointment of Westfield as subadviser. Benefits to Advisers and Other Service Providers. The board of trustees considered that the funds' adviser and distributor may also benefit from the merger. For example, the adviser might realize time savings from a consolidated portfolio management effort and from the need to prepare fewer prospectuses, reports and regulatory filings. The trustees believe, however, that these savings will not amount to a significant economic benefit.
----------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS ----------------------------------------------------------------------------------------------- HGF HSCGF INSTITUTIONAL SHARES INSTITUTIONAL SHARES (INCEPTION 11/19/1986) (INCEPTION 11/01/2000) ----------------------------------------------------------------------------------------------- 1 year ended 06/30/2002 -43.90% -7.92% 5 years ended 06/30/2002 -0.71% N/A 10 years ended 06/30/2002 5.84% N/A Inception through 06/30/2002 7.69% 0.66% Year to date (06/30/2002) -35.21% -5.60% -----------------------------------------------------------------------------------------------
ADDITIONAL TERMS OF AGREEMENT AND PLAN OF MERGER Conditions to Closing the Merger. The obligation of HSCGF to consummate the merger is subject to the satisfaction of certain conditions, including the performance by HGF of all its obligations under the Agreement and the receipt of an officers' certificate and an opinion of counsel from HGF (see Agreement, paragraph 7). The obligation of HGF to consummate the merger is subject to the satisfaction of certain conditions, including HSCGF's performance of all of its obligations under the Agreement and the receipt of certain financial and tax information, an officers' certificate and an opinion of counsel from HSCGF (see Agreement, paragraph 6). The obligations of both funds are subject to the approval of the Agreement by the necessary vote of the outstanding shares of HSCGF, in accordance with the provisions of HSCGF's declaration of trust and by-laws. The funds' obligations are also subject to several other conditions, including the receipt of all consents, orders and permits necessary to consummate the merger and the receipt of a favorable opinion of counsel to each fund as to the federal income tax consequences of the merger. (see Agreement, paragraph 8). Termination of Agreement. HSCGF or HGF may mutually agree to terminate the Agreement (even if the shareholders of HSCGF have already approved it) at any time before the merger date. Either fund may also terminate the Agreement if the other fund has breached any representation, warranty or agreement contained in the Agreement or if any condition to closing the merger cannot or will not be met. Expenses of the Merger. Each fund shall bear its own expenses in connection with the merger. These liquidation and termination fees are expected to be approximately $47,000. 25 CAPITALIZATION The following table sets forth the capitalization of each fund as of April 30, 2002, and the pro forma combined capitalization of both funds as if the merger had occurred on that date. The table reflects pro forma exchange ratios of approximately 1.034 HGF Institutional shares being issued for each share of HSCGF. If the merger is consummated, the actual exchange ratios on the merger date may vary from the exchange ratios indicated due to changes in any of the following: - The market value of the portfolio securities of both HSCGF and HGF between April 30, 2002 and the merger date. - Changes in the amount of undistributed net investment income and net realized capital gains of HSCGF and HGF during that period resulting from income and distributions. - Changes in the accrued liabilities of HSCGF and HGF during the same period.
HGF CAPITALIZATION AS OF APRIL 30, 2002 HSCGF HGF PRO FORMA COMBINED(1) ----------------------------------- ------- -------- --------------------- Net Assets (000s) $49,207 $118,680 $167,981 Net Asset Value Per Share $10.94 $10.58 $10.58 Shares Outstanding (000s) 4,499 11,215 15,877
------------------------- (1) If the merger had taken place on April 30, 2002, HSCGF would have received 4,652 Institutional shares (000s) of HGF, which would have been available for distribution to the shareholders of HSCGF. It is impossible to predict how many Institutional shares of HGF will actually be received and distributed by HSCGF on the merger date. The table should not be relied upon to determine the amount of HGF Institutional shares that will actually be received and distributed. BOARDS' EVALUATION AND RECOMMENDATION For the reasons described above, the board of trustees of HSCGF, including the trustees who are not "interested persons" of either fund or any of their advisers ("independent trustees"), approved the merger at a meeting held on July 29, 2002. In particular, the board determined that the merger was in the best interests of HSCGF and that the interests of HSCGF's shareholders would not be diluted as a result of the merger. Similarly, the board of trustees of HGF, including the independent trustees, approved the merger at a meeting held on July 29, 2002. The board also determined that the merger was in the best interests of HGF and that the interests of HGF's shareholders would not be diluted as a result of the merger. THE BOARD OF TRUSTEES OF HSCGF RECOMMENDS THAT THE SHAREHOLDERS OF HSCGF VOTE FOR THE PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF MERGER. VOTING RIGHTS AND REQUIRED VOTE Each share of HSCGF outstanding on the record date is entitled to one vote. As provided under the Investment Company Act, approval of the merger will require the vote of a majority of the voting securities of HSCGF present in person or by proxy at the shareholder meeting at which a quorum is present with respect to HSCGF. If the required approval of shareholders is not obtained, HSCGF will continue to engage in business as a separate mutual fund and the board of trustees will consider what further action may be appropriate. 26 -------------------------------------------------------------------------------- INFORMATION CONCERNING THE MEETING -------------------------------------------------------------------------------- OUTSTANDING SHARES AND QUORUM As of August 23, 2002, shares of HIF2 were outstanding and shares of HSCGF were outstanding. Only shareholders of record of each fund on August 23, 2002 (the "record date") are entitled to notice of and to vote at the meeting. One-third of the outstanding shares of each fund that are entitled to vote will be considered a quorum for the transaction of business. SHAREHOLDER PROPOSALS The funds are not required to hold annual meetings of shareholders and do not currently intend to hold an annual meeting of shareholders in 2002. Shareholder proposals to be presented at the next meeting of shareholders of a fund, whenever held, must be received at the funds' offices, One SeaGate, Toledo, Ohio 43666, at a reasonable time prior to the Trustees' solicitation of proxies for the meeting. The submission by a shareholder of a proposal for inclusion in a proxy statement does not guarantee that it will be included. Shareholder proposals are subject to certain regulations under the federal securities laws. PROXIES, QUORUM AND VOTING AT THE MEETING Shareholders may use the enclosed proxy card if they are unable to attend the meeting in person or wish to have their shares voted by a proxy even if they do attend the meeting. Any shareholder that has given his or her proxy to someone has the power to revoke that proxy at any time prior to its exercise by executing a superseding proxy or by submitting a notice of revocation to the secretary of Harbor Fund. In addition, although mere attendance at the meeting will not revoke a proxy, a shareholder present at the meeting may withdraw his or her proxy and vote in person. All properly executed and unrevoked proxies received in time for the meeting will be voted in accordance with the instructions contained in the proxies. If no instruction is given, the persons named as proxies will vote the shares represented thereby in favor of the proposals 1 and 2 described above and will use their best judgment to vote on such other business as may properly come before the meeting or any adjournment thereof. The funds may also arrange to have votes recorded by telephone, the Internet or other electronic means. Telephonic Voting. Harbor Fund shareholders may call 1-800-690-6903 toll free to authorize the proxy holders to vote their shares. Shareholders will need to enter the 12-digit control number set forth on their proxy card and then will be prompted to answer a series of simple questions. The telephonic procedures are designed to authenticate shareholders identity, to allow shareholders to vote their shares and to confirm that their instructions have been properly recorded. These telephonic voting procedures are not available to Harbor Fund shareholders who own shares in "street name" through a broker. Internet Voting. Harbor Fund shareholders may submit an "electronic" proxy over the Internet in lieu of returning an executed proxy card. In order to use this voting feature, shareholders should go to the web site WWW.PROXYVOTE.COM and enter the 12-digit control number set forth on the shareholder's proxy card. Shareholders will be prompted to follow a simple set of instructions which will appear on the web site. With respect to each fund, a majority of the shares entitled to vote, present in person or represented by proxy, constitutes a quorum for the transaction of business with respect to any proposal (unless otherwise noted in this proxy statement). In the event that, at the time any session of the meeting for a fund is called to order, a quorum is not present in person or by proxy, the persons named as proxies may vote those proxies which have been received to adjourn the meeting with respect to that fund to a later date. In the event that a quorum is present but sufficient votes in favor of any of the proposals, have 27 not been received, the persons named as proxies may propose one or more adjournments of the meeting with respect to that fund to permit further solicitation of proxies with respect to such proposal. Any such adjournment will require the affirmative vote of more than one half of the shares of the applicable fund present in person or by proxy at the session of the meeting to be adjourned. The persons named as proxies will vote those proxies which they are entitled to vote in favor of any such proposal in favor of such an adjournment and will vote those proxies required to be voted against any such proposal against any such adjournment. A shareholder vote may be taken on one or more of the proposals in this proxy statement prior to such adjournment if sufficient votes for its approval have been received and it is otherwise appropriate. Such vote will be considered final regardless of whether the Meeting is adjourned to permit additional solicitation with respect to any other proposal. Shares of each fund represented in person or by proxy, including shares which abstain or do not vote with respect to a proposal, will be counted for purposes of determining whether there is a quorum at the meeting. Accordingly, an abstention from voting has the same effect as a vote against proposals 1 and 2. However, if a broker or nominee holding shares in "street name" indicates on the Proxy Card that it does not have discretionary authority to vote on a proposal, those shares will not be considered present and entitled to vote on that proposal. Thus, a "broker non-vote" has no effect on the voting in determining whether a proposal has been adopted by a majority of a fund's shares present at the meeting, if more than 33 1/3 % of the outstanding shares (excluding the "broker non-votes") of that fund are present or represented. The meeting is scheduled as a joint meeting of the funds' shareholders because the shareholders of each fund are expected to consider and vote on similar matters. The board of trustees has determined that the use of a joint proxy statement is in the best interest of the shareholders of each fund. In the event that a shareholder of any fund present at the meeting objects to the holding of a joint meeting and moves for an adjournment of the meeting of such fund to a time immediately after the meeting so that such fund's meeting may be held separately, the persons named as proxies will vote in favor of the adjournment. Shareholders of each fund will vote separately on each proposal relating to their fund and, except as otherwise noted in this proxy statement, an unfavorable vote on a proposal by the shareholders of one fund will not affect the implementation of such proposal approved by the shareholders of another fund. OTHER BUSINESS While the Meeting has been called to transact any business that may properly come before it, the only matters that the trustees intend to present are those matters stated in the attached Notice of a Special Meeting of Shareholders. However, if any additional matters properly come before the meeting, and on all matters incidental to the conduct of the meeting, it is the intention of the persons named in the enclosed proxy to vote the proxy in accordance with their judgment on such matters unless instructed to the contrary. METHOD OF SOLICITATION AND EXPENSES The cost of preparing, assembling and mailing this proxy statement, prospectus and the attached Notice of a Special Meeting of Shareholders and the accompanying proxy card, as well as the costs associated with the proxy solicitation, will be borne pro rata by HIF2 and HSCGF based upon their relative asset sizes. In addition to soliciting proxies by mail and via the Internet, Harbor Capital may have one or more of the funds' officers, representatives or compensated third-party agents, aid in the solicitation of proxies by personal interview or telephone and telegraph and may request brokerage houses and other custodians, nominees and fiduciaries to forward proxy soliciting material to the beneficial owners of the shares held of record by such persons. Harbor Capital has retained D.F. King to assist in the solicitation of proxies. The estimated cost for D.F. King's proxy solicitation services are approximately $25,000. Shareholders who have not voted their proxies in a timely manner may receive a telephone call from D.F. King in an effort to urge them to vote. 28 Shareholders would be called at the phone number Harbor Capital has in its records for their accounts, and would be asked for their social security number or other identifying information. The shareholders would then be given an opportunity to authorize proxies to vote their shares at the meeting in accordance with their instructions. To ensure that the shareholders' instructions have been recorded correctly, they would also receive a confirmation of their instructions in the mail. In the case of automated telephone and Internet voting, shareholders would be required to provide their social security number or other identifying information and would receive a confirmation of their instructions. A special toll-free number will be available in case the information contained in the confirmation is incorrect. The voting procedures used in connection with such voting methods are designed to authenticate shareholders' identities, to allow shareholders to authorize the voting of their shares in accordance with their instructions and to confirm that their instructions have been properly recorded. If these procedures were subject to a successful legal challenge, such votes would not be counted at the meeting. The funds are unaware of any such challenge at this time. Persons holding shares as nominees will be reimbursed by HIF2 or HSCGF, as applicable and upon request, for the reasonable expenses of mailing soliciting materials to the principals of the accounts. -------------------------------------------------------------------------------- OWNERSHIP OF SHARES OF THE FUNDS -------------------------------------------------------------------------------- To the knowledge of the funds, as of August 23, 2002, the following persons owned, of record or beneficially, 5% or more of the outstanding shares of HIF2, HIF, HSCGF and HGF (before the merger) and would own, (after the merger), 5% or more of the shares of the HIF or HGF.
HIF HIF HGF HGF INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL HIF2 SHARES SHARES HSCGF SHARES SHARES INSTITUTIONAL BEFORE AFTER INSTITUTIONAL BEFORE AFTER NAME OF OWNER SHARES MERGER MERGER SHARES MERGER MERGER ------------------------------------------------------------------------------------------------------------------------------ Archbishop Iakovos Leadership One Hundred Endowment Fund, Inc. George Kokalis TTEE Constantine G Caras TTEE 8 East 79th St New York, NY 10021 Charles Schwab & Co., Inc. Omnibus Account Registration 101 Montgomery Street San Francisco, CA 94101-4122 Greek Orthodox Archdiocese of America Pension Fund George D Chelpon & Costas Sitaris TTEEs 8 East 79th St New York, NY 10021 HCR Manor Care 401(k) HCR Master Retirement Trust KeyBank NA Fairview Luth FDN P.O. Box 94871 Cleveland, OH 44101-4871
29
HIF HIF HGF HGF INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL INSTITUTIONAL HIF2 SHARES SHARES HSCGF SHARES SHARES INSTITUTIONAL BEFORE AFTER INSTITUTIONAL BEFORE AFTER NAME OF OWNER SHARES MERGER MERGER SHARES MERGER MERGER ------------------------------------------------------------------------------------------------------------------------------ National Financial c/o Mutual Funds P.O. Box 3908 Church Street Station New York, NY 1008-3908 Northern Trust Co. Liberty Mutual Employees TRST Thrift Incentive Plan DV P.O. Box 92956 Chicago, IL 60675 Owens-Illinois 401(k) Trust Saxon & Co. Sarah Scaife P.O. Box 7780 1888 Philadelphia, PA 19182 [Identify separately any control persons (25% or greater)].
As of August 23, 2002 the trustees and officers of Harbor Fund each as a group, owned in the aggregate X%, X%, X%, and X% of the outstanding shares of beneficial interest of HIF2, HIF, HSCGF, and HGF, respectively. -------------------------------------------------------------------------------- EXPERTS -------------------------------------------------------------------------------- The financial statements and the financial highlights of HIF2, HIF, HSCGF and HGF as of October 31, 2001 and for the period then ended are incorporated by reference into this proxy statement and prospectus. These financial statements and financial highlights for each of HIF2, HIF, HSCGF and HGF have been audited by Ernst & Young LLP, independent auditors for each fund, as stated in the report appearing in the Annual Report to shareholders which is incorporated by reference in the statement of additional information. These financial statements and financial highlights are included in reliance upon the reports given upon the authority of such firm as an expert in accounting and auditing. -------------------------------------------------------------------------------- AVAILABLE INFORMATION -------------------------------------------------------------------------------- Each fund is subject to the informational requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940 and files reports, proxy statements and other information with the SEC. These reports, proxy statements and other information filed by the funds can be inspected and copied (at prescribed rates) at the public reference facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C., and at the following regional offices: Chicago (500 West Madison Street, Suite 1400, Chicago, Illinois); and New York (7 World Trade Center, Suite 1300, New York, New York). Copies of such material can also be obtained by mail from the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, copies of these documents may be viewed on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. 30 -------------------------------------------------------------------------------- EXHIBIT A -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this __________ day of ________ , 2002, by and between Harbor International Fund (the "Acquiring Fund") and Harbor International Fund II (the "Acquired Fund"), each a series of Harbor Fund, a Delaware business trust (the "Trust") and each with their principal place of business at One SeaGate, Toledo Ohio 43666. The Acquiring Fund and the Acquired Fund are sometimes referred to collectively herein as the "Funds" and individually as a "Fund." This Agreement is intended to be and is adopted as a plan of "reorganization," as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The reorganization will consist of the transfer of all of the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the issuance of shares of beneficial interest of the Institutional Class of the Acquiring Fund (the "Acquiring Fund Shares") to the Acquired Fund and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by the distribution by the Acquired Fund, on or promptly after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation and termination of the Acquired Fund as provided herein, all upon the terms and conditions set forth in this Agreement. In consideration of the premises of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES, LIQUIDATION OF THE ACQUIRED FUND 1.1 The Acquired Fund will transfer all of its assets (consisting, without limitation, of portfolio securities and instruments, dividends and interest receivables, cash and other assets), as set forth in the statement of assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement of Assets and Liabilities"), to the Acquiring Fund free and clear of all liens and encumbrances, except as otherwise provided herein, in exchange for (i) the assumption by the Acquiring Fund of the known and unknown liabilities of the Acquired Fund, including the liabilities set forth in the Statement of Assets and Liabilities (the "Acquired Fund Liabilities"), which shall be assigned and transferred to the Acquiring Fund by the Acquired Fund and assumed by the Acquiring Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund, for distribution pro rata by the Acquired Fund to its shareholders in proportion to their respective ownership of shares of beneficial interest of the Acquired Fund, as of the close of business on October 31, 2002 (the "Closing Date"), of a number of the Acquiring Fund Shares having an aggregate net asset value equal to the value of the assets, less such liabilities (herein referred to as the "net value of the assets") assumed, assigned and delivered, all determined as provided in Paragraph 2.1 hereof and as of a date and time as specified therein. Such transactions shall take place at the closing provided for in Paragraph 3.1 hereof (the "Closing"). All computations shall be provided by State Street Bank and Trust Company ("State Street") as pricing agent for the Acquiring Fund and the Acquired Fund. 1.2 The Acquired Fund has provided the Acquiring Fund with a list of the current securities holdings of the Acquired Fund as of the date of execution of this Agreement. The Acquired Fund reserves the right to sell any of these securities (except to the extent sales may be limited by representations made in connection with issuance of the tax opinion provided for in paragraph 8.5 hereof) but will not, without the prior approval of the Acquiring Fund, A-1 acquire any additional securities other than securities of the type in which the Acquiring Fund is permitted to invest. 1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses in connection with the transactions contemplated by this Agreement. 1.4 On or as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro rata to shareholders of record (the "Acquired Fund shareholders"), determined as of the close of regular trading on the New York Stock Exchange on the Closing Date, the Acquiring Fund Shares received by the Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund, to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund shareholders and representing the respective pro rata number of Acquiring Fund Shares due such shareholders. The Acquiring Fund will not issue certificates representing Acquiring Fund Shares in connection with such exchange. 1.5 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund Shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.6 The existence of the Acquired Fund shall be terminated as promptly as practicable following the Liquidation Date. 1.7 Any reporting responsibility of the Acquired Fund, including, but not limited to, the responsibility for filing of regulatory reports, tax returns, or other documents with the Securities and Exchange Commission (the "Commission"), any state securities commissions, and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Acquired Fund. 2. VALUATION 2.1 The net asset values of the Acquiring Fund Shares and the net values of the assets and liabilities of the Acquired Fund to be transferred shall, in each case, be determined as of the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Closing Date. The net asset values of the Acquiring Fund Shares shall be computed by State Street in the manner set forth in the Acquiring Fund's Declaration of Trust as amended and restated (the "Declaration"), or By-Laws and the Acquiring Fund's then-current prospectus and statement of additional information and shall be computed in each case to not fewer than four decimal places. The net values of the assets of the Acquired Fund to be transferred shall be computed by State Street by calculating the value of the assets transferred by the Acquired Fund and by subtracting therefrom the amount of the liabilities assigned and transferred to and assumed by the Acquiring Fund on the Closing Date, said assets and liabilities to be valued in the manner set forth in the Acquired Fund's then current prospectus and statement of additional information and shall be computed in each case to not fewer than four decimal places. 2.2 The number of Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's assets shall be determined by dividing the value of the Acquired Fund's assets less the liabilities assumed by the Acquiring Fund, by the Acquiring Fund's net asset value per share, all as determined in accordance with Paragraph 2.1 hereof. 2.3 All computations of value shall be made by State Street in accordance with its regular practice as pricing agent for the Funds. A-2 3. CLOSING AND CLOSING DATE 3.1 The Closing Date shall be __________ 2002 or such other date on or before December 31, 2002 as the parties may agree. The Closing shall be held as of 5:00 p.m. at the offices of the Funds, One SeaGate, Toledo Ohio 43666, or at such other time and/or place as the parties may agree. 3.2 Portfolio securities that are not held in book-entry form in the name of State Street Bank & Trust Company (the "Custodian") as record holder for the Acquired Fund shall be presented by the Acquired Fund to the Custodian for examination no later than three business days preceding the Closing Date. Portfolio securities which are not held in book-entry form shall be delivered by the Acquired Fund to the Custodian for the account of the Acquiring Fund on the Closing Date, duly endorsed in proper form for transfer, in such condition as to constitute good delivery thereof in accordance with the custom of brokers, and shall be accompanied by a check or wire transfer for the appropriate purchase price thereof. Portfolio securities held of record by the Custodian in book-entry form on behalf of the Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by recording the transfer of beneficial ownership thereof on its records. The cash delivered shall be in the form of currency or by the Custodian crediting the Acquiring Fund's account maintained with the Custodian with immediately available funds. 3.3 In the event that on the Closing Date (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored; provided that if trading shall not be fully resumed and reporting restored on or before December 31, 2002, this Agreement may be terminated by the Acquiring Fund or by the Acquired Fund upon the giving of written notice to the other party. 3.4 The Acquired Fund shall deliver at the Closing a list of the names, addresses, federal taxpayer identification numbers and backup withholding and nonresident alien withholding status of the Acquired Fund shareholders and the number of outstanding shares of beneficial interest of the Acquired Fund owned by each such shareholder, all as of the close of business on the Closing Date, certified by its Treasurer, Secretary or other authorized officer (the "Shareholder List"). The Acquiring Fund shall issue and deliver to the Acquired Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request. 4. REPRESENTATIONS AND WARRANTIES 4.1 The Trust on behalf of the Acquired Fund represents, warrants and covenants to the Acquiring Fund as follows: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power to own all of its properties and assets and to carry out the Agreement. Neither the Trust nor the Acquired Fund is required to qualify to do business in any jurisdiction in which it is not so qualified or where failure to qualify would subject it to any material liability or disability. The Trust has all necessary federal, state and local authorizations to own A-3 all of its properties and assets and to carry on its business as now being conducted; (b) The Trust is a registered investment company classified as a management company and its registration with the Commission as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), is in full force and effect. The Acquired Fund is a diversified series of the Trust; (c) The Trust and the Acquired Fund are not, and the execution, delivery and performance of their obligations under this Agreement will not result, in violation of any provision of the Trust's Declaration of Trust, as amended, or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which either the Trust or the Acquired Fund is a party or by which it is bound; (d) Except as otherwise disclosed in writing and accepted by the Acquiring Fund, no material litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or threatened against the Trust or the Acquired Fund or any of the Acquired Fund's properties or assets. The Trust knows of no facts which might form the basis for the institution of such proceedings, and neither the Trust nor the Acquired Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquired Fund's business or its ability to consummate the transactions herein contemplated; (e) Neither the Trust nor the Acquired Fund has any material contract or other commitments (other than this Agreement or agreements for the purchase of securities entered into in the ordinary course of business and consistent with its obligations under this Agreement) which will not be terminated without liability to the Trust or the Acquired Fund at or prior to the Closing Date; (f) The audited statement of assets and liabilities, including the schedule of investments, of the Acquired Fund as of October 31, 2001 and the related statement of operations (copies of which have been furnished to the Acquiring Fund) present fairly in all material respects the financial condition of the Acquired Fund as of October 31, 2001 and the results of its operations for the period then ended in accordance with generally accepted accounting principles consistently applied, and there were no known actual or contingent liabilities of the Acquired Fund as of the respective dates thereof not disclosed therein; (g) Since October 31, 2001, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund; (h) At the date hereof and by the Closing Date, all federal, state and other tax returns and reports, including information returns and payee statements, of the Acquired Fund required by law to have been filed or furnished by such dates shall have been filed or furnished, and all federal, state and other taxes, interest and penalties shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns or reports; A-4 (i) The Acquired Fund has qualified as a regulated investment company for each taxable year of its operation and the Acquired Fund will qualify as such as of the Closing Date with respect to its taxable year ending on the Closing Date; (j) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest, with a par value of $0.01. All issued and outstanding shares of beneficial interest of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable by the Trust. All of the issued and outstanding shares of beneficial interest of the Acquired Fund will, at the time of Closing, be held by the persons and in the amounts set forth in the Shareholder List submitted to the Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares of beneficial interest, nor is there outstanding any security convertible into any of its shares of beneficial interest; (k) At the Closing Date, the Trust on behalf of the Acquired Fund will have good and marketable title to the assets to be transferred to the Acquiring Fund pursuant to Paragraph 1.1 hereof, and full right, power and authority to sell, assign, transfer and deliver such assets hereunder, and upon delivery and payment for such assets, the trust on behalf of the Acquiring Fund will acquire good and marketable title thereto subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the "1933 Act"); (l) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Trust on behalf of the Acquired Fund, and this Agreement constitutes a valid and binding obligation of the Acquired Fund enforceable in accordance with its terms; (m) The information to be furnished by the Acquired Fund to the Acquiring Fund for use in applications for orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete and shall comply in all material respects with federal securities and other laws and regulations thereunder applicable thereto; (n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be included in the Registration Statement referred to in Paragraph 4.2(c) hereof (other than written information furnished by the Acquiring Fund for inclusion therein, as covered by the Acquiring Fund's warranty in Paragraph 4.2(m) hereof), on the effective date of the Registration Statement and on the Closing Date, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; (o) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquired Fund of the transactions contemplated by this Agreement; (p) All of the issued and outstanding shares of beneficial interest of the Trust on behalf of the Acquired Fund have been offered for sale and sold in conformity with all applicable federal and state securities laws; (q) The prospectus of the Acquired Fund, dated March 1, 2002 (the "Acquired Fund Prospectus"), furnished to the Acquiring Fund, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated A-5 therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; (r) The Acquired Fund Tax Representation Certificate to be delivered by the Acquired Fund to the Acquiring Fund at Closing pursuant to Section 7.5 (the "Acquired Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. 4.2 THE TRUST ON BEHALF OF THE ACQUIRING FUND REPRESENTS, WARRANTS AND COVENANTS TO THE ACQUIRED FUND AS FOLLOWS: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power to own all of its properties and assets and to carry out the Agreement. Neither the Trust nor the Acquiring Fund is required to qualify to do business in any jurisdiction in which it is not so qualified or where failure to qualify would subject it to any material liability or disability. The Trust has all necessary federal, state and local authorizations to own all of its properties and assets and to carry on its business as now being conducted; (b) The Trust is a registered investment company classified as a management company and its registration with the Commission as an investment company under the 1940 Act is in full force and effect. The Acquiring Fund is a diversified series of the Trust; (c) The prospectus (the "Acquiring Fund Prospectus") and statement of additional information of the Acquiring Fund, each dated March 1, 2002, and any amendments or supplements thereto on or prior to the Closing Date, and the Registration Statement on Form N-14 filed in connection with this Agreement (the "Registration Statement") (other than written information furnished by the Acquired Fund for inclusion therein, as covered by the Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder, the Acquiring Fund Prospectus does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and, other than written information furnished by the Acquired Fund for inclusion therein, as covered by the Acquired Fund's warranty in Paragraph 4.1(n) hereof, the Registration Statement shall not, on its effective date and on Closing Date, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (d) At the Closing Date, the Trust on behalf of the Acquiring Fund will have good and marketable title to the assets of the Acquiring Fund; (e) The Trust and the Acquiring Fund are not, and the execution, delivery and performance of their obligations under this Agreement will not result in a violation of any provisions of the Trust's Declaration of Trust, as amended, or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust or the Acquiring Fund is a party or by which the Trust or the Acquiring Fund is bound; (f) Except as otherwise disclosed in writing and accepted by the Acquired Fund, no material litigation or administrative proceeding or investigation of or before any A-6 court or governmental body is currently pending or threatened against the Trust or the Acquiring Fund or any of the Acquiring Fund's properties or assets. The Trust knows of no facts which might form the basis for the institution of such proceedings, and neither the Trust nor the Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquiring Fund's business or its ability to consummate the transactions herein contemplated; (g) The audited statement of assets and liabilities, including the schedule of investments, of the Acquiring Fund as of October 31, 2001 and the related statement of operations (copies of which have been furnished to the Acquired Fund) present fairly in all material respects the financial condition of the Acquiring Fund as of October 31, 2001 and the results of its operations for the period then ended in accordance with accounting principles generally accepted in the United States consistently applied, and there were no known actual or contingent liabilities of the Acquiring Fund as of the respective dates thereof not disclosed therein; (h) Since October 31, 2001, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Trust on behalf of the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund; (i) The Acquiring Fund has qualified as a regulated investment company for each taxable year of its operation and the Acquiring Fund will qualify as such as of the Closing Date; (j) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest, with a par value per share of $0.01. All issued and outstanding shares of beneficial interest of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable by the Trust. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares of beneficial interest, nor is there outstanding any security convertible into any of its shares of beneficial interest; (k) The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of the Trust on behalf of the Acquiring Fund, and this Agreement constitutes a valid and binding obligation of the Acquiring Fund enforceable in accordance with its terms; (l) The Acquiring Fund Shares to be issued and delivered to the Acquired Fund pursuant to the terms of this Agreement, when so issued and delivered, will be duly and validly issued shares of beneficial interest of the Acquiring Fund and will be fully paid and nonassessable by the Trust; (m) The information to be furnished by the Acquiring Fund for use in applications for orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete and shall comply in all material respects with federal securities and other laws and regulations applicable thereto; (n) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by the Agreement, except for the registration of the Acquiring Fund Shares under the 1933 Act and the 1940 Act; and A-7 (o) The Acquiring Fund Tax Representation Certificate to be delivered by the Acquiring Fund to the Acquired Fund at Closing pursuant to Section 6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND 5.1 Except as expressly contemplated herein to the contrary, the Trust on behalf of the Acquired Fund and the Trust on behalf of the Acquiring Fund, will operate their respective businesses in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions and any other distributions necessary or desirable to avoid federal income or excise taxes. 5.2 The Acquired Fund covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired by the Acquired Fund for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement. 5.3 The Acquired Fund will provide such information within its possession or reasonably obtainable as the Trust on behalf of the Acquiring Fund requests concerning the beneficial ownership of the Acquired Fund's shares of beneficial interest. 5.4 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund each shall take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate the transactions contemplated by this Agreement. 5.5 The Acquired Fund shall furnish to the Trust on behalf of the Acquiring Fund on the Closing Date the Statement of Assets and Liabilities of the Acquired Fund as of the Closing Date, which statement shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be certified by the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as practicable but in any case within 60 days after the Closing Date, the Acquired Fund shall furnish to the Acquiring Fund, in such form as is reasonably satisfactory to the Trust, a statement of the earnings and profits of the Acquired Fund for federal income tax purposes and of any capital loss carryovers and other items that will be carried over to the Acquiring Fund as a result of Section 381 of the Code, and which statement will be certified by the President, Treasurer or Secretary of the Acquired Fund. 5.6 The Trust on behalf of the Acquiring Fund will prepare and file with the Commission the Registration Statement in compliance with the 1933 Act and the 1940 Act in connection with the issuance of the Acquiring Fund Shares as contemplated herein. 5.7 The Acquired Fund will prepare an Proxy Statement, to be included in the Registration Statement in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the rules and regulations thereunder (collectively, the "Acts"). 5.8 Neither the Acquired Fund nor the Acquiring Fund shall take any action that is inconsistent with the representations set forth in, with respect to the Acquired Fund, the Acquired Fund Tax Representation Certificate, and with respect to the Acquiring Fund, the Acquiring Fund Tax Representation Certificate, to the extent such action would prevent the reorganization from qualifying as a "reorganization" under Section 368(a) of the Code. A-8 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND The obligations of the Acquired Fund to complete the transactions provided for herein shall be, at its election, subject to the performance by the Trust on behalf of the Acquiring Fund of all the obligations to be performed by the Acquiring Fund hereunder on or before the Closing Date, and, in addition thereto, the following further conditions: 6.1 All representations and warranties of the Trust on behalf of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date; 6.2 The Trust on behalf of the Acquiring Fund shall have delivered to the Acquired Fund a certificate executed in its name by the Trust's President or Vice President and its Treasurer or Secretary, in form and substance satisfactory to the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Trust on behalf of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request; and 6.3 The Acquiring Fund shall have delivered at closing to the Acquired Fund and to Hale and Dorr LLP an Acquiring Fund Tax Representation Certificate, satisfactory to the Acquired Fund, substantially in the form attached to this Agreement as Annex A concerning certain tax-related matters with respect to the Acquiring Fund. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRING FUND The obligations of the Trust on behalf of the Acquiring Fund to complete the transactions provided for herein shall be, at its election, subject to the performance by the Trust on behalf of the Acquired Fund of all the obligations to be performed by the Acquired Fund hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Trust on behalf of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date; 7.2 The Trust on behalf of the Acquired Fund shall have delivered to the Acquiring Fund the Statement of Assets and Liabilities of the Acquired Fund, together with a list of its portfolio securities showing the federal income tax bases and holding periods of such securities, as of the Closing Date, certified by the Treasurer or Assistant Treasurer of the Acquired Fund; 7.3 The Acquired Fund shall have delivered to the Trust on behalf of the Acquiring Fund on the Closing Date a certificate executed in the name of the Acquired Fund by a President or Vice President and a Treasurer or Secretary of the Acquired Fund, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquired Fund in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Trust on behalf of the Acquiring Fund shall reasonably request; 7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or an affiliate thereof, shall have made all payments, or applied all credits, to the Acquired Fund required by any applicable contractual expense limitation; and A-9 7.5 The Acquired Fund shall have delivered at closing to the Acquiring Fund and to Hale and Dorr LLP an Acquired Fund Tax Representation Certificate, satisfactory to the Acquiring Fund, substantially in the form attached to this Agreement as Annex B concerning certain tax-related matters with respect to the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE TRUST ON BEHALF OF THE ACQUIRING FUND The obligations hereunder of the Trust on behalf of the Acquiring Fund and of the Trust on behalf of the Acquired Fund are each subject to the further conditions that on or before the Closing Date: 8.1 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain changes or other relief in connection with, this Agreement or the transactions contemplated herein; 8.2 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Commission and their "no-action" positions) deemed necessary by the Acquired Fund or the Trust to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may waive any such conditions for itself; 8.3 The Registration Statement shall have become effective under the 1933 Act and the 1940 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act or the 1940 Act; 8.4 The Acquired Fund shall have distributed to its shareholders, in a distribution or distributions qualifying for the deduction for dividends paid under Section 561 of the Code, all of its investment company taxable income (as defined in Section 852(b)(2) of the Code determined without regard to Section 852(b)(2)(D) of the Code) for its taxable year ending on the Closing Date, all of the excess of (i) its interest income excludable from gross income under Section 103(a) of the Code over (ii) its deductions disallowed under Sections 265 and 171(a)(2) of the Code for its taxable year ending on the Closing Date, and all of its net capital gain (as such term is used in Sections 852(b)(3)(A) and (C) of the Code), after reduction by any available capital loss carryforward, for its taxable year ending on the Closing Date; and 8.5 The parties shall have received an opinion of Hale and Dorr LLP, satisfactory to the Acquired Fund and the Trust on behalf of the Acquiring Fund, substantially to the effect that for federal income tax purposes the acquisition by the Acquiring Fund of all of the assets of the Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to the Acquired Fund and the assumption of all of the Acquired Fund Liabilities by the Acquiring Fund, followed by the distribution by the Acquired Fund, in liquidation of the Acquired Fund, of Acquiring Fund Shares to the shareholders of the Acquired Fund in exchange for their shares of beneficial interest of the Acquired Fund and the termination of the Acquired Fund, will constitute a "reorganization" within the meaning of Section 368(a) of the Code. In rendering such opinions, counsel shall be entitled to rely upon, among other things, reasonable assumptions as well as representations of the Acquiring Fund and the Acquired Fund including the representations contained in the Tax Representation Certificates referred to in Section 6.3 and Section 7.5. A-10 Notwithstanding anything herein to the contrary, neither the Acquired Fund nor the Acquiring Fund may waive the conditions set forth in this Paragraph 8.5. 9. BROKERAGE FEES AND EXPENSES 9.1 The Trust on behalf of the Acquiring Fund and the Trust on behalf of the Acquired Fund each represent and warrant to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for its own expenses incurred in connection with entering into and carrying out the provisions of this Agreement whether or not the transactions contemplated hereby are consummated. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 10.1 The Trust on behalf of the Acquiring Fund and the Trust on behalf of the Acquired Fund agree that neither party has made any representation, warranty or covenant not set forth herein or referred to in Paragraph 4 hereof and that this Agreement constitutes the entire agreement between the parties. 10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall survive the consummation of the transactions contemplated hereunder. 11. TERMINATION 11.1 This Agreement may be terminated by the mutual agreement of the Trust on behalf of the Acquiring Fund and the Acquired Fund. In addition, either party may at its option terminate this Agreement at or prior to the Closing Date: (a) because of a material breach by the other of any representation, warranty, covenant or agreement contained herein to be performed at or prior to the Closing Date; (b) because of a condition herein expressed to be precedent to the obligations of the terminating party which has not been met and which reasonably appears will not or cannot be met; (c) by resolution of the Trust's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquiring Fund's shareholders; or (d) by resolution of the Acquired Fund's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquired Fund's shareholders. 11.2 In the event of any such termination, there shall be no liability for damages on the part of the Trust, the Acquiring Fund, or the Acquired Fund, or the Trustees or officers of the Trust or the Acquired Fund, but each party shall bear the expenses incurred by it incidental to the preparation and carrying out of this Agreement. 12. AMENDMENTS This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon by the authorized officers of the Trust and the Acquired Fund. No such amendment may have the effect of changing the provisions regarding the method for determining the number of Acquiring Fund Shares to be received by the Acquired Fund shareholders under this Agreement to the detriment of such shareholders without their further approval; provided that A-11 nothing contained in this Article twelve shall be construed to prohibit the parties from amending this Agreement to change the Closing Date. 13. NOTICES Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by overnight delivery, facsimile or certified mail addressed to the Acquiring Fund or to the Acquired Fund, each at One SeaGate. Toledo Ohio 43666, Attention: Karen B. Wasil, and, in either case, with copies to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention: Charles F. McCain, Esq. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT 14.1 The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the prior written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 14.5 All persons dealing with the Trust on behalf of the Acquiring Fund or Trust on behalf of the Acquired Fund must look solely to the property of the Acquiring Fund or the Acquired Fund, respectively, for the enforcement of any claims against the Acquiring Fund or the Acquired Fund as the Trustees, officers, agents and shareholders of the Trust on behalf of either Fund assume no personal liability for obligations entered into on behalf of the Trust on behalf of the Acquiring Fund or Trust on behalf of the Acquired Fund, respectively. None of the other series of the Trust shall be responsible for any obligations assumed by on or behalf of the either Fund under this Agreement. A-12 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first set forth above by its President or Vice President and attested by its Secretary. HARBOR FUND on behalf of HARBOR INTERNATIONAL FUND By: ------------------------------------ James M. Williams, President HARBOR FUND on behalf of HARBOR INTERNATIONAL FUND II By: ------------------------------------ Constance L. Souders, Vice President Attest: HARBOR FUND By: -------------------------------------------------------- Karen B. Wasil, Secretary A-13 ANNEX A --------------------------------------------------------------- TAX REPRESENTATION CERTIFICATE OF HARBOR INTERNATIONAL FUND This certificate is being delivered in connection with the transaction to be effected pursuant to the Agreement and Plan of Reorganization made as of , 2002 between Harbor International Fund ("Acquiring Fund") and Harbor International Fund II ("Acquired Fund"), each a series of Harbor Fund (the "Trust"), (the "Agreement"). Pursuant to the Agreement, Acquiring Fund will acquire all of the assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring Fund of certain liabilities of Acquired Fund (the "Acquired Fund Liabilities") and (ii) the issuance of shares of beneficial interest of the Institutional Class of Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund and the termination of Acquired Fund (the foregoing together constituting the "transaction"). The undersigned officer of the Trust, after consulting with its counsel and auditors regarding the meaning of and factual support for the following representations, on behalf of Acquiring Fund, hereby certifies and represents that the following statements are true, complete and correct and will be true, complete and correct on the date of the transaction and thereafter as relevant. Unless otherwise indicated, all capitalized terms used but not defined herein shall have the meaning ascribed to them in the Agreement. 1. Acquiring Fund is a series of the Trust, a business trust established under the laws of the State of Delaware. 2. Neither Acquiring Fund nor any person treated as related to Acquiring Fund under Treasury Regulation Section 1.368-1(e)(3) or by virtue of being a partnership of which Acquiring Fund or a related person is a partner (a "Related Person") has any plan or intention to redeem or otherwise reacquire any of the Acquiring Fund Shares received by shareholders of Acquired Fund in the transaction except in the ordinary course of Acquiring Fund's business in connection with its legal obligation under Section 22(e) of the Investment Company Act of 1940, as amended, as a registered open-end investment company to redeem its own shares (which obligation is not in connection with, modified in connection with, or in any way related to the transaction). 3. After the transaction, Acquiring Fund will continue the historic business of Acquired Fund or will use all or a significant portion of the historic assets acquired from Acquired Fund in the ordinary course of a business. For this purpose, Acquiring Fund shall be treated as conducting the business and holding the assets of certain related entities, as described in Treasury Regulation Section 1.368-1(d)(4). 4. Acquiring Fund has no plan or intention to sell or otherwise dispose of any assets of Acquired Fund acquired in the transaction, except for dispositions made in the ordinary course of its business or to maintain its qualification as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), and except for transfers of assets to certain related entities, as described in Section 368(a)(2)(C) of the Internal Revenue Code of 1986, as amended (the "Code") or Treasury Regulation Section 1.368-2(k)(1). 5. Each of Acquiring Fund and Acquired Fund will pay its own expenses related to the transaction. The shareholders of Acquiring Fund and Acquired Fund will bear their respective expenses, if any, in connection with the transaction. 6. There is no indebtedness between Acquiring Fund and Acquired Fund. 7. Acquiring Fund has elected to be treated as a regulated investment company under Subchapter M of the Code, has qualified as a regulated investment company for each taxable year since inception, A-14 qualifies as such as of the date of the transaction, and intends to qualify as such after the transaction. 8. Acquiring Fund meets the requirements of a regulated investment company as defined in Section 368(a)(2)(F) of the Code. 9. Acquiring Fund is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 10. Acquiring Fund does not now and has never owned, directly or indirectly, any shares of Acquired Fund. 11. Acquiring Fund will not pay cash in lieu of fractional shares in connection with the transaction. 12. As of the date of the transaction, the fair market value of the Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of Acquired Fund will be approximately equal to the fair market value of the assets of Acquired Fund received by Acquiring Fund, minus the Acquired Fund Liabilities assumed by Acquiring Fund. Acquiring Fund will not furnish any consideration in connection with the acquisition of Acquired Fund's assets other than the assumption of these Acquired Fund Liabilities and the issuance of these Acquiring Fund Shares. 13. Acquired Fund shareholders will not be in control (within the meaning of Sections 368(a)(2)(H)(i) and 304(c) of the Code, which provide that control means the ownership of shares possessing at least 50% of the total combined voting power of all classes of shares that are entitled to vote or at least 50% of the total value of shares of all classes) of Acquiring Fund after the transaction. 14. The principal business purposes of the transaction are to combine the assets of Acquiring Fund and Acquired Fund in order to capitalize on potential economies of scale in expenses, including the costs of accounting, legal, transfer agency, insurance, custodial, and administrative services, and to increase diversification. 15. No Acquired Fund shareholder is acting as agent for Acquiring Fund in connection with the transaction or approval thereof. Acquiring Fund will not reimburse any Acquired Fund shareholder for Acquired Fund shares such shareholder may have purchased or for other obligations such shareholder may have incurred. The undersigned officer of the Trust is authorized to make all of the representations set forth herein, and the undersigned is authorized to execute this certificate on behalf of the Trust for the Harbor International Fund. The undersigned recognizes that Hale and Dorr LLP will rely upon the foregoing representations in evaluating the United States federal income tax consequences of the transaction. If, prior to the date of the transaction, any of the representations set forth herein ceases to be accurate in any material respect, the undersigned agrees to deliver to Hale and Dorr LLP immediately a written notice to that effect. HARBOR FUND on behalf of HARBOR INTERNATIONAL FUND II By: -------------------------------------- James M. Williams, President Dated: ------------------------------, 2002 A-15 ANNEX B --------------------------------------------------------------- TAX REPRESENTATION CERTIFICATE OF HARBOR INTERNATIONAL FUND II This certificate is being delivered in connection with the transaction to be effective pursuant to the Agreement and Plan of Reorganization made as of , 2002 between Harbor International Fund ("Acquiring Fund") and Harbor International Fund II ("Acquired Fund"), each a series of Harbor Fund (the "Trust"), (the "Agreement"). Pursuant to the Agreement, Acquiring Fund will acquire all of the assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring Fund of certain liabilities of Acquired Fund (the "Acquired Fund Liabilities") and (ii) the issuance of shares of beneficial interest of the Institutional Class of Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund and the termination of Acquired Fund (the foregoing together constituting the "transaction"). The undersigned officer of the Trust, after consulting with its counsel and auditors regarding the meaning of and factual support for the following representations, on behalf of Acquired Fund, hereby certifies and represents that the following statements are true, complete and correct and will be true, complete and correct on the date of the transaction and thereafter as relevant. Unless otherwise indicated, all capitalized terms used but not defined herein shall have the meaning ascribed to them in the Agreement. 1. Acquired Fund is a series of the Trust, a business trust established under the laws of the State of Delaware. 2. As of the date of the transaction, the fair market value of the Acquiring Fund Shares received by each shareholder that holds shares of Acquired Fund (the "Acquired Fund Shares") will be approximately equal to the fair market value of the Acquired Fund Shares surrendered by such shareholder, and the aggregate consideration received by Acquired Fund shareholders in exchange for their Acquired Fund Shares will be approximately equal to the fair market value of all of the outstanding Acquired Fund Shares immediately prior to the transaction. No property other than Acquiring Fund Shares will be distributed to shareholders of Acquired Fund in exchange for their Acquired Fund Shares, nor will any such shareholder receive cash or other property as part of the transaction. 3. There is no plan or intention on the part of any shareholder of Acquired Fund that owns beneficially 5% or more of the Acquired Fund Shares and, to the best knowledge of management of Acquired Fund, there is no plan or intention on the part of the remaining shareholders of Acquired Fund, in connection with the transaction, to engage in any transaction with Acquired Fund, Acquiring Fund, or any person treated as related to Acquired Fund or Acquiring Fund under Treasury Regulation Section 1.368-1(e)(3) or by virtue of being a partnership of which Acquired Fund, Acquiring Fund, or a related person is a partner involving the sale, redemption, exchange, transfer, pledge, or other disposition resulting in a direct or indirect transfer of the risks of ownership (a "Sale") of any of the Acquired Fund Shares or any of the Acquiring Fund Shares to be received in the transaction that, considering all Sales, would reduce the aggregate ownership of the Acquiring Fund Shares by former Acquired Fund shareholders to a number of shares having a value, as of the date of the transaction, of less than fifty percent (50%) of the value of all of the formerly outstanding Acquired Fund Shares as of the same date. All Sales involving shares of Acquired Fund and Acquiring Fund held by Acquired Fund shareholders that have occurred or will occur in connection with the transaction are taken into account for purposes of this representation. No such Sale that is in connection with the transaction has, to the best knowledge of management of Acquired Fund, occurred on or prior to the date of the transaction. A-16 4. Acquired Fund assets transferred to Acquiring Fund will comprise at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the fair market value of the gross assets held by Acquired Fund immediately prior to the transaction. For purposes of this representation, amounts used by Acquired Fund to pay expenses of the transaction and all redemptions and distributions (except for redemptions in the ordinary course of business upon demand of a shareholder that Acquired Fund is required to make as an open-end investment company pursuant to Section 22(e) of the Investment Company Act of 1940, as amended, and regular, normal dividends) made by Acquired Fund immediately preceding the transaction are taken into account as assets of Acquired Fund held immediately prior to the transaction. 5. As of the date of the transaction, the fair market value of the Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of Acquired Fund will be approximately equal to the fair market value of the assets of Acquired Fund received by Acquiring Fund, minus the Acquired Fund Liabilities assumed by Acquiring Fund. Acquiring Fund will not furnish any consideration in connection with the acquisition of Acquired Fund's assets other than the assumption of these Acquired Fund Liabilities and the issuance of these Acquiring Fund Shares. 6. The Acquired Fund Liabilities assumed by Acquiring Fund plus the liabilities, if any, to which the transferred assets are subject were incurred by Acquired Fund in the ordinary course of its business. 7. The fair market value of the Acquired Fund assets transferred to Acquiring Fund will equal or exceed the sum of the Acquired Fund Liabilities assumed by Acquiring Fund plus the amount of liabilities, if any, to which the transferred assets are subject. 8. Substantially all of the Acquired Fund assets transferred to Acquiring Fund will be Acquired Fund's historic business assets, i.e., assets not acquired by Acquired Fund as part of or in contemplation of the transaction. 9. Acquired Fund will distribute to its shareholders the Acquiring Fund Shares it receives, and its other properties, if any, pursuant to the transaction and will be liquidated promptly thereafter. 10. Each of Acquiring Fund and Acquired Fund will pay its own expenses related to the transaction. The shareholders of Acquiring Fund and Acquired Fund will bear their respective expenses, if any, in connection with the transaction. 11. There is no indebtedness between Acquiring Fund and Acquired Fund. 12. Acquired Fund has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), has qualified as a regulated investment company for each taxable year since inception, and qualifies as such for its taxable year ending on the closing date of the transaction. 13. Acquired Fund meets the requirements of a regulated investment company as defined in Section 368(a)(2)(F) of the Code. 14. Acquired Fund is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 15. Acquired Fund shareholders will not be in control (within the meaning of Sections 368(a)(2)(H)(i) and 304(c) of the Code, which provide that control means the ownership of shares possessing at least 50% of the total combined voting power of all classes of shares that are entitled to vote or at least 50% of the total value of shares of all classes) of Acquiring Fund after the transaction. 16. Acquired Fund shareholders will not have dissenters' or appraisal rights in the transaction. 17. The principal business purposes of the transaction are to combine the assets of Acquiring Fund and Acquired Fund in order to capitalize on potential economies of scale in expenses, including the A-17 costs of accounting, legal, transfer agency, insurance, custodial, and administrative services, and to increase diversification. The undersigned officer of the Trust is authorized to make all of the representations set forth herein, and the undersigned is authorized to execute this certificate on behalf of the Trust for the Harbor International Fund II. The undersigned recognizes that Hale and Dorr LLP will rely upon the foregoing representations in evaluating the United States federal income tax consequences of the transaction. If, prior to the date of the transaction, any of the representations set forth herein ceases to be accurate in any material respect, the undersigned agrees to deliver to Hale and Dorr LLP immediately a written notice to that effect. HARBOR FUND on behalf of HARBOR INTERNATIONAL FUND II By: -------------------------------------- James M. Williams, President Dated: ------------------------------, 2002 A-18 -------------------------------------------------------------------------------- EXHIBIT B -------------------------------------------------------------------------------- AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this day of , 2002, by and between Harbor Growth Fund (the "Acquiring Fund") and Harbor Small Cap Growth Fund (the "Acquired Fund"), each a series of Harbor Fund, a Delaware business trust (the "Trust") and each with their principal place of business at One SeaGate, Toledo Ohio 43666. The Acquiring Fund and the Acquired Fund are sometimes referred to collectively herein as the "Funds" and individually as a "Fund." This Agreement is intended to be and is adopted as a plan of "reorganization," as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"). The reorganization will consist of the transfer of all of the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the issuance of shares of beneficial interest of the Institutional Class of the Acquiring Fund (the "Acquiring Fund Shares") to the Acquired Fund and the assumption by the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by the distribution by the Acquired Fund, on or promptly after the Closing Date hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation and termination of the Acquired Fund as provided herein, all upon the terms and conditions set forth in this Agreement. In consideration of the premises of the covenants and agreements hereinafter set forth, the parties hereto covenant and agree as follows: 1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES, LIQUIDATION OF THE ACQUIRED FUND 1.1 The Acquired Fund will transfer all of its assets (consisting, without limitation, of portfolio securities and instruments, dividends and interest receivables, cash and other assets), as set forth in the statement of assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement of Assets and Liabilities"), to the Acquiring Fund free and clear of all liens and encumbrances, except as otherwise provided herein, in exchange for (i) the assumption by the Acquiring Fund of the known and unknown liabilities of the Acquired Fund, including the liabilities set forth in the Statement of Assets and Liabilities (the "Acquired Fund Liabilities"), which shall be assigned and transferred to the Acquiring Fund by the Acquired Fund and assumed by the Acquiring Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund, for distribution pro rata by the Acquired Fund to its shareholders in proportion to their respective ownership of shares of beneficial interest of the Acquired Fund, as of the close of business on October 31, 2002 (the "Closing Date"), of a number of the Acquiring Fund Shares having an aggregate net asset value equal to the value of the assets, less such liabilities (herein referred to as the "net value of the assets") assumed, assigned and delivered, all determined as provided in Paragraph 2.1 hereof and as of a date and time as specified therein. Such transactions shall take place at the closing provided for in Paragraph 3.1 hereof (the "Closing"). All computations shall be provided by State Street Bank and Trust Company ("State Street") as pricing agent for the Acquiring Fund and the Acquired Fund. 1.2 The Acquired Fund has provided the Acquiring Fund with a list of the current securities holdings of the Acquired Fund as of the date of execution of this Agreement. The Acquired Fund reserves the right to sell any of these securities (except to the extent sales may be limited by representations made in connection with issuance of the tax opinion provided for in paragraph 8.5 hereof) but will not, without the prior approval of the Acquiring Fund, B-1 acquire any additional securities other than securities of the type in which the Acquiring Fund is permitted to invest. 1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses in connection with the transactions contemplated by this Agreement. 1.4 On or as soon after the Closing Date as is conveniently practicable (the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro rata to shareholders of record (the "Acquired Fund shareholders"), determined as of the close of regular trading on the New York Stock Exchange on the Closing Date, the Acquiring Fund Shares received by the Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Fund Shares then credited to the account of the Acquired Fund on the books of the Acquiring Fund, to open accounts on the share records of the Acquiring Fund in the names of the Acquired Fund shareholders and representing the respective pro rata number of Acquiring Fund Shares due such shareholders. The Acquiring Fund will not issue certificates representing Acquiring Fund Shares in connection with such exchange. 1.5 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name other than the registered holder of the Acquired Fund Shares on the books of the Acquired Fund as of that time shall, as a condition of such issuance and transfer, be paid by the person to whom such Acquiring Fund Shares are to be issued and transferred. 1.6 The existence of the Acquired Fund shall be terminated as promptly as practicable following the Liquidation Date. 1.7 Any reporting responsibility of the Acquired Fund, including, but not limited to, the responsibility for filing of regulatory reports, tax returns, or other documents with the Securities and Exchange Commission (the "Commission"), any state securities commissions, and any federal, state or local tax authorities or any other relevant regulatory authority, is and shall remain the responsibility of the Acquired Fund. 1.8 Immediately after the Closing Date, the Acquiring Fund shall engage Westfield Capital Management LLC, the current subadviser to the Acquired Fund, to serve as subadviser to the Acquiring Fund. Further, the investment strategies and policies of the Acquiring Fund shall be amended to mirror the current investment strategies and policies of the Acquired Fund. Finally, the Acquiring Fund shall change its name to Harbor Small Cap Growth Fund. 2. VALUATION 2.1 The net asset values of the Acquiring Fund Shares and the net values of the assets and liabilities of the Acquired Fund to be transferred shall, in each case, be determined as of the close of regular trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) on the Closing Date. The net asset values of the Acquiring Fund Shares shall be computed by State Street in the manner set forth in the Acquiring Fund's Declaration of Trust as amended and restated (the "Declaration"), or By-Laws and the Acquiring Fund's then-current prospectus and statement of additional information and shall be computed in each case to not fewer than four decimal places. The net values of the assets of the Acquired Fund to be transferred shall be computed by State Street by calculating the value of the assets transferred by the Acquired Fund and by subtracting therefrom the amount of the liabilities assigned and transferred to and assumed by the Acquiring Fund on the Closing Date, said assets and liabilities to be valued in the manner set forth in the Acquired Fund's then current prospectus and statement of additional information and shall be computed in each case to not fewer than four decimal places. B-2 2.2 The number of Acquiring Fund Shares to be issued (including fractional shares, if any) in exchange for the Acquired Fund's assets shall be determined by dividing the value of the Acquired Fund's assets less the liabilities assumed by the Acquiring Fund, by the Acquiring Fund's net asset value per share, all as determined in accordance with Paragraph 2.1 hereof. 2.3 All computations of value shall be made by State Street in accordance with its regular practice as pricing agent for the Funds. 3. CLOSING AND CLOSING DATE 3.1 The Closing Date shall be 2002 or such other date on or before December 31, 2002 as the parties may agree. The Closing shall be held as of 5:00 p.m. at the offices of the Funds, One SeaGate, Toledo Ohio 43666, or at such other time and/or place as the parties may agree. 3.2 Portfolio securities that are not held in book-entry form in the name of State Street Bank & Trust Company (the "Custodian") as record holder for the Acquired Fund shall be presented by the Acquired Fund to the Custodian for examination no later than three business days preceding the Closing Date. Portfolio securities which are not held in book-entry form shall be delivered by the Acquired Fund to the Custodian for the account of the Acquiring Fund on the Closing Date, duly endorsed in proper form for transfer, in such condition as to constitute good delivery thereof in accordance with the custom of brokers, and shall be accompanied by a check or wire transfer for the appropriate purchase price thereof. Portfolio securities held of record by the Custodian in book-entry form on behalf of the Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by recording the transfer of beneficial ownership thereof on its records. The cash delivered shall be in the form of currency or by the Custodian crediting the Acquiring Fund's account maintained with the Custodian with immediately available funds. 3.3 In the event that on the Closing Date (a) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted or (b) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate appraisal of the value of the net assets of the Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored; provided that if trading shall not be fully resumed and reporting restored on or before December 31, 2002, this Agreement may be terminated by the Acquiring Fund or by the Acquired Fund upon the giving of written notice to the other party. 3.4 The Acquired Fund shall deliver at the Closing a list of the names, addresses, federal taxpayer identification numbers and backup withholding and nonresident alien withholding status of the Acquired Fund shareholders and the number of outstanding shares of beneficial interest of the Acquired Fund owned by each such shareholder, all as of the close of business on the Closing Date, certified by its Treasurer, Secretary or other authorized officer (the "Shareholder List"). The Acquiring Fund shall issue and deliver to the Acquired Fund a confirmation evidencing the Acquiring Fund Shares to be credited on the Closing Date, or provide evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's account on the books of the Acquiring Fund. At the Closing, each party shall deliver to the other such bills of sale, checks, assignments, stock certificates, receipts or other documents as such other party or its counsel may reasonably request. B-3 4. REPRESENTATIONS AND WARRANTIES 4.1 The Trust on behalf of the Acquired Fund represents, warrants and covenants to the Acquiring Fund as follows: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power to own all of its properties and assets and to carry out the Agreement. Neither the Trust nor the Acquired Fund is required to qualify to do business in any jurisdiction in which it is not so qualified or where failure to qualify would subject it to any material liability or disability. The Trust has all necessary federal, state and local authorizations to own all of its properties and assets and to carry on its business as now being conducted; (b) The Trust is a registered investment company classified as a management company and its registration with the Commission as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), is in full force and effect. The Acquired Fund is a diversified series of the Trust; (c) The Trust and the Acquired Fund are not, and the execution, delivery and performance of their obligations under this Agreement will not result, in violation of any provision of the Trust's Declaration of Trust, as amended, or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which either the Trust or the Acquired Fund is a party or by which it is bound; (d) Except as otherwise disclosed in writing and accepted by the Acquiring Fund, no material litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or threatened against the Trust or the Acquired Fund or any of the Acquired Fund's properties or assets. The Trust knows of no facts which might form the basis for the institution of such proceedings, and neither the Trust nor the Acquired Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquired Fund's business or its ability to consummate the transactions herein contemplated; (e) Neither the Trust nor the Acquired Fund has any material contract or other commitments (other than this Agreement or agreements for the purchase of securities entered into in the ordinary course of business and consistent with its obligations under this Agreement) which will not be terminated without liability to the Trust or the Acquired Fund at or prior to the Closing Date; (f) The audited statement of assets and liabilities, including the schedule of investments, of the Acquired Fund as of October 31, 2001 and the related statement of operations (copies of which have been furnished to the Acquiring Fund) present fairly in all material respects the financial condition of the Acquired Fund as of October 31, 2001 and the results of its operations for the period then ended in accordance with generally accepted accounting principles consistently applied, and there were no known actual or contingent liabilities of the Acquired Fund as of the respective dates thereof not disclosed therein; (g) Since October 31, 2001, there has not been any material adverse change in the Acquired Fund's financial condition, assets, liabilities, or business other than changes occurring in the ordinary course of business, or any incurrence by the Acquired Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as otherwise disclosed to and accepted by the Acquiring Fund; B-4 (h) At the date hereof and by the Closing Date, all federal, state and other tax returns and reports, including information returns and payee statements, of the Acquired Fund required by law to have been filed or furnished by such dates shall have been filed or furnished, and all federal, state and other taxes, interest and penalties shall have been paid so far as due, or provision shall have been made for the payment thereof, and to the best of the Acquired Fund's knowledge no such return is currently under audit and no assessment has been asserted with respect to such returns or reports; (i) The Acquired Fund has qualified as a regulated investment company for each taxable year of its operation and the Acquired Fund will qualify as such as of the Closing Date with respect to its taxable year ending on the Closing Date; (j) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest, with a par value of $0.01. All issued and outstanding shares of beneficial interest of the Acquired Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable by the Trust. All of the issued and outstanding shares of beneficial interest of the Acquired Fund will, at the time of Closing, be held by the persons and in the amounts set forth in the Shareholder List submitted to the Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares of beneficial interest, nor is there outstanding any security convertible into any of its shares of beneficial interest; (k) At the Closing Date, the Trust on behalf of the Acquired Fund will have good and marketable title to the assets to be transferred to the Acquiring Fund pursuant to Paragraph 1.1 hereof, and full right, power and authority to sell, assign, transfer and deliver such assets hereunder, and upon delivery and payment for such assets, the trust on behalf of the Acquiring Fund will acquire good and marketable title thereto subject to no restrictions on the full transfer thereof, including such restrictions as might arise under the Securities Act of 1933, as amended (the "1933 Act"); (l) The execution, delivery and performance of this Agreement have been duly authorized by all necessary action on the part of the Trust on behalf of the Acquired Fund, and this Agreement constitutes a valid and binding obligation of the Acquired Fund enforceable in accordance with its terms; (m) The information to be furnished by the Acquired Fund to the Acquiring Fund for use in applications for orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete and shall comply in all material respects with federal securities and other laws and regulations thereunder applicable thereto; (n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be included in the Registration Statement referred to in Paragraph 4.2(c) hereof (other than written information furnished by the Acquiring Fund for inclusion therein, as covered by the Acquiring Fund's warranty in Paragraph 4.2(m) hereof), on the effective date of the Registration Statement and on the Closing Date, shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements were made, not misleading; B-5 (o) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquired Fund of the transactions contemplated by this Agreement; (p) All of the issued and outstanding shares of beneficial interest of the Trust on behalf of the Acquired Fund have been offered for sale and sold in conformity with all applicable federal and state securities laws; (q) The prospectus of the Acquired Fund, dated March 1, 2002 (the "Acquired Fund Prospectus"), furnished to the Acquiring Fund, does not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; (r) The Acquired Fund Tax Representation Certificate to be delivered by the Acquired Fund to the Acquiring Fund at Closing pursuant to Section 7.5 (the "Acquired Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. 4.2 The Trust on behalf of the Acquiring Fund represents, warrants and covenants to the Acquired Fund as follows: (a) The Trust is a business trust duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power to own all of its properties and assets and to carry out the Agreement. Neither the Trust nor the Acquiring Fund is required to qualify to do business in any jurisdiction in which it is not so qualified or where failure to qualify would subject it to any material liability or disability. The Trust has all necessary federal, state and local authorizations to own all of its properties and assets and to carry on its business as now being conducted; (b) The Trust is a registered investment company classified as a management company and its registration with the Commission as an investment company under the 1940 Act is in full force and effect. The Acquiring Fund is a diversified series of the Trust; (c) The prospectus (the "Acquiring Fund Prospectus") and statement of additional information of the Acquiring Fund, each dated March 1, 2002, and any amendments or supplements thereto on or prior to the Closing Date, and the Registration Statement on Form N-14 filed in connection with this Agreement (the "Registration Statement") (other than written information furnished by the Acquired Fund for inclusion therein, as covered by the Acquired Fund's warranty in Paragraph 4.1(n) hereof) will conform in all material respects to the applicable requirements of the 1933 Act and the 1940 Act and the rules and regulations of the Commission thereunder, the Acquiring Fund Prospectus does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and, other than written information furnished by the Acquired Fund for inclusion therein, as covered by the Acquired Fund's warranty in Paragraph 4.1(n) hereof, the Registration Statement shall not, on its effective date and on Closing Date, contain any untrue statement of material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; B-6 (d) At the Closing Date, the Trust on behalf of the Acquiring Fund will have good and marketable title to the assets of the Acquiring Fund; (e) The Trust and the Acquiring Fund are not, and the execution, delivery and performance of their obligations under this Agreement will not result in a violation of any provisions of the Trust's Declaration of Trust, as amended, or By-Laws or of any agreement, indenture, instrument, contract, lease or other undertaking to which the Trust or the Acquiring Fund is a party or by which the Trust or the Acquiring Fund is bound; (f) Except as otherwise disclosed in writing and accepted by the Acquired Fund, no material litigation or administrative proceeding or investigation of or before any court or governmental body is currently pending or threatened against the Trust or the Acquiring Fund or any of the Acquiring Fund's properties or assets. The Trust knows of no facts which might form the basis for the institution of such proceedings, and neither the Trust nor the Acquiring Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body which materially and adversely affects the Acquiring Fund's business or its ability to consummate the transactions herein contemplated; (g) The audited statement of assets and liabilities, including the schedule of investments, of the Acquiring Fund as of October 31, 2001 and the related statement of operations (copies of which have been furnished to the Acquired Fund) present fairly in all material respects the financial condition of the Acquiring Fund as of October 31, 2001 and the results of its operations for the period then ended in accordance with accounting principles generally accepted in the United States consistently applied, and there were no known actual or contingent liabilities of the Acquiring Fund as of the respective dates thereof not disclosed therein; (h) Since October 31, 2001, there has not been any material adverse change in the Acquiring Fund's financial condition, assets, liabilities or business other than changes occurring in the ordinary course of business, or any incurrence by the Trust on behalf of the Acquiring Fund of indebtedness maturing more than one year from the date such indebtedness was incurred, except as disclosed to and accepted by the Acquired Fund; (i) The Acquiring Fund has qualified as a regulated investment company for each taxable year of its operation and the Acquiring Fund will qualify as such as of the Closing Date; (j) The authorized capital of the Trust consists of an unlimited number of shares of beneficial interest, with a par value per share of $0.01. All issued and outstanding shares of beneficial interest of the Acquiring Fund are, and at the Closing Date will be, duly and validly issued and outstanding, fully paid and nonassessable by the Trust. The Acquiring Fund does not have outstanding any options, warrants or other rights to subscribe for or purchase any of its shares of beneficial interest, nor is there outstanding any security convertible into any of its shares of beneficial interest; (k) The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of the Trust on behalf of the Acquiring Fund, and this Agreement constitutes a valid and binding obligation of the Acquiring Fund enforceable in accordance with its terms; (l) The Acquiring Fund Shares to be issued and delivered to the Acquired Fund pursuant to the terms of this Agreement, when so issued and delivered, will be duly B-7 and validly issued shares of beneficial interest of the Acquiring Fund and will be fully paid and nonassessable by the Trust; (m) The information to be furnished by the Acquiring Fund for use in applications for orders, registration statements, proxy materials and other documents which may be necessary in connection with the transactions contemplated hereby shall be accurate and complete and shall comply in all material respects with federal securities and other laws and regulations applicable thereto; (n) No consent, approval, authorization or order of any court or governmental authority is required for the consummation by the Acquiring Fund of the transactions contemplated by the Agreement, except for the registration of the Acquiring Fund Shares under the 1933 Act and the 1940 Act; and (o) The Acquiring Fund Tax Representation Certificate to be delivered by the Acquiring Fund to the Acquired Fund at Closing pursuant to Section 6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the Closing Date contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein not misleading. 5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND 5.1 Except as expressly contemplated herein to the contrary, the Trust on behalf of the Acquired Fund and the Trust on behalf of the Acquiring Fund, will operate their respective businesses in the ordinary course between the date hereof and the Closing Date, it being understood that such ordinary course of business will include customary dividends and distributions and any other distributions necessary or desirable to avoid federal income or excise taxes. 5.2 The Acquired Fund covenants that the Acquiring Fund Shares to be issued hereunder are not being acquired by the Acquired Fund for the purpose of making any distribution thereof other than in accordance with the terms of this Agreement. 5.3 The Acquired Fund will provide such information within its possession or reasonably obtainable as the Trust on behalf of the Acquiring Fund requests concerning the beneficial ownership of the Acquired Fund's shares of beneficial interest. 5.4 Subject to the provisions of this Agreement, the Acquiring Fund and the Acquired Fund each shall take, or cause to be taken, all action, and do or cause to be done, all things reasonably necessary, proper or advisable to consummate the transactions contemplated by this Agreement. 5.5 The Acquired Fund shall furnish to the Trust on behalf of the Acquiring Fund on the Closing Date the Statement of Assets and Liabilities of the Acquired Fund as of the Closing Date, which statement shall be prepared in accordance with generally accepted accounting principles consistently applied and shall be certified by the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as practicable but in any case within 60 days after the Closing Date, the Acquired Fund shall furnish to the Acquiring Fund, in such form as is reasonably satisfactory to the Trust, a statement of the earnings and profits of the Acquired Fund for federal income tax purposes and of any capital loss carryovers and other items that will be carried over to the Acquiring Fund as a result of Section 381 of the Code, and which statement will be certified by the President, Treasurer or Secretary of the Acquired Fund. 5.6 The Trust on behalf of the Acquiring Fund will prepare and file with the Commission the Registration Statement in compliance with the 1933 Act and the 1940 Act in connection with the issuance of the Acquiring Fund Shares as contemplated herein. B-8 5.7 The Acquired Fund will prepare a Proxy Statement, to be included in the Registration Statement in compliance with the 1933 Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940 Act and the rules and regulations thereunder (collectively, the "Acts"). 5.8 Neither the Acquired Fund nor the Acquiring Fund shall take any action that is inconsistent with the representations set forth in, with respect to the Acquired Fund, the Acquired Fund Tax Representation Certificate, and with respect to the Acquiring Fund, the Acquiring Fund Tax Representation Certificate, to the extent such action would prevent the reorganization from qualifying as a "reorganization" under Section 368(a) of the Code. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND The obligations of the Acquired Fund to complete the transactions provided for herein shall be, at its election, subject to the performance by the Trust on behalf of the Acquiring Fund of all the obligations to be performed by the Acquiring Fund hereunder on or before the Closing Date, and, in addition thereto, the following further conditions: 6.1 All representations and warranties of the Trust on behalf of the Acquiring Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date; 6.2 The Trust on behalf of the Acquiring Fund shall have delivered to the Acquired Fund a certificate executed in its name by the Trust's President or Vice President and its Treasurer or Secretary, in form and substance satisfactory to the Acquired Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Trust on behalf of the Acquiring Fund made in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Acquired Fund shall reasonably request; and 6.3 The Acquiring Fund shall have delivered at closing to the Acquired Fund and to Hale and Dorr LLP an Acquiring Fund Tax Representation Certificate, satisfactory to the Acquired Fund, substantially in the form attached to this Agreement as Annex A concerning certain tax-related matters with respect to the Acquiring Fund. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRING FUND The obligations of the Trust on behalf of the Acquiring Fund to complete the transactions provided for herein shall be, at its election, subject to the performance by the Trust on behalf of the Acquired Fund of all the obligations to be performed by the Acquired Fund hereunder on or before the Closing Date and, in addition thereto, the following conditions: 7.1 All representations and warranties of the Trust on behalf of the Acquired Fund contained in this Agreement shall be true and correct in all material respects as of the date hereof and, except as they may be affected by the transactions contemplated by this Agreement, as of the Closing Date with the same force and effect as if made on and as of the Closing Date; 7.2 The Trust on behalf of the Acquired Fund shall have delivered to the Acquiring Fund the Statement of Assets and Liabilities of the Acquired Fund, together with a list of its portfolio securities showing the federal income tax bases and holding periods of such securities, as of the Closing Date, certified by the Treasurer or Assistant Treasurer of the Acquired Fund; B-9 7.3 The Acquired Fund shall have delivered to the Trust on behalf of the Acquiring Fund on the Closing Date a certificate executed in the name of the Acquired Fund by a President or Vice President and a Treasurer or Secretary of the Acquired Fund, in form and substance satisfactory to the Acquiring Fund and dated as of the Closing Date, to the effect that the representations and warranties of the Acquired Fund in this Agreement are true and correct at and as of the Closing Date, except as they may be affected by the transactions contemplated by this Agreement, and as to such other matters as the Trust on behalf of the Acquiring Fund shall reasonably request; 7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or an affiliate thereof, shall have made all payments, or applied all credits, to the Acquired Fund required by any applicable contractual expense limitation; and 7.5 The Acquired Fund shall have delivered at closing to the Acquiring Fund and to Hale and Dorr LLP an Acquired Fund Tax Representation Certificate, satisfactory to the Acquiring Fund, substantially in the form attached to this Agreement as Annex B concerning certain tax-related matters with respect to the Acquired Fund. 8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND AND THE TRUST ON BEHALF OF THE ACQUIRING FUND The obligations hereunder of the Trust on behalf of the Acquiring Fund and of the Trust on behalf of the Acquired Fund are each subject to the further conditions that on or before the Closing Date: 8.1 On the Closing Date no action, suit or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or obtain changes or other relief in connection with, this Agreement or the transactions contemplated herein; 8.2 All consents of other parties and all other consents, orders and permits of federal, state and local regulatory authorities (including those of the Commission and their "no-action" positions) deemed necessary by the Acquired Fund or the Trust to permit consummation, in all material respects, of the transactions contemplated hereby shall have been obtained, except where failure to obtain any such consent, order or permit would not involve a risk of a material adverse effect on the assets or properties of the Acquiring Fund or the Acquired Fund, provided that either party hereto may waive any such conditions for itself; 8.3 The Registration Statement shall have become effective under the 1933 Act and the 1940 Act and no stop orders suspending the effectiveness thereof shall have been issued and, to the best knowledge of the parties hereto, no investigation or proceeding for that purpose shall have been instituted or be pending, threatened or contemplated under the 1933 Act or the 1940 Act; 8.4 The Acquired Fund shall have distributed to its shareholders, in a distribution or distributions qualifying for the deduction for dividends paid under Section 561 of the Code, all of its investment company taxable income (as defined in Section 852(b)(2) of the Code determined without regard to Section 852(b)(2)(D) of the Code) for its taxable year ending on the Closing Date, all of the excess of (i) its interest income excludable from gross income under Section 103(a) of the Code over (ii) its deductions disallowed under Sections 265 and 171(a)(2) of the Code for its taxable year ending on the Closing Date, and all of its net capital gain (as such term is used in Sections 852(b)(3)(A) and (C) of the Code), after reduction by any available capital loss carryforward, for its taxable year ending on the Closing Date; and 8.5 The parties shall have received an opinion of Hale and Dorr LLP, satisfactory to the Acquired Fund and the Trust on behalf of the Acquiring Fund, substantially to the effect that for federal income tax purposes the acquisition by the Acquiring Fund of all of the B-10 assets of the Acquired Fund solely in exchange for the issuance of Acquiring Fund Shares to the Acquired Fund and the assumption of all of the Acquired Fund Liabilities by the Acquiring Fund, followed by the distribution by the Acquired Fund, in liquidation of the Acquired Fund, of Acquiring Fund Shares to the shareholders of the Acquired Fund in exchange for their shares of beneficial interest of the Acquired Fund and the termination of the Acquired Fund, will constitute a "reorganization" within the meaning of Section 368(a) of the Code. In rendering such opinions, counsel shall be entitled to rely upon, among other things, reasonable assumptions as well as representations of the Acquiring Fund and the Acquired Fund including the representations contained in the Tax Representation Certificates referred to in Section 6.3 and Section 7.5. Notwithstanding anything herein to the contrary, neither the Acquired Fund nor the Trust may waive the conditions set forth in this Paragraph 8.5. 9. BROKERAGE FEES AND EXPENSES 9.1 The Trust on behalf of the Acquiring Fund and the Trust on behalf of the Acquired Fund each represent and warrant to the other that there are no brokers or finders entitled to receive any payments in connection with the transactions provided for herein. 9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for its own expenses incurred in connection with entering into and carrying out the provisions of this Agreement whether or not the transactions contemplated hereby are consummated. 10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES 10.1 The Trust on behalf of the Acquiring Fund and the Trust on behalf of the Acquired Fund agree that neither party has made any representation, warranty or covenant not set forth herein or referred to in Paragraph 4 hereof and that this Agreement constitutes the entire agreement between the parties. 10.2 The representations, warranties and covenants contained in this Agreement or in any document delivered pursuant hereto or in connection herewith shall survive the consummation of the transactions contemplated hereunder. 11. TERMINATION 11.1 This Agreement may be terminated by the mutual agreement of the Trust on behalf of the Acquiring Fund and the Acquired Fund. In addition, either party may at its option terminate this Agreement at or prior to the Closing Date: (a) because of a material breach by the other of any representation, warranty, covenant or agreement contained herein to be performed at or prior to the Closing Date; (b) because of a condition herein expressed to be precedent to the obligations of the terminating party which has not been met and which reasonably appears will not or cannot be met; (c) by resolution of the Trust's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquiring Fund's shareholders; or (d) by resolution of the Acquired Fund's Board of Trustees if circumstances should develop that, in the good faith opinion of such Board, make proceeding with the Agreement not in the best interests of the Acquired Fund's shareholders. B-11 11.2 In the event of any such termination, there shall be no liability for damages on the part of the Trust, the Acquiring Fund, or the Acquired Fund, or the Trustees or officers of the Trust or the Acquired Fund, but each party shall bear the expenses incurred by it incidental to the preparation and carrying out of this Agreement. 12. AMENDMENTS This Agreement may be amended, modified or supplemented in such manner as may be mutually agreed upon by the authorized officers of the Trust and the Acquired Fund. No such amendment may have the effect of changing the provisions regarding the method for determining the number of Acquiring Fund Shares to be received by the Acquired Fund shareholders under this Agreement to the detriment of such shareholders without their further approval; provided that nothing contained in this Article twelve shall be construed to prohibit the parties from amending this Agreement to change the Closing Date. 13. NOTICES Any notice, report, statement or demand required or permitted by any provisions of this Agreement shall be in writing and shall be given by overnight delivery, facsimile or certified mail addressed to the Acquiring Fund or to the Acquired Fund, each at One SeaGate. Toledo Ohio 43666, Attention: Karen B. Wasil, and, in either case, with copies to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention: Charles F. McCain, Esq. 14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT 14.1 The article and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 14.2 This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 14.3 This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. 14.4 This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the prior written consent of the other party. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 14.5 All persons dealing with the Trust on behalf of the Acquiring Fund or Trust on behalf of the Acquired Fund must look solely to the property of the Acquiring Fund or the Acquired Fund, respectively, for the enforcement of any claims against the Acquiring Fund or the Acquired Fund as the Trustees, officers, agents and shareholders of the Trust on behalf of either Fund assume no personal liability for obligations entered into on behalf of the Trust on behalf of the Acquiring Fund or Trust on behalf of the Acquired Fund, respectively. None of the other series of the Trust shall be responsible for any obligations assumed by on or behalf of the either Fund under this Agreement. B-12 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed as of the date first set forth above by its President or Vice President and attested by its Secretary. HARBOR FUND on behalf of HARBOR GROWTH FUND By: ------------------------------------ James M. Williams, President HARBOR FUND on behalf of HARBOR SMALL CAP GROWTH FUND By: ------------------------------------ Constance L. Souders, Vice President Attest: HARBOR FUND By: -------------------------------------------------------- Karen B. Wasil, Secretary B-13 ANNEX A --------------------------------------------------------------- TAX REPRESENTATION CERTIFICATE OF HARBOR GROWTH FUND This certificate is being delivered in connection with the transaction to be effected pursuant to the Agreement and Plan of Reorganization made as of , 2002 between Harbor Growth Fund ("Acquiring Fund") and Harbor Small Cap Growth Fund ("Acquired Fund"), each a series of Harbor Fund (the "Trust"), (the "Agreement"). Pursuant to the Agreement, Acquiring Fund will acquire all of the assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring Fund of certain liabilities of Acquired Fund (the "Acquired Fund Liabilities") and (ii) the issuance of shares of beneficial interest of the Institutional Class of Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund and the termination of Acquired Fund (the foregoing together constituting the "transaction"). The undersigned officer of the Trust, after consulting with its counsel and auditors regarding the meaning of and factual support for the following representations, on behalf of Acquiring Fund, hereby certifies and represents that the following statements are true, complete and correct and will be true, complete and correct on the date of the transaction and thereafter as relevant. Unless otherwise indicated, all capitalized terms used but not defined herein shall have the meaning ascribed to them in the Agreement. 1. Acquiring Fund is a series of the Trust, a business trust established under the laws of the State of Delaware. 2. Neither Acquiring Fund nor any person treated as related to Acquiring Fund under Treasury Regulation Section 1.368-1(e)(3) or by virtue of being a partnership of which Acquiring Fund or a related person is a partner (a "Related Person") has any plan or intention to redeem or otherwise reacquire any of the Acquiring Fund Shares received by shareholders of Acquired Fund in the transaction except in the ordinary course of Acquiring Fund's business in connection with its legal obligation under Section 22(e) of the Investment Company Act of 1940, as amended, as a registered open-end investment company to redeem its own shares (which obligation is not in connection with, modified in connection with, or in any way related to the transaction). 3. After the transaction, Acquiring Fund will continue the historic business of Acquired Fund or will use all or a significant portion of the historic assets acquired from Acquired Fund in the ordinary course of a business. For this purpose, Acquiring Fund shall be treated as conducting the business and holding the assets of certain related entities, as described in Treasury Regulation Section 1.368-1(d)(4). 4. Acquiring Fund has no plan or intention to sell or otherwise dispose of any assets of Acquired Fund acquired in the transaction, except for dispositions made in the ordinary course of its business or to maintain its qualification as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). 5. Each of Acquiring Fund and Acquired Fund will pay its own expenses related to the transaction. The shareholders of Acquiring Fund and Acquired Fund will bear their respective expenses, if any, in connection with the transaction. 6. There is no indebtedness between Acquiring Fund and Acquired Fund. 7. Acquiring Fund has elected to be treated as a regulated investment company under Subchapter M of the Code, has qualified as a regulated investment company for each taxable year since inception, qualifies as such as of the date of the transaction, and intends to qualify as such after the transaction. B-14 8. Acquiring Fund meets the requirements of a regulated investment company as defined in Section 368(a)(2)(F) of the Code. 9. Acquiring Fund is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 10. Acquiring Fund does not now and has never owned, directly or indirectly, any shares of Acquired Fund. 11. Acquiring Fund will not pay cash in lieu of fractional shares in connection with the transaction. 12. As of the date of the transaction, the fair market value of the Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of Acquired Fund will be approximately equal to the fair market value of the assets of Acquired Fund received by Acquiring Fund, minus the Acquired Fund Liabilities assumed by Acquiring Fund. Acquiring Fund will not furnish any consideration in connection with the acquisition of Acquired Fund's assets other than the assumption of these Acquired Fund Liabilities and the issuance of these Acquiring Fund Shares. 13. Acquired Fund shareholders will be in control (within the meaning of Sections 368(a)(2)(H)(i) and 304(c) of the Code, which provide that control means the ownership of shares possessing at least 50% of the total combined voting power of all classes of shares that are entitled to vote or at least 50% of the total value of shares of all classes) of Acquiring Fund after the transaction. 14. At the time of the transaction, Acquiring Fund does not have any outstanding warrants, options, convertible securities or any other type of right pursuant to which any person could acquire shares of Acquiring Fund that, if exercised or converted, would affect the Acquired Fund shareholders' acquisition or retention of control (as defined in Section 368(a)(2)(H) and 304(c) of the Code) of Acquiring Fund by the shareholders of the Acquired Fund. 15. The principal business purposes of the transaction are to combine the assets of Acquiring Fund and Acquired Fund in order to capitalize on potential economies of scale in expenses, including the costs of accounting, legal, transfer agency, insurance, custodial, and administrative services, and to increase diversification. 16. No Acquired Fund shareholder is acting as agent for Acquiring Fund in connection with the transaction or approval thereof. Acquiring Fund will not reimburse any Acquired Fund shareholder for Acquired Fund shares such shareholder may have purchased or for other obligations such shareholder may have incurred. The undersigned officer of the Trust is authorized to make all of the representations set forth herein, and the undersigned is authorized to execute this certificate on behalf of the Trust for the Harbor Growth Fund. The undersigned recognizes that Hale and Dorr LLP will rely upon the foregoing representations in evaluating the United States federal income tax consequences of the transaction. If, prior to the date of the transaction, any of the representations set forth herein ceases to be accurate in any material respect, the undersigned agrees to deliver to Hale and Dorr LLP immediately a written notice to that effect. HARBOR FUND on behalf of HARBOR GROWTH FUND By: -------------------------------------- James M. Williams, President Dated: ------------------------------, 2002 B-15 ANNEX B --------------------------------------------------------------- TAX REPRESENTATION CERTIFICATE OF HARBOR SMALL CAP GROWTH FUND This certificate is being delivered in connection with the transaction to be effective pursuant to the Agreement and Plan of Reorganization made as of , 2002 between Harbor Growth Fund ("Acquiring Fund") and Harbor Small Cap Growth Fund ("Acquired Fund"), each a series of Harbor Fund (the "Trust"), (the "Agreement"). Pursuant to the Agreement, Acquiring Fund will acquire all of the assets of Acquired Fund in exchange solely for (i) the assumption by Acquiring Fund of certain liabilities of Acquired Fund (the "Acquired Fund Liabilities") and (ii) the issuance of shares of beneficial interest of the Institutional Class of Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired Fund, of the Acquiring Fund Shares to the shareholders of Acquired Fund and the termination of Acquired Fund (the foregoing together constituting the "transaction"). The undersigned officer of the Trust, after consulting with its counsel and auditors regarding the meaning of and factual support for the following representations, on behalf of Acquired Fund, hereby certifies and represents that the following statements are true, complete and correct and will be true, complete and correct on the date of the transaction and thereafter as relevant. Unless otherwise indicated, all capitalized terms used but not defined herein shall have the meaning ascribed to them in the Agreement. 1. Acquired Fund is a series of the Trust, a business trust established under the laws of the State of Delaware. 2. As of the date of the transaction, the fair market value of the Acquiring Fund Shares received by each shareholder that holds shares of Acquired Fund (the "Acquired Fund Shares") will be approximately equal to the fair market value of the Acquired Fund Shares surrendered by such shareholder, and the aggregate consideration received by Acquired Fund shareholders in exchange for their Acquired Fund Shares will be approximately equal to the fair market value of all of the outstanding Acquired Fund Shares immediately prior to the transaction. No property other than Acquiring Fund Shares will be distributed to shareholders of Acquired Fund in exchange for their Acquired Fund Shares, nor will any such shareholder receive cash or other property as part of the transaction. 3. There is no plan or intention on the part of any shareholder of Acquired Fund that owns beneficially 5% or more of the Acquired Fund Shares and, to the best knowledge of management of Acquired Fund, there is no plan or intention on the part of the remaining shareholders of Acquired Fund, in connection with the transaction, to engage in any transaction with Acquired Fund, Acquiring Fund, or any person treated as related to Acquired Fund or Acquiring Fund under Treasury Regulation Section 1.368-1(e)(3) or by virtue of being a partnership of which Acquired Fund, Acquiring Fund, or a related person is a partner involving the sale, redemption, exchange, transfer, pledge, or other disposition resulting in a direct or indirect transfer of the risks of ownership (a "Sale") of any of the Acquired Fund Shares or any of the Acquiring Fund Shares to be received in the transaction that, considering all Sales, would reduce the aggregate ownership of the Acquiring Fund Shares by former Acquired Fund shareholders to a number of shares having a value, as of the date of the transaction, of less than fifty percent (50%) of the value of all of the formerly outstanding Acquired Fund Shares as of the same date. All Sales involving shares of Acquired Fund and Acquiring Fund held by Acquired Fund shareholders that have occurred or will occur in connection with the transaction are taken into account for purposes of this representation. No such Sale that is in connection with the transaction has, to the best knowledge of management of Acquired Fund, occurred on or prior to the date of the transaction. B-16 4. Acquired Fund assets transferred to Acquiring Fund will comprise at least ninety percent (90%) of the fair market value of the net assets and at least seventy percent (70%) of the fair market value of the gross assets held by Acquired Fund immediately prior to the transaction. For purposes of this representation, amounts used by Acquired Fund to pay expenses of the transaction and all redemptions and distributions (except for redemptions in the ordinary course of business upon demand of a shareholder that Acquired Fund is required to make as an open-end investment company pursuant to Section 22(e) of the Investment Company Act of 1940, as amended, and regular, normal dividends) made by Acquired Fund immediately preceding the transaction are taken into account as assets of Acquired Fund held immediately prior to the transaction. 5. As of the date of the transaction, the fair market value of the Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of Acquired Fund will be approximately equal to the fair market value of the assets of Acquired Fund received by Acquiring Fund, minus the Acquired Fund Liabilities assumed by Acquiring Fund. Acquiring Fund will not furnish any consideration in connection with the acquisition of Acquired Fund's assets other than the assumption of these Acquired Fund Liabilities and the issuance of these Acquiring Fund Shares. 6. The Acquired Fund Liabilities assumed by Acquiring Fund plus the liabilities, if any, to which the transferred assets are subject were incurred by Acquired Fund in the ordinary course of its business. 7. The fair market value of the Acquired Fund assets transferred to Acquiring Fund will equal or exceed the sum of the Acquired Fund Liabilities assumed by Acquiring Fund plus the amount of liabilities, if any, to which the transferred assets are subject. 8. Substantially all of the Acquired Fund assets transferred to Acquiring Fund will be Acquired Fund's historic business assets, i.e., assets not acquired by Acquired Fund as part of or in contemplation of the transaction. 9. Acquired Fund will distribute to its shareholders the Acquiring Fund Shares it receives, and its other properties, if any, pursuant to the transaction and will be liquidated promptly thereafter. 10. Each of Acquiring Fund and Acquired Fund will pay its own expenses related to the transaction. The shareholders of Acquiring Fund and Acquired Fund will bear their respective expenses, if any, in connection with the transaction. 11. There is no indebtedness between Acquiring Fund and Acquired Fund. 12. Acquired Fund has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), has qualified as a regulated investment company for each taxable year since inception, and qualifies as such for its taxable year ending on the closing date of the transaction. 13. Acquired Fund meets the requirements of a regulated investment company as defined in Section 368(a)(2)(F) of the Code. 14. Acquired Fund is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 15. Acquired Fund shareholders will be in control (within the meaning of Sections 368(a)(2)(H)(i) and 304(c) of the Code, which provide that control means the ownership of shares possessing at least 50% of the total combined voting power of all classes of shares that are entitled to vote or at least 50% of the total value of shares of all classes) of Acquiring Fund after the transaction. 16. Acquired Fund shareholders will not have dissenters' or appraisal rights in the transaction. 17. The total adjusted basis of the Acquired Fund assets transferred to Acquiring Fund will equal or exceed the liabilities assumed by Acquiring Fund (as determined under Section 357(d) of the Code). B-17 18. The principal business purposes of the transaction are to combine the assets of Acquiring Fund and Acquired Fund in order to capitalize on potential economies of scale in expenses, including the costs of accounting, legal, transfer agency, insurance, custodial, and administrative services, and to increase diversification. The undersigned officer of the Trust is authorized to make all of the representations set forth herein, and the undersigned is authorized to execute this certificate on behalf of the Trust for the Harbor Small Cap Growth Fund. The undersigned recognizes that Hale and Dorr LLP will rely upon the foregoing representations in evaluating the United States federal income tax consequences of the transaction. If, prior to the date of the transaction, any of the representations set forth herein ceases to be accurate in any material respect, the undersigned agrees to deliver to Hale and Dorr LLP immediately a written notice to that effect. HARBOR FUND on behalf of HARBOR SMALL CAP GROWTH FUND By: -------------------------------------- James M. Williams, President Dated: ------------------------------, 2002 B-18 -------------------------------------------------------------------------------- EXHIBIT C -------------------------------------------------------------------------------- FORM OF INVESTMENT ADVISORY AGREEMENT FOR SUBADVISER (HARBOR INTERNATIONAL FUND II) Dear Sirs: Harbor Capital Advisors, Inc. (the "Adviser"), a Delaware corporation, with its principal offices at One SeaGate, Toledo, Ohio 43666, is the investment adviser to Harbor Fund (the "Trust") on behalf of Harbor International Fund (the "Fund"). The Trust has been organized under the laws of Delaware to engage in the business of an investment company. The shares of beneficial interest of the Trust ("Shares") are divided into multiple series including the Fund, as established pursuant to a written instrument executed by the Trustees of the Trust. The Trust is an open-end, management investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"). Pursuant to authority granted the Adviser by the Trust's Trustees, the Adviser has selected you to act as a sub-investment adviser of the Fund and to provide certain other services, as more fully set forth below. You are willing to act as such a sub-investment adviser and to perform such services under the terms and conditions hereinafter set forth, and you represent and warrant that you are an investment adviser registered under the Investment Advisers Act of 1940, as amended. Accordingly, the Adviser and the Trust on behalf of the Fund agree with you as follows: 1. DELIVERY OF FUND DOCUMENTS. The Adviser has furnished you with copies, properly certified or authenticated, of each of the following: (a) Declaration of Trust of the Trust, filed with the Delaware Secretary of State, dated June 8, 1993, as amended and restated from time to time (the "Declaration of Trust"). (b) By-Laws of the Trust as in effect on the date hereof (the "By-Laws"). (c) Resolutions of the Trustees selecting the Adviser as investment adviser and you as sub-investment adviser and approving the form of this Agreement. The Adviser will furnish you from time to time with copies, properly certified or authenticated, of all amendments of or supplements to the foregoing, including future resolutions of the Trustees approving the continuance of the items listed in (c) above. 2. ADVISORY SERVICES. You will regularly provide the Fund with advice concerning the investment management of that portion of the Fund's assets that are allocated to you, which advice shall be consistent with the investment objectives and policies of the Fund as set forth in the Fund's Prospectus and Statement of Additional Information and any investment guidelines or other instructions received in writing from the Adviser. The Board of Trustees or the Adviser may, from time to time, make additions to and withdrawals from the assets of the Fund allocated to you. You will determine what securities shall be purchased for such portion of the Fund's assets, what securities shall be held or sold by such portion of the Fund's assets, and what portion of such assets shall be held uninvested, subject always to the provisions of the Trust's Declaration of Trust and By-Laws and the Investment Company Act and to the investment objectives, policies and restrictions (including, without limitation, the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") for qualification as a regulated investment company) of the Fund, as each of the same shall be from time to time in effect as set forth in the Fund's Prospectus and Statement of Additional Information, or any investment guidelines or other instructions received in writing from the Adviser, and subject, further, to such policies and instructions as the Board of Trustees may from time to time establish and deliver to you. In C-1 accordance with paragraph 5, you or your agent shall arrange for the placing of all orders for the purchase and sale of portfolio securities with brokers or dealers selected by you for that portion of the Fund's assets for which you serve as sub-investment adviser. The Adviser shall provide you with written statements of the Declaration of Trust; the By-Laws; the Fund's investment objectives and policies; the Prospectus and Statement of Additional Information and instructions, as in effect from time to time; and you shall have no responsibility for actions taken in reliance on any such documents. You will conform your conduct to, and will ensure that your management of the portion of the Fund's assets allocated to you complies with, the Investment Company Act and all rules and regulations thereunder, the requirements for qualification of the Fund as a regulated investment company under Subchapter M of the Code, all other applicable federal and state laws and regulations, and with the provisions of the Fund's Registration Statement as amended or supplemented under the Securities Act of 1933, as amended, and the Investment Company Act. In the performance of your duties hereunder, you are and shall be an independent contractor and unless otherwise expressly provided herein or otherwise authorized in writing, shall have no authority to act for or represent the Trust or the Fund in any way or otherwise be deemed to be an agent of the Trust or the Fund or of the Adviser. You will make your officers and employees available to meet with the Trust's officers and Trustees at least quarterly on due notice to review the investments and investment program of the Fund in light of current and prospective economic and market conditions. Nothing in this Agreement shall limit or restrict the right of any of your directors, officers and employees who may also be a trustee, officer or employee of the Trust to engage in any other business or to devote his or her time and attention in part to the management or other aspects of any business, whether of a similar or a dissimilar nature, nor limit or restrict your right to engage in any other business or to render service of any kind to any other corporation, firm, individual or association. 3. ALLOCATION OF CHARGES AND EXPENSES. You will bear your own costs of providing services hereunder. Other than as herein specifically indicated, you will not be required to pay any expenses of the Fund. 4. COMPENSATION OF THE SUBADVISER. For all investment management services to be rendered hereunder, the Adviser will pay a fee, as set forth in Schedule A attached hereto, quarterly in April, July, October and January, based on a percentage of the average of the actual net assets of the Fund at the close of the last business day of each month within the quarter. Determination of the net asset value of the Fund is computed daily by the Fund's custodian, and is consistent with the provisions of Rule 22c-1 under the Investment Company Act. Your fee will be based on the average of the net assets of the Fund, computed in the manner specified in the Fund's Prospectus and Statement of Additional Information for the computation of the net assets of the Fund by the Fund's custodian, on the last business day of each month within the quarter. If determination of the value of net assets is suspended for the last business day of the month, then for the purposes of this paragraph 4, the value of the net assets of the Fund as last determined shall be deemed to be the value of the net assets. If the Fund's custodian determines the value of the net assets of the Fund's portfolio more than once on any day, the last such determination thereof on that day shall be deemed to be the sole determination thereof on that day for the purposes of this paragraph 4. You will offer to the Adviser any more favorable asset based fee agreements that are provided to other investment clients. Such offer shall be made as soon as it is practicable after a more favorable asset based fee agreement is provided for any other investment clients. C-2 Your services to the Fund pursuant to this Agreement are not to be deemed to be exclusive and it is understood that you may render investment advice, management and other services to others. 5. AVOIDANCE OF INCONSISTENT POSITION AND BROKERAGE. In connection with purchases or sales of portfolio securities for the account of the Fund, neither you nor any of your directors, officers or employees will act as a principal or agent or receive any compensation in connection with the purchase or sale of investment securities by the Fund, other than the compensation provided for in this Agreement. You or your agent shall arrange for the placing of all orders for the purchase and sale of portfolio securities for the Fund's account with brokers or dealers selected by you. In the selection of such brokers or dealers and the placing of such orders, you are directed at all times to seek for the Fund the most favorable execution and net price available. It is also understood that it is desirable for the Fund that you have access to supplemental investment and market research and security and economic analyses provided by certain brokers who may execute brokerage transactions at a higher cost to the Fund than may result when allocating brokerage to other brokers on the basis of seeking the most favorable price and efficient execution. Therefore, you are authorized to place orders for the purchase and sale of securities for the Fund with such certain brokers, subject to review by the Board of Trustees from time to time with respect to the extent and continuation of this practice. It is understood that the services provided by such brokers may be useful to you in connection with your services to other clients. If any occasion should arise in which you give any advice to clients of yours concerning the Shares of the Fund, you will act solely as investment counsel for such clients and not in any way on behalf of the Fund. You will advise the Trust's custodian and the Adviser on a prompt basis of each purchase and sale of a portfolio security specifying the name of the issuer, the description and amount or number of shares of the security purchased, the market price, commission and gross or net price, trade date, settlement date and identity of the effecting broker or dealer and such other information as may be reasonably required. From time to time as the Board of Trustees or the Adviser may reasonably request, you will furnish to the Trust's officers and to each of its Trustees reports on portfolio transactions and reports on issues of securities held in the portfolio, all in such detail as the Trust or the Adviser may reasonably request. On occasions when you deem the purchase or sale of a security to be in the best interest of the Fund as well as other of your clients, you, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, shall be made by you in the manner you consider to be the most equitable and consistent with your fiduciary obligations to the Fund and to such other clients. 6. LIMITATION OF LIABILITY OF SUBADVISER. You will not be liable for any loss sustained by reason of the adoption of any investment policy or the purchase, sale or retention of any security on your recommendation, whether or not such recommendation shall have been based upon your own investigation and research or upon investigation and research made by any other individual, firm or corporation, if such recommendation shall have been made, and such other individual, firm or corporation shall have been selected without gross negligence and in good faith; but nothing herein contained will be construed to protect you against any liability to the Adviser, the Trust, the Fund or its shareholders by reason of your gross negligence or bad faith or willful misfeasance in the performance of your duties or by reason of your reckless disregard of your obligations and duties under this Agreement. The Adviser shall indemnify you for any damages and related expenses incurred by you as a result of the performance of your duties hereunder, unless the same shall result from behavior C-3 found by a final judicial determination to constitute willful misfeasance, bad faith, gross negligence or a reckless disregard of your obligations, as specified above. You shall keep the Fund's books and records to be maintained by you and shall timely furnish to the Adviser all information relating to your services hereunder needed by the Adviser to keep the other books and records of the Fund required by Rule 31a-1 under the Investment Company Act. You agree that all records which you maintain for the Fund are the property of the Fund and you shall surrender promptly and without any charge to the Fund any of such records required to be maintained by you. 7. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in force until August 1, 2004 and from year to year thereafter, but only so long as such continuance, and the continuance of the Adviser as investment adviser of the Fund, is specifically approved at least annually by the vote of a majority of the Trustees who are not interested persons of you or the Adviser or the Trust, cast in person at a meeting called for the purpose of voting on such approval and by a vote of the Board of Trustees or of a majority of the outstanding voting securities of the Fund. The aforesaid requirement that continuance of this Agreement be "specifically approved at least annually" shall be construed in a manner consistent with the Investment Company Act and the rules and regulations thereunder. This Agreement may, on 60 days' written notice, be terminated at any time without the payment of any penalty, by the Board of Trustees, by vote of a majority of the outstanding voting securities of the Fund, by the Adviser, or by you. This Agreement shall automatically terminate in the event of its assignment or the assignment of the investment advisory agreement between the Adviser and the Trust, on behalf of the Fund. In interpreting the provisions of this Agreement, the definitions contained in Section 2(a) of the Investment Company Act (particularly the definitions of "interested person", "assignment" and "majority of the outstanding voting securities"), as from time to time amended, shall be applied, subject, however, to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulations or order. 8. AMENDMENT OF THIS AGREEMENT. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought, and no material amendment of this Agreement shall be effective until approved by vote of the holders of a majority of the outstanding voting securities of the Fund and by the Board of Trustees, including a majority of the Trustees who are not interested persons of the Adviser or you or of the Trust, cast in person at a meeting called for the purpose of voting on such approval, subject however, to such exemptions as may be granted by the Securities and Exchange Commission by any rule, regulation or order. It shall be your responsibility to furnish to the Board of Trustees such information as may reasonably be necessary in order for the Trustees to evaluate this Agreement or any proposed amendments thereto for the purposes of casting a vote pursuant to paragraphs 7 or 8 hereof. 9. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Ohio. 10. MISCELLANEOUS. It is understood and expressly stipulated that neither the holders of Shares of the Trust or the Fund nor the Trustees shall be personally liable hereunder. The name "Harbor Fund" is the designation of the Trustees for the time being under the Declaration of Trust and all persons dealing with the Trust or the Fund must look solely to the property of the Trust or the Fund for the enforcement of any claims against the Trust or the Fund as neither the Trustees, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Trust or the Fund. No series of the Trust shall be liable for any claims against any other series or assets of the Trust. C-4 The captions in this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. If you are in agreement with the foregoing, please sign the form of acceptance on the accompanying counterpart of this letter and return one such counterpart to the Fund and the other such counterpart to the Adviser, whereupon this letter shall become a binding contract. HARBOR FUND on behalf of HARBOR INTERNATIONAL FUND II By: ------------------------------------ James M. Williams, President HARBOR CAPITAL ADVISORS, INC. By: ------------------------------------ Constance L. Souders, Senior Vice President The foregoing Agreement is hereby accepted as of the date thereof. NORTHERN CROSS INVESTMENTS LIMITED By: ------------------------------------ Hakan Castegren, President C-5 ANNUAL REPORT [HARBOR FUND LOGO] OCTOBER 31, 2001 ----------------------------------------- HARBOR FUND HARBOR FUND ANNUAL REPORT OVERVIEW Harbor Fund completed its most recent fiscal year on October 31, 2001. The total annual return is shown below for each of the twelve portfolios. All performance figures included in this report are total returns and assume the reinvestment of dividends and capital gains. The section entitled Long-Term Historic Returns reflects the 30-year returns for unmanaged indices, which are included as an indication of longer-term potential associated with taking different levels of market risk. You may not make a direct investment in an index.
