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Commodity Real Return Strategy Fund —
An improved environment for commodities in the first quarter
1st Quarter, 2016
"We expect that commodity returns may be positive for the year, should oil continue to recover. Other commodities obviously will trade in a range, and we anticipate that there will be opportunities for taking some relative value positions. "
– Pacific Investment Management Company LLC

Commodity indexes advanced in the first quarter of 2016, led upward by positive returns for base metals and precious metals. Gold in particular benefited as a flight-to-quality safe haven asset. Gains in those areas were offset to a degree by negative returns in Energy. Natural gas saw negative returns, as mild winter weather pushed down demand alongside surprisingly strong production, and the crude oil indexes ended the quarter flat or slightly down. The Bloomberg Commodity Index Total ReturnSM had a gain of 0.42%. The Bloomberg Commodity index is an unmanaged index of futures contracts on a diversified group of physical commodities.
The Harbor Commodity Real Return Strategy Fund outperformed its Bloomberg Commodity benchmark during the quarter, with a return of 1.49%. The Fund invests in commodity-linked derivative instruments backed by a portfolio of inflation-indexed bonds, such as U.S. Treasury Inflation-Protected Securities (TIPS) and other fixed income securities. Outperformance relative to the benchmark was driven by active commodity strategies and the Fund’s exposure to TIPS, which posted strong gains for the quarter, with returns lifted by a tightening of global financial conditions.
PIMCO’s comments were made in an April 14, 2016 interview. Highlights adapted from the interview appear below. All comments relate to the quarter ended March 31, 2016, unless otherwise indicated. All references to the year-to-date are for the period January 1 through March 31, 2016.

Interview Highlights

Positive Performance Drivers for the Quarter
Active commodity strategies were positive overall for the quarter. The Fund was positioned to benefit from the price of U.S. crude oil — as represented by the West Texas Intermediate (WTI) benchmark — falling below that of Brent crude, which is extracted from the North Sea. This was positive for performance over the quarter as U.S. imports of crude increased and inventories continued to build, causing WTI to underperform Brent. We also correctly anticipated that natural gas prices would fall, given our expectation of mild winter weather and excess supply.
Factors That Had a Negative Impact
Our longstanding “platinum versus gold” strategy in the portfolio was negative for the quarter, as platinum underperformed and gold rallied as investors sought less risky assets. Platinum is generally more expensive than gold, given its smaller supply, higher marginal production costs and dual use in jewelry and auto making. We have continued to maintain this trade in the portfolio, because we believe that conditions will likely revert to reflecting the premium platinum has historically commanded versus gold. Another strategy that weighed on performance was our long position on European refining margins versus Brent crude oil. Warm winter weather, increases in inventory and poor macroeconomic sentiment weighed on margins, particularly during the first two months of the quarter.

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.