SEC Company Response from AHA INVESTMENT FUNDS INC (CIK 0000831957) — Nov 29, 2004
AHA INVESTMENT FUNDS INC (CIK 0000831957)
Date: Nov. 29, 2004 · CIK: 0000831957 · Accession: 0000894189-04-002533
AI Filing Summary & Sentiment
Letter
VIA EDGAR Securities and Exchange Commission Division of Investment Management 450 Fifth Street, N.W. Washington, DC 20549 AHA Investment Funds, Inc.
Dear Ms. Browning:
This letter responds to the comments you gave to me on November 12, 2004, regarding the post-effective amendment to the registration statement filed on behalf of AHA Investment Funds, Inc. on Form N-1A relating to Socially Responsible Equity Fund (the “Fund”). Each of your comments, as I understood them, is repeated below, with responses immediately following. For convenience, I have attached clean and marked versions of the revised prospectus and SAI.
Prospectus
1. Fund’s Operating History
Comment: Please disclose that the Fund changed its name and was effective but had not commenced operations.
Response: Agreed. The requested disclosure has been added under “Investments, Risks and Performance” on page 1.1 On page 4, under “Performance,” the Fund discloses that performance information has not been presented because the Fund had not commenced operations.
All page references in this letter refer to pages in the marked version of the revised registration statement.
2. Fixed Income Securities
Comment: On page 1, the Fund includes as a principal investment strategy its ability to invest up to 20% of its net assets in fixed income securities. Please explain how the Fund’s investment in fixed income securities contributes to its investment objective, which is long-term capital growth. Please describe the types of fixed income securities in which the Fund invests and the associated risks.
Response: We have confirmed with the Fund’s investment adviser that investing in fixed income securities is not a principal investment strategy of the Fund. The Fund’s principal investment strategy is to invest, under normal circumstances, at least 80% of its net assets in common stocks of U.S. companies that meet certain socially responsible criteria. The Fund may invest in fixed income securities as a temporary defensive strategy during periods of adverse market or economic conditions. The language on fixed income securities has been deleted from “Principal Investment Strategies.” The associated risks of investing in fixed income securities have been deleted from “Principal Investment Risks.” See pages 1-3 of the enclosed prospectus.
3. American Depository Receipts
Comment: Under “Principal Investment Strategies,” please describe the Fund’s investment in American Depository Receipts (ADRs) and the associated risks of that investment.
Response: We have confirmed with the Fund’s investment adviser that investing in ADRs is not a principal investment strategy of the Fund. To achieve its investment objective of long-term capital growth, the Fund will invest primarily in the common stocks of U.S. issuers. The Fund may invest up to 20% of its assets in ADRs as a secondary strategy. The language on ADRs has been deleted from “Principal Investment Strategies” and “Principal Investment Risks.” We have added new disclosure regarding the Fund’s investment in ADRs under “Other Investment Policies and Risks.” See pages 1-3 of the enclosed prospectus.
4. Money Market Instruments
Comment: Under “Principal Investment Strategies,” please describe the types of money market instruments in which the Fund invests and the associated risks of those investments.
Response: We have confirmed with the Fund’s investment adviser that investing in money market instruments is not a principal investment strategy of the Fund. The Fund invests in money market instruments as a temporary defensive strategy during periods of adverse market or economic conditions. The language on money market instruments has been deleted from “Principal Investment Strategies” and “Principal Investment Risks.” See pages 1-3 of the enclosed prospectus.
5. Policy of Investing at least 80% of Fund’s Assets in Common Stock
Comment: If the Fund’s policy of investing at least 80% of its assets in common stocks is not a fundamental policy, please disclose that the Funds’ Board of Directors can change the policy without shareholder approval.
