N-CSRS 1 d694474dncsrs.htm HARBOR FUNDS HARBOR FUNDS
Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form N-CSR

CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4676

Harbor Funds
(Exact name of Registrant as specified in charter)

111 South Wacker Drive, 34th Floor
Chicago, Illinois 60606-4302
(Address of principal executive offices) (Zip code)

Charles F. McCain, Esq.
HARBOR FUNDS
111 South Wacker Drive, 34th Floor
Chicago, Illinois 60606-4302
Christopher P. Harvey, Esq.
DECHERT LLP
One International Place – 40th Floor
100 Oliver Street
Boston, MA 02110-2605
(Name and address of agent for service)

Registrant’s telephone number, including area code: (312) 443-4400
Date of fiscal year end: October 31
Date of reporting period: April 30, 2019



 

ITEM 1 – REPORTS TO STOCKHOLDERS
The following are copies of reports transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30e-1):


Table of Contents
Semi-Annual Report
April 30, 2019
Domestic Equity Funds
  Retirement
Class
Institutional
Class
Administrative
Class
Investor
Class
GROWTH FUNDS        
Harbor Capital Appreciation Fund HNACX HACAX HRCAX HCAIX
Harbor Strategic Growth Fund HNGSX MVSGX HSRGX HISWX
Harbor Mid Cap Growth Fund HNMGX HAMGX HRMGX HIMGX
Harbor Small Cap Growth Fund HNSGX HASGX HRSGX HISGX
Harbor Small Cap Growth
Opportunities Fund
HNSOX HASOX HRSOX HISOX
VALUE FUNDS        
Harbor Large Cap Value Fund HNLVX HAVLX HRLVX HILVX
Harbor Mid Cap Value Fund HNMVX HAMVX HRMVX HIMVX
Harbor Small Cap Value Fund HNVRX HASCX HSVRX HISVX
Harbor Small Cap Value Opportunities Fund HSRVX HSOVX HSAVX HSIVX
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website (harborfunds.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from a Fund electronically anytime by contacting your financial intermediary (such as a broker-dealer or bank) or, if you invest directly with Harbor Funds, by calling 800-422-1050.
You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary (such as a broker-dealer or bank), you can contact your financial intermediary to request that you continue to receive paper copies of the Funds’ shareholder reports. If you invest directly, you can call 800-422-1050 to request that you continue to receive paper copies of the Funds’ shareholder reports. Your election to receive reports in paper will apply to all Harbor Funds held in your account.

 


 

Table of Contents


1
Growth Funds
Harbor Capital Appreciation Fund

3

5

6
Harbor Strategic Growth Fund

8

10

11
Harbor Mid Cap Growth Fund

12

14

15
Harbor Small Cap Growth Fund

17

19

20
Harbor Small Cap Growth Opportunities Fund

22

24

25
Value Funds
Harbor Large Cap Value Fund

27

29

30
Harbor Mid Cap Value Fund

32

34

35
Harbor Small Cap Value Fund

39

41

42
Harbor Small Cap Value Opportunities Fund

44

46

47
Financial Statements

49

50

51

57

75

85
Additional Information

89

89

89

89

96
This document must be preceded or accompanied by a Prospectus.

 

Letter from the Chairman

Charles F. McCain
Chairman
Dear Fellow Shareholder:
U.S. equities generally had positive returns in the fiscal half year ended April 30, 2019. However, the period saw a marked reversal in stock performance, with major declines in the closing months of 2018 followed by a robust rally in the first few months of 2019.
In the beginning of the six-month period, an equity market selloff reflected investor concerns about a range of issues, including the pace of global growth, the potential for more U.S. Federal Reserve (Fed) interest rate hikes, and a potential trade war between the U.S. and China.
Global equity markets rebounded in the first quarter of 2019, led by a strong advance by U.S. equities. The Fed signaled a pause on increases in the federal funds rate, and worries about a trade conflict with China abated. Each of the eleven broad S&P 500 sectors posted gains for the first quarter of 2019, led by Information Technology, Real Estate, and Industrials. The equity markets’ positive performance continued through April, buoyed by better-than-expected economic and earnings numbers.
The Russell 3000® Index, a measure of the broad U.S. stock market, had a return of 9.71% for the fiscal half year ended April 30, 2019. Growth stocks outperformed value stocks by a significant margin during the period. Mid cap stocks were the best performers from a capitalization perspective for the six-month period. Large cap stocks performed in line with the market, while small caps underperformed.
Comments by the portfolio managers of each Harbor domestic equity fund can be found in the pages preceding each Fund’s portfolio of investments. As always, we recommend that shareholders maintain a long-term perspective in evaluating all of their investments, including Harbor Funds.
    Returns For Periods Ended April 30, 2019
    Unannualized       Annualized
Domestic Equities   6 Months   1 Year   5 Years   10 Years   30 Years
Russell 3000® (entire U.S. stock market)

  9.71%   12.68%   11.20%   15.30%   10.17%
S&P 500 (large cap stocks)

  9.76   13.49   11.63   15.32   10.15
Russell Midcap® (mid cap stocks)

  11.65   10.69   9.75   15.65   11.41
Russell 2000® (small cap stocks)

  6.06   4.61   8.63   14.10   9.41
Russell 3000® Growth (growth stocks)

  11.81   16.61   14.17   16.83   10.05
Russell 3000® Value (value stocks)

  7.61   8.58   8.17   13.69   9.91
International & Global                    
MSCI EAFE (ND)(foreign stocks)

  7.45%   -3.22%   2.60%   7.95%   4.58%
MSCI EAFE Small Cap (ND)(foreign small cap stocks)

  5.89   -7.88   5.27   11.49   N/A
MSCI World (ND)(global stocks)

  8.83   6.48   7.31   11.58   6.82
MSCI All Country World Ex. U.S. (ND)(foreign stocks)

  9.12   -3.23   2.83   7.75   N/A
MSCI Emerging Markets (ND)(emerging market stocks)

  13.76   -5.04   4.04   7.50   N/A
Fixed Income                    
ICE BofAML U.S. Non-Distressed High Yield (domestic high-yield bonds)

  5.89%   7.03%   5.03%   8.74%   N/A
Bloomberg Barclays U.S. Aggregate Bond (domestic bonds)

  5.49   5.29   2.57   3.72   6.09%
Bloomberg Barclays U.S. TIPS (domestic inflation-linked bonds)

  4.60   3.10   1.74   3.64   N/A
ICE BofAML U.S. 3-Month Treasury Bill (proxy for money market returns)

  1.18   2.18   0.78   0.45   3.08
1

 


Change in market’s direction showed value of resilence
In the fourth calendar quarter of 2018, U.S. equities endured their worst quarterly performance in more than seven years, as concerns about interest rate increases, continuing trade tensions, and slowing global growth dampened investor sentiment. Some commentators speculated that the nearly 10-year-long bull market had reached its end.
But in the first quarter of 2019, such talk proved premature, as equities rebounded in the U.S. and globally. Anyone who pulled their money out of equities in December 2018, hoping to avoid further losses, may have missed out on the robust gains of early 2019.
Reacting emotionally to market movements, or trying to time when the market will rise or fall, can have a negative impact on the success of a long-term investment strategy. While past performance is never a guarantee of future results, many investors have historically achieved their financial objectives by making a long-term plan and staying true to it through market ups and downs.
Harbor Funds offers a variety of equity and fixed income funds that can serve as the foundation of a diversified portfolio.
Thank you for investing with Harbor Funds.
June 28, 2019
Charles F. McCain
Chairman
2

 

Harbor Capital Appreciation Fund
Manager’s Commentary (Unaudited)

Subadviser
Jennison Associates LLC
466 Lexington Avenue
New York, NY 10017
Portfolio Managers
Spiros “Sig” Segalas
Since 1990
Kathleen A. McCarragher
Since 2013
Blair A. Boyer
Since 2019
Natasha Kuhlkin, CFA
Since 2019
Jennison has subadvised the Fund since 1990.
Investment Objective
The Fund seeks long-term growth of capital.
Spiros “Sig” Segalas
    
