<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1997
FILE NO. 33-5852
FILE NO. 811-4676
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-1A
------------------------
<TABLE>
<S><C>
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 [X]
POST-EFFECTIVE AMENDMENT NO. 22 [X]
AND
REGISTRATION STATEMENT
UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 24 [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>
<CAPTION>
<S> <C> <C>
<C> <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, 1997
PURSUANT TO PARAGRAPH (B) 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, 1996 WAS FILED ON DECEMBER 27,
1996.
THE INDEX TO EXHIBITS IS LOCATED AT PAGE .
================================================================================
<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; DISTRIBUTIONS
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
<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; INVESTMENT
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, 1997
----------------------
HARBOR FUND
<PAGE> 4
- --------------------------------------------------------------------------------
HARBOR FUND PROSPECTUS--MARCH 1, 1997
One SeaGate Toledo, Ohio 43666
- --------------------------------------------------------------------------------
Harbor Fund is a family of nine no-load mutual funds that offers you
investment opportunities in six equity funds: HARBOR INTERNATIONAL GROWTH FUND,
HARBOR GROWTH FUND, HARBOR CAPITAL APPRECIATION FUND, HARBOR INTERNATIONAL FUND
II, HARBOR INTERNATIONAL 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, 1997, as amended or supplemented from time
to time, 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..................... 6
Harbor Fund in Detail.................... 10
Your Harbor Fund Account................. 18
Shareholder and Account Policies......... 23
The Adviser, Subadvisers, Distributor and
Shareholder Servicing Agent............ 25
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Description of Securities and Investment
Techniques............................. 28
Performance and Yield Information........ 37
Portfolio Transactions................... 37
Distributions and Tax Information........ 38
Organization and Capitalization.......... 40
Appendix A............................... 40
</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 nine 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 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 INTERNATIONAL FUND II 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 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. (Not
available to new investors.) See Shareholder and Account
Policies.
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.
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.
2
<PAGE> 6
HARBOR MONEY MARKET FUND seeks as high a level of current income
as is considered consistent with the preservation of capital and
liquidity.
INVESTMENT
ADVISER Harbor Fund, on behalf of each Fund, has engaged Harbor Capital
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-
ADVISERS Each Fund's portfolio is managed by one or more subadvisers
("Subadvisers") consistent with each Fund's investment objective
and policies.
HARBOR INTERNATIONAL GROWTH FUND AND
HARBOR CAPITAL APPRECIATION FUND: Jennison Associates
Capital Corp.
HARBOR GROWTH FUND: Nicholas-Applegate
Capital Management
HARBOR INTERNATIONAL FUND II: Summit
International
Investments, Inc.
HARBOR INTERNATIONAL FUND: Northern Cross
Investments Limited
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, Harbor International Fund II
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 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 issued to evidence loans that
investors make to corporations and governments. 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. Generally the longer the
maturity of a fixed-income security, the higher its yield and
the greater its price volatility. Conversely, usually 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.
3
<PAGE> 7
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 higher-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, UTMA, 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 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 or shares of another Harbor Fund, 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. See Shareholder and Account Policies--Transaction Details.
TAXATION Each Fund has qualified and has elected or will elect 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.
4
<PAGE> 8
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 most recent
fiscal year.
<TABLE>
<CAPTION>
HARBOR HARBOR
INTERNATIONAL HARBOR CAPITAL HARBOR HARBOR HARBOR HARBOR
GROWTH GROWTH APPRECIATION INTERNATIONAL INTERNATIONAL VALUE BOND
FUND FUND FUND FUND II(1) FUND(1) FUND FUND(1)
------------- ------ ------------ ------------- ------------- ------ -------
<S> <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% 0.75% 0.60% 0.55% 0.80% 0.60% 0.47%
Other Expenses................. 0.36% 0.17% 0.15% 0.95% 0.19% 0.23% 0.24%
----- ----- ----- ----- ----- ----- -----
Total Operating Expenses(2).... 1.11% 0.92% 0.75% 1.50% 0.99% 0.83% 0.71%
===== ===== ===== ===== ===== ===== =====
<CAPTION>
HARBOR HARBOR
SHORT MONEY
DURATION MARKET
FUND(1) FUND(1)
-------- -------
<S> <C> <C>
Annual Fund Operating Expenses
(as a percentage of
average net assets)
Advisory Fees
(after fee adjustment)(1).... 0.20% 0.18%
Other Expenses................. 1.39%* 0.46%
----- -----
Total Operating Expenses(2).... 1.59%* 0.64%
===== =====
</TABLE>
- ------------
* Includes interest expense of 1.26%. Excluding interest expense, other expenses
would be 0.13% and total operating expenses would be 0.33%.
(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 advisory fees for Harbor International Fund II, Harbor
International Fund, Harbor Bond Fund, Harbor Short Duration Fund and Harbor
Money Market Fund would be 0.75%, 0.85%, 0.70%, 0.40% and 0.30%,
respectively; and the estimated Total Operating Expenses would be 1.70%,
1.04%, 0.94%, 1.79%, (0.53% excluding interest expense) and 0.76%,
respectively. Total operating expenses for Harbor International Growth
Fund, Harbor International II and Harbor Bond Fund are restated to reflect
current investment advisory fees.
(2) During the year ended October 31, 1996, custodian fees were reduced by
credits resulting from cash balances maintained with State Street Bank and
Trust Company. In the absence of such credits, the Total Operating Expenses
shown in the above table would be 1.12% for Harbor International Growth
Fund, .93% for Harbor Growth Fund, 1.51% for Harbor International Fund II,
1.61% for Harbor Short Duration Fund, and .65% for Harbor Money Market
Fund.
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 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Harbor International Growth Fund......... $11 $36 $63 $143
Harbor Growth Fund....................... $ 9 $30 $52 $119
Harbor Capital Appreciation Fund......... $ 8 $24 $42 $ 97
Harbor International Fund II............. $15 $48 $85 $193
Harbor International Fund................ $10 $32 $56 $128
Harbor Value Fund........................ $ 9 $27 $47 $107
Harbor Bond Fund......................... $ 7 $23 $40 $ 92
Harbor Short Duration Fund*.............. $16 $51 $90 $205
Harbor Money Market Fund................. $ 7 $21 $36 $ 83
</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
$3, $11, $19 and $43, respectively.
5
<PAGE> 9
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
-------------------------------------------
NET REALIZED AND
UNREALIZED GAINS (LOSSES)
NET ASSET VALUE ON INVESTMENTS, FUTURES, TOTAL FROM
BEGINNING OF NET INVESTMENT OPTIONS AND FOREIGN INVESTMENT
YEAR/PERIOD ENDED PERIOD INCOME/LOSS CURRENCY CONTRACTS OPERATIONS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HARBOR INTERNATIONAL GROWTH FUND
October 31, 1996................. $12.10 $ .14(a) $ 3.22 $ 3.36
October 31, 1995................. 11.53 .11* .54 .65
October 31, 1994(1).............. 10.00 .07* 1.47 1.54
- ------------------------------------------------------------------------------------------------------------
HARBOR GROWTH FUND(2)
October 31, 1996................. $15.73 $(.08)(a) $ 2.20 $ 2.12
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
October 31, 1992................. 15.76 .02 (1.01) (.99)
October 31, 1991................. 10.21 .04 6.53 6.57
October 31, 1990................. 12.95 .10 (2.24) (2.14)
October 31, 1989................. 11.04 .09 1.94 2.03
October 31, 1988................. 10.25 .12 1.56 1.68
October 31, 1987(3).............. 10.00 .07 .44 .51
- ------------------------------------------------------------------------------------------------------------
HARBOR CAPITAL APPRECIATION FUND(4)
October 31, 1996................. $23.20 $ .02 $ 3.00 $ 3.02
October 31, 1995................. 17.31 .04 6.06 6.10
October 31, 1994................. 17.30 .03 1.14 1.17
October 31, 1993................. 16.30 .03 3.03 3.06
October 31, 1992................. 15.18 .02 2.12 2.14
October 31, 1991................. 10.65 .06 5.47 5.53
October 31, 1990................. 13.42 .15 (1.53) (1.38)
October 31, 1989................. 11.67 .22 2.09 2.31
October 31, 1988(5).............. 10.00 .14 1.53 1.67
- ------------------------------------------------------------------------------------------------------------
HARBOR INTERNATIONAL FUND II
October 31, 1996(6).............. $10.00 $ .01* $ .46 $ .47
- ------------------------------------------------------------------------------------------------------------
HARBOR INTERNATIONAL FUND(7)
October 31, 1996................. $26.93 $ .41* $ 4.41 $ 4.82
October 31, 1995................. 26.87 .39* .85 1.24
October 31, 1994................. 22.85 .26* 3.98 4.24
October 31, 1993................. 16.77 .17* 6.31 6.48
October 31, 1992................. 17.69 .24 (.95) (.71)
October 31, 1991................. 15.74 .16 2.47 2.63
October 31, 1990................. 15.99 .37* .27 .64
October 31, 1989................. 13.00 .18* 3.67 3.85
October 31, 1988(5).............. 10.00 .07* 2.93 3.00
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
LESS DISTRIBUTIONS
-----------------------------------
DIVIDENDS FROM DISTRIBUTIONS FROM IN EXCESS OF
NET INVESTMENT NET REALIZED NET INVESTMENT
YEAR/PERIOD ENDED INCOME CAPITAL GAINS** INCOME
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
HARBOR INTERNATIONAL GROWTH FUND
October 31, 1996................. $ (.11) $ -- $ --
October 31, 1995................. (.08) -- --
October 31, 1994(1).............. (.01) -- --
- ---------------------------------------------------------------------------------------
HARBOR GROWTH FUND(2)
October 31, 1996................. $ -- $(1.85) $ --
October 31, 1995................. -- (.32) --
October 31, 1994................. -- (.02) --
October 31, 1993................. (.01) (1.36) --
October 31, 1992................. (.04) (2.31) --
October 31, 1991................. (.08) (.94) --
October 31, 1990................. (.11) (.49) --
October 31, 1989................. (.12) -- --
October 31, 1988................. (.10) (.79) --
October 31, 1987(3).............. -- (.26) --
- ---------------------------------------------------------------------------------------
HARBOR CAPITAL APPRECIATION FUND(
October 31, 1996................. $ (.03) $ (.31) $ --
October 31, 1995................. (.04) (.17) --
October 31, 1994................. (.03) (1.13) --
October 31, 1993................. (.02) (2.04) --
October 31, 1992................. (.04) (.98) --
October 31, 1991................. (.14) (.86) --
October 31, 1990................. (.21) (1.18) --
October 31, 1989................. (.18) (.38) --
October 31, 1988(5).............. -- -- --
- ---------------------------------------------------------------------------------------
HARBOR INTERNATIONAL FUND II
October 31, 1996(6).............. $ -- $ -- $ --
- ---------------------------------------------------------------------------------------
HARBOR INTERNATIONAL FUND(7)
October 31, 1996................. $ (.41) $ (.13) $ --
October 31, 1995................. (.24) (.94) --
October 31, 1994................. (.22) -- --
October 31, 1993................. (.22) (.18) --
October 31, 1992................. (.21) -- --
October 31, 1991................. (.34) (.34)
October 31, 1990................. (.17) (.72) --
October 31, 1989................. (.10) (.76) --
October 31, 1988(5).............. -- -- --
- ---------------------------------------------------------------------------------------
</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, 1996 -- International II $.01 per share;
International $.01 per share; Bond $.03 per share; Short Duration $.02 per
share; Money Market less than $.01 per share.
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 $.03 per share.
** Includes both short-term and long-term capital gains.
*** Average commission rate paid may vary from period to period and fund to fund
depending on the mix of trades executed in various markets where trading
practices and commission rates may differ.
(a) Based on monthly average of shares outstanding during the fiscal year.
6
<PAGE> 10
report thereon is incorporated by reference, and attached to the Statement of
Additional Information. Further information about the performance of each Fund
is contained in Harbor Fund's Annual Report to Shareholders which may be
obtained without charge by calling 800-422-1050.
<TABLE>
<CAPTION>
TAX RATIO OF RATIO OF
RETURN NET ASSET NET ASSETS OPERATING EXPENSES INTEREST EXPENSE
OF TOTAL VALUE END OF TOTAL END OF PERIOD TO AVERAGE TO AVERAGE
CAPITAL DISTRIBUTIONS PERIOD RETURN ($ THOUSANDS) NET ASSETS (%) NET ASSETS (%)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $ (.11) $15.35 27.86% $ 478,969 1.10% --
-- (.08) 12.10 5.83 122,415 1.21* --
-- (.01) 11.53 15.36 74,734 1.32* --
- -----------------------------------------------------------------------------------------------------------------
$ -- $(1.85) $16.00 14.84% 113,511 0.92% --
-- (.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+ --
- -----------------------------------------------------------------------------------------------------------------
$ -- $ (.34) $25.88 13.22% $1,583,215 0.75% --
-- (.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+ --
- -----------------------------------------------------------------------------------------------------------------
$ -- $ -- $10.47 4.70%++ $ 12,573 1.44%*+ --
- -----------------------------------------------------------------------------------------------------------------
$ -- $(0.54) $31.21 18.17% $4,030,127 0.99%* --
-- (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*+ --
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
RATIO OF NET AVERAGE
INVESTMENT INCOME COMMISSION
TO AVERAGE PORTFOLIO RATE
NET ASSETS (%) TURNOVER (%) PAID***
- ---------------------------------------------------
<S> <C> <C> <C>
.99% 55.17% $.0322
1.31* 74.86 --
0.87* 41.80 --
- ---------------------------------------------------
(0.50)% 87.97% $.0561
(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 --
- ---------------------------------------------------
0.11% 73.69% $.0629
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 --
- ---------------------------------------------------
0.40%*+ 2.61% $.0003
- ---------------------------------------------------
1.42%* 9.73% $.0119
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 --
- ---------------------------------------------------
</TABLE>
(1) For the period November 1, 1993 (commencement of operations) through October
31, 1994.
(2) Effective January 1, 1993, Harbor Growth Fund appointed Nicholas Applegate
Capital Management as its Subadviser.
(3) For the period November 19, 1986 (commencement of operations) through
October 31, 1987.
(4) Effective May 1, 1990, Harbor Capital Appreciation Fund appointed Jennison
Associates Capital Corp. as its Subadviser.
(5) For the period December 29, 1987 (commencement of operations) through
October 31, 1988.
(6) For the period June 1, 1996 (commencement of operations) through October 31,
1996.
(7) Effective April 1, 1993, Harbor International Fund appointed Northern Cross
Investments Limited as its Subadviser.
(8) Harbor Value Fund appointed Richards & Tierney, Inc. and DePrince, Race, &
Zollo, Inc. as its Subadvisers effective November 1, 1993 and April 20,
1995, respectively.
(9) For the period January 1, 1992 (commencement of operations) through October
31, 1992.
+ Annualized
++ Unannualized
7
<PAGE> 11
<TABLE>
<CAPTION>
INCOME FROM INVESTMENT OPERATIONS
-------------------------------------------
NET REALIZED AND
UNREALIZED GAINS (LOSSES)
NET ASSET VALUE ON INVESTMENTS, FUTURES, TOTAL FROM
BEGINNING OF NET INVESTMENT OPTIONS AND FOREIGN INVESTMENT
YEAR/PERIOD ENDED PERIOD INCOME CURRENCY CONTRACTS OPERATIONS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HARBOR VALUE FUND(8)
October 31, 1996................. $14.57 $ .40 $ 2.74 $ 3.14
October 31, 1995................. 13.50 .40 2.13 2.53
October 31, 1994................. 14.31 .36 .27 .63
October 31, 1993................. 13.24 .35 1.22 1.57
October 31, 1992................. 13.10 .41* .49 .90
October 31, 1991................. 10.84 .46* 2.71 3.17
October 31, 1990................. 13.77 .51* (2.13) (1.62)
October 31, 1989................. 11.73 .47* 2.49 2.96
October 31, 1988(5).............. 10.00 .29* 1.69 1.98
- ------------------------------------------------------------------------------------------------------------
HARBOR BOND FUND
October 31, 1996................. $11.21 $ .72* $ .09 $ .81
October 31, 1995................. 10.41 .74* .73 1.47
October 31, 1994................. 11.92 .68* (1.02) (.34)
October 31, 1993................. 11.35 .68* .82 1.50
October 31, 1992................. 11.11 .79* .50 1.29
October 31, 1991................. 10.03 .83* 1.09 1.92
October 31, 1990................. 10.55 .84* (.44) .40
October 31, 1989................. 10.26 .76* .37 1.13
October 31, 1988(5).............. 10.00 .60* .17 .77
- ------------------------------------------------------------------------------------------------------------
HARBOR SHORT DURATION FUND
October 31, 1996................. $ 8.82 $ .63* $ (.02) $ .61
October 31, 1995................. 8.77 .52* .06 .58
October 31, 1994................. 9.68 .34* (.12) .22
October 31, 1993................. 10.09 .34* .16 .50
October 31, 1992(9).............. 10.00 .29* .08 .37
- ------------------------------------------------------------------------------------------------------------
HARBOR MONEY MARKET FUND
October 31, 1996................. $ 1.00 $ .05* $ -- $ .05
October 31, 1995................. 1.00 .06* -- .06
October 31, 1994................. 1.00 .03* -- .03
October 31, 1993................. 1.00 .03* -- .03
October 31, 1992................. 1.00 .04* -- .04
October 31, 1991................. 1.00 .06 -- .06
October 31, 1990................. 1.00 .08 -- .08
October 31, 1989................. 1.00 .08 .01 .09
October 31, 1988(5).............. 1.00 .06 -- .06
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
LESS DISTRIBUTIONS
-----------------------------------
DIVIDENDS FROM DISTRIBUTIONS FROM IN EXCESS OF
NET INVESTMENT NET REALIZED NET INVESTMENT
YEAR/PERIOD ENDED INCOME CAPITAL GAINS** INCOME
- ---------------------------------
<S> <C> <C> <C>
HARBOR VALUE FUND(8)
October 31, 1996................. $ (.40) $(1.27) $ --
October 31, 1995................. (.39) (1.07) --
October 31, 1994................. (.34) (1.10) --
October 31, 1993................. (.35) (.15) --
October 31, 1992................. (.41) (.35) --
October 31, 1991................. (.47) (.44) --
October 31, 1990................. (.51) (.80) --
October 31, 1989................. (.48) (.44) --
October 31, 1988(5).............. (.25) -- --
- ---------------------------------
HARBOR BOND FUND
October 31, 1996................. $ (.74) $ -- $ --
October 31, 1995................. (.67) -- --
October 31, 1994................. (.67) (.50) --
October 31, 1993................. (.68) (.25) --
October 31, 1992................. (.79) (.26) --
October 31, 1991................. (.84) -- --
October 31, 1990................. (.83) (.09) --
October 31, 1989................. (.77) (.07) --
October 31, 1988(5).............. (.51) -- --
- ---------------------------------
HARBOR SHORT DURATION FUND
October 31, 1996................. $ (.60) $ -- $(.04)
October 31, 1995................. (.52) -- (.01)
October 31, 1994................. (1.08) -- --
October 31, 1993................. (.82) (.09) --
October 31, 1992(9).............. (.28) -- --
- ---------------------------------
HARBOR MONEY MARKET FUND
October 31, 1996................. $ (.05) $ -- $ --
October 31, 1995................. (.06) -- --
October 31, 1994................. (.03) -- --
October 31, 1993................. (.03) -- --
October 31, 1992................. (.04) -- --
October 31, 1991................. (.06) -- --
October 31, 1990................. (.08) -- --
October 31, 1989................. (.08) (.01) --
October 31, 1988(5).............. (.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, 1996 -- International II $.01 per share;
International $.01 per share; Bond $.03 per share; Short Duration $.02 per
share; Money Market less than $.01 per share.
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 $.03 per share.
** Includes both short-term and long-term capital gains.
*** Average commission rate paid may vary from period to period and fund to fund
depending on the mix of trades executed in various markets where trading
practices and commission rates may differ.
(a) Based on monthly average of shares outstanding during the fiscal year.
8
<PAGE> 12
<TABLE>
<CAPTION>
TAX RATIO OF RATIO OF
RETURN NET ASSET NET ASSETS OPERATING EXPENSES INTEREST EXPENSE
OF TOTAL VALUE END OF TOTAL END OF PERIOD TO AVERAGE TO AVERAGE
CAPITAL DISTRIBUTIONS PERIOD RETURN ($ THOUSANDS) NET ASSETS (%) NET ASSETS (%)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ -- $(1.67) $16.04 23.08% $ 112,109 0.83% --
-- (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*+ --
- -----------------------------------------------------------------------------------------------------------------
$ -- $ (.74) $11.28 7.56% $ 279,849 0.70%* --
-- (.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*+ --
- -----------------------------------------------------------------------------------------------------------------
$ -- $ (.64) $ 8.79 7.24% $ 182,292 0.33%* 1.26%
-- (.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+
- -----------------------------------------------------------------------------------------------------------------
$ -- $ (.05) $ 1.00 5.08% $ 65,991 0.64%* --
-- (.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 AVERAGE
TO AVERAGE PORTFOLIO COMMISSION
NET ASSETS (%) TURNOVER (%) RATE PAID
- --------------------------------------------------
<S> <C> <C> <C>
2.65%* 132.39% $.0448
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 --
- --------------------------------------------------
6.40%* 192.64% $ --
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 --
- --------------------------------------------------
6.84%* 1,277.82% $ --
6.19* 725.96 --
4.61* 895.76 --
4.19* 1,212.20 --
3.79*+ 2,759.70 --
- --------------------------------------------------
4.85%* N/A $ --
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>
(1) For the period November 1, 1993 (commencement of operations) through October
31, 1994.
(2) Effective January 1, 1993, Harbor Growth Fund appointed Nicholas Applegate
Capital Management as its Subadviser.
(3) For the period November 19, 1986 (commencement of operations) through
October 31, 1987.
(4) Effective May 1, 1990, Harbor Capital Appreciation Fund appointed Jennison
Associates Capital Corp. as its Subadviser.
(5) For the period December 29, 1987 (commencement of operations) through
October 31, 1988.
(6) For the period June 1, 1996 (commencement of operations) through October 31,
1996.
(7) Effective April 1, 1993, Harbor International Fund appointed Northern Cross
Investments Limited as its Subadviser.
(8) Harbor Value Fund appointed Richards & Tierney, Inc. and DePrince, Race, &
Zollo, Inc. as its Subadvisers effective November 1, 1993 and April 20,
1995, respectively.
(9) For the period January 1, 1992 (commencement of operations) through October
31, 1992.
+ Annualized
++ Unannualized
9
<PAGE> 13
HARBOR FUND IN DETAIL
Harbor Fund offers a range of investment opportunities through the nine 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 foreign securities may subject the
Fund to other risks in addition to those associated with investments in
securities of U.S. issuers. Unlike Harbor International Fund II and 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. 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 foreign equity securities 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 foreign 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.
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 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
10
<PAGE> 14
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. 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. The Fund's currency
management techniques associated with investments in foreign securities involve
more risk than if the Fund were invested in dollar-denominated securities of
U.S. issuers.
The Fund may enter into repurchase agreements, purchase securities on a
when-issued or forward commitment basis and may lend portfolio 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 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, including currency 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. When the Subadviser believes that investment in foreign securities
offers opportunities for capital growth, the Fund may invest up to 20% of its
total assets in securities of foreign issuers, including issuers located or
doing business in emerging markets.
The Subadviser seeks to identify stocks of companies that it expects to 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
11
<PAGE> 15
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. The Fund may also invest in foreign securities in the form of
ADR's, EDR's, GDR's, IDR's and other similar securities convertible into
securities of foreign issuers.
For additional information about the securities in which the Fund invests and
the management techniques the Subadviser employs including currency management
techniques 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. When the Subadviser
believes that investment in foreign securities offers opportunities for capital
growth, the Fund may invest up to 20% of its total assets in securities of
foreign issuers, including issuers located or doing business in emerging
markets.
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 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. The Fund may also invest in foreign securities in the form
of ADR's, EDR's, GDR's, IDR's and other similar securities convertible into
securities of foreign issuers.
For additional information about the securities in which the Fund invests and
the management techniques including currency management techniques the
Subadviser employs to manage the Fund, see "Description of Securities and
Investment Techniques."
HARBOR INTERNATIONAL FUND II. Harbor International Fund II seeks long-term
growth of capital through investment in a portfolio consisting primarily of
non-U.S. equity securities. Current income is a secondary consideration. Under
normal market conditions, the Fund invests at least 65% of its assets in common
stocks and comparable equity securities of issuers, wherever organized, which do
business primarily outside the United States. The Fund may also invest in
preferred stock and convertible securities of such issuers and in warrants. The
Fund will be invested in a minimum of three countries exclusive of the United
States. The Fund's Subadviser, Summit International Investments, Inc.
("Subadviser" or "Summit"), currently intends to invest primarily in equity
securities of issuers located in Europe, the Pacific Basin and emerging
industrialized countries, which it believes present favorable investment
opportunities and whose economies and political regimes afford adequate
protection for foreign shareholders. The Fund may invest up to 10% of the Fund's
total assets in fixed income securities of foreign
12
<PAGE> 16
corporate issuers, supranational organizations and foreign governments and their
political subdivisions, authorities, agencies and instrumentalities.
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. The Fund's currency management
techniques associated with investments in foreign securities involve more risk
than if the Fund were invested in dollar-denominated securities of U.S. issuers.
The Fund may enter into repurchase agreements, purchase securities on a
when-issued or forward commitment basis and may lend portfolio 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 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, including currency management techniques, the Subadviser
employs to manage the Fund, see "Description of Securities and Investment
Techniques." Although the investment objective and policies of Harbor
International Fund II are similar to those of Harbor International Fund, each
Fund's portfolio of securities are not expected to be substantially identical
because each Fund has a different portfolio manager. Over time, each portfolio
manager's investment decisions on behalf of the respective Fund will result in
different securities being selected for the Funds. Investors should not expect
that the performance of International Fund II's portfolio will be identical to
that of International Fund.
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. Under normal market conditions, the Fund invests at least 65% of
its assets in common stocks and comparable equity securities of issuers,
wherever organized, which do business primarily outside the United States. The
Fund may also invest in preferred stock and convertible securities of such
issuers. 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. The Fund's currency management
techniques associated with investments in foreign securities involve more risk
than if the Fund were invested in dollar-denominated securities of U.S. issuers.
The Fund may enter into repurchase agreements, purchase securities on a
when-issued or forward commitment basis and may lend portfolio 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 a description of the risks of investing in foreign securities and
additional information about the securities in which the Fund invests and the
management
13
<PAGE> 17
techniques, including currency management techniques, the Subadviser employs to
manage the Fund, see "Description of Securities and Investment Techniques."
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 portfolio has a yield strategy greater than or equal to 1.5 times
the S&P 500 yield.
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 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. The Fund may also invest in foreign securities in the form
of ADR's, EDR's, GDR's, IDR's and other similar securities convertible into
securities of foreign issuers.
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); Brady bonds; and 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
14
<PAGE> 18
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.
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 of U.S. or
foreign issuers.
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 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, swaps combined with options, 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 the use of
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
15
<PAGE> 19
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."
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.
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. For temporary
defensive purposes, as determined by the Subadviser, the Fund may invest all or
a portion of its assets in cash.
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
of and demand for securities in the Fund's portfolio. 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 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
16
<PAGE> 20
contracts, options on futures contracts and currency, mortgage and interest rate
swaps, swaps combined with options, interest rate floors and caps and, at times,
combinations of these techniques. 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, including TBA ("to be announced")
purchase and sale commitments, 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. The percentage of the Fund's total assets that may be leveraged
will vary during the fiscal year depending on the portfolio management
strategies of the Subadviser. 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 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
17
<PAGE> 21
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 engage in short
sales of securities. The collateral securing loans of portfolio securities or
short sales will 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 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
Shares of each Fund are available for purchase from Harbor Fund's distributor,
HCA Securities, Inc. (the "Distributor"). The Distributor has appointed Harbor
Transfer, Inc. (the "Shareholder Servicing Agent") as its agent to accept
payment for all shares of Harbor Fund sold. 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, UTMA 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 10048,
Toledo, OH 43699-0048.
When making a subsequent investment, you should include the detachable stub from
your confirmation statement to provide additional information.
Any order by mail or by wire to purchase shares of a Fund must be received
before 4 p.m., Eastern time. Investments received after that time will be deemed
received on the next business day.
18
<PAGE> 22
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. or HCA Securities, Inc. 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 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
below, 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.
19
<PAGE> 23
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 to redeem shares of a Fund must
be received before 4 p.m. Eastern time. Redemption requests received after that
time 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 10048
Toledo, Ohio 43699-0048
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, UTMA 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.
20
<PAGE> 24
<TABLE>
<CAPTION>
SELLING SHARES ACCOUNT TYPE SPECIAL REQUIREMENT
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BY MAIL Individual, Joint Tenant, Sole - The letter of instruction must be
Proprietorship, UGMA/UTMA 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, Conservator, - Please call 800-422-1050 for
Guardian instructions.
BY PHONE All account types except retirement - Have the Fund name, account number and
800-422-1050 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. Customer Service 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.
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 invested the
minimum 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.
THE DIVIDEND EXCHANGE PROGRAM allows you to direct that dividends and capital
gain distributions from one Harbor Fund, net of any required withholding, be
invested in shares of another existing Harbor Fund.
21
<PAGE> 25
Distribution dollar amounts are calculated based on the record date for each
Fund. A Fund's distributions are paid on the dividend payment date, which is
later than the ex-dividend date. Shares of the other Harbor Fund purchased with
distributions from the existing Harbor Fund are purchased and credited to your
account on the dividend payment date.
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 a bank 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.
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.
TRANSFER ON DEATH REGISTRATION. Transfer on Death (TOD) registration provides
Harbor Fund investors with the opportunity to indicate on the account
registration that the account ownership will transfer on death directly to one
or more named beneficiaries. TOD registration is ONLY available to individuals
and joint tenants with rights of survivorship. TOD registration is NOT available
for IRA, UGMA/UTMA, or institutional accounts. TOD registration requires that
the name(s) of the beneficiary(ies) be listed on the account
22
<PAGE> 26
registration followed by "TOD, Subject to STA TOD Rules". The Fund reserves the
right to use the term "Beneficiaries" in an account registration rather than
list each named beneficiary. However, the shareholder MUST provide the name,
address, social security number and birth date of the beneficiary(ies). To add
TOD registration to a new account, complete the requested information on the
Harbor Fund New Account Application. To add TOD registration to an existing
account or to change the beneficiary(ies), you must complete a TOD registration
form which is available by calling 800-422-1050. Adding TOD registration to an
existing account or changing the beneficiary(ies) requires a SIGNATURE GUARANTEE
which CANNOT be provided by a Notary Public.
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 you are not a
minor, 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. In the event that such procedures are not properly
followed, Harbor Fund, the Distributor or the Shareholder Servicing Agent may be
liable.
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 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, UTMA,
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
23
<PAGE> 27
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.
24
<PAGE> 28
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 Growth Fund .75%
Harbor Capital Appreciation Fund .60%
Harbor International Fund II .75%
Harbor International Fund .85%
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 Growth Fund,
Harbor International Fund II, and Harbor International 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.
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. The Adviser may from time to time recommend to the Trustees
the engagement of new subadvisers. 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 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 $31.1 billion in assets under management as of December 31, 1996 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.
Nicholas-Applegate Capital Management is Subadviser to Harbor Growth Fund.
Nicholas-Applegate is a registered investment adviser and a California limited
partnership with over $32 billion in assets under management as of December 31,
1996. 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
25
<PAGE> 29
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.
Summit International Investments, Inc. is the Subadviser to Harbor
International Fund II. Summit is a registered investment adviser and a
Massachusetts corporation with $41.8 million under management as of December 31,
1996. Summit receives a subadvisory fee from the Adviser equal on an annual
basis to .50% of the Fund's average net assets managed by Summit up to $1.5
billion; .45% on the next $1 billion of such assets; and .40% on such assets in
excess of $2.5 billion. Summit does not provide investment management services
to any other registered investment companies. The Adviser will pay Summit a fee
each year which is not less than $10,000.
Northern Cross Investments Limited is Subadviser to Harbor International Fund.
Northern Cross is a registered investment adviser and a Bermuda corporation with
$7.5 billion in assets under management as of December 31, 1996. 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. The Adviser will
pay Northern Cross a fee each year which is not less than $6,000.
DePrince, Race & Zollo, Inc. ("DRZ") is Sub-Adviser to Harbor Value Fund. As
of December 31, 1996, DRZ had $1.3 billion in assets under management. DRZ
receives an advisory fee from the Adviser equal on an annual basis to .65% of
the average actual net assets of the portion of Harbor Value Fund managed by DRZ
up to $10 million; .40% on the next $40 million of such assets; .30% on the next
$50 million of such assets; and .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, Inc. ("R&T")
as a second subadviser to Harbor Value Fund. R&T is a registered investment
adviser and an Illinois corporation with approximately $75 million in assets
under management as of December 31, 1996. 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.
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 $88.1 billion in assets ($79.3 billion in fixed-income) under
management as of December 31, 1996. 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
$22.8 billion in assets (all fixed income) under management as of December 31,
1996. Fischer is a wholly-owned subsidiary of Charter Atlantic Corporation, a
private holding company owned by senior employees of Fischer. 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.
26
<PAGE> 30
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).
Growth Fund Arthur Nicholas 1993 Managing Partner, Nicholas-Applegate (1984).
John Marshall 1993 Partner (since 1991); Chief Investment Officer,
Institutional (since 1996) and Portfolio
Manager, Nicholas-Applegate (since 1989).
Capital Spiros Segalas 1990 President, and Chief Investment Officer (since
Appreciation 1993); and Director and Founding Member of
Fund Jennison (1969).
International James LaTorre 1996 President, Summit (since 1996); Vice President,
Fund II Boston Investor Services, Inc. (1993-1997); Vice
President, Boston Overseas Investors, Inc.
(1992-1993); and Portfolio Manager, Ivy
Management, Inc. (1989-1992).
International Hakan Castegren 1987 President, Northern Cross (since 1993);
Fund President, Boston Overseas Investors, Inc.
(1990-1993); and Principal, Marsh &
Cunningham-Castegren International. (1985-1990).
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 Managing Director (since 1996) and Portfolio
Fund Manager (1992-1996), Fischer; and Trader, Global
Markets, J.P. Morgan (1987-1992).
Money Market David Marmon 1994 Managing Director (since 1996) and Portfolio
Fund Manager (1990-1996), Fischer; and Research
Analyst (futures and options), Yamaichi
International (America) (1989-1990).
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 31
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 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
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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 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, since it is not obligated to do so by law, other than as
set forth above.
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. 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.
PREFERRED STOCKS. Preferred stock generally has a preference as to dividends
and upon liquidation over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Preferred stock generally pays
dividends in cash (or additional shares of preferred stock) at a defined rate
but, unlike interest payments on debt securities, preferred stock dividends are
payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock dividends
have been paid. Preferred stock also may be subject to optional or mandatory
redemption provisions.
CONVERTIBLE SECURITIES. Convertible securities are bonds, preferred stocks and
other securities that normally pay a fixed rate of interest or dividend and give
the owner the option to convert the security into common stock. While the value
of convertible securities
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depends in part on interest rate changes and the credit quality of the issuer,
the price will also change based on the price of the underlying stock. While
convertible securities generally have less potential for gain than common stock,
their income provides a cushion against the stock price's declines. They
generally pay less income than non-convertible bonds.
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
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.
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
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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 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.
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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 1933 (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. It may be expensive or difficult for a Fund to dispose
of restricted securities in the event that registration is required or an
eligible purchaser cannot be found.
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 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 to 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 or liquid assets 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.
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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. 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 consisting of cash or liquid assets. 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 is permitted to invest in the securities of
corporate and governmental issuers located in or doing business in a foreign
country. A company is located in or doing business in a foreign country if it
satisfies at least one of the following criteria: (i) the equity securities of
the company are traded principally on stock exchanges in one or more foreign
countries; (ii) it derives 50% or more of its total revenue from goods produced,
sales made or services performed in one or more foreign countries; (iii) it
maintains 50% or more of its assets in one or more foreign countries; (iv) it is
organized under the laws of a foreign country; or (v) its principal executive
offices are located in a foreign country. 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.
Emerging Markets. Investments in emerging markets involve risks in addition to
those generally associated with investments in foreign securities. Political and
economic structures in many emerging markets may be undergoing significant
evolution and rapid development, and such countries may lack the social,
political and economic stability characteristic of more developed countries. As
a result, the risks described above relating to investments in foreign
securities, including the risks of nationalization or expropriation of assets,
may be heightened. In addition, unanticipated political or social developments
may affect the values of the Fund's investments and the availability to the Fund
of additional investments in such emerging markets. The small size and
inexperience of the securities markets in certain emerging markets and the
limited volume of trading in securities in those markets may make the Fund's
investments in such countries less liquid and more volatile than investments in
countries with more developed securities markets (such as the U.S., Japan and
most Western European countries).
ADR's, EDR's, IDR's and GDR's. American Depository Receipts (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. European Depository Receipts (EDR's) and International Depository Receipts
(IDR's) are receipts typically issued by a European bank or trust company
evidencing ownership of the underlying foreign securities. Global Depository
Receipts (GDR's) are receipts issued by either a U.S. or non-U.S. banking
institution evidencing ownership of the underlying foreign securities.
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BRADY BONDS. Harbor Bond Fund may invest in Brady Bonds which are securities
created through the exchange of existing commercial bank loans to sovereign
entities for new obligations in connection with debt restructurings under a debt
restructuring plan introduced by former U.S. Secretary of the Treasury, Nicholas
P. Brady. Brady Bonds have been issued only recently, and for that reason do not
have a long payment history. Brady Bonds may be collateralized or
uncollateralized, are issued in various currencies (but primarily the U.S.
dollar), and are actively traded in the over-the-counter secondary market. Brady
Bonds are not considered to be U.S. Government securities. In light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities in
countries issuing Brady Bonds, investments in Brady Bonds may be viewed as
speculative. There can be no assurance that Brady Bonds acquired by a Fund will
not be subject to restructuring arrangements or to requests for new credit,
which may cause the Fund to suffer a loss of interest or principal on any of its
holdings. 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.
Fluctuations in differences in values between a Fund's portfolio holdings of
securities denominated in a particular currency and forward contracts entered
into by a Fund may cause the Fund to sustain losses which will prevent the Fund
from achieving a complete hedge or expose the Fund to risk of foreign exchange
loss.
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 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. The Fund may from time to time combine swaps with
options. 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
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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 or liquid assets, the Fund and the Subadviser believe that
swaps do not constitute senior securities under the Act and, 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. Each Fund, except Harbor Value Fund and Harbor
Money Market 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
35
<PAGE> 39
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 International Growth Fund, Harbor Growth Fund, Harbor
Capital Appreciation Fund, Harbor International Fund II, Harbor International
Fund, Harbor Value Fund, Harbor Bond Fund and Harbor Short Duration Fund may
enter into futures contracts on securities indices. Each Fund, except Harbor
Value Fund and Harbor Money Market 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 and options 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, Harbor
International Fund II 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 or
dividends 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 or dividends 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.
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 or liquid assets 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.
36
<PAGE> 40
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 or liquid assets 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 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
37
<PAGE> 41
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, 1996, the portfolio turnover rates
for Harbor Value Fund, Harbor Bond Fund and Harbor Short Duration Fund were
132%, 193% and 1,278%, respectively. A portfolio turnover rate of over 100% is
higher than the rate experienced by many other investment companies and is a
result of an actively managed portfolio. Although the higher turnover rate
creates expenses for these Funds, the Subadvisers believe that the portfolio
transactions are in the best interests of shareholders. Major shareholders of
Harbor Short Duration Fund use it as a liquidity reserve and, therefore, there
is frequent purchase and sales activity.
DISTRIBUTIONS AND TAX INFORMATION
Each Fund has elected or intends to elect 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, 1996. 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, Harbor International Fund II and
Harbor International Fund may be subject to foreign withholding or other foreign
taxes on its income from foreign securities (possibly including, in some cases,
capital gains) and may be eligible to elect to pass such taxes and related
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 II, 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 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 used to offset
net long-term or short-term capital gains) will be
38
<PAGE> 42
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 of the distributing Fund or exchanges into another Harbor
Fund. Investors purchasing shares (other than shares of the Harbor Money Market
Fund) just prior to a distribution 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.
Option D-- Dividends and capital gains from one Harbor Fund invested in
shares of another Harbor Fund of your choice.
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. Under Option D, dividends and capital gain distributions, net
of any required withholding taxes, will be invested in full and fractional
shares of another Harbor Fund at the net asset value determined at the close of
business on the payable date, which is later than the date on which the dividend
is declared. 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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<PAGE> 43
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 January 31, 1997, an Owens-Illinois Master Retirement Trust pension
portfolio owned beneficially and of record 80% of the outstanding shares of
beneficial interest of Harbor Short Duration Fund. As of January 31, 1997, the
Owens-Illinois 401(k) Trust owned beneficially and of record 44%, 29% and 28% 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.
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.
------------------------------------------------
APPENDIX A
PORTFOLIO COMPOSITION CHART
OCTOBER 31, 1996
HARBOR BOND FUND
<TABLE>
<CAPTION>
SECURITY PERCENT OF NET ASSETS
-------- ---------------------
<S> <C>
U.S. Government Securities*................................. 53%
Short-Term Obligations and Other Assets..................... 9%
Debt -- Unrated by S&P...................................... N/A
Debt -- S&P Rating
AAA....................................................... 13%
AA........................................................ 4%
A......................................................... 4%
BBB....................................................... 6%
BB........................................................ 10%
B......................................................... 1%
---
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, 1996, 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.
40
<PAGE> 44
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, UTMA, profit-sharing, savings $500 minimum initial investment; $100 minimum subsequent
or pension plans 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 GROWTH FUND
Nicholas-Applegate Capital Management
Suite 2900
600 West Broadway
San Diego, California 92101
HARBOR INTERNATIONAL FUND II
Summit International Investments, Inc.
125 Summer Street
Boston, Massachusetts 02110
HARBOR INTERNATIONAL FUND
Northern Cross Investments Limited
Clarendon House
2 Church Street
Hamilton, Bermuda HMDX
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
P.O. Box 6430
Newport Beach, California 92658-6430
HARBOR SHORT DURATION FUND
HARBOR MONEY MARKET FUND
Fischer Francis Trees & Watts, Inc.
