HARBOR FUND, 485APOS, 1995-12-28

HARBOR FUND
485APOS, 1995-12-28

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 28, 1995

FILE NO. 33-5852
FILE NO. 811-4676
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM N-1A
------------------------

<TABLE>
<CAPTION>
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 /X/
<S> <C> <C>
POST-EFFECTIVE AMENDMENT NO. 19 /X/
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
AMENDMENT NO. 21 /X/
</TABLE>

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)

<TABLE>
<S> <C>
RONALD C. BOLLER ERNEST V. KLEIN, ESQ.
HARBOR FUND HALE AND DORR
ONE SEAGATE 60 STATE STREET
TOLEDO, OHIO 43666 BOSTON, MASSACHUSETTS 02109
</TABLE>

(NAME AND ADDRESS OF AGENTS FOR SERVICE)

------------------------

IT IS PROPOSED THAT THIS FILING WILL BECOME EFFECTIVE ON MARCH 1, 1996
PURSUANT TO PARAGRAPH (A) OF RULE 485.

THE REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES UNDER THE
SECURITIES ACT OF 1933, PURSUANT TO RULE 24F-2, AND THE RULE 24F-2 NOTICE FOR
THE REGISTRANT'S FISCAL YEAR ENDED OCTOBER 31, 1995 WAS FILED ON DECEMBER 19,
1995.

THE INDEX TO EXHIBITS IS LOCATED AT PAGE 163.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

HARBOR FUND

CROSS-REFERENCE SHEET

ITEMS REQUIRED BY FORM N-1A

<TABLE>
<CAPTION>
ITEM NUMBER IN PART A PROSPECTUS CAPTION
- -------------------------------------------------- -----------------------------------------
<C> <S> <C>
1. Cover Page............................... COVER PAGE
2. Synopsis................................. PROSPECTUS SUMMARY
3. Condensed Financial Information.......... FINANCIAL HIGHLIGHTS
4. General Description of Registrant........ HARBOR FUND IN DETAIL; ORGANIZATION AND
CAPITALIZATION
5. Management of the Fund................... HARBOR FUND IN DETAIL; THE ADVISER,
SUBADVISERS, DISTRIBUTOR AND SHAREHOLDER
SERVICING AGENT; BACK COVER
6. Capital Stock and Other Securities....... ORGANIZATION AND CAPITALIZATION; DIS-
TRIBUTIONS AND TAX INFORMATION; NET ASSET
VALUE; PORTFOLIO TRANSACTIONS
7. Purchase of Securities Being Offered..... YOUR HARBOR FUND ACCOUNT -- HOW TO BUY
SHARES; NET ASSET VALUE
8. Redemption or Repurchase................. YOUR HARBOR FUND ACCOUNT -- HOW TO SELL
SHARES; NET ASSET VALUE
9. Pending Legal Proceedings................ NOT APPLICABLE
</TABLE>

<TABLE>
<CAPTION>
STATEMENT OF ADDITIONAL
ITEM NUMBER IN PART B INFORMATION CAPTION
- -------------------------------------------------- -----------------------------------------
<C> <S> <C>
10. Cover Page............................... COVER PAGE
11. Table of Contents........................ TABLE OF CONTENTS
12. General Information and History.......... ORGANIZATION AND CAPITALIZATION
13. Investment Objectives and Policies....... ADDITIONAL POLICIES OF THE FUNDS; IN-
VESTMENT PRACTICES OF THE FUNDS;
INVESTMENT RESTRICTIONS
14. Management of the Fund................... TRUSTEES AND OFFICERS
15. Control Persons and Principal Holders of
Securities............................. TRUSTEES AND OFFICERS
16. Investment Advisory and Other Services... THE ADVISER, SUBADVISERS, DISTRIBUTOR AND
SHAREHOLDER SERVICING AGENT; INDEPENDENT
ACCOUNTANTS AND FINANCIAL STATEMENTS
17. Brokerage Allocation..................... PORTFOLIO TRANSACTIONS
18. Capital Stock and Other Securities....... ORGANIZATION AND CAPITALIZATION
19. Purchase, Redemption and Pricing of
Securities Being Offered............... SHAREHOLDER INVESTMENT ACCOUNT;
REDEMPTIONS; NET ASSET VALUE
20. Tax Status............................... TAX INFORMATION
21. Underwriters............................. THE ADVISER, SUBADVISERS, DISTRIBUTOR AND
SHAREHOLDER SERVICING AGENT
22. Calculation of Yield Quotations of Money
Market Funds........................... PERFORMANCE AND YIELD INFORMATION
23. Financial Statements..................... PORTFOLIO TRANSACTIONS; INDEPENDENT
ACCOUNTANTS AND FINANCIAL
STATEMENTS
</TABLE>
<PAGE> 3

Prospectus

------------------------------------------------

LOGO

------------------------------------------------

March 1, 1996

-----------------------------------------------------------------------
HARBOR FUND
<PAGE> 4

- --------------------------------------------------------------------------------

HARBOR FUND PROSPECTUS--MARCH 1, 1996

One SeaGate Toledo, Ohio 43666
- --------------------------------------------------------------------------------

Harbor Fund is a family of eight no-load mutual funds that offers you
investment opportunities in five equity funds: HARBOR INTERNATIONAL GROWTH FUND,
HARBOR INTERNATIONAL FUND, HARBOR GROWTH FUND, HARBOR CAPITAL APPRECIATION FUND
AND HARBOR VALUE FUND; two fixed-income funds: HARBOR BOND FUND AND HARBOR SHORT
DURATION FUND; and a money market fund: HARBOR MONEY MARKET FUND. An investment
in Harbor Money Market Fund is neither insured nor guaranteed by the U.S.
Government and there can be no assurance that the Fund will be able to maintain
a stable net asset value of $1.00 per share.

The Funds and their investment objectives are described on the next page. You
may wish to pursue more than one investment objective by diversifying your
portfolio and investing in more than one Harbor Fund. Investing in the funds
involves various investment risks and there can be no assurance that a Fund will
achieve its investment objective.

This prospectus gives you information about Harbor Fund that you should know
before you invest. Additional information is included in the statement of
additional information dated March 1, 1996, filed with the Securities and
Exchange Commission ("SEC") and incorporated by reference in this prospectus.
For a copy, call 1-800-422-1050 or write to Harbor Fund. KEEP THIS PROSPECTUS
FOR FUTURE REFERENCE.

- --------------------------------------------------------------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 2
Financial Highlights.................... 7
Harbor Fund in Detail................... 11
Your Harbor Fund Account................ 21
Shareholder and Account Policies........ 26
The Adviser, Subadvisers, Distributor
and Shareholder Servicing Agent....... 28

<CAPTION>
PAGE
----
<S> <C>
Description of Securities and Investment
Techniques............................ 31
Performance and Yield Information....... 42
Portfolio Transactions.................. 43
Distributions and Tax Information....... 44
Organization and Capitalization......... 46
Appendix A.............................. A-1
</TABLE>

- --------------------------------------------------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

1
<PAGE> 5

PROSPECTUS SUMMARY

This Summary is qualified in its entirety by the more detailed information set
forth in the Prospectus.

HARBOR FUND Harbor Fund is a no-load, open-end management investment
company, consisting of eight diversified mutual funds,
registered under the Investment Company Act of 1940
("Investment Company Act"). Each mutual fund represents a
separate and distinct series of Harbor Fund's shares of
beneficial interest. See Organization and Capitalization.

INVESTMENT
OBJECTIVES The Funds are presented here in order of descending risk.
Generally, if you are seeking higher returns you must assume
greater risk as determined by the volatility of the net asset
value of a Fund's shares. See Financial Highlights.

EQUITY FUNDS

The Equity Funds may be appropriate for investors who are
willing to assume the risk of changes in the value of common
stocks.

HARBOR INTERNATIONAL GROWTH FUND seeks long-term growth of
capital through investment in a focused portfolio consisting of
non-U.S. equity securities.

HARBOR INTERNATIONAL FUND seeks long-term growth of capital
through investment in a portfolio consisting of non-U.S. equity
securities. Current income is a secondary consideration.

HARBOR GROWTH FUND seeks long-term growth of capital by
investing in common stocks, the earnings and security prices of
which are expected to grow at a rate above that of the market.

HARBOR CAPITAL APPRECIATION FUND seeks long-term growth of
capital by investing primarily in a portfolio of equity
securities of established companies with above average
prospects for growth.

HARBOR VALUE FUND seeks maximum long-term total return from a
combination of capital growth and income through investment in
a portfolio consisting primarily of dividend-paying common
stocks.

FIXED-INCOME FUNDS

The Fixed-income Funds are designed for investors who are
willing to assume the risk of changing interest rates and other
factors, such as duration and maturity, that affect the market
value of bonds.

HARBOR BOND FUND seeks maximum total return, consistent with
the preservation of capital and prudent investment management,
through investment in an actively managed portfolio of
fixed-income securities.

2
<PAGE> 6

HARBOR SHORT DURATION FUND seeks maximum total return,
consistent with prudent investment risk, through investment in
an actively managed portfolio of short-term high grade
fixed-income securities. Short Duration Fund's weighted average
portfolio maturity will, under normal circumstances, differ
from the Fund's average portfolio duration of one year.

MONEY MARKET FUND

The Money Market Fund is designed for investors seeking the
lowest possible investment risk associated with an investment
in a mutual fund.

HARBOR MONEY MARKET FUND seeks as high a level of current
income as is considered consistent with the preservation of
capital and liquidity.

INVESTMENT Harbor Fund, on behalf of each Fund, has engaged Harbor Capital
ADVISER Advisors, Inc. ("Adviser") as investment adviser. The Adviser
supervises the portfolio management of each Fund by its
subadviser and administers each Fund's business affairs. See
The Adviser, Subadvisers, Distributor and Shareholder Servicing
Agent.

THE SUB- Each Fund's portfolio is managed by one or more subadvisers
ADVISERS ("Subadvisers") consistent with each Fund's investment
objective and policies.

HARBOR INTERNATIONAL GROWTH FUND AND
HARBOR CAPITAL APPRECIATION FUND: Jennison
Associates
Capital Corp.

HARBOR INTERNATIONAL FUND: Northern Cross
Investments
Limited.

HARBOR GROWTH FUND: Nicholas-Applegate
Capital Management

HARBOR VALUE FUND: DePrince, Race &
Zollo, Inc. and
Richards &
Tierney, Inc.

HARBOR BOND FUND: Pacific Investment
Management Company

HARBOR SHORT DURATION FUND AND
HARBOR MONEY MARKET FUND: Fischer Francis
Trees & Watts,
Inc.

RISK FACTORS Each Equity Fund is subject to the risks associated with
investing in equity securities. Equity securities may include
common stocks, preferred stocks, convertible securities and
warrants. Common stocks, the most familiar type, represent an
equity (ownership) interest in a corporation. This ownership
interest often gives the Fund the right to vote on measures
affecting the company's organization and operations. Although
common stocks have a history of long-term growth in value,
their prices may fluctuate dramatically in the short term in
response to changes in market conditions, interest rates and
other company, political and economic news.

Harbor International Growth Fund and Harbor International Fund
invest in foreign securities. Foreign securities and foreign
currencies may involve risks in addition to the risks
associated with equity securities generally. These include
currency fluctuations, risks relating to political or economic
conditions in the foreign country and the potentially less
stringent investor protection, disclosure standards and
settlement

3
<PAGE> 7

procedures of foreign markets. These factors could make foreign
investments, especially those in developing countries, more
volatile.

Each Fixed-income Fund is subject to the risks associated with
investing in bonds. Bonds are loans that investors make to
corporations and government. Bonds in which the Funds may
invest are issued by U.S. corporations, by the U.S. Treasury,
by various cities and states and by various federal, state and
local government agencies. Foreign companies and governments
also issue bonds available to U.S. investors.

Over time, the level of interest rates available in the
marketplace changes. As prevailing rates fall, the prices of
bonds and other securities that trade on a yield basis tend to
rise. On the other hand, when prevailing interest rates rise,
bond prices generally will fall. The longer the maturity of a
fixed-income security, the higher its yield and the greater its
price volatility. Conversely, the shorter the maturity, the
lower the yield but the greater the price stability. These
factors operate in the fixed-income market place to have an
effect on the volatility of the share price of each Fixed-
income Fund. A change in the level of interest rates causes the
net asset value per share of a Fixed-income Fund to change. If
sustained over time, it would also have the effect of raising
or lowering the yield of the Fund.

Fixed-income securities are also subject to credit risk. When a
security is purchased, its anticipated yield is dependent on
the timely payment by the borrower of each interest and
principal installment. Credit analysis and resultant bond
ratings take into account the relative likelihood that such
timely payment will result. Therefore, lower-rated bonds tend
to sell at higher yields than top-rated bonds of similar
maturity. Furthermore, as economic, political and business
developments unfold, lower-quality bonds, which possess lower
levels of protection with respect to timely payment, usually
exhibit more price fluctuation than do higher-quality bonds of
like maturity. See Description of Securities and Investment
Techniques--Fixed-Income Securities.

The Funds may engage in short-selling of securities which may
increase a Fund's costs. A Fund whose portfolio turnover rate
is greater than 100% may also incur additional costs related to
transactions in securities. See Financial Highlights.

Harbor Short Duration Fund invests in reverse repurchase
agreements which will have the effect of leveraging the Fund's
assets. The use of leverage by the Fund, which may be
considered speculative, creates an opportunity for increased
returns but at the same time creates special risks. See
Description of Securities and Investment Techniques--Reverse
Repurchase Agreements.

HOW TO BUY
SHARES You may purchase shares of each Fund at the net asset value
next determined after receipt and acceptance of your purchase
order. The minimum initial investment in each Fund is $2,000.
The minimum is lowered to $500 per Fund if you are investing in
an IRA, SEP-IRA, UGMA, profit sharing, savings or pension plan,
or if you are beginning a Systematic Investment Plan. See Your
Harbor Fund Account--How to Buy Shares.

HOW TO SELL
SHARES You may redeem shares directly from a Fund at the net asset
value per share next determined after receipt of your
redemption request in proper order. Redemptions

4
<PAGE> 8

may be made by mail or telephone. Shareholders in Harbor Money
Market Fund also have a checkwriting privilege available. See
Your Harbor Fund Account--How to Sell Shares.

DISTRIBUTION
OPTIONS Unless you elect to receive income dividends and capital gains
in cash, they will be reinvested in additional shares of the
respective distributing Fund. Dividend and capital gains
distributions, if any, are made at least annually. See
Distributions and Tax Information.

EXCHANGE
PRIVILEGE You may exchange your shares of any Fund for shares of another
Fund (except Harbor International Fund unless you have an
existing account) at the net asset value next determined after
receipt of your exchange request in proper order. A telephone
exchange privilege is available. See Shareholder and Account
Policies.

NET ASSET
VALUE The net asset value per share of each Fund is calculated on
each day the New York Stock Exchange is open for trading. Call
1-800-422-1050 for the current day's net asset value of any
Fund after the close of the Exchange. See Shareholder and
Account Policies--Transaction Details.

TAXATION Each Fund has qualified and elected to be treated as a
regulated investment company for Federal income tax purposes
under Subchapter M of the Internal Revenue Code and intends to
continue to qualify for such treatment. See Distributions and
Tax Information.

SHAREHOLDER
COMMUNICATION Each shareholder will receive annual and semi-annual reports
containing financial statements, a statement confirming each
share transaction and quarterly combined statements. Financial
statements included in annual reports are audited by Harbor
Fund's independent certified public accountants.

5
<PAGE> 9

EXPENSE INFORMATION

The following table lists estimated Annual Operating Expenses for each Fund
for the current fiscal year based on actual expenses incurred in the fiscal year
ended October 31, 1995.

<TABLE>
<CAPTION>
HARBOR HARBOR HARBOR HARBOR
INTERNATIONAL HARBOR HARBOR CAPITAL HARBOR HARBOR SHORT MONEY
GROWTH INTERNATIONAL GROWTH APPRECIATION VALUE BOND DURATION MARKET
FUND FUND(1) FUND FUND FUND FUND(1) FUND(1) FUND(1)
------------- ------------- ------ ------------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Annual Fund Operating Expenses
(as a percentage of
average net assets)
Advisory Fees
(after fee adjustment)(1).... 0.75% 0.80% 0.75% 0.60% 0.60% 0.46% 0.20% 0.18%
Other Expenses................. 0.56% 0.22% 0.17% 0.15% 0.30% 0.23% 1.62%* 0.43%
------ ------ ----- ----- ----- ----- ------ -----
Total Operating Expenses....... 1.31% 1.02% 0.92% 0.75% 0.90% 0.69% 1.82%* 0.61%
====== ====== ===== ===== ===== ===== ====== =====
</TABLE>

- ------------

* Includes interest expense of 1.46%. Excluding interest expense, other expenses
would be 0.16% and total operating expenses would be 0.36%.

(1) The Adviser (and in the case of Harbor International Fund, the Subadviser)
has voluntarily agreed that all or a portion of their fees will not be
imposed during the current fiscal year. In the absence of such an
agreement, the estimated Total Operating Expenses of Harbor International
Fund, Harbor Bond Fund, Harbor Short Duration Fund and Harbor Money Market
Fund would be 1.07%, 0.93%, 2.02%, (0.56% excluding interest expense) and
0.73%, respectively.

Example: You would pay the following expenses on a hypothetical $1,000
investment, assuming 5% annual return and redemption at the end of each time
period:

<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
---- ---- ----- -----
<S> <C> <C> <C> <C>
Harbor International Growth Fund....................... $ 13 $ 42 $ 74 $ 169
Harbor International Fund.............................. $ 10 $ 33 $ 58 $ 132
Harbor Growth Fund..................................... $ 9 $ 30 $ 52 $ 119
Harbor Capital Appreciation Fund....................... $ 8 $ 24 $ 42 $ 97
Harbor Value Fund...................................... $ 9 $ 29 $ 51 $ 116
Harbor Bond Fund....................................... $ 7 $ 22 $ 39 $ 89
Harbor Short Duration Fund*............................ $ 19 $ 59 $ 103 $ 235
Harbor Money Market Fund............................... $ 6 $ 20 $ 35 $ 79
</TABLE>

The purpose of the above table and Example is to summarize the aggregate
expenses of each Fund to assist you in understanding the various costs and
expenses that you will bear directly or indirectly. THE EXAMPLE ILLUSTRATES THE
EFFECT OF EXPENSES, AND SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
- ------------

* Includes interest expense. Excluding interest expense, the expenses would be
$4, $12, $20 and $46, respectively.

6
<PAGE> 10

FINANCIAL HIGHLIGHTS

The tables below provide share information derived from each Fund's financial
statements relating to income from investment operations, distributions, total
return and ratios and other supplemental information. The following information
has been examined by Price Waterhouse LLP, independent accountants, whose

<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------ LESS
NET REALIZED AND DISTRIBUTIONS
UNREALIZED GAINS (LOSSES) --------------
NET ASSET VALUE ON INVESTMENTS, FUTURES, TOTAL FROM DIVIDENDS FROM
BEGINNING OF NET INVESTMENT OPTIONS AND FOREIGN INVESTMENT NET INVESTMENT
YEAR/PERIOD ENDED PERIOD INCOME CURRENCY CONTRACTS OPERATIONS INCOME
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
HARBOR INTERNATIONAL GROWTH FUND
October 31, 1995................... $ 11.53 $ .11* $ .54 $ .65 $ (.08)
October 31, 1994(1)................ 10.00 .07* 1.47 1.54 (.01)
HARBOR INTERNATIONAL FUND(2)
October 31, 1995................... $ 26.87 $ .39* $ .85 $ 1.24 $ (.24)
October 31, 1994................... 22.85 .26* 3.98 4.24 (.22)
October 31, 1993................... 16.77 .17* 6.31 6.48 (.22)
October 31, 1992................... 17.69 .24 (.95) (.71) (.21)
October 31, 1991................... 15.74 .16 2.47 2.63 (.34)
October 31, 1990................... 15.99 .37* .27 .64 (.17)
October 31, 1989................... 13.00 .18* 3.67 3.85 (.10)
October 31, 1988(3)................ 10.00 .07* 2.93 3.00 --
HARBOR GROWTH FUND(4)
October 31, 1995................... $ 12.83 $ (.04) $ 3.26 $ 3.22 $ --
October 31, 1994................... 14.01 -- (1.16) (1.16) --
October 31, 1993................... 12.42 .01 2.95 2.96 (.01)
October 31, 1992................... 15.76 .02 (1.01) (.99) (.04)
October 31, 1991................... 10.21 .04 6.53 6.57 (.08)
October 31, 1990................... 12.95 .10 (2.24) (2.14) (.11)
October 31, 1989................... 11.04 .09 1.94 2.03 (.12)
October 31, 1988................... 10.25 .12 1.56 1.68 (.10)
October 31, 1987(5)................ 10.00 .07 .44 .51 $ --
HARBOR CAPITAL APPRECIATION FUND(6)
October 31, 1995................... $ 17.31 $ .04 $ 6.06 $ 6.10 $ (.04)
October 31, 1994................... 17.30 .03 1.14 1.17 (.03)
October 31, 1993................... 16.30 .03 3.03 3.06 (.02)
October 31, 1992................... 15.18 .02 2.12 2.14 (.04)
October 31, 1991................... 10.65 .06 5.47 5.53 (.14)
October 31, 1990................... 13.42 .15 (1.53) (1.38) (.21)
October 31, 1989................... 11.67 .22 2.09 2.31 (.18)
October 31, 1988(3)................ 10.00 .14 1.53 1.67 --

DISTRIBUTIONS FROM IN EXCESS OF
NET REALIZED NET INVESTMENT
YEAR/PERIOD ENDED CAPITAL GAINS** INCOME
<S> <<C> <C>
- -----------------------------------
HARBOR INTERNATIONAL GROWTH FUND
October 31, 1995................... $ -- --
October 31, 1994(1)................ -- --
HARBOR INTERNATIONAL FUND(2)
October 31, 1995................... $ (.94) --
October 31, 1994................... -- --
October 31, 1993................... (.18) --
October 31, 1992................... -- --
October 31, 1991................... (.34)
October 31, 1990................... (.72) --
October 31, 1989................... (.76) --
October 31, 1988(3)................ -- --
HARBOR GROWTH FUND(4)
October 31, 1995................... $ (.32) --
October 31, 1994................... (.02) --
October 31, 1993................... (1.36) --
October 31, 1992................... (2.31) --
October 31, 1991................... (.94) --
October 31, 1990................... (.49) --
October 31, 1989................... -- --
October 31, 1988................... (.79) --
October 31, 1987(5)................ (.26) --
HARBOR CAPITAL APPRECIATION FUND(6)
October 31, 1995................... $ (.17) --
October 31, 1994................... (1.13) --
October 31, 1993................... (2.04) --
October 31, 1992................... (.98) --
October 31, 1991................... (.86) --
October 31, 1990................... (1.18) --
October 31, 1989................... (.38) --
October 31, 1988(3)................ $ -- --
</TABLE>

Footnotes on following pages

7
<PAGE> 11

report thereon is incorporated by reference, and attached to the Statement of
Additional Information. Further information about the performance of each Fund
is contained in Harbor Fund's Annual Report to Shareholders which may be
obtained without charge.

<TABLE>
<CAPTION>
RATIO OF OPERATING RATIO OF
NET ASSETS EXPENSES TO INTEREST EXPENSE
TAX RETURN TOTAL NET ASSET VALUE TOTAL END OF PERIOD AVERAGE NET ASSETS TO AVERAGE NET
OF CAPITAL DISTRIBUTIONS END OF PERIOD RETURN ($ THOUSANDS) (%) ASSETS (%)
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
$ -- $ (.08) $ 12.10 5.83% $ 122,415 1.21%* --
-- (.01) 11.53 15.36 74,734 1.32* --
$ -- $ (1.18) $ 26.93 5.06% $ 3,267,157 1.04%* --
-- (.22) 26.87 18.57 3,129,634 1.10* --
-- (.40) 22.85 39.51 2,275,053 1.20* --
-- (.21) 16.77 (4.08) 700,733 1.28 --
-- (.68) 17.69 17.74 205,703 1.35 --
-- (.89) 15.74 3.81 63,745 1.40* --
-- (.86) 15.99 31.30 29,018 1.15* --
-- -- 13.00 30.00++ 10,349 1.78*+ --
$ -- $ (.32) $ 15.73 25.93% $ 137,524 0.93% --
-- (.02) 12.83 (8.29) 141,330 0.93 --
-- (1.37) 14.01 26.17 208,320 0.90 --
-- (2.35) 12.42 (7.48) 191,464 0.90 --
-- (1.02) 15.76 68.72 211,494 0.91 --
-- (.60) 10.21 (17.43) 122,622 0.94 --
-- (.12) 12.95 18.55 139,399 1.03 --
-- (.89) 11.04 17.52 115,972 1.06 --
-- (.26) 10.25 0.10++ 98,715 1.33+ --
$ -- $ (.21) $ 23.20 35.73% $ 925,751 0.75% --
-- (1.16) 17.31 7.25 225,984 0.81 --
-- (2.06) 17.30 20.16 145,331 0.86 --
-- (1.02) 16.30 14.41 77,445 0.91 --
-- (1.00) 15.18 55.35 80,316 0.89 --
-- (1.39) 10.65 (11.52) 54,560 0.88 --
-- (.56) 13.42 20.91 60,367 0.92 --
-- -- 11.67 15.89++ 46,457 0.99+ --

INVESTMENT INCOME
TO AVERAGE NET PORTFOLIO
ASSETS (%) TURNOVER (%)
<S> <C> <C> <C>
- ----
1.31%* 74.86%
0.87* 41.80
1.53%* 14.01%
1.09* 28.70
1.28* 15.70
1.98 24.67
1.76 18.63
2.82* 28.28
1.56* 21.05
0.87*+ 26.66
(0.30)% 87.94%
-- 115.89
0.11 170.85
0.14 83.83
0.32 97.64
0.74 95.95
0.75 104.09
1.14 52.63
0.72+ 56.28
0.23% 51.65%
0.24 72.89
0.24 93.24
0.12 69.33
0.47 89.99
1.18 162.43
1.77 75.11
1.48+ 47.67
</TABLE>

Footnotes on following pages

8
<PAGE> 12

<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------
NET REALIZED AND LESS DISTRIBUTIONS
UNREALIZED GAINS (LOSSES) ----------------------------------
NET ASSET VALUE ON INVESTMENTS, FUTURES, TOTAL FROM DIVIDENDS FROM DISTRIBUTIONS FROM IN EXCESS OF
YEAR/PERIOD BEGINNING OF NET INVESTMENT OPTIONS AND FOREIGN INVESTMENT NET INVESTMENT NET REALIZED NET INVESTMENT
ENDED PERIOD INCOME CURRENCY CONTRACTS OPERATIONS INCOME CAPITAL GAINS** INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
HARBOR VALUE FUND(7)
October
31,
1995... $ 13.50 $ .40 $ 2.13 $ 2.53 $ (.39) $(1.07) $ --
October
31,
1994... 14.31 .36 .27 .63 (.34) (1.10) --
October
31,
1993... 13.24 .35 1.22 1.57 (.35) (.15) --
October
31,
1992... 13.10 .41* .49 .90 (.41) (.35) --
October
31,
1991... 10.84 .46* 2.71 3.17 (.47) (.44) --
October
31,
1990... 13.77 .51* (2.13) (1.62) (.51) (.80) --
October
31,
1989... 11.73 .47* 2.49 2.96 (.48) (.44) --
October
31,
1988(3)... 10.00 .29* 1.69 1.98 (.25) $ -- --
HARBOR BOND FUND
October
31,
1995... $ 10.41 $ .74* $ .73 $ 1.47 $ (.67) $ -- $ --
October
31,
1994... 11.92 .68* (1.02) (.34) (.67) (.50) --
October
31,
1993... 11.35 .68* .82 1.50 (.68) (.25) --
October
31,
1992... 11.11 .79* .50 1.29 (.79) (.26) --
October
31,
1991... 10.03 .83* 1.09 1.92 (.84) -- --
October
31,
1990... 10.55 .84* (.44) .40 (.83) (.09) --
October
31,
1989... 10.26 .76* .37 1.13 (.77) (.07) --
October
31,
1988(3)... 10.00 .60* .17 .77 (.51) -- --
HARBOR SHORT DURATION FUND
October
31,
1995... $ 8.77 $ .52* $ .06 $ .58 $ (.52) $ -- $ (.01)
October
31,
1994... 9.68 .34* (.12) .22 (1.08) -- --
October
31,
1993... 10.09 .34* .16 .50 (.82) (.09) --
October
31,
1992(8)... 10.00 .29* .08 .37 (.28) -- --
HARBOR MONEY MARKET FUND
October
31,
1995... $ 1.00 $ .06* $ -- $ .06 $ (.06) $ -- $ --
October
31,
1994... 1.00 .03* -- .03 (.03) -- --
October
31,
1993... 1.00 .03* -- .03 (.03) -- --
October
31,
1992... 1.00 .04* -- .04 (.04) -- --
October
31,
1991... 1.00 .06 -- .06 (.06) -- --
October
31,
1990... 1.00 .08 -- .08 (.08) -- --
October
31,
1989... 1.00 .08 .01 .09 (.08) (.01) --
October
31,
1988(3)... 1.00 .06 -- .06 (.06) -- --
</TABLE>

* Reflects the Adviser's or Subadviser's agreement not to impose all or a
portion of its advisory fees; the fees not imposed would have amounted to the
following:

Year ended October 31, 1995 -- International Growth $.01 per share;
International $.01 per share; Bond $.03 per share; Short Duration $.02 per
share; and Money Market less than $.01 per share.

Year ended October 31, 1994 -- International Growth $.02 per share;
International $.01 per share; Bond $.03 per share; Short Duration less than
$.01 per share; and Money Market less than $.01 per share.

Year ended October 31, 1993 -- International less than $.01 per share; Bond
$.02 per share; Short Duration $.02 per share; and Money Market less than
$.01 per share.

Year ended October 31, 1992 -- Value $.01 per share; Bond $.04 per share;
Short Duration $.01 per share; and Money Market less than $.01 per share.

Year ended October 31, 1991 -- Value $.01 per share; Bond $.04 per share.

Year ended October 31, 1990 -- International $.01 per share; Value $.02 per
share; Bond $.02 per share.

Year ended October 31, 1989 -- International $.08 per share; Value $.04 per
share; Bond $.04 per share.

Period ended October 31, 1988 -- International $.07 per share; Value $.04
per share; Bond $.03 per share.

9
<PAGE> 13

<TABLE>
<CAPTION>
RATIO OF OPERATING RATIO OF
NET ASSETS EXPENSES TO INTEREST EXPENSE
TAX RETURN TOTAL NET ASSET VALUE TOTAL END OF PERIOD AVERAGE NET ASSETS TO AVERAGE NET
OF CAPITAL DISTRIBUTIONS END OF PERIOD RETURN ($ THOUSANDS) (%) ASSETS (%)
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
$ -- $ (1.46) $ 14.57 21.02% $ 84,514 0.90% --
-- (1.44) 13.50 4.80 59,390 1.04 --
-- (.50) 14.31 11.99 59,884 0.88 --
-- (.76) 13.24 7.06 63,974 0.84* --
-- (.91) 13.10 30.18 43,066 0.93* --
-- (1.31) 10.84 (13.00) 23,453 1.01* --
-- (.92) 13.77 26.64 23,418 1.02* --
-- (.25) 11.73 20.07++ 11,551 1.40*+ --
$ -- $ (.67) $ 11.21 14.56% $ 222,998 0.70%* --
-- (1.17) 10.41 (3.14) 162,221 0.77* --
-- (.93) 11.92 13.98 164,382 0.72* --
-- (1.05) 11.35 12.14 65,420 0.77* --
-- (.84) 11.11 20.01 40,486 0.86* --
-- (.92) 10.03 4.03 24,341 1.22* --
-- (.84) 10.55 11.66 21,233 1.21* --
-- (.51) 10.26 7.91++ 11,225 1.55*+ --
$ -- $ (.53) $ 8.82 6.82% $ 105,007 0.38%* 1.46%
(.05) (1.13) 8.77 2.53 115,891 0.38* 1.26
-- (.91) 9.68 5.18 135,189 0.43* .69
-- (.28) 10.09 3.72++ 186,523 0.35*+ 1.19+
$ -- $ (.06) $ 1.00 5.66% $ 64,492 0.61%* --
-- (.03) 1.00 3.53 60,024 0.67* --
-- (.03) 1.00 2.68 46,879 0.71* --
-- (.04) 1.00 3.67 55,244 0.69* --
-- (.06) 1.00 6.25 57,093 0.66 --
-- (.08) 1.00 8.02 49,968 0.66 --
-- (.09) 1.00 9.44 43,727 0.70 --
-- (.06) 1.00 5.61++ 68,475 0.66+ --

<CAPTION>
RATIO OF NET
INVESTMENT INCOME
TO AVERAGE NET PORTFOLIO
ASSETS (%) TURNOVER (%)
<S> <C> <C> <C>
- ----
3.00% 135.93%
2.66 150.94
2.48 50.20
3.11* 19.68
3.61* 32.60
3.96* 31.41
3.92* 39.89
3.36*+ 43.74
7.11%* 88.69%
6.29* 150.99
6.19* 119.92
7.30* 52.54
8.12* 58.45
8.30* 90.99
8.20* 91.17
7.42*+ 124.15
6.19%* 3107.53%
4.61* 895.76
4.19* 1,212.20
3.79*+ 2,759.70
5.42%* N/A
3.38* N/A
2.58* N/A
3.39* N/A
5.70 N/A
7.54 N/A
8.40 N/A
6.97+ N/A
</TABLE>

** Includes both short-term and long-term capital gains.

(1) For the period November 1, 1993 (commencement of operations) through October
31, 1994.

(2) Effective April 1, 1993, Harbor International Fund appointed Northern Cross
Investments Limited as its Subadviser.

(3) For the period December 29, 1987 (commencement of operations) through
October 31, 1988.

(4) Effective January 1, 1993, Harbor Growth Fund appointed Nicholas Applegate
Capital Management as its Subadviser.

(5) For the period November 19, 1986 (commencement of operations) through
October 31, 1987.

(6) Effective May 1, 1990, Harbor Capital Appreciation Fund appointed Jennison
Associates Capital Corp. as its Subadviser.

(7) Harbor Value Fund appointed Richards & Tierney, Inc. and DePrince, Race, &
Zollo, Inc. as its Subadvisers effective November 1, 1993 and April 20,
1995, respectively.

(8) For the period January 1, 1992 (commencement of operations) through October
31, 1992.

+ Annualized

++ Unannualized

10
<PAGE> 14

HARBOR FUND IN DETAIL

Harbor Fund offers a range of investment opportunities through the eight
mutual funds offered in this Prospectus. Each Fund has its own investment
objective and policies. Each Fund's investment objective is fundamental and may
only be changed by a vote of the Fund's shareholders. The Funds' investment
policies are non-fundamental and may be changed by Harbor Fund's Board of
Trustees without shareholder approval. Harbor Fund has adopted certain
fundamental investment restrictions that are enumerated in detail in the
Statement of Additional Information and which may not be changed without
shareholder approval.

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES

HARBOR INTERNATIONAL GROWTH FUND. Harbor International Growth Fund seeks
long-term growth of capital through investment in a portfolio consisting of
non-U.S. equity securities. Investments in securities of non-U.S. issuers may
subject the Fund to other risks in addition to those associated with investments
in securities of U.S. issuers. Unlike Harbor International Fund, the Fund seeks
to achieve its objective by investing in a focused selection of common stocks or
in securities with common stock characteristics, such as preferred stock,
warrants and debt securities convertible into common stock of issuers that
demonstrate a tendency towards long-term secular growth, and whose primary stock
exchange listing is outside of the United States. The Fund's policy of investing
in a narrowly focused selection of stocks exposes the Fund to the risk that a
substantial decrease in the value of a stock may cause the net asset value of
the Fund to fluctuate more than if the Fund were invested in a greater number of
stocks.

Under normal market conditions, the Fund invests at least 65% of its assets in
approximately 30, but not more than 40, selected stocks of non-U.S. issuers in a
minimum of three countries exclusive of the United States. These issuers will be
located primarily in Europe, the Pacific Basin and the more highly developed
emerging industrialized countries. In exceptional market circumstances or to
preserve the Fund's compliance with the SEC's policies on industry and country
concentration and issuer diversification, the Fund's assets may be invested in
more than 40 stocks of non-U.S. issuers. The Fund may also invest in foreign
securities in the form of American Depository Receipts (ADR's), European
Depository Receipts (EDR's), Global Depository Receipts (GDR's), International
Depository Receipts (IDR's) or other similar securities convertible into
securities of foreign issuers. ADR's (sponsored or unsponsored) are receipts
typically issued by a U.S. bank or trust company evidencing ownership of the
underlying foreign securities. Most ADR's are traded on a U.S. stock exchange.
Issuers of unsponsored ADR's are not contractually obligated to disclose
material information in the U.S., so there may not be a correlation between such
information and the market value of the unsponsored ADR. EDR's and IDR's are
receipts typically issued by a European bank or trust company evidencing
ownership of the underlying foreign securities. GDR's are receipts issued by
either a U.S. or non-U.S. banking institution evidencing ownership of the
underlying foreign securities.

The Fund may invest up to 40% of its total assets in the securities of
companies in any one of three designated industries: pharmaceuticals, banking
and telephone companies (the "Designated Industries"), when Jennison Associates
Capital Corp. (the "Subadviser" or "Jennison") deems securities in any one of
the Designated Industries to be a good relative value. A company's securities
would be a good relative value if the Subadviser's three most important
valuation criteria are met by a company in one of the

11
<PAGE> 15

Designated Industries. The criteria are: (1) the
company's comparative price to cash flow multiple is favorable when compared to
the company's world-wide peer group; (2) the company has a relatively low price
to earnings ratio when compared to the company's historical average price to
earnings ratio; and (3) the growth rate of the company's earnings exceeds the
company's price to earnings ratio. At no time during which the Fund has more
than 25% of its total assets in one Designated Industry will the Fund have more
than 25% of its assets invested in either of the other two Designated
Industries. During the time that 40% of the Fund's assets are invested in one of
the Designated Industries, there may be an increased risk that an investment in
the Fund will be more sensitive to economic and regulatory changes in that
Designated Industry.

The pharmaceuticals industry is comprised of companies that design, produce
and/or sell prescription drugs and over-the-counter medicines. An aging global
population is driving the demand for products produced by companies in this
industry. The pharmaceuticals industry is subject to pricing pressure, loss of
patent protection for key products and strict government regulation which could
have an unfavorable impact on the price and supply of pharmaceuticals.

International banks derive a substantial portion of their operating profit by
taking advantage of the difference between the costs of maintaining deposits and
the average lending rate. Recently, international banks have begun to take
advantage of income derived from fees charged for a variety of banking services.
The financial performance of the securities of international banks is sensitive
to volatile interest rates and general economic conditions. Also, the banking
industry may be subject to extensive government regulation.

Telephone operating companies are involved in the development and sale of
communications services and offer a variety of services including local and long
distance telephone service and cellular, paging, local and wide area networks.
Telephone operating companies in foreign countries are characterized by monopoly
and duopoly market structures, growth in telephone call volume that exceeds the
rate of growth of the foreign country's general economy and increasing
efficiency in providing telephone operating services as a result of
technological development. Telephone operating companies are subject to
government regulation affecting permitted rates of return and the kinds of
services that may be offered. These companies are also subject to price pressure
from increasing competition and reduced barriers to entry into the industry.

For temporary defensive purposes, as determined by the Subadviser, the Fund
may invest part or all of its portfolio in equity securities of U.S. issuers;
notes and bonds which at the time of their purchase are rated investment grade,
i.e., BBB or higher by Standard & Poor's Rating Group ("S&P") or Baa or higher
by Moody's Investors Service, Inc. ("Moody's"); and cash or cash equivalents
such as obligations of banks, commercial paper and short-term obligations of
U.S. or foreign issuers.

12
<PAGE> 16

flow and remain fully invested in the stock market
or to hedge against a decline in the value of securities owned by it or an
increase in the price of securities which it plans to purchase.

For a description of the risks of investing in foreign securities and
additional information about the securities in which the Fund invests and the
management techniques the Subadviser employs to manage the Fund, see
"Description of Securities and Investment Techniques."

HARBOR INTERNATIONAL FUND. Sales of shares of this Fund to new investors have
been suspended. See "Shareholder and Account Policies." Harbor International
Fund seeks long-term growth of capital through investment in a portfolio
consisting of non-U.S. equity securities. Current income is a secondary
consideration. The Fund invests its assets in common stocks and comparable
equity securities of issuers, wherever organized, which do business primarily
outside the United States. The Fund will be invested in a minimum of three
countries exclusive of the United States. The Fund's Subadviser, Northern Cross
Investments Limited (the "Subadviser" or "Northern Cross"), currently intends to
invest primarily in equity securities of issuers located in Europe, the Pacific
Basin and the more highly developed emerging industrialized countries, which it
believes present favorable investment opportunities. The Fund may also invest in
foreign securities in the form of ADR's, EDR's, GDR's, IDR's or other similar
securities convertible into securities of foreign issuers.

For temporary defensive purposes, as determined by the Subadviser, the Fund
may invest part or all of its portfolio in equity securities of U.S. issuers;
notes and bonds which at the time of their purchase are rated BBB or higher by
S&P or Baa or higher by Moody's; and cash or cash equivalents such as
obligations of banks, commercial paper and short-term obligations of U.S. or
foreign issuers.

The 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. Such currency management techniques involve risks
different from those associated with investing solely in dollar-denominated
securities of U.S. issuers. The Fund may enter into repurchase agreements and
purchase securities on a when-issued or forward commitment basis. The Fund has
entered into a portfolio securities lending program with the Fund's custodian.
The Fund may write and purchase options and purchase and sell futures contracts
and related options to manage cash flow and remain fully invested in the stock
market or to hedge against a decline in the value of securities owned by it or
an increase in the price of securities which it plans to purchase.
For a description of the risks of investing in foreign securities and
additional information about the securities in which the Fund invests and the
management techniques the Subadviser employs to manage the Fund, see
"Description of Securities and Investment Techniques."
HARBOR GROWTH FUND. Harbor Growth Fund seeks long-term growth of capital by
investing primarily in common stocks, the earnings and security prices of which
the Fund's subadviser, Nicholas-Applegate Capital Management (the "Subadviser"
or "Nicholas-Applegate") expects to grow at a rate above that of the overall
market.
Under normal market conditions, the Fund intends to invest at least 90% of its
total assets in a diversified portfolio of common stocks and securities
convertible into or exercisable for common stocks, which the Subadviser believes
have above-average earnings growth prospects based on a company-by-company
analysis, rather than on broader analyses of specific industries or sectors of
the economy. The Subadviser seeks to identify stocks of companies that it
expects to

13
<PAGE> 17

enter into an accelerating earnings period, to sustain that earnings growth and
to demonstrate strong price appreciation relative to their industries and to
broad market averages. The companies in which the Fund invests do not
necessarily have records of past high growth. Examples of possible investments
include companies with cyclical earnings, companies with new and innovative
products or services, companies facing a changed economic, competitive or
regulatory environment, companies with a new or different management approach
and initial public offerings of companies which the Subadviser believes offer
above-average growth potential.

The Subadviser believes that its investment approach, in addition to
identifying securities in which it may invest, the earnings and prices of which
it expects to grow at a rate above that of the overall market, also identifies
securities, the prices of which can be expected to decline. Therefore, the Fund
is authorized to make short sales of securities it owns or has the right to
acquire at no added cost through conversion or exchange of other securities it
owns (referred to as short sales "against the box") and to make short sales of
securities which it does not own or have the right to acquire.

The Subadviser uses an extensive network of more than 100 investment banking
and brokerage firms throughout the United States to identify equity investment
opportunities. The Subadviser's staff then applies its own computer-assisted
fundamental analysis to such individual potential investments, building
portfolios of equity securities which the Subadviser believes have above-average
earnings growth prospects. Investments are closely monitored with a view to the
sale of portfolio securities when the reasons for the initial purchases are no
longer valid or the price objectives have been achieved. There is no direct cost
to the Fund for these services. However, higher brokerage commissions for
providing research services may be paid by the Fund as further described under
the caption "Portfolio Transactions."

For temporary defensive purposes, as determined by the Subadviser, the Fund
may invest all or a portion of its assets in cash or cash equivalents, such as
obligations of banks, commercial paper and short-term obligations. The Fund may
enter into repurchase agreements, purchase securities on a when-issued or
forward commitment basis, engage in portfolio securities lending and short sales
of securities. The Fund may write and purchase options and purchase and sell
futures contracts and related options to manage cash flow and remain fully
invested in the stock market or to hedge against a decline in the value of
securities owned by it or an increase in the price of securities which it plans
to purchase.

For additional information about the securities in which the Fund invests and
the management techniques the Subadviser employs to manage the Fund, see
"Description of Securities and Investment Techniques."

HARBOR CAPITAL APPRECIATION FUND. Harbor Capital Appreciation Fund seeks
long-term growth of capital by investing primarily in a portfolio of equity
securities of established companies with above-average prospects for growth.
Dividend income, if any, is a secondary consideration. The Fund invests
substantially all, but at least 65%, of its total assets, in common stocks,
convertible securities and other equity securities of companies which typically
have equity market capitalizations of at least $1 billion. Securities of
companies exhibiting superior sales growth, high levels of unit growth, high
returns on equity and assets, and strong balance sheets, will be considered for
investment by the Fund. Companies must be currently demonstrating superior
absolute and relative earnings growth and be attractively valued to warrant
inclusion in the Fund's portfolio. Jennison, the Fund's Subadviser, will devote
special attention to companies which are

14
<PAGE> 18

likely to benefit from unique marketing competence, strong research and
development resulting in a superior new product flow and excellent management
capability. Companies must be actually achieving or exceeding expected earnings
results to be purchased or retained by the Fund. No effort is made by the Fund
to time the market. For temporary defensive purposes, as determined by the
Subadviser, the Fund may invest all or a portion of its assets in cash or cash
equivalents, such as obligations of banks, commercial paper and short-term
obligations.

The Fund may enter into repurchase agreements, purchase securities on a
when-issued or forward commitment basis, engage in portfolio securities lending
and short sales of securities. The Fund may write and purchase options and
purchase and sell futures contracts and related options to manage cash flow and
remain fully invested in the stock market, or to hedge against a decline in the
value of securities owned by it or an increase in the price of securities which
it plans to purchase.

HARBOR VALUE FUND. Harbor Value Fund seeks maximum long-term total return from
a combination of capital growth and income through investment in a portfolio
consisting primarily of dividend-paying common stocks. The Fund will invest in a
broadly diversified portfolio of dividend-paying common stocks that are listed
on a national securities exchange or traded in the over-the-counter market.
However, the Subadvisers at their discretion may also invest up to 15% of their
total assets in non-dividend paying stocks.

Under normal market conditions, at least 65% of the Fund is invested in common
stocks with the characteristics described below. The balance of the Fund's
assets may be invested in other equity securities or U.S. Government securities,
or may be held in cash or cash equivalents. Responsibility for investing the
Fund's portfolio is divided between two Subadvisers. DePrince, Race & Zollo,
Inc. (DRZ) manages 75% of the assets of the Fund, and Richards & Tierney, Inc.
(R&T) manages the remaining 25% of the Fund's assets.

The Fund pursues its objective with respect to the 75% of its assets managed
by DRZ by investing in stocks with an above-average current yield, which are
undervalued compared to their history relative to the market and which have
improving fundamentals. Stock selection is the key factor in DRZ's methodology.
Before buying or selling a stock, the portfolio manager analyzes current yield,
relative valuation and fundamentals. Relative valuation analysis means that the
portfolio manager reviews twenty years of yield, price/earnings, price/book, and
price/cash flow relative to the S&P 500. Fundamental analysis means that the
portfolio manager seeks to identify stocks with improving conditions. The
disciplined execution of this methodology results in an actively managed
portfolio.

The Fund pursues its objective with respect to the 25% of its assets managed
by R&T, by following investment policies emphasizing common stocks that
complement stocks selected for that portion of the portfolio managed by DRZ.
Using quantitative techniques, R&T is able to construct a broadly diversified
list of stock holdings whose presence in the portfolio does not negate the
active management by DRZ. This provides the Fund with broader exposure in the
so-called value (i.e., lower volatility) area of the market while preserving
DRZ's value adding active management capability.

For temporary defensive purposes, as determined by each Subadviser, the Fund
may invest all or a portion of its assets in cash or cash

15
<PAGE> 19

equivalents, such as obligations of banks, commercial paper and short-term
obligations.

The Fund may enter into repurchase agreements, purchase securities on a
when-issued or forward commitment basis, engage in portfolio securities lending
and short sales of securities. The Fund may write and purchase options and
purchase and sell futures contracts and related options to manage cash flow and
remain fully invested in the stock market or to hedge against a decline in the
value of securities owned by it or an increase in the price of securities which
it plans to purchase.

For additional information about the securities in which the Fund invests and
the management techniques the Subadvisers employ to manage the Fund, see
"Description of Securities and Investment Techniques."

HARBOR BOND FUND. Harbor Bond Fund seeks maximum total return, consistent with
the preservation of capital and prudent investment management, through
investment in an actively managed portfolio of fixed-income securities. Under
normal market conditions, the Fund invests at least 65% of its total assets in
bonds, such as obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities with maturities of at least five years;
obligations issued or guaranteed by a foreign government, or any of its
political subdivisions, authorities, agencies or instrumentalities or by
supra-national organizations (such as the International Bank for Reconstruction
and Development); obligations of domestic or foreign corporations and other
entities (rated Baa or better by Moody's or BBB or better by S&P or, if unrated,
determined by Pacific Investment Management Company ("PIMCO" or the
"Subadviser") to be of comparable quality); and mortgage-related and other
asset-backed securities. Mortgage-backed securities in which the Fund may invest
include mortgage pass-through certificates and multiple class pass-through
certificates, real estate mortgage investment conduit pass-through certificates,
collateralized mortgage obligations and stripped mortgage backed securities,
such as interest only and principal only securities. The Fund's investments will
be concentrated in areas of the bond market (based on quality, sector, coupon or
maturity) that PIMCO believes are relatively undervalued. In addition, the Fund
may invest in obligations of domestic and foreign commercial banks and bank
holding companies (such as commercial paper, banker's acceptances, certificates
of deposit and time deposits).

Under normal market conditions, at least 60% of the Fund's total assets will
be invested in securities of U.S. issuers and at least 80% of the Fund's total
assets, adjusted to reflect the Fund's net exposure after giving effect to
currency transactions and positions, will be denominated in U.S. dollars. The
Fund may not invest more than 25% of its total assets in the securities of
issuers located in a single country other than the United States.

The Fund may also invest up to 10% of its assets in corporate debt securities
that are not investment grade but are rated B or higher by Moody's or S&P,
although the weighted average quality of all fixed-income securities held by the
Fund will be equivalent to securities rated A or higher by Moody's and S&P.

The obligations in which the Fund may invest may have fixed, variable or
floating interest rates. Depending upon the level of interest rates, the average
maturity of the Fund will vary between 8 and 15 years. Although long-term
securities generally produce higher income than short-term

16
<PAGE> 20

securities, long-term securities are more susceptible to market fluctuations
resulting from changes in interest rates. When interest rates decline, the value
of a portfolio invested at higher yields can be expected to rise. Conversely,
when interest rates rise, the value of a portfolio invested at lower yields can
be expected to decline.

In selecting securities and currencies for Harbor Bond Fund's portfolio, PIMCO
utilizes economic forecasting, interest rate expectations, credit and call risk
analysis and other security and currency selection techniques. The proportion of
the Fund's assets invested in securities with particular characteristics (such
as maturity, type, and coupon rate) may vary based on PIMCO's outlook for the
economy, the financial markets, and other factors.

Harbor Bond Fund's portfolio will normally consist of securities of varying
maturities with a portfolio duration equal to that of the market plus or minus
1.5 years. The duration of the Fund's portfolio will vary within the three- to
six-year timeframe based on PIMCO's forecast for interest rates, but under
current conditions is expected to stay within one year of what PIMCO believes to
be the average duration of the bond market as a whole. PIMCO bases its analysis
of the average duration of the bond market on bond market indices which it
believes to be representative, and other factors. The Fund may use various
techniques to shorten or lengthen the duration of its portfolio, including the
acquisition of obligations at a premium or discount, transactions in options,
futures contracts, options on futures and mortgage and interest rate swaps and
interest rate floors and caps.

Duration is a measure of the average life of a fixed-income security that was
developed as a more precise alternative to the concept of "term to maturity" as
a measure of "volatility" or "risk" associated with changes in interest rates.
Duration incorporates a security's yield, coupon interest payments, final
maturity and call features into one measure. Duration is computed by determining
the expected period of time until each scheduled payment or unscheduled
prepayment of principal or interest and averaging such time periods on a
weighted basis in accordance with the present value of such expected payments. A
reduction in the coupon interest rate would generally increase duration; an
increase in the coupon interest rate would generally reduce duration. Duration
is one of the fundamental tools used by PIMCO in security selection.

Harbor Bond Fund may also employ certain active currency and interest rate
management techniques. The techniques may be used both to hedge the foreign
currency and interest rate risks associated with the Fund's portfolio
securities, and, in the case of certain techniques, to seek to increase the
total return of the Fund. Such active management techniques include derivative
instruments such as forward foreign currency exchange contracts, options on
securities and foreign currencies, futures contracts, options on futures
contracts and currency, mortgage and interest rate swaps and interest rate
floors and caps. In addition, the Fund may enter into forward foreign currency
exchange contracts, currency options and currency swaps for non-hedging purposes
when PIMCO anticipates that a foreign currency will appreciate or depreciate in
value, even though securities denominated in that currency do not present
attractive investment opportunities or are not included in the Fund's portfolio.

In addition, the Fund may enter into repurchase agreements, purchase and sell
securities on a when-issued or forward commitment basis, including TBA ("to be
announced") purchase and sale commitments, engage in portfolio securities
lending and short selling of securities and enter into reverse repurchase
agreements. For additional information about the securities in which the Fund
invests and the management techniques and the derivative instruments the
Subadviser employs to manage the Fund, see "Description of Securities and
Investment Techniques."

17
<PAGE> 21

HARBOR SHORT DURATION FUND. Harbor Short Duration Fund seeks to maximize total
return, consistent with prudent investment risk, through investment in an
actively managed portfolio of short-term high grade fixed-income securities. The
Fund is expected to have less volatility of return than is typically associated
with broad bond market indices such as the Lehman Brothers Government/Corporate
Index.

The Fund invests principally in high grade bonds (i.e., rated A or higher by
S&P or Moody's or, if unrated, determined by the Subadviser to be of comparable
quality), including: (i) obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; (ii) obligations issued or
guaranteed by a foreign government, or any of its political subdivisions,
authorities, agencies or instrumentalities or by supra-national organizations
(such as the World Bank); (iii) obligations of domestic and foreign commercial
banks and bank holding companies (such as commercial paper (rated A-1 by S&P or
P-1 by Moody's or higher or, if unrated, determined by the Subadviser to be of
comparable quality), bankers' acceptances, certificates of deposit and time
deposits); and (iv) obligations of domestic and foreign corporations and other
entities (including mortgage- and other asset-backed securities). The
obligations in which the Fund may invest may have fixed, variable or floating
interest rates.

In selecting securities for the Fund's portfolio, the Fund's subadviser,
Fischer Francis Trees & Watts, Inc. ("Fischer" or the "Subadviser") considers
such factors as the security's maturity, duration, sector and credit quality
rating as well as the security's yield and prospects for capital appreciation.