Kathleen A. McCarragher
    
Blair A. Boyer
    
Natasha Kuhlkin, CFA
    
Management’s Discussion of
Fund Performance
MARKET REVIEW
A sell-off in 2018’s final quarter reflected mounting investor concerns about the rising risk of a major trade war with China, decelerating expansion in non-U.S. economies, the pace of U.S. growth, U.S. interest rate increases and their effect on U.S. economic growth, the state of U.S. trade alliances with other major trading partners, and discord and uncertainty about domestic policy. U.S. equity markets rebounded in the early months of 2019, as the U.S. Federal Reserve (Fed) signaled a pause in federal funds rate hikes, corporate earnings reports generally indicated continued strength, and sentiment grew that trade friction would be resolved.
PERFORMANCE
Harbor Capital Appreciation Fund advanced 13.49% (Retirement Class), 13.44% (Institutional Class), 13.31% (Administrative Class), and 13.24% (Investor Class) in the six-month period ended April 30, 2019, outperforming the Russell 1000® Growth benchmark, which rose 12.09%.
Among the Russell 1000® Growth Index’s major sectors, Consumer Discretionary, Information Technology, Communication Services, and Industrials posted double-digit gains. Health Care’s advance was nominal. The small Energy sector declined.
Information Technology positions were strong contributors to Fund absolute performance and performance relative-relative to the Fund’s benchmark index. Digital transformation of the enterprise has become a strategic imperative across many industries and companies. Holdings Microsoft, Salesforce.com, Workday, and Adobe offer mission-critical cloud applications and services that are fundamentally changing the way businesses operate.
Payments companies continue to benefit from the long-term shift from cash to electronic transactions. MasterCard and Visa have, in our view, strong market positions with high barriers to entry, pricing power, and solid operating leverage potential. PayPal offers innovative low-cost, high-security, easy-to-use digital payment options, especially for mobile and online transactions.
Apple declined on disappointing iPhone sales. More recently, the stock has turned around on expectations that demand will improve. After strong performance through much of 2017 and 2018, Nvidia fell in 2018’s final quarter, reflecting gaming graphics microchip inventory issues and a slowdown in the cryptocurrency mining boom. The stock has begun to recover on signs that the inventory issues are being resolved.
In Consumer Discretionary, Amazon continues to be a substantial holding. We believe that the company continues to strengthen its competitive edge through reinvestment in its business. The Amazon Web Services business is a driver of revenue and profit. The various business segments of Alibaba, one of the world’s largest e-commerce companies, have provided revenue growth. With an improving macroeconomic environment in China, we believe its sales growth looks poised to reaccelerate. Tesla’s decline was tied to renewed controversy surrounding CEO Elon Musk and concerns about electric vehicle production volume.
In Communication Services, Tencent’s growth is being driven by the company’s dominant position in China’s online gaming and instant messaging markets and its growing advertising and payment service efforts. Netflix continues to raise its competitive barriers with investments in content, resulting in strong subscriber growth and increased pricing and operating leverage.
3

 

Harbor Capital Appreciation Fund
Manager’s Commentary—Continued

TOTAL RETURNS
For the periods ended 04/30/2019
  Unannualized   1 Year   Annualized
  6 Months   5 Years   10 Years
Harbor Capital Appreciation Fund        
Retirement Class1

13.49%   14.45%   15.40%   16.64%
Institutional Class

13.44   14.37   15.36   16.62
Administrative Class

13.31   14.08   15.07   16.32
Investor Class

13.24   13.96   14.93   16.19
Comparative Indices        
Russell 1000® Growth

12.09%   17.43%   14.50%   16.96%
S&P 500

9.76   13.49   11.63   15.32
As stated in the Fund’s prospectus dated March 1, 2019, the expense ratios were 0.58% (Net) and 0.63% (Gross) (Retirement Class); 0.66% (Net) and 0.71% (Gross) (Institutional Class); 0.91% (Net) and 0.96% (Gross) (Administrative Class); and 1.03% (Net) and 1.08% (Gross) (Investor Class). The net expense ratios reflect a contractual management fee waiver effective through 02/29/2020. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
Despite ongoing concern about data privacy, we believe Facebook is showing resilience, with solid engagement metrics and strong revenue growth, as advertisers continue to seek the reach and targeting Facebook provides. Video game publisher Activision Blizzard was hurt by signs of slowing growth momentum.
Materials and Energy positions detracted from absolute and relative return. Albemarle has the top global share and lowest cost structure in the lithium market but production issues and soft commodities pricing cloud its earnings outlook. Oil producer Concho Resources has been hurt by logistics constraints that are causing weak pricing in a portion of its production.
The Fund’s positions in Activision, Albemarle, and Concho were eliminated during the period.
OUTLOOK & STRATEGY
As a fundamental investor, we examine company and industry prospects over the short and long term, working to understand and anticipate how industries and businesses will change over time. Investing in companies with well-above-average long-term growth rates and unique, market-leading products and services remains our focus.
Market fears of a near-term recession have abated, while monetary policymakers have turned more dovish in light of slower growth expectations both in the U.S. and abroad. Bond yields have fallen since the Fed’s policy pivot.
Expectations of global growth depend in large part on a U.S.-China trade resolution that removes the threat and chilling impact of substantially higher tariff levels. U.S. trade issues extend beyond China as the fate of the proposed U.S.-Mexico-Canada Agreement, which would replace the North American Free Trade Agreement, remains unresolved, as does a dispute with the European Union over automobile tariffs.
Valuations of Fund holdings appear reasonable in absolute terms and relative to the S&P 500 and the Russell 1000® Growth indexes. Although we believe the Fund holds fundamentally strong companies with solid long-term growth prospects, we remain alert not only to the challenges posed by slowing economic growth and trade friction, but also by the headwinds created by data privacy issues, emerging regulatory views on the scope and scale of large technology platforms, and health care policy reform proposals leading into the 2020 U.S. election cycle.

1 Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses.
This report contains the current opinions of Jennison Associates LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
4

 

Harbor Capital Appreciation Fund
Fund Summary—April 30, 2019 (Unaudited)

TOP Holdings (% of net assets)
Alphabet Inc. 6.0%
Amazon.com Inc. 5.7%
Microsoft Corp. 4.9%
Mastercard Inc. 4.2%
salesforce.com Inc. 3.8%
Netflix Inc. 3.7%
Visa Inc. 3.7%
Facebook Inc. 3.5%
Tencent Holdings Ltd. 3.5%
Adobe Inc. 3.1%
 
Sector Allocation (% of investments)
5

 

Harbor Capital Appreciation Fund
Portfolio of Investments—April 30, 2019 (Unaudited)

Value, Cost, and Principal Amounts in Thousands
    
COMMON STOCKS—99.8%
    
    
Shares
  Value
AEROSPACE & DEFENSE—4.9%
   1,821,829
Airbus SE (France)

$ 249,463
   2,308,145
Boeing Co.

   871,763
   2,948,679
Safran SA (France)

   429,803
       1,551,029
AUTOMOBILES—1.0%
   1,375,712
Tesla Inc.*

   328,369
BANKS—1.1%
   2,864,983
JPMorgan Chase & Co.

   332,481
BEVERAGES—1.1%
   1,562,751
Constellation Brands Inc.

   330,787
BIOTECHNOLOGY—4.3%
   3,592,768
Alexion Pharmaceuticals Inc.*

   489,084
   3,748,996
BioMarin Pharmaceutical Inc.*

   320,652
     910,243
Sage Therapeutics Inc.*

   153,130
   2,259,672
Vertex Pharmaceuticals Inc.*

   381,839
       1,344,705
CAPITAL MARKETS—1.2%
   1,724,319
S&P Global Inc.

   380,488
ENTERTAINMENT—3.7%
   3,153,400
Netflix Inc.*

 1,168,461
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—1.7%
   1,162,395
American Tower Corp.

   227,016
   2,382,002
Crown Castle International Corp.

   299,608
         526,624
FOOD & STAPLES RETAILING—2.0%
   2,498,952
Costco Wholesale Corp.

   613,568
HEALTH CARE EQUIPMENT & SUPPLIES—3.2%
   1,877,102
Danaher Corp.

   248,603
   1,759,277
Edwards Lifesciences Corp.*

   309,756
     856,532
Intuitive Surgical Inc.*

   437,371
         995,730
HEALTH CARE PROVIDERS & SERVICES—0.8%
     167,765
Guardant Health Inc.*

    10,990
     983,937
UnitedHealth Group Inc.

   229,326
         240,316
HOTELS, RESTAURANTS & LEISURE—2.1%
     434,423
Chipotle Mexican Grill Inc.*

   298,900
   2,762,195
Marriott International Inc.

   376,819
         675,719
INTERACTIVE MEDIA & SERVICES—13.0%
     786,280
Alphabet Inc. Class A*

   942,718
     791,767
Alphabet Inc. Class C*

   940,999
   5,743,057
Facebook Inc.*

 1,110,707
  22,112,306
Tencent Holdings Ltd. (China)

 1,089,864
       4,084,288
INTERNET & DIRECT MARKETING RETAIL—8.8%
   5,214,543
Alibaba Group Holding Ltd. ADR (China)*,1

   967,663
     935,926
Amazon.com Inc.*

 1,803,080
       2,770,743
COMMON STOCKS—Continued
    
    
Shares
  Value
IT SERVICES—12.8%
     495,722
Adyen NV (Netherlands)*,2

   $ 404,012
   1,593,785
FleetCor Technologies Inc.*

   415,898
   5,125,845
Mastercard Inc.

 1,303,195
   4,312,936
PayPal Holdings Inc.*

   486,370
   3,520,505
Square Inc.*

   256,363
   7,103,501
Visa Inc.

 1,168,029
       4,033,867
LIFE SCIENCES TOOLS & SERVICES—1.9%
   1,947,560
Illumina Inc.*

   607,639
PERSONAL PRODUCTS—1.7%
   3,117,204
Estée Lauder Companies Inc.

   535,567
PHARMACEUTICALS—1.5%
  12,774,650
AstraZeneca plc ADR (United Kingdom)1

   481,093
ROAD & RAIL—1.6%
   2,791,645
Union Pacific Corp.

   494,233
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—5.1%
   1,193,280
Broadcom Inc.

   379,940
   3,456,927
NVIDIA Corp.

   625,704
   4,343,254
QUALCOMM Inc.

   374,085
   4,837,313
Taiwan Semiconductor Manufacturing Co. Ltd. ADR (Taiwan)1

   211,971
       1,591,700
SOFTWARE—16.3%
   3,416,490
Adobe Inc.*

   988,219
  11,887,374
Microsoft Corp.

 1,552,491
     432,936
Red Hat Inc.*

    79,024
   7,271,539
salesforce.com Inc.*

 1,202,349
   1,234,691
ServiceNow Inc.*

   335,231
   2,811,656
Splunk Inc.*

   388,121
   2,771,138
Workday Inc.*

   569,829
      46,404
Zoom Video Communications Inc.*

     3,363
       5,118,627
SPECIALTY RETAIL—2.2%
   1,945,478
Home Depot Inc.

