1099 Tax Form

The amount of any capital gains and/or dividends is identified on IRS form 1099-DIV. The amount of any redemption distributed to the shareholder each year is reported on 1099-B (taxable accounts) or 1099-R (IRA accounts).

12b-1 Fee

A mutual fund fee, named for the SEC rule that permits it, used to pay for broker-dealer compensation and other distribution costs. If a fund has a 12b-1 fee, it will be disclosed in the fee table of a fund's prospectus.

401(k) Plan

A retirement plan that allows employees to contribute a before-tax portion of their salary. Employers can match employee contributions in whole or in part.

403(b) Plan

A retirement plan that allows employees to contribute a before-tax portion of their salary. This plan is available to government and non-profit employees such as teachers.

5498 Tax Form

Reports the amount of IRA Contributions, Rollover Contributions, Recharacterizations and Conversions made by the shareholder each year and the Fair Market Value.

ADR

ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities. ADRs are issued by U.S. banking institutions.

Active Participant

An active participant is an individual who is a participant in a qualified pension, profit sharing or stock bonus plan; a qualified annuity; a SEP plan; a SIMPLE plan; a tax sheltered annuity; any plan described in IRC Sec 501(c)(18); or a plan established for its employees by the U.S, by a state or political subdivision or by an agency or instrumentality of the U.S. or a state or political subdivision (other than a plan under IRC Sec 457).

Adjusted Gross Income (AGI)

Adjusted gross income is determined when a taxpayer calculates income tax liability on his or her federal income tax return. AGI is determined by adding all sources of income such as wages and interest income and subtracting certain deductions and adjustments to income.

Barclays Capital Aggregate (U.S.) Bond Index

An unmanaged index of investment-grade fixed-rate debt issues with maturities of at least one year.

Barclays Capital U.S. TIPS Index

An unmanaged market index comprised of all U.S. Treasury Inflation Protected Securities rated investment grade (Baa3 or better), having at least one year to final maturity, and at least $250 million per amount outstanding.

Beta

Beta is a measure of market-related risk. The beta of every index is 1.00, no matter how volatile the index is. A beta less than one means the portfolio is less volatile than the index. A beta higher than one indicates more volatility than the index.

BofA Merrill Lynch 1-3 Year US Treasury Index

An unmanaged index consisting of all public U.S. Treasury obligations having maturities from 1 to 2.99 years and reflects total return.

BofA Merrill Lynch 3-Month Treasury Bills

90-day Treasury Bills are debt obligations issued by the U.S. government with a maturity of 90 days.

BofA Merrill Lynch US High Yield Index

An unmanaged index that tracks the performance of below investment grade U.S. dollar-denominated corporate bonds publicly issued in the U.S. domestic market.

Bottom-Up Equity Management Style

A management style that de-emphasizes the significance of economic and market cycles, focusing instead on the analysis of individual stocks.

CUSIP Number

Identification number assigned to every stock, corporate bond and municipal bond by the Committee on Uniform Securities Identification Procedures (CUSIP), which is established by the American Bankers Association.

Capital Gains Distribution

Profits distributed to shareholders resulting from the sale of securities held in the fund's portfolio.

Carry-back Contribution

A contribution made to a Roth or Traditional IRA between January 1 and April 15 for the prior tax year is called a carry-back contribution.

Catch Up Contribution

Individuals age 50 and older may make an additional contribution over the maximum annual limit to Traditional IRAs and Roth IRAs. The maximum catch up contribution limit is $1,000 for tax year 2013.  Income limits apply. 

Commingling

There are two definitions of commingling for IRA purposes. The first definition involves IRA assets being combined with assets from a different type of savings plan. Commingling of IRA assets with non-IRA assets is prohibited. The second definition involves IRA assets being combined with assets from another type of plan that is eligible to be rolled over to an IRA. This type of commingling is not prohibited; however, it may affect the tax options available for the qualified retirement plan assets that were commingled with the IRA assets.

Compensation

Compensation typically includes base salary, commissions, bonuses, overtime and vacation pay. For self-employed individuals, compensation is based on net earnings from self-employment.