Duration represents the weighted average maturity of expected cash flows on a
debt obligation, discounted to present value. Maturity, in contrast, measures
only the time until final payment is due on a bond or other debt security,
taking no account of the pattern of a security's cash flows over time. In
computing the portfolio's duration, the Fund will have to estimate the duration
of debt obligations that are subject to prepayment or redemption by the issuer.
The dollar-weighted average duration of the Fund's portfolio is expected to
approximate one year and will not vary from one year by more than two years,
that is, from an average of three years to minus one year (taking into account
the negative duration of all short positions). For a portfolio at one year,
average maturity approximates average duration. The Fund may use various
techniques to shorten or lengthen the dollar-weighted average duration of its
portfolio, including the acquisition of obligations at a premium or discount,
transactions in options, futures contracts, options on futures and mortgage and
interest rate swaps and interest rate floors and caps. Subject to the policy of
maintaining a dollar-weighted average portfolio duration not exceeding three
years, the Fund may invest in individual obligations of any duration.

The assets of the Fund are actively managed and are bought and sold in
response to changes in value resulting from new information affecting the supply
and demand of the Fund's assets. Active management of the Fund entails frequent
decisions concerning the changing relative attractiveness of various
investments. In that connection, the Fund may also employ certain active
currency and interest rate management

18
<PAGE> 22

techniques. The techniques may be used both to
hedge the foreign currency and interest rate risks associated with the Fund's
portfolio securities, and, in the case of certain techniques, to seek to
increase the total return of the Fund. Such active management techniques include
derivative instruments such as forward foreign currency exchange contracts,
options on securities and foreign currencies, futures contracts, options on
futures contracts and currency, mortgage and interest rate swaps and interest
rate floors and caps. In addition, the Fund may enter into forward foreign
currency exchange contracts, currency options and currency swaps for non-hedging
purposes when Fischer anticipates that a foreign currency will appreciate or
depreciate in value, even though securities denominated in that currency do not
present attractive investment opportunities or are not included in the Fund's
portfolio. In addition, the Fund may acquire securities on a when-issued or
forward commitment basis, enter into repurchase agreements and engage in
portfolio securities lending. The Fund engages in short selling of securities.
The Fund enters into reverse repurchase agreements with banks and
broker-dealers. While not considered senior securities for purposes of the
Investment Company Act, reverse repurchase agreements are considered by the
staff of the SEC to be borrowings. As such, the Fund's use of reverse repurchase
agreements is subject to the requirement in the Investment Company Act that the
Fund maintain continuous asset coverage of at least 300% with respect to any
such borrowing. As of the Fund's fiscal year end, October 31, 1995, the Fund
entered into reverse repurchase agreements that resulted in the Fund's being
leveraged to % of its total assets and the Fund's paying interest expense on
such agreements of 1.46% of the Fund's average net assets. For a discussion of
the special risks associated with the Fund's use of (i) reverse repurchase
agreements and the resultant leveraging effect of such agreements on the Fund's
portfolio and (ii) short sales, see "Description of Securities and Investment
Techniques."

For additional information about the securities in which the Fund may invest
and the management techniques and the derivative instruments the Subadviser
employs to manage the Fund, see "Description of Securities and Investment
Techniques."

HARBOR MONEY MARKET FUND. Harbor Money Market Fund seeks as high a level of
current income as is considered consistent with the preservation of capital and
liquidity. Under normal market conditions, at least 80% of the Fund's net assets
are invested in:

(A) short-term (maturing in thirteen months or less) U.S. Government
securities;
(B) treasury receipts; treasury investment growth receipts ("TIGR's");
certificates of accrual on treasury receipts ("CATS"); and separately
traded principal and interest components of securities issued or guaranteed
by the U.S. Treasury traded under the Separate Trading of Registered
Interest and Principal of Securities program ("STRIPS");
(C) U.S. dollar-denominated obligations issued by major U.S. and foreign
banks (including certificates of deposit and bankers' acceptances) that
meet the $100,000,000 standard set forth under "Cash Equivalents" and other
obligations of U.S. and non-U.S. issuers denominated in U.S. dollars and in
securities of foreign branches of U.S. banks and major foreign banks, such
as negotiable certificates of deposit (Eurodollars), and including variable
rate master demand notes and floating rate notes, provided they are (i)
rated in the highest rating category of at least two nationally recognized
statistical rating

19
<PAGE> 23

organizations ("NRSROs") or, if only rated by
one NRSRO, that NRSRO, or (ii) issued or guaranteed by a company which at
the date of investment has outstanding a comparable debt issue rated in one
of the two highest rating categories by at least two NRSROs or, if only one
NRSRO has rated the security, that NRSRO;
(D) commercial paper (including variable and floating rate commercial
paper with interest rates which adjust in accordance with changes in
interest rate indices) which is rated in the highest rating category of at
least two NRSROs or, if not rated, is issued by a company having
outstanding comparable debt rated in one of the two highest rating
categories by at least two NRSROs or, if only one NRSRO has rated the
security, that NRSRO;
(E) short-term (maturing in thirteen months or less) corporate
obligations which are rated in one of the two highest rating categories by
at least two NRSROs or, if only one NRSRO has rated the security, that
NRSRO;
(F) repurchase agreements; and
(G) asset-backed securities (including, but not limited to, interests in
pools of assets such as motor vehicle installment purchase obligations and
credit card receivables) which are determined to be of high quality by
Fischer Francis Trees & Watts, Inc., the Fund's Subadviser, pursuant to
criteria approved by the Board of Trustees.

The Fund may invest up to 20% of the value of its net assets in debt
instruments not specifically described in (A) through (G) above, including
unrated instruments, provided that such instruments are deemed by Harbor Fund's
Trustees to be of comparable high quality and liquidity and that they meet the
Fund's maturity requirements.

The Fund may invest more than 25% of the value of its total assets in the
securities of banks and bank holding companies, including certificates of
deposit and bankers' acceptances. The Fund, however, may not invest more than 5%
of its total assets (taken at amortized cost) in securities issued by or subject
to puts from any one issuer (except U.S. Government securities and repurchase
agreements collateralized by such securities), except that a single investment
may exceed such limit if such security (i) is rated in the highest rating
category by the requisite number of NRSROs or, if unrated, is determined to be
of comparable quality and (ii) is held for not more than three business days. In
addition, the Fund may not invest more than 5% of its total assets (taken at
amortized cost) in securities of issuers not in the highest rating category as
determined by the requisite number of NRSROs or, if unrated, of comparable
quality, with investment in any one such issuer being limited to no more than 1%
of such total assets or $1 million, whichever is greater. For a description of
each NRSROs' rating categories, see Appendix A to the Statement of Additional
Information. For more information about the foregoing instruments, see
"Description of Securities and Investment Techniques."

Fischer may employ a number of professional money management techniques in
anticipation of or in response to shifts in market conditions and fiscal or
monetary policy. These techniques include varying the composition of the Fund's
investments and the average maturity of the Fund's portfolio based upon an
assessment of the relative values of various money market instruments and future
interest rate patterns. As a result, the Fund may engage in more active
portfolio trading and experience more volatility in its distributions than many
other money market funds.

In addition, the Fund may purchase securities on a when-issued or forward
commitment basis, engage in portfolio securities lending, and do short sales of
securities. The collateral securing loans of portfolio securities or short sales
will

20
<PAGE> 24

consist only of cash, cash equivalents, or U.S.
Government securities that satisfy the quality and maturity standards applicable
to the Fund's investments under the rule allowing amortized cost valuation.

The Fund seeks to maintain a stable net asset value of $1.00 per share. There
is no assurance that the Fund will be able to achieve this objective. However,
to facilitate this, the Fund's portfolio securities are valued by the amortized
cost method as permitted by a rule of the Securities and Exchange Commission
(the "SEC"). The rule requires that all portfolio securities have at the time of
purchase a maximum remaining maturity of thirteen months (as defined in the
rule) and that they meet certain quality standards. The Fund must also maintain
a dollar-weighted average portfolio maturity of 90 days or less. For additional
information about the securities in which the Fund may invest and the management
techniques the Subadviser employs to manage the Fund, see "Description of
Securities and Investment Techniques."

YOUR HARBOR FUND ACCOUNT

HOW TO BUY SHARES

The minimum initial investment in each Fund is $2,000, with minimum subsequent
investments of $500 per Fund. If your account is an IRA, SEP-IRA, UGMA, profit
sharing, savings or pension plan, or if you are beginning a Systematic
Investment Plan, the minimums are lowered to $500 per Fund for initial and $100
per Fund for subsequent investments. ALL CHECKS MUST BE MADE PAYABLE TO HARBOR
FUND, AND MAY BE MAILED TO:

HARBOR FUND,
C/O HARBOR TRANSFER, INC.,
P.O. Box 2282,
Toledo, OH 43603-2282.

When making a subsequent investment, you may include the detachable stub from
your confirmation statement to provide additional information.

Any order by mail to purchase shares of a Fund must be received before 3 p.m.,
Eastern time, or by wire before 4 p.m., Eastern time. Investments received after
these times will be deemed received on the next business day.

IF YOU ARE NEW TO HARBOR FUND, please complete and sign the appropriate new
account application and mail it along with your check. If you did not receive
the proper application form with this Prospectus, please contact the Fund at
800-422-1050. All orders to purchase shares are subject to acceptance or
rejection by Harbor Fund, Harbor Transfer, Inc. (the "Shareholder Servicing
Agent") or HCA Securities, Inc. (the "Distributor"). If you are establishing an
account with an investment of $25,000 or more, you may also open your account by
wire. Please contact the Fund for specific instructions.

Shares of each Fund will be purchased at the net asset value next determined
after receipt of your request in proper order. Harbor Fund does not issue share
certificates. The sale of shares of any Fund will be suspended during any period
when the determination of its net asset value is suspended pursuant to rules or
orders of the SEC.

Retirement and institutional investing involves its own investment procedures.
If you are investing in an IRA, SEP-IRA, or if you are an institutional client,
please contact the Fund at 800-422-1050 for the appropriate application and
information.

IF YOU BUY SHARES BY CHECK, YOU MAY NOT EXCHANGE THOSE SHARES FOR 15 CALENDAR
DAYS TO ENSURE THAT YOUR CHECK HAS CLEARED. You may redeem those shares;
however, the payment of the proceeds of that redemption may be

21
<PAGE> 25

delayed for up to the same 15 days. To avoid the 15-day holding period for
investments in any Fund, you can wire federal funds to Harbor Fund from your
bank, which may charge you a fee. "Wiring federal funds" means that your bank
sends money to Harbor Fund's bank through the Federal Reserve System. Wire
instructions are referenced on the next page, for your convenience. You may also
wish to consider buying shares by U.S. Postal money order, U.S. Treasury check,
or Federal Reserve check to avoid the 15-day holding period.

Harbor Fund will not accept any third party checks to open an account other
than a rollover. Subsequent investments by third party checks will be accepted
as long as the amount of the third party check does not exceed the shareholder's
current account value. No exchanges on the amount will be allowed for 15 days
and payment of proceeds for redemptions may be delayed for 15 days to ensure
that your check has cleared. Checks must be drawn on U.S. banks, and are
accepted subject to collection at full value. If your check, wire or Automatic
Clearing House ("ACH") transaction does not clear, your purchase will be
cancelled. There will be a $15 fee for any check, wire or ACH transaction
rejected for any reason. Harbor Fund reserves the right to deduct the fee from
any existing shareholder account, and you may be prohibited from future
investment in Harbor Fund.

You may purchase shares of a Fund at net asset value through a broker, who may
charge you a transaction fee for this service, no part of which is paid by or
received by the Fund, the Adviser, the Distributor or the Shareholder Servicing
Agent. The Funds may allow certain brokers, dealers or institutional investors
with whom the Distributor and the Funds have entered into agreements to purchase
shares of the Funds for next day settlement.

PURCHASES BY WIRE

Any purchases by bank wire must use the following instructions and must arrive
at the Fund by 4 p.m. Eastern time. If wires are received in a format other than
that referenced, they may be rejected by State Street Bank and Trust Company.

RECEIVING BANK INFORMATION:

- - State Street Bank and Trust Company

- - Boston, MA

- - ABA Routing #0110 0002 8

FOR DEPOSIT TO:

- - Harbor Fund
(Please name the fund you wish to invest in)

- - Account (DDA) #3018-065-7

FOR FURTHER CREDIT TO:

- - Your name as registered on your account

- - Your Harbor Fund account number

SHARE PRICE

Each Fund's net asset value (NAV) per share is calculated after 4 p.m. each
business day that the New York Stock Exchange is open. See "Shareholder and
Account Policies -- Transactions Details," for a discussion of how the Fund
computes its NAV. Shares of each Fund are purchased or sold at the share price
next calculated after your request is received in good order and accepted.

HOW TO SELL SHARES

You may take money out of your account(s) at any time by selling (redeeming)
some or all of your shares. Your shares will be sold at the next share price
calculated after your order is received in good form and accepted by Harbor Fund
and the Shareholder Servicing Agent. Any order by mail to redeem shares of a
Fund must be received before 3 p.m. Eastern time, or if requested by

22
<PAGE> 26

telephone, before 4 p.m. Eastern time. Redemption requests received after these
times will be deemed received on the next business day. You may realize a gain
or loss, and certain shareholders may be subject to backup withholding of
federal income tax when they redeem shares.

YOU MAY SELL SHARES IN A NON-IRA ACCOUNT by mail or by phone, if the Telephone
Redemption privilege is requested on your application form. Telephone
redemptions are limited to $50,000 per day.

TO SELL SHARES IN AN IRA OR SEP-IRA ACCOUNT, your request must be made in
writing. Please call 800-422-1050 to ask for an IRA Distribution form or for
additional instructions.

IF YOU ARE MAILING A LETTER TO REDEEM SHARES, please include in the letter:

- your name;

- the Fund from which you are redeeming;

- your Harbor Fund account number;

- the dollar amount or number of shares, including fractional shares, to be
redeemed; and

- any other applicable requirements as listed in the table relating to selling
shares on the next page.

ALL REDEMPTION REQUESTS SHOULD BE MAILED TO:

HARBOR FUND
C/O HARBOR TRANSFER, INC.
P.O. Box 2282
Toledo, Ohio 43603-2282

Proceeds of the redemption will be mailed to the address of record, or wired the
next day to a specified bank account, if complete and accurate instructions are
included on your application. Normally, redemption proceeds that are being
mailed are sent on the next business day. Harbor Fund reserves the right to
suspend redemptions or postpone payments for up to seven days or longer, as
permitted by Federal securities laws. Unless otherwise instructed, Harbor Fund
will send a redemption check to the address of record.

THE MINIMUM BALANCE FOR EACH FUND TO KEEP IT OPEN is $1,000 ($500 for IRA,
SEP-IRA, UGMA, or profit sharing, savings or pension plans).

CERTAIN REQUESTS MUST INCLUDE A SIGNATURE GUARANTEE. Signature guarantees are
designed to protect you and Harbor Fund from fraud. Your written request to sell
shares must include a signature guarantee if any of the following situations
apply:

- you are redeeming more than $50,000 worth of shares;

- your address of record has been changed within the last 30 days;

- you are requesting that the redemption check be mailed to an address other
than the address of record;

- you are requesting that the redemption proceeds be wired to a banking
institution other than the banking institution of record;

- you are requesting that the redemption check is made payable to someone
other than the registered shareholder; or

- the redemption proceeds are being transferred to an account with a different
registration.

You may obtain a signature guarantee from a bank, broker-dealer, credit union
(if authorized under state law), any securities exchange or association,
clearing agency, savings association or trust company. A NOTARY PUBLIC CANNOT
PROVIDE A SIGNATURE GUARANTEE.

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<PAGE> 27

<TABLE>
<CAPTION>
SELLING SHARES ACCOUNT TYPE SPECIAL REQUIREMENTS
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
BY MAIL Individual, Joint Tenant, Sole - The letter of instruction must be
Proprietorship, UGMA signed by all authorized persons
required to sign for transactions,
exactly as their names appear on
the account.
IRA or SEP-IRA - Please call 800-422-1050 to request
a retirement distribution form or
for additional instructions.
Trust - The trustee must sign the letter
indicating capacity to act. If the
trustee's name is not in the
account registration, provide a
copy of the trust document
certified within the last 60 days.
Business or Organization - At least one person authorized by
corporate resolution to act on the
account must sign the letter.
- Include a corporate resolution with
corporate seal or a signature
guarantee.
Executor, Administrator, - Please call 800-422-1050 for
Conservator, Guardian instructions.
- ----------------------------------------------------------------------------------------------------
BY PHONE All account types except retirement - Have the Fund name, account number
800-422-1050 and tax identification number
available when you call. You may
redeem up to $50,000 by telephone
per day.
All account types - You may exchange to other Funds if
both accounts are registered with
the same name(s), address and
taxpayer ID number.
- ----------------------------------------------------------------------------------------------------
</TABLE>

INVESTOR SERVICES

Harbor Fund provides you with a variety of services to help you manage your
account and pursue your financial goals. Client Services Representatives are
available during normal business hours to provide information and answer
questions you may have or you may call the Harbor Navigator at 800-422-1050
(anytime day or night) to access information on your account.

Harbor Fund offers convenient services that let you systematically purchase
into your account or exchange between Harbor Funds. By using the Systematic
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.

24
<PAGE> 28

THE SYSTEMATIC INVESTMENT PLAN allows you to make regular monthly or quarterly
investments through an automatic withdrawal from your bank account. The minimum
for each systematic investment is $100 per Fund. You must have the minimum
initial investment of $500 in each Fund before you may begin making systematic
investments. You may use your Harbor Fund account application to add this
feature, or if you already have an account established, please contact the Fund
at 800-422-1050 for the appropriate form.

THE SYSTEMATIC EXCHANGE PLAN allows you to automatically exchange between
Harbor Funds either monthly or quarterly with a minimum of $100. Exchanges may
only be made out of a Fund having a minimum balance of $5,000 to a Fund having a
minimum balance of $500. You must remain in the Plan for a minimum of six
exchanges.

HARBOR FUND ALSO OFFERS CONVENIENT TELEPHONE PRIVILEGES.

THE TELEPHONE EXCHANGE PRIVILEGE allows you to exchange your shares of a Fund
for shares of any other Harbor Fund by telephone. You should consider the
differences in investment objectives and expenses of a Fund as described in its
prospectus before making an exchange (a redemption from one fund and purchase to
another). Exchanges are taxable transactions which may cause you to realize a
gain or loss, and certain shareholders may be subject to backup withholding of
federal income tax upon an exchange. For complete policies and restrictions
governing exchanges, including circumstances under which a shareholder's
exchange privilege may be suspended or revoked, see "Shareholder and Account
Policies -- Exchange Restrictions."

THE TELEPHONE REDEMPTION PRIVILEGE allows you to sell shares of up to $50,000
by telephone, with proceeds either mailed to the address of record or wired the
next day to an account, if you have provided proper wire instructions on your
application. Please see the previous section on "How to Sell Shares" for more
information on redeeming shares from your account.

HARBOR FUND OFFERS A SYSTEMATIC WITHDRAWAL PLAN that will allow you to make
monthly or quarterly redemptions from any Fund that has a minimum balance of
$10,000. You may direct Harbor Fund to withdraw a specific number of shares or
dollars (minimum of $100). If these payments are to be made payable or to be
mailed to someone other than the registered owner(s) of the account, a signature
guarantee is required on the Systematic Withdrawal Plan application. Harbor Fund
reserves the right to institute a charge of $5 per withdrawal, upon 30 days'
notice, for this service. Harbor Fund may amend or terminate the Systematic
Withdrawal Plan without notice to any participating shareholders.

Withdrawal payments should not be considered dividends, yield or income. If
systematic withdrawals continuously exceed reinvested dividends and capital gain
distributions, your original investment will be reduced and ultimately
exhausted. Withdrawals are redemptions of shares and therefore may cause you to
realize gains or losses for tax purposes. You should consult your tax adviser.

HARBOR FUND OFFERS A CHECKWRITING PRIVILEGE FOR SHAREHOLDERS IN THE MONEY
MARKET FUND ONLY. Shareholders may redeem shares of Harbor Money Market Fund by
writing checks in amounts of $500 or more. The check is presented to State
Street Bank and Trust Company (the "Bank") for payment through normal banking
channels. These checks may be used in the same manner as any other checks
payable through the Bank except that they may not be certified and are payable
upon review. Your investment in Harbor Money Market Fund is not covered by
insurance, by the Federal Deposit Insurance Corporation or any other government
agency.

25
<PAGE> 29

There is no charge to you for redemptions by use of checks. If you elect this
option, you are subject to the procedures, rules and regulations established by
the Bank with respect to clearance and collection of checks. The Bank will not
honor checks which are in amounts exceeding the available value of your account
at the time the check is presented for payment and will not honor checks drawn
against uncollected funds. Since interest in the Money Market Fund is accrued
daily, but paid monthly, the total value of the Fund may not be determined in
advance. THEREFORE, YOU CANNOT CLOSE YOUR ACCOUNT BY CHECK. This service may be
terminated at any time by Harbor Fund or the Bank upon notice to you. Your
cancelled checks will be returned monthly by the Bank. To add the Checkwriting
feature to your account, please complete the Authorization Form and Signature
Card enclosed with your application. You must have a Harbor Money Market Fund
account established before you can add this feature.

YOU WILL RECEIVE CONFIRMATION OF EACH SHARE TRANSACTION MADE TO YOUR ACCOUNT,
as well as a quarterly combined statement. Harbor Fund also distributes reports
of its financial statements semi-annually.

SHAREHOLDER AND ACCOUNT POLICIES

TRANSACTION DETAILS

HARBOR FUND IS OPEN FOR BUSINESS each day that the New York Stock Exchange
(NYSE) is open. The Custodian normally calculates a Fund's net asset value as of
the close of business of the NYSE, normally 4 p.m., Eastern time.

A FUND'S NAV per share is the value of a single share. The NAV is computed by
adding the market value (amortized cost for Harbor Money Market Fund) of the
Fund's investments, cash, and other assets, subtracting its liabilities, and
then dividing the result by the number of shares outstanding.

WHEN YOU SIGN YOUR ACCOUNT APPLICATION, you are certifying that the Social
Security or other taxpayer identification number that you provide is your
correct number and that you are not subject to 31% backup withholding of federal
income tax for failing to report certain income to the IRS or that you are a
type of recipient that is exempt from backup withholding, e.g., a corporation.
If you are subject to backup withholding, the IRS requires Harbor Fund to
withhold 31% of your taxable distributions and, except in the case of Harbor
Money Market Fund, the proceeds of redemptions (including exchanges).

YOU MAY INITIATE MANY TRANSACTIONS BY TELEPHONE. 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. To the
extent such procedures are reasonably designed to prevent unauthorized or
fraudulent instructions and are followed neither Harbor Fund, the Distributor
nor the Shareholder Servicing Agent is responsible for any losses from
unauthorized or fraudulent redemptions by telephone; consequently, the investor
will bear the risk of loss.

IF YOU ARE UNABLE TO REACH HARBOR FUND BY PHONE (for example, during periods
of unusual market activity), consider placing your order by mail. Harbor Fund
and the Shareholder Servicing Agent are not responsible for any misdirected or
lost mail.

EACH FUND RESERVES THE RIGHT TO SUSPEND THE OFFERING OF SHARES for a period of
time. Shares of

26
<PAGE> 30

Harbor International Fund are offered only to shareholders of the Fund with an
existing account and to beneficiaries of certain profit sharing plans, pension
funds or benefit plans and certain other investors purchasing amounts of at
least $1 million. Each Fund also reserves the right to reject any specific
purchase order, including certain purchases by exchange. See "Exchange
Restrictions." Purchase orders may be refused if, in Harbor Fund's opinion, they
are of a size that would disrupt management of a Fund.

Harbor Fund reserves the right to close your account if it has a current net
asset value of less than $1,000 ($500 in IRA, SEP-IRA, UGMA, Profit-sharing,
savings or pension plans) by redeeming all remaining shares in your account. No
such redemption will be effected unless you have been given at least 60 days'
written notice. Harbor Fund reserves the right to redeem shares in your account
as reimbursement for loss to a Fund due to the failure of your check, wire or
ACH transaction to clear.

DISTRIBUTIONS IN KIND. Harbor Fund agrees to redeem shares of each Fund solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the Fund
during any 90-day period for any one shareholder. Harbor Fund reserves the right
to pay redemptions exceeding $250,000 or 1% of the net asset value of the
redeeming Fund, either total or partial, by a distribution in kind of securities
(instead of cash) from the applicable Fund. The securities distributed in kind
would be valued for this purpose by the same method as is used to calculate the
Fund's net asset value per share. If you receive a distribution in kind, you
should expect to incur transaction costs upon the disposition of the securities
received in the distribution.

EXCHANGE RESTRICTIONS

As a shareholder, you have the privilege of exchanging shares of a Fund for
shares of any other Harbor Fund (except Harbor International Fund unless you
have an existing account). However, you should note the following:

- Exchanges are available only in states where an exchange may legally be
made.

- You may only exchange between Funds that are registered in the same name,
address and taxpayer identification number.

- The minimum amount you may exchange from one Fund into another is the same
as the guidelines for minimum initial and subsequent investments, and each
Fund must have a minimum of $1,000 after the exchange.

- An exchange is a redemption of shares from one Fund and a purchase of shares
in another. Thus, exchanges may have tax consequences for you.

- Harbor Fund reserves the right to refuse exchange purchases by any person or
group if, in Harbor Fund's judgment, a Fund would be unable to invest the
money effectively in accordance with its investment objective and policies,
or would otherwise potentially be adversely affected.

- Your exchanges may be restricted or refused if a Fund receives or
anticipates simultaneous orders affecting significant portions of the Fund's
assets. In particular, a pattern of exchanges that coincides with a "market
timing" strategy may be disruptive to a Fund.

- Although Harbor Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
Harbor Fund reserves the right to terminate or modify the exchange privilege
upon 60 days' notice to shareholders.

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<PAGE> 31

THE ADVISER, SUBADVISERS, DISTRIBUTOR AND
SHAREHOLDER SERVICING AGENT

THE ADVISER. Harbor Capital Advisors, Inc., a registered investment adviser
since 1984, is each Fund's investment adviser (Adviser). The Adviser is a
wholly-owned subsidiary of Owens-Illinois, Inc. (Owens-Illinois) and is the
investment adviser to separate accounts for the Owens-Illinois Master Retirement
Trust.

Under each of the Investment Advisory Agreements between the Adviser and
Harbor Fund on behalf of each Fund, the Adviser either continually manages the
investment portfolio of a Fund or oversees the management of a Fund by one or
more Subadvisers. The management of each Fund's portfolio is subject to the
supervision of Harbor Fund's Trustees and the stated policies of such Fund.

The Adviser administers each Fund's business affairs and, in connection
therewith, furnishes each Fund with office facilities and is responsible for
clerical, recordkeeping and bookkeeping services and for the financial and
accounting records required to be maintained by each Fund, other than those
maintained by the Funds' Custodian and Shareholder Servicing Agent. Each Fund is
entitled to use its present name only so long as the Adviser acts as the Fund's
investment adviser.

For these advisory and administrative services and facilities, each Fund pays
the Adviser a monthly fee at an annual rate of the average daily net assets of
that Fund as follows:

<TABLE>
<CAPTION>
ANNUAL
RATE
<S> <C>
Harbor International Growth Fund .75%
Harbor International Fund .85%
Harbor Growth Fund .75%
Harbor Capital Appreciation Fund .60%
Harbor Value Fund .60%
Harbor Bond Fund .70%
Harbor Short Duration Fund .40%
Harbor Money Market Fund .30%
</TABLE>

While higher than the investment advisory fees paid by other mutual funds in
general, the fees paid by Harbor International Growth Fund, Harbor International
Fund and Harbor Growth Fund are comparable to those paid by many mutual funds
with similar investment objectives and policies.

Each Fund also pays: shareholder service expenses, expenses of issuing reports
to shareholders, its proportionate share of custodian fees, legal fees, auditing
fees, taxes, Trustees' fees, and other expenses of administering the Fund. In
the event that the expenses of a Fund (including the fees of the Adviser, but
excluding interest, taxes, litigation and indemnification expenses and other
extraordinary expenses) for any fiscal year exceed the limits set by certain
state securities administrators, the Adviser will reduce its fee payable by each
such Fund by the amount of such excess to the extent of each Fund's respective
fee. The most restrictive expense limitation currently applicable to each Fund
is 2.5% of the first $30 million of a Fund's average annual net assets, 2.0% of
the next $70 million of such assets and 1.5% of such assets in excess of $100
million. As of October 31, 1995, no Fund expenses were reduced as a result of
this expense limitation.

THE SUBADVISERS. Pursuant to separate subadvisory agreements between the
Adviser, Harbor Fund on behalf of the Fund and the respective Subadviser, the
assets of each Fund are managed by one or more Subadvisers consistent with the
Fund's objectives and policies, and subject to the supervision of the Adviser
and the Trustees. Each Subadviser manages separate accounts for the
Owens-Illinois Master Retirement Trust. The Adviser pays quarterly out of its
own resources a fee to each Subadviser equal on an annual basis to a stated
percentage of the Fund's average net assets. For purposes of determining

28
<PAGE> 32

the applicable fee rate and satisfying the minimum payment requirement, the
assets of the Fund and the payments by the Adviser to the Fund's Subadviser
(except Richards & Tierney) will be combined with the assets and payments of the
accounts of the Owens-Illinois Master Retirement Account that the Subadviser
manages.

Jennison Associates Capital Corp. is Subadviser to Harbor International Growth
Fund. Jennison is a registered investment adviser and a New York corporation
with $28 billion in assets under management as of October 31, 1995 and is a
wholly owned subsidiary of The Prudential Insurance Company of America. For its
services, Jennison receives from the Adviser a subadvisory fee equal on an
annual basis to .50% of the Fund's average net assets managed by Jennison up to
$1.5 billion; .45% on the next $1 billion of such assets; .40% on such assets in
excess of $2.5 billion. The Adviser will pay Jennison a fee each year which is
not less than $125,000.

Northern Cross Investments Limited is Subadviser to Harbor International Fund.
Northern Cross is a registered investment adviser and a Bermuda corporation with
$5.2 billion in assets (all equity) under management as of October 31, 1995.
Northern Cross receives a subadvisory fee from the Adviser equal on an annual
basis to .60% of the Fund's average net assets. Northern Cross has voluntarily
agreed to reduce its subadvisory fee to .55% of the Fund's average net assets
over $1.5 billion and to .50% of the Fund's average net assets over $2.5
billion.

Nicholas-Applegate Capital Management is Subadviser to Harbor Growth Fund.
Nicholas-Applegate is a registered investment adviser and a California limited
partnership with over $28 billion in assets under management as of October 31,
1995. Nicholas-Applegate Capital Management Holding LP is the General Partner of
Nicholas-Applegate. Nicholas-Applegate receives an advisory fee from the Adviser
equal on an annual basis to .75% of the Fund's average net assets up to $25
million; .625% on the next $75 million of such assets; and .50% on such assets
thereafter. The Adviser will pay Nicholas-Applegate a fee each year which is not
less than $75,000.

Jennison also serves as Subadviser to Harbor Capital Appreciation Fund.
Jennison receives an advisory fee from the Adviser equal on an annual basis to
.75% of the Fund's average net assets up to $10 million; .50% on the next $30
million of such assets; .35% on the next $25 million of such assets; .25% on the
next $335 million of such assets; .22% on the next $600 million of such assets;
and .20% on such assets in excess of $1 billion. The Adviser will pay Jennison a
fee each year which is not less than $125,000.

DePrince, Race & Zollo, Inc. ("DRZ") is Sub-Adviser to Harbor Value Fund. As
of October 31, 1995, DRZ had $890 million in assets under management. DRZ
receives an advisory fee from the Adviser equal on an annual basis to 0.65% of
the average actual net assets of the portion of Harbor Value Fund managed by DRZ
up to $10 million; 0.40% on the next $40 million of such assets; 0.30% on the
next $50 million of such assets; and 0.25% on such assets in excess of $100
million. The Adviser will pay DRZ a fee each year which is not less than
$40,000.

In addition to DRZ, the Adviser has engaged Richards & Tierney as a second
subadviser to Harbor Value Fund. R&T is a registered investment adviser and an
Illinois corporation. R&T does not provide investment management services to any
other registered investment companies. The Board of Trustees has determined that
management of the assets of the Fund's portfolio will be allocated between the
two Subadvisers. Currently, DRZ manages 75% of the Fund's assets and R&T manages
25% of the Fund's assets. The allocation of assets between the Subadvisers may
be changed at any time by the Trustees.

29
<PAGE> 33

R&T receives an advisory fee equal on an annual basis to .30% of the portion
of Harbor Value Fund's average net assets managed by R&T up to $5 million; .25%
on the next $10 million of such assets; and .20% on such assets in excess of $15
million.

Pacific Investment Management Company is Subadviser for Harbor Bond Fund.
PIMCO is a general partnership whose partners are PIMCO Management Inc., a
Delaware corporation, and PIMCO Advisers, G.P. and is a registered investment
adviser, with $70 billion in assets ($63 billion in fixed-income) under
management as of October 31, 1995. PIMCO is also registered as a commodity
trading adviser with the Commodity Futures Trading Commission. PIMCO receives
from the Adviser an advisory fee equal on an annual basis to .50% of the Fund's
average net assets up to $25 million; .375% on the next $25 million of such
assets; and .25% on such assets in excess of $50 million. The Adviser will pay
PIMCO a fee each year which is not less than $100,000.

Fischer Francis Trees & Watts, Inc. is Subadviser to Harbor Short Duration
Fund. Fischer is a registered investment adviser and a New York corporation with
$21.5 billion in assets (all fixed income) under management as of October 31,
1995. Fischer receives from the Adviser an advisory fee equal on an annual basis
to .20% of Harbor Short Duration Fund's average net assets up to $100 million
and .15% on such assets in excess of $100 million. The Adviser will pay Fischer
a fee each year which is not less than $200,000.

Fischer is subadviser to Harbor Money Market Fund. Fischer receives from the
Adviser an advisory fee equal on an annual basis to .20% of Harbor Money Market
Fund's average net assets up to $100 million and .15% on such assets in excess
of $100 million. The Adviser will pay Fischer a fee each year which is not less
than $200,000.

PORTFOLIO MANAGERS. The persons primarily responsible for the day-to-day
management of each Fund are listed below:

<TABLE>
<CAPTION>
YEAR
PORTFOLIO BECAME BUSINESS EXPERIENCE
FUND MANAGER MANAGER (PAST 5 YEARS)
- --------------- -------------------- -------- -----------------------------------------------
<S> <C> <C> <C>
International Howard Moss 1993 Director, Executive Vice-President of Jennison
Growth Fund (since 1993); and Portfolio manager, Arnhold
and S. Bleichroder (1983-1993).
Blair Boyer 1993 Director, Senior Vice-President of Jennison
(since 1993); and Portfolio Manager, Arnhold
and S. Bleichroder (1989-1993).
International Hakan Castegren 1987 President, Northern Cross (since 1993);
Fund President, Boston Overseas Investors, Inc.
(1990-1993); and Portfolio Manager, Marsh &
Cunningham, Inc. (1985-1990).
Growth Fund Arthur Nicholas 1993 Founding Partner, Nicholas-Applegate (1984).
John Marshall 1993 Partner (since 1991); and Portfolio Manager,
Nicholas-Applegate (since 1989).
</TABLE>

30
<PAGE> 34

<TABLE>
<CAPTION>
YEAR
PORTFOLIO BECAME BUSINESS EXPERIENCE
FUND MANAGER MANAGER (PAST 5 YEARS)
- --------------- -------------------- -------- -----------------------------------------------
<S> <C> <C> <C>
Capital Ap- Spiros Segalas 1990 President, and Chief Investment Officer (since
preciation Fund 1993); and Director and Founding Member of
Jennison (1969).
Value Fund Gregory DePrince 1994 Principal and Partner, DRZ (since April, 1995);
and Senior Vice President of SunBank
(1989-1995).
David Tierney 1993 Managing Partner and Founder, Richards &
Tierney (since 1984).
Bond Fund William Gross 1987 Managing Director, PIMCO (Del. G.P.) (since
1994); and Managing Director, PIMCO (1982-
1994).
Dean Meiling 1994 Managing Director, PIMCO (Del. G.P.) (since
1994); and Managing Director, PIMCO (1987-
1994).
Short Duration Stewart Russell 1994 Portfolio Manager, Fischer (since 1992); and
Fund Trader, Global Markets, J.P. Morgan
(1987-1992).
Money Market David Marmon 1994 Portfolio Manager, Fischer (since 1990); and
Fund Research Analyst (futures and options),
Yamaichi International (America) (1989-1990).
</TABLE>

The Adviser may from time to time recommend to the Trustees the engagement of
new subadvisers.

THE DISTRIBUTOR AND SHAREHOLDER SERVICING AGENT. HCA Securities, Inc. acts as
the distributor of each Fund's shares. The Distributor is a Delaware
corporation, a registered broker-dealer and a wholly-owned subsidiary of the
Adviser.

Harbor Transfer, Inc. acts as the shareholder servicing agent for each Fund.
The Shareholder Servicing Agent is a Delaware corporation, a registered transfer
agent and a wholly-owned subsidiary of the Adviser.

DESCRIPTION OF SECURITIES AND INVESTMENT TECHNIQUES

DERIVATIVE INSTRUMENTS. Each of the Funds may invest in derivative instruments
which are securities or contracts that provide for payments based on or
"derived" from the performance of an underlying asset, index or other economic
benchmark. Essentially, a derivative instrument is a financial arrangement or a
contract between two parties (and not a true security like a stock or a bond).
Transactions in derivative instruments can be, but are not necessarily, riskier
than investments in conventional stocks, bonds and money market instruments. A
derivative instrument is more accurately viewed as a way of reallocating risk
among different parties or substituting one type of risk for another. Every
investment by a Fund, including an investment in conventional securities,
reflects an implicit prediction about future changes in the value of that
investment. Every Fund investment also involves a risk that the portfolio
manager's expectations will be wrong. Transactions in derivative instruments
often enable a Fund to take investment positions

31
<PAGE> 35

that more precisely reflect the portfolio manager's expectations concerning the
future performance of the various investments available to the Fund. Derivative
instruments can be a legitimate and often cost-effective method of accomplishing
the same investment goals as could be achieved through other investments in
conventional securities.

Derivative securities include collateralized mortgage obligations, stripped
mortgage backed securities, asset backed securities, structured notes and
floating interest rate securities (described below). Derivative contracts
include options, futures contracts, forward contracts, forward commitment and
when-issued securities transactions, forward foreign currency exchange contracts
and interest rate, mortgage and currency swaps (described below). The principal
risks associated with derivative instruments are:

Market risk: The instrument will decline in value or that an alternative
investment would have appreciated more, but this is no different from the risk
of investing in conventional securities.

Leverage and associated price volatility: Leverage causes increased volatility
in the price and magnifies the impact of adverse market changes, but this risk
may be consistent with the investment objective of even a conservative fund in
order to achieve an average portfolio volatility that is within the expected
range for that type of fund. The SEC has taken the position that the risk of
leverage is not an appropriate risk for a money market fund.

Credit risk: The issuer of the instrument may default on its obligation to pay
interest and principal, but derivatives based on U.S. Government agency mortgage
securities may actually present less credit risk than some conventional
corporate debt securities.

Liquidity and valuation risk: Many derivative instruments are traded in
institutional markets rather than on an exchange. Nevertheless many derivative
instruments are actively traded and can be priced with as much accuracy as
conventional securities. Derivative instruments that are custom designed to meet
the specialized investment needs of a relatively narrow group of institutional
investors such as the Funds are not readily marketable and are subject to a
Fund's restrictions on illiquid investments.

Correlation risk: There may be imperfect correlation between the price of the
derivative and the underlying asset; for example, there may be price disparities
between the trading markets for the derivative contract and the underlying
asset.

Each derivative instrument purchased for a Fund's portfolio is reviewed and
analyzed by the Fund's portfolio manager to assess the risk and reward of each
such instrument in relation to the Fund's portfolio investment strategy. The
decision to invest in derivative instruments or conventional securities is made
by measuring the respective instrument's ability to provide value to the Fund
and its shareholders.

CASH EQUIVALENTS. Each of the Funds may invest in cash equivalents, which
include short-term obligations issued or guaranteed as to interest and principal
by the U.S. Government or any agency or instrumentality thereof (including
repurchase agreements collateralized by such securities). The Funds may also
invest in obligations of banks which at the date of investment have capital,
surplus, and undivided profits (as of the date of their most recently published
financial statements) in excess of $100 million, and obligations of other banks
or savings and loan associations if such obligations are insured by the FDIC.
Each Fund (except Harbor Money Market Fund) may also invest in commercial paper
which at the date of investment is rated at least A-1 by S&P or P-1 by Moody's
or, if not rated, is issued or guaranteed as to payment of principal and
interest by companies which at the

32
<PAGE> 36

date of investment have an outstanding debt issue rated AA or better by S&P or
Aa or better by Moody's; short-term corporate obligations which at the date of
investment are rated AA or better by S&P or Aa or better by Moody's (rated A in
the case of Harbor Short Duration Fund), and other debt instruments, including
unrated instruments, not specifically described if such instruments are deemed
by the Subadviser to be of comparable high quality and liquidity.

U.S. GOVERNMENT SECURITIES. U.S. Government securities are obligations of, or
guaranteed by, the U.S. Government, its agencies or instrumentalities. Some U.S.
Government securities, such as Treasury bills, notes and bonds and Government
National Mortgage Association ("GNMA") certificates, are supported by the full
faith and credit of the United States; others, such as those of the Federal Home
Loan Banks, are supported by the right of the issuer to borrow from the
Treasury; others, such as those of the Federal National Mortgage Association
("FNMA"), are supported by the discretionary authority of the U.S. Government to
purchase the agency's obligations; and still others, such as those of the
Student Loan Marketing Association, are supported only by the credit of the
instrumentality. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government agencies or instrumentalities as described
above in the future, other than as set forth above, since it is not obligated to
do so by law.

FIXED-INCOME SECURITIES. Corporate and foreign governmental debt securities
are subject to the risk of the issuer's inability to meet principal and interest
payments on the obligations (credit risk) and may also be subject to price
volatility due to such factors as interest rate sensitivity, market perception
of the creditworthiness of the issuer and general market liquidity (market
risk). Except to the extent that values are independently affected by currency
exchange rate fluctuations, when interest rates decline, the value of fixed-
income securities can generally be expected to rise. Conversely, when interest
rates rise, the value of fixed-income securities can be expected to decline. The
Subadviser will consider both credit risk and market risk in making investment
decisions for a Fund.

Lower-rated debt securities. Securities which are rated BBB by S&P or Baa by
Moody's are generally regarded as having adequate capacity to pay interest and
repay principal, but may have some speculative characteristics. The Lower-rated
securities (rated below Baa by Moody's or BBB by S&P) may have speculative
characteristics (including the possibility of default or bankruptcy of the
issuers of such securities, market price volatility based upon interest rate
sensitivity, questionable creditworthiness and relative liquidity of the
secondary trading market). Because high yield bonds have been found to be more
sensitive to adverse economic changes or individual corporate developments and
less sensitive to interest rate changes than higher-rated investments, an
economic downturn could disrupt the market for high yield bonds and adversely
affect the value of outstanding bonds and the ability of issuers to repay
principal and interest. In addition, in a declining interest rate market,
issuers of high yield bonds may exercise redemption or call provisions, which
may force a Fund, to the extent it owns such securities, to replace those
securities with lower yielding securities. This could result in a decreased
return for investors. In the event that the rating for any security held in a
Fund's portfolio drops below the minimum acceptable rating applicable to that
Fund, such change will be considered by that Fund's Subadviser in evaluating the
overall composition of the Fund's portfolio.

MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES. Mortgage pass-through
securities are securities representing interests in "pools" of mortgage loans
secured by residential or commercial real property in which payments of both

33
<PAGE> 37

interest and principal on the securities are generally made monthly, in effect
"passing through" monthly payments made by the individual borrowers on the
mortgage loans which underlie the securities (net of fees paid to the issuer or
guarantor of the securities). Early repayment of principal on some
mortgage-related securities (arising from prepayments of principal due to sale
of the underlying property, refinancing, or foreclosure, net of fees and costs
which may be incurred) may expose a Fund to a lower rate of return upon
reinvestment of principal. Also, if a security subject to repayment has been
purchased at a premium, in the event of prepayment the value of the premium
would be lost. Like other fixed-income securities, when interest rates rise, the
value of a mortgage-related security generally will decline; however, when
interest rates are declining, the value of mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.

Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by GNMA); or guaranteed by agencies or instrumentalities of the U.S.
Government (in the case of securities guaranteed by FNMA or the Federal Home
Loan Mortgage Corporation ("FHLMC"), which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage-related securities created by non-governmental issuers
(such as commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers) may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit, which may be
issued by governmental entities, private insurers or the mortgage poolers.

Collateralized Mortgage Obligations ("CMOs") are hybrid mortgage-related
instruments. Similar to a bond, interest and pre-paid principal on a CMO are
paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage
loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC, or FNMA. CMOs are structured
into multiple classes, with each class bearing a different stated maturity.
Monthly payments of principal, including prepayments, are first returned to
investors holding the shortest maturity class; investors holding the longer
maturity classes receive principal only after the first class has been retired.
CMOs that are issued or guaranteed by the U.S. Government or by any of its
agencies or instrumentalities will be considered U.S. Government securities by
the Funds, while other CMOs, even if collateralized by U.S. Government
securities, will have the same status as other privately issued securities for
purposes of applying a Fund's diversification tests.

Other mortgage-related securities include securities other than those
described above that directly or indirectly represent a participation in, or are
secured by and payable from, mortgage loans on real property, such as CMO
residuals or stripped mortgage-backed securities, and may be structured in
classes with rights to receive varying proportions of principal and interest. In
addition, the Funds may invest in other asset-backed securities that have been
offered to investors. For a discussion of the characteristics of some of these
instruments, see the Statement of Additional Information.

Real Estate Mortgage Investment Conduits ("REMICs") are CMO vehicles that
qualify for special tax treatment under the Internal Revenue Code of 1986, as
amended (the "Code") and invest in mortgages principally secured by interests in
real property and other investments permitted by the Code.

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<PAGE> 38

STRIPPED MORTGAGE-BACKED SECURITIES ("SMBS"). SMBS are derivative
multiple-class mortgage-backed securities. SMBS are usually structured with two
classes that receive different proportions of interest and principal
distributions on a pool of mortgage assets. A typical SMBS will have one class
receiving some of the interest and most of the principal, while the other class
will receive most of the interest and the remaining principal. In the most
extreme case, one class will receive all of the interest (the "interest only"
class) while the other class will receive all of the principal (the "principal
only" class). The yields and market risk of interest only and principal only
SMBS, respectively, may be more volatile than those of other fixed-income
securities. The staff of the SEC considers privately issued SMBS to be illiquid.

RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counter-party to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
characteristics of Mortgage-Backed Securities differ from those of traditional
fixed-income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.

Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, a Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental or agency guarantee. When a Fund reinvests amounts representing
payments and unscheduled prepayments of principal, it may receive a rate of
interest that is lower than the rate on existing adjustable rate mortgage
pass-through securities. Thus, Mortgage-Backed Securities, and adjustable rate
mortgage pass-through securities in particular, may be less effective than other
types of U.S. Government securities as a means of "locking in" interest rates.

Conversely, in a rising interest rate environment, a declining prepayment rate
will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates.

RISKS ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT SECURITIES. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage
pass-through securities and sequential pay CMOs are subject to all of these
risks, but are typically not leveraged. Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.

The risk of early prepayments is the primary risk associated with interest
only debt securities ("IOS"), super floaters, other leveraged floating rate
instruments and Mortgage-Backed Securities purchased at a premium to their par
value. In some instances, early prepayments may result in a complete loss of
investment in certain of these securities. The primary risks associated with
certain other derivative debt securities are the

35
<PAGE> 39

potential extension of average life and/or depreciation due to rising interest
rates.

These securities include floating rate securities based on the Cost of Funds
Index ("COFI floaters"), other "lagging rate" floating rate securities, floating
rate securities that are subject to a maximum interest rate ("capped floaters"),
Mortgage-Backed Securities purchased at a discount, leveraged inverse floating
rate securities ("inverse floaters"), principal only ("PO") debt securities,
certain residual or support tranches of CMOs and index amortizing notes. Index
amortizing notes are not Mortgage-Backed Securities, but are subject to
extension risk resulting from the issuer's failure to exercise its option to
call or redeem the notes before their stated maturity date. Leveraged inverse
IOs combine several elements of the Mortgage-Backed Securities described above
and thus present an especially intense combination of prepayment, extension and
interest rate risks.

Planned amortization class ("PAC") and target amortization class ("TAC") CMO
bonds involve less exposure to prepayment, extension and interest rate risk than
other Mortgage-Backed Securities, provided that prepayment rates remain within
expected prepayment ranges or "collars." To the extent that prepayment rates
remain within these prepayment ranges, the residual or support tranches of PAC
and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.

The Funds may invest only in high quality mortgage-related (or other
asset-backed) securities either (i) issued by U.S. Government sponsored
corporations (currently GNMA, FHLMC, FNMA and Resolution Trust Corp.) or (ii)
rated in one of the top two categories by an NRSRO or, if not rated, of
equivalent investment quality as determined by the Subadvisers. The Subadvisers
will monitor continuously the ratings of securities held by the Funds that they
manage and the creditworthiness of their issuers.

VARIABLE AND FLOATING RATE SECURITIES. Variable and floating rate securities
provide for a periodic adjustment in the interest rate paid on the obligations.
The terms of such obligations must provide that interest rates are adjusted
periodically based upon some appropriate interest rate adjustment index as
provided in the respective obligations. The adjustment intervals may be regular,
and range from daily up to annually, or may be event based, such as a change in
the prime rate. Variable and floating rate securities that cannot be disposed of
promptly within seven days and in the usual course of business without taking a
reduced price will be treated as illiquid and subject to the limitation on
investments in illiquid securities. See "Description of Securities and
Investment Techniques -- Restricted Securities" below.

RESTRICTED SECURITIES. Each Fund (except Harbor Money Market Fund which will
not invest more than 10%) will not invest more than 15% of its assets in
illiquid investments, which includes repurchase agreements and fixed time
deposits maturing in more than seven days, securities that are not readily
marketable and restricted securities, unless the Board of Trustees determines,
based upon a continuing review of the trading markets for the specific
restricted security, that such restricted securities are liquid.

Each Fund may purchase and sell restricted securities (i.e., securities that
would be required to be registered under the Securities Act of 1993 (the "1933
Act") prior to distribution to the general public) including restricted
securities eligible for resale to "qualified institutional buyers" under Rule
144A under the 1933 Act.

The Board of Trustees may adopt guidelines and delegate to the Adviser the
daily function of determining and monitoring liquidity of restricted securities.
The Board, however, will retain

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sufficient oversight and be ultimately responsible
for the determinations. Each Fund will not invest more than 10% of its assets in
unregistered securities that are not sold pursuant to Rule 144A.

REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements with any
bank that satisfies the standards set forth under "Cash Equivalents" or with any
member firm of the National Association of Securities Dealers, Inc., or any
affiliate of a member firm, which is a primary dealer in U.S. Government
securities. In a repurchase agreement, a Fund buys a security at one price and
simultaneously agrees to sell it back at a higher price. Such agreements must be
collateralized, and the Funds' Custodian will maintain custody of the purchased
securities for the duration of the agreement. The securities will be regularly
monitored to ensure that the collateral is adequate. In the event of the
bankruptcy of the seller or the failure of the seller to repurchase the
securities as agreed, the Fund could suffer losses, including loss of interest
on or principal of the securities and costs associated with delay and
enforcement of the repurchase agreement.

REVERSE REPURCHASE AGREEMENTS. Harbor Short Duration Fund enters into reverse
repurchase agreements with banks and broker-dealers. Harbor Value Fund and
Harbor Bond Fund may also enter into reverse repurchase agreements. (Harbor Bond
Fund may enter into those agreements only with banks for temporary or emergency
purposes.) A reverse repurchase agreement involves the sale of a portfolio
security by the Fund, coupled with an agreement to repurchase the security at a
specified time and price. During the reverse repurchase agreement, the Fund
continues to receive principal and interest payments on the underlying
securities. Each Fund will maintain a segregated account, which is marked to
market daily, consisting of cash, U.S. Government securities or high-grade debt
obligations, maturing not later than the expiration of the reverse repurchase
agreement, to cover its obligations under reverse repurchase agreements.

While not considered senior securities, reverse repurchase agreements are
considered borrowings and as such are subject to the same risks associated with
borrowing by the Fund. When the Fund engages in borrowing for investment
purposes, also known as financial leverage, the Fund is required to maintain
continuous asset coverage (i.e., total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, the Fund may be required to sell some of its portfolio holdings within
three days to reduce the debt and restore the 300% asset coverage, even though
it may be disadvantageous from an investment standpoint to sell securities at
that time. Leveraging may exaggerate the effect on the Fund's net asset value of
any increase or decrease in the market value of the Fund's portfolio. Money
borrowed for leveraging will be subject to interest costs which may or may not
be recovered by appreciation of the securities purchased; and in certain cases,
interest costs may exceed the return received on the securities purchased. An
increase in interest rates could reduce or eliminate the benefits of leverage
and could reduce the net asset value of the Fund's shares.

Harbor Value Fund and Harbor Short Duration Fund are not subject to any
limitation on the Fund's assets that may be invested in additional securities
while borrowings are in excess of 5% of the Fund's total assets.

LENDING OF PORTFOLIO SECURITIES. Each Fund may seek to increase its income by
lending portfolio securities. Harbor International Growth Fund and Harbor
International Fund are engaged in a securities lending program with the
Custodian. Under present regulatory policies, such loans may be made to
financial institutions, such as broker-dealers, and are required to be secured
continuously by collateral in cash, cash equivalents, bank letters of credit or
U.S. Government securities.

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Such collateral must be maintained on a current basis at an amount at least
equal to the market value of the securities loaned. If the Subadviser determines
to make securities loans, it is intended that the value of the securities loaned
would not exceed 30% of the value of the total assets of the Fund. As with other
extensions of credit, there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities fail financially.

FOREIGN SECURITIES. Each Fund may purchase foreign securities. However, Harbor
Money Market Fund may purchase only U.S. dollar-denominated foreign securities.
Investing in securities of foreign companies and governments may involve risks
which are not ordinarily associated with investing in domestic securities. These
risks include changes in currency exchange rates and currency exchange control
regulations or other foreign or U.S. laws or restrictions applicable to such
investments. A decline in the exchange rate would reduce the value of certain
portfolio securities. Also, if the exchange rate for the currency in which a
Fund receives interest payments declines against the U.S. dollar before such
interest is paid as dividends to shareholders, the Fund may have to sell
portfolio securities to obtain sufficient cash to pay such dividends. As
discussed below, a Fund may employ certain investment techniques to hedge its
foreign currency exposure; however, such techniques also entail certain risks.

In addition, investments in foreign countries could be affected by other
factors generally not thought to be present in the United States. Such factors
include the unavailability of financial information or the difficulty of
interpreting financial information prepared under foreign accounting standards;
less liquidity and more volatility in foreign securities markets; the
possibility of expropriation; the imposition of foreign withholding and other
taxes; the impact of political, social or diplomatic developments; limitations
on the movement of funds or other assets of a Fund between different countries;
difficulties in invoking legal process abroad and enforcing contractual
obligations; and the difficulty of assessing economic trends in foreign
countries. To the extent that a Fund invests in the securities of issuers in
emerging markets, the risks of investing in foreign securities may be
exacerbated. See the Statement of Additional Information for additional
discussion of the risks of investing in foreign securities.

