September
21, 2009
Mr. Larry
Greene, Esq.
Senior
Counsel
United
States Securities and Exchange Commission
Division
of Investment Management
100 F
Street, N.E.
Washington,
D.C. 20549
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Re:
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Harris
& Harris Group, Inc. (the "Company")
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File Number
333-160781
Dear Mr.
Greene:
We
received your comments regarding our Registration Statement on Form N-2 (File
No. 333-160781)
under the Securities Act of 1933 (the “1933 Act”) filed with the Securities and
Exchange Commission (the "Commission") on July
24, 2009.
We have
considered your comments and our responses and changes are discussed
below. These changes have been reflected in Pre-Effective Amendment
No. 1 to our Registration Statement on Form N-2 (the "Registration
Statement").
In
responding to your comments, we acknowledge that the Company is responsible for
the adequacy and accuracy of the disclosure in the filings; staff comments,
changes to disclosure in response to staff comments or the filings reviewed by
the staff do not foreclose the Commission from taking any action with respect to
the filing; and the Company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States. We also acknowledge that the
Division of Enforcement has access to all information we provide to the staff of
the Division of Investment Management in your review of our filing or in
response to your comments on our filing.
For ease
of reference, the comments of the staff of the Commission are set forth below in
italics. The response of the Company to each of the staff's comments
is set forth immediately below the text of the comment to which it
relates. Capitalized terms not defined herein have the meanings
assigned to such terms in the Registration Statement. Unless
otherwise indicated, page references are to the pages in the prospectus (the
"Prospectus")
included in Pre-Effective Amendment No. 1 to the Registration
Statement.
The
Company's responses to your comments are as follows:
General
1. Please state in your response letter
whether FINRA will or has reviewed the proposed underwriting terms and
arrangements of the transaction involved in the registration statement. In
view of the Fund’s reliance on Rule 415, when will this matter be submitted to
FINRA, e.g., will FINRA review each supplement? When might we expect
notice from FINRA that the Fund has completed FINRA’s review
process?
We have
submitted this matter to FINRA for its review. FINRA will review the
proposed terms of any takedown off the shelf for which the Company uses an
underwriter. The Company has been informed by Spencer Bilesat
(240-386-4623) from FINRA that we will be receiving a no objection letter once
we confirm that the Commission has declared the Registration Statement
effective.
2. Disclosure in the filing suggests
that the Fund proposes to file supplements under Rule 497 to sell shares off the
shelf. In this case, advise the staff how the legal opinion will be
updated and filed.
The legal opinion will be filed with
Pre-Effective Amendment No. 1 to the Registration Statement and will not be
updated for the Registration Statement unless the underlying law or charter of
the Company is changed in a manner that would affect the opinion.
3. We remind all registrants of the
obligation to file electronic reports with respect to their fidelity bond
coverage under Rule 17g-1(g) under the Investment Company Act of 1940 (“1940
Act”).
The Company filed its electronic report
with respect to its fidelity bond coverage under Rule 17g-1 under the 1940 Act
on March 17, 2009, and will file a new report if the increase in asset size
requires an increase in the amount of the fidelity bond.
4. Please see the U.S. Securities and
Exchange Commission, A Plain
English Handbook
(1998). Please review and revise the disclosure where it appears necessary
so as to assure conformity with the Commission’s plain English
requirements. For example:
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explain the term “liquidity
event” which appears throughout the filing,
and
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add disclosure which explains
or assists an investor in understanding the table appearing under the
caption “Business – Nanotechnology Commercialization” on page
46.
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We have
complied with this comment. Please see pages 4, 35 and
49-50. Other revisions have been made throughout the document as
appropriate.
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Prospectus
Cover
5. The penultimate sentence of the
first paragraph states that: “The offering price per share of our Common Stock
will not be less than the net asset value per share of our Common Stock at the
time we make the offering exclusive of any underwriting commissions or
discounts, unless
we have shareholder approval.” (Emphasis
added.) The staff takes the position that selling below NAV
necessitates the filing of a post-effective amendment. Please confirm
that this offering will only be used for sales at or above NAV, unless an
amendment is filed.
Because the Registration Statement does
not currently contain the dilution disclosures or undertakings worked out with
the staff for below-NAV takedowns from a shelf, we confirm that the Prospectus
will not be used for sales below net asset value per share, unless a
post-effective amendment to the Registration Statement is filed.