Response: Item 4(a) of Form N-1A requires a fund to disclose whether its investment objective may be changed without shareholder approval. On page 4, the Fund discloses that its investment objective, which is long-term capital growth, is fundamental and may not be changed by the Fund’s Board without shareholder approval. The Fund’s policy of investing at least 80% of its assets in the common stocks of U.S. issuers is an investment strategy, rather than an investment objective. Form N-1A does not require funds to disclose whether an investment strategy may be changed without shareholder approval. To highlight the fact that the Fund’s investment objective may not be changed without shareholder approval, we inserted a new sub-heading, “Investment Objective,” above that disclosure on page 4. We also would like to refer you to Item 3 of the Fund’s Non-Fundamental Restrictions, as contained on page 15 of the Fund’s SAI. That section states that the Fund’s policy of investing 80% of its net assets in equity securities is non-fundamental and may be changed by the Board without shareholder approval. We believe that this disclosure is consistent with Rule 35d-1 under the 1940 Act and is appropriately contained in the Fund’s SAI.
6. Principal Risk Considerations
Comment: Please disclose the risks of the Fund’s investments in common stocks and companies with market capitalization in excess of $1 billion.
Response: Agreed. The requested disclosure has been added under “Principal Investment Risks.” See pages 1-3 of the enclosed prospectus.
7. Principal Investment Risks: Hedging Risk, Pre-Payment Risk and Derivative Risk
Comment: Under “Principal Investment Risks,” the Fund discloses hedging risk and pre-payment risk and references derivative risk within a discussion of credit risk. If the Fund does not employ a hedging strategy or invest in fixed income securities or derivatives as principal investment strategies, please remove the disclosure on hedging risk and pre-payment risk and the reference to derivative risk. On the other hand, if the Fund employs a hedging strategy or invests in fixed income securities or derivatives as principal investment strategies, please disclose those strategies under “Principal Investment Strategies” on page 1.
Response: Agreed. The Fund does not employ a hedging strategy or invest in fixed income securities or derivatives as principal investment strategies. The language on hedging risk, pre-payment risk and derivative risk has been deleted.
8. Investment Selection Process
Comment: Please provide more information about the “several well known third party organizations in the socially responsible community” that the Fund uses to gather information on companies’ involvement in certain activities.
Response: The Fund and its sub-adviser obtain information on companies’ involvement in specific activities from two service providers, KLD Research & Analytics, Inc. and Investor Research Responsibility Center. We have not disclosed the names of those service providers because the Fund and its sub-adviser may not obtain information from them in all cases and may use other service providers in the future. We have modified the disclosure to indicate that the Fund and its sub-adviser review information provided by various third party organizations to evaluate a company’s involvement in specific revenue-generating activities. See page 4 of the enclosed prospectus.
9. Estimated Other Expenses
Comment: In footnote 2 on page 4, please state that the amount of the Fund’s “other expenses” is estimated because the Fund has not become operational.
Response: Agreed. We have revised footnote 2 on page 4 to read as follows: “Because the Fund did not commence operations until December 15, 2004, the amount shown for “other expenses” is the estimated amount that the Fund will incur.”
10. Expense Reimbursement Disclosure
Comment: Please revise footnote 3 on page 4 to include the information on expense reimbursements in narrative form, rather than in a table.
Response: Agreed. We have revised footnote 3 on page 4 to read as follows: “CCM Advisors has undertaken to reimburse the Fund to the extent that the total operating expenses exceed 1.50% of the average daily net assets for Class A shares, 1.25% of the average daily net assets for Class I shares, and 1.70% of the average daily net assets for Institutional Servicing Class shares.”
11. Annual Fund Operating Expenses
Comment: Please revise footnote 3 on page 4 to specify that CCM Advisors may recover the reimbursed amounts for a period that does not exceed three years after the time the expense was incurred.
Response: Agreed. The requested disclosure has been added.
12. Fair Value Determinations
Comment: Under “Pricing of Fund Shares,” please clarify that the Funds’ Board of Directors does not make fair value determinations.
Response: Agreed. We have revised the language on page 7 of the enclosed prospectus to read: “When reliable market quotations are not readily available, securities are valued at their fair value in accordance with procedures approved by the Fund’s Board of Directors. The Fund may also use fair-value pricing if the value of a security it holds is materially affected by events occurring after the close of the primary market on which the security is traded. The effect of fair-value pricing will be that the security’s value will not be based on a quoted price, but on a price that reflects fair value of the security.”