FOREIGN CURRENCY TRANSACTIONS. Each Fund, except Harbor Money Market Fund, may
enter into forward foreign currency exchange contracts in order to protect
against adverse changes in future foreign currency exchange rates. Because
investment in foreign companies and governments will usually involve currencies
of foreign countries and because each Fund may temporarily hold funds in bank
deposits in foreign currencies during the course of investment programs, the
value of the assets of the Fund as measured in U.S. dollars will be affected by
changes in foreign currency exchange rates. In addition, each Fund may incur
costs in connection with conversion between various currencies. Each such Fund
may enter into contracts to purchase foreign currencies to protect against an
anticipated rise in the U.S. dollar price of securities it intends to purchase.
Each such Fund may also enter into contracts to sell foreign currencies to
protect against a decline in value of its foreign currency denominated portfolio
securities due to a decline in the value of foreign currencies against the U.S.
dollar. Contracts to sell foreign currency could limit any potential gain which
might be realized by a Fund if the value of the hedged currency increased.

Harbor Bond Fund and Harbor Short Duration Fund may also enter into forward
foreign currency exchange contracts for non-hedging purposes when the Subadviser
anticipates that the foreign currency will appreciate or depreciate in value,
but securities denominated in that currency do

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<PAGE> 42

not present attractive investment opportunities and are not held in the Fund's
portfolio. Harbor Bond Fund and Harbor Short Duration Fund may also engage in
cross-hedging by using forward contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
the Subadviser determines that there is a pattern of correlation between the two
currencies. These practices may be limited by the requirements for qualification
of the Fund as a regulated investment company for tax purposes.

If a Fund enters into a forward foreign currency exchange contract to sell
foreign currency to seek to increase total return or to buy foreign currency for
any purpose, the Fund will be required to place cash or liquid, high grade debt
securities in a segregated account with the Fund's custodian in an amount equal
to the value of the Fund's total assets committed to the consummation of the
forward contract. If the value of the securities placed in the segregated
account declines, additional cash or securities will be placed in the account so
that the value of the account will equal the amount of the Fund's commitment
with respect to the contract.

CURRENCY SWAPS, MORTGAGE SWAPS AND INTEREST RATE SWAPS, CAPS, FLOORS AND
COLLARS. Harbor Bond Fund and Harbor Short Duration Fund may enter into currency
swaps for hedging purposes and may also enter into mortgage and interest rate
swaps and interest rate caps and floors for hedging purposes or to seek to
increase total return. Interest rate swaps involve the exchange by the Fund with
another party of their respective commitments to pay or receive interest, such
as an exchange of fixed rate payments for floating rate payments. Mortgage swaps
are similar to interest rate swaps in that they represent commitments to pay and
receive interest. The notional principal amount, however, is tied to a reference
pool or pools of mortgages. Currency swaps involve the exchange of their
respective rights to make or receive payments in specified currencies. The
purchase of an interest rate cap entitles the purchaser, to the extent that a
specified index exceeds a predetermined interest rate, to receive payment of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser, to the
extent that a specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from the party
selling the interest rate floor.

The Fund will enter into interest rate and mortgage swaps only on a net basis,
which means that the two payment streams are netted out, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments. Interest
rate and mortgage swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate and mortgage swaps is limited to the net amount of interest
payments that the Fund is contractually obligated to make. If the other party to
an interest rate or mortgage swap defaults, the Fund's risk of loss consists of
the net amount of interest payments that the Fund is contractually entitled to
receive. In contrast, currency swaps usually involve the delivery of a gross
payment stream in one designated currency in exchange for the gross payment
stream in another designated currency. Therefore, the entire payment stream
under a currency swap is subject to the risk that the other party to the swap
will default on its contractual delivery obligations. To the extent that the net
amount payable by the Fund under an interest rate or mortgage swap and the
entire amount of the payment stream payable by the Fund under a currency swap or
an interest rate floor, cap or collar are held in a segregated account
consisting of cash and liquid, high grade debt securities, the Fund and the
Subadviser believe that swaps do not constitute senior securities under the Act
and,

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<PAGE> 43

accordingly, will not treat them as being subject to the Fund's borrowing
restriction.

The Fund will not enter into currency swap, interest rate swap, mortgage swap,
cap or floor transactions unless the unsecured commercial paper, senior debt or
claims paying ability of the other party is rated either AA of A-1 or better by
S&P or Aa or P-1 or better by Moody's or, if unrated by such rating
organizations, determined to be of comparable quality by the Subadviser.

OPTIONS ON FOREIGN CURRENCIES. Harbor International Growth Fund, Harbor
International Fund, Harbor Bond Fund, and Harbor Short Duration Fund may each
purchase and write put and call options on foreign currencies for the purpose of
protecting against declines in the dollar value of foreign portfolio securities
and against increases in the U.S. dollar cost of foreign securities to be
acquired. Harbor Bond Fund and Harbor Short Duration Fund may also use options
on currency to cross-hedge, which involves writing or purchasing options on one
currency to hedge against changes in exchange rates for a different currency
with a pattern of correlation. The writing of an option on foreign currency will
constitute only a partial hedge, up to the amount of the premium received, and
the Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The purchase of an
option on foreign currency may constitute an effective hedge against exchange
rate fluctuations. However, in the event of unanticipated rate movements adverse
to the Fund's option position, the Fund may forfeit the entire amount of the
premium plus related transaction costs. In addition, Harbor Bond Fund and Harbor
Short Duration Fund may purchase call or put options on currency for non-hedging
purposes when the Subadviser anticipates that the currency will appreciate or
depreciate in value, but the securities denominated in that currency do not
present attractive investment opportunities and are not held in the Fund's
portfolio. Options on foreign currencies to be written or purchased by the Fund
will be traded on U.S. and foreign exchanges or over-the-counter. Options on
foreign currencies which are traded in the over-the-counter market may be
considered to be illiquid securities and subject to the restriction on illiquid
securities. See "Description of Securities and Investment Techniques --
Restricted Securities" above.

OPTIONS ON SECURITIES AND SECURITIES INDICES. To realize greater income than
would be realized on portfolio securities transactions alone, a Fund (other than
Harbor Money Market Fund) may write (sell) covered call and put options. A Fund
may write and purchase put and call options on any securities in which it may
invest or options on any securities index based on securities in which the Fund
may invest. A Fund is also authorized to enter into closing sale transactions in
order to realize gains or minimize losses on options purchased by the Fund.

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. A Fund pays brokerage commissions or
spreads in connection with its options transactions, as well as for purchases
and sales of underlying securities. The writing of options could result in
significant increases in a Fund's turnover rate. A Fund's transactions in
options, including options on foreign currencies, may be limited by the
requirements of the Code for qualification as a regulated investment company.

FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Fund (other than Harbor
Money Market Fund) may enter into futures contracts and purchase and sell
options on such contracts.

Each Fund may sell or purchase futures contracts only for hedging purposes.
Harbor Bond Fund and Harbor Short Duration Fund may enter into futures contracts
on debt securities. Harbor

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International Growth Fund, Harbor International Fund, Harbor Growth Fund, Harbor
Capital Appreciation Fund, Harbor Value Fund, Harbor Bond Fund and Harbor Short
Duration Fund may enter into futures contracts on securities indices. Harbor
International Growth Fund, Harbor International Fund, Harbor Bond Fund, and
Harbor Short Duration Fund may also enter into currency futures contracts. The
Funds may enter into other types of futures contracts when they become
available, provided they correspond to securities held by the relevant Fund.

A Fund may engage in futures transactions for bona fide hedging and
non-hedging purposes as defined in regulations of the Commodity Futures Trading
Commission. A Fund may not purchase or sell futures contracts or options on
futures for non-hedging purposes, if immediately thereafter the sum of initial
margin deposits on the Fund's outstanding futures and options positions (net of
the amount that positions are "in the money") and premiums paid for outstanding
options on futures in connection with non-hedging positions, adjusted to reflect
annualized profits and losses, would exceed 5% of the value of the Fund's net
assets. These transactions involve brokerage costs, require margin deposits and,
in the case of contracts and options obligating a Fund to purchase securities,
require the Fund to segregate assets to cover such contracts and options. In
addition, a Fund's activities in futures contracts may be limited by the
requirements of the Code for qualification as a regulated investment company.

RISKS OF OPTIONS AND FUTURE STRATEGIES. Participation by a Fund in the options
and futures markets involves investment risk and transaction costs to which a
Fund would not be subject absent the use of these strategies. If the
Subadviser's prediction of movement in the direction of the securities and
interest rate markets is inaccurate, the adverse consequences to a Fund may
leave the Fund in a worse position than if such strategies were not used. Risks
inherent in the use of options and futures include: the imperfect correlation
between the prices of options and futures contracts and movement in the price of
securities being hedged; the possible absence of a liquid secondary market; in
the case of over-the-counter options, the risk of default by the counterparty;
and the dependence upon the Subadviser's ability to correctly predict movements
in the direction of interest rates and securities prices.

SHORT SELLING. Each Fund, except Harbor International Growth Fund and Harbor
International Fund, may attempt to limit exposure to a possible market decline
in the value of portfolio securities through short sales of securities which the
Subadviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, a Fund will borrow the security sold short
to make delivery to the buyer. The Fund then is obligated 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 and may be required to pay a premium.

A Fund will 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.
On the other hand, the Fund will incur a loss as a result of the short sale if
the price of the security increases between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of any
premium or interest the Fund may be required to pay in connection with a short
sale. The successful use of short selling may be adversely affected by imperfect
correlation between movements in the price of the security sold short and the
securities being hedged.

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<PAGE> 45

The Funds may engage in short selling to the extent permitted by the
Investment Company Act and the rules and regulations promulgated thereunder. To
the extent that a Fund engages in short sales it will provide collateral to the
lender and (except in the case of short sales "against the box") also will
maintain additional assets consisting of cash, U.S. Government securities or
other liquid high-grade debt obligations in a segregated account with the Fund's
custodian. The Fund does not intend to enter into short sales (other than those
"against the box") if immediately after such sale the aggregate of the value of
all collateral plus the amount in such segregated account exceeds one-third (or,
in extraordinary circumstances, one-half) of the value of the Fund's net assets.
These percentages may be varied by action of the Trustees. A short sale is
"against-the-box" to the extent that the Fund contemporaneously owns or has the
right to obtain at no added cost securities identical to those sold short.

FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Fund may purchase and
sell when-issued securities and make contracts to purchase and sell securities
for a fixed price at a future date beyond customary settlement time. The Fund is
required to hold and maintain in a segregated account until the settlement date,
cash, U.S. Government securities or high-grade debt obligations in an amount
sufficient to meet the purchase price and this account is marked to market
daily. This requirement must be met unless the Fund enters into offsetting
contracts for the forward sale of other securities it owns. Purchasing
securities on a when-issued or forward commitment basis involves a risk of loss
if the value of the security to be purchased declines prior to the settlement
date, which risk is in addition to the risk of decline in value of the Fund's
other assets. Although a Fund would generally purchase securities on a
when-issued or forward commitment basis with the intention of acquiring
securities for its portfolio, the Fund may dispose of a when-issued security or
forward commitment prior to settlement if the Subadviser deems it appropriate to
do so. A Fund may enter into a forward-commitment sale to hedge its portfolio
positions or to sell securities it owned under delayed delivery arrangement.
Proceeds of such a sale are not received until the contractual settlement date.
While such a contract is outstanding, the Fund must segregate equivalent
deliverable securities or hold an offsetting purchase commitment. A Fund may
realize short-term gains or losses upon such purchases and sales.

PERFORMANCE AND YIELD INFORMATION

MONEY MARKET FUND. From time to time quotations of Harbor Money Market Fund's
"yield" and "effective yield" may be included in advertisements and
communications to shareholders. Both yield figures are based on historical
earnings and are not intended to indicate future performance. The "yield" of the
Fund refers to the net income generated by an investment in the Fund over a
specified seven-day period. This income is then "annualized." That is, the
amount of income generated by the investment during that week is assumed to be
generated each week over a 52-week period and is shown as a percentage of the
investment. The "effective yield" is expressed similarly but, when annualized,
the income earned by an investment in the Fund is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment. "Yield" and "effective yield"
for the Fund will vary based on changes in market conditions, the level of
interest rates and the level of the Fund's

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<PAGE> 46

expenses. The Fund may include in its
advertisements and communications to shareholders total return quotations which
include realized and unrealized gains and losses.

OTHER FUNDS. From time to time a Fund, other than Harbor Money Market Fund,
may publish its yield and/or average annual total return in advertisements and
communications to shareholders. The yield of a Fund will be calculated by
dividing the net investment income per share during a recent 30-day period by
the maximum offering price (i.e. net asset value) per share of the Fund on the
last day of the period. The results are compounded on a bond equivalent
(semi-annual) basis and then annualized. A Fund's total return is determined by
computing the annual percentage change in value of $1,000 invested at the
maximum public offering price (i.e. net asset value) for specified periods
ending with the most recent calendar quarter, assuming reinvestment of all
dividends and distributions at net asset value.

You should note that the investment results of a Fund will fluctuate over
time, and any presentation of a Fund's yield or total return for any prior
period should not be considered as a representation of what an investment may
earn or what an investor's yield or total return may be in any future period.
Because yield accounting methods differ from the methods used for other
accounting purposes, a Fund's yield may not equal the income paid to a
shareholder's account or the income reported in a Fund's financial statements.

PORTFOLIO TRANSACTIONS

The Subadvisers are responsible for making specific decisions to buy and sell
securities for the respective Funds that they manage. They are also responsible
for selecting brokers and dealers to effect these transactions and negotiating,
if possible, brokerage commissions and dealers' charges. In the over-the-counter
markets, securities (i.e. debt securities) are generally traded on a net basis
with dealers acting as principal for their own accounts without a stated
commission. The primary consideration in selecting broker-dealers to execute
portfolio security transactions is the execution of such portfolio transactions
at the most favorable prices. Subject to this requirement, securities may be
bought from or sold to brokers or dealers who have furnished statistical,
research and other information or services to the Subadvisers. Higher
commissions may be paid to broker-dealers that provide research services and the
Subadvisers may enter into such arrangements.

PORTFOLIO TURNOVER. Securities in a Fund's portfolio will be sold whenever the
respective Subadviser believes it is appropriate to do so without regard to
length of time the particular security may have been held. This policy is
subject to certain requirements for qualification of a Fund as a regulated
investment company under the Code. Each of the Funds will engage in portfolio
trading if its Subadviser believes a transaction, net of costs (including
custodian charges), will help in achieving such Fund's investment objective. The
frequency of each Fund's portfolio transactions or turnover rate may vary from
year to year depending on market conditions. A higher turnover rate involves
greater expense to the Fund and could increase the Fund's realization of capital
gains that would be taxable to shareholders upon distribution to them by the
Fund. For the fiscal year ended October 31, 1995, the portfolio turnover rates
for Harbor Value Fund and Harbor Short Duration Fund were 136%, and 3,108%,
respectively. A portfolio turnover rate of over 100% is higher than the rate
experienced by 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

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<PAGE> 47

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.

DISTRIBUTIONS AND TAX INFORMATION

Each Fund has elected to be treated as a regulated investment company under
Subchapter M of the Code, which requires meeting certain requirements relating
to its sources of income, diversification of its assets, and distribution of its
income to shareholders and has qualified as such for its taxable year ended
October 31, 1995. Each Fund intends to qualify as a regulated investment company
for each taxable year. As a regulated investment company, a Fund will not be
subject to Federal income or excise taxes on its net investment income and net
realized capital gains to the extent such income and gains are distributed to
its shareholders in accordance with the timing requirements imposed by the Code.

Each of Harbor International Growth Fund and Harbor International Fund may be
subject to foreign withholding or other foreign taxes on its income from foreign
securities and may be eligible to elect to pass such taxes and foreign tax
credits or deductions through to shareholders. Other Funds may also be subject
to foreign taxes with respect to their foreign investments but generally will
not be eligible to make this election. Certain foreign exchange gains and losses
realized by a Fund may be treated as ordinary income and losses. Investment by
any Fund in zero coupon, stripped or certain other securities with original
issue discount or market discount could require the Fund to liquidate
investments in order to generate cash for distributions.

Harbor Money Market Fund will declare a dividend of its net investment income
(which is composed of dividends, if applicable, and interest less expenses)
daily and distribute such dividend monthly. Each other Fund will declare and
distribute a dividend of its net investment income including, in the case of
Harbor International Growth Fund, Harbor International Fund, Harbor Bond Fund
and Harbor Short Duration Fund, any net foreign exchange gains treated as
ordinary income, if any, at least annually. Such distributions will be taxable
to shareholders as ordinary income and, in the cases of Harbor Growth Fund,
Harbor Capital Appreciation Fund and Harbor Value Fund, may qualify in part for
a 70% dividends-received deduction for corporations, subject to the limitations
on availability of the deduction and possible tax basis adjustments.
Distributions reinvested in shares or paid in cash will be made shortly after
the first business day of the month following declaration of the dividend.
Certain dividends paid by a Fund in January of a given year will be taxable to
shareholders as if received on December 31 of the prior year.

Each Fund will distribute at least annually on or about the close of the
calendar year its net short-term and long-term capital gains, if any.
Distributions of the excess of net short-term capital gain over net long-term
capital loss will be taxable to shareholders as ordinary income, and
distributions of the excess of net long-term capital gain over net short-term
capital loss (taking into account any capital loss carryforwards) will be
taxable as long-term capital gain regardless of how long the shareholders have
held their shares. Shareholders will be informed about the amount and character
of distributions from a Fund for federal income tax purposes, which will be the
same whether a shareholder receives cash distributions or reinvests in
additional shares. Investors purchasing shares (other than shares of the Harbor
Money Market Fund) just prior to a distribution

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<PAGE> 48

should be aware that the share price at that time includes the amount of the
forthcoming distribution, and the distribution will be taxable to them even
though it represents a return of a portion of their investment.

A Fund's transactions involving options, futures contracts, forward contracts
and short sales, including such transactions involving foreign exchange gain or
loss, will be subject to special tax rules, the effect of which may be to
accelerate income to the Fund, defer Fund losses, cause adjustments in the
holding periods of securities, convert capital gain or loss into ordinary income
or loss or affect the treatment as short-term or long-term of certain capital
gains and losses. These rules could therefore affect the amount, timing and
character of distributions to shareholders and increase the amount of gains
realized from the disposition of securities and certain other instruments held
less than three months, which must be less than 30% of the Fund's gross income
in any taxable year.

Shareholders subject to the information reporting requirements of the Code,
including most non-corporate shareholders, are required to provide Harbor with
their social security or other taxpayer identification numbers and certain
required certifications. Harbor may refuse to accept an application or may be
required to withhold (as "backup withholding") 31% of reportable dividends,
capital gain distributions and proceeds from the redemption or exchange of
shares (other than shares of the Harbor Money Market Fund) if such numbers and
certifications are not provided or if notified by the Internal Revenue Service
or a broker that a number provided is incorrect or that a shareholder is
subject to backup withholding for failure to report all taxable interest or
dividend payments. Amounts treated as ordinary dividends to non-U.S. persons
may be subject to nonresident alien withholding tax at a rate of up to 30%, and
certain payments to such persons may be subject to backup withholding.

In addition to federal taxes, a shareholder may also be subject to foreign,
state and local taxes on distributions of a Fund or the value of the
shareholder's investment in the Fund depending on the laws of the jurisdictions
in which the shareholder is subject to tax.

DISTRIBUTION OPTIONS. You must select one of the following options and may
change your selection as often as desired by notifying the Shareholder Servicing
Agent in writing:

Option A-- Dividends and capital gain distributions reinvested. This option
will be assigned if no other option is specified and is the only
option for Systematic Withdrawal Plans.

Option B-- Dividends in cash; capital gain distributions reinvested.

Option C-- Dividends and capital gain distributions in cash.

Under Option A, dividends, net of any required withholding taxes, will be
reinvested in additional full and fractional shares of the same Fund at the net
asset value determined at the close of business on the ex-dividend date. Under
Options A and B, capital gain distributions, net of any required withholding
taxes, will be reinvested in additional full and fractional shares of the same
Fund at the net asset value determined at the close of business on the
ex-dividend date. For federal income tax purposes, dividends and capital gain
distributions are taxable as described below under "Distributions and Tax
Information" whether paid in cash or reinvested under these options. For Harbor
Money Market Fund, all dividends and capital gain distributions of $25 or less
will be automatically reinvested.

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ORGANIZATION AND CAPITALIZATION

Harbor was established as a Massachusetts business trust on May 20, 1986 and
reorganized as a Delaware business trust on June 25, 1993. The Trustees of
Harbor Fund are responsible for the overall management and supervision of its
affairs. Each share represents an equal proportionate interest in the Fund to
which it relates with each other share in that Fund. Shares entitle their
holders to one vote per share. Shares have noncumulative voting rights, do not
have preemptive or subscription rights and are transferable. Pursuant to the
Investment Company Act, shareholders of each Fund are required to approve the
adoption of any investment advisory agreement relating to such Fund and of any
changes in fundamental investment restrictions or policies of such Fund. Shares
of a Fund will be voted with respect to that Fund only, except for the election
of Trustees and the ratification of independent accountants. The Trustees are
empowered, without shareholder approval, by the Agreement and Declaration of
Trust (the "Declaration of Trust") and By-Laws to create additional series of
shares and to classify and reclassify any new or existing series of shares into
one or more classes.

As of December 14, 1995, an Owens-Illinois Master Retirement Trust pension
portfolio owned beneficially and of record, 38% and 84% of the outstanding
shares of beneficial interest of Harbor Growth Fund and Harbor Short Duration
Fund, respectively. As of December 14, 1995, the Owens-Illinois 401(k) Trust
owned beneficially and of record, 29%, 30% and 29% of the outstanding shares of
beneficial interest of Harbor Growth Fund, Harbor Value Fund and Harbor Money
Market Fund, respectively.

Although all shareholders reserve the right to terminate their investments in
any of the Funds at any time in the future, the Owens-Illinois Master Retirement
Trust pension portfolio and Owens-Illinois savings plans have no present
intention of doing so, except that the former expects to transfer its assets
invested in Harbor Growth Fund to a preexisting separate account managed by
Nicholas-Applegate. To prevent dilution of the interests of other Fund
shareholders, and any other adverse impact upon the Fund, the share redemption
occasioned by this transfer will occur in several installments over a period of
approximately three years and will, if necessary to protect the Fund and other
shareholders, be an in-kind redemption. There is, however, no assurance that
such measures will be completely effective. While any redemption which
significantly reduces the size of a Fund might cause an increase in that Fund's
expense ratio, the Adviser believes any increase resulting from the redemption
and transfer referred to above will not be substantial in relation to the size
of the Fund before or after the redemption.

Harbor does not intend to hold annual shareholder meetings. Shareholders have
certain rights, as set forth in the Declaration of Trust, including the right to
call a meeting of shareholders for the purpose of voting on the removal of one
or more Trustees. Such removal can be effected upon the action of two-thirds of
the outstanding shares of Harbor.

46
<PAGE> 50

APPENDIX A

PORTFOLIO COMPOSITION CHART

OCTOBER 31, 1995

HARBOR BOND FUND

<TABLE>
<CAPTION>
SECURITY PERCENT OF NET ASSETS
- ---------------------------------------------------------------------- ---------------------
<S> <C>
U.S. Government Securities*........................................... 37%
Short-Term Obligations and Other Assets............................... 7%
Debt -- Unrated by S&P................................................ --%
Debt -- S&P Rating
AAA................................................................. 21%
AA.................................................................. 7%
A................................................................... 5%
BBB................................................................. 13%
BB.................................................................. 10%
B................................................................... --%
-----
100%
</TABLE>

- -------------------------
* Obligations issued or guaranteed by the U.S. Government or its agencies,
authorities or instrumentalities.

The chart above indicates the composition of Harbor Bond Fund's portfolio at
October 31, 1995, with the debt securities rated by S&P separated into quality
categories. The chart does not necessarily indicate what the composition of the
Fund's portfolio will be in subsequent years. Rather, the Fund's investment
objective, policies and restrictions indicate the extent to which the Trust may
purchase securities in the various categories.

A-1
<PAGE> 51

HARBOR FUND SUMMARY

<TABLE>
<S> <C>
Minimum Initial Investment $2,000
Minimum Subsequent Investment $500
Minimum Subsequent Account Balance $1,000
Telephone Exchange Yes, if selected on application. Same minimum initial
and subsequent investments.
Telephone Redemption Yes, if selected on application.
UGMA, profit-sharing, savings $500 minimum initial investment; $100 minimum
or pension plans subsequent investment; and $500 minimum subsequent
account balance.
Systematic Investment Plan $500 minimum initial investment; $100 minimum
subsequent investment per month or quarter.
Systematic Withdrawal Plan $10,000 minimum initial balance to begin plan.
Systematic 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.
IRA Plans and Fees $500 minimum initial investment; $100 minimum
subsequent investment; and $500 minimum subsequent
account balance.
</TABLE>

SUBADVISERS

HARBOR INTERNATIONAL GROWTH FUND
HARBOR CAPITAL APPRECIATION FUND

Jennison Associates Capital Corp.
466 Lexington Avenue
New York, New York 10017

HARBOR INTERNATIONAL FUND

Northern Cross Investments Limited
Clarendon House
2 Church Street
Hamilton, Bermuda HMDX

HARBOR GROWTH FUND

Nicholas-Applegate Capital Management

Suite 2900

600 West Broadway

San Diego, California 92101
HARBOR VALUE FUND

DePrince, Race & Zollo, Inc.

201 Orange Avenue, Suite 850

Orlando, Florida 32801

Richards & Tierney, Inc.
111 W. Jackson Blvd.
Chicago, Illinois 60604

HARBOR BOND FUND

Pacific Investment Management Company
840 Newport Center Drive
Newport Beach, California 92660

HARBOR SHORT DURATION FUND
HARBOR MONEY MARKET FUND

Fischer Francis Trees & Watts, Inc.
200 Park Avenue
New York, New York 10166
<PAGE> 52

<TABLE>
<S> <C> <C>
TRUSTEES AND OFFICERS SHAREHOLDER SERVICING AGENT

Ronald C. Boller Chairman, President Harbor Transfer, Inc.
and Trustee P.O. Box 2282
Howard P. Colhoun Trustee Toledo, OH 43603-2282
John P. Gould Trustee 1-800-422-1050
Rodger F. Smith Trustee
CUSTODIAN
Constance L. Souders Secretary and Treasurer
State Street Bank and Trust
Company
INVESTMENT ADVISER P.O. Box 1713
Harbor Capital Advisors, Boston, MA 02105
Inc.
One SeaGate
INDEPENDENT ACCOUNTANTS
Toledo, OH 43666
Price Waterhouse LLP
DISTRIBUTOR AND 160 Federal Street
PRINCIPAL UNDERWRITER Boston, MA 02110

HCA Securities, Inc.
LEGAL COUNSEL
One SeaGate
Hale and Dorr
Toledo, OH 43666
60 State Street
(419) 247-2477
Boston, MA 02109

</TABLE>

[LOGO]

One SeaGate
Toledo, Ohio 43666
1-800-422-1050

(LOGO)
recycled paper
<PAGE> 53

HARBOR FUND One SeaGate Toledo, Ohio 43666
- --------------------------------------------------------------------------------

STATEMENT OF ADDITIONAL INFORMATION--MARCH 1, 1996

- --------------------------------------------------------------------------------
Harbor Fund ("Harbor") is an open-end management investment company (or
mutual fund) consisting of eight separate, diversified portfolios: Harbor
International Growth Fund, Harbor International Fund, Harbor Growth Fund, Harbor
Capital Appreciation Fund, Harbor Value Fund, Harbor Bond Fund, Harbor Short
Duration Fund and Harbor Money Market Fund (individually or collectively
referred to as a "Fund" or the "Funds"). Additional funds may be created by the
Trustees from time to time. Each Fund is managed by one or more subadvisers
(each, a "Subadviser") under the supervision of Harbor Capital Advisors, Inc.,
the Funds' investment adviser (the "Adviser").

This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Harbor Fund dated March 1, 1996, as
amended or supplemented from time to time. A copy of the Prospectus may be
obtained without charge by calling 1-800-422-1050 or by writing to Harbor Fund
at One SeaGate, Toledo, OH 43666.

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PAGE
IN
STATEMENT
OF PAGE
ADDITIONAL IN
TABLE OF CONTENTS INFORMATION PROSPECTUS
--- ---
<S> <C> <C>
Harbor Bond Fund.......................................................................... 2 16
Harbor Money Market Fund.................................................................. 4 19
Investment Techniques..................................................................... 4 31
Borrowing............................................................................... 4
Lending of Portfolio Securities......................................................... 5 37
Foreign Securities...................................................................... 5 38
Forward Commitments and When-Issued Securities.......................................... 6 42
Mortgage-Related and Other Asset-Backed Securities........................................ 7 33
Collateralized Mortgage Obligations (CMOs).............................................. 8 34
FHLMC Collateralized Mortgage Obligations............................................... 9 34
Other Mortgage-Related Securities....................................................... 10 34
Other Asset-Backed Securities........................................................... 10 33
Options on Securities..................................................................... 10 40
Writing Options......................................................................... 10 40
Purchasing Options...................................................................... 11 40
Risks of Options Transactions........................................................... 11 41
Options on Securities Indices........................................................... 12 40
Futures Contracts......................................................................... 14 40
Futures on Securities................................................................... 15 40
Securities Index Futures................................................................ 15 40
Hedging Strategies...................................................................... 15 40
Options on Futures........................................................................ 16 40
Limitations on Transactions in Futures Contracts and Options on Futures Contracts......... 17 40
Foreign Currency Transactions............................................................. 18 38
Currency Futures and Related Options...................................................... 20
Options on Foreign Currencies............................................................. 21 40
U.S. Government Securities................................................................ 23 33
INVESTMENT RESTRICTIONS..................................................................... 23
TRUSTEES AND OFFICERS....................................................................... 27
THE ADVISER, SUBADVISERS, DISTRIBUTOR AND SHAREHOLDER SERVICING AGENT....................... 28 28
The Adviser............................................................................... 28 28
The Subadvisers........................................................................... 29 28
Other Information......................................................................... 30
Distributor and Shareholder Servicing Agent............................................... 30 31
Code of Ethics............................................................................ 30
PORTFOLIO TRANSACTIONS...................................................................... 31 43
NET ASSET VALUE............................................................................. 33
PERFORMANCE AND YIELD INFORMATION........................................................... 35 42
TAX INFORMATION............................................................................. 37 44
ORGANIZATION AND CAPITALIZATION............................................................. 38 46
General................................................................................... 38
Shareholder and Trustee Liability......................................................... 40
CUSTODIAN................................................................................... 40
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS............................................ 41
APPENDIX A.................................................................................. 42
</TABLE>

<PAGE> 54

ADDITIONAL POLICIES AND INVESTMENT TECHNIQUES

GENERAL. Each Fund has a different investment objective which it
pursues through separate investment policies, as described in the Prospectus
and below. The following discussion elaborates on the presentation of the
Funds' investment policies contained in the Prospectus.

HARBOR BOND FUND

DURATION. Duration is a measure of average maturity that was developed to
incorporate a bond's yield, coupons, final maturity and call features into one
measure. Duration is one of the fundamental tools used by the Fund's Subadviser,
Pacific Investment Management Company ("PIMCO"), in security selection for the
Fund.

Most debt obligations provide interest ("coupon") payments in addition to a
final ("par") payment at maturity. Some obligations also feature call
provisions. Depending on the relative magnitude of these payments, debt
obligations may respond differently to changes in the level and structure of
interest rates. Traditionally, a debt security's "term to maturity" has been
used as a proxy for the sensitivity of the security's price to changes in
interest rates (which is the "interest rate risk" or "volatility" of the
security). However, "term to maturity" measures only the time until a debt
security provides its final payment, taking no account of the pattern of the
security's payments prior to maturity. Duration is a measure of the average life
of a fixed-income security on a present value basis. Duration is computed by
calculating the length of the time intervals between the present time and the
time that the interest and principal payments are scheduled or, in the case of a
callable bond, expected to be received, and weighting them by the present values
of the cash to be received at each future point in time. For any fixed income
security with interest payments occurring prior to the payment of principal,
duration is always less than maturity. In general, all other things being the
same, the lower the stated or coupon rate of interest of a fixed income
security, the longer the duration of the security; conversely, the higher the
stated or coupon rate of interest of a fixed income security, the shorter the
duration of the security.

Futures, options and options on futures have durations which, in general, are
closely related to the duration of the securities which underlie them. Holding
long futures or call option positions (backed by a segregated account of cash
and cash equivalents) will lengthen the portfolio duration by approximately the
same amount that holding an equivalent amount of the underlying securities
would. Short futures or put option positions have durations roughly equal to the
negative duration of the securities that underlie those positions, and have the
effect of reducing portfolio duration by approximately the same amount that
selling an equivalent amount of the underlying securities would.

HIGH YIELD BONDS. Harbor Bond Fund may invest up to 10% of its assets in
corporate debt securities that are not investment grade but are rated B or
higher by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Group ("S&P") (commonly called "junk bonds"). The widespread expansion
of government, consumer and corporate debt within the U.S. economy has made the
corporate sector, especially cyclically sensitive industries, more vulnerable to
economic downturns or increased interest rates. An economic downturn could
severely disrupt the market for high yield bonds and adversely affect the value
of outstanding bonds and the ability of the issuers to repay principal and
interest.

2
<PAGE> 55

The prices of high yield bonds have been found to be less sensitive to
interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the issuer
of a bond owned by Harbor Bond Fund defaulted, the Fund could incur additional
expenses to seek recovery. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices of
high yield bonds and the Fund's net asset value, to the extent it holds such
bonds. Furthermore, in the case of high yield bonds structured as zero coupon or
pay-in-kind securities, their market prices are affected to a greater extent by
interest rate changes and thereby tend to be more volatile than securities which
pay interest periodically and in cash.

High yield bonds also present risks based on payment expectations. For
example, high yield bonds may contain redemption or call provisions. If an
issuer exercises these provisions in a declining interest rate market, the Fund
may, to the extent it holds such bonds, have to replace the security with a
lower yielding security, which may result in a decreased return for investors.
Conversely, a high yield bond's value will decrease in a rising interest rate
market, as will the value of the Fund's assets, to the extent it holds such
bonds. If the Fund experiences unexpected net redemptions, this may force it to
sell any high yield bonds it holds, without regard to their investment merits,
thereby decreasing the asset base upon which the Fund's expenses can be spread
and possibly reducing the Fund's rate of return.

In addition, to the extent that there is no established retail secondary
market, there may be thin trading of high yield bonds, and this may have an
impact on PIMCO's ability to accurately value high yield bonds and the Fund's
assets and on the Fund's ability to dispose of such bonds. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease
the values and liquidity of high yield bonds, especially in a thinly traded
market.

There are also special tax considerations associated with investing in high
yield bonds structured as zero coupon or pay-in-kind securities. For example,
the Fund is required to report the accrued interest on these securities as
current income each year even though it may receive no cash interest until the
security's maturity or payment date. The Fund may be required to sell some of
its assets to obtain cash to distribute to shareholders in order to satisfy the
distribution requirements of the Internal Revenue Code of 1986, as amended (the
"Code") with respect to such accrued interest. These actions are likely to
reduce the Fund's assets and may thereby increase its expense ratio and decrease
its rate of return.

Finally, there are risks involved in applying credit ratings as a method for
evaluating high yield bonds. For example, credit ratings evaluate the safety of
principal and interest payments, not market value risk of high yield bonds.
Also, since credit rating agencies may fail to timely change the credit ratings
to reflect subsequent events, the Fund (in conjunction with PIMCO) will
continuously monitor the issuers of high yield bonds in its portfolio, if any,
to determine if the issuers will have sufficient cash flow and profits to meet
required principal and interest payments, and to assure the bond's liquidity so
the Fund can meet redemption requests.

3
<PAGE> 56

HARBOR MONEY MARKET FUND

The Fund may invest its assets in U.S. dollar-denominated securities of U.S.
or foreign issuers and in securities of foreign branches of U.S. banks and major
foreign banks, such as negotiable certificates of deposit (Eurodollars). Since
the portfolio of the Fund may contain such securities, an investment therein
involves investment risks that are different in some respects from an investment
in a fund which invests only in debt obligations of U.S. issuers. See
"Investment Practices of the Funds -- Foreign Securities".

The extent of deviation between the Fund's net asset value based upon
available market quotations or market equivalents and $1.00 per share based on
amortized cost will be periodically examined by the Trustees. If such deviation
exceeds 1/2 of 1%, the Trustees will promptly consider what action, if any, will
be initiated. In the event the Trustees determine that a deviation exists which
may result in material dilution or other unfair results to investors or existing
shareholders, they will take such corrective action as they regard to be
necessary and appropriate. Such action may include the sale of portfolio
instruments prior to maturity to realize capital gains or losses or to shorten
average portfolio maturity; withholding part or all of dividends or payment of
distributions from capital or capital gains; redemptions of shares in kind; or
establishing a net asset value per share by using available market quotations or
equivalents. In addition, in order to stabilize the net asset value per share at
$1.00, the Trustees have the authority (1) to reduce or increase the number of
shares outstanding on a pro rata basis, and (2) to offset each shareholder's pro
rata portion of the deviation between the net asset value per share and $1.00
from the shareholder's accrued dividend account or from future dividends.

INVESTMENT TECHNIQUES

BORROWING. Each Fund may borrow for temporary administrative or emergency
purposes and this borrowing may be unsecured. Harbor Value Fund and Harbor Short
Duration Fund may borrow from banks and broker-dealers for purposes of investing
the borrowed funds. The Investment Company Act requires a Fund to maintain
continuous asset coverage (that is, total assets including borrowings, less
liabilities exclusive of borrowings) of 300% of the amount borrowed. If the 300%
asset coverage should decline as a result of market fluctuations or other
reasons, a Fund may be required to sell some of its portfolio holdings within
three days to reduce its borrowings and restore the 300% asset coverage, even
though it may be disadvantageous from an investment standpoint to sell
securities at that time. To avoid the potential leveraging effects of a Fund's
borrowings, additional investments will not be made while borrowings are in
excess of 5% of a Fund's total assets, except that this 5% limit does not apply
to Harbor Value Fund and Harbor Short Duration Fund. Borrowing may exaggerate
the effect on net asset value of any increase or decrease in the market value of
the portfolio. Money borrowed will be subject to interest costs which may or may
not be recovered by appreciation of the securities purchased. A Fund also may be
required to maintain minimum average balances in connection with such borrowing
or to pay a commitment or other fee to maintain a line of credit; either of
these requirements would increase the cost of borrowing over the stated interest
rate.

Harbor Short Duration Fund engages in reverse repurchase agreements subject
only to the requirement that the Fund maintain continuous asset coverage of 300%
of the amount borrowed. Although permitted to do so, Harbor Value Fund

4
<PAGE> 57

has no current intention to engage in reverse
repurchase agreements for investment purposes.

LENDING OF PORTFOLIO SECURITIES. Each Fund may seek to increase its income by
lending portfolio securities. Harbor International Growth Fund and Harbor
International Fund have entered into a securities lending program with the
Custodian. Under present regulatory policies, such loans may be made to
financial institutions, such as broker-dealers, and would be required to be
secured continuously by collateral in cash, cash equivalents, bank letters of
credit or high quality U.S. Government securities. The collateral will be
maintained on a current basis at an amount at least equal to the market value of
the securities loaned. The Fund would have the right to call a loan and obtain
the securities loaned at any time on five days' notice. For the duration of a
loan, the Fund would continue to receive the equivalent of the interest or
dividends paid by the issuer on the securities loaned and would also receive
compensation from the investment of the collateral. The Fund would not, however,
have the right to vote any securities having voting rights during the existence
of the loan, but would call the loan in anticipation of an important vote to be
taken among holders of the securities or of the giving or withholding of their
consent on a material matter affecting the investment. As with other extensions
of credit, there are risks of delay in recovery or even loss of rights in the
collateral should the borrower of the securities fail financially. However, the
loans would be made only to firms deemed by the relevant Subadviser to be of
good standing, and when, in the judgment of the Subadviser, the consideration
which can be earned currently from securities loans of this type justifies the
attendant risk. If the Subadviser decides to make securities loans, it is
intended that the value of the securities loaned would not exceed 30% of the
value of the total assets of the Fund.

FOREIGN SECURITIES. Each Fund may invest, subject to the other investment
policies applicable to each Fund, in foreign securities. Fixed commissions on
foreign securities exchanges are generally higher than negotiated commissions on
U.S. exchanges, although each Fund endeavors to achieve the most favorable net
results on portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers, dealers and listed
companies than in the United States. Mail service between the United States and
foreign countries may be slower or less reliable than within the United States,
thus increasing the risk of delayed settlements of portfolio transactions or
loss of certificates for portfolio securities.

Foreign markets also have different clearance and settlement procedures, and
in certain markets there have been times when settlements have been unable to
keep pace with the volume of securities transactions, making it difficult to
conduct such transactions. Such delays in settlement could result in temporary
periods when a portion of the assets of a Fund is uninvested and no return is
earned thereon. The inability of a Fund to make intended security purchases due
to settlement problems could cause a Fund to miss attractive investment
opportunities. Inability to dispose of portfolio securities due to settlement
problems could result either in losses to a Fund due to subsequent declines in
value of the portfolio securities, or, if a Fund has entered into a contract to
sell the securities, could result in possible liability to the purchaser.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.

Investing in securities of non-U.S. companies may entail additional risks
especially in emerging countries due to the potential political and economic
instability of certain countries and the risks of expropriation,
nationalization, confiscation or the imposition of restrictions on foreign

5
<PAGE> 58

investment and on repatriation of capital invested.
In the event of such expropriation, nationalization or other confiscation by any
country, a Fund could lose its entire investment in any such country.

In addition, even though opportunities for investment may exist in foreign
countries, and in particular emerging markets, any change in the leadership or
policies of the governments of those countries or in the leadership or policies
of any other government which exercises a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and thereby eliminate any investment
opportunities which may currently exist.

Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of emerging countries previously
expropriated large quantities of real and personal property similar to the
property which may be represented by the securities purchased by the Funds. The
claims of property owners against those governments were never finally settled.
There can be no assurance that any property represented by foreign securities
purchased by a Fund will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, a Fund could lose a substantial
portion of its investments in such countries. A Fund's investments would
similarly be adversely affected by exchange control regulation in any of those
countries.

Certain countries in which the Funds may invest may have vocal minorities that
advocate radical religious or revolutionary philosophies or support ethnic
independence. Any disturbance on the part of such individuals could carry the
potential for wide-spread destruction or confiscation of property owned by
individuals and entities foreign to such country and could cause the loss of a
Fund's investment in those countries.

Certain countries prohibit or impose substantial restrictions on investments
in their capital markets, particularly their equity markets, by foreign entities
such as the Funds. As illustrations, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Moreover, the national policies of certain countries may
restrict investment opportunities in issuers or industries deemed sensitive to
national interests. In addition, some countries require governmental approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. A Fund could be adversely affected by delays in, or
a refusal to grant, any required governmental approval for repatriation, as well
as by the application to it of other restrictions on investments.

FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. Each Fund may purchase
securities on a when-issued or purchase or sell securities on a forward
commitment basis including "TBA" (to be announced) purchase and sale
commitments. These transactions involve a commitment by the Fund to purchase or
sell securities at a future date (ordinarily one or two months later). The price
of the underlying securities (usually expressed in terms of yield) and the date
when the securities will be delivered and paid for (the settlement date) are
fixed at the time the transaction is negotiated. When-issued purchases and
forward commitment transactions are negotiated directly with the other party,
and such commitments are not traded on exchanges.

When-issued purchases and forward commitment transactions enable a Fund to
lock in what is believed to be an attractive price or yield on a particular
security for a period of time, regardless

6
<PAGE> 59

of future changes in interest rates. For instance, in periods of rising interest
rates and falling prices, the Fund might sell securities it owns on a forward
commitment basis to limit its exposure to falling prices. In periods of falling
interest rates and rising prices, the Fund might sell securities it owns and
purchase the same or a similar security on a when-issued or forward commitment
basis, thereby obtaining the benefit of currently higher yields.

The value of securities purchased on a when-issued or forward commitment basis
and any subsequent fluctuations in their value are reflected in the computation
of the Fund's net asset value starting on the date of the agreement to purchase
the securities. The Fund does not earn interest on the securities it has
committed to purchase until they are paid for and delivered on the settlement
date. When the Fund makes a forward commitment to sell securities it owns, the
proceeds to be received upon settlement are included in the Fund's assets.
Fluctuations in the market value of the underlying securities are not reflected
in the Fund's net asset value as long as the commitment to sell remains in
effect. Settlement of when-issued purchases and forward commitment transactions
generally takes place within two months after the date of the transaction, but
the Fund may agree to a longer settlement period.

A Fund will purchase securities on a when-issued basis or purchase or sell
securities on a forward commitment basis only with the intention of completing
the transaction and actually purchasing or selling the securities. If deemed
advisable as a matter of investment strategy, however, the Fund may dispose of
or renegotiate a commitment after it is entered into. The Fund also may sell
securities it has committed to purchase before those securities are delivered to
the Fund on the settlement date. The Fund may realize a capital gain or loss in
connection with these transactions.

When a Fund purchases securities on a when-issued or forward commitment basis,
the Funds' custodian bank will maintain in a segregated account securities
having a value (determined daily) at least equal to the amount of the Fund's
purchase commitments. In the case of a forward commitment to sell portfolio
securities, the custodian will hold the portfolio securities themselves in a
segregated account while the commitment is outstanding. These procedures are
designed to ensure that the Fund will maintain sufficient assets at all times
to cover its obligations under when-issued purchases and forward commitments.

MORTGAGE-RELATED AND OTHER
ASSET-BACKED SECURITIES

The principal governmental guarantor of mortgage-related securities is the
Government National Mortgage Association ("GNMA"). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA (such as savings and loan institutions, commercial
banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed
mortgages.

Government-related guarantors (i.e., not backed by the full faith and credit
of the U.S. Government) include the Federal National

7
<PAGE> 60

Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"). FNMA is a government-sponsored corporation owned entirely by private
stockholders. It is subject to general regulation by the Secretary of Housing
and Urban Development. FNMA purchases conventional (i.e., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally-chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the U.S. Government.

FHLMC is a corporate instrumentality of the U.S. Government and was created by
Congress in 1970 for the purpose of increasing the availability of mortgage
credit for residential housing. Its stock is owned by the twelve Federal Home
Loan Banks. FHLMC issues Participation Certificates ("PCs") which represent
interests in conventional mortgages from FHLMC's national portfolio. FHLMC
guarantees the timely payment of interest and ultimate collection of principal,
but PCs are not backed by the full faith and credit of the U.S. Government.

Commercial banks, savings and loan institutions, private mortgage insurance
companies, mortgage bankers and other secondary market issuers also create
pass-through pools of conventional residential mortgage loans. Such issuers may,
in addition, be the originators and/or servicers of the underlying mortgage
loans as well as the guarantors of the mortgage-related securities. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers. Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a mortgage-related
security meets a Fund's investment quality standards. There can be no assurance
that the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements.

Mortgage-related securities without insurance or guarantees may be purchased
if through an examination of the loan experience and practices of the
originator/servicers and poolers the Subadviser determines that the securities
meet a Fund's quality standards. Although the market for such securities is
becoming increasingly liquid, mortgage-related securities issued by certain
private organizations may not be readily marketable.

No Fund will purchase mortgage-related securities or any other assets which in
the Subadviser's opinion are illiquid if, as a result, more than 15% of the
value of a Fund's total assets will be illiquid.

Collateralized Mortgage Obligations (CMOs). A CMO is a hybrid between a
mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal are paid, in most cases, semiannually. CMOs may
be collateralized by whole mortgage loans but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and the income streams on such securities.

CMOs are usually structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call

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protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Under a common structure, monthly
payment of principal received from the pool of underlying mortgages, including
prepayments, is first returned to investors holding the shortest maturity class.
Investors holding the longer maturity classes receive principal only after the
first class has been retired. An investor is partially guarded against an
earlier than desired return of principal because of the sequential payments.

In a typical CMO transaction, a corporation ("issuer") issues multiple series,
(e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are
used to purchase mortgages or mortgage pass-through certificates ("Collateral").
The Collateral is pledged to a third party trustee as security for the Bonds.
Principal and interest payments from the Collateral are used to pay principal on
the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds all bear current
interest. Interest on the Series Z Bond is accrued and added to principal and a
like amount is paid as principal on the Series A, B, or C Bond currently being
paid off. When the Series A, B, and C Bonds are paid in full, interest and
principal on the Series Z Bond begins to be paid currently. With some CMOs, the
issuer serves as a conduit to allow loan originators (primarily builders or
savings and loan associations) to borrow against their loan portfolios.

A Fund may also invest in parallel pay CMOs and Planned Amortization Class
CMOs ("PAC Bonds"). Parallel pay CMOs are structured to provide payments of
principal on each payment date to more than one class. These simultaneous
payments are taken into account in calculating the stated maturity date or final
distribution date of each class, which, as with other CMO structures, must be
retired by its stated maturity date or final distribution date but may be
retired earlier. PAC Bonds generally require payments of a specified amount of
principal on each payment date. PAC Bonds are always parallel pay CMOs with the
required principal payment on such securities having the highest priority after
interest has been paid to all classes.

FHLMC Collateralized Mortgage Obligations. FHLMC CMOs are debt obligations of
FHLMC issued in multiple classes having different maturity dates which are
secured by the pledge of a pool of conventional mortgage loans purchased by
FHLMC. Unlike FHLMC PCs, payments of principal and interest on the CMOs are made
semiannually, as opposed to monthly. The amount of principal payable on each
semiannual payment date is determined in accordance with FHLMC's mandatory
sinking fund schedule, which, in turn, is equal to approximately 100% of the FHA
prepayment experience applied to the mortgage collateral pool. All sinking fund
payments in the CMOs are allocated to the retirement of the individual classes
of bonds in the order of their stated maturities. Payment of principal on the
mortgage loans in the collateral pool in excess of the amount of FHLMC's minimum
sinking fund obligation for any payment date are paid to the holders of the CMOs
as additional sinking fund payments. Because of the "pass-through" nature of all
principal payments received on the collateral pool in excess of FHLMC's minimum
sinking fund requirement, the rate at which principal of the CMOs is actually
repaid is likely to be such that each class of bonds will be retired in advance
of its scheduled maturity date.

If collection of principal (including pre-payments) on the mortgage loans
during any semiannual payment period is not sufficient to meet FHLMC's minimum
sinking fund obligation on the next sinking fund payment date, FHLMC agrees to
make up the deficiency from its general funds.

Criteria for the mortgage loans in the pool backing the CMOs are identical to
those of FHLMC PCs. FHLMC has the right to substitute

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collateral in the event of delinquencies and/or defaults.

Other Mortgage-Related Securities. The Subadvisers expect that governmental,
government-related or private entities may create mortgage loan pools and other
mortgage-related securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those described above. The
mortgages underlying these securities may include alternative mortgage
instruments, that is, mortgage instruments whose principal or interest payments
may vary or whose terms to maturity may differ from customary long-term fixed
rate mortgages. As new types of mortgage-related securities are developed and
offered to investors, the Subadvisers will, consistent with each Fund's
investment objectives, policies and quality standards and, subject to the review
and approval of the Funds' Board of Trustees, consider making investments in
such new types of mortgage-related securities.

Other Asset-Backed Securities. Similarly, the Subadvisers expect that other
asset-backed securities (unrelated to mortgage loans) will be offered to
investors in the future. Several types of asset-backed securities have already
been offered to investors, including CARS ("Certificates for Automobile
Receivables") and interests in pools of credit card receivables. CARS represent
undivided fractional interests in a trust ("trust") whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing the contracts. Payments of principal and interest on
CARS are passed-through monthly to certificate holders, and are guaranteed up to
certain amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the trustee or originator of the trust.
An investor's return on CARS may be affected by early prepayment of principal on
the underlying vehicle sales contracts. If the letter of credit is exhausted,
the trust may be prevented from realizing the full amount due on a sales
contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws, or other
factors. As a result, certificate holders may experience delays in payments or
losses if the letter of credit is exhausted. Certificates representing pools of
credit card receivables have similar characteristics, although the underlying
loans are unsecured.

Consistent with a Fund's investment objectives and policies, and subject to
the review and approval of the Funds' Board of Trustees, the Subadvisers also
may invest in other types of asset-backed securities.

OPTIONS ON SECURITIES. Each Fund (except Harbor Money Market Fund) may
purchase and write put and call options on the types of securities in which they
may invest.

Writing Options. Each Fund may write (sell) covered call and put options with
respect to up to 25% of its net assets. A call option written by a Fund
obligates the Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. All call options written by a Fund will be covered, which means that the
Fund will own the securities subject to the option so long as the option is
outstanding. A Fund's purpose in writing covered call options will be to realize
greater income than would be realized on portfolio securities transactions
alone. However, a Fund may forego the opportunity to profit from an increase in
the market price of the underlying security.

A put option written by a Fund would obligate the Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. All put options written by a
Fund would be

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<PAGE> 63

covered, which means that the Fund would have deposited with its Custodian cash
or high quality liquid securities with a value at least equal to the exercise
price of the put option. The purpose of writing such options will be to generate
additional income for the Fund. However, in return for the option premium, a
Fund will accept the risk that it will be required to purchase the underlying
securities at a price in excess of the market value of the securities at the
time of purchase.

A Fund may terminate its obligations under a call or put option by purchasing
an option identical to the one it has written. Such purchases are referred to as
"closing purchase transactions."

Purchasing Options. Each Fund may purchase put and call options on any
securities in which it may invest. A Fund is also authorized to enter into
closing sale transactions in order to realize gains or minimize losses on
options purchased by the Fund.

A Fund would normally purchase call options in anticipation of an increase in
the market value of securities of the type in which the Fund may invest. The
purchase of a call option would entitle a Fund, in return for the premium paid,
to purchase specified securities at a specified price during the option period.
A Fund would ordinarily realize a gain if, during the option period, the value
of such securities exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize a loss on the purchase of
the call option.

A Fund would normally purchase put options in anticipation of a decline in the
market value of securities in its portfolio ("protective puts") or securities of
the type in which it is permitted to invest. The purchase of a put option would
entitle a Fund, in exchange for the premium paid, to sell specified securities
at a specified price during the option period. The purchase of protective puts
is designed merely to offset or hedge against a decline in the market value of
the Fund's securities. Gains and losses on the purchase of protective put
options would tend to be offset by countervailing changes in the value of
underlying portfolio securities. A Fund would ordinarily realize a gain if,
during the option period, the value of the underlying securities decreased below
the exercise price sufficiently to cover the premium and transaction costs;
otherwise the Fund would realize a loss on the purchase of the put option.

Risks of Options Transactions. There is no assurance that a liquid secondary
market on a domestic or foreign options exchange will exist for any particular
exchange-traded option, or at any particular time, and for some options no
secondary market on an exchange or elsewhere may exist. If a Fund is unable to
effect a closing purchase transaction with respect to covered options it has
written, it will not be able to sell the underlying securities or dispose of
assets held in a segregated account until the options expire or are exercised.
Similarly, if a Fund is unable to effect a closing sale transaction with respect
to options it has purchased, it would have to exercise the options in order to
realize any profit and may incur transaction costs upon the purchase or sale of
underlying securities. Each Fund, other than Harbor Bond Fund and Harbor Short
Duration Fund, expects to purchase and write only exchange traded options until
such time as the Subadviser determines that the over-the-counter market in
options is sufficiently developed and appropriate disclosure is furnished to
prospective and existing shareholders. Harbor Bond Fund and Harbor Short
Duration Fund may purchase and sell both options that are traded on United
States and foreign exchanges and certain options traded in the over-the-counter
market, including options on GNMAs and short-term Treasury securities, as more
fully described in the Prospectus. Harbor Bond Fund and Harbor Short Duration
Fund may each engage in over-the-counter options

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<PAGE> 64

transactions with broker-dealers who make markets in these options.

