SEC Company Response from HARBOR FUNDS (CIK 0000793769) — Apr 23, 2020
HARBOR FUNDS (CIK 0000793769)
Date: April 23, 2020 · CIK: 0000793769 · Accession: 0001683863-20-004961
AI Filing Summary & Sentiment
File numbers found in text: 333-237459, 811-04676
Letter
One Bush Street
Suite 1600
San Francisco, CA 94104-4446
+1 415 262 4500 Main
+1 415 262 4555 Fax
www.dechert.com
Michelle Wong
Associate
michelle.wong@dechert.com
+1 415 262 4544 Direct
+1 415 262 4555 Fax
April 23, 2020
VIA ELECTRONIC TRANSMISSION
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Harbor Funds (the “Registrant”)
(File Nos. 333-237459 and 811-04676)
Ladies and Gentlemen:
This correspondence is being filed for the purpose of responding to comments of the staff of the Securities and Exchange Commission (the “SEC staff”) provided by Ms. Kimberly Browning and Mr. Chad Eskildsen of the Division of Investment Management with respect to the Registrant’s Information Statement/Prospectus on Form N-14 (Accession No. 0001193125-20-089946).
Set forth below are the SEC staff’s verbal comments together with the Registrant’s responses. Terms used but not defined herein have the same meaning as in the Information Statement/Prospectus.
General Comments
COMMENT 1:
The SEC staff reminds the Registrant that it and its management are responsible for the accuracy and adequacy of the Registrant’s disclosures, notwithstanding any review, comments, action or absence of action by the SEC staff.
Response:
The Registrant acknowledges this statement.
COMMENT 2:
Significant market events have occurred since this N-14 was filed as a result of the COVID-19 pandemic. Please consider whether the disclosures with respect to the Target Fund, the Acquiring Fund and the combined Fund as a result of the Reorganization, including risk disclosures, should be revised based on how these events are affecting the Funds and their investments. If the Registrant believes that no additional disclosure is warranted, please explain supplementally why not.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 3:
The SEC staff notes that the legality of shares opinion submitted with the revised N-14 registration statement filed on March 30, 2020 does not include a consent to the prospectus discussion of the legality of shares opinion, as required by Rule 436 and the SEC’s Division of Corporate Finance Staff Legal Bulletin No. 19. Please explain supplementally to the SEC staff the rationale for why the prospectus discussion of the legality of shares opinion is not covered by the consent.
Response:
The Registrant respectfully notes that the Information Statement/Prospectus does not discuss the legality of shares opinion. Accordingly, a consent to a discussion of such opinion is not applicable.
COMMENT 4:
The SEC staff notes that the SEC staff accountant has no further comments beyond those provided during a telephonic conversation with Mr. Eskildsen on March 9, 2020 with respect to a prior filing of the Information Statement/Prospectus:
Under “Synopsis and Questions Related to the Reorganization – 6. What are the costs associated with the Reorganization?”, the Registrant discloses the estimated brokerage commissions and trading-related costs. Please add disclosure to reflect the per share impact of the brokerage commissions and other trading-related costs. Please also disclose the per share impact with respect to any realized capital gains under “Synopsis and Questions Related to the Reorganization – 7. Will the Reorganization have tax consequences?” or confirm that the repositioning is not expected to result in any capital gains. Please also reflect the per share impact in the PRO FORMA FINANCIAL INFORMATION section.
Please respond to such comments supplementally.
Response:
In response to this comment, the Information Statement/Prospectus filed on March 30, 2020 contained the disclosure reflected in the Attachment.