200 Park Avenue
New York, New York 10166
<PAGE> 45
<TABLE>
<S> <C>
TRUSTEES AND OFFICERS
Ronald C. Boller Chairman, President
and Trustee
Howard P. Colhoun Trustee
John P. Gould Trustee
Rodger F. Smith Trustee
Constance L. Souders Secretary and
Treasurer
INVESTMENT ADVISER
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, OH 43666
DISTRIBUTOR AND
PRINCIPAL UNDERWRITER
HCA Securities, Inc.
One SeaGate
Toledo, OH 43666
(419) 247-2477
SHAREHOLDER SERVICING AGENT
Harbor Transfer, Inc.
P.O. Box 10048
Toledo, OH 43699-0048
1-800-422-1050
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, MA 02105
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, MA 02110
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, MA 02109
</TABLE>
[HARBOR FUND LOGO]
One SeaGate
Toledo, Ohio 43666
1-800-422-1050
3/97/284,000
[recycled paper logo]
<PAGE> 46
<PAGE> 47
HARBOR FUND One SeaGate Toledo, Ohio 43666
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION--MARCH 1, 1997
- --------------------------------------------------------------------------------
Harbor Fund ("Harbor") is an open-end management investment company (or
mutual fund) consisting of nine separate, diversified series: Harbor
International Growth Fund, Harbor Growth Fund, Harbor Capital Appreciation Fund,
Harbor International Fund II, Harbor International 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, 1997, 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 IN
ADDITIONAL INFORMATION PROSPECTUS
TABLE OF CONTENTS ---------------------- ----------
<S> <C> <C>
ADDITIONAL POLICIES AND INVESTMENT TECHNIQUES............... 2
Harbor Bond Fund.......................................... 2 14
Harbor Money Market Fund.................................. 3 17
Investment Techniques..................................... 3 28
Borrowing............................................... 3
Lending of Portfolio Securities......................... 4 32
Foreign Securities...................................... 4 32
Forward Commitments and When-Issued Securities.......... 5 34
Mortgage-Related and Other Asset-Backed Securities........ 6 30
Collateralized Mortgage Obligations (CMOs).............. 7 30
FHLMC Collateralized Mortgage Obligations............... 7
Other Mortgage-Related Securities....................... 8 30
Other Asset-Backed Securities........................... 8 30
Options on Securities..................................... 8 35
Writing Options......................................... 8
Purchasing Options...................................... 9
Risks of Options Transactions........................... 9 36
Options on Securities Indices............................. 10 35
Futures Contracts......................................... 11 35
Futures on Securities................................... 12
Securities Index Futures................................ 12
Hedging Strategies...................................... 12
Options on Futures........................................ 12 35
Limitations on Transactions in Futures Contracts and
Options on Futures Contracts............................ 13
Foreign Currency Transactions............................. 14 33
Currency Futures and Related Options...................... 15
Options on Foreign Currencies............................. 16 35
U.S. Government Securities................................ 17 29
INVESTMENT RESTRICTIONS..................................... 18
TRUSTEES AND OFFICERS....................................... 21
THE ADVISER, SUBADVISERS, DISTRIBUTOR AND SHAREHOLDER
SERVICING AGENT........................................... 22 25
The Adviser............................................... 22 25
The Subadvisers........................................... 22 25
Other Information......................................... 23
Distributor and Shareholder Servicing Agent............... 23 28
Code of Ethics............................................ 24
PORTFOLIO TRANSACTIONS...................................... 24 37
NET ASSET VALUE............................................. 26
PERFORMANCE AND YIELD INFORMATION........................... 28 37
TAX INFORMATION............................................. 30 38
ORGANIZATION AND CAPITALIZATION............................. 31 40
General................................................... 31
Shareholder and Trustee Liability......................... 32
CUSTODIAN................................................... 32
INDEPENDENT ACCOUNTANTS AND FINANCIAL STATEMENTS............ 32
APPENDIX A.................................................. 33 40
</TABLE>
<PAGE> 48
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.
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.
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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.
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
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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 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. 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 or liquid assets. 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.
The Funds' custodian, State Street Bank and Trust Company, has established
subcustodial relationships with banks and other financial institutions in the
foreign countries in which the Funds invest to permit the Funds' assets to be
held in those foreign countries. These relationships have been established
pursuant to Rule 17f-5 of the Investment Company Act which governs the
establishment of foreign subcustodial arrangements for mutual funds. The Funds'
subcustodial
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arrangement may be subject to certain risks including: (i) the inability of the
Funds to recover assets in the event of the subcustodian's bankruptcy; (ii)
legal restrictions on the Funds' ability to recover assets lost while under the
care of the subcustodian; (iii) the likelihood of expropriation, confiscation or
a freeze of the Funds' assets; and (iv) difficulties in converting the Funds'
cash and cash equivalents to U.S. dollars. The Board of Trustees and the
Custodian have reviewed and evaluated the creditworthiness and reputations of
the subcustodians and have implemented procedures to monitor the subcustodians
to mitigate these risks. Each Subadviser has evaluated the political risk
associated with an investment in a particular country.
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
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 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
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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, cash or liquid
assets having a value (determined daily) at least equal to the amount of the
Fund's purchase commitments. In the case of a forward commitment to sell
portfolio securities, 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 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
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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 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
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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 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 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."
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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 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.
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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 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
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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 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.
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
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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 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
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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 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.
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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.
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. Each Fund, except Harbor Money Market 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 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
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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 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. Each Fund, except Harbor Value Fund and
Harbor Money Market 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
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<PAGE> 62
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 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, except Harbor Value Fund and Harbor
Money Market 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
16
<PAGE> 63
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, 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, except Harbor Value Fund and Harbor Money Market 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 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
17
<PAGE> 64
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 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;
18
<PAGE> 65
(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 II, 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;
(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; or
(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, Harbor International Fund II and Harbor
International Fund may each purchase the securities of open-end investment
companies, provided that, immediately after such purchase, Harbor
International Growth Fund, Harbor International Fund II 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;
19
<PAGE> 66
(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 or Harbor International Fund II) 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 or Harbor International Fund
II, 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 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); and, each Fund will limit the dollar
amount of short sales at any one time to 25% of the net assets of the Fund;
the value of securities of any one issuer in which a Fund is short may not
exceed the lesser of 2% of the value of the Fund's net assets or 2% of the
securities of any class of any issuer; and short sales may only be made in
those securities fully listed on a national securities exchange; provided
however, that such restrictions do not apply to securities issued by the
U.S. Government, its agencies or instrumentalities.
(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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<PAGE> 67
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. As of
January 31, 1997, 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.
<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, Inc.
One SeaGate and Trustee (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, L.P.
401 E. Pratt Street (investing in small companies) (1982-1996);
Baltimore, MD 21202 Director, Storage U.S.A. (since 1995); and Vice
President and Director of Mutual Funds, T. Rowe
Price Associates, Inc. (prior to 1982).
John P. Gould Trustee Steven G. Rothmeier Professor (since 1996) and
1101 E. 58th Street Distinguished Professor of Economics, Graduate
Chicago, IL 60637 School of Business, University of Chicago (1984-
Present); Dean of Graduate School of Business,
University of Chicago (1983-1993); Trustee and
Chairman Pegasus Funds (1996-Present); Trustee
of Dimensional Fund Advisors, Inc.
(1986-Present); and Trustee of First Prairie
Funds (1985-1996).
Rodger F. Smith Trustee Partner, Greenwich Associates (a business
Office Park Eight strategy, consulting and research firm) (since
Greenwich, CT 06830 1975).
Constance L. Souders* Secretary and Senior Vice-President, Treasurer, Secretary
One SeaGate Treasurer (May, 1992- Present) and Director of
Toledo, OH 43666 Administration (January, 1997- Present) Harbor
Capital Advisors, Inc.; Director of Accounting
and Fiduciary Operations, Harbor Capital
Advisors, Inc. (May, 1992-1996); Manager,
Employee Benefit Plan Asset Administration,
Owens-Illinois, Inc. (July, 1988-May, 1992);
Vice President and Director, Harbor Transfer;
and Director, HCA Securities.
</TABLE>
<TABLE>
<CAPTION>
TRUSTEE COMPENSATION TABLE
- -----------------------------------------------------------------------------------------------------------------------
PENSION OR
RETIREMENT TOTAL
AGGREGATE* BENEFITS ACCRUED COMPENSATION*
NAME OF PERSON, COMPENSATION AS PART OF FUND FROM REGISTRANT
POSITION FROM REGISTRANT EXPENSES PAID TO TRUSTEES
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ronald C. Boller.................................. -0- -0- -0-
Chairman, President and Trustee
Howard P. Colhoun................................. $25,000 -0- $25,000
Trustee
John P. Gould..................................... $25,000 -0- $25,000
Trustee
Rodger F. Smith................................... $25,000 -0- $25,000
Trustee
</TABLE>
- -------------------------
* As of October 31, 1996.
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<PAGE> 68
THE ADVISER, SUBADVISERS, DISTRIBUTOR AND
SHAREHOLDER SERVICING AGENT
THE ADVISER. Harbor Capital Advisors, Inc., a Delaware corporation, is the
investment adviser (the "Adviser") for each Fund. The Adviser is responsible to
manage each Fund's assets or to supervise the management of each Fund by one or
more subadvisers (each, a "Subadviser"). Harbor Fund, on behalf of each Fund,
has entered into separate investment advisory agreements (each, an "Investment
Advisory Agreement") each of which provides that the Adviser shall provide the
Fund with investment research, advice and supervision and will furnish
continuously an investment program for the Fund consistent with the investment
objectives and policies of the Fund. The Adviser is responsible for the payment
of the salaries and expenses of all personnel of Harbor Fund except the fees and
expenses of Trustees not affiliated with the Adviser or a Subadviser, office
rent and the expenses of providing investment advisory, research and statistical
facilities and related clerical expenses.
For its services, each Fund pays the Adviser an advisory fee which is a stated
percentage of the Fund's average annual net assets. The table below sets forth
for each Fund the advisory fee rate, the fees paid to the Adviser for the past
three fiscal years and the effect of any expense limitation in effect for the
past three fiscal years which reduced the advisory fee paid. Harbor
International Fund II commenced operations on June 1, 1996, therefore no
advisory fees were paid for 1994 and 1995.
<TABLE>
<CAPTION>
FEE PAID FOR YEAR ENDED
OCTOBER 31
ADVISORY FEE -----------------------------------
% OF AVERAGE ($ IN THOUSANDS)
FUND ANNUAL NET ASSETS 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Growth Fund........................ 0.75% $ 2,141 $ 656 $ 370
(Credit due to expense limitation) N/A (88) (124)
Growth Fund...................................... 0.75% 981 1,035 1,251
Capital Appreciation Fund........................ 0.60% 7,627 3,074 1,006
International Fund II............................ 0.75% 23 N/A N/A
(Credit due to expense limitation) (8) N/A N/A
International Fund............................... 0.85% 31,658 26,319 22,831
(Credit due to expense limitation) (1,757) (1,068) (700)
Value Fund....................................... 0.60% 613 411 364
Bond Fund........................................ 0.70% 1,722 1,318 1,179
(Credit due to expense limitation) (592) (471) (421)
Short Duration Fund.............................. 0.40% 541 435 491
(Credit due to expense limitation) (270) (218) (246)
Money Market Fund................................ 0.30% 187 197 171
(Credit due to expense limitation) (75) (79) (68)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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 GROWTH FUND
Nicholas-Applegate Capital Management
HARBOR INTERNATIONAL FUND II
Summit International Investments, Inc.
HARBOR INTERNATIONAL FUND
Northern Cross Investments Limited
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.
22
<PAGE> 69
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. Harbor International
Fund II commenced operations on June 1, 1996, therefore no subadvisory fees were
paid for 1994 and 1995.
<TABLE>
<CAPTION>
FEE PAID BY THE ADVISER TO SUBADVISER
FOR YEAR ENDED OCTOBER 31
---------------------------------------
($ IN THOUSANDS)
FUND 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Growth Fund................................... $ 1,498 $ 445 $ 262
Growth Fund................................................. $ 730 $ 776 $ 922
Capital Appreciation Fund................................... $ 2,993 $ 1,353 $ 488
International Fund II....................................... $ 16(d) N/A N/A
International Fund.......................................... $20,755 $17,463 $15,517
Value Fund
DRZ....................................................... $ 271 $ 114(c) N/A
SunBank................................................... $ N/A $ 83(b) $ 52(a)
Richards & Tierney........................................ $ 58 $ 43 $ 38
Bond Fund................................................... $ 686 $ 536 $ 473
Short Duration Fund......................................... $ 220 $ 182 $ 189
Money Market Fund........................................... $ 104 $ 113 $ 97
</TABLE>
- -------------------------
(a) 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 $94,000.
(b) Paid to SunBank for the period from November 1, 1994 to April 20, 1995.
(c) Fee paid from April 21, 1995 to October 31, 1995.
(d) Paid to Summit International Investments, Inc. for the period from June 1,
1996 to October 31, 1996.
- --------------------------------------------------------------------------------
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
23
<PAGE> 70
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
10048, Toledo, Ohio 43699-0048. 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 Investment Company 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.
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
24
<PAGE> 71
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 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, 1996, 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 and Alfred Berg were valued at $57,208,000;
securities of Barclays Bank PLC the parent of B.Z.W. Securities, were valued at
$61,060,000; securities of International Nederlanden, the parent of Baring
Securities, were valued at $59,570,000; securities of National Westminster Bank,
the parent of NWB Securities, were valued at $63,999,000; and by Harbor
International Fund II: securities of Barclays Bank PLC, the parent of B.Z.W.
Securities, were valued at $87,000.
25
<PAGE> 72
Harbor Bond Fund, Harbor Short Duration Fund and Harbor Money Market Fund paid
no brokerage commissions during the past three fiscal years. Harbor
International Fund II commenced operations on June 1, 1996, therefore no
brokerage commissions were paid in 1994 and 1995.
For the fiscal years ended October 31, 1996, October 31, 1995 and October 31,
1994, each of the following Funds paid brokerage commissions as follows ($ in
thousands):
<TABLE>
<CAPTION>
HARBOR HARBOR CAPITAL HARBOR HARBOR
INTERNATIONAL HARBOR APPRECIATION INTERNATIONAL INTERNATIONAL HARBOR
GROWTH FUND GROWTH FUND FUND FUND II FUND VALUE FUND
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total Brokerage
Commissions Paid
Year ended 10/31/96.............. $ 1,636 $ 239 $ 1,952 $ 58 $ 1,799 $ 346
Year ended 10/31/95.............. 360 304 1,014 N/A 860 278
Year ended 10/31/94.............. 245 451 256 N/A 2,324 193
Total Amount of Transactions Where
Commissions Paid
Year ended 10/31/96.............. $537,606 $115,685 $1,473,866 $12,468 $ 626,494 $256,513
Year ended 10/31/95.............. 131,368 166,935 721,663 N/A 375,347 171,871
Year ended 10/31/94.............. 78,657 242,715 184,633 N/A 1,014,107 165,496
Total Brokerage Commissions Paid to
Brokers Who Provided Research
Year ended 10/31/96.............. $ 1,636 $ 152 $ 635,021 $ 58 $ 1,799 $ 238
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 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
26
<PAGE> 73
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 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.
27
<PAGE> 74
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, 1996 was 4.73%.
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, 1996 was 4.84%.
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.
28
<PAGE> 75
The average annual total return for each Fund for the one-year period,
five-year period and since inception to October 31, 1996, was as follows:
<TABLE>
<CAPTION>
YEAR 5-YEAR PERIOD
ENDED ENDED INCEPTION TO
FUND 10/31/96 10/31/96(1) 10/31/96(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Harbor International Growth Fund.................. 27.86% N/A 16.00%
Harbor Growth Fund................................ 14.84% 9.13% 11.98%
Harbor Capital Appreciation Fund.................. 13.22% 17.77% 18.23%
Harbor International Fund II...................... N/A N/A 4.70%(2)
Harbor International Fund......................... 18.17% 14.54% 17.35%
Harbor Value Fund................................. 23.08% 13.35% 14.16%
Harbor Bond Fund.................................. 7.56% 8.81% 9.85%
Harbor Short Duration Fund........................ 7.24% N/A 5.26%
Harbor Money Market Fund.......................... 5.08% 4.12% 5.63%
</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; Harbor International Fund
II, 6/1/96; and all other Funds, 12/29/87.
(2) Unannualized for the period June 1, 1996 to October 31, 1996.
- --------------------------------------------------------------------------------
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, 1996, the yield of Harbor Bond Fund
was 5.88%. If there had been no reduction of fees, the yield of Harbor Bond Fund
would have been 5.64% for the 30-day period ended October 31, 1996.
For the 30-day period October 31, 1996, the yield of Harbor Short Duration
Fund was 6.06%. If there had been no reduction of fees, the yield of Harbor
Short Duration Fund would have been 5.86% for the 30-day period ended October
31, 1996.
PERFORMANCE COMPARISONS
The Funds may compare their performance to other mutual funds with similar
investment objectives and to the mutual fund industry as a whole, as quoted by
ranking services and publications of general interest. For example, these
services or publications may include Lipper Analytical Services, Inc.,
Schabacker's Total Investment Service, CDA Technologies, SEI, Frank Russell
Trust, Barron's Business Week, Changing Times, Donoghue's Money Fund Report, The
Financial Times, Financial World, Forbes, Investor's Daily, Money, Morningstar
Mutual Funds, Personal Investor, The Economist, The Wall Street Journal,
Individual Investor, Louis Rukeyser's Wall Street, Financial World, and USA
Today. These ranking services and publications rank the performance of the Funds
against all other funds over specified periods and against funds in specified
categories.
The Funds may also either include presentations of, or may compare their
performance to, a recognized stock or bond index, including, but not limited to,
the Morgan Stanley Capital International Europe, Australia and Far East (EAFE),
Standard & Poor's 500, Standard & Poor's Mid-Cap, Russell 3000 Value, Value
Line, Dow Jones, and NASDAQ stock indices and the Lehman Brothers Aggregate and
Salomon bond indices. The comparative material found in advertisements, sales
literature, or in reports to shareholders may contain past or present
performance ratings. This is not to be considered representative or indicative
of future results or future performance.
29
<PAGE> 76
TAX INFORMATION
Each Fund is treated as a separate taxpayer for federal income tax purposes.
Distributions from net investment income 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 any Fund that is permitted to acquire stock of foreign corporations
acquires an equity interest 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 Fund's shareholders, the tax would in effect
reduce the Fund's economic return from its PFIC investment. It is possible that
an election may be available to these Funds in certain cases that would
ameliorate this adverse tax consequence, 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. However, 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.
The federal income tax rules applicable to certain investments within each
Fund are unclear in certain respects, and a Fund will be required to account for
these instruments under tax rules in a manner that, under certain circumstances,
may affect the amount, timing or character of its distribution to shareholders.
Each Fund will monitor its transactions in these instruments to seek to ensure
that it continues to comply with the tax requirements necessary to maintain its
status as a regulated investment company.
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 seek to avoid liability for such
tax by satisfying such distribution requirements.
Provided that a Fund qualifies as a regulated investment company under the
Code, 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 any 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 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.
30
<PAGE> 77
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.
Harbor International Fund II commenced operations on June 1, 1996. Costs
incurred by Harbor in connection with the organization and initial registration
and public offering of the shares of Harbor International Growth Fund, Harbor
International Fund II and Harbor Short Duration Fund which total, respectively,
approximately $33,000, $23,052 and $21,000, are being amortized over a five-year
period beginning on November 1, 1993, June 1, 1996 and January 1, 1992,
respectively.
As of January 31, 1997, 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.
<TABLE>
<CAPTION>
HARBOR
HARBOR HARBOR CAPITAL HARBOR HARBOR HARBOR HARBOR
INTERNATIONAL GROWTH APPRECIATION INTERNATIONAL INTERNATIONAL VALUE BOND
NAME OF OWNER GROWTH FUND FUND FUND FUND II FUND FUND FUND
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Bank of America
NT & SA TTEE
FBO Chronicle Publishing Co
& Janachowski
P.O. Box 513577 Terminal Annex
Los Angeles, CA 90051................... -- -- -- 8% -- -- --
Charles Schwab & Co., Inc.
Omnibus Account Registration
101 Montgomery Street
San Francisco, CA
94104-4122.............................. 9% -- 17% 35% 16% -- 15%
Donaldson Lufkin Jenrette
SEC Corp. Inc. Reinvest Account
c/o Transfer Dept. - 7th Floor
P.O. Box 2052
Jersey City, NJ 07303-2052.............. -- -- -- -- -- -- 5%
HCR Master Retirement Trust............... -- -- -- -- -- 8% --
Harbor Capital Advisors, Inc.............. -- -- -- -- -- -- --
Jupiter & Co.
c/o Investors Bank & Trust Co.
P.O. Box 1537 TOP57
Boston, MA 02205-1537................... -- -- -- 10% -- -- --
Maryland State
Retirement Agency
301 West Preston Street
Baltimore, MD 21201-2363................ -- -- -- -- 6% -- --
Northern Trust TTEE
FBO Getty Trust
P.O. Box 92956
Chicago, IL 60675....................... 8% -- -- -- -- -- --
Owens-Illinois 401(k) Trust............... -- 44% -- -- -- 29% 6%
Owens-Illinois Master Retirement Trust.... -- -- -- -- -- -- --
Sidley and Austin Partners Plan
One First National Plaza
Chicago, IL 60603-2279.................. -- -- -- -- -- 10% --
State Street Bank & Trust
3M Voluntary Investment Plan
One Enterprise Drive
North Quincy, MA 02171.................. -- -- 10% -- -- -- --
Strong Museum
One Manhattan Square
Rochester, NY 14607..................... -- -- -- 7% -- -- --
Techneglas, Inc. 401(k) Plans
c/o National City Bank
P.O. Box 94777-LOC 5312
Cleveland, OH 44101..................... -- 8% -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
HARBOR HARBOR
SHORT MONEY
DURATION MARKET
NAME OF OWNER FUND FUND
- -------------------------------------------------------------
<S> <C> <C>
Bank of America
NT & SA TTEE
FBO Chronicle Publishing Co
& Janachowski
P.O. Box 513577 Terminal Annex
Los Angeles, CA 90051................... -- --
Charles Schwab & Co., Inc.
Omnibus Account Registration
101 Montgomery Street
San Francisco, CA
94104-4122.............................. -- --
Donaldson Lufkin Jenrette
SEC Corp. Inc. Reinvest Account
c/o Transfer Dept. - 7th Floor
P.O. Box 2052
Jersey City, NJ 07303-2052.............. -- --
HCR Master Retirement Trust............... -- --
Harbor Capital Advisors, Inc.............. 9% --
Jupiter & Co.
c/o Investors Bank & Trust Co.
P.O. Box 1537 TOP57
Boston, MA 02205-1537................... -- --
Maryland State
Retirement Agency
301 West Preston Street
Baltimore, MD 21201-2363................ -- --
Northern Trust TTEE
FBO Getty Trust
P.O. Box 92956
Chicago, IL 60675....................... -- --
Owens-Illinois 401(k) Trust............... -- 28%
Owens-Illinois Master Retirement Trust.... 80% --
Sidley and Austin Partners Plan
One First National Plaza
Chicago, IL 60603-2279.................. -- --
State Street Bank & Trust
3M Voluntary Investment Plan
One Enterprise Drive
North Quincy, MA 02171.................. -- --
Strong Museum
One Manhattan Square
Rochester, NY 14607..................... -- --
Techneglas, Inc. 401(k) Plans
c/o National City Bank
P.O. Box 94777-LOC 5312
Cleveland, OH 44101..................... -- 5%
- -------------------------------------------------------------
</TABLE>
31
<PAGE> 78
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.
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 LLP, 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, 1996 on pages 36 through 57 and attached hereto, are hereby
incorporated by reference into this Statement of Additional Information.
32
<PAGE> 79
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 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.
33
<PAGE> 80
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, 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.
34
<PAGE> 81
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.
35
<PAGE> 82
HARBOR FUND LOGO
One SeaGate
Toledo, Ohio 43666
1-800-422-1050
3/97/7,000 [recycled paper logo]
<PAGE> 83
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,
1996 (audited).
Incorporated by reference in Part B of this Registration Statement by
reference to Harbor Fund's Annual Financial Statements on Form N-30D,
file date December 26, 1996 Accession No. 0000950124-96-005568:
Portfolio of Investments as of October 31, 1996.
Statement of Assets and Liabilities as of October 31, 1996.
Statement of Operations for the year ended October 31, 1996.
Statement of Changes in Net Assets for the fiscal years ended October
31, 1995 and October 31, 1996;
Notes to Financial Statements
Report of Independent Accountants dated December 16, 1996.
b. Exhibits:
<TABLE>
<S> <C> <C>
1. (a) Agreement and Declaration of Trust, dated June 8, 1993.
(b) Establishment and Designation of Series of Shares of Beneficial Interest, $.01 Par Value Per
Share, dated November 1, 1993.
(c) Establishment and Designation of Series of Shares of Beneficial Interest, $.01 Par Value Per
Share dated June 1, 1996.
2. By-laws, dated June 8, 1993.
3. Inapplicable.
4. Inapplicable.
5. (a) Investment Advisory Agreement--Harbor International Growth Fund.
(b) Investment Advisory Agreement--Harbor Growth Fund.
(c) Investment Advisory Agreement--Harbor Capital Appreciation Fund.
(d) Investment Advisory Agreement--Harbor International Fund II.
(e) Investment Advisory Agreement--Harbor International Fund.
(f) Investment Advisory Agreement--Harbor Value Fund.
(g) Investment Advisory Agreement--Harbor Bond Fund.
(h) Investment Advisory Agreement--Harbor Short Duration Fund.
(i) Investment Advisory Agreement--Harbor Money Market Fund.
(j) Subadvisory Contract--Harbor International Growth Fund.
(k) Subadvisory Contract--Harbor Growth Fund.
(l) Subadvisory Contract--Harbor Capital Appreciation Fund.
(m) Subadvisory Contract--Harbor International Fund II.
(n) Subadvisory Contract--Harbor International Fund.
(o) Subadvisory Contract--Harbor Value Fund.
(p) Subadvisory Contract--Harbor Value Fund.
(q) Subadvisory Contract--Harbor Bond Fund.
(r) Subadvisory Contract--Harbor Short Duration Fund.
(s) Subadvisory Contract--Harbor Money Market Fund.
6. Distribution Agreement.
7. Inapplicable.
</TABLE>
C-1
<PAGE> 84
<TABLE>
<S> <C> <C>
(1) 8. (a) Form of Custodian Agreement.
(1) (b)(1) Fee schedule for Exhibit 8(a).
(2) (b)(2) Fee schedule for Exhibit 8(a).
(5) (b)(3) Fee schedule for Exhibit 8(a).
(6) (b)(4) Fee schedule for Exhibit 8(a).
(7) (b)(5) Fee schedule for Exhibit 8(a).
(8) (b)(6) Fee schedule for Exhibit 8(a).
(7) (c) Amendment to Custodian Agreement.
9. Transfer Agent and Service Agreement.
10. Opinion and Consent of Counsel as to legality of shares being
registered incorporated by reference to Rule 24f-2 Notice filed on
Form 24f-2 on December 27, 1996 (File No. 811-04676).
11. Consent of Independent Accountants.
12. 1996 Annual Report to Shareholders is incorporated by reference to Form
N30D (File No. 811-04676) filed on December 26, 1996.
(1) 13. Investment Representation Letter relating to initial capital.
14. Inapplicable.
15. Inapplicable.
(3) 16. (a) Schedule of Computation of Performance Quotations.
(4) (b) Schedule of Computation of Performance Quotations for Harbor
Short Duration Fund.
(6) (c) Schedule of Computation of Performance Quotations for Harbor
International Growth Fund.
17. Not Applicable.
(6) 18. Power of Attorney.
27. Financial Data Schedules.
</TABLE>
- ------------
<TABLE>
<S> <C>
(1) Filed with Pre-Effective Amendment No. 1 on October 16, 1986.
(2) Filed with Post-Effective Amendment No. 10 on November 1, 1991.
(3) Filed with Post-Effective Amendment No. 11 on December 27, 1991.
(4) Filed with Post-Effective Amendment No. 12 on June 30, 1992.
(5) Filed with Post-Effective Amendment No. 15 on August 27, 1993.
(6) Filed with Post-Effective Amendment No. 17 on February 25, 1994.
(7) Filed with Post-Effective Amendment No. 19 on December 28, 1995.
(8) Filed with Post-Effective Amendment No. 20 on March 7, 1996.
</TABLE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
As of January 31, 1997, an Owens-Illinois Master Retirement Trust pension
portfolio owned beneficially and of record 80% of the outstanding shares of
beneficial interest of Harbor Short Duration Fund.
As of January 31, 1997, the Owens-Illinois 401(k) Trust owned beneficially and
of record 44%, 29% and 28% of the outstanding shares of beneficial interest of
Harbor Growth Fund, Harbor Value Fund and Harbor Money Market Fund,
respectively.
C-2
<PAGE> 85
ITEM 26. NUMBER OF HOLDERS OF SECURITIES (AS OF JANUARY 31, 1997)
<TABLE>
<CAPTION>
(2)
(1) NUMBER OF
TITLE OF CLASS SHAREHOLDERS
-------------- ------------
<S> <C>
Shareholders of beneficial interest, Harbor International
Growth Fund............................................... 13,747
Shareholders of beneficial interest, Harbor Growth Fund..... 2,062
Shareholders of beneficial interest, Harbor Capital
Appreciation Fund......................................... 28,351
Shareholders of beneficial interest, Harbor International
Fund II................................................... 817
Shareholders of beneficial interest, Harbor International
Fund...................................................... 55,136
Shareholders of beneficial interest, Harbor Value Fund...... 1,434
Shareholders of beneficial interest, Harbor Bond Fund....... 6,601
Shareholders of beneficial interest, Harbor Short Duration
Fund...................................................... 303
Shareholders of beneficial interest, Harbor Money Market
Fund...................................................... 3,570
</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 issuer
of the policy is the Chubb Custom Insurance Company, Chubb Group of Insurance
Companies.
Insofar as indemnification for liability arising under the Securities Act of
1933 ("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.
C-3
<PAGE> 86
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 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.
Summit International Investments, Inc. is a subadviser to Registrant's
investment adviser. The business or other connections of each director or
officer of Summit International Investments, Inc. is currently listed in the
investment adviser registration on Form ADV for Summit International
Investments, Inc. (File No. 801-51305) and is hereby incorporated by reference
thereto.
C-4
<PAGE> 87
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>
(c) Inapplicable
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; Summit International
Investments, Inc., 125 Summer Street, Boston, Massachusetts 02110; 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, 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) Not applicable.
(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> 88
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that this Post-Effective Amendment
No. 22 (the "Amendment") meets all the requirements for effectiveness pursuant
to Rule 485(b) under the Securities Act of 1933 and that it has duly caused this
Amendment to the Registration Statement, to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Toledo, the State of
Ohio, on the 21st day of February, 1997.
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
---------- ----- ----
<S> <C> <C>
/s/ RONALD C. BOLLER Chairman and President (Principal February 21, 1997
- -------------------------------------------------------- Executive Officer) and Trustee
RONALD C. BOLLER
/s/ CONSTANCE L. SOUDERS Treasurer (Principal February 21, 1997
- -------------------------------------------------------- Financial and
CONSTANCE L. SOUDERS Accounting Officer)
/s/ JOHN P. GOULD* Trustee February 21, 1997
- --------------------------------------------------------
JOHN P. GOULD
/s/ HOWARD P. COLHOUN* Trustee February 21, 1997
- --------------------------------------------------------
HOWARD P. COLHOUN
/s/ RODGER F. SMITH* Trustee February 21, 1997
- --------------------------------------------------------
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> 89
HARBOR FUND
INDEX TO EXHIBITS IN REGISTRATION STATEMENT
<TABLE>
<CAPTION>
NO. EXHIBIT PAGE
- --- ------- ----
<C> <S> <C> <C>
1. (a) Agreement and Declaration of Trust, dated June 8, 1993
(b) Establishment and Designation of series of Shares of
Beneficial Interest, Par Value $.01 Per Share, dated
November 1, 1993
(c) Establishment and Designation of series of Shares of
Beneficial Interest, Par Value $.01 Per Share, dated June 1,
1996
2. By-Laws, dated June 8, 1993
5. (a) Investment Advisory Agreement -- Harbor International Growth
Fund
(b) Investment Advisory Agreement -- Harbor Growth Fund
(c) Investment Advisory Agreement -- Harbor Capital Appreciation
Fund
(d) Investment Advisory Agreement -- Harbor International Fund
II
(e) Investment Advisory Agreement -- Harbor International Fund
(f) Investment Advisory Agreement -- Harbor Value Fund
(g) Investment Advisory Agreement -- Harbor Bond Fund
(h) Investment Advisory Agreement -- Harbor Short Duration Fund
(i) Investment Advisory Agreement -- Harbor Money Market Fund
(j) Subadvisory Contract -- Harbor International Growth Fund
(k) Subadvisory Contract -- Harbor Growth Fund
(l) Subadvisory Contract -- Harbor Capital Appreciation Fund
(m) Subadvisory Contract -- Harbor International Fund II
(n) Subadvisory Contract -- Harbor International Fund
(o) Subadvisory Contract -- Harbor Value Fund
(p) Subadvisory Contract -- Harbor Value Fund
(q) Subadvisory Contract -- Harbor Bond Fund
(r) Subadvisory Contract -- Harbor Short Duration Fund
(s) Subadvisory Contract -- Harbor Money Market Fund
6. Distribution Agreement
9. Transfer Agent And Service Agreement
11. Consent of Independent Accountants
27. Financial Data Schedules
</TABLE>
C-7
<PAGE> 1
EXHIBIT 1(a)
AGREEMENT AND DECLARATION OF TRUST
of
HARBOR FUND
a Delaware Business Trust
Principal Place of Business:
One SeaGate
Toledo, Ohio 43666
<PAGE> 2
TABLE OF CONTENTS
HARBOR FUND
AGREEMENT AND DECLARATION OF TRUST
Page
ARTICLE I Definitions ....................................... 1
ARTICLE II The Trustees ...................................... 2
1. Management of the Trust ........................... 2
2. Initial Trustees; Election and Number of
Trustees ........................................ 2
2. Term of Office of Trustees ........................ 2
4. Vacancies; Appointment of Trustees ................ 2
5. Temporary Vacancy or Absence ...................... 3
6. Chairman .......................................... 3
7. Action by the Trustees ............................ 3
8. Ownership of Trust Property ....................... 3
9. Effect of Trustees Not Serving .................... 4
10. Trustees, etc. as Shareholders .................... 4
ARTICLE III Powers of the Trustees ............................ 4
1. Powers .................................................. 4
2. Certain Transactions .................................... 6
ARTICLE IV Series; Classes; Shares ........................... 7
1. Establishment of Series or Class ........................ 7
2. Shares .................................................. 7
3. Investment in the Trust ................................. 7
4. Assets and Liabilities of Series ........................ 8
5. Ownership and Transfer of Shares ........................ 8
6. Status of Shares; Limitation of
Shareholder Liability ................................. 9
ARTICLE V Distributions and Redemptions ..................... 9
1. Distributions ........................................... 9
2. Redemptions ............................................. 9
3. Determination of Net Asset Value ........................ 10
4. Suspension of Right of Redemption ....................... 10
ARTICLE VI Shareholders' Voting Powers and
Meetings ........................................ 10
1. Voting Powers ........................................... 10
2. Meetings of Shareholders ................................ 11
3. Quorum; Required Vote ................................... 11
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ARTICLE VII Contracts With Service Providers ................. 11
1. Investment Adviser ..................................... 11
2. Principal Underwriter .................................. 11
3. Transfer Agency, Shareholder Services, and
Administration and Service Agreements ................ 12
4. Custodian .............................................. 12
5. Parties to Contracts with Service
Providers ............................................ 12
ARTICLE VIII Expenses of the Trust and Series ................. 13
ARTICLE IX Limitation of Liability and
Indemnification ................................ 13
1. Limitation of Liability ................................ 13
2. Indemnification ........................................ 13
3. Indemnification of Shareholders ........................ 14
ARTICLE X Miscellaneous .................................... 15
1. Trust Not a Partnership ................................ 15
2. Trustee Action; Expert Advice; No Bond
or Surety ............................................ 15
3. Record Dates ........................................... 15
4. Termination of the Trust ............................... 15
5. Reorganization ......................................... 16
6. Declaration of Trust ................................... 16
7. Applicable Law ......................................... 16
8. Amendments ............................................. 17
9. Fiscal Year ............................................ 17
10. Severability ........................................... 17
APPENDIX A ....................................................... A-1
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<PAGE> 4
HARBOR FUND
AGREEMENT AND DECLARATION OF TRUST
This AGREEMENT AND DECLARATION OF TRUST is made on June 8, 1993, by the
Trustees, to establish a business trust for the purpose of conducting, operating
and carrying on the business of a management investment company for the
investment and reinvestment of funds contributed to the Trust by investors. The
Trustees declare that all money and property contributed to the Trust shall be
held and managed in trust pursuant to this Agreement and Declaration of Trust.
The name of the Trust created by this Agreement and Declaration of Trust is
Harbor Fund.
ARTICLE I
DEFINITIONS
Unless otherwise provided or required by the context:
(a) "By-laws" means the By-laws of the Trust adopted by the Trustees, as
amended from time to time;
(b) "Class" means the class of Shares of a Series established pursuant to
Article IV;
(c) "Commission," "Interested Person" and "Principal Underwriter" have the
meanings provided in the 1940 Act;
(d) "Covered Person" means a person so defined in Article IX, Section 2;
(e) "Declaration of Trust" shall mean this Agreement and Declaration of
Trust, as amended or restated from time to time;
(f) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time;
(g) "Majority Shareholder Vote" means "the vote of a majority of the
outstanding voting securities" as defined in the 1940 Act;
(h) "Net Asset Value" means the net asset value of each Series of the
Trust, determined as provided in Article V, Section 3;
(i) "Person" means and includes individuals, corporations, partnerships,
trusts, associations, joint ventures, estates and other entities, and
governments and agencies and political subdivisions, thereof, whether domestic
or foreign;
(j) "Outstanding Shares" means Shares shown in the books of the Trust or
its transfer agent as then issued and outstanding, but does not include Shares
which have been repurchased or redeemed by the Trust and which are held in the
treasury of the Trust;
(k) "Series" means a series of Shares established pursuant to Article IV;
(l) "Shareholder" means a record owner of Outstanding Shares;
<PAGE> 5
(m) "Shares" means the equal proportionate transferable units of interest
into which the beneficial interest of each Series or Class is divided from time
to time (including whole Shares and fractions of Shares);
(n) "Trust" means Harbor Fund established hereby, and reference to the
Trust, when applicable to one or more Series, refers to that Series;
(o) "Trustees" means the persons who have signed this Declaration of
Trust, so long as they shall continue in office in accordance with the terms
hereof, and all other persons who may from time to time be duly qualified and
serving as Trustees in accordance with Article II, in all cases in their
capacities as Trustees hereunder;
(p) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the Trust or any Series
or the Trustees on behalf of the Trust or any Series;
(q) The "1940 Act" means the Investment Company Act of 1940, as amended
from time to time.
ARTICLE II
THE TRUSTEES
SECTION 1. MANAGEMENT OF THE TRUST. The business and affairs of the Trust
shall be managed by or under the direction of the Trustees, and they shall have
all powers necessary or desirable to carry out that responsibility. The
Trustees may execute all instruments and take all action they deem necessary or
desirable to promote the interests of the Trust. Any determination made by the
Trustees in good faith as to what is in the interests of the Trust shall be
conclusive.
SECTION 2. INITIAL TRUSTEES; ELECTION AND NUMBER OF TRUSTEES. The initial
Trustees shall be the person initially signing this Declaration of Trust. The
number of Trustees (other than the initial Trustee) shall be fixed from time to
time by a majority of the Trustees; provided, that there shall be at least one
(1) Trustee and no more than fifteen (15). The Shareholders shall elect the
Trustees (other than the initial Trustees) on such dates as the Trustees may fix
from time to time.
SECTION 3. TERM OF OFFICE OF TRUSTEES. Each Trustee shall hold office for
life or until his successor is elected or the Trust terminates; except that (a)
any Trustee may resign by delivering to the other Trustees or to any Trust
officer a written resignation effective upon such delivery or a later date
specified therein; (b) any Trustee may be removed with or without cause at any
time by a written instrument signed by at least a majority of the then Trustees,
specifying the effective date of removal; (c) any Trustee who requests to be
retired, or who has become physically or mentally incapacitated or is otherwise
unable to serve, may be retired by a written instrument signed by a majority of
the other Trustees, specifying the effective date of retirement; and (d) any
Trustee may be removed at any meeting of the Shareholders by a vote of at least
two-thirds of the Outstanding Shares.
SECTION 4. VACANCIES; APPOINTMENT OF TRUSTEES. Whenever a vacancy shall
exist in the Board of Trustees, regardless of the reason for such vacancy, the
remaining Trustees shall appoint any person as they determine in their sole
discretion to fill that vacancy, consistent with the limitations under the 1940
Act. Such appointment shall be made by a
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<PAGE> 6
written instrument signed by a majority of the Trustees or by a resolution of
the Trustees, duly adopted and recorded in the records of the Trust, specifying
the effective date of the appointment. The Trustees may appoint a new Trustee
as provided above in anticipation of a vacancy expected to occur because of the
retirement, resignation or removal of a Trustee, or an increase in number of
Trustees, provided that such appointment shall become effective only at or after
the expected vacancy occurs. As soon as any such Trustee has accepted his
appointment in writing, the trust estate shall vest in the new Trustee, together
with the continuing Trustees, without any further act or conveyance, and he
shall be deemed a Trustee hereunder. The power of appointment is subject to
Section 16(a) of the 1940 Act.
SECTION 5. TEMPORARY VACANCY OR ABSENCE. Whenever a vacancy in the Board
of Trustees shall occur, until such vacancy is filled, or while any Trustee is
absent from his domicile (unless that Trustee has made arrangements to be
informed about, and to participate in, the affairs of the Trust during such
absence), or is physically or mentally incapacitated, the remaining Trustees
shall have all the powers hereunder and their certificate as to such vacancy,
absence, or incapacity shall be conclusive. Any Trustee may, by power of
attorney, delegate his powers as Trustee for a period not exceeding six (6)
months at any one time to any other Trustee or Trustees.