TOTAL RETURN FOR YEAR ENDED HARBOR FUNDS IN DESCENDING ORDER OF MARKET RISK 10/31/2001 ----------------------------------------------- -------------- Harbor Mid Cap Growth Fund.................................. -43.60% Harbor Growth Fund.......................................... -53.96 Harbor Small Cap Growth Fund................................ -2.80 Harbor International Growth Fund............................ -45.53 Harbor Global Equity Fund................................... -26.10(a) Harbor Capital Appreciation Fund............................ -35.23 Harbor International Fund II................................ -25.22 Harbor International Fund................................... -16.40 Harbor Large Cap Value Fund................................. -3.20 Harbor Bond Fund............................................ 15.35 Harbor Short Duration Fund.................................. 7.73 Harbor Money Market Fund.................................... 4.83
COMMONLY USED MARKET INDICES ---------------------------- Morgan Stanley Capital International Europe, Australasia, and Far East (EAFE); international equity................. -25.09% Morgan Stanley Capital International Europe, Australasia, and Far East Growth (EAFE Growth); international equity... -30.82 Morgan Stanley Capital International World Index (MSCI World); global equity..................................... -25.58 Standard & Poor's 500 (S&P 500); domestic equity............ -24.90 Russell Midcap(R) Growth; domestic equity................... -42.78 Russell 2000(R) Growth; domestic equity..................... -31.50 Russell 1000(R) Value; domestic equity...................... -11.86 Lehman Brothers Aggregate (LB AGG); domestic bonds.......... 14.56 Salomon Treasury 1 YR CMI................................... 8.46 90-Day U.S. Treasury Bills (T-Bills); domestic short-term... 4.48
30 YEARS 1971-2000 LONG-TERM HISTORIC RETURNS ANNUAL RATES -------------------------- ------------ EAFE........................................................ 12.30% MSCI World.................................................. 11.42 S&P 500..................................................... 13.21 Domestic Bonds (intermediate and long)(1)................... 8.81 T-Bills..................................................... 7.06 Consumer Price Index........................................ 5.04
MORNINGSTAR HARBOR FUND EXPENSE RATIOS(2) 1997 1998 1999 2000 2001 MEDIAN(3) ----------------------------- ---- ---- ---- ---- ---- ----------- Harbor Mid Cap Growth Fund....................... N/A% N/A% N/A% N/A% 1.20% 1.00% Harbor Growth Fund............................... 1.12 1.00 0.90 0.87 0.95 1.00 Harbor Small Cap Growth Fund..................... N/A N/A N/A N/A 1.20 1.17 Harbor International Growth Fund................. 1.02 0.96 0.91 0.89 0.89 1.24 Harbor Global Equity Fund........................ N/A N/A N/A N/A 1.20(a,b) 1.06 Harbor Capital Appreciation Fund................. 0.70 0.68 0.66 0.64 0.66 0.95 Harbor International Fund II..................... 0.98 1.15 0.92 0.92 0.89 1.11 Harbor International Fund........................ 0.97 0.94 0.92 0.92 0.91 1.11 Harbor Large Cap Value Fund...................... 0.83 0.79 0.76 0.80 0.77 0.90 Harbor Bond Fund................................. 0.67 0.65 0.60 0.60 0.56 0.64 Harbor Short Duration Fund....................... 0.36 0.36 0.28 0.28 0.27 0.50 Harbor Money Market Fund......................... 0.62 0.57 0.46 0.47 0.38 0.73
------------------ 1 LB AGG not available for 30 year period; blended historic data used to approximate total Bond Market Return. 2 Harbor Fund expense ratios are for operating expenses only and are shown net of all expense offsets (see Financial Highlights pgs. 48-51). 3 Includes all no-load funds with at least five years of performance history in the September 30, 2001 Morningstar Universe with the same investment style as the comparable Harbor Fund portfolio. a For the period February 1, 2001 (inception) through October 31, 2001. b Annualized figure. DEAR SHAREHOLDER: The fiscal year ended October 31, 2001 was one of the worst on record for equity markets. Continuing the trends that had started in the previous fiscal year, equity markets around the world suffered steep declines as investors reacted to struggling economies in the United States and abroad and to growing concerns throughout the year about weak corporate earnings. These concerns were well founded. Corporate earnings for companies in the Standard & Poor's 500 stock index are estimated to be down about 20% this year, one of the worst year over year earnings performances in the last 50 years. The tragic events of September 11 brought additional concerns to equity markets, which fell sharply after the attacks before recovering toward the end of the fiscal year. Consistent with this economic backdrop, major domestic and international stock indices posted sharply negative total returns for the period. These included: the Standard & Poor's 500-stock index, down 24.90%; the NASDAQ composite, down 49.84%; and the Morgan Stanley Capital International (MSCI) Europe, Australasia, and Far East (EAFE) Index, down 25.09%. Growth stocks were hit hard, especially in the technology sector, as business investment declined sharply and investors remained concerned about weak demand, high inventories, and excess capacity. Value-oriented stocks performed comparatively better but also posted negative returns. Beginning in January 2001, the Federal Reserve moved aggressively to stimulate the economy, reducing the Federal Funds rate during the October 31 fiscal year by an aggregate of 400 basis points (4 percentage points). Following a cut of 50 basis points on October 2, the rate stood at 2.50%. Additional reductions of 50 basis points on November 6, and 25 basis points on December 11, the Federal Reserve's 10th and 11th cuts of calendar year 2001, trimmed the rate to 1.75%, its lowest level in 40 years. The weak economic climate and the Federal Reserve's aggressive rate-cutting campaign created a positive environment for debt securities. The Lehman Brothers Aggregate index of investment-grade taxable U.S. bonds posted a total return of 14.56% for the fiscal year. That represented a performance gap of almost 40 percentage points for the fiscal year between the bond index and the Standard & Poor's 500-stock index. Under these very challenging conditions, the three Harbor fixed income funds all generated positive returns, while the nine equity funds all finished in negative territory. The best performance was by the Harbor Bond Fund with a total return of 15.35% for the fiscal year. Five of the Harbor Funds--Small Cap Growth, International, Large Cap Value, Bond and Money Market--outperformed their respective target indices. Three funds--Mid Cap Growth, International Fund II and Short Duration--approximated the total returns of their respective indices. The unmanaged indices reflect no operating or transaction costs, while the total returns of the Funds are net of such costs. INVESTMENT FUNDAMENTALS The events of the past year once again serve to emphasize the importance of diversification and asset allocation for long term investors. In an environment in which all of the equity funds had negative returns, the fixed income funds all posted positive returns, providing diversified portfolios with some stability in an otherwise difficult year. In developing an asset allocation strategy, investors should determine the mix of investments--stocks, bonds, and cash--that best matches their goals and tolerance for risk. Having made those key decisions, investors will be well positioned to deal with the sharp fluctuations that inevitably affect financial markets from time to time--and to stick with their plan during these turbulent periods. Despite the uncertain outlook for the near future, the economic and financial systems in the United States and most developed countries are fundamentally strong. Lower interest rates initiated by the Federal Reserve and the fiscal stimulus anticipated from proposed government programs, should eventually help the United States economy. The timing of such a recovery, however, is something that none of us can predict. Timing such market moves is impossible. Sticking to an asset allocation strategy helps investors participate in any positive changes that occur across various asset classes. Investors can further improve their chances for success by implementing a systematic investing plan. Of course, systematic investing does not assure a profit and does not protect against loss in declining markets. It does, however, allow investors to dollar-cost average by buying more shares when prices are lower and fewer shares when prices are higher. Harbor's Automatic Investment Plan enables investors to make systematic additions to their investments on a monthly or quarterly basis. Because dollar-cost averaging involves continuous investment in securities regardless of fluctuating prices, investors should consider their financial ability to continue purchases through periods of low price levels. Along with asset allocation and systematic investment, another important factor in improving long-term returns is cost control. This is a fundamental element of our approach at Harbor Fund. As illustrated in the table at the bottom of page 1, our focus on cost control results in expense ratios that, year after year, are typically below those of similar fund types. Compounded over long periods, these cost advantages can provide investors with a valuable edge in building wealth to achieve their long-term goals. 2 DEAR SHAREHOLDER--CONTINUED NEW FUNDS AND MANAGERS To broaden the range of investment styles and objectives available to its shareholders, Harbor Fund launched three new equity funds--Mid Cap Growth, Small Cap Growth and Global Equity--in the last fiscal year. In addition, the Harbor Value Fund was renamed the Harbor Large Cap Value Fund, reflecting a slight change in its focus to concentrate on companies with market capitalizations of $5 billion or more. A new portfolio manager was hired to manage the Harbor Large Cap Value Fund's assets consistent with this modest change in focus. These additions and changes to our fund lineup are part of a continuing commitment to provide shareholders with access to the services of leading asset managers. Consistent with this commitment, Harbor Fund launched the new Harbor Small Cap Value Fund on December 14, 2001. In addition, Harbor Fund changed managers on the Harbor International Growth Fund, effective December 1, 2001. On behalf of all of us in the Harbor family, we thank you for your investment in Harbor Fund. We remain committed to providing investment products that we believe have the potential to be attractive long-term investment alternatives with low expense levels designed to help our shareholders achieve their financial goals. /s/ David G. Van Hooser /s/ James M. Williams David G. Van Hooser James M. Williams Chairman President
3 HARBOR FUND The following performance figures are annualized for each Fund. The date of inception for Harbor Mid Cap Growth Fund and Harbor Small Cap Growth Fund was November 1, 2000; Harbor Growth Fund was November 19, 1986; Harbor International Growth Fund was November 1, 1993; Harbor Global Equity Fund was February 1, 2001; Harbor International Fund II was June 1, 1996; Harbor Short Duration Fund was January 1, 1992; and all other Funds started December 29, 1987. The comparative market indices reflect no operating or transaction costs; however, the Funds' total returns are net of these costs. Performance data quoted 10/31/2001 $5.64 HARBOR MID CAP GROWTH FUND NET ASSET VALUE: 10/31/2000 N/A
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years Since Inception ------------------------------------------------------------------------------------ Harbor Mid Cap Growth Fund -43.60% N/A -43.60% ------------------------------------------------------------------------------------ Russell Midcap(R) Growth -42.78% 6.87% -42.78% ------------------------------------------------------------------------------------
In a very difficult environment for growth stocks, the Harbor Mid Cap Growth Fund virtually matched the performance of its target index. The Fund began operations on November 1, 2000. - A slowing economy and declining corporate profits drove the U.S. equity market dramatically lower for the 12-month period ended October 31, 2001. Growth stocks, particularly technology and technology-related companies, experienced significant price declines. To make matters worse, the faltering economy, already on the verge of recession, was temporarily staggered by the tragic events of September 11. - Investments in the technology sector were the biggest detractor from the Fund's performance, as tech stocks, as a group, declined by more than 70%. However, investments in the health care, consumer discretionary, and energy sectors added value on a relative basis. - Strong stock selection and a slightly overweighted position in the health care sector, which declined less than other areas, added value during the period. Stock selection in the consumer discretionary sector also helped to offset losses in the technology sector. Finally, the portfolio was overweighted significantly in the energy sector, which delivered good relative performance. [HARBOR MID CAP GROWTH FUND GRAPH]
MID CAP GROWTH RUSSELL MIDCAP(R) GROWTH -------------- ------------------------ 10/31/01 5640.00 5721.88
10/31/2001 $10.19 HARBOR GROWTH FUND NET ASSET VALUE: 10/31/2000 $24.23
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years 10 years ------------------------------------------------------------------------------------ Harbor Growth Fund -53.96% 5.12% 7.11% ------------------------------------------------------------------------------------ Russell Midcap(R) Growth -42.78% 6.87% 10.58% ------------------------------------------------------------------------------------ S&P 500 -24.90% 10.04% 12.76% ------------------------------------------------------------------------------------
In an extremely weak market for growth stocks, the Harbor Growth Fund underperformed the Russell Midcap(R) Growth index for the 12 months ended October 31, 2001. - The Fund's performance relative to the index was hurt by its overweighting in the information technology sector and by its underweighting in the more defensive consumer discretionary and health care sectors. - A steep decline in the level of investment in information technology resulted in disappointing earnings for many companies during the first half of the fiscal year. This had an adverse impact on the Fund, which focuses on technology-oriented businesses offering products and services designed to enhance productivity. - Stock prices in the information technology sector remained under pressure in the second half of the fiscal year, reflecting investor concerns about weakness in the sector and in the broader economy. [HARBOR GROWTH FUND GRAPH]
RUSSELL MIDCAP(R) GROWTH S&P 500 GROWTH ------ ------- ----------------- 10/31/92 9252.47 10995.50 11004.60 10/31/93 11673.50 12638.60 13050.90 10/31/94 10705.60 13127.30 13382.80 10/31/95 13481.00 16598.20 16627.00 10/31/96 15481.50 20597.40 19611.30 10/31/97 18366.80 27212.00 24438.10 10/31/98 16763.00 33195.80 25032.40 10/31/99 29587.90 41717.50 34460.40 10/31/00 43175.80 44258.70 47788.00 10/31/01 19876.50 33236.60 27343.70
The S&P 500 contains equities with large market capitalization without regard to style. The Russell Midcap(R) Growth index contains equities with smaller market capitalization and a growth style. Therefore, the Russell Midcap(R) Growth provides a more accurate representation in comparison to the Harbor Growth Fund. 4 HARBOR FUND--CONTINUED represents past performance and is not predictive of future performance. The returns shown in the graphs and tables do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Actual return and principal value on an investment will fluctuate, and the shares, when redeemed, may be worth more or less than their original cost. For information on the risks associated with these Funds, please refer to the Harbor Fund prospectus. 10/31/2001 $9.72 HARBOR SMALL CAP GROWTH FUND NET ASSET VALUE: 10/31/2000 N/A
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years Since Inception ------------------------------------------------------------------------------------ Harbor Small Cap Growth Fund -2.80% N/A -2.80% ------------------------------------------------------------------------------------ Russell 2000(R) Growth -31.50% 0.96% -31.50% ------------------------------------------------------------------------------------
In its first full year of operation, the Harbor Small Cap Growth Fund outperformed its target index by more than 28 percentage points. The fund was launched on November 1, 2000. - In an especially weak climate for small capitalization and aggressive growth stocks, the Fund utilized its disciplined investment style to manage risk. This process is designed to identify companies with relatively low price/earnings ratios compared with their projected growth rates. During the fiscal year, the Fund focused particularly on companies with the ability to grow earnings despite a slowing economy. - As expected, interest rates declined significantly in 2001, and the Fund's overweighted position in the financial sector contributed positively to performance throughout the fiscal year. Selected health care service providers achieved strong earnings numbers despite the slowing economy, which also contributed to the Fund's performance. - An overweighted position and favorable stock selection in the energy sector added value. Due to near-term weakness, the Fund reduced its exposure in the energy sector in the second half of the fiscal year. Longer term, however, the Fund believes that the sector's supply/demand outlook is strong and that energy will benefit when the economy turns. - Due to concerns about overcapacity in the technology sector, the portfolio remained significantly underweighted in that group. This contributed to its strong performance compared to the index. - Near the end of the fiscal year, the Fund began to add selectively in the technology and consumer sectors, where several stocks had declined to valuation levels that met its buy criteria. These companies are expected to benefit disproportionately from an economic upturn due to significant stimulus from government spending and lower interest rates. [HARBOR SMALL CAP GROWTH FUND GRAPH]
SMALL CAP GROWTH RUSSELL 2000(R) GROWTH ---------------- ---------------------- 10/31/01 9720.00 6849.76
10/31/2001 $8.44 HARBOR INTERNATIONAL GROWTH FUND NET ASSET VALUE: 10/31/2000 $17.56
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years Since Inception ------------------------------------------------------------------------------------ Harbor International Growth Fund -45.53% -6.06% 1.67% ------------------------------------------------------------------------------------ EAFE Growth -30.82% -2.54% -0.02% ------------------------------------------------------------------------------------ EAFE -25.09% 0.53% 2.77% ------------------------------------------------------------------------------------
The Harbor International Growth Fund posted a negative total return and underperformed the EAFE Growth index for the year ended October 31, 2001, reflecting widespread weakness in international equity markets. Since its inception on November 1, 1993, the Fund outperformed the EAFE Growth index. The Board of Trustees of Harbor Fund voted to replace the Fund's subadviser, Jennison Associates LLC (Jennison) with a new subadviser effective December 1, 2001. The new subadviser, Mastholm Asset Management LLC (Mastholm) began managing the Fund's portfolio on December 1, 2001 pursuant to a revised investment strategy reflecting Mastholm's investment approach. The discussion of the Fund's performance reflects only periods during which Jennison served as subadviser to the Fund. - Relatively heavy portfolio weightings in information technology and telecommunications stocks, consistent with the fund's growth-oriented investment style, detracted from its absolute performance and from its total return relative to the EAFE growth index. - During the course of the fiscal year, the fund increased its holdings of stocks of health care companies, which offered clearer near-term earnings visibility than companies in most other sectors. At the same time, it reduced its holdings in the information technology and telecommunications sectors. [HARBOR INTERNATIONAL GROWTH FUND GRAPH]
INTERNATIONAL GROWTH EAFE EAFE GROWTH ------------- ---- ----------- 10/31/94 11536.20 11009.40 10319.90 10/31/95 12208.20 10968.50 10456.60 10/31/96 15609.50 12117.00 11354.20 10/31/97 16878.50 12678.00 11622.20 10/31/98 19741.10 13900.80 12948.50 10/31/99 21295.70 17102.60 15580.50 10/31/00 20958.50 16607.50 14435.30 10/31/01 11416.90 12439.90 9985.64
The EAFE index contains both growth and value style equities. The EAFE Growth index contains only the growth portion of the EAFE index. Therefore, the EAFE Growth index provides a more accurate representation in comparison to the Harbor International Growth Fund. 5 HARBOR FUND--CONTINUED 10/31/2001 $7.39 HARBOR GLOBAL EQUITY FUND NET ASSET VALUE: 10/31/2000 N/A
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years Since Inception ------------------------------------------------------------------------------------ Harbor Global Equity Fund N/A N/A -26.10% ------------------------------------------------------------------------------------ MSCI World -25.58% 4.81% -23.51% ------------------------------------------------------------------------------------
The Harbor Global Equity Fund slightly underperformed the MSCI World index during the nine months since its inception on February 1, 2001. During the initial nine-month reporting period since the Fund's inception, the worldwide economic slowdown worsened. As the outlook for global economic growth and corporate profitability continued to deteriorate, stock prices were pressured lower. The U.S. Federal Reserve implemented an aggressive series of interest rate cuts, followed by more modest cuts from European central banks, in efforts to stave off recession. However, the downward trend in economic activity and corporate earnings was aggravated as a result of the September terrorist attacks in the U.S. - The Fund continued to underweight technology stocks for most of the period, which benefited Fund performance. The outlook for technology stocks remains somewhat murky, as the sector's problems are structural as well as cyclical. However, as the Fund has found specific technology companies with sufficiently attractive fundamentals and valuations, they have been added to the portfolio. - In recent months, consumer discretionary stocks became an area of greater focus for the Fund. For most of the period, these stocks proved to be relatively resilient even though business conditions were less than optimal. However, this sector was one of the hardest hit following the events of September 11. Therefore, the Fund's overweight position in this sector detracted from performance for the period ended October 31. - Geographically, the Fund benefited from an overweight allocation to continental Europe and from its exposure to developing markets. Offsetting these benefits, however, was the performance of the Fund's holdings in Asia. [HARBOR GLOBAL EQUITY FUND GRAPH]
GLOBAL EQUITY MSCI WORLD ------------- ---------- 10/31/01 7390.00 7648.62
10/31/2001 $26.40 HARBOR CAPITAL APPRECIATION FUND NET ASSET VALUE: 10/31/2000 $48.16
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years 10 years ------------------------------------------------------------------------------------ Harbor Capital Appreciation Fund -35.23% 11.15% 14.42% ------------------------------------------------------------------------------------ S&P 500 -24.90% 10.04% 12.76% ------------------------------------------------------------------------------------
The Harbor Capital Appreciation Fund underperformed the S&P 500 index for the 12 months ended October 31, 2001, reflecting a very difficult environment for equity securities in general and especially for growth stocks. - From a longer-term perspective, despite the very challenging conditions of the past 12 months, the Fund continued to outperform the index for the most recent five-year and 10-year periods. - The Fund's performance relative to the index was hurt by its overweighting in the information technology sector, especially in the first half of the fiscal year. - During the fiscal year, the Fund lowered its exposure in the information technology and telecommunications sectors, where stock prices remained under pressure as investors reacted to disappointing results and a lack of visibility in future earnings performance. At the same time, it increased its positions in industries such as financial services and health care, which historically have been somewhat more defensive holdings while still offering moderate growth potential. [HARBOR CAPITAL APPRECIATION FUND GRAPH]
CAPITAL APPRECIATION S&P 500 -------------------- ------- 10/31/92 11441.50 10995.50 10/31/93 13748.10 12638.60 10/31/94 14745.00 13127.30 10/31/95 20012.90 16598.20 10/31/96 22659.10 20597.40 10/31/97 30754.30 27212.00 10/31/98 35589.80 33195.80 10/31/99 52882.20 41717.50 10/31/00 59363.20 44258.70 10/31/01 38448.70 33236.60
6 HARBOR FUND--CONTINUED 10/31/2001 $10.00 HARBOR INTERNATIONAL FUND II NET ASSET VALUE: 10/31/2000 $14.28
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years Since Inception ------------------------------------------------------------------------------------ Harbor International Fund II -25.22% 2.96% 3.60% ------------------------------------------------------------------------------------ EAFE -25.09% 0.53% 0.38% ------------------------------------------------------------------------------------
The Harbor International Fund II virtually matched the performance of the EAFE index for the 12 months ended October 31, 2001. The Fund outperformed the index for the latest five-year period and since its inception on June 1, 1996. - The Fund's performance for the fiscal year was helped by its investments in France and the United Kingdom. Total returns of its holdings in those countries exceeded those of the EAFE indices in France by 14.9% and the United Kingdom by 5.8%. - Negative performance against country benchmarks was registered in Japan (-10.6%), Switzerland (-10.3%), and Sweden (-8.3%). - The Fund's portfolio was helped by increases of 6% in the value of the euro and 10% in the value of the Swiss franc compared with the U.S. dollar. This was offset partially by an 11% decrease in the value of the Japanese yen. The British pound was flat. - Both the Fund and the index suffered double-digit declines in September 2001, as world markets reacted to the terrorist attacks in the U.S. The Fund was down 14.0% in the month while the index declined by 10.1%. [HARBOR INTERNATIONAL FUND II GRAPH]
INTERNATIONAL II EAFE ---------------- ---- 10/31/96 10470.00 9940.89 10/31/97 12212.40 10401.10 10/31/98 11970.30 11404.30 10/31/99 14887.00 14031.10 10/31/00 16198.90 13624.90 10/31/01 12112.80 10205.80
10/31/2001 $28.65 HARBOR INTERNATIONAL FUND NET ASSET VALUE: 10/31/2000 $38.85
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years 10 years ------------------------------------------------------------------------------------ Harbor International Fund -16.40% 5.59% 9.97% ------------------------------------------------------------------------------------ EAFE -25.09% 0.53% 4.03% ------------------------------------------------------------------------------------
Favorable stock selection enabled the Harbor International Fund to outperform the EAFE index by more than eight percentage points for the fiscal year ended October 31, 2001. The Fund also continued to outperform the index by wide margins for the latest five-year and 10-year periods. - Solid performances by automobile, aluminum, tire, and glass companies enabled the Fund's position in France to significantly outperform the index in that country. Investments in tobacco stocks helped the Fund to outperform the EAFE country indices in the United Kingdom and Sweden. - On the negative side, total returns of the Fund's holdings in Japanese and Swiss stocks were below those of their respective EAFE country indices. - The Fund's portfolio was helped by increases of 6% in the value of the euro and 10% in the value of the Swiss franc compared with the U.S. dollar. This was offset partially by an 11% decrease in the value of the Japanese yen. The British pound was flat. - September 2001 was a significantly negative month for both the Fund (-10.4%) and the EAFE index (-10.1%), as world markets reacted to the terrorist attacks in the U.S. [HARBOR INTERNATIONAL FUND GRAPH]
INTERNATIONAL EAFE ------------- ---- 10/31/92 9597.70 8678.27 10/31/93 13389.50 11928.90 10/31/94 15875.60 13133.00 10/31/95 16679.50 13084.20 10/31/96 19710.80 14454.30 10/31/97 23507.30 15123.50 10/31/98 25146.30 16582.20 10/31/99 29836.90 20401.60 10/31/00 30951.60 19810.90 10/31/01 25876.80 14839.50
7 HARBOR FUND--CONTINUED 10/31/2001 $13.01 HARBOR LARGE CAP VALUE FUND NET ASSET VALUE: 10/31/2000 $13.88
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years 10 years ------------------------------------------------------------------------------------ Harbor Large Cap Value Fund -3.20% 9.84% 11.58% ------------------------------------------------------------------------------------ Russell 1000(R) Value -11.86% 10.63% 13.57% ------------------------------------------------------------------------------------ S&P 500 -24.90% 10.04% 12.76% ------------------------------------------------------------------------------------
The Harbor Large Cap Value Fund (formerly Harbor Value Fund) outperformed major stock indices by wide margins during a period of significant downward pressure on stock prices. The Fund's total return for the year ended October 31, 2001 exceeded that of the Russell 1000(R) Value index by more than eight percentage points and that of the S&P 500 index by more than 21 percentage points. - Effective September 20, 2001, the Fund's name was changed from Harbor Value Fund to Harbor Large Cap Value Fund. At the same time, Armstrong Shaw Associates Inc. assumed responsibility for management of the Fund. - While maintaining its objective of long-term total return with a value-oriented approach, the Fund implemented several changes in its investment strategies effective September 20, 2001. The Fund is now 100% actively managed, investing in 25 to 40 companies, typically with market capitalizations of $5 billion or more. Previously the Fund was 70% actively managed and 30% passively managed, with investments in more than 200 companies, primarily with market capitalizations of $500 million or more. - With its value-oriented investment style, the Fund benefited from a shift into more traditional defensive holdings, as investors reacted to disappointing results in the information technology sector. - Favorable stock selection in the materials, consumer discretionary, and financials sectors contributed to the Fund's superior performance compared to the Russell 1000(R) Value index. An overweighting in the materials sector and an underweighting in information technology also contributed to the Fund's favorable comparison to the index. [HARBOR LARGE CAP VALUE FUND GRAPH]
LARGE CAP VALUE S&P 500 RUSSELL 1000(R) VALUE --------------- ------- --------------------- 10/31/92 10705.70 10995.50 11066.90 10/31/93 11988.90 12638.60 13850.60 10/31/94 12564.20 13127.30 13957.10 10/31/95 15205.20 16598.20 17401.60 10/31/96 18714.90 20597.40 21531.70 10/31/97 24531.50 27212.00 28677.10 10/31/98 26172.80 33195.80 32928.60 10/31/99 29993.70 41717.50 38370.60 10/31/00 30914.70 44258.70 40487.00 10/31/01 29925.20 33236.60 35684.40
The S&P 500 contains equities with large market capitalization without regard to style. The Russell 1000(R) Value index contains equities with large market capitalization and a value style. Therefore, the Russell 1000(R) Value provides a more accurate representation in comparison to the Harbor Large Cap Value Fund. 10/31/2001 $12.05 HARBOR BOND FUND NET ASSET VALUE: 10/31/2000 $11.00
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years 10 years ------------------------------------------------------------------------------------ Harbor Bond Fund 15.35% 8.39% 8.60% ------------------------------------------------------------------------------------ LB AGG 14.56% 8.03% 7.86% ------------------------------------------------------------------------------------
During a time of severe economic and stock market weakness, the Harbor Bond Fund provided a source of stability for investors, posting a total return of 15.35% for the 12 months ended October 31, 2001. The Fund outperformed the Lehman Brothers Aggregate Index for the fiscal year and for the five-year and 10-year periods ended October 31, 2001. - The Fund reached a milestone in September as its net assets exceeded $1 billion for the first time. Net assets at October 31, 2001, were $1.04 billion, an increase of 44.5% in the 12-month period. The increase reflects both investment performance and new shareholder investments. - The Fund's portfolio was conservatively positioned in expectation of an extended period of economic weakness and continued monetary easing by the Federal Reserve. This posture served the Fund well both before and after the terrorist attacks of September 11. - The Fund continued to overweight its allocation to mortgage-backed securities, a strategy that enabled it to gain incremental yield. Performance also was enhanced by a continuation of the Fund's strategy to be underweight in corporate debt securities. - Falling interest rates provided a positive environment for debt securities, as the Federal Reserve reduced the Federal Funds rate by an aggregate of 400 basis points during the year ended October 31, 2001. The rate fell from 6.5% to 2.5% during that period. - In January 2001, the Harbor Bond Fund's manager, William Gross of Pacific Investment Management Company, was named by Morningstar as its Fixed Income Manager of the Year. It was the second time in the past three years that he has received this recognition. [HARBOR BOND FUND GRAPH]
BOND LB AGG ---- ------ 10/31/92 11214.40 10983.40 10/31/93 12782.20 12287.10 10/31/94 12380.30 11836.10 10/31/95 14183.20 13688.20 10/31/96 15255.50 14488.60 10/31/97 16622.80 15777.00 10/31/98 18340.50 17249.90 10/31/99 18497.20 17341.80 10/31/00 19783.20 18608.10 10/31/01 22820.50 21317.20
8 HARBOR FUND--CONTINUED 10/31/2001 $8.69 HARBOR SHORT DURATION FUND NET ASSET VALUE: 10/31/2000 $8.51
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years Since Inception ------------------------------------------------------------------------------------ Harbor Short Duration Fund 7.73% 5.97% 5.62% ------------------------------------------------------------------------------------ Salomon Treasury 1 YR CMI 8.46% 6.18% 5.59% ------------------------------------------------------------------------------------
The 12 months ended October 31, 2001 rewarded fixed income investors as the steep decline in interest rates increased total return. The Harbor Short Duration Fund returned 7.73% during the period. - The Federal Reserve loosened monetary policy throughout 2001 and, subsequent to the events of September 11, implemented an even more aggressive easing in response to weakening economic conditions. From January 1 through October 31, the Federal Funds rate was reduced by an aggregate of 4 percentage points. - The weighted average maturity of obligations held by the Fund was shorter than that of the Salomon Treasury Constant Maturity index for the 12 months ended October 31, 2001. This was the principal reason for the difference between the Fund's total return and that of the index. - The Fund virtually matched the index for the latest five-year period and for the period since the Fund's inception on January 1, 1992. The target index bears no operating or transaction costs, while the Fund's total returns are net of such costs. - The Fund outperformed the average of its peer group, the Morningstar universe of taxable high quality, short duration fixed income funds, by 0.11% for the 12-month period. This was due principally to its holding of selected higher yielding, AAA-rated, asset-backed obligations. In addition, the weighted average maturity of securities in the Fund's portfolio was somewhat longer than that of the peer group average. [HARBOR SHORT DURATION FUND GRAPH]
SHORT DURATION SALOMON TREASURY 1 YR CMI -------------- ------------------------- 10/31/92 10371.80 10417.90 10/31/93 10909.20 10825.60 10/31/94 11185.40 11135.80 10/31/95 11948.70 11930.00 10/31/96 12814.00 12650.20 10/31/97 13515.60 13428.20 10/31/98 14435.60 14289.00 10/31/99 14967.20 14882.00 10/31/00 15897.30 15743.50 10/31/01 17126.90 17075.20
As of June 2001, the 1-YR Gvt index has been discontinued by Ibbotson Associates. The Salomon Treasury 1 YR CMI index has been selected as the replacement index. The Salomon Treasury 1 YR CMI index provides an accurate representation in comparison to the Harbor Short Duration Fund. 10/31/2001 $1.00 HARBOR MONEY MARKET FUND NET ASSET VALUE: 10/31/2000 $1.00
------------------------------------------------------------------------------------ Total Return for Periods Ended 10/31/2001 ------------------------------------------------------------------------------------ Fund/Index 1 year 5 years 10 years ------------------------------------------------------------------------------------ Harbor Money Market Fund 4.83% 5.19% 4.65% ------------------------------------------------------------------------------------ T-Bills 4.48% 5.10% 4.74% ------------------------------------------------------------------------------------ Current Yield for Periods Ended 09/30/2001 -------------------------------------------------------------------------------- Harbor Money Market Fund* 7 Days: 2.88% 30 Days: 3.05% --------------------------------------------------------------------------------
The Harbor Money Market Fund outperformed its target, the 90-day Treasury bill, for the 12 months ended October 31, 2001. - Yields generally fell during the period as the Federal Reserve continued to loosen monetary policy. The Federal Funds rate fell from 6.5% to 2.5% during the year ended October 31, 2001, reflecting this aggressive effort to combat the recessionary economic environment. - In anticipation of the Federal Reserve easing that subsequently began in January 2001, the Fund's strategy at the beginning of the fiscal year was to invest in longer-duration securities. This benefited the Fund's return by enabling it to lock in the higher yields existing at the time. - By the end of the fiscal year the maturities of the securities held by the Fund were substantially lower. This reflected a shift in strategy as rates for shorter-term securities were virtually the same as those for one-year securities and the potential for significant further rate cuts had diminished. - Compared to the average of its peer group, the Morningstar universe of taxable money market funds, the Fund returned an additional 60 basis points (six-tenths of a percentage point). This was due largely to the Fund's lower expense ratio and a weighted average maturity that was longer than that of the peer group average. An investment in the Harbor Money Market Fund is not insured or guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. [HARBOR MONEY MARKET FUND GRAPH]
MONEY MARKET T-BILLS ------------ ------- 10/31/92 10366.90 10387.00 10/31/93 10645.20 10707.70 10/31/94 11020.70 11124.00 10/31/95 11644.50 11766.50 10/31/96 12236.60 12391.40 10/31/97 12861.70 13046.90 10/31/98 13530.40 13718.40 10/31/99 14182.90 14360.90 10/31/00 15031.80 15212.80 10/31/01 15758.00 15893.80
------------ * Reflects the Adviser's agreement not to impose all or a portion of its advisory fees. Without such waivers the current 7-day and 30-day yields would have been 2.76% and 2.93%, respectively. The current yield more closely reflects the current earnings of the Harbor Money Market Fund than the total return. 9 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Trustees of Harbor Fund We have audited the accompanying statements of assets and liabilities, including the portfolios of investments, of the Harbor Fund (the Trust) (comprising, respectively, the Harbor Mid Cap Growth Fund, Harbor Growth Fund, Harbor Small Cap Growth Fund, Harbor International Growth Fund, Harbor Global Equity Fund, Harbor Capital Appreciation Fund, Harbor International Fund II, Harbor International Fund, Harbor Large Cap Value Fund (formerly Harbor Value Fund), Harbor Bond Fund, Harbor Short Duration Fund, and Harbor Money Market Fund) as of October 31, 2001, and the related statements of operations for the year then ended, and the statements of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the three years in the period ended October 31, 1999 were audited by other auditors, whose report dated December 14, 1999, expressed an unqualified opinion on those statements. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of October 31, 2001 by correspondence with the custodian and brokers, or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the respective portfolios constituting Harbor Fund at October 31, 2001, the results of their operations for the year then ended and the changes in their net assets and financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States. [ERNST & YOUNG LLP] Boston, Massachusetts December 14, 2001 10 HARBOR MID CAP GROWTH FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investment of 0.1%) Commercial Services & Supplies 0.6 Media 0.8 Wireless Telecommunication Services 0.9 Computers & Peripherals 1.1 Air Freight & Couriers 1.3 Airlines 1.3 Electric Utilities 1.5 Health Care Providers & Services 1.7 Insurance 3.4 Textiles & Apparel 3.5 Electronic Equipment & Instruments 3.9 Pharmaceuticals 4.2 Software 4.6 Communications Equipment 8.8 Specialty Retail 9.0 Energy Equipment & Services 11.8 Semiconductor Equipment & Products 20.5 Biotechnology 21.0
COMMON STOCKS--99.9% VALUE SHARES (000S) ----------------------------------------------------------------------- AIR FREIGHT & COURIERS--1.3% 2,900 Expeditors International of Washington Inc. ...... $ 131 ------ AIRLINES--1.3% 6,900 SKYWEST Inc. ..................................... 126 ------ BIOTECHNOLOGY--21.0% 6,200 Abgenix Inc.*..................................... 185 2,000 Alkermes Inc.*.................................... 51 8,500 Celgene Corp.*.................................... 280 4,200 Cephalon Inc.*.................................... 265 3,900 Genzyme Corp.*.................................... 210 4,300 Gilead Sciences Inc.*............................. 270 3,800 Invitrogen Corp.*................................. 233 7,700 Medarex Inc.*..................................... 159
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- 5,800 Medimmune Inc.*................................... $ 228 3,700 OSI Pharmaceuticals Inc.*......................... 169 ------ 2,050 ------ COMMERCIAL SERVICES & SUPPLIES--0.6% 3,800 CheckFree Corp.*.................................. 54 ------ COMMUNICATIONS EQUIPMENT--8.8% 5,600 Brocade Communication Systems Inc.*............... 138 6,000 CIENA Corp.*...................................... 98 12,100 Enterasys Networks Inc.*.......................... 96 11,600 Finisar Corp.*.................................... 91 5,900 Harris Corp. ..................................... 202 2,500 Juniper Networks Inc.*............................ 56 3,300 Oni Systems Inc.*................................. 16 10,400 Powerwave Technologies Inc.*...................... 159 ------ 856 ------ COMPUTERS & PERIPHERALS--1.1% 3,000 NCR Corp.*........................................ 106 ------ ELECTRIC UTILITIES--1.5% 5,700 Calpine Corp.*.................................... 141 ------ ELECTRONIC EQUIPMENT & INSTRUMENTS--3.9% 2,000 Celestica Inc.*................................... 69 3,800 Intersil Holding Corp. Cl. A*..................... 124 6,100 Sanmina Corp.*.................................... 92 4,600 SCI Systems Inc.*................................. 93 ------ 378 ------ ENERGY EQUIPMENT & SERVICES--11.8% 6,300 BJ Services Co.*.................................. 161 2,400 Cooper Cameron Corp.*............................. 94 6,900 Global Industries Ltd.*........................... 49 6,400 Grant Prideco Inc.*............................... 58 3,500 Nabors Industries Inc.*........................... 108 5,700 National-Oilwell Inc.*............................ 106 6,000 Patterson-UTI Energy Inc.*........................ 108 5,100 Precision Drilling Corp.*......................... 129 7,500 Pride International Inc.*......................... 96 4,750 Transocean Sedco Forex Inc. ...................... 143 3,000 Weatherford International Inc.*................... 103 ------ 1,155 ------ HEALTH CARE PROVIDERS & SERVICES--1.7% 12,600 Caremark Rx Inc.*................................. 169 ------ INSURANCE--3.4% 8,310 Fidelity National Financial Inc. ................. 191 8,500 First American Corp. ............................. 142 ------ 333 ------ MEDIA--0.8% 4,400 USA Networks Inc.*................................ 81 ------ PHARMACEUTICALS--4.2% 1,700 Barr Laboratories Inc.*........................... 124 6,500 Sicor Inc.*....................................... 122 3,500 Watson Pharmaceuticals Inc.*...................... 167 ------ 413 ------ SEMICONDUCTOR EQUIPMENT & PRODUCTS--20.5% 8,800 Applied Micro Circuits Corp*...................... 97 12,900 Atmel Corp.*...................................... 103 3,200 Cree Inc.*........................................ 57 6,800 Cypress Semiconductor Corp.*...................... 134 4,200 Elantec Semiconductor Inc.*....................... 137 3,600 Integrated Device Technology Inc.*................ 100
11 HARBOR MID CAP GROWTH FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- 900 KLA-Tencor Corp.*................................. $ 37 8,000 Lattice Semiconductor Corp.*...................... 140 7,300 LSI Logic Corp.*.................................. 124 3,400 Micrel Inc.*...................................... 86 5,100 Microchip Technology Inc.*........................ 159 3,200 National Semiconductor Corp.*..................... 83 3,700 Novellus Systems Inc.*............................ 122 3,800 QLogic Corp.*..................................... 150 5,500 RF Micro Devices Inc.*............................ 112 3,300 Semtech Corp.*.................................... 125 3,700 Teradyne Inc.*.................................... 85 3,900 TriQuint Semiconductor Inc.*...................... 69 8,100 Vitesse Semiconductor Corp.*...................... 76 ------ 1,996 ------ SOFTWARE--4.6% 5,900 Citrix Systems Inc.*.............................. 138 1,000 Electronic Arts Inc.*............................. 51 1,100 NVIDIA Corp.*..................................... 48 6,600 Smartforce plc ADR(1)*............................ 109 3,700 Veritas Software Corp.*........................... 105 ------ 451 ------ SPECIALTY RETAIL--9.0% 7,900 Abercrombie & Fitch Co. Cl. A*.................... 149 8,000 Bed Bath & Beyond Inc.*........................... 201 4,200 CDW Computer Centers Inc.*........................ 193 14,600 Foot Locker Inc.*................................. 212 5,200 Tiffany & Co. .................................... 122 ------ 877 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- TEXTILES & APPAREL--3.5% 5,800 Jones Apparel Group Inc.*......................... $ 160 8,100 Polo Ralph Lauren Corp. Cl. A*.................... 178 ------ 338 ------ WIRELESS TELECOMMUNICATION SERVICES--0.9% 7,300 Crown Castle International Corp.*................. 85 ------ TOTAL COMMON STOCKS (Cost $11,963)............................................... 9,740 ------ SHORT-TERM INVESTMENT--1.7% (Cost $165) PRINCIPAL AMOUNT (000S) ----------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated October 31, 2001 due November 1, 2001 at 1.00% collateralized by a U.S. Treasury Bill 5.50% August 15, 2028, par value of $165 (repurchase proceeds of $165 when closed on $ 165 November 1, 2001)............................... 165 ------ TOTAL INVESTMENTS--101.6% (Cost $12,128)............................................... 9,905 CASH AND OTHER ASSETS, LESS LIABILITIES--(1.6%)................ (153) ------ TOTAL NET ASSETS--100.0%....................................... $9,752 ======
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. 12 HARBOR GROWTH FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash, convertible bond and short-term investments of 9.3%) Auto Components 0.4 Hotels Restaurants & Leisure 1.1 Wireless Telecommunication Services 1.2 Electric Utilities 1.3 Machinery 1.7 Multiline Retail 4.1 Health Care Providers & Services 4.4 Computers & Peripherals 5.3 Health Care Equipment & Supplies 5.8 Pharmaceuticals 6.5 Internet Software & Services 8.0 Electronic Equipment & Instruments 8.1 Communications Equipment 8.4 Commercial Services & Supplies 8.6 Semiconductor Equipment & Products 9.6 Software 16.2
COMMON STOCKS--90.7% VALUE SHARES (000S) ----------------------------------------------------------------------- AUTO COMPONENTS--0.4% 70,000 Tower Automotive Inc.*.......................... $ 428 -------- COMMERCIAL SERVICES & SUPPLIES--8.6% 140,000 DiamondCluster International Inc. Cl. A*........ 1,442 450,000 ProsoftTraining.com*............................ 198 200,000 QRS Corp.*...................................... 1,940 200,000 Renaissance Learning Inc.*...................... 6,542 -------- 10,122 -------- COMMUNICATIONS EQUIPMENT--8.4% 290,000 Aspect Communications Corp.*.................... 650 210,000 Comverse Technology Inc.*....................... 3,950 150,000 JDS Uniphase Corp.*............................. 1,199 190,000 Proxim Inc.*.................................... 1,286 440,000 Symmetricom Inc.*............................... 2,464 350,000 Verilink Corp.*................................. 353 -------- 9,902 --------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- COMPUTERS & PERIPHERALS--5.3% 175,000 EMC Corp.*...................................... $ 2,156 7,361 McDATA Corp. Cl. A*............................. 108 300,000 Network Appliance Inc.*......................... 3,990 -------- 6,254 -------- ELECTRIC UTILITIES--1.3% 110,800 AES Corp.*...................................... 1,535 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS--8.1% 280,000 Checkpoint Systems Inc.*........................ 2,929 280,000 LoJack Corp.*................................... 1,498 415,000 Pinnacle Systems Inc.*.......................... 1,789 230,000 Planar Systems Inc.*............................ 3,344 -------- 9,560 -------- HEALTH CARE EQUIPMENT & SUPPLIES--5.8% 250,000 Kensey Nash Corp.*.............................. 4,687 130,000 Molecular Devices Corp.*........................ 2,105 -------- 6,792 -------- HEALTH CARE PROVIDERS & SERVICES--4.4% 130,000 Health Management Associates Inc. Cl. A*........ 2,534 105,000 Orthodontic Centers of America Inc.*............ 2,649 -------- 5,183 -------- HOTELS RESTAURANTS & LEISURE--1.1% 60,000 Carnival Corp. ................................. 1,307 -------- INTERNET SOFTWARE & SERVICES--8.0% 200,000 Accrue Software Inc.*........................... 78 100,000 Netegrity Inc.*................................. 1,174 200,000 Secure Computing Corp.*......................... 3,270 130,000 Sonicwall Inc.*................................. 1,846 150,000 Stellent Inc.*.................................. 3,075 -------- 9,443 -------- MACHINERY--1.7% 200,000 Flow International Corp.*....................... 1,958 -------- MULTILINE RETAIL--4.1% 67,500 Dollar Tree Stores Inc.*........................ 1,517 100,000 TJX Cos. Inc. .................................. 3,380 -------- 4,897 -------- PHARMACEUTICALS--6.5% 85,517 Elan Corp. plc ADR(1)*.......................... 3,904 150,000 K-V Pharmaceutical Co. Cl. A*................... 3,790 -------- 7,694 -------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--9.6% 200,000 ATMI Inc.*...................................... 3,812 97,725 Maxim Integrated Products Inc.*................. 4,471 172,605 TriQuint Semiconductor Inc.*.................... 3,052 -------- 11,335 -------- SOFTWARE--16.2% 23,800 Ansoft Corp.*................................... 424 220,000 Documentum Inc.*................................ 3,249 150,000 Innoveda Inc.*.................................. 183 500,000 Legato Systems Inc.*............................ 4,195 270,000 MRO Software Inc.*.............................. 3,564 160,000 SERENA Software Inc.*........................... 2,586 50,000 Symantec Corp.*................................. 2,749 150,000 Wind River Systems Inc.*........................ 2,151 -------- 19,101 --------
13 HARBOR GROWTH FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES--1.2% 180,000 Nextel Communications Inc. Cl. A*............... $ 1,431 -------- TOTAL COMMON STOCKS (Cost $145,014)............................................ 106,942 -------- CONVERTIBLE BOND--1.1% (Cost $2,716) PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- SystemOne Technologies Inc. $ 2,714 8.250%--02/23/2003 PIK(2)..................... 1,357 -------- SHORT-TERM INVESTMENTS--8.4% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- COMMERCIAL PAPER American Express Credit Corp. Yrs 1&2 $ 2,335 2.380%--11/01/2001............................ $ 2,335 1,610 2.460%--11/02/2001............................ 1,610 -------- 3,945 -------- Chevron USA Inc. Yrs 1&2 2,884 2.440%--11/06/2001............................ 2,884 General Electric Capital Corp. 3,103 2.480%--11/05/2001............................ 3,103 -------- TOTAL SHORT-TERM INVESTMENTS (Cost $9,932).............................................. 9,932 -------- TOTAL INVESTMENTS--100.2% (Cost $157,662)............................................ 118,231 CASH AND OTHER ASSETS, LESS LIABILITIES--(0.2%).............. (280) -------- TOTAL NET ASSETS--100.0%..................................... $117,951 ========
------------ 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 PIK--Payment-in-kind security. * Non-income producing security. The accompanying notes are an integral part of the financial statements. 14 HARBOR SMALL CAP GROWTH FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investment of 19.1%) Communications Equipment 1.2 Internet Software & Services 1.3 Software 1.3 Electronic Equipment & Instruments 1.4 Metals & Mining 1.4 Diversified Financials 1.5 Pharmaceuticals 1.8 Oil & Gas 2.0 Semiconductor Equipment & Products 3.2 Specialty Retail 3.5 Hotels Restaurants & Leisure 4.1 Banks 4.2 Health Care Equipment & Supplies 4.9 Insurance 5.7 Biotechnology 5.8 Energy Equipment & Services 8.3 Media 9.3 Commercial Services & Supplies 9.6 Health Care Providers & Services 10.4
COMMON STOCKS--80.9% VALUE SHARES (000S) ----------------------------------------------------------------------- BANKS--4.2% 12,400 Greater Bay Bancorp.............................. $ 283 8,700 Southwest Bancorporation of Texas Inc.*.......... 250 6,800 UCBH Holdings Inc. .............................. 197 ------- 730 ------- BIOTECHNOLOGY--5.8% 7,600 Albany Molecular Research Inc.*.................. 211 9,700 Celgene Corp.*................................... 319 36,400 Regeneration Technologies Inc.*.................. 396 10,600 Sequenom Inc.*................................... 79 ------- 1,005 -------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES--9.6% 3,600 Administaff Inc.*................................ $ 81 8,800 Career Education Corp.*.......................... 229 7,400 DeVry Inc.*...................................... 199 10,700 Digitalthink Inc.*............................... 89 6,400 National Data Corp. ............................. 225 15,000 Republic Services Inc. Cl. A..................... 246 4,700 Stericycle Inc.*................................. 226 12,400 Waste Connections Inc.*.......................... 362 ------- 1,657 ------- COMMUNICATIONS EQUIPMENT--1.2% 11,300 Advanced Fibre Communications Inc.*.............. 211 ------- DIVERSIFIED FINANCIALS--1.5% 10,000 Indymac Bancorp Inc.*............................ 257 ------- ELECTRONIC EQUIPMENT & INSTRUMENTS--1.4% 20,500 Therma-Wave Inc.*................................ 249 ------- ENERGY EQUIPMENT & SERVICES--8.3% 13,900 Helmerich & Payne Inc. .......................... 422 5,100 SEACOR Smit Inc.*................................ 202 36,800 Superior Energy Services Inc.*................... 291 15,900 Varco International Inc.*........................ 238 14,300 W-H Energy Services Inc.*........................ 288 ------- 1,441 ------- HEALTH CARE EQUIPMENT & SUPPLIES--4.9% 25,500 Alliance Imaging Inc. ........................... 312 10,000 Meridian Medical Technologies Inc.*.............. 219 11,000 Wilson Greatbatch Technologies Inc.*............. 316 ------- 847 ------- HEALTH CARE PROVIDERS & SERVICES--10.4% 15,100 Manor Care Inc.*................................. 353 45,000 PSS World Medical Inc.*.......................... 406 25,100 Quintiles Transnational Corp.*................... 398 18,000 Select Medical Corp.*............................ 315 18,800 UroCor Inc.*..................................... 335 ------- 1,807 ------- HOTELS RESTAURANTS & LEISURE--4.1% 9,000 CEC Entertainment Inc.*.......................... 349 17,300 Extended Stay America Inc.*...................... 234 10,400 Six Flags Operations Inc.*....................... 123 ------- 706 ------- INSURANCE--5.7% 4,600 Everest Reinsurance Holdings Inc. ............... 308 8,000 Philadelphia Consolidated Holdings Corp. ........ 314 3,800 RenaissanceRe Holdings Ltd. ..................... 367 ------- 989 ------- INTERNET SOFTWARE & SERVICES--1.3% 14,000 Forrester Research Inc.*......................... 226 ------- MEDIA--9.3% 30,000 Boron, LePore & Associates Inc.*................. 386 27,400 Entravision Communications Corp.*................ 290 8,200 Information Holdings Inc.*....................... 180 14,700 Insight Communications Co. Inc. Cl. A*........... 301 13,300 Mediacom Communications Corp. Cl. A*............. 178 38,000 Sinclair Broadcast Group Inc. Cl. A*............. 280 ------- 1,615 ------- METALS & MINING--1.4% 11,300 Arch Coal Inc. .................................. 249 -------
15 HARBOR SMALL CAP GROWTH FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- OIL & GAS--2.0% 45,500 Chesapeake Energy Corp.*......................... $ 330 ------- PHARMACEUTICALS--1.8% 21,200 Salix Pharmaceuticals Ltd.*...................... 304 ------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--3.2% 8,200 Alpha Industries Inc.*........................... 191 12,000 Varian Semiconductor Equipment Associates Inc.*.......................................... 360 ------- 551 ------- SOFTWARE--1.3% 13,900 Smartforce plc ADR(1)*........................... 229 ------- SPECIALTY RETAIL--3.5% 6,900 Cost Plus Inc.*.................................. 134 14,000 Guitar Center Inc.*.............................. 193 10,800 Williams-Sonoma Inc.*............................ 280 ------- 607 ------- TOTAL COMMON STOCKS (Cost $13,955).............................................. 14,010 ------- SHORT-TERM INVESTMENT--19.6% (Cost $3,398) PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated October 31, 2001 due November 1, 2001 at 1.00% collateralized by a U.S. Treasury Bill 5.50% August 15, 2028, par value of $3,330 (repurchase proceeds of $3,398 when closed on $3,398 November 1, 2001).............................. $ 3,398 ------- TOTAL INVESTMENTS--100.5% (Cost $17,353).............................................. 17,408 CASH AND OTHER ASSETS, LESS LIABILITIES--(0.5%)............... (91) ------- TOTAL NET ASSETS--100.0%...................................... $17,317 =======
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. 16 HARBOR INTERNATIONAL GROWTH FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 INVESTMENT HOLDINGS BY COUNTRY (% OF NET ASSETS) (Excludes net cash and short-term investments of 11.6%) Singapore (SGP) 1.0 Finland (FIN) 1.8 Denmark (DEN) 2.1 Japan (JP) 2.7 Spain (SP) 4.3 Switzerland (SWS) 4.9 Australia (AUS) 5.2 Netherlands (NET) 6.8 Germany (GER) 7.4 Hong Kong (HK) 7.8 France (FR) 15.6 United Kingdom (UK) 28.8
COMMON STOCKS--88.4% VALUE SHARES (000S) ---------------------------------------------------------------------- AUTOMOBILES--2.8% 43,462 Porsche AG Pfd. (GER)......................... $ 12,119 -------- BANKS--6.7% 1,063,389 Banco Bilbao Vizcaya Argentaria SA (SP)....... 11,889 758,852 DBS Group Holdings Ltd. (SGP)................. 4,329 548,226 Royal Bank of Scotland Group plc (UK)......... 13,101 -------- 29,319 -------- BEVERAGES--2.6% 1,157,194 Diageo plc (UK)............................... 11,541 -------- BIOTECHNOLOGY--4.9% 27,261 Serono SA Cl. B (SWS)......................... 21,521 -------- COMMERCIAL SERVICES & SUPPLIES--7.0% 4,124,091 Brambles Industries Ltd. (AUS)................ 22,590 1,266,422 The Capita Group plc (UK)..................... 8,003 -------- 30,593 -------- COMMUNICATIONS EQUIPMENT--1.8% 375,590 Nokia Oyj Series A (FIN)...................... 7,848 -------- DISTRIBUTORS--4.3% 19,858,200 Li & Fung Ltd. (HK)........................... 18,967 -------- DIVERSIFIED TELECOMMUNICATION SERVICES--2.9% 3,092,304 COLT Telecom Group plc (UK)................... 5,278 595,500 Telefonica SA (SP)*........................... 7,145 -------- 12,423 -------- ELECTRIC UTILITIES--0.9% 1,217,066 International Power plc (UK).................. 3,907 --------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- ELECTRICAL EQUIPMENT--3.4% 17,217,200 Johnson Electric Holdings Ltd. (HK)........... $ 15,010 -------- FOOD & DRUG RETAILING--2.8% 434,418 Koninklijke Ahold NV (NET).................... 12,215 -------- HOUSEHOLD PRODUCTS--2.5% 793,929 Reckitt Benckiser plc (UK).................... 11,072 -------- INSURANCE--0.4% Muenchener Ruckversicherungs-Ges 5,900 AG--Registered (GER)........................ 1,558 -------- IT CONSULTING & SERVICES--5.4% 199,804 Altran Technologies (FR)...................... 9,165 1,334,836 Logica plc (UK)............................... 14,427 -------- 23,592 -------- MEDIA--12.2% 1,366,042 Pearson plc (UK).............................. 16,332 2,403,503 Reed International plc (UK)................... 19,658 Verenigde Nederlandse Uitgeversbedrijven NV 597,871 (NET)....................................... 17,423 -------- 53,413 -------- OIL & GAS--3.8% 119,180 Total Fina Elf SA (FR)........................ 16,723 -------- PHARMACEUTICALS--11.8% 281,475 Aventis SA (FR)............................... 20,697 228,991 Novo Nordisk AS Series B (DEN)................ 9,279 328,014 Sanofi Synthelabo (FR)........................ 21,611 -------- 51,587 -------- SOFTWARE--4.3% 179,668 SAP AG (GER).................................. 18,584 -------- WIRELESS TELECOMMUNICATION SERVICES--7.9% 885 NTT DoCoMo Inc. (JP).......................... 11,988 9,738,252 Vodafone Group plc (UK)....................... 22,493 -------- 34,481 -------- TOTAL COMMON STOCKS (Cost $481,724)........................................... 386,473 -------- SHORT-TERM INVESTMENTS--10.1% PRINCIPAL AMOUNT (000S) ---------------------------------------------------------------------- COMMERCIAL PAPER American Express Credit Corp. $ 21,000 2.580%--11/01/2001.......................... 21,000 Chevron USA Inc. Yrs 1&2 2,164 2.500%--11/01/2001.......................... 2,164 General Electric Capital Corp. 21,000 2.560%--11/01/2001.......................... 21,000 -------- TOTAL SHORT-TERM INVESTMENTS (Cost $44,164)............................................ 44,164 -------- TOTAL INVESTMENTS--98.5% (Cost $525,888)........................................... 430,637 CASH AND OTHER ASSETS, LESS LIABILITIES--1.5%............... 6,564 -------- TOTAL NET ASSETS--100.0%.................................... $437,201 ========
------------ * Non-income producing security. The accompanying notes are an integral part of the financial statements. 17 HARBOR GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 INVESTMENT HOLDINGS BY COUNTRY (% OF NET ASSETS) (Excludes net cash and short-term investment of 8.4%) Israel (IL) 0.2 Portugal (PORT) 0.3 Spain (SP) 0.3 Finland (FIN) 0.4 South Korea (S. KOR) 0.4 Singapore (SGP) 0.5 Taiwan (TWN) 0.5 Belgium (BEL) 0.6 Brazil (BR) 0.6 Canada (CAN) 0.6 Hong Kong (HK) 0.6 Denmark (DEN) 0.7 Ireland (IE) 0.9 Mexico (MEX) 1.0 Italy (IT) 1.4 Switzerland (SWS) 2.4 Germany (GER) 2.9 Netherlands (NET) 3.6 France (FR) 4.5 Japan (JP) 5.3 United Kingdom (UK) 10.2 United States (US) 53.7
COMMON STOCKS--91.6% VALUE SHARES (000S) ----------------------------------------------------------------------- AEROSPACE & DEFENSE--1.0% Embraer-Empresa Bras de Aeronautica Pfd. ADR 1,200 (BR)(1)......................................... $ 21 600 General Dynamics Corp. (US)....................... 49 ------ 70 ------ AIR FREIGHT & COURIERS--0.3% 1,000 Yamato Transport Co. Ltd. (JP).................... 19 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- AUTOMOBILES--1.8% 600 Bayerische Motoren Werke AG (GER)................. $ 18 900 Ford Motor Co. (US)............................... 14 1,000 Honda Motor Co. Ltd. (JP)......................... 36 9,000 Nissan Motor Co. (JP)............................. 40 400 Peugeot SA (FR)................................... 16 ------ 124 ------ BANKS--7.8% 2,200 Allied Irish Banks plc (IE)....................... 21 1,400 Bank of America Corp. (US)........................ 83 2,900 Bank of Ireland (IE).............................. 26 500 BNP Paribas (FR).................................. 42 2,500 Dexia (BEL)....................................... 38 700 HSBC Holdings plc ADR (UK)(1)..................... 38 3,300 HSBC Holdings plc (UK)............................ 36 10,200 IntesaBCI SpA (IT)................................ 24 40 Julius Baer Holding Ltd. (SWS).................... 12 1,300 Royal Bank of Canada (CAN)........................ 39 2,100 Royal Bank of Scotland Group plc (UK)............. 50 2,800 Standard Chartered plc (UK)....................... 28 600 UBS AG ADR (SWS)(1)............................... 28 660 UBS AG--Registered (SWS).......................... 31 1,100 Uniao de Bancos Brasileiro SA (BR)................ 17 450 Washington Mutual Inc. (US)....................... 14 ------ 527 ------ BEVERAGES--0.6% 800 Pepsico Inc. (US)................................. 39 ------ BIOTECHNOLOGY--1.2% 1,400 Amgen Inc. (US)*.................................. 80 ------ BUILDING PRODUCTS--0.2% 300 American Standard Cos. Inc. (US)*................. 17 ------ CHEMICALS--2.1% 1,800 Akzo Nobel NV ADR (NET)(1)........................ 74 200 Akzo Nobel NV (NET)............................... 8 1,200 Praxair Inc. (US)................................. 57 ------ 139 ------ COMMERCIAL SERVICES & SUPPLIES--0.6% 600 First Data Corp. (US)............................. 41 ------ COMMUNICATIONS EQUIPMENT--1.1% 1,600 Cisco Systems Inc. (US)........................... 27 1,200 Nokia Oyj ADR (FIN)(1)............................ 25 400 QUALCOMM Inc. (US)................................ 20 ------ 72 ------ COMPUTERS & PERIPHERALS--2.2% 900 EMC Corp. (US)*................................... 11 1,000 International Business Machines Corp. (US)........ 108 3,000 NEC Corp. (JP).................................... 27 ------ 146 ------ CONSTRUCTION & ENGINEERING--0.2% 300 Fluor Corp. New (US).............................. 11 ------ CONSTRUCTION MATERIALS--0.7% 150 Holcim SA--Bearer (SWS)........................... 29 250 Lafarge SA--Bearer (FR)........................... 22 ------ 51 ------ DIVERSIFIED FINANCIALS--6.7% 600 American Express Co. (US)......................... 18 1,000 AMVESCAP plc ADR (UK)(1).......................... 24 2,400 AMVESCAP plc (UK)................................. 29
18 HARBOR GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- 4,000 Citigroup Inc. (US)............................... $ 182 4,000 Daiwa Securities Group Inc. (JP).................. 26 400 Goldman Sachs Group Inc. (US)..................... 31 1,600 ING Groep NV ADR (NET)(1)......................... 40 800 ING Groep NV (NET)................................ 20 300 Merrill Lynch & Co. Inc. (US)..................... 13 3,000 Nomura Securities Co. Ltd. (JP)................... 39 6,000 Sumitomo Trust & Banking Co. Ltd. (JP)............ 33 ------ 455 ------ DIVERSIFIED TELECOMMUNICATION SERVICES--3.1% 500 Korea Telecom Corp. ADR (S. KOR)(1)............... 10 2,700 Portugal Telecom SGPS SA--Registered (PORT)....... 21 1,500 SBC Communications Inc. (US)...................... 57 1,000 Telefonos de Mexico SA de CV ADR (MEX)(1)......... 34 1,200 Verizon Communications (US)....................... 60 2,300 WorldCom Inc. (US)................................ 31 ------ 213 ------ ELECTRIC UTILITIES--1.3% 700 Calpine Corp. (US)................................ 17 900 Duke Energy Corp. (US)............................ 35 400 E. On AG (DEN).................................... 21 600 Reliant Energy Inc. (US).......................... 17 ------ 90 ------ ENERGY EQUIPMENT & SERVICES--1.0% 1,100 Baker Hughes Inc. (US)............................ 39 600 Schlumberger Ltd. (US)............................ 29 ------ 68 ------ FOOD & DRUG RETAILING--1.2% 612 Koninklijke Ahold NV ADR (NET)(1)................. 17 2,200 Koninklijke Ahold NV (NET)........................ 62 ------ 79 ------ FOOD PRODUCTS--0.9% 600 Nestle SA ADR (SWS)(1)............................ 31 160 Nestle SA--Registered (SWS)....................... 33 ------ 64 ------ GAS UTILITIES--1.2% 1,400 Kinder Morgan Inc. (US)........................... 69 600 Sempra Energy (US)................................ 14 ------ 83 ------ HEALTH CARE PROVIDERS & SERVICES--0.6% 200 Cardinal Health Inc. (US)......................... 13 400 Fresenius Medical Care AG (DEN)................... 25 ------ 38 ------ HOTELS RESTAURANTS & LEISURE--2.8% 1,790 Carnival Corp. (US)............................... 39 10,400 Compass Group plc (UK)............................ 76 12,500 Hilton Group plc (UK)............................. 32 5,800 P&O Princess Cruises plc (UK)..................... 21 2,100 Six Continents plc (UK)........................... 19 ------ 187 ------ HOUSEHOLD DURABLES--0.5% 1,900 Sega Corp. (JP)................................... 37 ------ HOUSEHOLD PRODUCTS--0.8% 700 Procter & Gamble Co. (US)......................... 52 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- INDUSTRIAL CONGLOMERATES--3.4% 4,600 General Electric Co. (US)......................... $ 167 4,000 Hitachi Ltd. (JP)................................. 27 700 Tyco International Ltd. (US)...................... 34 ------ 228 ------ INSURANCE--5.8% 800 Aegon NV (NET).................................... 20 700 AFLAC Inc. (US)................................... 17 100 Allianz AG--Registered (GER)...................... 24 800 Allstate Corp. (US)............................... 25 900 American International Group Inc. (US)............ 71 1,500 Assicurazioni Generali SpA (IT)................... 41 1,300 Hartford Financial Services Group Inc. (US)....... 70 800 Lincoln National Corp. (US)....................... 34 Muenchener Ruckversicherungs-Ges AG--Registered 250 (GER)........................................... 66 2,100 Riunione Adriatica di Sicurta SpA (IT)............ 25 ------ 393 ------ INTERNET SOFTWARE & SERVICES--0.2% 500 Check Point Software Technologies Ltd. (IL)*...... 15 ------ IT CONSULTING & SERVICES--1.2% 1,200 Accenture Ltd. Cl. A (US)......................... 21 900 Electronic Data Systems Corp. (US)................ 58 100 Tietoenator Ojy (FIN)............................. 2 ------ 81 ------ MACHINERY--0.9% 600 Caterpillar Inc. (US)............................. 27 10,000 Mitsubishi Heavy Industries Ltd. (JP)............. 34 ------ 61 ------ MEDIA--6.2% 2,600 AOL Time Warner Inc. (US)*........................ 81 1,000 Clear Channel Communications Inc. (US)*........... 38 800 Comcast Corp. Cl. A (US).......................... 29 900 Disney (Walt) Co. (US)............................ 17 1,100 Grupo Televisa SA de CV ADR (MEX)(1).............. 33 1,300 Liberty Media Corp. Series A (US)................. 15 900 Mediaset SpA (IT)................................. 6 800 New York Times Co. Cl. A (US)..................... 33 400 Omnicom Group Inc. (US)........................... 31 1,300 Pearson plc ADR (UK)(1)........................... 16 200 Reed International plc ADR (UK)(1)................ 7 4,200 Reed International plc (UK)....................... 34 900 Sogecable SA (SP)................................. 20 700 Viacom Inc. Cl. B (US)............................ 26 500 Vivendi Universal SA ADR (FR)(1).................. 23 200 Vivendi Universal SA (FR)......................... 9 ------ 418 ------ METALS & MINING--3.1% 3,000 Alcoa Inc. (US)................................... 97 1,300 Johnson Matthey Public Ltd. Co. (UK).............. 17 800 Nucor Corp. (US).................................. 33 300 Pechiney SA ADR (FR)(1)........................... 7 200 Pechiney SA (FR).................................. 9 1,000 Pohang Iron & Steel Co. Ltd. ADR (S. KOR)(1)*..... 17 1,000 Rio Tinto plc--Registered (UK).................... 16 500 The Shaw Group Inc. (US).......................... 14 ------ 210 ------
19 HARBOR GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- MULTILINE RETAIL--2.6% 5,818 Kingfisher plc (UK)............................... $ 27 2,100 Target Corp. (US)................................. 65 1,600 Wal-Mart Stores Inc. (US)......................... 82 ------ 174 ------ MULTI-UTILITIES--0.8% 1,300 Suez (FR)......................................... 41 400 Vivendi Environnement (FR)........................ 15 ------ 56 ------ OIL & GAS--5.4% 600 BP plc ADR (UK)(1)................................ 29 4,000 BP plc (UK)....................................... 32 4,000 Exxon Mobil Corp. (US)............................ 158 600 Total Fina Elf SA ADR (FR)(1)..................... 42 400 Total Fina Elf SA Cl. B (FR)...................... 56 1,600 Unocal Corp. (US)................................. 51 ------ 368 ------ PHARMACEUTICALS--9.5% 400 Abbott Laboratories (US).......................... 21 1,200 American Home Products Corp. (US)................. 67 300 Aventis SA (FR)................................... 22 300 Elan Corp. plc ADR (IE)(1)*....................... 14 700 Eli Lilly & Co. (US).............................. 54 1,400 GlaxoSmithKline plc ADR (UK)(1)................... 75 1,700 Johnson & Johnson (US)............................ 98 1,100 Merck & Co. Inc. (US)............................. 70 3,600 Pfizer Inc. (US).................................. 151 400 Pharmacia Corp. (US).............................. 16 1,100 Schering AG (GER)................................. 57 ------ 645 ------ ROAD & RAIL--1.1% 1,100 CSX Inc. (US)..................................... 37 700 Union Pacific Corp. (US).......................... 36 ------ 73 ------ SEMICONDUCTOR EQUIPMENT & PRODUCTS--2.7% 300 Applied Materials Inc. (US)*...................... 10 1,900 Flextronics International Ltd. (SGP)*............. 38 1,000 Micron Technology Inc. (US)*...................... 23 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 2,800 (TWN)(1)*....................................... 36 2,600 Texas Instruments Inc. (US)....................... 73 ------ 180 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- SOFTWARE--2.7% 2,600 Microsoft Corp. (US)*............................. $ 151 300 SAP AG (GER)...................................... 31 ------ 182 ------ SPECIALTY RETAIL--1.1% 100 Fast Retailing Co. Ltd. (JP)...................... 12 500 Gap Inc. (US)..................................... 7 1,400 Home Depot Inc. (US).............................. 54 ------ 73 ------ TOBACCO--2.7% 3,900 Philip Morris Cos. Inc. (US)...................... 183 ------ WIRELESS TELECOMMUNICATION SERVICES--2.3% 1,900 China Mobile (Hong Kong) Ltd. ADR (HK)(1)*........ 29 4,000 China Mobile (Hong Kong) Ltd. (HK)*............... 12 2 NTT DoCoMo Inc. (JP).............................. 27 1,100 Vodafone Group plc ADR (UK)(1).................... 25 27,000 Vodafone Group plc (UK)........................... 62 ------ 155 ------ TOTAL COMMON STOCKS (Cost $7,069)................................................ 6,197 ------ SHORT-TERM INVESTMENT--8.7% (Cost $587) PRINCIPAL AMOUNT (000S) ----------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated October 31, 2001 due November 1, 2001 at 1.00% collateralized by a U.S. Treasury Bill 5.50% August 15, 2028, par value of $575 (repurchase proceeds of $587 when closed on $ 587 November 1, 2001)............................... 587 ------ TOTAL INVESTMENTS--100.3% (Cost $7,656)................................................ 6,784 CASH AND OTHER ASSETS, LESS LIABILITIES--(0.3%)................ (19) ------ TOTAL NET ASSETS--100.0%....................................... $6,765 ======
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. 20 HARBOR CAPITAL APPRECIATION FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investments of 1.0%) Hotels Restaurants & Leisure 0.6 Commercial Services & Supplies 0.8 Personal Products 0.9 Banks 1.5 Health Care Equipment & Supplies 1.5 Aerospace & Defense 1.8 Beverages 3.2 Wireless Telecommunication Services 3.3 Specialty Retail 3.6 Communications Equipment 3.7 Energy Equipment & Services 4.3 Software 4.6 Semiconductor Equipment & Products 4.8 Multiline Retail 5.0 Biotechnology 5.1 Computers & Peripherals 6.1 Insurance 6.1 Industrial Conglomerates 6.4 Media 9.4 Diversified Financials 12.4 Pharmaceuticals 13.9
COMMON STOCKS--99.0% VALUE SHARES (000S) ----------------------------------------------------------------------- AEROSPACE & DEFENSE--1.8% 761,100 Lockheed Martin Corp. ...................... $ 37,119 726,100 Northrop Grumman Corp. ..................... 72,574 ---------- 109,693 ---------- BANKS--1.5% 2,665,400 Bank One Corp. ............................. 88,465 ----------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- BEVERAGES--3.2% 4,005,200 Pepsico Inc. ............................... $ 195,093 ---------- BIOTECHNOLOGY--5.1% 2,446,900 Amgen Inc.*................................. 139,033 2,089,900 Genentech Inc.*............................. 109,197 1,261,000 Sepracor Inc. .............................. 59,822 ---------- 308,052 ---------- COMMERCIAL SERVICES & SUPPLIES--0.8% 1,811,000 Concord EFS Inc. ........................... 49,567 ---------- COMMUNICATIONS EQUIPMENT--3.7% 6,659,600 Cisco Systems Inc.*......................... 112,680 5,250,500 Nokia Oyj ADR(1)*........................... 107,688 ---------- 220,368 ---------- COMPUTERS & PERIPHERALS--6.1% 4,563,100 Dell Computer Corp.*........................ 109,423 2,679,700 Hewlett-Packard Co. ........................ 45,099 1,643,100 International Business Machines Corp. ...... 177,570 3,752,400 Sun Microsystems Inc.*...................... 38,087 ---------- 370,179 ---------- DIVERSIFIED FINANCIALS--12.4% 547,400 American Express Co. ....................... 16,110 5,432,766 Citigroup Inc. ............................. 247,300 428,200 Federal Home Loan Mortgage Corp. ........... 29,041 353,600 Federal National Mortgage Association....... 28,627 1,002,200 Goldman Sachs Group Inc. ................... 78,332 1,745,300 Household International Inc. ............... 91,279 2,651,000 MBNA Corp. ................................. 73,194 1,087,900 Merrill Lynch & Co. Inc. ................... 47,552 1,471,240 Morgan Stanley Dean Witter & Co. ........... 71,973 Standard & Poor Depository Receipts Trust 567,300 Series 1*................................. 60,066 ---------- 743,474 ---------- ENERGY EQUIPMENT & SERVICES--4.3% 4,006,400 Halliburton Co. ............................ 98,918 3,247,200 Schlumberger Ltd. .......................... 157,229 ---------- 256,147 ---------- HEALTH CARE EQUIPMENT & SUPPLIES--1.5% 1,888,600 Baxter International Inc. .................. 91,352 ---------- HOTELS RESTAURANTS & LEISURE--0.6% 1,217,300 Marriott International Inc. Cl. A........... 38,138 ---------- INDUSTRIAL CONGLOMERATES--6.4% 4,262,500 General Electric Co. ....................... 155,198 709,900 Minnesota Mining & Manufacturing Co. ....... 74,099 3,147,100 Tyco International Ltd. .................... 154,648 ---------- 383,945 ---------- INSURANCE--6.1% 2,783,925 American International Group Inc. .......... 218,817 1,101,700 Hartford Financial Services Group Inc. ..... 59,492 1,020,400 XL Capital Ltd. ............................ 88,632 ---------- 366,941 ---------- MEDIA--9.4% 2,543,550 AOL Time Warner Inc.*....................... 79,384 1,041,900 Cablevision Systems Corp. Cl. A*............ 35,685 8,830,400 Liberty Media Corp. Series A*............... 103,227 989,900 New York Times Co. Cl. A.................... 40,833 1,535,400 Omnicom Group............................... 117,888 1,585,700 Univision Communications Inc. CI. A......... 39,642 4,142,740 Viacom Inc. CI. B*.......................... 151,251 ---------- 567,910 ----------
21 HARBOR CAPITAL APPRECIATION FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- MULTILINE RETAIL--5.0% 636,100 BJ's Wholesale Club Inc. ................... $ 32,295 2,757,700 Kohls Corp.*................................ 153,356 2,279,600 Wal-Mart Stores Inc. ....................... 117,171 ---------- 302,822 ---------- PERSONAL PRODUCTS--0.9% 1,707,100 Gillette Co. ............................... 53,074 ---------- PHARMACEUTICALS--13.9% 2,498,100 Abbott Laboratories......................... 132,349 3,061,900 American Home Products Corp. ............... 170,946 818,100 Aventis SA ADR(1)........................... 59,844 3,010,900 Johnson & Johnson........................... 174,361 4,139,350 Pfizer Inc. ................................ 173,439 3,089,978 Pharmacia Corp. ............................ 125,206 ---------- 836,145 ---------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--4.8% 796,500 Applied Materials Inc.*..................... 27,169 3,696,400 Intel Corp. ................................ 90,266 776,200 KLA-Tencor Corp.*........................... 31,716 687,800 Novellus Systems Inc. ...................... 22,718 770,300 STMicroelectronics NV ADR(1)................ 21,545 3,456,400 Texas Instruments Inc. ..................... 96,745 ---------- 290,159 ---------- SOFTWARE--4.6% 3,731,400 Microsoft Corp.*............................ 216,981 4,124,100 Oracle Corp. ............................... 55,923 253,200 SAP AG ADR(1)............................... 6,507 ---------- 279,411 ---------- SPECIALTY RETAIL--3.6% 3,690,050 Home Depot Inc. ............................ 141,071 3,118,400 Tiffany & Co. .............................. 72,939 ---------- 214,010 ----------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES--3.3% 2,088,100 AT&T Wireless Services Inc.*................ $ 30,152 3,400,400 Sprint Corp. Series 1*...................... 75,829 4,046,672 Vodafone Group plc ADR(1)*.................. 93,559 ---------- 199,540 ---------- TOTAL COMMON STOCKS (Cost $6,087,599)........................................ 5,964,485 ---------- SHORT-TERM INVESTMENTS--1.3% PRINCIPAL AMOUNT (000S) ----------------------------------------------------------------------- COMMERCIAL PAPER American Express Credit Corp. $ 26,539 2.580%--11/01/2001........................ 26,539 Chevron USA Inc. Yrs 1&2 50,000 2.500%--11/01/2001........................ 50,000 ---------- TOTAL SHORT-TERM INVESTMENTS (Cost $76,539)........................................... 76,539 ---------- TOTAL INVESTMENTS--100.3% (Cost $6,164,138)........................................ 6,041,024 CASH AND OTHER ASSETS, LESS LIABILITIES--(0.3%)............ (20,925) ---------- TOTAL NET ASSETS--100.0%................................... $6,020,099 ==========
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. 22 HARBOR INTERNATIONAL FUND II PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 INVESTMENT HOLDINGS BY COUNTRY (% OF NET ASSETS) (Excludes net cash of 0.4%) China (CHN) 1.0 Brazil (BR) 1.3 Portugal (PORT) 1.5 Singapore (SGP) 1.7 Israel (IL) 1.9 Australia (AUS) 2.1 Japan (JP) 4.4 Finland (FIN) 5.0 Germany (GER) 5.2 Italy (IT) 6.2 Netherlands (NET) 6.8 Sweden (SW) 6.8 Hong Kong (HK) 7.7 Switzerland (SWS) 10.4 United Kingdom (UK) 11.6 France (FR) 26.0
COMMON STOCKS--99.6% VALUE SHARES (000S) ---------------------------------------------------------------------- AUTO COMPONENTS--2.0% 50,267 Michelin Cl. B--Registered (FR)................. $ 1,552 ------- AUTOMOBILES--2.3% 43,474 Peugeot SA (FR)................................. 1,765 ------- BANKS--20.1% 103,230 ABN AMRO Holdings NV (NET)...................... 1,575 55,090 BNP Paribas (FR)................................ 4,578 33,526 Deutsche Bank AG--Registered (GER).............. 1,863 693,930 IntesaBCI SpA (IT).............................. 1,623 125,667 San Paolo IMI SpA (IT).......................... 1,319 130,155 Standard Chartered plc (UK)..................... 1,299 40,392 UBS AG--Registered (SWS)........................ 1,876 United Overseas Bank Ltd. (Alien Market) 238,000 (SGP)......................................... 1,332 ------- 15,465 ------- BUILDING PRODUCTS--1.3% 7,181 Compagnie de Saint-Gobain (FR).................. 998 -------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- CHEMICALS--1.7% 44,881 Bayer AG (GER).................................. $ 1,332 5 Givaudan SA (SWS)............................... 2 ------- 1,334 ------- COMMUNICATIONS EQUIPMENT--8.4% 42,700 Alcatel Series A (FR)........................... 644 50,000 Ericsson (LM) Tel Ab Cl. B ADR (SW)(1).......... 213 951,657 Ericsson (LM) Tel Ab Series B (SW).............. 4,122 99,574 NICE Systems Ltd. ADR (IL)(1)*.................. 1,489 ------- 6,468 ------- DIVERSIFIED FINANCIALS--5.2% 97,394 ING Groep NV (NET).............................. 2,427 386,000 Swire Pacific Ltd. Cl. A (HK)................... 1,608 ------- 4,035 ------- HOTELS RESTAURANTS & LEISURE--2.7% 64,935 Accor SA (FR)................................... 2,037 ------- HOUSEHOLD DURABLES--2.8% 56,300 Sony Corp. (JP)................................. 2,127 ------- INSURANCE--8.5% 67,322 Assicurazioni Generali SpA (IT)................. 1,844 99,628 AXA UAP (FR).................................... 2,178 7,200 Swiss Reinsurance Co. (SWS)..................... 740 7,959 Zurich Financial Services Group (SWS)........... 1,820 ------- 6,582 ------- IT CONSULTING & SERVICES--1.3% 9,000 Cap Gemini SA (FR).............................. 506 23,338 Tietoenator Oyj (FIN)........................... 523 ------- 1,029 ------- MACHINERY--3.5% 20,430 Heidelberger Druckmaschinen AG (GER)............ 801 20,198 Kone Oyj Series B (FIN)......................... 1,381 31,870 Saurer AG (SWS)................................. 526 ------- 2,708 ------- MEDIA--1.6% 44,881 News Corp. Ltd. ADR (AUS)(1).................... 1,235 ------- METALS & MINING--7.8% 628,335 Billiton plc (UK)............................... 2,670 897,622 Corus Group plc (UK)............................ 720 42,637 Pechiney SA (FR)................................ 1,956 63,000 Usinor SA (FR).................................. 663 ------- 6,009 ------- OIL & GAS--5.3% 177,165 BP plc. (UK).................................... 1,428 5,000,000 China Petroleum & Chemical Corp. (CHN).......... 776 50,057 Petrol Brasileiro SA Pfd. (BR).................. 961 6,567 Total Fina Elf SA Cl. B (FR).................... 921 ------- 4,086 ------- PAPER & FOREST PRODUCTS--3.6% 38,896 Svenska Cellulosa Ab Series B (SW).............. 879 58,991 UPM-Kymmene Corp. (FIN)......................... 1,915 ------- 2,794 ------- PHARMACEUTICALS--5.5% 17,098 Aventis SA (FR)................................. 1,257 37,837 GlaxoSmithKline plc (UK)........................ 1,017 41,680 Novartis AG--Registered (SWS)................... 1,559 550,000 Novogen Ltd. (AUS)*............................. 360 ------- 4,193 -------
23 HARBOR INTERNATIONAL FUND II PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- REAL ESTATE--4.0% 202,000 Cheung Kong Holdings Ltd. (HK).................. $ 1,709 409,000 Henderson Land Development Co. Ltd. (HK)........ 1,314 ------- 3,023 ------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--1.6% 87,000 ASM Lithography Holding NV (NET)*............... 1,252 ------- TEXTILES & APPAREL--2.0% Compagnie Financiere Richemont AG--Bearer 763 (SWS)......................................... 1,516 ------- TRANSPORTATION INFRASTRUCTURE--1.3% 1,471,679 Eurotunnel SA Units (FR)*....................... 1,032 -------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES--7.1% 87,069 China Mobile (Hong Kong) Ltd. ADR (HK)(1)*...... $ 1,325 94 NTT DoCoMo Inc. (JP)............................ 1,273 161,572 Telecel Comunicacoes Pessoais SA (PORT)......... 1,134 76,298 Vodafone Group plc ADR (UK)(1).................. 1,764 ------- 5,496 ------- TOTAL COMMON STOCKS (Cost $95,613)............................................. 76,736 ------- TOTAL INVESTMENTS--99.6% (Cost $95,613)............................................. 76,736 CASH AND OTHER ASSETS, LESS LIABILITIES--0.4%................ 307 ------- TOTAL NET ASSETS--100.0%..................................... $77,043 =======
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. 24 HARBOR INTERNATIONAL FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 INVESTMENT HOLDINGS BY COUNTRY (% OF NET ASSETS) (Excludes net cash, convertible bond and short-term investments of 5.9%) China (CHN) 0.4 Norway (NOR) 0.9 Spain (SP) 1.1 Hong Kong (HK) 1.5 Australia (AUS) 1.9 Finland (FIN) 2.1 Germany (GER) 2.1 Portugal (PORT) 2.1 Denmark (DEN) 2.6 Singapore (SGP) 2.6 Brazil (BR) 2.8 Italy (IT) 4.7 Japan (JP) 5.5 Netherlands (NET) 6.9 Sweden (SW) 6.9 Switzerland (SWS) 13.5 France (FR) 16.7 United Kingdom (UK) 19.8
COMMON STOCKS--94.1% VALUE SHARES (000S) ----------------------------------------------------------------------- AUTO COMPONENTS--1.6% Compagnie Financiere Michelin--Bearer 83,200 (SWS)..................................... $ 22,640 1,062,278 Michelin--Registered (FR)................... 32,801 ---------- 55,441 ---------- AUTOMOBILES--2.1% 1,782,226 Peugeot SA (FR)............................. 72,376 ---------- BANKS--16.9% 4,511,062 ABN Amro Holdings NV (NET).................. 68,815 520,315 Banco Commercial Portugues ADR (PORT)(1).... 10,310 Banco Commercial Portugues--Registered 15,924,416 (PORT).................................... 63,022 684,200 Bankinter SA--Registered (SP)............... 20,616 633,883 BNP Paribas (FR)............................ 52,681 662,100 Credit Suisse Group--Registered (SWS)....... 24,171 752,774 Deutsche Bank AG--Registered (GER).......... 41,837 19,892,026 IntesaBCI SpA (IT).......................... 46,519
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- 8,365,000 Oversea-Chinese Banking Corp. Ltd. (SGP).... $ 48,179 4,986,733 San Paolo IMI SpA (IT)...................... 52,344 5,539,900 Standard Chartered plc (UK)................. 55,289 1,401,936 UBS AG--Registered (SWS).................... 65,112 United Overseas Bank Ltd. (Alien Market) 7,488,842 (SGP)..................................... 41,900 ---------- 590,795 ---------- BEVERAGES--2.2% 7,839,318 Diageo plc (UK)............................. 78,180 ---------- BUILDING PRODUCTS--1.1% 273,400 Compagnie de Saint-Gobain (FR).............. 37,993 ---------- CHEMICALS--0.9% 1,068,619 Bayer AG (GER).............................. 31,719 ---------- COMMUNICATIONS EQUIPMENT--2.7% 2,421,800 Ericsson (LM) Tel Ab Cl. B ADR (SW)(1)...... 10,341 19,043,743 Ericsson (LM) Tel Ab Series B (SW).......... 82,481 ---------- 92,822 ---------- CONSTRUCTION & ENGINEERING--0.3% 2,020,425 Skanska Ab Series B (SW).................... 10,796 ---------- DIVERSIFIED FINANCIALS--2.9% 3,197,938 ING Groep NV (NET).......................... 79,676 4,962,000 Swire Pacific Ltd. Cl. A (HK)............... 20,675 ---------- 100,351 ---------- DIVERSIFIED TELECOMMUNICATION SERVICES--0.5% 1,549,373 Telefonica SA (SP)*......................... 18,590 ---------- FOOD PRODUCTS--2.7% 448,000 Nestle SA--Registered (SWS)................. 92,871 ---------- GAS UTILITIES--0.7% 11,393,662 Lattice Group (UK).......................... 25,614 ---------- HOTELS RESTAURANTS & LEISURE--1.3% 1,425,565 Accor SA (FR)............................... 44,711 ---------- HOUSEHOLD DURABLES--2.3% 909,391 Hunter Douglas NV (NET)..................... 20,653 1,591,200 Sony Corp. (JP)............................. 60,119 ---------- 80,772 ---------- INDUSTRIAL CONGLOMERATES--4.0% 25,258,100 Billiton plc ADR (UK)(1).................... 106,017 862,300 Norsk Hydro ASA (NOR)....................... 32,846 ---------- 138,863 ---------- INSURANCE--5.0% 2,398,978 Assicurazioni Generali SpA (IT)............. 65,704 2,256,272 AXA SA (FR)................................. 49,314 206,200 Swiss Reinsurance Co. (SWS)................. 21,184 173,855 Zurich Financial Services Group (SWS)....... 39,761 ---------- 175,963 ---------- LEISURE EQUIPMENT & PRODUCTS--1.1% 1,158,000 Fuji Photo Film Co. (JP).................... 38,176 ---------- MEDIA--1.8% 2,347,919 News Corp. Ltd. ADR (AUS)(1)................ 64,615 ---------- METALS & MINING--6.1% 4,748,740 Anglo American plc ADR (UK)(1).............. 61,354 1,399,163 Pechiney SA Series A (FR)................... 64,182 2,137,827 Rio Tinto--Registered (UK).................. 34,659 5,014,200 Usinor SA (FR).............................. 52,767 ---------- 212,962 ----------
25 HARBOR INTERNATIONAL FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- OFFICE ELECTRONICS--2.7% 3,240,000 Canon Inc. (JP)............................. $ 94,124 ---------- OIL & GAS--12.4% 11,393,662 BG Group plc (UK)........................... 43,075 14,432,381 BP plc (UK)................................. 116,361 94,000,000 China Petroleum & Chemical Corp. (CHN)...... 14,582 5,069,443 Petrol Brasileiro SA Pfd. (BR).............. 97,374 1,434,000 Royal Dutch Petroleum Co. ADR (NET)(1)...... 72,431 630,677 Total Fina Elf SA (FR)...................... 88,493 ---------- 432,316 ---------- PAPER & FOREST PRODUCTS--3.8% 1,405,900 Holmen Ab Series B (SW)..................... 30,182 1,230,704 Svenska Cellulosa Ab Series B (SW).......... 27,806 2,257,809 UPM-Kymmene Corp. (FIN)..................... 73,311 ---------- 131,299 ---------- PHARMACEUTICALS--7.2% 875,483 Aventis SA (FR)............................. 64,374 2,612,760 Novartis AG--Registered (SWS)............... 97,701 2,225,900 Novo Nordisk A/S Series B (DEN)............. 90,199 ---------- 252,274 ---------- TEXTILES & APPAREL--3.1% Compagnie Financiere Richemont AG--Bearer 55,387 (SWS)..................................... 110,076 ---------- TOBACCO--7.2% 8,141,947 British American Tobacco plc (UK)........... 70,967 8,006,162 Imperial Tobacco Group plc (UK)............. 99,965 15,718,474 Swedish Match Ab (SW)....................... 81,047 ---------- 251,979 ---------- TRANSPORTATION INFRASTRUCTURE--0.6% 31,779,732 Eurotunnel SA Units (FR)*................... 22,296 Eurotunnel SA Warrants (FR)* 19,000,000 Expire 12/31/2001......................... 171 19,000,000 Expire 10/30/2003......................... 342 ---------- 22,809 ---------- WIRELESS TELECOMMUNICATION SERVICES--0.9% 10,725,000 China Mobile (Hong Kong) Ltd. (HK)*......... 32,519 ---------- TOTAL COMMON STOCKS (Cost $2,456,699)........................................ 3,291,006 ---------- CONVERTIBLE BOND--0.9% (Cost $29,700) PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Liberty Group Ltd. (S. AFR) $ 30,000 6.500%--09/30/2004........................ $ 30,807 ---------- SHORT-TERM INVESTMENTS--4.7% COMMERCIAL PAPER American Express Credit Corp. Yrs 1&2 19,223 2.461%--11/02/2001........................ 19,223 23,377 2.320%--11/13/2001........................ 23,377 ---------- 42,600 ---------- Citicorp 21,356 2.450%--11/06/2001........................ 21,356 15,746 2.330%--11/08/2001........................ 15,746 ---------- 37,102 ---------- Exxon Asset Management Co. 22,946 2.330%--11/07/2001........................ 22,946 General Electric Capital Corp. 16,970 2.450%--11/05/2001........................ 16,970 Prudential Funding Corp. 25,385 2.430%--11/01/2001........................ 25,385 21,240 2.330%--11/09/2001........................ 21,240 ---------- 46,625 ---------- TOTAL SHORT-TERM INVESTMENTS (Cost $166,243).......................................... 166,243 ---------- TOTAL INVESTMENTS--99.7% (Cost $2,652,642)........................................ 3,488,056 CASH AND OTHER ASSETS, LESS LIABILITIES--0.3%.............. 9,301 ---------- TOTAL NET ASSETS--100.0%................................... $3,497,357 ==========
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. 26 HARBOR LARGE CAP VALUE FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investments of 10.6%) Health Care Providers & Services 1.6 Banks 1.8 Food & Drug Retailing 1.9 Electric Utilities 2.0 Hotels Restaurants & Leisure 2.0 IT Consulting & Services 2.1 Industrial Conglomerates 2.4 Road & Rail 2.5 Communications Equipment 2.6 Diversified Telecommunication Services 2.6 Household Durables 3.0 Chemicals 3.1 Electrical Equipment 3.2 Computers & Peripherals 3.6 Insurance 5.2 Pharmaceuticals 5.3 Specialty Retail 6.0 Oil & Gas 7.0 Media 8.8 Commercial Services & Supplies 9.0 Diversified Financials 13.7
COMMON STOCKS--89.4% VALUE SHARES (000S) ----------------------------------------------------------------------- BANKS--1.8% 69,721 FleetBoston Financial Corp...................... $ 2,291 -------- CHEMICALS--3.1% 99,199 E.l. Du Pont De Nemours & Co.................... 3,967 --------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES--9.0% 361,000 Cendant Corp.*.................................. $ 4,679 116,900 IMS Health Inc. ................................ 2,498 122,000 Pitney Bowes Inc. .............................. 4,472 -------- 11,649 -------- COMMUNICATIONS EQUIPMENT--2.6% 385,800 Avaya Inc. ..................................... 3,445 -------- COMPUTERS & PERIPHERALS--3.6% 43,900 International Business Machines Corp. .......... 4,744 -------- DIVERSIFIED FINANCIALS--13.7% 88,500 American Express Co. ........................... 2,605 106,812 Citigroup Inc. ................................. 4,862 76,800 Federal Home Loan Mortgage Corp. ............... 5,209 146,114 J.P. Morgan Chase & Co. ........................ 5,167 -------- 17,843 -------- DIVERSIFIED TELECOMMUNICATION SERVICES--2.6% 168,400 Sprint Corp. ................................... 3,368 -------- ELECTRIC UTILITIES--2.0% 63,400 Exelon Corp. ................................... 2,667 -------- ELECTRICAL EQUIPMENT--3.2% 84,100 Emerson Electric Co. ........................... 4,123 -------- FOOD & DRUG RETAILING--1.9% 58,000 Safeway Inc.* .................................. 2,416 -------- HEALTH CARE PROVIDERS & SERVICES--1.6% 90,100 Oxford Health Plans Inc. ....................... 2,123 -------- HOTELS RESTAURANTS & LEISURE--2.0% 51,700 Tricon Global Restaurants Inc. ................. 2,615 -------- HOUSEHOLD DURABLES--3.0% 66,700 Whirlpool Corp. ................................ 3,937 -------- INDUSTRIAL CONGLOMERATES--2.4% 98,400 Textron Inc. ................................... 3,114 -------- INSURANCE--5.2% 810 American International Group Inc. .............. 64 55,765 Chubb Corp. .................................... 3,809 83,500 John Hancock Financial Services Inc. ........... 2,846 -------- 6,719 -------- IT CONSULTING & SERVICES--2.1% 42,400 Electronic Data Systems Corp. .................. 2,729 -------- MEDIA--8.8% 124,400 Comcast Corp. Cl. A............................. 4,458 39,800 Gannett Inc. ................................... 2,515 384,000 Liberty Media Corp. Series A.................... 4,489 -------- 11,462 -------- OIL & GAS--7.0% 125,900 Devon Energy Corp. ............................. 4,822 74,900 Kerr-McGee Corp. ............................... 4,314 -------- 9,136 -------- PHARMACEUTICALS--5.3% 77,000 American Home Products Corp. ................... 4,299 70,300 Schering-Plough Corp. .......................... 2,614 -------- 6,913 -------- ROAD & RAIL--2.5% 82,000 Canadian National Railway Co. .................. 3,247 --------
27 HARBOR LARGE CAP VALUE FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ----------------------------------------------------------------------- SPECIALTY RETAIL--6.0% 157,900 RadioShack Corp. ............................... $ 3,946 265,700 Staples Inc.* .................................. 3,874 -------- 7,820 -------- TOTAL COMMON STOCKS (Cost $111,378)............................................ 116,328 -------- SHORT-TERM INVESTMENTS--9.8% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated October 31, 2001 due November 1, 2001 at 1.00% collateralized by a U.S. Treasury Bill 5.50% August 15, 2028, par value of $11,810 (repurchase proceeds of $12,063 when closed on November 1, 2001).............. $ 12,063 $ 12,063 U.S. TREASURY BILLS U.S. Treasury Bills 650 3.380%--11/15/2001............................ 649 -------- TOTAL SHORT-TERM INVESTMENTS (Cost $12,712)............................................. 12,712 -------- TOTAL INVESTMENTS--99.2% (Cost $124,090)............................................ 129,040 CASH AND OTHER ASSETS, LESS LIABILITIES--0.8%................ 989 -------- TOTAL NET ASSETS--100.0%..................................... $130,029 ========
------------ * Non-income producing security. The accompanying notes are an integral part of the financial statements. 28 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 TOTAL INVESTMENTS (% OF NET ASSETS) (Excludes excess of liabilities over other assets and short-term investments of -26.2%) Municipal Bonds 0.5 Foreign Government Obligations 3.4 U.S. Government Obligations 7.8 Asset-Backed Securities 8.7 Collateralized Mortgage Obligations 24.2 Corporate Bonds & Notes 30.5 Mortgage Pass-Through 51.1
ASSET-BACKED SECURITIES--8.7% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Asset Backed Securities Corp. Series 1999 Cl. 4A $ 2,258 2.833%--06/21/2029(2,3,4)................. $ 2,266 Series 2001 Cl. A1 7,810 2.785%--06/15/2031(2,3)................... 7,821 ---------- 10,087 ---------- Bayview Financial Acquisition Trust 12,689 2.700%--07/25/2031(1,2,3,4)............... 12,650 Conseco Private Label Master Note Trust Series 2001-A Cl. A 3,100 2.805%--12/15/2008(2,4)................... 3,105 Credit Suisse First Boston Mortgage Securities Corp. Series 2000-HE1 Cl. A2 14,557 2.785%--12/15/2030(2,3,4)................. 14,574 New York City Tax Lien Series 2000-AA Cl. C 12,327 8.110%--11/10/2008(1,4)................... 13,008 Option One Mortgage Trust Series 2001-3 Cl. A 7,312 2.545%--06/25/2031(2,3)................... 7,320 Providian Gateway Master Trust Series 2000-B Cl. A 16,800 2.805%--03/16/2009(1,2)................... 16,839 Salomon Brothers Mortgage Services VII Inc. Series 1999-AQ2 Cl. A1 4,660 2.945%--11/15/2029(2,3,4)................. 4,681 SLM Student Loan Trust Series 1997-2 Cl. A1 902 3.553%--10/25/2005(2,4)................... 909 Series 1997-3 Cl. A1 2,765 3.613%--04/25/2006(2,4)................... 2,761 Series 1995-1 Cl. A2 4,440 3.763%--10/25/2007 (2,4).................. 4,439 ---------- 8,109 ---------- TOTAL ASSET-BACKED SECURITIES (Cost $89,749)........................................... 90,373 ---------- CORPORATE BONDS & NOTES--30.5% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Allete $ 1,500 3.240%--10/20/2003(2)..................... $ 1,503 American Airlines Pass Through Certificate Series 2001-2 Cl. A1 2,500 6.978%--04/01/2011(1)..................... 2,728 AOL Time Warner Inc. 450 7.975%--08/15/2004(4)..................... 497 Banesto Delaware Inc. 3,000 8.250%--07/28/2002(4)..................... 3,110 Bank One Corp. MTN(5) 10,000 3.190%--03/11/2002(2,4)................... 10,017 10,000 2.700%--06/26/2002(2,4)................... 10,011 ---------- 20,028 ---------- Banponce Corp. 2,000 6.750%--12/15/2005(4)..................... 2,071 Bear Stearns Cos. Inc. MTN(5) 9,800 3.850%--12/01/2003(2,4)................... 9,809 British Telecom plc 1,400 8.125%--12/15/2010........................ 1,602 Cincinnati Financial Corp. 5,000 6.900%--05/15/2028(4)..................... 4,824 CIT Group Inc. MTN(5) 8,800 2.931%--04/07/2003(2,4)................... 8,833 Citicorp 10,625 7.125%--03/15/2004(4)..................... 11,489 Cleveland Electric Illuminating Co. Series B 2,000 9.500%--05/15/2005(4)..................... 2,055 ConAgra Foods Inc. 10,000 4.220%--09/10/2003(2,4)................... 10,016 Credit Suisse First Boston 10,000 6.500%--05/01/2008(1,4)................... 10,607 DaimlerChrysler North America Holding 10,000 2.545%--01/18/2002(2,4)................... 9,985 3,000 3.920%--12/16/2002(2)..................... 2,984 ---------- 12,969 ---------- DaimlerChrysler North America Holding MTN(5) 5,000 7.750%--05/27/2003(4)..................... 5,241 8,700 2.730%--08/01/2003(2)..................... 8,545 ---------- 13,786 ---------- Disney (Walt) Co. 16,200 4.500%--09/15/2004(4)..................... 16,408 DTE Energy Co. Series B 10,000 7.110%--11/15/2003(1,2,4)................. 10,452 First Union Corp. 3,500 3.460%--03/31/2005(2)..................... 3,513 Ford Capital BV 6,100 9.875%--05/15/2002........................ 6,312 Ford Motor Credit Co. MTN(5) 4,100 3.733%--06/02/2003(2)..................... 4,035 20,000 3.255%--06/20/2003(2,4)................... 19,672 ---------- 23,707 ---------- France Telecom SA 2,000 4.406%--03/14/2003(1,2)................... 2,002 7,100 7.200%--03/01/2006(1,3)................... 7,588 ---------- 9,590 ----------
29 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED
CORPORATE BONDS & NOTES--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Fred Meyer Inc. $ 5,000 7.150%--03/01/2003(4)..................... $ 5,246 Gemstone Investors Ltd. 2,100 7.710%--10/31/2004(1)..................... 2,112 General Motors Acceptance Corp. 5,900 6.750%--03/15/2003........................ 6,184 5,000 5.750%--11/10/2003(4)..................... 5,089 ---------- 11,273 ---------- General Motors Acceptance Corp. MTN(5) 6,400 2.540%--08/04/2003(2)..................... 6,305 3,000 5.550%--09/15/2003(2,4)................... 3,049 10,000 3.110%--01/20/2004(2,4)................... 9,890 2,100 3.453%--03/22/2004(2)..................... 2,077 3,100 4.338%--05/10/2004(2)..................... 3,048 1,400 2.740%--07/21/2004(2)..................... 1,357 ---------- 25,726 ---------- Gulf States Utilities Co. 400 8.210%--01/01/2002........................ 402 Indymac ARM Trust Series 2001-H2 Cl. A 2,200 6.490%--09/25/2031........................ 2,302 Kroger Co. 1,100 4.310%--08/16/2012(2)..................... 1,101 Merrill Lynch & Co. Inc. MTN(5) 2,300 3.848%--05/21/2004(2)..................... 2,303 Mexico Credit Link 5,000 10.558%--02/22/2002(2,4).................. 5,095 Morgan Stanley Dean Witter & Co. MTN(5) 3,800 3.889%--05/14/2004(2)..................... 3,790 Occidental Petroleum Corp. 5,000 6.400%--04/01/2003(2,4)................... 5,206 Old Kent Bank 10,000 7.750%--08/15/2010(2,4)................... 10,837 Salomon Smith Barney Holdings 5,346 3.650%--02/14/2002(4)..................... 5,372 Sprint Capital Corp. 5,300 6.000%--01/15/2007(1)..................... 5,274 Toledo Edison Co. 2,000 8.700%--09/01/2002........................ 2,063 TRW Inc. 3,500 6.625%--06/01/2004(1)..................... 3,617 TXU Electric Co. 19,000 4.390%--06/15/2003........................ 19,025 United Airlines Pass Thru Certificate Series 1993 Cl. C2 3,000 9.060%--06/17/2015(4)..................... 2,669 Wachovia Corp. 2,600 4.950%--11/01/2006........................ 2,595 Westdeutsche Landesbank NY 13,200 6.050%--01/15/2009(4)..................... 13,891 ---------- TOTAL CORPORATE BONDS & NOTES (Cost $311,025).......................................... 315,808 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS--24.2% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Bear Stearns ARM Trust Series 2000-2 Cl. A1 $ 2,028 6.584%--11/25/2030........................ $ 2,063 Series 2000-1 Cl. A1 1,161 7.480%--12/25/2030........................ 1,181 Series 2000-1 Cl. 2A 1,603 7.492%--12/25/2030........................ 1,642 ---------- 4,886 ---------- Chase Mortgage Finance Corp. REMIC(6) Series 1993-N Cl. A9 3,000 6.750%--11/25/2024(4)..................... 3,079 Collateralized Mortgage Securities Corp. Series F Cl. 4 84 11.450%--11/01/2015....................... 85 Collateralized Mortgage Securities Corp. REMIC(6) Series 1988-4 Cl. B 89 8.750%--04/20/2019(4)..................... 94 Countrywide Home Loans Pass Thru Certificates Series 1997-6 Cl. A1 10,000 7.250%--11/25/2027(4)..................... 10,366 Series 2000-2 Cl. A2 359 7.750%--04/25/2030........................ 362 Series 2000-8 Cl. A2 757 7.750%--01/25/2031........................ 776 ---------- 11,504 ---------- Drexel Burnham Lambert CMO Trust REMIC(6) Series H Cl. 4 4,413 8.500%--04/01/2017(4)..................... 4,547 E*TRADE Bank ARM Trust Series 2001-1 Cl. A1 15,363 7.111%--09/25/2031(4)..................... 15,622 Federal Home Loan Mortgage Corp. 11,880 3.175%--03/15/2025(2,4)................... 11,911 21,446 7.000%--10/15/2030(4)..................... 22,212 10,895 2.975%--11/15/2030(2,4)................... 10,921 ---------- 45,044 ---------- Federal Home Loan Mortgage Corp. REMIC(6) 740 9.000%--12/15/2020(4)..................... 787 3,115 8.000%--08/15/2022........................ 3,397 4,145 6.500%--02/15/2023(4,7)................... 400 5,000 6.000%--08/15/2026(4)..................... 5,152 ---------- 9,736 ---------- Federal National Mortgage Association REMIC(6) Series 1993-129 Cl. J 213 6.500%--02/25/2007(4,7)................... 5 Series 1993-29 Cl. B 675 6.500%--12/25/2020(4)..................... 676 Series 1997-55 Cl. ZA 8,212 7.000%--04/18/2027(4)..................... 8,432 ---------- 9,113 ---------- First Horizon Asset Securities Inc. Series 2001-7 Cl. A1 3,200 6.750%--11/25/2031........................ 3,276
