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Money Market Fund —
Money market returns remain at barely-positive levels in Q3
3rd Quarter, 2014
"It is important to recognize that even with the tapering of quantitative easing, current levels of monetary policy remain accommodative and should continue to support U.S. growth in the near-term. "
– Fischer Francis Trees & Watts, Inc.

Returns from money market investments remained barely positive in the third quarter of 2014, as the Federal Reserve continued to hold its federal funds target rate at 0.0% to 0.25%. The BofA Merrill Lynch US 3-Month Treasury Bill Index, a proxy for money market performance, posted returns of one basis point, or 0.01%, for the third quarter and 0.03% for the nine months ended September 30, 2014.
The Harbor Money Market Fund slightly outperformed the index with returns of 0.02% for the third quarter and 0.05% for the first nine months of 2014. In the view of Portfolio Manager Ken O'Donnell, a material improvement in money market yields appears unlikely until the Federal Reserve takes steps to begin raising short-term interest rates, which he believes will not occur before the middle of 2015.
Ken O'Donnell's comments were made in an October 9, 2014, interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended September 30, 2014, unless otherwise indicated. All references to year-to-date are for the period January 1 through September 30, 2014.

Interview Highlights

Accommodative policy
The U.S. economy appears to be on a firmer footing after a strong rebound in growth in the second quarter. And while economists broadly expect a resumption of the 3% growth trend during the next year, the economy remains susceptible to destabilizing forces. Specifically, the Fed is concerned about a decline in global growth and persistently weak inflation levels in Europe. It is important to recognize that even with the tapering of quantitative easing, current levels of monetary policy remain accommodative and should continue to support U.S. growth in the near-term.
Tracking trends
It remains possible that an unexpected improvement in economic conditions could shorten the Federal Reserve's current stance on policy accommodation and result in an increase in interest rates sooner than has been anticipated by markets. In fact, we have experienced evidence of this trend in recent months as labor-market data has steadily improved.
Stronger Dollar
I would argue that the strengthening of the U.S. Dollar doesn't have a significant impact on money markets directly but could have an indirect impact in that rates could stay lower for longer than the market is currently anticipating. For example, a strong Dollar should be a net negative for U.S. exports; on the margin, that would have a negative impact on the trade balance, which would be a negative for growth. In addition, a strong Dollar should be a negative for inflation. For example, we've seen a decline in energy and commodity prices of late as measured in U.S. Dollars. That would have negative implications for inflation, which is part of the Federal Reserve's dual mandate and as such could keep the Fed on hold for longer.

Performance data shown represents past performance, which is no guarantee of future results. Current performance may be higher or lower than the past performance data shown. Investment returns and the value of an investment will fluctuate, and an investor's shares, when sold, may be worth more or less than their original cost. You can obtain performance data current to the most recent month-end (available within seven business days after the most recent month-end) by calling 800-422-1050 or visiting

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.