On August 22, 2018, Harbor Funds’ Board of Trustees announced that Marathon Asset Management LLP (Marathon-London) would serve as subadviser to Harbor International Fund. Marathon-London immediately began transitioning the holdings of the Fund to the new set of securities that it prefers, following a plan that was developed jointly with Harbor Capital Advisors and the Fund’s Board of Trustees.

As of September 30, 2018, Marathon-London has made very good progress in that transition. While taking great care to limit the market impact of their sales and purchases, they have been able to transition over 75% of the Fund’s assets to their preferred securities. At the same time, Marathon-London has been able to maintain only modestly higher cash levels. For more details on this process, as well as a discussion of the Fund’s performance during this transition, see the Portfolio Transition Details below.

With the announcement that Harbor Funds had selected Marathon-London as subadviser to the Fund, we indicated that the Fund would have a much larger than normal distribution this year. We initially estimated the distribution would be in the range of $23 to $27 per share. With the benefit of most of the transition now complete, we have refined our estimate and believe the distribution will likely be modestly lower in the range of $21.50 to $23.50 per share. We also believe it will be almost entirely comprised of long-term capital gains. For more details on the Fund’s distributions, see the Distribution Details below.

Portfolio Transition Details

As of September 30, 2018, the Fund had net assets of $15.8 billion. Approximately 78.5% of the Fund’s assets are now invested in Marathon-London’s preferred securities, 16.5% remain invested in legacy securities selected by the prior subadviser that remain to be sold, and 5% of the portfolio is in cash and cash equivalents.

Marathon-London has been able to effectively manage redemption activity through this portfolio transition while still maintaining only modestly higher cash levels compared to cash levels held by the former subadviser. Over the duration of the portfolio transition, cash in the Fund’s portfolio has averaged 4.7%.

Because it has been able to maintain cash at a reasonable level during the transition, Marathon-London has not needed to equitize any portion of the cash position. The Fund has not utilized any foreign equity index funds and/or futures contracts, and Marathon-London does not anticipate needing to through the remainder of the transition, although it has the flexibility to do so if deemed prudent.

Marathon-London expects to complete the Fund’s portfolio transition over the next several months. It will continue to be flexible and patient so that sales and purchases of individual company stocks are made prudently and at competitive pricing levels. Because the portfolio transition is on-going, and in order to continue selling legacy holdings at competitive prices, we will not be disclosing information about the Fund’s top 20 holdings as of September 30th on the Harbor Funds’ website during the month of October. We will post full portfolio holdings as of September 30th to the Harbor Funds’ website on our regular schedule, on or around October 31st.

During this transition period, the Fund has unfortunately underperformed its benchmark significantly. To understand that underperformance, we have closely examined both the legacy holdings and the new holdings in the portfolio, as well as the role that cash positions have played. Our analysis indicates that the new Marathon-London holdings have modestly outperformed the benchmark, and the effect of the cash positions have been largely neutral. The substantial majority of underperformance came from several legacy holdings, many of which have since been sold.

Together with Marathon-London, we have also been assessing any impact from the sales of those holdings on market prices during the transition. We believe the impact on security prices has been very limited as Marathon-London has taken great care in determining when and how much to sell so as not to impact the market while still making good progress on the overall portfolio transition.

Distribution Details

The Fund will make a significantly larger than normal distribution in December. The distribution is due to several factors including higher levels of shareholder redemptions, the transition of the portfolio to the holdings that Marathon-London prefers, and several years of generally appreciating equity markets.

We very much understand the challenge associated with a large distribution for shareholders who hold the Fund in taxable accounts, and we have been working diligently with Marathon-London to minimize the size of the distribution. With these efforts, and the benefit of having most of the transition now completed, we now estimate the Fund's 2018 capital gain distribution will likely be in the range of $21.50 to $23.50 per share. While this would still be a significant distribution, this range is modestly lower than our initial estimate of $23 to $27 per share, even though the Fund continues to see shareholder redemptions. We do not expect that continued redemption activity will cause the distribution estimate to change materially at this point. We also believe that the distribution will be almost entirely in the form of long-term capital gains.

We will provide additional updates to this distribution estimate on Harbor Funds' website again near the end of October and in early December. The 2018 distribution will be paid on December 17, 2018 to shareholders of record as of December 14, 2018.

Additional information about the appointment of Marathon-London is available from the links below:

Harbor International Fund Manager Change: Questions & Answers
Harbor International Fund Summary Prospectus

If you have questions, please call Harbor Shareholder Services at 800-422-1050, Monday through Friday, between 8:00 a.m. and 6:00 p.m. Eastern time.

The Harbor Funds lineup of actively managed, no-load mutual funds had combined net assets of approximately $60 billion as of September 30, 2018. Each Harbor fund is managed by an institutional investment firm selected by Harbor Capital Advisors, Inc. and approved by the Harbor Funds Board of Trustees based on the firm's experience in a specific asset class. Fees and expenses apply to an investment in Harbor Funds and are described in each fund's current prospectus.

There is no guarantee that the investment objective of the Fund will be achieved. Stocks fluctuate in price and the value of your investment in the Fund may go down. Investing in international markets poses special risks, including potentially greater price volatility due to social, political and economic factors, as well as currency exchange rate fluctuations. These risks are more severe for securities of issuers in emerging market regions. Stocks of small and mid cap companies also pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies. The subadviser's assessment of the capital cycle for a particular industry or company may be incorrect. Investing in companies at inopportune phases of the capital cycle can result in the Fund purchasing company stock at pricing levels that are higher than the market dynamics would support and therefore subject the Fund to greater risk that the stock price would decline rather than increase over time