   396,294
   2,694,828
Lowe's Companies Inc.

   304,893
         701,187
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—2.8%
   4,413,431
Apple Inc.

   885,643
TEXTILES, APPAREL & LUXURY GOODS—5.0%
     745,961
Kering SA (France)

   441,426
   2,758,517
Lululemon Athletica Inc. (Canada)*

   486,464
   7,309,514
NIKE Inc.

   641,995
       1,569,885
TOTAL COMMON STOCKS
(Cost $17,212,238)

31,362,749
TOTAL INVESTMENTS—99.8%
(Cost $17,212,238)

31,362,749
CASH AND OTHER ASSETS, LESS LIABILITIES—0.2%

    47,430
TOTAL NET ASSETS—100.0%

$31,410,179
 
6

 

Harbor Capital Appreciation Fund
Portfolio of Investments—Continued

FAIR VALUE MEASUREMENTS
The following table summarizes the Fund’s investments as of April 30, 2019 based on the inputs used to value them.
Asset Category   Quoted Prices
Level 1
(000s)
  Other Significant
Observable Inputs
Level 2
(000s)
  Significant
Unobservable
Inputs
Level 3
(000s)
  Total
(000s)
Common Stocks                
Aerospace & Defense

  $ 871,763   $ 679,266   $—   $ 1,551,029
Automobiles

  328,369       328,369
Banks

  332,481       332,481
Beverages

  330,787       330,787
Biotechnology

  1,344,705       1,344,705
Capital Markets

  380,488       380,488
Entertainment

  1,168,461       1,168,461
Equity Real Estate Investment Trusts (REITs)

  526,624       526,624
Food & Staples Retailing

  613,568       613,568
Health Care Equipment & Supplies

  995,730       995,730
Health Care Providers & Services

  240,316       240,316
Hotels, Restaurants & Leisure

  675,719       675,719
Interactive Media & Services

  2,994,424   1,089,864     4,084,288
Internet & Direct Marketing Retail

  2,770,743       2,770,743
IT Services

  3,629,855   404,012     4,033,867
Life Sciences Tools & Services

  607,639       607,639
Personal Products

  535,567       535,567
Pharmaceuticals

  481,093       481,093
Road & Rail

  494,233       494,233
Semiconductors & Semiconductor Equipment

  1,591,700       1,591,700
Software

  5,118,627       5,118,627
Specialty Retail

  701,187       701,187
Technology Hardware, Storage & Peripherals

  885,643       885,643
Textiles, Apparel & Luxury Goods

  1,128,459   441,426     1,569,885
Total Investments in Securities

  $28,748,181   $2,614,568   $—   $31,362,749
There were no Level 3 investments at April 30, 2019 or October 31, 2018.
For more information on valuation inputs and their aggregation into the levels used in the table above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

* Non-income producing security
1 ADR after the name of a security stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions.
2 Securities purchased in a transaction exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. The Fund has no right to demand registration of these securities. At April 30, 2019, the aggregate value of these securities was $404,012 or 1% of net assets.
The accompanying notes are an integral part of the Financial Statements.
7

 

Harbor Strategic Growth Fund
Manager’s Commentary (Unaudited)

Subadviser
Mar Vista Investment Partners, LLC
11150 Santa Monica Boulevard, Suite 320
Los Angeles, CA 90025
Portfolio Managers
Silas A. Myers, CFA
Since 2017
Brian L. Massey, CFA
Since 2017
Joshua J. Honeycutt, CFA
Since 2017
Jeffrey B. Prestine
Since 2017
Mar Vista has subadvised the Fund since 2017.*
Investment Objective
The Fund seeks long-term growth of capital.
Silas A. Myers, CFA
    
Brian L. Massey, CFA
    
Joshua J. Honeycutt, CFA
    
Jeffrey B. Prestine
    
Management’s Discussion of
Fund Performance
MARKET REVIEW
For the six-month period ended April 30, 2019, the Russell 1000® Growth Index was up 12.09%, equities recorded their best start in almost three decades as major market indices recouped all of the losses suffered in the final months of 2018. Asset price appreciation was broad based, with all eleven S&P 500 sectors ending higher for the first four months of 2019. A sharp reversal in the U.S. Federal Reserve’s (Fed) hawkish interest rate policy and U.S.-China trade optimism fueled the stock rally with economically sensitive businesses outperforming those with less cyclicality. A pause in central bankers’ tightening interest rate policies helped equity valuations expand, propelling the Russell 1000® Growth Index. In contrast to the stock market’s fast start, the U.S. bond market’s yield curve inverted for the first time since 2007, suggesting bond investors are worried about the unraveling of synchronized global growth. We expect this equity and bond market tug of war to continue until uncertainties surrounding global trade and corporate profits are resolved.
PERFORMANCE
For the six-month period ended April 30, 2019, Harbor Strategic Growth Fund returned 12.64% (Retirement Class), 12.56% (Institutional Class), 12.50% (Administrative Class), and 10.94% (Investor Class). Stock selection within the Health Care, Consumer Staples and Real Estate sectors drove the Fund’s performance. The Fund’s sector underweight in Health Care also added to outperformance.
Positive contributors to performance included Microchip Technology, TransDigm Group, American Tower and Moody’s Corporation. Microchip Technology’s stock has rebounded as the company works through excess inventory in its distribution channel.  We believe this is a transitory cyclical issue and the secular drivers for Microchip Technology Inc.'s business remain intact.  The firm continues to benefit from the electrification and automation of its primary end markets, automotive and industrial equipment.  We believe it will compound shareholder value over our investment horizon, thus offering a compelling risk reward profile. TransDigm Group, the aviation electrical and mechanical components supplier, is up significantly over the last six months after surpassing earnings and revenues estimates as well as raising guidance for the upcoming fiscal year.  In addition to its strong execution, its acquisition of Esterline, an aerospace and defense company, is expected to close before the end of the fiscal year, which should further boost revenue and profits. American Tower’s scale and geographic diversity provides broad exposure to accelerating wireless infrastructure investments from 3G in developing markets to 5G in the U.S. Concerns over a slowing global economy and the precipitous drop in the U.S. 10 Year Treasury to 2.4% helped push up the valuations for acyclical, long-duration assets like American Tower.  Speculation that Sprint and T-Mobile’s merger would not be approved further helped drive the company’s stock price. Moody’s Corporation, the credit rating and analytics company, stock rebounded in the first quarter as global debt issuance recovered after a stagnant fourth quarter 2018 and concerns about an overly hawkish Fed subsided.
The largest detractors from performance for the six-month period ending April 30, 2019, included XPO Logistics, Markel Corporation, Berkshire Hathaway and Schlumberger. Over the past six months, XPO Logistics stock price experienced a sharp decline for two primary

* On March 6, 2017, the Fund acquired all of the assets and substantially all of the liabilities of the Mar Vista Strategic Growth Fund (the “Predecessor Fund”). For the period November 1, 2011 (inception of the Predecessor Fund) to January 20, 2015, Mar Vista served as the Predecessor Fund’s subadviser and for the period January 20, 2015 to March 6, 2017, Mar Vista served as investment adviser to the Predecessor Fund.
8

 

Harbor Strategic Growth Fund
Manager’s Commentary—Continued

TOTAL RETURNS
For the periods ended 04/30/2019
  Unannualized   1 Year   Annualized
  6 Months   5 Years   Life of Class
Harbor Strategic Growth Fund        
Retirement Class1

12.64%   14.56%   N/A   14.87%
Institutional Class2

12.56   14.42   11.79   14.47
Administrative Class1

12.50   14.19   N/A   14.50
Investor Class1

10.94   12.55   N/A   13.65
Comparative Index        
Russell 1000® Growth2

12.09%   17.43%   14.50%   16.05%
As stated in the Fund’s prospectus dated March 1, 2019, the expense ratios were 0.63% (Net) and 0.77% (Gross) (Retirement Class); 0.71% (Net) and 0.85% (Gross) (Institutional Class); 0.96% (Net) and 1.10% (Gross) (Administrative Class); and 1.08% (Net) and 1.22% (Gross) (Investor Class).  The net expense ratios reflect an expense limitation agreement (excluding interest expense, if any) effective through 02/29/2020. The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
reasons. First, the company lowered its 2019 profit outlook due to slowing global economic activity. Second, XPO was the subject of a hedge fund’s short report that questioned the company’s accounting practices. Although most of the short report’s accusations were refuted by the company, our research process uncovered additional areas of concern. At Mar Vista, we attempt to invest in trustworthy capital allocators that demonstrate high integrity and financial transparency. More recently, XPO Logistics underwhelming operational performance and misguided investor communication lowered our conviction in management’s capabilities. For these reasons, we decided to exit our investment in XPO Logistics.
In 2018, the insurance industry endured the second year in a row of large catastrophe losses, mostly occurring during the fourth quarter.  Markel Corporation was not immune to the material claims as its insurance business reported $100 million in losses.  At the same time, Markel’s other key driver of value, its equity portfolio which accounts for 65% of book value, declined by mid-teens along with the rest of the stock market.  As a result, reported book value for the fourth quarter declined 7% compared to the prior quarter. Similar to Markel, Berkshire Hathaway’s large catastrophe losses and a declining stock market, particularly its investments in Apple and Kraft, pressured the firm’s fourth quarter 2018 book value.  With regard to Schlumberger, oil supply has proven to be more resilient than we expected despite an approximate 40% reduction in exploration and production cost from industry peaks in 2014. This resulted in a lower for longer price environment for the oil patch and the oil service industry in particular.  We believe this backdrop will limit Schlumberger’s ability to grow shareholder value above market rates over our investment horizon.  Therefore, we divested our position at the end of April 2019.
OUTLOOK & STRATEGY
We believe that elevated volatility may continue as economic activity moderates. While it may be unnerving to some investors, market volatility provides opportunities to increase the portfolio’s return potential while lowering risk. Our focus on owning compounding business models is well suited for turbulent times. We will continue to allocate capital to these competitively advantaged businesses when they trade below our estimates of intrinsic value.
Our investment team claims no special skill in predicting the market’s direction but, in the fullness of time, we believe a patient, high-conviction fund comprised of competitively advantaged serial compounders with stock prices that represent an appropriate margin of safety will generate excess risk-adjusted returns. In an environment with growing optimism, our investment team will remain diligent, conservative and patient as we deploy capital within our wide-moat universe.