SECTION 6. CHAIRMAN. The Trustees shall appoint one of their number to be
Chairman of the Board of Trustees. The Chairman shall preside at all meetings
of the Trustees, shall be responsible for the execution of policies established
by the Trustees and the administration of the Trust, and may be the chief
executive, financial and/or accounting officer of the Trust.
SECTION 7. ACTION BY THE TRUSTEES. The Trustees shall act by majority
vote at a meeting duly called (including at a telephonic meeting, unless the
1940 Act requires that a particular action be taken only at a meeting of
Trustees in person) at which a quorum is present or by written consent of a
majority of Trustees (or such greater number as may be required by applicable
law) without a meeting. A majority of the Trustees shall constitute a quorum at
any meeting. Meetings of the Trustees may be called orally or in writing by the
President or by any one of the Trustees. Notice of the time, date and place of
all Trustees' meetings shall be given to each Trustee as set forth in the
By-Laws; provided, however, that no notice is required if the Trustees provide
for regular or stated meetings. Notice need not be given to any Trustee who
attends the meeting without objecting to the lack of notice or who signs a
waiver of notice either before or after the meeting. Subject to the
requirements of the 1940 Act, the Trustees by majority vote may delegate to any
Trustee or Trustees or committee authority to approve particular matters or take
particular actions on behalf of the Trust. Any written consent or waiver may be
provided and delivered to the Trust by facsimile or other similar electronic
mechanism.
SECTION 8. OWNERSHIP OF TRUST PROPERTY. The Trust Property of the Trust
and of each Series shall be held separate and apart from any assets now or
hereafter held in any capacity other than as Trustee hereunder by the Trustees
or any successor Trustees. All of the Trust Property and legal title thereto
shall at all times be considered as vested in the Trustees on behalf of the
Trust, except that the Trustees may cause legal title to any Trust Property to
be held by or in the name of the Trust, or in the name of any person as nominee.
No Shareholder shall be deemed to have a severable ownership in any individual
asset of the Trust or of any Series or any right of partition or possession
thereof, but each Shareholder shall have, as provided in Article IV, a
proportionate undivided beneficial interest in the Trust or Series represented
by Shares. Upon the resignation or removal of a Trustee, or his otherwise
ceasing to be a Trustee, he shall execute and deliver such documents as the
remaining Trustees shall require for the purpose of conveying to the Trust
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<PAGE> 7
or the remaining Trustees any Trust Property held in the name of the resigning
or removed Trustee. Upon the incapacity or death of any Trustee, his legal
representative shall execute and deliver on his behalf such documents as the
remaining Trustees shall require as provided in the preceding sentence.
SECTION 9. EFFECT OF TRUSTEES NOT SERVING. The death, resignation,
retirement, removal, incapacity or inability or refusal to serve of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Declaration of Trust.
SECTION 10. TRUSTEES, ETC. AS SHAREHOLDERS. Subject to any restrictions
in the By-laws, any Trustee, officer, agent or independent contractor of the
Trust may acquire, own and dispose of Shares to the same extent as any other
Shareholder; the Trustees may issue and sell Shares to and buy Shares from any
such person or any firm or company in which such person is interested, subject
only to any general limitations herein.
ARTICLE III
POWERS OF THE TRUSTEES
SECTION 1. POWERS. The Trustees in all instances shall act as principals,
free of the control of the Shareholders. The Trustees shall have full power and
authority to take or refrain from taking any action and to execute any contracts
and instruments that they may consider necessary or desirable in the management
of the Trust. The Trustees shall not in any way be bound or limited by current
or future laws or customs applicable to trust investments, but shall have full
power and authority to make any investments which they, in their sole
discretion, deem proper to accomplish the purposes of the Trust. The Trustees
may exercise all of their powers without recourse to any court or other
authority. Subject to any applicable limitation herein or in the By-laws or
resolutions of the Trust, the Trustees shall have power and authority, without
limitation:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
current or future law or custom concerning investments by trustees, and to sell,
exchange, lend, pledge, mortgage, hypothecate, write options on and lease any or
all of the Trust Property; to invest in obligations, securities and financial
instruments of any kind, and without regard to whether they may mature before
the possible termination of the Trust; and without limitation to invest all or
any part of its cash and other property in securities issued by a registered
investment company or series thereof, subject to the provisions of the 1940 Act;
(b) To operate as and carry on the business of a registered investment
company, and exercise all the powers necessary and proper to conduct such a
business;
(c) To adopt By-laws not inconsistent with this Declaration of Trust
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent such right is not reserved to the Shareholders;
(d) To elect and remove such officers and appoint and terminate such
agents as they deem appropriate;
(e) To employ as custodian of any assets of the Trust, subject to any
provisions herein or in the By-laws, one or more banks, trust companies or
companies that are
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<PAGE> 8
members of a national securities exchange, or other entities permitted by the
Commission to serve as such;
(f) To retain one or more transfer agents and shareholder servicing
agents, or both;
(g) To provide for the distribution of Shares either through a Principal
Underwriter as provided herein or by the Trust itself, or both, or pursuant to a
distribution plan of any kind;
(h) To set record dates in the manner provided for herein or in the By-
laws;
(i) To delegate such authority as they consider desirable to any officers
of the Trust and to any agent, independent contractor, manager, investment
adviser, custodian or underwriter;
(j) To sell or exchange any or all of the assets of the Trust, subject to
Article X, Section 4;
(k) To vote or give assent, or exercise any rights of ownership, with
respect to other securities or property; and to execute and deliver powers of
attorney delegating such power to other persons;
(l) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(m) To hold any security or other property (i) in a form not indicating
any trust, whether in bearer, book entry, unregistered or other negotiable form,
or (ii) either in the Trust's or Trustees' own name or in the name of a
custodian or a nominee or nominees, subject to safeguards according to the usual
practice of business trusts or investment companies;
(n) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article IV;
(o) To the full extent permitted by Section 3804 of the Delaware Act, to
allocate assets, liabilities and expenses of the Trust to a particular Series
and assets, liabilities and expenses to a particular Class or to apportion the
same between or among two or more Series or Classes, provided that any
liabilities or expenses incurred by a particular Series or Class shall be
payable solely out of the assets belonging to that Series or Class as provided
for in Article IV, Section 4;
(p) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern whose securities are held
by the Trust; to consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern; and to pay calls or subscriptions with
respect to any security held in the Trust;
(q) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(r) To make distributions of income, capital gains, returns of capital (if
any) and redemption proceeds to Shareholders in the manner hereinafter provided
for;
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<PAGE> 9
(s) To borrow money;
(t) To sell, exchange, lend, pledge, mortgage, hypothecate, lease, or
write options with respect to or otherwise deal in any property rights relating
to any or all of the assets of the Trust or any Series;
(u) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholder
whose investment is less than such minimum upon giving notice to such
Shareholder;
(v) To establish committees for such purposes, with such membership, and
with such responsibilities as the Trustees may consider proper, including a
committee consisting of fewer than all of the Trustees then in office, which may
act for and bind the Trustees and the Trust with respect to the institution,
prosecution, dismissal, settlement, review or investigation of any legal action,
suit or proceeding, pending or threatened;
(w) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms and
conditions regarding the issuance, sale, repurchase, redemption, cancellation,
retirement, acquisition, holding, resale, reissuance, disposition of or dealing
in Shares; and, subject to Articles IV and V, to apply to any such repurchase,
redemption, retirement, cancellation or acquisition of Shares any funds or
property of the Trust or of the particular Series with respect to which such
Shares are issued;
(x) To invest part or all of the Trust Property (or part or all of the
assets of any Series), or to dispose of part or all of the Trust Property (or
part or all of the assets of any Series) and invest the proceeds of such
disposition, in securities issued by one or more other investment companies
registered under the 1940 Act all without any requirement of approval by
Shareholders. Any such other investment company may (but need not) be a trust
(formed under the laws of the State of New York or of any other state) which is
classified as a partnership for federal income tax purposes; and
(y) To carry on any other business in connection with or incidental to any
of the foregoing powers, to do everything necessary or desirable to accomplish
any purpose or to further any of the foregoing powers, and to take every other
action incidental to the foregoing business or purposes, objects or powers.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments made
or property transferred to the Trustees or upon their order. In construing this
Declaration of Trust, the presumption shall be in favor of a grant of power to
the Trustees.
SECTION 2. CERTAIN TRANSACTIONS. Except as prohibited by applicable law,
the Trustees may, on behalf of the Trust, buy any securities from or sell any
securities to, or lend any assets of the Trust to, any Trustee or officer of the
Trust or any firm of which any such Trustee or officer is a member acting as
principal, or have any such dealings with any investment adviser, administrator,
distributor or transfer agent for the Trust or with any Interested Person of
such person. The Trust may employ any such person or entity in which such
person is an Interested Person, as broker, legal counsel, registrar, investment
adviser,
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<PAGE> 10
administrator, distributor, transfer agent, dividend disbursing agent, custodian
or in any other capacity upon customary terms.
ARTICLE IV
SERIES; CLASSES; SHARES
SECTION 1. ESTABLISHMENT OF SERIES OR CLASS. The Trust shall consist of
one or more Series. The Trustees hereby establish the Series listed in Schedule
A attached hereto and made a part hereof. Each additional Series shall be
established and is effective upon the adoption of a resolution of a majority of
the Trustees or any alternative date specified in such resolution. The Trustees
may designate the relative rights and preferences of the Shares of each Series.
The Trustees may divide the Shares of any Series into Classes. In such case
each Class of a Series shall represent interests in the assets of that Series
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that expenses allocated to a Class may be borne
solely by such Class as determined by the Trustees and a Class may have
exclusive voting rights with respect to matters affecting only that Class. The
Trust shall maintain separate and distinct records for each Series and hold and
account for the assets thereof separately from the other assets of the Trust or
of any other Series. A Series may issue any number of Shares and need not issue
Shares. Each Share of a Series shall represent an equal beneficial interest in
the net assets of such Series. Each holder of Shares of a Series shall be
entitled to receive his pro rata share of all distributions made with respect to
such Series. Upon redemption of his Shares, such Shareholder shall be paid
solely out of the funds and property of such Series. The Trustees may adopt and
change the name of any Series or Class.
SECTION 2. SHARES. The beneficial interest in the Trust shall be divided
into transferable Shares of one or more separate and distinct Series or Classes
established by the Trustees. The number of Shares of each Series and Class is
unlimited and each Share shall have a par value of $0.01 per Share or such other
amount as the Trustees may establish. All Shares issued hereunder shall be fully
paid and nonassessable. Shareholders shall have no preemptive or other right to
subscribe to any additional Shares or other securities issued by the Trust. The
Trustees shall have full power and authority, in their sole discretion and
without obtaining Shareholder approval, to issue original or additional Shares
at such times and on such terms and conditions as they deem appropriate; to
issue fractional Shares and Shares held in the treasury; to establish and to
change in any manner Shares of any Series or Classes with such preferences,
terms of conversion, voting powers, rights and privileges as the Trustees may
determine (but the Trustees may not change Outstanding Shares in a manner
materially adverse to the Shareholders of such Shares); to divide or combine the
Shares of any Series or Classes into a greater or lesser number; to classify or
reclassify any unissued Shares of any Series or Classes into one or more Series
or Classes of Shares; to abolish any one or more Series or Classes of Shares; to
issue Shares to acquire other assets (including assets subject to, and in
connection with, the assumption of liabilities) and businesses; and to take such
other action with respect to the Shares as the Trustees may deem desirable.
Shares held in the treasury shall not confer any voting rights on the Trustees
and shall not be entitled to any dividends or other distributions declared with
respect to the Shares.
SECTION 3. INVESTMENT IN THE TRUST. The Trustees shall accept investments
in any Series from such persons and on such terms as they may from time to time
authorize. At the Trustees' discretion, such investments, subject to applicable
law, may be in the form of cash or securities in which that Series is authorized
to invest, valued as provided in Article V, Section 3. Investments in a Series
shall be credited to each Shareholder's account
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<PAGE> 11
in the form of full Shares at the Net Asset Value per Share next determined
after the investment is received or accepted as may be determined by the
Trustees; provided, however, that the Trustees may, in their sole discretion,
(a) impose a sales charge upon investments in any Series or Class, (b) issue
fractional Shares or (c) determine the Net Asset Value per Share of the initial
capital contribution. The Trustees shall have the right to refuse to accept
investments in any Series at any time without any cause or reason therefor
whatsoever.
SECTION 4. ASSETS AND LIABILITIES OF SERIES. All consideration received
by the Trust for the issue or sale of Shares of a particular Series, together
with all assets in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof (including any proceeds derived
from the sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same may
be), shall be held and accounted for separately from the assets of every other
Series and are referred to as "assets belonging to" that Series. The assets
belonging to a Series shall belong only to that Series for all purposes, and to
no other Series, subject only to the rights of creditors of that Series. Any
assets, income, earnings, profits, and proceeds thereof, funds, or payments
which are not readily identifiable as belonging to any particular Series shall
be allocated by the Trustees between and among one or more Series as the
Trustees deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series for all purposes, and such assets,
earnings, income, profits or funds, or payments and proceeds thereof shall be
referred to as assets belonging to that Series. The assets belonging to a
Series shall be so recorded upon the books of the Trust, and shall be held by
the Trustees in trust for the benefit of the Shareholders of that Series. The
assets belonging to a Series shall be charged with the liabilities of that
Series and all expenses, costs, charges and reserves attributable to that
Series, except that liabilities and expenses allocated solely to a particular
Class shall be borne by that Class. Any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily identifiable as belonging
to any particular Series or Class shall be allocated and charged by the Trustees
between or among any one or more of the Series or Classes in such manner as the
Trustees deem fair and equitable. Each such allocation shall be conclusive and
binding upon the Shareholders of all Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of the Trustees to
allocate general liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses incurred, contracted
for or otherwise existing with respect to a particular Series shall be
enforceable against the assets of such Series only, and not against the assets
of any other Series. Notice of this contractual limitation on liabilities among
Series may, in the Trustees' discretion, be set forth in the certificate of
trust of the Trust (whether originally or by amendment) as filed or to be filed
in the Office of the Secretary of State of the State of Delaware pursuant to the
Delaware Act, and upon the giving of such notice in the certificate of trust,
the statutory provisions of Section 3804 of the Delaware Act relating to
limitations on liabilities among Series (and the statutory effect under Section
3804 of setting forth such notice in the certificate of trust) shall become
applicable to the Trust and each Series. Any person extending credit to,
contracting with or having any claim against any Series may look only to the
assets of that Series to satisfy or enforce any debt, with respect to that
Series. No Shareholder or former Shareholder of any Series shall have a claim
on or any right to any assets allocated or belonging to any other Series.
SECTION 5. OWNERSHIP AND TRANSFER OF SHARES. The Trust or a transfer or
similar agent for the Trust shall maintain a register containing the names and
addresses of the Shareholders of each Series and Class thereof, the number of
Shares of each Series and Class held by such Shareholders, and a record of all
Share transfers. The register shall be
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<PAGE> 12
conclusive as to the identity of Shareholders of record and the number of Shares
held by them from time to time. The Trustees may authorize the issuance of
certificates representing Shares and adopt rules governing their use. The
Trustees may make rules governing the transfer of Shares, whether or not
represented by certificates.
SECTION 6. STATUS OF SHARES; LIMITATION OF SHAREHOLDER LIABILITY. Shares
shall be deemed to be personal property giving Shareholders only the rights
provided in this Declaration of Trust. Every Shareholder, by virtue of having
acquired a Share, shall be held expressly to have assented to and agreed to be
bound by the terms of this Declaration of Trust and to have become a party
hereto. No Shareholder shall be personally liable for the debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing with
respect to, the Trust or any Series. Neither the Trust nor the Trustees shall
have any power to bind any Shareholder personally or to demand payment from any
Shareholder for anything, other than as agreed by the Shareholder. Shareholders
shall have the same limitation of personal liability as is extended to
shareholders of a private corporation for profit incorporated in the State of
Delaware. Every written obligation of the Trust or any Series shall contain a
statement to the effect that such obligation may only be enforced against the
assets of the appropriate Series or all Series; however, the omission of such
statement shall not operate to bind or create personal liability for any
Shareholder or Trustee.
ARTICLE V
DISTRIBUTIONS AND REDEMPTIONS
SECTION 1. DISTRIBUTIONS. The Trustees or a committee of one or more
Trustees and one or more officers may declare and pay dividends and other
distributions, including dividends on Shares of a particular Series and other
distributions from the assets belonging to that Series. The amount and payment
of dividends or distributions and their form, whether they are in cash, Shares
or other Trust Property, shall be determined by the Trustees. Dividends and
other distributions may be paid pursuant to a standing resolution adopted once
or more often as the Trustees determine. All dividends and other distributions
on Shares of a particular Series shall be distributed pro rata to the
Shareholders of that Series in proportion to the number of Shares of that Series
they held on the record date established for such payment, except that such
dividends and distributions shall appropriately reflect expenses allocated to a
particular Class of such Series. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
similar plans as the Trustees deem appropriate.
SECTION 2. REDEMPTIONS. Each Shareholder of a Series shall have the right
at such times as may be permitted by the Trustees to require the Series to
redeem all or any part of his Shares at a redemption price per Share equal to
the Net Asset Value per Share at such time as the Trustees shall have prescribed
by resolution. In the absence of such resolution, the redemption price per
Share shall be the Net Asset Value next determined after receipt by the Series
of a request for redemption in proper form less such charges as are determined
by the Trustees and described in the Trust's Registration Statement for that
Series under the Securities Act of 1933. The Trustees may specify conditions,
prices, and places of redemption, may specify binding requirements for the
proper form or forms of requests for redemption and may specify the amount of
any deferred sales charge to be withheld from redemption proceeds. Payment of
the redemption price may be wholly or partly in securities or other assets at
the value of such securities or assets used in such determination of Net Asset
Value, or may be in cash. Upon redemption, Shares may be reissued from time to
time. The Trustees may require Shareholders to redeem Shares for
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<PAGE> 13
any reason under terms set by the Trustees, including, but not limited to, the
failure of a Shareholder to supply a taxpayer identification number if required
to do so, or to have the minimum investment required, or to pay when due for the
purchase of Shares issued to him. To the extent permitted by law, the Trustees
may retain the proceeds of any redemption of Shares required by them for payment
of amounts due and owing by a Shareholder to the Trust or any Series or Class or
any governmental authority. Notwithstanding the foregoing, the Trustees may
postpone payment of the redemption price and may suspend the right of the
Shareholders to require any Series or Class to redeem Shares during any period
of time when and to the extent permissible under the 1940 Act.
SECTION 3. DETERMINATION OF NET ASSET VALUE. The Trustees shall cause the
Net Asset Value of Shares of each Series or Class to be determined from time to
time in a manner consistent with applicable laws and regulations. The Trustees
may delegate the power and duty to determine Net Asset Value per Share to one or
more Trustees or officers of the Trust or to a custodian, depository or other
agent appointed for such purpose. The Net Asset Value of Shares shall be
determined separately for each Series or Class at such times as may be
prescribed by the Trustees or, in the absence of action by the Trustees, as of
the close of regular trading on the New York Stock Exchange on each day for all
or part of which such Exchange is open for unrestricted trading.
SECTION 4. SUSPENSION OF RIGHT OF REDEMPTION. If, as referred to in
Section 2 of this Article, the Trustees postpone payment of the redemption price
and suspend the right of Shareholders to redeem their Shares, such suspension
shall take effect at the time the Trustees shall specify, but not later than the
close of business on the business day next following the declaration of
suspension. Thereafter Shareholders shall have no right of redemption or
payment until the Trustees declare the end of the suspension. If the right of
redemption is suspended, a Shareholder may either withdraw his request for
redemption or receive payment based on the Net Asset Value per Share next
determined after the suspension terminates.
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS
SECTION 1. VOTING POWERS. The Shareholders shall have power to vote only
with respect to (a) the election of Trustees as provided in Section 2 of this
Article; (b) the removal of Trustees as provided in Article II, Section 3(d);
(c) any investment advisory or management contract as provided in Article VII,
Section 1; (d) any termination of the Trust as provided in Article X, Section 4;
(e) the amendment of this Declaration of Trust to the extent and as provided in
Article X, Section 8; and (f) such additional matters relating to the Trust as
may be required or authorized by law, this Declaration of Trust, or the By-laws
or any registration of the Trust with the Commission or any State, or as the
Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall be
voted by individual Series or Class, except (a) when required by the 1940 Act,
Shares shall be voted in the aggregate and not by individual Series or Class,
and (b) when the Trustees have determined that the matter affects the interests
of more than one Series or Class, then the Shareholders of all such Series or
Classes shall be entitled to vote thereon. Each whole Share shall be entitled
to one vote as to any matter on which it is entitled to vote, and each
fractional share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy or in any manner provided for in the By-laws. The By-laws
may provide that proxies may be given by any electronic or telecommunications
device or in any other manner, but if a
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proposal by anyone other than the officers or Trustees is submitted to a vote of
the Shareholders of any Series or Class, or if there is a proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees, Shares may be voted only in person or by written proxy. Until Shares
of a Series are issued, as to that Series the Trustees may exercise all rights
of Shareholders and may take any action required or permitted to be taken by
Shareholders by law, this Declaration of Trust or the By-laws.
SECTION 2. MEETINGS OF SHAREHOLDERS. Special meetings of the Shareholders
of the Trust or any Series or Class may be called by the Trustees and shall be
called by the Trustees upon the written request of Shareholders owning at least
ten percent of the Outstanding Shares of the Trust or any Series or Class
entitled to vote.
SECTION 3. QUORUM; REQUIRED VOTE. One-third of the Outstanding Shares of
each Series or Class, or one-third of the Outstanding Shares of the Trust,
entitled to vote in person or by proxy shall be a quorum for the transaction of
business at a Shareholders' meeting with respect to such Series or Class, or
with respect to the entire Trust, respectively. Any lesser number shall be
sufficient for adjournments. Any adjourned session of a Shareholders' meeting
may be held within a reasonable time without further notice. Except when a
larger vote is required by law, this Declaration of Trust or the Bylaws, a
majority of the Shares voting at a Shareholders' meeting in person or by proxy
shall decide any matters to be voted upon with respect to the entire Trust and a
plurality of such Shares shall elect a Trustee; provided, that if this
Declaration of Trust or applicable law permits or requires that Shares be voted
on any matter by individual Series or Classes, then a majority of the Shares of
that Series or Class (or, if required by law, a Majority Shareholder Vote of
that Series or Class) voting at a Shareholders' meeting in person or by proxy on
the matter shall decide that matter insofar as that Series or Class is
concerned. Shareholders may act as to the Trust or any Series or Class by the
written consent of a majority (or such other amount as may be required by
applicable law) of the Outstanding Shares of the Trust or of such Series or
Class, as the case may be.
ARTICLE VII
CONTRACTS WITH SERVICE PROVIDERS
SECTION 1. INVESTMENT ADVISER. Subject to a Majority Shareholder Vote,
the Trustees may enter into one or more investment advisory contracts on behalf
of the Trust or any Series, providing for investment advisory services,
statistical and research facilities and services, and other facilities and
services to be furnished to the Trust or Series on terms and conditions
acceptable to the Trustees. Any such contract may provide for the investment
adviser to effect purchases, sales or exchanges of portfolio securities or other
Trust Property on behalf of the Trustees or may authorize any officer or agent
of the Trust to effect such purchases, sales or exchanges pursuant to
recommendations of the investment adviser. The Trustees may authorize the
investment adviser to employ one or more sub-advisers.
SECTION 2. PRINCIPAL UNDERWRITER. The Trustees may enter into contracts
on behalf of the Trust or any Series or Class, providing for the distribution
and sale of Shares by the other party, either directly or as sales agent, on
terms and conditions acceptable to the Trustees. The Trustees may adopt a plan
or plans of distribution with respect to Shares of any Series or Class and enter
into any related agreements, whereby the Series or Class finances directly or
indirectly any activity that is primarily intended to result in sales of its
Shares, subject to the requirements of Section 12 of the 1940 Act, Rule 12b-1
thereunder, and other applicable rules and regulations.
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<PAGE> 15
SECTION 3. TRANSFER AGENCY, SHAREHOLDER SERVICES, AND ADMINISTRATION AND
SERVICE AGREEMENTS. The Trustees, on behalf of the Trust or any Series or
Class, may enter into transfer agency agreements, Shareholder service
agreements, and administration and service agreements with any party or parties
on terms and conditions acceptable to the Trustees.
SECTION 4. CUSTODIAN. The Trustees shall at all times place and maintain
the securities and similar investments of the Trust and of each Series in
custody meeting the requirements of Section 17(f) of the 1940 Act and the rules
thereunder. The Trustees, on behalf of the Trust or any Series, may enter into
an agreement with a custodian on terms and conditions acceptable to the
Trustees, providing for the custodian, among other things, to (a) hold the
securities owned by the Trust or any Series and deliver the same upon written
order or oral order confirmed in writing, (b) to receive and issue receipts for
any moneys due to the Trust or any Series and deposit the same in its own
banking department or elsewhere, (c) to disburse such funds upon orders or
vouchers, and (d) to employ one or more sub-custodians.
SECTION 5. PARTIES TO CONTRACTS WITH SERVICE PROVIDERS. The Trustees may
enter into any contract referred to in this Article with any entity, although
one more of the Trustees or officers of the Trust may be an officer, director,
trustee, partner, shareholder, or member of such entity, and no such contract
shall be invalidated or rendered void or voidable because of such relationship.
No person having such a relationship shall be disqualified from voting on or
executing a contract in his capacity as Trustee and/or Shareholder, or be liable
merely by reason of such relationship for any loss or expense to the Trust with
respect to such a contract or accountable for any profit realized directly or
indirectly therefrom; provided, that the contract was reasonable and fair and
not inconsistent with this Declaration of Trust or the By-laws.
Any contract referred to in Sections 1 and 2 of this Article shall be
consistent with and subject to the applicable requirements of Section 15 of the
1940 Act and the rules and orders thereunder with respect to its continuance in
effect, its termination, and the method of authorization and approval of such
contract or renewal. No amendment to a contract referred to in Section 1 of
this Article shall be effective unless assented to in a manner consistent with
the requirements of Section 15 of the 1940 Act, and the rules and orders
thereunder.
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES
Subject to Article IV, Section 4, the Trust or a particular Series shall
pay, or shall reimburse the Trustees from the assets belonging to all Series or
the particular Series, for their expenses (or the expenses of a Class of such
Series) and disbursements, including, but not limited to, interest charges,
taxes, brokerage fees and commissions; expenses of issue, repurchase and
redemption of Shares; certain insurance premiums; applicable fees, interest
charges and expenses of third parties, including the Trust's investment
advisers, managers, administrators, distributors, custodians, transfer agents
and fund accountants; fees of pricing, interest, dividend, credit and other
reporting services; costs of membership in trade associations;
telecommunications expenses; funds transmission expenses; auditing, legal and
compliance expenses; costs of forming the Trust and its Series and maintaining
its existence; costs of preparing and printing the prospectuses of the Trust and
each Series, statements of additional information and Shareholder reports and
delivering them to Shareholders; expenses of meetings of Shareholders and proxy
solicitations therefor; costs
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of maintaining books and accounts; costs of reproduction, stationery and
supplies; fees and expenses of the Trustees; compensation of the Trust's
officers and employees and costs of other personnel performing services for the
Trust or any Series; costs of Trustee meetings; Commission registration fees and
related expenses; state or foreign securities laws registration fees and related
expenses; and for such non-recurring items as may arise, including litigation to
which the Trust or a Series (or a Trustee or officer of the Trust acting as
such) is a party, and for all losses and liabilities by them incurred in
administering the Trust. The Trustees shall have a lien on the assets belonging
to the appropriate Series, or in the case of an expense allocable to more than
one Series, on the assets of each such Series, prior to any rights or interests
of the Shareholders thereto, for the reimbursement to them of such expenses,
disbursements, losses and liabilities.
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
SECTION 1. LIMITATION OF LIABILITY. All persons contracting with or
having any claim against the Trust or a particular Series shall look only to the
assets of all Series or such particular Series for payment under such contract
or claim; and neither the Trustees nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.
Every written instrument or obligation on behalf of the Trust or any Series
shall contain a statement to the foregoing effect, but the absence of such
statement shall not operate to make any Trustee or officer of the Trust liable
thereunder. Provided they have exercised reasonable care and have acted under
the reasonable belief that their actions are in the best interest of the Trust,
the Trustees and officers of the Trust shall not be responsible or liable for
any act or omission or for neglect or wrongdoing of them or any officer, agent,
employee, investment adviser or independent contractor of the Trust, but nothing
contained in this Declaration of Trust or in the Delaware Act shall protect any
Trustee or officer of the Trust against liability to the Trust or to
Shareholders to which he 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 office.
SECTION 2. INDEMNIFICATION. (a) Subject to the exceptions and limitations
contained in subsection (b) below:
(i) every person who is, or has been, a Trustee or an officer,
employee or agent of the Trust ("Covered Person") shall be indemnified
by the Trust or the appropriate Series to the fullest extent permitted
by law against liability and against all expenses reasonably incurred
or paid by him in connection with any claim, action, suit or
proceeding in which he becomes involved as a party or otherwise by
virtue of his being or having been a Covered Person and against
amounts paid or incurred by him in the settlement thereof;
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or proceedings
(civil, criminal or other, including appeals), actual or threatened,
and the words "liability" and "expenses" shall include, without
limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
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<PAGE> 17
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office, or (B) not to have acted in good faith in the
reasonable belief that his action was in the best interest of the
Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office; (A) by the court or
other body approving the settlement; (B) by at least a majority of
those Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion
of independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured against
by policies maintained by the Trust, shall be severable, shall not be exclusive
of or affect any other rights to which any Covered Person may now or hereafter
be entitled, and shall inure to the benefit of the heirs, executors and
administrators of a Covered Person.
(d) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior to
final disposition thereof upon receipt of an undertaking by or on behalf of such
Covered Person that such amount will be paid over by him to the Trust or
applicable Series if it is ultimately determined that he is not entitled to
indemnification under this Section; provided, however, that either (i) such
Covered Person shall have provided appropriate security for such undertaking,
(ii) the Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither Interested
Persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a full trial-type inquiry) that there is reason
to believe that such Covered Person will not be disqualified from
indemnification under this Section.
(e) Any repeal or modification of this Article IX by the Shareholders of
the Trust, or adoption or modification of any other provision of the Declaration
of Trust or By-laws inconsistent with this Article, shall be prospective only,
to the extent that such repeal, or modification would, if applied
retrospectively, adversely affect any limitation on the liability of any Covered
Person or indemnification available to any Covered Person with respect to any
act or omission which occurred prior to such repeal, modification or adoption.
Section 3. Indemnification of Shareholders. If any Shareholder or former
Shareholder of any Series shall be held personally liable solely by reason of
his being or having been a Shareholder and not because of his acts or omissions
or for some other reason, the Shareholder or former Shareholder (or his heirs,
executors, administrators or other legal representatives or in the case of any
entity, its general successor) shall be
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entitled out of the assets belonging to the applicable Series to be held
harmless from and indemnified against all loss and expense arising from such
liability. The Trust, on behalf of the affected Series, shall, upon request by
such Shareholder, assume the defense of any claim made against such Shareholder
for any act or obligation of the Series and satisfy any judgment thereon from
the assets of the Series.
ARTICLE X
MISCELLANEOUS
SECTION 1. TRUST NOT A PARTNERSHIP. This Declaration of Trust creates a
trust and not a partnership. No Trustee shall have any power to bind personally
either the Trust's officers or any Shareholder.
SECTION 2. TRUSTEE ACTION; EXPERT ADVICE; NO BOND OR SURETY. The exercise
by the Trustees of their powers and discretion hereunder in good faith and with
reasonable care under the circumstances then prevailing shall be binding upon
everyone interested. Subject to the provisions of Article IX, the Trustees
shall not be liable for errors of judgment or mistakes of fact or law. The
Trustees may take advice of counsel or other experts with respect to the meaning
and operation of this Declaration of Trust, and subject to the provisions of
Article IX, shall not be liable for any act or omission in accordance with such
advice or for failing to follow such advice. The Trustees shall not be required
to give any bond as such, nor any surety if a bond is obtained.
SECTION 3. RECORD DATES. The Trustees may fix in advance a date up to
ninety (90) days before the date of any Shareholders' meeting, or the date for
the payment of any dividends or other distributions, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of such dividend or other distribution, or to
receive any such allotment of rights, or to exercise such rights in respect of
any such change, conversion or exchange of Shares.
SECTION 4. TERMINATION OF THE TRUST. (a) This Trust shall have perpetual
existence. Subject to a Majority Shareholder Vote of the Trust or of each Series
to be affected, the Trustees may
(i) sell and convey all or substantially all of the assets of all
Series or any affected Series to another Series or to another entity
which is an open-end investment company as defined in the 1940 Act, or
is a series thereof, for adequate consideration, which may include the
assumption of all outstanding obligations, taxes and other
liabilities, accrued or contingent, of the Trust or any affected
Series, and which may include shares of or interests in such Series,
entity, or series thereof; or
(ii) at any time sell and convert into money all or substantially all
of the assets of all Series or any affected Series.
Upon making reasonable provision for the payment of all known liabilities of all
Series or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the
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Shareholders of all Series or any affected Series; however, the payment to any
particular Class of such Series may be reduced by any fees, expenses or charges
allocated to that Class.
(b) The Trustees may take any of the actions specified in subsection (a)
(i) and (ii) above without obtaining a Majority Shareholder Vote of the Trust or
any Series if a majority of the Trustees determines that the continuation of the
Trust or Series is not in the best interests of the Trust, such Series, or their
respective Shareholders as a result of factors or events adversely affecting the
ability of the Trust or such Series to conduct its business and operations in an
economically viable manner. Such factors and events may include the inability
of the Trust or a Series to maintain its assets at an appropriate size, changes
in laws or regulations governing the Trust or the Series or affecting assets of
the type in which the Trust or Series invests, or economic developments or
trends having a significant adverse impact on the business or operations of the
Trust or such Series.
(c) Upon completion of the distribution of the remaining proceeds or
assets pursuant to subsection (a), the Trust or affected Series shall terminate
and the Trustees and the Trust shall be discharged of any and all further
liabilities and duties hereunder with respect thereto and the right, title and
interest of all parties therein shall be canceled and discharged. Upon
termination of the Trust, following completion of winding up of its business,
the Trustees shall cause a certificate of cancellation of the Trust's
certificate of trust to be filed in accordance with the Delaware Act, which
certificate of cancellation may be signed by any one Trustee.
SECTION 5. REORGANIZATION. Notwithstanding anything else herein, to change
the Trust's form or place of organization the Trustees may, without Shareholder
approval, (a) cause the Trust to merge or consolidate with or into one or more
entities, if the surviving or resulting entity is the Trust or another open-end
management investment company under the 1940 Act, or a series thereof, that will
succeed to or assume the Trust's registration under the 1940 Act, or (b) cause
the Trust to incorporate under the laws of Delaware. Any agreement of merger or
consolidation or certificate of merger may be signed by a majority of Trustees
and facsimile signatures conveyed by electronic or telecommunication means shall
be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of the
Delaware Act, an agreement of merger or consolidation approved by the Trustees
in accordance with this Section 5 may effect any amendment to the Declaration of
Trust or effect the adoption of a new trust instrument of the Trust if it is the
surviving or resulting trust in the merger or consolidation.
SECTION 6. DECLARATION OF TRUST. The original or a copy of this
Declaration of Trust and of each amendment hereto or Declaration of Trust
supplemental shall be kept at the office of the Trust where it may be inspected
by any Shareholder. Anyone dealing with the Trust may rely on a certificate by
a Trustee or an officer of the Trust as to the authenticity of the Declaration
of Trust or any such amendments or supplements and as to any matters in
connection with the Trust. The masculine gender herein shall include the
feminine and neuter genders. Headings herein are for convenience only and shall
not affect the construction of this Declaration of Trust. This Declaration of
Trust may be executed in any number of counterparts, each of which shall be
deemed an original.
SECTION 7. APPLICABLE LAW. This Declaration of Trust and the Trust
created hereunder are governed by and construed and administered according to
the Delaware Act and the applicable laws of the State of Delaware; provided,
however, that there shall not be
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applicable to the Trust, the Trustees or this Declaration of Trust (a) the
provisions of Section 3540 of Title 12 of the Delaware Code, or (b) any
provisions of the laws (statutory or common) of the State of Delaware (other
than the Delaware Act) pertaining to trusts which relate to or regulate (i) the
filing with any court or governmental body or agency of trustee accounts or
schedules of trustee fees and charges, (ii) affirmative requirements to post
bonds for trustees, officers, agents or employees of a trust, (iii) the
necessity for obtaining court or other governmental approval concerning the
acquisition, holding or disposition of real or personal property, (iv) fees or
other sums payable to trustees, officers, agents or employees of a trust, (v)
the allocation of receipts and expenditures to income or principal, (vi)
restrictions or limitations on the permissible nature, amount or concentration
of trust investments or requirements relating to the titling, storage or other
manner of holding of trust assets, or (vii) the establishment of fiduciary or
other standards of responsibilities or limitations on the acts or powers of
trustees, which are inconsistent with the limitations or liabilities or
authorities and powers of the Trustees set forth or referenced in this
Declaration of Trust. The Trust shall be of the type commonly called a Delaware
business trust, and, without limiting the provisions hereof, the Trust may
exercise all powers which are ordinarily exercised by such a trust under
Delaware law. The Trust specifically reserves the right to exercise any of the
powers or privileges afforded to trusts or actions that may be engaged in by
trusts under the Delaware Act, and the absence of a specific reference herein to
any such power, privilege or action shall not imply that the Trust may not
exercise such power or privilege or take such actions.
SECTION 8. AMENDMENTS. The Trustees may, without any Shareholder vote,
amend or otherwise supplement this Declaration of Trust by making an amendment,
a Declaration of Trust supplemental hereto or an amended and restated trust
instrument; provided, that Shareholders shall have the right to vote on any
amendment (a) which would affect the voting rights of Shareholders granted in
Article VI, Section l, (b) to this Section 8, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s) filed with the
Commission, and (d) submitted to them by the Trustees in their discretion. Any
amendment submitted to Shareholders which the Trustees determine would affect
the Shareholders of any Series shall be authorized by vote of the Shareholders
of such Series and no vote shall be required of Shareholders of a Series not
affected. Notwithstanding anything else herein, any amendment to Article IX
which would have the effect of reducing the indemnification and other rights
provided thereby to Trustees, officers, employees, and agents of the Trust or to
Shareholders or former Shareholders, and any repeal or amendment of this
sentence shall each require the affirmative vote of the holders of two-thirds of
the Outstanding Shares of the Trust entitled to vote thereon.
SECTION 9. FISCAL YEAR. The fiscal year of the Trust shall end on a
specified date as set forth in the By-Laws. The Trustees may change the fiscal
year of the Trust without Shareholder approval.
SECTION 10. SEVERABILITY. The provisions of this Declaration of Trust are
severable. If the Trustees determine, with the advice of counsel, that any
provision hereof conflicts with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have constituted
a part of this Declaration of Trust; provided, however, that such determination
shall not affect any of the remaining provisions of this Declaration of Trust or
render invalid or improper any action taken or omitted prior to such
determination. If any provision hereof shall be held invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall attach only to
such provision only in such jurisdiction and shall not affect any other
provision of this Declaration of Trust.
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APPENDIX A
As of the date first above written, the Trustees have established the
following Series of the Trust:
HARBOR INTERNATIONAL FUND
HARBOR GROWTH FUND
HARBOR CAPITAL APPRECIATION FUND
HARBOR VALUE FUND
HARBOR BOND FUND
HARBOR SHORT DURATION FUND
HARBOR MONEY MARKET FUND
A-1
<PAGE> 22
IN WITNESS WHEREOF, the undersigned, being all the Trustees, have executed
this Declaration of Trust as of the date first above written.
/s/ Ronald C. Boller
------------------------------------
Ronald C. Boller, as Trustee and not
individually
/s/ Howard P. Colhoun
------------------------------------
Howard P. Colhoun, as Trustee and not
individually
/s/ Robert J. Kirk
------------------------------------
Robert J. Kirk, as Trustee and not
individually
/s/ Rodger F. Smith
------------------------------------
Rodger F. Smith, as Trustee and not
individually
<PAGE> 23
IN WITNESS WHEREOF, the undersigned, being the sole Trustee, has executed
this Declaration of Trust as of the date first above written.
/s/ Ronald C. Boller
------------------------------------
Ronald C. Boller, as Trustee and
not individually
<PAGE> 24
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF BUSINESS
TRUST PURSUANT TO
SECTION 3810(b)
OF
DELAWARE BUSINESS TRUST LAW
*********************
Harbor Fund, a business trust organized and existing under and by virtue of the
General Business Trust law of the State of Delaware.
DOES HEREBY CERTIFY:
First: That the Trustees of said Trust by the unanimous written consent of
its members, filed with the minutes of the Trustees adopted a resolution
proposing and declaring advisable the following amendment to the Certificate of
Trust:
RESOLVED, that the Certificate of Trust of Harbor Fund be amended by
changing the present registered agent and office of the Trust from RL & F with
present registered office on the county of New Castle to the following: that
the registered office of Harbor Fund in the State of Delaware be and it hereby
is changed to Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, and the authorization of the present
registered agent of this Trust be and the same is hereby withdrawn, and THE
CORPORATION TRUST COMPANY, shall be and is hereby constituted and appointed the
registered agent of this Trust at the address of its registered office.
IN WITNESS WHEREOF, Harbor Fund, has caused this statement to be signed by
Ronald C. Boller, a Trustee, this 29th day of July, 1994.
By /s/ Ronald C. Boller
------------------------------------
Ronald C. Boller, Trustee
<PAGE> 1
EXHIBIT 1(b)
HARBOR FUND
ESTABLISHMENT AND DESIGNATION OF SERIES
OF SHARES OF BENEFICIAL INTEREST
$.01 PAR VALUE
November 1, 1993
The undersigned, being a majority of the Trustees of Harbor
Fund, a Delaware business trust (the "Trust"), acting pursuant to
ARTICLE IV, Section 1 of the Trust's Agreement and Declaration of
Trust dated June 8, 1993 as amended from time to time (the
"Declaration of Trust"), hereby divide the shares of beneficial
interest of the Trust into eight separate series (each
individually a "Fund" or collectively the "Funds"), each Fund
hereby created having the following relative rights and
preferences.
