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Large Cap Value Fund —
Stocks open 2013 with broad-based advance
1st Quarter, 2013
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"What helped the portfolio? Our Energy holdings really led the pack. The portfolio returned over 25% on a sector-wide basis in Energy versus 9.7% for the benchmark. "
– Jim Henderson

The first three months of 2013 produced robust returns for U.S. equities in general as well as the Harbor Large Cap Value Fund. The Fund posted a return of 11.01% while its benchmark, the Russell 1000® Value Index, advanced 12.31%. All 10 economic sectors in both the Fund and the index gained ground in the quarter. For the 12 months ended March 31, the Fund outpaced the benchmark with a return of 19.42% versus 18.77% for the index.
Energy and Utilities stocks were among the portfolio's leading performers in the first quarter, says Jim Henderson, a Principal and Portfolio Manager with Aristotle Capital Management LLC, which manages the Harbor Large Cap Value Fund. Top contributors to Fund returns included Energy holdings Phillips 66, Hess, Halliburton, and Pioneer Natural Resources as well as Questar and AES in the Utilities sector. Stock selection in Information Technology was the biggest detractor from Fund performance relative to the benchmark.
Aristotle Capital Management began managing the portfolio on May 25, 2012. Henderson is a member of the investment team headed by Howard Gleicher, Chief Executive Officer and Chief Investment Officer of Aristotle, who is Portfolio Manager of the Harbor Large Cap Fund.
Jim Henderson's comments were made in an April 10, 2013 interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended March 31, 2013, unless otherwise indicated. All references to year-to-date are for the period January 1 through March 31, 2013.

Interview Highlights

Market leaders
Areas that underperformed in the quarter for the most part were higher beta, more cyclical types of industries, and I can point towards almost the day that the news broke in Cyprus as to when that started to happen. What areas outperformed? Utilities, Health Care, and Energy—some of the lower beta types of companies.
Impact of Cyprus
As the situation in Cyprus started to unfold toward the end of the quarter, it brought back to investors' minds some of the issues still facing Europe. It wasn't so much a question of what would happen in Cyprus. Cyprus is a very small country with a GDP about the size of Vermont. It was really the ramifications of, for the first time, a government suggesting that it was going to confiscate funds in banks.
A boost from Energy
What helped the portfolio? Our Energy holdings really led the pack. The portfolio returned over 25% on a sector-wide basis in Energy versus 9.7% for the benchmark. It was really across the board. Phillips, Hess, Pioneer, and Halliburton were all at mid-teens to Hess leading the pack at up 35%. And Utilities, specifically Questar and AES, did very well.
Portfolio moves
We sold our position in Abbott Labs. It has split into two distinct companies, one being AbbVie, which is the pharmaceutical side, and Abbott Labs being the generic, nutrition, and medical products side of the business. We still like Abbott Labs but we feel that all the catalysts we saw in that business early on have come to fruition and that there are no catalysts on the horizon that aren't already well known and priced into the stock. So we have liquidated that position and added to our position in AbbVie.
New position
We really like Health Care companies that can be successful by saving money in the long run. These are companies that have a competitive advantage and have a niche in the Health Care marketplace that allows them to be successful going forward. That was the basis behind our investment in Medtronic during the quarter.

Performance figures discussed reflect that of the institutional class shares.

The views expressed herein are those of the portfolio manager at the time of the interview and may not be reflective of their current opinions or future actions.  These views are not necessarily those of the fund company and should not be construed as such.

This information should not be considered as a recommendation to purchase or sell a particular security and the holdings or sectors mentioned may change at any time and may not represent current or future investments.