The ability to terminate over-the-counter option positions is more limited
than with exchange-traded option positions because the predominant market is the
issuing broker rather than an exchange, and may involve the risk that broker-
dealers participating in such transactions will not fulfill their obligations.
To reduce this risk, Harbor Bond Fund and Harbor Short Duration Fund will
purchase such options only from broker-dealers whose debt securities are
considered investment grade by the Subadviser. Moreover, until such time as the
staff of the SEC changes its position, the Funds will adhere to the staff's
informal position that purchased over-the-counter options and assets used to
cover written over-the-counter options constitute illiquid securities.

Reasons for the absence of a liquid secondary market on an exchange include
the following: (i) there may be insufficient trading interest in certain
options; (ii) restrictions may be imposed by an exchange on opening transactions
or closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the facilities of an exchange or
the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or (vi) one or more exchanges could, for economic or
other reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in which event
the secondary market on that exchange (or in that class or series of options)
would cease to exist, although outstanding options on that exchange that had
been issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.

The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The writing of options on securities
involves a risk that a Fund will be required to sell or purchase such securities
at a price less favorable than the current market price and will lose the
benefit of appreciation or depreciation in the market price of such securities.
A Fund would incur brokerage commissions or spreads in connection with its
options transactions as well as for purchases and sales of underlying
securities. Brokerage commissions from options transactions may be higher or
lower than for portfolio securities transactions. The writing of options could
result in a significant increase in a Fund's portfolio turn-over rate.

OPTIONS ON SECURITIES INDICES. Each Fund, except Harbor Money Market Fund, may
purchase call and put options on securities indices for the purpose of hedging
against the risk of unfavorable price movements adversely affecting the value of
the Fund's securities or securities the Fund intends to buy. However, the Funds
currently do not expect to invest a substantial portion of their assets in
securities index options. Securities index options will not be used for
speculative purposes. Unlike a securities option, which gives the holder the
right to purchase or sell a specified security at a specified price, an option
on a securities index gives the holder the right to receive a cash "exercise
settlement amount" equal to (i) the difference between the exercise price of the
option and the value of the underlying securities index on the exercise date
multiplied by (ii) a fixed "index multiplier."

Currently, only options on stock indices are traded and only on national
securities exchanges. A securities index fluctuates with changes in the market
values of the securities included in the index. For example, some stock index
options are based on a broad market index such as the

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<PAGE> 65

S&P 500 or the Value Line Composite Index, or a narrower market index such as
the S&P 100. Indices may also be based on an industry or market segment such as
the AMEX Oil and Gas Index or the Computer and Business Equipment Index. Options
on stock indexes are currently traded on the Chicago Board Options Exchange, the
New York Stock Exchange and the American Stock Exchange.

A Fund may purchase put options in order to hedge against an anticipated
decline in securities market prices that might adversely affect the value of a
Fund's portfolio securities. If the Fund purchases a put option on a securities
index, the amount of the payment it would receive upon exercising the option
would depend on the extent of any decline in the level of the securities index
below the exercise price. Such payments would tend to offset a decline in the
value of the Fund's portfolio securities. However, if the level of the
securities index increases and remains above the exercise price while the put
option is outstanding, the Fund will not be able to profitably exercise the
option and will lose the amount of the premium and any transaction costs. Such
loss may be partially offset by an increase in the value of the Fund's portfolio
securities.

A Fund may purchase call options on securities indices in order to participate
in an anticipated increase in securities market prices or to lock in a favorable
price on securities that it intends to buy in the future. If the Fund purchases
a call option on a securities index, the amount of the payment it receives upon
exercising the option depends on the extent of any increase in the level of the
securities index above the exercise price. Such payments would, in effect, allow
the Fund to benefit from securities market appreciation even though it may not
have had sufficient cash to purchase the underlying securities. Such payments
may also offset increases in the price of securities that the Fund intends to
purchase. If, however, the level of the securities index declines and remains
below the exercise price while the call option is outstanding, the Fund will not
be able to exercise the option profitably and will lose the amount of the
premium and transaction costs. Such loss may be partially offset by a reduction
in the price the Fund pays to buy additional securities for its portfolio.

A Fund may write securities index options in order to close out positions in
securities index options which it has purchased. These closing sale transactions
enable the Fund immediately to realize gains or minimize losses on its options
positions. All securities index options purchased by a Fund will be listed and
traded on an exchange. However, there is no assurance that a liquid secondary
market on an options exchange will exist for any particular option, or at any
particular time, and for some options no secondary market may exist. In
addition, securities index prices may be distorted by interruptions in the
trading of securities of certain companies or of issuers in certain industries,
which could disrupt trading in options on such indices and preclude the Fund
from closing out its options positions. If the Fund is unable to effect a
closing sale transaction with respect to options that it has purchased, it would
have to exercise the options in order to realize any profit.

The hours of trading for options may not conform to the hours during which the
underlying securities are traded. To the extent that the options markets close
before the markets for the underlying securities, significant price and rate
movements can take place in the underlying markets that cannot be reflected in
the options markets. The purchase of options is a highly specialized activity
which involves investment techniques and risks different from those associated
with ordinary portfolio securities transactions.

The effectiveness of hedging through the purchase of securities index options
will depend

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<PAGE> 66

upon the extent to which price movements in the portion of the securities
portfolio being hedged correlate with price movements in the selected securities
index. Perfect correlation is not possible because the securities held or to be
acquired by a Fund will not exactly match the composition of the securities
indices on which options are available. In addition, the purchase of securities
index options involves the risk that the premium and transaction costs paid by
the Fund in purchasing an option will be lost as a result of unanticipated
movements in prices of the securities comprising the securities index on which
the option is based.

FUTURES CONTRACTS. Each Fund, except Harbor Money Market Fund, may enter into
futures contracts for the purchase or sale of individual securities and futures
contracts on securities indices which are traded on exchanges licensed and
regulated by the CFTC. A Fund may purchase and sell securities index futures for
bona fide hedging and non-hedging purposes. Contracts on individual securities
are currently available only with respect to U.S. Government securities and are
not believed to be suitable for hedging the equity portfolios. No futures
contracts on individual stocks or other equity securities are currently
available.

A Fund sells futures contracts in order to offset a possible decline in the
value of its securities. When a futures contract is sold by a Fund, the value of
the contract will tend to rise when the value of the Fund's securities declines
and will tend to fall when the value of such securities increases. A Fund
purchases futures contracts in order to fix what is believed to be a favorable
price for securities the Fund intends to purchase. If a futures contract is
purchased by a Fund, the value of the contract will tend to change together with
changes in the value of such securities.

A Fund may also purchase put and call options on futures contracts for bona
fide hedging and non-hedging purposes. A put option purchased by a Fund would
give it the right to assume a position as the seller of a futures contract. A
call option purchased by a Fund would give it the right to assume a position as
the purchaser of a futures contract. The purchase of an option on a futures
contract requires a Fund to pay a premium. In exchange for the premium, the Fund
becomes entitled to exercise the benefits, if any, provided by the futures
contract, but is not required to take any actions under the contract. If the
option cannot be profitably exercised before it expires, a Fund's loss will be
limited to the amount of the premium and any transaction costs.

In addition, a Fund may write (sell) put and call options on futures contracts
for bona fide hedging and non-hedging purposes. The writing of a put option on a
futures contract generates a premium, which may partially offset an increase in
the price of securities that a Fund intends to purchase. However, the Fund
becomes obligated to purchase a futures contract, which may have a value lower
than the exercise price. Conversely, the writing of a call option on a futures
contract generates a premium which may partially offset a decline in the value
of a Fund's assets. By writing a call option, the Fund becomes obligated, in
exchange for the premium, to sell a futures contract, which may have a value
higher than the exercise price.

A Fund may enter into closing purchase or sale transactions in order to
terminate a futures contract. A Fund may close out an option which it has
purchased or written by selling or purchasing an offsetting option of the same
series. There is no guarantee that such closing transactions can be effected. A
Fund's ability to enter into closing transactions depends on the development and
maintenance of a liquid market, which may not be available at all times.

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<PAGE> 67

Although futures and options transactions are intended to enable the Funds to
manage interest rate, stock market or currency exchange risks, unanticipated
changes in interest rates, market prices or currency exchange rates could result
in poorer performance than if the Funds had not entered into these transactions.
Even if the Subadviser correctly predicts interest rate, market price or
currency rate movements, a hedge could be unsuccessful if changes in the value
of a Fund's futures position did not correspond to changes in the value of its
investments. This lack of correlation between a Fund's futures and securities or
currency positions may be caused by differences between the futures and
securities or currency markets or by differences between the securities
underlying the Fund's futures position and the securities held by or to be
purchased for the Fund. The Subadvisers will attempt to minimize these risks
through careful selection and monitoring of each Fund's futures and options
positions. The ability to predict the direction of the securities markets,
interest rates and currency exchange rates involves skills different from those
used in selecting securities.

Futures on Securities. A futures contract on a security is a binding
contractual commitment which, if held to maturity, will result in an obligation
to make or accept delivery, of securities having a standardized face value and
rate of return during a particular month. By purchasing futures on securities, a
Fund will legally obligate itself to accept delivery of the underlying security
and pay the agreed price. By selling futures on securities, a Fund will legally
obligate itself to make delivery of the security and receive payment of the
agreed price. Open futures positions on securities are valued at the most recent
settlement price, unless such price does not reflect the fair value of the
contract, in which case the position will be valued by or under the direction of
the Trustees.

Futures contracts on securities are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities entered into by a Fund will
usually be liquidated in this manner, the Fund may instead make or take delivery
of the underlying securities whenever it appears economically advantageous for
it to do so. A clearing corporation associated with the exchange on which
futures on securities are traded assumes responsibility for closing out and
guarantees that, if still open, the sale or purchase of securities will be
performed on the settlement date.

Securities Index Futures. A securities index futures contract does not require
the physical delivery of securities, but merely provides for profits and losses
resulting from changes in the market value of the contract to be credited or
debited at the close of each trading day to the respective accounts of the
parties to the contract. On the contract's expiration date, a final cash
settlement occurs and the futures positions are simply closed out. Changes in
the market value of a particular securities index futures contract reflect
changes in the specified index of the securities on which the futures contract
is based.

Hedging Strategies. A Fund may sell a futures contract (i.e., assume the
position and obligations of the seller under the futures contract) in order to
hedge against adverse changes in the value of its securities. When hedging of
this character is successful, any depreciation in the value of a Fund's
securities will be substantially offset by appreciation in the value of the
Fund's futures position. Conversely, any increase in the value of a Fund's
securities is likely to be offset by a decrease in the value of its futures
position.

A Fund may purchase a futures contract (i.e., assume the position and
obligations of the purchaser under the futures contract) in order to establish a
favorable price for securities that it

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<PAGE> 68

intends to purchase in the future. This strategy is sometimes called an
anticipatory hedge. Since changes in the value of a futures contract purchased
by a Fund tend to correspond to changes in the value of the underlying
securities, any increase in the price of a security to be bought for the Fund
will generally be accompanied by appreciation in the value of its futures
position. On the other hand, a Fund will not receive the full benefit of a
decline in the price of securities it intends to acquire, because such decline
will generally be accompanied by depreciation in the value of its futures
position.

The prices of futures contracts depend primarily on the value or level of the
securities or indexes on which they are based. Because there is a limited number
of types of futures contracts, it is likely that the standardized futures
contracts available to a Fund will not exactly match the securities the Fund
wishes to hedge or intends to purchase, and consequently will not provide a
perfect hedge against all price fluctuation. To compensate for differences in
historical volatility between positions a Fund wishes to hedge and the
standardized futures contracts available to it, the Fund may purchase or sell
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase.

OPTIONS ON FUTURES. For bona fide hedging and other appropriate risk
management purposes, a Fund may also purchase and write call and put options on
futures contracts, which are traded on exchanges that are licensed and regulated
by the CFTC for the purpose of options trading. A "call" option on a futures
contract gives the purchaser the right, in return for the premium paid, to
purchase a futures contract (assume a "long" position) at a specified exercise
price by exercising the option at any time before the option expires. A "put"
option gives the purchaser the right, in return for the premium paid, to sell a
futures contract (assume a "short" position), for a specified exercise price, by
exercising the option at any time before the option expires.

Upon the exercise of a "call," the writer of the option is obligated to sell
the futures contract (i.e., deliver a "long" position to the option holder) at
the option exercise price, which will presumably be lower than the current
market price of the contract in the futures market. Upon exercise of a "put,"
the writer of the option is obligated to purchase the futures contract (i.e.,
deliver a "short" position to the option holder) at the option exercise price,
which will presumably be higher than the current market price of the contract in
the futures market. When the holder of an option exercises the option and
assumes a long futures position, in the case of a "call," or a short futures
position, in the case of a "put," the option holder's gain will be credited to
its futures margin account, while the loss suffered by the writer of the option
will be debited to its account. However, as with the trading of futures, most
participants in the options markets do not seek to realize their gains or losses
by exercise of their option rights. Instead, the holder of an option will
usually realize a gain or loss by buying or selling an offsetting option at a
market price that will reflect an increase or a decrease from the premium
originally paid.

Options on futures contracts can be used by a Fund to hedge substantially the
same risks as might be addressed by the direct purchase or sale of the
underlying futures contracts. If a Fund purchases an option on a futures
contract, it may obtain benefits similar to those that would result if it held
the futures position itself.

The purchase of a put option on a futures contract is a means of hedging a
Fund's portfolio against the risk of declining securities market prices. The
purchase of a call option on a futures contract represents a means of hedging
against a market advance when a Fund is not fully invested. Depending on the
pricing of the option compared

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<PAGE> 69

to either the futures contract upon which it is based or the underlying
securities or index, it may or may not be less risky than ownership of the
futures contract or underlying securities.

In contrast to a futures transaction, in which only transaction costs are
involved, benefits received in an option transaction will be reduced by the
amount of the premium paid as well as by transaction costs. In the event of an
adverse market movement, however, a Fund will not be subject to a risk of loss
on the option transaction beyond the price of the premium it paid plus its
transaction costs. Thus, a Fund may benefit from a favorable movement in the
value of its portfolio securities that would have been more completely offset if
the hedge had been effected through the use of futures contracts.

If a Fund writes options on futures contracts, the Fund will receive a
premium, but will assume a risk of adverse movement in the price of the
underlying futures contract comparable to that involved in holding a futures
position. If the option is not exercised, the Fund will realize a gain in the
amount of the premium, which may partially offset unfavorable changes in the
value of securities held by or to be acquired for the Fund. If the option is
exercised, the Fund will incur a loss in the option transaction. The loss will
be reduced by the amount of the premium it has received, but which may partially
offset favorable changes in the value of its portfolio securities or in the
price of securities to be acquired by the Fund.

While the holder or writer of an option on a futures contract may normally
terminate its position by selling or purchasing an offsetting option of the same
series, a Fund's ability to establish and close out options positions at fairly
established prices will be subject to the maintenance of a liquid market. A Fund
will not purchase or write options on futures contracts unless, in the
Subadviser's opinion, the market for such options has sufficient liquidity that
the risks associated with such options transactions are at acceptable levels.

LIMITATIONS ON TRANSACTIONS IN FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS. A Fund will engage in transactions in futures contracts and related
options only for bona fide hedging and other appropriate risk management
purposes, and not for speculation. A Fund may not purchase or sell futures
contracts or related options if immediately thereafter the sum of the amounts of
initial margin deposits on the Fund's existing futures contracts and premiums
paid for options on futures (net of the amount the positions are "in the money")
would exceed 5% of the market value of the Fund's total assets. In instances
involving the purchase of futures contracts or the writing of put options
thereon by a Fund, an amount of cash and cash equivalents, equal to the market
value of the futures contracts and options (less any related margin deposits),
will be deposited in a segregated account with its Custodian to collateralize
the position, thereby insuring that the use of such futures contracts and
options is unleveraged. In addition, each Fund expects that on 75% of the
occasions, it will purchase securities for its portfolio when it closes out long
futures positions, but under unusual market conditions, a Fund may terminate any
of such positions without a corresponding purchase of securities. As an
alternative, a Fund may comply with a different test, under which its long
futures positions will not exceed the sum of (a) cash or cash equivalents
segregated for this purpose, (b) cash proceeds on existing investments due
within 30 days and (c) accrued profits on the particular futures or options
positions.

The extent to which a Fund may enter into futures contracts and option
transactions may be limited by the requirements of federal income tax law for
qualification as a regulated investment company and each Fund's intention to
qualify as such.

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<PAGE> 70

Although futures and related options transactions are intended to enable a
Fund to manage interest rate or market risk, unanticipated changes in interest
rates or securities prices could result in poorer performance than if it had not
entered into these transactions. Even if the Subadviser correctly predicts
interest rate or market price movements, a hedge could be unsuccessful if
changes in the value of a Fund's futures position did not correspond to changes
in the value of its investments. This lack of correlation between a Fund's
futures and securities positions may be caused by differences between the
futures and securities markets or by differences between the securities in the
index underlying the Fund's futures position and the securities held by or to be
purchased for the Fund. The Subadvisers will attempt to minimize these risks
through careful selection and monitoring of a Fund's futures and related options
positions.

FOREIGN CURRENCY TRANSACTIONS. Harbor International Growth Fund, Harbor
International Fund, Harbor Bond Fund and Harbor Short Duration Fund may engage
in foreign currency exchange transactions. Foreign currency exchange
transactions will be conducted either on a spot (i.e., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or through entering
into forward contracts to purchase or sell foreign currencies. Each Fund may
enter into forward foreign currency exchange contracts in order to protect
against uncertainty in the level of future foreign currency exchange rates and
Harbor Bond Fund and Harbor Short Duration Fund may also enter forward foreign
currency exchange contracts for non-hedging purposes. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days (usually less than one
year) from the date of the contract agreed upon by the parties, at a price set
at the time of the contract. These contracts are traded in the interbank market
conducted directly between traders (usually large commercial banks) and their
customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for trades. Although foreign exchange
dealers do not charge a fee for conversion, they do realize a profit based on
the difference (the spread) between the price at which they are buying and
selling various currencies.

A Fund may enter into a contract for the purchase or sale of a security
denominated in a foreign currency to "lock in" the U.S. dollar price of the
security. By entering into a forward contract for the purchase or sale, for a
fixed amount of U.S. dollars, of the amount of foreign currency involved in the
underlying security transactions, the Fund will be able to protect itself
against a possible loss. Such loss would result from an adverse change in the
relationship between the U.S. dollar and the foreign currency during the period
between the date on which the security is purchased or sold and the date on
which payment is made or received.

When a Subadviser believes that the currency of a particular foreign country
may suffer a substantial decline against the U.S. dollar, it may also enter into
a forward contract to sell the amount of foreign currency for a fixed amount of
dollars which approximates the value of some or all of the relevant Fund's
portfolio securities denominated in such foreign currency. The precise matching
of the forward contract amounts and the value of the securities involved will
not generally be possible, since the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
those securities between the date the forward contract is entered into and the
date it matures.

Harbor Bond Fund and Harbor Short Duration Fund may also engage in
cross-hedging by using foreign contracts in one currency to hedge against
fluctuations in the value of securities denominated in a different currency if
the Fund's Subadviser determines that there is a pattern of

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<PAGE> 71

correlation between the two currencies. Each of Harbor Bond Fund and Harbor
Short Duration Fund may also purchase and sell forward contracts for non-hedging
purposes when its Subadviser anticipates that the foreign currency will
appreciate or depreciate in value, but securities in that currency do not
present attractive investment opportunities and are not held in the Fund's
portfolio.

When a Fund engages in foreign currency exchange contracts for hedging
purposes, it will not enter into forward contracts to sell currency or maintain
a net exposure to such contracts if their consummation would obligate the Fund
to deliver an amount of foreign currency in excess of the value of the Fund's
portfolio securities or other assets denominated in that currency. At the
consummation of the forward contract, the Fund may either make delivery of the
foreign currency or terminate its contractual obligation to deliver by
purchasing an offsetting contract obligating it to purchase the same amount of
such foreign currency at the same maturity date. If the Fund chooses to make
delivery of the foreign currency, it may be required to obtain such currency
through the sale of portfolio securities denominated in such currency or through
conversion of other assets of the Fund into such currency. If the Fund engages
in an offsetting transaction, it will incur a gain or a loss to the extent that
there has been a change in forward contract prices. Closing purchase
transactions with respect to forward contracts are usually made with the
currency trader who is a party to the original forward contract.

Each Fund's transactions in forward contracts will be limited to the
transactions described above. A Fund is not required to enter into such
transactions and will not do so unless deemed appropriate by its Subadviser. The
Funds generally will not enter into a forward contract with a term of greater
than one year. Each Fund may experience delays in the settlement of its foreign
currency transactions.

A Fund will place cash which is not available for investment, or liquid equity
or high grade debt securities (denominated in the foreign currency subject to
the forward contract) in a separate account. The amounts in such separate
account will equal the value of the Fund's total assets which are committed to
the consummation of foreign currency exchange contracts entered into as a hedge
against a decline in the value of a particular foreign currency. If the value of
the securities placed in the separate account declines, the Fund will place
additional cash or securities in the account on a daily basis so that the value
of the account will equal the amount of the Fund's commitments with respect to
such contracts.

Using forward contracts to protect the value of a Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which can be achieved at some future point in time. The precise
projection of short-term currency market movements is not possible, and
short-term hedging provides a means of fixing the dollar value of only a portion
of a Fund's foreign assets.

While a Fund may enter into forward foreign currency exchange contracts to
reduce currency exchange rate risks, transactions in such contracts involve
certain other risks. Thus, while a Fund may benefit from such transactions,
unanticipated changes in currency prices may result in a poorer overall
performance for the Fund than if it had not engaged in any such transactions.
Moreover, there may be imperfect correlation between a Fund's portfolio holdings
of securities denominated in a particular currency and forward contracts entered
into by the Fund. Such imperfect correlation may cause a Fund to sustain losses
which will prevent the Fund from achieving a

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<PAGE> 72

complete hedge or expose the Fund to risk of foreign exchange loss.

An issuer of fixed income securities purchased by Harbor Bond Fund or Harbor
Short Duration Fund may be domiciled in a country other than the country in
whose currency the instrument is denominated. The Fund may also invest in debt
securities denominated in the European Currency Unit ("ECU"), which is a
"basket" consisting of a specified amount, in the currencies of certain of the
twelve member states of the European Community. The specific amounts of
currencies comprising the ECU may be adjusted by the Council of Ministers of the
European Community from time to time to reflect changes in relative values of
the underlying currencies. In addition, the Fund may invest in securities
denominated in other currency "baskets."

A Fund's activities in foreign currency contracts, currency futures contracts
and related options and currency options (see below) may be limited by the
requirements of Subchapter M of the Internal Revenue Code for qualification as a
regulated investment company.

CURRENCY FUTURES AND RELATED OPTIONS. Harbor International Growth Fund, Harbor
International Fund, Harbor Bond Fund and Harbor Short Duration Fund may enter
into currency futures contracts and options on such futures contracts. A Fund
may sell a currency futures contract or a call option, or it may purchase a put
option on such futures contract, if its Subadviser anticipates that exchange
rates for a particular currency will fall. Such a transaction will be used as a
hedge (or, in the case of a sale of a call option, a partial hedge) against a
decrease in the value of the Fund's securities denominated in such currency. If
the Subadviser anticipates that exchange rates will rise, the Fund may purchase
a currency futures contract or a call option to protect against an increase in
the price of securities which are denominated in a particular currency and which
the Fund intends to purchase. Each Fund will use these futures contracts and
related options for hedging or non-hedging purposes as defined in Commodity
Futures Trading Commission ("CFTC") regulations.

The sale of a currency futures contract creates an obligation by a Fund, as
seller, to deliver the amount of currency called for in the contract at a
specified future time for a specified price. The purchase of a currency futures
contract creates an obligation by a Fund, as purchaser, to take delivery of an
amount of currency at a specified future time at a specified price. Although the
terms of currency futures contracts specify actual delivery or receipt, in most
instances the contracts are closed out before the settlement date without the
making or taking of delivery of the currency. Closing out of a currency futures
contract is effected by entering into an offsetting purchase or sale
transaction. To offset a currency futures contract sold by a Fund, that Fund
purchases a currency futures contract for the same aggregate amount of currency
and same delivery date. If the price in the sale exceeds the price in the
offsetting purchase, the Fund is immediately paid the difference. Similarly, to
close out a currency futures contract purchased by a Fund, that Fund sells a
currency futures contract. If the offsetting sale price exceeds the purchase
price, the Fund realizes a gain. Likewise, if the offsetting sale price is less
than the purchase price, the Fund realizes a loss.

Unlike a currency futures contract, which requires the parties to buy and sell
currency on a set date, an option on a futures contract entitles its holder to
decide on or before a future date whether to enter into such a contract. If the
holder decides not to enter into the contract, the premium paid for the option
is lost. Since the value of the option is fixed at the point of sale, there are
no daily payments of cash for "variation" or "maintenance" margin payments to
reflect the change in the value of the underlying contract as there are

20
<PAGE> 73

by a purchaser or seller of a currency futures contract. The value of the option
does not change and is reflected in the net asset value of the Fund.

Each Fund is required to maintain margin deposits with brokerage firms through
a custodial subaccount by which it effects currency futures contracts and
options thereon. In addition, due to current industry practice, daily variation
margin payments in cash are required to reflect gains and losses on open
contracts. The Fund may be required to make additional margin payments during
the term of a futures contract.

A risk in employing currency futures contracts to protect against price
volatility of portfolio securities, which are denominated in a particular
currency, is that the prices of such securities subject to currency futures
contracts may not completely correlate with the behavior of the cash prices of
the Fund's securities. The correlation may be distorted by the fact that the
currency futures market may be dominated by short-term traders seeking to profit
from changes in exchange rates. This would reduce the value of such contracts
used for hedging purposes over a short-term period. Such distortions are
generally minor and would diminish as the contract approached maturity. Another
risk is that a Fund's Subadviser could be incorrect in its expectation as to the
direction or extent of various exchange rate movements or the time span within
which the movements take place. Put and call options on currency futures have
characteristics similar to those of other options.

In addition to the risks associated with investing in options on securities,
there are particular risks associated with transactions in options on currency
futures. In particular, the ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid secondary
market.

A Fund may not enter into currency futures contracts (and stock index futures)
or related options if immediately thereafter the amount committed to margin plus
the amount paid for premiums for unexpired options (net of the amount the
positions are "in the money") on currency futures contracts (and stock index
futures contracts) exceeds 5% of the market value of such Fund's total assets.
In instances involving the purchase of currency futures contracts, an amount
equal to the market value of the currency futures contract will be deposited in
a segregated account of securities, cash, and cash equivalents to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.

OPTIONS ON FOREIGN CURRENCIES. Each Fund may purchase and write options on
foreign currencies for hedging purposes in a manner similar to that of
transactions in currency futures contracts or forward contracts. For example, a
decline in the dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities, even if their
value in the foreign currency remains constant. In order to protect against such
decreases in the value of portfolio securities, a Fund may purchase put options
on the foreign currency. If the value of the currency declines, the Fund will
have the right to sell such currency for a fixed amount of dollars which exceeds
the market value of such currency. This would result in a gain that may offset,
in whole or in part, the negative effect of currency depreciation on the value
of the Fund's securities denominated in that currency.

Conversely, if a rise in the dollar value of a currency is projected for those
securities to be acquired, thereby increasing the cost of such securities, a
Fund may purchase call options on such currency. If the value of such currency
increases, the purchase of such call options would enable the Fund to purchase
currency for a fixed amount of dollars which is less than the market value of
such currency. Such a purchase would result in a gain that may offset, at least
partially,

21
<PAGE> 74

the effect of any currency related increase in the price of securities the Fund
intends to acquire. As in the case of other types of options transactions,
however, the benefit the Fund derives from purchasing foreign currency options
will be reduced by the amount of the premium and related transaction costs. In
addition, if currency exchange rates do not move in the direction or to the
extent anticipated, the Fund could sustain losses on transactions in foreign
currency options which would deprive it of a portion or all of the benefits of
advantageous changes in such rates.

Each Fund may also write options on foreign currencies for hedging purposes.
For example, if a Fund anticipated a decline in the dollar value of foreign
currency denominated securities because of declining exchange rates, it could,
instead of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most likely not be
exercised, and the decrease in value of portfolio securities will be offset by
the amount of the premium received by the Fund.

Similarly, a Fund could write a put option on the relevant currency, instead
of purchasing a call option, to hedge against an anticipated increase in the
dollar cost of securities to be acquired. If exchange rates move in the manner
projected, the put option will expire unexercised and allow the Fund to offset
such increased cost up to the amount of the premium. However, as in the case of
other types of options transactions, the writing of a foreign currency option
will constitute only a partial hedge up to the amount of the premium, only if
rates move in the expected direction. If unanticipated exchange rate
fluctuations occur, the option may be exercised and a Fund would be required to
purchase or sell the underlying currency at a loss which may not be fully offset
by the amount of the premium. As a result of writing options on foreign
currencies, the Fund also may be required to forego all or a portion of the
benefits which might otherwise have been obtained from favorable movements in
currency exchange rates.

Harbor Bond Fund and Harbor Short Duration Fund may each purchase call options
on currency for non-hedging purposes when its Subadviser anticipates that the
currency will appreciate in value, but the securities denominated in that
currency do not present attractive investment opportunities and are not included
in the Fund's portfolio. Each Fund may write (sell) covered put and call options
on any currency in order to realize greater income than would be realized on
portfolio securities alone. However, in writing covered call options for
additional income, a Fund may forego the opportunity to profit from an increase
in the market value of the underlying currency. Also, when writing put options,
a Fund accepts, in return for the option premium, the risk that it may be
required to purchase the underlying currency at a price in excess of the
currency's market value at the time of purchase.

Harbor Bond Fund and Harbor Short Duration Fund would normally purchase call
options for non-hedging purposes in anticipation of an increase in the market
value of a currency. A Fund would ordinarily realize a gain if, during the
option period, the value of such currency exceeded the sum of the exercise
price, the premium paid and transaction costs. Otherwise the Fund would realize
either no gain or a loss on the purchase of the call option. Put options may be
purchased by a Fund for the purpose of benefiting from a decline in the value of
currencies which it does not own. A Fund would ordinarily realize a gain if,
during the option period, the value of the underlying currency decreased below
the exercise price sufficiently to more than cover the premium and transaction
costs. Otherwise the Fund would realize either no gain or a loss on the purchase
of the put option.

A call option written on foreign currency by a Fund is "covered" if the Fund
owns the underlying foreign currency subject to the call, or if it has

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<PAGE> 75

an absolute and immediate right to acquire that
foreign currency without additional cash consideration. This also would apply to
additional cash consideration held in a segregated account by its custodian,
upon conversion or exchange of other foreign currency held in its portfolio. A
call option is also covered if a Fund holds a call on the same foreign currency
for the same principal amount as the call written where the exercise price of
the call held is (a) equal to or less than the exercise price of the call
written or (b) greater than the exercise price of the call written if the amount
of the difference is maintained by the Fund in cash and high grade government
securities in a segregated account with its custodian.

U.S. GOVERNMENT SECURITIES. Securities issued or guaranteed as to principal
and interest by the U.S. Government may be acquired by a Fund in the form of
custodial receipts that evidence ownership of future interest payments,
principal payments or both on certain U.S. Treasury notes or bonds. Such notes
and bonds are held in custody by a bank on behalf of the owners. These custodial
receipts are known by various names, including "Treasury Receipts," "Treasury
Investment Growth Receipts" ("TIGR's"), and "Certificates of Accrual on Treasury
Securities" ("CATS"). A Fund may also invest in separately traded principal and
interest components of securities issued or guaranteed by the U.S. Treasury. The
principal and interest components of selected securities are traded
independently under the Separate Trading of Registered Interest and Principal of
Securities program ("STRIPS"). Under the STRIPS program, the principal and
interest components are individually numbered and separately issued by the U.S.
Treasury at the request of depository financial institutions, which then trade
the component parts independently.

INVESTMENT RESTRICTIONS

The following restrictions may not be changed with respect to any Fund without
the approval of the majority of outstanding voting securities of that Fund
(which, under the Investment Company Act and the rules thereunder and as used in
the Prospectus and this Statement of Additional Information, means the lesser of
(1) 67% of the shares of that Fund present at a meeting if the holders of more
than 50% of the outstanding shares of that Fund are present in person or by
proxy, or (2) more than 50% of the outstanding shares of that Fund). Investment
restrictions that involve a maximum percentage of securities or assets shall not
be considered to be violated unless an excess over the percentage occurs
immediately after, and is caused by, an acquisition or encumbrance of securities
or assets of, or borrowings by or on behalf of, a Fund with the exception of
borrowings permitted by Investment Restriction (3) listed below.

Harbor may not, on behalf of any Fund:

(1) invest more than 5% of the value of the total assets of a Fund (with
respect to 75% of the relevant Fund's total assets taken at market value) in the
securities of any one issuer, except U.S. Government securities;

(2) purchase the securities of any issuer if such purchase would cause more
than 10% of the voting securities of such issuer to be held by a Fund (with
respect to 75% of the relevant Fund's total assets taken at market value);

(3) borrow money except from banks on a temporary basis for extraordinary or
emergency purposes, provided that a Fund is required to maintain asset coverage
of 300% for all borrowing. This restriction does not apply to (i) cash
collateral received as a result of portfolio securities lending; or (ii) to
Harbor Value Fund and Harbor Short Duration Fund, except that each such

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<PAGE> 76

Fund is required to maintain asset coverage of 300% for all borrowing.

(4) act as underwriter of the securities issued by others, except to the
extent that the purchase of securities in accordance with a Fund's investment
objective and policies directly from the issuer thereof and the later
disposition thereof may be deemed to be underwriting;

(5) purchase securities if such purchase would cause more than 25% in the
aggregate of the market value of the total assets of a Fund to be invested in
the securities of one or more issuers having their principal business activities
in the same industry, other than U.S. Government securities (for the purposes of
this restriction, (i) telephone companies are considered to be a separate
industry from gas or electric utilities, (ii) wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of the parents and (iii) privately
issued mortgage-backed securities collateralized by mortgages insured or
guaranteed by the U.S. Government, its agencies or instrumentalities do not
represent interests in any industry) except that (a) more than 25% of the market
value of the total assets of Harbor Money Market Fund may be invested in the
securities of banks and bank holding companies, including certificates of
deposit and bankers' acceptances; and (b) Harbor International Growth Fund will
concentrate in any one of three designated industries: pharmaceuticals, banking
and telephone companies (the "Designated Industries") when the Subadviser deems
securities in any one of the Designated Industries to be a good relative value
(as defined in the Prospectus) by investing from 25% to 40% of the value of its
total assets in the securities of such Designated Industry.

(6) issue senior securities, except as permitted under the Investment Company
Act, and except that Harbor Fund may issue shares of beneficial interest in
multiple series or classes.

(7) purchase or sell real estate (including limited partnership interests but
excluding securities secured by real estate or interests therein), interests in
oil, gas or mineral leases, commodities or commodities contracts, except futures
contracts, including but not limited to contracts for the future delivery of
securities and futures contracts based on securities indexes, or engage in
arbitrage transactions. Foreign currency, forward foreign currency exchange
contracts, options on currency, currency futures contracts and options on such
futures contracts are not deemed to be prohibited commodities or commodities
contracts for the purpose of this restriction;

(8) make loans to other persons, except loans of portfolio securities and
except to the extent that the purchase of debt obligations and the entry into
repurchase agreements in accordance with such Fund's investment objectives and
policies may be deemed to be loans;

(9) purchase securities of any issuer with a record of less than three years'
continuous operation, including predecessors, except U.S. Government securities
and except securities of such issuers which are rated by at least one nationally
recognized statistical rating organization (and, with respect to Harbor
International Growth Fund, Harbor International Fund and Harbor Bond Fund,
except obligations issued or guaranteed by any foreign government or its
agencies or instrumentalities), if such purchase would cause the investments of
a Fund in all such issuers to exceed 5% of the value of the total assets of that
Fund;

(10) purchase from or sell portfolio securities of a Fund to any of the
officers or Trustees of Harbor Fund, its investment advisers, its principal
underwriter or the officers or directors of its investment advisers or principal
underwriter;

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<PAGE> 77

(11) pledge, mortgage or hypothecate its assets, except that, to secure
permitted borrowings, it may pledge securities having a market value at the time
of pledge not exceeding 15% of the cost of a Fund's total assets and except in
connection with permitted transactions in options, futures contracts and options
on futures contracts;

(12) invest in other companies for the purpose of exercising control or
management.

"Value" for the purposes of all investment restrictions shall mean the value
used in determining a Fund's net asset value. "U.S. Government securities" shall
mean securities issued or guaranteed by the U.S. Government or any of its
agencies or instrumentalities.

Notwithstanding investment restriction Number 1, as long as Harbor Money
Market Fund intends to rely on the amortized cost method of valuation, the Fund
will comply with the diversification test described in the Prospectus under the
caption "Harbor Money Market Fund Objective and Policies."

Harbor Fund has also adopted the following fundamental policy: Harbor Fund
and/or each of its series as may be established from time to time, may,
notwithstanding any other fundamental investment restriction or policy, invest
all of its assets in the securities of a single open-end investment company with
substantially the same fundamental investment objectives, restrictions and
policies as Harbor Fund and/or each of its series.

In addition to the investment restrictions and policies mentioned above, the
Trustees of Harbor have voluntarily adopted the following policies and
restrictions which are observed in the conduct of the affairs of the Funds.
These represent intentions of the Trustees based upon current circumstances.
They differ from fundamental investment policies in that they may be changed or
amended by action of the Trustees without prior notice to or approval of
shareholders. Accordingly, a Fund may not:

(a) purchase securities of other investment companies, (i) except by
purchase in the open market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary broker's
commission, (ii) except when such purchase is part of a plan of merger,
consolidation, reorganization or acquisition, or (iii) except that Harbor
International Growth Fund and Harbor International Fund may each purchase
the securities of open-end investment companies, provided that, immediately
after such purchase, Harbor International Growth Fund and Harbor
International Fund will not own, respectively, in the aggregate (A) more
than 3% of any such company's total outstanding voting stock, (B)
securities of any such company having an aggregate value of more than 5% of
the respective Fund's total assets or (C) securities of all such companies
having an aggregate value of more than 10% of the respective Fund's total
assets. Foreign banks or their agencies or subsidiaries are not considered
investment companies for the purposes of this limitation;

(b) purchase warrants of any issuer, except on a limited basis if, as
a result of such purchases by a Fund, more than 2% (5% in the case of
Harbor International Growth Fund) of the value of its total assets would be
invested in warrants which are not listed on the New York Stock Exchange,
the American Stock Exchange or, in the case of Harbor International Growth
Fund, warrants that are not listed on comparable international exchanges,
or if more than 5% of the value of the total assets of a Fund would be
invested in warrants, whether or not so listed, such warrants in each case
to be

25
<PAGE> 78

valued at the lesser of cost or market, but
assigning no value to warrants acquired by a Fund in units with or attached
to debt securities;

(c) purchase securities on margin or make short sales unless (i) at
all times when a short position is open, a Fund owns an equal amount of
such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as,
and equal in amount to, the securities sold short, or (ii) for the purpose
of hedging the Fund's exposure to an actual or anticipated market decline
in the value of its investments, except that Harbor may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities (and in connection with transactions involving forward
foreign currency exchange contracts);

(d) purchase or sell any put or call options or any combination
thereof, except that Harbor may (i) purchase and sell or write options on
any futures contracts into which it may enter, (ii) purchase put and call
options on securities, on securities indexes and on currencies, (iii) write
covered put and call options on securities and on currencies, and (iv)
engage in closing purchase transactions with respect to any put or call
option purchased or written by a Fund, provided that the aggregate value of
premiums paid by the Fund for all of such options shall not exceed 20% of
that Fund's net assets;

(e) acquire put and call options with a market value exceeding 5% of
the value of a Fund's total assets;

(f) enter into repurchase agreements or purchase any securities, if,
as a result thereof, more than 15% (10% in the case of Harbor Money Market
Fund) of the net assets of a Fund (taken at market value) would be, in the
aggregate, invested in repurchase agreements maturing in more than seven
days or in securities which are not readily marketable, including any
investments in unregistered securities that are not sold pursuant to Rule
144A (which are limited to 10% of a Fund's investments); or

(g) purchase additional securities while borrowings by a Fund exceed
5% of the market value of a Fund's total assets, except that the 5% limit
will not apply to Harbor Value Fund and Harbor Short Duration Fund.

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TRUSTEES AND OFFICERS

Information pertaining to the Trustees and officers of Harbor is set forth
below. Trustees and officers deemed to be "interested persons" of

Harbor for purposes of the Investment Company Act are indicated by an asterisk.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS POSITIONS WITH FUND DURING PAST FIVE YEARS
- ------------------------- --------------------- --------------------------------------------
<S> <C> <C>
Ronald C. Boller* Chairman, President Vice-President-Investments, Owens-Illinois,
One SeaGate and Trustee Inc. (May, 1992-Present); Vice President and
Toledo, OH 43666 Director, Benefit and Risk Finance,
Owens-Illinois, Inc. (January, 1991-May,
1992); Vice President and Director, Benefit
Finance, Owens-Illinois, Inc. (April,
1988-December, 1990); Director and
President, Harbor Capital Advisors, Inc.
(1983-Present); and Director, President,
Treasurer and Secretary of HCA Securities,
Inc. ("HCA Securities"); and President,
Harbor Transfer, Inc. ("Harbor Transfer").

Howard P. Colhoun Trustee General Partner, Emerging Growth Partners,
401 E. Pratt Street L.P. (investing in small companies) (since
Baltimore, MD 21202 1982); Vice President and Director of Mutual
Funds,
T. Rowe Price Associates, Inc. (prior to
1982).

John P. Gould Trustee Distinguished Service Professor of
1101 E. 58th Street Economics, Graduate School of Business,
Chicago, IL 60637 University of Chicago (1984-Present) and
Dean of Graduate School of Business,
University of Chicago (1983-1993).

Rodger F. Smith Trustee Partner, Greenwich Associates (a business
Office Park Eight strategy, consulting and research firm
Greenwich, CT 06830 (since 1975).

Constance L. Souders* Secretary and Senior Vice-President, Treasurer, Secretary
One SeaGate Treasurer and Director of Accounting and Fiduciary
Toledo, OH 43666 Operations, Harbor Capital Advisors, Inc.
(May, 1992-Present); Manager, Employee
Benefit Plan Asset Administration,
Owens-Illinois, Inc. (July, 1988- May,
1992); Vice President and Director, Harbor
Transfer; and Director, HCA Securities.
</TABLE>

As of December 14, 1995, the Trustees and officers of Harbor Fund as a group
owned less than 1% of the outstanding shares of beneficial interest of each of
the Funds, except that such Trustees and officers of Harbor Fund owned 1.06% of
the outstanding shares of beneficial interest of Harbor Money Market Fund as of
December 14, 1995.

27
<PAGE> 80

THE ADVISER, SUBADVISERS, DISTRIBUTOR AND
SHAREHOLDER SERVICING AGENT

THE ADVISER. Harbor Capital Advisors, Inc., a Delaware corporation, is the
investment adviser (the "Adviser") for each Fund. The Adviser is responsible to
manage each Fund's assets or to supervise the management of each Fund by one or
more subadvisers (each, a "Subadviser"). Harbor Fund, on behalf of each Fund,
has entered into separate investment advisory agreements (each, an "Investment
Advisory Agreement") each of which provides that the Adviser shall provide the
Fund with investment research, advice and supervision and will furnish
continuously an investment program for the Fund consistent with the investment
objectives and policies of the Fund. The Adviser is responsible for the payment
of the salaries and expenses of all personnel of Harbor Fund except the fees and
expenses of Trustees not affiliated with the Adviser or a Subadviser, office
rent and the expenses of providing investment advisory, research and statistical
facilities and related clerical expenses.

For its services, each Fund pays the Adviser an advisory fee which is a stated
percentage of the Fund's average annual net assets. The table below sets forth
for each Fund the advisory fee rate, the fees paid to the Adviser for the past
three fiscal years and the effect of any expense limitation in effect for the
past three fiscal years which reduced the advisory fee paid.

<TABLE>
<CAPTION>
FEE PAID FOR YEAR ENDED
ADVISORY FEE OCTOBER 31
% OF AVERAGE -----------------------------------------
FUND ANNUAL NET ASSETS 1995 1994 1993
- ----------------------------------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
International Growth Fund.......... .75% $ 655,678 $ 369,744 N/A
(Credit due to expense (88,294) (123,966) N/A
limitation)
International Fund................. .85% 26,318,745 22,830,976 $10,765,693
(Credit due to expense (1,068,227) (699,926) (75,093)
limitation)
Growth Fund........................ .75% 1,035,019 1,251,474 1,533,934
Capital Appreciation Fund.......... .60% 3,073,982 1,005,758 724,033
Value Fund......................... .60% 411,395 363,820 429,132
Bond Fund.......................... .70% 1,318,022 1,179,406 790,885
(Credit due to expense (471,474) (421,216) (340,721)
limitation)
Short Duration Fund................ .40% 435,320 490,784 622,399
(Credit due to expense (217,937) (245,916) (311,124)
limitation)
Money Market Fund.................. .30% 196,587 170,670 148,707
(Credit due to expense (78,676) (68,406) (59,700)
limitation)
</TABLE>

28
<PAGE> 81

THE SUBADVISERS. The Adviser has engaged the services of several subadvisers
(each, a "Subadviser") to assist with the portfolio management of each Fund. The
Subadvisers are:

HARBOR INTERNATIONAL GROWTH FUND
HARBOR CAPITAL APPRECIATION FUND
Jennison Associates Capital Corp.

HARBOR INTERNATIONAL FUND
Northern Cross Investments Limited

HARBOR GROWTH FUND
Nicholas-Applegate Capital Management

HARBOR VALUE FUND

DePrince, Race & Zollo, Inc.

Richards & Tierney, Inc.

HARBOR BOND FUND
Pacific Investment Management Company

HARBOR SHORT DURATION FUND
HARBOR MONEY MARKET FUND
Fischer Francis Trees & Watts, Inc.

Additional information about the Subadvisers is set forth in the Prospectus.

The Adviser pays each Subadviser out of its own resources; the Funds have no
obligation to pay the Subadvisers. Each Subadviser has entered into a
subadvisory agreement (each, a "Subadvisory Agreement") with the Adviser and
Harbor Fund, on behalf of each Fund. Each Subadviser is responsible to provide
the Fund with advice concerning the investment management of the Fund's
portfolio, which advice shall be consistent with the investment objectives and
policies of the Fund. The Subadviser determines what securities shall be
purchased, sold or held for the Fund and what portion of the Fund's assets are
held uninvested. Each Subadviser is responsible to bear its own costs of
providing services to the respective Fund. Each Subadviser's subadvisory fee
rate is based on a stated percentage of the Fund's average annual net assets and
is described in the Prospectus. The fees paid by the Adviser to the Subadviser
for the past three years are set forth in the table below.

<TABLE>
<CAPTION>
FEES PAID BY THE ADVISER TO SUBADVISER
FOR YEARS ENDED OCTOBER 31
-----------------------------------------------
FUND 1995 1994 1993
- -------------------------------------------------------- ----------- ----------- ----------
<S> <C> <C> <C>
International Growth Fund............................... $ 445,404 $ 262,015 N/A
International Fund...................................... $17,463,285 $15,517,331 $3,465,849(a)
$1,960,971(b)
Growth Fund............................................. $ 776,195 $ 921,514 $ 569,233
Capital Appreciation Fund............................... $ 1,352,840 $ 488,422 $ 303,178
Value Fund
DRZ................................................... $ 114,432(f) N/A N/A
Sunbank............................................... $ 82,551(e) $ 52,042(d) $ 207,881(c)
Richards & Tierney.................................... $ 42,786 $ 37,839 N/A
Bond Fund............................................... $ 536,215 $ 473,033 247,462
Short Duration Fund..................................... $ 181,871 $ 188,949 $ 247,499
Money Market Fund....................................... $ 113,160 $ 96,558 $ 84,824
</TABLE>

- -------------------------

(a) For the period from November 1, 1992 to April 1, 1993, the subadviser to
Harbor International Fund was Boston Overseas Investors, Inc.

(b) Fee paid from April 1, 1993 to October 31, 1993 to Northern Cross.

(c) Paid to Barrow, Hanley, Mewhinney and Strauss, Inc. ("Barrow"), the
subadviser of a portion of the Fund's assets until July 1, 1994.

(d) Paid to SunBank for the period from July 1, 1994 to October 31, 1994. For
the period from November 1, 1993 to July 1, 1994, Barrow received $94,405.

(e) Paid to SunBank for the period from November 1, 1994 to April 20, 1995.

(f) Fee paid from April 21, 1995 to October 31, 1995.

29
<PAGE> 82

OTHER INFORMATION. The Investment Advisory Agreements and Subadvisory
Contracts remain in effect initially for a two year term and continue in effect
thereafter only if such continuance is specifically approved at least annually
by the Trustees or by vote of a majority of the outstanding voting securities of
the Fund (as defined in the Investment Company Act) and, in either case, by a
majority of the Trustees who are not interested persons of Harbor, the Adviser
or the Subadviser. The Investment Advisory Agreements and Subadvisory Contracts
provide that the Adviser and Subadvisers shall not be liable to a Fund (or the
Adviser, in the case of the Subadvisory Contracts) for any error of judgment by
the Adviser or Subadviser or for any loss sustained by the Fund except in the
case of the Adviser's or Subadviser's willful misfeasance, bad faith, gross
negligence or reckless disregard of duty. Each Investment Advisory Agreement and
Subadvisory Contract also provides that it shall terminate automatically if
assigned and that it may be terminated without penalty by vote of a majority of
the outstanding voting securities of the Fund or by either party upon 60 days'
written notice. The Adviser has authorized each of its directors, officers and
employees who has been elected or appointed as a Trustee or officer of Harbor to
serve in the capacities in which he has been elected or appointed. No person
other than the Adviser, the Subadvisers and their respective directors and
employees regularly furnishes advice to the Funds with respect to the
desirability of a Fund's investing in, purchasing or selling securities.

DISTRIBUTOR AND SHAREHOLDER SERVICING AGENT. HCA Securities, Inc. (the
"Distributor") acts as the principal underwriter and distributor of each Fund's
shares and continually offers shares of the Funds pursuant to a distribution
agreement approved by the Trustees. The directors of the Distributor are Ronald
C. Boller, Janice D. Osthimer and Constance L. Souders. Mr. Boller is the
President, Treasurer and Secretary of the Distributor. The Distributor is a
Delaware corporation, a registered broker-dealer and a wholly-owned subsidiary
of the Adviser.

Harbor Transfer, Inc. (the "Shareholder Servicing Agent") acts as the
shareholder servicing agent for each Fund and in that capacity maintains certain
financial and accounting records of the Funds. Its mailing address is P.O. Box
2282, Toledo, Ohio 43603-2282. The Shareholder Servicing Agent is a Delaware
corporation, a registered transfer agent and a wholly-owned subsidiary of the
Adviser. The directors of the Shareholder Servicing Agent are Ronald C. Boller,
Janice D. Osthimer and Constance L. Souders and Mr. Boller is the President. Ms.
Souders is Vice President. Ms. Osthimer is Vice President, Secretary and
Treasurer. The Shareholder Servicing Agreement has been approved by the Trustees
of the Fund and provides for annual fees of $45 per account, per Fund, with a
minimum payment of $1,000 per month, per Fund.

CODE OF ETHICS. The Board of Trustees has determined that the personnel of
Harbor Fund may engage in personal trading in compliance with general fiduciary
principles which are incorporated into Harbor Fund's Code of Ethics (the
"Code"). The Code substantially complies in all respects with Rule 17j-1 under
the 1940 Act and the recommendations of the staff of the SEC and the Advisory
Group on Personal Investing of the Investment Company Institute with the
following exceptions.

The disinterested Trustees of Harbor Fund are not required to pre-clear
personal securities transactions or to submit quarterly reports of personal
securities transactions. Harbor Fund's disinterested Trustees are not provided
with information about the portfolio transactions contemplated for a Fund or
executed for a Fund for a period of 15 days before and after such transactions.

30
<PAGE> 83

Because each Subadviser is an entity not otherwise affiliated with Harbor Fund
or the Adviser, the Adviser has delegated responsibility for monitoring the
personal trading activities of the Subadviser's personnel to each Subadviser.
Each Subadviser provides Harbor Fund's Board of Trustees with a quarterly
certification of the Subadviser's compliance with its code of ethics and a
report of any significant violations of its code.

PORTFOLIO TRANSACTIONS

Purchases and sales of securities on a securities exchange are effected by
brokers, and the Funds pay a brokerage commission for this service. In
transactions on stock exchanges in the United States, these commissions are
negotiated, whereas on many foreign stock exchanges the commissions are fixed.
In the over-the-counter market, securities (e.g., debt securities) are normally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission, although the price of the securities usually
includes a profit to the dealer. In underwritten offerings, securities are
purchased at a fixed price which includes an amount of compensation to the
underwriter, generally referred to as the underwriter's concession or discount.
On occasion, certain money market instruments may be purchased directly from an
issuer, in which case no commissions or discounts are paid.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain and maintain the availability of
execution at the most favorable prices and in the most effective manner
possible. The Adviser and each Subadviser attempt to achieve this result by
selecting broker-dealers to execute portfolio transactions on behalf of each
Fund and other clients on the basis of the broker-dealers' professional
capability, the value and quality of their brokerage services and the level of
their brokerage commissions.
Under each Investment Advisory Agreement and Subadvisory Contract and as
permitted by Section 28(e) of the Securities Exchange Act of 1934, the Adviser
or a Subadviser may cause a Fund to pay a commission to broker-dealers who
provide brokerage and research services to the Adviser or the Subadviser for
effecting a securities transaction for a Fund. Such commission may exceed the
amount other broker-dealers would have charged for the transaction, if the
Adviser or the Subadviser determines in good faith that the greater commission
is reasonable relative to the value of the brokerage and research services
provided by the executing broker-dealer viewed in terms of either a particular
transaction or the Adviser's or Subadviser's overall responsibilities to the
Funds or to its other clients. The term "brokerage and research services"
includes advice as to the value of securities, the advisability of investing in,
purchasing or selling securities, and the availability of securities or of
purchasers or sellers of securities, furnishing analyses and reports concerning
issuers, industries, securities, economic factors and trends, portfolio strategy
and the performance of accounts, and effecting securities transactions and
performing functions incidental thereto such as clearance and settlement.

Although commissions paid on every transaction will, in the judgment of the
Adviser or the Subadviser, be reasonable in relation to the value of the
brokerage services provided, commissions exceeding those which another broker
might charge may be paid to broker-dealers who were selected to execute
transactions on behalf of the Funds and the Adviser's or Subadviser's other
clients in part for providing advice as to the availability of securities or of
purchasers or sellers

31
<PAGE> 84

of securities and services in effecting securities transactions and performing
functions incidental thereto such as clearance and settlement.

Research provided by brokers is used for the benefit of all of the clients of
the Adviser or a Subadviser and not solely or necessarily for the benefit of the
Funds. The Adviser's and each Subadviser's investment management personnel
attempt to evaluate the quality of research provided by brokers. Results of this
effort are sometimes used by the Adviser or a Subadviser as a consideration in
the selection of brokers to execute portfolio transactions.

In certain instances there may be securities which are suitable for a Fund's
portfolio as well as for that of another Fund or one or more of the other
clients of the Adviser or a Subadviser. Investment decisions for a Fund and for
the Adviser's or Subadviser's other clients are made with a view to achieving
their respective investment objectives. It may develop that a particular
security is bought or sold for only one client even though it might be held by,
or bought or sold for, other clients. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling that
same security. Some simultaneous transactions are inevitable when several
clients receive investment advice from the same investment adviser, particularly
when the same security is suitable for the investment objectives of more than
one client. When two or more clients are simultaneously engaged in the purchase
or sale of the same security, the securities are allocated among clients in a
manner believed to be equitable to each. It is recognized that in some cases
this system could have a detrimental effect on the price or volume of the
security in a particular transaction as far as a Fund is concerned. Harbor Fund
believes that over time its ability to participate in volume transactions will
produce better executions for the Funds.

