[Federal Register Volume 62, Number 190 (Wednesday, October 1, 1997)]
[Notices]
[Pages 51495-51497]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25990]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-22832; 812-10650]


Harbor Fund and Harbor Capital Advisors, Inc.; Notice of 
Application

September 25, 1997.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of application for exemption under section 6(c) of the 
Investment Company Act of 1940 (the ``Act'') from the provisions of 
section 15(a) of the Act and rule 18f-2 under the Act.

-----------------------------------------------------------------------

SUMMARY OF APPLICATION: Applicants Harbor Fund (the ``Trust'') and 
Harbor Capital Advisors, Inc. (the ``Adviser'') request an order to 
permit the Adviser to enter into and materially amend contracts with 
the Trust's subadvisers without shareholder approval.

FILING DATES: The application was filed on May 9, 1997, and amended on 
August 29, 1997.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on October 20, 
1997, and should be accompanied by proof of service on applicants, in 
the form of an affidavit or, for lawyers, a certificate of service. 
Hearing requests should state the nature of the writer's interest, the 
reason for the request, and the issues contested. Persons who wish to 
be notified of a hearing may request notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C. 
20549. Applicants, One SeaGate, Toledo, Ohio 43666.

FOR FURTHER INFORMATION CONTACT: Joseph B. McDonald, Jr., Senior 
Counsel, at (202) 942-0533, or Mary Kay Frech, Branch Chief, at (202) 
942-0564 (Division of Investment Management, Office of Investment 
Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
SEC's Public Reference Branch, 450 Fifth St., N.W., Washington, D.C. 
20549 (tel. 202-942-8090).

Applicants' Representations

    1. The Trust is organized as a Delaware business trust and is 
registered under the Act as an open-end management investment company. 
The Trust is comprised of nine series (``Funds''), each of which has 
its own investment objectives and policies.\1\ Each Fund offers only 
one class of shares, which are distributed to the public without a 
sales charge or distribution or service fees. The Adviser, a Delaware 
corporation, is registered under the Investment Advisers Act of 1940 
(the ``Advisers Act'').
---------------------------------------------------------------------------

    \1\ Applicants also request relief with respect to any series of 
the Trust that may be created in the future and all subsequently 
registered open-end investment companies that in the future are 
advised by the Adviser, operate in substantially the same manner as 
the Funds with respect to the Adviser's responsibility to select, 
evaluate and supervise portfolio managers, and comply with the 
conditions to the requested order.
---------------------------------------------------------------------------

    2. The Trust, on behalf of each Fund, has entered into separate 
investment advisory agreements (``Agreements'') with the Adviser. Under 
the terms of these Agreements, the Adviser provides each Fund with 
investment research, advice and supervision, and furnishes continuously 
an investment program for each Fund consistent with the investment 
objectives and policies of the Fund. The Adviser also administers each 
Fund's business affairs, furnishes each Fund with office facilities and 
is responsible for clerical, recordkeeping, and bookkeeping services 
and for the financial and accounting records required to be maintained 
by each Fund (other than those maintained by the Trust's custodian and 
shareholder servicing agent). The Agreements specifically permit the 
Adviser to enter into investment subadvisory agreements (``Subadvisory 
Agreements'') with portfolio managers (``Portfolio Managers'') to whom 
the Adviser delegates its responsibility for providing investment 
advice and making investment decisions for the particular Fund.
    3. Since 1987, the Adviser has selected Portfolio Managers to make 
investment decisions for the Funds, and has represented itself as an 
investment adviser whose strength, experience, and expertise lies in 
its ability to evaluate, select, and supervise those Portfolio Managers 
who can add the most value to a shareholder's investment in the Trust. 
Currently, all nine Funds have contracted for subadvisory services with 
Portfolio Managers selected by the Adviser.\2\ In addition to selecting 
Portfolio Managers, the Adviser provides management oversight services 
to the Funds, which include, but are not limited to, supervising the 
Portfolio

[[Page 51496]]