1. The Funds shall be designated as follows:
Harbor International Growth Fund
Harbor International Fund
Harbor Growth Fund
Harbor Capital Appreciation Fund
Harbor Value Fund
Harbor Bond Fund
Harbor Short Duration Fund
Harbor Money Market Fund
2. Each Fund shall be authorized to hold cash and invest in
securities and instruments and use investment techniques as
described in the Trust's registration statement under the
Securities Act of 1933, as amended from time to time. Each
share of beneficial interest, $.01 par value, of each Fund ("Shares")
shall be redeemable as provided in the Declaration of Trust,
shall be entitled to one vote (or fraction thereof in
respect of a fractional share) on matters on which shares of
that Fund shall be entitled to vote and shall represent a
pro rata beneficial interest in the assets allocated to that
Fund. The proceeds of sales of shares of a Fund, together
with any income and gain thereon, less any diminution or
expenses thereof, shall irrevocably belong to that Fund,
unless otherwise required by law. Each share of a Fund
shall be entitled to receive its pro rata share of net
assets of that Fund upon liquidation of that Fund. Upon
redemption of shareholder's shares, or indemnification for
liabilities incurred by reason of a shareholder being or
having been a shareholder of a Fund, such shareholder shall
be paid solely out of the property of such Fund.
3. Shareholders of each Fund shall vote separately as a series
on any matter except, consistent with the Investment Company
Act of 1940, as amended (the "Act"), and the rules and the
Trust's registration statement thereunder, (i) the
election of Trustees, (ii) any amendment of the
Declaration of Trust, unless the amendment affects fewer
than all classes, in which case shareholders of the affected
classes shall vote separately, and (iii) ratification of
the selection of auditors. In each case of such separate
voting, the Trustees shall determine whether, for the matter
to effectively acted upon within the meaning of Rule 18f-2
under the Act or any successor rule as to a Fund, the
applicable percentage (as specified in the Declaration of
Trust, or the Act and the rules thereunder) of the shares of
that Fund alone must be voted in favor of the matter, or
whether the favorable vote of such applicable percentage of
the shares of each Fund entitled to vote on the matter is
required.
<PAGE> 2
4. The shares of the Trust outstanding on the date set forth in
the resolution of the Trustees establishing and designating
the series of the Trust shall remain classified as shares of
the Fund designated as 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.
5. The assets and liabilities of the Trust existing on the date
hereof shall, except as provided below, remain allocated
among the Funds designated as 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 and hereafter, the assets and
liabilities of the Trust shall be allocated among the Funds
designated in Paragraph 1 above, as set forth in ARTICLE IV,
Section 4 of the Declaration of Trust, except as provided
below:
(a) Cost incurred by the Trust on behalf of a Fund in
connection with the organization, registration and
public offering of shares of such Fund shall be
amortized for such Fund over the lesser of the life of
such Fund or the five year period beginning with the
month that such Fund commences or commended (as the
case may be) operations.
(b) The liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as
belonging to any particular Fund shall be allocated
among the Funds on the basis of their relative average
daily net assets except where allocations of direct
expenses can otherwise fairly be made.
(c) The Trustees may from time to time in particular cases
make specific allocations of assets or liabilities
among the Funds.
6. The Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate
assets and expenses or to change the designation of any Fund
now or hereafter created, or to otherwise change the
relative rights and preferences of any such Fund, provided
that such change shall not adversely affect the rights of
shareholders of a Fund.
Executed as of the date first noted above.
/s/ Ronald C. Boller
-------------------------------------
Ronald C. Boller
as Trustee and not individually
/s/ Howard P. Colhoun
-------------------------------------
Howard P. Colhoun
as Trustee and not individually
/s/ Robert J. Kirk
-------------------------------------
Robert J. Kirk
as Trustee and not individually
/s/ Rodger F. Smith
-------------------------------------
Rodger F. Smith
as Trustee and not individually
2
<PAGE> 1
EXHIBIT 1(c)
HARBOR FUND
ESTABLISHMENT AND DESIGNATION OF SERIES
OF SHARES OF BENEFICIAL INTEREST
$.01 PAR VALUE
June 1, 1996
The undersigned, being a majority of the Trustees of Harbor
Fund, a Delaware business trust (the "Trust"), acting pursuant to
ARTICLE IV, Section 1 of the Trust's Agreement and Declaration of
Trust dated June 8, 1993 as amended from time to time (the
"Declaration of Trust"), hereby divide the shares of beneficial
interest of the Trust into nine separate series (each
individually a "Fund" or collectively the "Funds"), each Fund
hereby created having the following relative rights and
preferences.
1. The Funds shall be designated as follows:
Harbor International Growth Fund
Harbor International Fund
Harbor International Fund II
Harbor Growth Fund
Harbor Capital Appreciation Fund
Harbor Value Fund
Harbor Bond Fund
Harbor Short Duration Fund
Harbor Money Market Fund
2. Each Fund shall be authorized to hold cash and invest in
securities and instruments and use investment techniques as
described in the Trust's registration statement under the
Securities Act of 1933, as amended from time to time. Each
share of beneficial interest, $.01 par value, of each Fund
shall be redeemable as provided in the Declaration of Trust,
shall be entitled to one vote (or fraction thereof in
respect of a fractional share) on matters on which shares of
that Fund shall be entitled to vote and shall represent a
pro rata beneficial interest in the assets allocated to that
Fund. The proceeds of sales of shares of a Fund, together
with any income and gain thereon, less any diminution or
expenses thereof, shall irrevocably belong to that Fund,
unless otherwise required by law. Each share of a Fund
shall be entitled to receive its pro rata share of net
assets of that Fund upon liquidation of that Fund. Upon
redemption of shareholder's shares, or indemnification for
liabilities incurred by reason of a shareholder being or
having been a shareholder of a Fund, such shareholder shall
be paid solely out of the property of such Fund.
3. Shareholders of each Fund shall vote separately as a series
on any matter except, consistent with the Investment Company
Act of 1940, as amended (the "Act"), and the rules and the
Trust's registration statement thereunder, (i) the
election of Trustees, (ii) any amendment of the
Declaration of Trust, unless the amendment affects fewer
than all series, in which case shareholders of the affected
series shall vote separately, and (iii) ratification of
the selection of auditors. In each case of such separate
voting, the Trustees shall determine whether, for the matter
to effectively acted upon within the meaning of Rule 18f-2
under the Act or any successor rule as to a Fund, the
applicable percentage (as specified in the Declaration of
Trust, or the Act and the rules thereunder) of the shares of
that Fund alone must be voted in favor of the matter, or
whether the favorable vote of such applicable percentage of
the shares of each Fund entitled to vote on the matter is
required.
<PAGE> 2
4. The shares of the Trust outstanding on the date set forth in
the resolution of the Trustees establishing and designating
the series of the Trust shall remain classified as shares of
the Fund designated as 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.
5. The assets and liabilities of the Trust existing on the date
hereof shall, except as provided below, remain allocated
among the Funds designated as 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 and hereafter, the assets and liabilities of the Trust
shall be allocated among the Funds designated in Paragraph 1
above, as set forth in ARTICLE IV, Section 4 of the
Declaration of Trust, except as provided below:
(a) Cost incurred by the Trust on behalf of a Fund in
connection with the organization, registration and
public offering of shares of such Fund shall be
amortized for such Fund over the lesser of the life of
such Fund or the five year period beginning with the
month that such Fund commences or commended (as the
case may be) operations.
(b) The liabilities, expenses, costs, charges or reserves
of the Trust which are not readily identifiable as
belonging to any particular Fund shall be allocated
among the Funds on the basis of their relative average
daily net assets except where allocations of direct
expenses can otherwise fairly be made.
(c) The Trustees may from time to time in particular cases
make specific allocations of assets or liabilities
among the Funds.
6. The Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate
assets and expenses or to change the designation of any Fund
now or hereafter created, or to otherwise change the
relative rights and preferences of any such Fund, provided
that such change shall not adversely affect the rights of
shareholders of a Fund.
Executed as of the date first noted above.
/s/ Ronald C. Boller
---------------------------------------
Ronald C. Boller
as Trustee and not individually
/s/ Howard P. Colhoun
---------------------------------------
Howard P. Colhoun
as Trustee and not individually
/s/ John P. Gould
---------------------------------------
John P. Gould
as Trustee and not individually
/s/ Rodger F. Smith
---------------------------------------
Rodger F. Smith
as Trustee and not individually
2
<PAGE> 1
EXHIBIT 2
BY-LAWS
for the regulation, except as
otherwise provided by statute or
the Agreement and Declaration of Trust, of
HARBOR FUND
a Delaware Business Trust
<PAGE> 2
TABLE OF CONTENTS
BY-LAWS
HARBOR FUND
<TABLE>
<S> <C> <C>
ARTICLE I Definitions .................................. 1
ARTICLE II Offices ...................................... 1
1. Principal Office 1
2. Other Offices ................................ 1
3. Registered Office and Registered Agent ....... 1
ARTICLE III Shareholders ................................. 1
1. Meetings ..................................... 1
2. Notice of Meetings ........................... 1
3. Record Date for Meetings and Other Purposes .. 2
4. Proxies ...................................... 2
5. Abstentions and Broker Non-Votes ............. 2
6. Inspection of Records ........................ 2
7. Action without Meeting ....................... 3
ARTICLE IV Trustees ..................................... 3
1. Meetings of the Trustees ..................... 3
2. Quorum and Manner of Acting .................. 3
ARTICLE V Committees ............................... 3
1. Executive and Other Committees ............... 3
2. Meetings, Quorum and Manner of Acting ........ 4
ARTICLE VI Officers ..................................... 4
1. General Provisions ........................... 4
2. Term of Office and Qualifications ............ 4
3. Removal ...................................... 4
4. Powers and Duties of the Chairman ............ 5
5. Powers and Duties of the President ........... 5
6. Powers and Duties of Vice Presidents ......... 5
7. Powers and Duties of the Treasurer ........... 5
8. Powers and Duties of the Secretary ........... 5
9. Powers and Duties of Assistant Officers ...... 5
10. Powers and Duties of Assistant Secretaries ... 6
11. Compensation of Officers and Trustees and
Members of the Advisory Board ................ 6
ARTICLE VII Fiscal Year ................................. 6
</TABLE>
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<PAGE> 3
ARTICLE VIII Seal ........................................ 6
ARTICLE IX Sufficiency of Waivers of Notice ............ 6
ARTICLE X Custody of Securities ....................... 6
1. Employment of a Custodian .................... 6
2. Action Upon Termination of
Custodian Agreement........................... 7
3. Provisions of Custodian Contract ............. 7
4. Central Certificate System ................... 8
5. Acceptance of Receipts in
Lieu of Certificates.......................... 8
ARTICLE XI Amendments ................................... 8
ARTICLE XII Miscellaneous ................................ 8
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<PAGE> 4
BY-LAWS
OF
HARBOR FUND
ARTICLE I
DEFINITIONS
All capitalized terms have the respective meanings given them in the
Declaration of Trust of Harbor Fund dated June 8, 1993, as amended or restated
from time to time.
ARTICLE II
OFFICES
SECTION 1. PRINCIPAL OFFICE. Until changed by the Trustees, the
principal office of the Trust shall be in Toledo, Ohio.
SECTION 2. OTHER OFFICES. The Trust may have offices in such other places
without as well as within the State of Delaware as the Trustees may from time
to time determine.
SECTION 3. REGISTERED OFFICE AND REGISTERED AGENT. The Board of Trustees
shall establish a registered office in the State of Delaware and shall appoint
as the Trust's registered agent for service of process in the State of Delaware
an individual resident of the State of Delaware or a Delaware corporation or a
corporation authorized to transact business in the State of Delaware; in each
case the business office of such registered agent for service of process shall
be identical with the registered Delaware office of the Trust.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the Shareholders of the Trust or a
Series or Class thereof shall be held as provided in the Declaration of Trust
at such place within or without the State of Delaware as the Trustees shall
designate. The holders of one-third of the Outstanding Shares of the Trust or
a Series or Class thereof present in person or by proxy and entitled to vote
shall constitute a quorum at any meeting of the Shareholders of the Trust or a
Series or Class thereof.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall be
given by the Trustees by mail or telegraphic or electronic means to each
Shareholder at his address as recorded on the register of the Trust mailed at
least (10) days and not more than ninety (90) days before the meeting,
provided, however, that notice of a meeting need not be given to a Shareholder
to whom such notice need not be given under the proxy rules of the Commission
under the 1940 Act and the Securities Exchange Act of 1934, as amended. Only
the business stated in the notice of the meeting shall be considered at
such meeting. Any adjourned meeting may be held as adjourned without further
notice. No notice need be given to any Shareholder who shall have failed to
inform the Trust of his current address or if a written waiver of
<PAGE> 5
notice, executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS AND OTHER PURPOSES. For the purpose
of determining the Shareholders who are entitled to notice of and to vote at
any meeting, or to participate in any distribution, or for the purpose of any
other action, the Trustees may from time to time close the transfer books for
such period, not exceeding thirty (30) days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more than
ninety (90) days prior to the date of any meeting of Shareholders or
distribution or other action as a record date for the determination of the
persons to be treated as Shareholders of record for such purposes, except for
dividend payments which shall be governed by the Declaration of Trust.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of Shares
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary
may direct, for verification prior to the time at which such vote shall be
taken. A proxy shall be deemed signed if the shareholder's name is placed on
the proxy (whether by manual signature, typewriting, telegraphic transmission,
facsimile, other electronic means or otherwise) by the shareholder or the
shareholder's attorney-in-fact. Proxies may be given by any electronic or
telecommunication device except as otherwise provided in the Declaration of
Trust. Proxies may be solicited in the name of one or more Trustees or one or
more of the officers of the Trust. Only Shareholders of record shall be
entitled to vote. Each whole share shall be entitled to one vote as to any
matter on which it is entitled by the Declaration of Trust to vote and
fractional shares shall be entitled to a proportionate fractional vote. When
any Share is held jointly by several persons, any one of them may vote at any
meeting in person or by proxy in respect of such Share, but if more than one of
them shall be present at such meeting in person or by proxy, and such joint
owners or their proxies so present disagree as to any vote to be cast, such
vote shall not be received in respect of such Share. A proxy purporting to be
executed by or on behalf of a Shareholder shall be deemed valid unless
challenged at or prior to its exercise, and the burden of proving invalidity
shall rest on the challenger. If the holder of any such share is a minor or a
person of unsound mind, and subject to guardianship or the legal control of any
other person as regards the charge or management of such Share, he may vote by
his guardian or such other person appointed or having such control, and such
vote may be given in person or by proxy.
SECTION 5. ABSTENTIONS AND BROKER NON-VOTES. Outstanding Shares
represented in person or by proxy (including Shares which abstain or do not
vote with respect to one or more of any proposals presented for Shareholder
approval) will be counted for purposes of determining whether a quorum is
present at a meeting. Abstentions will be treated as Shares that are present
and entitled to vote for purposes of determining the number of Shares that are
present and entitled to vote with respect to any particular proposal, but will
not be counted as a vote in favor of such proposal. If a broker or nominee
holding Shares in "street name" indicates on the proxy that it does not have
discretionary authority to vote as to a particular proposal, those Shares will
not be considered as present and entitled to vote with respect to such
proposal.
SECTION 6. INSPECTION OF RECORDS. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted shareholders
of a Delaware business corporation.
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<PAGE> 6
SECTION 7. ACTION WITHOUT MEETING. Any action which may be taken by
Shareholders may be taken without a meeting if a majority of Outstanding Shares
entitled to vote on the matter (or such larger proportion thereof as shall be
required by law) consent to the action in writing and the written consents are
filed with the records of the meetings of Shareholders. Such consents shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their discretion
provide for regular or stated meetings of the Trustees. Notice of regular or
stated meetings need not be given. Meetings of the Trustees other than regular
or stated meetings shall be held whenever called by the President, the Chairman
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be given by telephone, cable, wireless, facsimile or other
electronic mechanism to each Trustee at his business address, or personally
delivered to him at least one day before the meeting. Such notice may,
however, be waived by any Trustee. Notice of a meeting need not be given to
any Trustee if a written waiver of notice, executed by him before or after the
meeting, is filed with the records of the meeting, or to any Trustee who
attends the meeting without protesting prior thereto or at its commencement the
lack of notice to him. A notice or waiver of notice need not specify the
purpose of any meeting. The Trustees may meet by means of a telephone
conference circuit or similar communications equipment by means of which all
persons participating in the meeting can hear each other at the same time and
participation by such means shall be deemed to have been held at a place
designated by the Trustees at the meeting. Participation in a telephone
conference meeting shall constitute presence in person at such meeting. Any
action required or permitted to be taken at any meeting of the Trustees may be
taken by the Trustees without a meeting if a majority of the Trustees consent
to the action in writing and the written consents are filed with the records of
the Trustees' meetings. Such consents shall be treated as a vote for all
purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees shall
be present in person at any regular or special meeting of the Trustees in order
to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration of Trust or these
By-laws) the act of a majority of the Trustees present at any such meeting, at
which a quorum is present, shall be the act of the Trustees. In the absence of
a quorum, a majority of the Trustees present may adjourn the meeting from time
to time until a quorum shall be present. Notice of an adjourned meeting need
not be given.
ARTICLE V
COMMITTEES
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) members to hold office at the
pleasure of the Trustees, which shall have
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<PAGE> 7
the power to conduct the current and ordinary business of the Trust while the
Trustees are not in session, including the purchase and sale of securities and
the designation of securities to be delivered upon redemption of Shares of the
Trust or a Series thereof, and such other powers of the Trustees as the
Trustees may, from time to time, delegate to them except those powers which by
law, the Declaration of Trust or these By-laws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time; the number composing such Committees, the powers conferred
upon the same (subject to the same limitations as with respect to the Executive
Committee) and the term of membership on such Committees to be determined by
the Trustees. The Trustees may designate a chairman of any such Committee. In
the absence of such designation the Committee may elect its own Chairman.
SECTION 2. MEETINGS, QUORUM AND MANNER OF ACTING. The Trustees may (1)
provide for stated meetings of any Committee, (2) specify the manner of calling
and notice required for special meetings of any Committee, (3) specify the
number of members of a Committee required to constitute a quorum and the number
of members of a Committee required to exercise specified powers delegated to
such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by
means of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the Trust shall be a
President, a Treasurer and a Secretary, who shall be elected by the Trustees.
The Trustees may elect or appoint such other officers or agents as the business
of the Trust may require, including one or more Vice Presidents, one or more
Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may
delegate to any officer or committee the power to appoint any subordinate
officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as otherwise
provided by law, the Declaration of Trust or these By-laws, the President, the
Treasurer, the Secretary and any other officer shall each hold office at the
pleasure of the Board of Trustees or until his successor shall have been duly
elected and qualified. The Secretary and the Treasurer may be the same person.
A Vice President and the Treasurer or a Vice President and the Secretary may
be the same person, but the offices of Vice President, Secretary and Treasurer
shall not be held by the same person. The President shall hold no other
office. Except as above provided, any two offices may be held by the same
person. Any officer may be but none need be a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer with or without cause, by a vote of a
majority of the Trustees then in office. Any officer or agent appointed by an
officer or committee may be removed with or without cause by such appointing
officer or committee.
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<PAGE> 8
SECTION 4. POWERS AND DUTIES OF THE CHAIRMAN. The Trustees may, but need
not, appoint from among their number a Chairman. When present he shall preside
at the meetings of the Shareholders and of the Trustees. He may call meetings
of the Trustees and of any committee thereof whenever he deems it necessary.
He shall be an executive officer of the Trust and shall have, with the
President, general supervision over the business and policies of the Trust,
subject to the limitations imposed upon the President, as provided in Section 5
of this Article VI.
SECTION 5. POWERS AND DUTIES OF THE PRESIDENT. The President may call
meetings of the Trustees and of any Committee thereof when he deems it
necessary and shall preside at all meetings of the Shareholders. Subject to
the control of the Trustees and to the control of any Committees of the
Trustees, within their respective spheres, as provided by the Trustees, he
shall at all times exercise a general supervision and direction over the
affairs of the Trust. He shall have the power to employ attorneys and counsel
for the Trust or any Series or Class thereof and to employ such subordinate
officers, agents, clerks and employees as he may find necessary to transact the
business of the Trust or any Series or Class thereof. He shall also have the
power to grant, issue, execute or sign such powers of attorney, proxies or
other documents as may be deemed advisable or necessary in furtherance of the
interests of the Trust or any Series thereof. The President shall have such
other powers and duties, as from time to time may be conferred upon or assigned
to him by the Trustees.
SECTION 6. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, the Vice President or, if there be more than one
Vice President, any Vice President designated by the Trustees, shall perform
all the duties and may exercise any of the powers of the President, subject to
the control of the Trustees. Each Vice President shall perform such other
duties as may be assigned to him from time to time by the Trustees and the
President.
SECTION 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. He shall deliver
all funds of the Trust or any Series or Class thereof which may come into his
hands to such Custodian as the Trustees may employ pursuant to Article X of
these By-laws. He shall render a statement of condition of the finances of the
Trust or any Series or Class thereof to the Trustees as often as they shall
require the same and he shall in general perform all the duties incident to the
office of a Treasurer and such other duties as from time to time may be
assigned to him by the Trustees. The Treasurer shall give a bond for the
faithful discharge of his duties, if required so to do by the Trustees, in such
sum and with such surety or sureties as the Trustees shall require.
SECTION 8. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep
the minutes of all meetings of the Trustees and of the Shareholders in proper
books provided for that purpose; he shall have custody of the seal of the
Trust; he shall have charge of the Share transfer books, lists and records
unless the same are in the charge of a transfer agent. He shall attend to the
giving and serving of all notices by the Trust in accordance with the
provisions of these By-laws and as required by law; and subject
to these By-laws, he shall in general perform all duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Trustees.
SECTION 9. POWERS AND DUTIES OF ASSISTANT OFFICERS. In the absence or
disability of the Treasurer, any officer designated by the Trustees shall
perform all the duties, and may exercise any of the powers, of the Treasurer.
Each officer shall perform such other duties as from time to time may be
assigned to him by the Trustees. Each officer performing the duties and
exercising the powers of the Treasurer, if any, and any Assistant Treasurer,
shall
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<PAGE> 9
give a bond for the faithful discharge of his duties, if required so to do by
the Trustees, in such sum and with such surety or sureties as the Trustees
shall require.
SECTION 10. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as
from time to time may be assigned to him by the Trustees.
SECTION 11. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable provisions of the Declaration of
Trust, the compensation of the officers and Trustees and members of an advisory
board shall be fixed from time to time by the Trustees or, in the case of
officers, by any Committee or officer upon whom such power may be conferred by
the Trustees. No officer shall be prevented from receiving such compensation
as such officer by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Trust shall begin on the first day of November in
each year and shall end on the last day of October in each year, provided,
however, that the Trustees may from time to time change the fiscal year. The
taxable year of each Series of the Trust shall be as determined by the Trustees
from time to time.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall have
such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE IX
SUFFICIENCY AND WAIVERS OF NOTICE
Whenever any notice whatever is required to be given by law, the
Declaration of Trust or these By-laws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. A notice shall be deemed
to have been sent by mail, telegraph, cable, wireless, facsimile or other
electronic means for the purposes of these By-laws when it has been delivered
to a representative of any company holding itself out as capable of sending
notice by such means with instructions that it be so sent.
ARTICLE X
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall place and at all
times maintain in the custody of one or more Custodians (including any
sub-custodian for the
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<PAGE> 10
Custodian) all funds, securities and similar investments included in the Trust
Property or the Trust Property allocated or belonging to a Series
thereof. The Custodian (and any sub-custodian) shall be a bank having not less
than $2,000,000 aggregate capital, surplus and undivided profits and shall be
appointed from time to time by the Trustees, who shall fix its remuneration.
SECTION 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor custodian, but in the
event that no successor custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders of the Trust or a Series thereof
to determine whether the Trust or Series thereof shall function without a
custodian or shall be liquidated. If so directed by vote of the holders of a
majority of the outstanding voting securities, the Custodian shall deliver and
pay over all Trust Property or the Trust Property allocated or belonging to a
Series thereof held by it as specified in such vote.
SECTION 3. PROVISIONS OF CUSTODIAN CONTRACT. The following provisions
shall apply to the employment of a Custodian and to any contract entered into
with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all
securities included in the Trust Property or the Trust Property
allocated or belonging to a Series thereof or to which the Trust
or such Series may become entitled, and shall order the same to be
delivered by the Custodian only in completion of a sale, exchange,
transfer, pledge, loan of securities to another person, or other
disposition thereof, all as the Trustees may generally or from
time to time require or approve or to a successor Custodian; and
the Trustees shall cause all funds included in the Trust Property
or the Trust Property allocated or belonging to a Series thereof
or to which it may become entitled to be paid to the Custodian,
and shall order the same disbursed only for investment against
delivery of the securities acquired, or the return of cash held as
collateral for loans of fund securities, or in payment of
expenses, including management compensation, and liabilities of
the Trust or Series or a Class thereof, including distributions to
Shareholders, or for other proper Trust purposes, or to a
successor Custodian. Notwithstanding anything to the contrary in
these By-laws, upon receipt of proper instructions, which may be
standing instructions, the Custodian may deliver funds in the
following cases: In connection with repurchase agreements, the
Custodian shall transmit, prior to receipt on behalf of the Trust
or Series thereof of any securities or other property, funds from
the custodian account of the Trust or Series thereof to a special
custodian approved by the Trustees of the Trust, which funds shall be
used to pay for securities to be purchased by the Trust or Series thereof
subject to the obligation of the Trust or Series thereof to sell and the
seller's obligation to repurchase such securities. In such case, the
securities shall be held in the custody of the special custodian. In
connection with the purchase or sale of financial futures contracts, the
Custodian shall transmit, prior to receipt on behalf of the Trust of any
securities or other property, funds from the custodian account of the
Trust or Series thereof in order to furnish to and maintain funds with
brokers as margin to guarantee the performance of the futures obligations
of the Trust or Series thereof in accordance with the applicable
requirements of commodities exchanges and brokers.
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<PAGE> 11
SECTION 4. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust or
Series thereof in a system for the central handling of securities established
by a national securities exchange or a national securities association
registered with the Commission under the Securities Exchange Act of 1934, or
such other person as may be permitted by the Commission, or otherwise in
accordance with the 1940 Act, pursuant to which system all securities of any
particular class or series of any issuer deposited within the system are
treated as fungible and may be transferred or pledged by bookkeeping entry
without physical delivery of such securities, provided that all such deposits
shall be subject to withdrawal only upon the order of the Trust or Series
thereof.
SECTION 5. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees
may direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-laws, or any of them, may be altered, amended or repealed, or new
By-laws may be adopted by (a) vote of a majority of the Outstanding Shares
voting in person or by proxy at a meeting of Shareholders and entitled to vote
or (b) by the Trustees, provided, however, that no By-law may be amended,
adopted or repealed by the Trustees if such amendment, adoption or repeal
requires, pursuant to law, the Declaration of Trust or these By-laws, a vote of
the Shareholders.
ARTICLE XII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of the Trust and
no partner, officer, director or shareholder of the Investment Adviser of the
Trust (as that term is defined in the Investment Company Act of 1940) or of the
underwriter of the Trust, and no investment adviser or underwriter of the
Trust, shall take long or short positions in the securities issued by the Trust
or any Series thereof.
(1) The foregoing provisions shall not prevent the underwriter from
purchasing Shares from the Trust or any Series if such purchases are
limited (except for reasonable allowances for clerical errors, delays and
errors of transmission and cancellation of orders) to purchase for the
purpose of filling orders for such Shares received by the underwriter,
and provided that orders to purchase from the Trust or any Series thereof
are entered with the Trust or any Series thereof or the Custodian
promptly upon receipt by the underwriter of purchase orders for such
Shares, unless the underwriter is otherwise instructed by its customer.
-8-
<PAGE> 12
(2) The foregoing provision shall not prevent the underwriter from
purchasing Shares of the Trust or any Series thereof as agent for the
account of the Trust or any Series thereof.
(3) The foregoing provisions shall not prevent the purchase from the
Trust or any Series thereof or from the underwriter of Shares issued by
the Trust or any Series thereof, by any officer, or Trustee of the Trust
or any Series thereof or by any partner, officer, director or shareholder
of the Investment Adviser of the Trust or any Series thereof or of the
underwriter of the Trust at the price available to the public generally
at the moment of such purchase, or as described in the then currently
effective Prospectus of the Trust.
(4) The foregoing shall not prevent the investment adviser, or any
affiliate thereof, of the Trust or any Series thereof from purchasing
Shares prior to the effectiveness of the first registration statement
relating to the Shares under the Securities Act of 1933.
(B) Neither the Trust nor any Series thereof shall lend assets of the
Trust or of such Series to any officer or Trustee of the Trust or Series, or to
any partner, officer, director or shareholder of, or person financially
interested in, the investment adviser of the Trust or Series or the underwriter
of the Trust.
(C) The Trust shall not impose any restrictions upon the transfer of the
Shares of the Trust or any Series thereof except as provided in the Declaration
of Trust or as may be required to comply with federal or state securities laws,
but this requirement shall not prevent the charging of customary transfer agent
fees.
(D) The Trust shall not permit any officer or Trustee of the Trust, or any
partner, officer or director of the investment adviser of the Trust or any
Series thereof or underwriter of the Trust to deal for or on behalf of the
Trust or a Series thereof with himself as principal or agent, or with any
partnership, association or corporation in which he has a financial interest;
provided that the foregoing provisions shall not prevent (a) officers and
Trustees of the Trust or partners, officers or directors of the investment
adviser of the Trust or any Series thereof or underwriter of the Trust from
buying, holding or selling shares in the Trust or a Series thereof, or from
being partners, officers or directors or otherwise financially interested in
the investment adviser of the Trust or any Series thereof or any underwriter of
the Trust; (b) purchases or sales of securities or other property by the Trust
or a Series thereof from or to an affiliated person or to the investment
adviser of the Trust or any Series thereof or underwriter of the Trust if such
transaction is not prohibited by or is exempt from the applicable provisions of
the 1940 Act; (c) purchases of investments by the Series of the Trust or sales
of investments owned by the Trust or a Series thereof through a security dealer
who is, or one or more of whose partners, shareholders, officers or directors
is, an officer or Trustee of the Trust, or a partner, officer or director of
the investment adviser of the Trust or any Series thereof or underwriter of the
Trust, if such transactions are handled in the capacity of broker only and
commissions charged do not exceed customary brokerage charges for such
services; (d) employment of legal counsel, registrar, Transfer Agent, dividend
disbursing agent or Custodian who is, or has a partner, shareholder, officer,
or director who is, an officer or Trustee of the Trust, or a partner, officer
or director of the investment adviser of the Trust or any Series thereof or
underwriter of the Trust, if only customary fees are charged for services to
the Trust or Series thereof; (e) sharing statistical research, legal and
management expenses and office hire and expenses with any other investment
company in which an officer or Trustee of the Trust, or a partner, officer or
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<PAGE> 13
director of the investment adviser of the Trust or a Series thereof or
underwriter of the Trust, is an officer or director or otherwise financially
interested.
END OF BY-LAWS
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<PAGE> 1
EXHIBIT 5(a)
November 1,1993
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, Ohio 43666
INVESTMENT ADVISORY AGREEMENT
(HARBOR INTERNATIONAL GROWTH FUND)
-------------------------------------------------
Dear Sirs:
Harbor 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
Harbor International Growth Fund (the "Fund"), as established pursuant to a
written instrument executed by the Trustees of the Trust. Series may be
terminated, and additional series established, from time to time by action of
the Trustees. The Trust on behalf of the Fund has selected you to act as the
investment adviser of the Fund and to provide certain other services, as more
fully set forth below, and you are willing to act as such investment adviser
and to perform such services under the terms and conditions hereinafter set
forth. Accordingly, the Trust agrees with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Trust has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, filed with the Delaware Secretary
of the State, dated June 8, 1993, as amended from time to time (the
"Declaration of Trust").
(b) Establishment and Designation of Series of shares of Beneficial
Interest, $.01 par value per share, establishing the fund.
(c) By-Laws of the Trust as in effect on the date hereof.
(d) Resolutions of the Trustees selecting you as investment adviser and
approving the form of this Agreement.
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
The Trust 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 (d) above.
2. NAME OF FUND: The Trust may use the name "Harbor Fund" or any name derived
from the name "Harbor Capital Advisors" in connection with the Fund only
for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization
which shall have succeeded to your business as investment adviser. At such
time as such an agreement shall no longer be in effect, the Trust (to the
extent that it lawfully can) will cause the Fund to cease to use such a
name or any other name indicating that it is advised by or otherwise
connected with you or any organization which shall have so succeeded to
your business.
3. SUBADVISERS: You may engage one or more investment advisers which are
either registered as such or specifically exempt from registration under
the Investment Company Act of 1940, as amended, to act as subadvisers to
provide with respect to the Fund certain services set forth in Paragraphs 4
and 7 hereof, all as shall be set forth in a written contract to which the
Trust, on behalf of the Fund, and you shall be parties, which contract
shall be subject to approval by the vote of a majority of the Trustees who
are not interested persons of you, the subadviser, or of the Trust, cast in
person at a meeting called for the purpose of voting on such approval and
by the vote of a majority of the outstanding voting securities of the Fund
and otherwise consistent with the terms of the Investment Company Act of
1940, as amended.
4. ADVISORY SERVICES: You will regularly 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. You will determine what securities shall be
purchased for the Fund, what securities shall be held or sold by the Fund,
and what portion of the Fund's assets shall be held uninvested, subject
always to the provisions of the Trust's Declaration of Trust and By-Laws
and of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further to such
policies and instructions as the Board of Trustees may from time to time
establish. You shall advise and assist the officers of the Trust in taking
such steps as are necessary or appropriate to carry out the decisions of
the Board of Trustees and the appropriate committees of the Board of
Trustees regarding the conduct of the business of the Trust insofar as it
relates to the Fund.
5. ALLOCATION OF CHARGES AND EXPENSES: You will pay the compensation and
expenses of all officers and executive employees of the Trust and will make
available, without expense to the Trust, the services of such of your
partners and employees as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You will pay the Trust's office rent and will provide
2
<PAGE> 3
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. You will
not be required to pay any expenses of the Trust other than those
specifically allocated to you in this paragraph 5. In particular, but
without limiting the generality of the foregoing, you will not be required
to pay: organization expenses of the Trust; clerical salaries; fees and
expenses incurred by the Trust in connection with membership in investment
company organizations; brokers' commissions; payment for portfolio pricing
services to a pricing agent, if any; legal, auditing or accounting
expenses; taxes or governmental fees; the fees and expenses of the transfer
agent of the Trust; the cost of preparing share certificates or any other
expenses, including clerical expenses of issue, redemption or repurchase of
shares of beneficial interest of the Trust; the expenses of and fees for
registering or qualifying securities for sale and of maintaining the
registration of the Trust and registering the Trust as a broker or a
dealer; the fees and expenses of Trustees of the Trust who are not
affiliated with you; the cost of preparing and distributing reports and
notices to shareholders; the fees or disbursements of custodians of the
Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; or litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business. You shall not be required
to pay expenses of activities which are primarily intended to result in
sales of Shares of the Trust if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Trust's Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan
in conformity with Rule 12b-1 under the Investment Company Act of 1940, as
amended, providing that the Trust (or some other party) shall assume some
or all of such expenses. You shall be required to pay such of the
foregoing expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to
be paid by the Trust (or some other party) pursuant to such a plan.
6. COMPENSATION OF THE ADVISER:
(a) For all services to be rendered and payments made as provided in
paragraphs 4 and 5 hereof, the Trust on behalf of the Fund will pay
you on the last day of each month a fee equal to the sum of .75% per
annum of the average daily net assets, as defined below, of the Fund.
The "average daily net assets" of the Fund are defined as the average
of the values placed on the net assets as of 4:00 P.M. (New York
time), on each day on which the net asset value of the Fund's
portfolio is determined consistent with the provisions of Rule 22c-1
under the Investment Company Act of 1940 or, if the Fund lawfully
determines the value of the net assets of its portfolio as of some
other time on each business day, as of such time. The value net
assets of the Fund shall be determined pursuant to the applicable
provisions of the Declaration of Trust of the Trust. If, pursuant to
such
3
<PAGE> 4
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
provisions, the determination of net asset value is suspended for any
particular business day, then for the purposes of this paragraph 6,
the value of the net assets of the Fund as last determined shall be
deemed to be the value of the net assets as of the close of the New
York Stock Exchange, or as of such other time as the value of the net
assets of the Fund's portfolio may lawfully be determined, on that
day. If the determination of the net asset value of the Shares of the
Fund has been suspended pursuant to the Declaration of Trust of the
Trust for a period including such month, your compensation payable at
the end of such month shall be computed on the basis of the value of
the net assets of the Fund as last determined (whether during or prior
to such month). If the Fund determines the value of the net assets of
its 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 6.
(b) You agree that your compensation for any month shall include, and thus
be reduced by, the amount, if any, which you pay to any subadviser
engaged pursuant to Paragraph 3 hereof. You agree that the Trust on
behalf of the Fund shall not be required to pay any fee to any such
subadviser.
7. AVOIDANCE OF INCONSISTENT POSITION: In connection with purchases or sales
of portfolio securities for the account of the Fund, neither you nor any of
your partners, directors, officers or employees nor any subadviser engaged
by you pursuant to paragraph 3 hereof will act as a principal or agent or
receive any commission. You or your agent shall arrange for the placing of
all orders for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers selected by you. In the selection of such
brokers or dealers and the placing of such orders, you are directed at all
times to seek for the Fund the most favorable execution and net price
available. It is also understood that it is desirable for the Fund that
you have access to supplemental investment and market research and security
and economic analyses provided by certain brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers on the basis of seeking the most favorable price
and efficient execution. Therefore, you are authorized to place orders for
the purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Trust's 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.
4
<PAGE> 5
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
8. LIMITATION OF LIABILITY OF ADVISER: You shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless disregard by you 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
Trust or the Fund shall be deemed, when acting within the scope of his
employment solely for the Trust and not as your employee or agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall remain in
force until March 17, 1995 and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually by the
vote of a majority of the Trustees who are not interested persons of you or
of 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 of 1940 and the rules and regulations thereunder. This
Agreement may, on 60 days written notice, be terminated at any time without
the payment of any penalty, by the Board of Trustees, by vote of a majority
of the outstanding voting securities of the Fund, or by you. This
Agreement shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the Investment Company Act of 1940 (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, regulation or order.
10. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no 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 you or of the Trust, cast in person at a meeting called for the
purpose of voting on such approval.
11. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. 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 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
5
<PAGE> 6
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
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.
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust. No series of the Trust shall be liable for any claims
against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
-------------------------------------
Title: President
The foregoing Agreement is hereby accepted as of the date thereof.
Harbor Capital Advisors, Inc.
By_/s/ Constance L. Souders___
Title: Senior Vice President
6
<PAGE> 1
EXHIBIT 5(b)
June 25, 1993
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, Ohio 43666
INVESTMENT ADVISORY AGREEMENT
(HARBOR GROWTH FUND)
------------------------------------
Dear Sirs:
Harbor 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
Harbor Growth Fund (the "Fund"), as established pursuant to a written
instrument executed by the Trustees of the Trust. Series may be terminated,
and additional series established, from time to time by action of the Trustees.
The Trust on behalf of the Fund has selected you to act as the investment
adviser of the Fund and to provide certain other services, as more fully set
forth below, and you are willing to act as such investment adviser and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust agrees with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Trust has furnished you
with copies properly certified or authenticated of each of
the following:
(a) Declaration of Trust of the Trust, filed with the Delaware
Secretary of the State, dated June 8, 1993, as amended from time to
time (the "Declaration of Trust").
(b) By-Laws of the Trust as in effect on the date hereof.
(c) Resolutions of the Trustees selecting you as investment adviser
and approving the form of this Agreement.
The Trust 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.
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
2. NAME OF FUND: The Trust may use the name "Harbor Fund" or any name
derived from the name "Harbor Capital Advisors" in connection with the
Fund only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with
any organization which shall have succeeded to your business as investment
adviser. At such time as such an agreement shall no longer be in effect,
the Trust (to the extent that it lawfully can) will cause the Fund to
cease to use such a name or any other name indicating that it is advised
by or otherwise connected with you or any organization which shall have so
succeeded to your business.
3. SUBADVISERS: You may engage one or more investment advisers which are
either registered as such or specifically exempt from registration under
the Investment Company Act of 1940, as amended, to act as subadvisers to
provide with respect to the Fund certain services set forth in Paragraphs
4 and 7 hereof, all as shall be set forth in a written contract to which
the Trust, on behalf of the Fund, and you shall be parties, which contract
shall be subject to approval by the vote of a majority of the Trustees who
are not interested persons of you, the subadviser, or of the Trust, cast
in person at a meeting called for the purpose of voting on such approval
and by the vote of a majority of the outstanding voting securities of the
Fund and otherwise consistent with the terms of the Investment Company Act
of 1940, as amended.
4. ADVISORY SERVICES: You will regularly 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. You will determine what securities shall be
purchased for the Fund, what securities shall be held or sold by the Fund,
and what portion of the Fund's assets shall be held uninvested, subject
always to the provisions of the Trust's Declaration of Trust and By-Laws
and of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further to
such policies and instructions as the Board of Trustees may from time to
time establish. You shall advise and assist the officers of the Trust in
taking such steps as are necessary or appropriate to carry out the
decisions of the Board of Trustees and the appropriate committees of the
Board of Trustees regarding the conduct of the business of the Trust
insofar as it relates to the Fund.