COMMENT 5:
Please include the 1933 Act numbers for the documents incorporated by reference into the Information Statement/Prospectus.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
“Dear Fellow Shareholder” Letter Comments
COMMENT 6:
The Registrant discloses that “After careful consideration, the Board of Trustees of the Trust determined that the Reorganization would be in the best interests of both the Target Fund and the Acquiring Fund.” The Registrant also discloses under the “Synopsis and Questions Related to the Reorganization” that “The Trustees believe that the Reorganization is in the best interests of each Fund’s shareholders.” Please ensure that similar disclosure is included in the text of the letter and the body of the N-14 registration statement itself. The SEC staff suggests adding the Board’s best interest determination for each Fund and for the respective shareholders of each Fund in “3. Why is the Reorganization occurring and what are the benefits of merging the Target Fund into the Acquiring Fund?” header under the “Synopsis and Questions Related to the Reorganization” section.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 7:
Please revise the third paragraph to state that “The Reorganization will provide you with the opportunity…to benefit from lower total expense ratios of the Acquiring Fund.” Please also revise the third paragraph and throughout the filing, as applicable, such as in “6. What are the costs associated with the Reorganization?” header under the “Synopsis and Questions Related to the Reorganization” section, to make clear that any “opportunity” and “benefit” to the shareholder is not a guarantee.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
Rule 17a-8 Comment
COMMENT 8:
Please revise the N-14 registration statement to include the legal analysis as to whether the requirements of Rule 17a-8 under the Investment Company Act of 1940, as amended (the “1940 Act”) permitting merger of affiliated funds without shareholder approval have been met and the discussion of the Board’s considerations of each requirement. The SEC staff’s view is that the N-14 registration statement should articulate a fulsome discussion of the Board’s considerations with respect to each prong of Rule 17a-8. To the extent the discussion is included in the registration statement, please include a heading so shareholders can more easily find the Board’s deliberations. Please also disclose or confirm supplementally whether the Board considered any material adverse factors relating to the Reorganization.
Response:
The Registrant believes that the Board’s considerations discussed under “Background and Reasons for the Reorganization” appropriately describe the factors that the Board weighed, including anticipated benefits and costs of the Reorganization from the perspective of each of the Acquiring Fund and the Target Fund, and the Board’s conclusion that the Reorganization is in the best interests of the Target Fund and the Acquiring Fund and that the interests of existing shareholders of each Fund would not be diluted as a result of the Reorganization. These are the findings required by the Board under Rule 17a-8, and the Registrant does not believe it is necessary to recite considerations with respect to each prong of the conditions of Rule 17a-8 relating to shareholder approval. Nonetheless, the Registrant has revised the disclosure as reflected in the Attachment to reflect the Board’s consideration that the Reorganization would not be subject to shareholder approval. The Registrant hereby confirms that it identified no material adverse factors relating to the Reorganization, and there are therefore no such factors to be discussed.
“Synopsis and Questions Related to the Reorganization” Comments
COMMENT 9:
Please include “Information About the Registrant” as required by Item 5 of Form N-14, “Information About the Company Being Acquired” as required by Item 6 of Form N-14, and redemption procedures as required by Item 3(b)(3) of Form N-14. The SEC staff notes that it appears that there are no headers or title sections for the aforementioned items included in the Table of Contents.
Response:
The Registrant believes that the Information Statement/Prospectus properly incorporates certain information by reference pursuant to the requirements under the General Instruction G to Form N-14, which allows that the “registrant may, if it so elects, incorporate by reference the prospectus, the corresponding Statement of Additional Information, or reports, which satisfies the disclosure required by Items 5, 6, and 11 through 14” of Form N-14. The Registrant respectfully notes that in response to Item 3(b)(3) of Form N-14, a comparison of the Acquiring Fund’s and Target Fund’s redemption procedures is included under “SYNOPSIS AND QUESTIONS RELATING TO THE REORGANIZATION – 4. How do the Funds compare? – Comparison of the Target Fund and Acquiring Fund – Buying and Selling Fund Shares” section. The Registrant also notes that Form N-14 does not require headers or title sections for the aforementioned items in the Table of Contents. Accordingly, the Registration respectfully declines to make the requested changes.
“Synopsis and Questions Related to the Reorganization” Comments – 1. What is happening?
