Correspondence 0001104659-23-088362 from Hartford Funds Exchange-Traded Trust (CIK 0001501825)
Hartford Funds Exchange-Traded Trust (CIK 0001501825)
Date: Aug. 7, 2023 · CIK: 0001501825 · Accession: 0001104659-23-088362
AI Filing Summary & Sentiment
File numbers found in text: 333-273214
Show Raw Text
CORRESP
1
filename1.htm
1900 K
Street, NW
Washington, DC 20006-1110
+1 202 261 3300 Main
+1 202 261 3333 Fax
www.dechert.com
ADAM T. TEUFEL
adam.teufel@dechert.com
+1 202 261 3464 Direct
+1 202 261 3164 Fax
August 7, 2023
VIA EDGAR CORRESPONDENCE
John Grzeskiewicz
U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, NE
Washington, D.C. 20549-4644
Re: Hartford Funds Exchange-Traded Trust (the “Registrant”) (SEC
File No. 333-273214)
Dear
Mr. Grzeskiewicz:
We are writing in response to comments you provided
telephonically to Adam Teufel and Alexander Karampatsos, of Dechert LLP, on August 3, 2023 in connection with your review of the
registration statement on Form N-14 (the “Registration Statement”) under the Securities Act of 1933, as amended, related
to the proposed reorganization of Hartford Quality Value Fund (“Acquired Fund”), a series of The Hartford Mutual Funds II, Inc.,
into Hartford Quality Value ETF (“Acquiring Fund”), a series of the Registrant, which was filed on July 12, 2023.
On behalf of the Registrant, we have reproduced
your comments below and immediately thereafter have provided the Registrant’s responses. Capitalized terms have the same meaning
as defined in the Registration Statement.
1.
Comment:
Please explain supplementally why the Acquired Fund's investment management agreement is not materially different from the Acquiring
Fund’s investment management agreement under Rule 17a-8 given that the Acquired Fund is subject to a traditional management
fee whereas the Acquiring Fund is subject to a unitary management fee.
Response: HFMC
serves as the investment manager to both the Acquired Fund and the Acquiring Fund pursuant
to separate investment management agreements (the “IMAs”). The management fee
rates paid to HFMC under the IMAs are identical. The structure of the management fee paid
to HFMC under the Acquired Fund’s and Acquiring Fund’s respective IMAs differ.
The contractual management fee rate paid by the Acquiring Fund to HFMC is structured as a
“unitary fee” under which HFMC pays all of the expenses of the Acquiring Fund,
except for: (i) interest and taxes; (ii) brokerage commissions and other expenses
(such as stamp taxes) connected with the execution of portfolio transactions; (iii) expenses
incident to the creation and redemption of its shares; (iv) legal fees in connection
with any arbitration, litigation or pending or threatened arbitration or litigation, including
any settlements in connection therewith and any obligation which the Registrant may have
to indemnify its officers and Trustees with respect thereto; (v) distribution fees and
expenses paid by the Registrant under any distribution plan adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940, as amended (“1940 Act”); (vi) such
extraordinary non-recurring expenses as may arise; and (vii) acquired fund fees and
expenses. Under the terms of the Acquired Fund’s IMA, HFMC generally does not pay the
expenses of the Acquired Fund.
Other than with respect to the identity of the funds and management fee structure, there are no material differences between the IMAs of the Acquired Fund and Acquiring Fund. Because the Acquiring Fund’s management fee is structured as a unitary fee whereby HFMC pays most of the expenses of the Acquiring Fund with certain exceptions, the Registrant does not believe that these differences trigger shareholder approval under Rule 17a-8(a)(3).
The purpose of the Rule 17a-8(a)(3) shareholder
approval requirement is to prevent a fund complex from circumventing certain shareholder approval requirements under the 1940 Act
by accomplishing, through a fund reorganization, changes that could not otherwise have been implemented without shareholder approval.
In effect, the unitary fee structure results in HFMC receiving a lower net management fee from the Acquiring Fund than it would if
it was structured as a traditional fee arrangement. The Registrant notes that the Acquired Fund and HFMC could, without shareholder
approval, reduce the fee rate payable by the Acquired Fund, consistent with applicable SEC staff guidance.1 Consistent
with this guidance, we believe it would be appropriate for the Acquired Fund and HFMC to restructure the management fee as a unitary
fee without shareholder approval in a manner that is identical to the Acquiring Fund’s fee structure. Accordingly, implementing
this change in fee structure through the Conversion does not require shareholder approval.
2. Comment:
In the “How will the Conversion affect the fees and expenses that I pay as a shareholder of a Fund?” section of the Registration
Statement, please consider disclosing that the Acquiring Fund’s gross expenses will also be lower than the gross expenses of the
Acquired Fund.
Response: The
disclosure has been revised accordingly.
3. Comment:
The Conversion should be referenced in the preamble before the performance disclosure in the Registrant’s Registration Statements
on Form N-1A and Form N-14 to the extent applicable.
Response: The
Registrant respectfully notes that the Conversion is appropriately disclosed in the “Past
Performance” section of the Acquiring Fund’s prospectus included in the Registrant’s
Registration Statement on Form N-1A. The Registrant also respectfully notes that the
Registrant’s Registration Statement on Form N-14 does not disclose the performance
of the Acquired Fund or the Acquiring Fund. For these reasons, the Registrant respectfully
notes that no disclosure changes are required.
1
See
e.g., Washington Mutual Investors Fund, Inc., SEC No-Action Letter (pub. avail. May 14, 1993)
and R.O.C. Taiwan Fund, SEC No-Action Letter (pub. avail. Feb. 11, 2000), each relating to amendments reducing investment advisory
fees without prior shareholder approval.
Should you have any questions, please feel free
to contact me at (202) 261-3464.
Sincerely,
/s/ Adam T. Teufel
Adam T. Teufel
cc:
Alice A. Pellegrino
John V. O’Hanlon
Alexander C. Karampatsos