5. ALLOCATION OF CHARGES AND EXPENSES: You will pay the compensation and
expenses of all officers and executive employees of the Trust and will
make available, without expense to the Trust, the services of such of your
partners and employees as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You will pay the Trust's office rent and will provide
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. You will
not be required to pay any expenses of the Trust other than those
specifically allocated to you in this paragraph 5. In particular, but
without limiting the generality of the foregoing, you will not be required
to
2
<PAGE> 3
INVESTMENT ADVISORY AGREEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
pay: organization expenses of the Trust; clerical salaries; fees and
expenses incurred by the Trust in connection with membership in investment
company organizations; brokers' commissions; payment for portfolio pricing
services to a pricing agent, if any; legal, auditing or accounting
expenses; taxes or governmental fees; the fees and expenses of the
transfer agent of the Trust; the cost of preparing share certificates or
any other expenses, including clerical expenses of issue, redemption or
repurchase of shares of beneficial interest of the Trust; the expenses of
and fees for registering or qualifying securities for sale and of
maintaining the registration of the Trust and registering the Trust as a
broker or a dealer; the fees and expenses of Trustees of the Trust who are
not affiliated with you; the cost of preparing and distributing reports
and notices to shareholders; the fees or disbursements of custodians of
the Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; or litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business. You shall not be required
to pay expenses of activities which are primarily intended to result in
sales of Shares of the Trust if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Trust's Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a
plan in conformity with Rule 12b-1 under the Investment Company Act of
1940, as amended, providing that the Trust (or some other party) shall
assume some or all of such expenses. You shall be required to pay such of
the foregoing expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to
be paid by the Trust (or some other party) pursuant to such a plan.
6. COMPENSATION OF THE ADVISER:
(a) For all services to be rendered and payments made as provided
in paragraphs 4 and 5 hereof, the Trust on behalf of the Fund will
pay you on the last day of each month a fee equal to the sum of
.75% per annum of the average daily net assets, as defined below,
of the Fund. The "average daily net assets" of the Fund are
defined as the average of the values placed on the net assets as of
4:00 P.M. (New York time), on each day on which the net asset value
of the Fund's portfolio is determined consistent with the
provisions of Rule 22c-1 under the Investment Company Act of 1940
or, if the Fund lawfully determines the value of the net assets of
its portfolio as of some other time on each business day, as of
such time. The value net assets of the Fund shall be determined
pursuant to the applicable provisions of the Declaration of Trust
of the Trust. If, pursuant to such provisions, the determination of
net asset value is suspended for any particular business day, then
for the purposes of this paragraph 6, the value of the net assets
of the Fund as last determined shall be deemed to be the value of
the net assets as of the close of the New York Stock Exchange, or
as of such other time as the
3
<PAGE> 4
INVESTMENT ADVISORY AGREEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
value of the net assets of the Fund's portfolio may lawfully be
determined, on that day. If the determination of the net asset
value of the Shares of the Fund has been suspended pursuant to the
Declaration of Trust of the Trust for a period including such
month, your compensation payable at the end of such month shall be
computed on the basis of the value of the net assets of the Fund as
last determined (whether during or prior to such month). If the
Fund determines the value of the net assets of its 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 6.
(b) You agree that your compensation for any month shall include,
and thus be reduced by, the amount, if any, which you pay to any
subadviser engaged pursuant to Paragraph 3 hereof. You agree that
the Trust on behalf of the Fund shall not be required to pay any
fee to any such subadviser.
7. AVOIDANCE OF INCONSISTENT POSITION: In connection with purchases or
sales of portfolio securities for the account of the Fund, neither you nor
any of your partners, directors, officers or employees nor any subadviser
engaged by you pursuant to paragraph 3 hereof will act as a principal or
agent or receive any commission. You or your agent shall arrange for the
placing of all orders for the purchase and sale of portfolio securities
for the Fund's account with brokers or dealers selected by you. In the
selection of such brokers or dealers and the placing of such orders, you
are directed at all times to seek for the Fund the most favorable
execution and net price available. It is also understood that it is
desirable for the Fund that you have access to supplemental investment and
market research and security and economic analyses provided by certain
brokers who may execute brokerage transactions at a higher cost to the
Fund than may result when allocating brokerage to other brokers on the
basis of seeking the most favorable price and efficient execution.
Therefore, you are authorized to place orders for the purchase and sale of
securities for the Fund with such certain brokers, subject to review by
the Trust's 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.
8. LIMITATION OF LIABILITY OF ADVISER: You shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which this Agreement relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on
your part in the performance of your duties or from reckless disregard by
you of your obligations and duties under this Agreement. Any person, even
4
<PAGE> 5
INVESTMENT ADVISORY AGREEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
though also employed by you, who may be or become an employee of and
paid by the Trust or the Fund shall be deemed, when acting within the
scope of his employment solely for the Trust and not as your employee or
agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall
remain in force until March 17, 1995 and from year to year thereafter, but
only so long as such continuance is specifically approved at least
annually by the vote of a majority of the Trustees who are not interested
persons of you or of 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 of 1940 and the rules and regulations
thereunder. This Agreement may, on 60 days written notice, be terminated
at any time without the payment of any penalty, by the Board of Trustees,
by vote of a majority of the outstanding voting securities of the Fund, or
by you. This Agreement shall automatically terminate in the event of its
assignment. In interpreting the provisions of this Agreement, the
definitions contained in Section 2(a) of the Investment Company Act of
1940 (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, regulation
or order.
10. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no 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 you or of the Trust, cast in person at a meeting
called for the purpose of voting on such approval.
11. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. 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 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.
5
<PAGE> 6
INVESTMENT ADVISORY AGREEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust. No series of the Trust shall be liable for any
claims against any other series of the Trust. If you are in agreement with
the foregoing, please sign the form of acceptance on the accompanying
counterpart of this letter and return such counterpart to the Trust,
whereupon this letter shall become a binding contract.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
---------------------------
Title: President
The foregoing Agreement is hereby accepted as of the date
thereof.
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
---------------------------
Title: Senior Vice President
6
<PAGE> 1
EXHIBIT 5(c)
June 25, 1993
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, Ohio 43666
INVESTMENT ADVISORY AGREEMENT
(HARBOR CAPITAL APPRECIATION FUND)
-----------------------------------------
Dear Sirs:
Harbor 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
Harbor Capital Appreciation Fund (the "Fund"), as established pursuant to a
written instrument executed by the Trustees of the Trust. Series may be
terminated, and additional series established, from time to time by action of
the Trustees. The Trust on behalf of the Fund has selected you to act as the
investment adviser of the Fund and to provide certain other services, as more
fully set forth below, and you are willing to act as such investment adviser and
to perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust agrees with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Trust has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, filed with the Delaware Secretary
of the State, dated June 8, 1993, as amended from time to time (the
"Declaration of Trust").
(b) By-Laws of the Trust as in effect on the date hereof.
(c) Resolutions of the Trustees selecting you as investment adviser and
approving the form of this Agreement.
The Trust 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.
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
2. NAME OF FUND: The Trust may use the name "Harbor Fund" or any name derived
from the name "Harbor Capital Advisors" in connection with the Fund only
for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization
which shall have succeeded to your business as investment adviser. At such
time as such an agreement shall no longer be in effect, the Trust (to the
extent that it lawfully can) will cause the Fund to cease to use such a
name or any other name indicating that it is advised by or otherwise
connected with you or any organization which shall have so succeeded to
your business.
3. SUBADVISERS: You may engage one or more investment advisers which are
either registered as such or specifically exempt from registration under
the Investment Company Act of 1940, as amended, to act as subadvisers to
provide with respect to the Fund certain services set forth in Paragraphs 4
and 7 hereof, all as shall be set forth in a written contract to which the
Trust, on behalf of the Fund, and you shall be parties, which contract
shall be subject to approval by the vote of a majority of the Trustees who
are not interested persons of you, the subadviser, or of the Trust, cast in
person at a meeting called for the purpose of voting on such approval and
by the vote of a majority of the outstanding voting securities of the Fund
and otherwise consistent with the terms of the Investment Company Act of
1940, as amended.
4. ADVISORY SERVICES: You will regularly 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. You will determine what securities shall be
purchased for the Fund, what securities shall be held or sold by the Fund,
and what portion of the Fund's assets shall be held uninvested, subject
always to the provisions of the Trust's Declaration of Trust and By-Laws
and of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further to such
policies and instructions as the Board of Trustees may from time to time
establish. You shall advise and assist the officers of the Trust in taking
such steps as are necessary or appropriate to carry out the decisions of
the Board of Trustees and the appropriate committees of the Board of
Trustees regarding the conduct of the business of the Trust insofar as it
relates to the Fund.
5. ALLOCATION OF CHARGES AND EXPENSES: You will pay the compensation and
expenses of all officers and executive employees of the Trust and will make
available, without expense to the Trust, the services of such of your
partners and employees as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You will pay the Trust's office rent and will provide
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. You will
not be required to pay any expenses of the Trust other than those
specifically allocated to you in this paragraph 5. In particular, but
without limiting the generality of the foregoing, you will not be required
to
2
<PAGE> 3
INVESTMENT ADVISORY AGREEMENT
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
pay: organization expenses of the Trust; clerical salaries; fees and
expenses incurred by the Trust in connection with membership in investment
company organizations; brokers' commissions; payment for portfolio pricing
services to a pricing agent, if any; legal, auditing or accounting
expenses; taxes or governmental fees; the fees and expenses of the transfer
agent of the Trust; the cost of preparing share certificates or any other
expenses, including clerical expenses of issue, redemption or repurchase of
shares of beneficial interest of the Trust; the expenses of and fees for
registering or qualifying securities for sale and of maintaining the
registration of the Trust and registering the Trust as a broker or a
dealer; the fees and expenses of Trustees of the Trust who are not
affiliated with you; the cost of preparing and distributing reports and
notices to shareholders; the fees or disbursements of custodians of the
Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; or litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business. You shall not be required
to pay expenses of activities which are primarily intended to result in
sales of Shares of the Trust if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Trust's Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan
in conformity with Rule 12b-1 under the Investment Company Act of 1940, as
amended, providing that the Trust (or some other party) shall assume some
or all of such expenses. You shall be required to pay such of the
foregoing expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to
be paid by the Trust (or some other party) pursuant to such a plan.
6. COMPENSATION OF THE ADVISER:
(a) For all services to be rendered and payments made as provided in
paragraphs 4 and 5 hereof, the Trust on behalf of the Fund will pay
you on the last day of each month a fee equal to the sum of .60% per
annum of the average daily net assets, as defined below, of the Fund.
The "average daily net assets" of the Fund are defined as the average
of the values placed on the net assets as of 4:00 P.M. (New York
time), on each day on which the net asset value of the Fund's
portfolio is determined consistent with the provisions of Rule 22c-1
under the Investment Company Act of 1940 or, if the Fund lawfully
determines the value of the net assets of its portfolio as of some
other time on each business day, as of such time. The value net assets
of the Fund shall be determined pursuant to the applicable provisions
of the Declaration of Trust of the Trust. If, pursuant to such
provisions, the determination of net asset value is suspended for any
particular business day, then for the purposes of this paragraph 6,
the value of the net assets of the Fund as last determined shall be
deemed to be the value of the net assets as of the close of the New
York Stock Exchange, or as of such other time as the
3
<PAGE> 4
INVESTMENT ADVISORY AGREEMENT
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
value of the net assets of the Fund's portfolio may lawfully be
determined, on that day. If the determination of the net asset value
of the Shares of the Fund has been suspended pursuant to the
Declaration of Trust of the Trust for a period including such month,
your compensation payable at the end of such month shall be computed
on the basis of the value of the net assets of the Fund as last
determined (whether during or prior to such month). If the Fund
determines the value of the net assets of its 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 6.
(b) You agree that your compensation for any month shall include, and thus
be reduced by, the amount, if any, which you pay to any subadviser
engaged pursuant to Paragraph 3 hereof. You agree that the Trust on
behalf of the Fund shall not be required to pay any fee to any such
subadviser.
7. AVOIDANCE OF INCONSISTENT POSITION: In connection with purchases or sales
of portfolio securities for the account of the Fund, neither you nor any of
your partners, directors, officers or employees nor any subadviser engaged
by you pursuant to paragraph 3 hereof will act as a principal or agent or
receive any commission. You or your agent shall arrange for the placing of
all orders for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers selected by you. In the selection of such
brokers or dealers and the placing of such orders, you are directed at all
times to seek for the Fund the most favorable execution and net price
available. It is also understood that it is desirable for the Fund that
you have access to supplemental investment and market research and security
and economic analyses provided by certain brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers on the basis of seeking the most favorable price
and efficient execution. Therefore, you are authorized to place orders for
the purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Trust's 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.
8. LIMITATION OF LIABILITY OF ADVISER: You shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even
4
<PAGE> 5
INVESTMENT ADVISORY AGREEMENT
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
though also employed by you, who may be or become an employee of and
paid by the Trust or the Fund shall be deemed, when acting within the
scope of his employment solely for the Trust and not as your employee
or agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall
remain in force until March 17, 1995 and from year to year thereafter,
but only so long as such continuance is specifically approved at least
annually by the vote of a majority of the Trustees who are not
interested persons of you or of 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 of
1940 and the rules and regulations thereunder. This Agreement may, on
60 days written notice, be terminated at any time without the payment
of any penalty, by the Board of Trustees, by vote of a majority of the
outstanding voting securities of the Fund, or by you. This Agreement
shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the Investment Company Act of 1940
(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,
regulation or order.
10. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought, and no
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 you or of the Trust, cast
in person at a meeting called for the purpose of voting on such
approval.
11. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. 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 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.
5
<PAGE> 6
INVESTMENT ADVISORY AGREEMENT
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended
from time to time, 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 as neither the Trustees,
officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Trust. No series of the
Trust shall be liable for any claims against any other series of the
Trust. If you are in agreement with the foregoing, please sign the
form of acceptance on the accompanying counterpart of this letter and
return such counterpart to the Trust, whereupon this letter shall
become a binding contract.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
---------------------------
Title: President
The foregoing Agreement is hereby accepted as of the date
thereof.
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
---------------------------
Title: Senior Vice President
6
<PAGE> 1
EXHIBIT 5(d)
June 1,1996
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, Ohio 43666
INVESTMENT ADVISORY AGREEMENT
(HARBOR INTERNATIONAL FUND II)
____________________________________________
Dear Sirs:
Harbor 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 Harbor International
Fund II (the "Fund"), as established pursuant to a written
instrument executed by the Trustees of the Trust. Series may
be terminated, and additional series established, from time to
time by action of the Trustees. The Trust on behalf of the
Fund has selected you to act as the investment adviser of the
Fund and to provide certain other services, as more fully set
forth below, and you are willing to act as such investment
adviser and to perform such services under the terms and
conditions hereinafter set forth. Accordingly, the Trust agrees
with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Trust has furnished you
with copies properly certified or authenticated of each of
the following:
(a) Declaration of Trust of the Trust, filed with
the Delaware Secretary of the State, dated June 8,
1993, as amended from time to time (the "Declaration
of Trust").
(b) Establishment and Designation of Series of
Shares of Beneficial Interest, $.01 Par Value Per
Share, establishing the Fund.
(c) By-Laws of the Trust as in effect on the date
hereof.
(d) Resolutions of the Trustees selecting you as
investment adviser and approving the form of this
Agreement.
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND II
JUNE 1,1996
The Trust 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 (d) above.
2. NAME OF FUND: The Trust may use the name "Harbor Fund" or any name
derived from the name "Harbor Capital Advisors" in connection with the
Fund only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with
any organization which shall have succeeded to your business as investment
adviser. At such time as such an agreement shall no longer be in effect,
the Trust (to the extent that it lawfully can) will cause the Fund to
cease to use such a name or any other name indicating that it is advised
by or otherwise connected with you or any organization which shall have so
succeeded to your business.
3. SUBADVISERS: You may engage one or more investment advisers which
are either registered as such or specifically exempt from registration
under the Investment Company Act of 1940, as amended, to act as
subadvisers to provide with respect to the Fund certain services set forth
in Paragraphs 4 and 7 hereof, all as shall be set forth in a written
contract to which the Trust, on behalf of the Fund, and you shall be
parties, which contract shall be subject to approval by the vote of a
majority of the Trustees who are not interested persons of you, the
subadviser, or of the Trust, cast in person at a meeting called for the
purpose of voting on such approval and by the vote of a majority of the
outstanding voting securities of the Fund and otherwise consistent with
the terms of the Investment Company Act of 1940, as amended.
4. ADVISORY SERVICES: You will regularly 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. You will determine what securities
shall be purchased for the Fund, what securities shall be held or sold by
the Fund, and what portion of the Fund's assets shall be held uninvested,
subject always to the provisions of the Trust's Declaration of Trust and
By-Laws and of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further to
such policies and instructions as the Board of Trustees may from time to
time establish. You shall advise and assist the officers of the Trust in
taking such steps as are necessary or appropriate to carry out the
decisions of the Board of Trustees and the appropriate committees of the
Board of Trustees regarding the conduct of the business of the Trust
insofar as it relates to the Fund.
5. Allocation of Charges and Expenses: You will pay the compensation and
expenses of all officers and executive employees of the Trust and will
make available, without expense to the Trust, the services of such of your
partners and employees as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You will pay the Trust's office rent and will provide
2
<PAGE> 3
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND II
JUNE 1,1996
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. You will
not be required to pay any expenses of the Trust other than those
specifically allocated to you in this paragraph 5. In particular, but
without limiting the generality of the foregoing, you will not be required
to pay: organization expenses of the Trust; clerical salaries; fees and
expenses incurred by the Trust in connection with membership in investment
company organizations; brokers' commissions; payment for portfolio pricing
services to a pricing agent, if any; legal, auditing or accounting
expenses; taxes or governmental fees; the fees and expenses of the
transfer agent of the Trust; the cost of preparing share certificates or
any other expenses, including clerical expenses of issue, redemption or
repurchase of shares of beneficial interest of the Trust; the expenses of
and fees for registering or qualifying securities for sale and of
maintaining the registration of the Trust and registering the Trust as a
broker or a dealer; the fees and expenses of Trustees of the Trust who are
not affiliated with you; the cost of preparing and distributing reports
and notices to shareholders; the fees or disbursements of custodians of
the Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; or litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business. You shall not be required
to pay expenses of activities which are primarily intended to result in
sales of Shares of the Trust if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Trust's Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a
plan in conformity with Rule 12b-1 under the Investment Company Act of
1940, as amended, providing that the Trust (or some other party) shall
assume some or all of such expenses. You shall be required to pay such of
the foregoing expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to
be paid by the Trust (or some other party) pursuant to such a plan.
6. COMPENSATION OF THE ADVISER:
(a) For all services to be rendered and payments made as provided in
paragraphs 4 and 5 hereof, the Trust on behalf of the Fund will pay
you on the last day of each month a fee equal to the sum of .75% per
annum of the average daily net assets, as defined below, of the
Fund. The "average daily net assets" of the Fund are defined as the
average of the values placed on the net assets as of 4:00 P.M. (New
York time), on each day on which the net asset value of the Fund's
portfolio is determined consistent with the provisions of Rule 22c-1
under the Investment Company Act of 1940 or, if the Fund lawfully
determines the value of the net assets of its portfolio as of some
other time on each business day, as of such time. The value net
assets of the Fund shall be determined pursuant to the applicable
provisions of the Declaration of Trust of the Trust. If, pursuant to
such
3
<PAGE> 4
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND II
JUNE 1,1996
provisions, the determination of net asset value is suspended for any
particular business day, then for the purposes of this paragraph 6,
the value of the net assets of the Fund as last determined shall be
deemed to be the value of the net assets as of the close of the New
York Stock Exchange, or as of such other time as the value of the net
assets of the Fund's portfolio may lawfully be determined, on that
day. If the determination of the net asset value of the Shares of
the Fund has been suspended pursuant to the Declaration of Trust of
the Trust for a period including such month, your compensation
payable at the end of such month shall be computed on the basis of
the value of the net assets of the Fund as last determined (whether
during or prior to such month). If the Fund determines the value of
the net assets of its 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
6.
(b) You agree that your compensation for any month shall include, and
thus be reduced by, the amount, if any, which you pay to any
subadviser engaged pursuant to Paragraph 3 hereof. You agree that
the Trust on behalf of the Fund shall not be required to pay any fee
to any such subadviser.
7. AVOIDANCE OF INCONSISTENT POSITION: In connection with purchases or
sales of portfolio securities for the account of the Fund, neither you nor
any of your partners, directors, officers or employees nor any subadviser
engaged by you pursuant to paragraph 3 hereof will act as a principal or
agent or receive any commission. You or your agent shall arrange for the
placing of all orders for the purchase and sale of portfolio securities
for the Fund's account with brokers or dealers selected by you. In the
selection of such brokers or dealers and the placing of such orders, you
are directed at all times to seek for the Fund the most favorable
execution and net price available. It is also understood that it is
desirable for the Fund that you have access to supplemental investment and
market research and security and economic analyses provided by certain
brokers who may execute brokerage transactions at a higher cost to the
Fund than may result when allocating brokerage to other brokers on the
basis of seeking the most favorable price and efficient execution.
Therefore, you are authorized to place orders for the purchase and sale of
securities for the Fund with such certain brokers, subject to review by
the Trust's 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.
4
<PAGE> 5
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND II
JUNE 1,1996
8. LIMITATION OF LIABILITY OF ADVISER: You shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except
a loss resulting from willful misfeasance, bad faith or gross negligence
on your part in the performance of your duties or from reckless disregard
by you 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 Trust or the Fund shall be deemed, when acting within the
scope of his employment solely for the Trust and not as your employee or
agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall remain
in force until March 17, 1998 and from year to year thereafter, but only
so long as such continuance is specifically approved at least annually by
the vote of a majority of the Trustees who are not interested persons of
you or of 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 of 1940 and the rules and regulations thereunder.
This Agreement may, on 60 days written notice, be terminated at any time
without the payment of any penalty, by the Board of Trustees, by vote of a
majority of the outstanding voting securities of the Fund, or by you. This
Agreement shall automatically terminate in the event of its assignment.
In interpreting the provisions of this Agreement, the definitions
contained in Section 2(a) of the Investment Company Act of 1940
(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, regulation
or order.
10. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of
the change, waiver, discharge or termination is sought, and no 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 you or of the Trust, cast in person at a meeting
called for the purpose of voting on such approval.
11. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. 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 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
5
<PAGE> 6
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND II
JUNE 1,1996
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.
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents
or shareholders assume any personal liability for obligations entered into
on behalf of the Trust. No series of the Trust shall be liable for any
claims against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding
contract.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
----------------------------
Title: President
The foregoing Agreement is hereby accepted as of the date thereof.
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
----------------------------
Title: Senior Vice President
6
<PAGE> 1
EXHIBIT 5(e)
June 25, 1993
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, Ohio 43666
INVESTMENT ADVISORY AGREEMENT
(HARBOR INTERNATIONAL FUND)
-----------------------------------
Dear Sirs:
Harbor 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
Harbor International Fund (the "Fund"), as established pursuant to a written
instrument executed by the Trustees of the Trust. Series may be terminated,
and additional series established, from time to time by action of the Trustees.
The Trust on behalf of the Fund has selected you to act as the investment
adviser of the Fund and to provide certain other services, as more fully set
forth below, and you are willing to act as such investment adviser and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust agrees with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Trust has furnished you
with copies properly certified or authenticated of each of
the following:
(a) Declaration of Trust of the Trust, filed with
the Delaware Secretary of the State, dated June 8,
1993, as amended from time to time (the "Declaration
of Trust").
(b) By-Laws of the Trust as in effect on the date
hereof.
(c) Resolutions of the Trustees selecting you as
investment adviser and approving the form of this
Agreement.
The Trust 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.
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
2. NAME OF FUND: The Trust may use the name "Harbor Fund" or any
name derived from the name "Harbor Capital Advisors" in connection with the
Fund only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with
any organization which shall have succeeded to your business as investment
adviser. At such time as such an agreement shall no longer be in effect,
the Trust (to the extent that it lawfully can) will cause the Fund to cease
to use such a name or any other name indicating that it is advised by or
otherwise connected with you or any organization which shall have so
succeeded to your business.
3. SUBADVISERS: You may engage one or more investment advisers which
are either registered as such or specifically exempt from registration
under the Investment Company Act of 1940, as amended, to act as subadvisers
to provide with respect to the Fund certain services set forth in
Paragraphs 4 and 7 hereof, all as shall be set forth in a written contract
to which the Trust, on behalf of the Fund, and you shall be parties, which
contract shall be subject to approval by the vote of a majority of the
Trustees who are not interested persons of you, the subadviser, or of the
Trust, cast in person at a meeting called for the purpose of voting on such
approval and by the vote of a majority of the outstanding voting securities
of the Fund and otherwise consistent with the terms of the Investment
Company Act of 1940, as amended.
4. ADVISORY SERVICES: You will regularly 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. You will determine what securities
shall be purchased for the Fund, what securities shall be held or sold by
the Fund, and what portion of the Fund's assets shall be held uninvested,
subject always to the provisions of the Trust's Declaration of Trust and
By-Laws and of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further to such
policies and instructions as the Board of Trustees may from time to time
establish. You shall advise and assist the officers of the Trust in taking
such steps as are necessary or appropriate to carry out the decisions of
the Board of Trustees and the appropriate committees of the Board of
Trustees regarding the conduct of the business of the Trust insofar as it
relates to the Fund.
5. ALLOCATION OF CHARGES AND EXPENSES: You will pay the
compensation and expenses of all officers and executive
employees of the Trust and will make available, without
expense to the Trust, the services of such of your
partners and employees as may duly be elected officers or
Trustees of the Trust, subject to their individual consent
to serve and to any limitations imposed by law. You will
pay the Trust's office rent and will provide investment
advisory, research and statistical facilities and all
clerical services relating to research, statistical and
investment work. You will not be required to pay any
expenses of the Trust other than those specifically
allocated to you in this paragraph 5. In particular, but
without limiting the generality of the foregoing, you will
not be required to
2
<PAGE> 3
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
pay: organization expenses of the Trust; clerical salaries; fees and
expenses incurred by the Trust in connection with membership in investment
company organizations; brokers' commissions; payment for portfolio pricing
services to a pricing agent, if any; legal, auditing or accounting
expenses; taxes or governmental fees; the fees and expenses of the transfer
agent of the Trust; the cost of preparing share certificates or any other
expenses, including clerical expenses of issue, redemption or repurchase of
shares of beneficial interest of the Trust; the expenses of and fees for
registering or qualifying securities for sale and of maintaining the
registration of the Trust and registering the Trust as a broker or a
dealer; the fees and expenses of Trustees of the Trust who are not
affiliated with you; the cost of preparing and distributing reports and
notices to shareholders; the fees or disbursements of custodians of the
Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; or litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business. You shall not be required
to pay expenses of activities which are primarily intended to result in
sales of Shares of the Trust if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Trust's Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan
in conformity with Rule 12b-1 under the Investment Company Act of 1940, as
amended, providing that the Trust (or some other party) shall assume some
or all of such expenses. You shall be required to pay such of the
foregoing expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to
be paid by the Trust (or some other party) pursuant to such a plan.
6. COMPENSATION OF THE ADVISER:
(a) For all services to be rendered and payments made as provided in
paragraphs 4 and 5 hereof, the Trust on behalf of the Fund will pay
you on the last day of each month a fee equal to the sum of .85% per
annum of the average daily net assets, as defined below, of the Fund.
The "average daily net assets" of the Fund are defined as the average
of the values placed on the net assets as of 4:00 P.M. (New York
time), on each day on which the net asset value of the Fund's
portfolio is determined consistent with the provisions of Rule 22c-1
under the Investment Company Act of 1940 or, if the Fund lawfully
determines the value of the net assets of its portfolio as of some
other time on each business day, as of such time. The value net assets
of the Fund shall be determined pursuant to the applicable provisions
of the Declaration of Trust of the Trust. If, pursuant to such
provisions, the determination of net asset value is suspended for any
particular business day, then for the purposes of this paragraph 6,
the value of the net assets of the Fund as last determined shall be
deemed to be the value of the net assets as of the close of the New
York Stock Exchange, or as of such other time as the
3
<PAGE> 4
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
value of the net assets of the Fund's portfolio may lawfully be
determined, on that day. If the determination of the net asset value
of the Shares of the Fund has been suspended pursuant to the
Declaration of Trust of the Trust for a period including such month,
your compensation payable at the end of such month shall be computed
on the basis of the value of the net assets of the Fund as last
determined (whether during or prior to such month). If the Fund
determines the value of the net assets of its 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 6.
(b) You agree that your compensation for any month shall include,
and thus be reduced by, the amount, if any, which you pay to any
subadviser engaged pursuant to Paragraph 3 hereof. You agree that the
Trust on behalf of the Fund shall not be required to pay any fee to
any such subadviser.
7. AVOIDANCE OF INCONSISTENT POSITION: In connection with
purchases or sales of portfolio securities for the account of the Fund,
neither you nor any of your partners, directors, officers or employees nor
any subadviser engaged by you pursuant to paragraph 3 hereof will act as a
principal or agent or receive any commission. You or your agent shall
arrange for the placing of all orders for the purchase and sale of
portfolio securities for the Fund's account with brokers or dealers
selected by you. In the selection of such brokers or dealers and the
placing of such orders, you are directed at all times to seek for the Fund
the most favorable execution and net price available. It is also
understood that it is desirable for the Fund that you have access to
supplemental investment and market research and security and economic
analyses provided by certain brokers who may execute brokerage transactions
at a higher cost to the Fund than may result when allocating brokerage to
other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, you are authorized to place orders for the
purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Trust's 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.
8. LIMITATION OF LIABILITY OF ADVISER: You shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even
4
<PAGE> 5
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
though also employed by you, who may be or become an employee of and
paid by the Trust or the Fund shall be deemed, when acting within the scope
of his employment solely for the Trust and not as your employee or agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall
remain in force until March 17, 1995 and from year to year thereafter, but
only so long as such continuance is specifically approved at least annually
by the vote of a majority of the Trustees who are not interested persons of
you or of 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 of 1940 and the rules and regulations thereunder.
This Agreement may, on 60 days written notice, be terminated at any time
without the payment of any penalty, by the Board of Trustees, by vote of a
majority of the outstanding voting securities of the Fund, or by you. This
Agreement shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the Investment Company Act of 1940 (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, regulation or order.
10. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no 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 you or of the Trust, cast in person at a meeting called for the
purpose of voting on such approval.
11. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. 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 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.
5
<PAGE> 6
INVESTMENT ADIVSORY AGREEMENT
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust. No series of the Trust shall be liable for any claims
against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding
contract.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
--------------------------------
Title: President
The foregoing Agreement is hereby accepted as of the date thereof
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
--------------------------------
Title: Senior Vice President
6
<PAGE> 1
EXIBIT 5(f)
June 25, 1993
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, Ohio 43666
INVESTMENT ADVISORY AGREEMENT
(HARBOR VALUE FUND)
-----------------------------------
Dear Sirs:
Harbor 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
Harbor Value Fund (the "Fund"), as established pursuant to a written instrument
executed by the Trustees of the Trust. Series may be terminated, and
additional series established, from time to time by action of the Trustees. The
Trust on behalf of the Fund has selected you to act as the investment adviser
of the Fund and to provide certain other services, as more fully set forth
below, and you are willing to act as such investment adviser and to perform
such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust agrees with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Trust has furnished you
with copies properly certified or authenticated of each
of the following:
(a) Declaration of Trust of the Trust, filed with
the Delaware Secretary of the State, dated June 8,
1993, as amended from time to time (the "Declaration
of Trust").
(b) By-Laws of the Trust as in effect on the date
hereof.
(c) Resolutions of the Trustees selecting you as
investment adviser and approving the form of this
Agreement.
The Trust 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.
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
2. NAME OF FUND: The Trust may use the name "Harbor Fund" or any
name derived from the name "Harbor Capital Advisors" in connection with the
Fund only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with
any organization which shall have succeeded to your business as investment
adviser. At such time as such an agreement shall no longer be in effect,
the Trust (to the extent that it lawfully can) will cause the Fund to cease
to use such a name or any other name indicating that it is advised by or
otherwise connected with you or any organization which shall have so
succeeded to your business.
3. SUBADVISERS: You may engage one or more investment advisers which
are either registered as such or specifically exempt from registration
under the Investment Company Act of 1940, as amended, to act as subadvisers
to provide with respect to the Fund certain services set forth in
Paragraphs 4 and 7 hereof, all as shall be set forth in a written contract
to which the Trust, on behalf of the Fund, and you shall be parties, which
contract shall be subject to approval by the vote of a majority of the
Trustees who are not interested persons of you, the subadviser, or of the
Trust, cast in person at a meeting called for the purpose of voting on such
approval and by the vote of a majority of the outstanding voting securities
of the Fund and otherwise consistent with the terms of the Investment
Company Act of 1940, as amended.
4. ADVISORY SERVICES: You will regularly 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. You will determine what securities
shall be purchased for the Fund, what securities shall be held or sold by
the Fund, and what portion of the Fund's assets shall be held uninvested,
subject always to the provisions of the Trust's Declaration of Trust and
By- Laws and of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further to such
policies and instructions as the Board of Trustees may from time to time
establish. You shall advise and assist the officers of the Trust in taking
such steps as are necessary or appropriate to carry out the decisions of
the Board of Trustees and the appropriate committees of the Board of
Trustees regarding the conduct of the business of the Trust insofar as it
relates to the Fund.
5. ALLOCATION OF CHARGES AND EXPENSES: You will pay the compensation
and expenses of all officers and executive employees of the Trust and will
make available, without expense to the Trust, the services of such of your
partners and employees as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You will pay the Trust's office rent and will provide
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. You will
not be required to pay any expenses of the Trust other than those
specifically allocated to you in this paragraph 5. In
2
<PAGE> 3
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
particular, but without limiting the generality of the foregoing, you
will not be required to pay: organization expenses of the Trust; clerical
salaries; fees and expenses incurred by the Trust in connection with
membership in investment company organizations; brokers' commissions;
payment for portfolio pricing services to a pricing agent, if any; legal,
auditing or accounting expenses; taxes or governmental fees; the fees and
expenses of the transfer agent of the Trust; the cost of preparing share
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of shares of beneficial interest of the Trust; the
expenses of and fees for registering or qualifying securities for sale and
of maintaining the registration of the Trust and registering the Trust as a
broker or a dealer; the fees and expenses of Trustees of the Trust who are
not affiliated with you; the cost of preparing and distributing reports and
notices to shareholders; the fees or disbursements of custodians of the
Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; or litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business. You shall not be required
to pay expenses of activities which are primarily intended to result in
sales of Shares of the Trust if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Trust's Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan
in conformity with Rule 12b-1 under the Investment Company Act of 1940, as
amended, providing that the Trust (or some other party) shall assume some
or all of such expenses. You shall be required to pay such of the
foregoing expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to
be paid by the Trust (or some other party) pursuant to such a plan.
6. COMPENSATION OF THE ADVISER:
(a) For all services to be rendered and payments made as
provided in paragraphs 4 and 5 hereof, the Trust on behalf of the Fund
will pay you on the last day of each month a fee equal to the sum of
.60% per annum of the average daily net assets, as defined below, of
the Fund. The "average daily net assets" of the Fund are defined as
the average of the values placed on the net assets as of 4:00 P.M.
(New York time), on each day on which the net asset value of the
Fund's portfolio is determined consistent with the provisions of Rule
22c-1 under the Investment Company Act of 1940 or, if the Fund
lawfully determines the value of the net assets of its portfolio as of
some other time on each business day, as of such time. The value net
assets of the Fund shall be determined pursuant to the applicable
provisions of the Declaration of Trust of the Trust. If, pursuant to
such provisions, the determination of net asset value is suspended for
any particular business day, then for the purposes of this paragraph
6, the value of the net assets of the Fund as last determined shall be
deemed to be the value of the net assets as
3
<PAGE> 4
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
of the close of the New York Stock Exchange, or as of such
other time as the value of the net assets of the Fund's portfolio may
lawfully be determined, on that day. If the determination of the net
asset value of the Shares of the Fund has been suspended pursuant to
the Declaration of Trust of the Trust for a period including such
month, your compensation payable at the end of such month shall be
computed on the basis of the value of the net assets of the Fund as
last determined (whether during or prior to such month). If the Fund
determines the value of the net assets of its 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 6.
(b) You agree that your compensation for any month shall
include, and thus be reduced by, the amount, if any, which you pay to
any subadviser engaged pursuant to Paragraph 3 hereof. You agree that
the Trust on behalf of the Fund shall not be required to pay any fee
to any such subadviser.
7. AVOIDANCE OF INCONSISTENT POSITION: In connection with purchases
or sales of portfolio securities for the account of the Fund, neither you
nor any of your partners, directors, officers or employees nor any
subadviser engaged by you pursuant to paragraph 3 hereof will act as a
principal or agent or receive any commission. You or your agent shall
arrange for the placing of all orders for the purchase and sale of
portfolio securities for the Fund's account with brokers or dealers
selected by you. In the selection of such brokers or dealers and the
placing of such orders, you are directed at all times to seek for the Fund
the most favorable execution and net price available. It is also
understood that it is desirable for the Fund that you have access to
supplemental investment and market research and security and economic
analyses provided by certain brokers who may execute brokerage transactions
at a higher cost to the Fund than may result when allocating brokerage to
other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, you are authorized to place orders for the
purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Trust's 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.
8. LIMITATION OF LIABILITY OF ADVISER: You shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless
4
<PAGE> 5
INVESTMENT ADVISORY AGREEMENT
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
disregard by you 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 Trust or the Fund shall be deemed, when acting within
the scope of his employment solely for the Trust and not as your employee
or agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall
remain in force until March 17, 1995 and from year to year thereafter, but
only so long as such continuance is specifically approved at least annually
by the vote of a majority of the Trustees who are not interested persons of
you or of 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 of 1940 and the rules and regulations thereunder.
This Agreement may, on 60 days written notice, be terminated at any time
without the payment of any penalty, by the Board of Trustees, by vote of a
majority of the outstanding voting securities of the Fund, or by you. This
Agreement shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the Investment Company Act of 1940 (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, regulation or order.
10. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no 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 you or of the Trust, cast in person at a meeting called for the
purpose of voting on such approval.
11. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. 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 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.
5
<PAGE> 6
INVESTMENT ADVISORY AGREEMENT
HARBOR VALUE FUND
JUNE 25, 1993
- -----------------------------
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust. No series of the Trust shall be liable for any claims
against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding
contract.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
---------------------------
Title: President
The foregoing Agreement is hereby accepted as of the date
thereof.
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
---------------------------
Title: Senior Vice President
6
<PAGE> 1
EXHIBIT 5(g)
June 25, 1993
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, Ohio 43666
INVESTMENT ADVISORY AGREEMENT
(HARBOR BOND FUND)
----------------------------------------
Dear Sirs:
Harbor 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
Harbor Bond Fund (the "Fund"), as established pursuant to a written instrument
executed by the Trustees of the Trust. Series may be terminated, and
additional series established, from time to time by action of the Trustees. The
Trust on behalf of the Fund has selected you to act as the investment adviser
of the Fund and to provide certain other services, as more fully set forth
below, and you are willing to act as such investment adviser and to perform
such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust agrees with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Trust has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, filed with
the Delaware Secretary of the State, dated June 8,
1993, as amended from time to time (the
"Declaration of Trust").
(b) By-Laws of the Trust as in effect on the date
hereof.
(c) Resolutions of the Trustees selecting you as
investment adviser and approving the form of this
Agreement.
The Trust 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.
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
HARBOR BOND FUND
JUNE 25, 1993
2. NAME OF FUND: The Trust may use the name "Harbor Fund" or any
name derived from the name "Harbor Capital Advisors" in connection with the
Fund only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with
any organization which shall have succeeded to your business as investment
adviser. At such time as such an agreement shall no longer be in effect,
the Trust (to the extent that it lawfully can) will cause the Fund to cease
to use such a name or any other name indicating that it is advised by or
otherwise connected with you or any organization which shall have so
succeeded to your business.
3. SUBADVISERS: You may engage one or more investment advisers which
are either registered as such or specifically exempt from registration
under the Investment Company Act of 1940, as amended, to act as subadvisers
to provide with respect to the Fund certain services set forth in
Paragraphs 4 and 7 hereof, all as shall be set forth in a written contract
to which the Trust, on behalf of the Fund, and you shall be parties, which
contract shall be subject to approval by the vote of a majority of the
Trustees who are not interested persons of you, the subadviser, or of the
Trust, cast in person at a meeting called for the purpose of voting on such
approval and by the vote of a majority of the outstanding voting securities
of the Fund and otherwise consistent with the terms of the Investment
Company Act of 1940, as amended.
4. ADVISORY SERVICES: You will regularly 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. You will determine what securities shall be
purchased for the Fund, what securities shall be held or sold by the Fund,
and what portion of the Fund's assets shall be held uninvested, subject
always to the provisions of the Trust's Declaration of Trust and By-Laws
and of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further to such
policies and instructions as the Board of Trustees may from time to time
establish. You shall advise and assist the officers of the Trust in taking
such steps as are necessary or appropriate to carry out the decisions of
the Board of Trustees and the appropriate committees of the Board of
Trustees regarding the conduct of the business of the Trust insofar as it
relates to the Fund.
5. ALLOCATION OF CHARGES AND EXPENSES: You will pay the compensation
and expenses of all officers and executive employees of the Trust and will
make available, without expense to the Trust, the services of such of your
partners and employees as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You will pay the Trust's office rent and will provide
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. You will
not be required to pay any expenses of the Trust other than those
specifically allocated to you in this paragraph 5. In particular, but
without limiting the generality of the foregoing, you will not be required
to
2
<PAGE> 3
INVESTMENT ADVISORY AGREEMENT
HARBOR BOND FUND
JUNE 25, 1993
pay: organization expenses of the Trust; clerical salaries; fees and
expenses incurred by the Trust in connection with membership in investment
company organizations; brokers' commissions; payment for portfolio pricing
services to a pricing agent, if any; legal, auditing or accounting
expenses; taxes or governmental fees; the fees and expenses of the transfer
agent of the Trust; the cost of preparing share certificates or any other
expenses, including clerical expenses of issue, redemption or repurchase of
shares of beneficial interest of the Trust; the expenses of and fees for
registering or qualifying securities for sale and of maintaining the
registration of the Trust and registering the Trust as a broker or a
dealer; the fees and expenses of Trustees of the Trust who are not
affiliated with you; the cost of preparing and distributing reports and
notices to shareholders; the fees or disbursements of custodians of the
Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; or litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business. You shall not be required
to pay expenses of activities which are primarily intended to result in
sales of Shares of the Trust if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Trust's Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan
in conformity with Rule 12b-1 under the Investment Company Act of 1940, as
amended, providing that the Trust (or some other party) shall assume some
or all of such expenses. You shall be required to pay such of the
foregoing expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to
be paid by the Trust (or some other party) pursuant to such a plan.