Contingent Beneficiary

If all Primary Beneficiaries are deceased, the second-named person, estate, or trust will receive the proceeds of a retirement account upon the account owner's death.

Contribution

A contribution is a purchase into an IRA or other retirement plan for a particular tax year. Contributions are subject to annual limitations, depending on the type of contribution.

Conversion

A conversion is a taxable movement of cash or other assets from a Traditional IRA to a Roth IRA. A conversion is a reportable transaction.

Credit Risk

Credit Risk is the possibility that a bond issuer may not be able to pay interest and repay its debt.

Direct Rollover

A direct rollover is a means of moving an eligible rollover distribution directly from one eligible employer-sponsored retirement plan to another eligible employer-sponsored retirement plan or to an IRA. Since the participant does not have constructive receipt of the assets, federal income tax withholding is avoided.

Disclosure Statement

The disclosure statement must explain in plain language the rules that govern an IRA. Anyone who opens an IRA must receive a current disclosure statement.

Diversification

Diversification is the practice of investing broadly across a number of securities to reduce risk.

Duration

Duration is a common gauge of the price sensitivity of a fixed income asset or portfolio to a change in interest rates.

Early Distribution

Distributions taken from a Traditional or Roth IRA before age 59½ are called early distributions. Early distributions are usually subject to a 10% early distribution penalty, unless an exception applies.

Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)

With many of its provisions effective in 2002, EGTRRA brought about some of the most substantial changes to IRAs, IRA-related plans, and employee-sponsored retirement plans in over 15 years. Increased contribution limits and asset portability between various plan types are two of the most beneficial changes.

Excess Contribution

The amount of an IRA contribution exceeding the allowable limits is an excess contribution. If an excess contribution is not properly corrected, a 6% IRS penalty applies until corrected.

Expense Ratio

The fund's total annual operating expenses (including management fees, distribution (12b-1) fees and other expenses) expressed as a percentage of average net assets.

Fair Market Value

The fair market value is the value of an IRA as of a certain date. The December 31 fair market value must be provided to each IRA holder and the IRS each year.

Family of Funds

A group of mutual funds, each typically with its own investment objective, managed and distributed by the same company.

First-Time Homebuyer

A first time homebuyer is an individual (and, the individual's spouse) who had no present ownership interest in a principal residence during the two-year period ending on the date of acquisition of the principal residence.

GDR

GDR after the name of a holding stands for Global Depositary Receipts representing ownership of foreign securities. GDRs are issued by either U.S. or non-U.S. banking organizations.

Inception Date

The date on which the fund commenced operations is referred to as the Inception Date.

Indirect Rollover

A distribution from a retirement account to be "rolled over" to a new IRA within 60 days; differs from a transfer in that the money is sent to the participant and not the new trustee.

Investment Objective

Investment objective is the goal that an investor and mutual fund pursue together (e.g., current income, long-term capital growth, etc.)

Life Expectancy

The number of years an individual is expected to live based on his or her current age is the life expectancy of the individual.

MSCI (Morgan Stanley Capital International) World Index

A free float-adjusted market capitalization index that is designed to measure global developed market equity performance.

MSCI EAFE Growth Index (Morgan Stanley Capital International Europe, Australasia, Far East Growth)

An unmanaged index generally representative of growth stocks within the major overseas stock markets.

MSCI EAFE Index (Morgan Stanley Capital International Europe, Australasia, Far East)

An unmanaged index generally representative of major overseas stock markets that is designed to measure developed market equity performance, excluding the U.S. and Canada.

Median Market Cap

An indicator of the size of companies in which a fund invests; the midpoint of market capitalization (market price x shares outstanding) of a fund's stocks, weighted by the proportion of the fund's assets invested in each stock. Stocks representing half of the fund's assets have market capitalizations above the median, and the rest are below it.

