Re: | Horizon Funds Response to Staff’s Comments to Post-Effective Amendment No. 4 to Registration Statement on Form N-1A Filed July 8, 2016 (File Nos. 811-23063 and 333-205411) |
1.
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Several of the comments issued below regarding one Fund will also apply to similar disclosure contained in the disclosures for the other Fund. For brevity we have not repeated our comments. Please consider whether our comment applies to similar disclosure in these other funds. When responding to the Staff’s comments, please provide the Staff with the Trust’s draft disclosure in advance of filing a post-effective amendment with respect to the Funds.
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RESPONSE:
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The Trust confirms that it will consider the Staff’s comment above and respond accordingly.
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2.
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The Staff notes the line items included under Shareholder Fees are presented even though no fees are charged for any class of shares. Please consider removing these line items to better enable investors to focus on the fees they will actually pay.
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RESPONSE:
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The Trust has considered your comment, but believes that including all line items in the Shareholder Fee table makes comparisons between the fees charged by the Funds and those charged by other funds easier for shareholders and potential shareholders.
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3.
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Please provide a completed table of each Fund’s Annual Fund Operating Expenses.
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RESPONSE:
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The table of each Fund’s Annual Fund Operating Expenses are as follows:
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Investor
Class
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Institutional
Class
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Management Fees
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0.75%
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0.75%
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Distribution and/or Service (12b-1) Fees
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0.25%
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None
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Other Expenses
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0.36%
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0.36%
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Total Annual Fund Operating Expenses
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1.36%
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1.11%
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Fee Waiver and/or Expense Reimbursements
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-0.12%
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-0.12%
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Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursements
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1.24%
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0.99%
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1 Year
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3 Years
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Investor Class
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$126
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$393
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Institutional Class
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$101
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$315
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Investor
Class
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Institutional
Class
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Management Fees
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0.80%
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0.80%
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Distribution and/or Service (12b-1) Fees
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0.25%
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None
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Other Expenses
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0.36%
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0.36%
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Acquired Fund Fees and Expenses
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0.05%
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0.05%
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Total Annual Fund Operating Expenses
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1.46%
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1.21%
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Fee Waiver and/or Expense Reimbursements
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-0.22%
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-0.22%
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Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursements
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1.24%
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0.99%
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1 Year
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3 Years
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Investor Class
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$126
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$393
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Institutional Class
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$101
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$315
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4.
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Please confirm that your expense example is appropriately calculated and only reflects the fee waiver and expense reimbursement agreement for the initial duration of the agreement.
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RESPONSE:
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The Trust confirms that each Fund’s expense example is appropriately calculated and only reflects the fee waiver and expense reimbursement agreement for the initial duration of the agreement.
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5.
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The Staff notes that the name of the Horizon Dynamic Dividend Fund (the “Dividend Fund”) references the word “dividend”, which the Staff believes connotes a specific type of security for purposes of Rule 35d-1 under the 1940 Act. Please revise the description of the Dividend Fund’s principal investment strategies to adopt an investment limitation with respect to dividend paying securities that it consistent with Rule 35d-1.
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RESPONSE:
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The Trust has adopted the following investment limitation on behalf of the Dividend Fund:
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6.
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The Staff notes that the description of the Dividend Fund’s principal investment strategies indicates that Horizon Investments, LLC, the Funds’ investment adviser (the “Adviser”) will seek to identify companies with “favorable long-term fundamental characteristics”. Please explain supplementally the Adviser’s processes for identifying such companies.
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RESPONSE:
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The Adviser has confirmed that it seeks to identify companies with favorable long-term fundamental characteristics through its research of quantitative and qualitative characteristics of a universe of large capitalization companies. Quantitatively, the Adviser seeks candidates with one or more of the following characteristics: positive dividend yields, higher than average projected returns on equity and lower valuation characteristics than has been typical historically. Qualitatively, the Adviser conducts research to assess each company management’s capability and strategy, company characteristics or assets that may be overlooked or underappreciated by investors and catalysts or scenarios that will lead to appreciation of the company’s stock.
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7.
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Please indicate whether the put and call options that are paired together as part of the options collar strategy for the Horizon Collar Fund (the “Defined Risk Fund”) are tied to equity securities in the Defined Risk Fund’s equity portfolio. If not, please consider adding additional risk disclosures regarding the risks of the Defined Risk Fund not holding in its equity portfolio the securities underlying the Defined Risk Fund’s options positions.