1 The “Life of Class” return as shown reflects the period 03/06/2017 through 04/30/2019.
2 The “Life of Class” return as shown reflects the period 11/01/2011 through 04/30/2019.
This report contains the current opinions of Mar Vista Investment Partners, LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
9

 

Harbor Strategic Growth Fund
Fund Summary—April 30, 2019 (Unaudited)

TOP Holdings (% of net assets)
American Tower Corp. 5.7%
Alphabet Inc. Class C 5.0%
Berkshire Hathaway Inc. Class B 4.9%
Markel Corp. 4.8%
Honeywell International Inc. 4.0%
Intuit Inc. 3.9%
Ecolab Inc. 3.4%
Microchip Technology Inc. 3.4%
Oracle Corp. 3.4%
Roper Technologies Inc. 3.4%
 
Sector Allocation (% of investments)
10

 

Harbor Strategic Growth Fund
Portfolio of Investments—April 30, 2019 (Unaudited)

Value, Cost, and Principal Amounts in Thousands
    
COMMON STOCKS—95.1%
    
    
Shares
  Value
AEROSPACE & DEFENSE—2.9%
   6,555
TransDigm Group Inc.*

  $ 3,163
BANKS—5.0%
  27,352
First Republic Bank

  2,889
  47,421
U.S. Bancorp.

  2,528
        5,417
BEVERAGES—2.2%
  19,043
PepsiCo Inc.

  2,438
CAPITAL MARKETS—2.8%
  15,502
Moody's Corp.

  3,048
CHEMICALS—5.2%
  20,295
Ecolab Inc.

  3,736
  10,639
Linde plc (Ireland)

  1,918
        5,654
DIVERSIFIED FINANCIAL SERVICES—4.9%
  24,588
Berkshire Hathaway Inc. Class B*

  5,328
ELECTRICAL EQUIPMENT—2.5%
  54,447
Sensata Technologies Holding plc (United Kingdom)*

  2,719
ENERGY EQUIPMENT & SERVICES—0.2%
   2,928
Core Laboratories NV (Netherlands)

    186
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—5.7%
  31,837
American Tower Corp.

  6,218
HEALTH CARE EQUIPMENT & SUPPLIES—3.3%
  12,467
Teleflex Inc.

  3,568
INDUSTRIAL CONGLOMERATES—7.4%
  25,164
Honeywell International Inc.

  4,369
  10,313
Roper Technologies Inc.

  3,710
        8,079
INSURANCE—4.8%
   4,852
Markel Corp.*

  5,199
INTERACTIVE MEDIA & SERVICES—8.2%
   4,574
Alphabet Inc. Class C*

  5,436
  17,675
Facebook Inc.*

  3,418
        8,854
INTERNET & DIRECT MARKETING RETAIL—4.9%
   1,574
Amazon.com Inc.*

  3,033
   1,246
Booking Holdings Inc.*

  2,311
        5,344
COMMON STOCKS—Continued
    
    
Shares
  Value
IT SERVICES—3.0%
  19,902
Visa Inc.

  $ 3,273
LIFE SCIENCES TOOLS & SERVICES—2.1%
   3,013
Mettler-Toledo International Inc.*

  2,245
MACHINERY—2.3%
  28,367
Fortive Corp.

  2,449
PERSONAL PRODUCTS—3.1%
  55,023
Unilever NV (Netherlands)

  3,329
PHARMACEUTICALS—4.0%
   6,517
Allergan plc (Ireland)

    958
  23,731
Johnson & Johnson

  3,351
        4,309
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—3.4%
  37,388
Microchip Technology Inc.

  3,735
SOFTWARE—10.5%
  12,104
Adobe Inc.*

  3,501
  17,071
Intuit Inc.

  4,286
  65,738
Oracle Corp.

  3,637
       11,424
SPECIALTY RETAIL—3.5%
  28,663
CarMax Inc.*

  2,232
   4,281
O'Reilly Automotive Inc.*

  1,620
        3,852
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS—3.2%
  17,141
Apple Inc.

  3,440
TOTAL COMMON STOCKS
(Cost $79,560)

103,271
TOTAL INVESTMENTS—95.1%
(Cost $79,560)

103,271
CASH AND OTHER ASSETS, LESS LIABILITIES—4.9%

  5,329
TOTAL NET ASSETS—100.0%

$108,600
 
FAIR VALUE MEASUREMENTS
All investments at April 30, 2019 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at April 30, 2019 or October 31, 2018.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

* Non-income producing security
The accompanying notes are an integral part of the Financial Statements.
11

 

Harbor Mid Cap Growth Fund
Manager’s Commentary (Unaudited)

Subadviser
Wellington Management Company LLP
280 Congress Street
Boston, MA 02210
Portfolio Managers
Stephen C. Mortimer
Since 2010
Michael T. Carmen, CFA, CPA
Since 2005
Mario E. Abularach, CFA, CMT
Since 2006
Wellington Management has subadvised the Fund since 2005.
Investment Objective
The Fund seeks long-term growth of capital.
Stephen C. Mortimer
    
Michael T. Carmen,
CFA, CPA
    
Mario E. Abularach,
CFA, CMT
    
Management’s Discussion of
Fund Performance
MARKET REVIEW
U.S. equities suffered a sharp decline towards the end of 2018 but rebounded significantly at the beginning of 2019. The large fall in December occurred as markets contended with a confluence of moderating growth, tighter liquidity and monetary policy, trade uncertainty, swelling fiscal deficits, and political turmoil. As expected, the U.S. Federal Reserve (Fed) raised short-term interest rates by 0.25% as Fed Chair Jerome Powell highlighted the sustained level of economic growth and robust labor market.
Entering 2019, U.S. equities rallied to their largest quarterly gain since 2009 and continued this trend in April. A dovish shift in Fed policy and guidance, optimism for a U.S.-China trade deal, relatively strong fourth-quarter earnings, and corporate buybacks contributed to the positive market sentiment of the start of 2019. The Fed left the benchmark interest rate unchanged during the first quarter, signaling a more patient approach toward future policy-rate adjustments and announced that balance-sheet normalization will begin to slow in May and conclude in September. Fourth-quarter earnings and forward guidance from U.S. companies were encouraging relative to the market’s subdued expectations. Corporate buybacks represented the largest source of demand for U.S. stocks, as U.S. companies continued to purchase record quantities of their own shares on the back of solid U.S. economic growth and last year’s tax cuts.
Performance
For the six-month period ended April 30, 2019, Harbor Mid Cap Growth Fund outperformed the Russell Midcap® Growth Index. The Fund returned 21.82% (Retirement Class), 21.76% (Institutional Class), 21.63% (Administrative Class), and 21.56% (Investor Class) for the period, while the index finished up 16.55%.
Relative outperformance was driven by positive security selection, most notably within the Health Care, Consumer Discretionary, and Information Technology sectors. Unfavorable security selection within Communication Services and Consumer Staples partially offset positive returns. Sector allocation, a residual of the bottom-up stock selection process, detracted from the results; overweight allocations to Health Care and Communication Services, as well as an underweight to Information Technology, detracted most from performance.
Workday, a software-as-a-service (SaaS) provider for finance and human resources, was the Fund’s top relative contributor. Workday delivered strong fourth quarter and full fiscal year 2019 results at the end of February, reporting upside to all of its major metrics. The company displayed accelerated new business signings across its product platform, strong growth in its international and financials segments, and a significant increase in subscription revenue. This remains a high conviction name in the Fund, with a management team that continues to impress us. We trimmed our position in Workday, as well as a handful of other strong performing SaaS companies, and used the proceeds to initiate positions in other software names. Other notable contributors during the period were online home furnishings provider Wayfair, retail hard surface flooring provider Floor & Décor, and oral medical devices provider Align Technology.
Haemonetics, a provider of hematology (blood) products and solutions, was the Fund’s most significant detractor during the period. The company’s share price dropped after it reported a slight revenue miss in its fourth quarter results. This was caused by a faster decline in its blood business and slowing growth in its TEG hemostasis management system. However, its plasma business, which is a key growth driver and important to our overarching investment
12

 

Harbor Mid Cap Growth Fund
Manager’s Commentary—Continued

TOTAL RETURNS
For the periods ended 04/30/2019
  Unannualized   1 Year   Annualized
  6 Months   5 Years   10 Years
Harbor Mid Cap Growth Fund        
Retirement Class1