Prospectus
6. Add disclosure to the first
paragraph of the page on which the “Table of Contents” appears indicating that
the Fund will supplement its prospectus to reflect any material
change.
We have complied with this
comment. Please see the page on which the “Table of Contents”
appears.
7. Disclosure in the seventh paragraph
under the caption “Prospectus Summary” refers to certain “industry
clusters.” Add appropriate risk disclosure regarding the risks
associated with being invested in the indicated groups of
industries. This disclosure also reflects the nanotechnology
percentages of various clusters as of March 31, 2009. If possible,
please update this information.
We have complied with this
comment. Please see pages 4 and 33-34. Where possible, we
have updated information contained in the Registration Statement as of June 30,
2009.
8. Disclosure in the fifth bullet under
the caption “Prospectus Summary – Risks related to our Company” suggests that
the Fund is non-diversified. Other disclosure on this topic states:
“In 1992, we registered as an investment company under the 1940 Act, commencing
operations as a closed-end, non-diversified investment company. In
1995, we elected to become a business development company subject to the
provisions of §§55 through 65 of the 1940 Act.” Revise the latter
disclosure so as to indicate that the Fund is currently classified as a
non-diversified company.
We have complied with this
comment. Please see the cover page and page 1.
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9. Several bullets under this
sub-caption refer to the issuance of debt and preferred
securities. Confirm to the staff that the Fund does not currently
have any outstanding leverage and that none is contemplated.
We confirm that we do not currently
have any outstanding leverage and none is contemplated.
10. The sub-caption “Use of Proceeds”
discusses the uses to be made of the offering proceeds. As reported
in the Form 10-Q for the period ended June 30, 2009, during the first half of
2009, the Fund made no new investments, and made nine follow-on investments
totaling $3,451,549. This compared with two new investments totaling
$2,244,500 and 13 follow-on investments totaling $8,602,595 during the first six
months of 2008. In light of the Fund’s recent investment history, is it
more likely than not that the current offering proceeds will be used to fund
additional follow-on investments?
A recent 8-K filed by the Fund reports
that investment income has decreased during the last six months, and the Fund
incurred a net operating loss of $2.685 million. The prospectus, however,
has only a few sentences about the effect of using the proceeds of the proposed
offerings to pay current operating expenses. Given the Fund's recent
financial history, please revise the disclosure appropriately, or explain to the
staff why you think such disclosure is not needed.
In the
Management’s Discussion and Analysis of Financial Condition and Results of
Operations for the period ending June 30, 2009, we state that “[a]lthough we did
not invest in a new portfolio company during the six months ended June 30, 2009,
we intend to continue making investments in new companies and will continue to
evaluate investments in companies enabled by nanotechnology and
microsystems. Our aim is to preserve our cash and manage our current
operating expenses to enable us to make follow-on investments in current
portfolio companies and to look for new investment
opportunities.” Please see page 16 of the registration
statement. The Company made one new investment in the third quarter
of 2009, which will be disclosed when we file our quarterly report on Form 10-Q
for the period ending September 30, 2009. We have added
disclosure under the subcaption “Use of Proceeds” explaining that we expect
proceeds from any offering to be used for both new and follow-on
investments. Please see pages 7 and 43.
We
believe that the current disclosure in our Use of Proceeds section is
adequate. On pages 7 and 43, we state that “[w]e may also use the
proceeds of this offering for operating expenses, including due diligence
expenses on potential investments. Our portfolio companies rarely pay
us dividends or interest, and we do not generate enough income from fixed income
investments to meet all of our operating expenses. If we pay
operating expenses from the proceeds, it will reduce the net proceeds of the
offering that we will have available for investment.”
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11. Make the indicated change to the
following disclosure appearing in the next sub-caption, “Dividends and
distributions”: “If we do make a deemed capital gain dividend distribution, you will not receive a cash
distribution . . .”
We have complied with this
comment. Please see page 7.
12. Footnote 4 to the fee table states
that: “Excluding the non-cash, stock-based compensation expense, ‘Salaries and
benefits’ totals $2,958,744 or 2.03 percent of net assets attributable to Common
Stock.” Disclose the period covered by this
statement.