13. Orders Must be Received in “Good Order”
Comment: Please indicate that a purchase or redemption order must be received in “good order” and define “good order.”
Response: Agreed. The requested disclosure has been added under “Additional Information about Purchasing Shares” on page 10 and “Additional Information about Selling Shares” on page 13.
14. Deadline for Placing Trades with a Financial Intermediary
Comment: Please disclose that shareholders who place orders through financial intermediaries must submit their orders to the intermediaries by 4:00 p.m. Eastern Time to receive that day’s price.
Response: Agreed. The requested disclosure has been added to “Additional Information About Purchasing Shares” on page 10, “Additional Information About Selling Shares” on page 13, and “Through a Financial Institution/Financial Professional” on pages 12 and 13.
15. How to Exchange Shares
Comment: Under “How to Exchange Shares,” please specify that redemptions will be made at the net asset value next determined after receipt by the Fund of an exchange request in proper order.
Response: Agreed. The requested disclosure has been added. See page 11.
16. Appendix A
Comment: Please delete the reference to “Appendix” and rename the section “Prior Performance of SKBA.”
Response: Agreed. The requested change has been made. See pages 21-22.
Statement of Additional Information
1. Investment Strategies
Comment: Under “Investment Strategies,” please distinguish between principal and non-principal investment strategies by adding the headings “Principal Investment Strategies” and “Non-Principal Investment Strategies” where appropriate.
Response: Agreed. The requested change has been made. See pages 1-2 of the enclosed SAI.
2. Investment Restrictions
Comment: The Fundamental Restrictions numbered 2, 3, 4, and 6 state that “all of the investable assets of the Fund may be invested in another registered investment company having the same objective and substantially the same investment policies as the Fund.” Please clarify the meaning of “substantially the same investment policies as the Fund.”
Response: The purpose of the language in these provisions is to enable the Fund to invest its assets in another registered investment company as part of a feeder fund/master fund structure. As a practical matter, the Fund does not anticipate becoming a feeder fund. Nevertheless, the term “substantially the same” provides the Fund with the ability to become a feeder fund in a master fund that has an investment objective that is appropriate for the Fund. However, we have not revised the language because the Fund cannot change its Fundamental Restrictions without shareholder approval and given the fact that the Fund does not anticipate becoming a feeder fund, believe the current language is clear and appropriate.
3. Leverage
Comment: If the Fund does not use leverage, add the following language to the section on Non-Fundamental Restrictions: “The Fund will not make investments in securities when outstanding borrowings exceed 5% of the Fund’s total assets.”
Response: The Fund does not use leverage. The Fund will not make investments in securities when outstanding borrowings exceed 5% of the Fund’s total assets. The requested disclosure has not been added, however, because the Fund cannot change its Non-Fundamental Restrictions without the approval of the Fund’s Board of Directors. At a meeting on January 12, 2005, the Board will be asked to consider the adoption of the following non-fundamental restriction:
The Fund may not borrow money in an amount exceeding 10% of the Fund’s total assets. The Fund will not borrow money for leverage purposes. For the purpose of this investment restriction, the use of options and futures transactions and the purchase of securities on a when-issued or delayed delivery basis shall not be deemed the borrowing of money. The Fund will not make additional investments while its borrowings exceed 5% of total assets.
Should the Board approve this change, the Fund’s registration statement will be amended thereafter.
* * * * *
On behalf of the Fund, I acknowledge that the Fund is responsible for the adequacy and accuracy of the disclosure in the filings; Staff comments or changes to disclosure in response to Staff comments in the filings reviewed by the Staff do not foreclose the Commission from taking any action with respect to the filing; and the Fund may not assert Staff comments as a defense in an proceeding initiated by the Commission or any person under the federal securities laws of the United States.
* * * * *
We believe that this information responds to all of your comments. Please call me to confirm the adequacy of our response at 312/807-4219. On November 24, 2004, the AHA Funds filed a 485(b) filing to its registration statement, changing the effective date with respect to the Fund to December 3, 2004.