30 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- First Nationwide Trust Series 2001-3 Cl. A1 $ 997 6.750%--08/21/2031........................ $ 1,031 Series 2001-4 Cl. 4A1 4,707 4.210%--09/25/2031(2)..................... 4,721 ---------- 5,752 ---------- GE Capital Mortgage Services Inc. Series 1994-6 Cl. A3 3,620 6.500%--12/25/2022........................ 3,686 GE Capital Mortgage Services Inc. REMIC(6) Series 1998-17 Cl. A3 9,670 6.750%--10/25/2028(4)..................... 10,082 GMAC Commercial Mortgage Trust I Series 1999-D Cl. A 13,970 3.368%--09/20/2004(1,4,8)................. 13,952 Kidder Peabody Acceptance Corp. REMIC(6) Series 1994-2 Cl. 1A2 227 8.107%--09/25/2024(2,4)................... 234 Merrill Lynch Mortgage Investors Inc. Series 2000 Cl. A 10,123 2.763%--01/20/2030(2,3,4)................. 10,130 Morgan Stanley Dean Witter Capital I Series 2001 Cl. A 6,279 2.831%--07/11/2011(1,2)................... 6,279 Norwest Asset Securities Corp. REMIC(6) Pass Thru Certificates Series 1997-19 Cl. A8 6,200 7.250%--12/25/2027(4)..................... 6,550 Series 1998-12 Cl. A9 5,000 6.750%--06/25/2028(4)..................... 5,178 ---------- 11,728 ---------- PNC Mortgage Securities Corp. REMIC(6) Pass Thru Certificate Series 1999-4 Cl. 1A8 9,800 6.290%--06/25/2029........................ 10,163 Prudential Home Mortgage Securities Co. REMIC(6) Series 1993-29 Cl. A8 3,941 6.750%--08/25/2008(4)..................... 3,998 Residential Asset Securitization Trust Pass Thru Certificates Series 1998-A13 Cl. 1A3 6,931 6.500%--12/25/2028(4)..................... 7,092 Series 2000-A2 Cl. NB1 1,510 8.000%--04/25/2030(4)..................... 1,528 ---------- 8,620 ---------- Residential Funding Mortgage Securities I Inc. Series 1997-S8 Cl. A9 6,817 7.500%--06/25/2027(4)..................... 6,988 Salomon Brothers Mortgage Services VII Inc. Pass Thru Certificates Series 1999 Cl. A 9,363 2.820%--09/25/2029(2,3)................... 9,403 Series 2000 Cl. A 853 7.600%--08/25/2030........................ 857 ---------- 10,260 ---------- Sasco Floating Rate Mortgage Trust Series 1999 Cl. B 4,008 3.063%--11/20/2001(1,2)................... 4,011
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Sears Mortgage Securities Corp. Series 92 Cl. A $ 277 1.000%--10/25/2022(1,2,4)................. $ 280 Small Business Administration Series 2000-P10 Cl.1 1,990 7.449%--08/01/2010........................ 2,239 Series 2001-20A Cl. 1 4,317 6.290%--01/01/2021........................ 4,513 ---------- 6,752 ---------- Structured Asset Securities Corp. Pass Through Certificate Series 2001 Cl. 2A1 3,284 6.500%--09/25/2031........................ 3,338 Structured Asset Mortgage Investments Inc. REMIC(6) Series 1998-9 Cl. 1A3 5,000 6.250%--11/25/2028........................ 5,078 Washington Mutual Series 2000-1 Cl. A 291 2.804%--07/26/2003(1,2)................... 291 Wells Fargo Mortgage Backed Securities Trust Series 2000-14 Cl. A5 9,298 7.500%--01/25/2031........................ 9,587 Series 2001-25 Cl. IIA 12,795 6.660%--10/25/2031........................ 13,079 ---------- 22,666 ---------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $247,020).......................................... 251,274 ---------- FOREIGN GOVERNMENT OBLIGATIONS--3.4% Federal Republic of Brazil 1,224 5.438%--04/15/2006(2)..................... 1,081 4,680 7.375%--04/15/2006(2)..................... 3,838 ---------- 4,919 ---------- Federal Republic of Germany E 3,400 6.000%--01/05/2006........................ 3,326 500 4.500%--07/04/2009........................ 440 ---------- 3,766 ---------- Republic of Panama $ 5,000 9.625%--02/08/2011........................ 5,055 1,733 4.750%--07/17/2014(2)..................... 1,497 2,829 4.000%--07/17/2016(2)..................... 2,168 ---------- 8,720 ---------- United Mexican States 1,112 1.000%--03/25/2005(2)..................... 1,045 15,000 9.750%--04/06/2005........................ 16,684 ---------- 17,729 ---------- TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $35,461)........................................... 35,134 ---------- MORTGAGE PASS-THROUGH--51.1% Federal Home Loan Mortgage Corp. 30 8.000%--06/01/2011........................ 31 22 8.500%--02/01/2017(4)..................... 23 448 7.005%--06/01/2024(2,4)................... 463 8,985 5.930%--08/15/2032(2,4)................... 8,819 ---------- 9,336 ----------
31 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED
MORTGAGE PASS-THROUGH--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Federal Home Loan Mortgage Corp. TBA(8) November Delivery $ 6,000 6.000%--11/14/2031........................ $ 5,963 Federal Housing Authority Project 221 Grey 98-4 7,496 7.430%--10/01/2020(4)..................... 7,682 221D4 Banco-5 586 7.400%--02/01/2021........................ 598 221D4 Banco-15 173 7.450%--05/01/2021........................ 177 223C Reilly-52 279 5.150%--06/01/2018........................ 279 ---------- 8,736 ---------- Federal National Mortgage Association 41 9.000%--03/01/2005(4)..................... 44 675 9.000%--11/01/2009(4)..................... 735 6 8.500%--12/01/2009........................ 6 17 9.500%--04/01/2011........................ 19 18,148 6.071%--10/01/2040(4)..................... 18,613 ---------- 19,417 ---------- Federal National Mortgage Association I TBA(8) November Delivery 11,000 6.000%--11/19/2016........................ 11,253 Government National Mortgage Association 476 7.000%--02/15/2028........................ 498 190 6.000%--11/15/2028........................ 194 5,054 6.000%--01/15/2029........................ 5,144 48 7.500%--01/15/2029........................ 51 8,017 6.000%--02/15/2029........................ 8,158 335 7.500%--02/15/2029........................ 352 4,782 6.000%--03/15/2029........................ 4,867 4,059 6.000%--04/15/2029........................ 4,130 2,255 6.000%--05/15/2029........................ 2,293 522 6.000%--06/15/2029........................ 530 5,327 6.000%--07/15/2029........................ 5,422 112 6.000%--08/15/2029........................ 114 684 7.500%--08/15/2029........................ 720 2,296 6.000%--09/15/2029........................ 2,336 608 7.500%--09/15/2029........................ 641 92 6.000%--10/15/2029........................ 94 2,068 7.500%--10/15/2029........................ 2,179 80 6.000%--11/15/2029........................ 82 124 7.500%--11/15/2029........................ 130 307 7.000%--12/15/2029........................ 321 488 7.500%--12/15/2029........................ 513 423 7.500%--01/15/2030........................ 444 61 7.500%--02/15/2030........................ 65 205 7.500%--04/15/2030........................ 216 23 7.500%--07/15/2030........................ 24 944 7.500%--08/15/2030........................ 993 364 6.000%--10/15/2030........................ 371 838 7.500%--10/15/2030........................ 882 193 7.500%--11/15/2030........................ 203 391 7.500%--12/15/2030........................ 412 1,677 7.500%--01/15/2031........................ 1,765 217 7.000%--02/15/2031........................ 227
MORTGAGE PASS-THROUGH--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- $ 3,849 7.500%--02/15/2031........................ $ 4,049 383 7.500%--03/15/2031........................ 402 190 6.000%--07/15/2031........................ 193 ---------- 49,015 ---------- Government National Mortgage Association I TBA(8) November Delivery 20,500 6.000%--11/20/2031........................ 20,840 95,500 6.500%--11/20/2031........................ 98,634 132,000 7.000%--11/20/2031........................ 137,566 ---------- 257,040 ---------- Government National Mortgage Association I TBA(8) December Delivery 85,000 7.000%--12/20/2031........................ 88,320 Government National Mortgage Association II 781 6.375%--03/20/2017(4)..................... 798 373 6.750%--08/15/2017........................ 398 1,503 6.750%--08/20/2022(4)..................... 1,561 907 6.750%--09/20/2023(4)..................... 942 263 6.375%--05/20/2024(4)..................... 270 30 6.750%--07/20/2024........................ 31 2,010 6.750%--09/20/2024(4)..................... 2,086 250 7.625%--12/20/2024(4)..................... 260 786 6.375%--01/20/2025(4)..................... 804 695 6.375%--02/20/2025(4)..................... 711 440 7.625%--10/20/2025........................ 459 1,257 7.625%--11/20/2025(4)..................... 1,310 316 7.625%--12/20/2026(4)..................... 329 2,373 6.750%--07/20/2027........................ 2,461 6,567 7.000%--11/20/2029........................ 6,744 ---------- 19,164 ---------- Government National Mortgage Association II TBA(8) November Delivery 13,000 6.000%--11/20/2031........................ 13,171 20,600 6.500%--11/20/2031........................ 21,199 8,000 7.000%--11/20/2031........................ 8,333 ---------- 42,703 ---------- PNC Mortgage Securities Corp. REMIC(6) Series 1998-14 Cl. 3A3 17,589 6.500%--02/25/2029(4)..................... 18,129 ---------- TOTAL MORTGAGE PASS-THROUGH (Cost $521,675).......................................... 529,076 ---------- MUNICIPAL BONDS--0.5% Massachusetts State Water Resources Authority Series B 2,600 4.750%--12/01/2021........................ 2,521 North Carolina State Education Authority Series 2000 Cl. G 2,700 3.650%--06/01/2009(2)..................... 2,702 ---------- TOTAL MUNICIPAL BONDS (Cost $5,115)............................................ 5,223 ----------
32 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED
MUNICIPAL BONDS--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS--7.8% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- U.S. Treasury Bonds $ 2,028 3.625%--04/15/2028(9)..................... $ 2,177 5,800 5.250%--11/15/2028........................ 5,960 15,648 3.875%--04/15/2029(4,9)................... 17,541 ---------- 25,678 ---------- U.S. Treasury Notes 2,660 3.625%--07/15/2002(4,9)................... 2,710 4,705 3.375%--01/15/2007(4,9)................... 4,869 4,724 3.625%--01/15/2008(9)..................... 4,937 39,288 3.875%--01/15/2009(9)..................... 41,694 1,224 3.500%--01/15/2011(9)..................... 1,273 ---------- 55,483 ---------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $77,251)........................................... 81,161 ---------- OPTIONS--0.0% NO. OF CONTRACTS ----------------------------------------------------------------------- Eurodollar Futures Contracts 6,062 Expire 12/2001.......................... 25 8,250 Expire 06/2002.......................... 38 ---------- TOTAL OPTIONS (Cost $115).............................................. 63 ---------- SHORT-TERM INVESTMENTS--11.8% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- COMMERCIAL PAPER AT&T Corp $ 4,900 4.525%--08/06/2002........................ $ 4,900 CDC Commercial Paper Corp 50,000 2.600%--11/01/2001........................ 50,000 Federal Home Loan Mortgage Corp 695 0.010%--01/10/2002(4)..................... 692 Federal National Mortgage Association 6,100 0.010%--11/01/2001........................ 6,100 6,600 0.010%--12/20/2001........................ 6,567 ---------- 12,667 ---------- Swedbank Forenings Yrs 1&2 7,700 3.100%--12/26/2001........................ 7,663 UBS Finance Inc. Yrs 1&2 42,300 2.650%--11/01/2001........................ 42,300 1,900 3.550%--12/19/2001........................ 1,891 ---------- 44,191 ---------- TOTAL COMMERCIAL PAPER..................................... 120,113 ---------- U.S. TREASURY BILLS U.S. Treasury Bills 1,905 0.010%--02/07/2002(4)..................... 1,894 ---------- TOTAL SHORT-TERM INVESTMENTS (Cost $122,007).......................................... 122,007 ---------- TOTAL INVESTMENTS--138.0% (Cost $1,409,418)........................................ 1,430,119 CASH AND OTHER ASSETS, LESS LIABILITIES--(38.0%)........... (393,567) ---------- TOTAL NET ASSETS--100.0%................................... $1,036,552 ==========
------------------------------------------------------------ FUTURES CONTRACTS WHICH WERE OPEN AT OCTOBER 31, 2001 ARE AS FOLLOWS:
UNREALIZED AGGREGATE APPRECIATION/ NUMBER OF FACE VALUE (DEPRECIATION) DESCRIPTION CONTRACTS (000S) EXPIRATION DATE (000S) ----------- --------- ---------- --------------- -------------- U.S. Treasury Bonds--20 Yr. (Buy)........................ 1,154 $1,154,000 Dec-01 $6,894 U.S. Treasury Notes--10 Yr. (Sell)....................... 76 76,000 Dec-01 (234) U.S. Treasury Notes--5 Yr. (Sell)........................ 59 59,000 Dec-01 (156) Municipal Bond Index Futures (Buy)....................... 2 2,000 Dec-01 5 Federal Republic of Germany Bonds--10 Yr. (Buy).......... 464 E 464,000 Dec-01 916 ------ $7,425 ======
33 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED WRITTEN OPTIONS WHICH WERE OPEN AT OCTOBER 31, 2001 ARE AS FOLLOWS:
NUMBER OF SHARES/ STRIKE VALUE DESCRIPTION CONTRACTS PRICE EXPIRATION DATE (000S) ----------- --------- ------ --------------- ------ U.S. Treasury Notes--10 Yr. Futures (Call)............ 759 $109.00 Nov-01 $(2,016) U.S. Treasury Notes--10 Yr. Futures (Call)............ 600 111.00 Nov-01 (684) U.S. Treasury Notes--10 Yr. Futures (Call)............ 1,773 108.00 Nov-01 (111) Euro Futures (Put).................................... 4,600,000 0.082 Nov-01 -- Euro Futures (Put).................................... 1,800,000 0.082 Dec-01 -- Eurodollar Futures (Put).............................. 89 95.00 Dec-01 (1) Eurodollar Futures (Put).............................. 109 96.00 Dec-01 (1) U.S. Treasury Notes--10 Yr. Futures (Call)............ 113 112.00 Feb-02 (150) U.S. Treasury Notes--10 Yr. Futures (Call)............ 131 111.00 Feb-02 (221) Eurodollar Futures (Put).............................. 168 95.50 Jun-02 (4) Eurodollar Futures (Put).............................. 387 96.00 Jun-02 (19) Eurodollar Futures (Put).............................. 5,371 95.75 Jun-02 (201) Swap Options--3 Mo. Libor (Call)...................... 21,100,000 5.97 Oct-04 (1,052) Swap Options--3 Mo. Libor (Put)....................... 21,100,000 5.97 Oct-04 (793) Swap Options--3 Mo. Libor (Call)...................... 5,500,000 6.00 Oct-04 (205) Swap Options--3 Mo. Libor (Put)....................... 5,500,000 6.00 Oct-04 (279) ------- Written options outstanding, at value (Premiums received of $7,416)................................. $(5,737) =======
TBA SALE COMMITMENTS WHICH WERE OPEN AT OCTOBER 31, 2001 ARE AS FOLLOWS:
PRINCIPAL AMOUNT COUPON VALUE DESCRIPTION (000S) RATE DELIVERY DATE (000S) ----------- --------- ------ ------------- ------ Federal Home Loan Mortgage Corp....................... $ 6,000 6.00% Nov-01 $ 5,963 Government National Mortgage Assoc. II................ 85,000 7.00% Nov-01 88,525 ------- TBA Sale Commitments at Value (Proceeds receivable $93,787)............................................ $94,488 =======
FIXED INCOME INVESTMENTS SOLD SHORT AT OCTOBER 31, 2001 ARE AS FOLLOWS:
VALUE PAR SECURITY (000S) --- -------- ------ Federal Republic of Germany Bonds........................... E 500,000 $ 440 United States Treasury Notes................................ $5,800,000 6,070 ------ TOTAL FIXED INCOME INVESTMENT SOLD SHORT (Proceeds $6,455)........................................... $6,510 ======
FORWARD CURRENCY CONTRACTS WHICH WERE OPEN AT OCTOBER 31, 2001 ARE AS FOLLOWS:
UNREALIZED AGGREGATE APPRECIATION/ MARKET VALUE FACE VALUE (DEPRECIATION) CURRENCY (000S) (000S) DELIVERY DATE (000S) -------- ------------ ---------- ------------- -------------- Japanese Yen (Sell)................................... $24,560 $24,845 Dec-01 $ 285 Eurodollar (Buy)...................................... 21,881 22,361 Jan-02 (480) ----- $(195) =====
34 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED SWAP AGREEMENTS AT OCTOBER 31, 2001 ARE AS FOLLOWS:
UNREALIZED APPRECIATION/ PAR VALUE (DEPRECIATION) (000S) DESCRIPTION COUNTER PARTY (000S) --------- ----------- ------------------------------- -------------- Y521,000 To make or receive semi-annual payments through 1/1/2011 Morgan Stanley Capital Services $ (189) based on the difference between (A) the 10 year fixed interest rate of 1.805% over (B) the 10 year floating rate adjusted every six months based upon the JPY-LIBOR-BBA. 360,000 To make or receive semi-annual payments through 1/1/2011 Morgan Stanley Capital Services (121) based on the difference between (A) the 10 year fixed interest rate of 1.771% over (B) the 10 year floating rate adjusted every six months based upon the JPY-LIBOR-BBA. L32,100 To make or receive semi-annual payments through 3/15/2003 Morgan Stanley Capital Services 633 based on the difference between (A) the 10 year fixed interest rate of 5.250% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 17,800 To make or receive semi-annual payments through 9/17/2003 Morgan Stanley Capital Services 191 based on the difference between (A) the 10 year fixed interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 5,800 To make or receive semi-annual payments through 3/2/2004 Lehman Brothers 142 based on the difference between (A) the 10 year fixed interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 10,900 To make or receive semi-annual payments through 3/2/2004 Goldman Sachs Capital Markets 268 based on the difference between (A) the 10 year fixed New York interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 12,500 To make or receive semi-annual payments through 3/15/2004 Goldman Sachs Capital Markets 400 based on the difference between (A) the 10 year fixed New York interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 14,700 To make or receive semi-annual payments through 3/15/2004 Morgan Stanley Capital Services 295 based on the difference between (A) the 10 year fixed interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 8,300 To make or receive semi-annual payments through 3/15/2004 J.P. Morgan Securities 112 based on the difference between (A) the 10 year fixed interest rate of 5.250% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 14,700 To make or receive semi-annual payments through 3/15/2004 Chase Manhattan (185) based on the difference between (A) the 10 year fixed interest rate of 5.250% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 2,200 To make or receive semi-annual payments through 6/17/2004 Morgan Stanley Capital Services 37 based on the difference between (A) the 10 year fixed interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 6,400 To make or receive semi-annual payments through 6/17/2004 Goldman Sachs Capital Markets 124 based on the difference between (A) the 10 year fixed New York interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 3,700 To make or receive semi-annual payments through 3/15/2006 J.P. Morgan Securities 71 based on the difference between (A) the 10 year fixed interest rate of 5.250% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 5,500 To make or receive semi-annual payments through 3/15/2006 Goldman Sachs Capital Markets 137 based on the difference between (A) the 10 year fixed New York interest rate of 5.250% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 3,700 To make or receive semi-annual payments through 3/19/2006 Goldman Sachs Capital Markets 80 based on the difference between (A) the 10 year fixed New York interest rate of 5.250% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 15,900 To make or receive semi-annual payments through 3/19/2006 J.P. Morgan Securities 206 based on the difference between (A) the 10 year fixed interest rate of 5.250% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 4,200 To make or receive semi-annual payments through 6/15/2006 Morgan Stanley Capital Services 138 based on the difference between (A) the 10 year fixed interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 26,350 To make or receive semi-annual payments through 6/15/2006 Morgan Stanley Capital Services 867 based on the difference between (A) the 10 year fixed interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. $11,900 To make or receive semi-annual payments through 12/17/2006 Bank of America 836 based on the difference between (A) the 10 year fixed interest rate of 6.000% over (B) the 10 year floating rate adjusted every six months based upon the USD-LIBOR-BBA. 19,500 To make or receive semi-annual payments through 12/17/2006 Goldman Sachs Capital Markets 964 based on the difference between (A) the 10 year fixed New York interest rate of 6.000% over (B) the 10 year floating rate adjusted every six months based upon the USD-LIBOR-BBA. 116,500 To make or receive semi-annual payments through 12/18/2006 Morgan Stanley Capital Services 6,616 based on the difference between (A) the 10 year fixed ------- interest rate of 6.000% over (B) the 10 year floating rate $11,622 adjusted every six months based upon the USD-LIBOR-BBA. =======
35 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED ------------ 1 Security 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. At October 31, 2001, these securities were valued at $111,690 or 10.78% of net assets. 2 Variable rate security. The stated rate represents the rate in effect at October 31, 2001. 3 Step Coupon security. The stated rate represents the rate in effect at October 31, 2001. 4 At October 31, 2001, securities held by the Fund were pledged to cover margin requirements for open futures contracts, written options on futures contracts, short sales and TBAs. (See Note 2 to the Financial Statements.) The securities pledged had an aggregate market value of $521,335. 5 MTN after the name of a security stands for Medium Term Note. 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 Interest only (IO) securities represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These are subject to the risk of accelerated principal paydowns. The amount represents the notional amount on which current interest is calculated. 8 TBAs are mortgage-backed securities traded under delayed delivery commitments, settling after October 31, 2001. 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 to the Financial Statements). 9 Treasury inflation-protected securities (TIPS) are securities in which the principal amount is adjusted for inflation and interest payments are applied to the inflation-adjusted principal. E Euro. Y Japanese Yen. L British Pound. The accompanying notes are an integral part of the financial statements. 36 HARBOR SHORT DURATION FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 TOTAL INVESTMENTS (% OF NET ASSETS) (Excludes net cash and short-term investments of 20.8%) U.S. Government Obligations 4.6 Collateralized Mortgage Obligations 9.3 Asset-Backed Securities 65.3
ASSET-BACKED SECURITIES--65.3% PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- Aerco Ltd. Series 2A Cl. A3 $ 4,000 2.985%--07/15/2025(1,2)...................... $ 4,002 Arcadia Automobile Receivables Trust Series 1998-B Cl. A5 5,500 6.060%--06/15/2006(2)........................ 5,673 Associates Automobile Receivable Trust Series 2000-1 Cl. A3 2,500 7.300%--01/15/2004........................... 2,589 Beneficial Home Equity Loan Trust Series 1996-1 Cl. A 604 2.556%--04/28/2026(1,2)...................... 604 Campobello Master Trust Series 1999-1A Cl. B 3,000 3.080%--12/15/2006(1,2,3).................... 3,004 Chase Funding Loan Acquisition Trust Series 2001-C2 Cl. IA2 4,000 5.673%--05/25/2022(2)........................ 4,138 Chase Manhattan Auto Owner Trust Series 1999-A Cl. A4 700 3.800%--05/15/2008........................... 700 CIT Marine Trust Series 1999-A Cl. A2 1,599 5.800%--04/15/2010(2)........................ 1,633 CIT RV Trust Series 1999-A Cl. A3 3,300 5.960%--04/15/2011(2)........................ 3,421 CNH Equipment Trust Series 2000-B Cl. A2 684 6.870%--02/15/2004(2)........................ 689 Contimortgage Home Equity Loan Trust Pass Thru Certificates Series 1998-3 Cl. A10 35 5.840%--05/15/2016(2)........................ 36 COPEL Capital Funding LLC Series 1999-A Cl. A4 4,220 5.800%--04/15/2003(2)........................ 4,278 DaimlerChrysler Auto Trust Series 2001-C Cl. A3 3,000 4.210%--07/06/2005........................... 3,067 Discover Card Master Trust Series 1999-4 Cl. A 2,000 5.650%--11/16/2004........................... 2,038 Series 2000-9 Cl. A 2,000 6.350%--07/15/2008........................... 2,161 -------- 4,199 --------
ASSET-BACKED SECURITIES--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- Federal Home Loan Mortgage Corp. Series T-31 Cl. A3 $ 1,750 6.276%--11/25/2016........................... $ 1,829 Felco Funding II LLC. Series 2000-1 Cl. A3 4,000 7.585%--06/15/2004(2,3)...................... 4,159 First North American National Bank Series 1997-2 Cl. B 3,000 2.995%--03/15/2006(2)........................ 3,009 Harley Davidson Motorcycle Trust Series 2001-2 Cl. A1 1,400 3.770%--04/17/2006........................... 1,419 Honda Auto Receivables Owner Trust Series 2001-1 Cl. A2 3,000 5.150%--06/18/2003(2)........................ 3,037 Household Automotive Trust Series 2000-3 Cl. A2 2,866 6.960%--10/17/2003(2)........................ 2,902 Ikon Receivables LLC Series 1999-1 Cl. A4 3,375 6.230%--05/15/2005........................... 3,488 MMCA Automobile Trust Series 2001-3 Cl. A2 2,000 2.711%--05/17/2004(1)........................ 2,003 Morgan Stanley Dean Witter Capital I Series 2001 Cl. A2 1,800 2.770%--02/25/2032(1)........................ 1,800 Navistar Financial Owner Trust Series 2001-B Cl. A4 2,500 4.370%--11/17/2008........................... 2,500 Newcourt Equipment Trust Securities Series 1999-1 Cl. A4 3,600 7.180%--11/20/2005(2)........................ 3,835 PECO Energy Transition Trust Series 2000-A Cl. A2 2,000 7.300%--09/01/2004........................... 2,057 Premier Auto Trust Series 1999-3 Cl. A4 2,600 6.430%--03/08/2004........................... 2,702 Residential Asset Securities Corp. Series 2001 Cl. A 3,000 5.345%--10/25/2020........................... 3,081 Saxon Asset Securities Trust Series 2001-1 Cl. AF4 2,000 6.310%--03/25/2026........................... 2,094 Series 1999-2 Cl. MV2 1,500 3.611%--05/25/2029(1,2)...................... 1,504 -------- 3,598 -------- Standard Credit Card Master Trust Series 1995-1 Cl. A 2,000 8.250%--01/07/2007........................... 2,263 Toyota Auto Receivables Owner Trust Series 2000-A Cl. A2 443 7.120%--12/15/2002(2)........................ 444 -------- TOTAL ASSET-BACKED SECURITIES (Cost $80,308)............................................ 82,159 --------
37 HARBOR SHORT DURATION FUND PORTFOLIO OF INVESTMENTS--CONTINUED
ASSET-BACKED SECURITIES--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- COLLATERALIZED MORTGAGE OBLIGATIONS--9.3% PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- CIT Equipment Collateral Series 2001-A Cl. A2 $ 2,500 3.730%--03/22/2004........................... $ 2,530 Credit Suisse First Boston Mortgage Securities Corp. Pass Thru Certificates 3,000 3.004%--08/25/2031(3)........................ 3,000 Federal National Mortgage Association 864 6.000%--08/15/2018........................... 876 Federal National Mortgage Association REMIC(4) Series 1996-70 Cl. PD 250 6.250%--07/25/2018(2)........................ 249 Norwest Asset Securities Corp. Pass Thru Certificates Series 1999-16 Cl. A1 833 6.000%--06/25/2029(2)........................ 831 Salomon Brothers Mortgage Securities VII Series 2001-C1 Cl. A1 2,881 5.137%--12/18/2035........................... 2,968 Structured Asset Securities Corp. Series 2001-4A Cl. A2 1,301 5.500%--03/25/2031(2)........................ 1,302 -------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $11,615)............................................ 11,756 -------- U.S. GOVERNMENT OBLIGATIONS--4.6% (Cost $5,800) PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- U.S. Treasury Notes $ 5,800 2.750%--09/30/2003........................... $ 5,839 -------- SHORT-TERM INVESTMENTS--25.1% REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated October 31, 2001 due November 1, 2001 at 2.50% collateralized by a U.S. Treasury Note 6.750% May 15, 2005, par value of $27,755 (repurchase proceeds of $31,154 31,152 when closed on November 1, 2001)............. 31,152 -------- U.S. TREASURY BILLS U.S. Treasury Bills 500 2.240%--03/28/2002(2)........................ 496 -------- TOTAL SHORT-TERM INVESTMENTS (Cost $31,647)............................................ 31,648 -------- TOTAL INVESTMENTS--104.3% (Cost $129,370)........................................... 131,402 CASH AND OTHER ASSETS, LESS LIABILITIES--(4.3%)............. (5,443) -------- TOTAL NET ASSETS--100.0%.................................... $125,959 ========
------------------------------------------------------------ FUTURES CONTRACTS WHICH WERE OPEN AT OCTOBER 31, 2001 ARE AS FOLLOWS:
AGGREGATE UNREALIZED NUMBER OF FACE VALUE APPRECIATION DESCRIPTION CONTRACTS (000S) EXPIRATION DATE (000S) ----------- --------- ---------- --------------- ------------ U.S. Treasury Note--2 Yr. (Buy)............................ 16 $3,200 Dec-01 $24
------------ 1 Floating rate security. The stated rate represents the rate in effect at October 31, 2001. 2 At October 31, 2001, securities held by the Fund were pledged to cover margin requirements for open futures contracts. (See Note 2 to the Financial Statements.) The securities pledged had an aggregate market value of $49,246. 3 Security 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. At October 31, 2001, these securities were valued at $10,163 or 8.07% of net assets. 4 REMICs are CMOs which can hold mortgages secured by any type of real property and issue multiple-class securities backed by those mortgages. The accompanying notes are an integral part of the financial statements. 38 HARBOR MONEY MARKET FUND PORTFOLIO OF INVESTMENTS--OCTOBER 31, 2001 TOTAL INVESTMENTS (% OF NET ASSETS) (Excludes net cash of 0.3%) Repurchase Agreement 13.5 Bank Obligations 23.5 Commercial Paper 62.7
BANK OBLIGATIONS--23.5% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- ABN Amro North America $ 6,000 2.770%--12/20/2001............................ $ 6,004 Bank of Montreal 7,000 2.360%--12/10/2001............................ 7,000 Barclays Bank plc 2,000 4.290%--04/25/2002............................ 1,999 Canadian Imperial Bank 6,000 2.500%--12/07/2001............................ 6,001 Chase Manhattan Bank 6,500 2.450%--11/16/2001............................ 6,500 CommerzBank AG 800 5.040%--02/26/2002............................ 802 LandesBank Hessen Thuringen 2,000 5.450%--01/08/2002............................ 2,000 Morgan Stanley Group Inc. 2,250 6.375%--08/01/2002............................ 2,292 Toronto Dominion Bank 7,000 2.460%--11/09/2001............................ 7,000 -------- TOTAL BANK OBLIGATIONS (Cost $39,598)............................................. 39,598 -------- COMMERCIAL PAPER--62.7% ANZ Delaware Inc. 6,000 2.445%--12/21/2001............................ 5,980 Banque Et Caisse D'Epargne 6,000 2.460%--12/27/2001............................ 5,977 Barclays US Funding Corp. 4,000 2.473%--11/02/2001............................ 4,000 BCI Funding Corp. 6,500 2.470%--12/20/2001............................ 6,478 Credit Agricole Indosuez Inc. Yrs 3&4 6,000 2.270%--04/02/2002............................ 5,943 Danske Bank A/S 6,000 3.550%--11/01/2001............................ 6,000
COMMERCIAL PAPER--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Dresdner Bank AG $ 5,950 2.358%--12/05/2001............................ $ 5,937 General Electric Capital Corp. 6,000 3.386%--02/25/2002............................ 5,936 ING America Insurance 6,000 3.380%--11/19/2001............................ 5,990 Koch Industries Inc. 6,000 2.630%--11/01/2001............................ 6,000 Lloyds TSB Group plc 5,500 3.800%--11/19/2001............................ 5,489 Paccar Financial Corp. 2,000 4.350%--12/14/2001............................ 1,990 Province De Quebec Yrs 3&4 5,165 3.340%--11/30/2001............................ 5,151 San Paolo U.S. Finance Co. 5,000 4.055%--12/03/2001............................ 4,982 Sigma Finance Inc. Yrs 1&2 6,000 3.590%--12/12/2001............................ 5,975 Societe Generale North America Inc. 6,000 2.280%--01/14/2002............................ 5,972 State Street Corp. 7,000 2.500%--11/01/2001............................ 7,000 UBS Finance Inc. Yrs 3&4 6,000 2.650%--11/01/2001............................ 6,000 WestpacTrust Securities NZ Ltd. 3,576 2.400%--11/27/2001............................ 3,570 1,600 2.220%--12/03/2001............................ 1,597 -------- 5,167 -------- TOTAL COMMERCIAL PAPER (Cost $105,967)............................................ 105,967 -------- REPURCHASE AGREEMENT--13.5% (Cost $22,834) Repurchase Agreement with State Street Bank & Trust dated October 31, 2001 due November 1, 2001 at 2.50% collateralized by a U.S. Treasury Bills 8.875% August 15, 2017, par value of $16,315 (repurchase proceeds of 22,834 $22,836 when closed on November 1, 2001).... 22,834 -------- TOTAL INVESTMENTS--99.7% (Cost $168,399)(1)......................................... 168,399 CASH AND OTHER ASSETS, LESS LIABILITIES--0.3%................ 435 -------- TOTAL NET ASSETS--100.0%..................................... $168,834 ========
------------ 1 The aggregate identified cost on a tax basis is the same. The accompanying notes are an integral part of the financial statements. 39 HARBOR FUND STATEMENT OF ASSETS AND LIABILITIES--OCTOBER 31, 2001 (All amounts in Thousands, except per share amounts)
HARBOR HARBOR MID CAP HARBOR SMALL CAP GROWTH GROWTH GROWTH ------------------------------------------------------------------------------------------------ ASSETS INVESTMENTS, AT IDENTIFIED COST*............................ $12,128 $157,662 $17,353 ================================================================================================ Investments, at value....................................... $ 9,740 $118,231 $14,010 Repurchase agreements....................................... 165 -- 3,398 Cash........................................................ -- -- -- Foreign currency, at value (cost: $0; $0; $0; $0; $1; $0; $0; $0; $0; $1,786; $0; $0)............................... -- -- -- Receivables for: Investments sold.......................................... 59 -- 49 Capital shares sold....................................... 7 85 5 Dividends................................................. -- -- -- Interest.................................................. -- 44 -- Swap agreements (cost: $0, $0, $0, $0, $0, $0, $0, $0, $0, $2,252, $0, $0)........................................ -- -- -- Variation margin on futures contracts..................... -- -- -- Withholding tax receivable.................................. -- -- -- Other assets................................................ 1 19 1 ------------------------------------------------------------------------------------------------ TOTAL ASSETS......................................... 9,972 118,379 17,463 LIABILITIES Payables for: Investments purchased..................................... 103 -- 108 Capital shares reacquired................................. 100 277 9 Dividends to shareholders................................. -- -- -- Investments sold short, at value (proceeds $0; $0; $0; $0; $0; $0; $0; $0; $0; $6,455; $0; $0).................... -- -- -- Written options, at value (premiums received $0; $0; $0; $0; $0; $0; $0; $0; $0; $7,416; $0; $0)................ -- -- -- Interest on swap agreements............................... -- -- -- Open forward currency contracts........................... -- -- -- Accrued expenses: Adviser's fees............................................ 4 146 7 Trustees' fees............................................ -- 1 -- Transfer agent's fees..................................... 11 3 12 Other..................................................... 2 1 10 TBA sale commitments at value (proceeds receivable $0; $0; $0; $0; $0; $0; $0; $0; $0; $93,787; $0; $0)........... -- -- -- ------------------------------------------------------------------------------------------------ TOTAL LIABILITIES.................................... 220 428 146 NET ASSETS.................................................. $ 9,752 $117,951 $17,317 ================================================================================================ Net assets consist of: Paid-in capital........................................... $14,223 $168,404 $17,872 Undistributed/(overdistributed) net investment income..... -- -- -- Accumulated net realized gain/(loss)...................... (2,248) (11,022) (610) Unrealized appreciation/(depreciation) of investments, swap agreements, written options, foreign currency, investments sold short and translation of assets and liabilities in foreign currencies...................... (2,223) (39,431) 55 Unrealized appreciation of futures and forward contracts.............................................. -- -- -- ------------------------------------------------------------------------------------------------ $ 9,752 $117,951 $17,317 ================================================================================================ Shares of beneficial interest............................... 1,728 11,573 1,782 Net asset value, offering and redemption price per share.... $ 5.64 $ 10.19 $ 9.72
------------ * Including repurchase agreements and short-term investments. The accompanying notes are an integral part of the financial statements. 40
HARBOR HARBOR HARBOR HARBOR HARBOR INTERNATIONAL HARBOR CAPITAL HARBOR HARBOR LARGE CAP HARBOR SHORT MONEY GROWTH GLOBAL EQUITY APPRECIATION INTERNATIONAL II INTERNATIONAL VALUE BOND DURATION MARKET ---------------------------------------------------------------------------------------------------------------------------------- $525,888 $7,656 $6,164,138 $95,613 $2,652,642 $124,090 $1,409,418 $129,370 $168,399 ================================================================================================================================== $430,637 $6,197 $6,041,024 $76,736 $3,488,056 $116,977 $1,430,119 $100,250 $145,565 -- 587 -- -- -- 12,063 -- 31,152 22,834 -- 1 1 -- -- 1,087 30,014 1 2 -- 1 -- -- -- -- 1,786 -- -- 11,442 69 15,294 4,294 -- -- 149,090 -- -- 40 15 2,581 6 579 154 474 435 310 357 7 1,903 12 3,322 21 -- -- -- 3 -- 5 -- 245 -- 7,353 371 273 -- -- -- -- -- -- 13,874 -- -- -- -- -- -- -- -- 2,443 3 -- 585 2 4 233 8,906 1 -- -- -- 6 1 16 3 16 25 20 20 18 ---------------------------------------------------------------------------------------------------------------------------------- 443,070 6,880 6,060,828 81,284 3,501,124 130,328 1,635,173 132,232 169,002 5,015 94 18,361 1,705 -- -- 464,891 6,200 -- 146 -- 19,372 19 549 218 26,183 48 117 -- -- -- -- -- -- 6 6 12 -- -- -- -- -- -- 6,510 -- -- -- -- -- -- -- -- 5,737 -- -- -- -- -- -- -- -- 151 -- -- -- -- -- -- -- -- 195 -- -- 246 3 2,953 42 2,316 72 406 17 21 3 -- 25 -- 15 -- 3 -- -- 8 4 12 1 9 -- -- -- 16 451 14 6 2,474 878 9 51 2 2 -- -- -- -- -- -- 94,488 -- -- ---------------------------------------------------------------------------------------------------------------------------------- 5,869 115 40,729 4,241 3,767 299 598,621 6,273 168 $437,201 $6,765 $6,020,099 $77,043 $3,497,357 $130,029 $1,036,552 $125,959 $168,834 ================================================================================================================================== $923,107 $8,656 $8,011,607 $97,913 $2,526,606 $138,505 $ 971,769 $145,871 $168,834 68 5 9,072 708 32,074 56 6,200 (85) -- (390,694) (1,024) (1,877,466) (2,699) 103,429 (13,482) 17,904 (21,883) -- (95,280) (872) (123,114) (18,879) 835,248 4,950 33,449 2,032 -- -- -- -- -- -- -- 7,230 24 -- ---------------------------------------------------------------------------------------------------------------------------------- $437,201 $6,765 $6,020,099 $77,043 $3,497,357 $130,029 $1,036,552 $125,959 $168,834 ================================================================================================================================== 51,821 915 228,019 7,703 122,051 9,997 86,008 14,491 168,834 $ 8.44 $ 7.39 $ 26.40 $ 10.00 $ 28.65 $ 13.01 $ 12.05 $ 8.69 $ 1.00
41 HARBOR FUND STATEMENT OF OPERATIONS--YEAR ENDED OCTOBER 31, 2001 (All amounts in Thousands)
HARBOR HARBOR HARBOR MID CAP HARBOR SMALL CAP INTERNATIONAL GROWTH GROWTH GROWTH GROWTH --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends........................................... $ 8 $ 52 $ 15 $ 8,023 Interest............................................ 17 1,318 37 1,214 Foreign taxes withheld.............................. -- -- -- (899) --------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME............................. 25 1,370 52 8,338 OPERATING EXPENSES: Investment advisory fees............................ 67 1,333 73 5,850 Shareholder communications.......................... 3 41 4 83 Custodian fees...................................... 21 25 21 522 Transfer agent fees................................. 14 210 15 384 Professional fees................................... 4 7 6 34 Trustees' fees and expenses......................... -- 4 -- 14 Registration fees................................... 12 46 14 27 Amortization of organization costs.................. -- -- -- -- Insurance........................................... -- 3 -- 6 Miscellaneous....................................... 4 8 4 16 --------------------------------------------------------------------------------------------------------------------------------- Total operating expenses......................... 125 1,677 137 6,936 Advisory fee waived................................. (18) -- (20) -- Other expense reimbursements and reductions......... -- (2) -- (18) --------------------------------------------------------------------------------------------------------------------------------- Net operating expenses........................... 107 1,675 117 6,918 Dividend expense on investments sold short.......... -- -- -- -- --------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME/(LOSS).......................... (82) (305) (65) 1,420 REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENT TRANSACTIONS: Net realized gain/(loss) on: Investments...................................... (2,248) (11,022) (610) (370,483) Foreign currency transactions.................... -- -- -- (620) Investments sold short........................... -- -- -- -- Swap agreements.................................. -- -- -- -- Futures contracts................................ -- -- -- -- Written options.................................. -- -- -- -- Change in net unrealized appreciation/(depreciation) on: Investments, foreign currency, written options and investments sold short..................... (2,223) (133,296) 55 (110,322) Swap agreements.................................. -- -- -- -- Futures contracts................................ -- -- -- -- Forward currency contracts....................... -- -- -- -- Translation of assets and liabilities in foreign currencies..................................... -- -- -- 104 --------------------------------------------------------------------------------------------------------------------------------- Net gain/(loss) on investment transactions.......... (4,471) (144,318) (555) (481,321) --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS....................................... $(4,553) $(144,623) $(620) $(479,901) =================================================================================================================================
The accompanying notes are an integral part of the financial statements. 42
HARBOR HARBOR HARBOR HARBOR HARBOR GLOBAL CAPITAL HARBOR HARBOR LARGE CAP HARBOR SHORT MONEY EQUITY APPRECIATION INTERNATIONAL II INTERNATIONAL VALUE BOND DURATION MARKET ---------------------------------------------------------------------------------------------------- $ 71 $ 47,795 $ 1,926 $ 103,176 $ 2,962 $ -- $ -- $ -- 14 10,650 58 10,150 606 54,228 5,923 7,165 (4) (453) (226) (13,537) (12) -- -- -- ---------------------------------------------------------------------------------------------------- 81 57,992 1,758 99,789 3,556 54,228 5,923 7,165 37 43,124 783 37,347 834 6,252 421 430 1 628 16 359 15 80 4 27 17 408 95 2,925 96 186 15 42 4 2,214 87 1,551 86 330 17 181 -- 239 4 145 5 22 5 4 -- 113 2 68 2 12 2 1 8 603 31 7 28 46 27 31 -- -- 3 -- -- -- -- -- -- 12 3 12 2 5 2 2 2 78 9 1 7 12 7 7 ---------------------------------------------------------------------------------------------------- 69 47,419 1,033 42,415 1,075 6,945 500 725 (10) -- (101) (2,576) -- (1,960) (210) (172) -- (53) (1) (16) (1) (8) (8) (6) ---------------------------------------------------------------------------------------------------- 59 47,366 931 39,823 1,074 4,977 282 547 -- -- -- -- 196 -- -- -- ---------------------------------------------------------------------------------------------------- 22 10,626 827 59,966 2,286 49,251 5,641 6,618 (1,047) (1,807,374) (2,314) 207,985 (6,076) 23,103 361 2 6 -- (23) (38,972) -- (1,267) -- -- -- -- -- -- (564) (1,119) -- -- -- -- -- -- -- (2,252) -- -- -- -- -- -- (3,990) 4,215 130 -- -- -- -- -- -- 2,699 9 -- (872) (1,461,985) (27,020) (1,037,366) 2,779 32,115 1,818 -- -- -- -- -- -- 14,660 -- -- -- -- -- -- 693 6,888 4 -- -- -- -- -- -- (195) -- -- -- -- 27 940 -- 645 -- -- ---------------------------------------------------------------------------------------------------- (1,913) (3,269,359) (29,330) (867,413) (7,158) 79,492 2,322 2 ---------------------------------------------------------------------------------------------------- $(1,891) $(3,258,733) $(28,503) $ (807,447) $(4,872) $128,743 $7,963 $6,620 ====================================================================================================
43 HARBOR FUND STATEMENT OF CHANGES IN NET ASSETS (All amounts in Thousands)
HARBOR HARBOR MID CAP GROWTH GROWTH -------------- ------------------------------- NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, 2000 2000 1999 THROUGH THROUGH THROUGH OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2001 2000 -------------------------------------------------------------------------------------------------------------------- INCREASE/(DECREASE) IN NET ASSETS: Operations: Net investment income/(loss)............................ $ (82) $ (305) $ 46 Net realized gain/(loss) on investments, foreign currency transactions, investments sold short, swap agreements, futures contracts and written options...... (2,248) (11,022) 20,777 Net unrealized appreciation/(depreciation) of investments, written options, investments sold short, swap agreements, futures contracts, forward foreign currency contracts and translation of assets and liabilities in foreign currencies...................... (2,223) (133,296) 40,500 -------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................................. (4,553) (144,623) 61,323 -------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: Net investment income................................... -- (82) -- Net realized gain on investments........................ -- (17,428) (10,441) -------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS..................... -- (17,510) (10,441) -------------------------------------------------------------------------------------------------------------------- Capital share transactions: Net proceeds from sale of shares........................ 16,950 58,621 153,456 Net asset value of shares issued in connection with reinvestment of: Dividends from net investment income.................. -- 81 -- Distributions from net realized gain on investments... -- 17,198 10,293 Cost of shares reacquired............................... (2,645) (71,415) (84,281) -------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) DERIVED FROM CAPITAL TRANSACTIONS........................................... 14,305 4,485 79,468 -------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets................... 9,752 (157,648) 130,350 NET ASSETS: Beginning of period....................................... -- 275,599 145,249 -------------------------------------------------------------------------------------------------------------------- END OF PERIOD *........................................... $ 9,752 $ 117,951 $275,599 ==================================================================================================================== NUMBER OF CAPITAL SHARES: Sold...................................................... 2,099 3,837 6,092 Reinvested in payment of investment income dividends...... -- 5 -- Reinvested in payment of capital gain distributions....... -- 1,040 475 Reacquired................................................ (371) (4,682) (3,484) -------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in shares outstanding............. 1,728 200 3,083 Outstanding: Beginning of period..................................... -- 11,373 8,290 -------------------------------------------------------------------------------------------------------------------- End of period........................................... 1,728 11,573 11,373 ==================================================================================================================== * Includes undistributed/(over-distributed) net investment income of:............................................... $ -- $ -- $ 39
The accompanying notes are an integral part of the financial statements. 44
HARBOR HARBOR HARBOR HARBOR SMALL CAP GROWTH INTERNATIONAL GROWTH GLOBAL EQUITY CAPITAL APPRECIATION ---------------- ------------------------- ------------- ------------------------- NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, FEBRUARY 1, NOVEMBER 1, NOVEMBER 1, 2000 2000 1999 2001 2000 1999 THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2001 2000 2001 2001 2000 -------------------------------------------------------------------------------------------- $ (65) $ 1,420 $ 1,511 $ 22 $ 10,626 $ (5,764) (610) (371,103) 146,960 (1,041) (1,807,374) 1,254,783 55 (110,218) (142,213) (872) (1,461,985) (601,183) -------------------------------------------------------------------------------------------- (620) (479,901) 6,258 (1,891) (3,258,733) 647,836 -------------------------------------------------------------------------------------------- -- (293) (9,899) -- -- -- -- (121,187) (98,795) -- (1,154,660) (660,216) -------------------------------------------------------------------------------------------- -- (121,480) (108,694) -- (1,154,660) (660,216) -------------------------------------------------------------------------------------------- 19,457 428,940 597,417 10,092 2,165,435 3,522,668 -- 258 8,659 -- -- -- -- 118,213 94,385 -- 1,114,970 619,790 (1,520) (755,911) (733,456) (1,436) (1,947,230) (1,514,562) -------------------------------------------------------------------------------------------- 17,937 (208,500) (32,995) 8,656 1,333,175 2,627,896 -------------------------------------------------------------------------------------------- 17,317 (809,881) (135,431) 6,765 (3,080,218) 2,615,516 -- 1,247,082 1,382,513 -- 9,100,317 6,484,801 -------------------------------------------------------------------------------------------- $17,317 $ 437,201 $1,247,082 $6,765 $ 6,020,099 $ 9,100,317 ============================================================================================ 1,935 35,196 29,877 1,091 66,131 67,564 -- 19 409 -- -- -- -- 8,635 4,459 -- 32,784 12,613 (153) (63,042) (36,012) (176) (59,853) (29,438) -------------------------------------------------------------------------------------------- 1,782 (19,192) (1,267) 915 39,062 50,739 -- 71,013 72,280 -- 188,957 138,218 -------------------------------------------------------------------------------------------- 1,782 51,821 71,013 915 228,019 188,957 ============================================================================================ $ -- $ 68 $ 218 $ 5 $ 9,072 $ --
45 HARBOR FUND STATEMENT OF CHANGES IN NET ASSETS--CONTINUED (All amounts in Thousands)
HARBOR HARBOR INTERNATIONAL II INTERNATIONAL ------------------------------- ------------------------------- NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, 2000 1999 2000 1999 THROUGH THROUGH THROUGH THROUGH OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 2001 2000 --------------------------------------------------------------------------------------------------------------------------------- INCREASE/(DECREASE) IN NET ASSETS: Operations: Net investment income/(loss)........................ $ 827 $ 1,079 $ 59,966 $ 74,458 Net realized gain/(loss) on investments, foreign currency transactions, investments sold short, swap agreements, futures contracts and written options........................................... (2,337) 9,593 169,013 524,664 Net unrealized appreciation/(depreciation) of investments, written options, investments sold short, swap agreements, futures contracts, forward foreign currency contracts and translation of assets and liabilities in foreign currencies...... (26,993) (2,036) (1,036,426) (368,363) --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.......................................... (28,503) 8,636 (807,447) 230,759 --------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: Net investment income............................... (1,265) (1,349) (86,391) (84,210) Net realized gain on investments.................... (6,349) (4,991) (462,932) (371,384) --------------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS................. (7,614) (6,340) (549,323) (455,594) --------------------------------------------------------------------------------------------------------------------------------- Capital share transactions: Net proceeds from sale of shares.................... 37,828 102,142 743,213 487,519 Net asset value of shares issued in connection with reinvestment of: Dividends from net investment income.............. 1,208 1,258 77,031 71,586 Distributions from net realized gain on investments.................................... 6,191 4,739 442,276 344,123 Cost of shares reacquired........................... (58,893) (98,400) (1,238,668) (1,209,142) --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) DERIVED FROM CAPITAL TRANSACTIONS...................................... (13,666) 9,739 23,852 (305,914) --------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets............... (49,783) 12,035 (1,332,918) (530,749) NET ASSETS: Beginning of period................................... 126,826 114,791 4,830,275 5,361,024 --------------------------------------------------------------------------------------------------------------------------------- END OF PERIOD*........................................ $ 77,043 $126,826 $ 3,497,357 $ 4,830,275 ================================================================================================================================= NUMBER OF CAPITAL SHARES: Sold.................................................. 3,006 6,768 22,827 12,029 Reinvested in payment of investment income dividends........................................... 91 87 2,288 1,770 Reinvested in payment of capital gain distributions... 468 326 13,140 8,510 Reacquired............................................ (4,742) (6,598) (40,524) (29,830) --------------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in shares outstanding......... (1,177) 583 (2,269) (7,521) Outstanding: Beginning of period................................. 8,880 8,297 124,320 131,841 --------------------------------------------------------------------------------------------------------------------------------- End of period....................................... 7,703 8,880 122,051 124,320 ================================================================================================================================= * Includes undistributed/(over-distributed) net investment income of:................................ $ 708 $ 13 $ 32,074 $ 50,361
The accompanying notes are an integral part of the financial statements. 46
HARBOR HARBOR HARBOR HARBOR LARGE CAP VALUE BOND SHORT DURATION MONEY MARKET ------------------------- ------------------------- ------------------------- ------------------------- NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, 2000 1999 2000 1999 2000 1999 2000 1999 THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 2001 2000 2001 2000 2001 2000 ----------------------------------------------------------------------------------------------------------------- $ 2,286 $ 2,982 $ 49,251 $ 39,061 $ 5,641 $ 10,863 $ 6,618 $ 5,804 (10,630) 2,728 25,379 3,583 500 (1,552) 2 7 3,472 (1,752) 54,113 (13) 1,822 976 -- -- ----------------------------------------------------------------------------------------------------------------- (4,872) 3,958 128,743 42,631 7,963 10,287 6,620 5,811 ----------------------------------------------------------------------------------------------------------------- (2,421) (3,157) (40,763) (33,143) (5,800) (11,343) (6,618) (5,811) (1,898) (15,960) (4,887) -- -- -- (2) -- ----------------------------------------------------------------------------------------------------------------- (4,319) (19,117) (45,650) (33,143) (5,800) (11,343) (6,620) (5,811) ----------------------------------------------------------------------------------------------------------------- 38,924 38,950 470,485 255,323 275,635 311,299 302,450 126,557 2,324 3,063 37,555 28,899 5,729 11,254 6,353 5,577 1,836 15,544 3,414 -- -- -- -- -- (51,479) (52,165) (275,250) (203,635) (282,600) (447,907) (245,862) (123,506) ----------------------------------------------------------------------------------------------------------------- (8,395) 5,392 236,204 80,587 (1,236) (125,354) 62,941 8,628 ----------------------------------------------------------------------------------------------------------------- (17,586) (9,767) 319,297 90,075 927 (126,410) 62,941 8,628 147,615 157,382 717,255 627,180 125,032 251,442 105,893 97,265 ----------------------------------------------------------------------------------------------------------------- $130,029 $147,615 $1,036,552 $ 717,255 $ 125,959 $ 125,032 $ 168,834 $ 105,893 ================================================================================================================= 5,391 2,919 41,186 23,549 31,974 36,609 302,450 126,557 133 231 3,296 2,682 665 1,326 6,353 5,577 178 1,179 303 -- -- -- -- -- (6,337) (3,916) (23,976) (18,861) (32,842) (52,625) (245,862) (123,506) ----------------------------------------------------------------------------------------------------------------- (635) 413 20,809 7,370 (203) (14,690) 62,941 8,628 10,632 10,219 65,199 57,829 14,694 29,384 105,893 97,265 ----------------------------------------------------------------------------------------------------------------- 9,997 10,632 86,008 65,199 14,491 14,694 168,834 105,893 ================================================================================================================= $ 56 $ 47 $ 6,200 $ 2,316 $ (85) $ 61 $ -- $ --
47 HARBOR FUND FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING FOR THE PERIODS PRESENTED
INCOME FROM INVESTMENT OPERATIONS --------------------------------------------- NET REALIZED AND UNREALIZED GAINS/(LOSSES) ON INVESTMENTS, FUTURES CONTRACTS, WRITTEN NET ASSET OPTIONS, SWAP AGREEMENTS, VALUE NET INVESTMENTS SOLD SHORT TOTAL FROM BEGINNING INVESTMENT AND FOREIGN CURRENCY INVESTMENT YEAR/PERIOD ENDED OF PERIOD INCOME/(LOSS) CONTRACTS OPERATIONS ---------------------------------------------------------------------------------------------------------------------- HARBOR MID CAP GROWTH FUND October 31, 2001(1)....................... $10.00 $ -- $ (4.36) $ (4.36) ---------------------------------------------------------------------------------------------------------------------- HARBOR GROWTH FUND October 31, 2001.......................... $24.23 $ -- $(12.48) $(12.48) October 31, 2000.......................... 17.52 -- 7.90 7.90 October 31, 1999.......................... 10.81 (.07) 7.85 7.78 October 31, 1998.......................... 14.20 (.04) (1.07) (1.11) October 31, 1997(2)....................... 16.00 -- 2.30 2.30 ---------------------------------------------------------------------------------------------------------------------- HARBOR SMALL CAP GROWTH FUND October 31, 2001(1)....................... $10.00 $ -- $ (.28) $ (.28) ---------------------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL GROWTH FUND October 31, 2001.......................... $17.56 $ -- $ (7.30) $ (7.30) October 31, 2000.......................... 19.13 .01 (.06) (.05) October 31, 1999.......................... 18.07 .14 1.30 1.44 October 31, 1998.......................... 16.15 .11 2.52 2.63 October 31, 1997.......................... 15.35 .12 1.12 1.24 ---------------------------------------------------------------------------------------------------------------------- HARBOR GLOBAL EQUITY FUND October 31, 2001(3)....................... $10.00 $ -- $ (2.61) $ (2.61) ---------------------------------------------------------------------------------------------------------------------- HARBOR CAPITAL APPRECIATION FUND October 31, 2001.......................... $48.16 $ .04 $(15.63) $(15.59) October 31, 2000.......................... 46.92 -- 5.84 5.84 October 31, 1999.......................... 33.51 (.02) 15.78 15.76 October 31, 1998.......................... 34.01 .07 4.35 4.42 October 31, 1997.......................... 25.88 .06 8.95 9.01 ---------------------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND II October 31, 2001.......................... $14.28 $ .24(c) $ (3.62) $ (3.38) October 31, 2000.......................... 13.83 .01(c) 1.23 1.24 October 31, 1999.......................... 11.26 .18(c) 2.54 2.72 October 31, 1998.......................... 12.14 .12(c) (.37) (.25) October 31, 1997.......................... 10.47 .10(c) 1.63 1.73 ---------------------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND October 31, 2001.......................... $38.85 $ .57(c) $ (6.27) $ (5.70) October 31, 2000.......................... 40.66 .48(c) 1.22 1.70 October 31, 1999.......................... 36.97 .67(c) 5.90 6.57 October 31, 1998.......................... 35.84 .51(c) 1.92 2.43 October 31, 1997.......................... 31.21 .41(c) 5.44 5.85 ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS ------------------------------ DIVIDENDS DISTRIBUTIONS FROM NET FROM NET INVESTMENT REALIZED TOTAL YEAR/PERIOD ENDED INCOME CAPITAL GAINS(5) DISTRIBUTIONS HARBOR MID CAP GROWTH FUND October 31, 2001(1)....................... $ -- $ -- $ -- --------------------------------------------------------------------------------------------------------- HARBOR GROWTH FUND October 31, 2001.......................... $(.01) $(1.55) $(1.56) October 31, 2000.......................... -- (1.19) (1.19) October 31, 1999.......................... -- (1.07) (1.07) October 31, 1998.......................... -- (2.28) (2.28) October 31, 1997(2)....................... -- (4.10) (4.10) ---------------------------------------------------------------------------------------------------------------------- HARBOR SMALL CAP GROWTH FUND October 31, 2001(1)....................... $ -- $ -- $ -- ---------------------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL GROWTH FUND October 31, 2001.......................... $ -- $(1.82) $(1.82) October 31, 2000.......................... (.14) (1.38) (1.52) October 31, 1999.......................... (.11) (.27) (.38) October 31, 1998.......................... (.12) (.59) (.71) October 31, 1997.......................... (.08) (.36) (.44) ---------------------------------------------------------------------------------------------------------------------- HARBOR GLOBAL EQUITY FUND October 31, 2001(3)....................... $ -- $ -- $ -- ---------------------------------------------------------------------------------------------------------------------- HARBOR CAPITAL APPRECIATION FUND October 31, 2001.......................... $ -- $(6.17) $(6.17) October 31, 2000.......................... -- (4.60) (4.60) October 31, 1999.......................... (.07) (2.28) (2.35) October 31, 1998.......................... (.07) (4.85) (4.92) October 31, 1997.......................... (.02) (.86) (.88) ---------------------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND II October 31, 2001.......................... $(.15) $ (.75) $ (.90) October 31, 2000.......................... (.17) (.62) (.79) October 31, 1999.......................... (.15) -- (.15) October 31, 1998.......................... (.10) (.53) (.63) October 31, 1997.......................... (.02) (.04) (.06) ---------------------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND October 31, 2001.......................... $(.71) $(3.79) $(4.50) October 31, 2000.......................... (.65) (2.86) (3.51) October 31, 1999.......................... (.58) (2.30) (2.88) October 31, 1998.......................... (.40) (.90) (1.30) October 31, 1997.......................... (.42) (.80) (1.22) ----------------------------------------------------------------------------------------------------------------------
See page 50 for notes to the Financial Highlights. The accompanying notes are an integral part of the financial statements. 48
RATIO OF RATIO OF RATIO OF ADVISER OR OPERATING RATIO OF NET ASSET OPERATING SUBADVISER FEES EXPENSES NET OF INTEREST/DIVIDEND VALUE NET ASSETS EXPENSES NOT IMPOSED ALL OFFSETS TO EXPENSE END TOTAL END OF PERIOD TO AVERAGE TO AVERAGE AVERAGE TO AVERAGE OF PERIOD RETURN (000S) NET ASSETS (%)(6) NET ASSETS (%) NET ASSETS (%) NET ASSETS (%) ------------------------------------------------------------------------------------------------------------------------------- $ 5.64 (43.60)%(e) $ 9,752 1.20%(c) .20% 1.20% --% ------------------------------------------------------------------------------------------------------------------------------- $10.19 (53.96)% $ 117,951 .95% --% .95% --% 24.23 45.92 275,599 .88 -- .87 -- 17.52 76.51 145,249 .90 -- .90 -- 10.81 (8.73) 88,030 1.00 -- 1.00 -- 14.20 18.64 104,568 1.12 -- 1.12 -- ------------------------------------------------------------------------------------------------------------------------------- $ 9.72 (2.80)%(e) $ 17,317 1.20%(c) .20% 1.20% --% ------------------------------------------------------------------------------------------------------------------------------- $ 8.44 (45.53)% $ 437,201 .89% --% .89% --% 17.56 (1.58) 1,247,082 .89 -- .89 -- 19.13 7.87 1,382,513 .91 -- .91 -- 18.07 16.96 1,178,252 .96 -- .96 -- 16.15 8.13 918,950 1.02 -- 1.02 -- ------------------------------------------------------------------------------------------------------------------------------- $ 7.39 (26.10)%(b,e) $ 6,765 1.20%(a,c) .20%(a) 1.20%(a) --% ------------------------------------------------------------------------------------------------------------------------------- $26.40 (35.23)% $6,020,099 .66% --% .66% --% 48.16 12.26 9,100,317 .64 -- .64 -- 46.92 48.59 6,484,801 .66 -- .66 -- 33.51 15.72 3,833,598 .68 -- .68 -- 34.01 35.73 2,798,404 .70 -- .70 -- ------------------------------------------------------------------------------------------------------------------------------- $10.00 (25.22)%(e) $ 77,043 .89%(c) .10% .89% --% 14.28 8.81(e) 126,826 .93(c) .10 .92 -- 13.83 24.37(e) 114,791 .92(c) .10 .92 -- 11.26 (1.98)(e) 112,669 1.15(c) .10 1.15 -- 12.14 16.64(e) 134,957 .99(c) .20 .98 -- ------------------------------------------------------------------------------------------------------------------------------- $28.65 (16.40)%(e) $3,497,357 .91%(c) .06% .91% --% 38.85 3.74(e) 4,830,275 .92(c) .06 .92 -- 40.66 18.54(e) 5,361,024 .92(c) .06 .92 -- 36.97 6.97(e) 5,088,401 .94(c) .06 .94 -- 35.84 19.26(e) 5,090,048 .97(c) .05 .97 -- ------------------------------------------------------------------------------------------------------------------------------- RATIO OF NET INVESTMENT INCOME/(LOSS) TO AVERAGE PORTFOLIO NET ASSETS (%) TURNOVER (%) ------------------------------------------------------------------------------------------------------------------------------- (.92)%(c) 61% ------------------------------------------------------------------------------------------------------------------------------- (.17)% 9% .02 13 (.54) 13 (.30) 23 (.47) 147 ------------------------------------------------------------------------------------------------------------------------------- (.67)%(c) 56% ------------------------------------------------------------------------------------------------------------------------------- .18% 63% .10 103 .78 48 .62 85 .91 76 ------------------------------------------------------------------------------------------------------------------------------- .45%(a,c) 143%(b) ------------------------------------------------------------------------------------------------------------------------------- .15% 89% (.07) 86 (.05) 68 .24 70 .23 73 ------------------------------------------------------------------------------------------------------------------------------- .79%(c) 33% .85(c) 65 1.36(c) 52 .86(c) 70 1.33(c) 58 ------------------------------------------------------------------------------------------------------------------------------- 1.36%(c) 7% 1.40(c) 10 1.65(c) 4 1.27(c) 14 1.20(c) 6 -------------------------------------------------------------------------------------------------------------------------------
49 HARBOR FUND FINANCIAL HIGHLIGHTS--CONTINUED SELECTED DATA FOR A SHARE OUTSTANDING FOR THE PERIODS PRESENTED
INCOME FROM INVESTMENT OPERATIONS -------------------------------------------- NET REALIZED AND UNREALIZED GAINS/(LOSSES) ON INVESTMENTS, FUTURES CONTRACTS, WRITTEN NET ASSET OPTIONS, SWAP AGREEMENTS, VALUE NET INVESTMENTS SOLD SHORT TOTAL FROM BEGINNING INVESTMENT AND FOREIGN CURRENCY INVESTMENT YEAR/PERIOD ENDED OF PERIOD INCOME/(LOSS) CONTRACTS OPERATIONS ------------------------------------------------------------------------------------------------------------------- HARBOR LARGE CAP VALUE FUND October 31, 2001(4)..................... $13.88 $.24 $ (.68) $ (.44) October 31, 2000........................ 15.40 .27 .08 .35 October 31, 1999........................ 15.21 .27 1.80 2.07 October 31, 1998........................ 18.17 .27 .79 1.06 October 31, 1997........................ 16.04 .34 4.13 4.47 ------------------------------------------------------------------------------------------------------------------- HARBOR BOND FUND October 31, 2001........................ $11.00 $.56(c) $ 1.08 $ 1.64 October 31, 2000........................ 10.85 .57(c) .15 .72 October 31, 1999........................ 11.82 .58(c) (.49) .09 October 31, 1998........................ 11.57 .61(c) .53 1.14 October 31, 1997........................ 11.28 .68(c) .30 .98 ------------------------------------------------------------------------------------------------------------------- HARBOR SHORT DURATION FUND October 31, 2001........................ $ 8.51 $.45(c) $ .19 $ .64 October 31, 2000........................ 8.56 .55(c) (.04) .51 October 31, 1999........................ 8.69 .46(c) (.15) .31 October 31, 1998........................ 8.66 .48(c) .09 .57 October 31, 1997........................ 8.79 .45(c,d) .01 .46 ------------------------------------------------------------------------------------------------------------------- HARBOR MONEY MARKET FUND October 31, 2001........................ $ 1.00 $.05(c) $ -- $ .05 October 31, 2000........................ 1.00 .06(c) -- .06 October 31, 1999........................ 1.00 .05(c) -- .05 October 31, 1998........................ 1.00 .05(c) -- .05 October 31, 1997........................ 1.00 .02(c) -- .02 ------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS ----------------------------------------------- DIVIDENDS DISTRIBUTIONS FROM NET FROM NET INVESTMENT REALIZED TOTAL YEAR/PERIOD ENDED INCOME CAPITAL GAINS(5) DISTRIBUTIONS HARBOR LARGE CAP VALUE FUND October 31, 2001(4)..................... $(.24) $ (.19) $(.43) October 31, 2000........................ (.30) (1.57) (1.87) October 31, 1999........................ (.25) (1.63) (1.88) October 31, 1998........................ (.28) (3.74) (4.02) October 31, 1997........................ (.34) (2.00) (2.34) ------------------------------------------------------------------------------------------------------- HARBOR BOND FUND October 31, 2001........................ $(.52) $ (.07) $(.59) October 31, 2000........................ (.57) -- (.57) October 31, 1999........................ (.55) (.51) (1.06) October 31, 1998........................ (.66) (.23) (.89) October 31, 1997........................ (.69) -- (.69) ------------------------------------------------------------------------------------------------------------------- HARBOR SHORT DURATION FUND October 31, 2001........................ $(.46) $ -- $(.46) October 31, 2000........................ (.56) -- (.56) October 31, 1999........................ (.44) -- (.44) October 31, 1998........................ (.54) -- (.54) October 31, 1997........................ (.59) -- (.59) ------------------------------------------------------------------------------------------------------------------- HARBOR MONEY MARKET FUND October 31, 2001........................ $(.05) $ -- $(.05) October 31, 2000........................ (.06) -- (.06) October 31, 1999........................ (.05) -- (.05) October 31, 1998........................ (.05) -- (.05) October 31, 1997........................ (.02) -- (.02) -------------------------------------------------------------------------------------------------------------------
1 Commenced operations on November 1, 2000. 2 Effective May 2, 1997, Harbor Growth Fund appointed Emerging Growth Advisors, Inc. as its Subadviser. 3 For the period February 1, 2001 (inception) through October 31, 2001. 4 Effective September 20, 2001, Harbor Value Fund changed its name to Harbor Large Cap Value Fund and appointed Armstrong Shaw Associates as its Subadviser. 5 Includes both short-term and long-term capital gains. 6 Percentage does not reflect reduction for credit balance arrangements. a Annualized. b Unannualized. c Reflects the Adviser's or Subadviser's agreement not to impose all or a portion of its management fees. d Based on monthly average of shares outstanding during the fiscal year. e The total returns would have been lower had certain expenses not been waived during the periods shown. f Dividend expense from investments sold short. g Interest expense from investments sold short. The accompanying notes are an integral part of the financial statements. 50
RATIO OF RATIO OF RATIO OF ADVISER OR OPERATING RATIO OF NET ASSET OPERATING SUBADVISER FEES EXPENSES NET OF INTEREST/DIVIDEND VALUE NET ASSETS EXPENSES NOT IMPOSED ALL OFFSETS TO EXPENSE END TOTAL END OF PERIOD TO AVERAGE TO AVERAGE AVERAGE TO AVERAGE OF PERIOD RETURN (000S) NET ASSETS (%)(6) NET ASSETS(%) NET ASSETS(%) NET ASSETS (%) -------------------------------------------------------------------------------------------------------------------------- $13.01 (3.20)% $ 130,029 .77% --% .77% .14%(a,f) 13.88 3.07 147,615 .80 -- .80 .16(f) 15.40 14.60 157,382 .76 -- .76 -- 15.21 6.69 170,468 .79 -- .79 -- 18.17 31.08 161,359 .83 -- .83 -- -------------------------------------------------------------------------------------------------------------------------- $12.05 15.35%(e) $1,036,552 .56%(c) .22% .56% --% 11.00 6.95(e) 717,255 .60(c) .21 .60 -- 10.85 0.85(e) 627,180 .61(c) .21 .60 -- 11.82 10.33(e) 473,021 .65(c) .22 .65 -- 11.57 8.96(e) 362,594 .67(c) .23 .67 -- -------------------------------------------------------------------------------------------------------------------------- $ 8.69 7.73%(e) $ 125,959 .28%(c) .20% .27% --% 8.51 6.21(e) 125,032 .29(c) .20 .28 -- 8.56 3.68(e) 251,442 .28(c) .20 .28 -- 8.69 6.81(e) 217,244 .36(c) .20 .36 -- 8.66 5.48(e) 162,476 .38(c) .20 .36 .64(g) -------------------------------------------------------------------------------------------------------------------------- $ 1.00 4.83%(e) $ 168,834 .38%(c) .12% .38% --% 1.00 5.99(e) 105,893 .48(c) .12 .47 -- 1.00 4.82(e) 97,265 .46(c) .12 .46 -- 1.00 5.20(e) 100,276 .57(c) .12 .57 -- 1.00 5.11(e) 73,540 .63(c) .12 .62 -- -------------------------------------------------------------------------------------------------------------------------- RATIO OF NET INVESTMENT INCOME/(LOSS) TO AVERAGE PORTFOLIO NET ASSETS (%) TURNOVER (%) -------------------------------------------------------------------------------------------------------------------------- 1.64% 194% 2.05 106 1.65 110 1.67 114 1.98 146 -------------------------------------------------------------------------------------------------------------------------- 5.50%(c) 531% 6.16(c) 494 5.35(c) 271 5.41(c) 278 6.04(c) 252 -------------------------------------------------------------------------------------------------------------------------- 5.35%(c) 246% 6.00(c) 478 5.36(c) 578 5.51(c) 727 5.14(c) 1,519 -------------------------------------------------------------------------------------------------------------------------- 4.60%(c) N/A 5.88(c) N/A 4.73(c) N/A 5.08(c) N/A 4.97(c) N/A --------------------------------------------------------------------------------------------------------------------------
51 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 2001 (Currency in Thousands) NOTE 1--ORGANIZATIONAL MATTERS Harbor Fund (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-ended investment company, consisting of a series of twelve diversified investment portfolios (each series a "Fund", collectively, the "Funds"), each of which is represented by a separate series of shares of beneficial interest and having an unlimited number of shares authorized. As of October 31, 2001, the Trust consisted of the following funds: Harbor Mid Cap Growth Fund, Harbor Growth Fund, Harbor Small Cap Growth Fund, Harbor International Growth Fund, Harbor Global Equity Fund, Harbor Capital Appreciation Fund, Harbor International Fund II, Harbor International Fund, Harbor Large Cap Value Fund (formerly Harbor Value Fund), Harbor Bond Fund, Harbor Short Duration Fund and Harbor Money Market Fund. 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. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. SECURITY VALUATION Equity securities are valued at the last sale price on an exchange or the National Association of Securities Dealers Automated Quotation ("NASDAQ") system or, in the case of unlisted securities or listed securities for which there were no sales on the valuation day, the mean between the closing bid and asked price. Securities listed or traded on foreign exchanges are valued at the last sale price on that exchange on the valuation day, or if no sale occurs, at the official bid price (both the last sale price and official bid price are determined as of the close of the London Foreign Exchange). Except for Harbor Money Market Fund, debt securities, other than short-term securities with a remaining maturity of less than sixty days, are valued at prices furnished by a pricing service, or as otherwise described below, selected by the Adviser, which determines valuation for normal institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term securities with a remaining maturity of less than sixty days are stated at amortized cost which approximates value. Securities, for which there are no such prices or for which prices are deemed by the Adviser or Subadviser not to be representative of market values, are valued at their fair value as determined in good faith under consistently applied procedures established by and under the supervision of the Board of Trustees. The actual calculation of fair market value may be done by others including the Adviser and Subadviser. Securities of the Harbor Money Market Fund are valued utilizing the amortized cost method as set forth in Rule 2a-7 under the Investment Company Act of 1940, as amended, and the Fund's Rule 2a-7 procedures. FUTURES CONTRACTS To seek to increase total return or hedge against changes in interest rates, securities prices or currency exchange rates, each Fund (except Harbor Money Market Fund), may purchase and sell various kinds of futures contracts, and purchase and write call and put options on these futures contracts. Harbor Large Cap Value Fund is not authorized to enter into currency futures contracts and options on such contracts. Harbor International Growth Fund, Harbor International Fund II and Harbor International Fund are not authorized to enter into futures contracts on currencies or engage in options transactions with respect to futures contracts for speculative purposes. Futures contracts tend to increase or decrease the Fund's exposure to the underlying instrument or hedge other fund investments. Losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts or if the counterparties do not perform under the contracts' terms. 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. Open futures contracts are valued based on the last sale price on the exchange on which such futures are principally traded. See Portfolio of Investments for open futures contracts held as of October 31, 2001. A futures contract is an agreement between two parties to buy and sell a security at a set price on a future date. Upon entering into such a 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, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin," and are 52 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED recorded by the Fund as unrealized gains or losses. When the contract is closed or expired, the 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. OPTIONS Consistent with its investment policies, each Fund (excluding the Harbor Money Market Fund) may use option contracts to manage its exposure to the stock and bond markets and to fluctuations in interest rates and currency values (except Harbor Large Cap Value Fund). Option contracts tend to increase or decrease the Fund's exposure to the underlying instrument or hedge other fund investments. When a Fund purchases an option, the premium paid by the Fund is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently "marked-to-market" to reflect the option's current market value. Purchased options are valued at the last sale price on the market on which they are principally traded. If the purchased option expires, the Fund realizes a loss in the amount of the premium. If the 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 the Fund exercises a call option, the cost of the securities acquired by exercising the call is increased by the premium paid to buy the call. If the Fund exercises a put option, 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 originally paid. When a Fund writes an option, the premium received by the Fund is presented in the Fund's Statement of Assets and Liabilities as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. Written options are valued at the last sale price or, in the absence of a sale, the last offering price on the market on which they are principally traded. If an option expires on its stipulated expiration date, or if the 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, the 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 which the Fund purchases upon exercise of the option. The risk in writing a call option is that the Fund relinquishes the opportunity to profit if the market price of the underlying security increases and the option is exercised. In writing a put option, the Fund assumes the risk of incurring a loss if the market price of the underlying security decreases and the option is exercised. In addition, there is a risk the Fund may not be able to enter into a closing transaction because of an illiquid secondary market, or if the counterparties do not perform under the contracts' terms. See Note 3 for all outstanding written options as of October 31, 2001. SWAP AGREEMENTS To the extent permitted under their respective investment policies, Harbor Bond Fund and Harbor Short Duration Fund may invest in swap agreements which involve the exchange of cash payments based on the specified terms and conditions of such agreements. A swap is an agreement to exchange the return generated by one investment for the return generated by another instrument. The value of each swap is determined by the counterparty to the swap agreement using a methodology which discounts the expected future cash receipts or disbursements related to the swap. The Fund may also enter into interest rate swap agreements which involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, (e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). Interest rate swaps are "marked-to-market" daily. Net market value is reported as an asset or a liability in the Statement of Assets and Liabilities. The cash paid or received on a swap is recognized as income or expense when such a payment is paid or received. 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 Statement of Assets and Liabilities. Such risks involve 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 and that there may be unfavorable changes in market conditions or interest rates. 53 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED TBA/WHEN-ISSUED PURCHASE COMMITMENTS Harbor Bond Fund may enter into TBA (to be announced) and when-issued purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price for a TBA has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2.0% from the principal amount. The price of a when-issued security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The Fund holds, and maintains until the settlement date, cash or liquid securities in an amount sufficient to meet the purchase price. TBA and when-issued purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Fund's other assets. Risks may also arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts. Unsettled TBA and when-issued purchase commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security Valuation" above. Although the Fund will generally enter into TBA and when-issued purchase commitments with the intention of acquiring securities for its portfolio, a Fund may dispose of a commitment prior to settlement if the Fund's Subadviser deems it appropriate to do so. TBA SALE COMMITMENTS Harbor Bond Fund may enter into TBA sale commitments to hedge portfolio positions or to sell mortgage-backed securities owned under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security Valuation" above. The contract is "marked-to-market" daily and the change in market value is recorded by the Fund as an unrealized gain and loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss on the commitment without regard to any unrealized gain or loss on the underlying security. If the Fund delivers securities under the commitment, the Fund realizes a gain or loss from the sale of the securities based upon the unit price established at the date on which the commitment was entered. SHORT SALES Each Fund, except Harbor International Growth Fund, Harbor International Fund, Harbor International Fund II and Harbor Money Market Fund, may engage in short-selling which obligates the Fund to replace the security borrowed by purchasing it at the market price at the time of replacement. Until the security is replaced, the Fund is required to pay to the lender any accrued interest or dividends and may be required to pay a premium. The Fund would realize a gain if the security declines in price between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund would incur a loss as a result of the short sale if the price of the security increases between those dates. Until the Fund replaces the borrowed security, it will maintain a segregated account of cash or liquid securities with its custodian sufficient to cover its short position. Short sales involve the risk of an unlimited increase in the market price of a security. FOREIGN FORWARD CURRENCY CONTRACTS Consistent with its investment policies, each Fund (excluding the Money Market Fund) may enter into forward foreign currency contracts to facilitate transactions in foreign securities or as a hedge against either specific transactions or portfolio positions. A foreign forward currency contract is an agreement between two parties to buy and sell currencies at a set price on a future date. The U.S. dollar value of the contracts is determined using forward currency exchange rates supplied by a pricing service. The contract is "marked-to-market" daily and the change in market 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. 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; however, management of the Fund believes the likelihood of such loss is remote. FOREIGN CURRENCY TRANSLATIONS The accounting records of the Funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars based on the current exchange rates at period end. Purchases and sales of securities are 54 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED translated into U.S. dollars at the current exchange rate on the respective dates of the transaction. Income and withholding taxes are translated at the prevailing exchange rate when accrued or incurred. Reported net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of foreign forward 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 are not isolated in the Statement of Operations from the effects of changes in market prices of these securities. Such fluctuations are included with the net realized and unrealized gain or loss on investments. REPURCHASE AGREEMENTS Each Fund may enter into repurchase agreements with certain banks and broker dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Trust's custodian takes possession through the federal book-entry system of securities collateralizing repurchase agreements. The value of the underlying assets at the time of purchase is required to be at least equal to the repurchase price to protect the Fund in the event of default by the seller. 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 for both federal income tax and financial reporting purposes. INVESTMENT INCOME Dividends declared are accrued on the ex-dividend date. For Harbor International Growth Fund, Harbor Global Equity Fund, Harbor International Fund II and Harbor International Fund, certain dividends are recorded after the ex-dividend date, but as soon as the 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. DISTRIBUTION TO SHAREHOLDERS Distributions are recorded on the ex-dividend date. INCOME RECOGNITION In December 2000, the American Institute of Certified Public Accountants ("AICPA") issued a revised version of the AICPA Audit and Accounting Guide for Investment Companies (the "Guide"). The Guide, which is effective for annual financial statements issued for fiscal years beginning after December 15, 2000, will require investment companies to amortize premiums and discounts on fixed income securities. The Trust currently amortizes premiums and discounts on fixed income securities. Accordingly, the adoption of the Guide will have no significant effect on the Trust's financial statements. EXPENSES Expenses incurred by the Trust with respect to any two or more Funds are allocated in proportion to the net assets or the number of shareholders of each Fund, except where allocations of direct expense to each Fund can be otherwise fairly made. FEDERAL 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 tax on income and capital gains. 55 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 3--INVESTMENT PORTFOLIO TRANSACTIONS Purchases and sales of investments, other than short-term securities, for each Fund for the year ended October 31, 2001 were as follows:
PURCHASES SALES ------------------------ ------------------------ U.S. U.S. FUND GOVERNMENT OTHER GOVERNMENT OTHER ---- ---------- ----- ---------- ----- Harbor Mid Cap Growth Fund.................................. $ -- $ 19,488 $ -- $ 5,277 Harbor Growth Fund.......................................... -- 20,836 -- 16,132 Harbor Small Cap Growth Fund................................ -- 19,862 -- 5,298 Harbor International Growth Fund............................ -- 477,115 -- 30,336 Harbor Global Equity Fund................................... -- 16,740 -- 8,646 Harbor Capital Appreciation Fund............................ -- 6,501,018 -- 6,218,918 Harbor International Fund II................................ -- 34,271 -- 51,396 Harbor International Fund................................... -- 292,133 -- 822,499 Harbor Large Cap Value Fund................................. -- 48,915 -- 67,889 Harbor Bond Fund............................................ 5,730,912 827,619 5,616,880 613,737 Harbor Short Duration Fund.................................. 163,304 89,382 161,169 67,727
The Funds may be subject to taxes imposed by countries in which it invests. 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. REDEMPTION IN-KIND TRANSACTIONS For the year ended October 31, 2001, Harbor Capital Appreciation Fund, Harbor International Fund II, Harbor International Fund, and Harbor Large Cap Value Fund realized gains of $10,560, $396, $66,094 and $741, respectively, from in-kind redemptions of Fund shares. WRITTEN OPTIONS Transactions in written options for the year ended October 31, 2001 are summarized as follows:
OPTIONS WRITTEN OPTIONS WRITTEN ----------------------- ------------------------- EURODOLLAR FUTURES EURO FUTURES ----------------------- ------------------------- NUMBER OF AGGREGATE NUMBER OF AGGREGATE CONTRACTS FACE VALUE CONTRACTS FACE VALUE --------- ---------- --------- ---------- HARBOR BOND FUND Options outstanding at beginning of year.................. 574 E$ 1,436 -- E -- Options opened............................................ 7,226 18,065 28,300,000 28,300 Options closed/expired.................................... (1,676) (4,191) (21,900,000) (21,900) ------ -------- ----------- -------- Open at 10/31/2001........................................ 6,124 E$15,310 6,400,000 E 6,400 ====== ======== =========== ========
OPTIONS WRITTEN OPTIONS WRITTEN ----------------------- ----------------------- JAPANESE YEN FUTURES U.S. TREASURY FUTURES ----------------------- ----------------------- NUMBER OF AGGREGATE NUMBER OF AGGREGATE CONTRACTS FACE VALUE CONTRACTS FACE VALUE --------- ---------- --------- ---------- Options outstanding at beginning of year.................. 8 Y 8,000 513 $ 513 Options opened............................................ -- -- 7,956 7,956 Options closed/expired.................................... (8) (8,000) (5,093) (5,093) -- ------- ------ ------- Open at 10/31/2001........................................ -- Y -- 3,376 $ 3,376 == ======= ====== =======
56 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 3--INVESTMENT PORTFOLIO TRANSACTIONS--CONTINUED
OPTIONS WRITTEN OPTIONS WRITTEN -------------------------- ------------------------ SWAP OPTIONS-JAPANESE YEN SWAP OPTIONS-U.S. -------------------------- ------------------------ NUMBER OF AGGREGATE NUMBER OF AGGREGATE CONTRACTS FACE VALUE CONTRACTS FACE VALUE --------- ---------- --------- ---------- HARBOR BOND FUND Options outstanding at beginning of year.................. 400,000,000 Y 400,000 -- $ -- Options opened............................................ 200,000,000 200,000 53,200,000 53,200 Options closed/expired.................................... (600,000,000) (600,000) -- -- ------------ --------- ---------- ------- Open at 10/31/2001........................................ -- Y -- 53,200,000 $53,200 ============ ========= ========== =======
OPTIONS WRITTEN ----------------------- EURODOLLAR FUTURES ----------------------- NUMBER OF AGGREGATE CONTRACTS FACE VALUE --------- ---------- HARBOR SHORT DURATION FUND Options outstanding at beginning of year.................. 450 E$ 1,125 Options opened............................................ 280 700 Options closed/expired.................................... (730) (1,825) ---- -------- Open at 10/31/2001........................................ -- E$ -- ==== ========
------------ E Euro. E$ Eurodollar. Y Japanese Yen. NOTE 4--FEES AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISER Harbor Capital Advisors, Inc. ("Harbor Capital"), an indirect wholly-owned subsidiary of Robeco Groep, N.V., is the Trust's investment adviser and is also responsible for administrative and other services. Prior to June 8, 2001, Harbor Capital was an indirect wholly-owned subsidiary of Owens-Illinois, Inc. Separate advisory agreements for each Fund were in effect during the year ended October 31, 2001. The agreements provide for fees based on an annual percentage rate of average daily net assets as follows:
ANNUAL PERCENTAGE FEES FUND RATE EARNED ---- ---------- ------ Harbor Mid Cap Growth Fund.................................. 0.75% $ 67 Harbor Growth Fund.......................................... 0.75 1,333 Harbor Small Cap Growth Fund................................ 0.75 73 Harbor International Growth Fund............................ 0.75 5,850 Harbor Global Equity Fund................................... 0.75 37 Harbor Capital Appreciation Fund............................ 0.60 43,124 Harbor International Fund II................................ 0.75 783 Harbor International Fund................................... 0.85 37,347 Harbor Large Cap Value Fund................................. 0.60 834 Harbor Bond Fund............................................ 0.70 6,252 Harbor Short Duration Fund.................................. 0.40 421 Harbor Money Market Fund.................................... 0.30 430
Harbor Capital has from time to time agreed not to impose all or a portion of its advisory fees and bear a portion of the expenses incurred in the operation of certain Funds in order to limit Fund expenses. During the year ended October 31, 2001, Harbor Capital agreed not to impose advisory fees of $18, $20, $10, $101, $2,576, $1,960, $210 and $172 relating to Harbor Mid Cap Growth Fund, Harbor Small Cap Growth Fund, Harbor Global Equity Fund, Harbor International Fund II, Harbor International Fund, Harbor Bond Fund, Harbor Short Duration Fund and Harbor Money Market Fund, respectively. 57 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 4--FEES AND OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED The Trust reimburses Harbor Capital for certain legal expenses incurred by Harbor Capital with respect to the Trust. Such amounts aggregated $50 for the year ended October 31, 2001. DISTRIBUTOR HCA Securities, Inc. ("HCA Securities"), a wholly-owned subsidiary of Harbor Capital is the distributor for Harbor Fund shares. Harbor Fund does not reimburse the distributor for expenses. SHAREHOLDERS On October 31, 2001, Harbor Capital, HCA Securities and Harbor Transfer, Inc. held the following shares of beneficial interest in the Funds:
HARBOR CAPITAL, HCA SECURITIES AND FUND HARBOR TRANSFER ---- ------------------ Harbor Mid Cap Growth Fund.................................. 306,370 Harbor Growth Fund.......................................... 42,372 Harbor Small Cap Growth Fund................................ 201,853 Harbor International Growth Fund............................ 48,028 Harbor Global Equity Fund................................... 505,201 Harbor Capital Appreciation Fund............................ 4,085 Harbor International Fund II................................ 246,105 Harbor International Fund................................... 1,347 Harbor Large Cap Value Fund................................. 12,421 Harbor Bond Fund............................................ 19,840 Harbor Short Duration Fund.................................. 11,804 Harbor Money Market Fund.................................... 23,054,803
TRANSFER AGENT Harbor Transfer, Inc., a wholly-owned subsidiary of Harbor Capital is the shareholder servicing agent for the Funds. Fees incurred for these transfer agent services for the year ended October 31, 2001 totaled $5,093. "NON-INTERESTED" TRUSTEES The fees and expenses of the non-interested Trustees allocated to each Fund are shown on each Fund's Statement of Operations. Trustees' fees and expenses for all Funds aggregated $218 for the year ended October 31, 2001. CUSTODIAN Payments to the custodian have been reduced by balance credits applied to each portfolio for the year ended October 31, 2001. For the Harbor Mid Cap Growth Fund, Harbor Growth Fund, Harbor Small Cap Growth Fund, Harbor International Growth Fund, Harbor Global Equity Fund, Harbor Capital Appreciation Fund, Harbor International Fund II, Harbor International Fund, Harbor Large Cap Value Fund, Harbor Bond Fund, Harbor Short Duration Fund, and Harbor Money Market Fund the reduction amounted to $0, $2, $0, $18, $0, $53, $1, $16, $1, $8, $8 and $6, respectively. The Funds could have invested a portion of the assets utilized in connection with balance credit arrangements in an income producing asset if the Funds had not entered into such arrangements. 58 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) 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 generally accepted accounting principles. These differences are attributable to permanent book and tax accounting differences. Reclassifications are made to the Funds' capital accounts to reflect income and net realized gains available for distribution (or available capital loss carryovers) under income tax rules and regulations. The calculation of net investment income or loss per share in the Financial Highlights exclude the following amounts reclassified for the year ended October 31, 2001:
UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED FUND INCOME/(LOSS) GAIN/(LOSS) PAID-IN CAPITAL ---- -------------- ------------ --------------- Harbor Mid Cap Growth Fund.................................. $ 82 $ -- $ (82) Harbor Growth Fund.......................................... 348 10 (358) Harbor Small Cap Growth Fund................................ 65 -- (65) Harbor International Growth Fund............................ (1,277) 1,094 183 Harbor Global Equity Fund................................... (17) 17 -- Harbor Capital Appreciation Fund............................ (1,554) (10,496) 12,050 Harbor International Fund II................................ 1,133 (363) (770) Harbor International Fund................................... 8,138 (65,549) 57,411 Harbor Large Cap Value Fund................................. 144 (885) 741 Harbor Bond Fund............................................ (4,604) 1,033 3,571 Harbor Short Duration Fund.................................. 13 3,523 (3,536) Harbor Money Market Fund.................................... (2) 2 --
At October 31, 2001, Harbor Mid Cap Growth Fund had capital loss carryforwards of approximately $2,096, which may be available to offset future realized capital gains, if any, and will expire on October 31, 2009. At October 31, 2001, Harbor Growth Fund had capital loss carryforwards of approximately $11,022, which may be available to offset future realized capital gains, if any, and will expire on October 31, 2009. At October 31, 2001, Harbor Small Cap Growth Fund had capital loss carryforwards of approximately $606, which may be available to offset future realized capital gains, if any, and will expire on October 31, 2009. At October 31, 2001, Harbor International Growth Fund had capital loss carryforwards of approximately $371,462, which may be available to offset future realized capital gains, if any, and will expire on October 31, 2009. At October 31, 2001, Harbor Global Equity Fund had capital loss carryforwards of approximately $956, which may be available to offset future realized capital gains, if any, and will expire on October 31, 2009. At October 31, 2001, Harbor Capital Appreciation Fund had capital loss carryforwards of approximately $1,535,346, which may be available to offset future realized capital gains, if any, and will expire on October 31, 2009. At October 31, 2001, Harbor International Fund II had capital loss carryforwards of approximately $2,577, which may be available to offset future realized capital gains, if any, and will expire on October 31, 2009. At October 31, 2001, Harbor Large Cap Value Fund had capital loss carryforwards of approximately $12,600, which may be available to offset future realized capital gains, if any, and will expire on October 31, 2009. At October 31, 2001 Harbor Short Duration Fund had capital loss carryforwards of approximately $20,813, which may be available to offset future realized capital gains, if any; $13,538, $1,182, $2,216, $2,223 and $1,654 will expire on October 31, 2002, October 31, 2004, October 31, 2005, October 31, 2007 and October 31, 2008, respectively. 59 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands, except per share amounts) NOTE 5--TAX INFORMATION--CONTINUED The identified cost for federal income tax purposes of investments owned by each Fund (including earned discount on corporate short-term notes and commercial paper) and their respective gross unrealized appreciation and depreciation at October 31, 2001, along with long-term capital gains and the amount of long-term capital gains per share paid during the year ended October 31, 2001 were as follows:
LONG-TERM GROSS UNREALIZED NET UNREALIZED CAPITAL GAINS ------------------------------ APPRECIATION/ --------------------------- FUND IDENTIFIED COST APPRECIATION (DEPRECIATION) (DEPRECIATION) ($000S) ($ PER SHARE) ---- --------------- ------------ -------------- -------------- ------- ------------- Harbor Mid Cap Growth Fund..................... $ 12,280 $ 410 $ (2,785) $ (2,375) $ -- $ -- Harbor Growth Fund......... 157,662 22,353 (61,784) (39,431) 17,418 1.558 Harbor Small Cap Growth Fund..................... 17,357 1,335 (1,284) 51 -- -- Harbor International Growth Fund..................... 545,120 15,560 (130,044) (114,484) 60,958 0.916 Harbor Global Equity Fund..................... 7,724 86 (1,026) (940) -- -- Harbor Capital Appreciation Fund..................... 6,506,258 520,862 (986,096) (465,234) 1,154,575 6.174 Harbor International Fund II....................... 95,734 3,689 (22,687) (18,998) 2,278 0.268 Harbor International Fund..................... 2,655,192 1,130,728 (297,864) 832,864 460,322 3.771 Harbor Large Cap Value Fund..................... 124,972 8,266 (4,198) 4,068 -- -- Harbor Bond Fund........... 1,409,444 25,079 (4,404) 20,675 4,888 0.072 Harbor Short Duration Fund..................... 129,370 2,265 (233) 2,032 -- --
Harbor Large Cap Value Fund designates 88.24% of its distributions from investment company taxable income for the fiscal year as qualifying for the dividends received deduction for corporate shareholders. The Form 1099 you receive in January, 2002 for each of the Funds will show the tax status of all distributions paid to your account in calendar year 2001. NOTE 6--SUBSEQUENT EVENT Mastholm Asset Management, LLC has been appointed as subadviser of the Harbor International Growth Fund, effective December 1, 2001. Theodore J. Tyson, Joseph P. Jordan and Douglas R. Allen are co-managing the Fund. Harbor International Growth Fund will continue to have an investment goal of long-term growth of capital by investing in stocks of foreign companies with potential for sustainable growth. The portfolio typically will include 35 to 45 securities, each with a minimum market capitalization of approximately $10 billion at the time of initial investment. 60 HARBOR FUND ADDITIONAL INFORMATION--(UNAUDITED) TRUSTEES AND OFFICERS Information pertaining to the Trustees and officers of Harbor is set forth below. The statement of additional information (SAI) includes additional information about the Funds Trustees and is available without charge, upon request, by calling 1-800-422-1050 or can be downloaded from our website at www.harborfund.com.