Managers' compliance with federal regulations, including those imposed 
under the Act; extensive evaluation of the Portfolio Managers' 
investment performance; analyzing the composition of the investment 
portfolios of each Fund and preparing reports for the Trustees; 
preparing presentations to shareholders which analyze each Fund's 
overall investment program and performance; and intensive and continual 
review of its Portfolio Manager selection process. The Adviser retains 
the ultimate responsibility to both oversee the Portfolio Managers 
which it selects and to recommend to the Trust's board of trustees (the 
``Board of Trustees'') their hiring, termination, and replacement.
---------------------------------------------------------------------------

    \2\ As of the date of the application, only one Fund has more 
than one Portfolio Manager.
---------------------------------------------------------------------------

    4. Under the terms of the Subadvisory Agreements, the Portfolio 
Managers have authority to provide the respective Funds with advice 
concerning the investment management of that portion of the Fund's 
assets allocated to the Portfolio Manager by the Board of Trustees. The 
Portfolio Managers determine what securities will be purchased and 
sold. The Portfolio Managers also perform certain recordkeeping and 
compliance functions required by the Act and the Advisers Act.
    5. For the Adviser's advisory and administrative services, each 
fund pays the Adviser a monthly fee at an annual rate based on the 
average daily net assets of that fund. For their subadvisory services 
to the Funds, the Adviser pays each Portfolio Manager a monthly fee at 
an annual rate based on the average daily net assets of the Fund. 
Subadvisory fees paid by the Adviser to a Portfolio Manager of a Fund 
with more than one Portfolio Manager depend both on the fee rate 
negotiated with the Adviser and on the percentage of the Fund's assets 
allocated to the Portfolio Manager by the Adviser.
    6. Applicants request an exemption from section 15(a) of the Act 
and rule 18f-2 under the Act to permit the Adviser, subject to the 
approval of the Trust's Board of Trustees, to enter into and materially 
amend Subadvisory Agreements with Portfolio Managers without obtaining 
shareholder approval. The Adviser will obtain shareholder approval of a 
Subadvisory Agreement with a Portfolio Manager that is an affiliated 
person, as defined in section 2(a)(3) of the Act, of the Fund or the 
Adviser, other than by reason of serving as Portfolio Manager to one or 
more of the Funds.

Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as an investment adviser to a registered investment company except 
pursuant to a written contract that has been approved by a majority of 
the investment company's outstanding voting securities. Rule 18f-2 
provides that each series or class of stock in a series company 
affected by a matter must approve the matter if the Act requires 
shareholder approval.
    2. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction from any provision of the Act if and 
to the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
purposes fairly intended by the policy and provisions of the Act. 
Applicants request an order under section 6(c) to permit the Adviser, 
subject to the approval of the Trust's Board of Trustees, to enter into 
and materially amend Subadvisory Agreements with Portfolio Managers 
without obtaining shareholder approval.
    3. Applicants assert tha, from the perspective of the investor, the 
role of the Portfolio Managers with respect to the Trust is 
substantially equivalent to the role of the individual portfolio 
managers employed by an adviser to an investment company. In both 
cases, the portfolio managers are concerned principally with selection 
of portfolio investments in accordance with the fund's investment 
objectives and policies and have no significant supervisory, management 
or administrative responsibilities with respect to the fund. Applicants 
also assert that investors look to the Adviser when they have questions 
or concerns about the Trust's management or about their Fund's 
investment performance. Applicants state that investors expect the 
Adviser and the Board of Trustees to select the Portfolio Managers for 
the Fund and, for multiple manager Funds, rely upon the Adviser's 
expertise in selecting specific Portfolio Managers for segments of the 
Fund's assets in accordance with a Portfolio Manager's experience and 
expertise.
    4. Applicants contend that the requested relief will allow each 
Fund to operate more efficiently. Without the delay inherent in calling 
and holding shareholder meetings and without the associated costs, the 
Funds will be able to act more quickly and with less expense to replace 
Portfolio Managers when the Adviser and the Board of Trustees feel that 
change would benefit a Fund.
    5. Applicants believe that the requested relief is consistent with 
the protection of investors in light of the management structure of the 
Trust, as well as the Adviser's significant experience and expertise in 
selecting Portfolio Managers and the shareholder's expectation that the 
Adviser will utilize that expertise and select the most able Portfolio 
Managers.
    6. Applicants also believe that shareholders of the Funds will be 
provided with adequate information about the Portfolio Managers. The 
Trust's prospectus and statement of additional information will contain 
all required information regarding each Portfolio Manager. The Trust 
will furnish to shareholders, within 90 days of the date that a 
Portfolio Manager is appointed, relevant information that would have 
been provided in a proxy statement.