Very truly yours,
/s/ Laura E. Simpson
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CORRESP 1 ahaletter.htm CORRESPONDENCE TO THE SEC Unassociated Document LAURA E. SIMPSON 312.807-4219 lsimpson@bellboyd.com DIRECT FAX: 312.345.9979 VIA EDGAR November 29, 2004 Ms. Kimberly Browning Securities and Exchange Commission Division of Investment Management 450 Fifth Street, N.W. Washington, DC 20549 AHA Investment Funds, Inc. Dear Ms. Browning: This letter responds to the comments you gave to me on November 12, 2004, regarding the post-effective amendment to the registration statement filed on behalf of AHA Investment Funds, Inc. on Form N-1A relating to Socially Responsible Equity Fund (the “Fund”). Each of your comments, as I understood them, is repeated below, with responses immediately following. For convenience, I have attached clean and marked versions of the revised prospectus and SAI. Prospectus 1. Fund’s Operating History Comment: Please disclose that the Fund changed its name and was effective but had not commenced operations. Response: Agreed. The requested disclosure has been added under “Investments, Risks and Performance” on page 1.1 On page 4, under “Performance,” the Fund discloses that performance information has not been presented because the Fund had not commenced operations. 1 All page references in this letter refer to pages in the marked version of the revised registration statement. 2. Fixed Income Securities Comment: On page 1, the Fund includes as a principal investment strategy its ability to invest up to 20% of its net assets in fixed income securities. Please explain how the Fund’s investment in fixed income securities contributes to its investment objective, which is long-term capital growth. Please describe the types of fixed income securities in which the Fund invests and the associated risks. Response: We have confirmed with the Fund’s investment adviser that investing in fixed income securities is not a principal investment strategy of the Fund. The Fund’s principal investment strategy is to invest, under normal circumstances, at least 80% of its net assets in common stocks of U.S. companies that meet certain socially responsible criteria. The Fund may invest in fixed income securities as a temporary defensive strategy during periods of adverse market or economic conditions. The language on fixed income securities has been deleted from “Principal Investment Strategies.” The associated risks of investing in fixed income securities have been deleted from “Principal Investment Risks.” See pages 1-3 of the enclosed prospectus. 3. American Depository Receipts Comment: Under “Principal Investment Strategies,” please describe the Fund’s investment in American Depository Receipts (ADRs) and the associated risks of that investment. Response: We have confirmed with the Fund’s investment adviser that investing in ADRs is not a principal investment strategy of the Fund. To achieve its investment objective of long-term capital growth, the Fund will invest primarily in the common stocks of U.S. issuers. The Fund may invest up to 20% of its assets in ADRs as a secondary strategy. The language on ADRs has been deleted from “Principal Investment Strategies” and “Principal Investment Risks.” We have added new disclosure regarding the Fund’s investment in ADRs under “Other Investment Policies and Risks.” See pages 1-3 of the enclosed prospectus. 4. Money Market Instruments Comment: Under “Principal Investment Strategies,” please describe the types of money market instruments in which the Fund invests and the associated risks of those investments. Response: We have confirmed with the Fund’s investment adviser that investing in money market instruments is not a principal investment strategy of the Fund. The Fund invests in money market instruments as a temporary defensive strategy during periods of adverse market or economic conditions. The language on money market instruments has been deleted from “Principal Investment Strategies” and “Principal Investment Risks.” See pages 1-3 of the enclosed prospectus. 5. Policy of Investing at least 80% of Fund’s Assets in Common Stock Comment: If the Fund’s policy of investing at least 80% of its assets in common stocks is not a fundamental policy, please disclose that the Funds’ Board of Directors can change the policy without shareholder approval. Response: Item 4(a) of Form N-1A requires a fund to disclose whether its investment objective may be changed without shareholder approval. On page 4, the Fund discloses that its investment objective, which is long-term capital growth, is fundamental and may not be changed by the Fund’s Board without shareholder approval. The Fund’s policy of investing at least 80% of its assets in the common stocks of U.S. issuers is an investment strategy, rather than an investment objective. Form N-1A does not require funds to disclose whether an investment strategy may be