NUMBER OF TERM OF PORTFOLIOS IN OFFICE AND FUND COMPLEX NAME, ADDRESS AND (AGE) LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY POSITION(S) WITH FUND TIME SERVED(1) DURING PAST FIVE YEARS(2) TRUSTEE ------------------------------------------------------------------------------------------------------------------------- DISINTERESTED TRUSTEES ------------------------------------------------------------------------------------------------------------------------- Howard P. Colhoun (66) General Partner, Emerging Growth Partners, L.P. (investing 12 Trustee Since 1986 in small companies) (1982-1996); Director, Storage U.S.A. 14114 Mantua Mill Road (1995-Present); and Vice President and Director of Mutual Gylndon, MD 21071 Funds, T. Rowe Price Associates, Inc. (prior to 1982). John P. Gould (63) Director of Unext.com (1999-Present); President, Cardean 12 Trustee Since 1994 University (1999- 2001); Steven G. Rothmeier Professor 332 S. Michigan Avenue (1996-Present) and Distinguished Service Professor of 13th Floor Economics, Graduate School of Business, University of Chicago, IL 60604 Chicago (1984-Present, on faculty since 1965); Trustee of Milwaukee Mutual (1997-Present); and Principal and Executive Vice President of Lexecon Inc. (1994-Present). Rodger F. Smith (60) Partner, Greenwich Associates (a business strategy, 12 Trustee Since 1987 consulting and research firm) (1975-Present); and Director Office Park Eight of Arlington Capital Management (C.I.) Limited Greenwich, CT 06830 (1992-Present). ------------------------------------------------------------------------------------------------------------------------- INTERESTED TRUSTEE ------------------------------------------------------------------------------------------------------------------------- David G. Van Hooser (55) Director and Chairman of the Board, Harbor Capital Advisors, 12 Chairman and Trustee Since 2000 Inc. (2000-Present); Director, HCA Securities, Inc. One SeaGate (2000-Present); Director, Harbor Transfer, Inc. Toledo, OH 43666 (2000-Present); Senior Vice President and Chief Financial Officer, Owens-Illinois, Inc. (1998-2001); and Senior Vice President and Director of Corporate Strategy, Owens-Illinois, Inc. (1996-1998). ------------------------------------------------------------------------------------------------------------------------- INTERESTED PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES ------------------------------------------------------------------------------------------------------------------------- James M. Williams (54) Director and President (2000-Present) Harbor Capital N/A President Since 2000 Advisors, Inc.; Director and President (2000-Present) HCA One SeaGate Securities, Inc.; Director (2000-Present) Harbor Transfer, Toledo, OH 43666 Inc.; and Pension Asset Manager (1989-1999) Ford Motor Company. Constance L. Souders (51) Senior Vice President, (1991-Present), Director of N/A Vice President Since 1999 Administration (1997- Present), Director and Secretary Treasurer Since 1992 (1988-Present), Treasurer (1988-2000), Vice President One SeaGate (1988-1991) and Director of Accounting and Fiduciary Toledo, OH 43666 Operations (1992-1996), Harbor Capital Advisors, Inc.; President (2000-Present), Director (1991-Present) and Vice President, Secretary, and Treasurer (1992-2000), Harbor Transfer, Inc.; and Vice President and Secretary (2000-Present) and Director (1989-Present), HCA Securities, Inc. Karen B. Wasil (49) Assistant Secretary (1997-Present), Director (1999-2000) and N/A Secretary Since 1999 Regulatory and Legal Compliance Manager (1995-Present), One SeaGate Harbor Capital Advisors, Inc.; Secretary (2000-Present) Toledo, OH 43666 Director (1999-2000), Harbor Transfer, Inc.; and Director (1999-2000), HCA Securities, Inc. NAME, ADDRESS AND (AGE) OTHER DIRECTORSHIPS POSITION(S) WITH FUND HELD BY TRUSTEE ---------------------------- DISINTERESTED TRUSTEES ---------------------------- Howard P. Colhoun (66) N/A Trustee 14114 Mantua Mill Road Gylndon, MD 21071 John P. Gould (63) Trustee of Dimensional Trustee Fund Advisors, Inc., 28 332 S. Michigan Avenue series (1986-Present); 13th Floor Trustee and Chairman Chicago, IL 60604 Pegasus Funds (1996-1999); Trustee of First Prairie Funds (1985-1996); and Trustee of Woodward Funds (1996). Rodger F. Smith (60) N/A Trustee Office Park Eight Greenwich, CT 06830 ---------------------------- INTERESTED TRUSTEE ---------------------------- David G. Van Hooser (55) N/A Chairman and Trustee One SeaGate Toledo, OH 43666 ---------------------------- INTERESTED PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES ---------------------------- James M. Williams (54) N/A President One SeaGate Toledo, OH 43666 Constance L. Souders (51) N/A Vice President Treasurer One SeaGate Toledo, OH 43666 Karen B. Wasil (49) N/A Secretary One SeaGate Toledo, OH 43666
------------------------- (1) Each Trustee serves for an indefinite term, until his successor is elected. Each officer is elected annually. (2) On June 7, 2001, a wholly-owned subsidiary of Robeco Groep N.V. acquired substantially all of the assets and assumed substantially all of the liabilities of the predecessor adviser to Harbor Fund, also named "Harbor Capital Advisors, Inc." That wholly owned subsidiary of Robeco Groep N.V. assumed the name "Harbor Capital Advisors, Inc." as part of the acquisition. Another subsidiary of Robeco Groep N.V. acquired substantially all of the assets and assumed substantially all of liabilities of Harbor Transfer, Inc. and assumed the name "Harbor Transfer, Inc." On September 20, 2001, a wholly-owned subsidiary of Robeco Groep, N.V. acquired substantially all of the assets and assumed substantially all of the liabilities of HCA Securities, Inc. and assumed the name "HCA Securities, Inc." Accordingly, for periods prior to June 7, 2001 with respect to Harbor Capital Advisors, Inc. and Harbor Transfer, Inc. and for periods prior to September 20, 2001 with respect to HCA Securities, Inc., employment with Harbor Capital Advisors, Inc., Harbor Transfer, Inc. and HCA Securities, Inc. refers to employment with the predecessor entities. 61 HARBOR FUND ADDITIONAL INFORMATION--(UNAUDITED)--CONTINUED SPECIAL MEETING OF SHAREHOLDERS On June 7, 2001, a special meeting of shareholders of Harbor Fund was held for the purpose of voting on the following matters. Mr. David G. Van Hooser was elected as a Trustee--Mr. Howard P. Colhoun, Mr. John P. Gould and Mr. Rodger F. Smith will continue to serve as Trustees.
FUND PROPOSAL 1 PROPOSAL 2 ---------------------------------------------------------------------------------------------------------- The approval of new Subadvisory The approval of a new Advisory Agreements between each Fund, Agreement between each Fund and Harbor Capital Advisors, Inc. and Harbor Capital Advisors, Inc. each Fund's Subadviser Harbor Fund FOR N/A N/A WITHHELD N/A N/A Harbor Mid Cap Growth Fund FOR 790,171 790,238 AGAINST 1,240 1,173 ABSTAIN 36,159 36,159 Harbor Growth Fund FOR 8,461,356 8,457,320 AGAINST 126,422 126,358 ABSTAIN 35,062 39,163 Harbor Small Cap Growth Fund FOR 545,415 545,465 AGAINST 3,188 3,139 ABSTAIN 2,199 2,199 Harbor International Growth Fund FOR 43,226,275 43,221,546 AGAINST 326,819 329,401 ABSTAIN 544,880 547,027 Harbor Global Equity Fund FOR 507,933 507,933 AGAINST 1,101 1,101 ABSTAIN 0 0 Harbor Capital Appreciation Fund FOR 154,502,645 154,477,947 AGAINST 1,775,623 1,777,191 ABSTAIN 1,870,754 1,893,884 Harbor International Fund II FOR 5,569,202 5,562,812 AGAINST 65,717 70,180 ABSTAIN 640,917 642,844 Harbor International Fund FOR 82,849,925 82,847,627 AGAINST 1,924,948 1,891,464 ABSTAIN 18,472,734 18,508,516 Harbor Value Fund FOR 7,569,194 7,574,791 AGAINST 51,967 53,852 ABSTAIN 63,751 56,269 Harbor Bond Fund FOR 51,370,926 51,374,641 AGAINST 672,261 699,235 ABSTAIN 996,302 965,613 Harbor Short Duration Fund FOR 11,823,734 11,822,266 AGAINST 40,343 39,627 ABSTAIN 26,084 28,268 Harbor Money Market Fund FOR 93,152,666 93,255,371 AGAINST 2,767,810 2,719,203 ABSTAIN 1,154,438 1,100,340 FUND PROPOSAL 3 ------------------------------- --------------------------------- The election of Mr. Van Hooser as a Trustee Harbor Fund FOR 446,871,551 WITHHELD 45,098,618 Harbor Mid Cap Growth Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor Growth Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor Small Cap Growth Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor International Growth Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor Global Equity Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor Capital Appreciation Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor International Fund II FOR N/A AGAINST N/A ABSTAIN N/A Harbor International Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor Value Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor Bond Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor Short Duration Fund FOR N/A AGAINST N/A ABSTAIN N/A Harbor Money Market Fund FOR N/A AGAINST N/A ABSTAIN N/A
(This document must be preceded or accompanied by a Prospectus.) 62 NOTES NOTES NOTES TRUSTEES AND OFFICERS SHAREHOLDER SERVICING AGENT DAVID G. VAN HOOSER Chairman and Trustee HARBOR TRANSFER, INC. P.O. Box 10048 HOWARD P. COLHOUN Trustee Toledo, Ohio 43699-0048 1-800-422-1050 JOHN P. GOULD Trustee CUSTODIAN RODGER F. SMITH Trustee STATE STREET BANK AND TRUST COMPANY JAMES M. WILLIAMS President P.O. Box 1713 Boston, MA 02105 CONSTANCE L. SOUDERS Vice President and Treasurer INDEPENDENT AUDITORS KAREN B. WASIL Secretary ERNST & YOUNG LLP INVESTMENT ADVISER 200 Clarendon Street Boston, MA 02116 HARBOR CAPITAL ADVISORS, INC. One SeaGate LEGAL COUNSEL Toledo, OH 43666 DISTRIBUTOR AND PRINCIPAL UNDERWRITER HALE AND DORR LLP 60 State Street HCA SECURITIES, INC. Boston, MA 02109 One SeaGate Toledo, OH 43666 (419) 247-2477
[HARBOR FUND LOGO] One SeaGate Toledo, Ohio 43666 1-800-422-1050 www.harborfund.com 12/2001/290,000 [RECYCLED PAPER LOGO] recycled paper SEMI-ANNUAL REPORT [HARBOR FUND LOGO] APRIL 30, 2002 ----------------------------------------- HARBOR FUND TABLE OF CONTENTS SEMI-ANNUAL REPORT OVERVIEW 2 LETTER TO SHAREHOLDERS 4 HARBOR DOMESTIC EQUITY FUNDS MANAGERS' COMMENTARY Harbor Capital Appreciation Fund 6 Harbor Mid Cap Growth Fund 6 Harbor Growth Fund 7 Harbor Small Cap Growth Fund 7 Harbor Large Cap Value Fund 8 Harbor Mid Cap Value Fund 8 Harbor Small Cap Value Fund 9 PORTFOLIO OF INVESTMENTS Harbor Capital Appreciation Fund 10 Harbor Mid Cap Growth Fund 12 Harbor Growth Fund 14 Harbor Small Cap Growth Fund 16 Harbor Large Cap Value Fund 18 Harbor Mid Cap Value Fund 20 Harbor Small Cap Value Fund 22 STATEMENT OF ASSETS AND LIABILITIES 24 STATEMENT OF OPERATIONS 25 STATEMENT OF CHANGES IN NET ASSETS 26 FINANCIAL HIGHLIGHTS 28 HARBOR INTERNATIONAL EQUITY FUNDS MANAGERS' COMMENTARY Harbor International Fund 30 Harbor International Fund II 30 Harbor International Growth Fund 31 Harbor Global Equity Fund 31 PORTFOLIO OF INVESTMENTS Harbor International Fund 32 Harbor International Fund II 34 Harbor International Growth Fund 36 Harbor Global Equity Fund 38 STATEMENT OF ASSETS AND LIABILITIES 42 STATEMENT OF OPERATIONS 43 STATEMENT OF CHANGES IN NET ASSETS 44 FINANCIAL HIGHLIGHTS 46 HARBOR FIXED INCOME FUNDS MANAGERS' COMMENTARY Harbor Bond Fund 48 Harbor Short Duration Fund 48 Harbor Money Market Fund 49 PORTFOLIO OF INVESTMENTS Harbor Bond Fund 50 Harbor Short Duration Fund 57 Harbor Money Market Fund 59 STATEMENT OF ASSETS AND LIABILITIES 60 STATEMENT OF OPERATIONS 61 STATEMENT OF CHANGES IN NET ASSETS 62 FINANCIAL HIGHLIGHTS 64 NOTES TO FINANCIAL STATEMENTS 66
DOMESTIC EQUITY INTERNATIONAL EQUITY FIXED INCOME HARBOR FUND SEMI-ANNUAL REPORT OVERVIEW The first half of Harbor Fund's fiscal year ended April 30, 2002. Performance for this six-month period is shown below for each of the 14 portfolios. All performance figures included in this report are total returns and assume the reinvestment of dividends and capital gains. The section entitled Long-Term Historic Total Returns reflects the 30-year returns for unmanaged indices, which are included as an indication of longer-term potential associated with taking different levels of market risk. You may not make a direct investment in an index.
UNANNUALIZED 6 MONTHS ENDED HARBOR FUND TOTAL RETURNS 04/30/2002 ------------------------- ------------ HARBOR DOMESTIC EQUITY FUNDS Harbor Capital Appreciation Fund.......................... 0.63% Harbor Mid Cap Growth Fund................................ 2.30 Harbor Growth Fund........................................ 3.83 Harbor Small Cap Growth Fund.............................. 12.55 Harbor Large Cap Value Fund............................... 13.18 Harbor Mid Cap Value Fund................................. 6.70(a) Harbor Small Cap Value Fund............................... 16.10(b) HARBOR INTERNATIONAL EQUITY FUNDS Harbor International Fund................................. 14.22% Harbor International Fund II.............................. 11.90 Harbor International Growth Fund.......................... -2.00 Harbor Global Equity Fund................................. 3.87 HARBOR FIXED INCOME FUNDS Harbor Bond Fund.......................................... 1.19% Harbor Short Duration Fund................................ 1.19 Harbor Money Market Fund.................................. 0.86
COMMONLY USED MARKET INDICES TOTAL RETURNS ------------------------------------------ Morgan Stanley Capital International Europe, Australasia, and Far East (EAFE); international equity................. 5.53% Morgan Stanley Capital International Europe, Australasia, and Far East Growth (EAFE Growth); international equity... 5.80 Morgan Stanley Capital International World Index (MSCI World); global equity..................................... 3.29 Standard & Poor's 500 (S&P 500); domestic equity............ 2.31 Russell Midcap(R) Growth; domestic equity................... 6.97 Russell 2000(R) Growth; domestic equity..................... 10.40 Russell Midcap(R) Value; domestic equity.................... 20.16 Russell 2000(R) Value; domestic equity...................... 29.03 Russell 1000(R) Value; domestic equity...................... 8.87 Lehman Brothers Aggregate (LB AGG); domestic bonds.......... -0.01 Salomon Treasury 1 YR CMI; domestic bonds................... 1.25 90-Day U.S. Treasury Bills (T-Bills); domestic short-term... 0.90
30 YEARS 1972-2001 LONG-TERM HISTORIC TOTAL RETURNS ANNUAL RATES -------------------------------- ------------ EAFE........................................................ 10.44% MSCI World.................................................. 10.12 S&P 500..................................................... 12.24 Domestic Bonds (intermediate and long)(1)................... 8.77 T-Bills..................................................... 7.04 Consumer Price Index........................................ 4.98
2 HARBOR FUND SEMI-ANNUAL REPORT OVERVIEW--CONTINUED
EXPENSE RATIOS(2) MORNINGSTAR 1998 1999 2000 2001 2002(C) MEDIAN(3) ---- ---- ---- ---- ------- ----------- HARBOR DOMESTIC EQUITY FUNDS Harbor Capital Appreciation Fund.......... 0.68% 0.66% 0.64% 0.66% 0.68% 0.96% Harbor Mid Cap Growth Fund................ N/A N/A N/A 1.20 1.20 1.15 Harbor Growth Fund........................ 1.00 0.90 0.87 0.95 0.99 1.15 Harbor Small Cap Growth Fund.............. N/A N/A N/A 1.20 0.96 1.20 Harbor Large Cap Value Fund............... 0.79 0.76 0.80 0.77 0.77 0.91 Harbor Mid Cap Value Fund................. N/A N/A N/A N/A 1.20(a) 1.11 Harbor Small Cap Value Fund............... N/A N/A N/A N/A 1.20(b) 1.19 HARBOR INTERNATIONAL EQUITY FUNDS Harbor International Fund................. 0.94% 0.92% 0.92% 0.91% 0.88% 1.18% Harbor International Fund II.............. 1.15 0.92 0.92 0.89 0.91 1.18 Harbor International Growth Fund.......... 0.96 0.91 0.89 0.89 0.93 1.27 Harbor Global Equity Fund................. N/A N/A N/A 1.20 1.20 1.25 HARBOR FIXED INCOME FUNDS Harbor Bond Fund.......................... 0.65% 0.60% 0.60% 0.56% 0.57% 0.61% Harbor Short Duration Fund................ 0.36 0.28 0.28 0.27 0.30 0.51 Harbor Money Market Fund.................. 0.57 0.46 0.47 0.38 0.36 0.74
------------------ 1 LB AGG not available for 30 year period; blended historic data used to approximate total Bond Market Return. 2 Harbor Fund expense ratios are for operating expenses only and are shown net of all expense offsets (see Financial Highlights). 3 Includes all no-load funds with at least five years of performance history in the March 31, 2002 Morningstar Universe with the same investment style as the comparable Harbor Fund portfolio. a For the period March 1, 2002 (inception) through April 30, 2002. b For the period December 14, 2001 (inception) through April 30, 2002. c Annualized figures for the six-month period ended April 30, 2002. 3 DEAR SHAREHOLDER: Financial markets were choppy in the six months ended April 30, 2002, the first half of Harbor Fund's fiscal year. Equity markets had mounted a strong recovery in the closing months of 2001 from lows that had been reached in the wake of the terrorist attacks of September 11. In the early part of 2002, however, stocks gave back some of those gains, as investors reacted to a variety of concerns. These included uncertainty about the strength and pace of the economic recovery, questions about corporate governance and corporate accounting practices and the Middle East crisis. Also exerting downward pressure on stock prices was continued weakness in corporate profits. First quarter 2002 earnings for companies in the Standard & Poor's 500 stock index were estimated to be down by more than 10% on a year-over-year basis. This followed a decrease in full-year 2001 earnings of 20% to 30%, based on estimates by various analysts. After numerous reductions throughout 2001 brought the Federal Funds rate to a 40-year low of 1.75%, the Federal Reserve in March 2002 announced that the risk of economic weakness was believed to be equally balanced with that of inflation. This announcement signaled a potential turning point in Fed policy, raising the possibility of monetary tightening later in the year. In this environment, most major equity indices ended in positive territory for the six-month period, while investment-grade taxable bonds were essentially unchanged. Small capitalization stocks generally did better than large caps, while value-oriented stocks outperformed growth.
RETURNS FOR PERIODS ENDED 04/30/2002 6 MONTHS 1 YEAR 5 YEARS 10 YEARS ------------------------------------ -------- ------ ------- -------- S&P 500 (large cap stocks).................................. 2.31% -12.63% 7.55% 12.23% Russell 2000(R) (small cap stocks).......................... 20.03 6.68 9.66 11.63 Wilshire 5000 (total U.S. stock market)..................... 5.23 -3.97 7.75 11.82 EAFE (foreign stocks)....................................... 5.53 -13.88 1.34 5.86 LB Aggregate (taxable investment grade bonds)............... -0.01 7.84 7.66 7.51 90-day T-bills (proxy for money market returns)............. 0.90 2.64 4.75 4.62
HARBOR FUND Eight of the eleven Harbor equity funds and all three of the Harbor fixed income funds posted positive returns for the six-month period. The best performers included: - Harbor International Fund, up 14.22%, and Harbor International Fund II, up 11.90%, compared with the 5.53% increase by their benchmark, the EAFE index. - Harbor Large Cap Value Fund, up 13.18%, compared with an increase of 8.87% by its benchmark, the Russell 1000(R) Value index. - Harbor Small Cap Growth Fund, up 12.55%, compared with a return of 10.40% by its benchmark, the Russell 2000(R) Growth index. In addition, two new Harbor equity funds posted strong positive returns for the brief periods since their inceptions. Harbor Small Cap Value Fund was up 16.10% from its inception on December 14, 2001, and Harbor Mid Cap Value Fund was up 6.70% in the two months following its inception on March 1, 2002. LONG-TERM PERSPECTIVE The generally positive performance by equities for the fiscal first half-year represented a welcome reversal from the significant declines suffered in calendar year 2001. While equities generally performed better in the fiscal first-half, bonds' flat performance contrasted with double-digit gains in the 2001 calendar year. An important reminder from this swift reversal in relative performance is that it is virtually impossible to consistently predict near-term movements in the financial markets. Long-term historical total returns (shown on page 1) are well documented and tend to reflect the fundamental risk/reward relationships represented by major asset classes. These long-term performance figures do not predict where stock or bond prices will go tomorrow. Yet they do provide valuable information for long-term investors. Such investors aim to achieve superior returns not by trying to out-guess the market or by chasing the latest hot-performing fund, but by taking advantage of the powerful long-term benefits of asset allocation. With an effective asset allocation strategy, individuals can diversify their assets among a mix of investments--stocks, bonds, and money market securities--that reflect their financial goals and tolerance for risk. 4 DEAR SHAREHOLDER--CONTINUED Of course, even a well-executed asset allocation strategy cannot assure a profitable return under all circumstances. Nor does it provide complete protection against loss in declining markets. But it can help investors insulate themselves from overreacting to swift changes in the markets which can often result in poor investment results. By maintaining a balanced asset allocation strategy, investors can reduce their exposure to sudden drops in certain market segments while positioning themselves to participate in recoveries by asset classes that may be temporarily out of favor. Sound investment strategies, even when grounded on solid assumptions and supported by historical performance, are not always easy to follow in everyday practice. This is especially true during turbulent market periods. Continuing shifts in market sentiment are reflected in ongoing fluctuations in relative performance among asset classes: stocks vs. bonds, small cap vs. large cap, growth vs. value, and international vs. domestic. For many years, for example, international stocks routinely were included in most well-diversified portfolios. Because U.S. equities performed so well during much of the 1990s, however, some investors reduced or even eliminated their holdings in foreign stocks. In calendar year 2001, however, international stocks outperformed many major U.S. stock indices. This trend has continued into 2002. As noted above, Harbor International Fund and Harbor International Fund II were among the best-performing funds in the Harbor family for the most recent fiscal half year. NEW FUNDS Harbor Fund expanded its lineup of domestic equity funds with the addition of two new value-oriented stock funds. Harbor Small Cap Value Fund was launched December 14, 2001, and Harbor Mid Cap Value Fund began operations on March 1, 2002. These new funds complement Harbor's established value product--Harbor Large Cap Value Fund. Since November 1, 2000, Harbor Fund has launched five new equity funds as part of our commitment to provide shareholders with access to the services of leading asset managers. These recently added funds also are designed to support the portfolio diversification strategies of our shareholders by further broadening the range of investment styles and objectives available to investors. By entrusting your assets to us, you have demonstrated a confidence in Harbor Fund that is deeply appreciated by all of us in the Harbor family. We know that we must continue to earn your confidence on a daily basis and we are committed to doing so. /s/ David G. Van Hooser /s/ James M. Williams David G. Van Hooser James M. Williams Chairman President
5 HARBOR DOMESTIC EQUITY FUNDS MANAGERS' COMMENTARY The following performance figures are annualized for each Fund except for the six-month total return calculations. Unless otherwise stated, all comments pertain to the fiscal half year ended April 30, 2002. The comparative market indices reflect no operating or transaction costs, however the Funds' total returns are net of these costs. Performance data quoted represents past performance and is not predictive of future performance. The returns shown in the graphs and tables do not reflect the deduction of taxes that a shareholder would HARBOR CAPITAL APPRECIATION FUND 04/30/2002 $26.53 INCEPTION DATE--DECEMBER 29, 1987 NET ASSET VALUE: 10/31/2001 $26.40
[HARBOR CAPITAL APPRECIATION FUND GRAPH]
CAPITAL APPRECIATION S&P 500 -------------------- ------- 10000.00 10000.00 4/30/93 11151.70 10923.50 4/30/94 12499.20 11504.60 4/30/95 15253.50 13514.10 4/30/96 20076.10 17597.10 4/30/97 23262.60 22019.90 4/30/98 34542.00 31062.50 4/30/99 44224.00 37840.90 4/30/00 60339.70 41674.10 4/30/01 44107.00 36268.00 4/30/02 35931.20 31689.10
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years 10 Years -------------------------------------------------------------------------------- Harbor Capital Appreciation Fund 0.63% -18.54% 9.08% 13.64% -------------------------------------------------------------------------------- S&P 500 2.31% -12.63% 7.55% 12.23% --------------------------------------------------------------------------------
Harbor Capital Appreciation Fund underperformed the S&P 500 index for the past 6-month and 1-year periods. From a longer term perspective, the Fund's total returns exceeded those of the index for the latest 5-year and 10-year periods. - Favorable stock selection among media, retail and other consumer discretionary stocks had the largest positive impact on the Fund's absolute and relative performance for the 6-month period. The Fund was significantly overweighted in the consumer discretionary sector relative to the index and its holdings in that sector outperformed those in the index. - The index performance was reduced by negative returns in the telecommunication services and utilities sectors. This improved the relative performance of the Fund, which had no exposure in those areas. In addition, the Fund's information technology holdings performed better than those in the index. - Financial services stocks in the portfolio underperformed those in the index for the 6-month period. This was the biggest detractor from relative performance. Health care stock prices declined during the period. This detracted from both absolute and relative performance, as the Fund was slightly overweighted in this sector compared with the index. - The Fund's largest sector positions as of April 30, 2002, were in information technology, consumer discretionary, health care, and financial services. Sector weightings are a secondary consideration for the manager, who utilizes a bottom-up selection process to identify stocks with attractive valuations and above-average prospects for growth. HARBOR MID CAP GROWTH FUND 04/30/2002 $5.77 INCEPTION DATE--NOVEMBER 1, 2000 NET ASSET VALUE: 10/31/2001 $5.64
[HARBOR MID CAP GROWTH FUND GRAPH]
MID CAP GROWTH RUSSELL MIDCAP(R) GROWTH -------------- ------------------------ 10000.00 10000.00 4/30/01 7830.00 7201.10 4/30/02 5770.00 6120.46
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years Since Inception -------------------------------------------------------------------------------- Harbor Mid Cap Growth Fund 2.30% -26.31% N/A -30.69% -------------------------------------------------------------------------------- Russell Midcap(R) Growth 6.97% -15.01% 7.73% -27.91% --------------------------------------------------------------------------------
For the six months ended April 30, 2002, Harbor Mid Cap Growth Fund posted a total return of 2.30%. By comparison, the Russell Midcap(R) Growth index returned 6.97% for the period. - U.S. equities staged a strong recovery in the fourth quarter of 2001, following the post-attack lows set on September 21. Smaller capitalization issues posted the strongest returns and growth stocks, which had suffered the brunt of the decline in 2001, reversed course and led the market out of the downturn. Following the large gains in the fourth quarter, the broad market produced lackluster results in the first quarter of 2002. Although the economy showed signs of recovery, the Enron/Andersen scandal and concerns of an escalating crisis in the Middle East put downward pressure on stock prices. Value stocks outperformed growth stocks in every size segment, as investors shied away from high growth areas, particularly technology and health care. - The Fund's investments in consumer discretionary stocks added value for the period. With a gain of 32% over the six months, this was the portfolio's top- performing sector. In addition, the Fund was overweighted in energy stocks, which gained more than 30% during the period. - Gains in these areas, however, were diminished by investments in the technology and health care sectors. Investments in health care were the largest detractor from performance, as these stocks experienced significant price declines. Although the Fund's technology stocks outperformed those in the benchmark, the overweighted position in a declining sector reduced portfolio returns. - At April 30, the Fund's investments were focused on companies expected to benefit from continued economic recovery in 2002. The Fund continued to be significantly overweighted in the technology sector, with health care and consumer stocks also playing significant roles in the portfolio. In addition, the portfolio continued to be overweighted in the energy sector, which the manager expects to benefit from a supply/demand imbalance. DOMESTIC EQUITY 6 HARBOR DOMESTIC EQUITY FUNDS MANAGERS' COMMENTARY--CONTINUED pay on fund distributions or the redemption of fund shares. Actual return and principal value on an investment will fluctuate, and the shares, when redeemed, may be worth more or less than their original cost. For information on the risks associated with these Funds, please refer to the Harbor Fund prospectus. The performance of funds investing primarily in small and mid cap companies may be more volatile than funds which invest primarily in stocks of large cap companies. HARBOR GROWTH FUND 04/30/2002 $10.58 INCEPTION DATE--NOVEMBER 19, 1986 NET ASSET VALUE: 10/31/2001 $10.19
[HARBOR GROWTH FUND GRAPH]
GROWTH RUSSELL MIDCAP(R) GROWTH ------ ------------------------ 10000.00 10000.00 4/30/93 10186.30 11061.00 4/30/94 11121.80 12286.70 4/30/95 11612.40 13896.40 4/30/96 16456.80 18592.40 4/30/97 15322.90 19321.60 4/30/98 21614.40 27212.70 4/30/99 20645.90 30567.80 4/30/00 44223.80 46776.30 4/30/01 29279.70 32990.70 4/30/02 21693.20 28039.90
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years 10 Years -------------------------------------------------------------------------------- Harbor Growth Fund 3.83% -25.91% 7.20% 8.05% -------------------------------------------------------------------------------- Russell Midcap(R) Growth 6.97% -15.01% 7.73% 10.86% --------------------------------------------------------------------------------
The Fund and its benchmark, the Russell Midcap(R) Growth index, posted positive single-digit total returns for the six months ended April 30, 2002. - Growth stocks made a strong recovery in the fourth quarter of 2001. Some of those gains were relinquished in the first four months of 2002, however, as a result of investor concerns about the pace and timing of an economic recovery. - The Fund's manager has a continuing focus on companies with favorable long-term growth prospects, including those in information technology, health care, and other industries. The Fund's sector weightings are the result of individual stock selections by the manager. - Information technology stocks in the portfolio slightly outperformed those in the index and made a positive contribution to the Fund's performance for the six months. The Fund's best-performing technology holdings were companies in the semiconductor and electronic equipment industries. - Health care stocks lost ground during the six-month period, but those held by the Fund performed better than those in the index. Price declines among health care stocks contributed to the Fund's relative performance, as the portfolio was underweighted in that area. - Consumer discretionary stocks turned in a strong performance for the six-month period. This contributed favorably to the Fund's absolute performance, as its consumer discretionary holdings outpaced those in the index. However, the Fund was underweighted in the consumer discretionary sector compared with the index, which detracted from its relative performance. HARBOR SMALL CAP GROWTH FUND 04/30/2002 $10.94 INCEPTION DATE--NOVEMBER 1, 2000 NET ASSET VALUE: 10/31/2001 $9.72
[HARBOR SMALL CAP GROWTH FUND GRAPH]
SMALL CAP GROWTH RUSSELL 2000(R) GROWTH ---------------- ---------------------- 10000.00 10000.00 4/30/01 10220.00 8266.24 4/30/02 10940.00 7561.83
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years Since Inception -------------------------------------------------------------------------------- Harbor Small Cap Growth Fund 12.55% 7.05% N/A 6.17% -------------------------------------------------------------------------------- Russell 2000(R) Growth 10.40% -8.52% 4.55% -17.00% --------------------------------------------------------------------------------
Harbor Small Cap Growth Fund delivered a double-digit total return for the six months ended April 30, 2002. The Fund has outperformed the Russell 2000(R) Growth index for the latest 6-month and 1-year periods since its inception on November 1, 2000. - Energy, financial services and consumer discretionary stocks were major contributors to the Fund's performance. Holdings in all three of these sectors contributed returns in excess of 20% for the 6-month period. Sector breakdowns in the portfolio evolved as a result of the manager's bottom-up stock selection process. - The energy weighting in the portfolio added both absolute and relative value, as an increase in commodity prices, reduction in rig counts, and heightened tensions in the Middle East pushed stock prices higher. The Fund was overweighted in the energy sector compared with the index, and its energy holdings outperformed those in the index. - The Fund was overweighted in financial services stocks compared with the index. This enhanced the Fund's relative performance as its investments in selected regional banks and other financial services stocks performed well. The biggest detractor to relative performance was the consumer discretionary sector. The Fund's holdings in this sector performed well but not as well as those in the index. - Health care stocks were the largest contributor to the Fund's relative performance, delivering positive returns for the period versus a negative return for the health care sector of the index. The Fund's health care investments are focused on companies that the manager believes can best capitalize on demographic trends such as the aging of the population. The Fund is overweighted in health care services companies, which have been benefiting from volume growth and favorable reimbursement trends. - Information technology was the only sector in which the Fund's holdings lost ground for the period. However, the Fund was sharply underweighted in this sector compared with the index, reflecting the manager's view that the market was continuing to overvalue many information technology stocks. This underweighting helped the Fund outperform the index. DOMESTIC EQUITY 7 HARBOR DOMESTIC EQUITY FUNDS MANAGERS' COMMENTARY--CONTINUED HARBOR LARGE CAP VALUE FUND 04/30/2002 $14.70 INCEPTION DATE--DECEMBER 29, 1987 NET ASSET VALUE: 10/31/2001 $13.01
[HARBOR LARGE CAP VALUE FUND GRAPH]
LARGE CAP VALUE RUSSELL 1000(R) VALUE --------------- --------------------- 10000.00 10000.00 4/30/93 10572.70 11680.50 4/30/94 11008.80 12534.90 4/30/95 12838.00 14109.90 4/30/96 16466.40 18329.10 4/30/97 19503.90 22464.40 4/30/98 26987.30 31939.90 4/30/99 29220.80 36439.90 4/30/00 27465.30 35026.30 4/30/01 30656.00 37276.80 4/30/02 31674.60 35819.80
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years 10 Years -------------------------------------------------------------------------------- Harbor Large Cap Value Fund 13.18% 3.32% 10.18% 12.22% -------------------------------------------------------------------------------- Russell 1000(R) Value 8.87% -3.91% 9.78% 13.61% --------------------------------------------------------------------------------
Harbor Large Cap Value Fund outperformed its benchmark, the Russell 1000(R) Value index, by more than four percentage points for the six months ended April 30, 2002. - Favorable stock selection and sector weightings both contributed to the Fund's positive performance for the six-month period. A bottom-up selection process is utilized to identify companies that the manager believes are trading at prices significantly below their intrinsic value. Sector weightings result primarily from these individual stock selections. - Industrial and health care stocks made major positive contributions to the Fund's absolute and relative performance for the period. The Fund was overweighted in both sectors and its industrial and health care holdings significantly outperformed those in the index. - Information technology stocks made a strong contribution to relative performance. The Fund's holdings in that sector posted a gain for the period while those in the index had negative returns. - The Fund's relative performance was augmented by favorable stock selection in the energy sector and by its underweight exposure in telecommunication services, which was one of the worst-performing sectors during the period. - Consumer discretionary and financial services stocks contributed positive returns but underperformed those sectors in the index. This was the biggest detractor from relative performance. - The Fund's name was changed from Harbor Value Fund to Harbor Large Cap Value Fund effective September 20, 2001. At the same time, Armstrong Shaw Associates Inc. assumed responsibility for management of the Fund. HARBOR MID CAP VALUE FUND 04/30/2002 $10.67 INCEPTION DATE--MARCH 1, 2002 NET ASSET VALUE: 03/01/2002 $10.00
[HARBOR MID CAP VALUE FUND GRAPH]
MID CAP VALUE RUSSELL MIDCAP(R) VALUE ------------- ----------------------- 10000.00 10000.00 10570.00 10511.10 10670.00 10504.20
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years Since Inception -------------------------------------------------------------------------------- Harbor Mid Cap Value Fund N/A N/A N/A 6.70% -------------------------------------------------------------------------------- Russell Midcap(R) Value 20.16% 8.41% 12.21% 5.04% --------------------------------------------------------------------------------
In its first two months of operation, Harbor Mid Cap Value Fund posted a total return of 6.70%. During the period from the Fund's inception on March 1, 2002 through April 30, 2002, the mid cap sector of the market performed well. Value-oriented stocks performed particularly well, as indicated by the Fund's benchmark, the Russell Midcap(R) Value index, which posted a total return of 5.04% during this two-month period. The Fund outperformed the benchmark by more than one percentage point. - From the beginning of 2002, various macroeconomic reports indicated that the U.S. economy probably had bottomed and was beginning a period of recovery. In that environment, the Fund benefited most from favorable stock selection within the industrial cyclical and consumer cyclical sectors. The more defensive groups, such as utilities and consumer staples, contributed least to the Fund's performance. - Compared to the Russell Midcap(R) Value index, the Fund's portfolio was overweighted in several economically sensitive sectors, including capital goods, energy, retail, and technology. The portfolio was underweighted in the more defensive consumer staples and utilities sectors. - The Fund's principal objective is long-term total return. The portfolio is constructed utilizing a bottom-up approach that employs fundamental and qualitative criteria. DOMESTIC EQUITY 8 HARBOR DOMESTIC EQUITY FUNDS MANAGERS' COMMENTARY--CONTINUED HARBOR SMALL CAP VALUE FUND 04/30/2002 $11.61 INCEPTION DATE--DECEMBER 14, 2001 NET ASSET VALUE: 12/14/2001 $10.00
[HARBOR SMALL CAP VALUE FUND GRAPH]
SMALL CAP GROWTH RUSSELL 2000(R) GROWTH ---------------- ---------------------- 10000.00 10000.00 Dec 10730.00 10612.30 Jan 10390.00 10753.10 Feb 10600.00 10818.60 Mar 11480.00 11628.80 Apr 11610.00 12038.10
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years Since Inception -------------------------------------------------------------------------------- Harbor Small Cap Value Fund N/A N/A N/A 16.10% -------------------------------------------------------------------------------- Russell 2000(R) Value 29.03% 22.43% 13.77% 17.31% --------------------------------------------------------------------------------
Harbor Small Cap Value Fund posted a strong total return for the period from its inception on December 14, 2001 through April 30, 2002. It slightly underperformed its benchmark, the Russell 2000(R) Value index, over this time. - The Fund maintained an overweighted position in health care securities during the reporting period, which contributed to the slight underperformance. The manager expects health care companies to perform well in either a stagnant or improving economic environment, due to strong growth in secular demand. - The Fund benefited from its underweighted position in technology stocks relative to the index. The technology companies that were represented in the portfolio performed better than the sector average. Although prospects for economic recovery improved during the period, companies had not resumed making meaningful capital investments in their businesses. Given the relatively high valuations in many technology stocks, the Fund remained very selective in this area. DOMESTIC EQUITY 9 HARBOR CAPITAL APPRECIATION FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investments of 3.9%) Paper & Forest Products 0.1 Internet & Catalog Retail 0.5 Personal Products 0.9 Aerospace & Defense 1.2 Hotels Restaurants & Leisure 1.2 Banks 1.3 Health Care Equipment & Supplies 1.7 Automobiles 1.8 Communications Equipment 2.8 Industrial Conglomerates 2.8 Beverages 3.0 Energy Equipment & Services 3.1 Biotechnology 3.8 Computers & Peripherals 5.3 Software 5.3 Insurance 6.7 Multiline Retail 8.1 Semiconductor Equipment & Products 8.2 Specialty Retail 8.3 Media 9.7 Diversified Financials 9.9 Pharmaceuticals 10.4
COMMON STOCKS--96.1% VALUE SHARES (000S) ---------------------------------------------------------------------- AEROSPACE & DEFENSE--1.2% 626,900 Northrop Grumman Corp. ...................... $ 75,642 ---------- AUTOMOBILES--1.8% 1,221,400 Harley-Davidson Inc. ........................ 64,722 116,599 Porsche AG Pfd (1)*.......................... 52,024 ---------- 116,746 ----------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- BANKS--1.3% 2,014,800 Bank One Corp. .............................. $ 82,345 ---------- BEVERAGES--3.0% 3,671,100 Pepsico Inc. ................................ 190,530 ---------- BIOTECHNOLOGY--3.8% 1,978,300 Amgen Inc.*.................................. 104,612 2,217,700 Genentech Inc.*.............................. 78,728 1,221,900 Medimmune Inc.*.............................. 40,811 1,531,500 Sepracor Inc.*............................... 19,389 ---------- 243,540 ---------- COMMUNICATIONS EQUIPMENT--2.8% 7,963,600 Cisco Systems Inc.*.......................... 116,667 3,829,900 Nokia Oyj ADR (2)*........................... 62,274 ---------- 178,941 ---------- COMPUTERS & PERIPHERALS--5.3% 4,430,600 Dell Computer Corp.*......................... 116,702 1,672,500 EMC Corp.*................................... 15,287 5,064,800 Hewlett-Packard Co. ......................... 86,608 865,800 International Business Machines Corp. ....... 72,519 5,153,300 Sun Microsystems Inc.*....................... 42,154 ---------- 333,270 ---------- DIVERSIFIED FINANCIALS--9.9% 1,509,900 American Express Co. ........................ 61,921 273,200 Capital One Financial Corp.*................. 16,362 4,812,866 Citigroup Inc. .............................. 208,397 2,030,800 Concord EFS Inc.*............................ 66,184 1,357,900 Goldman Sachs Group Inc. .................... 106,935 2,443,500 MBNA Corp. .................................. 86,622 1,978,000 Merrill Lynch & Co. Inc. .................... 82,957 ---------- 629,378 ---------- ENERGY EQUIPMENT & SERVICES--3.1% 3,571,600 Schlumberger Ltd. ........................... 195,545 ---------- HEALTH CARE EQUIPMENT & SUPPLIES--1.7% 1,849,800 Baxter International Inc. ................... 105,254 ---------- HOTELS RESTAURANTS & LEISURE--1.2% 1,515,000 Marriott International Inc. Cl. A............ 66,569 396,700 Starbucks Corp.*............................. 9,053 ---------- 75,622 ---------- INDUSTRIAL CONGLOMERATES--2.8% 644,300 3M Co........................................ 81,053 3,064,200 General Electric Co. ........................ 96,676 ---------- 177,729 ---------- INSURANCE--6.7% 3,357,025 American International Group Inc. ........... 232,038 1,389,700 Hartford Financial Services Group Inc. ...... 96,306 1,002,400 XL Capital Ltd. Cl. A........................ 94,576 ---------- 422,920 ---------- INTERNET & CATALOG RETAIL--0.5% 603,800 ebay Inc.*................................... 32,062 ---------- MEDIA--9.7% 8,602,100 Liberty Media Corp. Series A*................ 92,042 1,688,900 New York Times Co. Cl. A..................... 78,635 1,508,300 Omnicom Group Inc. .......................... 131,584 1,974,700 Univision Communications Inc. CI. A*......... 78,909 1,292,700 USA Networks Inc.*........................... 38,665 4,187,840 Viacom Inc. CI. B*........................... 197,247 ---------- 617,082 ----------
DOMESTIC EQUITY 10 HARBOR CAPITAL APPRECIATION FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- MULTILINE RETAIL--8.1% 779,200 Costco Wholesale Corp. ...................... $ 31,324 2,967,100 Kohls Corp.*................................. 218,675 1,509,900 Target Corp. ................................ 65,907 3,542,200 Wal-Mart Stores Inc. ........................ 197,867 ---------- 513,773 ---------- PAPER & FOREST PRODUCTS--0.1% 169,900 International Paper Co. ..................... 6,967 ---------- PERSONAL PRODUCTS--0.9% 1,677,100 Gillette Co. ................................ 59,503 ---------- PHARMACEUTICALS--10.4% 2,097,500 Abbott Laboratories.......................... 113,160 3,118,800 Johnson & Johnson............................ 199,167 3,562,450 Pfizer Inc. ................................. 129,495 2,097,278 Pharmacia Corp. ............................. 86,471 2,269,800 Wyeth........................................ 129,379 ---------- 657,672 ---------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--8.2% 1,349,200 Applied Materials Inc.*...................... 32,813 1,840,500 ARM Holdings plc ADR (2)*.................... 17,853 769,900 ASML Holding NV--Registered.................. 17,192 495,600 Broadcom Corp. Cl. A*........................ 17,098 6,992,100 Intel Corp. ................................. 200,044 230,200 KLA-Tencor Corp.*............................ 13,575 835,500 Maxim Integrated Products Inc.*.............. 41,608 393,500 Novellus Systems Inc.*....................... 18,652 1,649,700 STMicroelectronics NV--Registered............ 50,794 3,671,900 Texas Instruments Inc. ...................... 113,572 ---------- 523,201 ---------- SOFTWARE--5.3% 723,200 Adobe Systems Inc. .......................... 28,899 4,329,300 Microsoft Corp.*............................. 226,249 3,454,900 Oracle Corp.*................................ 34,687 1,383,100 SAP AG ADR (2)*.............................. 45,089 ---------- 334,924 ----------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- SPECIALTY RETAIL--8.3% 2,919,800 Bed Bath & Beyond Inc.*...................... $ 108,529 4,240,450 Home Depot Inc. ............................. 196,630 2,207,300 Lowe's Cos. Inc. ............................ 93,347 3,238,400 Tiffany & Co. ............................... 128,726 ---------- 527,232 ---------- TOTAL COMMON STOCKS (Cost $5,824,999)....................................... 6,099,878 ---------- SHORT-TERM INVESTMENTS--3.9% PRINCIPAL AMOUNT (000S) ---------------------------------------------------------------------- COMMERCIAL PAPER American Express Credit Corp. $ 200,000 1.800%--05/01/2002......................... 200,000 General Electric Capital Corp. 50,701 1.800%--05/01/2002......................... 50,701 ---------- TOTAL SHORT-TERM INVESTMENTS (Cost $250,701)......................................... 250,701 ---------- TOTAL INVESTMENTS--100.0% (Cost $6,075,700)....................................... 6,350,579 CASH AND OTHER ASSETS, LESS LIABILITIES--(0.0%)........... (506) ---------- TOTAL NET ASSETS--100.0%.................................. $6,350,073 ==========
------------ 1 Security 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. At April 30, 2002, these securities were valued at $52,024 or 0.82% of net assets. 2 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 11 HARBOR MID CAP GROWTH FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investment of 1.2%) Beverages 0.6 Multi-Utilities 0.7 Electronic Equipment & Instruments 0.8 Airlines 1.0 Auto Components 1.0 Pharmaceuticals 1.0 Road & Rail 1.2 Insurance 1.3 Internet Software & Services 1.4 Commercial Services & Supplies 2.5 Hotels Restaurants & Leisure 2.5 Software 3.8 IT Consulting & Services 4.0 Textiles & Apparel 4.8 Communications Equipment 5.9 Specialty Retail 8.1 Health Care Providers & Services 8.2 Biotechnology 14.0 Energy Equipment & Services 15.0 Semiconductor Equipment & Products 21.0
COMMON STOCKS--98.8% VALUE SHARES (000S) ---------------------------------------------------------------------- AIRLINES--1.0% 5,800 SKYWEST Inc. ................................... $ 133 ------- AUTO COMPONENTS--1.0% 4,200 Gentex Corp. ................................... 133 ------- BEVERAGES--0.6% 1,200 Constellation Brands Inc. Cl. A................. 72 ------- BIOTECHNOLOGY--14.0% 7,700 Abgenix Inc.*................................... 109 9,400 Celgene Corp.*.................................. 186
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- BIOTECHNOLOGY--CONTINUED 5,500 Cephalon Inc.*.................................. $ 323 4,800 Genzyme Corp.*.................................. 196 9,200 Gilead Sciences Inc.*........................... 286 6,100 Invitrogen Corp.*............................... 212 10,900 Medarex Inc.*................................... 111 6,400 Medimmune Inc.*................................. 214 4,700 OSI Pharmaceuticals Inc.*....................... 150 ------- 1,787 ------- COMMERCIAL SERVICES & SUPPLIES--2.5% 14,000 Ceridian Corp.*................................. 312 ------- COMMUNICATIONS EQUIPMENT--5.9% 7,200 Brocade Communication Systems Inc.*............. 184 6,700 CIENA Corp.*.................................... 50 14,700 Finisar Corp.*.................................. 94 7,300 Harris Corp. ................................... 264 4,100 Polycom Inc.*................................... 85 5,700 Powerwave Technologies Inc.*.................... 68 ------- 745 ------- ELECTRONIC EQUIPMENT & INSTRUMENTS--0.8% 3,500 Celestica Inc.*................................. 97 ------- ENERGY EQUIPMENT & SERVICES--15.0% 7,900 BJ Services Co.*................................ 290 11,600 Global Industries Ltd.*......................... 112 9,700 Grant Prideco Inc.*............................. 155 5,900 Nabors Industries Inc.*......................... 269 7,300 National-Oilwell Inc.*.......................... 194 6,900 Patterson-UTI Energy Inc.*...................... 221 8,300 Precision Drilling Corp.*....................... 278 6,250 Transocean Sedco Forex Inc. .................... 222 3,300 Weatherford International Inc.*................. 165 ------- 1,906 ------- HEALTH CARE PROVIDERS & SERVICES--8.2% 8,400 AdvancePCS*..................................... 284 11,200 Caremark Rx Inc.*............................... 241 10,700 Omnicare Inc. .................................. 286 33,700 WebMD Corp.*.................................... 233 ------- 1,044 ------- HOTELS RESTAURANTS & LEISURE--2.5% 4,100 Outback Steakhouse Inc.*........................ 144 7,700 Starbucks Corp.*................................ 176 ------- 320 ------- INSURANCE--1.3% 3,100 Partnerre Ltd. ................................. 167 ------- INTERNET SOFTWARE & SERVICES--1.4% 12,100 Yahoo! Inc.*.................................... 179 ------- IT CONSULTING & SERVICES--4.0% 5,900 Computer Sciences Corp.*........................ 265 13,600 KPMG Consulting Inc.*........................... 238 ------- 503 ------- MULTI-UTILITIES--0.7% 7,900 Calpine Corp.*.................................. 87 ------- PHARMACEUTICALS--1.0% 2,000 Barr Laboratories Inc.*......................... 133 ------- ROAD & RAIL--1.2% 7,700 Swift Transportation Co. Inc.*.................. 150 -------
DOMESTIC EQUITY 12 HARBOR MID CAP GROWTH FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--21.0% 10,200 Applied Micro Circuits Corp.*................... $ 69 21,900 Atmel Corp.*.................................... 197 8,300 Cypress Semiconductor Corp.*.................... 185 5,000 Elantec Semiconductor Inc.*..................... 207 4,200 Integrated Device Technology Inc.*.............. 118 5,200 Intersil Holding Corp. Cl. A*................... 140 4,800 Lam Research Corp.*............................. 123 6,200 Lattice Semiconductor Corp.*.................... 73 10,600 LSI Logic Corp.*................................ 136 3,900 Marvell Technology Group Ltd.*.................. 140 2,400 Micrel Inc.*.................................... 53 5,600 Microchip Technology Inc.*...................... 249 3,500 National Semiconductor Corp.*................... 110 4,100 Novellus Systems Inc.*.......................... 194 3,300 QLogic Corp.*................................... 151 9,600 RF Micro Devices Inc.*.......................... 167 4,300 Semtech Corp.*.................................. 137 4,800 Teradyne Inc.*.................................. 158 10,100 Vitesse Semiconductor Corp.*.................... 60 ------- 2,667 ------- SOFTWARE--3.8% 2,200 Electronic Arts Inc.*........................... 130 3,600 Intuit Inc.*.................................... 141 8,100 Tibco Software Inc.*............................ 68 5,300 Veritas Software Corp.*......................... 150 ------- 489 ------- SPECIALTY RETAIL--8.1% 10,000 Abercrombie & Fitch Co. Cl. A*.................. 300 8,800 Bed Bath & Beyond Inc.*......................... 327 10,300 Foot Locker Inc.*............................... 162 6,100 Tiffany & Co. .................................. 242 ------- 1,031 -------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- TEXTILES & APPAREL--4.8% 7,800 Jones Apparel Group Inc.*....................... $ 304 10,600 Polo Ralph Lauren Corp. Cl. A*.................. 305 ------- 609 ------- TOTAL COMMON STOCKS (Cost $13,624)............................................. 12,564 ------- SHORT-TERM INVESTMENT--9.2% (Cost $1,177) PRINCIPAL AMOUNT (000S) ---------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 0.65% collateralized by a U.S. Treasury Bill 12.0% August 15, 2013, par value of $860 (repurchase proceeds of $1,177 when $1,177 closed on May 1, 2002)........................ 1,177 ------- TOTAL INVESTMENTS--108.0% (Cost $14,801)............................................. 13,741 CASH AND OTHER ASSETS, LESS LIABILITIES--(8.0%).............. (1,015) ------- TOTAL NET ASSETS--100.0%..................................... $12,726 =======
------------ * Non-income producing security. The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 13 HARBOR GROWTH FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash, convertible bond and short-term investments of 5.7%) Electric Utilities 0.8 Wireless Telecommunication Services 0.8 Hotels Restaurants & Leisure 1.7 Commercial Services & Supplies 1.8 Machinery 1.8 Internet Software & Services 2.9 Computers & Peripherals 4.4 Pharmaceuticals 4.5 Health Care Providers & Services 4.7 Multiline Retail 5.8 Health Care Equipment & Supplies 6.3 Communications Equipment 6.8 Semiconductor Equipment & Products 9.0 Electronic Equipment & Instruments 14.3 Software 28.7
COMMON STOCKS--94.3% VALUE SHARES (000S) ---------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES--1.8% 140,000 DiamondCluster International Inc. Cl. A*....... $ 1,764 450,000 ProsoftTraining.com*........................... 351 -------- 2,115 -------- COMMUNICATIONS EQUIPMENT--6.8% 290,000 Aspect Communications Corp.*................... 1,389 210,000 Comverse Technology Inc.*...................... 2,526 400,000 Proxim Corp. Cl. A*............................ 1,220 440,000 Symmetricom Inc.*.............................. 2,816 335,000 Verilink Corp.*................................ 137 -------- 8,088 -------- COMPUTERS & PERIPHERALS--4.4% 300,000 Network Appliance Inc.*........................ 5,235 -------- ELECTRIC UTILITIES--0.8% 110,800 AES Corp.*..................................... 889 --------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- ELECTRONIC EQUIPMENT & INSTRUMENTS--14.3% 280,000 Checkpoint Systems Inc.*....................... $ 4,830 60,000 ClearOne Communications Inc.*.................. 983 280,000 LoJack Corp. *................................. 1,540 415,000 Pinnacle Systems Inc.*......................... 3,860 230,000 Planar Systems Inc.*........................... 5,725 -------- 16,938 -------- HEALTH CARE EQUIPMENT & SUPPLIES--6.3% 250,000 Kensey Nash Corp.*............................. 4,812 150,000 Molecular Devices Corp. *...................... 2,678 -------- 7,490 -------- HEALTH CARE PROVIDERS & SERVICES--4.7% 130,000 Health Management Associates Inc. Cl. A*....... 2,774 105,000 Orthodontic Centers of America Inc.*........... 2,798 -------- 5,572 -------- HOTELS RESTAURANTS & LEISURE--1.7% 60,000 Carnival Corp. ................................ 1,999 -------- INTERNET SOFTWARE & SERVICES--2.9% 200,000 Netegrity Inc.*................................ 1,530 130,000 Sonicwall Inc.*................................ 965 170,000 Stellent Inc.*................................. 896 -------- 3,391 -------- MACHINERY--1.8% 200,000 Flow International Corp.*...................... 2,120 -------- MULTILINE RETAIL--5.8% 67,500 Dollar Tree Stores Inc.*....................... 2,574 100,000 The TJX Cos. Inc. ............................. 4,358 -------- 6,932 -------- PHARMACEUTICALS--4.5% 85,517 Elan Corp. plc ADR(1)*......................... 1,016 150,000 K-V Pharmaceutical Co. Cl. A*.................. 4,313 -------- 5,329 -------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--9.0% 180,000 ATMI Inc.*..................................... 5,490 70,000 Maxim Integrated Products Inc.*................ 3,486 172,605 TriQuint Semiconductor Inc.*................... 1,750 -------- 10,726 -------- SOFTWARE--28.7% 150,000 Ansoft Corp.*.................................. 1,696 200,000 Documentum Inc.*............................... 3,884 150,000 Innoveda Inc.*................................. 583 500,000 Legato Systems Inc. *.......................... 3,450 265,600 MRO Software Inc.*............................. 3,841 100,000 Precis Inc.*................................... 1,455 200,000 QRS Corp.*..................................... 2,240 200,000 Renaissance Learning Inc.*..................... 6,914 200,000 Secure Computing Corp.*........................ 2,514 160,000 SERENA Software Inc.*.......................... 2,200 100,000 Symantec Corp.*................................ 3,541 160,000 Wind River Systems Inc.*....................... 1,742 -------- 34,060 -------- WIRELESS TELECOMMUNICATION SERVICES--0.8% 180,000 Nextel Communications Inc. Cl. A*.............. 992 -------- TOTAL COMMON STOCKS (Cost $142,296)........................................... 111,876 --------
DOMESTIC EQUITY 14 HARBOR GROWTH FUND PORTFOLIO OF INVESTMENTS--CONTINUED
CONVERTIBLE BOND--1.2% (Cost $2,827) PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- SystemOne Technologies Inc. $ 2,826 8.250%--02/23/2003 PIK(2).................... $ 1,413 -------- SHORT-TERM INVESTMENTS--4.5% COMMERCIAL PAPER Exxon Asset Management Co. 1,816 1.750%--05/02/2002........................... 1,816 General Electric Capital Corp. 2,388 1.680%--05/01/2002........................... 2,388 Prudential Funding Corp. 1,192 1.700%--05/03/2002........................... 1,192 --------
SHORT-TERM INVESTMENTS--CONTINUED VALUE (000S) ---------------------------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS (Cost $5,396)............................................. $ 5,396 -------- TOTAL INVESTMENTS--100.0% (Cost $150,519)........................................... 118,685 CASH AND OTHER ASSETS, LESS LIABILITIES--(0.0)%............. (5) -------- TOTAL NET ASSETS--100.0%.................................... $118,680 ========
------------ 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 PIK--Payment-in-kind security. * Non-income producing security. The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 15 HARBOR SMALL CAP GROWTH FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investment of 18.7%) Biotechnology 0.7 Pharmaceuticals 0.7 Communications Equipment 1.2 Internet Software & Services 1.4 Oil & Gas 1.4 Metals & Mining 1.6 Aerospace & Defense 1.8 Media 2.5 Airlines 3.0 Health Care Equipment & Supplies 3.0 Hotels Restaurants & Leisure 3.3 Software 4.1 Specialty Retail 4.5 Semiconductor Equipment & Products 5.7 Insurance 5.8 Energy Equipment & Services 7.1 Banks 9.8 Commercial Services & Supplies 10.1 Health Care Providers & Services 13.6
COMMON STOCKS--81.3% VALUE SHARES (000S) ---------------------------------------------------------------------- AEROSPACE & DEFENSE--1.8% 34,100 Armor Holdings Inc.*............................ $ 864 ------- AIRLINES--3.0% 24,900 Atlantic Coast Airlines Holdings Inc.*.......... 544 24,700 ExpressJet Holdings Inc.*....................... 354 25,700 SKYWEST Inc. ................................... 590 ------- 1,488 ------- BANKS--9.8% 24,600 East West Bancorp Inc. ......................... 881 18,400 Greater Bay Bancorp............................. 616 19,000 Indymac Bancorp Inc.*........................... 480 45,600 Silicon Valley Bancshares ...................... 1,457
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- BANKS--CONTINUED 19,700 Southwest Bancorporation of Texas Inc.*......... $ 690 17,800 UCBH Holdings Inc. ............................. 702 ------- 4,826 ------- BIOTECHNOLOGY--0.7% 15,000 Albany Molecular Research Inc.*................. 364 ------- COMMERCIAL SERVICES & SUPPLIES--10.1% 20,000 Career Education Corp.*......................... 899 31,400 DeVry Inc.*..................................... 832 20,400 NDCHealth Corp. ................................ 656 45,000 Republic Services Inc. Cl. A*................... 891 10,300 Stericycle Inc.*................................ 696 2,600 Sylvan Learning Systems Inc.*................... 72 26,400 Waste Connections Inc.*......................... 932 ------- 4,978 ------- COMMUNICATIONS EQUIPMENT--1.2% 34,300 Advanced Fibre Communications Inc.*............. 608 ------- ENERGY EQUIPMENT & SERVICES--7.1% 23,900 Helmerich & Payne Inc. ......................... 985 20,100 SEACOR Smit Inc.*............................... 967 59,000 Superior Energy Services Inc.*.................. 658 34,300 W-H Energy Services Inc.*....................... 883 ------- 3,493 ------- HEALTH CARE EQUIPMENT & SUPPLIES--3.0% 87,000 Interpore International Inc.*................... 818 14,300 Wilson Greatbatch Technologies Inc.*............ 375 13,300 Wright Medical Group Inc.*...................... 252 ------- 1,445 ------- HEALTH CARE PROVIDERS & SERVICES--13.6% 60,500 Alliance Imaging Inc.*.......................... 792 10,900 Boron, LePore & Associates Inc.*................ 130 34,200 Community Health Systems Inc.*.................. 992 34,500 Cross Country Inc.*............................. 1,044 31,700 Manor Care Inc.* ............................... 813 75,000 PSS World Medical Inc.*......................... 742 52,900 Quintiles Transnational Corp.*.................. 751 26,800 RehabCare Group Inc.*........................... 714 45,000 Select Medical Corp.*........................... 677 5,000 Specialty Laboratories Inc. .................... 44 ------- 6,699 ------- HOTELS RESTAURANTS & LEISURE--3.3% 19,000 CEC Entertainment Inc.*......................... 878 45,300 Extended Stay America Inc.*..................... 756 ------- 1,634 ------- INSURANCE--5.8% 30,300 Converium Holding AG ADR(1)..................... 830 10,600 Everest Reinsurance Holdings Inc. .............. 720 17,300 Philadelphia Consolidated Holdings Corp. ....... 739 5,000 RenaissanceRe Holdings Ltd. .................... 586 ------- 2,875 ------- INTERNET SOFTWARE & SERVICES--1.4% 37,400 FreeMarkets Inc.*............................... 664 ------- MEDIA--2.5% 45,400 Entravision Communications Corp.*............... 658 8,200 Information Holdings Inc.*...................... 256 19,700 Insight Communications Co. Inc. Cl. A*.......... 306 1,100 Mediacom Communications Corp. Cl. A*............ 11 ------- 1,231 -------
DOMESTIC EQUITY 16 HARBOR SMALL CAP GROWTH FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- METALS & MINING--1.6% 36,300 Arch Coal Inc. ................................. $ 806 ------- OIL & GAS--1.4% 79,500 Chesapeake Energy Corp.*........................ 680 ------- PHARMACEUTICALS--0.7% 21,700 Salix Pharmaceuticals Ltd.*..................... 322 ------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--5.7% 20,100 Brooks Automation Inc.*......................... 717 31,900 LTX Corp.*...................................... 677 33,500 Therma-Wave Inc.*............................... 474 Varian Semiconductor Equipment Associates 20,000 Inc.*......................................... 934 ------- 2,802 ------- SOFTWARE--4.1% 46,200 Borland Software Corp.*......................... 504 24,000 Renaissance Learning Inc.*...................... 830 20,000 THQ Inc.*....................................... 701 ------- 2,035 ------- SPECIALTY RETAIL--4.5% 26,900 Cost Plus Inc.*................................. 792 39,900 Guitar Center Inc.*............................. 788 11,100 Williams-Sonoma Inc.*........................... 639 ------- 2,219 ------- TOTAL COMMON STOCKS (Cost $36,423)............................................. 40,033 ------- SHORT-TERM INVESTMENT--13.5% (Cost $6,620) PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 0.65% collateralized by a U.S. Treasury Bill 12.0% August 15, 2013, par value of $4,815 (repurchase proceeds of $6,620 when closed on $6,620 May 1, 2002).................................. $ 6,620 ------- TOTAL INVESTMENTS--94.8% (Cost $43,043)............................................. 46,653 CASH AND OTHER ASSETS, LESS LIABILITIES--5.2%................ 2,554 ------- TOTAL NET ASSETS--100.0%..................................... $49,207 =======
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 17 HARBOR LARGE CAP VALUE FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investment of 5.6%) Software 1.6 Banks 1.9 Hotels Restaurants & Leisure 2.2 Gas Utilities 2.5 Chemicals 2.7 Specialty Retail 2.8 Household Durables 2.9 Electrical Equipment 3.0 Electric Utilities 3.2 Industrial Conglomerates 3.9 IT Consulting & Services 4.2 Pharmaceuticals 4.8 Food & Drug Retailing 5.1 Health Care Providers & Services 6.2 Oil & Gas 7.2 Media 8.2 Commercial Services & Supplies 8.6 Insurance 10.0 Diversified Financials 13.4
COMMON STOCKS--94.4% VALUE SHARES (000S) ---------------------------------------------------------------------- BANKS--1.9% 91,221 FleetBoston Financial Corp. ................... $ 3,220 -------- CHEMICALS--2.7% 106,999 E.I. Du Pont De Nemours & Co. ................. 4,761 -------- COMMERCIAL SERVICES & SUPPLIES--8.6% 334,100 Cendant Corp.*................................. 6,010 212,900 IMS Health Inc. ............................... 4,388 110,300 Pitney Bowes Inc. ............................. 4,644 -------- 15,042 --------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- DIVERSIFIED FINANCIALS--13.4% 88,500 American Express Co. .......................... $ 3,629 140,012 Citigroup Inc. ................................ 6,063 102,800 Federal Home Loan Mortgage Corp. .............. 6,718 195,014 J.P. Morgan Chase & Co. ....................... 6,845 -------- 23,255 -------- ELECTRIC UTILITIES--3.2% 101,100 Exelon Corp. .................................. 5,490 -------- ELECTRICAL EQUIPMENT--3.0% 98,000 Emerson Electric Co. .......................... 5,232 -------- FOOD & DRUG RETAILING--5.1% 112,500 CVS Corp. ..................................... 3,767 119,900 Safeway Inc.*.................................. 5,030 -------- 8,797 -------- GAS UTILITIES--2.5% 108,400 El Paso Corp. ................................. 4,336 -------- HEALTH CARE PROVIDERS & SERVICES--6.2% 117,700 HCA Inc. ...................................... 5,625 111,500 Oxford Health Plans Inc. ...................... 5,147 -------- 10,772 -------- HOTELS RESTAURANTS & LEISURE--2.2% 60,300 Tricon Global Restaurants Inc. ................ 3,803 -------- HOUSEHOLD DURABLES--2.9% 66,700 Whirlpool Corp. ............................... 4,999 -------- INDUSTRIAL CONGLOMERATES--3.9% 137,600 Textron Inc. .................................. 6,767 -------- INSURANCE--10.0% 98,000 Allstate Corp. ................................ 3,895 71,965 Chubb Corp. ................................... 5,520 112,000 John Hancock Financial Services Inc. .......... 4,323 52,000 MGIC Investment Corp. ......................... 3,711 -------- 17,449 -------- IT CONSULTING & SERVICES--4.2% 134,700 Electronic Data Systems Corp. ................. 7,309 -------- MEDIA--8.2% 191,300 Comcast Corp. Cl. A............................ 5,117 45,100 Gannett Inc. .................................. 3,306 550,400 Liberty Media Corp. Series A*.................. 5,889 -------- 14,312 -------- OIL & GAS--7.2% 145,500 Devon Energy Corp. ............................ 7,175 88,300 Kerr-McGee Corp. .............................. 5,280 -------- 12,455 -------- PHARMACEUTICALS--4.8% 94,300 Merck & Co Inc. ............................... 5,124 120,700 Schering-Plough Corp. ......................... 3,295 -------- 8,419 -------- SOFTWARE--1.6% 125,500 Amdocs Ltd.* .................................. 2,727 -------- SPECIALTY RETAIL--2.8% 157,900 RadioShack Corp. .............................. 4,926 -------- TOTAL COMMON STOCKS (Cost $146,508)........................................... 164,071 --------
DOMESTIC EQUITY 18 HARBOR LARGE CAP VALUE FUND PORTFOLIO OF INVESTMENTS--CONTINUED
SHORT-TERM INVESTMENT--8.5% (Cost $14,735) PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 0.65% collateralized by a U.S. Treasury Note 6.875% May 15, 2006, par value of $13,340 (repurchase proceeds of $14,735 when closed $14,735 on May 1, 2002).............................. $ 14,735 -------- TOTAL INVESTMENTS--102.9% (Cost $161,243)........................................... 178,806 CASH AND OTHER ASSETS, LESS LIABILITIES--(2.9%)............. (4,996) -------- TOTAL NET ASSETS--100.0%.................................... $173,810 ========
------------ * Non-income producing security. The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 19 HARBOR MID CAP VALUE FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investment of 7.7%) Food Products 1.8 Electrical Equipment 2.0 Communications Equipment 2.3 Media 2.3 Health Care Equipment & Supplies 2.4 Electronic Equipment & Instruments 2.5 Multi-Utilities 2.9 Road & Rail 3.1 Leisure Equipment & Products 3.2 Oil & Gas 3.6 Health Care Providers & Services 3.9 Energy Equipment & Services 4.0 Metals & Mining 4.0 Specialty Retail 5.3 Electric Utilities 5.9 Commercial Services & Supplies 6.0 Hotels Restaurants & Leisure 6.5 Semiconductor Equipment & Products 6.6 Banks 6.9 Machinery 7.3 Diversified Financials 9.8
COMMON STOCKS--92.3% VALUE SHARES (000S) ---------------------------------------------------------------------- BANKS--6.9% 3,800 Banknorth Group Inc. ............................ $ 100 3,200 Charter One Financial Inc. ...................... 113 ------ 213 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES--6.0% 4,200 Republic Services Inc. Cl. A*.................... $ 83 3,300 Viad Corp. ...................................... 101 ------ 184 ------ COMMUNICATIONS EQUIPMENT--2.3% 4,300 Andrew Corp.*.................................... 71 ------ DIVERSIFIED FINANCIALS--9.8% 1,600 Ambac Financial Group Inc. ...................... 101 3,700 Principal Financial Group*....................... 103 4,600 Stilwell Financial Inc. ......................... 98 ------ 302 ------ ELECTRIC UTILITIES--5.9% 2,800 FirstEnergy Corp. ............................... 93 2,000 Pinnacle West Capital Corp. ..................... 88 ------ 181 ------ ELECTRICAL EQUIPMENT--2.0% 1,400 Cooper Industries Inc. .......................... 61 ------ ELECTRONIC EQUIPMENT & INSTRUMENTS--2.5% 3,800 Jabil Circuit Inc.*.............................. 78 ------ ENERGY EQUIPMENT & SERVICES--4.0% 3,600 ENSCO International Inc. ........................ 122 ------ FOOD PRODUCTS--1.8% 2,300 Interstate Bakeries Corp. ....................... 57 ------ HEALTH CARE EQUIPMENT & SUPPLIES--2.4% 1,900 DENTSPLY International Inc. ..................... 75 ------ HEALTH CARE PROVIDERS & SERVICES--3.9% 7,900 HealthSouth Corp.*............................... 119 ------ HOTELS RESTAURANTS & LEISURE--6.5% 2,800 Outback Steakhouse Inc.*......................... 98 8,200 Park Place Entertainment Corp.*.................. 101 ------ 199 ------ LEISURE EQUIPMENT & PRODUCTS--3.2% 1,300 Polaris Industries Inc. ......................... 98 ------ MACHINERY--7.3% 3,900 Kaydon Corp. .................................... 111 1,600 PACCAR Inc. ..................................... 114 ------ 225 ------ MEDIA--2.3% 4,600 Insight Communications Co. Inc. Cl. A*........... 72 ------ METALS & MINING--4.0% 2,100 Nucor Corp. ..................................... 123 ------ MULTI-UTILITIES--2.9% 8,000 Calpine Corp.*................................... 88 ------ OIL & GAS--3.6% 2,600 EOG Resources Inc. .............................. 111 ------ ROAD & RAIL--3.1% 5,366 Werner Enterprises Inc. ......................... 95 ------ SEMICONDUCTOR EQUIPMENT & PRODUCTS--6.6% 7,900 Lattice Semiconductor Corp.*..................... 94 2,300 Novellus Systems Inc.*........................... 109 ------ 203 ------
DOMESTIC EQUITY 20 HARBOR MID CAP VALUE FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- SPECIALTY RETAIL--5.3% 1,400 Payless ShoeSource Inc.*......................... $ 82 2,000 Ross Stores Inc. ................................ 81 ------ 163 ------ TOTAL COMMON STOCKS (Cost $2,693)............................................... 2,840 ------ SHORT-TERM INVESTMENT--17.8% (Cost $548) PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 0.65% collateralized by a U.S. Treasury Bill 12.0% August 15, 2013, par value of $400 (repurchase proceeds of $548 when closed on May $ 548 1, 2002)....................................... $ 548 ------ TOTAL INVESTMENTS--110.1% (Cost $3,241)............................................... 3,388 CASH AND OTHER ASSETS, LESS LIABILITIES--(10.1%).............. (312) ------ TOTAL NET ASSETS--100.0%...................................... $3,076 ======
------------ * Non-income producing security. The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 21 HARBOR SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) COMMON STOCK HOLDINGS (% OF NET ASSETS) (Excludes net cash and short-term investment of 2.3%) Aerospace & Defense 1.0 Building Products 1.3 Wireless Telecommunication Services 1.7 Auto Components 1.8 Gas Utilities 1.9 Real Estate 1.9 Electric Utilities 2.1 Electronic Equipment & Instruments 2.1 Media 2.8 Chemicals 3.2 Multiline Retail 3.7 Pharmaceuticals 4.0 Software 4.2 Hotels Restaurants & Leisure 4.8 Health Care Equipment & Supplies 5.6 Insurance 5.8 Banks 6.0 Oil & Gas 6.7 Commercial Services & Supplies 7.1 Diversified Financials 9.0 Household Durables 9.1 Health Care Providers & Services 11.9
COMMON STOCKS--97.7% VALUE SHARES (000S) ---------------------------------------------------------------------- AEROSPACE & DEFENSE--1.0% 2,800 United Defense Industries Inc.*.................. $ 76 ------ AUTO COMPONENTS--1.8% 5,900 Federal Signal Corp. ............................ 136 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- BANKS--6.0% 2,400 Astoria Financial Corp. ......................... $ 77 10,000 BankUnited Financial Corp.*...................... 160 2,400 Commerce Bancorp Inc. ........................... 118 1,800 Golden State Bancorp Inc. ....................... 59 1,200 Hibernia Corp. Cl. A............................. 24 ------ 438 ------ BUILDING PRODUCTS--1.3% 5,200 Watsco Inc. ..................................... 94 ------ CHEMICALS--3.2% 2,700 The Scotts Co. Cl. A*............................ 129 2,300 Valspar Corp. ................................... 106 ------ 235 ------ COMMERCIAL SERVICES & SUPPLIES--7.1% 5,100 Allied Waste Industries Inc.*.................... 62 4,700 Global Payments Inc. ............................ 181 4,100 Kelly Services Inc. Cl. A ....................... 119 2,900 NDCHealth Corp. ................................. 93 3,500 Republic Services Inc. Cl. A*.................... 69 ------ 524 ------ DIVERSIFIED FINANCIALS--9.0% 5,000 AmeriCredit Corp.*............................... 194 3,200 Eaton Vance Corp. ............................... 117 3,800 Jefferies Group Inc. ............................ 177 5,100 Raymond James Financial Inc. .................... 171 ------ 659 ------ ELECTRIC UTILITIES--2.1% 5,300 PNM Resources Inc. .............................. 154 ------ ELECTRONIC EQUIPMENT & INSTRUMENTS--2.1% 1,600 FLIR Systems Inc.*............................... 64 6,200 Pioneer-Standard Electronics Inc. ............... 91 ------ 155 ------ GAS UTILITIES--1.9% 6,200 ONEOK Inc. ...................................... 136 ------ HEALTH CARE EQUIPMENT & SUPPLIES--5.6% 4,600 Diagnostic Products Corp. ....................... 221 3,600 The Cooper Cos. Inc. ............................ 191 ------ 412 ------ HEALTH CARE PROVIDERS & SERVICES--11.9% 10,400 Covance Inc.*.................................... 209 2,900 Lincare Holdings Inc.*........................... 91 2,600 Orthodontic Centers of America Inc.*............. 69 5,500 Pediatrix Medical Group Inc.*.................... 258 6,200 Pharmaceutical Product Development Inc.*......... 156 5,600 Quintiles Transnational Corp.*................... 79 1,300 Service Corp. International*..................... 5 1,300 Stewart Enterprises Inc. Cl. A*.................. 8 ------ 875 ------ HOTELS RESTAURANTS & LEISURE--4.8% 2,900 Brinker International Inc.*...................... 100 2,000 CEC Entertainment Inc.*.......................... 92 1,800 Outback Steakhouse Inc.*......................... 63 5,900 WMS Industries Inc.*............................. 95 ------ 350 ------ HOUSEHOLD DURABLES--9.1% 4,850 D.R. Horton Inc. ................................ 125 200 Furniture Brands International Inc.*............. 8 4,200 Harman International Industries Inc. ............ 248
DOMESTIC EQUITY 22 HARBOR SMALL CAP VALUE FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- HOUSEHOLD DURABLES--CONTINUED 7,800 Hovnanian Enterprises Inc. Cl. A*................ $ 237 1,600 Snap-on Inc. .................................... 51 ------ 669 ------ INSURANCE--5.8% 3,900 Commerce Group Inc. ............................. 157 4,100 Philadelphia Consolidated Holding Corp.*......... 175 2,900 Protective Life Corp. ........................... 92 ------ 424 ------ MEDIA--2.8% 15,500 Sinclair Broadcast Group Inc. Cl. A*............. 207 ------ MULTILINE RETAIL--3.7% 7,050 Fred's Inc. Cl. A................................ 274 ------ OIL & GAS--6.7% 8,600 Pioneer Natural Resources Co.* 206 5,300 Swift Energy Co.*................................ 101 8,900 XTO Energy Inc. ................................. 182 ------ 489 ------ PHARMACEUTICALS--4.0% 1,600 Barr Laboratories Inc.*.......................... 107 6,000 KV Pharmaceutical Co.*........................... 190 ------ 297 ------ REAL ESTATE--1.9% 1,600 Alexandria Real Estate Equities Inc. ............ 73 2,000 SL Green Realty Corp. ........................... 70 ------ 143 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- SOFTWARE--4.2% 3,600 Cerner Corp.*.................................... $ 191 8,700 Verity Inc.*..................................... 116 ------ 307 ------ WIRELESS TELECOMMUNICATION SERVICES--1.7% 24,400 American Tower Corp. Cl. A*...................... 122 ------ TOTAL COMMON STOCKS (Cost $6,579)............................................... 7,176 ------ SHORT-TERM INVESTMENT--13.2% (Cost $966) PRINCIPAL AMOUNT (000S) ---------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 0.65% collateralized by a U.S. Treasury Bill 12.0% August 15, 2013, par value of $705 (repurchase proceeds of $966 when closed on May $ 966 1, 2002)....................................... 966 ------ TOTAL INVESTMENTS--110.9% (Cost $7,545)............................................... 8,142 CASH AND OTHER ASSETS, LESS LIABILITIES--(10.9%).............. (799) ------ TOTAL NET ASSETS--100.0%...................................... $7,343 ======
------------ * Non-income producing security. The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 23 HARBOR DOMESTIC EQUITY FUNDS STATEMENT OF ASSETS AND LIABILITIES--APRIL 30, 2002 (UNAUDITED) (All amounts in Thousands, except per share amounts)
HARBOR HARBOR HARBOR HARBOR HARBOR HARBOR CAPITAL MID CAP HARBOR SMALL CAP LARGE CAP MID CAP SMALL CAP APPRECIATION GROWTH GROWTH GROWTH VALUE VALUE VALUE --------------------------------------------------------------------------------------------------------------------------------- ASSETS INVESTMENTS, AT IDENTIFIED COST*..................... $ 6,075,700 $14,801 $150,519 $43,043 $161,243 $3,241 $7,545 ================================================================================================================================= Investments, at value....... $ 6,350,579 $12,564 $118,685 $40,033 $164,071 $2,840 $7,176 Repurchase agreements....... -- 1,177 -- 6,620 14,735 548 966 Cash........................ -- -- 1 1 1,099 -- -- Receivables for: Investments sold.......... 51,325 33 221 315 -- 38 -- Capital shares sold....... 7,638 47 466 4,750 349 -- 28 Dividends................. 1,892 -- -- 2 20 2 3 Interest.................. 13 -- 45 -- -- -- -- Withholding tax receivable................ 7 -- -- -- 1 -- -- Other assets................ 125 1 13 1 9 -- -- --------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS......... 6,411,579 13,822 119,431 51,722 180,284 3,428 8,173 LIABILITIES Payables for: Investments purchased..... 52,337 996 499 2,430 6,243 349 794 Capital shares reacquired............. 5,820 42 92 12 139 -- 24 Accrued expenses: Management fees........... 3,110 6 145 25 90 1 3 Trustees' fees............ 15 -- 1 -- -- -- -- Transfer agent fees....... 168 20 8 21 -- -- 2 Other..................... 56 32 6 27 2 2 7 --------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.... 61,506 1,096 751 2,515 6,474 352 830 NET ASSETS.................. $ 6,350,073 $12,726 $118,680 $49,207 $173,810 $3,076 $7,343 ================================================================================================================================= Net assets consist of: Paid-in capital........... $ 8,335,995 $17,137 $164,457 $46,493 $165,481 $2,930 $6,742 Undistributed/(overdistributed) net investment income...... 3,919 (66) (324) (113) 292 (2) (8) Accumulated net realized gain/(loss)............ (2,264,720) (3,285) (13,619) (783) (9,526) 1 12 Unrealized appreciation/(depreciation) of investments......... 274,879 (1,060) (31,834) 3,610 17,563 147 597 --------------------------------------------------------------------------------------------------------------------------------- $ 6,350,073 $12,726 $118,680 $49,207 $173,810 $3,076 $7,343 ================================================================================================================================= Shares of beneficial interest.................. 239,318 2,205 11,215 4,499 11,820 288 633 Net asset value, offering and redemption price per share........... $ 26.53 $ 5.77 $ 10.58 $ 10.94 $ 14.70 $10.67 $11.61
------------ * Including repurchase agreements and short-term investments. The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 24 HARBOR DOMESTIC EQUITY FUNDS STATEMENT OF OPERATIONS--SIX MONTHS ENDED APRIL 30, 2002 (UNAUDITED) (All amounts in Thousands)
HARBOR HARBOR HARBOR HARBOR HARBOR HARBOR CAPITAL MID CAP HARBOR SMALL CAP LARGE CAP MID CAP SMALL CAP APPRECIATION GROWTH GROWTH GROWTH VALUE VALUE(1) VALUE(2) --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends................. $ 24,951 $ 3 $ 22 $ 18 $ 1,061 $ 2 $ 10 Interest.................. 1,821 2 309 13 34 1 1 Foreign taxes withheld.... (239) -- -- -- (1) -- -- --------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME... 26,533 5 331 31 1,094 3 11 OPERATING EXPENSES: Management fees........... 19,970 44 494 112 465 3 12 Shareholder communications......... 268 1 16 2 28 -- -- Custodian fees............ 103 16 13 9 17 1 4 Transfer agent fees....... 1,895 11 110 15 55 -- 1 Professional fees......... 140 1 3 1 13 1 2 Trustees' fees and expenses............... 54 -- 1 -- 1 -- -- Registration fees......... 149 6 13 18 12 1 3 Miscellaneous............. 37 3 5 4 5 -- -- --------------------------------------------------------------------------------------------------------------------------------- Total operating expenses............. 22,616 82 655 161 596 6 22 Management fees waived.... -- (11) -- (17) -- (1) (3) --------------------------------------------------------------------------------------------------------------------------------- Net operating expenses............. 22,616 71 655 144 596 5 19 --------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME/(LOSS)............. 3,917 (66) (324) (113) 498 (2) (8) REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENT TRANSACTIONS: Net realized gain/(loss) on: Investments............ (387,335) (1,037) (2,597) (173) 3,956 1 12 Foreign currency transactions......... 81 -- -- -- -- -- -- Change in net unrealized appreciation of: Investments............ 397,993 1,163 7,597 3,555 12,613 147 597 --------------------------------------------------------------------------------------------------------------------------------- Net gain on investment transactions........... 10,739 126 5,000 3,382 16,569 148 609 --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 14,656 $ 60 $ 4,676 $3,269 $17,067 $146 $601 =================================================================================================================================
1 For the period March 1, 2002 (inception) through April 30, 2002. 2 For the period December 14, 2001 (inception) through April 30, 2002. DOMESTIC EQUITY 25 HARBOR DOMESTIC EQUITY FUNDS STATEMENT OF CHANGES IN NET ASSETS (All amounts in Thousands)
HARBOR HARBOR CAPITAL APPRECIATION MID CAP GROWTH -------------------------- -------------------------- NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, 2001 2000 2001 2000 THROUGH THROUGH THROUGH THROUGH APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, 2002 2001 2002 2001 --------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) INCREASE/(DECREASE) IN NET ASSETS: Operations: Net investment income/(loss)........................... $ 3,917 $ 10,626 $ (66) $ (82) Net realized gain/(loss) on investments and foreign currency transactions................................ (387,254) (1,807,374) (1,037) (2,248) Net unrealized appreciation/(depreciation) of investments.......................................... 397,993 (1,461,985) 1,163 (2,223) --------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................. 14,656 (3,258,733) 60 (4,553) --------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders: Net investment income.................................. (9,070) -- -- -- Net realized gain on investments....................... -- (1,154,660) -- -- --------------------------------------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS.................... (9,070) (1,154,660) -- -- --------------------------------------------------------------------------------------------------------------------------- Capital share transactions: Net proceeds from sale of shares....................... 1,295,267 2,165,435 4,973 16,950 Net asset value of shares issued in connection with reinvestment of: Dividends from net investment income................. 8,354 -- -- -- Distributions from net realized gain on investments....................................... -- 1,114,970 -- -- Cost of shares reacquired.............................. (979,233) (1,947,230) (2,059) (2,645) --------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) DERIVED FROM CAPITAL TRANSACTIONS......................................... 324,388 1,333,175 2,914 14,305 --------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets.................. 329,974 (3,080,218) 2,974 9,752 NET ASSETS: Beginning of period....................................... 6,020,099 9,100,317 9,752 -- --------------------------------------------------------------------------------------------------------------------------- END OF PERIOD*............................................ $6,350,073 $ 6,020,099 $12,726 $ 9,752 =========================================================================================================================== NUMBER OF CAPITAL SHARES: Sold...................................................... 45,505 66,131 815 2,099 Reinvested in payment of investment income dividends...... 284 -- -- -- Reinvested in payment of capital gain distributions....... -- 32,784 -- -- Reacquired................................................ (34,490) (59,853) (338) (371) --------------------------------------------------------------------------------------------------------------------------- Net increase/(decrease) in shares outstanding............. 11,299 39,062 477 1,728 Outstanding: Beginning of period.................................... 228,019 188,957 1,728 -- --------------------------------------------------------------------------------------------------------------------------- End of period.......................................... 239,318 228,019 2,205 1,728 =========================================================================================================================== * Includes undistributed/(over-distributed) net investment income of:................................................ $ 3,919 $ 9,072 $ (66) $ --
The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 26
HARBOR HARBOR HARBOR GROWTH SMALL CAP GROWTH LARGE CAP VALUE ----------------------------- ----------------------------- ----------------------------- NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, 2001 2000 2001 2000 2001 2000 THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, 2002 2001 2002 2001 2002 2001 ------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) $ (324) $ (305) $ (113) $ (65) $ 498 $ 2,286 (2,597) (11,022) (173) (610) 3,956 (10,630) 7,597 (133,296) 3,555 55 12,613 3,472 ------------------------------------------------------------------------------------------------- 4,676 (144,623) 3,269 (620) 17,067 (4,872) ------------------------------------------------------------------------------------------------- -- (82) -- -- (262) (2,421) -- (17,428) -- -- -- (1,898) ------------------------------------------------------------------------------------------------- -- (17,510) -- -- (262) (4,319) ------------------------------------------------------------------------------------------------- 17,628 58,621 31,095 19,457 46,734 38,924 -- 81 -- -- 252 2,324 -- 17,198 -- -- -- 1,836 (21,575) (71,415) (2,474) (1,520) (20,010) (51,479) ------------------------------------------------------------------------------------------------- (3,947) 4,485 28,621 17,937 26,976 (8,395) ------------------------------------------------------------------------------------------------- 729 (157,648) 31,890 17,317 43,781 (17,586) 117,951 275,599 17,317 -- 130,029 147,615 ------------------------------------------------------------------------------------------------- $118,680 $ 117,951 $49,207 $17,317 $173,810 $130,029 ================================================================================================= 1,510 3,837 2,949 1,935 3,216 5,391 -- 5 -- -- 18 133 -- 1,040 -- -- -- 178 (1,868) (4,682) (232) (153) (1,411) (6,337) ------------------------------------------------------------------------------------------------- (358) 200 2,717 1,782 1,823 (635) 11,573 11,373 1,782 -- 9,997 10,632 ------------------------------------------------------------------------------------------------- 11,215 11,573 4,499 1,782 11,820 9,997 ================================================================================================= $ (324) $ -- $ (113) $ -- $ 292 $ 56 HARBOR HARBOR MID CAP VALUE SMALL CAP VALUE ------------- --------------- MARCH 1, DECEMBER 14, 2002 2001 THROUGH THROUGH APRIL 30, APRIL 30, 2002 2002 ----------------------------------- (UNAUDITED) (UNAUDITED) $ (2) $ (8) 1 12 147 597 ----------------------------------- 146 601 ----------------------------------- -- -- -- -- ----------------------------------- -- -- ----------------------------------- 2,931 6,812 -- -- -- -- (1) (70) ----------------------------------- 2,930 6,742 ----------------------------------- 3,076 7,343 -- -- ----------------------------------- $3,076 $7,343 =================================== 288 639 -- -- -- -- -- (6) ----------------------------------- 288 633 -- -- ----------------------------------- 288 633 =================================== $ (2) $ (8)
DOMESTIC EQUITY 27 HARBOR DOMESTIC EQUITY FUNDS FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING FOR THE PERIODS PRESENTED
INCOME FROM INVESTMENT OPERATIONS ------------------------------------------ NET REALIZED AND NET ASSET UNREALIZED GAINS/(LOSSES) VALUE NET ON INVESTMENTS AND TOTAL FROM BEGINNING INVESTMENT FOREIGN CURRENCY INVESTMENT YEAR/PERIOD ENDED OF PERIOD INCOME/(LOSS) CONTRACTS OPERATIONS ------------------------------------------------------------------------------------------------------------------------ HARBOR CAPITAL APPRECIATION FUND April 30, 2002 (Unaudited)..................... $26.40 $ .02 $ .15 $ .17 October 31, 2001............................... 48.16 .04 (15.63) (15.59) October 31, 2000............................... 46.92 -- 5.84 5.84 October 31, 1999............................... 33.51 (.02) 15.78 15.76 October 31, 1998............................... 34.01 .07 4.35 4.42 October 31, 1997............................... 25.88 .06 8.95 9.01 ------------------------------------------------------------------------------------------------------------------------ HARBOR MID CAP GROWTH FUND(1) April 30, 2002 (Unaudited)..................... $ 5.64 $(.03)(c) $ .16 $ .13 October 31, 2001............................... 10.00 -- (4.36) (4.36) ------------------------------------------------------------------------------------------------------------------------ HARBOR GROWTH FUND April 30, 2002 (Unaudited)..................... $10.19 $(.03) $ .42 $ .39 October 31, 2001............................... 24.23 -- (12.48) (12.48) October 31, 2000............................... 17.52 -- 7.90 7.90 October 31, 1999............................... 10.81 (.07) 7.85 7.78 October 31, 1998............................... 14.20 (.04) (1.07) (1.11) October 31, 1997(2)............................ 16.00 -- 2.30 2.30 ------------------------------------------------------------------------------------------------------------------------ HARBOR SMALL CAP GROWTH FUND(1) April 30, 2002 (Unaudited)..................... $ 9.72 $(.03)(c) $ 1.25 $ 1.22 October 31, 2001............................... 10.00 -- (.28) (.28) ------------------------------------------------------------------------------------------------------------------------ HARBOR LARGE CAP VALUE FUND April 30, 2002 (Unaudited)..................... $13.01 $ .04 $ 1.67 $ 1.71 October 31, 2001(3)............................ 13.88 .24 (.68) (.44) October 31, 2000............................... 15.40 .27 .08 .35 October 31, 1999............................... 15.21 .27 1.80 2.07 October 31, 1998............................... 18.17 .27 .79 1.06 October 31, 1997............................... 16.04 .34 4.13 4.47 ------------------------------------------------------------------------------------------------------------------------ HARBOR MID CAP VALUE FUND April 30, 2002 (Unaudited)(4).................. $10.00 $ -- $ .67 $ .67 ------------------------------------------------------------------------------------------------------------------------ HARBOR SMALL CAP VALUE FUND April 30, 2002 (Unaudited)(5).................. $10.00 $(.01)(c) $ 1.62 $ 1.61 ------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS ------------------------------------ DIVIDENDS FROM DISTRIBUTIONS FROM NET INVESTMENT NET REALIZED YEAR/PERIOD ENDED INCOME CAPITAL GAINS(6) ------------------------------------------------------ HARBOR CAPITAL APPRECIATION FUND April 30, 2002 (Unaudited)..................... $(.04) $ -- October 31, 2001............................... -- (6.17) October 31, 2000............................... -- (4.60) October 31, 1999............................... (.07) (2.28) October 31, 1998............................... (.07) (4.85) October 31, 1997............................... (.02) (.86) -------------------------------------------------------------------------------------------------------- HARBOR MID CAP GROWTH FUND(1) April 30, 2002 (Unaudited)..................... $ -- $ -- October 31, 2001............................... -- -- ------------------------------------------------------------------------------------------------------------------------ HARBOR GROWTH FUND April 30, 2002 (Unaudited)..................... $ -- $ -- October 31, 2001............................... (.01) (1.55) October 31, 2000............................... -- (1.19) October 31, 1999............................... -- (1.07) October 31, 1998............................... -- (2.28) October 31, 1997(2)............................ -- (4.10) ------------------------------------------------------------------------------------------------------------------------ HARBOR SMALL CAP GROWTH FUND(1) April 30, 2002 (Unaudited)..................... $ -- $ -- October 31, 2001............................... -- -- ------------------------------------------------------------------------------------------------------------------------ HARBOR LARGE CAP VALUE FUND April 30, 2002 (Unaudited)..................... $(.02) $ -- October 31, 2001(3)............................ (.24) (.19) October 31, 2000............................... (.30) (1.57) October 31, 1999............................... (.25) (1.63) October 31, 1998............................... (.28) (3.74) October 31, 1997............................... (.34) (2.00) ------------------------------------------------------------------------------------------------------------------------ HARBOR MID CAP VALUE FUND April 30, 2002 (Unaudited)(4).................. $ -- $ -- ------------------------------------------------------------------------------------------------------------------------ HARBOR SMALL CAP VALUE FUND April 30, 2002 (Unaudited)(5).................. $ -- $ -- ------------------------------------------------------------------------------------------------------------------------
1 Commenced operations on November 1, 2000. 2 Effective May 2, 1997, Harbor Growth Fund appointed Emerging Growth Advisors, Inc. as its Subadviser. 3 Effective September 20, 2001, Harbor Value Fund changed its name to Harbor Large Cap Value Fund and appointed Armstrong Shaw Associates as its Subadviser. 4 For the period March 1, 2002 (inception) through April 30, 2002. 5 For the period December 14, 2001 (inception) through April 30, 2002. 6 Includes both short-term and long-term capital gains. 7 Percentage does not reflect reduction for credit balance arrangements. a Annualized. b Unannualized. c Reflects the Adviser's waiver of a portion of its management fees. d The total returns would have been lower had certain expenses not been waived during the periods shown. e Dividend expense from investments sold short. The accompanying notes are an integral part of the financial statements. DOMESTIC EQUITY 28
RATIO OF RATIO OF NET ASSET NET ASSETS OPERATING MANAGEMENT FEES VALUE END OF EXPENSES NOT IMPOSED TOTAL END OF TOTAL PERIOD TO AVERAGE TO AVERAGE DISTRIBUTIONS PERIOD RETURN (000S) NET ASSETS(%)(7) NET ASSETS(%) ------------------------------------------------------------------------------------------------------------- $ (.04) $26.53 .63%(b) $6,350,073 .68%(a) --% (6.17) 26.40 (35.23) 6,020,099 .66 -- (4.60) 48.16 12.26 9,100,317 .64 -- (2.35) 46.92 48.59 6,484,801 .66 -- (4.92) 33.51 15.72 3,833,598 .68 -- (.88) 34.01 35.73 2,798,404 .70 -- ------------------------------------------------------------------------------------------------------------- $ -- $ 5.77 2.30%(b,d) $ 12,726 1.20%(a,c) .20%(a) -- 5.64 (43.60)(d) 9,752 1.20(c) .20 ------------------------------------------------------------------------------------------------------------- $ -- $10.58 3.83%(b) $ 118,680 .99%(a) --% (1.56) 10.19 (53.96) 117,951 .95 -- (1.19) 24.23 45.92 275,599 .88 -- (1.07) 17.52 76.51 145,249 .90 -- (2.28) 10.81 (8.73) 88,030 1.00 -- (4.10) 14.20 18.64 104,568 1.12 -- ------------------------------------------------------------------------------------------------------------- $ -- $10.94 12.55%(b,d) $ 49,207 .96%(a,c) .11%(a) -- 9.72 (2.80)(d) 17,317 1.20(c) .20 ------------------------------------------------------------------------------------------------------------- $ (.02) $14.70 13.18%(b) $ 173,810 .77%(a) --% (.43) 13.01 (3.20) 130,029 .77 -- (1.87) 13.88 3.07 147,615 .80 -- (1.88) 15.40 14.60 157,382 .76 -- (4.02) 15.21 6.69 170,468 .79 -- (2.34) 18.17 31.08 161,359 .83 -- ------------------------------------------------------------------------------------------------------------- $ -- $10.67 6.70%(b,d) $ 3,076 1.20%(a,c) .20%(a) ------------------------------------------------------------------------------------------------------------- $ -- $11.61 16.10%(b,d) $ 7,343 1.20%(a,c) .20%(a) ------------------------------------------------------------------------------------------------------------- RATIO OF RATIO OF NET OPERATING EXPENSES RATIO OF INVESTMENT NET OF ALL OFFSETS INTEREST/DIVIDEND INCOME/(LOSS) TO AVERAGE EXPENSE TO AVERAGE TO AVERAGE PORTFOLIO NET ASSETS(%) NET ASSETS(%) NET ASSETS(%) TURNOVER(%) .68%(a) --% .12%(a) 31%(b) .66 -- .15 89 .64 -- (.07) 86 .66 -- (.05) 68 .68 -- .24 70 .70 -- .23 73 ---------------------------------------------------------------------------------------------- 1.20%(a) --% (1.12)%(a,c) 36%(b) 1.20 -- (.92)(c) 61 ----------------------------------------------------------------------------------------------------------- .99%(a) --% (.49)%(a) 5%(b) .95 -- (.17) 9 .87 -- .02 13 .90 -- (.54) 13 1.00 -- (.30) 23 1.12 -- (.47) 147 ------------------------------------------------------------------------------------------------------------- .96%(a) --% (.75)%(a,c) 26%(b) 1.20 -- (.67)(c) 56 ------------------------------------------------------------------------------------------------------------- .77%(a) --% .64%(a) 21%(b) .77 .14(e) 1.64 194 .80 .16(e) 2.05 106 .76 -- 1.65 110 .79 -- 1.67 114 .83 -- 1.98 146 ------------------------------------------------------------------------------------------------------------- 1.20%(a) --% (.49)%(a,c) 4%(b) ------------------------------------------------------------------------------------------------------------- 1.20%(a) --% (.50)%(a,c) 5%(b) -------------------------------------------------------------------------------------------------------------
DOMESTIC EQUITY 29 HARBOR INTERNATIONAL EQUITY FUNDS MANAGERS' COMMENTARY The following performance figures are annualized for each Fund except for the six-month total return calculations. Unless otherwise stated, all comments pertain to the fiscal half year ended April 30, 2002. The comparative market indices reflect no operating or transaction costs, however the Funds' total returns are net of these costs. Performance data quoted represents past performance and is not predictive of future performance. The returns shown in the graphs and tables do not reflect the deduction of taxes that a shareholder would HARBOR INTERNATIONAL FUND 04/30/2002 $31.49 INCEPTION DATE--DECEMBER 29, 1987 NET ASSET VALUE: 10/31/2001 $28.65
[HARBOR INTERNATIONAL FUND GRAPH]
INTERNATIONAL EAFE ------------- ---- 10000.00 10000.00 4/30/93 10491.60 12161.80 4/30/94 13361.50 14185.30 4/30/95 14759.30 14977.80 4/30/96 17541.60 16686.00 4/30/97 20658.20 16537.70 4/30/98 26478.40 19665.80 4/30/99 27366.20 21533.10 4/30/00 29077.60 24524.70 4/30/01 27907.00 20527.50 4/30/02 27631.20 17678.50
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years 10 Years -------------------------------------------------------------------------------- Harbor International Fund 14.22% - 0.99% 5.99% 10.70% -------------------------------------------------------------------------------- EAFE 5.53% -13.88% 1.34% 5.86% --------------------------------------------------------------------------------
Favorable stock selection across a broad spectrum of industrial sectors enabled Harbor International Fund to outpace its benchmark, the EAFE index, by more than eight percentage points for the six months ended April 30, 2002. The Fund also outperformed the index by substantial margins for the 1-year, 5-year, and 10-year periods. - Strong returns by basic industry stocks were an important contributor to the Fund's performance. The manager expects this group to continue to benefit from cost reduction initiatives and industry consolidations. - The Fund gradually reduced its exposure to the financial services sector, reflecting the manager's view that several companies in the portfolio were facing shrinking margins. The Fund's holdings in that sector delivered double-digit percentage returns for the six-month period and outperformed those in the index. - Health care and information technology were the only two major industry sectors in which the Fund's returns were below those of the index. The Fund was underweighted in those sectors, which had a combined negative return for the period for both the Fund and the index. - European stocks represented approximately 78% of the Fund's net assets as of April 30, 2002. The Fund's largest single country exposure was in the United Kingdom. The Fund was overweighted in France relative to the index and its holdings there substantially outperformed those in the index. - The Fund continued to be substantially underweighted in Japan. However, its holdings in Japan delivered returns averaging almost 30% for the period. HARBOR INTERNATIONAL FUND II 04/30/2002 $11.09 INCEPTION DATE--JUNE 1, 1996 NET ASSET VALUE: 10/31/2001 $10.00
[HARBOR INTERNATIONAL FUND II GRAPH]
HARBOR INTERNATIONAL II EAFE ----------------------- ---- 10000.00 10000.00 4/30/97 11578.60 10096.90 4/30/98 13820.10 12006.80 4/30/99 14090.40 13146.80 4/30/00 16913.50 14973.30 4/30/01 15443.80 12532.90 4/30/02 13554.40 10793.40
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years Since Inception -------------------------------------------------------------------------------- Harbor International Fund II 11.90% -12.23% 3.20% 5.27% -------------------------------------------------------------------------------- EAFE 5.53% -13.88% 1.34% 1.30% --------------------------------------------------------------------------------
Harbor International Fund II substantially outperformed its benchmark, the EAFE index, for the six months ended April 30, 2002. The Fund also outperformed the index for the latest 1-year and 5-year periods and since its inception on June 1, 1996. - Investments in the basic materials industries, such as metals and paper, were key contributors to the Fund's absolute and relative performance for the latest six months. The manager believes that consolidations within such industries are making it easier for the remaining companies to manage capacity and achieve improved profit margins. The Fund increased its exposure to the materials sector to approximately 23% of the net assets at the end of the period, compared with approximately 6% for the index. - Financial services stocks were an important contributor to the Fund's performance, as its holdings in that sector outpaced those in the index. The manager sold shares in several banks and insurance companies, using the proceeds to increase holdings in basic materials companies. This reduced the Fund's financial services exposure to about 25% of the net assets at the end of the period, about equal to the index. - The Fund achieved higher returns than the index in every major industry sector except information technology. Holdings in information technology and telecommunications stocks were the two major detractors from the Fund's six-month performance. - The Fund's largest country exposures as of the end of the period were France and the United Kingdom. The Fund's holdings in both countries achieved significantly better returns than those in the index. - The manager has limited the Fund's exposure to Japanese stocks, reflecting concerns about the persistence of unfavorable economic conditions in Japan. The Fund's holdings in Japan, representing about 6% of its portfolio at the end of the period, achieved a combined return of approximately 28% for the six months. INTERNATIONAL EQUITY 30 HARBOR INTERNATIONAL EQUITY FUNDS MANAGERS' COMMENTARY--CONTINUED pay on fund distributions or the redemption of fund shares. Actual return and principal value on an investment will fluctuate, and the shares, when redeemed, may be worth more or less than their original cost. Because the funds invest primarily in securities of foreign companies, there is a greater risk that the funds' share prices will fluctuate more than if the funds invested in domestic issuers. For information on the risks associated with these Funds, please refer to the Harbor Fund prospectus. HARBOR INTERNATIONAL GROWTH FUND 04/30/2002 $8.27 INCEPTION DATE--NOVEMBER 1, 1993 NET ASSET VALUE: 10/31/2001 $8.44
[HARBOR INTERNATIONAL GROWTH FUND GRAPH]
INTERNATIONAL GROWTH EAFE GROWTH -------------------- ----------- 10000.00 10000.00 4/30/94 10405.60 10090.00 4/30/95 10643.50 10651.50 4/30/96 14592.60 11709.60 4/30/97 16470.90 11374.10 4/30/98 21074.00 13401.40 4/30/99 21184.30 14294.60 4/30/00 24395.90 17611.40 4/30/01 16530.20 12498.80 4/30/02 11188.80 10585.50
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years Since Inception -------------------------------------------------------------------------------- Harbor International Growth Fund -2.00% -32.31% -7.44% 1.33% -------------------------------------------------------------------------------- EAFE Growth 5.80% -15.31% -1.43% 0.67% --------------------------------------------------------------------------------