Modified Adjusted Gross Income (MAGI)

MAGI for determining eligibility to make a Roth IRA contribution is an individual's AGI from his or her federal income tax return with certain modifications. For most taxpayers, MAGI will be the same as their AGI. MAGI for a Roth IRA is AGI, with the following added back: Income from US Savings Bonds used to pay higher education; foreign earned-income exclusion; foreign housing exclusion or deduction; half of Social Security or tier 1 railroad retirement benefits; passive activity losses and credits limited; employer reimbursed adoption expenses. An individual's MAGI does not affect his ability to make a Traditional IRA contribution. The MAGI of an individual who is an active participant in an employer-sponsored retirement plan may affect his ability to deduct his Traditional IRA contribution.

Net Asset Value (NAV)

The per share value of a mutual fund, found by subtracting the fund's liabilities from its assets and dividing by the number of shares outstanding. Mutual funds calculate their NAVs at least once each business day.

Net Income Attributable

The amount of income earned by an excess contribution to an IRA is the net income attributable (NIA). To determine the NIA, the amount of the excess contribution is multiplied by the amount of the total earnings on the IRA and then the product is divided by the total account balance.

No-load Fund

A mutual fund whose shares are sold without a sales commission and without a 12b-1 fee of more than .25 percent per year. Harbor funds are no-load.

Nondeductible Contribution

A nondeductible contribution is a contribution made to a Traditional IRA and designated by a Traditional IRA holder as nondeductible either by choice or because of ineligibility to make a deductible contribution. A deduction is not taken for this contribution. If a nondeductible contribution is made, you must file a Form 8606 Nondeductible IRA's.

Open-End Investment Company

The legal name for a mutual fund, indicating that it stands ready to redeem (buy back) its shares from investors on any business day. Harbor Funds is an open-end investment company.

Operating Expenses

Business costs paid from a fund's assets before earnings are distributed to shareholders. These include management fees and 12b-1 fees and other expenses.

Ordering Rules

The prescribed order in which Roth IRA assets are deemed to be withdrawn. The first assets distributed will be considered to be a return of contributory basis amounts no matter which Roth IRA distributes the asset. Once the aggregate contributory basis assets are distributed, further distributions will draw on the conversion basis assets. Finally, when the conversion basis assets are exhausted, continued distributions will be made from the accumulated contributory and conversion earnings.

Pension Protection Act of 2006 (PPA)

The Pension Protection Act of 2006 (PPA) was signed into law on August 17, 2006. The legislation included a variety of provisions to protect savers and to boost retirement savings in IRAs and defined contribution plans (e.g., IRC Sec. 401(k) plans, profit sharing plans, and governmental 457(b) plans). PPA also made the retirement savings provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) permanent.

Portfolio Manager

A specialist employed by a mutual fund's adviser to invest the fund's assets in accordance with predetermined investment objectives.

Portfolio Turnover

A measure of the trading activity in a fund's investment portfolio (how often securities are bought and sold by a fund). An indication of a fund's trading activity. Funds with high turnover rates incur higher transaction costs and may be more likely to distribute capital gains (which may be taxable to investors).

Price to Book Ratio (P/B)

A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value. For a fund, the weighted average price/book ratio of the stocks it holds.

Price to Earnings Ratio (P/E)

The ratio of a stock's current price to its per-share earnings over the past year. For a fund, the weighted average P/E of the stocks it holds. P/E is an indicator of market expectations about corporate prospects; the higher the P/E, the greater the expectations for a company's future growth.

Primary Beneficiary

The first person, estate, or trust named to receive the proceeds of a retirement account upon the account owner's death. See also Contingent Beneficiary.

Probate

Probate is a court process used to transfer property from a decedent to their named heirs in an estate.

Prohibited Transaction

A prohibited transaction is a transaction between a Traditional IRA, Roth IRA, Coverdell education savings account (ESA), SIMPLE IRA, or qualified retirement plan, or IRC Sec. 403(b) plan and a party in interest (referred to as a disqualified person) that is prohibited under IRC Sec. 4975. For IRAs, these actions include taking a loan from the Traditional IRA, Roth IRA, or SIMPLE IRA, pledging or assigning the Traditional IRA, Roth IRA, or SIMPLE IRA as security for a debt, investing Traditional IRA, Roth IRA, or SIMPLE IRA funds in collectibles, etc. For a qualified retirement plan or 403(b) plan, prohibited transactions include use of plan assets for the benefit of a disqualified person.