6. COMPENSATION OF THE ADVISER:
(a) For all services to be rendered and payments made as
provided in paragraphs 4 and 5 hereof, the Trust on
behalf of the Fund will pay you on the last day of each month a fee
equal to the sum of .70% per annum of the average daily net assets, as
defined below, of the Fund. The "average daily net assets" of the
Fund are defined as the average of the values placed on the net assets
as of 4:00 P.M. (New York time), on each day on which the net asset
value of the Fund's portfolio is determined consistent with the
provisions of Rule 22c-1 under the Investment Company Act of 1940 or,
if the Fund lawfully determines the value of the net assets of its
portfolio as of some other time on each business day, as of such time.
The value net assets of the Fund shall be determined pursuant to the
applicable provisions of the Declaration of Trust of the Trust. If,
pursuant to such provisions, the determination of net asset value is
suspended for any particular business day, then for the purposes of
this paragraph 6, the value of the net assets of the Fund as last
determined shall be deemed to be the value of the net assets as of the
close of the New York Stock Exchange, or as of such other time as the
3
<PAGE> 4
INVESTMENT ADVISORY AGREEMENT
HARBOR BOND FUND
JUNE 25, 1993
value of the net assets of the Fund's portfolio may lawfully be
determined, on that day. If the determination of the net asset value
of the Shares of the Fund has been suspended pursuant to the
Declaration of Trust of the Trust for a period including such month,
your compensation payable at the end of such month shall be computed
on the basis of the value of the net assets of the Fund as last
determined (whether during or prior to such month). If the Fund
determines the value of the net assets of its 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 6.
(b) You agree that your compensation for any month shall include, and thus
be reduced by, the amount, if any, which you pay to any subadviser
engaged pursuant to Paragraph 3 hereof. You agree that the Trust on
behalf of the Fund shall not be required to pay any fee to any such
subadviser.
7. AVOIDANCE OF INCONSISTENT POSITION: In connection with purchases or sales
of portfolio securities for the account of the Fund, neither you nor any of
your partners, directors, officers or employees nor any subadviser engaged
by you pursuant to paragraph 3 hereof will act as a principal or agent or
receive any commission. You or your agent shall arrange for the placing of
all orders for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers selected by you. In the selection of such
brokers or dealers and the placing of such orders, you are directed at all
times to seek for the Fund the most favorable execution and net price
available. It is also understood that it is desirable for the Fund that
you have access to supplemental investment and market research and security
and economic analyses provided by certain brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers on the basis of seeking the most favorable price
and efficient execution. Therefore, you are authorized to place orders for
the purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Trust's 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.
8. LIMITATION OF LIABILITY OF ADVISER: You shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless disregard by you of
your obligations and duties under this Agreement. Any person, even
4
<PAGE> 5
INVESTMENT ADVISORY AGREEMENT
HARBOR BOND FUND
JUNE 25, 1993
though also employed by you, who may be or become an employee of and paid
by the Trust or the Fund shall be deemed, when acting within the scope of
his employment solely for the Trust and not as your employee or agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall remain in
force until March 17, 1995 and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually by the
vote of a majority of the Trustees who are not interested persons of you or
of 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 of 1940 and the rules and regulations thereunder. This
Agreement may, on 60 days written notice, be terminated at any time without
the payment of any penalty, by the Board of Trustees, by vote of a majority
of the outstanding voting securities of the Fund, or by you. This Agreement
shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the Investment Company Act of 1940 (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, regulation or order.
10. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no 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 you or of the Trust, cast in person at a meeting called for the
purpose of voting on such approval.
11. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. 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 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.
5
<PAGE> 6
INVESTMENT ADVISORY AGREEMENT
HARBOR BOND FUND
JUNE 25, 1993
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust. No series of the Trust shall be liable for any claims
against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding
contract.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
--------------------
Title: President
The foregoing Agreement is hereby accepted as of the date thereof.
Harbor Capital Advisors, Inc.
By /s/ Constance L. Souders
------------------------
Title: Senior Vice President
6
<PAGE> 1
EXIBIT 5(h)
June 25, 1993
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, Ohio 43666
INVESTMENT ADVISORY AGREEMENT
(HARBOR SHORT DURATION FUND)
----------------------------------------
Dear Sirs:
Harbor 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
Harbor Short Duration Fund (the "Fund"), as established pursuant to a written
instrument executed by the Trustees of the Trust. Series may be terminated,
and additional series established, from time to time by action of the Trustees.
The Trust on behalf of the Fund has selected you to act as the investment
adviser of the Fund and to provide certain other services, as more fully set
forth below, and you are willing to act as such investment adviser and to
perform such services under the terms and conditions hereinafter set forth.
Accordingly, the Trust agrees with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Trust has furnished you
with copies properly certified or authenticated of each of
the following:
(a) Declaration of Trust of the Trust, filed with
the Delaware Secretary of the State, dated June 8,
1993, as amended from time to time (the "Declaration
of Trust").
(b) By-Laws of the Trust as in effect on the date
hereof.
(c) Resolutions of the Trustees selecting you as
investment adviser and approving the form of this
Agreement.
The Trust 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.
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
HARBOR SHORT DURATION FUND
JUNE 25, 1993
2. NAME OF FUND: The Trust may use the name "Harbor Fund" or any
name derived from the name "Harbor Capital Advisors" in connection with the
Fund only for so long as this Agreement or any extension, renewal or
amendment hereof remains in effect, including any similar agreement with
any organization which shall have succeeded to your business as investment
adviser. At such time as such an agreement shall no longer be in effect,
the Trust (to the extent that it lawfully can) will cause the Fund to cease
to use such a name or any other name indicating that it is advised by or
otherwise connected with you or any organization which shall have so
succeeded to your business.
3. SUBADVISERS: You may engage one or more investment advisers which
are either registered as such or specifically exempt from registration
under the Investment Company Act of 1940, as amended, to act as subadvisers
to provide with respect to the Fund certain services set forth in
Paragraphs 4 and 7 hereof, all as shall be set forth in a written contract
to which the Trust, on behalf of the Fund, and you shall be parties, which
contract shall be subject to approval by the vote of a majority of the
Trustees who are not interested persons of you, the subadviser, or of the
Trust, cast in person at a meeting called for the purpose of voting on such
approval and by the vote of a majority of the outstanding voting securities
of the Fund and otherwise consistent with the terms of the Investment
Company Act of 1940, as amended.
4. ADVISORY SERVICES: You will regularly 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. You will determine what securities
shall be purchased for the Fund, what securities shall be held or sold by
the Fund, and what portion of the Fund's assets shall be held uninvested,
subject always to the provisions of the Trust's Declaration of Trust and
By-Laws and of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further to such
policies and instructions as the Board of Trustees may from time to time
establish. You shall advise and assist the officers of the Trust in taking
such steps as are necessary or appropriate to carry out the decisions of
the Board of Trustees and the appropriate committees of the Board of
Trustees regarding the conduct of the business of the Trust insofar as it
relates to the Fund.
5. ALLOCATION OF CHARGES AND EXPENSES: You will pay the compensation
and expenses of all officers and executive employees of the Trust and will
make available, without expense to the Trust, the services of such of your
partners and employees as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You will pay the Trust's office rent and will provide
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. You will
not be required to pay any expenses of the Trust other than those
specifically allocated to you in this paragraph 5. In
2
<PAGE> 3
INVESTMENT ADVISORY AGREEMENT
HARBOR SHORT DURATION FUND
JUNE 25, 1993
particular, but without limiting the generality of the foregoing, you
will not be required to pay: organization expenses of the Trust; clerical
salaries; fees and expenses incurred by the Trust in connection with
membership in investment company organizations; brokers' commissions;
payment for portfolio pricing services to a pricing agent, if any; legal,
auditing or accounting expenses; taxes or governmental fees; the fees and
expenses of the transfer agent of the Trust; the cost of preparing share
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of shares of beneficial interest of the Trust; the
expenses of and fees for registering or qualifying securities for sale and
of maintaining the registration of the Trust and registering the Trust as a
broker or a dealer; the fees and expenses of Trustees of the Trust who are
not affiliated with you; the cost of preparing and distributing reports and
notices to shareholders; the fees or disbursements of custodians of the
Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; or litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business. You shall not be required
to pay expenses of activities which are primarily intended to result in
sales of Shares of the Trust if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Trust's Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan
in conformity with Rule 12b-1 under the Investment Company Act of 1940, as
amended, providing that the Trust (or some other party) shall assume some
or all of such expenses. You shall be required to pay such of the
foregoing expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to
be paid by the Trust (or some other party) pursuant to such a plan.
6. COMPENSATION OF THE ADVISER:
(a) For all services to be rendered and payments made as
provided in paragraphs 4 and 5 hereof, the Trust on behalf of the Fund
will pay you on the last day of each month a fee equal to the sum of
.40% per annum of the average daily net assets, as defined below, of
the Fund. The "average daily net assets" of the Fund are defined as
the average of the values placed on the net assets as of 4:00 P.M.
(New York time), on each day on which the net asset value of the
Fund's portfolio is determined consistent with the provisions of Rule
22c-1 under the Investment Company Act of 1940 or, if the Fund
lawfully determines the value of the net assets of its portfolio as of
some other time on each business day, as of such time. The value net
assets of the Fund shall be determined pursuant to the applicable
provisions of the Declaration of Trust of the Trust. If, pursuant to
such provisions, the determination of net asset value is suspended for
any particular business day, then for the purposes of this paragraph
6, the value of the net assets of the Fund as last determined shall be
deemed to be the value of the net assets as
3
<PAGE> 4
INVESTMENT ADVISORY AGREEMENT
HARBOR SHORT DURATION FUND
JUNE 25, 1993
of the close of the New York Stock Exchange, or as of such
other time as the value of the net assets of the Fund's portfolio may
lawfully be determined, on that day. If the determination of the net
asset value of the Shares of the Fund has been suspended pursuant to
the Declaration of Trust of the Trust for a period including such
month, your compensation payable at the end of such month shall be
computed on the basis of the value of the net assets of the Fund as
last determined (whether during or prior to such month). If the Fund
determines the value of the net assets of its 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 6.
(b) You agree that your compensation for any month shall include,
and thus be reduced by, the amount, if any, which you pay to any
subadviser engaged pursuant to Paragraph 3 hereof. You agree that the
Trust on behalf of the Fund shall not be required to pay any fee to
any such subadviser.
7. AVOIDANCE OF INCONSISTENT POSITION: In connection with
purchases or sales of portfolio securities for the account of the
Fund, neither you nor any of your partners, directors, officers or
employees nor any subadviser engaged by you pursuant to paragraph 3 hereof
will act as a principal or agent or receive any commission. You or your
agent shall arrange for the placing of all orders for the purchase and sale
of portfolio securities for the Fund's account with brokers or dealers
selected by you. In the selection of such brokers or dealers and the
placing of such orders, you are directed at all times to seek for the Fund
the most favorable execution and net price available. It is also
understood that it is desirable for the Fund that you have access to
supplemental investment and market research and security and economic
analyses provided by certain brokers who may execute brokerage transactions
at a higher cost to the Fund than may result when allocating brokerage to
other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, you are authorized to place orders for the
purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Trust's 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.
8. LIMITATION OF LIABILITY OF ADVISER: You shall not be liable for any
error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless
4
<PAGE> 5
INVESTMENT ADIVSORY AGREEMENT
HARBOR SHORT DURATION FUND
JUNE 25, 1993
disregard by you 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 Trust or the Fund shall be deemed, when acting
within the scope of his employment solely for the Trust and not as your
employee or agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall
remain in force until March 17, 1995 and from year to year thereafter, but
only so long as such continuance is specifically approved at least annually
by the vote of a majority of the Trustees who are not interested persons of
you or of 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 of 1940 and the rules and regulations thereunder.
This Agreement may, on 60 days written notice, be terminated at any time
without the payment of any penalty, by the Board of Trustees, by vote of a
majority of the outstanding voting securities of the Fund, or by you. This
Agreement shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the Investment Company Act of 1940 (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, regulation or order.
10. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may
be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, and no 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 you or of the Trust, cast in person at a meeting
called for the purpose of voting on such approval.
11. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. 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 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.
5
<PAGE> 6
INVESTMENT ADIVSORY AGREEMENT
HARBOR SHORT DURATION
FUND JUNE 25, 1993
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust. No series of the Trust shall be liable for any claims
against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding
contract.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
---------------------------
Title: President
The foregoing Agreement is hereby accepted as of the date
thereof.
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
---------------------------
Title: Senior Vice President
6
<PAGE> 1
EXHIBIT 5(i)
June 25, 1993
Harbor Capital Advisors, Inc.
One SeaGate
Toledo, Ohio 43666
INVESTMENT ADVISORY AGREEMENT
(HARBOR MONEY MARKET FUND)
-------------------------------
Dear Sirs:
Harbor 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
Harbor Money Market Fund (the "Fund"), as established pursuant to a written
instrument executed by the Trustees of the Trust. Series may be terminated, and
additional series established, from time to time by action of the Trustees. The
Trust on behalf of the Fund has selected you to act as the investment adviser of
the Fund and to provide certain other services, as more fully set forth below,
and you are willing to act as such investment adviser and to perform such
services under the terms and conditions hereinafter set forth. Accordingly, the
Trust agrees with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Trust has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, filed with the Delaware Secretary
of the State, dated June 8, 1993, as amended from time to time (the
"Declaration of Trust").
(b) By-Laws of the Trust as in effect on the date hereof.
(c) Resolutions of the Trustees selecting you as investment adviser and
approving the form of this Agreement.
The Trust 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.
<PAGE> 2
INVESTMENT ADVISORY AGREEMENT
HARBOR MONEY MARKET FUND
JUNE 25, 1993
2. NAME OF FUND: The Trust may use the name "Harbor Fund" or any name derived
from the name "Harbor Capital Advisors" in connection with the Fund only
for so long as this Agreement or any extension, renewal or amendment hereof
remains in effect, including any similar agreement with any organization
which shall have succeeded to your business as investment adviser. At such
time as such an agreement shall no longer be in effect, the Trust (to the
extent that it lawfully can) will cause the Fund to cease to use such a
name or any other name indicating that it is advised by or otherwise
connected with you or any organization which shall have so succeeded to
your business.
3. SUBADVISERS: You may engage one or more investment advisers which are
either registered as such or specifically exempt from registration under
the Investment Company Act of 1940, as amended, to act as subadvisers to
provide with respect to the Fund certain services set forth in Paragraphs 4
and 7 hereof, all as shall be set forth in a written contract to which the
Trust, on behalf of the Fund, and you shall be parties, which contract
shall be subject to approval by the vote of a majority of the Trustees who
are not interested persons of you, the subadviser, or of the Trust, cast in
person at a meeting called for the purpose of voting on such approval and
by the vote of a majority of the outstanding voting securities of the Fund
and otherwise consistent with the terms of the Investment Company Act of
1940, as amended.
4. ADVISORY SERVICES: You will regularly 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. You will determine what securities shall be
purchased for the Fund, what securities shall be held or sold by the Fund,
and what portion of the Fund's assets shall be held uninvested, subject
always to the provisions of the Trust's Declaration of Trust and By-Laws
and of the Investment Company Act of 1940, as amended, and to the
investment objectives, policies and restrictions of the Fund, as each of
the same shall be from time to time in effect, and subject, further to such
policies and instructions as the Board of Trustees may from time to time
establish. You shall advise and assist the officers of the Trust in taking
such steps as are necessary or appropriate to carry out the decisions of
the Board of Trustees and the appropriate committees of the Board of
Trustees regarding the conduct of the business of the Trust insofar as it
relates to the Fund.
5. ALLOCATION OF CHARGES AND EXPENSES: You will pay the compensation and
expenses of all officers and executive employees of the Trust and will make
available, without expense to the Trust, the services of such of your
partners and employees as may duly be elected officers or Trustees of the
Trust, subject to their individual consent to serve and to any limitations
imposed by law. You will pay the Trust's office rent and will provide
investment advisory, research and statistical facilities and all clerical
services relating to research, statistical and investment work. You will
not be required to pay any expenses of the Trust other than those
specifically allocated to you in this paragraph 5. In
2
<PAGE> 3
INVESTMENT ADVISORY AGREEMENT
HARBOR MONEY MARKET FUND
JUNE 25, 1993
particular, but without limiting the generality of the foregoing, you will
not be required to pay: organization expenses of the Trust; clerical
salaries; fees and expenses incurred by the Trust in connection with
membership in investment company organizations; brokers' commissions;
payment for portfolio pricing services to a pricing agent, if any; legal,
auditing or accounting expenses; taxes or governmental fees; the fees and
expenses of the transfer agent of the Trust; the cost of preparing share
certificates or any other expenses, including clerical expenses of issue,
redemption or repurchase of shares of beneficial interest of the Trust; the
expenses of and fees for registering or qualifying securities for sale and
of maintaining the registration of the Trust and registering the Trust as a
broker or a dealer; the fees and expenses of Trustees of the Trust who are
not affiliated with you; the cost of preparing and distributing reports and
notices to shareholders; the fees or disbursements of custodians of the
Trust's assets, including expenses incurred in the performance of any
obligations enumerated by the Declaration of Trust or By-Laws of the Trust
insofar as they govern agreements with any such custodian; or litigation
and indemnification expenses and other extraordinary expenses not incurred
in the ordinary course of the Trust's business. You shall not be required
to pay expenses of activities which are primarily intended to result in
sales of Shares of the Trust if and to the extent that (i) such expenses
are required to be borne by a principal underwriter which acts as the
distributor of the Trust's Shares pursuant to an underwriting agreement
which provides that the underwriter shall assume some or all of such
expenses, or (ii) the Trust on behalf of the Fund shall have adopted a plan
in conformity with Rule 12b-1 under the Investment Company Act of 1940, as
amended, providing that the Trust (or some other party) shall assume some
or all of such expenses. You shall be required to pay such of the
foregoing expenses as are not required to be paid by the principal
underwriter pursuant to the underwriting agreement or are not permitted to
be paid by the Trust (or some other party) pursuant to such a plan.
6. COMPENSATION OF THE ADVISER:
(a) For all services to be rendered and payments made as provided in
paragraphs 4 and 5 hereof, the Trust on behalf of the Fund will pay
you on the last day of each month a fee equal to the sum of .30% per
annum of the average daily net assets, as defined below, of the Fund.
The "average daily net assets" of the Fund are defined as the average
of the values placed on the net assets as of 4:00 P.M. (New York
time), on each day on which the net asset value of the Fund's
portfolio is determined consistent with the provisions of Rule 22c-1
under the Investment Company Act of 1940 or, if the Fund lawfully
determines the value of the net assets of its portfolio as of some
other time on each business day, as of such time. The value net
assets of the Fund shall be determined pursuant to the applicable
provisions of the Declaration of Trust of the Trust. If, pursuant to
such provisions, the determination of net asset value is suspended for
any particular business day, then for the purposes of this paragraph
6, the value of the net assets of the Fund as last determined shall be
deemed to be the value of the net assets as
3
<PAGE> 4
INVESTMENT ADVISORY AGREEMENT
HARBOR MONEY MARKET FUND
JUNE 25, 1993
of the close of the New York Stock Exchange, or as of such other time
as the value of the net assets of the Fund's portfolio may lawfully be
determined, on that day. If the determination of the net asset value
of the Shares of the Fund has been suspended pursuant to the
Declaration of Trust of the Trust for a period including such month,
your compensation payable at the end of such month shall be computed
on the basis of the value of the net assets of the Fund as last
determined (whether during or prior to such month). If the Fund
determines the value of the net assets of its 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 6.
(b) You agree that your compensation for any month shall include, and thus
be reduced by, the amount, if any, which you pay to any subadviser
engaged pursuant to Paragraph 3 hereof. You agree that the Trust on
behalf of the Fund shall not be required to pay any fee to any such
subadviser.
7. AVOIDANCE OF INCONSISTENT POSITION: In connection with purchases or sales
of portfolio securities for the account of the Fund, neither you nor any of
your partners, directors, officers or employees nor any subadviser engaged
by you pursuant to paragraph 3 hereof will act as a principal or agent or
receive any commission. You or your agent shall arrange for the placing of
all orders for the purchase and sale of portfolio securities for the Fund's
account with brokers or dealers selected by you. In the selection of such
brokers or dealers and the placing of such orders, you are directed at all
times to seek for the Fund the most favorable execution and net price
available. It is also understood that it is desirable for the Fund that
you have access to supplemental investment and market research and security
and economic analyses provided by certain brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers on the basis of seeking the most favorable price
and efficient execution. Therefore, you are authorized to place orders for
the purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Trust's 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.
8. LIMITATION OF LIABILITY OF ADVISER: You shall not be liable for any error
of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless
4
<PAGE> 5
INVESTMENT ADVISORY AGREEMENT
HARBOR MONEY MARKET FUND
JUNE 25, 1993
disregard by you 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 Trust or the Fund shall be deemed, when acting within
the scope of his employment solely for the Trust and not as your employee
or agent.
9. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall remain in
force until March 17, 1995 and from year to year thereafter, but only so
long as such continuance is specifically approved at least annually by the
vote of a majority of the Trustees who are not interested persons of you or
of 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 of 1940 and the rules and regulations thereunder. This
Agreement may, on 60 days written notice, be terminated at any time without
the payment of any penalty, by the Board of Trustees, by vote of a majority
of the outstanding voting securities of the Fund, or by you. This Agreement
shall automatically terminate in the event of its assignment. In
interpreting the provisions of this Agreement, the definitions contained in
Section 2(a) of the Investment Company Act of 1940 (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, regulation or order.
10. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no 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 you or of the Trust, cast in person at a meeting called for the
purpose of voting on such approval.
11. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
12. 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 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.
5
<PAGE> 6
INVESTMENT ADVISORY AGREEMENT
HARBOR MONEY MARKET FUND
JUNE 25, 1993
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust. No series of the Trust shall be liable for any claims
against any other series of the Trust.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Trust, whereupon this letter shall become a binding contract.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
------------------------------
Title: President
The foregoing Agreement is hereby accepted as of the date thereof.
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
------------------------------
Title: Senior Vice President
6
<PAGE> 1
EXHIBIT 5(j)
November 1, 1993
Jennison Associates Capital Corp.
466 Lexington Avenue
New York, NY 10017
INVESTMENT ADVISORY AGREEMENT FOR SUBADVISER
(HARBOR INTERNATIONAL GROWTH 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 International Growth
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) Establishment and Designation of Series of Shares of Beneficial
Interest, $.01 Par Value Per Share, establishing the Fund.
(c) By-Laws of the Trust as in effect on the date hereof (the "By-Laws").
(d) 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
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
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 (d) 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.
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
2
<PAGE> 3
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
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 Fund 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 fund,
computed in the manner specified in the Fund's Prospectus and Statement of
Additional Information for the computation of the net assets of the Fund by
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.
You will offer to the Adviser any more favorable asset based fee agreements
that are provided to other international investment clients, except for the
international investment clients who received grandfathered fee provisions
in the transition of your international investment unit. Such offer shall
be made as soon as practicable after a more favorable asset based fee is
provided for any other international investment client. You agree not to
provide international advice, portfolio or fund management services to a
publicly offered international mutual fund (Registered Investment Company)
for a period of seven years from the date of this contract.
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,
3
<PAGE> 4
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
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.
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 willful misfeasance, bad faith, gross
negligence or a reckless disregard of your obligations, as specified above.
You shall keep the Fund's books and records to be maintained by you and
shall timely furnish to the Adviser all information relating to your
services hereunder needed by the Adviser to keep the
4
<PAGE> 5
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
other books and records of the Fund required by Rule 31a-1 under the
Investment Company Act. You agree that all records which you maintain for
the Fund are the property of the Fund and you shall surrender promptly and
without any charge to the Fund any of such records required to be
maintained by you.
7. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in
force until March 17, 1995 and from year to year thereafter, but only so
long as such continuance, and the continuance of the Adviser as investment
adviser of the Fund, is specifically approved at least annually by the vote
of a majority of the Trustees who are not interested persons of you or the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval and by a vote of the Board of Trustees or of a
majority of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the
Investment Company Act and the rules and regulations thereunder. This
Agreement may, on 60 days' written notice, be terminated at any time
without the payment of any penalty, by the Board of Trustees, by vote of a
majority of the outstanding voting securities of the Fund, by the Adviser,
or by you. This Agreement shall automatically terminate in the event of
its assignment or the assignment of the investment advisory agreement
between the Adviser and the Trust, on behalf of the Fund. In interpreting
the provisions of this Agreement, the definitions contained in 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.
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.
5
<PAGE> 6
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
The captions in this Agreement are included for convenience of reference
only and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be
executed simultaneously in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return one such
counterpart to the Fund and the other such counterpart to the Adviser, whereupon
this letter shall become a binding contract.
HARBOR FUND
(ON BEHALF OF HARBOR
INTERNATIONAL GROWTH FUND)
By /s/ Ronald C. Boller
-------------------------------
Title: President
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souder
-------------------------------
Title: Senior Vice President
JENNISON ASSOCIATES CAPITAL CORP.
By /s/ John H. Hobbs
-------------------------------
Title: President
6
<PAGE> 7
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR INTERNATIONAL GROWTH FUND
NOVEMBER 1, 1993
SCHEDULE A
You will receive an advisory fee equal on an annual basis to .50% of the portion
of the Fund's average actual net asset value of the Fund managed by Jennison up
to $1.5 billion; .45% on the next $1 billion of such assets; and .40% on such
assets in excess of $2.5 billion, at the close of the last business day of each
month within the quarter. The annual advisory fee paid by the Adviser to you
shall not be less than $125,000. In the event that this Agreement terminates
during any portion of a year, the fee due to you 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 payment, the assets of the Fund
and the payments of the Adviser to you will be combined with the assets and
payment of the accounts of the Owens-Illinois Master Retirement Trust
international account that you manage.
7
<PAGE> 1
EXHIBIT 5(k)
June 25, 1993
Nicholas-Applegate Capital Management
600 West Broadway
San Diego, CA 92101
INVESTMENT ADVISORY AGREEMENT FOR SUBADVISER
(HARBOR GROWTH 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 Growth 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 subinvestment 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
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
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, 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. You will determine what securities shall be
purchased for the Fund, what securities shall be held or sold by the Fund,
and what portion of the Fund's assets shall be held or sold by the Fund,
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 for the Fund's
account with brokers or dealers selected by you.
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.
In the performance of your duties hereunder, you are and shall be an
independent contractor and unless otherwise expressly provided herein or
otherwise authorized in writing, shall have no authority to act for or
represent the Trust or the Fund in any way or otherwise be deemed to be an
agent of the Trust or the Fund or of the Adviser. You will make your
officers and employees available to meet with the Trust's officers and
Trustees at least quarterly on due notice to review the investments and
investment program of the Fund in light of current and prospective economic
and market conditions.
Nothing in this Agreement shall limit or restrict the right of any of your
partners, 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.
2
<PAGE> 3
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
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 Fund 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 fund,
computed in the manner specified in the Fund's Prospectus and Statement of
Additional Information for the computation of the net assets of the Fund by
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.
You will offer to the Adviser any more favorable asset based fee (not
incentive) agreements that are provided to other investment clients using
your Mid-Cap Growth Equity style of management, except that for any such
agreements in effect upon the signing of this Agreement. Such offer shall
be made as soon as practicable after a more favorable asset based fee (not
incentive) agreement is provided for any other investment clients. Should
more favorable asset based fee (not incentive) agreements be offered to
others using the Mid-Cap Growth Equity style of management, either alone or
in conjunction with other styles of management, for whatever reasons, the
Advisor will be notified within (30) business days after such new asset
based fee (not incentive) agreements are established.
5. AVOIDANCE OF INCONSISTENT POSITION AND BROKERAGE. In connection with
purchases or sales of portfolio securities for the account of the Fund,
neither you nor any of your partners, directors, officers or employees will
act as a principal or agent or receive any compensation in connection with
the purchase or sale of investment securities by the Fund, other than the
compensation provided for in this Agreement. You or your agent shall
arrange for the placing of all orders for the purchase and sale of
portfolio securities for the Fund's account with brokers or dealers
selected by you. In the selection of such brokers or dealers and the
placing of such orders, you are directed at all times to seek for the Fund
the most favorable execution and net price available. It is also
understood that it is desirable for the Fund that you have access to
supplemental investment and market research and security and economic
analyses provided by certain brokers who may execute brokerage transactions
at a higher cost to the Fund than may result when allocating brokerage to
other brokers on the basis of seeking the most favorable price and
efficient execution. Therefore, you are authorized to place orders for the
purchase and sale of securities for the Fund with such certain brokers,
subject to review by the Board of Trustees from time to time with respect
to the extent and continuation of this practice. It is understood that the
services provided by such brokers may be useful to you in connection with
your services to other
3
<PAGE> 4
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
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.
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 willful misfeasance, bad faith, gross
negligence or a reckless disregard of your obligations, as specified above.
You shall keep the Fund's books and records to be maintained by you and
shall timely furnish to the Adviser all information relating to your
services hereunder needed by the Adviser to keep the other books and
records of the Fund required by Rule 31a-1 under the Investment Company
Act. You agree that all records which you maintain for the Fund are the
property of the Fund and you
4
<PAGE> 5
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
shall surrender promptly and without any charge to the Fund any of such
records required to be maintained by you.
7. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in
force until March 17, 1995 and from year to year thereafter, but only so
long as such continuance, and the continuance of the Adviser as investment
adviser of the Fund, is specifically approved at least annually by the vote
of a majority of the Trustees who are not interested persons of you or the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval and by a vote of the Board of Trustees or of a
majority of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the
Investment Company Act and the rules and regulations thereunder. This
Agreement may, on 60 days' written notice, be terminated at any time
without the payment of any penalty, by the Board of Trustees, by vote of a
majority of the outstanding voting securities of the Fund, by the Adviser,
or by you. This Agreement shall automatically terminate in the event of
its assignment or the assignment of the investment advisory agreement
between the Adviser and the Trust, on behalf of the Fund. In interpreting
the provisions of this Agreement, the definitions contained in 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.
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.
5
<PAGE> 6
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
You agree to notify the Adviser of any change in the membership of the
partnership of which you are a member within a reasonable time after such
change.
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
By /s/ Ronald C. Boller
---------------------------------------------
Title: President
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
---------------------------------------------
Title: Senior Vice President
NICHOLAS-APPLEGATE CAPITAL
MANAGEMENT A LIMITED PARTNERSHIP
By /s/ T. Spillane
---------------------------------------------
Nicholas-Applegate Capital Management, Inc.
Its General Partner
6
<PAGE> 7
NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
HARBOR GROWTH FUND
JUNE 25, 1993
SCHEDULE A
You will receive an advisory fee equal on an annual basis to 0.75% of the
average actual net asset values of the Fund at the close of the last business
day of each month within the quarter up to $25 million; 0.625% on the next $75
million of such average actual net asset values; and 0.50% on such average
actual net asset values thereafter. The annual advisory fee paid by the Adviser
to you shall not be less than $75,000. In the event that this Agreement
terminates during any portion of year, the fee due to you 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 payment, the
assets of the Fund and the payments of the Adviser to you will be combined with
the assets and payment of the accounts of the Owens-Illinois Master
Retirement Trust account that you manage.
7
<PAGE> 1
EXHIBIT 5(l)
June 25, 1993
Jennison Associates Capital Corp.
466 Lexington Avenue
New York, NY 10017
INVESTMENT ADVISORY AGREEMENT FOR SUBADVISER
(HARBOR CAPITAL APPRECIATION 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 Capital
Appreciation 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. Pursuant to authority granted the Adviser by the
Trust's Trustees and pursuant to the procisions of the Investment Advisory
Agreement dated June 25, 1993, between the Advisor and the Trust, 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 and you are willing to
act as such a sub-investment adviser and to perform such services under the
terms and conditions hereinafter set forth. Accordingly, the Adviser and the
Trust on behalf of the Fund agree with you as follows:
1. DELIVERY OF FUND DOCUMENTS. The Adviser has furnished you with copies,
properly certified or authenticated, of each of the following:
(a) Declaration of Trust of the Trust, filed with the Secretary
of the State of Delaware dated June 8, 1993, as amended from time to
time (the "Declaration of Trust").
(b) By-Laws of the Trust as in effect on the date hereof.
(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
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
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 the Fund's portfolio, which
advice shall be consistent with the investment objective and policies of
the Fund. You will determine what securities shall be purchased for the
Fund's assets, what securities shall be held or sold by the Fund, 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 of 1940, as amended, and to the investment
objectives, policies and restrictions of the Fund, as each of the same
shall be from time to time in effect and subject, further, to such
policies and instructions as the Board of Trustees may from time to time
establish. 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 for the Fund's account with brokers or dealers
selected by you. The Adviser shall provide you with written statements
of such Declaration; By-laws; investment objectives and policies; 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
shall have no obligations or duties whatsoever to ensure compliance with
any limitation relating to the amount of (i) the Fund's aggregate assets
which may be invested in any category of investment or in a particular
manner or (ii) short-term or other category of gain that may be realized
by the Fund, in the aggregate, in any given period.
In the performance of your duties hereunder, you are and shall be an
independent contractor and unless otherwise expressly provided herein or
otherwise authorized in writing, shall have no authority to act for or
represent the Trust or the Fund in any way or otherwise be deemed to be
an agent of the Trust or the Fund or of the Adviser. You will make your
officers and employees available to meet with the Trust's officers and
Trustees at least quarterly on due notice to review the investments and
investment program of the Fund in the light of current and prospective
economic and market conditions.
3. ALLOCATION OF CHARGES AND EXPENSES. You will bear your own costs of
providing services hereunder. Except as aforesaid, 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
Appendix 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
Fund at the close of the last business day of each month within the
quarter. The 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 of 1940. Your
fee will be
2
<PAGE> 3
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
based on the average of the net asset values of the Fund, computed 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.
5. AVOIDANCE OF INCONSISTENT POSITION AND BROKERAGE. In connection with
purchases or sales of portfolio securities for the account of the Fund,
neither you nor any of your partners, directors, officers or employees
will act as a principal or agent or receive any commission. You or your
agent shall arrange for the placing of all orders for the purchase and
sale of portfolio securities for the Fund's account with brokers or
dealers selected by you. In the selection of such brokers or dealers and
the placing of such orders, you are directed at all times to seek for the
Fund the most favorable execution and net price available. It is also
understood that it is desirable for the Fund that you have access to
supplemental investment and market research and security and economic
analyses provided by certain brokers who may execute brokerage
transactions at a higher cost to the Fund than may result when allocating
brokerage to other brokers on the basis of seeking the most favorable
price and efficient execution. Therefore, you are authorized to place
orders for the purchase and sale of securities for the Fund with such
certain brokers, subject to review by the Trust's 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. From time to time as the Board of Trustees of the Trust 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.
6. LIMITATION OF LIABILITY. You shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on your
part in the performance of your duties or from reckless disregard by
3
<PAGE> 4
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
you 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 willful
misfeasance, bad faith, gross negligence or a reckless disregard of your
obligations, as specified above.
7. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain
in force until March 17, 1995 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 of the Fund, 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 of 1940 and the rules and
regulations thereunder. This Agreement may, on 60 days written notice, be
terminated at any time without the payment of any penalty, by the Board of
Trustees, by vote of a majority of the outstanding voting securities of
the Fund, by the Adviser, or by you. This Agreement shall automatically
terminate in the event of its assignment. In interpreting the provisions
of this Agreement, the definitions contained in Sections 2(a) of the
Investment Company Act of 1940 (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 which enforcement of the
change, waiver, discharge or termination is sought, and no 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 such Trustees to
evaluate this Agreement or any proposed amendments thereto for the
purposes of casting a vote pursuant to paragraphs 7 or 8 hereof.
4
<PAGE> 5
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
9. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
10. MISCELLANEOUS. It is understood and expressly stipulated that neither
the holders of Shares of the Trust or the Fund nor the Trustees shall be
personally liable hereunder. The 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
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers,
agents or shareholders assume any personal liability for obligations
entered into on behalf of the Trust. No series of the Trust shall be
liable for any claims against any other series of the Trust.
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.
YOURS VERY TRULY,
HARBOR FUND
By /s/ Ronald C. Boller
-----------------------------------
Title: President
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
-----------------------------------
Title: Senior Vice President
The foregoing Agreement is hereby accepted as of the date thereof.
JENNISON ASSOCIATES CAPITAL CORP.
By /s/ John H. Hobbs
-----------------------------------
Title: President
5
<PAGE> 6
JENNISON ASSOCIATES CAPITAL CORP.
HARBOR CAPITAL APPRECIATION FUND
JUNE 25, 1993
SCHEDULE A
You will receive an advisory fee equal on an annual basis to .75% of the Fund's
average actual net assets, as defined in paragraph 4 of the Agreement, up to
$10 million; .50% on the next $30; .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 assets in excess of $1 billion. The Adviser
will pay you a fee each year which is not less than $125,000. For purposes of
determining the applicable fee rate and satisfying the minimum payment, the
assets of the Fund and the payments of the Adviser to you will be combined with
the assets and payments of the accounts of the Owens-Illinois Master Retirement
Trust that you manage.
6
<PAGE> 1
EXIBIT 5(m)
June 1, 1996
Summit International Investments, Inc.
125 Summer Street
Boston, MA 02110
INVESTMENT ADVISORY AGREEMENT FOR SUBADVISER
(HARBOR INTERNATIONAL FUND II)
------------------------------------------------
Dear Sirs:
Harbor Capital Advisors, Inc. (the "Adviser"), a Delaware corporation,
with its principal offices at One SeaGate, Toledo, Ohio 43666, is the
investment adviser to Harbor Fund (the "Trust") on behalf of Harbor
International Fund II (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.
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.
<PAGE> 2
SUMMIT INTERNATIONAL INVESTMENTS, INC.
HARBOR INTERNATIONAL FUND II
JUNE 1, 1993
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 subinvestment 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.
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.
2
<PAGE> 3
SUMMIT INTERNATIONAL INVESTIMENTS, INC.
HARBOR INTERNATIONAL FUND II
JUNE 1, 1996
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.
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 deemed to be exclusive
for a period of seven (7) years from the date of this contract and it is
understood that you may not render investment advice, management and other
services to any other registered investment company in the United States
provided, however, that the provisions set forth in this
3
<PAGE> 4
SUMMIT INTERNATIONAL INVESTMENTS, INC.
HARBOR INTERNATIONAL FUND II
JUNE 1. 1996
sentence survives termination of this agreement except in the event
this Agreement is assigned by or otherwise terminated by the Adviser or the
Trust on behalf of the Fund.
You will advise the Trust's custodian and the Adviser on a prompt basis
of each purchase and sale of a portfolio security specifying the name of
the issuer, the description and amount or number of shares of the security
purchased, the market price, commission and gross or net price, trade date,
settlement date and identity of the effecting broker or dealer and such
other information as may be reasonably required. From time to time as the
Board of Trustees or the Adviser may reasonably request, you will furnish
to the Trust's officers and to each of its Trustees reports on portfolio
transactions and reports on issues of securities held in the portfolio, all
in such detail as the Trust or the Adviser may reasonably request.
On occasions when you deem the purchase or sale of a security to be
in the best interest of the Fund as well as other of your clients, you, to
the extent permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
shall be made by you in the manner you consider to be the most equitable
and consistent with your fiduciary obligations to the Fund and to such
other clients.
6. LIMITATION OF LIABILITY OF SUBADVISER. You will not be liable
for any loss sustained by reason of the adoption of any investment policy
or the purchase, sale or retention of any security on your recommendation,
whether or not such recommendation shall have been based upon your own
investigation and research or upon investigation and research made by any
other individual, firm or corporation, if such recommendation shall have
been made, and such other individual, firm or corporation shall have been
selected without gross negligence and in good faith; but nothing herein
contained will be construed to protect you against any liability to the
Adviser, the Trust, the Fund or its shareholders by reason of your gross
negligence or bad faith or willful misfeasance in the performance of your
duties or by reason of your reckless disregard of your obligations and
duties under this Agreement. 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 willful misfeasance, bad faith, gross
negligence or a reckless disregard of your obligations, as specified above.
You shall keep the Fund's books and records to be maintained by you and
shall timely furnish to the Adviser all information relating to your
services hereunder needed by the Adviser to keep the other books and
records of the Fund required by Rule 31a-1 under the Investment Company
Act. You agree that all records which you maintain for the Fund are the
property of the Fund and you shall surrender promptly and without any
charge to the Fund any of such records required to be maintained by you.
4
<PAGE> 5
SUMMIT INTERNATIONAL INVESTMENTS, INC.
HARBOR INTERNATIONAL FUND II
JUNE 1, 1996
7. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall
remain in force until March 17, 1998 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.
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.
5
<PAGE> 6
SUMMIT INTERNATIONAL INVESTMENTS, INC.
HARBOR INTERNATIONAL FUND II
JUNE 1, 1993
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return one
such counterpart to the Fund and the other such counterpart to the Adviser,
whereupon this letter shall become a binding contract.
HARBOR FUND
(ON BEHALF OF HARBOR INTERNATIONAL FUND II)
By /s/ Ronald C. Boller
------------------------------------
Title: President
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
------------------------------------
Title: Senior Vice President
SUMMIT INTERNATIONAL INVESTMENT, INC.
By /s/ James LaTorre
------------------------------------
Title: President
SUMMIT INTERNATIONAL INVESTMENTS, INC.
6
<PAGE> 7
SUMMIT INTERNATIONAL INVESTMENTS, INC.
HARBOR INTERNATIONAL FUND II
JUNE 1, 1996
SCHEDULE A
You will receive an advisory fee equal on an annual basis to .50 % of the
portion of the Fund's average actual net assets managed by Summit International
Investments, Inc., up to $1.5 billion; .45% on the next $1 billion of such
assets; and .40% on such assets in excess of $2.5 billion at the close of the
last business day of each month within the quarter. The annual advisory fee
paid by the Adviser to you shall not be less than $10,000. In the event that
this Agreement terminates during any portion of a year, the fee due you shall be
prorated based upon the number of days the Agreement was in effect. For the
purposes of determining the applicable fee rate and satisfying the minimum
payment, the assets of the Fund and the payments of the accounts of the Owens-
Illinois Master Retirement Trust that you manage.