21.82%   23.41%   13.50%   16.22%
Institutional Class

21.76   23.35   13.45   16.19
Administrative Class

21.63   23.05   13.17   15.90
Investor Class

21.56   22.90   13.03   15.76
Comparative Index        
Russell Midcap® Growth

16.55%   17.64%   12.20%   16.56%
As stated in the Fund’s prospectus dated March 1, 2019, the expense ratios were 0.81% (Retirement Class); 0.89% (Institutional Class); 1.14% (Administrative Class); and 1.26% (Investor Class). The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
thesis, performed well. We continue to favor this name and took advantage of the recent weakness to add to our position. Other notable detractors during the period were streaming music provider Spotify, food processing company Lamb Weston, and video game developer Take-Two Interactive.
OUTLOOK & STRATEGY
Coming off of a volatile end to 2018, we welcomed a strong start to the year. In general, we have become more optimistic in our outlook for equity markets going forward. However, we used the first quarter rally as an opportunity to realize profits in winners whose valuations were starting to look weaker and add to high conviction names that have lagged the recent strength. We have identified opportunities where we are waiting for a pullback before we initiate a position. We are looking for opportunities where we hold a differentiated view that presents an attractive risk-reward ratio using our fundamental investment process.
Our investment philosophy is based on four key underlying premises. We believe that changes in earnings expectations drive security prices and opportunities arise where our expectations differ significantly from consensus. In addition, we believe that human nature has an anchoring bias that can often miss transformational change, and early identification of this change can lead to excess returns. We view being flexible as a key tenet of our philosophy and recognize that growth exists in unexpected places across sectors of the market. Finally, we believe that our valuation discipline helps control portfolio risk by seeking to balance downside risk with potential upside reward.
We employ this philosophy, together with a bottom-up fundamental analysis and opportunistic investment approach, in managing the Fund. We consider a very broad universe of available stocks within the mid cap market, typically focusing on companies that in our view, are characterized by accelerating earnings growth combined with a differentiated view relative to consensus.
Bottom-up investment decisions resulted in increased exposure to the Consumer Discretionary sector. This resulted in Consumer Discretionary becoming the Fund’s second largest overweight by the end of the period, with Health Care remaining the largest overweight. As of the end of the period, the Fund’s largest underweight allocations were to the Industrials, Financials, and Materials sectors.

1 Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses.
This report contains the current opinions of Wellington Management Company LLP as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Stocks of mid cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
13

 

Harbor Mid Cap Growth Fund
Fund Summary—April 30, 2019 (Unaudited)

TOP Holdings (% of net assets)
Align Technology Inc. 4.1%
Exact Sciences Corp. 3.9%
ServiceNow Inc. 3.7%
Workday Inc. 3.7%
CoStar Group Inc. 3.1%
Monster Beverage Corp. 2.8%
Advanced Micro Devices Inc. 2.7%
Spotify Technology SA 2.6%
Haemonetics Corp. 2.5%
 
Sector Allocation (% of investments)
(Excludes short-term investments)
14

 

Harbor Mid Cap Growth Fund
Portfolio of Investments—April 30, 2019 (Unaudited)

Value, Cost, and Principal Amounts in Thousands
    
COMMON STOCKS—93.6%
    
    
Shares
  Value
AEROSPACE & DEFENSE—2.3%
   34,172
Harris Corp.

  $ 5,758
BEVERAGES—2.8%
  118,967
Monster Beverage Corp.*

  7,090
BIOTECHNOLOGY—8.8%
    4,218
Bluebird Bio Inc.*

    598
   34,752
Caredx Inc.*

    946
   98,151
Exact Sciences Corp.*

  9,687
   20,431
Galapagos NV (Belgium)*

  2,338
    2,791
Galapagos NV ADR (Belgium)*,1

    321
   48,752
Ionis Pharmaceuticals Inc.*

  3,624
   17,927
Sage Therapeutics Inc.*

  3,016
   22,283
Seattle Genetics Inc.*

  1,510
       22,040
COMMERCIAL SERVICES & SUPPLIES—1.6%
   49,611
Brink's Co.

  3,965
DIVERSIFIED CONSUMER SERVICES—1.5%
   33,447
Grand Canyon Education Inc.*

  3,876
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—2.2%
   25,523
Zebra Technologies Corp.*

  5,389
ENTERTAINMENT—3.3%
   47,222
Spotify Technology SA (Sweden)*

  6,411
   18,007
Take-Two Interactive Software Inc.*

  1,744
        8,155
FOOD PRODUCTS—1.6%
   56,967
Lamb Weston Holdings Inc.

  3,991
HEALTH CARE EQUIPMENT & SUPPLIES—12.2%
   31,746
Align Technology Inc.*

 10,308
   18,244
DexCom Inc.*

  2,209
   70,430
Haemonetics Corp.*

  6,147
   51,873
Insulet Corp.*

  4,474
   37,407
Penumbra Inc.*

  5,031
   38,906
Tandem Diabetes Care Inc.*

  2,389
       30,558
HEALTH CARE TECHNOLOGY—1.4%
   24,845
Veeva Systems Inc.*

  3,475
HOTELS, RESTAURANTS & LEISURE—10.8%
    8,467
Chipotle Mexican Grill Inc.*

  5,826
   67,108
Hilton Grand Vacations Inc.*

  2,150
   35,623
Marriott Vacations Worldwide Corp.

  3,763
   72,752
Norwegian Cruise Line Holdings Ltd. (Bermuda)*

  4,102
   53,371
Planet Fitness Inc.*

  4,040
   19,272
Vail Resorts Inc.

  4,410
   18,467
Wynn Resorts Ltd.

  2,668
       26,959
HOUSEHOLD DURABLES—1.2%
   55,547
Lennar Corp.

  2,890
INTERACTIVE MEDIA & SERVICES—4.1%
  174,615
Pinterest Inc.*

  5,410
   45,342
TripAdvisor Inc.*

  2,413
   72,580
Zillow Group Inc. Class C*

  2,424
       10,247
COMMON STOCKS—Continued
    
    
Shares
  Value
INTERNET & DIRECT MARKETING RETAIL—1.3%
   20,145
Wayfair Inc.*

  $ 3,267
IT SERVICES—4.1%
   45,294
GoDaddy Inc.*

  3,691
   15,027
Shopify Inc. Class A (Canada)*

  3,660
   38,845
Square Inc.*

  2,829
       10,180
MACHINERY—1.3%
   21,594
IDEX Corp.

  3,383
OIL, GAS & CONSUMABLE FUELS—1.2%
    9,415
Diamondback Energy Inc.

  1,002
  150,992
WPX Energy Inc.*

  2,097
        3,099
PHARMACEUTICALS—0.1%
    4,535
Elanco Animal Health Inc.*

    143
PROFESSIONAL SERVICES—3.1%
   15,856
CoStar Group Inc.*

  7,869
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—4.5%
  247,444
Advanced Micro Devices Inc.*

  6,837
  122,600
Marvell Technology Group Ltd. (Bermuda)

  3,067
    9,211
Universal Display Corp.

  1,470
       11,374
SOFTWARE—19.3%
   54,647
2U Inc.*

  3,306
   14,034
Fair Isaac Corp.*

  3,926
   79,571
Guidewire Software Inc.*

  8,474
  196,720
Pivotal Software Inc.*

  4,269
   34,329
ServiceNow Inc.*

  9,321
   44,303
Splunk Inc.*

  6,116
   44,590
Workday Inc.*

  9,169
   42,749
Zendesk Inc.*

  3,752
       48,333
SPECIALTY RETAIL—3.5%
   20,809
Burlington Stores Inc.*

  3,515
  108,647
Floor & Decor Holdings Inc.*

  5,217
        8,732
TEXTILES, APPAREL & LUXURY GOODS—1.4%
   30,427
Under Armour Inc. Class A*

    702
  130,014
Under Armour Inc. Class C*

  2,694
        3,396
TOTAL COMMON STOCKS
(Cost $167,038)

234,169
 
 
15

 

Harbor Mid Cap Growth Fund
Portfolio of Investments—Continued

Value, Cost, and Principal Amounts in Thousands
    
SHORT-TERM INVESTMENTS—5.8%
(Cost $14,549)  
    
Principal
Amount
  Value
EQUITY—5.8%
    Repurchase agreement with Bank of America dated April 30, 2019 due May 01, 2019 at 2.690% collateralized by U.S. Treasury Notes (value $15,009)  
$   14,549    $ 14,549
TOTAL INVESTMENTS—99.4%
(Cost $181,587)

248,718
CASH AND OTHER ASSETS, LESS LIABILITIES—0.6%

  1,490
TOTAL NET ASSETS—100.0%

$250,208
FAIR VALUE MEASUREMENTS
At April 30, 2019, the repurchase agreement (as disclosed in the preceding Portfolio of Investments) was classified as Level 2 and all other investments were classified as Level 1. There were no Level 3 investments at April 30, 2019 or October 31, 2018.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.