Prospectus

The official document that describes a mutual fund to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services and fees.

Qualified Distribution

A Roth IRA distribution is a qualified distribution if the distribution represents assets that satisfy the five-year waiting period (beginning with the first taxable year for which the Roth IRA holder made a contribution) and one of the following events occurs: attainment of age 59½, disability, the purchase of a first home, or death.

Qualified Retirement Plan

A qualified retirement plan is one that has been approved by the IRS and generally gets preferential tax treatment. For example, employers can deduct plan contributions made on behalf of eligible employees on the business' tax return.

REITs (Real Estate Investment Trust)

REITs invest in real estate or loans secured by real estate and issue shares in such investments. A REIT is similar to a closed-end mutual fund.

Recharacterization

A recharacterization occurs when an individual makes a contribution to a Roth or Traditional IRA, and later moves either all or a portion of the original contribution or conversion amount, plus net income attributable (NIA), to another IRA on or before the individual's tax return due date (plus extensions) for the year for which the contribution/conversion was made. Recharacterizations are not taxable but are reported to the IRS.

Reconversion

A reconversion is a conversion of an amount from a Traditional IRA to a Roth IRA, where such amount had previously been converted and recharacterized.

Record Date

The date on which a shareholder must officially own shares in order to be entitled to a dividend.

Redemption Fee

Fee charged to shareholders by a mutual fund when they sell shares within a specified period. The time limit and size of fee vary among funds. The fee is paid to the fund, not the fund's investment adviser. Its purpose is to protect long-term investors from short-term traders.

Redesignation (aka Carry-forward)

An individual who makes an excess contribution to a Traditional IRA for a given tax year may in some cases apply the contribution to the next tax year by means of redesignation. Redesignation does not dismiss the penalty, but allows the funds to be left in the IRA.

Repurchase Agreement (Repo)

A form of short-term borrowing for dealers in government securities. The dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day. For the party selling the security (and agreeing to repurchase it in the future), it is a repo. For the party on the other end of the transaction (buying the security and agreeing to sell in the future), it is a reverse repurchase agreement.

Required Beginning Date (RBD)

The required beginning date is generally April 1 following the year a Traditional IRA holder reaches age 70½.

Required Minimum Distribution (RMD)

After a Traditional IRA holder reaches 70 ½, a minimum amount must be distributed from the IRA every year. The mandatory distribution is called required minimum distribution (RMD). An IRA holder must begin taking their RMD in the year they attain 70 ½. The IRA holder has the ability to delay the first year's RMD until April 1 following the year in which age 70 ½ is attained. This date is called the required beginning date, or RBD. All RMDs in subsequent years must be taken by December 31. If an IRA holder defers his/her first RMD, he/she is required to take two withdrawals in the same year to satisfy the first and second year's required minimum distributions.

To determine the RMD amount for 2013, divide the year end account balance of the IRA as of December 31, 2012 by the applicable distribution period. The applicable distribution period for each IRA holder is a number that represents the average life expectancy remaining for an individual based on age and is determined by using IRS life expectancy tables.

Risk/Reward (or Return)

The relationship between the degree of risk associated with an investment and its return potential. Typically, the higher the potential return of an investment, the greater the risk.

Rollover

A rollover is a tax-free, reportable movement of cash or other assets between IRAs, between retirement plans, or between IRAs and eligible employer-sponsored plans.

Roth IRA

A type of IRA that can only receive nondeductible contributions. A Roth IRA holder may be entitled to tax-and penalty-free distributions, provided certain rules are met.

For 2013, the maximum you can contribute to all of your traditional and Roth IRAs is the lesser of:
      $5,500 ($6,500 if you're age 50 or older), or
      100% of earned income or compensation

Russell 1000® Growth Index

An unmanaged index generally representative of the U.S. market for larger capitalization growth stocks. Measures the performance of those Russell 1000® companies with higher price-to-book ratios and higher forecasted growth value.

Russell 1000® Value Index

An unmanaged index generally representative of the U.S. market for larger capitalization value stocks.

