SEC Staff Grants No-Action Relief Under Section 15(a) of the 1940 Act

April 24, 2019

On April 15, 2019, the SEC staff (Staff) granted no-action relief  under Section 15(a) of the Investment Company Act of 1940 (the “1940 Act”) to allow investment advisers (Advisers) to certain series (Funds) of the Quaker Investment Trust (the “Trust”) to continue to serve as investment advisers to the Funds for a limited period of time pursuant to written investment advisory agreements that were not approved by the vote of a majority of the outstanding voting securities of such Funds. The no-action request letter was prepared to confirm oral no-action relief provided by the Staff on May 30, 2018.

The Advisers began serving as investment advisers to the Funds under interim advisory agreements pursuant to Rule 15a-4 of the 1940 Act. The Funds’ prior investment adviser (Predecessor Adviser) had decided to exit the investment advisory business, and the Funds’ Board terminated the Predecessor Adviser. The Board authorized solicitation of Fund shareholders to approve proposals for definitive advisory agreements with the Advisors and a reorganization proposal for one of the Funds into another registrant. After the expiration of the 150-day period of the interim advisory agreements on May 30, 2018 (Expiration Date), despite the Funds’ proxy solicitation efforts, none of the Funds had obtained the quorum required for shareholders to vote on the proposals (a majority of each Fund’s outstanding securities), although shareholder voting received prior to the Expiration Date had been strongly in favor of the proposals (each Fund later achieved a quorum and approved the proposal(s) at meetings held on June 14, 2018 and June 16, 2018). The no-action request letter from the Trust and Advisers cited certain factors that likely contributed to the failure to reach a quorum, such as the high level of redemptions since the record date (former shareholders are less likely to vote), the percentage of the Funds’ shares represented by objecting beneficial owners (which shareholders the Funds could not directly solicit), and the dispersed nature of the Funds’ shareholder base (larger number of shareholders must participate in order to achieve quorum). The request letter also noted that, absent relief from the SEC staff, the Funds would have been forced to consider actions the Funds did not believe were in the best interests of the Funds, such as liquidation.

Conditions to the relief included the following:

• amendment of the interim advisory agreements to extend the term of each agreement until the earlier of (i) the consummation of the reorganization with respect to the Fund subject to the reorganization proposal or shareholder approval of the definitive advisory agreements with respect to the other Funds; or (ii) sixty (60) days after the expiration date of the interim advisory agreements (Additional Period);
• during the Additional Period, the Advisers and the Funds would continue their proxy solicitation efforts to reach a quorum and enable a shareholder vote on the proposals;
• during the Additional Period, the Advisers would waive their respective investment advisory fees payable by the Funds to the Advisers under the terms of the interim advisory agreements; and
• the terms and conditions of the interim advisory agreements would remain the same during the Additional Period (other than changes specified in the relief).

A condition to the relief also addressed the allocation of additional proxy solicitation costs between the Advisers and Funds (with the Advisers responsible for the costs exclusively attributable to the vote on the definitive advisory agreements).


Compliance, Investment Advisers, Investment Companies, Mutual Funds, Regulatory