* Non-income producing security
1 ADR after the name of a security stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions.
The accompanying notes are an integral part of the Financial Statements.
16

 

Harbor Small Cap Growth Fund
Manager’s Commentary (Unaudited)

Subadviser
Westfield Capital Management Company, L.P.
One Financial Center
23rd Floor
Boston, MA 02111
Portfolio Managers
William A. Muggia
Lead Portfolio Manager
Since 2000
Richard D. Lee, CFA
Since 2018
Ethan J. Meyers, CFA
Since 2000
John M. Montgomery
Since 2011
Westfield has subadvised the Fund since 2000.
Investment Objective
The Fund seeks long-term growth of capital.
William A. Muggia
    
Richard D. Lee, CFA
    
Ethan J. Meyers, CFA
    
John M. Montgomery
    
Management’s Discussion of
Fund Performance
Market Review
The trailing six-month period was a tale of two markets, driven in large part by actions and commentary from the U.S. Federal Reserve (Fed). The fourth quarter of 2018 marked the largest quarterly decline in most of the Russell® Growth Indices in a decade and dragged the 2018 full year market returns into negative territory. In a dramatic shift, the first quarter of 2019 bore witness to a stock market advance of historical significance, as equities posted their largest quarterly gains since the stock market bottomed ten years ago in the strongest start to a year since 1998. While in isolation these gains would appear emblematic of economic acceleration, the true narrative includes the reversal of steep declines and sentiment extremes experienced at year-end, aided by the Fed’s communication around a “pause” of further rate hikes this year. Pockets of slowing growth were also evident in the U.S. in manufacturing, housing, and retails sales, but early indications suggest stabilization is already taking place. Our fundamental, bottom-up approach was rewarded in this environment, and stock selection was the primary driver of outperformance for both the first quarter of the calendar year and the trailing six-month period.
Performance
Harbor Small Cap Growth Fund returned 13.40% (Retirement Class), 13.44% (Institutional Class), 13.26% (Administrative Class), and 13.24% (Investor Class) for the six months ending April 30, 2019, outperforming the Russell 2000® Growth Index, which gained 8.27%. The outperformance was broad based with seven sectors adding to relative returns. Notable strength in Health Care and Information Technology offset relative weakness in Energy.
Health Care – the largest absolute weight in the Fund – was the top contributor to relative performance, adding 2.15% to relative outperformance. We continue to find opportunities within the Health Care sector but are also always cognizant of managing any outsized risk exposure to the binary outcomes that often come with concentrated pipelines. Given that back drop, we are broadly diversified across industries to gain exposure to the different sources of innovation within the sector. Stock selection accounted for the relative outperformance within the sector. The outperformance was well balanced with notable strength in biotechnology, health care equipment & supplies and pharmaceuticals. Ascendis Pharma, a development-stage orphan drug company, was the sector’s and Fund’s best relative performer. In March, the company reported success in a key Phase 3 trial for a children’s human growth hormone treatment. The trial demonstrated that their offering was comparable in experience to the current market offering but resulted in a superior outcome. We continue to maintain high conviction in this name, as the company generates impressive cash flow, offers lower-risk exposure to the space following their last trial success, and can either continue to grow organically or find an attractive merger and acquisition target.
Information Technology was also a source of relative strength during the period, adding 1.88% to relative outperformance. A combination of both stock selection and our overweight to this market-leading sector contributed positively to relative results. The outperformance was broad based with notable contribution from the portfolio’s software, communications equipment and IT services holdings. Within communications equipment, Acacia Communications, Inc., a developer and manufacturer of high-speed coherent optical interconnect products, was the Fund’s strongest relative performer. The stock moved higher on strong quarterly earnings results. We decided to sell our position following the advance given that the stock was near
17

 

Harbor Small Cap Growth Fund
Manager’s Commentary—Continued

TOTAL RETURNS
For the periods ended 04/30/2019
  Unannualized   1 Year   Annualized
  6 Months   5 Years   10 Years
Harbor Small Cap Growth Fund        
Retirement Class1

13.40%   9.01%   10.46%   16.17%
Institutional Class

13.44   8.96   10.41   16.15
Administrative Class

13.26   8.71   10.06   15.83
Investor Class

13.24   8.57   10.00   15.72
Comparative Index        
Russell 2000® Growth

8.27%   6.91%   10.22%   15.24%
As stated in the Fund’s prospectus dated March 1, 2019, the expense ratios were 0.80% (Retirement Class); 0.88% (Institutional Class); 1.13% (Administrative Class); and 1.25% (Investor Class). The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
our internal price target and valuation was extended. Within software, we have been focused on identifying businesses that are at the forefront of companies’ digital transformations. We believe these business evolutions create secular growth regardless of the state of the economy because the cost of maintaining the status quo in a changing environment around you is often seen as too great to bear. One such company is Fair Isaac Corporation. This data analytics software provider reported promising growth in both its traditional and new data analytics/Software as a Service (SaaS) business lines. We continue to maintain conviction in the stock believing that this high-quality, competitively-advantaged franchise has a visible runway to strong top- and bottom-line growth. The Fund also benefited from exposure to Ultimate Software Group, Inc. after the company announced that it planned to go private. Shares of this cloud payroll and human capital management provider rose on the deal, and we exited the position during the period.
Energy was the largest source of relative weakness within the Fund, costing 1.25% of relative returns. During the period, there was a marked dispersion between the performance of the sector and its constituents and the price of crude oil, particularly among companies focused on refining & marketing. Concerns around slowing global growth also served as a headwind for the sector, and the market strayed from rewarding fundamentals. This was notable among exploration & production companies, which were not compensated for strategic reinvestment for growth, but rather for returning capital to shareholders. With this macroeconomic backdrop, the Fund’s overweight position to the sector, combined with weak stock selection drove the underperformance. Specifically, an overweight position to exploration & production companies Centennial Resource Development, Inc., WPX Energy, Inc. and PBF Energy, Inc. detracted from relative results during the period. Despite the troubled performance during the period, we believe the Fund is well positioned in the sector.
Outlook & Strategy
Over the balance of the year, we expect to see an acceleration in U.S. and global growth after the recent soft patch. While it remains too early to say with certainty that a slowdown is behind us, leading indicators of recovery are emerging. The Fed’s more dovish tone, a marked departure from the monetary policy of mid-December, was well received by equity markets and should continue to support growth in the U.S. economy. Global growth may also see a boost as the Chinese government announced a stimulus package to shore up their economy against further slowing. Additionally, survey data suggests that a bottoming process is underway for growth in both countries. With the Fed on hold and the U.S. Dollar weakening, we could see small caps and cyclicals perform better into accelerating growth trends. We also maintain our preference for quality businesses with clean balance sheets and believe that our Growth at a Reasonable Price philosophy should be rewarded in this environment.

1 Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses.
This report contains the current opinions of Westfield Capital Management Company, L.P. as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
18

 

Harbor Small Cap Growth Fund
Fund Summary—April 30, 2019 (Unaudited)

TOP Holdings (% of net assets)
BIO-RAD Laboratories Inc. 2.4%
HEICO Corp. 2.4%
ICON plc 2.3%
Berry Global Group Inc. 2.2%
Kemper Corp. 2.1%
Teledyne Technologies Inc. 2.1%
Topbuild Corp. 2.1%
Ascendis Pharma A/S ADR 1.9%
Five Below Inc. 1.9%
Integra LifeSciences Holdings Corp. 1.9%
 
Sector Allocation (% of investments)
19

 

Harbor Small Cap Growth Fund
Portfolio of Investments—April 30, 2019 (Unaudited)

Value, Cost, and Principal Amounts in Thousands
    
COMMON STOCKS—97.3%
    
    
Shares
  Value
AEROSPACE & DEFENSE—4.5%
    199,745
HEICO Corp.

$ 17,863
     61,401
Teledyne Technologies Inc.*

 15,259
       33,122
BANKS—2.5%
    227,720
Bank of NT Butterfield & Son Ltd. (Bermuda)

  9,114
    335,310
First Hawaiian Inc.

  9,271
       18,385
BIOTECHNOLOGY—8.5%
    216,162
Acceleron Pharma Inc.*

  8,804
    288,951
Apellis Pharmaceuticals Inc.*

  5,724
    126,770
Ascendis Pharma A/S ADR (Denmark)*,1

 14,120
    104,926
Blueprint Medicines Corp.*

  7,934
    343,230
Fate Therapeutics Inc.*

  5,766
    742,069
Ironwood Pharmaceuticals Inc.*

  8,823
    516,000
Momenta Pharmaceuticals Inc.*

  7,219
    238,150
Orchard Therapeutics plc ADR (United Kingdom)*,1

  4,303
       62,693
BUILDING PRODUCTS—1.5%
    163,840
Trex Co. Inc.*

 11,349
CAPITAL MARKETS—2.3%
    150,263
Hamilton Lane Inc.

  7,342
    130,412
LPL Financial Holdings Inc.

  9,662
       17,004
CHEMICALS—1.8%
    118,490
Ingevity Corp.*

 13,627
COMMERCIAL SERVICES & SUPPLIES—1.8%
    119,150
MSA Safety Inc.

 13,096
COMMUNICATIONS EQUIPMENT—2.0%
     80,407
Acacia Communications Inc.*

  4,654
    751,335
Viavi Solutions Inc.*

  9,993
       14,647
CONSTRUCTION MATERIALS—1.3%
    541,821
Summit Materials Inc.*

  9,493
CONSUMER FINANCE—1.3%
    146,630
Green Dot Corp.*

  9,351
CONTAINERS & PACKAGING—2.1%
    270,080
Berry Global Group Inc.*

 15,881
DIVERSIFIED CONSUMER SERVICES—2.5%
     70,670
Bright Horizons Family Solutions Inc.*

  9,056
     63,880
Strategic Education Inc.

  9,157
       18,213
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.6%
    242,940
Avnet Inc.

 11,809
ENTERTAINMENT—1.7%
     41,308
Madison Square Garden Co.*

 12,906
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)—2.5%
    169,460
CyrusOne Inc.