The investment advisory fee that the Funds pay to the Adviser will not be
reduced as a consequence of the Adviser's or Subadviser's receipt of brokerage
and research services. To the extent a Fund's portfolio transactions are used to
obtain such services, the brokerage commissions paid by the Fund will exceed
those that might otherwise be paid, by an amount which cannot be presently
determined. Such services would be useful and of value to the Adviser or a
Subadviser in serving both the Funds and other clients and, conversely, such
services obtained by the placement of brokerage business of other clients would
be useful to the Adviser or a Subadviser in carrying out its obligations to the
Funds.

As of October 31, 1995, the following securities of regular brokers or
dealers, or their parents, with which the Funds regularly conduct business were
held by the Harbor International Fund: securities of ABN-AMRO Holdings, the
parent of Pierson Sal. Oppenheim, were valued at $41,681,226; securities of
Barclays Bank PLC the parent of B.Z.W. Securities, were valued at $44,064,024;
securities of Jardine Matheson, an affiliate of Robert Flemming, were valued at
$22,235,921; securities of International Nederlanden, the parent of Baring
Securities, were valued at $44,036,562; securities of National Westminster Bank,
the parent of NWB Securities, were valued at $53,769,064.

32
<PAGE> 85

For the fiscal years ended October 31, 1995, October 31, 1994 and October 31,
1993, each of the following Funds paid brokerage commissions as follows:

<TABLE>
<CAPTION>
HARBOR HARBOR HARBOR CAPITAL
INTERNATIONAL INTERNATIONAL HARBOR APPRECIATION HARBOR
GROWTH FUND FUND GROWTH FUND FUND VALUE FUND
------------ -------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Total Brokerage
Commissions Paid
Year ended 10/31/95........ $ 360,264 $ 859,522 $ 303,631 $ 1,014,108 $ 271,770
Year ended 10/31/94........ 244,523 2,324,280 450,570 255,569 193,231
Year ended 10/31/93........ N/A 2,959,138 809,641 315,705 98,573
Total Amount of Transactions
Where Commissions Paid
Year ended 10/31/95........ $131,367,657 $ 375,347,311 $166,934,766 $ 721,662,826 $171,871,103
Year ended 10/31/94........ 78,656,749 1,014,107,335 242,714,875 184,633,356 165,495,550
Year ended 10/31/93........ N/A 1,320,896,487 428,408,365 185,105,910 74,315,529
Total Brokerage Commissions
Paid to Brokers Who Provided
Research
Year ended 10/31/95........ $ $ 859,522 $ 233,531 $ $
</TABLE>

Harbor Bond Fund, Harbor Short Duration Fund and Harbor Money Market Fund paid
no brokerage commissions during the past three fiscal years.

NET ASSET VALUE

The net asset value per share of each Fund is determined by the Funds'
Custodian as of the close of regular trading on the New York Stock Exchange
(normally 4 p.m., Eastern Time) on each day when the New York Stock Exchange is
open for trading. The New York Stock Exchange is closed on the following
holidays: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day as observed.
Portfolio securities of each Fund, except Harbor Money Market Fund, are valued
as follows: (a) stocks which are traded on any U.S. stock exchange or the
National Association of Securities Dealers NASDAQ System ("NASDAQ") are valued
at the last sale price on that exchange or NASDAQ on the valuation day or, if no
sale occurs, at the mean between the closing bid and closing asked price; (b)
over-the-counter stocks not quoted on NASDAQ are valued at the last sale price
on the valuation day or, if no sale occurs, at the mean between the last bid and
the asked prices; (c) securities listed or traded on foreign exchanges
(including foreign exchanges whose operations are similar to the U.S.
over-the-counter market) 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 the official bid price are determined as of the close of the
London Foreign Exchange); (d) debt securities are valued at prices supplied by a
pricing agent selected by the Adviser or Subadviser, which prices reflect
broker/dealer-supplied valuations and electronic data processing techniques if
those prices are deemed by the Adviser or Subadviser to be representative of
market values at the close of business of the New York Stock Exchange; (e)
options and futures contracts are valued at the last sale price on the market
where any such option or futures contract is principally traded; (f) forward
foreign currency exchange contracts are valued at their respective fair market
values determined on the basis of the mean between the last current bid and
asked

33
<PAGE> 86

prices based on dealer or exchange quotations; and (g) all other securities and
other assets, including debt securities, for which prices are supplied by a
pricing agent but are not deemed by the Adviser or Subadviser to be
representative of market values, or for which prices are not available, but
excluding money market instruments with a remaining maturity of 60 days or less
and including restricted securities and securities for which no market quotation
is available, are valued at fair value as determined in good faith by the
Trustees, although the actual calculation may be done by others. Money market
instruments held by the Funds with a remaining maturity of 60 days or less will
be valued by the amortized cost method.

Portfolio securities of Harbor Money Market Fund are valued at their amortized
cost, which does not take into account unrealized securities gains or losses.
While this method provides certainty in valuation, it may result in periods
during which value, as determined by amortized cost, is higher or lower than the
price Harbor Money Market Fund would receive if it sold the instrument. During
periods of declining interest rates, the quoted yield on shares of Harbor Money
Market Fund may tend to be higher than a like computation made by a fund with
identical investments utilizing a method of valuation based upon market prices
and estimates of market prices for all of its portfolio instruments. Thus, if
the use of amortized cost by Harbor Money Market Fund resulted in a lower
aggregate portfolio value on a particular day, a prospective investor in Harbor
Money Market Fund would be able to obtain a somewhat higher yield if he or she
purchased shares of Harbor Money Market Fund on that day, than would result from
investment in a fund utilizing solely market values, and existing investors in
Harbor Money Market Fund would receive less investment income. The converse
would apply in a period of rising interest rates.

Portfolio securities traded on more than one U.S. national securities exchange
or foreign securities exchange are valued at the last sale price on the business
day as of which such value is being determined at the close of the exchange
representing the principal market for such securities. The value of all assets
and liabilities expressed in foreign currencies will be converted into U.S.
dollar values at the mean between the buying and selling rates of such
currencies against U.S. dollars last quoted by any major bank. If such
quotations are not available, the rate of exchange will be determined in good
faith by or under procedures established by the Trustees.
Trading in securities on European and Far Eastern securities exchanges and
over-the-counter markets is normally completed well before the close of business
on each business day in New York (i.e., a day on which the New York Stock
Exchange is open for trading). In addition, European or Far Eastern securities
trading generally or in a particular country or countries may not take place on
all business days in New York. Furthermore, trading takes place in Japanese
markets on certain Saturdays and in various foreign markets on days which are
not business days in New York and on which the Funds' net asset values are not
calculated. Such calculation does not take place contemporaneously with the
determination of the prices of the majority of the portfolio securities used in
such calculation. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of the regular
trading on the New York Stock Exchange will not be reflected in the Funds'
calculation of net asset values unless the Adviser deems that the particular
event would materially affect net asset value, in which case an adjustment will
be made.
The proceeds received by each Fund for each issue or sale of its shares, and
all net investment income, realized and unrealized gain and proceeds thereof,
subject only to the rights of

34
<PAGE> 87

creditors, will be specifically allocated to such
Fund and constitute the underlying assets of that Fund. The underlying assets of
each Fund will be segregated on the books of account, and will be charged with
the liabilities in respect to such Fund and with a share of the general
liabilities of Harbor Fund. Expenses with respect to any two or more Funds are
to be allocated in proportion to the net asset values of the respective Funds
except where allocations of direct expenses can otherwise be fairly made.

PERFORMANCE AND YIELD INFORMATION

From time to time, quotations of Harbor Money Market Fund's "yield" and
"effective yield" may be included in advertisements and communications to
shareholders. These performance figures are calculated in the following manner:

A. Yield--the net annualized yield based on a specified 7-calendar day
period calculated at simple interest rates. Yield is calculated by
determining the net change, exclusive of capital changes, in the value of a
hypothetical preexisting account having a balance of one share at the
beginning of the period, subtracting a hypothetical charge reflecting
deductions from shareholder accounts, and dividing the difference by the
value of the account at the beginning of the base period to obtain the base
period return. The yield is annualized by multiplying the base period
return by 365/7. The yield figure is stated to the nearest hundredth of one
percent. The yield of Harbor Money Market Fund for the seven-day period
ended October 31, 1995 was 5.64%.

B. Effective Yield--the net annualized yield for a specified
7-calendar day period assuming a reinvestment of dividends (compounding).
Effective yield is calculated by the same method as yield except that the
base period return is compounded by adding 1, raising the sum to a power
equal to 365 divided by 7, and subtracting 1 from the result, according to
the following formula: Effective Yield = [(Base Period Return + 1) ()365 L
7] -1. The effective yield of Harbor Money Market Fund for the seven-day
period ended October 31, 1995 was 5.82%.

As described above, yield and effective yield are based on historical earnings
and are not intended to indicate future performance. Yield and effective yield
will vary based on changes in market conditions and the level of expenses.

The average annual total return of each Fund is determined for a particular
period by calculating the actual dollar amount of the investment return on a
$1,000 investment in the Fund made at the maximum public offering price (i.e.,
net asset value) at the beginning of the period, and then calculating the annual
compounded rate of return which would produce that amount. Total return for a
period of one year is equal to the actual return of the Fund during that period.
This calculation assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period.

35
<PAGE> 88

The average annual total return for each Fund for the one-year period,
five-year period, and since inception to October 31, 1995, was as follows:

<TABLE>
<CAPTION>
YEAR 5-YEAR PERIOD
ENDED ENDED INCEPTION TO
FUND 10/31/95 10/31/95(1) 10/31/95(1)
------ ------------- -------------
<S> <C> <C> <C>
Harbor International Growth Fund.............................. 5.83% N/A 10.49%
Harbor International Fund..................................... 5.06% 14.45% 17.24%
Harbor Growth Fund............................................ 25.93% 17.86% 11.67%
Harbor Capital Appreciation Fund.............................. 35.73% 25.47% 18.89%
Harbor Value Fund............................................. 21.02% 14.63% 13.07%
Harbor Bond Fund.............................................. 14.56% 11.22% 10.15%
Harbor Short Duration Fund.................................... 6.82% N/A 4.75%
Harbor Money Market Fund...................................... 5.66% 4.35% 5.71%
</TABLE>

- -------------------------
(1) Inception date for Harbor Growth Fund 11/19/86; Harbor Short Duration Fund
1/1/92; Harbor International Growth Fund 11/1/93; and all other Funds
12/29/87.

The performance data quoted represents historical performance and the
investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than original cost.

The yield of each Fund, except Harbor Money Market Fund, is computed by
dividing its net investment income earned during a recent thirty-day period by
the product of the average daily number of shares outstanding and entitled to
receive dividends during the period and maximum offering price (i.e., net asset
value) per share on the last day of the period. The results are compounded on a
bond equivalent (semi-annual) basis and then annualized. Net investment income
per share is equal to the Fund's dividends and interest earned during the
period, reduced by accrued expenses for the period. Because yield accounting
methods differ from the methods used for other accounting purposes, a Fund's
yield may not equal the income paid to a shareholder's account or the income
reported in a Fund's financial statements.

For the 30-day period ended October 31, 1995, the yield of Harbor Bond Fund
was 6.73%. If there had been no reduction of fees, the yield of Harbor Bond Fund
would have been 6.43% for the 30-day period ended October 31, 1995.

For the 30-day period October 31, 1995, the yield of Harbor Short Duration
Fund was 7.89%. If there had been no reduction of fees, the yield of Harbor
Short Duration Fund would have been 7.65% for the 30-day period ended October
31, 1995.

From time to time a Fund may publish an indication of its past performance as
measured by independent sources including, but not limited to, Lipper Analytical
Services, Incorporated, Wiesenberger Investment Companies Service, Donoghue's
Money Fund Report, Barron's, BusinessWeek, Changing Times, Financial World,
Forbes, Money, Personal Investor and The Wall Street Journal.

36
<PAGE> 89

TAX INFORMATION

Each Fund is treated as a separate taxpayer for federal income tax purposes.

Distributions of Harbor Growth Fund, Harbor Capital Appreciation Fund and
Harbor Value Fund may qualify in part for a 70% dividends-received deduction for
corporations. The dividends-received deduction is reduced to the extent that
shares of a Fund are treated as debt-financed under the Code and is eliminated
if such shares are deemed to have been held for less than a minimum period,
generally 46 days. Amounts eligible for the deduction may still be subject to
the federal alternative minimum tax and result in adjustments in the tax basis
of Fund shares under certain circumstances.

If Harbor International Growth Fund or Harbor International Fund invests in a
passive foreign investment company (PFIC), it could become liable for a tax upon
the receipt of certain distributions from, or the disposition of its investment
in, the PFIC. Because a credit for this tax could not be passed through to such
Funds' shareholders, the tax would in effect reduce the Funds' economic return
from its PFIC investment. Investment in a PFIC could also require these Funds'
to recognize income (which would have to be distributed to its shareholders to
avoid a tax on the Funds) in a year before the year in which the PFIC
distributes cash corresponding to such income. It is possible that an election
may be available to these Funds in certain cases that would ameliorate these
adverse tax consequences, in which case these Funds might not be required to
limit investments in passive foreign investment companies or take other
defensive actions with respect to such investments.

Due to certain adverse tax consequences, the Funds do not intend, absent a
change in applicable law, to acquire residual interests in REMICs.

Each Fund will be subject to a four percent non-deductible federal excise tax
on certain amounts not distributed (and not treated as having been distributed)
on a timely basis in accordance with annual minimum distribution requirements.
The Funds intend under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.

Provided that a Fund qualifies as a regulated investment company under the
Code and earns only income from intangible investments (such as stocks, bonds,
notes and other debt obligations), such Fund will be exempt from Delaware
corporation income tax. As regulated investment companies, the Funds will also
be exempt from the Ohio corporation franchise tax and the Ohio tax on dealers in
intangibles, although certain reporting requirements, which have been waived in
the past, may in the future have to be satisfied as a prerequisite for this Ohio
tax exemption.

All or a portion of the loss realized on a redemption of shares may be
disallowed or recharacterized under tax rules relating to wash sales or
redemptions of shares held for six months or less.

Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions and
certain prohibited transactions is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.

The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the exchange or redemption of shares of the Funds may also be
subject to state, local or

37
<PAGE> 90

foreign taxes. In some states, a state and/or local tax exemption may be
available to the extent distributions of a Fund are attributable to the interest
it receives on direct obligations of the U.S. Government or, in the case of
property taxes, to the extent the value of the shares of a Fund owned by a
shareholder who is subject to tax in such state is attributable to such
obligations. Shareholders should consult their own tax advisers as to the
federal, state or local tax consequences of ownership of shares of the Fund in
their particular circumstances.

ORGANIZATION AND CAPITALIZATION

GENERAL. Harbor is an open-end investment company established as a
Massachusetts business trust in 1986 and reorganized as a Delaware business
trust in 1993. Harbor Growth Fund commenced operations on November 19, 1986.
Harbor International Fund, Harbor Capital Appreciation Fund, Harbor Value Fund,
Harbor Bond Fund, and Harbor Money Market Fund each commenced operations on
December 29, 1987. Harbor Short Duration Fund commenced operations on January 1,
1992. Harbor International Growth Fund commenced operations on November 1, 1993.
Costs incurred by Harbor in connection with the organization and initial
registration and public offering of the shares of Harbor International Growth
Fund and Harbor Short Duration Fund which total, respectively, approximately
$33,000 and $21,000, are being amortized over a five-year period beginning on
November 1, 1993 and January 1, 1992, respectively.

As of December 14, 1995, each of the following persons beneficially owned five
percent or more of the voting securities of each such Fund. Except as noted, the
address of each such beneficial owner is One SeaGate, Toledo, Ohio 43666.

38
<PAGE> 91

<TABLE>
<CAPTION>
HARBOR HARBOR HARBOR
HARBOR HARBOR HARBOR CAPITAL HARBOR HARBOR SHORT MONEY
INTERNATIONAL INTERNATIONAL GROWTH APPRECIATION VALUE BOND DURATION MARKET
NAME OF OWNER GROWTH FUND FUND FUND FUND FUND FUND FUND FUND
- ------------------------------------ ----------- ------------- ------ ------------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Owens-Illinois Master Retirement
Trust............................. -- -- 38% -- -- -- 84% --
Owens-Illinois 401(k) Trust......... -- -- 29% -- 30% 7% -- 29%
HCR Master Retirement Trust......... -- -- -- -- 10% -- -- --
Bob & Co.
c/o Bank of Boston
P.O. Box 1809
Boston, MA 02105.................. 9% -- -- -- -- -- -- --
Charles Schwab & Co., Inc.
101 Montgomery Street
San Francisco, CA
94104-4122........................ -- 17% -- 18% -- 12% -- --
Donaldson Lufkin Jenrette
SEC Corp.
P.O. Box 2052
Jersey City, NJ 07303-2052........ -- -- -- 6% -- -- -- --
Hartford Hospital
Employee Retirement
Pension Plan
80 Seymour Street
Hartford, CT 06102-5037........... 8% -- -- -- -- -- -- --
Maryland State
Retirement Agency
301 West Preston Street
Baltimore, MD 21201-2363.......... -- 6% -- -- -- -- -- --
New York Public Library
Astor Lenox & Tilden Foundations
8 West 40th Street
New York, NY 10018................ 8% -- -- -- -- -- -- --
Sidley and Austin Partners Plan
One First National Plaza
Chicago, IL 60603-2279............ -- -- -- -- 9% -- -- --
</TABLE>

39
<PAGE> 92

Unless otherwise required by the Investment Company Act or the Agreement and
Declaration of Trust (the "Declaration of Trust"), Harbor has no intention of
holding annual meetings of shareholders. Shareholders may remove a Trustee by
the affirmative vote of at least two-thirds of the Trust's outstanding shares
and the Trustees shall promptly call a meeting for such purpose when requested
to do so in writing by the record holders of not less than 10% of the
outstanding shares of the Trust. Shareholders may, under certain circumstances,
communicate with other shareholders in connection with requesting a special
meeting of shareholders. However, at any time that less than a majority of the
Trustees holding office were elected by the shareholders, the Trustees will call
a special meeting of shareholders for the purpose of electing Trustees.

SHAREHOLDER AND TRUSTEE LIABILITY. Harbor is organized as a Delaware business
trust, and, under Delaware law, the shareholders of such a trust are not
generally subject to liability for the debts or obligations of the trust.
Similarly, Delaware law provides that none of the Funds will be liable for the
debts or obligations of any other Fund. However, no similar statutory or other
authority limiting business trust shareholder liability exists in many other
states. As a result, to the extent that a Delaware business trust or a
shareholder is subject to the jurisdiction of courts in such other states, the
courts may not apply Delaware law and may thereby subject the Delaware business
trust shareholders to liability. To guard against this risk, the Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of Harbor. Notice of such disclaimer will normally be given in each
agreement, obligation or instrument entered into or executed by Harbor or the
Trustees. The Declaration of Trust provides for indemnification by the relevant
Fund for any loss suffered by a shareholder as a result of an obligation of the
Fund. The Declaration of Trust also provides that Harbor shall, upon request,
assume the defense of any claim made against any shareholder for any act or
obligation of Harbor and satisfy any judgment thereon. The Trustees believe
that, in view of the above, the risk of personal liability of shareholders is
remote.

The Declaration of Trust further provides that the Trustees will not be liable
for errors of judgment or mistakes of fact or law, but nothing in the
Declaration of Trust protects a Trustee against any liability to which he or she
would otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of his
or her office.

CUSTODIAN

State Street Bank and Trust Company has been retained to act as Custodian of
the Funds' assets and, in that capacity, maintains certain financial and
accounting records of the Funds. Its mailing address is P.O. Box 8500, Boston,
MA 02266-8500.

40
<PAGE> 93

INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS

Price Waterhouse LLP, 160 Federal Street, Boston, MA 02110, serves as Harbor
Fund's independent accountants, providing audit services, including review and
consultation in connection with various filings by Harbor Fund with the SEC and
tax authorities. The audited financial statements of Harbor Fund incorporated by
reference in this Statement of Additional Information have been so incorporated
in reliance on the report of Price Waterhouse, independent accountants, given on
the authority of said firm as experts in auditing and accounting. The financial
statements of Harbor Fund together with the notes to the financial statements,
all of which are included in the annual report to the shareholders dated October
31, 1995 on pages 34 through 56 and attached hereto, are hereby incorporated by
reference into this Statement of Additional Information by reference to Form
N-30D (file No. 811-04676) filed December 21, 1995.

41
<PAGE> 94

APPENDIX A

DESCRIPTION OF SECURITIES RATINGS

MOODY'S INVESTORS SERVICE, INC.

AAA: Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

AA: Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuations of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than with Aaa
securities.

A: Bonds which are rated A possess many favorable investment attributes and
may be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.

BAA: Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.

BA: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.

Moody's ratings for state and municipal and other short-term obligations will
be designated Moody's Investment Grade ("MIG"). This distinction is in
recognition of the differences between short-term credit risk and long-term
risk. Factors affecting the liquidity of the borrower are uppermost in
importance in short-term borrowing, while various factors of the first
importance in long-term borrowing risk are of lesser importance in the short
run. Symbols used will be as follows:

MIG-1--Notes bearing this designation are of the best quality enjoying strong
protection from established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing, or both.

MIG-2--Notes bearing this designation are of favorable quality, with all
security elements accounted for, but lacking the undeniable strength of the
preceding grades. Market access for refinancing, in particular, is likely to be
less well established.

STANDARD & POOR'S CORPORATION

AAA: Bonds rated AAA are highest grade debt obligations. This rating indicates
an extremely strong capacity to pay principal and interest.

AA: Bonds rated AA also qualify as high-quality obligations. Capacity to pay
principal and interest is

42
<PAGE> 95

very strong, and in the majority of instances they differ from AAA issues only
in small degree.

A: Bonds rated A have a strong capacity to pay principal and interest,
although they are more susceptible to the adverse effects of changes in
circumstances and economic conditions.

BBB: Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.

BB AND B: Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.

The ratings from "AA" to "B" may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.

Municipal notes issued since July 29, 1984 are rated "SP-1," "SP-2," and
"SP-3." The designation SP-1 indicates a very strong capacity to pay principal
and interest. A "+" is added to those issues determined to possess overwhelming
safety characteristics. An SP-2 designation indicates a satisfactory capacity to
pay principal and interest, while an SP-3 designation indicates speculative
capacity to pay principal and interest.

DUFF & PHELPS, INC.
(HARBOR MONEY MARKET FUND ONLY)

AAA: Long-term fixed income securities which are rated AAA are judged to be of
the highest credit quality. The risk factors are negligible, being only slightly
more than for risk-free U.S. Treasury debt.

AA: Long-term fixed income securities which are rated AA are judged to be of
high credit quality. Protection factors are strong. Risk is modest but may vary
slightly from time to time because of economic conditions.

Duff & Phelps applies modifiers, AA+, AA, and AA- in the AA category for
long-term fixed securities. The modifier AA+ indicates that the security ranks
in the higher end of the AA category: the modifier AA indicates a mid-range
ranking; and the modifier AA- indicates that the issue ranks in the lower end of
the AA category.

FITCH INVESTORS SERVICE CORP.
(HARBOR MONEY MARKET FUND ONLY)

AAA: Bonds which are rated AAA are considered to be investment grade and of
the highest credit quality. The obligor has an exceptionally strong ability to
pay interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events.

AA: Bonds which are rated AA are considered to be investment grade and of very
high credit quality. The obligor's ability to pay interest and repay principal
is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds
rated in the 'AAA' and 'AA' categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated 'F-1+'.

Fitch applies plus ("+") and minus ("-") modifiers in the AA category to
indicate the relative position of a credit within the rating category. The
modifier AA+ indicates that the security ranks at the higher end of the AA
category than a security rated AA or AA-.

IBCA LIMITED AND IBCA INC.
(HARBOR MONEY MARKET FUND ONLY)

AAA: Obligations which are rated AAA are considered to be of the lowest
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial such that adverse changes in business, economic, or
financial conditions are unlikely to increase investment risk significantly.

AA: Obligations which are rated AA are considered to be of a very low
expectation of investment risk. Capacity for timely repayment of principal and
interest is substantial. Adverse changes in business, economic,

43
<PAGE> 96

or financial conditions may increase investment risk albeit not very
significantly.

THOMSON BANKWATCH, INC.
(HARBOR MONEY MARKET FUND ONLY)

A: Company possesses an exceptionally strong balance sheet and earnings
record, translating into an excellent reputation and unquestioned access to its
natural money markets. If weakness or vulnerability exists in any aspect of the
company's business, it is entirely mitigated by the strengths of the
organization.

A/B: Company is financially very solid with a favorable track record and no
readily apparent weakness. Its overall risk profile, while low, is not quite as
favorable as for companies in the highest rating category.

DESCRIPTION OF COMMERCIAL PAPER RATINGS

MOODY'S INVESTORS SERVICE, INC.

P-1: Moody's Commercial Paper ratings are opinions of the ability of issuers
to repay punctually promissory obligations not having an original maturity in
excess of nine months. The designation "Prime-1" or "P-1" indicates the highest
quality repayment capacity of the rated issue.

STANDARD & POOR'S CORPORATION

A-1: Standard & Poor's Commercial Paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. The A-1 designation indicates the degree of safety regarding
timely payment is very strong.

DUFF & PHELPS, INC.
(HARBOR MONEY MARKET FUND ONLY)

DUFF 1: Commercial paper and certificates of deposit rated Duff 1 are
considered to have a very high certainty of timely payment. Liquidity factors
are considered excellent and are supported by strong fundamental protection
factors. Risk factors are minor.

Duff & Phelps applies a plus and minus rating scale, Duff 1 plus, Duff 1 and
Duff 1 minus in the Duff 1 top grade category for commercial paper and
certificates of deposit. The rating Duff 1 plus indicates that the security has
the highest certainty of timely payment, short-term liquidity is clearly
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations; the rating Duff 1 indicates a very high certainty of timely
payment, liquidity factors are excellent and risk factors are minimal; and the
rating Duff 1 minus indicates a high certainty of timely payment, liquidity
factors are strong and risk factors are very small.

FITCH INVESTORS SERVICE CORP.
(HARBOR MONEY MARKET FUND ONLY)

F-1: Short-term debt obligations rated F-1 are considered to be of very strong
credit quality. Those issues determined to possess exceptionally strong credit
quality and having the strongest degree of assurance for timely payment will be
denoted with a plus ("+") sign designation.

IBCA LIMITED AND IBCA INC.
(HARBOR MONEY MARKET FUND ONLY)

A1: Short-term obligations rated A1 are supported by a very strong capacity
for timely repayment. A plus ("+") sign is added to those issues determined to
possess the highest capacity for timely payment.

44
<PAGE> 97

LOGO

12/96/5,000 (LOGO)

recycled paper
<PAGE> 98

ANNUAL REPORT

------------------------------------------------------

[LOGO]

------------------------------------------------------
OCTOBER 31, 1995

-----------
HARBOR FUND
<PAGE> 99

HARBOR FUND
ANNUAL REPORT OVERVIEW

Harbor Fund completed its current fiscal year on October 31, 1995. Total
annual return is shown below for each of the eight portfolios. All performance
figures included in this report are total returns and assume the reinvestment of
dividends. The Long-Term Historic Returns represent unmanaged indices and are
included as an indication of longer-term potential associated with taking
different levels of market risk.

<TABLE>
<CAPTION>
YEAR
HARBOR FUNDS IN ORDER OF MARKET RISK ENDED 10/31/95
----------------------------------------------------------------------------- --------------------------
<S> <C>
International Growth......................................................... 5.83%
International................................................................ 5.06%
Growth....................................................................... 25.93%
Capital Appreciation......................................................... 35.73%
Value........................................................................ 21.02%
Bond......................................................................... 14.56%
Short Duration............................................................... 6.82%
Money Market................................................................. 5.66%
</TABLE>

<TABLE>
<CAPTION>
COMMONLY USED MARKET INDICES
-----------------------------------------------------------------------------
<S> <C>
Morgan Stanley Capital International Europe, Australia, and Far East
(EAFE); international equity............................................... -0.37%
Standard & Poor's 500
(S&P 500); domestic equity................................................. 26.43%
Lehman Brothers Aggregate
(LB AGG); domestic bonds................................................... 15.65%
One-Year Government Bonds
(1-YR GVT)................................................................. 7.10%
90-Day U.S. Treasury Bills
(T-Bills); domestic short-term............................................. 5.78%
</TABLE>

<TABLE>
<CAPTION>
30 YEARS
1965-1994
LONG-TERM HISTORIC RETURNS ANNUAL RATES
----------------------------------------------------------------------------- --------------------------
<S> <C>
EAFE......................................................................... 12.15%
S&P 500...................................................................... 9.95%
Domestic Bonds (intermediate and long)(1).................................... 7.55%
1-YR GVT(2).................................................................. 7.71%
T-Bills...................................................................... 6.66%
Consumer Price Index......................................................... 5.36%
</TABLE>

<TABLE>
<CAPTION>
LIPPER
HARBOR FUND EXPENSE RATIOS 1992 1993 1994 1995 MEDIAN**
----------------------------------------------------------- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C>
International Growth....................................... N/A % N/A % 1.32%* 1.21%* 1.40%
International.............................................. 1.28 1.20+++ 1.10+++ 1.04+++ 1.09
Growth..................................................... 0.90 0.90 0.93 0.93 0.96
Capital Appreciation....................................... 0.91 0.86 0.81 0.75 0.90
Value...................................................... 0.84* 0.88 1.04 0.90 0.93
Bond....................................................... 0.77* 0.72* 0.77* 0.70* 0.63
Short Duration***.......................................... 0.35*++ 0.43* 0.38* 0.38 0.61
Money Market............................................... 0.69* 0.71* 0.67* 0.61* 0.55
</TABLE>

------------------
(1) LB AGG not available for 30 year period; blended historic data used
to approximate total Bond Market Return.
(2) Historic data used to approximate total One-Year Government Bonds
Return.
* Reflects the Adviser's agreement not to impose all or a portion of its
advisory fees.
** Includes all funds in the 9/30/95 Lipper Universe with the same
investment objective as the comparable Harbor Fund portfolio and with
similar total assets.
*** For operating expenses only. Total expense ratio, including interest
expense for the Short Duration Fund, is 1.54% for 1992, 1.12% for
1993, 1.64% for 1994 and 1.84% for 1995. Short Duration Fund commenced
operations 1/1/92.
++ Annualized.
+++ Reflects the Adviser's and Subadviser's agreement not to impose a
portion of the advisory fee.
<PAGE> 100

DEAR SHAREHOLDER:

Summing up highlights of U.S. economic and financial market events during
our fiscal year 1995 perhaps is best done in the form of a question:

What's not to like?

Answer -- not much.

Chalking up a symbolic stock market milestone, the Dow Jones Industrial
Average closed above the 5,000 mark for the first time on November 22.

At Harbor Fund, we also celebrated a milestone when net assets exceeded $5
billion on November 16, just 3 days before the 9th anniversary of the inception
of the first Harbor Fund -- Harbor Growth -- on November 19, 1986.

For serious investors -- like those of you who we at Harbor aim to serve --
these milestones should only serve as a reminder of one of the most important
principles of sound investing: Invest for the longer term.

As long as there is buying and selling, the market will have ups and downs,
so it's important to choose an asset allocation mix of stock and fixed income
investments with a level of risk appropriate for your individual goals and to
STAY WITH IT.

It is important, of course, to periodically review your objectives and
program and what better time than near year-end. Consideration of economic and
market developments is helpful in the process.

Again, there's a lot to like about our fiscal year 1995. Two important
areas that had almost no developments at all stand out:

- Inflation

- Adjustment of the federal funds rate.

In contrast to the upward trend of inflation in every previous extended
period of economic expansion over the last three decades, inflation continued
its downward trend in 1995 and stood at an annual rate of less than 2 percent at
the close of our fiscal year.

After making not less than six increases in short-term interest rates in
1994, the Federal Reserve open market committee tacked on one rate boost in
January this year. Then with the economy showing signs of slowing down, the
Federal Reserve reversed its field in July by lowering the rate a quarter of a
percent and has taken no action since that time.

Moderate growth resumed in the calendar third quarter after an inventory
correction earlier in the year. Both equity and bond markets responded favorably
to the continued growth.

Other developments worth noting in the last 12 months include:

- Continued strong improvement in U.S. productivity.

Business investment in new equipment and construction has accounted for
almost 40 percent of the economic growth in the current extended expansion,
according to a recent study. Restructuring of corporations continued while
merger and acquisition activity proceeded at a record pace.

The resulting upsurge in productivity -- estimated to have posted a
year-to-year increase of 3.5 percent in the second quarter this year -- is
making a strong contribution to corporate profits. Unit labor costs are flat,
owing to the offsetting effect of improving productivity. U.S. industry now is

2
<PAGE> 101

DEAR SHAREHOLDER--CONTINUED

proclaimed to be the low cost producer among industrialized nations and is ahead
in leading edge high-tech industries.

- Rebound of the dollar in currency exchange.

Early in the year, the dollar weakened against many currencies, including
the Japanese yen and German mark, making American export industries more
competitive in world markets and contributing to reported earnings of U.S.
multinational companies.

The dollar strengthened a bit as the year progressed, causing some concern
about potential erosion of corporate profits, but that had no significant
adverse effect on continuation of the stock market upturn.

- Continued generally favorable worldwide economic conditions.

With the major exception of Japan where the economy remained depressed,
markets in most of Europe and the Pacific Rim recorded gains based on generally
stronger earnings than anticipated and lower interests rates. Equity and bond
markets in the emerging countries rebounded strongly after a poor first quarter.

As always, we invite your attention to the detailed reports on the
performance of the individual Harbor funds set forth on the pages which follow
this letter. Because expenses associated with your investments are important, we
also call your attention to the expense ratios of the Harbor fund portfolios on
page one of this report.

Adding value to your money is our only business at Harbor Fund. Our
overriding objective is to increase the value of your investment relative to a
managed portfolio of the sector of the market in which the fund is invested.

In general, the Harbor family of funds performed very well in the 1995
fiscal year, when remarkable advances were made in both equities and fixed
income investments.

Particularly noteworthy were the performances of our two international
funds -- Harbor International and Harbor International Growth. Both funds have
outperformed the EAFE index each year since inception -- Harbor International
for eight consecutive years since it was launched on December 29, 1987, and
Harbor International Growth for the second year since start up on November 1,
1993.

An exceptional gain was also recorded by the Harbor Capital Appreciation
Fund, which substantially outperformed the S&P 500 index. Harbor Growth Fund and
Harbor Value Fund also had substantial gains, but performance was behind the S&P
500 index. Harbor Bond Fund had a solid gain, but narrowly trailed the Lehman
Brothers Aggregate index after posting returns exceeding the index over the
previous four consecutive years.

As always, we thank you for your continued confidence and your investment
in Harbor Fund.

Sincerely,

/s/ Ronald C. Boller

Ronald C. Boller
President

3
<PAGE> 102
HARBOR FUND

The following performance figures are annualized for each Fund. The date of
inception for Harbor International Growth Fund was November 1, 1993; Harbor
Growth Fund was November 19, 1986; Harbor Short Duration Fund was January 1,
1992; all other Funds started December 29, 1987.

HARBOR INTERNATIONAL GROWTH FUND NET ASSET VALUE: 10/31/95: $12.10
10/31/94: $11.53

<TABLE>
<CAPTION>
------------------------------------------------------------------
Total Return for Periods Ended 10/31/95
------------------------------------------------------------------
Since
Fund/Index 12 months 5 years Inception
------------------------------------------------------------------
<S> <C> <C> <C>
Harbor International 5.83% -- 10.49%
Growth
------------------------------------------------------------------
EAFE -0.37% 6.95% 4.73%
------------------------------------------------------------------
Total Return for Periods Ended 9/30/95
------------------------------------------------------------------
Harbor International Growth 7.66% -- 11.26%
------------------------------------------------------------------
</TABLE>

Harbor International Growth Fund significantly outperformed the EAFE
index during the 1995 fiscal year. Devaluation of the Mexican peso early in
the fiscal year was a catalyst for a sell-off in worldwide emerging markets,
adversely affecting the fund's Mexican, Argentine, and southeast Asia
holdings. The balance -- and majority -- of the fund's holdings were in
Europe, where performance was good. Growth companies, in which the fund has
significant investments, performed well, and the economic cycle favored
these companies as the year progressed. Continued decline in global interest
rates had a beneficial effect on the portfolio. Major portfolio changes
included reduction of bank holdings and addition of pharmaceutical
companies. Holdings were reduced in Mexico and Argentina and increased in
France and Switzerland.

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
HARBOR INTERNATIONAL GROWTH AND EAFE

INTERNATIONAL EAFE
<S> <C> <C>
10/93 10000 10000
10/94 11536.17 11009.41
10/95 12208.22 10968.48

*For the period November 1, 1993 (inception) ending October 31, 1995
</TABLE>

HARBOR INTERNATIONAL FUND NET ASSET VALUE: 10/31/95: $26.93
10/31/94: $26.87

<TABLE>
<CAPTION>
------------------------------------------------------------------
Total Return for Periods Ended 10/31/95
------------------------------------------------------------------
Since
Fund/Index 12 months 5 years Inception
------------------------------------------------------------------
<S> <C> <C> <C>
Harbor International 5.06% 14.45% 17.24%
------------------------------------------------------------------
EAFE -0.37% 6.95% 6.08%
------------------------------------------------------------------
Total Return for Periods Ended 9/30/95
------------------------------------------------------------------
Harbor International 9.16% 16.04% 17.61%
------------------------------------------------------------------
</TABLE>

Harbor International Fund outperformed the EAFE index in fiscal 1995.
Performance of holdings in Europe -- which account for almost 60 percent of
total investments -- was positive. Good contributions in Switzerland, the UK
and The Netherlands more than offset poor performance in France. Economies
in the Pacific Rim and Latin America were a mixed bag, but stock market
results were generally negative. Currency exposure, particularly in Europe,
was an important contributor to performance.

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
HARBOR INTERNATIONAL AND EAFE

INTERNATIONAL EAFE
<S> <C> <C>
12/87 10000 10000
10/88 13000 12039
10/89 17069 13019
10/90 17720 11350
10/91 20864 12139
10/92 20024 10535
10/93 27936 14481
10/94 33122 15942
10/95 34799 15883

Period ending October 31
</TABLE>

4
<PAGE> 103
HARBOR FUND--CONTINUED

Performance data quoted represents past performance and is not predictive
of future performance. 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.

HARBOR GROWTH FUND NET ASSET VALUE: 10/31/95: $15.73
10/31/94: $12.83

<TABLE>
<CAPTION>
------------------------------------------------------------------
Total Return for Periods Ended 10/31/95
------------------------------------------------------------------
Since
Fund/Index 12 months 5 years Inception
------------------------------------------------------------------
<S> <C> <C> <C>
Harbor Growth 25.93% 17.86% 11.67%
------------------------------------------------------------------
S&P 500 26.43% 17.27% 13.45%
------------------------------------------------------------------
Total Return for Periods Ended 9/30/95
------------------------------------------------------------------
Harbor Growth 29.57% 17.66% 11.90%
------------------------------------------------------------------
</TABLE>

Performance of Harbor Growth Fund was just short of the S&P 500 index
return in fiscal 1995. About 80 percent of the portfolio is invested in
mid-capitalization growth companies and this sector of the market did not
perform as well as the larger-capitalization growth stocks which dominate
the S&P 500. The portfolio did benefit from a shift by investors from the
large-capitalization to mid-capitalization stocks as the year progressed.
Overweighting in the technology sector was a major positive contributor to
overall performance. This was partially offset by lower performance of
holdings in the consumer non-durable sector.

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
HARBOR GROWTH AND S&P 500

GROWTH S&P 500
<S> <C> <C>
11/86 10000 10000
10/87 10250 10384
10/88 12058 11905
10/89 14295 15015
10/90 11803 13893
10/91 19914 18540
10/92 18425 20389
10/93 23246 23424
10/94 21319 24373
10/95 26846 30813

Period Ending October 31
</TABLE>

HARBOR CAPITAL APPRECIATION FUND NET ASSET VALUE: 10/31/95: $23.20
10/31/94: $17.31

<TABLE>
<CAPTION>
------------------------------------------------------------------
Total Return for Periods Ended 10/31/95
------------------------------------------------------------------
Since
Fund/Index 12 months 5 years Inception
------------------------------------------------------------------
<S> <C> <C> <C>
Harbor Capital 35.73% 25.47% 18.89%
Appreciation
------------------------------------------------------------------
S&P 500 26.43% 17.27% 15.10%
------------------------------------------------------------------
Total Return for Periods Ended 9/30/95
------------------------------------------------------------------
Harbor Capital Appreciation 41.37% 25.16% 19.08%
------------------------------------------------------------------
</TABLE>

Buoyed by the strong performance of its portfolio holdings which are
almost exclusively larger capitalization growth stocks, Harbor Capital
Appreciation Fund substantially outperformed the S&P 500 index during the
fiscal year. Significant overweighting in the technology sector, which had
outstanding performance in the fiscal year, was by far the major
contributor to the fund's exceptional gain. Holdings of Mexican securities,
liquidated in January, had a modest negative effect on performance.

COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
HARBOR CAPITAL APPRECIATION AND THE S&P 500

CAPITAL APPRECIATION S&P 500
<S> <C> <C>
12/87 10000 10000
10/88 11670 11625
10/89 14110 14663
10/90 12484 13567
10/91 19394 18105
10/92 22190 19911
10/93 26663 22874
10/94 28597 23801
10/95 38814 30090

Period ending October 31
</TABLE>

<PAGE> 104
HARBOR FUND--CONTINUED

HARBOR VALUE FUND NET ASSET VALUE: 10/31/95: $14.57
10/31/94: $13.50

<TABLE>

------------------------------------------------------------------
Total Return for Periods Ended 10/31/95
------------------------------------------------------------------
Since
Fund/Index 12 months 5 years Inception
------------------------------------------------------------------
<S> <C> <C> <C>
Harbor Value 21.02% 14.63% 13.07%
------------------------------------------------------------------
S&P 500 26.43% 17.27% 15.10%
------------------------------------------------------------------
Total Return for Periods Ended 9/30/95
------------------------------------------------------------------
Harbor Value 23.14% 14.32% 13.30%
------------------------------------------------------------------
</TABLE>

Performance of the Harbor Value Fund represented a substantial gain but
lagged the S&P 500 index return for the fiscal year. Value oriented stocks
generally did not perform as well as growth stocks over the 12 months and
the S&P 500 Index is weighted in favor of growth stocks. Important
contributions to the Fund's performance came from holdings in the financial
sector, where consolidation was a positive factor, and utilities, which
benefitted from proposed telecommunications legislation. Overall
performance was hurt by a lack of holdings in the technology sector -- most
technology stocks do not meet the Fund's investment criteria. On April 20,
1995, the Harbor Fund Board of Trustees appointed the newly formed firm of
DePrince, Race & Zollo as subadvisor for 75 percent of the Fund's assets.
Responsibility for management of the assets remained with Greg DePrince,
the portfolio manager formerly with the predecessor subadvisor. Richards &
Tierney continue to use quantitative techniques as subadvisor for 25
percent of the Fund's assets.

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
HARBOR VALUE AND THE S&P 500

VALUE S&P 500
<S> <C> <C>
12/87 10000 10000
10/88 12007 11625
10/89 15205 14663
10/90 13229 13567
10/91 17221 18105
10/92 18436 19911
10/93 20646 22874
10/94 21637 23801
10/95 26185 30090

Period ending October 31
</TABLE>

HARBOR BOND FUND NET ASSET VALUE: 10/31/95: $11.21
10/31/94: $10.41

<TABLE>
------------------------------------------------------------------
Total Return for Periods Ended 10/31/95
------------------------------------------------------------------
Since
Fund/Index 12 months 5 years Inception
------------------------------------------------------------------
<S> <C> <C> <C>
Harbor Bond 14.56% 11.22% 10.15%
------------------------------------------------------------------
LB AGG 15.65% 9.65% 9.65%
------------------------------------------------------------------
Total Return for Periods Ended 9/30/95
------------------------------------------------------------------
Harbor Bond 12.62% 11.02% 10.03%
------------------------------------------------------------------
</TABLE>

For the fiscal year, Harbor Bond Fund performance trailed that of the
Lehman Brothers Aggregate index. During late 1994 and early 1995,
performance was adversely affected by higher than expected economic growth
and a subsequent sell-off in the bond market. The Fund also was
underweighted in corporate bonds -- the best performing sector in the first
half. As fears of inflation subsided during the year interest rates --
beyond the very short term -- declined significantly with the resulting
price increases producing appreciable performance for the Fund. During the
second half, an increase in hedged foreign bond exposure -- mainly in
Germany, Canada and the UK -- had a positive effect on performance and the
Fund outperformed the LB AGG over the last third of the fiscal year.

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
HARBOR BOND AND LB AGG

BOND LB AGG
<S> <C> <C>
12/87 10000 10000
10/88 10791 10909
10/89 12049 12207
10/90 12534 12977
10/91 15042 15030
10/92 16869 16508
10/93 19227 18467
10/94 18622 17789
10/95 21334 20573

Period ending October 31
</TABLE>

<PAGE> 105
HARBOR FUND--CONTINUED

Performance data quoted represents past performance and is not predictive of
future performance. 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.

HARBOR SHORT DURATION FUND NET ASSET VALUE: 10/31/95: $8.82
10/31/94: $8.77

<TABLE>
<CAPTION>
------------------------------------------------------------------
Total Return for Periods Ended 10/31/95
------------------------------------------------------------------
Since
Fund/Index 12 months 5 years Inception
------------------------------------------------------------------
<S> <C> <C> <C>
Harbor Short Duration 6.82% -- 4.75%
------------------------------------------------------------------
1-YR GVT 7.10% 5.63% 4.67%
------------------------------------------------------------------
Total Return for Periods Ended 9/30/95
------------------------------------------------------------------
Harbor Short Duration 6.46% -- 4.67%
------------------------------------------------------------------
</TABLE>

Total return of the Harbor Short Duration Fund in the fiscal year
exceeded that of 90-day treasury bills but fell a bit short of the 1-year
U.S. Government bond. High quality corporate bonds and asset backed
securities provided superior returns relative to treasury securities. The
Fund's strategy is to outperform very short-term fixed income funds using
active management. Portfolio duration changes throughout the year aided
performance by capturing some of the bond market rally. Foreign currency
investments had a modest negative effect on performance. T-Bills is an
index of 90-day T-bills; 1-YR GVT is an index of T-Bills with maturities of
8 to 12 months and therefore, provides a more accurate representative
comparison with Harbor Short Duration Fund.

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
HARBOR SHORT DURATION AND T-BILLS

SHORT
DURATION T-BILLS 1-YR. GVT.
<S> <C> <C> <C>
12/91 10000 10000 10000
10/92 10372 10307 10398
10/93 10909 10625 10810
10/94 11185 11038 11121
10/95 11949 11675 11911

Period ending October 31
</TABLE>

HARBOR MONEY MARKET FUND NET ASSET VALUE: 10/31/95: $1.00
10/31/94: $1.00

<TABLE>
<CAPTION>
------------------------------------------------------------------
Total Return for Periods Ended 10/31/95
------------------------------------------------------------------
Since
Fund/Index 12 months 5 years Inception
------------------------------------------------------------------
<S> <C> <C> <C>
Harbor Money Market 5.66% 4.35% 5.71%
------------------------------------------------------------------
T-Bills 5.78% 4.56% 5.78%
------------------------------------------------------------------
Current Yield for Periods Ended 9/30/95
------------------------------------------------------------------
Harbor Money Market 7 days: 5.37% 30 days: 5.32%
------------------------------------------------------------------
</TABLE>

Harbor Money Market Fund performance fell slightly below that of 90-day
treasury bills in the 1995 fiscal year. Highly rated commercial paper made
up the Fund's portfolio throughout the period. Early in the fiscal year,
maturity of the holdings was shortened to between 20 and 40 days. This
improved performance as interest rates continued to rise. Later, as the
economy began to slow, maturity was extended to between 45 and 70 days and
performance benefitted as interest rates began to decline. Money market
shares are neither insured nor guaranteed by the U.S. Government. While
Harbor Money Market Fund seeks to maintain a stable price per share, there
is no assurance this Fund will be able to do so.

<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
HARBOR MONEY MARKET AND T-BILLS

MONEY MARKET T-BILLS
<S> <C> <C>
12/87 10000 10000
10/88 10561 10568
10/89 11557 11494
10/90 12484 12427
10/91 13265 13201
10/92 13752 13712
10/93 14121 14135
10/94 14619 14685
10/95 15447 15533

Period ending October 31
</TABLE>

7
<PAGE> 106

HARBOR INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS--OCTOBER 31, 1995

Investment Holdings By Country (%)
(Excludes net cash and short-term investments of 3.8%)

<TABLE>
<S> <C>
GERMANY (GER) 2.3
ARGENTINA (ARG) 2.7
AUSTRALIA (AUS) 3.1
NETHERLANDS (NET) 3.4
MEXICO (MEX) 3.7
SWEDEN (SW) 7.3
SPAIN (SP) 7.6
THAILAND (THAI) 8.3
UNITED KINGDOM (UK) 11.3
FRANCE (FR) 14.2
HONG KONG (HK) 14.2
SWITZERLAND (SWS) 18.1

</TABLE>

COMMON STOCKS--95.2%
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
APPAREL & TEXTILES--4.2%
Christian Dior (FR)........ 52,100 $ 5,111,083
------------
AUTOMOBILE PARTS--4.2%
Autoliv AB (SW)............ 89,700 5,144,172
------------
BANKS--12.0%
Banco Popular Espanol
(SP)..................... 33,280 $ 5,278,520
Bangkok Bank (THAI)........ 340,400 3,517,644
Standard Chartered PLC
(UK)..................... 59,400 486,019
Thai Farmers Bank PCL
(THAI)................... 649,700 5,371,124
------------
14,653,307
------------

BROADCASTING--1.3%
British Sky Broadcasting
PLC (UK)................. 264,300 1,576,407
------------
BUSINESS SERVICES--3.8%
Societe Generale Surveill
Holding (SWS)............ 2,496 4,710,839
------------

COMPUTER SOFTWARE--2.3%
Sap AG (GER)............... 18,270 2,802,259
------------
CONGLOMERATES--16.1%
BBC Brown Boveri AG
(SWS).................... 4,518 5,235,502
Cheung Kong
(Holdings)(HK)........... 805,000 4,539,437
Siebe PLC (UK)............. 446,600 5,302,791
Swire Pacific Ltd. Cl. A
(HK)..................... 623,300 4,675,680
------------
19,753,410
------------

ELECTRICAL EQUIPMENT--3.2%
Legrand-ADP (FR)........... 35,885 3,945,747
------------
HOUSEHOLD PRODUCTS--3.7%
Kimberly-Clark De Mexico
Cl. A (MEX).............. 349,700 4,554,878
------------
LEISURE--5.3%
Granada Group (UK)......... 606,100 6,474,590
------------
</TABLE>

8
<PAGE> 107

HARBOR INTERNATIONAL GROWTH FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
PETROLEUM--6.4%
Repsol SA (SP)............. 136,400 $ 4,066,895
Woodside Petroleum (AUS)... 798,100 3,818,518
------------
7,885,413
------------
PHARMACEUTICALS--15.1%
Astra A Fria (SW).......... 101,700 3,735,157
Ciba Geigy AG (SWS)........ 5,941 5,138,536
Roche Genuss Holdings AG
(SWS).................... 973 7,063,064
Synthelabo (FR)............ 39,500 2,541,358
------------
18,478,115
------------
PUBLISHING--3.4%
Wolters Kluwer (NET)....... 46,000 4,180,394
------------
REAL ESTATE--6.7%
Amoy Properties (HK)....... 2,663,500 2,566,426
Sun Hung Kai Properties
(HK)..................... 699,300 5,584,961
------------
8,151,387
------------
RETAILING--4.8%
Carrefour (FR)............. 5,890 3,457,273
Castorama DuBois Investisse
(FR)..................... 14,750 2,390,558
------------
5,847,831
------------

UTILITIES--2.7%
Telecom Argentina Cl. B
(ARG).................... 846,400 $ 3,259,054
------------
TOTAL COMMON STOCKS
(Cost $103,153,821)........ 116,528,886
------------
</TABLE>

CONVERTIBLE BONDS--1.0%
(Cost $1,326,350)

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
Bangkok Bank (THAI)
3.250%--03/03/2004........ $1,270,000 1,301,750
------------
SHORT-TERM INVESTMENTS--2.0%
(Cost $2,419,000)
COMMERCIAL PAPER
Ford Motor Credit Company
5.760%--11/01/95.......... 2,419,000 2,419,000
------------
TOTAL INVESTMENTS--98.2%
(Cost $106,899,171).................... 120,249,636
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.8%...................... 2,165,017
------------
TOTAL NET ASSETS--100%................... $122,414,653
============
</TABLE>

The accompanying notes are an integral part of the financial statements.