COMMENT 10:
The Registrant discloses that “Elk Creek has been instructed not to acquire any new securities or add to existing positions for the Target Fund.” Please indicate the date of that instruction.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 11:
The Registrant discloses that “Elk Creek is expected to invest the proceeds of any such sales in exchange-traded index funds (ETFs) that provide broad exposure to the small cap equity asset class, except to the extent that such proceeds may be used to meet shareholder redemption requests. The Target Fund may invest in such ETFs in excess of the limits set forth in the Investment Company Act of 1940 (the “Investment Company Act”) in reliance on exemptive orders granted by the SEC to the ETFs, subject to the conditions set forth in those orders.” Please confirm supplementally that the Acquiring Fund may rely on an exemptive order granted by the SEC to invest in ETFs in excess of the limits set forth in the 1940 Act. Please also confirm whether the Board considered the Target Fund’s investments in ETFs and whether it made a best interest determination with respect to the Fund and its shareholders. Please also revise the disclosure to clarify the Funds’ use of ETFs and confirm whether the costs associated with investing in the ETFs are included in the pro forma financial statements. The SEC staff notes it may have additional comments based on the Registrant’s responses.
Response:
The Registrant hereby confirms that the Acquiring Fund may rely on an exemptive order granted by the SEC to invest in ETFs in excess of the limits set forth in the 1940 Act. However, the Registrant notes that the Target Fund will invest in ETFs prior to the Reorganization solely for the purpose of equitizing cash (with no anticipated acquired fund fees and expenses, given the small amount of the investments), and that the Acquiring Fund does not anticipate acquiring ETF shares as part of the Reorganization. For this reason, the fees and expenses associated with investment in ETFs are not reflected in the pro forma “Annual Fund Operating Expenses” table.
The Registrant also hereby confirms that the Board considered the Target Fund’s investments in ETFs as part of its assessment of the Reorganization and made the findings required under the applicable exemptive relief as part of the Board’s renewal of the Acquired Fund’s advisory and subadvisory agreements.
The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 12:
Please indicate supplementally whether there are any additional costs associated with using the transition broker. To the extent Target Fund shareholders are bearing such expenses, particularly with respect to the ETF purchases, please revise the disclosure to indicate as such.
Response:
The Registrant hereby confirms that there are no costs associated with the transition broker beyond brokerage commissions and such costs are included in the estimated brokerage commissions and other trading-relating costs provided under 6. What are the costs associated with the Reorganization?. Regarding the second portion of the comment, the Registrant has revised the disclosure as reflected in the Attachment.
“Synopsis and Questions Related to the Reorganization” Comments – 4. How do the Funds Compare?
COMMENT 13:
Please confirm supplementally to the SEC staff that all material differences between the Funds are disclosed or revise the disclosure accordingly. In particular, the SEC staff notes that the Registrant discloses that “The principal risks of investing in each of the Funds are also the same.” The statement seems to suggest that the investment strategy is the same, which in the SEC staff’s view, is not the case (see comment 19 below).
Response:
The Registrant hereby confirms that all material differences between the Funds are disclosed. The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 14:
Please note that it is the SEC staff’s view that it is insufficient to list the Funds’ strategies and risks under the “Comparison of the Target Fund and Acquiring Fund” table in response to Item 3(c) of Form N-14. To the extent there are material differences between the Funds’ strategies and risks, please discuss such differences in narrative form.