  9,437
    227,720
Spirit Realty Capital Inc.

  9,214
       18,651
COMMON STOCKS—Continued
    
    
Shares
  Value
HEALTH CARE EQUIPMENT & SUPPLIES—5.5%
    114,355
Haemonetics Corp.*

  $ 9,981
    270,740
Integra LifeSciences Holdings Corp.*

 14,130
     78,771
Masimo Corp.*

 10,252
    205,510
Wright Medical Group NV (Netherlands)*

  6,077
       40,440
HEALTH CARE TECHNOLOGY—1.3%
    274,720
Evolent Health Inc.*

  3,722
    109,890
Teladoc Health Inc.*

  6,251
        9,973
HOTELS, RESTAURANTS & LEISURE—1.5%
    223,642
Eldorado Resorts Inc.*

 11,041
HOUSEHOLD DURABLES—2.1%
    215,800
Topbuild Corp.*

 15,371
INSURANCE—2.1%
    175,757
Kemper Corp.

 15,797
IT SERVICES—4.4%
    160,530
InterXion Holding NV (Netherlands)*

 11,107
     57,422
WEX Inc.*

 12,076
    167,805
WNS Holdings Ltd. ADR (Jersey)*,1

  9,590
       32,773
LIFE SCIENCES TOOLS & SERVICES—4.7%
     58,420
BIO-RAD Laboratories Inc.*

 17,580
    126,934
ICON plc (Ireland)*

 17,337
       34,917
MACHINERY—3.9%
    203,550
Flowserve Corp.

  9,980
    150,200
Lincoln Electric Holdings Inc.

 13,108
    115,510
Timken Co.

  5,539
       28,627
MARINE—0.5%
     98,960
Matson Inc.

  3,920
MEDIA—0.9%
     59,244
Nexstar Media Group Inc.

  6,934
OIL, GAS & CONSUMABLE FUELS—3.5%
    327,670
Centennial Resource Development Inc.*

  3,450
    279,350
PBF Energy Inc.

  9,381
    929,070
WPX Energy Inc.*

 12,905
       25,736
PHARMACEUTICALS—5.2%
    180,391
Catalent Inc.*

  8,085
  1,903,819
Correvio Pharma Corp. (Canada)*

  4,569
    363,750
Cymabay Therapeutics Inc.*

  4,660
    250,225
Intersect ENT Inc.*

  8,130
    405,450
Medicines Co.*

 12,954
       38,398
ROAD & RAIL—1.5%
    179,390
Ryder System Inc.

 11,301
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT—1.8%
     50,510
Cabot Microelectronics Corp.

  6,377
    156,220
Inphi Corp.*

  7,133
       13,510
 
20

 

Harbor Small Cap Growth Fund
Portfolio of Investments—Continued

Value, Cost, and Principal Amounts in Thousands
    
COMMON STOCKS—Continued
    
    
Shares
  Value
SOFTWARE—12.8%
    556,050
8x8 Inc.*

 $ 13,301
     83,407
Alarm.com Holdings Inc.*

  5,912
     39,475
Fair Isaac Corp.*

 11,043
     48,990
MicroStrategy Inc.*

  7,334
     83,900
NICE Ltd. ADR (Israel)*,1

 11,566
    590,810
Nuance Communications Inc.*

  9,943
     60,899
Paylocity Holding Corp.*

  5,880
    107,404
Proofpoint Inc.*

 13,471
     90,363
Smartsheet Inc.*

  3,825
    105,254
Tableau Software Inc.*

 12,821
       95,096
SPECIALTY RETAIL—3.3%
    459,070
American Eagle Outfitters Inc.

 10,917
     94,990
Five Below Inc.*

 13,905
       24,822
COMMON STOCKS—Continued
    
    
Shares
  Value
TEXTILES, APPAREL & LUXURY GOODS—1.6%
    329,330
Wolverine World Wide Inc.

 $ 12,123
THRIFTS & MORTGAGE FINANCE—1.0%
    163,170
Essent Group Ltd. (Bermuda)*

  7,742
TRADING COMPANIES & DISTRIBUTORS—1.8%
    313,106
Rush Enterprises Inc.

 13,279
TOTAL COMMON STOCKS
(Cost $612,251)

722,027
TOTAL INVESTMENTS—97.3%
(Cost $612,251)

722,027
CASH AND OTHER ASSETS, LESS LIABILITIES—2.7%

 20,069
TOTAL NET ASSETS—100.0%

$742,096
 
FAIR VALUE MEASUREMENTS
All investments at April 30, 2019 (as disclosed in the preceding Portfolio of Investments) were classified as Level 1. There were no Level 3 investments at April 30, 2019 or October 31, 2018.
For more information on valuation inputs and their aggregation into the levels identified above, please refer to the Fair Value Measurements and Disclosures in Note 2 of the accompanying Notes to Financial Statements.
AFFILIATED TRANSACTIONS
Certain of the Fund’s investments are in companies that are considered to be affiliated companies of the Fund because the Fund owned more than 5% of the outstanding voting securities of the company during the period November 1, 2018 through April 30, 2019. Transactions during the period in securities of these companies were as follows:
Security Name   Beginning
Balance
as of
11/01/2018
(000s)
  Purchases
(000s)
  Sales
(000s)
  Net
Realized
Gain/(Loss)
(000s)
  Change in
Unrealized
Appreciation/
(Depreciation)
(000s)
  Net
Dividend
Income
(000s)
  Ending
Balance
as of
04/30/2019
(000s)
Correvio Pharma Corp. (Canada)

  $6,237   $395   $(201)   $(446)   $(1,416)   $—   $4,569

* Non-income producing security
1 ADR after the name of a security stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions.
The accompanying notes are an integral part of the Financial Statements.
21

 

Harbor Small Cap Growth Opportunities Fund
Manager’s Commentary (Unaudited)

Subadviser
Elk Creek Partners, LLC
44 Cook Street
Suite 705
Denver, CO 80206
Portfolio Managers
Cam Philpott, CFA
Since 2014
David Hand, CFA
Since 2014
Hiren Patel, Ph.D.
Since 2014
Sean McGinnis, CFA
Since 2014
Elk Creek has subadvised the Fund since 2014.
Investment Objective
The Fund seeks long-term growth of capital.
Cam Philpott, CFA
    
David Hand, CFA
    
Hiren Patel, Ph.D.
    
Sean McGinnis, CFA
    
Management’s Discussion of
Fund Performance
Market REVIEW
After a sharp drop in October, the market had a brief reprieve during the month of November, and generally speaking, corporate earnings were consistent with expectations. However, we believe the October sell-off had more to do with forward looking economic concerns than forward looking company-specific concerns. Market participants sold aggressively in December, as global recession fears were sparked by slowing Chinese economic data, rising concerns regarding trade negotiations with China, and increasing conviction that the U.S. Federal Reserve (Fed) would continue to hike short-term rates into a weakening global economy, thereby contributing to the recessionary conditions.
Equities started 2019 with a powerful rally out of the gate that surprised many of the market’s participants. With favorable domestic macroeconomic data, stock prices regained much of the ground that they lost in the fourth quarter of 2018. Additionally, sentiment regarding a trade deal with China improved, and as optimism on that issue gained traction, fears over a trade-induced global slowdown faded. The Fed signaled a pause and lowered expectations for future potential rate increases. Between domestic data and improving sentiment over global trade, investors’ concerns about a monetary policy mistake waned, and that change contributed to rising equity prices.
Global economic concerns did reappear late in the first quarter as some European data, especially in Germany, disappointed investors and renewed anxiousness regarding slowing economic growth. Domestically, the yield curve inverted early in the year, and this phenomenon became more pronounced in March. Despite rising concerns at the end of the first quarter, domestic equity markets performed well in April. Both macroeconomic data and corporate earnings results have contributed to the rally.
Performance
For the six-month period ended April 30, 2019, Harbor Small Cap Growth Opportunities Fund returned 4.73% (Retirement Class), 4.64% (Institutional Class), 4.49% (Administrative Class), and 4.45% (Investor Class) underperforming its benchmark, the Russell 2000® Growth Index, which was up 8.27% for the same period.
Small cap stocks have underperformed large cap stocks over the period, as represented by the Russell 1000® Index return of 10.00% and the Russell 2000® Index return of 6.06%. Within small cap stocks, growth has outperformed value with the Russell 2000® Growth posting a return of 8.27% vs. the Russell 2000® Value return of 3.77%, in the same period.
Performance of the Fund has been driven primarily by stock selection, which is consistent with our team’s investment process and reflected in our longer-term track record. The sector in which stock selection most helped the Fund was Health Care. Stock selection in the Information Technology and Consumer Discretionary sectors detracted from performance. Sector allocation is not a primary focus of our investment strategy.
MaxLinear, Inc., a communications semiconductor company, was a strong contributor driven by the company reporting better than expected results in both the fiscal third and fourth quarters. Previously, investors had over-estimated the impact of the company’s business exposure in China, but more recent results confirmed our fundamental view, and rewarded our patience.
22

 

Harbor Small Cap Growth Opportunities Fund
Manager’s Commentary—Continued

TOTAL RETURNS
For the periods ended 04/30/2019
  Unannualized   1 Year   Annualized
  6 Months   5 Years   Life of Fund
Harbor Small Cap Growth Opportunities Fund        
Retirement Class1,2