changed without shareholder approval. To highlight the fact that the Fund’s investment objective may not be changed without shareholder approval, we inserted a new sub-heading, “Investment Objective,” above that disclosure on page 4. We also would like to refer you to Item 3 of the Fund’s Non-Fundamental Restrictions, as contained on page 15 of the Fund’s SAI. That section states that the Fund’s policy of investing 80% of its net assets in equity securities is non-fundamental and may be changed by the Board without shareholder approval. We believe that this disclosure is consistent with Rule 35d-1 under the 1940 Act and is appropriately contained in the Fund’s SAI. 6. Principal Risk Considerations Comment: Please disclose the risks of the Fund’s investments in common stocks and companies with market capitalization in excess of $1 billion. Response: Agreed. The requested disclosure has been added under “Principal Investment Risks.” See pages 1-3 of the enclosed prospectus. 7. Principal Investment Risks: Hedging Risk, Pre-Payment Risk and Derivative Risk Comment: Under “Principal Investment Risks,” the Fund discloses hedging risk and pre-payment risk and references derivative risk within a discussion of credit risk. If the Fund does not employ a hedging strategy or invest in fixed income securities or derivatives as principal investment strategies, please remove the disclosure on hedging risk and pre-payment risk and the reference to derivative risk. On the other hand, if the Fund employs a hedging strategy or invests in fixed income securities or derivatives as principal investment strategies, please disclose those strategies under “Principal Investment Strategies” on page 1. Response: Agreed. The Fund does not employ a hedging strategy or invest in fixed income securities or derivatives as principal investment strategies. The language on hedging risk, pre-payment risk and derivative risk has been deleted. 8. Investment Selection Process Comment: Please provide more information about the “several well known third party organizations in the socially responsible community” that the Fund uses to gather information on companies’ involvement in certain activities. Response: The Fund and its sub-adviser obtain information on companies’ involvement in specific activities from two service providers, KLD Research & Analytics, Inc. and Investor Research Responsibility Center. We have not disclosed the names of those service providers because the Fund and its sub-adviser may not obtain information from them in all cases and may use other service providers in the future. We have modified the disclosure to indicate that the Fund and its sub-adviser review information provided by various third party organizations to evaluate a company’s involvement in specific revenue-generating activities. See page 4 of the enclosed prospectus. 9. Estimated Other Expenses Comment: In footnote 2 on page 4, please state that the amount of the Fund’s “other expenses” is estimated because the Fund has not become operational. Response: Agreed. We have revised footnote 2 on page 4 to read as follows: “Because the Fund did not commence operations until December 15, 2004, the amount shown for “other expenses” is the estimated amount that the Fund will incur.” 10. Expense Reimbursement Disclosure Comment: Please revise footnote 3 on page 4 to include the information on expense reimbursements in narrative form, rather than in a table. Response: Agreed. We have revised footnote 3 on page 4 to read as follows: “CCM Advisors has undertaken to reimburse the Fund to the extent that the total operating expenses exceed 1.50% of the average daily net assets for Class A shares, 1.25% of the average daily net assets for Class I shares, and 1.70% of the average daily net assets for Institutional Servicing Class shares.” 11. Annual Fund Operating Expenses Comment: Please revise footnote 3 on page 4 to specify that CCM Advisors may recover the reimbursed amounts for a period that does not exceed three years after the time the expense was incurred. Response: Agreed. The requested disclosure has been added. 12. Fair Value Determinations Comment: Under “Pricing of Fund Shares,” please clarify that the Funds’ Board of Directors does not make fair value determinations. Response: Agreed. We have revised the language on page 7 of the enclosed prospectus to read: “When reliable market quotations are not readily available, securities are valued at their fair value in accordance with procedures approved by the Fund’s Board of Directors. The Fund may also use fair-value pricing if the value of a security it holds is materially affected by events occurring after the close of the primary market on which the security is traded. The effect of fair-value pricing will be that the security’s value will not be based on a quoted price, but on a price that reflects fair value of the security.” 