Response:
The Registrant notes that a narrative discussion of the differences between the strategies of the Funds are included immediately after the header “4. How do the Funds compare?” and prior to the “Comparison of the Target Fund and Acquiring Fund” table. In addition, Item 3(c) of Form N-14 requires that “[i]mmediately after the synopsis, briefly discuss the principal risk factors of investing in the registrant. Briefly compare these risks with those associated with an investment in the company being acquired.” The Registrant respectfully notes that immediately after the section titled “SYNOPSIS AND QUESTIONS RELATED TO THE REORGANIZATION” is a section titled “RISK FACTORS”, which includes a narrative discussion of the principal risk factors of investing
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filename1.htm
One Bush Street
Suite 1600
San Francisco, CA 94104-4446
+1 415 262 4500 Main
+1 415 262 4555 Fax
www.dechert.com
Michelle Wong
Associate
michelle.wong@dechert.com
+1 415 262 4544 Direct
+1 415 262 4555 Fax
April 23, 2020
VIA ELECTRONIC TRANSMISSION
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Re: Harbor Funds (the “Registrant”)
(File Nos. 333-237459 and 811-04676)
Ladies and Gentlemen:
This correspondence is being filed for the purpose of responding to comments of the staff of the Securities and Exchange Commission (the “SEC staff”) provided by Ms. Kimberly Browning and Mr. Chad Eskildsen of the Division of Investment Management with respect to the Registrant’s Information Statement/Prospectus on Form N-14 (Accession No. 0001193125-20-089946).
Set forth below are the SEC staff’s verbal comments together with the Registrant’s responses. Terms used but not defined herein have the same meaning as in the Information Statement/Prospectus.
General Comments
COMMENT 1:
The SEC staff reminds the Registrant that it and its management are responsible for the accuracy and adequacy of the Registrant’s disclosures, notwithstanding any review, comments, action or absence of action by the SEC staff.
Response:
The Registrant acknowledges this statement.
COMMENT 2:
Significant market events have occurred since this N-14 was filed as a result of the COVID-19 pandemic. Please consider whether the disclosures with respect to the Target Fund, the Acquiring Fund and the combined Fund as a result of the Reorganization, including risk disclosures, should be revised based on how these events are affecting the Funds and their investments. If the Registrant believes that no additional disclosure is warranted, please explain supplementally why not.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 3:
The SEC staff notes that the legality of shares opinion submitted with the revised N-14 registration statement filed on March 30, 2020 does not include a consent to the prospectus discussion of the legality of shares opinion, as required by Rule 436 and the SEC’s Division of Corporate Finance Staff Legal Bulletin No. 19. Please explain supplementally to the SEC staff the rationale for why the prospectus discussion of the legality of shares opinion is not covered by the consent.
Response:
The Registrant respectfully notes that the Information Statement/Prospectus does not discuss the legality of shares opinion. Accordingly, a consent to a discussion of such opinion is not applicable.
COMMENT 4:
The SEC staff notes that the SEC staff accountant has no further comments beyond those provided during a telephonic conversation with Mr. Eskildsen on March 9, 2020 with respect to a prior filing of the Information Statement/Prospectus:
Under “Synopsis and Questions Related to the Reorganization – 6. What are the costs associated with the Reorganization?”, the Registrant discloses the estimated brokerage commissions and trading-related costs. Please add disclosure to reflect the per share impact of the brokerage commissions and other trading-related costs. Please also disclose the per share impact with respect to any realized capital gains under “Synopsis and Questions Related to the Reorganization – 7. Will the Reorganization have tax consequences?” or confirm that the repositioning is not expected to result in any capital gains. Please also reflect the per share impact in the PRO FORMA FINANCIAL INFORMATION section.
Please respond to such comments supplementally.
Response:
In response to this comment, the Information Statement/Prospectus filed on March 30, 2020 contained the disclosure reflected in the Attachment.
