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Money Market Fund —
Monetary stimulus policies continued to weigh on money market returns in Q1
1st Quarter, 2013
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"It seems clear that monetary policy rates will remain anchored well into 2014. "
– Ken O'Donnell

Short-term interest rates remained anchored near zero in the first quarter of 2013, resulting in negligible returns from money market investments. The BofA Merrill Lynch US 3-Month Treasury Bill Index, a proxy for money market performance, posted a return of two basis points, or 0.02%, for the three months ended March 31.
In this environment the Harbor Money Market Fund also returned 0.02%, matching the performance of the 3-Month Treasury Bill Index. The low interest rate climate is likely to persist in the months ahead, in the view of Portfolio Manager Ken O'Donnell, as the Federal Reserve continues its efforts to support economic growth and job creation through monetary stimulus strategies.
The money market yield curve has remained extremely flat, O'Donnell notes, providing limited opportunity to gain additional yield. In this environment O'Donnell and his team have continued to invest exclusively in government and agency securities, which he believes provide the best value on a risk adjusted basis
Ken O'Donnell's comments were made in an April 11, 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 outlook
It seems clear that monetary policy rates will remain anchored well into 2014. We would expect real GDP growth to average around 2% to 3%, remaining below the long-term trend, with quarterly volatility.
Commercial paper
Generally speaking there has been a decline in commercial paper issuance relative to where we were before the financial crisis. When we have more visibility regarding SEC reforms going forward we could see improved stability from an issuance perspective. I think there is some concern from major commercial paper issuers that their ability to tap into this market could change with regulatory reform.
Possible housing recovery
We would expect short-term U.S. Treasury note yields to maintain current levels while longer term yields likely will fluctuate with economic data. It is possible, however, that an unexpected improvement in economic conditions, led for example by recovery in the housing market, could shorten the current stance on policy accommodation and result in an increase in the term structure.
Floating NAVs
Several large money market funds have begun disclosing on a voluntary basis the actual net asset value (NAV) of their portfolios relative to the $1.00 NAV. We are currently awaiting an announcement from the SEC on which direction it chooses to take on this question. I do think that the voluntary step of disclosing actual NAVs could give comfort to some investors that the values do not fluctuate significantly; so moving to a floating NAV could prove to be not as large an issue from an investor's perspective as it has been made out to be in the markets.

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.