Applicants' Conditions

    Applicants agree that the requested order will be subject to the 
following conditions:
    1. Before a Fund may rely on the order requested in the 
application, the operation of the Fund in the manner described in the 
application will be approved by a majority of its outstanding voting 
securities, as defined in the Act, or, in the case of a new Fund whose 
public shareholders purchased shares on the basis of a prospectus 
containing the disclosure contemplated by condition number 2 below, by 
the sole initial shareholder(s) before offering shares of that Fund to 
the public.
    2. The Trust will disclose in its prospectus the existence, 
substance, and effect of any order granted pursuant to this 
application. In addition, each Fund will hold itself out to the public 
as employing the management structure described in the application. The 
prospectus will prominently disclose that the Adviser has the ultimate 
responsibility to oversee Portfolio Managers and recommend their 
hiring, termination, and replacement.
    3. At all times, a majority of the Trust's Board of Trustees will 
be persons each of whom is not an ``interested person'' of the Trust as 
defined in section 2(a)(19) of the Act (``Independent Trustees''), and 
the nomination of new or additional Independent Trustees will be at the 
discretion of the then existing Independent Trustees.
    4. The Adviser will not enter into a Subadvisory Agreement with any 
Portfolio Manager that is an affiliated person, as defined in section 
2(a)(3) of the Act, of the Adviser or the Funds, other than by reason 
of serving as Portfolio Manager to one or more of the Funds 
(``Affiliated Portfolio Manager''), without that agreement, including 
the compensation to be paid thereunder,

[[Page 51497]]

being approved by the shareholders of the applicable Fund.
    5. When a Portfolio Manager change is proposed for a Fund with an 
Affiliated Portfolio Manager, the Trust's Trustees, including a 
majority of the Independent Trustees, will make a separate finding, 
reflected in the Trust's board minutes, that the change is in the best 
interests of the Fund and its shareholders and does not involve a 
conflict of interest from which the Adviser or the Affiliated Portfolio 
Manager derives an inappropriate advantage.
    6. Within 90 days of the hiring of any new Portfolio Manager, 
shareholders will be furnished relevant information about a new 
Portfolio Manager that would be contained in a proxy statement, 
including any change in such disclosure caused by the addition of a new 
Portfolio Manager. The Adviser will meet this condition by providing 
shareholders, within 90 days of the hiring of a Portfolio Manager, an 
informal information statement meeting the requirements of Regulation 
14C and Schedule 14C of the Securities Exchange Act of 1934 (``Exchange 
Act''). The information statement will also meet the relevant 
requirements of Schedule 14A of the Exchange Act.
    7. The Adviser will provide general management services to each 
Fund, including overall supervisory responsibility for the general 
management and investment of each Fund's portfolio, and subject to 
review and approval by the Trustees, will: (i) Set the Fund's overall 
investment strategies; (ii) select Portfolio Managers; (iii) when 
appropriate, recommend to the Fund's Board of Trustees the allocation 
and reallocation of a Fund's assets among multiple Portfolio Managers; 
(iv) monitor and evaluate the performance of Portfolio Managers; and 
(v) ensure that the Portfolio Managers comply with the Board's 
investment objectives, policies, and restrictions.
    8. No Trustee or officer of the Trust or director or officer of the 
Adviser will own directly or indirectly (other than through a pooled 
investment vehicle that is not controlled by that Trustee, director or 
officer) any interest in a Portfolio Manager except for (i) Ownership 
of interests in the Adviser or any entity that controls, is controlled 
by, or is under common control with the Adviser; or (ii) ownership of 
less than 1 percent of the outstanding securities of any class or debt 
or equity of a publicly-traded company that is either a Portfolio 
Manager or an entity that controls, is controlled by or is under common 
control with a Portfolio Manager.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-25990 Filed 9-30-97; 8:45 am]
BILLING CODE 8010-01-M