Harbor International Growth Fund underperformed the EAFE Growth index for the six-month period ending April 30, 2002. Mastholm Asset Management LLC (Mastholm) became the new subadviser of the Fund effective December 1, 2001 and completed its transition of the portfolio in January 2002. - The largest detriment to the Fund's performance during the period was an investment in Elan Corporation, a pharmaceutical company based in Ireland. The stock came under pressure and was sold by the Fund after the company disclosed information concerning off-balance-sheet partnerships. - The Fund was underweighted in technology and telecommunications stocks. These sectors performed well early in the period despite poor earnings growth and the absence of clear prospects for near-term improvement. The manager concentrates the Fund's investments in companies with improving earnings and has identified a few companies in these areas with improving fundamentals. These areas came under pressure in March and April, due principally to larger-than-expected losses. This resulted in improving relative performance for the Fund later in the period. - Japanese stocks performed well during the first four months of the calendar year. However, the Fund's portfolio is underweighted in Japan relative to the EAFE Growth index because of the persistence of uncertain economic, political, and market conditions in that country. The Fund had approximately 17% of its net assets invested in Japan at the end of April. HARBOR GLOBAL EQUITY FUND 04/30/2002 $7.67 INCEPTION DATE--FEBRUARY 1, 2001 NET ASSET VALUE: 10/31/2001 $7.39
[HARBOR GLOBAL EQUITY FUND GRAPH]
GLOBAL EQUITY MSCI WORLD ------------- ---------- 10000.00 10000.00 4/30/01 8920.00 9181.32 4/30/02 7675.76 7909.98
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years Since Inception -------------------------------------------------------------------------------- Harbor Global Equity Fund 3.87% -13.95% N/A -19.07% -------------------------------------------------------------------------------- MSCI World 3.29% -13.85% 3.98% -17.10% --------------------------------------------------------------------------------
Harbor Global Equity Fund slightly outperformed the MSCI World index during the six-month period ended April 30, 2002. - Global equity markets continued to rally during the last two months of 2001, after reaching a low for the year in mid-September. Over the first four months of 2002, however, global equity markets gave back some of those gains despite evidence that a global economic recovery was underway. Investors remained concerned about the pace of an earnings recovery for corporations. - An overweighted position in consumer discretionary stocks benefited the Fund's performance over the period. Holdings in this sector are diversified and include automakers, hotels, retailers, home builders and media companies. A shift in the Fund's portfolio to companies that are more economically sensitive has been gradual, given continued uncertainty about the timing and strength of a recovery. The Fund focuses on companies that display both strong competitive advantages and improving business fundamentals. - The Fund also benefited from exposure to emerging markets, where the manager was able to identify industry-leading companies that were trading at attractive valuations relative to their global industry peers. In particular, selected emerging markets companies in the auto, financial services, media, and telecommunications industries were strong performers. - An underweighted position in the industrials sector detracted from performance over the six-month period. While many multinational industrials are conglomerates, the manager prefers to focus on companies that are part of a specific industry. INTERNATIONAL EQUITY 31 HARBOR INTERNATIONAL FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) INVESTMENT HOLDINGS BY COUNTRY (% OF NET ASSETS) (Excludes net cash and short-term investments of 5.3%) Spain (SP) 0.5 China (CHN) 0.9 Norway (NOR) 1.1 South Africa (S. AFR) 1.4 Singapore (SGP) 1.5 Australia (AUS) 1.6 Denmark (DEN) 1.7 Hong Kong (HK) 1.7 Germany (GER) 1.9 Brazil (BR) 3.5 Finland (FIN) 3.6 Italy (IT) 3.6 Japan (JP) 6.4 Sweden (SW) 6.4 Netherlands (NET) 6.7 Switzerland (SWS) 12.9 France (FR) 17.4 United Kingdom (UK) 21.9
COMMON STOCKS--94.7% VALUE SHARES (000S) ---------------------------------------------------------------------- AUTO COMPONENTS--1.8% Compagnie Financiere Michelin--Bearer 83,200 (SWS).................................... $ 28,218 1,062,278 Michelin--Registered (FR).................. 41,131 ---------- 69,349 ---------- AUTOMOBILES--2.3% 1,782,226 Peugeot SA (FR)............................ 88,585 ---------- BANKS--13.3% 4,511,062 ABN Amro Holding NV (NET).................. 89,364 684,200 Bankinter SA--Registered (SP).............. 21,766 1,267,766 BNP Paribas (FR)........................... 66,210 562,774 Deutsche Bank AG--Registered (GER)......... 37,297 14,917,026 IntesaBci SpA (IT)......................... 48,221 4,986,733 San Paolo IMI SpA (IT)..................... 55,545 5,539,900 Standard Chartered plc (UK)................ 68,187
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- BANKS--CONTINUED 1,401,936 UBS AG--Registered (SWS)................... $ 67,518 United Overseas Bank Ltd. (Alien Market) 7,488,842 (SGP).................................... 59,499 ---------- 513,607 ---------- BEVERAGES--2.8% 8,076,537 Diageo plc (UK)............................ 107,173 ---------- BUILDING PRODUCTS--1.2% 273,400 Compagnie de Saint-Gobain (FR)............. 46,775 ---------- CHEMICALS--2.3% 1,068,619 Bayer AG (GER)............................. 34,997 3,500,000 The BOC Group plc (UK)..................... 53,020 ---------- 88,017 ---------- COMMUNICATIONS EQUIPMENT--1.4% 2,421,800 Ericsson (LM) Tel Ab Cl. B ADR (SW)(1)*.... 6,030 19,043,743 Ericsson (LM) Tel Ab Series B (SW)*........ 47,748 ---------- 53,778 ---------- DIVERSIFIED FINANCIALS--2.4% 2,452,938 ING Groep NV (NET)......................... 64,716 4,962,000 Swire Pacific Ltd. Cl. A (HK).............. 29,776 ---------- 94,492 ---------- FOOD PRODUCTS--2.7% 448,000 Nestle SA--Registered (SWS)................ 105,808 ---------- HOTELS RESTAURANTS & LEISURE--1.5% 1,425,565 Accor SA (FR).............................. 57,585 ---------- HOUSEHOLD DURABLES--3.0% 909,391 Hunter Douglas NV (NET).................... 30,298 1,591,200 Sony Corp. (JP)............................ 85,472 ---------- 115,770 ---------- INSURANCE--3.7% 1,398,978 Assicurazioni Generali SpA (IT)............ 33,785 2,256,272 AXA SA (FR)................................ 47,846 226,820 Swiss Reinsurance Co. (SWS)................ 22,869 173,855 Zurich Financial Services Group (SWS)...... 40,418 ---------- 144,918 ---------- LEISURE EQUIPMENT & PRODUCTS--1.0% 1,158,000 Fuji Photo Film Co. (JP)................... 36,780 ---------- MEDIA--1.6% 2,347,919 News Corp. Ltd. ADR (AUS)(1)............... 61,938 ---------- METALS & MINING--12.6% 4,748,740 Anglo American plc ADR (UK)(1)............. 74,318 2,000,000 AngloGold Ltd. ADR (S. AFR)(1)............. 53,600 5,014,200 Arcelor (FR)*.............................. 69,080 12,629,050 BHP Billiton plc ADR (UK)(1)............... 136,820 1,750,000 Companhia Vale do Rio Doce Pfd. (BR)....... 47,057 1,399,163 Pechiney SA Series A (FR).................. 67,655 2,180,183 Rio Tinto plc--Registered (UK)............. 40,490 ---------- 489,020 ---------- OFFICE ELECTRONICS--3.2% 3,240,000 Canon Inc. (JP)............................ 124,096 ---------- OIL & GAS--13.3% 11,393,662 BG Group plc (UK).......................... 50,867 14,635,576 BP plc (UK)................................ 124,818 214,000,000 China Petroleum & Chemical Corp. (CHN)..... 34,299 862,300 Norsk Hydro ASA (NOR)...................... 42,422
INTERNATIONAL EQUITY 32 HARBOR INTERNATIONAL FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- OIL & GAS--CONTINUED Petroleo Brasileiro SA-PETROBRAS Pfd. 3,899,443 (BR)..................................... $ 90,687 Royal Dutch Petroleum Co.--Registered 1,434,000 (NET).................................... 74,941 630,677 Total Fina Elf SA (FR)..................... 95,519 ---------- 513,553 ---------- PAPER & FOREST PRODUCTS--6.1% 1,405,900 Holmen Ab Series B (SW).................... 34,157 4,900,000 Stora Enso Ojy (FIN)....................... 62,143 1,780,704 Svenska Cellulosa Ab Series B (SW)......... 60,395 2,257,809 UPM-Kymmene Corp. (FIN).................... 78,882 ---------- 235,577 ---------- PHARMACEUTICALS--6.1% 875,483 Aventis SA (FR)............................ 62,160 2,612,760 Novartis AG--Registered (SWS).............. 109,479 2,225,900 Novo Nordisk A/S Series B (DEN)............ 65,230 ---------- 236,869 ---------- SPECIALTY RETAIL--3.2% Compagnie Financiere Richemont AG--Bearer 5,538,700 (SWS).................................... 125,519 ---------- TOBACCO--7.5% 8,141,947 British American Tobacco plc (UK).......... 83,254 7,803,107 Imperial Tobacco Group plc (UK)............ 109,861 12,436,474 Swedish Match Ab (SW)...................... 97,896 ---------- 291,011 ---------- TRANSPORTATION INFRASTRUCTURE--0.8% 31,779,732 Eurotunnel SA Units (FR)*.................. 29,188 Eurotunnel SA Warrants (FR)* 19,000,000 Expire 10/30/2003........................ 513 ---------- 29,701 ---------- WIRELESS TELECOMMUNICATION SERVICES--0.9% 10,725,000 China Mobile (Hong Kong) Ltd. (HK)*........ 35,136 ---------- TOTAL COMMON STOCKS (Cost $2,435,652)....................................... 3,665,057 ---------- SHORT-TERM INVESTMENTS--4.6% PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- COMMERCIAL PAPER American Express Credit Corp. Yrs 1&2 $ 25,119 1.700%--05/01/2002....................... $ 25,119 Citicorp 6,246 1.680%--05/01/2002....................... 6,246 25,000 1.680%--05/03/2002....................... 25,000 ---------- 31,246 ---------- Exxon Project Investment Yrs 3&4 35,291 1.750%--05/01/2002....................... 35,291 General Electric Capital Corp. 30,000 1.800%--05/01/2002....................... 30,000 30,000 1.700%--05/02/2002....................... 30,000 ---------- 60,000 ---------- Prudential Funding Corp. 26,446 1.730%--05/06/2002....................... 26,446 ---------- TOTAL SHORT-TERM INVESTMENTS (Cost $178,102)......................................... 178,102 ---------- TOTAL INVESTMENTS--99.3% (Cost $2,613,754)....................................... 3,843,159 CASH AND OTHER ASSETS, LESS LIABILITIES--0.7%............. 25,970 ---------- TOTAL NET ASSETS--100.0%.................................. $3,869,129 ==========
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. INTERNATIONAL EQUITY 33 HARBOR INTERNATIONAL FUND II PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) INVESTMENT HOLDINGS BY COUNTRY (% OF NET ASSETS) (Excludes net cash and short-term investment of 2.3%) China (CHN) 1.0 Denmark (DEN) 1.2 Singapore (SGP) 1.5 Israel (IL) 1.7 South Africa (S. AFR) 1.7 Germany (GER) 2.1 Australia (AUS) 2.6 Hong Kong (HK) 3.1 Italy (IT) 3.2 Brazil (BR) 3.3 Netherlands (NET) 5.8 Japan (JP) 6.0 Finland (FIN) 6.2 Sweden (SW) 7.2 Switzerland (SWS) 11.1 United Kingdom (UK) 17.8 France (FR) 22.2
COMMON STOCKS--97.7% VALUE SHARES (000S) --------------------------------------------------------------------- AUTO COMPONENTS--2.3% 43,467 Michelin--Registered (FR)...................... $ 1,683 ------- AUTOMOBILES--2.3% 34,474 Peugeot SA (FR)................................ 1,714 ------- BANKS--15.1% 98,230 ABN Amro Holding NV (NET)...................... 1,946 56,200 BNP Paribas (FR)............................... 2,935 11,826 Deutsche Bank AG--Registered (GER)............. 784 119,367 San Paolo IMI SpA (IT)......................... 1,330 123,655 Standard Chartered plc (UK).................... 1,522 32,252 UBS AG--Registered (SWS)....................... 1,553 United Overseas Bank Ltd. (Alien Market) 146,000 (SGP)........................................ 1,160 ------- 11,230 -------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) --------------------------------------------------------------------- BEVERAGES--1.6% 90,000 Diageo plc (UK)................................ $ 1,194 ------- BIOTECHNOLOGY--1.1% 550,000 Novogen Ltd. (AUS)*............................ 813 ------- BUILDING PRODUCTS--1.6% 6,781 Compagnie de Saint-Gobain (FR)................. 1,160 ------- CHEMICALS--2.6% 22,881 Bayer AG (GER)................................. 749 77,000 The BOC Group plc (UK)......................... 1,166 ------- 1,915 ------- COMMUNICATIONS EQUIPMENT--5.0% 966,657 Ericsson (LM) Tel Ab Series B (SW)*............ 2,424 100,574 NICE Systems Ltd. ADR (IL)(1)*................. 1,260 ------- 3,684 ------- DIVERSIFIED FINANCIALS--3.8% 48,894 ING Groep NV (NET)............................. 1,290 261,000 Swire Pacific Ltd. Cl. A (HK).................. 1,566 ------- 2,856 ------- FOOD PRODUCTS--1.6% 5,000 Nestle SA--Registered (SWS).................... 1,181 ------- HOTELS RESTAURANTS & LEISURE--1.6% 28,935 Accor SA (FR).................................. 1,169 ------- HOUSEHOLD DURABLES--4.5% 62,100 Sony Corp. (JP)................................ 3,336 ------- INSURANCE--6.0% 41,922 Assicurazioni Generali SpA (IT)................ 1,012 64,628 AXA UAP (FR)................................... 1,370 11,000 Swiss Reinsurance Co. (SWS).................... 1,109 4,209 Zurich Financial Services Group (SWS).......... 979 ------- 4,470 ------- MACHINERY--1.9% 15,198 Kone Oyj Series B (FIN)........................ 1,438 ------- MEDIA--1.5% 42,681 News Corp. Ltd. ADR (AUS)(1)................... 1,126 ------- METALS & MINING--14.2% 75,000 Anglo American plc (UK)........................ 1,182 47,000 AngloGold Ltd. ADR (S. AFR)(1)................. 1,260 99,500 Arcelor (FR)*.................................. 1,371 549,335 BHP Billiton plc (UK).......................... 2,937 100,000 Boliden Ab (SW)................................ 408 40,000 Companhia Vale do Rio Doce Pfd. (BR)........... 1,076 34,000 Pechiney SA (FR)............................... 1,644 35,000 Rio Tinto plc--Registered (UK)................. 650 ------- 10,528 ------- OFFICE ELECTRONICS--1.5% 30,000 Canon Inc. (JP)................................ 1,149 ------- OIL & GAS--7.6% 170,598 BP plc. (UK)................................... 1,455 4,750,000 China Petroleum & Chemical Corp. (CHN)......... 761 59,557 Petrol Brasileiro SA Pfd. (BR)................. 1,385 20,000 Royal Dutch Petroleum Co.--Registered (NET).... 1,045 6,567 Total Fina Elf SA (FR)......................... 995 ------- 5,641 -------
INTERNATIONAL EQUITY 34 HARBOR INTERNATIONAL FUND II PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) --------------------------------------------------------------------- PAPER & FOREST PRODUCTS--6.1% 97,000 Stora Enso Ojy Series R (FIN).................. $ 1,230 38,896 Svenska Cellulosa Ab Series B (SW)............. 1,319 55,991 UPM-Kymmene Corp. (FIN)........................ 1,956 ------- 4,505 ------- PHARMACEUTICALS--5.1% 16,098 Aventis SA (FR)................................ 1,143 292 GlaxoSmithKline plc (UK)....................... 7 41,930 Novartis AG--Registered (SWS).................. 1,757 30,000 Novo Nordisk A/S Series B (DEN)................ 879 ------- 3,786 ------- SPECIALTY RETAIL--2.2% Compagnie Financiere Richemont AG--Bearer 72,300 (SWS)........................................ 1,638 ------- TOBACCO--4.4% 125,000 British American Tobacco plc (UK).............. 1,278 56,000 Imperial Tobacco Group plc (UK)................ 788 150,000 Swedish Match Ab (SW).......................... 1,181 ------- 3,247 ------- TRANSPORTATION INFRASTRUCTURE--1.7% 1,401,679 Eurotunnel SA Units (FR)*...................... 1,287 -------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) --------------------------------------------------------------------- WIRELESS TELECOMMUNICATION SERVICES--2.4% 45,069 China Mobile (Hong Kong) Ltd. ADR (HK)(1)*..... $ 749 64,298 Vodafone Group plc ADR (UK)(1)*................ 1,042 ------- 1,791 ------- TOTAL COMMON STOCKS (Cost $72,938)............................................ 72,541 ------- SHORT-TERM INVESTMENT--1.5% (Cost $1,084) PRINCIPAL AMOUNT (000S) --------------------------------------------------------------------- General Electric Capital Corp. $ 1,084 1.800%--05/01/2002........................... 1,084 ------- TOTAL INVESTMENTS--99.2% (Cost $74,022)............................................ 73,625 CASH AND OTHER ASSETS, LESS LIABILITIES--0.8%............... 579 ------- TOTAL NET ASSETS--100.0%.................................... $74,204 =======
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. INTERNATIONAL EQUITY 35 HARBOR INTERNATIONAL GROWTH FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) INVESTMENT HOLDINGS BY COUNTRY (% OF NET ASSETS) (Excludes net cash and short-term investment of 2.7%) Switzerland (SWS) 1.0 Belgium (BEL) 1.2 Netherlands (NET) 1.4 Norway (NOR) 1.9 Spain (SP) 2.0 Italy (IT) 3.2 Sweden (SW) 3.6 Hong Kong (HK) 6.0 South Korea (S. KOR) 6.6 Germany (GER) 7.5 Canada (CAN) 7.7 United Kingdom (UK) 13.2 Japan (JP) 16.7 France (FR) 25.3
COMMON STOCKS--97.3% VALUE SHARES (000S) ---------------------------------------------------------------------- AUTOMOBILES--7.7% 2,195,600 Nissan Motor Co. Ltd. (JP)................... $ 16,887 270,200 Renault SA (FR).............................. 12,518 -------- 29,405 -------- BANKS--11.7% 263,900 ABN Amro Holding NV (NET).................... 5,228 93,000 Banco Popular Espanol SA (SP)................ 3,811 165,800 BNP Paribas (FR)............................. 8,659 897,000 IntesaBci SpA (IT)........................... 2,900 740,300 Lloyds TSB Group plc (UK).................... 8,508 668,000 Nordea Ab (SW)............................... 3,798 Skandinaviska Enskilda Banken (publ) Series A 409,300 (SW)....................................... 3,918 347,500 Standard Chartered plc (UK).................. 4,277 81,600 UBS AG--Registered (SWS)..................... 3,930 -------- 45,029 -------- BEVERAGES--5.8% 288,000 Asahi Breweries Ltd. (JP).................... 2,652 158,100 Interbrew SA (BEL)........................... 4,702 111,200 Pernod Ricard (FR)........................... 10,263 486,400 Scottish & Newcastle plc (UK)................ 4,449 -------- 22,066 -------- COMMERCIAL SERVICES & SUPPLIES--1.7% 526,000 Dai Nippon Printing Co. Ltd. (JP)............ 6,625 --------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- DIVERSIFIED FINANCIALS--2.2% 14,200 Shohkoh Fund & Co. Ltd. (JP)................. $ 1,747 90,000 Takefuji Corp. (JP).......................... 6,502 -------- 8,249 -------- DIVERSIFIED TELECOMMUNICATION SERVICES--3.3% 563,000 KT Corp. ADR (S. KOR)(1)..................... 12,752 -------- ELECTRIC UTILITIES--6.1% 1,570,900 Enel SpA (IT)................................ 9,322 2,679,500 Hong Kong Electric Holdings Ltd. (HK)........ 10,170 213,100 Union Fenosa SA (SP)......................... 3,755 -------- 23,247 -------- ELECTRICAL EQUIPMENT--2.7% 215,800 Schneider Electric SA (FR)................... 10,406 -------- ELECTRONIC EQUIPMENT & INSTRUMENTS--0.6% 29,700 Hoya Corp. (JP).............................. 2,210 -------- ENERGY EQUIPMENT & SERVICES--2.0% 7,517,300 Kvaerner ASA Series A (NOR)*................. 7,468 -------- FOOD & DRUG RETAILING--3.7% 146,400 Familymart Co. Ltd. (JP)..................... 3,089 1,105,800 Tesco plc (UK)............................... 4,236 89,500 Weston George Ltd. (CAN)..................... 6,778 -------- 14,103 -------- FOOD PRODUCTS--0.6% 325,200 Cadbury Schweppes plc (UK)................... 2,466 -------- GAS UTILITIES--4.6% 5,727,900 Centrica plc (UK)............................ 17,625 -------- HOUSEHOLD DURABLES--2.6% 361,300 Electrolux Ab (SW)........................... 6,004 28,800 Nintendo Co. Ltd. (JP)....................... 4,036 -------- 10,040 -------- INSURANCE--2.4% Muenchener Ruckversicherungs-Ges 37,700 AG--Registered (GER)....................... 9,336 -------- MEDIA--5.6% 807,000 British Sky Broadcasting Group plc (UK)...... 9,028 407,600 Publicis Groupe SA (FR)...................... 12,442 -------- 21,470 -------- MULTILINE RETAIL--1.6% 126,000 Ito-Yokado Co. Ltd. (JP)..................... 6,209 -------- OFFICE ELECTRONICS--1.1% 232,000 Ricoh Co. Ltd. (JP).......................... 4,326 -------- OIL & GAS--10.4% 9,624,800 CNOOC Ltd. (HK).............................. 12,773 432,000 Talisman Energy Inc. (CAN)................... 18,460 56,200 Total Fina Elf SA (FR)....................... 8,512 -------- 39,745 -------- PHARMACEUTICALS--13.7% 256,775 Aventis SA (FR).............................. 18,231 339,000 Daiichi Pharmaceutical Co. Ltd. (JP)......... 6,611 127,800 Sanofi Synthelabo (FR)....................... 8,176 322,400 Schering AG (GER)............................ 19,639 -------- 52,657 -------- ROAD & RAIL--1.1% 89,300 Canadian National Railway Co. (CAN).......... 4,237 --------
INTERNATIONAL EQUITY 36 HARBOR INTERNATIONAL GROWTH FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS--3.2% 42,000 Samsung Electronics Co. Ltd. (S. KOR)........ $ 12,447 -------- TEXTILES & APPAREL--2.1% 154,000 LVMH Moet Hennessy Louis Vuitton (FR)........ 8,050 -------- TOBACCO--0.8% 502 Japan Tobacco Inc. (JP)...................... 3,044 -------- TOTAL COMMON STOCKS (Cost $356,540)........................................... 373,212 -------- SHORT-TERM INVESTMENT--4.7% (Cost $18,057) PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 0.65% collateralized by a U.S. Treasury Bill 12.0% August 15, 2013, par value of $13,125 (repurchase proceeds of $18,057 $ 18,057 when closed on May 1, 2002)................ $ 18,057 -------- TOTAL INVESTMENTS--102.0% (Cost $374,597)........................................... 391,269 CASH AND OTHER ASSETS, LESS LIABILITIES--(2.0%)............. (7,525) -------- TOTAL NET ASSETS--100.0%.................................... $383,744 ========
------------ 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. * Non-income producing security. The accompanying notes are an integral part of the financial statements. INTERNATIONAL EQUITY 37 HARBOR GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) INVESTMENT HOLDINGS BY COUNTRY (% OF NET ASSETS) (Excludes net cash and short-term investment of 4.8%) Spain (SP) 0.2 Sweden (SW) 0.2 Israel (IL) 0.3 Brazil (BR) 0.4 Finland (FIN) 0.5 Hong Kong (HK) 0.5 Portugal (PORT) 0.5 Taiwan (TWN) 0.5 Australia (AUS) 0.6 Belgium (BEL) 0.6 Singapore (SGP) 0.6 Ireland (IE) 1.0 Italy (IT) 1.0 Canada (CAN) 1.2 Mexico (MEX) 1.3 South Korea (S. KOR) 1.6 Netherlands (NET) 1.8 Germany (GER) 2.3 Switzerland (SWS) 3.6 France (FR) 5.0 Japan (JP) 7.1 United Kingdom (UK) 10.2 United States (US) 54.2
COMMON STOCKS--95.2% VALUE SHARES (000S) ---------------------------------------------------------------------- AEROSPACE & DEFENSE--1.4% 9,000 BAE Systems plc (UK)............................. $ 46 650 General Dynamics Corp. (US)...................... 63 ------ 109 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- AIR FREIGHT & COURIERS--1.2% 700 Fedex Corp. (US)................................. $ 36 1,800 TNT Post Groep NV (NET).......................... 39 1,000 Yamato Transport Co. Ltd. (JP)................... 17 ------ 92 ------ AIRLINES--1.5% 2,700 AMR Corp. (US)*.................................. 58 1,300 Continental Airlines Inc. Cl. B (US)............. 34 10,000 Qantas Airways Ltd. (AUS)........................ 24 ------ 116 ------ AUTO COMPONENTS--0.3% American Axle & Manufacturing Holdings Inc. 600 (US)........................................... 20 ------ AUTOMOBILES--3.5% 650 Bayerische Motoren Werke AG (GER)................ 26 300 General Motors Corp. (US)........................ 19 1,000 Honda Motor Co. Ltd. (JP)........................ 45 600 Hyundai Motor Co. (S. KOR)....................... 22 300 Magna International Inc. Cl. A (CAN)............. 22 14,000 Nissan Motor Co. Ltd. (JP)....................... 108 400 Peugeot SA (FR).................................. 20 ------ 262 ------ BANKS--9.2% 2,050 Bank of America Corp. (US)....................... 149 3,100 Bank of Ireland (IE)............................. 36 5,200 Barclays Bank plc (UK)........................... 45 1,100 BNP Paribas (FR)................................. 57 1,500 Credit Suisse Group--Registered (SWS)............ 53 2,700 Dexia (BEL)...................................... 44 3,550 HSBC Holdings plc (UK)........................... 42 948 Kookmin Bank ADR (S. KOR)(1)..................... 44 1,400 Royal Bank of Canada (CAN)....................... 49 1,100 Royal Bank of Scotland Group plc (UK)............ 32 3,000 Standard Chartered plc (UK)...................... 37 600 UBS AG ADR (SWS)(1).............................. 29 710 UBS AG--Registered (SWS)......................... 34 Unibanco-Uniao de Bancos Brasileiros SA GDR 1,200 (BR)(2)........................................ 29 450 Washington Mutual Inc. (US)...................... 17 ------ 697 ------ BEVERAGES--1.5% 1,200 Coca Cola Co. (US)............................... 67 900 Pepsico Inc. (US)................................ 47 ------ 114 ------ BIOTECHNOLOGY--1.0% 1,500 Amgen Inc. (US)*................................. 79 ------ CHEMICALS--1.1% 200 Akzo Nobel NV (NET).............................. 9 1,300 Praxair Inc. (US)................................ 74 ------ 83 ------ COMMERCIAL SERVICES & SUPPLIES--1.2% 3,700 Brambles Industries Ltd. (AUS)................... 20 650 First Data Corp. (US)............................ 52 7,700 Hays plc (UK).................................... 19 ------ 91 ------ COMMUNICATIONS EQUIPMENT--1.2% 3,700 Cisco Systems Inc. (US).......................... 54 1,300 Nokia Oyj ADR (FIN)(1)........................... 21 400 QUALCOMM Inc. (US)............................... 12 ------ 87 ------
INTERNATIONAL EQUITY 38 HARBOR GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- COMPUTERS & PERIPHERALS--0.8% 700 International Business Machines Corp. (US)....... $ 59 ------ CONSTRUCTION MATERIALS--1.3% 2,200 CRH plc (IE)..................................... 38 160 Holcim SA--Bearer (SWS).......................... 37 250 Lafarge SA--Bearer (FR).......................... 24 ------ 99 ------ DIVERSIFIED FINANCIALS--5.8% 2,400 AMVESCAP plc (UK)................................ 25 4,300 Citigroup Inc. (US).............................. 186 4,000 Daiwa Securities Group Inc. (JP)................. 27 550 Federal National Mortgage Association (US)....... 43 400 Goldman Sachs Group Inc. (US).................... 31 1,700 ING Groep NV ADR (NET)(1)........................ 45 900 ING Groep NV (NET)............................... 24 300 Merrill Lynch & Co. Inc. (US).................... 13 3,000 Nomura Holdings Inc. (JP)........................ 42 ------ 436 ------ DIVERSIFIED TELECOMMUNICATION SERVICES--2.3% 550 KT Corp. ADR (S. KOR)(1)......................... 12 5,250 Portugal Telecom SGPS SA--Registered (PORT)...... 38 1,600 SBC Communications Inc. (US)..................... 50 1,100 Telefonos de Mexico SA de CV ADR (MEX)(1)........ 42 700 Verizon Communications (US)...................... 28 ------ 170 ------ ELECTRIC UTILITIES--0.3% 400 E. On AG (GER)................................... 21 ------ ELECTRONIC EQUIPMENT & INSTRUMENTS--0.6% 3,050 Flextronics International Ltd. (SGP)*............ 42 ------ ENERGY EQUIPMENT & SERVICES--1.4% 1,000 Baker Hughes Inc. (US)........................... 38 610 Kinder Morgan Management LLC (US)................ 22 300 Technip-Coflexip (FR)............................ 42 ------ 102 ------ FOOD PRODUCTS--1.0% 700 Nestle SA ADR (SWS)(1)........................... 41 160 Nestle SA--Registered (SWS)...................... 38 ------ 79 ------ GAS UTILITIES--0.9% 1,100 Kinder Morgan Inc. (US).......................... 53 650 Sempra Energy (US)............................... 17 ------ 70 ------ HEALTH CARE EQUIPMENT & SUPPLIES--0.7% 5,400 Smith & Nephew plc (UK).......................... 31 1,600 Terumo Corp. (JP)................................ 24 ------ 55 ------ HEALTH CARE PROVIDERS & SERVICES--1.3% 300 Anthem Inc. (US)................................. 20 400 Fresenius Medical Care AG (GER).................. 24 1,200 HCA Inc. (US).................................... 57 ------ 101 ------ HOTELS RESTAURANTS & LEISURE--3.3% 1,940 Carnival Corp. (US).............................. 65 11,200 Compass Group plc (UK)........................... 70 13,450 Hilton Group plc (UK)............................ 50 2,600 Hilton Hotels Corp. (US)......................... 43 2,300 Six Continents plc (UK).......................... 25 ------ 253 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- HOUSEHOLD DURABLES--2.5% 1,100 Electrolux Ab (SW)............................... $ 18 800 KB Home (US)..................................... 40 700 Lennar Corp. (US)................................ 39 2,500 Sega Corp. (JP).................................. 56 1,200 Thomson Multimedia (FR).......................... 33 ------ 186 ------ HOUSEHOLD PRODUCTS--1.2% 1,000 Kao Corp. (JP)................................... 20 750 Procter & Gamble Co. (US)........................ 68 ------ 88 ------ INDUSTRIAL CONGLOMERATES--2.4% 200 3M Co. (US)...................................... 25 4,950 General Electric Co. (US)........................ 156 ------ 181 ------ INSURANCE--7.1% 800 ACE Ltd. (US).................................... 35 900 Aegon NV (NET)................................... 21 110 Allianz AG--Registered (GER)..................... 26 1,000 American International Group Inc. (US)........... 69 3,100 CGNU plc (UK).................................... 32 1,100 Hartford Financial Services Group Inc. (US)...... 76 1,000 John Hancock Financial Services Inc. (US)........ 39 900 Lincoln National Corp. (US)...................... 43 750 Manulife Financial Corp. (CAN)................... 22 3 Millea Holdings (JP)............................. 23 Muenchener Ruckversicherungs-Ges AG--Registered 160 (GER).......................................... 40 2,300 Riunione Adriatica di Sicurta SpA (IT)........... 30 400 Swiss Reinsurance Co. (SWS)...................... 40 400 XL Capital Ltd. Cl. A (US)....................... 38 ------ 534 ------ INTERNET SOFTWARE & SERVICES--0.1% 550 Check Point Software Technologies Ltd. (IL)*..... 10 ------ IT CONSULTING & SERVICES--1.1% 1,300 Accenture Ltd. Cl. A (US)........................ 28 650 Electronic Data Systems Corp. (US)............... 35 750 Tietoenator Ojy (FIN)............................ 19 ------ 82 ------ MEDIA--6.1% 2,800 AOL Time Warner Inc. (US)*....................... 53 1,100 Clear Channel Communications Inc. (US)*.......... 52 1,000 Disney (Walt) Co. (US)........................... 23 1,200 Grupo Televisa SA de CV ADR (MEX)(1)............. 54 5,200 Mediaset SpA (IT)................................ 44 900 New York Times Co. Cl. A (US).................... 42 80 Nippon Television Network Corp (JP).............. 19 600 Omnicom Group Inc. (US).......................... 52 1,400 Pearson plc ADR (UK)(1).......................... 17 200 Reed Elsevier Group plc ADR (UK)(1).............. 8 4,500 Reed Elsevier Group plc (UK)..................... 44 750 Sogecable SA (SP)................................ 15 750 Viacom Inc. Cl. B (US)*.......................... 35 ------ 458 ------ METALS & MINING--2.4% 2,000 Alcoa Inc. (US).................................. 68 900 Nucor Corp. (US)................................. 53 300 Pechiney SA ADR (FR)(1).......................... 7 200 Pechiney SA (FR)................................. 10
INTERNATIONAL EQUITY 39 HARBOR GLOBAL EQUITY FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- METALS & MINING--CONTINUED 800 Posco ADR (S. KOR)(1)............................ $ 20 1,100 Rio Tinto plc--Registered (UK)................... 20 ------ 178 ------ MULTILINE RETAIL--4.1% 400 Ito-Yokado Co. Ltd. ADR (JP)(1).................. 20 1,000 Ito-Yokado Co. Ltd. (JP)......................... 49 6,268 Kingfisher plc (UK).............................. 35 3,000 Next plc (UK).................................... 45 1,500 Target Corp. (US)................................ 65 1,700 Wal-Mart Stores Inc. (US)........................ 95 ------ 309 ------ MULTI-UTILITIES--0.6% 400 Duke Energy Corp. (US)........................... 15 700 Suez (FR)........................................ 21 400 Vivendi Environnement (FR)....................... 13 ------ 49 ------ OFFICE ELECTRONICS--0.3% 1,000 Ricoh Co. Ltd. (JP).............................. 19 ------ OIL & GAS--4.6% 4,300 BP plc (UK)...................................... 37 3,450 Exxon Mobil Corp. (US)........................... 139 650 Total Fina Elf SA ADR (FR)(1).................... 49 400 Total Fina Elf SA (FR)........................... 60 1,700 Unocal Corp. (US)................................ 63 ------ 348 ------ PHARMACEUTICALS--8.2% 300 Aventis SA (FR).................................. 21 750 Eli Lilly & Co. (US)............................. 50 1,500 GlaxoSmithKline plc ADR (UK)(1).................. 72 1,800 Johnson & Johnson (US)........................... 115 400 Merck & Co. Inc. (US)............................ 22 3,900 Pfizer Inc. (US)................................. 142 400 Pharmacia Corp. (US)............................. 16 300 Sanofi-Synthelabo (FR)........................... 19 550 Schering AG (GER)................................ 33 1,000 Takeda Chemical Industries Ltd. (JP)............. 44 Teva Pharmaceutical Industries Ltd. ADR 300 (IL)(1)........................................ 17 1,200 Wyeth (US)....................................... 68 ------ 619 ------ SEMICONDUCTOR EQUIPMENT & PRODUCTS--2.9% 1,700 Intel Corp. (US)................................. 49 1,100 Micron Technology Inc. (US)*..................... 26 70 Samsung Electronics Co. Ltd. (S. KOR)............ 21 Taiwan Semiconductor Manufacturing Co. Ltd. ADR 1,950 (TWN)(1)*...................................... 35 2,800 Texas Instruments Inc. (US)...................... 87 ------ 218 ------
COMMON STOCKS--CONTINUED VALUE SHARES (000S) ---------------------------------------------------------------------- SOFTWARE--2.3% 2,800 Microsoft Corp. (US)*............................ $ 146 1,000 Siebel Systems Inc. (US)......................... 24 ------ 170 ------ SPECIALTY RETAIL--3.2% 1,100 Best Buy Co Inc. (US)*........................... 82 1,500 Home Depot Inc. (US)............................. 70 1,100 Lowe's Cos. Inc. (US)............................ 46 2,300 Staples Inc. (US)*............................... 46 ------ 244 ------ TOBACCO--2.0% 2,800 Philip Morris Cos. Inc. (US)..................... 152 ------ WIRELESS TELECOMMUNICATION SERVICES--1.3% 2,100 China Mobile (Hong Kong) Ltd. ADR (HK)(1)*....... 35 10 NTT DoCoMo Inc. (JP)............................. 25 25,150 Vodafone Group plc (UK).......................... 41 ------ 101 ------ TOTAL COMMON STOCKS (Cost $7,439)............................................... 7,183 ------ SHORT-TERM INVESTMENT--4.6% (Cost $348) PRINCIPAL AMOUNT (000S) ---------------------------------------------------------------------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 0.65% collateralized by a U.S. Treasury Bill 12.0% August 15, 2013, par value of $255 (repurchase proceeds of $348 when closed on $ 348 May 1, 2002)................................... 348 ------ TOTAL INVESTMENTS--99.8% (Cost $7,787)............................................... 7,531 CASH AND OTHER ASSETS, LESS LIABILITIES--0.2%................. 17 ------ TOTAL NET ASSETS--100.0%...................................... $7,548 ======
------------ 1 ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions. 2 GDR after the name of a foreign holding stands for Global Depositary Receipts representing ownership of foreign securities. GDRs are issued by either U.S. or non-U.S. banking organizations. * Non-income producing security. The accompanying notes are an integral part of the financial statements. INTERNATIONAL EQUITY 40 [THIS PAGE INTENTIONALLY LEFT BLANK] INTERNATIONAL EQUITY 41 HARBOR INTERNATIONAL EQUITY FUNDS STATEMENT OF ASSETS AND LIABILITIES--APRIL 30, 2002 (UNAUDITED) (All amounts in Thousands, except per share amounts)
HARBOR HARBOR HARBOR HARBOR INTERNATIONAL INTERNATIONAL II INTERNATIONAL GROWTH GLOBAL EQUITY --------------------------------------------------------------------------------------------------------------------------------- ASSETS INVESTMENTS, AT IDENTIFIED COST*............ $2,613,754 $ 74,022 $ 374,597 $ 7,787 ================================================================================================================================= Investments, at value....................... $3,843,159 $ 73,625 $ 373,212 $ 7,183 Repurchase agreements....................... -- -- 18,057 348 Cash........................................ 1 -- 1 20 Foreign currency, at value (cost: $9,051; $82; $2,355; $21)......................... 9,120 83 2,373 21 Receivables for: Investments sold.......................... -- -- 42,107 24 Capital shares sold....................... 5,427 204 734 46 Dividends................................. 10,250 128 1,443 15 Interest.................................. 35 -- -- -- Withholding tax receivable.................. 8,477 238 591 2 Other assets................................ 7 1 3 -- --------------------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS......................... 3,876,476 74,279 438,521 7,659 LIABILITIES Payables for: Investments purchased..................... -- -- 35,799 67 Capital shares reacquired................. 3,630 18 18,614 14 Accrued expenses: Management fees........................... 2,270 39 213 3 Trustees' fees............................ 11 -- 2 -- Transfer agent fees....................... 35 3 26 2 Other..................................... 1,401 15 123 25 --------------------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.................... 7,347 75 54,777 111 NET ASSETS.................................. $3,869,129 $ 74,204 $ 383,744 $ 7,548 ================================================================================================================================= Net assets consist of: Paid-in capital........................... $2,547,228 $ 86,757 $ 874,138 $ 9,197 Undistributed net investment income....... 19,562 130 401 -- Accumulated net realized gain/(loss)...... 72,940 (12,286) (507,497) (1,393) Unrealized appreciation/(depreciation) of investments and translation of assets and liabilities in foreign currencies............................. 1,229,399 (397) 16,702 (256) --------------------------------------------------------------------------------------------------------------------------------- $3,869,129 $ 74,204 $ 383,744 $ 7,548 ================================================================================================================================= Shares of beneficial interest............... 122,869 6,692 46,385 985 Net asset value, offering and redemption price per share........................... $ 31.49 $ 11.09 $ 8.27 $ 7.67
------------ * Including repurchase agreements and short-term investments. The accompanying notes are an integral part of the financial statements. INTERNATIONAL EQUITY 42 HARBOR INTERNATIONAL EQUITY FUNDS STATEMENT OF OPERATIONS--SIX MONTHS ENDED APRIL 30, 2002 (UNAUDITED) (All amounts in Thousands)
HARBOR HARBOR HARBOR HARBOR INTERNATIONAL INTERNATIONAL II INTERNATIONAL GROWTH GLOBAL EQUITY --------------------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends............................... $ 38,335 $ 540 $ 2,378 $ 49 Interest................................ 1,839 9 118 -- Foreign taxes withheld.................. (4,429) (60) (267) (4) --------------------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................. 35,745 489 2,229 45 OPERATING EXPENSES: Management fees......................... 15,277 296 1,480 27 Shareholder communications.............. 118 6 32 -- Custodian fees.......................... 478 28 79 16 Transfer agent fees..................... 861 48 199 3 Professional fees....................... 84 2 11 -- Trustees' fees and expenses............. 32 1 4 -- Registration fees....................... 18 13 17 2 Miscellaneous........................... 25 4 7 3 --------------------------------------------------------------------------------------------------------------------------------- Total operating expenses............. 16,893 398 1,829 51 Management fees waived.................. (708) (39) -- (7) --------------------------------------------------------------------------------------------------------------------------------- Net operating expenses.................. 16,185 359 1,829 44 --------------------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME..................... 19,560 130 400 1 REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENT TRANSACTIONS: Net realized gain/(loss) on: Investments.......................... 75,423 (9,619) (118,272) (371) Foreign currency transactions........ 63 32 1,469 2 Change in net unrealized appreciation of: Investments.......................... 394,059 18,480 111,942 616 Translation of assets and liabilities in foreign currencies.............. 92 2 40 -- --------------------------------------------------------------------------------------------------------------------------------- Net gain/(loss) on investment transactions......................... 469,637 8,895 (4,821) 247 --------------------------------------------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............ $489,197 $ 9,025 $ (4,421) $ 248 =================================================================================================================================
The accompanying notes are an integral part of the financial statements. INTERNATIONAL EQUITY 43 HARBOR INTERNATIONAL EQUITY FUNDS STATEMENT OF CHANGES IN NET ASSETS (All amounts in Thousands)
HARBOR INTERNATIONAL ------------------------------- NOVEMBER 1, NOVEMBER 1, 2001 2000 THROUGH THROUGH APRIL 30, OCTOBER 31, 2002 2001 ----------------------------------------------------------------------------------------------- (UNAUDITED) INCREASE/(DECREASE) IN NET ASSETS: Operations: Net investment income.................................. $ 19,560 $ 59,966 Net realized gain/(loss) on investments and foreign currency transactions......................................... 75,486 169,013 Net unrealized appreciation/(depreciation) of investments and translation of assets and liabilities in foreign currencies............................................ 394,151 (1,036,426) ----------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................................. 489,197 (807,447) ----------------------------------------------------------------------------------------------- Distributions to shareholders: Net investment income.................................. (32,072) (86,391) Net realized gain on investments....................... (105,975) (462,932) ----------------------------------------------------------------------------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS.................... (138,047) (549,323) ----------------------------------------------------------------------------------------------- Capital share transactions: Net proceeds from sale of shares....................... 410,175 743,213 Net asset value of shares issued in connection with reinvestment of: Dividends from net investment income................. 28,205 77,031 Distributions from net realized gain on investments......................................... 100,690 442,276 Cost of shares reacquired.............................. (518,448) (1,238,668) ----------------------------------------------------------------------------------------------- NET INCREASE/(DECREASE) DERIVED FROM CAPITAL TRANSACTIONS.......................................... 20,622 23,852 ----------------------------------------------------------------------------------------------- Net increase/(decrease) in net assets.................. 371,772 (1,332,918) NET ASSETS: Beginning of period....................................... 3,497,357 4,830,275 ----------------------------------------------------------------------------------------------- END OF PERIOD*............................................ $3,869,129 $ 3,497,357 =============================================================================================== NUMBER OF CAPITAL SHARES: Sold...................................................... 13,547 22,827 Reinvested in payment of investment income dividends...... 963 2,288 Reinvested in payment of capital gain distributions....... 3,432 13,140 Reacquired................................................ (17,124) (40,524) ----------------------------------------------------------------------------------------------- Net increase/(decrease) in shares outstanding............. 818 (2,269) Outstanding: Beginning of period.................................... 122,051 124,320 ----------------------------------------------------------------------------------------------- End of period.......................................... 122,869 122,051 =============================================================================================== * Includes undistributed net investment income of:.......... $ 19,562 $ 32,074
The accompanying notes are an integral part of the financial statements. INTERNATIONAL EQUITY 44
HARBOR HARBOR HARBOR INTERNATIONAL II INTERNATIONAL GROWTH GLOBAL EQUITY ------------------------------- ------------------------------- ------------------------------- NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, FEBRUARY 1, 2001 2000 2001 2000 2001 2001 THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, 2002 2001 2002 2001 2002 2001 ------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) $ 130 $ 827 $ 400 $ 1,420 $ 1 $ 22 (9,587) (2,337) (116,803) (371,103) (369) (1,041) 18,482 (26,993) 111,982 (110,218) 616 (872) ------------------------------------------------------------------------------------------------------------------------- 9,025 (28,503) (4,421) (479,901) 248 (1,891) ------------------------------------------------------------------------------------------------------------------------- (708) (1,265) (67) (293) (6) -- -- (6,349) -- (121,187) -- -- ------------------------------------------------------------------------------------------------------------------------- (708) (7,614) (67) (121,480) (6) -- ------------------------------------------------------------------------------------------------------------------------- 21,680 37,828 131,981 428,940 1,045 10,092 678 1,208 61 258 6 -- -- 6,191 -- 118,213 -- -- (33,514) (58,893) (181,011) (755,911) (510) (1,436) ------------------------------------------------------------------------------------------------------------------------- (11,156) (13,666) (48,969) (208,500) 541 8,656 ------------------------------------------------------------------------------------------------------------------------- (2,839) (49,783) (53,457) (809,881) 783 6,765 77,043 126,826 437,201 1,247,082 6,765 -- ------------------------------------------------------------------------------------------------------------------------- $ 74,204 $ 77,043 $ 383,744 $ 437,201 $7,548 $ 6,765 ========================================================================================================================= 1,972 3,006 15,770 35,196 134 1,091 62 91 7 19 1 -- -- 468 -- 8,635 -- -- (3,045) (4,742) (21,213) (63,042) (65) (176) ------------------------------------------------------------------------------------------------------------------------- (1,011) (1,177) (5,436) (19,192) 70 915 7,703 8,880 51,821 71,013 915 -- ------------------------------------------------------------------------------------------------------------------------- 6,692 7,703 46,385 51,821 985 915 ========================================================================================================================= $ 130 $ 708 $ 401 $ 68 $ -- $ 5
INTERNATIONAL EQUITY 45 HARBOR INTERNATIONAL EQUITY FUNDS FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING FOR THE PERIODS PRESENTED
INCOME FROM INVESTMENT OPERATIONS ------------------------------------------ NET REALIZED AND NET ASSET UNREALIZED GAINS/(LOSSES) VALUE NET ON INVESTMENTS, TOTAL FROM BEGINNING INVESTMENT AND FOREIGN CURRENCY INVESTMENT YEAR/PERIOD ENDED OF PERIOD INCOME CONTRACTS OPERATIONS ------------------------------------------------------------------------------------------------------------------------ HARBOR INTERNATIONAL FUND April 30, 2002 (Unaudited)..................... $28.65 $.16(c) $ 3.83 $ 3.99 October 31, 2001............................... 38.85 .57(c) (6.27) (5.70) October 31, 2000............................... 40.66 .48(c) 1.22 1.70 October 31, 1999............................... 36.97 .67(c) 5.90 6.57 October 31, 1998............................... 35.84 .51(c) 1.92 2.43 October 31, 1997............................... 31.21 .41(c) 5.44 5.85 ------------------------------------------------------------------------------------------------------------------------ HARBOR INTERNATIONAL FUND II April 30, 2002 (Unaudited)..................... $10.00 $.03(c) $ 1.16 $ 1.19 October 31, 2001............................... 14.28 .24(c) (3.62) (3.38) October 31, 2000............................... 13.83 .01(c) 1.23 1.24 October 31, 1999............................... 11.26 .18(c) 2.54 2.72 October 31, 1998............................... 12.14 .12(c) (.37) (.25) October 31, 1997............................... 10.47 .10(c) 1.63 1.73 ------------------------------------------------------------------------------------------------------------------------ HARBOR INTERNATIONAL GROWTH FUND April 30, 2002 (Unaudited)(1).................. $ 8.44 $ -- $ (.17) $ (.17) October 31, 2001............................... 17.56 -- (7.30) (7.30) October 31, 2000............................... 19.13 .01 (.06) (.05) October 31, 1999............................... 18.07 .14 1.30 1.44 October 31, 1998............................... 16.15 .11 2.52 2.63 October 31, 1997............................... 15.35 .12 1.12 1.24 ------------------------------------------------------------------------------------------------------------------------ HARBOR GLOBAL EQUITY FUND April 30, 2002 (Unaudited)..................... $ 7.39 $ -- $ .29 $ .29 October 31, 2001(2)............................ 10.00 -- (2.61) (2.61) ------------------------------------------------------------------------------------------------------------------------ LESS DISTRIBUTIONS ------------------------------------ DIVIDENDS FROM DISTRIBUTIONS FROM NET INVESTMENT NET REALIZED YEAR/PERIOD ENDED INCOME CAPITAL GAINS(3) HARBOR INTERNATIONAL FUND April 30, 2002 (Unaudited)..................... $(.27) $ (.88) October 31, 2001............................... (.71) (3.79) October 31, 2000............................... (.65) (2.86) October 31, 1999............................... (.58) (2.30) October 31, 1998............................... (.40) (.90) October 31, 1997............................... (.42) (.80) -------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND II April 30, 2002 (Unaudited)..................... $(.10) $ -- October 31, 2001............................... (.15) (.75) October 31, 2000............................... (.17) (.62) October 31, 1999............................... (.15) -- October 31, 1998............................... (.10) (.53) October 31, 1997............................... (.02) (.04) ------------------------------------------------------------------------------------------------------------------------ HARBOR INTERNATIONAL GROWTH FUND April 30, 2002 (Unaudited)(1).................. $ -- $ -- October 31, 2001............................... -- (1.82) October 31, 2000............................... (.14) (1.38) October 31, 1999............................... (.11) (.27) October 31, 1998............................... (.12) (.59) October 31, 1997............................... (.08) (.36) ------------------------------------------------------------------------------------------------------------------------ HARBOR GLOBAL EQUITY FUND April 30, 2002 (Unaudited)..................... $(.01) $ -- October 31, 2001(2)............................ -- -- ------------------------------------------------------------------------------------------------------------------------
1 Effective December 1, 2001, Harbor International Growth Fund appointed Mastholm Asset Management, LLC as its Subadviser. 2 For the period February 1, 2001 (inception) through October 31, 2001. 3 Includes both short-term and long-term capital gains. 4 Percentage does not reflect reduction for credit balance arrangements. a Annualized. b Unannualized. c Reflects the Adviser's waiver of a portion of its management fees. d The total returns would have been lower had certain expenses not been waived during the periods shown. The accompanying notes are an integral part of the financial statements. INTERNATIONAL EQUITY 46
RATIO OF RATIO OF RATIO OF NET ASSET NET ASSETS OPERATING MANAGEMENT FEES OPERATING EXPENSES VALUE END OF EXPENSES NOT IMPOSED NET OF ALL OFFSETS TOTAL END OF TOTAL PERIOD TO AVERAGE TO AVERAGE TO AVERAGE DISTRIBUTIONS PERIOD RETURN (000S) NET ASSETS (%)(4) NET ASSETS (%) NET ASSETS (%) ----------------------------------------------------------------------------------------------------------------------- $(1.15) $31.49 14.22%(b,d) $3,869,129 .88%(a,c) .04%(a) .88%(a) (4.50) 28.65 (16.40)(d) 3,497,357 .91(c) .06 .91 (3.51) 38.85 3.74(d) 4,830,275 .92(c) .06 .92 (2.88) 40.66 18.54(d) 5,361,024 .92(c) .06 .92 (1.30) 36.97 6.97(d) 5,088,401 .94(c) .06 .94 (1.22) 35.84 19.26(d) 5,090,048 .97(c) .05 .97 ----------------------------------------------------------------------------------------------------------------------- $ (.10) $11.09 11.90%(b,d) $ 74,204 .91%(a,c) .10%(a) .91%(a) (.90) 10.00 (25.22)(d) 77,043 .89(c) .10 .89 (.79) 14.28 8.81(d) 126,826 .93(c) .10 .92 (.15) 13.83 24.37(d) 114,791 .92(c) .10 .92 (.63) 11.26 (1.98)(d) 112,669 1.15(c) .10 1.15 (.06) 12.14 16.64(d) 134,957 .99(c) .20 .98 ----------------------------------------------------------------------------------------------------------------------- $ -- $ 8.27 (2.00)%(b) $ 383,744 .93%(a) --% .93%(a) (1.82) 8.44 (45.53) 437,201 .89 -- .89 (1.52) 17.56 (1.58) 1,247,082 .89 -- .89 (.38) 19.13 7.87 1,382,513 .91 -- .91 (.71) 18.07 16.96 1,178,252 .96 -- .96 (.44) 16.15 8.13 918,950 1.02 -- 1.02 ----------------------------------------------------------------------------------------------------------------------- $ (.01) $ 7.67 3.87%(b,d) $ 7,548 1.20%(a,c) .20%(a) 1.20%(a) -- 7.39 (26.10)(b,d) 6,765 1.20(a,c) .20(a) 1.20(a) ----------------------------------------------------------------------------------------------------------------------- RATIO OF NET INVESTMENT INCOME TO AVERAGE PORTFOLIO NET ASSETS (%) TURNOVER (%) --- ------------------------------------ 1.06%(a,c) 7%(b) 1.36(c) 7 1.40(c) 10 1.65(c) 4 1.27(c) 14 1.20(c) 6 -------------------------------------------------------- .33%(a,c) 24%(b) .79(c) 33 .85(c) 65 1.36(c) 52 .86(c) 70 1.33(c) 58 ---------------------------------------------------------------------- .20%(a) 184%(b) .18 63 .10 103 .78 48 .62 85 .91 76 ------------------------------------------------------------------------------------ .02%(a,c) 16%(b) .45(a,c) 143(b) --------------------------------------------------------------------------------------------------
INTERNATIONAL EQUITY 47 HARBOR FIXED INCOME FUNDS MANAGERS' COMMENTARY The following performance figures are annualized for each Fund except for the six-month total return calculations. Unless otherwise stated, all comments pertain to the fiscal half year ended April 30, 2002. The comparative market indices reflect no operating or transaction costs, however the Funds' total returns are net of these costs. Performance data quoted represents past performance and is not predictive of future performance. The returns shown in the graphs and tables do not reflect the deduction of taxes that a shareholder would HARBOR BOND FUND 04/30/2002 $11.66 INCEPTION DATE--DECEMBER 29, 1987 NET ASSET VALUE: 10/31/2001 $12.05
[HARBOR BOND FUND GRAPH]
BOND LB AGG ---- ------ 10000.00 10000.00 4/30/93 11606.50 11326.10 4/30/94 11822.80 11422.70 4/30/95 12585.90 12258.00 4/30/96 13804.30 13317.60 4/30/97 14920.40 14261.10 4/30/98 16501.00 15817.00 4/30/99 17850.30 16809.30 4/30/00 17991.90 17021.10 4/30/01 20070.10 19129.20 4/30/02 22151.80 20628.60
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years 10 Years -------------------------------------------------------------------------------- Harbor Bond Fund 1.19% 10.37% 8.22% 8.28% -------------------------------------------------------------------------------- LB AGG -0.01% 7.84% 7.66% 7.51% --------------------------------------------------------------------------------
Harbor Bond Fund outperformed the Lehman Brothers Aggregate index for the six-month period ended April 30, 2002, as well as the latest 1-year, 5-year, and 10-year periods. - Falling interest rates provided a positive environment for debt securities in 2001 as the Federal Reserve reduced the Federal Funds rate a total of 11 times to a 40-year low of 1.75%. The last two of those reductions, totaling 75 basis points, took place in November and December, the first two months of the Fund's fiscal half-year. Amid signs of weak economic recovery in the first few months of 2002, the Federal Reserve commented that risks of economic weakness and inflation appeared to have become equally balanced. Consequently, it declined either to reduce rates further or to initiate tightening. - Given the uncertain pace and strength of economic recovery, the Fund's portfolio continued to be conservatively positioned. With an average credit rating of AA+, the Fund manager continued to place a high priority on credit quality. In addition, the manager gradually decreased the portfolio's average duration to a level that was neutral to the index, as the market reflected the possibility of Federal Reserve tightening later in the year if the economy should show signs of increasing strength. - The Fund continued to be overweighted in mortgage-backed securities, a strategy that was successful in capturing incremental yield while maintaining a high level of credit quality in the portfolio. In addition to providing higher yields, these securities continued to benefit from relatively low volatility and their appeal to investors concerned about corporate credit and accounting-related issues. - The Fund's corporate sector exposure remained underweighted relative to the index, although the manager continued to add slowly to holdings in high quality corporate issues. This asset class typically has performed well in post-recessionary periods. - Among international debt securities, the Fund trimmed its relatively small holdings in developed countries, reflecting a perception of better opportunities in the United States. At the same time, it added to a small position, amounting to approximately 4% of the net assets, in higher quality securities from emerging markets. HARBOR SHORT DURATION FUND 04/30/2002 $8.63 INCEPTION DATE--JANUARY 1, 1992 NET ASSET VALUE: 10/31/2001 $8.69
[HARBOR SHORT DURATION FUND GRAPH]
SHORT DURATION SALOMON TREASURY 1 YR CMI -------------- ------------------------- 10000.00 10000.00 4/30/93 10581.30 10502.50 4/30/94 10843.70 10762.00 4/30/95 11455.40 11372.90 4/30/96 12096.30 12082.30 4/30/97 13004.10 12808.20 4/30/98 13805.00 13611.90 4/30/99 14572.00 14355.40 4/30/00 15223.60 15012.40 4/30/01 16455.20 16246.10 4/30/02 17218.40 17058.10
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years 10 Years -------------------------------------------------------------------------------- Harbor Short Duration Fund 1.19% 4.64% 5.77% 5.58% -------------------------------------------------------------------------------- Salomon Treasury 1 YR CMI 1.25% 5.00% 5.90% 5.49% --------------------------------------------------------------------------------
Harbor Short Duration Fund's total return of 1.19% was just below that of one-year maturity Treasury notes during the period. - Yields on short-duration Treasury securities rose modestly during the six-month period ending April 30, 2002. Although the Federal Reserve lowered official rates on two occasions, investors anticipated that interest rates eventually would increase as economic recovery unfolds. - The Fund remained predominately invested in a diversified combination of asset-backed securities. - Asset-backed securities underperformed Treasuries during the later part of 2001 but subsequently recovered as yield spreads narrowed across all sectors. - The Fund held a combination of securities maturing in less than three months and others maturing beyond one year. This strategy was in anticipation of a flatter yield curve during the early stages of economic recovery. FIXED INCOME 48 HARBOR FIXED INCOME FUNDS MANAGERS' COMMENTARY--CONTINUED pay on fund distributions or the redemption of fund shares. Actual return and principal value on an investment will fluctuate, and the shares, when redeemed, may be worth more or less than their original cost. For information on the risks associated with these Funds, please refer to the Harbor Fund prospectus. HARBOR MONEY MARKET FUND 04/30/2002 $1.00 INCEPTION DATE--DECEMBER 29, 1987 NET ASSET VALUE: 10/31/2001 $1.00
[HARBOR MONEY MARKET FUND GRAPH]
MONEY MARKET T-BILLS ------------ ------- 10000.00 10000.00 4/30/93 10298.50 10327.60 4/30/94 10587.30 10654.90 4/30/95 11105.40 11200.40 4/30/96 11705.00 11822.30 4/30/97 12292.70 12450.00 4/30/98 12935.70 13109.50 4/30/99 13577.90 13736.20 4/30/00 14285.80 14450.80 4/30/01 15170.20 15300.20 4/30/02 15584.30 15703.40
-------------------------------------------------------------------------------- Total Return for Periods Ended 04/30/2002 -------------------------------------------------------------------------------- Fund/Index 6 Months 1 Year 5 Years 10 Years -------------------------------------------------------------------------------- Harbor Money Market Fund 0.86% 2.73% 4.86% 4.54% -------------------------------------------------------------------------------- T-Bills 0.90% 2.64% 4.75% 4.62% -------------------------------------------------------------------------------- Current Yield for Periods Ended 03/31/2002 -------------------------------------------------------------------------------- Harbor Money Market Fund* 7 Days: 1.53% 30 Days: 1.52% --------------------------------------------------------------------------------
Harbor Money Market Fund's total return of 0.86% was just below that of 90-day Treasury bills. - Short-term interest rates declined on balance during the six months ending April 30, 2002. The Federal Reserve lowered official rates on two occasions late in 2001. Thereafter, short-term yields rose only slightly from their lows in January 2002. - The portfolio's average maturity ranged between one and two months in anticipation of an eventual rise in rates. - Holdings consisted primarily of high-grade commercial paper and certificates of deposit. An investment in Harbor Money Market Fund is not insured or guaranteed by the FDIC or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. ------------ * Reflects the Adviser's agreement not to impose a portion of its management fees. Without such waivers the 7-day and 30-day current yields would have been 1.41% and 1.40%, respectively. The current yield more closely reflects the current earnings of the Harbor Money Market Fund than the total return. FIXED INCOME 49 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) TOTAL INVESTMENTS (% OF NET ASSETS) (Excludes excess of liabilities over other assets and short-term investments of -26.0%) U.S. Government Obligations 1.4 Municipal Bonds 1.9 Asset-Backed Securities 6.1 Foreign Government Obligations 12.7 Collateralized Mortgage Obligations 20.7 Corporate Bonds & Notes 32.6 Mortgage Pass-Through 50.6
ASSET-BACKED SECURITIES--6.1% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Asset Backed Securities Corp Home Equity Loan Trust Series 1999-LB1 Cl. A4A $ 1,115 2.228%--06/21/2029(1)....................... $ 1,117 Bayview Financial Acquisition Trust Series 2001-BA Cl. A 10,670 2.130%--07/25/2031(1,2)..................... 10,726 Conseco Private Label Credit Card Master Note Trust Series 2001-A Cl. A 3,100 2.140%--12/15/2008(1)....................... 3,108 CS First Boston Mortgage Securities Corp. Series 2000-HE1 Cl. A2 10,867 2.120%--12/15/2030(1)....................... 10,868 New York City Tax Lien Series 2000-AA Cl. C 9,574 8.110%--11/10/2008(1,2)..................... 10,103 North Carolina State Education Authority Series 2000 Cl. G 2,583 2.071%--06/01/2009.......................... 2,589 Providian Gateway Master Trust Series 2000-B Cl. A 16,800 2.140%--03/16/2009(1,2)..................... 16,839 Salomon Brothers Mortgage Securities VII Inc. Series 1999-NC4 Cl. A 3,612 2.250%--09/25/2029(1,3)..................... 3,623 Series 1999-AQ2 Cl. A1 3,011 2.280%--11/15/2029(1)....................... 3,022 ---------- 6,645 ---------- SLM Student Loan Trust Series 1997-2 Cl. A1 395 2.300%--10/25/2005(1)....................... 399 Series 1997-3 Cl. A1 1,371 2.360%--04/25/2006(1)....................... 1,373 Series 1995-1 Cl. A2 3,567 2.510%--10/25/2007(1)....................... 3,580 ---------- 5,352 ---------- TOTAL ASSET-BACKED SECURITIES (Cost $66,772)........................................... 67,347 ---------- CORPORATE BONDS & NOTES--32.6% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Allete Inc. $ 1,500 2.799%--10/20/2003(3)....................... $ 1,493 American Airlines Inc. Pass Thru Certificates Series 2001-2 Cl. A1 2,493 6.978%--04/01/2011(2)....................... 2,572 AOL Time Warner Inc. 450 7.975%--08/15/2004(1)....................... 477 6,400 7.625%--04/15/2031(1,2)..................... 5,990 ---------- 6,467 ---------- Banesto Delaware Inc. 3,000 8.250%--07/28/2002(1)....................... 3,037 Banponce Corp. 2,000 6.750%--12/15/2005(1)....................... 2,053 Bear Stearns Cos. Inc. MTN(4) 9,800 2.200%--12/01/2003(1,3)..................... 9,813 British Telecommunications plc 1,400 8.375%--12/15/2010(5,6)..................... 1,536 Cincinnati Financial Corp. 5,000 6.900%--05/15/2028(1)....................... 4,774 CIT Group Inc. MTN(4) 8,800 2.463%--04/07/2003(1)....................... 8,638 Citicorp 10,625 7.125%--03/15/2004(1)....................... 11,263 Citigroup Inc. 2,000 6.000%--02/21/2012(3)....................... 1,980 Cleveland Electric Illuminating Co. Series B 2,000 9.500%--05/15/2005(1)....................... 2,001 ConAgra Foods Inc. 10,000 2.621%--09/10/2003(1,3)..................... 10,014 Credit Suisse First Boston 10,000 6.500%--05/01/2008(1,2)..................... 10,393 DaimlerChrysler North America Holding 3,000 2.760%--12/16/2002(3)....................... 3,005 2,000 8.500%--01/18/2031.......................... 2,227 ---------- 5,232 ---------- DaimlerChrysler North America Holding MTN(4) 5,000 7.750%--05/27/2003(1)....................... 5,186 8,700 2.413%--08/01/2003(1,3)..................... 8,673 ---------- 13,859 ---------- DTE Energy Co. Series B 10,000 7.110%--11/15/2003(1,2,6)................... 10,153 First Union Corp. 3,500 2.360%--03/31/2005.......................... 3,511 Ford Capital BV 6,100 9.875%--05/15/2002.......................... 6,113 Ford Motor Credit Co. MTN(4) 4,100 2.170%--06/02/2003.......................... 4,053 20,000 2.300%--06/20/2003(1)....................... 19,765 ---------- 23,818 ---------- France Telecom SA 2,000 3.750%--03/14/2003(3)....................... 2,006 7,100 7.700%--03/01/2006(5)....................... 7,244 6,900 9.000%--03/01/2031(1)....................... 7,254 ---------- 16,504 ---------- Fred Meyer Inc. 5,000 7.150%--03/01/2003(1)....................... 5,152
FIXED INCOME 50 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED
CORPORATE BONDS & NOTES--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Gemstone Investors Ltd. $ 2,100 7.710%--10/31/2004(2)....................... $ 2,119 General Motors Acceptance Corp. 5,900 6.750%--03/15/2003.......................... 6,035 5,000 5.750%--11/10/2003(1)....................... 5,105 1,100 8.000%--11/01/2031.......................... 1,157 ---------- 12,297 ---------- General Motors Acceptance Corp. MTN(4) 6,400 2.250%--08/04/2003(3)....................... 6,354 3,000 5.550%--09/15/2003(1)....................... 3,056 10,000 2.669%--01/20/2004(1,3)..................... 9,955 2,100 2.844%--03/22/2004(3)....................... 2,096 3,100 2.600%--05/10/2004(3)....................... 3,080 1,400 2.299%--07/21/2004(3)....................... 1,380 ---------- 25,921 ---------- Kroger Co. 1,100 2.660%--08/16/2012(3)....................... 1,100 Morgan Stanley Dean Witter & Co. 1,505 7.201%--09/15/2011(2,6)..................... 1,514 National Rural Utilities MTN(4) 15,000 8.000%--03/01/2032(1)....................... 16,165 Occidental Petroleum Corp. 5,000 6.400%--04/01/2003(1,6)..................... 5,091 Old Kent Bank 10,000 7.750%--08/15/2010(1,6)..................... 10,642 Sprint Capital Corp. 5,300 6.000%--01/15/2007.......................... 4,853 16,900 8.750%--03/15/2032(1,2)..................... 16,160 ---------- 21,013 ---------- TEPPCO Partners LP 3,000 7.625%--02/15/2012.......................... 3,039 Toledo Edison Co. 2,000 8.700%--09/01/2002.......................... 2,029 TRW Inc. 3,500 6.625%--06/01/2004.......................... 3,584 TXU Electric Co. 19,000 2.600%--06/15/2003(1,2,3)................... 19,029 United Airlines Inc. Pass Thru Certificates Series 1993 Cl. C2 3,000 9.060%--06/17/2015(1)....................... 2,479 Verizon 10,500 5.650%--11/15/2011(1)....................... 9,551 Wachovia Corp. 2,600 4.950%--11/01/2006.......................... 2,579 Walt Disney Co. 16,200 4.500%--09/15/2004(1)....................... 16,224 Westdeutsche Landesbank 13,200 6.050%--01/15/2009(1)....................... 13,364 Weyerhaeuser Co. 10,000 6.750%--03/15/2012(2)....................... 10,111 Williams Cos. Inc. 21,057 7.875%--09/01/2021.......................... 20,216 ---------- TOTAL CORPORATE BONDS & NOTES (Cost $359,331).......................................... 358,443 ---------- COLLATERALIZED MORTGAGE OBLIGATIONS--20.7% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Bear Stearns Adjustable Rate Mortgage Trust Series 2000-2 Cl. A1 $ 1,553 5.175%--11/25/2030.......................... $ 1,599 Series 2000-1 Cl. 1A 431 7.465%--12/25/2030.......................... 437 Series 2000-1 Cl. 2A 648 7.492%--12/25/2030.......................... 657 Series 2001-8 4,355 6.691%--11/25/2031(1,6)..................... 4,375 ---------- 7,068 ---------- Chase Mortgage Finance Corp. Series 1993-N Cl. A9 3,000 6.750%--11/25/2024(1)....................... 3,006 Collateralized Mortgage Securities Corp. Series F Cl. 4 72 11.450%--11/01/2015......................... 73 Collateralized Mortgage Securities Corp. REMIC(7) Series 1988-4 Cl. B 73 8.750%--04/20/2019(1)....................... 76 Countrywide Home Loans Pass Thru Certificates Series 1997-6 Cl. A10 6,538 7.250%--11/25/2027(1)....................... 6,729 Series 2000-8 Cl. A2 47 7.750%--01/25/2031.......................... 47 ---------- 6,776 ---------- Drexel Burnham Lambert CMO Trust Series H Cl. 4 3,650 8.500%--04/01/2017(1)....................... 3,660 E*Trade Bank Mortgage Backed Securities Series 2001-1 Cl. A1 8,096 7.079%--09/25/2031(1)....................... 8,095 Federal Home Loan Mortgage Corp. 3,242 8.000%--08/15/2022.......................... 3,524 3,399 6.500%--02/15/2023(1,8)..................... 429 3,539 2.510%--03/15/2025(1,4)..................... 3,549 5,000 6.000%--08/15/2026(1)....................... 5,026 22,207 7.000%--10/15/2030(1)....................... 22,077 7,332 2.310%--11/15/2030(1,3)..................... 7,370 ---------- 41,975 ---------- Federal Home Loan Mortgage Corp. REMIC(7) 595 9.000%--12/15/2020(1)....................... 634 Federal National Mortgage Association REMIC(7) Series 1997-55 Cl. ZA 8,504 7.000%--04/18/2027(1)....................... 8,818 FHLMC Structured Pass Through Securities 7,621 4.989%--08/15/2032(1)....................... 7,565 First Horizon Asset Securities Inc. Pass Thru Certificates Series 2001-7 Cl. A1 2,753 6.750%--11/25/2031.......................... 2,805 First Nationwide Trust Series 2001-3 Cl. 1A1 976 6.750%--08/21/2031.......................... 996 Series 2001-4 Cl. 4A1 3,497 2.400%--09/25/2031(1,3)..................... 3,506 ---------- 4,502 ---------- GE Capital Mortgage Services Inc. Series 1994-6 Cl. A3 3,620 6.500%--12/25/2022.......................... 3,591
FIXED INCOME 51 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- GE Capital Mortgage Services Inc. REMIC(7) Series 1998-17 Cl. A3 $ 9,608 6.750%--10/25/2028(1)....................... $ 9,847 GMACCM Mortgage Trust I Series 1999-D Cl. A 12,299 2.581%--09/20/2004(1,2)..................... 12,283 Indymac ARM Trust Series 2001-H2 Cl. A2 1,963 6.430%--01/25/2032.......................... 2,016 Merrill Lynch Mortgage Investors Inc. Series 2000-FF Cl. A 5,159 2.158%--01/20/2030(1,3)..................... 5,158 Morgan Stanley Dean Witter Capital I Series 2001 Cl. A 6,231 2.160%--07/11/2011(2)....................... 6,186 Norwest Asset Securities Corp. Pass Thru Certificates Series 1997-19 Cl. A8 5,166 7.250%--12/25/2027(1)....................... 5,362 Series 1998-12 Cl. A9 5,000 6.750%--06/25/2028(1)....................... 5,129 ---------- 10,491 ---------- PNC Mortgage Securities Corp. Pass Thru Certificates Series 1998-14 Cl. 3A3 17,589 6.500%--02/25/2029(1)....................... 17,827 Series 1999-4 Cl. 1A8 9,800 6.200%--06/25/2029(1)....................... 10,073 ---------- 27,900 ---------- Prudential Home Mortgage Securities Co. REMIC(7) Series 1993-29 Cl. A8 2,603 6.750%--08/25/2008(10)...................... 2,637 Residential Asset Securitization Trust Pass Thru Certificates Series 1998-A13 Cl. 1A3 6,931 6.500%--12/25/2028(1)....................... 7,067 Series 2000-A2 Cl. NB1 315 8.000%--04/25/2030(1)....................... 317 ---------- 7,384 ---------- Residential Funding Mortgage Securities I Inc. Series 1997-S8 Cl. A9 3,854 7.500%--06/25/2027(1)....................... 3,931 Salomon Brothers Mortgage Securities VII Inc. Pass Thru Certificates Series 2000-BOA1 Cl. A 276 7.601%--12/25/2030.......................... 280 Sears Mortgage Securities Corp. Series 1992-PR1 Cl. A 226 8.365%--10/25/2022(1,2)..................... 242 Small Business Administration Series 2000-P10 Cl. 1 1,948 7.449%--08/01/2010.......................... 2,120 Series 2001-20A Cl. 1 4,184 6.290%--01/01/2021.......................... 4,282 ---------- 6,402 ----------
COLLATERALIZED MORTGAGE OBLIGATIONS--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Structured Asset Mortgage Investments Inc. Pass Thru Certificates Series 1998-9 Cl. 1A3 $ 5,000 6.250%--11/25/2028.......................... $ 4,966 Structured Asset Securities Corp. Pass Thru Certificates Series 2001-15A Cl. 2A1 2,751 6.500%--09/25/2031.......................... 2,788 Series 2001-21A Cl. 1A1 4,813 6.250%--01/25/2032.......................... 4,952 Series 2002-1A Cl. 4A 3,768 6.311%--02/25/2032.......................... 3,793 ---------- 11,533 ---------- Wells Fargo Mortgage Backed Securities Trust Series 2000-14 Cl. A5 9,652 7.500%--01/25/2031.......................... 9,736 Series 2001-25 Cl. IIA 8,427 6.577%--10/25/2031(1)....................... 8,460 ---------- 18,196 ---------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $225,869).......................................... 228,096 ---------- FOREIGN GOVERNMENT OBLIGATIONS--12.7% Federal Republic of Germany E100,000 4.750%--12/13/2002.......................... 90,684 Federative Republic of Brazil $ 5,120 3.063%--04/15/2006(3)....................... 4,598 5,300 11.500%--03/12/2008......................... 5,022 165 3.125%--04/15/2009(3)....................... 135 6,526 8.000%--04/15/2014.......................... 5,154 ---------- 14,909 ---------- Republic of Panama 5,000 9.625%--02/08/2011.......................... 5,212 2,824 4.750%--07/17/2014(6)....................... 2,581 1,432 2.625%--07/17/2016(3)....................... 1,208 ---------- 9,001 ---------- Republic of Peru 1,200 9.125%--02/21/2012(2)....................... 1,161 Republic of South Africa 1,600 7.375%--04/25/2012.......................... 1,594 United Mexican States 953 3.140%--03/25/2005(3)....................... 927 400 9.875%--02/01/2010.......................... 462 100 11.375%--09/15/2016......................... 129 1,000 6.250%--12/31/2019.......................... 951 3,400 8.300%--08/15/2031.......................... 3,471 ---------- 5,940 ---------- United Mexican States MTN(4) 15,000 8.500%--02/01/2006.......................... 16,305 ---------- TOTAL FOREIGN GOVERNMENT OBLIGATIONS (Cost $136,638).......................................... 139,594 ----------
FIXED INCOME 52 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED
MORTGAGE PASS-THROUGH--50.6% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Federal Home Loan Mortgage Corp. $ 25 8.000%--06/01/2011.......................... $ 26 21 8.500%--02/01/2017(1)....................... 22 385 6.326%--06/01/2024(1)....................... 399 ---------- 447 ---------- Federal Housing Authority Project 221 Grey 98-4 7,393 7.430%--10/01/2020(1)....................... 7,431 221D4 Banco-5 542 7.400%--02/01/2021.......................... 542 221D4 Banco-15 131 7.450%--05/01/2021.......................... 131 223C Reilly-52 270 5.150%--06/01/2018.......................... 263 ---------- 8,367 ---------- Federal National Mortgage Association 30 9.000%--03/01/2005(1)....................... 32 566 9.000%--11/01/2009(1)....................... 612 354 6.000%--03/01/2016.......................... 359 2,521 6.000%--04/01/2016.......................... 2,557 10,414 6.000%--05/01/2016.......................... 10,563 6,984 6.000%--06/01/2016.......................... 7,083 18,747 6.000%--07/01/2016.......................... 19,014 7,287 6.000%--08/01/2016.......................... 7,393 8,307 6.000%--09/01/2016.......................... 8,425 9,124 6.000%--10/01/2016.......................... 9,255 5,514 6.000%--11/01/2016.......................... 5,591 4,350 6.000%--12/01/2016.......................... 4,413 6,651 6.000%--01/01/2017.......................... 6,744 21,498 6.000%--02/01/2017.......................... 21,679 10,105 6.000%--03/01/2017.......................... 10,245 39,565 6.000%--04/01/2017.......................... 40,404 12,683 6.000%--05/01/2017.......................... 12,861 14,828 4.660%--10/01/2040(1)....................... 15,085 ---------- 182,315 ---------- Federal National Mortgage Association TBA(9) May Delivery 3,000 5.500%--05/16/2017.......................... 2,978 36,500 6.000%--05/16/2017.......................... 36,478 ---------- 39,456 ---------- Federal National Mortgage Association TBA(9) June Delivery 27,500 6.000%--06/18/2017.......................... 27,758 Government National Mortgage Association 173 6.000%--11/15/2028.......................... 172 4,616 6.000%--01/15/2029.......................... 4,588 7,423 6.000%--02/15/2029.......................... 7,381 4,343 6.000%--03/15/2029.......................... 4,321 3,735 6.000%--04/15/2029.......................... 3,715 2,212 6.000%--05/15/2029.......................... 2,200 486 6.000%--06/15/2029.......................... 484 4,953 6.000%--07/15/2029.......................... 4,931 109 6.000%--08/15/2029.......................... 108 2,171 6.000%--09/15/2029.......................... 2,159 61 6.000%--10/15/2029.......................... 61 80 6.000%--11/15/2029.......................... 79 246 6.000%--10/15/2030.......................... 244 179 6.000%--07/15/2031.......................... 178 3,376 6.500%--10/15/2031.......................... 3,425 7,464 6.500%--11/15/2031.......................... 7,575 16,604 4.500%--02/20/2032.......................... 16,695 ---------- 58,316 ----------
MORTGAGE PASS-THROUGH--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Government National Mortgage Association II $ 686 6.375%--03/20/2017(1)....................... $ 700 366 6.750%--08/15/2017.......................... 383 1,206 6.750%--08/20/2022(1)....................... 1,248 719 6.750%--09/20/2023(1)....................... 744 236 6.375%--05/20/2024(1)....................... 243 24 6.750%--07/20/2024.......................... 25 1,620 6.750%--09/20/2024(1)....................... 1,676 248 6.625%--12/20/2024(1)....................... 257 654 6.375%--01/20/2025(1)....................... 668 384 6.375%--02/20/2025(1)....................... 392 118 6.625%--10/20/2025.......................... 122 208 6.625%--10/20/2025(1)....................... 215 955 6.625%--11/20/2025(1)....................... 989 234 6.625%--12/20/2026(1)....................... 242 1,824 6.750%--07/20/2027.......................... 1,882 4,384 6.000%--11/20/2029(1)....................... 4,495 ---------- 14,281 ---------- Government National Mortgage Association I TBA(9) May Delivery 20,500 6.000%--05/21/2032.......................... 20,289 171,000 6.500%--05/21/2032.......................... 172,652 ---------- 192,941 ---------- Government National Mortgage Association II TBA(9) May Delivery 13,000 6.000%--05/21/2032.......................... 12,842 9,600 6.500%--05/21/2032.......................... 9,600 ---------- 22,442 ---------- Government National Mortgage Association II TBA(9) June Delivery 9,600 6.500%--06/21/2032.......................... 9,672 ---------- TOTAL MORTGAGE PASS-THROUGH (Cost $552,672).......................................... 555,995 ---------- MUNICIPAL BONDS--1.9% Charlotte-Mecklenberg Hospital Authority 1,000 5.000%--01/15/2031.......................... 954 Georgia State 10,800 5.000%--05/01/2016.......................... 11,091 Indianapolis Local Public Improvement Bond Bank 5,363 8.360%--07/01/2022.......................... 5,214 Massachusetts State Water Resources Authority 2,600 4.750%--12/01/2021.......................... 2,466 New Jersey Transportation Trust Fund Authority 1,400 5.000%--12/15/2021.......................... 1,398 ---------- TOTAL MUNICIPAL BONDS (Cost $20,965)........................................... 21,123 ----------
FIXED INCOME 53 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED
MUNICIPAL BONDS--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- U.S. GOVERNMENT OBLIGATIONS--1.4% PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- U.S. Treasury Bonds $ 6,800 6.250%--08/15/2023.......................... $ 7,222 U.S. Treasury Notes 2,886 3.625%--07/15/2002(1,10).................... 2,931 4,601 3.375%--01/15/2007(1,10).................... 4,773 ---------- 7,704 ---------- TOTAL U.S. GOVERNMENT OBLIGATIONS (Cost $15,300)........................................... 14,926 ---------- OPTIONS--0.0% NO. OF CONTRACTS ----------------------------------------------------------------------- Eurodollar Futures Contracts 14,500 Expire 06/2002.............................. 54 613 Expire 09/2002.............................. 2 ---------- 56 ---------- U.S. Treasury Bonds Futures Contracts 24 Expire 08/2002.............................. 30 ---------- TOTAL OPTIONS (Cost $121).............................................. 86 ---------- SHORT-TERM INVESTMENTS--6.9% PRINCIPAL AMOUNT (000S) ----------------------------------------------------------------------- COMMERCIAL PAPER Federal Home Loan Mortgage Corp. 600 0.010%--05/07/2002(1)....................... 600 9,700 0.010%--09/12/2002.......................... 9,625 ---------- 10,225 ----------
SHORT-TERM INVESTMENTS--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ----------------------------------------------------------------------- Federal National Mortgage Association $ 1,170 0.010%--05/08/2002(1)....................... $ 1,170 14,100 0.010%--08/28/2002.......................... 14,011 ---------- 15,181 ---------- National Australia Funding Inc. 8,700 1.750%--05/16/2002.......................... 8,694 UBS Finance Inc. Yrs 3&4 37,200 1.760%--05/02/2002.......................... 37,198 ---------- TOTAL COMMERCIAL PAPER..................................... 71,298 ---------- U.S. TREASURY BILLS U.S. Treasury Bills 880 0.010%--05/02/2002.......................... 880 50 1.690%--05/02/2002.......................... 50 105 1.725%--05/02/2002.......................... 105 114 1.745%--08/15/2002.......................... 114 ---------- 1,149 ---------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 1.55% collateralized by a U.S. Treasury Bill 0.0% June 20, 2002, par value of $3,080 (repurchase proceeds of $3,008 when closed 3,008 on May 1, 2002)............................. 3,008 ---------- TOTAL SHORT-TERM INVESTMENTS (Cost $75,455)........................................... 75,455 ---------- TOTAL INVESTMENTS--132.9% (Cost $1,453,123)........................................ 1,461,065 CASH AND OTHER ASSETS, LESS LIABILITIES--(32.9%)........... (361,784) ---------- TOTAL NET ASSETS--100.0%................................... $1,099,281 ==========
------------------------------------------------------------ FUTURES CONTRACTS WHICH WERE OPEN AT APRIL 30, 2002 ARE AS FOLLOWS:
UNREALIZED AGGREGATE APPRECIATION/ NUMBER OF FACE VALUE (DEPRECIATION) DESCRIPTION CONTRACTS (000S) EXPIRATION DATE (000S) ----------- --------- ---------- --------------- -------------- Municipal Bond Index Futures (Buy).................... 9 $ 9 Jun-02 $ 23 U.S. Treasury Bonds--20 Yr. (Buy)..................... 276 27,600 Jun-02 452 U.S. Treasury Notes--10 Yr. (Sell).................... 541 54,100 Jun-02 (1,403) U.S. Treasury Notes--5 Yr. (Sell)..................... 143 14,300 Jun-02 (236) Eurodollar Futures (Buy).............................. 34 8,500 Sep-02 40 Eurodollar Futures (Buy).............................. 3 750 Mar-03 5 Eurodollar Futures (Buy).............................. 3 750 Jun-03 4 Eurodollar Futures (Buy).............................. 3 750 Sep-03 3 Germany Federal Republic Bonds--10 Yr. (Buy).......... 144 E14,400 Jun-02 (20) Germany Federal Republic Bonds--5 Yr. (Buy)........... 428 42,800 Jun-02 310 -------------- $ (822) ==============
FIXED INCOME 54 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED TBA SALE COMMITMENTS WHICH WERE OPEN AT APRIL 30, 2002 ARE AS FOLLOWS:
PRINCIPAL AMOUNT COUPON DELIVERY VALUE DESCRIPTION (000S) RATE DATE (000S) ----------- --------- ------ -------- ------ Federal National Mortgage Assoc....................... $27,500 6.00% May-02 $ 27,360 Government National Mortgage Assoc. I................. 83,000 6.50% May-02 83,443 Government National Mortgage Assoc. II................ 9,600 6.50% May-02 9,600 -------------- TBA sale commitments at value (proceeds receivable $121,302)........................................... $120,403 ==============
WRITTEN OPTIONS WHICH WERE OPEN AT APRIL 30, 2002 ARE AS FOLLOWS:
NUMBER OF SHARES/ STRIKE VALUE DESCRIPTION CONTRACTS PRICE EXPIRATION DATE (000S) ----------- --------- ------ --------------- ------ U.S. Treasury Notes-10 Yr. Futures (Call)............. 288 $107.00 May-02 $ (72) U.S. Treasury Notes-10 Yr. Futures (Put).............. 801 100.00 May-02 (13) Eurodollar Futures (Put).............................. 4,911 95.75 Jun-02 (31) Eurodollar Futures (Put).............................. 168 95.50 Jun-02 (1) Eurodollar Futures (Put).............................. 91 97.00 Jun-02 (1) Eurodollar Futures (Put).............................. 387 96.00 Jun-02 (2) Eurodollar Futures (Put).............................. 91 96.50 Sep-02 (4) Eurodollar Futures (Put).............................. 256 97.25 Sep-02 (80) Eurodollar Futures (Put).............................. 130 96.75 Sep-02 (10) Eurodollar Futures (Put).............................. 1,268 96.50 Dec-02 (594) Swap Options-3 Mo. LIBOR (Call)....................... 21,100,000 5.97 Oct-04 (590) Swap Options-3 Mo. LIBOR (Put)........................ 21,100,000 5.97 Oct-04 (1,016) Swap Options-3 Mo. LIBOR (Call)....................... 5,500,000 6.00 Oct-19 (158) Swap Options-3 Mo. LIBOR (Put)........................ 5,500,000 6.00 Oct-19 (262) Interest Rate Swap (Call)............................. 2,000,000 5.85 Aug-23 (21) -------------- Written options at value (premiums received of $7,365)............................................. $(2,855) ==============
FORWARD CURRENCY CONTRACTS WHICH WERE OPEN AT APRIL 30, 2002 ARE AS FOLLOWS:
UNREALIZED AGGREGATE APPRECIATION/ MARKET VALUE FACE VALUE (DEPRECIATION) DESCRIPTION (000S) (000S) DELIVERY DATE (000S) ----------- ------------ ---------- ------------- -------------- Pound Sterling (Sell)................................. $ 319 L 219 May-02 $ (8) Euro (Sell)........................................... 10,639 E 11,851 Jul-02 (221) Japanese Yen (Sell)................................... 5,180 Y663,061 Jul-02 (157) Japanese Yen (Buy).................................... 2,357 301,639 Jul-02 46 Japanese Yen (Buy).................................... 3,150 403,232 Jul-02 69 -------------- $(271) ==============
FIXED INCOME 55 HARBOR BOND FUND PORTFOLIO OF INVESTMENTS--CONTINUED SWAP AGREEMENTS WHICH WERE OPEN AT APRIL 30, 2002 ARE AS FOLLOWS:
UNREALIZED PAR APPRECIATION VALUE (DEPRECIATION) (000S) DESCRIPTION COUNTER PARTY (000S) ------ ----------- ------------- -------------- E 9,100 To make or receive semi-annual payments through 03/15/2017 Goldman Sachs Capital Markets $ (11) based on the difference between (A) the 10 year fixed New York interest rate of 6.000% over (B) the 10 year floating rate adjusted every six months based upon the EUR- EURIBOR-Telerate. 4,500 To make or receive semi-annual payments through 03/15/2032 J.P. Morgan Securities -- based on the difference between (A) the 10 year fixed interest rate of 6.000% over (B) the 10 year floating rate adjusted every six months based upon the EUR- EURIBOR-Telerate. Y521,000 To make or receive semi-annual payments through 01/1/2011 Morgan Stanley Capital Services (205) based on the difference between (A) the 10 year fixed interest rate of 1.805% over (B) the 10 year floating rate adjusted every six months based upon the JPY-LIBOR-BBA. 360,000 To make or receive semi-annual payments through 01/1/2011 Morgan Stanley Capital Services (134) based on the difference between (A) the 10 year fixed interest rate of 1.771% over (B) the 10 year floating rate adjusted every six months based upon the JPY-LIBOR-BBA. L 6,400 To make or receive semi-annual payments through 06/17/2004 Goldman Sachs Capital Markets 67 based on the difference between (A) the 10 year fixed New York interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 2,200 To make or receive semi-annual payments through 06/17/2004 Morgan Stanley Capital Services 17 based on the difference between (A) the 10 year fixed interest rate of 5.500% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 1,600 To make or receive semi-annual payments through 09/15/2012 UBS Warburg 1 based on the difference between (A) the 10 year fixed interest rate of 5.000% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 800 To make or receive semi-annual payments through 03/15/2017 J.P. Morgan Securities 1 based on the difference between (A) the 10 year fixed interest rate of 5.000% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 4,100 To make or receive semi-annual payments through 03/15/2017 Goldman Sachs Capital Markets 26 based on the difference between (A) the 10 year fixed New York interest rate of 5.000% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. 2,400 To make or receive semi-annual payments through 03/15/2032 J.P. Morgan Securities 17 based on the difference between (A) the 10 year fixed interest rate of 5.000% over (B) the 10 year floating rate adjusted every six months based upon the GBP-LIBOR-BBA. $ 29,200 To make or receive semi-annual payments through 06/17/2007 Goldman Sachs Capital Markets 25 based on the difference between (A) the 10 year fixed New York interest rate of 6.000% over (B) the 10 year floating rate adjusted every six months based upon the USD-LIBOR-BBA. 42,400 To make or receive semi-annual payments through 06/17/2007 Bank of America 1,513 based on the difference between (A) the 10 year fixed interest rate of 6.000% over (B) the 10 year floating rate adjusted every six months based upon the USD-LIBOR-BBA. -------------- $1,317 ==============
------------ 1 At April 30, 2002, securities held by the Fund were pledged to cover margin requirements for open future contracts and written options on futures contracts (see Note 2 to the Financial Statements). The securities pledged had an aggregate market value of $534,503. 2 Security 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. At April, 2002, these securities were valued at $135,581 or 12.33% of net assets. 3 Floating rate security. The stated rate represents the rate in effect at April 30, 2002. 4 MTN after the name of a security stands for Medium Term Note. 5 Step Coupon security. The rate will step 1.07% per month until the coupon reaches 15%. 6 Variable rate security. The stated rate represents the rate in effect at April 30, 2002. 7 REMICs are CMOs which can hold mortgages secured by any type of real property and issue multiple-class securities backed by those mortgages. 8 Interest only (IO) securities represent the right to receive the monthly interest payments on an underlying pool of mortgage loans. These are subject to the risk of accelerated principal paydowns. The amount represents the notional amount on which current interest is calculated. 9 TBA's are mortgage-backed securities traded under delayed delivery commitments, settling after April 30, 2002. 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 TBA's is not earned until settlement date (see Note 2 to the Financial Statements). 10 Treasury inflation-protected securities (TIPS) are securities in which the principal amount is adjusted for inflation and interest payments are applied to the inflation-adjusted principal. E Euro. L British Pound. Y Japanese Yen. The accompanying notes are an integral part of the financial statements. FIXED INCOME 56 HARBOR SHORT DURATION FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) TOTAL INVESTMENTS (% OF NET ASSETS) (Excludes net cash and short-term investment of 0.1%) Corporate Bonds & Notes 2.0 Collateralized Mortgage Obligations 5.0 Asset-Backed Securities 92.9
ASSET-BACKED SECURITIES--92.9% PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- ABSC Long Beach Home Equity Loan Trust Series 2000-LB1 Cl. AV $2,575 2.118%--08/21/2030(1,2)...................... $ 2,579 ACE Securities Corp. Pass Thru Certificates Series 2001-HE1 Cl. A 2,289 2.228%--11/20/2031(1,2)...................... 2,296 Aerco Ltd. Series 2A Cl. A3 4,000 2.320%--07/15/2025(1,2)...................... 3,885 AmeriCredit Automobile Receivables Trust Series 2001-1 Cl. A3 3,000 5.130%--11/06/2005(2)........................ 3,074 Ameriquest Mortgage Securities Inc. Pass Thru Certificates Series 2002-1 Cl. AF3 2,200 5.120%--05/25/2032........................... 2,231 Associates Automobile Receivables Trust Series 2000-1 Cl. A3 1,808 7.300%--01/15/2004(2)........................ 1,851 CDC Mortgage Capital Trust Series 2002-HE1 Cl. A 1,800 2.153%--01/25/2033(1).......................... 1,800 Centex Home Equity Series 2002-B Cl. AF2 2,250 4.487%--05/25/2020........................... 2,271 Chase Funding Loan Acquisition Trust Series 2001-C2 Cl. IA2 4,000 5.673%--05/25/2022........................... 4,093 CIT Equipment Collateral Series 2001-A Cl. A2 2,359 3.730%--03/22/2004(2)........................ 2,377 Citibank Credit Card Issuance Trust Series 2001-B2 Cl. B2 2,000 2.391%--12/10/2008(1)........................ 2,013 Citibank Credit Card Master Trust I Series 1999-7 Cl. A 2,500 6.650%--11/15/2006........................... 2,658 CIT Marine Trust Series 1999-A Cl. A2 1,083 5.800%--04/15/2010(2)........................ 1,109 CNH Equipment Trust Series 2001-B Cl. A3 2,000 2.170%--03/15/2006(1)........................ 2,002 Conseco Finance Series 2000-C Cl. A 1,259 2.230%--12/15/2029(1,2)...................... 1,263
ASSET-BACKED SECURITIES--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- Contimortgage Home Equity Trust Pass Thru Certificates Series 1998-3 Cl. A10 $ 8 5.840%--05/15/2016(2)........................ $ 9 Countrywide Home Equity Loan Trust Series 2002-B Cl. A1 1,486 2.110%--04/15/2028(1)........................ 1,499 CS First Boston Mortgage Securities Corp. Pass Thru Certificates Series 2001-HS27 Cl. A 1,204 2.500%--08/25/2031(1,3)...................... 1,196 DaimlerChrysler Auto Trust Series 2001-C Cl. A3 3,000 4.210%--07/06/2005(2)........................ 3,046 Discover Card Master Trust I Series 2000-9 Cl. A 2,000 6.350%--07/15/2008(2)........................ 2,115 Felco Funding II LLC. Series 2000-1 Cl. A3 3,171 7.585%--06/15/2004(2,3)...................... 3,245 First North American National Bank Series 1997-2 Cl. B 3,000 2.330%--03/15/2006(1,2)...................... 3,007 Ford Credit Auto Owner Trust Series 2002-A Cl. A4A 2,400 4.360%--09/15/2006........................... 2,416 Harley-Davidson Motorcycle Trust Series 2001-2 Cl. A1 992 3.770%--04/17/2006........................... 1,002 HFC Home Equity Loan Asset Backed Certificates Series 2002-1 Cl. A 1,936 2.270%--12/22/2031(1)........................ 1,942 Honda Auto Receivables Owner Trust Series 2001-1 Cl. A2 1,046 5.150%--06/18/2003(2)........................ 1,052 Series 2002-1 Cl. A2 2,500 2.550%--04/15/2004........................... 2,505 -------- 3,557 -------- Ikon Receivables LLC Series 1999-1 Cl. A4 3,375 6.230%--05/15/2005(2)........................ 3,444 Long Beach Mortgage Loan Trust Series 2002-1 Cl. 2A2 1,500 3.500%--05/25/2032........................... 1,492 MMCA Automobile Trust Series 2002-1 Cl. A2 2,000 3.030%--01/17/2005........................... 2,011 National City Auto Receivables Trust Series 2002-A Cl. A4 700 4.830%--08/15/2009........................... 709 Navistar Financial Corp Owner Trust Series 2001-B Cl. A4 2,500 4.370%--11/17/2008(2)........................ 2,514 Nissan Auto Receivables Owner Trust Series 2002-A Cl. A2 4,000 2.670%--07/15/2004(2)........................ 4,010 Option One Mortgage Loan Trust Series 2002-1 Cl. A 3,447 2.140%--02/25/2032(1,2)...................... 3,450
FIXED INCOME 57 HARBOR SHORT DURATION FUND PORTFOLIO OF INVESTMENTS--CONTINUED
ASSET-BACKED SECURITIES--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- PECO Energy Transition Trust Series 2000-A Cl. A2 $ 985 7.300%--09/01/2004........................... $ 1,002 Premier Auto Trust Series 1999-3 Cl. A4 2,569 6.430%--03/08/2004(2)........................ 2,623 Public Service New Hampshire Funding LLC Series 2001-1 Cl. A2 2,500 5.730%--11/01/2010(2)........................ 2,589 Residential Asset Securities Corp. Series 2001-KS1 Cl. AI3 3,000 5.854%--02/25/2026(2)........................ 3,081 Saxon Asset Securities Trust Series 2001-1 Cl. AF4 2,000 6.310%--03/25/2026........................... 2,069 Series 1999-2 Cl. MV2 1,500 2.800%--05/25/2029(1,2)...................... 1,505 -------- 3,574 -------- SSB RV Trust Series 2001-1 Cl. A2 1,686 2.890%--12/15/2008........................... 1,693 Standard Credit Card Master Trust Series 1995-1 Cl. A 2,000 8.250%--01/07/2007........................... 2,207 Structured Asset Securities Corp. Series 2002-1A Cl. 2A1 1,916 4.022%--02/25/2032(1)........................ 1,941 -------- TOTAL ASSET-BACKED SECURITIES (Cost $94,243)............................................ 94,876 -------- COLLATERALIZED MORTGAGE OBLIGATIONS--5.0% PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- Federal Home Loan Mortgage Corp. Series 1620 Cl. A $ 364 6.000%--08/15/2018........................... $ 366 FHLMC Structured Pass Through Securities Series T-30 Cl. A5 2,000 7.610%--12/25/2030........................... 2,120 Salomon Brothers Mortgage Securities VII Series 2001-C1 Cl. A1 2,611 5.137%--12/18/2035(2)........................ 2,662 -------- TOTAL COLLATERALIZED MORTGAGE OBLIGATIONS (Cost $5,080)............................................. 5,148 -------- CORPORATE BONDS & NOTES--2.0% (Cost $2,000) VW Credit Inc. MTN 4 2,000 2.229%--01/21/2005(1)........................ 1,997 -------- SHORT-TERM INVESTMENT--0.0% (Cost $44) REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 1.75% collateralized by a U.S. Treasury Bill 7.250% August 15, 2022, par value of $40 (repurchase proceeds of $44 when closed on 44 May 1, 2002)................................. 44 -------- TOTAL INVESTMENTS--99.9% (Cost $101,367)........................................... 102,065 CASH AND OTHER ASSETS, LESS LIABILITIES--0.1%............... 119 -------- TOTAL NET ASSETS--100.0%.................................... $102,184 ========
------------ 1 Floating rate security. The stated rate represents the rate in effect at April 30, 2002. 2 At April 30, 2002, securities held by the Fund were pledged to cover margin requirements for open future contracts (see Note 2 to the Financial Statements). The securities pledged had an aggregate market value of $60,879. 3 Security 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. At April 30, 2002, these securities were valued at $4,441 or 4.35% 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. FIXED INCOME 58 HARBOR MONEY MARKET FUND PORTFOLIO OF INVESTMENTS--APRIL 30, 2002 (UNAUDITED) TOTAL INVESTMENTS (% OF NET ASSETS) (Excludes net cash of -0.2%) Repurchase Agreement 10.3 Bank Obligations 12.0 Commercial Paper 77.9
BANK OBLIGATIONS--12.0% PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- Bank of Montreal $ 7,000 1.750%--05/22/2002........................... $ 7,000 BZW 4,000 2.130%--05/28/2002........................... 4,000 Morgan Stanley Group Inc. 2,250 6.375%--08/01/2002........................... 2,264 Societe Generale 7,000 1.820%--07/22/2002........................... 7,000 -------- TOTAL BANK OBLIGATIONS (Cost $20,264)............................................ 20,264 -------- COMMERCIAL PAPER--77.9% Abbey National plc 7,000 1.780%--06/13/2002........................... 6,985 ANZ Inc. 7,000 1.770%--05/13/2002........................... 6,996 Bank of Scotland Treasury Service 7,000 1.780%--05/10/2002........................... 6,997 BMW Capital Corp. 7,000 1.900%--05/01/2002........................... 7,000 CBA Finance Inc. Yrs 3&4 6,000 2.030%--05/20/2002........................... 5,994 Credit Agricole Indosuez Inc. 7,000 1.810%--05/07/2002........................... 7,000 Danske Bank A/S 6,500 1.800%--05/06/2002........................... 6,498
COMMERCIAL PAPER--CONTINUED PRINCIPAL AMOUNT VALUE (000S) (000S) ---------------------------------------------------------------------- Den Norske Bank ASA Yrs. 1&2 $ 7,000 1.820%--05/21/2002........................... $ 6,993 Deutsche Bank AG 7,000 1.840%--05/21/2002........................... 7,000 Dresdner Bank AG 7,000 1.800%--05/09/2002........................... 6,997 Gillette Co. 7,000 1.870%--05/01/2002........................... 7,000 ING US Funding LLC 7,000 1.800%--05/15/2002........................... 6,995 J.P. Morgan Chase & Co. 7,000 1.940%--07/03/2002........................... 6,976 Lloyds TSB Group plc 7,000 2.001%--09/19/2002........................... 6,946 Royal Bank of Canada 7,000 1.840%--07/31/2002........................... 7,000 Svenska Handelsbanken Ab 7,000 1.850%--05/13/2002........................... 6,996 Toronto Dominion Bank 7,000 1.800%--05/14/2002........................... 7,000 UBS Finance Inc. Yrs 1&2 7,000 1.900%--05/01/2002........................... 7,000 Well Fargo Bank 7,000 1.790%--05/07/2002........................... 7,000 -------- TOTAL COMMERCIAL PAPER (Cost $131,373)........................................... 131,373 -------- REPURCHASE AGREEMENT--10.3% (Cost $17,305) Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 1.75% collateralized by a U.S. Treasury Bills 9.125% May 15, 2009, par value of $15,285 (repurchase proceeds of $17,306 when closed 17,305 on May 1, 2002).............................. 17,305 -------- TOTAL INVESTMENTS--100.2% (Cost $168,942)(1)........................................ 168,942 CASH AND OTHER ASSETS, LESS LIABILITIES--(0.2%)............. (246) -------- TOTAL NET ASSETS--100.0%.................................... $168,696 ========
------------ 1 The aggregate identified cost on a tax basis is the same. The accompanying notes are an integral part of the financial statements. FIXED INCOME 59 HARBOR FIXED INCOME FUNDS STATEMENT OF ASSETS AND LIABILITIES--APRIL 30, 2002 (UNAUDITED) (All amounts in Thousands, except per share amounts)
HARBOR HARBOR HARBOR BOND SHORT DURATION MONEY MARKET -------------------------------------------------------------------------------------------------------------------- ASSETS INVESTMENTS, AT IDENTIFIED COST*............................ $1,453,123 $101,367 $168,942 ==================================================================================================================== Investments, at value....................................... $1,458,057 $102,021 $151,637 Repurchase agreements....................................... 3,008 44 17,305 Cash........................................................ -- -- 1 Foreign currency, at value (cost: $2,194; $0; $0)........... 2,233 -- -- Receivables for: Investments sold.......................................... 161,672 -- -- Capital shares sold....................................... 1,021 92 139 Interest.................................................. 10,119 403 208 Swap agreements, at value (cost: $1,444, $0, $0).......... 2,761 -- -- Variation margin on futures contracts..................... 114 -- -- Other assets................................................ 3 13 14 -------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS......................................... 1,638,988 102,573 169,304 LIABILITIES Payables for: Investments purchased..................................... 413,640 -- -- Capital shares reacquired................................. 2,040 368 559 Dividends to shareholders................................. -- -- 2 Written options, at value (premiums received $7,365; $0; $0).................................................... 2,855 -- -- Open forward currency contracts........................... 271 -- -- Variation margin on futures contracts..................... 62 -- -- Accrued expenses: Management fees........................................... 412 17 20 Trustees' fees............................................ 3 1 -- Transfer agent fees....................................... 3 -- 16 Other..................................................... 18 3 11 TBA sale commitments at value (proceeds receivable $121,302; $0; $0)...................................... 120,403 -- -- -------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES.................................... 539,707 389 608 NET ASSETS.................................................. $1,099,281 $102,184 $168,696 ==================================================================================================================== Net assets consist of: Paid-in capital........................................... $1,067,741 $123,066 $168,696 Undistributed/(overdistributed) net investment income..... 6,979 (115) -- Accumulated net realized gain/(loss)...................... 12,726 (21,465) -- Unrealized appreciation of investments and translation of assets and liabilities in foreign currencies........... 12,928 698 -- Unrealized (depreciation) of futures and forward contracts.............................................. (1,093) -- -- -------------------------------------------------------------------------------------------------------------------- $1,099,281 $102,184 $168,696 ==================================================================================================================== Shares of beneficial interest............................... 94,293 11,845 168,696 Net asset value, offering and redemption price per share.... $ 11.66 $ 8.63 $ 1.00
------------ * Including repurchase agreements and short-term investments. The accompanying notes are an integral part of the financial statements. FIXED INCOME 60 HARBOR FIXED INCOME FUNDS STATEMENT OF OPERATIONS--SIX MONTHS ENDED APRIL 30, 2002 (UNAUDITED) (All amounts in Thousands)
HARBOR HARBOR HARBOR BOND SHORT DURATION MONEY MARKET -------------------------------------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends................................................. $ -- $ -- $ -- Interest.................................................. 26,797 2,447 1,829 Foreign taxes withheld.................................... -- -- -- -------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT INCOME................................... 26,797 2,447 1,829 OPERATING EXPENSES: Management fees........................................... 3,249 225 263 Shareholder communications................................ 40 2 13 Custodian fees............................................ 46 24 17 Transfer agent fees....................................... 289 13 95 Professional fees......................................... 26 2 4 Trustees' fees and expenses............................... 9 1 2 Registration fees......................................... 39 12 20 Miscellaneous............................................. 11 5 5 -------------------------------------------------------------------------------------------------------------------- Total operating expenses............................... 3,709 284 419 Management fees waived.................................... (771) (102) (105) -------------------------------------------------------------------------------------------------------------------- Net operating expenses................................. 2,938 182 314 -------------------------------------------------------------------------------------------------------------------- NET INVESTMENT INCOME....................................... 23,859 2,265 1,515 REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENT TRANSACTIONS: Net realized gain/(loss) on: Investments............................................ 594 424 -- Foreign currency transactions.......................... 1,635 -- -- Swap agreements........................................ 9,652 -- -- Futures contracts...................................... 2,043 (6) -- Written options........................................ 3,664 -- -- Change in net unrealized (depreciation) of: Investments............................................ (8,408) (1,334) -- Swap agreements........................................ (10,305) -- -- Futures contracts...................................... (8,247) (24) -- Forward currency contracts............................. (76) -- -- Translation of assets and liabilities in foreign currencies............................................ (1,808) -- -- -------------------------------------------------------------------------------------------------------------------- Net (loss) on investment transactions..................... (11,256) (940) -- -------------------------------------------------------------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $ 12,603 $ 1,325 $1,515 ====================================================================================================================
The accompanying notes are an integral part of the financial statements. FIXED INCOME 61 HARBOR FIXED INCOME FUNDS STATEMENT OF CHANGES IN NET ASSETS (All amounts in Thousands)
---------------------------------------------------------------- INCREASE/(DECREASE) IN NET ASSETS: Operations: Net investment income.................................. Net realized gain on investments, foreign currency transactions, swap agreements, futures contracts and written options....................................... Net unrealized appreciation/(depreciation) of investments and translation of assets and liabilities in foreign currencies................................. ---------------------------------------------------------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... ---------------------------------------------------------------- Distributions to shareholders: Net investment income.................................. Net realized gain on investments....................... ---------------------------------------------------------------- TOTAL DISTRIBUTIONS TO SHAREHOLDERS.................... ---------------------------------------------------------------- Capital share transactions: Net proceeds from sale of shares....................... Net asset value of shares issued in connection with reinvestment of: Dividends from net investment income................. Distributions from net realized gain on investments......................................... Cost of shares reacquired.............................. ---------------------------------------------------------------- NET INCREASE/(DECREASE) DERIVED FROM CAPITAL TRANSACTIONS.......................................... ---------------------------------------------------------------- Net increase/(decrease) in net assets.................. NET ASSETS: Beginning of period....................................... ---------------------------------------------------------------- END OF PERIOD *........................................... ================================================================ NUMBER OF CAPITAL SHARES: Sold...................................................... Reinvested in payment of investment income dividends...... Reinvested in payment of capital gain distributions....... Reacquired................................................ ---------------------------------------------------------------- Net increase/(decrease) in shares outstanding............. Outstanding: Beginning of period.................................... ---------------------------------------------------------------- End of period.......................................... ================================================================ * Includes undistributed/(over-distributed) net investment income of:................................................