COMMENT 5:
Please include the 1933 Act numbers for the documents incorporated by reference into the Information Statement/Prospectus.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
“Dear Fellow Shareholder” Letter Comments
COMMENT 6:
The Registrant discloses that “After careful consideration, the Board of Trustees of the Trust determined that the Reorganization would be in the best interests of both the Target Fund and the Acquiring Fund.” The Registrant also discloses under the “Synopsis and Questions Related to the Reorganization” that “The Trustees believe that the Reorganization is in the best interests of each Fund’s shareholders.” Please ensure that similar disclosure is included in the text of the letter and the body of the N-14 registration statement itself. The SEC staff suggests adding the Board’s best interest determination for each Fund and for the respective shareholders of each Fund in “3. Why is the Reorganization occurring and what are the benefits of merging the Target Fund into the Acquiring Fund?” header under the “Synopsis and Questions Related to the Reorganization” section.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 7:
Please revise the third paragraph to state that “The Reorganization will provide you with the opportunity…to benefit from lower total expense ratios of the Acquiring Fund.” Please also revise the third paragraph and throughout the filing, as applicable, such as in “6. What are the costs associated with the Reorganization?” header under the “Synopsis and Questions Related to the Reorganization” section, to make clear that any “opportunity” and “benefit” to the shareholder is not a guarantee.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
Rule 17a-8 Comment
COMMENT 8:
Please revise the N-14 registration statement to include the legal analysis as to whether the requirements of Rule 17a-8 under the Investment Company Act of 1940, as amended (the “1940 Act”) permitting merger of affiliated funds without shareholder approval have been met and the discussion of the Board’s considerations of each requirement. The SEC staff’s view is that the N-14 registration statement should articulate a fulsome discussion of the Board’s considerations with respect to each prong of Rule 17a-8. To the extent the discussion is included in the registration statement, please include a heading so shareholders can more easily find the Board’s deliberations. Please also disclose or confirm supplementally whether the Board considered any material adverse factors relating to the Reorganization.
Response:
The Registrant believes that the Board’s considerations discussed under “Background and Reasons for the Reorganization” appropriately describe the factors that the Board weighed, including anticipated benefits and costs of the Reorganization from the perspective of each of the Acquiring Fund and the Target Fund, and the Board’s conclusion that the Reorganization is in the best interests of the Target Fund and the Acquiring Fund and that the interests of existing shareholders of each Fund would not be diluted as a result of the Reorganization. These are the findings required by the Board under Rule 17a-8, and the Registrant does not believe it is necessary to recite considerations with respect to each prong of the conditions of Rule 17a-8 relating to shareholder approval. Nonetheless, the Registrant has revised the disclosure as reflected in the Attachment to reflect the Board’s consideration that the Reorganization would not be subject to shareholder approval. The Registrant hereby confirms that it identified no material adverse factors relating to the Reorganization, and there are therefore no such factors to be discussed.
“Synopsis and Questions Related to the Reorganization” Comments
COMMENT 9:
Please include “Information About the Registrant” as required by Item 5 of Form N-14, “Information About the Company Being Acquired” as required by Item 6 of Form N-14, and redemption procedures as required by Item 3(b)(3) of Form N-14. The SEC staff notes that it appears that there are no headers or title sections for the aforementioned items included in the Table of Contents.
Response:
The Registrant believes that the Information Statement/Prospectus properly incorporates certain information by reference pursuant to the requirements under the General Instruction G to Form N-14, which allows that the “registrant may, if it so elects, incorporate by reference the prospectus, the corresponding Statement of Additional Information, or reports, which satisfies the disclosure required by Items 5, 6, and 11 through 14” of Form N-14. The Registrant respectfully notes that in response to Item 3(b)(3) of Form N-14, a comparison of the Acquiring Fund’s and Target Fund’s redemption procedures is included under “SYNOPSIS AND QUESTIONS RELATING TO THE REORGANIZATION – 4. How do the Funds compare? – Comparison of the Target Fund and Acquiring Fund – Buying and Selling Fund Shares” section. The Registrant also notes that Form N-14 does not require headers or title sections for the aforementioned items in the Table of Contents. Accordingly, the Registration respectfully declines to make the requested changes.
“Synopsis and Questions Related to the Reorganization” Comments – 1. What is happening?
COMMENT 10:
The Registrant discloses that “Elk Creek has been instructed not to acquire any new securities or add to existing positions for the Target Fund.” Please indicate the date of that instruction.