9
<PAGE> 108

HARBOR INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS--OCTOBER 31, 1995

Investment Holdings By Country (%)
(Excludes net cash and short-term investments of 4.4%)

<TABLE>
<S> <C>
PORTUGAL (PORT) 0.9
AUSTRALIA (AUS) 1.2
DENMARK (DEN) 1.8
SOUTH KOREA (S.KOR) 1.9
BRAZIL (BR) 2.0
ARGENTINA (ARG) 2.4
SPAIN (SP) 2.8
NORWAY (NOR) 2.9
SINGAPORE (SGP) 3.7
MALAYSIA (MAL) 4.1
HONG KONG (HK) 6.2
NETHERLANDS (NET) 6.3
JAPAN (JP) 7.4
SWEDEN (SW) 8.1
SOUTH AFRICA (S.AFR) 8.4
FRANCE (FR) 9.2
SWITZERLAND (SWS) 11.2
UNITED KINGDOM (UK) 15.1

</TABLE>

COMMON STOCKS--93.4%
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------
<S> <C> <C>
AUTOMOTIVE--2.2%
Hyundai Motor Co. GDR
(S. KOR)(1)........... 680,000 $ 12,240,000
Hyundai Motor Co. GDR
Nonvoting (S.
KOR)(1)............... 50,000 900,000
Volvo AB (SW)(a)........ 2,625,000 59,070,212
--------------
72,210,212
--------------
BANKS--17.2%
ABN Amro Holdings NV
(NET)................. 993,395 41,681,226
Banco Bilbao Vizcaya
(SP).................. 1,285,150 39,211,525
Banco Commercial
Portugues (PORT)...... 1,845,999 25,053,456
Banco Commercial
Portugues ADR
(PORT)(2)............. 420,000 5,670,000
Banco Intercontinental
Espana (SP)........... 250,000 21,635,989
Bank of Seoul
(S. KOR).............. 3,631,887 34,935,226
Barclays Bank PLC
(UK).................. 3,758,513 44,064,024
Cie Fin Paribas
Cl. A (FR)............ 647,505 35,598,313
Credit National (FR).... 171,489 10,479,522
CS Holding (SWS)........ 415,720 42,431,195
Korea Limited Credit
Bank (S. KOR)......... 373,496 12,779,357
Malayan Bank Berhad
(MAL)................. 7,707,000 62,130,324
National Westminster
Bank (UK)............. 5,391,829 53,769,064
Royal Bank of Scotland
Group (UK)............ 5,893,809 47,661,665
SCHW Bankverein (SWS)... 112,646 46,187,882
United Overseas Bank
(Alien Market)
(SGP)................. 4,500,693 39,451,799
--------------
562,740,567
--------------
</TABLE>

10
<PAGE> 109
HARBOR INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------
<S> <C> <C>
BEVERAGES--7.3%
Cadbury Schweppes
(UK).................. 6,116,207 $ 50,425,215
Guinness (UK)........... 5,750,000 45,999,710
Heineken NV (NET)....... 250,000 44,299,928
South African Breweries
Ltd. ADR
(S. AFR)(2)........... 2,042,470 67,069,404
Whitbread (UK).......... 3,050,000 29,838,076
--------------
237,632,333
--------------
BUSINESS MACHINES--1.8%
Canon Inc. (JP)......... 3,500,000 59,905,124
--------------
BUSINESS SERVICES--2.0%
SGS Holding (SWS)....... 35,000 66,057,434
--------------
CHEMICALS--2.6%
Ciba Geigy AG (SWS)..... 65,214 56,405,404
Rhone Poulenc
SA (FR)............... 1,300,000 28,322,695
--------------
84,728,099
--------------
CONGLOMERATES--8.6%
Cheung Kong (Holdings)
(HK).................. 7,000,000 39,473,369
Hutchison Whampoa
(HK).................. 10,000,000 55,097,167
Jardine Matheson
(HK).................. 3,645,233 22,235,921
Keppel Corp. (SGP)...... 6,600,000 54,121,230
Kvaerner AS (NOR)....... 652,050 27,425,916
Sime Darby Berhad
(MAL)................. 15,600,000 38,954,957
Swire Pacific Ltd.
Cl. A (HK)............ 6,000,000 45,008,953
--------------
282,317,513
--------------
CONSTRUCTION--0.6%
Hunter Douglas NV
(NET)................. 413,994 20,042,896
--------------
CONSUMER GOODS--1.5%
BIC (FR)................ 500,000 47,415,682
--------------
ELECTRIC UTILITIES--0.4%
AO Mosenergo ADR
(RUS)(2)(a)........... 40,000 $ 370,000
Sydkraft AB Series C
(SW).................. 763,000 13,092,646
--------------
13,462,646
--------------
ELECTRONICS--1.9%
Matsushita Electrical
Industries (JP)....... 2,500,000 35,454,053
Sony Corp. (JP)......... 600,000 26,993,983
--------------
62,448,036
--------------
ENGINEERING--0.8%
Sulzer AG (SWS)......... 41,250 26,314,087
--------------
FOOD--1.0%
Nestle SA (SWS)......... 32,000 33,506,055
--------------
HOUSEHOLD APPLIANCES--0.3%
Electrolux AB (SW)...... 250,000 10,687,014
--------------
INSURANCE--3.7%
International
Nederlanden (NET)..... 739,467 44,036,562
SCHW Ruckversicher
(SWS)................. 71,500 78,136,507
--------------
122,173,069
--------------
INVESTMENT COMPANIES--1.4%
Kinnevik Investment
Ser. B (SW)........... 1,600,000 44,313,477
--------------
MINING & METALS--8.1%
Anglo American Corp.
South Africa Ltd.
ADR (S. AFR)(2)....... 1,260,000 71,505,000
Gencor Ltd. ADR (S.
AFR)(2)............... 26,250,000 92,134,875
Pasminco Ltd. (AUS)*.... 3,000,000 3,308,843
RTZ Corp. (UK).......... 2,077,341 28,681,056
Trelleborg AB
Cl. B (SW)............ 3,312,220 37,142,700
</TABLE>

11
<PAGE> 110
HARBOR INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
----------- --------------
<S> <C> <C>
Western Mining Corp.
(AUS)................. 4,867,716 $ 31,176,274
--------------
263,948,748
--------------
OIL & GAS
EXPLORATION--2.4%
Ampolex Ltd. (AUS)...... 2,400,000 4,746,478
Lasmo (UK).............. 15,571,836 37,839,016
Saga Petroleum AS
(NOR)................. 2,809,000 35,174,286
--------------
77,759,780
--------------
OIL & GAS PRODUCTION--8.4%
British Gas (UK)........ 11,000,000 41,830,111
British Petroleum
(UK).................. 6,226,280 45,732,782
Norsk Hydro AS (NOR).... 833,333 33,177,924
Petrol Brasileiros
(BR).................. 350,000,000 30,207,894
Royal Dutch Petroleum
Co. ADR (NET)(2)...... 450,000 55,293,750
Total Cl. B (FR)........ 644,615 39,813,365
YPF Sociedad Anonima ADR
(ARG)(2).............. 1,600,000 27,400,000
--------------
273,455,826
--------------
PHARMACEUTICALS--6.1%
Astra AB Ser. A (SW).... 950,000 34,890,843
Novo Nordisk AS
(DEN)................. 450,000 57,212,047
Roussel Uclaf (FR)...... 250,000 40,977,777
SmithKline Beecham PLC
ADR (UK)(2)........... 1,270,000 65,881,250
--------------
198,961,917
--------------
PHOTOGRAPHY--1.9%
Fuji Photo Film Co.
(JP).................. 2,450,000 60,623,986
--------------
SHIPYARD--0.8%
Jurong Shipyard (SGP)... 4,000,000 26,579,914
--------------
STEEL--0.0%
Von Roll AG (SWS)*...... 12,000 263,966
Von Roll AG Wts.
12/18/95 (SWS)*....... 12,000 47,514
--------------
311,480
--------------
TELECOMMUNICATION--7.9%
Ericsson (LM) Tel Co.
Ser. B (SW)........... 2,640,000 $ 56,030,057
Ericsson (LM) Tel Co.
ADR Cl. B (SW)(2)..... 440,000 9,398,125
Hong Kong Telecom
(HK).................. 23,284,400 40,655,423
Telebras (BR)........... 865,000,000 35,066,413
Telecom Argentina
Cl. B (ARG)........... 6,600,000 25,413,228
Telefonica De Argentina
Cl. B (ARG)........... 12,000,000 25,323,216
Telefonica De Espana
(SP).................. 2,500,000 31,492,838
Telekom Malaysia
(MAL)................. 4,600,000 32,922,562
--------------
256,301,862
--------------
TIRE & RUBBER--2.9%
Bridgestone Corp.
(JP).................. 2,500,000 34,720,521
CIE Fin Michel Bas
(SWS)................. 34,700 16,792,622
Michelin Cl. B (FR)..... 1,100,000 44,401,107
Michelin Wts. 12/31/95
(FR)*................. 100,000 18,599
--------------
95,932,849
--------------
TOYS & AMUSEMENTS--0.8%
Nintendo Co. (JP)....... 200,000 14,709,764
Sega Enterprises (JP)... 200,000 10,601,985
--------------
25,311,749
--------------
WATER DISTRIBUTION--0.8%
Lyonnaise Des Eaux SA
(FR).................. 264,750 25,810,021
--------------
TOTAL COMMON STOCKS
(Cost $2,228,691,545)... 3,050,952,376
--------------
UNITS--0.8%
(Cost $61,968,374)
Eurotunnel (FR)......... 17,650,000 27,595,620
--------------
</TABLE>

12
<PAGE> 111

HARBOR INTERNATIONAL FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

CONVERTIBLE BONDS--1.4%
(Cost $39,600,000)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------
<S> <C> <C>
LibLife International BV
6.500%--09/30/2004 (S.
AFR).................... $40,000,000 $ 44,800,000
--------------
SHORT-TERM INVESTMENTS--4.1%
COMMERCIAL PAPER
American Express Credit
Corp.
5.700%--11/13/1995.... 11,053,000 11,053,000
--------------
Exxon Asset Management
5.700%--11/08/1995.... 6,289,000 6,289,000
--------------
General Electric Capital
Corp.
5.720%--11/03/1995.... 5,846,000 5,846,000
--------------
General Motors
Acceptance Corp.
5.780%--11/01/1995.... 13,000,000 13,000,000
5.780%--11/02/1995.... 13,519,000 13,519,000
5.780%--11/03/1995.... 1,803,000 1,803,000
5.750%--11/06/1995.... $ 9,666,000 $ 9,666,000
5.730%--11/07/1995.... 12,268,000 12,268,000
5.760%--11/10/1995.... 12,389,000 12,389,000
5.760%--11/14/1995.... 15,922,000 15,922,000
5.790%--11/16/1995.... 8,833,000 8,833,000
--------------
87,400,000
--------------
Prudential Funding Corp.
5.720%--11/09/1995.... 11,346,000 11,346,000
5.730%--11/15/1995.... 10,538,000 10,538,000
--------------
21,884,000
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $132,472,000)................. 132,472,000
--------------
TOTAL INVESTMENTS--99.7%
(Cost $2,462,731,919)............... 3,255,819,996
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.3%.............. 11,336,822
--------------
TOTAL NET ASSETS--100.0%.............. $3,267,156,818
==============
</TABLE>

- ------------
(a) Securities 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,
1995, these securities were valued at $59,440,212 or 1.82% of net assets.
(1) GDR after the name of a foreign holding stands for Global Depository
Receipts representing ownership of foreign securities. GDRs are issued by
either U.S. or non-U.S. banking organizations.
(2) ADR after the name of a foreign holding stands for American Depository
Receipts representing ownership of foreign securities. ADRs are issued by
U.S. banking organizations.
* Non-income producing security.

The accompanying notes are an integral part of the financial statements.

13
<PAGE> 112
HARBOR GROWTH FUND
PORTFOLIO OF INVESTMENTS--OCTOBER 31, 1995

COMMON STOCK HOLDINGS (%)
(Excludes net cash and short-term investments of 5.0%)

<TABLE>
<S> <C>
PAPER PRODUCTS 0.4
CREDIT & FINANCE 0.6
NEWSPAPERS 0.7
TRUCKING & FREIGHT FORWARDING 0.8
PETROLEUM 1.0
GAS EXPLORATION 1.1
AIRLINES 1.3
PETROLEUM SERVICES 1.3
BEVERAGES 1.4
OFFICE SUPPLIES 1.4
ENTERTAINMENT 1.6
TOYS 1.7
APPAREL & TEXTILES 1.9
LEISURE TIME 1.9
HOTELS & RESTAURANTS 2.1
BROADCASTING 2.5
HOME BUILDING 2.5
TELECOMMUNICATIONS EQUIPMENT 2.6
CHEMICALS 2.9
INSURANCE 4.1
TELECOMMUNICATIONS 6.3
COMPUTER & BUSINESS EQUIPMENT 7.3
ELECTRONICS 7.3
COMPUTER SOFTWARE 8.0
BUSINESS SERVICES 9.4
RETAILING 9.5
DRUGS & HEALTH CARE 13.4
</TABLE>

COMMON STOCKS--95.0%
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
AIRLINES--1.3%
Atlantic Southeast Airlines
Inc. .................... 70,000 $ 1,732,500
------------
APPAREL & TEXTILES--1.9%
Nike Inc. ................. 46,000 2,610,500
------------
BEVERAGES--1.4%
Canandaigua Wine Inc. ..... 40,000 1,920,000
------------
BROADCASTING--2.5%
Infinity Broadcasting
Corp.*................... 52,600 1,709,500
Tele-Communications Inc.*
TCI Group, Series A...... 75,000 1,275,000
Tele-Communications Inc.*
Liberty Media Group
Series A................. 18,750 461,719
------------
3,446,219
------------
BUSINESS SERVICES--9.4%
America Online Inc. ....... 34,000 2,720,000
Computer Sciences Corp.*... 24,600 1,645,125
Concord EFS Inc. .......... 65,000 2,242,500
CUC International Inc.*.... 76,950 2,664,394
Equifax Inc. .............. 45,000 1,755,000
SunAmerica Inc. ........... 30,000 1,867,500
------------
12,894,519
------------
CHEMICALS--2.9%
Arcadian Corp. ............ 112,000 2,310,000
IMC Global Inc. ........... 23,400 1,638,000
------------
3,948,000
------------
COMPUTER & BUSINESS
EQUIPMENT--7.3%
Ceridian Corp.*............ 42,900 1,866,150
Cisco Systems Inc. ........ 23,000 1,782,500
FORE Systems............... 31,000 1,643,000
Input / Output Inc. ....... 45,000 1,681,875
Silicon Graphics Inc.*..... 44,300 1,472,975
3Com Corp.*................ 33,200 1,560,400
------------
10,006,900
------------
</TABLE>

14
<PAGE> 113
HARBOR GROWTH FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
COMPUTER SOFTWARE--8.0%
Cadence Design Systems
Inc.*.................... 124,200 $ 4,005,450
Oracle Systems Corp.*...... 7,100 309,738
Parametric Technology
Corp. ................... 28,000 1,876,000
Sterling Software Inc.*.... 45,000 2,075,625
Symantec Corp.*............ 42,500 1,033,281
Synopsys Inc. ............. 46,000 1,725,000
------------
11,025,094
------------
CREDIT & FINANCE--0.6%
Green Tree Financial
Corp. ................... 33,800 899,925
------------
DRUGS & HEALTH CARE--13.4%
Amgen Inc.*................ 49,600 2,380,800
Biogen Inc.*............... 35,000 2,143,750
Cephalon Inc. ............. 55,000 1,650,000
Columbia / HCA Healthcare
Corp. ................... 32,000 1,572,000
Cordis Corp.*.............. 21,500 2,375,750
Genzyme Corp.*............. 37,000 2,155,250
Healthsource Inc. ......... 31,100 1,648,300
Medtronic Inc. ............ 36,400 2,102,100
Omnicare Inc. ............. 45,000 1,631,250
Vencor Inc.*............... 28,100 779,775
------------
18,438,975
------------
ELECTRONICS--7.3%
Atmel Corp.*............... 80,000 2,500,000
DSC Communications
Corp.*................... 19,900 736,300
Intel Corp. ............... 28,000 1,956,500
Oak Technology............. 45,000 2,463,750
Maxim Integrated Products
Inc.*.................... 28,000 2,093,000
Read Rite Corp.*........... 7,600 265,050
------------
10,014,600
------------
ENTERTAINMENT--1.6%
Viacom Inc.*............... 45,000 2,250,000
------------
GAS EXPLORATION--1.1%
Triton Energy Corp. ....... 33,000 1,538,625
------------

HOTELS & RESTAURANTS--2.1%
HFS Inc. .................. 27,700 $ 1,696,625
Host Marriott Corp.*....... 98,300 1,216,462
------------
2,913,087
------------
HOME BUILDING--2.5%
Centex Corp. .............. 55,000 1,801,250
Pulte Corp. ............... 50,000 1,581,250
------------
3,382,500
------------
INSURANCE--4.1%
Allstate Corp. ............ 42,000 1,543,500
MGIC Investment Corp. ..... 35,900 2,041,812
PMI Group Inc. ............ 43,000 2,064,000
------------
5,649,312
------------
LEISURE TIME--1.9%
Mirage Resorts Inc.*....... 44,600 1,460,650
Station Casinos Inc. ...... 85,000 1,105,000
------------
2,565,650
------------
NEWSPAPERS--0.7%
News Corp LTD ADR(1)....... 52,300 1,039,462
------------
OFFICE SUPPLIES--1.4%
Alco Standard.............. 21,600 1,911,600
------------
PAPER PRODUCTS--0.4%
Boise Cascade Corp. ....... 15,600 565,500
------------
PETROLEUM--1.0%
Pogo Producing Co. ........ 69,800 1,404,725
------------
PETROLEUM SERVICES--1.3%
Western Atlas, Inc.*....... 39,500 1,733,063
------------
RETAILING--9.5%
Borders Group Inc. ........ 47,300 810,013
Federated Department Stores
Inc. .................... 36,300 921,112
Kohl's Corp.*.............. 35,000 1,588,125
Micro Warehouse Inc.*...... 23,700 1,054,650
Staples Inc.*.............. 115,875 3,085,172
</TABLE>

15
<PAGE> 114

HARBOR GROWTH FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
---------- ------------
<S> <C> <C>
Sunglass Hut International
Inc. .................... 102,000 $ 2,779,500
Tandy Corp. ............... 28,200 1,392,375
Viking Office Products
Inc.*.................... 30,900 1,375,050
------------
13,005,997
------------
TELECOMMUNICATIONS
EQUIPMENT--2.6%
Allen Group Inc. .......... 50,000 1,225,000
Glenayre Technologies
Inc.*.................... 37,100 2,383,675
------------
3,608,675
------------
TELECOMMUNICATIONS--6.3%
LCI International Inc.*.... 130,000 2,340,000
Mobile Telecommunication
Technologies Corp.*...... 53,700 1,523,737
Paging Network Inc.*....... 70,000 1,610,000
Vodafone Group PLC
ADR(1)................... 25,800 1,054,575
Worldcom Inc. GA........... 66,600 2,172,825
------------
8,701,137
------------
TOYS--1.7%
Mattel, Inc. .............. 82,500 2,371,875
------------
TRUCKING & FREIGHT
FORWARDING--0.8%
Tidewater Inc. ............ 41,300 1,089,288
------------
TOTAL COMMON STOCKS
(Cost $99,265,461)......... $130,667,728
------------
SHORT-TERM INVESTMENTS--5.5%
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
COMMERCIAL PAPER
Merrill Lynch & Co. Inc.
5.870%--11/01/1995....... $6,693,000 $ 6,693,000
Philip Morris Cos. Inc.
5.850%--11/01/1995....... 812,000 812,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $7,505,000)..................... 7,505,000
------------
TOTAL INVESTMENTS--100.5%
(Cost $106,770,461)................... 138,172,728
CASH AND OTHER ASSETS,
LESS LIABILITIES--(0.5%).............. (648,900)
------------
TOTAL NET ASSETS--100.0%................ $137,523,828
============
</TABLE>

- ------------
(1) ADR after the name of a foreign holding stands for American Depository
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
<PAGE> 115

HARBOR CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS--OCTOBER 31, 1995

COMMON STOCK HOLDINGS (%)
(Excludes net cash and short-term investments of 3.4%)

<TABLE>
<S> <C>
RAILWAY 0.9
MACHINERY 1.0
MINERALS 1.0
PAPER PRODUCTS 1.4
BROADCASTING 1.5
TELECOMMUNICATIONS SERVICES 2.1
CONGLOMERATES 2.2
FINANCE 2.3
NEWSPAPERS 2.3
AEROSPACE 2.4
AIRLINE 2.4
BEVERAGE 2.8
HOUSEHOLD PRODUCTS 2.8
INSURANCE 2.8
HOTELS & RESTAURANTS 3.0
LEISURE TIME 3.3
BUSINESS SERVICES 4.0
RETAILING 5.2
TELECOMMUNICATIONS EQUIPMENT 5.7
COMPUTER SOFTWARE 9.9
ELECTRONICS 11.3
DRUGS & HEALTHCARE 13.0
COMPUTER & BUSINESS EQUIPMENT 13.3

</TABLE>

COMMON STOCKS--96.6%
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
AIRLINE--2.4%
AMR Corp. Del*................ 191,200 $ 12,619,200
UAL Corp.*.................... 55,000 9,673,125
------------
22,292,325
------------
AEROSPACE--2.4%
Boeing Co. ................... 338,500 22,214,062
------------
BEVERAGE--2.8%
Coca-Cola Co.................. 173,400 12,463,125
Pepsico, Inc. ................ 258,400 13,630,600
------------
26,093,725
------------
BROADCASTING--1.5%
Infinity Broadcasting
Corp.*...................... 437,700 14,225,250
------------
BUSINESS SERVICES--4.0%
CUC International Inc.*....... 356,062 12,328,647
First Data Corporation........ 226,537 14,979,759
Omnicom Group................. 147,800 9,440,725
------------
36,749,131
------------
COMPUTER & BUSINESS
EQUIPMENT--13.3%
Cisco Systems, Inc.*.......... 397,800 30,829,500
Compaq Computer Corp.*........ 295,400 16,468,550
Dell Computer Corp.*.......... 246,000 11,469,750
Hewlett-Packard Company....... 414,000 38,346,750
Silicon Graphics Inc.*........ 343,600 11,424,700
3Com Corp.*................... 315,500 14,828,500
------------
123,367,750
------------
COMPUTER SOFTWARE--9.9%
Adobe Systems Inc............. 301,400 17,179,800
Autodesk Inc.*................ 303,200 10,308,800
Computer Associates
International, Inc.......... 360,400 19,822,000
Intuit, Inc.*................. 91,800 6,609,600
Microsoft Corp.*.............. 204,500 20,450,000
Pyxis Corp.*.................. 261,400 3,300,175
SAP AG ADR(1)................. 280,800 14,342,028
------------
92,012,403
------------
</TABLE>

17
<PAGE> 116

HARBOR CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
------- ------------
<S> <C> <C>
CONGLOMERATES--2.2%
ITT Corp...................... 164,600 $ 20,163,500
------------
DRUGS & HEALTHCARE--13.0%
Astra A Fria, Ser A(2)........ 470,200 17,269,131
Chiron Corp.*................. 132,400 12,048,400
Eli Lilly & Co................ 156,500 15,121,812
Merck & Co. .................. 254,500 14,633,750
Phycor, Inc.*................. 309,675 11,380,556
SmithKline Beecham PLC
ADR(1)...................... 378,000 19,608,750
United Healthcare Corp. ...... 272,700 14,487,188
Upjohn Co..................... 313,600 15,915,200
------------
120,464,787
------------
ELECTRONICS--11.3%
Amphenol Corp. Cl. A*......... 100,300 2,168,987
Applied Materials Inc.*....... 291,000 14,586,375
Intel Corp.................... 555,200 38,794,600
International Rectifier
Corp.*...................... 313,400 14,142,175
LSI Logic Corp.*.............. 506,000 23,845,250
Texas Instruments Inc. ....... 160,000 10,920,000
------------
104,457,387
------------
FINANCE--2.3%
Federal National Mortgage
Association................. 199,700 20,943,537
------------
HOTELS & RESTAURANTS--3.0%
Hilton Hotels Corp............ 115,100 7,711,700
McDonald's Corporation........ 332,900 13,648,900
Promus Hotel Corp.*........... 287,100 6,316,200
------------
27,676,800
------------
HOUSEHOLD PRODUCTS--2.8%
Duracell International,
Inc. ....................... 230,000 12,046,250
Gillette Co. ................. 295,500 14,294,813
------------
26,341,063
------------
INSURANCE--2.8%
American International Group,
Inc. ....................... 117,700 9,930,938
MGIC Investment Corp.......... 277,400 15,777,125
------------
25,708,063
------------

LEISURE TIME--3.3%
Disney (Walt) Co. ............ 352,800 $ 20,330,100
Harrahs Entertainment Inc.*... 404,600 10,013,850
------------
30,343,950
------------
MACHINERY--1.0%
Harnischfeger Industries
Inc......................... 306,000 9,639,000
------------
MINERALS--1.0%
Minerals Technologies Inc..... 233,000 9,290,875
------------
NEWSPAPERS--2.3%
News Corp. LTD ADR(1)......... 83,200 1,653,600
Reuters Holdings PLC ADR
Cl. B(1).................... 350,100 19,430,550
------------
21,084,150
------------
PAPER PRODUCTS--1.4%
Champion International
Corp. ...................... 240,100 12,845,350
------------
RAILWAY--0.9%
Wisconsin Central
Transportation Corp.*....... 142,000 8,555,500
------------
RETAILING--5.2%
Autozone Inc.*................ 498,100 12,327,975
Dollar General Corp........... 302,850 7,419,825
Kohl's Corp.*................. 188,600 8,557,725
Micro Warehouse, Inc.*........ 223,000 9,923,500
Office Max, Inc.*............. 387,950 9,601,763
------------
47,830,788
------------
TELECOMMUNICATIONS
EQUIPMENT--5.7%
Ericsson (LM) Telephone Co. --
ADR Cl. B(1)................ 342,000 7,304,906
Motorola, Inc................. 364,100 23,894,063
Nokia Corp. .................. 382,800 21,341,100
------------
52,540,069
------------
TELECOMMUNICATIONS
SERVICES--2.1%
Vodafone Group PLC ADR(1)..... 484,600 19,808,025
------------
TOTAL COMMON STOCKS
(Cost $699,355,762)........... 894,647,490
------------
</TABLE>

18
<PAGE> 117

HARBOR CAPITAL APPRECIATION FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

SHORT-TERM INVESTMENTS--2.5%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
COMMERCIAL PAPER
Ford Motor Credit Co.
5.760%--11/01/95........ $22,571,000 $ 22,571,000
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $22,571,000).................... 22,571,000
------------

<CAPTION>
VALUE
------------
<S> <C>
TOTAL INVESTMENTS--99.1%
(Cost $721,926,762)................... $917,218,490
CASH AND OTHER ASSETS, LESS
LIABILITIES--0.9%..................... 8,532,418
------------
TOTAL NET ASSETS--100.0%................ $925,750,908
============
</TABLE>

The accompanying notes are an integral part of the financial statements.

19
<PAGE> 118

HARBOR VALUE FUND
PORTFOLIO OF INVESTMENTS--OCTOBER 31, 1995

COMMON STOCK HOLDINGS (%)
(Excludes net cash and short-term investments of 4.4%)

<TABLE>
<S> <C>
AEROSPACE 0.1
BROADCASTING 0.1
ENTERTAINMENT 0.1
HOTELS & RESTAURANTS 0.1
MINING 0.1
PHOTOGRAPHIC EQUIPMENT 0.1
POLLUTION CONTROL 0.1
RAILROADS 0.1
FINANCIAL SERVICES 0.2
COMPUTER & BUSINESS EQUIPMENT 0.3
CONSTRUCTION MATERIALS 0.3
APPAREL 0.4
AUTOMOBILE 0.4
MACHINERY 0.5
METALS 0.5
NEWSPAPERS 0.8
PAPER PRODUCTS 0.9
TOBACCO 1.0
TOOLS 1.3
PETROLEUM SERVICES 1.7
ELECTRONICS 1.8
PUBLISHING 1.8
GAS EXPLORATION 2.0
BUSINESS SERVICES 2.5
HOUSEHOLD PRODUCTS 2.5
CONGLOMERATES 3.2
NATURAL GAS 3.5
INSURANCE 3.6
RETAILING 3.9
DRUGS & HEALTHCARE 4.1
PUBLIC UTILITIES/ELECTRIC 4.5
CHEMICALS 4.7
FOOD & BEVERAGE 5.2
ELECTRICAL EQUIPMENT 5.5
PETROLEUM INTERNATIONAL 6.2
PETROLEUM DOMESTIC 7.8
BANKING 9.4
TELECOMMUNICATIONS 14.3

</TABLE>

COMMON STOCKS--95.2%
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
AEROSPACE--0.1%
Lockheed Martin Corp. ......... 600 $ 40,875
United Technologies Corp....... 500 44,375
-----------
85,250
-----------
APPAREL--0.4%
Intibrands Inc. ............... 22,300 373,525
-----------
AUTOMOBILE--0.4%
Chrysler Corp. ................ 1,100 56,787
Federal Signal Corp............ 2,900 64,888
Ford Motor Co. ................ 7,600 218,500
General Motors Corp. .......... 800 35,000
-----------
375,175
-----------
BANKING--9.4%
AmSouth Bancorp................ 16,000 638,000
Banc One Corp.................. 1,540 51,975
BankAmerica Corp............... 600 34,500
BayBanks Inc. ................. 9,000 729,000
Boatmens Bancshares, Inc....... 1,000 38,000
Central Fiduciary Banks,
Inc.......................... 29,900 926,900
Chemical Banking Corp. ........ 300 17,062
Corestates Financial Corp...... 1,600 58,200
Crestar Financial Corp. ....... 17,550 1,000,350
First America Bank Corp........ 600 25,575
First American Corp. TN........ 23,300 1,022,288
Firstar Corp. New.............. 600 21,225
Great Western Financial
Corp......................... 500 11,313
H F Ahmanson & Co.............. 500 12,500
Huntington Bancshares, Inc. ... 1,050 25,069
J P Morgan & Co Inc. .......... 500 38,562
Jefferson Bankshares Inc. ..... 27,000 597,375
Magna Group Inc................ 42,600 1,049,025
NationsBank Corp............... 1,400 92,050
Roosevelt Financial Group
Inc. ........................ 37,000 596,625
Summit Bancorporation.......... 33,470 949,711
US Bancorp OR.................. 1,000 29,625
-----------
7,964,930
-----------
BROADCASTING--0.1%
Capital Cities/ABC, Inc........ 1,000 118,625
-----------
BUSINESS SERVICES--2.5%
Automatic Data Processing,
Inc.......................... 300 21,450
</TABLE>

20
<PAGE> 119
HARBOR VALUE FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
General Motors Corp. Cl. E..... 1,100 $ 51,838
H & R Block, Inc............... 300 12,375
Kelly Services Inc. Cl. A...... 25,200 633,150
Ogden Corp..................... 58,600 1,333,150
Sysco Corp. ................... 1,300 39,487
-----------
2,091,450
-----------
CHEMICALS--4.7%
Betz Laboratories Inc.......... 13,500 543,375
Crompton & Knowles Corp........ 52,600 664,075
Dow Chemical Co................ 2,900 199,013
E I DuPont De Nemours & Co. ... 1,600 99,800
Eastman Chemical Co............ 500 29,750
Ethyl Corp. ................... 112,600 1,252,675
Lawter International Inc. ..... 33,300 353,812
Nalco Chemical Co. ............ 16,500 495,000
PPG Industries, Inc. .......... 1,000 42,500
Potash Corp. Saskatchewan
Inc.(2)...................... 1,000 69,625
Witco Corp..................... 7,800 217,831
-----------
3,967,456
-----------
COMPUTERS & BUSINESS
EQUIPMENT--0.3%
Hewlett Packard Co............. 1,400 129,675
International Business Machines
Corp......................... 1,400 136,150
-----------
265,825
-----------
CONGLOMERATES--3.2%
Hanson PLC ADR(1).............. 102,800 1,593,400
ITT Corp....................... 500 61,250
Minnesota Mining &
Manufacturing Co............. 18,900 1,074,937
-----------
2,729,587
-----------
CONSTRUCTION MATERIALS--0.3%
Armstrong World Industries,
Inc.......................... 1,000 59,375
Sherwin Williams Co............ 300 11,288
Vulcan Materials Co............ 3,100 172,437
-----------
243,100
-----------
CONTAINERS & GLASS--0.0%
Crown Cork & Seal Inc.*........ 600 $ 20,925
-----------

DRUGS & HEALTHCARE--4.1%
Abbott Labs.................... 1,400 55,650
Bristol Myers Squibb Co. ...... 16,200 1,235,250
Johnson & Johnson.............. 1,000 81,500
Merck & Co. Inc................ 5,200 299,000
Pfizer Inc..................... 1,100 63,112
Rhone Poulenc Rorer, Inc....... 600 28,275
Schering Plough Corp........... 1,200 64,350
Warner Lambert Co.............. 19,500 1,659,938
-----------
3,487,075
-----------
ELECTRICAL EQUIPMENT--5.5%
Cooper Industries Inc.......... 35,000 1,181,250
Eaton Corp..................... 19,800 1,014,750
General Electric Co............ 12,900 815,925
General Signal Corp. .......... 49,800 1,587,375
National Service Industries,
Inc. ........................ 300 8,925
Westinghouse Electric Corp. ... 1,000 14,125
-----------
4,622,350
-----------
ELECTRONICS--1.8%
Motorola Inc................... 500 32,812
Thomas & Betts Corp............ 22,700 1,466,988
-----------
1,499,800
-----------
ENTERTAINMENT--0.1%
Polygram NV ADR(1)............. 700 43,400
-----------
FINANCIAL SERVICES--0.2%
Dean Witter Discover & Co...... 600 29,850
Merrill Lynch & Co Inc. ....... 800 44,400
Travelers Group Inc............ 1,202 60,701
-----------
134,951
-----------
FOOD & BEVERAGE--5.2%
Campbell Soup Co............... 900 47,138
Coca Cola Co................... 8,200 589,375
Conagra Inc.................... 1,400 54,075
General Mills Inc.............. 11,500 659,812
Grand Met PLC ADR(1)........... 39,900 1,097,250
H J Heinz Co................... 13,700 637,050
</TABLE>

21
<PAGE> 120
HARBOR VALUE FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Lance Inc...................... 41,200 $ 695,250
Pepsico Inc. .................. 800 42,200
Sara Lee Corp.................. 2,000 58,750
Tasty Baking Corp.............. 13,300 182,875
Unilever NV.................... 2,300 301,300
-----------
4,365,075
-----------
GAS EXPLORATION--2.0%
Burlington Resources, Inc...... 700 25,200
Occidental Petroleum Corp...... 76,900 1,653,350
Oryx Energy Co. ............... 500 5,750
Union Texas Petroleum Holdings
Inc.......................... 500 9,000
-----------
1,693,300
-----------
GROCERIES--0.0%
Kroger Co.*.................... 500 16,687
-----------
HOTELS & RESTAURANTS--0.1%
Dial Corp. DE.................. 400 9,750
Harrahs Entertainment Inc.*.... 300 7,425
McDonald's Corporation......... 1,800 73,800
Promus Hotel Corp.*............ 150 3,300
-----------
94,275
-----------
HOUSEHOLD PRODUCTS--2.5%
Colgate Palmolive Co. ......... 17,100 1,184,175
Corning Inc. .................. 25,200 658,350
Gillette Co. .................. 600 29,025
Procter & Gamble Co. .......... 2,900 234,900
-----------
2,106,450
-----------
INSURANCE--3.6%
Allstate Corp.................. 3,868 142,149
American General Corp. ........ 33,500 1,101,313
American International Group,
Inc.......................... 1,050 88,594
Aon Corp. ..................... 14,800 608,650
Loews Corp..................... 1,000 146,625
Ohio Casualty Corp............. 6,400 227,200
Safeco Corp.................... 300 19,256
St. Paul Companies, Inc........ 400 20,300
Torchmark Inc.................. 15,200 630,800
Unitrin, Inc................... 300 $ 13,875
-----------
2,998,762
-----------

MACHINERY--0.5%
Barnes Group, Inc.............. 300 11,250
Caterpillar Inc. .............. 800 44,900
Deere & Co. ................... 300 26,812
Goulds Pumps Inc............... 13,300 315,875
Timken Co...................... 400 16,100
-----------
414,937
-----------
METALS--0.5%
Alcan Aluminum LTD............. 1,800 56,925
Allegheny Ludlum Corp.......... 2,600 43,875
Aluminum Co. of America........ 600 30,600
Barrick Gold Corp. ............ 1,400 32,375
Inco LTD(2).................... 2,600 89,375
Reynolds Metals Co. ........... 1,600 80,600
USX U S Steel.................. 2,100 62,737
-----------
396,487
-----------
MINING--0.1%
Freeport McMoran Copper & Gold
Cl. A........................ 150 3,431
Freeport McMoran Copper & Gold
Cl. B........................ 2,806 63,836
Homestake Mining Co. .......... 700 10,763
Placer Dome, Inc. ............. 1,000 21,875
Santa Fe Pacific Gold Corp..... 1,320 13,035
-----------
112,940
-----------
NATURAL GAS--3.5%
Brooklyn Union Gas Co.......... 20,500 515,062
Enron Corp. ................... 500 17,187
Enserch Corp. ................. 7,100 102,950
MCN Corp....................... 16,800 365,400
Nova Corp. Alberta(2).......... 11,000 83,875
Questar Corp................... 19,500 587,438
Sonat, Inc..................... 39,000 1,121,250
Transcanada Pipelines
Ltd.(2)...................... 5,800 77,575
Westcoast Energy, Inc.(2)...... 1,500 22,125
Williams Companies, Inc. ...... 600 23,175
-----------
2,916,037
-----------
</TABLE>

22
<PAGE> 121

HARBOR VALUE FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED
<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
NEWSPAPERS--0.8%
Gannett Inc.................... 11,800 $ 641,625
-----------
PAPER PRODUCTS--0.9%
Champion International
Corp. ....................... 1,500 80,250
International Paper Co. ....... 1,200 44,400
Kimberly-Clark Corp. .......... 8,800 639,100
Union Camp Corp. .............. 600 30,525
-----------
794,275
-----------
PETROLEUM DOMESTIC--7.8%
Amerada Hess Corp. ............ 400 18,050
Ashland Inc. .................. 24,200 765,325
Atlantic Richfield Co. ........ 14,900 1,590,575
Freeport McMoran Inc. ......... 666 24,892
Kerr McGee Corp................ 300 16,537
Mobil Corp..................... 12,200 1,229,150
Tenneco, Inc................... 34,900 1,531,238
Unocal Corp.................... 49,000 1,286,250
USX Marathon Group............. 5,300 94,075
-----------
6,556,092
-----------
PETROLEUM INTERNATIONAL--6.2%
Amoco Corp..................... 16,200 1,034,775
Chevron Corp................... 8,000 374,000
Exxon Corp..................... 14,500 1,107,438
Repsol SA ADR(1)............... 46,100 1,365,712
Royal Dutch Petroleum Corp..... 6,800 835,550
Texaco, Inc.................... 7,900 538,188
-----------
5,255,663
-----------
PETROLEUM SERVICES--1.7%
Dresser Industries Inc......... 63,800 1,323,850
Schlumberger Ltd. ............. 1,200 74,700
-----------
1,398,550
-----------
PHOTOGRAPHIC EQUIPMENT--0.1%
Eastman Kodak Co............... 2,000 125,250
-----------
POLLUTION CONTROL--0.1%
WMX Technologies Inc........... 1,900 53,437
-----------
PUBLIC UTILITIES/ELECTRIC--4.5%
Baltimore Gas & Electric
Co. ......................... 2,800 74,900
CINergy Corp................... 35,949 1,020,053
Consolidated Edison Co. NY
Inc.......................... 4,100 $ 124,537
Dominion Resources Inc. VA..... 2,500 99,375
Duke Power Co.................. 2,500 111,875
Entergy Corp................... 3,000 85,500
Houston Industries, Inc........ 3,600 166,950
Illinova Corp.................. 3,400 96,475
Midamerican Energy Co.......... 1,400 22,400
Northeast Utilities............ 3,600 89,100
Pacificorp..................... 3,800 71,725
PECO Energy Co................. 27,400 801,450
PP & L Resources Inc........... 3,100 69,750
SCEcorp........................ 4,900 83,300
Southern Co. .................. 2,500 59,688
Texas Utilities Co............. 18,100 665,175
Unicom Corp.................... 5,000 163,750
-----------
3,806,003
-----------
PUBLISHING--1.8%
Dun & Bradstreet Corp.......... 25,000 1,493,750
Time Warner Inc................ 500 18,250
-----------
1,512,000
-----------
RAILROADS--0.1%
CSX Corp....................... 400 33,500
Union Pacific Corp............. 600 39,225
-----------
72,725
-----------
RETAILING--3.5%
Autozone Inc.*................. 600 14,850
Limited, Inc. ................. 1,400 25,725
May Department Stores Co....... 34,700 1,361,975
Melville Corp.................. 600 19,200
Mercantile Stores Inc. ........ 20,900 937,888
J. C. Penney Inc............... 11,200 471,800
Sears, Roebuck & Co............ 1,800 61,200
Toys R Us, Inc.*............... 300 6,562
WalMart Stores, Inc............ 3,900 84,338
-----------
2,983,538
-----------
TELECOMMUNICATIONS--14.3%
AT&T Corp...................... 10,900 697,600
Airtouch Communications
Inc.*........................ 9,800 279,300
Alltel Corp. .................. 22,100 676,813
</TABLE>

23
<PAGE> 122

HARBOR VALUE FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

COMMON STOCKS--CONTINUED

<TABLE>
<CAPTION>
SHARES VALUE
------- -----------
<S> <C> <C>
Ameritech Corp................. 7,200 $ 388,800
BCE Inc........................ 28,000 941,500
Bell Atlantic Corp............. 5,000 318,125
BellSouth Corp................. 8,000 612,000
Frontier Corp.................. 58,800 1,587,600
GTE Corp....................... 50,900 2,099,625
Northern Telecom Ltd........... 2,000 72,000
Nynex Corp..................... 11,900 559,300
Pacific Telesis Group.......... 4,600 139,725
SBC Communications Inc. ....... 7,500 419,062
Southern New England Telecomm
Corp. ....................... 42,200 1,524,475
Sprint Corp. .................. 38,100 1,466,850
U S West Inc................... 7,100 338,138
-----------
12,120,913
-----------
TIRES & RUBBER--0.0%
Goodyear Tire and Rubber Co.... 600 22,800
-----------
TOBACCO--1.0%
Philip Morris Companies Inc.... 2,300 194,350
RJR Nabisco Holdings Corp.
New.......................... 20,640 634,680
-----------
829,030
-----------
TOOLS--1.3%
Snap On Inc.................... 18,900 800,888
Stanley Works.................. 7,000 334,250
-----------
1,135,138
-----------
TRANSPORTATION--0.0%
Transport Holdings Inc.*....... 6 236
-----------
TOTAL COMMON STOCKS
(Cost $75,489,615)............. 80,445,649
-----------
</TABLE>

CONVERTIBLE BONDS--0.4%
(Cost $300,000)
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
<S> <C> <C>
Federated Department
Stores Inc. .............. $ 300,000 $ 295,500
-----------
SHORT-TERM INVESTMENTS--4.1%
COMMERCIAL PAPER
Euro Time Deposit
5.625%--11/24/95.......... 400,000 400,000
Ford Motor Credit Co.
5.700%--12/22/95.......... 500,000 500,060
General Electric Capital
Corp. 5.660%--01/22/96.... 500,000 500,055
Repurchase Agreement with
State Street Bank & Trust
dated October 31, 1995 due
on demand at 4.750%,
collateralized by a U.S.
Treasury Bond, 8.875%
February 15, 2019, par
value of $1,650,000
(repurchase proceeds of
$2,081,275 if closed on
November 1, 1995)......... 2,081,000 2,081,000
-----------
TOTAL SHORT-TERM INVESTMENTS
(Cost $3,481,115)...................... 3,481,115
-----------
TOTAL INVESTMENTS--99.7%
(Cost $79,270,730)..................... 84,222,264
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.3%................. 291,570
-----------
TOTAL NET ASSETS--100%................... $84,513,834
===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

24
<PAGE> 123
HARBOR BOND FUND
PORTFOLIO OF INVESTMENTS--OCTOBER 31, 1995

TOTAL INVESTMENTS (%)
(Excludes net cash and short-term investments of 4.4%)

<TABLE>
<S> <C>
- -----------------------------------
ASSET BACKED SECURITIES 3.1
U.S. GOVERNMENT OBLIGATIONS 4.5
FOREIGN BONDS 8.9
CORPORATE BONDS & NOTES 21.5
MORTGAGE RELATED SECURITIES 57.6

</TABLE>

ASSET BACKED SECURITIES--3.1%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
Premier Auto Trust Cl. A-2
5.750%--11/04/1996........ $ 1,903,486 $ 1,906,035
Student Loan Marketing
Association
Series 1995 Cl. A-2
6.130%--10/25/2007+....... 5,000,000 5,000,000
TOTAL ASSET BACKED
SECURITIES
(Cost $6,893,668)......... 6,906,035
------------
CORPORATE BONDS & NOTES--21.5%
AMR Corp. MTN(1)
10.000%--03/07/2001....... 2,000,000 2,278,928
Banco Nacional De Obras Y
Serv
6.875%--10/01/1998(a)..... 3,000,000 2,685,000
Banesto Del Inc.
8.250%--07/28/2002........ 3,000,000 3,146,385
Banesto Finance
6.125%--04/21/2003(a)+.... 2,000,000 1,970,626
Banmer SA
8.000%--07/07/1998(a)..... $ 4,000,000 $ 3,605,000
CTC Mansfield Funding Corp.
11.125%--09/30/2016....... 2,000,000 2,085,168
Capital One Bank MTN(1)
6.250%--07/11/1996+....... 5,000,000 5,003,470
Cemex SA MTN(1)
8.500%--08/31/2000(a)..... 1,000,000 858,520
Comerica Inc.
10.125%--06/01/1998....... 50,000 54,422
Commonwealth Edison Co.
8.000%--10/15/2003........ 3,000,000 3,071,763
General Motors Acceptance
Corp.
8.750%--02/01/1996........ 3,000,000 3,019,944
Great Western Bank Beverly
Hills, CA
10.500%--05/30/2000....... 700,000 780,383
Heller Financial, Inc.
6.450%--02/15/1997........ 250,000 248,697
Hydro Quebec Yankee Bonds
9.500%--11/15/2030........ 775,000 957,915
Saferco Products Inc. MTN(1)
9.630%--05/31/2000........ 500,000 565,625
Shearson Lehman Holdings
MTN(1)
6.406%--03/18/1996+....... 3,000,000 2,999,820
Texas New Mexico Power Co.
11.250%--01/15/1997....... 775,000 809,317
Texas Utilities Electric Co.
6.265%--05/01/1999........ 5,000,000 5,005,810
Time Warner Inc.
Floating Rate Note
6.835--08/15/2000+........ 750,000 753,814
7.975--08/15/2004......... 450,000 462,314
8.110--08/15/2006......... 900,000 924,034
8.180--08/15/2007......... 900,000 922,620
------------
3,062,782
------------
United Air Lines Inc.
6.750%--12/01/1997
MTN(1).................... 4,000,000 3,988,704
10.250%--07/15/2021....... 1,500,000 1,760,152
------------
5,748,856
------------
Xerox Credit Corp.
10.000%--04/01/1999....... 50,000 55,733
TOTAL CORPORATE BONDS AND NOTES
(Cost $47,655,933)........ 48,014,164
------------
</TABLE>

25
<PAGE> 124
HARBOR BOND FUND
PORTFOLIO OF INVESTMENTS--CONTINUED
<TABLE>
<CAPTION>
FOREIGN BONDS--8.9%
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
Republic of Argentina
5.875%--05/31/1996+....... $ 500,000 $ 488,500
Series L
6.813%--03/31/2005........ $ 1,000,000 593,750
------------
1,082,250
------------
Canadian Government Series
A-79
8.750%--12/01/2005........ C$ 9,300,000 7,438,093
Canadian National Railroad
Co.
13.000%--11/15/2004....... C$ 2,030,000 1,584,739
12.250%--05/01/2005....... C$ 1,647,000 1,285,747
------------
2,870,486
------------
Federal Republic of Germany
7.500%--11/11/2004..........DM10,000,000
7,586,646
Mexico (UTD MES ST)
6.875%--12/31/2019........ $ 1,250,000 834,375
TOTAL FOREIGN BONDS
(Cost $20,304,784)........ 19,811,850
------------
MORTGAGE RELATED SECURITIES--57.6%
COLLATERALIZED MORTGAGE OBLIGATIONS:
Capstead Securities Corp. IV
Series 91 Class VII
8.900%--12/25/2021........ 640,944 660,772
Chase Mortgage Financial
Corp. REMIC
Series 1990 Cl. 2A2
7.500%--03/25/2025........ 1,080,455 1,081,806
Chase Mortgage Financial
Corp. Series 1992 Cl. A1
Pass Thru REMIC
8.000%--06/25/2024........ 148,111 149,594
Collaterized Mortgage
Obligation Trust
Series 64-C
9.000%--04/20/2017........ 178,050 177,923
Collaterized Mortgage
Securities Corp. Series
F-4
11.450%--11/01/2015....... 499,439 552,764
Collaterized Mortgage
Securities Corp.
Series 1988 B-4
8.750%--04/20/2019........ 532,542 552,922
Drexel Burnham Lambert
Series H-4
8.500%--04/01/2017........ 7,154,156 7,479,305
Federal Home Loan Mortgage
Corp.
9.500%--05/15/2018........ $ 218,576 $ 223,035
8.500%--01/15/2019........ 3,981,985 3,998,506
8.700%--02/15/2020........ 5,000,000 5,160,395
9.000%--12/15/2020........ 4,627,372 4,880,161
------------
14,262,097
------------
Federal National Mortgage
Association REMIC
6.500%--02/25/2007
IO(2)................... 7,319,325 799,263
6.000%--07/25/2017
IO(2)................... 2,865,442 573,658
8.500%--11/25/2018........ 5,204,380 5,217,906
9.000%--03/25/2020........ 8,248,760 8,751,596
6.500%--06/25/2021........ 4,290,829 3,794,702
------------
19,137,125
------------
Kidder Peabody Acceptance
Corp. I Series 1994 A1
7.059%--03/25/2024........ 3,000,000 3,008,907
L & N Funding Corp. GNMA
Coll., Series A-4
12.000%--03/17/2014....... 1,210,625 1,283,642
MDC Mortgage Funding Corp.
Cl. Q-6
9.000%--03/20/2018........ 14,392 14,575
Norwest Mortgage Insurance
Corp. GNMA Coll. Cl. 1-Z
12.375%--01/01/2014....... 207,310 229,079
Prudential Home Mortgage
Securities Co.
Series 1993 Cl. A-8
6.750%--08/25/2008........ 6,014,913 5,734,131
Residential Funding
Mortgage, Secs Conduit
Series 1991 A-8
9.000%--12/25/2021........ 476,836 486,233
Resolution Trust Corporation
Mortgage Pass Thru Series
1991 L-1
8.780%--08/25/2021+....... 3,000,000 3,081,564
Ryan Mortgage Acceptance
Corp. IV
8.900%--06/01/2016........ 160,780 162,038
9.000%--08/01/2016........ 628,846 664,495
------------
826,533
------------
Ryland Mortgage Securities
Corp.,
Series 1992 B-9
8.176%--07/25/2022+....... 3,000,000 3,046,875
</TABLE>

26
<PAGE> 125
HARBOR BOND FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

MORTGAGE RELATED SECURITIES--CONTINUED

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
Saxon Mortgage Securities
Corp.,
Series 1995 A-1
7.376%--04/25/2025+....... $ 2,670,937 $ 2,734,372
Sears Mortgage Securities
Corp. Series 92 Cl. A
7.589%--10/25/2022........ 2,034,338 2,059,340
Sears Savings Bank Mortgage
Pass Thru Series 1992
REMIC
8.712%--05/25/2032+....... 1,301,882 1,303,518
TOTAL COLLATERALIZED MORTGAGE
OBLIGATIONS............... 67,863,077
------------
OTHER MORTGAGE RELATED SECURITIES:
Federal Housing Authority
Project Banco-221D
7.400%--02/01/2021........ 900,480 923,274
Federal Housing Authority
Project Banco-15
7.450%--05/01/2021........ 356,951 365,317
Federal Housing Authority
Project Reilly #52
5.150%--06/01/2018........ 328,479 279,002
Federal Home Loan Mortgage
Corp. Forward Gold 30
year, TBA(b)
7.500%--12/13/2025........ 5,000,000 5,045,300
Federal Home Loan Mortgage
Corp.
5.750%--03/01/1999....... 14,948 13,804
10.500%--09/01/2000....... 29,091 31,011
7.500%--03/01/2002....... 40,482 40,760
8.000%--06/01/2011....... 125,280 128,782
------------
214,357
------------
Federal Home Loan Mortgage
Corp. Pass
Thru Certificates
8.500%--02/01/2017....... 181,883 187,566
6.603%--06/01/2024....... 4,224,643 4,311,100
------------
4,498,666
------------
Federal National Mortgage
Association Pass Thru
Certificates
9.000%--03/01/2005........ $ 398,864 $ 418,903
9.000%--11/01/2009........ 2,587,801 2,708,295
8.500%--12/01/2009........ 19,047 19,773
9.500%--04/01/2011........ 129,399 137,612
------------
3,284,583
------------

Government National Mortgage
Association
6.500%--03/15/2017........ 1,957,538 1,971,278
6.750%--08/15/2017........ 436,499 427,562
7.000%--05/20/2024........ 1,885,997 1,913,109
7.375%--06/20/2024........ 9,111,982 9,318,432
7.250%--07/20/2024........ 126,575 129,164
7.250%--08/20/2024........ 4,638,656 4,733,512
7.250%--09/20/2024........ 9,392,097 9,584,156
7.500%--12/20/2024........ 1,029,644 1,049,593
7.000%--01/20/2025........ 4,708,960 4,809,025
7.000%--02/20/2025........ 1,647,874 1,677,228
7.500%--02/20/2025........ 2,090,345 2,134,113
7.000%--06/20/2025........ 4,825,197 4,927,732
------------
42,674,904
------------
United Airlines Pass Thru
Certificate Series 1993
C-2
9.060%--06/17/2015+....... 3,000,000 3,167,325
TOTAL OTHER MORTGAGE RELATED
SECURITIES................ 60,452,728
------------
TOTAL MORTGAGE RELATED SECURITIES
(Cost $127,263,484)....... 128,315,805
------------
U.S. GOVERNMENT OBLIGATIONS--4.5%
U.S. Treasury Notes
6.500%--04/30/1997(4)..... 5,000,000 5,055,859
5.625%--08/31/1997........ 5,000,000 5,003,125
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost $10,055,664)........ 10,058,984
------------
</TABLE>

OPTIONS--0.0%
(Cost $2,591)

<TABLE>
<CAPTION>
NO. OF
CONTRACTS
-----------
<S> <C> <C>
CME Put Option
Eurodollars,
Strike Price @ 91.00
Expiration 06/18/1996..... 145 5,664
</TABLE>

27
<PAGE> 126
HARBOR BOND FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

SHORT-TERM INVESTMENTS--7.5%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
REPURCHASE AGREEMENTS
Repurchase Agreement with
State Street Bank & Trust
dated October 31, 1995 due
on demand at 4.750%,
collateralized by a U.S.
Treasury Note, 10.375%
November 15, 2009, par
value of $1,545,000
(repurchase proceeds of
$2,012,265 if closed on
November 1, 1995)......... $ 2,012,000 $ 2,012,000
U.S. TREASURY BILLS
5.180%--11/16/1995(3)..... 40,000 39,898
4.950%--11/30/1995(3)..... 790,000 786,640
5.340%--02/08/1996(3)..... 565,000 556,703
5.320%--02/15/1996(3)..... 280,000 275,597
------------
1,658,838
------------
FOREIGN GOVERNMENT TREASURY BILLS
New South Wales Treasury
5.710%--01/25/1996...... 1,100,000 1,085,170
Western Australia Treasury
5.700%--11/17/1995...... 1,000,000 997,467
------------
2,082,637
------------
COMMERCIAL PAPER
American Telephone &
Telegraph Co.
5.650%--11/03/1995...... 100,000 99,969
5.670%--12/08/1995...... 1,000,000 994,172
------------
1,094,141
------------
Associates Corp. North
American
5.690%--11/17/1995...... $ 400,000 $ 398,989
5.680%--11/27/1995...... 800,000 796,718
5.680%--12/04/1995...... 1,000,000 994,793
------------
2,190,500
------------
Coca Cola Co.
5.700%--11/09/1995...... 500,000 499,367
E I DuPont De Nemours &
Co.
6.060%--01/03/1996...... 600,000 593,638
General Electric Capital
Corp.
5.730%--11/20/1995...... 600,000 598,185
Hewlett Packard Co.
5.810%--11/14/1995...... 100,000 99,790
5.670%--01/04/1996...... 1,000,000 989,920
------------
1,089,710
------------
KFW International Finance
Inc.
5.700%--01/17/1996...... 3,400,000 3,358,548
Minnesota Mining &
Manufacturing Co.
5.640%--11/14/1995...... 600,000 598,778
Treasury Corp. of Victoria
5.710%--11/30/1995...... 1,000,000 995,400
------------
</TABLE>

- ------------
+ Variable rate security. The stated rate represents the rate in effect at
October 31, 1995.

(a) 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,
1995, these securities were valued at $9,119,146 or 4.1% of net assets.

(b) TBA's are mortgage-backed securities traded under delayed delivery
commitments, settling after October 31, 1995. 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).

(1) MTN after the name of a security stands for Medium Term Note.

(2) 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.

(3) At October 31, 1995, U.S. Treasury Bills held by the Fund were pledged to
cover margin requirements for open futures contracts and written options on
futures contracts. (See Note 2 to the Financial Statements.) The securities
pledged had an aggregate market value of $1,658,838.