We have complied with this
comment. Please see page 8.
13. The
most recent information provided in the table of “Balance Sheet Data” is for the
period ended December 31, 2008. This information should be
updated.
We have complied with this
comment. Please see page 9.
14. Revise the following disclosure,
appearing under the caption “Forward-Looking Information,” substantially as
indicated below: “You should understand that under §27A(b)(2)(B) of the
Securities Act of 1933 and §21E(b)(2)(B) of the Securities Exchange Act of 1934,
the ‘safe harbor’ provisions of the Private Securities Litigation Reform Act of
1995 may do not as a technical matter apply to
statements made in
connection with this offering by an
investment company.”
We have complied with this
comment. Please see page 43.
15. Explain to the staff the basis upon
which the Fund makes the following statement, which appears under the caption
“Business”: “Third, we provide access to a vehicle that has historically
provided returns comparable to the median of those of the private venture
capital industry and, unlike private venture capital firms, is both transparent
and liquid.”
Returns
on private venture capital investments are calculated typically based on the
internal rate of return of invested capital over the life of the venture
fund. This lifetime is typically ten years. Returns on an
investment in us are recognized through the difference in the purchase and sale
prices per share of our common stock. The returns through the
purchase and sale of our common stock at the median price per share in given
years yields a return that is comparable to the median returns reported for
private venture capital funds over similar time periods according to data
assembled by Cambridge Associates LLC. The Company has no affiliation
with Cambridge Associates LLC.
As a
publicly traded business development company, we offer investors liquidity as
compared with private venture capital funds because our shares can be bought and
sold by an investor at his or her discretion. Investors in private
venture capital funds realize gains on invested capital through distributions
made when the fund sells a position in a portfolio company, the timing of which
is not controlled directly by the investor in the fund.
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As a
publicly traded business development company, we are required to publicly file
with the Securities and Exchange Commission information regarding the
composition and value of our portfolio on a quarterly basis. This
level of transparency may not be available with investments in private venture
capital funds because they are not subject to the same disclosure
requirements.
16. The introductory sentence to a table
appearing under the caption “Business --Commercialization of Nanotechnology by
Our Portfolio Companies” states: “The following is a summary of the products
currently released or under
development by our
active portfolio companies and their partners where
applicable. (Emphasis added.) Clearly designate the
products that remain under development.
We have complied with this
comment. Please see pages 52 to 55.
Part C
17. The power of attorney pursuant to
which the filing was signed by the Fund’s directors states that specified agents
may execute: “a Registration Statement on Form N-2, including any pre-effective
amendments and/or
any post-effective amendments thereto and any subsequent Registration Statement
of the Company pursuant to Rule 462(b) of the Securities Act of 1933 (the "1933
Act") and any other filings in connection therewith . . .” (Emphasis
added.) In this connection, please consult the requirements of Rule
483(b) under the Securities Act, which requires a power of attorney to relate to
a specific filing.
We have reviewed Rule 483(b) under the
Securities Act, and we believe that the power of attorney filed with the
Registration Statement complies substantially with Rule 483(b) under the
Securities Act, which provides that “[a] power of attorney that is filed with
the Commission shall relate to a specific filing, an amendment thereto, or a
related registration statement that is to be effective upon filing pursuant to
Rule 462(b) under the Act.” We interpret the text and
substance of Rule 483(b) to expressly permit the use of a power of attorney in
connection with any amendment to a specific registration statement, including a
post-effective amendment thereto. Since, however, the staff
interprets Rule 483(b) so as to require a separate power of attorney for any
post-effective amendment to a specific registration statement, we will obtain a
separate power of attorney for any post-effective amendment to the registration
statement in compliance with the staff's interpretation.
We
believe that the above responses adequately respond to the concerns raised in
your comments. We have filed Pre-Effective Amendment No. 1 via the
EDGAR system. Should you have any additional comments or concerns,
please feel free to contact the undersigned at 212-582-0900 or Richard Prins of
Skadden, Arps, Slate, Meagher & Flom LLP at 212-735-3000.
Sincerely,
/s/ Sandra Matrick Forman
Sandra
Matrick Forman
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cc:
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Douglas
W. Jamison
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Harris & Harris Group,
Inc.
Richard T. Prins
Skadden, Arps, Slate, Meagher &
Flom LLP
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