4.73%   7.34%   8.23%   8.28%
Institutional Class1

4.64   7.26   8.18   8.23
Administrative Class1

4.49   6.95   8.03   8.07
Investor Class1

4.45   6.78   7.77   7.82
Comparative Index        
Russell 2000® Growth1

8.27%   6.91%   10.22%   9.09%
As stated in the Fund’s prospectus dated March 1, 2019, the expense ratios were 0.81% (Retirement Class); 0.89% (Institutional Class); 1.14% (Administrative Class); and 1.26% (Investor Class). The expense ratios in the prospectus may differ from the actual expense ratios for the period disclosed within this report. The expense ratios shown in the prospectus are based on the prior fiscal year, adjusted to reflect changes, if any, in contractual arrangements that occurred prior to the date of the prospectus (or supplement thereto, if applicable).
Performance data shown represents past performance and is no guarantee of future results. Past performance is net of management fees and expenses and reflects reinvested dividends and distributions but does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or upon the redemption of Fund shares. Past performance reflects the beneficial effect of any expense waivers or reimbursements, without which returns would have been lower. Investment returns and principal value will fluctuate so that Fund shares, when redeemed, may be worth more or less than their original cost. Returns for periods less than one year are not annualized. Current performance may be higher or lower and is available through the most recent month end at harborfunds.com or by calling 800-422-1050.
Genetic therapy company, Spark Therapeutics, Inc., was another positive contributor, initially from solid performance from the company’s sales of Luxturna, the only approved therapy for inherited retinal disease. More significant outperformance was then driven by Roche’s acquisition of the company at a substantial premium.
Tesaro, Inc., a biopharmaceutical company focused on oncology, was a good stock for the Fund. The company’s lead drug, Zejula, performed slightly better than expectations, and we believe that it can continue to take share in treating ovarian cancer. Additionally, in December the company agreed to merge with Glaxo SmithKline.
Evolent Health, Inc., a leading provider of health solutions to hospitals and health systems, was a weak stock for the Fund primarily because investors became concerned about one of the company’s larger clients. We believe that investors have overstated the magnitude of the company’s exposure to this client. Additionally, we believe Evolent’s new business wins and recent acquisition bode well for the company’s growth prospects.
Integrated satellite manufacturer and service provider, Maxar Technologies, Inc., was also a weak stock as one of the company’s reconnaissance satellites failed. The company will receive insurance proceeds for the loss, and with its other satellites, Maxar should be able to recover roughly 10-15% of this satellite’s revenues. New satellites are currently under construction, with deployment scheduled in the 2020/2021 timeframe. While certainly disappointing news, the rest of the business is growing, and operating cost reduction programs should result in margin expansion this year.
Quotient Technology, Inc., the leading digital coupon company for grocery and retail stores, was another weak stock when fourth quarter results missed expectations. Given the market turmoil and economic concerns last quarter, one of the company’s larger customers reduced spending. Digital budgets are more readily adjusted than print spending, due to the longer lead times for print. Quotient retains its leading position, and this customer’s decision does not alter the growth opportunities for the market more broadly as digital coupons continue to grow, while print coupons shrink.
Outlook & StRategy
The market recovery is encouraging, and sentiment has distinctly improved from the dismal levels seen during the fourth quarter of 2018. Yet, in our view there seems to be some fragility to investor confidence despite the recent lift in stock prices. Our longstanding investment style and process remains the same, and over time, we have found that volatility presents opportunities for our process. We continue to believe that stock prices will ultimately reflect the fundamental performance of the underlying businesses, and market behavior over the short term generally tends to be technical in nature, rather than fundamental. Our expectation is that the change in investor sentiment will be a broadly positive event for the equity markets, and we believe that the recent narrow market will broaden to reward more stocks and sectors.

1 The “Life of Fund” return as shown reflects the period 02/01/2014 through 04/30/2019.
2 Retirement Class shares commenced operations on March 1, 2016. The performance attributed to the Retirement Class shares prior to that date is that of the Institutional Class shares. Performance prior to March 1, 2016 has not been adjusted to reflect the lower expenses of Retirement Class shares. During this period, Retirement Class shares would have had returns similar to, but potentially higher than, Institutional Class shares due to the fact that Retirement Class shares represent interests in the same portfolio as Institutional Class shares but are subject to lower expenses.
This report contains the current opinions of Elk Creek Partners, LLC as of the date of this report and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice and securities described herein may no longer be included in, or may at any time be removed from, the Fund’s portfolio. This report is distributed for informational purposes only. Information contained herein has been obtained from sources believed reliable, but not guaranteed.
Stocks of small cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. Equity securities, such as common stocks, are affected by company specific events and by movements in the overall stock markets in which those securities principally trade, among other factors. An adverse company specific event, or downturn in those stock markets, can depress the value of a particular company’s equity securities. For information on the different share classes and the risks associated with an investment in the Fund, please refer to the current prospectus.
23

 

Harbor Small Cap Growth Opportunities Fund
Fund Summary—April 30, 2019 (Unaudited)

TOP Holdings (% of net assets)
InterXion Holding NV 3.1%
Quotient Technology Inc. 2.7%
Cerus Corp. 2.4%
WageWorks Inc. 1.9%
Ligand Pharmaceuticals Inc. 1.8%
Evolent Health Inc. 1.7%
MaxLinear Inc. 1.7%
Medicines Co. 1.7%
Electronics for Imaging Inc. 1.6%
Invacare Corp. 1.6%
 
Sector Allocation (% of investments)
24

 

Harbor Small Cap Growth Opportunities Fund
Portfolio of Investments—April 30, 2019 (Unaudited)

Value, Cost, and Principal Amounts in Thousands
    
COMMON STOCKS—98.1%
    
    
Shares
  Value
AEROSPACE & DEFENSE—1.3%
   46,850
Aerojet Rocketdyne Holdings Inc.*

$ 1,586
  254,706
Maxar Technologies Inc.

  1,256
        2,842
AIR FREIGHT & LOGISTICS—1.3%
   28,226
Atlas Air Worldwide Holdings Inc.*

  1,363
   64,687
Echo Global Logistics Inc.*

  1,484
        2,847
BANKS—2.1%
   41,203
Chemical Financial Corp.

  1,810
   43,696
FB Financial Corp.

  1,605
   59,548
TriState Capital Holdings Inc.*

  1,385
        4,800
BEVERAGES—1.0%
  151,469
Primo Water Corp.*

  2,386
BIOTECHNOLOGY—7.9%
  102,288
Amarin Corp. plc ADR (United Kingdom)*,1

  1,913
  106,754
Amicus Therapeutics Inc.*

  1,424
  100,527
Clovis Oncology Inc.*

  1,837
  122,293
Halozyme Therapeutics Inc.*

  1,972
   32,196
Ligand Pharmaceuticals Inc.*

  4,052
   66,341
Natera Inc.*

  1,268
   62,548
Portola Pharmaceuticals Inc.*

  2,208
   86,024
PTC Therapeutics Inc.*

  3,219
       17,893
COMMERCIAL SERVICES & SUPPLIES—2.9%
  101,463
Advanced Disposal Services Inc.*

  3,281
   95,117
Healthcare Services Group Inc.

  3,220
        6,501
COMMUNICATIONS EQUIPMENT—3.8%
  275,861
Casa Systems Inc.*

  2,646
  553,403
Infinera Corp.*

  2,402
   25,020
Lumentum Holdings Inc.*

  1,550
   83,332
Quantenna Communications Inc.*

  2,029
        8,627
CONSTRUCTION & ENGINEERING—1.4%
   62,062
MasTec Inc.*

  3,143
CONSUMER FINANCE—1.0%
   34,747
Green Dot Corp.*

  2,216
DIVERSIFIED CONSUMER SERVICES—1.3%
   60,806
Adtalem Global Education Inc.*

  2,999
DIVERSIFIED TELECOMMUNICATION SERVICES—1.3%
  103,965
Iridium Communications Inc.*

  2,855
ELECTRICAL EQUIPMENT—1.6%
   18,202
EnerSys

  1,259
  100,322
Power Solutions International Inc.*

    953
   45,441
TPI Composites Inc.*

  1,407
        3,619
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS—1.4%
   48,401
Methode Electronics Inc.

  1,428
   33,385
MTS Systems Corp.

  1,836
        3,264
COMMON STOCKS—Continued
    
    
Shares
  Value
ENTERTAINMENT—0.9%
   25,380
World Wrestling Entertainment Inc.

  $ 2,128
FOOD & STAPLES RETAILING—0.3%
   18,707
Chefs' Warehouse Inc.*

    611
FOOD PRODUCTS—0.8%
   39,110
Freshpet Inc.*

  1,747
HEALTH CARE EQUIPMENT & SUPPLIES—7.0%
  892,906
Cerus Corp.*

  5,473
   68,992
CryoLife Inc.*

  2,115
  501,707
Invacare Corp.

  3,713
  262,954
ViewRay Inc.*

  1,830
   93,227
Wright Medical Group NV (Netherlands)*

  2,757
       15,888
HEALTH CARE PROVIDERS & SERVICES—4.8%
   50,025
Acadia Healthcare Co. Inc.*

  1,602
  275,599
R1 RCM Inc.*

  2,885
  299,429
Surgery Partners Inc.*

  3,243
  146,286
Tivity Health Inc.*

  3,163
       10,893
HEALTH CARE TECHNOLOGY—4.6%
  284,772
Evolent Health Inc.*

  3,858
  140,180
NextGen Healthcare Inc.*

  2,634
   38,110
Teladoc Health Inc.*