7
<PAGE> 1
EXIBIT 5(n)
June 25, 1993
Northern Cross Investments Limited
48 Par-La-Ville Road, Suite 577
Hamilton, HM11 Bermuda
INVESTMENT ADVISORY AGREEMENT FOR
SUBADVISER (HARBOR INTERNATIONAL 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
International Fund (the "Fund"). The Trust has been organized under the
laws of Delaware to engage in the business of an investment company. The
shares of beneficial interest of the Trust ("Shares") are divided into
multiple series including the Fund, as established pursuant to a written
instrument executed by the Trustees of the Trust. The Trust is an
open-end, management investment company registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). Pursuant to
authority granted the Adviser by the Trust's Trustees, the Adviser has
selected you to act as a sub-investment adviser of the Fund and to provide
certain other services, as more fully set forth below. You are willing to
act as such subinvestment adviser and to perform such services under the
terms and conditions hereinafter set forth, and you represent and warrant
that you are an investment adviser registered under the Investment Advisers
Act of 1940, as amended. Accordingly, the Adviser and the Trust on behalf
of the Fund agree with you as follows:
1. DELIVERY OF FUND DOCUMENTS. The Adviser has furnished you with
copies, properly certified or authenticated, of each of the following:
(a) Declaration of Trust of the Trust, filed with the Delaware
Secretary of State, dated June 8, 1993, as amended and restated from
time to time (the "Declaration of Trust").
(b) By-Laws of the Trust as in effect on the date hereof
(the "By-Laws").
(c) Resolutions of the Trustees selecting the Adviser as investment
adviser and you as sub-investment adviser and approving the form of
this Agreement.
<PAGE> 2
NORTHERN CROSS INVESTMENTS LIMITED
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
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 the Fund's portfolio, 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. You will determine what securities shall be
purchased for the Fund, what securities shall be held or sold by the Fund,
and what portion of the Fund's 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 for the Fund's
account with brokers or dealers selected by you.
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 portfolio of the Fund 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.
In the performance of your duties hereunder, you are and shall be an
independent contractor and unless otherwise expressly provided herein or
otherwise authorized in writing, shall have no authority to act for or
represent the Trust or the Fund in any way or otherwise be deemed to be an
agent of the Trust or the Fund or of the Adviser. You will make your
officers and employees available to meet with the Trust's officers and
Trustees at least quarterly on due notice to review the investments and
investment program of the Fund in 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.
2
<PAGE> 3
NORTHERN CROSS INVESTMENTS LIMITED
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
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 Fund 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 Fund, computed in the manner specified in the Fund's
Prospectus and Statement of Additional Information for the computation of
the net assets of the Fund by 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.
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 Fund,
neither you nor any of your directors, officers or employees will act as a
principal or agent or receive any compensation in connection with the
purchase or sale of investment securities by the Fund, other than the
compensation provided for in this Agreement. You or your agent shall
arrange for the placing of all orders for the purchase and sale of
portfolio securities for the Fund's account with brokers or dealers
selected by you. In the selection of such brokers or dealers and the
placing of such orders, you are directed at all times to seek for the Fund
the most favorable execution and net price available. It is also understood
that it is desirable for the Fund that you have access to supplemental
investment and market research and security and economic analyses provided
by certain brokers who may execute brokerage transactions at a higher cost
to the Fund than may result when allocating brokerage to other brokers on
the basis of seeking the most favorable price and efficient execution.
Therefore, you are authorized to place orders for the purchase and sale of
securities for the Fund with such certain brokers, subject to review by the
Board of Trustees from time to time with respect to the extent and
continuation of this practice. It is understood that the services provided
by such brokers may be useful to you in connection with your services to
other clients. If any occasion should arise in which you give any advice
to clients of yours concerning the Shares of the Fund, you will act solely
as investment counsel for such clients and not in any way on behalf of the
Fund. 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.
3
<PAGE> 4
NORTHERN CROSS INVESTMENTS LIMITED
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
You will advise the Trust's custodian and the Adviser on a prompt basis of
each purchase and sale of a portfolio security specifying the name of the
issuer, the description and amount or number of shares of the security
purchased, the market price, commission and gross or net price, trade date,
settlement date and identity of the effecting broker or dealer and such
other information as may be reasonably required. From time to time as the
Board of Trustees or the Adviser may reasonably request, you will furnish
to the Trust's officers and to each of its Trustees reports on portfolio
transactions and reports on issues of securities held in the portfolio, all
in such detail as the Trust or the Adviser may reasonably request.
On occasions when you deem the purchase or sale of a security to be
in the best interest of the Fund as well as other of your clients, you, to
the extent permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be sold or purchased in
order to obtain the most favorable price or lower brokerage commissions and
efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
shall be made by you in the manner you consider to be the most equitable
and consistent with your fiduciary obligations to the Fund and to such
other clients.
6. LIMITATION OF LIABILITY OF SUBADVISER. You will not be liable
for any loss sustained by reason of the adoption of any investment policy
or the purchase, sale or retention of any security on your recommendation,
whether or not such recommendation shall have been based upon your own
investigation and research or upon investigation and research made by any
other individual, firm or corporation, if such recommendation shall have
been made, and such other individual, firm or corporation shall have been
selected without gross negligence and in good faith; but nothing herein
contained will be construed to protect you against any liability to the
Adviser, the Trust, the Fund or its shareholders by reason of your gross
negligence or bad faith or willful misfeasance in the performance of your
duties or by reason of your reckless disregard of your obligations and
duties under this Agreement. 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.
4
<PAGE> 5
NORTHERN CROSS INVESTMENTS LIMITED
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
7. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in
force until March 17, 1995 and from year to year thereafter, but only so
long as such continuance, and the continuance of the Adviser as investment
adviser of the Fund, is specifically approved at least annually by the vote
of a majority of the Trustees who are not interested persons of you or the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval and by a vote of the Board of Trustees or of a
majority of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the
Investment Company Act and the rules and regulations thereunder. This
Agreement may, on 60 days' written notice, be terminated at any time
without the payment of any penalty, by the Board of Trustees, by vote of a
majority of the outstanding voting securities of the Fund, by the Adviser,
or by you. This Agreement shall automatically terminate in the event of
its assignment or the assignment of the investment advisory agreement
between the Adviser and the Trust, on behalf of the Fund. In interpreting
the provisions of this Agreement, the definitions contained in 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.
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
5
<PAGE> 6
NORTHERN CROSS INVESTMENTS LIMITED
HARBOR INTERNATIONAL FUND
JUNE 25, 1993
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
By /s/ Ronald C. Boller
-----------------------------------
Title: President
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
-----------------------------------
Title: Senior Vice President
NORTHERN CROSS INVESTMENTS LIMITED
By /s/ Hakan Castegren
-----------------------------------
Title: President
6
<PAGE> 7
NORTHERN CROSS INVESTMENTS LIMITED
HARBOR INTERNATIONAL FUND
JJNE 25, 1993
SCHEDULE A
You will receive an advisory fee equal on an annual basis to 0.60% of the
Fund's average actual net asset values of the Fund at the close of the last
business day of each month within the quarter. The annual advisory fee paid by
the Adviser to you shall not be less than $6,000. In the event that this
Agreement terminates during any portion of a year, the fee due to you 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
payment, the assets of the Fund and the payments by the Adviser to you will be
combined with the assets and payments of the accounts of the Owens-Illinois
Master Retirement Trust that you manage.
7
<PAGE> 1
EXHIBIT 5(o)
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 subinvestment 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
DEPRINCE, RACE & ZOLLO, INC.
HARBOR VALUE FUND
AUGUST 4, 1995
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 subinvestment 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.
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
2
<PAGE> 3
DEPRINCE, RACE & ZOLLO, INC.
HARBOR VALUE FUND
AUGUST 4, 1995
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.
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
3
<PAGE> 4
DEPRINCE, RACE & ZOLLO, INC.
HARBOR VALUE FUND
AUGUST 4, 1995
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.
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 willful misfeasance, bad faith, gross
negligence or a reckless disregard of your obligations, as specified above.
You shall keep the Fund's books and records to be maintained by you and
shall timely furnish to the Adviser all information relating to your
services hereunder needed by the Adviser to keep the other books and
records of the Fund required by Rule 31a-1 under the Investment Company
Act. You agree that all records which you maintain for the Fund are the
property of the Fund and you shall surrender promptly and without any
charge to the Fund any of such records required to be maintained by you.
4
<PAGE> 5
DEPRINCE, RACE & ZOLLO, INC.
HARBOR VALUE FUND
AUGUST 4, 1995
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.
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
5
<PAGE> 6
DEPRINCE, RACE & ZOLLO, INC.
HARBOR VALUE FUND
AUGUST 4, 1995
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
6
<PAGE> 7
DEPRINCE, RACE & ZOLLO, INC.
HARBOR VALUE FUND
AUGUST 4, 1995
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 the Harbor Value Fund's
average net assets managed by DRZ up to $10 million; 0.40% of the next
$40 million of such; 0.30% on the next $50 million of such assets; 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 that 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 payment, 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
manages.
7
<PAGE> 1
EXHIBIT 5(p)
November 1, 1993
Richards & Tierney, Inc.
111 W. Jackson Boulevard
Chicago, IL 60604
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.
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.
<PAGE> 2
RICHARDS & TIERNEY, INC.
HARBOR VALUE FUND
NOVEMBER 1, 1993
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 subinvestment
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.
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.
2
<PAGE> 3
RICHARDS & TIERNEY, INC.
HARBOR VALUE FUND
NOVEMBER 1, 1993
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 Fund 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 Fund, computed in the manner specified in the Fund's
Prospectus and Statement of Additional Information for the computation of
the net assets of the Fund by 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.
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.
3
<PAGE> 4
RICHARDS & TIERNEY, INC.
HARBOR VALUE FUND
NOVEMBER 1, 1993
You will advise the Trust's custodian and the Adviser on a prompt basis of
each purchase and sale of a portfolio security specifying the name of the
issuer, the description and amount or number of shares of the security
purchased, the market price, commission and gross or net price, trade
date, settlement date and identity of the effecting broker or dealer and
such other information as may be reasonably required. From time to time as
the Board of Trustees or the Adviser may reasonably request, you will
furnish to the Trust's officers and to each of its Trustees reports on
portfolio transactions and reports on issues of securities held in the
portfolio, all in such detail as the Trust or the Adviser may reasonably
request.
On occasions when you deem the purchase or sale of a security to be in the
best interest of the Fund as well as other of your clients, you, to the
extent permitted by applicable laws and regulations, may, but shall be
under no obligation to, aggregate the securities to be sold or purchased
in order to obtain the most favorable price or lower brokerage commissions
and efficient execution. In such event, allocation of the securities so
purchased or sold, as well as the expenses incurred in the transaction,
shall be made by you in the manner you consider to be the most equitable
and consistent with your fiduciary obligations to the Fund and to such
other clients.
6. LIMITATION OF LIABILITY OF SUBADVISER. You will not be liable for any
loss sustained by reason of the adoption of any investment policy or the
purchase, sale or retention of any security on your recommendation,
whether or not such recommendation shall have been based upon your own
investigation and research or upon investigation and research made by any
other individual, firm or corporation, if such recommendation shall have
been made, and such other individual, firm or corporation shall have been
selected without gross negligence and in good faith; but nothing herein
contained will be construed to protect you against any liability to the
Adviser, the Trust, the Fund or its shareholders by reason of your gross
negligence or bad faith or willful misfeasance in the performance of your
duties or by reason of your reckless disregard of your obligations and
duties under this Agreement. 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.
7. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain
in force until March 17, 1995 and from year to year thereafter, but only
so long as such continuance, and the
4
<PAGE> 5
RICHARDS & TIERNEY, INC.
HARBOR VALUE FUND
NOVEMBER 1, 1993
continuance of the Adviser as investment adviser of the Fund, is
specifically approved at least annually by the vote of a majority of
the Trustees who are not interested persons of you or the Adviser or the
Trust, cast in person at a meeting called for the purpose of voting on
such approval and by a vote of the Board of Trustees or of a majority of
the outstanding voting securities of the Fund. The aforesaid requirement
that continuance of this Agreement be "specifically approved at least
annually" shall be construed in a manner consistent with the Investment
Company Act and the rules and regulations thereunder. This Agreement may,
on 60 days' written notice, be terminated at any time without the payment
of any penalty, by the Board of Trustees, by vote of a majority of the
outstanding voting securities of the Fund, by the Adviser, or by you.
This Agreement shall automatically terminate in the event of its
assignment or the assignment of the investment advisory agreement between
the Adviser and the Trust, on behalf of the Fund. In interpreting the
provisions of this Agreement, the definitions contained in 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.
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.
5
<PAGE> 6
RICHARDS & TIERNEY, INC.
HARBOR VALUE FUND
NOVEMBER 1, 1993
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 /s/ Ronald C. Boller
------------------------------
Title: President
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
------------------------------
Title: Senior Vice President
RICHARDS & TIERNEY, INC.
By /s/ David Tierney
------------------------------
Title: President
6
<PAGE> 7
RICHARDS & TIERNEY, INC.
HARBOR VALUE FUNDY
NOVEMBER 1, 1993
SCHEDULE A
You will receive an advisory fee equal on an annual basis to .30% of the
portion of the Fund's average actual net asset value managed by Richards &
Tierney up to $5 million; and .25% on the next $10 million of such assets; and
.20% on such assets in excess of $15 million, at the close of the last business
day of each month within the quarter. In the event that this Agreement
terminates during any portion of a year, the fee due to you shall be prorated
based upon the number of days the Agreement was in effect.
7
<PAGE> 1
EXHIBIT 5(q)
November 15, 1994
Pacific Investment Management Company
P.O.Box 9000
840 Newport Center Drive
Newport Beach, California 92660
INVESTMENT ADVISORY AGREEMENT FOR SUBADVISER
(HARBOR BOND 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 Bond 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 subinvestment 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
PACIFIC INVESTMENT MANAGEMENT COMPANY
HARBOR BOND FUND
NOVEMBER 15, 1994
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.
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
2
<PAGE> 3
PACIFIC INVESTMENT MANAGEMENT COMPANY
HARBOR BOND FUND
NOVEMBER 15, 1994
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 Fund 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 Fund,
computed in the manner specified in the Fund's Prospectus and Statement of
Additional Information for the computation of the net assets of the Fund by
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.
In the event the Subadviser adopts a new, lower fee schedule for any other
client where: (1) the assets under management for such client are in a
portfolio that is substantially similar in investment style and investment
services as those of the Fund; and (2) total assets under management for
such client are less than or equal to the market value of the assets under
management of the Fund, such new fee schedule shall become applicable to
the Fund for the remaining term of the Agreement as of the effective date
of such new fee schedule upon thirty (30) days written notice thereof by
the Subadviser to the Fund.
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,
3
<PAGE> 4
PACIFIC INVESTMENT MANAGEMENT COMPANY
HARBOR BOND FUND
NOVEMBER 15, 1994
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.
Provided the investment objectives of the Fund are adhered to, and such
aggregation is in the best interests of the Fund, you may aggregate sales
and purchase orders of securities held for the Fund with similar orders
being made simultaneously for other accounts managed by you or with
accounts of your affiliates, if in your reasonable judgement, such
aggregation is equitable and consistent with your fiduciary obligation to
the Fund and shall result in an overall economic benefit to the Fund,
taking into consideration the advantageous selling or purchase price,
brokerage commission and other expenses. In accounting for such aggregated
order price, commission and other expenses shall be averaged on a per bond
or share basis daily. The Fund acknowledges that the determination of such
economic benefit to the Fund by you is subjective and represents your
evaluation that the Fund is benefited by relatively better purchase or
sales prices, lower commission expenses and beneficial timing of
transactions or a combination of these and other factors.
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
4
<PAGE> 5
PACIFIC INVESTMENT MANAGEMENT COMPANY
HARBOR BOND FUND
NOVEMBER 15, 1994
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.
7. DURATION AND TERMINATION OF THIS AGREEMENT. This Agreement shall remain in
force until March 17, 1996 and from year to year thereafter, but only so
long as such continuance, and the continuance of the Adviser as investment
adviser of the Fund, is specifically approved at least annually by the vote
of a majority of the Trustees who are not interested persons of you or the
Adviser or the Trust, cast in person at a meeting called for the purpose of
voting on such approval and by a vote of the Board of Trustees or of a
majority of the outstanding voting securities of the Fund. The aforesaid
requirement that continuance of this Agreement be "specifically approved at
least annually" shall be construed in a manner consistent with the
Investment Company Act and the rules and regulations thereunder. This
Agreement may, on 60 days' written notice, be terminated at any time
without the payment of any penalty by the 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 shall automatically terminate in
the event of its assignment or the assignment of the investment advisory
agreement between the Adviser and the Trust, on behalf of the Fund. In
interpreting the provisions of this Agreement, the definitions contained in
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.
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
5
<PAGE> 6
PACIFIC INVESTMENT MANAGEMENT COMPANY
HARBOR BOND FUND
NOVEMBER 15, 1994
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 BOND FUND)
By /s/ Ronald C. Boller
-----------------------------------
Title: President
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
-----------------------------------
Title: Senior Vice President
PACIFIC INVESTMENT MANAGEMENT COMPANY
By /s/ D. S. Meiling
-----------------------------------
Title: Managing Director
6
<PAGE> 7
PACIFIC INVESTMENT MANAGEMENT COMPANY
HARBOR BOND FUND
NOVEMBER 15, 1994
SCHEDULE A
You will receive an advisory fee equal on an annual basis to .50% of the portion
of the Fund's average actual net asset value managed by Pacific Investment
Management Company, as defined in paragraph 4 of the Agreement, up to $25
million; .375% on the next $25 million; and .25% on assets in excess of $50
million. The Adviser will pay you a fee each year which is not less than
$100,000. In the event that this Agreement terminates during any portion of a
year, the fee due you 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 payment, the assets of the Fund and the payments by
the Adviser to you will be combined with the assets and payments of the accounts
of the Owens-Illinois Master Retirement Trust that you manage.
7
<PAGE> 1
EXHIBIT 5(r)
June 25, 1993
Fischer Francis Trees
& Watts, Inc.
717 Fifth Avenue
New York, NY 10022
INVESTMENT ADVISORY AGREEMENT FOR SUBADVISER
(HARBOR SHORT DURATION FUND)
---------------------------------------------------
Dear Sirs:
Harbor Capital Advisors, Inc. (the "Adviser"), a Delaware corporation, with
its principal offices at One SeaGate, Toledo, Ohio 43666, is investment adviser
to Harbor Fund (the "Trust"), on behalf of Harbor Short Duration 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. Pursuant to authority granted the adviser by the Trust's Trustees and
pursuant to the provisions of the Investment Advisory agreement dated June 25,
1993, between the Adviser and the Trust, 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, and you are willing to act as such sub-investment
adviser and to perform such services under the terms and conditions hereinafter
set forth. Accordingly, the Adviser and the Trust on behalf of the Fund agree
with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Adviser has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, filed with the Secretary of the
State of Delaware, dated June 8, 1993, as amended from time to time
(the "Declaration of Trust").
(b) By-Laws of the Trust as in effect on the date hereof.
(c) Resolutions of the Trustees selecting the Adviser as investment
adviser and you as sub-investment adviser and approving the form of
this Agreement.
<PAGE> 2
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR SHORT DURATION FUND
JUNE 25, 1993
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 the Fund's portfolio, which advice
shall be consistent with the investment objectives and policies of the
Fund. You will determine what securities shall be purchased for the Fund,
what securities shall be held or sold by the Fund, and what portion of the
Fund's assets shall be held uninvested, subject always to the provisions of
the Trust's Declaration of Trust and By-Laws and of the Investment Company
Act of 1940, as amended, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from time to time in
effect, and subject, further to such policies and instructions as the Board
of Trustees may from time to time establish. 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 for the Fund's account with
brokers or dealers selected by you. The Adviser shall provide you with
written statements of such Declaration; By-laws; investment objectives and
policies; 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 shall have no obligations or duties whatsoever to ensure compliance
with any limitation relating to the amount of (1) the Fund's aggregate
assets which may be invested in any category of investment or in a
particular manner or (ii) short-term or other category of gain that may be
realized by the Fund, in the aggregate, in any given period.
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 in any way or otherwise be deemed to be an agent of the
Trust or of the Adviser. You will make your officers and employees
available to meet with the Trust's officers and Trustees at least quarterly
on due notice to review the investments and investment program of the Fund
in the light of current and prospective economic and market conditions.
3. ALLOCATION OF CHARGES AND EXPENSES: You will bear your own costs of
providing services hereunder. Except as aforesaid, 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 Appendix
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 Fund at
the close of the last business day of each month within the quarter. The
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 of 1940. Your fee will be
based on the average of the net asset values of the Fund computed 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
2
<PAGE> 3
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR SHORT DURATION FUND
JUNE 25, 1993
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.
5. AVOIDANCE OF INCONSISTENT POSITION AND BROKERAGE: In connection with
purchases or sales of portfolio securities for the account of the Fund,
neither you nor any of your partners, directors, officers or employees will
act as a principal or agent or receive any commission. You or your agent
shall arrange for the placing of all orders for the purchase and sale of
portfolio securities for the Fund's account with brokers or dealers
selected by you. In the selection of such brokers or dealers and the
placing of such orders, you are directed at all times to seek for the Fund
the most favorable execution and net price available. It is also understood
that it is desirable for the Fund that you have access to supplemental
investment and market research and security and economic analyses provided
by certain brokers who may execute brokerage transactions at a higher cost
to the Fund than may result when allocating brokerage to other brokers on
the basis of seeking the most favorable price and efficient execution.
Therefore, you are authorized to place orders for the purchase and sale of
securities for the Fund with such certain brokers, subject to review by the
Trust's 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. From time
to time as the Trustees of the Trust 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.
6. LIMITATION OF LIABILITY: You shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you of your
obligations and duties under this Agreement. Any person, even though also
employed by
3
<PAGE> 4
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR SHORT DURATION FUND
JUNE 25, 1993
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 willful misfeasance, bad faith, gross
negligence or a reckless disregard of your obligations, as specified above.
7. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall remain in
force until March 17, 1995 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 of the Fund, 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 of 1940 and the rules and regulations thereunder.
This Agreement may, on 60 days written notice, be terminated at any time
without the payment of any penalty, by the Board of Trustees, by vote of a
majority of the outstanding voting securities of the Fund, by the Adviser,
or by you. This Agreement shall automatically terminate in the event of
its assignment. In interpreting the provisions of this Agreement, the
definitions contained in Section 2(a) of the Investment Company Act of 1940
(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, regulation
or order.
8. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no 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 Trustees of the Trust
such information as may reasonably be necessary in order for such 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.
4
<PAGE> 5
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR SHORT DURATION FUND
JUNE 25, 1993
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 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.
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust. No series of the Trust shall be liable for any claims
against any other series of the Trust.
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.
Yours very truly,
HARBOR FUND
(ON BEHALF OF HARBOR SHORT DURATION FUND)
By /s/ Ronald C. Boller
---------------------------
Title: President
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
---------------------------
Title: Senior Vice President
The foregoing Agreement is hereby accepted as of the date thereof.
FISCHER FRANCIS TREES & WATTS, INC.
By /s/ S. Bruce Kauffman
---------------------------
Title: Managing Director
5
<PAGE> 6
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR SHORT DURATION FUND
JUNE 25, 1993
SCHEDULE A
You will receive an advisory fee equal on an annual basis to .20% of the Fund's
average actual net assets, as defined in paragraph 4 of the Agreement, up to
$100 million; and .15% on assets in excess of $100 million. The Adviser will
pay you a fee each year which is not less than $200,000. For purposes of
determining the applicable fee rate, and satisfying the minimum payment, the
assets of the Fund and the payments by the Adviser to you will be combined with
the assets and payments of the accounts of the Owens-Illinois Master Retirement
Trust that you manage.
6
<PAGE> 1
EXHIBIT 5(s)
June 25, 1993
Fischer Francis Trees
& Watts, Inc.
717 Fifth Avenue
New York, NY 10022
INVESTMENT ADVISORY AGREEMENT FOR SUBADVISER
(HARBOR MONEY MARKET FUND)
----------------------------------------------------------
Dear Sirs:
Harbor Capital Advisors, Inc. (the "Adviser"), a Delaware corporation, with
its principal offices at One SeaGate, Toledo, Ohio 43666, is investment adviser
to Harbor Fund (the "Trust"), on behalf of Harbor Money Market 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. Pursuant to authority granted the Adviser by the Trust's Trustees and
pursuant to the provisions of the Investment Advisory Agreement dated June 25,
1993, between the Adviser and the Trust, 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, and you are willing to act as such sub-investment
adviser and to perform such services under the terms and conditions hereinafter
set forth. Accordingly, the Adviser and the Trust on behalf of the Fund agree
with you as follows:
1. DELIVERY OF FUND DOCUMENTS: The Adviser has furnished you with copies
properly certified or authenticated of each of the following:
(a) Declaration of Trust of the Trust, filed with the Secretary of the
State of Delaware, dated June 8, 1993, as amended from time to time
(the "Declaration of Trust").
(b) By-Laws of the Trust as in effect on the date hereof.
(c) Resolutions of the Trustees selecting the Adviser as investment
adviser and you as sub-investment adviser and approving the form of
this Agreement.
<PAGE> 2
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR MONEY MARKET FUND
JUNE 25, 1993
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 the Fund's portfolio, which advice
shall be consistent with the investment objectives and policies of the
Fund. You will determine what securities shall be purchased for the Fund,
what securities shall be held or sold by the Fund, and what portion of the
Fund's assets shall be held uninvested, subject always to the provisions of
the Trust's Declaration of Trust and By-Laws and of the Investment Company
Act of 1940, as amended, and to the investment objectives, policies and
restrictions of the Fund, as each of the same shall be from time to time in
effect, and subject, further to such policies and instructions as the Board
of Trustees may from time to time establish. 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 for the Fund's account with
brokers or dealers selected by you. The Adviser shall provide you with
written statements of such Declaration; By-laws; investment objectives and
policies; 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 shall have no obligations or duties whatsoever to ensure compliance
with any limitation relating to the amount of (1) the Fund's aggregate
assets which may be invested in any category of investment or in a
particular manner or (ii) short-term or other category of gain that may be
realized by the Fund, in the aggregate, in any given period.
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 in any way or otherwise be deemed to be an agent of the
Trust or of the Adviser. You will make your officers and employees
available to meet with the Trust's officers and Trustees at least quarterly
on due notice to review the investments and investment program of the Fund
in the light of current and prospective economic and market conditions.
3. ALLOCATION OF CHARGES AND EXPENSES: You will bear your own costs of
providing services hereunder. Except as aforesaid, 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 Appendix
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 Fund at
the close of the last business day of each month within the quarter. The
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 of 1940. Your fee will be
based on the average of the net asset values of the Fund computed 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
2
<PAGE> 3
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR MONEY MARKET FUND
JUNE 25, 1993
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.
5. AVOIDANCE OF INCONSISTENT POSITION AND BROKERAGE: In connection with
purchases or sales of portfolio securities for the account of the Fund,
neither you nor any of your partners, directors, officers or employees will
act as a principal or agent or receive any commission. You or your agent
shall arrange for the placing of all orders for the purchase and sale of
portfolio securities for the Fund's account with brokers or dealers
selected by you. In the selection of such brokers or dealers and the
placing of such orders, you are directed at all times to seek for the Fund
the most favorable execution and net price available. It is also understood
that it is desirable for the Fund that you have access to supplemental
investment and market research and security and economic analyses provided
by certain brokers who may execute brokerage transactions at a higher cost
to the Fund than may result when allocating brokerage to other brokers on
the basis of seeking the most favorable price and efficient execution.
Therefore, you are authorized to place orders for the purchase and sale of
securities for the Fund with such certain brokers, subject to review by the
Trust's 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. From time
to time as the Trustees of the Trust 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.
6. LIMITATION OF LIABILITY: You shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Fund in connection with
the matters to which this Agreement relates, except a loss resulting from
willful misfeasance, bad faith or gross negligence on your part in the
performance of your duties or from reckless disregard by you 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
3
<PAGE> 4
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR MONEY MARKET FUND
JUNE 25, 1993
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 willful misfeasance, bad faith, gross negligence or a reckless
disregard of your obligations, as specified above.
7. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall remain in
force until March 17, 1995 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 of the Fund, 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 of 1940 and the rules and regulations thereunder.
This Agreement may, on 60 days written notice, be terminated at any time
without the payment of any penalty, by the Board of Trustees, by vote of a
majority of the outstanding voting securities of the Fund, by the Adviser,
or by you. This Agreement shall automatically terminate in the event of
its assignment. In interpreting the provisions of this Agreement, the
definitions contained in Section 2(a) of the Investment Company Act of 1940
(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, regulation
or order.
8. AMENDMENT OF THIS AGREEMENT: No provisions of this Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against which enforcement of the change,
waiver, discharge or termination is sought, and no 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 Trustees of the Trust
such information as may reasonably be necessary in order for such Trustees
to evaluate this Agreement or any proposed amendments thereto for the
purposes of casting a vote pursuant to paragraphs 7 or 8 hereof.
9. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
10. MISCELLANEOUS: It is understood and expressly stipulated that neither the
holders of shares of the Trust or the Fund nor the Trustees shall be
personally liable hereunder. The captions in
4
<PAGE> 5
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR MONEY MARKET FUND
JUNE 25, 1993
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.
The name "Harbor Fund" is the designation of the Trustees for the time
being under the Declaration of Trust dated June 8, 1993, as amended from
time to time, 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 as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust. No series of the Trust shall be liable for any claims
against any other series of the Trust.
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.
Yours very truly,
HARBOR FUND
By /s/ Ronald C. Boller
----------------------------
Title: President
HARBOR CAPITAL ADVISORS, INC.
By /s/ Constance L. Souders
-----------------------------
Title: Senior Vice President
The foregoing Agreement is hereby accepted as of the date thereof.
FISCHER FRANCIS TREES
& WATTS, INC.
By /s/ S. Bruce Kauffman
-----------------------------
Title: Managing Director
5
<PAGE> 6
FISCHER FRANCIS TREES & WATTS, INC.
HARBOR MONEY MARKET FUND
JUNE 25, 1993
SCHEDULE A
You will receive an advisory fee equal on an annual basis to .20% of the Fund's
average actual net assets, as defined in paragraph 4 of the Agreement, up to
$100 million; and .15% on assets in excess of $100 million. The Adviser will
pay you a fee each year which is not less than $200,000. For purposes of
determining the applicable fee rate, and satisfying the minimum payment, the
assets of the Fund and the payments by the Adviser to you will be combined with
the assets and payments of the accounts of the Owens-Illinois Master Retirement
Trust that you manage.
6
<PAGE> 1
EXHIBIT 6
June 25, 1993
HCA Securities, Inc.
One SeaGate
Toledo, Ohio 43666
DISTRIBUTION AGREEMENT
Dear Sirs:
Harbor Fund (hereinafter called the "Fund") is a business trust organized under
the laws of Delaware and is engaged in the business of an investment company.
The authorized capital of the Fund consists of an unlimited number of shares of
beneficial interest, par value $.01 (the "Shares"), of seven series. Shares
may be divided into additional series of the Fund ("Series) that may be
established from time to time by action of the Trustees. The Fund has selected
you to act as principal underwriter (as such term is defined in Section 2 (a)
(29) of the Investment Company Act of 1940, as amended (the "1940 Act") of the
shares and you are willing to act as the principal underwriter and to perform
the duties and functions of underwriter in the manner and on the terms and
conditions hereinafter set forth. Accordingly, the Fund hereby agrees with you
as follows:
1. DELIVERY OF DOCUMENTS: The fund has furnished you with copies properly
certified or authenticated of each of the following:
(a) Declaration of Trust of the Fund filed with the
Delaware Secretary of the State, dated June 8, 1993, as
amended from time to time.
(b) By-Laws of the Fund as in effect on the date hereof.
(c) Resolutions of the Board of Trustees of the Fund
selecting you as principal underwriter and approving
this form of Agreement.
The Fund will furnish you from time to time with copies,
properly certified or authenticated, of all amendments of or
supplements to the foregoing, if any.
<PAGE> 2
DISTRIBUTION AGREEMENT
HCA SECURITIES, INC.
JUNE 25, 1993
The Fund will furnish you promptly with properly certified or authenticated
copies of any registration statement filed by it with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, (the "1933
Act") or the 1940 Act, together with any financial statements and exhibits
included therein, and all amendments or supplements thereto hereafter filed.
2. REGISTRATION AND SALE OF ADDITIONAL SHARES: The Fund will from
time to time use its best efforts to register under the 1933 Act such
number of Shares not already so registered as you may reasonably be
expected to sell on behalf of the Fund. You and the Fund will cooperate in
taking such action as may be necessary from time to time to qualify Shares
so registered for sale by you or the Fund in any states mutually agreeable
to you and the Fund, and to maintain such qualification. This agreement
related to the issue and sale of Shares that are duly authorized and
registered and available for sale by the Fund, including redeemed or
repurchased Shares if and to the extent that they may be legally sold and
if, but only if, the Fund sees fit to sell them.
3. SALE OF SHARES: Subject to the provisions of paragraphs 5 and 7
hereof and to such minimum purchase requirements as may from time to time
be currently indicated in the Fund's prospectus or statement of additional
Information, you are authorized to sell as agent on behalf of the Fund
Shares authorized for issue and registered under the 1933 Act. You may
also purchase as principal Shares for resale to the public. Such sales
will be made by you on behalf of the Fund by accepting unconditional orders
to purchase Shares placed with you by investors and such purchases will be
made by you only after acceptance by you of such orders. The sales price
to the public of Shares shall be the public offering price as defined in
paragraph 6 hereof.
4. SOLICITATION OF ORDERS: You will use your best efforts (but only
in states in which you may lawfully do so) to obtain from investors
unconditional orders for Shares authorized for issue by the Fund and
registered under the 1933 Act, provided that you may in your discretion
refuse to accept orders for Shares from any particular applicant.
5. SALE OF SHARE BY THE FUND Unless you are otherwise notified by
the Fund, any right granted to you to accept order for Shares or to make
sales on behalf of the Fund or to purchase Shares for resale will not apply
to (i) Shares issued in connection with the merger or consolidation of any
other investment company with the Fund or its acquisition, by purchase or
otherwise, of all or substantially all of the assets of any investment
company substantially all the outstanding shares of any such company, and
(ii) to Shares that may be offered by the Fund to shareholders of the Fund
by virtue of their being shareholders.
2
<PAGE> 3
DISTRIBUTION AGREEMENT
HCA SECURITIES, INC.
JUNE 25, 1993
6. PUBLIC OFFERING PRICE: All Shares sold to investors by you will
be sold at the public offering price. The public offering price for all
accepted subscriptions will be the net asset value per Share, determined,
in the manner provided in the Fund's registration statements as from time
to time in effect under the 1933 Act and the 1940 Act, next after the order
is accepted by you.
7. SUSPENSION OF SALES: If and whenever the determination of net
asset value is suspended and until such suspension is terminated, no
further orders for Shares shall be accepted by you except unconditional
orders placed with you before you had knowledge of the suspension. In
addition, the Fund reserves the right to suspend sales and your authority
to accept orders for Shares on behalf of the Fund if, in the judgment of a
majority of the Board of Trustees or a majority of the Executive Committee
of such Board, if such body exists, it is in the best interest of the Fund
to do so, such suspension to continue for such period as may be determined
by such majority; and in that event, no Shares will be sold by you on
behalf of the Fund while such suspension remains in effect except for
Shares necessary to cover unconditional orders accepted by you before you
had knowledge of the suspension.
8. PORTFOLIO SECURITIES: Portfolio securities of the Fund may be
bought or sold by or through you and you may participate directly or
indirectly in brokerage commissions or "spread" in respect of transactions
in portfolio securities of the Fund.
9. EXPENSES:
(a) The Fund will pay (or will enter into arrangements providing
that parties other than you will pay) all fees and expenses:
(1) in connection with the preparation, setting in type and
filing of any registration statement (including a
prospectus and statement of additional information)
under the 1933 Act or the 1940 Act, or both, and any
amendments or supplements thereto that may be made from
time to time;
(2) in connection with the registration and qualification
of Shares for sale in the various jurisdictions in
which the Fund shall determine it advisable to qualify
such Shares for sale (including registering the Fund as
a broker or dealer or any officer of the Fund or other
person as agent or salesman of the Fund in any such
jurisdictions);
(3) of preparing, setting in type, printing and mailing any
notice, proxy statement, report, prospectus and other
communication to shareholders of the Fund in their
capacity as such;
3
<PAGE> 4
DISTRIBUTION AGREEMENT
HCA SECURITIES, INC.
JUNE 25, 1993
(4) of preparing, setting in type, printing and mailing
prospectuses annually, and any supplements thereto, to
existing shareholders;
(5) in connection with the issue and transfer of Shares
resulting from the acceptance by you of orders to
purchase Shares placed with you by investors, including
the expenses of printing and mailing confirmations of
such purchase orders and the expenses of printing and
mailing a prospectus included with the confirmation of
such orders;
(6) of any issue taxes or any initial transfer taxes;
(7) of WATTS (or equivalent) telephone lines other than the
portion allocated to you in this paragraph 9;
(8) of wiring funds in payment of Share purchases or in
satisfaction of redemption or repurchase requests,
unless such expenses are paid for by the investor or
shareholder who initiates the transaction;
(9) of the cost of printing and postage of business reply
envelopes sent to Fund shareholders;
(10) of one or more CRT terminals connected with the
computer facilities of the transfer agent other than
the portion allocated to you in this paragraph 9;
(11) permitted to be paid or assumed by the Fund pursuant to
a plan ("12b-1 Plan"), if any, adopted by the Fund in
conformity with the requirements of Rule 12b-1 under
the 1940 Act ("Rule 12b-1") or any successor rule,
notwithstanding any other provision to the contrary
herein;
(12) of the expense of setting in type, printing and postage
of the periodic newsletter to shareholders other than
the portion allocated to you in this paragraph 9; and
(13) of the salaries and overhead of persons employed by you
as shareholder representatives other than the portion
allocated to you in this paragraph 9.
(b) You shall pay or arrange for the payment of all fees and
expenses:
(1) of printing and distributing any prospectuses or
reports prepared for your use in connection with the
offering of Shares to the public;
4
<PAGE> 5
DISTRIBUTION AGREEMENT
HCA SECURITIES, INC.
JUNE 25, 1993
(2) of preparing, setting in type, printing and mailing an other
literature used by you in connection with the offering of Shares to the
public;
(3) advertising in connection with the offering of Shares to the
public;
(4) incurred in connection with your registration as a broker or
dealer or the registration or qualification of your officers, directors,
agents representatives under Federal and state laws;
(5) of that portion of WATTS (or equivalent) telephone lines,
allocated to you on the basis of use by investors (but not shareholders)
who request information or prospectuses;
(6) of that portion of the expense of setting in type,
printing and postage of the periodic newsletter to shareholders
attributable to promotional material included in such newsletter at
your request concerning investment companies other than the Fund or
concerning the Fund to the extent you are required to assume the
expense thereof pursuant to paragraph 9 (b) (12), except such material
which is limited to information, such as listings of other investment
companies and their investment objectives, given in connection with the
exchange privilege as from time to time described in the Fund's
prospectus;
(7) of that portion of the salaries and overhead of persons
employed by you as shareholder representatives attributable to the time
spent by such persons in responding to requests from investors, but not
shareholders, for information about the Fund;
(8) of any activity which is primarily intended to result in
the sale of Shares, unless a 12b-1 Plan shall be in effect which
provides that the Fund shall bear some or all of such expenses, in
which case the Fund shall bear such expenses in accordance with such
Plan; and
(9) of that portion of one or more CRT terminals connected with the
computer facilities of the transfer agent attributable to your use of
such terminal (s) to gain access to such of the transfer agent's
records as also serve as your records.
Expenses which are to be allocated between you and the Fund shall be
allocated pursuant to reasonable procedures or formulae mutually agreed upon
from time to time, which procedures or formulae shall to the extent practicable
reflect studies of relevant empirical data.
5
<PAGE> 6
DISTRIBUTION AGREEMENT
HCA SECURITIES, INC.
JUNE 25, 1993
10. CONFORMITY WITH LAW: You agree that in selling Shares you will
duly conform in all respects with the laws of the United States and any
state in which Shares may be offered for sale by you pursuant to this
Agreement and to the rules and regulations of the National Association of
Securities Dealers, Inc., of which you are a member.
11. INDEPENDENT CONTRACTOR: You shall be an independent contractor
and neither you nor any of your officers or employees is or shall be an
employee of the Fund in the performance of your duties hereunder. You
shall be responsible for your own conduct and the employment, control and
conduct of your agents and employees and for injury to such agents or
employees or to others through your agents or employees. You assume full
responsibility for your agents and employees under applicable statutes and
agree to pay all employee taxes thereunder.
12. INDEMNIFICATION: You agree to indemnify and hold harmless the
Fund, and each of its Trustees and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act, against
any and all losses, claims, damages, liabilities of litigation (including
legal and other expenses) to which the Fund or such Trustees, officers, or
controlling person may become subject under such Act, under any other
statute, at common law or otherwise, arising out of the acquisition of any
Shares by any person which (i) may be based upon any wrongful act by you or
any of your employees of representatives, or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact contained
in a registration statement (including a prospectus or statement of
additional information) covering Shares or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement therein not misleading if such statement or omission was made in
reliance upon information furnished to the Fund by you, or (iii) may be
incurred or arise by reason of your acting as the Fund's agent instead of
purchasing and reselling Shares as principal in distributing the Shares to
the public, provided, however, that in no case (i) is your indemnity in
favor of a Trustee or officer or any other person deemed to protect such
Trustee or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad
faith, or gross negligence in the performance of his duties or by reason of
his reckless disregard of obligations and duties under this Agreement or
(ii) are you to be liable under your indemnity agreement contained in this
paragraph with respect to any claim made against the Fund or any person
indemnified unless the Fund or such person, as the case may be, shall have
notified you in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claims shall
have been served upon the Fund or upon such person (or after the Fund or
such person
6
<PAGE> 7
DISTRICUTION AGREEMENT
HCA SECURITIES, INC.
JUNE 25, 1993
shall have received notice of such service on any designated agent),
but failure to notify you of any such claim shall not relieve you from any
liability which you may have to the fund or any person against whom such
action is brought otherwise than on account of your indemnity agreement
contained in this paragraph. You shall be entitled to participate, at your
own expense, in the defense, or, if you so elect, to assume the defense of
any suit brought to enforce any such liability, but if you elect to assume
the defense, such defense shall be conducted by counsel chosen by you and
satisfactory to the Fund, to its officers and Trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the
event that you elect to assume the defense of any such suit and retain such
counsel, the Fund, such officers and Trustees or controlling person or
persons, defendant or defendants in the suit shall bear the fees and
expenses of any additional counsel retained by them, but, in case you do
not elect to assume the defense of any such suit, you will reimburse the
Fund, such officers and Trustees or controlling person or persons,
defendant or defendants in such suit for the reasonable fees and expenses
of any counsel retained by them. You agree promptly to notify the Fund of
the commencement with the issue and sale of any of Shares.