(4) At October 31, 1995, U.S. Treasury Notes held by the Fund were pledged as
collateral for the open TBA purchase commitment. (See Note 2 to the
Financial Statements.) The securities pledged had an aggregate market value
of $5,055,859.

The accompanying notes are an integral part of the financial statements.

28
<PAGE> 127

HARBOR BOND FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

SHORT-TERM INVESTMENTS--CONTINUED
<TABLE>
<CAPTION>
VALUE
------------
<S> <C>
TOTAL COMMERCIAL PAPER...... $ 11,018,267
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $16,771,797).................... 16,771,742
------------
TOTAL INVESTMENTS--103.1%
(Cost $228,947,921)................... 229,884,244

CASH AND OTHER ASSETS,
LESS LIABILITIES--(3.1%).............. $ (6,885,831)
------------
TOTAL NET ASSETS--100.0%................ $222,998,413
============
</TABLE>

FUTURES CONTRACTS WHICH WERE OPEN AT OCTOBER 31, 1995 ARE AS FOLLOWS:

<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF FACE VALUE OF EXPIRATION DATE UNREALIZED
CONTRACTS CONTRACTS CONTRACTS OF CONTRACTS APPRECIATION
- --------------------------------- --------- -------------- ----------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury Bonds--30 Yr. (Buy).......... 305 $ 32,000,000 December, 1995 $ 489,375
U.S. Treasury Notes--10 Yr. (Buy).......... 320 30,500,000 December, 1995 1,085,937
Deutsche Marks--10 Yr. (Buy)............... 100 DEM 25,000,000 December, 1995 330,326
Pound Sterling--10 Yr. (Buy)............... 100 GBP 5,000,000 December, 1995 167,162
----------
$2,072,800
==========
</TABLE>

WRITTEN OPTIONS WHICH WERE OPEN AT OCTOBER 31, 1995 ARE AS FOLLOWS:

<TABLE>
<CAPTION>
NUMBER OF EXPIRATION MONTH/
OPTIONS CONTRACTS STRIKE PRICE VALUE
- --------------------------------- -------------- ----------------- --------------
<S> <C> <C> <C>
U.S. Treasury Bond (Put)................................ 300 December/110 $ (3,077)
Euro Dollar Futures (Put)............................... 65 March/94 (11,042)
Euro Dollar Futures (Put)............................... 200 March/94.25 (63,926)
--------
Written options outstanding, at value (premium received
$369,482)............................................. $(78,045)
========
</TABLE>

FORWARD CURRENCY CONTRACTS WHICH WERE OPEN AT OCTOBER 31, 1995 ARE AS
FOLLOWS:

<TABLE>
<CAPTION>
UNREALIZED
MARKET AGGREGATE DELIVERY DATE APPRECIATION/
CURRENCY COUNTRY VALUE FACE VALUE OF CONTRACT (DEPRECIATION)
- --------------------------------- ------- --------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
Deutsche Mark (Sell)............. Germany 1,158,064 1,145,766 December 8, 1995 $(12,298)
Deutsche Mark (Sell)............. Germany 7,696,965 7,819,053 December 20, 1995 122,088
--------
$109,790
========
</TABLE>

The accompanying notes are an integral part of the financial statements.

29
<PAGE> 128

HARBOR SHORT DURATION FUND
PORTFOLIO OF INVESTMENTS--OCTOBER 31, 1995

TOTAL INVESTMENTS (%)
(Excludes net cash and short-term investments of -46.8%)

<TABLE>
<S> <C>
CORPORATE BONDS & NOTES 5.3
MORTGAGE RELATED SECURITIES 9.2
ASSET BACKED SECURITIES 25.2
U.S. GOVERNMENT OBLIGATIONS 107.1

</TABLE>

ASSET BACKED SECURITIES--25.2%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
Banc One Auto Trust
6.850%--11/15/1997...... $ 1,000,000 $ 1,010,679
Bridgestone Firestone
6.250%--12/01/1999...... 583,333 584,768
Carco Auto Loan
Master Trust
7.875%--03/15/1998...... 3,000,000 3,040,017
Discover Card Trust
8.625%--07/15/1996...... 2,050,000 2,084,704
First Deposit
4.900%--06/15/2000...... 2,740,000 2,735,915
MBNA Master Credit
Card Trust
7.750%--10/15/1998...... 2,250,000 2,288,833
National Credit Card Trust
9.450%--12/31/1997...... 2,000,000 2,042,098
Navistar Financial Owners
Trust
7.650%--12/22/1997...... 1,846,690 1,862,348
6.050%--04/15/2002...... 2,250,000 2,251,055
------------
4,113,403
Premier Auto Trust
7.050%--07/04/1997...... 900,000 915,074
8.050%--04/04/2000...... 600,000 629,525
------------
1,544,599
Security Pacific
Acceptance Corp.
Series 1991 Cl. A
6.500%--05/10/2020...... $ 683,067 $ 682,533
Shawmut National Home
Series 1990 Cl. A1
6.708%--12/15/2015+..... 1,292,732 1,292,732
Standard Credit Card
Master Trust I
9.000%--08/07/1997...... 3,000,000 3,068,094
8.000%--10/07/1997...... 2,000,000 2,028,338
------------
5,096,432
------------
TOTAL ASSET BACKED SECURITIES
(Cost $26,500,412)........ 26,516,713
------------
CORPORATE BONDS & NOTES--5.3%
Norwest Corp. MTN (1)
7.875%--01/30/1997...... 1,600,000 1,638,001
SBAB
7.000%--07/17/1997...... 2,000,000 2,030,000
Schering Plough Corp.
Zero Coupon Bond
(12/02/1996)............ 2,000,000 1,875,840
------------
TOTAL CORPORATE BONDS & NOTES
(Cost $5,549,563)......... 5,543,841
------------
MORTGAGE RELATED SECURITIES--9.2%
GOVERNMENT AGENCY PASS-THROUGHS
Federal Home Loan Mortgage
Corp.
Pool #490010
9.000%--06/01/1997...... 836,482 842,437
------------
COLLATERALIZED MORTGAGE OBLIGATIONS
Federal National Mortgage
Association
REMIC Series 1994 Cl. B
4.750%--06/25/2008...... 3,000,000 2,967,837
Series 1992 Cl. E
6.000%--12/25/2012...... 963,990 960,577
Series 1992 Cl. B
8.000%--07/25/2017...... 3,000,000 3,010,347
------------
6,938,761
------------
Prudential Home Mortgage
Secs Co.
Series 1995 Cl. A-1
8.750%--03/25/2025...... 1,122,729 1,124,782
</TABLE>

30
<PAGE> 129
HARBOR SHORT DURATION FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

MORTGAGE RELATED SECURITIES--CONTINUED
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- ------------
<S> <C> <C>
NON-GOVERNMENT AGENCY
PASS-THROUGHS
Resolution Trust
Corporation
Mortgage Pass Thru
7.155%--12/25/2020+..... $ 721,798 $ 721,849
TOTAL MORTGAGE RELATED
SECURITIES
(Cost $9,657,163)......... 9,627,829
------------
U.S. GOVERNMENT OBLIGATIONS--107.1%
U.S. Treasury Bonds
11.500%--11/15/1995..... 35,000,000 35,087,500
U.S. Treasury Notes
7.500%--01/31/1997..... 5,000,000 5,114,055
6.000%--08/31/1997..... 1,350,000 1,358,438
5.750%--09/30/1997(2).. 42,500,000 42,619,467
7.250%--02/15/1998..... 2,000,000 2,067,500
7.750%--12/31/1999..... 7,400,000 7,927,250
6.250%--05/31/2000(2).. 3,500,000 3,560,151
6.250%--08/31/2000..... 14,500,000 14,753,750
------------
77,400,611
------------
TOTAL U.S. GOVERNMENT
OBLIGATIONS
(Cost $112,458,585)....... 112,488,111
------------
SHORT TERM INVESTMENTS--32.9%
U.S. TREASURY BILLS
5.315%--04/04/1996...... 1,000,000 977,095
5.280%--10/17/1996...... 2,000,000 1,897,625
5.310%--10/17/1996...... 9,500,000 9,013,719
------------
11,888,439
------------
REPURCHASE AGREEMENTS
Repurchase Agreement with
J.P. Morgan dated
October 31, 1995 due on
demand at 5.600%,
collateralized by a U.S.
Treasury Note 6.125%,
September 30, 2000, par
value of $4,000,000
(repurchase proceeds of
$4,055,040 if closed on
November 1, 1995)....... 4,050,000 4,050,000
Repurchase Agreement with
Salomon Brothers dated
October 31, 1995 due on
demand at 5.800%,
collateralized by a U.S.
Treasury Note, 6.750%
April 30, 2000, par
value of $2,000,000
(repurchase proceeds of
$2,072,834 if closed on
November 1, 1995)....... $ 2,072,500 $ 2,072,500
Repurchase Agreement with
UBS Tri-Party dated
October 31, 1995 due on
demand at 5.850%,
collateralized by a U.S.
Treasury Note, 5.625%
October 31, 1997, par
value of $16,500,000
(repurchase proceeds of
$16,502,681 if closed on
November 1, 1995)....... 16,500,000 16,500,000
------------
22,622,500
------------
TOTAL SHORT TERM INVESTMENTS
(Cost $34,504,817)........ 34,510,939
------------
TOTAL INVESTMENTS--179.7%
(Cost $188,670,540)....... 188,687,433
CASH AND OTHER ASSETS,
LESS LIABILITIES--(79.7)%............. (83,680,817)
------------
TOTAL NET ASSETS--100.0%................ $105,006,616
============
</TABLE>

- ------------
+ Variable rate security. The stated rate represents the rate in effect at
October 31, 1995.

(1) MTN after the name of a security stands for Medium Term Note.

(2) At October 31, 1995, U.S. Treasury Notes held by the Fund were pledged as
collateral for open reverse repurchase agreements. (See Note 5 to the
Financial Statements.) The securities pledged had an aggregate market value
of $57,373,218.

The accompanying notes are an integral part of the financial statements.

31
<PAGE> 130

HARBOR SHORT DURATION FUND
PORTFOLIO OF INVESTMENTS--CONTINUED

FUTURES CONTRACTS WHICH WERE OPEN AT OCTOBER 31, 1995 ARE AS FOLLOWS:

<TABLE>
<CAPTION>
AGGREGATE UNREALIZED
NUMBER OF FACE VALUE OF EXPIRATION DATE APPRECIATION/
CONTRACTS CONTRACTS CONTRACTS OF CONTRACTS (DEPRECIATION)
- ----------------------------------------------- --------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury Bond--30 Yr. (Sell).............. 200 $ 20,000,000 March, 1996 $ 73,806
U.S. Treasury Bond--30 Yr. (Buy)............... 200 20,000,000 December, 1995 (20,065)
U.S. Treasury Note--5 Yr. (Sell)............... 155 15,500,000 December, 1995 (135,624)
Deutsche Mark--5 Yr. (Buy)..................... 5 DEM 1,250,000 December, 1995 1,720
----------
$ (80,163)
==========
</TABLE>

STATEMENT OF SECURITIES SOLD SHORT AT OCTOBER 31, 1995 IS AS FOLLOWS:

<TABLE>
<CAPTION>
SECURITY PAR VALUE VALUE
- ----------------------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
U.S. Treasury Note 5.625%--10/31/1997.............................................. $16,500,000 $16,510,313
U.S. Treasury Note 6.750%--04/30/2000.............................................. 2,000,000 2,073,750
U.S. Treasury Note 6.125%--09/30/2000.............................................. 4,000,000 4,051,244
-----------
Total Securities Sold Short (proceeds $22,574,453)................................. $22,635,307
===========
</TABLE>

The accompanying notes are an integral part of the financial statements.

32
<PAGE> 131

HARBOR MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS--OCTOBER 31, 1995

TOTAL INVESTMENTS (%)
(Excludes cash -0.2%)

<TABLE>
<S> <C>
FOREIGN GOVERNMENT OBLIGATIONS 9.2
COMMERCIAL PAPER 36.2
BANK OBLIGATIONS 54.8
</TABLE>

BANK OBLIGATIONS--54.8%
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
---------- -----------
<S> <C> <C>
Abbey National PLC Euro CD
5.750%--01/02/96.......... $3,000,000 $ 2,999,590
BankAmerica Corp.
5.810%--11/17/95.......... 3,000,000 3,000,000
Banque National De Paris
5.875%--11/01/95.......... 866,000 866,000
Bayerische Hypotheken Yankee
CD 6.430%--04/19/96....... 3,000,000 3,006,814
Bayerische Landesbank
Euro CD
5.680%--12/27/95.......... 3,000,000 2,999,544
Canadian Imperial Bank of
Commerce -- CD
5.810%--11/16/95.......... 2,500,000 2,500,000
Chemical Bank of NY -- CD
5.750%--12/28/95.......... 3,000,000 3,000,000
Hessische Landesbank -- CD
5.720%--12/27/95.......... 3,000,000 2,999,745
Mellon Bank N. A.
6.240%--11/01/95.......... 1,500,000 1,500,000
5.700%--12/08/95.......... 500,000 497,071
-----------
1,997,071
-----------
Morgan Guaranty Trust Co.
5.780%--12/29/95.......... 3,000,000 3,000,047
National Westminster Bank
PLC
5.765%--12/20/95.......... $3,000,000 2,999,853
Seattle First National Bank
WA
5.800%--01/03/96.......... 3,000,000 $ 3,000,000
West Deutsche Landesbank
5.760%--12/29/95.......... 3,000,000 3,000,000
-----------
TOTAL BANK OBLIGATIONS................... 35,368,664
-----------
COMMERCIAL PAPER--36.2%
American Telephone &
Telegraph Co.
5.635%--02/22/96.......... 3,000,000 2,946,937
Bass Finance
5.810%--11/17/95.......... 3,000,000 2,980,525
Glaxo PLC
5.720%--11/21/95.......... 3,000,000 2,990,467
Mobil Australia Finance Co.
5.730%--11/16/95.......... 2,500,000 2,494,031
Sandoz Corp.
5.720%--11/02/95.......... 3,000,000 2,990,943
Societe Generale New York
5.750%--03/08/96.......... 3,000,000 3,000,000
Student Loan Corp.
5.720%--01/08/96.......... 3,000,000 2,967,587
Treasury Corp. of Victoria
5.725%--11/22/95.......... 3,000,000 2,989,981
-----------
TOTAL COMMERCIAL PAPER................... 23,360,471
-----------
FOREIGN GOVERNMENT OBLIGATIONS--9.2%
Kingdom of Sweden
5.710%--01/11/96.......... 1,000,000 988,739
5.600%--04/04/96.......... 2,000,000 1,951,777
-----------
2,940,516
-----------
New South Wales Treasury
5.690%--12/08/95.......... 3,000,000 2,982,456
-----------
TOTAL FOREIGN GOVERNMENT OBLIGATIONS.....
5,922,972
-----------
TOTAL INVESTMENTS--100.2%
(Cost $64,652,107)(1).................. 64,652,107
-----------
CASH AND OTHER ASSETS,
LESS LIABILITIES--(0.2%)............... (160,389)
-----------
TOTAL NET ASSETS--100.0%................. $64,491,718
===========
</TABLE>

- ------------
(1) The aggregate identified cost on a tax basis is the same.

The accompanying notes are an integral part of the financial statements.

33
<PAGE> 132

HARBOR FUND
STATEMENT OF ASSETS AND LIABILITIES--OCTOBER 31, 1995

<TABLE>
<CAPTION>
HARBOR HARBOR
INTERNATIONAL GROWTH INTERNATIONAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
INVESTMENTS, AT IDENTIFIED COST*........................................... $ 106,899,171 $2,462,731,919
===================================================================================================================
Investments, at value...................................................... $ 120,249,636 $3,255,819,996
Repurchase agreements...................................................... -- --
Cash....................................................................... 623 397
Foreign currency, at value
(cost: $36,288; $1,920,511; $0; $0; $0; $869,188; $27; $0)............... 36,348 1,924,298
Receivables for:
Investments sold......................................................... 2,518,047 1,704,949
Capital shares sold...................................................... 61,613 1,296,374
Dividends................................................................ 23,569 5,139,872
Interest................................................................. 29,493 501,079
Open forward currency contracts, net..................................... -- --
Variation margin on futures contracts...................................... -- --
Deferred organization costs................................................ 20,143 --
Withholding tax reclaims receivable........................................ 116,586 6,268,917
Other assets............................................................... 19,866 60,124
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS......................................................... 123,075,924 3,272,716,006
LIABILITIES
Payables for:
Investments purchased.................................................... 486,512 1,565,473
Capital shares reacquired................................................ 5,000 912,968
Dividends to shareholders................................................ -- --
Short sales, at value
(proceeds $0; $0; $0; $0; $0; $0; $22,574,453; $0)..................... -- --
Written options, at value
(premiums received $0; $0; $0; $0; $0; $369,482; $0; $0)............... -- --
Reverse repurchase agreements............................................ -- --
Interest on reverse repurchase agreements and short sales................ -- --
Variation margin on futures contracts.................................... -- --
Accrued expenses:
Adviser's fees........................................................... 69,685 2,235,506
Trustees' fees........................................................... 1,483 10,500
Transfer agent's fees.................................................... 11,936 208,332
Other.................................................................... 86,655 626,409
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES.................................................... 661,271 5,559,188
NET ASSETS
NET ASSETS................................................................. $ 122,414,653 $3,267,156,818
===================================================================================================================
Net assets consist of:
Paid-in capital.......................................................... $ 111,600,332 $2,411,841,564
Undistributed (overdistributed) net investment income.................... 1,094,083 46,408,181
Accumulated net realized gain/(loss)..................................... (3,631,849) 15,434,486
Unrealized appreciation (depreciation) of investments, written options,
foreign currency, investments sold short and translation of assets and
liabilities in foreign currencies...................................... 13,352,087 793,472,587
Unrealized appreciation (depreciation) of futures and forward currency
contracts.............................................................. -- --
- -------------------------------------------------------------------------------------------------------------------
$ 122,414,653 $3,267,156,818
===================================================================================================================
Shares of beneficial interest.............................................. 10,113,236 121,338,455
Net asset value, offering and redemption price per share................... $ 12.10 $ 26.93
</TABLE>

- ------------
* Including repurchase agreements

The accompanying notes are an integral part of the financial statements.

34
<PAGE> 133

HARBOR FUND
STATEMENT OF ASSETS AND LIABILITIES--CONTINUED

$106,770,461 $ 721,926,762 $79,270,730 $228,947,921 $ 188,670,540 $64,652,107
=======================================================================================================
$138,172,728 $ 917,218,490 $82,141,264 $227,872,244 $ 166,064,933 $64,652,107
-- -- 2,081,000 2,012,000 22,622,500 --
1,358 213 602 942 78,204 790

-- -- -- 862,289 27 --
3,722,018 5,146,524 1,937,637 300,000 8,124,967 --
230,734 12,744,542 13,186 731,643 4,535 150,401
9,160 306,379 161,984 -- -- --
-- 3,612 9,522 3,015,138 3,084,127 363,922
-- -- -- 109,790 -- --
-- -- -- 219,038 -- --
-- -- -- -- 4,904 --
-- 5,097 -- -- -- --
20,442 19,324 11,937 15,843 23,969 16,108
- ------------------------------------------------------------------------------------------------------
142,156,440 935,444,181 86,357,132 235,138,927 200,008,166 65,183,328

4,503,402 8,844,490 1,567,116 11,842,746 2,249,945 --
-- 275,929 173,138 90,309 13,510,019 638,933
-- -- -- -- -- 8,925

-- -- -- -- 22,635,307 --

-- -- -- 78,045 -- --
-- -- -- -- 56,399,375 --
-- -- -- -- 145,106 --
-- -- -- -- 2,713 --

87,232 470,505 50,534 73,750 18,795 7,399
372 2,790 1,398 551 970 985
5,148 60,497 23,009 18,964 2,675 12,397
36,458 39,062 28,103 36,149 36,645 22,971
- ------------------------------------------------------------------------------------------------------
4,632,612 9,693,273 1,843,298 12,140,514 95,001,550 691,610

$137,523,828 $ 925,750,908 $84,513,834 $222,998,413 $ 105,006,616 $64,491,718
=======================================================================================================

$ 90,808,259 $ 717,468,325 $72,191,658 $221,764,417 $ 103,808,333 $64,491,718
-- 943,895 134,248 1,880,646 501,657 --
15,313,302 12,046,960 7,236,395 (4,047,895) 820,748 --

31,402,267 195,291,728 4,951,533 1,218,655 (43,959) --

-- -- -- 2,182,590 (80,163) --
- -------------------------------------------------------------------------------------------------------
$137,523,828 $ 925,750,908 $84,513,834 $222,998,413 $ 105,006,616 $64,491,718
=======================================================================================================
8,742,431 39,897,668 5,800,515 19,893,177 11,902,507 64,491,718
$ 15.73 $ 23.20 $ 14.57 $ 11.21 $ 8.82 $ 1.00
</TABLE>

35
<PAGE> 134

HARBOR FUND
STATEMENT OF OPERATIONS--YEAR ENDED OCTOBER 31, 1995

<TABLE>
<CAPTION>
HARBOR
INTERNATIONAL HARBOR
GROWTH INTERNATIONAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends.............................................................. $ 2,214,114 $ 76,620,637
Interest............................................................... 203,676 11,235,492
Securities lending income.............................................. 7,144 816,028
Foreign taxes withheld................................................. (226,098) (9,082,514)
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME................................................ 2,198,836 79,589,643
EXPENSES:
Investment adviser's fees.............................................. 655,678 26,318,745
Shareholder communications............................................. 17,500 362,507
Custodian fees......................................................... 219,772 3,143,287
Transfer agent fees.................................................... 145,000 2,794,219
Professional fees...................................................... 45,000 200,000
Trustees' fees and expenses............................................ 2,700 74,949
Registration fees...................................................... 41,542 172,500
Amortization of organization costs..................................... 6,684 --
Insurance expense...................................................... 1,996 23,137
Miscellaneous.......................................................... 8,599 86,500
- ----------------------------------------------------------------------------------------------------------
Total expenses....................................................... 1,144,471 33,175,844
Advisory fee waived.................................................... (88,294) (1,068,227)
Other expense reimbursements and reductions............................ (1,772) (11,285)
- ----------------------------------------------------------------------------------------------------------
Total operating expenses............................................. 1,054,405 32,096,332
Interest expense....................................................... -- --
- ----------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME.................................................... 1,144,431 47,493,311
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENT TRANSACTIONS:
Net realized gain/(loss) on:
Investments.......................................................... (3,554,598) 15,690,301
Foreign currency transactions........................................ (5,834) (447,501)
Short sales.......................................................... -- --
Futures contracts.................................................... -- --
Written options...................................................... -- --
Change in net unrealized appreciation/depreciation on:
Investments, written options and short sales......................... 9,465,201 93,241,531
Futures contracts.................................................... -- --
Forwards............................................................. -- --
Translation of assets and liabilities in foreign currencies.......... 1,563 380,723
- ----------------------------------------------------------------------------------------------------------
Net gain/(loss) on investment transactions............................. 5,906,332 108,865,054
- ----------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........ $ 7,050,763 $ 156,358,365
==========================================================================================================
</TABLE>

The accompanying notes are an integral part of the financial statements.

36
<PAGE> 135

HARBOR FUND
STATEMENT OF OPERATIONS--CONTINUED

<TABLE>
<CAPTION>
HARBOR
HARBOR CAPITAL HARBOR HARBOR HARBOR HARBOR
GROWTH APPRECIATION VALUE BOND SHORT DURATION MONEY MARKET
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 567,416 $ 3,865,930 $ 2,507,273 -- -- --
309,668 1,249,329 205,550 $14,701,067 $8,734,927 $3,950,037
-- -- -- -- -- --
(14,764) (95,276) (36,412) -- -- --
- -----------------------------------------------------------------------------------------------
862,320 5,019,983 2,676,411 14,701,067 8,734,927 3,950,037

1,035,019 3,073,982 411,395 1,318,022 435,320 196,587
6,500 43,000 4,480 28,000 1,681 14,000
92,484 150,879 90,535 97,018 102,213 37,084
67,000 470,500 36,314 240,000 12,000 150,001
47,188 53,487 53,000 59,000 57,460 38,682
3,300 9,050 1,493 4,088 2,248 2,500
16,000 40,000 14,700 26,500 19,000 30,000
-- -- -- -- 4,190 --
2,953 3,707 1,990 3,450 2,527 2,128
8,999 10,383 6,601 9,102 8,007 6,848
- -----------------------------------------------------------------------------------------------
1,279,443 3,854,988 620,508 1,785,180 644,646 477,830
-- -- -- (471,474) (217,937) (78,676)
(1,386) (16,229) (535) (2,018) (17,213) (2,084)
- -----------------------------------------------------------------------------------------------
1,278,057 3,838,759 619,973 1,311,688 409,496 397,070
-- -- -- -- 1,583,821 --
- -----------------------------------------------------------------------------------------------
(415,737) 1,181,224 2,056,438 13,389,379 6,741,610 3,552,967

15,819,039 12,261,321 7,372,941 (1,490,707) 745,900 65,167
(19) 867 400 (157,293) (295,723) --
-- -- -- -- (133,391) --
-- -- -- 2,398,449 (339,360) --
-- -- -- 1,633,558 -- --

16,576,097 153,009,037 3,842,458 7,333,928 401,607 --
-- -- -- 2,973,081 13,901 --
-- -- -- 109,790 (3,680) --
-- -- -- (2,206) -- --
- -----------------------------------------------------------------------------------------------
32,395,117 165,271,225 11,215,799 12,798,600 389,254 65,167
- -----------------------------------------------------------------------------------------------
$31,979,380 $166,452,449 $13,272,237 $26,187,979 $7,130,864 $3,618,134
===============================================================================================
</TABLE>

37
<PAGE> 136

HARBOR FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
HARBOR HARBOR HARBOR
INTERNATIONAL GROWTH INTERNATIONAL GROWTH
-------------------------- ------------------------------- ---------------------------
NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1,
1994 1993 1994 1993 1994 1993
THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............... $ 1,144,431 $ 429,496 $ 47,493,311 $ 29,402,280 $ (415,737) $ 4,843
Net realized gain (loss) on
investments, foreign currency
transactions, investments sold
short, futures and written
options........................... (3,560,432) (21,733 ) 15,242,800 114,278,276 15,819,020 9,402,472
Net unrealized appreciation
(depreciation) of investments,
written options, investments sold
short, futures, forward foreign
currency contracts and translation
of assets and liabilities in
foreign currencies................ 9,466,764 3,885,323 93,622,254 310,581,489 16,576,097 (26,931,132)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........... 7,050,763 4,293,086 156,358,365 454,262,045 31,979,380 (17,523,817)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
Net investment income............... (533,368) (9,285 ) (28,584,757) (21,850,798) -- (20,189)
Net realized gain on investments.... -- -- (108,512,496) -- (3,521,352) (256,960)
In excess of net investment
income............................ -- -- -- -- -- --
Tax Return of Capital............... -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS...................... (533,368) (9,285 ) (137,097,253) (21,850,798) (3,521,352) (277,149)
- -----------------------------------------------------------------------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares.... 61,328,962 84,704,565 508,760,305 872,284,244 16,883,782 19,892,463
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment
income.......................... 508,914 8,329 24,870,202 19,030,096 -- 19,860
Distributions from net realized
gain............................ -- -- 97,656,598 -- 3,443,756 252,778
Cost of shares reacquired........... (20,674,167) (15,263,146) (513,025,623) (469,144,105) (52,591,542) (69,354,727)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) DERIVED FROM
CAPITAL TRANSACTIONS.............. 41,163,709 69,449,748 118,261,482 422,170,235 (32,264,004) (49,189,626)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets............................ 47,681,104 73,733,549 137,522,594 854,581,482 (3,805,976) (66,990,592)
NET ASSETS:
Beginning of period................... 74,733,549 1,000,000 3,129,634,224 2,275,052,742 141,329,804 208,320,396
- -----------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD*........................ $122,414,653 $ 74,733,549 $3,267,156,818 $3,129,634,224 $137,523,828 $141,329,804
===================================================================================================================================
NUMBER OF CAPITAL SHARES:
Sold.................................. 5,406,005 7,761,719 19,981,750 35,270,326 1,192,603 1,515,167
Reinvested in payment of net
investment income dividends......... 49,558 747 1,023,044 781,845 -- 1,462
Reinvested in payment of net realized
gain................................ -- -- 4,017,137 -- 290,612 18,614
Reacquired............................ (1,823,877) (1,380,916 ) (20,136,448) (19,171,281) (3,756,684) (5,384,072)
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in shares
outstanding......................... 3,631,686 6,381,550 4,885,483 16,880,890 (2,273,469) (3,848,829)
Outstanding:
Beginning of period................. 6,481,550 100,000 116,452,972 99,572,082 11,015,900 14,864,729
- -----------------------------------------------------------------------------------------------------------------------------------
End of period....................... 10,113,236 6,481,550 121,338,455 116,452,972 8,742,431 11,015,900
===================================================================================================================================
* Includes undistributed
(over-distributed) net
investment income of:................ $ 1,087,442 $ 476,379 $ 48,009,848 $ 29,101,294 $ (211,347) $ 204,390

<CAPTION>
HARBOR
CAPITAL APPRECIATION
---------------------------
NOVEMBER 1, NOVEMBER 1,
1994 1993
THROUGH THROUGH
OCTOBER 31, OCTOBER 31,
1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
Operations:
Net investment income............... $ 1,181,224 $ 362,758
Net realized gain (loss) on
investments, foreign currency
transactions, investments sold
short, futures and written
options........................... 12,262,188 2,264,085
Net unrealized appreciation
(depreciation) of investments,
written options, investments sold
short, futures, forward foreign
currency contracts and translation
of assets and liabilities in
foreign currencies................ 153,009,037 13,699,254
- --------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS........... 166,452,449 16,326,097
- --------------------------------------------------------------------
Distributions to shareholders:
Net investment income............... (531,337) (301,835)
Net realized gain on investments.... (2,447,010) (9,883,765)
In excess of net investment
income............................ -- --
Tax Return of Capital............... -- --
- --------------------------------------------------------------------
TOTAL DISTRIBUTIONS TO
SHAREHOLDERS...................... (2,978,347) (10,185,600)
- --------------------------------------------------------------------
Capital share transactions:
Net proceeds from sale of shares.... 684,101,709 119,087,014
Net asset value of shares issued in
connection with reinvestment of:
Dividends from net investment
income.......................... 477,561 282,665
Distributions from net realized
gain............................ 2,273,460 9,363,012
Cost of shares reacquired........... (150,559,997) (54,220,244)
- --------------------------------------------------------------------
NET INCREASE (DECREASE) DERIVED FROM
CAPITAL TRANSACTIONS.............. 536,292,733 74,512,447
- --------------------------------------------------------------------
Net increase (decrease) in net
assets............................ 699,766,835 80,652,944
NET ASSETS:
Beginning of period................... 225,984,073 145,331,129
- --------------------------------------------------------------------
END OF PERIOD*........................ $925,750,908 $225,984,073
====================================================================
NUMBER OF CAPITAL SHARES:
Sold.................................. 33,627,694 7,351,104
Reinvested in payment of net
investment income dividends......... 28,511 17,470
Reinvested in payment of net realized
gain................................ 135,729 578,678
Reacquired............................ (6,951,697) (3,292,387)
- --------------------------------------------------------------------
Net increase (decrease) in shares
outstanding......................... 26,840,237 4,654,865
Outstanding:
Beginning of period................. 13,057,431 8,402,566
- --------------------------------------------------------------------
End of period....................... 39,897,668 13,057,431
====================================================================
* Includes undistributed
(over-distributed) net
investment income of:................ $ 960,261 $ 310,374
</TABLE>

The accompanying notes are an integral part of the financial statements.

38
<PAGE> 137
HARBOR FUND
STATEMENTS OF CHANGES IN NET ASSETS--CONTINUED
<TABLE>
<CAPTION>
HARBOR HARBOR HARBOR
VALUE BOND SHORT DURATION
----------------------------- ----------------------------- -----------------------------
NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1, NOVEMBER 1,
1994 1993 1994 1993 1994 1993
THROUGH THROUGH THROUGH THROUGH THROUGH THROUGH
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1994 1995 1994 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2,056,438 $ 1,568,754 $ 13,389,379 $ 10,592,130 $ 6,741,610 $ 5,663,430

7,373,341 4,758,573 2,384,007 (7,071,820) (22,574) (2,294,245)

3,842,458 (3,704,771) 10,414,593 (9,174,940) 411,828 (490,031)
- ---------------------------------------------------------------------------------------------------
13,272,237 2,622,556 26,187,979 (5,654,630) 7,130,864 2,879,154
- ---------------------------------------------------------------------------------------------------
(2,011,154) (1,492,665) (11,944,373) (10,291,520) (6,753,096) (15,120,710)
(4,674,163) (4,625,717) -- (7,221,303) -- --
-- -- -- -- (112,940) --
-- -- -- -- -- (707,290)
- ---------------------------------------------------------------------------------------------------
(6,685,317) (6,118,382) (11,944,373) (17,512,823) (6,866,036) (15,828,000)
- ---------------------------------------------------------------------------------------------------
22,822,824 9,228,247 105,017,689 75,903,558 522,143,550 520,483,962
1,895,201 1,392,825 9,623,304 8,375,355 6,849,399 15,766,230
4,428,889 4,368,521 -- 6,047,950 -- --
(10,610,411) (11,987,126) (68,106,919) (69,320,489) (540,142,259) (542,598,958)
- ---------------------------------------------------------------------------------------------------
18,536,503 3,002,467 46,534,074 21,006,374 (11,149,310) (6,348,766)
- ---------------------------------------------------------------------------------------------------
25,123,423 (493,359) 60,777,680 (2,161,079) (10,884,482) (19,297,612)
59,390,411 59,883,770 162,220,733 164,381,812 115,891,098 135,188,710
- ---------------------------------------------------------------------------------------------------
$ 84,513,834 $ 59,390,411 $222,998,413 $162,220,733 $105,006,616 $115,891,098
===================================================================================================
1,674,245 690,592 9,769,878 6,864,380 59,267,963 57,297,594
141,367 108,734 893,978 777,373 778,668 1,730,384
371,240 327,112 -- 532,390 -- --
(786,808) (910,014) (6,360,695) (6,370,887) (61,358,458) (59,783,164)
- ---------------------------------------------------------------------------------------------------
1,400,044 216,424 4,303,161 1,803,256 (1,311,827) (755,186)
4,400,471 4,184,047 15,590,016 13,786,760 13,214,334 13,969,520
- ---------------------------------------------------------------------------------------------------
5,800,515 4,400,471 19,893,177 15,590,016 11,902,507 13,214,334
===================================================================================================
$ 121,373 $ 76,089 $ 1,445,006 $ -- $ (112,940) $ 11,486
</TABLE>

<TABLE>
<CAPTION>
HARBOR
MONEY MARKET
- ----------------------------------------------
NOVEMBER 1, NOVEMBER 1,
1994 1993
THROUGH THROUGH
OCTOBER 31, OCTOBER 31,
1995 1994
- ----------------- ------------------
<S> <C>
$ 3,552,967 $ 1,922,197

65,167 85,834

-- --
--------------- ---------------
3,618,134 2,008,031
--------------- ---------------
(3,552,967) (1,922,197)
(65,167) (85,834)
-- --
-- --
--------------- ---------------
(3,618,134) (2,008,031)
--------------- ---------------
83,477,627 99,902,894
3,522,178 1,782,408
-- 79,601
(82,532,152) (88,620,287)
--------------- ---------------
4,467,653 13,144,616
--------------- ---------------
4,467,653 13,144,616
60,024,065 46,879,449
--------------- ---------------
$ 64,491,718 $ 60,024,065
=============== ===============
83,477,627 99,902,894
3,522,178 1,782,408
-- 79,601
(82,532,152) (88,620,287)
--------------- ---------------
4,467,653 13,144,616
60,024,065 46,879,449
--------------- ---------------
64,491,718 60,024,065
=============== ===============
$ -- $ --
</TABLE>

<PAGE> 138
w
HARBOR FUND FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A SHARE OUTSTANDING FOR THE PERIODS PRESENTED
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
------------------------------------------
NET REALIZED AND
UNREALIZED GAINS (LOSSES)
NET ASSET VALUE ON INVESTMENTS, FUTURES,
BEGINNING OF NET INVESTMENT OPTIONS AND FOREIGN
YEAR/PERIOD ENDED PERIOD INCOME CURRENCY CONTRACTS
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HARBOR INTERNATIONAL GROWTH FUND
October 31, 1995........................ $ 11.53 $ .11* $ .54
October 31, 1994(1)..................... 10.00 .07* 1.47
HARBOR INTERNATIONAL FUND(2)
October 31, 1995........................ $ 26.87 $ .39* $ .85
October 31, 1994........................ 22.85 .26* 3.98
October 31, 1993........................ 16.77 .17* 6.31
October 31, 1992........................ 17.69 .24 (.95)
October 31, 1991........................ 15.74 .16 2.47
October 31, 1990........................ 15.99 .37* .27
HARBOR GROWTH FUND(3)
October 31, 1995........................ $ 12.83 $ (.04) $ 3.26
October 31, 1994........................ 14.01 -- (1.16)
October 31, 1993........................ 12.42 .01 2.95
October 31, 1992........................ 15.76 .02 (1.01)
October 31, 1991........................ 10.21 .04 6.53
October 31, 1990........................ 12.95 .10 (2.24)
HARBOR CAPITAL APPRECIATION FUND(4)
October 31, 1995........................ $ 17.31 $ .04 $ 6.06
October 31, 1994........................ 17.30 .03 1.14
October 31, 1993........................ 16.30 .03 3.03
October 31, 1992........................ 15.18 .02 2.12
October 31, 1991........................ 10.65 .06 5.47
October 31, 1990........................ 13.42 .15 (1.53)
HARBOR VALUE FUND(5)
October 31, 1995........................ $ 13.50 $ .40 $ 2.13
October 31, 1994........................ 14.31 .36 .27
October 31, 1993........................ 13.24 .35 1.22
October 31, 1992........................ 13.10 .41* .49
October 31, 1991........................ 10.84 .46* 2.71
October 31, 1990........................ 13.77 .51* (2.13)
HARBOR BOND FUND
October 31, 1995........................ $ 10.41 $ .74* $ .73
October 31, 1994........................ 11.92 .68* (1.02)
October 31, 1993........................ 11.35 .68* .82
October 31, 1992........................ 11.11 .79* .50
October 31, 1991........................ 10.03 .83* 1.09
October 31, 1990........................ 10.55 .84* (.44)
HARBOR SHORT DURATION FUND
October 31, 1995........................ $ 8.77 $ .52* $ .06
October 31, 1994........................ 9.68 .34* (.12)
October 31, 1993........................ 10.09 .34* .16
October 31, 1992(6)..................... 10.00 .29* .08
HARBOR MONEY MARKET FUND
October 31, 1995........................ $ 1.00 $ .06* $ --
October 31, 1994........................ 1.00 .03* --
October 31, 1993........................ 1.00 .03* --
October 31, 1992........................ 1.00 .04* --
October 31, 1991........................ 1.00 .06 --
October 31, 1990........................ 1.00 .08 --

<CAPTION>
LESS DISTRIBUTIONS
----------------------------------
TOTAL FROM DIVIDENDS FROM DISTRIBUTIONS FROM IN EXCESS OF
INVESTMENT NET INVESTMENT NET REALIZED NET INVESTMENT
YEAR/PERIOD ENDED OPERATIONS INCOME CAPITAL GAINS** INCOME
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HARBOR INTERNATIONAL GROWTH FUND
October 31, 1995........................ $ .65 $ (.08) $ -- --
October 31, 1994(1)..................... 1.54 (.01) -- --
HARBOR INTERNATIONAL FUND(2)
October 31, 1995........................ $ 1.24 $ (.24) $ (.94) --
October 31, 1994........................ 4.24 (.22) -- --
October 31, 1993........................ 6.48 (.22) (.18) --
October 31, 1992........................ (.71) (.21) -- --
October 31, 1991........................ 2.63 (.34) (.34) --
October 31, 1990........................ .64 (.17) (.72) --
HARBOR GROWTH FUND(3)
October 31, 1995........................ $ 3.22 $ -- $ (.32) --
October 31, 1994........................ (1.16) -- (.02) --
October 31, 1993........................ 2.96 (.01) (1.36) --
October 31, 1992........................ (.99) (.04) (2.31) --
October 31, 1991........................ 6.57 (.08) (.94) --
October 31, 1990........................ (2.14) (.11) (.49) --
HARBOR CAPITAL APPRECIATION FUND(4)
October 31, 1995........................ $ 6.10 $ (.04) $ (.17) --
October 31, 1994........................ 1.17 (.03) (1.13) --
October 31, 1993........................ 3.06 (.02) (2.04) --
October 31, 1992........................ 2.14 (.04) (.98) --
October 31, 1991........................ 5.53 (.14) (.86) --
October 31, 1990........................ (1.38) (.21) (1.18) --
HARBOR VALUE FUND(5)
October 31, 1995........................ $ 2.53 $ (.39) $(1.07) --
October 31, 1994........................ .63 (.34) (1.10) --
October 31, 1993........................ 1.57 (.35) (.15) --
October 31, 1992........................ .90 (.41) (.35) --
October 31, 1991........................ 3.17 (.47) (.44) --
October 31, 1990........................ (1.62) (.51) (.80) --
HARBOR BOND FUND
October 31, 1995........................ $ 1.47 $ (.67) $ -- --
October 31, 1994........................ (.34) (.67) (.50) --
October 31, 1993........................ 1.50 (.68) (.25) --
October 31, 1992........................ 1.29 (.79) (.26) --
October 31, 1991........................ 1.92 (.84) -- --
October 31, 1990........................ .40 (.83) (.09) --
HARBOR SHORT DURATION FUND
October 31, 1995........................ $ .58 $ (.52) $ -- (.01)
October 31, 1994........................ .22 (1.08) -- --
October 31, 1993........................ .50 (.82) (.09) --
October 31, 1992(6)..................... .37 (.28) -- --
HARBOR MONEY MARKET FUND
October 31, 1995........................ $ .06 $ (.06) $ -- --
October 31, 1994........................ .03 (.03) -- --
October 31, 1993........................ .03 (.03) -- --
October 31, 1992........................ .04 (.04) -- --
October 31, 1991........................ .06 (.06) -- --
October 31, 1990........................ .08 (.08) -- --
</TABLE>

* Reflects the Adviser's or Subadviser's agreement not to impose all or a
portion of its advisory fees; the fees not imposed would have amounted to the
following:
Year ended October 31, 1995 -- International Growth $.01 per share;
International $.01 per share; Bond $.03 per share; Short Duration $.02 per
share; and Money Market less than $.01 per share.
Year ended October 31, 1994 -- International Growth $.02 per share;
International $.01 per share; Bond $.03 per share; Short Duration less than
$.01 per share; and Money Market less than $.01 per share.
Year ended October 31, 1993 -- International less than $.01 per share; Bond
$.02 per share; Short Duration $.02 per share; and Money Market less than
$.01 per share.
Year ended October 31, 1992 -- Value $.01 per share; Bond $.04 per share;
Short Duration $.01 per share; and Money Market less than $.01 per share.
Year ended October 31, 1991 -- Value $.01 per share; Bond $.04 per share.
Year ended October 31, 1990 -- International $.01 per share; Value $.02 per
share; Bond $.02 per share.
** Includes both short-term and long-term capital gains.

The accompanying notes are an integral part of the financial statements.

40
<PAGE> 139

HARBOR FUND FINANCIAL HIGHLIGHTS--CONTINUED

SELECTED DATA FOR A SHARE OUTSTANDING FOR THE PERIODS PRESENTED
<TABLE>
<CAPTION>
RATIO OF
OPERATING EXPENSES RATIO OF
NET ASSETS TO INTEREST EXPENSE
TAX RETURN TOTAL NET ASSET VALUE TOTAL END OF PERIOD AVERAGE TO AVERAGE NET
OF CAPITAL DISTRIBUTIONS END OF PERIOD RETURN ($ THOUSANDS) NET ASSETS (%) ASSETS (%)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ -- $ (.08) $ 12.10 5.83% $ 122,415 1.21%* --
-- (.01) 11.53 15.36 74,734 1.32* --
$ -- $ (1.18) $ 26.93 5.06% $ 3,267,157 1.04%* --
-- (.22) 26.87 18.57 3,129,634 1.10* --
-- (.40) 22.85 39.51 2,275,053 1.20* --
-- (.21) 16.77 (4.08) 700,733 1.28 --
-- (.68) 17.69 17.74 205,703 1.35 --
-- (.89) 15.74 3.81 63,745 1.40* --
$ -- $ (.32) $ 15.73 25.93% $ 137,524 0.93% --
-- (.02) 12.83 (8.29) 141,330 0.93 --
-- (1.37) 14.01 26.17 208,320 0.90 --
-- (2.35) 12.42 (7.48) 191,464 0.90 --
-- (1.02) 15.76 68.72 211,494 0.91 --
-- (.60) 10.21 (17.43) 122,622 0.94 --
$ -- $ (.21) $ 23.20 35.73% $ 925,751 0.75% --
-- (1.16) 17.31 7.25 225,984 0.81 --
-- (2.06) 17.30 20.16 145,331 0.86 --
-- (1.02) 16.30 14.41 77,445 0.91 --
-- (1.00) 15.18 55.35 80,316 0.89 --
-- (1.39) 10.65 (11.52) 54,560 0.88 --
$ -- $ (1.46) $ 14.57 21.02% $ 84,514 0.90% --
-- (1.44) 13.50 4.80 59,390 1.04 --
-- (.50) 14.31 11.99 59,884 0.88 --
-- (.76) 13.24 7.06 63,974 0.84* --
-- (.91) 13.10 30.18 43,066 0.93* --
-- (1.31) 10.84 (13.00) 23,453 1.01* --
$ -- $ (.67) $ 11.21 14.56% $ 222,998 0.70%* --
-- (1.17) 10.41 (3.14) 162,221 0.77* --
-- (.93) 11.92 13.98 164,382 0.72* --
-- (1.05) 11.35 12.14 65,420 0.77* --
-- (.84) 11.11 20.01 40,486 0.86* --
-- (.92) 10.03 4.03 24,341 1.22* --
$ -- $ (.53) $ 8.82 6.82% $ 105,007 0.38%* 1.46%
(.05) (1.13) 8.77 2.53 115,891 0.38* 1.26
-- (.91) 9.68 5.18 135,189 0.43* .69
-- (.28) 10.09 3.72++ 186,523 0.35*+ 1.19+
$ -- $ (.06) $ 1.00 5.66% $ 64,492 0.61%* --
-- (.03) 1.00 3.53 60,024 0.67* --
-- (.03) 1.00 2.68 46,879 0.71* --
-- (.04) 1.00 3.67 55,244 0.69* --
-- (.06) 1.00 6.25 57,093 0.66 --
-- (.08) 1.00 8.02 49,968 0.66 --

RATIO OF NET
INVESTMENT INCOME
TO AVERAGE NET PORTFOLIO
ASSETS (%) TURNOVER (%)
- -------------------------------------------
<S> <C>
1.31%* 74.86%
0.87* 41.80
1.53%* 14.01%
1.09* 28.70
1.28* 15.70
1.98 24.67
1.76 18.63
2.82* 28.28
(0.30)% 87.94%
-- 115.89
0.11 170.85
0.14 83.83
0.32 97.64
0.74 95.95
0.23% 51.65%
0.24 72.89
0.24 93.24
0.12 69.33
0.47 89.99
1.18 162.43
3.00% 135.93%
2.66 150.94
2.48 50.20
3.11* 19.68
3.61* 32.60
3.96* 31.41
7.11%* 88.69%
6.29* 150.99
6.19* 119.92
7.30* 52.54
8.12* 58.45
8.30* 90.99
6.19%* 3,107.53%
4.61* 895.76
4.19* 1,212.20
3.79*+ 2,759.70
5.42%* N/A
3.38* N/A
2.58* N/A
3.39* N/A
5.70 N/A
7.54 N/A
</TABLE>

(1) For the period November 1, 1993 (commencement of operations) through October
31, 1994.
(2) Effective April 1, 1993, Harbor International Fund appointed Northern Cross
Investments Limited as its Subadviser.
(3) Effective January 1, 1993, Harbor Growth Fund appointed Nicholas Applegate
Capital Management as its Subadviser.
(4) Effective May 1, 1990, Harbor Capital Appreciation Fund appointed Jennison
Associates Capital Corp. as its Subadviser.
(5) Harbor Value Fund appointed Richards & Tierney, Inc. and DePrince, Race, &
Zollo, Inc. as its Subadvisers effective November 1, 1993 and April 20,
1995, respectively.
(6) For the period January 1, 1992 (commencement of operations) through October
31, 1992.
+ Annualized
++ Not Annualized

41
<PAGE> 140

HARBOR SHORT DURATION FUND
STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 1, 1994
THROUGH
OCTOBER 31, 1995
----------------
<S> <C>
Cash flows used for operating activities:
Interest (excluding net amortization of $1,046,792)......................................... $ 7,263,363
Operating expenses paid..................................................................... (386,732)
Interest paid............................................................................... (1,444,682)
Purchase of long-term portfolio investments................................................. (681,400,577)
Proceeds from disposition of long-term portfolio investments................................ 637,191,284
Purchase of short-term portfolio investments................................................ (3,507,408,560)
Proceeds from disposition of short-term portfolio investments............................... 3,500,845,475
Purchase of securities sold short........................................................... (101,245,278)
Proceeds from securities sold short......................................................... 123,619,619
Net cash used for futures contracts......................................................... (327,484)
Net cash used for forward currency contracts................................................ (289,068)
Cash used for interest purchased............................................................ (4,801,774)
Cash provided by interest sold.............................................................. 4,683,054
Cash provided by other assets............................................................... 5,131
---------------
NET CASH USED FOR OPERATING ACTIVITIES.................................................... (23,696,229)
---------------
Cash flows provided by financing activities:
Cash provided from issuance of shares of capital stock...................................... 522,264,113
Cash used to repurchase shares of capital stock............................................. (534,637,259)
Cash dividends paid......................................................................... (16,637)
Cash provided from reverse repurchase agreements............................................ 513,072,313
Cash used to liquidate reverse repurchase agreements........................................ (478,100,438)
---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES................................................. 22,582,092
Net decrease in cash.......................................................................... (1,114,137)
---------------
Cash at beginning of year..................................................................... 284
Foreign currency at beginning of year, at cost................................................ 1,192,084
---------------
Total cash at beginning of year............................................................... 1,192,368
Cash at end of year........................................................................... 78,204
Foreign currency at end of year, at cost...................................................... 27
---------------
Total cash at end of year................................................................. $ 78,231
===============
RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH USED FOR
OPERATING ACTIVITIES:
Net increase in net assets resulting from operations.......................................... $ 7,130,864
---------------
Increase in investments..................................................................... (53,671,772)
Decrease in securities sold short........................................................... 22,507,731
Change in unrealized depreciation -- net.................................................... (401,607)
Decrease in receivables for securities sold................................................. 20,424,713
Increase in interest receivable............................................................. (543,492)
Decrease in receivable for variation margin on futures contract............................. 3,401
Decrease in receivable for forward currency contracts....................................... 6,655
Decrease in other assets.................................................................... 5,131
Decrease in payable for securities purchased................................................ (19,319,755)
Increase in accrued expense and other liabilities........................................... 161,902
---------------
Total adjustments......................................................................... (30,827,093)
---------------
Net cash used for operating activities........................................................ $ (23,696,229)
===============
</TABLE>

The accompanying notes are an integral part of the financial statements.

42
<PAGE> 141

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--OCTOBER 31, 1995

NOTE 1--ORGANIZATIONAL MATTERS

Harbor Fund (the "Trust") is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company, consisting of a
series of eight diversified investment portfolios (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, 1995, the Trust
consisted of the following funds: Harbor International Growth Fund, Harbor
International Fund, Harbor Growth Fund, Harbor Capital Appreciation Fund, 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 policies are in
conformity with generally accepted accounting principles for investment
companies.

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, selected by the adviser, which determines
valuations 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 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.

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.

43
<PAGE> 142

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

FUTURES CONTRACTS

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 high quality debt 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 recorded by the Fund as unrealized gains or losses.
When the contract is closed, 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.

Each Fund (excluding the Money Market Fund) may use futures contracts to
manage its exposure to the stock and bond markets and to fluctuations in
currency values. 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.

OPTIONS

Each Fund (excluding the Money Market Fund) may use options contracts to
manage its exposure to the stock and bond markets and to fluctuations in
interest rates and currency values. Options 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 it is
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.

44
<PAGE> 143

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

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 it is 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 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.

OPTIONS ON FUTURES CONTRACTS

The valuation, accounting principles and risks involved with options on
futures are similar to those described above relating to options purchased or
written directly on the underlying debt securities. In addition, upon exercise,
the premium paid would decrease the unrealized gain or increase the unrealized
loss on the futures.

PURCHASED INTEREST RATE CAP AGREEMENTS

Harbor Bond Fund and Harbor Short Duration Fund may purchase interest rate
caps for hedging purposes in order to seek to increase total return. A purchased
interest rate cap is an agreement to receive periodic interest payments, based
on a notional principal amount, to the extent that a specified interest index
rises above a specified interest rate in exchange for the premium paid. When a
Fund purchases an interest rate cap, the premium paid by the Fund is amortized
to income over the life of the cap (or over the life of the investment(s) hedged
by the cap, if shorter) on a straight line basis. Interest rate caps are
marked-to-market daily based on quotations from market makers and the change, if
any, is recorded as an unrealized gain or loss in the Statement of Assets and
Liabilities. Periodic payments of interest, if any, are reported as interest
income in the Statement

45
<PAGE> 144

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

of Operations. If there is a default by the other party to such a transaction,
the Fund will have contractual remedies pursuant to the agreements related to
the transaction.

Because there is no organized market for these agreements, the value
reported in the Statement of Assets and Liabilities may differ from that which
would be realized in the event the Fund terminated its position in the
agreement. Entering into these agreements involves, to varying degrees, elements
of credit, interest rate and market risk in excess of the amount recognized in
the Statement of Assets and Liabilities. Such risks involve the possibility that
there is no liquid market for these agreements, that the counterparty to the
agreements may default on its obligation to perform and that there may be
adverse changes in interest rates and unfavorable changes in the price of the
security or index underlying these transactions.

TBA PURCHASE COMMITMENTS

Bond Fund enters into "TBA" (to be announced) purchase commitments to
purchase securities for a fixed unit price at a future date beyond customary
settlement time. Although the unit price 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 Fund holds, and
maintains until the settlement date, cash or high-grade debt obligations in an
amount sufficient to meet the purchase price. TBA 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
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 purchase commitments with
the intention of acquiring securities for its portfolio, the Fund may dispose of
a commitment prior to settlement if the Fund's Subadviser deems it appropriate
to do so.

TBA SALE COMMITMENTS

Bond Fund enters into "TBA" sale commitments to hedge its portfolio
positions or to sell mortgage-backed securities it owns under delayed delivery
arrangements. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, equivalent deliverable securities, or an offsetting TBA purchase
commitment (deliverable on or before the sale commitment date), are held as
"cover" for the transaction.

46
<PAGE> 145

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED

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 upon the unit price established at the date the
commitment was entered into.

FORWARD CURRENCY CONTRACTS

Each Fund may enter into forward foreign currency contracts in order to
manage currency exposure. A 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. Purchases and sales of
forward currency contracts having the same settlement date and broker are offset
and any realized gain or loss is recognized on the date of offset; otherwise a
gain or loss is recognized upon settlement. Losses may arise from changes in the
value of the foreign currency or if the counterparties do not perform under the
contracts' 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 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 rates when
accrued or incurred.