13. Orders Must be Received in “Good Order” Comment: Please indicate that a purchase or redemption order must be received in “good order” and define “good order.” Response: Agreed. The requested disclosure has been added under “Additional Information about Purchasing Shares” on page 10 and “Additional Information about Selling Shares” on page 13. 14. Deadline for Placing Trades with a Financial Intermediary Comment: Please disclose that shareholders who place orders through financial intermediaries must submit their orders to the intermediaries by 4:00 p.m. Eastern Time to receive that day’s price. Response: Agreed. The requested disclosure has been added to “Additional Information About Purchasing Shares” on page 10, “Additional Information About Selling Shares” on page 13, and “Through a Financial Institution/Financial Professional” on pages 12 and 13. 15. How to Exchange Shares Comment: Under “How to Exchange Shares,” please specify that redemptions will be made at the net asset value next determined after receipt by the Fund of an exchange request in proper order. Response: Agreed. The requested disclosure has been added. See page 11. 16. Appendix A Comment: Please delete the reference to “Appendix” and rename the section “Prior Performance of SKBA.” Response: Agreed. The requested change has been made. See pages 21-22. Statement of Additional Information 1. Investment Strategies Comment: Under “Investment Strategies,” please distinguish between principal and non-principal investment strategies by adding the headings “Principal Investment Strategies” and “Non-Principal Investment Strategies” where appropriate. Response: Agreed. The requested change has been made. See pages 1-2 of the enclosed SAI. 2. Investment Restrictions Comment: The Fundamental Restrictions numbered 2, 3, 4, and 6 state that “all of the investable assets of the Fund may be invested in another registered investment company having the same objective and substantially the same investment policies as the Fund.” Please clarify the meaning of “substantially the same investment policies as the Fund.” Response: The purpose of the language in these provisions is to enable the Fund to invest its assets in another registered investment company as part of a feeder fund/master fund structure. As a practical matter, the Fund does not anticipate becoming a feeder fund. Nevertheless, the term “substantially the same” provides the Fund with the ability to become a feeder fund in a master fund that has an investment objective that is appropriate for the Fund. However, we have not revised the language because the Fund cannot change its Fundamental Restrictions without shareholder approval and given the fact that the Fund does not anticipate becoming a feeder fund, believe the current language is clear and appropriate. 3. Leverage Comment: If the Fund does not use leverage, add the following language to the section on Non-Fundamental Restrictions: “The Fund will not make investments in securities when outstanding borrowings exceed 5% of the Fund’s total assets.” Response: The Fund does not use leverage. The Fund will not make investments in securities when outstanding borrowings exceed 5% of the Fund’s total assets. The requested disclosure has not been added, however, because the Fund cannot change its Non-Fundamental Restrictions without the approval of the Fund’s Board of Directors. At a meeting on January 12, 2005, the Board will be asked to consider the adoption of the following non-fundamental restriction: The Fund may not borrow money in an amount exceeding 10% of the Fund’s total assets. The Fund will not borrow money for leverage purposes. For the purpose of this investment restriction, the use of options and futures transactions and the purchase of securities on a when-issued or delayed delivery basis shall not be deemed the borrowing of money. The Fund will not make additional investments while its borrowings exceed 5% of total assets. Should the Board approve this change, the Fund’s registration statement will be amended thereafter. * * * * * On behalf of the Fund, I acknowledge that the Fund is responsible for the adequacy and accuracy of the disclosure in the filings; Staff comments or changes to disclosure in response to Staff comments in the filings reviewed by the Staff do not foreclose the Commission from taking any action with respect to the filing; and the Fund may not assert Staff comments as a defense in an proceeding initiated by the Commission or any person under the federal securities laws of the United States. * * * * * We believe that this information responds to all of your comments. Please call me to confirm the adequacy of our response at 312/807-4219. On November 24, 2004, the AHA Funds filed a 485(b) filing to its registration statement, changing the effective date with respect to the Fund to December 3, 2004. Very truly yours, /s/ Laura E. Simpson Laura E. Simpson Enclosures Copy to Savitri P. Pai, Esq.