The accompanying notes are an integral part of the financial statements. FIXED INCOME 62
HARBOR HARBOR HARBOR BOND SHORT DURATION MONEY MARKET ------------------------------- ------------------------------- ------------------------------- NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, 2001 2000 2001 2000 2001 2000 THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, APRIL 30, OCTOBER 31, 2002 2001 2002 2001 2002 2001 ------------------------------------------------------------------------------------------------------------------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) $ 23,859 $ 49,251 $ 2,265 $ 5,641 $ 1,515 $ 6,618 17,588 25,379 418 500 -- 2 (28,844) 54,113 (1,358) 1,822 -- -- ------------------------------------------------------------------------------------------------------------------------- 12,603 128,743 1,325 7,963 1,515 6,620 ------------------------------------------------------------------------------------------------------------------------- (23,080) (40,763) (2,295) (5,800) (1,515) (6,618) (22,766) (4,887) -- -- -- (2) ------------------------------------------------------------------------------------------------------------------------- (45,846) (45,650) (2,295) (5,800) (1,515) (6,620) ------------------------------------------------------------------------------------------------------------------------- 238,928 470,485 86,345 275,635 95,057 302,450 20,471 37,555 2,266 5,729 1,500 6,353 21,071 3,414 -- -- -- -- (184,498) (275,250) (111,416) (282,600) (96,695) (245,862) ------------------------------------------------------------------------------------------------------------------------- 95,972 236,204 (22,805) (1,236) (138) 62,941 ------------------------------------------------------------------------------------------------------------------------- 62,729 319,297 (23,775) 927 (138) 62,941 1,036,552 717,255 125,959 125,032 168,834 105,893 ------------------------------------------------------------------------------------------------------------------------- $1,099,281 $1,036,552 $102,184 $125,959 $168,696 $ 168,834 ========================================================================================================================= 20,455 41,186 9,976 31,974 95,057 302,450 3,648 3,296 262 665 1,500 6,353 -- 303 -- -- -- -- (15,818) (23,976) (12,884) (32,842) (96,695) (245,862) ------------------------------------------------------------------------------------------------------------------------- 8,285 20,809 (2,646) (203) (138) 62,941 86,008 65,199 14,491 14,694 168,834 105,893 ------------------------------------------------------------------------------------------------------------------------- 94,293 86,008 11,845 14,491 168,696 168,834 ========================================================================================================================= $ 6,979 $ 6,200 $ (115) $ (85) $ -- $ --
FIXED INCOME 63 HARBOR FIXED INCOME FUNDS FINANCIAL HIGHLIGHTS SELECTED DATA FOR A SHARE OUTSTANDING FOR THE PERIODS PRESENTED
INCOME FROM INVESTMENT OPERATIONS ------------------------------------------ NET REALIZED AND UNREALIZED GAINS/(LOSSES) NET ASSET ON INVESTMENTS, FUTURES VALUE NET CONTRACTS, OPTIONS, SWAP TOTAL FROM BEGINNING INVESTMENT AGREEMENTS AND FOREIGN INVESTMENT YEAR/PERIOD ENDED OF PERIOD INCOME CURRENCY CONTRACTS OPERATIONS ----------------------------------------------------------------------------------------------------------------------------- HARBOR BOND FUND April 30, 2002 (Unaudited).......................... $12.05 $.26(c) $ (.13) $ .13 October 31, 2001.................................... 11.00 .56(c) 1.08 1.64 October 31, 2000.................................... 10.85 .57(c) .15 .72 October 31, 1999.................................... 11.82 .58(c) (.49) .09 October 31, 1998.................................... 11.57 .61(c) .53 1.14 October 31, 1997.................................... 11.28 .68(c) .30 .98 ----------------------------------------------------------------------------------------------------------------------------- HARBOR SHORT DURATION FUND April 30, 2002 (Unaudited).......................... $ 8.69 $.16(c) $ (.06) $ .10 October 31, 2001.................................... 8.51 .45(c) .19 .64 October 31, 2000.................................... 8.56 .55(c) (.04) .51 October 31, 1999.................................... 8.69 .46(c) (.15) .31 October 31, 1998.................................... 8.66 .48(c) .09 .57 October 31, 1997.................................... 8.79 .45(c,d) .01 .46 ----------------------------------------------------------------------------------------------------------------------------- HARBOR MONEY MARKET FUND April 30, 2002 (Unaudited).......................... $ 1.00 $.01(c) $ -- $ .01 October 31, 2001.................................... 1.00 .05(c) -- .05 October 31, 2000.................................... 1.00 .06(c) -- .06 October 31, 1999.................................... 1.00 .05(c) -- .05 October 31, 1998.................................... 1.00 .05(c) -- .05 October 31, 1997.................................... 1.00 .02(c) -- .02 ----------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS ------------------------------ DIVIDENDS DISTRIBUTIONS FROM NET FROM NET INVESTMENT REALIZED YEAR/PERIOD ENDED INCOME CAPITAL GAINS(1) HARBOR BOND FUND April 30, 2002 (Unaudited).......................... $(.26) $(.26) October 31, 2001.................................... (.52) (.07) October 31, 2000.................................... (.57) -- October 31, 1999.................................... (.55) (.51) October 31, 1998.................................... (.66) (.23) October 31, 1997.................................... (.69) -- ----------------------------------------------------------------------------------------------------- HARBOR SHORT DURATION FUND April 30, 2002 (Unaudited).......................... $(.16) $ -- October 31, 2001.................................... (.46) -- October 31, 2000.................................... (.56) -- October 31, 1999.................................... (.44) -- October 31, 1998.................................... (.54) -- October 31, 1997.................................... (.59) -- ----------------------------------------------------------------------------------------------------------------------- HARBOR MONEY MARKET FUND April 30, 2002 (Unaudited).......................... $(.01) $ -- October 31, 2001.................................... (.05) -- October 31, 2000.................................... (.06) -- October 31, 1999.................................... (.05) -- October 31, 1998.................................... (.05) -- October 31, 1997.................................... (.02) -- -----------------------------------------------------------------------------------------------------------------------------
1 Includes both short-term and long-term capital gains. 2 Percentage does not reflect reduction for credit balance arrangements. a Annualized. b Unannualized. c Reflects the Adviser's waiver of a portion of its management fees. d Based on monthly average of shares outstanding during the fiscal year. e The total returns would have been lower had certain expenses not been waived during the periods shown. f Interest expense from investments sold short. The accompanying notes are an integral part of the financial statements. FIXED INCOME 64
RATIO OF RATIO OF RATIO OF OPERATING NET ASSET OPERATING MANAGEMENT FEES EXPENSES NET OF VALUE NET ASSETS EXPENSES NOT IMPOSED ALL OFFSETS TO TOTAL END TOTAL END OF PERIOD TO AVERAGE TO AVERAGE AVERAGE DISTRIBUTIONS OF PERIOD RETURN (000S) NET ASSETS (%)(2) NET ASSETS (%) NET ASSETS (%) ---------------------------------------------------------------------------------------------------------------------------- $ (.52) $11.66 1.19%(b,e) $1,099,281 .57%(a,c) .15%(a) .57%(a) (.59) 12.05 15.35(e) 1,036,552 .56(c) .22 .56 (.57) 11.00 6.95(e) 717,255 .60(c) .21 .60 (1.06) 10.85 .85(e) 627,180 .61(c) .21 .60 (.89) 11.82 10.33(e) 473,021 .65(c) .22 .65 (.69) 11.57 8.96(e) 362,594 .67(c) .23 .67 ---------------------------------------------------------------------------------------------------------------------------- $ (.16) $ 8.63 1.19%(b,e) $ 102,184 .30%(a,c) .17%(a) .30%(a) (.46) 8.69 7.73(e) 125,959 .28(c) .20 .27 (.56) 8.51 6.21(e) 125,032 .29(c) .20 .28 (.44) 8.56 3.68(e) 251,442 .28(c) .20 28 (.54) 8.69 6.81(e) 217,244 .36(c) .20 .36 (.59) 8.66 5.48(e) 162,476 .38(c) .20 .36 ---------------------------------------------------------------------------------------------------------------------------- $ (.01) $ 1.00 .86%(b,e) $ 168,696 .36%(a,c) .12%(a) .36%(a) (.05) 1.00 4.83(e) 168,834 .38(c) .12 .38 (.06) 1.00 5.99(e) 105,893 .48(c) .12 .47 (.05) 1.00 4.82(e) 97,265 .46(c) .12 .46 (.05) 1.00 5.20(e) 100,276 .57(c) .12 .57 (.02) 1.00 5.11(e) 73,540 .63(c) .12 .62 ---------------------------------------------------------------------------------------------------------------------------- RATIO OF RATIO OF INTEREST/DIVIDEND NET INVESTMENT EXPENSE INCOME TO AVERAGE TO AVERAGE PORTFOLIO NET ASSETS (%) NET ASSETS (%) TURNOVER (%) ---------------------------------------------------------------------------------------------------------------------------- --% 4.62%(a,c) 196%(b) -- 5.50(c) 531 -- 6.16(c) 494 -- 5.35(c) 271 -- 5.41(c) 278 -- 6.04(c) 252 ---------------------------------------------------------------------------------------------------------------------------- --% 3.70%(a,c) 80%(b) -- 5.35(c) 246 -- 6.00(c) 478 -- 5.36(c) 578 -- 5.51(c) 727 .64(f) 5.14(c) 1,519 ---------------------------------------------------------------------------------------------------------------------------- --% 1.72%(a,c) N/A -- 4.60(c) N/A -- 5.88(c) N/A -- 4.73(c) N/A -- 5.08(c) N/A -- 4.97(c) N/A ----------------------------------------------------------------------------------------------------------------------------
FIXED INCOME 65 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--APRIL 30, 2002 (UNAUDITED) (Currency in Thousands) NOTE 1--ORGANIZATIONAL MATTERS Harbor Fund (the "Trust") is registered under the Investment Company Act of 1940, as amended, as an open-ended investment company, consisting of seven domestic equity series: Harbor Capital Appreciation Fund, Harbor Mid Cap Growth Fund, Harbor Growth Fund, Harbor Small Cap Growth Fund, Harbor Large Cap Value Fund, Harbor Mid Cap Value Fund and Harbor Small Cap Value Fund; four international equity series: Harbor International Fund, Harbor International Fund II, Harbor International Growth Fund and Harbor Global Equity Fund; and three fixed income series: Harbor Bond Fund, Harbor Short Duration Fund and Harbor Money Market Fund (individually or collectively referred to as a "Fund" or the "Funds"). 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. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. SECURITY VALUATION Equity securities are valued at the last sale price on a national exchange or the National Association of Securities Dealers Automated Quotation ("NASDAQ") system or, in the case of unlisted securities or listed securities for which there were no sales on the valuation day, the mean between the closing bid and asked price. Securities listed or traded on foreign exchanges are valued at the last sale price on a national exchange on the valuation day, or if no sale occurs, at the official bid price (both the last sale price and official bid price are determined as of the close of the London Foreign Exchange). Except for Harbor Money Market Fund, debt securities, other than short-term securities with a remaining maturity of less than sixty days, are valued at prices furnished by a pricing service, or as otherwise described below, selected by Harbor Capital Advisors, Inc. (the "Adviser"), which determines valuation for normal institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term securities with a remaining maturity of less than sixty days are stated at amortized cost which approximates value. Securities, for which there are no such prices or for which prices are deemed by the Adviser or Subadviser not to be representative of market values, are valued at their fair value as determined in good faith under consistently applied procedures established by and under the supervision of the Board of Trustees. The actual calculation of fair market value may be done by others including the Adviser and Subadviser. Securities of the Harbor Money Market Fund are valued utilizing the amortized cost method as set forth in Rule 2a-7 under the Investment Company Act of 1940, as amended, and the Fund's Rule 2a-7 procedures. FUTURES CONTRACTS To seek to increase total return or hedge against changes in interest rates, securities prices or currency exchange rates, each Fund (except Harbor Money Market Fund), may purchase and sell various kinds of futures contracts, and purchase and write call and put options on these futures contracts. Harbor Large Cap Value Fund is not authorized to enter into currency futures contracts and options on such contracts. Harbor International Growth Fund, Harbor International Fund II and Harbor International Fund are not authorized to enter into futures contracts on currencies or engage in options transactions with respect to futures contracts for speculative purposes. Futures contracts tend to increase or decrease the Fund's exposure to the underlying instrument or hedge other fund investments. Losses may arise from changes in the value of the underlying instruments, if there is an illiquid secondary market for the contracts or if the counterparties do not perform under the contracts' terms. 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. Open futures contracts are valued based on the last sale price on the exchange on which such futures are principally traded. See Portfolio of Investments for open futures contracts held as of April 30, 2002. A futures contract is an agreement between two parties to buy and sell a security at a set price on a future date. Upon entering into such a 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, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation 66 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED margin," and are recorded by the Fund as unrealized gains or losses. When the contract is closed or expired, the 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. OPTIONS Consistent with its investment policies, each Fund (excluding the Harbor Money Market Fund) may use option contracts to manage its exposure to the stock and bond markets and to fluctuations in interest rates and currency values. Harbor Large Cap Value Fund is not authorized to engage in options transactions on currency. Harbor International Fund and Harbor International Growth Fund are not authorized to engage in options transactions on currencies for speculative purposes. Harbor International Fund II is not authorized to write options on currencies for speculative purposes. Option contracts tend to increase or decrease the Fund's exposure to the underlying instrument or hedge other fund investments. When a Fund purchases an option, the premium paid by the Fund is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently "marked-to-market" to reflect the option's current market value. Purchased options are valued at the last sale price on the market on which they are principally traded. If the purchased option expires, the Fund realizes a loss in the amount of the premium. If the 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 the Fund exercises a call option, the cost of the securities acquired by exercising the call is increased by the premium paid to buy the call. If the Fund exercises a put option, 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 originally paid. When a Fund writes an option, the premium received by the Fund is presented in the Fund's Statement of Assets and Liabilities as an asset and an equivalent liability. The amount of the liability is subsequently "marked-to-market" to reflect the current market value of the option written. Written options are valued at the last sale price or, in the absence of a sale, the last offering price on the market on which they are principally traded. If an option expires on its stipulated expiration date, or if the 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, the 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 which the Fund purchases upon exercise of the option. The risk in writing a call option is that the Fund relinquishes the opportunity to profit if the market price of the underlying security increases and the option is exercised. In writing a put option, the Fund assumes the risk of incurring a loss if the market price of the underlying security decreases and the option is exercised. In addition, there is a risk the Fund may not be able to enter into a closing transaction because of an illiquid secondary market, or if the counterparties do not perform under the contracts' terms. See Note 3 for all outstanding written options as of April 30, 2002. SWAP AGREEMENTS To the extent permitted under their respective investment policies, Harbor Bond Fund and Harbor Short Duration Fund may invest in swap agreements which involve the exchange of cash payments based on the specified terms and conditions of such agreements. A swap is an agreement to exchange the return generated by one investment for the return generated by another instrument. The value of each swap is determined by the counterparty to the swap agreement using a methodology which discounts the expected future cash receipts or disbursements related to the swap. The Fund may also enter into interest rate swap agreements which involve the exchange by the Fund with another party of their respective commitments to pay or receive interest, (e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of principal). Interest rate swaps are "marked-to-market" daily. Net market value is reported as an asset or a liability in the Statement of Assets and Liabilities. The cash paid or received on a swap is recognized as income or expense when such a payment is paid or received. 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 Statement of Assets and Liabilities. Such risks involve 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 and that there may be unfavorable changes in market conditions or interest rates. 67 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED TBA/WHEN-ISSUED PURCHASE COMMITMENTS Harbor Bond Fund may enter into TBA (to be announced) and when-issued purchase commitments to purchase securities for a fixed unit price at a future date beyond customary settlement time. Although the unit price for a TBA has been established, the principal value has not been finalized. However, the amount of the commitment will not fluctuate more than 2.0% from the principal amount. The price of a when-issued security and the date when the security will be delivered and paid for are fixed at the time the transaction is negotiated. The Fund holds, and maintains until the settlement date, cash or liquid securities in an amount sufficient to meet the purchase price. TBA and when-issued purchase commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date, which risk is in addition to the risk of decline in the value of the Fund's other assets. Risks may also arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts. Unsettled TBA and when-issued purchase commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security Valuation" above. Although the Fund will generally enter into TBA and when-issued purchase commitments with the intention of acquiring securities for its portfolio, a Fund may dispose of a commitment prior to settlement if the Fund's Subadviser deems it appropriate to do so. TBA SALE COMMITMENTS Harbor Bond Fund may enter into TBA sale commitments to hedge portfolio positions or to sell mortgage-backed securities owned under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, generally according to the procedures described under "Security Valuation" above. The contract is "marked-to-market" daily and the change in market value is recorded by the Fund as an unrealized gain and loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss on the commitment without regard to any unrealized gain or loss on the underlying security. If the Fund delivers securities under the commitment, the Fund realizes a gain or loss from the sale of the securities based upon the unit price established at the date on which the commitment was entered. SHORT SALES Each Fund, except Harbor International Growth Fund, Harbor International Fund, Harbor International Fund II and Harbor Money Market Fund, may engage in short-selling which obligates the Fund to replace the security borrowed by purchasing it at the market price at the time of replacement. Until the security is replaced, the Fund is required to pay to the lender any accrued interest or dividends and may be required to pay a premium. The Fund would realize a gain if the security declines in price between the date of the short sale and the date on which the Fund replaces the borrowed security. The Fund would incur a loss as a result of the short sale if the price of the security increases between those dates. Until the Fund replaces the borrowed security, it will maintain a segregated account of cash or liquid securities with its custodian sufficient to cover its short position. Short sales involve the risk of an unlimited increase in the market price of a security. FOREIGN FORWARD CURRENCY CONTRACTS Consistent with its investment policies, each Fund (excluding the Money Market Fund) may enter into forward foreign currency contracts to facilitate transactions in foreign securities or as a hedge against either specific transactions or portfolio positions. A foreign forward currency contract is an agreement between two parties to buy and sell currencies at a set price on a future date. The U.S. dollar value of the contracts is determined using forward currency exchange rates supplied by a pricing service. The contract is "marked-to-market" daily and the change in market 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. 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; however, management of the Fund believes the likelihood of such loss is remote. 68 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED FOREIGN CURRENCY TRANSLATIONS The accounting records of the Funds are maintained in U.S. dollars. Investment securities and other assets and liabilities denominated in a foreign currency are translated into U.S. dollars based on the current exchange rates at period end. Purchases and sales of securities are translated into U.S. dollars at the current exchange rate on the respective dates of the transaction. Income and withholding taxes are translated at the prevailing exchange rate when accrued or incurred. Reported net realized gains and losses on foreign currency transactions represent net gains and losses from sales and maturities of foreign forward 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 are not isolated in the Statement of Operations from the effects of changes in market prices of these securities. Such fluctuations are included with the net realized and unrealized gain or loss on investments. REPURCHASE AGREEMENTS Each Fund may enter into repurchase agreements with certain banks and broker dealers whereby the Fund acquires a security for cash and obtains a simultaneous commitment from the seller to repurchase the security at an agreed upon price and date. The Trust's custodian takes possession through the federal book-entry system of securities collateralizing repurchase agreements. The value of the underlying assets at the time of purchase is required to be at least equal to the repurchase price to protect the Fund in the event of default by the seller. 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 for both federal income tax and financial reporting purposes. INVESTMENT INCOME Dividends declared are accrued on the ex-dividend date. For Harbor International Growth Fund, Harbor Global Equity Fund, Harbor International Fund II and Harbor International Fund, certain dividends are recorded after the ex-dividend date, but as soon as the 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. DISTRIBUTION TO SHAREHOLDERS Distributions are recorded on the ex-dividend date. INCOME RECOGNITION Effective November 1, 2001, the Trust adopted the provisions of the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, as revised, and is amortizing premiums and discounts on debt securities. The Trust formerly amortized premiums and discounts on debt securities. Accordingly, the adoption of the Guide has had no significant effect on the Trust's financial statements. EXPENSES Expenses incurred by the Trust with respect to any two or more Funds are allocated in proportion to the net assets or the number of shareholders of each Fund, except where allocations of direct expense to each Fund can be otherwise fairly made. FEDERAL 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 69 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED 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 tax on income and capital gains. NOTE 3--INVESTMENT PORTFOLIO TRANSACTIONS Purchases and sales of investments, other than short-term securities, for each Fund for the period ended April 30, 2002 were as follows:
PURCHASES SALES ------------------------ ------------------------ U.S. U.S. GOVERNMENT OTHER GOVERNMENT OTHER ---------- ----- ---------- ----- HARBOR DOMESTIC EQUITY FUNDS Harbor Capital Appreciation Fund.......................... $ -- $2,297,173 $ -- $2,006,069 Harbor Mid Cap Growth Fund................................ -- 6,872 -- 4,174 Harbor Growth Fund........................................ -- 6,566 -- 6,574 Harbor Small Cap Growth Fund.............................. -- 29,796 -- 7,155 Harbor Large Cap Value Fund............................... -- 61,172 -- 29,965 HARBOR INTERNATIONAL EQUITY FUNDS Harbor International Fund................................. -- 254,697 -- 400,260 Harbor International Fund II.............................. -- 17,892 -- 31,137 Harbor International Growth Fund.......................... -- 687,590 -- 697,017 Harbor Global Equity Fund................................. -- 2,494 -- 1,133 HARBOR FIXED INCOME FUNDS Harbor Bond Fund.......................................... 2,254,706 360,944 2,270,360 212,744 Harbor Short Duration Fund................................ 40,989 56,188 46,941 36,569
The Funds may be subject to taxes imposed by countries in which it invests. 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. REDEMPTION IN-KIND TRANSACTIONS For the six-month period ended April 30, 2002, Harbor Capital Appreciation Fund realized gains of $41,723 from in-kind redemptions of Fund shares. WRITTEN OPTIONS Transactions in written options for the six-month period ended April 30, 2002 are summarized as follows:
OPTIONS WRITTEN OPTIONS WRITTEN -------------------------- ------------------------ EURODOLLAR FUTURES EURO FUTURES -------------------------- ------------------------ NUMBER OF AGGREGATE NUMBER OF AGGREGATE CONTRACTS FACE VALUE CONTRACTS FACE VALUE --------- ---------- --------- ---------- HARBOR BOND FUND Options outstanding at beginning of year.................. 6,124 E$ 15,310 6,400,000 E 6,400 Options opened............................................ 1,836 4,590 1,574,803 1,575 Options closed/expired.................................... (658) (1,645) (7,974,803) (7,975) ------------ --------- ---------- ------- Open at 04/30/2002........................................ 7,302 E$ 18,255 -- E -- ============ ========= ========== =======
70 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 3--INVESTMENT PORTFOLIO TRANSACTIONS--CONTINUED
OPTIONS WRITTEN OPTIONS WRITTEN -------------------------- ------------------------ JAPANESE YEN FUTURES U.S. TREASURY FUTURES -------------------------- ------------------------ NUMBER OF AGGREGATE NUMBER OF AGGREGATE CONTRACTS FACE VALUE CONTRACTS FACE VALUE --------- ---------- --------- ---------- HARBOR BOND FUND Options outstanding at beginning of year.................. -- Y -- 3,376 $ 3,376 Options opened............................................ 193,125,000 193,125 3,224 3,224 Options closed/expired.................................... (193,125,000) (193,125) (5,511) (5,511) ------------ --------- ---------- ------- Open at 04/30/2002........................................ -- Y -- 1,089 $ 1,089 ============ ========= ========== =======
OPTIONS WRITTEN -------------------------- OPTIONS WRITTEN INTEREST RATE ------------------------ SWAP OPTIONS SWAP OPTIONS--U.S. -------------------------- ------------------------ NUMBER OF AGGREGATE NUMBER OF AGGREGATE CONTRACTS FACE VALUE CONTRACTS FACE VALUE --------- ---------- --------- ---------- Options outstanding at beginning of year.................. -- $ -- 53,200,000 $53,200 Options opened............................................ 2,000,000 2,000 -- -- Options closed/expired.................................... -- -- -- -- ------------ --------- ---------- ------- Open at 04/30/2002........................................ 2,000,000 $ 2,000 53,200,000 $53,200 ============ ========= ========== =======
------------ E Euro. E$ Eurodollar. Y Japanese Yen. NOTE 4--FEES AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISER Harbor Capital Advisors, Inc. ("Harbor Capital"), an indirect wholly-owned subsidiary of Robeco Groep, N.V., is the Trust's investment adviser and is also responsible for administrative and other services. Separate advisory agreements for each Fund were in effect during the six-month period ended April 30, 2002. The agreements provide for fees based on an annual percentage rate of average daily net assets as follows:
ANNUAL PERCENTAGE FEES RATE EARNED ---------- ------ HARBOR DOMESTIC EQUITY FUNDS Harbor Capital Appreciation Fund.......................... 0.60% $19,970 Harbor Mid Cap Growth Fund................................ 0.75 44 Harbor Growth Fund........................................ 0.75 494 Harbor Small Cap Growth Fund.............................. 0.75 112 Harbor Large Cap Value Fund............................... 0.60 465 Harbor Mid Cap Value Fund................................. 0.55 3 Harbor Small Cap Value Fund............................... 0.55 12 HARBOR INTERNATIONAL EQUITY FUNDS Harbor International Fund................................. 0.75(a) 15,277 Harbor International Fund II.............................. 0.75 296 Harbor International Growth Fund.......................... 0.75 1,480 Harbor Global Equity Fund................................. 0.75 27 HARBOR FIXED INCOME FUNDS Harbor Bond Fund.......................................... 0.50(b) 3,249 Harbor Short Duration Fund................................ 0.30(c) 225 Harbor Money Market Fund.................................. 0.30 263
------------ a For the period November 1, 2001 through March 31, 2002, the annual percentage rate was 0.85%. b For the period November 1, 2001 through February 28, 2002, the annual percentage rate was 0.70%. c For the period November 1, 2001 through February 28, 2002, the annual percentage rate was 0.40%. 71 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 4--FEES AND OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED Harbor Capital has from time to time agreed not to impose a portion of its management fees and bear a portion of the expenses incurred in the operation of certain Funds in order to limit Fund expenses. During the six-month period ended April 30, 2002, Harbor Capital agreed not to impose management fees of $11, $17, $1, $3, $708, $39, $7, $771, $102 and $105 relating to Harbor Mid Cap Growth Fund, Harbor Small Cap Growth Fund, Harbor Mid Cap Value Fund, Harbor Small Cap Value Fund, Harbor International Fund, Harbor International Fund II, Harbor Global Equity Fund, Harbor Bond Fund, Harbor Short Duration Fund and Harbor Money Market Fund, respectively. The Trust reimburses Harbor Capital for certain legal expenses incurred by Harbor Capital with respect to the Trust. Such amounts aggregated $25 for the six-month period ended April 30, 2002. DISTRIBUTOR HCA Securities, Inc. ("HCA Securities"), a wholly-owned subsidiary of Harbor Capital, is the distributor for Harbor Fund shares. Harbor Fund does not reimburse the distributor for expenses. SHAREHOLDERS On April 30, 2002, Harbor Capital, HCA Securities and Harbor Transfer, Inc. held the following shares of beneficial interest in the Funds:
HARBOR CAPITAL, HCA SECURITIES AND HARBOR TRANSFER HARBOR DOMESTIC EQUITY FUNDS ------------------ Harbor Capital Appreciation Fund.......................... 4,280 Harbor Mid Cap Growth Fund................................ 306,556 Harbor Growth Fund........................................ 42,422 Harbor Small Cap Growth Fund.............................. 201,734 Harbor Large Cap Value Fund............................... 11,577 Harbor Mid Cap Value Fund................................. 200,000 Harbor Small Cap Value Fund............................... 200,000 HARBOR INTERNATIONAL EQUITY FUNDS Harbor International Fund................................. 1,291 Harbor International Fund II.............................. 248,099 Harbor International Growth Fund.......................... 48,375 Harbor Global Equity Fund................................. 505,652 HARBOR FIXED INCOME FUNDS Harbor Bond Fund.......................................... 21,608 Harbor Short Duration Fund................................ 12,516 Harbor Money Market Fund.................................. 30,696,864
TRANSFER AGENT Harbor Transfer, Inc., a wholly-owned subsidiary of Harbor Capital, is the shareholder servicing agent for the Funds. Fees incurred for these transfer agent services for the six-month period ended April 30, 2002 totaled $3,595. "NON-INTERESTED" TRUSTEES The fees and expenses of the non-interested Trustees allocated to each Fund are shown on each Fund's Statement of Operations. Trustees' fees and expenses for all Funds aggregated $105 for the six-month period ended April 30, 2002. 72 HARBOR FUND NOTES TO FINANCIAL STATEMENTS--CONTINUED (Currency in Thousands) NOTE 5--TAX INFORMATION The identified cost for federal income tax purposes of investments owned by each Fund (including earned discount on corporate short-term notes and commercial paper) and their respective gross unrealized appreciation and depreciation at April 30, 2002 are as follows:
GROSS UNREALIZED NET UNREALIZED ------------------------------ APPRECIATION/ IDENTIFIED COST APPRECIATION (DEPRECIATION) (DEPRECIATION) --------------- ------------ -------------- -------------- HARBOR DOMESTIC EQUITY FUNDS Harbor Capital Appreciation Fund........................ $6,075,700 $ 731,864 $(456,985) $ 274,879 Harbor Mid Cap Growth Fund.............................. 14,801 1,011 (2,071) (1,060) Harbor Growth Fund...................................... 150,519 27,383 (59,217) (31,834) Harbor Small Cap Growth Fund............................ 43,043 5,000 (1,390) 3,610 Harbor Large Cap Value Fund............................. 161,243 21,962 (4,399) 17,563 Harbor Mid Cap Value Fund............................... 3,241 204 (57) 147 Harbor Small Cap Value Fund............................. 7,545 720 (123) 597 HARBOR INTERNATIONAL EQUITY FUNDS Harbor International Fund............................... 2,613,754 1,384,549 (155,144) 1,229,405 Harbor International Fund II............................ 74,022 9,192 (9,589) (397) Harbor International Growth Fund........................ 374,597 21,880 (5,208) 16,672 Harbor Global Equity Fund............................... 7,787 473 (729) (256) HARBOR FIXED INCOME FUNDS Harbor Bond Fund........................................ 1,453,123 17,547 (9,605) 7,942 Harbor Short Duration Fund.............................. 101,367 853 (155) 698
NOTE 6--ADDITIONAL INFORMATION Mastholm Asset Management, LLC has been appointed as subadviser of the Harbor International Growth Fund, effective December 1, 2001. Theodore J. Tyson, Joseph P. Jordan and Douglas R. Allen are co-managing the Fund. Harbor International Growth Fund will continue to have an investment goal of long-term growth of capital by investing in stocks of foreign companies with potential for sustainable growth. The portfolio typically will include 35 to 45 securities, each with a minimum market capitalization of approximately $10 billion at the time of initial investment. (This document must be preceded or accompanied by a Prospectus.) 73 TRUSTEES AND OFFICERS SHAREHOLDER SERVICING AGENT DAVID G. VAN HOOSER Chairman and Trustee HARBOR TRANSFER, INC. P.O. Box 10048 HOWARD P. COLHOUN Trustee Toledo, Ohio 43699-0048 1-800-422-1050 JOHN P. GOULD Trustee CUSTODIAN RODGER F. SMITH Trustee STATE STREET BANK AND TRUST COMPANY JAMES M. WILLIAMS President P.O. Box 1713 Boston, MA 02105 CONSTANCE L. SOUDERS Vice President and Treasurer INDEPENDENT AUDITORS KAREN B. WASIL Secretary ERNST & YOUNG LLP INVESTMENT ADVISER 200 Clarendon Street Boston, MA 02116 HARBOR CAPITAL ADVISORS, INC. One SeaGate LEGAL COUNSEL Toledo, OH 43666 HALE AND DORR LLP DISTRIBUTOR AND PRINCIPAL UNDERWRITER 60 State Street Boston, MA 02109 HCA SECURITIES, INC. One SeaGate Toledo, OH 43666 (419) 247-2477
[HARBOR FUND LOGO] One SeaGate Toledo, Ohio 43666 1-800-422-1050 www.harborfund.com 06/2002/295,000 [RECYCLED PAPER LOGO] recycled paper PROSPECTUS [HARBOR FUND LOGO] MARCH 1, 2002 ------------------------------------------------------------------------------- HARBOR FUND The Securities and Exchange Commission has not approved any fund's shares as an investment or determined whether this prospectus is accurate or complete. Anyone who tells you otherwise is committing a crime. TABLE OF CONTENTS -------------------------------------------------------------------------------- OVERVIEW OF FUNDS 1 RISK/RETURN SUMMARY DOMESTIC EQUITY Harbor Capital Appreciation Fund 2 Harbor Mid Cap Growth Fund 4 Harbor Growth Fund 6 Harbor Small Cap Growth Fund 8 Harbor Large Cap Value Fund 10 Harbor Mid Cap Value Fund 12 Harbor Small Cap Value Fund 14 INTERNATIONAL EQUITY Harbor International Fund 16 Harbor International Fund II 18 Harbor International Growth Fund 20 Harbor Global Equity Fund 22 FIXED INCOME Harbor Bond Fund 24 Harbor Short Duration Fund 26 Harbor Money Market Fund 28 THE FUNDS' INVESTMENTS Additional Information About the Funds' Principal Investments 30 Information About the Funds' Other Investments 31 THE ADVISER AND SUBADVISERS 32 YOUR HARBOR FUND ACCOUNT How to Purchase Shares of Harbor Fund 42 How to Exchange Shares of Harbor Fund 44 How to Sell Shares of Harbor Fund 45 SHAREHOLDER AND ACCOUNT POLICIES Share Price 46 Valuation of Shares 46 Paying for Shares by Check 46 Redemptions in Kind 46 Accounts with Small Balances 46 Signature Guarantees 46 Statements and Reports 46 Dividends, Distributions and Taxes 47 INVESTOR SERVICES www.harborfund.com 48 AccessHarbor 48 Harbor Navigator 48 Tele Transactions 48 Dividend Exchange Plan 48 Transfer on Death Registration 48 Checkwriting for Money Market Fund 49 Automatic Investment Plan 49 Automatic Exchange Plan 49 Automatic Withdrawal Plan 49 Retirement Accounts 49 Householding 49 FINANCIAL HIGHLIGHTS 50 HARBOR FUND DETAILS 54 HARBOR'S PRIVACY STATEMENT 55 FOR MORE INFORMATION Back Cover
OVERVIEW OF FUNDS -------------------------------------------------------------------------------- THE FUNDS' INVESTMENT STYLES Each Harbor fund has its own investment style. A portfolio of equity securities provides a certain style based on the stocks' growth or value characteristics and their market capitalizations. A portfolio of fixed income securities provides a certain style based on quality and duration. These maps show you each Harbor fund's investment style. [DOMESTIC EQUITY GRAPH] [INTERNATIONAL EQUITY GRAPH] [FIXED INCOME GRAPH] *HGEF holds both domestic and International securities Legend: HCAF Harbor Capital Appreciation Fund HMCGF Harbor Mid Cap Growth Fund HGF Harbor Growth Fund HSCGF Harbor Small Cap Growth Fund HLCVF Harbor Large Cap Value Fund HMCVF Harbor Mid Cap Value Fund HSCVF Harbor Small Cap Value Fund HIF Harbor International Fund HIF2 Harbor International Fund II HIGF Harbor International Growth Fund HGEF Harbor Global Equity Fund HBF Harbor Bond Fund HSDF Harbor Short Duration Fund HMMF Harbor Money Market Fund -------------------------------------------------------------------------------- WHO MAY WANT TO INVEST IN THE HARBOR FUNDS The Harbor equity funds may be an appropriate investment for investors: - With a long-term time horizon and no need for current income. - Willing to tolerate more risk than fixed income investments. - Willing to assume the risk of changes in the value of common stocks and, in the case of the international and global equity funds, the risks of investing in foreign markets. The Harbor fixed income funds may be an appropriate investment for investors: - Looking to allocate a portion of their assets to fixed income securities. - Looking for an investment with a lower risk than equity funds. - Seeking current income. - Willing to assume the risk of changing interest rates and other factors, such as duration, credit quality and prepayment risk, that affect the value of bonds. -------------------------------------------------------------------------------- WHAT IS THE ROLE OF HARBOR CAPITAL ADVISORS Harbor Capital Advisors, Inc., a registered investment adviser, is the sponsor of the Harbor family of 14 no-load mutual funds, each with different risk and potential return characteristics. A subsidiary of Robeco Groep N.V., Harbor Capital Advisors selects and oversees subadvisers who are responsible for managing the assets of each fund. -------------------------------------------------------------------------------- YOU SHOULD KNOW An investment in the funds is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Harbor Fund's trustees may change a fund's investment goal without shareholder approval. Pursuant to an exemptive order granted by the SEC, shareholders are not required to vote to approve a new or amended subadvisory agreement. 1 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR CAPITAL APPRECIATION FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term growth of capital. PRINCIPAL STYLE CHARACTERISTICS Mid to large cap growth stocks with more volatility than the market. PORTFOLIO MANAGER SPIROS SEGALAS Jennison Associates LLC 466 Lexington Avenue New York, NY 10017 Sig Segalas has managed the fund since 1990. He has been the president of Jennison since 1993 and the chief investment officer since 1973. He is a director and founding member of Jennison. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of U.S. companies with market capitalizations of at least $1 billion and above average prospects for growth. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses a bottom up approach, researching and evaluating individual companies, to manage the fund's portfolio. This research includes visits to companies and discussions with company management. In selecting stocks for the fund's portfolio, the subadviser looks for companies with the following financial characteristics: - Superior absolute and relative earnings growth - Superior sales growth, improving sales momentum and high levels of unit growth - High or improving profitability - Strong balance sheets In addition, the subadviser looks for companies that have actually achieved or exceeded expected earnings results and are attractively valued relative to their growth prospects. The subadviser focuses on stocks of companies that have distinct attributes such as: - Strong market position with a defensible franchise - Unique marketing competence - Strong research and development leading to superior new product flow - Capable and disciplined management The subadviser prefers companies that are in the early stages of demonstrating the above financial and other characteristics. Stocks of mid and large cap companies in the fund's portfolio are expected to maintain or achieve above average earnings growth. The fund may invest up to 20% of its assets in the securities of foreign issuers, including issuers located or doing business in emerging markets. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year for the past ten years. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '92 9.98 '93 12.12 '94 3.37 '95 37.82 '96 19.85 '97 31.46 '98 36.80 '99 45.81 '00 -17.00 '01 -17.74
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year --------------------------------------------------------------- Best 30.01% 4th/1998 Worst -19.53% 3rd/2001 ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of a widely recognized, unmanaged index of U.S. common stock prices. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
One Five Ten Year Years Years ----------------------------------------------------- CAPITAL APPRECIATION FUND Return Before Taxes -17.74% 12.35% 14.19% Return After Taxes on Distributions -17.78% 10.08% 12.25% Return After Taxes on Distributions and Sale of Fund Shares -10.80% 10.09% 11.71% ----------------------------------------------------- COMPARATIVE INDEX S&P 500 (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 12.94% ----------------------------------------------------- -----------------------------------------------------
2 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR CAPITAL APPRECIATION FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in U.S. or foreign stock markets. - The market favors small cap stocks over medium and large cap stocks, or value over growth stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgments about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. - Prices of the fund's foreign securities go down because of unfavorable changes in foreign currency exchange rates, foreign government actions, political instability or the more limited availability of accurate information about foreign issuers. These risks are more severe for issuers in emerging market countries. The fund's performance may be more volatile because it may invest in mid cap stocks. Mid cap companies may have more limited product lines, markets and financial resources than larger cap companies. They may also have shorter operating histories and more volatile businesses. Mid cap stocks tend to trade in a wider price range than large cap stocks. In addition, it may be harder to sell these stocks, particularly in large blocks, which can reduce their selling price. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management fees 0.60% Rule 12b-1 distribution fees None Other expenses(1) 0.06% ----- Total annual fund operating expenses 0.66% -------------------------------------------------
(1) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years --------------------------------------------------------------------- Capital Appreciation Fund $68 $213 $374 $851 ---------------------------------------------------------------------
3 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR MID CAP GROWTH FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term growth of capital. PRINCIPAL STYLE CHARACTERISTICS Mid cap growth stocks demonstrating potential for extraordinary earnings growth. PORTFOLIO MANAGERS WILLIAM JEFFERY KENNETH MCCAIN DAVID BARATTA Wall Street Associates 1200 Prospect Street Suite 100 La Jolla, CA 92037 William Jeffery, Kenneth McCain, and David Baratta have co-managed the fund since its inception in 2000. Mr. Jeffery serves as president and chairman of the board of directors of Wall Street Associates. Mr. McCain is a member of Wall Street's board of directors. Both were previously employed at California First Capital Management. Mr. Baratta joined the firm in 1999 and was previously employed at Morgan Grenfell, Inc. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of companies with market capitalizations in the approximate range of $1 billion to $10 billion at the time of initial investment. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses a bottom up approach, employing fundamental and qualitative criteria to identify individual companies for potential investment by the fund's portfolio. The subadviser's research also includes initial personal interviews and continuing contacts with management of a company. The subadviser has contact with a broad network of national and regional analysts and brokers specializing in smaller, growth companies. In selecting stocks for the fund's portfolio, the subadviser looks for companies with the following characteristics: - Superior earnings growth - High probability for positive earnings - Strong balance sheet - Attractive valuation as measured by price/earnings to growth ratio The subadviser believes that these characteristics are the result of distinct attributes, which it looks for in potential investments, such as: - Capable and accessible management - High barriers to entry and resistance to recessionary forces - Company offers related products and services - Innovative business concept Under normal circumstances, the fund intends to invest substantially all, but must invest at least 80%, of its net assets, plus borrowings for investment purposes, in a diversified portfolio of mid cap equity securities. The investment strategy of investing at least 80% of its net assets in mid cap equity securities may not be changed unless the fund provides 60 days advance notice to its shareholders. The fund expects to invest in approximately 75 companies. The fund's sector weightings are a result of, and secondary to, individual stock selections. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year since its founding. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '01 -25.62
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year ----------------------------------------------------- Best 30.25% 4th/2001 Worst -34.77% 3rd/2001 -----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of a widely recognized, unmanaged index of U.S. common stock prices. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
Since One Five Inception Year Years (11/01/2000) ----------------------------------------------------------- MID CAP GROWTH FUND Return Before Taxes -25.62% N/A -32.43% Return After Taxes on Distributions -25.62% N/A -32.43% Return After Taxes on Distributions and Sale of Fund Shares -15.60% N/A -25.76% ----------------------------------------------------------- COMPARATIVE INDEX Russell Midcap(R) Growth (reflects no deduction for fees, expenses or taxes) -20.15% N/A -30.16% -----------------------------------------------------------
4 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR MID CAP GROWTH FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in the stock market. - The market favors value stocks or small or large cap stocks over mid cap stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgment about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. Because the fund invests primarily in stocks of mid cap companies, the fund's performance may be more volatile than a fund which invests primarily in stocks of large cap companies. Mid cap companies may have more limited product lines, markets and financial resources than larger cap companies. They may also have shorter operating histories and more volatile businesses. Mid cap stocks tend to trade in a wider price range than large cap stocks. In addition, it may be harder to sell these stocks, particularly in large blocks, which can reduce their selling price. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.75% Rule 12b-1 distribution fees None Other expenses(2) 0.65% ----- Total annual fund operating expenses 1.40% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to limit the fund's management fees and operating expenses the fund's actual expenses were: Management fees 0.55% Other expenses 0.65% ----- Total annual fund operating expenses 1.20%
(2) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. This example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years ----------------------------------------------------------------- Mid Cap Growth Fund $144 $452 $793 $1,805 -----------------------------------------------------------------
5 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR GROWTH FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term growth of capital. PRINCIPAL STYLE CHARACTERISTICS Small to mid cap growth stocks with high volatility. PORTFOLIO MANAGER PETER WELLES Emerging Growth Advisors, Inc. 401 E. Pratt Street, Suite 211 Baltimore, MD 21202 Pete Welles has managed the fund since 1997. He has been president of Emerging Growth Advisors since 1993. Before that he was a general partner of Emerging Growth Partners, L.P. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of companies with estimated revenues of $500 million or less at the time of initial investment. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses a bottom up approach, researching and evaluating individual companies, for potential investment in the fund's portfolio. Individual stock selection will determine industries in which the fund invests. The subadviser's research includes initial personal interviews and continuing contacts with top management of a company. In selecting stocks for the fund's portfolio, the subadviser looks for companies with the following characteristics: - Capable and accessible management committed to above average earnings growth - Dominant, unrecognized or innovative products or services with long-term growth potential - Favorable potential financial strength and growth rates Under normal circumstances, the fund intends to invest substantially all, but must invest at least 65%, of its net assets in a diversified portfolio of equity securities. The fund expects to invest in approximately 40-60 companies. The fund invests primarily in both small and mid cap companies with market capitalization that range from $100 million to $10 billion. The fund may also engage in short sales, which is the sale by the fund of a borrowed security, of up to 25% of its assets to take advantage of anticipated declines in stock prices or to protect a profit in a portfolio security. Because the fund is obligated to replace the borrowed security, the fund will benefit from the short sale if the price of the security declines before it is replaced. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year for the past ten years. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '92 -6.34 '93 18.40 '94 -11.42 '95 38.18 '96 11.05 '97 20.87 '98 11.39 '99 95.39 '00 -13.00 '01 -31.56
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year ------------------------------------------------ Best 53.74% 4th/1999 Worst -36.51% 3rd/2001 ------------------------------------------------
The fund has changed its benchmark index from the S&P 500 index to the Russell Midcap(R) Growth index because the S&P 500 contains equities with large market capitalization without regard to style. The Russell Midcap(R) Growth index contains equities with smaller market capitalization and a growth style, making the Russell Midcap(R) Growth index a more accurate comparison for the fund. AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of a widely recognized, unmanaged index of U.S. common stock prices. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
One Five Ten Year Years Years --------------------------------------------------------- GROWTH FUND Return Before Taxes -31.56% 9.39% 8.97% Return After Taxes on Distributions -31.56% 7.35% 6.35% Return After Taxes on Distributions and Sale of Fund Shares -19.22% 7.39% 6.53% --------------------------------------------------------- COMPARATIVE INDEX Russell Midcap(R) Growth (reflects no deduction for fees, expenses or taxes) -20.15% 9.02% 11.10% S&P 500 (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 12.94% ---------------------------------------------------------
6 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR GROWTH FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in the stock market. - The market favors value stocks or large cap stocks over growth stocks or small cap stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgments about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. - The prices of securities sold short increases, causing the fund to pay more to replace the borrowed securities than the fund received on the sale of the securities. The fund's performance may be more volatile because it invests primarily in small to mid cap stocks. Smaller companies may have limited product lines, markets and financial resources. They may also have shorter operating histories and more volatile businesses. Small and mid cap stocks tend to trade in a wider price range than large cap stocks. In addition, it may be harder to sell these stocks, particularly in large blocks, which can reduce their selling price. Because the fund typically invests in approximately 40-60 companies, an adverse event affecting a particular company may hurt the fund's performance more than if it had invested in a larger number of companies. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management fees 0.75% Rule 12b-1 distribution fees None Other expenses(1) 0.20% ----- Total annual fund operating expenses 0.95% -------------------------------------------------
(1) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years --------------------------------------------------------------------- Growth Fund $97 $307 $538 $1,225 ---------------------------------------------------------------------
7 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR SMALL CAP GROWTH FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term growth of capital. PRINCIPAL STYLE CHARACTERISTICS Small cap growth stocks demonstrating consistent or accelerating earnings growth. PORTFOLIO MANAGER WILLIAM MUGGIA Westfield Capital Management Company LLC One Financial Center 23rd Floor Boston, MA 02111 William Muggia has managed the fund since its inception in 2000. He is president, chief investment officer, and a member of the board of directors of Westfield Capital Management. Prior to joining Westfield in 1994, he worked in the Technology Investment Banking Group at Alex. Brown & Sons. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of companies with market capitalizations in the approximate range of $100 million to $1.5 billion at the time of initial investment. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses a bottom up approach by, first, identifying companies that meet strict fundamental criteria and then performing a qualitative review on each identified company to select those companies for investment in the fund's portfolio. This means that individual stock selections primarily determine the fund's sector weightings. The subadviser's research also includes initial personal interviews and continuing contacts with company management. In selecting stocks for the fund's portfolio, the subadviser looks for companies with the following characteristics: - Accelerating earnings momentum - Strong earnings growth - Strong balance sheet - Attractive valuation as measured by price/earnings to growth ratio In addition, the subadviser prefers companies with the following qualitative characteristics: - Superior company management - Significant insider ownership - Unique market position and broad market opportunities - Solid financial controls and accounting Under normal circumstances, the fund intends to invest substantially all, but must invest at least 80%, of its net assets, plus borrowings for investment purposes, in a diversified portfolio of small cap equity securities. The investment strategy of investing at least 80% of its net assets in small cap equity securities may not be changed unless the fund provides 60 days advance notice to its shareholders. The fund expects to invest in about 50 companies. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year since its founding. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '01 2.29
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year ----------------------------------------------------- Best 19.22% 2nd/2001 Worst -15.76% 3rd/2001 -----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of a widely recognized, unmanaged index of U.S. common stock prices. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
Since One Five Inception Year Years (11/01/2000) ------------------------------------------------------------ SMALL CAP GROWTH FUND Return Before Taxes 2.29% N/A 6.06% Return After Taxes on Distributions 2.29% N/A 6.06% Return After Taxes on Distributions and Sale of Fund Shares 1.40% N/A 4.85% ------------------------------------------------------------ COMPARATIVE INDEX Russell 2000(R) Growth (reflects no deduction for fees, expenses or taxes) -9.23% N/A -18.44% ------------------------------------------------------------
8 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR SMALL CAP GROWTH FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in the stock market. - The market favors value stocks or mid to large cap stocks over small cap stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgment about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. The fund's performance may be more volatile because it invests primarily in small cap stocks. Smaller companies may have limited product lines, markets and financial resources. They may also have shorter operating histories and more volatile businesses. Small cap stocks tend to trade in a wider price range than larger cap stocks. In addition, it may be harder to sell these stocks, particularly in large blocks, which can reduce their selling price. Because the fund typically invests in about 50 companies, an adverse event affecting a particular company may hurt the fund's performance more than if it had invested in a larger number of companies. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.75% Rule 12b-1 distribution fees None Other expenses(2) 0.65% ----- Total annual fund operating expenses 1.40% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to limit the fund's management fees and operating expenses, the fund's actual expenses were: Management fees 0.55% Other expenses 0.65% ----- Total annual fund operating expenses 1.20%
(2) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. This example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years ----------------------------------------------------------------- Small Cap Growth Fund $144 $452 $793 $1,805 -----------------------------------------------------------------
9 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR LARGE CAP VALUE FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term total return. PRINCIPAL STYLE CHARACTERISTICS Large cap value stocks. PORTFOLIO MANAGER JEFFREY SHAW Armstrong Shaw Associates, Inc. 45 Grove Street New Canaan, CT 06840 Jeffrey Shaw has managed the fund since September 20, 2001. He is the chief investment officer of Armstrong Shaw and has served as its chairman since 1999 and as its president since 1989. On September 20, 2001, the fund changed its name from "Harbor Value Fund" to "Harbor Large Cap Value Fund". -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of U.S. companies with market capitalizations of at least $5 billion at the time of initial investment. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses a bottom up approach, employing fundamental and qualitative criteria to identify individual companies for potential investment in the fund's portfolio. The subadviser's research also includes continuing contacts with company management. In selecting stocks for the fund's portfolio, the subadviser looks for companies with the following characteristics: - Earnings per share growth greater than 10% - Return on equity that is 15% or better - Relative price earnings multiple less than the S&P 500 index - Selling at a substantial discount to its intrinsic value In addition, the subadviser prefers companies with the following qualitative characteristics: - Dominant brand names - Low cost provider or niche player - Strong management with a successful track record Under normal circumstances, the fund intends to invest substantially all, but must invest at least 80%, of its net assets, plus borrowings for investment purposes, in a diversified portfolio of large cap equity securities. The investment strategy of investing at least 80% of its net assets in large cap equity securities may not be changed unless the fund provides 60 days advance notice to its shareholders. The fund expects to invest in approximately 25 to 40 companies. The subadviser intends to limit the fund's investments in any one sector as a percentage of the Fund's assets to the greater of 15% or two times the Russell 1000(R) Value index's sector weightings. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year for the past ten years. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '92 7.46 '93 8.38 '94 0.70 '95 35.37 '96 20.02 '97 31.20 '98 6.92 '99 7.58 '00 7.16 '01 4.10
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year ---------------------------------------------------- Best 15.24% 4th/1998 Worst -13.68% 3rd/1998 ----------------------------------------------------
The fund changed its benchmark index from the S&P 500 index to the Russell 1000(R) Value index because the S&P 500 contains equities with large market capitalization without regard to style. The Russell 1000(R) Value index contains equities with large market capitalization and a value style, making the Russell 1000(R) Value index a more accurate comparison for the fund. AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of a widely recognized, unmanaged index of U.S. common stock prices. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
One Five Ten Year Years Years --------------------------------------------------------- LARGE CAP VALUE FUND Return Before Taxes 4.10% 10.98% 12.36% Return After Taxes on Distributions 3.50% 6.99% 8.37% Return After Taxes on Distributions and Sale of Fund Shares 2.47% 7.06% 8.25% --------------------------------------------------------- COMPARATIVE INDEX Russell 1000(R) Value (reflects no deduction for fees, expenses or taxes) -5.59% 11.13% 14.16% S&P 500 (reflects no deduction for fees, expenses or taxes) -11.88% 10.70% 12.94% ---------------------------------------------------------
10 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR LARGE CAP VALUE FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in the stock market. - The market favors small or mid cap stocks over large cap stocks, or growth over value stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgment about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. Because the fund typically invests in about 25 to 40 companies, an adverse event affecting a particular company may hurt the fund's performance more than if it had invested in a larger number of companies. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management fees 0.60% Rule 12b-1 distribution fees None Other expenses(1) 0.17% ----- Total annual fund operating expenses 0.77% -------------------------------------------------
(1) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years --------------------------------------------------------------------- Large Cap Value Fund $79 $249 $436 $993 ---------------------------------------------------------------------
11 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR MID CAP VALUE FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term total return. PRINCIPAL STYLE CHARACTERISTICS Mid cap value stocks of companies with improving fundamentals and priced at a discount to their peers. PORTFOLIO MANAGER TIMOTHY G. DALTON, JR. KENNETH J. GREINER BRUCE H. GELLER PETER A. GULLI Dalton, Greiner, Hartman, Maher & Co. 565 Fifth Avenue Suite 2101 New York, NY 10017 Tim Dalton, Ken Greiner, Bruce Geller and Peter Gulli have co-managed the fund since its inception in 2002. Mr. Dalton has been the Chairman of DGHM since 1990. Mr. Greiner has been the president of DGHM since 1990. Mr. Geller is an executive vice president and has been with DGHM since 1992. Mr. Gulli is a vice president and has been at DGHM since 1999. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of companies with market capitalizations in the approximate range of $1 billion to $10 billion at the time of initial investment. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses a bottom up approach, employing fundamental and qualitative criteria to identify individual companies for potential investment in the fund's portfolio. The fund's sector weightings are a result of, and secondary to, individual stock selections. The subadviser's research also includes initial personal interviews and continuing contacts with top management of a company and the company's competitors and suppliers. In selecting stocks for the fund's portfolio, the subadviser looks for companies with the following characteristics: - Attractive valuation with above average profitability - Strong balance sheet - Free cash flow generation - Stable to improving industry fundamentals In addition, the subadviser prefers companies with the following qualitative characteristics: - Market leader: high/improving market share - Proven management with the talent to manage a larger company - Large insider ownership/insiders buying The fund intends to invest substantially all, but must invest at least 80%, of its net assets, plus borrowings for investment purposes, in a diversified portfolio of equity securities of mid cap companies. The investment strategy of investing at least 80% of its net assets in mid cap equity securities may not be changed unless the fund provides 60 days advance notice to its shareholders. The fund expects to invest in approximately 30 to 40 companies. -------------------------------------------------------------------------------- FUND PERFORMANCE Because the fund is newly organized and does not yet have a performance history, the bar chart and total return tables are not provided. See page 36 for historical subadviser composite performance information for accounts with substantially similar investment objectives, policies and strategies. -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in the stock market. - The market favors small or large cap stocks over mid cap stocks, or growth over value stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgment about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. Because the fund invests primarily in stocks of mid cap companies, the fund's performance may be more volatile than a fund which invests primarily in stocks of large cap companies. Mid cap companies may have more limited product lines, markets and financial resources than large cap companies. They may also have shorter operating histories and more volatile businesses. Mid cap stocks tend to trade in a wider price range than larger cap stocks. In addition, it may be harder to sell these stocks, particularly in large blocks, which can reduce their selling price. Because the fund typically invests in about 30 to 40 companies, an adverse event affecting a particular company may hurt the fund's performance more than if it had invested in a larger number of companies. 12 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR MID CAP VALUE FUND -------------------------------------------------------------------------------- FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.75% Rule 12b-1 distribution fees None Other expenses(2) 0.72% ----- Total annual fund operating expenses 1.47% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to limit the fund's operating expenses for the current year, the fund's actual expenses are estimated to be: Management fees 0.55% Other expenses 0.65% ----- Total annual fund operating expenses 1.20%
(2) Such as transfer agency, custody, professional and registration fees. Such fees are based on estimated amounts for the current fiscal year ending October 31, 2002. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. This example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years --------------------------------------------------------- Mid Cap Value Fund $151 $475 $833 $1,895 ---------------------------------------------------------
13 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR SMALL CAP VALUE FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term total return PRINCIPAL STYLE CHARACTERISTICS Small cap value stocks. PORTFOLIO MANAGER PAUL E. VIERA EARNEST Partners LLC 75 Fourteenth Street Suite 2300 Atlanta, GA 30309 Paul E. Viera has managed the fund since its inception in 2001. Mr. Viera is the chief executive officer and founder of EARNEST Partners. Prior to founding EARNEST Partners, he was a global partner at INVESCO and a senior member of its investment committee. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of companies selected from the Russell 2000(R) universe with market capitalizations in the approximate range of $250 million to $2.5 billion at the time of initial investment. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser employs a value based investment style by seeking to identify companies with stocks trading at prices below what the subadviser believes are their intrinsic values. The subadviser uses a bottom up approach, employing fundamental and qualitative criteria to identify individual companies for potential investment in the fund's portfolio. The subadviser utilizes relationships with key analysts and industry experts to obtain unbiased and unique research perspectives. The subadviser uses a statistical approach designed to measure and control the prospect of substantially underperforming the benchmark to seek to limit company specific risk in the fund's portfolio. Under normal circumstances, the fund intends to invest substantially all, but must invest a least 80%, of its net assets, plus borrowings for investment purposes, in a diversified portfolio of equity securities of small cap companies. The investment strategy of investing at least 80% of its net assets in small cap equity securities may not be changed unless the fund provides 60 days advance notice to its shareholders. The fund expects to invest in approximately 60 companies. The fund's sector weightings are a result of, and secondary to, individual stock selections. -------------------------------------------------------------------------------- FUND PERFORMANCE Because the fund is newly organized and does not yet have a performance history, the bar chart and total return tables are not provided. See page 37 for historical subadviser composite performance information for accounts with substantially similar investment objectives, policies and strategies. -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in the stock market. - The market favors mid or large cap stocks over small cap stocks, or growth over value stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgment about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. The fund's performance may be more volatile because it invests primarily in small cap stocks. Smaller companies may have limited product lines, markets and financial resources. They may also have shorter operating histories and more volatile businesses. Small cap stocks tend to trade in a wider price range than larger cap stocks. In addition, it may be harder to sell these stocks, particularly in large blocks, which can reduce their selling price. Because the fund typically invests in approximately 60 companies, an adverse event affecting a particular company may hurt the fund's performance more than if it had invested in a larger number of companies. 14 RISK/RETURN SUMMARY -- DOMESTIC EQUITY HARBOR SMALL CAP VALUE FUND -------------------------------------------------------------------------------- FEES AND EXPENSES This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.75% Rule 12b-1 distribution fees None Other expenses(2) 0.72% ----- Total annual fund operating expenses 1.47% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to limit the fund's operating expenses for the current year, the fund's actual expenses are estimated to be: Management fees 0.55% Other expenses 0.65% ----- Total annual fund operating expenses 1.20%
(2) Such as transfer agency, custody, professional and registration fees. Such fees are based on estimated amounts for the current fiscal year ending October 31, 2002. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. This example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years --------------------------------------------------------- Small Cap Value Fund $151 $475 $833 $1,895 ---------------------------------------------------------
15 RISK/RETURN SUMMARY -- INTERNATIONAL EQUITY HARBOR INTERNATIONAL FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term total return, principally from growth of capital. PRINCIPAL STYLE CHARACTERISTICS International large cap value oriented stocks. PORTFOLIO MANAGER HAKAN CASTEGREN Northern Cross Investments Limited Clarendon House 2 Church Street Hamilton, Bermuda HMDX Hakan Castegren has managed the fund's portfolio since it started in 1987. Hakan is the president of Northern Cross and was previously associated with Boston Overseas Investors as a portfolio manager. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of foreign companies, including those located in emerging market countries. Companies in the fund's portfolio generally have market capitalizations in excess of $1 billion. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses an analysis of economic and market data, as well as its knowledge of each country's culture, to determine country and industry allocations. Before selecting a country for investment, the subadviser analyzes the stability of a country's currency and its political, social and economic culture. Subject to these allocations, the subadviser uses a value oriented, bottom up approach, researching and evaluating individual companies, to select stocks for the fund's portfolio. This research includes visiting companies around the world and meeting with company management. The subadviser has contact with a worldwide network of senior brokers and analysts. In selecting stocks for the fund's portfolio, the subadviser also looks for companies with the following characteristics: - Businesses that the subadviser believes offers value - Low price/earnings multiples relative to other stocks in each country/industry - Above average, long term earnings expectation not reflected in the price The subadviser chooses approximately 70-90 stocks for the portfolio from a select universe of stocks. Under normal circumstances, the fund must invest in a minimum of three countries. In the past, the fund has invested in as many as 20 or more countries at a time. The fund focuses on companies located in Europe, the Pacific Basin and emerging industrialized countries whose economies and political regimes appear more stable and are believed to provide some protection to foreign shareholders. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year for the past ten years. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '92 -0.09 '93 45.42 '94 5.43 '95 16.06 '96 20.12 '97 15.49 '98 10.36 '99 23.89 '00 -4.97 '01 -12.25
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year --------------------------------------------------------------- Best 18.28% 4th/1998 Worst -16.64% 3rd/1998 ---------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of a widely recognized, unmanaged index of international common stock prices. The fund's past performance does not necessarily indicate how the fund will perform in the future. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
One Five Ten Year Years Years ----------------------------------------------------- INTERNATIONAL FUND Return Before Taxes -12.25% 5.66% 10.89% Return After Taxes on Distributions -12.87% 4.02% 9.62% Return After Taxes on Distributions and Sale of Fund Shares -6.79% 4.49% 9.06% ----------------------------------------------------- COMPARATIVE INDEX EAFE(1) (reflects no deduction for fees, expenses or taxes) -21.44% 0.89% 4.46% -----------------------------------------------------
(1) Morgan Stanley Capital International Europe, Australasia, Far East 16 RISK/RETURN SUMMARY -- INTERNATIONAL EQUITY HARBOR INTERNATIONAL FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in foreign stock markets. - The market favors growth stocks over value stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgments about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. The fund invests primarily in securities of foreign companies. Because of this, there is a greater risk that the fund's share price will fluctuate more than if the fund invested in domestic issuers. Prices of foreign securities may go down if any of the following occurs: - Unfavorable foreign government actions, political, economic or market instability or the absence of accurate information about foreign companies. - A decline in the value of foreign currencies relative to the U.S. dollar will reduce the unhedged value of securities denominated in those currencies. - Foreign securities are sometimes less liquid and harder to value than securities of U.S. issuers. These risks are more severe for securities of issuers in emerging market countries such as Eastern Europe, Latin America and the Pacific Basin. Foreign brokerage and custodian fees may be higher than in the U.S. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.85% Rule 12b-1 distribution fees None Other expenses(2) 0.12% ----- Total annual fund operating expenses 0.97% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to reduce the fund's management fees, the fund's actual expenses were: Management fees 0.79% Total annual fund operating expenses 0.91%
(2) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years ---------------------------------------------------------------------- International Fund $ 99 $313 $549 $1,251 ----------------------------------------------------------------------
17 RISK/RETURN SUMMARY -- INTERNATIONAL EQUITY HARBOR INTERNATIONAL FUND II -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term total return, principally from growth of capital. PRINCIPAL STYLE CHARACTERISTICS International mid to large cap value oriented stocks. PORTFOLIO MANAGER JAMES LATORRE Summit International Investments, Inc. 125 Summer Street Boston, MA 02110 Jim LaTorre has managed the fund since it started in 1996. Jim has been the president of Summit since 1996 and before that was a vice president at Boston Investor Services, Inc., an investment advisory firm. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of foreign companies, including those located in emerging market countries. Most securities have a market capitalization of $1 billion or more, but the fund may invest in companies with market capitalization of less than $1 billion. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses an analysis of economic and market data, as well as its knowledge of each country's culture, to determine country and industry allocations. Before selecting a country for investment, the subadviser analyzes the stability of a country's currency and its political, social and economic culture. Subject to these allocations, the subadviser uses a value oriented, bottom up approach, researching and evaluating individual companies, to select stocks for the fund's portfolio. This research includes visiting companies around the world and meeting with company management. The subadviser has contact with a worldwide network of senior brokers and analysts. In selecting stocks for the fund's portfolio, the subadviser also looks for companies with the following characteristics: - Businesses that the subadviser understands - Potential to improve margins - Stock prices that appear to undervalue companies' assets or franchise values - Above average, long term earnings expectation not reflected in the stock price Under normal circumstances, the fund must invest in a minimum of three countries. In the past, the fund has invested in as many as 20 or more countries at a time. The fund focuses on companies located in Europe, the Pacific Basin and emerging industrialized countries whose economies and political regimes appear more stable and are believed to provide some protection to foreign shareholders. The subadviser chooses approximately 50-75 stocks for the portfolio from a select universe of stocks. The fund may invest up to 10% of assets in fixed income securities of foreign corporate and government issuers and supranational organizations. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year since its founding. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '97 9.70 '98 7.98 '99 30.84 '00 -3.72 '01 -18.29
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year ------------------------------------------------ Best 25.13% 4th/1998 Worst -19.34% 3rd/2001 ------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of a widely recognized, unmanaged index of international common stock prices. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
Since One Five Inception Year Years (06/01/1996) ----------------------------------------------------------- INTERNATIONAL FUND II Return Before Taxes -18.29% 4.05% 5.56% Return After Taxes on Distributions -18.43% 2.90% 4.48% Return After Taxes on Distributions and Sale of Fund Shares -11.00% 2.97% 4.24% ----------------------------------------------------------- COMPARATIVE INDEX EAFE(1) (reflects no deduction for fees, expenses or taxes) -21.44% 0.89% 1.17% -----------------------------------------------------------
(1) Morgan Stanley Capital International Europe, Australasia, Far East 18 RISK/RETURN SUMMARY -- INTERNATIONAL EQUITY HARBOR INTERNATIONAL FUND II -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in foreign stock markets. - The market favors growth stocks over value stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgments about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. The fund invests primarily in securities of foreign companies. Because of this, there is a greater risk that the fund's share price will fluctuate more than if the fund invested in domestic issuers. Prices of foreign securities may go down if any of the following occurs: - Unfavorable foreign government actions, political, economic or market instability or the absence of accurate information about foreign companies. - A decline in the value of foreign currencies relative to the U.S. dollar will reduce the unhedged value of securities denominated in those currencies. - Foreign securities are sometimes less liquid and harder to value than securities of U.S. issuers. These risks are more severe for securities of issuers in emerging market countries such as Eastern Europe, Latin America and the Pacific Basin. Foreign brokerage and custodian fees may be higher than in the U.S. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.75% Rule 12b-1 distribution fees None Other expenses(2) 0.24% ----- Total annual fund operating expenses 0.99% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to reduce the fund's management fees, the fund's actual expenses were: Management fees 0.65% Total annual fund operating expenses 0.89%
(2) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years --------------------------------------------------------------------- International Fund II $101 $320 $561 $1,276 ---------------------------------------------------------------------
19 RISK/RETURN SUMMARY -- INTERNATIONAL EQUITY HARBOR INTERNATIONAL GROWTH FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term growth of capital. PRINCIPAL STYLE CHARACTERISTICS Foreign mid to large cap stocks demonstrating accelerating earnings growth. PORTFOLIO MANAGERS THEODORE TYSON JOSEPH JORDAN DOUGLAS ALLEN Mastholm Asset Management LLC 10500 NE 8th Street Suite 1725 Bellevue, WA 98004 Theodore Tyson, Joseph Jordan and Douglas Allen have co-managed the fund since December 1, 2001. Mr. Tyson has served as the chief investment officer, managing director and portfolio manager of Mastholm since 1997. Mr. Jordan has served as a director and portfolio manager of Mastholm since 1997. Mr. Allen has served as a director and portfolio manager of Mastholm since 1999. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, of foreign companies with a minimum market capitalization of about $10 billion at the time of initial investment. Under normal circumstances, the fund must invest in a minimum of three countries. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses a bottom up approach to construct the fund's portfolio. The fund's sector, country, and currency weightings are a result of, and secondary to, individual stock selections. In selecting stocks for the fund's portfolio, the subadviser generally looks for companies with the following characteristics: - Clarity of accounting and confirmation of earnings acceleration - Operating results higher than analyst expectations - Wide divergence of analyst expectations - Stock price below historical average range - Trading volume that meets the subadviser's minimum liquidity guidelines The subadviser's research includes visiting companies and their competitors, suppliers, and vendors. The subadviser's research is aided by relationships with over 20 brokerage firms worldwide. The fund expects to invest in approximately 35-45 companies. However, the subadviser intends to limit emerging markets exposure to 10% at cost. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year since its founding. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '94 -7.71 '95 24.29 '96 32.04 '97 3.57 '98 23.49 '99 20.19 '00 -25.50 '01 -38.54
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year --------------------------------------------------------------- Best 25.74% 4th/1999 Worst -25.54% 1st/2001 ---------------------------------------------------------------
The fund has changed its benchmark index from the EAFE index to the EAFE Growth index because the EAFE index contains both growth and value style equities. The EAFE Growth index contains only the growth portion of the EAFE index, making the EAFE Growth index a more accurate comparison for the fund. AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of a widely recognized, unmanaged index of international common stock prices. The fund's past performance does not necessarily indicate how the fund will perform in the future. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
Since One Five Inception Year Years (11/01/1993) --------------------------------------------------------- INTERNATIONAL GROWTH FUND Return Before Taxes -38.54% -6.78% 2.20% Return After Taxes on Distributions -38.46% -7.93% 1.27% Return After Taxes on Distributions and Sale of Fund Shares -23.39% -5.01% 1.94% --------------------------------------------------------- COMPARATIVE INDEX EAFE(1) Growth (reflects no deduction for fees, expenses or taxes) -24.58% -1.66% 0.69% EAFE(1) (reflects no deduction for fees, expenses or taxes) -21.44% 0.89% 3.27% ---------------------------------------------------------
(1) Morgan Stanley Capital International Europe, Australasia, Far East 20 RISK/RETURN SUMMARY -- INTERNATIONAL EQUITY HARBOR INTERNATIONAL GROWTH FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in foreign stock markets. - The market favors value stocks or small cap stocks over growth stocks or large cap stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgments about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. Because the fund typically invests in approximately 35 to 45 companies, an adverse event affecting a particular company may hurt the fund's performance more than if it had invested in a larger number of companies. The fund invests primarily in securities of foreign companies. Because of this, there is a greater risk that the fund's share price will fluctuate more than if the fund invested in domestic issuers. Prices of foreign securities may go down if any of the following occur: - Unfavorable foreign government actions, such as excessive taxation or currency controls; political, economic or market instability; or the absence of accurate information about foreign companies due in part to different financial accounting and regulatory standards. - A decline in the value of foreign currencies relative to the U.S. dollar will reduce the unhedged value of securities denominated in those currencies. - Foreign securities are sometimes less liquid and harder to value than securities of U.S. issuers. These risks are more severe for securities of issuers in emerging market countries. Foreign brokerage and custodian fees may be higher than in the U.S. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from fund assets) Management fees 0.75% Rule 12b-1 distribution fees None Other expenses(1) 0.14% ----- Total annual fund operating expenses 0.89% -------------------------------------------------
(1) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years --------------------------------------------------------------------- International Growth Fund $91 $288 $504 $1,147 ---------------------------------------------------------------------
21 RISK/RETURN SUMMARY -- INTERNATIONAL EQUITY HARBOR GLOBAL EQUITY FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Long-term growth of capital. PRINCIPAL STYLE CHARACTERISTICS Foreign and domestic mid to large cap stocks. PORTFOLIO MANAGERS DAN JAWORSKI PABLO SALAS JON SORENSEN BPI Global Asset Management LLP 1900 Summit Tower Blvd Suite 450 Orlando, FL 32810 Dan Jaworski, Pablo Salas and Jon Sorensen have managed the fund since its inception in 2001. Mr. Jaworski is chief investment officer, managing director and a co-founder of BPI Global Asset Management LLP. Mr. Salas is a portfolio manager, managing director and a co-founder of BPI Global Asset Management LLP. Mr. Sorensen is a portfolio manager with BPI Global Asset Management LLP. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests in equity securities, principally common stocks, preferred stocks, rights and depositary receipts, or other similar securities representing ownership of foreign and domestic securities of companies, with a capitalization of at least $500 million at the time of initial investment. In general, the fund stays fully invested in stocks and does not try to time the market. The subadviser uses a bottom up approach, researching and evaluating individual companies, to manage the fund's portfolio. The subadviser's research focuses on identifying the best companies to own within a sector or industry that compete or have a competitive advantage on a global basis. The fund's sector and country weightings are a result of, and secondary to, individual stock selections. This research also includes visits to companies and discussions with company management. In selecting stocks for the fund's portfolio, the subadviser looks for companies with the following characteristics: - Superior management whose interests are aligned with shareholders - Above-average return on equity - Above-average profit margins and adequate free cash flow - Strong capital structure with low leverage - Relatively low price to earnings, price to book, and price to free cash flow ratios The subadviser looks for companies that are undervalued relative to their global industry peer group and that possess sustainable competitive advantages. The fund's maximum exposure to any one company is limited by the subadviser's judgment as to the liquidity of the company's stock. Under normal circumstances, the fund intends to invest substantially all, but must invest at least 80%, of its net assets, plus borrowings for investment purposes, in a diversified portfolio of equity securities. The investment strategy of investing at least 80% of its net assets in equity securities may not be changed unless the fund provides 60 days advance notice to its shareholders. The fund expects to invest in approximately 120-180 companies. However, the subadviser intends to limit emerging markets exposure to approximately 10% and individual emerging countries exposure to approximately 5% of the fund's assets. The subadviser also intends to limit the fund's investments in any one sector to a percentage of assets which is equal to or less than twice the weight of that sector in the Morgan Stanley Capital International World index measured at the time of initial investment. The fund may invest in foreign securities in the form of depository receipts or other similar securities representing ownership of foreign securities. -------------------------------------------------------------------------------- FUND PERFORMANCE Because the fund is newly organized and does not yet have a performance history, the bar chart and total return tables are not provided. See page 39 for historical subadviser composite performance information for accounts with substantially similar investment objectives, policies and strategies. -------------------------------------------------------------------------------- PRINCIPAL RISKS Stocks do fluctuate in price and the value of your investment in the fund may go down. This means that you could lose money on your investment in the fund or the fund may not perform as well as other possible investments if any of the following occurs: - A drop in foreign or domestic stock markets. - The market favors small cap stocks over medium or large cap stocks. - An adverse event, such as an unfavorable earnings report, depresses the value of a particular company's stock. - The subadviser's judgment about the attractiveness, value and potential appreciation of particular companies' stocks prove to be incorrect. The fund invests in securities of foreign and domestic companies. Because of this, there is a risk that the fund's share price may fluctuate more than if the fund invested solely in securities of domestic issuers. Prices of foreign securities may go down if any of the following occurs: - Unfavorable foreign government actions, political, economic or market instability or the absence of accurate information about foreign companies. - A decline in the value of foreign currencies relative to the U.S. dollar will reduce the unhedged value of securities denominated in those currencies. - Foreign securities are sometimes less liquid and harder to value than securities of U.S. issuers. The risks are more severe for securities of issuers in emerging market countries such as Eastern Europe, Latin America, South America and the Pacific Basin. Foreign brokerage and custodian fees may be higher than in the U.S. 22 RISK/RETURN SUMMARY -- INTERNATIONAL EQUITY HARBOR GLOBAL EQUITY FUND -------------------------------------------------------------------------------- FEES AND EXPENSES (based on 9 month period ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.75% Rule 12b-1 distribution fees None Other expenses(2) 0.65% ----- Total annual fund operating expenses 1.40% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to limit the fund's management fees and operating expenses, the fund's actual expenses were: Management fees 0.55% Other expenses 0.65% ----- Total annual fund operating expenses 1.20%
(2) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years ----------------------------------------------------------------- Global Equity Fund $144 $452 $793 $1,805 -----------------------------------------------------------------
23 RISK/RETURN SUMMARY -- FIXED INCOME HARBOR BOND FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Total return. PRINCIPAL STYLE CHARACTERISTICS Intermediate bonds with overall portfolio rated high quality. PORTFOLIO MANAGER WILLIAM GROSS Pacific Investment Management Company 840 Newport Center Dr. P.O. Box 6430 Newport Beach, CA 92658-6430 Bill Gross has managed the fund since it started in 1987. He has been a managing director of PIMCO and its predecessor since 1982. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in bonds of corporate and governmental issuers located in the U.S. and foreign countries, including emerging markets. Total return includes dividends, realized and unrealized capital gains and changes in net asset value. The subadviser relies on its own proprietary research and analysis to manage the fund's portfolio. The subadviser uses a top down strategy to focus on broad factors and monetary conditions. These include: - Long-term social, political and demographic trends - Cyclical business and economic conditions - Current market conditions The subadviser selects securities that appear to be most undervalued relative to their risk and potential return characteristics. In analyzing the relative attractiveness of sectors, the subadviser considers the narrowing or widening of yields compared with yields for government and other sectors. The fund intends to invest substantially all, but must invest at least 80%, of its net assets, plus borrowings for investment purposes, in a diversified portfolio of all types of bonds. These include mortgage-related securities and asset-backed securities. At least 60% of its assets will be invested in securities of U.S. issuers and at least 80% of its assets will be U.S. dollar-denominated. No more than 25% of its assets will be invested in a single country other than the U.S. The investment strategy of investing at least 80% of its net assets in bonds may not be changed unless the fund provides 60 days advance notice to its shareholders. The fund uses derivative securities such as mortgage-backed securities and derivative contracts such as options and futures to take investment positions that more precisely reflect the subadviser's expectations of how portfolio securities will perform. The fund may engage in short selling, which is the sale by the fund of a borrowed security. Because the fund is obligated to replace the borrowed security, the fund will benefit from the short sale if the price of the security declines before it is replaced. CREDIT QUALITY. The fund will not invest in securities rated lower than B. The fund's average weighted portfolio quality is at least A. The fund invests primarily in investment grade securities, but may invest up to 15% of its assets in below investment grade domestic and foreign securities, commonly referred to as high yield or junk bonds. DURATION. The fund's duration is equal to that of the bond market plus or minus 1.5 years. The duration of the bond market as of December 31, 2001 was 4.5 years. Duration is an approximate measure of the sensitivity of the market value of the fund's holdings to changes in interest rates. If the fund's duration is longer than the market's, the fund would experience a greater change in the value of its assets when interest rates are rising or falling than would the market as a whole. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year for the past ten years. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '92 9.11 '93 12.41 '94 -3.76 '95 19.15 '96 4.94 '97 9.39 '98 9.56 '99 -0.32 '00 11.34 '01 9.03
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year ---------------------------------------------------- Best 5.83% 3rd/2001 Worst -3.13% 1st/1994 ----------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of a widely recognized, unmanaged index of U.S. fixed income securities. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
One Five Ten Year Years Years ----------------------------------------------------- BOND FUND Return Before Taxes 9.03% 7.72% 7.91% Return After Taxes on Distributions 6.12% 4.91% 5.03% Return After Taxes on Distributions and Sale of Fund Shares 5.46% 4.84% 4.97% ----------------------------------------------------- COMPARATIVE INDEX Lehman Brothers Aggregate -- U.S. (reflects no deduction for fees, expenses or taxes) 8.44% 7.43% 7.23% -----------------------------------------------------
24 RISK/RETURN SUMMARY -- FIXED INCOME HARBOR BOND FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS Although fixed income securities generally are considered to be less volatile than stocks, they do fluctuate in price in response to changes in interest rates and the value of your investment may go down. This means that you could lose money or the fund may not perform as well as other possible investments if any of the following occurs: - Interest rates go up, which will make the prices of fixed income securities go down and reduce the value of the fund's portfolio. - The issuer of a security owned by the fund defaults on its obligation to pay principal and/or interest or has its credit rating downgraded. This risk is higher for below investment grade bonds. - When interest rates are declining, the issuer of a pass-through security, such as a mortgage-backed or an asset-backed security, may exercise its option to prepay principal earlier than scheduled, forcing the fund to reinvest in lower yielding securities. This is known as call or prepayment risk. - When interest rates are rising, the average life of securities backed by callable debt obligations is extended because of slower than expected principal payments. This will lock in a below-market interest rate, increase the security's duration and reduce the value of the security. This is known as extension risk. - The subadviser's judgment about the attractiveness, relative value or potential appreciation of a particular sector, security or hedging strategy proves to be incorrect. - Prices of foreign securities go down because of unfavorable foreign government actions, political, economic or market instability or the absence of accurate information about foreign issuers. Also, a decline in the value of foreign currencies relative to the U.S. dollar will reduce the unhedged value of securities denominated in those currencies. Foreign securities are sometimes less liquid and harder to value than securities of U.S. issuers. These risks are more severe for securities of issuers in emerging market countries. - Changes in the value of futures contracts do not correspond closely to changes in the fund's portfolio, which may not accurately hedge the fund's exposure. - The price of securities sold short increases, causing the fund to pay more to replace the borrowed securities than the fund received on the sale of the securities. There is a greater risk that the fund will lose money due to prepayment and extension risks because the fund invests heavily at times in mortgage-related securities. Mortgage derivatives in the fund's portfolio may have especially volatile prices because of imbedded leverage or unusual interest rate reset terms. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.70% Rule 12b-1 distribution fees None Other expenses(2) 0.08% ----- Total annual fund operating expenses 0.78% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to reduce the fund's management fees, the fund's actual expenses were: Management fees 0.48% Total annual fund operating expenses 0.56%
(2) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years ---------------------------------------------------------------------- Bond Fund $80 $252 $442 $1,006 ----------------------------------------------------------------------
25 RISK/RETURN SUMMARY -- FIXED INCOME HARBOR SHORT DURATION FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Total return that is consistent with preservation of capital. PRINCIPAL STYLE CHARACTERISTICS High quality short-term bonds. PORTFOLIO MANAGER DAVID MARMON Fischer Francis Trees & Watts, Inc. 200 Park Ave. New York, NY 10166 FFTW has been the fund's subadviser since it started in 1992. David Marmon has managed the fund since 2000. He has been a managing director of FFTW since 1996 and prior to 1996 was a portfolio manager at FFTW. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests primarily in short-term (up to 3 years maturity) high quality fixed income securities of corporate and governmental issuers located in the U.S. and foreign countries. The subadviser seeks to maximize portfolio return and minimize volatility by: - Adjusting the issuer sector allocations, such as U.S. treasuries, corporates, U.S. government agencies, etc. - Managing the key variables such as duration and credit quality - Selectively using currency and interest rate management techniques to hedge interest rate and foreign currency risks associated with portfolio holdings The fund intends to invest substantially all, but must invest at least 80%, of its net assets, plus borrowings for investment purposes, in a diversified portfolio of all types of fixed income securities. These include bonds, mortgage-related securities and asset-backed securities. At least 60% of its net assets will be invested in securities of U.S. issuers and 80% of its net assets will be U.S. dollar denominated. No more than 25% of its net assets will be invested in a single country other than the U.S. The investment strategy of investing at least 80% of its net assets in fixed income securities may not be changed unless the fund provides 60 days advance notice to its shareholders. The fund uses derivative securities such as mortgage-backed securities and derivative contracts such as options and futures to take investment positions that more precisely reflect the subadviser's expectations of how a security in the fund's portfolio may perform. The fund may engage in short selling, which is the sale by the fund of a borrowed security. Because the fund is obligated to replace the borrowed security, the fund will benefit from the short sale if the price of the security declines before it is replaced. CREDIT QUALITY. The fund invests primarily in high quality securities, but may invest in medium grade securities. The fund will not invest in securities rated lower than A. The fund's average weighted portfolio quality is generally AA or higher. DURATION. The fund's average duration is approximately one year and will not vary from one year by more than two years. Duration is an approximate measure of the sensitivity of the market value of the fund's holdings to changes in interest rates. If the fund's duration is longer than the market's, the fund would experience a greater change in the value of its assets when interest rates are rising or falling than would the market as a whole. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year since its founding. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '92 4.65 '93 4.45 '94 2.74 '95 7.44 '96 6.31 '97 6.29 '98 6.36 '99 3.76 '00 7.41 '01 6.05
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year ------------------------------------------------------- Best 2.45% 2nd/1995 Worst 0.05% 1st/1994 -------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of one year government bonds. After-tax returns shown in the table are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. The after-tax returns shown are not relevant to investors who hold their fund shares through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. The fund's past performance before and after taxes, is not necessarily an indication of how the fund will perform in the future.