The Fund agrees to indemnify and hold harmless you and each of your
directors and officers and each person, if any, who controls you within the
meaning of Section 15 of the 1933 Act, against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to
which you or such directors, officers or controlling person may become
subject under such Act, under any other statue, at common law or otherwise,
arising out of the acquisition of any Shares by any person which (i) may be
based upon any wrongful act by the Fund or any of its employees or
representatives, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement
(including a prospectus or statement of additional information) covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon information furnished to
you by the Fund; provided, however, that in no case (i) is the Fund's
indemnity in favor of a director or officer or any other person deemed to
protect such director or officer or other person against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties
under this Agreement or (ii) is the Fund to be liable under its indemnity
agreement contained in this paragraph with respect to any claims made
against you or any such director, officer or controlling person unless you
or such director, officer or controlling person, as the case may be, shall
have notified the Fund in writing within a reasonable time after the
summons or other first legal process
7
<PAGE> 8
DISTRIBUTION AGREEMENT
HCA SECURITIES, INC.
JUNE 25, 1993
giving information of the nature of the claim shall have been served upon
you or upon such director, officer or controlling person (or after you or
such director, officer or controlling person shall have received notice of
such service on any designated agent), but failure to notify the Fund of
any such claim shall not relieve it from any liability which it may have to
the person against whom such action is brought otherwise than on account of
its indemnity agreement contained in this paragraph. The Fund will be
entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if the Fund elects to assume the defense, such defense shall
be conducted by counsel chosen by it and satisfactory to you, your
directors, officers or controlling person or persons, defendant or
defendants in the suit. In the event that the Fund elects to assume the
defense of any such suit and retain such counsel, you, your directors,
officers or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained
by them, but in case the Fund does not elect to assume the defense of any
such suit, it will reimburse you or such directors, officers or controlling
person or persons, defendant or defendants in the suit, for the reasonable
fees and expenses of any counsel retained by them. The Fund agrees
promptly to notify you of the commencement of any litigation or proceedings
against it or any of its officers or Trustees in connection with the
issuance of sale of any Shares.
13. AUTHORIZED REPRESENTATIVES: The Fund is not authorized to give any
information or to make any representations on behalf of you other than the
information and representations contained in a registration statement
(including a prospectus or statement of additional information) covering
Shares, as such registration statement and prospectus may be amended or
supplemented from time to time.
You are not authorized to give any information or to make any
representations on behalf of the Fund or in connection with the sale of
Shares other than the information and representations contained in a
registration statement (including a prospectus or statement of additional
information) covering Shares, as such registration statement may be amended
or supplemented from time to time. No person other than you is authorized
to act as principal underwriter (as such term is defined in the 1940 Act)
for the Fund.
14. DURATION AND TERMINATION OF THIS AGREEMENT: This Agreement shall
become effective upon the date first written above and will remain in
effect for a period of two years from the date hereof and from year to year
thereafter, but only so long as such continuance is specifically approved
at least annually by the vote of a majority of the Trustees who are not
interested persons of you or of the Fund, cast in person at a meeting
called for the purpose of voting on such approval and
8
<PAGE> 9
DISTRIBUTION AGREEMENT
HCA SECURITIES, INC.
JUNE 25, 1993
by a vote of the Board of Trustees or of a majority of the outstanding
voting securities of the Fund. This Agreement may, on 60 days written
notice, be terminated at any time without the payment of any penalty, by
the Board of Trustees of the Fund, by a vote of a majority of the
outstanding voting securities of the Fund, or by you. This Agreement will
automatically terminate in the event of its assignment. In interpreting
the provisions of this paragraph 14, the definitions contained in Section 2
(a) of the 1940 Act (particularly the definitions of "interested person,"
"assignment" and "majority of the outstanding voting securities"), as
modified by any applicable order of the Securities and Exchange Commission,
shall be applied.
15. AMENDMENT OF THIS AGREEMENT No provisions of this Agreement may
be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought. If the Fund should at
any time deem it necessary or advisable in the best interests of the Fund
that any amendment of this Agreement be made in order to comply with the
recommendations or requirements of the Securities and Exchange Commission
or other governmental authority or to obtain any advantage under state or
federal tax laws and should notify you of the form of such amendment, and
the reasons therefor, and if you should decline to assent to such
amendment, the Fund may terminate this Agreement forthwith. If you should
at any time request that a change be made in the Fund's Declaration of
Trust or By-laws or in its methods of doing business, in order to comply
with any requirements of federal law or regulations of the Securities and
Exchange Commission or of a national securities association of which you
are or may be a member relating to the sale of shares of the Fund, and the
Fund should not make such necessary change within a reasonable time, you
may terminate this Agreement forthwith.
16. GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
17. MISCELLANEOUS: 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.
The name "Harbor Fund" is the designation of the Trustees for the time
being under a Declaration of Trust dated June 8, 1993, as amended from time
to time, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations
9
<PAGE> 10
DISTRIBUTION AGREEMENT
HCA SECURITIES, INC.
JUNE 25, 1993
entered into on behalf of the Fund. No series of the Fund shall be
liable for any claims against any other series of the Fund.
If you are in agreement with the foregoing, please sign the form of
acceptance on the accompanying counterpart of this letter and return such
counterpart to the Fund, whereupon this letter shall become a binding
contract.
Very truly yours,
HARBOR FUND
By /s/ Constance L. Souders
------------------------------
Title: Secretary/Treasurer
The foregoing Agreement is hereby accepted as of the date thereof.
HCA SECURITIES, INC.
By /s/ Ronald C. Boller
------------------------------
Title: President
10
<PAGE> 1
EXHIBIT 9
FIRST RESTATED
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 25th day of June, 1993, by and between HARBOR
FUND, a Delaware business trust, having its principal office and place of
business at One SeaGate, Toledo, Ohio 43666 (the "Fund"), and HARBOR TRANSFER,
INC., a Delaware corporation having its principal office and place of business
at One SeaGate, Toledo, Ohio 43666 (the "Agency").
WHEREAS, the Fund desires to appoint the Agency as its transfer agent,
dividend disbursing agent and shareholder service agent in connection with
certain other activities, and the Agency desires to accept such appointment;
WHEREAS, the Fund is authorized to issue shares in separate series, with
shares of each such series representing interests in a separate portfolio of
securities and other assets; and
WHEREAS, the Fund intends to offer shares of seven series, (such series,
together with all other series subsequently established by the Fund and made
subject to this Agreement in accordance with Article 8, shall each be referred
to as the "Fund" unless the context requires otherwise);
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
ARTICLE 1 TERMS OF APPOINTMENT; Duties of the Agency
1.01 Subject to the terms and conditions set forth in this Agreement, the Fund
hereby, employs and appoints the Agency to act as, and the Agency agrees
to act as, transfer agent for the Fund's authorized and issued shares of
beneficial interest ("Shares"), dividend disbursing agent and agent in
connection with any accumulation, open-
<PAGE> 2
account or similar plans provided to the shareholders of the Fund
("Shareholders") and set out in the Prospectus (which term when used in
this Agreement includes the Statement of Additional Information) of the
Fund as now in effect or as hereafter amended or supplemented from time to
time without written objection by the Agency or as mutually agreed upon
from time to time.
1.02 The Agency agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Agency, the Agency shall:
(i) receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
therefore to the Custodian of the Fund authorized pursuant to
the Declaration of Trust of the Fund (the "Custodian");
(ii) pursuant to orders for the purchase of Shares, record the
purchase of the appropriate number of Shares in the
Shareholder's account and if requested by the Shareholders
and if the Trustees of the Fund have authorized the issuance
of share certificates, issue a certificate for the
appropriate number of shares;
(iii) pursuant to instructions provided by Shareholders,
reinvest income dividends and capital gain distributions;
(iv) receive for acceptance, redemption and repurchase
requests and directions, and deliver the appropriate
documentation therefor to the Custodian;
(v) at the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any
2
<PAGE> 3
redemption and repurchase, pay over or cause to be paid over
in the appropriate manner such monies as instructed by the
redeeming shareholders;
(vi) effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) prepare and transmit payments for dividends and distributions
declared by the Fund;
(viii) maintain records of account for and advise the Fund and its
Shareholders as to the foregoing;
(ix) record the issuance of Shares of the Fund and maintain
pursuant to SEC Rule 17 Ad- 10(e) under the Securities
Exchange Act of 1934 a record of the total number of Shares
of the Fund which are authorized, based upon data provided to
it by the Fund, and issued and outstanding. The Agency shall
also provide the Fund on a regular basis with the total
number of Shares which are authorized and issued and
outstanding and shall have no obligations, when recording the
issuance of Shares, to monitor the issuance of such Shares or
to take cognizance of any laws relating to the issue or sale
of such Shares, which functions shall be the sole
responsibility of the Fund;
(x) provide an appropriate response to Shareholders with respect
to all correspondence and rejected trades;
3
<PAGE> 4
(xi) report abandoned property to the various states as authorized
by the Fund in accordance with policies and principles agreed
upon by the Fund and Agency;
(xii) respond to all telephone inquiries from Shareholders or their
authorized representatives regarding the status of
Shareholder accounts;
(xiii) respond to correspondence from Shareholders or their
authorized representatives regarding the status of
Shareholder accounts or information related to
Shareholder accounts;
(xiv) perform all Shareholder account maintenance updates; and
(xv) maintain such records as shall enable the Fund to fulfill
the requirements of Form N-SAR or any successor report which
must be filed with the Securities and Exchange Commission.
(b) In addition to and not in lieu of the services set forth in the above
paragraph (a), the Agency shall:
(i) perform all of the customary services of a transfer agent, dividend
disbursing agent and, as relevant, agent in connection with
accumulation, open-account or similar plans, (including without
limitation any periodic investment plan or periodic withdrawal
program); including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists,
4
<PAGE> 5
withholding all applicable taxes (including but not limited to all
withholding taxes imposed under the U.S. Internal Revenue Code and
Treasury regulations promulgated thereunder, and applicable state and
local laws to the extent consistent with good industry practice),
preparing and filing U.S. Treasury Department Forms 1099, Form 941
when applicable and other appropriate forms required with respect to
dividends, distributions and taxes withheld on Shareholder accounts
by federal authorities for all registered Shareholders, preparing and
mailing confirmation forms and statements of account to Shareholders
for all purchases, redemption and repurchases of Shares and other
confirmable transactions in Shareholder accounts, preparing and
mailing activity statements for Shareholders, and providing
Shareholder account information; and
(ii) provide daily and monthly a written report and access to information
which will enable the Fund to monitor the total number of Shares sold
and the aggregate public offering price thereof in each State by the
Fund, added by sales in each State of the registered Shareholder or
dealer branch office as defined by the Fund. If directed by the
Fund, each confirmation of the purchase which establishes a new
account will be
5
<PAGE> 6
accompanied by a prospectus and any amendments or supplements
thereto.
(c) The Fund shall:
(1) identify to the Agency in writing those transactions and assets to
be treated as exempt from the blue sky reporting for each State; and
(2) verify the establishment of transactions for each State on the
system prior to activation and thereafter monitor the daily activity
for each State. The responsibility of the Agency for the Fund's blue
sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the
Fund and the reporting of such transactions to the Fund as provided
above.
(d) Additionally, the Agency shall:
(i) utilize a system to identify all share transactions which involve
purchase, redemption and repurchase orders that are processed at a
time other than the time of the computation of net asset value per
share next computed after receipt of such orders, and shall compute
the net effect upon the Fund of such transactions so identified on a
daily and cumulative basis.
(ii) If upon any day the cumulative net effect of such transactions upon
the Fund is negative and exceeds a
6
<PAGE> 7
dollar amount equivalent to 1/2 of 1 cent per outstanding share, the
Agency shall promptly make a payment to the Fund in cash in such
amount as is necessary to reduce the negative cumulative net effect
to zero.
(iii) If on the last business day of a month that is the last month in the
Fund's fiscal half-year or fiscal year, a cumulative negative net
effect upon the Fund of 1/2 of 1 cent per outstanding share or less
exists, or a cumulative positive net effect upon the Fund of any
amount exists, the Agency shall bring the cumulative net effect upon
the Fund to zero.
(iv) The Agency shall supply to the Fund from time to time, as mutually
agreed upon, reports summarizing the transactions identified
pursuant to paragraph (i) above, and the daily and cumulative net
effects of such transactions, and shall advise The Fund at the end
of the net cumulative effect at such time. The Agency shall promptly
advise the Fund if at any time the cumulative net effect exceeds a
dollar amount equivalent to 2/5's of 1 cent per outstanding share
and 1/2 of 1 cent per outstanding share.
(v) This provision 1.02(d) of the Agreement may be terminated by the
Agency at any time without cause, effective as of the close business
on the date written notice is received by the Fund. Procedures
applicable to certain of these services may be established from time
to time by agreement between the Fund and the Agency.
Procedures applicable to certain of these services may be established from
time to time by agreement between the Fund and the Agency.
ARTICLE 2 FEES AND EXPENSES
2.01 For performance by the Agency pursuant to this Agreement, the Fund agrees
to pay the Agency an annual maintenance fee for each Shareholder account
as set out in
7
<PAGE> 8
the fee schedule attached hereto. Such fees and out-of-pocket expenses
identified under Section 2.02 below may be changed from time to time
subject to mutual written agreement between the Fund and the Agency.
2.02 Any other expenses incurred by the Agency at the request or with the
consent of the Fund, will be reimbursed by the Fund.
2.03 The Fund may engage accounting firms or other consultants to evaluate the
fees paid by the Fund and the quality of services rendered by the Agency
hereunder, and such firms or other consultants shall be provided access by
the Agency to such information as may be reasonably required in connection
with such engagement. The Agency will give due consideration and regard
to the recommendations to the Fund in connection with such engagement, but
shall not be bound thereby.
ARTICLE 3 REPRESENTATION AND WARRANTIES OF THE AGENCY
The Agency represents and warrants to the Fund that:
3.01 It is a Delaware corporation duly organized and existing and in good
standing under the laws of the State of Delaware.
3.02 It has the legal power and authority to carry on its business in Delaware
and Ohio.
3.03 It is empowered under applicable laws and by its charter and By-Laws to
enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
3.05 It is duly registered as a transfer agent under Section 17A of the
Securities Exchange Act of 1934, as amended.
3.06 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
8
<PAGE> 9
ARTICLE 4 REPRESENTATION AND WARRANTIES OF THE FUND
The Fund represents and warrants to the Agency that:
4.01 It is a business trust duly organized and existing under the laws of the
State of Delaware.
4.02 It is empowered under applicable laws and by its Declaration of Trust and
By-Laws to enter into and perform this Agreement.
4.03 All proceedings of the Trustees or otherwise required by said Declaration
of Trust and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
4.04 It is an open-ended diversified investment company registered under the
Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as amended, is
currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with
respect to all Shares of the Fund being offered for sale.
ARTICLE 5 INDEMNIFICATION
5.01 To the extent the Agency acts in good faith and without negligence or
willful misconduct, the Agency will not be responsible for, and the Fund
shall indemnify and hold the Agency harmless from and against, any and all
losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to:
(a) All actions of the Agency or its agents or subcontractors required
to be taken pursuant to this Agreement;
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's lack of good faith,
9
<PAGE> 10
negligence or willful misconduct or which arise out of the breach of
any representation or warranty of the Fund hereunder;
(c) The reasonable reliance on or use by the Agency or its agents or
subcontractors of information, records and documents which:
(i) are received by the Agency or its agents or subcontractors and
furnished to it by or on behalf of the Fund; and
(ii) have been prepared and/or maintained by the Fund or any other
person or firm (except the Agency) on behalf of the Fund;
(d) The reasonable reliance on, or the carrying out by the Agency or its
agents or subcontractors of any instructions or requests of the Fund
or any person acting on behalf of the Fund; and
(e) The offer or sales of Shares in violation of any requirement under
the federal securities laws or regulations, or the securities laws or
regulations of any state that such Shares be registered in such
state, or in violation of any stop order or other determination or
ruling by any federal agency or any state with respect to the offer
or sale of such Shares in such state, unless such violation is the
result of the Agency's negligent or willful failure to comply with
the provisions of Section 1.02(b) of this Agreement.
5.02 The Agency shall indemnify and hold the Fund harmless from and against
any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributable to any action or
failure or omission to act by the Agency as a result of the Agency's lack
of good faith, negligence or willful misconduct.
10
<PAGE> 11
5.03 At any time the Agency may apply to any officer of the Fund for
instructions, and may consult with legal counsel (which may be counsel to
the Fund) with respect to any matter arising in connections with the
services to be performed by the Agency under this Agreement, and the
Agency and its agents or subcontractors shall not be liable and shall be
indemnified by the Fund for any action taken or omitted by it in reliance
upon such instructions or upon the opinion of such counsel. The Agency,
its agents and subcontractors shall be protected and indemnified in acting
upon any paper or document furnished by or on behalf of the Fund,
reasonably believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction, information, data, records or
documents provided the Agency or its agents or subcontractors by machine
readable input, fax, CRT data entry or other similar means authorized by
the Fund, and shall not be held to have notice of any change of authority
of any person, until receipt of written notice thereof from the Fund. The
Agency, its agents and subcontractors shall also be protected and
indemnified in recognizing share certificates which are reasonably
believed to bear the proper manual or facsimile signatures of the officer
of the Fund, and the proper countersignature of any former transfer agent
or registrar, or of a co-transfer agent or co-registrar.
5.04 In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other
causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to
perform or otherwise from such causes.
5.05 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act
or failure to act
11
<PAGE> 12
hereunder, but each shall be liable for general damages resulting from
breach of this Agreement. For the purposes of this Agreement, the term
"general damages" shall include but shall not be limited to:
(a) All costs of correcting errors made by the Agency or its agents
or subcontractors in Fund shareholder accounts, including the expense
of computer time, computer programming and personnel;
(b) Amounts which the Fund is liable to pay to a person (or his
representative) who has purchased or redeemed, or caused to be
repurchased, Shares at a price which is higher, in the case of a
redemption or repurchase, than correct net asset value per Share,
but only to the extent that the price at which Shares were purchased,
redeemed or repurchased was incorrect as a result of either
(i) one or more errors caused by the Agency or its agents or
subcontractors in processing Shareholder accounts of
the Fund or
(ii) the posting by the Agency of the purchase, redemption of
repurchase of Shares subsequent to the time such purchase,
redemption or repurchase should have been posted pursuant to
laws and regulations applicable to open-end investment
companies, if the delay is caused by the Agency, its agents or
subcontractors;
(c) The value of dividends and distributions which were not credited
on Shares because of the failure of the Agency or its agents or
subcontractors to timely post the purchase of such Shares;
12
<PAGE> 13
(d) The value of dividends and distributions which were incorrectly
credited on Shares because of the failure of the Agency or its agents
or subcontractors to timely post the redemption or repurchase of such
Shares;
(e) The value of dividends and distributions, some portion of which was
incorrectly credited, or was not credited, on Shares because of the
application by the Agency or its agents or subcontractors of an
incorrect dividend or distribution factor or otherwise;
(f) Penalties and interest which the Fund is required to pay because of
failure of the Agency or its agents or subcontractors to comply with
the information reporting and withholding (including backup
withholding) requirements of the Internal Revenue Code of 1986, as
amended, and applicable Treasury regulations thereunder, applicable
to Fund Shareholder accounts; and
(g) Interest in accordance with the laws of the State of Ohio on any
damages from the date of the breach of this Agreement.
5.06 In order that the indemnification provisions contained in this Article 5
shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the
other party advised with respect to all developments concerning such
claim. The party who may be required to indemnify shall have the option
at its expense to participate with the party seeking indemnification in
the defense of such claim. The party seeking indemnification shall in no
case confess any claim or make any compromise in any case in which the
13
<PAGE> 14
other party may be required to indemnify it excepts with the other party's
prior written consent, which shall not be unreasonably withheld.
ARTICLE 6 COVENANTS OF THE FUND AND THE AGENCY
6.01 The Fund shall promptly furnish to the Agency the following:
(a) A certified copy of the resolution of the Trustees of the Fund
authorizing the appointment of the Agency and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund and all
amendments thereto.
6.02 The Agency hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Fund for safekeeping of share
certificates, check forms and facsimile signature imprinting devices, if
any; and for the preparation or use, and for keeping account of, such
certificates, forms and devices.
6.03 The Agency shall keep records relating to the services
performed hereunder, in the form and manner as it may deem
advisable. To the extent required by Section 31 of the
Investment Company Act of 1940, as amended, and the Rules
thereunder, the Agency agrees that all such records prepared
or maintained by the Agency relating to the services to be
performed by the Agency hereunder and those records that the
Fund and the Agency agree from time to time to be records of
the Fund are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section
and Rules, and will be surrendered to the Fund promptly on
and in accordance with its request.
6.04 The Agency and the Fund agree that all books, records,
information and data pertaining to the business of the other
party which are exchanged or received
14
<PAGE> 15
pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other
person, except as may be required by law.
6.05 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, the Agency will endeavor to notify the Fund and to
secure instructions from an authorized officer of the Fund as to such
request or inspection. The Agency reserves the right, however, to exhibit
the Shareholder records to any person whenever it is reasonably advised by
the counsel (which may be counsel to the Fund) that it may be held liable
for the failure to exhibit the Shareholder records to such person.
6.06 The Agency agrees to maintain disaster recovery capabilities
or a compatible configuration and to backup the Fund's master and input
files and to store such files in a secure off- premises location so that
in the event of a power failure or other interruption from whatever cause
at its principal place of business, the Fund's records are maintained
intact, and transactions can be processed at another location.
6.07 The Agency acknowledges that the Fund, as a registered investment company
under the Act, is subject to the provisions of the Act and the rules and
regulation thereunder, and that the offer and sale of the Fund's Shares
are subject to the provisions of federal and state laws and regulations
applicable to the offer and sale of securities. The Fund acknowledges that
the Agency is not responsible for the Fund's compliance with such laws and
regulations. If the Fund advises the Agency that a procedure of the
Agency related to the discharge of its obligations hereunder has or may
have effect of causing the Fund to violate any of such laws or
regulations,
15
<PAGE> 16
the Agency shall use its best efforts to develop a mutually agreeable
alternative procedure which does not have such effect.
ARTICLE 7 TERMINATION OF AGREEMENT
7.01 This Agreement may be terminated by either party upon one hundred twenty
(120) days written notice to the other.
7.02 Should the Fund exercise its right to terminate this Agreement, all
out-of-pocket expenses associated with the movement of records and
materials will be borne by the Fund. Additionally, the Agency reserves the
right to charge for any other reasonable expenses associated with such
termination and/or a charge equivalent to the average of the most recent
three (3) months' fees.
ARTICLE 8 ADDITIONAL SERIES
8.01 In the event that the Fund establishes one or more series or Shares in
addition to the seven series with respect to which it desires to have the
Agency render services as transfer agent under the terms hereof, the
Agency and the Fund shall mutually agree in writing to have the Agency
provide services to such additional series hereunder, and the term "Fund"
hereunder, unless the context otherwise requires, shall be deemed to refer
to each such series of Shares. All recordkeeping and reporting shall be
done separately for each series. Unless the Fund and the Agency agree to
an amended fee schedule, the fee schedule attached hereto shall apply to
each series separately.
ARTICLE 9 ASSIGNMENT
9.01 Except as provided in Section 9.03 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without
the written consent of the other party.
16
<PAGE> 17
9.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
9.03 The Agency may, without further consent on the part of the
Fund, subcontract for the performance hereof with
(i) Boston Financial Data Services, Inc., a Massachusetts corporation
("BFDS") which is duly registered as a transfer agent pursuant to
Section 17A(c)(1) of the Securities Exchange Act of 1934 ("Section
17A(c)(1)"), or
(ii) any BFDS subsidiary or affiliate or any other entity the Agency
recommends; provided, however, that the Agency shall be as fully
responsible to the Fund for the acts and omissions of any
subcontractor as it is for its own acts and omissions.
ARTICLE 10 AMENDMENT
10.01 This Agreement may be amended or modified by a written agreement
executed by both parties and authorized or approved by a resolution
of the Trustees of the Fund and the Directors of the Agency.
ARTICLE 11 OHIO LAW TO APPLY; LIABILITY FOR FUND OBLIGATIONS
11.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the State of
Ohio. The name "Harbor Fund" is the designation of the Trustees for
the time being under a Declaration of Trust dated June 8, 1993, as
amended, and all person dealing with the Fund must look solely to the
Fund's property for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents nor Shareholders assume any
personal liability for obligations entered into on behalf of the
Fund.
17
<PAGE> 18
ARTICLE 12 MERGER OF AGREEMENT
12.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the
subject hereof whether oral or written.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in their names and on their behalf under their seals by and
through their duly authorized officers, as of the day and year first above
written.
HARBOR FUND
By: /s/ Ronald C. Boller
---------------------------------
Ronald C. Boller, President
ATTEST:
/s/ Constance L. Souders
- ---------------------------------
Constance L. Souders, Secretary
HARBOR TRANSFER, INC.
By: /s/ Ralph H. Kohring
---------------------------------
Ralph H. Kohring, Vice President
ATTEST:
/s/ Janice D. Osthimer
- ---------------------------------
Janice D. Osthimer, Secretary
18
<PAGE> 19
HARBOR TRANSFER, INC.
Fee Schedule for Services as Plan, Transfer and Dividend Disbursing Agent for
the following Fund:
Harbor International Fund II
_______________________________________________________________________________
Fees are based on an annual per shareholder account charge for account
maintenance. Fees are billable on a monthly basis at a rate of 1/12 of the
annual fee. A charge is made for an account beginning in the month that an
account opens and continues monthly until the account is closed.
The annual maintenance fee is $45 per account, per year, per Fund.
There shall be a minimum fee payment in the amount of $1,000 per month, per
Fund.
All mass mailings to shareholders shall be the responsibility of the Fund,
except that Harbor Transfer, Inc. shall provide the Fund with the appropriate
mailing labels.
HARBOR INTERNATIONAL FUND II HARBOR TRANSFER, INC.
By: /s/ Ronald C. Boller By: /s/ Janice D. Osthimer
-------------------- --------------------------
Ronald C. Boller Janice D. Osthimer
Title: President Title: Vice President
----------------- -----------------------
Date: June 1, 1996 Date: April 26, 1996
----------------- -----------------------
19
<PAGE> 20
HARBOR TRANSFER, INC.
Fee Schedule for Services as Plan, Transfer and Dividend Disbursing Agent for
the following Fund:
Harbor International Growth Fund
-------------------------------------------
Fees are based on an annual per shareholder account charge for account
maintenance. Fees are billable on a monthly basis at a rate of 1/12 of the
annual fee. A charge is made for an account beginning in the month that an
account opens and continues monthly until the account is closed.
The annual maintenance fee is $45 per account, per year, per Fund.
There shall be a minimum fee payment in the amount of $1,000 per month, per
Fund.
All mass mailings to shareholders shall be the responsibility of the Fund,
except that Harbor Transfer, Inc. shall provide the Fund with the appropriate
mailing labels.
HARBOR INTERNATIONAL GROWTH FUND HARBOR TRANSFER, INC.
By: /s/ Ronald. C. Boller By: /s/ Janice D. Osthimer
------------------------- --------------------------
Ronald. C. Boller Janice D. Osthimer
Title: President Title: Secretary & Treasurer
---------------------- ----------------------
Date: November 1, 1993 Date: November 1, 1993
----------------------- -----------------------
20
<PAGE> 21
HARBOR TRANSFER, INC.
Fee Schedule for Services as Plan, Transfer and Dividend Disbursing Agent for
the following Funds:
Harbor International Fund
Harbor Growth Fund
Harbor Capital Appreciation Fund
Harbor Value Fund
Harbor Bond Fund
Harbor Short Duration Fund
Harbor Money Market Fund
--------------------------------------------
Fees are based on an annual per shareholder account charge for account
maintenance. Fees are billable on a monthly basis at a rate of 1/12 of the
annual fee. A charge is made for an account beginning in the month that an
account opens and continues monthly until the account is closed.
The annual maintenance fee is $45 per account, per year, per Fund.
There shall be a minimum fee payment in the amount of $1,000 per month, per
Fund.
All mass mailings to shareholders shall be the responsibility of the Fund,
except that Harbor Transfer, Inc. shall provide the Fund with the appropriate
mailing labels.
HARBOR INTERNATIONAL FUND HARBOR TRANSFER, INC.
HARBOR GROWTH FUND
HARBOR CAPITAL APPRECIATION FUND
HARBOR VALUE FUND
HARBOR BOND FUND
HARBOR SHORT DURATION FUND
HARBOR MONEY MARKET FUND
By: /s/ Ronald C. Boller By: /s/ Betty J. Csehi
-------------------------- --------------------------
R. C. Boller Betty J. Csehi
Title: President Title: Senior Vice President
---------------------- -----------------------
Date: January 1, 1992 Date: Janury 1, 1992
----------------------- ------------------------
21
<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. 22 to the registration statement on Form
N-1A (the "Registration Statement") of our report dated December 16, 1996,
relating to the financial statements and financial highlights of each of the
nine funds comprising the Harbor Fund, appearing in the October 31, 1996 Annual
Report to Shareholders, 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.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 20, 1997
<TABLE> <S> <C>
<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 DEC. 26, 1996 (FILE
NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> HARBOR INTERNATIONAL GROWTH FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 425,026
<INVESTMENTS-AT-VALUE> 479,066
<RECEIVABLES> 1,829
<ASSETS-OTHER> 512
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 481,407
<PAYABLE-FOR-SECURITIES> 1,510
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 928
<TOTAL-LIABILITIES> 2,438
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 409,465
<SHARES-COMMON-STOCK> 31,211
<SHARES-COMMON-PRIOR> 10,113
<ACCUMULATED-NII-CURRENT> 2,716
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 12,746
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 54,042
<NET-ASSETS> 478,969
<DIVIDEND-INCOME> 6,031
<INTEREST-INCOME> 592
<OTHER-INCOME> (604)
<EXPENSES-NET> 3,174
<NET-INVESTMENT-INCOME> 2,845
<REALIZED-GAINS-CURRENT> 16,393
<APPREC-INCREASE-CURRENT> 40,691
<NET-CHANGE-FROM-OPS> 59,929
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,243)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 25,679
<NUMBER-OF-SHARES-REDEEMED> (4,669)
<SHARES-REINVESTED> 88
<NET-CHANGE-IN-ASSETS> 356,554
<ACCUMULATED-NII-PRIOR> 1,094
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (3,632)
<GROSS-ADVISORY-FEES> 2,141
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,193
<AVERAGE-NET-ASSETS> 287,452
<PER-SHARE-NAV-BEGIN> 12.10
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 3.22
<PER-SHARE-DIVIDEND> (0.11)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 15.35
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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 DEC. 26, 1996 (FILE
NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> HARBOR GROWTH FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 90,737
<INVESTMENTS-AT-VALUE> 112,135
<RECEIVABLES> 1,545
<ASSETS-OTHER> 78
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 113,758
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 247
<TOTAL-LIABILITIES> 247
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 63,625
<SHARES-COMMON-STOCK> 7,092
<SHARES-COMMON-PRIOR> 8,742
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 28,488
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 21,398
<NET-ASSETS> 113,511
<DIVIDEND-INCOME> 329
<INTEREST-INCOME> 234
<OTHER-INCOME> (4)
<EXPENSES-NET> 1,212
<NET-INVESTMENT-INCOME> (653)
<REALIZED-GAINS-CURRENT> 29,141
<APPREC-INCREASE-CURRENT> (10,004)
<NET-CHANGE-FROM-OPS> 18,484
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (15,306)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,935
<NUMBER-OF-SHARES-REDEEMED> (4,610)
<SHARES-REINVESTED> 1,025
<NET-CHANGE-IN-ASSETS> (24,013)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 15,313
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 981
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,221
<AVERAGE-NET-ASSETS> 131,072
<PER-SHARE-NAV-BEGIN> 15.73
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 2.20
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (1.85)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.00
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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 DEC. 26, 1996 (FILE
NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> HARBOR CAPITAL APPRECIATION FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 1,272,162
<INVESTMENTS-AT-VALUE> 1,583,331
<RECEIVABLES> 19,015
<ASSETS-OTHER> 26
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,602,372
<PAYABLE-FOR-SECURITIES> 16,421
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,736
<TOTAL-LIABILITIES> 19,157
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,222,961
<SHARES-COMMON-STOCK> 61,174
<SHARES-COMMON-PRIOR> 39,898
<ACCUMULATED-NII-CURRENT> 899
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 48,187
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 311,168
<NET-ASSETS> 1,583,215
<DIVIDEND-INCOME> 9,397
<INTEREST-INCOME> 1,792
<OTHER-INCOME> (299)
<EXPENSES-NET> 9,545
<NET-INVESTMENT-INCOME> 1,345
<REALIZED-GAINS-CURRENT> 49,265
<APPREC-INCREASE-CURRENT> 115,877
<NET-CHANGE-FROM-OPS> 166,487
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (1,102)
<DISTRIBUTIONS-OF-GAINS> (13,411)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33,867
<NUMBER-OF-SHARES-REDEEMED> (13,136)
<SHARES-REINVESTED> 545
<NET-CHANGE-IN-ASSETS> 657,464
<ACCUMULATED-NII-PRIOR> 944
<ACCUMULATED-GAINS-PRIOR> 12,047
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,627
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 9,576
<AVERAGE-NET-ASSETS> 1,277,531
<PER-SHARE-NAV-BEGIN> 23.20
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 3.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.31)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 25.88
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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 DEC. 26, 1996 (FILE
NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> HARBOR INTERNATIONAL FUND II
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 12,458
<INVESTMENTS-AT-VALUE> 12,667
<RECEIVABLES> 69
<ASSETS-OTHER> 58
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,794
<PAYABLE-FOR-SECURITIES> 172
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 49
<TOTAL-LIABILITIES> 221
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,279
<SHARES-COMMON-STOCK> 1,201
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 17
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 68
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 209
<NET-ASSETS> 12,573
<DIVIDEND-INCOME> 41
<INTEREST-INCOME> 18
<OTHER-INCOME> (4)
<EXPENSES-NET> 43
<NET-INVESTMENT-INCOME> 12
<REALIZED-GAINS-CURRENT> 72
<APPREC-INCREASE-CURRENT> 209
<NET-CHANGE-FROM-OPS> 293
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,259
<NUMBER-OF-SHARES-REDEEMED> (58)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 12,573
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 23
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 52
<AVERAGE-NET-ASSETS> 7,203
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0.46
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.47
<EXPENSE-RATIO> 1.44
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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 DEC. 26, 1996 (FILE
NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> HARBOR INTERNATIONAL FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 2,784,379
<INVESTMENTS-AT-VALUE> 4,026,372
<RECEIVABLES> 12,582
<ASSETS-OTHER> 1,029
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 4,039,983
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 9,856
<TOTAL-LIABILITIES> 9,856
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,634,194
<SHARES-COMMON-STOCK> 129,126
<SHARES-COMMON-PRIOR> 121,339
<ACCUMULATED-NII-CURRENT> 50,361
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 103,329
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,242,243
<NET-ASSETS> 4,030,127
<DIVIDEND-INCOME> 87,826
<INTEREST-INCOME> 11,488
<OTHER-INCOME> (9,559)
<EXPENSES-NET> 36,922
<NET-INVESTMENT-INCOME> 52,833
<REALIZED-GAINS-CURRENT> 103,423
<APPREC-INCREASE-CURRENT> 448,771
<NET-CHANGE-FROM-OPS> 605,027
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (49,438)
<DISTRIBUTIONS-OF-GAINS> (15,558)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,382
<NUMBER-OF-SHARES-REDEEMED> (14,625)
<SHARES-REINVESTED> 2,030
<NET-CHANGE-IN-ASSETS> 762,970
<ACCUMULATED-NII-PRIOR> 46,408
<ACCUMULATED-GAINS-PRIOR> 15,434
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 31,658
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 38,704
<AVERAGE-NET-ASSETS> 3,724,445
<PER-SHARE-NAV-BEGIN> 26.93
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 4.41
<PER-SHARE-DIVIDEND> (0.41)
<PER-SHARE-DISTRIBUTIONS> (0.13)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 31.21
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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 DEC. 26, 1996 (FILE
NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> HARBOR VALUE FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 102,354
<INVESTMENTS-AT-VALUE> 111,076
<RECEIVABLES> 2,763
<ASSETS-OTHER> 654
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 114,493
<PAYABLE-FOR-SECURITIES> 2,202
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 182
<TOTAL-LIABILITIES> 2,384
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,351
<SHARES-COMMON-STOCK> 6,989
<SHARES-COMMON-PRIOR> 5,800
<ACCUMULATED-NII-CURRENT> 199
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,837
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,722
<NET-ASSETS> 112,109
<DIVIDEND-INCOME> 3,406
<INTEREST-INCOME> 226
<OTHER-INCOME> (61)
<EXPENSES-NET> 851
<NET-INVESTMENT-INCOME> 2,720
<REALIZED-GAINS-CURRENT> 14,008
<APPREC-INCREASE-CURRENT> 3,771
<NET-CHANGE-FROM-OPS> 20,499
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,656)
<DISTRIBUTIONS-OF-GAINS> (7,407)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,611
<NUMBER-OF-SHARES-REDEEMED> (1,080)
<SHARES-REINVESTED> 658
<NET-CHANGE-IN-ASSETS> 27,595
<ACCUMULATED-NII-PRIOR> 134
<ACCUMULATED-GAINS-PRIOR> 7,236
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 613
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 853
<AVERAGE-NET-ASSETS> 102,509
<PER-SHARE-NAV-BEGIN> 14.57
<PER-SHARE-NII> 0.40
<PER-SHARE-GAIN-APPREC> 2.74
<PER-SHARE-DIVIDEND> (0.40)
<PER-SHARE-DISTRIBUTIONS> (1.27)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 16.04
<EXPENSE-RATIO> 0.83
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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 DEC. 26, 1996 (FILE
NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> HARBOR BOND FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 319,736
<INVESTMENTS-AT-VALUE> 323,934
<RECEIVABLES> 54,518
<ASSETS-OTHER> 23
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 378,475
<PAYABLE-FOR-SECURITIES> 83,604
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,022
<TOTAL-LIABILITIES> 98,626
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 276,226
<SHARES-COMMON-STOCK> 24,799
<SHARES-COMMON-PRIOR> 19,893
<ACCUMULATED-NII-CURRENT> 1,684
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (7,099)
<ACCUM-APPREC-OR-DEPREC> 9,038
<NET-ASSETS> 279,849
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 17,465
<OTHER-INCOME> 0
<EXPENSES-NET> 1,713
<NET-INVESTMENT-INCOME> 15,752
<REALIZED-GAINS-CURRENT> (2,713)
<APPREC-INCREASE-CURRENT> 5,637
<NET-CHANGE-FROM-OPS> 18,676
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (16,286)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,140
<NUMBER-OF-SHARES-REDEEMED> (7,447)
<SHARES-REINVESTED> 1,213
<NET-CHANGE-IN-ASSETS> 56,851
<ACCUMULATED-NII-PRIOR> 1,881
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (4,048)
<GROSS-ADVISORY-FEES> 1,722
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,315
<AVERAGE-NET-ASSETS> 246,021
<PER-SHARE-NAV-BEGIN> 11.21
<PER-SHARE-NII> 0.72
<PER-SHARE-GAIN-APPREC> 0.09
<PER-SHARE-DIVIDEND> (0.74)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 11.28
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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 DEC. 26, 1996 (FILE
NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 8
<NAME> HARBOR SHORT DURATION FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 252,042
<INVESTMENTS-AT-VALUE> 254,137
<RECEIVABLES> 133,188
<ASSETS-OTHER> 24,924
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 412,249
<PAYABLE-FOR-SECURITIES> 83,486
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 146,465
<TOTAL-LIABILITIES> 229,951
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 203,404
<SHARES-COMMON-STOCK> 20,743
<SHARES-COMMON-PRIOR> 11,902
<ACCUMULATED-NII-CURRENT> 636
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> (22,870)
<ACCUM-APPREC-OR-DEPREC> 1,128
<NET-ASSETS> 182,298
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,386
<OTHER-INCOME> 0
<EXPENSES-NET> 2,150
<NET-INVESTMENT-INCOME> 9,236
<REALIZED-GAINS-CURRENT> (764)
<APPREC-INCREASE-CURRENT> 1,252
<NET-CHANGE-FROM-OPS> 9,724
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (9,846)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (600)
<NUMBER-OF-SHARES-SOLD> 52,668
<NUMBER-OF-SHARES-REDEEMED> (45,019)
<SHARES-REINVESTED> 1,192
<NET-CHANGE-IN-ASSETS> 77,291
<ACCUMULATED-NII-PRIOR> 502
<ACCUMULATED-GAINS-PRIOR> 821
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 541
<INTEREST-EXPENSE> 1,702
<GROSS-EXPENSE> 741
<AVERAGE-NET-ASSETS> 135,120
<PER-SHARE-NAV-BEGIN> 8.82
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> (0.64)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 8.79
<EXPENSE-RATIO> 0.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<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 DEC. 26, 1996 (FILE
NO. 811-04676) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B)
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 9
<NAME> HARBOR MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 65,975
<INVESTMENTS-AT-VALUE> 65,975
<RECEIVABLES> 341
<ASSETS-OTHER> 24
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,340
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 349
<TOTAL-LIABILITIES> 349
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 65,991
<SHARES-COMMON-STOCK> 65,991
<SHARES-COMMON-PRIOR> 64,492
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 65,991
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,427
<OTHER-INCOME> 0
<EXPENSES-NET> 398
<NET-INVESTMENT-INCOME> 3,029
<REALIZED-GAINS-CURRENT> 80
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 3,109
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (3,029)
<DISTRIBUTIONS-OF-GAINS> (80)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 86,059
<NUMBER-OF-SHARES-REDEEMED> (87,557)
<SHARES-REINVESTED> 2,997
<NET-CHANGE-IN-ASSETS> 1,499
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 187
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 476
<AVERAGE-NET-ASSETS> 62,468
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.05)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