Russell 2000® Growth Index

An unmanaged index representing the smallest 2000 stocks with the highest price-to-book ratio and future earnings.

Russell 2000® Value Index

An unmanaged index representing the smallest 2000 stocks with the lowest price-to-book ratio and future earnings.

Russell Midcap® Growth Index

An unmanaged index generally representative of the U.S. market for medium capitalization growth stocks.

Russell Midcap® Value Index

An unmanaged index generally representative of the U.S. market for medium capitalization value stocks.

Saver's Tax Credit

The saver's credit is a nonrefundable income tax credit for certain taxpayers with a limited amount of adjusted gross income. The credit is equal to a specific percentage of certain employee contributions made to employer-sponsored retirement plans and to IRAs for taxable years 2002 and beyond. Created by EGTRRA, the saver's credit is governed by IRC Sec. 25B.

Simplified Employee Pension (SEP)

A Simplified Employee Pension plan (SEP) lets a self-employed person or business owner contribute a percentage of annual earnings (up to a maximum contribution limit per year) for each eligible employee. Contributions are tax deductible and earnings are tax deferred.

For 2013, the maximum a self-empoyed person or business owner can contribute to an employee's SEP IRA is the lesser of:
     25% of the employee's compensation, or
     $51,000

Spousal Consent

When IRA holders wish to name someone other than or in addition to his or her spouse as primary beneficiary of the IRA, spousal consent is generally required in states maintaining community or marital property laws.

Spousal IRA Contribution

Spousal contributions are limited to the lesser of the annual maximum contribution limit or the couple's combined earned income less the amount contributed for the compensated spouse. To make a spousal contribution to a Traditional IRA, the IRA holder must be under age 70½, file a joint tax return with spouse and between the IRA holder and spouse have earned income. To make a spousal contribution to a Roth IRA , the IRA holder must file a joint tax return with spouse, have earned income between the IRA holder and spouse, and together with spouse have MAGI within the income limits.

Standard & Poor's 500 Stock Index (S&P 500)

An unmanaged index generally representative of the U.S. stock market.

Statement of Additional Information (SAI)

The supplementary document to a prospectus that contains more detailed information about a mutual fund; also known as "Part B" of the prospectus.

Substantially Equal Periodic Payment

Substantially equal periodic payments are a series of IRA or qualified retirement plan distributions that are established according to the requirements of IRC Sec. 72(t), Notice 89-25 and Revenue Ruling 2002-62. If all requirements are satisfied, an IRA holder or plan participant who receives substantially equal periodic payments from his or her plan before reaching age 59½ will not be subject to the usual early distribution penalty tax, which is equal to 10 percent of the value of the amount distributed.

TBAs

A term used to describe a forward mortgage-backed securities trade. Pass-through securities issued by Freddie Mac, Fannie Mae and Ginnie Mae trade in the TBA market. The term TBA is derived from the fact that the actual mortgage-backed security that will be delivered to fulfill a TBA trade is not designated at the time the trade is made. The securities are "to be announced" 48 hours prior to the established trade settlement date.

TIPS

Treasury inflation-protected securities (TIPS) are securities in which the principal amount is adjusted for inflation and interest payments are applied to the inflation-adjusted principal.

Top-Down Equity Management Style

Investment style that begins with an assessment of the overall economic environment and makes a general asset allocation decision regarding various sectors of the financial markets and various industries.

Total Return

Return on an investment over a specified period, including price appreciation (or depreciation) plus any reinvested income, expressed as an average annual compound of return.

Transfer

The movement of a retirement account from one custodian directly to another. An asset transfer is not a distribution and is not taxable or reportable to the IRS.

Weighted Average Life

The average length of time for which each dollar of unpaid principal on a loan remains outstanding.

Weighted Average Maturity

The average length of time until a bond's principal must be repaid for all bonds in a mutual fund portfolio.

Yield

A measure of net income (dividends and interest) earned by the securities in the fund's portfolio less fund expenses during a specified period. A fund's yield is expressed as a percentage of the maximum offering price per share on a specified date.