One Five Ten Year Years Years ------------------------------------------------------- SHORT DURATION FUND Return Before Taxes 6.05% 5.97% 5.54% Return After Taxes on Distributions 4.02% 3.59% 2.79% Return After Taxes on Distributions and Sale of Fund Shares 3.66% 3.58% 3.01% ------------------------------------------------------- COMPARATIVE INDEX Salomon Treasury 1 YR CMI (reflects no deduction for fees, expenses or taxes) 7.07% 6.08% 5.54% -------------------------------------------------------
As of June 2001, the 1-YR Gvt index was discontinued by Ibbotson Associates. The Salomon Treasury 1 YR CMI index has been selected as the replacement index and provides an accurate representation in comparison to the Harbor Short Duration Fund. 26 RISK/RETURN SUMMARY -- FIXED INCOME HARBOR SHORT DURATION FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS Although fixed income securities generally are considered to be less volatile than stocks, they do fluctuate in price in response to changes in interest rates and the value of your investment may go down. This means that you could lose money if any of the following occurs: - Interest rates go up, which will make the prices of fixed income securities go down and reduce the value of the fund's portfolio. - The issuer of a security owned by the fund defaults on its obligation to pay principal and/or interest or has its credit rating downgraded. - When interest rates are declining, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the fund to reinvest in lower yielding securities. This is known as call or prepayment risk. - When interest rates are rising, the average life of securities backed by debt obligations is extended because of slower than expected principal payments. This will lock in a below-market interest rate, increase the security's duration and reduce the value of the security. This is known as extension risk. - The subadviser's judgment about the attractiveness, relative value or potential appreciation of a particular sector, security or hedging strategy proves to be incorrect. - Prices of foreign securities go down because of unfavorable foreign government actions, political, economic or market instability or the absence of accurate information about foreign issuers. Also, a decline in the value of foreign currencies relative to the U.S. dollar will reduce the unhedged value of securities denominated in those currencies. Foreign securities are sometimes less liquid and harder to value than securities of U.S. issuers. - The price of securities sold short increases, causing the fund to pay more to replace the borrowed securities than the fund received on the sale of the securities. - Changes in the value of futures contracts do not correspond closely to changes in the fund's portfolio, which may not accurately hedge the fund's exposure. There is a greater risk that the fund will lose money due to prepayment and extension risks because the fund invests heavily at times in asset-backed and mortgage-related securities. Mortgage derivatives in the fund's portfolio may have especially volatile prices because of imbedded leverage or unusual interest rate reset terms. The fund may engage in active and frequent trading to achieve its principal investment strategies. This may lead to the realization and distribution to shareholders of higher capital gains, which would increase the shareholder's tax liability. Frequent trading also increases transaction costs, which could detract from the fund's performance. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.40% Rule 12b-1 distribution fees None Other expenses(2) 0.08% ----- Total annual fund operating expenses 0.48% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to reduce the fund's management fees, the fund's actual expenses were: Management fees 0.20% Total annual fund operating expenses 0.28%
(2) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years --------------------------------------------------------------------- Short Duration Fund $49 $155 $272 $619 ---------------------------------------------------------------------
27 RISK/RETURN SUMMARY -- FIXED INCOME HARBOR MONEY MARKET FUND -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- INVESTMENT GOAL Current income. The fund intends to maintain a stable share price of $1. PRINCIPAL STYLE CHARACTERISTICS Very short-term high quality money market instruments. PORTFOLIO MANAGER DAVID MARMON Fischer Francis Trees & Watts, Inc. 200 Park Ave. New York, NY 10166 FFTW has been the fund's subadviser since it started in 1987. David Marmon has managed the fund since 2000. He has been a managing director of FFTW since 1996 and prior to 1996 was a portfolio manager at FFTW. -------------------------------------------------------------------------------- PRINCIPAL STRATEGIES AND INVESTMENTS The fund invests in U.S. dollar denominated money market securities. These may include obligations issued by: - U.S. and foreign banks - Corporate issuers - U.S. government and its agencies and instrumentalities - U.S. states and municipalities - Foreign governments - Multinational organizations such as the World Bank The subadviser selects securities for the fund's portfolio by: - Allocating assets and actively trading among issuer sectors, such as U.S. treasuries, corporate issuers, U.S. government agencies, etc., while focusing on sectors that appear to have the greatest near-term return potential. - Focusing on securities that appear to offer the best relative value based on an analysis of their credit quality and interest rate sensitivity. The fund may invest in all types of money market securities, including commercial paper, certificates of deposit, bankers' acceptances, mortgage-backed and asset-backed securities, repurchase agreements and other short-term debt securities. MINIMUM CREDIT QUALITY. Ratings for at least 95% of the fund's investments are in the rating agencies' highest short-term rating category or of equivalent quality for unrated securities. MAXIMUM MATURITY. Average dollar weighted portfolio maturity of 90 days or less. Maturity of 397 days or less for individual securities. -------------------------------------------------------------------------------- FUND PERFORMANCE (for the periods ended December 31) The bar chart and table indicate the risks of investing in the fund. The bar chart shows changes in the performance of the fund from year-to-year for the past ten years. [FUND PERFORMANCE GRAPH]
FUND PERFORMANCE ---------------- '92 3.21 '93 2.76 '94 3.91 '95 5.71 '96 5.02 '97 5.16 '98 5.13 '99 4.89 '00 6.17 '01 4.09
FUND'S BEST AND WORST CALENDAR QUARTERS (for the past 10 years)
Total Return Quarter/Year --------------------------------------------------- Best 1.63% 4th/2000 Worst 0.55% 4th/2001 ---------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 2001) The table shows how the fund's average annual returns for different calendar periods compare to those of 90-day Treasury bills. The fund's past performance does not necessarily indicate how the fund will perform in the future.
One Five Ten Year Years Years ------------------------------------------ Money Market Fund 4.09% 5.09% 4.60% 90-Day Treasury Bills 3.76% 4.99% 4.69% ------------------------------------------
Current Yield for Period Ended December 31, 2001* ------------------------------------------------- Money Market Fund 7 Days: 1.64% -------------------------------------------------
*Call 1-800-422-1050 for the fund's current 7-day yield. 28 RISK/RETURN SUMMARY -- FIXED INCOME HARBOR MONEY MARKET FUND -------------------------------------------------------------------------------- PRINCIPAL RISKS The fund may not perform as well as other possible investments if any of the following occurs: - The issuer or guarantor of a security owned by the fund defaults on its payment obligations, becomes insolvent or has its credit rating downgraded by a rating agency. - There is a sudden or sharp increase in interest rates. - The value of the fund's foreign securities goes down because of unfavorable foreign government actions, political instability or the more limited availability of accurate information about foreign issuers. - The subadviser's judgment about the relative values of securities selected for the fund's portfolio proves to be incorrect. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. -------------------------------------------------------------------------------- FEES AND EXPENSES (based on year ended October 31, 2001) This table describes the fees and expenses that you may pay if you buy and hold shares of the fund. ------------------------------------------------- SHAREHOLDER FEES None (fees paid directly from your investment) ANNUAL FUND OPERATING EXPENSES(1) (expenses that are deducted from fund assets) Management fees 0.30% Rule 12b-1 distribution fees None Other expenses(2) 0.20% ----- Total annual fund operating expenses 0.50% -------------------------------------------------
(1) Because the adviser has voluntarily agreed to reduce the fund's management fees, the fund's actual expenses were: Management fees 0.18% Total annual fund operating expenses 0.38%
(2) Such as transfer agency, custody, professional and registration fees. EXAMPLE This example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes that: - You invest $10,000 in the fund for the time periods indicated; - You redeem at the end of each period; - Your investment has a 5% return each year; and - The fund's operating expenses remain the same. Although your actual costs may be higher or lower, under these assumptions your costs would be:
One Three Five Ten Year Years Years Years --------------------------------------------------------------------- Money Market Fund $51 $162 $283 $645 ---------------------------------------------------------------------
29 THE FUNDS' INVESTMENTS ADDITIONAL INFORMATION ABOUT THE FUNDS' PRINCIPAL INVESTMENTS -------------------------------------------------------------------------------- EQUITY INVESTMENTS The equity funds may invest in all types of equity securities. Equity securities include exchange-traded and over-the-counter common and preferred stocks, warrants, rights, investment grade convertible securities, depositary receipts and shares, trust certificates, limited partnership interests, shares of other investment companies, real estate investment trusts and equity participations. -------------------------------------------------------------------------------- FIXED INCOME INVESTMENTS Harbor Bond Fund and Harbor Short Duration Fund may invest in all types of fixed income securities. Harbor Money Market Fund invests exclusively in U.S. dollar-denominated money market securities. Fixed income investments include bonds, notes (including structured notes), mortgage-related securities, asset-backed securities, convertible securities, Eurodollar and Yankee dollar instruments, preferred stocks and money market instruments. Fixed income securities may be issued by U.S. and foreign corporations or entities; U.S. and foreign banks; the U.S. government, its agencies, authorities, instrumentalities or sponsored enterprises; state and municipal governments; supranational organizations; and foreign governments and their political subdivisions. These securities may have all types of interest rate payment and reset terms, including fixed rate, adjustable rate, zero coupon, contingent, deferred, payment in kind and auction rate features. Money market securities include commercial paper, certificates of deposit, bankers' acceptances, repurchase agreements and other short-term debt securities. -------------------------------------------------------------------------------- MORTGAGE-RELATED AND ASSET-BACKED SECURITIES Mortgage-related securities may be issued by private companies or by agencies of the U.S. government. Mortgage-related securities represent direct or indirect participations in, or are collateralized by and payable from, mortgage loans secured by real property. Harbor Bond Fund and Harbor Short Duration Fund may use mortgage dollar rolls to finance the purchase of additional investments. Dollar rolls expose a fund to the risk that it will lose money if the additional investments do not produce enough income to cover the fund's dollar roll obligations. For mortgage derivatives and structured securities that have imbedded leverage features, small changes in interest or prepayment rates may cause large and sudden price movements. Mortgage derivatives can also become illiquid and hard to value in declining markets. Asset-backed securities represent participations in, or are secured by and payable from, assets such as installment sales or loan contracts, leases, credit card receivables and other categories of receivables. Mortgage-related and asset-backed securities are especially sensitive to prepayment and extension risk. At times, Harbor Bond Fund and Harbor Short Duration Fund invest a large percentage of assets in mortgage-backed and asset-backed securities. Harbor Money Market Fund invests in mortgage-related securities that meet its quality, liquidity and maturity standards and that do not contain imbedded leverage. -------------------------------------------------------------------------------- CREDIT QUALITY Securities are investment grade if: - They are rated in one of the top four long-term rating categories of a nationally recognized statistical rating organization. - They have received a comparable short-term or other rating. - They are unrated securities that the subadviser believes to be of comparable quality to rated investment-grade securities. If a security receives different ratings, a fund will treat the security as being rated in the highest rating category. A fund may choose not to sell securities that are downgraded after their purchase below the fund's minimum acceptable credit rating. Each fund's credit standards also apply to counterparties to over-the-counter derivative contracts. 30 THE FUNDS' INVESTMENTS INFORMATION ABOUT THE FUNDS' OTHER INVESTMENTS -------------------------------------------------------------------------------- DERIVATIVE CONTRACTS Each fund, other than Harbor Money Market Fund, may, but is not required to, use derivative contracts for any of the following purposes: - To hedge against adverse changes in the market value of securities held by or to be bought for the fund. These changes may be caused by changing interest rates, stock market prices or currency exchange rates. - As a substitute for purchasing or selling securities or foreign currencies. - To manage the duration of a fund's fixed income portfolio. - In non-hedging situations, to attempt to profit from anticipated market developments. A derivative contract will obligate or entitle a fund to deliver or receive an asset or a cash payment that is based on the change in value of a designated security, index or currency. Examples of derivative contracts are futures contracts, options, forward contracts, swaps, caps, collars and floors. Even a small investment in derivative contracts can have a big impact on a fund portfolio's interest rate, stock market and currency exposure. Therefore, using derivatives can disproportionately increase a fund's portfolio losses and reduce opportunities for gains when interest rates, stock prices or currency rates are changing. A fund may not fully benefit from or may lose money on derivatives if changes in their value do not correspond accurately to changes in the value of the fund's portfolio holdings. If a fund uses derivatives, it manages its derivative position by segregating enough cash or liquid securities that when combined with the value of the position will equal the value of the asset it represents. Counterparties to over-the-counter derivative contracts present the same types of credit risk as issuers of fixed income securities. Derivatives can also make the fund's portfolio less liquid and harder to value, especially in declining markets. -------------------------------------------------------------------------------- TEMPORARY DEFENSIVE POSITIONS In response to adverse market, economic or political conditions, each fund may depart from its principal investment strategies by taking large temporary defensive positions in cash or investment-grade debt securities. The international funds may invest without limit in equity securities of U.S. issuers and investment grade notes and bonds. If a fund takes a temporary defensive position, it may be unable to achieve its investment goal. -------------------------------------------------------------------------------- PORTFOLIO TURNOVER Each fund may engage in active and frequent trading to achieve its principal investment strategies. This may lead to the realization and distribution to shareholders of higher capital gains, which would increase the shareholders' tax liability. Frequent trading also increases transaction costs, which could detract from a fund's performance. For the fiscal year ended October 31, 2001, the portfolio turnover rates for Harbor Large Cap Value Fund, Harbor Global Equity Fund, Harbor Bond Fund and Harbor Short Duration Fund were 194%, 143%, 531% and 246%, respectively. The portfolio turnover rates for Harbor Mid Cap Value Fund and Harbor Small Cap Value Fund are each expected to be approximately 100% during the current fiscal year. A portfolio turnover rate of over 100% is higher than the rate experienced by many other investment companies and is a result of an actively managed portfolio. Although the higher turnover rate creates expenses for these funds, the subadvisers believe that the portfolio transactions are in the best interests of shareholders. Major shareholders of Harbor Short Duration Fund use it as a liquidity reserve and, therefore, there is frequent purchase and sales activity. 31 THE ADVISER AND SUBADVISERS -------------------------------------------------------------------------------- THE ADVISER Harbor Capital Advisors, Inc. is the investment adviser and provides management services to Harbor Fund. Harbor Capital Advisors, Inc., located at One SeaGate, Toledo, Ohio, is a wholly owned subsidiary of Robeco Groep N.V. Founded in 1929, Robeco Groep N.V. is one of the world's oldest asset management organizations. As of December 31, 2001, Robeco Groep N.V. through its investment management subsidiaries, had approximately $93.3 billion in assets under management. The combined assets of Harbor Fund and the pension plans managed by Harbor Capital Advisors were approximately $15.1 billion as of December 31, 2001. Subject to the approval of the Harbor Fund board of trustees, Harbor Capital Advisors, as the investment adviser, establishes and modifies whenever necessary the investment strategies of each fund. Harbor Capital Advisors is also responsible for overseeing each subadviser and recommending the selection, termination and replacement of subadvisers. The adviser evaluates and allocates each funds' assets. The adviser also: - Attempts to ensure quality control in the investment process with the objective of adding value compared with returns of an appropriate risk and return benchmark. - Closely monitors and measures risk and return results against appropriate benchmarks and recommends whether subadvisers should be retained or changed. - Focuses on strict cost control. In order to more effectively manage the funds, Harbor Fund and Harbor Capital Advisors have been granted an order from the SEC permitting the adviser, subject to the approval of the Harbor Fund board of trustees, to select subadvisers to serve as portfolio managers for the Harbor funds, and to enter into new subadvisory agreements and to materially modify existing subadvisory agreements without obtaining shareholder approval. In addition to its investment management services to the funds, the adviser administers each fund's business affairs. For the year ended October 31, 2001, as shown below, each fund paid the adviser an advisory fee for these services. The adviser has also agreed to voluntarily waive a portion of the advisory fee for certain funds for the fiscal year ending October 31, 2002. This agreement is temporary and may be terminated or changed at any time. The adviser pays a subadvisory fee to each subadviser out of its own assets. No fund is responsible for paying any portion of the subadvisory fee to the subadviser. ANNUAL ADVISORY FEE RATES (as a percentage of the fund's average net assets)
Actual Contractual Advisory Advisory Fee Paid Fee ------------------------------------------------------- DOMESTIC EQUITY Harbor Capital Appreciation Fund 0.60% 0.60% Harbor Mid Cap Growth Fund 0.55 0.75 Harbor Growth Fund 0.75 0.75 Harbor Small Cap Growth Fund 0.55 0.75 Harbor Large Cap Value Fund 0.60 0.60 Harbor Mid Cap Value Fund(1) N/A 0.75 Harbor Small Cap Value Fund(2) N/A 0.75 INTERNATIONAL EQUITY Harbor International Fund 0.79 0.85 Harbor International Fund II 0.65 0.75 Harbor International Growth Fund 0.75 0.75 Harbor Global Equity Fund 0.55 0.75 FIXED INCOME Harbor Bond Fund 0.48 0.70 Harbor Short Duration Fund 0.20 0.40 Harbor Money Market Fund 0.18 0.30 -------------------------------------------------------
(1)Inception date 03/01/2002 (2) Inception date 12/14/2001 Each subadviser also subadvises a substantial portion of the pension plan assets managed by Harbor Capital Advisors and has adopted procedures to reasonably ensure fair asset allocation between the respective fund and the pension plan. The objectives and investment styles of each of the Harbor funds (except Harbor Money Market Fund) match those segments of the pension plan subadvised by the subadvisers. This allows Harbor Fund to utilize research and other information on a cost effective basis. Money managers are interviewed at least annually to collect and update data about their organizations and performance. 32 THE ADVISER AND SUBADVISERS -------------------------------------------------------------------------------- WALL STREET ASSOCIATES COMPOSITE PERFORMANCE INFORMATION The following table presents the past performance of a composite of certain accounts managed by Wall Street Associates. The Wall Street Associates Mid Cap Growth composite is comprised of all fee paying accounts under discretionary management by Wall Street Associates that have substantially similar investment objectives, policies and strategies as the Harbor Mid Cap Growth Fund. Wall Street Associates has prepared and presented the historical performance shown for the composite in compliance with the Performance Presentation Standards of the Association for Investment Management and Research (AIMR-PPS), the U.S. and Canadian version of the Global Investment Performance Standards (GIPS). AIMR has not been involved in the preparation or review of this report. The AIMR method for computing historical performance differs from the Securities and Exchange Commission's method. Because the gross performance data shown in the table does not reflect the deduction of investment advisory fees paid by the accounts comprising the composite and certain other expenses which would be applicable to mutual funds, the net performance data may be more relevant to potential investors in the fund in their analysis of the historical experience of Wall Street Associates in managing all mid cap growth portfolios with investment objectives, policies and strategies substantially similar to those of the Harbor Mid Cap Growth Fund. To calculate the performance of the composite net of advisory fees and expenses, the actual annual fund operating expenses payable by the Harbor Mid Cap Growth Fund were used. The historical performance of the Mid Cap Growth composite is not that of any of the Harbor Funds, including Harbor Mid Cap Growth Fund, and is not necessarily indicative of any fund's future results. The Harbor Mid Cap Growth Fund commenced operations on November 1, 2000. Harbor Mid Cap Growth Fund's actual performance may vary significantly from the past performance of this composite. While the accounts comprising the composite incurs inflows and outflows of cash from clients, there can be no assurance that the continuous offering of a fund's shares and a fund's obligation to redeem its shares will not adversely impact the fund's performance. Also, the accounts comprising the composite are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the Investment Company Act of 1940 and the Internal Revenue Code. If applicable, these limitations, requirements and restrictions may have adversely affected the performance results of the composite. 33 THE ADVISER AND SUBADVISERS -------------------------------------------------------------------------------- WESTFIELD CAPITAL MANAGEMENT COMPOSITE PERFORMANCE INFORMATION The following table presents the past performance of a composite of certain accounts managed by Westfield Capital Management Company, Inc. The Westfield Capital Management Small Cap Growth composite is comprised of all fee paying accounts under discretionary management by Westfield Capital Management that have substantially similar investment objectives, policies and strategies as the Harbor Small Cap Growth Fund. Westfield Capital Management has prepared and presented the historical performance shown for the composite in compliance with the Performance Presentation Standards of the Association for Investment Management and Research (AIMR-PPS), the U.S. and Canadian version of the Global Investment Performance Standards (GIPS). AIMR has not been involved in the preparation or review of this report. The AIMR method for computing historical performance differs from the Securities and Exchange Commission's method. Because the gross performance data shown in the table does not reflect the deduction of investment advisory fees paid by the accounts comprising the composite and certain other expenses which would be applicable to mutual funds, the net performance data may be more relevant to potential investors in the fund in their analysis of the historical experience of Westfield Capital Management in managing all small cap growth portfolios, with investment objectives, policies and strategies substantially similar to those of the Harbor Small Cap Growth Fund. To calculate the performance of the composite net of advisory fees and expenses, the actual annual fund operating expenses payable by the Harbor Small Cap Growth Fund were used. The historical performance of the Small Cap Growth composite is not that of any of the Harbor Funds, including Harbor Small Cap Growth Fund and is not necessarily indicative of any fund's future results. The Harbor Small Cap Growth Fund commenced operations November 1, 2000. Harbor Small Cap Growth Fund's actual performance may vary significantly from the past performance of the composite. While the accounts comprising the composite incurs inflows and outflows of cash from clients, there can be no assurance that the continuous offering of a fund's shares and a fund's obligation to redeem its shares will not adversely impact the fund's performance. Also, the accounts comprising the composite are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the Investment Company Act of 1940 and the Internal Revenue Code. If applicable, these limitations, requirements and restrictions may have adversely affected the performance results of the composite. -------------------------------------------------------------------------------- WESTFIELD CAPITAL MANAGEMENT SMALL CAP GROWTH COMPOSITE PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: -------------------------------------------------------------------- SINCE INCEPTION SMALL CAP GROWTH COMPOSITE* 3 YEARS 5 YEARS 10 YEARS JULY 1, 1989 --------------------------- ------- ------- -------- --------------- Composite net of all advisory fees and expenses 22.17% 20.30% 16.29% 19.14% Composite gross of advisory fees 23.82 21.94 17.88 20.76 Russell 2000(R) Growth index 0.25 2.87 7.19 8.03
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: ------------------------------------------------------------ 1992 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- ---- Composite net of all advisory fees and expenses 12.84% 12.70% -3.39% 30.28% 12.13% 22.69% Composite gross of advisory fees 14.39 14.24 -2.02 31.99 13.67 24.34 Russell 2000(R) Growth index 7.77 13.36 -2.43 31.04 11.26 12.95 AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: --------------------------------------- 1998 1999 2000 2001 ---- ---- ---- ---- Composite net of all advisory fees and expenses 12.64% 74.07% 15.74% -9.50% Composite gross of advisory fees 14.20 76.22 17.32 -8.17 Russell 2000(R) Growth index 1.23 43.09 -22.43 -9.23
------------------------- Because the adviser has agreed to limit the fund's total operating expenses for the current year to 1.20%, the performance of the composite net of advisory fees and expenses after giving effect to the expense limitation would have been:
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: --------------------------------------------------------------------- SINCE INCEPTION 3 YEARS 5 YEARS 10 YEARS JULY 1, 1989 ------- ------- -------- --------------- Composite net after expense limitation 22.41% 20.54% 16.52% 19.37%
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: -------------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Composite net after expense limitation 13.06% 12.92% -3.20% 30.52% 12.35% 22.92% 12.87% 74.38% 15.97% -9.31%
* The Small Cap Growth composite includes all fee paying discretionary accounts managed by Westfield Capital Management which have substantially similar investment objectives, policies and strategies as the Harbor Small Cap Growth Fund. As of December 31, 2001, the Small Cap Growth composite was composed of 147 accounts, totaling approximately $1.8 billion. 34 THE ADVISER AND SUBADVISERS -------------------------------------------------------------------------------- ARMSTRONG SHAW COMPOSITE PERFORMANCE INFORMATION The following table presents the past performance of a composite of certain accounts managed by Armstrong Shaw Associates, Inc. ("Armstrong Shaw"). The Armstrong Shaw Large Cap Value composite is comprised of all fee paying accounts under discretionary management by Armstrong Shaw that have substantially similar investment objectives, policies and strategies as the Harbor Large Cap Value Fund. Armstrong Shaw has prepared and presented the historical performance shown for the composite in compliance with the Performance Presentation Standards of the Association for Investment Management and Research (AIMR-PPS), the U.S. and Canadian version of the Global Investment Performance Standards (GIPS). AIMR has not been involved in the preparation or review of this report. The AIMR method for computing historical performance differs from the Securities and Exchange Commission's method. Because the gross performance data shown in the table does not reflect the deduction of investment advisory fees paid by the accounts comprising the composite and certain other expenses which would be applicable to mutual funds, the net performance data may be more relevant to potential investors in the fund in their analysis of the historical experience of Armstrong Shaw in managing all large cap value portfolios with investment objectives, policies and strategies substantially similar to those of the Harbor Large Cap Value Fund. To calculate the performance of the composites net of advisory fees and expenses, the actual annual fund operating expenses payable by the Harbor Large Cap Value Fund were used. The historical performance of the Large Cap Value composite is not that of any of the Harbor Funds, including Harbor Large Cap Value Fund, and is not necessarily indicative of any fund's future results. Harbor Large Cap Value Fund's actual performance may vary significantly from the past performance of this composite. While the account comprising the composite incurs inflows and outflows of cash from clients, there can be no assurance that the continuous offering of a fund's shares and a fund's obligation to redeem its shares will not adversely impact the fund's performance. Also, the account comprising the composite is not subject to certain investment limitations, diversification requirements and other restrictions imposed by the Investment Company Act of 1940 and the Internal Revenue Code. If applicable, these limitations, requirements and restrictions may have adversely affected the performance results of the composite. -------------------------------------------------------------------------------- ARMSTRONG SHAW LARGE CAP VALUE COMPOSITE PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: --------------------------------------------------------------------- SINCE INCEPTION LARGE CAP VALUE COMPOSITE* 3 YEARS 5 YEARS 10 YEARS JANUARY 1, 1988 -------------------------- ------- ------- -------- --------------- Composite net of all advisory fees and expenses 10.89% 17.60% 16.99% 15.77% Composite gross of advisory fees 11.73 18.49 17.94 16.18 Russell 1000(R) Value index 2.74 11.13 14.16 14.48
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: ------------------------------------------------------------ 1992 1993 1994 1995 1996 1997 ---- ---- ---- ---- ---- ---- Composite net of all advisory fees and expenses 11.23% 13.29% 0.04% 39.53% 21.38% 33.52% Composite gross of advisory fees 12.14 14.26 1.09 40.69 22.35 34.55 Russell 1000(R) Value index 13.81 18.12 -1.99 38.35 21.64 35.18 AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: ------------------------------------- 1998 1999 2000 2001 ---- ---- ---- ---- Composite net of all advisory fees and expenses 23.53% 16.31% 7.41% 9.02% Composite gross of advisory fees 24.46 17.16 8.26 9.82 Russell 1000(R) Value index 15.63 7.35 7.01 -5.59
------------------------- * The Large Cap Value composite includes all fee paying discretionary accounts managed by Armstrong Shaw which have substantially similar investment objectives, policies and strategies as the Harbor Large Cap Value Fund. As of December 31, 2001, the Large Cap Value composite was composed of 77 accounts, totaling approximately $2.2 billion. 35 THE ADVISER AND SUBADVISERS -------------------------------------------------------------------------------- DALTON, GREINER, HARTMAN, MAHER & CO. COMPOSITE PERFORMANCE INFORMATION The following table presents the past performance of a composite of certain accounts managed by Dalton, Greiner, Hartman, Maher & Co. ("DGHM"). The DGHM Mid Cap Value composite is comprised of all fee paying accounts under discretionary management by DGHM that have substantially similar investment objectives, policies and strategies as the Harbor Mid Cap Value Fund. DGHM has prepared and presented the historical performance shown for the composite in compliance with the Performance Presentation Standards of the Association for Investment Management and Research (AIMR-PPS), the U.S. and Canadian version of the Global Investment Performance Standards (GIPS). AIMR has not been involved in the preparation or review of this report. The AIMR method for computing historical performance differs from the Securities and Exchange Commission's method. Because the gross performance data shown in the table does not reflect the deduction of investment advisory fees paid by the accounts comprising the composite and certain other expenses which would be applicable to mutual funds, the net performance data may be more relevant to potential investors in the fund in their analysis of the historical experience of DGHM in managing all mid cap value portfolios, with investment objectives, policies and strategies substantially similar to those of the Harbor Mid Cap Value Fund. To calculate the performance of the composite net of advisory fees and expenses, the estimated annual fund operating expenses payable by the Harbor Mid Cap Value Fund were used. The historical performance of the Mid Cap Value composite is not that of any of the Harbor funds, including Harbor Mid Cap Value Fund and is not necessarily indicative of any fund's future results. The Harbor Mid Cap Value Fund commenced operations on March 1, 2002, and does not yet have a full year of its own performance record. Harbor Mid Cap Value Fund's actual performance may vary significantly from the past performance of the composite. While the accounts comprising the composite incurs inflows and outflows of cash from clients, there can be no assurance that the continuous offering of a fund's shares and a fund's obligation to redeem its shares will not adversely impact the fund's performance. Also, the accounts comprising the composite are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the Investment Company Act of 1940 and the Internal Revenue Code. If applicable, these limitations, requirements and restrictions may have adversely affected the performance results of the composite. -------------------------------------------------------------------------------- DGHM MID CAP VALUE COMPOSITE PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: -------------------------------------------------------------------- SINCE INCEPTION MID CAP VALUE COMPOSITE* 3 YEARS 5 YEARS 10 YEARS JANUARY 1, 1987 ------------------------ ------- ------- -------- --------------- Composite net of all advisory fees and expenses 22.63% 17.22% 16.09% 14.85% Composite gross of advisory fees 24.36 18.89 17.75 16.49 Russell Midcap(R) Value index 6.80 11.46 14.41 13.47
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: -------------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Composite net of all advisory fees and expenses 22.61% 23.34% -5.70% 15.78% 21.66% 27.75% -6.07% 17.50% 40.08% 12.04% Composite gross of advisory fees 24.33 25.07 -4.29 17.43 23.37 29.53 -4.65 19.18 41.99 13.67 Russell Midcap(R) Value index 21.68 15.62 -2.13 34.93 20.26 34.37 5.08 -0.11 19.18 2.33
------------------------- Because the adviser has agreed to limit the fund's total operating expenses for the current year to 1.20%, the performance of the composite net of advisory fees and expenses after giving effect to the expense limitation would have been:
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: -------------------------------------------------------------------- SINCE INCEPTION 3 YEARS 5 YEARS 10 YEARS JANUARY 1, 1987 ------- ------- -------- --------------- Composite net after expense limitation 22.95% 17.52% 16.39% 15.15%
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: -------------------------------------------------------------------------------------- 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Composite net after expense limitation 22.92% 23.66% -5.44% 16.08% 21.97% 28.07% -5.81% 17.80% 40.43% 12.34%
* The Mid Cap Value composite includes all fee paying discretionary accounts managed by DGHM which have substantially similar investment objectives, policies and strategies as the Harbor Mid Cap Value Fund. As of December 31, 2001, the Mid Cap Value composite was composed of 10 accounts totaling approximately $80 million. 36 THE ADVISER AND SUBADVISERS -------------------------------------------------------------------------------- EARNEST PARTNERS COMPOSITE PERFORMANCE INFORMATION The following table presents the past performance of a composite of certain accounts managed by EARNEST Partners LLC. The EARNEST Partners Small Cap Value composite is comprised of all fee paying accounts under discretionary management by EARNEST Partners that have substantially similar investment objectives, policies and strategies as the Harbor Small Cap Value Fund. EARNEST Partners has prepared and presented the historical performance shown for the composite in compliance with the Performance Presentation Standards of the Association for Investment Management and Research (AIMR-PPS), the U.S. and Canadian version of the Global Investment Performance Standards (GIPS). AIMR has not been involved in the preparation or review of this report. The AIMR method for computing historical performance differs from the Securities and Exchange Commission's method. Because the gross performance data shown in the table does not reflect the deduction of investment advisory fees paid by the accounts comprising the composite and certain other expenses which would be applicable to mutual funds, the net performance data may be more relevant to potential investors in the fund in their analysis of the historical experience of EARNEST Partners in managing all small cap value portfolios, with investment objectives, policies and strategies substantially similar to those of the Harbor Small Cap Value Fund. To calculate the performance of the composite net of advisory fees and expenses, the estimated annual fund operating expenses payable by the Harbor Small Cap Value Fund were used. The historical performance of the Small Cap Value composite is not that of any of the Harbor funds, including Harbor Small Cap Value Fund and is not necessarily indicative of any fund's future results. The Harbor Small Cap Value Fund commenced operations on December 14, 2001, and does not yet have a full year of its own performance record. Harbor Small Cap Value Fund's actual performance may vary significantly from the past performance of the composite. While the accounts comprising the composite incurs inflows and outflows of cash from clients, there can be no assurance that the continuous offering of a fund's shares and a fund's obligation to redeem its shares will not adversely impact the fund's performance. Also, the accounts comprising the composite are not subject to certain investment limitations, diversification requirements and other restrictions imposed by the Investment Company Act of 1940 and the Internal Revenue Code. If applicable, these limitations, requirements and restrictions may have adversely affected the performance results of the composite. -------------------------------------------------------------------------------- EARNEST PARTNERS SMALL CAP VALUE COMPOSITE PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: --------------------------------------------------------------------- SINCE INCEPTION SMALL CAP VALUE COMPOSITE* 1 YEAR 2 YEARS 3 YEARS JANUARY 1, 1999 -------------------------- ------ ------- ------- --------------- Composite net of all advisory fees and expenses 13.70% 24.72% 21.62% 21.62% Composite gross of advisory fees 15.34 26.48 23.34 23.34 Russell 2000(R) Value index 14.03 18.34 11.33 11.33
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: ----------------------------------------------------------------- 1999 2000 2001 ---- ---- ---- Composite net of all advisory fees and expenses 15.64% 36.82% 13.70% Composite gross of advisory fees 17.29 38.69 15.34 Russell 2000(R) Value index -1.49 22.83 14.03
------------------------- Because the adviser has agreed to limit the fund's total operating expenses for the current year to 1.20%, the performance of the composite net of advisory fees and expenses after giving effect to the expense limitation would have been:
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: --------------------------------------------------------------------- SINCE INCEPTION 1 YEAR 2 YEARS 3 YEARS JANUARY 1, 1999 ------ ------- ------- --------------- Composite net after expense limitation 14.00% 25.05% 21.93% 21.93%
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: --------------------------------------------------------------- 1999 2000 2001 ---- ---- ---- Composite net after expense limitation 15.94% 37.16% 14.00%
* The Small Cap Value composite includes all fee paying discretionary accounts managed by EARNEST Partners which have substantially similar investment objectives, policies and strategies as the Harbor Small Cap Value Fund. As of December 31, 2001, the Small Cap Value composite was composed of 4 accounts, totaling approximately $182 million. 37 THE ADVISER AND SUBADVISERS -------------------------------------------------------------------------------- MASTHOLM ASSET MANAGEMENT COMPOSITE PERFORMANCE INFORMATION The following table presents the past performance of a composite of certain accounts managed by Mastholm Asset Management LLC ("Mastholm"). The Mastholm International Growth composite is comprised of all fee paying accounts under discretionary management by Mastholm that have substantially similar investment objectives, policies and strategies as the Harbor International Growth Fund. Mastholm Asset Management has prepared and presented the historical performance shown for the composite in compliance with the Performance Presentation Standards of the Association for Investment Management and Research (AIMR-PPS), the U.S. and Canadian version of the Global Investment Performance Standards (GIPS). AIMR has not been involved in the preparation or review of this report. The AIMR method for computing historical performance differs from the Securities and Exchange Commission's method. Because the gross performance data shown in the table does not reflect the deduction of investment advisory fees paid by the accounts comprising the composite and certain other expenses which would be applicable to mutual funds, the net performance data may be more relevant to potential investors in the fund in their analysis of the historical experience of Mastholm in managing all international growth equity portfolios with investment objectives, policies and strategies substantially similar to those of the Harbor International Growth Fund. To calculate the performance of the composites net of advisory fees and expenses, the actual annual fund operating expenses payable by the Harbor International Growth Fund were used. The historical performance of the Mastholm International Growth composite is not that of any of the Harbor Funds, including Harbor International Growth Fund, and is not necessarily indicative of any fund's future results. Harbor International Growth Fund's actual performance may vary significantly from the past performance of this composite. While the account comprising the composite incurs inflows and outflows of cash from clients, there can be no assurance that the continuous offering of a fund's shares and a fund's obligation to redeem its shares will not adversely impact the fund's performance. Also, the account comprising the composite is not subject to certain investment limitations, diversification requirements and other restrictions imposed by the Investment Company Act of 1940 and the Internal Revenue Code. If applicable, these limitations, requirements and restrictions may have adversely affected the performance results of the composite. -------------------------------------------------------------------------------- MASTHOLM INTERNATIONAL GROWTH COMPOSITE PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: --------------------------------------------------------------------- SINCE INCEPTION INTERNATIONAL GROWTH COMPOSITE* 2 YEARS 3 YEARS JULY 1, 1997 ------------------------------- ------- ------- --------------- Composite net of all advisory fees and expenses -12.09% 4.44% 4.53% Composite gross of advisory fees -11.27 5.38 5.50 EAFE Growth index -24.55 -9.67 -4.05
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: ---------------------------------------------------------------- 1998 1999 2000 2001 ---- ---- ---- ---- Composite net of all advisory fees and expenses 10.34% 47.41% 2.17% -24.36% Composite gross of advisory fees 11.38 48.63 3.08 -23.63 EAFE Growth index 22.21 29.46 -24.51 -24.58
------------------------- * The International Growth composite includes all fee paying discretionary accounts managed by Mastholm which have substantially similar investment objectives, policies and strategies as the Harbor International Growth Fund. As of December 31, 2001, the International Growth composite was composed of 18 accounts, totaling approximately $2.7 billion. 38 THE ADVISER AND SUBADVISERS -------------------------------------------------------------------------------- BPI GLOBAL ASSET MANAGEMENT COMPOSITE PERFORMANCE INFORMATION The following table presents the past performance of a composite of certain accounts managed by BPI Global Asset Management LLP. The BPI Global Asset Management Global Equity composite is comprised of all fee paying accounts under discretionary management by BPI Global Asset Management that have substantially similar investment objectives, policies and strategies as the Harbor Global Equity Fund. BPI Global Asset Management has prepared and presented the historical performance shown for the composite in compliance with the Performance Presentation Standards of the Association for Investment Management and Research (AIMR-PPS), the U.S. Canadian version of the Global Investment Performance Standards (GIPS). AIMR has not been involved in the preparation or review of this report. The AIMR method for computing historical performance differs from the Securities and Exchange Commission's method. Because the gross performance data shown in the table does not reflect the deduction of investment advisory fees paid by the accounts comprising the composite and certain other expenses which would be applicable to mutual funds, the net performance data may be more relevant to potential investors in the fund in their analysis of the historical experience of BPI Global Asset Management in managing all global equity portfolios with investment objectives, policies and strategies substantially similar to those of the Harbor Global Equity Fund. To calculate the performance of the composites net of advisory fees and expenses, the actual fund operating expenses for the 9 month period ended October 31, 2001 payable by the Harbor Global Equity Fund were used. The historical performance of the Global Equity composite is not that of any of the Harbor Funds, including Harbor Global Equity Fund, and is not necessarily indicative of any fund's future results. The Harbor Global Equity Fund commenced operations on February 1, 2001, and does not yet have a full year of its own performance. Harbor Global Equity Fund's actual performance may vary significantly from the past performance of this composite. While the account comprising the composite incurs inflows and outflows of cash from clients, there can be no assurance that the continuous offering of a fund's shares and a fund's obligation to redeem its shares will not adversely impact the fund's performance. Also, the account comprising the composite is not subject to certain investment limitations, diversification requirements and other restrictions imposed by the Investment Company Act of 1940 and the Internal Revenue Code. If applicable, these limitations, requirements and restrictions may have adversely affected the performance results of the composite. -------------------------------------------------------------------------------- BPI GLOBAL ASSET MANAGEMENT GLOBAL EQUITY COMPOSITE PERFORMANCE
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: ---------------------------------------------------------------------- SINCE INCEPTION GLOBAL EQUITY COMPOSITE* 2 YEARS 3 YEARS APRIL 1, 1997 ------------------------ ------- ------- --------------- Composite net of all advisory fees and expenses -20.89% -1.55% 6.72% Composite gross of advisory fees -19.59 -0.01 8.36 MSCI World index -15.02 -3.37 5.59
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: ---------------------------------------------------------------- 1997** 1998 1999 2000 2001 ------ ---- ---- ---- ---- Composite net of all advisory fees and expenses 14.38% 24.79% 52.48% -15.87% -25.62% Composite gross of advisory fees 15.65 26.64 54.62 -14.50 -24.37 MSCI World index 15.76 24.34 24.93 -13.18 -16.82
------------------------- Because the adviser has agreed to limit the fund's total operating expenses for the current year to 1.20%, the performance of the composite net of advisory fees and expenses after giving effect to the expense limitation would have been:
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31, 2001: ---------------------------------------------------------------------- SINCE INCEPTION 2 YEARS 3 YEARS APRIL 1, 1997 ------- ------- --------------- Composite net after expense limitation -20.60% -1.21% 7.08%
AVERAGE ANNUAL TOTAL RETURN FOR THE PERIODS ENDED DECEMBER 31: ---------------------------------------------------------------- 1997** 1998 1999 2000 2001 ------ ---- ---- ---- ---- Composite net after expense limitation 14.66% 25.20% 52.95% -15.57% -25.34%
* The Global Equity composite includes all fee paying discretionary accounts managed by BPI Global Asset Management which have substantially similar investment objectives, policies and strategies as the Harbor Global Equity Fund. As of December 31, 2001, the Global Equity composite was composed of 5 accounts, totaling approximately $967 million. ** Unannualized, since inception, April 1, 1997. 39 THE ADVISER AND SUBADVISERS -------------------------------------------------------------------------------- THE SUBADVISERS AND FUND MANAGERS Each fund's investments are selected by one or more subadvisers. The following table describes each fund's portfolio manager(s), the subadviser that employs the manager and the manager's business experience.
PORTFOLIO MANAGER MANAGER BUSINESS EXPERIENCE FUND AND SUBADVISER SINCE (PAST FIVE YEARS) --------------------------------------------------------------------------------------------------------------------------------- HARBOR DOMESTIC CAPITAL SPIROS SEGALAS 1990 President (since 1993), Chief EQUITY FUNDS APPRECIATION Jennison Associates LLC Investment Officer (since 466 Lexington Avenue 1973); and Director and New York, NY 10017 Founding Member of Jennison (since 1969). ---------------------------------------------------------------------------------------------------- MID CAP WILLIAM JEFFERY 2000 President, Chairman of the GROWTH Wall Street Associates Board of Directors, Portfolio 1200 Prospect Street, Suite 100 Manager and Founding Partner, LaJolla, CA 92037 Wall Street Associates (since 1987). KENNETH MCCAIN 2000 Director, Portfolio Manager and Wall Street Associates Founding Partner, Wall Street Associates (since 1987). DAVID BARATTA 2000 Portfolio Manager, Wall Street Wall Street Associates Associates (since 1999); and Portfolio Manager, Morgan Grenfell, Inc. (1994-1999). ---------------------------------------------------------------------------------------------------- GROWTH PETER WELLES 1997 President of Emerging Growth Emerging Growth Advisors, Inc. Advisors, Inc. (since 1993) 401 E. Pratt Street, Suite 211 Baltimore, MD 21202 ---------------------------------------------------------------------------------------------------- SMALL CAP WILLIAM MUGGIA 2000 Director, President, Chief GROWTH Westfield Capital Management Investment Officer and Company, LLC Portfolio Manager, Westfield One Financial Center, 23rd Floor Capital Management (since Boston, MA 02111 1994); Corporate Finance Division, Alex. Brown & Sons (1992-1994). ---------------------------------------------------------------------------------------------------- LARGE CAP JEFFREY SHAW 2001 Chairman (since 1999), VALUE Armstrong Shaw Associates, Inc. President (since 1989) and 45 Grove Street Chief Investment Officer of New Canaan, CT 06840 Armstrong Shaw Associates, Inc. ---------------------------------------------------------------------------------------------------- MID CAP VALUE TIMOTHY G. DALTON, JR. 2002 Chairman (since 1990) and Dalton, Greiner, Hartman, Portfolio Manager (since 1987) Maher & Co. at DGHM. 565 Fifth Avenue Suite 2101 New York, NY 10017 KENNETH J. GREINER 2002 CEO (since 2001), Portfolio Dalton, Greiner, Hartman, Manager (since 1987) and Maher & Co. President (1990- 2000) at DGHM. BRUCE H. GELLER 2002 Executive Vice President (since Dalton, Greiner, Hartman, 1999) and Portfolio Manager Maher & Co. (since 1992) at DGHM. PETER A. GULLI 2002 Vice President and Portfolio Dalton, Greiner, Hartman, Manager (since 1999) at DGHM Maher & Co. and Vice President and Equity Analyst (1994-1999) at Chase Manhattan Bank. ---------------------------------------------------------------------------------------------------- SMALL CAP PAUL E. VIERA 2001 CEO, Portfolio Manager, and VALUE EARNEST Partners LLC founder of EARNEST Partners 75 Fourteenth Street (since 1998); Global Partner Suite 2300 and senior member of Investment Atlanta, GA 30309 Committee at INVESCO (1991-1998).
40 THE ADVISER AND SUBADVISERS --------------------------------------------------------------------------------
PORTFOLIO MANAGER MANAGER BUSINESS EXPERIENCE FUND AND SUBADVISER SINCE (PAST FIVE YEARS) --------------------------------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL INTERNATIONAL HAKAN CASTEGREN 1987 President, Northern Cross EQUITY FUNDS Northern Cross Investments Limited (since 1993); and President, Clarendon House Boston Overseas Investors, Inc. 2 Church Street (1990-1993). Hamilton, Bermuda HMDX ---------------------------------------------------------------------------------------------------- INTERNATIONAL JAMES LATORRE 1996 President, Summit (since 1996); II Summit International Investments, Vice President, Boston Investor Inc. Services, Inc. (1993-1997); and 125 Summer Street Vice President, Boston Overseas Boston, MA 02110 Investors, Inc. (1992-1993). ---------------------------------------------------------------------------------------------------- INTERNATIONAL THEODORE TYSON 2001 Managing Director, Chief GROWTH Mastholm Asset Management LLC Investment Officer and 10500 NE 8th Street Portfolio Manager of Mastholm Suite 1725 Asset Management LLC (since Bellevue, WA 98004 1997). JOSEPH JORDAN 2001 Director and Portfolio Manager Mastholm Asset Management of Mastholm (since 1997). DOUGLAS ALLEN 2001 Director and Portfolio Manager Mastholm Asset Management of Mastholm (since 1999); International Investment Analyst, American Century Investors (1995-1999). ---------------------------------------------------------------------------------------------------- GLOBAL EQUITY DAN JAWORSKI 2001 Chief Investment Officer, BPI Global Asset Management LLP Managing Director and 1900 Summit Tower Blvd, Suite 450 Co-Founder, BPI Global Asset Orlando, FL 32810 Management LLP (since 1997); and Managing Director of International Portfolio Management and Research, STI Capital Management (SunTrust, Inc.) (1995-1997). PABLO SALAS 2001 Portfolio Manager, Managing BPI Global Asset Management LLP Director and Co-Founder, BPI Global Asset Management LLP (since 1997); and Portfolio Manager, STI Capital Management (SunTrust, Inc.) (1996-1997). JON SORENSON 2001 Portfolio Manager, BPI Global BPI Global Asset Management LLP Asset Management LLP (since 1998); and Research Analyst, STI Capital Management (SunTrust, Inc.) (1990-1998) --------------------------------------------------------------------------------------------------------------------------------- HARBOR FIXED INCOME FUNDS BOND WILLIAM GROSS 1987 Managing Director, PIMCO (Del. Pacific Investment Management Co. G.P.) (since 1994); and 840 Newport Center Drive Managing Director, PIMCO P.O. Box 6430 (1982-1994). Newport Beach, CA 92658-6430 ---------------------------------------------------------------------------------------------------- SHORT DURATION DAVID MARMON 2000 Managing Director, FFTW (since Fischer Francis Trees & Watts, Inc. 1996) and Portfolio Manager, 200 Park Avenue FFTW (1990-1996). New York, NY 10166 ---------------------------------------------------------------------------------------------------- MONEY MARKET DAVID MARMON 2000 Managing Director, FFTW (since Fischer Francis Trees & Watts, Inc. 1996) and Portfolio Manager, FFTW (1990-1996).
41 YOUR HARBOR FUND ACCOUNT -------------------------------------------------------------------------------- HOW TO PURCHASE SHARES OF HARBOR FUND If you are investing in an IRA call 1-800-422-1050 or visit our web site at www.harborfund.com for the appropriate application and information. Harbor Fund will not accept cash, third-party checks, credit card convenience checks or checks drawn on banks outside the U.S. Harbor Fund does not issue share certificates. Harbor Fund reserves the right to verify the accuracy of the submitted banking information prior to activation. All orders to purchase shares received in good order by Harbor Fund or its agent before the close of regular trading on the New York Stock Exchange ("NYSE"), usually 4:00 p.m. eastern time, will receive that day's share price. Orders received in good order after the close of the NYSE will receive the next day's share price. All purchase orders are subject to acceptance by Harbor Fund. Neither Harbor Fund nor the shareholder servicing agent is responsible for any misdirected or lost mail. -------------------------------------------------------------------------------- BY MAIL OPEN A NEW ACCOUNT ADD TO AN EXISTING ACCOUNT MINIMUM INVESTMENT $1,000 (regular account) $100 (regular account) FIRST CLASS MAIL TO: $500 (IRAs, UGMA, UTMA, profit- $100 (IRAs, UGMA, UTMA, profit- Harbor Transfer, Inc. sharing, savings or pension sharing, savings or pension P.O. Box 10048 plans and Systematic Investment plans and Systematic Investment Toledo, OH 43699-0048 Plans) Plans) EXPRESS OR Complete and sign the Complete the stub at the bottom REGISTERED MAIL TO: appropriate new account of the most recent Harbor Transfer, Inc. application. If you are an confirmation. One SeaGate institution, include a 13th Floor certified copy of a corporate Make your check payable to: Toledo, OH 43666 resolution identifying "Harbor Fund" authorized signers. Make your check payable to: "Harbor Fund" ------------------------------------------------------------------------------------------- BY WIRE OPEN A NEW ACCOUNT ADD TO AN EXISTING ACCOUNT MINIMUM INVESTMENT $5,000 $500 WIRE TO: Send the completed account Instruct your bank to wire the State Street Bank and application to Harbor Transfer amount of the additional Trust Company at the address above. investment to State Street Bank Boston, MA and Trust Company. ABA#: 0110 0002 8 Instruct your bank to wire the Acct: DDA #3018-065-7 purchase amount to State Street Call the shareholder servicing Supply fund name, Bank and Trust Company, after agent at 1-800-422-1050 for account registration your account had been additional instructions if you and account number established. are sending a wire of $100,000 or more. Call the shareholder servicing agent at 1-800-422-1050 for additional instructions if you are sending a wire of $100,000 or more. ------------------------------------------------------------------------------------------- BY TELEPHONE ADD TO AN EXISTING ACCOUNT MINIMUM INVESTMENT $100 MAXIMUM INVESTMENT $10,000 CALL HARBOR TRANSFER You must have banking instructions already established on your AT: 1-800-422-1050 account. If banking instructions were not established at the time you opened your account, call the shareholder servicing agent at 1-800-422-1050 to request an Account Maintenance form to add this feature to your account or you may download the form from our website at www.harborfund.com.
42 YOUR HARBOR FUND ACCOUNT -------------------------------------------------------------------------------- HOW TO PURCHASE SHARES OF ACCESSHARBOR ADD TO AN EXISTING ACCOUNT HARBOR FUND MINIMUM INVESTMENT $100 MAXIMUM INVESTMENT $10,000 VISIT OUR WEBSITE AT: You must have banking instructions already established on your www.accessharbor.com account. If banking instructions were not established at the time you opened your account, call the shareholder servicing agent at 1-800-422-1050 to request an Account Maintenance form to add this feature to your account or you may download the form from our website at www.harborfund.com. ------------------------------------------------------------------------------------------- If you invest through a financial intermediary, please read that THROUGH A FINANCIAL firm's program materials carefully to learn of any special rules INTERMEDIARY OR that may apply. For example, special terms may apply to additional BROKER service features, fees, or other policies. Contact your financial intermediary or broker-dealer to find out about its procedures and fees for processing orders to purchase shares. Purchase orders received in good order by your financial intermediary or dealer or dealer's agent before the close of the NYSE, usually 4:00 p.m. eastern time, on any business day receive that day's share price. Your financial intermediary or dealer is responsible for promptly transmitting properly completed orders to the shareholder servicing agent.
43 YOUR HARBOR FUND ACCOUNT -------------------------------------------------------------------------------- HOW TO EXCHANGE SHARES OF HARBOR FUND An exchange is a redemption of shares from one fund and a purchase of shares in another. Exchanges are taxable transactions and you may realize a gain or a loss. You may exchange among funds if both accounts have the same name, address and account number. Exchanges must meet the applicable minimum investment amounts for each fund and each account must have at least $1,000 after the exchange. You should consider the differences in investment objectives and expenses of a fund before making an exchange. All orders to exchange shares received in good order by Harbor Fund or its agent before the close of regular trading on the NYSE, usually 4:00 p.m. eastern time, will receive that day's share price. Orders received in good order after the close of the NYSE will receive the next day's share price. Harbor Fund will refuse exchanges by any person or group if it believes that a fund would be unable to invest the money effectively or would otherwise be adversely affected. Because excessive account transactions can disrupt the management of a fund and increase fund costs for all shareholders, Harbor Fund may temporarily or permanently terminate the exchange privilege of any investor without prior notice who makes more than four exchanges out of the same fund per calendar year. Accounts under common ownership or control will be counted together for purposes of the four exchange limit. Harbor Fund may change or terminate the exchange privilege on 60 days' prior notice. -------------------------------------------------------------------------------- BY MAIL Mail a written exchange request to the shareholder servicing FIRST CLASS MAIL TO: agent. State the name of both funds, the number of shares or Harbor Transfer, Inc. dollar amount to be exchanged and the account numbers for P.O. Box 10048 both funds. Sign the request exactly as the name or names Toledo, OH 43699-0048 (if more than one name) appear on the account registration. EXPRESS OR Neither Harbor Fund nor the shareholder servicing agent is REGISTERED MAIL TO: responsible for any misdirected or lost mail. Harbor Transfer, Inc. One SeaGate 13th Floor Toledo, OH 43666 ------------------------------------------------------------------------------------- BY TELEPHONE If the account has telephone exchange privileges, call the shareholder servicing agent. Identification will be required CALL HARBOR TRANSFER and all telephone transactions are recorded. AT: 1-800-422-1050 If you are unable to reach the shareholder servicing agent by telephone (for example, during unusual market activity), send the exchange request by mail or via AccessHarbor. ------------------------------------------------------------------------------------- ACCESSHARBOR If the account has internet exchange privileges, visit our web site at www.accessharbor.com. If you are unable to VISIT OUR WEB SITE access our site, (for example during unusual market AT: activity), you may call the shareholder servicing agent or www.accessharbor.com send the exchange request by mail. ------------------------------------------------------------------------------------- THROUGH A FINANCIAL If you invest through a financial intermediary, please read INTERMEDIARY OR that firm's program materials carefully to learn of any BROKER special rules that may apply. For example, special terms may apply to additional service features, fees, or other policies. Contact your financial intermediary or broker-dealer to find out about its procedures and fees for processing orders to exchange shares. Exchanges received in good order by your financial intermediary or dealer or dealer's agent before the close of the NYSE, usually 4:00 p.m. eastern time, on any business day receive that day's share price. Your financial intermediary or dealer is responsible for promptly transmitting properly completed orders to the shareholder servicing agent.
44 YOUR HARBOR FUND ACCOUNT -------------------------------------------------------------------------------- HOW TO SELL SHARES OF HARBOR FUND Redemptions are taxable transactions and you may realize a gain or a loss. Certain shareholders may be subject to backup withholding. Neither Harbor Fund nor the shareholder servicing agent is obligated, under any circumstances, to pay interest on redemption proceeds. Redemption proceeds not cashed within 180 days will be reinvested to the account in which it was redeemed at the then current NAV. All orders to sell shares received in good order by Harbor Fund or its agent before the close of regular trading on the NYSE, usually 4:00 p.m. eastern time, will receive that day's share price. Orders received in good order after the close of the NYSE will receive the next day's share price. Each fund has the right to suspend redemptions of shares and to postpone payment of proceeds for up to seven days, as permitted by law. Proceeds of the redemption (reduced by the amount of any tax withholding, if applicable) will be mailed by check payable to the shareholder of record at the address of record, wired or sent via ACH to the current banking instructions already on file. -------------------------------------------------------------------------------- BY MAIL Mail a written redemption request to the shareholder FIRST CLASS MAIL TO: servicing agent. State the name of the fund, the number of Harbor Transfer, Inc. shares or dollar amount to be sold and the account number. P.O. Box 10048 Sign the request exactly as the name or names (if more than Toledo, OH 43699-0048 one name) appear on the account registration. EXPRESS OR IRA redemption requests must be made in writing, including REGISTERED MAIL TO: tax withholding information. If withholding information is Harbor Transfer, Inc. not specified, Harbor Fund will withhold 10%. Call the One SeaGate shareholder servicing agent or visit our web site at 13th Floor www.harborfund.com for an IRA Request for Distribution form. Toledo, OH 43666 Signature guarantees may be required. See "Shareholder and Account Policies" for more information. Neither Harbor Fund nor the shareholder servicing agent is responsible for any misdirected or lost mail. ------------------------------------------------------------------------------------- BY TELEPHONE If the account has telephone redemption privileges, call the shareholder servicing agent. Identification will be required CALL HARBOR TRANSFER and all telephone transactions are recorded. AT: 1-800-422-1050 If you are unable to reach the shareholder servicing agent by telephone (for example, during unusual market activity), send the redemption request by mail or via AccessHarbor. You may not sell shares in an IRA account by telephone. Call the shareholder servicing agent for an IRA Request for Distribution form. Telephone redemptions are limited to $100,000 per account per day. ------------------------------------------------------------------------------------- ACCESSHARBOR If the account has internet redemption privileges, visit our web site at www.accessharbor.com. If you are unable to VISIT OUR WEB SITE access our site, (for example during unusual market AT: activity), you may call the shareholder servicing agent or www.accessharbor.com send the redemption request by mail. You may not sell shares in an IRA account or UTMA/UGMA account on-line. Call the shareholder servicing agent to request an IRA Request for Distribution form or to request a redemption from your UTMA/UGMA account. Internet redemptions are limited to $100,000 per account, per day. ------------------------------------------------------------------------------------- THROUGH A FINANCIAL If you invest through a financial intermediary, please read INTERMEDIARY OR that firm's program materials carefully to learn of any BROKER special rules that may apply. For example, special terms may apply to additional service features, fees, or other policies. Contact your financial intermediary or broker-dealer to find out about its procedures and fees for processing orders to sell shares. Redemption orders received in good order by your financial intermediary or dealer or dealer's agent before the close of the NYSE, usually 4:00 p.m. eastern time, on any business day receive that day's share price. Your financial intermediary or dealer is responsible for promptly transmitting properly completed orders to the shareholder servicing agent.
45 SHAREHOLDER AND ACCOUNT POLICIES -------------------------------------------------------------------------------- TRANSACTION AND ACCOUNT POLICIES SHARE PRICE Each fund calculates its net asset value (NAV or share price) at the close of regular trading on the NYSE on each business day that Harbor Fund is open for business. A business day is a weekday that is not a holiday listed in the statement of additional information. If the Exchange closes early, the funds calculate NAV at that time. Each fund's shares are purchased and redeemed at the NAV next determined after your purchase or redemption order is received by the shareholder service agent in good order. Harbor Fund may allow certain brokers, dealers or institutional investors to purchase shares for next day settlement. VALUATION OF SHARES Harbor Money Market Fund values its securities at amortized cost. Each other fund values the securities in its portfolio on the basis of market quotations and valuations provided by independent pricing services. If quotations are not readily available, or the value of a security has been materially affected by events occurring after the closing of a foreign exchange, each fund values its assets by a method that the trustees believe accurately reflects fair value. A fund that uses fair value to price securities may value those securities higher or lower than another fund that uses market quotations to price the same securities. International markets may be open, and trading may take place on days when U.S. markets are closed. For this reason, the value of foreign securities owned by a fund could change on days when you cannot buy or sell shares. PAYING FOR SHARES BY CHECK If you purchase fund shares by check: - No third-party checks, credit card convenience checks or checks drawn on banks outside the U.S. are accepted. - You may not exchange the shares for up to 10 days to make sure that the check has cleared. - You may sell the shares, but the proceeds may not be mailed for up to 10 business days to make sure that the check has cleared. - The shareholder servicing agent will cancel your purchase and deduct $25 from your account if the check does not clear for any reason. You may also be prohibited from future purchases. You can avoid the 10-day holding period by purchasing shares via ACH, wire, postal money order, U.S. treasury check or Federal Reserve check. REDEMPTIONS IN KIND A fund may make payment for shares wholly or in part by distributing portfolio securities (instead of cash) to the shareholder. The redeeming shareholder must pay transaction costs to sell these securities. ACCOUNTS WITH SMALL BALANCES If your account balance falls below $1,000 ($500 for IRAs, UGMA, UTMA, profit-sharing, savings or pension plans) due to redemptions, the shareholder servicing agent may ask that the account be increased to $1,000 ($500) within 60 days. If the account balance is not increased, the shareholder servicing agent reserves the right to redeem the account at NAV and send the proceeds to the shareholder. SIGNATURE GUARANTEES Signature guarantees are designed to help protect you and Harbor Fund from fraud. A signature guarantee is required if you: - Redeem more than $100,000; - Redeem within the first 15 days after your address of record is changed; - Request that proceeds be sent to an address or bank, other than the one of record; or - Request that a check for redemption proceeds be made payable to a person other than the registered shareholder. Harbor Fund reserves the right to require a signature guarantee under other circumstances. You may obtain a signature guarantee for a nominal fee from most banks, broker-dealers, credit unions, any securities exchange or association, clearing agencies, savings associations or trust companies. A NOTARY PUBLIC STAMP OR SEAL CANNOT BE SUBSTITUTED FOR A SIGNATURE GUARANTEE. STATEMENTS AND REPORTS You will receive a confirmation statement after each transaction affecting your account, however, shareholders participating in an automatic investment program will receive quarterly confirmations of all transactions. Dividend information will be confirmed quarterly. You should verify the accuracy of your confirmation statements immediately after you receive them and contact the shareholder servicing agent regarding any errors or discrepancies. The funds produce financial reports, which include a list of each of the fund's portfolio holdings, semi-annually and update their prospectus annually. 46 SHAREHOLDER AND ACCOUNT POLICIES -------------------------------------------------------------------------------- EACH FUND DISTRIBUTES SUBSTANTIALLY ALL OF ITS INCOME AND GAINS DIVIDENDS, DISTRIBUTIONS AND TAXES Each fund will distribute all or substantially all of its net investment income and realized capital gains, if any, each year. Each fund declares and pays any dividends from net investment income and capital gains at least annually, in December. Money Market Fund declares any dividends from net investment income daily and pays the dividends monthly. Money Market Fund distributes any capital gains annually, in December. Each fund may also pay dividends and capital gain distributions at other times if necessary to avoid federal income or excise tax. Capital Appreciation Fund, Mid Cap Growth Fund, Growth Fund, Small Cap Growth Fund, Mid Cap Value Fund, Small Cap Value Fund, International Growth Fund and Global Equity Fund expect distributions to be primarily from capital gain. Large Cap Value Fund, International Fund, International Fund II and Bond Fund expects distributions to be from both capital gain and income. Short Duration Fund and Money Market Fund expect distributions to be from income. Dividends from net investment income and short-term capital gain are taxable as ordinary income and distributions of net long-term capital gain are taxable as long-term capital gains, which may be taxable at different rates, depending on the source and the length of time the fund holds its assets. Dividends and distributions are taxable, whether you receive it in cash or reinvest in additional fund shares. Generally, you should avoid investing in a fund shortly before an anticipated dividend or capital gain distribution. Otherwise, you may pay taxes on dividends or distributions that are economically equivalent to a partial return of your investment whether you reinvest the distribution or receive it in cash. Every January the funds will send you information about the fund's dividends and distributions during the previous calendar year. If you do not provide Harbor Fund with your social security number or other taxpayer identification number along with certifications required by the Internal Revenue Service, you may be subject to a backup withholding tax of 30% from your dividends and capital gain distributions, redemptions and any other payments to you. Unless otherwise instructed, each fund will send dividends and capital gain distributions elected to be received as cash to the address of record. Your distribution option will automatically be converted to having all dividends and other distributions reinvested in additional shares if either of the following occur: - Postal or other delivery service is unable to deliver checks to the address of record; or - Dividends and capital gain distributions are not cashed within sixty (60) days. Neither Harbor Fund nor Harbor Transfer has any obligation, under any circumstances, to pay interest on dividends or capital gain distributions sent to a shareholder. For Harbor Money Market Fund, all dividends and/or capital gain distributions of $25 or less will be automatically reinvested. You should consult your tax adviser about particular federal, state and local taxes that may apply to you. NORMAL DIVIDEND DISTRIBUTION SCHEDULE
FUND ANNUALLY SEMI-ANNUALLY QUARTERLY MONTHLY ----------------------------------------------------------------------------------------------- DOMESTIC EQUITY Harbor Capital Appreciation Fund X Harbor Mid Cap Growth Fund X Harbor Growth Fund X Harbor Small Cap Growth Fund X Harbor Large Cap Value Fund X Harbor Mid Cap Value Fund X Harbor Small Cap Value Fund X INTERNATIONAL EQUITY Harbor International Fund X Harbor International Fund II X Harbor International Growth Fund X Harbor Global Equity Fund X FIXED INCOME Harbor Bond Fund X Harbor Short Duration Fund X Harbor Money Market Fund X -----------------------------------------------------------------------------------------------
47 INVESTOR SERVICES -------------------------------------------------------------------------------- HARBOR FUND PROVIDES A VARIETY OF SERVICES TO MANAGE YOUR ACCOUNT WWW.HARBORFUND.COM A variety of information, forms and applications are available at www.harborfund.com. ACCESSHARBOR AccessHarbor allows you the ability to access your account information and conduct transactions via the internet, 24 hours a day. For transactions conducted through the Internet, Harbor recommends use of an Internet browser with 128-bit encryption. In order to engage in transactions via AccessHarbor, you must authorize us to transmit account information online and accept online instructions (go to www.AccessHarbor.com and follow the procedures accordingly). Payment for purchase of shares through AccessHarbor may be made only through an ACH debit of your bank account. Redemptions will be paid by check or ACH transfer only to the address or bank account of record. Only bank accounts held at domestic financial institutions that are ACH members can be used for transactions through AccessHarbor. There is a limit of $10,000 on purchase and $100,000 on redemption transactions through AccessHarbor. Transactions through AccessHarbor are subject to the same minimums as other transaction methods. Neither Harbor Fund nor its agents will be responsible for any losses resulting from unauthorized or fraudulent transactions through AccessHarbor when procedures designed for engaging in such transactions are followed. HARBOR NAVIGATOR You may call the Harbor Navigator at 1-800-422-1050, 24 hours a day, for information about your account or to request forms and applications. Procedures designed to confirm that instructions communicated by telephone are genuine, including requiring certain identifying information prior to acting upon instructions, recording all telephone instructions and sending written confirmation of telephone instructions are used by the shareholder servicing agent. Neither Harbor Fund nor its agents will be responsible for any losses resulting from unauthorized or fraudulent transactions by telephone when procedures designed for engaging in such transactions are followed. TELE TRANSACTIONS Tele transactions allows you the ability to purchase, exchange or redeem shares from your account via the telephone, during normal business hours. You may select this feature when completing your new account application. Harbor Fund reserves the right to verify the accuracy of the submitted banking information prior to activation. The verification may take up to 15 days. There is a limit of $10,000 on purchase and $100,000 on redemption transactions via the telephone. Tele transactions are subject to the same minimums as other transaction methods. You may not exchange the shares for up to 3 business days to make sure that the funds from your account have cleared. You may sell the shares, but the proceeds may not be mailed for up to 3 business days to make sure that the funds from your account have cleared. If your automatic clearing house (ACH) transaction does not clear, your purchase will be cancelled and $25 will be deducted from your account. You may also be prohibited from future purchases. If you already have a Harbor Fund account, call the shareholder servicing agent at 1-800-422-1050 to request an Account Maintenance form to add this feature or you may download the form from our website at www.harborfund.com. DIVIDEND EXCHANGE PLAN You may invest dividends and capital gain distributions from one fund in shares of another fund. Shares are purchased on the dividend payment date at the dividend payment date price which is later than the ex-dividend date. Purchases are credited to your account on the dividend payment date. TRANSFER ON DEATH REGISTRATION You may indicate on the account application to whom the account will be transferred on your death. TOD registration is available only for accounts registered in an individual name or as joint tenants with rights of survivorship. TOD registration is NOT available for IRA, UGMA/UTMA, or institutional accounts. TOD registration requires the name(s) of the beneficiary(ies) to be listed on the account registration followed by "TOD, Subject to STA TOD Rules". Harbor Fund reserves the right to use the term "beneficiaries" in an account registration rather than list each named beneficiary. However, the shareholder MUST provide the name, address, social security number and birth date of each beneficiary. Per stirpes designation will not be accepted. To add TOD registration to an existing account, call the shareholder servicing agent at 1-800-422-1050 to request the Transfer on Death Registration 48 INVESTOR SERVICES -------------------------------------------------------------------------------- form and instructions or you may download the form from our web site at www.harborfund.com. CHECKWRITING FOR MONEY MARKET FUND You must have a Money Market Fund account established prior to adding this service. Call the shareholder servicing agent at 1-800-422-1050 to request a signature card to add the checkwriting feature. There is no check writing privilege for IRA accounts. Individual checks must be for $500 or more. You may not close a Money Market Fund account by writing a check. AUTOMATIC INVESTMENT PLAN You may select this feature when completing the account application. There must be a minimum balance of $500 in a fund before automatic investing is permitted. The minimum for each additional automatic investment is $100. You may not exchange the shares for up to 3 days to make sure that the funds from your account have cleared. You may sell the shares, but the proceeds may not be mailed for up to 3 business days to make sure that the funds from your account have cleared. If your automatic clearing house (ACH) transaction does not clear, your purchase will be cancelled and $25 will be deducted from your account. You may also be prohibited from future purchases. By using the automatic investment or exchange plans, you are purchasing shares of a Fund on a scheduled basis without regard to fluctuations in net asset value per share. Over time, your average cost per share may be lower than if you tried to time the market. While regular investment plans do not guarantee a profit and will not protect you against loss in a declining market, they can be an excellent way to invest for retirement, a home, educational expenses, and other long-term financial goals. If you already have a Harbor Fund account, call the shareholder servicing agent at 1-800-422-1050 to request an Automatic Options form to add this feature or you may download the form from our web site at www.harborfund.com. AUTOMATIC EXCHANGE PLAN You may automatically exchange between Harbor funds either monthly or quarterly. The minimum exchange amount is $100. The fund exchanged out of must have a balance of at least $5,000 and the fund exchanged into must have a balance of at least $500. You must remain in the plan for a minimum of six exchanges. Exchanges are taxable transactions and you may realize a gain or loss. AUTOMATIC WITHDRAWAL PLAN You may make monthly or quarterly redemptions from any fund with a minimum balance of $10,000. You may direct Harbor Fund to withdraw a specific number of shares or dollars (minimum of $100). If automatic withdrawals continuously exceed reinvested dividends and capital gain distributions, the account will eventually be depleted. Withdrawals are redemptions of shares and therefore are taxable transactions for you. You should consult your tax adviser. Harbor Fund may amend or terminate the Automatic Withdrawal Plan without notice to participating shareholders. RETIREMENT ACCOUNTS For information on establishing retirement accounts, please call 1-800-422-1050. - Traditional IRA - an individual retirement account. Your contributions may or may not be deductible depending on your circumstances. Rollovers are not deductible. Assets can grow tax-free and distributions are taxable as income. - Roth IRA - an individual retirement account. Your contributions are non-deductible. Assets grow tax-free and qualified distributions are also tax-free. - SEP IRA - an individual retirement account funded by employer contributions. Assets grow tax-free and distributions are taxable as income. - Other Retirement Plans - A Harbor Fund may be used as an investment in many other kinds of employer-sponsored retirement plans. All of these accounts need to be established by the trustee of the plan. HOUSEHOLDING The fund may mail one copy of the funds' prospectus, financial reports and proxies to each household. If you wish to revoke your consent to this practice, you may do so by contacting the shareholder servicing agent at 1-800-422-1050 or by writing to Harbor Transfer, Inc., P.O. Box 10048, Toledo, OH 43699-0048. Harbor will begin mailing prospectuses, financial reports and proxies to you individually within 30 days after receiving your revocation. Consent is considered valid until revoked. 49 FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- The financial highlights table is intended to help you understand the funds' financial performance for the past five years, or less if a fund has a shorter operating history. Certain information reflects financial results for a single fund share. Total returns represent the rate that a shareholder would have earned/lost on an investment in a fund (assuming reinvestment of all dividends and distributions). The information for the most recent fiscal year ended October 31, 2001, has been audited by Ernst & Young LLP, independent
INCOME FROM INVESTMENT OPERATIONS --------------------------------------------- NET REALIZED AND UNREALIZED GAINS/(LOSSES) ON INVESTMENTS, FUTURES CONTRACTS, WRITTEN NET ASSET OPTIONS, SWAP AGREEMENTS, VALUE NET INVESTMENTS SOLD SHORT TOTAL FROM BEGINNING INVESTMENT AND FOREIGN CURRENCY INVESTMENT YEAR/PERIOD ENDED OF PERIOD INCOME/(LOSS) CONTRACTS OPERATIONS DOMESTIC EQUITY HARBOR CAPITAL APPRECIATION FUND October 31, 2001.......................... $48.16 $ .04 $(15.63) $(15.59) October 31, 2000.......................... 46.92 -- 5.84 5.84 October 31, 1999.......................... 33.51 (.02) 15.78 15.76 October 31, 1998.......................... 34.01 .07 4.35 4.42 October 31, 1997.......................... 25.88 .06 8.95 9.01 ---------------------------------------------------------------------------------------------------------------------- HARBOR MID CAP GROWTH FUND October 31, 2001(1)....................... $10.00 $ -- $ (4.36) $ (4.36) ---------------------------------------------------------------------------------------------------------------------- HARBOR GROWTH FUND October 31, 2001.......................... $24.23 $ -- $(12.48) $(12.48) October 31, 2000.......................... 17.52 -- 7.90 7.90 October 31, 1999.......................... 10.81 (.07) 7.85 7.78 October 31, 1998.......................... 14.20 (.04) (1.07) (1.11) October 31, 1997(2)....................... 16.00 -- 2.30 2.30 ---------------------------------------------------------------------------------------------------------------------- HARBOR SMALL CAP GROWTH FUND October 31, 2001(1)....................... $10.00 $ -- $ (.28) $ (.28) ---------------------------------------------------------------------------------------------------------------------- HARBOR LARGE CAP VALUE FUND October 31, 2001(3)....................... $13.88 $ .24 $ (.68) $ (.44) October 31, 2000.......................... 15.40 .27 .08 .35 October 31, 1999.......................... 15.21 .27 1.80 2.07 October 31, 1998.......................... 18.17 .27 .79 1.06 October 31, 1997.......................... 16.04 .34 4.13 4.47 INTERNATIONAL EQUITY HARBOR INTERNATIONAL FUND October 31, 2001.......................... $38.85 $ .57(c) $ (6.27) $ (5.70) October 31, 2000.......................... 40.66 .48(c) 1.22 1.70 October 31, 1999.......................... 36.97 .67(c) 5.90 6.57 October 31, 1998.......................... 35.84 .51(c) 1.92 2.43 October 31, 1997.......................... 31.21 .41(c) 5.44 5.85 ---------------------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND II October 31, 2001.......................... $14.28 $ .24(c) $ (3.62) $ (3.38) October 31, 2000.......................... 13.83 .01(c) 1.23 1.24 October 31, 1999.......................... 11.26 .18(c) 2.54 2.72 October 31, 1998.......................... 12.14 .12(c) (.37) (.25) October 31, 1997.......................... 10.47 .10(c) 1.63 1.73 ---------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS ------------------------------ DIVIDENDS DISTRIBUTIONS FROM NET FROM NET INVESTMENT REALIZED TOTAL YEAR/PERIOD ENDED INCOME CAPITAL GAINS(5) DISTRIBUTIONS DOMESTIC EQUITY HARBOR CAPITAL APPRECIATION FUND October 31, 2001.......................... $ -- $(6.17) $(6.17) October 31, 2000.......................... -- (4.60) (4.60) October 31, 1999.......................... (.07) (2.28) (2.35) October 31, 1998.......................... (.07) (4.85) (4.92) October 31, 1997.......................... (.02) (.86) (.88) ---------------------------------------------------------------------------------------------------------------------- HARBOR MID CAP GROWTH FUND October 31, 2001(1)....................... $ -- $ -- $ -- ---------------------------------------------------------------------------------------------------------------------- HARBOR GROWTH FUND October 31, 2001.......................... $ (.01) $(1.55) $(1.56) October 31, 2000.......................... -- (1.19) (1.19) October 31, 1999.......................... -- (1.07) (1.07) October 31, 1998.......................... -- (2.28) (2.28) October 31, 1997(2)....................... -- (4.10) (4.10) ---------------------------------------------------------------------------------------------------------------------- HARBOR SMALL CAP GROWTH FUND October 31, 2001(1)....................... $ -- $ -- $ -- ---------------------------------------------------------------------------------------------------------------------- HARBOR LARGE CAP VALUE FUND October 31, 2001(3)....................... $ (.24) $ (.19) $ (.43) October 31, 2000.......................... (.30) (1.57) (1.87) October 31, 1999.......................... (.25) (1.63) (1.88) October 31, 1998.......................... (.28) (3.74) (4.02) October 31, 1997.......................... (.34) (2.00) (2.34) INTERNATIONAL EQUITY HARBOR INTERNATIONAL FUND October 31, 2001.......................... $ (.71) $(3.79) $(4.50) October 31, 2000.......................... (.65) (2.86) (3.51) October 31, 1999.......................... (.58) (2.30) (2.88) October 31, 1998.......................... (.40) (.90) (1.30) October 31, 1997.......................... (.42) (.80) (1.22) ---------------------------------------------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND II October 31, 2001.......................... $ (.15) $ (.75) $ (.90) October 31, 2000.......................... (.17) (.62) (.79) October 31, 1999.......................... (.15) -- (.15) October 31, 1998.......................... (.10) (.53) (.63) October 31, 1997.......................... (.02) (.04) (.06) ----------------------------------------------------------------------------------------------------------------------
See page 52 for notes to the Financial Highlights. 50 -------------------------------------------------------------------------------- auditors, whose report, along with the funds' financial statements, are included in the funds' annual report (available upon request). The information for years 1997-1999 has been audited by PricewaterhouseCoopers LLP. No financial highlights exist for Harbor Mid Cap Value Fund or Harbor Small Cap Value Fund, which commenced operations on March 1, 2002 and December 14, 2001, respectively.