Effective November 1, 1994, the Funds adopted Statement of Position (SOP)
93-4: Foreign Currency Accounting and Financial Statement Presentation for
Investment Companies. In accordance with this SOP, reported net realized gains
and losses on foreign currency transactions represent net gains and losses from
sales and maturities of 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 net
investment income accrued and the U.S. dollar amount actually received. The
effects of changes in foreign currency exchange rates on

47
<PAGE> 146

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
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

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, except that, for
Harbor International Growth Fund and Harbor International Fund, certain
dividends are recorded as soon as the Fund is notified of the ex-dividend date.
Interest income is accrued daily as earned. Discounts and premiums on securities
purchased are amortized over the life of the respective securities using the
straight-line method. Discount on zero coupon bonds is accreted using the
effective yield method.

DISTRIBUTION TO SHAREHOLDERS

Distributions are recorded on the ex-dividend date.

EXPENSES

Expenses incurred by the Trust with respect to any two or more Funds are
allocated in proportion to the net assets of each Fund, except where allocations
of direct expense to each Fund can be otherwise fairly made.

DEFERRED ORGANIZATION COSTS

Certain costs incurred by Harbor International Growth Fund and Harbor Short
Duration Fund in connection with its organization and its registration with the
Securities and Exchange Commission and with various states aggregated
approximately $33,000 and $21,000, respectively. These costs are being amortized
on a straight-line basis over a five-year period from the commencement of
operations of the Fund.

48
<PAGE> 147

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
FEDERAL 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.

NOTE 3--INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, other than short-term securities, for
each Fund for the year ended October 31, 1995 were as follows:

<TABLE>
<CAPTION>
PURCHASES SALES
---------------------------- ----------------------------
U.S. U.S.
FUND GOVERNMENT OTHER GOVERNMENT OTHER
- --------------------------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Harbor International Growth...... $ -- $104,248,698 $ -- $ 64,027,713
Harbor International............. -- 560,752,221 -- 409,371,765
Harbor Growth.................... -- 116,651,658 -- 152,248,909
Harbor Capital Appreciation...... 16,063,100 750,024,039 1,864,225 256,129,223
Harbor Value..................... -- 102,052,602 -- 88,178,524
Harbor Bond...................... 148,680,715 55,433,007 108,056,782 45,166,219
Harbor Short Duration............ 607,409,473 51,680,196 572,466,913 44,332,098
</TABLE>

Harbor Money Market's purchases and sales (including maturities) of
investment securities (all short term obligations) aggregated $1,880,520,097 and
$1,885,548,463, respectively.

Harbor Short Duration Fund engages 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 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 and/or U.S. Government
securities with its custodian sufficient to cover its short position.

Harbor Bond Fund enters into forward sale commitments to sell a specified
security at a specified price on a specified future date. The forward sales that
create short positions are accounted for as short sells as described above.

49
<PAGE> 148

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 3--INVESTMENT PORTFOLIO TRANSACTIONS--CONTINUED

Transactions in futures contracts during the year ended October 31, 1995
are summarized as follows:

<TABLE>
<CAPTION>
PURCHASES OF SALES OF
FUTURES CONTRACTS FUTURES CONTRACTS
--------------------------- ---------------------------
U.S. BONDS U.S. BONDS
--------------------------- ---------------------------
NUMBER OF AGGREGATE NUMBER OF AGGREGATE
CONTRACTS FACE VALUE CONTRACTS FACE VALUE
--------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
HARBOR BOND FUND
Contracts outstanding at beginning of
period...................................... 349 $ 34,900,000 -- --
Contracts opened.............................. 2,633 263,300,000 -- --
Contracts closed.............................. (2,357) (235,700,000) -- --
-------- -------------- ------- --------------
Open at 10/31/95.............................. 625 $ 62,500,000 -- --
======== ============== ======= ==============
HARBOR SHORT DURATION FUND
Contracts outstanding at beginning of
period...................................... 75 $ 15,000,000 22 $ 2,200,000
Contracts opened.............................. 347 45,400,000 849 89,700,000
Contracts closed.............................. (222) (40,400,000) (516) (56,400,000)
-------- -------------- ------- --------------
Open at 10/31/95.............................. 200 $ 20,000,000 355 $ 35,500,000
======== ============== ======= ==============
</TABLE>

<TABLE>
<CAPTION>
PURCHASES OF SALES OF
FUTURES CONTRACTS FUTURES CONTRACTS
--------------------------- ---------------------------
FOREIGN BONDS FOREIGN BONDS
--------------------------- ---------------------------
NUMBER OF CURRENCY NUMBER OF CURRENCY
CONTRACTS AMOUNT CONTRACTS AMOUNT
--------- --------------- --------- ---------------
<S> <C> <C> <C> <C>
HARBOR BOND FUND
Contracts outstanding at beginning of
period...................................... -- $ -- -- --
Contracts opened.............................. 1,100 135,000,000 -- --
Contracts closed.............................. (900) (105,000,000) -- --
------- --------------
Open at 10/31/95.............................. 200 $ 30,000,000 -- --
======= ============== ====== ==============
HARBOR SHORT DURATION FUND
Contracts outstanding at beginning of
period...................................... -- $ -- -- $ --
Contracts opened.............................. 5 1,250,000 98 24,500,000
Contracts closed.............................. -- -- (98) (24,500,000)
------- -------------- ------ --------------
Open at 10/31/95.............................. 5 $ 1,250,000 -- $ --
======= ============== ====== ==============
</TABLE>

50
<PAGE> 149

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 3--INVESTMENT PORTFOLIO TRANSACTIONS--CONTINUED
SECURITIES LENDING

The market value of securities on loan to broker/dealers at October 31,
1995, and the securities collateralizing such loans, were:

<TABLE>
<CAPTION>
MARKET VALUE MARKET VALUE
OF LOANED OF COLLATERAL
FUND SECURITIES SECURITIES
---------------------------------------------------- ------------ -----------------
<S> <C> <C>
Harbor International Growth......................... $ 7,355,362 $ 7,733,345
Harbor International................................ 156,453,571 167,600,470
</TABLE>

The Fund receives securities issued or guaranteed by the U.S. Government or
its agencies, cash or letters of credit as collateral against the loaned
securities in an amount at least equal to 100% of the current market value of
securities loaned; however, in the event of default or bankruptcy by the other
party to the agreement, realization and/or retention of the collateral may be
subject to legal proceedings. At October 31, 1995 all collateral received was
cash and was subsequently invested in cash equivalents.

WRITTEN OPTIONS

Transactions in written options for the year ended October 31, 1995 are
summarized as follows:

<TABLE>
<CAPTION>
OPTIONS WRITTEN
----------------------------
U.S. TREASURY FUTURES
----------------------------
NUMBER OF AGGREGATE
CONTRACTS FACE VALUE
--------- -------------
<S> <C> <C>
HARBOR BOND FUND
Options outstanding at beginning of period................... 300 $ 30,000,000
Options opened............................................... 2,000 200,000,000
Options closed............................................... (2,000) (200,000,000)
-------- -------------
Open at 10/31/95............................................. 300 $ 30,000,000
======== =============
</TABLE>

51
<PAGE> 150

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 3--INVESTMENT PORTFOLIO TRANSACTIONS--CONTINUED

<TABLE>
<CAPTION>
OPTIONS WRITTEN
------------------------------
FOREIGN FUTURES
------------------------------
NUMBER OF CURRENCY
CONTRACTS AMOUNT
--------- ---------------
<S> <C> <C>
HARBOR BOND FUND
Options outstanding at beginning of period................. 500 $ 500,000,000
Options opened............................................. 2,265 2,265,000,000
Options closed............................................. (1,500) (1,500,000,000)
Options expired............................................ (1,000) (1,000,000,000)
-------- ---------------
Open at 10/31/95........................................... 265 $ 265,000,000
======== ===============
</TABLE>

NOTE 4--FEES AND OTHER TRANSACTIONS WITH AFFILIATES

INVESTMENT ADVISER

Harbor Capital Advisors, Inc. ("Harbor"), an indirect wholly-owned
subsidiary of Owens-Illinois, Inc., 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 year ended October 31, 1995.
The agreements provide for fees based on an annual percentage rate of average
daily net assets as follows:

<TABLE>
<CAPTION>
ANNUAL
PERCENTAGE FEES
FUND RATE EARNED
-------------------------------------------------------- ---------- -----------
<S> <C> <C>
Harbor International Growth............................. 0.75% $ 655,678
Harbor International.................................... 0.85% 26,318,745
Harbor Growth........................................... 0.75% 1,035,019
Harbor Capital Appreciation............................. 0.60% 3,073,982
Harbor Value............................................ 0.60% 411,395
Harbor Bond............................................. 0.70% 1,318,022
Harbor Short Duration................................... 0.40% 435,320
Harbor Money Market..................................... 0.30% 196,587
</TABLE>

Harbor 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,
1995, Harbor agreed not to impose advisory fees of $88,294, $471,474, $217,937,
and $78,676, relating to Harbor International Growth Fund, Harbor Bond Fund,
Harbor Short Duration Fund and Harbor Money Market Fund, respectively; and
Harbor and Northern

52
<PAGE> 151

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 4--FEES AND OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
Cross Investments Limited agreed not to impose $1,068,227 of the advisory fee
for Harbor International Fund.

DISTRIBUTOR

HCA Securities, Inc., a wholly-owned subsidiary of Harbor Capital Advisors,
Inc., is the distributor for Harbor Fund shares. Harbor Fund does not reimburse
the distributor for expenses.

SHAREHOLDERS

On October 31, 1995, Harbor, HCA Securities, Inc., Harbor Transfer, Inc.,
and various employee benefit plans of Owens-Illinois, Inc. held the following
shares of beneficial interest in the Funds:

<TABLE>
<CAPTION>
HARBOR, HCA BENEFIT PLANS OF
SECURITIES AND OWENS-ILLINOIS,
FUND HARBOR TRANSFER INC.
----------------------------------------------- --------------- -----------------
<S> <C> <C>
Harbor International Growth.................... 100,811 155,220
Harbor International........................... 4 1,580,169
Harbor Growth.................................. 17,071 6,069,077
Harbor Capital Appreciation.................... 6 1,910,328
Harbor Value................................... 6 1,821,821
Harbor Bond.................................... 7 1,609,456
Harbor Short Duration.......................... 1,405,636 9,474,280
Harbor Money Market............................ 38,211 18,640,139
</TABLE>

TRANSFER AGENT

Harbor Transfer, Inc., a wholly-owned subsidiary of Harbor Capital
Advisors, Inc., is the shareholder servicing agent for the Funds. Fees incurred
for these transfer agent services for the year ended October 31, 1995 totalled
$3,915,034.

"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 $100,328 for the year ended October 31, 1995.

53
<PAGE> 152

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 4--FEES AND OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
CUSTODIAN

Payments to the custodian have been reduced by balance credits applied to
each portfolio for the year ended October 31, 1995. For the Harbor International
Growth Fund, Harbor International Fund, Harbor Growth Fund, Harbor Capital
Appreciation Fund, Harbor Value Fund, Harbor Bond Fund, Harbor Short Duration
Fund, and Harbor Money Market Fund the reduction amounted to $1,772, $11,285,
$1,386, $16,229, $535, $2,018, $17,213, and $2,084, respectively.

NOTE 5--BORROWINGS

Short Duration Fund enters into reverse repurchase agreements with third
party broker-dealers. The Fund may use reverse repurchase agreements to borrow
short term funds. Interest on the value of reverse repurchase agreements issued
and outstanding is based upon competitive market rates at the time of issuance.
At the time the Fund enters into a reverse repurchase agreement, it establishes
and maintains a segregated account with the lender containing liquid high grade
securities having a value not less than the repurchase price, including accrued
interest, of the reverse repurchase agreement. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the repurchase price of the securities and, if the proceeds from
the reverse repurchase agreement are invested in securities, that the market
value of the securities bought may decline below the repurchase price of
securities sold. Activity in reverse repurchase agreements by the Short Duration
Fund for the year ended October 31, 1995 is as follows:

<TABLE>
<CAPTION>
MAXIMUM AVERAGE DAILY
AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST RATE
CATEGORY OF AGGREGATE AT END OF INTEREST DURING THE DURING THE DURING THE
SHORT-TERM BORROWINGS PERIOD RATE PERIOD PERIOD PERIOD
- --------------------------------- ----------- ------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Reverse repurchase agreements
with maturity dates from
8/15/98 thru 12/31/99.......... $56,399,375 5.77% $59,129,597 $ 23,999,198 5.53%
</TABLE>

NOTE 6--COMMITMENTS AND CONTINGENCIES

In connection with its former fidelity bond and directors and officers
errors and omissions liability insurance policy, the Trust, on behalf of each
Fund, must maintain for five years a "reserve premium" representing
approximately 100% of its allocated annual premium for each Fund. Such amounts
are included in "Other assets" in each Fund's Statement of Assets and
Liabilities.

NOTE 7--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

54
<PAGE> 153

HARBOR FUND
NOTES TO FINANCIAL STATEMENTS--CONTINUED

NOTE 7--TAX INFORMATION--CONTINUED
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. For
the year ended October 31, 1995, the Funds reclassified the following amounts:

<TABLE>
<CAPTION>
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
(LOSS) INCOME GAIN (LOSS) CAPITAL
---------------- ------------ ------------
<S> <C> <C> <C>
Harbor International Growth Fund................ 6,641 10,204 (16,845)
Harbor International Fund....................... (1,601,667) 2,055,114 (453,447)
Harbor Growth Fund.............................. 211,347 (211,347) --
Harbor Capital Appreciation Fund................ (16,366) 22,056 (5,690)
Harbor Value Fund............................... 12,875 (13,230) 355
Harbor Bond Fund................................ 435,640 (450,313) 14,673
Harbor Short Duration Fund...................... 614,597 20,322,391 (20,936,988)
</TABLE>

At October 31, 1995, Harbor Short Duration Fund had capital loss
carryforwards of approximately $5,578,000, $13,538,000 and $2,000, which may be
available to offset future realized capital gains, if any. These amounts will
expire October 31, 2001, October 31, 2002 and October 31, 2003, respectively.

At October 31, 1995 Harbor International Growth Fund had capital loss
carryforwards of approximately $65,058 and $3,162,965, which may be available to
offset future realized capital gains, if any. These amounts will expire on
October 31, 2002 and October 31, 2003, respectively.

At October 31, 1995 Harbor Bond Fund had a capital loss carryforward of
approximately $1,957,911 which may be available to offset future realized
capital gains, if any. This amount will expire October 31, 2002. A capital loss
of $4,985,470 was utilized during the year ended October 31, 1995.

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, 1995 were as follows:

<TABLE>
<CAPTION>
GROSS UNREALIZED NET UNREALIZED
----------------------------- APPRECIATION/
NAME OF FUND IDENTIFIED COST APPRECIATION (DEPRECIATION) (DEPRECIATION)
- ------------------------------------ --------------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Harbor International Growth Fund.... $ 107,302,997 $ 15,560,556 $ (2,613,917) $ 12,946,639
Harbor International Fund........... 2,462,857,598 892,617,312 (99,654,914) 792,962,398
Harbor Growth Fund.................. 106,770,461 33,075,277 (1,673,010) 31,402,267
Harbor Capital Appreciation Fund.... 723,286,961 205,409,475 (11,477,946) 193,931,529
Harbor Value Fund................... 79,441,526 6,865,732 (2,084,994) 4,780,738
Harbor Bond Fund.................... 228,945,882 3,651,604 (2,713,242) 938,362
Harbor Short Duration Fund.......... 189,862,819 585,747 (1,761,133) (1,175,386)
</TABLE>

55
<PAGE> 154

REPORT OF INDEPENDENT ACCOUNTANTS

TO THE SHAREHOLDERS AND
BOARD OF TRUSTEES OF
HARBOR FUND

In our opinion, the accompanying statements of assets and liabilities,
including the portfolios of investments, and the related statements of
operations, of changes in net assets and of cash flows, and the financial
highlights present fairly, in all material respects, the financial position of
each of the eight Funds constituting the Harbor Fund, (hereafter referred to as
the "Trust") at October 31, 1995, and the results of each of their operations,
the changes in each of their net assets, the cash flows for the Harbor Short
Duration Fund, and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Trust's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of investments owned at
October 31, 1995 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Boston, Massachusetts
December 14, 1995

56
<PAGE> 155

HARBOR FUND
ADDITIONAL INFORMATION

ADDITIONAL FEDERAL TAX INFORMATION

Harbor Value Fund designates 42% of its distributions from investment
company taxable income for the fiscal year as qualifying for the dividends
received deduction for corporate shareholders. The Fund paid a long-term capital
gain dividend of $2,598,041 or $.51 per share on December 27, 1994.

The Form 1099 you receive in January, 1996 for each of the Funds will show
the tax status of all distributions paid to your account in calendar year 1995.

ADDITIONAL INFORMATION

On August 3, 1995 a special meeting of shareholders of Harbor Value Fund
was held for the purpose of voting on the following:

1: To approve or disapprove the Subadvisory Agreement by and among the
Trust, on behalf of Harbor Value Fund, Harbor Capital Advisors, Inc. and
DePrince, Race & Zollo, Inc. ("DRZ"), the Fund's subadviser, under which
DRZ will manage a portion of the Fund's assets ("Proposal 1").

2: To approve or disapprove an amendment to a fundamental investment
restriction of Harbor Value Fund ("Proposal 2").

The results of the vote on Proposal 1 were as follows:

<TABLE>
<CAPTION>
% OF
OUTSTANDING % OF SHARES
VOTE NO. OF SHARES SHARES VOTED
- -------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Affirmative............................................. 4,154,819 81.28% 98.25%
Against................................................. 56,088 1.10 1.33
Abstain................................................. 17,590 0.34 .42
------------- ----------- -----------
TOTAL: ............................................... 4,228,497 82.72% 100.00%
</TABLE>

The results of the vote on Proposal 2 were as follows:

<TABLE>
<CAPTION>
% OF
OUTSTANDING % OF SHARES
VOTE NO. OF SHARES SHARES VOTED
- -------------------------------------------------------- ------------- ----------- -----------
<S> <C> <C> <C>
Affirmative............................................. 4,092,062 80.05% 96.77%
Against................................................. 109,159 2.14 2.58
Abstain................................................. 27,276 0.53 .65
------------- ----------- -----------
TOTAL: ............................................... 4,228,497 82.72% 100.00%
</TABLE>

(This document must be preceded or accompanied by a Prospectus.)

57
<PAGE> 156

<TABLE>
<S> <C> <C>
TRUSTEES AND OFFICERS SHAREHOLDER SERVICING AGENT

Ronald C. Boller Chairman, President and Harbor Transfer, Inc.
Howard P. Colhoun Trustee P.O. Box 2282
John P. Gould Trustee Toledo, Ohio 43603-2282
Rodger F. Smith Trustee 1-800-422-1050
Constance L. Souders Trustee
Secretary and Treasurer CUSTODIAN
State Street Bank and Trust
Company
INVESTMENT ADVISER P.O. Box 1713
Harbor Capital Advisors, Boston, MA 02105
Inc.
One SeaGate
Toledo, OH 43666 INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
DISTRIBUTOR AND Boston, MA 02110
PRINCIPAL UNDERWRITER
HCA Securities, Inc. LEGAL COUNSEL
One SeaGate Hale and Dorr
Toledo, OH 43666 60 State Street
(419) 247-2477 Boston, MA 02109

</TABLE>

(HARBOR FUND LOGO)

196,000/12/95 (RECYCLED PAPER LOGO)

<PAGE> 157

HARBOR FUND

PART C. OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

a. Financial Statements:
Included in Part A of this Registration Statement:

Financial Highlights for each series of Harbor Fund as of October 31,
1995.

Incorporated by reference in Part B of this Registration Statement:

Portfolio of Investments as of October 31, 1995.

Statement of Assets and Liabilities as of October 31, 1995.

Statement of Operations for the year ended October 31, 1995.

Statement of Changes in Net Assets for the fiscal years ended October
31, 1994 and October 31, 1995;

Report of Independent Accountants dated December 14, 1995.

b. Exhibits:

<TABLE>
<S> <C>
(4)1. (a) Amended and Restated Declaration of Trust dated October 7, 1986.
(4) (b) Form of Establishment and Designation of Series of Shares of Beneficial
Interest, Par Value $.01 Per Share.
(5) (c) Amendment of Declaration of Trust dated November 3, 1987.
(9) (d) Amended and Restated Establishment and Designation of Series of Shares of
Beneficial Interest, Par Value $.01 Per Share dated May 1, 1990.
(1)0 (e) Amended and Restated Establishment and Designation of Series of Shares of
Beneficial Interest, Par Value $.01 Per Share dated November 1, 1991.
(1)2 (f) Amended and Restated Establishment and Designation of Series of Shares of
Beneficial Interest $0.01 Par Value Per Share dated December 31, 1991.
(1)4 (g) Form of Agreement and Declaration of Trust.
(1)5 (h) Establishment and Designation of Series of Shares of Beneficial Interest,
Par Value $.01 Per Share.
(i) Amendment of Agreement and Declaration of Trust dated September 9, 1994.
(1)2. (a) By-laws dated May 20, 1986.
(1)4 (b) Form of Amended and Restated By-laws.
3. Inapplicable.
(3)4. Specimen Certificate.
(6)5. (a) Investment Advisory Agreement--Harbor Growth Fund.
(6) (b) Investment Advisory Agreement--Harbor International Fund.
(6) (c) Investment Advisory Agreement--Harbor Capital Appreciation Fund.
</TABLE>

- ------------

<TABLE>
<S> <C>
(1) Filed with the Registration Statement on May 20, 1986.
(2) Filed with Pre-Effective Amendment No. 1 on October 16, 1986.
(3) Filed with Pre-Effective Amendment No. 2 on November 7, 1986.
(4) Filed with Post-Effective Amendment No. 3 on October 20, 1987.
(5) Filed with Post-Effective Amendment No. 4 on December 24, 1987.
(6) Filed with Post-Effective Amendment No. 5 on July 18, 1988.
(7) Filed with Post-Effective Amendment No. 6 on February 2, 1989.
(8) Filed with Post-Effective Amendment No. 8 on February 28, 1990.
(9) Filed with Post-Effective Amendment No. 9 on December 31, 1990.
(1)0 Filed with Post-Effective Amendment No. 10 on November 1, 1991.
(1)1 Filed with Post-Effective Amendment No. 11 on December 27, 1991.
(1)2 Filed with Post-Effective Amendment No. 12 on June 30, 1992.
(1)3 Filed with Post-Effective Amendment No. 13 on December 30, 1992.
(1)4 Filed with Post-Effective Amendment No. 14 on April 16, 1993.
(1)5 Filed with Post-Effective Amendment No. 15 on August 27, 1993.
</TABLE>

C-1
<PAGE> 158

<TABLE>
<S> <C> <C>
(6)5. (d) Investment Advisory Agreement--Harbor Value Fund.
(6) (e) Investment Advisory Agreement--Harbor Bond Fund.
(6) (f) Investment Advisory Agreement--Harbor Money Market Fund.
(14) (g) Subadvisory Contract--Harbor International Fund.
(6) (h) Subadvisory Contract--Harbor Value Fund.
(7) (i) Subadvisory Contract--Harbor Bond Fund.
(6) (j) Subadvisory Contract--Harbor Money Market Fund.
(9) (k) Subadvisory Contract--Harbor Capital Appreciation Fund.
(9) (l) Amendment to Subadvisory Contract--Harbor Capital Appreciation Fund.
(9) (m) Amendment to Subadvisory Contract--Harbor Value Fund.
(9) (n) Amendment to Subadvisory Contract--Harbor Bond Fund.
(9) (o) Amendment to Subadvisory Contract--Harbor Money Market Fund.
(10) (p) Form of Investment Advisory Agreement--Harbor Short Duration Fund.
(10) (q) Form of Subadvisory Contract--Harbor Short Duration Fund.
(13) (r) Form of Subadvisory Contract--Harbor Growth Fund.
(16) (s) Form of Investment Advisory Agreement--Harbor International Growth Fund
(15) (t) Form of Subadvisory Contract--Harbor International Growth Fund
(15) (u) Form of Subadvisory Contract--Harbor Value Fund
(15) (v) Form of Subadvisory Contract--Harbor Value Fund
(17) (w) Form of Subadvisory Contract--Harbor Value Fund
(17) (x) Form of Subadvisory Contract--Harbor Bond Fund
(y) Form of Subadvisory Contract--Harbor Value Fund
(1)6. Form of Distribution Agreement.
7. Inapplicable.
(2)8. (a) Form of Custodian Agreement.
(2) (b)(1) Fee schedule for Exhibit 8(a).
(10) (b)(2) Fee schedule for Exhibit 8(a).
(15) (b)(3) Fee schedule for Exhibit 8(a).
(16) (b)(4) Fee schedule for Exhibit 8(a).
(b)(5) Fee schedule for Exhibit 8(a).
(c) Amendment to Custodian Agreement.
(10)9. (a)(1) Form of Transfer Agent and Service Agreement.
(10) (a)(2) Fee Schedule for Exhibit 9(a)(1).
(14) (a)(3) Amendment to Transfer Agency and Service Agreement.
(15) (a)(4) Fee Schedule for Exhibit 9(a)(1).
(2) (b) Subscription Agreement between Owens-Illinois Master Retirement Trust and
the Registrant.
(13)10. Opinion and Consent of Counsel as to legality of shares being registered (filed with
Rule 24f-2 Notice).
11. Consent of Independent Accountants.
12. 1995 Annual Report to Shareholders is incorporated by reference to Form N30D (File
No. 811-04676) filed on December 21, 1995.
(2)13. Investment Representation Letter relating to initial capital.
14. Inapplicable.
15. Inapplicable.
</TABLE>

- ------------

<TABLE>
<C> <S>
(1) Filed with the Registration Statement on May 20, 1986.
(2) Filed with Pre-Effective Amendment No. 1 on October 16, 1986.
(3) Filed with Pre-Effective Amendment No. 2 on November 7, 1986.
(4) Filed with Post-Effective Amendment No. 3 on October 20, 1987.
(5) Filed with Post-Effective Amendment No. 4 on December 24, 1987.
(6) Filed with Post-Effective Amendment No. 5 on July 18, 1988.
(7) Filed with Post-Effective Amendment No. 6 on February 2, 1989.
(8) Filed with Post-Effective Amendment No. 8 on February 28, 1990.
(9) Filed with Post-Effective Amendment No. 9 on December 31, 1990.
(10) Filed with Post-Effective Amendment No. 10 on November 1, 1991.
(11) Filed with Post-Effective Amendment No. 11 on December 27, 1991.
(12) Filed with Post-Effective Amendment No. 12 on June 30, 1992.
(13) Filed with Post-Effective Amendment No. 13 on December 30, 1992.
(14) Filed with Post-Effective Amendment No. 14 on April 16, 1993.
(15) Filed with Post-Effective Amendment No. 15 on August 27, 1993.
(16) Filed with Post-Effective Amendment No. 17 on February 25, 1994.
(17) Filed with Post-Effective Amendment No. 18 on December 29, 1994.
</TABLE>

C-2
<PAGE> 159

<TABLE>
<S> <C> <C>
(11)16. (a) Schedule of Computation of Performance Quotations.
(12) (b) Schedule of Computation of Performance Quotations for Harbor Short Duration
Fund.
(16) (c) Schedule of Computation of Performance Quotations for Harbor International
Growth Fund.
17. Not Applicable.
(16)18. Power of Attorney.
27. Financial Data Schedules.
</TABLE>

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT

As of December 14, 1995, the Owens-Illinois 401(k) Trust owned beneficially
and of record, 29%, 30% and 29% of the outstanding shares of beneficial interest
of Harbor Growth Fund, Harbor Value Fund and Harbor Money Market Fund,
respectively.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF OCTOBER 31, 1995)

<TABLE>
<CAPTION>
(2)
NUMBER
(1) OF
TITLE OF CLASS SHAREHOLDERS
- --------------------------------------------------------------------------------- ------------
<S> <C>
Shareholders of beneficial interest, Harbor International Growth Fund............ 3,717
Shareholders of beneficial interest, Harbor International Fund................... 59,908
Shareholders of beneficial interest, Harbor Growth Fund.......................... 1,615
Shareholders of beneficial interest, Harbor Capital Appreciation Fund............ 18,931
Shareholders of beneficial interest, Harbor Value Fund........................... 994
Shareholders of beneficial interest, Harbor Bond Fund............................ 5,599
Shareholders of beneficial interest, Harbor Short Duration Fund.................. 260
Shareholders of beneficial interest, Harbor Money Market Fund.................... 3,513
</TABLE>

ITEM 27. 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
coverage under this policy is $7,000,000. The issuer of the policy is the Chubb
Custom Insurance Company, Chubb Group of Insurance Companies.

ITEM 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER

The business of Harbor Capital Advisors, Inc. is summarized under "The
Adviser, Subadvisers and Distributor" in the Prospectus constituting Part A of
this Registration Statement, which summary is incorporated herein by reference.

The business or other connections of each director and officer of Harbor
Capital Advisors, Inc. is currently listed in the investment adviser
registration on Form ADV for Harbor Capital Advisors, Inc. (File No. 801-20374)
and is hereby incorporated herein by reference thereto.

Northern Cross Investments Limited is a subadviser to Registrant's investment
adviser. The business or other connections of each director and officer of
Northern Cross Investments Limited is currently listed in the investment adviser
registration on Form ADV for Northern Cross Investments Limited (File No. 801-
42997) and is hereby incorporated by reference thereto.

Nicholas-Applegate Capital Management, a California limited partnership, is a
subadviser to Registrant's investment adviser. The business or other connections
of each director, officer or partner of

C-3
<PAGE> 160

Nicholas-Applegate Capital Management is currently listed in the investment
adviser registration on Form ADV for Nicholas-Applegate Capital Management (File
No. 801-21442) and is hereby incorporated by reference thereto.

Richards & Tierney, Inc. is a subadviser to Registrant's investment adviser.
The business or other connections of each director and officer of Richards &
Tierney, Inc. is currently listed in the investment adviser registration on Form
ADV for Richards & Tierney, Inc. (File No. 801-22646) and is hereby incorporated
herein by reference thereto.

Pacific Investment Management Company is a subadviser to Registrant's
investment adviser. The business or other connections of each director and
officer of Pacific Investment Management Company is currently listed in the
investment adviser registration on Form ADV for Pacific Investment Management
Company (File No. 801-7260) and is hereby incorporated by reference thereto.

Fischer Francis Trees & Watts, Inc. is a subadviser to Registrant's investment
adviser. The business and other connections of each director and officer of
Fischer Francis Trees & Watts, Inc. is currently listed in the investment
adviser registration on Form ADV for Fischer Francis Trees & Watts, Inc. (File
No. 801-10577) and is hereby incorporated by reference thereto.

Jennison Associates Capital Corp. is a subadviser to Registrant's investment
adviser. The business or other connections of each director or officer of
Jennison Associates Capital Corp. is currently listed in the investment adviser
registration on Form ADV for Jennison Associates Capital Corp. (File No.
801-5608) and is hereby incorporated by reference thereto.

DePrince, Race & Zollo, Inc. is a subadviser to Registrant's investment
adviser. The business or other connections of each director or officer of
DePrince, Race & Zollo, Inc. is currently listed in the investment adviser
registration on Form ADV for DePrince, Race & Zollo, Inc. (File No. 801-48779)
and is hereby incorporated by reference thereto.

ITEM 29. PRINCIPAL UNDERWRITER

(a) None

(b)

<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME BUSINESS ADDRESS UNDERWRITER REGISTRANT
--------------------------- --------------------- ------------------------ ------------------
<S> <C> <C> <C>
Ronald C. Boller........... One SeaGate President, Treasurer, Chairman,
Toledo, Ohio 43666 Secretary and President
Director and Trustee
Janice D. Osthimer......... One SeaGate Director None
Toledo, Ohio 43666
Constance L. Souders....... One SeaGate Director Secretary and
Toledo, Ohio 43666 Treasurer
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

Certain accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained at the offices of the Registrant, Harbor Capital
Advisors, Inc., HCA Securities, Inc., and Harbor Transfer, Inc. each of which is
located at One SeaGate, Toledo, Ohio 43666; Jennison Associates Capital Corp.,
466 Lexington Avenue, New York, New York 10017; Northern Cross Investments
Limited, Clarendon House, 2 Church Street, Hamilton, Bermuda HMDX;
Nicholas-Applegate Capital Management, Suite 2900, 600 West Broadway, San Diego,
California 92101; DePrince, Race & Zollo, Inc., 201 Orange Avenue, Suite 850,

C-4
<PAGE> 161

Orlando, Florida 32801; Richards & Tierney, Inc., 111 W. Jackson Blvd., Chicago,
Illinois 60604; Pacific Investment Management Company, 840 Newport Center Drive,
Newport Beach, California 92660; Fischer Francis Trees & Watts, Inc., 200 Park
Avenue, New York, New York 10166. Records relating to the duties of the
Registrant's custodian are maintained by State Street Bank and Trust Company,
225 Franklin Street, Boston, MA 02110.

ITEM 31. MANAGEMENT SERVICES

Inapplicable.

ITEM 32. UNDERTAKINGS

(a) Insofar as indemnification for liability arising under the Securities Act
of 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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in 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 Act and will be governed by the final adjudication of
such issue.

(b) The Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of Registrant's latest annual report to
shareholders upon request and without charge.

C-5
<PAGE> 162

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it has duly caused this
Post-Effective Amendment No. 19 to the Registration Statement ("Amendment"), to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Toledo, the State of Ohio, on the 27th day of December, 1995.

HARBOR FUND

By: /s/ RONALD C. BOLLER
-------------------------------
RONALD C. BOLLER,
PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, this Amendment has
been signed below by the following persons in the capacities and on the dates
indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------------- ------------------------ ------------------
<C> <S> <C>
/s/ RONALD C. BOLLER Chairman and President December 27, 1995
-------------------------------- (Principal Executive
RONALD C. BOLLER Officer) and Trustee

/s/ CONSTANCE L. SOUDERS Treasurer (Principal December 27, 1995
-------------------------------- Financial and
CONSTANCE L. SOUDERS Accounting Officer)

/s/ JOHN P. GOULD* Trustee December 27, 1995
--------------------------------
JOHN P. GOULD

/s/ HOWARD P. COLHOUN* Trustee December 27, 1995
--------------------------------
HOWARD P. COLHOUN

/s/ RODGER F. SMITH* Trustee December 27, 1995
--------------------------------
RODGER F. SMITH
</TABLE>

- -------------------------
* Executed by Ronald C. Boller pursuant to a power of attorney filed with
Post-Effective Amendment No. 17.

C-6
<PAGE> 163

HARBOR FUND

INDEX TO EXHIBITS IN REGISTRATION STATEMENT

<TABLE>
<CAPTION>
NO. EXHIBIT PAGE
- ---------- ------------------------------------------------------------------------- -----
<S> <C> <C>
5.(y) Subadvisory Contract--Harbor Value Fund..................................
8.(b)(5) Fee schedule for Exhibit 8(a)............................................
8.(c) Amendment to Custodian Contract..........................................
11. Consent of Independent Accountants.......................................
27. Financial Data Schedules.................................................
</TABLE>

C-7

<PAGE> 1

EXHIBIT 5(y)

[HARBOR FUND LETTERHEAD]

August 4, 1995

DePrince, Race & Zollo, Inc.
201 S. Orange Avenue, Suite 850
Orlando, Florida 32801

INVESTMENT ADVISORY AGREEMENT FOR SUBADVISER
(HARBOR VALUE FUND)
________________________________________________________

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 Value 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) Agreement and Declaration of Trust of the Trust, as amended
and restated from time to time, and the Certificate of Trust
which was filed with the Delaware Secretary of State dated
June 8, 1993 (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 a sub-investment adviser and
approving the form of this Agreement.
<PAGE> 2

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
portfolio which the Board of Trustees determines to allocate to you from time
to time, which advice shall be consistent with the investment objective 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 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, 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 objective, 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 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; By-laws; investment objective and policies; 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 in accordance
with and will ensure that the portion of the portfolio of the Fund allocated to
you conforms with the Investment Company Act and all rules and regulations
thereunder, the requirements for qualification as a regulated investment
company of 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.

2
<PAGE> 3

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
portion of the Fund's assets allocated to you in the 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 asset values of the
portion of the Fund that you managed at the close of the last business day
of each month within the quarter. Determination of net asset value of the Fund
is computed daily by the Fund's custodian, State Street Bank and Trust Company,
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 asset values of
the portion of the Fund that you manage, 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 State Street Bank and Trust
Company, on the last business day of each month within the quarter. If the
determination of net asset value 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 State Street Bank and Trust Company 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.

3
<PAGE> 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.

5. AVOIDANCE OF INCONSISTENT POSITION AND BROKERAGE. In connection
with purchases or sales of portfolio securities for the account of the portion
of the Fund allocated to you, 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 portion of the Fund's account allocated to you
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. 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.

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.

4
<PAGE> 5

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. Any person,
even though also employed by you, who may be or become an employee of and paid
by the Fund shall be deemed, when acting within the scope of his employment by
the Fund, to be acting in such employment solely for the Fund and not as your
employee or agent.

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 found by a final judicial determination to
constitute wilful 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.

5
<PAGE> 6

7. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall
remain in force until March 17, 1997 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 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 you. This Agreement will terminate
immediately upon 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 Sections 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.

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.

6
<PAGE> 7

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.

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 VALUE FUND)

BY RONALD C. BOLLER
----------------------------------
TITLE: PRESIDENT

HARBOR CAPITAL ADVISORS, INC.

BY CONSTANCE L. SOUDERS
----------------------------------
TITLE: SENIOR VICE PRESIDENT

DEPRINCE, RACE & ZOLLO, INC.

BY VICTOR A. ZOLLO, JR.
----------------------------------
TITLE: PRESIDENT

7
<PAGE> 8

DEPRINCE, RACE & ZOLLO, INC.

SCHEDULE A

(HARBOR VALUE FUND)

DePrince, Race and Zollo, Inc. ("DRZ") will receive a subadvisory fee
equal on an annual basis to 0.65% of the portion of Harbor Value Fund's average
net assets managed by DRZ up to $10 million; 0.40% of the next $40 million of
such assets; 0.30% on the next $50 million of such assets; and 0.25% on assets
in excess of $100 million. The Adviser will pay DRZ a fee each year which is
not less than $40,000. In the event this Agreement terminates during any
portion of a year, the fee due DRZ shall be prorated based upon the number of
days the Agreement was in effect. For purposes of determining the applicable
fee rate and satisfying the minimum payments, the assets of the Fund and the
payments by the Adviser to DRZ will be combined with the assets and payments of
the accounts of the Owens-Illinois Master Retirement Trust that DRZ manages.

<PAGE> 1
EXHIBIT 8(b)(5)

[STATE STREET LOGO]

STATE STREET BANK & TRUST COMPANY

Credit Balance Arrangement for:

Harbor Growth
Harbor International
Harbor Capital Appreciation
Harbor Value
Harbor Bond
Harbor Money Market
Harbor Short Duration
Harbor International Growth

- -------------------------------------------------------------------------------
I. Daily Services:
DDA Research: photocopy of transactions front and back, adjustment
request-- checkwriting redemptions -- manual internal bank transfers
-- stop payments -- redemption/distribution accounts

Monthly Fund Complex Fee: $2,000.00

II. Deposit Procesing Transactions:
paid check, deposited item,
cwp checks, and deposit $0.50 per item

III. ACH Processing:
Monthly Fund Complex Fee: $420.00

IV. FDIC Fee:
On total average monthly balance; $375.00 per million

V. Global Cash Management -- Funds Transfer System:
Wire Fee $5.00 per wire
Internal Bank Transfer $1.50 per IBT
Account Fee $50.00 per account

VI. Earnings Credit:
A balance credit equal to 75% of the federal funds rate in effect on
the last business day of each month will be applied to the average
demand deposit account balances on a volume based basis
against each Fund's custodian fees, excluding out of pocket
expenses. The balances will be cumulative and carried forward each
month through December 31.

Harbor Fund State Street Bank & Trust Company
By: Constance L. Souders By: Timothy Panard
----------------------- -----------------------
Title: Treasurer Title: Vice President
-------------------- --------------------
Date: 8/1/95 Date: 7/28/95
--------------------- ---------------------

<PAGE> 1
EXHIBIT 8(c)

AMENDMENT TO CUSTODIAN CONTRACT

Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and Harbor Fund (formerly Harbor Growth Fund)(the "Fund").

WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated November 11, 1986 as amended August 15, 1988, November 1, 1988, January
2, 1992 and May 18, 1992 (the "Custodian Contract") governing the terms and
conditions under which the Custodian maintains custody of the securities and
other assets of the Fund; and

WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions under which the Custodian maintains the Fund's securities and other
non-cash property in the custody of certain foreign sub-custodians in
conformity with the requirements of Rule 17f-5 under the Investment Company Act
of 1940, as amended;

NOW THEREFORE, in consideration of the premises and covenants contained
herein, the Custodian and the Fund hereby amend the Custodian Contract by the
addition of the following terms and provisions;

1. Notwithstanding any provisions to the contrary set forth in the
Custodian Contract, the Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to the
Custodian for the benefit of its customers, provided however, that (i) the
records of the Custodian with respect to securities and other non-cash property
of the Fund which are maintained in such account shall identify by book-entry
those securities and other non-cash property belonging to the Fund and (ii) the
Custodian shall require that securities and other non-cash property so held by
the foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others.

2. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian Contract shall continue to apply with full force
and effect.

IN WITNESS WHEREOF, each of the parties has caused this instrument to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative of this 27th day of July, 1995.

HARBOR FUND

By: Constance L. Souders
------------------------

Title: Treasurer
---------------------

STATE STREET BANK AND TRUST COMPANY

By: Timothy Panard
------------------------

Title: Vice President
---------------------

<PAGE> 1

EXHIBIT 11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 19 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated December 14, 1995, relating to the
financial statements and financial highlights of each of the eight funds
comprising the Harbor Fund appearing in the October 31, 1995 Annual Report to
Shareholders of the Harbor Fund, which are also incorporated by reference into
the Registration Statement. We also consent to the references to us under the
heading "Financial Highlights" in the Prospectus and under the heading
"Independent Accountants and Financial Statements" in the Statement of
Additional Information.

[SIG.]

PRICE WATERHOUSE LLP
Boston, Massachusetts

December 22, 1995

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) HARBOR
FUND'S ANNUAL REPORT TO SHAREHOLDERS FILED ON FORM N-30D ON DECEMBER 21, 1995
(FILE NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> HARBOR INTERNATIONAL FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 2,462,731,919
<INVESTMENTS-AT-VALUE> 3,255,819,996
<RECEIVABLES> 8,642,274
<ASSETS-OTHER> 60,124
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,272,716,006
<PAYABLE-FOR-SECURITIES> 1,565,473
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,993,715
<TOTAL-LIABILITIES> 5,559,188
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,411,841,564
<SHARES-COMMON-STOCK> 121,338,455
<SHARES-COMMON-PRIOR> 116,452,972
<ACCUMULATED-NII-CURRENT> 46,408,181
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,434,486
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 793,472,587
<NET-ASSETS> 3,267,156,818
<DIVIDEND-INCOME> 76,620,637
<INTEREST-INCOME> 11,235,492
<OTHER-INCOME> (8,266,486)
<EXPENSES-NET> 32,096,332
<NET-INVESTMENT-INCOME> 47,493,311
<REALIZED-GAINS-CURRENT> 15,242,800
<APPREC-INCREASE-CURRENT> 93,622,254
<NET-CHANGE-FROM-OPS> 156,358,365
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (28,584,757)
<DISTRIBUTIONS-OF-GAINS> (108,512,496)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,981,750
<NUMBER-OF-SHARES-REDEEMED> (20,136,448)
<SHARES-REINVESTED> 5,040,181
<NET-CHANGE-IN-ASSETS> 4,885,483
<ACCUMULATED-NII-PRIOR> 29,101,294
<ACCUMULATED-GAINS-PRIOR> 106,649,067
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 26,318,745
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 33,175,844
<AVERAGE-NET-ASSETS> 3,096,322,974
<PER-SHARE-NAV-BEGIN> 26.87
<PER-SHARE-NII> .39
<PER-SHARE-GAIN-APPREC> .85
<PER-SHARE-DIVIDEND> (.24)
<PER-SHARE-DISTRIBUTIONS> (.94)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.93
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 106,770,461
<INVESTMENTS-AT-VALUE> 138,172,728
<RECEIVABLES> 3,961,912
<ASSETS-OTHER> 20,422
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 142,156,440
<PAYABLE-FOR-SECURITIES> 4,503,402
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 129,210
<TOTAL-LIABILITIES> 4,632,612
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 90,808,259
<SHARES-COMMON-STOCK> 8,742,431
<SHARES-COMMON-PRIOR> 11,015,900
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,313,302
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31,402,267
<NET-ASSETS> 137,523,828
<DIVIDEND-INCOME> 567,416
<INTEREST-INCOME> 309,668
<OTHER-INCOME> (14,764)
<EXPENSES-NET> 1,278,057
<NET-INVESTMENT-INCOME> (415,737)
<REALIZED-GAINS-CURRENT> 15,819,020
<APPREC-INCREASE-CURRENT> 16,576,097
<NET-CHANGE-FROM-OPS> 31,979,380
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (3,521,352)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,192,603
<NUMBER-OF-SHARES-REDEEMED> (3,756,684)
<SHARES-REINVESTED> 290,612
<NET-CHANGE-IN-ASSETS> (2,273,469)
<ACCUMULATED-NII-PRIOR> 204,390
<ACCUMULATED-GAINS-PRIOR> 3,226,981
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,035,019
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,279,443
<AVERAGE-NET-ASSETS> 138,003,680
<PER-SHARE-NAV-BEGIN> 12.83
<PER-SHARE-NII> (.04)
<PER-SHARE-GAIN-APPREC> 3.26
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (.32)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.73
<EXPENSE-RATIO> .93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 721,926,762
<INVESTMENTS-AT-VALUE> 917,218,490
<RECEIVABLES> 18,201,057
<ASSETS-OTHER> 19,324
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 935,444,181
<PAYABLE-FOR-SECURITIES> 8,844,490
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 848,783
<TOTAL-LIABILITIES> 9,693,273
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 717,468,325
<SHARES-COMMON-STOCK> 39,897,668
<SHARES-COMMON-PRIOR> 13,057,431
<ACCUMULATED-NII-CURRENT> 943,895
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,046,960
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 195,291,728
<NET-ASSETS> 925,750,908
<DIVIDEND-INCOME> 3,865,930
<INTEREST-INCOME> 1,249,329
<OTHER-INCOME> (95,276)
<EXPENSES-NET> 3,838,759
<NET-INVESTMENT-INCOME> 1,181,224
<REALIZED-GAINS-CURRENT> 12,262,188
<APPREC-INCREASE-CURRENT> 153,009,037
<NET-CHANGE-FROM-OPS> 166,452,449
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (531,337)
<DISTRIBUTIONS-OF-GAINS> (2,447,010)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33,627,694
<NUMBER-OF-SHARES-REDEEMED> (6,951,697)
<SHARES-REINVESTED> 164,240
<NET-CHANGE-IN-ASSETS> 26,840,237
<ACCUMULATED-NII-PRIOR> 310,374
<ACCUMULATED-GAINS-PRIOR> 2,209,726
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,073,982
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,854,988
<AVERAGE-NET-ASSETS> 514,242,363
<PER-SHARE-NAV-BEGIN> 17.31
<PER-SHARE-NII> .04
<PER-SHARE-GAIN-APPREC> 6.06
<PER-SHARE-DIVIDEND> (.04)
<PER-SHARE-DISTRIBUTIONS> (.17)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.20
<EXPENSE-RATIO> .75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 79,270,730
<INVESTMENTS-AT-VALUE> 84,222,264
<RECEIVABLES> 2,122,329
<ASSETS-OTHER> 11,937
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 86,357,132
<PAYABLE-FOR-SECURITIES> 1,567,116
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 276,182
<TOTAL-LIABILITIES> 1,843,298
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 72,191,658
<SHARES-COMMON-STOCK> 5,800,515
<SHARES-COMMON-PRIOR> 4,400,471
<ACCUMULATED-NII-CURRENT> 134,248
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,236,395
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,951,533
<NET-ASSETS> 84,513,834
<DIVIDEND-INCOME> 2,507,273
<INTEREST-INCOME> 205,550
<OTHER-INCOME> (36,412)
<EXPENSES-NET> 619,973
<NET-INVESTMENT-INCOME> 2,056,438
<REALIZED-GAINS-CURRENT> 7,373,341
<APPREC-INCREASE-CURRENT> 3,842,458
<NET-CHANGE-FROM-OPS> 13,272,237
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,011,154)
<DISTRIBUTIONS-OF-GAINS> (4,674,163)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,674,245
<NUMBER-OF-SHARES-REDEEMED> (786,808)
<SHARES-REINVESTED> 512,607
<NET-CHANGE-IN-ASSETS> 1,400,044
<ACCUMULATED-NII-PRIOR> 76,089
<ACCUMULATED-GAINS-PRIOR> 4,550,447
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 411,395
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 620,508
<AVERAGE-NET-ASSETS> 68,636,017
<PER-SHARE-NAV-BEGIN> 13.50
<PER-SHARE-NII> .40
<PER-SHARE-GAIN-APPREC> 2.13
<PER-SHARE-DIVIDEND> (.39)
<PER-SHARE-DISTRIBUTIONS> (1.07)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.57
<EXPENSE-RATIO> .90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 228,947,921
<INVESTMENTS-AT-VALUE> 229,884,244
<RECEIVABLES> 4,046,781
<ASSETS-OTHER> 15,843
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 235,138,927
<PAYABLE-FOR-SECURITIES> 11,842,746
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 297,768
<TOTAL-LIABILITIES> 12,140,514
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 221,764,417
<SHARES-COMMON-STOCK> 19,893,177
<SHARES-COMMON-PRIOR> 15,590,016
<ACCUMULATED-NII-CURRENT> 1,880,646
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (4,047,895)
<ACCUM-APPREC-OR-DEPREC> 3,401,245
<NET-ASSETS> 222,998,413
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,701,067
<OTHER-INCOME> 0
<EXPENSES-NET> 1,311,688
<NET-INVESTMENT-INCOME> 13,389,379
<REALIZED-GAINS-CURRENT> 2,384,007
<APPREC-INCREASE-CURRENT> 10,414,593
<NET-CHANGE-FROM-OPS> 26,187,979
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (11,944,373)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,769,878
<NUMBER-OF-SHARES-REDEEMED> (6,360,695)
<SHARES-REINVESTED> 893,978
<NET-CHANGE-IN-ASSETS> 4,303,161
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (5,981,589)
<GROSS-ADVISORY-FEES> 1,318,022
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,785,180
<AVERAGE-NET-ASSETS> 188,288,859
<PER-SHARE-NAV-BEGIN> 10.41
<PER-SHARE-NII> .74
<PER-SHARE-GAIN-APPREC> .73
<PER-SHARE-DIVIDEND> (.67)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.21
<EXPENSE-RATIO> .70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 64,652,107
<INVESTMENTS-AT-VALUE> 64,652,107
<RECEIVABLES> 514,323
<ASSETS-OTHER> 16,108
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 65,183,328
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 691,610
<TOTAL-LIABILITIES> 691,610
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 64,491,718
<SHARES-COMMON-STOCK> 64,491,718
<SHARES-COMMON-PRIOR> 60,024,065
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 64,491,718
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,950,037
<OTHER-INCOME> 0
<EXPENSES-NET> 397,070
<NET-INVESTMENT-INCOME> 3,552,967
<REALIZED-GAINS-CURRENT> 65,167
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,618,134
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,552,967)
<DISTRIBUTIONS-OF-GAINS> (65,167)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 83,477,627
<NUMBER-OF-SHARES-REDEEMED> (82,532,152)
<SHARES-REINVESTED> 3,522,178
<NET-CHANGE-IN-ASSETS> 4,467,653
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 196,587
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 477,830
<AVERAGE-NET-ASSETS> 65,529,019
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .06
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (.06)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .61
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) HARBOR
FUND'S ANNUAL REPORT TO SHAREHOLDERS FILED ON FORM N-30D ON DECEMBER 21,1995
(FILE NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> HARBOR SHORT DURATION FUND

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 188,670,540
<INVESTMENTS-AT-VALUE> 188,687,433
<RECEIVABLES> 11,213,629
<ASSETS-OTHER> 23,969
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 200,008,166
<PAYABLE-FOR-SECURITIES> 2,249,945
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 92,751,605
<TOTAL-LIABILITIES> 95,001,550
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 103,808,333
<SHARES-COMMON-STOCK> 11,902,507
<SHARES-COMMON-PRIOR> 13,214,334
<ACCUMULATED-NII-CURRENT> 501,657
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 820,748
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (124,122)
<NET-ASSETS> 105,006,616
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 8,734,927
<OTHER-INCOME> 0
<EXPENSES-NET> 1,993,317
<NET-INVESTMENT-INCOME> 6,741,610
<REALIZED-GAINS-CURRENT> (22,574)
<APPREC-INCREASE-CURRENT> 411,828
<NET-CHANGE-FROM-OPS> 7,130,864
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (6,753,096)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (112,940)
<NUMBER-OF-SHARES-SOLD> 59,267,963
<NUMBER-OF-SHARES-REDEEMED> (61,358,458)
<SHARES-REINVESTED> 778,668
<NET-CHANGE-IN-ASSETS> (1,311,827)
<ACCUMULATED-NII-PRIOR> 11,486
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (19,479,069)
<GROSS-ADVISORY-FEES> 435,320
<INTEREST-EXPENSE> 1,583,821
<GROSS-EXPENSE> 644,646
<AVERAGE-NET-ASSETS> 108,829,990
<PER-SHARE-NAV-BEGIN> 8.77
<PER-SHARE-NII> .52
<PER-SHARE-GAIN-APPREC> .06
<PER-SHARE-DIVIDEND> (.52)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> (.01)
<PER-SHARE-NAV-END> 8.82
<EXPENSE-RATIO> .38
<AVG-DEBT-OUTSTANDING> 23,999,198
<AVG-DEBT-PER-SHARE> 1.91

</TABLE>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 106,899,171
<INVESTMENTS-AT-VALUE> 120,249,636
<RECEIVABLES> 2,632,722
<ASSETS-OTHER> 19,866
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 123,075,924
<PAYABLE-FOR-SECURITIES> 486,512
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 174,759
<TOTAL-LIABILITIES> 661,271
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 111,600,332
<SHARES-COMMON-STOCK> 10,113,236
<SHARES-COMMON-PRIOR> 6,481,550
<ACCUMULATED-NII-CURRENT> 1,094,083
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (3,631,849)
<ACCUM-APPREC-OR-DEPREC> 13,352,087
<NET-ASSETS> 122,414,653
<DIVIDEND-INCOME> 2,214,114
<INTEREST-INCOME> 203,676
<OTHER-INCOME> (218,954)
<EXPENSES-NET> 1,054,405
<NET-INVESTMENT-INCOME> 1,144,431
<REALIZED-GAINS-CURRENT> (3,560,432)
<APPREC-INCREASE-CURRENT> 9,466,764
<NET-CHANGE-FROM-OPS> 7,050,763
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (533,368)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,406,005
<NUMBER-OF-SHARES-REDEEMED> (1,823,877)
<SHARES-REINVESTED> 49,558
<NET-CHANGE-IN-ASSETS> 3,631,686
<ACCUMULATED-NII-PRIOR> 476,379
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (81,621)
<GROSS-ADVISORY-FEES> 655,678
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,144,471
<AVERAGE-NET-ASSETS> 87,423,672
<PER-SHARE-NAV-BEGIN> 11.53
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> .54
<PER-SHARE-DIVIDEND> (.08)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.10
<EXPENSE-RATIO> 1.21
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>