Response:
The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 11:
The Registrant discloses that “Elk Creek is expected to invest the proceeds of any such sales in exchange-traded index funds (ETFs) that provide broad exposure to the small cap equity asset class, except to the extent that such proceeds may be used to meet shareholder redemption requests. The Target Fund may invest in such ETFs in excess of the limits set forth in the Investment Company Act of 1940 (the “Investment Company Act”) in reliance on exemptive orders granted by the SEC to the ETFs, subject to the conditions set forth in those orders.” Please confirm supplementally that the Acquiring Fund may rely on an exemptive order granted by the SEC to invest in ETFs in excess of the limits set forth in the 1940 Act. Please also confirm whether the Board considered the Target Fund’s investments in ETFs and whether it made a best interest determination with respect to the Fund and its shareholders. Please also revise the disclosure to clarify the Funds’ use of ETFs and confirm whether the costs associated with investing in the ETFs are included in the pro forma financial statements. The SEC staff notes it may have additional comments based on the Registrant’s responses.
Response:
The Registrant hereby confirms that the Acquiring Fund may rely on an exemptive order granted by the SEC to invest in ETFs in excess of the limits set forth in the 1940 Act. However, the Registrant notes that the Target Fund will invest in ETFs prior to the Reorganization solely for the purpose of equitizing cash (with no anticipated acquired fund fees and expenses, given the small amount of the investments), and that the Acquiring Fund does not anticipate acquiring ETF shares as part of the Reorganization. For this reason, the fees and expenses associated with investment in ETFs are not reflected in the pro forma “Annual Fund Operating Expenses” table.
The Registrant also hereby confirms that the Board considered the Target Fund’s investments in ETFs as part of its assessment of the Reorganization and made the findings required under the applicable exemptive relief as part of the Board’s renewal of the Acquired Fund’s advisory and subadvisory agreements.
The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 12:
Please indicate supplementally whether there are any additional costs associated with using the transition broker. To the extent Target Fund shareholders are bearing such expenses, particularly with respect to the ETF purchases, please revise the disclosure to indicate as such.
Response:
The Registrant hereby confirms that there are no costs associated with the transition broker beyond brokerage commissions and such costs are included in the estimated brokerage commissions and other trading-relating costs provided under 6. What are the costs associated with the Reorganization?. Regarding the second portion of the comment, the Registrant has revised the disclosure as reflected in the Attachment.
“Synopsis and Questions Related to the Reorganization” Comments – 4. How do the Funds Compare?
COMMENT 13:
Please confirm supplementally to the SEC staff that all material differences between the Funds are disclosed or revise the disclosure accordingly. In particular, the SEC staff notes that the Registrant discloses that “The principal risks of investing in each of the Funds are also the same.” The statement seems to suggest that the investment strategy is the same, which in the SEC staff’s view, is not the case (see comment 19 below).
Response:
The Registrant hereby confirms that all material differences between the Funds are disclosed. The Registrant has revised the disclosure as reflected in the Attachment.
COMMENT 14:
Please note that it is the SEC staff’s view that it is insufficient to list the Funds’ strategies and risks under the “Comparison of the Target Fund and Acquiring Fund” table in response to Item 3(c) of Form N-14. To the extent there are material differences between the Funds’ strategies and risks, please discuss such differences in narrative form.
Response:
The Registrant notes that a narrative discussion of the differences between the strategies of the Funds are included immediately after the header “4. How do the Funds compare?” and prior to the “Comparison of the Target Fund and Acquiring Fund” table. In addition, Item 3(c) of Form N-14 requires that “[i]mmediately after the synopsis, briefly discuss the principal risk factors of investing in the registrant. Briefly compare these risks with those associated with an investment in the company being acquired.” The Registrant respectfully notes that immediately after the section titled “SYNOPSIS AND QUESTIONS RELATED TO THE REORGANIZATION” is a section titled “RISK FACTORS”, which includes a narrative discussion of the principal risk factors of investing