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RESPONSE:
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The Trust confirms that, while the Defined Risk Fund will typically invest in a portfolio of individual stocks and ETFs, the put and call options that will be paired together as part of the Defined Risk Fund’s options collar strategy will typically be tied to an index. The Trust notes that the Defined Risk Fund will use index and ETF options because the Adviser believes that using index and ETF options is a more efficient way to achieve its investment objective, and that the obligations of the counterparties to the options transactions will either be secured by the options exchange (in the case of exchange traded options) or collateralized on mark-to-market basis (in the case of over-the-counter options). The following risk disclosure related to options has been added to the Defined Risk Fund’s Item 4 risk disclosure:
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8.
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The Staff notes that the description of the principal investment strategies for the Defined Risk Fund indicates that the Adviser believes that the Defined Risk Fund will have the “potential to capture a majority of the returns associated with the general equity markets” (emphasis added). Please explain supplementally the basis for the Adviser’s belief or consider deleting the word “majority”.
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RESPONSE:
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The Adviser expects to implement its options strategy with respect to between 50-100% of the equity portfolio, which the Adviser believes will allow the Fund to achieve a reduced beta as compared to equities markets generally but still achieve a majority of equity market returns from the underlying portfolio. The Adviser will update this disclosure in the future to the extent that the Adviser determines it no longer accurately reflects the Adviser’s belief.
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9.
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Please revise the description of the Defined Risk Fund’s options collar strategy in plain English. Please also address the extent to which the Defined Risk Fund will use options collars in connection with its portfolio construction process. The Staff requests that the disclosure be in quantified terms, while also explaining when the Defined Risk Fund will and will not use collars on its investments. Please clarify that the cost of buying puts potentially will offset the revenue generated from writing calls.
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RESPONSE:
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The first paragraph of the description of the Defined Risk Fund’s options collar strategy has been revised as follows:
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10.
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Please confirm whether the Defined Risk Fund’s options collar strategy is the only derivatives strategy in which the Defined Risk Fund will principally engage.
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RESPONSE:
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The Trust confirms that the Defined Risk Fund’s options collar strategy is the only derivatives strategy in which the Defined Risk Fund will principally engage.
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11.
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Please confirm whether the Defined Risk Fund will use its options collar strategy to generate investment leverage. If so, please add relevant risk disclosures regarding such leverage.
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RESPONSE:
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The Defined Risk Fund will not employ its options collar strategy for the purpose of generating investment leverage.
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12.
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Please confirm that January 1, 2015 is the correct reference date in the third paragraph.
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RESPONSE:
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The Trust confirms that January 1, 2015 is the correct reference date in the third paragraph because verification of the Adviser’s GIPS composite for the period ended December 31, 2015 has not yet been completed.
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13.
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Please confirm that the Dividend Fund maintains the records necessary to support the calculations in this section pursuant to Rule 204-2(a)(16) under the Investment Advisers Act of 1940.
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RESPONSE:
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The Trust confirms that the Dividend Fund maintains the records necessary to support its performance calculations pursuant to Rule 204-2(a)(16) under the Investment Advisers Act of 1940.
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14.
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The Staff notes that the Funds’ disclosures indicate that redeeming shares may be “subject to certain restrictions”. Please clarify the nature of these restrictions.
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RESPONSE:
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The phrase “subject to certain restrictions” has been deleted and replaced with “as described below”.
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15.
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Please clarify whether a redemption in kind by a Fund may result in a delivery to a shareholder of a single security or concentrated basket of securities. If so, please revise the Funds’ disclosures to indicate that a shareholder that is redeemed in kind may receive securities less diversified than the portfolio of the shares being redeemed.
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RESPONSE:
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The last sentence on page 19 has been revised to read as follows: “In such a case, a shareholder may receive securities less diversified than the portfolio of the shares being redeemed and may incur transaction expenses when converting these securities to cash.”
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16.
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Please revise the disclosure regarding the number of funds in the Trust accordingly.
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RESPONSE:
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The description of the Trust’s history has been revised to reflect that the Trust consists of five funds.
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17.
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Please revise the Trust’s risk disclosures regarding option investments to highlight the higher trading costs associated with the Defined Risk Fund’s option collar strategy.
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RESPONSE:
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The following has been added to the description of the risks of options transactions:
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18.
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Please add disclosure to address the Trust’s asset segregation coverage policies with respect to each material derivative investment in which a Fund may invest.
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RESPONSE:
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The following disclosure has been added:
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·
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The Trust has determined to rename the Horizon Collar Fund the “Horizon Defined Risk Fund”.
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·
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The Trust has determined that the equity portfolio of the Defined Risk Fund will focus on individual stocks, and not ETFs. As such, the third paragraph of the section entitled “Equity Portfolio” in the description of the Defined Risk Fund’s principal investment strategies has been revised to read as follows:
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