RATIO OF RATIO OF RATIO OF ADVISER OR OPERATING RATIO OF NET ASSET OPERATING SUBADVISER FEES EXPENSES NET OF INTEREST/DIVIDEND VALUE NET ASSETS EXPENSES NOT IMPOSED ALL OFFSETS TO EXPENSE END TOTAL END OF PERIOD TO AVERAGE TO AVERAGE AVERAGE TO AVERAGE OF PERIOD RETURN (000S) NET ASSETS (%)(6) NET ASSETS (%) NET ASSETS (%) NET ASSETS (%) $26.40 (35.23)% $6,020,099 .66% --% .66% --% 48.16 12.26 9,100,317 .64 -- .64 -- 46.92 48.59 6,484,801 .66 -- .66 -- 33.51 15.72 3,833,598 .68 -- .68 -- 34.01 35.73 2,798,404 .70 -- .70 -- ------------------------------------------------------------------------------------------------------------------------------- $ 5.64 (43.60)%(e) $ 9,752 1.20%(c) .20% 1.20% --% ------------------------------------------------------------------------------------------------------------------------------- $10.19 (53.96)% $ 117,951 .95% --% .95% --% 24.23 45.92 275,599 .88 -- .87 -- 17.52 76.51 145,249 .90 -- .90 -- 10.81 (8.73) 88,030 1.00 -- 1.00 -- 14.20 18.64 104,568 1.12 -- 1.12 -- ------------------------------------------------------------------------------------------------------------------------------- $ 9.72 (2.80)%(e) $ 17,317 1.20%(c) .20% 1.20% --% ------------------------------------------------------------------------------------------------------------------------------- $13.01 (3.20)% $ 130,059 .77% --% .77% .14%(a,f) 13.88 3.07 147,615 .80 -- .80 .16(f) 15.40 14.60 157,382 .76 -- .76 -- 15.21 6.69 170,468 .79 -- .79 -- 18.17 31.08 161,359 .83 -- .83 -- $28.65 (16.40)%(e) $3,497,357 .91%(c) .06% .91% --% 38.85 3.74(e) 4,830,275 .92(c) .06 .92 -- 40.66 18.54(e) 5,361,024 .92(c) .06 .92 -- 36.97 6.97(e) 5,088,401 .94(c) .06 .94 -- 35.84 19.26(e) 5,090,048 .97(c) .05 .97 -- ------------------------------------------------------------------------------------------------------------------------------- $10.00 (25.22)%(e) $ 77,043 .89%(c) .10% .89% --% 14.28 8.81(e) 126,826 .93(c) .10 .92 -- 13.83 24.37(e) 114,791 .92(c) .10 .92 -- 11.26 (1.98)(e) 112,669 1.15(c) .10 1.15 -- 12.14 16.64(e) 134,957 .99(c) .20 .98 -- ------------------------------------------------------------------------------------------------------------------------------- RATIO OF NET INVESTMENT INCOME/(LOSS) TO AVERAGE PORTFOLIO NET ASSETS (%) TURNOVER (%) .15% 89% (.07) 86 (.05) 68 .24 70 .23 73 ------------------------------------------------------------------------------------------------------------------------------- (.92)%(c) 61% ------------------------------------------------------------------------------------------------------------------------------- (.17)% 9% .02 13 (.54) 13 (.30) 23 (.47) 147 ------------------------------------------------------------------------------------------------------------------------------- (.67)%(c) 56% ------------------------------------------------------------------------------------------------------------------------------- 1.64% 194% 2.05 106 1.65 110 1.67 114 1.98 146 1.36%(c) 7% 1.40(c) 10 1.65(c) 4 1.27(c) 14 1.20(c) 6 ------------------------------------------------------------------------------------------------------------------------------- .79%(c) 33% .85(c) 65 1.36(c) 52 .86(c) 70 1.33(c) 58 -------------------------------------------------------------------------------------------------------------------------------
51 FINANCIAL HIGHLIGHTS -- CONTINUED --------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS -------------------------------------------- NET REALIZED AND UNREALIZED GAINS/(LOSSES) ON INVESTMENTS, FUTURES CONTRACTS, WRITTEN NET ASSET OPTIONS, SWAP AGREEMENTS, VALUE NET INVESTMENTS SOLD SHORT TOTAL FROM BEGINNING INVESTMENT AND FOREIGN CURRENCY INVESTMENT YEAR/PERIOD ENDED OF PERIOD INCOME/(LOSS) CONTRACTS OPERATIONS INTERNATIONAL EQUITY -- CONTINUED HARBOR INTERNATIONAL GROWTH FUND October 31, 2001........................ $17.56 $ -- $(7.30) $(7.30) October 31, 2000........................ 19.13 .01 (.06) (.05) October 31, 1999........................ 18.07 .14 1.30 1.44 October 31, 1998........................ 16.15 .11 2.52 2.63 October 31, 1997........................ 15.35 .12 1.12 1.24 ------------------------------------------------------------------------------------------------------------------- HARBOR GLOBAL EQUITY FUND October 31, 2001(4)..................... $10.00 $ -- $(2.61) $(2.61) FIXED INCOME HARBOR BOND FUND October 31, 2001........................ $11.00 $.56(c) $ 1.08 $ 1.64 October 31, 2000........................ 10.85 .57(c) .15 .72 October 31, 1999........................ 11.82 .58(c) (.49) .09 October 31, 1998........................ 11.57 .61(c) .53 1.14 October 31, 1997........................ 11.28 .68(c) .30 .98 ------------------------------------------------------------------------------------------------------------------- HARBOR SHORT DURATION FUND October 31, 2001........................ $ 8.51 $.45(c) $ .19 $ .64 October 31, 2000........................ 8.56 .55(c) (.04) .51 October 31, 1999........................ 8.69 .46(c) (.15) .31 October 31, 1998........................ 8.66 .48(c) .09 .57 October 31, 1997........................ 8.79 .45(c,d) .01 .46 ------------------------------------------------------------------------------------------------------------------- HARBOR MONEY MARKET FUND October 31, 2001........................ $ 1.00 $.05(c) $ -- $ .05 October 31, 2000........................ 1.00 .06(c) -- .06 October 31, 1999........................ 1.00 .05(c) -- .05 October 31, 1998........................ 1.00 .05(c) -- .05 October 31, 1997........................ 1.00 .02(c) -- .02 ------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS ------------------------------ DIVIDENDS DISTRIBUTIONS FROM NET FROM NET INVESTMENT REALIZED TOTAL YEAR/PERIOD ENDED INCOME CAPITAL GAINS(5) DISTRIBUTIONS INTERNATIONAL EQUITY -- CONTINUED HARBOR INTERNATIONAL GROWTH FUND October 31, 2001........................ $ -- $(1.82) $(1.82) October 31, 2000........................ (.14) (1.38) (1.52) October 31, 1999........................ (.11) (.27) (.38) October 31, 1998........................ (.12) (.59) (.71) October 31, 1997........................ (.08) (.36) (.44) ------------------------------------------------------------------------------------------------------------------- HARBOR GLOBAL EQUITY FUND October 31, 2001(4)..................... $ -- $ -- $ -- FIXED INCOME HARBOR BOND FUND October 31, 2001........................ $(.52) $ (.07) $ (.59) October 31, 2000........................ (.57) -- (.57) October 31, 1999........................ (.55) (.51) (1.06) October 31, 1998........................ (.66) (.23) (.89) October 31, 1997........................ (.69) -- (.69) ------------------------------------------------------------------------------------------------------------------- HARBOR SHORT DURATION FUND October 31, 2001........................ $(.46) $ -- $ (.46) October 31, 2000........................ (.56) -- (.56) October 31, 1999........................ (.44) -- (.44) October 31, 1998........................ (.54) -- (.54) October 31, 1997........................ (.59) -- (.59) ------------------------------------------------------------------------------------------------------------------- HARBOR MONEY MARKET FUND October 31, 2001........................ $(.05) $ -- $ (.05) October 31, 2000........................ (.06) -- (.06) October 31, 1999........................ (.05) -- (.05) October 31, 1998........................ (.05) -- (.05) October 31, 1997........................ (.02) -- (.02) -------------------------------------------------------------------------------------------------------------------
1 Commenced operations on November 1, 2000. 2 Effective May 2, 1997, Harbor Growth Fund appointed Emerging Growth Advisors, Inc. as its Subadviser. 3 Effective September 20, 2001, Harbor Value Fund changed its name to Harbor Large Cap Value Fund and appointed Armstrong Shaw Associates as its Subadviser. 4 For the period February 1, 2001 (inception) through October 31, 2001. 5 Includes both short-term and long-term capital gains. 6 Percentage does not reflect reduction for credit balance arrangements. a Annualized. b Unannualized. c Reflects the Adviser's or Subadviser's agreement not to impose all or a portion of its management fees. d Based on monthly average of shares outstanding during the fiscal year. e The total returns would have been lower had certain expenses not been waived during the periods shown. f Dividend expense from investments sold short. g Interest expense from investments sold short. 52 --------------------------------------------------------------------------------
RATIO OF RATIO OF RATIO OF ADVISER OR OPERATING RATIO OF NET ASSET OPERATING SUBADVISER FEES EXPENSES NET OF INTEREST/DIVIDEND VALUE NET ASSETS EXPENSES NOT IMPOSED ALL OFFSETS TO EXPENSE END TOTAL END OF PERIOD TO AVERAGE TO AVERAGE AVERAGE TO AVERAGE OF PERIOD RETURN (000S) NET ASSETS (%)(6) NET ASSETS(%) NET ASSETS(%) NET ASSETS (%) $ 8.44 (45.53)% $ 437,201 .89% --% .89% --% 17.56 (1.58) 1,247,082 .89 -- .89 -- 19.13 7.87 1,382,513 .91 -- .91 -- 18.07 16.96 1,178,252 .96 -- .96 -- 16.15 8.13 918,950 1.02 -- 1.02 -- -------------------------------------------------------------------------------------------------------------------------- $ 7.39 (26.10)%(b,e) $ 6,765 1.20%(a,c) .20%(a) 1.20%(a) --% $12.05 15.35%(e) $1,036,552 .56%(c) .22% .56% --% 11.00 6.95(e) 717,255 .60(c) .21 .60 -- 10.85 0.85(e) 627,180 .61(c) .21 .60 -- 11.82 10.33(e) 473,021 .65(c) .22 .65 -- 11.57 8.96(e) 362,594 .67(c) .23 .67 -- -------------------------------------------------------------------------------------------------------------------------- $ 8.69 7.73%(e) $ 125,959 .28%(c) .20% .27% --% 8.51 6.21(e) 125,032 .29(c) .20 .28 -- 8.56 3.68(e) 251,442 .28(c) .20 .28 -- 8.69 6.81(e) 217,244 .36(c) .20 .36 -- 8.66 5.48(e) 162,476 .38(c) .20 .36 .64(g) -------------------------------------------------------------------------------------------------------------------------- $ 1.00 4.83%(e) $ 168,834 .38%(c) .12% .38% --% 1.00 5.99(e) 105,893 .48(c) .12 .47 -- 1.00 4.82(e) 97,265 .46(c) .12 .46 -- 1.00 5.20(e) 100,276 .57(c) .12 .57 -- 1.00 5.11(e) 73,540 .63(c) .12 .62 -- -------------------------------------------------------------------------------------------------------------------------- RATIO OF NET INVESTMENT INCOME/(LOSS) TO AVERAGE PORTFOLIO NET ASSETS (%) TURNOVER (%) .18% 63% .10 103 .78 48 .62 85 .91 76 -------------------------------------------------------------------------------------------------------------------------- .45%(a,c) 143%(b) 5.50%(c) 531% 6.16(c) 494 5.35(c) 271 5.41(c) 278 6.04(c) 252 -------------------------------------------------------------------------------------------------------------------------- 5.35%(c) 246% 6.00(c) 478 5.36(c) 578 5.51(c) 727 5.14(c) 1,519 -------------------------------------------------------------------------------------------------------------------------- 4.60%(c) N/A 5.88(c) N/A 4.73(c) N/A 5.08(c) N/A 4.97(c) N/A --------------------------------------------------------------------------------------------------------------------------
53 HARBOR FUND DETAILS -------------------------------------------------------------------------------- SUMMARY OF INFORMATION ABOUT HARBOR FUND PURCHASES, EXCHANGES AND REDEMPTIONS The following table summarizes some of the important information set forth under the heading "Your Harbor Fund Account." MINIMUM INITIAL INVESTMENT AND SUBSEQUENT ACCOUNT BALANCE $1,000 MINIMUM SUBSEQUENT INVESTMENT $100 TELEPHONE TRANSACTIONS $100 minimum investment or exchange $10,000 maximum investment or exchange $100,000 maximum redemption INTERNET TRANSACTIONS $100 minimum investment $10,000 maximum investment Unlimited exchanges $100,000 maximum redemption IRA, UGMA AND UTMA ACCOUNTS $500 minimum initial investment and subsequent account balance $100 minimum subsequent investment AUTOMATIC INVESTMENT PLAN $500 minimum initial investment $100 minimum subsequent investment per month or quarter AUTOMATIC WITHDRAWAL PLAN $10,000 minimum initial balance to begin plan AUTOMATIC EXCHANGE PLAN $5,000 minimum initial balance to begin exchange out $500 minimum initial balance to begin exchange in $100 minimum subsequent exchange per month or quarter Minimum requirement of six exchanges
-------------------------------------------------------------------------------- HARBOR FUND TICKER SYMBOLS AND CUSIP NUMBERS Share prices are available on our web site at www.harborfund.com or by calling 1-800-422-1050 after 7:00 p.m. eastern time.
FUND TICKER SYMBOL CUSIP NUMBER -------------------------------------------------------------------- DOMESTIC EQUITY Harbor Capital Appreciation Fund HACAX 411511504 Harbor Mid Cap Growth Fund HAMGX 411511876 Harbor Growth Fund HAGWX 411511207 Harbor Small Cap Growth Fund HASGX 411511868 Harbor Large Cap Value Fund HAVLX 411511603 Harbor Mid Cap Value Fund (Not Available) 411511835 Harbor Small Cap Value Fund HASCX 411511843 INTERNATIONAL EQUITY Harbor International Fund HAINX 411511306 Harbor International Fund II HAIIX 411511884 Harbor International Growth Fund HAIGX 411511801 Harbor Global Equity Fund HAGEX 411511850 FIXED INCOME Harbor Bond Fund HABDX 411511108 Harbor Short Duration Fund HASDX 411511702 Harbor Money Market Fund HARXX 411511405
-------------------------------------------------------------------------------- UPDATES AVAILABLE For updates on the Harbor funds following the end of each calendar quarter, please visit our web site at WWW.HARBORFUND.COM. 54 HARBOR'S PRIVACY STATEMENT -------------------------------------------------------------------------------- WE RECOMMEND THAT YOU READ AND RETAIN THIS NOTICE FOR YOUR PERSONAL FILES. The following privacy statement is issued by HARBOR FUND and each series of Harbor Fund and its affiliates, Harbor Capital Advisors. Inc., Harbor Transfer, Inc. and HCA Securities, Inc. -------------------------------------------------------------------------------- PERSONAL INFORMATION It is our policy to respect the privacy of current and former shareholders and to protect personal information entrusted to us. We do not sell your personal information to anyone. In the course of providing products and services, we collect non-public personal information about you from the following sources: applications, forms, our website (including any information captured through our use of "cookies") and transactions with us, our affiliates or other parties. The non-public personal information collected may include name, address, e-mail address, telephone/fax numbers, account number, social security or taxpayer identification number, investment activity, and bank account information. When you visit our website, we may collect technical and navigational information, such as computer browser type, Internet protocol address, pages visited and average time spent on our website. We may use this information to alert you to software compatibility issues, or to improve our web design and functionality. We use "cookies" and similar files that may be placed on your hard drive for security purposes, to facilitate site navigation and to personalize the appearance of our site. -------------------------------------------------------------------------------- INFORMATION SHARING We do not share non-public personal information about our current or former shareholders with any non-affiliated parties, except as permitted by law or regulation. In the normal course of servicing our shareholders, information we collect may be shared with companies that perform support services on our behalf or to other firms that assist us in providing you with products and services, such as custodians, transfer agents, broker-dealers and marketing service firms 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. -------------------------------------------------------------------------------- ACCESS TO INFORMATION Access to non-public personal information is limited to employees, agents or other parties who need to know that information to perform their jobs, such as servicing your accounts, resolving problems or informing you of new products or services. -------------------------------------------------------------------------------- SECURITY We maintain physical, electronic and procedural safeguards to protect your nonpublic personal information. For customers accessing information through our website, various forms of Internet security such as data encryption firewall barriers, user names and passwords, and other tools are used. For additional information regarding our security measures, visit the terms and conditions of use on our website at WWW.HARBORFUND.COM. 55 FOR MORE INFORMATION ABOUT HARBOR FUND -------------------------------------------------------------------------------- FOR MORE INFORMATION ABOUT HARBOR FUND, THESE DOCUMENTS ARE AVAILABLE ANNUAL/SEMI-ANNUAL REPORTS Additional information about the funds' investments is available in the Harbor Fund annual and semi-annual reports to shareholders. The Harbor Fund annual report contains a discussion of the market conditions and investment strategies that significantly affected each fund's performance during its last fiscal year. STATEMENT OF ADDITIONAL INFORMATION (SAI) The SAI provides more detailed information about the funds and is incorporated into this prospectus by reference. Free copies of the annual and semiannual reports, the SAI, and other information and answers to questions about the funds are available at WWW.HARBORFUND.COM or by contacting the shareholder servicing agent at: HARBOR TRANSFER, INC. P.O. Box 10048 Toledo, OH 43699-0048 1-800-422-1050 Investors can review the Harbor Fund reports and SAI at the Public Reference Room of the Securities and Exchange Commission. Call 1-202-942-8090 for information on the operation of the Public Reference Room. Investors may get text-only copies: - For a fee, by writing the Public Reference Room of the Commission Washington, D.C. 20549-0102 - For a fee, by sending an e-mail or electronic request to the Public Reference Room of the Commission at PUBLICINFO@SEC.GOV. - Free from the Commission's internet web site at HTTP://WWW.SEC.GOV This prospectus is not an offer to sell securities in places other than the United States and its territories. Investment Company Act File No. 811-4676 -------------------------------------------------------------------------------- TRUSTEES AND OFFICERS DAVID G. VAN HOOSER Chairman and Trustee HOWARD P. COLHOUN Trustee JOHN P. GOULD Trustee RODGER F. SMITH Trustee JAMES M. WILLIAMS President CONSTANCE L. SOUDERS Vice President and Treasurer KAREN B. WASIL Secretary
INVESTMENT ADVISER HARBOR CAPITAL ADVISORS, INC. One SeaGate Toledo, Ohio 43666 DISTRIBUTOR AND PRINCIPAL UNDERWRITER HCA SECURITIES, INC. One SeaGate Toledo, OH 43666 419-247-2477 SHAREHOLDER SERVICING AGENT HARBOR TRANSFER, INC. P.O. Box 10048 Toledo, OH 43699-0048 1-800-422-1050 CUSTODIAN STATE STREET BANK AND TRUST COMPANY P.O. Box 1713 Boston, MA 02105 INDEPENDENT AUDITORS ERNST & YOUNG LLP 200 Clarendon Street Boston, MA 02116 LEGAL COUNSEL HALE AND DORR LLP 60 State Street Boston, MA 02109 [HARBOR FUND LOGO] One SeaGate Toledo, Ohio 43666 1-800-422-1050 www.harborfund.com 2/2002/548,450 [RECYCLED LOGO] Printed on recycled paper. -------------------------------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION FOR INSTITUTIONAL SHARES OF: HARBOR INTERNATIONAL FUND AND HARBOR GROWTH FUND (EACH A SERIES OF HARBOR FUND) -------------------------------------------------------------------------------- This statement of additional information is not a prospectus, but expands upon and supplements the information contained in the combined proxy statement and prospectus of Harbor International Fund II ("HIF2") and Harbor Small Cap Growth Fund ("HSCGF") and Harbor International Fund ("HIF") and Harbor Growth Fund ("HGF"), dated September 9, 2002. This statement of additional information should be read in conjunction with the combined proxy statement and prospectus. Additional copies of the combined proxy statement and prospectus may be obtained by calling our toll-free telephone number at 1-800-422-1050 or by writing to Harbor Fund, One SeaGate, Toledo, Ohio 43666. This statement of additional information is accompanied by and incorporates by reference the statement of additional information dated March 1, 2002 of Harbor Fund on behalf of HIF and HGF. The Harbor Fund annual report to shareholders dated October 31, 2001, is also incorporated by reference herein. ADDITIONAL INFORMATION ABOUT HIF AND HGF The following table shows where in the Harbor Fund statement of additional information (SAI) you can find additional information about HIF and HGF.
----------------------------------------------------------------------------------------------------------- TYPE OF HEADINGS IN COMBINED SAI OF BOTH FUNDS INFORMATION HIF HGF ----------------------------------------------------------------------------------------------------------- FUND HISTORY ORGANIZATION AND CAPITALIZATION General Shareholder and Trustee Liability -----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------- TYPE OF HEADINGS IN COMBINED SAI OF BOTH FUNDS INFORMATION HIF HGF ----------------------------------------------------------------------------------------------------------- DESCRIPTION OF EACH FUND AND ADDITIONAL POLICIES AND INVESTMENT TECHNIQUES DOMESTIC EQUITY FUNDS ITS INVESTMENTS AND RISKS Harbor Small Cap Growth Fund INVESTMENT POLICIES Common Stocks Preferred Stocks Convertible Securities Restricted Securities Fixed Income Securities Derivative Instruments Risks Associated With Specific Types of Derivative Debt Securities Variable and Floating Rate Securities U.S. Government Securities Cash Equivalents Mortgage-Backed Securities Guaranteed Mortgage Pass-Through Securities Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations Stripped Mortgage-Backed Securities Risk Factors Associated with Mortgage-Backed Securities Asset-Backed Securities Mortgage "Dollar Roll" Transactions Small to Mid Companies Foreign Securities Brady Bonds Sovereign Debt Obligations Borrowing Reverse Repurchase Agreements Lending of Portfolio Securities Short Sales Forward Commitments and When-Issued Securities Repurchase Agreements Options and Futures Transactions Options on Securities, Securities Indices And Currency Futures Contracts and Options on Futures Contracts Other Considerations Foreign Currency Transactions Currency Swaps, Mortgage Swaps and Interest Rate Swaps, Caps, Floors and Collar INVESTMENT RESTRICTIONS ----------------------------------------------------------------------------------------------------------- MANAGEMENT OF THE FUNDS, TRUSTEES AND OFFICERS INCLUDING THE BOARD OF Trustee Compensation Table TRUSTEES, OFFICER AND TRUSTEE Material Relationships of the Disinterested Trustees COMPENSATION ----------------------------------------------------------------------------------------------------------- CONTROL PERSONS, PRINCIPAL TRUSTEES AND OFFICERS HOLDERS OF SECURITIES AND ORGANIZATION AND CAPITALIZATION MANAGEMENT OWNERSHIP -----------------------------------------------------------------------------------------------------------
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----------------------------------------------------------------------------------------------------------- TYPE OF HEADINGS IN COMBINED SAI OF BOTH FUNDS INFORMATION HIF HGF ----------------------------------------------------------------------------------------------------------- INVESTMENT ADVISORY AND OTHER THE ADVISER, SUBADVISER, DISTRIBUTOR AND SHAREHOLDER SERVICING AGENT SERVICES The Adviser The Subadvisers Other Information Distributor and Shareholder Servicing Agent Code of Ethics CUSTODIAN ----------------------------------------------------------------------------------------------------------- BROKERAGE ALLOCATION AND OTHER PORTFOLIO TRANSACTIONS PRACTICES ----------------------------------------------------------------------------------------------------------- SHARES OF BENEFICIAL INTEREST ORGANIZATION AND CAPITALIZATION ----------------------------------------------------------------------------------------------------------- PURCHASE, REDEMPTION AND SHAREHOLDER AND ACCOUNT POLICIES PRICING OF SHARES Redemptions in Kind Distributions Distribution Options NET ASSET VALUE ----------------------------------------------------------------------------------------------------------- TAXATION OF THE FUNDS TAX INFORMATION ----------------------------------------------------------------------------------------------------------- CALCULATION OF PERFORMANCE DATA PERFORMANCE AND YIELD INFORMATION Performance Comparisons ----------------------------------------------------------------------------------------------------------- FINANCIAL STATEMENTS INDEPENDENT AUDITORS AND FINANCIAL STATEMENTS This section incorporates by reference the Harbor Fund annual report dated October 31, 2001. -----------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS The financial highlights table for HIF and HGF, which is intended to help you understand HIF and HSCGF's financial performance for the past five years, is included in the Harbor Fund prospectus dated March 1, 2002. That prospectus is included herewith and incorporated herein by reference. The pro forma financial statements set forth below for HIF and HIF2 and for HGF and HSCGF are not audited. These pro forma financial statements also present information for HIF and HGF assuming the reorganization had been consummated as of the end of the 12-month period ended of April 30, 2002. 3 -------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND II AND HARBOR INTERNATIONAL FUND PRO FORMA COMBINING OF ASSETS AND LIABILITIES -- APRIL 30, 2002 (UNAUDITED) (All amounts shown in Thousands, except per share amounts) --------------------------------------------------------------------------------
HARBOR HARBOR PRO FORMA PRO FORMA INTERNATIONAL II INTERNATIONAL ADJUSTMENTS COMBINED -------------------------------------------------------------------------------------- ---------- ASSETS INVESTMENTS, AT IDENTIFIED COST*...... $ 74,022 $2,613,754 $ -- $2,687,776 -------------------------------------------------------------------------------------- ---------- Investments, at value................. $ 73,625 $3,843,159 $ -- $3,916,784 Cash.................................. -- 1 -- 1 Foreign currency, at value (cost: $82; $9,051; $0; $9,133)................. 83 9,120 -- 9,203 Receivables for:...................... -- Capital shares sold................. 204 5,427 -- 5,631 Dividends........................... 128 10,250 -- 10,378 Interest............................ -- 35 -- 35 Withholding tax receivable............ 238 8,477 -- 8,715 Other assets.......................... 1 7 -- 8 -------------------------------------------------------------------------------------- ---------- TOTAL ASSETS.......................... 74,279 3,876,476 -- 3,950,755 -------------------------------------------------------------------------------------- ---------- LIABILITIES Payables for: Capital shares reacquired........... 18 3,630 -- 3,648 Accrued expenses:..................... -- Management fees..................... 39 2,270 (1,687) 622 Trustee fees........................ -- 11 -- 11 Transfer agent fees................. 3 35 528 566 Other............................... 15 1,401 74 1,490 -------------------------------------------------------------------------------------- ---------- TOTAL LIABILITIES..................... 75 7,347 (1,085) 6,337 -------------------------------------------------------------------------------------- ---------- NET ASSETS............................ $ 74,204 $3,869,129 $ 1,085 $3,944,418 -------------------------------------------------------------------------------------- ---------- Net assets consist of: Paid-in capital..................... $ 86,757 $2,547,228 $ -- $2,633,985 Undistributed net investment income........................... 130 19,562 1,085 20,777 Accumulated net realized gain/(loss)...................... (12,286) 72,940 -- 60,654 Unrealized appreciation/ (depreciation) of investments and translation of assets and liabilities in foreign currencies....................... (397) 1,229,399 -- 1,229,002 -------------------------------------------------------------------------------------- ---------- $ 74,204 $3,869,129 $ 1,085 $3,944,418 -------------------------------------------------------------------------------------- ---------- Shares of beneficial interest......... 6,692 122,869 (4,302)(a) 125,259 Net asset value, offering and redemption price per share.......... $ 11.09 $ 31.49 $ -- $ 31.49
------------------------- * Including short-term investments. (a) Reflects net effect of combining existing Harbor International Fund II into Harbor International Fund. (The accompanying notes are an integral part of the financial statements.) 4 -------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND II AND HARBOR INTERNATIONAL FUND PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2002 (UNAUDITED) (All amounts in Thousands) --------------------------------------------------------------------------------
HARBOR HARBOR PRO FORMA PRO FORMA INTERNATIONAL II INTERNATIONAL ADJUSTMENTS COMBINED ------------------------------------------------------------------------------------- --------- INVESTMENT INCOME: Dividends......................... $ 1,617 $ 86,642 $ -- $ 88,259 Interest.......................... 30 7,608 -- 7,638 Foreign taxes withheld............ (149) (9,306) -- (9,455) ------------------------------------------------------------------------------------- --------- TOTAL INVESTMENT INCOME........ 1,498 84,944 -- 86,442 OPERATING EXPENSES: Management fees................... 638 32,975 (3,556)(a) 30,057 Shareholder communications........ 11 286 67(b) 364 Custodian fees.................... 70 1,769 (3)(c) 1,836 Transfer agent fees............... 81 1,495 528(a) 2,104 Professional fees................. 4 149 24(b) 177 Trustees' fees and expenses....... 2 69 -- 71 Registration fees................. 30 13 (12)(c) 31 Amortization of organization costs.......................... 2 -- (2)(d) -- Insurance......................... 2 7 -- 9 Miscellaneous..................... 10 3 -- 13 ------------------------------------------------------------------------------------- --------- Total operating expenses....... 850 36,766 (2,954) 34,662 Management fees waived............ (83) (1,786) 1,869(a) -- ------------------------------------------------------------------------------------- --------- Net operating expenses......... 767 34,980 (1,085) 34,662 ------------------------------------------------------------------------------------- --------- NET INVESTMENT INCOME/(LOSS)........ 731 49,964 1,085 51,780 REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENT TRANSACTIONS: Net realized gain/(loss) on: Investments.................... (12,001) 176,994 -- 164,993 Foreign currency transactions................. 2 (678) -- (676) Change in net unrealized appreciation of: Investments.................... (1,706) (373,652) -- (375,358) Translation of assets and liabilities in foreign currencies................... 20 848 -- 868 ------------------------------------------------------------------------------------- --------- Net gain on investment transactions................... (13,685) (196,488) -- (210,173) ------------------------------------------------------------------------------------- --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...... $(12,954) $(146,524) $ 1,085 $(158,393) ------------------------------------------------------------------------------------- ---------
(a) Reflects adjustment to contractual rate of acquiring fund. (b) Reflects increased expenses related to fund merger. (c) Reflects expected savings of duplicative costs arising from the merger. (d) Not applicable. (The accompanying notes are an integral part of the financial statements.) 5 -------------------------------------------------------------------------------- HARBOR INTERNATIONAL FUND II HARBOR INTERNATIONAL FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2002 --------------------------------------------------------------------------------
SHARES MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR HARBOR HARBOR INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL PRO FORMA FUND II FUND PRO FORMA DESCRIPTION FUND II FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- COMMON STOCKS AUTO COMPONENTS Compagnie Financiere Michelin -- Bearer -- 83,200 83,200 (SWS).................. $ -- $ 28,218 $ -- $ 28,218 Michelin -- Registered 43,467 1,062,278 1,105,745 (FR)................... 1,683 41,131 -- 42,814 ------------- ------------- ---------- ---------- 1,683 69,349 -- 71,032 ------------- ------------- ---------- ---------- AUTOMOBILES 34,474 1,782,226 1,816,700 Peugeot SA (FR).......... 1,714 88,585 -- 90,299 ------------- ------------- ---------- ---------- BANKS ABN Amro Holding NV 98,230 4,511,062 4,609,292 (NET).................. 1,946 89,364 -- 91,310 Bankinter SA -- Registered -- 684,200 684,200 (SP)................... -- 21,766 -- 21,766 56,200 1,267,766 1,323,966 BNP Paribas (FR)......... 2,935 66,210 -- 69,145 Deutsche Bank AG -- 11,826 562,774 574,600 Registered (GER)....... 784 37,297 -- 38,081 -- 14,917,026 14,917,026 IntesaBci SpA (IT)....... -- 48,221 -- 48,221 119,367 4,986,733 5,106,100 San Paolo IMI SpA (IT)... 1,330 55,545 -- 56,875 Standard Chartered plc 123,655 5,539,900 5,663,555 (UK)................... 1,522 68,187 -- 69,709 UBS AG -- Registered 32,252 1,401,936 1,434,188 (SWS).................. 1,553 67,518 -- 69,071 United Overseas Bank Ltd. 146,000 7,488,842 7,634,842 (Alien Market) (SGP)... 1,160 59,499 -- 60,659 ------------- ------------- ---------- ---------- 11,230 513,607 -- 524,837 ------------- ------------- ---------- ---------- BEVERAGES 90,000 8,076,537 8,166,537 Diageo plc (UK).......... 1,194 107,173 -- 108,367 ------------- ------------- ---------- ---------- BIOTECHNOLOGY 550,000 -- 550,000 Novogen Ltd. (AUS)*...... 813 -- -- 813 ------------- ------------- ---------- ---------- BUILDING PRODUCTS Compagnie de Saint- 6,781 273,400 280,181 Gobain (FR)............ 1,160 46,775 -- 47,935 ------------- ------------- ---------- ---------- CHEMICALS 22,881 1,068,619 1,091,500 Bayer AG (GER)........... 749 34,997 -- 35,746 77,000 3,500,000 5,577,000 The BOC Group plc (UK)... 1,166 53,020 -- 54,186 ------------- ------------- ---------- ---------- 1,915 88,017 -- 89,932 ------------- ------------- ---------- ----------
6
SHARES MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR HARBOR HARBOR INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL PRO FORMA FUND II FUND PRO FORMA DESCRIPTION FUND II FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- COMMON STOCKS -- CONTINUED COMMUNICATIONS EQUIPMENT Ericsson (LM) Tel Ab Cl. -- 2,421,800 2,421,800 B ADR (SW)(1)*......... $ -- $ 6,030 $ -- $ 6,030 Ericsson (LM) Tel Ab 966,657 19,043,743 20,010,400 Series B (SW)*......... 2,424 47,748 -- 50,172 NICE Systems Ltd. ADR 100,574 -- 100,574 (IL)(1)*............... 1,260 -- -- 1,260 ------------- ------------- ---------- ---------- 3,684 53,778 -- 57,462 ------------- ------------- ---------- ---------- DIVERSIFIED FINANCIALS 48,894 2,452,938 2,501,832 ING Groep NV (NET)....... 1,290 64,716 -- 66,006 Swire Pacific Ltd. Cl. A 261,000 4,962,000 5,223,000 (HK)................... 1,566 29,776 -- 31,342 ------------- ------------- ---------- ---------- 2,856 94,492 -- 97,348 ------------- ------------- ---------- ---------- FOOD PRODUCTS Nestle SA -- Registered 5,000 448,000 453,000 (SWS).................. 1,181 105,808 -- 106,989 ------------- ------------- ---------- ---------- HOTELS RESTAURANTS & LEISURE 28,935 1,425,565 1,454,500 Accor SA (FR)............ 1,169 57,585 -- 58,754 ------------- ------------- ---------- ---------- HOUSEHOLD DURABLES -- 909,391 909,391 Hunter Douglas NV (NET).. -- 30,298 -- 30,298 62,100 1,591,200 1,653,300 Sony Corp. (JP).......... 3,336 85,472 -- 88,808 ------------- ------------- ---------- ---------- 3,336 115,770 -- 119,106 ------------- ------------- ---------- ---------- INSURANCE Assicurazioni Generali 41,922 1,398,978 1,440,900 SpA (IT)............... 1,012 33,785 -- 34,797 64,628 2,256,272 2,320,900 AXA SA (FR).............. 1,370 47,846 -- 49,216 Swiss Reinsurance Co. 11,000 226,820 237,820 (SWS).................. 1,109 22,869 -- 23,978 Zurich Financial Services 4,209 173,855 178,064 Group (SWS)............ 979 40,418 -- 41,397 ------------- ------------- ---------- ---------- 4,470 144,918 -- 149,388 ------------- ------------- ---------- ---------- LEISURE EQUIPMENT & PRODUCTS Fuji Photo Film Co. -- 1,158,000 1,158,000 (JP)................... -- 36,780 -- 36,780 ------------- ------------- ---------- ---------- MACHINERY Kone Oyj Series B 15,198 -- 15,198 (FIN).................. 1,438 -- -- 1,438 ------------- ------------- ---------- ---------- MEDIA News Corp. Ltd. ADR 42,681 2,347,919 2,390,600 (AUS)(1)............... 1,126 61,938 -- 63,064 ------------- ------------- ---------- ----------
7
SHARES MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR HARBOR HARBOR INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL PRO FORMA FUND II FUND PRO FORMA DESCRIPTION FUND II FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- COMMON STOCKS -- CONTINUED METALS & MINING Anglo American plc ADR -- 4,748,740 4,748,740 (UK)(1)................ $ -- $ 74,318 $ -- $ 74,318 Anglo American plc 75,000 -- 75,000 (UK)................... 1,182 -- -- 1,182 AngloGold Ltd. ADR (S. 47,000 2,000,000 2,047,000 AFR)(1)................ 1,260 53,600 -- 54,860 99,500 5,014,200 5,113,700 Arcelor (FR)*............ 1,371 69,080 -- 70,451 BHP Billiton plc ADR 549,335 12,629,050 13,178,385 (UK)(1)................ 2,937 136,820 -- 139,757 100,000 -- 100,000 Boliden Ab (SW).......... 408 -- -- 408 Companhia Vale do Rio 40,000 1,750,000 1,790,000 Doce Pfd. (BR)......... 1,076 47,057 -- 48,133 34,000 1,399,163 1,433,163 Pechiney SA (FR)......... 1,644 67,655 -- 69,299 Rio Tinto plc -- Registered 35,000 2,180,183 2,215,183 (UK)................... 650 40,490 -- 41,140 ------------- ------------- ---------- ---------- 10,528 489,020 -- 499,548 ------------- ------------- ---------- ---------- OFFICE ELECTRONICS 30,000 3,240,000 3,270,000 Canon Inc. (JP).......... 1,149 124,096 -- 125,245 ------------- ------------- ---------- ---------- OIL & GAS -- 11,393,662 11,393,662 BG Group plc (UK)........ -- 50,867 -- 50,867 170,598 14,635,576 14,806,174 BP plc (UK).............. 1,455 124,818 -- 126,273 China Petroleum & 4,750,000 214,000,000 218,750,000 Chemical Corp. (CHN)... 761 34,299 -- 35,060 -- 862,300 862,300 Norsk Hydro ASA (NOR).... -- 42,422 -- 42,422 Petrol Brasileiro SA- 59,557 3,899,443 3,959,000 PETROBRAS Pfd. (BR).... 1,385 90,687 -- 92,072 Royal Dutch Petroleum Co. -- Registered 20,000 1,434,000 1,454,000 (NET).................. 1,045 74,941 -- 75,986 6,567 630,677 637,244 Total Fina Elf SA (FR)... 995 95,519 -- 96,514 ------------- ------------- ---------- ---------- 5,641 513,553 -- 519,194 ------------- ------------- ---------- ---------- PAPER & FOREST PRODUCTS Holmen Ab Series -- 1,405,900 1,405,900 B (SW)................. -- 34,157 -- 34,157 97,000 4,900,000 4,997,000 Stora Enso Ojy (FIN)..... 1,230 62,143 -- 63,373 Svenska Cellulosa Ab 38,896 1,780,704 1,819,600 Series B (SW).......... 1,319 60,395 -- 61,714 UPM-Kymmene Corp. 55,991 2,257,809 2,313,800 (FIN).................. 1,956 78,882 -- 80,838 ------------- ------------- ---------- ---------- 4,505 235,577 -- 240,082 ------------- ------------- ---------- ---------- PHARMACEUTICALS 16,098 875,483 891,581 Aventis SA (FR).......... 1,143 62,160 -- 63,303 GlaxoSmithKline plc 292 -- 292 (UK)................... 7 -- -- 7 Novartis AG -- Registered 41,930 2,612,760 2,654,690 (SWS).................. 1,757 109,479 -- 111,236 Novo Nordisk A/S Series B 30,000 2,225,900 2,255,900 (DEN).................. 879 65,230 -- 66,109 ------------- ------------- ---------- ---------- 3,786 236,869 -- 240,655 ------------- ------------- ---------- ---------- SPECIALTY RETAIL Compagnie Financiere Richemont AG -- Bearer 72,300 5,538,700 5,611,000 (SWS).................. 1,638 125,519 -- 127,157 ------------- ------------- ---------- ----------
8
SHARES MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR HARBOR HARBOR INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL PRO FORMA FUND II FUND PRO FORMA DESCRIPTION FUND II FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- COMMON STOCKS -- CONTINUED TOBACCO British American Tobacco 125,000 8,141,947 8,266,947 plc (UK)............... $ 1,278 $ 83,254 $ -- $ 84,532 Imperial Tobacco Group 56,000 7,803,107 7,859,107 plc (UK)............... 788 109,861 -- 110,649 150,000 12,436,474 12,586,474 Swedish Match Ab (SW).... 1,181 97,896 -- 99,077 ------------- ------------- ---------- ---------- 3,247 291,011 -- 294,258 ------------- ------------- ---------- ---------- TRANSPORTATION INFRASTRUCTURE Eurotunnel SA Units 1,401,679 31,779,732 33,181,411 (FR)*.................. 1,287 29,188 -- 30,475 Eurotunnel SA Warrants (FR)* -- 19,000,000 19,000,000 Expire 10/30/2003........ -- 513 -- 513 ------------- ------------- ---------- ---------- 1,287 29,701 -- 30,988 ------------- ------------- ---------- ---------- WIRELESS TELECOMMUNICATION SERVICES China Mobile (Hong Kong) 45,069 -- 45,069 Ltd. ADR (HK)*......... 749 -- -- 749 China Mobile (Hong Kong) -- 10,725,000 10,725,000 Ltd. (HK)*............. -- 35,136 -- 35,136 Vodafone Group plc ADR 64,298 -- 64,298 (UK)(1)................ 1,042 -- -- 1,042 ------------- ------------- ---------- ---------- 1,791 35,136 -- 36,927 ------------- ------------- ---------- ---------- TOTAL COMMON STOCKS (COST HIF2 and HIF $72,938 and $2,435,652, respectively, pro forma total $2,508,590)........................................ 72,541 3,665,057 -- 3,737,598 ------------- ------------- ---------- ---------- PRINCIPAL AMOUNT (000S) MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR HARBOR HARBOR INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL PRO FORMA FUND II FUND PRO FORMA DESCRIPTION FUND II FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- SHORT-TERM INVESTMENTS COMMERCIAL PAPER American Express Credit Corp. Yrs 1&2 $ -- $25,119 $25,119 1.700% -- 05/01/2002..... $ -- $ 25,119 $ -- $ 25,119 Citicorp -- 6,246 6,246 1.680% -- 05/01/2002..... -- 6,246 -- 6,246 -- 25,000 25,000 1.680% -- 05/03/2002..... -- 25,000 -- 25,000 ------------- ------------- ---------- ---------- -- 31,246 -- 31,246 ------------- ------------- ---------- ---------- Exxon Project Investment Yrs 3&4 -- 35,291 35,291 1.750% -- 05/01/2002..... -- 35,291 -- 35,291 General Electric Capital Corp. 1,084 30,000 31,084 1.800% -- 05/01/2002..... 1,084 30,000 -- 31,084 -- 30,000 30,000 1.700% -- 05/02/2002..... -- 30,000 -- 30,000 ------------- ------------- ---------- ---------- 1,084 60,000 -- 61,084 ------------- ------------- ---------- ----------
9
PRINCIPAL AMOUNT (000S) MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR HARBOR HARBOR INTERNATIONAL INTERNATIONAL INTERNATIONAL INTERNATIONAL PRO FORMA FUND II FUND PRO FORMA DESCRIPTION FUND II FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- SHORT-TERM INVESTMENTS -- CONTINUED Prudential Funding Corp. $ -- $ 26,446 $ 26,446 1.730% -- 05/06/2002..... $ -- $ 26,446 $ -- $ 26,446 ------------- ------------- ---------- ---------- TOTAL SHORT-TERM INVESTMENTS (COST HIF and HIF2 $178,102 and $1,084, respectively, pro forma total $179,186).................................................... 1,084 178,102 -- 179,186 ------------- ------------- ---------- ---------- TOTAL INVESTMENTS (COST HIF2 and HIF $74,022 and $2,613,754, respectively, pro forma total $2,687,776)............................................ 73,625 3,843,159 -- 3,916,784 CASH AND OTHER ASSETS LESS LIABILITIES................................. 579 25,970 1,085 27,634 ------------- ------------- ---------- ---------- TOTAL NET ASSETS....................................................... $74,204 $3,869,129 $1,085 $3,944,418 ============= ============= ========== ==========
------------------------- (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. * Non-income producing security. (The accompanying notes are an integral part of the financial statements.) 10 -------------------------------------------------------------------------------- HARBOR SMALL CAP GROWTH FUND AND HARBOR GROWTH FUND PRO FORMA COMBINING OF ASSETS AND LIABILITIES -- APRIL 30, 2002 (UNAUDITED) (All amounts in Thousands, except per share amounts) --------------------------------------------------------------------------------
HARBOR SMALL CAP HARBOR PRO FORMA PRO FORMA GROWTH GROWTH ADJUSTMENTS COMBINED --------------------------------------------------------------------------------- --------- ASSETS INVESTMENTS, AT IDENTIFIED COST*............ $43,043 $150,519 $ -- $193,562 --------------------------------------------------------------------------------- --------- Investments, at value....................... $40,033 $118,685 $ -- $158,718 Repurchase agreements....................... 6,620 -- -- 6,620 Cash........................................ 1 1 -- 2 Receivables for: Investments sold.......................... 315 221 -- 536 Capital shares sold....................... 4,750 466 -- 5,216 Dividends................................. 2 -- -- 2 Interest.................................. -- 45 -- 45 Other assets................................ 1 13 -- 14 --------------------------------------------------------------------------------- --------- TOTAL ASSETS................................ 51,722 119,431 -- 171,153 --------------------------------------------------------------------------------- --------- LIABILITIES Payables for: Investments purchased..................... 2,430 499 -- 2,929 Capital shares reacquired................. 12 92 -- 104 Accrued expenses: Management fees........................... 25 145 30 200 Trustee fees.............................. -- 1 -- 1 Transfer agent fees....................... 21 8 (142) (113) Other..................................... 27 6 18 51 --------------------------------------------------------------------------------- --------- TOTAL LIABILITIES........................... 2,515 751 (94) 3,172 --------------------------------------------------------------------------------- --------- NET ASSETS.................................. $49,207 $118,680 $ 94 $167,981 --------------------------------------------------------------------------------- --------- Net assets consist of: Paid-in capital........................... $46,493 $164,457 $ -- $210,950 Undistributed/(overdistributed) net investment income...................... (113) (324) 94 (343) Accumulated net realized gain/(loss)...... (783) (13,619) -- (14,402) Unrealized appreciation/(depreciation) of investments............................ 3,610 (31,834) -- (28,224) --------------------------------------------------------------------------------- --------- $49,207 $118,680 $ 94 $167,981 --------------------------------------------------------------------------------- --------- Shares of beneficial interest............... 4,499 11,215 163(a) 15,877 Net asset value, offering and redemption price per share........................... $ 10.94 $ 10.58 $ -- $ 10.58
------------------------- * Including repurchase agreements and short-term investments. (a) Reflects net effect of combining existing Harbor Small Cap Growth Fund into Harbor Growth Fund. (The accompanying notes are an integral part of the financial statements.) 11 -------------------------------------------------------------------------------- HARBOR SMALL CAP GROWTH FUND AND HARBOR GROWTH FUND PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2002 (UNAUDITED) (All amounts in Thousands) --------------------------------------------------------------------------------
HARBOR SMALL CAP HARBOR PRO FORMA PRO FORMA GROWTH GROWTH ADJUSTMENTS COMBINED ---------------------------------------------------------------------------------- --------- INVESTMENT INCOME: Dividends............................... $ 27 $ 44 $ -- $ 71 Interest................................ 30 636 -- 666 ---------------------------------------------------------------------------------- --------- TOTAL INVESTMENT INCOME.............. 57 680 -- 737 OPERATING EXPENSES: Management fees......................... 163 1,047 (1)(a) 1,209 Shareholder communications.............. 5 32 23(b) 60 Custodian fees.......................... 24 25 (5)(c) 44 Transfer agent fees..................... 25 202 (142)(a) 85 Professional fees....................... 5 5 24(b) 34 Trustees' fees and expenses............. -- 3 -- 3 Registration fees....................... 28 35 (24)(c) 39 Insurance............................... -- 2 -- 2 Miscellaneous........................... 7 9 -- 16 ---------------------------------------------------------------------------------- --------- Total operating expenses........... 257 1,360 (125) 1,492 Management fees waived.................. (31) -- 31(a) -- ---------------------------------------------------------------------------------- --------- Net operating expenses............... 226 1,360 (94) 1,492 ---------------------------------------------------------------------------------- --------- NET INVESTMENT INCOME/(LOSS).............. (169) (680) 94 (755) REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENT TRANSACTIONS: Net realized gain/(loss) on: Investments.......................... (530) (9,527) -- (10,057) Change in net unrealized appreciation of: Investments.......................... 3,105 (32,548) -- (29,443) ---------------------------------------------------------------------------------- --------- Net gain on investment transactions..... 2,575 (42,075) -- (39,500) ---------------------------------------------------------------------------------- --------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS...................... $2,406 $(42,755) $ 94 $(40,255) ---------------------------------------------------------------------------------- ---------
(a) Reflects adjustment to contractual rate of acquiring fund. (b) Reflects increased expenses related to fund merger. (c) Reflects expected savings of duplicative costs arising from the merger. (The accompanying notes are an integral part of the financial statements.) 12 -------------------------------------------------------------------------------- HARBOR GROWTH FUND HARBOR SMALL CAP GROWTH FUND PRO FORMA COMBINING SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2002 --------------------------------------------------------------------------------
SHARES MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR SMALL CAP HARBOR SMALL CAP HARBOR GROWTH GROWTH GROWTH GROWTH PRO FORMA FUND FUND PRO FORMA DESCRIPTION FUND FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- COMMON STOCKS AEROSPACE & DEFENSE 34,100 -- 34,100 Armor Holdings Inc.*..... $ 864 $ -- $ -- $ 864 ------------- ------------- ---------- ---------- AIRLINES Atlantic Coast Airlines 24,900 -- 24,900 Holdings Inc.*......... 544 -- -- 544 ExpressJet 24,700 -- 24,700 Holdings Inc.*......... 354 -- -- 354 25,700 -- 25,700 SKYWEST Inc.............. 590 -- -- 590 ------------- ------------- ---------- ---------- 1,488 -- -- 1,488 ------------- ------------- ---------- ---------- BANKS 24,600 -- 24,600 East West Bancorp Inc.... 881 -- -- 881 18,400 -- 18,400 Greater Bay Bancorp...... 616 -- -- 616 19,000 -- 19,000 Indymac Bancorp Inc.*.... 480 -- -- 480 Silicon Valley 45,600 -- 45,600 Bancshares............. 1,457 -- -- 1,457 Southwest Bancorporation 19,700 -- 19,700 of Texas Inc.*......... 690 -- -- 690 17,800 -- 17,800 UCBH Holdings Inc........ 702 -- -- 702 ------------- ------------- ---------- ---------- 4,826 -- -- 4,826 ------------- ------------- ---------- ---------- BIOTECHNOLOGY Albany Molecular Research 15,000 -- 15,000 Inc.*.................. 364 -- -- 364 ------------- ------------- ---------- ---------- COMMERCIAL SERVICES & SUPPLIES Career Education 20,000 -- 20,000 Corp.*................. 899 -- -- 899 31,400 -- 31,400 DeVry Inc.*.............. 832 -- -- 832 DiamondCluster International Inc. -- 140,000 140,000 Cl. A*................. -- 1,764 1,764 20,400 -- 20,400 NDCHealth Corp........... 656 -- -- 656 -- 450,000 450,000 ProsoftTraining.com*..... -- 351 -- 351 Republic Services Inc. 45,000 -- 45,000 Cl. A*................. 891 -- -- 891 10,300 -- 10,300 Stericycle Inc.*......... 696 -- -- 696 Sylvan Learning Systems 2,600 -- 2,600 Inc.*.................. 72 -- -- 72 Waste Connections 26,400 -- 26,400 Inc.*.................. 932 -- -- 932 ------------- ------------- ---------- ---------- 4,978 2,115 -- 7,093 ------------- ------------- ---------- ----------
13
SHARES MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR SMALL CAP HARBOR SMALL CAP HARBOR GROWTH GROWTH GROWTH GROWTH PRO FORMA FUND FUND PRO FORMA DESCRIPTION FUND FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- COMMON STOCKS -- CONTINUED COMMUNICATIONS EQUIPMENT Advanced Fibre 34,300 -- 34,300 Communications Inc.*... 608 -- -- 608 Aspect Communications -- 290,000 290,000 Corp.*................. -- 1,389 -- 1,389 Comverse Technology -- 210,000 210,000 Inc.*.................. -- 2,526 -- 2,526 -- 400,000 400,000 Proxim Corp. Cl. A*...... -- 1,220 -- 1,220 -- 440,000 440,000 Symmetricom Inc.*........ -- 2,816 -- 2,816 -- 335,000 335,000 Verilink Corp.*.......... -- 137 -- 137 ------------- ------------- ---------- ---------- 608 8,088 -- 8,696 ------------- ------------- ---------- ---------- COMPUTERS & PERIPHERALS Network Appliance -- 300,000 300,000 Inc.*.................. -- 5,235 -- 5,235 ------------- ------------- ---------- ---------- ELECTRIC UTILITIES -- 110,800 110,800 AES Corp.*............... -- 889 -- 889 ------------- ------------- ---------- ---------- ELECTRONIC EQUIPMENT & INSTRUMENTS Checkpoint Systems -- 280,000 280,000 Inc.*.................. -- 4,830 -- 4,830 ClearOne Communications -- 60,000 60,000 Inc.*.................. -- 983 -- 983 -- 280,000 280,000 LoJack Corp.*............ -- 1,540 -- 1,540 -- 415,000 415,000 Pinnacle Systems Inc.*... -- 3,860 -- 3,860 -- 230,000 230,000 Planar Systems Inc.*..... -- 5,725 -- 5,725 ------------- ------------- ---------- ---------- -- 16,938 -- 16,938 ------------- ------------- ---------- ---------- ENERGY EQUIPMENT & SERVICES 23,900 -- 23,900 Helmerich & Payne Inc.... 985 -- -- 985 20,100 -- 20,100 SEACOR Smit Inc.*........ 967 -- -- 967 Superior Energy Services 59,000 -- 59,000 Inc.*.................. 658 -- -- 658 W-H Energy Services 34,300 -- 34,300 Inc.*.................. 883 -- -- 883 ------------- ------------- ---------- ---------- 3,493 -- -- 3,493 ------------- ------------- ---------- ---------- HEALTH CARE EQUIPMENT & SUPPLIES Interpore International 87,000 -- 87,000 Inc.*.................. 818 -- -- 818 -- 250,000 250,000 Kensey Nash Corp.*....... -- 4,812 -- 4,812 Molecular Devices -- 150,000 150,000 Corp.*................. -- 2,678 -- 2,678 Wilson Greatbatch 14,300 -- 14,300 Technologies Inc.*..... 375 -- -- 375 Wright Medical Group 13,300 -- 13,300 Inc.*.................. 252 -- -- 252 ------------- ------------- ---------- ---------- 1,445 7,490 -- 8,935 ------------- ------------- ---------- ----------
14
SHARES MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR SMALL CAP HARBOR SMALL CAP HARBOR GROWTH GROWTH GROWTH GROWTH PRO FORMA FUND FUND PRO FORMA DESCRIPTION FUND FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- COMMON STOCKS -- CONTINUED HEALTH CARE PROVIDERS & SERVICES 60,500 -- 60,500 Alliance Imaging Inc.*... 792 -- -- 792 Boron, LePore & 10,900 -- 10,900 Associates Inc.*....... 130 -- -- 130 Community Health Systems 34,200 -- 34,200 Inc.*.................. 992 -- -- 992 34,500 -- 34,500 Cross Country Inc.*...... 1,044 -- -- 1,044 Health Management Associates Inc. Cl. -- 130,000 130,000 A*..................... -- 2,774 2,774 31,700 -- 31,700 Manor Care Inc.*......... 813 -- -- 813 Orthodontic Centers of -- 105,000 105,000 America Inc.*.......... -- 2,798 -- 2,798 PSS World Medical 75,000 -- 75,000 Inc.*.................. 742 -- -- 742 Quintiles Transnational 52,900 -- 52,900 Corp.*................. 751 -- -- 751 26,800 -- 26,800 RehabCare Group Inc.*.... 714 -- -- 714 45,000 -- 45,000 Select Medical Corp.*.... 677 -- -- 677 Specialty Laboratories 5,000 -- 5,000 Inc.................... 44 -- -- 44 ------------- ------------- ---------- ---------- 6,699 5,572 -- 12,271 ------------- ------------- ---------- ---------- HOTELS RESTAURANTS & LEISURE -- 60,000 60,000 Carnival Corp............ -- 1,999 1,999 CEC Entertainment 19,000 -- 19,000 Inc.*.................. 878 -- -- 878 Extended Stay America 45,300 -- 45,300 Inc.*.................. 756 -- -- 756 ------------- ------------- ---------- ---------- 1,634 1,999 -- 3,633 ------------- ------------- ---------- ---------- INSURANCE Converium Holding AG 30,300 -- 30,300 ADR(1)................. 830 -- -- 830 Everest Reinsurance 10,600 -- 10,600 Holdings Inc........... 720 -- -- 720 Philadelphia Consolidated 17,300 -- 17,300 Holdings Corp.......... 739 -- -- 739 RenaissanceRe Holdings 5,000 -- 5,000 Ltd.................... 586 -- -- 586 ------------- ------------- ---------- ---------- 2,875 -- -- 2,875 ------------- ------------- ---------- ---------- INTERNET SOFTWARE & SERVICES 37,400 -- 37,400 FreeMarkets Inc.......... 664 -- -- 664 -- 200,000 200,000 Netegrity Inc.*.......... -- 1,530 -- 1,530 -- 130,000 130,000 Sonicwall Inc.*.......... -- 965 -- 965 -- 170,000 170,000 Stellent Inc.*........... -- 896 -- 896 ------------- ------------- ---------- ---------- 664 3,391 -- 4,055 ------------- ------------- ---------- ---------- MACHINERY Flow International -- 200,000 200,000 Corp.*................. -- 2,120 2,120 ------------- ------------- ---------- ----------
15
SHARES MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR SMALL CAP HARBOR SMALL CAP HARBOR GROWTH GROWTH GROWTH GROWTH PRO FORMA FUND FUND PRO FORMA DESCRIPTION FUND FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- COMMON STOCKS -- CONTINUED MEDIA Entravision 45,400 -- 45,400 Communications Corp.*.. 658 -- -- 658 Information Holdings 8,200 -- 8,200 Inc.*.................. 256 -- -- 256 Insight Communications 19,700 -- 19,700 Co. Inc. Cl. A*........ 306 -- -- 306 Mediacom Communications 1,100 -- 1,100 Corp. Cl. A*........... 11 -- -- 11 ------------- ------------- ---------- ---------- 1,231 -- -- 1,231 ------------- ------------- ---------- ---------- METALS & MINING 36,300 -- 36,300 Arch Coal Inc............ 806 -- -- 806 ------------- ------------- ---------- ---------- MULTILINE RETAIL Dollar Tree Stores -- 67,500 67,500 Inc.*.................. -- 2,574 -- 2,574 -- 100,000 100,000 TJX Cos. Inc............. -- 4,358 -- 4,358 ------------- ------------- ---------- ---------- -- 6,932 -- 6,932 ------------- ------------- ---------- ---------- OIL & GAS Chesapeake Energy 79,500 -- 79,500 Corp.*................. 680 -- -- 680 ------------- ------------- ---------- ---------- PHARMACEUTICALS -- 85,517 85,517 Elan Corp. plc ADR(1)*... -- 1,016 -- 1,016 K-V Pharmaceutical Co. -- 150,000 150,000 Cl. A*................. -- 4,313 -- 4,313 Salix Pharmaceuticals 21,700 -- 21,700 Ltd.*.................. 322 -- -- 322 ------------- ------------- ---------- ---------- 322 5,329 -- 5,651 ------------- ------------- ---------- ---------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 180,000 180,000 ATMI Inc.*............... -- 5,490 -- 5,490 Brooks Automation 20,100 -- 20,100 Inc.*.................. 717 -- -- 717 31,900 -- 31,900 LTX Corp.*............... 677 -- -- 677 Maxim Integrated Products -- 70,000 70,000 Inc.*.................. -- 3,486 -- 3,486 33,500 -- 33,500 Therma-Wave Inc.*........ 474 -- -- 474 TriQuint Semiconductor -- 172,605 172,605 Inc.*.................. -- 1,750 -- 1,750 Varian Semiconductor Equipment Associates 20,000 -- 20,000 Inc.*.................. 934 -- -- 934 ------------- ------------- ---------- ---------- 2,802 10,726 -- 13,528 ------------- ------------- ---------- ----------
16
SHARES MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR SMALL CAP HARBOR SMALL CAP HARBOR GROWTH GROWTH GROWTH GROWTH PRO FORMA FUND FUND PRO FORMA DESCRIPTION FUND FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- COMMON STOCKS -- CONTINUED SOFTWARE -- 150,000 150,000 Ansoft Corp.*............ $ -- $ 1,696 $ -- $ 1,696 Borland Software 46,200 -- 46,200 Corp.*................. 504 -- -- 504 -- 200,000 200,000 Documentum Inc.*......... -- 3,884 -- 3,884 -- 150,000 150,000 Innoveda Inc.*........... -- 583 -- 583 -- 500,000 500,000 Legato Systems Inc.*..... -- 3,450 -- 3,450 -- 265,600 265,600 MRO Software Inc.*....... -- 3,841 -- 3,841 -- 100,000 100,000 Precis Inc.*............. -- 1,455 -- 1,455 -- 200,000 200,000 QRS Corp.*............... -- 2,240 -- 2,240 Renaissance Learning 24,000 200,000 224,000 Inc.*.................. 830 6,914 -- 7,744 Secure Computing -- 200,000 200,000 Corp.*................. -- 2,514 -- 2,514 -- 160,000 160,000 SERENA Software Inc.*.... -- 2,200 -- 2,200 -- 100,000 100,000 Symantec Corp.*.......... -- 3,541 -- 3,541 20,000 -- 20,000 THQ Inc.*................ 701 -- -- 701 Wind River Systems -- 160,000 160,000 Inc.*.................. -- 1,742 1,742 ------------- ------------- ---------- ---------- 2,035 34,060 -- 36,095 ------------- ------------- ---------- ---------- SPECIALTY RETAIL 26,900 -- 26,900 Cost Plus Inc.*.......... 792 -- -- 792 39,900 -- 39,900 Guitar Center Inc.*...... 788 -- -- 788 11,100 -- 11,100 Williams-Sonoma Inc.*.... 639 -- -- 639 ------------- ------------- ---------- ---------- 2,219 -- -- 2,219 ------------- ------------- ---------- ---------- WIRELESS TELECOMMUNICATION SERVICES Nextel Communications -- 180,000 180,000 Inc. Cl. A*............ -- 992 -- 992 ------------- ------------- ---------- ---------- TOTAL COMMON STOCKS (COST HSCGF and HGF $36,423 and $142,296, respectively, pro forma total $178,719).......................................... 40,033 111,876 -- 151,909 ------------- ------------- ---------- ---------- PRINCIPAL AMOUNT (000S) MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR SMALL CAP HARBOR SMALL CAP HARBOR GROWTH GROWTH GROWTH GROWTH PRO FORMA FUND FUND PRO FORMA DESCRIPTION FUND FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- CONVERTIBLE BOND (COST HSCGF and HGF $0 and $2,827, respectively, pro forma total $2,827) SystemOne Technologies Inc. 8.250% -- 02/23/2003 $ -- $ 2,826 $ 2,826 PIK(2)................. $ -- $ 1,413 $ -- $ 1,413 ------------- ------------- ---------- ----------
17
PRINCIPAL AMOUNT (000S) MARKET VALUE (000S) ------------------------------------------- ------------------------------------------------------- HARBOR HARBOR SMALL CAP HARBOR SMALL CAP HARBOR GROWTH GROWTH GROWTH GROWTH PRO FORMA FUND FUND PRO FORMA DESCRIPTION FUND FUND ADJUSTMENT PRO FORMA ------------- ------------- ----------- ------------------------- ------------- ------------- ---------- ---------- SHORT-TERM INVESTMENTS COMMERCIAL PAPER Exxon Asset Management Co. $ -- $ 1,816 $ 1,816 1.750% -- 05/02/2002..... $ -- $ 1,816 $ -- $ 1,816 General Electric Capital Corp. -- 2,388 2,388 1.680% -- 05/01/2002..... -- 2,388 -- 2,388 Prudential Funding Corp. -- 1,192 1,192 1.700% -- 05/03/2002..... -- 1,192 -- 1,192 ------------- ------------- ---------- ---------- REPURCHASE AGREEMENT Repurchase Agreement with State Street Bank & Trust dated April 30, 2002 due May 1, 2002 at 0.65% collateralized by a U.S. Treasury Bill 12.0% August 15, 2013, par value of $4,815 (repurchase proceeds of $6,620 when closed on 6,620 -- 6,620 May 1, 2002)........... 6,620 -- -- 6,620 ------------- ------------- ---------- ---------- TOTAL SHORT-TERM INVESTMENTS (COST HSCGF and HGF $6,620 and $5,396, respectively, pro forma total $12,016)..................................................... 6,620 5,396 -- 12,016 ------------- ------------- ---------- ---------- TOTAL INVESTMENTS (COST HSCGF and HGF $43,043 and $150,519, respectively, pro forma total $193,562).......................................... 46,653 118,685 -- 165,338 CASH AND OTHER ASSETS, LESS LIABILITIES................................ 2,554 (5) 94 2,643 ------------- ------------- ---------- ---------- TOTAL NET ASSETS....................................................... $49,207 $ 118,680 $ 94 $ 167,981 ============= ============= ========== ==========
------------------------- (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) PIK - Payment-in-kind security. * Non-income producing security. (The accompanying notes are an integral part of the financial statements.) 18 -------------------------------------------------------------------------------- NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- 1. BASIS OF COMBINATION Harbor Fund, a Delaware business trust (the "Trust"), is registered under the Investment Company Act of 1940, as amended, (the "1940 Act") as a no-load, open-end management investment company. As of April 30, 2002, the Trust offered fourteen managed investment portfolios. The unaudited Pro Forma Combining Portfolio of Investments and the unaudited Pro Forma Statement of Assets and Liabilities assume the exchange described in the next paragraph occurred as of April 30, 2002 and the unaudited Pro Forma Combining Statement of Operations assumes the exchange occurred as of May 1, 2001. These statements have been derived from books and records utilized in calculating the net asset value of each fund at April 30, 2002 and for the 12-month period then ended. The pro forma statements give effect to the proposed transfer of substantially all of the assets and stated liabilities of the Harbor International Fund II and Harbor Small Cap Growth Fund in exchange for shares of the Harbor International Fund and Harbor Growth Fund, respectively. Under generally accepted accounting principles, the historical cost of investment securities will be carried forward to the surviving entity and the results of operations of the Harbor International Fund II and Harbor Small Cap Growth Fund for pre-combination periods will not be restated. The pro forma statements reflect the expenses of each fund in carrying out its obligations under the proposed Agreement and Plan of Reorganization. Harbor International Fund II and Harbor Small Cap Growth Fund will each distribute all of its ordinary income and capital gains, if any, prior to the respective Fund merging. The unaudited Pro Forma Combining Financial Statements should be read in conjunction with the historical financial statements of the funds incorporated by reference in the Statement of Additional Information. For the 12-month period ended April 30, 2002, the Harbor International Fund and Harbor Growth Fund's investment advisory fees were computed based on the annual rate of 0.75% and 0.75%, respectively, of its average daily net assets. 2. SECURITY VALUATION The underlying funds are valued at the last sale price on an exchange or the National Association of Securities Dealers Automated Quotation ("NASDAQ") system or, in the case of unlisted securities or listed securities for which there were no sales on the valuation day, the mean between the closing bid and asked price. Securities listed or traded on foreign exchanges are valued at the last sale price on that exchange on the valuation day, or if no sale occurs, at the official bid price (both the last sale price and official bid price are determined as of the close of the London Foreign Exchange). Debt securities, other than short-term securities with a remaining maturity of less than sixty days, are valued at prices furnished by a pricing service, or as otherwise described below, selected by the Adviser, which determines valuation for normal institutional-size trading units of such securities using market information, transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders. Short-term securities with a remaining maturity of less than sixty days are stated at amortized cost which approximates value. Open futures contracts are valued based on the last sale price on the exchange on which such futures are principally traded. Securities for which there are no such prices or for which prices are deemed by the Adviser or Subadviser not to be representative of market values, are valued at their fair value as determined in good faith under consistently applied procedures established by and under the supervision of the Board of Trustees. The actual calculation of fair market value may be done by others including the Adviser and Subadviser. 19 3. CAPITAL SHARES The pro forma net asset value per share assumes the issuance of additional shares of the Harbor International Fund that would have been issued at April 30, 2002 in connection with the proposed merger. The pro forma number of shares outstanding of 125,259 consists of 2,489 shares assumed issued in the merger plus 122,869 shares of the Harbor International Fund at April 30, 2002. The pro forma net asset value per share assumes the issuance of additional shares of the Harbor Small Cap Growth Fund that would have been issued at April 30, 2002 in connection with the proposed merger. The pro forma number of shares outstanding of 15,877 consists of 4,662 shares assumed issued in the merger plus 11,215 shares of the Harbor Growth Fund at April 30, 2002. 4. PRO FORMA ADJUSTMENTS AND PRO FORMA COMBINED COLUMNS The pro forma adjustments and pro forma combined columns of the statement of operations reflect the adjustments necessary to show expenses at the rates which would have been in effect if the Harbor International Fund II were included in the Harbor International Fund for the period May 1, 2001 to April 30, 2002. Investment advisory and administrative fees in the pro forma combined column are calculated at the rates in effect for the Harbor International Fund based upon the combined net assets of the Harbor International Fund II and Harbor International Fund. The pro forma adjustments and pro forma combined columns of the statement of operations reflect the adjustments necessary to show expenses at the rates which would have been in effect if the Harbor Small Cap Growth Fund were included in the Harbor Growth Fund for the period May 1, 2001 to April 30, 2002. Investment advisory and administrative fees in the pro forma combined column are calculated at the rates in effect for the Harbor Growth Fund based upon the combined net assets of the Harbor Small Cap Growth Fund and Harbor Growth Fund. The pro forma Statement of Assets and Liabilities and Schedule of Investments give effect to the proposed transfer of such assets as if the merger had occurred at April 30, 2002. 5. COSTS OF MERGER Merger expenses incurred by the Harbor Funds will be paid by the respective Fund. Merger expenses include, without limitation: (a) expenses associated with the preparation and filing of this Prospectus/ Proxy Statement; (b) postage; (c) printing; (d) accounting fees; (e) legal fees incurred by each Fund; (f) solicitation costs; and (g) brokerage cost of any necessary rebalancing of the Funds' investment portfolios. 6. FEDERAL INCOME TAXES Each Fund is treated as a separate entity for federal tax purposes. Each Fund's policy is to meet the requirements 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 tax on income and capital gains. 20 PART C: OTHER INFORMATION ITEM 15. INDEMNIFICATION. The Registrant maintains directors and officers insurance which, subject to the terms, conditions and deductibles of the policy, covers Trustees and officers of the Registrant while acting in their capacities as such. The issuer of the policy is the Chubb Custom Insurance Company, Chubb Group of Insurance Companies. Insofar as indemnification for liability arising under the Securities Act of 1933 ("1933 Act") may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. ITEM 16. EXHIBITS. (1) Declaration of Trust is incorporated by reference to Exhibit a(1) of Post-Effective Amendment No. 22 to the Form N-1A Registration Statement as filed with the SEC on February 27, 1997 ("Post-Effective Amendment No. 22"). (2) By-Laws are incorporated by reference to Exhibit b of the Post-Effective Amendment No. 22. (3) Not Applicable. (4)(a) Form of Agreement and Plan of Reorganization between Harbor International Fund and Harbor International Fund II is filed herewith as Exhibit A to Part A of this Registration Statement. (4)(b) Form of Agreement and Plan of Reorganization between Harbor Growth Fund and Harbor Small Cap Growth Fund is filed herewith as Exhibit B to Part A of this Registration Statement. (5) Not Applicable. (6)(a) Form of Investment Advisory Agreement with Harbor Capital Advisors, Inc. on behalf of Harbor Small Cap Growth Fund is incorporated by reference to Exhibit d(3) of Post-Effective Amendment No. 32 to the Form N-1A Registration Statement filed with the SEC on April 20, 2001 ("Post-Effective Amendment No. 32"). (6)(b) Form of Investment Advisory Agreement with Harbor Capital Advisors, Inc. on behalf of Harbor International Fund is filed herewith. (6)(c) Form of Subadvisory Agreement with Emerging Growth Advisors, Inc. on behalf of Harbor Growth Fund is incorporated by reference to Exhibit d(14) of Post-Effective Amendment No. 32. (6)(d) Form of Subadvisory Agreement with Westfield Capital Management Company, Inc. on behalf of Harbor Small Cap Growth Fund is incorporated by reference to Exhibit d(15) of Post-Effective Amendment No. 32. (6)(e) Form of Subadvisory Agreement with Northern Cross Investments Limited on behalf of Harbor International Fund is incorporated by reference to Exhibit d(20) of Post-Effective Amendment No. 32. (6)(f) Form of Subadvisory Agreement with Northern Cross Investments Limited on behalf of Harbor International Fund II is filed herewith as Exhibit C to Part A of this Registration Statement. C-1 (6)(g) Form of Subadvisory Agreement with Westfield Capital Management Company, Inc. on behalf of Harbor Growth Fund is filed herewith. (7) Form of Distribution Agreement with HCA Securities, Inc. is incorporated by reference to Exhibit (e) of Post-Effective Amendment No. 36 to the Form N-1A Registration Statement filed with the SEC on June 20, 2002 ("Post-Effective Amendment No. 36"). (8) Not Applicable. (9)(a) Custodian Agreement with State Street Bank and Trust Company is incorporated by reference to Exhibit (g) of Post-Effective Amendment No. 24 to the Form N-1A Registration Statement filed with the SEC on February 26, 1998 ("Post-Effective Amendment No. 24"). 9(b) Fee Schedule to Custodian Agreement with State Street Bank and Trust Company is incorporated by reference to Exhibit g(1) of Post-Effective Amendment No. 34 to the Form N-1A Registration Statement filed with the SEC on December 3, 2001 ("Post-Effective Amendment No. 34"). (10) Not Applicable. (11) Opinion of Hale and Dorr LLP concerning legality of shares of Harbor International Fund shares and Harbor Growth Fund shares is filed herewith. (12)(a) Form of opinion of Hale and Dorr LLP concerning the tax matters and consequences to shareholders of the HGF and HSCGF merger discussed in the prospectus is filed herewith. (12)(b) Form of opinion of Hale and Dorr LLP concerning the tax matters and consequences to shareholders of the HIF and HIF2 merger discussed in the prospectus is filed herewith. (13)(a) Form of Transfer Agent and Service Agreement with Harbor Transfer, Inc. is incorporated by reference to Exhibit h of Post-Effective Amendment No. 32. (13)(b) Fee Schedule to Transfer Agent and Service Agreement with Harbor Transfer, Inc. is incorporated by reference to Exhibit h(1) of Post-Effective Amendment No. 34. (14) Consent of Independent Auditors filed herewith. (15) Not Applicable. (16) Power of attorney is incorporated by reference to Exhibit o of Post-Effective Amendment No. 30 to the Form N-1A Registration Statement filed with the SEC on November 16, 2000. ITEM 17. UNDERTAKINGS. (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is part of this registration statement by any person or party which is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR 230.145c], the reoffering prospectus will contain the information called for by the applicable registration form for the reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. (3) The undersigned Registrant agrees that it will file electronically via EDGAR an executed copy of the forms of opinion of Hale and Dorr LLP filed herewith as Exhibits 12(a) and 12(b) on or after the closing date for each reorganization which is described in the Form N-14 filed herewith. C-2 SIGNATURES As required by the Securities Act of 1933, this registration statement has been signed on behalf of the registrant, in the City of Toledo, and State of Ohio, on the 1st day of August, 2002. HARBOR FUND By: /s/ JAMES M. WILLIAMS ------------------------------------ James M. Williams President As required by the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ DAVID G. VAN HOOSER* Chairman and Trustee August 1, 2002 ------------------------------------- /s/ JAMES M. WILLIAMS President (Principal Executive August 1, 2002 ------------------------------------- Officer) /s/ CONSTANCE L. SOUDERS Vice President and Treasurer August 1, 2002 ------------------------------------- (Principal Financial and Account Officer) /s/ JOHN P. GOULD* Trustee August 1, 2002 ------------------------------------- /s/ HOWARD P. COLHOUN* Trustee August 1, 2002 ------------------------------------- /s/ RODGER F. SMITH* Trustee August 1, 2002 -------------------------------------
------------------------- * Executed by James M. Williams pursuant to a power of attorney filed with Post-Effective Amendment No. 30. C-3 INDEX TO EXHIBITS
NO. EXHIBIT --- ------- (6)(b) Form of Investment Advisory Agreement with Harbor Capital Advisors, Inc. on behalf of Harbor International Fund (6)(g) Form of Subadvisory Agreement with Westfield Capital Management Company, Inc. on behalf of Harbor Growth Fund (11) Opinion of Hale and Dorr LLP concerning legality of shares of Harbor International Fund and Harbor Growth Fund (12)(a) Form of opinion of Hale and Dorr LLP concerning tax matters and consequences to shareholders of the HGF and HSCGF merger (12)(b) Form of opinion of Hale and Dorr LLP concerning tax matters and consequences to shareholders of the HIF and HIF2 merger (14) Consent of Independent Auditors
C-4 YOUR VOTE IS IMPORTANT [HARBOR FUND LOGO] TO VOTE BY TELEPHONE TO VOTE BY INTERNET TO VOTE BY MAIL 1) Read the Proxy Statement 1) Read the Proxy Statement 1) Read the Proxy Statement. and have the Proxy card on and have the Proxy card on 2) Check the appropriate box reverse at hand. reverse at hand. on the reverse side. 2) Call 1-800-690-6903. 2) Go to Website 3) Sign and date the Proxy card. 3) Enter the 14-digit number WWW.PROXYWEB.COM 4) Return the Proxy card in at left and follow the 3) Enter the 14-digit number the envelope provided. simple instructions. at left and follow the simple instructions. *** CONTROL NUMBER: 999 999 999 999 99 *** PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES HARBOR INTERNATIONAL FUND II SPECIAL MEETING OF SHAREHOLDERS OCTOBER 22, 2002 This proxy is solicited on behalf of the Board of Trustees of Harbor Fund (the "Trust") for the Special Meeting of Shareholders (the "Meeting") and relates to the proposal with respect to the Trust and to Harbor International Fund II (the "Fund"), a series of the Trust. The undersigned hereby appoints David G. Van Hooser, James M. Williams, Constance L. Souders and Karen B. Wasil, and each of them, proxies for the undersigned, with full power of substitution and revocation to represent the undersigned and to vote on behalf of the undersigned all shares of the Fund which the undersigned is entitled to vote at the Meeting to be held at 9:00 a.m., Eastern time, on October 22, 2002 at One SeaGate, 16th Floor, Toledo, Ohio 43666, and any adjournment thereof. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS INSTRUCTED. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS RELATING TO THE TRUST AND TO THE FUND WITH DISCRETIONARY AUTHORITY TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. THE UNDERSIGNED HEREBY REVOKES ANY PROXY PREVIOUSLY GIVEN. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET. Date -------------------------------- -------------------------------------------- -------------------------------------------- Signature(s) PLEASE SIGN WITHIN THE BOX PLEASE SIGN EXACTLY AS NAME(S) APPEARS TO THE LEFT. IF SHARES ARE HELD IN THE NAME OF JOINT OWNERS, EACH SHOULD SIGN. ATTORNEYS-IN-FACT, EXECUTORS, ADMINISTRATORS, TRUSTEES, GUARDIANS ETC. SHOULD SO INDICATE. IF SHAREHOLDER IS A CORPORATION OR PARTNERSHIP, PLEASE SIGN IN FULL CORPORATE OR PARTNERSHIP NAME BY AUTHORIZED PERSON. 018
PLEASE FILL IN BOX(ES) AS SHOWN USING BLACK OR BLUE INK OR NUMBER 2 PENCIL. /X/ PLEASE DO NOT USE FINE POINT PENS. HARBOR INTERNATIONAL FUND II Unless otherwise specified in the boxes provided, your vote will be cast FOR the numbered item below. The Board of Trustees of Harbor Fund recommends that you vote FOR the proposal set forth below. VOTE ON THE PROPOSAL FOR AGAINST ABSTAIN 1. Approval of Agreement and Plan of Merger between / / / / / / Harbor International Fund II and Harbor International Fund. 018 YOUR VOTE IS IMPORTANT [HARBOR FUND LOGO] TO VOTE BY TELEPHONE TO VOTE BY INTERNET TO VOTE BY MAIL 1) Read the Proxy Statement 1) Read the Proxy Statement 1) Read the Proxy Statement. and have the Proxy card on and have the Proxy card on 2) Check the appropriate box reverse at hand. reverse at hand. on the reverse side. 2) Call 1-800-690-6903. 2) Go to Website 3) Sign and date the Proxy card. 3) Enter the 14-digit number WWW.PROXYWEB.COM 4) Return the Proxy card in at left and follow the 3) Enter the 14-digit number the envelope provided. simple instructions. at left and follow the simple instructions. *** CONTROL NUMBER: 999 999 999 999 99 *** PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF TRUSTEES HARBOR SMALL CAP GROWTH FUND SPECIAL MEETING OF SHAREHOLDERS OCTOBER 22, 2002 This proxy is solicited on behalf of the Board of Trustees of Harbor Fund (the "Trust") for the Special Meeting of Shareholders (the "Meeting") and relates to the proposal with respect to the Trust and to Harbor Small Cap Growth Fund (the "Fund"), a series of the Trust. The undersigned hereby appoints David G. Van Hooser, James M. Williams, Constance L. Souders and Karen B. Wasil, and each of them, proxies for the undersigned, with full power of substitution and revocation to represent the undersigned and to vote on behalf of the undersigned all shares of the Fund which the undersigned is entitled to vote at the Meeting to be held at 9:00 a.m., Eastern time, on October 22, 2002 at One SeaGate, 16th Floor, Toledo, Ohio 43666, and any adjournment thereof. THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS INSTRUCTED. UNLESS INDICATED TO THE CONTRARY, THIS PROXY SHALL BE DEEMED TO GRANT AUTHORITY TO VOTE "FOR" ALL PROPOSALS RELATING TO THE TRUST AND TO THE FUND WITH DISCRETIONARY AUTHORITY TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT THEREOF. THE UNDERSIGNED HEREBY REVOKES ANY PROXY PREVIOUSLY GIVEN. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET. Date -------------------------------- -------------------------------------------- -------------------------------------------- Signature(s) PLEASE SIGN WITHIN THE BOX PLEASE SIGN EXACTLY AS NAME(S) APPEARS TO THE LEFT. IF SHARES ARE HELD IN THE NAME OF JOINT OWNERS, EACH SHOULD SIGN. ATTORNEYS-IN-FACT, EXECUTORS, ADMINISTRATORS, TRUSTEES, GUARDIANS ETC. SHOULD SO INDICATE. IF SHAREHOLDER IS A CORPORATION OR PARTNERSHIP, PLEASE SIGN IN FULL CORPORATE OR PARTNERSHIP NAME BY AUTHORIZED PERSON. 020
PLEASE FILL IN BOX(ES) AS SHOWN USING BLACK OR BLUE INK OR NUMBER 2 PENCIL. /X/ PLEASE DO NOT USE FINE POINT PENS. HARBOR SMALL CAP GROWTH FUND Unless otherwise specified in the boxes provided, your vote will be cast FOR the numbered item below. The Board of Trustees of Harbor Fund recommends that you vote FOR the proposal set forth below. VOTE ON THE PROPOSAL FOR AGAINST ABSTAIN 1. Approval of Agreement and Plan of Merger between / / / / / / Harbor Small Cap Growth Fund and Harbor Growth Fund. 020 IMPORTANT NOTICE Although we recommend that you read the Proxy Statement carefully, for your convenience, we have provided a brief overview of the proposals to be voted upon. QUESTIONS & ANSWERS Q: WHY AM I RECEIVING THIS PROXY STATEMENT? A: This proxy statement is being provided to shareholders of Harbor International Fund II (HIF2) and Harbor Small Cap Growth Fund (HSCGF). These shareholders are being asked to vote upon proposals under which 1) HIF2 would be merged into Harbor International Fund (HIF) and 2) HSCGF would be merged into Harbor Growth Fund (HGF), respectively. Q: WHAT WILL BE THE NAMES OF THE TWO FUNDS THAT CONTINUE FOLLOWING THE MERGERS? A: The Fund surviving from the merger of HIF2 into HIF will be Harbor International Fund. The Fund surviving from the merger of HSCGF into HGF will be renamed Harbor Small Cap Growth Fund. Q: WHO WILL MANAGE HARBOR INTERNATIONAL FUND? A: Northern Cross Investments Limited, currently subadviser of both HIF and HIF2, will continue to subadvise Harbor International Fund (HIF), the surviving international fund. Hakan Castegren, president of Northern Cross Investments, has managed HIF since the Fund's inception in 1987 and assumed additional responsibility for management of HIF2 effective August 1, 2002. Q: WHO WILL MANAGE THE RENAMED HARBOR SMALL CAP GROWTH FUND FOLLOWING THE MERGER? A: Westfield Capital Management Company LLC, currently subadviser of HSCGF, would become subadviser for the HGF, which will be renamed Harbor Small Cap Growth Fund. William Muggia, president and chief investment officer of Westfield Capital Management Company, has managed HSCGF since the Fund's inception on November 1, 2000. Q: WHAT ARE THE SIMILARITIES AND DIFFERENCES, IF ANY, BETWEEN THE INVESTMENT MANAGEMENT STYLES FOR THE TWO INTERNATIONAL FUNDS? A: HIF and HIF2 have been managed in very similar value-oriented styles and have many of the same portfolio holdings. HIF2 began operations in 1996, during a period when HIF was closed to new investors. HIF subsequently was reopened to new investors in May 2000. Q: WHAT ARE THE SIMILARITIES AND DIFFERENCES, IF ANY, BETWEEN THE INVESTMENT MANAGEMENT STYLES FOR THE TWO GROWTH FUNDS? A: HSCGF and HGF both invest in smaller capitalization companies with favorable prospects for long-term growth. HSCGF's holdings typically have been more broadly diversified than those of HGF, which have been more concentrated in the technology sector. Sector weightings of the two funds are a result of individual stock selections by the managers, both of whom employ bottom-up stock selection processes. Q: WILL EITHER OF THESE PROPOSED MERGERS RESULT IN AN INCREASE IN THE RATE OF ANY OF THE FUNDS' INVESTMENT ADVISORY FEES? A: No. THERE WILL BE NO CHANGE IN THE RATE OF ANY OF THE FUNDS' INVESTMENT ADVISORY FEES AS A RESULT OF THE PROPOSED MERGERS. In addition, the proposed mergers are expected to result in economies of scale and may lead to the spreading of fixed costs over a larger asset base. It is anticipated that if the proposed merger of HIF2 and HIF takes place, the expense ratio of the surviving Harbor International Fund should be lower than the comparable share class expense ratio of either HIF2 or HIF. Similarly, it is anticipated that if the proposed merger of HSCGF and HGF takes place, the expense ratio of the renamed Harbor Small Cap Growth Fund should be lower than the comparable share class expense ratio of either HSCGF or HGF. Q: WILL MY VOTE MAKE A DIFFERENCE? A: Your vote is important and needed to ensure that the proposals can be acted upon. Additionally, your immediate response on the enclosed Proxy Card(s) or vote by telephone or Internet will help save the costs of any further proxy solicitation for a shareholder vote. We encourage shareholders to participate in the governance of their Fund(s). Q: HOW DO THE TRUSTEES OF MY FUND SUGGEST THAT I VOTE? A: After careful consideration, the Trustees of your Fund, including the Independent Trustees who comprise a majority of each Fund's Board of Trustees, unanimously recommend that you vote "FOR" each of the proposals. Q: WHOM DO I CALL IF I HAVE QUESTIONS? A: Please call D.F. King at 1-800-xxx-xxxx. Q: HOW DO I VOTE? A: You may vote by any of the following methods: - You may use the enclosed postage-paid envelope and mail in your Proxy Card. - Telephone -- Call 1-800-690-6903 and enter the 12-digit control number set forth on your Proxy Card. - Internet -- Go to WWW.PROXYVOTE.COM and enter the 12-digit control number set forth on your Proxy Card.